Great Western Distributing Company

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b, THE MA TO'R OF GREAT WESTERK DISTRIBl:TING COMPANY ET AL. ORDER OPIKIOXS ETC. , IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRDE COMJ-IISSION ACT Docket 8525. Complaint, Aug. 10, 1962-Decision, Dec. , 1963 Order requiring Lewiston, Idaho, distributors of punchboards and a variety or items of general merchandise to jobbers and retail dealers for resale, to cease selling puncbboards or other devices, either with or without mer- 2170 EDERAL TRADE COMMISSION DECISIO Complaint 031'. chandise, ,,,bich are de.:signed to be used in ultimate sale of the merchandise by means of a lottery scheme.

CO;\IPLAINT 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 Great 'Vest ern , inclivicl-Distributing Company, a corporation, and Earl C. .Jasper ually flnclns an offcer of said corporation, and Ec1"\varc1 .T. Carr, an individual, hereina,after referred to as respondents, hn\"e violated the provisions of the. said Act, and it appearing to the Commission that a proceeding by it ill respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Great 'Vest ern Distributing Compa.ny is a corporation orgnnizec1, existing and doing business under and by virtue of the Ja,,-s of the State of Idaho, with its offce and principal place of business located at. 125 - 22nd Street orjh, Lewiston Idaho.

Respondent En.rl C. .Jasper is an individllaL find is president of the corporate respondent. lie formulates, directs, and controls the acts and practices of the corporate respondent, including the acts and practices hereinnJteT set forth. His business address is the same a.s that of t.he corporate respondent. Respondent Edward T. Carr is an individual, and is an agent engaged in making sales for the account of the corpor:lte respondent and also for his 'O,,-n account. His business address is the same as that of the corporate respondent.

Alj of the aforementioned respondents cooperate and act together in carrying ant the acts and practices hereinaHer referred to. \R. 2. Respondents ate now. nun for some time last past, have been, engaged in the offering for sale sale, and distribution of various eledces including those commonly known as pnnchboards; an(l of a variety of items of general merchandise to jobbers, and to retail dealers, for re,sa,le and distribution to members of the general public. -\R. 3. Respondents, in the course and conduct of their b11siness nOlY cause, rmc1 for some time last past, have causccL said elm-ices and mere1lfmclise" wIlen sold, to be shipped and transported from tllcir place of business in the State of Idaho to purchfLsers and distributors thereof Jocated in various other States of the United States. Respondents maint.ain, a.nd at all til!lCS mentioned herein have mflin t.a.ined, a substantial course of trade in said devices and merchandise GREAT WESTERN D1S'rRIBUT1NG CO. ET AL. 2171 2169 Complaint In commerce, as "commerce" is defined in the Federal Trade Commission Act.

PAR. 4. In the course and conduct of their business as hereinabove described, respondents sell and distribute, 'and have sold and distributed, to said jobbers and retail dealers, punchboards so prepared and arranged as to involve games of chance, gift enterprises or lottery schemes when used in selling a,nd distributing merchandise to members of the general public. Respondents sell and distribute, and have sold and distributed, various kinds of punchboards, but all of said devices involve the same chance or lottery features when used connection with the sale or distribution of merchandise and vary only in detail. Many of respondents' said puuchboards have blank spaces on the face thereof so that respondents or their customers may place instructions or legends thereon, or attach "flares" thereto, that explain the manner in which said devices arc to be used, or may be used, in t.he sale and distribution of various specified articles of merchandise to the general public. -Csnally the winning numbers and the prizes to be awarded ate set. forth on saicllegends or flares. Said devices are used by said jobbers and retail dealers in distributing merchandise in the following manner:

The priess of the punches on said punchboards vary in accordance with the individual device. ,Vhen a punch is made a printed slip is separated from the. pllllchboard and a number is disclosed. The numbers arc effectively c.onc.ealed from the general public until a se.lection has been made, a, punch completed. Certa.in designa.ted numbers entitle the Cllstomer to a specified article of merchandisc. Persons sec.nring lucky or "inning numbers reeel,Tc sneh articles of merchandise without additional cost. and therefore at prices which are lower than the normal retail price of said nrticJes of merchandise. Persons who do not secure sneh luc.ky 01' ,yinning numbers receive nothing for their money other than the privilege of making a punch from said bonrcl. The various flrticlcs of merchandise used in combination with said punc.hboards are thus sold 01' distributed to members of the genernl public wholly by lot or chance.

Tho nse to oe made of such punc.hboard devices, and the manner in which they a.rc used by respondents' emitomors, is in combination with such mercha,ndise so as to enable said customers to sen or distribute snic1 rncrchandise by means of lot or cl1fnce as herein alleged. PAIL 5. JIany persons, firms and corporations engaged in the sale and dist.ribution of merchandise to the general public, pack and assemble, or luwe packed and assemble, , various articles of merchan- COIDI)laint 63 F. T. dise which they secure from respondents and from others, into assortments comprised of such articles together with punchboards purchased from respondents, or from customers of respondents. Many of said retail dealers have exposed the same to the purchasing public and have sold or distributed said articles of merchandise by means of said pnnchboards to members of the general public in thc manner hereinabove described. Because of the element of chance involved in connection with the sale and distribution of said merchandise by means of said punchboards, many members of the general public have been induced to trade or deal with retail dealers sellng or distributing said merchandise by means thereof. As a result thereof many of said retail dealers have been induced to deal directly with respondents, or with jobbers who sell and distribnte said merchandise together with respondents ' said devices.

