Winthrop Novelty Company, Inc.

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

IN 'tiie MATTER 0}' WINTHROP NOVELTY COMPANY, INC.

COMPI,AINT, FINDINGS,' AND ORDER IN REGARD. TO Tile ALLEGED VIOLATIOS OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1014 Docket 3109. Complaint, Apr. 20, 193"1-Dcc:ision, June 25, 1937 Where a corporation engaged in sal!:' and distribution of candy, including c{'r· tain assortments which were so packed a·nd asf:emblem<l ns to involve use of a lottery schPnle when sold and distributed to consumers thereof, and which included such assortments as large number of wrapped penny Clll'll· mels of uniform sl;1:e and shape, majority of which wpre uniform through· out, together with a JmmhPr of Radio Star Jig Snw puzzles, to he given, without charge, to those pnrdmsing, by rhnnce, one of n few red-C{'llt!:'rnl caramels included In assortnwnt In question- (a) Sold, to wlwlesalers nnd jobbers, and to retnilt•rs, for llisvlny and rcsnle to purchasing pnhlic by the rrtaller·\'ender, In accordance with afot·e:;nitl plan, such assortments, and thereby supplied to and placed In the hands of others the means of conducting lotteries in the sale of iti~ said products, . in accordance with such plan, contrary to public policy as long recognized In the common law and criminal !ltatutes, and contrary to an eRtubllshed public policy of the United States Government, and in competition with many who, unwilling to offt:>r and !tell cantly so pac·k!'d and assembled, or otherwise arrauged and. packed for sale to the pureha;;iug public, as to involve a game of clmnce, refrain therefrom; With result that consuming public was induced to buy Its said candies because of cl111nce of obtaining one of said puzzles or prizes, and with capacity and te11dency to induce purchasers to hny said products in preference to those offer!'d and sold by romvetitors, n 1111 with re~nlt tho t many dealers in and ultimate purchasers of candy W!'rfl nttractcd by its said method or manner of packing snell product and by ~>lenwnt of cl1aure Involved In sale thereof, as above set forth, and thereby induced to purchase same, thus packed and ~old by it, in prrf<'rrncr to that offerrd and sold by its conl· petitors who do not ure !luch or pqulvalent methods, and with tendency and capacity, because of !laid game of dmnce, to divert to It trade aud custom from its said comvetitors who do uot use same or equivalent methods, exclude from said trade all competitors who are unwilling to and do not use such or equhalent methods as lmlawful, lessen competition In said trade and tend to crrate a monopoly therpof In 1t and in <;urll other compPtitoJ'S as u~e sam!' or l'quivalent methods, dl'pl'iYe Imrcha~Iu~ Jmbllc of bt>Iwtlt ot free competition thl'reln, and <'limluutc from said trotle all adunl, and l'Xciude thPrl'from 1111 pott'ntlal, comvdltors who do not adopt and use Sllf'h or Pqnlvalrnt methods; and (b) Represented to <'Ustonl{'rs and prot<pettil'e cnstonwrs, through use of wonH ''manufacturers of novrlty candy products," that It was the manufacturer of the candy or merchandise sold and dlstribut<'d by Jt, notwithstanding fact it neither owned, controlled, nor operated any factory whatsoel"Pr, and did not make any of Its candy or merchandise;

