Rugs of the Blind, Inc.

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IN THE MATTER OF IlUGS OF THE BLIND, INC., ET AL.

DECISION AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF 'IHE FEDERAL TRADE COMMISSION ACT Docket 6022. Complaint, Aug. 1952-Decision, July, 1953 Where a corporation and its offcers, engaged in the purchase from the Pennsylvania Association for the Blind of rugs woven by the blind, on hand looms representing from 20 percent to 25 percent of their total sales volume, and from a rug- mill, of machine-made rugs, the fringes of which were knotted or tied by blind persons in their homes or in the workships of said Association; and in selling both types of rugs through door-to-door salesmen whom they supplied with identification cards, order blanks, ami. advertising booklets which disclosed that some of said products were not made entirely by the blinu, and with kits of samples of both types of rngs which contained no disclosure that some were not made by the blind- (1) Hepresented through statements of said solicitors that all the rugs sold by them were made by blind persons, when in fact only a minor portion of them were so made and it was very doubtful whether aforesaid advice 01' statements in order blanks and advertising booklets came to the attention of any substantial number of prospective purchasers; and (2) Hepresentecl also through use of their corporate name "Rugs of the Blind Inc, " that an of their rugs \were thus made in their entirety, when in fact in the c'''e of some, as a bove noted, only the fringe thereof was knotted by blind persons;

ith tendency and capacity to mislead and deceive a substantial portion of the public with respect to said rugs, and therehy induce its purchase thereof whereby substantial trade was unfairly diverted to them from their eompet.itors :

11 cld That such acts and practices were all t.o the prejudice of t.he public and respondents' competitors, and constituted unfair methods of competition and unfair and deceptive act.s and practices in commerce. Before lib. William L. Pack hearing examiner. Mr. J. W. Brookfield, Jr. for the Commission. Smith, Rif!tig Smith of 'Washington, D. for respondents. DECISION OF TH COMMISSION Pursuant to Rule XXII of the Commission s Rules of Practice, and as set forth in the Commission s "Decision of the Commission and Order to File Report of Compliance " dated ,Tuly 26, 1953, the initial decision in the instant matter of hearing examiner William L. Pack as set out as follows, became on that date the decision of the Commission.

Findings 50 F. T. C.

INITIAL DECISION BY WILLIAM L. PACK , HEARING EXAMINER Pursuant to the provisions of the Federal Trade Commission Act the Federal Trade Commission, on August 5, 1952, issued and subsequently served its complaint in this proceeding upon the respondents named in the caption hereof, charging them with the use of unfair methods of competition and unfair and deceptive acts and practices in commerce in violation of the provisions of the Act. After the filing by respondents of their answer to the complaint, hearings were held, at which testimony and other evidence in support of and in opposition to the allegations of the complaint were introduced before the above-named hearing examiner, theretofore duly designated by the Commission, and such testimony and other evidence were duly recorded and fied in the olfce of the Commission. Thereafter the proceeding regularly came OJ1 for final consideration by the hearing examiner on the complaint, answer, testimony and other evidence proposed findings and conclusions submitted by ( ounsel, and oral argument of counsel; and the hearing examiner, having duly considered the matter, finds that this proceeding is in the interest of the public, and makes the following findings as to the facts, conclusion dra wn therefrom, and order:

