Universal Studios, Inc., and Harry I. Smith, Sander R. Smith, and Lorraine H. Smith

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IN THE MA TIER OF UNIVERSAL STUDIOS, INC., AND HARRY I. S~IITH, SANDER R. SMITH, AND LORRAINE H. SMITH COl\IPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 3684. Complaint, Jan. 6, 1939-Decision, Mar. 1, 1940 Where a corporation and two individuals, partners and former incorporators and shareholders thereof, and successors to business thereof, engaged, with studios in several cities, In mail order photography and in sale and distribution of photographs In commerce among the various States, and in causing their said product, when sold, to be transported from their finishing office and principal place of business to•purchasers in various other States, in substantial competition with others also engaged in sale of photographs In commerce as aforesaid;

In carrying on their aforesaid business under practice by which (1) they sent advance agent or crew manager to various towns in proposed itinerary to distribute to various local merchants, for distribution free of charge to latters' customers, free coupons giving such customers opportunity to acquire photographs of themselves for 59 cents or 69 cents, as case might be, upon presentation of coupon on specified date and place, at which time and place employee photographer and assistant photographed those presenting coupon and paying amount called for, (2) negatives were shipped by photographer to their said place of business and developed, and (3) proofs were mailed to employee-salesman or "proof-passer", who made appointments with customer for selection of proof desired and attempted to sell each as many photographs additional as possible, (4) coloring of photograph was done at said office and finishing studio, and (5) advance agent and ''proof-passer" salesman were compensated on commission basis wholly and in accordance with sittings and photographs sold- (a) Represented and described as "hand painted" or "paintings" colored or tinted photographs or photographic enlargements thus offered and called for, and applied thereto such terms as "portraits in oil colors," "oil portraits," "gold tone oil paintings," and "oil colored portraits," facts being products in question were not paintln&;::s or, In ordinarily accepted meaning, or likeness, image, or scene depleted with points and without photographic aid, nor portrait or picture of person drawn from life, nor likeness or oil painting done by hand with brushes in plastic oil colors on canvas or other material without such aid, but photographic enlargements of small negatives, tinted or colored hy cotton or paper swab and smearing of transparent oils over uncolored original; and (b) Represented that so-called "portraits" or "paintings" offered and described in coupons distributed as above set forth, had value of $5.00 and were offered for 59 cents or 69 cents, as case might be, together with certificate represented as being worth $4.41, and entitling holder to one of their regular "$5.00 Oil Portraits," facts being said tinted enlargements did not have any such value, were not reasonably worth more than 59 cents or 69 cents paid therefor by customer, products In question were usually and customarily sold for said amounts, and advertising coupons did not have value of $4.41 or any such 566 FEDERAL TRADE COMMISSION DEC'ISIONS Complaint 30F.T. C.

sum, but were solely device to induce customer to have photograph taken, and latter received no financial or other advantage by use of coupon, and ofter in question was not at reduced or special price, and coupon did not represent aforesaid or any other amount or special trade concession on part of local merchants;

With tendency and capacity to mislead and deceive members of purchasing public concerning nature, quality, and value of photographs sold and distributed by them, and with effect of thereby inducing substantial portion of sud1 public to purchase said products under erroneous and mistaken beliefs that same were high-grade oil portraits or paintings and that distinct financial advantage would be obtained by use of coupons distributed by them, and with result, as consequence of such erroneous and mistaken beliefs, that trade was diverted unfairly from their competitors engaged also in sale and distribution of tinted or colored photographs or photographic enlargements in commerce as aforesaid, and who do not employ and maintain sales methods and practices such us used by them, but truthfully represent H1eir products and quality thereof:

Held, That such acts and practice;;;, under the cireumstances set forth, were all to the prejudice and injury of the public and competitors, and constituted unfair methods of competition in commerce and unfair and deceptive acts and practices therein.

