The Atlas Mfg. & Sales Corp.

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IN THE MATTER OF THE ATLAS :vFG. & SALES CORP. ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED VlOLATlON OF THE FEDERAL TRADE COMMISSIOI\' ACT Dochet. 6902. C01l1Jluint, Oct. 1957-Dccis1o)/ , Dec. 4, 1%8 Order requiring three affliated Cleveland concerns selling vending machines and supplies therefor, to cease representing falsely in " bait" advertising placed in the classified columns of newspapers to obtain leads to PUlchasers, that employment \vas offered to selected person with OPPo1'tunities for exceptional profits, that buyers' investment was working capital secured by inventory with no risk of loss, that the business was permanent and depression proof, etc:. ; and that the respondents were agents of Hershey Chocolate Corporation.

M1' . Terml A. Jordan for the Commission, AI,.. Wallace A. Jenhns, J,' of Parma, Ohio, for respondents. INITJAL DECJSJON BY LORE:; H. LAUGHLIN, HEARING EXAMINER This proceeding, in substance, involves numerous charges that respondents have violated th Federal Trade Commission Act by advertising, soliciting and selling commercially in interstate commerce bulk vending machines and the candy or other products to be used therein and sold therefrom to the public. It is alleg-ed that respondents, by means of false and misleading advertising and promotional material, sold substantial quantities of said vending machines and supplies therefor in the courSt; and conduct of their business. Respondents in their respective answers admit certain allegations but deny others, and in substance each denies that it or he has violated the Act in any way. This initial decision finds generally that the allegations of the complaint are amply substained upon the whole record by a preponderance of Hw reliable, probative and substantial evidence as required by """(ion 7 (c) of the Administrative Procedure Ad and the Commission s Rules of Practice for Adjudicative Proceedings adopted Dursuant thereto and that respondents have violated the Federal r""-lde Commission Act in each of several particulars, except one wnich is not pressed by Commission s counsel, lacks evidence to snnport it, and is therefore dismissed. A cease and desist order is issued herein appropriate to the fmdings and conclusions which are hereinafter set forth.

THE ATLAS MFG. & SALES CORP. ET AL, 829 828 Dccision This case was instituted by the filing of a complaint on October , 1957, legal service of which was duly had upon the several respondents, \vho in due course filed their separat.e answers during November 1957. Thereafter hearing's wherein evidence was presented by Commission s counsel were held in Cleveland, Ohio on January 14 and 15, 1958, and in Detroit, Mich., on January 17 1958, at which laller lime Commission s counsel conditionally rested his case in chief, resting it absolutely and \vaiving the presentation of rebutlal evidence at the end of respondents' evidence after they had finally rested, Respondents presented their evidence in Piltsburgh, Fa. , April 14 , 1958 , and in Cleveland, Ohio, on April 15 and 16 , 1958 , and rested their respective defenses. In accordance with an order authorizing- the filing of proposed findings of fact, conclusions of Imv and order, Commission s counsel filed his on June 6 , 1958 , and respondents filed theirs on June 9, J 958, all of which have been carefully considered in the lig-ht of the whole record presented herein. Since the evidence supports the proposed findings of fact, conclusions and Dreier submitted by Commission s counsel, the examiner has adopted them either in haec ve,' /Jae or in substance and effect. The proposals of respondents, except that relating to the clismissal of respondent Philip Schwimmer, and one proposition of law, have been rejected as not in accord with the record and findings herein made.

The complaint charges respondents \with having used st.atemente; an(1 representations in their advertising and promotional material addressed to and read by the public, which statements and representations, it is charged, were false, misleading, and deceptive in twelve different particulars, reference to each of which will be hereinafler made in the order in which it appears in the complaint. The record consists of 611 pages of transcript and 138 documentary exhibits, of which Commission s counsel offered 124 and respondents oiIered 14. The testimony adduced consisted of that of the several1 individual1 respondents other than Phillip Schv.rimmer, a substantial number of so-caned "consumer witnesses " some called by Commission s counsel and some by respondents in opposition thereto, and several other 1"vitnesses not falling into either of these two classes. On behalf of the Commission there was presented the testimony of six "consumer witnesses " residing in the vicinity of Detroit, Mich., and a stipulation as to similar testimony by another "consumer witness resident of that area. These were people who had answered re- Decision 55 F.

span dents' newspaper advertising. Respondents called five "consumer witnesses" residing in Pittsburgh or eastern Ohio. With one exception these witnesses were large operators, one having some 1 100 bulk vending machines on location with 13 servicemen and another had about 11 500 on location and also engaged in the sale of such machines to the extent of about 6 000 per year. While some of these large operators had started in a small way and made a substantial success of the business, there is no evidence that they were induced to get into the business by reason of respondents' advertising although the smaller operators had done so. It would unduly extend this initial decision and serve no useful purpose to narrate the testimony or refer to most of the exhibits, and the references herein made are only to the highlighted parts of the entire record although the whole record has been fully considered and is inherently passed upon in the findings hereinafter made.

In his separate answer, respondent. Philip Sch,\'immer, an attorney at law in Cleveland, Ohio, vigorously challenged his connection with the matters involved herein and appeared personally to renew his challenge, making a motion to dismiss as to him which, after the presentation of evidence absoJving him from Jegal connection with the charges, was granted by the hearing examiner, and the complaint dismissed as to him subject to formal ratification in the initial decision (Tr. 6-10 and 84-87). In substancc the record shows that this respondent had never been an offcial of respondents Atlas Manufacturing & Sales Corp. or American Products Corporation and had had no connection with either corporation other than the ownership of three percent of the stock in the former and holding a directorship therein but having no connection with the policies of any of the respondents. While he has been giving legal advice in the past, he has never received any income from his stock during the many years of ownership nor any Jegal fees. The motion to dismiss as to him was not resisted, and the order hereinafter entered dismisses the complaint and proceeding as to said Phillip Schwimmer. In the subsequent portions of this initial decision therefore, for brevity, reference to the respondents generally means a11 respondents except the said Phillip Schwimmer.

