Mells Manufacturing Company

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IN THE MATTER OF MELLS MANUFACTURING COMPANY COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF' SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 3059. Complaint, Feb. 15, 1931-Dcciswn, Nov. 13, 1931 Where n corporation engaged in manufacture and sale of candy, including certain assortments which were so packed and assembled as to involve use of a lottery scheme when sold and distributed to ultimate consumers thereof, and several of which, so packed and assembled that they might be resold to consuming public as single assortment, were contained in two separate boxes, composed of (1) number of small penny pieces of candy, of uniform size and shape, the flavor of a small number of which differed from that of majority, and (2) number of larger pieces or bars, to be given free of charge, or as prizes, "to chance purchasers of such uniform penny pieces, flavor of which differed as aforesaid from that of majority- Sold, to wholesale and retail dealers for display and resale to purchasing PUblic in accordance with aforesaid sales plans, said assortments, and thereby supplied to and placed in the hands of others the means of conducting, and under which they did conduct, lotteries in the sale of its Said products, in accordance with such plan, contrary to public policy long recognized by the common law and criminal statutes and to an established public policy of the United States Government, and in competition with many who, unwilling to offer or sell candy so packed and assembled, or otherwise arranged and packed, for sale to purchasing public, as to W involve a game of chance, refrain therefrom; ith capacity and tendency to induce purchasers to buy its said products in preference to candy offered and sold by its competitors, and with result that many dealers in and ultimate purchasers of candy were attracted by said method and manner of packing same and by element of d1ance in- Volved in sale thereof as above described, and were thereby Induced to PUrchase Its said candy, so packed and sold by it, in preference to that offered and sold by its competitors who do not use same or equivalent method, and with tendency and capacity, because of said game of chance, to divert trade and custom from its competitors as aforesaid, exclude from candy trade all competitors who are unwilling to and do not use such or an equivalent method as unlawful, lessen competition therein, and tend to create a monopoly thereof In it and such other distributors as do use same or equivalent method, deprive purchasing public of benefit of free competition in trade in question, and eliminate from said trade au actual, and exclude therefrom all potential, competitors who do not H adopt and use such or an equivalent method: eld, That such acts and practices were to the prejudice of the public and competitors and constituted unfair methods of competition. Complaint 25F.T.C· Before Mr. Miles J. Fu1'1Ul8, trial examiner. Jfr. Ilenry 0. Lank and :Air. P. 0. Koliwki for the Commission. Air. Nathan Feldman, of New York City, for respondent. Complaint Pursuant to the provisions of an Act of Congress, approved Sep· tember 26, 1914, entitled "An Act to create a Federal Trade Commis· sion, to define its powers and duties,·· and for other purposes," the Federal Trade Commission, having reason to believe that Mells Man· ufacturing Company, a corporation, hereinafter referred to as re· spondent, has been and is using unfair methods of competition in commerce, as "commerce" is defined in said act of Congress, and it appearing to said Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that' respect as follows: PARAGRAPH 1. The respondent, Mells Manufacturing Company, is a corporation organized and operating under the laws of the State of New Jersey, with its principal office and place of business located at 250 Park Avenue, in the city of Brooklyn, State of New York. The respondent is now, and for several years last past has been, engaged in the manufacture of candies and in the sale and distribu· tion thereof to retail and wholesale dealers located at points in the various States of the United 'States, and causes and has caused its said products when so sold to be transported from its principal place of business in the city of Brooklyn, N. Y., to purchasers thereof in other States of the United States at their respective places of busi· ness; and there is now, and has been for several years last past, a course of trade and commerce by said respondent in such candies between and among the States of the United States. In the course and conduct of said business, respondent is in competition with other .corporations and with partnerships and individuals engaged in the manufacture of candies and in the sale and distribution thereof in commerce between and among the various States of the United States.

PAR. 2. In the course and conduct of its business as described in paragraph 1 hereof, respondent sells and has sold to wholesale and retail dealers assortments of candy so packed and assembled as to involve the use of a lottery scheme when sold and distributed to the ultimate consumers thereof.

Several of said assortments manufactured and distributed by respondent are contained in two separate boxes but are so packed MELLS MANUFACTURING COMPANY 1407 1405 Complaint an~ assembled that they may be resold to the consuming public as a Single. assortment. One of said boxes contains a number of small pieces of candy of uniform size and shape, the majority of which are of one flavor but a small number of which are of a different flavor. The other box contains a number of larger pieces or bars of candy which are to be given free of charge or as prizes to purcha~ers of the pieces of candy of uniform size and shape in the followmg manner: The small pieces of candy of uniform size and shape retail at the price of 1¢ each, but the purchaser who procures one of ti:e small pieces of candy of uniform size and shape having a flavor different from the majority is entitled to receive, and is to be given free of charge, one of the said larger pieces or bars of candy. The flavor of the said small pieces of candy of uniform size and shape is effe?tively concealed from said purchasers and prospective purchasers Until a selection has been made and the particular piece of candy broken open. The larger pieces or bars of candy are thus distributed to purchasers of said small pieces of candy of uniform size and shape wholly by lot or chance.

