Morse Sales, Inc.

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF ~10RSE SALES, INC., ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED VUOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 6613. Complaint, Aug. 20, 1956-Decision, Aug. , 1957 Order requiring sellers in Chicago to cease selling and distributing electrical appliances, housewares, and other articles of merchandise by means of push cards and supplying push cards for use in such sale. Mr. William A. Somers for the COlllmission. Berkson Spitzer by Mr. Jerome Berkson of Chicago, Ill., for respondents.

INITIAL DECISION BY FRANK I-Imr HEARING EXAl\finer THE PROCEEDING . On August 20, 1956, complaint herein was issued against respondents charging them with unfair acts and praetiee.s in commerce in violation of the Federal Trade Commission Act by selling merehandise in commerce by means of games of chance, gift enterprises lottery schemes. The individual respondent was alleged to control and direct the policies of the corporate respondent. The answers of the respondents admit corporate existence and description, the officership of the individual respondent, deny his control or direction of the corporate respondent, admit the sale of merchandise in commerce, deny the same to be by chance or lottery, or that respondents have supplied others with the means of conducting games of chance in the sale of merchandise. Three hearings were held resulting in 64 pages of transcript and nine exhibits, an offered in support of the charges. At the first hearing, individual respondent appeared in response to a subpoena, but declined to answer any questions after stating his name and address because his counsel was not present and under the Fifth Amendment to the United States Constitution. Subsequently, at a hearing for the rec.eption of respondents' evidence the individual respondent did appear and testify in his OW11 defense. The taking of evidence was completed January 31 , 1957, and subsequently proposed findings and conclusions were filed by eou1!sel supporting the complaint on consideration of which, and the entire record herein, the hearing examiner finds that this proceeding is , Findings 54 F.

brought in a clear and substantial public interest and makes the following.

FINDINGS OF FACT 1. Respondent l\lorse Sales, Inc. , is a corporation organized in December 1955 under the laws of the State of Illinois, and doing business thereunder and since at 1222 west Morse Avenue, Chicago Illinois. Respondent Leo R. Fox is an individual and president of the c.corporate respondent, and although he does not own a majority of the stock of the corporate respondent, he directs and controls its policies and sales activities, the remainder of its stock being owned by his niece and his sister.

2. Respondents are now and have been, since January 1956 , engaged in the sale and distribution in eommeree, as "commerce" is defined in the Federal Trade Commission Aet, of electrieal appliances, housewares, and other merchandise.

3. Some of this merchandise is sold over the counter at respondents place of business and some by mail pursuant to local adve,rtisements. These sales are not involved in this proceeding. 4. J-Iowever, to sell and distribute a substantial amount of their merchandise, respondents have had printed eircular letters, order blanks, push c.ards and pictorial pieees which they send to a mailing service. The latter, for a fee, furnishes mailing lists and uses them to mail out broadside across the nation, respondents' mailing pieees consisting of a circular letter describing respondents' selling plan, a push card, an order blank and a descriptive piece of the merchandise. such as an automatic e.lec.trie frying pan, electric coffee set, or a television e.lec.trie eloek lamp." Thus, in the first four months respondents were in business 120 000 mailings were made, from which 450 orders were reeei ved.

5. The push card, enclosed with the eirculars, ete., in each mailing, \which is the key, of c.course, to the "merchandising plan" and is the typieal lottery device, has up to 75 partially perforated dises, each bearing a feminine given name. One of these names is the lucky one., the purc.hase.r of the punc.h with that name, getting the applianc.e merely by chance and for the price of his punch, which will vary from 1~, to 391 or some other lower amount. The purehasers of the other punches are, of course., out of pocket the cost of their punch and receive nothing. The name of the lueky puneh is concealed under a master dise which is not torn off until all the punches are sold. The recipient of respondents' mailing piece who chooses to enter into the plan, and peddles the punehes on the push eard MORSE SALES, INC. , ET AL. 195 193 Findings remits the amount received from selling the punches to respondents and thereupon receives from them by parcel post the prize to be delivered to the lueky punch purchaser, and also the. same article for himself as compensation for selling the punches. 6. The push carel for the automatic electric fry pan, for instance shows the following:

LUCKY NAME UNDER SEAL RECEIVES NEW F'ryall (Depiction of Pan) AUTOMATIC ELECTRIC FRY PAN (Depiction of 3 ash trays) Nos. 7 and 19 Nothing like it! You ll love your Fryall at first each receive 3 sight. Prepares an entire meal with ease-saves beautiful you loads of time and work! You cook and serve ASH TRAYS the most delicious meals right at your table with this amazing Fryall. 110-120 volt A. C. operation. No. 1 pays It! Easy washing like any quality electrical appli- No. 7 pays 7 ance. Complete with High Dome, Self-basting No. 12 pays 12( cover and 6-foot heavy duty cord. No. 19 pays 19( FULL 1 YEAH GUARANTEE! No. 26 pays 26; PUSH OUT WITH PENCIL All others pay 39( NONE HIGHER (Master Seal) The reverse side of the card bears the feminine name. of each punch with a line to write in the name of the person purchasing the punch. 7. Sales of respondents' merchanchse by means of saiel push cards are made in aecordance with the a boye-described legend 01' instruetions, and .said prizes or premiums are allotted to the customers or purchasers from said card in accordance with the above legerlcl or instructions. ,Whether a purchaser reeeives an arbe1e of merchandise or nothing for the amount of money paid, and the amount to paid for the me.rchandise or the chance to receive said merchandise are thus determined wholly by lot or chance. The articles of merchandise have a value substantially greater than the price paid for each ehance or push.

8. Respondents furnish and have furnished various other push earc1s aecompanied by order blanks, instructions and other printed matter for use in the sale and distribution of their merchandise by means of games of c.hance, gift enterprises or lottery schemes. The Conclusion 54 F.

sales plans or methods involved in the sale of all of said merchandise by means of said other push eards are the same as that hereinabove described, varying only in detail as to the merchandise distributed and the prices of ehances and the number of ehances on each eard. 9. The persons to whom respondents furnish and have furnished said push cards use the same in selling and distributing respondents merchandise in aecordanee with the aforesaid sales plans. Respondents thus supply to and place in the hands of others the means of conducting games of chance, gift enterprises or lottery schemes in the sale of their merchandise in aeeordanee with the sales plan hereinabove set forth. The use by respondents of said sales plans or methods in the sale of their merchandise and the sales of said merchandise by and through the use thereof and by the aid of saiel sales plans or methods is a praetiee which is contrary to an established public policy of the Government of the United States. 10. The sale of merchandise to the purchasing public in the manner above alleged involve.s a game of chance or the sale of a chance to procure one of the said articles of merchandise at a price much less than the normal retail price thereof. :Many persons are attracted by said sales plans or methods used by respondents and the element of ehanee involved therein and thereby are induced to buy and sell respondents' merchandise.

11. The use by respondents of a sales plan or method involving distribution of merchandise by means of chanee, lottery or gift enterprise is c.ontrary to the public interest and constitutes an unfair act and practice in commerce within the intent and meaning of the Federal Trade Commission Aet.

12. The aforesaid ads and pradiees of respondents as herein alleged are all to the prejudice and injury of the public and constithe intent andtute unfair acts and practices in commerce within meaning of the Federal Trade Commission Ad. CONCLUSION Respondents' sale of push earc1s contemplates and inevitably involves the use of a lottery or game of chanee, and the placing by respondents in the hands of others, lottery devices for use in the sales of his merchandise. Such a merchandising operation is violative of the established public policy of the Government of the United States, is to the prejudice of the public and constitutes unfair acts or praetiees in commerce within the intent and meaning of the Federal Trade Commission Act.

MORSE SALES, INC., ET AL. 197 193 Opinion 10RDER It is ordered That the respondents, 1\10rse Sales, Ine. , a corporation, its officers, agents employees or representatives, and Leo R. Fox, individually and as an offieer thereof, his agents, employees or representatives, directly or through any corporate or other device in connection with the offering for sale, sale or distribution of any merchandise, in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. Supplying to, or placing in the hands of others, pull eards, push eards, or any other lottery devices, either with merchandise or separately, which are designed or intended to be used in the sale or distribution of respondents' merchandise to the public by means of a game of ehance, gift enterprise, or lottery scheme. 2. Selling or otherwise disposing of any merehanc1ise by means of a game of chance, gift enterprise, or lottery scheme. OPINION OF THE COMMISSION By GWYNNE, Chairman:

The complaint, filed under the Federal Trade Commission Act charges respondents with selling merchandise in eommeree by means of games of chanee, gift enterprises or lottery schemes. After a hearing, the initial c1eeision and order was filed directing respondents to cease and desist from:

1. Supplying to, or placing in the hands of others pull c.ards, push eards, or any other lottery devices, either with merehanc1ise or separately, which are designed or intended to be used in the sale or distribution of respondents' merchandise to the public by means of a game of ehanee, gift enterprise, or lottery scheme. 2. Selling or otherwise disposing of any merchandise by means of a game of ehance, gift enterprise, or lottery scheme. The appeal of respondents was presented by written briefs without oral argument..

Respondent 1\10rse Sales, Inc. is a corporation located in Chieago Illinois, and engaged in the sale and distribution of electrieal appliances, housewares and other merchandise.. A portion thereof is (listributed by means of push cards. The description of such earc1s and the. initialthe method of operation is set out in Paragraph 5 of deeision as follows:

5. The push card, enclosed with the circulars, etc., in each mailing, which is the l;:ey, of course, to the "merchandising plan" and is the typical lottery device, has up to 75 partially perforated discs, each bearing a feminine given name. One of these names is the lucky one, the purchaser of the punch with that name getting the appliance merely by chance and for the price of his punch ...

Opinion 54 F.

which will vary from lC to 399 or some other lower amount. The purchasers of the other punches are, of course, out of pocket the cost of their punch and receive nothing. The name of the lucky punch is concealed under a master disc which is not torn off until a11 the punches are sow. The recipient of respondents' mailing piece who chooses to enter into the plan, and peddles the punches on the push card, remits the amount received from selling the punches to respondents and thereupon receives from them by parcel post the prize to be delivered to the lucky punch purchasers, and also the same article for himself . as compensation for selling the punches. Respondents employ a mailing service to distribute these push eards, order blanks and other explanatory and advertising materials to persons whose names and addresses have been secure,d from brokers who make a business of preparing such lists. The material is sent out on a nationwide basis. The first four months of respondents' operation, 120 000 mailings were made, from which 450 orders were received.

The hearing examiner found that respondents, by placing in the hands of others the means of eondueting games of ehance and lottery schemes in the sale of respondents' merchandise, were acting contrary to an established public policy of the Federal Government and in violation of the Federal Trade Commission Act. These. findings and legal conclusions are clearly supported by the evidence and by many eases decided by the courts, which need not be cited here. Respondents further argue that the evidence is insuffieient to' justify the order against Leo R. Fox, individually and as an officer of 1\1:orse Sales, Inc.

Respondent Fox was ealled as a witness by the Commission and refused to testify. Counsel supporting the complaint then introduced the testimony of an investigator for the Commission as to statements made to him by respondent Fox. From this and other evjtlence, it appears that: respondent ~lorse Sales, Inc ~ is a fmnily corporation of which respondent Fox is president; his niece is secretary and his sister is vice-president; the majority of the ~stock is held by the nieee. Cheeks are signed by the respondent Fox find the anditoL 1\11'. Turner. In the early part of 1056, checks "-ere signe(1 by Fox as president and his niece as secretary-treasurer. The investigator for the Commission testified that respondent Fox told him that (Fox) was the only active officer of the corporation-a statement not denied by 1\11'. Fox when he later took the stand. It seems clear from the evidence that respondent Fox is till' dominant influence in the corporation and, in fact controls its policies and sales activities as found by the hearin!! examiner. The findings, conclusions and order of the hearing examiner are adopted as the findings, conclusions and order of the Commission. MORSE SALES , INC. , ET AL. 199 193 Order The appeals of respondents are denied and it is directed that an order issue accordingly.

FIN AL order Counsel for the respondents having filed appeal from the initial dec.ision of the hearing examiner and the matter having been heard on briefs, no oral argument having been requested; and the Commission having rendered its decision denying the appeals of the respondents and adopting the initial decision as the decision of the Commission:

It is O1'dered That respondents 1\lorse Sales, Inc., a corporation and Leo R. Fox, individually and as an officer thereof, 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 eomplied with the order to cease and desist contained in said initial deeision. Decision 54 F.