PAR. 6. The sale and distributon of merchandise to the general public through the use of, or by means of, such devices in the manner above alleged involves a game of chance or the sale of a chance to procure articles of merchandise at prices lower than the normal retail price thereof and teaches and encourages gambling among members of the public, all to the injury of the public. Thc sale of said dcviees for use in the sale and distribution of said merchandise, and the sale of merchandise by and through the use thereof, are practices which are contrary to an established public policy of the Government of the "Cnited States and constitute unfair acts and practices in said commerce.

The sale and distribution of said punehboard devices by respondents, as hereinabove alleged, supplies to and places in the hands of others the means of conducting lotteries, games of chance, or gift enterprises in the sale and distribution of said merchandise. The respondents thus supply to, and place in the hands of, said persons firms, and corporations, the means of, and instrumentalities for engaging in unfair methods of competition and unfair acts and practices within the intent and meaning of the Federal Trade Commission Aet. PAR. 7. The aforesaid acts and practices of respondents, as hereinabove alleged, are all to the prejudice and injury of the public and constitute unfair acts and practices in commerce in violation of Seetion 5 of the Federal Trade Commission Act. MT. John J. McNally for the Commission. Mr. Paula. Keeton Lcwiston, Idaho, for the respondents. GREAT WESTERN DISTRIBUTING CO. ET AL. 2173 2169 Initial Decision HEARING EXAMINER INIT DECISION BY IV,LMER L. TINLEY, JANUARY 31 , 1963 On August 10, 1962, the Commission issued and subsequently served its complaint, charging the respondents named in the caption hereof with violation of Section 5 of the Federal Trade Commission Act through the sale of "punchboards so prepared and arranged as to involve games of chanee, gift enterprises or lottery schemes when used in selling and distributing merchandise to members of the general public. " The answer of the respondents denied the essential charges of the complaint.

An informal prehearing conference was held in IVashington, D.C., on September 25, 1962, and hearings in support of and in opposition to the complaint were held in Lewiston, Idaho, on November 6 and 1962. The transcript of testimony consists of 180 pages, and 27 Commission exhibits were received in evidence. One exhibit offered by respondents was rejected. Both sides rested at the conclusion of the hearings on November 7, 1962, and proposals were thereafter filed within the time allowed.

After having carefn11y considered the entire record in this proceeding and the proposals and contentions of the parties, the heating examiner issues this initial decision. Findings proposed by the parties, which are not adopted herein either in the form proposed or in substance, are rejected as not being supported by the record or as involving immaterial matters.

FINDlKGS OF FACT 1. Respondent Great IVestern Distributing Company, sometimes hereina.ftcr referred to as Great \Vestern, is a corporation organized existing and doing business under and by virtue of the laws of the State of Idaho, with its offce rmd principal place of business located at 125 - 22nd Street North, Lewiston, Idaho. 2. Respondent Earl C. Jasper, sometimes hereinafter referred to as respondent Jasper, is an individual, and is president of the corporate respondent. He formulates, directs, and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. His business address is the same as that of the corporate respondent. From 1950 until the incorporation of Great "\Vestern in 1960, he operated essentially the same business under the same name as a wholly owned unincorporated enterprise. Initial D ision 63 ;F. 3. Respondent Edward J. Carr, sometimes hereinafter referred to as respondent Carr, is an individual, and is an agent engaged in making sales for the account of the corporate respondent. He is also engaged in buying and selling for his own account. His business address is the same as that of the corporate respondent. 4. Great "'Vestern is engaged ill a general wholesale business. It issues a yearly catalog, travels three salesmen, and sells to approximate.!:y 2 000 accounts on a wholesa.le basis. :Many of these accounts arb sold to through its salesmen and many are sold to directly as house accounts. It sells a wiele variety of merchandise., including hardware, sporting goods, w,ltches, silverware, cameras: shavers, luggage novelt.ies, etc., including many nationally advertised brands. This mereluludiso is regularly shipped by it from its place of business in Lewiston, Idaho, to its customers located in the areas in which it operates, including the States of "'Vashington, Oregon, Utah, vVyoming, Montana, and Idaho.

5. In the course and conduct of its business, Great 'Vestern sells and distributes, and has sold and distributed, to jobbers and retail dealers, various devices, including those commonly known as punchboards and flares, so prepared and arranged as to involve games of chance gift enterprises, or lottery sC)1emes when llsed in selling and elis. tributing merchandise to members of the general public. It sells and distributes, and has sold and distributed, various kinds of punchbmnds and fiaTes, but all of said devices involve the same chance or lottery features .when used in connection with the sale or distribution of merchandise, and vary only in detail.

6. "Iany of its said punchbonrds J1ave blank spaces on the face thereof so that said respondent or its customers may place instructions or legends thereon or atta,ch "flares" thereto that cxplain the manner in which said devices arc to be used or may be used, in the sa.le and distribution of various specified articles of merchandise to tho general public. -c usually the winning numbers and the prizes to bo awarded are set forth on said legends or flares. Said respondent also sells, or supplies without additional charge, fla.res for use in connection with punchboards supplied by it or by others, or for use in connection with other devices, to implemcnt or fa.cilitate the sale or distribution of merchandise by lot or chance. 7. As the punchboards and flares are used by said jobbers and retail dealers in distribut ing merchandise, the prices of the punches vary in accordance with the individual device. 'Vhen a punch is made, a printed slip is separated from the punch board and a number is disclosed. The numbers arc effectively concealed until a. selection of the GREAT "'ESTERN DISTRIBUTI T!l CO. ET AL. 2175 2169 Inital Decision slip to be punched has been made and the punch completed. Certain numbers entit.e the customer to an article of merchandise designated on the punch board or all the flare. Persons securing lucky or winning numbers receive such a.articles of merchandise without additional cost and at prices, which are substantially lower than the normal retail price of said articles of merchandise. Persons who do not secure such lucky or winning numbers receive not.hing for their money other than the privilege of making a punch from said board. The vflrious articles of merchandise used in combination with said punch boards or fbres are thus sold or distributed to members of the general public who11)' by lot or chance.

