H. E. Wagley

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IN THE MATTER OF II. E. WAGLEY, INDIVIDUALLY AND TRADING AS NATIONAL SALES AND PARAMOUNT SALES CO:\JPLAINT, FINDI:>\'GS, AND ORDER IN REC:ARD TO 'llle ALLEGED VIOL.\TION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 20, 1014 Docket sn1. Complaint, J11ne 5, 1937-Deci.~ion, Auy. 4, 1937 Where an individual engaged In the sale and distribution of cot·ks and other articles of merchandise to purchasers in the various States, in competition with those engaged In manufacture of clock:,j and other merchandise and sale and distribution then•of In commerce between and among the various Statps- (a) Furnished devices and plans of merchandising, together with descriptive literature and Instruction!'!, which involved operation of games of chance, gift enterpri~'<Cf!, or lotteries In distribution to ultimate consumers, wholly by lot or chance, or his said products, and consisted of push cards, through use of which, and under scheme or plan followed, snbstantlally, purchasers pnld for right to select one of nameR of girls set forth 011 card, In accordance with number pushed by chance, and recelvPd article of merchandise lnl'oh·ed, of n value exceNllng amount paid for chance, or nothing other than right to make a sPlectlon, In acrordnnce with their succPl's In selecting name correRpourllng to tho t concealed under card'~ master seal; In violation of public policy long recognl1A.'d In the common law and criminal statute!l, and contrary to an el'tabllshPd public policy of the United States Gol'ernment, and in competition with many wl1o make and sell merchandise and are unwllllng to ado11t and use said or any method involving game of chance or sale of a chance to win by chance, or any other method contrary to public pollry, and refrain therefrom; With result that many deniers In and ultimate pm·chasers of his snhl rnerchan· dise were attract{'(l by said method and tlement of chanre lnvolvNl In sale thereof as above set forth, and were thereby lnducf.'u to buy antl Bl'll or distribute his said products In preference to those offered aud sold by said compC'tltors who do not use same or equiro.lent method, and trade wns then•by dil'~>rted to him ft·om them, and with capndt~· an<l t~>ndC'nry F;O to divert trade and custom, bc>enuse of snld gnme of chance, to him from his snhl comiwtltors who do not u~e such or an equlvalt•nt JU!'thod;

(b) Caused rf'pre~cutntfon to be made to his customers and pros1wcth·e cnsto· mers, through Ule of words "fac·tory repre~cntatlve," that he wns n direc·t pnrehasf'r from, or n dlrc>et rllstrlbutor of, thp mnnufnctnr<'r of the mpr· clmndl~e sold and dlstrlbntNl, nothwlthstnnding tact he was not Fourth repr<'HPntatl\·p, bnt pnrehn~etl nwrehnmll~e !'old In oppn mark<'t from middiPmen, jo!Jiters, or whol<'snlers;

With <'ITl'<·t ot mJ.;Irntliug aJHl dPePivlng many of his ~;nld cm<tomers Into the erron<'ous bPIIct that he was such a dirc>et r<'presentatlve, and that p<'riions dPallng with him were bu3ing such niPr<"hand!IRe from surh dlrl'ct rpprP· ll<'ntatlve and thrrPhy <'llmlnatlng profits of mlddl<'man and obtaining var· Ions ad,·nntages not to be had by tho~<e buying goods from mhltll<'men, such a11, as con~>ldered by substantial I'Orllon of purchasing public, who NATIONAL SALES, ETC. 693 692 Complaint prefer direct dealing with manufacturer or his representative, lower price>~, superior quality, and other advantages not llad, in their opinion, through purchase from jobbers or middlemen, and with effect of unfairly diverting trade to him from many competitors who do not falsely represent themselves as representatives of the manufacturer of their merchandise; and (c) Represented, and caused representation to be made, to customers and prospective customers, that certain rotary clocks sold had retail value of $ri.OO, notwithstanding fact said clocks did not have such a retail value, but amount was grossly exaggerated and purely fictitious; With result that substantial portion of purchasing public, relying on and believing said repre:sentatlon, was Induced to buy said clocks by reason thereof, and many of his customet·s were misled and deceived into believing that said clocks had retail value of $5.00, and trade was unfairly diverted to him from many competitors who do not falsely represent value of merchandise sold by them:

