Modernistic Candies, Inc

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IN THE MATTER OF MODERNISTIC CANDIES, INC., ET AL.

COMPLAINT, FINDINGS, AND ORDER IN REGARD TO Tile ALLEGED VIOLATION OF SEC. :5 OF AN .\CT OF CONGRESS APPROVED SEPT. 20, 1914 Docket 1605. Comtllaint, Oct. G, 19.P-Decision, May 25, 19f,.'j Where, a corporation and two officers and stockholders, engaged in the manufacture and competitive Interstate sale and distribution of chewing gum, including certain assortments which were so packed and assembled In "ballgum boards" as to Involve the use of a lottery scheme in sale thereof and o:t: oth<"r merchandll'e nnd<'r n plan, ns typical, by which the dit'l'ert>nt color o:t: 20 pieces-or other numlwr, lis Indicated tllcreon-entity(~d the ('U>it<lllll", In addition to the penny piece secured by all, to a merchandise prize of ordinarily greater value, as supplied by the wholesaler or retailer; and thereby Supplied to and placed in latters' hands the means of conducting games o:t: chance In the sale and distribution o:t: such gum in accordance with afore• ,;aid sales plan iuvolvlng' the sale o:t: a chance to obtain additional merchandise at less than Its normal rf>tail price, contrary to an establl!>hed public policy of the United States Government and in competition with those who do not use such plans or methods ;

With result that many persons wpre attracted by their method of packing their gum and by the element o:t: chance involved thel·eln, and were thereby induced to buy and sell It in preference to that o:t: competitors a:t:oresaid, whereby substantial trade was. diverted un:t:alrly from latter to them: IIeld, That such acts and practices, under the circumstances above set :t:ortb, were all to the prejudice of the public nnd competitors, and constituted un· fair methods o:t: competition in commerce and unfair acts oml practices therein.

Before Mr. John lV. Addison, trial examiner. Mr. J. lV. Brook{ifld, Jr., for the Commission. Beach, Fatlwltild & Scofield, of Chicago, Ill., for respondent3. ColiPLAINT Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority wsted in it by said act, the Federal Trade Commission having rrason to believe that Modernistic Can· dieg, Inc., a corporation, and Sol S. Leaf and Harry L>af. individually, and as officers of l\Iodrrnistic Candies, Inc., hereinafter referred to as respondents, have violat<'d the provisions of sai,J act and it appearing to the Commission that a pr·ocet>ding hy it in re5pert thereof would be in the interest of the public, hereby i~:-:ut>:> its complaint stating its chargrs in that respt>ct ns follows: PARAGRAPH 1. Respondent, Modt>rnistic Candies, Inc., is a corporation, organized and doing busirwss under the laws of the State of MODER:\[STIC CAXDIES, IXC., ET AL. 823 822 Complaint Illinois, with its principal office and place of business located at 1734 West Hubbard Street, Chicago, Ill. Respondent, Sol S. Leaf, is the president of respondent, MoJernistic Candies, Inc., and has his principal office and place of business at 1734: 'Vest Hubbard Street, Chicago, Ill. Respondent, Harry Leaf, is secretary-treasurer of Modernistic Candies, Inc., and has his principal office and place of business at 1734 'Vest Hubbard Street, Chicago, Ill. All of said respondents act together and in cooperation with each other in doing the acts and things herein alleged. Respondents are now, and for more than 2 years last past have been, engaged in the manufacture of chewing gum and in the sale and distribution thereof in commerce between and among the various States of the United States and in the District of Cplumbia. Respondents cause, and have caused, their products, when sold, to be transported from said place of business to purchasers thereof in the various States of the United States other than the State of Illinois and in the District of Columbia at their respective points of location. There is now, and for more than 2 years last past has been, a course of trade by said 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 other corporations and individuals and with partnerships engaged in the sale and distribution of like or similar mer- •Chandise in commerce between and among the various States of the United States and in the District of Columbia. PAR. 2. In the course and conduct of said business, as described in Paragraph 1 hereof, respondents sell and distribute, and have sold ~nd distributed, their said chewing gum so packed and assembled as to Involve the use of a lottery scheme or gift enterprise when used by retail merciiants in the sale or distribution of other merchandise to the consuming public. Said gum is packed and assembled in a corrugated pap<'rLoard in which there are 150 holes, each of which contains a ball of said gum. Nontransparent paper, which effectively <'onceals the said balls of gum, is pasted over the front and back of said board. Said boards containing said chewing-gum balls are commonly known as "bal1gum" boards.

