Lionel Distilled Products, Inc

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IN THE MATTER OF LIONEL DISTILLED PRODUCTS, INC.

COl\fPLAIN'r, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914, AND OF SEC. 3 OF TITLE I OF AN ACT OF CONGRESS APPROVED JUNE 16, 1933 1 Docket 2411. Complaint, May 21, 1935-Decision, .Aug. 12, 1931 'Vhere a corporation engaged, as rectifier and wholesaler of liquors, in purchasing and bottling whiskies, gins, and other spirituous beverages, and in making (1) gin, with a still which it used therefor, by redistlllation of purchased alcohol, not produced by it, over juniper berries and other aromatics, and (2) cordials of various kinds by processes of distlllation, percolation, and maceration, and compounding, and in using small still in connection with some of aforesaid, and in selling its aforesaid various products to wholesaler and retailer purchasers in various Stutes and in the District of Columbia, in substantial competition with those engaged in manufacture by distillation of whiskies, gins, and other spirituous beverages and In sale of same In trade and commerce among the various Stutes and in said District, and with those engaged in purchasing, rectifying, blending, and bottling such various heveragPs and similarly Reiling same, and including among said competitors those who, as manufacturers and distillers from mush, wort, or wash of whiskies, gins, and other spirituous beverages sold by them, truthfully use words "distillery," "distilleries," "distilling," or "distillers" as a part of their corporate or trade names and on their stationery and advertising and ou the labels of the bottles in which they sell and ship their said products, and those who, engaged in purchasing, rectifying, blending, and bottling such various products, do not use aforesaid words as above set forth- ( a) llept·esented, through use of words "Distilled Products" in its corporate name, printed on its stationery and on the labels attached to the bottles ln which it sold and shipped its said products, and in various other ways, and through such statements 011 its Mutionery as "Ask for Lionel Products" and through labels reading "Dottled by Lionel Distilled Products, Inc.," or "l\Iade by" or "Prepared by" Lionel Distilled Products, to its 'customers, and furnished them with a means of representing to their vendees, both retailers and ultimate consuming public, that the whiskies, gins, and other spirituous beverages contained in such bottles were by it made through process of distillation from mash, wort, or wash, notwithstanding fact it did not distill said various beve.rages, thus bottled, labeled, sold, and transported by it, through process of original and continuous distillation from mash, wort, or wash a11d through continuous closed pipes and vessels until manufacture is complete, as long definitely understood from words "Distilled Products" used in connection with liquor industry and products thereof, in the trade and by the ultimate purchasing puhlic, and did not own, operate, or control any place or places where such beverages are made by aforesaid process, and was not a distiller, for tlJe 1 Count 2 of the complaint, under National Inuustrlnl Recovery Act, dismissed. LIONEL DISTILLED PRODUCTS, INC. 767 76G Complaint purchase of the bottled liquors of which there is a preference on the part of a substantial portion of the purchasing public; and <b) Advertb;ed ''The world's largest independent producers of distilled spirits. Dally capucity 10,000 cases * * • Now join hands with Lionel Distilled Products. Middleman's profit smaslwd. Direct distillery * • • Retuiler contract now insures SE.'nsationally low pric{'s," and thereby represented to ultimate consumer, and as an inducement to buy its said products, that a sa,·ing had been effected by reason of Its being a distiller of snell prodnets thus offered, and that mlddlE.'man's profit or mark-up had thus been eliminated, facts being it was at all times itself a middleman, and no such saving had been effected or was passed on to ultimate purchaser, but profit to distiller on sale of Ia tter's distilled products to it, its own profit aud those of wholesaler and retailer were includ'-'d in those States and tenitories in which its products were distributed; With eflect of misleading and deceiving dealers and purchasing public into the beliefs that it was a distiller or distilling company in the ordinarily accepted sense of the terms, and that t11e whiskies, gins, and other spiritnou:s beverages sold by it were by it made or distilled from mash, wort, or wash by one eontinuous process, and that, by purchasing its said Ill'oducts they were efl'ectlng the saving of a middleman's profit, and of inducing dealers and purchasing public, acting in such beliefs, to buy its said whiskies, and other heveragPs, rectified and bottled by it, aud With distinct teudency to give it an unfair competitive advantage over those of its compt'tltors who did not, through use of such terms in thplr trade or corporate uames, rppre!'ent that the package of alcoholic li<1uor offered to the r«?taller, and in turn to the consumer, was a distillerybottled pad\llge, and with tentleney thereby to divert trade to it from such competitors; to the substantial injury of competition in commerce: llfcld, That snell acts and practices were to the prejudice of the public and comvetitors and constituted an unfair method of competition. Before JJir. John L.llornor, trial examiner. Mr. PCad B. Morehouse for the Commission.

