Luskin's, Inc. v. Consumer Protection Division

RODOWSKY, Judge. Presented here is an enforcement action brought by the respondent, Consumer Protection Division (the Agency), un ³³⁹ der the Maryland Consumer Protection Act (the Act), Maryland Code (1975, 1990 Repl. Vol., 1998 Cum. Supp.), §§ 13-101 through 13-501 of the Commercial Law Article (CL). 1 At the time of the violations of the Act alleged by the Agency, the petitioner, Luskin’s, Inc. (Luskin’s), was a retailer of electronic and household goods and services throughout Maryland, in Virginia, and perhaps elsewhere.

In the summer of 1992, Luskin’s advertised and conducted a conditional gift promotional program which the Agency found to be deceptive. Principal among the multiple issues raised by the parties are the standard for determining deceptive advertising, particularly advertising that something is “free” and the scope of relief that the Agency may order. I. The Promotion Vacation Ventures, Inc. (WI), a Florida corporation, markets vacation packages. It sells certificates for these packages to retailers who distribute them to consumers as part of sales promotions.

The certificates allow consumers to start a process to obtain WTs vacation packages, which are subject to various conditions and qualifications. After investigating the experiences that certain retailers in other areas of the United States had had with WI, Luskin’s purchased 14,600 WI travel certificates for $78,180. Luskin’s advertised the promotion by newspaper ads and on television. Set forth below is the text of the newspaper ad.

The reproduction is not to scale. In brackets behind a line of text is the measured height of the lettering in the actual newspaper ad. ³⁴⁰ [[Image here]] Also set forth in the ad were pictures and descriptions of color televisions, air conditioners, camcorders, a dehumidifier, a cellular telephone, a display pager, a sound system, and computers. In the television advertisements of the promotion the audio portion stated the minimum purchases required for free airfare to the particular destinations, but only a written text, briefly appearing visually on the screen, advised “Minimum hotel stay required. See store for details.” The Agency found that “[pjrior to making a purchase at Luskin’s, the consumer knew from the advertisements that: (1) free airfare was contingent upon the purchase of the requisite dollar amount of goods; (2) the airfare was offered through WI which is not affiliated with Luskin’s; (3) applicable taxes applied; and (4) a minimum hotel stay was required.” The details of how the “free airfare” could be obtained were set forth in a threefold, color brochure, purchased by Luskin’s from WI.

It described the vacation packages, identified the ³⁴¹ hotels, stated the room rates, set forth a page of “terms and conditions,” and included a reservation request form. As found by the Agency, “[t]he WI brochure discloses that the consumer is required to pay the following costs: (1) a $15.00 per person nonrefundable processing fee; (2) seven [for Florida] to twelve [for Hawaii] nights hotel accommodations at the non-discounted or ‘rack’ rate; (3) three meals at $25.00 per person on the ‘Discovery Cruise’ (if the Bahamas vacation were chosen); (4) airfare between islands at rates set by WI (if the Hawaiian vacation were chosen); (5) air tax; (6) fuel surcharges; (7) airport departure tax; (8) hotel tax; (9) port and service charges; (10) U.S. Government cruise passenger user fee; (11) Bahamian departure tax; and (12) hotel service charge.” The brochure further advises that the consumer must state first, second, and third preferences for departure dates for the vacation destination selected, that WI must have forty-five days notice in advance of the first choice departure date, and that the succeeding choices must each be fifteen days apart. No requested vacation date was guaranteed, and all dates were subject to availability. There were also dates when travel was not available at all, including major holidays.

The reservation request form portion of the WI brochure was referred to by the parties as the travel certificate. Each certificate bore a separate, preprinted, inventory control number which presumably identified it as one of the certificates sold to Luskin’s. It was necessary for Luskin’s to countersign and date a certificate when it was delivered to a buyer. Buyers who were interested in pursuing the promotion furnished WI identifying information, three choices of dates, and a “non-refundable processing fee of $15.00 per person.” If WI confirmed availability of one of the dates, the consumer had to make a down payment, or payment in full, to WI within , ten days, at the risk of additional costs or of loss of monies previously paid. ³⁴² The record does not reflect the total number of travel certificates issued to customers of Luskin’s out of the 14,600 certificates purchased by Luskin’s from WI.

Only 128 travel certificates were completed and sent to WI and, of these, only eleven certificates were actually used for one of the vacations described in the WI brochure. The Agency found that the brochure, with the included travel certificate, was not furnished by Luskin’s to a buyer until delivery of the goods that had been purchased. The president of Luskin’s testified that a sample of the brochure was available in each of the Luskin’s stores for review by customers. Through the Agency’s own advertising, it located four customer witnesses who testified at the hearing.

None of them saw a sample of the WI brochure on display at the stores where they made their purchases. Nor did the salespersons volunteer details to those customer witnesses and, when asked, generally did not explain the promotion beyond the information presented in the Luskin’s advertisements. Luskin’s, however, did prepare a computer printout that listed the principal requirements for utilizing the WI vacation package. This printout was affixed to the sales ticket at the time of purchase.

Thus, it appears that all customers who made purchases from Luskin’s in the minimum required amount as set forth in Luskin’s advertisements received a brochure, including a valid travel certificate, whether those customers were aware of the promotion or not. No customer, however, received the brochure prior to consummating the required minimum purchase. Those customers who took delivery at the point of sale received the brochure at that time, and those customers who had Luskin’s make delivery did not receive the certificate until that delivery was made.

