Bro,Vn & Haley

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IN THE MA'ITER OF DROWN & HALEY COMPLAINT, FINDINGS, AND ORDER IN REGARD TO Tile ALLEGED VIOLATION OF SEC. 5 OF AN ACT Ol<' CONGRESS APPROVED SEPT. 26, 1914 Docket Z"/82. Complai11t, Apr. 24, 1936-Decision, June 30, .1937 WJJ('re a !'orpora tlon engn ~Nl in m:mnfnct nrP nnrl sale of Ro-ruiiNl "drn w" or "deal" assortments of candy, sale aml dist rihution of which type candy, by retailers by lot or chance, has capacity and tendency to and does de· crease sale of candy sold without any sales plan or device involving lottery or g-ame of chance, i. e., the "straight" goods, and sale of which type, pro· vicliug, in eonne!'tlon with its sal<' to public, means or opportunity of obtaining a bc•x of enncly as n prize or becoming n winner hy lot or chance, tf'ncht'S and encournges gamhling, nnd is in viol<ltion of vnrions municipal ortlinancPs nntl regulations and State statutes nn(l eonslitntions, and pro· vides retail mfr('hnnts with n means of violnting the laws of the severn! state~. and sale of which candy, so pnd:ed nncl assf'mbled as to enable retail dealers, without alterntion, addition, or rearrangement, to resell <;ame to consuming public by lot or chance, Is contrary to public policy- Rold, to wholesale and retail dealers, certain assortmmts of candy which were so pncl;:ed and assembled us to Involve, or were dPsignf'd to lnvolvf', use of a lottery scheme wlwn Bold and di!'tribu1Pd to consumers thereof, and which iuclll(!ell as~·ortnwnt eompo>:l'(l of n nmnll('r of I.Joxes of ortr1l chol'olatc cnndit'fl, together with n 111111Chhoa r1l, for sale to consnmfng )lnbliC tmdf'r a plan, 1111d In nc·cordan!'e with said h<>ard's f'Xpl:111atory lPgeJHl, pur· ~nant to whir·h purchm'l'l' rPcf'ivl'd, for fiyp t·Pnts pnill, and dependent upon numher pnnrhed by d1111We or pnrrhn,;r of loft pnrwh on hour(l, fih' of aforesaid boxes, value of which was In excess of aforesaid amount, or nothlllg other than privilege of making n punch; so assembled nnd pucl;:ed tllat snell af!sortmf'ntR might be and were dlsplnyed and sold to ronsum· lng public by retail denier purchasers thereof by lot ur chance, nnd with lmowledge nnd Intent that such nssortments could nnd would thus be rf'solll to pnhlic by retail df'alers without alteration, addition, Ol' rear· raugr•Im·nt ns above set forth, In compPtitlon with many who do 110t mnl;:e null F<ell "draw" or "denl" assortmrnts, hnt sell th0ir ''straight" goods In IJJfPr~<tate commf'rc·e In competition with the other; With I'PSult that competitors who refused to, or 1lo not, ~flf rnndy so pncl;ed oml ns>'Pmh!Pd that It (·nn !1e resold to public hy lot or chnn!'P, were put to a df:;:uh·antage in f'omp<'ling with it nnd with othPr'l (•employing 1m·thods similar to tho~e th '<('l'illl'll hen• in, trade '' n~ <lh·prtl'•l to it nnd others using similar nwt!Jo(ls from those who llo not u~e Rnme, J,y reo~on of attraction to cmstomers of so-cnlled "draw" or "deal" ossortmt•nts, and t!Jcr·e wns dh·version of trade to it from Its said compt>titors, and a restraint 11pon and a detrlnwnt to the freedom of fair competition In trade conc·ernf'd; to the prejudice and injury of the public and of competitors: Ilcld, 'fhnt such acts and practices were to the prejudice of the public and competitors and constituted unfair methods of competition. BROWN & HALEY 371 :370 Complaint Before .Mr. Charles P. Vlcini and llfr. Henry .M. White, trial ~xaminers.