FINDINGS AS TO THE FACTS PAHAGRAPI- 1. Respondent Rugs of the Blind, Inc., is a corporation organized, existing and doing business under fmd by virtue of the laws of the State of Pennsylvania, ,,,ith its offce and principal place of business located in the city of Easton, Pennsylvania. Respondent Moses J. Miller is president of the corporation. He owns all of its capital stock, and formulates all of its policies and directs and controls a11 of its activities and practices. While respondents Bernard M. Goodman and Frances Testa are offcers of the corporation, they have no part in the actual operation of the business, nor in Lhe formulating of its policies. A motion has been fied by these individuals sccking dismissal of the complaint as to them. It is concluded that the complaint should be dismissed as to these respondents in their individual capacities, but not in their capacities as offcers of the corporation. The term "respondents " as used hereinafter, will therefore include the respondent corporation respondent ;\foses .J. Miller both in his individual capacity and as an offcer of the corporation, and respondents Bernard M. Goodman and Frances Testa in their capacities as offcers of the corporation. PAR. 2. Respondents are engaged in the sale and distribution of rugs, causing their rugs, when sold, to be transported from their place RUGS OF THE BLIND, INC. , ET AL. 119 117 Findings of business in the State of Pennsylvania to purchasers located various other States of the United States. Respondents maintain a substantial course of trade in their rugs in commerce between and among various States of the United States. P AR. 3. In the sale and distribution of their rugs, respondents are in substantial competition with other corporations and individuals engaged in the sale and distribution of rugs in commerce between and among various States of the United States. PAR. 4. The rugs sold by respondents fall into two general categories: first, rugs which are made entirely by blind persons, these rugs being '\vo17en on hand looms operated by such persons. All of these rugs are made in the workshops of the Northampton County Branch of the Pennsylvania Association for the Blind; second, machine-made rugs manufactured by a rug mill iu Easton, Pennsylvania. The only connedion blind persons have with these rugs is that they knot or tie the fringes which are affxed to the rugs by the mill. Some of this knotting and tying work is done in the workshops of the Northampton County Branch of the Pennsylvania Association for the Blind. Much of it, however, is done by blind persons in their own homes. The rug mil delivers the rugs to the homes of such workers, and later picks up the rugs after the fringes have been knotted. Respondents do no manufacturing, but purchase all of their rugs from the two sources named, the blind-made rugs from the orthampton County Branch of the Pennsylvania Association for the Blind, and the machine-made rugs from the rug mill. The blind-made rugs, designated by respondents as "Colonial" rugs, represent from 20 percent to 25 percent of respondents' total sales volume. The remainder of the sales are of the machine-made rugs. Hespondents' purchases of the blind-made rugs appear to have been of substantial benefit to the orthampton County Branch of the Pennsylvania Association for the Blind, and through this organization, to the blin d. During the period from September 1949 to N 0vember 1952, respondents purc based 26 752 rugs from the Branch paying therefor $. 758. These purchases represented approximately 68 percent of the rug produc tion of the institution. As a result of respondents' purchases, the Branch has been able to supply employment to an increased number of blind persons, 37 of such persons being now employed as against 14 prior to the time respondents began their purchase . Hespondents pay for the rugs the same prices as those charged other wholesale purchasers, and in reselling the rugs respondents maintain the same retail prices as those charged by the Branch.

, Findings 50 F. T. C:

Blind persons knotting the fringes on the machine-made rugs arc compensated at the rate of 10 cents per rug. The average blind worker can knot some 4 or 5 rugs per hour' PAR. 5. Sales of respondents' rugs are made through door-to-door solicitation by salesmen or solicitors. Respondents advertise for District Distributors " and those persons adjudged by respondents to be suitable are given contracts covering certain specified territories, The district distributor then proceeds to organize a crew of salesmen who work the designated territory. Frequently the district distributor, before he is given a contract, is required to work as a salesman himself for a period of time in order to determine whether he is capable of producing enough business to warrant his being given a contract. IVhen a salesman obtains an order for a rug, he collects from the customer a specified amolilt as a deposit, which he retains as his commission. The orders are turned over to the district distributor who, at regular intervals, forwards thenl to respondents. The rugs are shipped by respondents to the customers by parcel post C. O. D. The district distributor receives a specified amount on each sale made in his territory, plus the customary salesman s commission on any orders which he may obtain personally.

