Product Testing Company, Inc.

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

IN THE J\L1.TTER OF PRODUCT TESTING COMPANY, INC., ET AL.

ORDER: OPINION , ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE EDERAL 'trade C03nnSSlON ACT Docket 85.'14- oomplaint, Oct. 10, 196?-Decision, Fcb. , 196'4 Order requiring Elizaheth, X. , mail-onler sellers of cOffeemakers, dinnerware luggage, toaster-broilers and other merchandise to cease making-in circulars, ret.urn llail pieces and other promotional material distributed to prospectino customers-false claims concerning the character of their business operations and using. dCCE'.ptiH prices, quality, guarantee, and performance claims to promote the sale of their merchandise. COJ\IPLAINT Pursuant to the provisions of the Fcdcral Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Product Testing Company, Inc., a corporation,. and Damar Products, Inc., a corporation, also trading as 1\11'8. Dorothy Damar, Damar, Emma & Jed' Country Store, The Consumer Research Bureau, and Product Testing Bu.eau, and David W. Margulies, individually and as an offcer of each of said corporations, 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:

PAHAGHAPII 1. Respondent Product Testing Company) Inc., is a corporation, orga,nized, existing and doing business under and by virtue of the Jaws of the SLate of Kcw Jersey, with its principal offcc and place of business located at 833 Newark Avenue, in the city of Elizabeth, State of K ew J erscy.

Respondent Damar Products, Ine. is a corporation, organized existing and doing business under and by virtue of the laws of the State or New Jersey. In addition to dojng busine:;s under its cor. porate name it also trades and does business under the several trade 22- QG!J-70- Complaint 64 F.

names of Mrs. Dorothy Damar, Damar, Emma and Jed's Country Store, The Consumer Research Bureau, and Product Testing Bureau. Its offce and principal place of business is located at the above stated address.

. Respondent David W. Margulies is an individual. He formulates directs and controls the acts and practices of the said corporate respondents, including the acts and practices herein set forth. His office and principal place of business is located at the above stated ad dress.

PAR. 2. Respondents are now', and for some time last past have been, engaged in the advertising, offering for sale, sale and distribution, by and through the United States mails, of coffeemakers, dinnerware, luggage, toaster-broi1ers) and other articles of merchandise to members of the purchasing public.

P AH. 3. In the course and conduct of their business, respondents nmy cause, and for some time last past have caused, the aforesaid articles of merchandise to be shipped from their aforesaid place of business in the State of New Jersey, and from the various places of business of their suppliers located in other States of the United States, to members of the purchasing public located in various States of the United States, and the District of Columbia, and maintain and at all times mentioned herein have maintained, a substantial course of trade in said articles of merchandise in commerce, as com merce" is deficd in the Federal Trade Co=ission Act. PAn. 4. The majority of the shares of stock of each of the said corporate respondents is owned by the said Margulies who, as aforesaid, formulates, controls and directs the affairs of each of the corporate respondents. The remainder of such shares of stock is owned in its virtual entirety by members of the said Margulies family and is under the control of the said Margulies. Through the device of the said Damar Products, Inc., the said Margulies falsely represents, among other things, that allegedly preferred customers are being afforded the opportunity to purchase merchandise through corporate respondent Damar Products, Inc., at substantial savings , etc.without the payment of commissions to wholesalers, middlemen Through the device of Product Testing Company, Inc., the said Maramong other things, that tests, surveys, etc.,gulies falsely represents, of consumer preference for new products are being conducted prior to the time said products are oliered for sale to the general public and that to induce consumer participation said goods are being oliered at substantial savings to prospective purchasers. The two corporate respondents are, therefore, but the devices employed PRODUCT TESTI TG CO, IXC. , ET AL. 859 857 Complaint the said Margulies to effectuate his false and misleading plans to mislead and deceive members of the purchasing public. PAR. 5. In the course and conduct of their business, and for the purpose of inducing the sale of the various articles of merchandise offered for saJe and sold by them, respondents have made and are now making numerous statements and representations \with respect to the character of their business operations and the price, quality, guarantee, per formance and other characteristics of the articles of merchandise they sell. Said state.ments and representations have been made in circulars, return lnail pieces and ot.her kinds of promotional materia.l distributed to prospective customers.

Typical and illustrative of said statements and representations made by and through said1 Product Testing Company, Inc., but not all inclusive thereof, are the following:

This is a Consumer Test J\ ii '" disregard prices on circulars! Dear Friend:

Here s a thriling offer you won t ,want to miss. he articles described on the enclosed circulars can be yours at far less than retail prices. Our product testing service is making this unusual offer to a limited number of consumers at the request of a large national retailer who is interested ill determining y,which articles homemakers ".ould be interested in, prior tu their nationwide campaign.

To take advantage of this test, simply fill in the attached coupon and mail with your remittance to the address shown. Product Testing Co.

O. Box 51 Hilside, K cw Jersey I am enclosing $- ------------- for thc test offers checked below, at the special bureau testing price shown.

LJ Test No. Flavoramic CofIeemaker at $9. LJ Test .Ko. 2-52-pc. Dinnerware Set at $10. o Test o, 3-15-pc. Cookware Set at $11. o Test No. 4-3-pc. Luggage Set at $14. 89* "'Fed. Excise Tax included.

j\TOTE: Offer expires August 31 , 1960 10-day return privilege permitted for any reason on this product test.

Accompanying said cards are circulars which read, in part: 15 cup Flavoramic Coffeemaker * * . brews from 4 to 15 cups. . . Automatically! '" '" . Naturally, it' s fully guaranteed. . . Fully Guaranteed! . 10 .. now only $19.95.

Edgebrook . '" . nationally advertised Break Resistint Dinnerware .. .. .. complete service for 8, $29.95.

.. .

860 EDERAL TRADE COMMISSION DECISIONS Complaint 64 F.

15 piece all purpose SUll-Craft Heavy Aluminum Waterless Cookware !I . . suggested retail $29.95.

Mac Gregor Plaid 3-pc. Flite Light Luggage set complete 3-pc. set $29. 95 Ij . .

Special panel member Price Test. '" . disregard price on circular! Dear Panel Member:

A large national retailer wishes to determine the most popular price at which to offer the $19.95 Toaster-Broiler featured on the enclosed circular. During this test you may order one for yourself at the price you select, even though it may be offered at a much higher price after the test. Simply detach the Test Form. Check your price and mail with your remittance to the address below.

Product Testing Co.

O. Box 51, Hilside, N.

Xo. 1120P PT- Special Price Test 'v hat price should it sell for? (Check only one) o $10. 0$11.59 $11. $12. D S12. !J9 o $13. $14. n5 $15. o $17.49 D $19.

Fil-in and Iail Today I enclose $ -- - for -- - Broiler-Toaster #340 at the price: I have checked above, plus 95tj for each unit ordered to cover actual postal handling and ship ping charges.

XOTE: Offer eXIJires Jan11ary 1;) , HH:i1. lO- day return priYi!cge pennitted for any reason on this product test.

Accompanying said cards are circulars Trhich read in pari: Fla.ol'amic Toaster Broiler . '" .. Retail $19.95 . . '" 'l' bis is a Consumer Test'" '" '" disregard prices on circulars Dear Friend:

Here s a thrillng offer :-on won t want to mi,,!,. The article described on tile enclosed circulars can be yours at far less than retail price. Our product te1:ting en'jce is ilaking- this nnusual offer to a limited llember of consuwer" at the request of a large national retailer who is interested in determining which articles homemakers would be interested , prior to their nationwide campaign. To take ad.antage of this test simply fill in the attached conpon and mail with your remittance to the address shown.