II

Procedural History On July 27, 1992, the Agency notified Luskin’s that the free airfare ad violated § 13-305 of the Act. Section 13—305(b) provides: ³⁴³ “A person may not notify any other person by any means, as part of an advertising scheme or plan, that the other person has won a prize, received an award, or has been selected or is eligible to receive anything of value if the other person is required to purchase goods or services, pay any money to participate in, or submit to a sales promotion effort.” The Agency ordered Luskin’s to discontinue the promotion. Luskin’s disagreed that the ad violated the Act, but the Agency advised Luskin’s that if it did not discontinue its current free airfare advertisements, the Agency would bring an enforcement action. Luskin’s discontinued the ad and immediately began to work on a new ad.

Luskin’s then presented a proposed second ad to the Agency for its review and approval. The Agency advised Luskin’s that the second ad also would violate § 13-305. On September 11, 1992, Luskin’s filed an action in the Circuit Court for Harford County, seeking a judgment declaring that the second proposed ad complied with the Act. On September 28, 1992, the Agency brought an administrative enforcement action, charging Luskin’s, by having publicized the first ad, with violating the general deceptive trade practice prohibition in § 13-303 of the Act by engaging in the deceptive trade practices described in § 13-301(1), (3), and (9) of the Act.

The action also reiterated the charge of violating § 13-305. Under § 13-301(1), a “[f]alse, falsely disparaging, or misleading oral or written statement, visual description, or other representation of any kind which has the capacity, tendency, or effect of deceiving or misleading consumers” is a deceptive trade practice. Similarly, a “[fjailure to state a material fact if the failure deceives or tends to deceive” is a deceptive practice under § 13-301(3). Likewise, § 13-301(9) proscribes “[d]eception, fraud, false pretense, false premise, misrepresentation, or knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same ³⁴⁴ in connection with ... [t]he promotion or sale of any consumer goods----” Luskin’s obtained a favorable declaratory judgment from the circuit court as to the second, proposed ad, but that judgment was vacated by the Court of Special Appeals under the primary jurisdiction doctrine, and the action was dismissed.

Consumer Protection Div. v. Luskin’s, Inc., 100 Md.App. 104, 115 , 640 A.2d 217, 222 (1994). We affirmed. Luskin’s Inc. v. Consumer Protection Div., 338 Md. 188 , 657 A.2d 788 (1995). The enforcement action as to the published, first ad that is now before us was tried before an administrative law judge (ALJ), who concluded in May 1993 that Luskin’s had committed all of the violations that had been charged.

In ruling on exceptions the Agency made immaterial modifications to the ALJ’s opinion and issued its decision and final order in September 1993, adopting the ALJ’s proposed opinion, as modified. The Agency ordered the relief and the establishment of a claims administration procedure that are more fully described in Parts VIII and IX, infra. Luskin’s sought judicial review in the Circuit Court for Harford County. In December 1996, the circuit court reversed.

That court determined that it owed no deference to the conclusions of the Agency inasmuch as the issues presented “common sense kinds of questions” and disagreed with the Agency’s findings on all counts. The circuit court held that Luskin’s had violated neither § 13-303 nor § 13-305, that there had been an accord and satisfaction between Luskin’s and the Agency, and that the enforcement action was retaliatory and selective, and, thus, unconstitutional. The Court of Special Appeals reversed. Consumer Protection Div. v. Luskin’s, Inc., 120 Md.App. 1 , 706 A.2d 102 (1998).

That court held that a court in a judicial review action did owe deference to the Agency’s findings, that the Agency’s final decision and order were based upon substantial evidence, and that the Agency correctly interpreted the law. Luskin’s petitioned for a writ of certiorari, which we granted. ³⁴⁵ III. The Issues In its petition for certiorari Luskin’s raised eight issues which we rephrase and consolidate as follows: 1. What is the standard to be applied by the Agency in determining whether a practice is deceptive and how is it to be applied here? 2.

Does § 13-301(9) require an intent to misrepresent? 3. Does § 13-305 apply to the “free airfare” promotion by Luskin’s? 4. Was the circuit court obliged to give deference to the Agency’s determinations, particularly its determinations concerning the defenses of accord and satisfaction and of retaliatory enforcement? 5. Is the Agency’s cease and desist order overly broad? 6.

Does the Agency’s restitution order exceed its powers? IY. The Standard In answer to the issue concerning the proper standard to be applied by the Agency, the parties argue over whether an ad is adjudged deceptive by a reasonable person standard or by an “unsophisticated” person standard. The latter standard seemingly is equated by the Agency with acting unreasonably.

Luskin’s contends that the reasonable person standard is the one that has been applied by the Federal Trade Commission (FTC) for at least fifteen years and that, if that standard were properly applied in the instant matter, the free airfare advertisements would not be deceptive. The Agency contends, citing principally Golt v. Phillips, 308 Md. 1 , 517 A.2d 328 (1986), that Maryland follows the “unsophisticated” consumer test under which the free airfare ads are clearly deceptive, and, alternatively, that the ads also would be deceptive if the reasonable person standard is applied. As we explain below, semantics accounts for a large part of the gulf between the positions of the parties. The debate between the parties also embraces the degree of materiality of an allegedly deceptive advertisement.

Contend ³⁴⁶ ing that its position is supported by FTC law, Luskin’s submits that, in order to establish a violation, the Agency must prove that consumers would not have purchased goods from Luskin’s during the period of the free airfare promotion but for that promotion. We address materiality and reliance in Part IV.C, infra. The ALJ-based, final decision of the Agency considered there to be two distinct standards for determining deception, but held that the free airfare advertisement was a deceptive practice under both. The final decision in part reads: “The total impression left with the consumer by both the newspaper and television advertisements is that Luskin’s was offering free airfare for two, conditioned upon the requisite dollar-amount purchase from the store.

