Encyclopaedia Britannica, Inc

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1:- THE MATTER OF ENCYCLOPAEDIA BRITANNICA, INC., ET AL.

ORDER, OPINION, ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 8908. Complaint, Dec. 1972-Final Order, Mar. , 1976 Order requiring a Chicago, 111., publisher, seller and distributor of textbooks encyclopaedia, reference and educational materials, training courses and other literary works and services, among other things to cease giving the false impression that managerial positions were offered when the true job offer was to recruit door-la-door sales personnel; making deceptive pricing and free claims; misrepresenting a salespersons' training or income opportunities; misrepresenting their research service furnished to subscribers, or the terms and conditions of plans involving the shipment of publications at intervals on an approval basis; and making false claims that suit wil be instituted to recover delinquent debts. Appearances For the Commission: Dorwld L. Bachman, Lemuel W. Dowdy and Paul L. Chassy.

, John Bleveans and For the respondents: Bryson P. Burnham Stephen M. Shapiro, Mayer, Brown Platt Chicago, Il 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 Encyclopaedia Britannica, Inc., a corporation and Britannica Home Library Services Inc., a corporation, hereinafter sometimes referred to as respondents having 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. Respondent Encyclopaedia Britannica, Inc. is a corporation organized, existing, and doing business under and by virtue with its principal place ofof the laws of the State of New York, business located at 425 North Michigan A ve., Chicago, Ilinois. Through its various organizational divisions and wholly-owned , sellssubsidiary, respondent Encyclopaedia Britannica, Inc. publishes and distributes, throughout the world, textbooks, encyclopedias reference and educational materials, training courses, and other literary works and services. Its volume of business has been, and is substantial. It has established and operates a wholly-owned corporation 422 FEDERAL TRADE COMMISSION DECISIO:-S Complaint 87 F.

subsidiary for the purpose of promoting, selling and distributing said products and services to the trade and to the purchasing public. PAR. 2. Respondent Britannica Home Library Services, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Ilinois, with its principal office and place of business located at 425 North Michigan Ave., Chicago, Ilinois. It is a wholly-owned subsidiary of respondent Encyclopaedia Britannica, Inc. and sells and distributes books and other merchandise through advertising and mailngs. Its volume of business has been, and is substantial.

PAR. 3. In the course and conduct of their businesses, as aforesaid respondents now cause, and for some time last past have caused, said products to be shipped and distributed from their places of business or their sources of supply to purchasers and prospective purchasers thereof located in various States of the United States other than the State of origination, distribution or storage of said products. Respondents disseminate, transmit and receive, or have caused to be disseminated, transmitted and received, sales promotional materials invoices, checks, collection notices and various other commercial papers or documents in the course of advertising, selling, distributing, and collecting payment for said products among and between the several States of the United States. Respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade in such books and other products or services in commerce, as " commerce " is defined in the Federal Trade Commission Act. PAR. 4. Respondent Encyclopaedia Britannica, Inc., dominates controls, furnishes the means, instrumentalities, services and facilties for, and condones and approves the acts and practices of respondent Britannica Home Library Services, Inc.

COUNT I Alleging violation of Section 5 of the Federal Trade Commission Act the allegations of Paragraphs One, Three and Four hereof are incorporated by reference in Count I with respect to respondent Encyclopaedia Britannica, Inc., as if fully set forth verbatim: PAR. 5. In the course and conduct of its business as conducted through its various sales divisions, and for the purpose of recruiting persons for door-to-door solicitations, respondent Encyclopaedia Britannica, Inc., disseminates or has caused to be disseminated advertisements in various publications of general circulation which contain statements concerning the nature of the advertised positions. Through the use of the aforesaid advertisements and oral statements of F:NCYCLOPAEDIA BRITANNICA , I:-C.. ET AL. 423 421 Complaint representatives or agents, respondent has represented, directly or by implication that:

1. Respondent is offering positions in such fields as advertising research analysis, public relations or other nonselling fields. 2. Respondent is offering to train persons as management trainees or other positions of responsibility concerned principally with administrati ve office functions.

3. Respondent is offering persons monthly incomes in excess of $500 per month, or similar incomes.

4. Persons engaged by respondent contact other persons in their homes primarily for the purposes of conducting surveys, advertising promotions or for other non selling purposes. PAR. 6. In truth and in fact:

1. Respondent is not offering positions in the fields represented. To the contrary, respondents are recruiting persons, principally, as salesmen in the door-to-door sale of respondent's publications, merchandise or services.

2. Respondent wil not train persons for the positions represented. Persons hired by respondent are sent out to sell and are not hired specifically for training in how to assume administrative functions in an office.

3. Persons engaged by respondents do not receive the incomes as represented. Conditions and limitations imposed upon the receipt of the stated incomes results in few, if any being paid the represented Incomes.

4. Persons engaged by respondent do not contact people in their homes primarily for the purposes represented by respondents. Such persons approach the homes of people for the purpose of soliciting purchases of respondent's publications, merchandise or services. Therefore, the statements, representations, acts and practices, set forth in Paragraph Five hereof were and are deceptive acts or practices.

PAR. 7. In the further course and conduct of its business as aforesaid and for the purpose of inducing members of the general public to purchase its publications, merchandise or services, respondent through its sales representatives utilzes various forms of promotional materials in conjunction with oral sales presentations containing statements concerning the purpose of the initial contact with the prospect, the identity of the solicitor, the nature of the offer and the terms of respondent' s contracts or other agreements. In the foregoing manner respondent and its sales representatives have represented, directly or by implication that:

1. Respondent's sales representatives are contacting persons in Complaint 87 F.

their homes or places of business primarily for the purpose of conducting a survey, or a brand identification analysis relating to the marketing of respondent' s publications, merchandise or services, or for purposes other than the sale of respondent's merchandise or services. 2. Respondent is offering certain of its publications, merchandise or services without cost to persons agreeing to do all of the following acts or similar acts:

a. Permit their names to be listed as local owners; b. Provide respondent with the names of four prospects; and c. Write a letter evaluating the merits of the publications or services which may be used for promotional purposes. 3. Persons who purchase respondent's publications, in combination with other publications will realize a significant savings from the stated higher prices at which such publications have been sold by respondent in substantial quantities to the general public. 4. The claimed retail prices of respondent's publications are the prices at which such publications have been sold by respondent in substantial quantities to the general public. 5. Respondent's sales representatives will take only a few minutes to complete their presentations inside prospects' homes or places of business.

6. Persons subscribing to respondent's Library Research Service receive answers to questions regarding any subject. 7. The answers provided by respondent's Library Research Service are the product of detailed, exhaustive or original research generated by the specific questions asked by subscribers to said Service. PAR. 8. In truth and in fact:

1. Respondent's sales representatives are not contacting persons in their homes or places of business primarily for the purpose of conducting a bona fide survey, or a brand identification analysis relating to the marketing of respondent' s publications, merchandise or services. To the contrary, the principal purpose for contacting such persons is to sell respondent's publications, merchandise or services. 2. Respondent is not offering certain of its publications, merchandise or services without cost to any person who agrees to perfonn the conditions set forth in Paragraph Seven, subparagraph two herein. Respondent merely uses these conditions to confuse and mislead such persons into believing that the amount of their monetary obligations to respondent does not include the cost of all the publications, merchandise or services obtained from respondent.

3. Persons who purchase respondent's publications in combination with other publications wil not realize a significant savings from the stated higher prices at which such publications have been sold by ENCYCLOPAEDIA BRITANNICA, INC.. ET AL. 425 421 Complaint respondent in substantial quantities to the general public. To the contrary, respondent has made only isolated or insignificant sales at the stated higher prices.

4. The claimed retail prices of respondent' s publications are not the prices at which such publications have been sold by it in suhstantial quantities to the general public. Respondent has made only isolated or insignificant sales at the represented retail prices. 5. Respondent's sales representatives do not ordinarily complete their presentations inside prospects' homes or places of business within only a few minutes. In actuality, a completed sales presentation frequently requires several hours.

6. Persons subscribing to respondent' s Library Research Service do not receive answers to questions regarding all subjects. To the contrary, respondent fails to disclose the many conditions and limitations imposed.

7, The answers provided by respondent's Library Research Service are not the product of detailed, exhaustive and original research generated by specific questions asked by the subscribers to said Service. In most instances, such answers are form responses containing general information not related to the specific questions posed. Therefore, the statements, representations, acts and practices set forth in Paragraph Seven hereof were and are deceptive acts and practices.

PAR. 9. In the further course and conduct of its business, respondent has conducted various contests and utilized other promotional devices for the purpose of obtaining leads to persons who wil allow respondent' s sales representatives into said persons' homes for the purpose of inducing said persons to purchase respondent's products. Among the inducements used to achieve the above purposes are purportedly free merchandise, gift certificates and receipt of informational brochures obtained upon return of reply cards contained in promotional material.

Persons who enter any contest, or who receive informational brochures, or who are told that they have been awarded a valuable gift are not informed of the material fact that as a result of entering the contest, receiving the informational brochures, or gift certificates, such persons wil be subject to a lengthy sales presentation for respondent' publications, merchandise or services.

Therefore, respondent's statements, representations, acts and practices, and the failure to disclose material facts as aforesaid were and are deceptive acts and practices.

216- 969 O- LT - 77 - 28 Complaint 87 F.T.C.

COUNT II Alleging violation of Section 5 of the Federal Trade Commission Act the allegations of Paragraphs One, Two, Three and Four hereof are incorporated by reference in Count II with respect to respondents Encyclopaedia Britannica, Inc., and its wholly-owned subsidiary Britannica Home Library Services, Inc., as if fully set forth verbatim: PAR. 10. In the course and conduct of their business, respondents have disseminated and are disseminating advertisements in various publications of general circulation or in promotional materials mailed to members of the general public. By and through such advertisements respondents attempt to induce persons to become subscribers to continuity hook promotion programs. A continuity book program is a procedure whereby persons receive a single book on an approval basis. The aforesaid advertisements place emphasis on shipment of books singly at intervals, without conspicuously containing the material disclosure that all but a few of the books are mailed to subscribers by means of a bulk shipment. Among the continuity programs set forth in said advertisements, but not all inclusive thereof, are the follo"ing: POPULAR :IECHANICS DO-IT-YOURSELF ENCYCLOPEDIA, THE INTERNATIONAL WILDLIFE ENCYCLOPEDIA, THE ANNALS OF AMERICA THE WORLD OF MAN THE ILLUSTRATED FAMILY ENCYCLOPEDIA OF THE LIVING BIBLE , and PEOPLE OF DESTINY, PAR. 11. Through the use of said programs or others of similar import and meaning but not specifically set forth herein, respondents have represented, and are continuing to represent directly or by implication that:

a. Subscribers to respondents' continuity programs are accorded the option of receiving a single book at a time, and thereby are afforded the opportunity to receive and review on approval each book separately, and to reject or accept same, until expiration of t:l€ continuity programs.

b. That persons who subscribe to respondents' continuity programs do so without risk or obligation.

PAR. 12. In truth and in fact:

a. Subscribers to respondents' continuity programs are not accorded the option of receiving a single book at a time, and thereby are not afforded the opportunity to receive and review on approval each book separately, and to accept same, until expiration of the continuity programs. Respondents do not clearly and conspicuously disclose to subscribers the material fact that when subscribers initially receive promotional materials concerning the continuity programs, that all but ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 427 421 Complaint the first several books are shipped in mass by means of single bulk shipments.

b. Subscribers to respondents' continuity programs are subject to risks or obligations. Once a person subscribes to the continuity programs, respondents impose the following duties or obligations on the subscribers: must notify respondents to prevent shipment of additional books; must return to respondents all books found unacceptable; must pay for all books not returned to respondents. Subscribers also incur the risk that due to delays in mail delivery or computer error they wil receive unordered merchandise or incorrect billings in the manner set forth in Paragraph Thirteen hereinafter. Therefore, the representations set forth in Paragraph Twelve hereof were and are deceptive acts or practices.

PAR. 13. In the further course and conduct of their business respondents have attempted to promote the sale of substantial quantities of their publications through the manner and form set forth in Paragraph Ten hereof. Respondents' failure to adequately advise subscribers of the material fact that the subscribers will receive all but the first several books in mass, unfairly places an undue burden on subscribers to affirmatively notify respondents in order to prevent shipment of books not expressly and knowingly authorized by said subscribers.

In addition, such subscribers are subject to repeated and unrelenting mailings of bils, dunning letters and the like for unwanted, and unordered merchandise which, in many instances, has been previously returned to respondents.

Therefore, the acts and practices as aforesaid, were and are unfair or deceptive acts or practices.

PAR. 14. In the further course and conduct of their business and for the purpose of collecting debts allegedly due and owing respondents pursuant to contracts or other agreements relating to the purchase of respondents' publications, merchandise or services, respondents and their representatives or agents, in numerous instances, have attempted to induce payment of accounts, either due or delinquent as the case may , by sending dunning letters, notices or similar instruments in the United States mails which contain statements and representations in the form of harassment or threats, including but not limited to the representations set forth below. Through such means, respondents have represented to the aforesaid members of the public, directly or by implication, that:

a. Letters or notices on the letterheads of attorneys are prepared or mailed by those individuals.

b. Respondents regularly transfer accounts to attorneys with Complaint 87 F.

instructions to institute suit or to take other legal measures to collect an alleged outstanding debt.

PAR. 15. In truth and in fact:

a. The letters or notices on the letterheads of attorneys are not prepared or mailed by said individuals. Said letters or notices are prepared or mailed, in many instances by respondents. Replies or responses to said mailngs are forwarded to respondents. b. Respondents do not regularly transfer accounts to attorneys with instructions to institute suits or to take other legal action to collect allegedly outstanding debts.

Therefore, the statements and representations set forth in Paragraph Fourteen hereof were and are deceptive acts or practices. COCNT !I Alleging violation of Section 5 of the Federal Trade Commission Act hereof arethe allegations of Paragraphs One through Fifteen incorporated by reference in Count III with respect to respondents Encyclopaedia Britannica, Inc., and its wholly-owned subsidiary tannica Home Library Services, Inc., as if fully set forth verbatim: PAR. 16. In the course and conduct of their business, and at all times mentioned herein, respondents have been, and now are, in substantial competition, in commerce, with corporations, firms and individuals in the sale of publications, merchandise and services of the same general kind and nature as that sold by respondents. PAR. 17. The use by respondents of the aforesaid unfair or deceptive statements, representations and practices, and their failure to disclose material facts, as alleged in Count I through II, has had, and now has the capacity and tendency to mislead members of the public into the erroneous and mistaken belief that said statements and representations were, and are, true and complete, or into the purchase or retention of merchan-and payment for substantial quantities of said publications, dise and services by reason of said €IToneous and mistaken belief. PAR. 18. The aforesaid acts and practices of respondents, as herein alleged, were and are all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

ENCYCLOPAEDIA BRITANNICA. INC.. ET AL. 429 421 Initial Decision INITIAL DECISION BY ERNEST G. BARNES, ADMINISTRATIVE LAW JUDGE DECEMBER 16, 1974 PRELIMINARY STATEMENT (1) Respondents Encyclopaedia Britannica, Inc. (hereinafter referred to as "EE"), a corporation, and Britannica Home Library Services, Inc. (hereinafter referred to as "BHLS"), a corporation, are charged with violation of Section 5 of the Federal Trade Commission Act, as amended (15 D. C. 945).

The complaint, issued by the Commission on December 11, 1972, has three parts. Count I alleges that respondent EB, in connection with recruiting persons for door-to-door (2 J solicitation of sales of its products, has falsely represented, directly or by implication, through statements and representations in advertisements in various publications of general circulation and through oral statements of its representatives or agents that it is (I) offering positions in non-sellng fields, (2) offering to hire persons as management trainees or in other positions concerned principally with administrative offce functions, (3) offering monthly incomes in excess of $500 per month, and (4) offering positions that involve contacting persons in their homes primarily for non-sellng purposes. In truth and in fact, the complaint alleges, EB is (1) recruiting persons principally as salesmen in the door-to-door sales of respondent's products; (2) persons are not hired by respondent specifically for training in how to assume administrative functions, but are hired to sell; (3) conditions and limitations imposed by respondent upon the receipt of stated incomes result in few, if any, persons being paid the represented incomes; and (4) persons hired by respondent do not contact persons in their homes primarily for the purposes represented by respondent, but for the purpose of solicitation of sales of respondent' s products.

The complaint further alleges that EB, for the purpose of inducing persons to purchase its publications, merchandise and services, utilzes various forms of promotional materials in conjunction with oral representations which represent that (1) EB's salesmen are contacting persons in their homes for non-selling purposes; (2) EB is offering items without cost to persons agreeing to do certain acts; (3) persons who purchase respondent's publications wil realize significant savings from the stated prices at which substantial sales of said products have been made by respondent to the general public; (4) EB's representatives will take only a few minutes to complete their presentations inside prospects' homes or places of business; (5) persons subscribing to 430 FEDERAL TRADE CmU!lSSION DECISIONS Initial Decision 87 F.

respondent' s Library Research Service can obtain answers to questions regarding any subject; and (6) answers provided by respondent' Library Research Service are the product of detailed, exhaustive or original research generated by the specific questions asked by the subscribers to said service. In truth and in fact, the complaint alleges (I) the principal purpose for respondent's sales representatives contacting persons in their homes is to sell respondent' s products; (2) respondent is not offering certain of its (3 J publications or services without cost: (3) persons who purchase respondent' s products wil not realize substantial savings from claimed resale prices; (4) respondent' sales representatives frequently take several hours to complete their presentations in the homes of prospects; (5) persons subscribing to respondent's Library Research Service do not receive answers to questions regarding all subjects, as respondent imposes many conditions and limitations which are not disclosed; and (6) in most instances answers provided by respondent are form responses and not the product of detailed, exhaustive and original research generated by the specific questions asked by subscribers.

The complaint further alleges that EB has conducted various contests and utilzed other promotional devices for the purpose of obtaining leads to persons who wil be contacted by respondent' salesmen, but that respondent fails to inform such persons of the material fact that, as a result of responding to such contests and promotional devices, they will be subjected to a lengthy sales presentation for respondent's products.

Count II of the complaint alleges that BHLS, in connection with the offering for sale and the sale of continuity book programs, has represented, directly or by implication, through statements and representations in advertisements placed in various publications of general circulation and in promotional materials mailed to members of the general public, that subscribers to said continuity book programs are accorded the option of receiving and accepting a single book at a time until the expiration of the continuity programs and that persons who subscribe to said continuity programs do so without risk or obligation. In truth and in fact, the complaint alleges, subscribers to respondents' continuity program are not accorded the option of receiving on approval each book separately. Further, EB and BHLS do not clearly and conspicuously disclose that all but the first few books wil be shipped by means of single-bulk shipments and that subscribers to EB and BHLS continuity programs are subject to certain risks or obligations, such as to notify respondents to prevent shipment of additional books, to return to respondents all books found unacceptable and to pay for all books not returned to respondents. I-NCYCLOPAEDIA RRITAKNICA , I:-C., ET AL. 431 421 Initial Decision (4 J The complaint also alleges that the failure of EB and BHLS to adequately advise subscribers of the material fact that the subscribers wil receive all but the first few books by single-bulk shipments unfairly places an undue burden on subscribers to affrmatively notify respondents in order to prevent shipment of books not expressly and knowingly authorized by said subscribers, and that such subscribers are subject to repeated and unrelenting mailings of bills and dunning letters for unwanted and unordered merchandise which, in many instances, has been previously returned to respondents. The complaint further alleges that EB and BHLS, for the purpose of collecting debts allegedly due and owing to EB and BHLS pursuant to contracts relating to the purchase of EB and BHLS products, have attempted to induce payment of accounts by sending dunning letters and notices which falsely represent, directly or by implication, that said letters and notices on the letterheads of attorneys are prepared and mailed by those individuals, and that EB and BHLS regularly transfer accounts to attorneys with instructions to institute suit or take other legal measures to collect an alleged outstanding debt. In truth and in fact, the complaint alleges, the letters and notices on letterheads of attorneys are prepared and mailed by EB and BHLS, and respondents do not regularly transfer accounts to attorneys to institute suits or to take legal action to collect allegedly outstanding debts. Under Count III, the above statements and representations and the failure to disclose material facts are alleged to have the capacity and tendency to mislead members of the public into the erroneous and mistaken belief that said statements and representations were, and are true and complete, or into the purchase or retention of, and payments for, substantial quantities of said publications, merchandise, and services by reason of said erroneous and mistaken belief. The said practices are alleged to be to the prejudice and injury of the public and of respondents' competitors, and to constitute unfair methods of competition or deceptive acts or practices in commerce in violation of Section 5 of the Federal Trade Commission Act. (5 J Respondents fied their answer to the complaint on February 9 1973, which contained certain admissions, but generally denied that any of their acts and practices are in violation of the Federal Trade Commission Act.

Thereafter, on October 15, 1973, respondents were g-ranted leave to amend their answer, and on October 23, 1973, EB and BHLS amended their answer, denying that the matters complained of in Paragraphs 5 and 6 of the complaint are matters of which the Federal Trade Commission has jurisdiction under Section 5 of the Federal Trade Commission Act.

Initial Decision 87 F.T. On October 17 , 1973, the administrative law judge certified to the Commission respondents' request for a suspension of the adjudicatory hearings pending a ruling by the Commission on respondents' petition to the Commission for the initiation of a trade regulation rule-making proceeding governing the business practices of companies engaged in the in-home sales of encyclopaedia and other educational materials. On October 26, 1973, the Commission denied respondents' request for a suspension of hearings.

After various pretrial proceedings, hearings for complaint counsel's case-in-chief were held on the following dates: !\ovember 1- , 1973 (Washington, D. ); November 6- , 12- , 1973 (Chicago, Ilinois): Decemher 4- , 1973 (Kansas City, Missouri); December 10, 1973 (Denver, Colorado); January 21- , 1974 (New York, New York); and February 13- , 1974 (Washington, D. ). Complaint counsel completed their case-in- chief on April 1 , 1974 in Chicago, Ilinois. On the same day, EB and BHLS commenced defense hearings which were held on April 1974 in Chicago, Ilinois, and on April 16, 1974 in Washington, D. Complaint counsel did not present evidence in rebuttal. The record for the reception of evidence was closed by order dated May 29 1974. Complaint counsel called 84 witnesses who can be categorized as follows: 25 ex-salesmen; 47 consumers or purchasers of respondents products; and 12 company officials and employees. Respondents called 12 witnesses who were company officials. There were 27 days of formal hearings, and over 1 000 exhibits, many multi paged received in evidence during the hearings.

(6 J After several extensions of time, proposed findings of fact and supporting memoranda were fied by the parties on August 21 , 1974 and reply briefs were fied on October 18, 1974. This proceeding is before the undersigned upon the complaint answers, testimony and other evidence of record, proposed findings of fact, conclusions and supporting memoranda filed by the parties. These submissions have been given careful consideration and, to the extent not adopted by this Initial Decision in the form proposed or in substance, are rejected as not supported by the record or as immaterial. Any motions not heretofore or herein specifically ruled upon, either directly or by the necessary effect of the conclusions in this Initial Decision, are hereby denied. The findings of fact made herein are based on a review of the entire record and upon the demeanor of the witnesses who gave testimony in this proceeding. For the convenience of the parties, the findings of fact made herein include references to the principal supporting evidentiary items in the record. Such references are intended to serve as convenient guides to the testimony and exhibits supporting the findings of fact, but do not ENCYCLOP AEDIA BRIT ANKICA. INC., ET At. 433 421 Initial Decision necessarily represent complete summaries of the evidence considered in arriving at such findings.

References to the record are set forth in parentheses, and certain abbreviations as hereinafter set forth, are used: CCPF Prop6sed Findings of Fact, Conclusions of Law and Order submitted by Complaint Counsel, followed by the Proposed Finding being referenced.

RPF -Proposed Findings of Fact, Conclusions of Law and Order submitted hy Respondents, followed by the Proposed Finding being referenced.

CCB-Brief submitted by Complaint Counsel in support of their Proposed Findings of Fact, Conclusions of Law and Order, followed by the page or pages being referenced.

(7) RM-Post-Hearing Memorandum of Respondents, followed by the page or pages being referenced.

CCRB-Reply Brief submitted by Complaint Counsel, followed by the page or pages being referenced.

RRF - Reply of Respondents to Complaint Counsel's Proposed Findings of Fact, followed by the page or pages being referenced. RRM-Reply Memorandum of Respondents In Opposition to the Post-Hearing Memorandum of Complaint Counsel, followed by the page or pages being referenced.

CX-Commission s Exhibit, followed by the number of the exhibit being referenced.

RX- Respondents' Exhibit, followed by the number of the exhibit being referenced.

References to the official transcript are by witness' name whose testimony is being referenced, followed by the page number or numbers of the official transcript.

FIKDlNGS OF FACT I. IDENTITY AND BUSINESS OF RESPONDENTS I. Respondent Encyclopaedia Britannica, Inc. (hereinafter referred to as "ER") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of New York, with its principal place of business located at 425 North Michigan Ave., Chicago Ilinois (Complaint and Answer, Par. 1). Through its various organizational divisions and wholly-owned subsidiary, Britannica Home Library Services, Inc., EB publishes, sells and distributes, throughout the world, textbooks, encyclopaedias, reference and educational materials Initial Decision 87 F.

training courses, and other literary works and services. Its volume of business has been, and is, substantial (Complaint and Answer, Par. 1). (8 J 2. Respondent Britannica Home Library Services, Inc. (hereinafter referred to as "BHLS") is a corporation organized existing and doing business under and by virtue of the laws of the State of Ilinois, with its principal office and place of business located at 425 North Michigan Ave., Chicago, Ilinois. It is a wholly-owned subsidiary of respondent Encyclopaedia Britannica, Inc., and sells and distributes books and other merchandise through advertising and mailings. Its volume of business has been, and is, substantia! (Complaint and Answer, Par. 2).

3. EB dominates and controls, and furnishes the means, instrumentalities, services and facilities for BHLS (Complaint and Answer, Par. 4).

4. In the course and conduct of their businesses, as aforesaid respondents now cause, and for some time last past have caused, said products to be shipped and distributed from their places of business or their sources of supply to purchasers and prospective purchasers thereof located in various States of the United States other than the State of origination, distribution or storage of said products. Respondents disseminate, transmit and receive, and have caused to be disseminated, transmitted and received, sales promotional materials invoices, checks, collection notices and various other commercial papers or documents in the course of advertising, sellng, distributing, and collecting payment for said products among and between the several States of the United States. Respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade in such books and other products or services in commerce, as "commerce " is defined in the Federal Trade Commission Act (Complaint and Answer Par. 3).

5. EB operates through three sales divisions which are not separate legal entities, but part of the corporate structure. Each division recruits and trains its own sales forces, has its own advertising and marketing departments, and is primarily responsible for the marketing of its specific publications, merchandise and services (RX 155C). The principal products and services of these sales divisions are: Encyclopaedia Britannica Sales Division Encyclopaedia Britannica Britannica Junior Encyclopaedia (9) Britannica/Merram Webster World Language Dictionary Britannica World Atlas The Annals of America EKCYCLOPAEDIA BRITANNICA, INC., ET AL. 435 421 Initial Decision Brittannica Pre-School Library Young Children s Encyclopaedia Britannica Bookcase volume replica of original set World Glohe Bible Library Research Service Great Books Sales Division Great Books of the Western World Gateway to the Great Books Great Books Reading Plans The Annals of America Britannica/Merriam Webster World Language Dictionary Bookcase Bible Library Research Service Educational Fund A wards Program Reading Dimensions Program Family Participation Plan Compton s Encyclopedia Sales Division Compton s Encyclopedia Young Children s Pre cyclopedia Dictionary Atlas Table Rack/Bookstand Compton World Globe Library Research Service (RX I55C.

The Great Books Sales Division was abolished in approximately 1971 and its sales personnel were assigned to work under the supervision of the Encyclopedia Sales Division (RX 155; Baseman, Tr. 2827; Swanson Tr. 3522). Compton s Encyclopedia in recent years has been sold by BHLS by mail (RX 155; Swanson, Tr. 3522; Harden, Tr. 3616-18). (10 J 6. EB is essentially a direct selling organization: it makes the most suhstantial portion of its sales in the home (RX 155C). EB' s sales in the home are door-to-door sales, as that term is defined in the Commission Trade Regulation Rule Concerning a Cooling-Off Period Sales. The Commission defines a "door-to-door salefor Door-To-Door as " A sale in which the seller or his representative personally solicits the sale, including those in response to or following an invitation by the buyer, and the buyer s abJTeement or offer to purchase is made Initial Decision 87 F.

at a place other than the place of business of the seller" (16 C. 9429.1: Promulgated October 18, 1972; effective June 7, 1974). BHLS the EB subsidiary, is engaged exclusively in the mail business throughout the United States (RX I55C, D).order 7. EB has reported more than $70 milion annually in gross domestic sales (RX 155H). The Encyclopaedia Britannica Sales Division 000 salesmen of EB maintains a sales force of approximately 2 (Swanson, Tr. 3521), who are assigned to 21 divisions throughout the country (CX 379-400).

II. RECRUITIKG PRACTICES Dissemi'Ytion oj Recruiting Advertisements 8. In the regular course and conduct of its business, and for the purpos€among others, of recruiting personnel for solicitation of sales of its products door-to-door, local offices of EB have disseminated, and have caused to be disseminated, advertisements in various publications of general circulation (Complaint and Answer, Par. 5). Prior to their dissemination and publication, the advertisements are approved by s local EB' s legal department and corporate offcers for use by EB' Tr. 3167-68: Sollo, Tr. offices (CX 5D-E; Holmes, Tr. 3121; Martinez, 3043; Balzano, Tr. 1516). Hiring Ad Catalogs are disseminated to "ALL DIVISION AND DISTRICT MANAGERS" (CX 5-D) to be used as an absolute guide" in determining which advertisements may be published by the local offces of EB for the purpose of recruiting salesmen (Sollo, Tr. 3076- 77; cf Balzano, Tr. 1516). CX 5 is the Hiring Ad Catalog that was issued by EB on August 1, 1970. CX 405 is a hiring ad guide for EB's Compton s division.

(11 J 9. Through its local offces, EB has placed recruiting advertisements in such highly circulated newspapers as the New York Times Boston Globe, Washington Post, Chieago Tribune, St. Louis Post- Dispatch, Denver Post, Los Angeles Times, Detroit Free Press and Philadelphia Inquirer (see CX 7-357; Van Allen, Tr. 628; Holmes, Tr. 3120). CX 5 , the Hiring Ad Catalog for the Encyclopaedia Britannica Sales Division, covering February 1 , 1970 through August 1 , 1970 in response demonstrates that there were several thousand "inquiries" to the recruiting advertisements used in the period January-June 1970 (see Sollo, Tr. 3031; Joy, Tr. 2950: Baseman, Tr. 2814-15). EB has a high turnover rate" in sales personnel (Davis, Tr. 3462-64), so that sales recruitment of sales personnel is an important aspect of promotion (Cohan, Tr. 3431).

..

CYCLOPAEDIA BRITANNICA, I:-C., ET At. 437 121 Initial Decision Types of Advertisements Utilized (I) Blind Advertisements 10. Blind recruiting advertisements are advertisements which faiJ co disclose (I) the type of job position being offered; (2) the corporate dentity of the firm which has placed the ad: or, (3) the product/service for which the applicant is expected to have responsibilities (Galvez, Tr. 3256; Davis, Tr. 3464). Numerous examples of "blind" advertisements are in the record (CX 5G- , 5- , 5- , 5- 44; see also ex 5- I-Q, 5- , 5- , 5- (3-4), 5- (8-9), 5- (l1- 14), 5- (23-25), 5- (33-35), 5- , 5- (57-58), 5- , 5- (72- 74), 366C- , 1840). EB places some such blind ads in sections of the newspaper other than "Salesmen- Wanted" columns (CX 28, 34-42, 47- , 59, 81 , 85, ll3, ll5, ll8-120, 245 304-306, 308, 352). CX 28 was placed in the "Display" column of the newspaper and has the words "Guidance Materials" in the upper right corner of the advertisement. ex 41 is an advertisement for Management Trainees" which was placed in the "Male Help" column of the newspaper.

11. It is EB's corporate policy generally not to disclose in its recruiting advertisements either the company name, the identity of its products and services, or the nature of the job position being offered. EB has determined that the use of blind recruiting advertisements is vital to the conduct of the business" (Balzano, Tr. 1543; accord Davis Tr. 3464-65). "The blind advertisement (12 J was the one that was used to a greater extent * * * so the managers would have the opportunity of interviewing the greatest number of people who were seeking employment" (Bergstrom, Tr. 1470). "Most of the salesmen were recruited as a result of those blind ads. * * * But the bulk, the large majority of our people were recruited through the blind ads" (Holmes Tr. 3122; see also Van Allen, Tr. 627-628; Heinzman, Tr. 925; Burgoyne Tr. 1072; Bergstrom, Tr. 1468-69: Balzano, Tr. 1515-17; Tafolla, Tr. 1716- 17; Eastaugh, Tr. 2247; Lang, Tr. 2328; Clauss, Tr. 2347-2350; Caine, Tr. 2462-63; Baseman, Tr. 2825; Holmes, Tr. 3121-22; Martinez, Tr. 3168; Galvez, Tr. 3256; Gregg, Tr. 3358-3360; Cohan, Tr. 3432; Davis, Tr. 3452 3464-65; accord CX 405; see Bresnik, Tr. 4ll). 12. Various corporate witnesses testified about why EB utilzes blind ads:

there would be a greater selection of the type of people that we would interview (:\Iartinez, Tr. 3168).

