Scott Publishing Company is a Nebraska corporation with its registered office and corporate headquarters at…

Scott Publishing Company is a Nebraska corporation with its registered office and corporate headquarters at 10102 “F” Street, Omaha, Nebraska, 68127. The sole stockholder of Scott is Mr. Duane Hillmer of Omaha, Nebraska. The Board of directors is composed of Mr. Duane Hillmer, Chairman; Mr. Carl Mammel; Mr. R. R. Nantkes; and Mr. Jack Taub. The corporate officers are Mr. Duane Hillmer, President; Mr. R. R. Nantkes, Vice President; Mr. Henry Eberley, Vice President, Mr. Jack Taub, Vice President; Mr. Morton Fisher, Secretary; Mr. Jack Taub, Assistant Secretary; and Mr. Morton Fisher, Treasurer.

Scott owns more than 80% of Epsen Lithographing Company. Espen is not engaged in activities related to the business of Scott. BUSINESS INFORMATION Scott is engaged in the supplying of information and materials for stamp collectors. The annual sales of the corporation in the fiscal year 1971 amounted to $1,681,873. Scott products include two somewhat distinct lines of products. Scott publishes and produces a three-volume set of Standard Catalogues. These catalogues are generally recognized as a major authority by which stamp prices are determined not only in the United States, but in a number of foreign nations. Supplementary to these Standard Catalogues, which are produced on a yearly basis and released in the Fall of the year, are monthly journals which update and correct the Standard Catalogues. Also, Scott, publishes a coin catalogue, but this is a minor part of its business. The sales of these items are relatively stable and it is not anticipated that the incentive program hereafter set forth will apply to these sales. Of the annual sales figure noted above, approximately $832,740 was derived from sales of the Standard Catalogues and related items. The other line of products produced by Scott is stamp collecting supplies and accessories. This line includes stamp albums in which stamps are to be _ placed, yearly supplements to these albums, accessories, special albums, etc. These sales amount to $843,133 annually. Approximately $6,000 is derived annually from the sale of advertising space in the monthly supplement to the Standard Catalogues.

The majority of the annual sales of Scott is to distributors, who perform a wholesaler function. However, Scott does. sell directly to retailers and individuals, especially in geographical areas where no distributor conducts business on a regular basis. Sales to such retail outlets are generally competitive in price with prices offered by distributors. Such direct sales

during the last fiscal year amounted to approximately $126,000, or about 7% of Scott’s total sales. .

The following are the state locations of distributors, the number of distributors in each state, the total volume of sales into such state, and a breakdown between the two lines of product sales into each state.

CHART I
(d)
(b) (c) Materials
(a) Total Standard and
Number of Volume Catalogue - Accessory
State Distributors of Sales Sales Sales

Alabama 1 $ 36,073.98 $ 15,417.88 $ 20,656.10 California 4 242,761.81 | $117,475.62 $125,285.69 Florida 2 32,911.38 $ 16,477.55 $ 16,433.81 Illinois 2 126,352.75 | $ 65,945.30 $ 60,407.45 Indiana 2 80,779.73 | & 35,052.88 $ 45,726.85 Kansas 1 13,011.76 | $ 4,927.00 $ 8,084.76 Maine 1 11,103.81 | $ 5,380.38 $ 5,723.43 Massachusetts 2 108,480.21 | $ 28,448.21 $ 80,032.00 Michigan 1 81,282.58 $ 18,539.91 $ 17,742.67 Minnesota 1 45,783.12 | $ 36,614.48 $ 9,168.64 Nevada 1 8,147.76 $ 6,822.31 $ 1,825.45 New Jersey 1 13,502.47 $ 11,848.87 $ 1,658.60 New York 10 591,289.73 | $827,420.17 $268,869.56 Oklahoma 1 11.53 | $ 11.53 $ — Pennsylvania 1 84,140.57 $ 14,524.42 $ 19,616.15 Texas 2 84,119.80 | § 18,439.26 $ 20,680.04 Virginia 1 5,852.60 | $§ 1,808.78 $ 3,548.87 Wisconsin 1 18,726.79 | $ 38,622.86 $ 15,108.98

Canada 1 83,995.18 | $ 62,482.76 $ 21,512.42
TOTAL DISTRIBUTOR
SALES $1,517,826.54 $781,250.12 $736,576.42

To the knowledge of Scott, most of the distributors in each of the states ’ above are unrelated. However, one distributor has related operations in five (5) states; another in three (8) states; and one in two (2) states. Thus, the actual total number of distributors is twenty-nine (29). The total number of distributors on a state by state basis without reference to related business operations is thirty-six (36) as shown in Chart I. Since the Scott incentive refund program will involve only those sales figures shown in column (d) of the chart, the following is a breakdown of those sales.

