Penn Dry Goods Co

Text (OCR of the scan at left; may contain errors)

IN THE Matter OF PENN DRY GOODS COMPANY, AND GEORGE J. NOTH- NAGEL TRADING AS THE STANLEY STORE AND AS AGENT OF PENN DRY GOODS COMPANY CO:.\IPLAINT, FINDINGS, AND ORDER IN REG.\RD TO Tile ALLEGED VIOLATIO;\1 OF SEC. ll OL•' AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 3098. Complaint, Apr. 6, 1937-Decision, June 2, 1[137 1 Where nn Individual engaged In the purchase of blankets and bedspreads from the mani1facturers or their selling agents, and in selling same to clubs, fraternal organizations, hospitals, charitable institutions, and associations, for resale and distribution to the purchasing public- Auvertised, through printed cards, circulars, and letters, and sold said products for resale Wlder, a "Club Plan," under which each week, in accordance with weeldy drawings, one of a fixed number of members who obligated themselves to some !'mall weekly payment for a specified number of weeks, received, as determined by the name drawn by chance, article of mcrt•handise involved, without further payments or further compliance with original undertaking, from which he was thus absolved, and thereby supplied to and placed In the hanus of others the means of conducting lotteries in the sale of his products in accordance with nforesaid sales plan, and aided and abetted, through aforesaid advertising, in inducing organizations, associations, and the like to purchase and dispose of his said products through lottery, gift enter[lrl~e, or game of chance, in Ylolatlou of public policy, as long recognized In the common law and criminal statutes, and of an established publlc policy of the United States Government, and in competition with many makers and sellers of blankets and bedspreads, unwilling to olrer or sell their said products together with a sales plan or method involving a lottery, game of chance, or gilt enterprise, and who refrain therefrom, and with many unwllling to adopt and use ~:mid or any method involving a game of chance or sale of a chance to win by chance or any other method contrary to public policy:

With re,;ult that purchasing public was induced and persuaded to buy his said products in prcfcrenee to those otrered and sold by competitors, by reason of said lottery or game of chance, and of inducing, through said advertisements, circulars, and the like, purchase of his said products by aforesaid organizations and distribution thereof to consuming public through such sales plan, and with result that many dealers, associations, societies, and ultimate purchasers of blankets and bedspreads, attracted by said plan or method and tlement of chance involved in sale thereof, as above set forth, wet·e thereby lndurPd to buy such articles, sold and distributed by him, in preference to like merchandise otrered and sold by aforesaid competitors who do not use same or equivalent method, nnd with tendency and capacity, by rc-nsou of said game of chance, to divert to him trade and custom from ltls snld comprtltor~ who do not use such or an equivalent practice or method, to u:clu<le from trade in question all competitors who are unwilll !\Jot)lfle() or()Pr pu!JJIHhl'd R8 Of July 2, 1937. 12 FEDERAL TRADE C01\LMISSION DECISIONS Complaint 25F.T.O.

ing to and do not use same as unlawful, to lessen competition therein and tend to create a monopoly in him and such other distributors as do use same or equivalent practice, and deprive purchasing public of benefit of free competition ln trade ln question, and to eliminate therefrom all actual, and exclude therefrom all potential, competitors, who do not use such or an equivalent method:

Bela, That such acts and practices were to the prejudice of the public and competitors and constituted unfair methods of competition. 11/r. Henry 0. Lank and Mr. P. 0. [{olinski for the Commission. 11/r. Herman Hurowitz, of Philadelphia, Pa., for Penn Dry Goods C(}, and Wright, Gordon, Zachry & Parlin, of New York City, for George J. Nothnagel.

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 Penn Dry Goods Company, a corporation, and George J. Nothnagel, an individual trading under the firm name and style of The Stanley Store and as agent of the Penn Dry Goods Company, hereinafter refetTetl to as respondents, have been and are using unfair nwthods 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 stating its charges in that respect as follows: PARAGRAPH 1. The respondent, Penn Dry Goods Company, is a c.orporation organized and doing business under the laws of the State of New Jersey, with its principal office and place of business located at 731 Arch Street, in the city of Philadelphia, State of Pennsylvania. The respondent, George J. Nothnagel, is an individual trading under the firm name and style of The Stanley Store, with his principal place of business located at 734 Haddon Avenue, in the city of Collingswood, State of New Jersey. The respondent Nothnagel does business in his own name and right and as agent for the respondent, l")enn Dry Goods Company.

