Mutual Printing Co.

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IN THE Matrer OF MUTUAL PRINTING COMPANY, IN ITS OWN NAME AND RIGHT, AND TRADING AS MUTUAL SALES PROMOTION SERVICE COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 5 OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 3166. Complaint, June 29, 1997-Decision, Mar. 2, 1999 Where a corporation engaged in selling Its sales stimulator or sales-promotion plan or trade-promotion cards, which were so designed and arranged that their use constituted lottery scheme or gift enterprise when used by retail merchants in promoting and increasing sales of merchandise of such merchants to consuming public, and which included (1) groups of cards arranged for punching out $5 in trade, or $10 in trade, as case might be, and which had enclosed or concealed within their so-called secret panels, for disclosure when total amount provided for on cards had been punched out, legends entitling chance bolder of card to amounts ranging, In trade, from 20 cents to $5 for the $5 cards, and from 40 cents to $10 for the $10 cards, and (2) other groups intended for use by proprietors of service stations in sales of oil and gas aggregating $17, and providing for awards ranging from 1 quart of oil to 25 quarts thereof, or for equivalent- Sold to retail customers assortments of such sales promotion or trade cards, together with a variety of display posters and advertising matter for use of such retailer customers in use and distribution of said cards, and together with punch for canceling numbers arranged around the border thereof to indicate amount of sale made in each instance, and with suggestion for use of such cards by its retail merchant customers, wh,o distributed same to their own customers and prospective customers and honored awards shown under secret panels thereof, and thereby knowingly supplied to and placed in the hands of others means of operating lotteries, games of chance, or gift enterprises, contrary to public policy, and In competition with those who are opposed to such methods and refrain therefrom:

With result that many of the consuming public, by reason of lot or chance feature connected with its said cards, were induced to deal with or purchase merchandise from retailers using said cards in preference to purchasing from merchants using sales-booster schemes or plans or devices of competitors which had connected with them no element of lot or chance, and with further result, by reason of such last-mentioned fact, that many of such merchants, who cannot use more than one type of sales-promotion or price-concession card or coupon at the same time, were induced to purchase its said cards in preference to devices or plans of competitors, and trade was thereby diverted from them to it, competitors aforesaid who refrain from use of such methods were put to competitive disadvantage, and sales of competing sales plans or promotion schemes or premium cards or coupons by competitors were injuriously aft'ected: to the prejudice and injury of the public and competitors, and Jn restraint upon, and to the detriment of, freedom of fair and legitimate competition: MUTUAL PRINTING CO., ET(). 925 924 Complaint Held, That such acts and practices were all to the prejudice and Injury ot thepublic and competitors and constituted unfair methods ot competition. Before Mr. William 0. Reeves, trial examiner. Mr. llenry 0. Lank and Mr. D. U. Daniel for the Commission. Nr. Norman Asher and Nr. Lester Asher, of Chicago, Ill., for respondent.

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 Mutual Printing, Inc., a corporation in its own name and right, and trading as Mutual Printing Co., Inc., and Mutual Sales Promotion ~ervice, 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 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. The respondent is a corporation organized and operating under the laws of the State of Illinois, with its principal offics and place of business located at 751 East Sixty-fourth Street, Chicago, Ill. The respondent, trading as Mutual Printing Co., Inc., and as Mutual Sales Promotion Service, is now, and for some time last past has been engaged in the manufacture of sales-promotion cards and in the sale and distribution thereof to retail merchants, located at points in the various States of the United States, and causes and has caused its said products, when so sold, to be transported from its principal place of business in the city of Chicago, State of Illinois, to purchasers thereof in other States of the United States at their respective places of business; and there is now, and has been for more than 1 year last past, a course of trade and commerce by said respondent in such sales-promotion cards between and among the States of the United States. In the course and conduct of said business, respondent is in competition with other corporations and with partnerships and with individuals engaged in the manufacture of sales-promotion cards, trade cards, discount cards, premium cards, coupons and trading stamps, 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 cards so designed and arranged as to involve the use of a lottery scheme or gift enter- Complaint 28 F. T. C. prise when used by retail merchants in promoting and increasing sales of their merchandise to the consuming public. The respondent manufactures and distributes several groups of sales-promotion cards, but they all involve the same lottery scheme or gift enterprise and vary only in detail. The sales-promotion cards in one such group are herein described for the purpose of showing arrangement, design, and principle involved. On the front, such cards are as follows :

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 15·---------------------------------------- 10 KEEP THIS TREASURE CARD 15 10 YOU MAY WIN up to $5.00 15 10 15 10 15 10 15 10 15 10 NO BLANKS-EVERY CARD A WINNER 15 10 15, ________________________________________(Read Rules on Other Side) 10 15 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Under the secret panel is the following:

