Domesart Corporation

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IN THE MATIER OF DOMESART CORPORATION AND JOSEPH ZWEIGENTHAL AND WILLIAM M. SAFRIN, INDIVIDUALLY AND AS OFFICERS OF DOMESART CORPORATION COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 3620. Complaint, Oct. 3, 1938-Decision, Sept. 11, 1941 Where a corporation, and the two individuals who were its only officers and directors, and represented the ownership of its capital stock, engaged In competitive Interstate sale and distribution of cnndy through agents or operators whose names and addresses it obtained from mailing list brokers- 1\fnde use of sales method which Involved the mailing to prospective agents of catalogs describing its product, Its list of premiums, and its sales plan, Involving use of pull cards In sale and distribution of its said candy, under which the amount paid by the purchaser was dependent upon the number disclosed beneath the feminine name he selected from those displayed on the tabs, the purchaser pulling a certain tab received In addition to the candy the pen and pencil set described In the catalog, and the agent or operator had choice of certain premiums for his servicf's or alternative privilege of retaining $2 of the amount collected for said candles, customarily sold at retail for considerably les~ than the price listed; and l>laced in the hands of others thereby plans, methods, and devices which involved games of chance, ~tift enterprise, or lottery schemes for use In the sale and distribution of Its product, notwithstanding "Notice to Purchasers" In the catalog adl"lf;ing purchaser of privilege of buying a box of candy at the price Usted which, as far as appeared, was never shown to any purcha,ser of a pull ;

With the result that many persons were attracted by said sales method and the element of chance involved therein, and were thereby Induced to purchase Its merchandise in preference ·to that of Its competitors, includ- Ing those who do not use such or a similar method' and are unwilling so to do, and from whom, as a result, tra,de was thereby unfairly diverted to it: lield, That such acts and practices were all to the prejudice and injury of the public and competitors and contrary to an established ·public policy of the United States Government, and constituted unfair methods of competition in commerce.

Before Mr. Randolph Preston, trial examiner. Mr. D. 0. Daniel for the Commission.

Co:uplaint 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 Domesart Corpora- 1320 FEDERAL TRADE COl\TMISSION DECISIONS Complaint 33F. T.C.

