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1986
ANNUAL
REPORT
U.S. FEDERAL TRADE COMMISSION
WASHINGTON, D.C.
Annual
Report
of the
FEDERAL
TRADE
COMMISSION
For the Fiscal Year Ended
September 30, 1986
For sale by the Superintendent of Documents, U.S. & Government Printing Office
Washington, D.C. 20402
FEDERAL TRADE COMMISSION
DANIEL OLIVER, Chairman*
TERRY CALVANI, Acting Chairman**
PATRICIA P. BAILEY, Commissioner
MARY L. AZCUENAGA, Commissioner
ANDREW J. STRENIO, JR. Commissioner
EMILY H. ROCK, Secretary
__________
* Took oath of office April 21, 1986.
** From October 7, 1985 to April 20, 1986.
ii
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
8303 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
iii
LETTER OF TRANSMITTAL
October 20, 1988
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-second Annual Report of the Federal Trade Commission covering
its accomplishments during the fiscal year ended September 30, 1986.
By direction of the Commission.
Daniel Oliver
Chairman
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FEDERAL TRADE COMMISSION
1986 ANNUAL REPORT
Table of Contents
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Energy and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Horizontal Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
International Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Market Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distributional Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Evaluation, Planning and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Advertising Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Industry Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office of Consumer and Business Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
14
16
18
20
22
Economic Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
24
24
25
Executive Direction, Administration and Management, and
Regional Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix
Part II (Investigative Stage) Consent Agreements
Accepted and Published for Public Comment
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
v
Part II (Investigative Stage) Consent Orders
Issued
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Part III Administrative Complaints
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Part III (Adjudicative Stage) Consent Agreements
Accepted and Published for Public Comment
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Part III (Adjudicative Stage) Consent Orders
Issued
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Initial Decisions
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Final Commission Orders
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Order Modifications
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Preliminary and Permanent Injunctions
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Civil Penalty Actions
Maintaining Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
vi
Supreme Court Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Economic Reports Completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous Economic Policy Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Congressional Testimony and Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and Competition Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
65
66
67
68
70
Table of Cases Listed in Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
vii
SUMMARY
The Federal Trade Commission enforces a variety of Federal antitrust and consumer protection laws.
The Commission seeks to ensure that the nation's markets are competitive, function vigorously and
efficiently, and are free from undue governmental as well as private restrictions. The Commission also seeks
to improve the operation of the marketplace by eliminating deceptive and unfair practices, with emphasis on
those practices that may unreasonably restrict or inhibit the free exercise of informed choice by consumers.
The Commission's economic analysis activities support this law enforcement effort and contribute to the
economic policy deliberations of the Congress, the Executive Branch, other independent agencies, and state
and local governments.
During Fiscal Year 1986, the Commission continued efforts to reshape policy to meet the needs of
consumers more effectively and to increase staff effectiveness. The major focus was on case-by-case
enforcement. The staff also was active in developing and presenting comments in response to requests from
other government bodies in connection with the Commission's competition and consumer advocacy program.
Efforts continued in the area of consumer and business education. These efforts included:
CASE SELECTION
The Commission continued its strategy of selecting cases to ensure that agency resources were allocated
to activities that promised the best possible return for consumers. Antitrust resources were devoted to
detecting and eliminating antitrust law violations such as collusion, anticompetitive mergers, predatory single
firm conduct, injurious vertical restraints, and other anticompetitive practices in the private sector. Consumer
Protection resources were devoted to efforts to improve market performance so that consumers could make
informed choices. The remedies employed were those considered most likely to achieve the goals of ending
unfair or deceptive practices without also chilling procompetitive conduct. Combating national investment
fraud continued to be an important priority. Six consumer redress orders were obtained, and a total of
$6,035,000 in redress was ordered.
ECONOMIC ANALYSIS
Economic analysis activities continued to play an important role in the selection of antitrust and
consumer protection cases. Early analysis of the economic policy issues raised by proposed law enforcement
initiatives allowed the Commission to focus on the injury resulting from
1
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FEDERAL TRADE COMMISSION
different practices and to weigh whether the initiatives would result in a net benefit to consumers. In
addition, the Bureau of Economics completed several economic reports providing useful in-depth insight into
areas of particular concern to the Commission.
RULE ENFORCEMENT
The FTC continued to commit resources carefully to its rulemaking proceedings. As in the past six years,
this process involved analysis of whether individual cases or industry-wide enforcement offered the most
appropriate remedies for eliminating conduct harmful to consumers. During the fiscal year, the Commission
amended the Pre-sale Availability and Appliance Labeling Rules, issued a Notice of Proposed Rulemaking
for the Retail Food Store Advertising and Marketing Practices Rule, and proposed regulations under the
Smokeless Tobacco Act.
COMPETITION AND CONSUMER ADVOCACY
The Commission continued its program of responding to requests for evaluations of the consumer
welfare implications of proposed government action. Staff comments were submitted to several federal,
state, and local government bodies presenting views in areas in which the Commission staff has special
expertise or experience. For example, the staff submitted comments at the request of the Illinois state
legislature concerning proposed legislation to permit competing physicians to determine jointly the price at
which they would participate in PPOs, HMO, and other health care programs. Although it is difficult to
measure the extent to which the staff's comments influenced the result, one press report characterized the
staff's comments as "a development critical to the defeat of S.B.2202 thus far."
CONSUMER AND BUSINESS EDUCATION
The Commission, through its Bureau of Consumer Protection and regional offices, maintained an active
consumer and business education program. The program provided information to consumers and industry
on major Commission decisions, enforcement programs, statutes, and rules, and continued to be a costeffective way of obtaining compliance with the law.
The staff developed several new consumer booklets in cooperation with private organizations, including
Money Matters, which won a Blue Pencil Award from the National Association of Government Communicators, and was developed in cooperation with the American Association of Retired Persons (AARP). The
Commission also worked in cooperation with two other organizations in developing consumer information.
Over
ANNUAL REPORT 1986
3
a million copies of these and other FTC publications were distributed during the fiscal year.
MANAGEMENT IMPROVEMENTS
The Commission expended 1,107 workyears and $62.7 million in fiscal 1986. The agency expended
virtually all of its regular appropriation. It returned $87,000 to the Treasury from its 1985 space consolidation appropriation of $3.8 million.
Consolidation of the FTC's five satellite buildings in Washington, D.C. into the 601 Pennsylvania
Avenue Building was planned and orchestrated to a large extent in this fiscal year. A major upgrading and
expansion of the agency's telecommunication system was part of the consolidation effort. In addition, the
Commission advanced its multi-year plan to make electronic workstations available to all professional staff.
MAINTAINING COMPETITION MISSION
The Maintaining Competition Mission is devoted to preventing unfair methods of competition and
promoting competition. The Bureau of Competition is primarily responsible for conducting the activities
of this mission. 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 Bureau is responsible for evaluation, planning, and development.
MERGERS
The Mergers program is directed to litigation to prevent or eliminate anticompetitive mergers. It also
includes. administration of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, under which certain
mergers and acquisitions must be reported in advance to the Commission and the Department of justice.
During fiscal 1986 notices of 1,949 transactions were filed with the Commission pursuant to the HartScott-Rodino Premerger Notification Program. This is an increase of 21.6% over the fiscal 1985 volume.
The Commission issued "requests for additional information" relating to 43 of those transactions. The
merger enforcement program relies heavily on the ability to seek preliminary injunctions against
anticompetitive mergers and acquisitions. In fiscal 1986, the Commission obtained injunctions against PPG
Industries, Inc.'s acquisition of Swedlow, Inc., and Coca Cola's acquisition of the Dr Pepper Company.
Administrative complaints were issued in both matters. The Commission voted to seek
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FEDERAL TRADE COMMISSION
to enjoin the acquisition by PepsiCo of the United States assets of Philip Morris Co.'s Seven-Up division.
Thereafter, the parties abandoned the transaction. The Commission also voted to seek a preliminary
injunction against Occidental Petroleum's acquisition of Tenneco Polymers, Inc. Following the court's grant
of a temporary restraining order and notwithstanding its subsequent denial of a preliminary injunction, the
Commission issued an administrative complaint.
The Commission accepted seven final consent agreements in merger cases during fiscal 1986. In
Warner/Polygram, the Commission had obtained an injunction during the previous year and in June 1986
settled the administrative complaint's charges. The two companies separately agreed to seek prior FTC
approval before acquiring any interest in major record companies and to notify the FTC about distribution
agreements planned with such companies. In Columbian Enterprises, the Commission accepted a consent
order in November 1985, in which Columbian agreed not to acquire, for a period of five years, U.S. rubber
carbon black assets of a specified size, unless it obtained prior Commission approval. In Bass Brothers and
Ashland Oil, Inc., the Commission accepted final consent orders whereby Ashland agreed not to sell its
carbon black business to Bass, and both agreed for four years to give the Commission prior notice of certain
sales and transfers and observe a waiting period before consummation. In MidCon, the Commission issued
a final consent order in February 1986 prohibiting MidCon, for a ten-year period, from acquiring any interest
in additional pipelines that sell a substantial volume of natural gas in the Baton Rouge area without prior
Commission approval. The Commission issued a final consent order in Occidental Petroleum which would
allow Occidental to consummate its acquisition of MidCon after Occidental agreed to divest MidCon's
pipeline subsidiary that transports gas from the Gulf Coast to St. Louis.
On March, 26, 1986, the Commission amended the Premerger Notification and Report Form to require
the submission of 1982 revenue data instead of 1977 revenue data in response to certain items on the form.
The form requires data for two time periods: the most recent year for which the requested information is
available, and the "base-year" that coincides with the Bureau of the Census' most recently available
quinquennial economic census of manufactures and mineral industries. The Commission and the Department
of justice compare these statistical data to the reporting persons' revenue data to determine whether a
proposed transaction may raise antitrust concerns. This revision allows the agencies to conduct an antitrust.
analysis based upon more recent, accurate, and relevant statistical data. Additionally, after seeking and
receiving 26 public comments on 13 proposed amendments to the premerger notification rules, the staff
prepared rules changes for final action by the Commission.
ANNUAL REPORT 1986
5
ENERGY AND NATURAL RESOURCES
Resources devoted to this program are employed for the investigation and prosecution of anticompetitive
mergers and acquisitions in the petroleum and other natural resource industries. In addition, the Commission
examines antitrust issues under this program relating to the Outer Continental Shelf Lands Act, the National
Energy Conservation Policy Act, and the International Energy Program.
The Commission continued its active involvement in maintaining competition in both petroleum and nonpetroleum energy industries. During the 1986 fiscal year, several non-public 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. In one of these,
MidCon/United, the likelihood of anticompetitive results attributable to horizontal overlaps between certain
natural gas pipelines in Louisiana led to a divestiture of assets pursuant to a consent order against the
acquiring company. The Commission is also seeking through an administrative proceeding a divestiture of
certain offshore gulf coast natural gas pipelines that were combined into one company as the result of the
MidCon/United merger.
Another acquisition involving natural gas pipelines was Occidental's acquisition of MidCon. This
acquisition combined a large natural gas producer with a large pipeline company. The acquisition raised a
significant possibility that the combined companies could exercise market power to evade rate-of-return
regulation. To avoid this result, the Commission accepted a consent order requiring Occidental to divest a
natural gas pipeline serving the St. Louis, Missouri area.
The Commission and its staff also provided advice and comments, where requested, to state and other
federal government bodies concerning regulatory activities in energy markets.
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 federal agencies, 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, and conducted several investigations in various
resource industries. The Commission concluded an investigation of the
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FEDERAL TRADE COMMISSION
lithium industry by issuing a consent order against Lithium Corporation of America.
HEALTH CARE
This program covers investigation and prosecution of antitrust violations in the health care industry,
including boycotts against cost-containment plans of medical insurers and agreements among hospitals or
other health care professionals to restrict truthful price advertising or other forms of competition.
During fiscal 1986, the Commission continued its efforts to promote competition in the health care sector
of our economy, The Commission was particularly active in law enforcement efforts to prohibit providers
from collectively coercing higher fees from third-party payers. In the Supreme Court, the Commission
obtained affirmance (reversing the Seventh Circuit) of its decision that Indiana dentists violated the antitrust
laws when they collectively refused to submit x-rays to insurers who need them for cost-containment
purposes.
In other areas, the Commission pursued law enforcement actions to eliminate private and public restraints
on competition in the health care areas. The Commission issued complaints against state regulatory boards
of optometry, dentistry and podiatry, alleging restrictions on truthful advertising, such as discount
advertising, by such providers. Consent settlements were obtained in several of these matters, and at the end
of the fiscal year another was before the Commission on appeal from an Administrative Law Judge's finding
of a violation. In another advertising matter, the Commission issued a consent order settling charges that a
national optometric association has illegally restricted truthful advertising and certain aspects of commercial
practice by optometrists.
The Commission has also been active in preventing collective activities by physicians to restrain
competition from allied health professionals and alternative delivery systems. The Commission approved
a consent order prohibiting a medical staff of a hospital from threatening to boycott the hospital as a means
of forcing it to stop operating an urgent care center in competition with the physicians. The Commission also
accepted a consent settlement in a matter charging that physicians had unreasonably restricted the granting
of hospital privileges to podiatrists. The Commission also upheld an Administrative Law Judge's decision
finding a violation of antitrust laws and issued an order to remedy the anticompetitive effects of Hospital
Corporation of America's acquisition of competing hospitals in Chattanooga, Tennessee. Finally, the
Commission's staff investigated allegations of abuse of the certificate-of-need regulatory process to exclude
competitors from health care markets.
ANNUAL REPORT 1986
7
In addition to traditional law enforcement activity, the Commission and its staff provided advisory
opinions and informal guidance to health care professionals seeking to insure that their proposed activities,
including new forms of health care marketing and delivery, and dispute resolution services, conform to the
requirements of the antitrust laws. The Commission and its staff also provided advice and comments to the
Congress, the states, and the public on matters involving competition in the health care field.
TRANSPORTATION
This program focuses on investigation, litigation, and advocacy in regulated and non-regulated transport
industries, including automobile retailing.
During fiscal 1986, the Commission continued a program of advocating a greater role for competition
in taxicab markets, chiefly through staff testimony. Chicago was among the cities where Commission views
were presented. In the Amerco matter (U-Haul), staff continued an antitrust action involving allegations of
sham litigation. Several investigations into collusion in automobile retailing were pursued.
HORIZONTAL RESTRAINTS
The Horizontal Restraints program is responsible generally for the investigation of and litigation against
collusion among competitors. This program includes analysis of the structure and conduct of bid depositories, the activities of trade associations and standards-setting organizations, and the impact of government
regulatory activities on competitors.
During fiscal 1986, the Commission continued to devote substantial resources to eliminating
anticompetitive agreements among competitors, especially among professionals. The Commission has
focused its efforts on regulations issued by state boards and private professional and trade associations that
may have the purpose, or the effect, of fixing or stabilizing prices or reducing output and that may cause
substantial injury to consumers. In implementing its program against anticompetitive horizontal restraints,
the Commission has used various means: intervention and advocacy, cooperative efforts resulting in
voluntary compliance, consent orders, and litigation. The Commission issued decisions and orders in eleven
matters in fiscal year 1986: a litigated order in Superior Court Trial Lawyers Association (SCTLA),
involving a concerted refusal by attorney-respondents and other members of SCTLA to accept appointment
to represent indigent criminal defendants in the District of Columbia in order to coerce the District to
increase the fees for the attorneys' services; a litigated order in The Electrical Bid Registration Service of
Memphis, Inc., involving the rules and practices
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FEDERAL TRADE COMMISSION
of a bid depository in the construction industry that restricted price competition by preventing certain kinds
of price negotiations; a consent order in Rhode Island Board of Accountancy, involving the adoption by a
state regulatory board of an absolute prohibition against advertising and solicitation of business by certified
public accountants; a consent agreement in Roswil, Inc., involving a conspiracy among competing grocery
chains to prevent the collection and dissemination of comparative retail grocery prices to consumers; a
consent order in Michigan Watchmakers Guild, Inc., involving the publication and dissemination by a trade
association of suggested minimum price lists for the cleaning and repair of watches, clocks and jewelry; a
consent order in Independent Insurance Agents of America, and two other related groups, involving boycotts
by associations of insurance company agents; and a consent order against members of the wall covering trade
association involving a conspiracy to restrain competition in the sale of wallpaper. The Commission also
continued litigation in several other alleged horizontal restraint cases initiated in fiscal year 1985. The
Commission contributed to efforts leading to repeal of several other restrictions on commercial activities of
state-licensed professionals.
INTERNATIONAL ANTITRUST
This program includes investigation and prosecution of antitrust violations that have international
features, as well as international liaison activities with foreign antitrust officials.
During this reporting period a total of twenty-seven full phase and initial phase investigations were
conducted under the international antitrust program involving such matters as: possible horizontal price
fixing in fine art sales, imported and domestic semiconductor chips, imported light bulbs, and alcoholic
beverages; possible attempted monopolization of the markets for heat expansion tanks and indomethacin;
and potential anticompetitive restraints from a transnational joint venture involving melamine manufacturers.
Also, as already noted, in a case against National Decorating Products Association, the Commission issued
a consent order to conclude a case involving alleged horizontal restraints in the wallcovering industry.
The international program participated in a variety of intervention matters and international liaison
activities involving transnational competition and antitrust law enforcement issues that affect the domestic
economy. For example, the Commission intervened in several trade law proceedings involving such products
as imported apple juice, 256K computer chips, and softwood lumber, and provided legal and economic
analyses which sought to identify and quantify the economic costs to consumers and the national economy
of proposed trade relief measures. Through its international liaison activities, the Commission
ANNUAL REPORT 1986
9
staff ensured compliance with the notification provisions of bilateral and multilateral international antitrust
cooperation agreements and understandings with foreign nations. These agreements minimize international
law and policy conflicts as well as 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 1986. In addition, the Commission, in cooperation with the
Department of Justice and the State Department, continued its participation on the OECD Committee of
Experts on Restrictive Trade Practices, and, at the request of the United States Trade Representative, the
interagency MOSS initiative, and two subcommittees of the Interagency Committee on Service Industries
Development.