11/r, Stanford Clinton of Pritzker & Pritzker, of Chicago, Ill., for respondent.

Complaint , Pursuant to the provisions of an Act of Congress approved cS"'Ptember 26, 1914 ' entitled "An Act to create a Federal Trade onuuission, to define its powers and duties, and for other purposes," t~e Pederal Trade Commission, having reason to believe that Lionel Distilled Products Inc., a eorpoz-ation, hereinafter referred to as respondent, has be~n and is using' unfair methods of competition in ~ llltnerce, as "commerce" is uefinedb in said act, and in violation of ~he Act of Congress a pprored June 16, 1933, known as the "National lldnstrittl Reeovery Act," and it appearing to the said Commission ~hat a proceeding by it in respect thereof would be in the public Interest, hereby issues its complaint, stating its charges in that re- ~l) ect as follows :

l:isi21"'-3!J--51 Complaint 25F. T.C.

Count 1 PARAGRAPH; 1. Respondent is a corporation organized, existing, and doing business under the laws of the State of Illinois, with its office and principal place of business in the city of Chicago, in said State. It is now, and for more than one year last past has been, engaged in the business of a rectifier and wholesaler of liquors, purchasing and bottling whiskies, gins, and other spirituous beverages and selling the same at wholesale 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 its said business, it causes its said products when sold to be transported from its place of business aforesaid into and through various States of the United States to the purchasers thereof, consisting of wholesalers and retailers, some located within the State of Illinois and some located in other States of the United States and the District of Columbia. In the course and conduct of its business as aforesaid respondent is now, and for more than one year last past has been, in substantial competition with other corporations and with individuals, partnerships, and firms engaged in the manufacture by distillation of whiskies, gins, and other spirituous beverages and in the sale thereof in trade and commerce between and among the various States of the United States and in the District uf Columbia; and in the course and conduct of its business as aforesaid respondent is, and for more than one year last past has been, in substantial competition with other corporations and ·n:ith individuals, 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. For a long period of time the words "Distilled Products't when used in connection with the liquor industry have had and still have n. definite significance and meaning in the minds of the wholesalers and retailers in such industry and to the ultimate purchasing ~ublic, to wit, spirituous beverages prepared and bottled at a distillery by the distillers thereof, who have manufactured such bev'~ erages by a process of original and continuous distillation from ma:h, wort, or wash, through continuous closed pipes and vessels until the manu~acture thereof is completed; and a substantial portion of the purchasmg public prefers to buy spirituous liquors prepared and bottled by the actual distillers and manufacturers thereof. LIONEL DISTILLED PRODUCTS, INC. 769 iGG Complaint PAR. 3. In the course and conduct of its business as aforesaid, by the use of the words "Distilled Products" in its corporate name, printed on its stationery and on the labels attached to the bottles in which it sells and ships its said products, and in various other Ways, respondent represents to its customers and furnishes them with the means of representing to their vendees, both retailers and the ultimate consuming public, that the whiskies, gins, and other spirituous beverages therein contained were by it manufactured through the process of distillation from mash, wort, or wash, as aforesaid, ':hen, ns a matter of fact, respondent is not a distiller, does not distill the said whiskies, gins, or other spirituous beverages by it so bottled, labeled, sold and transported, and does not own, operate, or control any place or places where such beverages are manufactured by the process of distillation from mash, wort, or wash. PAR. 4. In the course and conduct of its business as aforesaid respondent has advertised to assist its customers in disposing to the ultimate consumer of the whiskies, gins, and other spirituous beverages by it so sold as aforesaid, as follows: The world's largest lnclt:>pendent producers of distilled spirits. Daily ca- DUcity ten thousand cn~es • • • Now join hands with Lionel Distilled Products. 1\Hddlernan's profit !'mashed. Direct distillery • • • Retailer contract now insures sensatioually low prices. thereby representing to the ultimate consumer as an inducement to buy respondent's product that a saving has been effected by reason of respondent's being a distiller of products so offered for sale, and that a middleman's profit or mark up has thus been eliminated, when as a matter of fact respondent is itself a middleman and no such saving has been effected or is passed on to the ultimate purchaser, and the ultimate purchaser believing and relying upon the truth 0~ the aforesaid representations is induced to purchase the whiskies, g"Ins, and other spirituous beverages bottled and sold by the respondent..