Prodl1ct Testing Co., O. Box 51, Hi1side, X.

;, / . PRODUCT TESTING CO. , INC. , ET AL. 861 857 Complaint ",Vould you like to become a regular Panel Iember? See rever::e side. Product Testing Co. , Consumer Test Form, P. O. Box 51 , Hilside, Test Acct. No. 1137.

I am enclosing $ ---------- for the test offers checked below at the special testing price shown.

C Te::t No. 1-Coffeemaker (Ko. 002) Deluxe at $9. o TestXo. 2-CofIeemaker ( o. 901) Regular at $8. o Test Xo. 3-52.pc. Dinnerware Set (Xo. 2) at $10. F.4 o Test Xo. 4-15-pc. Cook\yare Set (Ko. 343) at $11.!J3 =: Test Xo'. f"J-- pc. Lnggage Set (No. 00'1) at $15.95* "'Federal Tax included.

o I "ish to become a panel member at $1.

Please add 50(j for each article ordered on ' Test NO. 1 and No. 2: add $1.00 for each article on Test :l o. 3 and No. 4; and $1.45 all Test o. 5 to coyer actual postage, handling and sbipping cbarges. XOTB: Offer expires Iay 25, .1961. la-day return privilege permitted for any reason on this product test.

PT- Accompanying said card are circulars which read in part: 1; cup FIn,aramic CofIeemaker '" '" '" brews from 4 to 15 cups Automaticall;v ! '" $' '" Xaturally, it' s rul1y guaranteed'" '" 1/ Fully GuaranteE'el: ", * , now only 819. 95. See .spedal discount offer Edgebrook .. '" $ nationally advertised Break Hcsistant Dinnerware '" '" '" complete service for S, $29. 95. 13 piece all purpose Sun-Craft Heavy Aluminum Waterless Cookware '" '" . suggested retail $29. 95.

lac Gregor Plaid 3-pc. Flite Light Luggage set, complete 3-pc. set S2D.95 '" '" '"

B. Typical and illustrative of said statements and representations made under the name of said Damar Products Inc., are the following:

\:'IAR' 78 Damar Ruilding, Elizabetb, Xe,v Jersey Disregard tbe manufacturer s price on the enclosed circular * '" Den r Preferred Customer:

The cnc!osc(Z certificate is jor yaw' use onry,. ;'0 one else can use it It is sent only to our most valued customers in sincere appreciation of their loyalty and patronage, in order to show our appreciation we baye made arrangements with a leading manufacturcI' that will save you many dollars : .. . . . 862 FEDERAL 'trade CO:\D1ISSIO DECISIONS Complaint 64 F, In order to save the high cost of many small shipments to ordinary wholesalers, salesmen s commissions and middlemen s profits, the factory has agreed to give us their production of the new 1961 model before it is offered nationally * . . and at a price that wil save our preferred customers over $11.00.

. . . Each of these jumbo sized cofleemakers is equipped with one the best automatic thermostats made . . . produced and unconditionally guaranteed by world-famous Westinghouse * . . . . It makes 15 cups of coffee at onc time * . You save over S11.00 as a preferred customer! Our price to you is not $22. 95 nor even $19. , which you would expect to pay for any ordinary coffeemaker without the beautiful gold-tone base, but as a Preferred Customer you pay a very low $8.89 when you use the enclosed certificate. Otherwise, you pay the regular customer s price. . '" '" So use your special privilege certificate now while it saves you money, '" '"

Accompanying said letters are circulars which read in part: 15 cup Flavoramic Coffccmaker '" '" '" brews :from 4 to 15 cup. s '" '" '" Automatically!! . . '" KaturallY, it' s fully guaranteed'" . '" Fully Guaranteed J '" '" . now only. . '" see special discount offer DAMAR' 78 Damar Building, Elizabeth, Kew Jersey.

Disregard the manufacturer s price on the enclosed circular The enclosed certificate is for you alone: No one else can use it. It is sent only to a few of our most valued customers-in sincere appreciation for their loyalty and patronage.

At a cost far below that offered by anyone an:\\dlelT You ll save a fortuue * " ' The low, low special price to you as a preferred customer is the biggest surprise of al1:

Yuu sa,e S19Al on t.his special one-time offer! '" '" '" It' s all yours for only $10.54! How we can make this offer! '" '" '" by eliminating salesmen s commissions, wholesalers, jobbers and middlemen, all the profits on-tap-of profits that infiate prices have been eliminated. '" '" '" just $JO. 54 for the complete 52-pc. Edgebrook Set! 1.. "'.

2. It is guaranteed for 2 years against breaking, chipping, cracking, crazing from any cause whatever.

3. Lifetime Guarantee against defects in manufacture or workmanship, . '"

. .. . . , PRODUCT TESTING CO. , INC., ET AL. 863 857 Complaint Accompanying said letters are circulars which read in part: Edgebrook .. .. .. nationally advertised Break Resistant Dinnerware " " .. complete service for 8, $29.95.

DA:\lar' 78 Damar Building, Elizabeth, Kew Jersey.

Disregard the manufacturer s price on the enclosed circular Dear Preferred Customer:

The enclosed certificate is for your use only-No one else can use it- .. . '" It is sent only to our most valued customers in sincere appreciation of their loyalty and patronage .. we have made arrangements with a leading manufacturer that wil save you many dollars'" .. .. . . in order to save the high cost of many small shipments to ordinary wholesalers, retailers, salesmen, commissions and middlemen s profitsthe factory has agreed to reserve at a price that wil save you, our preferred customers'" . .. over $8. 00! You save over 00 as a special preferred customer! Our price to you is not 822. 95, nor even $19. , which you would expect to pay for such a magnificent kitchen appliance with Automatic Westing. house Thermostat, all bakelite sideE and gleaming chrome. As a Preferred Customer you pay a very low $11.78 when you use the enclosed certificate. Otherwise, you pay the regular customer s price. '" . . so use your special privilege certificate now while It saves you money, * .. * Accompanying said letter are circulars which read in part: Flavoramic Toaster-Broiler$: . . retail $19. 95 .. . .. see special price offer.

PAR. 6. Through the use of the aforesaid corporate and trade names statements and representations, and others similar thereto but not specifically sct forth, responclents have represented, directly or indirectly, (a) That Product Testing Company, Inc., The Consumer Research Bureau and Product Testing Bureau a.re independent testing companies which conduct tests, trja.1 offerings or surveys to determine consumer reaction, prefercnce or marketability of products. (b) That the Damar Products, Inc., offer to sell said merchandise is made only to a limited number of preferred customers; (c) That the aforesaid higher price amounts whether accompanied or unaccompanied by words or terms such as "Retail" SUGGEST- ED RETAIL", etc. are the prices at which the merchandise referred to is usually and customarily sold at retail in all of the trade areas in which it is offered for sale; and that purchasers of respondents , :

Complaint 64 P.

merchandise realize savings equal in amount to the differences between the said higher prices and tho corresponding lower prices. (d) That said coffeemaker when used as directed has the capacity to make or brew and wjJ in fact so make or brew with one fillinoof the necessary ingredients and at one time suffcicnt coffee to fill or serve 15 cups with net contents of coffee at least equivalent in amount to that usually and customarily served in homes, lodges clubs, churches, schools, offces, restaurants, shops, etc. (e) That said Flavoramic Coffeemaker is unconditionally guara, teed in every respect by said Product Testing Company, Inc., and said Damar Products, Inc. , for the lifetime of said coffeemaker. That said coffeemaker thermostat is uuconditionally guaranteed by the Westinghouse Electric Corporation, 3 Gateway Center, Pittsburgh, Pennsylvania, for the lifetime of said coffeemaker. That said dinnerware set is unconditionally guaranteed for 2 years against breaking, chipping, cracking, crazing from any cause whatsoever by said Damar Products, Inc. and that said dinnerware set is unconditionally guaranteed against defects for the lifetime of the purchaser, the lifetime of said product or some other extended but unspecified period of time by Damar Products, Inc. (f) That said Sun-Craft Cookware Set consists of 15 pieces of heavy aluminum cookware.