MARKET POWER
This program is directed to the investigation and prosecution of conduct involving monopolization and
attempts to monopolize, and to potentially anticompetitive conduct by firms that possess market power.
The Commission staff continued investigations into possible abuses of market power, including two
investigations of attempted monopolization in fiscal year 1986.
During the year, the Bureau of Economics and the Bureau of Competition also continued to study
whether various public utilities were improperly extending their monopoly authority.
DISTRIBUTIONAL RESTRAINTS
This program includes the investigation and prosecution of anticompetitive resale price maintenance,
price discrimination, and other unlawful vertical practices.
The Commission issued a decision in Boise Cascade Corp., finding that a distributor of office supplies
knowingly received discriminatory prices from various vendors of such supplies in violation of the RobinsonPatman Act. Boise Cascade appealed this decision to the United States Courts of Appeals for the District
of Columbia.
As already noted, the Commission issued a consent order against Lithium Corp. of America that prohibits
it and other respondents from maintaining any arrangement under which it would be the exclusive buyer of
lithium extracted in the People's Republic of China. The Commission also accepted a consent agreement in
Max Factor & Co. that would settle Robinson-Patman Act charges that Max Factor granted discriminatory
promotional allowances to certain purchasers of its
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FEDERAL TRADE COMMISSION
cosmetic products. Finally, the Commission continued a number of other investigations involving possible
distributional restraints.
FOOD
This program is directed to the investigation and prosecution of anticompetitive mergers and other
antitrust violations in the food and beverage industries.
During fiscal 1986, the staff conducted several investigations in the soft drink industry. As the result
of two of these, already discussed in greater detail under the "Mergers" heading, the Commission authorized
the staff to seek preliminary injunctions and authorized the issuance of administrative complaints. The other
investigations in this sector are continuing. As noted previously, the staff also settled a case, Roswil, Inc.,
in administrative litigation involving a conspiracy to suppress dissemination of comparative price
information to consumers.
Work continued on the retail grocery pricing study, a project to examine the effect of new retail formats
on price competition among retail grocers. The staff has investigated acquisitions at all levels of the food
industry and practices in this industry that may violate the Robinson-Patman Act and the FTC Act.
EVALUATION, PLANNING AND DEVELOPMENT
This program includes five areas: evaluation of current Competition Mission initiatives, coordination
of Mission activities in competition advocacy matters, development of new initiatives, planning of future
Mission activities, and Mission resource management in ongoing matters.
During fiscal 1986, the Bureau of Competition staff wrote, and the Commission filed, several amicus
curiae briefs taking positions designed to encourage and foster competition. In addition, the Commission
authorized the staff to file several briefs before the International Trade Commission to present the FTC's
views on particular cases before that body.
COMPLIANCE
The Compliance Program is directed to monitoring compliance with, and assessing the continuing utility
of, outstanding Commission antitrust orders.
During fiscal 1986, the Commission filed two civil penalty complaints and obtained consent judgments
in both cases: a complaint against Amway Corp., Inc., which alleged violations of a Commission order
prohibiting deceptive earnings claims, was settled by a consent judgment providing for a $100,000 civil
penalty; a complaint against Sunkist
ANNUAL REPORT 1986
11
Growers, Inc., which charged a violation of a Commission order as a result of Sunkist's failure to divest a
citrus processing plant on time, resulted in a consent judgment requiring a $375,000 civil penalty.
Additionally, United States v. Bell Resources Ltd. was settled by a civil penalty consent judgment of
$450,000 from Bell Resources' subsidiary, Weeks Petroleum, in a case alleging violation of the Hart-ScottRodino premerger reporting statute and rules. The Commission also issued findings in Louisiana-Pacific
Corp. In response to a federal district court's order of remand. The Commission also acted on numerous
petitions to modify orders and applications for approval of divestitures and acquisitions. In addition,
compliance staff conducted investigations of possible order violations and possible violations of the HartScott-Rodino premerger reporting statute and rules.
CONSUMER PROTECTION MISSION
The Bureau of Consumer Protection directs its efforts to eliminating 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 Bureau's activities can be grouped into five program areas: Advertising
Practices, Marketing Practices, Credit Practices, Service Industry Practices, and Enforcement. In addition,
the Bureau has a Policy and Evaluation Unit, and an Office of Consumer and Business Education.
ADVERTISING PRACTICES
The Advertising Practices program is directed toward ensuring that advertising is truthful and not
misleading, thereby protecting the informational benefits of advertising. The program also includes
administration of two federal statutes regulating the advertising and labeling of cigarettes and smokeless
tobacco and requiring that mandated health warnings be provided to purchasers of these products.
The Commission entered into several consent orders concerning advertising practices. National Energy
Associates, a manufacturer and marketer of home energy-controlling devices, was ordered not to make claims
of energy savings associated with the product "Cyclematic" or any energy-control device without competent
and reliable substantiation. North American Phillips Corporation, marketer of Norelco Clean Air Machines,
was ordered not to misrepresent the ability of air cleaners to eliminate or help eliminate indoor pollutants
or the irritation they cause. The company was also ordered not to misrepresent the results of tests, surveys,
or demonstrations of air cleaning appliances and to have competent and reliable evidence for all future claims
about the air
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FEDERAL TRADE COMMISSION
cleaners' performance. Sunbeam Corporation, marketer of Oster brand air cleaners, was ordered not to
misrepresent the ability of air cleaners to eliminate indoor pollutants. In addition, the company must have
competent and reliable evidence for all future claims about any air cleaner's strength, capacity, speed of
operation, or other performance factors. The Commission issued a consent order with Blue Lustre Home
Care Products, Inc., manufacturer and seller of chemical products and equipment for the home and car care
markets. The company was ordered to stop making unsubstantiated efficacy claims for "Rinsenvac 5," a
carpet cleaning fluid sold to retailers in connection with the sale of rental do-it-yourself carpet cleaning
machines.
Three consent agreements were accepted subject to final approval by the Commission. GCS Electronics,
Inc., and its president Gene Comfort, agreed not to make misleading claims about the capabilities of the
portable Mark II Executive Phone. The company agreed not to misrepresent the range of radiotelephone
communications devices or their ability to transmit and receive messages simultaneously. Cosmo
Communications Corp., a manufacturer and seller of telephones nationwide, agreed not to misrepresent the
capabilities of its phones and to disclose that its touch-pulse phones do not generate tones necessary for toneaccessed telephone services, Viobin Corp., and its parent company A.H. Robins Co., Inc., agreed to an order
settling charges that Viobin made false and unsubstantiated claims about its wheat germ oil products. Under
the agreement, Viobin must inform consumers that the benefits claimed in its long-running advertising
campaign are not supported by scientific evidence, and both companies are prohibited from misrepresenting
the ability of their wheat germ oil products to improve physical fitness or performance. The Commission
also resolved several matters in adjudication with consent agreements. Weider Health and Fitness, Inc.,
manufacturer and distributor of nutrient-supplements, agreed to stop making unsubstantiated claims that its
products promote muscular development, or produce human-growth hormone, or that its products are unique.
The company is required to make refunds to purchasers of "Anabolic Mega-Pak" or "Dynamic Life Essence"
nutrients. If the refunds total less than $400,000, the company is required to donate the difference to fund
research on the relationship of nutrition to muscle development. Buckingham Productions, Inc., marketers
of the "Rotation Diet" and several related weight-reduction plans, signed a consent agreement subject to final
approval settling charges that they made false, misleading, and unsubstantiated claims in advertising for their
mail-order programs and products.
The Commission issued administrative complaints charging Electro Tech Manufacturing, Inc. and
Electronic Systems International, Inc., with falsely advertising that consumers could save from 15 to 40
percent
ANNUAL REPORT 1986
13
on their heating and air conditioning bills by installing duty cycler energy control devices. Electro Tech
Manufacturing, Inc., entered into an agreement with the Commission to settle these charges, and the
Commission has accepted a consent agreement subject to final approval with Electronic Systems
International, Inc., to settle the charges.
The Commission also issued an administrative complaint charging that R.J. Reynolds Tobacco Co., Inc.
misrepresented the purpose and results of a major government-funded study in an advertisement. An
Administrative Law Judge subsequently ruled that the challenged statement on smoking and health is not
subject to the Commission's jurisdiction. The judge issued an order granting the company's request to
dismiss the complaint and stayed the proceedings pending a Commission ruling. Complaint counsel appealed
the ALJ's ruling to the Commission.
An administrative complaint was also issued against Pittsburgh Penn Oil Co. The company was charged
with misrepresenting its automotive oils, automatic transmission fluids, and antifreeze by falsely claiming
the products met established standards. After the complaint was issued, the company agreed to a permanent
injunction prohibiting it from making any claims concerning the standard, performance, or quality of its
products, unless the claim is true and the company has a reasonable basis for it. The Commission then
withdrew the matter from adjudication and resolved its charges with a consent agreement.
The Commission filed two separate complaints in federal district court charging Solar America, Inc. and
Solar Michigan, Inc. With falsely claiming that their solar energy heating systems can significantly reduce
residential heating fuel consumption and will pay for themselves in a short time. The Commission sought
injunctions forbidding such misrepresentations and orders requiring that the companies send refunds to
consumers.
An Administrative Law Judge issued a ruling prohibiting General Nutrition, Inc. from making false and
unsubstantiated advertising claims in the future for any product marketed for its ability to prevent or reduce
the risk of any disease in humans. The ruling upholds a 1984 complaint charging that General Nutrition's
ads claiming that its dietary supplement "Healthy Greens" reduced the chances of contracting cancer were
deceptive. While pending appeal to the Commission, the matter was withdrawn from adjudication to
consider a consent agreement.
The Commission solicited additional comments 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 sought comments on its proposal to change the way
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FEDERAL TRADE COMMISSION
it tests cigarettes' tar, nicotine, and carbon monoxide content. The new procedures are designed to identify
and measure accurately those cigarettes which cannot be tested satisfactorily by the current method. The
Commission authorized new ratings for the tar and nicotine content of Brown & Williamson's Barclay
cigarettes that have a modified filter. Brown & Williamson can use these ratings until the Commission
implements the modified testing procedures or until the company changes the tar and nicotine content of the
Barclay cigarettes by 20 percent or more.
Congress passed the Comprehensive Smokeless Tobacco Health Education Act of 1986 requiring health
warnings on smokeless tobacco packaging and in its advertising. As the Act directs, the Commission
proposed regulations concerning format and display of three mandated warnings.
MARKETING PRACTICES
The goals of the Marketing Practices program are to identify, halt, and redress injury caused by unfair
and deceptive practices in the marketing and sale of a variety of products and services and to ensure that
companies honor warranty and other contractual commitments.
The Commission issued three consent orders in the deceptive sales practices area. In two separate
consent orders, Larry Brog, former chief executive officer, and Roy Brog, former chairman of the board, of
Meadow Fresh Farms, Inc., were ordered to have scientific evidence for any future claims they make about
Meadow Fresh, a dry milk substitute, or other food products. Saga International, Inc., manufacturer and
marketer of "Home Free," an ultrasonic pest-control device, was ordered to refund the full purchase price
of the product to consumers who bought the product in 1984 or later.
In the product information area, a consent order was entered into with Saab-Scania of America, Inc. The
company was ordered to make repairs or reimburse consumers for costs they incurred because of paint
problems with Saab cars. Cassette Library, Inc. agreed to a federal court injunction to settle charges that the
company falsely represented its plan under which consumers paid from $1,260 to $1,700 to buy audio
cassette tapes from a catalog. Under the injunction, the company agreed to pay refunds to certain customers
and will not misrepresent any merchandise or service it offers.
Network Marketing, Inc., a nationwide mail-order marketer of watches, agreed to a $45,000 civil penalty
consent decree to settle charges it violated the FTC Mail Order Rule and did not honor its warranties in a
timely manner.
The Commission filed a complaint in federal district court against DuraSeal International, Inc. for falsely
representing that consumers who
ANNUAL REPORT 1986
15
bought its "DuraSeal" asphalt-sealant franchises could expect to earn up to $60,000 the first year. The court
issued a preliminary injunction prohibiting the practices and freezing the assets of an officer of the company,
so that the assets may be used for possible future consumer redress.
The Commission also filed a suit against North American Office Systems, Inc., charging that the
company deceptively markets and sells photocopy supplies through a telephone "boiler room" operation.
The complaint charges that, as a result, consumers have paid excessive prices for goods, have unknowingly
paid hidden charges, and have suffered other injury. The Commission is seeking preliminary and permanent
injunctions and refunds for customers of the company.
Moksha Wendell Smith, a defendant in the Commission's suit against Paradise Palms Vacation Club,
agreed to settle charges that he misrepresented vacation timeshare interests in Ocean Shores, Washington,
and Lake Tahoe, Nevada. Under the settlement, Smith would be permanently enjoined from making
misrepresentations in future timeshare, real estate, or recreation program sales.
The Commission ruled that Figgie International, Inc., violated the FTC Act by representing that its
Vanguard heat detectors do not provide consumers with the necessary warning to escape from most
residential fires. The Commission said that claims that Vanguard heat detectors give "immediate early
warning" are deceptive, and ordered the manufacturer not to misrepresent the devices' ability to provide such
warning. Figgie was also ordered to notify past purchasers of heat detectors that smoke detectors give earlier
warning than heat detectors in nearly all residential fires, and to include this fact in any future promotional
materials.
The Commission voted to modify the Pre-Sale Availability of Written Warranty Terms Rule. The
amendment will 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.
The modifications will ensure that consumers receive warranty information before a sale, but will encourage
retailers to take a more innovative and flexible approach to warranty disclosure. Staff estimates that the
changes made in the rule will reduce retailers' paperwork compliance burden by almost 3.5 million workhours per year. In another warranty-related matter, the Commission has formed an advisory committee to
develop recommendations for amending its rule on Informal Dispute Settlement Procedures. The advisory
committee will use a negotiated rulemaking process to develop specific recommendations for amending the
rule. These amendments will encourage wider use of informal procedures, such as
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FEDERAL TRADE COMMISSION
mediation and arbitration, for settling warranty disputes between businesses and consumers.
CREDIT PRACTICES
The Credit Practices program encompasses enforcement of a variety of credit statutes that protect
consumers from unlawful practices in the granting of credit, the maintenance of credit information, the
collection of debts, and the operation of credit systems.
The Commission issued two consent orders related to alleged violations of the Fair Credit Reporting Act
(FCRA). Foley's, a division of Federated Department Stores, was ordered to notify credit applicants when
they have been denied credit on the basis of information from credit reporting agencies, and to provide the
applicant with the name and address of the agency. Wright-Patt Credit Union was ordered to notify credit
applicants who 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.
The Commission also issued a consent order 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, was
ordered not to misrepresent its ability to assist consumers in obtaining MasterCard or Visa credit cards. The
company was also ordered 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 a new credit-counseling
service without additional charges.
The Commission approved consent orders against six former officials of Credit Establishing Bureau
charged with misleading consumers by falsely and deceptively claiming the company could improve their
credit records and arrange for them to receive major credit cards. In addition, the consent orders issued
against company founders Steven Hull and George Tannous require them to provide consumer redress in the
form of a six-week consumer education program directed at people with credit problems similar to those of
the company's clients.
Consumers will receive $2.4 million in redress from Evans Products Co. and Evans Financial Corp.
(EFC) in a bankruptcy court settlement. A complaint issued in 1985 charged that Evans and EFC deceptively
and unfairly represented that they would provide buyers of thousands of pre-cut homes with guaranteed longterm mortgage loans. The companies allegedly failed to provide the promised loans, or provided the loans
at higher than promised interest rates, causing economic injury to consumers and the loss of many homes.
Strawbridge & Clothier, a chain of department and discount stores,
ANNUAL REPORT 1986
17
agreed to a $70,000 civil penalty in a consent decree to settle charges that it violated provisions of the Equal
Credit Opportunity Act and the Fair Credit Reporting Act. Under the decree, the company agreed to comply
with these laws, and to provide all credit applicants it rejected in 1984 with the notices these statutes require.
The Commission filed a complaint in federal district court against Green Tree Acceptance, Inc. for
allegedly violating the Fair Credit Reporting Act by not telling consumers why they were denied credit. The
company provides financing in 25 states to consumers purchasing mobile homes.
As a result of a comprehensive monitoring program of automobile credit advertisers, the Commission
obtained civil penalty judgments against two automobile dealerships and filed complaints against three others
who had failed to comply voluntarily with the law. Boch Oldsmobile, Inc. and Boch Toyota, Inc. agreed to
a $70,000 civil penalty in a consent decree to settle charges they violated the Truth In Lending Act (TILA)
by giving consumers incomplete credit information in their advertisements. Complaints were filed in federal
district court charging Freeway Dodge, Inc., Hopkins Dodge Sales, Inc., and Walser Motors, Inc. with
violating the TILA. According to the complaints, the dealers advertised certain credit terms, such as the
down payment or monthly payment, without also stating other required information, including the annual
percentage rate or the repayment period. The Commission is seeking civil penalties and injunctions against
future violations of the law.
