Schwartz, Irving

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IN THE Matrer OF IRVING SCHWARTZ DOING BUSINESS AS LLOYD'S DISTRIBUTING COl\fP ANY COJ.,fPLAINT, FI:\'DINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docl.·et 3277. Complaint, Dec. 3, 1937-Deciltion, Jan. 25, 1939 'Where an lndividnal engaged in sale and distribution of various articles of merchandise, including electric shavers, radios, and fountain pens, t() purchasers in other States; in soliciting sale of and in selling and distributing his said products to customers and prospective customers and salesmen solicited through advertisements in periodicals- Furnished snc·h cust01ilers, prospective customers, and salesmen with a pull card for use in. distribution of his said products to purchasing public by means of a lottery scheme or gift enterprise and nuder sales plan in accordance with which purchasers of chances paid therefor varying amounts or nothing in Rccordance with particular numbers secured from card, and obtained article of merchandise in accordance with success or failure in selecting girl's name corresponding with that under master seal, and operators of cards were compensated by receipt of articles being thus disposed of, and thereby conducted lotteries and placed ln the bands of others means of conducting lotteries in sale of his merchandise, contrary to long-established public policy of the United States Government and the common law and criminal statutes, and in competition with thole engaged ln sale and distribution in interstate commerce of like or similar articles of merchandise who do not sell the same through lotteries or games of chance;

\With result that many purchasers of said products were attracted by gnme of chance involved in his said sales method and were thereby induced t() purchase his··products in preference to similar· goods of· competitors-who ., ' did not and do not use equivalent methods, and substantial volume of his ~ i merchandise was bought by public, and trade was thereby unfairly diverted to him from his competitors aforesaid:Held, that such acts and practices were all to the prejudice and Injury of the I; public and competitors and constituted unfair methods of competition. Before Jfr. Miles J. Furnas and i1lr. William 0. Reeves, trial 1-l,, examiners. 1: Mr.llenry 0. Lank Mr. D. and iJ. Daniel for the Commission. /,;I' N of Chicago,· Ill., for respondent. a8h & Donnelly, 1" .. !;, Col\U'LAIK'r -~. Pursuant to the provisions of an Act of Congress, approved Sep- I tem8er 26, 1914, entitled "An Act to create a Federal Trade Com- II mission, to defii1e its pow-ers and duties, and for other purposes,'' th~ ·~ Federal Trade Commission, having reason to believe that Irving .! 210 FEDERAL TRADE CO~IMISSION DECISIONS Complaint 28F. T.C.

Schwartz, individually, and trading as Lloyd's Distributing Co., hereinafter referred to as respondent, has been and is using unfair methode; of competition in commerce, as "commerce" is defined in said act, and it appearing to the 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 is an individual, doing business in l1is own name and under the name and style of Lloyd's Distributing Co., and formerly trading under the name and style of Packard Distributing Co. Respondent. has his principal office and place of business located at 521 Fifth Avenue, New York, N. Y. He is now, and for some time last past has been, engaged in the sale and distribution of various articles of merchandise including, among others, e]ectrio shavers, radios, and fountain pens, in commerce between and among the various States of the United States. He causes and has caused said products when sold to be shipped or transported from his place of business in the State of New York to purchasers thereof in New York and in other States of the United States at their respective points of location. There is now, and has been for some time last past, a course of trade and commerce by said respondent in such merchandise between and among the States of the United States. In the course and conduct of said business, respondent is in competition with other individuals and with partnerships and corporations exag-age<l in the sale and distribution of similar or like articles of merchandise in commerce between and among the various States <lf the Unit~d States.

PAR. 2. In the course and conduct of his business as described in paragraph 1 hereof the respondent, in soliciting the sale of and in selling and distributing said merchandise, has furnished his customers and prospective customers with a device commonly called a "pull card," the use of which in connection with the sale and delivery to the purchasing public by the method or plan suggested by respondent involves the distribution of said merchandise to the purchasing public by means of a lottery scheme or gift enterprise. The method or sales plan suggested by respondent was and is subi;tantially as follows:

The said pull card has a number of indicated squares, and in each square is a partially perforated tab marked "pull." Concealed under Ntch tab is a number; within each of the said squares appears a girl's name. The said pull card also has a master tab or seal, and con- ~ealed within such master tab or seal is a name corresponding to one of the names on the card. Purchasers select one of the squares and remove the tab, disclosing the number thereunder. Persons !:.LOYD'S DISTRIBUTING CO. 211 20() Complaint 'II selecting numbers 1 and 12 to 35 pay in cents the amount of such number. Persons selecting numbers over 35 pay 35 cents. Persons selecting numbers 2 to 11, inclusive receive the same free of charge. The, pull card bears a legend or legends informing purchasers and })rospective purchasers of the plan or method by which said pull card is operated, and by which the merchandise described thereon is to be distributed. ·when all of the squares have been selected and the master seal removed, the person who selected the name corresponding to the name under the master seal receives the article of merchandise specified without further charge. Persons selecting numbers 20, 30, and 40 each receive a specified article of merchandise without further charge, and the person, salesman, agent, or !'('presentative soliciting sales by means of said card receives his choice of certain specified articles of merchandise without further charge or additional service. The numbers under1~ the tabs are concealed from purchasers and prospective purchasers, and they do not know how much they will have to pay for the privilege of selecting a particular 11ame or whether the selection will be free of charge until the selection has been made and the tab removed. The name under the master sPal is concealed from purchasers and prospective purchasers until all of the squares have been selected and the tabs removed. Thus, customers sPleeting names which do not correspond with the name under the master seal receive nothing but the privilege of making a selection for the money which they pay, except customers selecting numbers 20, 30, and 40, who each receive a specified article of merchandise. The person selecting the name coresponding to the name under the master seal and the persons selecting numbers 20, 30, and 40 receive an article of merchandise free of charge or for a price not exceeding 35 cents. The value of the various articles varies, but the retail value of each article is greater than 35 cents. The purchasing public is thus induced and persna(h•d into purcha~ing pulls from said card in the hope of selecting a prize-winning name or number and thus obtaining an article of merchandise for a price of 35 cents or less, or free of charge. The said articles of mercha11dise are thus distributed to th~ purchasing public wholly by lot or chance, and the amount which the customer pays for a chance or wlwther the same is free of charge is determined wholly by lot or chance. PAn. 3. The persons to whom respondent furnishes the said push cards use the same in purchasing, selling, and distributing respondent's merchandise in accordance with the aforesaid sales plan. Respondent thus supplies to and places in the hands of otners the means of conducting lotteries in the sale of his merchandise in accordance with the sales plan hereinabove set forth. The use by respondent 212 FEDERAL TRADE CO:i\Il\IISSION DECISIONS Findings 2SF.T. C.

of said method in the sale of his merchandise, and the sale of such merchandise by and through the use thereof and by the aiel of said method, is a practice of the sort which the common law and criminal statutes have long deemed contrary to public policy, and is contrary to an established public policy of the Government of the United States.

PAR. 4. The sale of merchandise to the purchasing public in the manner above alleged involves a ~arne of chance or the sale of a <·lumce to procure an article of merchandise at a price much less than 1he normal retail price thereof. Many persons, firms, and corporations who sell or distribute merchandise in competition with respondent, as above alleged, are unwilling to adopt and use said method or nny method involving a game of chance or the sale of a chance to win something by chance or any other method that is contrary to public policy, and such competitors refrain therefrom. Many persons are attracted by respondent's said method and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to buy and sell respondent's merchandise in preference to merchandise offered for sale and sold by said competitors of respondent who do not use the same or an equivalent method. The uee of said method by respondent, because of said game of chance, lias the tendency and capacity to, and does, divert trade and custom to respondent from his said competitors who do not use the same or an equivalent method.

PAn. 5. The aforesaid acts and practices of respondent are all to the injury and -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." REPORT, FnmiNGs AS TO THE Facts, AND OnnER Pursuant to the provisions of the Federal Trade Commiseion Act, the Federal Trade Commission, on December 3, 1937, issued, and on December 6, 1937, served its complaint in this proceeding upon respondent, Irving Schwartz, individually, and trading as Lloyd's Distributing Co., charging him with the use of unfair methods of competition in commerce in violation of the provisions of the said act . .After the issuance of the said complaint, testimony and other evidence in support of the allegations of the complaint were introduced by D. C. Daniel and H. C. Lank, attorneys for the Commission, and in (Jpposition to the allegations of the cor.:plaint by John A. Nash, LLOYD'S DISTRIBUTING CO. 213 209 Findings nttorney for the respondent, before Miles J. Furnas and 'Villiam C. I:Eoeves, examiners of the Commission theretofore duly designated by it, and said testimony and other evidence were duly recorded and filed in the office of the Commission. Thereafter, the proceeding regularly came on for final hearing before the Commission on the said complaint, testimony and other evidence, briefs in support of the <'complaint, respondent not having filed brief, and oral argument not having been requested; and the Commission having duly considered the matter, and being now fully advised in the premises, finds this proceeding is in the interest of the public and makes this its findings as to the facts and its conclusion drawn therefrom. FINDI:\'GS AS TO THE FACTS PARAGRAPH 1. Respondent, Irving Schwartz, is an individual doing business in his o~vn name and under the name and 1;style of Lloyd's Distributing Co. Prior to the time respondent began using the trade name "Lloyd's Distributing Company" respondent conducted his business under the name and style of Packard Distributing Co. Respondent's principal office and place of business is located at .521 Fifth Avenue, in the city of New York, N.Y. Respondent is now and has been since about the month of April 1937 engaged in the business of selling and distributing various articles of merchandise, including-, among others, electric shavers, radios, and fountain pens, in commerce among and between the various States of the United States.