lield, ~1mt such acts and practices were to the prejudice of tlle public and com11ctitors and constituted unfair methods of competition. },f r. II en1'1J 0. Lank and 11/r. P. 0. [{ ol imki for the Commission. CO}Il'LAlNT 1\n·suant to the provisions of an Act of Congress, approved Sept~mbrr 26, 1014, entitled ".An Act to create a Federal Trade Commis- Ston, to define its powers and duties, and for other purposes," the li'euerul Trade Commission, having reason to believe that II. E. Wagley, individually and trading as National Sales and Paramount Sales, hereinafter referred to as respondent, has been and is usi·ng unfair ln~thods of competition in commerce as "commerce" is defined in ~a~d act, and it appearing to said Commission that a proceeding by lt lll rcsppct thereof would be in the public interest, hereby issues its complaint statinrr,., its charrrcst:> in that resi)ect as follows: PAHAGilAI'H 1. Hcspondent is an individual with his principal office a~d place of business located at 508 South Dearborn Street, in the ~lt~ of Chicago, State of Illinois. Resp~ndent, i!1 ~arrying on his l)Usiness, has used the trade names and titles of National Sales and h lltamount Sales. .Respondent is no~r, ~nd _for some time last past as been, £>nrr:lrred m the sale and d1stnbutwn of clocks and other ll.tt' ,., "' lcles of nwrchandise to purchusers thereof located at points in 1 t 1: various States of the United States. He causes and has caused 8 ~ 1d lllerchanJise when sold to be transported from his principal P ace of business in Chican·o, Ill., to purchasers thereof in the State of .Illinois awl in other Sta~cs of the United States at their respective Poults of location. There is now, and has been for some time last Ptst, a course of trade and commerce by said respondent in such mer- ~ lanuise !Jet ween and amonrr the various States of the United States. n the course and conduct of said business, respondent is in competi- Complaint 25F.T.C.

tion with other individuals and with partnerships and corporations engaged in the manufacture of clocks and other merchandise and in the sale and distribution thereof in commerce between and among the various States of the United States.

PAR. 2. In the sale and distribution of his said merchandise, rel"pondent has furnished devices and plans of merchandising which involve the operation of games of chance, gift enterprises, or lottery schemes, by which said merchandise is distributed to the ultimate consumers wholly by lot or chance. Said devices and plans of merchandising consist of push cards, the use of which by retail dealers or individuals, in connection with the sale and delivery to the purchasing public of respondent's said merchandise, was and is substantially as follows: The pushcards have a number of partially perforated disks, and when a push is made and the disk is separated from the card a number is disclosed. There are as many separate numbers as there are uisks on the card, but the numbers are varied or assorted and are not arrangecl in numerical sequence. The Humbers on said disks are effectively concealed from pmchascrs and prospective purchasers until a selection has been made and the disk separated from the card. The price of sales varies, depending upon the number obtained. Numbers from 1 to 29 pay the amount of the number in cents. Numbers over 29 pay 29¢. Directly below each disk there is printed a girl's name, and the card has a space prepared for recording the name of each purchaser of a disk opposite the corresponding girl's name. The card also has a master seal which, when removed, exposes a girl's name corresponding to one of those appearing under said disks. The purchaser who pushed lhe disk corresponding to the name under the master seal is entitled to a specified article of merchandise. The name under the master seal is effectively concealed from purchasers and prospective purchasers until all sales have been made and the master seal removed. Purchasers who select names other than the name appearing under the master seal do not receive anything for their money other than the privilege of pushing a disk from said card. The ~aid articles of merchandise are of a greater value than the cost of a single push from this said card. The fact as to whether a purchaser receives a specified article of merchandise or nothing for his money is thus determined wholly by lot or chance. PAn. 3. Uespondent forwards his pushcards, together with various descriptive literature and with instructions as to how to operate said }Htshcards or explaining what to do in order to obtain said articles of merchandise, to various members of the public, and a substantial amount of such merchandise is sold or distributed by such persons NATIONAL SALES, ETC. 695 692 Complaint by means of said pushcards and in accordance with the instructions ~urnished by respondent. Respondent thus supplies to and places m the hands of others the means of conducting lotteries in the sale of his merchandise in accordance with the sales plan hereinabove set forth.

