Fiesta Record Company, Inc.

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IN THE MATTER OF FIESTA RECORD COJ\iP ANY, INC., ET AL CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COl\Il\IISSION ACT Docket "/895. Complaint, May 20, 1960-Decision, Sept. 1960 Consent order requiring 1\'ew York City distributors of phonograph records to cease giving concealed payola to disc jockeys or other personnel of radio and television programs to induce frequent playing of their reeorcls to increase their sales.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Fiesta Record Company, Inc., a corporation, and Jose :Morand, individually and as an officer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issue.s its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Fiesta Record Company, Inc. is a corpol' ation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal office and place of business located at 1619 Broadway, in the City of New York, State of New York.

Respondent Jose J\forand is an officer of the corporate respondent. He formulates, dire.cts and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. lIis address is the same as that of the corporate respondent.

PAR. 2. Respondents are now, and for some time last past have been, engaged in the distribution, offering for sale, and sale, of phonograph records to distributors.

PAR. 3. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their said records, when sold, to be shipped from one state of the United States to purchasers thereof locat~.d in various other States of the United States, and maintain, and at all times mentioned herein have maintained, a substantial course of trade in said phonograph records in commerce, as "commerce" is defined in the Federal Trade Commission Act.

PAR. 4. In the course and conduct of their business, and at all times mentioned herein, respondents have been in competition, in , FIESTA RECORD COMPANY, INC. , ET AL. 581 580 Complaint salecommerce, with corporations, firms and individuals in the phonograph records.

PAR. 5. After World vear II when TV and radio stations shifted for much of their program-from "live" to recorded performances ming, the production, distribution and sale of phonograph records emerged as an important factor in the musical industry with a sales volume of approximately $400 000 000 in 1958. Record manufacturing companies and distributors ascertained that of a rec-popular disk jockeys could, by "exposure" or the playing ord day after day, sometimes as high as 6 to 10 times a day, substantially increase the sales of those records so "exposed. Some record manufacturers and distributors obtained and insured the exposure" of certain records in which.h they were financially int~rested by disbursing "payola" to individual,ls authorized to select and expose" records for both radio and TV programs. Payola " among other things, is the payment of money or other valuable consideration to disk jockeys of musical programs on radio and TV stations to induce, stimulate or rpotivate the disk jockey to select, broadcast expose" and promote certain records in which the payer has a financial interest.

Disk jockeys, in consideration of their recelVmg the payments heretofore described, either directly or by implication, represent to their listening public that the records "exposed" on their broadcasts have been selected on their general personal evaluation of each record~s merits or its general popularity with the public, whereas, in truth and in fact, one of the principal reasons or motivations guaranteeing the record's "exposure" is the "payola" payoff. PAR. 6. In the course and conduct of their business, in comme,rce during the last several years, the respondents have engaged in unand unfair methods of com-fair and dece.ptive acts and practices petition in the following respects:

The respondents alone or with certain unnamed record distributors negotiated for and disbursed "pa.yola" to disk jockeys broadcasting musical programs over radio or television stations broadcasting across state lines, or to other personnel who influence the selection of the records "exposed" by the disk jockeys on such programs. Deception is inherent in "payola" inasmuch as it involves the payment of a consideration on the express or implied understanding that the disk jockey will conceal, withhold or camouflage such fact from the listening public.

The respondents by participating individually or in a joint effort with certain collaborating record c1istributDrs have aided and abette,d the deception of the public by various disk jockeys by control- , 582 FEDERAL TRADE CO:M:MISSION DECISIONS Decision 57 F.

ling or unduly influencing the "exposure" of re.cords by disk jockeys with the payment of money or other consideration to them, or to other personnel which select or participate in the selection of the records used on such broadcasts.

Thus payola" is used by the respondents to mislead the public into believing that the records "exposed" were the independent and unbiased selection of the disk jockeys based either on each record' merit or public popularity. This deception of the public has the capacity and tendency to cause the public to purchase the "exposed" records which they might otherwise not have purchased and also to enhance the popularity of the "exposed" records in various popularity polls, which in turn has the capacity and tendency to substantially increase the sales of the "exposed" records. PAR. 7. The aforesaid acts, practices and methods have the capacity and te,ndency to mislead and deceive the public and to hinder, restrain and suppress competition in the manufacture, sale or distribution of phonograph records~ and to divert trade unfairly to the respondents from their competitors and substantial injury has thereby been done and may continue to be done to competition in commerce.

PAR. 8. The aforesaid acts and practices of respondents, as alleged herein, were. and are all to the prejudice and injury of the public and of respondents' competitors and constitute unfair and deceptive acts and practic.es and unfair methods of competition in commerce within the intent and meaning of the Federal Trade, Commission Act.

ilfr. Ha'l'oZd A. Kennedy and 11Jr. Arthur Wolter Jr. , for the Commission.