. PAn. 5. There are among the competitors of respondent engaged In the sale of spirituous beverages as mentioned in paragraph 1 here- ~f corporations, firms, partnerships, and individuals who manu- ~cture and distill from mash, wort, or wash, as aforesaid, whiskies, gins, and other spirituous beverages sold by them and who truthfully ~ 8? the words "distillery," "distilleries," "distillers," "distilling," or ~I~tilled products" as a part of their corporate or trade names and on t eir stationery, and on the labels of the bottles· in which they sell alld ship such products. There are also among such competitors bor~orations, firms, partnerships, and individuals engaged in the Usiness of purchasing, rectifying, blending, and bottling whiskies, Complaint 25F.T.C.

gins, and other spirituous beverages who do not use the words "distillery," "distilleries," "distilling," "distillers," or "distilled products" as a part of their corporate or trade names, nor on their stationery, nor on the labels attached to the bottles in which they sell and ship their said products, and who do not misrepresent that a saving of a middleman's profit is being passed on to the consumer. PAR 6. Representations by respondent, as set forth in paragraphs 3 and 4 hereof, are calculateu to and have the capacity and tendency to and do mislead and deceive dealers and the purchasing public in the erroneous beliefs that the whiskies, gins, and other spirituous beverages sold by the respondent are manufactured and distilled by it from mash, wort, or wash, as aforesaid; and that in purchnsing respondent's products the purchasers are effecting a saving of a middleman's profit; and are calculated to and have the capacity and tendency to and do induce dealers and the purchasing public, acting in such beliefs, to purchase the whiskies, gins, anu other spirituous beverages bottled and sold by the respondent, thereby diverting trade to respondent from its competitors who do not by their corporate or trade names or in any other manner misrepresent that they are manufacturers by distillation from mush, wort, or wash, of whiskies, gins, and other spirituous beverages, and thereby respondent docs substantial injury to substantial competition in interstate commerce. PAR. 7. The acts and things above alleged. to have bt'en done and the false representations alleged to have been made by respondent are to the prejudice of the public and the competitors of respomlent 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 powers and. duties, and for other purposes,'' approved September 26, 1014· Oount ~ J> ARAGRAPH 1. Respondent is a corporation organized, existing and doing business under the laws of the State of Illinois, with its olfice and principal place of business in the city of Chicago, in said State. It is now, and for more than one year last past lms been, engaged in the business of a rectifier and wholesaler of liquors, purchasing' and bottling whiskies, gins, and other spirituous beverages and selling the same at wholesale in constant course of trade and commerce }Je· tween and among the various States of the United States and in the District of Columbia. In the course and conduct of its said businrss. it causes its said products when sold to be transported from its place of business aforesaid into and through various States of the United LIONEL DISTILLED PRODUCTS, INC. 771 7GG Complaint States to the purchasers thereof, consisting of wholesalers and retailers, some located within the State of Illinois and some located in other States of the United States and the District of Columbia. In the course and conduct of its business as aforesaid respondent is now, and for more than one year last past has been, in substantial competition with other corporations and with individuals, partnerships, and firms engaged in the manufacture by distillation of ~vhiskies, gins, and other spirituous beverages and in the sale thereof m 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 its business as aforesaid respondent is, and for more than one year last past has been, in substantial competition with other ~orporations and with individuals, firms, and partnerships engaged m the business of purchasing, rectifying, blending, and bottling ~vhiskies, 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.

11Ans. 2, 3, 4, 5, and G. As grounds for these paragraphs of this complaint, the Federal Trade Commission relies upon the matters and things set out in paragraphs 2, 3, 4, 5, and 6 of count 1 of this complaint to the same extent as though the several allegations thereof 'Were set out at length and in separate paragraphs herein, and the saiu paragraphs 2, 3, 4, 5, and G of count 1 of this complaint nre incorporated herein by reference and adopted as the allegations ()f paragraphs 2, 3, 4, 5, and 6, respectively, of this count, and are hereby charged as fully and as completely as though the several averments of the .said paragraphs of count 1 were separately set out and repeated verbatim.

PAn. 7. Under and pursuant to Title I of the National Industrial Hecovery Act, approved June 16, 1933 (48 Stat. 195 C. 90), the 11resident of the United States, by Executive Order No. 6182, of June 26, 1933, as supplemented by Executive Order No. 6207, of July 21, 1D33, and Executive Order No. 6345, of October 20, 1933, delegated to H. A. ·wallace as Secretary of Agriculture certain of the Powers vested in the President of the United States by the aforesaid act.