WINTHROP NOVELTY CO., INC. 257 2G6 Complaint W1"th effect of misleadiug 111111 tleceivlng mnuy of its customers into the erroueous belief that it was a business concern which controlled aml operated a factory in which the candy and other merchandise sold by lt was made', llnd that persons dealing with it were buying said products directly from the manufacturer thereof, and thereby el1mil1ating profits of a, selling agency or middleman and obtaining various admutages not had by those buying goods therefrom, and of unfairly diverting trade to it from its competitors, including many who do not falsely represent that they Iilamt-· · facture merchandise or candy sold by them: lleld, That such acts and practices were to the prejudice of the public amt competitors nnd coustitutPd unfair methods of competition. Mr. Henry 0. Lamk and Air. P. 0. [(olin~;ki for the Commission . .Vr. Charles lV. Jablon, of New York City, for respondent. COMPLAINT Pursuant to the provisions of an Act of Congress, approved Sept~rnber 26, 1914, entitled "An .Act to create a Federal Trade Commis- Ston, to define its powers and duties, and for other purposes," the Federal Trade Commission, haring reason to belien that Winthrop N"o,·elty Co., Inc., a corporation, hereinafter referred to as respondent~ ~,las Leen a11d is usi11g unfair methods of competition in commerce, as :commerce" is defined in said act, and it appearing to said Commis- ~ton that a proceeding by it in re:,;pect thereof would be in the public lllterest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. HebponJent is a corporation organized and doing lnt::;iness under the laws of the State of New York, with its principal (,ffice aiel place of business located at 35-37 Claver Place, in the city of Brooklyn, State of New York. Respondent is now, and for more than one year last past has been, engaged jn the sale and distribution of candy to wholesale dealers and jobbers and to retail dealers located at points in the yarious States of the United States. Respondent causes and has caused its said products when sold to he transported from. its principal place of business in Brooklyn, N. Y., to purchasers thereof in the State of New York and in other States of the United States at their respectiye places of business. There is no,v, and has hee11 for more than one ypar last past, a course of trade and comlllerce by said respondent .in such candy het\wen and among th~ Statps of the United States. In the course and conduct of said busi- ~lss, respondent is in competition with other corporations and with llldividuals and partnerships engaged in the sale and distribution or ~andy in commerce between and among the various States of the lJnited States.

Complaint 2;:i ~'. T. C. PAR. 2. In the course and conduct of its business, as describeu rn paragraph·1 hereof, respondent sells and has sold to wholesale dealers and jobbers and to retail dealers assortments. of candy so packed and assembled as to involve the use of a lottery sclwme when sold atl<.l distributed to the consumers thereof.

One of said assortments is compose(l of 150 pieces of cammel candy of unifonn size and shape, together with 12 Radio Star Jig Sa"\\' puzzles. The majority of the caramels in said assortment have the same color throughout, but a small number of said caramels have a red center. The said caramels are wrappP<l in non-transparent wrappers, and the color of the center of said caramels is effectively concealed from purchasers and prospective purchasers until a selection has been made and the wrapper removed. The said caramels retail at the price of 1¢ each, and the purchaser procuring one of the caramels having a red center is entitlrd to recei Ye, aiel is to be given :free of charge, one of the Radio Star Jig Saw puzzles lwrc· tofore referrrd to. The said Jig Saw puzzlrs are thus distributell to purchasers of said caramels wholly by lot or chance, and tho consuming public is induced to purchase said candies because of the chance o:f obtaining one of the said Jig Saw puzzles. The respondent sells and distributrs several assortments of eumly involving a game of chance or lottery scheme when sold and di,;tributed to the consuming public, but respondent's method of packing and assembling the said assortments and the sales plan involved are similar in all major respects to that described above. PAR. 3. The wholesale dealers and jobbt>rs to whom respondent sells its assortments of candy resell the same to retail dealers, and the said retail dealers and the retail dealers to whom respondent sells direct expose said assortments for sale and sell the same to the purchasing public in accordance with the aforesnid salt>s plan. Re· Rpondent thus supplies to and. places in the hands of others the means of conducting lotteries in the sale of its products in acconlanre with the sales plan hereinabove set forth. Such sales plan has the capacity and tendency of inducing purchasers thereof to pmchuse respondent's said products in preference to candy offt'l'Nl for stte and. sold by its competitors.

PAu. 4. The sale of candy to the purchasing public in tl1r manner above alleged involves a game of chance ot· the sale of a chance to procure a Jig Saw puzzle. .

