Mary Carter Paint Company

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IN THE MATTER OF MARY CARTER PAINT COMPANY ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED YIOLATIO OF THE FEDERAL TRE DIISSIOX ACT Docket 8290. Complaint, Feb. 1961-Decis-ion, J1tne 28. 1962 Order requiring manufacturers of paint and related products, with principal place of business in Tampa, Fla. , to cease representing falsely in advertisements in newspapers and periodicals and by radio and televisionsuch statements as "Buy only Half the Paint You Xeed" J-:very Second Can Free of Extra Cost" , etc. that the advertised price was their usual retail price for a can of paint and was a factory price, and that if one can was purchased at that price, a second can would he given "free" when actually, the advertised price was the regular retail price for two cans. COJu:rLAINT Commission Act Pursuant to the provisions of the Federal Tra,de and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that iary Carter Paint Company, Inc., a corpomtion, and Jolm C. yIiler and 1. G. Davis individually and as offcers of said corporation, and Robert Van "\Vorp, Jr. individually, hereinafter referred to as respondents, have violated the provisions of said Act, and it appea.ring to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follow' PARAGHAl'H 1. Respondent :Mary Carter Paint Company, Inc. , is a corporation organized, existing and doing business under and by virtue of the laws of thc State of Delaware, with its principal place of business located at Gunn Highway at I-Ienderson Hoad, Tampa Florida. Respondent corporation also maintains offces in New York said address being 666 Fifth Avenue, Kew York, N. offcers of said corporation. John C. :Miller and I. G. Davis are They presently formulate, direct and control the policies of the corsame as that of the cm' porate respondent. Their address is the late respondent.

71g-603--64--116 1828 FEDERAL TRADE COl\ISSIOl\ DECISIONS Complaint 60 F.

Robert Van W orp, Jr., was formerly an offcer of said corporate respondent, at which time he cooperated in formulating, directing and controlling the policies of the said corporate respondent in conllection with the acts and practices set forth herein. His address is the same as that of the corporate respondent. PAR. 2. Corporate respondent Mary Carter Paint Company, Inc. and John C. Miller and I. G. Davis, offcers of said corporation, are engaged in the business of manufacturing, selling and distributing paint and reh,ted products to the public, under the label or trade name of H)iary Carter, through various retail outlets and franchise dealers located in the various States of the United States. PAR. 3. In the course and conduct of their business, respondents cause, and have c.aused, their paint products to be transferred from their factories in Florida, N ew Jersey and Texas to 1Iary Carter paint stores and franchise dealers locateel in various other States of the United States, where said products are sold at retail. Said respondents thereby maintain, and at aU tiDIes mentioned herein have maintained, a substantial course of trade in said paint products in commerce, as :'commerce" is defined in the Federal Trade Commission Act. PAn. 4. Respondents advertise, and have caused to be advertised their pa.ints in various newspnpers and periodicals of general circulation, and by commercial announcements over the radio and television across state lines. Among and t;typical, but not all inclusive, of the statements contained in such advertisements are the following: Buy only Half the Paint You eed Every Second Can Free of Extra Cost Let us show you how to save axe HALF on your paint costs Buy 1 and get 1 ree I am satisfied ''with pennies per gallon! . . . . You buy Duly half the paint you Beed! . . . . The rest is free of extra cost These Mary Carter Paint Factories wil be making free paint half the coming year.

AnJ'time J" OU can get enough paint to do the extra job, yet pay for only half as much as yuu need, you re re llly practicing econumy On all paint every Second can FI , gallon 01' quart ='o limit. . . .

Buy a gallon-get a gallon Buy a quart-get a quart TIm.. is the FRI,m gallon possible I can manufacture high flualitr paint at low cost because of operational economies and because 1')1 satisfiell with a modest profit! j\Iiddleman eliminated by direct factory-to-store shipments. . . modern paint factories and equipment . . . streamlined merchandising methods. My own fleet of diesel trucks to cut raw materials and sbipping costs. . . All of these effect savings which I pass all to you with every 2nd can of paint free of extra cost. , MARY CARTER PAINT CO. ET AL. 1829 :1827 Complaint WHY NUl' Jest CHARGE HALE' PRICE: My paints are quality priced because they are quality paints, and I refuse to "second rate" them with low unrealistic price tags. I'll never classify Mary Carter Paints with cheap imitations being offered, nor wil I ever downgrade my products with price reductions, discounts or special sales. I manufacture high quality paint and dramatize my operation economies with every 2nd can free of extra cost! AORYLIC ROL-LATEX $2.25 Quart $6.98 Gallon Every 2nd CAlV FREE OF EXTRA COST.

LIQUID GLASS OI:TSIDE OIL PAIL\ T $3.00 Quart $8.98 Gallon EVERY 2nd CA.N FREE OF EXTRA COST.

PAR. 5. Through the use of said advertisements, and others similar thereto not specifically set out herein, respondents have represented and do represent, directly or by inlplication, that the usual and customary retail price of each can of Mary Carter Paint is the price designated in the advertisement; that this advertised price is a factory price; and that if one can of J\:iary Carter Paint i purchased at the advertised price, a second can ,vill be given "free, that is, as a gift or gratuity without cost to the retail purchaser. PAR. 6. Thc aforesaid advelt,isements referred to in paragraph 4 are false, misleading and deceptive. In truth and in fact, the usual and customary retail price of each can of :Mary Carter paint was not, and is not now, the price designated in the advertisements but was, and is now, substantially less than such price. The advertised prices were not, and are not now, the prices charged by the fa,ctory for said paint but were, and ate now, suustantially in excess thereof. The second can of paint was not, and is not now free, that is, was not, and is not now, given witllOut cost to the retail purchaser since the purchaser paid the a(h ertised price, which was, and is now, the usual and regula.r retail selling price for t"\vo cans of ::lary Carter paint.

PAR. 7. In the conduct of their business, at aJl times mentioned herein, repondents have been, and arc now, in substantial competition in commerce, with corponltions, individuals and firms engaged in the sale of paint and related products of the same general kind and nature as that sold by respondents.

PAR. 8. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistalcen belief that said statements and representations were and are true and into the purchase of substantia-I quantities of respondents' products by reason of said erroneous and mistaken belief. As a consequence thereof, substantial trade in comnlerce has been, and is being, unfairly diverted to respondents &, 1830 FEDERAL TRADE CO SSION DECISIONS Intial Decision 60 from their competitors and substantial injury has thereby been, and is being, done to competition in commerce.

PAR. 9. The aforesaid acts and practices of respondents, as herein alleged, 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.

11r. Garland S. Ferguson for the Commission. Sullivan Oromwell by 11r. David W. Peck, Mr. Richard Sew ton of New York, N. , and Mr. Joseph P. Tumulty, Jr. of Washington, D. , for respondents.

INITIAL DECISION BY H:R 1AN TOCKER, IlNG EXAMI The Federal Trade Commission has charged the respondents in this proceeding with engflging in false and deceptive pl'ilctices arising in the tdvel'tising of paintInainly from the use of the word "free" products offered for sale. The complaint was issued February 15 1961, and alleges that these practices are in violation of the Federal Trade Commission Act because they constitute unfair and deceptive acts and practices and unfair methods of competition in commerce the corporatewithin the intent and meaning of that Act. Although respondent is named in the complaint as Mary Carter Paint Company, Inc., its correct name is :Mary Carter Paint Co. The case has been litigated in this form and, for the purposes of this proceeding, it may be regarded as being brought against Mary Carter Paint Co. and the individuals named. All the respondents appeared herein and filed an answer to w hioh reference will be made below. The advertising to which reference is ulade in the complaint is conceded to be that of the corporate respondent (to which reference may be made from time to time as Mary Carter and which, for the purpose of this proceeding, may be deemed to include its predecessor or predecessors in the paint business). The complllint charges that this is not.advertising is false and deceptive and :Mary Carter SRYS it Typical are the following quotations from advertisements which appear repeatedly and consistently in newspapers a.nd on the radio or" television:

Buy only Half the Paint You Need Every Second Can Free of Extra Cost Let us show you how to sa ,e ONE HALF Oll your paint costs MARY CARTER PAI CO. ET AL. 1831 1827 Inl-tial Decision Buy 1 and get 1 Free I am satisfied with pennies per gallon! You buy only half the paint you need! The rest is free of extra cost These Mary Carter Paint Factories wil be making free paint half the coming year.

Anytime you can get enough paint to do the -extra job, yet pay for only half as much as you need, you re really practicing economy On all paint every Second can FREg, gallon or quart Kolimit... .

Buya gallon-get a gallon Buy a quart-get a quart Bow is the FREE gallon possible? I can manufacture high quality paint at low cost because of operational economies and because I'M satisfied with a modest profit! Middleman eliminated by direct factory-to-store shipments. . . modern paint factories and equipment . . . streamlined merchandising methods. My own fleet of diesel trucks to cut raw materials and shipping costs, . . All of these effect savings which I pass on to yon with every 2nd can of paint free of extra cost. 'YHY XOT J"CS' f CHARGE HALF PRICE? My paints are (IUality priced because they are quality paints, and I refuse to "second rate" them with low unrealistic price tags. I'll never classify l\:Iary Carter Paints with cheap imitatioIls being offered, nor wil I ever downgrade my products \"with price reductions, discounts or special sales. I manufacture high quality paint and dramatize my operation economies with every 2nd can free of extra cost:

ACRYLIC ROL-LATEX $2.25 Quart 86.98 Gallon Every 2nd CAN FREE O:U' EXTRA COST.

LIQUID GLASS OUTSIDE OIL PAINT 83.00 Quart $8.98 Gallon EVERY 2nd CAN FREE OF EXTRA COST.

It is clear that the attack is mainly on the use of the word "free but the complaint alleges also that Mary Carter represents that purhasers of its paint acquire it at factory prices when such is not the fact.

Respondents freely concede that the method of advertising, using the word "free " in the manner shown, is Mary Carter s permanent, established policy and that this policy is accountable for its sper:taeular 1832 FEDERAL TRADE CQM2lission DECISIONS Initial Decision 60 F. T. growth. Indicative of its growth is the rise of its sales from just over 000 000 in 1956 to more than $12 000 000 in 1960. Basically, their position is (a) that there has been built up in the minds of the public by the large national brand paint companies, and the national trade association, the idea that quality of paint is to be judged by price; and (b) that since Mary Carter paint is of a quality comparable to the best paints of the industry, it very properly prices its paint at prices similar to the prices of such other paints and it distinguishes itself from the other manufacturers by passing on to consumers savings which it realizes in the manufacturing and distribution processes by giving to' its cust.omeTS a second can of paint free and without cost with each purchase of a first can. Since, under the thcory thus espouscd, price has become the standard of value in the paint industry, it contends it has every right to establish its prices at figures equivalent to the prices fied for what it claims to be comparable paints. It says that if it were to place a lower price on its paints, this, in effect, would make it appear that its paints are not as good as the higher priced paints. However, since it wants to pass on to Jiary Carter customers a part of the savings which it achieves, it does so by giving its customers the so-caned "free" can of paint. It asserts that this practice, contrary to being against the public interest does in fact benefit the public by providing increased competition in the business and by providing consumers with true quality paint value.