The disclaimer used in the advertisements does not dispel this impression and was not seen by any of the consumer witnesses. Even had it been seen, its terms reasonably could be expected to lead consumers to erroneous conclusions about the true terms of the offer. “Luskin’s actually provided consumers with a WI brochure and a redeemable vacation certificate. Luskin’s, in fact, never provided free airfare to the consumer. At the conclusion of the purchase, upon delivery of the goods, the consumer was given a WI brochure that included a redeemable certificate.

Redemption required the consumer to expend hundreds to thousands of dollars. While it is true, that the airfare was ‘free’ upon the payment of these funds and satisfaction of the terms and conditions imposed by WI, that cannot be interpreted by a reasonable consumer as the provision of ‘free airfare for two.’ “The consumer could reasonably have believed that airline tickets or vouchers would be provided by Luskin’s. Luskin’s chose bold typeface to notify the consumer in the advertisement that ‘tickets must be used within one year ask for details.’ In fact, no tickets were provided. Luskin’s focused on free airfare and tickets rather than on the vacation certificate.

By doing so, it led the reásonable consumer to believe that the airfare primarily was condi ³⁴⁷ tioned upon the purchase of consumer goods at Luskin’s and that any further condition or requirement would be secondary. However, the purchase of consumer goods is a secondary cost when compared with the cost of redeeming the travel certificate. “In sum, under the FTC statements of policy and cases construing the FTC Act, the standard for measuring the overall impression of an advertisement is the total impression left upon the reasonable consumer. It is notable that the Court of Appeals of Maryland still applies a stricter ‘unsophisticated consumer’ standard in construing the Maryland Consumer Protection Act. Neither standard measures the effect upon the most sophisticated, skeptical consumer.

The ordinary consumer, whether ‘reasonable’ or ‘unsophisticated’, is not expected to scrutinize, analyze and research an advertisement.]” (Citations omitted). Thus, we disagree with the Court of Special Appeals when it said: “The Agency permissibly chose not to apply the more modern FTC standard on deception but instead applied the law as stated by the Court of Appeals in Golt, i.e., by implicitly using a measure less stringent than the reasonable consumer standard, and by not adding a ‘but for’ materiality element.” Luskin’s, 120 Md.App. at 32-33 , 706 A.2d at 117 . 2 A. The FTC Approach Understanding the debate requires a review of the evolving approach by the FTC to determinations of what is deceptive. In its brief here the Agency has staked out a position under an approach utilized by the FTC in some cases prior to its decision in Cliffdale Associates, Inc., 103 F.T.C. 110 (1984). To that decision the FTC appended a copy of a letter dated ³⁴⁸ October 14, 1983, to the United States House of Representatives, describing the FTC’s enforcement policy in deception cases (the FTC Policy).

Writing in 1964, one observer of FTC enforcement against false advertising described “the level of consumer intelligence” selected by the FTC “against which it will consider” an advertisement. I.M. Millstein, The Federal Trade Commission and False Advertising, 64 Colum. L.Rev. 439, 458 (1964) (Millstein). “It may be said,” concluded Millstein, “that the FTC has selected an extremely low intelligence level, and that the courts have not significantly disturbed the [FTC’s] determinations in this respect.” Id. 3 Illustrating Millstein’s conclusion is Gelb v. FTC, 144 F.2d 580 (2d Cir.1944). There a divided panel sustained an order prohibiting the manufacturer of Clairol from representing that the product’s effect on coloring hair was permanent. “There [was] no dispute that [Clairol] imparts a permanent coloration to the hair to which it is applied, but the [FTC] found that it has ‘no effect upon new hair,’ and hence concluded that the representation as to permanence was misleading.” Id. at 582 .

Referring to Gelb as a “farfetched conclusion[ ],” a former director of the FTC’s Bureau of Consumer Protection has observed that “[p]ast [FTCs] occasionally have carried to astonishing lengths their mandate to protect the credulous against deception.” R. Pitofsky, Beyond Nader: Consumer Protection and the Regulation of Advertising, 90 Harv. L.Rev. 661, 676 n. 58 (1977). See also Charles of the Ritz Distribs. Corp. v. FTC, 143 F.2d 676, 679-80 (2d Cir.1944) (prohibiting use of the trademark “Rejuvenescence” for a foundation make-up cream because “the average woman ... might take ‘rejuvenescence’ to mean that this ‘is one of the modern miracles’ and is ‘something which would actually cause her youth to be restored.’ ”) (quoting testimony of FTC’s expert). ³⁴⁹ The foregoing cases are not entirely representative of the pre-1984 body of false advertising law, even in the Second Circuit.

In FTC v. Sterling Drug, Inc., 317 F.2d 669 (2d Cir.1963), the court affirmed the refusal by a district court to issue an injunction enforcing an FTC order against the manufacturer of Bayer aspirin. Funded by an FTC grant, an independent medical team had conducted a comparative study of five proprietary analgesic compounds, including Bayer aspirin. The conclusions of the study were published in the Journal of the American Medical Association and were quite favorable to Bayer aspirin. Its advertisement in print media began by stating “ ‘Government-Supported Medical Team Compares Bayer Aspirin and Four Other Popular Pain Relievers.’—‘Findings Reported In The Highly Authoritative Journal Of The American Medical Association Reveal____’” Id. at 673 .

The FTC contended that these portions of the ad deceptively implied that Bayer aspirin was endorsed by the federal government and by the American Medical Association. The Sterling Drug court restated certain well-established rules. “[Advertising falls within [the FTC Act’s] proscription not only when there is proof of actual deception but also when the representations made have a capacity or tendency to deceive, i.e., when there is a likelihood or fair probability that the reader will be misled.” Id. at 674 . The court further said that “the cardinal factor is the probable effect which the advertiser’s handiwork will have upon the eye and mind of the reader. It is therefore necessary in these cases to consider the advertisement in its entirety and not to engage in disputatious dissection.

