Gadget-of-the-Month Club, Inc.

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IN THE 1iATTR OF GADGET-OF-THE-MOKTH CLUB, INC., ET AL.

ORDER, OPINIONS ETC., IN REGAR TO THE ALLEGED VIOLATION OF THE FEERAL TRDE COMMISSION ACT Docket 7905. Complaint, May 20, 1960-Decision, Nov. , 1963 Order requiring a purported association and its promoters in North Hollywood, Calif. , engaged in sellng memberships and other ancilary services for members, including the evaluation of inventions (or "submissions ) and the preparation of patent applications therefor, to cease-in lectures, through personal appearances on television and radio, promotional articles in new"papers find magazines, form letters and other promotional literature--me of numerous designations as to purported departments, functionaries anll offces to create a false impression as to Dieir nature and size and the iJenef's to be derived from membership; and making a variety of other false representations slich as liaison with manufacturers, evalua. tion of members ' submissions by an impartial body of experts, matching of members' cash outlays toward patenting submissions and otherwise underwriting the expense in'rolved, maintenance or their own large patent departme:nt including a branch offce in Washington, D. C., and their recognition as experts in the field of commercializing inventions bJ.' various associations of inventors and manufacturers.

COMPLAT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Gadget-of-the- GADGET-OF-THE-MONTH CLVB, I , ET AL. 1139 1138 Complai,llt Month Club, Inc., a corporation, and Don L. Davis and Mary Lou Mofftt Davis, individually and as offcers of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows: PARAGRAPH 1. Respondent Gadget-of-the-Month Club Inc. , is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its offce and principal place of business located at 11032 Magnolia Boulevard North Hollywood, California. Respondents Don L. Davis and Mary Lou Mofftt Davis are President and Secretary-Treasurer respectively, of corporate respondent. These individuals formulate direct and control the policies, acts and practices of said corporation. The business address of the individual respondents is the same as that of the corporate respondent.

PAR. 2. Respondents are now, and for several years last past have been, engaged in the business of selling memberships in a purported association or organization owned and controlled by them and designated Gadget-of-the-.NIonth Club or "GMC", to members of the purchasing public located in various States of the United States and in various foreign countries. In the course and conduct of such business, respondents further offer for sale and sell certain other ancillary services for members of GMC, including the evaluation of members inventions, hereinafter sometimes referred to as submissions, and in preparing, or assisting their members in the preparation of, applications and other documents pertaining to the granting of letters patent on such submissions, by the United States Patent Offce.

PAR. 3. The annual fee for membership in GMC has varied from time to time and is now $20. The registration fee for each submission by a member is now $5. \With each sublnission the member must execute an instrument granting G:.HC an exclusive option, if it accepts and approves the submission, to represent the member in all makers relating to the in vention, and further granting G:JIC fL share of any royalties resulting from the commercial exploitation thereof. Respondents also require that mmnbership be renewed or maintained upon their acceptance and approval of R, subn11ssion until commercial exploitation has been achieved or, in some instances, until atten1pts to procure a patent thereon have been abandoned. Respondents also prepare aJId send without additional charge to their active l11members and sell or distribute to non-n1embel's, certain publications containing .

1140 FEDERAL 'lHADE COMMISSION DECISIONS COlllplairlt 63 F.

articles of possible iute.rest to inventors, including, but. not necessarily limited to, a publication entitled "Inventor and Gadgeteer N ewsletter PAn. 4. In the course and conduct of their business, advertising matter, contracts, publications, letters, checks, and other written or printed instruments and communications, including, but not limited to, legal documents prepared for the membership by or through respondents relating to the application and filing for the grant of letters patent by the United States Patent omce, models of inventions and drawings of inventions, and "progress reports purporting to advise the members from time to time as to the status and prospects of the-ir said applications, are, and have been: sent and received between responclents located in the State of California and men1Uets of t.he pnbli located in various other States of the United States md in foreign countries. As f' result of such translnission and receipt. of saiel written or printed instrnments, communications and other maleriflls respondents are, and have been engaged in extensiYG commercial intercourse ill commerce, as " commerce" is defined in the Federal Trade Commission Act. The volume of the afore8 ic1 business conducted by responllents has been and is, substantial.

PAR. 5. Hespondents' method or attracting the attention of the purchasing public to the fact of the existence of GjIC, and to ihe manner in which it purports to be of service to the IrlCmUers thereof is through the frequent appearance of one of the aforesaid officers of corporate respondent as a gnest lecturer or entertainer before varied types of aud iences; through personal appearance.s on television and radio; and through promotional articles in newspa.pers magazines or other publications.

"\Yhcn inquiries from the public reganling IC arc received respondents send various form letters, applications for membership, and pieces of promotional liierature which purport to describe and oxplain the functions and services performed by G)IC for the membersl1ip and the terms and conditions of mcmbcrship. Other promotional literature is sent from time to time to the member,rship to induce them t.o maintain or renew their membership and to submit their ideas or inventions, together with re.gistration fees, to respondents. On occasion, respondents or their employees have made oral statements to members or to prospective members of GJIC, during which reference was made to 8::IC and its functions. PAR. 6. Among and typical, but not necessarily limiied to, the statements set forth in the form letters and other promotional . . . . . .. GADGET-OF-THE-MONTH CLUB I)IC. ET AL. 1141 1138 Complaint material sent by respondents to members of the purchasing public are the following:

(a) (signature) . . Chief, :New Products Division; (signature) . . DIrector Public Relations; (signature) . . Director, Membership Relations; (signature) . . Manufacturer s Service Division; (signature) . . Correspondence Coord!. nator; G. C. Board of Directors; Patent Department; Licensing Division; Patent Drafting Dept. ; Chief of GMC's Washington Bureau; Technical Service Division; Manufacturers Licensing Division; Director of Operations; Executive Vice President.

(b) * . If Because manufacturers. '" .. are constantly communicating with GMO for new ideas '" G1\C acts as a screening agency for manufacturers * ". '" GMC works closely with prospective manufacturers'" '" '" (c) Accordingly GMC has been authorized by its Gadget JUry .. * The Gadget Jury has recomroended '" '" '" Careful review and evaluation of your invention by the Gadget Jury finds that the submission meets GMC requirements. Accordingly, the Jury has voteq. '" ... Formal Gadget Jury Action . '" '" A Gadget . Tury approval means that the '" '" * submission has been thoroughly evaluated and tested by the experts and found to be . * '" possessing of strong commercial potential'" .

