Advertising by a manufacturer in a customer-connected trade publication

No. 16. Advertising by a manufacturer in a customer-connected trade publication.

The Federal Trade Commission recent1y rendered an advisory opinion dealing with the proposed advertising by a manufacturer of drug items in a drug trade catalogue published by an organization of wholesale druggists. The manufacturer was informed that several months previously the Commission had approved the organization s proposed plan of reorganization of the publication which provided that (1) the publication is to be published by a separate corporate subsidiary, (2) the advertising rates to be charged wi1 be no higher than necessary to realize a normal profit for such a publication, and (3) in any event, the profIts resulting from the publication will be donated annually to a charitable organization. Unless and until the Commission announces the rescission of such approval " the advisory opinion stated it wi1 not take the position that any supplier s payment for advertising in * * * (the publication in questionJ constitutes a payment indirectly to the wholesa1er members " " " (of the organizationJ, subject to Section 2 (d) of the amended Clayton Act. However, the Commission pointed out that it wi1 continue to regard a supplier who advertises in a publicati011 snch as this as in effect furnishing, through the intermediary of the publisher, a promotional service to those wholesalers who make use of the publication. In order to assure compliance with Section 2 (e) of the amended Clayton Act, the supplier shou1d ascertain whether in a practica1 business sense the publication is avai1able for use by all of his wholesaler customers who are in competition with the wholesaler customers who do in fact use it; if it is not so available for use by some customers, the supplier must offer those customers a reasonable alteI'ative. " (Fi1e No. 663 7007, released Mar. 16, 1966. ; ;

ADVISORY OPI:-ION DIGESTS 1205

for a flockedNo. 17. Use of descriptions "velvet" and "suede" fabrie.

A recent Federal Trade Commission advisory opinion informed a manufacturer that the unmodified terms "velvet" and "suede could not properly be used to describe a flocked fabric. The manufacturer had described the material in question as one formed of microcut flock fibers upstanding on end and adhered to a suitab1e backing. The resulting fabric, it was said, has the appearance and feel of velvet and suede. The Commission believes the consuming public understands the unmodified term "suede" to connote leather and the unmodified term "velvet" to connote, among other things , a particular kind of warp pile fabric. The fabric in question, therefore, may properly be designated fabric" oronly as "suede fabric suede cloth" velvet-like velvet-like c10th" or by words of similar import. The expressions sueded iabric slleded cloth" velveted iabric" or "velveted cloth" or words of similar import are also unobjectionab1e. (File No. 663 7040, released Mar. 22, 1966.

No. IS. Exclusive franchise arrangements. A concern proposing to establish a service in principal American cities through exclusive franchises was recently advised that, with two exceptions, the Federal Trade Commission has no objections to the program as now proposed by its exclusive license agreement. The first exception involved the contractual provision requiring the licensees to purchase their equipment, suppJies and services through a centra1 procurement offce operated by the licensor. On the facts which you have furnished us, we are not able to make a determination as to the reasonableness" of this requirement, the Commission said. "We c,mnot determine, for examp1e which of the various products subject to that clause require such a degree of uniformity as to justify such a centra1 procurement obligation. Similar1y, as to those products where uniformity might be necessary, we cannot determine whether it could not be achieved by specifications or by some other less restrictive means than that provided for * * * . Accordingly, we cannot give you any opinion as to the lawfulness or unlawfulness of this provision.

The other exeeption noted in the advisory opinion concerned the article of the agreement providing that after termination , ,

the licensee may not, for a period of three years, and without geographic limitatjoll, engage in business in "similar fields, The Commission said While the duration and geographic scope of this article are, in our view, reasonab1e, the term ' similar fields' is so genera1 and ambiguous that , unless clarified and reasonably limited, it might impose an unreasonable restraint on the licensee.

The 1icensor was cautioned by the Commission With respect to the agreement as a whole, you should bear in mind that the legality of any franchise system depends to a large extent upon the manner in which such agreements are implemented. If apparently reasonable reservations of rights by the licensor are in practice administered in an unreasonable manner so as to unfairly encroach upon the freedom of the licensees, an agreement which is legal on its face can become megal in effect, " (File No. 6637004, released Mar. 23, 1966.