Respondents for themselves.

INITIAL DECISION BY HARRY R. HINKES, HEARING EXAMINER The complaint in this matter charges the respondents with violations of the provisions of the Federal Trade Commission Act by the payment of money or other valuable consideration to induce the playing of certain phonograph records ove.r radio and television stations in order to enhance the popularity of such records. On July 7 , 1960, there was submitted to the undersigned hearing examiner an agreement between the above-named respondent and counsel supporting the complaint providing for the entry of a consent order.

Under the foregoing agreement, the respondents admit all the jurisdictional facts alleged in the complaint. The agreement provides that the record on which the initial decision and the decision FIESTA RECORD COMPANY, INC. , ET AL. 583 580 , Order of the Commission shall be based shall consist solely of the complaint and agreement; that the inclusion of findings of fact, and conclusions of law in the decision disposing of this matter is waived together with any further procedural steps before the hearing e.xaminer' and the Commission; that the order hereinafter set forth may be entered in disposition of the proceeding, such order to have the same force and effect as if entered after a full hearing, the respondents specifically waiving any and all rights to challenge or contest the validity of such order; that the order may be altered or set aside in the manne.r provided for other orders of the Con1ffiission; that the c.complaint may be used in construing the terms of the order; and that the agreement is for settlement purposes only and does not constitute an admission by the respondents that they have violated the law as alleged in the complaint. The hearing examiner having considered the agreement and proposed order, and be.ing of the opinion that they provide an adequate basis for appropriate disposition of the proceeding, the agreement is hereby accepted, the following jurisdictional findings lllade, and the following order issued:

1. Respondent Fiesta Record Company, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State. of New York, with its office and principal place of business located at 1619 Broadway, in the City of New York State of New York.

Respondent Jose l\10rand is an officer of the corporate respondent. He formulates, directs and controls the acts and practices of the corporate respondent. His address is the same as that of said corporate respondent..

2. The Fede.ral Trade Commission has jurisdiction of the. subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER I t is ordered That respondents Fiesta Record Company, Inc. , a corporation, and its officers, and Jose. l\1orand, individually and as an officer of said corporation, and responde.nts' agents, representatives and employees, directly or through any corporate or other device, in connection with phonograph records which have been distributed, in commerce, or which are used by radio or television stations in broadcasting programs in commerce, as "commerce" is defined in the Fe.deral Trade Commission Act, do forthwith cease and desist from:

(1) Giving or offering to give, without requiring public disclosure, any sum of money or other material consideration, to any per- 584 FEDERAL TRADE COJMMISSION DECISIONS Sylla bus 57 F.

son, directly or indirectly, to induce that person to select, or participate in the selection of, and the broadcasting of, any such records in which respondents, or either of them, have a financial interest of any nature.

(2) Giving or offering to give, without requiring public disclosure, any sum of money, or other material consideration, to any person, directly or indirectly, as an inducement to influence any employee of a radio or television broadcasting station, or any other person, in any manner, to select, or participate in the selection of and the broadcasting of, any such records in which respondents, or either of them, have a financial interest of any nature. The.re shall be "public disclosure" within the meaning of this order, by any employee of a radio or television broadcasting station or any other person, who selects or participates in the selection and broadcasting of a. record when he shall disclose, or cause to have disclosed, to the listening public at the time the record is played that. his selection and broadcasting of such record are in consideration for compensation of some nature, directly or indirectly, received by him or his employer.

DECISION OF THE CO1\11\IISSION AND ORDER TO FILE REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission s Rules of Practice the initial decision of the hearing examiner shall, on the 7th day of September 1960 become the decision of the Commission; and accordingly:

I t is m'dered That respondents herein 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. IN THE l\1A'ITER OF REO GARl\LENT, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDEIL-\L TILt\.DE COl\DIISSION, THE WOOL PRODUCTS LABELING, AND THE FUR PRODUCTS LABELING ACTS Doclcet 7903. Complaint, May 20, 1960-Decision, Sept. 1960 Consent order requiring New York City manufacturers to cease violating the Wool Products Labeling Act by labeling as "50% wool, 50% reprocessed wool", women s coats which contained a substantial quantity of other than woolen fibers, and by failing in other respects to comply with labeling , , REO GARMENT INC. ET AL. 585 584 Complaint provisions; and to cease violating the Fur Products Labeling Act by failing to label fur collars of women s coats as required and to comply with invoicing regulations.

