IN THE MATTER OF
AMWAY CORPORATION, INC., ET AL.
FINAL ORDER, OPINION, ETC., IN REGARD TO ALLEGED
VIOLATION OF THE FEDERAL TRADE COMMISSION ACT
Docket 9023.
Complaint, March 25, 1975
Final Order, May 8, 1979
This order, among things, requires two Michigan corporations engaged in the doortodoor marketing of various household products, and two corporate officers, to cease allocating customers among their distributors; fixing wholesale and retail prices for their products; taking retaliatory action against recalcitrants; and disseminating pricelisting data which fail to advise that price adherence is not obligatory. Respondents are additionally prohibited from misrepresenting potential earnings and other relevants to prospective distributors.
CONCLUSIONS
The Amway Sales and Marketing Plan is not a pyramid plan. In less than 20 years, the respondents have built a substantial manufacturing company and an efficient distribution system, which has brought new products into the market, notably into the highly oligopolistic soap and detergents market. Consumers are benefited by this new source of supply, and have responded by remarkable brand loyalty to Amway products. (Finding 186) The vertical restraints by which Amway has achieved this entryavoiding conventional retailing through grocery stores by direct sellingare reasonable. Respondents' restraints on price competition, however, must be prohibited.
IV. Conclusions
We conclude that respondents have agreed and combined with each other and/or with Amway distributors to fix the resale prices of Amway products, at both the wholesale and retail levels, in violation of Section 5 of the Federal Trade Commission Act. Respondents have also made earnings and sales claims which have the capacity to deceive the potential distributors to whom they have been made; this too, is in violation of Section 5. We have decided that it is appropriate and necessary to order respondents to cease and desist from these violations, and from certain offenses reasonably related to them.
The Commission has also concluded that complaint counsel have failed to establish that respondents have engaged in the other alleged violations of Section 5. Therefore those charges against respondents are dismissed.
FINAL ORDER
This matter having been heard by the Commission upon the crossappeals of respondents and complaint counsel from the Initial Decision, and upon briefs and oral argument in support thereof and opposition thereto, and the Commission for the reasons stated in the accompanying Opinion having determined to affirm in part and reverse in part the Initial Decision:
It is ordered, That the Initial Decision of the administrative law judge be adopted as the Findings of Fact and Conclusions of Law of the Commission, except to the extent inconsistent with the accompanying Opinion.
Other Findings of Fact and Conclusions of Law of the Commission are contained in the accompanying Opinion.
It is further ordered, That the following Order to Cease and Desist be, and it hereby is entered: [2]
I
It is ordered, That respondents Amway Corporation and Amway Distributors Association, and their officers, agents, employees, representatives, members, successors and assigns, and respondents Jay VanAndel and Richard M. DeVos, individually, and their agents, employees, and representatives, directly or indirectly through any corporate or other device, in connection with the offering for sale, sale, or distribution of cleaning or personal care products, or any other products or goods in commerce, as 'commerce' is defined in the Federal Trade Commission Act, shall forthwith cease and desist from:
1. Fixing, establishing, or maintaining, or attempting to fix, establish, or maintain, the price at which any distributor sells or offers for sale any product at wholesale or retail.
2. Stating that distributors are required to, or do, charge a particular price in wholesale or retail sales of any product.
3. Entering into any contract, agreement, understanding, or arrangement with any distributor which fixes, establishes, or maintains the price at which that distributor sells or offers for sale any product as wholesale or retail.
4. Taking any action, or counseling any distributor to take any action, designed to detect the price at which any distributor sells or offers for sale any product at wholesale or retail, including but not limited to: requiring distributors, in proving that they made retail sales to ten different persons in a month, to disclose the price at which they made such sales; directing or requesting any distributor to report to his Direct Distributor, to Amway, or to any other person or entity, knowledge he or she has of another distributor selling products at a price different from Amway's suggested wholesale or retail price; or allowing the price information submitted by any distributor seeking a full or partial refund of amounts paid by him or her for state retail sales tax, to be seen by any person other than those responsible for paying out such refunds, or to be used for any purpose other than paying out such refunds.
Provided, however, it shall not be a violation of this order for Amway to receive information about the price a distributor charged in a particular retail sale if such information is received by Amway solely as a result of such [3] sale being one of the following types: (1) a sale wherein the purchaser used a bank credit card in making the purchase; (2) a sale of catalog merchandise wherein the purchaser paid by personal check payable to Amway; or (3) a sale to a commercial account wherein Amway financed the purchase.