"' .. 0;We found that running open ads wasn t too successful because the popular Initial Decision 87 F.

misconception was that people who sold encyclopaedias went around knocking on doors (Cohan, Tr. 3432).

A. '" * '" Experience had taught our managers that you wil get a greater number of people or prospects to interview through a blind ad hy the very nature of the fact that most people do not consider themselves as sales types, and if you said you wanted a sales person they wil say, "This rules me out because I have either had no 'experience or I would he no good at it" (Bergstrom, Tr. 1470). Q. Why did you run blind ads? (13) A. '" '" * we didn t want anything to detract or detract these people from answering our ads (Holmes, Tr. 3122-23).

Respondents acknowledge that blind advertisements make it possible for Britannica to attract and recruit persons who do not think of themselves as potential Britannica sales representatives (RPF II 1). 13. EB's Weekly Hiring and Training Reports show the extent to which EE' blind ads result in generating "inquiries interviews" and persons "entering training" (see ex 14 (23 inquiries, 7 interviews 2 entering training J; CX 81 (57 inquiries, 14 interviews, 2 entering training J; CX 87 (82 inquiries, 14 interviews, 2 entering training J; CX 116 (37 inquiries, 6 interviews, 2 entering training J: CX 221 (112 inquiries, 46 interviews, 7 entering trainingJ; CX 222 (49 inquiries, 6 interviews, 3 entering training J; CX 334 (37 inquiries, 6 interviews, 2 entering training D.

14. EB's Weekly Hiring and Training Reports also show the extent to which EB' open ads result in generating "inquiries interviews and persons "entering training" (see a Dallas Division "open ad" campaign, especially ads which appear on CX 259 (10 inquiries, 5 interviews, 7 entering trainingJ; CX 263 (39 inquiries, 11 interviews, 10 entering trainingJ; CX 264 (35 inquiries, 18 interviews, 18 entering training J; CX 271 (18 inquiries, 13 interviews, 12 entering training J; CX 272 (18 inquiries, 15 interviews, 8 entering training J: CX 276 (12 inquiries, 8 interviews, 8 entering training D. An EB spokesman testified as to why EB open ads produce a much higher ratio of persons entering training than its blind ads (Bergstrom, Tr. 1470): Q. But when you ran open ads would you say your average of persons who in fact were hired for the position was better (than for blind ads)? A. Yes, it wil be. You get far fewer but you wil stand a chance of hiring - ratiowise your percentage wil be better.

fl4 J 15. EB's recruiting advertisements have a telephone number which interested persons are to call in order to arrange an interview (CX 5). It is the policy of EB, in responding to telephone inquiries, not ENCYCLOPAEDIA BRITANNICA , I:-C., ET AL. 439 421 Initial Decision to disclose over the telephone the name of the company or that the job involves door-to-door selling. The testimony of an ex-telephone receptionist confirms this policy (Gervasio, Tr. 2170): Q. What jf any instructions were you given with respect to answering the telephone? A. When I answered the telephone, I was to answer with the last four digits of the phone number, to never give out the name of the company * * * (See also Gregg, Tr. 3360-61.) 16. When most prospective salesmen arrved for their initial interviews, they were stil not told immediately what position was being offered nor the identity of respondent (Gregg, Tr. 3360-61; Bresnik, Tr. 412; Van Allen, Tr. 630; Eastaugh, Tr. 2229-2231; Cambria Tr. 2255-57). Employees were directed to conceal the name of Encyclopaedia Britannica" (Gervasio, Tr. 2172): Q. What, jf anything, or what, if any instructions were you given about what to say to a person coming to the office responding to a recruiting advertisement? A. The only thing I would do is give the aptitude test and give it to them to make it out. Other than that no other instructions. If J were sittng in the front offce, any material that had Encyclopaedia Britannica on it, I would have to remove it, cover it up, hide it, as long as they did not see the name of the company. Q. Who told you to do this? A. The division manager.

Q. What, if any instructions were you given as to what to say to a person who came in to the office asking about what the company is or what type of product was involved? (15) A. I couldn t give them any information. (See Gregg, Tr. 3360-61; Cohan, Tr. 3432; Davis, Tr. 3464-65; Holmes, Tr. 3127-28; Kalstein, Tr. 2003-2004; Bisping, Tr. 709- 711; see also Toncrai, Tr. 550-552; Yee, Tr. 987; Cambria, Tr. 2256-59). 17. In recruiting advertisements, in telephone responses to such advertisements, and at initial interviews with job applicants, EB has failed to disclose the following material facts: (a) The position being offered is in door-to-door sellng; (b) the position is being offered by EB; and (c) the products to be sold are encyclopedia and other reference materials.

(2) Advertisements Representing Positions Other Than Door- To-Door Sellng 18. EB utilizes some recruiting advertisements which represent that the position being offered does concern "sales; however, such ads fail to disclose either EB's corporate identity or its product. EB' purpose in using such blind ads is that it does not desire to disclose that the position being offered is door-to-door sales of encyclopedias. Thus EB is able to recruit persons who would not otherwise have responded to its ads (RPF II 1; Balzano, Tr. 1543; Holmes, Tr. 3123; Martinez, Tr. 440 FEDERAL TRADE COM:IISSION DECISIONS Initial Decision 87 F.TC 3168-3169: Davis, Tr. 3463-65: see CX 5- , 5- , 5- , 5- , 5- (26-27), 5- , 5- , 5- (49-51), 5- (61-63), 5- 71). While some recruiting advertisements disclose its corporate identity, in some such ads E B expressly claims that the position being offered is not in doorto-door selling. The following is one such ad (CX 5- 37; accord CX 5- 8): (16 J OUR 200TH ANNIVERSARY ENCYCLOP AEDIA BRITANNICA NEEDS PARTTIME AND FULL TIME SALES HELP NO DOOR TO DOOR SELLING:

CANVASSING - NO SOLICITING CALL 19. EB's August 1 , 1970 Hiring Ad Catalog contains advertisements stating that respondent is offering positions which include mgmt., administration, personnel, credit, public relations and sales promotion" (CX 5- , 5- , 5- 71), and that EB is immediately in advertising and saleswiling to start training "5 men promotions division" at "$700 PER MONTH" (CX 286). EB also places ads in newspapers which represent that it is recruiting persons to train or to work in marketing and sales. These ads carry at their top, in bold print, the term "MARKETING" (CX 5- , 218, 257, 317). The text of some of these advertisements states that EB is "seeking college grads * * * to enter marketing training. Wil guarantee you $725 PER MO. (CX 257). Through the use of such advertising formats, EB is able to recruit as salespersons college students who are marketing majors and are looking for positions in the field of marketing (Bresnik, Tr. 411). EB has run ads entitled "Marketing Sales" (CX 992), and has placed them in the marketing sales section of the classified ads of newspapers (Eastaugh, Tr. 2248-49). EB also represents that it is offering job , 217: see alsopositions in the field of "sales promotion" (CX 5- ENCYCLOPAEDIA BRITANNICA , I:-C.. ET AL. 441 421 Initial Decision 286), and as an instructor (CX 5- I2) or demonstrator (CX 5- 13). This latter approach is used to attract persons with the professional qualifications of teachers to demonstrate educational aids (CX 405-1). Some of the ads which EB employs represent that the job being offered requires operating at an executive level (CX 5-N). Other advertisements represent the products involved to be "research (17) service products" (CX 1506). Some of EB' s ads represent that it is recruiting persons to deliver free advertising information to familes in their homes; for example:

To all the families who have sent for information from us free. We just do not have enough" '" '" representatives to deliver the infonnation you have requested. REPRESE TATIVES URGENTLY NEEDED'" '" * . (CX 5 59). Other ads represent that respondent is recruiting persons to survey families in their homes; for example:

COLLEGE STUDENTS Needed to interview families in this area GREAT IDEAS PROGRAM' , ' . (CX 330).

20. Once persons have been recruited as salesmen, EB "trains such persons on how to sell and sends them out to sell" (Respondents Answer, Par. 6(2)). These persons are trained to make door-to-door sales of EB' s products. This is ilustrated by the testimony of EB' s New York Divisional Manager, Mr. Cohan (Tr. 3440): '" '" '" What kind of training do people receive who respond to blind (recruiting) ads;

A. Well, basically we only had one kind of training. Since all the people that I hired were hired to be sales representatives in my district, they received our standard training which equipped them to go out into the field, make a standard presentation, close the sale the way it was supposed to be closed and, hopefully, write the order. (Accord So11o, Tr. 3035 3065; Joy, Tr. 2963- , 2993-95; Baseman, Tr. 2815-16; Holmes, Tr. 3122-24; (18J Martinez, Tr. 3168-69; Gregg, Tr. 3365-66; Davis, Tr. 3470-72; Galvez, Tr. 3256-57; Balzano Tr. 1515- 16; Bresnik, Tr. 415; Kalstein, Tr. 200-2008; Laferrere, Tr. 2102-2110; Eastaugh, Tr. 2228-2233.

Respondent contends that it is not engaged in door-to-door sellng; that EB is a lead organization whose salesmen do not canvas door-to-door but instead follow "leads " or inquiries from prospective customers (RPF II 5: RRF, p. 3). All the evidence confirms, however, that EB is primarily engaged in the door-to-door sale of its publications, merchandise or services, and that it recruits hundreds of persons each year to transact these sales (RX 155: Davis; Tr. 3462-63). Also, salesmen do (Findings 34engage in door-to-door canvassing, or "cold canvassing" , infra). Substantial reliance upon so-called "leads" does not remove 216- 969 O- LT - 77 - 29 Initial Decision 87 F.

EB' s sales activities from what is known as door-to-door sales (Finding , supra). Thus, EB is not offering positions in the fields represented. To the contrary, EB is recruiting persons, principally, as salesmen in the door-to-door sale of respondent' s publications, merchandise or services.

(3) Advertisements Representing Management Training 21. The following are typical and ilustrative of EB's management trainee hiring ads:

SAVE E!! My company just promoted 3 of my key men to management positions after only 4 months and now I'm going out of my mind trying to find 3 good men to fil the holes in my organization. These men should want a very good income, an excellent future and management training. If you meet our requirements we wil guarantee you up to: PER $625 MONTH.

Houston '" '" '" Call '" '" * . (CX 5-H; cf Martinez, Tr. n99. (19) Managers WE PROMOTE $25 000 & up Potential Weare looking to train experienced salesmen & sales managers. F or new management openings in our growing $170 milion company. Salary & guarantee arrangements. Full company benefits. Complete training program 9 assignments in Los Angeles. '" '" "' . (CX 5-3; cJ, CX 391.) MANAGEMENT TRAINEE INTERNATIONAL CONCERN Up to $1000 per month Guaranteed if you meet our requirements. First years earnings to 20M'" '" '" call . (CX 5- EXECUTIVE SALES TRAINEE $.'00 Month guarantee Must meet company requirements We need several qualified persons to enter our executive training program. You wil receive 90 days of extensive training. Must be over 21 , good car & able to start training immediately. '" '" '" call '" '" "' . (CX 5- ) (20) MANAGEMENT TRAINEE $675 monthly guarantee, if you meet requirements. Call '" '" *. (CX 35; see also ex 37 , 38, 41.) ENCYCLOP AEDIA BRIT ANI\ICA, INC., ET AL. 443 421 Initial Decision Other management trainee advertisements included in the record are CX 5- , 5- , 5- , 5-Q, 5- , 34- , 41- , 99, 106 , 114- 115, 118- 120, 304- 306, 308, 352-353. CX 5- U is an "EXECCTIVE SALES TRAINEE advertisement.

22. EB employs management trainee type ads to recruit persons for the door-to-door sale of its products (see Sollo, Tr. 3065-67). A number of ex-salesmen testified about EB' s use of such ads (Kalstein, Tr. 2001- 2005; Badger, Tr. 2180-82; see also Gervasio, Tr. 2171). Persons who have had selling experience and who think in terms of leaving their current positions to step up into management are attracted by EB' promise of management opportunities (Heinzman, Tr. 926-927, 943: Kalstein, Tr. 2000-2005: Badger, Tr. 2179-2180, 2185; accord So1lo, Tr. 3066-67). Seventy-two (72) persons responded to EB's "SAVE ME!!" advertisement set out above (CX 5-H), which was run by the Houston division. At the time the ad was run, it was the division manager practice not to enter into any management trainee agreements (Martinez, Tr. 3199-3200). Sixty-three (63) persons responded to EB' WE PROMOTE" advertisement set out above (CX 5-J). While the advertisement represented that there were "9 assignments" open in management, the Los Angeles division maintained only 10 districts at the time, and only 4 such manager s positions were open (CX 391). 23. Some operating divisions place heavy reliance upon the use of management trainee ads to recruit door-to-door salesmen. In the Hartford division, in the course of one month, 45 out of 83 persons accepted into sales training were recruited through management trainee ads (CX 33-48). The Hartford division maintained only 6 district manager positions at the time, and three (3) of those were filled (CX 387).

24. It is EB's policy to hire everybody, initially, as a door-to-door salesman, and to develop managers from within the ranks of its own salesmen (Holmes, Tr. 3134-3135; So1lo, Tr. 3057, 3064-67, 3076; Baseman, Tr. 2825-26; (21) Martinez, Tr. 3179: Galvez, Tr. 3266-67; Gregg, Tr. 3365-3366; Cohan, Tr. 3440-3442). EB does not maintain a management training program as such (Bresnik, Tr. 509; Toncrai, Tr. 589; Tafo1la, Tr. 1725, 1728; Kalstein, Tr. 2005-2006; Peterson, Tr. 2070; Badger, Tr. 2185; Gaboury, Tr. 2315), and it rarely enters into (see Martinez, Tr. 3199-management trainee contracts, such as CX 436 3200; Kalstein, Tr. 2000; Badger, Tr. 2180, 2185: Gaboury, Tr. 2301; Joy, Tr. 3007-3018; Gregg, Tr. 3382-83). EB offcials testified that persons who sign management trainee contracts (see ex 436) go through the identical training as persons who sign sales representative contracts (see ex 416 and 417):

Initial Decision 87 F.

A. but ultimately he would have gone through the entire training program that we would give any salesman (Joy, Tr. 2994). A. I started as a manager in training, which meant starting as a salesman (Holmes Tr. 3116).

THE WITNESS: Again I remind you the managers are salesmen and are certainly to begin with (Sollo, Tr. 3076), EB officials testified that persons who sign management trainee contracts are expected to spend upwards of six months in the role of salesman (Sollo, Tr. 3057, 3065; Gregg, Tr. 3382-83; Joy, Tr. 3017- 18; Cohan, Tr. 3430), and that such persons are promoted to management positions on the same basis as persons who sign sales representative agreements (Sollo, Tr. 3066; accord Joy, Tr. 300): Q. A person responding to a salesman ad who demonstrates that same ability that you are looking for in a person responding to a management trainee ad has an equal opportunity to become a manager trainee or manager, is that true? A. Yes (22) Managers are assigned duties and responsibilties far more extensive than those exercised by salesmen (Holmes, Tr. 3118; Galvez Tr. 3256; Cohan, Tr. 3431). EB does not begin to train persons in these activities until they are promoted to district field trainer some four to six months after they have been employed exclusively as a salesman (Holmes, Tr. 3135; Galvez, Tr. 3253; Kalstein, Tr. 2036). Thus, EB does not hire persons for management trainee programs; rather, persons are hired by EB as door-to-door salesmen for its products and services. (4) Advertisements Representing Guaranteed Income 25. EB makes substantial use of recruiting advertisements which offer guaranteed incomes ranging from $500 to $1 00 per month. Al1 such ads specify that the guaranteed income is offered "if you meet our requirements." No further details are set forth in the ads, and the ads do not place any time limitations upon the monthly incomes represented therein (see CX 5; ex 5- , 5- , 5- , 5- 1506). Several former salesmen testified that they were most attracted to EB by the high incomes promised in the recruiting ads (Heinzman, Tr. 925, 927, 939, 943 (responded to an ad guaranteeing $1 000 per month); Gaboury, Tr. 2304-2305 (responded to an ad guaranteeing $850 per month); Abernathy, Tr. 770-773: Jackola, Tr. 884; Van Allen, Tr. 630; Yee, Tr. 985-986; Burgoyne, Tr. 1073).

26. At the initial interviews with prospective salesmen, EB ENCYCLOPAEDIA BRITA:-NICA, lng., ET AL. 445 421 Initial Decision represents that it wi1 be "easy" to earn incomes in excess of those stated in the ads and at the interviews, and thus discourages use of the guarantee contract (Van Allen, Tr. 632; Abernathy, Tr. 772; Heinzman Tr. 927, 939; Badger, Tr. 2219: Barad, Tr. 1991; Cambria, Tr. 2262-65; Gaboury, Tr. 2313-14). EB does, in fact, hire some salesmen on the guarantee contract" (Galvez, Tr. 3258; Heinzman ($1 000 per month), Tr. 925 and CX 1343--; Clauss, Tr. 2354 ($800 per month), CX 1506; Toncrai, Tr. 554; Van Allen, Tr. 657; Eastaugh, Tr. 2242 and CX 994; Lang, Tr. 2333-35). EB' s contract form limits the guarantee to a one month period (CX 417; see also Eastaugh, Tr. 2242 (CX 994); RX 262E- H; but see Martinez, Tr. 3171 , 3197-98). (23) C. Earnings Guarantees Are Not Reasonably Feasible (1) Salesmen Were Not Paid Guaranteed Income 27. !\one of the 25 former salesmen called to testify by complaint counsel received "monthly incomes" at or above the rate represented to them by EB (Toncrai, Tr. 553-557 lsigned a guarantee contract promising $600 per month, worked one month and received nothing); Lang, Tr. 2333-35 (signed a guarantee contract promising $500 per month, worked one month and received nothing); Bisping, Tr. 712-715 (signed a guarantee contract calling for $800 per month and was paid $100); Heinzman, Tr. 943 (signed a guarantee contract promising $1 000 per month (CX 1343--), worked 2-3 months and received a total of $440); Cambria, Tr. 711-712, 715 (signed a guarantee contract promising $800 per month, worked one month and received $1(0); Badger, Tr. 2180- , 2185, 2212, 2217 (was assured of at least $800 per month worked 2-3 months and received a total of about $200); Clauss, Tr. 2349 2353- , 2371 (worked approximately six weeks and received about $400)).

28. Respondents' failure to honor guarantee contracts is further ilustrated by the testimony of Mr. Eastaugh, a former salesman (Tr. 2242-43):

Q. Mr. Eastaugh, how many presentations did you make during the period covered by the guaranteed contract? A. Seventy-three.

JUDGE BARNES: Did you receive $125 a week during the guaranteed contract? THE WITNESS, No.

JUDGE BARNES: What were you told in regard to your commission (guarantee J contract, Mr. Eastaugh? (24 J THE WIT ESS: I was told that we would get the lump sum of $500 for four weeks. At the end of the period"' after we passed in sixty or more computer :+ ,.

446 FEDERAL TRADE COMMISSIOK DECISIONS Initial Decision 87 F.

(rejectionJ cards and at the end of the four weeks (the divisional manager 1 informed me that he has never paid on a contract that he would have to verify everyone of these presentations, but he assumed from past experience that it would take two to three months to verify them and that there would be less than sixty valid presentations. Therefore, I probably wouldn t get paid on the contract. JUDGE BAR!'ES: Did you ever get paid on the contract? THE WITNESS: No 29. In contrast, respondent presented evidence that five (5) salesmen had received incomes pursuant to guarantee contracts (RX 262). An of these salesmen were employed by EB subsequent to the initiation of the Commission s investigation which commenced prior to November 1970 and continued throughout 1971 (RX 155; CX 4). One of EB' s district managers testified that, of the more than 100 salesmen he hired on a guarantee basis, only one was paid the difference between the guarantee and the commissions earned (Galvez, Tr. 3258, 3268-69). This salesman was one of the five (5) listed by EB as receiving the guaranteed income.

(2) Economic Deterrents 30. It is the responsibility of the divisional, district and branch managers to pay the guaranteed income to salesmen who have signed guarantee contracts (Joy, Tr. 2942-44; Sana, Tr. 3052; CX 421- , 418 419 420 442 441 443 423 440). Thus, if the recruited sale man fails to earn in commissions the fun amount of the guaranteed salary, the branch, district or divisional manager would be responsible for paying the difference. The effect of this policy is illustrated by the testimony of an EB ex-field trainer (Laferrere, Tr. 2133-34): (25) Q. Mr. Laferrere, during your run-ent activities did you compose recruiting ads guaranteeing a certain income? A. During the very first we used the 600 (doJlan; J guarantee ads, but when the people came in and asked for the guarantee, we immediately discouraged it, because first of all (the District Manager) was aware that this could be deducted from the sales, and if the salesman was on a commission basis, we were subject to his overrdes. (See also Abernathy, Tr. 772; Heinzman, Tr. 939; Burgoyne, Tr. 1075; Barad, Tr. 1966, 1991; Kalstein, Tr. 2006; Badger, Tr. 2182; Cambria, Tr. 2261 63. (3) Required Number Of Full Presentations 31. Salesmen who accept EB's offer of a "guaranteed income " sign agreements similar to CX 417, in addition to EB's standard Representative Agreement - CX 416. Salesmen who sign the guarantee contract therefore agree to meet certain perfonnance standards in order to earn the guaranteed income. Many persons who sign the guarantee contract commit themselves to making sixty (60) "standard presentations within a month' s time (Bisping, Tr. 711: D. O'Brien, Tr. 880: Barad, Tr. .. ..

ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 447 421 Initial Decision 1969; Laferriere, Tr. 2111; Eastaugh, Tr. 2242; Cambria, Tr. 2264; Lang, Tr. 2333). Other persons committed themselves to at least 45 such presentations per month (Bresnik, Tr. 505; Toncrai, Tr. 554; Van Allen Tr. 657; Burgoyne, Tr. 1077; Peterson, Tr. 2043). A "standard presentation" is defined as (CX 417):

one which is given in the presence of both husband and wife; that confonns to the presentation which you were trained to give; that concludes with a. conscientious effort on your part to obtain an order; and is given only in the area assigned to you. Presentations made to relatives, friends, etc., wil not be counted. It is also required that you turn in a full report of your activities daily on each presentation to your Manager and (26) that you attend all training sessions and sales meetings during the initial 30-day training span.

A former district field trainer with eight months' selling experience testified (Bresnik, Tr. 505):

The number of presentations (45J that were required for you to make was, I'd say, almost impossible, especially for a new trainee to meet during his initial 3D-day period. (4) Non-Availability Of Qualified Leads 32. Before a salesman can make either a sale or presentation, he must first establish contact with a "prospect." Respondent places emphasis on making contact with prospects through the use of qualified leads rather than by approaching persons at their homes without any prior appointment or expressed interest in the purchase of its products by the prospect (Holmes, Tr. 3123, 3128-29; Martinez, Tr. 3176-3177; Gregg, Tr. 3367; Davis, Tr. 3472). EB claims that it has an abundance or , 5-oversupply of leads for its salesmen to utilize (CX 5- , 5-Q, 5- Heinzman, Tr. 928; Burgoyne, Tr. 1073; Badger, Tr. 2182). This claim is also made in EB' s indoctrination materials (Van Allen, Tr. 631). 33. Many salesmen found that respondent was unable to supply sufficient numbers of qualified leads to permit them to make the necessary presentations or sales in order to meet the conditions of their guarantee contract (Abernathy, Tr. 794; Heinzman, Tr. 941; Burgoyne Tr. 636).Tr. 1109-1110; Badger, Tr. 2204, 2208-2209; Van Allen, Substantial effort must be expended by salesmen in generating their own "local" leads (see CX 632, 611, 630; Bresnik, Tr. 488; Toncrai, Tr. 566). The insufficiency of leads poses a particular problem to trainees who have not had the time to develop a "backlog of prospects" which would enable them to maintain a constant source of names to contact for the purpose of attaining the mandatory number of presentatio sales (Bresnik, Tr. 507-508). Further, many of the leads salesmen Tr. 664; Beitch, Tr. receive from EB are of poor quality (Van Allen, 1762: Kalstein, Tr. 2028-2030; Badger, Tr. 2183-84) because: (1) some of Initial Decision 87 F.

the leads (27) which EB sells to its salesmen have contained on them explicit instructions from the j' prospect" to Uhave no salesman call" (Heinzman, Tr. 942, 946: Gervasio, Tr. 2167); (2) many of the leads are sent in by persons who are only interested in the various prices which EB offers as an inducement (J ackola, Tr. 896; Heinzman, Tr. 934; Brien, Tr. 1067; Burgoyne, Tr. 1079; Laferrere, Tr. 2127: Badger, Tr. 2182); (3) many of the leads are sent in by "children" with no obvious interest in the purchase of EB products, simply a chance to win a free prize (Bresnik, Tr. 536; Heinzman, Tr. 946; Badger, Tr. 2184); (4) many of the leads are old and have already been worked once before by other salesmen (Kalstein, Tr. 2035; Laferrere, Tr. 2108; Bisping, Tr. 724); (5) many salesmen must rely upon "non-responsive" leads where persons so listed have not "expressed" an interest in products which EB salesmen are authorized to sell (e. baby leads - listing of persons on directories of newly-barns: Van Allen, Tr. 634; Bisping, Tr. 723; Heinzman, Tr. 946; Yee, Tr. 998; Barad, Tr. 1983-84); or Encyclopaedia Britannica paid-ups - a listing of persons who have already purchased the Encyclopaedia Britannica and are thereafter made available to Great Books salesmen to work (Bresnik, Tr. 437); (6) many leads are to persons who reside in "bad neighborhoods" or who are bad "credit risks" which adversely affects both the chance of having an order accepted, as well as the size of any commission which might eventually be earned (Laferrere, Tr. 2108; Burgoyne, Tr. lll0); and (7) the better leads are given to the veteran sales staff (Heinzman, Tr. 942; Van Allen, Tr. 673).

(5) Business Expenses 34. EB's standard contract form contains a provision which requires that salesmen absorb a part of EB's business expenses (CX 416-B). A former corporate official in charge of advertising testified that salesmen absorb all the costs of locally developed leads and up to 50 percent of the costs for nationally developed leads (Curtin, Tr. 2833 2871-72; Bresnik, Tr. 508: Heinzman, Tr. 924; Beitch, Tr. 1762). Salesmen paid 10 cents per "baby lead," i.e. lists of people who had a baby born just recently or who just moved into the community (Heinzman, Tr. 946). Due to the nature of the sales operation, salesmen have to also absorb substantial transportation costs (Kalstein, Tr. 2018; Peterson, Tr. 2045; Badger, Tr. 22ll). Sales costs often are substantial (28 J (Kalstein, Tr. 2035, 2039 (Kalstein s lead costs, alone, amounted to more than $500 on sales earning commissions of less than $1 500 over a three-month time period - RX 140); Clauss, Tr. 2370; Heinzman, Tr. 946; cf respondent' s assurances that such costs will be minimal - CX 606- , 645-C). Some salesmen resorted to "cold canvassing" as a means ENCYCLOPAEDIA BRITA:-NICA, INC., ET AL. 449 421 Initial Decision of generating enough business to earn the incomes represented by EB (Bresnik, Tr. 488-489; Toncrai, Tr. 538; Bisping, Tr. 723; Heinzman, Tr. 949; Peterson, Tr. 204: see CX 632-C where salesmen are encouraged to call at homes or offices without any form of lead or appointment" 35. In order to make a presentation, a salesman first attempts to set up an appointment with his prospect. To convert leads into appointments, for example, a salesman might have to run down 200 "baby leads" in order to generate just a few presentations (Yee, Tr. 998), or spend 6 hours a day on the telephone to establish just two appointments (Van Allen, Tr. 659), or make from 10 to 30 calls per day just to set up enough appointments to work one night (Barad, Tr. 1987; Bresnik, Tr. 507; Van Allen, Tr. 659 (salesmen were charged for telephone calls - Van Allen, Tr. 664 J), or make as many as 400-500 telephone calls within one month in order to generate just 15 presentations (Clauss, Tr. 2369). Even after the appointment has been made, as many as 3 out of 4 are not subsequently honored at the door (Van Allen, Tr. 659; Laferriere, Tr. 2110). 36. As one of its conditions for "validating" a full presentation, EB requires that both the husband and wife be present throughout the sales presentation (CX 417; Toncrai, Tr. 614). Where only one spouse is available, salesmen are required to reschedule their appointment (Bresnik, Tr. 506; Toncrai, Tr. 557; Abernathy, Tr. 797; O'Brien, Tr. 881; Laferrere, Tr. 2110; CX 417). The testimony of former salesmen shows that the number of appointments a salesman can reasonably make for any given evening is limited (Heinzman, Tr. 941-942; Cambria, Tr. 2270; Abernathy, Tr. 794). The testimony of former salesmen further shows that most salesmen find it extremely diffcult for many reasons to make the transition from the door-opener into the sales pitch and ultimately through the full presentation; for example, most recruits lack experience (Bresnik, Tr. 507); salesmen often run into "abusive customers (D. O'Brien, Tr. 875-876); some people think if they sign an acceptance card" and (29) fil out all the requested credit information they are signing a sales contract (Toncrai, Tr. 616); and some people are afraid" to fil out the "rejection card" which is necessary to prove the salesmen have made a "full" presentation (Toncrai, Tr. 557). If a salesman fails to get either a signed rejection card or acceptance card (Van Allen, Tr. 658; Bisping, Tr. 714: Bresnik, Tr. 436, 461; Toncrai, Tr. 557), or fails to list a prospect's telephone number even when that prospect has no telephone, EB wil disqualify the presentation (Toncrai Tr. 614).

(6) Additional Limitations 37. The testimony of former salesmen shows that many salesmen Initial Decision 87 F.

sign their guarantee contract prior to their training so that they cannot fully appreciate the diffculty of meeting the contract's requirements and they have less than the promised thirty (30) days in which to meet their contract obligations (Bresnik, Tr. 505-506; D. O'Brien, Tr. 881; Burgoyne, Tr. 1080). Many salesmen are not informed about the additional business expenses which respondent charges them until after they have signed their contract and have been working for a number of weeks (Van Allen, Tr. 663-665; Heinzman, Tr. 943; O'Brien Tr. 1059; Cambria, Tr. 2270). Other terms and conditions of the guarantee contract are not fully explained at or before the time of their signing (Toncrai, Tr. 557; Bisping, Tr. 713; O'Brien, Tr. 880-881: Heinzman, Tr. 943; Burgoyne, Tr. 1077, II04-II05). Many of the better leads were culled out and given to the district manager or the older sales staff (Heinzman, Tr. 942; Van Allen, Tr. 637; see Sollo, Tr. 3067). 38. As a result of the many conditions and limitations which respondent places upon the payment of its "guaranteed incomes " most salesmen, who are extended guaranteed income contracts, are unable to either fulfil their contractual obligations or "earn" their guaranteed incomes (Bresnik, Tr. 505; Van Allen, Tr. 658; D. O'Brien, Tr. 870, 879- 881; Heinzman, Tr. 940; Burgoyne, Tr. 1080; Peterson, Tr. 2043, 2063-64; Clauss, Tr. 2349-2353, 2369-2371; Toncrai, Tr. 555-557; Bisping, Tr. 715; Laferrere, Tr. 2134; Eastaugh, Tr. 2242-43; Lang, Tr. 2333-36). The record establishes, therefore, that the "guaranteed income" promised in respondent's recruiting advertisements is not a good faith offer and few, if any, recruited salesmen ever actually received the guaranteed income or its equivalent (Findings 26- supra). (30 J II. SELLING PRACTICES Initial Contact With Prospective Customers (I) Advertising Research Analysis Survey 39. The primary means by which EB sells its products and services is through the door-to-door solicitation of consumers (Findings 6, 20 supra: infra), and the primary purpose of its sales representatives in contacting persons in their homes is to sell EB's products and services (respondents' Answer, Par. 8). In the conduct of its business and for the purpose of inducing members of the general public to purchase its products and services, EB, through its sales representatives, utilizes various forms of promotional materials in conjunction with oral sales presentations concerning the purpose of the salesman initial contact with the prospect, the identity of the salesman, the .. , DICYCLOPAEDIA BRITANNICA. INC., ET AL. 451 421 Initial Decisjon nature of the offer, and the terms of respondent's contracts and other agreements (Complaint and Answer, Par. 7).

40. EB employs a number of methods for establishing contact with prospective customers, one of which is known in the trade as "cold canvassing" - a method whereby a salesman makes initial contact with persons in their homes without prior notification of his visit and where the persons contacted have indicated no prior interest in respondent's products or services to EB (Bresnik, Tr. 488-489, 537; Trescone, Tr. 1496: Dabney, Tr. 1686; Beitch, Tr. 1761; Eastaugh, Tr. 2237-38; Cambria, Tr. 2272; Lang, Tr. 2337-2340; Caine, Tr. 2474; Laferrere, Tr. 2116- 18; Newhal1, Tr. 2422). When EB's salesmen employ cold canvassing, the most common means by which they gain entrance into the homes of prospects is to represent that the purpose of their visit is to conduct an advertising research analysis survey. EB makes available to its salesmen advertising research analysis questionnaire forms (hereinafter referred to as an "ARA") which contain survey type questions (CX 661 , 1270, 1274, 1287, 1547, 2060, 2061). One of EB' former sales trainers described use of the ARA in cold canvassing (Bresnik, Tr. 488-489): (31 J A. ...... We had what's known as the ARA, the Advertising Research Analysis questionnaire, which could be used either what they call cold by itself and that we could just knock on any door at random and by use of this ARA try and gain entrance into the home A. ...... I think I had a clipboard and I was in an apartment building and I would just knock on the door and say, "This is Mr. Bresnik and I was taking a survey with advertising" and I would hold up and show him these ads * .. * d like your opinion on a couple ads " something to this effect. If they said Sure come on in " I would go into their home and I would begin on the first page and go through this questionnaire with them, filing in all the information plus the back page where it shows different ads and get their opinion on that. (See also Dabney, Tr. 168; Eastaugh, Tr. 2237-38; Cambria, Tr. 2272; Lang, Tr. 2337-39; Caine, Tr. 2474; Laferrere Tr. 2115-18; Beitch, Tr. 1761.) Customer testimony confirmed the use of the ARA technique by EB' salesmen, as follows (Trescone, Tr. 1496):

* .. .. (M)y husband and myself were working out in the back yard, and a gentleman came around to the back and asked if we could answer some questions for a surveyor (See questionnaire. It would just take a few minutes of our time to answer this survey. also Newhall, Tr. 2422.