The use by respondent of said method in the sale of candy, and the sale of candy by and through the use thereof and by the nitl <If said method, is a practice of the sort which the common Jaw an(l WIXTHROP XOVF.LTY CO., IXC. 259 256 Cumvlniut rr·iminal statutes have long deemed contrary to public policy, and is rontrary to an established public policy of the Government of the United States. The use by respondent of said method has the tend- <'ncy unduly to hinder competition or create monopoly in this, to wit: that the use thereof has the tendency and capacity to exclude com- ])etitors of respondent who do not adopt and use the same method or an equivalent or similar method involving the snme or an equivnlent or similar element of chance or lottery scheme . . Many persons, firms,· and corporations who make antl sell candy 111 competition with respondent, as above alleged, are unwilling to offer for sale or sell candy so pncked and assembled as above alleged, or otherwise arranged and packed for sale to the purchasing public so, as to im·olre a game of chance, and such competitors refrain therefrom.

PAR. 5. Many dealers in and ultimate purchasers of candy are attraded by respond£>nt\; said method and manner of packing saitl candy and by the element of chance involved in the sale thereof in 1hP, manner aho,·e described, and are tlwreLy induced to purchase iiaid candy so packed and sold hy respondent in prefprence to candy offered for sale and soltl by said competitors of respondent who do llot use the same or an equivalent method. The use of said method by respondent has the tendency and capacity, bt'cause of said game of ehance, to divert to respondent trade and custom from its said c~mpetitors who do not use the same or an equintlent method; to C)(c}ude from sai<l candy tr·ade all competitors 'rho nre unwilling to and who do not use the same or an equiralent methotl because the same is unlawful; to lessen conqwtition in said candy trade and to tend to crpate a. monopoly of said candy trade in respondent and in ~llch other competitors of respondent as use the same or an equivalent ll1ethod; and to deprive the purchasing public of the benefit of free competition in said candy trade. The use of said method by re- ;'llondent has the tendency an<l capacity to p]iminate from said can~y tade all actual competitors and to exclude therefrom all potential tornpetitors who do not adopt awl use said method or an equivalent. ll1ethod.

J. PAR, G. In the course an<l conduct~ of its said bns~ness, respondent las caused and caus('S the rPpresPntatwn to be made to 1ts customers antl })J'ospedire cmdomers, by the nse of the words "manufacturers of novl:'lty candy prmlncts," that it is the manufactur£>r of the candy or merchanrlise which ]t sells and distributes. A substantial portion of tho \\•ho1resale and retail dealers have expressed, and have, a preferenco for dealing direct with the manufacturer of candy or candy products 260 J!'EDERAL TRADE COMMISSION DECISIONS Findings 25F.T.O.

being purchased, such purchasers believing that they secur·e lower prices, superior quality, and other advantages that are not obtained when they purchase from a selling agency or middleman. The use by respondent of said representation that it is a manufacturer has the capacity and tendency to, and does, mislead and deceive many of respondent's said customers into the erroneous belief that respondent is a business concern which controls and oper· ates a factory in which the candy and other merchandise sold by respondent is manufactured, and that persons dealing with respondent are buying said candy or merchandise directly from the manufacturer thereof, thereby eliminating the profits of a selling agency or middleman and obtaining various advantages that are not obtained by persons purchasing goods from a selling agency or middleman. The truth and fact is that respondent neither owns, controls, nor operates any factory whatsoever and does not manufacture any candy or merchandise sold by it. There are many competitors of respondent who do not falsely represent that they manufacture the mer· chandise or candy sold by them. The use of said representation by respondent has the tendency and capacity to, and does, unfairly divert trade to respondent from its said competitors. PAR. 7. The aforementioned method, acts and practices of re· spondent are all to the prejudice of the public and of respondent's <~ompetitors, as hereinabove alleged. Said methods, acts, and practices constitute unfair methods of competition in commerce within the intent and meaning of Section 5 of an Act of Congress, approved September 26, 1914, entitled "An Act to create a Federal Trarle Com· mission, to define its powers and duties, and for other purposes." REPORT, FINDINGs AS 'l'O THE FACTs, AND Onm:n Pursuant to the provisions of an Act of Congress, approved Sep· tember 26, 1914, entitled "An Act to create a Federal Trade Com· mission, to define its powers and duties, and for other purposes,'' the Federal Trade Commission on April 20, 1937, issued and ou April 22, 1937, served its complaint in this proceeding upon the re· spondent, Winthrop Novelty Company, Inc., a corporation, charging it with tlle use of unfair methods of competition in commerce in violation of the provisions of said act. After the issuance of said complaint, the respondent filed answer thereto admitting all the material allegations of the complaint to be true and waiving the taking of further evidence and all other intervening procedure. Thereafter, this proceeding regularly came on for final hearing before the Commission on the said complaint and answer thereto, briefs WINTHROP NOVELTY CO., INC. 261. 256 Findings !U~d _oral argument of counsel having been waired; and the Com- ~ISSlo~ having duly considered the same and being now fully ad- 'V'Ised m 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 'lhe FACTS 1~ ARAGH.lph 1. Respondent is a corporation organized and doing buf:nness under the laws of the State of New York, with its principal 0!lice and plac~ of business located at 3~37. CI.av,er Place, in the City of 'Brooklyn, State of· New York. Resilondent is now, and for lll?re than one year last past has been, engaged in the sale and distribution of candy to wholesale dealers and jobbers and to retail deniers located at points in the various States of the United States. ll.respondent causes and has caused its said products when sold to be transported from its principal place of business in Brooklyn, N. Y., to purchasers thereof in the State of New York and in other States ?f t.he United States at their respective places of business. There 18 :t1ow, and has been for more than one year last past, a course of traue nud commerce by said respondent in such candy between and ittn.ong the States of the United States. In the course and conduct 0,f said business, respondent is in competition with other corporations and. with individuals and partnerships engaged in the sale and distribution of candy in commerce between and among the "ai·ious 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 and to retail dealers assortments of candy so packed ll~d assembled as to involve the use of a lottery scheme when sold and distributed to the consumers thereof.