5. Taking any action, or counseling any distributor to take any action, designed to deter distributors from selling or offering for sale products at a price different from Amway's suggested wholesale or retail prices, including but not limited to: addressing communications regarding price to any individual distributor, rather than to distributors as a class; delaying, or threatening to delay, the shipment of products to any distributor; withholding, or threatening to withhold, any distributor's Performance Bonus, if such distributor is otherwise entitled to such Bonus; underselling, or threatening to undersell, any distributor in retaliation for such distributor having sold or offered to sell products at a price different from Amway's suggested wholesale or retail prices.
6. Preventing or discouraging, or attempting to prevent or discourage, any distributor from selling or offering for sale products at retail to any person or entity, on the grounds that such person or entity is the customer of another distributor.
7. Requiring a distributor who is terminating his relationship with Amway to sell his remaining products back to Amway or to another distributor; provided, however, it shall not be a violation of this order to give a distributor who is terminating his relationship with Amway the opportunity to sell his remaining products back to Amway or another distributor.
8. Preventing, or attempting to prevent, a fund raising organization from selling or offering for sale products at a price different from Amway's suggested retail price.
9. Preventing, or attempting to prevent, distributors from advertising the prices at which they are selling or offering for sale products, including but not limited to, failing to include a place for distributors to disclose price in any existing or future sales aids, promotional literature, advertising mats, advertising scripts, etc., used by distributors in advertising Amway products. [4]
10. Publishing or distributing, directly or indirectly, any wholesale or retail price list, order form, promotional material, or any other document which lists resale prices for products without stating clearly and conspicuously thereon: 'The prices stated here are suggested prices only. Distributors are not obligated to charge these prices. Each distributor is entitled to determine independently the prices at which products may be sold to other distributors or to consumers.'
II
It is further ordered, That the aforesaid respondents and their officers, agents, employees, representatives, members, successors, and assigns, directly or indirectly, in connection with inducing or seeking to induce the participation of any person in any distribution, sales, or marketing plan, in commerce, as 'commerce' is defined in the Federal Trade Commission Act, do forthwith cease and desist from:
1. Misrepresenting in any manner the past, present, or future profits, earnings, or sales from such participation.
2. Representing, by implication, by use of hypothetical examples, or otherwise, that distributors earn or achieve from such participation any stated amount of profits, earnings, or sales in excess of the average profits, earnings, or sales of all distributors in any recent year respondents may select, unless in conjunction therewith such average profits, earnings, or sales is clearly and conspicuously disclosed, or the percent of all distributors who actually achieved such stated profits, earnings, or sales in such year is clearly and conspicuously disclosed.
III
It is further ordered, That respondent Amway Corporation or its officers, agents, representatives, employees, successors or assigns shall, within thirty (30) days from the effective date of this order, deliver a copy of this order to all persons who are currently Amway distributors.
IV
It is further ordered, That respondents and their successors and assigns notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents such as dissolution, assignment or sale resulting in the emergence of successor corporations, the creation or dissolution of subsidiaries, or any other change in the corporations or in the Amway Sales and Marketing Plan which may affect compliance obligations arising out of the order. [5]
V
It is further ordered, That the respondents herein shall within sixty (60) days from the effective date of this order, file with the Commission a report in writing setting forth in detail the manner and form in which they have complied with this order.
FN1 Many of respondents' allegations of procedural misconduct were repeated by respondents' counsel on the first day of the trial and are the subject of an additional order, recently entered herein, denying respondents' motion to dismiss.
FN2 Another reason for the delay in closing the record involved the condition of the record. Numerous exhibits were lost or misplaced. At least sixty exhibits had to be replaced with substitutes. The transcript of testimony had numerous errors. Almost all of the changes were stipulated by the parties. The reporter is submitting corrected pages of the transcript during the time that this decision is being prepared, too late for reference herein. Eleven orders were entered concerning this subject, e.g., orders dated March 16, 1978, and June 15, 1978 (denying motion to dismiss of June 6, 1978).
FN3 See also Holdridge, Tr. 78182 and CX 833 for a similar episode.
