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Encyclopaedia Britannica Inc. v. Federal Trade Commission

decided: August 2, 1979.

ENCYCLOPAEDIA BRITANNICA, INC., AND BRITANNICA HOME LIBRARY SERVICES, INC., PETITIONERS,
v.
FEDERAL TRADE COMMISSION, RESPONDENT.



On Petition to Review a Final Order of the Federal Trade Commission

Before Fairchild, Chief Judge, and Sprecher and Wood, Circuit Judges.

Author: Fairchild

This is a petition to review an order of the Federal Trade Commission holding that certain practices of petitioners, Encyclopaedia Britannica, Inc. and its subsidiary, Britannica Home Library Services, Inc. (hereinafter referred to jointly as Britannica) violated § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1)*fn1, and ordering Britannica to cease and desist from certain practices. Some of the cease and desist provisions of the orders were so framed as to forbid certain customary sales and promotional activity unless specified notices were given. These notice provisions are the subject of this review.

I. THE AGENCY PROCEEDING

Encyclopaedia Britannica, Inc. is a New York Corporation with its principal place of business in Chicago. As is widely known, Britannica publishes, sells, and distributes encyclopedias, textbooks, general reference works, and other educational and literary products throughout the world. The primary sales method is direct selling at the homes of customers.

The complaint which initiated the proceeding before the Commission was issued December 11, 1972. It charged deceptive practices in recruitment of sales representatives, in sales presentations to members of the public, in obtaining leads to persons who will allow Britannica sales representatives into their homes, in seeking subscriptions to book promotions, and in collection procedures. On December 16, 1974, after trial hearings, ALJ Barnes entered very extensive findings, conclusions, and a remedial order. In respects not material on this review, the ALJ found deceptive and unfair practices in recruiting advertisements, in certain sales devices, a mail order program, and the use of types of collection letters. On this review, Britannica has narrowed its challenges to remedial provisions relating to deception on initial contact of salesmen with consumers, and to deception in certain advertised offerings.

A. The ALJ summarized his detailed findings concerning "Initial Contact With Consumers," in part as follows:

"The primary means by which EB (Britannica) sells its products and services is through the door-to-door solicitation of consumers. . . . EB's salesmen utilize numerous devices which disguise the purpose of the salesman's initial contact with prospects devices which essentially are ruses for gaining admission into prospects' homes "not in the role of a salesman' . . . . These devices are approved by EB's management, are made available to its salesmen, and the salesmen are trained by EB to effectively use such devices.

"One ploy used to gain entrance into prospects' homes is the Advertising Research Analysis questionnaire. This form questionnaire is designed to enable the salesman to disguise his role as a salesman and appear as a surveyor engaged in advertising research. EB fortifies the deception created by the questionnaire with a form letter from its Director of Advertising for use with those prospects who may question the survey role. These questionnaires are thrown away by salesmen without being analyzed for any purpose whatsoever.

"Thus, the record is clear that EB's sales representatives misrepresented and failed to disclose the purpose of the initial contact with prospects. These practices were authorized and condoned by EB. . . ."

The portions of the ALJ's order challenged by Britannica and remedying the practices above described require Britannica to cease and desist from:

"D. Visiting the home or place of business of any persons for the purpose of soliciting the sale, rental or lease of any publications, merchandise or service, unless at the time admission is sought into the home or place of business of such person, a card 3 inches by 5 inches in dimension, with all words in 10-point bold-face type, with the following information, and none other, in the indicated order, is presented to such person:

(1) the name of the corporation;

(2) the name of the salesperson;

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

(4) the terminology: "The purpose of this representative's call is to solicit the sale of encyclopedias' (or other applicable product); and

(5) the statement: This card should be kept as part of your permanent records of this transaction.

(Paragraph 5 was deleted from the order by the Commission.)