Respondent causes said products, when sold, to be transported from llis place of business in the State of New York to purchasers thereof located at various points in States of the United States other than the State from which said shipments are made. Respondent maintains a course of trade and commerce in said merchandise sold and distributed by him between and among the various IStates of the United States.

! i Respondent is now, and has been, in substantial competition with (! other individuals and with partnerships and corporations likewise ,:• iI eng-aged in the sale and distribution of similar or like articles of merchandise in commerce between and among the various States of the United States. \.' PAR. 2. In soliciting the sale of, and in selling and distributing his merchandise, respondent has furnished his customers and prospective customers with a device commonly called a pull card, the use of which involves the distribution of said merchandise to the purchasing public by means of a lottery scheme or gift enterprise. In order to 214 FEDERAL TRADE COl\DIISSION DECISIOXS Findings ~F.T.C· procure orders for his merchandise, respondent distributed to customers and prospective customers approximately 70,000 pull cards during the years 1937 and Hl38.

Respondent also solicited the senices of salesmen to sell his products by inserting advertisements in magazines, which advertisements read in part as follows:

The Best and Fastest 1\Iovlng Deal in the Nation. Grelltest S11les Bo11rd Item-Sales lloa rd Operators, Agents. Distrlbutors- Cielln Up With $15 Nationally Ad,·ertised Packard Lektro-Shnyer. Respondent enclosed with each pull card a circular letter in which prospective customers were urged to distribute respondent's merchandise by means of the pull car(l. One of said letters contained the following paragraphs:

Either of these gifts can be obtained with very little effort on rom part. You merely show the Pa~::kard Lel>tro-Shaver aml DeWald Radio· illustrations to your friend,;, neighbors, co-workers In your office, shop, etc.-explain to them how" they may obtain one of these mHnelous lllll useful articles for the small sum of le up to 35¢.

Fpon coni'Pletlon of the !<ales card you then fill out the inclosed order blauk. Upon receipt of your order we will make sblpment of tbe two (2) Packard Lektro-Shnvers or the two (2) 5-tube DeWald radios or one (1) of e1wh article, together with the th1·ee (3) beautiful fountain pen desk sets, all charges prepaid. The method or sales plan used, and now used, by respondent and which respondent set forth for the guidance of his customers in the circular letters distributed by him, and in other circulars which respondent distributed with the said pull cards, is, and was, as follows: The pull' card distributed by respondent has printed thereon a munber of girls' names and immediately under each name is a partially perforated disk which conceals a number. Near the upper rightlmnd comer of the card is a larger disk in the form of a seal which conceals a name corresponding to one of the names on the card. Purchasers select one of the squares and remove the tab disclosing the number thereunder. Persons selecting munbers 1 and 12 to 35 pay in cents the amount of each number. Persons selecting numbers over 35, pay 35 cents. Persons selecting numbers 2 to 11, inclusive, receive the same free of charge. Each pull card bears a legend informing the purchasers and prospective purchasers of the plan or method by which said pull card is operated, and by which the merchandise described thereon is to Le distributed.

'Vhen all the squares have been selected and the master seal remm·ed, the person who selected the name corresponding to the name under the master seal receiws the article of merchandise specified without further charge.

LLOYD'S DISTRIBUTING CO. 215 209 ~'lndiugs Persons selecting numbers 20, 30, and 40, each receive a specified article of merchandise without further charge. I,I The numbers under the tabs are concealed from purchasers and I' prospective purchasers, and said purchasers do not know how much they will have to pay for the privilege of selecting a particular name or whether the selection will be free of charge until the selection has been made and the tab removed.