(g) That said Damar Products, Inc. purchasers its said merchandise directly from the manufacturer and thereby avoids the payment of a midc1leman s profit and that said savings are passed on to the purchasers.

PAR. 7. In truth and in fact:

(a) Proclucts Testing Company, Inc., The Consumer Research Burcau and Product Testing Bureau are not independent testing companies and do not conduct consumer tests, trial offerings or sur. veys to determine consumer reaction, preference or marketability of products.

(b) Damar Products, Inc., offers to sell said merchandise are not made only to a limited number of preferred customers; (c) The aforesaid higher price amounts whether accompanied or unaccompanied by words or terms such as "Retail SUGGESTED RETAIL", etc. are not the prices at which the merchandise referred to is usually and customarily sold at retail in all of the trade areas in which it is offered for sale; and purchasers of respondents' merchandise did not ren1ize savings equivalent in amount to the differenc.es bet\fee,n the said higher prices and the c.orresponding lower prices. Said higher price amounts are in excess of the price or prices at which said merchandise -was generally offered for sale and sold in said trade areas.

PRODUCT TESTI?\G CO. , I::C. , ET AL. 865 857 Complaint (d) Said cofiecmaker when used as directed does not have the capacity to make or brew and will not in fact make or brew with one filling of the necessary ingredients and at one time suffcient cof fee to fill or serve 15 cups with net contents of coffee at least equivalent in amount to that usually ancl customarily served in homes lodges, clubs, churches, schools, offces, restaurants, shops, etc. The cups of coffee above referred to by respondents are of a " oz. net content. The usual and customary cups of coffee served in homes, lodges, clubs, churches, schools, offces, restaurants, etc., contain substantially more than" ozs. net.

(e) Said Flavoramic coiIcemaker is not unconditionally guaranteed by said Proc1uct Testing Company, Inc. or Damar Products Inc. for the lifetime of said coffeemaker. Such guarantee as may be provided is subject to numerous restrict.ions, limitations and condi. tions as to its nature, extent and duration and is given by a wholly different guarantor. Said coffeemaker thermostat is not uncondition. ally guaranteed by the .Westinghouse Electric Corporation, 3 Gateway Center, Pittsburgh, Pennsylvania, for the lifetime of said coffeemaker. Such guarantee as may be provided is subject to numcr. ous restrictions, limitations and conditions as to its nature, extent and duration. Said dinnenyare set is not unconditionally guaranteed for 2, years against breaking, chipping, cracking, crazing from any cause whatever by said Darnar Products, Inc., and said dinnerware set is not unconditionally guaranteed against defects for the lifetime of the purchaser, the lifetime of said product or some other extenc1ed hut unspecified period of time by Damar Products, Inc. Such guarantee as may be provided is subject to Ilumerous rest.rictions, limitations and conditions as to it.s nature, extent and duration and is given by a wholly different guaranto (f) Said1 Sun-Craft Cockware Set does not consist of 15 pieces of heavy aluminum cookware. Two of said co-called pieces are a is scouring pad and cookbook and respondents' count of " 15 pieces" made up by separately tallying each component part such as pot. lids, divic1ers, etc.

(g) Said Damar Products, Inc. does not purchase all of its said merchandise c1directly from the manufacturer and thereby avoid the payment of a Iriddleman s profit and said savings are not passed on to the purchaser.

therefore, false, mis- Said statements and representations were, leading and deceptive.

PAR. 8. In the course and conduct of their business, and at all times mentioned herein, respondents have been in substantial competition in commerce, with corporations, firms, and individuals engaged Initial Decision 64 F. T. in the sale of articles of merchandise of the same general kind and nature as those sold by respondents.

PAR. 9. The use by respondents of the aforesaid false, misleading, and deceptive statements, representations, and practices, has had and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of substantial quantities of respondents' articles of merchandise by reason of said erroneous and mistaken belief. PAR. 10. The aforesaid acts and practices of the 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 methods of competition in commerce, and unfair and deceptive acts and practices in commerce, in violation of Section 5(a) (1) of thc Federal Trade Commission Act. Mr. Terral A. Jordan and Mr. George J. Luberda for the Commission.

Blum JoZZes, Haimoff, Szabad Gelwen; lift. Seymour Kehlrnann of counsel; New York for respondents. TKITIAL DECISION BY HARRY R. KES HEARING EXA nXER JUNE 18 , 1963 By complaint issued October 10, 1962, the above-named respondents were charged with the use of false, misleading, and deceptive acts and practices in connection with the sale and offering for sale of certain products in commerce as "commerce" is defined in the Federal Trade Commission Act, in violation of Section 5 of the Act. After answer was made by the respondents, prehearing conferences were held by order of the hearing examiner. In that order the parties were advised to prepare, if desired, requests for the admission of the genuineness of documents pursuant to Section 4. Rules of Practice. After several postponements a prehearing11confer-of the ence was held on February 11 , 1963, at which considerable progress was made by way of stipulations with respect to certain the case. When it appeared that extended discussions betweenissuescoun-in sel might be necessary for further stipulation and agreement, the possible use of Section 4.11 of the Rules of Admissions was suggested for greater expedition. Pursuant thereto, complaint counsel by letter dated March 6, 1963, requested respondents to admit the genuineness of certain documents as well as both the genuineness and truthfulness of certain other documents. A similar letter was also sent by . . .

PRODUCT TESTL'.G CO. D:rC.) ET AL. 867 857 Inital Decision complaint counsel on the JoJlowing day, March 7, 1963. These letters were served upon respondents' counsel on March 7 :md March 8 1963, respectively.

The respondents served neither sworn statements denying the relevant matters of which the admissions were requested or setting forth in detail the reasons why they could neither truth-ully admit or deny them, nor written objections on the ground that the matters involved were irrelevant, privileged, or improper. As a consequence, the requested admissions were deemed made pursuant to Section 1.11 of the Rules.

On February 28 , 1963, a receiver was appointed by respondent Damar Products, Inc. The receiver, however, has not been brought into these proceedings, nor has he appeared in any way. Counsel for the respondents, at the hearing on this matter held March 27, 1963 indicated that their appearance was general and unconditional for respondent David W. Margulies. As to the other respondents, their appearance was conditional because of their belief that they had no authority to act for a corporate respondent in receivcrship. For the record, however, counsel stated:

we wil continue to represent the defendants to the extent that we have the authority to do so.

The hearing examiner invited counsel to make a formal motion to withdraw. Counsel, however, declined to do so. At the conclusion of the hearing both parties filed proposed fidings and briefs, which have been carefully considered. To the extent the proposed findings are inconsistent with those made, they are deemed rej cted.

FINDIKGS OF FACT The Respondents 1. Respondent Product Testing Company, Inc. , is a corporation organized on June 29, 1960, and which presently exists under and by virtue of the laws of the State of New Jersey, with its principal offce and place of business located at 833 Newark Avenue, in the city of Elizabeth, State of New Jersey.