The Commission's real estate credit advertising project resulted in civil penalty judgments against a real
estate broker, two marketers of housing developments and two home builders. Each of the above companies
had been notified that its ads violated the TILA prior to filing of the complaints and had not come into
voluntary compliance. Mesa Realty, Inc. agreed to a $30,000 civil penalty for violating the TILA by failing
to disclose required information, such as the annual percentage -rates and higher payments required in the
later years of advertised loans, in its ads for home mortgages. The marketing agents for A. P. Orleans, which
builds and markets residential real estate, agreed to a $80,000 civil penalty for violating the TILA by not
including required credit information in their ads. Hooker Homes, Inc. and its subsidiary, Hooker Bames
Homes, Inc., agreed to a $250,000 civil penalty to settle charges it violated the TILA when advertising credit
for its homes. KRSS Development Corp. consented to pay a $15,000 civil penalty for violating the TILA
when advertising credit for home mortgages.
Under a consent decree entered in federal court, Donald A. Schwab agreed not to misrepresent the rates
or availability of mortgage loans he could obtain for his customers. He was charged with falsely advertising
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FEDERAL TRADE COMMISSION
he could obtain home mortgages at rates substantially below prevailing market rates for potential
homeowners, when, in fact, he did not have commitments for the mortgage funds at the advertised rates.
The Commission granted a request from the state of Wisconsin for an exemption from the Credit
Practices Rule for transactions in which the amount financed does not exceed $25,000. The rule is designed
to protect consumers from unfair or deceptive practices by creditors regulated by the FTC, and applies to any
loan or extension of credit for personal, family, or household purposes, except for real estate purchases. The
Commission also granted a request from the state of New York for an exemption from the provision of the
rule that pertains to cosigners. Comments were sought on a request from the state of California for an
exemption from the rule's cosigner provision.
The Commission staff proposed a guide to consolidate and organize nearly 1,000 pages of informal staff
interpretations of the Fair Debt Collection Practices Act. Since the Act was passed in 1977, the Commission
staff has issued hundreds of informal staff interpretations of the statutory provisions in response to requests
from industry and consumers. After public comments are considered, the guide will be published in final
form and become the official guide to staff interpretation of the Act.
SERVICE INDUSTRY PRACTICES
The goals of the Service Industry Practices program are to further informed consumer choice and
increase the availability of less expensive, safe and reliable services and products that consumers desire;
facilitate fair competitive opportunities for smaller manufacturers in the standards-setting process; and reduce
consumer losses based on false or misleading information.
The Commission approved two consent orders concerning restrictive regulations. The American Society
of Sanitary Engineering (ASSE) was ordered to stop using certain specific conditions as a basis for refusing
to extend standards coverage to certain new plumbing products. ASSE was also ordered to issue new
standards or modify existing ones more readily in the future. A consent order issued against the Wyoming
Board of Podiatry prohibits the Board from restricting or discouraging podiatrists from truthfully advertising
their services and products.
Under a consent order, John William Costello Associates, Inc., an employment counseling service, and
four corporate officers, may not misrepresent the basis on, which clients are accepted, the number of clients
who had obtained interviews, job offers and jobs through their services, or the chances that the employer
would pay the finder's fee. In addition, the consent order prohibits respondents from accepting job placement
fees in advance, unless they make certain disclosures. A
ANNUAL REPORT 1986
19
separate, identical order was issued against Roy B. Kelly, a former officer of the firm.
The Commission obtained a $2.5 million settlement against Leland Industries, Inc. resolving Commission
charges that Leland and related defendants misrepresented to investors crucial information about lotteries
for oil and gas rights on federal lands. As part of the settlement, three Leland officers also agreed to pay
$10,000 each to reimburse part of the government's legal costs. Between 1981 and 1983, approximately
5,000 customers invested between $4,000 and $100;000 in such lotteries using Leland's services. Under a
separate agreement, Peter LaBarrie, a former Leland salesman, is bound by provisions similar to the Leland
settlement, but is not obligated to pay restitution.
In the first case the Commission has brought against allegedly deceptive investment schemes involving
cellular telephone lotteries, the Commission filed a complaint in federal district court against American
National Cellular Corp. The Commission obtained a temporary restraining order prohibiting the company
from misleading potential investors about the chances and profitability of winning lotteries for the right to
build cellular telephone systems. The Commission charged that the company failed to disclose crucial
information to potential investors and misrepresented such information. The Commission has also instituted
criminal contempt proceedings against three defendants, Premier Cellular, Inc., Charles Michael Fischer, and
Gerald Woods, charging violations of court orders, including asset freeze provisions.
Another application-preparation service, The Cellular Corp., agreed not to misrepresent the sale of
cellular telephone license application services in a stipulated injunction filed in federal district court. The
Commission had charged the company, two related companies, and three individuals with misleading
potential investors about the chances and profitability of winning lotteries for the right to build cellular
telephone systems. The defendants must establish a fund of $400,000 to pay for the preparation, completion,
and filing of applications for the FCC's cellular telephone lottery. In addition, defendant Kent Maerki must
pay a $100,000 fine within one year. The Commission accepted a consent agreement in which Albert
Schneider, an officer of the Cellular Capital Corp., one of the related companies, agreed not to misrepresent
the services he provides, or the chances and profitability of winning lotteries.
A complaint was filed in federal court charging Rare Coin Galleries of America, Inc., a related company,
and two individuals with misrepresenting the grade and investment value of coins they have sold nationwide.
The complaint alleges that the defendants significantly over graded their coins, and that many of the coins
were worth substantially less than the price the customers paid for them. The court
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FEDERAL TRADE COMMISSION
granted the Commission's request for a temporary restraining order and asset freeze.
Michael Peter Nissen and David J. Swain, defendants in the suit against Trans-Alaska Energy Corp.,
were sentenced to serve 60 days in prison for violating a court order the Commission obtained to preserve
assets for consumer redress. These were the first such judgments the Commission has ever won for
violations of asset freeze orders arising from its cases. In addition, Nissen was placed on probation for three
years and ordered to repay the $10,000 he diverted from the redress fund. Robert A. Kobek, another
defendant in the suit, agreed to a stipulated permanent injunction and final order to settle charges against him.
A fourth defendant, Alan F. Goda, pled guilty to criminal contempt charges and will pay $50,000 into a
restitution fund for violating the court-imposed asset freeze.
The Commission issued a Notice of Proposed Rulemaking and convened public hearings on the Retail
Food Store Advertising and Marketing Practices Rule, which requires that retail food stores have any
advertised item in stock and readily available at or below the advertised price. Under the proposed
amendments, grocers would be able to comply with the rule by offering rain checks or substitutes of
comparable value when they run out of advertised items, or by advertising that the items are available only
in limited quantities.
The Commission terminated the Health Spa Rulemaking and directed its staff to explore additional law
enforcement initiatives in this area.
ENFORCEMENT
The Enforcement program includes enforcement of Commission orders and several statutes and
Commission rules addressing consumer protection issues. The primary goal of the program is to promote
a free and competitive market in which consumers can obtain and make use of truthful purchasing
information and benefit from fair market practices.
As required by a consent order issued in 1984, General Motors Corp. established a nationwide
mediation/arbitration program to allow consumers with engine or transmission problems the opportunity to
obtain reimbursement for repair expenses. During the first thirteen months of the program, GM paid 75,458
consumers more than $27.9 million, with the average consumer complaint being resolved in 40 days. This
data represents the results from the 142 Better Business Bureaus handling the program. The results compiled
may understate the full benefits of the program to consumers because they do not reflect payments for all
engine and transmission problems covered by the order, payments made directly by GM to consumers who
did not participate in the program, or the cash value of many repairs performed by GM under the program.
The Commission approved amendments to the Appliance Labeling
ANNUAL REPORT 1986
21
Rule to include coverage of central air conditioners, including heat pumps, and pulse combustion and
condensing furnaces.
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 completed
reviews of the Commission's Mail Order Rule, Octane Rule, and Care Labeling Rule under the Regulatory
Flexibility Act and concluded that no modifications to the rules were required. Reviews of the Negative
Option Plans Rule and the Franchise Rule were initiated.
The Commission granted two applications for new generic fiber names submitted by Phillips Fibers
Corp. and Celanese Corp. under the Textile Fibers Products Identification Act. The generic name "Sulfar"
was approved for the fiber produced by Phillips, and the generic name "PBI" was approved for Celanese.
The Commission released a study of the FTC's Franchise Rule. The study focused on the impact of the
rule on franchisors.
The Commission granted Wisconsin an exemption from the Used Car Rule. Wisconsin has state
regulations that protect consumers substantially as well as the federal rule. Petitions for exemption filed by
sixty-one automobile leasing companies and one automobile rental company are under consideration.
A settlement agreement between the Commission and four companies deleted the television advertising
disclosure provisions of the Home Insulation (R-Value) Rule. The companies challenged this part of the rule
when it was adopted in 1979, and the ad provisions have never gone into effect.
Four companies paid civil penalties for violating prior Commission orders. National Talent Associates
agreed to a $150,000 civil penalty to settle charges it violated a consent order issued in 1975 by misrepresenting its ability to place children in paid modeling positions. Dixie Readers' Service, Inc., a nationwide doorto-door seller of magazine subscriptions, will pay a $53,000 civil penalty for failing to make timely and full
refunds and failing to inform customers of their rights to cancel subscriptions, as well as for violating an
earlier order. Northern Feather International, Inc. agreed to pay $100,000 in civil penalties to settle charges
it misrepresented the down and feather content of its pillows and comforters in violation of a 1956 order.
New York Feather Co. also agreed to pay a $100,000 civil penalty to settle charges it mislabeled its down
pillows in violation of a 1951 order. The latter two actions are part of the government's ongoing effort to
ensure compliance with the Commission's guidelines for the feather and down industry.
Del Monte Corp. agreed to pay a $100,000 civil penalty to settle charges it violated the Commission's
Mail Order Rule in a coupon promotion program. The Commission charged that the company
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FEDERAL TRADE COMMISSION
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. Leisure Time Electronics, Inc.,
settled charges that it misrepresented video and pinball game franchises in violation of the Franchise Rule.
Under a consent decree, the company agreed not to misrepresent its franchises or the services it would
provide to franchisees.
Three complaints filed by the Commission in federal district court are awaiting final action. Thermo
Products Co. was charged with overstating the amount of protection its home insulation provided. The
Commission is seeking civil penalties and an injunction barring future misrepresentations by the company.
The Commission charged TS Industries, Inc., Thermal Systems, Inc., Energy Thermal Systems, Inc., and TSI,
Inc. with misrepresenting the effectiveness of their thermal insulation products. The Commission is seeking
civil penalties and an order prohibiting such misrepresentations. Three related New Jersey auto leasing
franchisors, Engage-A-Car Services, Inc., Engage-A-Car People, Inc, and Coastal Funding Corp., were
charged with misrepresenting the profitability of their franchises and the services they offered potential
franchisees. The Commission estimates consumer injury from these practices at approximately $24 million
and is seeking redress in addition to injunctive relief.
The Commission modified an order against Chesebrough-Pond's, Inc., maker of Vaseline petroleum jelly,
to allow claims that Vaseline provides a protective barrier to the skin and is effective for relief of itching.
The Commission released General Mills, Inc. from its responsibilities under an order issued in 1979
prohibiting misrepresentations in advertising by its toy producing subsidiary, General Mills Fun Group, Inc.,
but said the order remains binding on the subsidiary's successor, Kenner Parker Toys, Inc. The Commission
reopened and modified a consent order issued in 1975 against National Talent Associates, Inc., amending
the provisions that describe the disclosures the company must make to consumers about its success in
obtaining paid employment for clients. An order against American Home Products, originally issued in 1970,
was modified to remove some restrictions on the company's advertising for Preparation H. The Commission
modified its consent order issued, in 1971, with Beecham Inc., concerning representations regarding
Proslim's value as a weight-reduction product. The Commission terminated a perpetual obligation that the
company file advertising and labeling with the FTC at six month intervals.
OFFICE OF CONSUMER AND BUSINESS EDUCATION
The Office of Consumer and Business Education coordinates an education program aimed at providing
information to consumers and
ANNUAL REPORT 1986
23
industry on major Commission decisions, programs, statutes, and rules. Increased information about goods
and services assists consumers to make informed choices and encourages competitive business practices. The
Commission considers the consumer and business education program to be a cost-effective way of obtaining
compliance with the law.
In cooperation with the American Association of Retired Persons (AARP), the Office developed and coproduced television video features promoting the consumer booklet, Money Matters. The booklet suggests
how to select and use professionals who provide financial services, including attorneys, financial planners,
real estate brokers, and tax consultants. It won a Blue Pencil Award from the National Association of
Government Communicators.
Two other consumer booklets were developed and distributed in fiscal 1986. How To Buy A
Manufactured Home was done in cooperation with the Manufactured Housing Institute. A Consumer Guide
To Vehicle Leasing, which explains the Consumer Leasing Act, was produced in cooperation with the
National Vehicle Leasing Association and the New Car Dealers Association of Metropolitan Dallas. The
Office also developed and distributed a business booklet, Offering Layaways, and is completing production
on three other business booklets. These include: Making Business Sense Out Of Warranty Law; Using The
Credit Practices Rule; and Writing Readable Credit Forms.
Twenty-seven new and revised publications were developed and distributed in fiscal 1986. The
Commission distributed over one million copies of various publications. In addition, the Office participated
in approximately 30 consumer conferences and exhibits, primarily on the subject of health fraud.
ECONOMIC ACTIVITIES
The FTC's Bureau of Economics provides analytical support to the agency's antitrust and consumer
protection activities, advises the Commission on the possible effects of government regulation and private
restraints on competition, and gathers and analyzes information on the American industrial economy.
In 1986, the Bureau of Economics 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 market
competition.
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FEDERAL TRADE COMMISSION
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 overall consumer welfare.
Although the FTC is primarily an enforcement agency, it is also charged with analyzing data and
publishing information about the nation's industries, markets, and business firms. Much of this work is
undertaken by the Bureau of Economics. In 1986, economists conducted a number of studies on a broad
array of topics in antitrust, consumer protection, and regulation. Research economists also provided
Commissioners with economic advice in pending matters.
ANTITRUST
Economists participated in all investigations of alleged antitrust violations and in the presentation of
cases in support of complaints. Economists also advised the Commission on all proposed antitrust actions.
These activities absorbed the bulk of the Bureau's resources assigned to support directly the Commission's
antitrust responsibilities.
Several studies undertaken by the Bureau also support the Commission's antitrust activities. During
1986, economists investigated and published reports on: concentration, integration, and diversification in the
grocery retailing industry; the role of collective ratemaking on auto insurance premiums; antitrust policy for
declining industries; and the effects of mergers on profitability and other firm performance characteristics.
CONSUMER PROTECTION
In the consumer protection area, economists evaluated proposals 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.
In addition to the Bureau's direct support for individual consumer protection matters, staff economists
studied and produced reports on a variety of consumer protection topics. These included investigations of:
consumer information in various markets; advertising and product quality; and optimal civil penalties. In
addition, the Bureau published the proceedings of a conference entitled, "Empirical Approaches to Consumer
Protection Economics."
REGULATORY ANALYSIS
Staff economists actively participated in the Commission's Consumer
ANNUAL REPORT 1986
25
and Competition Advocacy Program, contributing to several staff comments on a variety of regulations that
were filed with government agencies. These submissions, some of which have been mentioned earlier
included: comments filed with the Federal Communications Commission concerning a rule mandating
carriage of local television stations by cable systems; comments to the National Highway Traffic Safety
Commission on proposed changes in the average fuel economy standards for automobiles; a brief submitted
to the International Trade Commission concerning the injury to the U.S. semiconductor industry as a result
of imports from Japan; and filings with the International Trade Commission in connection with that agency's
investigation of subsidies for the Canadian lumber industry.
Several major reports published by the Bureau of Economics during 1986 provide insight into the effects
of government regulation on competition and consumer welfare, such as: state regulation of entry into retail
automobile markets; certificate of need regulation of entry into home health care; and cigarette advertising,
health information, and regulation.
LINE OF BUSINESS
During 1986, economists, mainly unpaid Commission consultants, compiled several "line of business"
reports using existing Line of Business data as source material. Studies completed included work in the
following areas: the effects on R&D effort of firm size, diversification, and mergers; market structure; and
the elements of business risk.
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, information management,
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 1986, the office directed major management initiatives toward maintaining service levels with
lower resources, placing emphasis on finding economies in each functional area. These economies included
increased operating efficiencies through staffing changes and
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FEDERAL TRADE COMMISSION
capital improvements, enhanced use of contractual services, elimination of redundant or unnecessary
procedures, and the strengthening of existing programs.
The agency's planned space consolidation was completed in 1986 within the $3.8 million appropriated
by Congress for this purpose. A lease was signed with the management of the 601 Pennsylvania Avenue:
Building in Washington, D.C. for sufficient space to permit the long-awaited consolidation of staff activity
previously located in four satellite buildings. Substantial effort was directed toward developing physical
layouts for office and joint use space, preparing moving contracts (including the technical aspects for moving
various types of equipment) and planning and coordinating the actual move of nearly one half the
Washington, D.C. staff. This included the planning for and installation of a new and enhanced
telecommunication system that is operated by a newly acquired digital switch (PBX).
Additionally, the General Services Administration delegated operational and maintenance authority and
responsibility to the FTC for the Headquarters Building beginning July 1, 1986.
The agency used approximately 1107 workyears and spent $62.7 million for the fiscal year. The
workyears used were 7.8 percent fewer than in fiscal 1985. Careful control of funding levels and workyears
were once again necessary to accomplish objectives with decreased resources.
This year's human resource program was focused on developing and retaining employees. Specific
human resource initiatives included an extensive training program for our secretaries; a retirement planning
program; an individual computer analysis of each employee's benefits; and the appointment of an employee
assistance counselor to provide short term counseling or referral to an appropriate agency for longer term
counseling.
