Doubleday & Co., Inc.

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IN THE 1f'l"' ER OF DOUBLEDAY & CO., INC., LITERARY GUILD OF AMERICA ETAL.

Docket 5569. Complaint, June 30, 1948-Decision, Dec. , 1953 Charge: Advertising falsely or mislcadingly by using the words "free" and Bonus Books; in connection with the sale of books Before Mr. Abner E. Lipscomb hearing examiner. Mr. Jesse D. Kash for the Commission. Satterlee, Warfield Stephens of New York City, for respondents. DECISION OF THE COMMISSION Pursuant to Rule XXII of the Commission s Rules of Practice, the attached decision of thc hearing examiner shall, on December 5, 1953 become the decision of the Commission.

Commissioner Mead dissenting.

ORDER DISMISSING COMPLAINT WITHOUT PRE,JUDICE INITIAL DECISION BY ABNER E. LIPSCOMB, HEARING EXAMINER The complaint in this proceeding was issued on June 30, 1948, and respondents' answer thereto filed in due course. Thereafter, at the request of counsel, hearing for the purpose of receiving evidence was continued pending the final adjudication of a similar proceeding In the Matter of Book of the Month Club, Inc. , et a1., Docket No. 5572. The theory of the instant proceeding and the gravamen of the complaint are set forth in Paragraph Four thereof, wherein allegations and conclusions are made as follows:

The use by the respondents of the word ' free' and the term ' Bonus Books' is false, misleading and deceptive. In truth and in fact, the books designated as ' free' or as ' Bonus Books' are not gifts or gratuities or without cost to the recipient but on the contrary the prospective purchaser or purchaser, before he is entitled to receive such books, must join respondents' club thereby becoming obligated to purchase at least four books from respondents over the period of a year, the fulfillment of which obligation inures directly to the benefit of, and profit , the respondents.

The above described acts and practices of respondents in the use of the word "free" are alleged to be to the prejudice and injury of the public and to constitute unfair and deceptive acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

DOUBLEDAY & CO. , INC. ) ET AL. 483 482 Order The same legal concept of the word "free " as is set forth above, was also set forth by the Commission in a policy interpretative statement on .J an uary 14, 1948, as follows:

The use of the word 'free' or words of similar import, in advertising to designate or describe merchandise sold or distributed in interstate commerce, that is not in truth and in fact a gift or gratuity or is not given to the recipient thereof without requiring the purchase of other merchandise or requiring the performance of some service inuring directly or indirectly to the benefit of the advertiser, seller or distributor, is considered by the Commission to be a violation of the Federal Trade Commission Act.

N early six years after the promulgation of above-cited policy interpretative statement, the Commission, on September 8, 1953 , reconsidered and rescinded that statement. A few days thereafter, on September 11, 1953, the Commission, in a proceeding very similar to the present one, dismissed the complaint In the Matter of IV alter , Black, Inc., et aI., Docket No. 5771. In that opinion the Commission phrased the issue before it by the following question: Maya businessman doing business in interstate commerce be charged with engaging in unfair or deceptive acts or practices in violation of the Federal Trade Commission Act if he uses the word free' in his advertising to indicate that he is prepared to give something to a purchaser free of charge upon the purchase of some other article of merchandise?"

The Commission by dismissing the complaint in that proceeding gave a negative lLnswer to the question propounded. In the light of these events, counsel for the respondents, on October 7, 1953, moved that the complaint herein be dismissed. Oral argument in support of and in opposition to respondents' motion was heard by the above-named duly designated Hearing Examiner on October 13, 1953.

Although counsel supporting the complaint recognized in his argument that the Commission had modified its concept as to the meaning of the word "free" subsequent to the issuance of the complaint herein he opposed the dismissal asked for on the grounds that other of the respondents' acts and practices (in addition to those set forth in Paragraph Four of the complaint) constitute violations of the Federal Trade Commission Act, within the purview of the Commission s recent statement made at the conclusion of the opinion In the Matter of supra. That statement is as follows:IValter ,J. Black, Inc., et aI. The use of the word 'Free ' or any other word or words of similar import or meaning, in advertising or in other offers to the public, to designate or describe any article of merchandise sold or distributed in 484 FICDERAL TRADE COMMISSION DECISIONS Order 50 F.

