Dockman & Son, Inc., John H

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IN THE l\fatter OF JOHN H. DOCKMAN & SON, INC.

<Complalnt, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 15 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Dock"et 2"1'09. Complaint, Jan. 81, 1936-Decision, Nov. 27, 1936 'Where a corporation engaged in manufacture and sale of "straight'' goods candy, and of so-called ''brenk-nnd-tal<e," "draw," or "deal" assortments, principal trade demand for which comes from the small retailers, wltb stores In many instances near srhools and patronizrd by the sc::hool children, and sale and distribution of which, or similarly sold candy, offering opportunity of obtaining u prize or becoming a winner by lot or chance, teaches and encourages gambling among children, largest class by far of purchasers and consumers of such type of candy, who buy same in pref· erence to so-called "straight" goods when displayed side by ~dde, by reason of lottery or gambling frature connected with former, and sale of which In the market of the other, i. e., the "straight" goods, sold exclusively by many manufacturers, has been followed by a marked decrease in sale of such "straight" candy due to the gambling or lottery feature of the so-called "draw" or "deal" merchandise- ·sold to syndicated retail dealers and to wholesalers and jobbers In the varlou!'! States, its said Cfill(ly, Including suc::h break-and-take, drnw, or deal assortments, ns tw~ortmcnts in which (1) chance punch from 150-bole punch board inclmled d(•termined whether person making selection received simply the candy p<'llet disdoscd or, depending upon the red, white, or blue color of a few of said pellets, furthrr received, ns the case might be, a toy auto whistle, stone pendant, or toy bird warbler, with purchaser ·of last punch furthet· receiving gllt pencil; (2) same plan and board were used with other articles of merchandh;e; and In which, (3) chance selrction of one of a large number of pieces of chocolate-coated candy. concealed color of a few of whi<'h !liffered from that of majority, entitled ])Crson to prize consisting of larger pieces or boxes of candy; so pad•ed nnd assembled that such various assortments could he uisplayed and ·offered by the numerou!'! retailer purchasers thereof, and with lmowlcdge ·and Intent that such assortmmts would and could be sold, without altera· tion, addition, or rearrangement, to the public by lot or chance by tbe retailers thereof, including practically all stores In which candy is sold; in violation of public policy, and In competition with some manufacturers who have begun sale and distribution of candy for resale to pullllC bY lot or chance to meet competition of those who sell and distribute candy ·sold by such methods and in demand, and in competition with many wbo regard such methods of sale and distribution as morally bad and 11s ·encouraging g:unhling, and especially among children, and as lnjurlo\lS to the Industry, throu~h resulting In the merchandising of a chance or lottery instead of candy, and as providing retailers with the means of violating t11e laws of the several States, and, thrrefore, rrfuse to seJI candy so pac·ked and assembled that it ran be resold to publlc by Jot or chance;

JOHN H. DOCKMAN & SON, INC. 1021 1020 Complaint "\With tlle result that such refusing competitors, who can compete on even terms only by giving same or similar devices to retailer1·s, were put to a disadvantage in competing and their sales of straight candy showed a continual decrease, public and competitors were prejudiced and Injured, and trade was diverted to it from Its 'said competitors, and there was a restraint upon and a detriment to the freedom of fair and legitimate competition In the industry concerned:

lield, That such acts and practices were to the prejudice of the public and competitors and constituted unfair methods of competition. Before Mr. Miles J. Furnt.UJ, trial examiner. },fr. ll enr-y 0. LarJc and J,f r, P. 0. [( olim:ki for the Commission . .Samuels & Clark, of Baltimore, Md., for respondent. Complaint 'Pursuant to the provisions of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Com- :rnission, to define its powers and duties, and for other purposes," the Federal Trade Commission, having reason to believe that John H. Dockman & Son, Inc., a corporation, hereinafter referred to as re- :spondent, has been and is using unfair methods of competition in ·~commerce, as "commerce" is defined in said act of Congress, and It appearing to said Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint :st t. . a 111g Its charges in that respect as follows: PARAGRArn 1. Respondent is tt corporation, organized under the laws of Maryland with its principal place of business in the city ·of Baltimore, State of Maryland. R~spondent is now, and for sev- ~ral years last past, hus been engaged in the manufacture of candy and in the sale and distribution thereof to wholesale and retail dealers lo?ated at points in the various States of the United States, and causes said products, when so sold, to be transported from its place of busi- ~ess li1 the city of Baltimore, State of l\Iaryland, to purchasers thereof Jn other States of the United States at their respective places of busilless, and there is now, and has been for several years last past, a <Course of trade and commerce by said respondent in such candy, between and among the States of the United. States. In the course and -conduct of the said business respondent is in competition with other -corporations and with indi;iduals and partnerships engaged in the ~ale and d.istribution of candy and candy products in commerce etw-een and am01w the various States of the United States. PAn. 2. In the ~urse and conduct of its business, as described in Paragraph 1 hereof respondent sells and has sold to wholesale and .retail _, 1 · ' f d k d uea ers, v.anous packages or assortments o can y, so pac e Complaint 23F.T.O.