FN4 'PV' meant purchase volume. (CX 61T) (See CX 615C.) Since 1975 this has been called 'BV' or 'business volume.' (Finding 52) (See CX 605F) The name was changed to avoid confusion with 'point value' added in that year. (Finding 51)
FN5 Synthetic detergents have largely replaced soap for laundry and dishwashing purposes in the last 30 years, being chemically different and much more effective. (Diassi, Tr. 557374) 'Biodegradable' means that the ingredients of the detergent are broken down by natural biological action, helping to eliminate foaming problems in lakes and streams. (Halliday, Tr. 6095, 6154)
FN6 to some extent the effect of these practices on consumers has been mitigated by the growing concentration and power of food chains and their tendency of using soap and detergents as loss leaders. (Diassi, Tr. 5534; Finding 176)
FN7 In typical oligopolistic conduct, the major soap companies were slow to react to public demand for nonphosphate detergents in the early 1970's, allowing successful entry by at least one manufacturer selling through food stores. (Finding 178)
FN8 Amway's turnover rate among distributors is better than most direct selling companies. (Findings 148, 162163)
FN9 There is some evidence that one of the distributors suggested to Mr. Van Andel and Mr. DeVos that the product 'Frisk' be distributed. (Halliday, Tr. 6541) The preponderance of the evidence, however, supports the finding that the genesis of Amway was vertically imposed. Cf. Sandura Company v. FTC, 339 F.2d 847, 85758 (6th Cir. 1964).
FN10 Stopping a practice after a visit by government investigators does not show permanent abandonment. United States v. Parke, Davis & Co., 362 U.S. 29, 4748 (1960).#e have been continued, [87] and an order may issue to prevent it, even upon a showing that it was been discontinued or abandoned. [FN11] Here, Amway had an explicit policy of retail price fixing in the middle 1960's, and, until 1972, a written policy of preventing distributors from competing with each other. This evidence raised a presumption that these policies have continued or could be resumed.
Count IPrice Fixing
The Rules of Conduct of the Amway Sales Plan published in 1963 required that distributors sell Amway products to consumers at the specified resale price. (Finding 109) It also provided that no unauthorized discount be given on sales to other distributors, and fixed the resale charge for freight. (Finding 109 111) The record does not show when Amway stopped using this sales manual or whether distributors were ever clearly notified that it does not express Amway's policy. [FN12] Such resale price maintenance is per se unlawful. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911). [88]
The Career Manual for Amway distributors published in 1968 specified that distributors should not cut the retail price in fundraising drives. The fund raising drive policy was changed in 1969, upon the recommendation of the ADA, so that the retail sales now are made by the distributor rather than by the fundraising organization. (Finding 112) By implication at least, this change was made with the intent to control resale prices. While the policy requiring the distributor rather than the fundraising organization to make the retail sales might be reasonable in itself, when coupled with unlawful intent it became an unreasonable restraint of trade. United States v. Columbia Steel Co., 334 U.S. 495, 522 (1948).
While much of the evidence of price fixing agreements is relatively old, it raises a presumption of continuity which respondents have not rebutted. [FN13] After express contracts were no longer used, the other vertical restraints on advertising, selection of customers and source of supply controlled price competition. The customer protection rule alone stopped all competition for a retail customer for 30 days after a distributor made a sale to that customer. (Finding 90) The purpose of
FN11 The Court in P.F. Collier specifically declined to follow Bearings, Inc., 64 F.T.C. 373 (1964), relied on by respondents. 427 F.2d at 275 n. 13.
FN12 On retail sales, Amway's price lists obliquely refer to 'suggested retail for sales tax' or 'retail sales tax computation base.' (Finding 113) The record does not show that Amway has ever clearly told its distributors that they are free to set their own prices on sales to other distributors or to consumers.