The entire mosaic should be viewed rather than each tile separately.” Id. 4 With respect to a reader of the ad, the Sterling Drug court said that “[u]nlike that abiding faith which the law has in ³⁵⁰ the ‘reasonable man,’ it has very little faith indeed in the intellectual acuity of the ‘ordinary purchaser’ who is the object of the advertising campaign.” Id. Nevertheless, the court held that “our hypothetical, sub-intelligent, less-than-careful reader” would not be led to believe that the Government endorsed the product itself, as opposed to having supported the study. Id. at 675 . The court further held: “To assert that the ordinary reader would conclude from the use of the word ‘authoritative’ that the study was endorsed by the Journal and the Association is to attribute to him not only a careless and imperceptive mind but also a propensity for unbounded flights of fancy.

This we are not yet prepared to do.” Id. at 676 . The FTC decision in Heinz W. Kirchner t/a Universe Co., 63 F.T.C. 1282 (1963), also forms part of the pre-FTC Policy history. The product involved there, “Swim-Ezy,” was a flat, inflatable rubber bladder connected to a plastic tube. The Swim-Ezy was to be worn under a bathing suit or trunks and inflated after the wearer had entered the water, thus theoretically preventing others from realizing that the wearer could not swim.

Advertising referred to the product as an “invisible” swim aid. On that aspect of the case the FTC found no violation, on the following rationale: “To be sure, ‘Swim-Ezy’ is not invisible or impalpable or dimensionless, and to anyone who so understood the representation, it would be false. It is not likely, however, that many prospective purchasers would take the representation thus in its literal sense. True, as has been reiterated many times, the [FTC’s] responsibility is to prevent deception of the gullible and credulous, as well as the cautious and knowledgeable (see e.g., Charles of the Ritz Dist.

Corp. v. F.T.C., 143 F.2d 676 (2d Cir.1944)). This principle loses its validity, however, if it is applied uncritically or pushed to an absurd extreme. An advertiser cannot be charged with liability in respect of every conceivable misconception, how ³⁵¹ ever outlandish, to which his representations might be subject among the foolish or feebleminded. Some people, because of ignorance or incomprehension, may be misled by even a scrupulously honest claim.

Perhaps a few misguided souls believe, for example, that all ‘Danish pastry’ is made in Denmark. Is it, therefore, an actionable deception to advertise ‘Danish pastry’ when it is made in this country? Of course not. A representation does not become ‘false and deceptive’ merely because it will be unreasonably misunderstood by an insignificant and unrepresentative segment of the class of persons to whom the representation is addressed.

If, however, advertising is aimed at a specially susceptible group of people (e.g., children), its truthfulness must be measured by the impact it will make on them, not others to whom it is not primarily directed.” Id. at 1289-90. Heinz W. Kirchner was relied on in the FTC Policy. Appendix to Cliffdale Assocs., Inc., 103 F.T.C. at 178. Cliffdale Associates involved a gasoline conservation, automobile-retrofit-device called the “Ball-Matic.” Id. at 161.

Advertising claims made for the Ball-Matic included that it would get “ ‘up to ... 100 extra miles between fillups.’ ” Id. at 167. The FTC upheld an ALJ’s decision finding the claims deceptive because they were scientifically unsubstantiated. Significant to the case before us is that the FTC utilized Cliffdale Associates as the vehicle for applying the Policy to decide an actual case. The FTC said: “Consistent with its Policy Statement on Deception, issued on October 14, 1983, the [FTC] will find an act or practice deceptive if, first, there is a representation, omission, or practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and third, the representation, omission, or practice is material.

These elements articulate the factors actually used in most earlier [FTC] cases identifying whether or not an act or practice was deceptive, even though the language used in those cases ³⁵² was often couched in such terms as ‘a tendency and capacity to deceive’. “The requirement that an act or practice be ‘likely to mislead’, for example, reflects the long established principle that the [FTC] need not find actual deception to hold that a violation of Section 5 has occurred.” Id. at 164-65 (footnotes omitted). Further explaining the second element, the FTC said that “[v]irtually all representations, even those that are true, can be misunderstood by some consumers,” id., and that it had “long recognized that the law should not be applied in such a way as to find that honest representations are deceptive simply because they are misunderstood by a few.” Id. The standard for deception applied by the FTC in Clijfdale Associates and succeeding cases is the standard for determining deception now applied by the federal courts. See FTC v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir.1994), cert. denied, 514 U.S. 1083 , 115 S.Ct. 1794 , 131 L.Ed.2d 722 (1995); Kraft, Inc. v. FTC, 970 F.2d 311, 324 (7th Cir.1992), cert. denied, 507 U.S. 909 , 113 S.Ct. 1254 , 122 L.Ed.2d 652 (1993); FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir.1988); Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431 , 1435-36 (9th Cir.), cert. denied, 479 U.S. 828 , 107 S.Ct. 109 , 93 L.Ed.2d 58 (1986); FTC v. Wilcox, 926 F.Supp. 1091, 1098 (S.D.Fla.1995); FTC v. Patriot Alcohol Testers, Inc., 798 F.Supp. 851, 855 (D.Mass.1992).

B. Section 13-105 The parties are also at odds over the effect on the instant matter of § 13-105. In part it provides: “It is the intent of the General Assembly that in construing the term ‘unfair or deceptive trade practices’, due consideration and weight be given to the interpretations of § 5(a)(1) of the [FTC] Act by the [FTC] and the federal courts.” The Court of Special Appeals concluded that “[t]he Agency is not required to apply federal law, only to give it due consideration and weight.” Luskin’s, 120 Md.App. at 32 , 706 A.2d at ³⁵³ 117. That court concluded that the Agency’s discussion of the FTC standard satisfied the directive of § 13-105 and that the Agency permissively chose to apply pre-FTC Policy law. Id.