8. The number of punches on punchboarc1s sold by Great .Western may vary widely, ancllarge punchboards may bp, llsed in combination with relatively small boards. In such combination, the punch is made in the first instance on thc small or "counter board " and a person receiving a winning number on the counter board thereby wins a punch on the larger or "master board" for a chance to win a relatively valuable item of merchandise.

D, The merchandise assortments distributed by said punchboards may also vary widely, both in the number of items to be distributed and in the value of each item. These assortments of merchandise are a.rranged 01' made up in advance by Great \Vestern, or they may be rnads up in particular combinations requested by specific customers. In either event, they are sold as "deals" or a,s combinations of punchboards or flares and merchandise typically involving the essential features hereinabove described.

10. In some instances, Great '\Vestern sells punchboarc1s to its customers who do not at that time buy merchandise "deals " or suffcient men ha,ndise for distribution by the punchboards so purchased. It is dea.r, hO\1"ever, tha.t it sells or supplies punchboards and flares either separaiely or in combination with merchandise, for the purpose of st.imulating its merchandise sa.les. Respondent .Jasper testified that "The only reason we sell these flares is for t.he benefit \ye get out of the merchandise sales" (Tr. 166). He testified that it is competitively necessary for his company to supply punchboards and fla.,res in order to sen merchandise for distribution by means of these devices, and in order to be competitive in selling merchandise unrelated to flares and pllnchboards (Tr. 166-7). 11. Respondent Carr operates as a salesman for and agent of Great '\Vestern in selling its merchandise in the State of )tJontana and, to a limited extent, in the eastern section of the State of \Vashington. As a salesman for Great \Vestern, his sales in l\fontana amount to 2176 FEDERAL TRADE COMMISSION DECISIQKS Initial Decision 63 P.

about $40 000 per year, to approximately fifty accounts, most of which is shipped from Great 'Western s place of business in Lewiston, Idaho, to the Montana accounts.

12. Substantially all of respondent Carr s sales to the "fontana accounts for Great Western consist of merchandise assortments or deals" for sale or distribution in connection with punchboards. Most of those accounts have their own boards, and he sells relatively few boards to them; but in about 40% of his sales to those accounts, he supplies flares for attachment to punchboards, as hereinabove deseribed, which flares define and explain the particular lottery plan under which the merchandise is distributed. 13. In addition to his employment as a salesman for Great "\Vestern, which is only for limited periods of time during the year, respondent Carr also buys and sells for his own account under the name Ed Carr Sales." His sales in this operation are confined to the eastern part of the State of Washington. They consist almost entirely of punchboards and flares sold in combination with merchandise, as hereinabove described, and he makes an average of approximately fifteen such combination sales per month. He purchases his punchboards and 95 % of his merchandise from Great ' Western. 14. The punch boards and merchandise obtained for his own account by respondent Carr from Great ,V estern are sold to hinl on consignment and picked up by him in his automobile at the warehouse of Great 'Western in Lewiston, Idaho. He then travels a limited route in the eastern section of the State of W'ashington where he regularly calls upon about twenty-four customers. lipon his return to Lewiston, Idaho, after completing his sales route in "\'1 ashington, he pays Great "\'1 estern for the merchandise and boards w hieh he has sold and returns the unsold portion to Great Western and receives credit for it. :\fost of the deliveries of punchboards and merchandise sold by him on his o\vn account are made from his automobile and he makes the sales, but in about five or six instances per month shipments are made on his orders by Great "\Vestern from its warehouse in Lewiston Idaho.

15. Great 'Western and respondent Jasper are well acquainted with the operations of respondent Carr, and actively participate in assisting and furthering them. For a11 practical purposes, the sales of respondent Carr, both for his Q"vn account and as a salesman for Great "\'1 estern, constitute an extension of the business of Great "\'1 estern, and are wholly consistent therewith. Accordingly, all of the respondents cooperate and act together in connection with sales made by respondent Carr for his own account and as a salesman for and agent of Great Western.

, .