PAR. 3. The wholesale dealers to whom respondent sells its assortments to resell said assortments to retail dealers, and said retail dealer~ and the retail dealers to whom respondent sells direct expose ~alcl assortments for sale and sell said candy to the purchasing public ln. accordance with the aforesaid sales plan. Respondent thus sup- Phes to and places in the hands of others the means of conducting lotteries in the sale of it~ product in accordance with the sales plan hereinabove set forth, and said sales plan has the capacity and tendency of inducing purchasers thereof to purchase respondent's said Product in preference to candy offered for sale and sold by its -competitors.

PAR. 4. The sale of said candy to the purchasing public in the manner above alle•ged involves a game of chance or the sale of a -chance to procure a larger piece or bar of candy. The use by respondent of said method in the sale of candy, and th? sale of candy by and through the use thereof and by the aid o:f sa~d .method, is a practice of the sort which the common law and ;rimmal statutes have long deemed contrary to public policy, and Is c?ntrary to an established public policy of the Government o:f the Umted States. The use by respondent of said method has the tend- -ency unduly to hinder competition or create monopoly in this, to wit: that the use thereof has the tendency and capacity to exclude fro~n the branch of the candy trade involved in this proceeding com- P(>htors who do not adopt and use the same method or an equivalent 158121'"-39-91 Findings 25 F. T. 0. or similar method involving the same or an equivalent or similar element of chance or lottery scheme. · Many persons, firms, and corporations who make and sell candy in competition with the respondent, as above alleged, are unwilling to offer for sale or sell candy so packed and assembled as above alleged, or otherwise arranged and packed for sale to the purchasing public so as to involve a game or chance, and such competitors refrain therefrom.

PAR. 5..Many dealers in and ultimate purchasers of candy are attracted by respondent's said method and manner of packing said candy and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to purchase said candy so packed and sold by respondent, in preference to candy offered for sale and sold by said competitors· of respondent who do not use the same or equivalent methods. The use of said method by respondent has the tendency and capacity, because of said game of chance, to divert to respondent trade and custom from its said co:m· 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 traue in responilent and such other distributors of candy as use the same or an equivalent method; and to deprive the purchasing public of the benefit of free competition in said candy trade. The use of said metl~od by the respondent has the tendency and capacity to eliminate from said candy trade all actual competitors, and to exclude therefrom all potential competitors who do not adopt and use said method or an equivalent method. PAR. 6. The aforementioned method, acts and practices of the re· spondent are all to the prejudice of the public and of respondent's competitors, as hereinabove alleged. Said method, acts, and practices constitute unfair methods of competition in commerce within the intent and meaning of Section 5 of an Act of Congress, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," approved September 26, 1914· REPORT, FINDINGS AS TO Tile FACTS, A~D ORDER Pursuant t.o 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 February 15, 1937, isstwd and on February 17, 1937, served its complaint in this proceeding upon MELLS MANUFACTURING COMPANY 1409 1405 Findings respondent, Mells Manufacturinfl' Company, charging it with the use of unfair methods of competition in commerce in violation of the provisions of said act. After the issuance of said complaint and the ~ling of respondent's answer, the Commission, by order entered he.rem, granted respondent's request for permission to withdraw sard answer and to substitute therefor an answer admitting all the ~laterial allegations of the complaint to be true and waiving the tak- Ing of further evidence and all other intervening procedure, which substitute answer was duly filed in the office of the Commission. Thereafter, this proceeding regularly came on for final hearing before the Commission on the said complaint and the substitute an~wer; and the Commission, having duly considered the same and ?e~ng now fully advised in the premises, finds that this proceeding 18 1ll 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, Mells :Manufacturing Company, is a corporation organized and operating under the laws of the State of New Jersey, with its principal office and place of business located ~ 250 Park AYenue, in the city of Brooklyn, State of New York. he respondent is now, and for several years last past has been, e~gaged in the manufacture of candies and in the sale and distribution thereof to retail and wholesale dealers located at points in the va.rious States of the United States, and causes and has caused its sard products when so sold to be transported from its principal place ?f business in the city of Brooklyn, N. Y., to purchasers thereof ~n ?ther States of the United States at their respective places of usrness; and there is now, and has been for several years last past, ~ course of trade and commerce by said respondent in such candies etween and among the States of the United States. In the course a~d conduct. of said business, respondent is in competition with ?t ler corporations and with partnerships and individuals engaged :~ the manufacture of candies and in the sale and distribution D e~·eof in commerce between and among the various States of the united States.

PAR. 2. In the course and conduct of its business as described. in Paragraph 1 hereof, respondent sells and has sold to wholesale and ~etail dealers assortments of candy so packed and ·assembled as to 1 ~v.olve the use of a lottery scheme when sold and distributed to the 11 hmate consumers thl'reof.