Before Mr. Arthur F. Thomas, trial examiner. Mr ....l!erle P. Lyon foi:" the Commission. lllr. Leo A. Reuther, of Breckenridge, Minn., foi:" respondents. 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 Universal Studios, Inc., a corporation, Harry I. Smith, Sanders R. Smith, and Lorraine H. Smith, copartners, trading as Universal Studios, hereinafter referred to as respondents, have violated the provisions of the said act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, the Commission hereby issues its complaint, stating its charges in that respect as follows: PARAGRAPH 1. Respondent, Universal Studios, Inc., is a corporation organized under the laws of the State of Minnesota, with its principal office and place of business located at 187 East Seventh Street, St. Paul, Minn. Respondents Harry I. Smith, Sanders R. Smith, and Lorraine H. Smith, are copartners trading under the name and stvle of Universal Studios, with their principal office and place of b~si­ ness located at 187 East Seventh Street, St. Paul, Minn. The above-named individual respondents were awl are officers and principal stockholders of the above-named corporate respondent, and in active charge and control of its activities. The false and deceptive UNIVERSAL STUDIOS', INC., ET AL. 567 565 Complaint sales practices and representations carried on by it as hereinafter alleged have been or are now also being carried on by the above-named individual respondents doing business as a partnership. PAR. 2. Said respondents are now and for some time last past have been engaged in the business of mail-order photography, and in the sale and distribution of photographs and photographic products in commerce among and between the various States of the United States and in the District of Columbia. Respondents sell said products through the medium of salesmen and agents appointed by them to customers located in States other than the State of Minnesota. Respondents cause said photographs and photographic products when sold to be transported from their place of business in St. Paul, Minn., to the respective purchasers thereof located in other States of the United States and in the District of Columbia. PAR. 3. In the course and conduct of their said business, respondents have been, and are now, engaged in direct and substantial competition with various corporations, partnerships, firms, and individuals likewise engaged in the sale in commerce, between and among the various States of the United States, of photographs and photographic products, and likewise with corporations, partnerships, firms, and individuals engaged in the sale of genuine original paintings and portraits, in commerce between and among the various States of the United States.

PAR. 4. A painting, in its ordinarily accepted meaning, is a likeness, image, or scene depicted with paints without the aid of photography. A portrait, in its ordinarily accepted meaning, is a picture of a person drawn from life, especially a picture or representation of a face; a likeness, particularly in oil. An oil painting is a painting done by hand with brushes in plastic oil colors on canvas, or other material, without the aid of photography.

PAR. 5. In the course and conduct of their said business, respondents cause agents and representatives employed by them to visit the homes of prospective customers in the cities, towns, and rural communities of the various States of the United States. These agents and representatives ordinarily travel in groups or "crews" from town to town, each crew consisting of four persons, one of whom ordinarily trawls in advance, making arrangements with local merchants to attract customers by the distribution to prospective customers of coupons or "certificates" as more partif'ularly hereinafter set forth. The advance agent is followed by a photographer and a helper who take the photographs, and later a fourth member of the crew calls on the customers and exhibits the proofs and takes orders for the piczooooam--41--voi.au----du 568 FEDERAL TRADE COMMIBSION DECISIONS Complaint 30F. T. C.

tures. The members of the crew work on a commission basis with the exception of the photographer, who is paid a salary. Certain of the coupons or "certificates" distributed by the advance agents read as follows:

Christmas Offer $5.00 Portrait In Oil Colors $5.lJO Value Value· For Only 59¢ Taken By Universal Studios, Inc.

187 East Seventh St., St. Paul, 1\finn.

The above Studios thru a special arrangement made with Uierchant) -------the bearer o! this certificate is entitled to a Beautiful 7x10 Gold Tone Oil Painting Unmounted For Four Proofs Shown 59¢Only All Work Guaranteed Only one certificate may be used by one person. This certificate must be signed by above met·chant. This Certificate Is Worth $-Hl 59¢. This coupon and 59¢ entitles you to 59¢ one o! our regular $5.00 Oil Portraits, to be taken in your town by one of our.

professional Protographers at Hotel.

Other certificates used by respondents read as follows: Big Portrait In Oil Colors Big Value For Only 69¢ Value Taken By Universal Studws, Inc.