The origins of § 13-105 trace to Maryland’s first Consumer Protection Act, enacted by Chapter 388 of the Acts of 1967 and codified in Maryland Code (1957, 1969 Repl.Vol.) as Article 83, §§ 19 through 27. Former Article 83, § 21 provided “that nothing herein contained shall apply to any advertisement which is subject to and complies with the rules and regulations of, and the statutes administered by the [FTC].” (Emphasis added). False advertising was also subject to a civil penalty, on action of the Attorney General, by Chapter 337 of the Acts of 1966, codified as Maryland Code (1957,1967 Repl.Vol.), Article 27, § 195A. In 1974 the Consumer Protection Act was considerably enlarged by Chapter 609 of the Acts of that year.

For example, Chapter 609 added a list of the types of conduct, such as that now found in § 13-301, that constituted an unfair or deceptive trade practice. Chapter 609 repealed former Article 83, § 21 and enacted a new Article 83, § 20A which provided in relevant part that “[i]t is the intent of the General Assembly that in construing unlawful and deceptive practices as defined in this subheading due consideration and weight shall be given to the interpretation of the [FTC] and. the federal courts relative to” the FTC Act. (Emphasis added). Thus, under former Article 83, § 21, the Agency, in effect, would be required to apply federal law if the defense of compliance with the FTC Act were asserted to a false advertising claim.

When the Maryland Act was expanded in 1974 the scope of the Act’s reference to the FTC was expanded to apply to all allegedly deceptive acts and practices. Further, in lieu of possibly having the Agency interpret and apply the FTC Act in a matter of first impression, the General Assembly announced its intent that the Agency give “due consideration and weight” to actual interpretations by the FTC and by the federal courts. ³⁵⁴ With respect to the civil penalty provision for false advertising, former Article 27, § 195A is now CL § 11-706. It reads: “In any action brought under this subtitle, it is a defense that the advertisement ... is subject to and complies with the rules and regulations of and the statutes administered by the [FTC] or any unit of the State government.” Both former Article 27, § 195A and former Article 83, § 20A were revised and re-enacted at the same time in the adoption of the Commercial Law Article by Chapter 49 of the Acts of 1975. Against the foregoing background we hold, for a number of reasons, that the Agency did not comply with § 13-105 when, at least in the view of the Court of Special Appeals, it rejected the FTC Policy.

The legislature’s reference to FTC and federal court interpretations of the federal act contemplates a growing and developing body of law. That legislative intent is disregarded if the Agency essentially freezes the standard for determining a deceptive practice to FTC and federal court interpretations rendered prior to the FTC Policy. One purpose underlying § 13-105 is to achieve a fair comparability between what the FTC and the Agency consider to be unfair or deceptive, absent some clear Maryland policy that dictates a different conclusion. Fair comparability seemingly is most important in the area of advertising.

The General Assembly certainly was aware of the fact that Maryland merchants advertise interstate, particularly Maryland merchants in the metropolitan Washington, D.C. area. Maryland merchants who disseminate in the District of Columbia and Northern Virginia ads that are considered lawful by the FTC ordinarily should be permitted to publish the same ad in Maryland without violating the Act. Reinforcing this conclusion is CL § 11-706 which makes FTC compliance defensive in a penalty action for alleged false advertising. More fundamental is the public policy purpose of not granting to the Agency an unbridled discretion to determine what is “unfair” or “deceptive.” The legislative intent is demonstrated by the prohibited practices enumerated in subsections of ³⁵⁵ § 13-301, some of which are quite specific.

The subsections of § 13-301, however, cannot exhaust the ingenuity of those disposed to deceive or unfairly to treat consumers. Hence the necessity for the general subsections, (1), (3), and (9), that are charged here. When charges by the Agency range beyond the more specific of the § 13-301 violations, the obvious place to look for precedent is the body of law developed under § 5 of the FTC Act. It is one way in which to test if the Agency has exceeded its delegated discretion.

Thus, § 13-105’s expression of intent to give “due consideration and weight” to FTC law is more precatory than hortatory. In Haskell v. Time, Inc., 857 F.Supp. 1392 (E.D.Cal.1994), the federal district court for the Eastern District of California determined whether deceptive trade practices under the California Business Practices Act should be judged by an “unwary” consumer test or by a “reasonable” consumer test. Allegedly deceptive were statements made in soliciting magazine subscriptions through a promotion that included “sweepstakes” entries. Id. at 1399 .

The California statute was silent on the relevance of the law under the FTC Act. For a number of reasons the court applied the reasonable consumer test. It was the FTC standard, and the California statute was a “little” FTC Act. The court was further persuaded by the use of the reasonable person standard under the Lanham Act and in actions for securities fraud, deceit and misrepresentation, and common law unfair competition (citing a California state decision).

Id. at 1398 . 5 The Agency urges that we reject the FTC Policy by reliance on Golt v. Phillips, 308 Md. 1 , 517 A.2d 328 . Golt was a private action brought under the Act by a tenant against the ³⁵⁶ landlord of a property in Baltimore City. The tenant had responded to an ad to lease the property but had not been advised that the premises was not licensed as required by a Baltimore City multiple-family-dwelling ordinance. Id. at 9 , 517 A.2d at 332 .

We held this to be a violation of the Act, concluding that lack of proper licensing was a material fact. Id. at 10 , 517 A.2d at 332 . The Agency here relies on a sentence from Golt reading: “An omission is considered material if a significant number of unsophisticated consumers would attach importance to the information in determining a choice of action.” Id. We cited Charles of the Ritz, 143 F.2d at 679-80 , and Gulf Oil Corp. v. FTC, 150 F.2d 106, 109 (5th Cir.1945), with a signal to compare those cases with Restatement (Second) of Torts § 538 (1977), adopting a reasonable person standard for materiality in common law decéit.