P .AR. 4. The sale of merchandise to the purchasing public in the manner above alleged involves a game of chance or the sale of a chance to procure articles of merchandise at a price much less than the normal retail price thereof. The use by respondent of said method in the sale of his merchandise, and the sale of his merchan- ~lise by and through the use thereof and by the aid of said method, ls a practice of the sort which the common law and criminal statutes have long deemed contrary to public policy, and is contrary to an <>stablished public policy of the Government of the United States. ~!any persons, firms, and corporations who make or sell merchandise lil competition with the respondent, as above alleged, 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, and such competitors tefrain therefrom. The use of said method by respondent has the tendency and capacity, because of said game of chance, to divert tralle and custom to respondent from his said competitors who do llot use the same or an equivalent method. PAn. 5. .Many dealers in and ultimate purchasers of respondent's merchandise are attracted by respondent's said method and by the element of chance involved in the sale of said merchandise in the ~anner above described, and are thereby induced to buy and sell or dtstribute respondent's merchandise in preference to merchandise offered for sale and sold by said competitors of respondent who do not use the same or an equivalent method, and trade is thereby di- '\'etted to respondent from his said competitors. l>An. 6. In the course and conduct of his said business, respondent has caused and causes the representation to be made to his customers and prospective customers, by the use of the words "factory representative," that he is a direct purchaser from or a direct distributor of the manufacturer of the merchandise which he sells and distributes. A substantial portion of the purchasing public have ex- Pressed anu have a preference for dealing uirect with the manufacturer or his represcntati,·e of products being purchaseu, such Purchasers believing' that they secure lower prices, superior quality, ~nd other advantag~s that are not obtained when they purchase from ~~hbcrs or miudlemcn. The use by respondent of said representation tat he is a factory representati\·e has the capacity and tendency to 696 FEDERAL TRADE COl\Il\IISSION DECISIONS Finding-s 25F.T.C.

and does mislead and deceive many of respondent's said customers into the erroneous belief that respondent is a (lirect representative of the manufacturer of the merchandise sold by respondent, and that persons dealing with respondent are buying said merchandise from the direct representative of the manufacturer thereof, thereby eliminating the profits of middlemen and obtaining various advantages that are not obtained by persons purchasing goods from middlemen. The truth and fact is that respondent is not the direct representative of the manufacturer but purchases the merchandise which he sells in the open market from middlemen, jobbers, or wholesale dealers. There are many competitors of respondent who do not falsely represent that they are the representatives of the manufacturer of the merchandise sold by them. The use of said representation by respondent has the tendency and capacity to and does unfairly divert trade to respondent from his said competitors. PAR. 7. In the course and conduct of his said business, respondent, in the sale of certain rotary clocks, has caused and causes the representation to Le made to his customers and prospective customers that said clocks have a retail value of $5.00. A substantbl portion of the purchasing public, relying on and believing the said representation, are induced and have been induced to purchase said clocks because of said representation. The use by respondent of said representation has the capacity and tendency to and does mislead and deceive many of respondent's customers into the erroneous belief that said clocks have a retail value of $5.00. The truth and fact is that said clocks do not have a reasonable retail value of $5.00 but said amount is grossly exaggerated and purely fictitious. There are many competitors of rE>spondcnt who do not fah;ely represent the value of the merchandise sold by them. The use of said representation by respondent has the tE>ndenry and capacity to and docs unfairly divert trade to respondent from his said competitors. PAR. 8. The aforesaid method, nets and practices of respondent are all to tho prejudice of tho 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 approved September 26, 1!>14, entitled "An Act to create a Federal Trade Commission, to define its powers and duties, nnd for other purposes." REPORT, FnmiNOS AS TO THE FACTS, AND Or.oer 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 NATIONAL SALES, ETC. 697 Findings Federal Trade Commission, o~ June 5, 1937, issued and on June 7, 1937, served its complaint in this proceeding upon respondent, H. E. 'Wagley, individually and trading as National Sales and Paramount Sales, charging him 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, the Commission, by order entered herein, granted respondent's request for permission to withdraw said answer and to substitute therefor an answer admitting all the material 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 argument of counsel having been waived; and the Commission, having duly considered the same and being now fully advised in the premises, finds that this proceeding is in the interest of the public and makes this its findings as to the bets anu its conclusion drawn therefrom: FlNDINOS AS TO Tile FACTS P ARAGnArii 1. Respondent is an individual with his principal office and place of business located at 508 South Dearborn Street, in the city of Chicago, State of Illinois. Respondent, in carrying on his business, has used the trade names and titles of National Sales and Paramount Sales. Respondent is now, and for some time last past has• been, enooaaed~I!'> in the sale and distribution of clocks and other !lrhcles of merchamlise to purchasers thereof located at points in the various States of the United States. He causes and has caused said merchandise when sold to be transported from his principal :Place of business in Chicago, Ill., to purchasers thereof in the State of Illinois and in other States of the United States at their respective Points of location. There is now, and has been for some time last :Past, a course of trade and commerce by said respondent in such merchandise between and among the Yarious States of the United States. In the course and conduct of said business, respondent is in competition with other individuals and with partnerships and corl>?rntions engaged in the manufacture of clocks and other merchandise and in the sale and distribution thereof in commerce between and among the various States of the United States. PAn. 2. In the sale and distrilmtion of his said merchallllise, respondent has furnished devices anu plans of merchandising which involve ~ 10 operation of games of chance, gift enterprises, or lottery schemes, Y Which said merchandise is distributed to the ultimate consumers Findings 25F.T.C.

