Schwabacher Brothers & Company, Inc.

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IN Tile MATTER OF SCHW AllACHER BROTHERS & COMPANY, INC.

cm.II'LAINT, FINDINGS, AND ORDER IN UEGARD TO Tlie ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CO~GllESS APPROVED SEPT. 213, 1914 Docket 2861. Complaint, June 30', 1936-Dccisi!m, June 1!9, 19.11 Where a corporation engaged in manufacture, sale, and distribution, to retail dealers in State of Was!Jington and Territory of Alaska, of assortments of candy so packed and assembled as to involve use of a lottery scheme when sold and distributed to consumers thereof, and conshiting of a number of boxes of assorted chocolates, additional article of merchandise, and a punchboard, for sale under a plan, and in accordance with said card's explana· tory legend, pursuant to which purchaser received, for five cents paid, one of said boxes, value of which exceeded said amount, or nothing other uwn privilege of making a punch, dl'pending upon number thus secured by chance, and under which purchaser of last punch on board received said article of merchandise, and last five punches in each sections into which bo:trd was divided were without cost to person making same- Sold, to retailers for display and resale to purchasttlg public, in accordance with aforesaid plan, such assortments, and thereby supplied to and placed in the hands of others means of conducting lotteries in the sale of its said products in accordance with such plan, coptrary to public policy long rccog· nized by the common law and criminal statutes and to an established public policy of the United States Government, and in competition with many who, unwilling to offer nnd sell candy so packed and assembled, or otherwise arrnngt>d and pa('ked for sale to purchasing public, as to involve n game of chance, refrain therefrom, and with many who are unwilling to adopt and use said or any methotl involving game of chance or sale of a chance to win by chance, or other method contrary to public policy; 'With result that many dealers in and ultimate purchasers of candy were at· tracted by said method and manner of pacl;ing t11e same and by clement of chanee involvrd in sale thereof as above set forth, and thereby induced to purchase such candy, so pa<:l<etl and soltl by it, in preference to that offered and soltl by saitl competitors who do not use same or equivalent methods, and with tendency and capacity, because of said game of chance, to divert to it trade and custom from its said competitors who do not use such or equivalent practice or method, exclude flom candy trade all competitors who are unwilling to and do not use such or equivalent method as unlawful, lessen competition in said trade and tend to create a monopoly thereof in it and such other distributors as used same or equivalent practice or method, and deprive purchasing public of bcndit of free competition therein, and eliminate from said trade all actual, and exclude therefrom all potential, competitors who do not adopt and use such or equivalent methods: HeTd, That such acts and practices were to the prejudice of t11e public and competitors and constituted unfair methods of competition. lllr. llenry 0. Lanlt- and Mr. P. 0. Kolinski for the Commis:>ion. SCHWAEACHER DROTIIERS & CO., INC. 295 294 Complaint Complaint Pursuant to the provisions of an Act of Congress, approved September 26, 1914, entitled "An Act to create a Federal Trade Comhlission, to define its powers and duties, and for other purposes," the Federal Trade Commission, having reason to believe that Sclnvabacher Brothers & Company, Inc., a corporation, hereinafter :referred to as respondent, has been and is using unfair methods of competition in commerce us "commerce" is defined in said act of Congress, and it appeari~O' to said Commission that a proceeding ~y it in respect thereof wo~ld be in the public interest, hereby issues Its complaint stating its charges in that respect as follows: PARAGRAPH 1. Respondent, Schwabacher Brothers & Company, Inc., is a corporation organized and operating under the laws of the State of Washington, with its principal office and place of business located at 304 Occidental Avenue, Seattle, ·wash. Respondent is now, a?u for several years last past has been, engaged in the sale and ?Istribution of candy to retail dealers located in the State of Washln¥ton and the Territory of Alaska, and causes and has caused its s::nd product, when sold, to be transported from its principal place of business in Seattle, 1Vash., to purchasers thereof in the Territory of A.laska at their respective places of business; and there is now, and has been for several years last past, a course of trade and com- ~erce by said respondent in such candy between the State of 1Vashln~~ton and the Territory of Alaska. In the course and conduct of said business, respondent is in competition with other corporations and with partnerships and individuals engaged in the manufacture of candy and in the sale and distribution thereof in commerce between and among the various States of the United States, and between such States and the Territory of Alaska.

I_) An. 2. In the course and conduct of its business, as described in Paragraph 1 hereof resl)ondent sells and has sold to retail dealers an a ' ssortment of candy so packed and assembled as to involve the use of a lottery scheme when sold and distributed to the conswners thereof.