GREAT WESTERN DISTRIBUTING CO. ET AL. 2177 2169 Initial Deci ion 16. Great .Western s total annual sales amount to approximately $500 000. Its sales of punchboards, punehboards in combination with merchandise, and merchandise in combination with flares, excluding its sales to respondent Carr, amount to approximately $40 000 per year; and its sales to respondent Carr for his own account amount to' approximately $10 000 per year. Its sales of punchboards and flares separately or in combination with Inerchandise as hereinabove described are shipped from its place of business in Lewiston, Idaho, to customers located in the States of .Washington, Oregon and Montana. 17. Shipments by Great .Western upon the orders of respondent Carr of punchboards and merchandise from its warehouse in Lewiston, Idaho, to customers of respondent Carr in the State of .Washington constitute interstate transactions. The consignment sales by Great -VVcstern to respondent Carr, and his sales and deliveries to customers in \Vashington, are also in the flow of interstate commerce, involving, as they do: the delivery of merchandise to respondent Carr in Lewiston, Idaho; its transportation by hi111 into V\T ashington, where part of it is sold and delivered to customers whom he regularly serves; return of the remainder to Great IV estern in Lewiston, Idaho; and payment to Great IV estern only for that part sold in Washington. , a 18. Respondents, accordingly, maintain, and have maintained substantial course of trade in punchboards and flares, separately or in COll1-in combination with merchandise, as hereinabove described, merce, as "commerce" is defined in the Federal Trade Commission Act. Great W estern and respondent Jasper engage, and have engaged, in such C0111llerCe in connection with sales to purchasers located in the States of .Washington, Oregon and Montana; and respondent trr engages, and has engaged, in such commerce in connection with sales to purehasers located in the States of Washington and Montana. Great IV estern also sens and ships merchandise to cnstomcrs located in the States of litah Wyoming and Idaho, but there is no evidence that it sens punchboards or flares, separately or in combination with merchandise, to customers located in those States except certain sales formerly made in Utah, to which reference is made below.

19. :llanO' persons, firms and corporations located in the States of IVashington, Oregon and Montana, and engaged in the sale and distribution of merchandise to the general public as retail dealers, pack and assemble, or have packed and assembled, various articles of mercha,ndise which they secure from respondents and from others, into assortmcnts comprised of such articles, together with punchboards and flares purchased from respondents, or from customers of respondents. Many of said retail dealers have exposed the same to the pur- 2178 FEDERAL TRADE COM:\lISSrON DECISIONS Initial Decision 63 F.

chasing public and have sold or distributed said articles of merchandise. by means of said punehboitrds flncl flares to members of the general public ill the manner hereinabove described. Because of the element of chance involved in connection with the sale and distribution of said merchandise by means of said punchboards a.nd flares, many members of the general public have been induced to trade or deal with rel.ail dealers selling or distributing said merchandise by means thereof. As a result thereof, many of said retail dealers have been induced to deal directly with respondents, or with jobbers who sell and distribute said merchandise together with respondents: said devices. 20. Prior to the issuance of the complaint in this matter, Great Western also made substantial sales in the State of Idaho of merchandise "deals :: which included flares and tickets for use in connection with games of skill. ",Yhcn the complaint in this matter was issued, the company discontinued sales of such merchandise deals in IcJaho become of the possibility that they may constitute a violation of la,,- 21. In these deals, the assortment of merchandise sold by Great ,\Testern was usually mounted upon a display board, and was sold in combination w.ith a fla.re and a supply of tickets. The flare. listed the winning number for each item of merchandise, and t.he tickets typically 2 000, were numbered consecutively. These deals were ordinarily purchased and used by operators of games of skill, such as bowling, shllileboard, etc. Their cust.omers participated in the game at the regular price, and those who ma.de a suffciently high score were entitled to draw fI'Olll a box, glass jar, spindle, or other container, a ticket or coupon so folded or sealed as to conceal the number on the inside. If, when t.he ticket was opened: the number corresponded ,with a number all t.he flare identifying an item of merchandise on the display board, the holder of the ticket was entitled to receive t.hat item without additional cost. The high score affording the right to draw a number was, therefore, deternlined by the customer s skill in the game, and thereafter his receiving or not receiving an item of merchandise was determined wholly by chanCB. 22. It seems clear that part of the consideration which induced the cust.omer to pay for the privilege of playing the game of skill was the opport.unity to obtain as a prize an item of merchandise by lot or chanee if he made a suffciently high score. It is thus apparent that these merchandise deals, including flares and numbered tickets. also constituted devices for distributing merchandise by lot or ance. There js hm\ eyer, no evidence of sales by respondents of such merchandi,e deals to customers located in States other than Idaho; and GREAT 'VEs'rERK Distributing CO, ET AL. 2179 2160 Initial Decision accordingly there is no evidence of sales of said devices by respond cnts in interest-ate commerce.

CONCLUSION 1. The sale. and distribution of merchandise to the general public through the use of, or by means of, punchboards and flares in the manner above described involves a game of chance or the sale of a chance to procure articles of merchandise at prices lower than the normal retail prices thereof, and teaches and encourages gambling among members of the public, a11 to the injury of the public. The sale of said Pllllehboards and flares for use in the sale and distribution of said merchandise, and the sale of merchandise by ,and through the use thereof, are practices which ate contrary to an established public policy of the Government of the United SLates and constitute unfair acts and practices in said commerce.

2. The sale and distribution of said punchboards and Hares by respondents, as hereinabove described, supplies to and places in the hands of ot hcrs he means 01 conducting lotteries, games of chance or gift enterprises in the sale and distribution of said meroha-nelise. The respondents thus supply to, mlCl place in the hands of, said persons, firms, and corporations, Lhe means of, and instrumentalities for engaging in unfair met.hods of competition and unfair acts and practices within the intent and meaning of the Federal Trade Commission Act.

3. Hespondents' defense is predicated upon the contention that. their operations in the State of "\Vashington arc sanctioned by the laws of that State and by the regulations of the communities in which they have operated. Hespondents contend that in such eirculTstances any action by the Federal Trade Commission to bar thc practice hero challenged is not justified. They argue that any such action interferes with local and intrastate authority, and that: The manufacturer of punchboards is not chargeable with unfair trade practices where their use in given areas is valid in law, since all purveyors in the area on c:compliance with local laws, may use such boards. lhe Commission may not bar the transportation of punchboards merely because such action would be beneficial to the public.