187 East Seventh St., St. Paul, Minn.

The above Studios thru a special arrangement nlllde with (Merchant) -------the bearer o! this certificate Is entitled to a Beautiful 8x10 Oil Colored Portrait Unmounted For F(;Ur Proofs Shown 69¢Only All Work Guaranteed. Only one certificate may be used by one person. This certificate must be signed by above merchant. Signature of Merchant-------par. 6. Through the use of the statements and representations hereinabove set forth and other representations similar thereto not specifically set out herein, the respondents represent that they are making a special "Christmas Offer" or an offer at a reduced or special price whereby the prospective purchaser by use of a special coupon can obtain a picture variously represented as "an oil painting," "a portrait UNIVERSAL STUDIOS', INC., ET AL. 569 565 Complaint in oil colors," "a gold tone painting," or "an oil colored portrait" of the "value of $5.00" or "a big value" for the sum of 59¢ or 69¢. Therespondents further represent that said coupon distributed by them or under their direction is worth to the holder thereof the sum of $4.41 and represents a special trade concession on the part of certain local merchants.

PAR. 7. In truth and in fact the pictures sold and distributed by the respondents by the method hereinabove set forth were not and are not of a "$5.00 value" or a "big value" and $5.00 was not and is not the regular price charged therefor. The offer made by the respondents was not and is not a special Christmas offer or an offer at a reduced or special price, but instead 59¢ and 69¢ were and are the usual, ordinary and customary selling prices of such pictures in the respective 7x10 and 8xl0 sizes. Furthermore, the coupon or certificate was not and is not worth $4.41 or any other amount and does not represent a special trade concession on the part of certain local merchants. In truth and in fact the pictures sold by respondents through the sales methods hereinabove described were not and are not "oil paintings," "portraits in oil colors," "gold tone oil paintings," and "oil portraits," or "oil colored portraits," but were and are merely tinted or colored photographs. Such tinted or colored photographs are not portraits, paintings, oil portraits, or oil paintings in the commonly accepted uses of said terms.

PAR. 8. There are among the competitors of respondents corporations, partnerships, firms and individuals who are engaged in the sale of tinted or colored photographs or photographic enlargements in commerce between and among the various States of the United States and in the District of Columbia who do not employ and maintain sales methods and practices such as are used by the respondents, but who truthfully represent their products and honestly vend the same. There are also among the competitors of respondents corporations, partnerships, firms, and individuals engaged in the business or profession of painting genuine oil portraits and paintings who truthfully represent their products as being portraits or paintings.

PAR. 9. The use by the respondents of the aforesaid false and misleading representations and practices in the sale and offering for sale of purported oil portraits and paintings which are in fact merely tinted or colored photographs or photographic enlargements, has had, and now has, the tendency and capacity to deceive, and has deceived and now does deceive, the public concerning the nature, quality, and value of their products sold as hereinbefore described, and has thereby induced, and is inducing, the public to purchase said 570 FEDERAL TRADE COl\Il\IISSION DECISIONS Findings 30F. T. C.

