Kenneth Hauer

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IN THE MATTER OF KENNETH HAUER, TRADING AS HAUER DISTILLING COMPANY COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. :5 OF A~ ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 2460. Complaint, June £1, 1935-Decision, Aug. 7, 1936 Where an individual engaged in purchasing and bottling whiskies, and In purchasing, rectifying, and selling gins and other spirituous beverages, and in making gin by redistillation of purchased alcohol over juniper berries and other aromatics, and neither owning, operating, nor controlling any place where beverages are made by original distillation from grain, :fruit, or vegetable mash, wort, or wash, and distilling no beverage, but purchasing his distilled spirituous requirements from distillers and bottling and reselling same, and in substantial competition, In course of his said business, with ( 1) individuals and concerns who manufacture and distill fi"Om ma~h. wort, or wash, whiskies, gins, and other spirituous Leverages sold by them, and who truthfully use words "Distillery," "Distilleries," "Distiller," or ''Distilling" as part of tlwir corporate names, and on their stationery and on labels of the bottles in which they sell and ship their products, and with (2) those engaged in purchasing, rectifying, blendiug, and bottling whisldes, gins, and other spirituous beverages, who do not use aforesaid worc:ls, as above set forth- Represented, through use of his trade name, including word "Distilling," in his advertising matter and on his stationery, price lists, cartons, and on labels attached to bottles in which he sold and shipped his said products, preceded, on latter, In some cases, by words "Distilled by," "Manufactured by," ol' "Bottled by," as case might be, that he was a distiller of alcoholic beverages, tts ordinarily accepted and understood in liquor industry from word "Distilling," 1. e., maker of such beverages by original distillation from grain, fruit, or vegetable. mash, and failed to negative false and mislead:ling impt•ession created thereby through statement on labels, iu some cases, showing State in which liquor was distilled; With eflect of misleading and c:leceivlng dealers anc:l purcltasing public, substantial portion of which prefers to buy spirituous Ilquors bottled by actual distillers and manufa<"turers tiH'reof, Into bclil'f that said whiskief!, etc., sold by him were by him made nnd distilll'd from maf;h, wort, or wash, and of inducing dealers nnd public, in such belief, to purchase said whisl;ies, etc., and of thereby diverting trade to him from competitors who did not, by their trade or corporate names, or in any other manner, rept·eseut that they were manufacturers, by distillation from mash, wort, or wash, of whisldes and other spirituous beverages, and with effect or st>curing ndvantage over concerns who did not pursue or practice such misrrprescntation and falsely pmport to be manufacturers, by reason or prestige attaching In wholesale trade to the distiller, and advantage thereof In owrcomlng sales resistance, and belief in minds of said trade a n<l public that distiller, investment and expenses of which arc, in general. Complaint 23F.T.O.

greater than those of rectifier, controls the making of the product from start to finish, with all Ingredients going therein within its own establishment, and with sales advantage therein embraced, and with capacity and tendency so to mislead and deceive, as above set forth; to the substantial Injury of competition In Interstate commerce: Jleld, That such acts and practices, under the conditions and circumstances described, were to the prejudice of the public and competitors and constituted unfair methods of competition.

Before Mr. Oharle.<J F. Diggs and Mr. John lV. Addison, trial examiners.