Findings 25 F. T. C. Several of said assortments manufactured and distributed by respondent are contained in two seperate boxes but are so packed and assembled that they may be resold to the consuming public as a single assortment. One of said boxes contains a number of small pieces of candy of uniform size and shape, the majority of which are of one flavor but a small number of which are of a different flavor. The other box contains a number of larger pieces or bars of candy which are to be given free of charge or as prizes to purchasers of the pieces of candy of uniform size and shape in the following maimer: The small pieces of candy of uniform size and shape retail at the price of 1¢ each, but the purchaser who procures one of the small pieces of candy of uniform size and shape having a flavor different from the majority is entitled to receive, and is to be given free of charge, one of the said larger pieces or bars of candy. The flavor of the said small pieces of candy of uniform size and shape is effectively concealed from said purchasers and prospective purchasers until a selection has been made and the particular piece of candy broken open. The larger pieces or bars of candy are thus distributed to purchasers of said small pieces of candy of uniform size and shape wholly by lot or chance.

PAR. 3. The wholesale dealers to whom respondent sells its assortments resell said assortments to retail dealers, and said retail dealers and the retail dealers to whom respondent sells direct expose said assortments for sale and sell said candy to the purchasing public in accordance with the aforesaid sales plan. Respondent thus supplies to and places in the hands of others the means of conducting lotteries in the sale of its product in accordance with the sales plan hereinabove set forth, and said sales plan has the capacity and tendency of inducing purchasers thereof to purchase respondent's said product in preference to candy offered for sale and sold by its competitors. PAR. 4. The sale of said candy to the purchasing public in the manner above described involves a game of chance or the sale of a chance to procure a larger piece or bar of candy. 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 of said method, jg a practice of the sort which the common law and criminal statutes have long deemed contrary to public policy, and is contrary to an establjshed public policy of the Government 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 from the branch of the candy trade jnvolved in this proceeding competitors who do not adopt and use the same method or an equiva.- MELLS MANUFACTURING COMPANY 1411 1405 Order lent or similar method involving' the same or an equivalent or similar cl ~ ement of chance or lottery scheme. . Many persons, firms, and corporations who make and sell. candy 111 competition with the respondent are unwilling to offer for sale or sell candy so packed and assembled, or otherwise arranged and Packed for sale to the purchasing public so as to involve a game of chance, and such competitors refrain therefrom. par. 5. Many dealers in and ultimate purchasers of candy are attracted by respondent's said method and manner of packing said candy and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to purchase said candy so packed and sold by respondent, in preference to candy offered for sale and sold by said competitors of respondent who do not use the same or equivalent methods. The use of said method by r~spondent has the tendency and capacity, because of said game of c ance, 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 ~ame is unlawful; to lessen competition in said candy trade and to end to create a monopoly of said candy trade in respondent and such other distributors of candy as use the same or an equivalent method; and to deprive the purchasing public of the benefit of free competition in said candy trade. The use of said method by the respondent has the tendency and capacity to eliminate from said candy. trade all actual competitors, and to exclude therefrom all Pot~ntlal competitors who do not adopt and use said method or an equivalent method.

CONCLUSION t ~he aforesaid acts and practices of the respondent Mells Manufacur~ng Company are to the prejudice of the public and of respondent 8 competitors, and constitute unfair methods of competition in ~mmerce, within the intent and meaning of Section 5 of an Act of o;gress, approved September 26, 1914, entitled "An Act to create ; ederal Trade Commission, to define its powers and duties, and or other purposes."

ORDER TO CEASE AND DESIST .Tl~is proceeding having been heard by the Federal Trade ComlrliSSion upon the complaint of the Commission and the substitute n~swer of the respondent filed herein on October 4, 1937, admitting a. the material allegations of the complaint to be true and waiving Order 25F. T.O.

the taking of further evidence and all the other intervening pro· cedure, and the Commission having made its findings as to the facts and its conclusion that said respondent has violated the pro· visions 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 }fells Manufacturing Company, its officers, representatives, agents, and employees, in connection with the offering for sale, sale and distribution in interstate cotn· merce of candy do 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 und assembled that sales of such candy to the general public are to be made, or may be made, by means of a lottery, gaming device, or gift enterprise.

2. Supplying to or placing in the hands of wholesale dealers and jobbers or retail dealers assortments of candy which are used or which may be used, without alteration or rearrangement of the con· tents of such assortments, to conduct a lottery, gaming device, or p:ift enterprise in the sale or distribution of the candy contained in Eaid assortments to the public.

3. Packing or assembling for sale to the public at retail an as· sortment of candy consisting of two packages; one package con· taining a number of small pieces of candy, the majority of which have one flavor, and the remaining pieces having a different flavor, and the second package containing a number of larger pieces or bars of candy, the number of which correspond to the number of pieces of candy in the first package, having a flavor different frolU the majority, which larger pieces or bars of candy in the second package are or may be given as prizes to purchasers procuring a small piece of candy having a flavor different from the majority. It is further ordered, That the respondent Mells Manufacturing Company, a corporation, shall, within 30 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 d('sist hereinabove set forth. WALLY FRANK, LTD. 1413 Syllabus