Book-Of-The-Month Club, Inc.

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IN THE MATTER OF BOOK-OF-THE-MONTH CLUB, INC. ET AL.

MODIFIED ORDER, OPINION, AKD DISSENT IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket ,5572. Order and opinion, Mar. , 19,5.1 Order modifying the Commission s prior order, dated May 8, 1952, 48 F. T. C. 1297 , with respect to the use of the term " J;'ree, in the light of the Commission s present policy as announced in its opinion in the matter of Walter J. B lack, Inc. , etc. Docket 5571, Sept. 11, 1953 infra page 225, and following the remand of the proceeding to the Commission by the Court of Appeais for the Second Circuit for its consideration in the aforesaid connection, and the respondents' motion to vacate or modify said order and to dismiss the complaint (granted in part and denied in part)- So as to require respondent corporation, its oflcers, etc., in connection with the offer for sale, sale, and distribution of books in commerce, to cease and desist from "using 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 book or other article of merchandise" when all the conditions, etc., pertaining to the matter are not clearly and conspicuously explained at the outset, etc. , or wbeTl the offerer increases the ordinary price or reduces the quality, quantity, or size of the article, as in said order below in detail set out; and Dismissing the complaint as to respondent individuals as such, but not as oflcers of respondent corporation.

Before Mr. Abner E. Lipsoomb hearing examiner. Mr. Jesse D. J(ash for the Commission. Wolfson, Oaton Moguel of New York City, ror respondents. MODIFIED ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission, answer of the respondents testimony and other evidence introduced before a hearing examiner or the Commission theretofore duly designated by it, recommended decision of the hearing examiner and exceptions thereto, and briefs and oral argument of counsel, and the Commission, having made its findings as to the facts and its conclusion that the respondent Book-of-the- Month Club, Inc., had violated the provisions of the Federal Trade Commission Act, on May 8, 1952, issued its order to cease and desist which order was subsequently affrmed by the United States Court of Appeals for the Second Circuit; and Said Court of Appeals, acting on a petition fied by the respondents having remanded this proceeding to the Commission for the purpose BOOK-OF-THE MONTH CLUB , INC., ET AL. 779 778 Opinion of considering appropriate action in connection with the order to cease and desist in the light of the present policy of the Commission regarding the use of the word "free " in advertising, as announced in the Commission s opinion in the proceeding entitled "In the Matter of Walter J. Black, Inc., a corporation, trading as The Classics Club and Detective Book Club" ; and The respondents having thereafter filed with the Commission a motion to vacate or modify said order to cease and desist and to dismiss the complaint, and the Commission having entered its order granting said motion in part and denying it in part and being of the opinion that its order to cease and desist issued on May 8 , 1952, should be modified in certain respects:

It is ordered That the respondent, Book-of-the-Month Club, Inc. its offcers, representatives, agents, and employees, directly or through any corporate or other device, in connection with the offering for sale and distribution of books in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: Using 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 book, or other article of merchandise: (1) when alj 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) when, with respect to the article of merchandise required to be purchased in order to obtain the "free " article, the offerer either (a) increases the ordinary and usual price; or (b) reduces the quality; or (c) reduces the quantity or size of such article of merchandise. That the complaint herein be, and the same It is further ordered hereby is, dismissed as to Harry Scherman and Meredith 'iV ood as individuals but not in their capacity as offcers of respondent Bookof-the-Month Club, Inc.

That the respondent, Book-of-the-Month It is further ordered Club, Inc., shall, within sixty (60) days after service upon it of this order, fie with the Commission a report in writing setting forth in detail the manner and form in which it has complied with this order. Commissioner Mead dissenting.

OPINION OF THE COMMISSION By CARHETTA, Commissioner:

This matter is before the Commission upon a motion, filed by the respondents, for reconsideration of the order to cease and desist . '1'. c. Opinion 50 1;' entered herein on May 8, 1952, and in which they request that said order to cease and desist be vacated and set aside and the complaint dismissed, or, in the alternative, that the order to cease and desist be modified. Counsel in support of the complaint filed an answer in which he objects to so much of the motion as requests that the order be vacated and the complaint dismissed, but in which he joins with the respondents in so much of the motion as requcsts the order s modification. The Commission s jurisdiction to entertain the motion is clear, the entire proceeding having been remanded to the Commission on December 11, 1953, by the United States Court of Appeals for the Second Circuit, for the purpose of considering and taking appropriate action on just such a motion.

The respondents do not in the present stage of the proceeding contend that the order to cease and desist issued by the Commission on May 8, 1952, was then improvident. They do contend, however (1) that after the date of issuance of said order to cease and desist the Commission s position on the use in advertising of the word "free was changed, as announced in the Commission s opinion in the proceeding entitled "In the Matter of VIT alter J. Black, Inc. , a corporation trading as The Classics Club and Detective Book Club " Docket No. 5571, with the result that the outstanding order against these respondents prohibits practices which would not now be regarded as unfair or deceptive, and (2) that unless the order is vacated or, at least, modified the respondents will be placed at an unfair competitive disadvantage with their competitors upon whom such an order would not now be imposed.

