Devour Chemical Company, Inc

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

In’ THE Marian OF ‘DEVOUR CHEMICAL COMPANY, INC, ‘ET AL.

‘CON SENT ORDER, ETC., IN. REGARD TO THE ALLEGED5 1 7 1 1 10 1635 752 187 65 95.460442 VIOLATIONS 1 7 1 1 11 1843 781 42 22 96.475525 OF5 1 7 1 1 12 1902 781 74 22 94.746269 THEA 1 7 1 2 0 1034 809 599 66 -1 5 1 7 1 2 1 1034 811 148 64 88.539055 FEDERAL5 1 7 1 2 2 1201 809 118 64 90.216400 TRADE:5 1 7 1 2 3 1328 815 226 53 87.492569 COMMISSION.5 1 7 1 2 4 1565 831 68 22 95.678139 ACT2 1 8 0 0 0 796 900 1068 60 -1 3 1 8 1 0 0 796 900 1068 60 -1 4 1 8 1 1 0 796 900 1068 60 -1 5 1 8 1 1 1 796 903 127 39 38.529778 ‘Docket:5 1 8 1 1 2 940 908 125 48 34.898590 O-2294.5 1 8 1 1 3 1078 902 182 55 95.624725 Complaint,5 1 8 1 1 4 1269 900 61 56 93.027458 Oct.5 1 8 1 1 5 1347 908 23 30 71.665054 2,5 1 8 1 1 6 1388 900 252 60 87.374252 1972—Decision,5 1 8 1 1 7 1651 908 70 34 76.994415 Oct.5 1 8 1 1 8 1738 908 28 30 91.762810 2,5 1 8 1 1 9 1779 908 85 25 77.571136 1972.2 1 9 0 0 0 673 960 1325 466 -1 3 1 9 1 0 0 673 960 1325 391 -1 4 1 9 1 1 0 673 960 1324 67 -1 5 1 9 1 1 1 673 965 127 53 96.742561 Consents 1 9 1 1 2 817 985 85 24 96.970734 orders 1 9 1 1 3 920 970 150 44 96.804176 requiring5 1 9 1 1 4 1087 991 39 18 95.634842 an5 1 9 1 1 5 1143 965 93 53 94.691574 Alma,5 1 9 1 1 6 1255 981 151 41 93.298149 Arkansas,5 1 9 1 1 7 1421 1003 7 11 42.791290 .5 1 9 1 1 8 1431 970 233 57 96.808090 manufacturer,5 1 9 1 1 9 1684 960 95 59 88.325241 seller,5 1 9 1 1 10 1800 962 61 53 96.993317 ands 1 9 1 1 11 1878 960 119 49 55.216251 distrib-4 1 9 1 2 0 742 1019 1253 38 -1 5 1 9 1 2 1 742 1028 67 23 92.658104 utors 1 9 1 2 2 826 1027 32 24 96.314156 of5 1 9 1 2 3 873 1028 160 24 96.328712 households 1 9 1 2 4 1048 1019 139 37 96.604530 cleaners,5 1 9 1 2 5 1206 1034 106 28 96.623779 among5 1 9 1 2 6 1329 1028 84 23 96.349640 others 1 9 1 2 7 1429 1028 100 28 96.607605 things5 1 9 1 2 8 1547 1028 31 23 96.912674 to5 1 9 1 2 9 1595 1020 84 31 96.712364 ceases 1 9 1 2 10 1696 1027 43 23 95.706238 its5 1 9 1 2 11 1755 1026 154 31 93.245255 operations 1 9 1 2 12 1927 1026 68 30 84.590637 of.a4 1 9 1 3 0 742 1063 1255 46 -1 5 1 9 1 3 1 742 1070 166 28 96.184151 marketing5 1 9 1 3 2 919 1076 137 23 96.460014 programs 1 9 1 3 3 1067 1070 96 30 96.318451 where5 1 9 1 3 4 1176 1063 138 46 96.715683 financial5 1 9 1 3 5 1326 1067 86 37 96.470497 gains5 1 9 1 3 6 1420 1070 34 24 94.519203 to5 1 9 1 3 7 1466 1067 195 36 96.066978 participants5 1 9 1 3 8 1675 1065 53 28 95.831985 ares 1 9 1 3 9 1739 1069 177 33 92.603691 dependents 1 9 1 3 10 1917 1075 80 23 92.603691 ‘upon4 1 9 1 4 0 742 1099 1255 50 -1 5 1 9 1 4 1 742 1105 54 31 87.158081 not5 1 9 1 4 2 808 1112 67 28 87.158081 only5 1 9 1 4 3 889 1112 50 24 96.457550 thes 1 9 1 4 4 951 1112 62 25 96.821091 sales 1 9 1 4 5 1026 1112 33 24 97.000259 of5 1 9 1 4 6 1072 1112 50 24 96.913345 thes 1 9 1 4 7 1135 1099 158 47 90.147316 promoter’5 1 9 1 4 8 1292 1118 14 18 35.181091 $s5 1 9 1 4 9 1320 1112 96 29 95.574379 goods,5 1 9 1 4 10 1431 1112 53 24 95.574379 but5 1 9 1 4 11 1498 1118 78 22 96.742378 upon5 