tion, a corporation, and Joseph Zweigenthal and William M. Sa-frin, individually and as officers of Domesart Corporation, hereinaf~t referred to as respondents, have violated the provisions o£ the _sa~d act, and it appearing to the 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. Respondent, Domesart Corporation, is a corpora· tion organized and doing business under the laws of the State of New York, with its principal office and place o£ business located a,t 130 west Seventeenth Street, New York, N.Y. Individual respond· ents, Joseph Zweigenthal and William M. Safrin, are the sole stock· holders in, directors of, and president and secretary-treasurer respec· tively of corporate respondent, and have their offices at the said?e address as said corporation. Respondents Zweigenthal and Safr1n formulate, control, and direct the practices and policies of respond· ent Domesart Corporation. All of said respondents act together and in cooperation with each other in doing the acts and things here· inafter alleged. Respondents are now, and :for some time last past have been, engaged in the sale and distribution of candy in commer?e between and among the various States o:f the United States, and ~n the District of Columbia. Respondents cause, and have caused, said products, when sold, to be shipped or transported from their afore· said place of business in the State of New York to purchasers thereof located in the various other States of the United States, and in t~e District of Columbia at their respective points o:f location. There .18 now and has been for some time last past, a course o£ trade by saJ(l respondents in such merchandise in commerce between and among the various States of the United States, and in the District of Columbia. In the course and conduct of said business respondents are, and have been, in competition with individuals and with partner· ships and corporations engaged in the sale and distribution of similar or like articles of merchandise in commerce between and among the various States of the United States, and in the District of Columbi~· PAR. 2. In the course and conduct of their business as described Ill paragraph 1 hereof, respondents sell and distribute, and have sold. and distributed, said candy by means of a game of chance, gift enter· prise, or lottery scheme. Respondents distribute to purchasers and prospective purchasers certain advertising literature including:, among other things, a catalog. One of responuents'' assortments of candy consists of a number of boxes of candy and a fountain pen anu pencil set, which said fountain pen and pencil set is to be giv~n as a prize to the purchaser of one of said boxes of candy. S::t~d assortment of candy is sold and distributed to the purchasing public DOMESART CORP. ET AL. 1321 1319 Complaint in the following manner: On one page of said catalog is printed and set out a list of the boxes of candy and the prices thereof. On the opposite page is printed and set out a device commonly called a pull card. Said pull card consists of a number of tabs, under each of Which is concealed the name of a box of candy and the price thereof. The name of the box of candy and the price thereof are so concealed that purchasers and prospective purchasers of the tabs or chances are unable to ascertain which box of candy they are to receive or the price which they are to pay until after the tab is separated or removed from the card. When a purchaser has detached a tnb nnd learned what box of candy he is to receive, and the price thereof, his. name is written on the list opposite the named box of candy. The Purchaser securing a tab calling for a certain box of candy is entitled to receive, and is given without charge, said pen and pencil set. Some of said boxes of candy have purported and represented retail Values and regular prices greater than the prices designated for them, hut are distributed to the consumer for the price designated on the ~ab which he buys. The manner in which said pen and pencil set ls distributed and the apparent greater values and regular prices of some of said boxes of candy as compared to the price the prospective Purchaser would be required to pay in the event he secures one of said boxes of candy, induce the members of the purchasing public to purchase the tabs or chances in the hope that they will receive a box of candy and said pen and pencil set, or a box of candy of far greater Value than the designated price to be paid for same. The facts as to whether the purchaser of one of said pull card tabs receives a box of candy and said pen and pencil set or receives a box of candy Which has apparent greater value and regular price than the price designated for same on such tab, which of said boxes of candy a purchaser is to receive and the amount of money which a purchaser is required to pay are determined wholly by lot or chance. When the person or dealer operating the above-described card has· succeeded in selling all of the tabs or chances, collected the amounts called for, and remitted the sums to the respondents, the said respondents thereupon ship to said dealers the boxes of candy designated on said card, and the pen and pencil set to be given as a Prize, as aforesaid, together with a premium for the dealer as compensation for operating the pull card and selling the said merchandise. Said dealer delivers the boxes of candy to the purchasers of tabs from said pull card in accordance with the list filled out when the tabs were detached from the pull card. Respondents sell and distribute, and have sold and distributed~ '\>"arious assortments of boxes of candy and furnish, and have fur- 1322 FEDERAL TRADE COIV£MLSSION DECISIONS Complaint 33 F. T. C. nished, various pull cards for use in the sale and distribution thereof by means of a game of chance, gift enterprise, or lottery scheme. Respondents' sales plans or methods vary in detail, but the abovedescribed plan or method is illustrative of the principle involved. PAR. 3. The dealers to whom respondents furnish, and have furnished, the said pull cards use, and and have used, the same in pu;· chasing, selling, and distributing respondents' merchandise 111 u.accordance with the aforesaid sales plan. Respondents thus sup~ly to, and _place in the hands of, others the means of conducting lotter:es in the sale of their candy in accordance with the sales plan hereUl· :above set forth. The use by respondents of said methods in the sale Qf their candy and the sale of such candy by and through the use thereof, and by the aid of said methods, is a practice of the sort which is contrary to an established public policy of the Government of the United States, and in violation of criminal laws. PAR. 4. The sale of candy to the purchasing public in the manner above alleged involves a game of chance or the sale of a chance to procure an additional article of merchandise without cost or a bo:l of candy at a price much less than the apparent normal retail pri.ce thereof. Many persons, firms, and corporations who sell and dJS· tribute candy in competition with the respondents, as above alleged, are unwilling to adopt and use said methods or any other methods . involving a game of chance or the sale of a chance to win something by chance, or any method which is contrary to public policy, and such competitors refrain therefrom. Many persons are attracted by r.e· spondents' said methods and by the element of chance involved lll the sale of such candy in the manner above described, and are thereby induced to buy and sell respondents' candy in preference to candy offered for sale and sold by competitors of respondents who do not use the same or equivalent methods. The use of said method by re· spondents, because of said game of chance, has the tendency and capacity to, and does, unfairly divert trade and custom to the re· spondents from their said competitors who do not use the same or equivalent methods, and as a result thereof, substantial injury is being done, and has been done, by respondents to competition in commer~e between and among the various States of the United States, and Ill the District of Columbia.