When Properly Punched, Good for 20 Cents IN TRADE The secret panel referred to on the said card is partially perforated to indicate where it may be opened, but until the said panel is opened, the legend thereunder is effectively concealed from the holder of the said card. The said legends under the secret panel vary in amount from 20 cents to $5. The legend under the secret panel is effectively -concealed until the panel has been opened and the amount which the holder of said card will receive in trade is thus determined wholly by lot or chance. On the reverse or back of the said sales promotion cards is the following language:

NO BLANKS-A WARDS UP TO $5.00 These awards are given in appreciation of your patronage. When this card is fully punched, present same to us intact. We will then open the Secret Panel. You wUI receive the award printed thereon ABSOLUTELY FREE. SHOULD YOU OPEN THE SECRET PANEL, THIS CARD BECOMES VOID. BUY ALL YOUR NEEDS FROM US-YOU MAY BE A BIG WINNER (MERCHANT'S ADVERTISEMENT) MUTUAL PRINTING CO., ETC. 927 924 Complaint Other cards manufactured and distributed by the respondent provide for recording the sale of $10 worth of merchandise by the numbers arranged around the border of the card and provide for the winning of amounts up to $10 by the legends under the secret panel. In some groups, the legends begin with 20 cents and go to $10, and in other groups, they begin with 40 cents and go to $10. Respondent furnishes the retail merchants with' various display posters and advertisements to be used by said retail merchants in distributing and using said cards.

PAR. 3. The retail merchants to whom respondent sells assortments of said sales-promotion cards, distribute the same to their customersand prospective customers and honor the awards as shown under the secret panel of said cards. One method advocated or suggested by r·respondent and used by a substantial number of retail merchant customers is as follows: The cards are distributed free to customers and prospective customers of said retail merchants and when purchases are made, punches corresponding to the amount of such purchases are made around the margin of said card and when all the numbers around the margin of said card are punched, the secret panel is opened and the customer is entitled to merchandise of the said merchant in the amount shown by the legend under the said secret panel, free of charge.

PAR. 4. There are in competition with respondent, various manufacturers, and distributors of sales-promotion cards, premium cards, price-concession cards, coupons and trading stamps, which when used by retail merchants do not involve a lottery scheme or gift enterprise. By reason of the lottery scheme or gift enterprise connected with the distribution and use of the respondent's said cards, many retail lllerchants are induced to purchase respondent's said cards in preference to the devices manufactured and distributed by respondent's competitors and trade is thus diverted to respondent from its said competitors.

PAR. 5. The consuming public are induced to deal with or purchase merchandise from retail merchants, using respondent's cards in preference to retail merchants using the devices of respondent's competitors, because of the lottery scheme or gift enterprise connected with respondent's said cards. By reason thereof, retail merchants are induced to purchase respondent's said cards in preference to devices of respondent's competitors and trade is thus diverted to respondent from its said competitors.

PAR. 6. The use by the respondent of said method in designing and arranging its said cards is a practice of the sort which the com· Findings 28F. T. C.

mon law and criminal statutes have long deemed contrary to public policy; and is contrary to an established public policy of the Govern~ ment of the United States. The use by respondent of said method has a dangerous tendency unduly to hinder competition or create monopoly in this, to wit: That the use thereof has a tendency and capacity to exclude 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, lottery scheme, or gift enterprise.

Many persons, firms, and corporations who make and sell various cards or devices for promoting or increasing sales of retail merchants are unwilling to offer for sale or sell cards or devices so designed and arranged as above alleged or otherwise designed and arranged as to involve a game of chance, lottery scheme, or gift enterprise and such competitors therefrom.