The hearing examiner, after hearing and observing a1l of the witnesses and their conduct and demeanor while testifying, has given full, careful and impartial consideration to their testimony and to a1l other evidence presented on the record and to the fair THE ATLAS MFG. & SALES CORP. ET AL. 831 828 Decision and reasonable inferences arising therefrom, as well as to any and all facts pleaded in the complaint which are admitted by the respective answers of the respondents, limiting the effect of such admissions however strictly to those respondents who admit such pleaded facts. Proper recognition is also given to certain relevant matters of offcial notice as to which request has been made by Commission s counsel as hereinafter specifically referred to and as to which "any party shall on timely request be afforded an opportunity to show the contrary " as provided by 7 (d) of the Administrative Procedure Act and 14 (c) of the Commission Hules of Practice for Adjudicative Proceedings. All statements arguments and proposals of counsel for the parties have likewise been fully considered. Upon the whole record thus evaluated and weighed, it is found that the material allegations of the complaint are each and a1l fully and fairly established as to each of the charges as to all respondents, other than Phillip Schwimmer by the preponderance of the evidence, with one exception hereinafter noted. The hearing- examiner therefore specitica1ly tinds as follows:

Respondent, The Atlas Manufacturing- & Sales Corp. , is a corporation organized, existing and doing business under and by virtue of the laws of the State of Ohio. Hespondents Wallace Jenkins and Frank Olsak are individuals and are president and vice president and secretary, respectively, of said corporate respondent. The individual respondents formulate, direct and control the acts, practices and policies of the corporate respondent. The principal offee and place of business of said corporate and individual respondents is located at 12220 Trisket Road, Cleveland, Ohio. Hespondents Wallace Jenkins, Frank O1sak and The Atlas Manufacturing & Sales Corp. each admit this by their answers, and the evidence shows that said Jenkins owns 52 percent of the stock and the said Olsak owns 42 percent of the stock of said corporation. While O1sak categ-orica1ly denies that he has anything- to do with the sales operations of the corporation and confines his duties strictly to those of the manufacturing end the process of making- the vending machines produced by the corporation, the record shows that maj or sales programs are voted on a stockholders' meetings and that a1l policies and maj or problems relating to sales and production are a matter of constant discussion between O1sak and Jenkins. In a closely held small corporation such as this, it would be manifestly naive to find 832 FEDERAL TRADE COM IISSION DECISIONS Decision 55 F.

that either of these two stockholders and offcers who own 94 percent of the stock could compartmenta1ize their work and duties so as to insulate either of them from legal responsibility for any corporate activities engaged in by the other. American Products Corporation is a corporation duly organized, existing and doing business under and by virtue of the laws of the State of Ohio. Respondent Wallace Jenkins is the sole owner of the stock and the sole offcer of the said American Products Corporation and in this capacity formulates, directs and controls the acts, practices and policies of the corporate respondent. The principal offee and place of business of said American Products Corporation is located at 12220 Trisket Road, Cleveland, Ohio. These facts are admitted by respondents Wallace Jenkins and American Products Corporation in their answers, and it is also established by the testimony of the former. Respondent Roland S. ,Jenkins is an individurll trading and doing business as Atlas Enterprises. His oflice and principal place of business is located at 8693 Lynnhaven Hoad, Cleveland , Ohio. The answer admits and the testimony of this respondent establishes these facts.

Respondent, American Products Corporation, until August 1956 , and all other respondents are nO\\1, and for more than one year last past have been engaged in the business of manufacturing, advertising, selling and distributing vending machines and vending machine supplies. In the course and conduct of their business, respondents now cause and have caused said products when sold, to be transported from their aforesaid places of business in the State of Ohio to purchasers thereof located in various other States of the United States and the District of Columbia. Respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade, in commerce, between and among the various States of the United States anti the District of Columbia in said products. The several1 respondents admit these facts in their ansvvers and there is an abundance of other evidence to establish the substantial extent of respondents' dealings in vending machines throughout a substantial part of the United States, In the course and conduct of their business as aforesaid, respondent, American Products Corporation, prior to August 1956 , and al1 other respondents have been, and no\\' are in direct and substantial competition in commerce ,,,ith other indivic1t!a1s and with various firms and corporations engaged in the salc in commerce , ,,/. THE ATLAS MFG. & SALES CORP. ET AL. 833 828 Decision of vending machines and supplies therefor. These facts are fully admitted by the answers of the several respondents and, of course are well established upon the record, which discloses, among other things, that there arc a vast number of concerns engaged in automatic merchandising and the manufacture of vending machines (RX- , p. 2, stating, "It is estimated that at present (1956J there arc 150 manufacturers of automatic merchancUsing machines Respondent, "TaJIace Jenkins, as an individual, and as an officer of The Atlas Manufacturing & Sales Corp. , and The Atlas Manufacturing & Sales Corp. have in the past supplied and presently supply advertising and promotional1 material for use in the sale l1d distribution of vending machines and vending machine supplies to the respondent Roland S. Jenkins, trading under the name of Atlas Enterprises, and to numerous other persons firms and corporations engaged in the sale and distribution of vending machines and vencling machine sllpplies. The ansv.,rers of respondents The Atlas Manufacturing & Sales Corp" Wallace Jenkins and Roland S. Jenkins admit this fact, and the testimony of Roland S. Jenkins identifies much of his sales material contained in his sales kits was supplied to him hy Wallace Jenkins as an individual and offcer of the corporation. Wail ace Jenkins also testified several times that he had furnished such advertising material to various other persons, firms and corporations engaged in the sale and distribution oJ vending machines and supplies. Commission s counsel requests that official notice be taken of orders issued against certain customers of The A tlas Vlanllfacturing & Sales Corp. who "' cre furnished substantially the same advertising material that the evidence discloses herein was used by Roland S. Jenkins in his contacts and negotiations with the public. These orders are contained in the cases of Robert L. Knillen Docket No. 6315 , and Vendi! , Inc. , et, Docket No. 6695. Of course, since consent orders '''' ere entered in the saiel proceedings, the facts therein agreed to in no respect bind any of the respondents herein since none of them Vi'ere parties to said proceedings but consideration has been given to the type of orders issued by the Commission in sllch cases in resolving the prop :iety of the order .hereinafter issued.