(d) Gl\C wil pay '" '" '" 50% of all patent costs . In return for this, GJIC requires that you pay it 10% of all money you receive from your patent. GMC is now offering financial assistance. '" '" by advancing up to one- halt of the cost of the patent'" '" . G:\1C has an investment in your invention Gl\C' s participation in underwriting and advancing one-half of all patent prepara tion costs (e) '" '" '" the Search Dispatch is then sent to G:\fC' s Washington Bureau '" '" '" and signed for only by the Chief, of GAIC' s "'''ashington Bureau The Washington Search Report is then routed to GMC' s patent experts the report of G:MC's patent experts is then routed to other major departments of G"MC 1\ '" '"

(f) GMC wll pay '" ol '" 100% of all promotion, publicity and exploitation costs . Wherever and whenever possible, publicity through radio, television, ne,vspapers and national magazines wil be obtained * . Publicity services prepared b:r experts cost business organizations from $300 to $1 000 a month'" '" "' . G:\lC'8 publicity service for its members is paid fox fC '" '" '"

(g) National Network of Manufacturers Representatives have just renewed their two-year agreement with GMC as their exclusive new product screening and evaluation consultants * * '" GMC offcials hnddled with top exeCltives of the National Association of Mail Oroer Companies '" * "' By special exclusive reciprocal arrangement, Inventor-Members of GMC are granted Associate Membership in: IJSVENTION INDUSTRY ASSOCIATION. INTERNATIONAL FEDERATION OF INVENTORS, ACADE"IY OF INVENTION ARTS AND SCIENCES. :NATIONAL ASSOCIATION ' OF INVENTORS'" '" .. (the above is a partial list of organizations set forth on the GMC membership card). PAR. 7. Through the use of the aforesaid statements, and others of the same import and meaning, including statements made orally 780-01R-- 1142 FEDERAL TRADE Cm..nIISSION DECISIOXS Complaint 63 F.

by respondents, not set forth spec.ificaJIy herein, respondents have represented, directly or by implication:

(a) That their size, volume of busine, , capabilities, and the nature and extent of the services respondents perfOl'J11 for G :\IC members ate such that the various designated departments and offces are bona fide organizationa.l units or specialized c1iyisions or functionaries of G1IC.

(b) That GMC has and maintains such constant and exten,ive liaison with manufacturers as will assure the commercial exploitation of accepted submissions by such manufacturers, and to the pecuniary benefit of the members.

(c) That submissions by members "ill be oh iectively evaJu8-tecl by an impartial body of experts in such fields as patenting manufacturlng: promoting and marketing and ,,-ill be approved for acceptance by G:1:fC only if there is 11 realistic prospect for tiw, commercial exploitat.ion of such submission by a. manufacturer and to the pecuniary benefit of the member.

(d) That GMC makes a special and distinct CR'h outlay to m"tch the contribution of the member tOlyard the cbrect costs of patenting a submission, exclusive of the official filing fees "hieh are tf) be borne entirely by the member.

(e) That Gl\:fC maint.ains iT large departrnenializec1 patent de. partment, ",11ich includes it branch oflce in \Vashington C.. as a servic.c to its members in getting their submissions patented. (f) That G1fC will underwrite the expense of paid n,clvertising in rlll necessary forms of media in order to achieve t.he individual commercial exploitation of an accepted Sl1 bmission. (g) That various bona fide, distinct organizations or associations of inventors or manufacturers have recognized G 1C as expert in its field of commercializing inventions and that. such groups and organizations accord privileges and prestige to G1\IC members or may be instrllmentaJ in achiel ing the commercial exploitation of inventions or ideas of the membership.

PAR. 8. Said statements and representfltions were and are false mis1eac1ing and deceptive. In truth and in fact: (a) The use of the numer011S designations as to purported departments, functionaries and offces of G1\fC are u8('(1 by n sponclents to e-eate a false impression as to the nature and size of G and as to the benefits to be derived from membership therein. Furthermore, such are not justified by respondents' size, volume of business or capabilities; nor by the number or type of respondents GADGET-OF-THE-:\IO THCLeB ) INC. ) ET AL. 1143 1138 Complaint employees; nor by the nature of the work they perform for the members.

(b) Respondents neither have nor maintain any such degree of liaison with rnanufachi.rcl's as will assure the c01nmercial exploitation of accepted submissions but, on the contrary, primarily attempt to interest certa,in manufacturers into paying a fee to respondents for locating or providing access to patented items with a commercial potent.ial. Furthermore, such contracts as respondents have been able to develope have not resulted in the conlmercial exploitation by such manufacturers, of a,accepted and approved submissions to the member s pecuniary benefit, jn any appreciable number of instances, if at all.

(c) In the main, tile submissions are approved by one of the offcers of respondent corpora6on, sometimes assisted by one or more of respondents' employees, all! not by an imp.rtia.! body of experts; and whether there is or is not a realistic prospect for its commerical exploitation by a manufacturer. In most, if not all instances, such procedure has merely resulted in the payment to respondents of registration fees by the members with each submissimi, and is llsed to deter mcmbe.rs from letting their 1J1emberships lapse since payment of the annual membership fce is required in order to keep the submission under purported consideration by G:\IC for commercial exploitation by manufacturers. Few, if any, of the submissions by the members have been commercially exploited by a manufa.ctnrer to the member s pecuniary benefit. (d) Respondents make no special.l cash outlay for, and do not match, the financial investment of the members in the direct cost of patenting a submission. To the contrary, the member s contribution normally covers thc entire estimated direct cost of patenting, whereas respondents merely absorb the indirect costs incidental to preparation of documents for procuring a patEmt, out of their usual general QI'erhead expenses in the operation of their business, and furthermore, some of respondents' contracts with members pro\' ide for the recoupment of amounts out of first roya.lties, in the event of commercial exploitation, to cover such expenditures by respondents.

(e) Much of the routine work in connection with applying for patents on the submissions of GMC members is performed by one of respondents' employees at their only offce, or is done for respondents by outside firms on a contract basis. 1144 FEDERAL TRADE COMMISSION DECISIOXS Complaint 63 F.

Patent searches at the U.S. Patent Offce are performed for respondents, when necessary, by an outside firm located in \Vashington D.C. Respondents have no branch or regional offces. (f) Respondents' promotional efforts for accepted submissions are frequently limited to prepared releases sent to newspapers in the member s locality, with no assurance of publication and with little realistic prospect that such, if published, would result in the commercial exploitation of such submission by prospective manufacturers. Furthermore, such prepared releases, if published, are designed by respondents to give additional publicity to GMC and to promote additional paid memberships therein. (g) The various organizations and associations referred to by respondents are not bona fide or distinct groups or associations of inventors or manufacturers but are, to the contrary, the creatures of respondents or are subject to their domination or control. Accordingly, no realistic or valuable privileges or prestige results to GMC members by virtue of any purported recognition of GMC by such groups or associations, nor does the member have any additional opportunity for the commercial exploitation of his submission by virtue of such re.cogni6on by such organization or Bociatjons. P AH. 9. In the conduct of their business, at all times mentioned herein, respondents have been and are in substantial competition in commerce with other corporations, firms and individuals likewise engaged in the sale of services to inventors, and in the sale and distribution of publications of interest to inventors, of the Sftme gene.ral kind and nature as that sold by re.sponclents. PAR. 10. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and pnlctices has had, and now has, the capacity and tendency to mislead and deceive members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of a substantial number of memberships in respondents said Gaclget-of-the-NIonth Club; into the renewal of paid memberships therein; into the pa.yment of a substantial number of regi tration and other fees to respondents; and into the granting of substantial rights or interests, actual or prospective, and other form , by Teason of such erroneous and of remuneration to respondents :mistaken belief. As a consequence thereof, substantial trade in commerce has been, and js being, unfairly diverted to respondents and from their competitors and substantial injury has thereby been, is be,ing, done to competition in commerce. GADGET-OF-THE-MONTH CLUB , INC. , ET AL. 1145 1138 Findings PAR. 11. 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.

Mr. John J. illcNally and Mr. Dennis D. McFeely for the Com- 1TISSlO11.