PAR. 7. The respondent, in shipping the said cards to its customers, assorts and packs them so that such customers know the amount of award stated under the secret panel, thus the retail merchants to ·whom respondent sells its cards are enabled to perpetrate a fraud on their customers. This practice has the capacity and tendency to induce and does induce retail merchants to purchase respondent's said cards in preference to card or devices of respondent's competitors. PAn. 8. The aforesaid method, acts, and practices of the respondent are all to the prejudice of the public and respondent's competitors, as l1ereinabove 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 duties, and for other purposes," approved September 26, 1914. REPORT, FINDINGs AS TO THE Facts, AND Onder Pursuant to the provisions of the Federal Trade Commission Act, the Federal Trade Commission on June 29, 1937, issued its complaint in the above-entitled proceeding and caused same to be served upon the respondent, l\Iutual Printing Co., a corporation, trading in its own name and right and trading as Mutual Sales Promotion Service (named in the complaint herein as Mutual Printing, Inc., a corporation in its own name and right, and trading as Mutual Printing Co., Inc., and Mutual Sales Promotion Service), charging it with the use of unfair methods of competition in commerce in violation of the provisions of said act. The res~ondent entered its appearance MUTUAL PRINTING CO., ETC. 929 924 Findings herein on August 20, 1937, and filed an answer to said complaint. Testimony was taken and evidence received at Chicago, Ill., on May 13, 1938, in support of the charges stated in the complaint, at the instance of Henry C. Lank, and D. C. Daniel, counsel for the Commission, and testimony was taken and evidence received on May 18, 1938, on behalf of said respondent at the instance of its counsel, Norman Asher, before 'Villiam C. Reeves, an examiner for said Commission, all of which testimony has been reduced to writing and filed in the office of the Commission together with numerous pieces of documentary evidence received as exhibits. Briefs were filed by counsel for the Commission and counsel for the respondent. Counsel for the respondent waived oral argument. Thereafter, this proceeding came on for final hearing before the Commission upon the complaint herein and the answer thereto, the testimony taken and evidence received, and the briefs of counsel for the Commission and the respondent, and the Commission having duly considered the same and being fully advised 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 AS TO THE FACTS PARAGRAPH 1. The corporate name of the respondent is Mutual Printing Co. It has carried on business under its own corporate name and also under the name and style of l\Iutual Sales Promotion Service. It was organized in 1929 under the laws of the State of Illinois, with principal place of business at Chicago in said State. Since its organization it has been engaged in the business of selling what it terms a sales stimulator or sales-promotion plan which has been sold by it to retail merchants in various States of the United States and respondent has caused the printed matter intended for use in the operation of said plan to be transmitted from its place of business in Chicago, Ill., through and into or into various other States of the United States, to the respective purchasers thereof, and in the course and conduct of its said business has been and is now in active competition with various persons and partnerships and other corporations also engaged in the sale of various types of sales stimulators or sales-promotion plans, in commerce among several of the States of the United States.

PAR. 2. In the course and conduct of its business, as described ·in Paragraph 1 hereof, respondent sells and has sold cards so designed and arranged that their use constitutes a lottery scheme or gift enterprise when used by retail merchants in promoting and increasing Findings 28 1~. T. C. sales of the merchandise of such merchants to the consuming public. One type of the cards so sold by respondent is substantially as follows:

5 555555555555555555 5 15 10 KEEP THIS LUCKY CLOVER CARD 15 10 YOU l\IA Y WIN up to $5.00 15 10 15 Under this SECRET PANEL 10 15 IS YOUR A WARD 10 15 Warning! Void if Opened 10 15 10 NO BLANKS-EVERY CARD A WINNER 15 10 (Read Rules On Other Side) 10 15 1-----------------------------------------------1 15 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Under the secret panel is the following:

When properly Punched, Good For 20 Cents IN TRADE The secret panel referred to on the said card was partially per· £orated to indicate where it might be opened, but until said panel was opened, the legend thereunder was effectively concealed from the holder of said card. The said legends under the secret panel varied in amount from 20 cents to $5. Thus, the amount which the holder of said card would receive in trade was determined wholly by lot or chance.

On the. reverse or back of said sales-promotion cards was the following:

NO BLANKS-AWARDS UP TO $5.00 These awards are given in appreciation of patronage. When this card 19 fully punched, present same to us intact. 'Ye will then open the secret panel. You will receive the award printed thereon ABSOLUTELY FREE. SHOULD YOU OPEN THE SECRET PA!\"EL, THIS CARD BECOMES YOID. BUY ALL YOUR NEEDS FRmi US-YOU MAY BE A BIG WINNER. (MERCHANT'S ADVERTISEMENT) PAR. 3. Each of the cards included in one of the groups sold by respondent is intended for use in sales of merchandise aggregating $5 and the cards in such group provide for awards ranging from 20 cents in trade to $5 in trade; the cards in other groups sold by respondent are intended for use in sales of merchandise aggregating MUTUAL PRINTING CO., ETC • •931 .g24 Findings $10 and provide for awards ranging from 40 cents in trade to $10 in trade. Other groups sold by respondent are intended for use by proprietors of service stations in sales of oil and gas aggregating $17 and provide for a wards ranging from 1 quart of oil to 25 quarts of oil, or their equivalent. Respondent furnishes its customers with a variety of display posters and advertising matter to be used by such customers in the use and distribution of such cards, also furnishes such customers with a punch for canceling the numbers arranged around the border of such cards to indicate the amount of the sale made in each instance.