1 9 1 4 12 1590 1112 50 23 96.742378 thes 1 9 1 4 13 1653 1111 63 28 96.155182 sales 1 9 1 4 14 1730 1111 33 30 96.496971 of5 1 9 1 4 15 1776 1104 221 45 53.789143 redistributor-4 1 9 1 5 0 743 1139 1254 49 -1 5 1 9 1 5 1 743 1154 81 28 96.716866 ships5 1 9 1 5 2 837 1154 185 28 90.769447 necessarily.5 1 9 1 5 3 1027 1154 170 29 95.895332 predicated5 1 9 1 5 4 1210 1156 83 27 95.289055 upon5 1 9 1 5 5 1301 1154 51 24 95.175034 thes 1 9 1 5 6 1363 1153 195 30 96.162216 exploitation5 1 9 1 5 7 1572 1152 31 26 96.913071 of5 1 9 1 5 8 1616 1153 99 24 96.693695 others5 1 9 1 5 9 1728 1159 43 18 81.643013 as’5 1 9 1 5 10 1777 1139 84 47 93.437157 well:5 1 9 1 5 11 1866 1147 131 41 67.026596 ~misrep-4 1 9 1 6 0 743 1194 1253 33 -1 5 1 9 1 6 1 743 1197 148 28 95.990433 resenting5 1 9 1 6 2 901 1197 69 29 96.542931 past5 1 9 1 6 3 980 1196 137 29 95.833412 earnings5 1 9 1 6 4 1129 1196 31 25 96.500130 of5 1 9 1 6 5 1169 1194 196 32 92.530899 participants5 1 9 1 6 6 1375 1203 6 24 85.974373 ;5 1 9 1 6 7 1392 1196 130 31 96.622681 running5 1 9 1 6 8 1533 1202 21 19 70.184120 a:5 1 9 1 6 9 1561 1200 137 25 70.184120 programs 1 9 1 6 10 1710 1195 31 24 95.888390 in5 1 9 1 6 11 1753 1195 50 24 96.446991 thes 1 9 1 6 12 1815 1195 107 24 93.299217 nature5 1 9 1 6 13 1933 1195 63 24 92.607109 of.a4 1 9 1 7 0 742 1231 1254 38 -1 5 1 9 1 7 1 742 1239 124 29 93.188431 lottery5 1 9 1 7 2 856 1234 13 46 93.097870 ;5 1 9 1 7 3 879 1239 109 37 96.634811 failing5 1 9 1 7 4 1001 1239 30 24 96.988754 to5 1 9 1 7 5 1045 1238 110 33 81.576447 inform,5 1 9 1 7 6 1168 1238 205 35 95.789131 participants.5 1 9 1 7 7 1378 1231 39 32 75.915939 of5 1 9 1 7 8 1424 1238 78 31 96.718254 theirs 1 9 1 7 9 1516 1238 80 32 93.256569 rights 1 9 1 7 10 1609 1237 145 33 88.354729 to.cancel5 1 9 1 7 11 1768 1237 87 24 95.967430 theirs 1 9 1 7 12 1862 1237 134 31 95.967430 contract4 1 9 1 8 0 745 1271 1253 55 -1 5 1 9 1 8 1 745 1276 104 28 95.651260 within5 1 9 1 8 2 866 1273 82 46 97.000069 three5 1 9 1 8 3 964 1276 135 39 96.729057 business5 1 9 1 8 4 1114 1281 66 43 91.738060 days5 1 9 1 8 5 1192 1281 10 41 69.171127 ;5 1 9 1 8 6 1221 1281 59 44 83.088318 and.5 1 9 1 8 7 1295 1271 169 52 96.912437 furnishings 1 9 1 8 8 1479 1286 101 40 96.364098 means5 1 9 1 8 9 1596 1276 66 49 94.027534 and.5 1 9 1 8 10 1671 1275 288 47 91.294090 instrumentalities.5 1 9 1 8 11 1967 1279 31 41 96.775078 of4 1 9 1 9 0 742 1311 158 66 -1 5 1 9 1 9 1 742 1311 158 66 72.572449 deception,3 1 9 2 0 0 820 1351 650 75 -1 4 1 9 2 1 0 1193 1351 277 75 -1 5 1 9 2 1 1 1193 1420 15 2 43.044991 _5 1 9 2 1 2 1239 1351 213 75 46.057655 CompLarnt.2 1 10 0 0 0 668 1409 1335 1343 -1 3 1 10 1 0 0 668 1409 1330 480 -1 4 1 10 1 1 0 708 1409 1289 86 -1 5 1 10 1 1 1 708 1412 181 73 61.473965 Pursuant to the provisions of the Federal Trade Commission ‘Aet, and-by virtue of the. authority vested in it by ‘said Act, the Federal Trade Commission, having reason to. believe’ that: Devour Chemical Company, Inc., a corporation, and.Otis 'D. Powell, Jr., individually and asan officer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect: as follows:

Paracrapu 1. Respondent Devour Chemical Company, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Arkansas with its principal office and place of business located at Highways 64 and 71, in the city of Alma, State of Arkansas.

Respondent Otis D. Powell, Jr., is an individual and is an officer of the corporate respondent. He formulates, directs, and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. His address 1 is the same as that of the corporate respondent.

Par. 2. Respondents are now, and for some time last past have been, engaged in the business. of manufacturing, advertising, offering for sale, selling, and distributing household cleaners under the brand names “Glasshine,” “All Purpose Cleaner,” “Ruff & Tuff,” “Carpet Shampoo” and “Poodle Kleaner,” to distributors and to the public. Par. 3. In the course and conduct of their business as aforesaid, respondents now cause, and for some time last past have caused, their 552 FEDERAL TRADE .COMMISSION. DECISIONS Complaint 81 FEC.

set products, when sold, to be shipped from their place of business in . the State of Arkansas to purchasers thereof located in various other States of the. United States other than the state of origination, and maintain, and at all times mentioned herein have maintained, a substantial course of trade in said products in commerce, as “commerce” is defined in the Federal Trade Commission Act. Par. 4. In the course and conduct of the respondents’ aforesaid business, and for the purpose of inducing the purchase of their said prod- ‘ucts, the respondents have employed and are now employing a marketing program which operates as follows:

. In order to become a participant (or “customer,” as respondent designates them) in the program, an individual must first purchase a minimum of $75 of respondents’ products. He is then required to recruit two additional customers within ‘a 45-day period to begin his particular group, over which he is considered the head. All subsequent customers . are also required to recruit two new customers within a 45-day period. Each new customer in turn becomes the head of his particular group and, thus, the system works in a pyramiding down manner with each new group beginning with each new customer. With respect to the group he heads, the customer receives 17 percent commission on the purchases of the first two customers, 4 percent on the purchases of the third through the 2,046th customer and 7 percent through the next 2,048 customers.

