Consolidated Distillers Corp

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IN Tile MA TIER OF CONSOLIDATED DISTILLERS CORPORATION CO;\IPLAI.'<T, FINDINGS, AKD OHDEit IN REGARD TO '.file ALLEGED VIOLATION OF SEC. 5 OF 1\N ACT OF CONGUESS Al'PUOVED SEPT. 26, 1014 Do('lcet 2188. Complaint, July 3, 1933-Dedsion, Jan. 22, 1931 'Vhere a corporation engaged as rectifier and wholesaler of distilled spirits in purchasing, rectifying, blending, and bottling whiskies, gins, and other spirituous beverages, and in selling same in trade and commerce among the various States and in the District of Columbia, in competition with those engaged in manufacture by distillation of whiskies, gins, and other spirituous beverages and in sale and distribution thereof in interstate commerce, and with other rectifiers and wholesalers- Represented, through use of word "Distillers" in its corporate name, printed on its stationery and 01~ the labels attached to the bottles in which it sold and shipped its said products, together with words "Bottled by" or "Blended by," as case might be, to its customers and furnished some with means ot representing to their vendees, both retailers and ultimate consuming public, that the said whiskies, gins, and other spirituous beverages contained In such bottles were by It made through process of distillation, notwithstanding fact it diu not distill said whiskies or other spirituous liquors thus bottled, sold, and transported by it, and did not prepare its said distilled spirits from mash, wort, or wash through continuous closed pipes and. vessels until manufacture was complete, and was not, in sense ordinarily understood bY the Industry, an actual distiller, for the purchase of the bottled liquors of which, ns from original distiller or manufacturer thereof, there is a substan· tial prefrrence by both trade and public;

'With tendency to mislead and deceive wholesalers, retailers, and ultimate pur· chasers into the belief that in buying its said spirituous liquors, thus sold, they were purchasing product bottled out of distillery by original distillers thereof, and with effect thereby of unfairly diverting trade to it from Its competitors, including those who, engaged in manufacturing spirituous Uq· uors by process of original and continuous distillation from mash, wort, or wash, truthfully designate tlwmsE'lves as distilling company, and also those who, like itself, engageu in that brunch of the industry known us the dis· tile:'d E.spirits rectifying iudu>;try, and as rectifiers, do not untruthfully dE:'>;iguate themselves us ''db tillers" or "distilling" company: IJcld, That sneh nets and practices were to the prejudice of the public and competitors and constituted unfair methods of competition. Defore Mr. John lV. Bennett, trial examiner. Mr. DelVitt T. Puckett and Mr. P. Gad B. Morehouse for the Commission.

Mr. 0. Dowie Ducl..·ett, Jr., of Hargest, Leviness, Duckett & :Me· Glannan, of Baltimore, Md., for respondent. CONSOLIDATED DISTILLERS CORP. 501 500 Complaint Complaint Pursuant to the provisions of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," the Federal Trade Commission, having reason to believe that Consolidated Distillers Corporation, hereinafter referred to as respondent, has been and is using unfair methods of competition in commerce, as "commerce" is defined in said act, and it appearing to the said 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:

PARAGRAPH 1. Respondent is a corporation organized, existing, and doing business under the laws of the State of Maryland, with its office and principal place of business in the city of Baltimore, in said State. It is now, and for more than one year last past has been en· gaged in the business of wholesaler and rectifier, purchasing, rectifying, blending, and bottling whiskies, gins and other spirituous beverages and in the sale thereof in constant course of trade and commerce between and among the various States of the United States and in the District of Columbia. In the course and conduct of its said business, it causes its said products when sold to be transported from its place of business aforesaid into and through various States of the United States to the purchasers thereof, consisting of wholesalers and retailers located in other States of the United States and the District of Columbia. In the course and conduct of its business as aforesaid, respondent is now, and for more than one year last past has been, in substantial competition with other corporations and with inclividuals, partnerships, and firms engaged in the manufacture by distillation of whiskies, gins, and other spirituous beverages and in the sale thereof in trade and commerce between and among the various States of the United States and in the District of Columbia; and in tho course and conduct of its business as aforesaid, respondent is now, and for more than one year last past has been, in substantial competition with other corporations, and with individuals, firms, and Partnerships engaged in the business of purchasing, rectifying, blending, and bottling ,..,.hiskies, gins, and other spirituous beverages and in the sale thereof in commerce between and among the various States of the United States and in the District of Columbia. PAR. 2. For a long period of time the word "Distillers" when used in connection with the liquor industry and the products thereof has had and still has a definite significance and meaning to the minds of Complaint 24F.T.C.