The Commission does not disagree with either of these contentions. The outstanding order to ceaoe and desist broadly prohibits the respondents from using the word "free " or any otller word of similar meaning, in advertising, to designate or describe any book, or other merchandise, which is not in fact a gift or gratuity or is not given to 01'the recipient without requiring the purchase of other merchandise requiring the performance of some service inuring, directly or indirectly, to the respondents' benefit. In so doing, the order was in strict conformity with the Commission s policy in effect at the time the order was issued and Wns identical in all respects with orders which had thereto:lorc been issued against many other advertisers concerning the use 0:1 the word ":Iree. " That it was propel' in all respects is clearly shown by the opinion 0:1 the Court. of Appeals for tbe Second Circuit dated February 10, 1953, in that court's decision of t.he case arising out of t.he respondents' petition for review of the order (202 F. 2d 486). \s pointed out. by the respondents, however, the Commission s position on t.his subject has now been clmnged. Henceforth, the use of the BOOK-OF-THE MONTH CLUB , IKC., ET AL. 781 778 Opinion word "free " or other words of similar import or meaning, in advertising or in other offers to the public, to designate or describe an article of merchandise, will be considered to be unfair and deceptive only (1) when all of the conditions, obligations, or other prerequisites to the receipt and retention of the "free" article of merchandise are not clear Jy and conspicuously explained or set forth at the outset so as to lea,ve no reasonable probability that the terms of the advertisement or offer might be misunderstood; or (2) when, with respect to an article of merchandise required to be purchased in order to obtain the "free artick, the oHerer either increases the ordinary and usual price, reduces the quality, or reduces the quantity or size of such article of merchandise, (In the Mauer of 'Walter J. Black, Inc. , etc., Docket No. 5571-- September 11, 1953). It is thus clear that the order against the respondent s, consistent in all respP.cts with the Commission s prP.vious poi icy, does prohibit the nsP., in adve.rtising, of the word "frp.e " and other words of similrLr mP.auing, under circumstances which would not now be considered unfair or deceptive.. To tlll extent that it does so, it obviously impose.s upon thp. responc!Pnts requirements \which would not he impose.d upon their competitors.

This, however, does not me m that thp. order should be vacated and set aside and the complaint dismissed, for, as thp. original findings as to thp.blCts in this proc;eP.dillg show, the rP.spondents have. used the word frp.e" in their ad vertisillg in t mamwr which \vould be considerP.d unfair and clecP.ptive eVP.n under the new policy, in that thp.Y did not ckarly and conspicuously disclose. in said adve.rtising all of the conclitions. obligations, or other prerequisites to the receipt and rP.entjo)l of t Iw hook referred to j herein as " frp.P.. Specifically, the rP.sp01Hlents did not disclose the het, and that it was a fact is nndisputed by the respondents, that if a member of the Book-of-tllP-Month Club failed or refuse.d to purchase at least four books within a year after joining thp. cjub, payment for 01' the return of the hook theretofore designated as he. ' would be required. whether or not all of the other conditions obLgations, or prP.rP.qnisites to tlll receipt and retention of the hook desc:ribs.d as "free" were clearly flnd adequately disclosed neP.d not now be decided.

In view of the foregoing, it would not be in thp. public illterP.st for this proce.p.ling to be disposed of by dismissal of the complaint. On the other hand, the Commission has no desire to impose upon the rP.spondents a restriction which is 11JnecP.ssarily harsh or \',which p1aees tl1Pm at an unhir competitive disadvantage in the Rale of thp.ir books. In the exercise of its administrative. discretion, therefore, and in an efrort to lP.avP. the rP.spondents in the same competitive position as others who may wish to nse the word "free " in ad\'ertising their prod- Opinion 50 F. T. C.

ucts, the Commission has determined that the order to cease and desist in this case should be modified by so qualifying it that the prohibition against the respondents will be, in effect, the same as would be the prohibition against their competitors under similar circumstances. Applying the familiar principle that the Commission s orders should proscribe the entire ilegal practice as well as the specific acts by which such illegal practice has been manifested (I- ershey Chocolate Corporation v. Federal Trade Commission June 30 1941 121 F. 2d 968 (971- 972) and similar cases), such a prohibition would cover the use of the word "free" (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) when, with respect to an article of merchandise required to be purchased in order to obtain the "free" article, the offerer either (a) increases the ordinary and usual price; or (b) reduces the quality; or (c) reduces the quantity or size of such article of merchandise.

Commissioner .Mead would deny respondents' motion to vacate or modify the order to cease and desist entered herein on May 8, 1952, for the reasons stated in Commissioner Mead's dissenting opinion in the matter of Walter.J. Black, Inc., et aI., Docket No. 5571. PICKOW DISTRIBUTING CORP. ET AL. 783 Decision