Gift Products, Inc.

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

IN THE 1-LATTER OF GIFT PRODUCTS, INC., ET AL.

ORDER, ETC., IN REGARD TO THE ..,\ALLEGED "VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket "/025. Complaint Jan. 10, lass-Decision, Aug. S, 1960 Order requiring a Chicago distributor of various articles of merchandise to cease supplying push cards to others for use in distributing its merchandise by games of chance, and itself selling merchandise by such means. lift. William, A. SO1ne1' for the Commission. llfr. Horace J. Donnelly, of \Vashington, D. , for respondents. INITIAL DECISION BY J. EARL Cox, HEARING EXA~nner Respondents are charged with having violated the Federal Trade Commission Act in connection with the sale and distribution of merchandise by means of pl1shcarc1s involving a game of chance, gift enterprise or lottery scheme; it is also charged that by furnishing to others such pllshcarc1s, accompanied by order blanks, instructions 640068-63- Decision G7 F.

and other printed matter, respondents have placed in their hands the means of conducting lotteries and games of chance in the sale of merchandise, eontrary to an established public policy of the united States Government.

. The respondents have denied generally the. allegations of the complaint, and have alleged "as separate and additional affirmative defense:' that (1) the complaint fails to state a cause of action; (2) the Federal Trade Commission lacks jurisdiction in that intrastate transactions only are involved; (3) the acts and practices complained of are not unfair acts and practices and do not violate any public. policy of the United States Government; and (4) the statute as sought to be interpreted is unconstitutional and void and an unwarranted delegation of pmver, and impinges upon the right of due process.

After the case-in-chief in support of the allegations of the complaint was rested, counsel for the respondents stated that respondents did not desire to present further evidence and the taking of evidence in this proceeding ,,- s closed. Thereafter various motions were filed on behalf of respondents, all of which have been disposed or excepting a motion to strike certain exhibits and a motion to dismiss which was accompanied by a ":Hemol'andum of Points and Authorities Counsel supporting the complaint filed answer to these motions, to which reply was made on behalf of the respondents. Proposed findings and conclusions were submitted by counsel supporting the complaint; a request by defense counsel was granted that paragraphs 1 and 2 of his motion to dismiss and the supporting memorandum be accepted in lieu of formal proposals. Insofar as said proposed findings and coneJusions are accepted, they hate been embodied in the initial decision. Those Hot so embodied are hereby rejected. Upon the basis of the entire record, the following findings of fact are made, conclusions drawn and order issued. 1. l1esponclent Gift Products, Inc., is a corporation (In)y organized and existing under and by virtue of the laws of the State of Illinois with ofi-ices and places of business located at 210 South Clinton Street and 555 \Vest ltdams Street, Chieago, Ill. Respondent Joseph Freeman is president of respondent corporation and directs and controls its pohcies: acts and practices; his home office is at 5451 North l\Ienal'd Street, Chil'ago, II1.; he has an oflice at 210 South Clinton Street, Chicago: Ill. The literature and return envelopes used by respondents bear the address, 555 \Yest Adams Street, Chicago 6 " Ill. 2. R.respondents "-ere at the time of issuance of the compln.int, and for some time prior thereto had been engaged in the sale and distribution of various items of merchandise, including radios, pens clocks, watches, knives, eleetrie frying pans, mixers, razors and other _____ . ; . , GIFT PRODUCTS, INC., ET AL. 355 353 Decision products some of which ,v ere transported, or caused to be transported by respondents in interstate commerce. For more than two years a substantial course of business in commerce has been carried on by respondents, mostly by correspondence. During one threemonths' periodi- September~ October and November, 1D57-the record shows that 24 orders were given on Gift Products stationery over the signature of Joseph Freeman (or J. Freeman) directing Capitol )lailers~ 555 ,Vest .Adams Street, Chicago, Ill., to mail total of approximately 840 000 letters, each containing a circular describing H. product, a pushcard, an order referring thereto, and a Gift Products return envelope addressed to 555 ,\7 est Adams Street Chicago. There is no reason to believe that these activities havebee.n discontinued. . Typical of Gift Products' mailing orders are the following: Commission s exhibit For a mailing- I Dated 17-.11.___------------ 9/13/57 "of 74000 names ' . . for our $3~.95 Stantcx Radio mailing I7-B--__- --- - - - - - n -- 9/18/57 " of 1O:~000 Dames . . . for OUr $24.95 Georgian Clock &: Lamp set mailing; Permit 1"0. 2035;

