Pillsbury Mills, Inc.

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IN THE :MllTTR OF PILLSBURY MILLS, INC.

Docket 6000. Order and opi.union, June 30, 1951, Before Mr. Everett F. Haycraft hearing examiner. TV allace Adair and Mr. Brockman Horne Mr. L. E. Creel, Jr. , Afr. J. for the Commission.

Ho,qan Hartson and Mr. E. Barrett Prettyman, Jr. of Washington, D. and Mr. Terrance Ha,nold of Minneapolis, Minn., for respondent.

ORDER DISPOSING OF MOTION AND AJlIENDlNG AND SUPPLEMENTING COMPLAINT This matter having come on to be heard upon a motion, filed by counsel, in support of the complaint, requesting that the complaint herein be amended and supplemented to join Duff Baking Mix Corporation as a party respondent in this proceeding, and to aid certain factual allegations pertaining to the transfer by Pillsbury Mills, Inc. to Duff Baking Mix Corporation of a portion of the assets acquited by Pilsbury from American Home Foods, Inc. ; and The Commission being of the view that Duff Baking Mix Corporation should not be joined as a party respondent, but that a recitation ill the complaint of the relevant facts pertaining to Pilsbury s transfer of the assets acquired by it froll American II-orne Foods, Inc. would be of material yalue in the trial and (Esposition of the issues involved in this case:

It is ordered That the request contained in counsel's motion that the complaint be amended to join Duff Baking Mix Corporation as a Jarty respondent in this proceeding be, and it hereby is, denied. It is further ordered That to the extent the motion requests that the complaint be amended and supplemented to recite the relevant facts ertaining to the transfer by respondent Pillsbury Mills, Inc., to Duff \aking Mix Cm'poration of certain of the assets acquired by Pils- JrY from American Home Foods, Inc., said motion is hereby granted. copy of the complaint as so amended and supplements which shall forthwith issued and served upon respondent Pillsbury Mills, Inc. attached hereto.

Tt is That. t.he t.testimony and ot.her evidence here- further ordered ore introduced in support of and in opposit.ion to the allegat.ions the original complaint shall have t.he same force and effect. as ugh received at hearings held under the complaint as amended and plemented.

PILLSBURY MILLS , INC. 1111 1110 Opinion It is fU7'ther ordered That a copy of this order, together with a copy of the special concurring opinion by ConlIlissioner Carretta and a copy of the attached complaint, shall be served upon Duff Baking Mix Corporation, to which corporation leave to request intervention is granted if it so desires.

SPECIAL CONCURHING OPINION BY cOJlIMISSIONEH cAHRETTA This matter is before the Commission upon a motion fied by counsel supporting the complaint in which they request the Commission to amend and supplement the complaint originally issued herein by naming Duff Baking Mix Corporation as a party to this proceeding, and in other respects set forth in the proposed draft of amended and for thesupplemental complaint filed with their motion. Counsel respondent, Pillsbury Mils, Inc., have fied their reply in opposition to said motion.

Commission on This proceeding was originally instituted by the June 16, 1952, upon issuance of a complaint charging the respondent Pilsbury Mills, Inc., with violation of Section 7 of the Clayton Act as amended, by reason of its acquisition of the assets of two of its s Baking lix Diyision of Ameri-competitors, one of which was Duff' can Home Foods, Inc. After answer had been fied by respondent considerable testimony was taken in support of the complaint. Respondent then moved the Hearing Examiner to dismiss the complaint prove that thefor the ,'reason that the Commission had failed to acquisition involved had been effected in violation of Section 7 of the andClayton Act, as amended. After extensive briefs were filed, after oral argument was heard by the Hearing Examiner, he ultimately granted respondent's motion to dismiss the complaint on the grounds that the allegations of the complaint had not been supported by reliable, probative, and substantial evidence in the record. Counsel supporting the complaint then fied an appeal with the Commission from the initial decision of the Hearing Examiner. Briefs were filed by both sides, and oral argument was heard by the Commission. On December 21 , 1953, the Commission ordered that the initial decision of the Hearing Examiner be set aside, and remanded the matter to the Hearing Examiner for further appropriate proceedings in accordance with the order issued by the Commission. It appears now from the motion fied by counsel supporting the complaint to amend and supplement the complaint, and from the answer filed by respondent, that on December 21, 1953, the respondent sold a portion of the assets acquired from American Home Foods, Inc. to Duff Baking Mix Corporation, a corporation organized on Decem- 1112 FEDERAL TRADE CO IMISSlO" DECISIONS Opinion GO P.