Mr. PGail B. Morehouse for the Commission. Complaint Pursuant to the provisions of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," the Federal Trade Commission, having reason to believe that Kenneth Hauer, an individual trading as Hauer Distilling Company, hereinafter referred to as respondent, has been and is using unfair methods of competition in commerce, as "commerce" is defined in said act, and it appearing to the said Commission that a proceeding by it in respect thereof would be in the public interest, l1ereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent is an individual trading under the name and style of Haner Distilling Company and doing business under the laws of the State of Ohio, with his office and principal place of business in the city of Cincinnati, in said State. He is now, and for more than 1 year last past has been, engaged in the business of purchasing, rectifying, blending, and bottling whiskies, gins, and other spirituous liquors and in the sale thereof in constant course of trade and commerce between and among the various States of the United States and in the District of Columbia. In the course and conduct of his said business he causes his said products when sold to be transported from his place of business aforesaid into and through various States of the United States to the purchasers thereof, consisting of wholesalers and retailers located in other States of the United States and the District of Columbia. In the courf'le and conduct of his business as aforesaid, respondent is now, and for more than 1 year last past has Leen, in substantial competition with other individuals and with corporations, partnerships, and firms engaged in the manufacture by true distillation of whiskies, gins, and other spiritUt)US liquors from mash, wort, or wash, HAUER DISTILLING CO. 221 219 Complaint and in the sale thereof in trade and commerce between and among the various States of the United States and in the District of Columbia and in the course and conduct of his business as aforesaid, respondent is, and for more than 1 year last past has been, in substantial competition with other individuals and with corporations, firms, and partnerships engaged in the business of purchasing, rectifying, blending, and bottling whiskies, gins, and other spirituous liquors and in the sale thereof in commerce between and among the various States of the United States and in the District of Columbia. PAR. 2. Upon the premises of respondent's place of business aforesaid there is a still for use in the production of gins by a process of rectification whereby alcohol, purchased but not produced by respondent, is redistilled over juniper berries and other aromatics. Such rectification of alcoholic spirits does not make or constitute respondent a distillery or a distiller, as defined by section 3247 of the Revised Statutes regulating internal revenue, nor as commonly understood by the public and the liquor industry. For a long period of time the word "Distilling" when used in connection with the liquor industry and with the products thereof has had and still has a definite significance and meaning to the minds of wholesalers and retailers in such industry and to the ultimate purchasing public, to wit, manufacturing of spirituous liquors by a process of original distillation from mash, wort, or wash, through continuous closed pipes and vessels until tile manufacture thereof is complete, and a substantial portion of the purchasing public prefers to buy spirituous liquors bottled and prepared by distillers. PAn. 3. In the course and conduct of his business as aforesaid by the use of the word "Distilling'' in his trade name, printed on his stationery, catalogs, advertising, and labels attached to the bottles in which he sells and ships his said products, and in various other ways, respondent represents to his customers and furnishes them with the means of representing to their vendees, both retailers and the ultimate consuming public, that he is a distiller and that the said whiskies, gins, and other spirituous liquors therein contained were by him manufactured throuo-h the process of distillation from mash, wort, or wash, when, as a ~atter of fact, respondent is not a distiller, does not distill the said whiskies, gins, and other spirituous liquors by him so bottled, labeled, sold, and transported, and merely by the use of a still operated by him as aforesaid in the rectification of alcoholic spirits by redistillation over juniper berries an~. other aromatics does not distill the whiskies, gins, and other spmtuous liquors b; him so bottled, labeled, sold, and transported in the sense 222 :FEDERAL TRADE COl\Il\IISSION DECISIONS Complaint 23F.T.O in which the word "distilling" is commonly accepted and understood by those engaged in the liquor trade and the public. Respondent does not own, operate, or control any place or places where spirituous liquors are manufactured by a process of original and continuous distillation from mash, wort, or wash. PAR. 4. There are among the competitors of respondent engaged in the sale of spirituous beverages, as mentioned in paragraph 1 hereof, corporations, firms, partnerships, and individuals who manufacture and distill from mash, wort, or wash, whiskies, gins, and other spirituous liquors sold by them and who truthfully use the words "distillery," "distilleries," "distillers," or "distilling" as a part of their corporate or trade names and on their stationery, catalogs, advertising, and on the labels of the bottles in which they sell and ship such products. There are also among such competitors corporations, firms, partnerships, and individuals engaged in the business of purchasing, rectifying, blending, bottling, and selling whiskies, gins, and other spirituous liquors who do not use the words "distillery," "distilleries," "distilling," or "distillers" as a part of their corporate or trade names, nor on their stationery, catalogs, advertising, nor on the labels attached to the bottles in which they sell and ship their said products.

PAR. 5. The representations by respondent, ns set forth in para· graph 3 hereof, are calculated to and have a capacity and tendency to and do mislead and deceive dealers and the purchasing public into the beliefs that respondent is a distiller and that the whiskies, gins, and other spirituous liquors sold by respondent are manufactured or distilled by him from mash, wort, or wash by one continuous process and are calculated to and have the capacity and tendency to and llo induce dealers and the purchasing public, acting in such beliefs, to purchase the whiskies, gins, and other spirituous liquors rectified and bottled ·by the respondent, thereby diverting trade to respondent from his competitors who do not by their corporate or trade name or in any other manner misrepresent that they are distillers, and thereby respondent does substantial injury to substantial competition in interstate commerce.