\Vallace Jenkins, as an inc1ivid ual and as an offcer of The Atlas Manufacturing & Sales Corp., and The Atlas Manufacturing & Sales Corp. have engaged in the sale and distribution of vending- 834 FEDERAL TRADE COMMISSION DECISIOKS Decision 55 F.

machines and supplies therefor to the ultimate purchaser and have used the same sales plans and techniques as those employed by Roland S. Jenkins trading as Atlas Enterprises, Wallace Jenkins owns a1l of the stock of the American Products Corporation which was engaged in the sale and distribution of vending machines and vending machine supplies in the same manner as respondent Roland S. Jenkins. The Master Manufacturing and Sales Company was affliated with The Atlas Manufacturing & Sales Corp, and was similarly engaged in the sale and distribution of vending machines and supplies therefor in the same manner as respondent Roland S. Jenkins. The testimony of both Roland S. Jenkins and Wallace Jenkins establishes these facts and shows that Roland S. Jenkins received his training and experience in the handling and sale of the products herein involved as an employee of his father and his corporations. Likewise, Commission s Exhibits 80-A & 13 through 95- , a report made by Wallace Jenkins to the Cleveland Better Business Bureau narrates a part of these facts, The evidence indisputably discloses that Roland S. Jenkins is the son of Wallace Jenkins, that he was employed by his father corporations between 1946 and 1950, and following military service he retl'rned in 1953 and 1955 to said employment and was sales manager of The Atlas Manufacturing & Sales Corp. , as well as president during 1953-54 of American Products Corporation, which was then and now is owned 100 percent by his father Wallace ,Jenkins, and which corporation carried on the sales operations of the Atlas machines and also sold the supplies to be vended therein until Roland began to carryon such business as a s01e trader. During these years said American Products Corporation was in the vending- machine business and operated in the same manner as Roland S. Jenkins has since operated ami now operates the business of selling vending machines and supplies. Atlas Manufacturing & Sales Corp. put forth a letter of introduction, Commission s Exhibit 34 , stating that Roland S, Jenkins is that corporation s authorized representative . 'Vhile Roland S. Jenkins maintains in some instances a separate business address, he has free access to and use of the offce and stationery of Atlas and in some of his advertising, Commission Exhibit 110, uses the corporation s address as his business address. Numerous other exhibits tie these several addresses and the busi- Iless of the father s companies and those of Roland inextricably together. No other customer of the father s business appears from THE ATLAS MFG. & SALES CORP. ET AL. 835 828 Decision the record to have had the special privileges or connection therewith that Roland has had and now has, While Roland S. Jenkins now operates as a sole tradership under the name and style of Atlas Enterprises, the similarity of the word "Atlas" in both titles and the general methods of advertising to the public interlock the advertising of both concerns in the minds of prospective purchasers interviewed by Roland and his agents as being one and the same organization. The hearing examiner observed the friendliest of personal relations existing between the father and son during the hearing, It could not be successfully urged by respondents that their personal and business relationships are not. so closely linked together as to he completely inseparable insofar as the public is concerned.

Behind the facades of the several corporate veiJs and the sole tradership, the respondents, both individual and corporate, cannot escape liability for the sales practices of Roland S. Jenkins in his dealings with the puhlic. Both the senior Jenkins and OJsak necessarily profit from the many successful sales which have been made by the junior Jenkins. See G. HowaT'd Hunt Pen Co, v. F.T. C. (C. A. 3 , 1952), 197 F.2d 273, 281 , and l1"uin C. (C. A, 8, 1944), 143 F. 2d 316, 325, ami numerous cases cited, which hold that the author of false, misleading and deceptive advertising may not furnish even his independent customers with a means of misleading the public and thereby insulate himself against responsibility for the deception caused by said lidvertising. Federal Trade Commission proceediIlgs are not premised on strict legal fraud and the good faith or bad faith of respondents is not material. See Pord Moto1' Co. v. C. (C. A. 6 1941), 120 F. 2d 175, 181-182 ce,- t. den. 314 U.S. 668 (1941). As the Supreme Court has stated in F'T. C. v. Alu01na Lwnbe,' Co. 291 U. S. 67, 81 (1934), "though the practice condemned does not amount to fraud, as understood in courts of la,,, (iJ ndeed there is a kind of fraud, as courts of equity have long perceived, in clinging to a benefit which is the product of misrepresentation howevn innocently made * '" * That is the respondents ' plight today, no matter what iheir motives may have been when they began. They must extricate themselves from it by purging their business methods of a capacity to deceive, Respondent, Roland S. ,Jenkins, to induce the purchase of vending machines and vending machine supplies ofiered for sale by him, has placed and now places advertisements in newspapers \ 836 FEDERAL TRADE COM:IISSION DECISIONS Decision 55 F, in Ohio and in Vllrious other States of the United States which advertisements arc calculated to cause and do in fact cause persons to make inquiries of the said Roland S. Jenkins concerning the nature of ihe offer made therein. Persons making inquiries are then visited by the said Roland S. Jenkins, his employees agents or representatives. Such salesmen show to the prospective purchaser a variety of advertising and promotional material contained in a sales kit carried by them and furnished by respondent Roland S. Jenkins. Substantially all of the material contained in said sales kit originated with and was supplied by the said Wallace Jenkins as aforesaid. Either Roland S. Jenkins or his employees agents or representatives make numerous oral representations of the matters referred to in the sales kits or others such as agreeing to accept back the vending machines if the purchaser cannot place them on location, all of which are calculated to induce and do in fact induce the purchase of said vending machines and vending machine supplies. Roland S. Jenkins, in his answer and testimony, has admitted the use of classified advertisements as alleged in the complaint and evidenced by various exhibits of both the Commission and respondents. The ,vide dissemination of these advertisements in interstate commerce is thoroughly evic1encecl by the record. The classified advertisements hcreinaHcr referred to ere published by Roland S. Jenkins in various newspapers in different States incJucling those in Detroit, 1\lich. , wherein a number of the "consumer witnesses" testifJecl they rea(l them. Such classified ads are hereinafter set forth in some detail. The)' and other promotional material of respondents contain the several items of stat.ement or inference contained therein which are alleged to have had the tendency and capacity to mislead and deceive, and as the record shows in many instances rlicl actually mis- 1cad and deceive, the consuming public.