41. EB's salesmen also use the ARA technique when they visit the homes of "leads persons who have sent in coupons from cardsrespondent's magazine advertisements or drawing entry Initial Decision 87 F.

(Peterson, Tr. 2046; accord Bresnik, Tr. 559; Toncrai, Tr. 570; and see Galvez, Tr. 3261-62). (32) Respondent' s magazine advertisements and drawing entry cards do not disclose the fact that persons who respond to such devices wil be contacted by respondent's salesmen for the purpose of sellng respondent's products and services (see, e. 751G- , 752-756 781 785 788 790 796 798 804-806 808 810-813). 42. ARA's are used by EB' s salesmen as a ploy to serve as an introduction to a sales presentation. A former salesman described use of the ARA as an introductory technique, as follows (Eastaugh, Tr. 2238-39):

0; '" .. How would you identify yourself when you approached them at the door? A. You would identify yourself as the one working for a large firm s promotional campaign, a Jarge marketing firm, and if they asked what firm, you weren t supposed to give any specifics at the door. That is what we learned in training. Basically, most people would respond and say, "well, if it is unly a few minutes, O. K." Then we would come inside, usually compliment on the furnishings and then go into the six question questionnaire.

What would you do after you complete the questionnaire? A. I would read the bottom line of the last page which says in appreciation for the help you have given us I have been instructed to fil you in briefly on the syntopicon and The Great Books program and to obtain a few additional reactions. Q. And then what would you do? A. Then you started into the (salesJ presentation. (Accord Toncrai, 'fr. 570; Dabney, Tr. 1687- 1688; Cambria, Tr. 2272-73; Lang, Tr. 2338; Bernhardt, Tr. 1172; Trescone, Tr. Tr. 489.1496-97; Peterson, Tr. 2046; Caine, Tr. 2474-75; Beitch, Tr. 1752-53; Bresnik, (33) 43. EB's salesmen are provided with "form" language to be used in connection with the ARA in order to gain entrance into the home of a prospect (CX 2061):

You see, one of the reasons we are contacting people who have requested the booklet is that the company is making a study of the effectiveness of our national advertising in each local area. Our Director of Advertising has instructed me to check your answers to a few quick research questions. May I take a few moments to complete my report so I can return it to our Director of Advertising? (See also CX 661 , 1274, 1270 2060. According to EB's sales training tape, the intended effect of this language is to give the prospect a reason to honor the salesman request for admission into his home "not in the role of a salesman" (CX 648-E). EB provides "form" language for use when the prospective customer questions the salesman s representation that the purpose of his can is merely to take a survey (CX 66I- , 1270- , 1274- , 1287- CX 2061-B). One such document is a letter from the EB Director , , ENCYCLOPAEDIA BRITANNICA, INC.. ET AL. 453 421 Initial Decision Advertising (CX 648E-F). The Director of Advertising s letter referred to in the training tape is used to corroborate the salesman s claim that he is a survey taker (Lang, Tr. 2338; Bresnik, Tr. 431-432), and it describes the salesman as an "interviewer" (CX 660, 1249, 1250). EB also provides its salesmen with specific responses to be used when asked at the door of a prospective customer whether they are salesmen (Beitch, Tr. 1751):

'" '" * The two most common objections were Are you selling anything?" We were specifically told to say, " , I am not sellng anything, but may I come in?" Then we were supposed to start to go in. The other one was Well, how long wii it take?" and we were supposed to say, "Only a couple of minutes. May I come in?" (See also Cambria, Tr. 2276; Lang, Tr. 2339; Toncrai, Tr. 610-611; Trescone, Tr. 1498; Dabney, Tr. 1694; Laferriere, Tr. 2118.

various 44. EB's salesmen were also taught to use, and did use, methods of folding or manipulating the ARA to conceal the name of the company on the questionnaire forms and thus (34 J their identity when they initially approached the home of a prospective customer as survey takers " or "interviewers." One of respondent's former salesmen described the practice (Dabney, Tr. 1687): You open it Cthe ARA J and fold the top of it down so the only part that is showing is the bottom half which has a few questions on it and the part that has the title on it Great Books Advertising Research Analysis " doesn t show. I mean, as far as they know 1 am just taking a survey, not specifically from Great Books or anybody. (See also Tr. 2273-74.Bresnik, Tr. 490-491; Toncrai, Tr. 559-560; Beitch, Tr. 1753-54; Cambria, 45. A number of EB's former salesmen testified that the ARA forms which were completed in the homes of prospects were discarded without first being analyzed for any purpose whatsoever (Eastaugh Tr. 2243; Toncrai, Tr. 608-609; Bresnik, Tr. 530; Beitch, Tr. 1753). (2) Telephone Talks 46. One of the principal methods which respondent employs to establish appointments at the homes of persons whom it hopes will be , 638; see interested in its products is "telephone talks" (CX 582, 603 J oint Stipulation, Tr. 2925-2927). EB' s salesmen make extensive use of telephone talks to contact leads and set up appointments to visit the homes of such persons (Bresnik, Tr. 481-482; Toncrai, Tr. 579; Van Allen, Tr. 637; Bisping, Tr. 753-754: O'Brien, Tr. 853-855; Heinzman, Tr. Tr. 2051; 949: Dabney, Tr. 1690: Barad, Tr. 1983-1984; Peterson, Tr. 2196-98; Morse, Tr. 2399-2400). The Laferrere, Tr. 2107; Badger, choice of a specific "telephone talk" depends on the type of lead which or is available i.e. leads from magazines or direct mail advertisements, filed-in drawing entry cards, or lists of persons in a category with .. ..

454 FEDERAL TRADE COM:.ISSION DECISIONS Initial Decision 87 F.

whom respondent desires to initiate contact familes with young children, students, or persons who have previously purchased respondent' s products (Heinzman, Tr. 931-932; Bresnik, Tr. 482). EB' telephone talks contain instructions which tell the salesman which specific telephone talk should be used for a specific type of lead (CX 582, 586, 638). The telephone talks are (35 J designed to convey the impression that the purpose of the caller s requested visit is only to certify a gift certificate, or to deliver an informational booklet. In using EB' s telephone talks, salesmen tell persons who are called that they have won a consolation prize as a result of either entering a contest or being entered into a contest (CX 582B- , 583B- , 585B-Q, 586H- 587B- , 589-601). Many of the telephone talks promise that no sales presentation wil be given during the requested visit by stating that You don t have to buy Britannica (or Great Books), you don t even have to listen to a sales presentation" (CX 585.,, 586- , 587- , 589, 590- 594 , 597-601). In fact, the training tapes of telephone talks instruct salesmen on the use of language to deny that the purpose of the requested visit is a sales presentation when the person called indicates a suspicion that this is the purpose of the requested visit (CX 620- T 604P-Q; see J oint Stipulation, Tr. 2925-27). Telephone talks currently in use by EB's salesmen continue to disguise the true purpose of the salesman s visit (CX 582- , 583C- , 638). 47. Testimony by customers of EB verify the fact that the true purpose of the salesman s visit is not disclosed; and that they are informed that the alleged purpose of the visit is to deliver a free prize of some description (Morse, Tr. 2400):

Someone called up and said that our name was entered into a contest, and we hadn won first prize, but we had won a consolation prize, and that a representative would have to come by and we would have to sign for it to receive it. Further testimony shows (Andresen, Tr. 8(6): She said that she was eating in response to a card or - a card that my husband sent in and that she wanted to set up a time when somebody could bring us our free gifts. (See also Manore, Tr. 2416; Ksycki, Tr. 1261; Svob, Tr. 1031; Morse Tr. 2400; Lancaster, Tr. 1884; Godwin, Tr. 1124. ) (36 J (3) Door Approaches 48. EB's training tape entitled "Telephone Appointment Plan gives the following instructions on what the salesman should say in approaching the door of a person with whom an appointment has been made during a telephone talk (CX 620-X):

When the door is answered ask for the party you made the appointment with. CYCLOPAEDIA BRITA NICA, INC., ET AL. 455 421 Initial Decision Hello Mrs. Jones, I'm Mr. Stone of Encyclopaedia Britannica and I'm here to deliver a certificate for the free medical encyclopaedia you have been awarded. I have it with me may I step in?"

(See also CX 604S- Some of EB's salesmen were instructed to use, and did use, the following recommended door approach language to gain entrance into the homes of persons with whom appointments had been made by the use of telephone talks (CX 1365):

#l (Door Approach) Hello. Are you Mr. ? I'm -- - of the Encyclopaedia Britannica. made an appointment with Mrs. - , to deliver a certificate for a free Vacation you have been awarded. I have it with me, do you mind if I step in? (See Bisping, Tr. 740; Abernathy, Tr. 778-779; Laferrere, Tr. 2109- 2110; Gregg, Tr. 3367; Holmes, Tr. 3129-3130. 49. The representations which were made at the door by a salesman upon arrving for an appointment are typified by the following: * * * when they open it, we would say, " I am Mr. Jackola from Encyclopaedia Britannica. We made an appointment earlier today to present this free vacation certificate to you. I have it with me." (Jackola, Tr. 88. d say I was the representative from Britannica and I was there to drop off the vacation certificate that they had won and to (37) validate it and to also fil out a certificate, which was on that certificate an additional certificate which was to be entered into a drawing for another prize. (O'Brien, Tr. 1054. .. .. .. At the house I asked if I could identify myself not as being from the company, just as myself, and I identified myself as having talked with them previously, asked if I could come in and have the consolation card !!signed by them. (Barad, Tr. 1975 76. I was just delivering it. I had come out to bring them their free gift. " , I'm Joe Dabney. I brought you a free gift.

(Dabney, Tr. 1685; see also Laferrere, Tr. 2113; Bresnik, Tr. 484; Toncrai, Tr. 572; O'Brien, Tr. 855; Heinzman, Tr. 951; Burgoyne, Tr. 1094.

50. EB's salesmen were instructed to avoid or deny any questions regarding whether they were salesmen when attempting to gain entry into the homes of persons with whom an appointment had been made as typified by the following testimony:

Q. At the time you presented the certificate had you indicated to them that you wanted to sell encyclopaedias? 456 FEDERAL TRADE COMMISSlOl' DECISIONS Initial Decision 87 F.T. No. We never indicate that we want to sell encyclopaedias. Did you indicate to them that you were a salesman? No. (O'Brien, Tr. 1067.

THE WIT!\ESS: I wish I could give you the exact terms. The point was that we were not to present ourselves as salesmen (38) Q. Did these instructions apply only to the phone conversations or to the rioor presentations which you eluded r sic 1 to before'! THE WITNESS: Applied to everything. Even in the presentation itself when you got down to t.he close, if people were to ask the question whether you were a salesman or not you were salaried and you were a demonstrator, and it didn t matter whether they purchased anything or not. (Badger, Tr. 2200-2201; see also Peterson, Tr. 2072; Laferrere, Tr. 2117; Abernathy, Tr. 782-783; Van Allen, Tr. 638-639. 51. Salesmen for EB's Compton Sales Division were similarly instructed to avoid direct questions as to their purpose in approaching the homes of prospects (CX 694), and to use their role as survey takers to start a sales presentation, as demonstrated by the text of respondent' s training tapes (CX 648 I..; Beitch, Tr. 1756; Dabney, Tr. 1688: Eastaugh, Tr. 2238: Bresnik, Tr. 489). A former executive of EB' Compton Division testified (Balzano, Tr. 1531): Q. Do I understand you to say you counsel your sales representatives not to reveal the purpose of their sellng books at the door initially? A. Absolutely.

52. In fact, the ARA, the telephone talks, and the free gifts were used by respondent's salesmen to gain entrance into the homes of persons in order to sell respondent's products (Bresnik, Tr. 484-489; Van Allen, Tr. 639: D. O'Brien, Tr. 854-855; Dabney, Tr. 1691-92; Barad Tr. 1975-77; Heinzman, Tr. 951-952: Burgoyne, Tr. 1084). The sentence Now in appreciation for the help you have given us, I've been instructed to fih you in briefly on the Syntopicon and the Great Ideas Program - and to obtain a few additional reactions " is used by EB' salesmen as a bridge from the ARA questionnaire to the sales presentation (CX 651- D; see also CX 661- , 1270- , 1274-C). Respondent' s salesmen were instructed to use the following method to initiate a sales presentation to those prospects with whom appointments were made using EB' s telephone talks: (39) .. * * As you begin to fill in this part of the 19ift J certificate * .. "' take the blue preview portfolio le. CX 446 J from your case to use as a writing desk. After completing the certificate hand it to the husband and wife on the preview portfolio with a pen for their signature. Then draw it back and congratulate them. "Well, congratulations, and I hope you win the second drawing because if you win " .. .. I also receive a prize." You wi! now get smoothly into your presentation with the following comment. "As a further part of our 200th Anniversary Celebration '" .. * I have been instructed to give you a ENCYCLOPAEDIA URITAN:-ICA, INC., ET AL. 457 421 Initial Decision brief preview. It is mostly pictorial and if you ll read along with me it goes very quickly. Begin your preview in standard fashion. You are off and running * '" '" for another Art (Certificate J Plan Sale.

(CX 604- , 620- Z; see CX 1365; see also Bresnik, Tr. 487-489; Bisping, Tr. 738; Abernathy, Tr. 779; D. O'Brien, Tr. 856-857; J ackola Tr. 888; Van Allen, Tr. 672.

Thus, the evidence establishes that respondent's salesmen do not contact people in their homes primarily for the purposes represented by EB. Such persons approach the homes of people for the purpose of soliciting purchases of EE' s products and services. In-Home Representations (1) The Cooperative Plan 53. After gaining entry into the homes of prospects, EB' s salesmen are trained and instructed to make :l "Cooperative Plan" presentation which, according to EB's corporate secretary, is EB's regular offer (Joy, Tr. 2902). This presentation is made by salesmen reading from standard presentations incorporated into read-off books and broadsides issued to salesmen (CX 446, 519, 1341, 1346; CX 463, 512, 579, 580, 1319 1347; see also CX 622- , 612- , 651-B). 54. Under the terms of the "Cooperative Plan " a number of items are represented to be "given" to the customer free of charge, or at no charge, in return for (40) the customer s cooperation, as follows: (1) Permission to list and use the customer s name as an owner; (2) Send a letter to respondent stating the customer s opinion of the program;

(3) The names of four individuals who the customer believes might be Britannica prospects.

(CX 622- , 463- , 512-J, 579-J, 580- , 652- , 1319-J, 1347. The items, which are allegedly given free under the Britannica cooperative offer, include: Britannica Junior Encyclopaedia or Britannica Atlas and Webster s Dictionary; The Britannica Library Research Service; First Adventures in Learning (CX 475); and Britannica Study Guides (CX 622-Q, 622- , 579- , 579- , 1347- , 1347-W). Under the Great Books cooperative offer, it is represented that the customer is given free the following items in return for the services set out above: The Great Books Reading Plans: Gateway to the Great Books with Bookrack; Custom-Designed Bookcase (in place of the foregoing the customer may choose the Annals of America or Compton s Encyclopaedia); Britannica Library Research Service: and Great Books Introductory Discussion Plan (CX 652- , 652- , 512- , 512- , 580- , 580- 1319- , 1319-X).

216-9690- 1,1' - 77 - 30 458 FEDERAL TRADE COMMISSIO:- DECISIONS Initial Decision 87 F.

55. An executed EB cooperative plan contract indicates the items are allegedly "free" in the following language: Under the terms of your Cooperative Plan, I agree to the following: 1. To give the Company permission to list and use my name as an owner. 2. To provide the names and addresses of 4 persons who I feel would be good Britannica prospects.

Names and Addresses must accompany this agreement. (41) 3. To send to the Company, after receiving my materials, a written expression of my opinion of the New Edition of Britannica. I understand that my letter may be reproduced and used, in whole or in part, at the Company s discretion. Please deliver to me one set of ENCYCLOPAEDIA BRITAN:KICA, 24 volumes in HEIRLOOM binding $598. and and in return for the above cooperation, the following: BRITAN:-ICA JR. $N 0 Charge PRE-SCHOOL' $N 0 Charge $No Charge Date FEB. 16, 1971 TO- $598. TAL * The Britannica Atlas and Dictionary would be indicated in this space if chosen by the customer as part of the cooperative plan.

BONUS FEATURES - A. \ a participant in this Cooperative Plan I wil also receive without additional charge, the Britannica STCDY GeIDES, as indicated below, and full ten-year membership in the Britannica LIBRARY RESEARCH SERVICE. This service entitles me to receive, at my request, up to 100 research reports, subject only to the conditions outlined on the Certificate which wil be sent to me. (CX 1444; see also CX I007- , 980- , 1437, 1446- , 1447- , 1452- 1453 1455- 1458, 1786- , 1796- , 1806-A; see CX 626- (42 J 56. EB' s magazine and direct mail advertisements make the claim that certain publications are included "free" with the major set (Encyclopaedia Britannica or Great Books) in the cooperative plan (CX 750, 778 , 788-790, 796-800, 804, 808-810, 1368 , 1623 , 1625 , 1627 , 1629). 57. In the Britannica "Cooperative Plan" sales presentation readoff booklet which s"lesmen are provided, the prospect is told both that he is to receive the Britannica Study Guides "without additional charge " and that the Study Guides are not available on the open market - "They are an exclusive feature reserved for Britannica owners" (CX 579- , 1347- , 1433, 1444, 1786). The Great Books Cooperative Plan presentation states that The Introductory Discussion Plan is a bonus for cooperation and "is an exclusive part of the Great Books Cooperative Program and cannot be obtained through any other source " (CX 512- , 580-X). Through language written on the ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 459 421 Initial Decision cooperative plan sales contracts and through the statements of salesmen, respondents represent both that the Library Research Service is included in the cooperative plan "free of charge" or 'jwithout additional charge" (CX 626- , 642- , 1219- , 1433- , 1444, 1447- , 1796- , 2025-C), and that "The Research Service is never sold to any individual or institution" and is available only to subscribers on the cooperative plan (CX 463- , 512- , 579- , 580- , 1319- , 1347-S). 58. Purchasers of EB products under the cooperative plan were informed and understood that they were receiving various items and servkes "free " or at "no extra cost" in return for their agreement to provide so-called "cooperative services" (Morse, Tr. 2402; Manore, Tr. 2417; Boyd, Tr. 1329; Ksycki, Tr. 1244, 1255; Turk, Tr. 1226; Passios, Tr. 1148; Svob, Tr. 1018; Andresen, Tr. 810-811). Customers were told that the only item they pay for in the cooperative plan package is the set of Encyclopaedia Britannica or Great Books (Andresen, Tr. 810-811): Q. Well, did the salesman make any representations as to whether or not you would be paying for these other materials, the pre-school book or the Junior encyclopaedia? A. No. Those were free. If we bought the big set, we also got these other books free. (43 J 59. The "Cooperative Plan" is EB's usual and regular method of sellng the items contained in the Britannica and Great Books cooperative packages (Joy, Tr. 2902). Salesmen were trained to only make the cooperative plan presentation (Burgoyne, Tr. 1088, 1097; D. Brien, Tr. 861: Abernathy, Tr. 791; Bisping, Tr. 755; Van Allen, Tr. 647; Bresnik, Tr. 527; Yee, Tr. 996; Laferrere, Tr. 2106). In fact, some EB salesmen testified that they were not allowed to make individual sales of items included in the cooperative plan package (Toncrai, Tr. 583-584: Lang, Tr. 2342: Caine, Tr. 2481-82: Svob, Tr. 1014- , 1017). Thus, the bulk of all sales consists of the "Cooperative Plan " (Joy, Tr. 2901; CX 612, 622, 651 , 652).

60. EB's salesmen were trained to allow, and in fact did allow persons to purchase the products offered under the "Cooperative Plan without requiring that such persons perform the services apparently required under the plan:

Q. In the cooperative sales that you made, in how many of those sales did you get the names that were required under the cooperative contract? A. None 0; * . (Kalstein, Tr. 2016.

0; " * If we could not get them, they lEB J said to just forget about it. (Beitch, Tr. 1761.) Initial Decision 87 F.

A. '" '" '" So, if you didn t give the names, it didn t make any difference. (Bisping, Tr. 757.

61. Customers testified:

Q. Did you supply any of the items that you just described? A. :\0, we did not. We did not write the letter to Encyclopaedia Britannica nor did we supply the names of the four individuals. (Ksycki, Tr. 1246. A.(441 IQ.guessWouldityouinvolvedplease gettingexplain afullyspecialwhatpricethe salesmanon the 21-volumesaid the offerset. Thewouldrestinvolve?of the stuff was supposed to be free and then he wanted us to write a Jetter to the Encyclopaedia Britannica and he wanted some names of people that might be interested in such a program and asked if they could use our name use the letter that we sent in. Q. Did you ever provide such services? A. I did not. (Andresen, Tr. 834.

Q. .Mrs. .Morse, did he require you to do anything in order to obtain the books that he was sellng? A. He requested that we give him four names of people who he could speak to and if he could use our name and if we would write a letter. Q. Did you perform those services? A. :-0. (Morse, Tr. 2402; see also Newhall, Tr. 2425-26; Passios, Tr. 1160; Roberts, Tr. 1829-1830; Logan, Tr. 1839; Manore, Tr. 2417- 18; Ridgeway, Tr. 1711-1712; Warwick, Tr. 1784-85.

62. In instances where persons were reluctant or refused to give the required names of four other prospects, salesmen were instructed to leave a form on which the names could be sent in at a later date (Galvez, Tr. 3271-3273; Eastaugh, Tr. 2244; Van Allen, Tr. 655; Badger Tr. 2204-2206). EB had no accurate way to check to see if the cooperative plan purchasers had in fact sent in the names in instances where the purchaser was given the opportunity to send the names in at a later date (Galvez, Tr. 3272-73). (45 J (2) Use of "Retail" Prices 63. The cooperative plan presentation represents to prospects that because the cooperative plan affords an important source of advertising, EB wil "pay" for cooperation; that merchandise and services are given" to a purchaser for his cooperation (CX 579-M); and that EB will pay the prospect for cooperation "in merchandise" (CX 1347-K). In demonstrating the value of the products being purchased and "given retail" prices are utilized.

64. The sales presentation which salesmen are trained to utilize represents the "retail" prices for the Britannica set alone, as follows: ENCYCLOP AEDIA BRITANNICA, I:-C., ET AL. 461 421 Initial Decision Britannica s basic library (Britannica set alone) can be purchased at any time at the following prices according to the bindings. However, these prices do not apply on Britannica s Cooperative Plan. The new edition of the 24 volume Encyclopaedia Britannica in our Blue Calf bindings sells for $1200. In our Green Morocco binding it sells for $1 000. And in our HeirJoom binding for $09B.

(CX 622- (7-8), 512- (6-8), 579- (3-5), 5bO- 6), 652- , 1318- (4-6), 1347- (3-5). EB' s training tape instructs salesmen to present information regarding the "retail" prices for the cooperative plan items as follows: ,\ ow let's Jook at the value of Britannica s ten-year educational program: 1. (TJhe 24 volume Encyclopaedia Britannica Now you ad-Jib the words * * * I'm going to put a $698 retail price right beside it. Here you write in the figure 698 then continue 2. Option to obtain the Britannica Book- the-Year for ten years which would be an investment of $89.50.

ow write in 89.50 beneath the 698 then continue r46) 3. Full ten year membership in the Britannica Library Research Service. Now each of the service coupons cost us $2.60. One hundred of them would cost us $260 if you use the service. If you do not use the service, it wot:d be valueless to you and naturally would cost us nothing. Assuming you did use the service, it would cost us $260 and I am going to enter this figure beside the Library Research Sendee. A t this point, write in the figure 260 and continue on to the next point and the following ad-lib'" '" * 4. The Britannica Study Guides. These Study Guides cannot be purchased by any individual at any time for any price. Therefore, their value depends on how you use them. If you didn t use them at all they wouldn t be worth $5. On the other hand if they helped you or your family in business, education or social life they could be worth $500. So I am just going to put down a value of between $5 & $500. Write $5-$500 next to the Britannica Study Guides on the page and then continue to adlib, this time about the cooperation option. And No. 5. You have either Option No. 1 or Option No. 2 which is given to you in return for your cooperation. Assuming your choice was Britannica Junior, it has a retail price of $149.50.

Write Britannica Junior underneath Cooperation Option on the page and then 149. after it, then continue to ad-lib as follows As you can see this represents an impressive amount. A t this point you begin to write down dollar signs where a total might be if you would add it up to indicate a Jot of money while you are continuing with the ad-Jib'" * "' But as you can see, the best part of ajj is - r47J When you are finished with this ad-lib continue reading from the bottom of the page . Now in return for your help at this time, use of your name, testimonial Jetter, names of four families, the retaij price does not apply to you. As you('re J saying the retail price does not apply to you, cross out the figures at the top of the page then proceed to the next page * * "' May we now a.sk if we deliver ajj of these materials and services to you for less than the retajJ price of the set alone, an average of only 59.80 a year over the Jjfe of the program, plus the cost of the optional Book-of-the-Year, can we count on your cooperation? (eX 622- (8- 11 ).

EB' s training tape for Great Books salesmen does not contain initial Decision 87 F.T. instructions on how to list retail prices for the items included in the Great Books cooperative plan, although there is a pause in the tape to allow a trainer to demonstrate how to list the retail prices (CX 652- 639-E).

65. Many of EB's salesmen were instructed to list the retail prices for the items contained in the cooperative plan on the back of an acceptance card as demonstrated by CX 1772-B and CX 1445-B: or on blank sheets of paper, or on an ARA questionnaire (CX 1761: Abernathy, Tr. 785-786; Yee, Tr. 996-997; Clauss, Tr. 2366; Caine, Tr. 2480-81; Heinzman, Tr. 954-955; Bisping, Tr. 750-752; Dabney, Tr. 1688; Beitch, Tr. 1758-1760; Lang, Tr. 2341-42; Bresnik, Tr. 492-493; Barad Tr. 1978-79; Peterson, Tr. 2059-2060: Eastaugh, Tr. 2232; Cambria, Tr. 2280; Gaboury, Tr. 2316; Toncrai, Tr. 581-583). Some of the salesmen used a page out of the cooperative plan presentation readoff and recorded the retail prices with a grease pencil which could later be erased (JackoJa, Tr. 890: Van Allen, Tr. 652-653; Burgoyne, Tr. 1089: Laferriere, Tr. 2114- 15; D. O'Brien, Tr. 857; J. O'Brien, Tr. 1056-58). 66. EB's salesmen would list both the retail prices for the individual items contained in the cooperative plan and a total retail price which included all such items. The total "retail" price for the cooperative plan package (48 J generally was several hundred dollars more than the cooperative plan price:

Q. Mr. Bresnik, in informing the potential customer as to the various prices would you use price comparisons? A. Yes. At one point we would show the retail price, the 698 price, and compare that to the 598 cooperative price showing the prospect that, if you were to list at retail prices an of the merchandise he was receiving as part of the cooperative program, we would write down 698 plus bookcase, which would be maybe $75 plus a couple other options which might be $50, or something, apiece, and then the Library Research Service. We would total all this up, come to a figure over a thousand dollars, I beUeve, cross this out, and show them that.

If you took the cooperative program, this would be 598 instead of this larger figure. (Bresnik, Tr. 492-493.

I was referring to (the) back blank side of the ARA. On that we used to write the items as they read them and the price next to them and then we used to add up the price and show them the total amount, which, as I remember, was between $1200 and $1300. At that time we would say, "If we could give this to you for $90, wouldn t it be a good deal?" They were pretty well forced to say yes, because we just told them it cost $1300 and here it was for $900.

We did this once more for $700 and then finally we would show them the price we could offer it to them, which varied, depending on who they were. It was $598 for the basic co-op plan. I believe teachers got it for $498 and students got it for something in (49) between $498 and $598, but whatever the price was, we would then show that to them and ask them jf they thought that was a good deal. (Beiteh, Tr. 1759- 1760. . . . .

CYCLOPAEDIA BRITANNICA. INC., ET AL. 463 421 Initial Decision Q. Did he quote you prices for those? A. Yes. For the entire set of materials which would include the bonuses and paying off in three years, the price for all of that material would range upwards of $800 or $900 but I was to receive the whole package for about four and a half. (Roberts, Tr. 1824. A. I quoted them one figure which usually came out above $700 for the group of items. I crossed that number off and replaced it with, I think, the most popular cooperative price was $443. If they wanted to think that they were paying $443 - (Cambria, Tr. 2282.

A. * 0; * This is the card he did his figuring on. He has listed here the price, retail prices, of the Great Books, the dictionaries, the Gateway Plan, also the reading plan totaling $1015. Vnder the Plan we were to receive the books for $443. (Boyd, Tr. 1325; see also Caine, Tr. 2480-81; Clauss, Tr. 2366-67; Kalstein, Tr. 2010-2012; Peterson, Tr. 2059- 2060; Barad, Tr. 1978-79; Lang, Tr. 2341-42; Laferrere, Tr. 2114-15; Gaboury, Tr. 2316; D. Brien, Tr. 857; Van AJlen, Tr. 652-653; Bisping, Tr. 750-752; Burgoyne, Tr. 1089; Jackola Tr. 890; Baird, Tr. 1978-79; O'Brien, Tr. 1056-58; Warrck, Tr. 1780; Ridgeway, Tr. 1706; Godwin, Tr. 1126; Christenberry, Tr. 1269-1270; Bernhardt, Tr. 1174-75; Andresen, Tr. 834-835.

(50) 67. CX 980-A is an executed sales contract. On this contract, the salesman showed $598 as the total price of the Encyclopaedia Britannica, 24 volumes, with the figures 698 crossed out; First Adventures In Learning was shown as N/C with the figures 39. crossed out; and Britannica Junior was shown as no charge with the figures 149.90 crossed out, as follows:

Please deliver to me one set of ENCYCLOPAEDIA BRITANNICA 24 volumes in Heirloom binding $598.and First Adventures $ N/C in Learning and, in return for the above cooperation, the following: Britannica .Junior $ No Charge $ No Charge $ No Charge Date March 12 , 1971 TOTAL $598. 68. The claimed retail prices of respondent' s publications, which are s cooperative plan, are not utilized by salesmen in sellng respondent' the prices at which such publications have been sold in substantial quantities to the general public. To the contrary, respondent has made only isolated or insignificant sales at the represented retail prices. CX 723 shows the various offers in which Encyclopaedia Britannica is sold Initial Decision 87 F.

in combination with accessory publications, the number of sales of each such combination offer from January 1, 1969 through May 1971 , and the prices at which such sales were made. CX 724 shows the number of sales of Encyclopaedia Britannica at retail prices during this same period. A comparison of CX 723 and CX 724 reveals through (51) the following formula that only 2.58 percent of the Encyclopaedia Britannica sets sold from January 1, 1969 through May 1971 were sold at the retail prices:

Number of EB retail sales 272= 2.58% number of EB combination 243 079 sales + EB retail sales CX 726 shows the Great Books sales made at retail and in combination offers. A comparison of these sales reveals that only 8. percent of Great Books sales were at the retail prices: Number of Great Books retail sales 221 = 8.55% Number of Great Books 953 combination sales + retail 69. EB's cooperative plan presentation is designed to lead the prospective customer into believing that he is receiving certain merchandise free of charge in exchange for cooperative services the customer is to furnish, that the entire plan or package of merchandise and services can be obtained at a substantial savings over the regular offering price of the merchandise or of even the encyclopaedia set alone through this cooperative feature. The canned sales presentation, which salesmen are trained to use, and do use, states that merchandise and services are given to you in payment for your cooperation" (CX 1347- , for example). As a fact, the cooperative plan is respondent's regular price for respondent' s merchandise sold on a door-to-door basis. Retail prices are not applicable to respondent's cooperative plan for any of the merchandise and services. None of the merchandise is given free of charge or is given in exchange for cooperation; the merchandise and services are part of the total plan or package. As has been heretofore found, respondent' s salesmen are not trained to make any offer or sale other than the cooperative plan (Finding 59). Some of the products and services are never sold, but are available only through the cooperative plan (Findings 57-59). Thus, it is clear that respondent' s cooperative plan sales presentation and the use of "retail" prices are designed to mislead consumers into believing that the cooperative plan offers E:-CYCLOPAEDIA BRITANNICA, INC., ET AL. 465 421 Initial Decision substantial savings to them when such plan is respondent' s regular offer and no savings are, in fact, realized. (52 J (3) Limited Offer 70. EB's salesmen, following EB' standard presentation emphasize that the cooperative plan must be purchased immediately: Since the Company needs your promotional and sales help right now * .. '" after you have seen the details of our Cooperative Offer '" '" '" we ask your acceptance or rejection. FAIR E:-OUGH' (CX 579- . 622- , 463- , 512- . 580- , 1319- , 1347-L.) If you wish to acquire the entire Britannica Program NOW" .. .. the payments and services previously described wil he given to you in retum for your eooperation. (CX 579- . 622- . 1347- Since the promotional and sales help outlined wil be of value only if you are enthusiastic about owning Britannica NOW'" .. * your immediate acceptance rejection of our Cooperative Proposal is required. (CX 579- , 512-Z-4 , 580- , 1319- There are two reasons why the Company requires your immediate acceptance of this Cooperative Offer: (CX 579- (21-33).