COMPLAINT Pursuant to the provisions of the Fe.deral Trade Commission Act the ,Yool Products Labeling Act of 1939 and the Fur Products Labeling Act., and by virtue of the authority vested in it by said Acts, the Federal Trade Commission having reason to believe that neo Garment, Inc. , a corporation, and Samuel JOein and :Marvin JOe-in, individually and as officers of said corporation, hereinafter referred to as respondents, have. violated the. provisions of said Acts and the Rules and Regulations promulgated under the., Wool Products Labeling Act and the Fur Products Labeling Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Reo Garment, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its office and place of business located .at 15 ,Vest 20th Street, New York, N. R.respondents Samuel IGein and :Marvin Klein are officers of the corporate respondent. They formulate, direct and control the policies, acts and practices of the said corporation, including the acts and practices hereinafter set forth. Their address is the same as that of the. corporate respondent.

PAn. 2. Subsequent to the effective date of the ,Y 001 Products Labeling Act of 1939 and more especially since 1954, respondents have manufactured for introduction into commerce, introduced into commerce, sold, transported, distributed, delivered for shipment, and offered for sale in commerce, as "commerce" is defined in said Act wool products as "wool products" are defined therein. PAn. 3. Certain of said wool products were misbranded by the respondents within the intent and meaning of Section 4(a) (1) of the vV 001 Products Labeling Act and the Rules and Regulations promulgate.d thereunder, in that they were falsely and deceptively labeled or tagged with respe.ct to the character and amount of the constituent fibers contained therein.

Among such misbranded wool products were women s coats la- , beled or tagged by respondents as 500/0 wool, 500/0 reprocessed wool" whereas, in truth and in fact, said products contained a substantial quantity of fibers other than woolen fibers. , Complaint 57 F.

PAR. 4. Certain of said wool products were further misbranded by respondents in that they were not stamped, tagged, or labeled as required under the provisions of Se~tion 4(a) (2) of the Wool Products Labeling Act, and in the manner and form as prescribed by the , Rules and Regulations promulgated under said Act. PAR. 5. Certain of said wool products were misbranded in violation of the vVool Products Labeling Act in that they were not labeled in accordance with the Rules and Regulations promulgated thereunder in that the required information descriptive of the fiber content contained on the labels attached to the wool products was minimized and rendered inconspicuous, so as likely to be unnoticed by purchasers and the purchaser-consumers, by reason of the use of small, indisinet. and crowded type in violation of Rule 11 of the aforesaid Rules and Regulations.

PAR. 6. The respondents in the course and conduct of their business as aforesaid were and are in substantial competition in commerce with other corporations, firms and individuals likewise engaged in the manufacture and sale of wool products including women ~s coats.

PAR. 7. The acts and practices of respondents, as set forth above were, and are, in violation of the V,T 001 Products Labeling Act of 1939 and the Rules and Regulations promulgated thereunder 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. PAR. 8. Subsequent to the effective date of the Fur Products Labeling Act on August 9 , 1952, respondents have been, and are now, engaged in the introduction into commerce and in the manufacture for introduction into commerce and in the sale, advertising and offering for sale in commerce and in the transportation and distribution in commerce, of fur products, and have manufactured for sale and have sold, advertised~ offered for sale, transported and distributed fur products which have been made in whole or in part of fur which had been shipped and received in commerce, as the terms "commerce fur" and "fur product" are defined in the Fur Products Labeling Act.

PAR. 9. Certain of said fur products, namely, fur collars of woms coats were misbranded in violation of the Fur Products Labeling Act in that they were not labeled in accordance with the Rules and Regulations promulgated thereunder in that required item numbers were not set forth on labels, in violation of Rule 40 of said Rules and Regulations.

PAR. 10. Certain of said fur products were falsely and deceptively invoiced in that they were not invoice.d as required under the REO GARMENT, INC. , ET AL. 587 584 Decision provisions of Section 5(b) (1) of the Fur Products Labeling Act and in the manner and form pre.scribe.d by the Rules and Regulations promulgated thereunder.

PAR. 11. Ce.rtain of said fur products were falsely and deceptiyely invoiced in violation of the Fur Products Labeling Act in that they were not invoiced in accordance with the Rules and Regulations promulgated thereunder in that required item numbers were not set forth on invoices in violation of Rule 40 of said Rules and Regulations.

PAR. 12. The aforesaid acts and practices of the respondents, as alleged in paragraphs 9 , 10, and 11, are in violation of the Fur Products Labeling Act and the Rules and Regulations promulgated thereunder and constitute unfair and deceptive acts and practices in commerce, under the. Federal Trade Commission Act. Afr. Dewitt T. P'uckett supporting the complaint. Respondents pro Be.