Respondents contend also that, in any event, the individuals who have been charged are not such participants in the practices alleged as to justify their inclusion as respondents in t.his proceeding. :Iotions have been made to dismiss a,s to them. After consideration of all the evidence presenteel and the facts a.nd nature of this case, it is my conclusion tha.t neither J\1il1er nor Davis ought to be made parties to any remedial action, if any be taken herein. )Iil1er, although formerly an offcer, was brought into the company as a result of a series of mergers and his identification 'with the particular practices \"which are involved herein is only incideJ1tal thereto. Similarly, Davis \"as brought into the company only late in 19(;0 and, to the extent that he may be connected with the practices involved herein, it can be said only that he acquired that connection by reason of having become president in December HJGO. The company is a large publicly-O\"IH:d corporation and his mere holding of the executive offce does not justify his being charged with responsibility for the ancient practice involved herein. The motions to dismiss as t.o :Miller and Davis will be granted. Boo!, of the Jl month Club, lnc. , et oZ. 48 F. 1297, at 1308. However t.he motion to dismiss as to Robert. Van 'Worp., Jr., is denied. He and ( MARY CARTEH PAI T CO. ET AL. 1833 1827 Inital Decision his father always have been identijied intimately with the practices herein under attack. lie has been with the venture since its inception. lie has been vice president and president, and is now a consultant to the Board of Directors. There is no reason to conc.uc1e that if remedial action be necessary, such remedial actions should not be taken against him as an individual in addition to that taken against the corporation.. vYo are confronted squarely in this proceeding with a policy statement. issued by the Federal Trade Commission on December 3 , 1953, as follows:

In connection with the sale, o11e.ring for sale, or distribution of industry products, it is an unfair trade practice to use the ,yord "free or any other word or words of si111Ja1' import, in advertisements or in other offers to the public, as descriptive of an article of merchandise or service, which is not an unconditional gift, 11lder the following circumstances:

(1) vYhen all the conditions, obligations, or other prerequisites to' receipt and retention of t.he "free" article of merchandise or service' offered are not clearly and conspicuously set forth at the outset so as to leave no reasonable probability that the terms of the offer wil be misunderstood; and, regardless of such disclosure: (2) 1Yhen, with respect to any article of merchandise required to be purchased in order to obta.in the " free" a.article or service, the offerer (a) increases the ordinary and usual price of such article of merchandise, or (b) reduces its quality, or (c) reduces thc quantity or size thereof.

(Note: The disclosure required by subsection (1) of this rule shall appear in close conjunction with the word "free;; (or other word or words of similar import) wherever such word first appears in each advertisement or offer. A disclosure in the form of a footnote, to which reference is made by use of an asterisk or other symbol placed next to the word "free " win not be regarded as cornpEance. The respondents rely most strongly on this statement. They contend that the advertising which is the subject matter of this proceeding is completely sanctioned by it. If what respondents say is so, a hearing examiner has no alter11ative but to dismiss the complaint. To say that every second can is free of extra cost, Jeaves little doubt that payment must be made for the first can. The same is true of an advertisement saying, uy 1 aJlcl get 1 Free," and possibly for "You J In promulgating this policy decision. the Commission was not like Humpty-Dumpty. It did not take the positon that the word "free" had to have a definite unrealistic meaning which It chose to adopt, "neither more nor less. When I use a word Humpty-Dumpty said, "It means just what I choose it to mean-neither more nor less. Ch. 6 Through the Looking-Glass ana What Alice Found There, Lewis Carroll. , Initial Decision 60 F.

buy only half the paint you need! . . . . The rest is free of emtra cost and so on. (Emphasis mine. ) It is only a short step from statements like these to statements like "These Mary Carter Paint Factories will be making free paint half tho coming year" or "Anytime you can get enough paint to do the extra job, yet pay for only half as much as you need, you 1'8 really practicing economy. The fact that one can must be purchased and paid for before getting the second can "free" is always set forth somewhere in the advertising. However, even though the statement, as a grouping of 1VOTds says that payment ahvays must be made for one can before a second can nlay be obtained without additional payment, the vi81 al presentation is not clear. The emphasis is not as I have written above. On the contrary, the word "free" invariably jumps out from the advertisement because it is in larger letters, bolder type or more strategical1y placed than the words of qualification. In addition to this, some. of the advertisements have lead or banner material which presents a puzz1ing or a definitely misleading approach. About. one- fourth of one, in big letters, three lines, says:

Why Give a FIn Can of PAIL'T? Why N at J nst Charge HALF PRICE? The picture which catches the eye here is:

FREE PAINT HALF PRICE Television am10uncements start off K ow, take advantage of :Vlary 'Carter s famous free paint offer.

A mat for a columnar advertisement is in evidence. It is thirteen inches long. The top 2% inches is a box which is at least half covered with the word "FREE " the words below it being "PAINT" and OFFER " so that the message is:

FREE PAI::T OFFER The bottom of this thirteen-inch column is another box 2112 inches. Again, the dominant word is "FREE " more than three-fourths of an inch high. The legend is EVERY 2nd CAN FREE of extra cost MARY CAR ler PAINT FACTORIES , , . . . , , , MARY CARTER PAINT CO. ET AL. 1835 1821 Initial Decision The smallest letters are of extra cost. One card, although ofiered as a separate exhibit, is really one of a group of three television display cards. The No. card contains the lcgend:

EVERY 2nd CA:\ FREE extra cost MARY CARTER PAl:-T FACTORIES The No. card presents a sqlH1re efiect with four cans of paint forming a diagomll from lower left corner to upper right corner. In the upper left quadrant are the words "FIVE 1IILLION Fln E GALLONS" and in the lower right quadrant the ,,' ords "MARY CARTER P AI FACTORIES. " The No. 3 card just shows two cans of paint. The efiect presented is the emphasis on "FREE" in the first card with the words "of extm cost" played down and this is followed with a care! which howls "FIVE J\nLLIO FREE GALLONS " and is wholly unqualified.

Another exhibit is a three-column advertisement about fifteen inchcs in length. The first two inches are ",Yhy give a FREE can of PAINT?" After a one-half inch space, the next line is ",Yhy Not Just Charge:' and the next line in la.rge capital letters is "HALF PRICE " It is not unti151h inches down on the page, after an intervening text of ten lines in much smaller type and containing long narrative statements, that the disclosure is made that a sale is tied into the availability of a second can of paint It would be easy to cut the price in half for a single gallon, instead of giving a second can free with everyone I selI " Squarely in the middle of this advertisement are two lines in bolcl black, large print: MY TJNIQUE OI'ERA'l' IONAL ECO:'O)lHJS :MAKE MY FRE:zJ PAINT OFFER POSSIBLE! Qualification, if any there be, of the words "FREE" in this advertisement, is wholly lost to any but the keen and thorough reader. I am not sure that I read CX 51 in the same manner as does Commission counsel. It shows three paint fa,ctories above ,which are the words THESE MARY CARTER PAINT FACTORIES" and below which, in big, bold, black, block letters are the words WILL BE "IAKIXG FREE PAINT HALF THE COMING YEAR!" The legend surely presents a picture of a large company making paint for free distribution. This is followed by the smaller print Hard to believe? 1VeJl, it' s true! For six months of the coming year, every one of my three paint factories will be working ful! time turning Initial Decision 60 F.

out FREE PAINT for you! That's because, with every can of paint I sell in the next 12 months, I'll be giving a second can away free of extra cost." Thus far, the only change from the banner head is that now it appears that every time JHary Carter sells a can of paint it will set aside one can for free distribution. Not until the last sentence in the next smaller print paragraph does it come out that the free can is reserved only for the b1.tyeJ' of the first can. The Test of the advertisement is the typical :Mary Carter "Eycry 2nd Can Free theme but there arc two large boxes just below its center. The left box, above 12 lines of fine print, has the two line black print question HOW IS THE FREE GAIJLOK POSSIBLE 1" and a similar right sjde box, the legend "WHY NOT .JUST CIIA RGE HALF PRICE 1" JIary Carter s advertising copy writers have been caught up in the Thythm of this Tforcl "free to the. point ,-vhcre, not content with using the name J\Iary Carter for the company name, they have represented her as a real person who is sometimes the company and sometimes a part of it. She engages in disputes "\with the companies BOHrd of Directors, always prevailing upon them not to abandon the distribution of the so-cnJlecl "free': can. Thus, one of the exhibits is a copy of an advertisement containing a picture of a lady, presumably Salary Carter, in the upper leftha-nel corner and, to the right and partinny under this picture, a picture of five men, presumably the Board of Directors, sitting around a board table. She is quoted as telling the Board of Directors "Positively no" in response to their annually recurring spring idea of terminating the "second call free policy. . (toJ . . . cut up a bigger profit for ourscl\:es !:, lieu' response to that is said to be invariably " ' and she assures t.he consuming public that, as long as she is able to outtalk t.he Board members C" (and being a \Voman gives me an edge in that departments)"J, t.he buyer always will be able to get the second can free in a IaTY Carter store. The truth is, there is no :Mary Carter in t.he company and there never Yas! In these days of visual, video and audio impact, words in the abstract do not constitute the offer. It cannot be Silid that "all of the conditions. . . are. . . clearly and conspicuously explained or set forth at the O1dset so as t.o leave no l'easonrtble probrtbility thrtt the terms of the offer win be misunderstood." The criterion is in the first. half of t.he policy stat.ement.

The second half of the policy st.at.ement cannot absolve a vendor he contravenes the first hillf. Since it has been injected into this proceeding some discussion may be appropriate. Vnder the second 1mlf, questions of fact are created as t.o ".whether the ordinary and lls1mJ price has been increased, whether quality has been reduced or MARY CARTER PAINT CO. ET AL. 1837 1827 Initial Decisioll whether quantity or size has been reduced. These questions of fact do not take care of all situations which may arise in connection with a "free offer. The reason for this stems from the manner in which the policy statement came to be evolved.

The policy statement was evolved in, and in connection with, the disposition of the Commission s complaint against Walter J. Black Inc. (The Classics Club and Detective Book Club), F. C. Docket 5571 , decided September 11, 1953, 50 F. C. 225. Lnfortumtely, Black although an adversary proceeding, was decided on the basis of a stipulation of facts entered into between Black's attorney and counsel there supporting the complaint. No hearing was held and no witnesses were submitted hy either of the parties. Black had offered, in connection with the sale of a series of books known as The of the IliadClassics, two hooks characterized as "free -a copy Homer and a copy of the Odyssey of Homer. It was clear from the offer that the books were to be given free only if the recipient became a trial member of "The Classics Club." In order to become a trial member, it appeared to be necessary to purchase a first book. Black had also another book club called the "Dctective Book Club." The sales device for that club was to give "free" to new members a threevolume book of detective fiction as a "Charter Membership Gift." The Classics Club did not obligate the trial mcmbcr to take any particular number of books after buying the first one, but the Detective Book Club at first ohligated the member to "take as few as four during" the twelve months following his becoming a member. The Detective Book Club offer was varied Jater in that it scemcd to require only purchase of the current triple volume as distinguished from the prior obligation to make four purchases. The stipulation "included a statement to t.he effect that (BlackJ made no effort to collect for the so-called 'free' books or to obtain the return of same when the subscriber failed to carry out the other provisions of his contract. These were the matters before the Commission when it decided Black. It is diffcult, therefore, to attempt to apply the facts of this Mary Carter case to the second half of the policy statement thus enunciated by the Commission.