Mrs. Mary Lon ill offtt Davis Hollywood, Calif., for hereself and the other respondents.

FINDINGS AS TO Tile FACTS, CONCLUSIONS AXD PROPOSED ORDER J"LY 31 , 1963 The Federal Trade Commission issued its complaint against the above-named respondents on 1fay 20, 1960, charging them with violating Section 5 of the Federal Trade Commission Act by means of a system of form. letters ,tnd other promotional.l material distributed through tho United States mails. The respondents are alleged to have deceived and misled the recipients of such communicntions as to Gac1get-of-the-l\forth Club's size and internal organizational structure; its use of an impar6al body of experts to objectively duate the commercial potential of inventions submitted; and their ability and capacity to achieve commercial success for 111ve11tions through contracts and association with manufacturers and others who would pay royalties to obtain the " Club members discove.ries.

In an initial decision fied July 13, 1962, the hearing examiner although finding that the charges of the complaint had been sustained, Ordered the complaint dismissed.

Counsel supporting the complaint filed an appeal from said initial clec.sion and the Commission, after considering said appe.al and the entire record, has determined that the appeal should be granted and that the initial decision should be set aside. The Commjssion now makes these :findings as to the facts, conclusions drawn therefrom, and order to cease and desist, which, together with the accompanying opinion, sha.ll be in lieu of the findings, conclusions and order contained in the initial decision. .Proposed Finfil Order is omitted in printing since it "as adopter) as the Flnnl Order of this Commission.

1145 FEDERAL TRADE CONl.V!ISSION DECISIONS Finddngs 63 F.

FINDINGS AS TO THE FACTS 1. Respondent Gadget-of-the-Month Club, also known as GMC is a corporation organized under the la,ys of the State of California with its principal offce located in Los Augeles, California. The respondent corporation is currently operating and there is not.hing contained in tho record which indicates that it wil be dissolvcd or that it will not continue to be a functioning entity. 2. Respondent 3fary Lou 3fofftt Davis is the president and majority stockholder of the respondent corporation and is and has been active in the day-to-day operations and management of the corporate respondent. Respondent, the late, Don L. Davis of whose death subsequent to the rendering of the initial decision we have been informed, was the president and a stockholder of the respondent corporation prior to his death.

3. By means of the use of the United States mails, in the course and conduct of their activities, respondents have been engaged in commerce, as Hcommerce" is defined in the Federal Trade Commis. sion Act.

4. G3fC , according to a membership application it has used describes itself as "the greatest gadget-gather'jng organization in the world, whose sale and exclllsLve business is the discovery, development, licensing, sampling, mercha.ndising and marketing of new products of every nature, kind and description. (Commission Exhibit 4.

J. G IC did no ac1n rtising in the formal sense lmt came to the attentiou of those who had dealings with it largely through the activities of Davis. lie had made radio and television appearances extolling the vast sums of money waiting for those who could come up with the right gadgets. Severalmagazme articles had appeared concerning Davis and the Club's activities. He also did professional lecturing whiJe traveling in different states, speaking before social and fraternal organizations. During these appearances no attempt was made to hide his affliation with GMC. (Transcript 1250. He was often introduced as its president or founder or chairman of the board; in his lectures, Davis would refer to the Club by way of introducing himself.

6. Persons who already were members were encouraged to bring in new members by the offer of prizes and awards. (Commission Exhibit 145.) In one mstance, Davis took part in an inventor show at which a booth was set up with signs that informed people that a drawing would be held, and all they need do to be eligible to , , GADGET-OF-THE-:\lonth CLL'B, I , ET AL. 1147 1138 Findings win was to fill in their name and address on a card and deposit it. In reality, all this was just another means for obtaining more prospects for Club membership. (Commission Exhibit 124. Persons who hnd been menlbers under' a method of operation employed prior to In;)8 "were cneourngednot to drop their memberships, but to continue under the Club's new method of operation. Davis' preoccupation \with the subject of inyentioll and gadgets was such as to cause 11im to usc a business card identifying himself solely as ":\11'. Gadgets. (Commission Exhibit 118.

7. Once the initial cont.ct was made the prospect ,yould write a letter 'Of inquiry to the Club or the Club would follow up on somebegl11 toone who had expressed some interest. There then would flow a series of form letters between G:\1C and the member. , the S. Applications for memberships were invariably accepted annual membership fee being $20. The next step was the submisthesion of an invention or gadget. In making his submission, member was required to fill out a printed form, which was in effect a contract. (Commission Exhibit 5.) One clause, particularly relevant to the Club's operation, recited: I " '" * IH reby give to 01\0, Inc. in consideration of its expenditures of pl. f(':-sic!lnl l'effort.", timl'. hllJOJ', fnml:, ,Hill fndlities ill lJ(lJalf of my invention witllout charges foi' such specialized services to me at this time, the exclusive option to my invention. If, as and when my product is accepted by GMC, Inc. I hereby ' give to them the exclusive right to represent me in all matters relating to my ilwentiOll fol. the life of the patent or seventeen years, and agree to refer Hnyone interested in my invention to G),:IC, Inc. 0 submission would be accepted without the completion of this contract form (Commission Exhibit 20) which also stated that understand that my only financial obligation to GMC for its services in connection with the sale or license of my invention is the payment of 100/0 of the consideration I receive * ,* * (Commission Exhibit 5.

9. Once a submission had been received a form letter labeled a Progress Report" informed the member that It is the majority opinion of the Gadget Jury that your submission has merit, has intertesting possibilities, and warrants further consideration by GJ\C. (Commission Exhibits 65, 66; Respondents' Exhibits 23 , 24. ) There is testimony in the record that Davis told members that the Gadget Jury was composed of manufacturers, engineers, and other similar impartial experts who would objectively evaluate the merit of their submissions. The Gadget Jury was represented as being completely outside Davis' control in making its determinations. (Transcript ) , , , Findings 63 F.

307-308. ) However, Davis in his own testimony makes it perfectly clear that the jury never formally met; that he himself as the "foremost expert in the country on new ideas" looked the submission over; at times Mrs. Davis or someone else in the organization would be asked for an opinion, but nobody was ever engaged as an impartial technical consultant and requested to give an expert opinion. (Transcript 1436. ) Mrs. Davis admitted that no written record was ever made of the determinations and decisions of this Gadget Jury. (Transcript 448.

The record shows that the Gadget Jury was no more than Don L. Davis himself, who occasionally might request some special advice from some business contact. (Transcript 427-429.) However, in the sense that it had been represented to and understood by members, the Gadget Jury simply did not exist.

10. The form letter that brought the news that the Gadget Jury was of a favorable attitude also stated that This report must of necessity be a preliminary report at this time, because of the need of determining the patentability of your invention * * * . Accordingly, you are hereby requested to have a patent search made immediately * * * . P.S. If you wish to order the patent search thru GMC facilities at thc special rate of $15, plcase advise * * * . Patent Attorneys generally run from $60. on up. Thus your GMC affliation saves you $45 or more in patent search costs alone." (Respondents Exhibit 23; see also Respondents' Exhibit 24; Commission Exhibits 68.