products under the erroneous belief that the same were and are high grade quality oil portraits or paintings of exceptional merit ullll value. The use of the so-called "certificates," and the representations contained therein, have had, and have, the tendency and capacity to deceive, and have deceived the public into the erroneous belief that they have thus received a distinct financial advantage and will thereby be entitled to receive a valuable oil painting ot· portrait upon payment of a trifling sum of money, at a reduced or special price, or as a Christmas offer, or as a trade concession to eertain local merchants in the locality where the customers reside, wheu such is not the fact. The use by the respondents of the false and deceptive representations and trade practices hereinbefore set forth tends to, and does, unfairly divert trade from competitors, and thereby substantial injury has been, and is now being, done by respondents to competition in commerce between and among the various States of the United States and in the District of Columbia. PAR. 10. The aforesaid acts and practices employed by respondents as herein alleged are all to the prejudice of the public and of respondents' competitors and constitute unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the Federal Trade Commission Act, the Federal Trade Commission on the 6th day of January 1039, issued its complaint and thereafter caused the same to be served upon the respondents, Universal Studios, Inc., a corporation, and upon Harry I. Smith, Sandar R. Smith, and Lorraine H. Smith, copartners trading as Universal Studios, charging them with the use of unfair methods of competition in commerce and unfair and deceptive acts anrl practices in commerce in violation of the provisions of said act. After the issuance of said complaint and the filing of respondents' answer thereto, testimony and other evidence in support of the allegations of the said complaint were introduced by Merle P. Lyon, attorney for the Commission, before A. F. Thomas, a trial examiner of the Commission theretofore duly designated by it, and in opposition to the allegations of said complaint by Leo A. Reuther, attorney for the respondents, and said testimony and other evidence "·ere duly recorded and filed in the office of the Commission. Thereafter, the proceedings regularly came on for final hearing before the Commission on said complaint, the ~nswer thereto, testimony and otlwr evidence, and brief in support of the complaint, and the Commission UNIVERSAL STUDIOS', INC., ET AL. 571 565 Findings having duly considered the mutter, and being now fully advised in the premises finds that this proceeding is in the interest of the public, and makes this its finuings as to the facts and its conclusion drawn therefrom:

FINDINGS AS TO THE FACTS PARAGRAPH 1. Respondent, Harry I. Smith, has been a photographer since 1913, and in 1925 formed a partnership with respondent Sander R. Smith, his brother, and engaged in the business of photography under the trade name, Universal Studios. This partnership c·ontinued until January 1937 when respondent Universal Studios, Inc. was incorporated under the laws of the State of Minnesota, Harry I. Smith, Sander R. Smith and Lorraine H. Smith being the incorporators and shareholders thereof, with its office and principal place of business located at 187 East Seventh Street, St. Paul, l\Iinn. Lorraine H. Smith held only two shares of the capital stock of the corporation, and took no active part in the control and management of its business. Said corporation was dissolved on April 25, 1938, since which date the business has been conducted as a partnership consisting of Harry I. Smith and Sander R. Smith, under the trade name of Universal Studios, in which patinership Lorraine. H. Smith has no financial or other interest. Said respondents, with the exception of Lorraine H. Smith, were, during the times hereinbefore mentioned, engaged in the business of mail order photography, and in the sale and distribution of photographs in commerce among and between the various States of the United States. At the present time the respondents Harry I. Smith and Sander R. Smith, trading as Universal Studios, maintain Rtudios in the cities of Flint and Holland, in the State of Michigan, and in the city of Minneapolis, in the State of Minnesota, and also maintain their principal office and finishing studio in the city of St. Paul, in the State of Minnesota. Said respondents, and also the respondent Universal Studios, Inc., a corporation during the period of its corporate existence, now cause and have caused their photographs, 'vhen sold, to be transported from their finishing office and principal place of business in St. Paul, Minn., to purchasers thereof located in various other States of the United States. Respondents maintain and at aU times mentioned herein have maintained a course of trade in said photographs in commerce between and among the various States of the United States. Said respondents, during the times hereinbefore mentioned have been, and the respondents Harry I. Smith and Sander R. Smith are now, in substantial competition with other corporations, persons, firms, Findings 30F,T.C.

and partnerships also engaged in the sale of photographs in commerce between and among the various States of the United States. PAR. 2. In the course and conduct of their business, the respondents would send an advance agent or crew manager to various towns in a proposed itinerary, to distribute coupons free to various local merchants. Said coupons were redistributed by said merchants free of charge to their own customers, giving said customers an opportunity to acquire photographs of themselves represented variously as "portraits in oil colors," "oil portraits," "gold tone oil paintings," and "oil colored portraits" for only 59 cents or 69 cents, as the case might be, upon presentation of said coupon at a specified date and place. The said coupons were represented as having a value of "$4.41," and the "oil colored portraits" or "gold tone paintings" to be secured through the medium of said coupons were represented as having a "$5.00 Value". Upon the coupons was designated the place, usually some hotel in the town, and the date, usually two or three weeks in the future, at which time and place the holder of the coupon might present himself for a sitting. A photographer and assistant employed by said respondents on a salaried basis would engage a room at the specified time and place and take photographs of all persons presenting the coupon and paying the 59 cents or 69 cents called for by the coupon. The negatives taken at such sittings were then shipped by the photographer to the respondents' plac~ of business in St. Paul, Minnesota, where they were developed and proofs made. Said proofs were then mailed to another salesman employed by the respondents, called a "proof-passer," who made appointments with the customers to select the proof desired. After the proof was selected by the customer, the coloring of the photograph was done at the St. Paul office of the respondent by persons employed for that purpose. The "proof-passer" attempted to sell as many additional photographs as possible to each customer. The salesmen, both advance agent and proof-passer, worked wholly on a commission basis, and their compensation depended upon the number of sittings and the number of additional photographs sold.