and assembled as to involve the use of a lottery scheme when sold and distributed to the consumers thereof. One of said packages is hereinafter described for the purpose of showing the methods used by respondent, but this description is not all-inclusive of the various packages nor does it include all of the details of the several sales plans which respondent has been or is using in the distribution of candy by lot or chance. These assortments are advertised and sold under several names, but each involves use of the same method of chance by which the purchaser may procure, at no additional cost, other articles of merchandise. The method used is as follows: Certain of said assortments are composed of a number of pieces of candy of uniform size, shape, and quality, together with a number of articles of merchandise, together with a device commonly called a punchboard. The candy and articles of merchandise contained in said assortment are distributed to purchasers of punches from said punch board in the following manner:

Punches from said board are 1¢ each, and when a punch is made a colored pellet is disclosed. There are as many separate pellets as there are punches on said board. A majority of said pellets are of uniform color, but a small number of said pellets bear colors of a shade different from the color of the majority of said pellets. The board bears statements or legends informing the prospective purchaser as to which pellets entitle him to receive a small item of candy, and which pellets entitle him to receive an article of merchandise. All purchasers of punches from said board receive an item of candy, but certain punches, namely those disclosing a pellet colored differently from the majority of pellets, entitle the purchaser to another article of merchandise in addition. The pellets in said punchboard are effectively concealed from purchasers or prospective purchasers until a punch has been made and the particular pellet separated from the punch board. The additional articles of merchandise contained in said assortments are thus distributed to purchasers of punches from said punchboards wholly by lot or chance.

PAR. 3. The wholesale dealers to whom respondent sells its assortments, resell said assortments to retail dealers, and said retail dealers, and the retail dealers to whom respondent sells direct, expose said assortments for sale, and sell said candy to the purchasing public in accordance with the aforesaid sales plan. Respondent thus supplies to and places in the hands of others the means of conducting lotteries in the sale of its products in accordance with the sales plan hereinabovefet forth, as a means of inducing purchasers thereof to purchase respondent's said products in preference to candy offered for sale and sold by its competitors.

JOHN H. DOCKMAN & SON, INC. 1023 1020 Complaint PAR. 4. The sale of said candy to the purchasi~1g public in the manner above alleged involves a game of chance or the sale of a chance to procure other articles of merchandise.

The use by respondent of said method of the sale of candies, and the sale of candies by and through the use thereof and by the aid of said method is a practice of the sort which the common law and ~criminal statutes have long deemed contrary to public policy; and Is contrary to an established public policy of the Government of the United States. The use Ly respondent of said method has the dan- ~erous tendency unduly to hinder competition or create monopoly In this, to wit: that the use thereof has the tendency and capacity to exclude from the branch of the candy trade involved in this proceeding competitors who do not adopt and use the same method or an equivalent or similar method involving the same or an equivalent or similar element of chance or lottery scheme. 'Vherefore, many persons, firms, and corporations who make and sell candy in competition with the respondent, as above alleged, are unwilling to offer for sale or sell candy so packed and assembled as above alleged, or otherwise arranged and packed for sale to the purchasing public so as to involve a game of chance, and such competitors refrain therefrom.

