Parke, Austin & Lipscomb, Inc

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IN THE MATIER OF PARKE, AUSTIN & LIPSCOMB, INC., SMITHSONIAN INSTI- TUTE ~ERIES, INC., AND OFFICEUS THEREOF COMPLAINT, FINDINGS, .AND ORDER IN REGARD TO THE .ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 2(1, 1914 Docket 44G5. Complaint, Ft.'b. 14, 1V.if-Decision, Feb. 3, 1942 Where a corporate publisher of books of an encyclopedic and historical nature, its wholly owned subsidiary, and three individuals who served both as general officers; following the entering into of a contract by said subsidiary with the Smithsonian Institution of Wasbiugton, D. C., whereby it agreed to engage in tbe publication, sale, and distribution exclusively of a 13-volume set of books compiled from data collecteu by said Institution in various scientific investigations, to be designated as "Smithsonian Scientific Series," manuscripts for which were to be furnisbeil by said Institution upon certain terms, including payment to it of a royalty of 10 percent of gross sales, the copyrights, plates, manuscripts, etc., to remain said subsiuiary's exclusive property- ( a) Represented, directly and through salesmen and agents, to whom they Issued a so-called "authorized presentation" setting out in detail the sales talk to be used for the purpose, that suth salesmen were representatives of the Smithsonian Institution, i11at the books in question were published and sold by the Institution, the entire profit derived from the sale thereof accruing to it, and that sales were restricted to a small number of selected individuals in each community; and (b) Caused said Smithsonian Institution to Issue to all purch:::sers of said "scientific series" a certificate under its ,seal and duly signed by its secretacy tertifying that the particular purchaser had been registered in its archives as a patron of series in question, in recognition of support of the Institution's program for the diffusion of knowledge among men; facsimlles of which certificates their salesmen exhibited to pro!?pective purchasers; · Notwithstanding the fact sale and distribufil>n of books in question was an ordinary commercial enterprise for profit; the small royalty aforesaid was the only benefit derived from sale thereof by said Institution, which did not publish said books, own or control the copyright, plates and other material thereof, or have any control over agents or salesmen, who were employees of aforesaid corporations ann individuals; and purebasers bad not been specially selected to act as patrons of said Institution, but the bool>s were sold indiscriminately to the general public; aud (c) Falsely and misleadingly l'Ppresented, through use In corporate name of said subsidiary of words "Smithsonian Institution," that such corporation was part of or connected with the Smithsonian; thereby also accPntuating other false and m!:;leadiug repi'ef'entatlons made ln the sale of their said books· With effect of misleading and deceiving a !'Uhstautla! portion of tbe purchasin~ public into the mistaken belief that they were purchasing said "Smithsonian Scientific Series" directly fmm the Smithsonian Institution of Washington. D. C., long identified In the public mind as a nonprofit organization devoted Syllabus 34F. T.C.

to scientific research and promotion of learning, which was to receive the entire profits therefrom, and that they had been specially selected to act as its patrons, as a result whereof they purchased substantial quantities of said publications, thereby diverting trade unfairly to said publishers from their competitors; and Where said parent corporation and officers, engaged also in the- publication and competitive interstate: sale and distribution of a set of books designated "World Epochs," under contract with the United States Flag .Association, whereby said set and other pamphlets and U.documents were to be sold in the name of and under the imprint of said association, which was to receive 'certain royalties, and later under agreement whereby said corporation was to act as the exclusive agent of said association for 10 percent of gross receipts, plus cosrs- ' (d) Represented, directly and indirectly, that said association was the publisher of such books, and received the entire profits derived from the sale thereof for use In combatting anti-Americanism and subversive organizations and influences in the United States, and that proposal to purchase was not an ordinary commercial transaction, but a patriotic appeal to assist In such efforts; letters of identification upon the stationery of said association and signed by its President General, which were issued to their salesmen In furtherance of such plan, reciting that they were accredited regional directors of the association, calling on a matter of very serious national importance; and aforesaid corporation and individuals also causing said association to Issue to all purchasers of "World Epocb8" a certificate of life membership in the association; and (e) Used, in endorsement of said publication, letters from United States Senators and other prominent men, which were in fact endorsements of the alms and purposes of the aforesaid association and written without knowledge that they were to be used as endorsements of any series of books; and continued such use even after objection bad been made by the writers; The facts being that sales of the books in question were made as an ordinary commercial enterprise for profit,· only benefit derived from which by said association was the royalty involved, plus, later, reimbursement for costs and minor additions; series in question was not published by such association, which did not own or control the copy~lghts ot· plates, or have any control over the salesmen, who were employees of corporation and individuals concerned, with whom rested control of such matters ns accounts and collections, and title to the publication, including copyrights, etc. ; purchasers were not specially selected, but the books were sold to the general public, and life memberships were indiscriminately issued to all purchasing in amounts of $25 or more; in some instances, such membersl!ips being issued by the association to persons designated by sellers for the purpose of establishing initial contact; '\'lth effect of causing purchasers of said "World Epochs" and other publications to believe that they were dealing directly with the United States Flag Association, organized under the laws of the District of Colmubla tn l!:l24 "in the interest of lofty Americanism, sturdy patriotism and good citl.zensblp which shall make stronger and more secure the foundations of this Republic," and other patriotic objectives; that said books were publb,;hed nud sold by said association ail above set forth· and that pro:;;pectlve PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 593 5!)1 Complaint purchasers bad been specially S('lected to be made life members of the association because of previous achievements or standing in the community. as a result whereof they purchased substantial quantities of publications in. question, whereuy trade was unfairly diverted to said publishers from their competitor"s:

Reid, That such acts and practices, as above set forth, were all to the prejudice and Injury of the public, and constituted unfair methods of competition in commerce, and unfair and deceptive acts and practices therein. Before Mr. W. W. Sheppard, trial examiner.

Mr. Jesse D. Kash for the Commission.

Marlow & Hines, of New York City, for respondents. COJIIPLAINT 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 Parke, Austin & Lipscomb, Inc., a corporation, Smithsonian Institution Series, Inc.~ a corporation, and Alfred Monett, Robert A. Hogan, Jr., and Joseph M. McAndrews, indivldually and as officers of said corporations, hereinafter referred to as respondents, have violated the provisions of said 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. Respondents, Parke, Austin & Lipscomb, Inc., and Smithsonian Institution Series, Inc., are corporations organized, existing, and doing business, under and by virtue of the laws of the State of New York, with their offices and principal places of business located at 500 Fifth Avenue, New York, N.Y. Respondent, Smithsonian Institution Series, Inc., was organized by. and is a wholly owned subsidiary of, respondent Parke, Austin & Lipscomb, Inc., and its policies, practices, and methods are formulated, controlled, directed, and dominated by Parke, Austin & Lipscomb, Inc. Respondent, Alfred Monett, is an individual, and is president of both of tha corporate respo~dents, with his office and principal place of business at 500 Fifth A venue, New York, N. Y. Respondent, Robert A. Hogan, Jr., is an individual and is treasurer ' of respondent• Parke, Austin & Lipscomb, Inc., and secretary of :respondent, Smithsonian Institution Series, Inc., with his office and principal place of business at 500 Fifth Avenue, New York, N. Y. Respondent, Jos<'ph M.l\lcAndrews, is an individual and is secretary of respondent, Parke, Austin & Lipscomb, Inc., with his office and principal place of business at 500 Fifth Avenue, New York, N.Y. 460~oom--42--vol.34----SS 594 FEDERAL TRADE CO~IMISSION DECISIONS Complaint 34F.T.C.

The individual respondents formulate, control, uirect, and dominate the policies, practices, and methous of the corporate respondents. PAR. 2. The respondents are now, and for more than 2' years last past, have been, engaged in the publication and in the sale and distribution of books, including, among others, a 12-volume set of books of an encyclopedic nature designated "Smithsonian Scientific Series." In the course and conduct of their business the respondents cause their books, when sold, to be transported from their place of business in the ~tate of New York to the purchasers thereof located in various other States of the United States and in the District of Columbia. Respondwts maintain, and at all times mentioned herein have maintained, a course of trade in their said products in commerce among and between the various States of the United States and in the District of Columbia. PAR, 3. In the course and conduct of their business as aforesaid the respondents are now, and at all times mentioned herein have been, in substantial competition with other corporations and individuals, and with firms and partnerships, engaged in the sale and distribution of books of an encyclopedic nature in commerce among and between the various States of the United States and in the District of Columbia. PAR. 4. On or about December 14, 1926, the respondent, Smithsonian Institution Series, Inc., entered into an agreement or contract with the Smithsonian Institution of 'Vashington, D. C., under the terms of which the said Smithsonian Institution furnished to respondent Smithsonian Institution Series, Inc., certain manuscripts and illustrations, which material was placed in book form by respondent Smithsonian Institution Series, Inc., and sold under said designation of "Smithsonian Scientific Series." Saia agreement further provided that the Smithsonian Institution should receive a royalty of 10 percent on all gross sales of said books. ' P.AR. 5. In the course and conduct of their said business, and for the purpose of promoting the sale of said books, the respondents have made, and are making, many false and misleading statements and representations to prospective purchasers of such books, such statements and representations being made through respondents' salesmen and representatives and by other means. Among and typical of said statements and representations are the following: That respondents' salesmen and representatives are in the employ of, or connected with, the Smithsonian Institution of 'Vashington, D1 C.; that said books are published and sold by the Smithsonian Institution; that the entire profit derived from the sale of said books accrues to the Smithsonian Institution; that the sale of said books is restricted to a comparatively small number of selected individuals in each community.

PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 595 501 Complaint PAR. 6. The foregoing statements and representations so mn.de by the respondents in connection with the sale of their books are grossly €Xaggeratecl, false and misleading. In truth and in fact, respondents' salesmen and representatives are not in the employ of, nor have they any connection with, the Smithsonian Institution. Said books are not published or sold by the Smithsonian Institution but are sold by the respondents as an ordinary commercial enterprise. The Smithsonian Institution does not receive the entire profit derived from the sale of said books, but in fact receives only the royalty of 10 percept hereinabove mentioned. The sale of said books is not restricted to any group 6r number of persons, but said books are sold indiscriminately to the general public.

The Smithsonian Institution of Washington, D. C., is now, and for many years last past has been, identified in the public mind as a nonprofit organization devoted to scientific research and the promotion of learning. The use by the corporate respondent, Smithsonian Institution Series, Irtc., of the words "Smithsonian Institution" as a part of its corporate name constitutes within itself a false and misleading representation that said respondent is a part of, or is connected 'with, the Smithsonian Institution of 'V ashington, D. C. The use of said name by said :tespondent serves also to accentuate the other false and misleading representations made by the respondents in the sale of their said bo<)ks.

P .AR. 7. Another ptiblication sold and distributed by the respondent, Parke, Austin & Lipscomb, Inc., and the individual respondents, in commerce as aforesaid, is a set of books of an encyclopedic nature <lcsignated "'Vorld Epochs." On or about August 27, 1938, said corporate respondent entered into an agreement or contract with the United States Flag Association of Wasltington, D. C., under which said Association ngr<~ed to cooperate with said corporate respondent in the sale of said books to the extent of issuing bulletins and letters recommending said books. In return for its cooperation in the sale of said books, said Association was to receive a royalty of 5 percent on gross collections em all units of books sold for $79.50 or less and 10 percent on gross collections on units sold for more than $79.50. The United States Flag Association is a patriotic nonprofit organization which is engaged in conducting an educational program among the adult citizenry and school children of the United States for the purpose of cultivating and stimulating patriotism and national spirit. PAR. 8. In the course and conduct of their business as aforesaid, and for the purpose of promoting the sale of said books, said respondents have made many false and misleading statements and representations to prospective purchasers, such statements and representations FEDERAL TRADE COMl\!ISSION DECISIOXS 596 Complaint 34F. T. C.

being made through salesmen and representatives and by other means. Among and typical o£ said statements and representations are the following:

That respondents' salesmen and representatives are representatives of the United States Flag Association; that the United States Flag· Association receives the entire profit derived from the sale o£ said books, and that one purchasing such books is in effect making a contribution to said association which will be used by the association in combatting anti-American and subversive organizations and influences in the United States; that said association maintains a · lobby in the city of ·washington for the purpose of combatting anti- American and subversive organizations and influences, and that the profits derived from the sale of said books will be used by the association to defray the expense of such lobbying activities. The purchase of said books is presented by the respondents to the prospective purchaser not as an ordinary commercial transactionr but is presented under the guise of an appeal to the prospective purchaser, on grqunds of patriotism, to assist in the efforts of the. association to combat anti-American and subversive organizations and influences in the United States.

PAn. 9. The foregoing representations are grossly exaggerated,. false,. and misleading. In truth and in fact, respondents' salesmen and representatives are not representatives of the United States Flag Association, but are merely salesmen of the respondents. The United States Flag Association does not receive the entire profit derived from the sale of said books, nor does the purchase of said books constitute a contribution to said association. Said books are sold by the respondents as an ordinary commercial enterprise for profit, and the only benefit derived by 'he United States Flag Association from the sale of such books is the small royalty hereinabove mentioned. Said association does not conduct any lobbying activities. A further practice on the part of the respondents in promotingthe sale of said books is the wrongful· use of letters from United States Senators nnd others prominent in American public life endorsing the aims and purposes of the United States Flag Association. Such letters are represented by the respondents as endorsements of said books, when in truth and in fact such letters have no reference to said books but relate only to the general aims and purposes of said association.