We then held: “In our view, the lack of proper licensing for an apartment under most circumstances is a material fact that any tenant would find important in his determination of whether to sign a lease agreement and move into the premises.” Golt, 308 Md. at 10 , 517 A.2d at 332 (emphasis added). Neither the FTC Policy nor the 1984 FTC decision in Cliffdale Associates was argued to this Court in Golt , and this Court was not asked to make a choice between competing standards. Nor did this Court make a choice. Inasmuch as “any” tenant would have been deceived, the holding in Golt happens to satisfy both standards.

More important is the premise underlying the opinions of the Agency and of the Court of Special Appeals to the effect that the “reasonable” consumer and the “unsophisticated” consumer are antithetical concepts. The logical conclusion from such a premise is that the standard for measuring a deceptive ad is its impression on an unreasonable consumer. That view is erroneous. A consumer may be both reasonable and unsophisticated.

Sophistication relates to the consumer’s expertise in a particular area, not to that person’s reasonableness. In the case of alleged deceptive advertising, the product or service advertised and the target audience of the ad are of critical importance. For example, in Golt the target audience ³⁵⁷ for the advertisement was all persons seeking basic housing in an apartment in Baltimore City. A person who is inexperienced in the rental real estate market in Baltimore City and does not know of the licensing requirements or know where and how to obtain that information is not thereby unreasonable.

Indeed, it would seem that even a sophisticated consumer who read the ad in Golt for an apartment in the multiple-family dwelling and who knew of the licensing requirement could reasonably rely on the landlord’s having complied with that law. Although not using the reasonable versus unsophisticated terminology, a good illustration of the difference between the unsophisticated, the reasonable, and the sophisticated is found in Standard Oil Co. v. FTC, 577 F.2d 653 (9th Cir.1978). The product advertised there was a gasoline additive called “F-310” that was marketed as an anti-pollutant. For example, one television ad utilized a clear balloon that was affixed to the tailpipe of an automobile and the engine started.

In the “before” depiction, the balloon filled with dark gases while in the “after” depiction, the balloon inflated but was clear. An FTC examiner found that the ads accurately depicted the product’s performance, but the FTC concluded that there were violations, two of which were that the commercials “falsely represented (1) that the use of F-310 would result in a complete reduction of air pollutants” and “(3) that the use of F-310 would affect all types of exhaust emissions[.]” Id. at 657. With respect to the first claimed violation the Ninth Circuit stated that “neither the courts nor the [FTC] should freely speculate that the viewing public will place a patently absurd interpretation on an advertisement.” Id. The court did “not think that any television viewer would have a level of credulity so primitive that he could expect to breath fresh air if he stuck his head into a bag inflated by exhaust, no matter how clean it looked.” Id.

In the terminology which we are using in the instant matter that consumer would be both unsophisticated and unreasonable, and the ad would not be deceptive. ³⁵⁸ The court in Standard Oil, however, sustained the other violation described above. The court noted evidence that only “fourteen percent of motorists [were] aware that most polluting elements in automobile exhaust are invisible.” Id. at 657-58 (footnote omitted). These motorists would be deceived by the absence of black smoke and particulate matter in the “after” presentation. In the parlance that we are using in the instant matter, those consumers would be reasonable, but not sophisticated.

C. Materiality Luskin’s contends that “giving due consideration and weight” to the FTC Policy requires that the materiality element of the determination of deception be based on “but for” causation. Luskin’s bases this argument on a summary in the Policy of the materiality element, where the FTC said: “The basic question is whether the act or practice is likely to affect the consumer’s conduct or decision with regard to a product or service. If so, the practice is material, and consumer injury is likely, because consumers are likely to have chosen differently but for the deception. In many instances, materiality, and hence injury, can be presumed from the nature of the practice.

In other instances, evidence of materiality may be necessary.” Cliffdale Assocs., Inc., 103 F.T.C. at 175-76 (emphasis added). Under the Policy, it is the probability that the deceptive practice affected the customer’s decision that makes the misrepresentation material. At a minimum a practice is subject to a cease and desist order if it has the tendency to deceive. The balance of the summary, including “but for” causation, addresses the question of actual consumer injury. 6 Our reading of the Policy statement is confirmed by the FTC’s description of the requisites of materiality in Cliffdale Associates.

There the FTC said that ³⁵⁹ “a material misrepresentation ... involves information that is important to consumers and, hence, likely to affect their choice of ... a product. Consumers thus are likely to suffer injury from a material misrepresentation.” Id. at 165-66. We hold that the Act includes the above description of the materiality element in a deceptive practice. D. FTC Guidelines on “Free” In 1971, the FTC adopted a regulation interpretive of § 5 of the FTC Act. 36 Fed.Reg. 21,517 (1971).

See 16 C.F.R. § 251.1 (1998), “Guide Concerning Use of the Word ‘Free’ and Similar Representations” (Free Guidelines). In relevant part the regulation provides: “When making ‘Free’ or similar offers all the terms, conditions and obligations upon which receipt and retention of the ‘Free’ item are contingent should be set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood. Stated differently, all of the terms, conditions and obligations should appear in close conjunction with the offer of ‘Free’ merchandise or service. For example, disclosure of the terms of the offer set forth in a footnote of an advertisement to which reference is made by an asterisk or other symbol placed next to the offer, is not regarded as making disclosure at the outset.” This interpretive rule reiterates the position taken by the FTC in 1953.