Respondents’ program also has a category referred to as a “Direc- ” This individual conducts sales meetings, which are the sole method of selling in the program. The Director receives a commission of $16 for each new customer that is recruited as a result of his meeting. Jn addition, he recruits and trains other directors and receives an overriding commission of $4 for each sale made by the directors he recruits. Respondents represent through oral and written statements to prospective purchasers and/or participants in their program, that it is not difficult to sell their said products and/or recruit additional participants and thereby achieve high levels of income. Typical and ilustrative of said statements and representations, but not all inclusive thereof, are the following :

Ifa participant recruits two participants who in turn recruit two additional participants and this process is repeated ad infinitum, a participant can earn profits by commissions and overrides to the extent indicated by the following chart:

DEVOUR CHEMICAL. CO., INC., ET -AL. 553 551 Complaint People . Product Percent Paycheck $150 17 $25. 50 300 4 12, 00 600 4 24,00 1, 200 4 48: 00 2, 400 4 96. 00 4, 800 4 192, 00 9, 600 4 384. 00 19, 200 4 768. 00 38, 400 4 1, 536, 06 76, 800 4 3,072. 00 153, 600 7 10, 752, 00 $307, 050 60 _ $16, 909. 50 Par. 5. Respondents’ marketing program contemplates a virtually endless recruiting of participants in the sales program. The program as represented by respondents contemplates the participation of numerous recruits operating under éach customer. Further, additional par-— ticipants must increase progressively to insure the participants the represented financial gains while the. overall number of potential investors remain relatively constant. Thus, the participant. may be, and in a substantial number of instances will be, unable to find additional investors in a given community or geographical area by the time he enters respondents’ merchandising program. This comes about because the recruiting of participants who come into the program at an earlier stage has already exhausted the number of prospective participants. As to the individual participant, therefore, respondents’ program must of necessity ultimately collapse when the market for distributors becomes saturated.

Although some participants in respondents’ merchandising program may realize a profit, all participants do not have the potentiality of receiving sums of money equal to or greater than those described in Paragraph Four through recruiting other participants and through finder’s fees, commissions, overrides, and other compensation arising out of the sale of respondents’ products or the recruitment of other distributors by other participants in the program. As a matter of fact, some participants in the program will receive little or no return on their investment.

For the foregoing reasons, respondents’ merchandising program is organized and operated in such a manner that the realization of profit by any participant contemplates, and is necessarily predicated upon, the exploitation of others who have virtually no chance of receiving a return on their investment and who have been induced to participate by misrepresentations as to potential earnings. Therefore, the use by respondents of the aforesaid program in connection with the sale of their merchandise was and is an unfair act and practice, and was and is false, misleading and deceptive.

494-841—7336 554. FEDERAL ‘TRADE “ComMMISSIGN’ DECISIONS Complaint 81 FEC.

Par..6. In the course and conduct of their business, and for the purpose of inducing participation by othérs in their marketing program and in selling their merchandise, by and through statements and oral representations, and by means of brochures and other written material respondents represent, and have represented, directly or by implication that:

1. Participants in their merchandising program have a reasonable expectancy . of receiving, profits or earnings fully equal to or greater than those described in Paragraph Four herein by recruiting other participants into their program and receiving commissions on their own sales or the sales or recruiting of others, ~ 2. It is not.difficult for investors to recruit and retain. persons who will invest in the program, to sell respondents’ products and recruit others to invest’ therein. © Par. 7. In truth and i in fact: oF :

“L. Most participants ini respondents’ program do not have’ a reasonable expectancy of receiving profits or earnings in, the form of finder’ s fees, commissions, overrides or other. compénsation fully equal to or ‘greater than those described in Paragraph Four heréin. In fact, most participants will receive little o orna return on their ‘itivestment.' .%. It is difficult, and becomes increasingly difficult, under réspondents’ continually expanding marketing system, to recruit and retain persons ‘who will invest in respondents’ products, and/or to sell re+ spondents’ products, and/or to recruit others to invest therein. | Therefore, the above-described representations are false, misleading and deceptive.