Said assortment, distributed by the respondent, is composed of a number of boxes of assorted chocolate candies and another article of ~1erchandise, together with a device commonly called a "punchl?ard.'' The said boxes of candy and additional article of merchan- ( Ise are distributed to the consuming public by means of said Punch hoard in the following manner: The sales by means of said ~unchboard are 5 cents each, and when a punch is made from ~aid oard a number is disclosed. The numbers begin with 1 and contmue 296 FEDERAL TRADE COl\11\USSION DECISIONS Complaint 25 ~'. T. C. to the number of punches there are o:n the board, but the numbers are not arranged in numerical sequence. The board bears a statement or statements informing the prospective customer as to which numbers receive a box of candy. The purchaser of the last punch on the board receives the additional article of merchandise. The last five punches on each of ten sections of a 1,200 hole board are free. On a so-called twelve hundred hole board thirty-four numbers call for a prize box of candy. A purchaser who does not qualify by obtaining one of the numbers calling for one of the boxes of candy or by punching the last number on the board receives nothing for his money other than the privilege of punching a number from the board. The boxes of candy are worth more than 5 cents each, and a purchaser who obtains one of the numbers calling for a box of candy receives the same for the price of 5 cents. The numbers on said boards are effertively concealed from the purchasers or prospective purchasers until a punch or selection has been made and the particular punch separated from the board. The boxes of candy and the additional nrticle of merchandise in said assortment are thus distributed to purchasers of punches from said board wholly by lot or chance. PAn. 3. Retail dealers to whom respondent sells said assortment expose said fl,.<;SOrtment for sale and Sell said candy to the purchasing public in accordance with the aforesaid sales plan. Respondent thus supplies to and places in the hands of others the means of conducting lotteries in the sale of its product in accordance with the sales plan hereinabove set forth, and said sales plan has the capacity and tend· ency of inclncing purchasers thereof to purchase respondent's said products in preference to candy offered for sale and sold by its competitors.

PA:n. 4. The sale of said candy to the purchasing public in the tnanner above alleged involves a game of chance or the sale of a chance to procure a box of candy.

Tho use by respondent of said method in the sale of candy, and the sale of candy by and throu~h the use thereof and by the aid of said method, is a practice of the sort which the common law and criminal statutes have long deemed contrary to public policy; and is rontrary to nn established public policy of the Government of the Unitrd States. The use by respondent of said method has the clang-erous tendency unduly to hinder competition or create monopoly in this. to wit: that the use thereof has the tendency and capacity to exclude from the branch of the candy trade involved in this procet'clina- competitors who do not adopt and use the same method or nn efJnivalent or similar method involving- the same or nn equivalent or similar element of chance or lottery scheme. SCHWAllACIIF.R IJlWTifF.TIS & CO., INC. 297 2!14 Iindings Man~ person~s, firms, and corporations who make and sell candy in competition worth the respondent, as above alleged, are unwillin(l' to offer for ~ale or sell candy so packed and asspmbled as above alle~ed, or other~·wzse arranged and packed for sale to the purchasing public so a;s to mvolve a game of chance, and such competitors refrain therefrom.

PAR. 5. Many dealers in and ultimate purchasers of candy are attracted by respondent's said method and manner of packing said candy, and by the element of chance involved in the sale thereof in the manner above described, and arc thereby induced to purchase said candy so packed and sold by respondent, in preference to candy offered for sale and sold by said competitors of respondent who do not use the same or equivalent methods. The use of said metfwd by respondent has the tendency and capacity, because of said game of chance, to divert to respondent trade and custom from its said comyctitors who do not use the same or an equivalent method; to exclude rom said candy trade all competitors who are unwilling to and who <lo not use the same or an equivalent method because the same is Unlawful; to lessen competition in said candy trade, and to tend to rt:eate a monopoly of said candy trade in respondent and such other dzstributors of candy as usc the same or an equivalent method, and to. deprire the purchasing public of the benefit of free competition in said candy trade. The use of said method by the respondent has the tendency and capacity to eliminate from said candy trade all actual competitors, and to exclude therefrom all potential competitors, who do not adopt ancl use said method or an equivalent method. PAn. 6. .Many of said competitors of respondent are unwilling to n<Iopt and use said method or any method involving a game of chance or the sale of a chance to win something by chance or any other 1Ytethod that is contrary to public policy. PAR. 7. Tlle aforementioned method, acts and practices of the respondent are all to the prejudice of the public and of respondent's competitors, as hereinabove alleged. Said method, acts, and practices 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 dllties, and for other purposes," approved September 26, 1914. H~-:front, FINDINGS As TO THE FACTS, AND Onder Pursuant to the provisions of an Act of Congress, approved September 26 1914 entitled "An Act to create a Federal Trade Com- Jrt'lsszon,• to' define' its powers and duties, and for other purposes, " the Federal Trade Commission, on .June 30~ 1936, issued and served 298 FEDERAL TRADE 001\Il\HSSION DECISIONS Findings !?5F.T.C.