PAR. 5. The aforesaid acts and practices of respondents, as herei~ alleged, are all to the prejudice of the public and of respondents competitors, and constitute unfair methods of competition in com· merce within the intent and· meaninrr of the Federal Trade Com· mission Act. "" DOMESART CORP. ET AL. 1323 1319 Findings REPORT' FINDINGS AS TO THE FACTS, AND ORDER :Pursuant to the provisions of the Federal Trade Commission Act, the Federal Trade Commission, on October 3, 1938, issued and thereafter served its complaint, in this proceeding upon the respondents, bomesart Corporation, a corporation, and Joseph Zweigenthal and \Villiam M. Safrin, individually and as officers of the respondent corporation, charging them with unfair methods of competition in commerce in violation of the provisions of said act. After the issuance of the complaint and filing of respondents' answer thereto, testimony and other evidence in support of the allegations of the complaint were introduced by attorneys for the Commission before duly appointed trial examiners of the Commission designated by it to serve in this proceeding, and said testimony and other evidence were duly recorded and filed in the office of the Commission. Thereafter, the proceedings regularly came on for final hearing before the Commission on the complaint, the answer thereto, the testimony and other evidence, the trial examiner's report thereon, and brief in support of the complaint; and the Commission, having ?uly considered the matter and being now fully advised in the prem- Ises, finds that this proceeding is in the interest of the public and Inakes this its findings as to the facts and its conclusion drawn therefrom.

FINDINGS AS TO THE ~ACTS PARAGRAPH 1. Respondent, Domesart Corporation, is a corporation organized in the year 1928 under the laws of the State of New York, With its principal place of business located at 130 West Seventeenth Street, in the city and State of New York. Respondents, Joseph Zweigenthal and William M. Safrin, are directors, and president and secretary and treasurer, respectively, of the corporate respondfnt, and share the offices of the corporate respondent. The indi- "V~dual respondents, since 1933, have formulated, controlled, and ~lrected the practices of the corpor::tte respondent. All of the cap- Ital stock of the respondent corporation is owned by William M. Safrin and Adele Zweige:hthal, the mother of respondent Joseph Zweigenthal. Respondents, William 1\f. Safrin and Joseph Zweigenthat, are the only officers and directors of respondent corporation. PAR. 2. Respondent, Domesart Corporation, since the year 1928, has been engaged in the sale and distribution of candy, and causes its Product, when sold, to be shipped from its principal place of business to purchasers thereof located in various States of the United States. FEDERAL TRADE CO:MMISSION DECISIONS1324 33 F. T. (). Findings PAR. 3. Respondent, Domesart Corporation, in the conduct o~ i~S business as set forth in paragraph 2 hereof, has been and now IS l1l competition with other corporations and with individuals and part· nerships engaged in the sale and distribution of candy in commerce between and among various States of the United States. PAR. 4. Respondent, Domesart Corporation, sells and distributesits candy through agents located in various States of the Uni~d States whose names and addresses it obtains through mailing-hst brokers. Catalogs describing its prod.uct, sales method including pull card, and its list of premiums, are mailed to prospective agents. PAR. 5. The pull cards included in the catalogs bear 16 seals or pull-tabs, each of which has a slit across the top to facilitate its removal from the card. On the face of each tab is printed a feminine name, and on the reverse thereof is a number which 1s not disclosed until the tab has been detached and which indicates the price to be paid to the agent by the person pulling the tab. The catalog contains a list of respondent's candies and a statement indicating the amounts to be paid1 therefor, which amounts correspona with the numbers appearing on the reverse of the tabs, one of these being for 10 cents, another for 39 cents, and the remaining 14 ranging from 4.4 to 49 cents. The purchaser pulling the 49-cent tab rcr.eives, in addition to the candy and without further charge; the pen and pencil set described in the catalog. The agent records the name of each customer and the number revealed by the detached puh-t.ab, which t~e customer retains as his receipt when he has paid the amount in~I­ cated thereon. After all the pulls have been sold, the agent remits the amount collected, $6.99, to respondent corporation, whereupon, the 16 boxes of candy described in the catalog, together with the pen and pencil set and the premiums selected. by the agent as compensation for his services are mailed to the agent. I£ he so desires, the agent may retain, in lieu of the premiums, $2 of the amount collecte~r and remit the balance, $4.99, to the respondent. The pen and pencil set given as a prize to the person pulling the tab beadng the figure 49 cents is sold at wholesale for 16 cents. The candies sold by respondent are customarily sold at retail for considerably less than the price listed.