PAR. 10. The use by the respondents of said false nnd misleading statements and representations in connection with the sale of their products has the tendency and capacity to, and does, mislead and o<'c~i,·e a substantial portion of the purcha3ing public into the er- PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 597 Findings roneous and mistaken belief that such statements and representations are true, and into the purchase of substantial quantities of respondents' products as a result of such belie£. Thereby trade has been diverted unfairly to the respondents from their competitors, many of whom do not make false or misleading representations with respect to their products, and in consequence substantial injury has been done, and is now being done, by the respondents to competition in commerce among and between the various States of the United States and in the District of Columbia. · PAR. 11. The aforesaid acts and practices of the respondents as herein alleged 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 Trade Commission Act.

REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the provisions of the Federal Trade Commission Act, the Federal Trade Commission, on February 14 A. D. 1941, issued and subsequently served its complaint upon the respondents, Parke, Austin & Lipscomb, Inc., a corporation; Smithsonian Institution Series, Inc., a corporation; Alfred Monett, individually :md as an officer of Parke, Austin & Lipscomb, Inc., and Smithsonian Institu· tion Series, Inc.; Robert A. Hogan, Jr., individually and as an officer of Parke, Austin & Lipscomb, Inc., and Smithsonian Institution Series, Inc.; and Joseph M. McAndre;vs, individually and as an officer of Parke, Austin & Lipscomb, Inc., charging them with the use of unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce in violation of the provisions of said net. After the issuance of said complaint and the filing of respond· ents' answer thereto, testimony and other evidence in support of said complaint were introduced by .Jesse D. Kash, attorney for the Com· mission, and in opposition to the allegations of the complaint by Ernest W. Marlow and Richard Lincoln, attorneys for the respond· ents, before '\V. '\V. Sheppard, a trial examiner of the Commission therefore duly designated by it, nnd said testimony and other evidence were duly recorded and filed in the office of the Commission. There. after, this proceeding rE.>gularly came on for final hearing before the Commission upon said complaint, answer thereto, tE>stimony and other evide.>nce, report of the trial examiner upon the evidence and excep· tions filed thereto, and briefs in support of the complaint and in opposition thereto· (oral argument not having been requested); and Findiugs 3-! F. 'I.'. C. the Commission having duly considered the matter and being now fully advised 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. Respondents, Parke, Austin & Lipscomb, Inc., and Smithsonian Institution Series, Inc., are corporations organizedt existing, and doing business under and by virtue of the laws of the State of New Yo.rk, with their offices and principal places of business located at 500 Fifth Avenue, New York, N.Y. Respondent Smithsonian Institution Series, Inc., was organized by, and is a wholly owned subsidiary of, Parke, Austin & Lipscomb, Inc., and its policiest practices, and methods are formulated, controlled, directed, and dominated by Parke, Austin & Lipscomb, Inc.

Respondent, Alfred Monett, is an individual and is president of both of the corporate respondents, with his office and principal place of business at 500 Fifth A venue, N e'w York, N. Y. Respondent, Hobert A. Hogan, Jr., is an individual and is treasurer of both of the corporate respondents, with his office and principal place of business at 500 Fifth Avenue, New York, N.Y. Respondent, Joseph M. McAndrews, is an individual and is secretary of both of the corporate respondents, with his office and principal place of business at 500 Fjfth Avenue, New York, N. Y. 'fhe individual respondents, as officers of said corporate respondents, formulate, control, direct, and dominate the policies, practices1 and methods of said corporate respondents.

PAn. 2. Respondents are now, and for more than 3 years last past have been engaged in the publication and in the sale and distribution of various books of an encyclopedic or historical nature, including1 among others, a 13-volume set of books designated "Smithsonian Scientific Series." In addition, the corporate respondent, Parket Austin & Lipscomb, Inc., and the individual respondents are also engaged in the publication and in the sale and distribution of a set of books known as "'Vorld Epochs." In the course and conduct of their bnsine~s. the said respondents cause said books, when sold, to be transported from their place of business in the State of New York to purchasers thereof located in various other States of the United States and in the District of Columbia. Respondents maintain, and at all times mentioned herein have maintained, n course of trade in their said products in commerce among and between the various States of the United States and in the District of Columbia. PARK,E, AUSTIN & LIPSCOMB, INC., ET AL. 599 Findings PAR. 3. In the. course and conduct of their business as aforesaid, the respondents are now, and at all times mentioned herein have been, in substantial competition with other corporations and individuals and with firms and partnerships engaged in the sale and distribution of books of an encyclopedic or historical nature in commerce among(l' and between the various States of the United States and in "' .the District of Columbia. par. 4. In the early part of 1926 negotiations were entered into between the respondent, Parke, Austin & Lipscomb, Inc., and the Smithsonian Institution of 'Vashington, D. C., ·for the purpose of having said respondent engage in the publication, sale, and distribution of a set of books compiled from data collected by the Smithsonian Institution in various scientific investigations. For the purpose of keeping the sale and distribution of this particular set of books separate and apart from the other publications sold and distributed by the respondent, Parke, Austin & Lipscomb, Inc., a new corporation was formed, known as Smithsonian Institution Series, Inc., which was, and is, a wholly owned subsidiary of the respondent, Parke, Austin & Lipscomb, Inc.