The respondent, Penn Dry Goods Company, is now, an<l for several years last past has been, engaged in the business of buyin~ blankets and bedspreads from the manufacturers thereof, or from nuuulf!tCturers' agents, and selling the same to wholesale and retail dealers and to clubs, fraternal organizations, hospitals, charitable institutions, and associations for resale and distribution to the purchasing public. The respondent, George J. Nothnagel, trading under the firm name and style of The Stanley Store, is now, and for some time l:tst past THE STANLEY STORE 13 11 Complaint has been, engaged in the business of buying blankets and bedspreads from the manufacturers thereof, or their selling agents, and in selling the same to clubs, fraternal organizations, hospitals, charitable institutions, and associations for resale and distribution to the purchasing public. The respondent Nothnagel has also, as agent for the respondent, Penn Dry Goods Company, been engaged in the business of taking orders for and selling blankets and bedspreads to clubs, fraternal organizations, hospitals, charitable institutions, and associations, and forwarding said orders to the said respondent, Penn Dry Goods Company. · Respondents' customers are located at points in the States of Pennsylvania, New Jersey, Maryland, and Delaware, and the respondents cause said merchandise when sold to be transported from their place of business in the city of Philadelphia, State of Pennsylvania, or the city of Collingswood, State of New Jersey, to the purchasers thereof at their respective places of business in the States above mentioned; and there is now, and has been for some time last past, a course of trade and commerce by said respondents in such blankets and bedspreads between and among the States of the United States. In the course and conduct of their said business, respondents are in competition with other corporations and with other individuals and with partnerships engaged in the sale and distribution of similar or like merchandise in commerce between and among the various States of the United States.

PAR. 2. In the course and conduct of their business, as described in paragraph 1 hereof, respondents have offered for sale and sold their said blankets and bedspreads to purchasers, as described in paragraph 1 hereof, along with a sales plan or method by which the said blankets and bedspreads are to be resold to the purchasing public. Said sales plan or method involves the use of a lottery scheme or gift enterprise in the sale and distribution of said merchandise to the ultimate purchasers thereof. Respondents have advertised their said merchandise and their said sales plan or method by means of printed cards, circulars, and letters. The sales plan or method, as suggested and advertised by respondents, is as follows:

The sales plan or method is described as a "Club Plan." Each club has a fixed number of members, usually sixty or a hundred. Each member of a club pays a fixed amount each week, usually 25¢, for a period not to exceed a given number of weeks, usually twenty or twenty-four weeks. At the end of the first week a drawing is held, and the member whose name or number is drawn receives one of the articles of merchandise being distributed for the payment of one week's dues, and such winner or member then is dropped from the Complaint 2:JF.T.C. club. Each succeeding week the same procedure is followed, and thus one member receives an article of merchandise for the payment of one week's dues, another for two weeks' dues, another for three weeks' dues, and so to the end of the fixed period. At that time all remaining members receive one of the articles of merchandise, bnt such members have paid the full value of such merchandise. Thus by mE>ans of the sales plan or method offered by respondent the amount which an ultimate purchaser pays for an article of merchandise is determined wholly by lot or chance.

PAR. 3. The dealers and purchasers to whom respondents sell their blankets and bedspreads expose said blankets and bedspreads for sale and sell the same to the purchasing public in accordance with the aforesaid sales plan or method. Respondents thus supply to and place in the hands of others the means of conducting lotteries in the sale of their products in accordance with the sales plan hereinabove set forth. The purchasing public is induced and persuaded to purchase respondent's said products in preference to blankets and bedspreads offered for sale and sold by respondents' competitors because of said lottery or game of chance.

PAR. 4. The advertisements and circulars as distributed by respondents aid and abet in inducing organizations, associations and the like to purchase respondents' products and to dispose of the same by means of a lottery, gift enterprise, or game of chance. The purpose of rrspondents in so distributing their advertising material and circulars describing the sales plan above mentioned is to induce organizations, associations, and the like to purchase respondents' said products, and the distribution of said advertisements, circulars and the like has the effect of inducing the purchase of respondents' products by such organizations and the distribution of the same to the consuming public by means of said sales plan. PAn. 5. The sale of blankets and bedspreads to the purchasing public in the manner above alleged involves a lottery, game of chance, or a gift enterprise.

The use by respondents of said sales plan or method in the sale of their merchandise, and the sale by and through the use thereof and by the aid of said sales plan or nwthod, 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 by respondents of said sales plan or method has the tendency to unduly hinder competition or create monopoly.

