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1985
ANNUAL
REPORT
U.S. FEDERAL TRADE COMMISSION
WASHINGTON, D.C.
Annual
Report
of the
FEDERAL
TRADE
COMMISSION
For the Fiscal Year Ended
September 30, 1985
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402
FEDERAL TRADE COMMISSION
JAMES C. MILLER III, Chairman
PATRICIA P. BAILEY, Commissioner
GEORGE W. DOUGLAS, Commissioner
TERRY CALVANI, Commissioner
MARY L. AZCUENAGA, Commissioner
EMILY H. ROCK, Secretary
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EXECUTIVE OFFICES OF THE FEDERAL TRADE COMMISSION
Pennsylvania Avenue at Sixth Street, N.W.
Washington, D.C. 20580
Regional Offices
Atlanta, Georgia
Room 1000
1718 Peachtree Street, N.W.
Zip Code: 30367
Denver, Colorado
Suite 2900
1405 Curtis Street
Zip Code: 80202
Boston, Massachusetts
Room 1184
10 Causeway Street
Zip Code: 02222-1073
Los Angeles, California
Room 13209
11000 Wilshire Boulevard
Zip Code: 90024
Chicago, Illinois
Suite 1437
55 East Monroe Street
Zip Code: 60603
New York, New York
Room 2243-EB Federal Building
26 Federal Plaza
Zip Code: 10278
Cleveland, Ohio
Suite 500 - Mall Building
118 St. Clair Avenue
Zip Code: 44114
San Francisco, California
901 Market Street
Suite 570
Zip Code: 94103
Dallas, Texas
Suite 140
&303 Elmbrook Drive
Zip Code: 75247
Seattle, Washington
28th Floor - Federal Building
915 Second Avenue
Zip Code: 98174
Field Station
Honolulu, Hawaii
Room 6324
300 Ala Moana Blvd.
Zip Code: 96850
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LETTER OF TRANSMITTAL
May 8, 1987
The Honorable George Bush
President of the Senate
United States Senate
Washington, D.C. 20510
The Honorable Jim Wright
The Speaker of the House of Representatives
House of Representatives
Washington, D.C. 20515
Dear Mr. President and Mr. Speaker:
It is a pleasure to transmit the seventy-first Annual Report of the Federal Trade Commission covering
its accomplishments during the fiscal year ended September 30, 1985.
By direction of the Commission.
DANIEL OLIVER
Chairman
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FEDERAL TRADE COMMISSION
1985 ANNUAL REPORT
Table of Contents
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horizontal Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributional Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Evaluation, Planning, and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
4
5
5
6
6
7
8
8
8
8
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Advertising Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Marketing Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Credit Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Service Industry Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Office of Consumer and Business Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Economic Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
21
21
22
Executive Direction, Administration and Management,
and Regional Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Appendix
Part II (Investigative Stage) Consent Agreements Accepted and
Published for Public Comment
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
v
Part II (Investigative Stage) Consent Agreements Issued in
Final Form
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Preliminary and Permanent Injunctions
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Civil Penalty Actions
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Administrative Complaints
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Part III (Adjudicative Stage) Consent Agreements Accepted and
Published for Comment
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Part III (Adjudicative Stage) Consent Agreements Issued
in Final Form
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Initial Decisions
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Final Commission Orders
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Order Modifications
Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
vi
Appellate Court Review of Commission Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supreme Court Review of Commission Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Economic Reports Completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Economic Working Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous Economic Policy Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition and Consumer Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
vii
79
81
53
85
87
89
SUMMARY
The Commissions's major focus in Fiscal Year 1985 was on its efforts to be efficient and effective in
promoting the welfare of consumers. Continuing initiatives included employing careful case selection,
integrating economic expertise into enforcement proceedings, and educating consumers and business. Efforts
in pursuing these goals and fulfilling statutory responsibilities included:
TARGETING ENFORCEMENT INITIATIVES
The Commission continued its strategy of focusing on remedies for specific market failures, rather than
pursuing broad regulatory proceedings. Antitrust resources were devoted to merger evaluation and
enforcement initiatives involving anticompetitive business conduct such as agreements by competitors to fix
prices, restrict output, divide markets, or limit entry. Consumer protection resources were directed toward
the areas of deceptive practices, and investment fraud. In addition to its administrative complaints, consent
agreements, and civil penalty actions, the Commission obtained injunctions to prohibit illegal conduct and
also approved six consumer redress orders totaling more than seven and a half million dollars.
INTEGRATION OF ECONOMIC CONSIDERATIONS
A careful process of case selection was employed, using early consideration of economic issues in the
Commission's law enforcement program. The integration of economic analysis into antitrust and consumer
protection enforcement efforts allowed the Commission to focus on the injury resulting from different
practices and to weigh whether its initiatives resulted in a net benefit to consumers.
MANAGING RULEMAKING INITIATIVES
The FTC also continued to use its resources in its rulemaking proceedings carefully. This involved
analysis of whether individual cases or industry-wide enforcement were the most appropriate remedies for
conduct harmful to consumers. During the year the Commission gave final approval to the Used Car Rule.
Other proceedings, such as the Hearing Aid Rule, were terminated because they lacked legal basis or the
practices were not prevalent.
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FEDERAL TRADE COMMISSION
WORKING WITH CONSUMERS AND BUSINESS
The Commission continued to meet and work with consumer and business groups to educate them on
their rights and responsibilities. One example was a campaign to implement the Used Car Rule by informing
business groups about its provisions and assisting to ensure compliance as the Rule became effective.
Similarly, three new consumer publications were prepared and circulated through joint efforts with
associations and business groups. These efforts, and other similar ones, resulted in approximately one
million consumer and business publications being distributed during Fiscal Year 1985.
ADVOCATING CONSUMER INTERESTS BEFORE OTHER BODIES
The Commission has continued its program to advocate consumer welfare considerations to the
Congress, in the courts, and before a variety of federal, state, and local government bodies. Each of the
Commission's three bureaus made its expertise in different areas available in efforts to identify and analyze
critical antitrust and consumer protection issues and provide appropriate comments.
IMPROVING MANAGEMENT
The Commission expended approximately 1,201 workyears and $65.7 million (the appropriated amount)
in Fiscal Year 1985. This level of resources required careful planning and control to ensure that mission
objectives were met with available funds.
Central administrative and management functions were streamlined to provide more efficient service
with lower resources. Emphasis was on the elimination of redundant or unnecessary procedures and
increased operating efficiencies through capital improvements and organizational changes. Additional efforts
were made to ensure dose coordination between Headquarters and Regional Offices and to strengthen
economic input in Regional Office enforcement efforts.
MAINTAINING COMPETITION MISSION
The Maintaining Competition Mission is charged with preventing unfair methods of competition and
promoting competition. Activities are grouped into ten program areas: mergers; energy and natural
resources; health care; transportation; horizontal restraints; compliance; international antitrust; market power;
distributional restraints; and food. In addition, the Mission has evaluation and planning and development
units.
ANNUAL REPORT 1985
3
MERGERS
During fiscal year 1985, 1604 transactions were filed with the Commission pursuant to the Hart-ScottRodino Premerger Notification Program, an increase of approximately 20 percent over fiscal year 1984. The
Commission issued requests for additional information relating to 32 of those transactions. The Commission
has the authority to seek to enjoin mergers preliminarily under Section 13(b) of the FTC Act when the
Commission deems such action appropriate to prevent violations of the antitrust laws. In fiscal year 1985,
the Commission obtained an injunction against the proposed acquisition of PolyGram Records Inc. by
Warner Communications Inc. and authorized Commission staff to seek injunction actions in three other
matters: the proposed acquisition by N.L. Industries, Inc. of the titanium dioxide assets of American
Cyanamid Company; Baker International's proposed acquisition of the underground mining equipment assets
of PACCAR Inc.; and SmithKline Corporation's proposed acquisition of American Optical Corporation. In
each instance, the parties subsequently withdrew from the proposed transactions. The Commission allowed
Allied Corporation's proposed acquisition of King Radio Corporation to proceed unchallenged after Allied
consented to an order requiring it to divest certain weather radar assets. The Commission issued an
administrative complaint challenging Olin Corporation's acquisition of certain swimming pool chemical
manufacturing assets from FMC Corporation and entered into an agreement with Olin that requires that
during litigation the acquired assets be maintained in a condition that will allow them to be divested. The
Commission accepted for public comment a consent agreement requiring Columbian Enterprises, Inc., a
carbon black producer, to obtain prior Commission approval before making significant acquisitions in the
carbon black industry. In addition, the Commission dismissed its challenge to Weyerhaeuser Company's
acquisition of Menasha Corporation's corrugating-medium mill, affirming the Administrative Law Judge's
earlier dismissal of the complaint. Litigation also continued in other matters.
The Commission published several proposed amendments to the premerger notification rules in the
Federal Register for the purpose of receiving public comments. Certain of the amendments are designed to
reduce the reporting burden by narrowing the types of acquisitions that must be reported through the
notification process, reducing the documentation and information that must accompany notification, and
clarifying the meaning of the notification rule. In addition, the amendments would add a new rule to cover
a form of transaction that has become increasingly prevalent, namely, acquisitions made indirectly through
entities formed for that purpose, and would eliminate a little-used exemption pertaining to acquisitions
subject to a Commission or court order requiring prior approval.
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FEDERAL TRADE COMMISSION
ENERGY AND NATURAL RESOURCES
The Commission continued its active involvement in maintaining competition in both petroleum and nonpetroleum energy industries. During this fiscal year, several investigations were initiated or continued. In
addition, the Commission authorized the Bureaus of Competition and Economics to respond to a number of
Congressional requests for analysis and advice on energy competition issues.
The Commission also reviewed several significant proposed energy acquisitions under its statutory
responsibilities pursuant to the Hart-Scott-Rodino amendments to the Clayton Antitrust Act, 15 U.S. C. 18A.
In one of these investigations, InterNorth/Houston Natural Gas, alleged likely anticompetitive effects in
certain natural gas pipeline markets led to a Commission consent order requiring divestiture of certain assets.
In another, MidCon/United Resources, allegations of overlaps in two separate gas pipeline markets led to
a Commission administrative complaint alleging a violation of Section 7. One of the counts of the complaint
was removed from adjudication for entry of a consent order for divestiture of gas pipeline assets. The
remaining portion of the complaint has been assigned to an Administrative Law Judge for trial. In addition,
the Texaco/Getty and Chevron/Gulf divestitures, were completed within the deadlines imposed by the
Commission.
The Commission continued its program of examining the regulatory activities of other federal and state
agencies in energy markets, and examining proposed federal and state legislation in such markets. The
Commission offered competitive impact advice when requested, and intervened in regulatory proceedings,
when it believed necessary or appropriate, to advocate market solutions as superior to command and control
regulatory activities.
Finally, the Commission continued to discharge its responsibilities under the Energy Policy and
Conservation Act with regard to the International Energy Program by monitoring industry meetings,
providing antitrust advice to other agencies of the United States Government, and preparing and issuing
reports on the competitive impact of the International Energy Program to the President and Congress. The
Commission also continued to fulfill its obligations under the Deep Seabed Hard Mineral Resources Act, the
National Energy Conservation Policy Act and the Power Plant and Industrial Fuel Use Act. The Commission
also conducted several investigations of alleged predatory and other anticompetitive behavior in various
resource industries and examined competitive issues involving utility participation in non-regulated markets.
In an investigation of the lithium industry, one of the two firms involved has agreed to enter into a consent
decree. The Commission completed a major investigation of a merger of two gas and electric utilities with
overlapping service areas.
ANNUAL REPORT 1985
5
HEALTH CARE
During fiscal year 1985 the Commission continued its efforts to promote competition in the health care
sector of our economy. The Commission issued a complaint charging a conspiracy by competing physicians
to extract higher prices from third-party payors by threatening to, and actually, jointly boycotting the plans.
The Commission also issued several consent orders settling charges of anticompetitive activity. The
Commission entered a final consent order against a state optometric association, requiring it to cease
restricting certain forms of commercial practices by optometrists such as affiliating with franchise eye wear
retail centers. The Commission issued a final consent order preventing a hospital's staff from threatening
to boycott the hospital to prevent its operation of an urgent care center. It also entered a final consent order
requiring divestitures to remedy the alleged anticompetitive effects of an acquisition of hospitals in Texas
and Virginia. The Commission and its staff also have pursued ongoing investigations involving allegations
of boycotts, restraints on truthful advertising by health care professionals, anticompetitive mergers, and other
anticompetitive conduct.
In addition to traditional law enforcement activity, the Commission has provided advice and informal
guidance to health care professionals seeking to ensure that their proposed activities, including new forms
of health care marketing and delivery and dispute resolution services, conform to requirements of the
antitrust laws. The Commission also filed an amicus brief in the Seventh Circuit urging the court not to
apply the state action exemption to anticompetitive conduct that occurs in connection with hospital privilege
decisions.
TRANSPORTATION
During fiscal year 1985, the Commission made substantial progress on a program aimed at eliminating
suspected anticompetitive municipal regulation of taxicabs unauthorized by state law through litigation and
advocacy. A complaint issued against the City of Minneapolis was withdrawn after the City revised its
ordinance to permit more competition, and one against New Orleans was withdrawn after the state authorized
the conduct by a new law. Staff testimony advocating more procompetitive regulation was given in
Colorado, Anchorage, Alaska, Seattle, Washington, and the District of Columbia in response to invitations.
Numerous requests for the Commission's economic report on taxicabs show that the program is having a
more subtle influence as well. In response to the Supreme Court's Southern Motor Carriers decision, the First
Circuit remanded the Massachusetts Movers decision to the Commission for further findings. In addition,
for similar reasons some pending motor carrier rate bureau matters
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FEDERAL TRADE COMMISSION
were withdrawn. Adjudication of others continued. The Commission issued a complaint against U-Haul
involving sham litigation allegations.
HORIZONTAL RESTRAINTS
During fiscal year 1985, the Commission continued to devote substantial resources to eliminating
anticompetitive agreements among competitors, especially among professionals. The Commission has
focused its efforts on state boards" and private professional and trade associations" regulations that may have
the purpose, or the effect, of fixing or stabilizing prices or reducing output, or causing substantial injury to
consumers. In implementing its program against anticompetitive horizontal restraints, the Commission has
used various means: intervention, advocacy, cooperative efforts resulting in voluntary compliance, consent
orders, and litigation. This year, the Commission has issued administrative complaints against trade associations or other groups of competitors in three cases: National Decorating Products Association involved
allegations that NDPA and certain of its local affiliates conspired to restrain competition in the sale of
wallpaper and other "wall coverings"; Ticor Insurance involved several title insurance companies" alleged
conspiracies to fix prices on title search and examination services; Detroit Motor Vehicle Dealers. involved
allegations that competing motor vehicle dealers in Detroit conspired to close their businesses during certain
week nights and weekends.
The Commission also completed litigation in several other alleged horizontal restraint cases initiated in
the previous fiscal year. The Commission accepted consent agreements in five cases: National Association
of Temporary Services, involved rules restricting members from soliciting competitors' employees or
customers and from sending employees to the site of a labor dispute; National Customs Brokers and
Forwarders Association, involved rules restricting its members from making autonomous pricing decisions;
Orange County Board of Realtors and Multiple Listing Service of the Greater Michigan Area Inc., involved
restrictions on the publishing of members" exclusive agency listings; and Decorating Products Association
of Central Florida, a case involving alleged horizontal restraints in the wall covering industry. Additionally,
without resort to litigation or order, the Commission acted to eliminate a number of other restrictions on commercial activities of state-licensed professionals through cooperation with state boards and state attorneys
general.
INTERNATIONAL ANTITRUST
During fiscal year 1985, the international antitrust program was active in a total of 25 full phase and
initial phase investigations involving such matters as: possible horizontal price fixing in imported motorcycle
batteries,
ANNUAL REPORT 1985
7
imported sausage casing, fine art, wallcoverings, and imported radial tires; possible attempted
monopolization of the markets for potassium permanganate, indomethacin, and melamine; and potential
anticompetitive restraints resulting from transnational joint ventures involving gas and electric ranges, and
polycrystal silicon (for computer integrated circuits).
Through a total of 17 projects, the international program has been active in a variety of intervention
matters and international liaison activities involving transnational competition and antitrust law enforcement
issues impacting upon the domestic economy. For example, the Commission intervened in several trade law
proceedings and provided legal and economic analysis that sought to identify and quantify the economic
costs to consumers and the national economy of remedies requested. Through its international liaison
activities, the Commission's staff maintained full compliance with the notification provisions of bilateral and
multilateral, international antitrust cooperation agreements and understandings with foreign nations, which
serve to minimize international law and policy conflicts, as well as to facilitate United States" antitrust law
enforcement efforts involving international commercial transactions and/or the acquisition of evidence
located abroad. The total number of international notifications and cooperative contacts and requests for
assistance with foreign antitrust officials continued to increase in fiscal 1985. For example, during fiscal
year 1985, the International Division had 144 such bilateral exchanges with foreign governments regarding
antitrust investigations and proceedings that might affect foreign sovereign interests. In addition, the
Commission, in cooperation with DOJ and the State Department, continued its participation on the OECD
Committee of Experts on Restrictive Trade Practices, the Council on Foreign Investment in the United States
(CFIUS), and, at the request of the United States Trade Representative, the interagency MOSS initiative.
MARKET POWER
The Commission's staff continued to receive complaints alleging the abuse of market power by various
public utilities. During the year, a large amount of resources were committed to studying alleged problems
in the industry and to in-depth reviews of selected companies. The staff is currently completing analysis of
the facts developed during the course of these reviews.
During fiscal year 1985, the staffs of the Bureaus of Competition, Consumer Protection, and Economics
filed comments with the Federal Communications Commission to encourage it to permit more competition
for granting of Intelsat satellite communication slots.
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FEDERAL TRADE COMMISSION
DISTRIBUTIONAL RESTRAINTS
The Commission's decision in Boise Cascade Corp., involving the alleged receipt of discriminatory prices
by a distributor of office supplies, is pending. The Commission continued a number of investigations
involving possible distributional restraints.
FOOD
During fiscal year 1985, the Commission concluded the first stage of its retail pricing survey, including
investigational hearings in five major cities across the United States. The study focuses upon the impact of
new store formats on price competition in the retail grocery industry. The Commission is now evaluating
the results of the investigational hearings and supplemental industry data. In addition, several investigations
of possible anticompetitive acquisitions in the manufacturing and processing segments of the industry were
initiated.
The Commission also continued to monitor practices by retailers that may inhibit the free flow of
comparative price information to consumers, practices which have resulted in the Commission issuing
complaints in the past. The Commission continued to investigate acquisitions in the soft drink industry for
possible anticompetitive effects. The Commission also initiated several investigations of alleged
anticompetitive practices, including abuse of governmental process designed to injure competition and
collusion among competitors. The program also completed a number of other investigations that did not
disclose sufficient evidence of law violations.
EVALUATION, PLANNING AND DEVELOPMENT
During fiscal year 1985, this program included several innovative projects. The Commission consistently
filed several amicus briefs in an expanded program designed to encourage and foster competition wherever
the Commission's expertise might be persuasive. Briefs were filed in federal district courts and in the
Supreme Court.
Work also continued on a variety of ongoing responsibilities, including evaluation of current Bureau
investigations, management of the Bureau's efforts in competition advocacy, providing guidance to the public
regarding Commission policies, research and analysis of significant antitrust issues, and providing
management information on Maintaining Competition Mission activities.
COMPLIANCE
During fiscal year 1985, the Commission instituted civil penalties litigation in two instances: against
American Hospital Supply Corp. for making
ANNUAL REPORT 1985
9
numerous acquisitions in the urinary catheter market without prior Commission approval, and against Bell
Resources Ltd. and Weeks Petroleum Ltd. for acquiring stock in Asarco Inc. without filing the premerger
notification and observing the statutory waiting period required by Section 7A of the Clayton Act and the
premerger rules. The staff also made recommendations to the Commission concerning numerous petitions
to modify orders and applications for approval of divestitures and acquisitions, including the Commissionordered divestitures in Texaco/Getty and Chevron/Gulf. In addition, the staff advised Bureau attorneys on
the effectiveness of proposed remedies, and conducted investigations of possible order violations and
possible violations of the premerger reporting statute and rules.
CONSUMER PROTECTION MISSION
The Consumer Protection Mission is charged with the elimination of unfair or deceptive acts or practices
in or affecting commerce, with emphasis on those practices that may unreasonably restrict or inhibit the free
exercise of consumer choice. The Mission emphasizes market-oriented remedies for law violations. Its
activities can be grouped into five program areas: Advertising Practices; Marketing Practices; Credit
Practices; Service Industry Practices; and Enforcement. In addition, the Mission has a Policy. and Evaluation
Unit, and an Office of Consumer and Business Education.