The newspaper ads first invite attention to the products of respondents and to the great financial possibilities to be realized if such ad is answered. This flr t contact is the important one. If "bait advertising" i.' used to solicit replies from members of the public inquiring about what a respondent has to sell, the sub2, quent transactions bet.wecn them do rJOt purge the original advertisement of its tendency to mislead or deceive the public. It has been held in C",.ter P,oducls, II1C. , et ((I. v, F, T, C. (C. A, 1951), 186 F. 2d 821 , 824 :

. .. The la\\ is yioJah.'eJ if the first cor.t"ct 01' intel' view is secured by deception (Fer/anl Trade COIJJ/. v. 8tQ"//(hl1"1 Educotion Suciet!/, rt (fl. :-02 U. S. 112 THE ATLAS MFG, & SALES CORP. ET AL. 837 828 Decision 115 (25 F. C. 1715, 2 S. & D. 429)), even though the true facts are made known to the buyer before he enters into the contract of purchase (PnJgress Ta;'loring Co. et nf. v. Pederal THule Comm. 7 Cir. , 153 F. 2d 103 , 104 , 105 (42 F. C. 882 , 4 S. & D. 455)), S('e also Aronbe1"y, et rri. v. Federal Tnt. Comm. 7 Cir., 132 F. 2Ll Hi5 , 169 (29 F. C. 1634, :3 S. & D. 528). It is immaterial, therefore, if either Roland S. Jenkins or his agents or representatives made clear to their prospective purchasers before any sales were actually made that such purchasers were not in fact obtaining employment from the Hershey Chocolate Company but were going into business for themselves with the risks of the business made their own. It is also immaterial that those who made the representations other than Roland S. Jenkins \\'"ere his employees or agents or were independent contractors. See G. IIoWQ1' d Hunt Pen Co. v. , supra and l1win v. , S'Up'i' The classified advertisements which are quoted in paragraph 5 of the complaint and admitted by respondents are evidenced in the record also by Commission s Exhibits 96 , 110, 111 , and respondents' Exhibit 5. These advertisements are short and are quoted as follows:

START SPARE TIME SERVICIJoG HERSHEY CANDY ROUTE \Ve will select a respC'Jlsiblc person in your area to servic(' our :IE\V HERSHEY CANDY DISPENSERS. No selling 01' experip.nce neeeO:S8.ry. Qualified person will have opportunity of earning $5 000 1")1' year devoting ;paj' e time' to start. About 6 hours pel' week required to service route and to m2nagc business. To be eligible you must chive car and be able to rnake small investment of $594 CASH to handle inventory. For personal1 intr:l'view write giving- particul31' , phone and l'ef'ererJce to: District I'vIanager, Dept. 102 8Gg3 Lynnhavf'n road, Cleveland 30, Ohio. (CX-96) SPARE OR FULL TIME SERVICI:-G HERSHEY CANDY ROUTE We "wiJI select a l'esponsibJe p,' lson in your area to servic(' our ):EVv' HERSHEY CANDY DISPEK'SERS. o seJJing or experience necessary. Qualified person "will have opportunity of earning $5 000 per year devoting S/J3 re time to start. A about 6 hours per week required to o:ervice route and managing businf'Ss. To be eligible you must drive car and be able to make mall investment of $5 )4 CASH to "handle inventory. For personal interview write giving particular" , phone and reference to Dio:trict Manag' , Dept. 194 12220 Tl"skett Hoad, Cleveland 11 , Ohio. (CX- ll0) START SPARE Tille SEHVICING JIEHSHEY CANDY R01;TF;

\Ve will select a l'espDTlsible person in your area to service aui' NEW Decision 55 F.

HERSHEY CANDY DISPENSERS. No selling or experience necessary. Qualified person wil have opportunity of earning $5,000 per year devoting spare time to start. About 6 hours per week required to service route and managing business. To be eligible you must drive car and be able to make small investment of $594 CASH to handle inventory. For personal interview write giving particulars, phone and reference to: District Manager Dept. 179, 8693 Lynnhaven Cleveland 30, Ohio (CX-Ill) As respondents concede in proposing as one of theh- conclusions of law: "The important criterion in determining whether a product is falsely advertised is the net impression which the advertisement is likely to make upon the general public. Charles-ofthe-Ritz Dist,'ib"tors Corp. v. C. (C. A. , 1944), 143 F. 676 , 679, 680, and numerous eases cited. The Commission must consider the class of persons to whom the appeal is made, and in the ease at bar these include many who, while not wholly ignorant, are so financially pressed that they wil grasp at straws for financial succor and infer much more than a technical close examination of the advertisement might lead a prudent person to gather therefrom.

These lead or "bait advertisements" were published either under the heading of "Business Opportunities" or "Help Wanted" cojumns of numerous newspapers. Whatever the classified heading \vas is immaterial1. These columns are for the most part read by persons seeking to better their financial situations, and the testimony of the Hconsumer witnesses" called by Commission s counsel amply attest the viewpoints and situations confronting persons who are typical of the public answering such ads who have not previously been in the vending- machine business. The advertisements quoted above, as published in the newspapers and the other promotional material presented to the consuming public by respondents or their agents and, representatives, in each of their several different appearing inducements had the tendency and capacity to mislead and deceive the public to whom the ads were addressed. The several specific representations are hereafter enumerated:

1. Respondents falsely represented that employment was offered to certain especially selected persons, the truth being that any person \vho answered the ads \vho could pay for vending machines was sold such machines and supplies therefor. The language of the ads nowhere states that it is necessary to pur- , THE ATLAS MFG. & SALES CORP. ET AL, 839 828 Decision chase the vending machines but to the contrary says Weare looking for a reliable person "' * * to refill and collect from our automatic merchandise dispensers" and " a responsible person to serve our new Hershey candy dispensers " thereby clearly implying that the respondents would retain tiile and ownership and the applicant would merely be employed by them. 2. By the aforesaid lanp;uage, the respondents also falsely represented that persons selected for employment would opel' ate and service respondents vendin machines. 3. Respondents falsely have represented, directly or indirecily, that they were employees, agents or representatives of the Hershey Chocolate Company of Hershey, Pennsylvania, because the advertising does not refer to the name of any of the respondents but at the bottom refers to "District Manager Department etc., below references to the Hershey Chocolate Company in one way or another in the preceding portion of the ad. Respondents admit by answer, testimony, or both, that none of respondents \\"ere employed by Hershey and did not represent it, but only bought its products for resale to the purchasers of their vending machines.

