Discussion

Prior to beginning work on this discussion,

• Review Chapter 48 of the course textbook.

Between 1966 and 1975, the Orkin Exterminating Company, the worlds largest termite and pest control firm, offered its customers a lifetime guarantee that could be renewed each year by paying a definite amount specified in its contracts with the customers. The contracts gave no indication that the fees could be raised for any reasons other than certain narrowly specified ones. Beginning in 1980, Orkin unilaterally breached these contracts by imposing higher-than-agreed-upon annual renewal fees. Roughly 200,000 contracts were breached in this way. Orkin realized $7 million in additional revenues from customers who renewed at the higher fees. The additional fees did not purchase a higher level of service than that originally provided for in the contracts. Although some of Orkins competitors may have been willing to assume Orkins pre-1975 contracts at the fees stated therein, they would not have offered a fixed, locked-in lifetime renewal fee such as the one Orkin originally provided.

• Under the three-part test for unfairness stated in the course textbook (see page 1363), did Orkins behavior violate FTC Act 5s prohibition against unfair acts or practices?
• Discuss each element of the three-part test and how it applies to the Orkin case.

Your initial response should be a minimum of 200 words.