its compl_aint in this proceeding upon the respondent, Schwabacher Brothers ~~ Company, Inc., a 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, the Commission, by order entered herein, granted respondent's request for permission to withdraw s::tid nnswer and to substitute therefor an answer admitting all the mate· rial allegations of the complaint to be true and waiving the taking of further evidence and all other intervening procedure, which substitute answer was duly filed in the office of the Commission. Thereafter this proceeding regularly came on for final hearing before the Commission on the said complaint and the substitute answer, briefs and oral argu· ment of counsel having been waived; and the Commission, having duly considered the same and being now fully advised in the prem· ises, finds that this proceeding is in the interest of the public nnd makes this its findings as to the facts and its conclusion drawn therefrom:

FINDINGS AS TO Tile FACTS P AI!Aan.\rii 1. Respondent is a corporation organized under the laws of the State of Washington, with its principal office and place of business located at 304 Occidental Avenue, in the city of Seattle, State of ·washington. Respondent is now, and for several years last past has been, engaged in the sale and distribution of randy to retail dealers located in the State of 'Vashington and the Territory of Alaska. It causes and has caused its said products when sol1l to be transported from its principal place of business in Seattle, 'Vash., to purchasers thereof in the Territory of Alaska at their respective places of business. There is now, and has been for several years last past, a cour,;e of trade and commerce by said r<'spowlent in such candy betwe<'n the State of 'Vashington and the Territory of Alaska. In the course and conduct of said business, respondent is in competi· tion with other corporations and with partnerships and individuals engagetl in the manufacture of candy and in the sale and distribution thereof in commerce between and among the Yarious States of the United States, and between such States and the Territory of Alaska. PAn. 2. In the course and conduct of its busin<•ss, us described in paragraph 1 hereof, respondent sells and has sold to retail dealers an assortment of candy so packed and assembled as to involve the us<> of a lottery scheme when sold and distributed to the consumers thereof.

Said a:,sortment distributed by the respondent is composed of a. mnnher of boxes of assorted chocolate candies and lmother article of SCIIWADACHER DHOTHERS & CO., INC. 299 294 Findings lll.('rchandise, together with a device commonly called a "punchb?ard." The said boxes of candy and additional article of merchan- <hse are distributed to the consuming public by means of said punch- ?oard in the following manner: Sales are 5¢ each, and when a punch Is lllade from said board a number is disclosed. The numbers be()'in With one and continue to the number of punches there are on tlle board, but the numbers are not arranged in numerical sequence. The board bears a statement or statements informing customers and prospective customers as to which numbers receive a box of candy, and th~ statement that the purchaser of the last puneh on the board receives the other article of merchandise. The punches on said board lire arranged in sections, and the last five punches in each section UI·e free. A purchaser who cloPs not qualify by obtaining one of the numbers calling for one of the boxes of candy, or by punching the last number on the board, receives nothing for his money other than the privilege of punching a number from the board. The boxes of caudy are worth more than 5¢ each, and a purchaser obtaining oneof. the numbers calling for a box of candy receives the same for the fli'Jce of 5¢. The numbers on said board are effectively concealed :~·om purcl1asers and prospectire purchasers until a punch or selec- Llon. has been made and the particular p~mch S('p?rated from the ?atd. The boxes of candy and the additional art1ele of merchanthse in said assortment are thus distributed to purchasers of punches from said board wholly by lot or chance.

P.\n, 3. Retail dealers to whom respondent sells said assortment expose said as::;ortment for sale and sell said candy to the purchasing DubJic in accordance with the aforesaid sales plan. Respondent thus 811DV1ies to and places in the hands of others the means of conducting :~.l~e.ries in the sale of its products in accordance with t.he sales plan e1Pinabove set forth, and said sales plan has the capacity and tendency of inducin()' purchasers thereof to purchase respondent's said Products in preference to camly offered for sale and sold by its competitors.

