Morris & Co., LTD., Inc., Philip

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

IN THE MATTER OF . PHILIP MORRIS & CO., LTD., INC.

COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 3398. Compla.int, May 4, 1938-Dec-ision, Jan. 31, 1939 Where a corpomtion engaged in manufacture of. cigarettes, and in sale and distribution thereof to dealers In the various States and in the District o! Columbia, and in selling certain assortments thereof which were so packed and assembled as to involve use of lottery scheme when sold and dis· tributed to consumers thereof, and which (1) were composed of numlwt of packages of cigarettes and number of tins thereof, together with 12· section punchboard, for sale under a plan, and in accord,ance with said board's explanatory legend, pursuant to which (a) purchaser received tot penny paid two tins, or one tin, or package of cigarettes, or nothing other than privilege of punch, in accordance with success or failure In securing one of numbers thus announced, and (b) purchaser of last punch in each of board's sections received package, or which (2) involved pinus ot' methods Yarying In detail from that described aforesaid, but of principle of. which plan or method above described was illustrative, aml nuder which it furniflhed various punchhoards and push cards with its various assort· ments for use in sale and distribution of its said product- Sold to dealers, for distribution and resale to purchasing public by retailer· dealer purchasers thereof in accordance with such plan, said assortments, and thereby supplied to and placed in the hands of others means of con· ductlng lotteries in the sale of Its said product In accordance with sales plan above set forth, contrary to public policy as long recognized in the commol). law and criminal statutes, and to an established public policy ot the United States Government, and In competition with many who are unwilling to offer or sell cigarettes so packed and assembled as above de· scribed, or otherwise arranged and packed for sale to purchasing public so as to Involve game of chance or any other method of sale contrary to public policy, and refrain therefrom;

With tendency and capacity to induce purchasers of cigarettes to buy its said product In preference to those and tobaccos offered and sold by its com· petltors, and with result that many dealers in and ultimate purchasers of cigarettes were attracted by its said method and manner of packing same and by element c,f chance involved In sale then•of as abon• de· scribed, and were thereby induced to purchase substantial quautit!Ps ot such cigarettes thus paci;Pd and sold by It, ln preference to those olfered and sold by said competitors who do not use same or equivalent methods, and with tendency and capacity, because of said game of chance, unfairly to divert to It 'trade and custom from its competitors aforesaid, to exclude from said cigarette trade all competitors who are unwilling to and do not use such or equivalent methods as unlawful, to lessen competition in said trade and create a monopoly thereof in it and In such other distributors of. cigarettes as do use same or equivalent methods, to deprive purchasing PHILIP MORRIS & CO., LTD., INC. 267 266 Complaint public of benefit of free competition in such trade, and to eliminate from said trade all actual, and exclude therefrom all potential, competitors who do not adopt and use said or equivalent methods: Held, That such acts and practices were all to the injury and prejudice of tbe public and competitors and constituted unfair methods of competition. Defore Mr. Randolph P1'esto-n, trial examiner . .11 r. D. C. Da;niel for the Commission .

.:Ur. Georqe P. Brauburqer, of New York City, for respondent. Complaint Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said act, the Federal Trade Commission, having reason to believe that Philip Morris & Co., Ltd., Inc., a corporation, hereinafter referred to as respondent, has \"iolated the provisions of said act, 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 is a corporation organized, existing, and doing business under the laws of the State of Virginia, with its r>rincipal office· and place of business located at 119 Fifth Avenue, :New York City, N.Y., and a manufacturing plant at Richmond, Va. Respondent has branch offices and warehouses located in various States of the United States. Respondent is now, and for some time last past has been, engaged in the manufacture of cigarettes and in the sale ilnd distribution thereof to dealers located in the various States of the United States and in the District of Columbia. It causes and has caused said merchandise when sold to be shipped or transported from I its places of business aforesaid, into and through the various States I.f of the United States other than the State of origin of such shipment and into the District of Columbia, to the purchasers thereof 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 Imerchandise between and among the various States of the United I States and in the District of Columbia. In the course and conduct of its business, respondent is in competition with other corporations and 'lwith individuals and partnerships engaged in the sale and distribution of cigarettes in commerce between and among the various States of the United States and in the District of Columbia. PAR. 2. In the course and conduct of its business, as described in paragraph 1 hereof, respondent sells and has sold to dealers certain assortments of cigarettes so packed and assembled as to involve the 200346m-40-vol. 28-20 Complaint 28F.T.C.

