Sperry & Hutchinson Company

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

In Tae Marrer or SPERRY & HUTCHINSON COMPANY CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 8671. Complaint, Nov. 15, 1965—Order, Sept. 18, 1973.* Consent order requiring the nation’s largest trading stamp redemption firm, based in New York City to cease combining or conspiring to prevent redemption of trading stamps or the operation of a trading stamp exchange. Respondent is further required to give $2 in cash per book of 1200 green stamps to all customers who choose to redeem their stamps for cash. S&H is further obligated to redeem as few as 300 stamps for a cash value of $.50 and to inform consumers of these new rights by prominent notices in S&H stamp saver books and redemption centers; and required to cancel all injunctions obtained against trading stamp exchanges in the last 12 years. Appearances For the Commission: Sidney A. Steinitz and Morton Needleman. For the respondent: Morrison, Clapp, Abrams & Haddock, Washington, D.C. and Casey, Lane & Mittendorf, New York, New York. DissentTING STATEMENT By Jones, Commissioner:

The Commission has accepted a consent order in this case which in my judgment is inadequate and contrary to the interests of consumers who are affected by the respondent’s trading stamp practices challenged in the complaint.

The central issue in this case, which the Supreme Court directed the Commission to resolve, concerned the rationale relied upon by the Commission for its findings respecting the illegality of S&H’s activities designed to prevent the redemption or exchange of S&H stamps by trading stamp exchanges or retailers not permitted to carry S&H stamps.* *See 73 F-.'T.C. 1099, and 82 F.T.C. 388, 390. 1In its opinion remanding this case to the Commission and reversing the Circuit Court’s dismissal of this count, the Supreme Court held that while the Commission had ample power to eliminate unfair acts and practices, it was not able to sustain the Commission’s findings and order relating to Count III of the complaint because the Commission's opinion lacked any rationale to support its order provisions based on “the Commission’s assessment of particular competitive practices or considerations of consumer interests independent of possible or actual effects of competition.”” The Supreme Court directed the remand of this case to the Commission to enable the Commission to articulate a rationale for its 478 Dissenting Statement In its original opinion in this case, the Commission took the position that the free exchange and redemption of trading stamps are important both to consumers and to competing retailers and that. respondent’s efforts to suppress the free exchange and redemption of stamps lessens consumers’ freedom of choice. The Commission’s original order, therefore, directed S&H to cease and desist from impeding the free transferability of trading stamps and from attempting in any way to suppress the free and open redemption or exchange of stamps by retailers or stamp exchanges.

The proferred consent order contains no such prohibitions. Indeed it seems to condone all of S&H’s anti-stamp exchange and redemption activities by not prohibiting future injunction suits by S&H against stamp exchanges and retailers and by expressly permitting S&H to place a notice of its legal position respecting its stamp ownership in its stamp books, thus apparently accepting S&H’s legal position respecting its continued ownership of its stamps and the . consequent illegality of consumer trafficking in their stamps. The Commission’s rationale for accepting the order is that under it consumers will now receive a right to a cash redemption from S&H for their S&H stamps in the amount of $2 per book. At the present time, 20 states already require trading stamps that cash options be provided for and in at least seven of these states $2 is the going rate. Thus essentially this consent order does no more than simply require respondents to do in all states what it is presently required to do in 20 states with the slight additional plus that under the consent order the cash redemption value of a book of stamps will not be fixed at $2 instead of fluctuating between $1.20 and $2 as it has in the past, depending on, the competition among stamp redemption or exchange firms.”

My central objection to this settlement order is that in my judgment it fails to extricate consumers from what I believe are the essentially unfair features of trading stamp merchandising. Moreover, it provides consumers at best with only partial relief against condemned S&H order based on the facts surrounding the challenged transactions which might amount to the unfairness which the Supreme Court held would properly constitute a violation of law under Section 5 of the Federal Trade Commission Act. The Commission’s Order to Show Cause sought the guidance of the parties as to the facts and theories of law applicable to determine whether the respondent’s activities were unfair within the meaning of the Supreme Court’s holding respecting the Commission’s jurisdiction to eliminate unfair acts and practices.

2It should also be noted that while cash redemption is fixed at the estimated value of . the premium merchandise which these stamps could be exchanged for, there is no evidence that this value bears any relationship to the difference in retail prices which consumers may be paying the stamp-dispensing retailer as a result of their use of trading stamps. Dissenting Statement 83 F.T.C.

practices which is in fact already available in many states and which experience suggests has not been widely made use of by consumers where it has been available. The consent settlement is premised on a view that the only possible—or significant—area of unfairness which trading stamps pose to consumers lies in their Jack of an option to redeem stamps for cash in lieu of merchandise. It disregards other potential areas of unfairness flowing from respondent’s trading stamp merchandising practices insofar as they deprive consumers of an opportunity to redeem or exchange S&H stamps for other stamps or of an opportunity to choose redemption offers from retailers or stamp exchanges as well as from S&H or coerce consumers in the first instance to deal with retailers selected by S&H in order to collect S&H stamps or to accept trading stamps at all when in fact they might prefer lower retail prices.