The gross volume of business done by respondents during the year 1937 was about $150,000 and during the year 1938 was between $170,000 and $180,000. The business methods hereinbefore detailed were continued during the years 1937 and 1938, but most of the traveling crews were dismissed on or about December 1, 1938, and since that date said respondents only have one crew operating.

PAR. 3. In the course and conduct of their business, as described in paragraph 2, the respondents, Universal Studios, Inc., a corporation, and Harry I. Smith and Sander R. Smith, trading as Universal Studios UNIVERSAL STUDIOS, INC., ET AL. 573 565 Findings issued printed coupons which were distributed in the manner hereinbefore outlined. Such coupons read:

$5.00 CHRISTMAS OFFER $5.00 VALUE VALUE Portrait in Oll Colors For only 59¢ Taken by Universal Studios, Inc.

187 East Seventh Street, St. Paul, Minnesota.

The above Studios thru a special arrangement with (merchant) THE BEARER OF THIS CERTIFICATE IS ENTITLED TO A BEAUTIFUL 7 x 10 GOLD TONE OIL PAINTING Unmounted For Only 59¢. Four Proofs Shown. All Work Guaranteed. Only One Certificate 1\Iuy Be Used By One Person.

This certificate must be signed by above merchant. This Certificate Is worth $4.41.

59t. This Coupon and GV¢ entitles you to one of our regular $5.00 Oll Portraits to be taken in your town by one of our Professional Photographers at Hotel. PAR. 4. Through the use of the statements and representations hereinabove set forth, and other representations similar thereto not spe· cifically set out herein, the respondents represent that they are making an offer at a reduced or special price whereby the prospective purchaser, by use of a special coupon, can obtain a picture variously represented as "an oil painting," "a portrait in oil colors," "a gold tone painting," or "an oil colored portrait" of the "value of $5.00" for the sum of 59 cents or 69 cents. The respondents further represent that said coupons distributed by them and under their direction are worth to the holders thereof the sum of $4.41 and represent a special trade concession on the part of certain local merchants. PAR. 5. The Commission finds that pictures .sold by the respondents through the sales method hereinabove described were not and are riot "oil paintings," "portraits in oil colors," "gold tone oil paintings," or "oil colored portraits," but were and are merely tinted or colored photographs or photographic enlargements.

The photographs sold by the respondents in the manner hereinabove set forth are photographic enlargements of small negatives which are tinted or colored by the use of a cotton or paper swab and the smearing of transparent oils over the original uncolored photographic enlargement.

574 FEDERAL TRADE COl\11\IISSION DECISIONS Findings 30F. T. C.

A painting, in its ordinarily accepted meaning, is a likeness, image, or scene depicted with paint,s without the aid of photography. A portrait, in its ordinarily accepted meaning, is a picture of a person drawn from life, especially a picture or representation of a face; a likeness, particularly in oil. An oil painting is a painting done by hand with brushes in plastic oil colors on canvas, or other material! without the aid of photography.

