Capitol Manufacturing Corporation et al.

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IN THE :JL-\. TTER OF C)..PITOL l\IANUF ..-\.CTURING CORPORATION ET AL. ORDER, ETC. IN REG.~RD TO THE ALLEGED nOLATION OF THE FEDERAL TRADE CO?DrrSSION ACT Docket 8/48. Complaint, Xov. 196,* Decision, Jlay 9, 1968 Order requiring a Providence, RI" distributor of watches to cease preticketing its watches rdth fictitiously high retail prices, simulating nationally known brand names, falsely guaranteeing, and concealing indicia regarding composition 01' quality of its products.

COl\IPLA.INT 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 Capitol :Manufactuting Corporation, a corporation, and Louis Rafanelo, individually and as an officer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it a.appearing to the commission that a proceeding by it in respect thereof \youlcl be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

P AR\.GRAPH 1. Respondent Capitol :Jlanufactnring Corporation is a corporation organized, existing and doing business under and virtue of the laws of the State of Rhode Island: \with its principal office and place of business located at 6721h Broadway, in the, city of Providence, State of Rhode Island.

Respondent Louis Rafanelo is an officer of the corporate respondent. He formulates, directs and controls the acts and practices of the corporate respondent, induc1ing the acts and pra.ctices 'hereinafter set forth. His address is the, same as that of the corporate respondent. PAR. 2. Respondents are now, and for some time last. past have been engaged in offering for sale, sale and distribution of watches, appliances, noyelties and other articles of merchandise to retailers for resale to the public.

\R. 3. In the. course and conduct of their business, respondents now cause~ and for some tjme last past have caused, their said products, when sold, to be shipped from their place of business in the State *Reported as amended b~. Hearing Examiner s order of Jan, 25 , 1968, by changing the name of the respondent to " Capito) :.Ianufactllring Corporation." The name of respondent was incorrectly stated as "Capital Man ufacturing Corpora tioll, CAPITOL lvIA::-rUFACTURIYG CORP. ET AL. 873 Si2 Complaint of Rhode Island to purchasers thereof located in various other States of the Uniteel States, and maintain, and at all times mentioned herein have maintained, a substantial course, of trade in sflid products in commerce, as "commerce" is defined in the Feder:1l Trade Commission Act.

PAR. 4. In the course and conduct of their aforesaiel business, and for the purpose of inducing the purchase aT their watches, the respondents have engaged in the practice of attaching, or causing to be attached, price tickets to their said watches upon which certain amounts are printed.

Respondents thereby represent, directly or by implication, that said amounts are a good faith estimate of the actual retail price, which does not appreciably exceed the highest price at which substantial sales of said watches,s are made in respondents' trade area. PAR. 5. In truth and in fact, said pric~s appearing on the respondents' price tags are not their good faith estimate of the actual retail prices at which substantial sales aT respondents' watches are and have been made in their trade area, but appreciably exceed the highest price at which substantial sales are made in respondents' trade area. Therefore, the statements and representations as set forth in Paragraph Four hereof were, and are, false, misleading and deceptive. PAR. 6. In the course and conduct. of their aforesaid business, and for the purpose of iliducing the purchase of their watches, the respondents have used names which simulate the letters, sound and appearance of names of nationally known and advertised watches to describe the inexpensive watches sold and distributed by them in commerce. Typical and illustrath-e of the aforesaid names are the following: Hormelton Grumen PAR. 7. By and through the llse of the above-quoted names and others of similar import not specifically set out herein, the respondents represented that tl1eir said \\atc.hes were "Hamilton" and "Gruen" "atehes manufactured by the Hamilton ,Yatc.h Company, Lancaster, Pennsylvania and the Gruen ,Yatch Company, 20 "'Vest 47th Street, Nm, York New York, respectively.

PAR. S. In truth and in fact, respondents are not selling and distributing either "Hamilton" or "Gruen:' watches, but an inexpensive pin-lever type of watch.

Therefore: the statements and representations as to the names of the watch.hes as set forth in Paragraphs Six and Seven hereof were and ate false, misleading and decepti ve.

41;8-34'5-72- Complaint 73 F.

P.till. 9. In the. course and conduct of their aforesaid business, and for the purpose ofindncing the purchase of their aforesaid watches the. respondents have made numerous statements on guarantee. certificates enclosed 'with their watches.

Typical and illustrative of the aforesaid statements but not all inclusive thereof, are the following:

Electra T,,'o Year Senice Guarantee Certificate T,yo Years Service Guarantee 'Ye guarantee tIlIs watch for 2 years from date of purchase against defects in lllfl terial and workmanship.