PAR. 5. Immediately after its organization, the respondent, Smitht>onian Institution Series, Inc., on December 14, 1926, entered into a contract with the Smithsonian Institution of 'Vashington, D. C., whereby said respondt'nt agreecl to engage in the publication, sale, and distribution, exclusively, of a set of books to be designated as "Smithsonian Scientific Series," manuscripts for which to be furnished by the Smith::;onian Institution, subject to reimbursement for cost of preparation of such manuscripts of not to exceed $2,500 per volume. This contract further provided for the payment of a royalty of 10 percent of gross sales. Said respondent further agreed to raise a fund of $250,000 to be devoted exclusively to the financing, publication, and sale of said books, which were to be copyrighted in the name of the respondent, Sn1ithsouian Scientific Series, Inc., all copyrights, plates, manuscripts, etc., to remain the exclusive property of said respondent. The funds rNuired by the contract were depositt'd and the respondent proceeded with the publication, sale, and di>itrilmtion o:f said. books, exclusively. These books were sold at various prices ranging from $G!>.50 to $250 per set, depending upon binding and type of paper used.

PAn. (i. In the course und conuuet of their said business and for the purpo!ie of promoting the sale of said books, the corporate respolldent, Smithsonian Institution Series, Inc., and the individual l'e!ipondents, directly and through salesmen and agents, have made many false and misleading statements and representations to pro- 600 FEDERAL TRADE COl\IMISSION DECISIONS • Findings 34F.T.C.

$pective purchasers to the effect that respondents' salesmen and representatives were in the employ of, or c01mected with, tha Smithsonian Institution of Washington, D. C.; that said books were published and sold by the Smithsonian Institution; that the entire profit derived from the sale of said books accrued to the Smithsonian Institution; and that the sale of said books was restricted to a comparatively small number of selected individuals in each community. In furtherance of this form of misrepresentation, the said respondents prepared and issued to their various salesmen and repre~ sentatives a so-called "Authorized Presentation," which set out in detail the method of approach and sales talk to be used in attempting to close a sale of these books with a prospective purchaser. This sales talk is so prepared and designed to lead prospective purchasers to believe that the salesman is a representative of the Smithsonian Institution of ·washington, D. C.; that the entire profit derived from the sale of the books accrues to the Smithsonian Institution; and that they have been specially selected to be designated as patrons of the Smithsonian Institution. In furtherance of this plan, the said respondents cause the Smithsonian Institution of ·washington, D. C., to issue to all purchasers of the said Smithsonian Scientific Series, a certificate under the seal of the Smithsonian Institution of ·washington, D. C., signed by its secretary, certifying such purchaser as being registered in the archives of the Institution as a patron of the Smithsonian Scientific Series in recognition of support of the Institution's program for the diffusion of knowledge among men, fac- £·imiles of which certificate are carried by the salesmen and exhibited to prospective purchasers.