Members took advantage of this "bargain rate" when they were advised by a Jetter signed "Don L. Davis, Chairman of the Gadget Jury," that It is suggested that you authorize a patent search at once to determine the patentability of your submission. (Commission Exhibit 76.) It is relevant in connection with the patent search to point out that the Club in its letters represented that it had a Technical Services Division (Commission Exhibits 98 , pp. 28 , 31; 108, p. 22; Respondents' Exhibit 25), a Patent Department (Commission Exhibits 28 , 78), and a \Vashington, D. , bureau or offce (Commission Exhibits 28, p. 2; 29; 108, p. 22). 11. Upon receiving authorization and the fee for the search, a form letter was sent to the member advising him: This is what happens when :yon authorize a Patent Search on your invention: 1. G::IC' s Ne,y Product Division sends yonI' complete file to G1\1C's Patent Department for checking.

2. 'lhe Patent Dept. checks your file and prepares a special Search Dispatch" * * ,, . ) GADGET-OF-TRE-MONTH CLUB , INC. , ET AL. 1149 1138 Findings 4. A FINAL CHECK OUT is made by the Technical Services Division to make certain that the SEARCH DISPATCH is in order and complete. 5. The Search Dispatch is then sent to Gl\C's Washington Bureau" .. 6. The Search Dispatch is received and signed for ONLY by the Chief of 01\JO' s \Vashington Bureau, ,,,ho personally checks out and studies EACH and every individual search'" '" * 7. The Chief of GMC's Washington Bureau then assigns each searen to R member of his staff, briefs them on the invention and guides the investigation. 8. Each service is then individually reported on by the staff member to the Chief.

9. The Chief of the Washington Bureau, after carefully studying each report prepares a confidential report to G:MC o( * *. (Commission Exhibits 29, 150-B.) All this was designed to create the impression that the Club maintained a full time staff of patent and technical experts. However, the record is clear that the fact was otherwise. Mrs. Davis testified that the patent searches ordered by members were carried out by firm who did such work on a fee basis for the Club, or anyone else who engaged their services. GMC never had a Washington Bureau, a Technical Services Department or a Patent Department. The patent searches were not ordered to be done on an individual basis; GMC waited until it had several authorizations from members; then it on1c1 ICrI'Iard them as a gT0l1p to its contact jn '\Yashinglon (Transcript 420--25.

12. An examination of the many form letters and documents in the record that emanated from the Club leaves no doubt that they were designed to create the impression that GMC was a very large multi-department organization, each with an individual designation and a sizable staff. (Commission Exhibit 26 "Membership Depart. ment" ld. 44 "New Products Division Id. 45 "Manufacturers Service Division I d. , p. 6 "Public Relations Department" I d. Ill, p. 17 "Manufacturers Liaison; Respondents' Exhibit 17- Research and Development Division Id. 17-B "Director of Client Relations 13. In one newsletter members were advised that GMC was comprised of 37 divisions and that they should "look for GMC to open a series of offces in Great Britain, Germany, France and Italy in 1958-59. (Commission Exhibit 156.) The Club's Los Angeles offce was constantly referred to as its "world headquarters." (Commission Exhibit. 4; 100, p. 21.) GMC's form letters were signed by different names, each purporting to be the head of the particular department from which the letter came. All this was designed to lead members to believe that many persons were serving their interests at GMC.

The record is quite clear as to the actual facts concerning GMC' internal organization and operations. Mrs. Davis testified that since 1150 FEDERAL TRADE COl\n.nSSIO?\ DECISIONS Fjndings 53 F.

J annary Ij 1955, the Club has had only one to five employees a1: any given time. (Transcript 42-43.) One member stated that on a ,-visit to Club headquarters he inquired after several of the persons WJlO had signed letters that he had been receiving, only to be told that they were out of town; the only people he saw on his visit \Verb )1:' . and Mrs. Davis. (Transcript 681 682.

Mrs. Davis testified that once a name had been established as bl?ing associated wit.h a particular department, that name ,"auld continue to appear on an form Jetters purportedly sent by that department whether or not the name represented a G:\IC employee and whether OJ' not the name even represented a living person. (Transcript 411- 418. ) Davis admitted that this method of conducting correspondence was his idea. (Transcript 1353.

14. The next step in GMC's operation after the patent search was to notify the inventor that the Gadget Jury "has voted to approve the submission and has recommended that G:\IC elect to pick up its option and continue its efforts in behalf of the invention until it has been successfully commercialized. (Commission Exhibits 37: 39 1; , p. 6.

The Club then recommended that patent protection be applied for by the inyentor, if this had not already been done. G.\IC repl' e,ented that it would underwrite one-half the costs of preparing the patent applications. (Commission Exhibits 25 , 31 , 72" 79; Respondents Exhibits 27, 2S- This ,\':18 one of the things the Club had stressed as a chief advantage of membership in its original lettiC,l's to prospective members. (Commission Exhibits 1 , 2. 15. To get the benefit of the Club's financial help in preparing rhe patent application, another Iorm contract had to be executed (ncspondents' Exhibits 28- , 28-C; Commission Exhibit 50 is an en,rlier version of the same form. ) To make clear this phase of the Club operation some of the provisions of this contract a.re reproduced here:

(IJt has been deemed advisable that the prermration and filing of a Utility Patent Application iR dec:irabIc in ordej' to protect my in,ention and to fu:.ther the progress of the de,ice towards attempted commercial1ization. Progress Reports recei'€c1 from G::IC ad,ise me that we havearri,eri at the point in the processing of my invention "here it is necessary to attempt to obtain patent protection. In order to expedite this phase of my invention. I hereby \1nconuitionally agree to the following terms ana conditions: (1) To expedite the preparation. filing and prosecution of my patent appli. cation, I hereby assign to GMC all of my rights in my im' C'ntioll with the sri\.cine ulJlnstanding that this shall in no wny iuierferc, alter, change or modify our existing basic agreement which provides for me to recci,e ninety per ;ent , . $ GADGEl'- OF-THE-l\IONTH CLUB , I:\C. , ET AL. 1151 1138 Firtdings of all ro;ya1ty revenue produced by the patent and GMC to receive ten percent of all royalty revenue produced by the patent. (2) I agree to pay the sum of only $- to Gl\C in connection with the prep. aration of the initial patent appUcation, * '" * I agree that the full amount wil be paid before the completed patent application is sent to me for approval and signature. I understand that GMC wil pay all costs in excess of $-, in con. nection with the preparation of the initial patent appUcation. (3) I agree to pay to the U. S. Patent Offce the offcial Filng Fee of $30. at the time my patent application is fied. Additionally, if, as and when my patent application is allowed, I agree to pay to the U.S. Patent Offce the final filing fee of :fro.aO, I understand that these fees are paid directly to the U. S. Patent Offce and that GMC wil notify me when they are due and payable. (6) I further agree that for GMC management services, technical and research assistance, and other valuable considerations given to me by GMC in COllnection with the appraisal, protection, promotion, exploitation and com. mercialization activities in behalf of my invention, I wil pay and do by these present assign to G::lC the first pa;yable as royalties when, as and if my invention is licellsel1, sold or conveyed in an;y manner whereby royalties and/ or revenue are l' eceived * * * . Thereafter, G::fC shah receive only ten percent of the royalty re,cnue as per my original submission agreement, unless other. "ise umtunlly agreed upon in writing.