· PAR. 5. Many dealers in and ultimate purchasers of candy are attracted by respondent's said method and manner of packing said candy, and by the element of chance involved in the sale thereof m the manner above described, and are thereby induced to purchase· said candy so packed and sold by respondent, in preference to candy offered :for sale and sold by said competitors of respondent who do not use the same or equivalent methods. The use of said method by respondent h~s the tendency and capacity, because of said game of chance, to divert to respondent trade and custom from its said competitors who do not use the same or an equivalent method; to exclude from said candy trade all competitors who are unwilling to and who do not use the same or an equivalent method because the same is unlawful; to lessen competition in said candy trade, and to tend to create a monopoly of said ·candy trade in respondent and such other distributors of candy as use the same or an equivalent method, and to deprive the PUrchasing public of the benefit of free competition in said candy trade, The use of said method by the respondent has the tendency and capacity to eliminate from said candy trade all actual competitors, and to exclude therefrom all potential competitors who do not adopt an<J. use said method or an equivalent method. PAn. 6. :Many of said competitors of respondent are unwilling to adopt and use said method or any method involving a game of chance Findings 23F. T.C~ or the sale of a chance to win something by chance or any other method that is contrary to public policy.

PAR. 7. The aforementioned method, acts and practices of the respondent are all to the prejudice of the public and of respondent's competitors as hereinabove alleged. Said method, acts, and practices constitute unfair methods of competition in commerce within the. intent and meaning of Section 5 of an Act of Congress entitled "Ail' Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," approved September 2G, 1914. HEPORT, 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 January 31, 1936, issued and served its complaint in this proce<:>ding upon the respondent, John H. Dockman & Son, Inc., a corporation, charging the respondent with the use of unfair methods of competition in commerce in violation of theprovisions of said act.

After the issuance of said complaint and the filing of respondent's; answer thereto, testimony and other evidence in support of the allegations of said complaint were introduced by Henry C. Lank and P. C~ Kolinski, attorneys for the Commission, before Miles J. Furnas, an examiner of the Commission theretofore duly designated by it, and the· said testimony and other evidence were duly recorded and filed in the· uffice of the Commission.

The respondent was represented by Messrs. Edwin F. Samuels and Thomas vV. Y. Clark, but offered no testimony or other evidence in opposition to the allegations of the complaint. Thereafter, the proceeding regularly came on: for final hearing before the Commission on the said complaint, the answer thereto, testimony and other evidence on behalf of the Commission, and brief in support of the complaint; no brief having been filed on behalf of therespondent, oral argument having been waived, a:nd the Commission, having duly considered the matter and being now 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. The respondent, John H. Doclunan & Son, Inc~t is Ill corporation organized under the laws of the State of :Maryland, with JOHN H. DOCKl\fan & SON, INC~ 1025 1020 . Findings its principal office and place of business in the city of B'altimore, Sta«l· of Maryland .

. Respondent is now, and for several years last past has been, engaged In the manufacture of candy in Baltimore, l\fd., and in the sale and. distribution of said candy to wholesale dealers and jobbers located in. th~ State of Maryland and in the other States of the United States. It causes said candy, when sold, to be shipped or transported from its. Principal place of business in Baltimore, l\fd., to purchasers thereof in Maryland and in other States of the United States. . In so carrying on said business, respondent is and has been engaged ln interstate commerce, and is and has been in active competition with. other corporations and with partnerships and individuals engaged in the manufacture of c.andy and in the sale and distr·ibution. thereof between and among the various States of the United States. PAR. 2. In the course and conduct of its business, as described in, Paragraph 1 hereof, respondent sells and has sold to wholesale dealers and jobbers various packages or assortments of candy so packed and a~sembled as to involve the use of a lottery scheme when sold and distributed to the consumers thereof.

One such assortment consisted of a number of pieces of candy, a l1Number of other articles of merchandise, and a device commonly called a."Punchboard." The candy and other articles of merchandise weredistributed by means of the said punchboard in the following manner;· The punchboard contained 150 punches, and when a punch was made- ~ candy pellet was disclosed. The majority of the said pellets werelack, but a small number were red, a small number were white, and a SinaU number were blue. The color of the pellets was concealed from the purchaser and prospective purchaser until a punch had been made and the pellet separated from the board. Purchasers obtaining a black Pellet received one of the pieces of candy, purchasers· obtaining a red: Pell~t received a toy auto whistle, purchasers obtaining a white pellet re~eived a stone pendant, and purchasers obtaining· a bue pellet re- ~:Ived a to~ bir~ warbl:~· The purcl;aser of the last punch frot_n said ard recmved, m addition to the piece of candy or· other article of ;erchandise, a gilt pencil. This assortment was designated by re- ~pondent as "150 Pencil Puncherine." · <' T~e fact as to whether n. purchaser recei,·ed one of' the pieces of "t\~\y or one of the other articles of mercl1andise was thus determined 0 ly by lot or chance.

