Kastner-Sherman Corp.

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IN Tile J\1ATTR OF KASTNER-SHERMAN CORP. ET AL.

ORDER, ETC' IN REGARD TO THE ALLEGED VIOLA'I'lQN OF THE FEDERAL TRADE COMMISSION ACT Docket 7429. Complaint, Feb. 1959-Decision, July 1960 Order requiring wholesalers in 'VaHham, Mass., to cease representing carbon steel drills falsely as l1igh-speed drils aud misrepresenting the regular retail price of a ten-piece dril set by printing on the container "$3. Value Mr. John J. Mathias for the Commission. G01dston Storrs by illr. Phillip J. Nexon of Boston, Mass., for respondents.

INITIAL DECISION BY J. EARL Cox, IIEAHI:\G EXA::IINER The respondents are charged with having violated the Federal Trade Conunisslon Act through misrepresenting the va1nc and qual ity of a lO-piece set of drills which they imported and offered for sale to distributors and jobbers for ultimate resale to the public. The essential facts, which were stipulated, and the conclusions dra wn therefrom are as follows:

1. Respondent Kastner-Sherman Corp. is a corporation organized existing, and doing business under and by virtue of the laws of the State of Massachusetts, with its principal offce and place of business located at 740 South Street in the City of Waltham, State of l\iassachusetts.

2. Respondents "\Varren F. Kastner and .Jerome Sherman are offeels of the corporate respondent. They formulate, direct, and control the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. Their address is the same as that of the corporate respondent.

3. Respondents are now, and for some time last past have been engaged in the import.ing of carbon steel drills and other merchandise, and in thc advertising, offering for sale, saJe and distribution of said merchandise to distributors and jobbers awl to wholesalers and retailers for resale to the public.

'1. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their said product when sold, to be shipped from their place of business in the State of J\fa::sachusetts to purchasers thereof locatetl in various other Statl's of t.he linited States and ma.1iltain, and a.t all times mentioned herein hate maintain cd, a substantial course of trade in said KASTNER-SHEB..YAN CORP. ET AL. 291 290 Decision product in commerce, as "commerce" is defined in the Federal Trade Commission Act.

5. In the course and conduct of their business prior to July 1 1959, and for the purpose of inducing the sale of their merchandise respondents have made certain statements with respect to the quality and value of their steel drills, in advertising material, catalogues and invoices, of which the foJ1owing are typical: RAPID WALTHAM RAPID SPRED WALTHAM lIIGR SPEED WAL'lR '\.M.

Respondents further cause to be printed on the case in which their 10-piece set of driJ1s is packed the statement "$3.95 Value" and picture said case and printing thereon in their catalogue. 6. Through the use of the aforesaid statements, respondents represented:

a. That said dri1s were composed of high-speed steel and were high-speed drills;

b. That the amount designate-d as "value" was the price at which the lO-piece set of dries referred to was usuaDy and cllstomarily sold at retail.

7. Said statements and representations were false, misleading and deceptive. In truth and in fact:

a. Said drills were composed of carbon steel, which is not a highspeed steel, and were not high-speed drills; b. The amount designated as "value" was substantially in excess of the price at which the lO-piece set of driJ1s was nsuaJ1y and customarily sold at retail.

8. In the conduct of their business, at all times mentioned herein respondents have been in substantial competition, in commerce, with corporations, firms, and individuals in the sale of drills of the same general kind and nature as those sold by respondents. 9. Respondents' representations as to the composition and value of the "\Vnltham lO-piece set oJ drills \Were false, misleading and deceptive; and by making such representations, respondents placed in t.he hands of wholesalers, jobbers, anu retailers means and in strumenialities by and through which They may mislead the public as to the quality and value of said c1rins. 10. The use by respondents of the aforesaid false, misleading and deceptive statements, represent.ations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are t.rut; , and into t.he purchase of substantial quantities of respondents' product by reason of said Opinion 57 F.

erroneous and mistaken belief. As a consequence thereof, substantial trade in commerce has been, and is being, unfairly diverted to respondents from their competitors and substantial injury has thereby been, and is being, done to competition in commerce. 11. The aforesaid acts and practices of respondents, as herein found, were and are aU to the prejudice and injury of the public and of respondents) competitors and constituted, and now constitute unfair and decep6ve acts and practices and unfair methods of competition in commerce within the intent and meaning of the Federal Trade Commission Act. This proceeding is in the public interest and the Commission l1RS jurisdiction over the acts and practices of tJ1C respondents as he-rein found.