Efforts were continued to integrate EEO principles and policy into the human resource management
process. As part of these efforts, the Minority Advisory Committee and management played a major role
in planning and developing more focused affirmative employment initiatives. These initiatives included
refinement in performance management training, with emphasis on the importance of feedback and the link
between EEO and effective performance management. Substantial efforts were also initiated to expand
development opportunities, such as rotational assignments. In addition, the Commission placed more
emphasis on establishing systems for monitoring progress and resolving problems. Some of these initiatives
included refinement of data reflecting employment trends and accomplishments and strengthening guidance
and management's accountability in problem-solving activities.
ANNUAL REPORT 1986
27
Regional offices continued to function as miniature FTC's in fiscal year 1986. Emphasis was on the
implementation of a broad range of enforcement, competition advocacy, and outreach activities.
The Executive Director's Office coordinated consumer and competition advocacy initiatives addressing
issues in a number of areas, including professional services, occupational licensure, health fraud, and
transportation. The Commission's regional offices are frequently contacted by officials of state and local
government agencies to identify appropriate areas for comment because of their ongoing relationships with
these agencies.
Finally, several management initiatives were undertaken. Office automation efforts were begun in a
number of offices and managers established specific objectives for drawing on the agency's management
information system and for integrating personal computers into offices. Changes were made in the planning
and evaluation process to convey information to headquarters more effectively and to reduce the
administrative burden on regional offices.
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APPENDIX
PART II (Investigative Stage)
CONSENT AGREEMENTS ACCEPTED AND
PUBLISHED FOR PUBLIC COMMENT
MAINTAINING COMPETITION MISSION
Champion International Corp.
The Commission accepted a consent agreement with Champion International Corp. settling antitrust
charges stemming from champion's acquisition of St. Regis Corp. According to the proposed complaint
accompanying the agreement, the acquisition could have reduced competition in the West Coast liner
board market. The agreement required Champion to divest a St. Regis liner board mill in Tacoma,
Washington, and not to acquire for 10 years any interest in any company involved in manufacturing liner
board in the West Coast market without prior Commission approval. The consent agreement was later
withdrawn by the Commission.
Max Factor & Co.
Max Factor & Co. agreed to make promotional allowances available on proportionally equal terms to
all of its customers, and to make alternatives available to customers for whom its basic promotional plans
are not usable or economically feasible. A proposed complaint accompanying the agreement charged
that Max Factor violated the Robinson-Patman Act by not making promotional allowances available, on
proportionally equal terms, to all of its customers. Under the order, Max Factor must offer specific
alternatives, such as handbills or other in-store promotional activities, to stores that cannot use
allowances. It also agreed to notify all its customers that the promotional payments and alternatives are
available.
CONSUMER PROTECTION MISSION
C&D Electronics, Inc.
C&D Electronics agreed not to sell its cable television decoders to unauthorized persons in the future.
Under the agreement, C&D must state in its catalogs and sales materials that the unauthorized use of
cable television equipment is against the law. The company
29
30
FEDERAL TRADE COMMISSION
also agreed not to make any representations contrary to that statement.
Cosmo Communications Corp.
Cosmo Communications, a manufacturer and seller of telephones, agreed not to misrepresent the
capabilities of its phones and to disclose that its touch-pulse telephones do not generate tones. Cosmo's
push-button telephones look like touch-tone but produce only pulses like rotary dial telephones. The
agreement prohibits the company from misrepresenting the compatibility of its telephones with toneaccessed services, including alternative long-distance service and home-accessed computer services.
GCS Electronics, Inc.
GCS Electronics agreed not to, make misleading claims about the capabilities of its portable Mark II
Executive Phone. GCS has agreed not to misrepresent the range of radiotelephone communication
devices or their ability to transmit and receive messages simultaneously. The company is also prohibited
from making range-related claims using phrases such as "up to," unless the range can be obtained by an
appreciable number of consumers.
Viobin Corp.
Viobin, a subsidiary of A. H. Robins, agreed not to make false and unsubstantiated claims about its
wheat germ oil products. Under the agreement, Viobin must inform consumers that the benefits claimed
in its long-running advertising campaign are not supported by scientific evidence. Both companies are
prohibited from misrepresenting the ability of their wheat germ oil products to improve physical fitness
or performance.
ANNUAL REPORT 1986
31
PART II (Investigative Stage)
CONSENT ORDERS ISSUED
MAINTAINING COMPETITION MISSION
American Academy of Optometry
The American Academy of Optometry was ordered not to restrict its members' and prospective members'
truthful advertising or choice of office location. The complaint accompanying the agreement alleged that
these restrictions may deprive consumers of the benefits of vigorous price and service competition and
also deprive them of truthful information about optometrists' prices, products, services and qualifications.
It further alleged that restrictions, preventing practice in commercial locations such as retail stores may
deprive consumers of the potential cost savings and conveniences of commercially located optometric
practices. The order does not prohibit the Academy from adopting reasonable standards regarding false
or deceptive advertising or unfair solicitation.
Health Care Management Corp.
Health Care Management Corp., which owns and operates North Mobile Community Hospital near
Mobile, Ala., and the hospital's medical staff have been ordered not to impose unlawful restrictions on
podiatrists practicing at the hospital. The complaint accompanying the orders alleged that the hospital
and its medical staff conspired to prevent a podiatrist already on the staff, as well as podiatrists who
applied for hospital privileges, from performing surgery at the hospital. Under the agreement, the
hospital and medical staff also agreed not to conspire to unreasonably restrict the practice of podiatry
at the hospital by coercing or encouraging any staff member not to co-admit podiatrists' patients; enacting
any bylaw or policy that requires an amount of residency training for podiatrists that is not reasonably
related to legitimate quality-of-care grounds for the specific procedure requested, or prohibiting
podiatrists with hospital privileges from attending medical staff meetings.
Independent Insurance Agents of America, Inc.
Independent Insurance Agents and Brokers of California, Inc.
Independent Insurance Agents Association of Montana, Inc.
Under consent orders the Independent Insurance Agents of Ameri-
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FEDERAL TRADE COMMISSION
ca Inc. (IIAA) and the Independent Insurance Agents Association of Montana agreed not to encourage
their members to refuse to deal with companies based on the companies' sales policies. In a draft
complaint accompanying the order, the Commission alleged that IIAA and its Montana affiliate
attempted to prevent The Hartford from bypassing Hartford agents and selling homeowners and
automobile insurance directly to members of the American Association of Retired Persons. In a related
complaint and order, the FTC charged that the Independent Insurance Agents and Brokers of California
urged its members to refuse to deal With Reliance Insurance Co. when Reliance, through its United
Pacific Co. subsidiary, developed a plan to sell low-priced auto insurance directly to consumers. The
California group agreed not to urge its members to take action against insurance companies who use
direct marketing.
Lithium Corp. of America
Lithium Corp. of America (LCA) was ordered not to enter into any agreement fixing prices or restricting
sales of any lithium product. The complaint accompanying the order alleged that LCA conspired with
two Chinese companies to eliminate competition among these firms and with other chemical traders in
the sale of lithium. It also alleged that this conspiracy deprived buyers of lithium products of the benefits
of free and open competition. In addition, the complaint alleged that the conspiracy restrained imports
of lithium products into the United States. The order also prohibits Lithium from acting as an agent for
any lithium producer when such action might unreasonably restrain competition.
Michigan Optometric Association.
The Michigan Optometric Association was ordered not to impose membership restrictions on or
terminate any member for providing 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 complaint accompanying the order alleged that the association
restrained competition 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 order,
the association also must not
ANNUAL REPORT 1986
33
interfere with its members' use of truthful, non-deceptive advertising about optometric goods and
services.
Michigan Watchmakers Guild
Under a consent order the Michigan Watchmakers Guild agreed not to establish minimum or other prices
in the future. The Guild is a trade association whose members clean and repair watches, clocks and
jewelry. In the complaint accompanying the consent agreement, the Commission charged that the Guild
unlawfully conspired with its members to fix nationwide prices for cleaning and repairing watches,
clocks and jewelry by establishing suggested minimum prices.
National Association, of Temporary Services, Inc.
The National Association of Temporary Services, Inc., (NATS) was ordered to cease from restricting
its members from soliciting employees or clients of other temporary help firms. The complaint
accompanying the order alleged that the NATS code of ethics reduced competition. Under terms of the
Commission's order, NATS may not affiliate with any organization of temporary help firms that engages
in the practices prohibited by the order. NATS represents approximately 400 firms nationwide that
provide temporary help to businesses engaged primarily in the office/clerical, technical/professional,
industrial, and medical fields.
North Carolina Orthopaedic Association
The North Carolina Orthopaedic Association was ordered not to discriminate unreasonably against
podiatrists who seek to gain surgical privileges or access to hospitals in North Carolina. A complaint
accompanying the order charged that, as part of a conspiracy, the group passed two resolutions opposing
the practice of podiatry in hospitals and urged its members to review or change hospital bylaws to
prevent podiatrists from obtaining hospital privileges. The complaint alleged that these actions may have
lessened competition based on price, quality and service in the delivery of professional health services
and hindered consumers' ability to select a licensed practitioner of their choice.
Occidental Petroleum Corp.
The Commission issued a consent order against Occidental Petrole-
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FEDERAL TRADE COMMISSION
um Corp. in settlement of charges that Occidental's proposed acquisition of MidCon Corp. would violate
section 7 of the Clayton Act. The complaint accompanying the agreement alleged that the originally
proposed $3 billion acquisition could substantially lessen competition in pipeline transportation and the
sale of natural gas in the St. Louis area, because MidCon would have an incentive to purchase natural
gas from Occidental at inflated prices and the ability to pass those added costs on to consumers. MidCon
is the sole supplier of natural gas to the St. Louis area. Occidental was ordered to divest MidCon's
subsidiary, Mississippi River Transmission Corp. (MRT), which operates a natural gas pipeline from the
Gulf Coast to St. Louis, to a Commission-approved acquirer within one year after the order becomes
final.
CONSUMER PROTECTION MISSION
Albert Schneider
Albert Schneider, President of Cellular Capital Corp., was ordered not to make misrepresentations about
the sale of cellular telephone license application services. Schneider was also ordered to disclose that
the purchase of a cellular application is a high-risk investment, and that an operating cellular system is
unlikely to return any profits to its owners in the first three years of operation.
American Society of Sanitary Engineering
The American Society of Sanitary Engineering, which develops standards for plumbing equipment, was
ordered to change certain policies which might bar consideration of new products. The society must
change its policy of not granting standards coverage to products that are patented or produced by one or
a limited number of manufacturers, and to consider products with innovative designs.
Blue Lustre Home Care Products, Inc.
Blue Lustre Home Care Products, one of the country's largest producers of carpet cleaning products, was
ordered not to make false and unsubstantiated claims about its products. The complaint alleged that the
company misrepresented the effectiveness of its "Rinsenvac 5" product.
Federated Department Stores, Inc.
Federated Department Stores, one of the nation's largest retailers,
ANNUAL REPORT 1986
35
was ordered to tell credit applicants when it uses information from credit reporting agencies as a basis
for denying credit. Under the order, Federated must also tell rejected applicants the name and address
of the credit reporting agencies it contacted. The order settles issues outlined in the draft complaint that
Foley's, a Federated division operating 14 department stores in Texas, repeatedly violated the Fair Credit
Reporting Act when denying credit applications.
George Tannous
James F. Herndon
John C Anderson
Peter S. Everts
Steven M. Hull
Victor J. Hakim
Six separate consent orders were issued in which former officials of Credit Establishing Bureau, a credit
repair clinic, were ordered not to mislead consumers with claims the company could improve their credit
records and, arrange for them to receive major credit cards. Those individuals are also required to
provide consumer redress in the form of a six-week consumer education program directed at people with
credit problems similar to those of the company's clients.
John William Costello Associates, Inc.
Roy B. Kelly
John William Costello Associates, a career counseling firm, and Roy B. Kelly, a former official of the
firm, were ordered in separate orders, not to misrepresent the basis on which clients are accepted, the
number of clients who have obtained interviews, job offers, or jobs, and the chances that clients' fees
would be refunded because an employer paid a finder's fee. The company charged job-seeking clients
$2,500 to $25,000 or more for their services. Under the order, the company and Mr. Kelly are prohibited
from accepting a fee until a client has obtained employment through the company's efforts.
Larry Brog
Larry Brog, former chief executive officer of Meadow Fresh Farms, a company that marketed a dry milk
substitute, was ordered 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
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FEDERAL TRADE COMMISSION
exclude certain distributors in computing "average" distributor earnings unless he explains the exclusion.
National Energy Associates, Inc.
National Energy Associates was ordered not to falsely advertise that its duty cycler could save consumers
from 15 to 40 percent on their home energy bills. The company was also ordered not to make
unsubstantiated claims for any energy-control device. Duty cyclers are devices that allegedly increase
the efficiency of home heating and cooling units by causing the thermostat to turn the units on and off
more frequently than it would ordinarily, while continuously operating the blower fan.
North American Philips Corporation
North American Philips Corporation, marketer of Norelco Clean Air Machines, was ordered not to
misrepresent the ability of air cleaners to eliminate or help eliminate indoor pollutants or the irritation
they cause. The order requires Norelco to have competent and reliable evidence for all future claims
about the air cleaners' performances.
Saab-Scania of America, Inc.
Saab-Scania of America was ordered to make repairs or reimburse consumers for up to $2,000 of costs
they incurred because of paint problems with Belgian-made Saab cars assembled between 1976 and 1978
and purchased after December 31, 1977.
Saga International, Inc.
Saga International was ordered to give full refunds to consumers who purchased its "Home Free"
ultrasonic pest control device. The company is prohibited from making performance or efficacy claims
about any ultrasonic pest-control product without competent and reliable evidence, to substantiate its
claims.
Service One International Corp.
Service One International, 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 must send, to all customers who paid for
ANNUAL REPORT 1986
37
the service and did not receive a credit card, a notice giving them the option of receiving a full refund
or participating in FCS' new credit counseling service without additional charges.
Sunbeam Corporation
Sunbeam Corporation, marketer of Oster brand air cleaners, agreed not to misrepresent the ability of air
cleaners to eliminate indoor pollutants. In addition, the company must have competent and reliable
evidence for all future claims about any air cleaner's strength, capacity, speed of operation, or any other
performance factors.
Wright-Patt Credit Union, Inc.
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 agreement requires the company to comply with the Fair Credit
Reporting Act.
Wyoming Board of Podiatry
The Wyoming Board of Podiatry agreed not to prohibit its members from truthfully advertising their
services and products. Under the agreement, the board cannot restrict or discourage podiatrists from
truthfully advertising their goods and services by adopting rules or policies prohibiting such advertising,
by suspending or revoking a podiatrists's license as a result of such advertising, or by declaring such
advertising illegal or unethical. This agreement is the first Commission agreement to settle charges of
anticompetitive conduct with a state board of podiatry.
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FEDERAL TRADE COMMISSION
PART III ADMINISTRATIVE COMPLAINTS
MAINTAINING COMPETITION MISSION
Coca-Cola Co.
The Commission issued a complaint challenging Coca-Cola Co.'s proposed acquisition of Dr Pepper Co.
The complaint alleged that the merger could reduce competition in the production, distribution, and sale
of carbonated soft drinks and soft-drink concentrates in the United States. According to the complaint,
Coca-Cola and Dr Pepper directly compete in the carbonated soft-drink industry, which is very difficult
and time-consuming to enter. The Commission charged that the proposed acquisition would
substantially lessen competition in the market by increasing the likelihood of collusion, and by making
it more difficult for new firms to enter and more costly for current firms to compete in the market. The
Commission alleged that these factors would likely lead to increased prices and restricted output of
carbonated soft drinks.
Occidental Petroleum Corp.
The Commission challenged Occidental Petroleum Corp.'s proposed $70 million acquisition of PVC
manufacturing assets of Tenneco Polymers, Inc., a subsidiary of Tenneco Inc. It alleged that Occidental
Chemical and Tenneco Polymers are substantial producers of PVC resins. The administrative complaint
charged that the acquisition could lessen competition in the production of three polyvinyl chloride (PVC)
resin product markets: mass and suspension PVC; suspension PVC copolymer, and dispersion PVC. The
complaint also alleged that the acquisition would increase the likelihood that Occidental and the
remaining firms in the industry could collude to increase prices in PVC markets.
PPG Industries, Inc.
The Commission challenged PPG Industries, Inc.'s proposed $41.8 million acquisition of Swedlow Inc.
The administrative complaint alleged the merger could substantially reduce competition in the
manufacture and sale of aircraft transparencies - windows, windshields and canopies used in private,
commercial and military airplanes and helicopters. PPG and Swedlow are currently two of the largest
firms in the industry. According to the complaint, if the acquisition were consummated, PPG would
become the dominant
ANNUAL REPORT 1986
39
firm in the industry and could remain so for a substantial period of time. The Commission alleged that
the acquisition could also make it possible for PPG and the remaining firms in the industry to collude,
resulting in the possibility of lower output, higher prices or both.
CONSUMER PROTECTION MISSION
Electro Tech Manufacturing, Inc.
The Commission's complaint charged that Electro Tech Manufacturing falsely advertised that consumers
could save 20 percent or more on heating and air conditioning bills by installing a duty cycler. Duty
cyclers are devices that allegedly increase the efficiency of home heating and cooling units by causing
the thermostat to turn the units on and off more frequently than it would ordinarily. The complaint
further alleged that the company claimed to have reliable tests to substantiate energy savings claims,
when it did not.
Electronic Systems International, Inc.
The Commission's complaint alleged Electronic Systems International falsely advertised that consumers
could save from 20 to 40 percent on their home energy bills by installing duty cyclers.