ADVERTISING PRACTICES
The Commission accepted a number of consent agreements in the area of advertising practices. Thomas
A. Dardas, president of Acu-Form Weight Control Centers, Inc., agreed not to claim that the "Acu-Form"
plastic molded earpiece or any other diet product is effective in helping consumers lose weight unless he has
competent and reliable substantiation. Biopractic Group, Inc., maker of "Therapeutic Mineral Ice" arthritis
pain remedy, agreed not to make unsubstantiated claims about the product's effectiveness and acceptance by
the scientific community or news media. Commodore Business Machines, Inc. agreed not to advertise that
its computers have or will have in the future particular equipment or capabilities unless the claim is true, or
there is a reasonable basis for the claim. Young & Rubicam/Zemp, Inc., an advertising agency, agreed not
to misrepresent the ability of the "Ecologizer CA/90 Series 2000 Air Treatment System" or any other indoor
air cleaner made to remove formaldehyde gas or tobacco smoke from household air, without competent and
reliable substantiation. John Treadwell, doing business as Trans-Continental Industries (TCI), agreed not
to claim that "20% Plus Organic Fuel Catalyst" gasoline additive could
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FEDERAL TRADE COMMISSION
increase gas mileage and reduce fuel costs by 20 to 25 percent without competent and reliable evidence.
Misrepresentations of test results, or of the profits or marketing assistance provided to distributors, also is
prohibited under the agreement.
The Commission issued two administrative complaints in the advertising practices area. Buckingham
Productions, Inc. was charged with making false, misleading, and unsubstantiated advertising claims for its
"Rotation Diet" and several other related weight reduction plans. Removatron International Corporation, the
maker of the Removatron brand hair removal device, was charged with deceptively advertising that the
product can permanently remove hair and falsely claiming the device has been approved by the Federal
Communications Commission.
Several matters in adjudication were resolved with consent agreements that were accepted by the
Commission. Rush-Hampton Industries, Inc. and Associated Mills, Inc. agreed not to make performance or
efficacy claims about indoor air cleaning devices without competent and reliable substantiation. A final
consent order prohibits the P. Leiner Nutritional Products Corp. from claiming that its nutritional supplement
"Octacol 4" can improve physical fitness or athletic performance unless it has competent and reliable
substantiation. The company also agreed not to misrepresent test results in its advertisements. An agreement
settling charges related to the Buckingham Productions, Inc. complaint prohibits Dr. Barry Bricklin, an expert
in the psychology of dieting, from providing false and misleading endorsements for diet plans. In a consent
agreement accepted and placed on the public record, Weider Health and Fitness, Inc. and Joseph Weider
agreed to pay a minimum of $400,000 in refunds and research grants to settle charges they misrepresented
two nutrient supplements. Weider advertised and sold the supplements as substitutes for anabolic steroids,
used by bodybuilders and weight trainers to increase muscularity and strength.
In a suit filed in federal district court, the Commission sought and obtained an asset freeze against all
but one of the defendants in the case against Phillipe LaFrance/USA, Ltd. The complaint seeks permanent
injunction actions, consumer redress, and civil penalties from nine companies and four individuals who
allegedly misrepresent the nationally advertised mail order products they sell. The Commission also filed
a complaint seeking a permanent injunction and consumer redress against William Jones, doing business as
Liquid Assets, challenging as false and deceptive the company's advertising claim that its mouthwash,
"Breath Fresh 502" will have a sobering effect on people who have consumed large amounts of alcohol and
will allow them to pass breath analyzer tests. The Commission charged Intra-Medic Formulations, Inc. and
three of its subsidiaries with making false and deceptive claims about its weight-control and baldness-cure
products. The Commission's complaint seeks permanent injunction actions and consumer redress.
ANNUAL REPORT 1985
11
The Commission issued a final order upholding an Administrative Law Judge's decision that Thompson
Medical Company may not deceptively convey to consumers that its "Aspercreme" arthritis rub is an
effective remedy against pain, is a new scientific discovery, or that the product contains aspirin.
The Commission terminated the Protein Supplements Rulemaking proceeding. The lack of sufficient
evidence that unfair or deceptive representations were ever widespread, coupled with the absence of any
evidence that manufacturers had made such representations in the last decade, led the Commission to believe
that problems were not prevalent enough to warrant an industry-wide rule. The Commission stated that caseby-case enforcement is a more appropriate and efficient strategy. Comments were solicited on proposed
amendments to the Guide Concerning Fuel Economy Advertising for New Automobiles. The changes are
intended to make the guide consistent with the Environmental Protection Agency's revised fuel economy
labeling rules for new automobiles.
The Commission approved revised industry plans for the quarterly rotation of health warnings on
cigarette packages and in advertisements. Under the Comprehensive Smoking Education Act, enacted in
1984, the Commission must approve the companies' plans for rotating the warnings. In the annual report to
Congress on smoking data for 1982 and 1983, the Commission reported that cigarette sales decreased in 1982
for the first time since 1969 and declined again in 1983. The advertising expenditures of the cigarette
companies continued to increase in both years, reaching a new high of nearly $2.0 billion in 1983. In
response to a petition regarding advertising for smokeless tobacco products, the Commission requested a
comprehensive review of the existing scientific evidence on the health effects of smokeless tobacco from the
U.S. Surgeon General.
The Commission denied a petition asking it to begin industry wide rulemaking proceedings restricting
alcoholic beverage advertising. The Commission found no reliable basis on which to conclude that alcohol
advertising significantly affects alcohol abuse.
MARKETING PRACTICES
The Commission obtained several final consent agreements in the warranty performance area. Sun
Refining and Marketing Company agreed to honor lifetime warranty obligations for automobile batteries it
sold with such a warranty and to notify eligible consumers. A Philadelphia-area home builder, The Korman
Corporation, agreed to repair defects in houses it has built or reimburse eligible homeowners for repairs they
have already made. Homeowners of houses sold with a written warranty will be given the opportunity to
arbitrate warranty disputes through an informal dispute settlement program. Craftmatic Comfort Mfg. Corp.
and Craftmatic/Con-
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FEDERAL TRADE COMMISSION
tour Organization, Inc., two sellers of electric adjustable beds, agreed to honor their warranties fully and
promptly, and to tell consumers, in advance, that they are responsible for returning the bed or any part of it
at their own expense in order to obtain warranty service. In a final consent agreement Ward Corporation,
a major Washington, D.C. area home builder, agreed to make repairs or pay homeowners for valid new-home
construction defects covered under the written warranty and costing $500 or more to fix. Ward also agreed
to set up an arbitration mechanism for future home buyers, and not to misrepresent its warranty obligations.
Several consent agreements were also obtained in the deceptive sales area. Sentronic Controls
Corporation and Wein Products, Inc. agreed not to claim that ultrasonic pest control devices eliminate insects
and rodents, or to make any other efficacy or performance claims, without competent and reliable scientific
substantiation. Porter Realty, a real-estate brokerage company, and Irvin Porter, an officer of the company,
agreed not to misrepresent the value and potential use of land, settling charges as to those respondents in the
Commission's complaint against Southwest Sunsites. In a consent subject to final approval, Larry Brog,
former chief executive of Meadow Fresh Farms, Inc., a nationwide company that marketed Meadow Fresh
White, a dry milk substitute, agreed to have scientific evidence for any future claims he makes about the
product or other food products.
The Commission also issued an administrative complaint against Roy Brog, President of Meadow Fresh
Farms, Inc. Roy Brog is charged with making unsubstantiated claims about the shelf life of Meadow Fresh
White and its ability to reduce cardiovascular disease.
In the product information area, a final consent agreement was obtained with the manufacturer and seller
of "Sky Genie Descent Systems," safety devices used by individuals working on or descending from tall
buildings or other heights. Descent Control, Inc. agreed to substantiate its advertising claims, revise its
operating instructions, and inform users of previously undisclosed safety information.
The Commission obtained a settlement of contempt charges from Theodore Weiswasser for violating
a 1981 preliminary injunction issued in the Paradise Palms Vacation Club proceeding. Weiswasser was
ordered to pay $250,000 into a consumer restitution fund for making misrepresentations in the sale of
timesharing in a vacation resort. Three principals of Kitco of Nevada, Inc., Duane F. Snelling, John E.
Farkas, and Craig A. Jesinoski, were permanently enjoined from misrepresenting business opportunities and
ordered to pay $531,949 in restitution to purchasers of their "work at home" business opportunity.
The Commission filed a complaint in federal district court seeking a permanent injunction action and
consumer redress against three individuals, Rebecca L. Kelley, Debbie Tanner, and Bryan M. Hall, for
allegedly making false claims that they could help couples adopt children from Mexico.
ANNUAL REPORT 1985
13
The complaint charges that they misrepresented the status of "pending" adoptions and the procedures they
would follow, such as placing fees in escrow and working through a Mexican attorney. The Commission
also filed a complaint in federal district court seeking preliminary and permanent injunctive relief and
consumer redress against four individuals for alleged violations of the FTC Act in the sale of business
opportunities. Michael Kaplan, Jerome Kaplan, Robert MacKenzie Davis, Jr., and Richard Wiley have
employed a series of corporations including Certified Security Systems, to sell distributorships for high-tech
products such as energy savings devices and home burglar alarms systems.
An Administrative Law Judge ruled that Figgie International, Inc. made false performance claims for its
"Vanguard" heat detectors which, contrary to its ads, did not give sufficient warning to enable occupants to
escape residential fires safely. In the Orkin Exterminating Co., Inc. proceeding, an Administrative Law
Judge ruled that the company must roll back annual renewal fees for customers whose original termitecontrol agreements called for fixed annual fees. Both decisions are on appeal to the Commission.
The Commission issued a final order reversing a 1982 ruling of an Administrative Law Judge who had
dismissed the charges against Southwest Sunsites, Inc. The Commission ordered the company to stop
misrepresenting the value and potential use of its land. In another final order, the Commission ruled that
International Harvester Company had failed to adequately disclose to consumers that its gasoline-powered
tractors were subject to a safety hazard known as "fuel geysering" even though the company knew of the
potential danger. The Commission found that the failure to disclose was an unfair practice that violated the
law.
The Commission approved the final Used Car Rule requiring dealers to make specified disclosures,
including who must pay for repairs after a sale, in a Buyers Guide placed in the side window of each used
car offered for sale.
A Notice of Proposed Rulemaking was published by the Commission proposing modifications to the PreSale Availability of Written Warranty Terms Rule. The current rule requires retailers to make warranty texts
available to customers prior to purchase using one of four specified methods. The proposed amendment
would reduce the costs of complying with the Rule by providing retailers with a choice of displaying the
warranty text near the product or making it readily available to any customer upon request. In another
warranty-related matter, the Commission announced final revisions to its Guides Against Deceptive
Advertising of Guarantees. The guides were revised to simplify the advertising of warranty coverages.
The Commission voted to terminate the Hearing Aid rulemaking proceeding after considering evidence
that the overwhelming majority of hearing aid buyers are satisfied with their purchases. According to a
survey submitted with the staff recommendation, most hearing aid sellers are offering buyers trial periods
of warranties to deal with problems that might occur, as would have been required by the rule.
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FEDERAL TRADE COMMISSION
The Ford Motor Company's Consumer Appeals Board and the Residential Warranty Corporation were
granted two-year limited exemptions to the Commission's Informal Dispute Settlement Procedures Rule.
These exemptions allow the companies to use mediation prior to arbitration as part of their dispute resolution
procedure.
CREDIT PRACTICES
The Commission obtained several consent agreements for alleged violations of the Fair Credit Reporting
Act (FCRA). The Hospital and Health Services Credit Union and Associated Dry Goods Corp. have agreed
to notify former credit applicants that they were denied credit on the basis of information from a credit
bureau or third party, and to provide the applicant with the name and address of the bureau, or the nature of
third party information, upon request. Under a proposed consent order, the Wright-Patt Credit Union agreed
to tell credit applicants that they were denied credit because of insufficient information in their credit reports,
and to give consumers the name and address of any credit bureau that provided the reports used as the basis
for denying credit. In a consent agreement accepted and placed on the public record, Federated Department
Stores, Inc., one of the nation's largest retailers, agreed to tell credit applicants when it uses information from
credit reporting agencies as a basis for denying credit and to tell rejected applicants the name and address
of the credit reporting agencies it contacted. The agreement settles charges that Foley's, a Federated division
operating 14 department stores in Texas, repeatedly violated the FCRA when denying credit applications.
Winkelman Stores, Inc., a Detroit-based retailer of women's clothing, agreed to pay $65,000 in civil
penalties to settle charges it violated certain provisions of the ECOA and the FCRA when denying credit
applications. The corporation has agreed to comply with the Acts in the future, and to review credit
applications it has rejected in the past two years and send appropriate ECOA and FCRA notices to all
consumers who have not received them.
The Commission also accepted a consent agreement for alleged violations of Section 5 of the FTC Act.
Service One International Corp., a national credit-counseling service doing business as First Credit Services,
agreed not to misrepresent its ability to assist consumers in obtaining MasterCard or Visa credit cards. The
company also agreed not to misrepresent the terms or amounts of refunds it offers, and to give previous
customers denied credit the option of receiving full refunds or participating in the new credit-counseling
service without additional charges.
Nash Phillips/Copus, Inc., one of the nation's largest home builders, agreed to a $300,000 civil penalty
consent decree to settle charges it violated the Truth-In-Lending Act (TILA). The company agreed to provide
the
ANNUAL REPORT 1985
15
annual percentage rate in any of its credit advertisements that state an interest rate, and comply with all
requirements of the TILA. The Commission took this action as part of its real estate credit advertising
project designed to increase compliance with credit advertising laws.
Two consumer loan companies agreed to civil penalty consent decrees to settle charges that they
discriminated against elderly credit applicants on the basis of their age and reliance on retirement income,
in violation of certain provisions of the ECOA and FCRA. Fidelity Acceptance Corp. and Allied Finance
Co. will pay civil penalties of $235,000 and $125,000 respectively, and have agreed not to discriminate
against the elderly in the future, to comply with federal credit laws, and to provide previously rejected
applicants with the notices these laws require.
The Commission filed two actions in federal district court under Section 13(b) of the FTC Act. Evans
Products Company and its finance subsidiary, Evans Financial Corp., were charged with falsely and
deceptively representing that they would provide buyers of thousands of homes sold through two of their
housing divisions with guaranteed, long-term mortgage loans, often at low interest rates. The Commission
alleged that this misrepresentation caused buyers severe economic and other injury, and resulted in many of
them losing their homes. The matter is pending appeal of a court decision denying the request for a
preliminary injunction. The complaint filed against Nationwide Mortgage Corporation charges three
companies and nine individuals with allegedly misrepresenting the terms and the duration of the loans they
offered. Two of the companies and two individuals were also charged with violating the TILA. The
defendants allegedly collected fees in excess of 30 percent of the loan, and are charged with causing more
than 100 Washington D.C. area homeowners to lose their homes, file for bankruptcy, or seek refinancing at
additional cost.
The Credit Practices Rule, designed to protect consumers from unfair or deceptive practices by creditors
regulated by the FTC, went into effect in March 1985. The Rule covers any agreement by which consumers
get credit for any personal purpose, except to buy real estate. In May 1985, the Commission published staff
guidelines explaining the procedures staff will follow in handling state exemptions from the Rule.
SERVICE INDUSTRY PRACTICES
Several actions were taken in matters involving misrepresentations in the sale of oil and gas leases.
Charles E. Weller, a former officer of Alaska Land Leasing, Inc., agreed to a consent order requiring him to
contribute $60,000 to a consumer redress fund. In an order issued by the district court, J&R Marketing Corp,
and its principal officers, Ray Belitsky and James Bianco, are required to pay $700,000 into a consumer
redress fund. Settlements were also reached with two defendants in the Commission's suit against U.S. Oil
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FEDERAL TRADE COMMISSION
and Gas Corp. The settlements require Martin Rotberg to pay $85,000 and Milton Sand to pay $225,000 in
consumer redress. The Commission filed al contempt charges against David J. Swain and Michael Peter
Nissen, principal officers of the Trans-Alaska Energy Corp., for allegedly transferring or selling assets after
a temporary injunction containing an asset freeze was ordered by the district court.
A federal district court ordered defendants in the Kimberly International Gem Corp. suit to pay $280,000
in consumer redress to settle charges they misrepresented the value of colored gemstones sold as investments.
Gemstone purchases by individual consumers ranged from a few thousand dollars to tens of thousands of
dollars. The court also issued stipulated permanent injunctions and default judgments prohibiting the
defendants from making false or deceptive claims about gemstones or other investments.
In a final consent agreement, the Montana Board of Optometrists agreed not to prohibit optometrists in
that state from disseminating truthful, nondeceptive advertisements, including price-related terms or claims
of professional superiority. In a judgment entered in federal court, A & A Laboratories, Inc. was
permanently enjoined from misrepresenting to consumers its ability, based on a hair analysis, to measure
accurately the element content of a person's body or to recommend vitamin, mineral, or other dietary
supplements to correct chemical excesses and deficiencies.
The Commission terminated its Standards and Certification rulemaking proceeding. The rule would have
imposed industry wide procedures on standards developers and certifiers for dealing with restraint-of-trade
complaints. The Commission determined that a recent Supreme Court decision has prompted the industry
to make reforms and lessened the need for a rule.
The Commission began its Ophthalmic Practice (Eyeglasses II) rulemaking proceeding to determine
whether total bans on certain forms of commercial ophthalmic practice should be removed. Such restraints
may increase prices without providing offsetting benefits in the form of improved quality of service. The
Commission released the staff report on Alternative Legal Delivery Systems. The report, which examined
the impact of "state regulations on lawyers" marketing practices, found that restrictions that prevent lawyers
from advertising their services may limit access and increase legal costs for consumers. No rule is planned
in this area. The staff report on the Health Spas Rule was published and comments were solicited on the
staff's recommendation to terminate the rulemaking.
ENFORCEMENT
As required by a 1984 FTC consent order, a nationwide mediation/arbitration program was established
by General Motors Corp. to allow consumers with engine or transmission problems the opportunity to obtain
reimbursement for repair expenses During the first ten months of the program,
ANNUAL REPORT 1985
17
GM paid 9,529 consumers in five geographic areas more than $3.3 million, with the average consumer
complaint being resolved in 40 days. This data represents a sample of only five of 130 areas where the
program is operating and covers reimbursements made for only three specific types of problems.
As part of its review of the Octane Rule under the Regulatory Flexibility Act, the Commission solicited
comments on the economic impact of the requirement that retailers post octane ratings on gasoline pumps.
The review of the Home Insulation (R-Value) Rule under this Act was concluded with no modifications to
the rule required. The Regulatory Flexibility Act requires the Commission to conduct a periodic review of
its rules to determine whether they have a significant economic impact on small businesses.
The Commission has adopted final regulations implementing amendments to the Textile Fibers Products
Identification Act and the Wool Products Labeling Act, to reflect the requirements of new legislation
governing country-of-origin labeling. All textile and wool products covered by these regulations will now
be required to have labels to help consumers identify the country of origin of products at the time of
purchase.
The Commission voted to begin a rulemaking proceeding to amend the rule on Retail Food Store
Advertising and Marketing Practices. The proposed amendments would allow grocers to comply with the
rule by offering rain checks or substitutes of comparable value when they run out of advertised items.
Grocers also would be able to advertise special purchases or other items that are available only in limited
quantities, if they clearly disclose the fact to shoppers.
Final staff compliance guidelines were published to help funeral providers comply with the Funeral Rule.
Final staff guidelines to aid states in submitting exemption petitions from the rule were also published.
The Commission issued an enforcement protocol for the Franchise Rule, outlining some of the factors
it will consider in deciding whether to initiate law enforcement actions for violations of the rule.