As pointed out by the respondents here, the policy statement does not take into consideration the possibility of a newcomer to a market giving anything as a free gift since there is no way (set forth in the statement) to determine whether the ordinary and usual price of such" article was increased or whether its quality WfLS reduced or Can anyone suggest that the buyer of a can of Mary Carter paint may retl1f!1 it, get bjs money back and stil keep the "free" can? 1838 FEDERAL TRADE COMMISSION DECISIO Initial Decision 60 F.

whether its quantity or size was reduced. Respondents seek to supply this deficiency by referring to the Guides against Deceptive Pricing adopted October 2, 1958 ("Part V. TWO FOR ONE SALES" There the Commission recognizes that a vendor may not previously have sold a particular article or articles and in such case it provides that the propriety of the advertised price shall be "determined by the usual and customary retail price of the single article in the trade area or areas, where the claim is made." I am in agreement with respondents when they say that a newcomer in any business should not be deprived of any benefit of the Blad, rule and that he should be permitted to make a free offer of merchandise identical with his new product in connection with the sale of that product. (In this I would not be inclined to rely on Schaintuck 23 F. C. 151, because that too was decided on the basis of a stipulation.

Of course, this could not be done within the rule of the policy statement on "free" if there is no compliance with its first half. But, let us assume a case of compliance with that first half. Then I would rule that the very argument on which respondents rely so strongly (that Mary Carter s offer always has been the same, that it wil not be withdrawn), is fatal to their defense of this proceeding. Black had no cause to decide this situation and Book of the Month 48 F. 1297, 50 F. C. 778 , is distinguishable. Black decidecl only that the offer was valid ror new members. I am sure that Black would not have permitted Jolm Doe to become a member, get his free books, quit join aga.in and get lnore free books, quit and join ad infinitu1n. Yet this is what Mary Carter permits in effect. 'While Boo!, of the Month was a continuing offer in that a "book dividend" was given ror every two books purchased, the decision as to what books were to become available for book dividends always remained with the Club and subscribers were limited to select from them. In our case, the published offer implies that double quantity of any particular paint always will be given for the list price per single can. IVe are told however, that a buyer may elect to take any aJ'Y CaJ'teJ' product priced up to the price of the purchased can, as his free article. Articles manufactured by others and purclmsed for sale by 11ary Cartr are specifically excluded. This leads to two conclusions-the first that the list prices of Ma.ry Carter own products are increased to a point to make possible the apparently free gift tied into any purchase and the second that the list price, the price for which any particular can is sold and required to be purcha.sed, is not the true price per can but the price for two cans. Thus, there never is a free can of paint. It is alwa.ys two canR for the price specified. Even if the offer had , MARY CARTER PAINT CO. ET AL. 1839 1827 Initial Decision been permissible under the "newcomer" rule, by lapse of time the practice would have lost its character of providing a free article incidental to a purchase and would have merged into a "two for $X" pricing arrangement, not a "two for the price of one" arrangement. (Conceivably there could be a question of fact as to what lapse of time is necessary to result in such a merger but the question cannot survive all the years during which Mary Carter has engaged in this practice. To the extent indicated thus far in this decision and, subject to my dismissal of the complaint as against respondents Miler and Davis, the complaint will be sustained. The conditions of the "free" offer are not clearly and conspicuously explained at the outset. The unit of sale is two cans.

This does not, however, dispose of all the issues. It stil remains to be decided whether :Mary Carter advertised the price of the paint as "a factory price" and whether, if it did so advertise, there was a false representation. 'While the advertising refers frequently to economies effected because of the mass production, great volume, modern methods of manufacture, elimination of thc middleman (which I interpret as meaning the wholesaler or distributor), lessened or no freight costs, the sale in it.s own stores or in .the stores of franchised dealers, and was subscribed leary Carter Paint Factories 3 I find nothing in the advertising from which I would conclude, as a matter of law that any representation was made that the paint was being sold at factory prices. I do not interpret the words factory price as meaning anything but the price at which a factory might sell a commodity to a purchaser who comes to its door, there to make his purchase. There is nothing in the advertising suggesting that this is the method of sale. If facton) price (which is a term used by Commission counsel and not by respondents) has some special meaning, or perhaps a meaning other than the meaning I ascribe to it, it seems to me that such a meaning ought to be brought out by evidence. For this reason, to the extent that the complaint alleges a deceptive practice involving alleged representations of sales at factory prices, it wil be dismissed.

Report of Ewcluded Testimony and Rulings on Respondents' Requests To Find Frequently, during the course of thc proceeding and in the briefs submitted subsequent thereto, respondents have complaincd that they are sought to be made victims of a campaign against them by the 3 This wus the name of the . corporate respondent' s predecessor and was not a. false chnracterization.

, , Initial Decision 60 F.

large national paint manufacturers and the National Paint, Varnish & Lacquer Association. That is irrelevant to the issues in this proceeding. If Mary Carter has indeed been injured by the practices and campaign of which it complains, it has its remedy and this is not the forum in which to pursue it. Advance Music Oorporation v. American Tobacco 00. 2g6 N. Y. 7g.

The claim is that Mary Carter paint is top quality and equivalent to the paints vended by the large paint manufacturers; therefore respondents say they have the right to price it at prices equivalent to the prices charged by the manufacturers of equivalent and competitive paints; consequently, any additional can, that is to say, the second can, is in fact free. On thc basis of both the position asserted by Commission counsel and my interpretation of the complaint, I ruled that quality is not an issue; if in fact the advertising ascribed to the respondent.s is false, then the paillt vended by them could be of the best quality in the world and it would make no difference. On the basis of that ruling, I excluded all evidence offered for the purpose of proving quality but, in conformance to the Rules of Procedure, I took, for the purpose of reporting, thc evidence so offered. That evidence has been transcribed. The exhibits proffered have been preserved. Everything is available for consideration by the Commission. Since all that has been offered is condensed into the requests to find submitted on behalf of the respondents, those proposals and my rulings thereon ought to be suffcient for adequate consideration by the Commission. Also, in ruling on respondents proposed findings, while I indicate many of them as being "found I do not deem it necessary to adopt them as my findings hereinafter to be set forth.

Requests 1, 2, 4, 5 and 6 could be found as supported by the evidence. I could find Request, but would eliminate the words "none of the individual respondents had or have a controlling stock interest in :Mary Carter.

Request 7: I would substitute in the first line for the words " has, over the years " the words "Respondents contend that, over the years, it has . I would delete the words "of giving 'double value'" and would insert in the third line of the second paragraph of this reque.st the words which it claims is " after the word price. Also in that paragraph, I would change the last clause to read: "and , therefore., advertises that it gives the purchaser a ' second can free or extra cost' or ' second can free. would change the last sentence in the last paragraph of this request to read: "The evidence was taken for reporting, howeye1', and had it been received and litj- ARY CARTER PAINT CO. ET AL. 1841 1827 Initial Decision gated, if not rcbutted by substantial evidence, would have been accepted as demonstrating that :YIary Carter paints are as good or better than paints marketed under leading national brand names at comparable single can prices.

Request 8: I would use the word "state" instead of the words make clear" in the first line. In place of the entire last sentence of this request, I would substitute " Only after analysis and complete reading of the advertising 'Can it be ascertained that the second can of paint is 'free' only in conjunction with, or conditioned upon the purchase of the first can.

Request 9: I would rewrite this request as follows: "The claimed single can price of ",lary Carter paint is the advertised price (typically, $2.25 a quart, $6.98 a gallon). While it is generally the only price at which a single Cfl-ll is offered for sale, it is inherent in the entire transaction that the purchaser is entitled to get, as an incident of the purchase, a second can of :Mary CaTteI' paint lJearillg the s une or a 10we1' adve-rtisecl can price.

Counsel for the Commission introduced the testimony of one witness (al'cpresentative of a J\Iary Carter competitor), that he was able to perslHlde a salesman in a l\lary Carter store to sell a gallon can of l\fary Carter paint at $4.50 with a sales slip showing a snJe of two quarts of :Mary Carter paint at $2.25 a quart and byo quarts free. It is clear from the circumstances of the sale that much persuasion was required to ineluce the sale in this manner but the I-Iearing Examiner is unable to say that it "ms un1Luthori ecl and a violation of firm company policy not t.o sell a can of Mary Carter paint at Ices than the advertiseel price in view of t.he testimony in the l\Iunicipal Court of the City of )1iami, Dade County, Florida, and the company practice of providing can lalmls to dealers and rei-fail outlets. I would trike the entire last paragraph of thi.s request. Requests 10 ondll deniee!. All rulings ' with re.spect to requests \fhich are adverse thereto arc made because the portions not. accepted and those rejected are irrelevant, immaterial, not supported by the evidence or argumentative. RIdings on the Requests Based on the Exoluded Evidenoe The follo\fing rulings are made only in response to the requirement that I report the excluded testimony. The findings, it should be noted clearly, w'e not 'lny findinq8.

Request 12: I would clul1ge the last sentence to read: "His tests (in the absence of evidence litigiously offered in opposition thereto) 1842 FEDERAL TRADE COMMSSION DECISIONS Initial Decision 60 F.

showed Mary Carter to be equal to or better than comparable, similarly-priced, top-quality national brand paints. Request 13: I would eliminate the word "high" in the first paragraph, the word "thorough-going" in subparagraph (a), the word comprehensive" in the first line of subpa,ragraph (b) and I would change the last portion of subparagraph (b) following its next to the last semicolon to read: ":Mary Carter paint, in the absence of evidence litigiously offered in opposition thereto, appeared to be of a high quality comparable to that of the other paints tested in each of the categories and its over-all total numerical score (subject to being litigated), according to the preassigned evaluation scale, was reported as being the best of the four brands. " In subparagraph (f), I would eliminate the words "recognized independent. " I would reject entirely subparagraph (g).

Requests JJ and 15.. I would reject both of these as not being properly the subject of findings but rather the subject of argument. An important question inth18 case is whether the order to be entered herein should follow thc form of the order proposed by counsel supporting the complaint or \vhether it should be more in the form suggestcd by the second B 007, of the 11 month decision, 50 F. C. 778, and 782. After careful consideration of the manner in which the adveriisements involved herein have been composed, it is my conclusion that the order should follow that proposed by counsel supporting the complaint, particularly since nothing in that order prevents respondents from availing themselves, in a proper situation, of the hene.tts to which they may be entitled under the Commission s policy state ment of December 3, 1953.

Now, in view of the foregoing and upon the entire record l1erein the following are my FINDINGS OF FACT 1. J\lary Carter Paint Co., erroneously named in the complaint as IVrary Carter Paint Company, Inc., is a corporation organized, existing and doing business under' and by virtue of the laws of the State of Delaware, with its principal phce of business located at G11nn Highway at I-Ienclerson Road, Tampa, Florida. It also maintains offces in mv York, its address there being 666 Fifth Avenue, Ne York, New York. A predecessor corporation was JIary Carter Paint Factories.

2. Robert Van Worp, Jr., was formerly its president and during that time, and during all the times that they were in effect, cooperated MAHY CARTER PAI"IT CO. ET AL. 1843 1827 Initial Decision in formulating, directing and controlling the acts and practices found herein. At present he is serving as a consultant to its Board of Directors. 1-Ie maintains a financial interest in the corporation. I-lis business address is that of the corporate respondent. Iris home address is GIdsmar, Florida.

3. Jfary Carter Paint Co. is engaged in the business of manufacturing, selling and distributing paint and relate.c1 products to the public under the label or trade name 01 " J\iary Carte,r," through various 1'0btil out.Jets and franchised dealers located in various states of the United States.

4. In the course and conduct of their ,business, respondents cause and have cause, , their pajnt products to be shipped from t.their factories in Florida" K e,v Jersey and Texas to :.Iary Carter paint stores and franchised dealers located in various other states of the United States, where said product.s are sold at retail. Sa.id respondents maintain, a,nd at all times mentioned herein have maintained, a subst.antial course of trnc1e in saiel pnint products in commerce, as "commerce is defined in the Federal Trade Commission Act. 5. Respondents advertise, and have caused to be adverUsed, their paints in va.rious newspapers and periodicals of general circulation and by commercial announcements over the radio and television across state lines. Among and typical, but not all-inclusive, of the statements contained in such a.advertisements are the following: Buy only Half the Paint You eed Every Second Can Free of Extra Cost Let us show you how to sa ve OKE HALF on your paint costs Buy 1 and get 1 Free I am satisfied with pennies per gallon! . . . You buy only half the paint you need l . . . The rest is free of extra cost These Mary Carter Paint Factories wil be making free paint half the coming year.