2. Damar Products was started in 1918 by respondent David W. Margulies, trading as Damar Distributing Company. Respondent Damar Products, Inc. , was incorporated on January 11, 1952, and has been and is now existing and doing business under and by virtue of the laws of the State of Kew .Jersey. In addition to doing business under its corporate name it also trades and does business under the several trade names of Mrs. Dorothy Damar, Damar 868 FEDERAL TRADE COMMISSIOK DECISIONS Initial Decision 64 F.

Emma and J ed' s Country Store, The Consumer Research Bureau and Product Testing Bureau. Its offce and principal place of business is located at the above-stated address. 3. Respondent David 'V. Margulies is the President of Damar Products, Inc. The majority of the shares of stock of said Damar Products, Inc., is owned by the said Margulies and the balance is owned by a member of his family. The stock of said Product Testing Company, Inc., is wholly owned by respondent Damar Products Inc. The said Margulies formulated, directed and control1ec1 the acts and practices of the said corporate respondents hereinafter set forth and participated directly in such acts and practices. His offce and principal place of business is located at the above- stated address. 4. Corporate respondent Product Testing Company, Inc. , has been located at the same address as Damar Products, Inc., has had no active corporate offcers or directors, paid no corporate franchise taxes to the State of New Jersey, has always been wholly owned by respondent Damar Products, Inc., and during its active life, which covered the period June 29, 1960, to around the middle of 1961 , was operated by the same persons that operated respondent Damar Products, Inc. The corporate independence of Product Testing Company, Inc., was and is a mere fiction. Said Product Testing Company) Inc. and Damar Products, Inc., have been and are now one company. Product Testing Company, Inc., has been and is now in reality just another trading name of Damar Products, Inc. 5. R.respondents are now, and for some time last p Lst have been engaged in the advertising, offering for sale, sale) and distribution by and through the united States mails, of coffeemakers, diunerw-are luggage, toaster broilers, and other articles of merchandise in substantial quantities to members of the purchasing public. I-Iowever offers to sell the Flavoramic Toaster-Broiler, Flavoramic Coffeemaker, Edgebrook Dinnerware Set, Sun-Craft Cookware Set and 1acGregor Luggage Set, specifically mentioned in the C'omp1:inl ceased around the middle of 1961.

6. In the course and conduct of their business, respondents now cause, and for some time last past have caused, the aforesaid articles of merchandise to be shipped from their place of business in the ::tate of New Jersey, and from the various places of business of their suppliers located in other states of the "Cnitec1 States, to members of the purchasing public located in various states of the United ::states and the District of Columbia, and maintain, and at all times mentioned herein have ma.intained, a substantial course of trade in said articles of merchandise in commerce, as "commerce" is defined in the Federal Trade Commission Act.

. .

PRODl, CT TESTIKG CO. , n..,. , ET AL. 869 857 Initial Decision The Advertisements 7. In the course and conduct of their business, and for the purpose of inducing the sale of the various articles of merchandise offered for sale and sold by them, respondents have made statements and representations with respect to tbe character of their business operations and the price, quality, guarantee, performance and other characteristics of the articles of merchandise they sell. Said statements and representations have been made in circulars, return mail pieces and other kinds of promotional material distributed to prospective customers.

A. Typical and ilustrative of said statements and representations made by and through said Product Testing Company, Inc., but not all inclusive thereof, are the following:

THIS is a Consumer Test'" * * Disregard prices on circulars! Dear Friend:

Here s a thriling offer you won t waDt to miss. The articles described on the enclosed circulars can be yours at far lers than retail prices. Our product testing service is making this unusual offer to a limited number of consumers at the request of a large nationfll retailer who is interested in detcrmilling which article:; homemakers \vould be interested in, prior to their DU tionwide campaign.

To take ad,antage of this test, simply fil in the attached coupon and mail with your remittance to the address shown. Product Testing Co.

O. Box 51 Hilside, New Jersey.

I am enclosing $----- for the test offers checked below, at the Epeclal bureau testing price shown.

o Test Xo. 1-F1a,orumic Coffeemaker at $0. o Test Xo. 2-52-pc. Dinnerware Set at $10. D Test Xo. B-15-pc. Cookware Set at S11. o Test Xo. 4-3-pc. Luggage Set at $14. 89" "Fed. Excise Tax included.

NOTE: Offer expires August 31 , 11)GO. lO-day return privilege permitted for any rea on on this product test.

PT- Accompanying the fthove card are circulars '\\"which read, in part: 15 cup FlHYOramic entIeemaker * * '" brews from 4- to 1;' Cups Automatically!! '" * Naturally, it. s fll11y guaranteed * * " Fully guaran. teed ?\ O,\ only $19.95.

Edgebrook " " '" IJftionaIly ad,ertised Break Hesistant Dinn('I'vare ot '" 't l'omplete service for 8, $29.95.

.. .

Initial Dccision 61 F.

15 piece all purpose Sun-Craft Heavy Aluminum Waterless Cookware suggested retail $29,95.

::IacGregor Plaid 3- lie. Flite Light Luggage Set'" '" * complete 3- pc. set, $29.95.

Special Panel :Member Price Test. .. . disregard price on circular! Dear Panel ::lember:

A large national retailer wishes to determine the most popular price at which to offer the $19.95 Toaster-Broiler featured on the enclosed circular. During this test you may order ODe for yourself at the price you select, even though it may be offered at a muchhighel' price after the test. Simply detach the Test Form. Check your price and mail with your remittance to the 'address below.

Product Testing Co.

O. Box 51, Hilside, N..

PT- Special Price Test # 1120P \Vhat price should it sell for? (Check only one) $12.49 o 0 $11.59 o $11.95 810.95 o 0 813. o $14. o $15. $12.99 o $17.49 0 $19.

Fil in and Mail TOday I enclose $-- - for ---- Broiler-Toaster #340 at the price I have checked above, plus 05 for each unit ordered to cover actual postal, han. dung and shipping charges.

NOTE: Offer expires January 15, 1961. 10-day return privilege permitted for any reason on this product test.

Accompanying this card are circulars which read in part: Flavoramic Toaster-Broiler * * . Retail $19.95 * * * circulars! This is a Consumer Test * . . Disregard prices on Dear Friend:

he article described on Here s a thriling offer you won t want to miss. 'I' price. the enclosed circulars can be yours at far less than retail Our product testing service is making this unusual offer to a limited number of consumers at the request of a large national retailer who is interested in determining which articles homemakers would be interested in prior to their nationwjde campaign. To take advantage of this test, simply fill in the attached coupon and mail with your remittance to the address shown.

Product Testing Co.

O. Box 51, Hilside Would you like to become a regular panel member? See reverse side. N, Product Testing Co., Consumer Test Form, P.O. Box 51, Hilside, 'l' est Acct. No. 1137.

. . . . .

PRODUC'l' TBSTING CO. , I , ET AL. 871 857 Initial Decision I am enclosing- $------ for the test offers checked below at the special testing vrice shown.

o Test No. Coffee-maker (1'0. 902) Deluxe at 89. o Test Ko. 2-Coffeemaker (Ko. 901) Regular at $8. o Test o. 3-52-pc. Dinnerware Set (No. 2) at $10. o Test 1'0, 4-15- pc. Cookware Set (Ko. 343) at $11.93 o Test No. 5- pc. Luggage Set (No. 904) at $15.95* "'Federal Tax included.

o I Wish to become a Panel ::Ierober at $1.00 Please add ode for each article ortlcred on Test 1\ o. 1 and No. 2; add $1. for each D.rtide on Test Xo. 3 and No. 4; and 81.45 on Test NO. to cover actual postage, hancUing and shipping charges. .NQ1' E: Offer expires 1Iay 25, 1961. 10-day return pri,'ilege permitted for any reason on this product test.