the wholesalers and retailers in such industry and to the ultimate purchasing public, to wit: the manufacturers of such liquors by the process of original and continuous distillation from mash, wort, or wash, through continuous closed pipes and vessels until the manufacture thereof is completed; and a substantial portion of the purchasing public prefers to buy spirituous liquors prepared and bottled by distillers.

PAR. 3. In the course and conduct of its business as aforesaid, by the nse of the word "Distillers" in its corporate name, printed on its stationery and advertising, and on the labels attached to the bottles in which it sells and ships its said products, and in various other ways, respondent represents to its customers and furnishes them with the means of representing to their vendees, both retailers and the ultimate c·msnming pnhlic, that it is a distiller and that the whiskies, gins, and other spirituous beverages therein contained "·ere by it manufactured through the process of distillation from mash, wort, or wash, as aforesaid, when, as a matter of fact, respondent is not a distiller, does not distill the said whiskies, gins, or other spirituous beverages by it so bottled. labeled, sold, and transported, and does not own, operate, or control any place or places where such beverages are manufactured by the process of distillation from mash, wort, or wash. PAR. 4. There aro among the competitors of respondent engaged in the sale of spirituous beverages as mentioned in paragraph 1 hereof corporations, firms, partnerships, and individuals who manufacture and distill from mash, wort, or wash, as aforesaid, whiskies, gins, and other !Opirituous beverages sold by them ami who truthfully use the words "distillery," "distilleries," "distillers," or "distilling" as a part of their corporate or trade names and on their stationery and advertising, and on the labels of the bottles in which they s<>ll anrl ship such products. There are also among such competitors corporations, firms, partnerships, and individuals engageu in the businrss of purchasing, rectifying, blending, bottling, and selling whiskies, gins, and other spirituous beverages who uo not nse the words "distillery," "distilleries," "distilling" or "distillers" as a part of their corporate or trade names, nor on their stationery or advertising, nor on the labels attached to the bottles in which they sell and ship their said products. P.\R. 5. Hepresentntion by responuent RS set forth in paragraph 3 hereof, is calculated to and has the capacity and tendency to and docs mislead and uccei\ e dealers and the pmchasing public into the beliefs that respondent is a distiller and thllt the whiskies, gins, anu other spirituous beverages sold by the respondent are manufactured and distilled by it from mash, wort, or wash, as aforesaid, and is cn.lculated CONSOLIDATED DISTILLERS CORP • 503 .500 Findings to and has the capacity and tendency to and does induce d.ealers and the purchasing public, acting in such beliefs, to purchase the whiskies, gins, and other spirituous beverages bottled. and sold by the respondent, thereby diverting trade to respondent from its competitors who do not by their corporate or trade names or in any other manner misrepresent that they are manufacturers by distillation from mash, wort, or wash, of whiskies, gins, and other spirituous beverages, and thereby respondent d.oes substantial injury to substantial competition in interstate commerce.

PAR. G. The acts and things above alh•ged to have been done and the false representations alleged to have been made by respondent are to the prejudice of the public and the competitors of respondent and constitute unfair methods of competition in commerce within the intent and meaning of Section 5 of an Act of Congress entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," approved September 26, 1914. REPORT, FINDINGS AS TO Tile FACTS, AND ORDER Pursuant to the provisions of an Act of Congress approved September 26, 1914, entitled, An Act to create 11 Federal Trade Commission, to define its powers and duties, and for other purposes," the Federal Trade Commission, on July 3, 1935, issued and served its complaint in this proceeding, upon respondent Consolidated Distillers Corporation, charging it with the use of unfair methods of competition in commerce in violation of the provisions of said act. After the issuance of said complaint, and the filing of respondent's answer thereto, testimony and other evidence in support of the allegations of said complaint were introduced by Dewitt T. Puckett and PGad D. Morehouse, attorneys for the Commission, before J olm W. Bennett, an examiner of the Commission, theretofore duly designated by it, and in opposition to the allegations of the complaint by 0. Bowie Duckett, Jr., of Hargest, Leviness, Duckett, and Mc- Glannan, attorneys for the respondent; and said testimony and other evidence were duly recorded and filed in the office of the Commission. Thereafter, the proceeding regularly came on for final hearing before the Commission on the said complaint, the answer thereto, testimony and other evidence, briefs in support of the com- Plaint and in opposition thereto and the oral arguments of counsel aforesaid; and the Commission having duly considered the same, and being now fully ad vised in the premises, finds that this proceeding is in the interest of the public, and makes this its findings as to the facts and its conclusion drawn therefrom: Findings 24F.T.C.

