Hutchinson Chemical Corporation

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

IN THE MATTER OF HUTCHINSON CHEMICAL CORPORATION ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7140. Complaint, May 7, 1958—Decision, June 11, 1959 Order requiring Chicago distributors of an automobile polish designated “Hutchinson’s Waterproof Wax,” to cease fictitiously pricing its product in television advertising.

A charge of representing falsely that the product imparted a finish that was both heat- and cold-resistant, was dismissed for lack of sustaining evidence.

Mr. William A. Somers for the Commission. Nash & Donnelly, by Mr. John A. Nash and Mr. Arthur H. Schwab, of Chicago, IIll., for respondents. INITIAL DECISION BY J. EARL COX, HEARING EXAMINER The respondents are charged with having violated the Federal Trade Commission Act in two respects. The charges and essential pertinent facts as developed and shown by the record are as follows:

1. Respondent Hutchinson Chemical Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Illinois. Respondent Herman 8. Hutchinson is an individual and president of said corporate respondent. Together with his wife, who is also an officer of the corporation, he owns 88% of the corporate stock, and formulates, directs and controls the corporate policies, acts and practices. The office and principal place of business of the respondents is located at 918 West Armitage Avenue, Chicago 14, IIl. 2. Respondents are now and for several years past have been engaged in the sale and distribution of an automobile polish described as ‘““Hutchinson’s Waterproof Wax,’ which, when sold, is shipped from their place of business in the State of Illinois to purchasers located in various other States of the United States. Thus respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade in said automobile polish in commerce, as “commerce” is defined in the Federal Trade Commission Act.

HUTCHINSON CHEMICAL CORP., ET AL. 1943 1942 Decision 8. Respondents at all times mentioned herein have been and now are in substantial competition in commerce with individuals, firms and corporations engaged in the sale and distribution of automobile polishes.

4. In the course and conduct of their business, and for the purpose of inducing the sale of their product, respondents have engaged in advertising, which has been disseminated by television over more than fifteen stations throughout the United States, including stations in Chicago, IIl., Cincinnati, Ohio, and Milwaukee, Wis., which have power sufficient to carry their programs into areas in surrounding States. Respondents’ programs consist of a picture of a flaming automobile, followed by a sales pitch relating to the quality of respondents’ polish and the reduced price at which it may be purchased.

5. The “flaming-automobile’ demonstration is performed in the following manner: Respondents’ polish is applied as directed to the surface of a used car, or to a portion thereof. Then gasoline is squirted on the polished surface; this may be done as many as ten or fifteen times in rapid succession. The gasoline is then ignited, and cold water is poured on the flaming surface. After the flame has been quenched, the picture shows the polished surface to be unaffected by the flame or water—as shiny as before the demonstration. The audio part of the broadcast emphasizes the protection that the polish lends to the surface of the car, and then states that if the viewer will order “right now,” he will receive a glare shield worth $1.50 for his automobile, and a $3.95 can of respondents’ “Waterproof Wax,” both for “only $2.00.” The demonstration must be completed within 1114 or 12 seconds, in order to meet the television time limit, since the entire broadcast is less than three minutes long. 6. The complaint avers that through the aforesaid statements and pictorial representations, respondents represent and have represented, directly or by implication: (1) That the burning car demonstration, in which a flammable liquid is poured on the finish of an automobile, to which Hutchinson’s Waterproof Wax had been applied, ignited and cold water then thrown on the flame, proves or demonstrates that their product imparts a finish that is both heat and cold resistant; (2) That respondents’ regular retail price of a can of their product is $3.95. :

The complaint charges that these representations are false, misleading and deceptive; that in truth and in fact: Decision 55 F.T.C.

(1) “The burning car pictorial representation does not prove or demonstrate that Hutchinson’s Waterproof Wax imparts a finish to automobiles that is either heat or cold resistant;’’ and (2) “The regular retail price of said product is substantially less than $8.95 a can.”

7. The first issue, as stated in the complaint, is whether or not the burning-car demonstration proves that respondents’ polish imparts a heat-and-cold-resistant finish to automobiles. Respondents maintain that the complaint does not state a cause of action in this respect, in that it does not charge an offense which comes within the purview of the Federal Trade Commission’s jurisdiction. They further maintain that the evidence adduced does not support the charge made in the complaint, and that no order can be issued in respect thereto. These contentions were raised orally at the hearings, during and at the close of the case-in-chief in support of the complaint, and are again presented in respondents’ written motion to dismiss the complaint herein. Counsel supporting the complaint has filed an answer opposing respondents’ motion.