Mr. P. C. Kolin-<Yki and lllr.llenry C. Lank for the Commission. Flood, Lenihan & Ivers, of Seattle, 'Vash., for respondent. COMPLAINT Pursuant to the provisions of an Act of Congress, approved Sept~mber 26, 1914, entitled "An Act to create a Federal Trade Commis- SlOll, to define its powers and duties, and for other purposes," the Federal Trade Commission, having reason to believe that Brown & Haley, a corporation, hereinafter referred to as respondent, has been and is using unfair methods of competition in commerce, as "commerce" is defined in said act of Congress, and it appearing to said Colllrnission that a proceeding Ly it in respect thereof would be in the }JuLlic interest, hereby i&sues its complaint stating its charges in ihat l'Pspect as folio\\ s:

P AIL\Giuru 1. Respondent is a corporation organized under the law.s of the State of Washington, with its principal office and place of Lu~mess located at 110 East 26th Street, in the city of Tacoma, State of ·washington. It is now, and for several years last past has Leen, engagell in the manufacture of candies and in the sale and distribution thereof to wholesale dealers, jobbers, and retail dealers, lo- ~atecl at points in the various States of the United States, and causes un:l has caused its products, when so sold, to Le transported from its Pl'Jncipal place of Lusiness in the city of Tacoma, ·washington, to Purchasers thereof in other States of the United States at their respective places of business; and there is now, and has been for several years last past a course of traue anu commerce by said respondent in !:>uch candy between and among the States of the United States. 1.11 the comse and conduct of said business, respondent is in competition \with other corporations and with partnerships and individuals engaged in the manuf ..lCture of canuy and in the sale and distribution thereof in commerce lJetween and among the Yarious States of the Dnited States. ' PAR. 2. In the course and conduct of its business, as described in Puragl'aph 1 hereof respondent sells and has sold to wholesale and t·et U!'I dealers packages' or assortments of candy so packed and asse~lLled as to involve the usc of a lottery scheme when sold and distl'JLuted to the consumers thereof.

One of said assortments manufactured and distributed by the ro- ~l) d ' 1· on ent, is composed of a number of boxes of assorted choco ate candies, together with a device commonly called a "punchboard." The Complaint 25F. T. Cr said boxes of candy are distributed to the consuming public by means of said punchboard in the following manner: The sales by means of said punchboard are 5¢ each, and when a punch is made from said board a number is disclosed. The numbers begin with 1 and continue to the number of punches there are on 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 a three-pound box of chocolate candyr 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¢ each, and a purchaser who obtains one of the numbers calling for a box of candy receives the same for theprice of 5¢. The numbers on said board are effectively 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 in said assortment are thus distributed to purchasers of punches from said board wholly by lot or chance. PAn. 3. The wholesale dealers and jobbers, to whom respondent sells its assortment, resell said assortment to retail dealers, and said retail dealers, and the retail dealers to whom respondent sells direct, expose said assortment for sale and sell said candy to the purchasing public in accordance with the aforesaid sales plan. Respondent thus ~mpplies 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, as a means of inducing purchasers thereof to purchase respondent's said product in preference to candy offered for sale and sold by its competitors.

PAR. 4. The sale of said candy to the purchasing public in the manner above alleged involves a game of chance or the sale of ll chance to procure a box of candy.

The use by· respondent of said met hod in the sale of candy, and the sale of candy by and through 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 contrary to nn f'StnlJli!"hed public policy of thp Government of the United States. The use by respqndent of said method has the dangerous 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 pro- BROWN & HALEY 373 370 Complaint ceeding competitors who do not adopt and use the same method or an equivalent or similar method involving the same or an equivalent or similar element of chance or lottery scheme . . Many persons, firms, and corporations who make and sell candy 111 competition with the respondent, as above alleged, are unwilling to offer for sale or sell candy so packed and assembled as above alleged, or otherwise arranged and packed for sale to the purchasing public so as to involve a game of chance, and such competitors refrain therefrom.