FINDINGS AS TO THE FACTS PARAGRAPH 1. Respondent is a corporation organized, existing, and doing business under the laws of the State of Maryland, with its principal office and place of business at 38 South Calvert Street, in the city of Baltimore in said State. It was incorporated in October 1933, with a capital stock of seventeen thousand shares of which two thousand are of the par value of $1,000 per share designated as preferred stock and fifteen thousand shares are of the par value of $20 each. Its charter authorizes it to engage among other things in the manufacture, purchase, sale, distribution, storage, and export of alcoholic beverages including whiskies and wines and in the distillation of whiskey.

It is now and has been since shortly after its organization engaged in business as a rectifier and wholesaler of distilled spirits under basic permits from the Federal Government, purchasing, rectifying, blending, and bottling whiskies, gins, and other spirituous beverages and selling the same in constant course of trade and commerce between and among the various States of the United States and in the District of Columbia. Its business is in excess of $100,- 000 a year and during the six months period from November to April, 1V3&-3G it doubled its volume of business. Its distilled spirits are purchased in bulk from several distillers in several States of the United States, but principally from distillers in Maryland. This bulk whiskey is bottled. by respondent straight or in blends, about GO% of its product being rectified and the remainder being bottled as straight whiskey. About 5% of its business is done outside the State of Maryland, it having custom<'rs in the District of Columbia, New York, and. South Carolina. Most of its customers are retailers.

In the course and conduct of its busin<'ss, respond.ent is, and has been, in competition with other corporations, individuals, and partnerships engaged in the manufacture by distillation of whiskies, gins, and. other spirituous beverages, and. in the sale and distribution thereof in interstate commerce; and also in competition with other rectifiers and wholesalers.

Respondent does not now anJ. never did distill alcoholic beverages from raw materials at 38 South Calvert Street or elsewhere. It does not now and never has mvneJ, op<'rated, or controlled any stills or any plant equipped. for the distilling of alcoholic beverag-es. PAR. 2. Since the repeal of prohibition, there has been, and still is, a. sharp distinction in the trade between the processes of <listilling and rectifying. Distilling is confined to the manufacture CONSOLIDATED DISTILLERS CORP. 505 · Mo Findings Qf alcoholic spirits by an original and continuous process from grain, or other raw materials, in a mash to a cistern room, in the case of whiskey. Rectifying deals wholly with subsequent modifications of the product not involving the process of distillation. This distinction in trade significance has been recognized by the Government through its issuance of two separate kinds of basic permits to those engaging in the two respective operations. Rectifying in the distilled spirits rectifying industry means the mixing of whiskies of different ages or the mixing of other ingredients with whiskies, but reducing proof of whiskey by adding water is not rectifying. Rectifiers also blend whiskies with neutral spirits (grain alcohol).