Many persons, firms, and corporations who make and sell blankets and bedspreads in competition with the respondents, as above alleged, THE STANLEY STORE 15 11 Findings are unwilling to offer for sale or sell their said blankets and bedspreads together with a sales plan or method which involves a lottery, game of chance, or a gift enterprise, as above alleged, and such competitors refrain therefrom.

PAR. 6. Many dealers, associations, societies, and ultimate purchasers of blankets and bedspreads are attracted by respondents' said sales plan or method and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced 1o purchase blankets and bedspreads sold and distributed by respondents in preference to like merchandise offered for sale and sold by said competitors of respondents who do not use the same or an equivalent method. The use of said sales plan or method by respondents has the tendency and capacity, because of said game of chance, to divert to respondents trade and custom from their said competitors who do not use the same or an equivalent method; to exclude from said 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 trade and to tend to create a monopoly in respondents and such other distributors as use the same or an equivalent method; and to deprive the purchasing public of the benefit of free competition in said trade. The use of said method by the respondents has the tendency and capacity to eliminate from baid trade all actual competitors and to exclude therefrom all potential competitors who do not adopt and use said method or an equivalent method.

PAR. 7. Many of said competitors of respondents are unwilling to adopt and use said method or any method involving a game of chance or the sale of a chance to win something by chance, or any other method that is contrary to public policy. PAR. 8. The aforementioned method, acts and practices of the respondents are all to the prejudice of the public and of respondents' 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, approved Septemb£>r 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes." REronT, FINDINGS AS TO THE Facts, AND Onder Pursuant to the provisions of an Act of Congress, approwd September 2G, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposps,"' the Fcdl'rnl Trade Commission, on April 6, 1937, issued and Sl'rved its l5812tm--39----4 16 FEDERAL TRADE COl\Il\IISSION DECISIONS Finding~'! 2;:)F,T.C. complaint in this proceeding upon the respondents above named, charging them with the use of unfair methods of competition in commerce in violation of the provisions of said act. On May 15, 1937, the respondent, Penn Dry Goods Company, a corporation, filed its answer denying the allegations of said complaint, and on :May 24, 1937, the respondent George J. Nothnagel, filed his answer, in which answer he stated that he desired to waive hearing on the charges set forth in the complaint and admitted that all the material nJlegations in said complaint, except as in said answer expressly denied, were true and consented that the Commission might, without further evidence and without any other proceeding, make and enter its findings as to the facts and serve upon him an order to cease and desist from any methods of competition alleged in the complaint which constitute violations of Section 5 of the said Federal Trade Commission Act.

Thereafter, the proceeding regularly came on for final hearing before the Commission on the said. complaint and the answers thereto, and. the Commission having duly considered. the same 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 THE FACTS PARAGRAPH 1. Respondent, Penn Dry Goods Company, is a corporation organized and. doing business under the laws of the State of New Jersey, with its principal office and place of business located at 731 Areh Street, in the city of Philadelphia, State of Pennsylvania.

Respondent, George J. Nothnagel, is an individual trading under the firm name and style of The Stanley Store, with his principal place of business located at 734 Haddon Avenue, in the city of Col- 1ingswood, State of New Jersey.

Respondent, George J. Nothnagel, trading un(ler the firm name and style of The Stanley Store, is now and for sometime last past has been engaged. in the business of buyin~ blankets and bedspreads from the manufacturers thereof or their selling agents, and in selling the same to clubs, fraternal organizations, hospitals, charitable institutions, and associations, for resin.le and distribution to the purchasing public. Customers of tho respondent, George J. Nothnagel, are locn.ted at points in the States of Pennsylvania, New Jersey, Maryland, and Delaware, and the respondent Nothnagel causes said merthandise when sold to be transported from his place of business in THE STANLEY STORE 17 11 Findings the city of Collingswood, State of New Jersey, to the purchasers thereof at their respective places of business in the States above mentioned; and there is now and has been for sometime last past a course of trade and commerce by said respondent in such blankets and bedspreads between and umong the States of the United States. In the course and conduct of his business, respondent Nothnagel is in competition with other individuals and with corporations and partnerships engaged in the sale and distribution of similar or like merchandise in commerce between and among the various States of the United States.