A second major objection I have to this order is its failure to take into consideration in any way the disadvantages which non-favored retailers have vis-a-vis their S&H stamp dispensing competitors. The settlement contains a built-in leverage effectively forcing consumers to continue to collect S&H stamps in order to obtain the proffered case redemption right since consumers must buy a minimum of $30 worth of merchandise before they can amass the minimum 300 stamps which are required in order to make the cash redemption right operative. This consent order not only fails to take into account the possible unfairness of S&H practices to retailers not permitted to handle S&H stamps but the order virtually ensures that they will continue to suffer competitive disadvantages since their potential customers practically speaking still remain tied to those of their competitors who are permitted to dispense S&H stamps. However involuntary a consumer’s stamp collecting may be, this order virtually ensures that consumers will continue to have a practical need to deal with these favored retailers in order to amass the minimum number of stamps required to get the cash redemption.

Finally, I object to this settlement because it preserves in tact— and perhaps even adds the Federal Trade Commission stamp of approval to—respondent’s claims respecting its proprietary relationship to these stamps. Respondent is expressly permitted by the order to tell consumers in effect that they cannot legally deal with stamp 3 While these possible effects of S&H trading stamp practices may not be borne out by the record or be within the Supreme Court’s definition of unfairness, nevertheless, acceptance of this consent order effectively prevents the Commission from exploring these issues on the basis of the briefs and arguments of the parties as was the original intent of its Order to Show Cause.

PHN OF FLU LPULIIVOUIN UUie saa awe 478 Decision and Order exchanges. Moreover, respondent is expressly not prohibited from continuing in the future to try and enjoin stamp exchanges from engaging in business. Indeed, it could be said that with its required $2 cash redemption, the order almost precludes competition, between the exchanger and S&H and thus speeds the demise of the stamp exchanges rather than leaving their ultimate value to the determination of the marketplace.

Thus in my judgment this settlement accomplishes virtually nothing for the consumer. It accepts the basic unfairness of forcing trading stamps on consumers and gives them simply an option of getting cash instead of merchandise for these stamps. It does nothing about what I regard as the basic unfairness of respondent’s trading stamp practices to non-favored retailers. Finally, it leaves trading stamp exchanges at the continued mercy of S&H and provides them with no relief from S&H’s efforts to put them out of business. For all of these reasons, I dissent to this consent settlement. Decision anv Orver Revatine To Count ITI or roe ComeisInt The Commission issued a three-count complaint in this matter on November 15, 1965, charging respondent, the Sperry & Hutchinson Company, with violation of Section 5 of the Federal Trade Commission Act. After a full hearing on the record, the Commission entered a cease and desist order on June 26, 1968 [73 F.T.C. 1099] covering all three counts. Respondent appealed from the Commission’s decision to the United States Court of Appeals for the Fifth Circuit seeking review of the issues relating to Count III only. No appeal was taken from the Commission’s order relating to Counts I and II, and a final order respecting Counts I and IT was entered on February 16, 1973 [82 F.T.C. 388]. Nothing contained in the consent order herein respecting Count III is intended to supersede or in any way affect the final order entered under Counts IJ and II. Aiter the Court of Appeals for the Fifth Circuit set aside the Commission’s June 26, 1968 [432 F. 2d 146, 8 S&D 1259] order relating to Count III, the Commission appealed to the Supreme Court which reversed the Fifth Circuit and ordered the case remanded to the Commission for such further proceedings as may be appropriate [405 US 233].