The emphasis on the necessity of immediate acceptance creates the impression that the cooperative plan price is a special price, not the price at which respondent regularly sens its publications, and is available only at the time of the salesman s visit (Svob, Tr. 1017- 1020; Morse, Tr. 2403; Passios, Tr. 1148; see also Siegler, Tr. 1804 , 1807; Newhall, Tr. 2424).

(53 J 71. Respondent has placed in magazines of national circulation advertisements which describe the cooperative plan as a limited offer: Yes, the latest edition of Encyclopaedia Britannica- the greatest treasury of information ever published- is now available to you on this remarkable Cooperative Offer.

For a limited time, you can receive both Britannica s Pre-School Library and Britannica Junior Encyclopaedia free of extra cost with Encyclopaedia Britannica. Alj three complete sets wiB be placed in your home :"OW . (CX 779, 814, 815). 72. Respondent maintains that, if the cooperative plan is rejected by a person, he must wait 12 months before such offer will be extended again, and that the customer certifies at the time of purchase that he has not previewed and declined the cooperative plan in the last 12 months. Further, EB claim that names of persons, who have Initial Decision 87 F.T.C. previewed and rejected the cooperative plan, are retained on file, and that the purchase contracts of prospective cooperative plan purchasers are checked against the file of names to insure that the EB policy is implemented (RPF III 3). The record does not reveal that any prospective cooperative plan purchaser was refused the right purchase under the cooperative plan because he had previewed and rejected the cooperative plan offer during the previous 12 months. Further, the record indicates that many prospects refused to sign rejection cards, or the sales presentation was aborted prior to arrving at the card signing stage (Findings 31-36). Even assuming, however that respondent does have a policy of not offering the cooperative plan to any person but once each twelve-month period, and assuming the policy is faithfully carried out, this would not of itself legitimize what is otherwise a deceptive sales scheme.

(4) Duration of Salesman s Visit 73. During a sales presentation, the salesman reads two large notebooks or read-offs (e. CX 579, 446), which consist of over one hundred pages of printed wording, and he utilizes ten large fold-outs or broadsides (CX 468, 469, (54 J 470, 471 , 472, 473, 474, 475, 476, 494), most of which measure 4' by 3' and contain extensive wording (see CX 612 622, 652). Respondent's training tapes entitled "advanced closing" (CX 608, 628, 649) instruct the salesman to use what is called the "five-point close" if the sale is not made upon completion of the cooperative plan presentation. In the first step of the "five-point close " the salesman of adescribes the amount of monthly payments in terms of the "cost quart of milk a day." Step two is the "closing check story" where the salesman uses a blank check (CX 502) to set out the prospect' s weekly expenses to show that the prospect can afford the cooperative plan. The third step is called the "sum-up-close" in which the salesman attempts to show that the prospect can afford the cooperative plan by again describing the cost in terms of a daily average. If the "sum-upclose " fails, the salesman then gives the prospect a rejection card (CX 497) which states that the prospect has declined participation in the cooperative offer. The last step in the "five-point close" is the "drop. At this point the salesman offers the prospect the least expensive binding for the Encyclopaedia Britannica or Great Books set (CX 608 628 649).

74. In contacting prospects, EB' s salesmen represent that they will only take a few minutes to complete the ARA surveyor to fill out the gift certificate (Dabney, Tr. 1691: Laferrere, Tr. 2113; Cambria, Tr. 2272: Peterson, Tr. 2071; Toncrai, Tr. 584; Bresnik, Tr. 494: Van Allen Tr. 640: Caine, Tr. 2474: Trescone, Tr. 1504; Beitch, Tr. 1751; J. O' Brien ,.

ENCYCLOPAEDIA BRITAKNICA, IKC., ET AL. 467 421 Initial Decision Tr. 1069; CX 66I- , 1270- , 1274- , 1287- , 1547- , 206I-B). Respondent' s salesmen also represent to prospects that even the presentation of respondent's products wil take only a few minutes (Ksycki, Tr. 1241):

then he identified himself as a representative of Encyclopaedia Britannica and asked if he could take a few minutes of our time to explain one of their cooperative programs to us (See also Bernhardt, Tr. 1171; Passios, Tr. 1141; Svob, Tr. 1014; Siegler, Tr. 1799-1800; Baird, Tr. 1879; Clauss, Tr. 2365; Warrck, Tr. 1779; Burgoyne, Tr. 1086; Hil, Tr. 2377-2378.

(55 J 75. Many salesmen testified that they required at least an hour to give a full sales presentation (Heinzman, Tr. 971: Abernathy, Tr. 804- 805; Burgoyne, Tr. 1099; Badger, Tr. 2201: Laferrere, Tr. 2135; Dabney, Tr. 1692-1693; Van Allen, Tr. 671; Toncrai, Tr. 584; see Bresnik Tr. 494). In some instances, the salesman would remain in a prospect's home for over two hours (Andresen, Tr. 809: Hil, Tr. 2385; Godwin, Tr. 1125; Trescone, Tr. 1508). Thus, EB's sales representatives do not ordinarily complete their presentations inside prospects' homes within only a few minutes. Therefore, the representations of respondent' salesmen were and are false, misleading and deceptive. (5) Library Research Service 76. EB's Library Research Service is a service whereby questions from purchasers of Encyclopaedia Britannica and Great Books are answered and information on various topics is made available to such purchasers (CX 474 , 522 , 463- , 512-X). The customer is given one hundred coupons, each of which may be used to obtain a report on topics contained in a catalogue (RX 4), or to obtain a special report which contains information with respect to matters not listed in the catalogue (RX 5; CX 474). EB' s standard sales presentation contains representations regarding the Library Research Service. These representations are found in respondent's printed sales presentation and in a large fold-out or broadside which is displayed in conjunction with the printed sales presentation. Respondent's salesmen represent to prospects that the Library Research Service wi1 provide information on any subject with the only exception being medical and legal advice (CX 463- , 463- , 5I2- , 579- , 580- , 1319- , 1347- , 474 , 522 1313 1358).

77. Sales materials, which EB salesmen utilize in making presentations to prospects, contain the following representations concerning the quality of research provided by the Library Research Service: Our vast research staff"' located in major libraries and universities wm do all of the tedious research work compile the information in manuscript form 468 FEDERAL TRADE COM,USSION DECISIO!\S Initial Decision 87 F.

* * * and return the reports for your permanent possession. (CX 512- , 579- , 580- I319 , 1347 (56) * * * Our vast research staff wil do all the tedious research work and data compilation and return it to you in report form for your permanent possession. (CX 1522- E.) Dedicated exclusively to the service of Encyclopaedia Britannica owners, the Library Research Service answers any of the hundreds of questions encountered in your Home Business, Professional, Educational and Social life. (CX 474 1358. One of the broadsides utilized by E B salesmen states: OUf vast research staff, located in major universities, and libraries, provides detailed and authorative information on any subject you request other than medical or legal advice. As a Britannica owner, you get the same type of research advice for which business and professional people would expect to pay thousands of dollars a year to obtain. (CX 474.

78. EB's salesmen have represented that the reports requested from the Library Research Service would be similar or identical to college term papers in form and content (Manore, Tr. 2419-2420): Q. During the sales presentation, what, if anything, did the salesman say about the library research service? A. That you would receive a book with coupons which covered ten thousand different subjects, and you could take the coupons you received along with twenty-five cents and receive back an essay type on each of the subjects. If you filed the number in, you would receive back something on it. If you didn t - if something you wanted wasn t covered on one of these topics, you could send in under your own title, and you would receive back a report which (57 J could be used in lieu of a tenn paper. You could copy it over and use it as your own term paper, thesis, or such. He said that the material you would receive would be exhaustive in substance. The only thing it wouldn t cover would be medical and legal questions. (See also Lancaster Tr. 1892-93; Baird, Tr. 1872; Siegler, Tr. 1800- 1801 , 1813- 14; Ridgeway, Tr. 1706-1707; Boyd, Tr. 1328; Ksycki, Tr. 1247; Newhal1, Tr. 2426. 79. The contracts executed by EB's customers reveal that subsequent to purchasing Encyclopaedia Britannica or Great Books, they will receive a certificate (RX 5) which sets out the conditions for use of the Library Research Service (CX 980, 1007, 1433, 1437, 1444, 1447, 1452 1453, 1455, 1786, 1796). Some limitations are set out in the certificate, as follows:

You may request as many as 10 reports a year, but not more than one at a time or more than one a month.

ENCYCLOPAEDIA BRITANNICA. INC.. ET AL. 469 421 Initial Decision We prepare reports only on those subjects not already discussed in B'ritannica publications; we do no research in foreign language sources. We cannot answer questions relating to the fields of medicine or law; nor do we prepare reports in areas which invade professional fields or which we believe are in violation of good business ethics. We do not answer contest questions or supply Hlustrative material.

We reserve the right to determine what constitutes one question, and whether your query comes within the scope of the Britannica Library Research Service. (RX 5; see also Stenberg, Tr. 1420; Coke, Tr. 1298; ex 735; RX 103-106. (58) Limitations set out in this certificate are not disclosed during respondent' s sales presentation (CX 612N- , 622- , 622- , 652- K). 80. According to the director of EB's Library Research Service, the limitations of the Library Research Service are more extensive than those revealed in the certificate. The Library Research Service refuses to answer questions relating to genealogy (Stenberg, Tr. 1394; CX 728 731 740). The Library Research Service refuses "out of hand" requests for term papers or theses (Stenberg, Tr. 1399; see CX 730, 732, 734, 739; RX 98). In addition, the Library Research Service will not answer requests for advice in arranging furniture for a particular room, or a particular floor plan (Stenberg, Tr. 1417-18). The Library Research Service does not answer questions relating to any medical topic (Stenberg, Tr. 1418; CX 744). A number of specific requests were refused because they related to medical topics (Stenberg, Tr. 1419- 1420; CX 735, 736, 737 , 738; see also Clark, Tr. 2787-2793). 81. The research staff, which compiles responses to requests made to the Library Research Service, does no original writing in the reports it produces. The extent of the work done by the research staff on topics not covered in the Library Research Service Catalogues is limited to reproducing passages, paragraphs or pages from selected sources. These reproductions are then pasted on sheets of paper with notations of the sources, and a bibliography is typed in at the end. As thus completed, the report is then sent to the subscriber (Stenberg, Tr. 1424- 26).

82. Some EB customers, who testified in this proceeding, expressed disappointment at the quality and responsiveness of the special reports:

A. '" '" * I was interested in Edmund Burke s thoughts on the Yrench Revolution, so I wrote them asking about this. What they sent to me looked like a copy from some encyclopaedia. I was expecting some original research. (Coke, Tr. 1297; see also 145IA- Initial Decision 87 F.

Q. Would you briefly summarize what the report is about? (59) (Colloquy omitted.

A. Xerox of two articles, Basjc Matrix Theory, International Dictionary of Applied Mathematics and Applied Reading.

There is nothing that pertains to biographical information about Mr. Doolittle which was my request. (Clark, Tr. 2782-83; see also ex 1505. 83. Persons subscribing to respondent's Library Research Service wil not receive answers to any questions except those requesting medical and legal advice. The answers provided by respondent' Library Research Service are not the product of exhaustive, original research, and, in some instances, are not responsive to the question asked. Further, the answers are not in the form of a college theme or thesis.

Lead-Getting Activities 84. In the course and conduct of its business, EB has conducted various contests and utilized other promotional devices for the purpose of obtaining leads to persons whom respondent' s sales representatives can contact and hopefully gain admission into said persons' homes for the purpose of inducing purchases of respondent's products. Among the inducements used to achieve the above purposes are offers of free informational brochures obtainedmerchandise, gift certificates and upon return of reply cards contained in promotional materials (respondents' Answer, Par. 9). EB uses extensive magazine and direct mail advertising to obtain the names of persons to be contacted for the purpose of giving such persons a sales presentation (Curtin, Tr. 2841; CX 817). The advertisements request that the reader return an attached response card to receive a free booklet and/or information on how to obtain respondent's publications.

85. None of respondent's advertisements disclose that persons who respond to such advertisements wil be contacted by respondent' salesmen (see, e. CX 751G- , 752-756, 774-816). To the contrary, the following examples (60) give the impression that readers wil receive the materials offered by mail:

PREVIEW BOOKLET OFFERED FREE. May we send you, free and without obligation, our special new Preview Booklet which pictures and describes the latest edition of Encyclopaedia Britannica? For your free copy, and complete infonnation about how you may obtain the Britannica Pre-Schoo! Library and Young Children Encyclopaedia free of extra cost with Encyclopaedia Britannica, mail the postage-free card now. (CX RIO.

,. , ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 471 421 Initial Decision PREVIE\\' BOOKLET OFFERED FREE. Like to learn more about how your family can enjoy the advantages of Britannica Junior-free of extra cost-when you choose Encyclopaedia Britannica on our Cooperative Offer? Simply mail the attached card now. We \Vm send you free - and without obligation - our colorful Preview Booklet which pictures and descrihes the latest edition. (CX 790. PREVIEW BOOKLET OFFERED FREE Simply fil in and mail the postcard today, and we wil send to you " .. 0; without extra cost or obli,qation " .; .. a copy of our beautiful new booklet which contains an exciting preview of the latest edition of Encyclopaedia Britannica. Mail no money. It's yours absolutely free.!" . When we receive your postcard, we wil send your free booklet. There is no obligation, of course. However, to avoid disappointment, please mail the card today before it slips your mind. (CX 806; see also CX 805 , 811. EB' s magazine and direct mail advertisements for the Encyclopaedia Britannica set and accessory publications (61 J emphasize in bold letters that such publications are available to the reader direct from the publisher" (CX 781, 785, 790, 796, 804, 808, 810, 813). The language of response cards reinforces the suggestion that booklets and information wil be sent by mail and that materials are received "direct from the publisher GENTLEME:\: Please mail free and without obligation your coloriul Preview Booklet which pictures and describes the latest edition of ENCYCLOPAEDIAme BRITA NICA. Also send complete information on how I may obtain this magnificent set direct from the publisher on the Book a Month Payment Plan-plus BRITANNICA JUNIOR ENCYCLOPAEDIA and BRITAN ICA' S PRE-SCHOOL LIBRARY-free of extra cost. (CX 765 766 1625.

GENTLEMEN: Please send me free and without obligation your coloriul Preview Booklet which pictures and describes the latest edition of ENCYCLOPAEDIA BRITA:SNICA- and complete information on how I may obtain this magnificent set direct from the publisher on the Book a Month Payment Plan, plus Britannica .Junior Encyclopaedia and Britannica s Pre- School Library-free of extra cost. (CX 788 , 789; see also CX 750.

Respondent EB apparently appreciates the fact that its advertisements may create the impression that all literature or other information will be sent through the mails. EB's ARA questionnaire has a "form statement to be used if the prospect questions why a salesman is calling (if subject says he thought the report or catalog would be mailed to him, * * * say:)" (CX 1547-A)J 86. In addition to magazine and direct mail advertising, EB disseminates drawing entry cards (CX 752, 756, 1343-K) to obtain the 472 FEDERAL TRADE COM:.ISSIO DECISIONS Initial Decision 87 F.

names of persons to be contacted for the purpose of sellng respondent' s (62) publications (Gervasio, Tr. 2159-2170; Bisping, Tr. 749; Curtin, Tr. 2855-56; Heinzman, Tr. 933-936). Contest entry cards are placed by respondent' s salesmen in various public establishments, such as shopping centers, book stores, grocery stores, barbershops, and at public affairs such as auto shows or boat shows (see CX 630, 632; Heinzman, Tr. 933; Holmes, Tr. 3136; Martinez, Tr. 3183; Gregg, Tr. 3368). The drawing entry cards do not disclose that persons who send in such cards will be contacted by a salesman for the purpose of sellng respondent' s publications; rather, the cards state that senders wil have a chance to win one of respondent' s publications with "no obligation and that "winners will be notified by telephone" (CX 752-756). Buyer's Cancellation Rights 87. All of respondent's purchase agreements contain a section captioned uN notice to Buyer" which typically is printed in the same size print as other sections of the contract. Some of the agreements contain the following language:

NOTICE TO BUYER: 1. Do not sign this credit agreement before you read it or if it contains any blank space. 2. You are entitled to a complete fiJJed-in copy of this credit agreement. 3. You may at any time pay your total indebtedness. 4. This agreement wil be verified within four days to secure mutual acceptance. 5. You are to receive a statement each month which wil show the balance due at the beginning of the period; the dollar amount of each purchase; credits to your account during the period, and the amount of the finance charge. (CX 1218.

Some of the agreements vary the language as follows: 4. This agreement wil be verified within four days to secure your final acceptance. (CX 2018 1348 1219 1452-1453 1455-1458.

One Great Books agreement states:

(63) 4. You have the right to rescind this agreement at any time within 4 business days of the date of this agreement by mailing notice (certified mail recommended) to P. O. Box 3411, Chicago, Ill. 60654. (CX 2013; see also Tr. 2412- 13. 88. Respondent's salesmen are trained on how to properly fill in a purchase contract (CX 626-642). They are taught to go over the merchandise the customer is getting, the price he must pay, monthly terms, sales tax, and shipping instructions, and by doing so they wiJ be able to "button up" the sale (Cohan, Tr. 3446). However, respondent explicitly instructs its salesmen not to read the "Notice to Buyer section when going over the contract with ar.y consumer; in fact, the salesmen are instructed to get the purchaser s signature without affording the purchaser any opportunity to read this critical section ENCYCLOPAEDIA BRITAN:-ICA. INC., ET AL. 473 421 Initial Decision (CX 626- , 642-K; Peterson, Tr. 2069: see also Toncrai, Tr. 586-587; Van Allen, Tr. 649, 676-677, 698: Cambria, Tr. 2294). Consumer testimony corroborated the fact that EB's salesmen did not inform purchasers that, under the terms of the contract, they had a right to cancel their purchase (Baird, Tr. 1881; Orsborn, Tr. 1856: Roberts, Tr. 1831-32: Morse, Tr. 2412; Newhall, Tr. 2429). 89. Respondent has a practice of making a verification telephone call to purchasers of its products within a few days of the signing of the agreement. Respondent has a standard telephone verification talk which indicates clearly that the purpose of the telephone call is to determine if the information shown on the contract turned in by the salesman is correct (CX 2062). Thus, the telephone call is obviously an order verification device, not a method of informing the purchaser that he has a right of cancellation (Passios, Tr. 1176-77; Roberts, Tr. 1831-32: Baird, Tr. 1881; Orsborn, Tr. 1854-58; see also Swanson, Tr. 3532). In fact, purchasers believed the verification telephone call concerned the credit rating of the purchaser, or was to assure that the salesman had not falsified the transaction and that the information sho\vn on the contract was correct (Svob, Tr. 1027; Passios, Tr. 1176; O'Brien, Tr. 1059: Ksycki, Tr. 1262 , 1264-65). Neither the contracts, respondent's salesmen, nor the telephone verification call informs the purchaser that he or she at any time had the right to cancel or rescind the purchase contract at any time. (64 J IV. CONTINUITY BOOK PROGRAMS Method oj Shipment 90. In the course and conduct of its business, respondent EB through its subsidiary, Britannica Home Library Services, Inc. (BHLS), has disseminated and is disseminating advertisements in various publications of general circulation or in promotional materials mailed to members of the general public for the purpose of inducing persons to become subscribers to continuity book programs. A continuity book program is a procedure whereby persons receive the first volume in a series of volumes free; thereafter, the next two volumes in the series are sent to the subscriber on an approval basis at the rate of one volume per month for two months; and, if the subscriber does not cancel the program, the subscriber receives, on approval, the remaining volumes in a single shipment. All volumes are paid for at the rate of one volume per month (Answer, Par. 10; Collins, Tr. 1565). EB's continuity book programs involve the negative option plan of selling (Collins, Tr. 1566 1594).

969 O- LT - 77 - :J1 Initial Decision 87 F.

91. Continuity book programs promoted by respondents include the following:

The International Wildlife Encyclopedia, The Annals of America The Ilustrated Family Encyclopedia of the Living Bible, The Practical Encyclopedia of Good Decorating and Home Improvement, The Ilustrated World of Science Encyclopedia The World of Man, Compton s Encyclopedia Young Children s Encyclopedia, The "ew Ilustrated Medical and Health Encyclopedia, The Practical Handyman s Encyclopedia, Popular Mechanics Do-It-Yourself Encyclopedia, People of Destiny, The International Family Health Encyclopedia, The Library of Science, Nature and Man s Environment (Respondents' Answer, Par. 10; see also CX 833-865, 878-888; RX 188, 192, 197 213.

(65 J BHLS made mailings of some 39 continuity program promotional brochures during the period January 1972 through March 1974 (Stipulation, Tr. 3670-76). BHLS shipped approximately one quarter of a milion (250 000) continuity units to approximately twenty-eight thousand (28 000) subscribers in calendar year 1973. A continuity unit consists of a single shipment of a book or books in the continuity series; for example, the shipment of volumes 1 and 2 and 3 would be made separately and constitute three units, and the bulk shipment of the remaining volumes would constitute one unit for a total of four units (Collins, Tr. 3610-11). BHLS also ships year books which go each year for a ten-year period to purchasers of Encyclopaedia Britannica, Great Books, and Compton s. In 1973, BHLS shipped approximately one and one-half milion yearbooks (Harden, Tr. 3612-13). EB, through BHLS does a substantial volume of business in the sale of continuity book programs (CX 889-891).

92. To advertise a continuity program, BHLS uses direct mailing packets, which generally contain a return envelope: a large colorful fold-out describing at length the merits of the program itself; a fourpage letter elaborating and re-emphasizing many of the points made in the fold-out; and a "FREE BOOK CERTIFICATE" or "FREE GIFT CERTIFICATE" which briefly describes the terms of respondent' subscription offer and, if signed and returned to respondent, entitles the subscriber to one volume free (CX 833-865, 878-888; RX 188, 192 197 213).

93. Through the use of standardized language in continuity mailing packets, BHLS has represented, directly and by implication, that subscribers to BHLS' continuity programs are accorded the option of receiving a single book at a time, and thereby are afforded the opportunity to review on approval each book separately, and to reject or accept each book separately, and to pay for a book-a-month until the ENCYCLOPAEDIA BRITANKICA , I:-C.. ET AL. 475 421 Initial Decision program expires (CX 850- , 85I- , 852- , 853- , 854, 855- , 856-C). The four-page letter accompanying some mailngs states: To obtain your fabulous free first volume, simply initial and mail the enclosed Gift Certificate. After receiving your volume, if you are not convinced that you and your family have begun to acquire the most (66 J wonderful encyclopedia of American history it is possible to possess for your home library, keep the introductory volume as our gift and that wil be that.

Otherwise, each big new colorful volume wil come to you ENTIREL YON APPROVAL for 10 days' FREE EXAMINATION - with no obligation to keep or buy. Volumes 2 and 3 wil come to you about one a month; after that, you wil be notified in advance of a11 future shipments, all sent ON APPRQV AL. With 10 days' FREE EXAMINATIOI\ you may decide whether to keep any shipment or not - you may return it and owe nothing for it or you may remit subscriber s low price - for only one book each month. (CX 837- E; RX I99G.

Another letter used by BHLS in its mailngs represents that: Each volume wil come to you ENTIRELY ON APPROVAL for 10 days of FREE HOME EXAMINATION AND TESTI G - at the rate of about one a month. Please remember that each volume is STRICTLY ON APPROVAL. Within the 10-day FREE EXAMINATION period - you may keep it and remit the extremely low price of just $3.98 plus a few cents for shipping. (CX 888- G; see also CX 845- , 846- , 884- , 885- 835-D; RX 235G.

A "FREE GIFT CERTIFICATE" used by BHLS to infonn subscribers about the continuity program is as follows: VOLUME I OF THE ILLCSTRATED WORLD OF SCIE:-CE ENCYCLOPEDIA FREE GIFT CERTIFICATE NO OBLIGATlO:- TO RETURN GIFT OR TO PURCHASE FURTHER VOLCMES Please send me Volume I of the ILLUSTRATED WORLD OF SCIENCE ENCY- CLOPEDIA entirely free (67) and without obligation of any kind. After examining it, if I decide I do not want to inspect later books in the series I wil notify you within 10 days after my free volume arrives. Other 'ise, I am entitled to receive additional volumes in this series for my free examination. I am not obligated to accept any minimum number of volumes and may request that you discontinue future shipments at any time. For any books that I decide to keep, you will bil me just $3. , plus a small amount for shipping, per volume. Regardless of whether I decide to examine any future volumes in the ILLUSTRATED WORLD OF SCIE CE ENCYCLOPEDIA, Volume I is mine to keep. (offer limited to one gift volume per family) Signature YO!:RS FREE (CX 84fi-A; see also CX 884, 885; RX 232 237 239 240. Another form of "Certificate " reads:

476 FEDERAL TRADE CO"MISSION DECISIONS Initial Decision 87 F.TC. As a home trial subscriber I wil be notified in advance regarding monthly shipments for 10 day free use and examination of the 2nd, 3rd and al1 remaining volumes of this home medical library. (RX 188B.) 94. BHLS fails clearly and conspicuously to disclose in its continuity mailings that subscribers to BHLS' continuity programs receive a bulk shipment of all the remaining books in the series after receiving the first few books on a book-per-month basis (see Aycox, Tr. 1622; Appino, Tr. 1650; Odell, Tr. 1905: Beaman, Tr. 1917; V. Bozell, Tr. 1947; Bowen, Tr. 2578, 2580; Bellerose, Tr. 2608, 2612: Burbank, Tr. 2618: Andersen, Tr. 2702 , 2707; see also Bleveans, Tr. 3675; Collins, Tr. 1599). Many of BHLS' direct mailing continuity packets make no disclosure at all that it will ship to subscribers all but the first few books by means of a single bulk shipment (CX 835, 837, 845, 846, 884 , 885, 888; RX 188, 197 231 232 237 239 240). In other instances where (68) BHLS does make a disclosure of the bulk shipment of the remaining volumes, such disclosure is on the third page of a typewrtten letter in small type interspersed with such bold type statements as "ACCEPT A FREE SAMPLE OW-DECIDE LATER; CANCEL ANYTIME YOU WISH; ENTIRELY Oi' APPROVAL FREE EXAMINATION for only one book each month" (CX 833-D). In many instances where BHLS makes mention of the bulk shipment in its mailing packet letter, it fails to disclose the bulk shipment on its certificate which the customers sign to enter the program (CX 833, 838, 840, 882, 847 850 859 860 861). 95. BHLS forwards a promotional letter with each of the first three volumes it ships in any series (CX 866, 867, 868). The only disclosure regarding the impending bulk shipment appearing in the 11 typewrtten pages of promotional literature received by subscribers appears in the letter received with volume 3:

Because we know you are anxious to have the remaining volumes of your set now to browse through them at your leisure and to have them available as a reference work, we have made arrangements to send you the remaining 17 volumes of your set ON APPROV AL, in one shipment that wil arrve next month! (CX 868- 96. With only two exceptions, both early in 1972 (RX 188, 199), all continuity program promotional brochures utilized by BHLS since January 1972 have indicated, on the certificate which the potential subscriber signs and returns to BHLS to receive the program, that the subscriber would receive Volume 1 as a free gift, Volume 2 the following month, Volume 3 the month thereafter, and that the fourth shipment would be a bulk shipment of the remaining volumes in the program (RX 187, 192, 198 200-229). Thus, some additional disclosures of the bulk shipment have been made since 1972. 97. Consumers believed that they would be afforded the opporjj ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 477 421 Initial Decision tunity to receive and review on approval each book separately, and regarded such an opportunity as an important feature of the subscription programs (Odell, Tr. 1903-1904: Aycox, Tr. 1619; Bowen Tr. 2578, 2581; Burbank, Tr. 2620; Nickelsberg, Tr. 2652; England, Tr. 1661; (69) Bozell, Tr. 1937). Many consumers do not read or understand the bulk shipment disclosure which accompanies the shipment of the third volume in any series (England, Tr. 1665-66; Burbank, Tr. 2625; Appino, Tr. 1650; Odell, Tr. 1905; Bowen, Tr. 2580; Bellerose, Tr. 2608: Andersen, Tr. 2752); had not wanted nor authorized the receipt of a single bulk shipment; and were unaware such a procedure would be used (Bowen, Tr. 2579: Appino, Tr. 1648; Odell, Tr. 1906; Nickelsberg, Tr. 2664). The first time many subscribers were aware that remaining volumes would be sent in a bulk shipment is when the shipment was received (Odell, Tr. 1905- 1906):

* * * My wife and I both were somewhat taken by surprise, I would say a little bit dumbfounded in the fact that we would receive 14 volumes all at once, when we understood that we were to receive one volume per month. (See also Appino, Tr. 1650-52; Beaman, Tr. 1917; Andersen, Tr. 2701-2702; Aycox, Tr. 1622; Bozell, Tr. 1947; Bowen, Tr. 2578; Burbank, Tr. 2618.

98. In a letter accompanying the bulk shipment to consumers BHLS recognizes that purchasers wil have diffculty evaluating the bulk shipment within IO days (CX 869-B):

Naturally, there is far too much for you to cover in one sitting. A consumer corrohorated the diffculty of reviewing the bulk shipment within 10 days (Aycox, Tr. 1622):

* * * After you received Volume Number Three what other volumes did you receive? I received Volume Number Four through the entire set, which wag twenty volumes.

Q. Why did you decide to keep these volumes? A. Well, with the promise of examination, ten-day examination, I couldn t possibly give a fair examination of the remaining sets within ten days, and as I first stated, I decided to keep them for the children, and I had not much choice but to keep the whole set or just send the whole set back, that is, those 17 volumes. (70 J Other consumers indicated that they might as well keep all the books because it just isn t worth the j'time effort " and "expense" to return the bulk shipment (Odell, Tr. 1906; see also Andersen, Tr. 2704). A letter accompanying the bulk shipment congratulates consumers on acquiring" their new "set" of encyclopedia (CX 869-B). Although 478 FEDERAL TRADE COMMISSIOK DECISIONS Initial Decision 87 F.

BHLS promises to let subscribers take "as many or as few volumes as (they J like" (CX 833-1), BHLS, in effect, imposes an all-or-nothing bulk shipment upon subscrihers (Bellerose, Tr. 2603-2604): Q. What, if anything, did you do with the books after you received them with the bulk shipment'" * * A. I was overwhelmed. You know, because I wasn t really expecting (theme. I just wasn t expecting any 17 volumes all in one box, and I was rather Qv€r.vhelmed with all these books.

They say 10 days to look through them which is a relatively short period of time to go through 17 books and pick out the ones that I wanted to keep, and I didn t realize, I guess that it would be the company s expense if I had bundled them and shipped them back, and I felt it would be mine, so we kept them. (See also Harden, Tr. 3627-28; Andersen, Tr. 2704; Aycox, Tr. 1622; Appino, Tr. 1648- 1650; Oden, Tr. 1906; CX 1517. 99. Subscribers to BHLS' continuity programs are not accorded the option of receiving a single book at a time, and thereby are not afforded the opportunity to receive and review on approval each book separately, and to accept each book separately, until expiration of the continuity program. BHLS does not clearly and conspicuously disclose to subscribers the material fact that, when subscribers initially receive promotional materials concerning the continuity programs and decide on the basis of such materials to enter into such programs all but the first several books are shipped in mass by means of single bulk shipments. Prior to 1972, most continuity mailings made no disclosure at all in the initial mailing packets (71 J of the bulk shipment. Therefore the representations concerning respondent's continuity programs were and are false, deceptive and misleading.