PAn. 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 are 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 respouden~ w!w do not use the same or equivalent methods. The use of said method by respondent has the tendency and capacity, because of said game of chance, to divert to respondrut 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 freecompetition in said candy trade. T)1e m:e 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 equivalent method.' PAR. 6. 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 any other method that is contrary to public policy. PAR. 7. The aforementionrd method, acts and practices of the respondent are all to the prejudice of the public and of respondent's c?mpetitors, ns hereinalJove alleged. Said method, acts and prachces constitute unfair methods of competition in commerce within th . . 1 d e Jntent and meaning' of Section 5 of an Act of Congress, entit e ' 'A "" n Act to create a Federal Trade Commission, to define its powers an<} duties, and fer other purposes," approved Srptembcr 26, 1914. 374 FEDERAL TRADE COMMI::ision DECISIONS Findings 25F. T.C.

REPORT, FINDINGS AS TO TIIE FACTS, AND Onder Pursuant to the provisions of an Act of Congress, approved September 26, 1014, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," the Federal Trade Commission, on April 24, 1936, issued and on April 28, 1936, served its complaint in this proceeding upon the respondent, llrown & Haley, 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 thereto, testimony and other evidence in support of the allegations of said complaint were introduced by P. C. Kolinski, attorney for the Commission, and in opposition to the allegations of the complaint by Emmett G. Lenihan, attorney for respondent, before Charles P. Vicini and Henry M. 'Vhite, examiners of the Commission theretofore duly designated by it, 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 said complaint, the answer thereto, testimony and other evidence, briefs in support of the complaint and in opposition thereto, and the oral arguments of Henry C. Lank, counsel for the Commission, and Emmett G. Lenihan, coun- -sel for the respondent; and the Commission, having duly considered the matter and being now fully advised in the prrmi-,cs, finds that this procrcding is in the interest of the public and make>s this its findings as to the facts and its conclusion drawn therefrom: FINDINGS AS TO Tile FACTS PARAGRAPH 1. The re>spondent, llrmvn & Haley, is a corporation o1·ganizrd under the laws of the State of Washington, with its prin- {'ipal office and place of business located at 110 East 20th Street, in the city of Tacoma, State of 'Vashington. Rrsponclent is now, and for several years last past has Lel'n, cngagl'll in th~:> manufacture of -candy in the city of Tacoma and in the sale and distribution thereof to retail and wholesale tkalcrs and joLLcrs located in the State of 'Vashington and in the State>s of Ore>gon, Idaho, Montana, and California. It causes the said candy when sold to be shipped or transported from its principal place of business in the State of 'Vashing~ ton tu purchaser!> tlwrcof in 'Vashington and in other>r States of the United States, as mentioned above. In so carrying on said business, respondent is and has bcl'n engaged in interstate commerce and is and has been engaged in active compe>tition with other corporations .ami with partnerships and individuals engaged in the manufacture llROWN & HALEY 375 870 Findings of candy and in the sale and distribution thereof in commerce between and among the various States of the United States. . PAn. 2. In the course and conduct of its business, as described In paragraph 1 hereof, respondent sells and has sold to wholesale· and retail dealers, as above described, certain assortments of candy so packed and assembled as to it~volve, or which are designed to involve, the use of a lottery sclwme when sold and distributed to the consumers thereof.