FN13 Holiday Magic, Inc., 84 F.T.C. 748, 1050 (1974). Amway was able to produce distributors who do use prices competitively to obtain wholesale and retail sales. (RPF 223229) Considering the number of distributors who sell Amway products, this is not surprising. Furthermore, evidence of price competition conflicts with statements of Amway officers who say that very little price cutting occurs. (Finding 127)
FN14 An Amway market study in 1970 warned that lifting the customer protection rule could lead to 'excessive price cutting' by distributors. (CX 522Z215)
FN15 In 1968, an Amway employee reported that retail prices on Amway products 'are in most instances appreciably higher than comparable items in conventional retail outlets.' (CX 558B) Customer complaints about high product prices (CX 700J) may have changed Amway's pricing policy. In 1970, retail prices set for most Amway catalog products were set below the prices for comparable items sold in department stores but above prices charged by discount stores. (CX 522Z 176 to 177)
FN16 Mr. DeVos' advice to Direct Distributors on how to handle price cutting distributors exhibits a lack of formality inconsistent with the sensitive nature of the subject. He incoherently mixes warnings of price fixings with advice to terminate the distributor or to badger, threaten and otherwise 'do a sales job on the guy' because 'you gotta guard against anything that's dog eat dog.' (CX 1037E to I)
FN17 The customer protection rule has been considered a part of the unlawful price fixing combination, supra, pp. 8889.
FN18 In those cases, price fixing allegations in the complaints 'accompanied' the allegations of other vertical restraints, but the Court did not rely on that fact in deciding whether the per se rule should be used. The test is not whether price fixing allegations 'accompany' allegations of other vertical restraints but whether the main purpose and effect of all of the vertical restraints show a justifiable business reason, or whether they are mainly directed at fixing prices for which there is no acceptable economic basis. (Ibid.) The Commission referred to, but did not develop, this issue in the letter explaining the acceptance of a consent in Performance Sailcraft Inc., File 771 0027 [C. 2922] (Commission action dated May 2, 1978) [91 F.T.C. 869].
FN19 While the courts have split on adopting this part of the ancillary restraints doctrine (see dissenting opinion of Commission Clanton in ColaCola, supra, at pp. 1112), it was relied on in part of Schwinn, not reversed by Sylvania. The Court held that where Schwinn retained indicia of ownership it could, under the rule of reason, confine sales to franchised retailers for the reason, inter alia, that the restraint 'was justified by, and went no further than required by, competitive pressures.' 388 U.S. at 382. (Emphasis added).
FN20 While Amway sells a variety of products, its main business is still 'selling soap.' (RX 331, p. 4A)
FN21 Unlike some other direct selling companies, Amway does not prohibit distributors from selling competing products. (RX 331, p. 15B; BortnemW.T. Raleigh, Tr. 69799; CookeAvon Lady, Tr. 73536; LavertyFuller Brush, W.T. Raleigh, Tr. 83839). And, unlike Avon, the largest direct selling company, Amway does not assign sales territories to its distributors. (CookeAvon, Tr. 735; Halliday, Tr. 619293)
FN22 Direct selling companies generally do not, however, sell their products through retail stores. (Patty, Tr. 30993103)
FN23 Amway also prohibits distributors from selling or displaying Amway merchandise at flea markets and similar events (Finding 86) and regulates their sales through fundraising drives. (Finding 87). The rationale for these restrictions is the same as the retail store rule and they have the same economic impact as that rule.
FN24 Sylvania's market share was 5%, 433 U.S. 4647 n.12, almost triple Amway's 1.7% of the soap and detergents market. (RX 406, RX 407)
FN25 Amway also restricts distributors from selling nonAmway products of Amway distributors they have not sponsored. (RX 331, p. 15B) The business reason for this restriction is to prevent a 'conflict of interest.' (Van Andel, Tr. 1896) The record does not show the market impact, if any, of this provision.
FN26 The rights of servicemark owners in this respect are the same as owners of trademarks. Pro. Golfers Ass'n v. Bankers Life & Cas. Co., 514 F.2d 665, 668 (5th Cir. 1975)
FN27 While the ten customer rule has a reasonable basis in preventing an unlawful pyramid, the distributors' monthly reports showing such sales need not specify the prices at which the sales were made. Such a requirement could be used to monitor unlawful resale price fixing.
FN28 According to a market study conducted in 1973, only 4% of the distributors who did not renew their distributorship left because there were too many other Amway distributors in their area. (CX 521E)
FN29 They argue that Amway has too many distributors and that Amway has 'saturated' the market for distributors.