See In re Walter J. Black, Inc. t/a Classics Club & Detective Book Club, 50 F.T.C. 225 (1953). 7 The FTC has stated that “[w]hile the guide is interpretive of laws administered by the [FTC] and thus advisory in nature, proceedings, as ³⁶⁰ appropriate, to enforce the requirements of law as explained in the guide may be brought----” 36 Fed.Reg. at 21,517 (emphasis added). See also 16 C.F.R. § 1.5 (1998) (“Industry guides are administrative interpretations of laws administered by the [FTC] for the guidance of the public in conducting its affairs in conformity with legal requirements.”). According to the general provisions of the Free Guidelines, they were promulgated to accord with the way in which “the public understands” the word “free.” The FTC noted that “[b]ecause the purchasing public continually searches for the best buy, and regards the offer of ‘Free’ merchandise or service to be a special bargain, all such offers must be made with extreme care so as to avoid any possibility that consumers will be misled or deceived.” 16 C.F.R. § 251.1 (a)(2) (emphasis added). As with the FTC Policy the Free Guidelines should be given due weight and consideration.

See generally D. Pridgen, Consumer Protection and the Law § 11:21 (1986, 1998 Supp.) (Pridgen) (“Most rational consumers presumably realize there is no such thing as a free lunch. Until the FTC is willing forthrightly to wipe the slate clean, however, marketers should attempt to follow the full disclosure ... rule for free offers, as state enforcement authorities may continue to incorporate the doctrine through references to FTC law in the state unfair and deceptive trade practices statutes.”). The same commentator has suggested that “[d]espite the history of rigorous enforcement, at the present time ... the [Free Guidelines are] rarely ever applied by the [FTC].” Pridgen § 11:31. Most commentators, however, continue to recognize the Free Guidelines as the FTC’s statement on lawful use of the word “free.” National Consumer Law Center, Unfair and Deceptive Acts and Practices § 4.6.4 (4th ed.1997); T.T. Trai Le, Protecting Consumer Rights § 2.08 (1987); H. Alperin & R. Chase, Consumer Law § 77 (1986); G.E. Rosden, The Law of Advertising § 28.06[1] (1973, 1998 Supp.). ³⁶¹ In 1988, The Reader’s Digest Association, Inc. (Reader’s Digest) claimed that the language of the Free Guidelines was a remnant of pre-Cliffdale Associates law.

In re Reader’s Digest Ass’n, 1988 FTC LEXIS 7 (1988). The challenge was raised in a request that the FTC reopen and modify a 1963 consent order. Section 1 of that order prohibited Reader’s Digest from “[u]sing the word ‘free’, ‘absolutely free’, ‘paid in full gift’ or any other word or words of similar import or meaning, to designate or describe articles of merchandise ... in advertising or other offers to the public when all the conditions, obligations, or other prerequisites to the receipt and retention of the said free .... articles of merchandise are not clearly and conspicuously explained or set forth at the outset so as to leave no reasonable probability that the terms of the advertisements or offer might be misunderstood.” In re Reader’s Digest Ass’n, 63 F.T.C. 1653 , 1660-61 (1963) (emphasis added). The FTC rejected Reader’s Digest’s position, concluding that the company had “failed to demonstrate that changed conditions ... of law require deletion of the reasonable probability clause.” In re Reader’s Digest Ass’n, 111 F.T.C. 758 , 760 (1989).

The FTC said that it had used comparable language in other orders before and since the challenged 1963 order and that it “continues to use language virtually identical to the reasonable probability clause in its Free [Guidelines]. The continued use of the language in the Free [Guidelines] reflects the [FTC’s] confidence in the propriety of the language of the reasonable probability clause.” Id. at 761. In re Encyclopaedia Britannica, Inc., 111 F.T.C. 1 (1988), and In re Grolier, Inc., 104 F.T.C. 639 (1984), were requests by those publishers that the FTC modify orders that, in relevant part, precluded the companies from advertising goods or services as “free” unless those offers complied “with all of the terms of the [FTC’s] ‘Guide Concerning Use of the Word “Free” and Similar Representations.’ ” The FTC retained ³⁶² those portions of the orders that required compliance with the Free Guidelines. Ill F.T.C. at 14; 104 F.T.C. at 643.

Similarly, in 1994, the FTC barred the Beverly Hills Weight Loss Clinic from representing that any of its weight loss programs could be obtained for free, ábsent certain disclosures, including “ ‘[y]ou must pay for [list of products or services that participants must purchase at additional cost] to take advantage of this free offer.’ ” In re Beverly Hills Weight Loss Clinics Int’l, Inc., 118 F.T.C. 213 , 255 (1994). See also In re America Online, Inc., 5 Trade Reg. Rep. (CCH) ¶ 24,260 (Mar. 16, 1998) (failure to disclose the terms and conditions of a “free” offer constituted a deceptive practice).

These requirements are remarkably similar to those of the Free Guidelines. 8 ³⁶³ The FTC Free Guidelines were held to be incorporated into a New York statute in State ex rel. Abrams v. Stevens, 130 Misc.2d 790 , 497 N.Y.S.2d 812 (N.Y.Sup.Ct.1985). N.Y. Exec. Law § 63 (McKinney 1985) authorized the Attorney General to bring an action for “repeated fraudulent or illegal acts.” New York courts had interpreted that clause to include authorizing actions for repeated violations of federal laws and regulations.

Stevens, 497 N.Y.S.2d at 813 . The court concluded that Stevens’s conduct violated the Free Guidelines and, accordingly, § 63. The FTC’s analysis of “free” merchandise and service advertising was applied under a state statute similar to the Maryland Act in Fineman v. Citicorp USA, Inc., 137 Ill.App.3d 1035 , 92 Ill.Dec. 780 , 485 N.E.2d 591 (1985). There a credit card issuer, as an incentive for cardholders immediately to accept an increase in the annual fee, offered those accepting the increase “ TO valuable extra services’ ... including ‘free $100,000 common carrier travel insurance.’” Fineman, 92 Ill.Dec. 780 , 485 N.E.2d at 592 .