PT- \.accompanying this card are circulars which read in part: 15 cup Fla voramic Coffeemaker * .. "' brews from 4 to 15 cups Automatically 1! .. .. .. 1\naturally, it's fully guarantecc1 '" 01 .. Fully GuaraDR teed! .. .. .. now only $19.95-see special discount offer! Edgebrook '" .. "' nationally advertised Break Resistant Dinnerware '" '" .. complete service for 8, $29. 95.

15 piece all purpose Sun-Craft Heavy Aluminum Waterless Cookware '" '" '" suggested retail $29. 95.

Mac Gregor Plaid 3-pc. Flite Light Luggage Set complete 8-pc. set, $29.95 * '" '"

B. Typical and ilustrative of said statements and representations made under the name of Damar Products, Inc., are the following: DAMAR' 78 Damar Building, Elizabeth, New Jersey.

Disregard the manufacturer s price on the enclosed circular Dear Preferred Customer:

The certificate enclosed is for your use only! Ko one else can use it '* .. '" It is sent only to our most valued customers in sincere appreciation of their loyalty and patronage '" '" '" in order to show our appreciation we have made arrangements with a leading manufacturer that wil save you many dollars '" * * In order to save high cost of many small shipments to ordinary wholesalers, salesmen s commissions and middlemen s profits, the factory has agreed to give us their production of the new 1961 model before it is offered nationally 1\ '" '" and at a price that wil save our preferred cUSR tomeI'S over $11.00.

.

872 FEDERAL TRADE COM nSSIOK DECISIOC'S Initial Decision 64 F.

.. * '" Each of these jumbo sizecl coffcemakers is equipped with one of the best automatic thermostats made '" .. * produced and unconditional. ly guaranteed by world-famous Westinghouse .. " * It makes 15 cups of coffee at ODe time :j * * You save OTel' $11. 00 as a Preferred Customer Our price to you is not $22.95 nor enn SHL95, which you would expect to pay for any ordinary coffeemaker without the beautiful gold-tone base, but as a Preferred Customer you pay a very low $8.89 when you use the enclosed certificate. Otherwise, you pay the regular customer s price. .. * * So use your special privilege certificate now while it saves you money Accompanying this letter arc circulars which read in part: 15 cup Flavoramic Coffccmaker '" '" .. brews from 4 to 15 cups Automatically!! .. "' .. .:aturall.l, it' s fully guaranteed'" '" Fully Guarantecd! * * * now only $19.95. See special discount offer! DAolAR' 78 Damar Building, Elizabeth, Xew Jersey.

Disregard the manufacturrr s price on the enclosed circular. The enclosed certificate is for .IOU alone! No one else can use it '" '" * It is sent only to a few of onr Ilost ,alued customers-in sincere appreciation for their loyalty and patronage.

At a cost far below that offered by anyone anywhere! You sate a fortune The Lo\y, Low Special Price to you as a preferred customer is the biggest surprise of all! You save $19.41 on this special on( time offer! . . "' It' all yours for o:Jly $10.64! How we can make this offer! . '" '" by eliminatillg salesmen s commissiam:, "Iholesalers, jobbers and middlemen. all tbe profits on-tap-of profits that inflate prices have been eliminated'" '" * . Just $10.54 for the complete 52-pc. Edg:ebrook set! 1. '" '" * 2. It is guaranteed for 2 years. against breaking, chipping, ui1cking. crazing from any cause "whatever.

3. Lifetime guarantee against defects in manufacture or woi'1mJfnsbip, '" * * ,. , \\ PRODUCT TESTll'G CO. IKC. ET AL. 873 837 Initial Decision Accompanying this letter are circulars which read in part: Edgebrook . * * nationally advertised Break Resistant Dinnerware '" '" * complete service for 8 , $28.95 DAlIAR' 78 Damar RUilding, Elizabeth, New Jersey.

Disregard the manufacturer price on the enclosed circular. Dear Preferred Customer:

The enclosed certificate is for you!' use only-Xo one else can use it . It is sent only to our most valued customers in sincere appreciation of their loyalty and patronage '" * "' we have made arrangements with a leading manufacturer that wil save you many dollars'" I! * * '" '" in order to save the high cost of Ilany SIlall shipments to ordinary "\"holcsalcrs, retailers, salesmen, commissions and mitldlcmen s profitsthe factory has agreed to reserve at a price that wil save you, our preferred customers * '" * o.er $8. 00! You save over $8.00 as a special preferred customer! Our price to you is not $22. , nor even $18.95, which you would expect to pay for ."ueh a magnificent kitchen appliance ,,'itlt Automatic ""' tingbouse Tlwrmostnt. all bakelite ides and gleaming- chrome. As a preferred customer you PRY a very low $11.78 when you use the enclosed certificate. Otberwiiie, you pay the regular customer s price. .. * * So use your special privilege certificate now while it saves you melley * '" Accompanying said letter arc circulars which read in part: Flayoramic Toaster-Broiler '" * * retail SI .95 * * ,. see special price offer.

8. Through the use of the aforesaid corporate and trade names as well as the aforesaid statements and representations and others similar thereto, but not specifically set forth, respondents have represented, directly or indirectly:

(aJ That Product Testing Company, Inc. , The Consumer Research Bureau and Product Testing Bureau are independent testing companies which c.conduct tests, trial offers or surveys to determine consumer reaction, preference or marketability of products. (b) That the Damar Products, Inc., oifer to sell said merchandise is ma.de only to a limitcd number of preferred customers. (c) That the aforesaid higher price amounts whether accol1pame.d or unaccompamec y worc s or terms sue 1 as e tll , gested Hetail " "ere the prices at which the merchandise referred to was usually and customarily sold at retail in all of the trade areas in which it was offered for a)e; and 1J1Ht purchasers of respondents 22J-059- 70-- 874 FEDERAL TRADE COMMISSIO:\T DECISIONS Initial Decision 64 F.

merchandise realize savings equal in amount to the differences be. tween the said higher prices and the corresponding lower prices. (d) That said coffeemaker when used as directed has the capacity to make or brew and in fact wil so make or brew, with one filling of the necessary ingredients and at one time, suffcient coffee to fill or serve 15 cups with net contents of coffee at least equivalent in amount to that usually and customarily served in homes, lodges clubs, churches, schools, offces, restaurants, shops, etc. (e) That said Flavoramic Coffeemaker is unconditionally guaranteed in very respect by said Product Testing Company, Inc., and said Damar Products, Inc., for the lifetime of said coffeemaker. That said coffeemaker thermostat is unconditionally guarant""d by the .Westinghouse Electric Corporation, 3 Gateway Center, Pittsburgh, Pennsylvania, for the lifetime of said coffeemaker. (f) That said dinnerware set is unconditionally guaranteed for 2 years against breaking, chipping, cracking, crazing from any cause whatever by said Damar Products, Inc., and that said dinnerware set is unconditionally guaranteed against defects for the lifetime of the purchaser, the lifetime of said product, or some other extended but unspecified period of time by Damar Products, Inc. (g) That said Sun-Craft Cookware Set consists of 15 pieces of heavy aluminum cookware.

(h) That said Damar Products, Inc., purchases its said merchandise directly from the manufacturer and thereby avoids the payment of a middleman s profit and that said savings are passed on to the purchaserg.