Pittsburgh Penn Oil Co.
The Commission's complaint alleged that Pittsburgh Penn Oil Co. misrepresented its automotive oils,
transmission fluids, and antifreeze by falsely claiming the products met certain established standards.
The Commission also alleged the company falsely represented that the oils were suitable for engines
manufactured in model years 1980 to the present, and that its antifreeze would protect engine cooling
systems down to a temperature of 34 degrees Fahrenheit below zero.
R. J. Reynolds Tobacco Co., Inc.
The Commission's complaint charged that R. J. Reynolds Tobacco Co. allegedly misrepresented the
purpose and results of a major government-funded study in an advertisement. The ad, titled "Of
Cigarettes and Science," ran from March to June 1985 in leading newspapers and magazines. The
complaint also alleged that in light of claims made in the ad, the omission of certain information about
the study's results made the ad deceptive.
40
FEDERAL TRADE COMMISSION
PART III (Adjudicative Stage)
CONSENT AGREEMENTS ACCEPTED
AND PUBLISHED FOR PUBLIC COMMENT
MAINTAINING COMPETITION MISSION
Detroit Auto Dealers Association
Fifty Detroit-area motor vehicle associations, dealerships, or dealers, from the more than 200 respondents
identified in the complaint issued by the Commission, agreed to settle charges that they had illegally
conspired not to advertise in the classified sections of newspapers or to advertise any vehicle prices. The
consent agreements settled Commission charges that the advertising restrictions injured consumers by
illegally reducing competition among the dealers. Such restrictions can reduce consumers' access to
important information and increase dealers' ability to maintain higher prices. The dealerships,
associations, and individuals agreed not to restrict or conspire to restrict any motor vehicle advertising
in the classified section of any newspaper or the advertising of any price, term, or condition of sale of
any motor vehicle. Litigation on other parts of the Commission's complaint continued against the
respondents who settled the advertising charges, as well as against the other respondents named in the
complaint.
Roswil, Inc.
Roswil, Inc. agreed to refrain from engaging in concerted action that restricts the gathering or reporting
of comparative grocery-price data. The consent agreement settled charges that the grocers conspired to
suppress price competition and deprive consumers of comparative price information. According to the
complaint, Roswil and two other area grocers had agreed to prevent an independent firm from conducting
comparative price surveys in their Springfield, Missouri stores unless the survey firm bought the items
it checked. The Commission alleged that the requirement to pay for items whose prices it checked made
the survey prohibitively expensive, and the grocers' concerted action led to the termination of the
program. Under the consent order Roswil may not: require price checkers to buy the surveyed items;
deny price checkers the same access to Roswil's stores as customers; or coerce any price checker,
publisher or broadcaster into discontinuing price reporting. Roswil must also take several steps to
increase the likelihood price surveys will be resumed in Springfield. According to the proposed order,
the
ANNUAL REPORT 1986
41
company must reimburse the local cable television station up to $1,000 of its costs if it decides to
broadcast a comparative grocery-price program. Roswil must also notify the public that such a program
is being aired.
CONSUMER PROTECTION MISSION
Buckingham Productions, Inc.
Buckingham Productions, marketers of the "Rotation Diet" and several other weight-reduction plans,
agreed not to misrepresent the effectiveness of its programs, products, and services. The agreement also
restricts Buckingham's use of endorsements and requires that it disclose any relevant relationship
between an endorser and the company.
Electronic Systems International, Inc.
Electronic Systems International, maker of "Savit" duty cyclers, agreed to stop making allegedly
unsubstantiated efficacy claims about its products and services. Duty cyclers are devices that allegedly
increase the efficiency of home heating and cooling units by causing the thermostat to turn the units on
and off more frequently than it would ordinarily. Duty cyclers retail for $400 to $500.
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FEDERAL TRADE COMMISSION
PART III (Adjudicative Stage)
CONSENT ORDERS ISSUED
MAINTAINING COMPETITION MISSION
Ashland Oil, Inc.
Ashland Oil, Inc. was ordered to cancel the proposed sale of its carbon black assets to Bass Brothers
Enterprises, Inc. Ashland, the nation's third-largest carbon black producer, was also ordered to obtain
Commission approval before selling any of its domestic carbon black plants to a major competitor. The
consent order resolved Commission charges that Ashland's sale of carbon black assets to Bass Brothers
would substantially lessen competition in the market. Under the order, for the next four years Ashland
must notify the Commission before selling one or more of its plants. However, it does not have to
provide prior notification if it sells only a single plant to a competitor with less than 15 percent of the
U.S. production capacity or if the transaction is subject to Hart-Scott-Rodino Act reporting requirements.
Bass Brothers Enterprises
The Commission also issued a consent order against Bass Brothers Enterprises Inc. and its subsidiary,
Sid Richardson Carbon & Gasoline Co., settling charges that Bass Brothers' acquisition of Ashland Oil
Inc.'s carbon black assets would substantially lessen competition in the market and violate federal
antitrust laws. The companies canceled the merger. The order requires that for five years Bass Brothers
obtain prior Commission approval for the acquisition of securities or assets of any company over a
certain size in the U.S. carbon black business.
Columbian Enterprises, Inc.
The consent order settled charges 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. Under terms of the order, 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.
ANNUAL REPORT 1986
43
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 prohibits 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 was ordered to cease restricting its members from
operating franchises and branch offices and from advertising truthfully their products and services. The
order settled charges that the association adopted rules that unlawfully 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 of optometric services, optical goods and services. The
association represents the interests of approximately 90 percent of the practicing optometrists in
Oklahoma.
Rhode Island Board of Accountancy
The Rhode Island Board of Accountancy was ordered not to prohibit accountants in the state from
seeking business by truthful advertisements or other non-deceptive forms of solicitation. The consent
order settled Commission charges that the board's regulatory practices deprived individuals and
businesses of information about accountants' services, unreasonably restrained competition among
accountants and injured consumers. The board also allegedly prevented accountants from offering to
provide services to other accountants' clients. The board, which is the sole licensing authority for
certified public accountants (CPAS) and public accountants (PAs) in the state, was ordered to notify all
state-licensed CPAs and PAs and applicants for licenses about the agreement. However, the
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FEDERAL TRADE COMMISSION
board may continue restrictions authorized by the state legislature against dishonest or fraudulent
practices and against persons who falsely identify themselves as accountants. The order permits the
board to seek state legislation concerning the practice of accounting.
Wallcovering Trade Associations
The Commission issued orders against National Decorating Products Association Inc. (NDPA), of St.
Louis, Mo.; Eastern Decorating Products Association, of Westport, Conn., NDPA's New England
regional affiliate; and Decorating Products Dealers of Greater New York Inc., a local affiliate of
NDPA based in Bayside, N.Y., settling charges that the groups conspired to fix prices of wall
coverings. The Commission's complaint charged the wallcovering industry trade association and its
affiliates with illegally conspiring to prevent price discounting of wallcoverings. As one means of
preventing discounting, they allegedly attempted to pressure manufacturers to publish wallcovering
samples books without suggested prices and urged members to remove, code or conceal manufacturers'
suggested prices. Such activities prevented retail discounting, stabilized the price of wallcoverings
and made it more difficult for consumers to comparison shop, according to the complaint. The three
groups were ordered not to try to fix the prices, terms or conditions of sale of wallcoverings. They
were also ordered not to coerce any seller or supplier of wallcovering to use or not use any prices,
terms or conditions of sale, distribution methods or policy of choosing customers.
Warner Communications, Inc.
Warner Communications, Inc. and PolyGram Records, Inc. agreed to settle Commission charges that
their proposed merger could lessen competition in the prerecorded music industry and a consent order
was issued by the Commission. The two companies were ordered to seek prior Commission approval
before acquiring any interest in each other or in any other specified major record company and to
notify the Commission about distribution agreements planned with such companies. Both the prior
approval and prior notice requirements last five years.
CONSUMER PROTECTION MISSION
Electro Tech Manufacturing, Inc.
Electro Tech Manufacturing was ordered not to misrepresent the
ANNUAL REPORT 1986
45
energy-savings capability of their "Energy Computer" duty cycler. The order settles charges that the
company made allegedly false claims that consumers could save 20 percent or more on their heating and
air conditioning bills by installing the duty cycler. Electro Tech sold its duty cycler for approximately
$400.
Pittsburgh Penn Oil Co.
Pittsburgh Penn Oil Co. was ordered not to make false representations that its automotive ads,
transmission fluids, and antifreeze meet standardized industry ratings.
Roy Brog
Roy Brog, former chairman of the board of Meadow Fresh Farms, a company that marketed a dry milk
substitute, was ordered 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 was also ordered not to
exclude certain distributors in computing "average" distributor earnings unless he explains the
exclusion.
Weider Health and Fitness, Inc.
Weider Health and Fitness and Joseph Weider were ordered to pay a minimum of $400,000 in refunds
to consumers and research grants to settle charges that they misrepresented two nutrient supplements.
Weider was also ordered 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.
INITIAL DECISIONS
MAINTAINING COMPETITION MISSION
Electrical Bid Registration Service of Memphis, Inc.
An Administrative Law Judge ruled that a bid depository set up by electrical subcontractors in the
greater Memphis, Tennessee, area unreasonably restrains competition and increases the cost of
46
FEDERAL TRADE COMMISSION
electrical subcontracting work. He ordered The Electrical Bid Registration Service of Memphis Inc.,
known as the "registry," to stop the practices that he found to be illegal. The Judge found that a general
contractor who wants to use these bids in developing proposals on construction contracts must agree
to select one of the registry's bidders and may not try to negotiate lower bids from subcontractors not
using the registry. The Judge ruled that the system splits the electrical subcontracting market between
those in the registry and those outside, thereby effectively restraining open price competition. The
Judge found no procompetitive justification for the system and no evidence that the bidding system is
necessary for quality, safety or other reasons. The Judge also upheld charges against the Memphis
chapter of the National Electrical Contractors Association. The Memphis chapter first formed a bid
depository in 1956 and in 1976 created the registry.
Massachusetts Board of Registration in Optometry
An Administrative Law Judge ruled that the Massachusetts Board of Registration in Optometry illegally
restricted truthful advertising by optometrists, resulting in higher consumer prices for eye-care goods
and services. The Judge issued an order requiring the board to cease restricting truthful advertising by
its members. The ruling upheld a complaint charging that the Massachusetts board unlawfully conspired to prohibit optometrists from truthfully advertising discounts from their usual prices and fees.
He also upheld charges that the board unlawfully prohibited optical and other commercial establishments from advertising the names of optometrists or the availability of their services and prohibited
the use of ads containing testimonials or ads that were "sensational" or "flamboyant." The
Massachusetts board, a state agency, is the sole licensing authority for almost 2,000 optometrists in the
state.
CONSUMER PROTECTION MISSION
General Nutrition, Inc.
An Administrative Law Judge ruled that advertisements by General Nutrition claiming that its dietary
supplement "Healthy Greens" reduced the chances of contracting cancer were knowingly false,
misleading, and deceptive. The Judge issued an order prohibiting the company from making false and
unsubstantiated advertising claims in the future for any product marketed for its ability to prevent or
reduce the risk of any disease in humans. The decision was appealed to the Commission.
ANNUAL REPORT 1986
47
R. J. Reynolds Tobacco Company, Inc.
An Administrative Law Judge dismissed a complaint against R. J. Reynolds Tobacco Company ruling
that its statement on smoking and health was an editorial and therefore not subject to the Commission's
jurisdiction. The Commission's complaint charged that the company misrepresented the purpose and
results of a major government-funded study in an advertisement. The complaint also alleged that in
light of claims made in the ad, the omission of certain information about the study's results made the
ad deceptive. The ruling was appealed to the Commission by complaint counsel.
FINAL COMMISSION ORDERS
MAINTAINING COMPETITION MISSION
Boise Cascade Corp.
The Commission ruled that Boise Cascade Corp., the largest distributor of office products in the United
States, knowingly received unlawful discounts from office-products suppliers in violation of the
Robinson-Patman Act, and ordered Boise not to accept knowingly from any supplier a net price for
office products that is lower than the price at which the supplier sells the products to other retailers with
whom Boise competes. Boise sells office products both as a wholesaler and as a retailer. The
Commission's 1980 complaint alleged Boise had received from certain suppliers a wholesaler's discount
on products it resold at retail in competition with other retailers to whom this wholesalers' discount was
not available.
Electrical Bid Registration Service of Memphis, Inc.
The Commission upheld an Administrative Law Judge's finding that a bid depository set up by electrical
subcontractors in Memphis, Tennessee unreasonably restrains competition and increases the prices of
electrical subcontracting work and affirmed an order requiring The Electrical Bid Registration Service
of Memphis, Inc., referred to as "the registry," to stop the illegal practices that required subcontractors
bidding for a specific project to submit sealed bids and not to change them after a set deadline. General
contractors who wanted to use these bids were required to agree to select one of the registry's bidders
and could not negotiate lower bids from subcontractors outside the registry.
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FEDERAL TRADE COMMISSION
Hospital Corporation of America
The Commission ordered Hospital Corporation of America (HCA) to divest two hospitals and one
hospital management contract in the Chattanooga, Tennessee, area on the ground that the acquisitions
may substantially lessen competition in the general hospital market in that area. The order requires that,
within 12 months, HCA divest North Park Hospital and Diagnostic Center Hospital, both in Hamilton
County, Tennessee and any medical office buildings associated with the hospitals. The divestitures
must be approved by the Commission and must be to different acquirers. HCA must also, within a year,
terminate its management contract with Downtown General Hospital, also in Hamilton County, and
divest related real estate to a Commission-approved acquirer.
Superior Court Trial Lawyers Association
The Commission ruled that the District of Columbia Superior Court Trial Lawyers Association
conducted an illegal boycott to coerce the city government into raising the fees it paid for their legal
services. The Commission ordered the group not to conduct such a fee-related boycott in the future.
An Administrative Law Judge had ruled that while the association had engaged in an illegal boycott to
raise prices, special circumstances in the case warranted dismissing the complaint. The association's
members are private lawyers who compete with each other to represent indigent criminal defendants
before the D.C. Superior Court. The court appoints the lawyers to individual cases and the D.C.
government sets and pays their fees.
CONSUMER PROTECTION MISSION
Figgie International, Inc.
The Commission ruled that Vanguard heat detectors, manufactured by Figgie International, do not
provide consumers with the necessary warning to escape from most residential fires. The order
prohibited such claims and also required Figgie to provide notification that smoke detectors give earlier
warning than heat detectors in nearly all residential fires to past purchasers of its heat detectors. Figgie
must also disclose that fact in any future promotional materials that make claims about the residential
fire protection provided by heat detectors.
ANNUAL REPORT 1986
49
ORDER MODIFICATIONS
MAINTAINING COMPETITION MISSION
Allied Corp.
The Commission modified a consent order issued in 1980 concerning Allied Corp. and its subsidiary
Bendix Corp. by deleting a requirement for prior approval of acquisitions of any interest in companies
that make or sell certain machine-tool products. The order settled charges that Bendix's acquisition of
Warner & Swasey Co. had anticompetitive effects in several areas of machine-tool production. Allied
Corp. became subject to the order when it acquired Bendix in January 1983. The Commission ruled that
the provision was no longer necessary since Bendix and Allied have discontinued the manufacture or
sale of the machine-tool product referred to in the order.
American Medical International, Inc.
The Commission approved a request by American Medical International, Inc. (AMI) to modify an order
issued in 1984 requiring the divestiture of French Hospital in San Luis Obispo, California. The
Commission modified the order so that AMI can retain a security interest in French Hospital until the
acquirer finishes payment. However, AMI must redivest the hospital if it is reacquired under that
security interest. The modified order also does not require AMI to divest the stock of French Hospital
Corp., which ran the hospital, or the data processing equipment that AMI installed in the hospital.
Atlantic Richfield Co.
The Commission set aside a 1979 order which settled a complaint issued in 1976 challenging Atlantic
Richfield's (ARCO) acquisition of Anaconda Copper Co. The original order required the company,
among other things, to divest five Anaconda copper interests, including Anamax. ARCO has divested
the other properties. The Commission said that the Anamax divestiture was no longer necessary
because of developments in the copper industry.
Atlas Supply Co.
The Commission denied a request from Atlas Supply Co. and its parent companies to set aside a 1951
order but modified the order
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FEDERAL TRADE COMMISSION
by deleting one provision. The deleted provision restricted the joint purchasing activities of Atlas and
its parent companies. The Commission denied the request to set aside portions of the order which
require the companies to comply with the Robinson-Patman Act. Those provisions prohibit the
companies from obtaining illegal allowances or discriminatory prices in their purchase of automotive
products.
Flowers Industries, Inc.
The Commission modified a 1983 consent order with Flowers Industries, Inc., a Georgia-based baker,
by appointing a trustee to divest two bakeries and extending for six months the deadline for the
divestitures. The order required Flowers to divest its plants in High Point, North Carolina and Gadsden,
Alabama by May 14, 1986. The divestitures must be made to companies that will continue operating
the plants as bakeries and the transactions must receive prior Commission approval. The order was
modified because Flowers did not find buyers for these plants.
Hospital Corp. of America
The Commission modified a 1985 consent order with Hospital Corp. of America (HCA) by setting aside
the requirement that HCA divest a parcel of land that is the location for a planned hospital in Midland,
Texas provided the acquirer owns a different site and therefore chooses not to acquire HCA's parcel of
land. Approval of the divestiture was required by a consent order issued in 1985 setting charges that
HCA's acquisition of the hospital could increase concentration and reduce competition in the general
acute care hospital services market in the Midland/Odessa area. HCA asked the Commission to delete
the requirement to divest the land because the acquirer already owned land upon which it could build
the hospital and therefore did not need to acquire HCA's land.