Under and pursuant to the delegation of such powers, the said Secretary of Agriculture pursuant to Section 3 (d) of the act and EJ~ecutive orders under the act, upon his own motion presented a. Code of Fair Competition for the Distilled Spirits Rectifying Industry after due notice and opportunity for hearing in connection ~herewith had been afforded interested parties, including respondent ln accordance with Title I of the National Industrial Recovery Ad Complaint 25F.T.C.

and applicable regulations issued thereunder, to the President of the United States who approved the same on the 9th day of December 1933, thereby constituting the said code a Code of Fair Competition within the meaning of the said National Industrial Recovery Ace, for the regulation of the aforesaid industry. In his written report to the President, the said Secretary of Agriculture made, among others, the following findings with respect io the said Code in the following words, to wit: T'hat said Code will tend to effectuate the declared policy of Title 1 of the National Industrial Recovery Act as e;et forth in Section 1 of said Act in that the terms and provisions of such Code tend: (a) to remove obstructions to the free flow of foreign commcrcc, which tend to diminish the amount thereof; (b) to provide for the general welfare by promoting the organization of In· dnstry for the purposes of cooperative action among trade groups; (c) to eliminate unfair competitive practices; (d) to promote the fullest possible utilization of the present productive capacity of industries; (e) to avoid undne restriction of production (except as may be temporarily required); (f) to increase the consumption of Industrial and agricultural products bY increasing purcha:,;ing power; and (g) otherwise to rehabllltate industry." By his approval of the said Code on December 9, 1933, the President of the United States, pursuant to the authority vested in hirn Ly Title I of the National Industrial Hecovery Act aforesaid, made and issued his certain written Executive order, wherein he adopted und approved the report, recommendations, and finuings of ihe said Secretary of Agriculture, and ordered that the said Code of Fair Competition be, and the same thereby was approveu, and by virtue of the National Industrial Recovery Act aforesaid, the following provisions of Article V of said code became and still is one of the E>tandards of fair competition for the Distilled Spirits Uectifying Industry and is binding upon every member of said Industry and this respondent:

The following pmct!ees constitute unfair methods of competition and bhail Hot be engaged in by any member of the industry: SECTION 1. False Advertising.-To publish or disseminate In any munnrr any false advertising o:t any rectified product. Any advertisement shall be deemed to be false it it is untrue In any particular, or if directly or by am· blgulty, omission or inference it tends to create a misleading impression. PAR. 8. The use by respondent of the words "Distilled Products'' in its corporate name, printed upon its stationery and on the labels attached to the bottles in which it sells and ships such products and Yarious other misrepresentations hereinbefore set out constitute false advertising within the meaning of the aforesaid pro~ision of Article V and te1:d to and do create the misleading impressions that re· !::'pondent Is engaged in the business of distilling spirits from mash, LIONEL DISTILLED PRODUCTS, INC. 773 706 Findings wort, or wash, that the spirituous beverages by it so sold and transported have been prepared and bottled by the original distillers thereof, and that the whiskies, gins, and other spirituous beverages ~old by respondent have been manufactured and distilled by it from mash, wort, or wash as aforesaid, all contrary to the provisions of Section 1, Article V, of the Code aforesaid. PAR. 9. The above alleged methods, acts, and practices of the respondent are and have been in violation of the standard of fair <·ornpetition for the Distilled Spirits Rectifying Industry of the United States. Such violation of such standard in the aforesaid transactions in interstate commerce and other transactions which affect interstate commerce in the manner set forth in paragraph 6 of count 1 hereof, are in violation of Section 3 of Title I of the N ationa! Industrial Recovery Act and they are unfair methods of competition in commerce within the meaning of the Federal Trade Commission Act as amended.