INITIAL DECISION OF OHN LEWIS, I-IEARING EXAMINER The Federal Trade. Commission issued its complaint against the above-named respondents on :May 20, 1960, charging them with having violated the 'V 001 Products Labeling Act of 1939 and the Fur Products Labeling Act and the Rules and Regulations promulgated thereunder, and the Federal Trade Commission Act, by misbranding certain wool products and fur products and falsely and deceptively invoicing certain fur products. After being served with said complaint, respondents appeared and e.entered into an agreement containing consent order to cease and desist, dated June. 28 , 1960, purporting to dispose of all of this proceeding as to all parties. Said agreement, which has been signed by all respondents and by counsel supporting the complaint, and approved by the Director, Associate Director and Assistant Director of the, Commission s Bureau of Litigation, has been submitted to the above-named hearing examiner for his consideration, in accordance with Se.ction 3.25 of the Commission s Rules of Practice for Adjudicative Procee.dings. Responde.nts, pursuant to the aforesaid agreement, have admitted all the jurisdictional facts alleged in the complaint, and have agreed that the record may be taken as if findings of jurisdictional facts had been duly made in accordance. with such a1Iegations. Said agreement furthe.r provides that respondents waive any further procedural steps before the hearing examiner and the Commission, the making of findings of fact or conclusions of law, and all of the rights they may have to challenge or contest the validity of the order to cease and desist entered in accordance with said agreement. Order 57 F.-T.

It has been agreed that the order to cease and desist issued in accordance with said agreement shall have the same force and effect as if entered after a full hearing and that the complaint may be used in construing the terms of said order. It has also been agreed that the aforesaid agreement is for settlement purposes only and does not. constitute an admission by respondents that they have violated the law as alleged in the complaint.

This proceeding having now come on for final consideration on the, complaint and the aforesaid agreement containing consent order and it appearing that the order provided for in said agreement covers all of the allegations of the complaint and provides for an appropriate disposition of this proceeding as to all parties, said agreement. is hereby accepted and is ordered filed upon this decision s becoming the decision of the Comlnission pursuant to Section 21 and 3.25 of the Commission s Rules of Practice for Adjudicative Proceedings, and the hearing examiner, accordingly, makes the following jurisdictional findings and order: 1. R.respondent R.eo Garment, Inc., is a corporation existing and doing business under and by virtue of the laws of the State of New Yor1\:, with its office and princ.ipal place of business located at 15 ,Vest 20th Street, in the city of New York, State of New York. Individual respondents Samuel IGein and :Marvin Klein are officers of the corporate, respondent. Their address is the same as that qf the, corporate respondent.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents hereinabove named. The complaint states a cause of action against said respondents under the ,Y 001 Products Labeling Act of 1939, the Fur Products Labeling Act and the Federal Trade Commission Act, and this proceeding is in the interest of the public. ORDER It is ordered That respondents Reo Garment, Inc., a yorporation and its office.ers, and Samuel Klein and ~farvin Klein, individually and as officers of said corporation, and respondents' representatives agents and employees, directly or through any corporate or other device, in connection with the introduction or manufacture for introduction into commerce, or the offering for sale, sale, transportation or distribution in commerce.e, as "commerce" is defined in the Federal Trade Commission Act and the ,Y 001 Products Labeling Act of 1939, of women s coats or other "wool products, as such products are defined in and subject to the ,Y 001 Products Labeling , REO GARMENT, INC. , ET AL. 5S9 584 Decision Act of 1939, do forthwith cease and desist from misbranding such products by:

1. Falsely or deceptively stamping, tagging, labeling or otherwise identifying such products as to the character or amount of the constituent fibers included therein;

2. Failing to affix labels to such products showing each element of information required to be disclose.d by Section 4(a) (2) of the 'V 001 Products Labeling Act of 1939;

3. Setting forth on labe.)s affixed to such products information required under the said Act in a minimized, obscure or inconspicuous manner.

It i8 furthe7' oTCleJ'ed That respondents, Reo Garment, Inc., a corporation, and its officers, and Samuel Klein ancll\Iarvin Klein, individually and as officers of said corporation, and respondents' agents representatives and employees, c1irec.tly or through any corporate or other-r device, in connection with the introduction or manufacture for introduction into commerce, or the sale., advertising, offering for sale transportation or distribution, in commerce, of any fur product, or in connection with the manufacture, sale, advertising, offering for sale, transportation or distribution of any fur product which is composed wholly or in part of fur which has been shipped and received in commerce, as "commerce fur" and "fur product" are defined in the Fur Products Labeling Act, do forthwith cease and desist from:

1. l\Iisbranding fur products by:

(a) Failing to set. forth on the required labels the item number or mark assigned to a fur product.

2. False)y or deceptively invoicing fur products by: (a) Failing to furnish to purchasers of fur products an invoice showing all of the information required to be disclosed by each of the. subsections of Section 5(b) (1) of the Fur Products Labeling Act;

(b) Failing to set forth on the required invoices the item number or mark assigned to a fur product.

DECISION OF THE COl\DIISSION AND ORDER TO FILE REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission s Rules of Practice the. initial decision of the hearing examiner shall, on the 7th day of September 1960, bec.ome the decision of the Commission; and accordingly:

It is ordered That the respondents herein 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 ce,a.se and desist.. 'Complaint 57 F.