wholly by lot or chance. Said devices and plans of merchandising consist of pushcards, the use of which by retail dealers or individuals, in connection with the sale and delivery to the purchasing public of respondent's said merchandise, was and is substantially as follows: The pushcards have a number of partially perforated disks, and when a push is made and the disk is separated from the card a number is disclosed. There are as many separate numbers as there are disks on the card, but the numbers are varied or assorted and are not arranged in numerical sequence. The numbers on said disks are effectively concealed from purchasers and prospective purchasers until a selection has been made and the disk separated from the card. The price of the sales varies, depending upon the number obtained. Numbers from 1 to 29 pay the amount of the number in cents. Numbers over 29 pay 29¢. Directly below each disk there is printed a girl's name, and the card has a space prepared for recording the name of each purchaser of a disk opposite the corresponding girl's name. The card also has a master seal whicl1, when removed, exposes a girl's name corresponding to one of those appearing under said disks. The purchaser who pushed the disk corresponding to the name under the master seal is entitled to a specified article of merchandise. The name under the master seal is effectively concenJed from purchasers and prospective purchasers until all sales have been made and the master seal removed. Purchasers who select names other than the name appearing under the master seal do not receive anything for their money other than the privilE-ge of pushing a disk from said card. The said articles of merchandise are of a greater value than tho cost of a single push from said card. The fact as to whether a purchaser receives a specified article of merchandise or nothing for his money is thus determined wholly by lot or chance.

PAn. 3. Respondent forwards his pushcards, together with various descriptive literature and with instructions as to how to operate said pushcards or explaining what to do in order to obtain said articles of merchandise, to various members of the public, and a substantial amount of such merchandise is sold or distributed by such persons by means of said pushcarus anti in accordance with the instructions furni!>heu by respondent. Respondent thus supplie-s to and places in th.e hands of othrrs the means of conducting lotteries in the sale of Ius merchandise in accordance with the sales plan hereinabove set forth.

PAn. 4. The sale of merchandise to the purchasing public in the manner above found involves a gnme of chance or the sale of a chance to procure articles of merchandise at a price much less than NATIONAL SALES, ETC. 699 692 Findings the normal retail price thereof. The use by respondent of said method in the sale of his merchandise, and the sale of his merchandise by and through the use thereof and by the aid of said method, h a practice of the sort which the common law and criminal statutes have long cfeemed contrary to public policy, and is contrary to an established public policy of the Government of the United States. Many persons, firms, and corporations who make or seu merchandise in competition with the respondent, as above described, 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, and such competitors refrain therefrom. The use of said method by respondent has the tendency und capacity, because of said game of chance, to divert trade and custom to respondent from his said competitors who do not use the same or an equivalent method. PAn. 5. :Many dealers in and ultimate purchasers of respondent's merchandise are attracteu by respondent's said method' and by the element of chance involved in the sale of said merchandise in the lna1mer above described, and are thereby induced to buy and sell or distribute respondent's merchandise in preference to merchandise oifered for sale and. sold by said. competitors of respondent who d.o 11?t use the same or an equivalent method, and trad.e is thereby diverted to respondent from said competitors. PAn. G. In the course aml cond.uct of his said business, respondent has caused and cau~es the representation to be made to his customers and. prospective customers, by the use of the words "factory representative," that he is a d.direct purchaser from or a direct d.istributor of the manufacturer of the merchandise which he se1Is and dish-iLutes. A substantial portion of the purchasing public have ex- }lresscd. and have a preference for dealing direct with the manufacturer or his representative of products being purchased, such Purchasers believing that they secure lower prices, superior quality, aiH] other ad \'antages that are not obtained when they purchase ft·onl jobbers or middlemen. The use by respondent of said representation that he is a factory representative has the capacity and te1•1dency to, and does, mislead and deceiye many of respondent's sail} customers into the l'rrmwous belief that respondent is a dirl'ct J·epresentati re of the manufacturer of the merchandise sold by re- ! I>ondent, and that persons dealing with respondent are buying said. ~l('rchandise from the d.direct representative of the manufactu~·er . lereof, thereby eliminating the profits of midd.lemen and obtamlng various ad.Yanb~'es that are not obtained by pl.'rsons purchasing ~d0 b •b s from middlemen. The truth anu fact is that respondent IS 700 FEDERAL TRADE COl\IMISSION DECISIONS Order 25F. T. C.

