Louis Ulrich

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IN THE MATTER OF LOUIS ULRICH, TRADING AS J-DEE DISTRIBUTING COMPANY, AND JUI"'IUS "\VEINFELT CO:'>IPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. ll OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 4500. Complaint, May 10, 191,1-Deci.'lion, Oct. 21, 1943 Where an individual and his manager, engaged iii competitive Interstate sale and distribution of novelty merchandise, including watches, cameras, clocks, tableware, lamps, toilet articles, and numerous ot-her items; in promoting the sale of their product- Made use of a method involving distribution of descriptive advertising circulars incorporating a punch eard, under a plan by which chance selection and detachment of the ~ard"s various tabs determined the article secured by a customer and the price paid therefor, and whether or not the customer received one of the articles, value of which was in excess of the stated price, and their agents were compensated by specified merchandise or cash premium following their remission of proce<'ds of such sale; and thereby Supplied to and placed in the hands of their agents or sales representativ_es-notwithstanding notice on the card which, offering customer the privilege of declining purchase at the listed price, was inconsistent with working of the scheme and was not, apparently, taken advantage of-means of conducting lotteries in the sale and distribution of their merchandise In accord· ance with aforesaid sales plan Involving a lottery scheme, contrary to estab· llshed public policy of the United States Govemment and In competition with others who, unwilling to use method Involving chance or contrary to public policy, refrain therefrom; . With the result that many persons wet·e attracted by said sales method and the element of chance Involved therein, and were Induced to buy and sell their merchandise in preference to that of their aforesaid competitors, whereby substantial trade was diverted unfairly to them from such competitors: Held, That such acts and practices, under the circumstances set forth, were all to the prejudice of the public and their competitors, and constituted unfair methods of competition In commerce and unfair acts and practices therein. Before Mr. Andrew B. Duvall, trial examiner. Nr. J. lV. Brookfield, Jr., for the Commission . .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 Louis Ulrich, an individual, trading as J-Dee Distributing Co., and Julius Weinfelt, an individual, hereinafter referred to as respondents, have violated the provisions of said act, and it appearing to the Commission that J-BEE DISTRIBUTING CO. ET AL. 513 512 Complaint a proceeding by it in respect thereof would be in tM interest of the public, hereby issues- its complaint stating its charges in that respect as follows:

P .ARAGRAPH 1. Respondent, Louis Ulrich, is an individual, trading and doing business as J-Bee Distributing Co., with his office and principal place of business located at 37 West Twentieth Street, New York, N.Y. Respondent; Julius "\Veinfelt, whose address is the same as that given above, is an individual, and is manager of said business, and, together with respondent, Louis Ulrich, formulates, directs, and controls the policies and practices of said business. The respondents have acted in conjunction and cooperation in carrying out the acts and practices described herein.

Respondents are now and for more than 6 months last past have been engaged in the sale and distribution of watches, cameras, clocks, tableware, lamps, toiletries, and other articles of merchandise in com- :tnerce between and among the various .States of the United States and in the District of Columbia. Respondents cause and have caused said products, when sold, to be shipped and transported from their Place of business in the State of New York to purchasers thereof at their respective points of location in various St"ates of the United States other than New York, and in the District of Columbia. There is now and has been for more than 6 months last past a course of trade by respondents in such merchandise in cowmerce between and among the various States of the United States and in the District of Columbia. In the course and conduct of their said business respondents are and have been in competition with other individuals and firms and With corporations engaged in the sale and distribution of similar articles of merchandise in commerce between and among the various States of the United States and in the District of Columbia. PAn. 2. In the course and conduct of their business us described in Paragraph 1 hereof, respondents sell and distribute said articles of lllerchandise by means of a game of chance, gift enterprise, or lottery scheme. Respondents cause to be distributed to representatives and salesmen and prospective representatives and salesmen certain adver- ~ising literature including a sales circular. Respondents' merchandise 18 distributed to the purchasers thereof in the following manner: d ~ portion of said sales circular consists of a list on which there are 4es~gnateddjacent toathenumberlist is ofprinteditems antlof merchandiseset out a deviceand commonlythe prices calledthereof.a Pul.l card. Said pull card consists of a number of tabs, unller each of ~lllch is concealed the name of an article of nwrchandise :md the price lereof. The name of the article of nwrchandi;;e and the price thereof are so concealed that purchasers or prospectiye purchasers of th£' tabs 514 F'EDERAL TRADE COMMISSION DECISIONS Complaint 37F.T.C.