8. The Federal Trade Commission Act, under which this complaint is drawn, empowers the Commission, not to adjudicate upon advertisements to determine what they do or do not prove, but rather to determine the truth or falsity of the representations contained therein. Accordingly, should the issue as stated in the complaint be fully adjudicated, and the conclusion reached that respondents’ burning-car demonstration does not, in fact, prove respondents’ polish to be heat-and-cold resistant, such conclusion would still not constitute a valid cause for issuance of a ceaseand-desist order under the Federal Trade Commission Act, which nowhere states that the dissemination of an advertisement which fails to prove something is a violation of that Act. If the issue of false and deceptive advertising of a product is to be adjudicated, that issue must first be raised by appropriate allegations in the complaint, and the truth or falsity of the advertisement in question must then be determined by substantial, probative and reliable evidence. No such allegation appears in the complaint herein, nor does the record contain any evidence relating thereto. The truth or falsity of respondents’ claims as to the heat-andcold-resistant quality of their polish is not here in question. Whether respondents’ advertising fails to prove that their polish possesses such qualities is not a valid cause of action under the Federal Trade Commission Act. Furthermore, the substantial, HUTCHINSON CHEMICAL CORP., ET AL. 1945 1942 Order reliable, probative evidence of record does not establish that respondents have made the representation averred in the complaint, that the burning-car demonstration proves or demonstrates that respondents’ product imparts a finish that is both heat and cold resistant. Therefore respondents’ motion to dismiss should be granted insofar as it relates to the first charge of the complaint. 9. The second charge, that, contrary to respondents’ representations, the regular retail price of respondents’ product is substantially less than $3.95 a can, was fully litigated and has been convincingly established. Respondents have represented that the regular, usual price of their product is $3.95 per can. Advertisements of record covering the period since 1953 show that respondents’ product has repeatedly been offered for sale at $2.00 per can—sometimes as low as $1.50. The individual respondent, president of the corporate respondent, testified that his recommendation to dealers has been that they sell the polish at $2.00 per can—‘‘we want them to sell it for $2.00.” CONCLUSIONS 1. The respondents’ price representations have been and are false, misleading and deceptive, and have had and now have the capacity and tendency to mislead and deceive a substantial portion of the purchasing public into the erroneous and mistaken belief that such statements and representations were and are true, and into the purchase of a substantial quantity of the respondents’ product because of such erroneous and mistaken belief. As a result thereof, trade has been unfairly diverted to respondents from their competitors and injury has thereby been done to competition in commerce.

2. The aforesaid acts and practices of respondents, herein found to be false, misleading and deceptive, were and are all to the prejudice and injury of the public and of respondents’ competitors and constituted, and now constitute, unfair and deceptive acts and practices and unfair methods of competition in commerce, within the intent and meaning of the Federal Trade Commission Act.

3. The complaint herein should, in all other respects, be dismissed.

4, This proceeding is in the public interest. Accordingly, It is ordered, That respondents Hutchinson Chemical Corporation, a corporation, and its officers, and Herman S. Hutchinson, individually and as an officer of said corporation, and respondents’ Opinion 55 F.T.C.

representatives, agents and employees, directly or through any corporate or other device, in connection with the sale and distribution of automobile polish or any other product in commerce, as “commerce” is defined in the Federal Trade Commission Act, do forthwith cease and desist from representing, directly or by implication, by any means, that the regular or usual price of such product is any amount which is in excess of the price at which the respondents have usually and customarily sold such product in the recent and regular course of their business. It is further ordered, That the complaint herein, with respect to all other allegations, be, and the same hereby is, dismissed. OPINION OF THE COMMISSION By ANDERSON, Commissioner:

The complaint in this matter charges respondents with violation of Section 5 of the Federal Trade Commission Act. Counsel supporting the complaint has appealed from the hearing examiner’s ruling dismissing one of the allegations of the complaint and from the findings and conclusions on which this ruling was based.

The part of the complaint dismissed by the hearing examiner alleges, in substance, that certain television advertising used by respondents in connection with the sale of their product, “Hutchinson’s Waterproof Wax,” is deceptive in that it falsely represents that a demonstration in which a flammable liquid is ignited on the finish of a car and extinguished with water proves or demonstrates that their product imparts a finish that is both heat and cold resistant.

The hearing examiner has taken the position that the Federal Trade Commission Act does not empower the Commission to adjudicate upon advertisements to determine what they do or do not prove, but rather to determine the truth or falsity of the representations contained therein. He ruled in effect that since the dissemination of an advertisement which fails to prove something is not a violation of the Federal Trade Commission Act and since the complaint did not challenge respondents’ claims as to the heat and cold resistant quality of their product, a valid cause of action had not been stated. The hearing examiner also made the finding that respondents had not represented that the burning car demonstration proves or demonstrates that their product imparts a finish that is both heat and cold resistant. HUTCHINSON CHEMICAL CORP., ET AL. 1947 1942 Opinion We do not agree with the hearing examiner’s conclusion that the complaint does not state a cause of action under Section 5 of the Act. As pointed out by the hearing examiner, respondents are not charged with misrepresenting the heat and cold resistant quality of their product. They are charged, however, with using deceptive advertising which may lead the public to believe that it has witnessed a demonstration which proves that the product has this quality. The fact that this particular practice has not previously been held to be an unfair trade practice under Section 5 is wholly immaterial. The ultimate question to be determined is whether the representation, used by respondents is false and, if so, whether the natural and probable effect thereof would be to mislead prospective purchasers. The legislative history of the Act discloses that the language of Section 5 was deliberately couched in generalities so that the Commission and the courts may decide in each instance whether a particular practice is unfair.