Several suits brought by the Commission involved violations of the Franchise Rule. A federal court
ordered Royco Automobile Parts, Inc. and its president, Robert Sowerby, to pay $567,000 in consumer
redress and $400,000 in civil penalties for allegedly misrepresenting facts involving distributorships for the
sale of automotive tune-up parts. According to the Commission, consumers who invested in Royco
franchises lost an average of $14,000 each - some more than $50,000 - because of the company's false
statements. Federal Energy Systems and one of its officers were ordered to pay more than $3 million in
consumer redress and over $1.6 million in civil penalties to settle charges that the company violated the rule's
disclosure requirements and made false and deceptive claims about its franchises. The company sells
franchises for the sale and installation of equipment that automatically controls the heating and air
conditioning of commercial buildings. Enamelcraft, Inc. agreed to pay a $15,000 civil penalty for
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FEDERAL TRADE COMMISSION
allegedly misrepresenting the services and merchandise it offered. The Commission filed a complaint against
Tuff-Tire Industries, Inc., charging the company with misrepresenting the effectiveness of its "Mr. TuffTire" automotive tire sealant and the profitability of its franchises. The Commission also filed suit against
Control Technology, Inc. for allegedly making misrepresentations concerning its franchises for energymanagement systems.
Civil penalties were ordered in three suits involving alleged violations of the Mail Order Rule. The two
officers of Me-Books Publishing Company, Jerry Klein and James Maher, agreed to pay $20,000 in civil
penalties, and JS&A Group, Inc. and its president, Joseph Sugarman, agreed to a $115,000 civil penalty
consent judgment. Two mail order marketers, Norman Chanes and Monroe Caine, agreed to pay $175,000
each in civil penalties and consumer redress to settle charges they repeatedly violated the rule and
misrepresented their merchandise. The marketers allegedly controlled five mail order companies, including
Encore House, Inc. The Commission filed a complaint in federal district court charging Del Monte Corporation with violations of the rule in the sale of its "Country Yumkin Dolls." The company is charged with
failing to ship merchandise in a timely manner and failing to meet the notification provisions of the rule.
The Commission modified an order against Grolier, Inc. to change the wording and presentation required
in advertisements and sales material, and the timing of required disclosures to prospective employees. A
1982 consent order against American Motors Corp. and Jeep Corp. requiring safety-warning stickers on Jeep
CJ utility vehicles was set aside. The National Highway Transportation Safety Administration now requires
similar warning stickers on all utility vehicles. Brooks-Rent-A-Car was ordered to pay civil penalties for
violating a 1973 Commission cease and desist order.
POLICY AND EVALUATION
In addition to its cases, rulemakings, and other activities to remedy problems in the market, the
Commission traditionally has been active in providing analytical support and expert opinion to other
government agencies. Some fiscal 1985 filings and testimony in which the Bureau of Consumer Protection
played a major role, are represented below.
Staff comments concerning practices in various professional fields were submitted to several states. For
example, comments were presented to the Massachusetts Board of Registration in Medicine indicating
opposition to proposed restrictions on mid-level health professionals such as physician assistants and nurse
practitioners. Comments were filed with the North Dakota State Board of Optometry supporting a proposal
to broaden the
ANNUAL REPORT 1985
19
scope of permissible advertising by optometrists. The Commission staff also addressed regulatory changes
that have been proposed by the Virginia Boards of Dentistry, Medicine, Optometry, and Veterinary Medicine
involving restraints on nondeceptive advertising and restrictions on commercial practice. A report was
presented to the Legislative Council of Delaware concerning proposed legislation that would affect the
ability of optometrists to use trade names, engage in direct solicitation, and operate as a corporate practice.
Commission comments were filed with the Federal Reserve Board on its proposed amendments to
Regulation Z, which implements the Truth-In-Lending Act. The amendments would require lenders to
provide more information about adjustable rate mortgages.
The Commission approved the filing of an amicus brief in Indian Head, Inc. v. Allied Tube & Conduit
Corp., in federal court in the Southern District of New York, arguing that Noerr immunity should not apply
to a manufacturer's actions to influence the standards development process of a private standards-setting
organization.
OFFICE OF CONSUMER AND BUSINESS EDUCATION
The Office of Consumer and Business Education coordinates an education program aimed at providing
information to consumers and industry on major Commission decisions, programs, statutes, and rules. This
allows informed choices and competitive business practices to function freely in the marketplace. Thus, the
consumer and business education program is a cost-effective way of obtaining compliance with the law.
In fiscal year 1985, the Office developed and distributed, via satellite, two television video features on
the Commission's Used Car Rule. This campaign informed consumers about the new rule and the availability
of brochures on the subject in both English and Spanish. To encourage compliance with the rule, 89,000
copies of the "Dealer's Guide to the FTC Used Car Rule" were distributed nationally to all dealers prior to
the rule's effective date.
Three major publications were developed and distributed as joint efforts. Two print campaigns were
produced with the American Association of Retired Persons (AARP) and one with American Express. The
AARP publication, Your Home, Your Choice, explained housing options for the elderly, and Healthy
Questions explained how to select and talk to physicians, pharmacists, dentists, and vision care specialists.
The American Express joint publication effort, Who's Got Your Number, concerned credit and charge card
fraud.
In addition, several new and updated fact sheets were distributed. They include such titles as Solving
Credit Problems, Buying Time for Watches, Emergency Escape Masks, What's Going on at the FTC, and
Holiday Shopp-
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FEDERAL TRADE COMMISSION
ing. In total, over one million consumer and business publications were distributed by the FTC in fiscal
1985. The Commission also won three communication awards in fiscal 1985 for its consumer education
campaigns in television (Funeral Rule PSA, 1984), radio (Used Car Buying PSA, 1983), and print (Healthy
Questions, 1985).
ECONOMIC ACTIVITIES
During fiscal 1985 the FTC's Bureau of Economics continued to provide economic support to the
agency's antitrust and consumer protection activities, to advise the Commission about the impact of
government regulation on competition, and to gather and analyze information on the American economy.
The primary mission of the FTC is to enforce the antitrust and consumer protection laws. In 1985, the
Bureau of Economics continued to provide guidance and support to those activities. In the antitrust area,
economists offered advice on the economic merits of potential antitrust actions. Situations where the
marketplace performed reasonably well were distinguished from situations where the market might be
improved by Commission action. When enforcement actions were initiated, economists worked to integrate
economic analysis into the proceeding and to devise remedies that would improve consumer well-being.
In the consumer protection area, economists provided estimates of the benefits and costs of alternative
policy approaches. Potential consumer protection actions were evaluated not only for their immediate
impact, but also for their longer-run effects on price, product variety, and consumer welfare.
Although the FTC is primarily a law enforcement agency, it also is charged with collecting, analyzing,
and publishing information about the nation's business firms. Much of this work is undertaken by the Bureau
of Economics. In 1985, economists conducted a number of studies on a broad array of topics in antitrust,
consumer protection, and regulation. Research economists also were available to provide Commissioners
with economic advice.
ANTITRUST
In the antitrust area, economists participated in all investigations of potential antitrust violations and in
the presentation of cases in support of complaints. Economists also advised the Commission on informal
antitrust matters. These activities absorbed the bulk of the Bureau's resources assigned directly to support
the Commission's antitrust responsibilities.
ANNUAL REPORT 1985
21
Certain studies undertaken by the Bureau also support the Commission's antitrust responsibilities
indirectly. During the year, economists begin or continued to work on resale price maintenance, international
competition, and competition in hospital and grocery markets.
CONSUMER PROTECTION
In the consumer protection area, economists prepared well over 100 memoranda evaluating requests from
BCP attorneys for full phase investigations, consent negotiations, consent settlements, and complaints. In
addition, economists routinely provided day-to-day guidance on individual matters and made policy
recommendations directly to the Commission. Staff also worked on several consumer protection impact
evaluation studies, including an analysis of the benefits and costs of extending the FTC's mail order rule to
phone orders. Economists were extensively involved in preparing data generated by the GM defects
settlement for release to the public, and they also prepared an analysis of the evidence on the effect of alcohol
advertising on alcohol consumption and abuse in response to a petition for rulemaking.
In addition, studies were completed and sent to Congress on the role of information in the markets for
auto insurance and life insurance. Work also continued on studies of the new and used car markets and were
completed on a study of the generic drug market.
REGULATORY ANALYSIS
In the regulation area, economists continued their participation in the Commission's Competition and
Consumer Advocacy Program. As part of this work, comments on a variety of regulations were filed with
several government agencies. Two sets of comments were filed with the Federal Energy Regulatory
Commission (FERC) concerning the regulation of natural gas pipelines. These comments sought to
encourage the FERC to rely on competition rather than extensive regulation to the maximum extent possible.
Comments also were filed with the Interstate Commerce Commission supporting that Commission's efforts
to deregulate rail traffic carried in boxcars. These comments sought to demonstrate that deregulation would
not cause inefficient utilization of the nation's rail system.
Much of our regulatory activity during the year was directed toward analysis of various proposals to
restrict international trade. In February, two studies relating to international trade restrictions were released.
The first estimated the costs imposed on U.S. consumers and the U.S. economy because of tariff and quota
restrictions on imports into the U.S. The second study examined the factors contributing to the decline in
employment in the U.S. auto industry in the late 1970's and early 1980's. In addition,
22
FEDERAL TRADE COMMISSION
economists participated in two proceedings at the International Trade Commission seeking limits on imports
of specific products - potassium permanganate and shoes.
Work nearly was completed on a study of state Blue Sky regulation of securities and the role of building
codes in innovation.
LINE OF BUSINESS
When the Commission terminated data collection in 1983, it decided to concentrate limited resources
upon research using Line of Business data that already exists. During fiscal 1985, the Annual Line of
Business Report for 1977, which contains industry financial aggregates and which is the last year for which
data were collected, was published. Numerous research studies were initiated, including a large-scale
examination of structural explanations of market performance and a study of the sources of scope economies
in large manufacturing firms. A large number of papers were released, including several related to an
ongoing study of merger effects.
EXECUTIVE DIRECTION,
ADMINISTRATION AND MANAGEMENT,
REGIONAL OFFICES
The Office of the Executive Director is the central management and administrative organization of the
Federal Trade Commission. The Executive Director is responsible for providing essential services and
advisory functions including those related to personnel, budget and finance, automated systems, library, etc.
The Executive Director is also responsible for providing management direction to the Commission's ten
regional offices and its field station and works in conjunction with bureau and office heads to ensure optimal
resource use and integration with headquarters activities.
In fiscal 1985, major management initiatives were directed toward maintaining service levels with lower
resources. Emphasis was on finding economies in each functional area; these included increased operating
efficiencies through staffing changes and capital improvements, enhanced use of contractor services,
elimination of redundant or unnecessary procedures, d the strengthening of existing programs.
Functions from the Library and Division of Information Analysis were combined to form a new
Information Center at headquarters. This reorganization centralized responsibility for research assistance
to staff on internal and commercial information systems. The Center also provided raining to employees on
FTC computer systems. A new travel management program was implemented to improve control of travel
advances and
ANNUAL REPORT 1985
23
reduce administrative costs. The program uses Diner's Club Charge Cards and GSA approved travel agents
to handle reservations and ensure the lowest airfare costs. The conversion of automated systems to in-house
computers was accelerated and resulted in savings in fiscal 1985 alone that exceeded the equipment
investment.
Substantial effort was directed toward consolidation of headquarters offices from four satellite buildings
to a single building. Extensive negotiations were conducted to obtain funding, secure suitable space, and
coordinate the technical aspects of the move such as those related to telecommunication improvements,
physical layouts of office space, etc. As part of the consolidation project, a major procurement was initiated
to obtain a new, modem telephone system that would serve both headquarters and the consolidated building.
Digital voice and data service would be provided through the system, as well as improved management of
telephones and reductions in costs.
The agency used approximately 1201 workyears and spent $65.7 million, full amount appropriated for
the fiscal year. The workyears used were 3.1 percent fewer than fiscal 1984. Careful control of funding
levels and workyears were necessary to accomplish objectives with decreased resources. A hiring limitation
remained in effect for most offices in the Commission.
Regional offices continued to operate at levels established in fiscal 1984. Regional office emphasis was
on case generation in priority areas and progress on existing matters, integration with headquarters legal and
economic activities, outreach to state and local government, small business and consumer groups, other law
enforcement agencies, and media contacts. Seventy-four percent of regional office workyears (162) were
devoted to the Consumer Protection mission, with emphasis on rule and statute enforcement, deceptive sales
practices, credit practices and advertising practices. Resources devoted to the Maintaining Competition
Mission were primarily in horizontal restraints, health, transportation, and mergers. In addition to enforcement activities, the regional offices handled 13,954 (43 percent) of the agency's consumer complaint
responses.
A number of human resource management initiatives were completed, including the development of a
new performance management program that covered nearly half the agency's workforce. Improvements also
were made in the agency's personnel information system that enhanced the Office of the Executive Director's
ability to manage resources.
Efforts continued to streamline the EEO complaint resolution process and to integrate EEO and
affirmative recruitment into management practices. The agency completed its last year under the Bachman
Agreement and institutionalized a number of management initiatives developed during the term of the
Agreement. These initiatives included refinements in the attorney and economist recruitment processes,
guidance in developing and plann-
ANNUAL REPORT 1985
24
ing for interested staff, development of data to reflect trends and patterns in employment practices, and
provisions for more frequent performance feedback to staff.
APPENDIX
Part II (Investigative Stage)
CONSENT AGREEMENTS ACCEPTED
AND PUBLISHED FOR PUBLIC COMMENT
COMPETITION MISSION
Michigan Optometric Association
The Michigan Optometric Association agreed not to impose membership restrictions on or terminate any
member who chooses to provide optometric services in a retail location or through optical chains or other
corporate practices that are not affiliated with a hospital clinic, health maintenance organization or
professional corporation. The association, based in Lansing, Michigan, represents the interests of over
two-thirds of the practicing optometrists in the state. The complaint alleged that the association
restrained competition in the delivery of optometric services and the sale of optical goods by depriving
consumers of the potential cost savings and convenience of retail locations and corporate practices that
generally charge lower prices than traditional optometrists or independent opticians operating in sole
proprietorships or partnerships. Under the terms of the agreement, the association also agreed not to
interfere with its members' use of truthful, non-deceptive information about optometric goods and
services.
National Association of Temporary Services, Inc.
The National Association of Temporary Services, Inc. (NATS) agreed to amend its code of ethics so that
the code would not restrict its members from soliciting employees or clients of other temporary help
firms. The complaint alleged that NATS, through its code of ethics, prohibited its members from
recruiting personnel registered with other temporary help firms and prevented its members from
soliciting customers of other competing firms. The complaint also alleged that NATS restricted its
members from providing services to firms involved in a strike or a lock-out. Under terms of the order,
NATS also agreed not to affiliate with any organization of temporary help firms that engages in the
practices prohibited by the order. NATS, headquartered in Alexandria, Virginia, represents
approximately 400 firms nationwide that provide temporary help to businesses engaged primarily in the
office/clerical, technical/professional, industrial, and medical fields.
25
26
FEDERAL TRADE COMMISSION
CONSUMER PROTECTION MISSION
Larry Brog, Individually and as a Former Officer of Meadow Fresh Farms, Inc.
Larry Brog, former chief executive officer of Meadow Fresh Farms, Inc., a nationwide company that
marketed a dry milk substitute, to have scientific evidence for any future claims about the product's shelf
life and its ability to reduce cardiovascular disease. The company sold its product, Meadow Fresh
White, a powdered, dairy-based milk substitute, through a distributor network. Brog agreed not to
exclude certain distributors in computing "average" distributor earnings unless he explains the exclusion.
Federated Department Stores, Inc.
Federated Department Stores, Inc., one of the nation's largest retailers, agreed to tell credit applicants
when it uses information from credit reporting agencies as a basis for denying credit. Under the
agreement, Federated must also tell rejected applicants the name and address of the credit reporting
agencies it contacted. The agreement settles charges that Foley's, a Federated division operating 14
department stores in Texas, repeatedly violated the Fair Credit Reporting Act when denying credit
applications.
Service One International Corp.
Service One International Corp., a national credit-counseling service doing business as First Credit
Services (FCS), agreed not to misrepresent its ability to assist consumers in obtaining Mastercard or Visa
credit cards. FCS also agreed not to misrepresent that it has developed working relationships with any
creditors or that it will pay full or partial refunds to consumers. FCS must send a notice giving all
customers who paid for the service, and did not receive a credit card" the option of receiving a full refund
or participating in FCS' new credit-counseling service without additional charges. If consumers choose
a full refund, it must be provided within 30 days.
Wright-Patt Credit Union
Wright-Patt Credit Union, one of the nation's largest credit unions, agreed to tell consumers who are
denied credit because of insufficient information in their credit reports that the adverse action was taken
on the basis of such information. The company also agreed to give consumers the name and address of
any credit bureau that provided the
ANNUAL REPORT 1985
27
reports used as the basis for denying credit, as required by the Fair Credit Reporting Act (FCRA). In
addition to requiring future compliance with the FCRA, the agreement requires the company to provide
proper FCRA notices to consumers who were denied credit based on nonderogatory information after
September 1, 1983. Nonderogatory information may be information indicating that the consumer either
has no credit file or an insufficient credit file, but does not indicate bad credit.
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ANNUAL REPORT 1985
29
PART II (Investigative Stage)
CONSENT AGREEMENTS ISSUED IN FINAL FORM
COMPETITION MISSION
Allied Corporation
Allied Corporation agreed to divest King Radio Corporation's Weather Radar Line of airborne weather
radar systems designed for use in general aviation aircraft. The King Weather Radar Line is a weather
detection system used in general aviation aircraft to detect and display weather conditions and is
designed to enable a pilot to avoid adverse weather conditions. General aviation aircraft are used for
private and commercial use and do not include military aircraft. The complaint accompanying the
consent agreement alleged that Allied's 1985 acquisition of King Radio could lessen competition and
tend to create a monopoly in the worldwide manufacture and sale of airborne weather detection systems,
unless the King Weather radar line was divested. According to the complaint, Allied's Bendix Aerospace
Sector and King Radio were competitors at the time of the acquisition, both producing and selling
weather radar systems in the United States and abroad. Under terms of the agreement, Allied agreed to
sell the weather radar line and related assets to Narco Avionics, Inc., a purchaser approved by the
Commission, within six months of the date of the order. Allied also agreed to assist Narco in the start-up
and manufacturing process by providing personnel to train and educate Narco's employees in the
technology of the detection system for three to six months after the divestiture. In addition, Allied is
prohibited from acquiring any firm engaged in the manufacture and sale of general aviation weather
detection systems in or to the United States for a period of 10 years without prior Commission approval.
Chevron Corporation
The Commission accepted a consent agreement resolving Chevron Corporation's $13 billion acquisition
of Gulf Oil Corporation. Under terms of the consent agreement, Chevron, formerly Standard Oil
Company of California, was required to divest specified oil and gas assets, within six months, to
acquirers approved by the Commission. An accompanying hold separate agreement required Chevron
to operate Gulf's oil and gas assets independently of Chevron until the divestitures complied with the
requirements of the consent order. All divestitures were completed within the deadline specified in the
30
FEDERAL TRADE COMMISSION
order: Gulf's Cedar Bayou, Texas, polypropylene plant and related assets were divested to Amoco
Chemicals Co., a subsidiary of Standard Oil Co.(Indiana), the Alliance, Louisiana, refinery and Gulf's
related southeast marketing assets acquired by Standard Oil Company(SOHIO). Gulf's interest in the
Colonial pipeline was sold to the Union Oil Company of California; and the co-owners of the West
Texas Gulf's pipeline purchased Gulf's 51 percent interest. The hold separate agreement was terminated
upon completion of the Colonial Pipeline sale. The complaint issued with the consent charged that
Chevron's acquisition of Gulf would lesson competition in (1) the transportation of light petroleum
products, such as gasoline, from refineries in the Southeastern United States; (2) refining and distributing
of gasoline in specified areas; (3) the transportation of crude oil from producing fields in western Texas
and eastern New Mexico to refineries; and (4) the production and transportation of kerosene and jet fuel
in the East Coast and Gulf Coast areas.
Decorating Products Association of Central Florida
The Decorating Products of Central Florida, an affiliate of the National Decorating Products Association,
agreed not to conspire with its members to restrict competition in the sale and distribution of
wallcoverings. Members of DPACF operate retail decorating products stores where wallcoverings are
sold. According to the complaint, DPACF discouraged suppliers from distributing wallcoverings in
competition with its members by refusing to deal with suppliers that sold wallcoverings directly to
building contractors. For purposes of the complaint, the term wallcovering did not include paint or
paneling, but did include such flexible materials as wallpaper, vinyl, or foil. The complaint alleged that
the trade association deprived consumers of the benefits of competition by encouraging its members to
refuse to promote or take customer orders for products of a supplier who was planning to open a chain
of retail stores. In addition, the { } group attempted to fix the prices retailers { }by refusing to deal
with suppliers that imposed{ } packages of wallcoverings into single rolls and refusing to pay those
charges. Under terms of consent, DPACF{ } fixing the price of wallcoverings and restraining{ } of
suppliers to distribute their products competitively.