or chances are 11nab]e to ascertain which article of merchandise they are to receive or the price which they are to pay until after the tab is separated from the card. When a purchaser has detached the tab and learned what article of merchandise he is to receive and the price thereof, his name is written on t.he list opposite the named article of merchandise. Some of said articles of merchandise have purported and represented retail values greater than the prices design.ated for them, but are distributed to the consumer for the price designated on the tab which he pulls. The apparent greater values of some of said articles·of merchandise, as compared to the price the prospective purchaser will be required to pay in the event he secures one of said articles, induces members of the purchasing public to purchase the tabs or chances in the hope that they will receive articles of merchandise of far greater value than the designated prices to be paid for same. The fact as to whether a purchaser of one of said pull card tabs receives an article of greater value than the price designa~ed for same on such tab, which of said articles of merchandise 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 representative operating the pull card has succeeded in selling all of the tabs or chances, collected the amounts called for, and remitted the same sums to the respondents, the said respondents thereupon ship to said representative the merchandise designated on said card, together with a premium for the re:presentative as compensation for operating the pull card and selling the said mer· chandise. Said operator delivers the merchandise to the purchased of tabs from said pull cards in accordance with the list filled out when the tabs were detached from the pull card.

Respondents sell and distribute various assortments of said merchandise and furnish various pull cards for use in the sale and distribution of such merchandise by means of a game of chance, gift enterptise, or lottery scheme. Such plans or methods vary in detail, but the above-described plan or method is illustrative of th~ principle involved.

PAR. 3. The persons to whom respondents furnish the said pull cards use the same in purchasing, selling, and distributing responqents 1 merchandise in accordance with the aforesaid sales plan. Respon· dents thus supply to and place in the hands of others the means of conducting lotteries in the sale of their merchandise in accordance with the sales plan hereinabove set forth. The use by respondents of said method in the sale of their merchandise and the sale of such merchandise by and through the use thereof and by the aid of said method is a. J-DEE DISTRIBUTING CO. ET AL. 515 ' 512 Findings Practice of a sort which is contrary to an established public policy of the government of the United States.

PAR. 4. The sale of merchandise to the purchasing public in the lhanner above alleged involves a game of chance, or the sale of a chance to procure an article of merchandise at a price less than the apparent normal retail price thereof. Many persons, firms, and corporations 'w-ho sell or distribute merchandise in commerce in competition with the re~pondents, as above alleged, are unwilling to adopt and use _said method, or any method involving a game of chance, or the sale of a chance to win something by chance, or any other method which is contrary to public policy, and such competitors refrain therefrom. Many persons are attracted by respondents' said method and by the element of chance involved in the sale of said products in the manner above described, and are thereby induced to buy and sell respondents' merchandise in preference to merchan<;Iise offered for sale and sold by said competitors of respondents who do not use the same or an equivalent method. The use of said methods by respondents, because of said ~ame of chance, has the tendency and capacity to unfairly divert trade ln commerce between and among the various States of the United States and in the District of Columbia to respondents from the said competitors ·who do not use the same or equivalent methods. PAR. 5. The aforesaid acts and practices of 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 deceptiv~ acts and practices in comlherce 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 F:'edernl Trade Commission Act, the Federal Trade Commission, on May 10, 1941, issued and subsequently served its complaint in this proceeding upon the respondents, Louis Ulrich, an individual, trading as J-Bee Distributing Co., and Julius \Veinfelt, an individual, 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 that act. ~after the filing of respondents' answer, testimony and other evidence tn support of the allegations of the complaint were introduced before ,a trial examiner of the Commission theretofore duly designated by it (no evidence being offered by respondents), and such testimony and ot~1er evidence were duly recorded and filed in the office of the Comhllssion. Thereafter, the proceeding regularly came on for final hear- - Findings 37F.T.C.

ing before the Commission on the complaint, the answer thereto, testimony and other evidence, report of the trial examiner upon the evidence, and brief in support of the co1nplaint (no brief having been filed by respondents and oral argument not having been requested); and the Commission, ha:ving 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. Respondent, Louis Ulrich, is an individual, trading as J-Bee Distributing Co., with his office and principal place of business located at 37 1Vest Twentieth Street, New York, N.Y. Respondent, Julius 1Veinfelt, whose address is the same as that given above, is an individual, and is ·manager of the business in question, and together with respondent, Louis Ulrich, formulates, directs, and controls the policies and practices . of the business. Respondent, W einfelt, was formerly the owner Of the business, but in 1938 sold it to respondent, Ulrich, and was retained by respondent, Ulrich, in the capacity of manager of the business. The respondents are llow and since 1938 have been engaged in the sale and distribution of novelty merchandise, including watches, cameras, clocks, tableware, lamps, toilet articles, and numerous other items. PAR. 2. Respondents cause and have caused their merchandise, when sold, to be shipped from their place of business in the State of New York to purchasers located in various other States of the United States and in the District of Columbia. Respondents maintain and have' maintained a course of trade in their merchandise in commerce among and between the various States of the United States and in the District of Columbia.