I7-V - - ___n____--_------ 9/18/57 "of 15 "100 names ' . . forour $32.95 Stantex Radio mailing; Permit 17-E______---------- 9/IB/f,7 "ofNo.5020:35;000 names ' . . for our $7.95 Bridal Doll Lamp mailing Permit No, :!O35;

1 ~- F__u - - --- -- - n - - n - - 9/23/57 "of 7:2000 names ' . . for our $12.95 Roney Bcar mailing 1,-0. - -- -- - -- -- fJ/:i3/57 " of 40,000 names ' . . for our $32.fJ5 Stantex Portable Hadio mail. in"

Ii-H. - - __n______------- 9/23/57 "of 45:000 nanll'S . . . for our $24.95 Georgian ~ock &: Lamp set mailing 17-1. - - -- - - -- 9/30j57 "of OOO JJames . . . for our $32.!J5 Stantex Portable Radio mailing nn___- 9/30/57 "of 14 000 names . . . for our $24.95 Georgian Clock & Lamp set mailing I7-:h::____--- 9/30/.~7 "of 10 000 n11JJJeS . . . for our $24.95 Mama & Baby Bear mailing. In October.r, 1957, there ,v ere similar orders for mailings to 27 000 names, 5 000 names, 18 000 names, 103 000 names, 50 000 names 500 names, ~\750 names "to go 3d class maiF' , 9 750 names to go 000 names ($Q9. 95 card), 4 000 names ($32.fint class l7"wil" carel): and 730 names (Commission s Exhibit 17 L-V). In November~ H)57' , the record shows three similar orders to send :Honey Bear mailings to 1 ~t7 ,000 names. These several orders were filled by Capitol :Mailers~ one. of whose coowners stated that during 1957 he did not remember HUlking mailings for any one else who "would inse-rt pnnchboarc1s in their bterature 1. The names used in these various mailings ,,",ere obtained from various mailing list brokers. Four of these lists, containing, respectively, 50 000 names: 10 000 names, 100 000 names and 30 000 names ~were described as containing the names of persons of whom "the greatest majority more. than 60%" 60% or more" and "more than 90%~~ had addresses outside the State of Illinois. A eoowner of Ca.pitol ~failers testified that prior to mailing "we have a 48-State Decision 57 F.

separation * * * we get a mixed list of 48 states. We sort it that of the personsway. 1Vhile there is no evidence of a sale to any to whom these particular mailings were sent, it is inconceivable that so many letters were mailed without producing some substantial record testimony of wit-returns for respondents. There is in the nesses who had received, in the mailboxes at their residences outside the State of Illinois, promotional materials, including pushcards accompanying circulars and return envelopes, identical to some that were mailed pursuant to the orders above described. 5. The hearings in this proceeding were held between April 18 1958, and August 6, 1958, and numerous motions and other pleadings and doenments have been filed on behalf of respondents up to :May evidence or suggestion that, 1960. At no time has there been any the respondents have ceased these business activities; hence it is normal and proper to assume that they are still being continued and are profitable. I-Iowever, no conclusions are drawn from these assumptions, and the decision herein is not based thereon. 6. Samples of pushcards and literature which were contained in received by the personsrespondents' mailings and 1\"which had been who testified are in the rec.ord as exhibits. For example, Commission s Exhibit 9A is a leaflet describing a. "Giant 2-foot Honey Bear Coll1mission s Exhibit 9B is a respondents' order blank for two musical Honey Bears and two retractable ballpoint pens-it provides for a "free additional valuable surprise gift if order is received within 20 days; Commission s Exhibit 9C is a Honey Bear pushcarc1. On Do notthe pushcard is a centrally located seal bearing the legend " 37 perfo-remove seal until entire eard is sold" ; around the edge are rated discs which can be pushed out by purchasers who pay for the privilege of punching according to the printed scale, which is: No. 14 pays 14~ No. 19 pays 19(,t"No. 1 pays 1~ No. pays 6~ No. 22 pays 22c No. 24 pays 24~. All others pay 39~. None higher. , ac- s 1 and 24 receive a beautiful Ball Point retractable pen of the 37 discs contains a name, andcording to the legend. Each the back of the card so that the pur-these 37 names are printed on chaser of a punc.h or punches can enter his own name opposite the sale and removal of all appropriate disc name or names. After the the discs the center seal is removed and a name is then revealed corresponding to one of the names on the discs. \Vhoever punched winner of I-Ioney Bear. The persons who out this disc is the punched numbers 1 and 24 win and receive ballpoint pens, and the vendor of the pul1ehes gets the other I-Ioney Bear and a surprise gift upon remitting $12.95 to respondents within 8. limited time. 7. On the back of the card is the statement: ; ;

GIFT PRODUCTS , INC. , ET AL. 357 ~53 Decision This card is given to you absolutely free. If you wish you can use this as a sales card.