4. Respondents falsely represented, directly or indirectly, that persons selected by them for employment must own or be able to drive a car, have references, or have a specified sum of money. The quoted ad\"ertisements definitely state these requirements but while the eddence indicates that no substantial route could be operated \vithout a motor vehicle, respondents never made inquiry of those answering the ads as to any of such matters as references or car ownership and sold as few or many vending machines as the prospect could pay for.

5. Respondents falsely represented, directly or indirectly, that persons selected for employment must invest in amounts varying from S575 up to $1 250 in their several advertisements, which amount was to be used as working capital for the purchase of an inventory of merchandise for dispensing in the vending machines referred to in the advertisement. The evidence overvvhelmingJy establishes that the public believes that inventory refers to stock in trade, such as in this case, candy or other products to be dispensed in the vending machines. As a matier of fact, there was no such security, the money being substantially alj required and used for the outright purchase of respondents' vending machines a negligible amount of goods to be dispensed being usually also included in the sale.

Decision 55 F.

6. Respondents falsely represented that any amount invested was secured by an inventory and there was no risk of losing the investment. Several of the advertising materials used by respondents said there was "no risk of losing your investment " whereas in fact there was no insurance against loss by inexperienced members of the public, and the amount of candy purchased would not secure anything like the amount invested in any event. Several of the "consumer witnesses" testified that they were "hooked that most of the machines they purchased could not be located and had to be stored on their own premises. It is elementary that such an article which cannot be used to any advantage is a dead loss to its owner, and furthermore, there is abundant undisputed testimony in the record that secondhand vending machines sell for a very sroal1 fraction of what the witnesses paid respondents for theirs and also that old established customers of respondents could buy from them new machines at but a fraction of what new customers can. The machines in fact were not even security for their own real value due to a glutted secondhand market on such machines.

7. Respondents falsely represented that persons selected for employment would not be required to sell or engage in any kind' of selling activity. 'Vhile respondents and some of their witnesses indulged in considerable hair splitting as to what constitutes selling, the great preponderance of the evidence shows that anyone seeking to place vending machines or keep them on location must possess considerable persuasive powers to induce the OIvners of the location t.o permit the machines either to be placed or to be retaincd.

8. Respondents falsely represented, directly or indirectly, that persons selected for employment would earn an income of from $400 to $800 monthly, or $5 000 per year. The words of one classified ad specifically so state. Other promotional material promised a net. profit of from J 00 percent to 300 percent on the amount of the total investment. There is no qualification that it might take years of hard work and the purchase of numerous vending machines to acquire such an income. The exaggerated promisc of earning $5 000 per year on a $400 investment seems ludicrous on its face but on this record members of the public who answered tbe ads credibly testified that they believed that the:y could make such a large sum for sllch a small investment with very litte time devoted thereto. The fact that some large THE ATLAS MFG, & SALES CORP. ET AI,. 841 828 Decision and successful operators testified that it was possible with good attention to business and with machines in good locations for a first class operator to earn substantial sums, furnishes no absolute or reliable criterion of success for the type of persons who answered respondents' ads and tried to engage in such a business for the burst time.

9. Respondents falsely represented, directly or indirectly, in their promotional material that their said vending machines dispensing Hershey candy or other types of candy or gum would sell out their entire contents at least once and usually twice a week. The evidence is entirely contrary to this. Even respondent Roland S. Jenkins admitted it would take from four to six weeks for the entire contents of a vending machine to be emptied in a good location, and other of respondents' witnesses, long experienced in the business, testified it \vould take from six \veeks to two months to empty a machine if ulled with Hersheyettes, Pal-ticularly as in summer such product was unsalable to any great degree because of the seasonal change affecting chocolate sales. The experience testimony of the purchasers who testified shows that their machines emptied in about from ene up to seven months dependent upon location. o witness testified that these machines did regularly, on the average, sell out even once a week, let alone twice a week.

10. Hcspondents falsely represented, dirctly or indirectly, by their promotional material that profltable locations were easi1:'l secured where vending machines \:vould sell out their entire contents at least once or hvicc a vi'eek. Much of the promotional material of responr1ents so represented, but the evidence of experienced and extensive operators testifying for respondent.s estab- Jished that in fact good locations are unusual; that it is very diffcult to secure profitable locations for vending machines; and that it is the average of numerous machines on Jocation from which profit must be derived, 11. Respondents falsely represented, directly or indirectly, in their promotional material that the business opportunity offered by responr1ents was permanent and depression-proof, While in some aspects such representations might be considered mere "puffing," it is clear that in their context and in the entire circumstance of the sale of the machines in each of the several instances testified to, those purchasing them believed that they assuredly would make regular and easy money in substantial amounts through any kind of economic conditions. Although the evidence discloses , Decision 55 F.

that pennies stil circulate during dcpressions or recessions, and in some instances certain vending machines in certain areas do even better than in good times, the evidence clearly shows that the general situation over the country is such that there is no such thing as a permanent loss-proof business in the vending machine line, and that economie conditions affect that business the s"me as most others in bad times.

The alleged specific misrepresentation that Roland S. Jenkins held himself forth as a manufacturer of vending machines as charged in paragraph 6 , subsection 12, and paragraph 7 , subsectiun 12, is not sustained by the evidence and is therefore dismissed.