PAR. 7. The acts and practices of the respondents as hereinbefore described are designed to and have the effect of causing purchasers and prospective purchasers to believe that they are purchasing said books designated as Smithsonian Scientific Series directly from the Smithsonian Institution of ·washington, D. C.; that said books are published and sold by the Smithsonian Institution of ·washington, D. C.; that the entire profits derived from the sale of said books accrue to the Smithsonian Instftution of '\Vashington, D. C.; and that they hav~ been specially selected to act as patrons of the Smith· sonian Institution of Washington, D. C. - PAR. 8. The sale and distribution by the respondents of the books designated as Smithsonian Scientific Series constitute an ordinary commercial enterprise for profit, and the only benefit derived by the Smithsonian Institution of '\Vashington, D. C., from the sale of said books is the small royalty hereinabove described. The books are not published by the Smithsonian Institution of 'Vashington, PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 601 5~ll Findings D. C., nor are the copyrights, plates, and other material owned or controlled by the Smithsonian Institution. The Smithsonian Institution of Washington, D. C., does not select, nor does it have any control over, the agents or salesmen who sell said Smithsonian Scientific Series, but, instead, such agents and salesmen are employees of the respondents and subject to the ·supervision and control of the respondents. Purchasers and prospective purchasers have not been specially selected to act as patrons of the Smithsonian Institution of Washington, D. C., but, instead, said books are sold indiscrimi- Iiately to the general public. The use of the so-called "patron certificate" is designed to and has the effect of furthering the representations that the prospective purchaser has been specially selected because of his standing in the community and that the prospective .Purchaser is dealing with the Smithsonian Institution on n. basis different from an ordinary commercial transaction. PAR. 9. The Smithsonian Institution of 'Vashington, D. C., is now, and for many years last past has been, identified in the public 111ind as a nonprofit organization devoted to sciC\t<tific research and the pro- :motion of learning. The use by the corporate responaent Smithsonian Institution Series, Inc., of the words "Smithsonian Institution" as part of its corporate name, constitutes, within itself, a fabe and misleading representation that ,said respondent is part of, or is connected with, the Smithsonian Institution of 'Vashington, D. C. The use of said name by said respondent serves also to accer.tuate the other false and :misleading representations made by the respondents in tha sale of their said books.· . PAR. 10. In addition to the acts and practices hereinabove described, the corporate respondent, Parke, Austin .& Lipscomb, Inc., and the individual respondents also engage in the publication and in the sale ' and distribution in commerce of a set of books of an encyclopedic or historical nature designated "World Epochs." On or about August 27, ~9:J8, the corporate rc::;pondent, Parke, Austin & Lipscomb, Inc., entered Into a contract with the United States Flag Association whereby said corporate respondent agreed to publish, sell, and distribute a ,:;et of books to be designated ""\Vorld Epochs," together with other pamphlets and documents prepared by the United ~states Fle.g Association or otherwise, which sales were to be made in the name of, and under the imprint of, the United States Flag Association, with the understanding that the United States Flag Association be paid a royalty of 5 percent on gross collections on sales up to $i9.50 and 10 percent on gross Collections on sales in excess of $79.50. Subs<'quent thereto, on No- "tember 18, 1940, a new agreement was entered into between th'3 said corporate respondent and the United States Flag Association whereby 602 FEDERAL TRADE COMM:ISSION DECISIONS Findings 3-l F.T. C. the corporate respondent was to &,ct as the exdush·e arrent of the United States Flag Association on a commission basis of 10 percent on gross receipts, plus reimbursement for costs. Prior to entering into the above-mentioned cm~tracts with the United States Flag Association, the said corporate r~spondents had sold and distributed said seri~s of books known as ""\Vorld Epochs" under an u,rrangemcnt with th3 Vetcrans of Foreign ·wars National Home, unllPr which arrangem0nt a royalty was paid to the Veterans of Foreigr.. \Vars National Hom9 for its endorsement of this work.

PAn. 11. The United States Flag Association was organized as a corporation under and by vjrtu~ of the laws of the District of Columbia on April10, 1924, for the object and purpos~, as expressed in its charter, of "in the interest of lofty Americanism, sturdy patriotism, and good citizenship, which shall make stronger and more secure the foundations of this republic established on the principles of freedom, equality, justice, and humanity, to bring into proper considerution and appreciative regard by th~ citizenry of the republic the flag of the U11ited States as the visible, symbolic representati,,n of our national soverdgnty, ideals, traditions, and institutions.'" P A.R. 12. For the purpose of inducing the purchase of said set of books designated "\Vorld Epochs" and other pamphlets and publications sold under their agreement with the United States Flag As;;ociation, the respon.:lents represented to purchasers aml prospective purchasers directly and mdirectly, that the United States Flag Association was the publisher of !?aiel set of books known as "\Vorld Epochs"; that it received the entire profit derived from the sale of said books, which proceeds were to be used by the AssociatiDEin combcting anti-Ameri· canism and subversive organizations and influences in the United States; and that th~ proposal to purchase said books was not qased upon an ordinary commercial transaction but was an appeal on the grounds of patriotiem to assiet in the efforts of the Association to combat anti-Americanism and subversive organizations and influencea · in the United States. In furtherance ,')f this plan, respondents' salesmen were issued letters of identification upon the stationery of the United States Flag Association, signed by the President General of the Association, reciting that such salesmen wue accredited Regional Directors of the United States Flag Association ancl that the purp9se of their call was in connection with a mati er of very serious national importance. The re.~pondrnts also caused the United States Fh1g A~so­ ciation to issue to a.ll purchasers of said "'V urld E1x•chs" a certificate d life membership in the United States Fbg Association. PAR.13. In addition.. to the acts and practices hereinbefore described, the respondents nsefl as letters of endorsement of said publication PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 603 Findings "World Epochs," letters from United States Senators and others prominent in American Life, which were, in fact, endorsements of the aims and purposes of the United States Flag Association and which were written without knowledge that such letters were to be used a:-> endorsements of any se!"ies of books. In fact, i.he respondents conti11Ued to use a number of such letters even after objection bad been m::tde by the writers of such letters, to their use as an endorsement of the books being sold.