ANNUAL REPORT 1985
31
Hawaii Dental Service Corporation
The Hawaii Dental Service Corporation agreed not to base its decision on whether to send dentists to
certain counties in the state on the approval of member-dentists already practicing in those counties.
Hawaii Dental, headquartered in Honolulu and representing approximately 82 percent of the dentists in
Hawaii, offers a dental insurance program that provides dental services for a prepaid premium. More
than half of the Hawaiians with dental insurance belong to Hawaii Dental. Under a provision in Hawaii
Dental's bylaws, the group was prohibited from recruiting and sending dentists to the island counties of
Maui, Kauai, and Hawaii without the approval of the majority of its member-dentists already practicing
in those counties. The complaint alleged that the provision gave members in the three counties the power
to exclude competition and deprived consumers of the benefits of competition among dentists. The
complaint further alleged that members and potential members of Hawaii Dental have probably been
deterred from establishing practices in the three counties. Under terms of the consent agreement, Hawaii
Dental is required to remove any provision in its bylaws that restricts the free recruitment of dentists to
counties of Maui, Kauai, and Hawaii and must publish a notice of its removal in two publications
circulated to dentists. The group also agreed not to deny membership to a dentist licensed by the state
based on other members' opposition to the proposed location of that dentist's practice.
Hospital Corporation of America
Hospital Corporation of America (HCA), the nation's largest private hospital chain, agreed to divest,
within twelve months, two psychiatric hospitals and one general acute care hospital acquired from the
Forum Group, Inc. As part of the Forum acquisition, HCA acquired the Virginia Center for PsychiatryPortsmouth in Portsmouth, Virginia, the Virginia Center for Psychiatry-Norfolk in Norfolk, Virginia,
Parkview Hospital in Midland, Texas, and the stock of a planned new facility, Doctors' Hospital of the
Permian Basin, which, when completed, will replace Parkview. According to the complaint, at the time
of the acquisition HCA already owned a psychiatric hospital in the Norfolk area, the Peninsula Hospital
in Hampton, and in addition managed the day-to-day operations of the Medical Center in Odessa, Texas,
one of three general acute care hospitals in the Midland area. The complaint charged that the acquisition
eliminated Forum as an independent competitor and
32
FEDERAL TRADE COMMISSION
substantially reduced competition in the psychiatric hospital services market in the Norfolk area and in
the general acute care services in the Midland, Texas area. Under terms of the consent, HCA agreed to
divest the two psychiatric hospitals in Norfolk and Portsmouth and the Parkview Hospital in Midland.
HCA also agreed to divest its interest in the planned new hospital in Midland intended to replace
Parkview. In addition, for a period of ten years, HCA is prohibited from reacquiring the assets of any
of the divested hospitals without prior Commission approval.
InterNorth, Inc.
The Commission accepted a consent agreement resolving antitrust charges stemming from InterNorth,
Inc.'s $2.3 billion acquisition of Houston Natural Gas Corporation after InterNorth agreed to divest four
natural gas pipelines. InterNorth and Houston Natural were each engaged in the exploration for and
production of oil and gas. InterNorth owns a pipeline system considered to be the largest natural gas
pipeline system in the United States. Houston Natural, which had been an intrastate pipeline company,
entered the interstate pipeline business with the 1984 acquisitions of Florida Gas Transmission Co. and
Transwestern Pipe Line Co. The complaint alleged that the acquisition would lessen competition among
pipeline companies that purchase and transport gas out of the Permian Basin in West Texas and
Southeastern New Mexico, and out of the Anadarko Basin in the Texas-Oklahoma Panhandle.
According to the complaint, competition would also be lessened between competitors in the
transportation and sale of natural gas in the highly concentrated Texas Gulf Coast area. The acquisition
would result in InterNorth becoming the largest natural gas transportation system, measured by assets,
in the United States. Under terms of the consent agreement, InterNorth agreed to divest: (1) the Oasis
Pipeline and the Trans Texas Pipeline, both running from the Permian Basin to New Braunfel, Texas,
and servicing the Texas Gulf Coast, (2) Llano, Inc., Houston Natural's intrastate gas gathering and
transmission subsidiary in southeast New Mexico; (3) the Red River Pipeline, a transmission line that
runs from the Panhandle to the Permian Basin; and (4) Nor-Val Gas Company, a joint venture between
Valero Transmission Company and InterNorth. Some of the natural gas pipelines at New Braunfels are
owned by Valera. The order prohibits InterNorth from acquiring any assets or stock interest in any company engaged in the gathering or transportation of natural gas in the Permian Basin or Panhandle without
prior Commission approval unless the value of the acquisition is less than $15 million. In addi-
ANNUAL REPORT 1985
33
tion, the order restricts InterNorth's participation in joint ventures or other agreements involving the
purchasing, gathering, transportation or marketing of natural gas in the Texas Gulf Coast area.
Medical Staff of John C. Lincoln Hospital & Health Center
Approximately 750 physicians and other practitioners of an acute care hospital in Phoenix agreed not
to engage in boycotts to impede the development or operation of an urgent care center or other healthcare facility in the Arizona counties of Maricopa, Pinal, Yavapai, or Gila. The complaint issued with
the consent agreement alleged that the medical staff of John C. Lincoln Hospital & Health Center
conspired to intimidate the Board of Directors of Lincoln Hospital, by threatening to transfer their
patients to other hospitals, in an attempt to force Lincoln Hospital to cancel plans to operate an urgent
care center approximately three miles away. The urgent care center was designed to provide treatment
to patients with urgent, but not life threatening, conditions without the need for an appointment. The
Medical Staff, according to the complaint, urged its member-physicians not to support the urgent care
center believing the facility would draw patients away from their private practices. Under the consent
agreement, the Medical Staff is prohibited from threatening or participating in any unreasonable
discriminatory action against a health-care facility. The consent, however, does not prohibit the Medical
Staff or its members from engaging in any peer review or hospital policymaking activities at Lincoln
Hospital if such participation does not constitute, and is not part of, a boycott or refusal to deal.
Multiple Listing Service of the Greater Michigan City Area, Inc.
Under terms of a revised consent agreement, the Multiple Listing Service of the Greater Michigan City
Area, Inc. of Michigan City, Indiana, is required to publish exclusive agency listings. The consent
settled charges that the Multiple Listing Service restrained competition in LaPorte County, Indiana, by
interfering with its member-real estate brokers' participation in truthful comparative advertising of
commission fees and practices. After the Commission received and considered public comments, it
voted to revise its proposed complaint and include new provisions in a provisional consent agreement
that had previously been published for public comment; the new provision requires the Multiple Listing
Service to include both exclusive right to sell and exclusive agency listings on its property listings. The
revised complaint included allegations that the Multi-
34
FEDERAL TRADE COMMISSION
pie listing Service also reduced competition among brokers and between brokers and sellers of real
property in LaPorte County by continuing to publish exclusive agency listings on its multiple listing service. Exclusive right to sell contracts allow the real estate broker to receive a commission on the sale
of real property regardless of who sells the property.
National Customs Brokers & Forwarders Association of America, Inc.
Pursuant to a consent order, the National Customs Brokers & Forwarders Association of America, Inc.,
headquartered in New York, deleted a provision in its bylaws that prohibited its members from setting
independent prices or offering discounts for services. The association's member - customs brokers
provide administrative services to clients involved with the importation of merchandise through the
United States Customs Service. The complaint, issued as part of the consent agreement, alleged that the
association restrained competition by adopting a bylaw provision requiring members to charge fees that
would assure a fair return for their services. To comply with the order, the association agreed not to
adopt any code of ethics provision in the future that would discourage independent pricing decisions.
In addition, the association is required to discontinue its affiliation with any organization of customs
brokers that discourages open price competition of services.
Orange County Board of Realtors, Inc.
The Orange County Board of Realtors, Inc. agreed to include listings in its multiple listing service that
allow property owners and brokers to enter into contracts permitting owners to pay either a reduced
commission or no commission at all if the owner locates the buyer independent of the appointed broker.
Such contracts are called exclusive agency listings. The complaint accompanying the consent alleged
that the board and its wholly-owned subsidiary, the Multiple Listing Service of the Orange County Board
of Realtors, Inc., restrained competition among its members by restricting its multiple listing service to
listings giving its members exclusive rights to sell the properties. Contracts accepted under the exclusive
right to sell enable the broker, appointed by the property owner, to act as the exclusive agent for the sale
of residential property and to receive an agreed commission from the property owner regardless of
whether the property is sold by the broker, the owner, or some other person. Under terms of the order,
the board and its MLS are prohibited from interfering with a broker's acceptance of any exclusive agency
ANNUAL REPORT 1985
35
listing and may not to publish the listing in their multiple listing service. In addition, the two
organizations are required to publish exclusive agency listings in the same manner and category as
exclusive right to sell listings.
CONSUMER PROTECTION MISSION
Associated Dry Goods Corp.
Associated Dry Goods Corp., a New York merchandise retailer, agreed to tell consumers the name and
address of the credit bureau that provided information, which the company used as a basis for denying
credit, as required by the Fair Credit Reporting Act (FCRA). The order also requires the company to
provide proper FCRA notices to consumers who were previously denied credit based on nonderogatory
information during the two-year period from January 1, 1982, to December 31, 1983. Nonderogatory
information may be information indicating that the consumer either has an insufficient credit file or no
credit file at all, but does not indicate bad credit.
Biopractic Group, Inc.
Biopractic Group, Inc., maker of Therapeutic Mineral Ice, agreed not to make claims about the product's
effectiveness and acceptance by the scientific community and the news media, unless it has adequate
substantiation. Therapeutic Mineral Ice is a product marketed to reduce pain and inflammation arising
from muscle sprains, arthritis, rheumatism, and similar ailments.
Craftmatic Comfort Mfg. Corp.
Craftmatic/Contour Organization, Inc. and Craftmatic Comfort Mfg. Corp. agreed to honor their
warranties fully and promptly and to tell consumers, in advance, that in order to obtain warranty service
they will have to return the bed, mattress, motor, or other parts of the bed at their own expense. Under
the order, consumers seeking warranty service on beds sold before the consent order became do not have
to pay shipping charges. The company also must disclose all important warranty limitations and
exclusions in promotional materials that describe its warranties. The company agreed to give copies of
applicable warranties before or at the time of purchase to each buyer, and must include the warranty in
point-of-sale materials given to distributors.
36
FEDERAL TRADE COMMISSION
Commodore Business Machines, Inc.
Commodore Business Machines, Inc. agreed not to advertise that its computers have equipment or
capabilities, such as the ability to run certain popular software programs, unless the claim is true at the
time it is made. The company also is prohibited from representing that a product will have a particular
capability or that it will be available in the future, unless it has a reasonable basis for the claim when it
is made.
Thomas A. Dardas, Individually and as an Officer of Acu-Form Weight Control Centers, Inc.
Thomas A. Dardas, president of Acu-Form Weight Control Centers, Inc., agreed not to claim that the
"Acu-Form" plastic molded earpiece, or any other product, is effective in helping consumers lose weight,
without reliable and competent evidence to substantiate the claim. Dardas also agreed not to
misrepresent the terms of any guarantee in connection with a weight loss or control product or service,
and to clearly disclose the conditions of such a guarantee.
Descent Control, Inc.
Descent Control, Inc., manufacturer and seller of Sky Genie Descent Systems, agreed to substantiate its
advertising claims and tell users previously undisclosed safety information. Sky Genie Descent Systems
are safety devices used by individuals working on or descending from tall buildings or other heights.
Under the order the company agreed to disclose that consumers should replace the device's nylon cord
after using the system twice for rapid descents, after using the system to stop a free fall, or after exposing
the system to certain chemicals. In the operating instructions, the company must state that the line
should not be used as a safety line if it has ever been used as a utility line, that the system is not for use
in emergencies by persons unfamiliar with the device's proper use, and that a user's safety and speed of
descent depends on manual, not automatic, controls.
Hospital and Health Services Credit Union
Hospital and Health Services Credit Union agreed to tell rejected loan applicants if information from
third parties, such as credit bureaus or employers, led to denial of their requests for credit. The credit
union agreed to send notices required by the Fair Credit Reporting
ANNUAL REPORT 1985
37
Act informing consumers of the source of information leading to denial and their right to learn the nature
of such information upon written request.
Korman Corporation, The
The Korman Corporation, a Philadelphia-area home builder, agreed to repair defects in houses it has built
or reimburse eligible homeowners for repairs they have already made. Under the consent order, Korman
will not represent that it will correct problems due to faulty materials, workmanship, or design, unless
it will in fact correct these or other problems within a reasonable time. Homeowners of houses sold with
a written warranty will be given the opportunity to arbitrate warranty disputes through an informal
dispute settlement program. The order additionally requires the company to provide repairs or
reimbursements to eligible homeowners who bought their homes since October 1, 1978, and still own
those homes.
Montana Board of Optometrists
The Montana Board of Optometrists agreed not to prohibit optometrists in that state from disseminating
truthful, nondeceptive information about ophthalmic goods and services. The board agreed not to
prohibit or discourage optometrists from advertising price-related terms or claims of professional
superiority, or to threaten disciplinary action against anyone making such claims. The agreement also
requires the board to send a copy of the order to each licensed optometrist in the state and to each person
who applies for a license to practice optometry for the next five years. The board is not prohibited from
restricting advertising that it reasonably believes to be "ambiguous or misleading", or from seeking
legislation concerning the practice of optometry.
Sentronic Controls Corporation
Sentronic Controls Corporation agreed not to claim its "Pest Sentry" ultrasonic pest control device
eliminates insects and rodents, or make any other efficacy or performance claims, unless it has competent
and reliable scientific evidence which substantiates the claims. The order also prohibits the company
from either that the device will prevent insects and rodents from entering or remaining in an area where
the product is being used or that the device is an effective alternative to the use of conventional pest
control products.
38
FEDERAL TRADE COMMISSION
Sun Refining and Marketing Company
Sun Refining and Marketing Company agreed to honor lifetime warranty obligations for automobile
batteries it sold with such a warranty. The company also agreed to contact eligible consumers and make
them aware of the reinstatement of the lifetime warranty.
Trans-Continental Industries (TCI)
Trans-Continental Industries (TCI), and John Treadwell, doing business as TCI, agreed not to claim that
its "20% Plus Organic Fuel Catalyst" gasoline additive could increase gas mileage and reduce fuel costs
by 20 to 25 percent unless it has competent and reliable evidence. The company also agreed not to
misrepresent the results or conclusions of any laboratory or road tests and not to misrepresent the
potential profits or marketing assistance that will be provided for distributors of its products. The
agreement also requires Treadwell to notify the Commission of his involvement with any business using
telephone sales for the next five years.
Wein Products, Inc.
Wein Products, Inc., agreed not to claim that its "Decimate" ultrasonic pest control product will eliminate
rodents or insects from a home or business, or will work within a specified time period. The agreement
also prohibits the company from claiming that the device will prevent rodents or insects from entering
or remaining in a home or business, protect any specified square footage area, or is an effective
alternative to conventional pest control products unless it has competent and reliable scientific evidence
that substantiates the claims.
Charles E. Weller, as a Former Officer of Alaska Land Leasing, Inc.
Charles E. Weller agreed not to misrepresent the present value or potential for increased value of oil and
gas leases or other investments, and will contribute $60,000 to a consumer redress fund. Weller also
agreed to disclose information about the risks and potential of oil and gas leases in sales brochures and
contracts by stating on the contracts that they are not valid or complete unless the customer signs a
declaration of understanding regarding the required disclosures.
ANNUAL REPORT 1985
39
Young & Rubicam/Zemp, Inc.
Young & Rubicam/Zemp, Inc. agreed not to misrepresent the ability of the Ecologizer CA/90 Series 2000
Air Treatment System or any other air cleaning appliance or equipment to remove formaldehyde gas or
tobacco smoke from household air. The company also agreed to have a reasonable basis, consisting of
competent and reliable evidence, to substantiate any future performance claims in the sale or promotion
of any household air cleaners. Young & Rubicam/Zemp, Inc. is the advertising agency which created
and disseminated the Ecologizer ads for the manufacturer, Rush-Hampton Industries, Inc.
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ANNUAL REPORT 1985
41
PRELIMINARY AND PERMANENT INJUNCTIONS
COMPETITION MISSION
Baker International Company
The Commission authorized its staff to file a preliminary injunction to prohibit Baker International
Company's proposed acquisition of Wagner Mining Equipment Company, Russell Bros., Ltd. and certain
assets in Australia from PACCAR, Inc., headquartered in Bellevue, Washington. Baker and WagnerRussell were alleged to be substantial competitors in the world-wide manufacture, sale and resale of
certain underground mining equipment such as load-haul-dump machines, trucks and other utility
vehicles used in the mining industry. The complaint charged that the acquisition of the two leading
manufacturers of load-haul-dump machines would create a monopoly in a highly concentrated industry
with high barriers to entry. The companies abandoned the transaction before papers were filed in court.
NL Industries, Inc.
The Commission authorized its staff to file a preliminary injunction action in federal district court to bar
NL Industries, Inc.'s proposed acquisition of American Cynamid Co.'s titanium dioxide plant located in
Savannah, Georgia. NL Industries is one of the largest producers of titanium dioxide in the world;
American Cynamid is the fourth largest producer in the United States. Titanium dioxide is used
primarily as a pigment in paints, paper, synthetic fibers and rubber compounds. NL Industries canceled
the acquisition before papers could be filed in court. American Cynamid sold its titanium dioxide assets
to another buyer.
SmithKline Beckman Corporation
The Commission authorized its staff to file a preliminary injunction action to block SmithKline Beckman
Corporation's proposed acquisition of American Optical Corporation. SmithKline, through its Allergan
Pharmaceuticals, Inc. subsidiary, is a leading manufacturer of soft contact lens care products and
prescription ophthalmic products; American Optical manufactures, sells, and distributes soft contact
lenses and soft contact lens care products. The Commission alleged that because American Optical
would be eliminated as a substantial competitor, the acquisition would increase the chances of collusion
among other firms
42
FEDERAL TRADE COMMISSION
in the market for chemical disinfectant solutions for soft contact lenses. The transaction was abandoned
before papers were filed in district court.
CONSUMER PROTECTION MISSION
Arthur F. Furman
A federal district court issued a permanent injunction against Arthur F. Furman, sellers of hair analysis
services and vitamins, minerals, and other dietary supplements. The injunction prohibits the defendants
from misrepresenting to consumers their ability, based on a hair analysis, to accurately measure the
element content of a person's body or to recommend dietary supplements to correct chemical excesses
and deficiencies. The defendant, Arthur Furman, also was enjoined from using titles implying that he
has a medical degree.
Certified Security Systems
The Commission filed a complaint seeking preliminary and permanent injunction actions and consumer
redress against four individuals for alleged violations of the FTC Act in the sale of business
opportunities. The defendants, Michael Kaplan, Jerome Kaplan, Robert MacKenzie Davis, Jr., and
Richard Wiley have employed a series of corporations to sell distributorships for high-tech products such
as energy savings devices and home burglar alarm systems. The complaint alleges that the defendants
have made several false and misleading representations including: 1) that the products they sell are
unique and they are the sole source of the products; 2) that investors will be granted exclusive territories
for distribution; 3) that substantial profits and income will be realized on the investments; 4) that
substantial promotional and technical assistance would be available to distributors; 5) that investors
would receive marketable products; and 6) that investors could easily find dealers to handle the products
supplied. A preliminary injunction and an asset freeze were issued by the court.
Control Technology, Inc.
The Commission filed a complaint seeking a permanent injunction, an asset freeze, consumer redress,
and civil penalties against Control Technology, Inc. and two of its officers for allegedly violating the
Commission's Franchise Rule. The complaint charges that the company misrepresented the earning
potential of its franchises for energy-management systems and also misrepresented the services it would
pro-
ANNUAL REPORT 1985
43
vide franchisees. The court issued a temporary restraining order that prohibits the company from
misrepresenting the earning potential of its franchises, making any false or deceptive claims in
connection with the sale of the franchises, or further violating the Franchise Rule. The court also froze
the company's assets.
Del Monte Corporation
The Commission filed a complaint seeking civil penalties and a permanent injunction against the Del
Monte Corporation for alleged violations of the FTC's Mail Order Rule in a coupon promotion program.
The complaint alleges that the company violated the rule by failing to send consumers timely and proper
notices telling them of their rights under the rule when the company could not ship "Country Yumkin"
dolls on time.