(7) It is mutually agreed that all costs of any nature, kind or description relating to anrl inclllTed by Gl\C for the purpose of tie sale, exploitation licensing or promotion1l of my inwntion shall be paid for solely by GMC. (8) It is mntnal1 . agreed that in addition to the specifc charges hereinabove detailed, my only obligation to GMC in connection with my invention shall be to remain an Inventor-Client in good standing for the life or this ag'.' eement which shall run concurrently with the life of any and all patent issued on this invention and/or its modifications or improvements. IRe.!pond eots' Exhibits 28B , 28C which bear the date 1960 and have the word "Member eradicated and the word "Client" superimposed over it. The earlier version Commission Exhibit 50, reads " Inventor-Member." It is noted that complaint issued against the respondents on May 20, 1960. The preparation of the patent applications was handled in the same manner as the patent searches already described. Transcript 425.

The representation that the Club would pay 50 percent of the costs of preparing patent applications was a prime consideration in the minds of those who contemplated membership. GMC fully realized this for it reminded members who did not renew their annual memberships that "GMC regulations require that all members, who have inventions accepted on which GMC has advanced one-half of the patent costs, must be paid up members in good standing. (Commission Exhibit 25; see also Comlnission Exhibits 3 , 26.) One wit" neBS testified tl1f1t 118 got the jrnpl'ession that if a membership ,vas allowed to Japse, all inven tions that had been submitted would be forfeited. (Transcript 631.

1152 FEDERAL TRADE COM:\nSSIO DECISIO Findings 63 F.

17. Respondents submitted, during tbe course of the investigation of this case, a detailed statement of the amounts expended by the Club in three cases involving preparation of patent applications. (Commission Exhibit 119, pp. 1 ) A careful examination of these figures shows that the expenses covered by the Club were no more than clerical, administrative and mailing items that normally would be considered general offce expenses.

The Club's alleged 50 percent contribution was arrived at by the respondents calculating their total costs of preparing the patent applications, allmving themselves a profit margin in so doing. This amount was then doubled and the member billed for half of the greater figure, the member being told the Club was absorbing the other half. Paragraph (6) of the contract contained a provision that the member agreed to pay all of his first royalties to the Club up to a certain amount; only thereafter would the Club get 10 percent as its commission. In testifying how the amount inserted in Paragraph (6) was arrived at, Mrs. Davis stated that it would be equal to the figure which was indicated in Paragraph (2) as the Club's contribution. (Transcript 1022.) Thus, the inventor was obligated to repay GMC its oontrib11ion, which in fact had never been expended, before he realized a penny by way of royalties. The rcspondcnts' representations were that GMC "ould bear all costs of promotion, publicity and commercial exploitation (Commission Exhibit 1) ; but Paragraph (6) of the contract recites these considerations as those for which the member assigns all his first royalties; thus what was represented to be free carried a high price tag.

18, In connection with its representations that 1:C would assure members financial success by bringing their inventions to the attenion of manufacturers, the Club attemped to gain additional revenue from manufacturers \vhile purporting to be operating solely in the interests of its inventor-members. A manufacturer \Vas required to pa.y a $50 annual registration fee in order to become an "Associate lanufacturer Client" ; this would entitle him to receive periodic reports of inventions members had submitted to GJHC. (Commission Exhibit 112 , p. 4. ) Sometimes the manufacturer was told that "IVe believe that it is only fair to advise you that our principal business is screening new products of every nature, kind and description for Inanufacturers. Accordjngly, there is a small service charge to cover our costs to compile and forward this jnformation to you. Additionally, if we should be 8lecessful in submitting a new product that meets your approval, there is a finder s fee for our efforts. This fee is negotiable depending upon the individual circumstances." (Commission Exhibit 111 , p. 10; see also ld. 111 , p. 6. Inventors were GADGET-OF-THE-MONTH CLUB, DIC. , ET AL. 1153 Findingsnever1138informed that the Club derived additional income from manufacturers. (Transcript 1300.

The preeminent motivating factor leading an inventor to join GMC was the expectation of commercial success to be brought about by the Club being able to interest manufacturers in the inventions Transcript 544,submitted. (See testimony of former Club members, 594-B , 621 , 649.) However, Mrs. Davis testified that it was the Club' s position that GMC's total obligation was fulfilled as soon as the completed patent application was dclivered to the member ready for filing in thc Patent Offce. (Transcript 1077, 1079. 19. One of the Club's form letters that went out to members who had submissions pending stated that "the Manufacturers Licensing Division of GMC has your invention under sustained study and has presented the invention to a number of manufacturers, some of whom have indicated interest. (Commission Exhibit 39 , p. 1; see also I d. 41, 42.) When members wrote to the Club inquiring as to the status of submissions, a form letter advised: It is important to point out to you at this time that the task of Ucensing your submission is an expensive procedure. It requires countless man.hours in presentations, explanations, negotiations, to say nothing of the attendant expenses, which are substantial. It has been estimated that GMC's cost of obtaining a commitment from a manufacturer averages from two to five times the cost of obtaining patent protection. This cost is paid solely by GMC; Dot by the inventor 'Ve are working conscientiously on your invention; we wil oontinue to do , a-t our expense, until we succeed! All we ask of you is patience and to kee your GMC membership on a current basis . (Emphasis added. (Commission Exhibit 57.

20. Although GMC frequently advised members that, "As yon know, nothing is ever going to happen to your invention unless Exhibit 16. ) Re- make it or cause it to happen." (Respondents' spondents nevertheless urged members to use their own efforts and contacts to secure manufacturing commitments. (Commission Exhibit 43. ) In those cases in which an inventor did succeed in inter. testing a manufacturer, the Clnb demanded that it be compensated for the interest claimed in the invention before it would permit any agreement to be negotiate.d directly between the inventor and the manufacturer. Davis testified that once a submission was made GMC became partners with the inventor. (Transcript 1311. 21. The record is clear that GMC was not snccessful in achieving commercialization of a member s invention. There was only one instance of a licensing agreement signed by a manufacturer and in that case the respondents managed to convince the inventor that they had rendered such an extraordinary effect that the member agreed 1154 FEDERAL TRADE COMMISSIO DECISIONS Opinion 63 F.

that the Club's commission shouhl be raised to 20 percent. (Commission Exhibit 107 , Pl'. 20 , 24. 1\rs. Davis testified that she was unable to state that any manufacturer had ever licensed an invention, ultimately produced it or paid a royalty. (Transcript 1065. Da1-is, himself, admitted that the Club had not been successful in achieving licensing a,greements for its members. (Transcript 1825. 22. G1\1C informed its members that several allegedly bona fide organizations or associations of inventors or manufacturers bearing names sllch as " ational Association of Iail Order Companies International Federation of Inventors" and " ational etwork of :Tanllfflcturers Representatives" recognized tho Club as expert in the field of c.omme.rcjalization of inventions and that such groups and organizations accord membership privileges and other favors fC members and that they may .be instrumental in achieving commerci,,1 exploitation of submissions. The record is clear that these groups existed in name only, having been created by Davis who was their head or executive director. They had no independence of Davis and seemed only to further the deception perpetrated by the Club upon its members.

23. The acts and practices of the respondents, as hereinabove set forth, hate had flnd nO\v have the tendency and capacity to mislead and deceive members of the public.