PAR. 2. In the course and conduct of his business, as described in paragraph 1 hereof, respondent Nothnagel has offered for sale and sold his said blankets and bedspreads to purchasers, as described in paragraph 1 hereof, along with the sales plan or method by which the said blankets and bedspreads are to be resold to the purchasing public. Said sales plan or method involves the use of a lottery scheme or gift enterprise in the sale and distribution of said merchandise to the ultimate purchasers thereof. Respondent has advertised his said merchandise und his said sales plan or method by means of printed cards, circulars, and letters. The sales plan or method, as suggested and advertised by respondent, is as follows: The sales plan or method is described as a "Club Plan." Each club has a fixed1l number of members, usually sixty or u hundred. Each member of a club pays a fixed amount each week, usually 25¢, for a period not to exceed a given number of weeks, usually twenty or twenty-four weeks. At the end of the first week a drawing is held, and the member whose name or number is drawn receives one of the articles of merchandise being distributed for the payment of one week's dues, and such winner or member then is dropped from the club. Each succeeding week the same procedure is followed, and thus one nwmber receives an article of merchandise for the payment of one week's dues, another for two weeks' clues, another for three weeks' clues, and so to tlle end of the fixed period. At that time all n~maining members receive one of the articles of merchandise, but such members have paid the full value of such merchandise. Thus by means of the sales plan or method offered by respondent Nothnagel the amount which an ultimate purchaser pays for an article of merchandise is determined wholly by lot or chance. PAR. 3. The dealers and purchasers to whom respondent Nothnagel has sold his blankets and bedspreads have exposed said blankets and bedspreads for sale and have sold the same to the purchasing public in accordance with the aforesaid sales plan or method. Re- ~pondcnt Nothnagel has thus supplied to and has placed in the bands Findings 25F.T.C.

of others the means of conducting lotteries in the sale of his products in accordance with the sales plan hereinabove set forth. The purchasing public has been induced and persuaded to purchase respondent's said products in preference to blankets and bedspreads offered for sale and sold by respondent's competitors because of said lottery or game of chance.

PAR. 4. The advertisements and circulars as distributed by respondent Nothnagel aided and abetted in inducing organizations, associations and the like to purchase respondent's products and to dispose of the same by means of a lottery, gift enterprise, or game of chance. The purpose of rpspondent in so distributing his advertising material and circulars describing the sales plan above mentioned has been to induce organizations, associations and the like to purchase respondent's said prollucts, and the distribution of said advertisements, circulars, and the like has had the effect of inducing the purchase of respondent's protlucts by such organizations and the distribution of the same to the consuming public by means of said sales plan.

PAn. 5. The sale of blankets and bedspreads to the purchasing public in the manner above found involves a lottery, game of chance, or a gift enterprise. The use by respondent of said sales plan or method in the sale of his merchandise, and the sale by and through the use thereof and by the aid of said sales plan or method, is a practice of the sort which the common bw and criminal statutes have long deemed contrary to public policy, nnd is contrary to an established public policy of the Government of the United States. The use by respondent of said sales plan or method has had the tendency to unduly hinder competition or create monopoly. Many persons, firms, and corporations who make and sell blankets and bedspreads in competition with respondent Nothnagel, as above found, are unwilling to offer for sale or sell their said blankets and bedspreads together with a sales plan or method which invoh·es a lottery, game of chance, or a gift enterprise', as above found, and such competitors refrain therefrom.

PAn. 6. l\Iany dealers, associations, societies and ultimate purchasers of blankets and bedspreads have been attracted by respondent's said sales plan or method and by the element of chance involve<l in the sale thereof in the manner above described, and have been thereby induced to purchase blankets and bedspreads sold and distributed by respondent Nothnagel, in preference to like merchandise offered for sale and sohl by said competitors of respondent who do not use the same or an Pquivalent method. The use of said sales plan or method by respondent has had the tendency and capacity, THE STANLEY STORE 19 11 Order because of said game of chance, to divert to respondent trade and custom from his said competitors who do not use the same or an equivalent method; to exclude from said trade 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 trade and to tend to create a monopoly in respondent Nothnagel and such other distributors as use the same or an equivalent method; and to deprive the purchasing public of the benefit of free competition in said trade. The use of said method by respondent Nothnagel has had the tendency and capacity to eliminate from said trade actual competitors and to exclude therefrom potential competitors who do not adopt and use said method or an equivalent method. PAR. 7. 1\Iany of said competitors of respondent Nothnagel are unwilling to adopt and use said method or any method involving a game of chance or the sale of a chance to win something by chance, or any other method that is contrary to public policy. CONCLUSION The aforesaid acts and practices of respondent, George J. Nothnagel, individually and trading as The Stanley Store, have been to the prejudice of the public and of respondent's competitors, and constitute unfair methods of competition in commerce within the intent and meaning of Section 5 of an Act of Congress, approved September 2G, 1914, entitled. "An Act to create a Federal Trade Commission, to define its powers and d.duties, and. for other purposes." MODIFIED ORDER TO CEASE AND DESIST 1 This matter comes on to be heard by the Federal Trad.e Commission on the complaint filpu herein on April G, 1V37, the answer of the respondent, Penn Dry Goods Company, a corporation, filed 1\Iay 15, 1937, and. the answer of respondent, George J. Nothnagel, an individual trading under the firm name and style of The Stanley Store, filed hen•in on l\Iay 24, 1V37.