Subscriber Liability 100. BHLS' continuity advertisements claim that persons who mail in one of respondent's continuity book certificates wil receive a volume of the advertised encyclopedia set "ABSOLUTELY FREE AND POSTAGE- PAID, WITHOUT CHARGE OR OBLIGATION " v.'ith "NO-RISK GL'ARANTEE and "AS AN OUTRIGHT GIFT" just for the asking (CX 845). A typical continuity mail brochure contains the following representations: (1) On the packet envelope:

YOUHS FREE"' "' ,. Mail the enclosed certificate for your FREE GIFT copy (CX 845- (2) On a side of a color fold-out in bold print: YOURS FREE' YES! TAKE THIS SCPERR I92- PAGE DECORATING VOLUME AS A GIFT!' . . ABSOLCTELY O OBLIGATION' . . MAIL THE ENCLOSED CERTIFICATE TO CLAIM YOUR FREE VOLUME WITHOUT THE SLIGHTEST OBLIGATION * * * AN OUTRIGHT GIFT"' "' "' YOUR FREE VOLL'ME * * "' ENCYCLOPAEDIA BRITANNICA, mc., ET AL. 479 421 Initial Decision YOUR FREE VOLUME is yours to keep ENTIRELY FREE. Send for your FREE VOLUME today Mail the enclosed Certificate immediately! (CX 845-L.) (3) On another side of the color fold-out in bold print: TAKE THIS GIANT 192-PAGE VOLUME ABSOLGTELY FREE-MAIL THE ENCLOSED POSTAGE- FREE CERTIFICATE TODAY Y! (CX R45- (4) On a typewritten promotional letter in large type: " " * affix this SILVER SA VING STAMP to the enclosed Certificate and maiJ it today! (So that you mayl ACCEPT THIS ABSOLUTELY FREE" * * VOLUME. (CX 845- (5) On another page of the letter:

TAKE VOLUME 1 ABSOLUTELY FREE AND POSTAGE-PAID (at least four timesJ; and without the slightest obljgation '" "' '" ltcl reserve the privilege of FREE EXAMI:\1 ATIO of the rest of the Encyclopedia. '" '" * (CX 845- D; emphasis added. (72 J (6) On another page of the letter:

MAIL THE ENCLOSED CERTIFICATE TODAY - THIS VERY HOUR ACCEPT'" '" * VOLUME 1 WITHOUT CHARGE OR OBLIGATION!; and emphasizes the "FREE VOLUME" at least six more times, while reiterating that Volume 1 is an OUTRIGHT GIFT" at least two more times (CX 845-G). (7) On the certificate in bold print:

YOCR FREE VOLUME" .. '" lYou area UNDER ABSOLUTELY NO OBLIGA- TIO OW OR EVER'" '" '" NO- RISK GUARANTEE (CX 845- 1.) Various forms of the above representations are found throughout BHLS' continuity mail brochures (CX 837,) , 846- , 857- , 847- , 833- , 840- , 859- , 864- , 859-L; RX I8&!, 203G, 226-1). 101. BHLS advises subscribers that they can "simply keep the introductory volume as * * * (aJ gift * * * and that win end the matter" (Collns, Tr. 1611; CX 833-D). Thus, many subscribers believe that their participation in a continuity program is without risk or obligation. One consumer testified (Dollns, Tr. 2440): I understood that if I sent in the card 1 would get Volume 1. The literature said it would not cost me anything, no obligation, free. (Accord Warshaw, Tr. 2681; Beaman, Tr. 1912; 8ee Appino, Tr. 1647; Windsor, Tr. 2628. 102. Subscribers to BHLS' continuity programs are subject to obligations and risks, including notification to BHLS to prevent shipment of additional books in the program subscribed to, the return of books found unacceptable, the payment for books accepted, and the risk of encountering problems due to delays in mail delivery and computer error (respondents' Answer, Par. 12). BHLS does not provide subscribers with a stamped, self-addressed card on which they can freely exercise their cancellation right, nor does it provide postage for the return of unordered or unwanted books unless the subscriber .. .

Initial Decision 87 F.T.C. makes specific requests for postage. BHLS' literature does not infonn subscribers that postage is available from BHLS for the return of (73) unwanted books, and subscribers are therefore unaware that BHLS will make postage available with which to return unwanted books (ColJns, Tr. 1606-1607; Bellerose, Tr. 2603-2604). 103. Mail loss and delay has become an increasing problem for BHLS (Collins, Tr. 1575-76). Computer malfunctioning is also a significant problem (ColJns, Tr. 1576-77). A substantial error factor for subscribers in the continuity programs was described as follows (Harden, Tr. 3630):

Q. Now, under the system that was in operation when you took offce as Director of :Ylaij Order "' '" '" Services (in September 1972), was there an error factor present in servicing the continuity customers? A. Surely.

Q. Would yoll say that that error factor was substantial? A. Yes.

It was further stated (Harden, Tr. 3599-3606): Q. .. '" '" Mr. Harden, were there any problems that you saw in .. '" '" the matters under your control" '" * A. '" '" '" the continuity mailings, there were a great many problems there The greatest number of problems were in the (pre-bulk shipment) area. We were on a basically, a manual system land J" .. '" the amount of human errors ran quite high. As an example, we weren t able to produce an alpha listing of our customers with this system. So when payments or returns would come in, many times * * * his rdurn or payment didn t get credited to the account, (74 J which in turn then we would continue to dun the person until he wrote back, stating that he had returned or made a payment In the area of handling correspondence, we had a problem. * * * There was only one girl working the correspondence * * * One other point 1 want to make * * * because (of) the slowness of the system, from the time we would cut off cash or returns until the time we would make our next ,hipment * * * it would take over, somewhat over two weeks between the cash cut off and the actual shipment of the next volume or - as an example, let's say that a person who had received Volume 1 and had received Volume 2, had now returned Volume 2 which would automatically cancel him for his next shipment. His volume could come in in that two week cut off period and stil his third volume would be shipped to him. * * * (The) problems * * * with the two systems and the people not working together as closely as they should, a payment might come in and go to the (bulk shipment group J but it really should have applied to the (pre-bulk shipment 1 end of the system and maybe ENCYCLOPAEDIA BRITANNICA, IKC.. ET AL. 481 421 Initial Decision the (formerJ wouldn t get it over to the (latterJ group, so the (pre-bulk shipment) group is dunning the account * * *. (See also Finding 108. 104. Respondent's difficulties with its mail order business were recognized and steps have been taken to correct the problems (RPF VI-I4). In August 1973, a fully computerized system was implemented to completely replace the manual system (Harden, Tr. 3604; Collins, Tr. 1577). There had been inadequate management or control of an inadequate number of personnel handling and responding to subscriber biling and correspondence and there were (75 J inadequate controls in effect to insure that subscriber inquiries were promptly answered by BHLS (Harden, Tr. 3601). The problems that flowed from these inadequacies were solved by (1) the assignment of additional personnel to these tasks (Harden, Tr. 3601), (2) the imposition of new management controls (Harden, Tr. 3605), and (3) the adoption and implementation of the cathode ray computer terminal equipment (Harden, Tr. 3606-3609). BHLS had inadequate controls in effect to insure that books that were ordered to be shipped by the binderies were in fact shipped (Harden, Tr. 3602). To remedy this inadequacy, shipments of books to subscribers are now made directly from binderies which are physically separate from BHLS, and a specific follow-up system has been instituted to make certain that books are shipped as scheduled (Harden, Tr. 3601, 3609). Because of the time delays of the old manual system, a subscriber s instructions to BHLS would often not be processed in time to be effective. The new computer system, as well as the new procedure, wil undoubtedly reduce these and other problems encountered by BHLS and its 28 000 subscribers. The record does not reflect the actual success of BHLS' recent efforts to minimize biling and shipping errors (Harden, Tr. 3600-3610). 105. By and through advertisements disseminated to induce persons to participate in its continuity programs, BHLS has represented that persons who subscribe to its continuity programs do so without risk or obligation. In fact, once a person subscribes to the continuity programs, BHLS imposes the following duties or obligations on the subscribers: (a) They must notify respondent to prevent shipment of additional books; (b) they must return to respondent all books found unacceptable; and (c) they must pay for all books not returned to respondent. Subscribers also incur the risk that, due to delays in mail delivery or computer error, they wil receive unordered merchandise or incorrect bilings. Subscribers are also liable for postage on rejection of books and on returned books. Therefore, the representations made by respondent were and are false, misleading and deceptive. 482 FEDERAL TRADE COM !lssion DECISIONS Initial Decision 87 F.TC. V. DEBT COLLECTION PRACTICES 106. BHLS employs a set series of forms in its debt collection procedures (CX 895-965; see Joy, Tr. 2973, 2979-2982). The series starts out with a "REMINDER" (CX 921) and continues with a "SECOND NOTICE" (CX 922), two more similar requests for money allegedly due (CX 923, 924), a form that warns that respondent "cannot continue (to J carry (this J account indefinitely in its present condition" (CX 925); another similar warning (CX 926); a stronger (76 J warning which states: "Please don t wait until we have to ' take steps . If we do not hear from you, it will be necessary for us to take immediate action to protect our interests" (CX 927); and a warning that "you are endangering your credit reputation * * *. Do not force us to turn your account over to our attorney" (CX 928). The series continues with a return envelope with bold printing which reads (CX 929): CO-OPERATION COSTS LESS THAL\ LEGAL PROCEDCRE WOULD IT MEET WITH YOUR APPROVAL IF WE ADDED 1$75 (CX 1727, 1576)1 TO YOUR ACCOUNT BALANCE? THIS AMOUNT IS THE ESTIMATED COSTS FOR PROCESS SERVER'S FEES, COURT COSTS AND OTHER CHARGES, IF LEGAL PROCEDURE IS I1\STITUTED I1\ ORDER TO COLLECT YOUR PRESENT BALANCE. YOU CAN SAVE CONSIDERABLE MOKEY AKD A VOID EMBAR- RASSME1\T BY PAYING' , 'WITHIN FIVE DAYS.

LEGAL PROCEDURE BECOMES A PART OF YOUR PERMANE1\T CREDIT RECORD.

This notice is followed by a letter under the letterhead of Merchants Credit Guide Co., stating that Merchants issues reports concerning the manner in which individuals pay their just obligations" and giving the debtor an opportunity to pay up "before any unfavorable report is issued" (CX 931), and a letter from BHLS stating that they have approved transfer of the account to "our Attorney," and giving the debtor one last chance to pay before such transfer takes place (CX 930). 107. Customers next receive letters from "James Robert Cox ATIOR:-EY AT LAW" (CX 932-935) which state variously that BHLS' collection manager has "instructed me to take some action" and giving the debtor an opportunity to pay and "avoid the possibilty of further action and court costs" (CX 932): or that the collection manager has requested that I immediately file suit in a local court to obtain a judgment * * * for the full (77 J balance due * * * plus all court costs. * * * I am proceeding with the preparation of the necessary papers (CX 933); or that "l'nless you contact me * * * within 10 days from today, your account wil be processed for suit" (CX 934); or that "this .. .. .. .. .. .. .. .. .. ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 483 421 Initial Decision letter will serve as proof that you have been duly notified of the action pending against you" (CX 935). This is followed by additional letters stating that only if the subscriber makes payment wil BHLS "see that Mr. Cox withholds legal action" (CX 937), and "the attorney handling your account has ad vised me that preparatory action has now been completed. Although the matter is out of our hands for some time * * * payment (nowJ wil delay the action long enough to see if we can work this matter out" (CX 938). This series is followed by three more notices which BHLS sends out through the auspices of National. Credit, Inc. (Harden, Tr. 3622-23; see, e. CX 1800).

108. About one of every five BHLS account holders receives dunning notices (Harden, Tr. 3613- , 3635). Many of these persons actually receive the entire series of notices and letters on more than one occasion (Harden, Tr. 3619-3621; see also Andersen, Tr. 2710-2733). A number of subscribers received merchandise even after they had cancelled their subscriptions (Warshaw, Tr. 2688-2689; Beaman, Tr. 1914-15; Dollns, Tr. 2443; Nickelsberg, Tr. 2661-62). Several customers received bilings and dunning letters for unordered merchandise (Beaman, Tr. 1915, 1923-24; Dollns, Tr. 2443-44; Nickelsberg, Tr. 2670- 71; Warshaw, Tr. 2689-2691: see also Andersen, Tr. 2704-2713), while some received bilings and dunning letters where they had never accepted BHLS' continuity offer, nor requested any merchandise (Windsor, Tr. 2628-2630). A number of witnesses testified that, despite their efforts to rectify a clearly erroneous situation, they were stil subjected to unrelenting mailings of billngs and dunning letters (Beaman, Tr. 1924-1935; Windsor, Tr. 2632-36; Dollns, Tr. 2443-4; Warshaw, Tr. 2688-2691 , 2696-98; Nickelsberg, Tr. 2657-2680: Andersen, Tr. 2698-2751).

109. The record shows that EB employs many of the same debt collection methods as BHLS when attempting to induce payments of accounts from its customers (Respondents' Answer, Par. 14; CX 1630- 1638, 1645-1660, 1683-1720; Joy, Tr. 2973). According to Mr. Dru, EB' official in charge of debt collection (Tr. 3647-48): (78 J An account would come off of the computer . It would go to the region a! offce handling the account.. where * .. a collection correspondent would manually dun the account by form letter weekly We would make approximately four phone calls on him and we would hold it in that office for about 90 days. At the end of 90 days, that offce would transfer the account to Chicago, and'" they would send out three forms for a period of 90 days, and if the customer did not respond, then it wouid be transferred out to a collection agency.

During the 90- 100 days while in the Regional Collection Offce, EB would manually dun customers with approximately 18 letters, including ( Initial Decision 87 F.

four on the letterheads of attorneys. The accounts are retained for 90 days and are then transferred to an outside collection agency approximately 240 days after the account is kicked off the computer. While "some " of the accounts are transferred to a collection agency, small balance accounts and others are coded-out and abandoned (Dru Tr. 3658-3662).

1I0. EB maintains approximately 150 000 open accounts, of which approximately 25 000 are dunned in a sequence of letters such as the following (Dru, Tr. 3654): A reminder (CX 1645- 1646); a form that adds in order to avoid the payment of additional interest" (CX 1647); two reminders (CX 1648-1649); a form which states that prompt payment wil avoid " assessing additional interest charges (CX 1650); a reminder (CX 1651); a form stating that "We cannot continue writing you without response, nor can we carr your account indefinitely in its present condition" (CX 1652); a form stamped "FINAL NOTICE" which warns that "* you do not want to jeopardize your credit standing (CX 1653): one which threatens "* * * you are forcing us to proceed with collection by other methods. Why not avoid embarrassment and expense * * *" (CX 1654); letters such as CX 1656 ("* * * we needn remind you of the legal significance of your signature on the sales contract you signed") and CX 1657 ("We must take the actions previously indicated to enforce our rights you may expect us to proceed"); threats of garnishments (CX 1685); threats of (79 legal action and court costs (CX 1686) and sheriffs sales (CX 1687); a series of letters from respondent's Collection Manager, CX 1689 why risk the resulting legal action?"), ex 1690 ("* save yourself considerable money in legal costs * * *") and CX 1691 ("Unless payment is received within 5 days, we will have no alternative but to authorize our attorney to take JUDGMENT against you. This may result in your employer being served with GARNISHMENT DEMANDS ), along with letters threatening "to employ drastic collection measures which might prove costly and embarrassing * * *" (CX 1695) and "to proceed with the collection of your account by whatever means * * * necessary" (CX 1697); two letters on the letterhead of Merchants' Credit Guide Co. , which threaten customers that their name wil "* appear in legal records and trade reports as having been sued for collection of a past due account" (CX 1718); letters on the letterheads of Attorney Samuel D. N eidorf or Attorney Louis J. Victor, which state " Encyclopaedia Britannica has instructed me to take action * * *. To avoid the possibility of legal action and court 1630; see alsocosts - fmake payment within five daysJ" (CX 1635), "* * * I wil be compelled to collect the entire balance of the debt without regard to the burden which a lump sum payment might ENCYCLOPAEDIA BRITA:-NICA, INC., ET AL. 485 421 Initial Decision place upon you" (CX 1633), "I will have to advise my client that your debt cannot be collected short of a lawsuit. * * * THIS IS Fmal NOTICE BEFORE SUIT " (CX 1634; see also ex 1636, 1638); and a letter claiming that "This is our FINAL DEMAND FOR PAYMENT: Exactly one week from today we are closing your fie and forwarding it to our attorney with instructions to file suit. This is your last chance to avoid court action" (CX 1698).

111. Respondents have a contractual relationship with attorneys whose letterhead stationery is used for the collection series (CX 2008 966; Victor, Tr. 1342; Pixler, Tr. 1364; Cox, Tr. 1376-77). The attorneys approve the language of the form letters (Victor, Tr. 1343-44; Pixler Tr. 1366; Cox, Tr. 1376), and respondents mail them to the accounts and sign the attorney s name to them (Victor, Tr. 1350-51: Pixler, Tr. 1366; Cox, Tr. 1378; CX 966, 2008-C). Respondents assume all operating costs such as mailng, phone calls and stationery (CX 966). Responses to the letters, which are sent directly to the attorneys, are immediately forwarded directly to respondents (CX 2008- C; Victor, Tr. 1357-58; Cox, Tr. 1385: Pixler, Tr. 1366). The attorneys make no legal recommendations regarding the delinquent accounts, do not (SO J file suit against such accounts, and are not authorized by respondents to bring suit in any court against any such accounts (CX 2008; Victor, Tr. 1360-61; Pixler, Tr. 1372; Cox, Tr. 1380-81). It is the corporate policy of respondents not to bring suit once they have exhausted their entire debt collection series and a corporate representative could recall no case of a lawsuit to collect money allegedly owed to respondents (Dru Tr. 3668). Respondents' representations to the contrary are, therefore false, misleading and deceptive.

CONCLUSIONS RECRUITING PRACTICES Paragraphs Five and Six of the complaint charge EB with deceptive acts or practices in connection with recruiting advertisements placed in newspapers of general circulation. It is alleged that these advertisements contain deceptive statements and misrepresentations concerning the (1) types of positions being offered, (2) availability of management training, (3) guaranteed monthly incomes, and (4) duties to be performed by the persons engaged by respondents to contact persons in their homes primarily for advertising or other non-sellng purposes. While not specifically alleged in the complaint as a violation of Section 5, complaint counsel have proposed numerous findings concerning respondent's use of "blind" recruiting advertisements advertisements which do not disclose either the name of the company Initial Decision 87 F.

offering the position, the type of position being offered, or the product involved (CPF II-12-26). Respondent has likewise proposed findings on the use of such "blind" advertisements (RPF II-I). The record establishes beyond dispute that EB engages in extensive use of newspaper advertisements for the purpose of recruiting personnel to engage in the door-to-door ' (81 J sale of its products and services. The advertisements which are utilized for recruiting purposes are approved by EB's corporate officials for use by its local offices throughout the country. Recruiting advertisements are placed in daily newspapers of general interstate circulation such as the New York Times, Washington Post, St. Louis Post-Dispatch and Philadelphia Inquirer (Finding 9). These recruiting advertisements generate thousands of inquiries each year (Finding 9), and recruitment of salesmen is an important aspect of respondent's business operation (Finding 9).

The record is manifestly clear that EB makes substantial use of blind recruiting advertisements; in fact, most of its salesmen are recruited through the use of such advertisements (Findings 10-12). Persons responding to blind recruiting advertisements by contacting the telephone number listed in the advertisement are given no information over the telephone. All information concerning the position, company and product is withheld until after applicants have kept an appointment and have taken certain initial screening tests (Findings 15-16). Respondent also employs advertisements which affirmatively misrepresent the position being offered. Some such advertisements state that the position offered is not in (82 J door-to-door sales. Some advertisements represent that the position being offered is in management, administration, public relations, or sales promotion (Findings 18, 19). Other advertisements state that the position being offered is in marketing, or the position is that of an instructor or demonstrator, and it involves interviewing familes and delivering information (Finding 19).

Respondent widely utilizes advertisements offering management training or executive sales training (Findings 21-23). Respondent also places heavy reliance on advertisements which offer guaranteed incomes ranging from $500 to $1 000 per month (Finding 25). The guaranteed income advertisements specify that the applicant must , H€ponrJ€l1t contend" tna! it i8 not engaged in the door-la-door 8al" of products (RB. p-V,; RRF , p. 3). It is r.,8poodcnt s contention that it is eogajled in the 8a1e of product in th hom (RPF 11- 1), and that ita aa\csmen do not canva door-to-door but instead follow "leads " or inquirie" from prospective oustome'" (HPF, p. :n Thi" argument i8 rejec"ted. The bulk of EB' " sales are made door-to-door, as that term is d"fll"d in the Commission 8 T..de Regulation Rule Concerning a Cooling-Off Period for Door-to- DO'Jr Sales (Findings Ii, 20, (8). Respondent " primary reliance on leads," many of which ar" nothing more than th nam of an individualli. , baby leads. or names of individual. who have recently moved into a community I, and On telephone BIJpoinlmenta in contanif\g IJroap"ct. in th ir homes, does not convert r"npondent smethod "fdoing bosine.8 from a lJa irdoor-lo-d()or8ale8operation , E:-CYCLOPAEDIA BRITANNICA, INC., ET AL. 487 421 Initial Decision meet respondent's "requirements " with no time limitation placed on the guaranteed income. Many of the advertisements offering guaranteed income and management training are blind advertisements; some such blind advertisements offer both management training and guaranteed income (CX 5- V, 35).

The record establishes that respondent's advertisements are for the purpose of recruiting salespersons to engage in the door-to-door sale of its products and services (Findings 20, 24). EB does not have a management training program and few, if any, applicants are actual1ly offered management trainee contracts (Finding 24). Further, applicants are discouraged from accepting guaranteed income contracts, and those applicants who do sign guaranteed income contracts seldom, if ever receive the guaranteed incomes (Findings 27-29). Applicants, who forego guaranteed income contracts for what is represented to be a better arrangement under respondent's regular commission contracts do not earn and cannot reasonably expect to earn commissions as great as the ad vertised guaranteed income.

There is obvious deception where respondent misrepresents the type of position being offered and the amount of compensation that will guaranteed. Several witnesses testified that they were most attracted to the advertisements by the promise of a substantial guaranteed income (Finding 25). Promises of management training where none exists likewise has the capacity to deceive, especially for persons who are interested in advancement (Finding 22). It is equally deceptive and unfair for respondent to fail to disclose in its recruiting advertisements the nature (83 offered. Respondent admits that the purposes ofof runningthe positionadvertise-being ments which fail to disclose the true nature of the position offered is to attract that segment of the job-seeking public which is composed of persons who would not respond to an advertisement offering positions in door-to-door sales (RPF II- I)' If "blind" advertisements attract persons who would not have responded to such advertisements had they known the true nature of the position offered, it follows that persons, who do decide to respond, believe that the position being offered is one which they may desire. Thus, respondent has knowingly and intentionally misled and deceived such persons through its advertisements.

Respondent contends that the advertisements are not deceptive because the witnesses, who testified in this proceeding about "blind" advertisements actual1ly accepted the sales position that was offered (RRM, pp. 4-5). This argument is not only legally invalid since the initial Blind" advertisements are not neoessary to r"spondent business. The record shows that Opell adverlisemcl!s are succes"f"i ill recruitill,lsaJcsmell (Finding 14). Initial Decision 87 F.

contact was made through deception, it completely ignores the thousands of persons who made inquiry because of the deception but turned down the position.

It is clear that the deception fostered by respondent's "blind" advertisements is successful in bringing persons to respondent's offices who would not have come if they had known that the position offered involved door-to-door selling, which is the admitted reason respondent uses blind advertisements. Therefore, such advertisements have the tendency and capacity to deceive a substantial number of potential job applicants, and to cause applicants to invest time, energy and money in investigating job opportunities in which they would not otherwise have been interested.

One additional factor regarding the deceptiveness and unfairness of respondent' s recruiting advertisements should be emphasized. Advertisements offering employment opportunities are directed at a particularly susceptible segment of the population - the unemployed. Advertisements offering (84 J guaranteed income and management training, if misrepresented, have a substantial capacity to deceive. It is also manifestly unfair and deceptive to cause persons to invest time energy and money and go through an appointment and interview before learning such basic and threshold information as the nature of the position being offered, especially where the position - door-to-door sales - is one which admittedly most persons do not desire and would not otherwise investigate.

it is a The Commission has repeatedly held over the years that violation of the Federal Trade Commission Act to misrepresent to potential salespersons the nature of the position offered and the amount of compensation that wil be received. Educators Ass, Inc. GoodmanFederal Trade Commission 108 F.2d 470 (2d Cir. 1940); 1957); AmericanFederal Trade Commission 244 F.2d 584 (9th Cir. Marketing Associates, Inc. 73 F. C. 213 (1968); see also, Crowell Collier and Macmillan, Inc. 82 F.TC. 1292 (1973). It is equally well settled that failure to disclose material facts is a violation of the Federal Trade Commission Act. All-State Industries of North Caroli- , Inc. v. Federal Trade Commission 423 F.2d 423 (4th Cir. 1970); Portwood Co. v. Federal Trade Commission 418 F.2d 419 (10th Cir. 1969). As the District of Columbia Circuit Court of Appeals stated in Tashof v. Federal Trade Commission 437 F.2d 707, 714, fn. 37 (1970): .. '" .. we have lon since passed the point where the power of the Commission to reach statements that are deceptive because they contain less than the whole truth can be doubted.

Further, the law is violated if the first contact or interview is secured ENCYCLOPAEDIA BRITAN ICA. INC., ET AL. 489 421 Initial Decision by deception, even though the true facts may be made known at a later date. Carter Products, Inc. v. Federal Trade Commission 186 F.2d 821 (7th Cir. 1951).

JURISDICTION OVER RECRUITING PRACTICES Respondent takes the position that Section 5 of the Federal Trade Commission Act does not extend to EB' s recruiting practices because (1) they are not "trade practices; (2) such practices are inherently local in nature, and thus are not a part of interstate commerce (RM, pp. 18- 25).

(85) EB argues that recruiting is not a trade practice engaged in by respondent acting as a "trader;" rather, the act of recruiting is properly viewed "in isolation" from the trade process. EB contends that the activity of recruiting, Jike the activity of bargaining with employees arbitrating disputes with employees, or funding pensions for employees, is distinct from the business of producing, transporting, promoting, and selling encyclopedia - that is, it falls under the heading of labor relations or fair employment practices. It is wholly col1ateraJ to trade. It is divorced from the competitive process, and the process of distribution to consumers, the twin processes which Congress sought to regulate by means of Section 5.

Respondent further argues that its recruiting practices are inherently local in nature. EB's district managers place advertisements in local newspapers, those who respond are given community job assignments subject to the supervision of the district manager, and the employment contracts involved specifically limit the area in which the new recruit is allowed to solicit sales. Thus, respondent argues, in sum, that these local activities transform respondent's interstate operations into myriads of local businesses that only by a very oblique kind of reasoning can be construed as in or part of interstate commerce. Respondent relies upon three previous decisions to support its arguments: Federal Trade Commission v. Bunte Bros. 312 U.S. 349 (1941); Scientific Mfg. Co. v. Federal Trade Commission 124 F.2d 640 (3rd Cir. 1941); Progress Tailoring Co. v. Federal Trade Commission 153 F.2d 103 (7th Cir. 1946). None of these decisions are dispositive of these issues raised by respondent.

The decision in Bunte Bros. was concerned with an Ilinois candy manufacturer sellng candy only in Ilinois. The Commission argued in that proceeding that it may proscribe unfair practices used in intrastate sales when these result in a handicap to interstate competitors. The Court, in ruling against the Commission, held that it could not read unfair methods of competition in (interstate) commerce as though 216- 969 O-LT - 77 - 32 Initia! Decision 87 F.TC. it meant" 'unfair methods of competition in any way affecting interstate commerce (ld. at 355). (86 J The facts in the present matter differ significantly from the facts in Bunte Bros. EB is a national concern sellng encyclopedia throughout the United States. Deceptive recruiting advertisements are used throughout the United States. Although the actual advertisements are placed by local offces of respondent, they originate at corporate headquarters, and must be approved by corporate officials prior to use by local offices. After approval by corporate headquarters and dissemination to local offices for use, the advertisements are placed in scores of newspapers having substantial interstate circulation (such as the Boston Globe, New York Times, Washington Post, Chicago Tribune, St. Louis Post-Dispatch, Denver Post, Los Angeles Times). Weekly reports are submitted to corporate headquarters evaluating the success of advertisements placed in each newspaper, and respondent relies upon salesmen recruited through such advertisements to market and sell its products nationwide.

Characterizing newspapers in which respondent's advertising appears as "local" does not detract from the fact that these same newspapers maintain substantial circulation in interstate commerce. Jurisdiction may rest solely on interstate dissemination of the deceptive advertisements; a showing of interstate recruitment of salespersons is not essential. S. Klein Dept. Stores, Inc. 57 F. C. 1543 (1960); accord, Bankers Securities Corp. 57 F.T.C. 1219 (1960): " and SUITey Sleep Products, Inc., et al. 73 F. C. 523 (1968). Further, respondent cannot isolate the practices of local offces from its interstate operations. Respondent' s recruiting activities are an integral part of its distribution system as is obvious from the following: (1) Respondent recruits salesmen who sell its products throughout the United States;

(87 J (2) respondent designs and creates all recruiting advertisements containing the misrepresentations and deceptions; (3) recruiting is conducted by agents and employees of respondent; (4) respondent's success in the sale and distribution of its products is due largely to its success in recruiting salesmen; and (5) respondent's success in recruiting is due primarily to its reliance upon corporate materials which contain misrepresentations and deceptions.

In Ford Motor Co. v. Federal Trade Commission 120 F.2d 175 (6th Cir. 1941), cert. denied 314 U.S. 668 (1941), the facts involved false advertising as to financing of automobiles purchased from local Ford , In Ho"ker Secll"'ties Corp_ 57 LTC. 1219. 1224 , the Commission held that;t;R approprite tn take efficial notice of the fact that a well known metropolitan n"w paper is distributed out"ide the st3te in which it i8 published ENCYCLOPAEDIA BRITA);NICA , I . ET AL. 491 421 fnitial Decision dealers. Ford, relying upon Bunte Bros., supra contended that the alleged violative practices were not in commerce within the meaning of Section 5 of the Federal Trade Commission Act since Ford had sold the cars to its dealers and the practices pertained solely to a purely intrastate transaction dealers' sales to consumers. The Circuit Court rejected Ford's contention holding:

The sale on credit of petitioner s cars by its local dealers, when separately considered may be intrastate in character but when the activities of petitioner s JocaJ agencies are weighed in the !i ht of their relationship to the petitioner, and its financing sales of cars it is at once apparent that there is such a close and substantial relationship to interstate commerce that the control of such activities is appropriate to its protection. (ld. at 1&'3 (88 J The facts in the present matter are stronger than in the Ford case since the Ford dealers were independent agents and not employees as are the officials of respondent's local offices. Thus, it is apparent that respondent' s recruiting activities are an integral part of its interstate business operations and cannot be separated therefrom. There is such a close and substantial relationship" between respondent's local offices and its interstate business operations generally that the recruiting activities are within the jurisdictional ambit of Section 5 of the Federal Trade Commission Act.

EB' s contention that its recruiting practices are wholly collateral to its selling practices and therefore not subject to the jurisdiction of Section 5 of the Federal Trade Commission Act must also be rejected. Scientific Mfg. Co. v. Federal Trade Commission, supra cited by respondent, is not in point. In Scientific Mfg. Co., the respondent published and disseminated a booklet concerning the use of aluminum cooking utensils; it was not engaged in the sale of utensils, nor financially interested in the sale of such articles.' Also inherent in the Court' s decision was the right of "free speech" under the First Amendment to the Constitution. The Court stated: * * * the present petitioners not being engaged or materially interested in the cooking utensil trade, the Commission was without power to enjoin their sale and distribution of the pamphlets which they published concerning the use of aluminum cooking utensils and further, that the publication, sale, and distribution of matter concerning an article of trade by a person not engaged or financially interested in commerce in that trade is not an unfair or deceptive act or practice within the contemplation (89 J of the Federal Trade Commission Act, as amended, if the published matter, even though unfounded or untrue represents the publisher s honest opinion or he lief. Ud. at 644. , See alsa, H(JI/alld FUTliace Co, Federal Trade r"",,,,ss;,,,,209 F.2rl 20:!. 212 nlh Cir, 1959).cen. d'H;ed, :161 S. 932 11960):acmrd, AUo"Uc Ref' '11 "9 Co, Federal Trade Co",,,,,s,,"" F.2d 59'J. 607 (6th Cir. 19(5)uti de/l.ed 382 9:J9(1965) \ When a respondent 8elli"g cooking uten8ilr utilized the hook lets ,,' hid, were the 8ubjecr of theScie"l,fir Mfg. Cn proceeding. the Commission properly enjoine,j BIJch practice.Per"io-Moid Co. rederol Tr"de Co",,,i..i,," 1::\ F-2d 28:: (6tl\ Cir. 1941).

492 FEDERAL TRADE COMMISSIOI' DECISIONS Initial Decision 87 F.T.C. It is amply clear that respondent' s recruiting activities directly affect its trade in products and services and therefore cannot be viewed as collateral" to its sellng activities. The commercial significance of respondent' s recruiting advertisements, as well as the clear monetary benefits which respondent gains from such advertisements, squarely takes this case out of the holding in Scientific Mfg. Co., and places respondent' s recruiting activities within the Commission s jurisdiction under Section 5 of the Federal Trade Commission Act. In Progress Tailoring Co. v. Federal Trade Commission 153 F. 103 (7th Cir. 1946), the petitioner s challenge rested on the premise that the advertisements for salesmen did not constitute interstate commerce and thus the Commission lacked jurisdiction. The Court rejected this argument based on the circumstances that employment offers were made only to secure purchasers for the sale of the said petitioner s merchandise. However, the Court did not, as respondent contends, hold that jurisdiction over recruiting practices will only attach where the advertisements soliciting the salesmen are designed to sell merchandise to the applicant for the job. There is no wording in the opinion which limits the jurisdiction of the Commission over recruiting practices to the facts in the Progress Tailoring matter. The undersigned has not located any proceeding in which it has been specifically determined that the Commission has jurisdiction over recruiting advertisements; the distinct issue apparently has never been directly raised heretofore. The Commission has determined in the past however, that it has power under Section 5 to regulate misrepresentations in recruiting practices, and has, in fact, consistently exercised such power. As early as 1939, the Commission ordered a company, which used false and misleading newspaper advertisements to recruit persons for the door-to-door sale of reference books, to cease and desist from:

(90 J Representing to prospective representatives that they will refund deposits or pay any specific sums of money or salaries to such representatives until and unless they funy and adequately disclose all of the tenns and conditions upon which refunds or payments are actually made. Educators ASI'Iociation, Inc. v. Federal Trade Commission 108 F. 470 472 (2d Cir. 1939; Reh. denied 110 F.2d 72 (2d Cir. 1940); Mod. 118 F.2d 562 (2d Cir. 1941)).