Many wholesale U<'alers who purchase said "ballgum" boards from l'('spondents make up assortments composed of said boards and other artid<'s of m<'rchanclise an<l sell and distribute said assortments to l'('tail U('alers \"rho, in turn, sell and distribut(', and have sold and distributed, the same to the purchasing public in substantially the folfollowing manner:

824 Fl0DEIRA.L TRADE COl\Il\USSLON DECISIONS Complaint ::JG l<'.T. C. The majority of said Lall-; of gum are of one color until the minority thereof are of a 1liffet't>nt color. Sales are 1 cent tach uml each purchaser is entitled to, and receives, one of lS:tid Lulls of gum which he punches from said hoard. If said ball of gum, so punched, is one of said majority balls the purchaser recPiws nothing in addition thereto for his money, but, if saill Lull is one of said minority balls the purchasl'r is eutitle1l to and receives in ulll lit ion thereto, other mer- ('hnndisP as a prize without additional charge. The said other merchandise has a retail value greater than 1 cent. Said balls of gum arc effPetiwly coneeale1l from purchasl'rs and prospective purchasers until the s:ww have lx'en purclu1:-;e1l anll punehed or removed from said board. The said balls of gum and other merchandise are thus distributed to the pmchasing public wholly by lot or chauce. Other wholesale dealers purchase said ''lmllgnm" boards and Sl'll and distribute the same to retail dl'ttlers as separate items of merchandise without making up such assortments. R('tail dealers who purchase saill boards without saill priZ<'R use thpir own uwrchan1lise us prizcs anll sell or 1listrihute the sume to the purchusing public by nwans of said board:'! iu u<·cortlatll't' with the !ialPs plan or methotl hercinahoye dPscrihl'll.

PAn. 3. In so Sl'lling and distributing saill "lmllgum" bonrll~, re· spondt•nts supply to, uutl place in the hamls of, others the means of, and an instrumentality for, thl' concluding 0f lotteries in the sale and distribution of merchandise in nccordan<"e with the above-described sales plan. The sale of merchandise to the pmchasing public in the manner uLove allcgl•d involves a game of chance or the sale of a chance to procure ntltlitional mcrchanJisc nt a price which j,; much lcss than tho normal retail price thereof. Tlw use by respondents of said method in the dt•signing, packing, and arranging of their chewing gum, and the sale and distribution of saitl chewing gum and other merchandise, as hen·inbefore ,]t'l->cribl•tl, are practices of a sort which are contrary to nn estnhlislwtl public p(Jliey of the Governmt>nt of the Uuited Stat<•s.

P.\Jt. 4 . .:\Iuny pl•r:-;on;-;, firm~. and corporutions, who fwll or dis· tribute nntl hu\'e !ml•libel di~trilmtP•l clll'wing gum or other merchan· di~e in colll{lt'tition with till' re!<pouclent:=;, ns ulJOn• allt•g(•u, nre twwill· ing to aclopt antlusc s:d1lmetho•l or nny nwthod in\'olving a ga111e of dtnnce OJ' the !-lull• of ll l'hait<·t• to win Honll'thing Ly chance, or nny other JJI(•thotl that is coutmry to public policy un•l such <·otupPtitors I'l'frain tlwn•fmm. Many pN·~olls ure uttrud('tl l1y !-l:title ~all's plan (~J' methotl employt•tl by respollllt•nts in tht> ~ale und tlistribution of thell' !-aid c:hewing gum111Hl thp t>lt•m•·nt of chattl'e invoh·pJ tltt>rein, and are MODE'Rl\IISTIC CANDIES, INC., ET AL. 825 Findings thereby induced to buy and sell respondents' chewing gum in preference to chewing gum or other merchandise offered. for sale and sold by said. competitors of respondents who do not use the same or an equivalent method. The use of said method by respondents, because of said game of chance, has a tendency and. ca:eacity to unfairly divert trade in said commerce to respondents from its said competitors who do not use the same or an equivalent method. As a result th~reof substantial injury is being, and has been done by respondents to said competitors in said commerce.