4. This defense is not specifically made with respect to respondents ' operations in 1:ontana and Oregon, and the record is silent with respect to the legality of such operations in those States. Presumably, hmvever, respondents urge the same principle as a bar to the Commis. sian s jurisdiction over any of their interstate sales of lottery devices which are designed to be used in the sale of merchandise. In any Initiai Dedsion 63 F.

event, the lack of affrmative evidence on tills point with respect to respondents' sales in Montana and Oregon is not of consequence in view of the disposition which must necessarily be made of respondents' contention.

5. The only case cited by respondents involving a proceeding by the Federal Trade Commission is J. O. 11artin Oorporation, et al v. FTO 7 Cir., 242 F. 2d 530 (1957). That authority, however, affords no support for the contention upon which respondents defend their position. The Court held in that case that the device there involved did not constitute a lottery scheme because it diclnot incorporate the element of prize-the opportunity to get something for nothing. There can be no question that the devices here involved incorporate the e1ement of prize and constitute lottery schemes, and the respondents do not contend otherwise.

6. In the 11 artin case, the Court did not consider the question of the Federal Trade Commission s jurisdiction of a lottery scheme operated in accordance with local regulations. In 1960, however, in the same Circuit, the Court considered and decided that question adversely to the present contention of these respondents. In Peerless P,'oducts, Inc. , et al v. FTO 7 Cir. , 284 F. 2d 825 (1960), cert. denied 365 U.S. 843, the Court stated, in pertinent part: Petitioners, in addition, contend that local policy sanctioning the use of merchandise boards, evidenced here by certain municipal ordinances in the State of Washington, limits the power of the Commission over unfair or deceptive acts of competition in interstate commerce. 'Ve disagree. Unless Congress specifically withdraw,vs authority in particular areas, the Commission upon its general grant of authority under 15 V. A. 45(a) (6), can restrain unfair business practices in interstate commerce even if the activities or industries have been the subject of legislation by a state or even if the intrastate conduct is authorized by state law. Royal Oil Corporate-ion 4 Gir. , 262 F.2d 741, 743 I6 S. & D. 477) (1959). Lichtenstein Federal Trade Commission 9 Gir., 194 F.2d 607 609-10 (5 S. & D. 6771 (1952), cert. denied, 344 U. S. 819. 1n this case there is no congressionallimitation on the Commission s use of its full power to order petitioners to cease shipping in commerce punchboards designed for distribution of merchandise when such shipment is so clearly a violation of federal policy as indicated in Surf Sales, supra. A local ordinance cannot here circumscribe the plenary power granted to the Commission to police unfair and deceptive practices in interstate commerce.

Counsel have cited, and the hearing examiner has found, no contrary authority.

7. Accordingly, it is eonc1uded that the aforesaid acts and practices of respondents, as hereinabove found, are all to the prejudice and injury of the public, and constitute unfair acts and practices in commerce in violation of the Federal Trade Commission Act. GREAT 'WESTERN DISTRIBVTING CO. ET AL. 2181 2169 Opinion ORDER It is ordered That the respondents Great 'Western Distributing Company, a corporation, and its offcers, and Earl C. Jasper, individually and as an offcer of said corporation, and Edward J. Carr, individually, and respondents' agents, representatives, and employees directly or through any corporate or other device, do forthwith cease and desist from:

Selling or distributing in commerce, as "commerce" is defined in the Federal Trade Commission Act, punchboards or other devices, either with merchandise or separately, which are designed or intended to be used in the sale or distribution of merchandise to the public by means of a game of chance, gift enterprise, or lottery scheme.

OPINION OF THE CO:MMISSION DECEMBER 31 , 1963 By MAcI"'ITE Commissioner:

The respondents herein are charged with violation of Section 5 of the Federal Trade Commission Act through the sale of devices so arranged as to involve games of chance, gift enterprises or lottery schemes in the sale and distribution of merchandise to the general public. The hearing examiner, at the eone1usion of the hearings issued his initial decision and order sustaining the allegations of the complaint and the matter is now before the Commission on respondents appeal from his deeision.

Respondents in their exceptions launched a rather broad gauge attack on the initial decision as contrary to both the facts and the law. On oral argument, however, it quickly became apparent that respondents in their appeal do not seriously seek a reversal of the examiner s findings that their distribution of punch boards and related activities violated the law. Rather, they are concerned with the scope and possible construction of the order entered below. Our opinion and order on appeal wi1 be confined to that issue. At the outset, a brief description of respondents and their activities challenged in this proceeding wi1 be helpful in focusing on the problem at hand. The corporate respondent, Great Western Distributing Company, of Lewiston, Idaho, is engaged in a general wholesale business sellng a wide variety of merchandise, ine1nding hardware sporting goods, watches, silverware, cameras, luggage, ete. to "'pproximately 2 000 accounts in the States of Washington, Oregon 780-018-6D-138 , 2182 FEDERAL TH.-DE Child11ISSION DECISIOXS Opinion 83 F.