It can be used with any merchandise. Prospective purchaser is not obliged to :pay unless be desires to do so.

IF YOU DESIRE TO PURCHASE MERCHANDISE FROM US YOU CAN DO SO AT ANY TIME. TOTAL $12.95.

Other cards contain statements: "Lueky name under seal receives this beautiful Dormeyer Electric Food :Mixer" (CX 4B) superb Shave ICing Electric Razor" (CX 6B) Dinette Set" (CX lib) ; Blend IGng" mixer (CX 15B); or "Dormeyer Electri-Fri Pan (CX 16A).

8. The sales of respondents' merchandise by means of said pushcards are made and the articles of merchandise are allotted to the participants in the lottery in accordance with the legends or instructions on the various cards. ",Vhether the purchaser of a chance or push receives an article of merchandise or nothing for the amount paid is determined whony by lot or chance. The principal prize offered has a value substantiany greater than the price paid for any one chance or push, and the "lucky" person who receives it gets for much less than its stated or actual value. Those who are not lucky" get nothing except the opportunity to participate in the lottery by making a push. The articles of merchandise are thus distributed to the public wholly by lot or chance. 9. The distribution of respondents' free pushcards and . other literature is an invitation to o~' solicitation of those who receive them to engage in a lottery scheme or game of ehance and thus to procure merchandise at no cost to themselves. This is only a slight modification of the method of merchandising of those who engage in the sale of push cards and punehboards and, ineidental thereto, offer to provide for an additional sum of money the merchandise to be used as premiums or prizes. The respondents' plan definitely supplies to and places in the hands of others the means of conducting lotteries and games of chance in the sale of merchandise. The law applicable to these various schemes was discussed extensively in the Commission s decision in the :Matter of R. B. James, et al., trading as Ohicago Board Company, 53 F. C. 1119, which was upheld on review by the United States Court of Appeals, Seventh Circuit, February 7 1958, 253 F. 2d 78; rehearing denied 3/31/58; cert. denied 358 U. 821; rehearing denied 358 U. S. 896.

10. The Commission has held that the distribution in commerce of devices which aid and encourage merchandising by gambling is contrary to the interest of the public. The United States Court of Decision fl! F. Zitze'l'17wn v. FTO December 18Appeals for the Eighth Circuit 1952, 200 F. 2d 519, said, citing numerous cases: It is now well settled by controlling decisions that the sale of goods by a plan or method \which involves the use of a game of chance, gift enterprise, or lottery is a practice which is contrary to the established policy of the Government of the United States and violative of the Federal 'I'trade Commission Act. It is equally well established that selling in interstate commerce the means or instrumentalities by which merchandise can or may be sold by games of chance, gift enterprise or lottery is an unfair method of competition. Placing in the hands of others the means of engaging in such acts or practices is contrary to the public policy and the public interest. 11. The United States Court of Appeals for the Seventh Circuit in AlodernisUc Candies, Inc. , et al. v. FTO 1;t5 F. 2d 454: Noyembel' 15, 1954, said:

It is clear that the Federal Trade Commission bas the power to eradicate merchandising by gambling in interstate commerce. We think the Commission also has the power to prohibit the distribution in interstate commerce of devices intended to aid and encourage merchandising by gambling. The gamblers and those who deliberately and designedly aid and abet them are both engaged in practices contrary to public policy. :Merchandising by gambling should not bE' divided into insulated acts, which appear innocent when examined separately. This unfair practice should be vif'wed a:-: a whole. If the Federal Trade Commission is to police merchandising by gambling, it must police those who designedly and deliberately aid and abet this practice * * * (S & D 1945-1f148. p. 291).