Evans Products Company
The Commission filed a complaint seeking preliminary and permanent injunctions and consumer redress
from Evans Products Co. and its finance subsidiary, Evans Financial Corp. The complaint charges that
Evans falsely and deceptively represented that it would provide buyers of thousands of homes sold
through its Capp Homes and Ridge Homes divisions with guaranteed long-term mortgage loans, often
at specified low interest rates. The Commission alleges that this misrepresentation caused buyers severe
economic and other injury, and resulted in many of them losing their homes. A temporary restraining
order was issued, enjoining defendants from pursuing any foreclosure activities and requiring 30 days
notice in advance of any proposed sale of assets by Evans exceeding $10 million. The court's subsequent
decision to deny a request for a preliminary injunction was affirmed on appeal.
Intra-Medic Formulations, Inc.
The Commission filed a complaint seeking a permanent injunction and consumer redress against IntraMedic Formulations, Inc., its president, and three wholly owned subsidiaries. The Commission has
charged the four mail order companies with making false and deceptive claims about their weight-control
and baldness-cure products. A federal district court has issued a temporary restraining order against the
defendants.
J & R Marketing Corp.
The Commission obtained a settlement from J & R Marketing Corp. and its principal officers, Ray
Belitsky and James Bianco, requiring them
44
FEDERAL TRADE COMMISSION
to pay $700,000 into a consumer redress fund and enjoining them from making future misrepresentations
concerning the likelihood of obtaining valuable oil and gas leases. J & R provided filing and advisory
services to clients participating in lotteries the Department of the Interior conducted for oil and gas rights
on federal land parcels. The agreement is subject to the approval of the Bankruptcy Court because J &
R has filed for reorganization under Chapter 11. However, the company's officers will remain personally
liable for the agreement's redress provisions regardless of the court's decision on J & R.
William D. Jones d/b/a Liquid Assets
The Commission filed a complaint seeking a permanent injunction and consumer redress against William
D. Jones, doing business as Liquid Assets. The Commission alleges that advertising claims that a
mouthwash, Breath Fresh 502, will sober people who have consumed large amounts of alcohol and will
allow them to pass breath analyzer tests are false and deceptive, and that Jones did not have a reasonable
basis for making such claims. The Commission is seeking to: 1) enjoin Jones from making these or
similar claims without competent and reliable scientific evidence; 2) order Jones to notify those who
have purchased the product since January 1983 that it will not reduce the intoxicating effects of alcohol,
have any effect on breath alcohol level, or help purchasers pass breath analyzer tests; and 3) order Jones
to offer refunds to purchasers.
Kimberly International Gem Corp.
The Commission obtained a settlement in the matter of Kimberly International Gem Corp. Customers
of the gem investment company will receive as much as $280,000 in redress, settling charges the
company and other defendants misrepresented the value of colored gemstones sold as investments.
Gemstones purchased by individuals ranged from a few thousand dollars to tens of thousands of dollars.
A federal district court also issued stipulated permanent injunctions and default judgments prohibiting
the defendants from making false or deceptive claims about gemstones or other investments.
Kitco of Nevada, Inc.
Three principals of Kitco of Nevada, Inc., Duane F. Snelling, John E. Farkas, and Craig A. Jesinoski,
were permanently enjoined from misrepresenting business opportunities and ordered to pay $531,949
in restitution to purchasers of their "work at home" business opportun-
ANNUAL REPORT 1985
45
ity. The Commission had charged that Kitco misrepresented both the amount of profit that could be
earned and the services the company would provide to purchasers of their machines, used to make small
plastic items. Under the injunctions, the individuals are prohibited, when selling business opportunities,
from misrepresenting: 1) the nature and extent of any service or assistance to be provided; 2) the
frequency or method of payment for any products manufactured or sold as part of such opportunity; the
performance, efficiency, or production capacity of any machine they sell; 3) the past, current, or likely
future income or profits of any purchaser; and 4) the amount and duration of work that will be provided
to purchasers.
Nationwide Mortgage Corporation
The Commission filed a complaint seeking preliminary and permanent injunctions and consumer redress
against Nationwide Mortgage Corp., Community Mortgage Corp., Southeast Title Insurance Corp., and
nine individuals for allegedly misrepresenting the terms and duration of the loans they offered. Two of
the companies and two individuals also are charged with violating the Truth In Lending Act. The
defendants are mortgage brokers who arrange loans, secured by deeds of trust on the borrower's home,
to low and middle income homeowners who need money quickly. Fees for the loans are generally in
excess of 30 percent of the loan, in addition to the market interest rate charged. The complaint charges
that the defendants were misrepresenting the terms of financing to borrowers and causing more than 100
Washington, D.C., area homeowners to lose their homes, file for bankruptcy, or seek refinancing at
additional cost. Temporary court orders prohibiting the alleged practices have been issued.
Paradise Palms Vacation Club
The Commission obtained a settlement of contempt charges against Theodore Weiswasser, a Texas
timeshare promoter, for violating a 1981 preliminary injunction prohibiting misrepresentations of
vacation timeshares. Weiswasser pled guilty to criminal contempt charges and the U.S. District Court
for the Western District of Washington handed down a three-year sentence. The court suspended one
year of the sentence, but placed Weiswasser on probation for five years and ordered him to pay $2500.00
into a consumer redress fund. Weiswasser is also prohibited from any further connection with any type
of timeshare business. Weiswasser has most recently been the owner of Sunward Developers, Inc. and
an officer of Four Seasons Sales, both of which sold timeshares in four Texan vacation resorts.
46
FEDERAL TRADE COMMISSION
Phillipe LaFrance/USA, Ltd.
The Commission filed a complaint in federal district court seeking permanent injunctions, consumer
redress, a freeze of assets, and civil penalties from nine companies and four individuals who allegedly
misrepresent the nationally advertised mail-order products they sell. The Commission also charges that
the defendants, which operate under various names, including Sheldon Friedlich Marketing, Inc. and
Phillipe LaFrance/USA, Ltd., violated the FTC's Mail Order Rule. In January 1985, the court issued a
temporary restraining order freezing the assets of all the defendants except Sheldon Friedlich Marketing,
which has been involved in bankruptcy proceedings. The complaint charges that the defendants made
false and deceptive representations about eight of their products, ranging from copper cookware to
ceiling fans, they sell through newspaper and magazine advertisements and direct mail. The Commission
also alleges the companies violated the Mail Order Rule by failing to meet its notification, cancellation,
and refund provisions.
Trans-Alaska Energy Corporation
The Commission filed criminal contempt charges against David J. Swain and Michael Peter Nissen for
alleged violations of an asset freeze order issued by the U.S. District Court. In 1984, the Commission
charged Trans-Alaska Energy Corporation, three other corporations, and five individuals (include Swain
and Nissen) with making misrepresentations in the sale of oil and gas leases in Alaska and Wyoming in
violation of the FTC Act. The court issued a preliminary injunction containing an asset freeze provision
against all defendants. The Commission alleges that Swain and Nissen have transferred or sold assets
since being notified that an order had been issued.
Tuff-Tire Industries, Inc.
The Commission filed a complaint seeking a permanent injunction, an asset freeze, consumer redress,
and civil penalties against the sellers of "Mr. Tuff-Tire" automotive tire sealant. Tuff-Tire America, Inc.,
Tuff-Tire Industries, Inc., and two company officers are charged with misrepresenting the product's
effectiveness, misrepresenting the profitability of their franchises, and violating the Commission's
Franchise Rule. The complaint also charges that the companies misrepresented the warranty on the
product, as well as falsely representing that franchisees would be provided training, and that the
companies carried a multi-million-dollar product liability insurance policy. The court has issued a
temporary restraining order and an asset freeze.
ANNUAL REPORT 1985
47
Unnamed Providers of Adoption Services
The Commission filed a complaint in federal district court seeking a permanent injunction and consumer
redress against three individuals, Rebecca L. Kelley, Debbie Tanner, and Bryan M. Hall, who allegedly
falsely claimed they could help couples adopt children from Mexico. The complaint charges that the
defendants misrepresented the status of "pending" adoptions and the procedures they would follow, such
as placing fees in escrow and working through a Mexican attorney. The Commission asked the U.S.
District Court to prohibit further misrepresentations by the defendants and to require them to refund fees
paid for services they do not perform. A preliminary injunction and asset freeze have been issued by the
court.
U.S. Oil & Gas Corp.
The Commission obtained a settlement with two defendants in its suit against U.S. Oil & Gas Corp.
Martin Rotberg, former salesman and executive director, agreed to a permanent injunction and to pay
$85,000 in consumer redress to customers who may have been injured in connection with the sale of
filing services to obtain mineral rights. Milton Sand, another defendant in the proceeding, agreed to pay
$225,000 in consumer redress and signed a stipulated order prohibiting him from making false claims
about his success in obtaining oil and gas leases for customers.
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ANNUAL REPORT 1985
49
CIVIL PENALTY ACTIONS
COMPETITION MISSION
American Hospital Supply Corporation
The Commission charged American Hospital Supply Corporation (AHS), a major manufacturer of
medical supplies, with violating a 1981 consent order by acquiring eight companies without obtaining
prior Commission approval. According to the complaint, filed in the U.S. District Court for the Northern
District of Illinois by the Department of Justice at the Commission's request, AHS acquired eight firms
engaged in the sale of urological catheters between June 30, 1981, and May 31, 1983, in violation of a
consent order that prohibited AHS from acquiring companies engaged in the manufacture and
distribution of catheters. The 1981 consent settled charges that AHS's acquisition of American
Cystoscope Makers, Inc. would create a monopoly in the urological industry. The consent ordered the
divestiture of American Cystoscope and placed AES under a prior approval provision for a ten-year
period. The complaint further alleged that AHS filed four false compliance reports between 1981 and
1983, stating that the company had not made any acquisitions for which prior approval was required.
The court was asked to consider the eight acquisitions to be continuing violations of the order and to
assess civil penalties of up to $10,000 per day for each violation.
Bell Resources, Ltd.
Bell Resources, Ltd. violated the advance notification requirements and waiting period provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, according to a suit filed by the Department of
Justice in the U.S. District Court for the Southern District of New York at the request of the Commission.
The complaint charged that Weeks Petroleum, Ltd., a subsidiary of Bell Resources, began acquiring
stock of Asarco, Inc. on September 27, 1984, and continued its stock purchases until February 28, 1985.
According to the complaint, by November 21, 1984, Weeks had acquired more than $15 million worth
of Asarco stock, but did not file an HSR notification until March 8, 1985, stating its intention to acquire
at least 25 percent of Asarco stock. Asarco, based in New York, is one of the world's major copper producers. Under provisions of the HSR Act, companies of a certain size must file notification and observe
a waiting period prior to the acquisition of certain amounts of assets or stock. The complaint alleged that
either Bell Resources or Weeks Petroleum was required by the HSR
50
FEDERAL TRADE COMMISSION
Act to file notification and observe the waiting period requirements before acquiring more than $15
million of Asarco stock. In addition, the complaint charged that Weeks Petroleum's acquisitions were
not made solely for the purpose of investment and did not qualify for the ten percent exemptions under
the Act. According to the complaint, Weeks Petroleum acquired the stock at the direction of Bell
Resources and its chairman of the board, M.R.H. Holmes a Court. Bell Resources is based in
Melbourne, Australia; Holmes a Court is an Australian citizen. The complaint seeks maximum civil
penalties and an injunction prohibiting future violations of the premerger reporting requirements under
the HSR Act.
CONSUMER PROTECTION MISSION
Allied Finance Company
Allied Finance Company agreed to a $125,000 civil penalty consent decree to settle charges it
discriminated against elderly credit applicants on the basis of their age and reliance on retirement income
in violation of the Equal Credit Opportunity Act (ECOA). The company also allegedly violated the
ECOA by requiring married people applying for individual credit to have their spouses sign loans, and
by requesting information on the marital status of consumers applying for individual, unsecured credit
in certain states. Allied Finance also allegedly violated the Fair Credit Reporting Act by failing to
inform consumers who were denied credit based on information received from a credit reporting agency
of that fact. In addition, the company allegedly did not provide such consumers with the agency's name
and address, as required by the FCRA. Under the consent decree, the consumer loan company agreed
not to discriminate against the elderly, to comply with federal credit laws, and to provide all applicants
it rejected last year with the notices these laws require.
Enamelcraft, Inc.
Enamelcraft, Inc., its two wholly-owned-subsidiaries, and the president of the three companies agreed
to a $15,000 civil penalty consent judgment for allegedly misrepresenting the services and merchandise
they offered, and violating the FTC's Franchise Rule. The alleged violations of this franchiser of
women's clothing and enamel jewelry and giftware included: misrepresenting the minimum annual
earnings of franchisees; misrepresenting the quality of the goods offered; and falsely claiming that retail
locations would be found, training would be provided, unsold merchandise would be bought back at the
original price, and that the first year's profit was guaranteed.
ANNUAL REPORT 1985
51
Encore House, Inc.
Norman Chanes and Monroe Caine, mail order marketers, agreed to a consent decree requiring them to
pay $250,000 in consumer redress and $100,000 in civil penalties to settle charges they repeatedly
violated the FTC's Mail Order Rule and misrepresented their merchandise. The charges included:
promising high-quality goods but delivering low-quality, poorly-constructed goods; failing to deliver
merchandise within the required timeframes; fading to notify consumers of their rights under the rule,
and failing to make prompt refunds. The consent decree also prohibits the marketers from making false
or deceptive claims about their mail-order products and from failing to honor their guarantees.
Federal Energy Systems, Inc.
Federal Energy Systems, Inc., a California franchise seller, and one of its officers, George L. Yost,
agreed to a consent decree requiring them to pay $3 million in consumer redress and $1.62 million in
civil penalties to settle charges they violated the FTC's Franchise Rule. The alleged violations included
making false and deceptive claims that their franchises were highly successful, that they arranged for
financing, that their equipment was easy to sell, that their franchisees would have exclusive geographic
sales territories, and that they would perform extensive advertising. Other alleged violations included
failing to make required disclosures to potential buyers; and failing to provide disclosures within the time
period the rule specifies. The company sells franchises for the sale and installation of equipment that
automatically controls the heating and air conditioning of commercial buildings. Under a second decree
filed at the same time, another officer, Vernon Williams, charged with the same violations, consented
to the same future prohibitions and agreed to pay $10,000 in civil penalties.
Fidelity Acceptance Corp.
Fidelity Acceptance Corp. agreed to a $235,000 civil penalty that includes a consent decree to settle
charges it repeatedly turned down elderly loan applicants on the basis of their age and reliance on
retirement income. The civil penalties are the largest the Commission has ever obtained in a case
involving alleged violations of the Equal Credit Opportunity Act, which prohibits discrimination in the
granting of credit. Under the consent decree, the consumer-loan company agreed not to discriminate
against the elderly, to comply with federal credit laws, and to send the notices these laws require to
approximately 15,000 previously rejected applicants.
52
FEDERAL TRADE COMMISSION
JS&A Group, Inc.
JS&A Group, Inc. and its president, Joseph Sugarman, agreed to a $115,000 civil penalty consent
judgment settling charges that they violated the FTC's Mail Order Rule and prohibiting future violations
of the rule. The alleged violations included: failure to mail more than 22,000 orders within the required
time period, solicitation of orders for products when there was no reasonable basis to expect that
shipments could be made within the required time; failure to inform customers of their rights to cancel
and receive a refund; failure to provide customers with legally adequate means to notify JS&A, at its expense, of their desire to cancel; and failure to make prompt refunds. The judgment requires the
defendants to meet the rule's notification, cancellation, and refund provisions.
Me-Books Publishing Company
The two officers of Me-Books Publishing Company, Jerry Klein and James Maher, agreed to a $20,000
civil penalty consent decree to settle charges they violated the FTC's Mail Order Rule. The alleged violations included: solicitation or receipts of orders when the company did not have the merchandise
available to ship; failure to promptly refund customers' money; failure to ship ordered merchandise; and
failure to meet the rule's notification and cancellation requirements.
Nash Phillips/Copus, Inc.
Nash Phillips/Copus, Inc., one of the nation's largest home builders, agreed to a $300,000 civil penalty
consent decree to settle charges it violated the Truth In Lending Act (TILA). The complaint charged that
Nash Phillips' advertisements offering credit for its houses violated the TILA by using specific credit
terms without also including other required disclosures. The company agreed to provide the annual
percentage rate in any of its credit advertisements that state an interest rate, and comply with all
requirements of the Truth In Lending Act. The Commission took this action as part of its real estate
credit advertising project designed to increase compliance with credit advertising laws.
Orin G. Grossman, Individually and as the Former President of Brooks Rent-A-Car, Inc.
Orin G. Grossman, former president of Brooks Rent-A-Car, Inc., agreed to a $4,300 civil penalty consent
decree to settle charges he violated a Commission cease and desist order in a series of advertisements.
The
ANNUAL REPORT 1985
53
order prohibits certain claims about rent-a-car mileage rates. The consent decree rejoins Grossman from
violating the order or going back into the rental car business without first notifying the Commission.
Brooks Rent-A-Car, Inc. has gone bankrupt and has been dissolved.
Royco Automobile Parts, Inc.
A federal court ordered Royco Automobile Parts, Inc., and its president, Robert Sowerby, to pay
$567,000 in consumer redress and $400,000 in civil penalties, and also permanently enjoined them from
violating the FTC Act and the Commission's Franchise Rule. The Commission's complaint charged
Royco with violating the FTC Act and the Franchise Rule by failing to provide required documents,
misrepresenting facts, and making false earning claims. According to the complaint, consumers who
invested in a Royco distributorship for the sale of automotive tune-up parts lost an average of $14,000
each because of false promises of high profits from a risk-free investment.
Winkelman Stores, Inc.
Winkelman Stores, Inc. agreed to a $65,000 civil penalty consent decree to settle charges that it violated
federal statutory credit reporting requirements when denying credit applicants. The Commission's
complaint charged that Winkelman Stores repeatedly violated certain provisions of the Equal Credit
Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). Winkelman Stores, a Detroit-based
corporation that owns and operates more than 90 stores, has annual sales of approximately $100 million,
a substantial portion being credit sales. The consent decree also requires Winkelman to review all the
credit applications it has rejected since January 1, 1983, and send appropriate ECOA and FCRA notices
to all consumers who have not received them.
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ANNUAL REPORT 1985
55
ADMINISTRATIVE COMPLAINTS
COMPETITION MISSION
Amerco
The Commission's complaint charged that U-Haul International. Inc., a subsidiary of AMERCO, used
"sham litigation" during Jartran, Inc.'s Chapter 11 reorganization proceedings in an attempt to delay or
prevent Jartran from competing in the one-way moving equipment market. This is the Commission's first
case to test alleged "sham litigation", charging a company with deliberate use of the judicial process for
an anticompetitive purpose, rather than that for which the litigation was ostensibly brought. According
to the complaint, the bankruptcy and reorganization proceeding contained numerous U-Haul motions,
challenges, and requests for review that were inconsistent with U-Haul's participation to protect its rights
as a legitimate creditor desiring a prompt determination of assets in the debtor's estate and the rapid confirmation of an acceptable reorganization plan. The complaint alleged that one month after Jartran filed
its petition in federal bankruptcy court, U-Haul filed a claim in Jartran's proceedings based on damages
U-Haul sought in a 1980 suit for false and misleading advertising. Later in the Chapter 11 proceedings,
U-Haul opposed a settlement between Jartran and certain creditors that allegedly would have increased
the amount of money U-Haul would have received. The complaint also alleges that on more than one
occasion U-Haul proposed that AMERCO acquire Jartran despite knowledge that such an acquisition
could not be confirmed by the bankruptcy court, but needed, instead, the approval of the federal antitrust
agencies, which U-Haul refused to contact. Finally, the complaint charged that U-Haul's actions in the
Chapter 11 proceedings violated the antitrust laws because they were deliberate attempts by a dominant
firm in the market to eliminate Jartran's ability to come out of bankruptcy court as a competitor in the
one-way moving equipment market.
