Payne Co., H. G

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

IN THE MATTER OF H. G. PAYNE, INDIVIDUALLY, AND TRADING AS H. G. PAYNE COMPANY CO:.IPLADIT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT 0~' CO:-JGRESS APPROVED SEPT. 26, 1914 Docket 3175. Complaint, July 16, 1931-Decision, Feb. 21, 1939 Where an individual engaged in sale and distribution of penknil'"eS, bunting knives, automatic razors, watches, clorkR, and various other articles to wholesalers, jobbers, and retailers- Sul1Plieu or furnished his customers with various devi(•es and plans of merehandisillg whi<"h involved operation of gamt>s of chance, gift enterprises, or lottery schemes, by which said merchandise was distributed to purt·basing public wholly by lot or chance and which involved sale and distribution of punchboards and push cards, separately and with merchandise, for sale and distribution of his said products untler a plan in accordance with which purchasers for 5 cents of chance on 1,500-hole puncbboard, di\"ided into 60 sections, received certain articles of mercbantlise as prizes or nothing, in accordance with success or failure in securiug certain numbers, ann last punch in each section entitled purc-haser to 25 cents a,; a prize, and purchaser thus secured or failed to secure article of merchnndise, value of which, in any event, exceeded that of cost of punch, llllcl combined Ylllue of all of which articles was much less than the sum produced by sale of all punches, and nuder which plan, in some Instances, cu~tomer received postcard for the 5 cents paid, with right to punch number from board; and Supplied thereby to and placed In the hands of others, means of conducting lotteries In the !;ale 11nd distribution of his !<aid merchandise in accordance with aforesaid and similar sales plans involving game of chance or sale of a chance to procure articles of merebamlise at prices much less than normal retail prices thereof; contrary to established public policy of the t'nitetl States Govt>rnment, and in violation of the laws of sen•ral states, and in competition with many who are engaged in sale and distribution of like or similar articles and who are unwilling to offer or sell their said merchandise by any method or sales plan which involves game of chance, gift enterprise, or lottery scheme, or any method contrary to public policy, and refrain therefrom;

'With effect of inducing purchaser of his said merc-handise to buy same in preference to like or similar merchandh;e offered and ~old by coml)etitors who do not use such plans or methods in sale and distribution or their products, and with result that many members of the purcha>:ing public werp attracted by element of chance involved in his said sales plun or method and thereby induced to purchase his said products in preference to like and similar merchandise of competitors who do not use some or E>quintlent methods, and with result that whol('!<nlers and jobbers, b~· reason of such preference, were indured and ~rsnnded to buy his said products in preference to like or similar articles sold or distributed by 832 FEDERAL TRADE 0011!1\IISSION DECISIONS Complaint 2SF. T. G.

his competitors and substantial quantities of his said merehnndise ·were sold as result thereof, and trade was unfairly diverted to him from his competitors aforesaid:

Held, That such acts and practices were all to the prejudice and injury of the public and competitors and constituted unfair methods of competition. Before Mr. Robert S. llall and Nr. Williarn, 0. Reeves, trial examiners.

Afr. Dewitt T. Pucl..~ett, M·r. Hen·ry 0. Lank and ilfr. D. 0. Daniel for the Commission.

Nash & Donnelly, of Chicago, Ill., for respondent. Co}\IPLAINT Pursuant to the provisions of an Act of Congress, approved Sep· tember 26, 1914, entitled "An Act to create a Federal Trade Com· mission, to define its powers and duties, and for other purposes," the Federal Trade Commission, having reason to believe that H. G. J>ayne, individually and trading as H. G. Payne Co., hereinafter referred to as ~·respondent, has been and is using unfair methods of competition in commerce, as "commerce" is defined in 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 an individual doing business under the trade name and style of H. G. Payne Co. and has his principal office and place of business at 312-314 Broadway, in the city of Nashville, State of Tennessee. He is now, and for some time last past has been, engaged in the sale and distribution of penknives, hunting lmives, automatic razors, safety razors, watches, clocks, ciga· rette lighters, smoking pipes, cigar holders, flashlights, fountain pens, automatic pencils, cameras, opera glasses, and various other articles of merchandise, to wholesale dealers, jobbers, and retail Jealcrs. Respondent's customers are located at points in the various States of the United States, and respondent causes his said merchandise when sold to be transported from his principal place of business in Nashville, Tenn., to purchasers thereof in other States of the United States at their respective places of business. There is now, and has been for some time last past, a course of trade and cmu· merce 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 engaged in the sale and distribution of similar or like articles of merchnmlise in comml.'rce between and among the various States of the United States. H. G. PAYNE CO. 833 831 Complaint PAR. 2. In the sale and distribution of his said merchandise, respondent has furnished various devices and plans of merchandising which involve the operation of games of chance, gift enterprises, or lottery schemes, by which said merchandise is distributed to the ultimate consumers thereof wholly by lot or chance. Said devices or plans of merchandising consist of a variety of punchboards and push cards or similar devices, the use of which by retail dealers or individuals in connection with the sale and delivery to the purchasing public of respondent's said merchandise or products was and is substantially as folows:

Said punchboards consist of boards of various shapes and sizes with :from 100 to 3,000 holes. Into each of the holes has been inserted a small slip of paper bearing a printed number, the printed slips bearing consecutive numbers according to the number of holes contained in the board but not arranged in numerical sequence, and said slips are so placed and secreted in said punchboards that they cannot be Set>n by the customer except when they are punched from the board. The punchboards bear legends indicating the numbt>rs which entitle the purchasing public to an article of merchandise or prize, and in some cases the last punch in each board receives a prize. Customers pay 1 cent, 5 cents, or 10 cents for each punch from the board, and the purchasers of punches who receive numbers calling for an article of merchandise receive such article, and purchasers who receive numbers other than those enumerated on the board, or who do not qualify by purchasing the last punch on the hoard, receive nothing for their tnoney. The said articles of merchandise vnry in value, but each of said articles of merchandise is of greater value than the cost of a single punch from the said board, and the combined value of the articles of merchandise is much less than the cost of the total punches on the board. On some of the boards furnished by respondent certain Punches are free.

The push cards furnished by the respondent involve the same principle, but vary in detail.

The purchasing public is thus induced nnd persuaded into purchasing punches from said boards or pushes from said cards in the hope of making a prize-winning selection and thus obtain an article of tnerchandise for a sum less than the normal retail value thereof. The Various articles of merchandise are thus distributed to the purchasing Public wholly by lot or chance.

PAR. 3. The wholesale dealers and jobbers to whom respondent Sells his merchandise resell the same to retail dealers, together with the punchboards or push cards furnished by respondent, and such t't>tail dealers and the rt>tail dt>nlers to whom respondent sells direct 834 FEDERAL TRADE Cm.Il\IISSION DECISIONS Complaint 28 F. T. C. offer for sale and sell said merchandise to the purchasing public by means of said punchboards of push cards in accordance with the aforesaid sales plans. Respondent thus supplies to and places in the hands of others the means of conducting lotteries in the sale of his merchandise in accordance with the sales plans hereinabove set forth, and said sales plans have the capacity and tendency of inducing purchasers thereof to purchase respondent's said merchandise in preference to like or similar merchandise offered for sale and sold by his competitors.

PAR. 4. The sale and distribution of merchandise to the purchasing public, as above alleged, involves a game of chance or the sale of a chance to procure such articles of merchandise in the manner alleged. The use by respondent of said methods in the sale of his merchandise, and the sale of such merchandise by and through the use thereof and by the aid of said methods, 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. l\fany persons, firms and corporations who sell and distribute merchandise in competition with the respondent, as above alleged, are unwilling to offer for sale or sell merchandise by any 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. PAR. 5. Many dealers in and ultimate purchasers of merchandise as distributed by respondent are attracted by respondent's said methods or sales plans and by the element of chance involved in the sale or purchase thereof in the manner above described, and are thereby induced to purchase said merchandise of respondent in preference to merchandise offered for sale and sold by competitors of respondent who do not use the same or equivalent methods. The use of said methods or sales plans by respondent has the tendency and capadty, because of said game of chance, to divert to respondent trade and custom from his said competitors who do not use the same or equivalent methods; to exclude from said 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 trade, and to tend to create a monopoly of said trade in respondent and such other distributors as use the same or equivalent methods; and to deprive the purchasing public of the benefit of free competition in said trade. The use of said methods or sales plans by respondent has the 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.