not the direct representative o:f the manufacturer but purchases the merchandise which he sells in the open market :from middlemen, jobbers, or wholesale dealers. There are many competitors o:f respondent who do not falsely represent that they are the representatives of the manufacturer o:f the merchandise sold by them. The use uf said representation by respondent has the tendency and capacity to, and does, unfairly divert trade to respondent :from his said com pt>titors.

PAR. 7. In the course and conduct o:f his said business, respondentr in the sale of certain rotary clocks, has caused and causes the representation to be made to his customt-rs and prospective customers that said clocks have a retai value of $5.00. A substantial portion of the purchasing public, relying on and believing the said representation, are induced and ha,·e been induced to purchase said clocks because of said representation. The use by respondent of said representation has the capacity and tendency to, and does, mislead and deceive many of respondent's customers into the erroneous belief that said clocks have a retail value o:f $5.00. The truth and fact is that said clocks do not have a reasonable retail value of $5.00, but said amount is grossly exaggerated and purely fictitious. There are many competitors of respondent who do not falsely represent tho value of the merchandise sold by them. The use of said representation by respondent has the U>ndency and capacity to, and does, unfairly divert trade to respondent from his said competitors. CONCLUSION The aforesaid acts and practices of the respondent, II. E. 'Vagley, individually and trading as National Sales and Paramount Sales, aro 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 o:f 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." ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission aud the answer of respondent dated July 12, 1937, admitting all of the material allegations of the complaint to be true and waiving the taking of further evidence and all other intervening procedure, and the Commission l1aving made its findings as to the facts and its conclusion that said respondent has violated the provisions of an Act of Congress, ap- NATIONAL SALES, ETO, 701 Order proved Septt>mber 2G, 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, H. E. Wagley, individually and trading as National Sales and Paramount Sales and trading under any other name, his agents, representatives and employees, in connection with the offering for sale, sale and distribution of clocks and other merchandise in interstate commerce, do forthwith cease and desist from :

1. Supplying to or placing in the hands of others pushcards or similar devices for the purpose of enabling such persons to dispose of or sell, by the use thereof, clocks or other articles of merchandise. 2. l\Iailing, shipping or transporting to members of the public pushcards or similar devices so prepared or printed as to enable said persons, by the use thereof, to sell or distribute clocks or other merchandise.

3. Selling or otherwise disposing of clocks or other merchandise by the use of pushcards or similar devices. 4. Representing <lirectly or indirectly that the respondent is a "factory representative" or a direct purchaser from or a direct distributor of the manufacturer of the merchandise which he sells and distributes.

5. Representing or advertising, directly or indirectly, that the rotary clocks which respondent sells and distributes have a retail Value or price of $5.00 or any value or price in excess of the actual or usual selling price at which said rotary clocks are sold by retailers to the consuming public, or have a retail value or price in excess of the normal or usual retail value or price of similar articles selling at Wholesale for prices comparable to the wholesafe price of said rotary clocks.

It ia further ordered, That the respondent, H. E. 'Vagley, individ- U~lly and trading as National Sales and Paramount Sales, shall, Within 30 days after service upon him of this order, file with the Commission a report in writing setting forth in detail the manner and form in which he hns complied with the order to cease and desist hereinabove set forth.

Syllabus 25 F. T. C.