ADVISORY OPINIONS WITH REQUESTS THEREFOR 1869

CHART II
Annual Number of
Sales Volume Distributors
Up to $ 1,000 1
$ 1,000 to $ 10,000 8
$ 10,001 to $ 20,000 8
$ 20,001 to $ 30,000 6
$ 30,001 to $ 40,000 1
$ 40,001 to $ 50,000 0
$ 50,001 to $ 60,000 3
$ 60,001 to $ 80,000 0
$ 80,001 to $ 90,000 1
$ 90,001 to $130,000 0
$130,001 to $131,000* 1
TOTAL 29**

* These sales were to a distributor operating facilities in three states. *%* The sales figures of each of the distributors with multi-state facilities are grouped together as to that distributor and inserted into the appropriate sales volume category. The lowest dollar volume purchaser among the distributors, considering related distributors as single operations, of non-catalogue sales (column (d) of Chart I) had purchases amounting to approximately $950. Distributors range up to approximately $130,960 for one multi-state distributor. The average volume of the 29 distributors is $25,399.19. The larger-volume distributors tend to deal with a different clientelle than the smaller-volume distributors, although there is undoubtedly some competition between them. The larger-volume distributors tend to deal primarily with larger retail outlets while smaller-volume distributors generally deal with individual retail stamp shops. THE PRODUCT As previously mentioned, the present management of Scott does not feel that an incentive program could significantly improve business in the area of the sales of Standard Catalogues and related items. Thus, the incentive program hereinafter set forth will apply solely to sales of albums, album supplements and accessories. The sales figures for those items are set forth in column (d) of Chart I and are the basis for categorization in Chart II. The problem which has arisen to cause Scott to seek to initiate the incentive program is stagnant sales in albums and related items. Scott sells a complete line of “high line” albums. These stamp albums use top grade paper stock and are of high quality materials and workmanship. Only one other album manufacturer produces a high line album but little direct competition exists between Scott and this manufacturer because the other manufacturer sells directly to large retail outlets (i.e. department store chains). The other competitors of Scott sell “low line” albums. Scott’s high-line prices are higher than its competitor’s low-line prices.

Scott also produces an incomplete line of “low line” albums. Scott’s prices on these low-line albums are somewhat above the price level of its competitors’ low-line albums. For explanatory purposes.a “complete line’ of albums means that the albums offered generally cover all countries and allow for the collection of all or nearly all of the stamps of said countries. An ‘Incomplete line” means that not all countries and/or not all stamp issues of said countries are covered by the albums offered for sale. A “low line” album is produced from less expensive paper stock, has a less substantial binding, and is, perhaps, less complete and colorful. Also, the stamp holders in such album may not provide the degree of protection and fullness of view that one would find in a high-line album.

THE PROGRAM Scott intends to offer an “incentive refund program” to all of its distributors upon the sale of those items represented by the sales figures in column (d) of Chart I. The product items included in those figures and, the items in the incetive program will be the same for every distributor. In other words, there will be no instance where sales of Standard Catalogues are included within one distributor’s sales figures under the incentive program while not being included in another distributor’s sales figures. The incentive refund program offers an increasing scale of cash refunds for increasing levels of percentage increase in sales over and above a given base period. Each year will be divided into quarters of three calendar months. Comparison will be made between the current quarter’s sales and those of the corresponding quarter of the immediately preceding year. The percentage increase in sales, if any, will then be computed for the current quarter and, if the sales have increased from the previous year’s quarter sales by a given percentage, a set cash refund will be paid to the distributor. The following percentage refunds are proposed to be offered in the incentive program:

CHART III
Percentage Increase Percentage Refund
In Sales Volume For Quarter
20% 2%
30% 3%
40% 4%
50% or More 5%
Example A

If Company X, a distributor handling Scott products, had sales in the first quarter of 1972 of $10,000 and attained the sales level of $12,000 during the first quarter of 1978, it would be entitled to an incentive refund of 2% of its $12,000 in 1978 first quarter sales—a sum of $240.

ADVISORY OPINIONS WITH REQUESTS THEREFOR 1871

Computations:
First Quarter 1973 Sales $12,000
First Quarter 1972 Sales $10,000
Increase $ 2,000
P . _ $ 2,000 tas :

ercentage Increase= $10,000 or 20% entitling Company X to a 2% incentive cash refund. Example B If Company X had sales in the first quarter of 1972 of $10,000 and attained the sales level of $11,900 during the first quarter of 1973, it would not be entitled to any incentive refund because of the failure to attain the

20% increase bracket.
_ Computations:
First Quarter 1973 Sales $11,900
First Quarter 1972 Sales $10,000
Increase $ 1,900

Percentage Increase= Ske 19%, not entitling Company X to an incentive refund.

The program presently does not anticipate that a failure to reach the base quarter’s sale figure in one quarter will have any effect on the next quarter’s incentive refund. However, if it becomes a common practice of distributors to hold back purchases in one quarter and dump those sales into another quarter to receive the incentive refund, the corrective measures outlined below may be instituted.