Detroit Motor Vehicle Dealers
The Commission's complaint charged that more than 200 motor vehicle dealers and dealer associations
illegally conspired to limit the hours of operation for the sale and lease of motor vehicles, which
unlawfully limited consumers' ability to shop and compare the prices of a number of dealers. According
to the complaint, the dealers and associations adopted and attempted to enforce a schedule to close
dealerships on Tuesday, Wednesday, and Friday evenings and maintain no Saturday
56
FEDERAL TRADE COMMISSION
hours except for occasional special sales. The "group" allegedly enforced the limited hours schedule
through threats of physical harm to owners, employees, and family members, actual property damage,
and threats of property damage against individual dealers who attempted to stay open during the
restricted hours. The complaint further alleged that the "group" conspired to restrict the advertising or
publishing of motor vehicle prices, and prohibited dealers from advertising in the classified section of
Detroit area newspapers, in an attempt to fix the prices of new and used vehicles. The complaint named
approximately 220 motor vehicle dealerships, dealers, dealer employees and officers, and ten dealer
associations, including the Detroit Auto Dealers Association, comprised of dealers selling a particular
line of car in the Detroit, Michigan, area covering Macomb, Wayne, and Oakland counties.
Massachusetts Board of Registration in Optometry
The Commission's complaint alleged that the Massachusetts Board of Registration in Optometry
conspired with its members to restrict optometrists from the truthful advertising of eye care and services.
The board, comprised of four optometrists and one public member appointed by the Governor of
Massachusetts, is the sole licensing authority for individuals who practice optometry in the State.
According to the complaint, the board adopted and implemented regulations that prohibited its members
from soliciting private patients through the use of advertisements offering discounts or rebates,
prohibited optical establishments or other commercial practices from advertising optometrists' names or
the availability of their services, and prohibited its members from using ads that contained testimonials
or that were deemed to be "sensational" or "flamboyant." The complaint also charged that the board
informed members that the use of the advertisements violated Massachusetts State law and threatened
to bring disciplinary actions against members who continued to engage in the advertising practices.
According to the complaint, the Commonwealth of Massachusetts bans claims that eyes are examined
free, but does not have a statute or any policy that bans truthful advertising by optometrists regarding
their goods and services. The complaint further alleged that the board's advertising restrictions deprived
consumers of the benefits of price and service competition among optometrists, which may have caused
some consumers to either pay higher prices for optometric services or delay or cancel needed optometric
care.
MidCon Corp.
The Commission charged that MidCon Corp.'s proposed acquisition of United Energy Resources, Inc.
would substantially lessen competi-
ANNUAL REPORT 1985
57
tion in the natural gas markets in the offshore area of the Gulf of Mexico and in the Baton Rouge- New
Orleans corridor. According to the complaint, the acquisition may tend to create a monopoly in the
transportation of natural gas out of producing fields in the Gulf of Mexico off the State of Louisiana
since both MidCon and United Resources are competing owners or part-owners of several natural gas
pipeline systems serving the Gulf and other areas in the United States. The acquisition, if consummated,
could result in MidCon becoming the third largest natural gas transportation company in the U.S. If the
Commission finds that the acquisition violated the antitrust laws, MidCon may be required to divest
some of its offshore pipeline interests or other appropriate relief may be pursued. In a related action, the
Commission accepted a proposed consent agreement with MidCon resolving the FTC's concerns in the
sale of natural gas in the area between Baton Rouge and New Orleans.
National Decorating Products Association, Inc.
The Commission issued a complaint alleging that a national wall covering trade association and two of
its affiliates engaged in a conspiracy in an attempt to stabilize wall covering prices at both the supplier
and consumer levels. Named in the complaint were the National Decorating Products Association, Inc.
(NDPA), the national association representing over 7,000 operators of retail businesses engaged in the
promotion and sale of wall coverings; the Eastern Decorating Products Association, the New
England/Middle Atlantic states NDPA affiliate; and the Decorating Products Dealers Association of
Greater New York, Inc., NDPA's local affiliate. The complaint charged that the trade associations
illegally conspired with their members to suppress discounting from the manufacturer's suggested retail
prices published in wall covering sample books, by removing or concealing the prices, and by pressuring
suppliers to publish books without suggested prices. In addition, the trade associations allegedly
restrained competition by attempting to fix prices paid to wall covering suppliers by threatening to refuse
to deal with suppliers that imposed a charge for cutting double rolls of wall coverings into single rolls
and refusing to pay cutting charges. During the year, the Commission accepted a final consent
agreement, for similar alleged antitrust violations, with the Orlando, Florida, affiliate of the NDPA, the
Decorating Products Association of Central Florida.
Olin Corporation
The Commission charged that Olin Corporation's acquisition of FMC Corporation's chlorinated
isocyanurate and cyanuric acid assets would
58
FEDERAL TRADE COMMISSION
substantially lessen competition in the manufacture and sale of chlorinated isocyanurate and calcium
hypochlorite dry swimming pool sanitizers. Under a separate agreement accompanying the complaint,
the Commission allowed Olin to consummate the acquisition and Olin agreed to maintain or improve the
production capabilities of the acquired isocyanurate assets, allowing the Commission the opportunity
to complete its administrative proceedings while preserving the Commission's ability to obtain effective
divestiture or other appropriate relief that might be found necessary. In addition, under the separate
agreement, Olin terminated a 1984 agreement with Monsanto Company under which Monsanto provided
Olin with chlorinated isocyanurates for resale. The separate agreement will remain in effect until the
Commission issues its final order.
Rochester, N. Y. Anesthesiologists
The Commission charged that 35 anesthesiologists engaged in a price fixing conspiracy in an attempt
to raise their fees and restrained competition by participating in a group boycott against Blue Shield. The
complaint alleged that in 1980 anesthesiologists who have practiced at the three largest hospitals in the
Rochester, N.Y., area threatened to withdraw from Blue Shield if the insurance company did not meet
their demands for higher payments. When the collective negotiations failed to yield a higher fee
schedule, the doctors withdrew from Blue Shield and significantly increased their fees for services
rendered to subscribers of Blue Shield, according to the complaint. The complaint further alleged that
some anesthesiologists used similar threats in negotiations for higher fees with Preferred Care, a health
maintenance organization operating in Rochester. Preferred Care, according to the complaint, met the
doctors' demands and paid the higher costs of anesthesia services, but increased the insurance premiums
paid by Preferred's subscribers. The Commission's complaint charged that the doctors' conspiracy to
obtain higher fees for their services would affect patients through higher premiums, lessen competition
among anesthesiologists, and may have limited the ability of health insurance companies to compete in
the Rochester area. If the Commission finds that the anesthesiologists violated the law, it could prohibit
them from engaging in group negotiations that affect the amount or terms of reimbursement from thirdparty payors.
Ticor Insurance
Six title insurance companies have allegedly restrained competition by conspiring to set the prices
charged for title search and examination
ANNUAL REPORT 1985
59
services or settlement services through rating bureaus in Arizona, Connecticut, Idaho, Louisiana,
Montana, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Wisconsin, and Wyoming.
According to the complaint, Ticor Title Insurance Co., Los Angeles; Chicago Title Insurance Co.,
Chicago; Safeco Title Insurance Co., Los Angeles; First American Title Insurance Co., Santa Ana,
California; Lawyers Title Insurance Co., Richmond, Virginia; and Stewart Title Guaranty Co.,
Galveston, Texas, perform services designed to identify and describe the ownership of real property,
prior to the issuance of title insurance to confirm the seller's dear title to the property. In addition, the
companies provide settlement services related to the closing of a real estate transaction including the
execution, delivery, and recording of transfer and lien documents. The rating bureaus, which are not
state agencies, file joint rates on behalf of their member insurance companies with state insurance
commissions. The complaint further alleged that these examination and settlement services do not
constitute the "business of insurance" under the McCarran-Ferguson Act, which exempts the stateregulated "business of insurance" from the federal antitrust laws.
CONSUMER PROTECTION MISSION
Buckingham Productions, Inc.
The Commission's complaint alleges that Buckingham Productions, Inc., made false, misleading, and
unsubstantiated advertising claims for its "Rotation Diet" and several other related weight-reduction
plans. The plan rotated dieters between days with no caloric restrictions and calorically controlled days.
Advertisements for the diet plans claimed that women would safely lose 8 to 20 pounds per month and
men would safely lose 12 to 25 pounds per month under the plan. The complaint charges that the
company did not have a reasonable basis for these claims. In addition, the complaint charges that
testimonials by users of the Rotation Diet were misleading because some were not genuine and the
photographs accompanying other testimonials were of Buckingham employees.
Roy Brog, Individually and as a Former Officer and Director of Meadow Fresh Farms, Inc.
The Commission's complaint alleges that Roy Brog, president of Meadow Fresh Farms, Inc., a
nationwide company that marketed a dry milk substitute, made unsubstantiated claims about the product's
shelf life and its ability to reduce cardiovascular disease. The company sold its product, Meadow Fresh
White, a powdered, dairy-based milk
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FEDERAL TRADE COMMISSION
substitute, through a distributor network. The complaint also charges Brog with making false claims
about the average earnings of distributors by substantially overstating the income they could reasonably
expect to earn.
Removatron International Corp.
The Commission's complaint charges Removatron International Corp., the maker of the Removatron
brand hair-removal device, with deceptively advertising that the product can permanently remove hair
and falsely claiming the device has been approved by the Federal Communications Commission. The
complaint alleges the company lacked substantiation for its claims that Removatron treatments remove
hair permanently and are an effective alternative to electrolysis.
ANNUAL REPORT 1985
61
PART III (Adjudicative Stage)
CONSENT AGREEMENTS ACCEPTED
AND PUBLISHED FOR COMMENT
COMPETITION MISSION
Columbian Enterprises, Inc.
Columbian Enterprises, Inc., agreed to limit its acquisition of firms engaged in the production of carbon
black. The consent settled a 1984 complaint which alleged that Columbian's acquisition of the
Continental Carbon Co., a subsidiary of Conoco, Inc., could lessen competition by creating the nation's
second largest producer of carbon black, a petroleum feedstock used to strengthen natural and synthetic
rubber in the manufacture of tires, inner tubes, and other rubber products. Under terms of the agreement;
for a period of five years, Columbian is required to obtain prior Commission approval if an acquisition
of the stock or assets of a competitor would increase its annual domestic carbon black production
capacity by more than 130 million pounds.
MidCon Corp.
MidCon Corp. agreed to sell its interest in the Acadian Gas Pipeline System, which serves markets in
Louisiana and Texas, to settle charges that its acquisition of United Energy Resources, Inc. would
increase concentration in the transportation and sale of natural gas in the Baton Rouge-New Orleans
corridor of Louisiana. According to the complaint, MidCon and United Resources are competitors;
MidCon, through its 50 percent interest in the Acadian system, transports natural gas to users in the
Baton Rouge-New Orleans corridor; United Resources owns an extensive gas transmission system
serving the same area. In addition to the required divestiture, the order would prohibit MidCon from
acquiring, without prior Commission approval, any interest in additional pipelines that sell a substantial
volume of natural gas in the Baton Rouge area for a period of ten years.
Oklahoma Optometric Association
The 300 member Oklahoma Optometric Association agreed to allow its members to operate franchises
and branch offices and to advertise truthfully their products and services. The agreement settled charges
that the association restrained competition among its members and deprived consumers of the
convenience and potential cost savings benefits of retail optical franchises and branch offices in their
purchases
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FEDERAL TRADE COMMISSION
of optometric services, optical goods and services. The association represents the interests of
approximately 90 percent of the practicing optometrists in Oklahoma. Optometrists provide eye
examinations and diagnosis of eye conditions, including prescribing corrective lenses, contact lenses,
and eyeglasses. The complaint, issued in March, alleged that the association prohibited its members from
selling optical goods through retail optical stores and branch offices and suspended members who
engaged in a franchise arrangement, declaring such practices as unethical. According to the complaint,
the association adopted rules that prohibited members from establishing a practice close to a retail optical
store, affiliating their name with a franchised operation, operating a separate or branch office, and
promoting their skills, training, or care through the use of truthful advertising. The association agreed
not to interfere with its members' participation in franchises for the sale of optical goods and devices,
establishing branch offices, or using truthful comparative advertising about optometric services and
skills.
CONSUMER PROTECTION MISSION
Weider Health and Fitness, Inc.
Weider Health and Fitness, Inc. and Joseph Weider agreed to pay a minimum of $400,000 in refunds to
consumers and research grants to settle charges that they misrepresented two nutrient supplements.
Weider also agreed not to falsely claim that the supplements, "Anabolic Mega-Pak" and "Dynamic Life
Essence," are effective substitutes for anabolic steroids or help build muscles. If refunds to purchasers
of these products total less than $400,000, Weider is required to donate the difference to fund research
on the relationship of nutrition to muscle development.
ANNUAL REPORT 1985
63
PART III (Adjudicative State)
CONSENT AGREEMENTS ISSUED IN FINAL FORM
COMPETITION MISSION
Louisiana State Board of Dentistry
The Louisiana State Board of Dentistry agreed not to prohibit dentists from advertising or offering
discounts for dental services. The board, based in New Orleans, is licensed by the state and is authorized
by the state to take disciplinary action against any dentist who engages in unprofessional conduct as
defined by Louisiana statute. The Commission charged that the board restrained competition among
dentists in the state by prohibiting truthful advertising of discounts and intimidating dentists who
advertised such discounts. According to the complaint, the board forced a group of dentists to stop
advertising their "Back to School Special," which offered cleaning, examination, flouride treatment, and
X-rays for a specified price. In another instance cited in the complaint, the board allegedly imposed a
fine and publicly reprimanded one dentist, who advertised a discounted price, on grounds that advertising
the discount constituted unprofessional behavior. In addition, the complaint alleged that the board
enforced the advertising restrictions with full knowledge that in 1978 a U.S. District Court in Louisiana
had already ruled that it was unconstitutional for the board to restrict truthful advertisements of the cost
or availability of routine dental care. The agreement, which settled charges brought in an administrative
complaint earlier in the year, prohibited the board from taking any disciplinary action against dentists
who advertise or offer discounts for dental services.
CONSUMER PROTECTION MISSION
Associated Mills, Inc.
The agreement prohibits Associated Mills, Inc. from misrepresenting the performance capabilities of the
Pollenex Pure Air "99" Air Cleaner/ Deodorizer, a portable indoor air cleaning device. The agreement
prohibits the company from misrepresenting that the cleaner removes most tobacco smoke, ragweed
pollen, or dust from household air or claiming that the appliance effectively filters all the air in a 14-by18-foot room in less than an hour. The company agreed to have competent and reliable substantiation
for any future performance claims.
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FEDERAL TRADE COMMISSION
Dr. Barry Bricklin
The agreement prohibits Dr. Barry Bricklin, an expert in the psychology of dieting, from providing false
or misleading endorsements for diet plans marketed by Buckingham Productions. Dr. Bricklin agreed
not to represent that consumers can eat as much food as they want and still lose weight without giving
specified disclosures about weight reduction. Dr. Bricklin is also prohibited from making claims about
"usual" or "average" weight loss, or about the efficacy or performance of weight control products or
programs, unless he relies on competent and reliable substantiation. The agreement with Dr. Bricklin
is the Commission's first expert-endorser case where the endorser was not a celebrity and was not a
principal in the company. It therefore sets a precedent for expert endorsers and advertisers who use
expert endorsers.
P. Leiner Nutritional Products Corp.
The agreement prohibits P. Leiner Nutritional Products Corp. from claiming that its nutritional
supplement "Octacol 4" can improve physical fitness or athletic performance unless it has reliable and
competent data to back up such claims. Under the agreement, the company cannot claim that any
ingredient in "Octacol 4" improves a person's endurance, stamina, vigor, overall athletic performance,
or physical fitness. The company also agreed not to misrepresent the conclusions, data, or results of
scientific tests or research in its advertisements.
Porter Realty, Inc.
The agreement prohibits Porter Realty, Inc., a real-estate brokerage company, and Irvin Porter, an officer
of the firm, from misrepresenting the value and potential use of land. The agreement also requires the
company to disclose material facts about the land in its sales and promotional activities. The consent
agreement settles charges that Porter Realty, Inc., along with three Texas land-sales companies, made
false and deceptive claims in selling rural, undeveloped land in west Texas. In January 1985 the
Commission issued a final decision and order prohibiting the land-sales companies from making claims
similar to those covered by the Porter agreement.
Rush-Hampton Industries, Inc.
The agreement prohibits Rush-Hampton Industries, Inc. from misrepresenting the performance
capabilities of the Ecologizer CA/90 Series 2000 Air Treatment System, a portable household indoor air
ANNUAL REPORT 1985
65
cleaning device developed for air contaminant problems. The consent order prohibits the company from
representing that the Ecologizer removes formaldehyde gas, tobacco smoke, household dust, or pollen
from household air. The company agreed to have a reasonable basis, consisting of competent and
reliable evidence, substantiating any future performance claims for the Ecologizer Series 2000 or any
other air cleaning appliance or equipment.
Ward Corporation
The agreement requires Ward Corporation, a major Washington, D.C. area home builder, to make repairs
or pay homeowners for valid new home construction defects that cost $500 or more to fix and are
covered by its written warranty. The company and its president, Richard E. Ward, agreed to offer
consumer redress to persons who bought their homes between March 1978 and early 1984 and still own
the homes. The company is required to set up an arbitration mechanism for future home buyers, provide
arbitration to homeowners who had purchased their homes in the year preceding the effective date of the
order, and is prohibited from misrepresenting its warranty obligations.
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ANNUAL REPORT 1985
67
INITIAL DECISIONS
COMPETITION MISSION
B. F. Goodrich Company
An Administrative Law Judge dismissed a complaint challenging B.F. Goodrich Company's acquisition
of the assets of Diamond Shamrock Plastics Corporation. The 1982 complaint charged that the
acquisition would substantially lessen competition and increase concentration in the production of
polyvinyl chloride (PVC) and vinyl chloride monomer (VCM), materials used to make plastics. The
judge found that although the acquisition slightly increased concentration in the PVC and VCM markets,
both showed strong, vigorous competition among producers evidenced by extensive discounts similar
production costs, decreased rate of growth in demand, efforts to keep pace with changing technology and
the active monitoring of competitors' prices and meeting of competitive offers. The judge concluded that
suppliers in both markets are engaged in a "spirited head-to-head contest for market share."
District of Columbia Superior Court Trial Lawyers Association
An Administrative Law Judge dismissed charges that the District of Columbia Superior Court Trial
Lawyers Association illegally conspired to conduct a group boycott in order to demand higher legal fees
for the lawyers' services. The association is a group of private attorneys on assignment from the Superior
Court of the District of Columbia who primarily handle criminal cases involving indigent defendants
under the Criminal Justice Act. According to the 1983 complaint, the association's members withheld
their services from the indigent defendant program for 15 days, and made its member lawyers
unavailable to accept new case assignments, in order to coerce higher payments from the city
government. The boycott was allegedly successful by creating an emergency situation and placing
pressure on the District government to pass the required legislation giving the lawyers their first rate
increase in over ten years. The judge concluded that the rate increase did no actual harm, since city
officials and other viewed the boycott as the only way of securing the higher payments for the attorneys.
The judge's decision was appealed by the staff to the Commission.
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FEDERAL TRADE COMMISSION
Hospital Corp. of America
An Administrative Law Judge ruled that Hospital Corp. of America must divest two acute care hospitals
in the Chattanooga, Tennessee, area in one year. The judge upheld, in part, a 1982 complaint alleging
that Hospital Corp.'s 1981 acquisitions of Hospital Affiliates International, Inc., and Health Care Corp.,
may have eliminated competition and increased market concentration in both the acute care and
psychiatric markets in Chattanooga. The Hospital Affiliates transaction included Chattanooga's
Diagnostic Center Hospital and management contracts for two other hospitals; the Health Care deal
included two hospitals in Chattanooga, a psychiatric facility and North Park Hospital (formerly Medical
Park Hospital). Hospital Corp. owned three hospitals in the area prior to the acquisitions. The judge
ruled that the acquisitions increased the risk of collusion in a highly concentrated market by eliminating
two independent competitors. At the staffs request, the judge dismissed the charge that Hospital Corp.'s
acquisitions would lessen competition for psychiatric services. In addition to the divestiture, for a period
of ten years, the order would require Hospital Corp. to notify the Commission 30 days before acquiring
any hospital costing $1 million or more, when the hospital is within a certain distance of other hospitals
owned by Hospital Corp. and meets other specified conditions.
CONSUMER PROTECTION MISSION
Figgie International, Inc.
An Administrative Law Judge upheld in part the charges of a Commission complaint against Figgie
International, Inc. The judge found that the company made false performance claims for its "Vanguard"
heat detectors and understated the importance of smoke detectors. Under the judge's order, the company
is prohibited from representing that its heat detector provides sufficient warning to enable occupants to
escape fires safely, without also making an affirmative disclosure that "in most residential fires
dangerous levels of smoke, heat, or carbon monoxide gas will build up before a heat detector alarm goes
off." The company also is prohibited from representing that a combination heat and smoke detector
system will provide significantly better protection than smoke detectors alone unless it also says such
a system must include a smoke detector outside each sleeping area and on each additional level of the
house. The order requires the company to notify people who bought Vanguard heat detectors since
January 1979 about the limitations of the devices and to make the affirmative disclosures. The decision
was appealed to the Commission by both Figgie and complaint counsel.