Anytime you can get enough paint to do the extra job, yet pay for only half as much as you need, you re really practicing economy. On all paint every Second can Free, gallon or quart no limit. . . . Buy a gallon-get a gallon Buya quart-get a quart Bow is the Free gallon possible? I can manufacture high quality paint at lmv cost because of operational economies and because I'm satisfied with a modest profit! ::liddlemen eliminated by direct factor"y-to-store shipments. . . modern pajnt factories and equip llent . . . streamlined merchandising methods. My own fleet of diesel trucl to cut raw materials and - shipping costs.. AHof these effect savings which I pass on to you with every 2nd can of paint free of extra cost. WHY NOT JL'ST CHARGE HALF PRICE? My paints are quality priced because they are quality vaints, and I refuse to "second rate" them with low 719-603--64--117 1844 FEDERAL TRADE CO:\fISSION DECISIONS Initial Decisioll GO F. 'l'.C. unrealistic price tags. I'll never classify .Mary Carter Paints with cheap imitations being offered, nor wil I ever downgrade my products with price reductions discounts or special sales. I manufacture high Quality paint and dramatize my operation economies with every 211d can free of extra cost! ACRYLIC ROL-LATEX 82.25 Quart $6.98 Gallon Every 2nd CAN FREE 01,' Extra COS'1' LIQUlD GLASS OuTSlDE OIL PAINT $3.00 Quart $8.08 Gallon Every 2nd CAX FREE OF EX1'RA COS1' 6. Through the nse of said advertisements, and others similar t.hereto not specifically set out herein, and by the manner and form in which their contents ,were presented, respondents have represented a.nd do represent, dire.ctly or by implication, that the usual and customary retail price of each enn of :Mary Carter paint is the price designated in the advertisement. In conjunction thermyith they represent that if one can of la.ry Cartel' paint is purchased ut the advertised price, a second can will be given ":free," that is, as it gift or gratuity to the retail purchaser.

7. The said advertisements are in-1se, misleading and deceptive. In truth and in fact, the llsua.l and customary retail price of each can of J\1a.ry Carter paint \Vas not, and is not no,,,, the price designated .in the advertisement but was, and is now substantially less than such prjce. The second can of paint was not, and is not no, "free " that , was not, and is not now, given as a. gift or gratuity. The offer is on the contrary, an offer of two cans of pa.int for the price advertised as or purporting to be the list price or customary and usual price of one can.

8. In the conduct of their business, at all tirncs ment.ioned herein. respondents have been, and are now, in substantial competition in c.commerce with corporations, individuals and firms engaged in the sa.le of paint and related products 01' the same general kind and nature as that s01d by respondents.

9. The use by respondents of the aforesaid false, misle:lcl-ing and decept.ive statements, representa.tions 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 true fUld into the purchase of substantial quantities of respondents' products by reason of said erroneous and mistaken belief. As a consequence thereof, substantial trade in commerce has been and is being unfajl'ly c1iverterl to respondents from their competitors and substantial injury has been, and is being, done to c.ompct1tion.

And, from the foregoing, the follm ing is my MARY CARTER PAINO' CO. ET AL. 1845 1827 Opinion COXCL-cSION The aforesaid acts fmcl practices of respondents, as herein found were and are an to the prejudice a,nel 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 withill the intent and meaning of the Fec1clal Trade Commission Act.

ORDER It i8 ordered That respondents iary Carter Paint Co., a corpora- Torp, individually, andtion, and its offcers, and Robert Van respondents ' agents, representatives and employees, directly or through any corporate or other device, in connection with the offering for sale, snJe and distribution in commerce, as "commerce" is defined in the Federal Trade Commission Act, of paint or any other product do forthwith cease and desist from representing, directly 01' by inlpJication:

(n.) That any amount is respondents' customary and usual retail price of any merchandise "\hcn said amollnt is in excess 01 the price at \which such merchandise is customarily and usually sold by respondents at retail in the recent and regular course 'of business; (b) That H,11Y article of merehanc1ise is being given free or as a gift, or -without cost or charge, when such is not the fa,ct; It is fUTthe'i' ordered That the complaint herein be, and the same hereby is, dismissed as respects respondents John C. :Miller 1nd Irving G. Davis, Jr. (named in the complaint. as 1. G. Davis), in their inclivichULl capacities, but not to the extent that they may be subject to this order as offcers or agents of the corporate responde.nt; and It i8 fu"that Olylend That to the extent that the complaint alleges that the respondents have represented that their advertised price is falseis a factory price or that such a represe.ntation, jf made, such allegations in the comph.int are dismissed. OPISIOX OF THE C03nIIsSlO By ICERN C01nm/ssione1' The complaint in this matter charges respondents ,,,ith violating Section;) of the Federal Trade Commission Act. The herring examiner in Ills initial decision c1ismissed the complaint a,s to two of the omcers of the corporate responde.nt in their individual capacities and dismissed one. of t.he allegations of the complaint as to a,n of thf3 respondents. lie held, however, that the other alle.gations of the , ;\ 1846 FEDERAL TRADE COMMISSIO" DECISIONS Opinion GO F.

complaint had been sustained by the evidence and included in his initial decision an order to cease and desist. Respondents, having been granted a petition for review, have filed exceptions to the initial decision and the matter is now before us for consideration. The respondent corporation, Mary Carter Paint Co. ' hereinafter referred to as l\iary Carter, and a predecessor corporation, J\iary Carter Paint Factories, have been engaged in the manufacture, sale and distribution of paint under the trade name "Mary Carter . This product has been sold to the public through the company s own retail outlets and through franchise dealers. It has been lary Carter practice and policy for the past ten years to represent in advertising and otherwise that it will give a "free" can or paint with every single can purchased. The following representations are typical of those used by respondents:

Buy only Half the Paint You Keed Every Second Can Free of Extra Cost Let us show you how to save OKE HALF on your paint costs Buy 1 and get 1 Free I am satisfied with pennies per gallon! . . . You buy only half the paint you need! . . , The rest is free of extra cost The e Mary Carter Paint Factories wil be making free paint half the coming year.

Anytime ;vou can get enough"h paint to do the extra job et pa:v for on::v half as much as you need, you re really practicing economy Emv is the FREE gallon possible? ACRYLIC ROL-LATEX $2.25 Quart $6.98 Gallon E\'er;\" 2111 CA'" FREE OF EX RA COST.

The complaint alleges, in effect, and the he,\rillg ex:ul1iller found that respolHlents' advertising "was false, mis1cac1ing awl (lpceptivc. in that ea.ch of the amounts designated by respondents ns the pricp per single can of J\Iary Carter paint vms, in fact, the, usual Illl regular lJrice of two cans of such paint and not one can as represente, , and that. the second can of paint, described as "free, "\\'3.8 not given as a gift or gratuity without cost to the retail purchaser. Respondents have taken numerous exceptions to the hearing examiner s findings, conclusions and order, as well as to certain rulings excluding evidence offered by respondents relating to the qua.lity of 1\iary Carter paints and to competitive factors existing in the national retail paint market. Their principal contention, however, is that the hearing examiner erred in concluding that 1\iary Carter s advert.ising 1 Erroneously named in the complaint as fary Carter Paint Company, Inc. 2 'lhe complaint also charged that respondents had falsely represented that the ad. vertised price of its paint was the factory price but this allegation was dismissed by the hearing examiner.

, MAY CARTER PAINT CO. ET AL. 1847 1827 Opinion was not proper under the so-called "free rule" enunciated by the Commission in the Black decision.' The position taken by the Commission in that case is as follows:

The use of the word "free, or any other word or words of similar import Or" meaning, in advertising or in other offers to the public, to designate or describe any article of merchandise sold or distributed in "commerce" as that term is defined in the Federal Trade Commission Act, is considered by the Commission to be an unfair or deceptive act or practice under the following circumstances: (1) When all of the conditions, obligations, or other prerequisites to the receipt and retention of the "free" article of merchandise are Dot clearly and conspicuously explained or set forth at the outset so as to leave no reasonable probability that the terms of the advertisement or offer migbt be misunderstood; (2) When with respect to the article of merchandise required to be purchased in order to obtain the "free" article, the offerer either (1) increases the ordinary and usual price; or (2) reduces the quality or (3) reduces the quantity or size of such article of merchandise.

Respondents take issue first of all -with the hearing examiner s ruhng that the advertising in question did not comply with the first paragra.ph of the a,bove statement since the terms and conditions of :Mary Carter s offer of "Every second can free" ,were not cleady stated. appears in this connection that the complaint does not aJ1ege that respondents had failed to make a clear and conspicuous disclosure. of the conditions of their ofrer and no question ,yas raised during the hearings as to the clarity of their advertising in this respect. 'Ve agree. with respondents therefore, that the hearing examiner erred in making a finding on this point and relying upon such finding in arriving at his ultimate decision in this matter.

Respondents next take exception to the hearing examiner s holding that Ylary Carter s advertising did not comply with the aforementioned statement with respect to the use of the word "free" since the "second can of paint" referred to in the advertisi.ng was not a, gift 01' gratuity. 'Ve do not thoroughly understand the hearing examiner s reasoning on this point, but it is clear from the initial decision that he did find that the cost of the second can of paint is included in the amount -which respondents claim is the price per sing1c can ($6.D8 pci' gaj1on-S2. per quart). He specifica.Jy found in this connection that "The second can of paint was not, and is not nmy free, that is, was not, and is not now, given as a gift or gratuity . Hespondents do not seriously dispute this finding and apparently concede, as indeed they must, that the second can of paint is not free of charge to the purchaser. They argue ho\vever, that the Black case sCJuarely rejected the "gift or gratuity a In the Matter of Walter J. Black, Inc. trading as The Classics Club and Detective B()()T Club, 50 F. C. 225 (1953).

1848 FEDERAL TRADE COMJ\IISSION DECISIOKS Opinion 60 F.

theory as the test or legitimacy or a "rree " offer and that their ac1vertising is in compliance 1\ ith the position taken by t.he Commission in that case.