Like Maryland’s Act, the Illinois statute at issue in Fineman provided that, ‘“[i]n construing [the prohibition against deceptive trade practices] consideration shall be given to the interpretations of the [FTC] and the federal courts relating to Section 5(a) of the [FTC] Act.’ ” Id. at 780, 485 N.E.2d at 593 -94 (citing Ill.Rev. Stat. Ch. 121-1/2, ¶ 262 (1981)). The Fineman court adopted and quoted the disjunctive rules set forth in the precursor to the Free Guidelines. In re Walter J. Black, Inc., 50 F.T.C. 225 . One of the alternate rules is: ³⁶⁴ “The use of the word ‘Free,’ [is] an unfair or deceptive act or practice under the following circumstances: “(1) When all of the conditions, obligations, or other prerequisites to the receipt and retention of the ‘free’ article of merchandise are not clearly and conspicuously explained or set forth at the outset so as to leave no reasonable probability that the terms of the advertisement or offer might be misunderstood.” Id. at 235-36 (cited at Fineman, 92 Ill.Dec. 780 , 485 N.E.2d at 594 ).

The court concluded that there was no violation because the card issuer had clearly stated in its notice “that the insurance was available only to those cardholders who agreed to pay the higher fee. There was no reasonable probability that the offer would be misunderstood.” Fineman, 92 Ill.Dec. 780 , 485 N.E.2d at 594 (emphasis added). For much the same reasons as those underlying our holding concerning the standard for determining if a practice is deceptive, we hold that a claim under the Act that an advertisement is deceptive because of its use of the word “free,” or its equivalent, ordinarily should be decided by applying the same principles and rules that are applied by the FTC and the federal courts under § 5 of the FTC Act, including the principles and rules in the Free Guidelines. E. Section 13-301(1) and (3) In this Part IV.E, we apply the principles and rules discussed above to the free airfare advertising by Luskin’s.

The Court of Special Appeals found substantial evidence in the testimony of the customer witnesses that they “anticipated that, upon making their purchases, Luskin’s would give them airline tickets, not an application for a travel package----” 120 Md.App. at 33 , 706 A.2d at 118 . This conclusion could only be reached by having equated lack of sophistication with lack of reasonableness. Under the circumstances here, a reasonable consumer could not expect to walk into any of the Luskin’s locations, make a $200 purchase, and then have ³⁶⁵ Luskin’s dispense two tickets for a flight to Florida, on the date, at the time, from the origin, to the destination and, perhaps, on the airline, that were chosen by the consumer. The advertisement targeted an audience of persons who would purchase $200 or more of electrical or electronic appliances, for home or office, including cellular telephones and computers.

It would be obvious to nearly all in the targeted audience that Luskin’s had not installed in each of its locations, for the period of the promotion, computer terminals connected to one or more airlines, servicing one or more airports in the three advertised destinations, in order to determine airline seat availability at the point of sale. A closer question is presented by the Agency’s alternate finding that “[t]he consumer could reasonably have believed that airline ... vouchers would be presented by Luskin’s.” This finding depends on a rule of law that permits reading out of the newspaper advertisement the disclosures that the “Vacations Premiums [are] Offered Through [WI] Which is not affiliated with Luskin’s” and that a “Minimum Hotel Stay [is] Required,” as well as two statements that the reader “See Store For Details.” The issue here is whether the reasonable consumer, knowing that there is no such thing as a “free lunch,” will read the smaller type text or the brief television subtitle to learn what the “catch” is, or whether the reasonable consumer, acting on an impression of the advertisement as a whole, would not see or discern the significance of the disclosures in smaller type. We need not decide that question in the instant matter. There is substantial evidence to support the Agency’s finding that the advertisement was a deceptive practice under the Free Guidelines, based on omissions of material matter, even if a consumer, acting reasonably under the circumstances, would read the entire ad.

Luskin’s did not purport to be making an unconditional gift. Rather, there were two levels of conditions in the ad. The first condition, that specific minimum purchases from Luskin’s were required, was fully set forth in the ad. At the second level were the conditions of WI that the consumer must meet to get the “free airfare.” Luskin’s did not disclose the fifteen ³⁶⁶ dollar per person registration fee.

The length of the required minimum hotel stays was not disclosed, so that a consumer reasonably might get the impression that a get-away weekend would qualify. Also not disclosed in the ad was the cost of the minimum stay, a factor which is clearly material to how “free” the airfare for two really was. There was substantial evidence to support the litany of omissions from the ad that were found by the Agency. See Part I, supra.

Thus, the ad omitted information that would be important to the consumer and that likely affected consumer conduct. On substantial evidence the Agency found that the failure of the free airfare ad to state material facts tended to deceive and was a deceptive trade practice, as described in § 13-301(3), and that it therefore violated § 13-303. The free airfare ad is not a separate violation of § 13-303 by virtue of the Agency’s also analyzing the ad’s shortcomings as implicit misrepresentations, described in § 13-301(1). That analysis simply refers, to the same conduct by describing the other side of the same coin.

V. Section 13-301(9) Luskin’s asserts that the Agency and the Court of Special Appeals have misinterpreted § 13-301(9) and that, if it is properly interpreted, Luskin’s has not committed the deceptive practice therein described. Section 13-301(9) addresses acts of commission and of omission. The former are “[deception, fraud, false pretense, false premise, [and] misrepresentation,” while the latter are “knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same,” all in connection with “[t]he promotion or sale of any consumer goods____” Luskin’s contends that § 13-301(9) requires scienter, and we agree.