REPORT, FINDINGS AS TO THE FACTs, AND Onder 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 May 27, 1935, issued, and on May 28, 1935 served its complaint in this proceeding upon the respondent, Lionel Distilled Products, Inc., charging it with the use l of unfair methods of competition in commerce in violation of the provisions of said act. After the issuance of said complaint and the filing of respondent's answer thereto, testimony and other evi- tlence in support of the allegations of said complaint were intro- I Quced by PGad B. Moorehouse, attorney for the Commission, before 1 John L. Hornor, an examiner of the Commission, theretofore duly I designated by it, and said testimony and other evidence were duly l recorded and filed in the office of the Commission. Stanford Clinton, Esq., of the firm o£ Pritzker & Pritzker, appeared as counsel for the respondent but no testimony or other evidence was introduced on behalf of respo:rtdent in opposition to the allegation o£ the complaint. Thereafter, the pr~eding regularly came on for final hearing before the Commission on the said complaint, the answer thereto, testimony and other evidence, and brief in support of the complaint-no brief in opposition thereto having been filed and no oral arguments having been made; and the Commission having duly considered the same and being now fully advised in the premises, FEDERAL TRADE COl\11\IISSION DECISIONS774 Findings 25 F. T.C. 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. The respondent, Lionel Distilled Products, Inc., is a corporation incorporated in January 1934, existing and doing business under the laws of the State of Illinois, with its office and principal place of business at 1919-1927 'Vest Pershing Road, Chicago, Ill. Shortly after its incorporation and organization it engaged in the business of a rectifier and wholesaler of liquors, purchasing and bottling whiskies, gins, and other spirituous beverages and selling the same at wholesale 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 its said business, from the date of its organization aforesaid up until about December 1936, it caused its said products, when sold, to be transported from its place of business aforesaid into and through various States of the United States, principally Minnesota, Wisconsin, Texas, Louisiana, Missouri, Nebraska, Colorado, Illinois, Kentucky, and Indiana to the purchasf.'rs thereof, consisting of wholesalers and retailers, some located within the State of Illinois and some located in other States of the United States and the District of Columbia. In the course and conduct of its business as aforesaid, respondent was in substantial competition with other corporations and with individuals, partnerships, and firms engaged in the manufacture by distillation of whiskies, gins, and other spirtuous beverages 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 its business as aforesaid respondent was in substantial competition with other corporations and with individuals, 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 mnong the various States of the United States and in the District of Columbia.

~AR. 2. Upon the premises of respondent's place of business afore- Stud, there was a 200-gallon gin still for use in the production of gins by a procf.'ss of rectification whereby tax-paid alcohol, purchased but not produced. by respondent, was redistilled over juniper berries and o~her aromattcs. Such rectification of alcoholic spirits by respondent d1d not make or constitute it a distillery or a distiller as defined by Section 3247 of the Revised Statutes re..,.ulatinO'I:> I:> Int~rnal Revenue. LIONEL DISTILLED PRODUCTS, INC. 775 7GG Findings Uespomlent distilled an average of 300 gallons of such gin a week and this did not constitute over 5 percent of respondent's total business.

Respondent also produced cordials of various kinds by processes of disti1Jation, percolation, and maceration, plus compounding, in connection with some of which a small still was used. Prior to August 15, 1D36, at which time the existing regulations of the Federal Alcohol Administration Division of the Treasury Department became effective, it was pennissible thereunder for respondent to term and designate such cordials as "distilled." Subsequently thereto such cordials were not allowed to be labeled or advertised as a distilled product although they might be made by the same method. These cordials constituted approximately 30 percent of respondent's business volume and the remaining 65 percent was divided as follows: Straight whiskies purchased in bulk by respondent from other dis- ~illers and bottled and sold by it-60 percent; and 'vhiskies purchased lll bulk from other distillers and rectified and bottled by respont1ent- 5 percent.

P.m. 3. Rectifying, in the distilled spirits rectifying industry, hleans the mixing of whiskies of different ages or types or the mixing of other ingredients with whiskies, but reducing proof of whiskey by adding water is not rectifying. Rectifiers also blend whiskies with neutral spirits, (grain alcohol).

All distillers may and many of them do operate an establishment separate from their distillery, usually 600 feet or more away, known as a uistillery rectifying plant, in which they carry on the same Processes as are carried. on by rectifiers who are not distillers and who do not own, control or operate any distillery. However, in such event, the distillers must apply for and obtain a separate and additional permit known as a rectifier's permit, which is the same kind j of permit as obtained by any rectifier. i l\ Some distilleries have a tax-paid bottling room on the distillery Ibonued premises wherein the distilled spirits are bottled straight as they come from the still, or in a bonded warehouse after aging, or lafter reduction of proof. Any rectifying done by a distiller, how- lever, must be done in his rectifying plant under his rectifier's permit. j If the spirits bottled by the distiller, either at his distillery, in Lond after aging, or in his tax-paid bottling room, or in his rectifying plant, are spirits of his own distillation, he may and usually does use I l1his "D" symbol, which is the letter "D" followed by a number, and Usually blown into the bottom of the bottle in which said spirits are bottled.

77G FEDERAL TRADE COl\Il\:IISSION DECISIONS Findings 25F.T.C.