bel' 11 , 1953, which assets, the motion reports, were acquired by the latter with notice that they were a part of those representing the subject matter of this then pending proceeding. The amendatory language as proposed in the subject motion seeks to join Duff Baking Mix Corporation only as a nominal party respondent and does not expressly charge that its acquiring of such assets as a successor to and assignee of respondent Pilsbury MilJs, Inc., constit uted a violation of law at the outset by Duff Baking Mix Corporation. In my opinion, complaints may be issued by the Commission only when the factual matters presented to it give the Commission reason to believe that the person, partnership, or corporation charged is violating or has violated any of the provisions of an Act administered by the Commission. In the light of this statutory requirement pertaining to the issuance of complaints, and in view of the fact that the amendatory language as proposed in the subject motion does not give the Commission reason to believe that the Duff Baking Mix Corporation has violated any provision of a statute administered by the Commission, the request for amendment joining Duff Baking Mix Corporation as a party respondent should accordingly be denied. The circumstances that a transfer of the assets in question has occurred during the course of these proceedings docs not now appear to render moot the issues currently in the course of trial and should not frustrate the legislatiye intent expressed in the amended statute under which this proceeding was instituted. Upon final determination of this matter upon its merits, should the greater weight of the evidence show that the acquisitions by respondent Pillsbury MilJs Inc., are or have been in violation of Section 7 of the Act, such relief should be directed as may be necessary to restore competition as contemplated by the Act, including divestiture of alj stocks, assets, 01' other interest secured by respondent from Ballard and American whether such assets be then in the possession of the respondent or of its successors in interest or assigns, including Duff Baking Mix Corporation.

The "Motion to Amend and Supplement the Complaint " filed by eonnsel supporting the complaint herein, sets forth in great detail the relevant facts concerning the respondent's recent transfer of assets to Duff Baking Mix Corporation. Being of the opinion that such relevant facts may be of material value in the trial and disposition of the issues involved in this case, and that such facts should not be left open com- to conjecture, I believe that the public interest requires that the plaint be amended to recite such relevant facts. Because of the interest which Duff Baking Mix Corporation wil necessarily have in any i'urther proceedings in this matter, it appears PILLSBURY MILLS, INC. 1113 1110 Complaint necessary to me that Duff Baking Mix Corporation should be served with a copy of the amended and supplemental complaint being issued herein, and should be advised that the Commission would look with favor upon any application made by it to intervene in this proceeding. Commissioner Mason concurs in the above opinion. Chairman Howrey and Commissioner Mead and Commissioner Gwynne do not join in that portion of the opinion which holds that the statute does not permit Duf!' Ihking Mix Corporation to be joined as a party respondent. In cases involving transfer of interest, they expressly leave open the question whether an action may be maintained against the party to whom the interest has been transferred. AM1';NDED AND SUPPLEMENTAL COMPLAINT The Federal Trade Commission, having reason to believe that the party respondent named in the caption hereof, and hereinafter more particularly designated and described, has violated and is now violating the provisions of Section 7 of the Clayton Act (G. S. C. Title 15 Sec. 18) as amended and approved December 29 1950, hereby issues its amended and supplemental complaint, stating its charges in that respect as follows :

PARAGRAPH 1. Respondent Pillsbury MiJJs, Inc., hereinafter referred to as "Pillsbury," is a corporation organized in 1935 as PiJJsbury Flour MiJJs Co. (present name assumed in 1944) and doing business under and by virtue of the Jaws of the State of Delaware with its principal offce and place of business located in the Pillsbury Building, 608 Second Avenue South, Minneapolis 2, Minnesota. Pillsbury, the second largest flour milling company in the United States, operates a number of flour miJs located throughout the several States of the United Stat.es, and is engaged in t.he business of milling family and bakery flour. Pillsbury is also engaged in t.he manufact.ure of packaged food pro duets having a grain base, including prepared flour-base mixes such as piecrust, hot-roll, cake, and pancake mixes; millfeeds and commercial (or mixed) feeds for livestock and poultry, and dog food; various other food products; products from processed soybeans; and paper and paper bags. Prior t.o June 12 1951, Pillsbury s daily flour milling capacity.y was approximately 82 000 hundredweight, its daily capacity for manufacturing packaged food products was approximately 1 400 000 pounds, and for manufacturing commercial feeds, approximately 2 500 tons. During a twelvemonth period in 1949- , Pillsbury made approximately 9.4% of the total indust.ry sales (in hundredweights) of family flour, 8.2% of bakery flour, 16% of prepared flour-base mixes, and ranked among the Complaint 50 P.