PAR. 6. The acts and things above alleged to have been done and the false representations alleged to have been made by respondent are to the prejudice of the public and the competitors of respondent and constitute unfair methods of competition in commerce within the intent and meaning of Section 5 of an Act of Congress entitled "An Act to create a Federal Trade Commission, to define its powe·rs and duties, and for other purposes,'' approved September 26, HH4. HAUER DISTILLING CO. 223 219 Findings REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the provisions of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," the Federal Trade Commission on June 27, 1935, issued, and on June 28, 19:35, served its complaint in this proceeding upon respondent, Kenneth Hauer, an individual trading as Hauer Distilling Company, charging him with the use of llllfair methods of competition in commerce in violation of the provisions of said act. After the issu:.mce of said complaint, and the filing of respondent's answer thereto, testimony and evidence, in support of the allegations of said complaint were introduced by PGad B. Morehouse, attorney for the Commission, before Charles F. Diggs, an examiner of the Commission, theretofore duly designated by it and thereafter before John ·w. Addison, an examiner of the Commission duly substituted to take testimony in the place and stead of the said Charles F. Diggs; no testimony was offered in opposition to the allegations of the complaint; and the testimony and evidence in support of the complaint were duly recorded and filed in the office of the Commission. Thereafter this proceeding regularly came on for final hearing before the Commission on the said complaint, the answer thereto, testimony and evidence, and brief in support of the complaint; brief of respondent and all oral argument having been waived; and the Commission having duly considered the same and being fully advised in the premises, finds that this proceeding is in the interest of the public and makes this its findings as to the facts and its conclusion drawn therefrom: FINDINGS AS TO Tile FACTS PARAGRAPH 1. Kenneth Hauer, the respondent, is an individual Who, for more than a year prior to June 1935, conducted the busines:; of a rectifier and wholesaler of liquors, with his principal place of business at 420 Augusta Street, Cincinnati, Ohio. He purchased and bottled without rectification, whiskies and purchased, rectified and sold gins and other spirituous beverages up until June 1935 to wholesalers in the States of Kentucky, Texas, New Jersey, and Indiana, his sales for the year ending June 1935 being approximately $56,000 in Volume. The Commission finds that prior to June 1935 this respondent engaged in such business in constant course of trade and commerce between and among the various States of the United States and in the District of Columbia. In the course and conduct of his said business he caused the said products, when sold, to be transported from his place of business aforesaid into and through various States 224 FEDERAL TRADE UOMl\IISSION DECISIONS Findings 23F.T.O.

of the United States to the purchasers thereof located in States of the United States other than the State of Ohio. In the course and conduct of his business as aforesaid, respondent until June 1935 was for more than a year, in substantial competition with other individuals, corporations, firms, and partnerships engaged in the manufacture by distillation of whiskies, gins, and other spirituous beverages and in t lte sale thereof in trade and commerce between and among the various States of the United States and in the District of Columbia~ and in the course and conduct of his business as aforesaid, during thesame period of time, respondent was in substantial competition with other individuals, corporations, firms, and partnerships engaged in. the business of purchasing, rectifying, blending, and bottling whiskies, gins, and other spirituous beverages and in the sale thereof in commerce between and among the various States of the United States and in the District of Columbia.

PAR. 2. Rectifying, in the distilled spirits rectifying industry, means the mixing of whiskies of different ages and types, or the mix· ing of other ingredients with whiskies, but reducing proof of whisky by adding water is not rectifying. Rectifiers also blend whiskies with neutral spirits (grain alcohol).

A distiller, in the sense ordinarily understood by the liquor indus· try, is one who prepares distilled spirits by a process of original and continuous distillation from mash, wort, or wash, through continuousclosed pipes and vessels until the manufacture thereof is complete. Many distillers operate a separate establishment 600 feet or moro· away from their distillery, known as a rectifying plant, wherein they operate in the same manner as described above, for a rectifier-sometimes exclusively with spirits of their own distillation and sometimed with spirits purchased from other distillers or both. Some distilleries have a tax-paid bottling room on the distillery bonded premise, wherein their distilled spirits are bottled straight as they come from the still, or in a bonded warehouse after aging, or after reduction of proof. Any rectifying by a distiller, however, must be done in his rectifying plant under his rectifier's permit. On all bottled liquors,. whether bottled at the distillery or at any rectifying plant, appear the words "Bottled" or "Blended (as the case may be) by tho' -------------------- Company." If the distilled spirits therein con· tained nre bottled by a distiller either in his distillery or are spirits of his own distillation bottled in his rectifying plant, the distiller may, and docs, put "Distilled and Bottled. by -------------------- Company". If, in the distillery's rectifying plant, other spirits have been blended or rectified he puts "Blended and Bottled by ---------- ---------- Company''. Finally, blown (usually in the bottom) of HAUER DISTILLING CO. 225 219 Findings each bottle is a symbol, consisting of a letter followed by a number, identifying the bottler, viz, a "D'' for a distillery and "R" for a recti· fiber, the number following said letter corresponding with the dis· tiller's or rectifier's permit. Thus "R-243" designates this respondent. A distiller who also operates a rectifying plant, having both kinds of permits, may use either symbol, depending upon whether the liquor contained in the bottle was produced and bottled under his distiller's permit.