The protection of the gullib1e and unwary is one of thc basic func1 ions of thc Federal Trade Commission in situations such as that which is so vividly presented in the instant case. As hereinbefore stated, it would unduly lengthen this decision to refer in detail to the evidence in all particulars whereby the unsuspecting read",s of the ads were persuaded to go deeply into debt or to invest substantial savings in a precarious business in which such pers(JllS had utterly no experience. One need only read this record however, to see and understand that the practices of respondents are exactly those which are referred to in respondents' Exhibit 3. This exhibit is a business service bulletin, prepared and promulg-ated by the U.S. Department of Commerce, entitled Summary of Information on Automatic :\lerchandising," dated May 1956. It Wd.S offered by respondents generally, and was received generally in evidence by the examiner because of certain relevant information it appeared to contain. It gives a brief and iluminating Iii story of the development of the vending machine business in all of its aspects, and while much of the material is disregarded since it has no relevancy of materiality to the particular type of vending machines in evidence in this case, that is bulk TI1merchandise vending machines, nevertheless, much of its contents illustrate the vexing- and difncult problems confronting the vending machine operators, particularly inexperienced ones, which were not disclosed by respondents to their prospective purchasers, either in their glowing advertising- and promotional materials or in the ardent sales pitches of their representatives and ag-ents. The following- quotation from page 4 of said exhibit discloses the basic elements of this case far more succinctly and e10quently than the examiner could possibly state them: THE ATLAS MFG. & SALES CORP. ET AL. 843 828 Decision During the past few years, the "Business Opportunity" columns of many newspapers have contained advertisements describing golden opportunities for people who could invest a few hundred donars (or a few thousand dollars) and their spare time in an automatic vending machine route. Usually there is a clear implication that good locations are under contract and all the investor needs to do is to visit the machines once or twice a week, fill them with merchandise, and cooled the receipts. In many cases, however, salesmen have merely obtained trial locations for the equipment, and often the entrepreneur finds that after a few weeks he is requested to remove the equipment and has 110 other location in which to install it. Such selling meth ods have done much harm to the whole industry and have been and are being fought by the more stable elements of the industry. While there are undoubtedly opportunities for men of ability to enter the industry, both in the fields which have become reasonably weJj established Rnu in those where new types of machines are creating new markets, success wil require skiled salesmanship, mechanical aptitude, infinite attention to detail, and the effciency necessary to operate on smail profit margins. Nothing stated in this initial decision must be taken to infer that the automatic merchandise business is not a legitimate business. The respondents' business of manufacturing and sellng vendi1lg machines and the merchandise to be dispensed therefrom is a legitimate business in itself. It must be clearly distinguished from automatic machines which are devised for gambling purposes, that is, slot machines and the like. Alj that the complaint aHacles and a11 that is decided herein are that certain specific sales methods and practices heretofore used by respondents are contrary to Jaw and that respondents must purge their business thereof.

The public interest in this proceeding is manifest. The vending machine business when honestly conducted is a substantial business and as an industry in its entirety.y has permanence as indicate in respondents' Exhibit 3 , hereinafter referred to. Nevertheless the operating profits of such business to the investment are not large, and as shmvn on page 3 of said exhibit a 1950 survey of operators' costs and profits revealed that certain types of vending or machines among those reporting who had sales of $100,000 Jess only sbowed operating profits varying from one percent up to eight percent. The solicitation of the public for the purpose of let alone selling vending machines on profits even of 100 percent, an annual return of" 10 to 12 times an investment of about $500 is so grossly mischievous as to rc(r lire the Commission s intervention on behalf of the public to prevent such practices in the future, It must he recognized that the respondents may possibly mm1ufacture and sell other types of vending machines than bulk 844 FEDERAL TRADE C01\IMISSIOK DECISIONS Dccision 55 F.

candy or gum dispensers in the future. It is therefore important that they be prohibited from using the sales methods heretofore employed in any future operations of their business; hence the breadth of the order herein issued. As far back as 1952 the value of shipment.s of automatic merchandising machines (except refrigerated) amounted to S22. 8 millions (respondents' Exhibit 3, p. 2). The industry s substantial growth after 1947 (ic1.) and the increasing size and spread of the vending machine industry in interstate commerce requires that it be subjecteel to regulation by this Commission. It cannot be permitted to prosper on il1icit methods any more than other types of businesses can. The re pondent \Vallace Jenkins is sometimes referred to in the record as Wallace Jenkins, Sr., or Wel1aee A. Jenkins, Sr. Another son, Wallace A. Jenkins, Jr. , appeared in this proceeding throughout as the attorney for al1 respondents except Phillip Sch\vimmer, their former attorney. The record does not. disclose that the attorney son has had any connection with any of the acts and practices herein involved, but only acted professionally h1 this adjudicative proceeding. He and Commission s counsel represented their respective sides in a highly professional manner and their frequent stipulations as t.o evidence and the Eke made possible a much shorter record than \vould otherwise have been made, for \which they have the unreserved commendation of the hearing examiner.

There being jurisdiction of the persons of the respondents, upon the findings of fact hereinbefore made, the herring examiner makes the following conclusions of law:

1. The acts and practices of the respondents hereinabove found to be false, misleading, and deceptive arc all to the prejudice and injury of the public and constit.ute unfair and deceptive acts or practices and unfair met.hods of competition in commerce within the intent and meaning of the Federal Tracle Commission Act. 2. The Federal Trade Commission has jurisdiction over all of the respondents' acts and practices which have been hereinabove found to be false, misleading, and deceptive. 3. The public i11terest in the proceeding is clear, specific, and substantial.