Utah Wyoming, Montana and Idaho. In addition to its general wholesale business, Great 'Vestern has sold various devices, including punchboarc1s and flares 1 designed to sell merchandise to the general pnblie through games of chanee, gift enterprises, or lottery schemes. R.respondents also furnish assortments of merchandise, which throughout the course of this proceeding have been described as "deals, to customers utilizing punchboarc1s or ot.her gaJnbling devices in the distribution of such products. A "deal", according to Great western s attorney, is a large board upon which respondents mount a wide variety.y of merchandise for display purposes, and we adopt that definition for the purposes of this opinion. Great 'Vestern may sell Plll1chboarc1s and/or flares to customers in conjunction with or without merchandise assortments mounted as deals . Conversely, responc1e,nts may sell "deals" to customers not purchasing punchboarcls or flares from Great Vi estern. In some justa-needs the record shows tllft purcha.sers secure punchbnards from sources other than respondents as a device :to facilitate resale of respondents: me-rchandise; in 'Other cases, respondents assert, their customers merely use the deals purch tised from Great \;Y"'estern QS door prizes or for other purposes not involving the sale or distribution of merchandise within the scope of the C0l11nission s jurisdiction under Section 5 of the Federal Trade Commission Act. The examiner entered the order standard in these cases requiring respondents to refrain from:

Sellng or distributing ill commerce, * * * puncbboards or other devices either with merchandise or separately, which are designed or intended to be used in the sale or distribution of merchandise to tbe public by means of a game of chanee, gift enterprise, or lottery scheme. Respondents object that the prohibition against selling " other deyiees:: which are "designed or intended to be llsed" in the sale or distribu60n of merchandise by games of chance is so broad that they would be inhibited frol1 selling merchandise assortments or "deals for legal purposes, or at least for uses over which the Commission has no jurisdiction merely because the merchandise in question might be distributed or sold in the prohibited manner. They contend their activities win be unduly hampered by uncertainty as to the manner in which the provisions therein will be construed. Respondents have 1 Flares are apparently legends on cardboard describing prizes and winning IIumbers which may be attached to punchlJoards or other gilDlbling devices of a similar nature. II Pages 4 and 5, Oral Argument.

S The Commission does not have jurisdiction over lotteries, as such . and confines Hs regulatory activities to lotteries or other gambling devices llsed in connection with the merchandising of goods. CJ. Lichtenstein, et al v. Federal Trade Commi,qsion, 194 F. 2d 607, 611 (9th Clr. 1952), cert, denied 344 U.S. 819 (1952). GREAT 'Vestern DISTlnBUTISG CO. ET AL, 2183 2160 Opinion expressed the fear that they might innocently sell a merchandise deal in the Bxpectation that. it would be used as a door prize but neverthe- Jess be held in violation of the order should the customer subsequently sell the merchandise assortment in conjunction with it pmlchboard. Respondents apparently are not concerned with the impact of the order insofar as its provisions run against the sale or distribution of 1JlUlChboards or flares. They request, however, modification of the order to exempt those of (their transactions involving solely deals. Fa.filing such exemption, they apparently desire advice as to the manner in which the prohibition -against the sale of "other devices with or without merchandise "designed or intended to be used in the sale or distribuhon of merchandise to the public by means of 'a. game of chance * * *" win be applied to t,their sales of merchandise assort- Juents mounted as deals.

There is at this time no necessity for modifying the terms of the order. However, we arc persuaded that advice as to the manner in which its terms will be construed in connection with Great ",Vestern sales of merchandise deals will facilitflte enforcement of the order by the Commission s staff and compliance by respondents. Our holding herein w111 be limited to that issue.

Uounting merchandise on a. board for display purposes is a neutral device which may be useful in many sales situations not involving the sale or distribution of the goods so mounted by a game of chance or lottery device. In those instances, where the deals on their face indicate no other purpose than display, these devices will not, without more, be const.rued as coming within thc terms of the order s pro hibition. "\Vhcre a deal has obvious utility for legal uses, we will not. hold such a device as inherently designed or intended for the prohibited use, ,dthough it could be employed for ilega! purposes. In t.his connection, we note that deals as such are not basic to the illegal practices which the Commission has challenged in this proceeding. On the other hanel if the design of the board indicates by the legend affxed thereto, or in some other manner, that it lias been arranged to facilitate the merchandising of products by way of gambling schemes or lott.ery devices, or if a deal is sold ill conjunction with punchboards or other devices with inherent appeal to the public s gambling instinct then the Commission may well determine, depending on other relevant facts, that the sale of deals under such circumstances is within the scope of the order s prohibition.

The Commission cannot, at this time, anticipate alj the problems with which respondents may be faeed in complying with the terms 'Pages 19, 25 Oral Argument.

2184 FEDERAL TRADE COl\MISSION DECISIONS Final Order 63 F.

or the order. Respondents, however, are always free to consult the Commission s staff should they require advice as to whether a proposed course of action will constitute compliance with the order, and if they so desire they may file a more formal request pursuant to Section 3.26 of the Commission s Rules of Practices, directing such question to the Commission itself.

The initial decision as supplemented to conform to the views expressed herein will be adopted as the decision of the Commission. By ANDERSOX Oommissioner, Ooncurring:

I concur in the result reached by the majority, with the understanding that the order to cease and desist entered herein wih have been violated if the merchandise deals offered by respondents are designed for gambling or are normally used in connection with the sale of merchandise by lottery or game of chance.