Falsity of Representations 9. In truth and in fact:

(a) Products Testing Company, Inc. , The Consumer Research Bureau and Product Testing Bureau are not independent testing trial offerings or surcompanies and do not conduct consumer tests, veys to determine consumer reaction, preference or marketability of products. Indeed, some of the so-called "test mailings" were made subsequent to many of the large mailings offering the same product by the respondents without any mention of tests. Thus the Product Testing offer, mailing 1137, made in April 1961, was preceded by mailings l088A, 1106B, 1107C, 1121R, 1123'1, and 1132. (b) The oilers of Daman Products, Inc., to sell said merchandise are not made to a limited number of preferrcd customers only, but were, in fact, made during the regular course of respondents' business for over a year and a half to members of the purchasing public generally. Thus, mailings to more than a million customers were PRODUCT TESTIXG CO, ) IKC. ) ET AL. 875 85i Initial Decision made in each of the months of August 1960, December 1960, July 1961, and August 1961. In between these dates, there were a score or more of mailings, some of which ran into the hundreds of thou sa,nds. Such extensive mailings, despite the fact that respondents claimed to have three million customers, are hardly indicative of a limited number 01 preierred customers.

(c) The aforcsaid higher price amounts, whether accompanied or unaccompanied by words or terms such as "Retail Suggested Retail D etc., were not the prices at which the merchandise referred to was usually and customarily sold at retail in all of thc trade areas in which it was offered for sale; and purchasers of respondents merchandise did not realize savings equivalent in amount to the differences between thc said higher prices and the corresponding lower prices. Said higher price amounts were in excess of the price or prices at which said merchandise was generally offered for sale and sold in said trade areas. Although the actual price at which this merchandise was usually and customarily sold at retail is not shown in the record, it is uncontroverted that the usual and customary retail price was substantially bc10w the advertised price in the respondents' mailings.

(d) Said coffecmaker when used as directed does not have the capacity to make or brew, and will not in fact make or brew, with one filling of the necessary ingredients and at one time suffcient coffee to til or serve 15 cups with net contents of coffee at least equivalent in amount to that usually and customarily served in homes, lodges, clubs, churches, schools, offces, restaurants, shops etc. The cups of coffee above referred to by respondents are of less than 4 ounce net content. The usual and customary cups of coffee served in homes, lodges, clubs, churches, schools, offces, restaurants and similar places contain 5 ounces or more of coffee. (e) Said Flavoramic coffeemaker is not unconditionally guaranteed by Product Testing Company, Inc., or Damar Products, Inc. for the lifetime of said coffeemaker. Instead, a one-year guarantee against electrical or mcchanical defects is providcd by the suppliermanufacturer. The cofIcemaker thermostat is not unconditionally guaranteed by the Westinghouse Electric Corporation of Pittsburgh Pennsylvania, for the 1lifetime of said coiIeemaker. Since the Spring of 1958, thc thermostats have been made by a subsidiary of the Westinghouse Electric Corporation and sold to the percolator supplier-manufacturer without any guarantee. Since April 1962, however, the percolator manufacturer has been allowed to make returns to the thermostat manufacturer.

, \\ 876 FEDERAL TRADE cO:\nnSSIO); DECISIONS Initial Decision G4 F.

(f) The dinnerware set is not unconditionally guaranteed for two years against brcaking, chipping, cracking, or crazing for any cause whatever by Damar Products, Inc., and is not unconditionally guaranteed against c1effects for the lifetime of the purchaser, the product, Or Some other unspecified period of time by Damar Products Inc. Inst.ead a one-year ,6'llarantee, involving a service charge of 15 per unit, is provided by the supplier-manufacturer. (g) Said Sun-Craft Cookware Set cloes not consist of Li pieces of heavy aluminum cook'.yare. TIYo of said so-called pieces are a scouting pad and cookbook, and respondents' count of " 15 pieces is made up by separately tallying each component part such as potlids, dividers, etc.

(h) Saiel Damar Proclucts, Inc., does not purchase all of its merchandise directly from the manufacturer and thereby avoid the payment of a middleman s profit, and said savings are not passed on to the purchaser.

Competitive Effects 10. In the course and conduct of their business and at all times mentioned herein, respondents have been in substantial competition in commerce ith corporations: firms and individuals engaged in the sale of articles of merchandise of the same general kind and nature as those sold by respondents.

11. The use by respondents of the aforesaid fa1sc, misleading and deceptive statements, representations and practices has had, and now has, the ca,paeity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations \"cre and are true a.nd into the purchase of substantial quantities of respondents' a.articles of merchandise by reason of said erroneous and mistaken belief. respondents' Contentions Respondents oppose the issuanee of a cease and desist order on seve.ral grounds \"which will be discussed helmy. First, respondents argue that: the Commission has failed to sustain its burden of proof. They argue that since no \"witnesses \There called bv 1:18 Commission to testifv on nnv of the :lliegations of the complai;1t, there has been incornpl te fom;clat1on for tl e issuance of an order. This argument, however, jgnores cornplctely the purpose and e.fect or Section J.11 of the Rules of Practice. The Fe(leral Tra,de Commission Aet gives the Commission espress authority to ma,ke Tules and regulations for the purpose of carrying out the provisions of the \ct. These rules have the force and effect or law. PROD1JC1' TESTING CO. ) Drc. , ET AL. 877 Initial Decision Commission counsel have used these rules correctly and with more tha.n adequate notice to counsel for the respondents. It would be nonsensica.l to require live testimony to prove what has already been admitted by respondents pursuant to the Rules of Practice. It is fundamental that judicial.l a.dmissions are proof possessing the highest possible probative value and no testimony is required to be taken in a case where all of the material allegations of the complaint can be established by such admissions. .Joe B. Hil, et (17. v. Federal Trade Convrni88ion 124 F. 2d 104 (5th Cir. 1941) 3 S.8,D. 436. Second, respondents contend the complaint should be dismissed because the respondents have discontinued the practice complained of. They concede the principle \"\11ich prohibits dismissal.1 for bandonment where it appears that the unlawful praeticcs may be resumed. HO'vever, they cite the testimony of respondent 'J\fargu1ies to the e.flect that the discontinued practices win not be resumed. The assurance of the respondents that they win not resume these practices is not in itself suffcient to ,mrrant the dismissal of the complaint. The record must show the unlikelihood of the resumption of the practice. This is an affrmative defense that must be undertaken and proven by the respondents. It is not for the Commission to disprove the unlikelihood of resumption. The respondents have not supplied the necessary proof in this instance. The fact that Damar Products, Inc. , is presently bankrupt is not suffcient, as will be shown below. There is no allegation or inference that business conditions have cha,nged making the resumption of the practices un likely. For example, see Sheffeld 1l erehandise, Inc. Docket No. 6627 56 F. C. 991 (1960), Firestone T.ire Rubbm' 00. Docket No. 7020, 55 F. C. 1909 (1959), Bell Howell 00. Docket No. 6729 BZ,tmgar.t 00., Inc. Docket No.54 F. C. 108 (19.1), N. Erlanger, 5243, 46 F. C. 1139 (1950) National Retail Furniture Association Docket No. 5324 48 F. C. 1540 (1951), and National Ooat and Suit Industry-y Recovery Boonl Docket No. 4596, H F. C. 1552 (1950), as \Veil as other cases cited by this hearing examiner in his initial decision in Tung-Sol Eleet1'ie Inc. , .et aZ. Docket No. 8514, May 13 1963.