PAR. 10. By and through the use. of the above-quoted statements and representations and others of similar import and meaning, but not specifically set out herein, the respondents represent, and have represented, directly or by implication:

a. That the guarantor is an organization identified as "Electra. b. That all of the obligations and requirements under the terms of the guarantee are fully, satisfactorily and promptly performed by the guarantor.

c. That the said watches will operate, properly for at least the. hyo year period l'l:pre~eIlted in the guarantee. PAR. 11. In truth and in fact:

a. The-guarantor is the. respondent, so that respondent has thereby failed to identify the. guarantor.

b. ~-\.ll of the obligations and requirements under the terms of the guarantee are not fully, satisfactorily and promptly performed by the guarantor.

c. Few, if any of said ,,-atches \"ill operate properly for at least the h,o year period represented in the guarantee. Therefore, the statements and representations as set forth in Paragraphs Nine. and Ten hereof \were and are false, misleading and deceptive.

PAR. 12. Certain of the. watches offered for sale and sold by respondents are in cases which consist of two parts, that is, a back and bezel. The back part has the. appearance. of stainless steel. The bezel is composed of base. metal which has been treated or processed to simulate or have the appearance of precious metal Such bezels are fini:::hecl in color simulating gold or gold alloy. Said \yatchcases are marked ,with the term " Base IHetaF OIl the back ,which indicates that the entire \yatch is base metal. I-Ioweyer, respondents have caused to be affixed to the hacks of their \yatches gummed stickers which conceal the filet that the \vntchcases are composed of base metal. ;

CAPITOL MANUFACTURING CORP. ET AL. 875 872 Complaint PAR. 13. The practice of respondents in offering for sale and selling watches the cases of ,which are composed of base m~tal treated processed to simulate 01' have the appearance of precious metal or stain- Ip88 steel as aforesaid and concealing the fact that. suchwatchc.ases are made of base metal by the use, of gummed labels ,yhic11 cover the markings on the bac.ks is misleading 'and deceptive and has 'R substantial tendency and capacity to misleacl members of the purchasing public into the erroneous and mistaken belief that said bezels are composed of precious metal 'or stainless steel.

Therefore, the acts and lwaet.ices set forth in Paragraph Twelve hereof, ,were and are false, misleading and c1eeeptive. PAR. 14. In addition to the aforesaid fictitious price tags, guarantees representations of t\yO year durability~ metal content and brand names respondents on the tags, labels and markingsattac.hed to said ,,-atches have imprinted phrases such as "Lifetime1\Iainspringt ';Electronicandy Timed, S\yiss Precision Craftsmanship" and other similar expressions, and various numerals \which, under the circumstances, could be, taken for statements of the number of jewels in the watch. Respondents have. thereby combined various representations so as to create, and have created, the impression that said "latches are expensi\- , delicately designed, high qua lit)', bnmd nrlme \ya tches. -\R. 15. In truth and in fact, said watches are not expensive, delicately designed, high quality, brand name watches but, on the contrary, are cheap, nondescript, pin lever watches. Therefore, the acts and practices set forth in Paragraph Fourteen hereof, \were and are false, misleflding and deceptive. PAR. 16. By and through the use of the aforesaid acts and practices respondents place in the hands of jobbers, retailers, dealers and others lle means and instrumentalities by and through \\'which they may mislead and clcceiye. the public in the manner and as to the things hereilla Love, alleged.

\R. 17. In the conduct. of their business. at all time lnentionecl hC'l'ejn, respondents have been in substantial competition, in commerce, with C'orpori1tions finns. and incliyjdnals in the, sale or \yatchc:s of the same general kind and nature as that sold by respondents. \R. 18. The use by respondents of the aforesaid false, misleading and deceptlye statements, representations and practices has had, and 1l0\Y has, the capacity and tendency to mislead members of the purclwslng public. into the erroneous and mistaken belief that said statements anc1representations \were and are true and into the purchase or 8ubstftl1tial quantities of respondents products by reason of said erroneOllS and mistaken belief.

876 FEDERAL TRADE CO::.\IMISSION DECISIONS Initial Decision 73 F.

PA,n. 19. The nforesaic1 acts and practices of respondents, as herein alleged, were. fll),d are all to the prejudice a,nd 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 of the Federal Trade Commission Act.

ill)'. llcu'ry E. JIiddleton: Jr. supporting the complaint. i11i'. Sents Friedman and ill-r. FeTg' us J. ill GOslee/' Providence, R. for respondents.