PAR.· 6. The Commission further finds that the tinted or colored photographs sold and distributed by the respondents in the manner hereinabove set forth do not have a "$5.00 Value" and are not reasonably worth more than the 59 cents or 69 cents paid for them by the customer. The advertising coupon does not have a value of $4.41 or any similar amount since the regular price for which the re.spondents' colored photographs are usually and customarily sold is not more than the 59 cents or 69 cents paid for them. The advertising coupon is solely a device for inducing the customer to have his photograph taken and the customer does not receive any financial or other advantage by the use of said coupon. Said coupons are merely for the pur· pose of getting the customer into the studio to give respondents au opportunity to sell him additional photographs. The offer made by the respondents was not an offer at a reduced or special price and the coupon or certificate distributed by the respondents was not and is not worth $4.41 or any other amount, and doe.s not represent a special trade concession on the part of certain local merchants. PAR. 7. The use by the respondents of the aforesaid false and misleading representations and practices in the sale and offering for sale of their tinted and colored photograph,s has had and now has a tendency and capacity to mislead and deceive members of the pnrchasing public concerning the nature, quality and value of the photographs sold and distributed by the respondents and has thereby induced a substantial portion of the purchasing public to purchase said photographs under the erroneous and mistaken belief that the sam~ were and are high-grade oil portraits or paintings and that a distinct financial advantage would be obtained by the use of the coupon:; distributed by the respondents. As a result of such erroneous and mistaken belief trade has been diverted unfairly from re,spondents' competitors who are also engaged in the sale and distribution of tinted or colored photographs and photographic enlargements in commerce among and between the various States of the United States and in the District of Columbia and who do not employ and maintain sales methods and practices ,such as those used by the respondents but who truthfully represent their products and the quality thereof. UNIVERSAL STUDIOS', INC., ET AL. 575 565 Order CONCLUSION The aforesaid acts and practices of the respondents, with the exception of Lorraine H. Smith, as herein found are all to the prejudice and injury of the public and of respondents' competitors and constitute unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce within the intent and meaning of the Federal Tra.de Commission Act. ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Traue Commission upon the complaint of the Commission, the answer of the respondents, testimony and other evidence taken before A. F. Thomas, un examiner of the Commission theretofore duly designated by it, in support of the allegations of said complaint and in opposition thereto, and the brief of counsel for the Commission in support of the complaint, and the Commission having made its findings as to the facts and its conclusion that respondents, with the exception of Lorraine H. Smith, have violated the provisions of the Federal Trade Commission Act.

It is ordered, That the respondents, Universal Studios, Inc., a corporation, and its officers, and Harry I. Smith and Sander R. Smith, individually and as copartners trading as Universal Studios, or tradmg under any other name, and their respective salesmen, employees, nnd agents, directly or through any corporate or other device, in connection with "the offering for sale, sale and distribution in commerce, as commerce is defined in the Federal Trade Commission Act, of colored or tinted photographs or enlargements having a photographic base, do forthwith cease and desist from: 1. Representing directly or in any manner, that colored or tinted photographs or photographic enlargements are handpainted or are paintings.

2. Using the terms "gold tone oil painting," "oil portrait," "portrait in oil colors" or "oil colored portrait," either alone or in conjunction with any other terms or words in any way to designate, describe or refer to colored or tinted photographs or photographic enlargements or other pictures produced from a photographic base or impression.

3. Representing, as the customary or regular prices or values for such pictures, prices and values which are in fact fictitious and greatly in excess of the prices at which such pictures are customarily offered for sale and sold by respondents in the normal course of business.

Order 30F.T.C.

4. Representing that any articles of merchandise customarily and regularly sold in connection with the use of any purported certificate or other similar device have any value in excess of the actual money price required to be paid.

5. Representing that any coupon or similar device has any moneytary value in the purchase of an article which is customarily or regularly sold by the respondents with such coupon or similar device at the price required to be paid.

It is further ordered, That each of the said respondents, Universal Studios, Inc., a corporation, Harry I. Smith and Sander R. Smith, shall, within 60 days after service upon them of this order, file with the Commission a report in writing, setting forth in detail the manner and form in which they have complied with this order. It is further- ordered, That the case be closed as to the respondent Lorraine H. Smith without prejudice to the right of the Commission to reopen and resume prosecution thereof in the event developments so warrant.

STANDARD CONTAINER MANUFACTURERS ASSN., INO., ET AL. 577 Syllabus