use of a lottery scheme when sold and distributed to the consumers thereof. One of respondent's assortments substantially illustrates the sales plan or method used in the sale and distribution of its products to the purchasing public, and is as follows: This assortment consists of a number of packages of cigarett~s and a number of tins of cigarettes, together with a device commonly called a punchboard. The punchboard is divided into 12 sections. Sales are 1 cent each and each purchaser is entitled to one punch from said board. 1Vhen a punch is made from said board, a number is disclosed. The board bears statements informing prospective purchasers that a cer· tain number entitles the purchaser thereof to two tins of cigarettes; that certain other numbers entitle the purchasers thereof to one tin of cigarettes; that certain other numbers entitle the purchasers hereof to one package of cigarettes; and that the purchaser of the last nu:zn· ber in each section is entitled to one package of cigarettes. A purchaser who does not qualify by obtaining one of the numbers calling for a tin or tins or a package of cigarettes, or the last number in one of the sections, receives nothing for his money other than the privilege of punching a number from the board. The numbers are effectively con· cealed from purchasers and prospective purchasers until a punch has been made and the particular punch separated from the board. The retail value of said tins and packages of cigarettes is greater than the designated price of said punches. The said packages and tins of cigarettes are thus distributed to the purchasers of said punches frolll said board wholly by lot or chance.

Respondent sells and distributes various assortments of its cigarettes and furnishes various punchboards and push cards for use in the sale and distribution of such cigarettes by means of a game of chance, gift enterprise, or lottery scheme. Such plan or method varies in detail, but the above-described plan or method is illustrative of the principle involved.

PAR. 3. Retail dealers who purchase respondent's said cigarettes, directly or indirectly, expose 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 a means of conducting lotteries in the sale of its products in accordance with the sales plan hereinabove set forth. Said sales plan has the tendency and capacity to induce purchasers thereof to purchase respondent's said products in prefer· ence to cigarettes and tobaccos offered for sale and sold by its competitors.

PAR. 4. The sale of said products to the purchasing public in the manner above alleged involves a game of chance or the sale of a chance PHILII? MORRIS & CO., LTD., INC. 269 266 Complaint to procure a package or a tin or tins of cigarettes. The use by respondent of said method in the sale of cigarettes and the sale of said cigarettes by and through the use thereof and by the aid 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. The use by tespondent of said method has a tendency unduly to hinder competition or create a monopoly in this, to wit: That the use thereof has a tendency and capacity to exclude from the cigarette trade competitors "·ho do not adopt and use the same method or equivalent or similar tnethods involving the same or an equivalent or similar element of chance or lottery scheme. Many persons, firms, and corporations who tnake and sell cigarettes in competition with the respondent, as above alleged, are unwilling to offer for sale or sell cigarettes so packed and assembled as above described or otherwise arranged and packed for sale to the purchasing public so as to involve a game of chance, or any other method of sale that is contrary to public policy, and such competitors refrain therefrom.