CONCLUSIONS The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the re.-,pondents. The aforesaid acts and practices of t.he respondents, as herein found, arc all to the prejudice and injury of the public and constitute unfair acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

OPINION OF THE CO DIISSION JULY 31 , 1f)63 By AKDEHSO)o Cornmi8S'ioner:

The cOlnplaint in this case charging violations of Section 5 of the Federal Trade Commission Act, 38 Stat. 717 (HJ14), as amended 52 Stat. 111 (1938), 15 n. c. 45 (1958), was dismissed by the hearing" examiner on the O"1'found that the "* ractices are minim.is and respondents' activities in commerce long prior to the complaint have been, and now are, so insubstantial that this proceeding is dismissed for lack of public interest." The matt.er is now before us for consideration of complaint counsel's appeal from the , GADGET-OF-TIIE-l\JO TH CLUB, I .' ET AL. 1155 1135 Opinion hearing examiner s initial decision. Rules of Practice SS 4. ""; 16 CFR. 8!\'20 , 4. , 4.22 (Supp. 1063). , 4. Respondent Gac1get.-of-the-JHonth Club, also known as G1\1C, is a California corporation, of which respondents the late Don L. Davis was and )Iary Lou )1offtt Davis is a. corporate officer and stockholder. GMC, according to a membership :tpplication it has used c1e :cribes itself as "the greatest gadget-gathering organization in the weidel, whose sale and exclusive business is the dii:covery, c1e\ elopment, licensing, sampling, mercha.ndising and marketing of new products of every nature, kind and description 1:' :!?rior to 1855, 8)1C operated under a somewhat different format but one which was much more literally described by the Club' name the se.lJing of gadget.s to members on it subscription basis. Thrse activities call ed the respondents to run afoul of the Federal Trade Commission -,\ct with the result that a cease and desist order \Vas entered b:v con ent. Gadget-of-the-Jlonth Crub: Inc. 52 F. "5 (1%5). Snbsl'0nent 10 this order, G IC' s sale declared function , to help inn nrors capitalize on their ideas. The represented hasic aim of the Club after 1955 was to cause iJlyentors and people IY110 had an idea for a gadget. to become mell be::' s \"1th the ultimate goal being successful commercialization their creations. In broad outline Gl\IC was supposed to function as follows:

Upon payment of an Inventor-Membership fee of $20, the member .became entitled to submit as many inventions as he wished provided that each such "submission" was accompanied by a $5 registrntion fee. The submission was then to be passed upon by the Cll1b:s impartial panel of experts The Gadget Jury," who were to render an objective opinion as to its commercial potential. If the inyention was deemed to be of merit, then the Club was to get manu facturers interested(l in either using it or producing it for the market. As compensation for bringing inventor and manufacturer together the Club was to receive 10 percent of the gross roya.lties received by the member.

The complaint alleges that by means of a system of form letters and other promotional material mailed to members and prospective members, the respondents have violated Section 5 by making representations that deceived and misled those to whom they were directed as to GJIC's size and internal organizational structure; its llse of an impartial body of experts to objectively evaluate the commercial potential of inventions submitted; and their ability and capacity to achieve commercial success for inventions through contacts and asso- 1156 FEDERAL TRADE CO:lHSSION DECISIONS Opinion 63 ciation with manufacturers and others who would pay royalties to obtain the rights to members' discoveries. It is further alleged that the respondents made these representations to encourage the submission of applications for membership which required payment of the annual fee; and the submission of inventions, with the required registration fee; that members were encouraged to authorize patent searches to be instituted by the Club in connection with their invention submissions, which were conducted in a manner other than as represented; and that the Club falsely stated that they would put up half the cost of procuring patent protection and achieving the successful exploitation of members' in ventions.

Counsel supporting the complaint in his brief argues that the hearing examiner erred in dismissing the complaint for lack or public interest, although the initial de.cision is quite clear that there has been a violation of the Act. Although respondents have not filed a eross-appeaJ , they have at all stages of these proceedings, including their appeal brief, made a two-pronged attack upon our jurisdictjon which we feel requires some discussion on our part. Respondents urge first that 0:\1C never engaged in "commerce as defjned in Section 4 of the Federal Trade Commission Act, 15 c. 8 44 (1058), and additional1ly that all they ever did was to render "services" to those who engaged them. To convince us or this latter claim, respondents' correspondence forms were changed so that "inventor-members" became "inventor-clients, and manufac turer-members" became "manufacturer-clients . The good faith of these changes in nomenclature is subject to doubt on our part since as the hearing examiner points out, they were not instituted until four months after complaint had issued.

Over a half century has now expired since the Supreme Court of the United States first took the position that ''(WJe cannot doubt that intercourse or communication between persons in different States, by means of correspondence through the mails, is commerce among the States within the meaning of the Constitution especially where, as here, such intercourse and communication reany relates to matters of regular, continuous business and to the making of contracts and the transportation of books, papers, etc., appertaining to International Textbook 00. v. Pigg, 217 U.S. Slsuch business. 107 (1010). The scope of federal power to regulate interstate commerce wil never be such as to make it an easy matter to formulate cases fit. Seeanel expound nice compact definitions into which al1 United States v. South-Eastern Underwriters Association 322 U. , , GADGET-OF-THE-MONTH CLUB , INC. , ET AL. 1157 1138 Opinion 533, 550-551 (1944). In an economy such as ours with businessmen free to follow the dictates of their own ideas it is sure that new commercial practices unlike any that were known before are bound to make their presence felt. It is for just such unknown eventualities that the commerce power must be comprehensive enough to fit any new situation as it ",rises. United States v. South-Eastern Underwriters Association, supra at 551; Wickard v. Filburn 317 U. S. 111, 120 (1942).

There is no question but that Interstate communication of a business nature, whatever the means of such communication is interstate commerce regulable by Congress under the Constitution. A88ociated Press v. NLRB 301 U. S. 103, 128 (1937). In any case where as here the mails and the instrumentalities of interstate commerce are vital to the functioning *" of a business enterprise, there can be no doubt of our jurisdiction under the Act. North AmerwM! 00. v. SEO 327 U.S. 686, 694-695 (1946).

In Progress Tailoring 00. v. Federal Trade Oommission 153 F. 2d 103 (7th Cir. 1946), circulars were sent by mail falsely representing that free clothing would be given to salesmen who accepted employment with the respondent. Our finding of jurisdiction was sustained the court holding that the passage of information from one state to another was a transaction in interstate commerce. 153 F. 2d at 105. See also Federal1'trade Commission v. Civil Service Training Bureau 79 F. 2d 113 , 114 (6th Cir. 1935). Bernstein v. Federal Trade Oommission 200 F. 2d 404 (9th Cir. 1952), involved a respondent in the business of seeking out absconding debtors. Solicitors travcJed in several States seeking to get creditors to execute a contract assib:ring past due accounts for collection. These contracts were mailed to the respondent, who then used the mails to locate the defaulting debtors. The court had no trouble in reaching the conclusion that, "* * '" The (respondent) regularly uses the channels of interstate communication. His activities, while not trade in the ordinary sense, are a species of commerce and constitute commerce within the meaning of that term as used in the Constitution and in the Federal TrlLde Commission Act." 200 F. 2d at 405. See Rothschild v. Federal Trade Oommis. sion 200 F. 2d 39 , 42 (7th Cir. 1952), oert denied 345 U.S. 941 (1953), recognizing our jurisdiction when the n1ails are used as a conduit for deception.