ANNUAL REPORT 1985
69
Orkin Exterminating Co., Inc.
An Administrative Law Judge ruled that the Orkin Exterminating Co., Inc. must roll back annual renewal
fees for customers whose original termite-control agreements called for fixed annual fees. The judge
found that in its contracts entered into before September 1974 Orkin agreed to provide annual
reinspection for the life of the house if the consumer paid a specified, fixed annual renewal fee. Orkin
also agreed to retreat and, in certain cases, repair any termite damage if consumers paid those fees.
However, the judge found that the company had unfairly raised the annual renewal fees, giving the
consumers no choice other than to pay the increased fee or lose the guaranteed protection. The decision
requires Orkin to notify all pre-1975 customers of the Commission's roll back order. The company was
not ordered to make refunds to the pre-1975 customers. Orkin and complaint counsel have appealed the
decision.
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ANNUAL REPORT 1985
71
FINAL COMMISSION ORDERS
COMPETITION MISSION
B.A.T. Industries, Ltd.
The Commission upheld a 1983 Administrative Law Judge's decision that dismissed charges challenging
B.A.T. Industries, Ltd.'s acquisition of the Appleton Papers Division of NCR Corp. The complaint had
alleged that B.A.T.'s 1978 acquisition of the largest producer of carbonless paper in the United States
would lessen competition or tend to create a monopoly in the manufacture and sale of chemical
carbonless paper in the U.S. At the time of the acquisition, B.A.T. did not manufacture or market paper
in the U.S., but was the largest producer in the United Kingdom and Europe. The Commission affirmed
dismissal on grounds that there was insufficient evidence and no clear proof to show that B.A.T. would
have independently entered the U.S. chemical carbonless paper market, in the near future, without the
acquisition of Appleton.
City of New Orleans, The
City of Minneapolis, The
The Commission withdrew the two separate complaints issued last year that charged both the City of
New Orleans and the City of Minneapolis with eliminating competition in taxicab service by entering
into contracts or agreements to increase fares and limit the number of taxicab licenses or operators in
each respective city. The Commission withdrew its complaint against New Orleans after the State of
Louisiana adopted a statute that has the effect of exempting municipalities or their officers from any
liabilities under the federal antitrust laws for such activities. The complaint against Minneapolis was
withdrawn after the city amended its code to raise the number of taxicab licenses granted yearly to
operators. The Commission concluded that this increase would prevent the anticompetitive conduct
alleged in the complaint by lowering barriers to entry in the Minneapolis taxicab industry.
Echlin, Inc.
The Commission upheld the 1984 decision of an Administrative Law Judge that found Echlin, Inc.'s
(formerly Echlin Manufacturing Co.) acquisition of the automotive-aftermarket operations of BorgWarner Corp. did not violate the antitrust laws. The 1981 complaint alleged that the acquisition could
substantially lessen competition in the assembly and sale of carburetor kits. Carburetor kits, used mainly
by
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FEDERAL TRADE COMMISSION
professional mechanics, are prepackaged sets of the most frequently used parts needed to repair
carburetors that do not require complete replacement. The Commission affirmed dismissal on grounds
that there were no barriers to entry in the market since a new entrant could become an assembler of the
kits in less than one year. The Commission ruled that in the absence of barriers to entry, firms cannot
exercise market power regardless of the concentration in the market.
Kaiser Aluminum & Chemical Corporation
The Commission dismissed a 1976 complaint that alleged that Kaiser Aluminum & Chemical
Corporation's acquisition of two basic refractories plants from the Lavino Division of International
Mineral & Chemical Corporation lessened competition in the industry. In 1981, the court of appeals
vacated the Commission's 1979 order requiring Kaiser's divestiture of the Lavino plants, on grounds that
the Commission did not define the relevant markets properly, and remanded the case to the Co ion for
further proceedings. The Commission began settlement discussions with Kaiser, and in April 1985
accepted a proposed consent agreement that would have prohibited Kaiser from acquiring any
manufacturer of basic refractories for ten years without prior Commission approval. The Commission
subsequently rejected the proposed consent and dismissed the complaint after Kaiser assured the
Commission that all its basic refractories facilities had been sold to other companies and stated it had
no intention of remaining in the refractories business.
Tristate Household Goods Tariff Conference, Inc. Middle Atlantic Conference
The Commission withdrew the two 1984 administrative complaints issued against Tristate Household
Goods Tariff Conference, Inc., based in Lester, Pennsylvania, and Middle Atlantic Conference, based
in Riverdale, Maryland. The two motor carrier bureaus were charged with fixing the intrastate
transportation prices for property shipped by motor common carriers. The two cases were dismissed
after the Supreme Court's decision in Southern Motor Carriers Rate Conference v. United States provided
the two associations with a state action defense, granting them immunity from the federal antitrust laws.
Weyerhaeuser Company
The Commission upheld an Administrative Law Judge's 1983 decision that dismissed a complaint against
Weyerhaeuser Company. The com-
ANNUAL REPORT 1985
73
plaint, issued in 1981, charged that Weyerhaeuser's acquisition of Menasha Corporation's North Bend,
Oregon, corrugating-medium mill would substantially lessen competition in the eleven-state region west
of the Rocky Mountains. The Commission examined the effects of the acquisition on the West Coast
region and found that because of low barriers to entry the acquisition did not threaten competition in the
corrugating-medium market. The Commission determined that if prices in the Western region increased
substantially, firms in the Eastern United States would enter the area and existing firms would increase
production, thus defeating any possible attempts to control the market.
CONSUMER PROTECTION MISSION
International Harvester Company
The Commission upheld in part the Administrative Law Judge's decision that International Harvester,
a manufacturer of farm machinery, had failed to adequately disclose to consumers that its gasolinepowered tractors were subject to a safety hazard known as "fuel geyser," even though the company knew
of the potential danger for many years. The Commission found that the company's failure to notify
consumers adequately of the hazard from 1963-1980 was an unfair practice that violated the law.
However, because International Harvester had voluntarily notified customers of the problem in 1980,
and because the company no longer makes gasoline-powered tractors, a specific corrective order was
unnecessary.
Southwest Sunsites, Inc.
The Commission reversed the ruling of an Administrative Law Judge who had dismissed the charges
against Southwest Sunsites, Inc., in 1982 saying he found no evidence of a law violation. The
Commission decision upholds a 1980 complaint against three Texas land-development companies,
Southwest Sunsites, Inc., Green Valley Acres, Inc., Green Valley Acres, Inc. II, and Sydney Gross and
Edwin Kritzler, principals of the companies. The complaint charged the defendants with misrepresenting
the value and potential use of land they sold, and failing to disclose material facts about the land. The
Commission ordered the companies to have a reasonable basis for future claims about land they offer
for sale and to notify current owners about their land's actual value. The order also requires the
companies to warn customers that investing in land is risky and to provide purchasers with a seven-day
cooling-off period after a sale.
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FEDERAL TRADE COMMISSION
Thompson Medical Company, Inc.
The Commission upheld the Administrative Law Judge's decision and ordered that Thompson Medical
Company not represent to consumers that aspirin is an active ingredient of its "Aspercreme" arthritis rub,
and must dearly disclose that the product does not contain aspirin. In addition, the company may not
represent that any over-the-counter drug product involves a new scientific principle when such a product,
or one with the same principle, has been available for purchase in the United States for more than one
year. The company also is prohibited from misrepresenting any test or study, or misrepresenting the
active ingredient in any over-the-counter drug. The company must have competent and reliable scientific
or medical evidence before claiming that any over-the-counter drug product is effective for the relief of
minor pain and other symptoms of any arthritis-like disorder.
ANNUAL REPORT 1985
75
ORDER MODIFICATIONS
COMPETITION MISSION
American Academy of Orthopaedic Surgeons
American College of Radiology
The American Academy of Orthopaedic Surgeons (AAOS) and the American College of Radiology
(ACOR) separately petitioned the Commission to modify their respective consent agreements, which
settled charges that both groups developed and circulated relative value scales that had the effect of
influencing and fixing fees for services in their respective medical professions. Relative value scales are
lists of medical services that provide comparative numerical values for services in non-monetary terms.
The Commission modified the 1976 order issued to AAOS and the 1977 order issued to ACOR to allow
both groups to participate in discussions concerning other organizations' development of new or
alternative types of health care financing, including those using relative value scales.
BATUS, Inc.
The Commission modified a 1982 order with BATUS, Inc., accepting as full compliance BATUS'
divestiture of two Gimbel Brothers Inc. department stores. The order settled charges that "BATUS"
acquisition of Marshall Field & Co. could reduce competition among department stores in the Milwaukee
area. The order required BATUS to reduce Milwaukee-area department store space by at least 200,000
square feet and its sales by at least $20 million, measured by 1981 sales. The two Gimbel stores had a
combined floor space of 492,000 square feet and 1981 sales of $17.93 million. The modified order
allows BATUS to keep its remaining stores in the Milwaukee area without further divestitures.
California Medical Association
The Commission granted in part, and denied in part, the California Medical Association's request to
delete a provision in a 1979 order that prohibited the association from developing, circulating, or entering
into discussions concerning any relative value study developed by third parties. The Commission
modified the order to allow the group to participate in discussions with government agencies and thirdparty payors about health care financing, but denied the association's request that it be allowed to prepare
and distribute relative value scales to its physician members. In the Commission's view, relative value
scales developed
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FEDERAL TRADE COMMISSION
by medical associations or groups could cause serious antitrust concerns if the groups were to negotiate
agreements with health insurance companies that in effect fixed the fees physicians charged for services.
Chevron Corporation
The Commission terminated a hold-separate agreement requiring Chevron Corporation (formerly
Standard Oil Company of California) to operate all of Gulf Oil Corporation's United States oil and gas
assets independent of its own until divestitures required by the October 1984, order were completed. The
order settled antitrust concerns over Chevron's acquisition of Gulf. Chevron filed a motion to dissolve
the hold-separate agreement, which the Commission treated as a petition to modify the order. Upon
completion of Chevron's required divestitures the Commission modified the order by terminating the
hold-separate agreement.
Great Lakes Carbon Corp.
A 1973 consent agreement against eight producers of industrial quality petroleum coke, a source of
carbon for industrial purposes, was set aside at their request. The producers, Great Lakes Carbon Corp.,
Standard Oil Co. (Indiana), Conoco, Inc., Derby Refining Co., Farmland Industries, Inc., Texaco, Inc.,
Sun Refining and Marketing Co. and Mobil Corp., were required to limit their contracts for the purchase
and sale of industrial quality petroleum coke to terms of three years. The 1969 complaint charged that
Great Lakes, then the nation's largest processor and reseller of petroleum coke, and the seven other
companies restrained competition through the use of exclusive contracts. The Commission found that
competition in the industry had substantially increased since 1969 and that the order was no longer
necessary.
Interco Inc.
At the request of Interco, Inc., formerly International Shoe Company, the Commission vacated a 1958
consent order that prohibited, in perpetuity, exclusive dealing practices. The order settled charges that
Interco loaned money and furnished or provided other special assistance to retail shoe dealers in return
for their agreement not to sell shoes supplied by INTERCO's competitors.
Luria Brothers & Co. Inc.
The Commission set aside a 1963 order against Luria Brothers & Co., Inc. at the company's request. The
order prohibited Luria from entering
ANNUAL REPORT 1985
77
into exclusive dealing arrangements with any steel mill and from receiving preferential treatment as an
iron and scrap metal supplier. The Commission terminated the order against Luria because the company
could no longer dominate the market through the use of exclusive dealing arrangements due to the
significant changes that have occurred in the iron and steel scrap metal industry. The provisions
prohibiting the steel mills from using Luria as their iron and steel metal supplier were also terminated
when none of the mills objected, following issuance of the Commission's show-cause orders. Earlier in
the year, the Commission set aside the provision prohibiting Luria from entering into exclusive dealing
arrangements with the mills.
Salomon/North America, Inc.
At the request of Salomon/North America, Inc., the Commission modified a 1977 consent order to permit
Salomon to ban the transshipping of its ski products and limit the retail locations from which dealers may
sell its ski products. Salomon is the sole United States distributor for ski boots, bindings, and related
equipment made by its French parent, Francais Salomon et Fils S.A. The order settled charges that the
company fixed the retail prices of its ski products and prohibited its dealers from selling or supplying
its products to anyone who was not an authorized dealer of the Salomon line of products.
The Sperry & Hutchinson Company, Inc.
The Commission modified a 1973 consent order with The Sperry & Hutchinson Company, Inc. to delete
a requirement that the company redeem its S&H Green Stamps for cash as well as merchandise. The
order was modified to allow Sperry & Hutchinson to compete against other forms of retail promotions
and other trading stamp companies not subject to the order's restrictions. The 1973 consent agreement
settled charges that Sperry & Hutchinson conspired with other companies to prevent retailers from
distributing more than one trading stamp per ten cents of merchandise purchased.
TEAC Corporation of America
The Commission modified a 1975 consent order that prohibited TEAC Corporation of America, an audio
components manufacturer, from engaging in resale price maintenance and from restricting
transshipments, which are sales between retailers. At the company's request, the Commission deleted
the transshipment provision to allow TEAC to specify the customers to whom its dealers may sell its
products.
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FEDERAL TRADE COMMISSION
CONSUMER PROTECTION MISSION
American Motors Corporation
The Commission set aside a consent order against American Motors Corp. and Jeep Corp. that required
safety-warning stickers on Jeep CJ utility vehicles. The Commission noted that the National Highway
Transportation Safety Administration (NHTSA) now requires similar warning stickers on all utility
vehicles. AMC and Jeep pointed out in their petition to set aside the order that without the change they
would have to comply with both the FTC order and the NBTSA regulation, each of which requires
different language on the warning stickers and in the owner's manuals.
Grolier, Inc.
The Commission modified an order requiring Grolier, Inc., et al. to make certain disclosures in its sales
and employment ads, and prohibiting it from making certain misrepresentations to potential employees
and consumers. The modifications concern changes in the wording and presentation required in
advertisements and sales material, and the timing of required disclosures to prospective employees. The
changes reflect terms similar to those in an order modification granted Encyclopaedia Britannica in
October 1982.
ANNUAL REPORT 1985
79
APPELLATE COURT REVIEW
OF COMMISSION ORDERS
AND TRADE REGULATION RULES
American Financial Services Association
Petition for review of Commission trade regulation rule. On July 12, 1985, the United States Court of
Appeals for the District of Columbia Circuit issued its decision in this matter, denying a petition for
review of the Commission's Trade Regulation Rule on Credit Practices.
Amrep Corp.
Petition for review of a Commission order prohibiting deceptive land sales practices. On July 25, 1985,
the United States Court of Appeals for the Tenth Circuit unanimously affirmed and enforced in all
respects the Commission's order to cease and desist against Amrep Corp.
Borg Warner Corp.
Petition for review of Commission order. On October 3, 1984, the United States Court of Appeals for
the Second Circuit reversed and vacated the Commission's order to cease and desist against Borg Warner.
Indiana Federation of Dentists
Petition for review of Commission order to cease and desist. On October 12, 1984, the United States
Court of Appeals for the Seventh Circuit vacated the Commission's decision prohibiting a conspiracy
by competing Indiana dentists to withhold x-rays sought by insurers for cost containment purposes.
Koven
Petition for review of Commission order. By order of October 2, 1984, the United States Court of
Appeals for the Eleventh Circuit dismissed, for failure to file a timely brief, petitioner's challenge to the
Commission's order in Cliffdale Associates, Inc. The Cliffdale order prohibits deceptive practices in the
sale of gasoline conservation devices.
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FEDERAL TRADE COMMISSION
Massachussetts Furniture & Piano Movers Association, Inc.
Petition for review of Commission order. On September 30, 1985, the United States Court of Appeals
for the First Circuit reversed in part, vacated in part, and remanded for further proceedings the
Commission's order that prohibits joint rate setting activities.
ANNUAL REPORT 1985
81
SUPREME COURT REVIEW
Bristol Myers Corp.
Petition for review of a Commission order prohibiting deceptive practices in analgesics advertising. On
January 21, 1985, the Supreme Court denied Bristol Myers Corp.'s petition for certiorari to review a
decision of the United States Court of Appeals for the Second Circuit, upholding the Commission's
decision in its entirety.
Harry & Bryant Co.
Petition for review of Commission trade regulation rule. On October 2, 1984, the Supreme Court denied
Harry & Bryant Co.'s petition for certiorari to review a decision of the United States Court of Appeals
for the Fourth Circuit, affirming in its entirety the Commission's Trade Regulation Rule on Funeral
Industry Practices.
Sterling Drug Co.
Petition for review of order to cease and desist. On March 29, 1985, the Supreme Court denied Sterling
Drug Co.'s petition for certiorari to review a decision of the United States Court of Appeals for the Ninth
Circuit, affirming and enforcing a Commission order to cease and desist deceptive advertising for
analgesic products.
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ECONOMIC REPORTS COMPLETED
Economic Reports are major published reports, usually entailing a substantial commitment of resources and
original research, concerning a matter or issue of topical interest or of long term impact on Federal Trade
Commission action in a particular area of concern.
"Aggregated Costs to the United States of Tariffs and Quotas on Imports: General Tariff Cuts and
Removal of Quotas on Automobiles, Steel, Sugar, and Textiles, " by David G. Tarr and Morris E.
Morkre, December 1984. This report assesses the losses to U.S. consumers and producers from tariffs
and quotas in four U.S. industries and estimates the total losses from the trade restrictions in these
industries to be nearly $13 billion annually.
"A Time-Series Investigation into Factors Influencing U.S. Auto Assembly Employment," by Michael C.
Munger, February 1985. This report provides an analysis of the recent rise in unemployment in the
automobile industry. The report finds that the 1980-82 recession and high wages paid U.S. auto workers
are largely responsible for the unemployment rise and that the U.S. import of automobiles is not a major
factor.
"Generic Substitution and Prescription Drug Prices: Economic Effects of State Drug Product Selection
Laws," by Allison Masson and Robert L. Steiner, September 1985. This report provides an analysis of
the effects of state drug product selection laws and the growth of generic drugs. The report examines
earlier recommendations in the FTC/FDA model statute.
"U.S. Federal Trade Commission, Bureau of Economics, Annual Line of Business Report 1977: A
Statistical Report," September 1985. This report is the last in a series of five Annual Line of Business
Reports to be published by the Commission for the years 1973-1977. The report contains industry
aggregates and financial ratios compiled from line of business financial data submitted by approximately
470 large diversified U.S. manufacturing companies.
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ANNUAL REPORT 1985
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ECONOMIC WORKING PAPERS
Economic Working Papers are preliminary, published work products of the Bureau of Economics, resulting
from original research by Bureau staff either in connection with ongoing agency activities or independent
analyses. The papers usually entail relatively minor allocations of official time.
Application of the Sherman Act, The: to the Smog and Aircraft Patent
Agreements, George Bittlingmayer, February 1985.
Cooperation Versus Rivalry: Price-Cost Margins by Line of Business, John
E. Kwoka and David Ravenscraft, June 1985.
Determinants of the Merger Accounting Choice, David Ravenscraft and
F.M. Scherer, February 1985.
Enforcing Government Policy: The Evolution of Efficient Regulations, Mark
A. Cohen and Paul H. Rubin, November 1985.
Equilibria in the Laboratory: Experiments with Oligopoly. Markets Where
Goods are Made to Order, Dan Alger, December 1984.
Factors Affecting Steel Employment Besides Steel Imports, Douglas W. Webbink, July 1985.
Geographic Market Definition Under the DOJ Guidelines, David T. Scheffman and Pablo T. Spiller, August 1985.
Incentives to Comply with Uncertain Legal Standards, John C. Calfee and
Richard Craswell, April 1985.
Marketable Landing Rights and Economic Efficiency, Donald W. Koran
and Jonathan D. Ogur, April 1985.
Mergers, Market Power, and Property Rights: When Will, Efficiencies Prevent Price Increases? Alan A. Fisher, Frederick 1. Johnson, and Robert H. Lande, September 1985.
Specialized Assets and Taxi Regulation: An Inquiry into the Possible Efficiency Motivation of Regulation, Edward C. Gallick and David E. Sisk,
October 1984.