PAR. 14. The acts :md practices of the respondent~ as hereinbefore described were designed to and had the effect of causing purchasers Hnd prospective purchasers to believe that they were purchasing said books designated as ''World Epochs" and other publications directly from the United States Flag Association; that said books were published and sold by the United States Flag Association; that the entire profits derived from the sale of said books accrued to the United States Flag Associatic:ri.; that all funds obtained fror.1 the sale of :.mch books over and above actual publication expense were to be used in <'.ombating anti-Americanism and subversive organizations and inftumces in the United ::Jtates; and that said prospective purchasers had been specially selected, because of previou,;; achievements or standing in the community, to be made life members of the United States Flag Association.

PAn. 15. The entire plan of operation in connection with the sale o£ said set of books designated ""\Vorld Epochs," and other pamphlets and publications connected therewith, was false and misleading. Prior to November 18, 194.0, said books were sold by the respondents as an ordinary commercial enterprise for profit, and the only benefit derived by the United States Flag Association from the sale of such books was the small royalty hereinabo"Ve described. The series of books ""\Vorld Epochs" was not published by the United States Flag ~\.association, nor were the copyrights, plates, and other material owned or controlled by the United States Flag Association. The United States Flag Association did not select, nor did it have any control over, the agents or salesmen who sold said ""\World Epochs," but, instead, such agents and salesmen were employees of the respondents and subject to the supervision and control of the respondents. The designation of respondents' s~lesmen as "Regional Directors," onr the signature of the president general o£ the United States Flag Associati::.m, was designed to, and did, mislead prospective purchasers into Lelie,·ing that they \Yet·e dealing directly with the United States Flag Association on a patriotic basis which did not involve a commercial enterprise for profit. The contract of November 18, 1940, while ostensibly shifting the respondent, Parke, Austin & Lipscomb, Inc., from publisher and owner 604 FEDERAL TRADE CO.\IMISSION DECISIONS Findings 34F.T.C.

to exclusive agent, did not materially change the status of the parties or remove the sale of these books from being an ordinary commercial enterprise for profit. The supervision and control o£ agents and salesmen continued in the respondents, subject only to the approval of the United States Flag Association. Complete control over accounts and their collection remained in the respondents, subject only to a~count­ ing as provided in the contract. The preparation and publication of the books sold under this arrangement continued to be handled by the respondents, subject to reimbursement from gross collections, and title to the publication "'\Vorld Epochs," including copyrights, plates, etc., remained in the respondents and was not transferred to the U nitcd States Flag Association. Furthermore, the contract of November 18, 1940, provides for payment by tl~e respondents to the United States Flag Association of a guaranteed percentage of gross sales, which percentages are the same as the royalties provided for in the original contract, with minor additions.

Purchasers and prospective purchasers have not been specially selected· to be recipients of the books sold and distributed by the respondents under their contract with the United States Flag Association, but, instead, said books are sold indiscriminately to the general public. The use of the life memb~rship certificates is designed to and has the effect of furthering the representation that the prospective purchaser has been specially selected because of his standing in the community and that said prospective purchaser is dealing with the United States Flag Association on a basis different from an ordinary commercial transaction, particularly since such life memberships were indiscriminately issued to all persons purchasing such publications in amounts of $25 or more. In some instances life memberships in the so-called "Legion of the Flag" have been issued by the United States Flag Association to persons designated by the respondents, deliveries of which certificates were made by the respondents or their representatives for the purpose of establishing initial contact and accomplishing the sale of books by the respondents. PAR. 16. The use by the respondents of the foregoing acts and practices in connection with the sale and offering for sale of the series of books designated "Srpithsonian Scientific Series,'' hns n tendency and capacity to, and did, mislead and deceive a substantial portion of the purchasing public into the erron~:>ous and mistak~:>n belief that they are purchasing said books designated as "Smithsonian Scientific Series" directly from the Smithsonian Institution of Washington, D. C., that the entire profits derived from the sale of said books accrue to the Smithsonian Institution of '\Vashington, D. C., and that they have been specially selected to act as patrons of the Smithsonian Institution PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 605 Order of Washington, D. C.; and the use by the respondents of the for.egoing acts and practices in connection with the sale and offering for sale of the series of books designated "World Epochs," and other pamphlets, under contracts with the United States Flag Association has had a tendency and capacity to, and d.id, mislead and deceive a substantial portion of the purchasing public into the erroneous and mistaken belief that they were dealing directly with the United States Flag Association, that all the profits derived from the sale of such books would be used to :further the purposes of the United States Flag Association and to combat _anti-Americanism and subversive organizations and influences in the United States, and that such transactions did not involve any commercial enterprise for profit. As a result" of such erroneous and mistaken beliefs, a substantial portion of the purchasing public has purchased substantial quantities of respondents' publications designated "Smithsonian Scientific Series" and "'Vorld Epochs," and other publications, thereby diverting trade unfairly to the respondents from their competitors who are engaged in competition in commerce among and between the various States of the United States and in the District of Columbia.