It is not always possible to determine from the presence of the phrase "Blended and Bottled by" or the phrase "Bottled by" on the label whether the package was bottled by a rectifier, who is a distiller or by a rectifier who is not a distiller.

PAR. 3. This respondent purchased his distilled spirits requirements from distillers, bottled and resold the same in interstate com· rnerce. The only rectifying which he did was the production of g!n from purchased alcohol by the process hereinafter set out. In the course and conduct of his business, respondent represented through the use of his trade name, "Hauer Distilling Company", in his ad· vertising matter, on his stationery, price lists, cartons, and labels attached to the bottles in which he sold and shipped his said bev· erages, that he was a distiller of alcoholic beverages, in the sense in Which "distiller" is ordinarily accepted and understood in the liquor industry. On labels for gins redistilled by him, the name was pre· ceded by the words "Distilled by" or "Manufactured by" and on the labels for some of his whisky, the name was preceded by the words ''Bottled by". Some of his labels for whisky contained nothing to indicate that the whisky was not distilled by him except "Permit Fed. R-243". Others of such labels named the State in which the Whisky was distilled. The impression that respondent was a dis~ tiller, to be gained from reading these labels, was not negatived by the fact that in some cases labels appeared on the bottles showing the State in which the liquor was distilled, as presumptively and actually real distillers may and do have distilleries located in more than one State and in States other than the sites of their rectifying plants.

Respondent was a rectifier and not a distiller in the sense ordinarily accepted and understood when such term is used in the liquor industry. He does not now and never did own, operate, or control any place where beverages are made by original distillation from grain, fruit, or vegetable mash, wort, or wash, and he does not now or never did distill any beverage. He had a still which he used in making gin by redistillation of purchased alcohol, not produced by him, order juniper berries and other aromatics, but this redistillation Findh1gs 23F. T.C.

did not make respondent a distiller as defined by Unit~ States Code, title 26, section 241, regulating internal revenue, nor as commonly understood by the public and the liquor 'industry. As shown by the testimony of many witnesses who for long periods of time had been and still were actively engaged in the liquor industry, including distillers, wholesalers, and retailers, and by the testimony of representative members of the consuming public, for a long period the word ''distillers" when used in connection with the liquor industry nnd with products thereof has had, and still has, the definite significance and meaning to the minds of wholesalers and retailers in such industry and to the ultimate purchasing public of making beverages by original distillation from grain, fruit, or vegetable mash. In general the investment and expenses of the distiller are greater than those of the rectifier.

Much of the "distilled" gin on the market is produced by com· panies who do distill their own alcohol and produce gin therefrom by redistillation in exactly the same manner that respondent produced his gins-not under any distillery permit, but under a. rectifying permit. These distiller-rectifiers place on their gin labels "Distilled by ------------------ Distillers". These are distilleries which produce gin by the same process in the distillery by one continuous process and the tax is pai<l at the completion of the process, that is, after the alcohol becomes gin, so that although the final redistillation process is the same as that of respondent, yet it is all done in a distillery and the distiller has control over the process from the mash to the gin. Thus it includes original or primary distillation through closed pipes and vessels, as well as the final process of redistillation over the juniper berries. Section 5 of the Federal Alcohol Administrati011 Act, approved August 29, 1935, dealing with unfair competition and unlawful practices in the industry, provides that it shall be unlawful to sell in bottles any distilled spirits in interstate or foreign commerce unless they are bottled, packaged, and labeled in conformity with such regulations, to be prescribed by the Administrator, as will prohibit de- ('eption of the consumers with respect to such products. Existing regulations and r£>gulations proposed under this act define "distilled gin" ns the distillate by original distillation or redistillation of neutral spirits with aromatics. The regulations further provide that on labels of domestic distillerl spirits bottled by or for the actual distiller ther('of, there shall be stated the words "distill<>d by" an<l immediately thereafter tht> name of ~nch rlistiller anrl th~ place wlwre di~tilled. HAUER DISTILLING CO. 227 219 Findings PAR. 4. There were and still are among the competitors of respondent engaged in the sale of spirituous beverages as mentioned in paragraph 1 hereof corporations, firms, partnerships, and individuals Who manufacture and distill from mash, wort, or wash, whiskies, gins, and other spirituous beverages sold by them and who truthfully use the words "distillery," "distilleries," "distillers," or "distilling," as a part of their corporate names and on their stationery, and on the labels of the bo.titles in which they sell and ship such products. There are also among such competitors corporations, firms, partnerships, and individuals engaged in the business of purchasing, rectifying, blending, and bottling whiskies, gins, and other spirituous beverages who do not use the words "distillery," "distilleries," "distilling," or "distillers" as a part of their corporate names, nor on their stationery nor on the labels attached to the bottles in which they sell and ship their said products. PAn. 5. A substantial portion of the purchasing public prefers to buy spirituous liquors bottled by the actual distillers and manufacturers thereof, and this respondent's aforesaid misrepresentation had a tendency to mislead and deceive dealers and the purchasing public, wi.th the resultant tendency to induce them to buy respondent's products in preference to the products of truthful competitors.