Tips and Commissions: A Study in Economic Contracting, David E. Sisk
and Edward C. Gallick, May 1985.
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MISCELLANEOUS ECONOMIC POLICY PAPERS
Miscellaneous Economic Study papers are papers that result from basic research and generally entail small
amounts of agency resources. These papers may be prepared by FTC economists or by outside individuals
who have been granted access to economic data compiled by the FTC. The papers usually explore welldefined industrial organization and management strategy questions of interest to the broad policy concerns
of the Commission.
A Model of Differentiated Oligopoly: Some Empirical Results, Ioannis
Vessides, October 1984.
Beyond Firm and Industry Effects on Profitability in Imperfect Markets,
John T. Scott and George A. Pascoe, Jr., October 1984
Concentration, X-Inefficiency, and Mr. Peltzman's Superior Firms, Leonard
W. Weiss and George A. Pascoe, Jr., October 1984.
Determinants of the Merger Accounting Choice, David Ravenscraft and
F.M. Scherer, December 1984.
Industrial Organization Econometrics Research: Models, Variables and Data
Problems, William F. Long, July 1985
Measuring Technology-based Business Relatedness: A Conceptual
Framework and Empirical Findings, Richard Klavans, August 1985.
Mergers and Managerial Performance, David Ravenscraft and F.M. Scherer,
September 1985.
On the Sources of Scope Economies in U. S. Manufacturing Firms, Len A.
Nichols, August 1985.
Testing the Theory of Competition in R&D of Large U.S. Companies, John
T. Scott and George A. Pascoe, Jr., September 1985.
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COMPETITION AND CONSUMER ADVOCACY
The Commission considers it vital that antitrust analysis be brought to bear upon legislative and regulatory
restrictions imposed on competition at the federal, state, and local levels. The following are procompetitive
analyses and comments provided in government proceedings in fiscal 1985.
FEDERAL AGENCIES
DOC
Commission letter to the International Trade Administration of the Department of Commerce in response
to a request for comments on regulatory revisions to implement the provisions of Title VI of the Trade
and Tariff Act of 1984, regarding the imposition of antidumping and countervailing duties.
DOE
Commission letters to Mr. Pat Collins, Under Secretary of the Department of Energy, and to Mr. Richard
Saudek, Commissioner, Vermont Department of Public Service, recommending that DOE waive certain
provisions of the National Energy Conservation Policy Act so that Vermont's Green Mountain Power
Corp. may continue to sell insulating jackets for water heaters, at a subsidized price, to its residential
consumers.
Commission comments to the Department of Energy and the Connecticut Department of Public Utility
Control regarding the petition by United Illuminating Company for a waiver of certain prohibitions of
the National Energy Conservation Policy Act.
DOJ
FTC authorized the General Counsel to request that the Solicitor General add the Federal Trade
Commission to the parties submitting amicus brief before the Supreme Court in State of North Carolina
v. P.LA. Ashville, Inc. The FTC and the DOJ had submitted an amicus brief before the Court of Appeals
for the Fourth Circuit, arguing (among other things) that the district court erred in finding that the
National Health Planning Act implicitly repealed the Sherman and Clayton Acts with respect to hospital
acquisitions approved under certificate of need programs, and that the hospital acquisition is not immune
from antitrust challenge as "state action."
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FEDERAL TRADE COMMISSION
FCC
Staff comments to the Federal Communications Commission on its proposed rulemaking concerning the
construction and operation of satellite systems providing international communication services.
Staff comments to the Federal Communications Commission on its proposal to allocate the radio
frequency spectrum remaining in the 800-900 Megahertz "reserve pool." The comments support the
FCC's "Alternative Regulatory Approach" of allocating licenses for blocks of frequencies by lottery and
permitting lottery winners to resell their licenses.
FDA
Staff comments to the Food and Drug Administration on its proposal to change its "exclusivity" policy
for the labeling of over-the-counter drug products.
Staff comments to the Food and Drug Administration suggesting the need for modification of its proposal
to facilitate distribution of bulk new animal drug substances.
FERC
Staff comments to Federal Energy Regulatory Commission in its proceeding on Interstate Transportation
of Gas for Nonowner Shippers and Rate Structures and Design. The comments discuss the removal of
regulatory entry barriers in the gas pipeline industry and the modification of rate regulation to facilitate
competition.
Staff comments in response to the Federal Energy Regulatory Commission's Notice of Proposed
Rulemaking regarding the regulation of natural gas pipelines after partial wellhead decontrol. The
comments generally supported FERC's proposal to increase reliance on competitive forces, instead of
regulation, in the gas purchase segments of the industry.
FRB
Commission comments to the Federal Reserve Board on its proposed revision of Regulation B, its
regulation implementing the Equal Credit Opportunity Act (ECOA).
Commission comments to the Federal Reserve Board on its proposed amendments to Regulation Z,
which implements the Truth-in-Lending
ANNUAL REPORT 1985
91
Act. The amendments would require lenders to provide more information about adjustable rate
mortgages.
ICC
Staff comments to the Interstate Commerce Commission on its reconsideration of its decision to exempt
joint rates for boxcar service from regulation.
ITC
Commission letter to the International Trade Commission requesting permission to appear in a Section
201 (escape clause) case involving the Carus Chemical Company, which petitioned for relief against
imports of potassium permanganate.
Commission preheating brief to the International Trade Commission on the escape clause petition for
potassium permanganate. The brief recommended that the ITC consider the decision of the petitioner's
largest customer to stop using the chemical as a more important cause of injury than an increase in
imports. The brief also suggested that the ITC evaluate whether the import injury suffered has been
remedied by other recently imposed import restrictions.
Commission preheating relief brief to the International Trade Commission on the nonrubber footwear
escape clause investigation. The brief argues that if the ITC finds injury resulting from rising imports,
then it should recommend adjustment assistance to firms and workers instead of tariffs or quotas.
SEC
Staff comments to the Security and Exchange Commission addressing proposed rules relating to third
party tender offers and tender offers by issuers. Staff comments supported the proposed amendments
to prohibit exclusionary tender offers and suggested the SEC shorten the waiting periods applicable to
third party offers in order for these periods to conform with those of issuer tender offers.
USTR
Staff comments to the U.S. Trade Representative summarizing the results of a recent BE report on textile
import restrictions. The letter
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FEDERAL TRADE COMMISSION
was written in response to the USTR's request for comments relevant to negotiations on the Multifiber
Arrangement.
Commission brief to the U.S. Trade Representative regarding the Section 201 investigation on imports
of nonrubber footwear. The brief commented on, and provided estimates of the cost to consumers and
the economy, of both the import restriction program recommended by the International Trade
Commission and alternative relief measures.
CONGRESS
House
Commission letter to the House Committee on Government Operations on H.R. 2, the "Sunset Act of
1985," which would require the inventory and "Sunset" review of federal agency programs at least once
every ten years. The letter, which endorses the sunset concept, suggests that review of a program should
include an evaluation of alternative methods of accomplishing the program's goals as well as a
determination of its competitive impact.
Staff letter to Congressman Bruce A. Morrison, commenting on H.R. 2730, legislation to amend the
Consumer Credit Protection Act regarding consumer leases and rental purchase agreements.
Senate
Commission testimony by Walter Winslow before the Senate Committee on the Judiciary. The
testimony opposes the Malt Beverage Interbrand Competition Act, which concerns exclusive sales
territories for wholesalers.
Commission comments to Senator Strom Thurmond, Chairman, Senate Committee on the Judiciary,
regarding "Railroad Anti-Monopolization Act of 1985" (S. 447).
Commission letter to Senator Strom Thurmond, Chairman, Senate Committee on the Judiciary, opposing
S.379, a bill which would exempt from antitrust laws and the Federal Trade Commission Act certain
actions undertaken by insurers and third-party payers of health care services for the purpose of health
care cost control.
Commission comments to the Senate Committee on the Judiciary in opposition to S.743, a bill to
"Temporarily Prohibit Hostile Corporate Takeovers of domestic Petroleum Corporations."
ANNUAL REPORT 1985
93
Commission comments to the Subcommittee on Business, Trade, and Tourism of the Senate Committee
on Commerce, Science, and Transportation. The comments oppose passage S. 700, the "Office Products
User Protection Act" and S. 701, the "Office Machine and Equipment Dealers' Equity Act," bills which
seek to protect office product dealers from being cut off or terminated by their suppliers.
Commission letter to the Senate Committee on the judiciary opposing S. 236, the "Unfair Foreign
Competition Act of 1985." The letter cautioned that the proposed bill, which would amend both the Antidumping Act of 1916 and the Clayton Act, could encourage the formation of cartels, stimulate other
anticompetitive behavior, and produce confusion in the application of the Clayton Act as well as in the
operation of the antidumping and countervailing duty laws.
Commission answers to questions from Senator Thurmond and Senator I'm concerning the Malt
Beverage Interbrand Competition Act. The Senators' questions were in response to Commission
testimony delivered by Walter T. Winslow before the Senate Committee on the Judiciary on May 14,
1985.
Commission comments to the Senate Commission on the Judiciary on S.397, the "Foreign Trade
Antitrust Improvements Act of 1985," a bill to amend the Sherman and Clayton Acts to modify the
application of such Acts to international commerce.
Commission comments to the Senate Commission on the Judiciary in opposition to S. 1140, the "Motor
Fuel Sales Competition Improvements Act of 1985." The proposed bill would amend the antitrust laws
"in order to preserve and promote wholesale and retail competition in retail gasoline markets and to
protect the motoring safety of the American public."
Commission comments to the Senate Commission on the Judiciary in opposition to S.1299, the
"Domestic Petroleum Company Acquisition Act of 1985." The proposed bill is intended "to prevent
certain acquisitions of domestic petroleum companies by major international energy concerns."
Commission comments to the Senate Commission on Banking, Housing, and Urban Affairs on S. 951,
a bill that would classify an attorney collecting a debt as a debt collector.
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FEDERAL TRADE COMMISSION
STATES
Alaska
Staff letter to the Anchorage Assembly concerning a proposal to issue more taxicab permits in the City
of Anchorage. The staff letter supported the proposal, noting that in entry in the taxicab business,
consistent with maintenance of safe and competent service, would benefit Anchorage residents and
visitors.
California
Staff testimony before the San Francisco Police Commission concerning issuance of additional taxicab
medallions in the city of San Francisco. The staff testimony delivered by Jeffrey Klurfeld, Assistant
Director of the San Francisco Regional Office, supported issuance of more taxicab medallions.
Commission amicus briefing the matter of Bahn v. NME Hospital, in support of a private plaintiff who
is appealing to the Ninth Circuit from a judgment of the U.S. District Court for the Eastern District of
California dismissing his antitrust action. Plaintiff, a certified registered nurse anesthetist in California,
alleged in his complaint that defendants sought to eliminate competition in the provision of anesthesia
services by excluding nurse anesthetists from the operating rooms of Manteca Hospital.
Commission motion for leave to file an amicus brief in the case of People v. Penta Investment Corp. in
California Superior Court. The case was brought by the California Board of Optometry through the
California Attorney General and included charges that certain contractual relationships between Pinta
Investment Corp. and individual optometrists violate state statutes. The amicus brief discussed the
federal interest in promoting competition among providers of ophthalmic services.
Staff comments to the California legislature on Assembly Bill 1217, a bill to repeal restrictions on the
practice of optometry.
Staff comments in opposition to California bill that would protect beer wholesalers by establishing
exclusive sales territories and requiring "good cause" for the termination or non-renewal of distribution
agreements. Comments are for the California Assembly's Government Operations Committee.
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95
Staff comments to the California State Senate Committee on Insurance Claims and Corporations,
opposing Assembly Bill 783, which would amend the California Vehicle Code to establish new
regulations governing motorcycle dealer franchises.
Staff letter to the California Senate in support of Assembly Bill 183, a proposed bill which would
eliminate the State Board of Fabric Care that licenses dry cleaners.
Staff letter to the California Attorney General opposing Assembly Bill 707, a bill designed to grant
special antitrust status to health care providers, insurers, and purchasers in connection with joint
activities relating to contracts for health care delivery.
Colorado
Staff letter to the Colorado State Legislature's House of Representatives an "A Bill for an Act
Concerning the Regulatory Reform of Taxicabs and Taxicab Service." The staff letter supported the
proposed bill, which would basically deregulate the Colorado taxicab industry by lowering entry barriers
and allowing fare competition through discounting.
Delaware
Staff report to the Legislative Council of Delaware Sunset Review Committee concerning proposed
legislation that would affect the ability of optometrists to use trade names, engage in direct solicitation,
and operate as a corporate practice.
Florida
Staff request to reserve option to appear before the Florida Environmental Regulation Commission on
its proposed rule to allow imports of sulfur into Florida.
Illinois
Chicago Regional Office staff testimony before the Committee on Registration and Regulation of the
Illinois House of Representatives on the Illinois Sunday Automobile Closing Law. The testimony
addresses the costs to consumers of the law that prohibits automobile dealers from selling cars on
Sunday.
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FEDERAL TRADE COMMISSION
Staff comments to the Illinois State Senate Insurance and License Activities Committee an Senate Bill
S. 293, which deals with restrictions on the ownership of funeral homes by nonlicensees and limits sales
of preneed funerals.
Maryland
Staff letter to Maryland State Senator Leo Green in response to his letter of December 26, 1984. The
letter states that if the State of Maryland believes that state regulation of the funeral industry is merited,
then adopting the funeral rule by reference as proposed in the draft legislation is appropriate.
Staff letter to the Maryland Board of Examiners in Optometry commenting on its proposed advertising
rules.
Massachusetts
Staff comments presented to the Massachusetts Board of Registration in Medicine opposing proposed
restrictions an mid-level health professionals such as physician assistants and nurse practitioners.
Boston Regional Office staff letter to the Massachusetts Board of Registration in Medicine in response
to the board's proposed regulations concerning who should receive investigative medical information.
Minnesota
Staff letter to the Minnesota Dentistry Board generally supporting proposed amendments to its rules
dealing with advertising.
New Jersey
Staff testimony on the FTC's staff study of contact lens fitting before the New Jersey Senate Labor,
Industry, and Professions Committee.
Staff comments to New Jersey Board of Dentistry opposing proposed regulations that severely restrict
advertising by dentists.
Staff comments to New Jersey Senate Bill S.2035. This bill would prohibit discrimination against credit
applicants who receive income from part-time employment, from pension, annuity, or other retirement
benefits, from any public assistance program, or from alimony,
ANNUAL REPORT 1985
97
child support, or separate maintenance payments where this income is reliably received.
New York
Commission motion for leave to file an amicus brief in Indian Head, Inc. v. Allied Tube & Conduit
Corp., 81 Civ. 6250 (S.D.N.Y.), arguing that Noerr immunity should not apply to a manufacturer's action
to influence the standards development process of a private standards-setting organization.
Staff letter to the Office of New York Governor Cuomo opposing New York State AB 6971-A, "An Act
to amend the business corporation law, in relation to the registration of corporate takeover offers,
requirements for disclosure regarding corporate takeover offers and control share acquisitions and
shareholder combinations."
North Carolina
Staff comments to the North Carolina Senate Commerce Committee on the proposed "North Carolina
Motor Fuel Marketing Act," which would make it unlawful to sell motor fuel below cost. The comments
argue that the bill would demonstrably injure competition and result in higher prices for consumers for
all grades of gasoline and motor fuel.
North Dakota
Staff comments to the North Dakota State Board of Optometry on its proposed amended rules and
regulations. The comments support proposals to broaden the scope of permissible advertising by
optometrists. The comments suggest modifications to the amendment's provisions on affirmative
disclosure obligations; advertising of "free examinations," prohibition of "professional relationships"
with persons or firms that advertise falsely or fraudulently, the ban on guarantees of cures, and the
prohibition against the practice of optometry under a trade name.
Oklahoma
Commission amicus brief in the matter of John E. Snider v. Wal-Mart Stores, Inc., are that the
Oklahoma Unfair Sales Act, which establishes a prima facie criminal violation for a retailer to sell merchandise without at least a 6 percent mark up above actual
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FEDERAL TRADE COMMISSION
costs, conflicts with the federal antitrust laws and should be preempted on that basis.
Rhode Island
Staff comments for the Rhode Island Legislature on the proposed "Distilled Spirits and Venous
Beverages Fair Dealing Law," a bill setting forth regulations governing agreements between suppliers
and wholesalers of distilled spirits and vinous beverages. The comments conclude that the proposed law
has the potential to increase consumer prices by encouraging distributional arrangements that increase
costs and reduce interbrand competition.
South Carolina
Staff comments to the Chairman of the Labor, Commerce, and Industry Committee of the South Carolina
House of Representatives. The comments argue that a South Carolina Bill providing for Motor Fuel
Marketing Divorcement and the Prohibition of Certain Below-cost Motor Fuel Sales would injure
competition and result in higher prices to consumers.
Tennessee
Staff testimony on the FTC's Funeral Rule before the Tennessee State Senate Committee to Study Future
Funeral Contacts and Services. The testimony summarizes the Rule's provisions on price disclosure,
misrepresentations, tying arrangements, and embalming.
Texas
Staff comments on a bill that would partially repeal a Texas prohibition on the sale of certain items on
both the Saturday and Sunday on the same weekend. Comments urge that ban be repealed for sale of
automobiles as well as for other goods.
Virginia
Staff comments to the Virginia Senate Committee on Rehabilitation and Social Services. The comments
argue that the proposed Virginia Wine Franchise Act could increase consumer prices by adding costs
to the distribution of wine and lessening competition among wine wholesalers.
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99
Staff comments addressing regulatory changes that have been proposed by the Virginia Boards of
Dentistry, Medicine, Optometry, and Veterinary Medicine. The major issues included in the comments
are restraints on nondeceptive advertising and restrictions on commercial practice.
Washington
Staff comments address issues such as the need for lawyer advertising raised by the Washington Bar
Association's proposed "Plan of Legal Specialization," which would establish rules and standards for the
certification of attorney specification in the State of Washington.
Washington
Staff analysis of alternative taxicab regulations provided to the Transportation Committee, Seattle City
Council. The analysis estimated that the cost of eliminating district fares and fixing all fares at $1.20
per mile would be $225,000 per year.
Washington
Staff testimony to the Senate Commerce and Labor Committee of the Washington State Legislature
concerning Senate Bill 3333, the "Motorcycle Dealers' Franchise Act." The staff testimony, delivered
by Dennis McFeely of the Seattle Regional Office, cautioned that if the bill were enacted, it would result
in higher prices for consumers while also inhibiting motorcycle manufacturers from instituting procompetitive and cost-justified changes in their pricing and distribution systems.
Staff statement to the House and Senate Transportation Committee of the Washington State Legislature
on trucking deregulation. Citing the experiences of other states, the testimony argued that trucking
deregulation could result in reductions in the rates charged to consumers.
Staff comments to the State of Washington on "An Act relating to Retail Practices in the Sale of Motor
Vehicle Fuels." The comments argue that the proposed bill would restrict the ability of gasoline refiners
to distribute their product efficiently and would harm both competition and consumers.
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LOCAL
District of Columbia
Staff letter to the D.C. City Council's Public Works Committee opposing the "Hacker's License
Requirements Act of 1984," (Bill 5-453) a proposed bill to limit the number of licensed taxicab drivers
and tighten license requirements.
Staff comments to the D.C. City Council in general support of Bill 6-88, the proposed "District of
Columbia Rental Housing Act of 1985," which would extend rent controls for six years in the District
but phase out controls on units as they become vacant.
REPORTS & PAPERS
OECD
Staff paper for presentation by Carol T. Crawford, Director of the Bureau of Consumer Protection,
(delivered by James McCarty) before the Organization for Economic Cooperation and Development,
Committee on Consumer Policy, during the Symposium on Consumer Policy and International Trade.
The paper describes the FTC's role in several international trade proceedings.
Bureau of Economics reports on issues related to restrictions of U.S. imports. One report, by David Tarr
and Morris Morkre, entitled "Aggregate Costs to the United States of Tariffs and Quotas on Imports:
General Tariff Cuts and Removal of Quotas on Automobiles, Steel, Sugar and Textiles," estimates the
cost on the U.S. economy caused by import barriers in four major U.S. industries and the adjustment
costs that would be incurred if these restrictions were removed. The second report, by Michael Munger,
entitled "A Time Series Investigation into Factors Influencing U.S. Auto Assembly Employment," examines the relative importance of different factors that may have contributed to the problems facing the
automobile industry.
@FedFRASER