One of said assortments is composed of 150 pieces of caramel candy of uniform size and shape, together with 12 Radio Star Jig Saw PUzzles. The majority of the caramels in said assortment have the salll.e color throuuhout0 but a small number of said caramels have a ted center. The said caramels are wrapped in non-transparent '"rn.papers, and t.he color of the center of said caramels is effectively c~ncealed from purchasers and prospective purchasers until a selechon has been made and the wrapper removed. The said caramels retai} at the price of 1¢ each, and the purchaser procuring one of the cala.mels having a red center is entitled to receive, and is to be given fr£·~ of charge, one of the Radio Star Jig Saw puzzles heretofore ~'~'fl'rred to. The said Jig Saw puzzles are thus distributed to pur- 262 FEDERAL TRADE COl\IMISSION DECISIONS Findings 25F. T. C.· chasers o£ said caramels wholly by lot or chance, and the consuming public is induced to purchase said candies because of the chance of obtaining one of the said Jig Saw puzzles. · The respondent sells and distributes several assortments of candy involving a game of chance or lottery scheme when sold and distJ·ibuted to the consuming public, but respondent's method of packing and assembling the said assortments and the sales plan involved are similar in all major respects to that described above. PAR. 3. The wholesale dealers and jobbers to whom respondent sells its itssortments of candy resell the same to retail dealers, and the said retail dealers and the retail dealers to whom respondent sells direct expose said assortments for sale and sell the same 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 hereinabove set forth. Such sales plan has the capacity and tendency of inducing purchasers thereof to purchase respondent's said products in preference to candy offered for sale and sold by its competitors.