Par. 8. Respondents’ merchandising program is in the nature of a lottery in that participants are induced to invest substantial sums of money on the possibility that by the activities and efforts of others, over whom they exercise no control or direction, they will receive the profits described in Paragraph Four herein. The realization of such financial gain is not dependent on the skill and effort of the individual participant, but is the result of elements of chance including the number of prior participants and the degree of saturation of the market which exists when the participant is induced to make his investment. The use by respondents of their marketing program, which is in the nature of a lottery, is contrary to the established public policy of the United States and is an unfair act and practice. Par. 9. In the course and conduct of their aforesaid business, and at all times mentioned herein, respondents have been, and now are, in substantial competition, in commerce, with corporations, firms, and individuals engaged in the business of selling products of the same general kind and nature as those sold by respondents. = -DEVOUR CHEMICAL.,O,. INC., ET vAln: - BSS Spl s. -Decision.and Order Par. 10..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’ products by. reason of said erroneous and mistaken belief.

Par. 11, The aforesaid acts and practices of respondents, as herein alleged, were and are all to the prejudice and injury of the public and of respondents’ competitors, and constituted, and 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. , _ Dectstow AND ORDER . The Federal Trade Commission having: initiated: an. investigation. of certain acts and. practices. of. the respondents. named. in the caption hereof, and. the. respondents. shaving been furnished thereafter with ‘a copy of a draft of complaint which the New Orleans Regional‘ Office proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violation of the Federal Trade Commission ‘Act; and The respondents and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission’s rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of thirty (30) days, now in further conformity with the procedure prescribed in Section 2.34(b) of its rules, the Commission hereby issues its complaint, makes the following jurisdictional findings, and enters the following order:

1. Respondent Devour Chemical Company, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of Arkansas, with its principal office and place of business located at Highway 64 and 71 ,» Alma, Arkansas. 556 FEDERAL TRADE ‘COMMISSION DECISIONS Decision and Order 81. F.T.C.

Respondent Otis D. Powell, Jr., is an individual and officer of said corporation. He formulates, directs and controls the policies, acts and - “practices of said corporation including the acts and practices hereinafter set forth. His address is the same as that ofsaid corporation. 9. The Federal Trade Commission has jurisdiction of the subject. matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER It is ordered, That respondents Devour Chemical Company, Inc., a ‘corporation, and Otis D. Powell, Jr., individually and as. an officer of said corporation, its. successors and assigns, and respondents’ officers, agents, representatives, and employees, directly or through any corporation, subsidiary, division or -other device, in connection with the advertising, offering for sale, sale, or distribution of any product or of distributorships, franchises, licenses or marketing agreements with respect, thereto, in commerce, as “commerce” is defined in the Federal. Trade Commission Act, ‘do forthwith cease and desist from directly ‘or indirectly:

1. Operating or participating in the operation of any marketing program wherein the financial gains to the participants are dependent in any manner upon the continued successive recruitment: of other participants.

2. Offering to pay, paying or authorizing the payment of any finder’s fee, bonus, override, commission, cross-commission, discount, rebate, dividend or other consideration to any participant. in respondents’ marketing program for the solicitation or recruitment of other participants therein.

3. Offering to pay, paying or authorizing payment of any bonus, override, commission, cross-commission, discount, rebate, dividend. or other consideration to any person, firm or corporation in connection with the sale of said products, or distributorships under respondents’ marketing program unless such person, firm or corporation performs a bona fide and essential supervisory, distributive, selling or soliciting function in the sale and delivery of such products to the ultimate consumer.

4, Requiring prospective participants or participants in said program to purchase said products or pay any consideration, other than payment for necessary sales materials, in order to participate in any manner therein.