The retail merchants to whom respondent sells, and has sold, assortments of said sales-promotion cards or trade cards, distribute the same to their customers and prospective customers, and honor the awards as shown under the secret panel of said cards. One method advocated or suggested by respondent and used by a substantial number of retail merchant customers of respondent is as follows: The cards are distributed free to customers and prospective customers of said retail merchants and when purchases are made numbers corresponding to the amount of such purchase are punched from the margin of said card and when all the numbers around the margin of said card are punched the secret panel is opened and the customer is entitled to merchandise of the said merrhant in the amount shown by the legend under the secret panel, without additional charge. P ..m. 4. Employees or officers of concerns manufacturing and distributing trading stamps and other trade booster cards not involving a lot or chance feature were called as witnesses and testified in this matter. The Commission finds that manufacturers and distributors of trading stamps, 99 cents and other price-concession cards, and premium coupons are in competition with the respondent and the business of such concerns is competitive with the business of the respondent. Retail merchants desiring to install some plan by which to boost sales of their merchandise cannot use more than one type of sales-promotion or price-concession card or coupon at the same time and retail merchants purchasing respondent's merchandise are not then in the market for other trade-booster schemes or plans which do not involve a lot or chance feature.

The lot or chance feature connected with respondent's cards has the capacity to and docs induce many of the consuming public to deal with or purchase merchandise from retail merchants using respondent's cards in preference to retail merchants using the sales-booster schemes or plans or devices of respondent's competitors which have connected with them no element of lot or chance and by reason of this last-mentioned fact many retail merchants are induced to purchase Order 28F.T.C.

respondent's said cards in preference to devices or plans of respondent's competitors, and trade is thus diverted to respondent from its said competitors.

PAR. 5. The use of respondent's cards by retail merchants by the methods described herein constitutes a lottery, game of chance, or gift enterprise, and the sale of such cards by respondent and their use by customers of respondent, as described, is contrary to public policy. The Commission finds that competitors of respondent are opposed to such methods and refrain therefrom. Such competitors are thereby put to a competitive disadvantage. PAR. 6. The respondent, in selling and distributing said cards, has knowledge that they are, and will be, used by its customers in the operation of a lottery, game of chance, o~ gift enterprise. The respondent thus supplies to and places in the hands of others the means of operating lotteries, games of chance, and gift enterprises. The sale and distribution of such cards by the respondent injuriously affects the sale of competing sales plans or sales-promotion schemes or premium cards or coupons by competitors of respondent, and the use of such methods by the respondent in the sale and distribution of its merchandise is prejudicial and injurious to tlle public and to respondent's competitors, and is a restraint upon, and a detriment to, the freedom of fair and legitimate competition. PAR. 7. In the latter part of 1936 and the early part of 1937 respondent received and filled each month from 400 to 750 orders for groups of the Lucky Clover cards. Respondent has thus sold and distributed substantial quantities of said sales promotion cards in commerce between and among various States of the United States. CONCLUSION The acts and practices of the respondent as set forth in the foregoing findings are all to the prejudice and injury of the public and to competitors of the respondent and constitute unfair methods of competition in commerce within the intent and meaning of the provisions of the Federal Trade Commission Act. ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission and the answer of respondent, testimony, and other evidence taken before 'Villiam C. Reeves, an examiner of the Commission theretofore duly designated by it, in support of the allegations of the said complaint and in opposition thereto, briefs filed herein (respondent not having requested oral l\!UTUAL PRINTING CO., ETC. 933 924 Order argument), and the Commission having made its findings as to the facts and its conclusion that said respondent has violated the provisions of the Federal Trade Commission Act. It i8 ordered, That the respondent, Mutual Printing Co., a corporation in its own name and right and trading as 1\futual Sales Promotion Service (named in the complaint herein as Mutual Printing, Inc., a corporation in its own name and right, and trading as Mutual Printing Co., Inc., and Mutual Sales Promotion Service), its officers, representatives, agents, and employees, directly or through any corporate or other device in connection with the offering for sale, sale, and dis· tribution of sales promotion cards or any other sales promotion plans or schemes in commerce as commerce is defined in the Federal Trade Commission. Act, do forthwith cease and desist from: 1. Selling and distributing sales promotion cards or any other articles of merchandise so designed that their use by retail merchants constitutes or may constitute the operation of a game of chance, gift enterprise, or lottery scheme.

2. Supplying to or placing in the hands of others sales promotion cards or sales promotion plans or schemes or any other articles of merchandise which are used or which may be used without alteration or rearrangement thereof to conduct a lottery, game of chance or gift enterprise, when distributed to the consuming public. 3. Furnishing or supplying to dealers display posters or circulars or other advertising literature bearing legends or statements informing the public as to the manner in which said sales promotion cards or other lottery devices are to be or may be distributed and used. It i8 fwrther ordered, That the respondent shall, within 60 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 this order.

934 FEDERAL TRADE COJI.DIISSION Decisions Syllabus 28 F.·T. d.