The argument that all GMC was doing was rendering "services has been urged upon this Commission many times. IVe rejected it in the CaEe of physicilLns who maintained they were engaged only in the pmctice of medicine Frontier Asthma Oompany, Inc. 43 F. 117 127 (1946) ; in the Close of a tmvel agent who booked transporta- 780-018--60-- 1158 FEDERAL TRADE COMMISSIO DECISIO::S Opinion G3 IT.

tian, hotel accommodations and provided tourist services Oentury Tm,' el Service, Inc. 43 F. C. 212 (1946); a cooperative marketing association Florida; Oit"18 ilfutual 53 F. C. 973, 1006-1007 (1957) ; and to complete a selection, which is by no means intended to be all inclusive, a chain of dancing schools that sold lessons Arthur ilful'' ay, Inc. 57 F. C. 306 (1960).

,Ve only find it necessary to say at this time that when the substnntive componcnts of a vio1ntion of the Federal Trade Commission Act. are established before this COllllnissioll, re.spondents will not succeed in exculpating themselves by the simple expedient of attaching SOlne particular label to their activities. Turning to the initial decision, the complaint was, as we already h(1.-8 noted, di rnissed by the hearing examiner. The initial decision is quite clear in its findings that the respondents arc in violation or Section 5 and that we have jurisdiction; however, the hearing examiner finds that the respondents ' practices are de minirnis and that there is no present public interest i-a jllstify an order against them. The maxim De Jlinimis Non O",.at Lex as developed in the English common law and in our own jurisprudence has come to mean the Jaw does not concern itself ,,-ith trifles; that an injury is ,,,orthy or so little consideration That no action will lie; that an irregularity or infraction is so minor that the law will ta,ke no notice of it. Broom Legal :\Iaxims 100 (Byrne Ed. 1924); 1 Blackstone, Commentaries 1059 ( Jones Ed. 1916).

As we have reviewed this record of over 1800 pages of testimony with its documentation of exhibits compiled in hearings held in three states, one c.cannot fail to get the impression that the activities or Gac1get-of-the-:\Ionth Club were typified by deception, half-truths innm'-do, and unmistakable misrepresentation. J\iany of its members were led to believe that they could achieve riches from their invcntions if only they would trust to G:\iC. Many of these people expenr1ed substantial amounts of money only to incur disappointment and disillusionment as a reward.

The hearing examiner relies on Federal Trade Com.mission IOes"e1' 280 u.S. 19 (1929), as authority for his finding that there is fL lack of public interest. That case involved a controversy between h\o individuals as to who had the right to use a particular trade name; no greater public. interest 'vas involved than the possible confusion that might result from dealing with one firm when the business was intended to be given to the other. fr. Justice Brandeis saw this as essentially a determination of private.e rights commenting, "the mere fact that it is to the interest of the comp. .

GADGET OF-THE-MONTH CLUB, INC., ET AL. 1159 1138 Opinion mllnity that private rights shall be respected is not enough to support a finding of public interest." 280 U.S. at 28. Here we are not concerned with any two individuals, but with the entire public to whom GAlC' s representations appeal; thus Klesner is not controlling. There can be no question that a proceeding is in the public interest where that public may wee have had nothing to do with the respondents jf only they had not been deceived by their misrepresent.ations. , Federal Trade Commission v. Royal Aliling Co. 288 U.S. 212 217 (1933). Activities permeated with fraud and deception are exactly those that fall within the ambit of our responsibility. Consolida.led Booh' Publish",' v. Federal Trade Commission 53 F. 2d 942, 945 (7th Cir. 1031), oert. denied 286 U.S. 553 (1932); interrw.ti01al A,rt Co. v. Federal Trade Commissum 109 F. 2d 393, 397 (7th Cir. 1940), oert. denied 310 U.S. 632 (1940). As additional indicia of the lack of public interest, the hearing examiner points out that GJ\1C has experienced declining revenues that tho number of its members has fallen off and it cannot be considered a financial success. The Federal Trade Commission Act cannot be administered on a balance sheet bases. The respondent whose iJ1legal activities result in great financial gain is no more in violation of the, law than one whose perpetration of deceptive practices does not bring him as lucrative a reward.

What is in the public interest under the Act. is in t.he final analysis for us to determine. Fed"ral Trade Comrnv,sion v. l:Oes'Mr 280 U. 28 (1929). Ve cannot agree that the respondents' activities here were de minind-,. Cf. Balwwin Brarelet COTp. Docket. No. 8316 1 (October 2, 1962). To do so in the face of the Club's customer Jist. comprised of well over 200 names and tl16 Club' s financial reeords shmving receipts in 1957 and 1958 in the neighborhood of $20 000, would be to turn a blind eye to the statutory responsibility delegated to us by Congress. Of. Exposition Press, Inc. v. Ferkral T,'ade C011111';8io11 295 F. 2d 869 , 873 (2d Cir. 1961). 'Ve are informed of the death of the respondent Don L. Davis which occurred subsequent to the date of tbe handing down of the initial decision but prior to the date that this case was submitted to t.he Commission. V e are not of the opinion that this factor requires us to dismiss this complaint. 1-lis death by no means destroys the viability of the corpontte respondent.. vVe have no way of knowing ,vhether Gl\IC will continue its operations. Mrs. Davis, subsequent to t be death of her husband, filed a brief, as indeed she had every right to do, seeking to sustain the initial decision dismissing the complaint. '''''e cannot characterize this as an empty gesture having no significance because the Club has now ceased to exist. 1160 FEDERAL TRADE COr.:1\fISSION DECISIONS Dissenting Opinion 63 F.

Examining the corporate structure of GMC we note that Mrs. Davis owns the controlling shares of stock and always did, her late husband having owned only a minority stock interest. She also testified she worked for GMC on a full-time basis and that she held the offce of Secretary of the corporation. However, in signng her brief, Mrs. Davis indicates she is now President of GMC, thus replacing her husband in that capacity.

In the impersonal way the Club functioned by correspondence, it would be an easy matter to keep operating. In fact, if past procedures were followed, the signature of Don L. Davis would continue to appear on those letters which previously carried his signature. To predict Gadget-of-the- forth Club is now out of business in the face of all the indications we have just pointed out to the contrary requires an omniscience of which we are not possessed. It is unnecessary for us to reach the question of whether GMC was engaged in competition with other organizations. Since the 1Vheeler- Lea Act, 52 Stat. 111 (1938), amended Section 5 of the Federal Trade Commission Act, whether or not such competition exists is irrelevant. Wolf v. Federal Trade Oom.mission 135 F. 2d 564, 567 (7th Cir. ID4- :1) ; Parke, A'Ustin c6 Lipsr-omb v. Fedei' aZ TiYde (' Oiimission 142 F. 2d 437, 441 (2d Cir. 1944), oe1't. denied 323 U. S. 753 (1944); Progress Tailoring 00. v. Federal Trade Oommission, 153 F. 2d 103, 105 (7th Cir. 1946).