FN30 Complaint counsel object to the 'curiosity approach' that distributors have used when attempting to interest recruits. This involves getting the prospect to attend a meeting by a statement such as 'we're in the business of helping professional people . . . start their own business,' without mentioning the name 'Amway.' (Williams, CX 1116ST) At the meeting the full details of the Amway Sales and Marketing Plan are then explained. This approach was used primarily in the early 1970's because of the adverse publicity about pyramid plans unconnected with Amway. (CX 519Z49)
Amway distributors are not required to seek new distributors only by first announcing to prospects that they want to take their leisure hours away in a sales job. One distributor said that if this approach is used and '. . . you're talking to the guy that just came home from a factory maybe after ten hours, and is perspiring and looking at you and saying, 'Lady, you are one big dingaling if you think I'm gonna go out and do some more work after that." (Blinco, CX 1041Z3)
FN31 Specific examples of amounts paid to Amway distributors are well qualified in the literature to show that they are maximum amounts, not average. (RX 401, p. 10)
FN32 Amway urges that recruiting be done individually rather than at mass meetings. (CX 638H)
FN33 For example, while urging distributors to open their minds to thinking in terms of making $100,000 a year, Mr. DeVos predicted that 'there are going to be some people in the room' who were going to have that kind of income. (Finding 132) (Emphasis added.) This statement does not indicate that the average distributor can expect to make that amount. Examples cited in complaint counsel's proposed findings, when put in context, similarly show that the speakers are offering the specific amounts as goals not as representations of average incomes. (See the text surrounding the dollar amounts referred to in CPF 457, for example CX 990Z, CX 992H, CX 992J.)
FN34 Before 1973 it was $100; in 1977 it was raised to $250. (Finding 134; RX 401, pp. 79).
FN35 And distributors were warned: 'In reality, some of your distributors will probably sell more than $200 P.V. while others may sell less; but just to make it easy to understand, we'll stick to the figure of $200 P.V. for purposes of this example.' (CX 190G; CX 201G)
And Amway literature advises that: 'As with retailing, depending on their own goals, initiative, and available time, and the retail sales of those they sponsor will vary.' (CX 205G; CX 208F)
FN36 The audience at opportunity meetings includes persons who are already distributors as well as prospective distributors. (CX 204G) The 'drawing circles' technique is used to teach these distributors the wholesale side of the Amway Sales and Marketing Plan and to set goals for these distributors, as well as to introduce prospective distributors to the plan.
FN37 In any event, prospective Amway distributors do not believe that they will make $1000 a month. On the application form for an Amway distributor, the applicants are asked to state their expected earnings. About 90% expect to earn less than $10,000 a year. About 75% expect less than $5,000, and more than half expect less than $2,000 a year. (CX 516U)
FN38 Compare, SnapOnTools Corp. v. FTC, 321 F.2d 825, 829 (7th Cir. 1963). Of 900 dealers of industrial tools, SnapOn had a turnover of from 350 to 700 in one and onehalf years.
FN39 Mr. Price, Amway's trademark attorney, testified that distributors can properly advertise that they are selling Amway products. (Tr. 290001)
FN1 The three soapanddetergent manufacturers mentioned above spent over $500 million in advertising and sales promotion in 1975. (Compare Amway's $200 million in sales.) Procter & Gamble alonethe largest advertiser in the United Statesspent over $360 million in product promotion in 1975. Amway, by contrast, spent less than $1 million for advertising in 1975. Initial Decision, p. 68, Finding 175.
FN2 Amway actually has a rule (in what is known as its 'Rules of Conduct') which states that no Amway distributor shall permit Amway products to be distributed through any retail outlet. This rule, known as the 'retail store rule,' is discussed in greater detail at pages 2123, infra.
FN3 Generally speaking, the Amway Plan is a highly structed organizational outline, developed by VanAndel and DeVos to control the manner in which Amway products move through the distributor network to consumers. It is based on the 'Code of Ethics and Rules of Conduct for Amway Distributors.' The Amway Plan and the Code of Ethics and Rules of Conduct are set out in a manual, which Amway republishes every two to five years. The 1975 edition of the manual, which was current at the time of the hearings and is therefore frequently referred to herein, is called the Amway Career Manual; some earlier editions, also referred to herein, were called the Amway Sales Plan.
FN4 There were approximately 4000 Direct Distributors in 1977.
FN5 Apparently some Direct Distributors have lines of sponsorship which are twenty to twentyfive levels deep. But as of February 1977, approximately one half of all Amway distributors either had a Direct Distributor as their sponsor or were sponsored by a distributor who had a Direct Distributor as his sponsor. Over 70 percent of all distributors were in the first three positions; over 85 percent were in the first your positions; over 93 percent were in the first five positions; and roughly 99 percent were in the first seven positions.