PAR. 6. The sheet of pull tabs is pasted on the upper half of page 19 of the catalog, and immediately thereunder appears a notice which reads:

Notice to purchasers-On the back of each slip is printed the price of n bo:S: of candy. If after deliberation you decide that you want to buy the box o! candy, pay the llolder of this book the price shown on the sllp. If you don't want the box of candy you need not buy lt. DOMESART CORP. ET AL. 1325 1319 Order There is no testimony that any purchaser of a pull was ever shown this notice. One of the respondent's agents testified that every purchaser of a pull paid the price indicated on the tab. PAR. 7. Respondent, Domesart Corporation, by its sales methods hereinbefore described, has placed and now places in the hands of others, plans, methods, and devices which involve games of chance, ¥ift enterprises, or lottery schemes to be used in the distribution of Its merchandise, and by the use of such plans, methods, and devices such merchandise is distributed to the ultimate consumer wholly by lot or chance. . PAR, 8. Many persons have been and are attracted by the sales method employed by respondent corporation in the sale and distribution of its candy and by the element of chance involved therein, and have been thereby induced to purchase respondent's merchandise in preference to merchandise offered for sale by respondent's competitors who do not use the same or a similar method. PAR. 9. During all of the time herein mentioned, the corporate respondent has been in competition with other corporations and with individuals and partnerships engaged in the sale and distribution in commerce of candy similar to that sold by respondent in commerce between and among various States of the United States, who are unwilling to use and do not use, in the sale and distribution of their candy, any method involving a game of chance, gift enterprise, or lottery scheme, and as a result, trade has been unfairly diverted from such competitors to the corporate respondent. CONCLUSION The aforesaid acts and practices of the respondents are all to the prejudice and injury of the public and of respondents' competitors, are contrary to the established public policy of the Government of the United States of America, and constitute unfair methods of competition in commerce within the intent arid 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 respondents, the testimony, and other evidence introduced before duly appointed trial examiners of the Commission designated by. it to serve in this proceeding in support of the allegations of the complaint, the trial examiner's report thereon, and brief filed on behalf of the Commission; and the Commission having made its findings as to the facts 435526~2---vol.SS----84 Order 33 F. T. C.

and its conclusion that respondents have violated the provisions of the Federal Trade Commission Act.

It is ordered, That respondent Domesart Corporation, a corpora· tion, its officers, directors, representatives, agents, and employees, directly or through any corporate or other device, and respondents, Joseph Zweigenthal and William M. Safrin, individually and as officers of said respondent corporation, in connection with the off~r­ ing for sale, sale, and distribution of candy or any other merchand:se in commerce as commerce is defined in the Federal Trade Commis· sion Act, do forthwith cease and desist from: 1. Selling or distributing candy or any other merchandise _so packed or assembled that sales of such candy or other merchandise to the 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 others, push or pull cards, punchboards, or other iottery devices, either with assortments of candy or other merchandise or separately, which said push or pull cards, punchboards, or other lottery devices are to be used, or m~Y be used, in selling and distributing said candy or other merchandise to the public.

3. Selling or otherwise disposing of such merchandise by means of a game of chance, gift enterprise, or lottery scheme. It is further ordered, That the respondents 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 lU which they have complied with this order.

POSITIVE' PRODUCTS CO., ETC. 1327 Syllabus