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

In discussing the remedial order, the ALJ said he had "taken into consideration . . . (1) the numerous violations of law by respondents which this record establishes, consisting of conduct which has been declared unlawful by the Commission over the years, (2) the fact that this order must be designed to protect the general consuming public which includes the ignorant, the unthinking and the credulous . . ., (3) respondents' past record of unlawful conduct as determined in previous Commission proceedings, (1952 and 1961 orders concerning representations with respect to allegedly "special' prices and the like) and (4) the fact that ". . . once the Government has successfully borne the considerable burden of establishing a violation of law, all doubts as to the remedy are to be resolved in its favor' . . . ."

With respect to the Initial Contact deception, the ALJ wrote as follows:

"The Order contains provisions which prohibit respondent from misrepresenting the purpose of contacting persons in their homes or places of business, and require respondent to clearly inform prospects in telephone talks and at the door that the purpose of the visit is to solicit the sale of respondent's products or services. This will correct respondent's misrepresentations and deceptions as shown by the record. As one of EB's former corporate officials testified, the ability to gain admittance into the home is essential to respondent's business operations (Balsano, Tr. 1542). Thus, elimination of misrepresentations and deceptions in gaining admittance into homes is crucial to this Order as well. There is no conceivable business or other justification for misrepresenting the purpose of a salesman's visit. A homeowner is entitled to know the purpose behind any visit by a salesman. The time has arrived to put an end to deceptions of this type.

"For these reasons, the Order entered herewith requires EB's salesmen to present the prospect with a card which clearly discloses the purpose of the visit. Respondent strenuously objects to such an Order provision (RPF III-7; RM, p. 43; RRM, p. 17); however, no satisfactory alternatives are suggested. The use of a disclosure card should prove effective to eliminate misrepresentations and deceptions in obtaining appointments with homeowners, or in gaining admittance into homes. If this provision proves unduly onerous, relief from this provision can be requested at a later date.

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

The requirement of the Card-at-the-Door was debated in the briefs of counsel on appeal to the Commission. Britannica pointed to testimony that the required presentation of the card would have a devastating effect upon a rational interchange between salesman and prospect. Britannica proposed as less drastic alternatives (1) the requirement of oral disclosure and of training of sales personnel to make such disclosures, and (2) the requirement that the sales representative present an ordinary business card, disclosing his title as "Sales Representative."

Commission counsel argued several aspects of the greater effectiveness of the prescribed card, as compared with an ordinary business card, in giving persons clear notice of the caller's sales purpose and an opportunity to protect themselves from unwanted harassment.

The opinion of the Commission dealt specifically with Britannica's concern over the Card-at-the-Door requirement. Adverting in detail to evidence that Britannica's sales representatives have been trained to conceal the sales purpose of seeking admission to a home, the Commission concluded that "(t)he company-described disguise techniques necessitate inclusion of an order provision requiring clear and conspicuous disclosure of the fact that the representative is a salesman and of the true purpose of gaining entry into the home."

The Commission concluded that the prescribed advice to the customer to keep the card did "not appear to be necessary in order to provide a clear and conspicuous disclosure of the nature and purpose of the call" and omitted that prescription.

B. The ALJ summarized his detailed findings concerning "Lead-Getting Activities," in part, as follows:

"EB's magazine and direct-mail advertisements as well as contest entry cards, used to obtain the names of persons who will be contacted by EB's salespersons for the purpose of persuading such persons to purchase EB's products, do not disclose the fact that persons who respond will be contacted by EB's salespersons.

". . . Respondent also points out that EB's salesmen usually telephone prospects prior to visiting them personally. These fact differences do not change the basic deception inherent in EB's methods. EB's magazine advertisements affirmatively mislead the public into believing that all materials and information will come by mail direct from the publisher . . . . Some of the contest entry cards indicate EB is giving away prizes in celebration of its 200th anniversary, that there is no obligation in filling out a card.

"The Sole purpose of these activities is to obtain leads to prospects. The only way to protect the public, to correct the misrepresentations in respondent's lead-getting activities, is to inform the public of the true motives behind respondent's offers of free information and prizes that respondent has a profit motive and will seek to sell its products to those who respond to its devices. These are material facts the public should know. Disclosure that a salesman may call to make a sales presentation of respondent's products and services will correct respondent's misrepresentations and make these material facts available to the public."

The portions of the ALJ's order challenged by Britannica and remedying the practices above described require ...


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