Respondents, through the district distributors, supply each salesrrmn with an identification card, order blanks, an advertising booklet and a sample kit. The identification card, which is signed by the district distributor, states that the person whose name appears thereon IS authorized to accept orders for and collect deposits for products of Rugs of the Blind, Inc. only as specifled on its offcial order blank." The order blank prominently displays the name of the corporate respondent Rugs of the Blind, Inc." It also carries in fairly heavy type the words "Rugs IVoven by the Blind on Hand Looms " and in somewhat smaller type the words "Machine-made Rugs Knotted by Blind Workers." The advertising booklet, which is frequently shown to the prospective customer by the salesman, displays rather prominently the corporate name "Rugs of the Blind, Inc. " On the first page are the words "Distributors of Rugs IVoven by the Blind on Hand Looms, and of Chenille Hugs 'With Fringes Knotted by Blind W orkers." The booklet also contains, in addition to pictures of the several rugs, pictures of blind workers weaving the Colonial, or blindmade, rugs, and knotting fringes on the machine-made rugs. (A more recent edition of the booklet gives somewlmt more definite information regarding the two classes of rugs. The first page of this booklet displays prominently the words "Rugs Woven by the Blind on Hand Looms-Machine-made Hugs Knotted by Blind Workers." On the third page there appears, under the caption "Colonial Rugs " the- , , RUGS OF THJC BLIND , INC. , ET AL. 121 117 Findings following: "These rugs are hand woven by highly skiJed blind personnel on hand looms lld under the caption "Palace, Mayfair Boyd and Hoxy Rugs " the following: "These rugs are machine made and the friuges have been knotted by blind persons " Under the pictures of the various rugs there appears, in rather small type, a statement as to the origin of the rug. Under the picture of the Colonial rug, the statement is This rug is lmnd woven entirely by the blind and carries a label of such identification " while under the pictures of the other rugs the statement is This rug is machine made and the fringes have been knotted by blind workers. The sample kit contains samples of the various rugs, both blindmade and machine-made, and a "Guarantee and Identification Certi fic tte" reading in part as follows: "IVe certify that the Colonial Rugs are Handwoven on lIandlooms by blind weavers ,', ,', *" and IVe Further Certify that the Boyd, Mayfair, Palace, and Roxy rugs are made by sighted workers, and the fringes tied by blind workers PAR. 6. The first issue raised by the complaint is whether solicitors selling respondents' rugs have represented to prospective purchasers that all of such rugs are made by blind persons. some ten members ,of the public, practically all of them housewives, testified on this issue. -While the testimony of the witnesses varies in detail, and while the rugs purchased by some of them were of the type which had in fact been made entirely by blind persons, the testimony establishes j,l,at in a substantialnurnber of instances representations have been made by solicitors t.o t.he effect t.hat. all of respondents' rugs are made by t.he blind. These representations were, of course, unwarranted and misleading, as only a minor portion of the rugs are so made. PAR. 7. The complaint also attacks the corporate name "Rugs of the Blind, Inc. " charging that the name is it.self false and misleading. It seems clear that the name does constitute a representation that respondents' rugs are made by the blind. The representation is true with respect t.o the Colonial rugs, which are blind-made in their ,entirety, and if all of respondents' rugs were of that type the use of the corporate name would be unobjectionable. The name, however, is untrue and misleading as to all of the other rugs, because the only work the blind do OIl these rugs is to knot the fringes. The corporate name being thus partly true and partly false, the question of the appropriate remedy is a diffcult one. Trade and corporate names are valuable business assets, and should not be prohibited absolutely if less drastic measures wil suffce (Jacobs Siegel Oompany v. F. T. 0. 327 U. 8. '608).