As early as 1940, the Commission published a trade practice rule to prohibit the very types of recruitment practices demonstrated by this, 150.15; 5 F.R. 3506 (Sept. 4record. 16 C. R. 9S 150. 1940). In its rule, the Commission determined that it is "an unfair trade practice to secure or attempt to assure the services of any person as agent, canvasser, solicitor, or other sales representative (in the sale or distribution of books J by means of misleading or deceptive representa- ENCYCLOPM;DIA BRITANNICA, INC., ET AL. 493 421 Initial Decision tions with respect to amounts guaranteed or offered such representatives, or by any other such unfair means" (16 C. R. 9150.15). While such guides did not have the force and effect of law, they were, at a minimum, efforts to educate and lead the industry, and clearly indicated Commission concern at deceptive recruiting practices. The Commission s determination to continue to exercise jurisdiction over recruiting practices is evidenced by the litigated order in American Marketing Associates, Inc. 73 F. C. 213 (1968). There the Commission, without additional written opinion, summarily affrmed the hearing examiner s findings, but redrafted his order "to prohibit, in clear and specific terms, the unlawful acts and practices in which the record establishes that respondents have engaged" (ld. at 262). The Commission drafted the following prohibitions, among others, which required the respondent to cease and desist from representing, directly or by implication, that:

Jobs are available or applicants are sought as trainees for junior executive positions in market research and analysis, advertising credits, public relations, personnel supervision or management; or misrepresenting, in any manner, the type or kind of employment offered;

(91) salary or income is being paid for any job or position when only a commission is paid to those accepting the employment; or misrepresenting, in any manner, the amount or method of compensating employees; Ud. at 263). This order constitutes clear and convincing evidence that it has continued to be the Commission s view that unfair and deceptive recruitment practices are in violation of Section 5 and it is empowered to take decisive action in regulating such practices. No decision of the Commission casts any doubt on its position in American lvfarketing, and no Federal court has held, or even suggested, that its position is wrong on jurisdictional grounds.

It is beyond dispute that the Commission has determined through repeated regulatory actions that recruitment practices constitute unfair or deceptive acts or practices under Section 5 of the Federal to anTrade Commission Act. The courts have given great weight Udall v. Tallmanagency s construction of its own enabling legislation. 210 U.380 U. S. 1 (1965): United States v. American Trucking Ass 534 549 (1940).

Aside from previous Commission determinations, there are several bases for asserting Commission jurisdiction over respondent's recruiting practices. It has previously been concluded that respondent' recruiting practices are an integral part of its interstate business operations and are vital to respondent's abi:ity to sustain a sales force and to thus maintain a course of trade and commerce in the sale and distribution of encyclopedias. It would be particularly inappropriate to Initial Decision 87 F .T. single out recruitment as not being a part of respondent' s overall trade practices. To take respondent's argument to its logical conclusion would require that collection practices also be separated and eliminated from consideration as a trade practice: so too, perhaps, would be the use of door openers." Accordingly, the Commission has jurisdiction over the deceptive recruiting advertisements.

The Commission in this proceeding is not challenging the salaries or commissions to be paid to employees, the hours to be worked, or the territories to be covered; the Commission s challenge is limited to deceptive advertising of business opportunities that are available (in the form of (92 J salesmen s positions J. This is a trade practice, not regulation of actual employment terms and conditions. Statutes governing labor relations and fair employment practices in no way limit the Commission s jurisdiction over advertising of employment opportunities.

Respondent's argument that the challenged practice must itself, be a trade practice" (RM, p. 21) seems bottomed upon the argument that a sale of a product or service must be directly involved in the particular practice which is challenged. Numerous precedents establish that an actual sale need not be established. In the S. Klein case supra the Commission determined that mere interstate dissemination of a deceptive advertisement conferred jurisdiction upon the Commission. The Commission has condemned numerous other business practices where no sale of a product or service was directly involved; collection practices, threats to sue, commercial bribery, inducing breach of contract, harassment of competitors, stealing competitors' trade secrets, enticing away competitors' employees, furnishing deceptive means and instrumentalities to others, misrepresenting business status disparagement of competitors, payola, and misrepresenting business earnings and employment opportunities. The language of Section 5 declares inter alia that uunfair or deceptive acts or practices in commerce" are unlawful. The Act does not speak of "trade; nor does it speak of the sale of a commodity or service. There is a further basis upon which Commission jurisdiction may be asserted. Respondent's recruiting advertisements are an offer of a business opportunity. Some of the advertisements promise management training; others offer a guaranteed income for an unspecified period of time. These are offers of business opportunities, in effect the offer of a license to sell respondent' s products and services. Some such offers are accepted, and thus a "sale " has been consummated. The Commission has for some time concerned itself with misrepresentations and deceptions in the advertising of franchises, and has proposed a trade regulation rule concerning franchising (Disclosure Require- ENCYCLOPAEDIA BRITANNICA , I:-C., ET AL. 495 421 Initial Decision ments and Prohibitions Concerning Franchi,,:n., 36 F. R. 21607). Respondent' s job offers are quite similar to franchising. The Commission has broad authority to protect the public against unfair practices, as noted in the Commission s opinion in All-State Industries afNorth Carolina, Inc. 75 F. C, 465, 491 (1969): (93) * '" * (the Commission J is charged not only with preventing well-understood clearly defined, unlawful conduct but with utilzing its broad powers of investigation and its accumulated knowledge and experience in the field of trade regulation to investigate identify and define those practices which should be forbidden as unfair because contrary to the public policy declared in the Act.

This broad authority has been recently confirmed by the Supreme Court in Federal Trade Commission v. Sperr Hutchinson Co., 405 S. 233 (1972). The public to whom respondent' s recruiting misrepresentations and deceptions are directed is entitled to the protection of the Federal Trade Commission Act. At anyone time respondent employs between 1 500- 000 sales representatives. During the period 1969- 1971 , approximately 10 000 such persons were employed (RPF III-6). The Commission can and should exercise jurisdiction over respondent's recruiting misrepresentations and deceptions. SELLING PRACTICES Paragraphs Seven and Eight of the complaint allege that EB through promotional materials and oral representations, has misrepresented (I) the purpose of its salesmen s contacts with persons in their homes, (2) that EB is offering merchandise and services free of charge to prospective purchasers in return for certain cooperation from the purchasers, (3) that purchasers of EB's products and services will realize significant savings, (4) that sales representatives will utilize only a few minutes inside prospects' homes, (5) that EB's Library Research Service wil provide answers to any questions and that such answers wil be the product of detailed, exhaustive and original research. Paragraph Nine of the complaint alleges that EB conducts various contests and utilzes other promotional devices for the purpose of obtaining leads to prospective purchasers of its products and services without informing persons, who respond to such devices, that they wil be subject to a lengthy sales presentation. (94) INITIAL CONTACT WITH CONSUMERS The primary means by which EB sells its products and services is through the door-to-door solicitation of consumers (Finding 39). It is essential to respondent's business that its salespersons gain admission to prospects' homes in order to make a sales presentation (Balzano, 'fr. Initial Decision 87 F.

1542). EB's salesmen utilize numerous devices which disguise the purpose of the salesman s initial contact with prospects devices which essentially are ruses for gaining admission into prospects' homes not in the role of a salesman" (CX 648-E). These devices are approved by EB's management, are made available to its salesmen, and the salesmen are trained by EB to effectively use such devices (Findings 39-51).

One ploy used to gain entrance into prospects' homes is the Advertising Research Analysis questionnaire. This form questionnaire is designed to enable the salesman to disguise his role as a salesman and appear as a surveyor engaged in advertising research. EB fortifies the deception created by the questionnaire with a form letter from its director of advertising (CX 648E-F) for use with those prospects who may question the survey role. These questionnaires are not good faith advertising research surveys; many of the questionnaires are thrown away by salesmen without being analyzed for any purpose whatsoever (Findings 40-45).

Other devices used by EB' s salesmen are free booklets, vacation certificates, and other prizes. Salesmen are trained to approach prospects' homes in the guise of delivering such gifts or prizes without identifying themselves as salesmen, or that the purpose of their visit is to sell encyclopedia (Findings 48-52). A former executive of EB' Compton s Division testified (Balzano, Tr. 1531): Q. Do I understand you to say you counsel your sales representatives not to reveal the purpose of their selling books at the door initially? A. Absolutely.

One of the principal methods which EB employs to establish appointments at the homes of prospects is the use of "telephone talks prepared by EB for the use of (95) its salesmen. While the caller does identify himself as being with Encyclopaedia Britannica, the approved language of the "talks" is designed to convey the impression that the purpose of the caller s requested visit is only to deliver a gift or prize or to certify a gift certificate (Findings 46-47). EB' s salesmen are provided with "door approach" language designed to reinforce the telephone talk" to conceal the true purpose of the salesmen s visits (Finding 46).

EB employs contests and contest entry cards and makes extensive use of magazine advertisements and direct mail brochures to obtain leads" or names of persons to contact (Finding 84). None of the contest entry cards, magazine advertisements or mail brochures discloses that a salesman wil call. In fact, the mail and magazine advertisements indicate an information will come by mail direct frombrochures E:-CYCLOPAEDIA BRITANNICA. INC., ET AL. 497 421 Initial Decigion the publisher. Contest entry cards indicate there is no obligation and winners will be notified by telephone (Findings 85-86). Thus, the record is clear that EB's sales representatives misrepresented and failed to disclose the purpose of the initial contact with prospects. These practices were authorized and condoned by EB. Such misrepresentations and deceptions are neither novel nor lawful. Similar practices have been declared unlawful by the Commission over the years, most recently in The Crowell-Collier Publishing Company, Dkt. 7751 70 F. C. 977, 1012, 1021- , 1026 (1966). IN-HOME REPRESENTATIONS Respondent's salesmen are trained to make a presentation of a Cooperative Plan" after gaining entrance into the homes of prospects. Under the terms of the "Cooperative Plan " a number of items are represented to be "given" free of charge, or at "no charge" in return for cooperation by the purchaser (Findings 54-59). The alleged cooperation was neither required nor obtained from purchasers in many instances (Findings 60-62). In making the presentation, salesmen were trained to use so-called "retail" prices for the items included in the "Cooperative Plan the encyclopedia set and the items included in the Plan at " charge." In many instances, EB's salesmen write down on pieces of paper or brochures the "retail" prices in order (96 J to graphically demonstrate the savings which the prospect will realize under the Cooperative Plan" (Findings 63-67).

The claimed "retail" prices employed by the salesmen are not the prices at which substantial sales of such products have been made by respondent (Finding 68). In fact, EB's salesmen are trained to make only a "Cooperative Plan" presentation, and are not permitted to sell individual items at retail prices (Finding 59). Some of the items in the Cooperative Plan" are available only through the "Cooperative Plan and are never sold at retail. None of the merchandise is "given" for cooperation; all merchandise and services are sold as part of a package plan.

Although some sales of some items have been made at retai prices, it is clear that the sales presentation which respondent's salesmen are trained to make in the home is a misrepresentation and a deception. The presentation is designed to mislead the purchaser into believing he is receiving a package plan at a substantial savings when in actual fact this is respondent' s regular offer to consumers. There are no savings no merchandise is given free of charge, and no merchandise is "earned" by cooperation from the purchaser.

Respondent' s standard "Cooperative Plan" presentation emphasizes that the plan must be accepted immediately. National magazine , 498 FEDERAL TRADE CO)!MISSION DECISIONS Initial Decision 87 F.

advertisements also state that the "Cooperative Plan" is a limited offer. The emphasis on immediate acceptance lends credence to respondent' representation that the "Cooperative Plan" is a special price which represents substantial savings (Findings 70-71). EB' s salesmen also represent that they will take only a few minutes of time to complete their visit in a prospect' s home. If the salesman is permitted to give a sales presentation, the visit requires at least an hour, and sometimes a much longer period of time is involved (Findings 73-75).

During the course of the sales presentation, representations are made orally by salesmen and in brochures concerning EB's Library Research Service which is included in the "Cooperative Plan." Library Research Service answers questions from purchasers of Encyclopaedia Britannica and Great Books. Purchasers receive 100 coupons, each of which (97 J may be used to obtain a report on topics included in a basic catalogue, or to obtain a special report on topics not included in the catalogue. EB's salesmen represent to prospects that Library Research Service will provide information on any subject with the only exception being legal and medical advice. It is also represented that the reports wil be similar or identical to college term papers in form and content (Findings 76-78).

The evidence reveals that there are numerous other conditions and limitations to the Library Research Service. There are numerous types of questions which Library Research Service wil not supply answers thereto. Further, in some instances, answers provided by Library Research Service are not the product of exhaustive, original research are not in the form of a college thesis, and are not responsive to the questions asked. Most of the reports furnished by Library Research Service are standard reports on topics listed in the Library Research Service catalogue (Findings 79-83).

Again, respondent's misrepresentations and deceptions concerning cooperation" from the purchaser, the "free " or "no charge" merchandise retail" prices, the "savings" to be realized through the Cooperative Plan " the "limited" duration of the offer, and the length of the sales visit are not novel or lawful. These same practices, with slight variations, were condemned in The Crowell-Collier matter supra at pp. 1022- 1024. See also, Basic Books, Inc. v. Federal Trade Commission 276 F. 2d 718 (7th Cir. 1960); Standard Educators, Inc. Federal Trade Commission 475 F.2d 401 (D. C. Cir. 1973): American Marketing Associates, Inc. 73 F. C. 213 (1968); Federal Trade Commission v. Mary Carter Paint Co. 382 U.S. 46 (1965); and Sunshine Art Studios, Inc. v. Federal Trade Commission 481 F. Il7I (1st Cir. 1973).

ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 499 421 Initial Decision Respondent' s misrepresentations concerning the Library Research Service concern the scope of questions that "ill be answered, and the type and quality of the reports. Previous Commission decisions concerning encyclopedia sales have determined that such misrepresentations are unlawful. Consolidated Book Publishers, Inc. v. Federal Trade Commission 53 F.2d 942 (7th Cir. 1931); see also, Staruard Distributors, Inc. 48 F. C. 1435 af/d. 211 F.2d 7 (2d Cir. 1954). Further, misrepresentations concerning the quality, content (98 J or characteristics of products being sold are manifestly unfair and deceptive and have long been held to be in violation of the Federal Trade Commission Act (see CCH Trade Reg. Rep. Vol. 2, \l 7593-7619). LEAD-GETTING ACTIVITIES EB' s magazine and direct-mail advertisements as well as contest entry cards, used to obtain the names of persons who will be contacted by EB's salespersons for the purpose of persuading such persons to purchase EB's products, do not disclose the fact that persons who respond wil be contacted by EB's salespersons. The Commission has held that failure to disclose the material fact that responses to advertisements wil be followed up by a salesperson is a violation of the Federal Trade Commission Act. Mather Hearing Aid Distributors, Inc. 78 F. C. 709 (1971).

Respondent contends (RRM, p. 7) that the facts on Mather are somewhat different than in the present matter, different in respect to the nature of Mather s product and the age and susceptibilty of prospective customers. Respondent also points out that EB' s salesmen usual1ly telephone prospects prior to visiting them personally. These fact differences do not change the basic deception inherent in EB' methods. EB's magazine advertisements affrmatively mislead the public into believing that all materials and information will come by mail - direct from the publisher (Findings 84-85). Some of the contest entry cards indicate EB is giving away prizes in celebration of its 200th anniversary, that there is no obligation in fillng out a card (CX 754- 756).

The sale purpose of these activities is to obtain leads to prospects. The only way to protect the public, to correct the misrepresentations in respondent' s lead-getting activities, is to inform the public of the true motives behind respondent's offers of free information and prizes that respondent has a profit motive and will seek to sell its products to those who respond to its devices. These are material facts the public should know. Disclosure that a salesman may call to make a sales " Interestingly, every eonteBtant wing a priU' - a consolation pri (findings 47-49; Morse, Tr. 24(0) . . .

Initial Decision 87 F.

presentation of respondent's products and services (99 J wil correct respondent' s misrepresentations and make these material facts available to the public.

BHLS' MAIL ORDER PROGRAM BHLS' advertisements and promotional materials which solicit participation in its continuity programs create the impression that the books in such continuity programs wil be sent separately at monthly intervals. Such solicitations fail to disclose initiaUy to prospective subscribers that all but the first few volumes of BHLS' continuity programs wil be sent in a single shipment (Findings 92-94). BHLS concedes that prior to 1972 there was not an explicit disclosure in the initial promotional materials sent to potential subscribers of the bulk shipment (RRF, p. 27). Since 1972 BHLS' promotional materials have made some disclosures of the bulk shipment in the initial promotional materials; however, such disclosures are not clear and conspicuous (Findings 94 99).

BHLS' continuity programs involve the negative option plan of sellng (Collins, Tr. 1566, 1594). Such plans have a high potential for misleading consumers. The Commission has, therefore, issued a trade regulation rule pertaining to the use of negative option plans, effective June 7 1974 (Use of Negative Option Plans By Sellers In Commerce, 38 R. 4896).7 Since all communications initially are by mail, extra care is necessary to completely disclose to prospective subscribers the material terms of the plan. The use of a bulk shipment for several volumes of the series is a material fact (Finding 97). The (100) Commission has repeatedly held that deceptive nondisclosure of material facts is a violation of the Federal Trade Commission Act. See Feil v. Federal Trade Commission 285 F.2d 879 (9th Cir. 1960); All- State Industries of North Carolina v. Federal Trade Commission, 423 2d 423 (4th Cir. 1970); Tashofv. Federal Trade Commission 437 F. 707 (D.C. Cir. 1970).

BHLS' ERRONEOUS BILLINGS AND DUNNING LETTERS After customers are induced to participate in BHLS' continuity programs, some of them are subjected to unrelenting mailngs of bils and dunning letters which demand payment for books that were previously returned or never received. Continuity customers even 7 The Commission originally propo ed a rule prohibiting the negative option plan of sellng- In proposing the rule the Commission Btated that it had reason to believe that ""Hen! who UBI' the negative option pLsn have "failed to di"c\o e dearly and ton pituouBly in al1 advertiaing and aales promotional material directe to prospective subscribers complete detai!sa. to the operalion of any negative option plan IJa.d which eonstitutea a failure to discloae materisl facts to prospective subscriber; (38 F.lL489H) ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 501 421 Initial Decision receive shipments of books after they have cancelled the program (Findings 102-105). Complaint counsel submit (CCB, p. 7) that BHLS' method of servicing the accounts of its continuity customers unfairly subjects its customers to the distinct possibility of receiving unordered merchandise and harassing dunning letters which are sent in error. Therefore, complaint counsel contend, the proscription of BHLS' method of dealing with its continuity customers is consistent with the Commission s responsibilty to "proceed not only against practices forbidden by statute or common law, but also against practices not previously considered unlawful, and to create a new body of law - a law of unfair trade practices adapted to the diverse and changing needs of a complex and evolving competitive system. All-State Industries of North Carolina, Inc. 75 F. C. 465; affirmed 423 F.2d 423 (4th Cir. 1970); see, Federal Trade Com.mission v. Sperr Hutchinson Co., 405 S. 233 (1972).

The record does reveal some errors in BHLS' handling of subscriber accounts (Findings 103, 108). The record also indicates that BHLS has taken steps to keep such errors at a minimum (Finding 108; RM , p. 41). The Commission, in its statement of the revised proposed rule issued with the negative option trade regulation rule, stated (38 F.R. 4899): The Commission said it recognizes that an industry dependent upon milions of maij transactions each month cannot completely (101) avoid errors. Accordingly, random sporadic, nonconformance with these regulations shah not constitute a violation jf the seller s procedures, manpower, and facilties are adequate to ensure that the occurrence of such errors is minimized and they are corrected promptly upon their discovery, or if such nonconformance is the result of circumstances beyond the seller s control. The present record does not demonstrate that BHLS' past errors or omissions exceed the limit recognized by the Commission, or that BHLS' procedures, manpower, and facilities are inadequate. While demonstrated past errors were flagrant, remedial steps have been taken. Accordingly, no conclusion can be made that BHLS' present methods of biling and collecting from its continuity customers is unlawful.

RESPONDENTS' USE OF COLLECTION LETTERS Respondents EB and BHLS employ a series of set forms in their collection procedures. Some of these forms threaten legal action garnishment, and sheriffs sale against the creditor customer (Findings 106, 110). After receiving a series of dunning letters, customers receive letters on the letterhead stationery of attorneys located in Chicago Ilinois. These form letters, which are approved as to form by the attorneys, are prepared and mailed by respondents who assume all Initial Decision 87 F.

operational costs involved. Replies to these letters are forwarded immediately to respondents by the attorneys (Findings 107, 110, 111). The letters from the attorneys to delinquent accounts threaten that legal action wil be taken, that suit will be filed in a local court to obtain a judgment plus all court costs, that necessary papers are being processed for suit, that the letter constitutes proof of notification of action that is "pending against you" (CX 935), and "THIS IS FINAL NOTICE BEFORE SUIT" (CX 1634).

It is undisputed that the attorneys make no legal recommendations regarding the delinquent accounts, do not fie suits against any such accounts, and are not authorized (102 J to bring suit in any court against any such account. It is the corporate policy of respondents not to bring suit once they have exhausted the entire debt collection procedure. One corporate official could recall no case of a lawsuit to collect money allegedly owing to respondents (Finding 111). The Commission has consistently held that the use of schemes which are intended to give alleged delinquent debtors the false impression that their accounts have been transferred for collection to an entity other than the creditor are violations of the Federal Trade Commission Act. William H. Wise Co. Inc. v. Federal Trade Commission 246 F. 702 (D. C. Cir. 1957), cert. denied 355 U. S. 856; Interntional Art Co. v. Federal Trade Commission 109 F.2d 393 (7th Cir. 1940), cert. denied 310 U. S. 632; Wilson Chemical Co. Inc. 64 F. C. 168 (1964). Respondents' practice of sending collection letters to their customers which give the false impression that such letters are from an attorney who has been authorized to collect the debt owed to EB or BHLS duplicates the scheme which was declared unlawful in Wilson Chemical Co., supra.

SUMMARY Respondents argue that complaint counsel have presented in this case the testimony of a handful of former salesmen who have narrated stories of personal misconduct in violation of clearly stated company rules; that what is in fact no more than the testimony of an infinitesimal few among thousands of salesmen purportedly becomes conclusive proof of widespread lawlessness requiring radical COITection; and that, from these bits of evidence, complaint counsel now urge that there exists a broad continuum of misconduct (RRM , p. 2). Respondents also argue that the twenty-five (25) former salesmen called as witnesses by complaint counsel worked for EB an average of less than 10 weeks each, and that more than half of the witnesses terminated their association with EB during or prior to 1970 (RPF III- 6).

:;

E:-CYCLOPAEDIA BiUTANNICA, INC., ET AL. 503 421 Initial Decision Contrary to respondents' arguments, the findings of unlawful conduct which have been made herein are based on company documents, testimony of company officials, consumer testimony, and testimony of former sales representatives. This decision is not based on a few isolated departures (103 J from company policy. There is no conflict in the record evidence; all evidence supports the findings of unlawful conduct, and almost every finding of fact is based upon company policy, or company-approved training, or company-condoned activities.

Further, most of the conduct found to be unlawful in this proceeding has been considered a number of times in previous Commission proceedings and held to be in violation of Section 5 of the Federal Trade Commission Act. Respondents recognize that the general propositions of law involved in this proceeding are basically well established (RRM, p. 5). Thus, while respondents argue that they have made every good faith effort to comply with the law, and point to agreements which managers and sales representatives are required to sign (RPF III 1-5), their efforts have been woefully inadequate. This is especially so in view of two previous cease and desist orders entered against respondents by the Commission. Encyclopaedia Britannica Inc. 48 F.TC. 1416 (1952): Encyclopaedia Brilannica, Inc. 59 F. C. 24 (1961).

THE REMEDY It is well setted that the Commission has wide latitude in fashioning remedies to stop the unlawful practices found to exist, and "* the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist. Jacob Seigel Co. v. Federal Trade Commission 327 U.S. 608, 611-613 (1946); see also, Federal Trade Commission v. Cement Institute 333 U.S. 683 726 (1948); Federal Trade Commission v. Ruberoid Co., 343 U.S. 470 473 (1952); Federal Trade Commission v. National Lead Co., 352 U. 419 428-431 (1957); Federal Trade Commission v. Colgate-Palmolive Co., 380 V.S. 374 , 392 (1965); L. G. Balfour Co. v. Federal Trade Commission 442 F.2d I (7th Cir. 1971). The courts have affirmed the power of the Commission to go beyond the specific violations found to prohibit similar practices that a respondent may attempt to use in the future. Federal Trade Commission v. Mandel Bros., Inc. 359 U.S. 385 392-393 (1959); Niresk Industries, Inc. v. Federal Trade Commission 278 F.2d 337, 343 (7th Cir. 1960), cerl. den. 364 U.S. 883 (1960); Consumers Products of America, Inc. v. Federal (104 J Trade Commission 400 F.2d 980 , 933 (3d Cir. 1968), cerl. den. 393 U. S. 1083 (1969). In Colgate-Palmolive Co., supra at 895, the Court stated: Initial Decision 87 F.

We think it reasonable for the Commission to frame its order broadly enough to prevent respondents from engaging in similarly ilegal practices in future advertisements. As we said in Federal Trade Commission v. Ruber01:d Co. 343 U. S. 470, 473: (T Jhe Commission is not limited to prohibiting the ilegal practice in the precise fom in which it is found to have existed in the past." Having been caught violating the Act respondents "must expect some fencing in. Federal Trade Comrnission v. National Lead Co. 352 U.S. 419, 431.

It is also firmly established that, where appropriate, the Commission is authorized to require affirmative action in its orders. S & S Pharmaceutical Co. , Inc. v. Federal Trade Commission 408 F.2d 487 489 (5th Cir. 1969); All-State Industries of North Carolina, Inc. Federal Trade Commission 423 F.2d 423, 425-426 (4th Cir. 1970), cert. denied 400 U. S. 828; Tashof v. Federal Trade Commission 437 F. 707 (D. C. Cir. 1970).

The Commission has stated that "past conduct, in fact, must determine to some extent what the proper scope of relief should be. * * *" In short, the Commission must take into account past acts and practices of respondents in order to fashion effective relief. The Firestone Tire& Rubber Co., 81 F. C. 398, 469 (1972), affd. 481 F. 246 (6th Cir. 1973). Such considerations are supported by the Supreme Court' s opinion in Federal Trade Commission v. National Lead Co. supra at 429, wherein the Court determined that the Commission order was proper on the grounds inter alia that the originator of the unlawful practices "had been previously adjudged a violator of the antitrust laws, The undersigned has taken into consideration inter alia in framing an order in this proceeding (I) the numerous violations of law by respondents which this record establishes, consisting of conduct which has been declared unlawful by the Commission over the years, (2) the fact that this order must be designed to protect the general consuming public which includes the ignorant, the unthinking (105 J and the credulous (see Charles of The Ritz v. Federal Trade Commission, 143 2d 676, 679 (2d Cir. 1944), (3) respondents' past record of unlawful conduct as determined in previous Commission proceedings ' (106 J and (4) the fact that "* * * once the Government has successfully borne the considerable burden of establishin( a violation of law, all doubts as to " In 1952, after BeVen (7) years of litigation, the Commission ordered respondent to cease and deBi"t from Representing, directlyor hy impliration, that the price" at which said bookaare uffned foraille are apecial orredured price a or are applicable fora limited time only, when such pricea are in fact the customary andu8ual prices at which Baid boohllre sold by respondent in its regular and normal court of business (EHcwcloptedif! Rritmnl1ca fllc. 4fi C.1416, 1427) In 1001, after three more yearn of litigation, the Commiasion issued another order aR'ainRt respondent requiring it to cease and deaiat from repreaenting, directly or indirectly' That the prices or term a at which the aforeaaid RoodB and services are custnmarily or regularly off",red for Bale, ut "old . either singly or in combination with other good a or Bervices, are ap€Cia!, teduc.. or diseou1lted prieea ut terms; or are special reduced ordiBcounted prices or terma as a pllrt of an offer to a ap€cial oraelected class or group of purehasers or aB a pllrt of an adverti..ing8urvey pro KTam Ora" a part of an intraduNory offer (CrJ1li"Filed) ENCYCLOPAEDIA BRITANNICA, INC.. ET AI. 505 421 Initial Decision the remedy are to be resolved in its favor (United States v. E. I. du Pont de Nemours & Co., 366 U. S. 316, 334 (1961). The undersigned has made several changes in the order proposed by complaint counsel, including the elimination of several provisions, and the incorporation into the order of the requirement that respondent not violate any of the provisions of two recent trade regulation rules issued by the Commission. 9 The order contains simple prohibitions against misrepresentations in EB' s recruiting advertisements. EB's failure to disclose in its recruiting advertisements material facts with respect to the position offered in its recruiting advertisements has the capacity to deceive a substantial number of potential job applicants. The obvious remedy for this violation is to require disclosure of the material facts. Respondent is prohibited from representing that any person will receive or is guaranteed a stated income unless at least thirty percent (30%) of the persons holding similar positions in the offce offering the position received an equivalent or greater income during the preceding twelve months. This thirty percent (30%) figure is an arbitrary figure as respondents contend (RRM, p. 12); however, some such requirement is obviously necessary, and thirty percent (30%) appears reasonable. Respondent should be in a position to substantiate earnings claims prior to making such claims (see Pjizer, Inc. 81 F.TC. 23 (1972). The flat prohibition against recruiting advertisements offering management training is warranted because respondents have no management training program. If a legitimate training program is ever established, relief from this part of the order can readily be obtained from the Commission.

(107 J In addition to requiring the disclosure of material facts in recruiting advertisements, the order wil ensure that those persons who in fact apply for door-to-door sales positions wil receive complete and truthful information relating to the nature of the position before they obligate themselves under any employment agreement. The need to make these disclosures before a job applicant enters into an employment agreement with EB is fully justified by the record which shows that EB enticed persons to sign employment contracts which imposed restrictions and limitations that made it virtually impossible to earn the promised income, and that, where salespersons met the requirements for receiving the income promised in their employment agreements, EB failed to honor such agreements. Respondents' use of guaranteed income advertisements was particuor aB 1\ part of any other kind of 3ale" or promotional program; or afford any savings to the purchaser (EHcyciopnediQ Brila'''l1ca /1/c. 59 f. C.Z4, 43J. !Ju of ,Veycllive Opo" Plalls By S.Ue-s Inco""'lerCe, effective June 7 , 1974, \6 C.F. H. 9425; CooU1Ig.Off Pehod For Door-To-DoorSa!eR df"ctiveJlJ!1" 7, 1974, 16 C.F.R, 9429. 216- 9€9 O-l.T - 77 - 33 506 FEDERAL TRADE CmD!lSSION DECISIO;-S Initial Decision 87 F.

larly deceptive. To remedy this situation, the order requires that before entering into any agreement which promises a stated income EB must inform the applicant of the percentage of salespersons in that particular office who were actually paid the income promised under their employment agreements during the previous year. This disclosure is no absolute guide upon which a job applicant can predict his or her chances to earn the income promised by EB, but it does provide the job applicant with an objective fact which can be considered in deciding whether there is a reasonable opportunity to actually receive the income offered by EB.

Respondents are required to disclose in recruiting advertisements the basis of compensation for persons to be employed. Respondents argue that small help wanted advertisements are impractical for such disclosures (R RM, p. 13). Compliance with such an order provision wi1 be neither unreasonable nor impractical. Without detailng appropriate compliance procedures at this early date, some disclosure such as payment on a commission basis, or weekly or monthly salary, might suffice.

EB is prohibited by the order from disseminating any promotional material or providing any contest entry card which does not clearly disclose that any person responding to such materials may be contacted by a salesperson. This provision does not require that a salesperson call but merely informs the public of respondent' s intent in disseminating such materials and the risks or obligations (108) which may be involved. This is information the public should have, and it does not unduly interfere with any of respondent's business operations. The order contains provisions which prohibit respondent from misrepresenting the purpose of contacting persons in their homes or places of business, and require respondent to clearly inform prospects in telephone talks and at the door that the purpose of the visit is to solicit the sale of respondent' s products or services. This will correct respondent' s misrepresentations and deceptions as shown by the record. As one of EB' s former corporate offcials testified, the abilty to gain admittance into the home is essential to respondent' s business operations (Balzano, Tr. 1542). Thus, elimination of misrepresentations and deceptions in gaining admittance into homes is crucial to this order as well. There is no conceivable business or other justification for misrepresenting the purpose of a salesman s visit. A homeowner is entitled to know the purpose behind any visit by a salesman. The time has arrived to put an end to deceptions of this type. For these reasons, the order entered herewith requires EE' salesmen to present the prospect with a card which clearly discloses the purpose of the visit. Respondent strenuously objects to such an order , , p.

ENCYCLOPAEDIA BRITANNICA , I:-C., ET AL. 507 421 Initial Decision provision (RPF III-7; RM, p. 43; RRM, p. 17); however, no satisfactory alternatives are suggested. The use of a disclosure card should prove effective to eliminate misrepresentations and deceptions in obtaining appointments with homeowners, or in gaining admittance into homes. If this provision proves unduly onerous, relief from this provision can be requested at a later date.

The order also requires respondent' s salesmen to give the prospect an opportunity to read the card at the door before any sales presentation can commence. This seems ample disclosure of the purpose of the salesman s visit. Thus, complaint counsel's proposal for different size cards depending upon the method of initial contact with a prospect seems superfuous and is rejected.