The testimony clearly showed and the Commission finds that a prestige attaches in the minds of the wholesale trade to the distiller, and that that prestige is an advantage in overcoming sales resistance; that in the mind of the wholesale trade and the public, the belief that a distiller controls the making of such products from start to finish, with all the ingredients going into them within its own establishment, constitutes a sales advantage; and that such use as respondent made of the word "Distilling" in his trade name gave him an advantage over concerns who did not pursue or practice such misrepresentation and who did not purport to be manufacturers when they were not.

The Commission therefore finds that the representation of respondent through use of the word "Distilling" in his trade name us aforesaid was calculated to and had the capacity and tendency to ana difl mislead and deceive dealers and the purchasing public into the belief that the whiskies, gins, and other spirituous beverages sold by the respondent were manufactured and distilled by him from Jnash, wort, or wash and was calculated to and had the capacity and tendency to and did induce dealers and the purchasing public, acting in such belirf, to purchase the whiskies, gins, ann other spirituous hcypragrs bottled nncl sold by the rcsponrlC'nt, thereby diwrting trnrll} 228 FEDERAL TRADE COMl\IISSION DECISIONS Order 23 F. T. C. to respondent from his competitors who did not by their trade or corporate names or in any other manner misrepresent that they were manufacturers by distillation from mash, wort, or wash of whiskies, gins, and other spirituous beverages, and thereby respondent did substantial injury to competition in interstate commerce. PAR. 6. Because of existing regulations, and regulations proposed under the Federal Alcohol Administration Act approved August 29, 1935 ( 49 Stat. 977), and which regulations are presently expected to became effective as of August 15, 1936, providing that rectifiers who redistill purchased alcohol over juniper berries and other aromatics may label such resulting product "distilled gin", and requiring that the labels state who distilled it, the Commission has excepted gins produced by respondent by redistillation of alcohol over juniper berries and other aromatics from the prohibitions of its order. CONCLUSION The aforesaid nets nnd practices of the said respondent, under the conditions and circumstances hereinbefore described, were to the prejudice of the public and respondent's competitors, and were unfair methods of competition in interstate commerce, constituting :1 violation of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes." ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission issued on June 27, 1935, and served on June 28, 1935, the answer of respondent, testimony and evidence taken. before Charles F. Diggs and John ,V. Addison, examiners of the Commission theretofore duly dE>signated by it in support of the charges of the complaint, no testimony having been offered by respondent in opposition thereto, and the Commission having made its findings as to the facts and its conclusion that said respondent has violated the provisions of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to dE>fine its powers and duties, and for other purposes.". It i.~ ordered, That Kenneth Hauer, an individual, trading as Hauer Distilling Company, his agents, salesmen, and employees, in connection with the offe>ring for sale or sale by him in interstate commerce of whiskies, gins, ancl other spirituous beverages, except gins produced by a process of rectification whereby alcohol purchased but not HAUER DISTILLING CO. 229 219 Order produced by respondent is redistilled over juniper berries and other aromatics, do cease and desist from :

Representing, through use of the word "Distilling" in his trade name, on his stationery, advertising or on the labels attached to the bottles in which he sells and ships said products, or in any other way by word or words of like import, (a) that he is a distiller of whiskies, gins, or any other spirituous beverages; or (b) that the said whiskies, gins or other spirituous beverages were by him manufactured through the proce~s of distillation; or (c) that he owns, operates, or controls a place or places where any such products are by him manufactured by a process of original and continuous distillation from mash, wort or wash, through continuous closed pipes and vessels until the manufacture thereof is completed, unless and until respondent shall actually own, operate or control such a place orplaces.

It is further ordered, That the said respondent, within 30 days from and after the date of the service upon him of this order, shall file with the Commission a report or reports in writing setting forth in detail the manner and form in which he is complying and has complied with the order to cease and desist hereinabove set forth. 230 FEDERAL TRADE CO::.\IMISSION DECISIONS Complaint 23 F. T. C.