UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
NEW YORK REGIONAL OFFICE

April 6, 1998

John M. Hadlock
Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, NY 10166

Dear Mr. Hadlock:

This letter responds to your request on behalf of the Magazine Publishers of America ("MPA") for an advisory opinion regarding its proposal to adopt new Guidelines on Relations with Subscription Agents ("Guidelines") to prevent violations of statutes and rules governing telemarketing by independent sales representatives acting on behalf of magazine publishers.(1) On the basis of information you provided, Commission staff would not recommend a challenge to the proposed actions of MPA and its members.

Magazine Publishers of America and the Proposed Guidelines

MPA is the trade association for consumer magazine publishers. Its membership includes approximately 190 domestic magazine publishing companies that publish about 780 magazines. MPA states that although many more magazines than this are published, MPA’s membership includes most of the larger publishers, whose magazines account for a substantial percentage of all magazine advertising revenue. Letter from John Hadlock to the Federal Trade Commission, on behalf of MPA, at 1 (February 13, 1998) ("MPA Letter").

MPA observes that although many publishers promote subscription sales through their own direct mail marketing and other methods, there is also a large network of independent sales "agents" that market subscriptions using direct mail, face-to-face, and telemarketing sales methods. MPA Letter at 2. MPA indicates that though generally called "agents" by the industry, these are not legally agents but rather are independent businesses that have no direct dealings with the publishers except for the submission of orders for approval and fulfillment. MPA Letter at 2.

MPA some years ago promulgated industry guidelines for publisher relations with subscription agents. MPA states that the present Guidelines represent a substantial revision to deal more directly with subscription agents, and particularly telemarketing agents, to address concerns expressed by Commission staff regarding the level of consumer complaints relating to magazine subscription telemarketing sales. MPA characterizes these Guidelines as an effort by the industry to better regulate itself so as to deal with this problem. MPA Letter at 2.

MPA’s proposed Guidelines state that they are "recommended" for adoption by member and non-member publishers and authorized subscription agents. Under the Guidelines, publishers will enter into written agreements with agents retained to sell or "clear" their magazines. Small agents customarily process or "clear" their orders through another agent that has been specifically authorized by the publisher to clear orders. Publishers typically authorize only a limited number of larger agents to directly remit orders, and those agents commonly also clear orders received from subagents. Because there are many small agents, it is common for orders to be cleared through several agents before reaching the publisher or its independent fulfillment house (which processes the orders and prepares subscriber lists and mailing lists). In the past, relationships between publishers, agents, and subagents have been informal, but Sections 1(a) and 2(a)(ii) of the Guidelines now provide for written contracts, which will specify that the agents/subagents will abide by the Guidelines and all applicable laws. MPA Letter at 2. The Guidelines further establish a system of controls for the monitoring of compliance with its substantive requirements.

The Guidelines provide that agents agree that they will "prevent the use of false or deceptive selling methods to solicit magazine subscription orders, and that they will undertake to insure that all solicitation conducted by them by direct mail, electronic solicitation or through their Salespersons is carried out in accordance with all applicable laws and regulations, and that they will diligently monitor the activities of their Salespersons (excluding Salespersons who submit subscription orders to Subagents and Third Parties if these monitoring responsibilities have been delegated to those Subagents and Third Parties)." The Guidelines provide that agents will take reasonable steps to ensure that salespersons follow ten specific rules, which are intended to generally paraphrase the key provisions of the FTC’s Telemarketing Sales Rule. MPA Letter at 3. Thus, for example, agents will be obliged to take reasonable measures to ensure that salespersons "promptly and truthfully disclose to consumers the name of the seller and the purpose of the contact," and "use sales scripts presentations and written materials that clearly and truthfully disclose all material terms of the subscription offer including the publications being offered or ordered, their frequency and duration, the cost (including any extra charges) to the consumer, the payment terms, and if required by law, the sellers’ cancellation and refund policies." Guidelines, Sections 1. (b)(I) and (ii). The Guidelines also provide basic rules for supervision of salespersons, including appropriate training, verification of sample orders, and routine monitoring of telemarketers.

The Guidelines go on to set up a system for control of subagents. MPA notes that because small subscription agents typically process orders through a pyramid of other agents, the identity of the agents who initially solicited each order is usually lost, and thus the publisher or authorized agent loses its ability to effectively monitor or police those agents. MPA Letter at 3. The Guidelines therefore provide that every agent, subagent, or sub-subagent must be identified by name and federal E.I.N. or social security number, which must be submitted to the publisher, and the publisher has the right to direct that any agent be dropped from the list. The publisher’s fulfillment house must pre-screen all orders and reject any order that bears a federal E.I.N. number that is not on the publisher’s own list. MPA states that every publisher has the ability to approve or disapprove its own list of agents,(2) and the names of the agents that it excludes will be deemed confidential. There is to be no industry "blacklist." MPA Letter at 3. MPA indicates that this system will allow a publisher, for the first time, to identify who is selling its magazines, and to influence each seller’s sales practices through the publishers’ newfound ability to remove agents from its "approved" list. "It is the publishers’ belief that such a system creates an incentive for the agents to comply with the selling practice rules and will give the publishers some capability to enforce them." MPA Letter at 3. Finally, the Guidelines provide that agents will investigate all complaints and terminate any salesperson or subagent that generates a pattern of valid consumer complaints.