The Commission having now duly determined upon motion submitted by complaint.counsel and respondent that, in the circumstances presented, the public interest would be served by a withdrawal of the matter from adjudication for the purpose of negotiating a settlement Decision and Order 83 F.T.C.

by the entry of a consent order relating to Count IIT of the complaint herein; and The respondent and counsel for the Commission having executed an agreements 1 3 2 2 2 895 564 199 42 94.903687 containing5 1 3 2 2 3 1110 575 19 21 95.239731 a5 1 3 2 2 4 1144 569 138 27 95.239731 consents 1 3 2 2 5 1297 564 109 41 96.792130 order,5 1 3 2 2 6 1423 575 43 21 96.902336 an5 1 3 2 2 7 1483 565 184 32 96.827377 admissions 1 3 2 2 8 1682 566 46 41 96.820450 by5 1 3 2 2 9 1744 567 207 40 96.407745 respondents 1 3 2 2 10 1966 567 39 32 96.330261 of4 1 3 2 3 0 688 613 1317 44 -1 5 1 3 2 3 1 688 613 46 31 96.258110 all5 1 3 2 3 2 748 614 58 31 96.960320 thes 1 3 2 3 3 819 614 252 42 96.601723 jurisdictional5 1 3 2 3 4 1087 615 88 32 96.882278 facts5 1 3 2 3 5 1189 619 50 28 96.551254 sets 1 3 2 3 6 1255 615 96 32 96.809906 forth5 1 3 2 3 7 1365 615 36 32 95.839294 in5 1 3 2 3 8 1414 616 58 31 95.839294 thes 1 3 2 3 9 1487 616 197 41 95.851273 complaint,5 1 3 2 3 10 1699 629 19 20 96.562355 a5 1 3 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96.441818 trading5 1 4 1 4 8 1563 1874 128 37 96.133148 stamps5 1 4 1 4 9 1706 1870 35 32 96.133148 in5 1 4 1 4 10 1755 1883 192 28 95.255188 commerce,5 1 4 1 4 11 1962 1883 35 21 97.001862 as4 1 4 1 5 0 681 1918 1315 45 -1 5 1 4 1 5 1 681 1918 223 33 95.910133 “commerce”5 1 4 1 5 2 925 1919 28 32 96.341690 is5 1 4 1 5 3 974 1920 132 31 95.916542 defined5 1 4 1 5 4 1127 1920 35 31 96.725929 in5 1 4 1 5 5 1183 1920 58 32 96.444839 thes 1 4 1 5 6 1261 1921 145 32 95.875000 Federal5 1 4 1 5 7 1427 1922 114 32 95.894226 Trades 1 4 1 5 8 1562 1922 225 33 96.508408 Commissions 1 4 1 5 9 1810 1923 77 40 96.341202 Act,5 1 4 1 5 10 1909 1924 87 31 96.067566 shall4 1 4 1 6 0 685 1970 1048 42 -1 5 1 4 1 6 1 685 1970 117 32 96.928215 within5 1 4 1 6 2 816 1970 91 42 96.767212 sixty5 1 4 1 6 3 926 1971 72 41 96.521027 (60)5 1 4 1 6 4 1017 1971 84 41 96.664169 days5 1 4 1 6 5 1112 1972 38 31 96.745171 of5 1 4 1 6 6 1160 1972 59 31 96.997261 thes 1 4 1 6 7 1231 1972 152 32 96.711662 effective5 1 4 1 6 8 1394 1973 78 31 96.994499 dates 1 4 1 6 9 1485 1974 38 31 96.941223 of5 1 4 1 6 10 1537 1973 69 32 96.784813 this5 1 4 1 6 11 1617 1974 116 31 96.607079 order:3 1 4 2 0 0 761 2022 1236 449 -1 4 1 4 2 1 0 811 2022 1186 44 -1 5 1 4 2 1 1 811 2022 52 41 96.868729 (a)5 1 4 2 1 2 893 2022 97 33 96.712021 Offers 1 4 2 1 3 1009 2026 34 28 95.623451 to5 1 4 2 1 4 1063 2022 130 32 94.488907 redeem5 1 4 2 1 5 1215 2022 34 33 94.488907 in5 1 4 2 1 6 1270 2024 78 31 96.114174 cash5 1 4 2 1 7 1369 2028 35 27 96.292625 at5 1 4 2 1 8 1424 2035 66 30 96.149452 any5 1 4 2 1 9 1510 2025 39 31 96.537773 of5 1 4 2 1 10 1569 2025 44 31 96.838272 its5 1 4 2 1 11 1634 2024 213 42 96.222519 redemption5 1 4 2 1 12 1868 2030 129 28 96.772316 centers4 1 4 2 2 0 763 2073 1232 44 -1 5 1 4 2 2 1 763 2073 46 31 96.913811 all5 1 4 2 2 2 830 2073 39 31 96.894890 of5 1 4 2 2 3 889 2073 43 32 96.511200 its5 1 4 2 2 4 952 2073 142 43 96.332336 trading5 1 4 2 2 5 1114 2078 127 38 96.255035 stamps5 1 4 2 2 6 1264 2076 169 40 96.809250 presently5 1 4 2 2 7 1456 2076 223 42 96.267700 outstanding5 1 4 2 2 8 1699 2088 39 20 96.485451 or5 1 4 2 2 9 1759 2077 174 31 91.711723 hereafter5 1 4 2 2 10 1954 2077 41 32 91.711723 is-4 1 4 2 3 0 762 2100 1234 83 -1 5 1 4 2 3 1 762 2124 81 32 96.285416 sued5 1 4 2 3 2 855 2124 110 32 96.164513 which5 1 4 2 3 3 977 2136 56 20 96.730003 ares 1 4 2 3 4 1044 2100 83 81 92.675797 duly5 1 4 2 3 5 1139 2126 177 40 95.555664 presented5 1 4 2 3 6 1329 2127 56 31 96.757202 for5 1 4 2 3 7 1396 2127 211 56 93.785538 redemption5 1 4 2 3 8 1619 2127 42 42 96.994644 by5 1 4 2 3 9 1675 2127 85 33 96.508560 bona5 1 4 2 3 10 1773 2128 65 31 96.508560 fide5 1 4 2 3 11 1850 2128 146 41 96.697212 holders,4 1 4 2 4 0 763 2176 1230 45 -1 5 1 4 2 4 1 763 2176 168 40 96.284592 provided5 1 4 2 4 2 948 2187 20 21 93.076477 a5 1 4 