12. The Waltham imported drills were manufactured and labeled to the order of respondents, who arc there.fore complex.dy responsible for their quality and their labeling. Although in their memocounsel statedrandum of law and in oral argument respondents' that since the violation of the Act has been called to their attention the respondents "forthwith ceased and desisted from the practice of labeling the merchandise in question, fI cease-and-desist order seems to be appropriate. Therefore 1 t is ordered, That respondents, Kastner-Sherman Corp., a corporation, and its officers, and ,Varren F. Kastner and Jerome Sherman, individually and as oiIc.ers of said corporation, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertisirig, offering for sale, sale or distribution of drills or other merchandise in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. R.representing in any manner, directly or by impEcaLion: (a) That drills made of carbon steel are composed of high-speed stern or arc high-speed drills;

(b) That the retail value of merchandise manufactured to their of theorder or labelled by them is any a,mount which is in e,xcess price at whjch such merchandise is usually anrl cllstomarily sold at retail;

2. Placing in the hands of others a means and instrumentality bjl and through which they may deceive fwd mislead the purchasing p"blic, in respects set out in paragraph 1 above. OPINION OF THE COJ':IIISSION By KI,;nx C01n?l i8Signed:

This matter is before the Commission upon appeal by counsel supporting the complaint from the hearing examiner s initial decision. KASTNER-SHERMAN CORP. ET AL. 293 290 Opinion The only issue presented for ont consideration is the scope of the order issued by the hearing examiner.

The complaint charges respondents with misrepre.senting the quality and vahle of steel elril1 sets. The facts are not in dispute, respective counsel having entered into a stipulation in whkh all of the factual allegations of the complaint are admitted to be true. HespondeIlts arc wholesalers and for the purposes of this case, the Inerchandise which they sell may be classified into three categories: imported goods which are labeled to their order; domestic goods purchased in bulk and packaged and labeled by them; and domcstie goods which are packaged and labeled by others prior to sa 1e to the respondents. In this latter category, respondents have no control over the retail price representations which t.he seller places on the product or its package.

Counsel supporting the complaint and respondents both submitted proposed orders to the hearing examiner. The only difference between these orders 1S in the wording of the inhibition rlirected at prohibiting the fictitious pricing practice. The hearing examiner adopted the order proposerl by respondents 1"which requires them to c.ease representing:

That the retail vahw of merchandise manufactured to their order or labeled by them is any amount \vhich is in excess of t.he price at which such merchandise is llsually an(l CllstollHtriJ y sold at retail. Counsel supporting the complaint contends that the order should cover n11 merchandise sold by t.he respondents and should not limit.ed to merchandise "numnfaetnrecl to their order or labeled by themt vdJich phrase does not appear in the order he requested. support of this argument, counsel supporting the comphint cites those cases which hold that a Commission order to be of value must proscribe the unfair methods and practices complained of as well as the specific. acts by which the)' are manifested. This is a well established principle. The quest.ion is "whether its proper application to the fads in this case justifies the oruer urged by counsel supporting the complaint.

The complaint alleges that respondents cause to be printed on the case in ,,,which their (hills are packed, a,n amount designated as value" which is substantially in excess of the price at which the drills are usually and clistOlnal'iJy sold at retail and p1ctnre said case and printing thereon ill their catalog. There can be no doubt that the order should be broad enough to prevent respondents Jrorn selling other goods by the same method as such drills are sold. 11ow- €,yel all essentifll element, of tll( deeeptiye8files method alJegec1 in this rompbil1C is that 1'espoJilents cilllsed the fictitious 1'eto.il price to be, pl'.illetl on their products. This constitutes the unfair sales , , . , Syllflbus 57 F.

method stipulated to by respondents and which may be prohibited by the Commission. In our opinion, the limited scope of the complaint and proof in this particular case win not sustain an order broader than that contained in the initial decision. In view of the foregoing, the appeal of counsel supporting the complaint is denied and the initial decision is adopted as the decision of the Commission.

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

AL ORDER This matter lmving been heard by the Commission upon appeal by counsel supporting the complaint from the hearing examiner initial decision, and upon briefs and ol'nl argume, nt in support thereof and in opposition thereto; and the Commission having rendered Hs decision denying the appefll and adopting the initial decision:

it is oTdeTerl That respondents, Kastner-Sherman Corp., a corporation, and \Varren F. Kastner and Jerome Sherman, individually and as officers of said corporation, shall, within sixty (60) days after service upon them of this order, file with the Commission a report in writing, set.ting forth in detail the manner and form in which they have c.complied with the order to ease and desist contained in the. a.foresaid initial deejsion.

CODllnissiOl1Pl' Tait not participating.