MPA states that publishers cannot implement these procedures on a purely voluntary basis. It notes that there is vigorous competition among publishers for the attention and commitment of subscription agents, because it is critically important to each publisher to bring in new subscriptions each month to replace expiring subscriptions and to grow. Agents are important to that process, and no single publisher is in a position to impose rigorous procedures or demands on agents that are not also being imposed by competing publishers. MPA Letter at 4. Though it will not retaliate against any nonconforming publisher, MPA intends to obtain an agreement among publishers that they will implement these Guidelines uniformly and simultaneously. MPA is proposing that each publisher send out simultaneous and similar letters to their agents announcing the implementation of these new rules and requiring the agents to provide the names and federal E.I.N.s of their subagents and sub-subagents. However, MPA does not expect that publishers will agree to act in this concerted manner unless they receive the requested advisory opinion from the FTC, because of fear of legal challenge by recalcitrant or excluded agents. MPA Letter at 4.

MPA contends that these proposed Guidelines and their proposed implementation are not anticompetitive, and do not pose problems under the antitrust laws. It notes that though publishers will act in concert in implementing these Guidelines, they will not act in concert in rejecting individual agents or subagents. MPA states that this is a legitimate industry self- regulatory activity, and does nothing more than impose on selling agents a burden to adopt fundamental principles of fairness and non-deceit which have already been imposed by various federal and state consumer fraud laws, which will benefit consumers without having anticompetitive effects. MPA letter at 5.

Analysis of the Proposed Guidelines

Through the simultaneous and concerted implementation of the Guidelines' standardized contractual terms, all agents of participating publishers would agree to comply with the requirements of the Commission’s Telemarketing Sales Rule and other applicable consumer protection laws. In addition, the participating publishers would be undertaking to require publishers and their direct agents to supervise their salespeople and subagents to assure that they also are complying with the Telemarketing Sales Rule and other laws. For this purpose, the Guidelines set up a mechanism to require the identification by E.I.N. of all salespeople and subagents, to permit each participating publisher unilaterally to remove from its "approved" list any agent[s] "who submits orders that generate a pattern of valid consumer complaints relating to the solicitation of orders." Guidelines, Section 3. (b).

The antitrust laws do not forbid legitimate self-regulation that benefits consumers. As the Commission has stated, "Such self-regulatory activity serves legitimate purposes, and in most cases can be expected to benefit, rather than to injure, competition and consumer welfare." American Academy of Ophthalmology, 101 F.T.C. 1018 (1018 (1983); see also American Medical Association, 94 F.T.C. 701, 1029 (1979), aff’d by an equally divided Court, 455 U.S. 676 (1982).

MPA indicates that these Guidelines will be adopted by publishers acting in concert. It appears that such concerted action is necessary, as it would be economically disadvantageous for any one publisher to unilaterally demand that its agents follow additional procedures--not required by competing publishers--to prevent violations of the law. However, publishers remain free to choose not to adopt the Guidelines, and there are no sanctions or penalties for doing so.

MPA recognizes that industry self-regulation may raise charges of "boycott" under the antitrust laws by agents who resist the implementation and burden of these guidelines or who are dropped from a particular publisher’s approved list. However, such decisions to disapprove a particular agent are to be made unilaterally, and the Guidelines adopt procedures to assure that information about disapproved agents is not shared among competing publishers. Moreover, agents who are disapproved by a publisher, or subagents terminated by a direct agent, are likely to have generated a pattern of valid consumer complaints relating to their order solicitation practices.

There appears to be little risk that concerted implementation of these Guidelines by publishers will adversely affect competition among publishers in the marketing of their magazines, nor does it appear to be a means of camouflaging an otherwise unlawful agreement. The Guidelines are narrowly tailored to achieve the stated and laudable purpose of preventing violations of the Telemarketing Sales Rule and other consumer protection enactments. The Guidelines in no way affect the prices at which magazines are sold or the compensation of sales agents, nor do they affect the quality of service provided to consumers. The Guidelines do not limit the content of any information provided to consumers by publishers, their salespersons, or their agents, provided that such content does not violate any applicable law or rule. Further, the Guidelines do not prevent publishers from adopting legitimate programs to give sales agents incentives to sell their magazines in competition with those of other publishers. The Guidelines seek only to encourage and enable publishers, acting unilaterally, to identify and cease marketing through questionable or unlawful selling practices. To the extent that the information provided to consumers by sellers of magazine subscriptions is, as a result of adoption of the Guidelines, more complete, reliable, and unencumbered by other deceptive selling practices, adoption of the Guidelines will have a procompetitive effect: it will reduce consumers’ information costs, enhance efficiency, and, likely expand output.

Conclusion

For the reasons discussed above, Commission staff has no present intention to recommend a challenge to MPA’s proposed conduct. This letter sets out the views of the staff of the Bureau of Competition, as authorized by the Commission’s Rules of Practice. Under Commission Rule 1.3(c), 16 C.F.R. Section 1.3(c), the Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the questions involved and, with notice to the requesting party, to rescind or revoke the opinion if implementation of the proposed Guidelines results in substantial anticompetitive effects, if the program is used for improper purposes, if facts change significantly, or if it would be in the public interest to do so.

Sincerely yours,

Michael Joel Bloom
Director
New York Regional Office

 

Endnotes

(1)You have explained that Sections 1, 2, and 3 of Guidelines are directed to that end, and it is to those provisions that we direct our comments. The remaining provisions, you have advised us, largely codify current guidelines relating to other matters. You did not request, nor do we express, any opinion about those provisions.

(2)We understand the word "agent," as used here and elsewhere in the MPA Letter, to refer to agents, sub-agents, and sub-sub-agents unless the context demands a different understanding; we adopt that usage in this comment.