Order provisions dealing with misrepresentations as to "free merchandise retail" prices, and "savings" claims are rather detailed. It is believed these provisions are necessary to ensure that the misrepresentations (109 J concerning the value of the merchandise or services being offered for sale to homeowners are eliminated. In framing these provisions of the order, the undersigned has taken into consideration two previous cease and desist orders entered against respondent, which prohibited certain pricing or savings misrepresentations (see page 105 supra. (n. 8 504, herein J ). Apparently the two previous Commission orders have been ineffective. Therefore, strict and detailed provisions concerning the important area of pricing and savings claims have been incorporated into the order. The order requires respondents to comply with two Commission Trade Regulation Rules - Cooling-Off Period For Door-To-Door Sales (16 C. R. !129. 1), and Use of Negative Option Plans By Sellers In Commerce (16 C. R. !125. I). Both rules were issued in 1973, but became effective June 7, 1974. The record establishes substantia) violations of law by respondents in the area of sales covered by these trade regulation rules, and it appears appropriate to order compliance with the rules rather than redraft the rule or tailor specific provisions to respondents in this proceeding as complaint counsel have proposed. EB made a contention during the hearings herein that it gave purchasers the right to rescind contracts entered into at the door, a cooling-off' period (RM , p. 50). The record clearly establishes however, that no such right was extended to purchasers, except where required by state law. In fact, the record reveals a practice of discouraging purchasers from reading provisions of sales contracts dealing with customer rights (Findings 87-89). Since the industry is now required to conform trade practices to the Commission s Trade Regulation Rules, respondents are in the same position as their competitors, except that respondents wili bc subject to Initial Decision 87 F.

a substantial monetary fine for violating the provisions of the trade regulation rules once this order becomes effective. The trade regulation rules incorporated into this order are clearly needed to correct respondents' sales practices. The Commission has determined that a cooling-off" period is an effective method of protecting consumers from misrepresentations and deceptions by door-to-door salesmen. Such a remedy wil not only correct respondents' misrepresentations and deceptions, but win extend protection to consumers. The Commission has determined that complete (110 J and conspicuous disclosures by sellers, which utilize negative option sales plans, are necessary to protect the consuming public. Such order provisions are needed in this proceeding to correct respondents' trade practices. It would make a nullity of a substantial part of this proceeding to leave out a compulsory requirement that respondents comply with the pertinent trade regulation rules which clearly are needed to correct respondents unlawful business practices established after lengthy litigation. Respondents' business conduct, viewed in the light of the two previous Commission cease and desist orders, makes it imperative that formal restraints be imposed at this time.

The undersigned has eliminated from complaint counsel's proposed order a provision requiring that applicants for sales positions be furnished a detailed explanation of this order. The order which is being entered provides for furnishing such applicants with only the pertinent provisions of this order, which is believed preferable to a further lengthy explanation of the order. Complaint counsel's proposal would invite such sales applicants to communicate with respondents' president if the applicant has any reason to believe the Commission s order is being violated. Such self-interpretation or self-policing of the order may cause more confusion than light to be shed on respondents conduct. If any applicant believes the Commission s order has been violated, it is assumed some such applicant win contact the Commission. Also eliminated from complaint counsel's proposed order is the requirement that respondents establish a surveilance program to insure compliance with the order to be entered. Such a provision is unnecessary in view of the monetary penalties, recently increased by the Congress, for violating an order issued by the Commission. CONCLUSIONS OF LAW I. The Federal Trade Commission has jurisdiction over the respondents and the subject matter of this proceeding. 2. Respondent Encyclopaedia Britannica, Inc. is a corporation organized, existing, and doing business under and by virtue of the laws of the State of New York, with (111) its principal place of business ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 509 421 Initial Decision located at 425 North Michigan Ave., Chicago, Ilinois. Respondent Britannica Home Library Services, Inc. is a corporation organized existing and doing business under and by virtue of the laws of the State of Ilinois, with its principal office and place of business located at 425 North Michigan Ave., Chicago, Ilinois. It is a wholly-owned subsidiary of respondent Encyclopaedia Britannica, Inc., and respondent Encyclopaedia Britannica, Inc. formulates, directs, and controls the acts and practices of respondent Britannica Home Lihrary Services, Inc. including the acts and practices set forth in the complaint. 3. Through its various organizational divisions and wholly-owned subsidiary, respondent Encyclopaedia Britannica, Inc. publishes, sells and distributes, throughout the world, textbooks, encyclopedia, reference and educational materials, training courses, and other literary works and services. Its volume of business has been, and is, substantial. Respondent Britannica Home Library Services, Inc. sells and distributes books and other merchandise through advertising and mailings. Its volume of business has been, and is, substantial. 4. In the course and conduct of their businesses, as aforesaid respondents now cause, and for some time last past have caused, said products to be shipped and distributed from their places of business or their sources of supply to purchasers and prospective purchasers thereof located in various States of the United States other than the State of origination, distribution or storage of said products. Respondents disseminate, transmit and receive, or have caused to be disseminated, transmitted and received, sales promotional materials invoices, checks, collection notices and various other commercial papers or documents in the course of advertising, sellng, distributing, and co11acting payment for said products among and between the several States of the United States. Respondents maintain, and at a11 times mentioned herein have maintained, a substantial course of trade in such " isbooks and other products or services in commerce, as "commerce defined in the Federal Trade Commission Act (15 U. C. 991-58). 5. In the course and conduct of its business and for the purpose of recruiting persons for the door-to-door sales of its products, respondent Encyclopaedia Britannica, Inc. has caused to be disseminated advertisements in (112) various publications of general circulation which contain statements concerning the nature of the advertised positions. Through the use of the aforesaid advertisements and oral statements of its representatives or agents, respondent has represented, directly or by implication, that:

(1) respondent is offering positions in such fields as advertising research analysis, public relations or other nonsel1ng fields; (2) respondent is offering to train persons as management trainees; Initial Decision 87 F.

(3) respondent is offering persons monthly incomes in excess of $500 per month, or similar incomes; and (4) persons engaged by respondent contact other persons in their homes primarily for the purposes of conducting surveys, advertising promotions or for other nonsellng purposes. In truth and in fact:

(I) respondent is not offering positions in the fields represented; (2) respondent wi1 not train persons for the positions represented; (3) persons engaged by respondent do not receive the incomes as represented; and (4) persons engaged by respondent do not contact people in their homes for the purposes represented by respondent. Therefore, the statements, representations, acts and practices set forth herein were and are false, misleading and deceptive. 6. Respondent has caused to be disseminated advertisements in various publications of general circulation offering employment opportunities which fail to disclose the nature of the position being offered, the name of (113) the company, and the product or service. The use by respondent of recruiting methods for door-to-door salesmen which fail to disclose these material facts has had, and now has, the tendency and capacity to mislead a substantial portion of the public into the erroneous and mistaken belief that respondent is not recruiting persons for the door-to-door sale of encyclopedia. Therefore, respondent' s failure to disclose material facts in its recruiting advertisements was and is misleading, deceptive and unfair. 7. In the further course and conduct of its business as aforesaid and for the purpose of inducing the general public to purchase its publications, merchandise or services, respondent, through its sales representatives, utilzes various forms of promotional materials in conjunction with oral sales presentations containing statements concerning the purpose of the initial contact with the prospect, the identity of the solicitor, the nature of the offer and the terms of respondent' s contracts or other agreements. In the foregoing manner respondent and its sales representatives have represented, directly or by implication, that:

(1) respondent's sales representatives are contacting persons in their homes or places of business for purposes other than the sale of respondent' s publications, merchandise or services; (2) respondent is offering certain of its publications, merchandise or services free or without cost to persons agreeing to perform certain cooperative acts;

(3) persons who purchase respondent' s publications, in combination E:-CYCLOPAEDIA BRITANNICA. INC., ET AL. 511 421 Initial Decision with other publications, wil realize a significant savings from the claimed retail prices of respondent s publications: (4) respondent's sales representatives wil take only a few minutes to complete their presentations inside prospects' homes or places of business;

(5) persons subscribing to respondent's Library Research Service receive answers to questions regarding any subject, except medical or legal advice: and (114) (6) the answers provided by respondent's Library Research Service are the product of detailed, exhaustive or original research generated by the specific questions asked by subscribers to said Service.

In truth and in fact:

(I) Respondent's sales representatives contact persons in their homes or places of business for the purpose of sellng respondent's publications, merchandise Of services;

(2) respondent is not offering certain of its publications, merchandise or services free or without cost to any person who agrees to perform certain cooperative acts;

(3) persons who purchase respondent's publications, in combination with other publications, wil not realize a significant savings; (4) respondent' s sales representatives do not ordinarily complete their presentations inside prospects' homes or places of business within only a few minutes;

(5) persons subscribing to respondent' s Library Research Service do not receive answers to questions regarding any subjects, except medical or legal advice: and (6) the answers provided by respondent' s Library Research Service are not the product of detailed, exhaustive and original research generated by specific questions asked by the subscribers to said Service.

Therefore the statements, representations, acts and practices set forth herein were and are false, misleading and deceptive. 8. In the further course and conduct of its business, respondent has conducted various contests and utilzed other promotional devices for the purpose of obtaining leads to persons who will allow respondent' sales representatives into said persons' homes for the purpose of (115) inducing said persons to purchase respondent' s products. Persons who enter any contest, or who receive informational brochures, or who are told that they have been awarded a valuable gift, are not informed of the material fact that, as a result of entering the contest, receiving the informational brochures, or gifts, such persons wil be contacted by a sales representative for the purpose of making a sales presentation for Initial Decision 87 F.

respondent's publications, merchandise or services. Therefore, respondent' s statements and representations, and the failure to disclose material facts as aforesaid were and are false, misleading and deceptive.

9. In the course and conduct of their business, respondents Encyclopaedia Britannica, Inc. and Britannica Home Library Services Inc. have disseminated and are disseminating advertisements in various publications of general circulation or in promotional materials mailed to members of the general public to induce persons to become subscribers to continuity book promotion programs. The aforesaid advertisements and promotional materials place emphasis on shipment of books singly at intervals, without clearly and conspicuously disclosing the material fact that all but a few of the books are mailed to subscribers by means of a bulk shipment. Respondents' advertisements and promotional materials also represent, directly or by implication that persons who subscribe to respondents' continuity programs do so without risk or obligation. In truth and in fact, subscribers to respondents' continuity programs must notify respondents to prevent shipment of additional books, must return to respondents all books found unacceptable, and must pay for all books not returned to respondents. Subscribers also incur the risk that, due to delays in mail delivery or computer error, they wil receive unordered merchandise or incorrect bilings. Therefore, the representations set forth hereinabove were and are false, misleading and deceptive. 10. In the further course and conduct of their business and for the purpose of collecting debts allegedly due and owing respondents pursuant to contracts or other agreements relating to the purchase of respondents' publications, merchandise or services, respondents, in numerous instances, have attempted to induce payment of accounts either due or delinquent as the case may be, by sending dunning letters notices or similar instruments (116) in the United States mails which contain statements and representations, directly or by implication, that: (a) Letters or notices on the letterheads of attorneys are prepared or mailed by those individuals; and (b) respondents regularly transfer accounts to attorneys with instructions to institute suit or to take other legal measures to collect an alleged outstanding debt.

In truth and in fact:

(a) Notices are prepared or mailed, in many instances, by respondents and replies or responses to said mailings are forwarded to respondents; and (b) respondents do not regularly transfer accounts to attorneys with E:-CYCLOPAEDlA BRITAN:-ICA, INC., ET AL. 513 421 Initial Decision instructions to institute suits or to take other legal action to collect allegedly outstanding debts.

Therefore, the statements and representations set forth above were and are false, misleading and deceptive.

11. In the course and conduct of their business, and at all times mentioned herein, respondents have been, and now are, in substantial competition, in commerce, with corporations, firms and individuals in the sale of publications, merchandise and services of the same general kind and nature as that sold by respondents. The use by respondents of the aforesaid false, misleading and deceptive statements, representations, acts and practices, and their failure to disclose material facts have had, and now have, the capacity and tendency to mislead members of the public into the erroneous and mistaken belief that said statements and representations were, and are, true and complete, or into the purchase or retention of, and payment for, substantial quantities of said publications, merchandise and services by reason of said erroneous and mistaken belief.

(117) 12. The aforesaid statements, representations, acts and practices of respondents were and are all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce in violation of Section 5 of the Federal Trade Commission Act (15 V. C. !15). 13. The order entered hereinafter is necessary to correct the unlawful conduct in which it has been concluded that respondents have been, and are, engaged, and to protect the public. (118) ORDER It is ordered That respondent Encyclopaedia Britannica, Inc., and its successors and assigns, officers, agents, representatives and employees directly or indirectly, through any corporation, subsidiary, division or other device, in connection with the recruitment of persons to sell, rent lease, or distribute any textbook, encyclopedia, reference or educational material, or any other publication, merchandise or service, in commerce as "commerce" is defjned in the Federal Trade Commission Act, do forthwith cease and desist from:

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

(1) Respondent is offering positions in such fields as advertising analysis, public relations, marketing, interviewing, or in any field other Initial Decision 87 F.

than door-to-door sales, if door-to-door sales is included, to any extent in the position for which persons are being recruited; or misrepresenting, in any manner, the job for which any person is being solicited; (119 J (2) persons will be trained as management trainees, or for other positions of responsibility concerned with administrative office functions; or misrepresenting, in any manner, the amount and type of training that wi1 be given;

(3) any person may receive or is guaranteed a stated income, unless at least thirty percent (30%) of the persons holding similar positions at the office offering the position during the twelve (12) months immediately preceding the stated representation have received an equivalent or greater income; or misrepresenting, in any manner, the amount of income to be earned by any person or that may be earned by any person, the method of payment, or any condition or limitation imposed upon the compensation of any person; (4) any person who may be employed will contact prospects in their homes or places of business for the purposes of conducting surveys advertising promotions, or other nonsellng functions; or misrepresenting, in any manner, the purposes for which any person is engaged. (120 J B. Failing to disclose, clearly and conspicuously, in all advertising offering employment in any way involving door-to-door sales, that:

(1) Respondent is recruiting persons for the sale purpose of soliciting or sellng;

(2) that such soliciting or sellng wi1 be on a door-to-door basis; (3) 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 (4) the basis for compensating persons so engaged. C. Failing to clearly and conspicuously advise, both orally and in initial face-to-facewriting, any prospective sales employee at the interview, and prior to executing any employment agreement with any such person, the following information:

(I) All those disclosures set forth in Paragraph I B above; (2) a complete and detailed description of each condition and limitation imposed upon the receipt of any compensation; (121 J (3) where applicable, notification that such person will not be paid for time spent during orientation and training: (4) a complete and detailed description of any expense or expenses any such person may incur in perlorming the required duties; and (5) the percentage of persons holding similar positions engaged by the office offering the position during the twelve (12) months ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 515 421 Initial Decision immediately preceding the offer, who have adua1Jy received an equivalent, or greater, income than that promised under the terms of any such agreement.

D. Failing to furnish to persons at the initial face-to-face interview 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. It is further ordered That respondent Encyclopaedia Britannica, Inc. and its successors and assigns, officers, agents, representatives and employees, directly or indirectly, (122 J through any corporation subsidiary, division or other device, in connection with the publishing, adverUsing, offering for sale, sale, rental, lease or distribution of any textbook, encyclopedia, reference Of educational material, or any other publication, merchandise or service, in commerce, as "commerce " is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

A. Disseminating or causing to be disseminated any advertisement or promotional material which solicits participation in any contest drawing or sweepstakes, or solicits any response to any offer of merchandise, service or information unless any such solicitation clearly and conspicuously discloses the following statement in lO-point boldface type:

NOTICE TO CONSUMER PERSONS WHO REPLY AS REQUESTED MAY BE CONTACTED BY A SALESPERSON FOR THE PURPOSE OF SELLING (insert name of applicable product J.

B. Providing any return card, coupon or other device which is used to respond to any advertisement or promotional material covered by Paragraph II A (123 J above, unless the following statement clearly and conspicuously appears in lO-point boldface type in immediate proximity to the space provided for a signature or other identification of the responding party:

NOTICE TO CONSUMER - PERSONS WHO RETURN THIS (insert name of applicable device) MAY BE CONTACTED BY A SALESPERSON FOR THE PURPOSE OF SELLING (insert name of applicable product J. C. Failing to disclose clearly and conspicuously, at the beginning of any telephone call to any prospective customer, the fact that the individual making the call is either soliciting the sale, rental or lease of publications, merchandise or services for respondent, or is arranging Initial Decision 87 F.

for a sales solicitation to be made, and that if the prospective customer so agrees, respondent 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 card 3 inches by 5 inches in dimension, with al1 words in lO-point boldface type, with the following information, and none other, in the (124 J indicated order, is presented to such person:

(1) The name of the corporation;

(2) the name of the salesperson;

(3) the term "Encyclopedia Sales Representative" (or other applicable product J;

(4) the terminology: "The purpose of this representative s call is to solicit the sale of encyclopedias" (or other applicable product J; and (5) the statement: This card should be kept as part of your permanent records of this transaction.

above, to E. Failing to give the card, required by Paragraph II D, each such person, to direct each such person to read the information contained on such card, and to provide each such person with an adequate opportunity to read the card before engaging any such person in any sales solicitation.

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

(1) Any person callng on any prospective purchaser is: (125 J (a) engaged in or connected with "advertising, marketing, promotion education" or anything other than the door-to-door sale of encyclopedias or other reference materials (b) conducting, taking or participating in a survey, advertising research analysis or any other information gathering activity, or (c) callng on 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;

(2) only a few minutes wil be required to complete the visit inside the prospective purchaser s home or place of business; or misrepresenting, in any manner, the period of time required to complete the sales or other presentation;

(126 J (3) an offer is limited, must be accepted immediately or within any specified time period, or is a special offer, unless such is a fact; or misrepresenting, in any manner, the duration of any sales offer; ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 517 421 Initial Decision (4) any publication, merchandise or service is being offered free without cost, or is given as a bonus or otherwse to any prospective purchaser of respondent's publications, merchandise or services agreeing to perform any advertising, promotional or selling function including but not limited to, any of the following acts or similar acts: (a) permit their names to be listed as local owners of the product or service;

(b) provide the name of any person who may be interested in purchasing any publication, merchandise or service; (c) write a letter evaluating the merits of any publication or other item which may be used in advertising; or (127) (5) any publication, merchandise or service is being offered free, without cost, or is given as a bonus or otherwise to any purchaser of respondent' s publications, merchandise or services, pursuant to any agreement to purchase, rent or lease any other publication, merchandise, service or combination thereof from respondent, unless: (a) The contract price for the purchase, rental or lease of any such other publication, merchandise, service, or combination thereof, has remained at the said price or above for at least six (6) months within the last twelve (12) months immediately preceding the time at which the representation is made;

(b) the publication, merchandise or service which is being offered free, without cost or is given as a bonus or otherwise, has not been included in the sale, rentai or lease of any such other publication (128) merchandise, service or combination thereof, to any person for a period of at least six (6) months within the last twelve (12) months immediately preceding the time at which the representation is made; and (c) no publication, merchandise, service, or combination thereof, of equivalent or greater value, has been eliminated by respondent from any such other publication, merchandise, service, or combination thereof, with which the free, without cost or bonus publication merchandise or service is being offered;

Provided, however Any such prices as are restricted by Paragraph II F (5)(a) of this order may be altered at any time by respondent to reflect bona fide changes in market conditions. , either orally or in G. Representing, directly or by implication writing that:

(1) Any person using any research service wil receive answers to questions regarding all subjects other than legal or medical advice; (129) or misrepresenting, in any manner, the research service that wil be furnished to subscribers;

(2) any answer provided by any research service is the product of 518 FEDERAL TRADE cmlMISSION DECISIONS Initial Decision 87 F . detailed, exhaustive or original research generated by the specific question asked by any person utilzing said service, unless such is the fact; Of misrepresenting, in any manner, the extent of research preparation or quality of any answer furnished by any such research service.

H. Failing to disclose, clearly and conspicuously, in writing on all promotional materials describing any research service, and orally during the course of any sales or other presentation relating to said service, each condition or limitation placed upon the use of such research service.

I. 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 service, unless respondent has made at least forty percent (40%) of its unit sales for each such publication in each such binding, (130 J merchandise or service, individually, during the previous six (6) months at or above the represented price;

(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 combination with any other publication, merchandise or service, unless respondent has made at least forty percent (40%) of its unit sales for each such set of publications in each said hinding during the previous six (6) months individually or in combination at or above the represented price;

(3) savings may be realized by the purchase, rental or lease of any publication, merchandise or service, or any combination thereof, from respondent's previous prices for its products unless: (a) Such savings claims are based upon retail, regular, or usual prices or combination prices, arrived at in accordance with Paragraph II 1(1) and (2) above;

(b) respondent clearly and conspicuously specifies the publication merchandise or service, or combination thereof, and (131) the price from which the savings is to be realized; and (c) the publication, merchandise or service is of comparable quality in all material respects with the publication, merchandise or service sold at the higher price;

(4) savings may be realized by the purchase, rental or lease of any publication, merchandise or service, or any combination thereof, from comparable products of competitors unless:

(a) respondent clearly and conspicuously specifies the publication merchandise or service, or combination thereof, from which the savings is to be realized;

ENCYCLOPAEDIA BRITANNICA, INC., ET AL. 519 421 initial Decision (b) the price utilized for comparison purposes is the price at which a substantial number of persons have purchased the item referred to in (a) immediately above:

(c) the item referred to in (a) above is of comparable quality in all material respects to the product being sold; and (132 J (d) respondent has in good faith conducted a market surveyor obtained a similar representative sample of prices in the trade area where the comparison is made which establishes the validity of said compared price.

J. Misrepresenting in any manner, either orally or in writing: (I) the amount of savings to be realized by any person who enters into an agreement with respondent for any publication, merchandise or service; or (2) that any publication, merchandise or service is being offered free or without charge, or is given to any such person. K. Failing to comply with any and all provisions of the Commission s Trade Regulation Rule Cooling-Off Period For Door-To-Door Sales (16 C. R. 9429.1), which are in effect on the date this order becomes effective, and with any modifications or changes in the aforesaid rule which may be made from time to time. A copy of the said rule shall be made a part of this order for purposes of complying with other provisions hereof.

(133 J L. Initiating contact with any purchaser through any means for any reason from the time said purchaser enters into any agreement containing a :-NOTICE OF CANCELLATION, as required by Paragraph II K of this order, until said buyer s cancellation period has expired. M. Failing to maintain a copy of each NOTICE OF CANCELLATION received pursuant to Paragraph II K of this order, and maldng said documents available for inspection and copying by the Commission staff upon reasonable notice. Any such NOTICE shall be maintained for period of three (3) years from date of receipt by respondent. N. Failng to keep adequate records, which shall be maintained for a period of three (3) years and made available to the Commission s staff for inspection and copying upon reasonable notice, from which the validity of any savings claims, retail price claims, comparative value claims, or other representations of the type described in Paragraphs II F (5), II I and II J of this order can be determined. (134 It is further ordered That respondent Encyclopaedia Britannica, Inc. and its successors and assigns, officers, agents, representatives and employees, directly or indirectly, through any corporation, subsidiary, division, or other device, in connection with the training or orientation Initial Decision 87 F.

of any person to sell, rent, lease or distribute any textbook encyclopaedia, reference or educational material, or any other publication, merchandise or service, in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from making, distributing or using any training tapes, sales manuals, or any other document, method or device which contains any representation or instruction inconsistent with any provision of Paragraph II of this order.

It is further ordered That respondents Encyclopaedia Britannica Inc. and Britannica Home Library Services, Inc. and their successors and assigns, offcers, agents, representatives and employees, directly or indirectly, through any corporation, subsidiary, division or other device in connection with the advertising, offering for sale, sale or distribution (135 J of any textbook, encyclopedia, reference or educational material or any other publication, merchandise or service through the use of any program, plan, method, or device, that provides or purports to provide for the sale or distribution of any of said items to any person at intervals on an approval basis, in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

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

(I) Any person has the option to receive each publication, merchandise or service, separately and individually, and to accept or reject same, unless such person is allowed in all instances to receive and to purchase or reject each such publication, merchandise or service separately and individual1ly;

(2) any person wil not receive any further publication, merchandise or service after he notifies respondents of his cancellation of any such program, plan or method of sale or distribution, unless such is the fact; or misrepresenting, in any manner, any (136) consequence resulting from any person s cancellation of his participation in any such program plan, or method of sale or distribution; and (3) any person incurs no risk or obligation by joining or participating in any such program, plan, or method of sale or distribution: or misrepresenting, in any manner, any condition, right, duty or obligation imposed on any person.

any advertise- B. Disseminating, or causing the dissemination of, ment which fails to disclose in a clear and conspicuous manner: (I) A description of the conditions and terms of any such program ENCYCLOPAEDIA BRITANNICA, 11'C., ET AL. 521 421 Initial Decision plan, or method of sale or distribution, and the duties, risks and obligations of any subscriber thereto; and (2) a description of each publication, merchandise or service to be offered for sale, the billng charge to be made therefore, the anticipated total number of publications, merchandise or services included in any such program, plan or method of sale or distribution, the number of publications, merchandise or services that wil be included (137 J in each shipment of such items, and the number of and the intervals between each such shipment.

C. Failng to disclose, clearly and conspicuously, on any return coupon, order form or any other document used for responding to any such program, plan, or method of sale or distribution, the following information:

(I) The anticipated total number of publications, merchandise or services included in any such program, plan, or method of sale or distribution;

(2) the number of publications, merchandise or services that will be included in each shipment of such items; and (3) the number of and the intervals between each such shipment. D. Failng to disclose, clearly and conspicuously, in immediate conjunction with any publication, merchandise, service or notice thereof sent to any subscriber, the anticipated date on which respondents will initiate processing of the next shipment of any such item. (138) E. Failing to provide to any person in conjunction with each notice of any shipment of any publication, merchandise or service, a clear and conspicuous means by which said person may exercise his option or right to cancel said shipment, if such is his right. F. Failing to comply with any and all provisions of the Commission s Trade Regulation Rule Use of Negative Option Plans By Sellers In Commerce (16 C. R. 9425.1), which are in effect on the date this order becomes effective, and with any modifcations or changes of the aforesaid rule which may be made from time to time. It is further ordered That respondents Encyclopaedia Britannica Inc. and Britannica Home Library Service, Inc. and their successors and assigns, officers, agents, representatives, and employees, directly or indirectly, through any corporation, subsidiary, division or other device, in connection with the collection or attempted collection of any debt allegedly owing to respondents for the purchase or other receipt of any textbook, encyclopaedia, reference or educational material, or any other publication, merchandise or service, in commerce, as commerce" is defined in (139) the Federal Trade Commission Act, do 216-969 O- i,T - 77 - 34 522 FEDERAL TRADE C02\O!lSSION DECISIONS Initial Decision 87 F.

forthwith cease and desist from representing, directly or by implication, either orally or in writing that:

(A) Any letter, notice or other communication which has been prepared, originated or composed by respondents has been prepared originated or composed by any other person, firm or corporation; and (B) suit wil he instituted to recover any delinquent debt, or that any delinquent debt wil be transferred to any attorney with instructions to institute suit, or that any other legal step to collect any outstanding debt wil be taken, unless a definite date is set forth for such action and such are the facts; or misrepresenting, in any manner, respondents relationship with, or instructions to, any attorney, or the course of action that wil be taken by any attorney. (140 J It is further ordered That respondents, Encyclopaedia Britannica Inc. and Britannica Home Library Services, Inc., do the follov.doing: (A) Deliver, by registered mail, a copy of this order to each of their salesmen, agents, solicitors, independent contractors, or to any person engaged in the promotion, sale or distribution of any of the publications, merchandise or services included in this order, and to any person engaged by respondents to perform such duties in the future at the time such person is so engaged;

(B) obtain from each person described in Paragraph VI(A) a signed statement setting forth his intention to conform his business practices to the requirements of this order; retain said statement during the period of three (3) years thereafter; and make said statement available to the Commission s staff for inspection and copying upon reasonable notice;

(C) advise each such present and future salesman, agent, solicitor independent contractor or any person engaged in the promotion, sale or distribution of any of the publications, merchandise or (141 J services included in this order that respondents will terminate the engagement or services of any such person, unless each person agrees to and does furnish to respondents a statement required by Paragraph VI(B), above; and (D) if any such person wil not agree to fie a statement with respondents as required by Paragraph VI(B) above and be bound by the provisions of this order, the respondents shall immediately terminate the services of such person.

ENCYCLOPAEDIA BRITA:-NICA, INC., ET AL. 523 421 Opinion VII It is further ordered That the respondents shall forthwith distribute a copy of this order to each of their operating divisions. VII It is further ordered That respondents shall notify the Commission at least thirty (30) days prior to any proposed change in any of the corporate respondents such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of which may affect compliance obligations arising out of this order. (142) It is further ordered That respondents shall, within sixty (60) days after the effective date of this order, fie with the Commission a report in writing setting forth in detail the manner and form in which they have complied with this order. (143) Appendix A NOTICE Attached hereto are the pertinent provisions of a cease and desist order entered against Encyclopaedia Britannica by the Federal Trade Commission, an agency of the Federal Government. Violation of any provision of this Order can result in severe monetary penalties to Encyclopaedia Britannica. If you are employed by Encyclopaedia Britannica, you wil be required to observe the provisions of this Order. You should carefully read this Order before agreeing to any employment arranged with Encyclopaedia Britannica. (President Encyclopaedia Britannica OPINION OF THE COMMISSION By DOLE Commissioner:

(I) This matter is before the Commission on appeal of Encyclopaedia Britannica and its wholly-owned subsidiary, Britannica Home Library Services, respondents (hereinafter referred to as "respondent" J, and the cross-appeal of complaint counsel from the initial decision of Administrative Law Judge Ernest Barnes in the above-styled proceeding. Judge Barnes found that respondent had engaged in deceptive acts in the recruitment of sales personnel and in the promotion and sale of , Opinion 87 F.TC.

encyclopedias, other books and related services. Judge Barnes also found that respondent had engaged in deception in its manner of gaining entry into the consumer s home and in its debt collection practices.

Encyclopaedia Britannica publishes, sells and distributes throughout the world, textbooks, encyclopedias, reference and educational materials, other literary works and services, and training courses. Respondent s products, in addition to Encyclopaedia Britannica, include Compton s Encyclopedia, Great Books of The Western World, and Great Books Reading Plans. Encyclopaedia Britannica makes the most suhstantial portion of its sales in the home. It maintains a sales force (2 J of some 2 000 sales representatives which it recruits, in part through newspaper advertisements. Britannica Home Library Services sells and distributes books and other merchandise through advertising and mailings.' It is engaged exclusively in a mail order business throughout the United States.

Judge Barnes' order places respondent under certain prohibitions and requires it to take certain affirmative actions in connection with respondent' s recruitment of sales representatives, its debt collection practices, its product marketing and distribution practices in the home and its advertising.

The thrust of respondent's appeal in this matter concerns the order. Respondent' s principal concern is with the order s requirement that Britannica s representative present a 3"x5" card at the time admission is sought into the home for the purpose of soliciting a sale. Britannica representative must direct the consumer to read the card on which is printed in lO-point, boldface type: (1) the name of the corporation: (2) the name of the sales representative; (3) the term "Encyclopedia Sales Representative; (4) the statement The purpose of this representative s call is to solicit the sale of encyclopedias; and (5) the statement This card should be kept as part of your permanent records of this transaction.

Except in one respect, hereinafter noted, the Commission upholds the administrative law judge s order provisions requiring the 3"x5" card disclosure. Respondent's training tapes, which are required to be used in the instruction of all of its sales representatives " emphasize I I.D. at8- 10.

I I.D. at 111. Encyclopa di. Britllnnica fonnu!.t, dir cla and eontruls th acts and practic s of Britannicll Hom Library S rviC lbid , W ject outright r Bpondent s conteution that Sedion 5 of th Federal TMide Commission Act does not extend to recruitment practicea Bee, e. E.'duco/err ARRociatin" I"c.Y. FTC IOH F.2d 470, 472 (2d Cir. 1939), modified 011 olher gro""dR 118 F.2d 562 (2d Cir. 1941), and that th 8e pr.lctic were local aee J.D. 867. , OrderParagraphalI(!)and (E).

, Tr at3124 (.'r. Holmes); see Tr at 317 74 (Mr. Martinez) , , CYCLOPAEDIA BRITANNICA, INC., ET AL. 525 421 Opinion that training in effective sales techniques is "all meaningless if you can t get in (3) the home of a prospect* * *"6 We have concluded that respondent's sales representatives have been trained to disguise the main purpose of the visit in a way which deceives the consumer as to the real reason the representative seeks admittance to the home - to make a sale. For example, respondent's representatives are trained to deliver verbatim a three-paragraph spiel' which respondent characterizes "as having the distinct advantage" of allowing the representative to approach the prospect's door "not in the role of a salesman" but rather in the role of a company representative who is delivering a free booklet and making an advertising effectiveness survey. While one of the reasons claimed for delivering the requested booklet in person is to conduct an advertising survey, it is nevertheless clear from the explanation which accompanies the three-paragraph "door approach" that this reason is a guise to gain entry for the purpose of making a sales pitch. Respondent' tape explains the accomplishments" of the door approach (4) as follows: "(WJe have identified ourselves " 6 and, by hand delivering the requested booklet we have taken a giant step toward overcoming, before it arises, their objection all we wanted was the booklet.' " By handing the prospect the book "in a frank and confident manner, we also appear harmless to the prospect.* * *" The advertising survey "explains one of the reasons for our call, takes us out of the role of a salesman" and affords the prospect a reason "to honor our request for admission to his home - not in the role of a salesman. " Since U(s Jome of them do not respond at this point because they are skeptical or may simply believe you are a salesman " the prospect is shown a letter from the advertising director which adds "authenticity to the purpose of our call" and which conditions the prospect to give "a positive response to our request to step inside, still not in the role of a salesman." Respondent underlines the importance of the door approach by promising that, if it is learned and delivered verbatim, the sales representative has: the guarantee established by hundreds of Great Book salesmen who have used it . ex 647.A (training tape Door Approach and A. 1 "Hello. Mr. Jooes, I'm Bill Smith from the Great Ideas Pro.lm. Someone in your family requested a free booklet and I atopped by to deliver it. Inddentally it a free. You re welcome, Mr. Jonea. You aee, one of the reasona We are delivering the booklet in ptraon is that the company ia making a Btudy of the effectiveneall of our national advertiaing in each local area. Ourdiredor of advertising h!l iflBtrueted me to check your :madera to a few quick queationa. May llltep in IInd complete my report ao I can retum it at once to our direetor ofadvertiaing?"