12. The law is not equivocal or uncertain. R.esponde.nts cannot be said to have distributed their pushcarcls on such a widespread scale as is indicated by their voluminous mailings, unintentionally or without design. They have sold their own merchandise in commerce by the use of pushcards; they have distributed pushcards in commerce and thus placed in the hands of others the means to engage in the practice of selling merchandise by lottery, game of chanee or gift enterprise, all of which is contrary to public policy. The respondents are tl1l1S guilty of having engage.d in unfair acts and practices' in commerce in violation of the. Federal Trade Commission Act. The allegations of the complaint have been established by substantial reliable, probative evidence.r.. The Federal Trade Commission has jurisdiction, and the proceeding is in the public interest. 13. There remain to be disposed of the two pending motions. The request to strike certain exhibits is supported in respondents' memorandmn by the argument that there is no evidence of record establishing that respondents are engaged in interstate commerce and that certain exhibits had never been in the possession of the witness 1\:frs. Petroff, of Gary, Ind. who testified particular-rly concerning Commission s Exhibits 2D and 2E that she had received an order GIFT PRODUCTS , INC. , ET AL. 359 353 Decision blank like Commission s Exhibit 2D and a return envelope like Commission s Exhibit 2E; that she had received a pushcard through the 'mail, which she sold; that afterward she sent the money to the Gift Products Company and received in return two portable radios one of w hieb she kept and one she gave to the person who won. She said that she received "Two ballpoint pens and a bunch of literature . The radios she thought were "Sanotex or Sanitex, something like that". She testified also that she had sold other cards and received other merchandise from Gift Products Company. There was other evidence relating to the various exhibits to which the motion to dismiss pertains which convineed the hearing examiner that the exhibits which were admitted emanated from respondents, were relevant to the proceeding and therefore admissible in evidence. Their materiality and weight were not determined by their admission. 14. The memorandum also refers to the testimony of other witnesses and recites some comments, made by the hearing examiner during the course of the proceeding relative to their statements that certain proposed exhibits had been found in their mailboxes. The fact, however, that such exhibits had been found in mailboxes does not constitute proof that such exhibits had been placed there by a mailman, by a messenger, or by a delivery-boy. The conclusion that the respondents were or had been engaged in interstate commerce is based on other facts. The statements and incidents mentioned do not warrant the striking of the exhibits referred to in respondents motion, nor do they impinge upon or in any manner affect the rulings made in the record as to the admission of exhibits. Nothing has been presented in respondents' motion to strike which was not given consideration at the time the exhibits were received in evidence or has not been carefully reviewed and reeonsidered since. The motion of respondents to strike ,,-ill be denied.

15. One of the grounds for respondents' motion to dismiss is that Respondents have been deprived of their right to a fair and unbiased adjudication herein by virtue of the fact that at the behest and on the complaint of the Federn,l Trade Commission, there has been lodged against the individual respondent a criminal information alleging violation of the first paragraph of Section 10 of the Federal Trade Commission Act (15 D. C. 50) growing out of the present proceedings . In this proceeding~ respondent Joseph Freeman, appearing as a. witness pursuant to subpoena, stated his name, address and business, then declined to testify further, saying, "I believe that any testimony I might give might be incriminating and debasing, and therefore dec.line to testify any further. Again the witness declined to testify "on the ground that it may tend to in- Decision 57 F.

criminate me, * * * and degrade me . The fact that said respondent refused to testify and was thereafter prosecuted for such refusal does not establish a lack of due process in this proceeding. The hearing examiner did not originate nor participate in the initiation or prosecution of, or have any other connection with, the criminal prosecution of Joseph Freeman. The decision herein is in no way affected by that proceeding. Based upon the findings of fact and the c.onelusions hereinabove set forth, respondents' motion to dismiss is alsodenied. Accordingly, It is ordered That respondent Gift Products, Inc., a corporation and its officers, and respondent Joseph Freeman, individually, and respondents' representatives, agents, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of watches, radios, knives, electric mixers or other merchandise in c.ommeree, as "commerce" is defined in the Federal Trade Commission Aet, do forthwith cease and desist from:

1. Distributing in commerce, as "commerce" is defined in the Federal Trade Commission Act, pusheards or any other devices, either with merchandise or separately, which are designed or intended to be used in the sale or distribution of merchandise to the public by ll1cans of a game of chance, gift enterprise or lottery scheme; 2. Selling or otherwise disposing of any merchandise in commerce by means of a game of chance, gift enterprise, or lottery scheme. It is further O1'de'J'ed That respondents' J\fotion To Strike Exhibits , and the same hereby is, denied.

It is further ordered That respondents' :Motion To Dismiss be and the same hereby is, denied.

DECISION OF THE COl\fl\fISSION AND ORDER TO FILE REPORT OF COMPLIANCE This matter having come on to be heard by the Commission upon its review of the hearing examiner s initial deeision filed on :May 31 1960, and the Commission having determined that said initial decision is appropriate in all respects to dispose of this proceeding: I t is ordered That the aforesaid initial decision be, and it hereby , adopted as the decision of the Commission. respondents herein shah, within It is f7.trther ordered That the 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.

UTDOOR SUPPLY CO., INC. 361 Decision