PAR. 5. The aforesaid acts and practices of respondents, as herein alleged, are all to the prejudice and injury of the public and of re- ~Pondents' competitors and constitute unfair methods of competition ~n commerce and unfair acts and practices in commerce within the Illtent and meaning of the Federal Trade Commission Act. REPORT, FINDINGS AS TO THE Facts, .\ND Onder Pursuant to the provisions of the Federal Trade Commission Act, the Federal Trade Commission, on October 6, 1941, issued and sub- ~equently served its complaint in this proceeding upon the respondents, Iouernistic Candies, Inc., a corporation, and Sol S. Leaf and Harry ~af, individually, and as officers of :Modernistic Candies, Inc., charg- Ing them with tho usc of unfair methods of competition in commerce a~~ ltnfair acts and practices in commerce in violation of the pro- VIsions of that act. After the filing of respondents' answer, testimony ~nd other evidence in support of the allegations of the complaint were ~~traduced by the attorney for the Commission, and in opposition f ereto by the attorney for the respondents, before a trial examiner ~ tho Commission theretofore duly designated by it, and such testitl ony and other evidence were duly recorded and filed in the office of · file Commission. Thereafter, the proceding regularly came on for thlal hearing Lcfore the Commission on the complaint, the answer Upercto, testimony and other evidence, report of the trial examiner l>l ~ 11 tho evidence, brief:3 in support of and in opposition to the comsi;Int, nnu oral argument; and the Commission, having duly conth. ered. the matter and Leing now fully advised in the premises, ~n.ds fin~t. tlus proceeding is in the interest of the public and makes this Its lngs as to the facts and its conclu:Jion drawn therefrom 11XDIXGS AS TO Tile F.\CTS tio~AnAcxuru 1. Respondent, :Modernistic Candies, Inc., is a corporal!}· ' ?rganized anu doing business under the laws of the State of lnois, with its principal office and place of business located at 1734 :I2S713-43-\ol. :l(}-15:! 826 FEDERAL TRADE C0?..1MIS!3I:ON D'ECISIONS Findings 36F.T.C.

West Hubbard Street, Chicago, Ill. Respondents, Sol S. Leaf and Harry Leaf, are president and secretary-treasurer, respectively, of the corporate respondent, and have their principal office and place of business at the same address as the corporate respondent. The individual respondents are the principal stockholders and the directing and controlling officers of the respondent corporation. They formulate and control the sales plans and merchandising policies of the corporation. All of the respondents have acted together and. in cooperation with one another in carrying out the acts and practices herein described.

PAR. 2. The respondents are now and. for a number of years last past have been engaged in the manufacture of chewing gum, and in the sale and distribution of such gum to wholesale dealers. In the course and conduct of their business respondents cause and have caused their products, when sold, to be transported from their place of business in the State of Illinois to purchasers thereof located in various other States of the United States and in the District of Columbia. Respondt>nts maintain and have maintained. a course of trade in their products in commerce among and. between the various States of the United States and in the District of Columbia. J>An. 3. Respondents are and have been in substantial competition with other corporations and individuals, and. with partnerships, engaged in the sale and distribution of similar merchandise in commerce amo:1g and between the various States of the United States and in the District of Columbia.

PAR. 4. In the course and conduct of their business respondents pack and assemble certain of their chewing gum in such manner as to involve the use of a lottery scheme, gift enterprise, or game of chance when such gum is sold by retail dealers to the consuming public and used by such dealers in the sale and distribution of other merchandise to the consuming public. This gum is packed and assembled in a corrugate<! paperboard in which there are 150 hole:-;, each of which contains a ball of gum. The holes are covered with nontransparent paper which effectively conceals the balls of gum. These boards are commonly known as "ballgum board~."

The majority of the balls of gum containetl in the board are of one color, the minority b{'ing of a different color. For example, one type of board contains 20 red balls of gum and 130 balls which arc white or some color othet· than red. Sales are one cent each, and each purcltas('t' is ('ntitled to and f('ceires for the 1 cent paid one of the balls of gum, which he punch('s from the board. If the ball of gum punched is one of the majority balls, the purchaser r('ceives nothing for hi!; money except the ball of gum. If, howe\'er, the ball of gum punched MODER~'ISTIC CANDIES, IXC., ET AL. 82i 822 Findings happens to be one of the minority balls, the purchaser is entitled to and receives in addition to the gum other merchandise as a prize, such additional merchandise being without further cost to the purchaser. 'The prize merchandise usually has a retail value greater than 1 cent. All of the balls of gum are effectiwly concealed from purchasers and prospective purchasers until they have been purchased and. punched from the board. The balls of gum and the other merchandise awarded as prizes are thus distributed to the public Wholly by lot or chance.