PAR. 4. The sale of candy to the purchasing public in the manner nbore found invoJyes a game of chance or the sale of a chance to procure a .Jig Saw puzzle. The use by respondent of said method in the sale of candy, and the. sale of candy by and through the use thereof and by the aid o£ 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 Govepmwnt of the United States. The use by respondent of said method has the tendency unduly to hinder competition or create monopoly in this, to wit: that the use thereof has the tendency and capacity to exclude con1petitors of responcle11t who do not nd.opt and llse the same method or an equivalent or similar method involving the same or an equivalent or similar e]<>ment of chance or lottery sehemP. l\fany persons, firms, and corporations who make and sell ramly in competition with respondent, as above described, are unwilling to otf£>r for sale or sell candy so packed and assembled, or otherwist> nrrang-P(l nnd packed for sale to the purchasing public so ns to invoh'P a game of chance, and such competitors refrain therefrom. ] 1AR. 5. Many dealers in and ultimate pt,rchasers of candy are ntb·added hy respon<lent's said method and manner of packing said eandy and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to purchase said candy F.o }1twkrd anu sold by respondent in preference to candy offered WI~THHOl' XOVELTY CO., ISC. 263 2GG Findings for sale and sold by said competitors of respondent who do not use the same. or au equivalent method. The use of said method by re- ~'~Pondent has the; tendency and capacity, because of said game 9f chance, to divert to respondent trade and custom from its said com'petitors 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 in such other com~ }>etitors of respondent 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 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 and use said method or an equivalent method. PAR. 6. In the course and conduct of its said business, respondent has caused and causes the representation to be made to its customers and prospective customers by the use of the words "manufacturers of novelty candy products," that it is the manufacturer of the candy or lnPrchandise which it sp})s and distributes. A substantial portion of the wholesale and retail dealers have expressed, and have a preff'J·ence for dt>aling direct with the mannfacturpr of candy or candy Products being purchased, such purchasers beEeving that they secure lower prices, superior quality, and other advantages that are not obtained when they purchase from a selling agency or middleman. The Hse by respondent of said representation that it is a manufactnrPr has tlle capacity and tendency to, and does mislead and deceive many of respon<lPnt's said customers into the erroneous belief that respond- <'nt is a business concern which controls and operates a factory in Which the candy and other merchandise sold by respondent is manufactnred, and that persons dealing with respondent are buying said (·andy or nwrchandise directly f1·om the manufacturer thereof, thereby eliminating'~ the l)l'Ofits of a selli1we> aO'ency,..., or middleman and obtaining Yarions a(hantages that are not obtained by persons purchasing goods from a selling ngPncy or middleman. The truth and fact is that rP.'--pond<>nt 1witlwr owns, controls, nor operates any factory whatsoe,·er and does not manufacture any candy or merchandise' sol<l by it. There are many compditors of responden~ who do 110t falsely represent that they manufacture the mPrehanchse or eandy sold l,y them. The use of said representation by rpspondent lias the tendency anfl capacity to, and does, unfairly divert trade lo l'f'spondent from its said competitors.

Order 25F.T.C..

CONCLUSION ' . The aforesaid acts and practices of the respondent, Winthrop Novelty Company, Inc., a corporation, are 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 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes." ·· OIIDER TO CEASE AND DESIST ·This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission and the answer filed herein on May 22, 1937, by the respondent admitting all the material allegations of the complaint to be true, and the respondent by its counsf-1 having waived filing of briefs and oral argument, and the Commission havi11g 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 Trn.de Commission, to define its powers and duties, and for other purposes,"

It i.s ordered, That the respondent, Winthrop Novelty Company, Inc., a corporation, its officers, representatives, agents, and employees, in connection with the offering for sale, sale, and distribution of candy in interstate commerce, do forthwith cease and desist from: 1. Selling and distributing to jobbers and wholesale dealers for resale to retail dealers, or to retail dealers direct, 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 llealers and jobbers or retail dealers assortments of candy which are used, or \which may be used, without alteration or rearrangement of the contents of such assortments, to conduct a lottery, gaming device, or gift enterprise in the sale or distribution of the cnudy contni11ed in ~aid assortments to the public.

3. Packing or assembling in the same package or assortment of candy for sale to the public at retail, pieces of candy of uniform size and shape having centers of a different color, together with Jig Saw puzzles or other articles of merchandise, which said Jig Saw puzzles or other articles of merchandise are to be given as prizes to the pur· chaser procuring a piece of candy with a center of a particular color. WIXTHROP XOVELTY CO., INC, 265 256. Order 4. Representing, directly or indirectly, that respondent is the man~ ufacturer of the merchandise which it sells. It is further orderecl, That the respondent, Winthrop Novelty Company, Inc., a corporation, shall within 60 days after service upon it of this order, file with the Commission a report in writing setting forth in detail the manner and form in which it has complied with the order to cease and desist hereinaboye set forth. Syllabus 25F.T.C.