Their.u, counsel for the respondents argues that in any event a dis. missal as to the individual respondent David ,Yo J\Iargu1ies is ap propriatc. Alt.hough that respondent admittedly had direction and control of the corporate respondents, it is contended that he had little or nothing to do with the false representations, being primarily concerned with the finances of the corporations. This contention must be c1ismisscd. It is elementary that the lack of knowlec1ge or mtent is no defense inactions of this type. See Federal Trade Oom, &, 878 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision 64 F.

mission v. Algoma Lnmbe, CO'. 291 U. S. 67 (1934); KO'ch v. Federal Trade Commission 206 F. 2d 311 (6th Cir. 1953); Gimbel Bros. Inc. v. Federal Trade Commission 116 F. 2d 578 (2d Cir. 1941); C lIayers CO'., Inc. v. Federal Trade Commission 97 F. 2d 365 (2d Cir. 1938). Moreover, this argument belies the important roJe Mr. Margulics played. He was not only the principal stockholder of the corporatc respondent Damar but its prcsident as well. Although the advertising was in charge of a vice president, the employment and discharge of that employee was fixed in Mr. Margulies who also had the power to alter or even cancel any proposed advertisements planned by the corporation. Considering the ease with which this individual respondent creates and operates corporations and does business under various trading names, the order must include him if it is have any prophylactic effect at all. Finally, respondents' argument with respect to the bankruptcy issue must be rejected. Communications from the counsel for the receiver of Damar Products, Inc. , indicate the possibility of the debtor, Damar Products, Inc., pcrfecting a plan of arrangement under the bankruptcy proceeding which will enable it to resume ite business operations later. Even an adjudication of bankruptcy would not necessarily terminate the existence of the corporation. A bankrupt corporation "continues to exist as a bankrupt individual continues to live and after it has been discharged from its liabilities it is free to do business again under the corporate name." Harry D. Nims Unfair Competition and Trade 11 marks Baker, V oorkes & Co., Inc., 1947, at pg. 134, citing TheO'bald-Jamen Electric CO'. v. Harr I. WO'O'd Electric CO'. 285 F. 2d 29 (6th Cir. 1922); In re Connolly Wallace CO'. , Inc. 32 F. Supp. 827 MD. Pa. , 1940); Nicholson V. Thomas 277 Ky. 760, 127 SW (2d) 155 (1939); Armington V. Palmer 21 RI 109, 42 A.308, 43 LRA 95 (1898). The New York rule seems to limit the use of the corporate name, see lIntuai Life Ins. CO'., V. lIanin 115 F. 2d 975 (2nd Cir. 1940). As long, therefore, as the possibility exists that Damar Products Inc., will again be sellng and advertising merchandise, this order must apply to it because of its past history of ilegal practices. ORDER It i8 ordered That responclents Product Testing Company, Inc. a corporation, -and its offcers, Damar Products, Inc., a corporation and its oilcers, also doing business as :Mrs. Dorothy Damar, Damar Emma and J ed's Country Store. The Consumer Research Bureau and Product Testing Bur, and David W. Margulies, individually, PRODUCT TESTING CO., I TC" ET AL. 879 857 Initial Decision and as an officer of each of said corporations, and respondents representatives, agents and employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of cofIeemakers, dinnerware, luggage, toaster-broilers or any other articles of merchandise, in commerce, as "commerce is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Using the word "Testing" or the words "Consumer Hesearch Bureau" or "Research Bureau" or any other \vord Of words of similar import or meaning as a part of their respective corporate names or trade names unless such business is actually engaged in conducting bona fide, independent consumer tests, trial offerings or surveys to determine consumer reaction preference or marketability of products.

2. Representing, directly or by implication, through the use of the words "This is a Consumer Test" or "Product Testing Service " or any other word or words of similar import or meaning that respondents are engaged in conducting bona fide, independent consumer tests, trial offerings or surveys to determine. consumer reaction, preference or marketability of products; or misrepresenting, in any manner, the purpose or reason merchandise is offered for sale.

3. Representing, directly or by implication, that any offer to sell said merchandise is made to a limited number of preferred customers; or misrepresenting, in any manner, the class group or number of persons to whom offers to sen merchandise are made.

4. Representing, directly or by implication, that any amount is the usual and euswmary price of merchandise in the trade area or areas where the representations are made when it is in excess of the generally prevailing price or prices at which said merchandise is sold in said trade area or areas. 5. Using the expressions "Retailt "Suggested Retail " or any other words or terms of similar import or meaning in conne,c.tion with the retail prices of merchandise unless the prices so designated are the generally prevailing price or prices at which said merchandise is sold in the trade area, or areas where the represe,ntations arc made.

6. Represen6ng: directly or by implication, that any saving from a trade area price is afforded in the purchase of merchandise unless the price at which it is offered is lower than the generally prevailing price or prices at which said merchandise 880 FEDERAL TRADE COMMISSION DECISIO),TS Opinion 64 F.

is sold in the trade area or areas in which the representations are made.

7. l\'lisrepresenting, in any ma-nncl, the savings available to pureha.sets of respondents' merchandise or the amount by 'which the price of merchandise has been reduced from the price at \\which it is customa.rDy sold by respondents Or their competitors in the usual course of business, in the trade area or areas where the representations are made.

8. Representing, directly or indirectly, that said coffeemaker has the capacity to make or brew any specified number of cups of coffee unless it will in fact brew the specified number of cups of eoft'eo so that each cup may contain five ounces or more; or that any of sajcl products has a ca.pacity, content or size different from what it has in fact.

9. Hepresenting, directly or by implication, that said products are guarant.eed unless the natllre, extent and duration of the guarantee, the manner in which the guarantor ,yill perform thereunder and the name and address of the guarantor are clearly and conspicuously disclosed and respondents do in fact fulfil all of their re\1uirements under the terms of saiel guarantee. 10. using the expression " 15 piece * * '" heavy '" * * alu minmn * * * cookware" or any other words or terms of similar import or meaning to describe a cookware set which docs not in fact contain the specified number of separate cooking utensils; or misreprcsenting in any manner or by any rnea, the number of pieces or constituent parts making up or comprising any of the aforesaid items or sets of merchandise. 11. Representing, directly or by implicat-ion that said merc.hand1ise is purchased directly from the manufacturer or without the payment of profits to middlemen unless such is the fa.c, OrnnoK OF Tire COM:\IISSro::

PEJ3R1J.\HY 1 , ) 19G' This is an appeal by respondents from an initial decision finding that they had engaged in certain false, mislcflc1ing and deceptive acts and practices in commerce in violation of Section 5(a) (1) of the Federal Trade Commission Act, 38 Stat. 719 (1914); 52 Stat. 111 (1938); 15 1.. A. 45(a) (1). The hearing examiner fouml that respondents conduct a n1a.il-order business selling items such as luggage, cof1eemakers, cooking and clinnenyarc to buyers located throughout the United States. Orc1ers are solicited by means of letters: brochures and c:\talogs sent through the LJlited States ma.ils. PRODVCT TBSTIXG co. , INC. , ET AL. 881 8;:7 Opinion There is substantial evidence that the advertising or solicitory materials mailed by respondents contained false, deceptive ancl misleading representations of various kinds constituting violations of law as alleged in the complaint.