PAR. 3. Respondents are and have been in substantial competition with other individuals and with firms and corporations engaged in the sale and distribution of similar articles of merchandise in commerce among and between the various States of the Uniteq. States and in the District of Columbia.

PAR. 4. In promoting the sale of their products respondents have distributed advertising or sales circulars through the United States mail to prospective sales representatives located at nrious points throughout the United States. These circulars contain pictorial rep- · resentations and descriptive matter with respect to certain articles of merchandise offered by respondents as compensation for the sale of their products, and also pictorial representations and descriptive J-BEE DISTRIBUTING CO. ET AL. 517 512 Findings matter as to certain of the articles of merchandise which respondents offer for sale.

Each of these circulars also contains what .is commonly known as a pull card. This pull card consists of a number of tabs, under each of which is concealed the name of one of the articles of merchandise offered for sale by respondents and the price ther~of. Neither the name of the article nor the price thereof is disclosed to the purchaser or prospective purchaser until after the tab has been separawd or removed from the card. Adjacent to the pull tabs is a list of the articles of merchandise offered for sale and the price thereof, which corresponds with the names of the articles and the prices concealed under the various pull tabs. When a purchaser detaches a tab and there is thus disclosed which article he is to receive and the price to be Paid therefor, his name is written on the list opposite the particular article o£ merchandise.

Some of the articles of merchandise thus offered for sale have retail Values g~eater than the prices designated for them, but all of the articles are distributed to the purchaser at the prices shown on the tabs. 1'he fact that some of the articles have values in excess bf the designated prices induces members of the public to pull the tabs in the hope that they will obtain such articles. Moreover, some of the articles offered for sale are represented through pictures itnd reading matter in the circular as having values greater than their actual value, Which fact serves as a further inducement to prospective purchasers to pull the tabs in an effort to obtain such articles. The specific article which the purchaser receives, the amount of money he is 1'equired to pay for such article, and whether the purchaser receives an article having an actual or apparent value greater than the price designated therefor are thus determined wholly by lot or chance. When the individual operating the pull card has succeeded in selling aU of the articles of merchandise listed under the tabs• and has collected the respective amounts charged therefor, the total of such alll.ounts is remitted to respondents. Upon receipt of such total alll.count, respondents ship to their representative the merchandise 8?ld, together with a premium for the representative as compensation for operating the pull card and selling and distributing the mer- ~handise, such premium having been selected by the representative ht·o~ articles pictured in the circular. If the representative so desires, e lS permitted to deduct from the amount of money remitted a specified cash premium in lieu of the merchandise premium. Upon receipt of the merchandise from respondents, the representative delivers the Various articles to the purchasers i:o <tccordance with the list prepared When the tabs were pulled.

FlniUnga 37F.T.O.

P .AR. 5. In connection wjth the pull tab device, the following reading matter appears:• I l\10TICE TO PURCHASER-on the back of each slip Is printed the price of an article. If after deliberation you decide that you want to buy the article, pay the holder of this card the prce shown on the slip. If you do not want the article, you need not buy lt.

The Commission finds, however, that despite this notice the articles of merchandise are in fact sold and distributed by means of the pull card device in accordance with the sales plan or method described above: The record indica~es that the notice is not ordinarily called to the attention of the prospective purchaser by the sales representative. Moreover, the successful operation of the sales plan is dependent upon the ability of the representative to sell all of the articles listed, so as to permit remittance of the required amount to respondents in order to obtain the merchandise purchased and in order for the operator to obtain the premium for the sale of the merchandise. It is only in very rare cases (about 1 in 500) that partial orders are forwarded to respondents by their sales representatives. The record discloses no instance in which a person who pulled one of the tabs from the card refused to accept and pay for the merchandise designated on the tab. Moreover, in respondents' instructions to their representatives which appear in the circular there is no direction as to what should be done in the event all of the articles of merchandise are not sold. The circular likewise fails to contain any information as to the premium or compensation which can be obtained by the representative in the event some o£ the purchasers refuse to accept the article listed on the particular tab pulled. On the contrary, it is apparent from the instructions that the plan contemplates that all of the articles listed are to be sold. For example, the instructions contain the following: Our plan is very. simple and interesting. Just ask your friends and neighbors to pull one or more of the slips on the back page of this folder. On the back of each slip the name of a IHG BARGAIN article and its price Is plainly marked. You collect from the purchasers the price stated on the slip for which they will receive the article mentioned on the slip. Prices of these arUcles range from 9c to 3Dc-none higher. When the articles are all sold, you wlll have collected $7.70. Then fill out the attached Order Blank and mall to us·, together with your remittance.