The hearing examiner, in determining that the allegations of the complaint had been completely established, made findings of fact which are not suffcient in the view that we take of this case. This, of course, is due to his conclusion that the complaint should be dismissed. Therefore, the initial decision will be set aside and we are entering our own findings of fact, conclusions and order to cease and desist in conformity with our opinion.

Commissioner Elman dissents.

DISSENTING QpINIOX JULY 31 , 1963 By EL1!IAN C01n1nissioner:

The nub or this case, as I see it, is not whether.r the respondents are guilty or innocent or the violations charged, or whether a reviewing court would uphold the C01TIJTIisslon s determination that jssuance of the complaint was in the public interest, as required by Section 5 (b) or whether the principleof the Federal Trade Commission Act, 1ninimis non C'lrat lex is controlling here, but, rather, whether any GADGET-OF-THE-:MONTH CLUB , INC. , ET AL. 1161 1138 Dissenting Opinion useful purpose would be served by the entry of an order. The Com mission ought not issue orders to cease and desist in cases which have, practically speaking, become moot. On the contrary, the Commission, in its dual role as complainant and adjudicator, can and should terminate a proceeding whenever it appears that an order would only be a paper statistic. See, e.g. Argon8 Oamerl1, Ino. C. 405; Bell Howell 00. 54 F. C. 108. The only persons active in the mana.gement of the Gadget-of-the Month Club (GMC) have been Don L. Davis and his wife, Mary Lou Mofftt Davis. Mr. Davis' role in GMC was described by the hearing examiner as follows: "His past activities had been manifold, some political, but most of them utterly indispensable to tbe development and maintenance of the business of GMC. Throughout the history of GMC Davis has always been the driving force of the organization, but it was clearly evident at the hearings that while he stil was an ambitious dreamer and planner, he had lost all physical capacity nd reserve menta.l force to carryon his activities, such as extensive travel, public speaking, aud coufercnces with manufacturers and other business people, to say nothing of the strain of dealing with the fixations and other peculiarities usually found in would-be inventors whom he would necessarily have to interview. ' Elsewhere the hearing examiner noted: "Respondent Don L. Davis, who has at times referred to himself as 'Lucky' Davis or ' Mr. Gadget', has, among lnany other ac6vities, been the promoter of the corporation and its child contact with those members of the public who dealt with the corporation as members, clients, or otherwise. :Mrs. Davis, to be sure, owned all but one share of the stock of GMC, but her role, in the hearing examiner s view, was "as the clerical and offce worker of this husband-and-wife team, keeping the records, conducting the correspondence, and the like.

In short, according to the uncontradicted conclusion of the hearing examiner, Mr. Davis was the indispensable member of the husbandand.wife team constituting GMC-and he had become physically incapadtated. The hearing examiner s prescience regarding :Mr. Davis' health was confirmed by the latter s death three months after thc initial decision. The possibility that, notwithstanding Mr. Davis death, GMC remains a viable entity capable of engaging in the practices which gave rise to the complaint in this case, seems to me most remote. In this connection, it is noteworthy that due to 111'. Davis increasing il health, membership in GMC dropped between 1956 and 1958 to the "vanishing point", in the words of the hearing examiner who predicted that Mr. Davis' incapacity would " shortly result in a 1162 FEDERAL TRADE COM:'nSSIOK DECISIONS Final Order G3 F.

complete cessation of all activities of GMC." The income of GMC had by 1958 shrunk to the point at which "it could no longer be considered substantial by any standard " and so far as appears GMC presently holds no interests in valuable inventions. But the question of G 1C' s present situation need not be left to conjecture. In my opinion, the Commission, rather than entering a fial order at this time, should (1) request Mrs. Davis to submit an affdavit describing the extent of GJIIC's current activities, and her intentions for the future, and (2) if it appears from this affdayit that GMC is now and is likely to remain defunct, direct the Commission Los Angeles Field Offce to verify the facts set out in the affda..it. The course I suggest would not run afoul of the requirement of Section 7 (d) of the Administratiyc Procedure Act that the agency, in making its decision, not go outside the record. The, additional information sought pertains not to the adjudication of respondents' alleged violations, but to the proper exercise of the discretion of the Commission, in light of the facts bearing on thc publjc interest. lo continue or terminate the proceerling.

FINAL ORDER KOVEThIBER 6 , 1963 The Comnlission, on July 31 , 1968, having issued and then,after served on the respondents its order affording the respondents an opport,nnity to fie objections to a final order proposed by the Commission; and The respondents, on September 16 , 1963 , having filed exceptions to thc said proposed order; and The Commission having determined that the exc ptions flied by the respondents should be disa1Jowed and that its proposed order should be adopted as the final order of the Commission: It is ordered That the following order to ce,ase and desist be adopted as the fial order of the Commission: It i8 ordered That respondents, Gadget-of-thc-C\lonth Club, Inc. a corporation, ano. its offcers, and :Mary Lou 1\lof-ltt Davis: individually, and as an offcer of said corporation, and said respondents representatives, agents, or employees, directly or through any corporate or other device, in connection with the offering for sale, or the sale 01 memberships in or subscriptions to any organization or service for inventors; or in soliciting for the sale, or the sale of memberships in or subscriptions to any organization or service for inventors; or in soliciting for the sale of services in connection with the patenting or marketing of inventions, in commerce, as "com- GADGET-OF-THE-:MONTH CLUB , INC., ET AL. 1163 113S Final Order merce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Using fictitious names, job titles, or organizational designatjons or descriptions in connection with their business; or otherwise misrepresenting, directly or by implication, the nature or size of the corporation and the benefits to be derived from membership therein.

2. Representing, directly or by implication: a. That they have been successful in achieving commercial exploitation of ideas or inventions submitted by their customers; or that they maintain close relationships or contacts with 111anufacturers or other prospective licensees or such ideas or inventions.

b. That an impartial or expert individual or group objectively evaluates and approves an idea or invention submitted by a customm' before l' respondents wil take steps to get patent protection thereon or to commercialize or market it; or that acceptance or approval wil result only where there has been an expert or informed determination that such invention or idea is patentable or possesses a potential ror commercial exploitation.

c. That they derray 50 percent, or any other m110ullt not in accord with the facts, of the costs of patenting an idea or invention submitted by a member.

d. That they maintain branches in other cities, a patent department in I'I ashington, D. , tllat the corporale respondent corporation has numerous operating departments or divisions or is greater in size and organization Ul actually is.

e. That they wil pay for the advertising, or bear the costs of promotion, necessary to achieve c01nmercial exploi tation of accepted inventions or that publicity and promotional services il1 be performed to any extent not in accord with the facts.

f. That any group, organization, or association or inven. tors, manufacturers, or others, has recognized respondents as expert or successful in the field of commercializing inventions, or that any such will Record privileges or prestige to respondents' customers, or may be instrmnental in achieving commercial exploitation of inventions or ideas of respondents; customers.

It;" fwrther ordered That t.he complaint be, and it hereby is, dismissed as to deceased respondent Don L. Davis. Complaint 63 F.

It is further ordered That the initial decision be, and it hereby is set aside.

It is further ordered That the respondents, Gadget-of-the-:Month- Club, Inc., and Mary Lou l10fftt Davis, shall within sixty (60) days after service upon them of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which they have complied with the order to cease and desist as set forth herein.

By the Commission, Commissioner Elman diss mting.