One of said assortments is composed. of a number of varying sized boxes of assorted chocolate' candies, together with a device commonly called a "punchboard." The boxes of candy contained in said assortment are distributed to the consuming public by means of said punch board in the following maimer: The sales by means of said punchboard are 5¢ each, and when a punch is made from said board a number is disclosed. The numbers begin with one and continue to the number· of punches there are on the board, but the numbers are not arranged in numerical sequence. The boaru bears a statellle.nt or statements informing cw-;tomers and prospective customers as to which numbers receiye a box of candy and the size thereof. The purchas<'r of the last punch on the board receives a specified box of candy. The purchaser "·ho 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¢ each, and a purchaser who obtains 0Il<> of the numbers calling for a box of candy receives the same for the price of 5¢. The numbers on said board are effectively concealed f~·om the purchasers or prospective purchasers until a punch or selection has been made and the particular punch separated from the board. 'lhe boxes of candy in said assortment are thus distributed to l)Hrchasprs of punches from said board wholly by lot or chance. PAn. 3. The candy assortments involving the lot or chance feature, as• above described ' are bcrenerally• referred to in the candy trade or Industry as "draw" or "deal" assortments. Assortments of candy 'Vithout lot or chance features in connection with their resale to the ~ublic are generally referred to in the candy trade or ind.ustry as straight" goods. These terms will be used hereafter Ill these findings to distinguish these separate types of assortments . . PAn. 4. The wholesale deniers or jobbers to whom respondent sells- Its assortments resell the same to retail dealers, and said retail dealers and the retail dealers to whom respondent sells direct expose said assortments for sale and sell said candy to the purchasing public in accordance with the sll.Ies plan as dcscribctl above. 376 FEDERAL TRADE COl\11\IISSION DECISIONS Findings 25F.T.C.

PAR. 5. All sales made by respondent, whether to wholesale dealers nnd jobbers or to retail dealers, are absolute sales and respondent retains no control over said assortments after they are delivered to the wholesale dealer or jobber or retail dealer. The assortments are assembled and packed in such manner that they are designed to be used and are used by the retail dealer for distribution to the purclmsing public by lot or chance without alteration or rearrangement. In the sale and distribution to jobbers and wholesale dealers for resale to retail dealers and to retail dealers direct of the assortments of candy described in paragraph 2 hereof, responllent has lmowlcLlge that said candy would be resold to the purchasing public by retail dealers by lot or chance, and it packs such candy in the way and manner described so that without alteration, audition, or rearrangement thereof it may be resold to tlte public by lot or chance by said retail dealers.

P"m. G. There are in the Unitell States many manufacturers of candy competing with responllent in the territory served by respond· cllt who do not manufacture and sell ''llraw" or "deal" assortments of candy and who sell their "straight" goOtls in interstate commerce i11 comprtition with the "draw" or "clt'al" assortments. The sale or distribution of candy by retail dealers by lot or chance has the capac- ]ty and tendency to and does decrease the sale of candy solll without any sales plan or device involving a lottery or game of chauce. Several witnesses testified, and the Commission fintls, that customers coming into retail £'stablishments and drsiring candy similar to that distributed by respondent woulll take chancrs or make purchases by means of said push cards or punchboanls, and that in such <':tses when unsuccessful in obtaining candy by means of saill pushcard or punchboard some of such customers would then purchase <-andy as a "straight" purchase and without the use of the lottery device; that the gambling feature connectell 'with the sale of respond· 1•11t's assortments, as described above, was attractive to customers; and that before making ''straight" purchases it was not unusual for customers to enucavor to procure the canlly desired by means of such lottery devices rather than to make a "stmight" purchase. PAR. 7. The sale and distribution of "llmw" or "ucn.l" assortments of candy, or of candy which has connected with its sale to the public the means or opportunity of obtaining a box of candy as a prize or Lf'coming a winner by lot or chance, teaches and encourages gambling nnll is in violation of nrious municipal orllinances and n•gulations alll various State statutes and constitutions. The sale and distrihnt ion of candy by retailers by the method described herein is the sale and distribution of candy by lot or chance aml constitutes a lottery BROWN & HALEY 377 370 Order or gaming device, and the Commission finds that the sale and distribution of assortments of candy as described herein provides retail merchants with a means of violating the laws of the several States. Competitors who refuse to or who do not sell candy so packed and assembled that it can be resold to the public by lot or chance are put to a disadvantage in competing with respondent and with others employing similar methods to those described herein. Because the ''draw" or "deal" assortments are attractive to customers purchasing from retail dealers, the Commission finds that trade is diverted to respondent and others using similar methods from competitors who do llot use such methods. The use of such methods by respondent in the sale and distribution of its candy is prejudicial and injurious to tl:e public and to respondent's competitors, and has resulted in the dtvprsion of trade to respondent from its said competitors, and is a :restraint upon and a detriment to the freedom of fair and legitimate <'ompetition in the candy industry.