assortment, when offered to the public, contained 150' units of8 1This and the complete assortment was sold by the respondent to ·whole-s\e <'~~ dealers and jobbers for 80¢, and the normal pri~e paid for the- , plete assortment by retail dealers was $1.00. Findings 23F. T. C.

The respondent manufactured, sold and distributed a similar assortment containing a number of pieces of candy and a number of other articles of merchandise and a punchboard identical in design. This assortment was designawd by respondent as "150 Harmonica Puncherine."

The respondent also distributed two other assortments involving the same priciple but varying in detail, namely, assortments containing 150 pieces of candy, the color of which was concealed within a chocolate coating, and the prizes consisting· of larger pieces or boxes of candy to be given free of charge to purchasers obtaining a piece of candy of a particular color.

PAR. 3. The candy assortments involving a lot or chance feature, as described in paragraph 2 hereof, are generally refened to in the candy trade or industry as "break and take," "draw," or "deal" assortments. Assortments of candy without the lot or chance feature, in connection with their resale to the public, are generally referred to in the candy trade or industry as "straight" goods. These terms will be used hereafter in these findings to designate these types of assortments.

PAR. 4. Numerous retail dealers purchase the assortments described in paragraph 2 hereof from wholesale dealers and jobbers who in turn have pur;:based said assortments from the respondent. Such retail dealers display said assortments for sale to the public as packed and assembled by the respondent, and the candy and other articles of merchandise contained in said assortments are sold and distributed to the consuming public by means of the above described punchboards, or in accordance with the above described sales plans. PAR. 5. The respondent sells its merchandise to syndicated retail dealers and to wholesale dealers and jobbers in the various States of the United States, and respondent's merchandise, both "straight" and "break and take" or "draw" or "deal" assortments, is resold in practically all stores where candy is sold.

All sales made by respondent are absolute sales, and respondent retains no control over the goods after they are delivered to the wholesale dealers and jobbers, or to the retail dealers. The assortments described in paragraph 2 hereof are packed in such manner that they can and may be displayed and offered for sale will1out alteration, addition or rearrangement to the consuming public by means of a lottery, gaming device, or gift enterprise.

The sale and distribution of candy by retail dealers by the methods described herein is the sale and distribution of candy by lot or chance and constitutes a lottery, gaming device, or gift enterprise. In the sale and distribution to wholesale dealers and jobbers for resale to retail dealers of assortments of candy assembled and packed JOHN H. DOCKI\L~N & SON, INC. 1027 1020 Findings as described in paragraph 2 hereof, respondent has knowledge that the said candy will be resold to the purchasing public by retail dealers by lot or chance, and it packs and assembles such candy in the way and manner described so that it may, without alteration, addition or rearrangement, be resold to the public by lot or chance by said retail dealers.

PAR. 6. Many competitors of respondent regard such methods of sale and distribution as morally bad and as encouraging gambling, ~specially among children; as injurious to the candy industry because It results in the merchandising of a chance or lottery instead of candy; and as providing retail merchants with the means of violating the laws of the several States. Because of these reasons, some competitors of respondent refuse to sell candy so packed and assembled that it can be resold to the public by lot or chance. These competitors are thereby Put to a disadvantage in competing. Said competitors can compete on even terms only by giving the same or similar devices to retailers. 1'his they are unwilling to do and their sales of '"straight" candy show a continued decrease.

1'here is a demand for candy which is sold by lot or chance and in order to meet the competition of manufacturers who sell and distribute candy which is resold by such methods some competitors of respondent have begun the sale and distribution of candy for resale to ~he public by lot or chance. The use of such methods by respondent In the sale and distribution of its candy is prejudicial and injurious to t~e public and respondent's competitors, and has resulted in the diver- Sion of trade to respondent from its said competitors, and is a restraint ~Pon and a detriment to the freedom of fair and legitimate competition in the candy industry.