INITIAL DECISION BY ,VILLIAl\I K. JACKSON, HEARING EXAMINER JANUARY 31 , 1968 This proceeding was commenced by the issuance of a complaint on November 21 , 1967, charging the corporate respondent 1 and Louis Rafanelo, indivdually and as an officer of said corporation, with unfair and deceptive acts and practices and unfair methods of competition in commerce, in violation of Section 5 of the Federal Trade Commission ct by making certr.in false, misleading and deceptive claims in connection with the sale of watches and other merchandise sold by them. The initial hearing scheduled in the complaint for January 8, 1968 \yas canceled by order of the undersigned on motion of counsel supporting the complaint due to the inability to obtain service or the complaint on respondents by registered mail. Personal service of the complaint ,yas thereafter made upon said respondents on December 22 19G7.

Respondents have failed to file ans\"\er to the complaint within thirty (30) days, as set forth in the Notice served with said complaint and as prm-ic1ed by Section 3.12 (a) of the Commission s R.ules of Practice for Ac1judicati ye Proceedings, and they are now in default under Section 3.12 (c) of sa,id rules.

By reason of such default, respondents have ,yaived their right to appear and contest the allegations of the complaint and the hearing examiner under Section 3. 12 (c) or the rules is authorized, without furthe.r notice to the re.sponde:nts, to find the facts to be. as alleged in the complaint and to enter an initial decision containing such findings appropriate conc.lusions and order.

1 The complaint as originally issuef1 incorrectly spelled the name of the corporate respondent as " Capital l\lanufacturing Corporation." An Order issued by the Hearing Examiner of January 25 106S amended the complaint to sub;;;titllte the correct name of the corporate respondent " Ca!)itol :\Ianufactllring Cor!)oration " where\'er the corporate nrome' appeared in the complaint.

, CAPITOL MA:NuFACT1:JRL~G CORP. ET AL. 877 8iZ Initial Decision FI~DINGS 1. Respondent Capitol 1\Ianuracturing Corporation is a corporation organized, existing and doing business under and by virtue or the laws of the State, of Rhode Island, with its principal office and place of business located at 6721/2 Broadway, in the city of Providence, State or Rhode Island.

Respondent Louis Rafanelo is an officer of the corporate respondent. I-Ie rormulates, directs and controls the acts and practices of the corporate respondent, including the acts and practices hereinarter set rorth. His address is the same as that of the corporate respondent. 2. Respondents are no\\-, and ror some time last past have been, engaged in offering ror sale, sale and distribution of watches, appliances, nm-elties and other articl es or merch andise to retailers for resale to the public.

3. In the course and conduct of their business, respondents now cause, and for some time last. past have caused, their said products when sold, to be shipped.d from their place or business in the State of Rhode Island to purchasers thereor located in various other States of the United States, and maintain, and at all times mentioned herein have maintained, a substantial course of trade in said products in commerce, as ';comll1erce" is defined in the Federal Trade Commission Act. 4. In the course and conduct or their aforesaid business, and for the purpose of inducing the, purch~lse 01 their \,:-atches, the respondents have engaged in the practice of attaching, or causing to be attached price tickets to their said \\'atches upon which certain amounts are printeel.

Respondents the-re.by represent. directly or by illlP1iention, that said amounts are a good faith estimate of the actual retail price which does not appreciably e,exceed the highest price at which substantial sales of said watches are made in respondents trade area. 5. In truth and in fact, said prices appearing on the respondents price tags are not their good faith estimate or the actual retail prices at which substantial sales of respondent:3~ watches are and have been . made in their trade area. but a ppreciflbl~' exceed the highest price at which.h substantial sales are mac12 in respondents: trade area. Therefore, the statements and representfltions as set forth in Finding 4 hereof ,were, and are, false, misleading and deceptive. 6. In the course and conduct of their aforesaid business, and ror the purpose of inducing the purcha:::e of their watches, the respondents have used names ,which simulate the letters~ sound and appearance of names of nationallv known and ad\-erti:::ed watches to describe the inexpensive watches sold and distributed by them in commerce. Initial Decision 73 F.

Typical and illustrative of the aforesaid names are the following: Hormelton Grumen 7. By and through the use of the above-quoted names and others of similar import not specifically set out herein, the respondents representeel that their said watches were "Hmnilton" and "Gruen watches, manufactured by the I-Iamilton ,Yatch Company, Lancaster Pennsylvania, and the Gruen ,Vatch Company, 20 ,Vest 47th Street New Y ork, New York, respecti ve1y.