R.espondellLs are wrong in both of these contentions. The Black decision does not stand for the proposition that an article of merchandise, the receipt and retention of which is conditioned upon the purchase of another article, may be described as "free" when it is not in fact, given without charge to the purchaser. And respondents advertising is not sanctioned by the " rule" evolved in that case. The Commissioll 19-:8, issued the fol1myjng flc1minis- t all J annary 1-4 trativo interpretation with respect to t.he use of the "\ord "free" to describe merchandise:

The use of the word "free, 01' words of simijar import, in advertising to designate or def-cribe merchandise sold or distributed in inter.state COllmerce, that is not ill truth and in fflct a gift 01' gratuity 01' is not given to the recipiellt thereof without requiring' the lHuchase of other merchandise or J'eqniring the l)crformance of some senke inuring l1iredl ' or indirectly 1:0 the benefit of the advertiscr seller ()' distl'bui or, is considered by the Commission to be a yjolation of the Federal Trade Commission Act:

The Black case, decided almost six :years later, modified this policy statement or rule. It did not attempt to radically change the meaning of the \yord "free . In that case, the question before the Commission 'Was not \\lwthel' an ilrtic1e of merchandise c1esignatecl as '; free" "as given \yithont charge to the recipient, or as a gift 01' gratuity, but "whether an article, free of charge, could be designated as "free" when the receipt and retcntion of such article \"as conditioned upon the purchase of another article and full and timely disclosure \yas made of such condition. As stated ill that c1e.c.ision, the question before the Commission was:

::lay It businessman doing hl1siness in interstateC:0ll11erce be cl1argel1 'with engaging in unfair 01' deceptive ads or practices in yjolatioll of the Federal 'trade Commlssion Ad if he uses the word "free" in his advertising' to indicate that he is prel1:ned to gi,c something to a purcbaser tree at cha.rge nlJon the purchase of some other article of merchandise ! (Italic supplied. In determining whether the article desccibcd as "free" by respondent in that case was given ,,-ithollt, charge, the Commission cone1uclecl that the article required to be purchased had all established price and that t.he price at \\hic.h it was being oiIered for sale was not in excess of that established, or " ordinary and usual", price. It then adopted t.he reasoning employed jn the brief filed 011 behalf of the Commission in the Supreme Court in the matter of Federal T1'lde OOl/unission 4 In the l\Iattel' of St,aJlrlanl Disl,riblltrn, Inc. Docket No, 5580 (1955). MARY CARTER PAIKT CO. ET AL. 1849 1827 Opinion Standanl E(Z,w(ition Society, 302 U. S. 112 (1D37), ,mc1 quoted several paragraphs from that brief in its opinion. lye think that the following pal'agntph :from that brief -which appeared in the opinion suceinctly st.ates the COllllnission s position with respect to the llse of the \yord free" in the factual situation then before it: \Vhen such an offer of a gift is made, the customer llnder.'tancls from the use of the wonl "gift" that an article is to be rceein' (11ritholtt (PiY paymel!t being made tor U. If he is told that it is to be recejyed .'free of charge" if another article is plll'chased the word " tree" call86S him to undcrstaml that he ,is paying 1/0tldil(J tor tlwt article and. only the HSIIU11JJice. for tlie otlle/". If tliis ,is not the true situation, therein. 110 free offer and a. customer Is misled by the representation that he -is to be gi1;en sometJdng tree oj charge. (Italic supplied. The Black case, therefore, modified t.he earlier interpretation by permitting the use or the word "free" to describe an article or merchandise which was in fuel free of charge but which -was given to the re.cipient only upon the purchase of another art.icle or upon the pe.r- Iormance or some service inuring direct.ly Or indirectly to the benefit of t.he person making the offer. It did not hold that the ord "free may be used to describe an article "which is not, in fact, free of charge or a gift or gratuity.

A necessary corollary to the "rule. J in the Black case. is that a person can offer as "free" an a.article which may be obtained upon the purchase or another.r article only if the article required to be purchased has an established market price. This concept is embodied in the Commission s Guides _Against Deceptive Prices, adopted October 2, 1958. Guide Y, which relates to "two for one sales " states as 10110\\"s: Xo statement or representation of an offer to sell two' articles for the price of one, 0'1' phrase of illilar import, should he used unless the sales price for the two articles is the IHlvertiser s usual and cuStOl1l1l . retail IJ1'jce for the single article in the recent, regular course of his business. (::ate: 'Yl1ere the one responsible fnr a ;; two for the price af onc" claim has not prcviouSly sole the article anel/or articles, thc propriety of thc mlvertiscd price for thc two articles is determined lJy the usual and cnsj.ollUll;. retail price of the single article in the tlh1c area, 01' areas, \vhcre the claim is made,. 11 product \which Gnder this Guide, it newcomer to a luarket selling had not previously been sold in the trade area in which he is doing business would have no basis for claiming that t,YO 01 such products wero being sold 1'01' the price of one.. H:oweve.r, fi ne"Tomer to a ma.rket, seIJing a product for which ,l m,ual and customary price has been established in the trade area in which he '''fis doing business \,ould be pe.rmitted to sell the product 011 the. basis of "t.\yo for the price of one" if he complied wit.h the Guide. It should be emphasized in this connection that the ords ': usual and customary retail price of Opinion 60 F.

the single article in the trade area, or areas, where the claim is made which appear in the note to Guide V refer to the price charged by other retailers for the specifi article offered for sale by the person making the "two for the price of one" claim (see subparagraph (a) of Guide I and subparagraph (a) of Guide III), and not to a similar or comparable article.

In this case, when respondents began to ofler 1\1n1'Y Carter paint on the basis of "buy one and get one free, there "' as no usual and customary price for a gallon or a quart of that particular brand of paint. Respondents contend, however, that usual and customary prices were established for their product because they refused to sell a single can at less than the list price of $6.98 a gallon and $2.25 a quart and because fary Carter paint was of comparable quality to other brands of paint selling at these prices. ,With respect to the latter point, the hearing examiner proper1'y refused to consider evidence offered by respondents to 8hov that :Mary Carter paint. '''fis comparable to any other brand of paint selling at $6.98 a gallon or $2.25 a quart. Such evidence would be completely irrelevant to the issue of whether respondents' pa.int was usually and customarily sold at those prices. That respondents refused to sell a single can of Mary Cartcr paint at less than the list price of $6.98 a gallon or $2.25 a quart is only one factor to be considered in determining whether these amounts were the usual and customary prices of such paint. ,Vhat is more important is that a purchaser paying $6.98 or $2.25 was entitled to receive and did receive two gallons or two quarts as the case may be. In other words, respondents sold their products in units of two and the price for each unit was $6.98 or $2.25. Although there may even have been a few isolated instances where a purchaser paid the Jjst price and refused to take the second can, it is obvious that respondents have usually and customarily sold two cans of paint for the so-called single can price. Certa.inly, under the circumstances respondents could not, for example, change their advertising to read usually and regularly $6.98 per gallon now two gallons for $6.98" Weare in full agreement, therefore, with the hearing examiner finding that the amount designated in respondents' advertising as the price for a can of Mary Carter paint is not the usual and regular price per single can but the usual and regular price for two cans. Respondents also take issue with the hearing examiner s conclu- Ii In a somewhat Ilnalogous situation " we have held that the price at which a combination of books and other merchandise was ordinarily sold was the usual and regular price of that combination find not the sum of the prices at which single items in that combination had been cflered for sale and had, in fact. been sold on a few occasions. IIi the Matter of Encyclopedia Britannica, Inc. Docket o. 7137 (1961). :vary CARTER PAINT CO. ET AL. 1851 1827 Opinion sion that even if respondents' practice of offering Mary Carter paint on the basis of "Buy one and get one free," had been permissible when the offer was first made, "by lapse of time the practice would have lost its character of providing a free article incidental to a purcha.se and would ha VB merged into a 'two for $X' pricing arrangement, not a 'two for the price of one' arrangement" . 1Vhile the hearing examiner erred in assuming, as he apparently did, that the list price of respondents' paint WftS the usual and regular price of a single can when respondents' offer ,vas first made, his conclusion that a "free offer may become invalid "by lapse of time" does not conflict with the Commission s decisions in Black and Book-of-the-i1month Olub' Respondents contend, in this connection, that, these decisions are authority against making the time over ,,' which a "free" offer may con6nue decisive or even a consideration in determining its legitimacy. The facts of this case are clearly distinguishable from those of the two cases upon which respondents rely. In this case, the item required to he purchased in order to obtain another article has always been sold with the so-caIJed "free" "article. Consequently, even if the item required to be purchased, i. , a single can of Mary Carter paint, had had a usual and regular price when the offer was first made, the price would eventually become the usual and regular price of two cans of paint. In Blade and Book-of-the-M month Club however, while the policy of offering "free" books was a continuing one the merchandise required to be purchased in order to obtain a "free article was not always the same merchandise. In other words, the respondents in those cases made a series of offers involving entirely different books at varying prices, not a continuing offer of a combination of the same two articles, as respondents in this case have done. Moreover, the cases are disinguishable in other respects. In Book-of-the-i1month Olub the respondents advertised that a member of the Club would pay no more than the publisher s set price for each book-of-the-month, the price you would pay in any retail store; indeed, frequently you pa.y less . This representation was never challenged and apparently was accepted as true by the Comuljssion. Furthermore, it appears that in Black books required to he purchased at stated prices in order to obbtin a "free" arHcle were usuany a.nd regularly sold by that respondent at those prices without the "free article since the "free:' offer was limited to new members. Consequently, it appears that the Commission had no occasion to decide in ejther case whether the usual and regular price of a book required e In the Matter of Book-ot-the-Month Club, Inc. , et (/1., 50 F. C. 778 (1954). Opinion 60 F.

to be purchased in order to obtain a "free" book might at some future date become the usual and regular price of both books. Summarizing our conclusions on this phase of respondents' appeal it is our opinion that the policy statement with respect to the use of the word "free" announced in the Black dceision is not applicable to respondents' advertising' since a usual and regular price had never been established for a single can of :Mary Carter paint. Each of the amounts c1desig11atec1 by the respondents in their advertising as the price per single ean of J\:a.ry Carter paint has, in fact, been the usual and regular' price of two cans of such paint, and not one, as represented. The cost of the second enn of paint was included in the price pa.icl by the purchaser, and this second can, there.fore, \Vas not given as a gift or gratuity or free of charge to the purchaser. Respondents have also taken exception to the hearing examiner refusal to consider certa.in evidence. As stated above, evidence offered by respondents for the purpose of showing that .Mary Carter paints are comparable to national brand paints was properly excluded by the hearing examiner as irrelevant to any of t.he issues in this proceecling. Evidence offered by respondents to show why they had adopted the merchandising practices ,vas also proper.rly e.xc1uded by the hearing exa.mil1el'. \Vhatever respondents ' motive may have been, it, cannot justify practices found to be misleading and deceptive, and the hearing examiner did not err in refusing to consider this evic1enee. Ferle1'(,l T1'ade G01nm;lesion Y. Algmna Lrwnber 00. 2911J.S. 67 (1934). R.esponc1ents' final exception to the initial decision relates to the order to cease and desist conta.ine.c therein. Theil' contention on this point is also without merit. They have not submitted any proposed modifications of the order nor made any suggestions as t.o how the order should be changed, but merely attack it as being "inapposite anc1unjustified". Apparently they believe that it should1 be framed in the Bla.ok case.in the language of the policy statement a,nnonneed Such an order would not be appropriate\ however, since, as "We have held, till, article offered by respondents as "free:' was not given free of charge to the purchaser of another article for which a l1usual and regular price has been estRblishec1. The order as drafted would prohibit respondents from misrepresenting the usual and regular price of the products they sell and from using the word "free': or similar words to describe a,ll article of merchandise which is not given as a gift or free of charge to the recipie1lt. The order aderl1late1y covers tlle practices engaged in by respondents and cannot easily be misnnderstood.

MARY CARTER PAI T CO. ET AL. 1853 1827 Dissenting Opinion To the extent indicated herein respondents' exceptions are denied. The initial decision is modified to conform ,,,ith the views expressed in this opinion and, as so modified, \vill he, adopted as the decision of the Commission.