PAR. 5. Many dealers in and ultimate purchasers of cigarettes are attracted by respondent's said method and manner of packing said cigarettes and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to purchase said cigarettes ·so packed and sold by respondent in preference to cigarettes offered for sale and sold by said competitors of respondent who do not llse the same or equivalent methods. The use of said method by respondent has the tendency and capacity, because of said game of chance, to unfairly divert to respondent trade and custom from its said competitors who do not use the same or equivalent methods, to exclude from said cigarette trade all competitors who are unwilling to, and who do not, use the same or equivalent methods because the same areunlawful, to lessen competition in said cigarette trade, to create a I monopoly of said cigarette trade in respondent and such other distributors of cigarettes as use the same or equivalent methods, and to deprive Ithe purchasing public of the benefit of free competition in said cigarette trade. The use of said method by· respondent has a tendency and capacity to eliminate from said trade all actual competitors and to exclude therefrom all potential competitors who do not adopt and use said methods or equivalent methods. PAR. 6. The aforesaid acts and practices of the respondent, as herein I alleged, are all to the prejudice of the public and of respondent's competitors, and constitute unfair methods of competition in commerce within the intent and mea_ning of the Federal Trade Commission Act. Findings 28 F. T. C. REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the provisions of the Federal Trade Commission Act, the Federal Trade Commission on May 4, 1938, issued, and on May 5, 1938, served, its compla-int in this proceeding upon respondent, Philip Morris & Co., Ltd., Inc., a corporation, 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 filing of respondent's answer, the Commission, by order entered herein, granted respondent's motion for permission to withdraw said answer and to substitute therefor an answer admitting all the material allegations of fact set forth in said complaint and ·waiving all intervening l?rocedure and further hearing as to said facts, 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 substitute answer, and the Commission having duly considered the matter and being now fully ad vised in the premises, finds that this proceeding is in the interest of the public and makes this its findings as to the facts and its conclusion drawn therefrom.

FINDINGS AS TO THE FACTS PARAGRAPH 1. The respondent is a corporation organized, existing, and doing business under the laws of the State of Virginia, with its principal office and place of business located at 119 Fifth Avenue, New York City, N. Y., and a manufacturing plant at Richmond, Va. Respondent has branch offices and warehouses located in various States of the United States. Respondent is now, and for some time last past has been, engaged in the manufacture of cigarettes and in the sale and distribution thereof to dealers located in the various States of the United States and in the District of Columbia. It causes and has caused said merchandise when sold to be shipped or transported from its places of business aforesaid, into and through the various States of the United States other than the State of origin of such shipment and into the District of Columbia, to the purchasers thereof 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 various States of the United States and in the District of Columbia. In the course and conduct of its business, respondent is in competition with other corporations and with individuals and partnerships engaged in the sale and distribution of cigarettes in commerce between and among the various States of the United States and in the District of Columbia. PHILIP MORRIS & CO., LTD., INC. 271 266 Findings PAR. 2. In the course and conduct of its business, as described in Paragraph 1 hereof, respondent sells and has sold to dealers certain assortments of cigarettes so packed and assembled as to involve the Use of a lottery scheme when sold and distributed to the consumers thereof. One of respondent's assortments substantially illustrates the sales plan or method used in the sale and distribution of its prod- Ucts to the purchasing public, and is as follows: This assortment consists of a number of packages of cigarettes and a number of tins of cigarettes, together with a, device commonly called a punchboard. The punchboard is divided into 12 sections. Sales are ! 1 cent each and each purchaser is entitled to one punch from said board. When a punch is made from said board, a number is disclosed. The hoard bears statements informing prospective purchasers that a certain I number entitles the purchaser thereof to two tins of cigarettes; that certain other numbers entitle the purchasers thereof to one tin of I. cigarettes; that certain other numbers entitle the purchasers thereof to one package of cigarettes; and that the purchasers of the last number in each section is entitled to one package of cigarettes. A pur· chaser who does not qualify by obtaining one of the numbers calling for a tin or tins or a package of cigarettes, or the last number in one of the sections, receives nothing for his money other than the privilege of punching a number from the board. The numbers are effectively concealed from purchasers and prospective purchasers until a punch j· has been made and the particular punch separated from the board. The retail value of said tins and packages of cigarettes is greater than the designated price of said punches. The said packages and tins of cigarettes are thus distributed to the purchasers of said punches :from said board wholly by lot or chance.

Respondent sells and distributes various assortments of its cigarettes and furnishes various punchboards and push cards for use in the sale and distribution of such cigarettes by means of a game of chance, gift enterprise, or lottery scheme. Such plan or method varies in detail, hut the above-described plan or method is illustrative of the principle involved.