FINAL ORDER DECEMBER 31 , 1963 This matter has been heard by the Commission on respondents' exceptions to the initial decision of the hearing examiner and complaint counsel's answer in opposition thereto. The Commission has determined that respondents' exceptions should be denied and that the initial decision, as supplemented to conform to the views expressed in the accompanying opinion should be adopted as the decision of the Commission. Accordingly:

I t is ordered That the respondents Great IV estern Distributing Company, a corporation, and its offcers, and Earl C. Jasper, individually and as an offeer of said corporation, and Edward J. Carr individually, and respondents' agents, representatives, and employees do forthwith ceasedirectly or through any corporate or other device, and desist from:

is defined Selling or distributing in commerce, as "commerce" in the Federal Trade Commission Act, punchboards or other devices, either with merchandise or separately, which are designed or intended to be used in the sale or distribution of mergift enter- chandise to the public by means of a game of chance, prise, or lottery scheme.

It is jurther ordered That the initial decision as supplemented to conform to the views expressed in the accompanying opinion be adopted as the decision of the Commission. JV'IITTING :VIACHnES UNLIMITED ETC. 2185 2169 Complaint It i8 further ordered That respondents shall fie with the Commission, within sixty (60) days after service of the order herein upon them, a report in writing setting forth in detail the manner and form of respondents' compliance with the order. I" THE :MATTER OF GERT SALO IOX TRADI"G AS KXITTING MACHIXES UNLIMITED ETC.

CONSl'JNT ORDER , ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE GOMMISSIO AND THE WOOL PRODUCTS LABELING ACTS Docl 6t 672. Complaint, Dec. 31, 1963-Decision, Dec. , 1963 Consent order requiring a Los Angeles retailer of yarns, to cease violating the Wool Products Labeling Act by such practices as labeling as containing 100% Mohair, yarns which contained substantially less than 100% Mohair and contained a substantial amount of Don-woolen fibers, failing to disclose on labels the percentages of woolen and other fibers in yarns, describing fiber content on labels as "vinylic (Rhovyl)" instead of using the common generic name, and failng to comply with other labeling requirements; and to cease violating the Federal Trade Commission Act by advertising as 100% Italian Mohair, yarn which contained fibers other than Mobair.

COMPLANT Pursuant to the provisions of the Federal Trade Commission Aet and the IV 001 Products Labeling Act of 1939, and by virtue of the authority yested in it by said Acts, the Federal Trade Commission having reason to believe that Gert Salomon, also known as George Salomon, an individual trading as Knitting .Machines Unlimited trading as Yarns Unlimited, hereinafter referred to as respondent has yiolatec1 the provisions of the said Acts and the Rnles and Regulations promulgated under the IV 001 Products Labeling Act of 1939 and it appearing to the Commission that a proceeding by it in respect thereof would be in the pnblie interest, hereby issues its complaint stating its charges in that respect as follows: PARAGRAPH 1. Respondent Gert Salomon, also known as George Salomon, is an individual doing business as Knitting Machines Unlimited trading as Yarns Unlimited. Said individual respondent formulates, directs and controls the acts, policies and practices of said proprietorships including the acts and practices hereinafter referred to.

2186 FEDERAL TRADE COM:.lISSIO DECISIONS Complaint 63 F.

Respondent is all importer and retailer of wool products with his offco and principal place of business located at 915 'Vilshire Boulevard, Santa :lronica, California, with a branch outlet at 61aO'Vilshire Boulevard, Los Angeles, California.

PAR. 2. Subsequent to the effective date of the 'W 001 Products Labeling Act of 1939, respondent has introduced into commerce, sold transported, distributed, delivered for shipment and offered for sale in conm1erce as "commerce" is defined ill said Act, wool products as wool product" is defined therein.

PAR. 3. Certain of said wool products were misbranded by the re. spondent within the intent and meaning of Section 4(a) (1) of the 'V 001 Products L"heling Act of 1939 lend the Rules "ml Regulations promulgated thereunder, in that they \Vcre falsely and deceptively stamped, tagged, labeled or otherwise identified "\with respect to the character ancl amount of the constituent fibers contained therein. Among such misbranded wool products, but not limited thereto "\were certain yarns stamped, tagged or labeled as containjng 1000/0 :Mohail' , whereas ill truth and in fact, said yarns contained substantially less fohair than represented and in addition contained a substantial amount of non-woolen fibers.

\.. 4. Certain of said wool products were furthe.r misbranded by respondent in that t.hey were not stamped, tagged, labeled or otherwise identified as required under the provisions of Section '1(0) (2) of the 'Wool Pruducts Labeling Act of 19a9 and in the manner and form as prescribed by the Rules and Regulations promulgated under said Act.

Among such misbranded wool products, but not limited thereto were certain :.yarns with If)bels on or a,ffxed thereto which fa,filed to diseloso the percentage of the total fiber weight of the \yool product cxc.usive of ormunentation not exceeding 5 per centum of said total fiber weight, of (1) woolen fibers; (2) each fiber other than wool if said percentage by weight of such fiber is 5 per centum or more; and (3) tho aggregate of all other fibers.

PAH. 5. Ccrta,in of said -vaal products were misbra,nded in violation of the 'V ool Products Labeling Act of 1939 in that they were not labeled in accordance with the Hules a.nd Regulations promulgated thereunder in the following respects:

(a) Infornmtion required under Section 4(a) (2) of the 'Wood Products Labeling Act of 1939 and the Rules and Regulations described" portion of the fiber content as "vinylic (Rhovyl)" instead of using the common generic name of said fiber, in violation of Rule 8 of the aforesaid Rules and Regulations. KNITTING l'vIACHINES UKLIMI'TED ETC. 2187 2185 Complaint (b) The percentages required to be given of each name specialty fiber were not set forth on labels in violation of Rule 18 of said Rules and Regulations.