On appeal, respondents have raised only two principal issues. They contend that the cease and desist order is improperly issued against David IV. Margulies in his inc1ividual capacity. Their other exceptions are to the terms and scope of the order to cease and desist. The only evidence pointed to by respondents to exculpate Mr. Margulies is his own testimony to the effect that he had direction and control of the corporate respondents only in the sense that the president of any corporation ha.s such direction and control. He further testified that he did not exercise specific control in the sphere of corporate advertising and that this responsibility was delegated to his subordinates. vvl1ile self-compurgating testimony is not completely devoid of probative value, when standing alone without corroboration, it is readily outweighed by documentary or other evidence not weakenec1 by a partisan disahility. In this record there is much evidence to establish that the respondent l\fa.rgulies actually exercises eompJete power and control oyer the activities of the two corporate respondents. IVhile the corporations are not mere fic6ons, the evidence shows that in actual fact l\fargu1ies is tile real party in int.erest behind their operations. fa.rgulies owns a majority of the sh"res of stock of respondent Dam",. Products, Inc., with the bl1lance being held by his father, Isaac G. Margulies. All of the stock of the respondent, l' product Testing Company, Inc., is owned by Damar Products, Inc. 1\lo1'eove1', while not necessarily controlling to our decision heI'e 1\8 Imve previously found in earlier litigation naming )Iargulies "s an individu"l respondent that he was responsible for the therein-found unlawful activities of Damar Products, Inc. Damar Products, f,nc. : et al. Docket No. 7769 59 F. C. 1263, December 6, 1961. This finding was affrmed on appeal. DWlnar PTodilcts, Inc. , et al. v. Federall'trade Oommission, 309 F. 2d 323 (3d Cir. 1962). And, further, in a decision issued this day, we have found the respondent Iargulies responsible for the opemtions of still another corporation. A1'ounel- the- IV oTiel Shoppers Club Docket Ko. 8,160 (1'. 845 hereina. Ali of the ,' respondent 1 argulies' corporations are headquartered at tile same location. Documentary evidence in this record indicates that :Margulies at first admitted his responsibility for the unlawful activities of the corporate respondents. In response to a specification of a subpoena 1 See United States v. Gypsum Co. 333 U. S. 364 , 396 (1948). 882 FEDERAL TRADE CO nIISSIO DECISIONS Opinion 64 F.

duces tecum asking for the na,mes of persons responsible for the sales and promotional activities of the corporate respondents, Margulies submitted a signed statement averring that the: Persons responsible for the advertising, offering for sale, etc., were Joseph Vine and David W. Margu1ies Iargu1ies' own testimony indicates that be exercises powers not ordinarily accorded to the president of a corporation. He testified that he had the responsibility for hiring the other offcers, including the vice president in charge of advertising, the vice presic1ent in charge of operations and the controller. .When asked whether he had authority to fire these offcers, he responded "Sure The witness testified that he c1id review advertising material before mailing or distribution and that he "certainly" had the power to veto or "kill' anything that cause to him for final review. On the basis of the foregoing evidence the hearing examiner :found that the order to cease and desist must Tun against respondent )fargulies jn his individual capacity " * * '" if it is to have any prophylactic ef!eet at all." "lve most heartily agree. An excerpt from the opinion of Judge John Paul in a recently decided and quite similar case accurately and succinctly sums up our conclusion on this issue: To the foregoing we might add the comment that it \vould seem in cases this sort ta be a futie gesture to issue nn order directed to the lifeless entity of a corporation while exempting from its operation the li"ling individuals who were responsible for the megal practices. PMi-Port, Inc. , et al "1, Federal Trade G'ommisston 313 F. 211103, 105 (4th Cir. 1963). vVe turn now to respondents' exceptions to the terms of the order to cease and desist entered by the hearing exam-iner. Respondent first objects to the provisions of paragraphs g and 3 of the orcler on the ground that they prohib-it certain represent.ations even if truthful. R.respondents' interpretation of these provisions of the order is correct, for t.hey flfttly prohibit the respondents from representing that their merchftnc1ise is offered in connection with fl product test or surveyor that it is offered to a limited nmnber of preferred CllS tomers. R.respondents "ould have uS acld a, qualifying phrase such as "except "hen such is the fact' " arguing that unquftlifiecl prohibitions of this type are beyond the pmyer of the Commission. The described prohibitions conform to the Commission s pobcy of forbidding without quabfication any representations which are unlikely to ever be true. This is not a case where respondents are forever barred from making representations "which the normal course of their business requires them to make and ' which could be more often than not truthful, as would be the ease, for example, were we that to flatly prohibit a clothing manufacturer from repl'cc:enting PRODVCT TESTING CO, ) Ilw. , ET AL. 883 857 Opinion his garments were all wool on the basis of a record showing that one or two garments so advertised were in fact not composed solely of wool. Respondents here are not engaged in testing or consumer surveys or limited offerings to preferred customers but are hucksters pure and simple. They are engaged solely in the sale of merchandise for profit, and their advertising, giving a contrary representation is completely false. Thus, the order must comprehensively enjoin such misleading representations without qualification. In this connection we note that the first paragraph of the order to cease and desist does contain a qualification in that, pursuant to its terms, the respondents are forbidden use of the words "Testing, Consumer Research Bureau " or "Research Bureau" or words of similar meaning as a part of a corporate name or trade name "unless such business is actually engaged in conducting bona fide, independent consumer tests: trial offerings or surveys to determine con. Sumer reaction, preference or marketability of products." 'Vhile this paragraph of the order was promulgated by the hearing examiner exactly as it was contained in the complaint, the record discloses that respondents conducted no tests, surveys or research and had no facilities for doing so. Uncler these circumstances, paragraph 1 of the orders should prohibit the use of the words testing, consumer research bureau, research bureau or words of similar import as a part of a trade name without qualification, and the hearing examiner s proposed order wil be modi fied by striking therefrom the qualifying language beginning with the word "unless The Commission s authority to enter orders which unqualifiedly prohibit a course of conduct is clear. Oaro/lme R. 1I acher, et al. Federal Trade Oommission 126 F. 2d 420 (2d Cir. 1942). It is highly unlikely that these respondents wil change their method of operation a1'ld become a bona fide research or testing organization. I--ow ever, should this occur, the Commission will be available to enter tain an application for an appropriate modification of this ordbr. See Federal Trade 001nmi8sion v. National Lead Oompany, et al. 352 U. S. 419 (1957) ; P. Lorilard 00. v. Federal Trade Oommission 186 F. 2d 52 (4th Cir. 1950).

The remainder of respondents' objections to the te.rms of the order to cease and desist are not suffciently meritorious to warrant detailed discussion and are denied.

The initial c1ecision of the hearing examiner wil be moc1ified to conform to the views of the Commission as expressed rein and, as so modified, wil be adopted as the decision of the Commission. Commissioner Elman concurred in the result, and Commissioner Iteilly dic1 not participate.

884 FEDERAL TRADE CO L\nSSION DECISIO:\S Complai1)t 64 F.

FINAL ORDER This matter having been heard by the Commission upon respondents' appeal from the hearing examiner s initial decision and upon briefs in support thereof and in opposition thereto; and The Commission, for the reasons stated in the accompanying opinion, having determined that the appeal should be denied and that the initial decision should be modified, and, as so modifiec1, adopted as the decision of the Commission:

It is ordered That the initial decision of the hearing examiner be modified by striking the following ,words from paragraph 1 of the proposed order to cease and desist:

unless such business is actually engaged in conducting bona fide, independent consumer tests, trial offerings or SlllTCYS to determine consumer reaction, preference or marketability of products.

It is further ordered Thllt the initial decision of the hearing examiner, as modified, be, and it hereby is, adopted as the decision of the Commission.

It i8 fmther ordered That responclents shall, within sixty (60) days after service upon them of this order, file \Tith the Commi sioIl a report, in writing, setting forth in detail the manner and form in which they hayc complied with the oreler to cease and desist. Commissioner Elman concurring in the result, and Commis:,ioner Reilly not participating.