H. G. PAYNE CO. 835 831 Findings PAR. 6. The aforementioned methods, acts, and practices of the respondent are all to the prejudice of the public and of respondent's competitors, as hereinabove alleged. Said methods, acts, and practices constitute unfair methods of competition in commerce within the intent and meaning of Section 5 of an Act of Congress, approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes." REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the provisions of the Federal Trade Commission Act, the Federal Trade Commission, on July 16, 1937, issued and thereafter served its complaint in this proceeding upon respondent, H. G. Payne, individually, and trading as H. G. Payne Co., charging him 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 thereto, testimony, and other evidence in support of the allegations of said complaint were introduced by Dewitt T. Puckett, Henry C. Lank, and D. C. Daniel, attorneys for the Commission, and in opposition to the allegations of the complaint by Horace J. Donnelly, Jr., and John A. Nash, attorneys for the respondent, before Robert S. Hall and 'Villiam C. Reeves, 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 reg;ularly came on for final hearing before the Commission on the said complaint, the answer thereto, testimony, and other evidence, brief in support of the complaint (respondent having filed no brief and not having requested oral argument), and the Commission, having duly considered the matter and being fully advised in the premises, finds that this procee>ding is in the interest of the public, and makes this its findings as to the facts anu its concltJ.sion drawn therefro~n. FINDINGS AS TO THE FACTS PARAGRAPH 1. The responde>nt, H. G. Payne, is an individual doing business under the trade name of H. G. Payne Co., with his principal Place of business located at 312-314 Broadway, Nashville, Tenn. For several years last past respondent has been engaged in the sale and distribution of penknives, hunting knives, automatic razors, safety razors, watches, clocks, cigarette lighters, pipes, cigarette holders, flashlights, fountain pens, automatic pencils, cameras, opera glasses, lottery devices, and various other articles to wholesale dealers, jobbers, and retail dealers. Respondent has caused his said 836 FEDERAL TRADE COMl\IISSION DECISIO~S Findings 2SF. T.G.

'merchandise, when sold, to be shipped or transported to purchasers thereof located in various States of the United States at their respective points of location from his aforesaid place of business in Nashville, Tenn.

Respondent has been at. all times mentioned herein in substantial competition with other individuals and with partnerships and corporations engaged in the sale and distribution of like or similar articles of merchandise in commerce between and among the various States of the United States.

PAR. 2. In so carrying on his said business as described in paragraph 1 hereof, respondent has supplied or furnished his customers with various devices and plans of merchandising which involve the operation of games of chance, gift enterprises, or lottery schemes, .by which said merchandise has been distributed to the purchasing public wholly by lot or chance. The devices sold and distributed by respondent are what are commonly known as punchboards and push cards. One of said punchboarcls is operated substantially as follows: This board contains 1,500 small holes, int9 each of which has . been inserted a small slip of paper with a number printed thereon, and the said slips are so placed and secreted in said punchboard that they cannot be seen by the customer until after they have been punched from the board. There are a number of cut-outs on the board, in which are placed articles of merchandise. The punchboard bears legends or statements explaining the operation thereof. Sales are 5 cent each, and each purchaser is entitled to punch one of said numbers from the board, which board is divided into 60 sections, and certain designated numbers entitle the purchasers thereof to designated articles of merchandise as prizes, and the last punch in each section entitles the purchaser thereof to 25 cents as a prize. Purchasers who do not qualify by punching one of the numbers designated as prize-winning numbers, or the last number in one of the sedions, receive nothing for their money. The said articles of merchandise vary in value, but each of said articles of merchandise is of greater value than the cost of a single punch frolll the said board, and the combined value ~f the articles of merchandise is much less than the sum produced by the sale of all the punches on the board. In the above-described manner respondent's merchandise is distributed to the purchasing public wholly by lot or chance. In some instances, customers of respondent buy post cards for sale and distribution in connection with the above-described punchboard, and when such post cards are used, each purchaser, for the sum of 5 cents receives one of said post cards, and is entitled to punch one number from said board.