Example C If Company X had sales of $10,000 in the first quarter of 1972 and sales of $7,000 in the first quarter of 1973; sales of $10,000 in the second quarter of 1972 and sales of $18,000 in the second quarter of 1973, Scott will require (provided it feels distributors are attempting to lump sales into quarters where they do not belong) the distributor to make up the difference between the base quarter sales and first quarter sales of 1973 before sales count toward an incentive refund. In this example, Company X would show no increase in sales for the second quarter of 1978.

Computations:
First Quarter 1972 Sales $10,000
First Quarter 1973 Sales $ 7,000
Decrease $ 3,000
Second Quarter 1978 Sales $13,000
Second Quarter 1972 sales $10,000
Increase $ 38,000

1872 FEDERAL TRADE COMMISSION DECISIONS
Offset:
Second Quarter Increase $ 3,000
First Quarter Decrease $ 3,000
Adjusted Second Quarter Increase 0

If such corrective measures are deemed necessary by Scott, they will be applied to all distributors and become an irrevocable and non-waivable part of the incentive program. No distributor will be allowed to obtain a refund if it does not make up its decrease for the preceding quarter. Scott does not intend to cause decreases for quarters, other than the immediately previous quarter, to effect current quarter incentive availability. Example D If Company X has the following sales history during the first three quarters of 1972:

First Quarter 1972 Sales — $10,000
Second Quarter 1972 Sales $10,000
Third Quarter 1972 Sales $10,000

and attains the following sales levels during the first three quarters of 1978:

First Quarter 1973 Sales $ 6,000
Second Quarter 1973 Sales $13,000
Third Quarter 1973 Sales $13,000

and the corrective enactment of this phase of the program has been instituted, the following incentive refunds will have been paid to Company X

at the close of each Quarter:
1. First Quarter 19738
First Quarter 1972 Sales $10,000
First Quarter 1973 Sales $ 6,000
Decrease $ 4,000
(No incentive paid)
2. Second Quarter 1973
Second Quarter 1973 Sales $18,000
Second Quarter 1972 Sales $10,000
Increase $ 3,000
Offset:
First Quarter Decrease $ 4,000
Second Quarter Increase $ 3,000
Adjusted Decrease Second Quarter § 1,000
(No incentive paid)

ADVISORY OPINIONS WITH REQUESTS THEREFOR 1873

3. Third Quarter 1973
Third Quarter 1978 Sales $138,000
Third Quarter 1972 Sales $10,000
Increase $ 38,000
$ 3,000

Percentage Increase = or 30% entitling Company X to a 8% in$10,000 centive refund for the third quarter ($390).

As noted in the example above, Company X was not entitled to an incentive for the second quarter of 1978 because of the decrease which occurred in the first quarter. However, the fact that the second quarter sales did not fully cover the first quarter decrease had no effect on the third quarter computations.

All dates of recording of orders as to the quarter in which the sales will be recorded will be uniform as to all distributors and the policies in relation to the program will be published and made available to all distributors. CONCLUSION Scott feels that the program outlined herein offers an incentive to increase sales which is factually as well as theoretically available to all distributors on an equal basis. It is not the intent of Scott to discriminate in any way against any distributor or class of distributors. Scott requests a favorable ruling in the advisory opinion from the Commission.

ADVISORY OPINIONS AND REQUESTS THEREFOR 1875 Marketing and labeling practices in connection with forming a business enterprise for the purpose of manufacturing and selling a product called “copy cloth.” (File No. 733 7004).

Opinion Letter
February 9, 1973
Dear Mr. MacDonald:

This is in response to your letter of August 31, 1972, requesting an advisory opinion on behalf of your clients, W. James and Barbara Neill, as to whether Copy Cloth, a loosely woven cotton material impregnated with wax, falls within the purview of the Flammable Fabrics Act, the Fair Packaging and Labeling Act, or the Textile Fiber Products Identification Act, or whether any of your clients’ marketing or labeling plans violated the Federal Trade Commission Act.

It is the Commission’s understanding that the material is to be used for making master patterns for clothing, upholstery, etc. When heated to a temperature of 130 to 150 degrees Fahrenheit, Copy Cloth becomes pliable and may be molded to the body or to any other contoured surface. After it has cooled it can be removed, flattened by making appropriate slits in the material, and used as a model for a paper pattern. This, you have advised, saves much time and many errors in measuring the surface directly. The marketing aspects of your clients’ proposed plan are not explained in sufficient detail to provide the basis for issuance of an advisory opinion. Therefore, your request will be denied pursuant to Section 1.1(c) of the Commission’s Rules of Practice. By direction of the Commission.

Second Supplemental Letter Relative to Request November 7, 1972