PAR. 7. The principal demand in the trade for the "break and take," or "deal," or "draw" candy comes from the small retailers. The stores of these small retailers are in many instances located near schools and attract the trade of school children. The consumers or purchasers of the lottery or prize candy assortments are principally children and because of the lo~tery or gambling feature connected with the "break and .take," or "draw," or "deal" assortments and the possibility of be- ~nnng a winner it has been observed that the children purchase them ln Preference to the "straight" candy when the two types of assorttnents are displayed side by side.

1'he children prefer to purchase the lottery or prize assortments of candy because of the gambling :feature connected with its sale~ The sale and distribution of "break and take," or "draw," or "deal" assorttnen~s of candy, or of candy which has connected with its sale to the PUbhc the means or opportunity of obtaining a prize or becoming a 78035m-39-vol. 23-67 Order 23F.T.O.

winner by lot or chance, teaches and encourages gambling among children who comprise by far the largest class of purchasers and consumers of this type of candy.

PAR. 8. There are in the United States many manufacturers of candy who do not manufacture and sell lottery or prize assortments of candy and who sell their "straight" candy in interstate commerce in competition with the "break and take," or "draw," or "<real" candy, and manu· facturers of the "straight" type of candy have noted a marked decrease in the sales of their product whenever and wherever the lottery or prize candy has appeared in their markets. This decrease in the sales of "straight" candy is principally due to the gambling or lottery feature connected with the "break and take," or "draw,'' or "deal" candy.

PAR. 9. An officer of the respondent corporation testified and the Commission finds that the gross annual volume of respondent's business is approximately $250,000.

PAR. 10. The Commission further finds that the sale and distribution in interstate commerce of assortments or packages of candy so packed and assembled as to enable retail dealers, without alteration, addition or rearrangement, to resell the same to the consuming public b:v lot or chance is contrary to public policy. CONCLUSION The aforesaid acts and practices of the resp.ondent, John H. Dock· man & Son, Inc., are to the prejudice of the public and of respondent's· competitors, and constitute unfair methods of competition in corn· merce within the intent and meaning of Section 5 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 Commis· sion upon the complaint of the Commission, the answer of the respondent, the testimony and other evidence taken before Miles J. Furnas, an examiner of the Cominission theretofore duly ·designated by it, and brief of counsel for the Commission, and no testimorty or· other evidence having been offered by the respondent, nor' brief having been filed, ai1d oral argument having been waived, 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 Corn· mission, to define its powers and duties, and for other purposes." . JOHN H. DOCKl\IAN & SON, INC. 1029 1020 Order It is ordered, That tlle respondent, John H. Dockman & Son, Inc., a corporation, its officers, agents, representatives, and employees, in the offering for sale, sale and distribution in interstate commerce of candy and candy products, do cease and desist from: (1) Selling and distributing to jobbers and wholesale dealers for resale to retail dealers candy so packed and assembled that sales of such candy to the general public are to be made or may be made by :means of a lottery, gaming device, or gift enterprise; . (2) Supplying to or placing in the hands of wholesale dealers and Jo?bers assortments of candy which are used or which may be used, Without alteration or rearrangement of the contents of such assort- :tnents, to conduct a lottery, gaming device, or gift enterprise in the sale or distribution of the candy or candy products contained in said assortment to the public;

. (3) Supplying to or placing in the hands of wholesale dealers and Jobbers assortments of candy, together with a device commonly called a ~'punchboard," for use or which may be used in the distribution of said candy to the p_ublic at retail;

(4) Furnishing to wholesale dealers and jobbers a device commonly called a "punchboard," either with the assortments of candy or sep- ~rately, bearing a legend or legends or statements informing the pur~ ~haser that the candy is being sold to the public by lot or chance, or lll accordance with a sales plan which constitutes a lottery, gaming ~evice, or gift enterprise.

It is further ordered, That the respondent, John H. Dockman & Son, Inc., within 30 days after the service upon it of this order, shall file ,with the Commission a report in writing, setting forth in detail the manner and form in which it has complied with this order. 1030 FEDERAL TRADE COJ\Il\IJSSION DECISIONS Complaint 23F. T.C;