UNITED STATES OF AMERICA 

FEDERAL TRADE COMMISSION 

WASHINGTON, D.C. 20580 

Division of Enforcement 

Bureau of Consumer Protection 

December 20,2006 

Christopher Smith, Esq. and Elaine Kolish, Esq. 

Sonnenschein, Nath & Rosenthal LLP 


1301 K Street, NW 


Suite 600, East Tower 


Washington, DC 20005-3364 

Dear Mr. Smith and Ms. Kolish: 

This letter responds to your request on behalf of your client, Sony Electronics Inc. 

("Sony"), for a staff advisory opinion regarding Sony's proposal to resell, as "new," returned 

consumer electronics products when the company or its authorized vendor can reliably determine 

that the products have never been turned on and other particular conditions are met. This 

advisory opinion is based on the information that you have provided to us in your letter of 

November 15,2006. All references to facts regarding your proposal are based on your 

representations; we have not conducted an independent investigation, or otherwise verified the 

information that you provided. 

You note that Sony, as well as other companies in the consumer electronics industry, 

experience high return volumes.' Sony's uniform practice has been to treat all opened and 

returned products as used. As a result, following inspection and servicing, these products are 

sold as "refurbished" at significantly discounted prices and include a 90-day limited warranty. 

You state that, because many of the returned products in fact have never been used, the current 

resale policy comes at a substantial financial cost to the company. Sony proposes modifying its 

practices by distinguishing between returned products that previously have been turned on and 

those that have notY2 with the latter category of products being eligible for resale as new, if 

specific criteria are met. 

1 Consumer electronics products sold by Sony include video products (DVD 

players/recorders, digital cameras, camcorders, televisions, and combination TVNCR or 

TV/DVD players), computers (desktop and notebook PCs and related equipment), video game 

systems, audio products (desktop, component and portable devices), cell phones, portable digital 

assistants, and vehicle electronics. 

2 Sony would regard a product has having been "turned on" if electrical power had 

been applied to any of the product's circuitry. 
Christopher Smith and Elaine Kolish 

December 12,2006 

Page 2 

You state that Sony would implement the policy modification by having it or one of its 

authorized vendors: 

i. 	 introduce reliable product packaging technologies that ensure an objective 

and verifiable process for identifying returned products that have never 

been turned on.3 

.. 

11. 	 identify, fiom among the products returned by retailers to Sony or its 

authorized vendor, those that have never been turned on; 

iii. 	 visually inspect those products that have not been turned on and reject any 

damaged products; 

iv. 	 ensure that returned products that satisfy the first two conditions have all 

of their requisite parts, components, and manuals; 

v. 	 repackage the returned products that meet the above conditions; 

vi. 	 provide the same warranty for these returned products as for new products 

that have never been sold; and 

vii. 	 return them to a retailer for sale as new products. 

You then ask for the staffs opinion as to whether Sony's proposed course of conduct complies 

with the FTC Act and other Commission policy statements. 

Section 5 of the FTC Act, which prohibits deceptive acts or practices, governs the issue. 

15 U.S.C. tj 45. The Commission has explored the concept of deception under Section 5 in two 

relevant policy statements. 

Our analysis begins with the Commission's 1969 Enforcement Policy on Merchandise 

Which Has Been Subjected to Previous Use on Trial Basis and Subsequently Resold as New. 34 

Fed. Reg. 176-77. The 1969 Enforcement Policy concerned the then-prevalent business practice 

of selling, as new, products that previously had been used on a trial basis by prospective 

purchasers. Id. at 176. In that policy statement, the Commission set out the broad principle that 

deception lies where a marketer "[fails] to disclose material facts relevant to a purchaser's 

decision to buy or not to buy." Id. Because consumers have a preference for new or unused 

products, the Commission found that prior use was material to the purchase decision. Id. The 

Commission, therefore, concluded that the failure to disclose prior use was unlawfbl even where 

3 Some of these technologies include internal chips or clocks with the ability to 

indicate whether a product has been turned on; and tamper-evident tape, seals, or labels affixed to 

AC plugs, connectors, or battery compartments. 
Christopher Smith and Elaine Kolish 

December 12,2006 

Page 3 

returned merchandise had been refurbished to "good as new" condition. Id. at 177. The 

Commission noted, however, that this policy applied only to products that in fact had been 

"used," as distinguished from products that had "merely been inspected but not used." Id. 

The Commission provided more specific guidance in its Policy Statement on Deception, 

appended to Clifldale Assocs., Inc., 103 F.T.C. 110, 174 (1984). The Commission stated that it 

will find deception where a representation, omission or practice is likely to materially mislead a 

consumer acting reasonably under the circumstances. Id. at 176. Materiality is a core element of 

deception. A misrepresentation or omission is material if it is "likely to affect a consumer's 

choice of or conduct regarding the product," and therefore, injures the consumer who may have 

otherwise made a different choice. Id. at 182-83. 

Pursuant to the guidance provided by these policy statements, we do not believe that 

consumers would be deceived by Sony's resale of returned consumer electronics within the 

guidelines described above. As an initial matter, by limiting its program to products that have 

never been turned on, it appears that Sony would be reselling products that fall within the 

"inspected but not used" category referenced in the 1969 Enforcement Policy. However, the 

analysis does not end there. The products, as a result of prior purchase, may carry defects upon 

return. For example, a returned product may never have been turned on, but nonetheless may be 

damaged or missing requisite parts and inserts. Sony's program appears comprehensive enough 

to avoid such defects and protect consumers from injury, thereby likely rendering the fact of prior 

purchase immaterial. Therefore, we believe Sony would be acting lawfblly under Section 5 of 

the FTC Act in implementing its proposed program, as represented to Commission staff. 

This letter sets out the views of the staff of the Bureau of Consumer Protection, as 

authorized by the Commission's Rules of Practice. Those views are based on information 

provided to Commission staff by you. Staff have not engaged in independent factual 

investigation regarding the proposal. In accordance with Section 1.3(c) of the Commission's 

Rules of Practice and Procedure, 16 C.F.R. 5 1.3(c), this is a staff opinion only and has not been 

reviewed or approved by the Commission or by any individual Commissioner, and is given 

without prejudice to the right of the Commission later to rescind the advice and, where 

appropriate, to commence an enforcement action. In accordance with Section 1.4 of the 

Commission's Rules of Practice and Procedure, 16 C.F.R. 5 1.4, your request for advice, along 

with this response, will be placed on the public record. 

We appreciate your taking the time to 

~ssdciateDirector for Enforcement