Actually, Mr. Jones, it s only aix aim pie questions. We hope this wiJ enable ua to llpend uur advertising appropriation more wisely. Perhapa this letter from our director of advertisinOt wiu better explain the purpoStofour advertilling analysis. Vo you mind if We IItep inaide 110 you can take a moment to read ihe lever?" ibid. 'ibjd.

. The calleriB not identified as a sale" reprcaentative. See footnote 7. . . . , , g. . Opinion 87 F.

over the years in the field that it will get you into the largest number of homes of any door approach ever used by any company The company-prescribed disguise techniques I I necessitate inclusion of an order provision requiring clear and conspicuous disclosure of the fact that the representative is a salesman (5) and of the true purpose of gaining entry into the home. We point out additionally that the company has taught its sales representatives to affrmatively misrepresent the true purpose of the call, even when asked. This occurs, for example, in a training tape dealing with the "telephone appointment plan " which is an approach technique used in conjunction with another method of promotion give-aways." After the consumer has been told that he or she has won a consolation prize, a medical encyclopedia, the representative states that "there is absolutely no obligation on your part. You don t have to buy Britannica; you don t even have to listen to a sales presentation." When the representative is asked directly the reason for his visit, the tape instructs the sales representative to reply "12that he "simply (hasJ to stop by and certify the gift certificate (6) Judge Barnes' order would require a statement on the 3"x5" card that "This card should be kept as part of your permanent records of this transaction." This statement does not appear to be necessary in order to provide a clear and conspicuous disclosure of the nature and purpose of the call. The other elements of the card disclosure and the size of the card should suffice in this regard. As to respondent's recruiting advertisements, Judge Barnes' order CX 647.A (trainillg tape Door Approach and A. I I Other examplea are foulld ill reRpolldellt s "Telephone Talks " which are used to obtain access to the home at an appointed day and time, The opening line of the "Telephone Talks" contains the statement I am calling to give you the details on how to obtaill the liew Britannica PrOliam CX 582- B. The consumer is then told that he or she has WOII a free medicsl encyclopedia and wi1 be entered in .1I0ther drawillg. "Everything wil be explained in detail in the free Gift Certificate that We will Rive you so you can receive your medical ellcyclopedia ami to enter you in the $500 educational award drawillg I aimply have to stop by to certify the free Gift Certificate with you and M. together " CX 582-C (emphasis. in original): CX ,,R2-D (emphasis in original): CX 582. !j (emphaaia supplied). The opellillg line, if construed asasale. pitch disclosure, is effectively coulltermanded by the remaimierofthe talk so that the conaumer remains deceived aato the real reaaon for th evisit ,. CX 619 (trainillg tape, "Telepholle Appointment Plan The tape purports to be drawn from actual pholle calls with eonaumero. CX 620- IColIsumer: J Could I ask you, what are you comillg here for, what are you going to do? ISalcs representative: j Well, aa I explained. IConsumer: J Duly t come hHe for nothing. Let a put it that way, I'm liot buying any encyclopedias ISales repre.elltative: j Yes, well did you understand the other thillgs18aid to rs.you,Feinber!l? You not ollly have lr,e medical encyclopedia, which i8 yours, but you are also Roing to be entered into a drawing, to be held the 15th of next mOllth . for an additiollal $500 educational award. Aalaaid everythin!lwill be explained in detail in thiafree gift certificate that well !live you so that you can receive your medical encyelopedia alld we can enter you ill the additional $500 award drawin!l,I Bi"'ply ho,'eto BtDp by and c r1;jy the gij1 ccTl;ji ale witir y"" alld Mr. Feinberg, rogether. That"s the pllrp()Be ojmy call ICoo,umer: j O.K, Fine. if that ;h what it is, then fine ex 619, ex 620 T & U. (emphasis supplied) , .. , F,NCYCLOPAEDIA BRITANNICA, IKC., ET AL. 527 421 Opinion requires respondent to describe the positions offered as "door-to-door selling.' 3 Respondent contends that the terms wil be construed by job seekers as "cold canvassing," which means sellng door-to-door without leads or previous appointments. Respondent requests that, at most, it should be required to designate its selling method as "in home " a phrase which encompasses various approaches. We think respondent's position is a reasonable one, and complaint counsel does not oppose the designation.' 'We have accordingly modified order Paragraph I(B)(2). Respondent also objects to the required disclosure in its job offer advertisements that it is "recruiting persons for the sole purpose of selling" and to the related provision prohibiting respondent from representing to prospective sales representatives that they will be trained in management or (7) in office administration. 6 Respondent contends that the "sale purpose of sellng" disclosure wil preclude it from truthfully advertising for genuine managerial openings which involve an element of sellng but which are not solely selling jobs. We see no reason, however, to strike this disclosure. The disclosure is triggered only if the recruit is to engage in "door-to-door sales " 1 7 and as the administrative law judge found, it was Encyclopaedia Britannis policy jto hire everybody, initially, as a door-to-door salesman and to develop managers from within the ranks of its own salesman The provision addresses this practice. The prohibition against representing that sales recruits wil trained in management or administration is responsive to the administrative law judge s finding that respondent did not maintain a management training program as such. Judge Barnes found, moreover that respondent did not begin to train persons for managerial positions until they had been promoted to "Deputy Field Trainer " some four to six months after they had worked exclusively as a sales representa- I ' OrderPllrllgraphs HA)and (B) " According to re"pondent cold clinvlIB8ing" "ening i8 viewed with great disfavor by job applicants, particularly '" hen the prouuct involved is an exp nsive one, such 28 encyclopedia, Judge Barnes' order requires re pondent to disclose the products fI. Tlcyclopedia, in the recruitmeot auv rtisement"- Order Paragrph I(B)(3). Complaint counsel requests that, if re,pondent " version is grdnteu, r spondent "should be "p€cifically prohibited from representinl\ that the position being advertised involves no "cold Cllnv!l ing or worus of ,imilar import Complaint coun"el claim A that respondent B practice h"8 been to represent that no "cold canvW!"inl" is utilized al all ancl that, in fact, respondent doe" utilize thi8ale method lis an alternative approach, Order Paragraph HA)(J) bar" respondent from misrepresenting, " iH any H/()H".T, the job for which any person is being solicited " (Empha8i, supplied) That prQ\'i ion precludes respondent from miHepresenting that no "cold cal1vas ing" is utilild and app"an\ to he al1 adequate rf'medy without further Bpecificity ,. Oruer Paragraph I(A)(2) and (13).

OrderParagraph 1(8) I H LD., Finding 24 Opinion 87 F.

tive.' 9 Accordingly, we uphold Judge Barnes ' order in this regard. ' 0 The order prohibits respondent from making guaranteed income claims unless at least thirty percent (30%) of the persons holding similar positions in the office offering the position received an equivalent or greater income during the preceding twelve months. 'We have deleted this provision. The modifed order bans misrepresentations of guaranteed income. A related order provision requires affirmative disclosure, prior to the time respondent enters into a guaranteed income employment contract, of the percentage of persons employed in similar positions who earn the stated income.' 'The ban on misrepresentations, coupled with the disclosure, should suffce to correct respondent' s guaranteed income deceptions. (8) We uphold, with slight modification, the provisions in the order which require that a letter and portions of the order " be furnished prospective sales recruits at the initial interview. The letter explains that employees must obey the Commission s order. Complaint counsel argues for a stronger letter warning and respondent requests that it be required to furnish only an oral summary of the order. Having considered the arguments we have concluded that the letter should also state explicitly that the failure of respondent' s employee to abide by the order s provisions constitutes a violation of a Federal law. The letter attached as Appendix A of the order has been modified to comport with this determination. Respondent, if it chooses, may provide the prospective employee with an explanation, either orally, in writing or both, of the pertinent provisions of the order, but the Commission has determined not to modify the requirement that respondent furnish copies of the provisions specified. In connection with its merchandising program, Judge Barnes found that respondent had misrepresented the value of the merchandise and services being offered for sale to consumers as well as "savings" claims. The claimed retail prices of respondent' s publications which are utilized by sales representatives in sellng the product do not reflect prices at ibid "We agre" with complaint coun"elr 8\Jj!R"stiol1 that should respondent det.nnine to develop or expand into a bmw fide managerial or admir.istrative train;n)/ program it may petition the Commission for modification of rekvan\ orderproviBions .' OrderPsragraph I(A)(3) II Order Para)1raph !(C)(5).

" Order Paragraph !(O) " Parag1spha I-IJI and VJ " Complaint Could1eJ'" letter would point out that 811batantial penalties Tan be impo"ed for a krwwinl' viuunion of the order and would alao im'ite the reader to report Bw"pected violations to the Commis8iun Respondent contends that the negative implications of the order will inhibit reBpomient " rel"ruiting abilities and re,!ueatBthntr""pand"nt bepermitled in"t"ad, to require a recru it to atudy the urderntthe completion of hiatraining, when the order "might be comprehensible ta him." Appeal Brief of Re"pondent" at 40. ro. ,.

CYCLOPAEDIA BRITANNICA, IKC., ET AL. 529 421 Opinion which such publications have been sold in substantial quantities to the general public."The administrative law judge found that the number of Great Books and Encyclopaedia Britannica that were sold at retail prices were less than 9 percent and less than 3 percent, respectively. In response to these findings, Judge Barnes prohibited respondent from representing a price for a (9 J product as its regular retail price unless at least forty percent (40%) of its unit sales for the product is made at that price, or higher, for the previous six months. Weare not persuaded that the order should depart from the Commission s guides Deceptive Pricing, 16 C. R. 9233. The Guides provide inter alia that the retail price may be described as a selling price if "substantial" sales are made at the retail level. We have accordingly modified the "retail price provisions 2 7 and the "savings claims" provisions.

We also agree with the argument on appeal that the order should require respondent to attach to each consumer contract a price list and a list of items being offered for free and to disclose orally at the signing of the contract that a price list is attached. Judge Barnes found that the sales presentation was designed to mislead the purchaser into believing that substantial savings are to be achieved when in fact there are no savings and no merchandise is given free. 9 The administrative law judge determined that to require a "cooling-off' period would provide effective protection for consumers from respondent's misrepresentations and deceptions. Accordingly, he ordered respondents to comply with the Cooling-Off Period For Door-To-Door Sales 16 C. R. 9429. While the administrative (10 J law judge was correct in ordering compliance with the Cooling-Off Rule, the Commission has modified the order to require the furnishing of a list of current prices of respondent' s products and a list of free items. This information will enable the contracting consumer to appraise the strength of his bargain to compare the contract with the authorized list prices and determine whether or not any savings claim is true and whether any claims of free items are, in fact, accurate. The contracting consumer has no other basis to gauge the truthfulness of respondent's savings claims or offers of free items unless respondent furnishes this information. We reject respondent's claim that to require it to supply this 3 Iinformation is burdensome.3 oor unwarranted. We have also modified order Paragraph II(F) 5(b) so as to preclude I.D. Findil1ji6B " Pilraj\Bpn8 II 1(1) and ( "Paragraph" II 1(3) and (4) "I.O. atOO.

"Ind, Britanr. ica ha" begin a similar practice of vuluntarily d;8Seminating a price booklet at the time ufsale. SeeTr, at 3211\- (testimony of Mr. Martinez). " Since the order bans USe of the cooperative offer in cunnectiun with which the savings claim" were made (Courilll,ed) 530 FEDERAL TRADE COMMISSIOK DECISIOKS Opinion 87 F.

respondent from offering an item as "free" unless inter alia publication, merchandise or service has been offered as "free " for six months of the last twelve. As presently drafted an item could be offered as "free" if that item had not been offered as "free " for six months of the last twelve. Without this order change, respondent could substitute different items as the "free" item at six-month intervals and thus represent that an item is "free" although the price for the item was included in the regular price of the goods. We turn now to that portion of the order dealing with advertising or promotional material that solicits participation in a contest or solicits a response to an offer of information or product. Judge Barnes' order requires respondent to disclose to readers that those who reply may be contacted by a salesman. A similar disclosure is required in the return card or coupon which accompanies the advertising or promotional material. The Commission has determined that these order provisions are needed to inform the consumer that the card or coupon response wil trigger the delivery of material and information by (11 J a sales representative whose call is for the purpose of selling. Such knowledge cannot be gleaned by the consumer who reads the ads or who enters the contest. The ads mislead the consumer in that the wording protrays all information as coming by mail and direct from the publisher. 3 A number of contest entry cards portray the give-away merely as a celebration of the company s bicentennial and suggest that a consumer who fils in the card wil not be imposed upon." 'We reject respondent' contention that disclosure is unnecessary and that the language of the disclosure is "negative.

We accept the contention that the order s requirement that respondent comply with the Commission s trade regulation rule dealing with negative option plans " be deleted. The prohibitions and affrmative disclosures as set forth in the order deal elaborately and sufficiently with the abuses in respondent' s continuity program. We are not persuaded by the other contentions made by counsel. respondent contends that there is no need for the lists ur the disclosure.Bre nutWe impressed with the argument; savings claim. can take a number of form. and are not limited to saler based on cooperative uffer, See Sla"daro Edi/calurR. t"c. v. rtc 475 F.2d 401, 406. n-2 Cir. !973) ("pecially reduced price to mem!Jr of military):Basic Bo"ks, thc v- FTC 276 F.2d 718, 720 (7th Cir 1910) (reduction in re-"lar price for a limited time); Amenca" Markel'''rJ ARsoeJales t"c. 73 F. C.213 , 264-1;5. (19(8) (mothers ' club memberRh;p plan) Order Paragraph. I!(A) and (8) "J, . FindingsM- " LD. st9R- (.'Re ,,!, erJnlive Oplin" PIO'l8 BySellerR!II Commerce 16 C, H, 9'2!d (1973) Paragraphs IV (A)(B)(C) amJ (01 ENCYCLOPAEDIA BRITANNICA, INC.. ET AL. 531 421 Final Order Thus, we reject complaint counsel's request for provisions dealing with respondent's biling practices, a 7 and we reject complaint counsel's request that the order require respondent to survey its customers in 8 order to elicit violations of the order.3 Having considered the arguments in this matter, we have concluded that the public interest is best served in this proceeding by the issuance of the attached order.

FINAL ORDER This matter having been heard by the Commission upon the crossappeals of complaint counsel and respondents' counsel from the initial decision and upon briefs and oral argument in support thereof and opposition thereto, and the Commission, for the reasons stated in the accompanying opinion, having granted the appeals in part: It is ordered That pages 1-117 of the initial decision of the administrative law judge be, and they hereby are, adopted as the findings of fact and conclusions of law of the Commission, with the following exceptions: those portions of pages 103- 110 ("The Remedy which are inconsistent with the opinion of the Commission herein. Other findings of fact and conclusions of law of the Commission are contained in the accompanying opinion.

It is ordered That respondent Encyclopaedia Britannica, Inc., and its successors and assigns, officers, agents, representatives and employees directly or indirectly, through any corporation, subsidiary, division, or other device, in connection with the recruitment of persons to sell, rent lease, or distribute any textbook, encyclopedia, reference, or education al material, or any other publication, merchandise, or service, in commerce, or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: A. Representing, directly or by implication, either orally or in writing, that:

(I) Respondent is offering positions in such fields as advertising analysis, public relations, marketing, interviewing, or in any field other than door-to-door sales, if door-to-door sales is included, to any extent in the position for which persons are being recruited; or misrepresenting, in any manner, the job for which any person is being solicited; '1 The terms of the Fair Credit R;il;ng Ae, 15 U, c. 1601 , 01 "e'l. (197 ), are applicable o re"ponnen! " 1'''01;('. " Howe"er, w acc pt the "ugi/estion of complaint counsel that recl1iting activities "houln he ;n l\Jded wit.hin the proscription "f Paragraph !II of the order. Paragraph IJI prohibits respondent from making any re\Jresenlatioll or in"tl1otion through its training tape" or other dO \Jments whirh is ;nl' onsis nt with Paragraph II of the order. We have added Para"raph l recruitmentanivities, to the proscript;on of Paragraph III 532 FEDERAL TRADE COMMISSIO:- DECISIONS Final Order 87 F.

(2) persons will be trained as management trainees, or for other positions of responsibility concerned with administrative office functions; or misrepresenting, in any manner, the amount and type of training that wi1 be given;

(3) any person who may be employed wi1 contact prospects in their homes or places of business for the purposes of conducting surveys advertising promotions, or other nonsel1ng functions; or misrepresenting, in any manner, the purposes for which any person is engaged. B. Misrepresenting, in any manner, the amount of income to be earned by any person or that may be earned by any person, the method of payment, or any condition or limitation imposed upon the compensation of any person.

C. Failng to disclose, clearly and conspicuously, in all advertising offering employment in any way involving door-to-door sales: (I) that respondent is recruiting persons for the sale purpose of soliciting or sellng;

(2) that such soliciting or sellng wil be on an "in home" basis; (3) 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 (4) the basis for compensating persons so engaged. D. Failing to clearly and conspicuously advise, both orally and in writing, any prospective sales employee at the initial face-to-face interview, and prior to executing any employment agreement with any such person, the following information:

(1) All those disclosures set forth in Paragraph I C above; (2) a complete and detailed description of each condition and limitation imposed upon the receipt of any compensation; (3) where applicable, notification that such person wi1 not be paid for time spent during orientation and training; (4) a complete and detailed description of any expense or expenses any such person may incur in performing the required duties; and (5) the percentage of persons holding similar positions engaged by the office offering the position during the twelve (12) months immediately preceding the offer, who have actually received an equivalent, or greater, income than that promised under the terms of any such agreement.

E. Failng to furvish to persons at the initial face-to-face interview 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 Jetter as set forth in Appendix A attached hereto. ENCYCLOPAEDIA BRITANI'ICA , INC., ET AL. 533 421 Final Order It is fur/he?' ordered That respondent Encyclopaedia Britannica, Inc. and its successors and assigns, officers, agents, representatives and employees, directly or indirectly, through any corporation, subsidiary, division or other device, in connection with the publishing, advertising, offering for sale, sale, rental, lease or distribution of any textbook encyclopedia, reference or educational material, or any other publication, merchandise or service, in commerce, or affecting commerce, as commerce " is defined in the Federal Trade Commission Act, do forthwithA. Disseminatingcease and desistor causingfrom: to be disseminated any advertisement or promotional material which solicits participation in any contest drawing or sweepstakes, or solicits any response to any offer of merchandise, service or information unless any such solicitation clearly and conspicuously discloses the following statement in lO-point boldface type: NOTICE TO CONSUMER - PERSONS WHO REPLY AS REQUESTED MA Y BE CONTACTED BY A SALESPERSON FOR THE PURPOSE OF SELLII'G linsert name of applicable product 1. B. Providing any return card, coupon or other device which is used to respond to any advertisement or promotional material covered by Paragraph II A above, unless the following statement clearly and conspicuously appears in 10-point boldface type in immediate proximity to the space provided for a signature or other identification of the responding party: NOTICE TO CONSUMER - PERSONS WHO RETURN THIS linsert name of applicable device) MAY BE CONTACTED BY A SALESPERSO:- FOR THE PURPOSE OF SELLING (insert name of applicable product 1.

C. Failng to disclose clearly and conspicuously, at the beginning of any telephone call to any prospective customer, the fact that the individual making the call is either soliciting the sale, rental or lease of publications, merchandise or services for respondent, or is arranging for a sales solicitation to be made, and that if the prospective customer so agrees, respondent 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 card 3 inches by 5 inches in dimension, with all words in lO-point boldface type, with the following Final Order 87 F.

information, and none other, in the indicated order, is presented to sud person:

(1) the name of the corporation;

(2) the name of the salesperson:

(3) the term "Encyclopedia Sales Representative" (or other applicable product J;

(4) the terminology: "The purpose of this representative s call is to solicit the sale of encyclopedias" (or other applicable product J. E. Failing to give the card, required by Paragraph II D, above, to each such person, to direct each such person to read the information contained on such card, and to provide each such person with an adequate opportunity to read the card before engaging any such person in any sales solicitation.

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

(1) Any person calling on any prospective purchaser is: (a) engaged in or connected with "advertising, marketing, promotion education" or anything other than the door-to-door sale of encyclopedia or other reference materials (b) conducting, taking or participating in a survey, advertising research analysis or any other information gathering activity, or (c) calling on 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;

(2) only a few minutes wil be required to complete the visit inside the prospective purchaser s home or place of business; or misrepresenting, in any manner, the period of time required to complete the sales or other presentation;

(3) an offer is limited, must be accepted immediately or within any specified time period, or is a special offer, unless such is a fact; or misrepresenting, in any manner, the duration of any sales offer; (4) any publication, merchandise or service is being offered free without cost, or is given as a bonus or otherwise to any prospective purchaser of respondent's publications, merchandise or services agreeing to perform any advertising, promotional or sellng function including but not limited to, any of the following acts or similar acts: (a) permit their names to be listed as local owners of the product or service;

(b) provide the name of any person who may be interested in purchasing any publication, merchandise or service; (c) write a letter evaluating the merits of any publication or other item which may be used in advertising; or E:-CYCLOPAEDIA BRITAK"ICA, IKC., ET AL. 535 !2I Final Order (5) any publication, merchandise or service is being offered free without cost, or is given as a bonus or otherwise to any purchaser of respondent's publications, merchandise or services, pursuant to any 3.agreement to purchase, rent or lease any other publication, merchan- :lise, service or combination thereof from respondent, unless: (a) the contract price for the purchase, rental or lease of any such other publication, merchandise, service, or combination thereof, has remained at the said price or above for at least six (6) months within the last twelve (12) months immediately preceding the time at which the representation is made;

(b) no publication, merchandise or service has been offered free without cost or given as a bonus or otherwse with the sale, rental or lease of any such other publication, merchandise, service or combination thereof, to any person for a period of at least six (6) months within the last twelve (12) months immediately preceeding the time at which the representation is made; and (c) no publication, merchandise, service, or combination thereof, of equivalent or greater value, has been eliminated by respondent from any such other publication, merchandise, service, or combination thereof, with which the free, without cost or bonus publication merchandise or service is being offered;

Provided, however Any such prices as are restricted by Paragraph II F (5)(a) of this order may be altered at any time by respondent to reflect bona fide changes in market conditions. G. Representing, directly or by implication, either orally or in writing that:

(1) Any person using any research service wil receive answers to questions regarding al1 subjects other than legal or medical advice; or misrepresenting, in any manner, the research service that wil be furnished to subscribers;

(2) any answer provided by any research service is the product of detailed, exhaustive or original research generated by the specific question asked by any person utilzing said service, unless such is the fact; or misrepresenting, in any manner, the extent of research preparation or quality of any answer furnished by any such research service.

H. Failing to disclose, clearly and conspicuously, in writing on al1 promotional materials describing any research service, and orally during the course of any sales or other presentation relating to said service, each condition or limitation placed upon the use of such research service.

I. Representing to any person, directly or by implication, either orally or in writing that:

Final Order 87 F.

(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 respondent is making a substantial number of its unit sales for each such publication in each such binding, merchandise or service individually, at or above the represented price; (2) any price is the retail, regular, usual, or words of similar im port or effect, price for any set of publications in any binding and combination with any other publication, merchandise or service, unless respondent is making a substantial number of its unit sales for each such set of publications in each said binding individually or in combination at or above the represented price; (3) savings may be realized by the purchase, rental or lease of any publication, merchandise or service, Of any combination thereof, from respondent' s former prices for its products unless: (a) such savings claims are based upon retail, regular, or usual prices or combination prices, arrived at in accordance with Paragraph II 1(1) and (2) above;

(b) respondent clearly and conspicuously specifies the publication merchandise or service, or combination thereof, and the price from which the savings are to be realized; and (c) the publication, merchandise or service is of comparable quality in all material respects with the publication, merchandise or service sold at the higher price;

(4) savings may be realized by the purchase, rental or lease of any publication, merchandise or service, or any combination thereof, from comparable products of competitors unless:

(a) respondent clearly and conspicuously specifies the publication merchandise or service, or combination thereof, from which the savings are to be realized;

(b) the price utilzed for comparison purposes is the price at which a substantial number of persons have purchased the item referred to in (a) immediately above;

(c) the item referred to in (a) above is of comparable quality in all material respects to the product being sold. J. Misrepresenting in any manner, either orally or in writing: (1) the amount of savings to be realized by any person who enters into an agreement with respondent for any publication, merchandise or service; or (2) that any publication, merchandise or service is being offered free or without charge, or is given to any such person. K. Failing to comply with any and all provisions of the Commission s Trade Regulation Rule Cooling-Off Period For Door-To-Door Sales (16 C. R. 9429.1), which are in effect on the date this order E:\CYCLOPAEDIA BRITA:-NICA, I:-C., ET AL. 537 421 Final Order becomes effective, and with any modifications or changes in the aforesaid rule which may be made from time to time. A copy of the said rule shall be made a part of this order for purposes of complying with others. provisionsInitiating contacthereof. with any purchaser through any means for any reason from the time said purchaser enters into any agreement containing a NOTICE OF CANCELLATION, as required by Paragraph II K of this order, until said buyer s cancellation period has expired. M. Failng to maintain a copy of each NOTICE OF CANCELLATION received pursuant to Paragraph II K of this order, and making said documents available for inspection and copying by the Commission staff upon reasonable notice. Any such NOTICE shall be maintained for a period of three (3) years from date of receipt by respondent. N. Failng to keep adequate records, which shall be maintained for a period of three (3) years and made available to the Commission s staff for inspection and copying upon reasonable notice, from which the validity of any savings claims, retail price claims, comparative value claims, or other representations of the type described in Paragraphs II F (5), II I and II J of this order can be determined. O. Failing to attach to any contract for the sale, rental or lease of any publication, merchandise, service or combination thereof a written statement that clearly and conspicuously discloses, and only discloses the following information in the indicated order and manner: (I) in 12point boldface type size the terminology:

PRICE LIST THE FOLLOWING PRICES ARE THE only AUTHORIZED PRICES AT WHICH THE LISTED ITEMS MA Y BE OFFERED.

ANY PRICE NOT LISTED BELOW IS UNAUTHORIZED AND FALSE! (2) a list of all publications in each binding, merchandise, service or combination thereof currently offered for sale, rental or lease, and in immediate conjunction thereto each price at which respondent authorized to offer said product or service pursuant to Paragraph II I of this order.

(3) in I2-point boldface type the terminology: FREE ITEMS ONLY THE FOLLOWING PRODUCTS AND SERVICES MAY BE OFFERED FREE. YOU ARE PAYING FOR ANY ITEMS RECEIVED AND NOT LISTED BELOW! (4) a list of all publications, merchandise or services currently offered 2JF.-969 O" LT - 77 - 35 538 FEDERAL TRADE CO:lmission DECISIOt"S Final Order 87 F.T. as free, without cost, or as a bonus pursuant to Paragraph II F(5) of this order.

P. Failing to orally instruct any person at the time said person signs any contract for sale, rental or lease of any publication, merchandise service or combination thereof, pursuant to an oral sales presentation that a "Price List" is attached to said person s contract. It is further ordered That respondent Encyclopaedia Britannica, Inc. and its successors and assigns, officers, agents, representatives and employees, directly or indirectly through any corporation, subsidiary, division, or other device, in connection with the recruitment, training, or orientation of any person to sell, rent, lease or distribute any textbook, encyclopedia, reference or educational material, or any other publication, merchandise or service, in commerce, or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act do forthwith cease and desist from making, distributing or using any training tapes, sales manuals, or any other document, method or device which contains any representation or instruction inconsistent. with any provision of Paragraph I or Paragraph II of this order. It is further ordered That respondents Encyclopaedia Britannica Inc. and Britannica Home Library Services, Inc. and their successors and assigns, officers, agents, representatives and employees, directly or indirectly, through any corporation, subsidiary, division or other device in connection with the advertising, offering for sale, sale or distribution of any textbook, encyclopedia, reference or educational material, or any other publication, merchandise or service through the use of any program, plan, method, or device, that provides or purports to provide for the sale or distribution of any of said items to any person at intervals on an approval basis, in commerce, or affecting commerce, as commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

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

(1) Any person has the option to receive each publication, merchandise or service, separately and individually, and to accept or reject same, unless such person is allowed in all instances to receive and to purchase or reject each such publication, merchandise or service separately and individually;

(2) any person will not receive any further publication, merchandise ENCYCLOPAEDIA BRITANNICA. INC., ET AL. 539 421 Final Order or service after he notifies respondents of his cancellation of any such program, plan or method of sale or distribution, unless such is the fact; or misrepresenting, in any manner, any consequence resulting from any person s cancellation of his participation in any such program, plan, or method of sale or distribution; and (3) any person incurs no risk or obligation by joining or participating in any such program, plan, or method of sale or distribution; or misrepresenting, in any manner, any condition, right, duty or obligation imposed on any person.

B. Disseminating, or causing the dissemination of, any advertisement which fails to disclose in a clear and conspicuous manner: (I) A description of the conditions and terms of any such program plan, or method of sale or distribution, and the duties, risks and obligations of any subscriber thereto; and (2) a description of each publication, merchandise or service to be offered for sale, the billing charge to be made therefor, the anticipated total number of publications, merchandise or services included in any such program, plan or method of sale or distribution, the number of publications, merchandise or services that will be included in each shipment of such items, and the number of and the intervals between each such shipment.

C. Failing to disclose, clearly and conspicuously, on any return coupon, order form or any other document used for responding to any such program, plan, or method of sale or distribution, the following information:

(I) The anticipated total number of publications, merchandise or services included in any such program, plan, or method of sale or distribution;

(2) the number of publications, merchandise or services that wi1 be included in each shipment of such items: and (3) the number of and the intervals between each such shipment. D. Failng to disclose, clearly and conspicuously, in immediate conjunction with any publication, merchandise, service or notice thereof sent to any subscriber, the anticipated date on which respondents win initiate processing of the next shipment of any such item. E. Failing to provide to any person in conjunction with each notice of any shipment of any publication, merchandise or service, a clear and conspicuous means by which said person may exercise his option or right to cancel said shipment, if such is his right. It is further ordered That respondents Encyclopaedia Britannica Inc. and Britannica Home Library Services, Inc. and their successors Final Order 87 F.

and assigns, officers, agents, representatives, and employees, directly or indirectly, through any corporation, subsidiary, division or other device, in connection with the collection or attempted collection of any debt allegedly owing to respondents for the purchase or other receipt of any textbook, encyclopedia, reference or educational material, or any other publication, merchandise or service, in commerce, or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from representing, directly or by implication, either orally or in writing that: A. Any letter, notice or other communication which has been prepared, originated or composed by respondents has been prepared originated or composed by any other person, firm or corporation; and B. suit wil be instituted to recover any delinquent debt, or that any delinquent debt wil be transferred to any attorney with instructions to institute suit, or that any other legal step to collect any outstanding debt wil be taken, unless a definite date is set forth for such action and such are the facts; or misrepresenting, in any manner, respondents relationship with, or instructions to, any attorney, or the course of action that wil be taken by any attorney.

It is further ordered That respondents, Encyclopaedia Britannica Inc. and Britannica Home Library Services, Inc., do the following: A. Deliver, by registered mail, a copy of this order to each of their salesmen, agents, solicitors, independent contractors, or to any person engaged in the promotion, sale or distribution of any of the publications, merchandise or services included in this order, and to any person engaged by respondents to perform such duties in the future at the time such person is so engaged;

B. obtain from each person described in Paragraph VI(A) a signed statement setting forth his intention to conform his business practices to the requirements of this order; retain said statement during the period of three (3) years thereafter; and make said statement available to the Commission s staff for inspection and copying upon reasonable notice;

C. advise each such present and future salesman, agent, solicitor independent contractor or any person engaged in the promotion, sale or distribution of any of the publications, merchandise or services included in this order that respondents will terminate the engagement or services of any such person, unless such person agrees to and does furnish to respondents a statement required by Paragraph VI(B), above; and D. if any such person wil not agree to fie a statement with E:-CYCLOPAEDIA BRITANNICA, 1NC., ET AL. 541 421 Final Order respondents as required by Paragraph VI(B) above and be bound by the provisions of this order, the respondents shall immediately terminate the services of such person.

VII It is further ordered That the respondents shall forthwith distribute a copy of this order to each of their operating divisions. VII It is further ordered That respondents shall notify the Commission at least thirty (30) days prior to any proposed change in any of the corporate respondents such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of which may affect compliance obligations arising out of this order. It is further ordered That respondents shall, within sixty (60) days after the effective date 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.

Appendix A NOTICE;

Attached hereto are the pertinent provi, ions of a cease and desist order entered against Encyclopaedia Britannica by the Federa! Trade Commission, an agency of the Federal Government. Violation of any provision of this Order can result in severe monetary penalties to Encyclopaedia Britannica. If you are employed by Encyclopaedia Britannica, you wii be required to observe the provisions of this Order. Violation of any provision of this Order by an employee constitutes a violation of a Federal law. You should carefully read this Order before agreeing to any employment arranged with Encyclopaedia Britannica.

rare. ident Encyclopaedia Britann1:CQ Complaint 87 F.