Some of the wholesale dealers who purchase these ballgum boards from respondents make up assortments composed of such boards and other articles of merchandise, and sell and distribute such assort- Inents to retail del\lers who, in turn, sell and distribute such gum and other merchandise to the public in the manner described above. Other wholesale dealers purchasing such boards from respondents sell and distribute the boards to retail dealers as separate items of merchandise without combining them with other merchandise. Retail dealers who purchase the boards alone use their'own nlerchandise as Prizes and sell and distribute the gum and other merchandise to the PUblic in accordance with the aforesaid sales plan. The record indicates that rarely, if ever, do retail dealers purchaso the boards as "straight" merchandise-that is, merely for the purpose of selling the gum itself. Almost im·ariably the board is purchased and. used by the retailer as a lottery device, aml it is obvious that the board is intended and designed by respondents for that purpose. ~f significance in this connection is the fact that each board, when lt leans the respondents' hands, has imprinted thereon a certain number, as "20" or "24". This number indicates the number of red balls of gum contained in tlle particular board, and the retailer is thereby enablerl to Jetermine the number of prizes which will he required in the operation of the board.

PAn. 5. In selling aml distributing gum paeked illld ass<'mbled in the rnamiC'r descriL<'d above, respondents l;Upply to and place in the ~anus of others the means of conducting lotteries or games of chance ~o-um to the public in accordance11l. tlle sale anti distribution of such ~Vlth the aforesaid sales plan. The sale of merchandise to the public Ill the manner described above involves a ~arne of chance or the sale or a chance to obtain additional merchamlise at a price lt'ss than the llormul rdnil price th<'rPof. The usc hy responrlents of this method ~f. Packing and nssemhling their chewiug- ~um, anti the !'ale and distibution of s\l('h gmn aml of other merchandise to the public by means of the plan or nwthod herein described, are praeticl's of a sort which De·contrary to an <':.;tahlishNl public policy of the Gowrnnwnt of the,. ll!teJ Stat('S.

828 PE,DEIR'AL TRADE COMMISSVON DECISIONS Order 3GF. T. C.

PAR. 6. Among the persons, partnerships, and corporations who sell and distribute chewing gum in competition with the respondents, as set forth in paragraph three hereof, are those who do not pack and assemble their chewing gum in the manner described above and who do not use any other plan or method involving a game of chance or lottery scheme in the sale of their gum to the consuming public. Many persons are attracted by respondents' method of packing and assembling their gum and by the element of chance involved in 'the sale of gum so packed and assembled to the consuming public, and are thereby induced to buy and sell respondents' chewing gum in preference to that offered for sale and sold by those competitors of respondents who do not so pack and assemble their gum. The use by respondents of such method of packing and assembling their gum has the tendency and capacity to divert, and has diverted, substantial trade unfairly to respondents from such competitors. CONCLUSION The acts and practicesI of the respondents as herein found are all to the prejudice of the public and of respondents' competitors, and constitute unfair methods of competition in commerce and unfair acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission, the answer of respondents, testimony and other evidence in support of and in opposition to the allegations of the complaint taken before a trial examiner of the Commission theretofore duly designated by it, report of the trial ex· aminer upon the evidence, briefs in support of and in opposition to the complaint, ana oral argument; and the Commission having made its findings as to the facts and its conclusion that the respondents have violated the provisions of the F('deral Trade Commission Act. It is ordered, That the respondents, Modernistic Candies, Inc., a corporation, its officers, and Sol S. Leaf and Harry Leaf, individual· ly, and as officers of said corporation, and respondents' agents, repre· sentatives and employees, directly or through any corporate or other device, in connection with the offering for sale, sale, and distribution of chewing gum or any other merchandise in commerce, ns "commerce'' is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

MODERNISTIC CANDIES, INC., ET AL. 829 822 Order 1. Supplying to or placing in the hands of wholesale dealers, retail dealers, or others, "ballgum boards" or other lottery devices which are to be used or may be used in the sale or distribution of respondents' merchandise or any merchandise to the public by means of a game of chance, gift enterprise, or lottery scheme. 2. Selling or distributing chewing gum or other merchandise so packed and assembled that sales of such chewing gum or other merchandise to the public are to be made or, due to the manner in which such gum or other merchandise is packed and assembled at the time it is sold by respondents, may be made 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 re- Port in writing, setting forth in detail the manner and form in which they have complied with this order.

. 830 FEDE:RAL TRADE COMMIS>Sf.ON DECISIONS Complaint 36F. T. C.