WHAT YOU WILL RECEIVE:

As soon as we will receive your order and money order !or $7.70, we will send you your BIG REWARD PREMIUM, your SURPIUSE GIFT for sending money order with order, your ADDITIONAL SURPRISE GIFT for selllng tbe f)rder promptly, and the 22 articles you have sold. • • • J.-BEE DISTRIBUTING CO. ET AL. 519 512 Conclusion The order blank referred to in these instructions rends in part as follows: ...

As soon as you have sold the 2 articles of merchandise and collected $7.70 fill out this order blank st~ting correct number of your REWARD PREl\IIUM. Write your name and address plainly, and mail this order to us. - • • • Please ship at once charges prepaid, the 22 articles of ·merchandise I sold together with my valuable reward premium·No. ----------- The Commission therefore finds that, ns a practical matter, the socalled notice to purchasers has no substantial effect upon the operation of the sales plan and that it does not serve to remove the lottery element from respondents' sales method.

PAR. 6. The persons to whom respondents furnish their pull card device use such device in selling and distributing respondents' merchandise in accordance with the sales plan or method herein described. Respondents thus supply t9 and place in the hands of others a means of conducting lotteries in the sale and distribution of their merchandise in accordance with such sales plan or method. Respondents' :tnerchandise is thus sold and distributed by means of a game of chance, gift enterprise, or lottery scheme, and respondents reap the benefits therefrom. . The use by respondents of this . sales plan or method in the sale of their merchandise and the sale of such merchandise to the public by and through the use of such sales plan is a practice of a sort which is contrary to an established public policy of the Government of the United States.

PAR. 7. Among the individuals, partnerships, and corporations who sell and distribute merchandise in competition with respondents, as set forth in paragraph 3 hereof, are those who are unwilling to adopt and use the m~thod herein described, or any method involving a game of chance or the sale of a chance to win something by chance, or any other method which is contrary to public policy, and such competitors refrain therefrom. Many persons are attracted by respondents' sales ~ethod and by the element of chance involved therein, and are thereby tnduced to buy and sell resporldents' merchandise in preference to Inerchandise offered for sale and sold by those competitors of 'respondents who do not use the same or any equivalent method. The use of such method by respondents l~as the tendency and capacity to and does divert substantial trade unfairly to respondents from such com- Detitors.

CONCLUSION The acts and practices of the respondents us 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 Order 37F.T.C.

practices in commerce within the intent and meaning' of the Federal Trade Commission Act.

ORDER TO CEASE AND DESIST This pro~eeding having been heard by the Federal Trade Commission upon the complaint of the Commission, the answer of respondents, testimony and other evidence taken before a trial examiner of the Commission theretofore duly designated by it, report of the trial examiner upon the evidence, and brief i~ support .of the complaint (no brief having been filed by respondents and oral argument not having been requested); and the Commission having made its findings as to the facts and its conclusion that the respondents have violated the provisions of the Federal Trade Commission Act. It is ordered, That the respondents, Louis Ulrich, individually, and trading as J-Bee Distributing Co., or trading under any other name, al).d Julius Weinfelt, individually, and as manager of said company, and their agents, representatives, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale, and distribution of respondents' merchandise in commerce, as "commerce" is defined in tbe Federal Trade Commission Act, do forthwith cease and desist from:

1. Supplying to or placing in the hands of agents, distributors, or members of the public, pull cards or o,ther lottery devices which are to he used or may be used in the sale or distribution of respondents' merchandise to the public by means of a game of chance:l', gift enterprise, or lottery scheme.

2. Selling or otherwise disposing of any merchandise by means of a game of change, gift enterprise, or lotte~y scheme. It is fu.rther 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 in which they have complied with this order.

THOMAS E. COLLINS CO. 521 Complaint