commerce ' as that term is defined in the Federal Trade Commission Act, is considered by the Commission to be an unfair or deceptive act. or practice under the following circumstances: (1) When all of the conditions, obligations, or other prerequisites to the receipt and retention of the 'free ' article of merchandise are not clearly and conspicuously explained or set forth at the outset so as to leave no reasonable probability that the terms of the advertisement or offer might be misunderstood; or (2) 'V\Then, with respect to the article of merchandise required to be purchased in order to obtain the ' free' article, the offerer either (1) increases the ordinary and usual price; or (2) reduces the quality; or (3) reduces the quantity or size of such article of merchandise. In particular, counsel supporting the comph1int asserted that evidence could be presented to establish that "* * * all of the conditions obligations, or other prerequisites to the reception and retention * * *" of the book advertised as "free" have not been "* * * clearly and conspicuously explained or set forth at the outset * * *" of respondents' advertisements and that actually recipients of the so-caBed "free book have been deceived by such failure to reveal. Thus, he contended that respondents have been engaged in unlawful acts and practices within the purview of the Commission s recent statement concerning the use of the word "free." Such an assertion may be w uTanted and counsel supporting the complaint may be prepared to make good on his promise to prove. .May he legally attempt to do so under the present complaint? lies shown in the first quotation herein presented, the first sentence of Paragraph Four of the complaint makes a broad allegation that The use by the respondents of the word ' free' and the term ' Bonus Books' is false, misleading and deceptive. " This allegation, standing alone, might warrant the introduction of the proposed proof above referred to. It does not, however, stand alone. It is immediately followed and qualified by the specific and limited explanation of why and wherein the word "free " as used by the respondents, is false. Since no other acts or practices arc charged in the complaint to be false, misleading and deceptive, it must be concluded that the complaint places in issue only those statements which are in vol ved in tile repudiated concept of the word "free. " Furthermore, under the Commission s practice, new or fldditiOlml charges can only be added to a proceeding by the Commission itself through the issuance of a new amended or supplemental complaint. It follows, therefor'', that the present complaint should hc dismissed. In view, however, of the public interest in the possible. proof referred to by counsel supporting the couplaint, the cspondents arc not entitled to an unqualified dismissal. Ac.eordmgly, It or-deter! That the complaint herein h ). and the same hereby i2. dismissed without prejudice.

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T:HEJ:reac:9. CO. ING..

Interlocutory Order IN THE J\fATTR OF . THE :MAICO COMPANY, INC.

Docket 58.82. Orllerandopinion; .Dec. 7, 1953 Before ilh. "Webster Ballinger and lib:. Frank Hier hearing exammers.

Mr. William C. Kern and JJIT. Andrew C, Goodhope for the Commission.

Dorsey, Colman, Barker, Scott Barber of Minneapolis, Minn. for respondent.

ORDER GRANTING ApPEAI IN PART, SETTING ASIDE INITIAL DECISION AND REMANDING " PROCEEDING TO HEARING EXAMINER This matter is before the Commission upon respondent' s appeal ::rom the initial decision of the hearing examiner, briefs in support of and ilj opposition to said appeal and oral argument of counsel In support of its appeal respondent contends that the record herein does not establish that its exclusive dealing contracts with its distributors has had or may have any adverse effect on competition and that therefore, the complaint herein should be dismissed. Respondent also takes exception to certain of the findings, to the conclusion and to the order in the initial decision. It also excepts to the hearing examiner s rulings granting a motion to strike certain evidence, excluding certain exhibits and rejecting certain offers of proof. An examination of the record shows that the hearing examiner struck or excluded from the record certain evidence relating to the effect on competition of the exclusive dealing provisions in respondent' s contracts with its distributors. For " the reasons stated in the written opinion of the Commission, which is being issued simultaneusly herewith, the Commission is of the opinion that evidence relating to the effect of these contractual provisions on competition is relevant and material to the issues herein and should have been received and .considered.

The Commission, however, does not believe that this matter should be dismissed but is of the opinion that the initial decision should be set aside and the proceeding returned to the hearing examiner for the reception and consideration of such material evidence. Respondent' s exception to the hearing examiner s failure to dismiss the complaint, therefore, should be denied.