FN6 This restriction on wholesale pricing is discussed in greater detail at pages 1213, infra.
FN7 See Initial Decision, p. 24, Finding 62, for a more exact statement of what is required.
FN8 When a newly qualified Direct Distributorwho is by definition a very high volume performerbreaks out of his old place, it represents a great loss to the 'old' Direct Distributor who previously funneled products to him. The old Direct Distributor is compensated by Amway for this loss by an additional monthly Performance Bonus consisting of 3 percent of the Business Volume of the new Direct Distributor.
FN9 See Initial Decision, pp. 810, Findings 1725, for a discussion of the history and origins of the ADA, and its relationship with Amway.
FN10 See footnote 3 at page 4, supra, for a description of the Amway Career Manual.
FN11 Though worded differently at different times, the message has been the same down through the years. The 1963 Amway Sales Plan said: '[P]roducts sold between distributors are always sold at the same price, with no profit made on the immediate transaction. The profit is made later on the refund percentage.' The 1968 Career Manual stated: 'You sell Amway products to the distributor you sponsor at the same [price] at which you buy from your sponsor, and as which he buys from his sponsor.'
FN12 In the Career Manual itself, on the page facing the page containing the statement above about selling at distributor cost, Amway states:
'[T]here is . . . a binding contractual arrangement between Amway and its distributors, and that contractual arrangement is spelled out in detail not in a single printed document, but in a group of documents. Amway has always considered itself bound by a contract consisting of the following: . . . the Career Manual. . . .'
FN13 As noted at page 5, supra, Amway does indicate in a 'Performance Bouns Schedule' the percentage of a distributor's monthly Business Volume that he is to receive as a Bonus from his sponsor. If there were an agreement between Amway and its distributors at various levels that the distributors would adhere to this Schedule in paying out Performance Bonuses to the distributors they sponsored, it arguably would be an agreement with a substantial and direct effect on wholesale prices and would be illegal per se. Cf. United States v. SoconyVacuum Oil Co., 310 U.S. 150, 221 (1940). But there is no evidence that Amway or its distributors regard the Schedule as binding with respect to specific percentages. There is also no evidence that Amway enforces adherence to the percentages set out in the Schedule, nor even that most distributors do in fact adhere to those percentages. Findings 54 and 68 of the Initial Decision, at pp. 16, 25, indicate only that Amway enforces its rule that the Performance Bonuses it pays out to the Direct Distributors must be filtered through the distributor network, but not that the percentages Amway sets out are binding.
FN14 Maway sends to distributors retail price lists for Amway products. The 1965 price list referred to the prices thereon as 'retail'. The 1970 price list used the phrase 'retail prices (for sales tax purposes)'. The current price list states that the prices listed are 'suggested retail'.
FN15 In a 1970 copy of 'The Amway Amagram' (a newspaperlike publication sent by Amway to its distributors), an article contained statements made by VanAndel to a meeting of Direct Distributors. He told them that Amway had conducted a test, in which it had divided the country into half, with prices set at normal levels in one half and at very high levels in the other half. He continued:
'We wanted to see how much difference price would make in our marketing system. Actually, the sales volume per distriubtor in the higher price area was considerably higher than that in the other. I don't mean just 5% or 10%, I think it was over 50%. We concluded that higher price encouraged distributors to do more selling so he could make extra profit.'
FN16 This speech, along with several others, was taperecorded live; the tapes of these speeches were admitted as evidence at the hearings.
FN17 During this speech DeVos also said in regard to price cutting: 'I can't do much about it. And I don't think you can do much about it.' He added: '[Y]ou don't stand a legal chance of doing anything about it . . .. I can't take any action on it without endangering everybody in a federal restraint of trade activity.' But these statements, essentially recognizing the dangerous legal problems that can arise from resale price maintenance and recommending caution in efforts at coercion, do not offset the clear meaning and effect of the other statements quoted above.