A distiller often does purchase distilled spirits of others and bottle them in his rectifying' plant, or blend them with spirits of his own distillation, or with ~eutral spirits, in which event he uses his "R" symbol which is an "R" followed by the number of his rectifier's permit. The rectifier uses his "R" number on his bottles exclusively, this respondent's symbol number being "R-49." If the distilled spirits bottled by a distiller are spirits other than of his own distillation, he is required to and does put "Bottled by ------------ Company" or "Blended and Bottled by ------------ Company" as the case may be, and, if they are spirits of his own distillation, he must put "Distilled and Bottled by ------------ Company."

The rectifier, on the other hand, when he bottles his product, is required to and does put "Bottled by ------------ Company" or "Bottled and Blended by------------ Company," as the case may be. Generally speaking the purchasing public is not familiar with all of these detail~, and many people in the trade are not familiar with them, although the wholesalers and retailers, after the first two years following the repeal of the prohibition amendment became a great deal more familiar with them than they were at the outset, until at the present time the liquor trade generally has come to know who are the rectifiers and who are the distillers and in a general way is more familiar with the nature of these respective businesses. Respondent, during its conduct of its business us aforesaid, confonned to the prqvisions and requirements of the Federal Alcohol Administration Act and the regulations from time to time promulgated thereunder as to its labelinfl'o and advertisinfl'1:!1 which, like the distiller-bottler's labeling and advertising, must conform to the standards of identity prescribed by the Federal .Alcohol Administration. This means that in the case of two bottles of blended whiskey, labeled exactly alike and carrying on their respective labels the identical specifications as to contents, age and kind of spirits-but one bottle emanated from and was bottled by a distiller and the other emanated from and was bottled by a rectifier-the contents of the two bottles would be identical to all practical intents and purposes. Likewise, if a rectifier buys a certain type ancl age of straight whiskey from a distiller and bottles it without rectification and the same distiller has bottled some of that same whiskey struiO'ht there would be 110 difference in fact between the two bottles oof 'whiskey by reason of the fact that a rectifier hnd bottled one and a distiller had bottled the other. It is not possible, however, to determine from the presence of the aforementioned phrases, "mended and Bottled by" alone, or the phrase "Bottled by" alone, on the htbel, whether the package LIONEL DISTILLED PRODUCTS, INC. 777 7GG Findings was bottled by a rectifier who is a distiller or by a rectifier who is not a distiller.

With reference to the gin produced by respondent by the redistillation of purchased alcohol over juniper berries and other aromatics, existing regulations promulgated pursuant to the Federal Alcohol Administration Act, approved August 29, 1935 (49 State. 977), provide that rectifiers who redistill purchased alcohol over juniper berries and other aromatics must call ·such resulting product "distilled gin," and require that the .labels state who distilled it. This serves to distinguish between gin produced by such method and "cold" or compound gin prepttred by mixing neutral spirits with essential flavoring oils.

PAn. 4. In the course and conduct of its business as aforesaid, by Use of the words "Distilled Products" in its corporate name, printed on its stationery and on the labels attached to the bottles in which it sold and shipped its said products, and in various other ways, respondent represented to its customers and furnished them with a means of representing to their vendees, both retailers and the ulti- :rnate consuming public, that the whiskies, gins, and other spirituous beverag£'s therein contained were by it manufactured through the process of distillation from mash, wort, or wash as aforesaid, when, as a matter of fact, respondent was not a distiller and did not distill the said whiskies, gins, or other spirituous beverages by it so bottled, labeled, sold, and transported, and does not now and never did own, operate, or control any place or places where such beverages are :manufactured by the process of distillation from mash, wort, or wash. The words "Distilled Products" of and in themselves might not constitute a misrepresentation inasmuch as this respondent was l'ngaged in the business of handling distilled products, namely alcoholic beverages which originated in a distillery and in some cases were not rectified or blended. However, this respondent used its full name "Lionel Distilled' Products, Inc." on said labels. On ~ts stationery it advertised '"Ask for Lionel Products," plainly 1~dicating and expressing that the distilled products were "Lionel distilled." Some of the labels read "Bottled by Lionel Distilled Products, Inc." Some of the other labels contained the legend "Made by Lionel Distilled Products" and formerly one ]abel on n. brand of straight whiskey read "Prepared by Lionel Distilled Prod- ~ucts." From these facts the Commission infers a distinct tendency, lf not an intention, to mislead and deceive the public, a substantial Portion of which prefers to buy spirituous liquors prepared and bottled by distillers.