8. In truth and in fact, respondents are not selling and distributing either "Hamilton" or "Gruen " \yatches, but an inexpensive pin-Ieyer type of \,atch.

Therefore, the statements and representations as to the names of the watches as set forth in Findings 6 and 7 hereof "",ere and are false, misleading and deceptive.

D. In the course and conduct of the.ir aforesaid business, and for the purpose of inducing the purchase of their aforesaid watches, the respondents have made numerous statements on gua.rantee certificates enelosed with their watches.

Typiea1 anel illustrative of the aforesaid statements but not all inclusive thereof, are the following:

Electra Two Year Service Guarantee Certificate Two Years Seryiee Guarantee "\Ve guarantee this watch for 2 years from date of purchase against defects in material and workmanship.

10. By and through the use of the above-quoted statements and representations and others of similar import. and meaning, but not specifically set out here, , the respondents re,present, and have represented, directly or by implication:

a. That the guarantor is an organization identified as "Eleetra. b. That all of the obligations and requirements under the terms of the guarantee are fully, satisfactorily and promptly performed by the guarantor.

c. That the said watches will operate properly for at least the hTO year period represented in the guarantee.

11. In truth and in fact a. The guarantor is the respondent, so that respondent has thereby failed to identify the guarantor.

b. All of the obligations and requirements under the terms of the guarantee are not fully, satisfactorily and promptly performed by the guarantor.

CAPITOL MANUFACTURING CORP. ET AL. 879 872 Initial Decision c. Few, if any, of said \yatches will operate properly for at least the two year period represented in the guarantee. Therefore, the statements and representations as set forth in Findings 9 and 10 hereof were and are false, misleading and deceptive. 12. Certain of the watches offered for sale and sold by respondents are in cases which consist of two parts, that is, a back and bezel. The back part has theappeaTance. of stainless steel. The bezel is composed of base metal which has been treated or processed to simulate or have the appearance of precious metal. Sneh bezels are finished in a color simulating gold or gold alloy. Said \yatchcases are marked with the term "Base :Metal on the back which indicates that the entire "\yatch is base metal. However, respondents have caused to be affixed to the backs of their watches gummed stickers \which eonceal the fact that the watchcases are composed of base metal.

13. The practice of respondents in offering for sale and sellingwatches the eases of which are composed of base metal treated or processed to simulate 01' have the appearance of precious metal or stainless steel as a.ioresaid and coneealing the fact that such "\\atc.hcases are made of base metal, by the use of gummed bbels which cover the markings on the backs, is misleading and deceptive and has a substantial tendency and capflcity to mislead members of the purchasing public into the erroneous and mistaken belief that said bezels are eO1llposec1 of precious metal or stainless steel. Therefore, the acts and practices set forth in Finding 12 hereof were and are false, misleading and deceptive. 14. In addition to the aforesaid fictitious price tags, guarantees, representations of two year durability, metal content and brand name, respondents on the tags, bbels and markings attached to said watches have imprinted phrases such as "Lifetime j)IainSI)ling, " "Electronically Timed Swiss Prec.ision Craftsmanship" and other similar expressions, and various numerals ,,-which, lUlder the circumstances could be taken for statements of the number of jewels in the watch. Respondents have thereby combined various representations so as to create, and have ereated, the impression that said watches are expensive, delicately designed, high quality, brand name watches. 15. In truth and in fact, said watches are not expensive, delicately designed, high quality, brand name watches but, on the contrary, are che.ap, nondescript, pin-lever watches.

Therefore, the acts and practices set forth in Finding 14, hereof were and are false, misleading and deceptive. ,.

880 FEDERAL 'TRADE CO:\IMISSION DECISIONS Initial Decision 73 F.

16. By and through the use of the a.rore.said1 acts and practices respondents place in the hands of jobbers, retailers: dealers and others the means and instrumentalities by and through which.h they may mislead and dec.eiye the public in the manner and as to the things hereinabove found.

17. In the conduct. of their business, at all times mentioned herein respondents have been in substantial competition, in commerce, with corporations, firms and ill\liyiduals in the sale or \,atches of the same general kind and nature as that sold by respondents. IS. The use by respondents of the aforesaid fn1se, misleading and deceptive statements, representations and practices has had. anclno\', has, the capacity and tendency to mislead members of the FLU'chasing public. into the erroneous and mistaken belief that said statements and representations were and are true, and into the, purchase of substantial quantities of responc1ellts~ products by reason or said erroneous and mistaken belier.