Cpon the foregoing findings of fact and conclusions of lave, the follmving order is hereby entered:

THE ATLAS MFG. & SALES CORP. ET AL. 845 828 Order ORDER It is orde,' That respondents The Atlas Manufacturing & Sales Corp., a corporation, and American Products Corporation a corporation, and their offcers, and Wallace .Jenkins, individually and as an offcer of each of said corporate respondents and Frank OJsak, individually and as an offcer of The Atlas Manufacturing & Sales Corp., and Roland S. .Jenkins, an individual trading- as Atlas Enterprises, or trading under any other name and their agents, representatives and employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of vending machines, vending machine supplies or any. other ldnd of merchandise, in commerce as "commerce" is defined in the Federal Trade Commission Act do forthwith cease and desist from representing, directly or indirectly, that:

1. Employment is offered or that employment is offered to specially selected persons either by respondents or by any other person, firm, or corporation;

2. Pe:!:sons will be selected to operate and service a vending machine route m\'ned by respondents;

3. jtesponrlents are affliated with, approved by or are agents or representatives of the Hershey Chocolate Corporation, Hershey, Pa., or of any other person, firm or corporation; 4. Purchasers of respondents' aforesaid products must own an automobile or be able to drive an automobile or furnish references or have a specified sum of money;

5. The money required to purchase respondents' aforesaid products is for the purpose of providing working capital for the purchase of m inventory of merchandise ' to be dispensed in vending machines; or othervi ise representing- that money is required for any pmpa"e other than its true purpose; G. The money required to purchase respondents' aforesaid products is secured or that there is no risk of losing the money so invested;

7. Purchasers of respondents ' aforesaid products wi1 not be required to sell 01' engage in any kind of selling acti vi ty establishing or maintaining a vencling machine route; 8. Purchasers of respondents ' aforesaid products wiJI derive any amount of earnings or profits from t.he operation of said vending machines in excess of the earnings or profits received by persons contemporaneously engaged in the operation of similar Opinion 55 F.

vending machines situated in similar locations and dispensing the same kind of merchandise;

9. Vending machines wi1 selI out their entire content within any time less than the time required by similar machines contemporaneously located in similar locations and dispensing the same kind of merchandise;

10. Locations for vending machines returning a rate of profit higher than that contemporaneously returned by similar vending machines, located in the usual and customary locations available to the purchaser and dispensing the same kind of merchandise may be secured with the expenditure of less time, money, eITort or ingenuity than is in fact required;

11. The sale of merchandise by vending machines is a permanent business operation for individual purchasers of respondents' aforesaid products;

J2. The sale of merchandise by vending machines is unaffected by economic depressions or other c.changes in the business cycle.

It is turthc,' ordered That the complaint be and the same hereby is dismissed as to the respondent Phillip Schwimmer, individually and as an officer of said1 corporate respondent, The Atlas Manufacturing & Sales Corp.

It is grill turther onle,' ecl That the alleged speciJ)c misrepresentation that Roland S. Jenkins held himself forth as a manu- , sub-facturer of vending machines as charged in paragraph 6 section 12, and paragraph 7 , subsection 12 , is not sustained by the evidence and should be and hereby is dismissed. OPINION OF nib COMMISSION By GWYN Chairman:

This matter is before the Commission on the appeal of respon1(1ents from the initial decision and order. The respondents filed an appeal brief and counsel in support of the complaint filed reply brief. Oral argument was not requested. The complaint charged respondents with violation of the Federal Trade Commission Act by the making of false representations in connection ",ith the sale of vending machines. The false statements charged against the respondents in the complaint and which are the basis of the initial order are as f o11o\\s :

J. Respondents offered employment to certain specially selected persons;

THE ATLAS MFG. & SALES CORP. ET AL, 847 828 Opinion 2. Persons selected would operate and service vending machines owned by respondents;

3. Said advertisement was placed by the Hershey Chocolate Corporation of Hershey, Pa. , or by respondents as the agents or representatives of the said Hershey Chocolate Corporation; 4. Persons selected must own or be able to drive a car, have references, or a specified sum of money; 5. Persons selected must invest $594 or $575 to $1 250 , depending on which advertisement is read, v/which \vas to be used as working capital for the purchase of an inventory of merchandise to be dispensed in said vending machines; 6. Any amount invested as aforesaid was secured by an inventory worth the amount invested and there was no risk of losing the investment;

7. Persons selected would not he required to sell or engage in any kind of selling activity;

8. Persons selected could expect to earn an income of $400 to $800 monthly, or $5 000 per year, depending on which advertisement was read, and could expect to receive a net profit of from 100 % to 300 % on the amount of their total investment; 9. J(respondents' said vending machines would sell out their entire content at least once and usually twice each week; 10. Profitable locations for vending machines purchased from respondents \were easily secured;

11. The business opportunity offered by respondents was permanent and clepression proof.

The initial order dismissed the complaint as to Philip Schwimmer, individually and as an offcer of The Atlas Manufacturing & Sales Corp. and dismissed the specific misrepresentation that Roland S. Jenkins held himself forth as a manufacturer of vending machines as charged in paragraph 6, subsection 12, and paragraph 7 , subsection 12, of the complaint, as not sustained by the evidence.

Respondent, The Atlas Manufacturing & Sales Corp. , is an Ohio corporation, with its principal place of business located at 12220 TriskeU Road, Cleveland, Ohio. It is a manufac1urer of vending machines.

Respondents, Wallace Jenkins and Frank Olsak are individuals and are president, and vice president and secretary, respectively, of The Atlas Manufacturing & Sales Corp. The former owns 52 percent of the corporation stock and the lauer owns 42 percent. Both are active in the management of the corporation. While 848 FEDERAL TRADE COMMISSIO DECISIONS Opinion 55 F.

respondent Olsak denies he had anything to do with the sales policies and activities of the corporation, the record shows that the maj or sales programs are voted on at the stockholders' meetings and that a1l policies and programs relating to sales and production are discussed by these two major stockholders and principal offcers of the corporation.