Findings 25F.T. Q Further, in the course and conduct of its business as aforesaid, respondent advertised to assist its customers in disposing to the ultimate consumer of the whiskies, gins, and other spirituous beverages by it so sold as aforesaid:

The world's largest independent producers of distilleu spirits. Daily mpaeity 10,000 c·u:o:es "' "' "' Now join hands with Lionel Distilled Prouucts. l\Iiddleman's profit smashed. Direct distillery "' "' • Retailer contract now insures sensationally low prices.

thereby representing to the ultimate consumer as an inducement to buy respondent's products that a saving had been effected by reason of respondent's being a distiller of the products so offered for sale, and that a middleman's profit or mark-up had thus been eliminated, when as a matter of fact respondent was at all times itself a middleman and no such saving had been effected or was passed on to the ultim:tte purchaser.

At one time during the above-described period of its operations respondent distributed its products in Washington, D. C., through a wholesale subsidiary and had warehousing arrangements in the State of New York and in the State of Texas which were in substance its own subsidiaries, but in each of those three instances the local distributor placed a mark-up on respondent's goods over and above its cost price before selling to the retailer. So that at all times, in all the States and territories where respondent's products "·ere distributed, there was first, a profit to the distiller on the sale of the distilled spirits to respondent; second, respondent's profit; third, the wholesaler's profit; and fourth, the retailer's profit; and no middleman's profit was eliminated as represented by respond.ent. PAR. 5. Respondent admitted, the testimony of those having long experience in both the distilled spirits rectifying industry and the distilling industry establislu,,d, and the Commission finds, that the foregoing rectification of alcoholic spirits by redistillation over juniper brrries and other aromatics in the production of gin did not make or constitute this respondent a distilling company in the sense commonly understood by the liquor industry. There were also ~ members of the trade andcalled a .number of witnesses, some beincrsome bemg members of the purchasing public, who, with few exceptions testified that the word "distilled" or similar words such as "distillers," "distilleries," and "distilling," etc., indicated the initial - ; distilling process of producing spirituous and alcoholic liquors from grain, mash, etc., or the manufacturer thereof. The greater number of these witnesses testified that the use of such words would induce them to purchase the products of the concern using such words in its corporate name or on the label of the bottle containing the prod- LIONEL DISTILLED PRODUCTS, INC. 779 7CG Findings ucts in the belie£ that a distiller's product would be more uniform and that a manufacturer's name should mean something. They testified that they preferred buying in as direct a manner as practical and considered distillers as being more responsible than a rectifier or bottler of spirituous liquors. It was testified by many of these witnesses that the use of the word "distilled" in the corporate name of the respondent would indicate to them that the respondent was the actual distiller of the product, and they would give preference in purchasing a product which bore a label containing such cor- Porate name in competition with a product bearing a label which did not contain the word "distilled," or any other word indicating a distilling process in the corporate name.

The Commission finds that for a long period of time the words "distilled products,'~ when used as respondent has used them, in connection with the liquor industry and with the products thereof, have had and still have a definite significance and meaning, to the minds of wholesalers and retailers in such industry and to the ultimate purchasing public, to wit, the manufacturing of spirituous liquors by an original and continuous distillation from mash, wort, or wash, through continuous closed pipes and vessels until the manu- ~acture thereof is complete, ai1d a substantial portion of the purchas- Ing public prefers to Luy spirituous liquors bottled and prepared by distillers.

. PAn. 6. There were among the competitors of respondent engaged Ill the sale of spirituous beverages, as mentioned in paragraph 1 hereof, corporations, firms, partnerships, and individuals who manufactured and distilled from mash, wort, or wash, whiskies, gins, and other spirituous beverages sold by them, and who truthfully used the Words "distillery," "distilleries," "distillers," or "distilling" as a part of their corporate or trade names and on their stationery, advertising, and on the labels of the bottles in which they sold and shipped such products.