The complaint alleges that respondents’ advertising is deceptive because it leads the public to believe that a demonstration shown therein proves something when, in fact, it does not. The practice involved is somewhat analogous to the use of false representations that a product has been endorsed, approved, or tested by a certain association, laboratory or other organization. Such false statements have been held by the Commission in numerous cases to be illegal. In those cases, as in this, the quality of the product is not directly in issue. Also, in cases of the type referred to, purchasers may be induced to buy a product because they have been led to believe that it has been endorsed, approved or tested by some recognized organization. In this matter, purchasers may be induced to buy respondents’ product because they have been led to believe that it has undergone a valid test or demonstration.

The use of such advertising therefore, if proven to be untrue, as alleged, would be an unfair trade practice within the meaning of Section 5 since it would have the tendency and capacity to mislead purchasers into believing that they are buying a product which has been demonstrated or proven to have a certain quality or characteristic. The law is well settled that the public is entitled to buy what it thinks it is buying, in this case, a product which has been subjected to a test which demonstrates that it imparts a finish which is both heat and cold resistant. Opinion 55 F.T.C.

We believe the hearing examiner also erred in finding that the evidence does not establish that respondents have made the representation averred in the complaint. The television advertising used by respondents pictures an exterior section of an automobile on which a flammable liquid has been sprayed and set afire. Within approximately twelve seconds, water is poured on the car and the fire is extinguished. The picture then shows that the polished surface of the car has not been affected by the flames or the water. The audio part of the demonstration is as follows: . The only reason we burn the car is to show you that you positively cannot get down thru that siliconized finish. But here is the real test... One extreme to another ... Hot to Cold—and no matter what you’ve used before on your car or how hard you’ve worked we’ll give you more protection in a few minutes time than you could get with hours of hard work. We think this advertising speaks for itself and that there can be no doubt that respondents have represented not only that the demonstration proves that their product imparts a heat and cold resistant finish but that it proves that the finish will withstand the deleterious effects of fire and extreme changes in temperature. While we do not agree with the findings and conclusions on which the hearing examiner based the dismissal] of the allegation, ; we are of the opinion that the allegation should be dismissed on “other grounds. As stated above, the complaint alleges that respondents have falsely represented that the burning car demonstration proves or demonstrates that the finish imparted by their product is both heat and cold resistant. Although we believe that respondents have made the representation alleged in the complaint, we think that the record fails to establish that the demonstration in question does not prove or demonstrate that the product i is resistant to both heat and cold. The only evidence of record concerning the validity of the demonstration is the testimony of an expert called by counsel supporting the complaint. This witness testified that when gasoline is poured onto the body of a car or other surface and. ignited, combustion will occur some distance from the surface and will cause only a slight rise in the temperature of the surface if the flames are extinguished within four or five seconds. He estimated that the temperature of the surface would not change more than fifty degrees within that period of time. He stated on crossexamination that if the burning process should last for seventeen seconds, the heat transferred to the surface would be consider- HUTCHINSON CHEMICAL CORP., ET AL. 1949 1942 Order ably more than fifty degrees but that he did not believe that the gasoline would burn for that length of time. It appears, however, that in the actual performance of the demonstration, more gasoline is sprayed onto the car after combustion has begun and the fire may burn for as long as thirty seconds. Because of time restrictions, the demonstration in the television advertising lasts from eleven and one-half to twelve seconds. Counsel supporting the complaint did not develop the expert’s testimony to determine what effect the additional gasoline would have on the transfer of heat to the surface or how much heat would be transferred to the surface beyond the brief period of time mentioned by this witness.

As stated above, the expert’s opinion as to the amount of heat transferred to a surface on which a flammable liquid has been ignited and extinguished is specifically limited to a period of approximately five seconds. Thus, we cannot determine from the evidence of record how much heat is transferred to the surface when the burning process continues for a longer period of time. We do not believe, therefore, that the evidence would support a finding that the demonstration fails to prove or demonstrate that respondents’ product imparts a finish that is resistant to heat and cold, as alleged in the complaint. Since we are bound by wording of the complaint, we must hold that the allegation has not been sustained by the evidence.

To the extent indicated herein the appeal of counsel supporting the complaint is granted and is otherwise denied. The initial decision, in those respects in which it is contrary to the views expressed herein, is modified to conform with such views. An appropriate order will be entered.

Commissioner Kintner did not participate in the decision of this matter.

FINAL ORDER This matter having been heard by the Commission upon the appeal of counsel supporting the complaint from the hearing examiner’s initial decision; and The Commission, for the reasons stated in the accompanying opinion, having granted in part and denied in part the aforementioned appeal, and having modified the initial decision to the extent it is contrary to the views expressed in the said opinion: It is ordered, That the initial decision of the hearing examiner, Decision 55 F.T.C.

as so modified, be, and it hereby is, adopted as the decision of the Commission.

It is further ordered, That the respondents, Hutchinson Chemical Corporation and Herman 8. Hutchinson, shall, within sixty (60) days after service upon them of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which they have complied with the order to cease and desist.

Commissioner Kintner not participating.

BONHEUR CO., ET AL, 1951 Decision