United Brands Co.
The Commission set aside a 1975 order requiring United Brands Co. to file special reports with the
Commission about the company's access to land commercially suitable for lettuce cultivation. The order
stemmed from a complaint issued in 1971 challenging United Brands' acquisition of several firms in the
fresh produce industry. The Commission set aside the order because United Brands is no longer in the
lettuce cultivation business.
ANNUAL REPORT 1986
51
U.S. Steel Corp.
The Commission modified an order issued in 1924 with U.S. Steel Corp. by deleting a requirement that
the company include specific price and transportation information on its contracts and invoices. The
order settled a complaint that was issued in 1921 charging that U.S. Steel's pricing methods artificially
increased prices.
CONSUMER PROTECTION MISSION
American Home Products Corp.
The Commission modified an order with American Home Products removing some restrictions on the
company's advertising for Preparation H. The Commission noted that the Food and Drug
Administration, which has jurisdiction over labeling, has proposed allowing companies to make
specified relief claims for hemorrhoids or their symptoms on package labels. The FTC modified its
order to allow the company to use in its advertising any claims that the FDA has tentatively approved.
Beecham, Inc.
The Commission modified an order with Beecham concerning representations regarding Proslim's value
as a weight reduction product. The modification terminates a perpetual obligation that the company file
advertising and labeling with the Commission at six-month intervals. The Commission concluded that
it was in the public interest to relieve Beecham of the costs of compliance with this provision.
Chesebrough-Pond, Inc.
The Commission modified an order with Chesebrough-Pond prohibiting the company from making
several specific claims about Vaseline's use and effectiveness. The modifications will allow the
company to claim that Vaseline provides a protective barrier to the skin and is effective for relief of
itching. The Commission modified another order provision to allow the company to compare Vaseline's
effectiveness to that of other products as long as it has a reasonable basis for such comparison.
General Mills Fun Group, Inc.
The Commission released General Mills from its responsibilities
52
FEDERAL TRADE COMMISSION
under an order issued in 1979 prohibiting misrepresentations in advertising by its toy producing
subsidiary, General Mills Fun Group. The Commission stated however that the order remains binding
on the subsidiary's successor, Kenner Parker Toys, Inc. General Mills spun off the toy producing
subsidiary and stated it had no intention of reentering the business. Kenner Parker Toys became an
independent business in November 1985.
National Talent Associates, Inc.
The Commission modified a consent order with National Talent Associates by eliminating some
information the Commission considers less significant from the disclosures National Talent makes to
prospective clients. The consent order permanently prohibits the company from misrepresenting its
ability to place children as models and requires National Talent to disclose specified information.
PRELIMINARY AND PERMANENT INJUNCTIONS
MAINTAINING COMPETITION MISSION
Coca-Cola Co.
The Commission authorized its staff to seek a preliminary injunction to bar Coca-Cola Co.'s acquisition
of Dr Pepper Co. The Commission alleged the proposed acquisition could reduce competition in the
distribution and sale of carbonated soft drinks in the United States. The acquisition was enjoined by
the federal courts.
Occidental Petroleum Corp.
The Commission sought a preliminary injunction barring Occidental Petroleum Corp.'s $70 million
acquisition of certain plastic-production assets of Tenneco Inc. The Commission alleged that the
proposed acquisition could substantially reduce competition in the production of three polyvinyl
chloride (PVC) resin product markets: mass and suspension PVC; suspension PVC copolymer; and
dispersion PVC. Although the federal district court declined to issue the injunction, the Commission
initiated administrative litigation challenging the transaction.
ANNUAL REPORT 1986
53
Occidental Petroleum Corp.
In a separate matter, the Commission also authorized its staff to file an enforcement action under st
7A(g)(2) of the Hart-Scott-Rodino Act to seek a temporary restraining order and a preliminary
injunction preventing Occidental Petroleum from proceeding with its cash tender offer for MidCon
Corp. shares until it complied with the HSR second request and the extended HSR waiting period
expired. Prior to filing the injunction action the Commission accepted a consent agreement with
Occidental Petroleum that resolved the matter.
PepsiCo, Inc.
The Commission authorized its staff to seek preliminary injunctions to block PepsiCo, Inc.'s proposed
acquisition of The Seven-Up Co. The Commission alleged the proposed acquisition could reduce
competition in the distribution and sale of carbonated soft drinks in the United States. Prior to the filing
of the injunction action PepsiCo abandoned its intention to acquire Seven-Up.
PPG Industries, Inc.
The Commission authorized its staff to seek a preliminary injunction to, prohibit PPG Industries, Inc.'s
$41.8 million acquisition of Swedlow, Inc. The Commission alleged the merger could substantially
reduce competition in the manufacture and sale of aircraft transparencies: windows, windshields and
canopies used in private, commercial and military airplanes and helicopters. PPG and Swedlow are two
of the largest firms in the industry. The federal court of appeals entered a preliminary injunction
enjoining consummation of the defendants' merger pending completion of the Commission's
administrative proceeding.
CONSUMER PROTECTION MISSION
American National Cellular, Inc.
The Commission filed a complaint seeking preliminary and permanent injunctions, an asset freeze, and
consumer redress against American National Cellular and five other defendants. The complaint charges
the two corporate defendants and four individual defendants with allegedly misleading potential
investors about the chances and profitability of winning lotteries for the right to build cellular telephone
systems. This is the first case the Commission has
54
FEDERAL TRADE COMMISSION
brought against allegedly deceptive investment schemes involving cellular telephone lotteries. The
federal court ordered a temporary restraining order and preliminary injunction against defendants and
froze the defendants' assets and appointed a temporary receiver.
Cassette Library, Inc.
The Commission obtained a settlement with Cassette Library providing refunds of up to $200 to certain
customers, and prohibiting the company from misrepresenting any merchandise or service it offers. The
complaint charged that Music Library Associates, Inc. allegedly falsely represented its Cassette Library
plan under which consumers paid from $1260 to $1700 to buy audio cassette tapes from a catalog.
Cellular Corp.
The Commission obtained a settlement with five defendants prohibiting misrepresentations about the
sale of cellular telephone license application services and requiring disclosure of critical facts to
consumers. The agreement also requires that the defendants notify consumers who signed promissory
notes for a portion of the purchase price that the notes only have to be paid out of profits from the
operation or sale of a cellular system. The defendants must also establish a fund of $400,000 to pay for
the preparation, completion, and filing of cellular telephone lottery applications. In addition, one
defendant, Kent Maerki, was required to pay $100,000 to the U.S. Treasury.
Donald A. Schwab
The Commission obtained a settlement with Donald A. Schwab, an Ohio mortgage broker. Under the
consent decree, Schwab agreed not to misrepresent the rates or availability of mortgage loans in the
future. The complaint alleged that Schwab falsely advertised that he could obtain home mortgages for
his customers at rates substantially below prevailing market rates. Further, the complaint charged that
none of the consumers who applied for mortgages through Schwab received loans at the promised rates.
DuraSeal International, Inc.
The Commission filed a complaint charging DuraSeal International with allegedly violating the
Commission's Franchise Rule. The court
ANNUAL REPORT 1986
55
issued a preliminary injunction and froze the assets of a company officer. The complaint charges the
company with falsely representing that consumers who bought its "DuraSeal" asphalt-sealant franchises
could expect to earn up to $60,000 in their first year of operation.
Engage-A-Car Services, Inc.
The Commission filed a complaint seeking a temporary restraining order, an asset freeze, preliminary
and permanent injunctions and consumer redress against Engage-A-Car Services. The complaint
charged seven defendants with allegedly misrepresenting the profitability of their auto leasing franchises
and the services they offered potential franchisees. The Commission estimates consumer injury from
these practices at approximately $24 million. The federal court granted a temporary restraining order
against the defendants and an order freezing the assets of one corporate defendant and the four
individual defendants to preserve the possibility of restitution to consumers, which could include
refunds of franchising fees.
Evans Products Co.
The Commission obtained a bankruptcy court settlement in this matter. Under the settlement, several
thousand eligible buyers of pre-cut homes will receive $2.4 million in redress. The Commission had
charged that the defendants made allegedly deceptive and unfair representations that they would provide
buyers with guaranteed long-term mortgage loans. The companies allegedly failed to provide the
promised loans, or provided the loans at higher than promised interest rates, causing severe economic
injury to consumers and the loss of many homes.
Freeway Dodge, Inc.
The Commission filed a complaint seeking a permanent injunction and civil penalties against Freeway
Dodge. The complaint charged that the automobile dealer allegedly violated federal credit laws by
giving consumers incomplete credit information in its ads. The complaint also alleged that the dealer's
advertisements failed to comply with the Truth in Lending Act even after Commission staff alerted the
dealer of the problems. This matter and that involving Hopkins Dodge Sales, Inc. are the first two
enforcement actions resulting from a comprehensive ad-monitoring and industry-educa-
56
FEDERAL TRADE COMMISSION
tion program to improve automobile credit advertisers' compliance with the Truth in Lending Act.
Green Tree Acceptance, Inc.
The Commission filed a complaint against Green Tree Acceptance for allegedly violating federal credit
laws by not telling consumers why they were denied credit. The Commission asked the court to require
the company to pay civil penalties, to prohibit future violations of the laws and to provide correct
notices to certain consumers. The company provides financing in 25 states to consumers purchasing
mobile homes. The complaint charged the company with violating the disclosure requirements of the
Equal Credit Opportunity Act and the Fair Credit Reporting Act.
Hopkins Dodge Sales, Inc.
The Commission sought a permanent injunction and civil penalties against Hopkins Dodge Sales. The
FTC complaint charged that the automobile dealer allegedly violated federal credit laws by giving
consumers incomplete credit information in its ads. The Commission also alleged that the dealer failed
to bring its advertising into compliance with the Truth in Lending Act after being contacted by the FTC
staff.
Intra-Medic Formulations, Inc.
The Commission obtained a permanent injunction against Intra-Medic Formulations, its president, and
three wholly-owned subsidiaries. The complaint charged the four mail order companies with making
false and deceptive claims about their weight-control and baldness-cure products.
Leland Industries, Inc.
The Commission obtained a settlement against Leland Industries in which consumers will share $2.5
million in refunds. In 1983, the Commission sought an injunction based upon charges that defendants
allegedly misrepresented important information to investors in lotteries for oil and gas rights on federal
lands. Approximately 5,000 customers invested between $4,000 and $100,000 in such lotteries using
Leland's services.
ANNUAL REPORT 1986
57
Moksha Wendell Smith
The Commission obtained a permanent injunction against Moksha Wendell Smith, a defendant in an
action seeking relief in connection with the promotion and sale of vacation timeshares. Smith was
permanently enjoined from assigning, transferring, or soliciting payment on any Paradise Palm Vacation
Club or Harbor Village Club consumer credit contracts he holds or controls.
North American Office Systems, Inc.
The Commission filed a complaint against North American Office Systems seeking preliminary and
permanent injunctions and consumer redress. The Commission alleged that defendants deceptively
marketed and sold photocopy supplies through a telephone "boiler room" operation. The complaint
charged that, as a result, consumers have paid excessive prices for goods, have unknowingly paid hidden
charges and have suffered other injury.
Peter LaBarrie
The Commission obtained an injunction permanently enjoining Peter LaBarrie, a former Leland
Industries salesman, from making false and deceptive representations in the future-sale of services for
oil and gas lotteries.
Pittsburgh Penn Oil Co.
The Commission obtained an injunction against Pittsburgh Penn Oil Co. The complaint charged the
company with misrepresenting its automotive oils, transmission fluids, and antifreeze by falsely
claiming the products met established standards. The injunction, to which the company agreed,
prohibits the company from representing that its products meet any standard or make any other
performance or quality claim, unless the claim is true and the company has a reasonable basis for it.
Premier Cellular, Inc., Charles Michael Fischer, and Gerald Woods
The Commission instituted criminal contempt charges against three defendants in the American
National Cellular federal court action. Premier Cellular, Charles Michael Fischer, and Gerald Woods
were charged with violating the temporary restraining order and preliminary injunction issued by the
federal court.
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FEDERAL TRADE COMMISSION
Rare Coin Galleries of America, Inc.
The Commission filed a complaint seeking preliminary and permanent injunctions, and consumer
redress against Rare Coin Galleries of America. The court granted a temporary restraining order and
an asset freeze also requested by the Commission. The defendants, who have sold thousands of rare
coins nationwide, allegedly misrepresented the grade and investment value of the coins. Consumers
were sold coins for between $100 and $3,000 each, when according to the complaint, many of the coins
were worth substantially less.
Rocky Mountain Circulation, Inc.
The Commission filed a complaint charging that Rocky Mountain Circulation and its two officers
allegedly accepted money for magazine subscriptions without placing the orders. The court issued a
temporary restraining order against the defendants and froze their assets. The complaint also alleged
that the company violated the Commission's Cooling-Off Rule, which requires companies to provide
a three-day cancellation period for door-to-door sales.
Solar America, Inc.
The Commission filed a complaint seeking a temporary restraining order, an asset freeze, and
preliminary and permanent injunctions against Solar America. The Commission requested that the
company be barred from making any future misrepresentations about its solar energy heating systems
and ordered to make refunds to consumers who bought the system. The complaint charged that the
company falsely claimed that its solar energy heating systems could significantly reduce residential
heating fuel consumption and would pay for themselves in a short time.
Solar Michigan, Inc.
The Commission filed a complaint in federal court seeking consumer redress, and preliminary and
permanent injunctions against Solar Michigan. The complaint charged the company with falsely
claiming that its solar energy heating systems can significantly reduce residential heating fuel
consumption and will pay for themselves in a short time.
ANNUAL REPORT 1986
59
Thermo Products Company
The Commission filed a complaint seeking civil penalties and an injunction against Thermo Products
Company for violating the "R-Value" Rule. The complaint charged that the company overstated the
amount of protection its home insulation provided.
Trans-Alaska Energy Corp.
The Commission obtained criminal contempt convictions against three Trans-Alaska Energy defendants,
Alan F. Goda, David J. Swain, and Michael Peter Nissen, for violating a federal court order aimed at
preserving assets for consumer redress. In addition, Goda was ordered to pay $50,000 into a restitution
fund. A stipulation containing a permanent injunction and final order as to a fourth defendant, Robert
A. Kobek, was entered in federal court. In 1984, the Commission charged that Trans-Alaska and several
corporate and individual defendants allegedly defrauded and misled a substantial number of investors
about the potential value of oil and gas leases in Alaska and Wyoming.
TS Industries, Inc.
The Commission filed a complaint charging TS Industries with misrepresenting the effectiveness of its
thermal insulation products. The Commission sought injunctive relief and civil penalties for violations
of the "R-Value" Rule.
Unnamed Adoption Services
The Commission entered into a proposed settlement with defendant, Bryan M. Hall, including a
permanent injunction prohibiting him from misrepresenting his ability to arrange adoptions and his role
in the adoption process. The settlement is subject to court approval. In 1983, the Commission charged
Hall and two other defendants with falsely claiming they could help couples adopt children from
Mexico.
Volcano Mining Project
The Commission filed a complaint seeking consumer redress and injunctions against Volcano Mining
Project charging that it was a bogus investment scheme in which consumers lost $1.7 million. The
complaint charged that although a return of at least $45,000 and
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FEDERAL TRADE COMMISSION
possibly as much as $100,000 on a $9,600 investment was promised, consumers did not receive any
return on their investments. Volcano Mining has never processed any ore itself, despite its claims that
it did, and did not develop any type of system to recover gold and silver from the ore, according to the
complaint.
Walser Motors, Inc.
The Commission filed a complaint seeking civil penalties against Walser Motors for violating federal
credit statutes by giving consumers incomplete information in its ads. The complaint charges that
Walser advertised certain credit terms, such as the monthly payment, without also stating other required
information, including the annual percentage rate. This action was a result of a comprehensive ad
monitoring and industry education program to improve automobile credit advertisers' compliance with
the Truth-in-Lending Act.
William D. Jones d/b/a Liquid Assets
The Commission obtained a permanent injunction prohibiting William D. Jones from making
advertising claims that a mouth-wash, Breath Fresh 502, will sober persons who have consumed large
amounts of alcohol and will allow them to pass breath analyzer tests. The injunction also prohibits
similar claims about counteracting the effects of alcohol consumption, unless the claims are
substantiated by competent and reliable scientific evidence before they are made.
CIVIL PENALTY ACTIONS
MAINTAINING COMPETITION MISSION
Amway Corp.
Amway Corp. agreed, under a consent decree filed in federal court, to pay a $100,000 civil penalty to
settle Commission charges it violated a 1979 Commission order that prohibits Amway from
misrepresenting the amount of profit, earnings or sales its distributors are likely to achieve. According
to a complaint filed with the consent decree, Amway violated the 1979 order by advertising earnings
claims without including in it clear and conspicuous disclosures of the average earnings or sales of all
distributors in any
ANNUAL REPORT 1986
61
recent year or the percent of distributors who actually achieved the results claimed.
Bell Resources, Ltd.
Weeks Petroleum Ltd., a subsidiary of Bell Resources, Ltd., agreed to pay $450,000 in civil penalties
to settle charges that Weeks violated the Hart-Scott-Rodino Act by making certain acquisitions of
Asarco shares without filing the notification and observing the waiting period required by the Act. The
Commission had alleged that these acquisitions were not made solely for the purpose of investment and
therefore did not qualify, for the Act's investment only exemption.
Sunkist Growers
Sunkist agreed to pay $375,000 in civil penalties to settle the charge that it violated a 1981 consent order
with the Commission. Sunkist had agreed to divest its Yuma citrus processing facility to a Commissionapproved acquirer by November 1982. The Commission later extended the deadline until February
1983, but Sunkist allegedly did not divest the property until August 1984.