The answer of respondent, George J. Nothnagel, as aforesaid, states that he dPsir{'s to waive }l{'aring on the charges set forth in the complaint, and that for the sole purpose of avoiuing the trouble and expense incident to further continuation of this prod'cding he refrains from contesting this procet>ding, and admits that all the material 1 Tbe elrect of salcl ortlt>r !Mhucd ns of July 2, 1()37, Is to add to the third and last numbered paragraph of the original order the following qunllflcntlon, namely: "this pro,·l•lon not applying to anl••s of nwrchantliAe not al'eompanlcd by any acts of rt>spondent aiding or Inducing dlHposltlon thereof under any plan Involving a lottery, gift enterprl~c, or game of chanee."

DECISIO~S20 FEDERAL TRADE CO:Ml\HSSION Order :!5 F. T. C. facts alleged in said complaint, except that he is or acts as agent for the Penn Dry Goods Company, are true, but within the intent and meaning of Section 5 of the Federal Trade Commission Act only and not within the intent and meaning of any other law of the United States, such answer not constituting an admission of fact for any other purpose nor to be used against him in any other proceeding, suit or action; and that said respondent Nothnagel consents that the Commission may, without trial, without the taking of further evidence, and without any other proceeding, make and enter its findings as to the facts and issue and serve upon hiin an order to cease and desist from any methods of competition alleged in the complaint which constitute violations of Section 5 of the said Federal Trade Commission Act.

The answer of respondent, Penn Dry Goods Company, a corporation, denies that it has indulged in the practices complaiued of in said complaint, and denies that the said respondent Nothnagel is or has been its agent, representative, or employee. The Commission, on June 2, 1937, having made its findings us to the facts and conclusion that said respondent Nothnagel has violttted the provisions of an Act of Congress, approved September 2G, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," and the Commission, on June 2, 1937, having entered its order to cease and desist against the respondent, George J. Nothnagel, and the matter now coming on for recousideration upon the request of counsel for the re;;pondent, George J. Nothnagel, dated June 25, 1937, requesting a modification of said order to cease and desist, and the Commission having duly considered the said request and being now fully advised in the premises.

It is ordered, That the order to cease and desist heretofore entered on June 2, 1937, be, and the same hereby is, vacated and set aside. It is further ordered, That the respondent, George J. Nothnagel, un individual trading und<.'r the firm name and style of The Stan ley Ston•, his agents, and ('mployees, in connection with the offering for sale, sale and distribution in interstate commerce of blankets, b<>de;preads, or other merchandise, do cease and dt>sist from: 1. Offering for sale and selling blankets, b<.'dspreaJs, or other merchandisl', to purchas<.'rs tognther with a sales plan or method involving the use of a lottery scheme or gift enterprise by which said blankets, bedspreads, or other merchandise, are to be or may be resold to the purchasing public.

2. Advertising by means of printed cards, circulars, letters, or by any other means, the sale of blankets, bedspreads, or other mer- THE STANLEY STORE 21 11 Order chandise, under any plan involving the use of a lottery scheme or a gift enterprise.

3. Aiding and inducing the purchasers of such blankets, bedspreads, or other merchandise, to dispose of the same by means of any lottery, gift enterprise, or game of chance; this provision not applying to sales of merchandise not accompanied by any acts of respondent aiding or inducing disposition thereof under any plan involving a lottery, gift enterprise, or game of chance. It i.~ further ordered, That the respondent, George J. Nothnagel, individually and trading as The Stanley Store, shall, within GO days after service upon him of this order, file with the Commission a report in writing setting forth in detail the manner and form in which he has complied with this order.

It i.~ further ordered, That the said complaint, insofar as it relates to the respondent, Penn Dry Goods Company, a corporation, be and the snme is hereby dismissed without prejudice. 22 FEDERAL TRADE COl\IMTSSION DECISIONS Syllabus 25F. T. C.