Findings 50 F. T. G. It is very doubtful that the statements appearing on respondents order blank and in the advertising booklet indicating that some of the rugs are not made by the blind come to the attention of any sub. stantial number of prospective purchasers. The most important and significant part of the salesman s equipment, the sample kit, is, from a practical viewpoint, virtually barren of any such information. True the kit does contain a certificate to the effect that certain of the rugs are made by sighted persons, but, as in the case of the sales material referred to above, it is very doubtful that the certificate comes to the samples of the rugs themselves, whichattention of the public. The are the important part of the sample kit., contain no disclosures what.ever. The only informat.ion shown on t.he samples is simply the " et.c., together with thename of the rug, as "Colonial Mayfair color. It is from t.he samples that t.he housewife buys, and the danfor all practical purposes, beger of confusion and decept.ion could, virtua1Jy eliminated if there appeared on each sample a clear and conspicuous st.at.ement. as to the origin of the rug, as, for example Machine-made Rug-Fringes Knotted by Blind ",Vorkers. It is concluded t.hat in t.he circumst.ances here existing, an absolut.e prohibition against the use of t.he corporate.e name is unnecessary and would not be warrant.ed; that reasonably adequate protection of the public and of respondents' competitors can be accomplished by the less drastic means outlined above.

PAR. 8. It is urged by respondents that t.he solicitors selling their rugs are not their agents or employees, and t.hat respondents are t.herefore not responsible for any misrepresentations made by the solicitors to the public. In support of this contention, respondents point out that under the terms of the written contract entered into by them with the district distribut.ors, such persons are "independent contractors and that the district distributors employ their own solicitors; that respondents exercise no supervision or control over the solicitors with respect to hours of work or other details of t.their employnlent; and that no deductions are made by respondents from the commissions of solicitors or district distributors for income tax purposes or for unemployment compensation.

untenable. Respondents cannot be This cont.ent.ion is rejected as permit.ted to supply to solicit.ors a1J of the means used by them in making sales, including the use of respondents' corporate name, and to reap the benefit of the solicitors' efforts, and at the same time escape all responsibilit.y for the solicitors' misrepresentations. PAR. 9. There is a preference on the part of a substantial port.ion of the public for purchasing products made by blind persons as distinguished from products not so made.

, RUGS OF THE BLnm, INC. , ET AL. 123 117 Order PAR. 10. While the complaint referred to toilet lid covers as well as rugs, there is an almost complete absence of evidence with respect to such products. Apparently these products constitute no more than a negligible part of respondents' business. Certainly there is no substantial evidence in the record as to misrepresentations by solicitors with respect to such products, and the corporate name "Rugs of the Blind, Inc. " would have no significance in connection with such products.

PAR. 11. The acts and practices of respondents, as described above, have the tendency and capacity to mislead and deceive a substantial portion of the public with respect to respondents' rugs, and the tendency and capacity to cause such portion of the public to purchase respondents' rugs as a result of the erroneous and mistaken belief so engendered. In consequence, substantial trade has been unfairly diverted to respondents from their competitors. CONCLUSION The acts and practices of the respondents, as hereinabove set forth are all to the prejudice of the public and of respondents' competitors and constitute unfair methods of competition and unfair and deceptive acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

ORDER It is ordered That respondent Rugs of the Blind, Inc., a corporation, and its offcers, and respondent Moses J. Miller, individually and as offcer of said corporation, and respondents Bernard M. Goodman and Frances Testa, as offcers of said corporation Lld respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the offering for sale sale and distribution of rugs in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Representing as having been made by blind persons any rug which has not in fact been so made.

2. Using the corporate name "Rugs of the Blind, Inc. " or any other corporate or trade name containing the word "Blind " in connection with any rug not made by blind persons: PTo'uided, however That in the case of a rug which, although not made by blind persons, has fringes which were knotted by such persons, such corporate or trade name may be used if there appears on the sample of such rug displayed to the public a clear and conspicuous statement as to the origin of such rug, as, for example Machine-made Rug-Fringes Knotted by Blind Workers.

124 FEDERAL TRADE COMMISSION DECISION'S Order 50 F. ' . C.

It is further O1'dered That the complaint be, and it hereby is, dismissed as to respondents Bernard M. Goodman and Frances Testa in their individual capacities.

ORDER TO rile HEPOHT OF COl\PLIA:\CE It is ordered That the respondents herein shall, within sixty (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 the order to cease and desist I as required by said declaratory decision t1nd order of July 26 , 195ijj. &: &:

SAFEW A Y STORES, INC.

Order