H. G. PAYNE CO. 837 831 Findings Respondent has :furnished various punchboards, together with merchandise to be sold thereby, to his customers located in various States of the United States, but said punchboards involve the same principle of operation as the one hereinabove described, and vary only in detail. In so carrying on said business, respondent also has sold and distributed to his said customers, separately and apart from said merchandise, a device commonly known as a push card, which push card is operated on the same principle as the punchboard hereinabove described, and ·varies only in detail. Respondent has also :furnished and supplied his customers with said punchboards separately and apart from said merc·handise. :1\Iany dealers have used said devices purchased from respondent in making up lottery deals from their own assortments of merchandise, and said merchandise has been sold to the general public by means of said devices. · PAR. 3. The wholesale dealers and jobbers to whom respondent sells his merchandise, together with said punchboards, resell the same to retail dealers, who in turn sell and distribute said merchandise by means of said punchboards to members of the purchasing public in ncc0rdance with the aforesaid sales plans. Respondent has thus supplied to, and placed in the hands of, others, the means of conducting lotteries in the sale and distribution of his said merchandise, in accm·dance with the sales plans hereinabove described. Said sales plans have the capacity and tendency to induce, and have induced purchasers of respondent's merchandise to purchase the same in prefer- £-nce to like or similar merchandise offered for sale and sold by respondent's competitors who do not use such sales plans or methods in the sale and distribution of their said merchandise. PAR. 4. The sale and distribution of merchandise to the purchasing public in the manner hereinabove found involves a game of chance or the sale of a chance to procure articles ·of merchandise at prices lunch less than the normal retail prices thereof. The sale and distribution of merchandise in the manner hereinabove described is a practice. of the. sort which is contrary to an established public policy of the Government of the United States, and is in violation of the laws of several States o:f the United States. Among the respondent's competitors there are many persons, firms, and corporations who sell and distribute like or similar articles of merchandise in competition with respondent as hereinabove found, and said competitors are unwilling to offe.r for sale or sell their said merchandise by any hlethod or sales plan which involves a game of chance., gift enterprise, or lottery scheme, or any other method that is contrary to public Policy, and such competitors refrain therefrom, and as a result are Placed at a disadvantage in competition.

838 FEDERAL TRADE CO~L\IISSIO~ DECISIO~S Order 28F. T. C.

PAR. 5. Many members of the purchasing public were attracted by the element of chance involved in the respondent's said sales plan or method, and were thereby induced to purchase respondent's merchandise in preference to the like or similar merchandise of respondent's competitors who did not or do not use the same or equivalent methods. Decause of said preference on the part of members of the purchasing public, wholesale dealers and jobbers have been induced and persuaded to purchase respondent's said merchandise in preference to like or similar articles of merchandise sold or distributed by respondent's said competitors, and as a result respondent has sold substantial quantities of his said merchandise, and trade has been unfairly diverted to respondent from his said competitors. CO~CLUSION The aforesaid acts and practices of respondent as hereinabove found are nil 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, the answer of respondent, testimony, and other evidence taken before Robert S. Hall and 'Wil· Iiam C. Reeves, examiners of the Commission theretofore duly desig· nated by it, in support of the allegations of said complaint and in opposition thereto, brief filed by attorney for the Commission (respondent having filed no brief nor 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 i8 ordered, That the respondent, H. G. Payne, individually, and trading as H. G. Payne Co., or trading under any other name, his representatives, agents, and employees, directly or through any cor· porate or other device, in connection with the offering for sale, sale, and distribution of penknives, hunting knives, automatic razors, safety razors, watches, clocks, cigarette lighters, pipes, cigarette holders, flashlights, fountain pens, automatic pencils, cameras, opera glasses, lottery devices, or any other articles of merchandise in com· merce as commerce is defined in the Federal Trade Commission Act, do forthn-ith cease and desist from:

1. Supplying to or placing in the hands of others any merchandise together with punchboards, push or pull curds, or any other lottery H. G. PAYNE CO. 839 831 Order device, for the pt'lrpose of enabling such persons to dispose of or sell said merchandise by the use thereof.

2. Supplying to or placing in the hands of others punchboards, push or pull cards, or other lottery de,-ices, for the purpose of enabling such persons to dispose of or sell any merchandise by the use thereof.

3. Mailing, shipping, or transporting to his agents or to distributors or to members of the public punchboards, push or pull cards, or other lottery devices so prepared or printed as to enable said persons to sell or distribute any merchandise by the use thereof. 4. 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 the respondent shall, within 60 days after service upon him of this order, .file with the Commission a report in writing, setting forth in detail the manner and form in which he has complied with this order.

840 ' FEDERAL TRADE CO)Il\fiSSION DECISIONS Complaint 28F.T. C.