FN18 Respondents rely heavily on Knutson v. Daily Review, Inc., 548 F.2d 795 (9th Cir. 1976), cert. denied, 433 U.S. 910 (1977), for the proposition that where an explicit agreement is abandoned and is succeeded by strong recommendations of resale price maintenance, those recommendations do not constitute a 'combination' in the absence of evidence of special coercion. But Knutson is not applicable here because Amway has gone far beyond 'recommending': it has induced other distributors to assist in its program of detecting and deterring price cutting, and it has attempted to extract agreement and acquiesence from its distributors. See Initial Decision, pp. 39, 4144, Findings 115, 117.
FN19 This literally is true, as the first provision of the Code reads: 'I will make the 'Golden Rule' my basic principal of doing business. I will always endavor to 'do unto others as I would have them do unto me."
FN20 The portions of the Final Order relating to rules (Order Paragraphs I.4, I.7, and I.8) are aimed solely at preventing their use in connection with the maintenance of retail prices; the Order does not otherwise disturb their operation.
FN21 See pages 2324, infra, for a detailed discussion of the advertising restrictions Amway has imposed on its distributors.
FN22 See page 12, supra, for a discussion of how Amway converts the Rules of Conduct into a contract between Amway and each distributor.
FN23 See Initial Decision, pp. 4146, Findings 117, 119, 121, and p. 90. Also. Amway advises its distributors, in the Career Manual, that when a distributor violates one of the Rules of Conduct his Direct Distributor 'may take such corrective action as he deems necessary, even terminating the violator's distributorship.'
FN24 The ALJ found that home consumption of Amway products by distributors accounts for a significant amount of Amway's sales. See Initial Decision, pp. 5556, Finding 137.
FN25 Where a finding of resale price maintenance has been made, we routinely include in the order a provision prohibiting the use of suggested prices for some time after entry of the order. But in this case there are highly unusual circumstances which make the use of suggested resale prices not anti competitive. Specifically, Amway has an unusual distribution system which relies on the sales efforts of hundreds of thousands of distributors, many of whom distribute Amway products parttime and are inexperienced in business matters generally. It is not unreasonable under these circumstances to give distributors some guidance in setting prices on the 150 products they try to sell.
FN26 'What impression is made by a given practice is a question of fact for the Commission to determine . . ..' Benrus Watch Co. v. FTC, 352, F.2d 313, 318 (8th Cir. 1965), cert. denied, 384 U.S. 939 (1966); accord Niresk Industries, Inc. v. FTC, 278 F.2d 337, 342 (7th Cir.), cert. denied, 364 U.S. 883 (1960); Kalwajtys v. FTC, 237 F.2d 654, 656 (7th Cir. 1956), cert. denied, 352 U.S. 1025 (1957).
FN27 We note that this figure is not 'retail sales', but Business Volumethat is, the retail value of the products purchased for resale to consumers and sponsored distributors, and for distributor home consumption, which was stated before, constitutes a large portion of all sales of Amway products. See Initial Decision, pp. 5556, Finding 137.
FN28 In a speech given to Direct Distributors in 1974, DeVos stated that the reason for using a figure as large as $200 is to raise distributors' 'vision' of their own potential. See Initial Decision, p. 55, Finding 136. But this does not change the fact that the $200 figure overstates the true average Business Volume amount; and a statement need not be intended to deceive in order to have the capacity to deceive.
FN29 It should be noted, though, that Amway has not advertised specific earnings of named individuals. In fact, the 1975 Amway Career Manual states: 'Don't quote dollar incomes on specific individuals even though you may want to use their stories about the homes in which they live, the cars they drive, or the airplanes they fly.'
FN30 We note here that complaint counsel have attacked earnings claims made to potential distributors and to persons who already were Amway distributors. We restrict our finding of a violation to those earnings misrepresentations made to potential distributors. We believe that experienced distributors can be expected to be aware of the opportunities, or lack of opportunities, open to them under the Amway Plan. Statements of the kind discussed in the Initial Decision, at p. 49, Finding 132, when made to persons who already are distributors, can be considered 'inspirational' in nature.
FN31 We note that all of the vertical restrictions challenged have been found to be reasonable, except as they were ancillary to Amway's illegal resale price maintenance plan. We also note that these findings were based on our view that the product markets in which Amway competes are indeed concentrated, and that Amway's presence has had some procompetitive consequences.
FN32 Respondent assert on appeal that ordered corrections have still not been made on 350 pages, and that there are 35 'garbled or omitted portions of the transcript'.
FTC
93 F.T.C. 618