A distiller, in the sense ordinarily understood by the liquor industry, is one who prepares distilled spirits by a process of original a.nd continuous distillation from mash, wort or wash, through contJ.nuous closed pipes and vessels until the manufacture thereof is complete. 1\fany_ distillers operate a separate establishment 800 feet or more away from their distillery, known as a rectifying plant, wherein they operate in the same manner as described above, for a rectifier-sometimes exclusively with spirits of their own distillation and sometimes with spirits purchased from other distillers or both. Some distilleries have a tax-paid bottling room on the distillery bonded premises wherein their distille<l spirits are bottled straight as they come from the still, or in a bonded warehouse after aging, or after reduction of proof. Any rectifying by a distiller, however, must be done in his rectifying plant under his rectifier's permit. On all bottled liquors, whether bottled at the distillery rectifying plant or at any other rectifying plant, appear the words "Bottled" or ~'Blended'' (as the case may be) "by the ---------------- Company.'" I! the distille<l spirits therein contained<l are bottled by a distiller ~Ither in his distillery or are spirits of his own distillation bottled In his rectifying plant, the distiller may and does put "Distilled and bottl. ed by ---------------- C company. " If, m· tl 1e dis t"lli er ' s rec t"1fylng plant, other spirits have been blended or rectified, he puts "Bl · ended and bottled by ---------------- Company." Fmally, blown (usually in the bottom) of each bottle is a symbol, consisting ~f a letter followed by a number, i<lentifyin~ the bottler, viz., a ~'' for a distillery and "R" for a rectifier, the number following said letter corresponding with the distiller's or rectifier's permit. Thus "R-34'' designates this respondent. A distiller who also operates a rectifying plant, having both kinds of permits, may use either symbol depen<ling upon whether the liquor contained in the bottle 'Was produced and bottled under his distiller's or rectifier's permit. 506 FEDERAL TRADE CQniMISSION DECISIONS Findings 24F.T.G. · Knowledge of these details is not widespread among the retail trade and is very limited to the general public. It is not possible to determine from the presence of the phrase "Blended and Bottled by" alone, or the phrase "Bottled by" alone, on the label, whether the package was bottled by a rectifier who is a distiller, or by a rectifier who is not a distiller. PAR. 3. Approximately twenty-two witnesses of 'whom twenty-one were purchasers of liquor and who had had no connection with the liquor industry were subpoenaed at the instance of the Commission to ascertain whether or not there existed a preference of a substantial portion of purchasers and potential purchasers to buy whiskies and other alcoholic beverages, bottled at or by a distillery or distilling company. These witnesses were fairly representative and included men from practically every walk of life; namely, a banker,. stockroom clerk, sales manager, superintendent of fertilizer plant, salesman, government employee, pastry-shop owner, electrical engineer, telephone man, real-estate broker, postal clerk, department-store manager, paper carrier, insurance man, a professor of anatomy, a syrup salesman, an assistant train yardmaster, coal merchant, and a graduate lav student. Their testimony showed that the word "Distillers" or similar words in connection with the liquor industry,. meant to them a person or concern which manufactured by distillation, and all of them testified that in a corporate name such as respondent's such a word as "distillers" would imply to them that respondent was such a manufacturer, and they indicated a distinct preference to buy distillery-bottled packages of liquor, usually for the reason that they felt more confidence in the goods, as the manufacturer, in their judgment, was likely to be more trustworthy and had more at stake than any middleman. A liquor dealer with thirtyone years of experience in making contacts with the trade anJ. the public was of the opinion, based upon such experience that, in the majority of cases, the ultimate consumer prefers to buy distillerybottled goods. The respondent produced approximately ten witnesses who were retail liquor dealers and who, from their expl'rience with the public, stated it as their observation that customers paid no attention to the corporate or trade name of the seller as shown upon the labels, but made their purchases because of other consid.erntions. Such testimony is not contradictory to that given by the twenty-two witnesses as aforesaid, from all of which the Commission concludes it to be true that there is a substantial portion of purchasers which prefers to buy beverages bottled by the original distiller or manufacturer thereof.

CONSOLIDATED DISTILLERS CORP. 507 500 Findings PAR. 4. Respondent's labels offered and received in evidence were brand labels. Besides the brand name and the nature of the product these words appeared generally upon the labels: "Bottled by Consolidated Distillers Corporation, Baltimore, Md." The words "bottled by" are in much smaller print than the corporate name as a rule but still are quite legible. Blended whiskey has on the brand label the following inscription: "Blended by Consolidated Distillers Corporation, Baltimore, Md." In this case, too, the words "blended by" are in much smaller type than the name of the respondent corporation, although the words are quite legible. In the case of "Maryland Hunt Club" whiskey, a blend, there appears as Exhibit No. 9-A, the back or Government label placed on the package by respondent. This label reads as follows: "Maryland Hunt Club Blended Whiskey. The straight whiskey in this product is 20 years old, 20% straight whiskey, 18% neutral spirits. Blended by Consolidated Distillers Corporation, Baltimore, Maryland." There is a similar back label in the record as Commission's Exhibit No. 10-A relating to the brand "Carrollton Club" also a blended whiskey. A similar back labd also appears for the "My Mary land" brand.