first fifteen companies engaged in the sale of commeI' ial feeds. Pillsbury is also engaged in the buying, selling, and storing of grain, and has a total grain storage capacity of approximately 26 000 000 bushels. The original business of Pilsbury was established in 1869 under the name of C. A. Pillsbury & Co. and in 1889 was consolidated with VI ash burn Mill Co., fonning the Pillsbury- W ashburn Flour .Mills Co. Ltd. 1111909 the Pilsbury Flour Mills Co. of Minnesota was estob Ii shed and incorporated, acquiring the quick assets of said PillsburyvVashburn Flour Mils Co., Ltd., and taking over the operation of its business (later acquiring its remaining assets). when the present corporation was formed in 1\)35, it acquired the assets of Pilsbury Flour Mills, Inc., a holding company, and said 1'il1sbury Flonr Mills . of Minnesota, an operating company, along with the lauer s three subsidiaries which had been previously acquired by said operating company.

During the ten-year period, from May 31, 1940 to May 31 , 1950 Pilsbury acquired some or all of the assets of six companies. Said acquisition included flour fwd feed mils, a soybean processing plant and grain eleyators in several States of the United States, thereby substantially increasing Pillsbury s flour milling, feed manufrcturing, soybean processing, and grain storage capacities. On or about J anuary 31 , 1952, Pilsbury acquired an additional grain elevator of substantial capacity.

During the same ten-year period, Pillsbury s net sales grew from approximately $47 000 000 to approximately $201 000 000 , its total assets grew from approximately $30 000 000 to approximately $59 000 000 and its net worth grew from approximately $23 000 000 to approximately $41 000 000.

Pillsbury purchases its grain and other materials used in the manufacture of its various products in commerce, as "commerce" is defined in the Clayton Act, and offers to sell, sells, and ships said products in said commerce throughout the several States of the United States and the District of Columbia. Pillsbury maintains sales offces in twentyfour States and sells its products, primarily thro\lgh its sales force, to wholesalers, bakeries, retailers, feeders of livestock and poultry, and others, many of whom are located in that part of the United States generally lying east of the Mississippi River and south of the Ohio and Potomac l1,ivers, hereinafter referred to as the "Southeast." PAH. 2. Ballard and Ballard Company, hereinafter referred to as Ballard " was, prior to June 12, 1951, a corporation orgfwizcd in 1909 as a successor to a partnership of the same name established in 1880 a.ndwas doing business under and by virtue of the laws of the State of J:ent11cky, with its principal offce and place of business located at 912 PILLSBURY MILLS , IXC. 111.5 1110 Complaint East Broad"ay, Louisvile, Kentucky. Ballard had one wholly owned subsidiary which it had acquired in 1940. Ballard was engaged in the milling of family and bakery flour and in the manufacture of packaged food products, including prepared Hour-base mixes, such as pie-crust, hot-roll, cake and pancake mixes; prepared dough products; mil1feeds and cornmercilll (or mixed) feeds for livestoek and poultry, and dog food; various other food products; and cloth sacks.