CONSUMER PROTECTION MISSION
A.P. Orleans, Inc.
A.P. Orleans, a Philadelphia-based marketer of housing developments, agreed to pay $80,000 in civil
penalties to settle charges it violated federal credit advertising laws. The complaint charged the
company with violating the Truth In Lending Act by not including required information in their
advertisements. The Commission brought charges against this company as part of its real estate credit
advertising project.
Boch Oldsmobile, Inc. and Boch Toyota, Inc.
Boch Oldsmobile and Boch Toyota, two Boston automobile dealerships, will pay a total of $70,000 in
civil penalties under consent decrees settling Commission charges they violated federal laws by giving
consumers incomplete credit information in their advertisements. This action was taken as part of a
comprehensive ad monitoring and industry education program to improve automobile credit advertisers'
compliance with the Truth In Lending Act.
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FEDERAL TRADE COMMISSION
Del Monte Corp.
Del Monte agreed to pay a $100,000 civil penalty to settle charges it failed to send consumers timely
and proper notices telling them of their rights under the Mail Order Rule in a coupon promotion
program.
Dixie Readers' Service, Inc.
Dixie Readers' Service, a nationwide seller of magazine subscriptions, agreed to pay a $55,000 civil
penalty for allegedly violating the Door-To-Door Sales Rule and an order issued in 1972. The company
was charged with failing to make timely and full refunds and to inform customers of their rights to
cancel subscriptions.
Hooker Homes, Inc.
Hooker Homes agreed to pay $250,000 in civil penalties to settle charges it violated credit advertising
laws. The complaint charged the company with failing to comply with the Truth In Lending Act after
being repeatedly notified by Commission staff that it was required to do so. This action resulted from
the Commission's real estate credit advertising project.
KRSS Development Corp.
KRSS Development, a Chicago-area builder, agreed to a $13,000 civil penalty consent decree to settle
charges it violated federal credit advertising laws. Under the consent decree, KRSS must comply with
the Truth In Lending Act requirement that sellers disclose the annual percentage rate in credit
advertisements for home mortgage loans when they state an interest rate.
Leisure Time Electronics, Inc.
Leisure Time Electronics agreed to pay a $157,500 civil penalty to settle charges it misrepresented video
and pinball game franchises. Under the consent decree, the individual respondents also agreed to
provide prospective franchisees with required written disclosure documents, a copy of the contract, and
an earnings claim document, within the time limits required by the FTC's rule. They further agreed not
to misrepresent the services they would provide to purchasers or make any income or sales projections
without a reasonable basis.
ANNUAL REPORT 1986
63
Leland Industries, Inc.
Three Leland officers, Stephen M. Thompson, H. Joel Stanley and Paul R. Colacecchi, agreed to pay
$10,000 each in a settlement in which consumers share $2.5 million in refunds. In 1983, the
Commission sought an injunction based upon charges that defendants allegedly misrepresented
important information to investors in lotteries for oil and gas rights on federal lands. Approximately
5,000 customers invested between $4,000 and $100,000 in such lotteries using Leland's services.
Mesa Realty, Inc.
Mesa Realty agreed to a $30,000 civil penalty consent decree to settle Commission charges that it
violated the Truth In Lending Act by failing to disclose required information in its ads for home
mortgages. The Commission took this action as part of its real estate credit advertising project,
designed to increase compliance with federal credit laws.
National Talent Associates, Inc.
National Talent Associates agreed to pay a $150,000 civil penalty to settle charges they violated a
consent order issued in 1975. The company was charged with misrepresenting its ability to place
children in paid modeling positions.
Network Marketing, Inc.
Network Marketing, a nationwide mail-order marketer of watches, paid a $45,000 civil penalty to settle
charges it violated the law by failing to ship merchandise on time, by not providing timely refunds to
consumers, and by not honoring its warranties in a timely manner.
New York Feather Co., Inc.
New York Feather agreed to pay $100,000 incivil penalties to settle charges it violated both federal law
and a Commission order issued in 1951 against the company by misrepresenting the amount of down
filling in its pillows. This consent resulted from the ongoing effort to ensure compliance with the
Commission's feather and down industry guidelines.
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FEDERAL TRADE COMMISSION
Northern Feather International, Inc.
Northern Feather International agreed to pay $100,000 in civil penalties to settle charges it
misrepresented the down and feather content of its pillows and comforters in violation of an order issued
in 1956. Northern Feather was charged with labeling and its products as containing down or a specific
percentage of down, when the products actually contained substantially less down than stated.
Strawbridge and Clothier
Strawbridge and Clothier, a chain of department stores, agreed to pay a $70,000 civil penalty to settle
charges it violated the Equal Credit Opportunity Act by failing to tell applicants why it turned them
down for credit. The complaint also alleged that the company violated the Fair Credit Reporting Act
by failing to provide all credit applicants it rejected in 1984 with the notices required by the statute.
Tuff-Tire America, Inc.
Ross Artus, president of Tuff-Tire America, agreed to pay $13,000 in civil penalties to settle charges
he misrepresented his tire sealant franchises in violation of the Franchise Rule and the FTC Act. Under
the consent decree, Artus agreed to comply with the Franchise Rule and to have a reasonable basis for
any future earnings claims. He further agreed not to misrepresent the performance of any tire sealant
product.
SUPREME COURT DECISION
Indiana Federation of Dentists
The Supreme Court of the United States reinstated a Commission decision finding that the Indiana
Federation of Dentists engaged in unlawful anticompetitive practices. The Court held: "The factual
findings of the Commission regarding the effect of the Federation's policy of withholding X-rays are
supported by substantial evidence, and those findings are sufficient as a matter of law to establish a
violation of § 1 of the Sherman Act, and, hence, § 3 of the Federal Trade Commission Act. * * * The
judgment of the Court of Appeals is accordingly reversed."
ANNUAL REPORT 1986
65
ECONOMIC REPORTS COMPLETED
Economic reports usually entail a substantial commitment of resources and report original research
concerning an issue of current or long term policy interest to the Federal Trade Commission.
The Effect of State Entry Regulation on Retail Automobile Markets, Robert P. Rogers, January 1986.
This report estimates the effect on consumer welfare of state laws restricting the establishment of new
automobile dealerships in the vicinity of present dealers selling cars of the same make. The author
concluded that these laws apparently raise new automobile prices about six percent.
Certificate of Need Regulation of Entry into Home Health Care, Keith B. Anderson and David I. Kass,
January 1986. This report examines the justification for requiring Certificate-of-Need approval for
home health care providers. The authors find no evidence that home health firms located in states with
these regulations achieve available economies of scale to a greater degree than firms in states without
such regulations.
Investigating Oligopolies within the Laboratory, Daniel Alger, January 1986. The author uses
experimental methods to investigate competitive theories that form the basis of antitrust policy.
Product Quality & Information in the Used Car Market, James M. Lacko, June 1986. The author
assesses evidence on product quality problems in the used car market and looks at the effects of various
state laws that attempt to improve the market.
Empirical Approaches to Consumer Protection Economics, Pauline M. Ippolito and David T.
Scheffman, June 1986. This volume comprises the proceedings of a conference on consumer protection
regulation and includes twelve papers by academic and government economists dealing with various
advertising and product quality problems.
Concentration, Integration, and Diversification in the U.S. Grocery Retailing Industry, Russell Parker,
June 1986. This statistical report on grocery retailing for Census years 1954-1977 contains SMSA
concentration data and other profit and sales data.
Experimental Studies of Markets with Buyers Ignorant of Quality Before Purchase: When Do Lemons
Drive Out High Quality Products?,
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FEDERAL TRADE COMMISSION
Michael Lynch, September 1986. These experiments were designed to determine conditions under
which sellers would develop reputations that would cause them to supply high quality goods despite the
fact that buyers are unaware of quality before purchase. The author concluded that if sellers could not
develop reputations for poor quality, then the market would consist entirely of poor quality products.
The need to attract repeat customers is not sufficient incentive for the seller to build a reputation for
supplying good quality, while the imposition of a requirement for truthful advertising or labeling is
sufficient.
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.
On the Extent of the Market: Wholesale Gasoline in the Northeastern United States, (WP #135), Pablo
T. Spiller and Cliff J. Huang, January 1986.
The Profitability of Mergers, (WP #136), David J. Ravenscraft and F.M. Scherer, January 1986.
Mergers and Managerial Performance, (WP #137), David J. Ravenscraft and F.M. Scherer, January
1986.
Optimal Civil Penalties, (WP #138), John Nash, February 1986.
Life After Takeover, (WP #139), David J. Ravenscraft and F.M. Scherer, March 1986.
The Efficacy of Minimum Quality Certification in the Used Vehicle Market, (WP #140), Michael D.
Pratt and George E. Hoffer, July 1986.
Cost-Raising Strategies, (WP #146), Steven C. Salop and David T. Scheffman, July 1986.
A Theory of Input Exchange Agreements, (WP #147), Charles Holt and David T. Scheffman, July 1986.
ANNUAL REPORT 1986
67
The "Steiner Effect": A Prediction from a Monopolistically Competitive Model Inconsistent with any
Combination of Pure Monopoly or Competition, (WP #141), Michael Lynch, August 1986.
Market Definition Under 1984 Merger Guidelines: Critical Demand Elasticities, (WP #142), Frederick
I. Johnson, August 1986.
Dual Distribution as a Vertical Control Device, (WP #143), Malcolm B. Coate and Mark R. Fratrik,
September 1986.
Retail Featuring as an Entry or Mobility Barrier in Manufacturing, (WP#144), Philip B. Nelson and
John C. Hilke, September 1986.
MISCELLANEOUS ECONOMIC POLICY PAPERS
Miscellaneous Economic Policy Papers result from basic research, and generally entail small amounts
of agency resources. These papers may be prepared by FTC staff economists or by outside individuals who
have been granted access to economic data compiled by the FTC. These papers usually explore well-defined
industrial organization and management strategy questions of interest to the broad policy concerns of the
Commission.
Contributions of Diversification, Promotion, and R&D to the Value of Multiproduct Firms: A Tobin's
Q Approach, Len Nichols, February 1986.
Elements of Business Risk and the Decomposition of Systematic Risk, Len Nichols and Jerry L.
Stevens, March 1986.
Two Tests of George's Resource Control and Market Power Hypothesis, David R. Ross, March 1986.
In Search of Industry Effects of Large Conglomerate Mergers, Robert Feinberg, October, 1985.
Strategic Choice as an Element of Market Structure, Ralph M. Bradburd, October 1985.
Firm Size and R&D Intensity: A Re-Examination of the Stylized Facts, Wesley M. Cohen, Richard C.
Levin, and David C. Mowery, October 1985.
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FEDERAL TRADE COMMISSION
The Commodity Composition of U.S. Intra-Firm Exports, Anita M. Benvignati, December 1985.
Looking for Rivalry in Structure Performance Studies, David R. Ross, October 1985.
Does Firm Size Affect R&D Intensity?, Wesley M. Cohen and David C. Mowery, December 1985.
Purposive Diversification of R&D in Manufacturing, John T. Scott and George A. Pascoe Jr., January
1986.
PIMS and the FTC Line of Business Data: A Comparison, Cheri T. Marshall, February 1986.
Adjusted Concentration Ratios in Manufacturing, 1972 and 1977, Leonard W. Weiss and George A.
Pascoe Jr., July 1986.
Collusion Versus Market Share, Len Nichols, Jerry L. Stevens, and Manuel L. Jose, August 1986.
CONGRESSIONAL TESTIMONY AND COMMENTS
During 1986, the Commission and its staff was requested by both houses of Congress to provide
testimony related to several different subject areas. The testimony and written comments analyzed the
impact and implications of 9 separate pieces of proposed legislation.
HOUSE
Commission testimony delivered by Anne Fortney before the House Banking, Finance and Urban
Affairs subcommittee on Consumer Affairs and Coinage. The testimony opposed H.R.237, which
sought to repeal the attorney exemption of the Fair Debt Collection Practices Act, and recommended
instead that Congress clarify the extent of the exemption.
Staff testimony before the House Subcommittee on General Oversight and the Economy opposing
H.R.3824, the "Motor Fuel Sales Competition Improvements Act of 1985." The testimony pointed out
that the proposed statutory alteration of existing gasoline supply contracts and vertical divorcement of
retail gasoline stations by wholesale dealers would increase fuel distribution costs,
ANNUAL REPORT 1986
69
eliminate legitimate price competition, and raise the prices of motor fuels to consumers.
Commission comments to the House Subcommittee on Commerce, Transportation and Tourism on
H.R.1140, the "Railroad Antimonopoly Act of 1986." The comments opposed the bill because its
provisions would conflict with existing antitrust laws and would have a significant adverse impact on
the rail transportation system.
Commission comments to the House Committee on Energy and Commerce on certain provisions of
5.863, the "National Highway Traffic Safety Administration Authorization Act of 1985." The
comments addressed the bill's proposal of developing a program for annual crash worthiness ratings for
new automobiles. The comments suggested several factors that Congress should examine in
determining whether the additional information that crash worthiness tests could provide to consumers
justifies the expense of such tests.
SENATE
Staff testimony presented by Ronald Rowe to the Senate Judiciary Committee on S.1140, the "Motor
Fuel Sales Competition Improvements Act of 1985." The testimony summarized the Commission's July
9, 1985 letter to Senator Strom Thurmond opposing the bill because of its likely harmful effects on
consumers and on competition in the retail gasoline market.
Commission comments to the Senate Judiciary Committee on S.1655, the "Unfair Foreign Competition
Act of 1983." The comments reiterated opposition the Commission had previously expressed to a
similar measure, S.236, in a letter to the same committee dated June 17, 1985. The comments argued
against passage of S.1655 because of its potential to injure consumers by discouraging competition
between domestic producers and importers and by complicating enforcement of the Clayton Act and
the antidumping and countervailing duty laws.
Commission comments on S.1849, a bill to "protect consumers and franchised automobile dealers from
unfair price discrimination by the manufacturer of new motor vehicles, and for other purposes." The
comments opposed the proposed legislation because its absolute ban on price differences would limit
manufacturers' ability to
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FEDERAL TRADE COMMISSION
adjust prices and incentives to competitive levels, and, hence, would likely injure consumers and
competition.
Commission comments to the Senate Judiciary Committee on S.1445, the "Retail Competition
Enforcement Act of 1985." The bill would amend the Sherman Act to include within its proscriptions
an explicit ban on agreements between a seller and a competing reseller to fix prices or to terminate or
refuse to supply another reseller. The comments opposed enactment of S.1445 principally because it
would permit a jury to infer conspiracy from possibly procompetitive communications and because the
bill could encourage manufacturers to alter their distribution methods for reasons other than efficiency.
Commission comments to the Senate Committee on Banking, Housing and Urban Affairs on S.1908,
the "Consumer Lease and Lease-Purchase Agreement Act." In supporting S.1908, the purpose of which
is to simplify the Consumer Leasing Act, the comments addressed the proposal's specific provisions that
would affect compliance with the existing act.
CONSUMER AND COMPETITION ADVOCACY
During 1986, the staff of the Commission continued its efforts to ensure that government regulatory
changes or initiatives at the federal, state, or local level did not inhibit competition or diminish consumer
welfare. The staff of the Bureaus of Consumer Protection, Competition, and Economics and of the Regional
Offices prepared 42 comments on a variety of regulatory proposals and changes in areas where the staff had
experience or expertise.
FEDERAL AGENCIES
DEPARTMENT OF COMMERCE
Staff comments to DOC's International Trade Administration concerning possible relaxation or repeal
of export restrictions on crude oil from Alaska's North Slope. The comments summarized a Bureau of
Economics staff report that estimates the gains to producers, taxpayers, and the U.S. economy, as well
as the losses to shipowners and consumers resulting from the total or partial repeal of the existing ban
on the exportation of Alaskan North Slope crude oil.
ANNUAL REPORT 1986
71
Commission preheating brief to assist the DOC in determining the size of dumping margins for dynamic
random access memory semiconductors of 256 kilobits and above imported from Japan. The brief
recommended that DOC use actual sales prices in Japan rather than an estimate of Japanese production
costs to make its final dumping margin determination.
Commission brief following the Post-Conference Brief the Commission filed with the International
Trade Commission on June 12, 1986 to assist the ITC in making its preliminary finding of injury to the
U.S. softwood lumber industry from the importation of softwood lumber from Canada. The brief to the
DOC offered a legal and economic analysis for application of the countervailing duty statute and
concludes that various Canadian government practices are not subsidies to Canadian lumber producers
that justify imposing a U.S. tariff.
DEPARTMENT OF ENERGY
Commission comments for the DOE's annual report to Congress regarding utilities' financing, supply,
and installation activities in connection with the Residential Conservation Service Program. The
comments reported the Commission's review of two utility waiver petitions and its activities concerning
regulated utility diversification.
FEDERAL COMMUNICATIONS COMMISSION
Staff comments in the FCC proceedings concerning reimposition of a rule requiring cable systems to
carry all local television stations. The reply comments recommend that the FCC not reimpose a
mandatory carriage rule and seek repeal of the compulsory license.
FEDERAL ENERGY REGULATORY COMMISSION
Staff comments in the FERC proceedings on the regulation of electricity sales for resale and
transmission services. The comments encouraged FERC to urge or require the use of marginal cost
pricing in the wholesale market rather than average cost pricing under current regulations. The
comments also suggested that FERC persuade states to implement peak load or marginal cost pricing
in setting retail rates.