Respondent also advertised its name and business in the Baltimore Sun and in some trade papers and on billboards. In the course and conduct of its business as aforesaid, by the use of the word "Distillers" in its corporate name, printed on its stationery, and on the labels attached to the bottles in which it sells and ships such products, respondent represents, anu furnishes its customers with the means of representing to the retailer and ultimate purchaser that the said whiskies, gins, and other spirituous beverages therein contained, were by it manufactured through the process of distillation, when, as a matter cf fact, the respondent is not a distiller and did not distill the said whiskies or other spirituous liquors by it so bottled, sold, and transported.

PAu. 5. The Commission finds that because the trade, as well as the public, has a substantial preference to buy liquors bottled by the actual distillers, the tendency to diversion of trade by respondent's U~c of the word "Distillers" in its name is plain, particularly with reference to any prospective purchaser who does not know from other sources the particular status of respondent, and the name readily lends itself as a tool to any salesman to be used by him for the purpose of gaining an unfair competitive advantage in comprting with an actual distilling company for any particular order of whiskey. The use by respondent of the term "Distillers" in its trade or cor- Porate name upon its invoices, stationery, advertising, and upon the Order 24 F. T. C. labels attached to the bottles in which it sells and ships its spirituous liquors, has a tendency to mislead and deceive wholesalers, retailers, and the ultimate purchasers into the belief that in purchasing the same they are purchasing a product bottled at a distillery by the original distillers thereof, and this, in turn, tends to, and does, unfairly divert trade from respondent's competitors to the respondent. Among such competitors, there are those who, manufacturing spirituous liquors by process of original and continuous distillation from mash, wort, or wash, do truthfully designate themselves as distilling companies, and also among such competitors are those in the same class with this respondent, to wit: those who are engaged in that branch of the industry known as the distilled spirits rectifying industry, and who, as rectifiers, do not untruthfully designate themselves as "distilleries," "distillers," or "distilling companies." CONCLUSION The aforesaid acts and practices of the respondent, Consolidated Distillers Corporation, are to the prejudice of the public and of respondent's competitors, and constitute unfair methods of competition in commerce, within the intent and meaning of Section 5 of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes."

OROER '1'0 CEASE AND DESIST This proceeding having been heard. by the Federal Trade Commission upon the complaint of the Commission, the answer of respondent, testimony and other evidence taken before John ,V, Dennett, an examiner of the Commission, theretofore duly <lesignated by it, in support of the allegations of said complaint and in opposition thereto, briefs filed. herein, and oral arguments by De Witt T. Puckett and PGad n. Morehouse, counsel for the Commission, and by 0. Dowie Duckett, Jr., of Ilargest, Leviness, Duckett and 1\IcGlannan, counsel for respondent, and the Commission having made its findings as to the facts and its conclusion that said respondent has violated the provisions of an Act of Congress approved September 26, 1914, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes." It is ordered, That the respondent Consolidated Distillers Corporation, its officers, representatives, agents, and. employees, in connection with the offering for sale, sale and distribution of whiskies, gins, an<l all other spirituous beverages in interstate commerce and in the District of Columbia do forthwith cease and desist from: CONSOLIDATED DISTILLERS CORP. 509 500 Order Representing through the use of the word "Distillers" in its corporate name, on its stationery, advertising, or on the labels attached to the bottles in which it sells and ships said products or in any other \Vay by word or words of like import, (a) that it is a distiller of. whiskies, gins, or any other spirituous beverages; (b) that the said whiskies, gins, or other spirituous beverages are by it manufactured through the process of distillation; or (c) that it owns, operates or controls a place or places where any such products are by it :manufactured by a process of original and continuous distillation from mash, wort, or wash, through continuous closed pipes and vessels until the manufacture thereof is complete, unless and until respondent shall actually own, operate, or control such a place or Places.

It i~ jurthe1· ordered, That the said respondent, within 60 days from and after the date of the service upon it of this order, shall file with the Commission a report or reports in writing setting forth in detail the manner and form in which it is complying and has complied With the order to cease and desist hereinabove set forth. 14G756m--so--vol.24----35 Syllabus 24F. T.O.