Ballard had a daily flour milling capacity of approximately 5 500 hundredweight, a daily capacity for manufacturing commercial feeds of approximately 1 000 tons (which it used to manufacture a substantial part of the commercial feeds sold in the Southeast), and a total grain storage capacity of approximately 2 000 000 bushels. In order to meet its market requirements, Ballard purchased approximately 250,()OO hundredweight of fJ01lr annually from other sources. During the ten-year period, from .June 30, 1940 to June 30 , 1950 BaJJard' s net sales grew from approximately $8 000 000 to approximately $30 000 000, its total assets grew from approximately $2 GOO OOO to approximately $11 300 000, and its net worth grew from approximately $2 400 000 to approximately $5 800 000. BaJJard purchased its grain and other materials used in the manufacture of its various products in commerce, as "commerce" is defined in the Clayton Act, and offered to sell, sold, and shipped its prepared dough products in said commerce throughout the several States othe United States and the District of Columbia. Ballard offered to sell, sold, and shipped its other products in said commerce throughout the several States of the Southeast through its sales force and marketing system, which included warehouses located in from twenty to thirty cities, to wholesalers, bakeries, retailers, feeders of livestock and ponltry, and others.

PAR. 3. American Home Products Corporation, a corporation organized and doing business under and by virtue of the laws of the State of Delaware with its principal offce and place of business located at 22 East 40th Street, New York, New York, wholly controls the voting stock of its corporate subsidiary, American Home Foods Inc., hereinafter referred to as "American. Prior to March 10, 1952, American, doing business as Duff' s Baking Mix Division, which business it acquired in 1944 from P. Duff' s & Sons, 1m,., was engaged in the manufacture of packagcd food products including prepared flourbase mixes, such as gingerbread, walle, hotroll, muffn, and cake mixes. Said products were sold under the brand Ilame of "Duff' ., . .. .. . . .._ . . . _ Complaint 50 P. T. C.

American purchased its materials used in the manufacture of its various products in commerce, as "commerce" is defined in the Clayton ;\.ct, and offered to sell, sold, and shipped said products in said commerce, throughout the several States of the United States and the District of Columbia.

PAR. 4. On or about .hme 12, 1951, Pilsbury acquired all or substjlltially all of the assets of Ballard and presently operates the former business of Ballard as a division of Pillsbury. On or about March 10, 1952, Pillsbury acquired all or substantially all of tlw assets of American which were utilized in conducting the business of its Duff's Baking Mix Division, including the property, equipment, and inventory of a mix manufacturing and packaging plant located at Hamilton, Ohio.

PAR. 5. Both Pillsbury and American were, prior to March 10 1952, leaders throughout the United States in the sale of prepared flour-base mixes. During a twelve-month period in 1949- , Pillsbury ranked second nationally with sales of approximately 1 219 000 hundredweight which were approximately 16% of the national market, and American ranked fourth nationally with sales of approximately 453 000 hundredweight which were approximately 6''', of the national market.

Both Pillsbury and Ballard were, prior to .June 12, 1951 , leaders in the Southeast in the sale oJ family and bakery flour and prepared flour-base mixes. In the year 1950 the approximate positions of Pillsbury, Ballard, and American in the sale of Jamily and bakery flour and prepared flour-base mixes in the Southeast were as follows: Amount sold Percent of i Rank in i (in round total I southeast sales cwts. i southeast sales Familv Flour:

pjllsbmv -- - - . . - - i 5tb - - . - - . 732, 000 ) 3. 66 Ballard: - 3rd_ Total. , 662, 000 , 8. 31 . - IBakery Flour: Pilsburv --- - . - 3rd - 680, 000 Ballard -- 9th. 500, 000 Total -- . . -- -- - , 180, 000 8. 55Prepared fiour- base rnixes: Pillsbury - - - - -- i 1st. - - - -- 151 , 000 22. Ballard - - - -- - - - - - - ' 3rd - - - . , 000 12. American (Duff' s) -- - - -- - - - -. - - - - 5th, 000 10. Total - - -. - - 299, 000 44. 1- - - - PILLSBUHY MILLS , INC. 1117 1110 Complaint For many years prior to June 12, 1951, substantial competition, or potential substantial competition, existed between Pillsbury and Ballard, and between each of them and others, and substantial competition, or potential substantial competition, exists and has existed since on or about .Tune 12, 1951, between Pillsbury and others in the offering to purchase and purchasing in interstate commerce of materials used in the milling of flour and in the manufacture of prepared flour-base mixes, feeds, and other products and in the offering to sell and selling of said products in interstate commerce.