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FEDERAL TRADE COMMISSION
INTERNATIONAL TRADE COMMISSION
Commission preheating brief to the ITC on the electric shaver escape clause investigation. The brief
proposed an economic framework to assist the ITC in determining whether increased imports are a
substantial cause of the injury the domestic industry has experienced. Although the brief concluded on
the basis of the evidence then available that rising imports may not be a substantial cause of injury, the
brief also suggested alternative remedies if the ITC finds serious injury.
Commission posthearing brief to the ITC on the electric shaver escape clause investigation. The brief
restated the FTC's view that increased imports may not be a substantial cause of any injury that the
domestic electric shaver may have industry incurred. The brief also reiterated a recommendation that
the ITC consider adjustment assistance to workers as the least harmful remedy to consumers when
compared to tariffs and quotas.
Commission preheating brief to the ITC on the apple juice escape clause investigation. The brief
suggested that U.S. juice reconstitutors and apple growers are not experiencing, nor are threatened by,
serious injury as a result of imports. While the brief acknowledged that apple crushers may be suffering
serious injury, imports may not be a substantial cause of that injury.
Commission prehearing brief to the ITC to assist in making a final determination on whether the U.S.
semiconductor industry is being materially injured by 64 kilobit and 236 and above kilobit dynamic
random access memory semiconductors imported from Japan. The brief stated that predation is unlikely
to be occurring in the domestic DRAM market and that the ITC should compare the prices of DRAMs
in Japan and in the U.S. in determining the extent of any injury to U.S. firms.
Commission posthearing brief to the ITC on the 64K DRAM semiconductor antidumping investigation.
The brief summarized some of the arguments made in the FTC's preheating brief and responded to
questions the ITC Commissioners posed to staff at hearings held on April 30, 1987.
Commission post-conference brief to the ITC on the preliminary countervailing duty investigation
concerning Canadian softwood lumber products. The brief urged the ITC to conclude that there is
ANNUAL REPORT 1986
73
no injury to domestic softwood lumber producers resulting from Canada's stumpage fee systems.
NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION
Staff comments on NHTSA's proposal to change the average fuel economy standard for automobiles
manufactured in model years 1987 and 1988. The comments described the substantial short-term costs
to society of meeting the statutory goal of 27.5 miles per gallon and recommends that NHTSA retain
the current standard of 26 miles per gallon.
POSTAL RATE COMMISSION
Staff comments to assist the PRC in its study of the subsidization of preferred classes of mail. The
comments pointed out that the current pricing policy for preferred mail encourages excessive use of
subsidized mail services and leads to an inefficient allocation of resources.
STATES AND THE DISTRICT OF COLUMBIA
Alabama
Staff comments to the Alabama House of Representatives on its proposed Funeral Bill, which would
allow only licensed funeral establishments to sell funeral goods and services. The comments discussed
the ways in which the legislation's restrictions could harm consumers by impeding the development of
new providers of funeral goods and services. The letter also. outlined the possible conflict between the
bill and the FTC's Funeral Rule.
Alaska
Staff comments to the Alaska House of Representatives opposing a proposed bill that would allow
municipalities to regulate the entry of taxicabs and to impose minimum fares. The staff comments noted
that regulation of taxicab entry and fares usually leads to higher fares. The comments also urged
municipalities to limit taxicab regulation to issues such as safety, competency, and the required level
of liability insurance.
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FEDERAL TRADE COMMISSION
Arizona
Staff comments to the Arizona Board of Optometry supporting the Board's plan to adopt a regulation
to permit optometrists to practice in retail stores and other businesses. The comments, however,
objected to other proposed regulations that would prohibit optometrists from paying referral fees or
splitting fees with others, which might encourage the development of alternative health-care delivery
systems, such as health maintenance or preferred provider organizations.
District of Columbia
Staff comments to the D.C. City Council on a bill that would impose strict licensing requirements on
nurse-anesthetists, nurse-midwives and other similar health care providers. The bill would also establish
specific guidelines for the collaboration of such nurses with doctors. The comments stated that staff
favors competition among all health care providers because consumers potentially pay lower prices and
receive better service.
Staff comments to the D.C. City Council on the proposed "Wine, Beer and Spirits Franchise Act of
1986." The comments criticized the bill because it would regulate the contractual relations between
suppliers and wholesalers of alcoholic beverages, thereby raising distribution costs and retail prices to
consumers.
Florida
Staff comments to the Florida Board of Dentistry to assist the Board in interpreting a state statute that
prohibits dentists from exploiting patients for their own financial gain by, among other things, accepting
rebates or splitting fees in return for patient referrals. The comments recognized the potential conflict
of interest that could arise from dentists' referrals to other practices they may partially own, but points
out that such referrals could benefit consumers. In the absence of additional evidence of abuse, staff
urges the Board to consider construing the Florida law to require dentists to disclose to patients their
financial interests in any practices to which they refer such patients.
Hawaii
Commission comments to the Hawaii House of Representatives
ANNUAL REPORT 1986
75
opposing H.B. 1376, which would prohibit producers, refiners, or their affiliates from establishing and
operating new retail gas stations in Hawaii. The comments stated that the proposed legislation would
prevent potentially efficiency-enhancing vertical integration between gasoline refining and distribution,
which would raise the price of motor fuel to consumers.
Staff comments to the Hawaii State Office of the Auditor advocating repeal of certain restrictions on
optometric practice because they raise the prices of such goods and services without any offsetting
benefits to consumers. The comments urged the state to remove restraints on truthful advertising and
on in-person solicitation. The comments also recommended that the state eliminate regulations limiting
optometrists' commercial practices, such as, for example, prohibitions that restrict ownership of
optometric practices to licensed optometrists, and that forbid the use of trade names.
Illinois
Staff comments to the Illinois Department of Registration and Education restating the staff's views set
forth in a letter dated May 31, 1985 concerning restrictions on funeral home ownership to licensed
persons and on pre-need solicitation of funeral goods and services. The comments opposed the
restraints on funeral home ownership because they may inhibit the development of more efficient,
lower-cost service providers. The comments noted that restrictions on pre-need solicitation may
unnecessarily impede the flow of truthful commercial information.
Staff comments to the Illinois Department of Registration and Education on proposed amendments to
rules administering the Funeral Directors and Embalmers Licensing Act. The comments suggested that
the state consider whether the restrictions on telephone solicitation and solicitation by those other than
licensed funeral directors may excessively restrict competition in the market for pre-need funeral goods
and services. The comments also opposed existing state rules that could inhibit truthful and nondeceptive advertising.
Staff comments to the Illinois Senate opposing provisions in a proposed bill that would allow physicians
to jointly determine the price at which they will participate in group health care delivery systems and
other programs that third-party payers offer. The
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FEDERAL TRADE COMMISSION
comments discussed how the planned measure's antitrust exemption could harm competition and raise
consumers' health care costs.
Staff testimony before the Chicago City Council's Committee on Local Transportation supporting a
proposal that would ease entry restrictions on taxicabs, eliminate minimum fares, legalize jitney services
and package deliveries, and remove limitations on shared rides. The testimony addressed the
procompetitive benefits of relaxing existing taxicab regulation.
Indiana
Commission amicus brief to the Seventh Circuit Court of Appeals in Lombardo, et al. v. Our Lady of
Mercy Hospital, et al., on behalf of two osteopathic surgeons who had alleged that private physicians
at a hospital in Dyer, Indiana helped to implement a policy that unfairly restricts competition by
osteopathic doctors. The brief argued that the hospital's action was not exempt from antitrust scrutiny
under the state action doctrine. The hospital had denied surgical privileges to plaintiffs because their
training was not approved by the American Board of Surgery.
Kansas
Staff comments to the Kansas legislature on two measures to amend existing state laws regulating the
funeral industry. The staff comments urged the legislature to apply the same regulatory standards to
cemeteries and funeral homes, which are competing sellers of the same goods and services. As an
alternative to trust requirements, the comments also suggest performance bonds as a means of protecting
consumers without impeding competition. Finally, the comments encouraged the legislature to adopt
whatever methods it deems appropriate to permit truthful pre-need solicitation of funeral, goods and
services.
Kentucky
Commission amicus brief before the Sixth Circuit Court of Appeals in Parker v. Kentucky Board of
Dentistry, et al., on behalf of the plaintiff, Dr. Parker, who had advertised his areas of practice in the
local yellow pages. The brief argued that because Dr. Parker's advertising is commercial speech and
not misleading, the state cannot prohibit it. Additionally, the brief noted that the advertisement
contained additional information that prevented it from
ANNUAL REPORT 1986
77
misleading consumers and that unnecessary restrictions on advertising inhibit competition and the flow
of useful information to consumers.
Massachusetts
Staff comments to the Massachusetts Board of Registration in Medicine endorsing a proposal to
eliminate existing prohibitions on advertisements that use testimonials, guarantee customer satisfaction,
and offer free services or discounts. The comments stated that such information, when truthful, can help
increase competition and improve the efficiency with which doctors deliver their services.
Staff comments to the state House of Representatives Committee on Health Care opposing statutory
revisions that would prohibit dentists from advertising certain non-price information and would require
dentists to disclose specific additional information when advertising prices. Instead of enacting
provisions that could harm competition and consumers by restricting truthful communications, the
comments suggested that the legislature outlaw only deceptive advertising practices.
Michigan
Staff comments to the Michigan Senate State Affairs, Veterans, and Transportation Committee on
measures to regulate the sale of funeral goods and services. The comments cautioned the legislature
to recognize the anticompetitive potential of regulations on pre-need sales of funeral goods and services
and urges that it adopt the least restrictive alternatives to protect consumers. The comments also
advocated use of performance bonds instead of trust requirements and removal of limitations on the
identity of escrow agents and on the amount of interest paid on pre-need contracts.
Mississippi
Staff comments to the Mississippi State Board of Optometry generally supporting the Board's proposals
to relax certain advertising rules. The staff comments also suggested some modifications that would
further broaden the scope of permissible advertising and recommended that the Board amend several
of its rules on commercial practice that unduly limit optometrists' ability to market their services in the
most cost-efficient manner.
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FEDERAL TRADE COMMISSION
New Jersey
Staff comments to the New Jersey Senate Labor, Industry, and Professions Committee opposing a
proposed bill that would prevent most hostile takeovers of New Jersey corporations. The comments
noted that federal law provides adequate protection to shareholder interests in takeovers and states that
such acquisitions, including hostile ones, can increase productivity and stimulate managerial excellence.
The comments pointed out that the New Jersey proposal could harm shareholders by depriving them of
gains they might otherwise realize through acquisitions.
New York
Staff comments to the New York State Assembly Agriculture Committee recommending that the state
remove its territorial licensing restrictions on milk dealers. The comments stated that the restrictions
are unnecessary to protect consumers' health and welfare and that they increase the retail price, of milk
by raising processing and distribution costs. The comments also explained that the restrictions limit
competition among milk dealers and curtail the industry's ability to respond to changes in the market.
Staff comments to the Assembly Republican Task Force on Health Fraud and the Elderly expressing
the Commission's concerns about health fraud and outlining its law enforcement, consumer and business
education, and other activities in this area. The comments discussed the Commission's various activities
in combating fraudulent marketing and selling of health products. These activities include monitoring
advertising, obtaining legal orders against specific ' companies, cooperating with other federal agencies,
and producing consumer education materials.
Ohio
Staff comments to the Ohio State Dental Board generally endorsing the Board's proposal to broaden the
scope of permissible advertising. The comments brought to the Board's attention additional ways to
achieve this goal and urged that the Board reevaluate certain of its rules and amend them to ban only
false or misleading advertising-
ANNUAL REPORT 1986
79
Texas
Staff testimony before the Texas Motor Vehicle Commission opposing a proposal to prohibit invoice
advertising by auto dealers. The testimony noted that such a prohibition deprives consumers of valuable
information that can assist them in comparison shopping. If the state commission is concerned that
invoice advertising will confuse consumers, then the staff recommended that the state require dealers
to disclose that the invoice price may not be the same as the dealer's actual costs.
Virginia
Staff comments to the Virginia State Board of Dentistry suggesting additional modifications to proposed
amendments relaxing regulations on advertising by dentists. The comments recommended modifying
the proposed provisions concerning discount and fee advertising for non-routine services, as well as
eliminating restrictions on commercial practice, the use of trade names, and the functioning of prepaid
dental plans.
Staff comments to the Virginia Board of Veterinary Medicine endorsing the Board's proposed
regulations prohibiting only false, deceptive or misleading advertising and removing prohibitions
against business relationships with non-veterinarians and against veterinarians' leasing space from
commercial establishments. However, the comments recommended that the Board clarify two
provisions that could affect non-veterinarians' employment of veterinarians.
Staff comments to the Virginia State Board of Optometry resubmitting previous comments and
addressing restrictions concerning advertising, trade names, commercial practices and prepaid optometric plans that staff still consider problematic. The comments explained that continued restrictions
in these areas could deprive consumers of truthful information and inhibit optometrists from providing
their services in the most efficient manner.
Washington
Staff testimony before the Washington legislature's Sub-committee on Regulation of the Legislative
Transportation Committee endorsing a proposal to deregulate intrastate trucking. The testimony stated
that trucking deregulation would result in lower shipping costs and increased efficiency.
ANNUAL REPORT 1986
81
Table of Cases Listed in Appendices
Matter Name
Pages
Albert Schneider
Allied Corp.
American Academy of Optometry
American Home Products Corp.
American Medical International, Inc.
American National Cellular, Inc.
American Society of Sanitary Engineering
Amway Corp.
A.P. Orleans, Inc.
Ashland Oil, Inc.
Atlantic Richfield Co.
Atlas Supply Co.
Bass Brothers Enterprises
Beecham, Inc.
Bell Resources, Ltd.
Blue Lustre Home Care Products, Inc.
Boch Oldsmobile, Inc. and Boch Toyota, Inc.
Boise Cascade Corp.
Buckingham Productions, Inc.
C&D Electronics, Inc.
Cassette Library, Inc.
Cellular Corp.
Champion International Corp.
Chesebrough-Ponds, Inc.
Coca-Cola Co.
Columbian Enterprises, Inc.
Cosmo Communications Corp.
Del Monte Corp.
Detroit Auto Dealers Association
Dixie Readers' Service, Inc.
Donald A. Schwab
DuraSeal International, Inc.
Electrical Bid Registration Service of Memphis, Inc.
Electro Tech Manufacturing, Inc.
Electronic Systems International, Inc.
Engage-A-Car Services, Inc.
Evans Products Co.
Federated Department Stores, Inc.
Figgie International, Inc.
Flowers Industries, Inc.
34
49
31
51
49
53
34
60
61
42
49
49
42
51
61
34
61
47
41
29
54
54
29
51
38,52
42
30
62
40
62
54
54
45,47
39,44
39,41
55
55
34
48
50
82
FEDERAL TRADE COMMISSION
Freeway Dodge, Inc.
GCS Electronics, Inc.
General Mills Fun Group, Inc.
General Nutrition, Inc.
George Tannous
Green Tree Acceptance, Inc.
Health Care Management Corp.
Hooker Homes, Inc
Hopkins Dodge Sales, Inc.
Hospital Corporation of America
Independent Insurance Agents and Brokers of
California, Inc.
Independent Insurance Agents Association of
Montana, Inc.
Independent Insurance Agents of America, Inc.
Indiana Federation of Dentists
Intra-Medic Formulations, Inc.
James F. Herndon
John C. Anderson
John William Costello Associates, Inc.
KRSS Development Corp.
Larry Brog
Leisure Time Electronics, Inc.
Leland Industries, Inc.
Lithium Corp. of America
Massachusetts Board of Registration in Optometry
Max Factor & Co.
Mesa Realty, Inc.
Moksha Wendell Smith
Michigan Optometric Association
Michigan Watchmakers Guild
MidCon Corp.
National Association of Temporary Services, Inc.
National Energy Associates, Inc.
National Talent Associates, Inc.
Network Marketing, Inc.
New York Feather, Co., Inc.
North American Office Systems, Inc.
North American Philips-Corporation
North Carolina Orthopaedic Association
Northern Feather International, Inc.
Occidental Petroleum Corp.
Oklahoma Optometric Association
PepsiCo, Inc.
55
30
51
46
35
56
31
62
56
48,50
31
31
31
64
56
35
35
35
62
35
62
56,63
32
46
29
63
57
32
33
43
33
36
52,63
63
63
57
36
33
64
33,38,52,53
43
53
ANNUAL REPORT 1986
Peter LaBarrie
Peter S. Everts
Pittsburgh Penn Oil Co.
PPG Industries
Premier Cellular, Inc., Charles Michael Fischer,
and Gerald Woods
R.J. Reynolds Tobacco Co., Inc.
Rare Coin Galleries of America, Inc.
Rhode Island Board of Accountancy
Rocky Mountain Circulation, Inc.
Roswil; Inc.
Roy Brog
Roy B. Kelly
Saab-Scania of America, Inc.
Saga International, Inc.
Service One International Corp.
Solar America, Inc.
Solar Michigan, Inc.
Steven M. Hull
Strawbridge and Clothier
Sunbeam Corporation
Sunkist Growers
Superior Court Trial Lawyers Association
Thermo Products Company
Trans-Alaska Energy Corp.
TS Industries, Inc.
Tuff-Tire America, Inc.
United Brands Co.
Unnamed Adoption Services
U.S. Steel Corp.
Victor J. Hakim
Viobin Corp.
Volcano Mining Project
Wallcovering Trade Associations
Walser Motors, Inc.
Warner Communications, Inc.
Weider Health and Fitness, Inc.
William D. Jones d/b/a Liquid Assets
Wright-Patt Credit Union, Inc.
Wyoming Board of Podiatry
83
57
35
39,45,57
38,53
57
39,47
58
43
58
40
45
35
36
36
36
58
58
35
64
37
61
48
59
59
59
64
50
59
51
35
30
59
44
60
44
45
60
37
37