2 4 3 985 2176 176 32 93.076477 minimums 1 4 2 4 4 1179 2177 39 31 96.840538 of5 1 4 2 4 5 1234 2179 61 30 96.557228 3005 1 4 2 4 6 1312 2181 127 38 96.540894 stamps5 1 4 2 4 7 1457 2178 28 31 96.584534 is5 1 4 2 4 8 1502 2179 177 40 95.751831 presented5 1 4 2 4 9 1697 2179 57 31 96.691742 for5 1 4 2 4 10 1772 2180 221 41 96.308540 redemption.4 1 4 2 5 0 763 2226 1230 44 -1 5 1 4 2 5 1 763 2226 73 32 95.907249 Thes 1 4 2 5 2 851 2227 120 33 95.907249 holders 1 4 2 5 3 987 2227 77 32 95.889168 who5 1 4 2 5 4 1079 2228 100 32 95.889168 elects5 1 4 2 5 5 1196 2229 212 41 96.113281 redemption5 1 4 2 5 6 1425 2229 35 31 96.884018 in5 1 4 2 5 7 1477 2229 79 31 96.734062 cash5 1 4 2 5 8 1572 2230 87 31 96.477333 shall5 1 4 2 5 9 1676 2230 41 32 96.998306 be5 1 4 2 5 10 1732 2230 144 32 96.567352 entitled5 1 4 2 5 11 1893 2234 36 28 93.158539 to5 1 4 2 5 12 1945 2241 48 21 93.158539 re-4 1 4 2 6 0 763 2276 1231 44 -1 5 1 4 2 6 1 763 2276 91 32 92.582512 ceives 1 4 2 6 2 868 2288 43 20 96.534363 an5 1 4 2 6 3 927 2281 139 28 96.172417 amounts 1 4 2 6 4 1079 2278 39 32 96.172417 of5 1 4 2 6 5 1131 2289 122 31 96.064522 moneys 1 4 2 6 6 1267 2279 110 32 96.858345 which5 1 4 2 6 7 1392 2280 86 31 86.463181 shall5 1 4 2 6 8 1493 2283 61 28 94.588402 not5 1 4 2 6 9 1564 2280 43 31 94.588402 be5 1 4 2 6 10 1621 2280 64 32 96.997818 less5 1 4 2 6 11 1696 2280 85 32 95.968834 than5 1 4 2 6 12 1795 2281 59 31 95.968834 thes 1 4 2 6 13 1867 2292 75 21 96.657997 sums 1 4 2 6 14 1956 2280 38 33 96.657997 of4 1 4 2 7 0 769 2328 1224 46 -1 5 1 4 2 7 1 769 2328 50 42 95.722778 (1)5 1 4 2 7 2 842 2328 58 31 96.943298 thes 1 4 2 7 3 916 2329 232 32 96.334694 merchandise5 1 4 2 7 4 1165 2333 70 29 96.732437 costs 1 4 2 7 5 1252 2329 157 33 96.561546 incurred5 1 4 2 7 6 1426 2330 45 41 96.448624 by5 1 4 2 7 7 1488 2331 206 40 96.285812 respondents 1 4 2 7 8 1709 2331 36 32 96.341797 in5 1 4 2 7 9 1763 2331 195 43 96.425453 redeeming5 1 4 2 7 10 1973 2343 20 20 96.942902 a4 1 4 2 8 0 761 2378 1233 45 -1 5 1 4 2 8 1 761 2378 68 32 96.904221 likes 1 4 2 8 2 843 2379 142 31 96.696152 numbers 1 4 2 8 3 998 2379 39 31 96.929718 of5 1 4 2 8 4 1049 2383 129 38 96.358421 stamps5 1 4 2 8 5 1189 2382 181 40 96.155472 presented5 1 4 2 8 6 1384 2381 56 31 96.786079 for5 1 4 2 8 7 1453 2381 232 32 96.447716 merchandise5 1 4 2 8 8 1698 2382 214 41 96.508980 redemption5 1 4 2 8 9 1926 2382 68 31 96.508980 anda 1 4 2 9 0 767 2429 1227 42 -1 5 1 4 2 9 1 767 2429 51 41 95.385506 (2)5 1 4 2 9 2 843 2432 40 29 95.385506 325 1 4 2 9 3 899 2434 138 37 95.849495 percent5 1 4 2 9 4 1051 2430 40 31 96.553078 of5 1 4 2 9 5 1105 2431 83 31 96.961716 such5 1 4 2 9 6 1203 2431 233 33 95.825157 merchandise5 1 4 2 9 7 1452 2436 79 28 95.825157 cost.5 1 4 2 9 8 1549 2433 73 31 96.941078 Thes 1 4 2 9 9 1636 2436 87 28 96.507401 terms 1 4 2 9 10 1740 2433 254 31 96.581474 “merchandise 478 Decision and Order cost incurred by respondent,” for the purposes of this order, shall be determined on the basis of the average merchandise cost incurred by respondent, according to its books and records, in. redeeming 1200 stamps for merchandise in each of the five fiscal years preceding the fiscal year in which the stamps are presented. Respondent’s initial cash redemption value shall be set at $2 per 1200 stamps pursuant to the above described formula, and said value shall not be changed until such time as the merchandise cost plus 32 percent, as determined pursuant to the above formula, is at least 20 cents above or below the then current cash redemption value. Respondent’s cash redemption value shall thereafter be further adjusted by applying the above procedures ; (b) Include in every stamp saver book to be printed by respondent after the date of this order the following notice which is to be printed in no less than 14 point type at the top of the inside cover of said book: “A minimum of 300 stamps may be redeemed at the option of the holder for cash instead of merchandise. The cash value of 300 stamps is —-——--— and the cash value of a completed book of stamps (1200 stamps) is --——-——.”; and (c) Conspicuously display in every redemption center the notice set forth in (b) above.