For many years prior to .March 1952, substantial competition, or potential substantial competition, existed between Pillsbury and American and between each of them and others in the offering to purchase and purchasing in interstate commerce of materials used in the manufacture of prepared flour-base mixes, and in the offering to sell and selling of said products in interstate commerce. Pillsbury s previous acquisitions of flour-millng companies and the aforesaid acquisition of Ballard are typical of the mergers which have contributed to the present concentration of ownership and control in the flour-milling inol1stry. From 1945 to 19.50 the aggregate capacities of the nine largest flour-miling companies, including Pillsbury, grew from approximately 32.7% of total industry capacity to approximately 38. 1 % thereof. Although wheat flour and its products constitute a substantial and important part of the American dict, in recent years consumer dem8nd for family flour has decreased and during the same period of time said demand for prepared flour-base mixes, which arc relatively new products, has rapidly increased. Ownership and control in the prepared flour-base mix industry is already becoming concentrated in a few companies which distribute and advertise prepared flour-base mixes nationally. During a twelve-month period in 1949- , seyen of these companies, including Pilsbury and American made approximately 70% of the total sales in said industry. Prior to the acquisitions of Ballard and American, Pillsbury possessed suffcient economic power to enable it to engage in the granting of price discriminations, and it did in fact exercise and abuse such power by that and other methods, thereby diverting trade from its competitors to itself. Said acquisitions have added substantially to such power and have enabled Pillsbury to further divert trade from its remaining competitors with even more damaging results. PAR. 6. The effect of the aforesaid acquisitions by Pillsbury of all or substantially all of the assets of Ballard and the Duffs Baking Mix Division of American, or all or substantially alj of the assets of either of them, may be substantially to lessen competition, or to tend to creato a monopoly in the lines of commerce, as "commerce " is defined Complaint 50 P. T. C.

in the Clayton Act, in which the acquired companies were engaged throughout various seetions of the United States. All. 7. The foregoing alleged acts and practices of respondent Pillsbury as set forth herein constitute a violation of Section 7 of the Clayton Act (U. S. C. Title 15, Sec. 18) as amended and approved December 29, 1950.

PAll 8. In June 1952 the Commission issue,d and served upon Pilsbury its original complaint in this matter. The charges in said complaint were in all material respects identical to the charges as set forth in Paragraphs 1 through 7 herein. Issue was joined; hearings were held during which the case in chief of counsel supporting the compbint was introduced in evidence; following a motion to dismiss by PiJJsbnry, the hearing examiner held that a prima facie case had not been established and filed his initial decision providing for dismissal of the complaint without prejudice; and upon counsel's appeal therefrom, the Commission on December 21 , 195;), set aside the initial decision ami remandcd the case to the hearing examiner for further appropriate proceedings.

PAR 9. Duff Baking ::Iix Corpomtion, hereinafter referred to as Dufl' Corpo!'tiun;' is a corporatiun urganii\ed on DeLemher 11 , 195:3 doing business under and by virtue of the laws of the State of New Jersey with its principal office and place of business located at 8BO Broad Street, Newarl; , New Jersey.

On or a about December 21 , 1953, Pillsbl1'y sold, assigned and transferred to Duff Corporation, pursuant to various arrangements and , 195:3, cer-agreements, one of which was under date of December 15 tain of its assets which had been acquired by Pillsbury on March 10 1952, from American. SRid assets sold, assigned and tmnsferred by Pillsbury to Duff Corporation included the business of selling and distributing prepared baking mixes, such as waffe, hot muffn, corn muffn, hot roll, layer cake, devil food, spice cake and gingerbread mixeo, under the trade n:1me "Duff' " the going-concern value, goodwill, trademarko, copyrights and patents incident to oaid business; and the formulae and manufacturing methods, processes and techniques lled in connection thercwith. Said sale by Pillsbury to Duff Corporation did not include, among other things, the physical propcrty and equipment Required by Pillsbury from American such as land buildings and machinery.