The 11ame under the master seal is concealed from purchasers and prospective purchasers until all of the squares have been selected and the tabs removed. Customers selecting names which do not corre· spond with the name under the master seal receive uothing but the privilege of making a selection for the money which they pay, except customers selecting Numbers 20, 30, and 40, who each receive a specified article of merchandise. . . The persons selecting the name corresponding to the name under the master seal and the persons selecting Numbers 20, 30, and 40 receive an article of merchandise free of charge or for a price not exceeding 35 cents.

In this manner the public is induced and persuaded into purchasing pulls from said card in the hope of selecting a prize-winning name or number and thus obtaining an article of mer·chnndise for a price of 35 cents or less, or free of charge.

Respondent's merchandise is thus distr·ibuted to the purchasing public wholly by lot or chance, and the amount which the customer pays for a chance or whether the same is f1·ee of charge is deter·mined wholly by lot or chance. By use of the method above described, the tespondent. sold about 4,000 of the shanc-rs and about 300 radios in the year 19:37. During the first 2 months of the year 1938 respondent sold 200 shavers and approximately 25 radios. PAR. 3. The Commission finds that the rpspondent, in selling his said merchandise in connection with the aLm·e-desct·ibed pull card, conducted lotteries and placed in the hands of others the means of conducting lotteries in the sale of his merchandise. The Commission further finds that the sale of respondent's mer· chandise to the purchasing public,· as hereinabove dt>scribed, involves a game of chance or the sale of a chance to procure respondent's merchandise, and that the use of said method in the distribution of merchandise is a practice of the sort which the comlllon law and criminal statutes have long deemed contmry to public policy, and is contrary to a11 established policy of the Govemment of the United States. PAR. 4. There are among the competitors of respondent,.individuals, firms, partnerships, and corporations likewise engaged in the business 216 FEDERAL TRADE CO~HIISSION DECISIONS Order 28F.T.C.

of selling and distributing in interstate commerce, like and similar articles of merchandise who do not sell their merchandise by use of lotteries or games of chance .

.:Many purchasers of said merchandise were attracted by the element of chance involved in respondent's sales method and were thereby induced to purchase respondent's merchandise in preference to the same or similar merchandise of respondent's competitors who did not and do not use the same or equivalent methods.

Because of the said preference the public has purchased a substantial ''volume of respondent's merchandise with the result that trade has been unfairly diverted to respondent from said competitors. CONCLUSION The aforesaid acts and practices of respondent, as hereinabove found, are all to the injury and prejudice of the public and of. respondent's competitors and constitute- unfair methods of competition in commerce within the intent and meaning of the Federal Trade Commission Act. ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon thev c01nplaint of~ the Commission (respondent having filed no answer), testimony and other evidence taken before Miles J. Furnas and ·william C. Reeves, exami11ers of the Commission theretofore duly designated by it, in support of the allegations of said complaint and in opposition thereto, brief filed by counsel for the Commission (counsel for respondent having filed no brief and not having requested oral argument), and the Commission having made its findings as to the facts and its conclusion that said respondent has violated the provisions of the Federal Trade Commission Act.

It is ordel·ed, That the respondent, Irving Schwartz, individually, and trading as Lloyd's Distributing Co., his agents, representatives, and employees, in connection with the offering for sale, sale, and distribution of electric shawrs, radios, and fountain pens, or any other merchandi!"e, in interstate commerce or in the District of Columbia, do forthwith cease and desist from:

1. Supplying to, or placing in the hands of others, punchboards, push or pull cards, or other lottery devices for the purpose of enabling such persons to dispose of or sell any merchandise by the use thereof. 2. Mailing, shipping, or transporting to agents or to distributors or members of the public punchboards, push or pull cards, or other LLOYD'S DISTRIBUTING CO. 21/ 209 Order lottery devices so prepared or printed as to enable said persons to sell or distribute any merchandise by the use thereof. 3. Selling or otherwise disposing of any merchandise by the use of punchboards, push or pull cards or other lottery devices. It is further ordered, That within 60 days from the date of the service of this order upon said respondent he shall file with the Commission a report in writing setting forth in detail the manner and form in ·'\\'which this order has been complied ,with. i ,•: ! r:

218 FEDERAL TRADE C01IMISSION DECISIONS Complaint 2SF.'f.C.