Commissioner Elman dissented to the decision herein DISSEXTlNG OPIXIQX By BL:.\L\)T 00J1Mnis8ioner:

In 1953, in a landnwTl;: decision lValterJ. Black, Inc. 50 F. C. 225 232, the Comlnissioll stated that. the "businessmen of the 1Jnited States are entitled to a clear and unequivoca.1 answer" to the question whether, and how, the word "free ' may honestly and trl1th:fllJJy be used in offering "something to a purchase.r free of charge upon the purchase of sonle other artic.e of merchandise . The Black opinion was not a narrow disposition of a particular case on its 0''111 special facts. Instead, the COl1unission, acting "in the public interest, and Tor the ldvice, guidance and information of businessmen " (p. 235), laid down comprehensi'iT and specific guidelines on use of the \ford free in advertising goods for sale. On December 3, 195:\ shortly after the Black case was decided, the Commission took the further step of issuing a policy statement wl1ich incorporated a.lmostin haec versa- the rules fOl'mulaJed in the Blacl,; opinion. Today s decision neither overrules nor reaffrms the. rules established in Black Instead, the case is "exphLined" and "distinguished". As a, result, nncertainty and confusion Lre being introduced, needlessly and unsettlingly, into a.n area of business activity where bnsinessmen nnd the bar have long rega.rded the Commission s position as definite a.nd clear. It \fould seem to me far better, if the Black case is to be overruled, that it be done forthrightly and without equivoc.ation. Such a disposition of the case, whatever else might be. said about it would have HIe merit of candor; and businessmen Hnd lawyers would at least know where the Commission now stands in the mattei'. Prior to the Blac1,; decision the problem of how to t.real "free" offers of goods had been a perplexing and vexatious one, both to business and the Conllnission. It is, and has long been, commonplace in the United States for merchandise t.o be advertised and sold at a stated price, with another article, or installation or service, or all inc.idental pa.rt or acce.ssory, included "free that is, in the sense of being "ithout. extra cost to the purchaser. But ,yhere recejpt of 1,J1e "free ' item 1854 FEDERAL TRADE CO ISSION DECISIONS Dissenting Opinion 60 F.

is tied to the purchase of another article, it is of course not "free" in other senses of the word:

(1) It is not "free" in that it is not being given away, absolutely and unconditionally, with no strings attached. (2) It is not "free" in that, unlike an ordinary commonlaw "gift or gratuity, the donor is not motivated by a '(detached and disinterested gencrosity (Commissioner v. LoBue 351 U. S. 243 246), or by "affection, respect, admiration, charity or like impulses (RooeTtson United States 343 U.S. 711, 714). Commercial transactions are usually entered into for mutual profit, and the q1iid pro quo received by the seUer for making a "free" gift to the buyer is the latter s purchase of the article offered for sale.

(3) It is not "free" in that the seUer ordinarily recoups the cost of the "gift" out of the price he obtains for the article sold. Sellers are not usually, and cannot airorcl to be, philanthropists. 1;n1e88 he wants to go bn.nkrllpt, or is able to sustain unending losses on a single product line, a seller must recover the cost of the "free " article in profits from sales.

Thus, the use of the ,,"orcl "free to describe an article given on the purchase of some other article raises problems of importance to an agency, like the Commission, charged with protecting consumers a.against decr.ption. The Commission s opinion in the B7ack case recognized and squarely addressed itself to these problems, which were constantly recurring and which the Commission had not theretofore definitively resolved. In order to appreciate the great significance of the Blade case as the leading precedent in this field, it is necessary to describe the backgrowld against which that case was decided. On January 14, 1948, the Commission had issued a policy statement with respect to the use of the word "free" in advertising. That statement rea.d as follows:

The use of the word "free," or words of similar import, in advertising to designate or describe merchandise sold or distributed in interstate commerce, that is not in truth and in fact a gift or gratuity or is not given to the recipient thereof without requiring the purchase of other merchandise or requiring the performance of some service inuring directly or indirectly to the benefit of the advertiser seller or distributor, is considered by the Commission to be a violatioll of the Federal Trade Commission Act. (48 F. , at 1315) Thereafter, on June 30, 1948, the C01nmission issued a complaint against Boo7( o.f-the-ilf month Olub, Inc. In t.hat case new members were offered ono "free book on enrollment and one "free book for :MARY CARTER PAINT CO. ET AL. 1855 1827 Dissenting Opinion every two books bought from the club. On June 8 , 1952, the Commission entered its decision and order. (48 F. C. 1297) The ll1ajority. opinion, written by Commissioner ::.feac1, adhered to the policy statement of January 14, 1948. It held that the "meaning of the word 'free' remains more or Jess iixed" ; that it had "the definite and absolute meaning of a gift or a gratuity given without charge cost or condition; and t.hat, accordingly, where there were "a few provided, howevers' or other conditional strings to the so- callccl' :free ofter, it was deceptive and misleading, eyell though the conditions on receipt of the "free" article were clearly disclosed. (pp. 1309-12) The order issued by the Commission on lay 8, 195 , in Book-ol-thell/ month Club, Inc. was substantially in the hmgna-ge of the 1948 policy statement. That is, it prohibited use of the word "free" to describe merchandise "which is not in truth and in fact a gilt or gratuit.y or is not given to the recipient thereof without requiring the purcha, of other merchandise Or requiring t.he performance of some service inuring, directly or indirectly, to the bcneiit of the respondent" (48 , at 1307) On the same clay (.Tunc 30, 19-18) that the Commission issued its complaint against Book-o.f-the-Jl mdh Club, lnc.. it also issued a similar compla.int against lYalter J. Black, Jnc. trading as the Clrssics Club and Detective Book Club, which also offered "free" books to members who bought a specified number of books. The Blac/e case was not decided, however, until September 11, 1953, sixteen months after the Boo7c-oj-the-ilfonth Ciao decision. (50 F. C. 225) In the meantime, signiflca-nt changes in the nle1nbership of the Commission had occurred.

The a.rgnments in the Black ease on .June 29, 1953, including submissions by a?rl;/ci curiae covered a broad range of questions concerning tho correctness and scope of the holding in the Book-of-the-Jllonth Oll. case. And it was for the manifest purpose of setting these questions to rest, once and for all, that the Commission s ophlion in Black was written as it \ya.s. Kat only did the Commission in Black not folIo'l the 1948 policy statement, and its prior opinion in Book-ofthe-Jlonth Club it did not even refer to them. Instead, the Black opinion treated the subject of "free :' goods ac1ve.rtising fls Tes 1W?Ja be considered who1Jy ,without regard to any actions or statement.s made by the Commission in the past. The. opinion was plainly intended to clear v\Yay the residue of uncertainty and doubt left by the Commission s various prexious rulings ! and to formulate an Ulthoribttive, complete, and self-eonta1ne,d exposition of the Commission position on the subject. Accordingly, the Commission went to Ull- (p. , , ;; 1856 FEDERAL TRADE C01IMTSSIOK DECISIONS Dissenting Opinion GO F.

usual lengths in B7uch; to make its opinion not only specific and precise but comprehensive and definitive.

The opinion in the Black case recognized the. semant.ic and other problems raised by use of the ,,'ord " free. : in advertising goods for sale. It noted that such advertising "is by no means JJe\\. It has been llsed by Imsil1essmcn in the -cnitec1 States for ilJmost 100 yca,rs. 232) The filets, it said ve,ry pointedly present. to the Commission the follo'\Ying question for its determination: l\AY A RCSIXESS::UAK DOIXG HCSIXESS 11' Ij\TTERSTATE C011- :\IBRCE BE CHAHGJiD 'WITH EKGAGIKG IX U:\TFAII on DECEPTIVE ACTS OR FHACTICES 11' VIOLATIOj\T OF '1 IIE FIiDERAL Tnade CO:\1- :\llSSIO:\T ACT IF HE L"SES '!'HE 'VOHD " FREE" 1:\ HIS ADVERT1Sl:\G TO I:\TDICATE THAT HID IS PRI':PARIDD TO GIVE SO:\IETHIKG O A PUUC"fL\Said FREE OF CHARGE Ul-O:\ THE PURCHASE OF SO:\IE OTHER ARTICLli: OF MERCHANDISE? (50 F. C. 32: capitalized as in the original) The Commission declared The businessmen of the L nitecl States are entitled to ft clear and unequivocal al1s er to this question. ' CIJn the public interest., and for the ach-ic2 , g-nidanct:, and infonnation of husinessmen: ,yc ,want, through this opinioll: to make the position of tll( CUJlllnissioll as clear as possible'" (pp. :2;3:, :2;3:)) The COlllnission concluded its opinion as follows:

For the advice and guidance of the reSlJom1ellt l1f'pin, and also for tbe :l(lvice and guidance of the thousands of other ndyerti ('l':' ,,- l!n today" are ll.sillg the ,yord " free " in ad,ertising, 'YC S11On1(1 like to make ()l1r p(Jsition clc:ll. t" until such time as either the Congress of the 1;nitrd StflP,': rlllPJl(l-. S('('t;Oil o j (If OJ( Federal Tra(le Commission Ad, or until an apIJellat-c court (If tllp t- J1i1Cd SI-ats:: clearly interprets the existing proYisious of Section;; of the Federal Trflde Commission Act to mean other\\ise, our po::ition in this llwttel' is 11': fnlln\\", The use of the word HFree " or any other ',"01'1 or ITords of similar imvort OJ' llH'flning' , in mlYertising or in other offers to the public, to designate or describe any urticle of merchandise sold or distributed in Hcollmerce, as thflt term is defined in the Federal Trade Commission Act, is cOllsiclerel1 by" the Commissioll to 1)( nn unfair or (leccptiYe act of practice under the following- circnmstnnces: (1) 'Vhen flll of the conditions, obligations, or other prerequisites to the receipt nnrl retention of the "free" fll'ticle of merclmlllise are not clearly and conspicnonsly explained or set forth at the outset so as to leaye no rel1sonable probability that the terms of the advertisement or offer might be misunderstood; or (2) "'hen, with respect to the article of merchandise required to be lJllrchased in order to obtain the "free" article, the offt'rcr pither (1) increases the on1i" nilry flll1 1.sun1 price: or (2) reduces the quality; 01' (3) recl1H;f's the quantity or size of s11('h article of merchandise. (at pp. 235-36) Commissioner J\Ieacl: who had \"\written the majority opinion in Book-of-the-llJonth OluJ) c1issentec1in Black. The Commission .,. ) , , : . MARY CARTER PAI T CO. ET AL, 1857 1827 Disscnting Opinion action, ho correctly observed constitutes a reversal" of the 1948 policy statement which, as he described it held it unreasonable and untrue and therefore illegal per se to describe goods as free which are not free. (pp. 236, 240) In Commissioner Mead's view, goods cannot truthfully be advertised as "free" where any strings or conditions, such as buying U1other article, are attached. In his opinion such goods are not free and therefore cannot truthfu1Jy be advertised as "free:' no matter how clearly the conditions of receipt are set forth in the advertising. As he forcefulJy expressed his position in the first sentence of his dissent This is a case about 'free' books which were -not free." But Commissioner ::Uea.d also frankly recognized that, although he had won a battle in Book-of-the-ilonth Olnb, Inc. he lost the war in Blac7e. He "as under no illusions that the position he advocated, and "which temporarily prevailed in the former case had been finally and definitively rejected in Black. The last nail in the coffn of the 1948 ponc)' stlltement ,vas driven by t.he Commission on ),1a1'('h D , 1 D54-, when i!, reopened and sllhstantially modified the order in Boo1.' of-the-Jlonth Cl' , Inc. (:"50 F. 778) The Commission held that the order entered Iay 8, 1952, prohibited use of the word "free in ad'i'el'tising "under circumstances which W0111d not nm-v be considered unfair or deceptive." (50 F. at 781) It noted t.hat "the order ,yas in strict confonnity with the Commission s policy in effect at the time the order was issued. As pointed out by the respondents, hmvever, the COlTllnission s position on this subject has nO\v been changed. (p. (80) Citing and quoting extensivel:y from the Black opinion, the Commission thereupon deleted in its entirety t.he operative language 01' its previous order fllc1 substituted an order pa.ralleling, almost to the Y'i' ord, the language of t11e Black opinion.