Respondent, American Products Corporation, is an Ohio corporation with its principal place of business at 12220 TriskeH Road, Clevcland, Ohio. Until August 1956 this corporate repondent was engaged in the business of manufacturing, selling and distributing vending machines and vending machine supplies. Respondent Wallace Jenkins is the sole owner of stock and the sale offcer of this corporation and in this capacity, formulates and directs the policies and practices of this corporate respondent. The record sho.ws that this corporation ,:vas engaged in sales of vending machines to the ultimate purchaser and utilized the same sales plan and techniquc as is now utilized by Roland S. Jenkins. Respondent Roland S. .Jenkins is an individual trading and doing business as Atlas Enterprises, with offce and principal place of business at 8693 Lynnhaven Road, Cleveland 30 , Ohio, and is engaged in the sale of vending machines. This case is concerned \with representations 111acle in connection with the sale of coin-operated bulk vending machines. These machines have a large glass bowl filled with candy, nuts, gum or trinkets and are operated by a penny or nickel. Respondent Roland S, Jenkins places classified advertisements in newspapers, generally in the form set out belmv, but may be differently phrased as indicated ill the record: SPARE OR Fell TIME SERVICING HERSHEY CANDY ROUTE We will select a l'espomible TJerson in your area to service our new Hershey candy dispensers. No selling or experience necessary. Qualified person wil have opportunity of earning $5 000 per year devoting' spare time to start. About six hours per week required to service route, and managing business. To be digible you must drive car ami be able to make small investment oJ $504 cash to handle inventory. For personal intcrview \-vrite giving particulars, phone and references to District Manager, Dept. 194, 12220 Triskett H.oael, Cleveland 11 , Ohio.

In addition, certain of the advertising contains the representation "income can run up to $400 to $800 monthly with possibility of taking over full time, income accordingly increases. To qualiy, applicant must have car, references, and $575 to $1 250 working ! ,.

Tile ATLAS MFG. & SALES CORP. ET AL. 849 828 Opinion capital which is secured by inventory. We wi1 allow liberal financial assistance for expansion.

Persons answering the advertisements receive from the respondent, Roland S. Jenkins, a letter of acknowledgment and a form entitled " Confidential Application." The application form requested information of a nature considerably beyond that usually required for credit purposes. Rather, it is of a nature usually associated \with an offer of employment. The prospective purchaser is visited by a representative of the respondents who, by use of certain sales materials and oral representations, attempts to sell vending machines and vending machine supplies.

The initial contact, having been made as a result of classified advertisements placed in newspapers, the prospect is then shown literature containing some of the questioned representations. Certain oJ this literature is supplied by The Atlas Manufacturing & Sales Corp. Examples of representations contained in such literature are as follows:

6. Its an ALL CASH Business. There are no charge accounts. No BAD accounts. YOUH NET PROFITS approximately 100%, and on some vendors like "OURS" the Xet Profit may be 200% to 300(/0. Your average business is lor 20-1(-59 Combination Vendors Emptying Twice a week at $4.79 net each ..vould return operator $19Uio per week. A wide awalce operator, with our vendors, should have no diffculty in getting good possible location::.

3. No Selling or Soliciting.

The Safest Surest Business on Earth.

1. 1\0 RISK of losing your investment. . . S. And it is pcnmllcnt . . . And it is depression proof. 10. And bec' cause you get your original investment back (plus a profit) . . . It is to each or these representations that the hearing examiner made detailed fJldings. The respondents challenge these findings as not supported by the evidence. The initial decision reviews the evidence as to each matter in controversy. Here, the basic sales promotional plan of the respondents is to secure leads to prospective purchasers through representations in newspapers calculated to suggest employment opportunities and to sell the prospects by means of exaggerated and false statements concerning opportunities in the vending machine field. We agree with the findings of the hearing examiner that the false and deceptive character of the statements alleged in sub- , .

Order 55 F.

sections 1 through 11 , inclusive, of paragraph 6 of the complaint have been established by the evidence.

\Vaven throughout respondents' brief are two basic contentions. Respondents claim each phrase of the challenged representations is literally true and that all they were doing through the advertisements was to set forth their position "in the most favorable light." Stated in another way, respondents contend there was no intent to deceive and that since each of the various representations, isolated from the context, is true, there is no element of deception. We believe the law and the facts in this case to be to the contrary. The court in Pord Motor Co. v. Federal Trade Commission 120 F.2d 175, stated:

The question does not depend upon the purpose of the advertisement nor upon the good or bad faith of the advertiser. The point for consideration here is whether, under the facts and circumstances in connection with the publication of the advertisement, the language in and of itself, without regard to good faith, is calculated to deceive the buying public. And, in Rhodes Pha1'nacal Co,! Inc. v. Federal T1'J.de Cornm.'ssion 208 F.2d 382, the court stated:

The important question to lJC 1"eso1ved is the impression given by an advertisement as a whole. Advertisements which are capable of two meaning' one of which is false, Iire misleading. United Stutes v. .95 Bun' e/s of Vine gat 265 U. S. 438, 442. Advertisements which creDle a false impression, although 1itel' ally true, may be prohibited. Koch v. Federal Trade Crnnmiss1 206 F. 2d :nl; Consolidated nook Publishen; v. Ferle?' al 'lmde Commission Cir. f.3 F, 2d 942, 944. The Federal Trade Commission Act provides . *' and in determining ,,,hethel' any advertisement is misleading, there shall be taken into account " "' representations made or suggested" t "' " 15 U. Sec. 55 (a) Respondents' appeal is hereby denied. The findings and order of the hearing- examiner are adopted as the findings and order of the Commission. It is direded that an order issue in accordance with this opinion.

FJKAL ORDER The respondents herein, except respondent Phillp Schwimmer having filed an appeal from the hem-ing examiner s initial decision, and the Commission having considered the matter on the briefs of counsel (oral argument not having been requested) and having rendered its decision denying the appeal and adopting as its own the findings and order in the initial decision: It is o,'dered That the respondents, The Atlas :\1manufacturing- & Sales Corp, and American Products Corporation, corporations THE ATLAS MFG. & SALES CORP. ET AL. 851 828 Order shalland Wallace Jenkins, Frank Olsak, and Roland S. Jenkins, , filewithin sixty (60) days after service upon them of this order with the Commission a report, in writing, setting forth in detail the manner and form in which they have complied with the order contained in the aforesaid initial decision. 852 FEDERAL TRADE CO IMISSION DECISIONS Complaint 55 F.