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'1\1 1.ce 10' t\1e V sell THE MAl CO CO., INC. 487 485 Opinion increase in the number of its competitors, (2) that the volume of business of its competitors has increased, (3) that its share of the market has been decreasing, (4) that its dealers constitute a small percentage of the total number of hearing-aid dealers in the country, and (5) other matters relating to effect on competition. These factors, in our opinion, all have a very real bearing on whether t.here may be, or already has been, a substantial lessening of competition due to respondent's exclusive dealing cont.racts. The examiner likewise refused t.o allow counsel supporting t.he complaint t.o present testimony by competitors of actual foreclosure of a portion of the market t.o them as a result of respondent's contract.s. The hearing examiner presumed the existence of a lessening of competition yet excluded evidence which might show facts to the contrary. This exclusion was based on an interpretation of the Supreme Court' decision in the Standard Stations case* to the effect that such evidence as to the economic effect of the challenged contract is immaterial and surplusage.

From our reading of the statute, we cannot conclude that evidence of the effect of an exclusive dealing agreement on competition is immaterial in a Federal Trade Commission proceeding alleging violation of Section 3 of the Clayton Act. The Supreme Court did not require evidence of competitive effect under the circumstances of the Standard Stations case, ruling that it was suffcient to show that competition has been foreclosed in a substantial share of the line of commerce affectl,d. In its decision, it stated that courts were most il suited to make an appraisal of economic data to determine the actual effect of a practice on competit.ion, such a determination being virtually impossible for ascertainment by the courts. It is significant that at the same time the Court pointed out the Federal Trade Commission was adequately equipped to weigh all relevant economic factors. For it noted:

Our interpretation of the Act therefore, should recognize that an appraisal of economic data which might be practical if only the latter (i. e., the Federal Trade Commission) were faced with the task may be quite otherwise for a judge unequipped for it either by experience or by the availability of skilled assistance. (Standard Oil 00. v. U. S. supra, p. 310). The view of the Commission s functions is not novel. Congress created the Commission;

with the avowed purpose of lodging the administrative functions committed to it in ' a body specially competent to deal with them by reason of information, experience, and careful study of .Standard Oil Co . of California v. United States 337 U. S. 293, 69 S. Ct. 1051 (1949). , Opinion 50 . T. C. the business and economic conditions of the industry affected,' and it was organized in such a manner, with respect to the length and expiration of the terms of offce of its members, as would 'give to them an opportunity to acquire the expertness in dealing with these special questions concerning industry that comes from experience.' Report of Senate Committee on Interstate Commerce No. 597, June 13, 1914, 63d Congo 2d Sess., pp. 9 , II." (Federal Trade OOrnission V. R. F. Keppel il Bro. 291 U. S. 304, 314 (S. Ct., 1934)).

The need for specialized consideration in matters involving complex economic factors and the intention of Congress that the Federal Trade Commission should give such consideration to these matters has often been recognized by the Supreme Court, as for instance, in the Cement case in which is stated:

In the Keppel case the Court called attention to the express inten- Lion of Congress to create an agency whose membership would at all times be experienced, so that its conclusions would be the result of expertness coming from experience. ,;V e are persuaded that the Commission s long and close examination of the questions it here decides has provided it with precisely the experience that fits it for performance of its statutory duty. The kind of specialized knowledge Congress wanted its agency to have was an expertness that would fit it to stop at the threshold every unfair trade practice that kind of practice which if left alone destroys competition and establishes monop- DIy. Federal Trade (/om,1n V. Raladam 00. 283 U. S. 643, 647, 750 v. Oement Institute (S. Ct., 1951)" Federal Trade Oommission et al. 333 U. S. 683. (S. Ct., 1948).

A reading of Section 3 of the Clayton Act clearly indicates Congress intended to outlaw only those exclusive dealing agreements which are lessening or which if allowed to continue will probably lessen competition or tend to create a monopoly. We believe the structure of the Federal Trade Commission was specifically designed to make decisions involving this type of complex economic problem. To refuse to exercise our talents as an administrative tribunal in these cases because the courts feel "ill suited" to weigh all of the relevant factors, would deprive the country of the very services which we were created to furnish.

"Ve cannot decide this matter on the record before us. To reach a reasoned decision we must have the facts. Therefore, this matter must be remanded to the hearing examiner for the development of a record sufficient to enable us to determine the effect of respondent' practices on competition.

. PHILMOR CO. 489 Decision