As already noted, the Commission on December 3, 1953, publicly announced that., in conformity with its opinion in Black it had "approved a, new trade practice rule ,with respect to the use of the word free' in advertising and other commercial offers as descriptive of any article of merchandise or service." The announcement stated that:

The new rule wil be included in all future trade vractice rules for industries in 'which there is found to be a need for a rule of this cbaracter and the administration of existing rnles Oll tbe subject lJrCYiously approved by the Commission wil be in accord with tbe proYisiollS of the Dew rule. Preyjously approycd "free" rules prohibited the tlesignation of an article of merchandise as "free" if there were any conditions, cvcn tllOugb fully disclosed whicb had to be complied with in order to receive such article. However, un. (lei' the neVi' rule the \vord "free" can be llsed even though receipt of the article Dissenting Opinioll 60 ,' or service described is contingent on complia.nce with certain conditions, provided all such conditions are clearly and conspicuously disclosed. In accordance with the Commission s action of December 3, 1953 the "free" goods rule-incorporating the requirements laid down in Black-has been included as a matter of regular course in many trade practice rules promulgated by the Commission. Since 1953, it has commonly been referred to as the COllllnission s "standard" rule on the subject of "free" advertising offers. And, as recently as June , 1962, the Commission included this "standard" rule in the Trade Practice Rules promulgated for the Stationers Industry. III Before today s decision, therefore, the Commission s position on "free" advertising was crystallized and clear. The comprehensive rules and guidelines laid down by the Commission in 1953 have neither been revised by Congress nor rejected by the courts. Until today, they have been accepted by busincssmen and the bar as an authoritative statement of the governing requirements of law. Under these rules, the word "free" may be used to describe an article offered to a purchaser without extra cost to him, provided (1) all of the conditions, obligations, or other prerequisites to the receipt and retention of the "free" article are clearly and conspicu ously explained to the purchaser at the outset, so as to leave no reasonable likelihood of misunderstanding; and (2) the article which must be purchased to obtain the "free" gift is neither increased in price nor reduced in quality, quantity, or size in conjunction with such offer.

v\There the requirements thus deseribecl in Black are satisfied, a seller is not barred from using the word "free" either because (1) the "free gift is tied to the purchase of another article; or (2) thc seller is not making a "gift" in the classic sense, i. , prompted by personal or I The Black opinion was specific on this point (50 F C. at 235) : If a businessman desires to use the word 'free' in his advertising. he must use it hone,;tly. He lluy Hot u"e the word as a device for deceiving" the public. For example if he normally sells a toothbrush for 49,., he may not advertise that he wil give away free' 11 package of toothpaste with the purchase of that snore toothbrush at 6fJ . In such a case, while the advertiser 1s holding out to the public that he is giving the toothpaste away 'free, ' he Is actually adding' 201, to the price of the toothbrush which must be purchased in order to obtain the ' free ' toothpaste. Many examples could be cited, both as to the proper and improper uses of the word 'free ' in advertising. However, the essence of this opinion 1s that there must be truth in advertising to support the use of the word 'free. ' If an advertiser either IIes as to the facts or tells only part of the truth in his advertising, and such lies or omissions have the tendency or capacity to mislead or deceive the public, this Commission. pUrf'llant to the authority delegated to it by Congress, must inhibit sllch use of the word 'free' in adveI'lislng. MARY CARTER PAI"IT CO. ET AL. 1859 1827 Dissenting Opinion philanthropic motives; or (3) the cost of the "free" gift is recouped out of profits derived from sales of the tied product. Today, however, the Commission resurrects the 1948 policy statement-\"which had been rega.rded even by its staunchest adherents, like Commissioner Mead, as h,wing been interred by Black. It holds, despite Black that the 1948 statement has always been the authoritative and fundamental expression of the Commission s position in this area. It holds, further, that the Black case merely "modified" the 1948 statement "by pel'nitting the use of the word ' free' to describe an article of merchandise ,,,hieh ,vas in fact free of charge but which was given to the recipient only upon purchase of another article * * * It did not hold that the word 'free' may be used to describe an a.article which is not, in fact, free of charge or a gift or gmtuity." (Opinion p. 1849) And why, in this case, does the Commission find that respondents free" second can of print was Unot, in fact, free of charge or a gift or gratuity ? Because (1) " a usual and regular price had never been esbbJishec1 for a single ean of )Iary Carter paint, and (2) the "cost of the second can of paint was included in the price by the purchaser and this second can, therefore, was not given as a gift or gratuity or free of charge to the purchaser." (Opinion, p. 1852) The first reason, as I shall try to show, is specious and without relevance to the facts of the case. The second reason is, in essence, a re jection and overruling of Blade.

Mary Carter Paint Co. makes and sells paint. For the past ten years it has followed a basic merchandising poEcy expressed by the advertising slogans: "Buy 1 and get 1 Free" and "Every Second Can Free of Extra Cost." The Commission states (opinion, p. 1850) that "respondents sold the,ir products in units of two and the price for ea.ch unit was $6.98 (per gallons or $2.25 (per quartJ." This simpjy is not so.

Then 1Ia.ry Carter adveri.jses one quart for $2.25 and a second quart free, it means that the buyer must pay $2.25 for the first quart and then lllay have fl, second quart for not.hing. It does not mean that the buyer may purchase two quarts of paint for $2.25 and one quart for half that price. The price of a single quart of paint is $2. , regardless of whether the buyer wants one quart, two, or a dozen. The customer may and usually docs ta,ke t11e second "free" can; but whether he does or not, the first can will stil cost him $2.25. 719-603 64--118 1860 FEDERAL TRADE COMMISSIO DECISIO).TS Dissenting Opinion GO F. Obviously, the see-and can is '" frcB ' to the cllstomer only in the sense t.hat he pays nothing extra for it. It. is not ';free " in the sellse that it is being given, absolutely and unconditionally, as a gift or gratuity. And, since it costs as much to mftnUf,lctnl'C one can of paint a.s another l\lary Carter rccoups the cost of the second " free ' can out of the price it obtains for t.he first can. All this is perfectly obvious to all concm' ned here, as it also was in Black and Bool -of-the-Jf month Olub. l\.. , unless those cases are now overruled, they permit. use or the word "free" in such circumstances.

I emphasize the absence herb of any possible deception arising from a failure t.o disclose., dearly and conspicuously in the advert.ising, an of the conditions, obligations, or other prere.qnisites to the receipt of the "free" a.article. \Vithout question, as Blrlclc recognize, , the 'vord free ' may be dishonestly and mislead(1ingly used. Especially in ad- 'Tertising addressed to chil(ll'ell, it. may be used to give a false impression that something is being given Gbsolutely ":for free " ,with no strings of any sort attached\ awl \'-ith nothing to buy or clo in order to obtain the :'gift. ' Such advertising, ti. Black: 11flkes clear, is franc1ulent if in fact the "free" article is not being gin'l rn-ray absolutely, l1wonc1itionally, and without any quid pro quo. But that is not this case. \s the. Conl1nis ioll flgrees (opinion p. 1847), there is neither allegation nor prool here that " respondents had failed to make a clear and conspicuous disclosure of the conditions of their offer. " In other words, jHary Carter s advertising straightforwardly conveyed the "message," to customers that they had to "buy I" to " get 1 free . The Commission does not suggest that anyone, no matter how naive, could have been misled into belicying that he did not have to buy the first can in order to get the second can free. The whole aim of :Mary Carter s sales and merchandising policy was to communicate, as simply and directly as possible, that one had to buy the first can to get a second can free. The Commission nowhere finds that the Blaok rules have been vioJated by respondents' advertising. As to the first- that the terms of the offer must be clearly disclosed-the Commission spceifically reverses the hearing examiner s finding that fa.ry Carter s offer lacked the requisite cJarity. And a holding of violation of the second requirement that the advertiser not increase the usual price or reduce the quality or reduce the quantity or size of the merchanc1ise is ne.gatived by the finding (opinion, p. 1846) that Mary Carter has followed the same "Buy 1 and get 1 Free" policy for the past ten years. But, the Commission points out, the cost of the second can of paint must be recovered by respondents out. of their sales; it is necessarily \, y. . :\JARY CARTER PAINT CO. ET .AL. 1861 1827 Disscnting Opinion included in the price of the first ('O,n; the purchaser "pays" for the second can when he buys the first one; and, therefore, the second can is not :free or c.charge. to the purchaser. The short anS'if8r is, of course tha.t this is Hhvays true ",,,henevcr a gift of a ":fee:' artic.e is conditioned upon purchase of another article.. The Cllstomer alwf1v lS pa.ys, in Black andthat sense, for the "free:' article. This WflS just as true in Boo7c-of-the-ilonth Club, Inc. as it is here. If this is the determinative consideration, t.hen Comlnissioner ?lleac1 \1;a8 right and we should ba.n use of the word "free" in m"ery situat.ion \yhere the pu chaser has to lmy something in order to obtain the "free:: gift. But this nse of Black case:the 'void " free" was explicitly upheld in the if the regular price of the article sold without tlle premiuil is the same as the It isprice with the premium, the premium does not cost tlle custcm.lcr anything. 1!'REE TO HIM regardless of \\"betlH 1" or not it is :lltim:: rely indllled in the purchase price, and he does nut care wl1ethel' tile Jlnrmf tctl1rer OJ' dealer mal,e. sufficient profit Oll the sale to coyer the cost of tup fJl'E'Llinil, whether the cost is termed an advertising e::qwnse. or whether it C'al1 es the manufacturer or dealer to ollerate at a loss. (30 F. , at :234. qnoting i' om the COllnui-,iull brief in FedClal Trade CUlil. mission Standard EiluC'l!tiOJ! Sociell!. O:2 1: S. 11:2: FREE TO HIM" Cf11it.alizcd in the Oligillfll) Such usage of the \yord :'free corn:spollc1 prcci::('l ' tiJ its menllinu. in lar:y Cartm' s ac1ve.rtisi!lg. The Cormnissiol1 does no(-. dispute ::Iary Carter s cOllte. ltioll that it re-uses 10 sell it ::ingle e:1n of paint at 1('53 than t.he stated price or SG.ns pel' gallon or S :2G per quart. Thus, t.o paTaphrm;0 n7ad' t.he :'regular' price at ::lary Carter pa.int "sold itho1!t t.he premimn is the saine. as the price ,,:jell the premium."' 'rhe secOllcl C;tll of p,tint "does not. eo t the custoller anyt.hing; reg.ardJess of hmv it is paid :Lor. it. "is IrHEI TO HI2\L" In this respect, the. case is also all all -(ours l,with Boo/';-of-the- Jlonth CZub. There the Club s offer a.lTlOunted t.o :'Bu:y :2 books and get 1 Free; the member paid no more than he otheni.ise ,,\'oulcl for the t"\\"o books (under the rule of the Black case their price cannot be artificially inflated) : ana so the third book was "FREE TO RBI" rho Commission\:; attempt to distingui'3h Book-of-the- 1Jonth Ol1lb here (opinion, p. 1851) is baffing. Both involve fl. continuing offer over an indeiinite period of time that can be acted upon again and again by t.he saine purchasers. The fact- deemed crllciaJ by the Commission that .'Ia.r:y CfLrLcr s p8int remains t.he same without the Club' s book titles clumge is obviously adistinction without r difference. The Book-ofwas without the-lvfonth Club offer of "Buy 2 books and get 1 Free" reference to the naInes or contents of the books. The pra.ctiee Hpheld in Book-of-thc-Jlo1/th Club) is jndist.ingnishabJe from Iary Carter 1862 FEDERAL TRADE C01vIMISSIOK DECISIONS Dissenting Opinion 60 F.

practice, which the COll1ission now prohibits. What, it is fair to ask, is left of Black and Book-oj-the-M month Club? The Commission attempts to buttress its position here by reference to the Guides Against Deceptive Pricing. It cites Guide V, which states that No statcment or representation of an offer to sell two articles for the price of one, or phrase of similar ill port, should be used unless the sales price for the two articles is the advertiscr s usual and customary retail price for the single article in the recent, regular course or his business. " The "Nate" to Guide V explains that "where the one responsible for a 'two for the price of one' claim has not previously sold the article and/or articles, the propriety of the advertised price for the two articles is determined by the usual and customary retail price of the single article in the trade area, or areas, where the claim is made.