·PAn. 8. An officer of the respondent corporation testified, and the ~ommission finds, that the total annual volume of respondent's sales Is between $350,000 and $400,000. Approximately 60% of respondent's total annual volume of sales is made to purchasers outside of the State ?f Washington, and approximately 25% of the total annual volume of Its sales consists of assortments with which a punchboard is furnishe,d. l}AR. 9. Tlle Commission further finds that the sale and distribution in interstate commerce of assortments of candy so packed and assembled as to enable retail dealers, without alteration, addition or rearrangement, to resell the same to the consuming public by lot or chance, is contrary to public policy.

CONCLUSION The aforesaid acts and practices of respondent, Brown & ~Ialey, a corporation under the conditions and circumstances set forth m the foJ·egoin .... fin(lil'll'S of fact are all to the prrjudice of the public and ,_, t'"> ' •• ~·respondent's competitors, and constitute unfair methods of compehtwn 111 ('on~~r~rree within the intent and meaning of Section 5 of an Act of Congrcs:,, approved September 26, 1914, entitled "An Act to create : Fe1leral Trade Commission, to define its powers and duties, and or oflwr purposes."

OI!DF.R TO CEASE AND DESIST . This proceeding having been heard by the Federal Trade Commis- ~101~ upon ths complaint of the Commission, the answer of re~~o~dent, estunony and other evidence taken before Charles P. V1cllll a~d 1Ienry U. White, examiners of the Commission theretofore duly desig- Order 25F. T. C.

nated by it, in support of the allegations of said complaint and in opposition thereto, briefs filed hen'in, and oral arguments of Henry C. Lallk, counsel for the Commission, and Emmett G. Lenihan, counsel for the 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, Drown & Haley, a corporation, its officers, representatives, agents, and employees, in connection with the olferiPg for sale, sale, and distribution in interstate commrrce of candy, do forthwith cease and desist from:

1. Srlling and distributing to jobbers and wholesale dealers for resalt' to retail dealers, or to rt'tail dealers direct, candy so packed and assrmbled that sales of such candy to the general public are to be made, or may be made, by means of a lottery, gaming device, or gift enterprise.

2. Supplying to or placing in the hands of wholesale dealers and jobbers or retail dealers assortments of candy which are used, or which may be used, without alteration or rearrangement of the contents of such assortments, to conduct a lottery, gaming device, or gift enterprise in the sale or distribution of the candy contained in said assortments to the public.

3. Packillg or assembling in the same assortment of candy for sale to the public at retail boxes of candy, together with a device commonly called a "punchboard," which punchboanl is for use, or "which may be or is designed to be used, in distributing or selling said candy to tho public at retail.

4. Furnishing to retail and wholesale dealers and jobbers a device commonly called a "punchboard," either with as~ortnwnts of candy or separately, bearing a legend or legends or statements informing the purchasing public that the candy is being sold to the public by lot or chance or in accordance with the sales plan which constitutes a lottery, gaming device, or gift enterprise. It is further ordered, That the respondent, Brown & Haley, a corporation, shall, within 30 days after service upon 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 with the order to cea~e and desist hereinabo,·e set forth.

CALIFORNIA PACKING CORP., ET AL. 379 Syllabus