II. lt is further ordered, That respondent shall cease and desist from:

1. Combining or conspiring with, or soliciting concerted action from, any other trading stamp company to prevent redemption of trading stamps or the operation of a trading stamp exchange. 2. Communicating in any way with any other trading stamp company or acting in any way in response to any communication from any trading stamp company with respect to preventing the operation of any trading stamp exchange or the free and open redemption or exchange of trading stamps by any person. IIT. Jtis further ordered, That respondent: (a) Within sixty (60) days after the effective date of this order make an application to vacate every injunction which has been issued in any court within the twelve years preceding the effective date of this order against the redemption, exchange, sale or other use of respondent’s trading stamps by any commercial trading stamp exchange, without prejudice to respondent’s right to bring new actions in the same courts (and in other courts) to enjoin the redemption, exchange, sale or other use of S & H trading stamps by such commercial trading stamp exchanges in the Decision and Order 83 F.T.C.

future on the basis of facts occurring after the aforementioned injunctions have been vacated, and without prejudice to the right of the Federal Trade Commission to take any action it considers appropriate with regard to any future actions brought by respondent against commercial trading stamp exchanges; and respondent shall within such sixty-day period notify every such commercial trading stamp exchange of said application to vacate ; (b) Notify the Federal Trade Commission in writing of any such action it may institute in the future against any commercial trading stamp exchange and such notification shall be mailed to the Commission no later than the date on which such action is commenced. 4 It ts further ordered, That respondent, within sixty (60) days after the effective date of this order, notify in writing all of its redemption employees of the provisions of this order. . lt ts further ordered, That respondent notify the Commission at Jeast thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation, or any other change in the corporation which may affect compliance obligations arising out of the order.

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

It is agreed that for the purposes of this order, the term “commercial trading stamp exchange” as used herein means any person, firm, partnership, corporation or other business entity, other than a trading stamp company, which is engaged in the business of exchanging, redeeming, selling or otherwise dealing in trading stamps and where such business is conducted as a separate and independent enterprise which is not ancillary to, or does not result in a direct benefit to, any retailing or other business conducted by such person, firm, partnership, corporation or other business entity.

Commissioner Jones dissenting.