There were 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 in rectifying plants under rectifiers' permits "Who did not lise the words "distillery," "distilleries," "distilling," "distillers," or "distilled products," as a part of their corporate or trade names, nor 0 11 their stationery, advertising, nor on the labels attached to the bottles in which they sold and shipped their said products. PAn. 7. The representations by respondent as set forth in para- ,!!raph 4 hereof had the capacity and tendency to and did mislead and deceive dealers and the purchasing public into the beliefs that 780 FEDERAL TRADE COMl\IISSION DECISIONS Findings 25F.T.C.

respondent Lionel Distilled Products, Inc., was a distiller or distill· ing company in the ordinarily accepted sense of those terms, and that the whiskies, gins, and other spirituous beverages sold by respondents were manufactured or distilled by Lionel Distilled Products, Inc., from mash, wort, or wash by one continuous process, and that by purchasing respondent's said products they were effecting the saving of a middleman's profit, and had the capacity and tendency to and did induce dealers and the purchasing public, acting in such beliefs, to purchase the whiskies, gins, and other alcoholic beverages rectified and bottled by the respondent. The Commission finds that the whole situation in this industry is such that the foregoing representations had a distinct tendency to give respondent what amounted to unfair competitive advantage over those of its competitors who did not, by the use of such terms in their trade or corporate names, represent that the package of alcoholic liquor offered to the retailer and in turn to the consumers, was a distillery-bottled package and this in turn tended to divert trade to respondent from such competitors and thereby respondent did substantial injury to competition in interstate commerce.

PAR. 8. Because of existing regulations promulgated under the Federal Alcohol Administration Act approved August 29, 1935 ( 49 Stat. 977), 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 oyer juniper berries and other aromatics from the prohibitions of its order. PAR. 9. The Commission's complaint in this case was issued on the same day as the decision of the United States Supreme Court in the case of A. L. A. Schechter Poultry Corporation, et al, vs. United States (295 U. S. 495), and contained two counts. Count 1 specifically charged a violation of the Federal Trade Commission Act, and count 2 charged that the practices of respondent, as herein before set out, were unfair methods within the meaning of the Federal Trade Commission Act because they were in violation of Section 3 of Title I of the National Industrial Recovery Act, which was invalidated by the aforesaid decision. For that reason the Commission is dismissing the complaint as to count 2 thereof. PAn. 10. It has been represented to the Commission in this pro· ceeding that during the month of December 1!J3G, the respondent'il stockholders commenced to wind up the affairs of the company and that all of its assets were completely disposed of by December 31~ 1936. However, as of the present time, the company still maintains LIONEL DISTILLED PRODUCTS, INC, 781 766 Order its corporate existence and the Commi~sion can have no assurance that its plans may 110t change and. that it may not resume the unfair acts and practices hereinbefore set forth.

CONCLUSION The aforesaid acts and practices of respondent, Lionel Distilled Products, Inc., were to the prejudice of the public and of respondent's competitors, o.nd constituted 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."

ORDER TO CEASE AND DESIST . This proceeding having been heard by the Federal Trade Commis- Slon upon the complaint of the Commission, the answer of respond.ilnt, testimony and other evidence taken before John L. Hornor, an examiner of the Commission theretofore duly designated by it, in ~support of the alleglltions of said complaint, and no testimony hav- Ing been offered by respondent. in opposition thereto, and upon brief filed herein by PGad D. Morehouse, counsel for the Commission (no brief having been filed in opposition thereto by Stanford Clinton, Esq., of 1\Iessrs. Pritzker & Pritzker, counsel for respondent, and no ?ral arguments havi11g been made) and the Commission having made lts 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 define its powers and duties, and for other purposes." . It is ordered, That the respondent, Lionel Distilled Products, Inc., lts officers, representatives, agents, and employees, in connection with the offering for sale or sale and distribution by it in interestate comlnerce or in the District of Columbia, of whiskies, gins, or other spirituous beverages (except gins produced by it through a process of rectification whereby alcohol purchased but not produced by respondent is redistill(~d over juniper berries and other aromatics), (;ease and desist from: .

. 1. Representing thtough the use of the words "Dislilled Products" In its corporate name, on all stationery, advertising, or labels attached ~o the bottles in which its said products are sold and shipped, or Jn any other way by word or words of like import, {a) that respond- ~nt is a distiller of the said whiskies, gins, or other spirituous beverages; or, (b) that the. said whiskies, gins, or other spirituous bever- 782 FEDERAL TRADE COl\IMISSION DECISIONS Order 25F. T. C.

ages were by it manufactured through a process of distillation; or (c) that respondent owns, operates, or controls a place or places where any such products are by it 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 or places;

2. Representing that in purchasing its said products the purchaser is saving a middleman's profit.

It is further ordered, That the said complaint be and the same is hereby dismissed as to count 2 thereof.

It is further ordered, That the said respondent, within GO days from and after the date of service upon it of this order, shall file with the Commission a report or reports in writing setting forth in detail the manner and form in which it is complying and has complied with the order to cease and desist hereinabove set forth. PARAl\IOUNT DISTILLING CORP. 783 Syllabus