COXCLUSIOXS 1. The aforesaid acts and practices or respondents, as herein found "ere and are all to the prejudice :llld injury of the public 'and or respondents' competitors and constituted, and 110\\ constitute, iJnrair methods of competition in commerce and unfair and c1ecepti,-e acts and practices in commerce: in 'dolation of Section ;) of the Federal Trade Commission Act.

. The Federal Trade Commission has jurisdiction of and oyer respondents and the subject matter of this proceeding. 3. The complaint herein states a cause of action and this proceeding is in the public interest.

ORDER It is onlei'ed That respondents Capitol :.Iannfacturing Corporation, a corporation~ and its officers~ 'and Louis Rafanelo, individually and as an officer or said corporate.ion ~ and respondents: agents, representatrves anc employees~ Ctlrectl:\l or tnrong 1 any corporate or 0 . 1e1' device, in connection \\ith the offering ror sale: sale or distribution or watches or other products. in commerce: as ;;corlllnerce ~' is defined in the Federal Trade Colllmissiol Acl do fortln\"ith cease and desist from:

1. Disseminating or distributing any list, preticketec1 or suggested retail price that is not established in good faith as an honest estimat2 of the, actual retail price or that appreciably ex- , , ....

CAPITOL MA~UFACTURIXG CORP. ET AL. 881 872 Initial Decision ceec1s the highest price at \yhieh substantial sales are made in respondents' trade area.

2. ~lisre,prese,nting, in any manner, the prices at which.h respondents' merchandise is sold at retail.

3. Using the names "Hormelton " or "Grumen " or any other names ,"\which simulate the letters, sound or appearance of the names of nationally known and advertised ,,-atehes as descriptive of respondents' watches; or misrepresenting in any manner the make, model, brand, source, origin or manufacture ofrespondents products.

4. Representing, directly or by implication, that any product is guaranteed unless the nature and extent of the guarantee, the identity of the guarantor, and the manner in \which the guarantor \will perform thereunder are clearly and conspicuously set forth in immediate connection there\with.

5. Representing, directly or by implication, that respondents procluctsare guaranteed unless respondents fully, satisfactorily and promptly pe.rform all of their obligations and requirements under the. terms of the guarantee.

G. Representing, directly or b~- implication, that respondents '\yMehes ,will operate propel'Jy for hyo years or for any other period of time: P1' otided. 11O1('('(' e;-\ That it shan be it defense in any enforcement proceeding instituted hereundel' for respondents to esta blish that-said \\-atches will operate properly in normal use for the. period of time, represented.

7. Offering for sale or selling \\"atches. the cases of which are in \Thole or in part composed of base metal which has been treated to simulate precious metal 01' stainless steel without clearly 'find conspicuously disclosing on such cases the true metal composition (If such treated cases or parts.

8. Obliterating. or obscurin,Q" any markings or ler- 'concealin,Q'.L.,. L.- ends regarding the quality, composition, source or origin of responclents products.

D. Representing, directly or b~' implication, that respondents watches ate expensive, high qua,lity, delicately designed or brand name \'latches: Provided. 110Icez' That it shall be a. defense in any enforcement. proceeding instituted hereunder for respondents to establish tha,t sa.id \yatches are of the value, quality, design or source repre,sented.

10. l\lisrepresenting, in any manner the grade, quality, class or' type of any of respondents' products. &, 882 FEDERAL TRADE COlVIMISSION DECISIONS, (Complaint 73 F.

11. Placing in the hands of agents, salesmen, distributors or retail dealers, or any other person or persons means and instrumentalities by and through which they may deceive or mislead the purchasing public. as hereinabove prohibited. FIN _-\L ORDER No appeal from the initial decision of the hearing examiner having been filed, and the Commission having determined that the case should not be placed on its o\\"n docket for review and that pursuant to Section 3. 51 of the Conllnission s Rules of Practice (effective July 1 1967) the initial decision should be adopted and issued as the decision of the Conmlission:

It is ordered That the initial decision of the hearing examiner shall on the 9th day of ~fay, 1968, become the decision of the Commission. It is fzl'J'thel? ordered That Capitol l\lanufacturing Corporation corporation, and Louis Rafanelo, indi\"idually 'and as an officer of said corporation, shall, "\within sixty (60) days after service of this order upon them, file \with the Commission a report. in \\Titing, signed by such respondents, setting forth in det::J.il the manner and form of their compliance with the order to cease ::J.,nd desist.