CONCLUSION The aforesaid acts and practices of the,respondents, 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 Trade Commission Act. 1 ORDER TO CEASE AND DESIST '!'his procet~ing having been heard by the Federal Trade Commission upon the complaint of the Commission, the answer of the respondents, testimony, and other evidence taken before "\V. ·w. Sheppard, a trial examiner of the Commission theretofore duly designated by it, in support of the allegations of said complaint n.nd in opposition thereto, report of the trial examiner upon the evidence and exceptions filed thereto, and briefs filed in support of the complaint and in opposition thereto; and the Commission having made its findings as to the facts and its conclusion that said respondents have violated the provisions of the Federal Trade Commission Act. It is ordered, That the respondents, Parke, Austin & Lipscomb, Inc., a corporation, and Smithsonian Institution Series, Inc., a corporation, and their respective officers, agents, representati,·es, and employees, and respondents Alfred Monett, an individual, Robert A. Hogan, Jr., FEDERAL TRADE COMMISSION DECISIONS. 606 Order 34F.T.C.

an individual, and Joseph M. McAndrews, an individual, and their respective agents, representatives, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale, and distribution of a set of books designated "Smithsonian Scientific Series," or other books, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from :

1. Representing, directly or indirectly, that respondents' salesmen or representatives are in the employ of the Smithsonian Institution of Washington, D. C., or have any direct connection with said Smithsonian Institution ..

2. Representing, directly, or iD.directly, that the books sold and distributed by the respondents are published by the Smithsonian Institution of Washington, D. C., or that the entire profit or proceeds obtained from the sale of such books accrues to the Smithsonian Institution of ·washington, D. C.

8. Representing, directly, or indirectly, that the sate of said books is restricted to a selected number of individuals in any community or that any individual has been selected to act as patron of the Smithsonian- Institution of ·washington, D. C.

4. The use of ''patron certificates" of the Smithsonian Institution in such a way as to imply that a purchaser has been specially selected, because of prominence in the community, or for any other reason, or that such purchaser has contributed to a cause other than by the purchase of a set of books as an ordinary commercial transaction fo1 profit.

5. The use of the words "Smithsonian Institution" in respondents' trade or corporate name, or in any other manner, to designate or describe an organization engaged in a commercial enterprise for profit, which is not a part of, or has no direct connection with, the Smithsonian Institution of 'Vashington, D. C.

6. Representing, directly, or indirectly, that respondents are engaged in any enterprise other than that of a commercial enterprise for profit.

It is further oraerea, That the respondents, Parke, Austin & Lipscomb, Inc., a co1·poration, and its officers, and Alfred Monett, an individual, Robert A. Hogan, Jr., an individual, and Joseph l\f.l\IcAndrews, an individual, and their respective agents, representatives, and employees, direcpy or through any corporate or other device, in connection with the ofiPring for sale, sale, and distribution of a set of books designated "'Vorld Epochs," or other books, in commerce as "commercen is defined in the Federal Trade Commission Act, do forthwith ceastt and desist from:

PARKE, AUSTIN & LIPSCOMB, INC., ET AL. 607 Order 1. Representing, directly, or indirectly, that any salesman or representative who is not directly responsible to the United States Flag association or who is not working under the direct supervision and control of said Association, is in the employ of, or directly connected with, the United States Flag Association.

2. Representing, directly, or indirectly, that the entire profit or pro~ ceeds derived from the sale of said books accrues to the United States Flag Association.

3. Representing, directly, or indirectly, that respondents are engaged in any enterprise other than that of a commercial enterprise for profit, or that a purchaser of such books is, in effect, making a contribution to the United States Flag Association to be used by the Association in 'combating anti-Americanism and subversive organizations and influences in ths United States.

4. The me of letters endorsing the aims and purpose o£ the United States Flag Association as endorsements of books sold and distributed by the respondents.

5. The use of life membership certificates in the United States Flag Association or other organizations in such a way as to imply that a Purchaser has contributed to a cause other than by the purchase of a set of books as an ordinary commercial transaction for profit. It is further O?'dered, That the respondents shall, within GO 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.

Syllabus 34F. T. C.