Fronl these propositions, the Commission reasons, first, that " neWCOlller to a market selling a product which had llot previously been sold in the trade i1T€fL in whichhe is doing business yrould have no basis ror claiming that two of such products were being sold for the price or one, and, second, that "the hearing examiner properly refused to consider evidence of Ie red by respondents to show that Mary Carter paint was companeble to any other brand of paint selling at $6.98 a gallon or $2.25 a quart", because " (sJueh evidence would be completely irrelevant to the issue whether respondents' paint was usually and customarily sold at those prices . (Opinion, p. 1850) At the root of what is wrong with this line of argUll1ent is a mis conception of the relevance of Guide V to the subject matter of this proceeding. A reading of Guide V and its explanatory Kate shows that they were drafted to deal with the entirely djjIerent problem arising when an item is normally sold at a stated price, and a seiler offers "two-for-the-price-of-one" by fraudulcntly inflating the normal seHing price.

This problem of the phony two-for-the-price-of-one offer, expressly dealt with in Black (see footnote 1 supra), is not presented by this case. Mary Carter does not claim to be offering two cans of paint for the "recent" price of one, but two cans for the regular and cur. rent price of one. fary Carter has always offered one can at the stated price and a second free of charge if the customer wants it. Guide V is sound, but it has no application to the sales promotion schcme that Mary Carter has followed for the past ten years. MARY CARTER PAINT CO. ET AL. 1863 1827 Dissenting Opinion The second rule laid down in B lack provides, in part, that the word free" may not be used "When, with respect to the article of merchandise required to be purchased in order to obtain the ' free' article the offerer * . * increases the ordinary and usual price . If :Mary Carter had regularly sold its paint at $1.13 per quart, and then raised the price to $2.25 per quart with a second quart offered "free, that would have been a deceptive a,ncl dishonest use of the word "free See, P"ro Oompany, 50 F. C. 454, decided K ovcmber 19, 1953 two months after Black. In that case, advcrtiscments reading "BUY ONE-GET ONE FREE * * "' Two 25 Packages-2M" were held to be false and deceptive, because the record disclosed that the product "was regularly sold in retail grocery stores at two packages for ; there was no evidence that a single package was ever sold :for ; and certain retail stores sold it at 13 . In the instant case the record does not disclose that a single quart of fary Carter paint was ever sold for $1.13; and, in view of Mary Carter s established and long-continued merchandising policy, it clearly would not sell a single quart at that price. To the extent, therefore, that it is meaningful to speak of a "usual and regular" price ror a single quart of Mary Carter paint, it must be $2.25.

The same error infects tho determination to exclude evidence offered by Mary Carter to prove that its paint is comparable to any other brand selling at $6. 98 per gallon or $2.25 per quart. If Mary Carter were representing that it now offers two gallons of paint for $6. whereas it once offered only one gallon at that price, Guide V would apply and only a comparison "ith the prior price of the specific product -not with prices or comparable products-would be relevant. But this is not Mary Carter s representation; rate1er, it is that Mary Carter paint has a genuine value, by comparison with other paints equal to the current prices charged for each can. Given the requisite facts, the Commission might fid that ;\1:ary Carter had deceived 2 If the Commission were correct in interpreting Guide V to apply to their; type of case, then Guide V would also nllve to be Interpreted as overruling and superseding the flookoj-the-Month Club e. ' her!. the Commission permitted nse of the word "free" to rlescribe the oler of a third book as a banns upon purchase of two books at their current prices. No comparison with the prlo!' prices of those books in the "recent" course business was made or intended, although the Commission s reading of Guide V would req1Jlre such a comparisoil and no other. Since the Commjssion does not hold that Guide V has overruled Book-oj-the-Month Child, it C!1nnot consistently find that Guide V controls the ref'ult here.

GuJce V may support the conclusion that fl newcomer to flll arf'f1 may not market a product not previously sold there on the basis that he is now scllng two for the price at which hc previously sold one; there is no "previously" to cite for comparison. But Guide V Is Dot authority to prevent a newcomer from ettiIJg a definite price for his product and then offering to sell each Item at that price or to give the buyer a second free" item for that price. Here there is a hasls for comparison; it is the estllbl1sherl price of the !;Ingle !tern, :;:

Dissenting Opinion 60 F.

purchasers by manufacturing a type of paint generally sold at $3.49 doubling the price to $6. , and then making a two-for-the-price-ofone offer. The lack of such facts here, however, rules out any basis for a finding of deception on that score.

This brings me to what is perhaps the most serious deficiency in the majority opinion. The duty of the Commission in this case was to determine whether Mary Carter had violated Section 5 of the Federal Trade Commission Act by engaging in any "unfair or deceptive acts or practices . Yet nowhere does the Commission explain what was "unfair or deceptive" about what :YIary Carter did. The word "deceptive" appears in the Commission s ol)inion on p. 1846 in a description of the allegations of the complaint and again on p. 1852 in the observntion that n good motive cannot justify a. deceptive practice. But we are never informed as to who is, or might , misled by Mary Carter s "Buy 1 and get 1 Free " offer, or as to how that deception might bc brought about. On the contrary, the Commission specifically agrees with respondents that the examiner erred in finding that they "had fa.filed to make a clear and conspicuous disclosure of the conditions of their offer (Opinion, p. 1847). vVho, then, was deceived? And how was he injured? A finding of deception is crucial to the issuance of an order. 'Vithout it, the order is patently invalid and the CODlmission s st.trained effort to "distinguish" BZa.clc is much ado about nothing. VII The Commission s order prohibits respondents from representing: (a) That any amount is respondents' customary and usual retail price of any merchandise when said amount is in excess of the price at which such merchandise is customarily and usually sold by respondents at retail in the recent and regular course of business;

(b) That any article of mcrdwndise is being giyell free or as a gift, or ,without cost or charge, ,vhen such is not the ff!(,t. (Initial J)('ci:-ioll V. 1, A- reading of t.he order inyites this question: ,Yha1- llust respondents stop doing that they are !low doing Pal'ngrn. ph " (11).' clec1nres that. they 1nay not can any amount 1their usual f1ncl cust- Olllnry price if it is in excess of their usual ,Ul(1 customary price, in the rec.ent, reg1.ilar course of business. Oln-iousl \ t.hi has a:: lisle to (10 \virh the case as Guide V of the Gnicle-s Agn_ inst J)ec.e,ptiyp Pric.ing. Hesponclents ha.ve never sought to represent t.their "recent" prices; they advertise only tJJeil' current price::. )I... s it. happens, howe,-el' , their c.urrent prices 1JARY CARTER PAI?\ T CO. ET AI,. 1865 1827 Opinion a.re the same as their recent prices. ,Vhether regarded as fL O1H can or t.wo-ca.n price, respondents advertised price of 25 per quart, for example, is t.their "usual.l and cnston1try retail price now and it is not in excess of $2.25 pel' quart, which is "the price at which such merchandise is cllstonuLril:y and llsuf..ly 20ld oy respol1clents at retail in the recent and regular course of bnsinpss . Does this mean t.hat para.N graph" (a)" has no effect a.t aU OIl respondents: adYCltising practice? Surely not, or the Commission -\Yould llot issue it- But what effect does it really haxe, awl ho\y are respol1(lents to c.omply ,with it? confess I do not kno,;\".

Paragraph" (b):' is almost as pllzz1ing. Presllmably, it is intended to require reSpOJHlcllt3 to cease, acln rtising "Buy 1 and get 1 1, ree But this C1Lllot be deduced flom anyt hjng to be found in the terms of the order. As the, Comj1ission s mYll troubles \yitb the problem show the definition of " fl'('e ' merchandise is no easy maue.r. Yet respondents are orde.red, on pain of heflY)' peunlt.ies, to cease and desist from describing merchandise as free ",yhen sncll is not the fact::. Surely this provision, like paragraph " ( a): \ is inclefensibl ' Yil&J11e, part.icularly in light of the SllpI'Plle C0111'fs recent call for Commission orders suffciently clear flllc1 pl'ecj e to flnJid raising seriolls questions ns to their meaning and appJjcatioll" Fer/cnd Tnu1e COflun/s8'/on Henl' ,? Epoch 00.. ;jGR U. S. ;j(1O, 368 (1862). VIII The Conllnission s acrioll tndny cannot he.lp but 11il\-e nnfol'tunnt( effects reaching far beyond the foul' ( Ol'nC'l'S of the, present proceed ing. It is bOllnd to become 11 leading ;'nllthol'ity" in the field and there. fore a necessary source, of reference. for busiJl mel! planning to conduet. "free" goods adnrtising' camlmigns. Yer how anything but unc.ertainty and c.onfusion C:1n follow toc1ais decision, I do not know. R.esponclel1ts here engngec1 in n. form of flClvert.ising which Commission rulings expressly anel repeatedly salll:tionecl, and on which they hrld ety right to rely. Yet limi' they are held to have violated the law and are being subjected to a broad and indefinite. cease-and-desist order with severe penalties for any yio1ations. To discover the Commission s ('urrent. -,ic\\s of t.he rcquirements of law in this flCld, bllsine men and their law !ers ,,,ill no longer be able to rely upon the col1prehensi, e and comprehensible rules laid down in Black. Instead, they will hitve to read (J) the JDJ8 policy statement, which.h ,'Ins overruled in Black (2) t.he Black majority opinion which is "distinguished" but not m-erruled today, (3) t.he Black dissenting opinion, ,which w'h118 not expressly adopted by the Comlnission 1866 FEDERAL TRADE COM1SSIO DECISIONS Complaint 60 F.

today seems at least to be back in good favor, and (4) the majority opinion in the instant case. After examining these materials, how will a la.wyer answer a cient who asks: ":May I advertise something as 'free' to purchasers who buy a.lather a.article at a stated price, if the advert.isement clearly c1isc.oses nil the terms and c()nclition of the offer " The only safe ans'\"cr \Vould seem to be: " I don t knoll rve read all the Commission opinions on the subject, and I still don know. 1Vhat's more, I don t think the Commission h.j10\Y . You better not take any chances. " 3 FINAL ORDER This matter ha,ving been heard by the Commission upon exceptions to the initial decision filed by respondents, and upon briefs and oral argument in support thereof and in opposition thereto, and the Commission having ruled on said exceptions, alll having determined that the initial decision should be modified to conform 'with the. views expressed in the accompanying opinion:

If iR O1'dored. That the hearing examiner s initial decision as modified be, and it hereby is, adopted as the decision of the Commission. It is fmthC'' O1Ylered That respondents shall, within sixty (60) days after service upon them of this order, file with the Commission a report in writing, setting fort.h in detail the manner and form in which they have complied with the order to cease and desist. Commissioner Elman dissenting.