5. Using any marketing program, either directly or indirectly : (a) Wherein any finder’s fee, bonus, override, commission, cross-commission, discount, rebate, dividend or other compen- Decision, and, Order sation or profit inuring to participants therein is dependent on the. éelement of chance dominating over the skill or judg- _ ment of the participants; or. - _ (b) Wherein no amount of judgment or skill exercised by the participant has any appreciable effect upon any finder’s fee, bonus, override, commission, cross-commission, discount, — rebate, dividend or other compensation or prefits which the participant may receive; or _ (ce) Wherein the participant is without that degree of control over the operation of such plan as to enable him substantially to. affect the amount.of any finder’s fee, bonus, override, commission, cross-commission, discount, rebate, dividend or other compensation or profits which he may receive or be entitled to receive.

6. Using any. marketing program which fails to: -(a) Inform orally all participants in. respondents’ marketing program and to provide in writing in all contracts,of participation that the contract may be cancelled for any reason by notification to respondents in writing within three (3). business days from the date of execution of such contract. (b) Refund immediately all monies to (1) customers who have requested contract cancellation in writing within three (3) business days from the execution thereof, and (2) customers showing that respondents’ contract solicitations or performance were attended by or involved violation of any of the provisions of this order: provided, however, That subpart (2) hereof shall not apply to such contracts entered into before the date of this order, nor shall the payments of refunds hereunder be construed as an admission that this order or any part thereof has been violated.

7. Representing directly or by implication, orally or in writing, that participants in any marketing program will earn or receive any stated or gross or net amount of earnings or profits; or representing, in any manner, the past earnings of participants unless in fact the past earnings represented are those of a substantial number of participants in the community or geographical area in which such representations are made and accurately reflect the average earnings of these participants under circumstances similar to those of the participant to whom the representation is made. 8. Representing, directly or by implication, orally or in writing, that it is not difficult for participants to recruit or retain persons to invest in any marketing program as distributors or as sales personnel to.sell said products.

FEDERAL TRADE: COMMISSION DECISIONS Decision ‘and’ Order 81 F.T.0"

“9. Failing to deliver a copy of this order to cease and desist to all: present. and future distributors, salesmen or other persons _ engaged in the advertising, sale or distribution of: any products ' through the use of a marketing program, and securing from each such distributor, salesman or other person similarly involved a signed statement acknowledging receipt of said order. 10.'Furnishing others any means or instrumentalities, services and facilities, whereby they may mislead participants or prospec- - tive participants as to any of the thatters or things prohibited by -.'thisorder, ot tis: further ordered, That the respondent corporation shall forthwith distribute a: copy of this erder to each of its operating divisions. “1 tis fierther ordered, That: ©.

(A) Respondents immediately obtain from each. person described in Paragraph:9 above a signed statement: setting forth his a “intention | to conform: his ‘business a protic t to the requirements of va this order. - Lb Daeg “(BY Respondents advise each’ stich present: and future salesman, -“ agent, solicitor, independent contractor, ‘distributor or‘any person engaged in the promotion, sale or distribution of any of respondents” products and/or franchises that respondents will not engage . or will terminate the engagement or services of any said person, unless such person agrees to and does file a notice: with the re- ‘spondents that he will be. bound by the provisions contained in this order.

(C) If such party will not agree to so file notice with the respondents and be bound by the provisions of the order, the respondents shall not use such third party, or the services of such third party to promote, sell or distribute any of respondents’ products and/or franchises or distributorships. (D) Respondents so inform the persons so engaged that the respondents are obligated by this order to discontinue dealing with ‘those persons who continue on their own the deceptive acts or practices prohibited by this order.

(EF) Respondents institute a program of continuing surveillance adequate to reveal whether the business operations of each of said persons so engaged conform to the requirements of this order; and (F) That respondents discontinue dealing with the persons so engaged, revealed by the aforesaid program of surveillance, who continue on their own, deceptive acts or practices prohibited by this order. — It is further ordered, That respondents herein shall notify the Commission at least thirty (30) days prior to any proposed change in any