PAR. 3. Retail dealers who purchase respondent's said cigarettes, directly or indirectly, expose and sell the same to the purchasing public I in acocrdance with the aforesaid sales plan. Respondent thus supplies 'Ito and places in the hands of others a means of conducting lotteries in the sale of its products in accordance with the sales plan hereinabove set. forth. Said sales plan has the tendency and capacity to induce purchasers of cigarettes to purchase respondent's said products in Preference to cigarettes and tobaccos offered for sale and sold by its ~ompetitors.

Findings 28 F. T. C. PAR. 4. The sale of sai.d products to the purchasing public in the manner above found involves a game o:f chance or the sale of a chance to procure a package or a tin or tins of cigarettes. The use by respondent of said method in the sale of cigarettes and the sale of said cigarettes by and through the use thereof and by the aid 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. The use by respondent. of said method has a tendency unduly to hinder cotn· petition or create a monopoly in this, to wit: That the use thereof has a tendency and capacity to exclude from the cigarette trade cotn· petitors who do not adopt and use the same method or equivalent or similar methods involving the same or an equivalent or similar ele· ment of chance or lottery scheme. Many persons, firms, and corpo· tions who make and sell cigarettes in competition with the respondent, as above found, are unwilling to offer for sale or sell cigarettes so packed and assembled as above described or otherwise arranged and packed for sale to the puchasing public so as to involve a game of chance, or any other method of sale that is contrary to public policy, and such competitors refrain therefrom.

PAR. 5. 1\fany dealers in and ultimate purchasers of cigarettes are a.ttracted by respondent's said method and manner of packing said cigarettes and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to purchase substantial amounts of said cigarettes so packed and sold by respondent in preference to cigarettes 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 unfairly divert to respondent trade and custom from its said competitors who do not use the same or equivalent methods, to exclude from said cigarette trade all competitors who are unwilling to, and who do not, use the same or equivalent methods because the same are unlawful, to lessen competition in said cigarette trade, to create a monopoly of said cigarette trade in respondent and such other distributors of cigarettes as use the same or equivalent methods, and to deprive the purchasing public of the benefit of :free competition in said cigarette trade. The use of said method by re· spondent has n tendency and capacity to eliminate from said trade all actual competitors and to exclude therefrom all potential cotn· petitors who do not adopt and use said methods or equivalent methods. PHILIP MORRIS & CO., LTD., INC, 273 266 Order CONCLUSION The aforesaid acts and practices of the respondent, as herein 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 the complaint of the Commission and the substitute answer of respondent, in which answer respondent admits all the material I allegations of fact set forth in said complaint and states that it waives I all intervening procedure and further hearing as to said facts and the I. Commission having made its findings as to the facts and conclusion that said respondent has violated the provisions of the Federal Trade ! Commission Act. It is ordered, That the respondent, Philip Morris & Co., Ltd., Inc., d corporation, its officers, representatives, agents, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale, and distribution of cigarettes or any other articles of merchandise in commerce, as commerce is defined in the Federal Trade Commission Act, do forthwith cease and desist from: , 1. Selling and distributing cigarettes or any other merchandi!Oe so Packed and assembled that sales of such cigarettes or any other mprchandise to the general public are to be made or may be made by means of a game of chance, gift enterprise, or lottery scheme. . 2. Supplying to, or placing in the hands of dealers, assortments of said cigarettes or other merchandise together with punchboards or I.other lottery devices which said punchboards or other lottery devices or may be used in selling or distributing cigarettes or Iare to be used other merchandise to the public.

3. Supplying to, or placing in the hands of dealers, punchboards or other lottery devices either with assortments of said products or separately, which punchboards or other lottery devices are to be used or may be used in selling or distributing cigarettes or other merchandise to the public.

4. Selling, or otherwise disposing of, cigarettes or other merchandise by the use of punchboards, or other lottery devices. It i8 further ordered, That within GO days from the date of the service of this order upon said respondent, it 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. Complaint 28 F. T. C.