PAn. 4. The sale of said candy to the purchasing public in the man- Iter above found involves a game of chance or the sale of a chance to Procure a box of candy or another>r article of merchandise. The lise by respondent of said method in the sale of candy, and the sale of CtllH]y by and through the use thereof and by the aid of said ll'letholl, is a practice of the sort which the common law and criminal statutes hare lonll' deemed contrary to public policy, and is contrary ~0 an established public policy of the Government of the Unite(! states. The use Ly mspondent of said method has the tendency Conclusion 25 F.T. C. unduly to hinder competition or create monopoly in this, to wit: that the use thereof has the tendency and capacity to exclude from the branch of the candy trade involved in this proceeding competitors who do not adopt and use the same method or an equivalent or similar method involving the same or an equivalent or similar clement of chance or lottery scheme. Many persons, firms, and corporations who make and sell candy in competition with respondent, as above described, are unwilling to offer for sale or sell candy so packed and assembled as above described, or otherwise arranged and packed for sale to the pmchasing public so as to involve a game of chance, and Such competitors refrain therefrom.

PAR. 5. Many dealers in and ultimate purchasers of candy are at· tmcted by respondent's said method and manner of packing said candy and by the element of chance involved in the sale thereof in the manner above described, and are thereby induced to purchase said <:andy so packed and sold by respondent in preference to candy offered for sale and sold by said competitors of respondent who do not use ~he same or equivalent methods. The use of said method by rebpond· ent has the tendency and capacity, because of said game of chance, to divert to respondent trade and custom from its said competitors who do not use the same or an equivalent method; to exclude from said candy trade all competitors who are unwilling to and who do not use the same or an equivalent method because the same is unlawful; to lessen competition in said candy trade, and to tend to create a monopoly of said candy trade in respondent and such other distributors of candy as use the same or an equivalent method; and to deprive the purchasing public of the benefit of free co!llpctition in said candy trade. 'I11e use of said method by the respondent has the tendency and capacity to eliminate from said candy trade all actual competitors, and to exclude therefrom all potential competitors who do not adopt and use said method or an Pqnivalent method. PAR, G. Many of said competitors of respondent are unwilling to adopt and use said method or any method involving a game of chance or the sale of a chance to win something by chance, or :my other 1nethod that is contrary to public policy.

CONCLUSION The aforesaid acts and practices of the respondent, Schwabacher Bro~hE>rs & Company, Inc., a corporation, nrc to the prejudice of the public and 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 2G, 1V14, entitled ".An SCH\V ABACHER BROTHERS & CO., INC. 301 Order Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes."

ORDER TO CEASE AND DESIST . 'lhi::; proceeding having been heard by the.Federal Trade Commis- Sion upon the complaint of the Commission and the answer of re- ~pondent dated August 10, 1936, admitting all the material allegatl~ns of the complaint to be true and waiving the taking of further evidence and all other intervening procedure, and the Commission having made its findings as to the facts and its conclusion that said respondent has violated the pro\·isions of an Act of Congress, ap- Proved September 2G, 1914, entitled "An Act to create a Federal Trade Connnission, to define its powers and duties, and for other purposes.". It is ordered, That the respondent, Schwabacher Brothers & Com- Pany, Inc., a corporation, its officers, rept·esentatives, agents, and employees, in connection with the offering for sale, sale, and distribution of eandy in interstate commerce and between the State of 'Vashington nnu the Territory of Alaska, do forthwith cease and desist from: 1. Selling and distributing to retail dealers candy so packed a11d nsserubled that sales of such candy to the general public are to be lnade, or may be made, by mealls of a lottery, gaming device, or gift enterprise.

2. Supplying to or placing in the hands of retail dealers assortments of candy which are used, or ,rhich may be used, without alteration or J·eanangemf'nt of the contents of such assortments, to conduct a lo.ttery, gaming device, or gift enterprise in the &ale or distribution of the candy contained in said assortments to the public. 3. Supplying to or placing in the hands of retail dealers assortments of candy, together with a device commonly calle(l a "punchboard," for use, or which may be used, in distributing or selling ca11dy to the public at retail.

4. Furnishing' to retail dealers a device commonly called a "punch- ! b . 10ard," either with assortments of candy or separately, bearing a legend or legends or statements informing the purchasing public that tl~e candy is Leing sold to the public by lot or chance or in accordance ''.lth a sales plan which constitutes a lottery, gaming device, or gift enterprise.

It i.<s furtlter ordaed, That the respondent, Schwabacher Brothers & Company, Inc., a corporation, shall, within 30 days after service llpon it of this order, file with the Commission a report in writing &setting forth in detail the manner and form in which it has complied ''"ith the order to cease and desist hereinabove set forth. COl\IMISSIO~ DECISIONS 302 FEDERAL TRADE Ryllabus 2ri F. 'f. C.