PAR. 6. The 'Rcts and practices of the respondent as set forth above were, and are in violation of the .W 001 Products Labeling Act of 1939 filled the Rules and R.egulations promulgated thereunder, and const.ituted, and now constitute, unfair and deceptive acts and prac tices and unfair methods of competition in commerce, within the intent and meaning of the Federal Trade Commission Act. PAR. 7. Rcspo dent is now, a,nd for some time last past has been engaged in the advertising: offering for sale and sale of yarn to the general public.

PAR. 8. In the course and conduct of his business, respondent now causes and for some time lflst past, has caused his said products when sold, to be shipped from his place of business in the State of California to pl1rcha,sers located in various other states of the L"united States, and maintains, and at all times mentioned herein, has maintained a substantial course of t.trade in said products in commerce as "commerce" is defined in the Federal Trade Commission Act. PAR. 9. In the course and conduct of his business respondent has engaged in disseminating and en-using to be disseminated in ne"\ys papers of interstate circulation, advertising designed and intended to induce t.he sale of said yarn.

PAR. 10. In the course and conduct of his business and lor the purpose of inducing the sale of yarn offered for sRIe and sold by him, re spondent has made and is now making statements and representa:tions directly or by implication with respect to the fiber content of sajd yarn. Said statements and l'epresentar.ions have been made in newspa.per a.advertisements of interstate circulation. Among and typical of the st.atements and representations c.ontainecl in the afore saiel newspaper advertisements, but not all inclusive thereof, are the fan owing :

Blue 18.1)(1-100% Finest Itnlian )Iobail' 100'% Italian ::Iobail'. PAR. 11. By and through the use of the aforesaid statements and representations of respondent, respondent represented directly or by implication, that the aforesitid yarn was composed of 100% Iohajr, whereas in truth and in fact the yarn contained fibers other than Mohair fibers.

Therefore, the statements and representations as set forth in Paragraph Ten, were and are fa.1se, misleading and deceptive. PAR. 12. The use by respondent of the aforesaid false, misleading and decept.ive statements representations and practices has 2188 FEDERAL TRADE COMMISSION DECISIOXS Decision and Order 63 F.

had, and now has, the capaeity and tendency to mislead members 'Of the purchasing public into the erroneous and mistaken belief that said statements nnd representations were and are true and into the purchase of substantial quantities of respondent's products by reason of said erroneous mistaken belief.

PAR. 13. The aforesaid acts and practices of respondent as herein alleged, were and are a11 to the prejudice and injury of the public and of respondent's competitors and constituted, and now constitute unfair methods of competition in commerce, and unfair and deceptive acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

DECISION AND ORDER The Commission having heretofore determined to issue its eomplaint charging the respondent named in the caption hereof with violation of the Federal Trade Commission Act and the Wool Products Labeling Act 'Of 1939 , and the respondent having been served with notice of said determination and with a copy of the complaint the Commission intended to issue, together with a proposed form of order; and The respondent and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by respondent of a11 the jurisdictional facts set forth in the complaint to issue herein, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as set forth in such complaint, and waivers and provisions as required by the Commission s rules; and The Commission, having considered the agreement, hereby aecepts same, issues its complaint in the form contemplated by said agreement, makes the following jurisdictional findings, and enters the following order:

, is 1. Respondent Gert Salomon, also known as George Salomon an individual trading under his own name, as Knitting Machines Unlimited and as Yarns linlimited with his offce and principal place 'Of business located at 915 Wilshire Boulevard, in the City of Santa Monica, State of California.

2. The Federal Trade Commission has jurisdiction of the subject matter 'Of this proceeding and of the respondent, and the proceeding is in the public interest.

IU'1ITTING MACHINES UNLL\HTED ETC. 2189 2185 Decision and Order ORDER It is ordered That respondent Gert Salomon, also known as George Salomon, an individual trading as Knitting Machines Unlimited trading as Yarns Unlimited and respondent' s representatives agents and employees, directly or through any corporate or other device, in connection with the introduction into commerce, or the offering for sale, sale, transportation, distribution or delivery for shipment in commerce, of wool yarn or other wool products, as commerce" and "wool product" are defined in the Wool Products LabeEng Act of 1939, do forthwith cease and desist from: Misbranding such products by:

1. Falsely and deceptively stamping, tagging, labeling or otherwise identifying such products as to the character or amount of the constituent fibers contained therein. 2. Failing to securely affx to, or place on, each such product a stamp, tag, label or other means of identification showing in a clear and conspicuous manner each element of information required to be disclosed by Section 4(a) (2) of the W 001 Products LabeEng Act of 1939.

3. Failng to set forth the common generic name of fibers in the required information on labels, tags or other means of identification attached to wool products. 4. Failing to set forth the percentages of specialty fibers in required inronnation OIl stamps: tags, labels or other means of identification attached to wool products when an election is made to use the genetic name of the specialty fiber instead of the term wool.

It i8 further ordered That respondent Gert Salomon, also known as George Salomon, an individual trading as Knitting Machines Unlimited trading as Yarns Unlimited and respondent's representatives, agents and employees directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of yarn or any other textile products in commerce, as commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from misrepresenting the character or amount of constituent fibers contained in yarn or any other textile products in advertisements applicable thereto or in any other manner.

It is further ordered That the respondent herein shall, within sixty (60) days after service upon him 'Of this order, file with the Commission a report in writing setting forth in detail the manner and form in which he has complied with this order. , j.

Complaint G3 ,