The terms and conditions of sale of said Rssets by Pillsbury to Duft of which SSO OOOCorporation provided for a sales price of $750 000, was paid upon the execution of the sale with the remainder to be pair! in tile form of a surcharge assesoed on all mixes manufactured for de by the Dufi Corporation and beginning in 18:5;5 by the payment PILLSBURY MILLS , INC. il 19 1110 Complaint from Duff Corporatioll to PiJlsbnry of 50% of all anllual net profits of the Duff Corporation in excess of $75 000. It '\as further provided years Pillsbury vouldamong other things, that for a period of two furnish from the Hamilton plant, which it had acquired from American, Duff Corporation s prepared mix requirements, but not in excess of a iigure which was represented to be 20% of the 1954 estimated total production of prepared mixes at said I-IamiJton plant; that Pillsbury would have the option of manufacturing Duff labeled mixes to conform to current formulae used for manufacturing Pillsbury labeled mixes; that Pillsbury would have the option of conforming the types and dimensions of Duif' s labeled mixes lnanufactured to those used in packaging Pilsbury labeled mixes; and until $500 000 of the pmchase price shall have been paid, Duif Corporation could not sell or divest itself of the assets acquired from Pillsbury without the written consent of Pilsbury.

Duff Corporation entered into the agreements and arrangements as heretofore described in this Paragraph, with Pillsbury with full knowledge that said assets, together with other assets heretofore described in Paragraph 3 herein, were the subject of a proceeding brought by the Federal Trade Commission in v, hieh it was charged that the acquisitions by Pillsbury of Ballard and the Duff's Baking :Mix division of American, as heretofore described, constituted a violation of Section 7 of the Clayton Act, as amended. Duif Corporation purchases all, or nearly aJl, of its prepared mixes in commerce, as "commerce" is deiined in the Clayton Act, and oiTers to sell, sells and distributes said products principally through brokers throughout the several States of the United States and the District of Columbia.

PAR. 10. The sale by PiJlsbmy of a portion of the assets previously acquired by it from American and the purchase of such portion by Duff Corporation, as set forth in Paragraph 9 herein, docs not constitute such a disposition of said assets as to render moot the violations of Section 7 of the Clayton Act, as amended, as charged in Paragraphs 1 through 7 herein.

, , 1120 FlmERAL TRADE COMMISSION DECISIONS Decision 50 P.

1 N THE MATTER OF STANlUCH MILLS CORP. AXD MAURICE MARCUS Doclcet 611711. Complaint, Dee. 1.'52- 1Jeei8ion (mil opinion rune 30 , 7.051, Charge: Misbranding interlining: fabries in violat.ion of the \\' 001 Products JJabeling Act.

Before Mr. John Lm01:s hearing examiner. llfr. George E. Steinmetz for the Commission. DECISION AND OPINION OF THE COJllJfISSlON This matter has come before the Commission upon the appeal of counsel supporting the complaint from the initial decision of the hearing examiner. A brief in support of the appeal has been filed. No brief has been filed by respondents. Oral argument has not been requested.

In support of his appeal counsel supporting the complaint contends that the hearing examiner erroneously held that the record did not establish that the fabrics which respondents denied being of their manufacture were their products anclllmt tJIP proof as to the remaining fabrics was not suffcient under thc cin' ulJsU1lCCS to justify the issuance of a cease and desist order.

The Commission has carefully nwiewed the matter and is of the opinion that the hearing examiner has correctly analyzed the eyidcncc and that his initial decision is proper in all respects. It is ordered, therefore That the appeal of counsel supporting thc complaint is hereby denied, and that the initial decision is hereby adopted as the decision and opinion of the Commission. It is f?Lather OT'dwred That the complaint in this proceeding is hereby dismissed.

OHDlm DIS2lfISSING C02llPLAINT VVITHOUT Pm;.Judice JNITIAL DECISION BY ,July! LEWJS, HEARING EXAJlIINEH This proceeding came on to be considered by the above-named Hearing Examiner, heretofore duly designated by the Commission, upon the complaint of the Commission, the answer of respondents thereto and testimony and other evi,lence introduced in support of and in opposition to the a1Jegations of the complaint at hearings held herein. The undersigned, being of the opinion that the evidence of violation is not suffciently substantial to require any corrective action in the public interest, wil order that the complaint herein be dismissed STAN RICH MILLS CORP. ,;T AL.

H20 Decision without prejudice. The reasons and basis for such dismissal are as follows :

Respondent Stanrieh MjJs Corporation (hereinafter referred to as Stanrich) is engaged in the manufacture of various types of cloth. Respondent Maurice Mareus is its President and Treasurer and controls its operations. The events at issue occurred during 1951 and the early part of 1952. Until the end of 1951 Stanrich was largely engaged in the weaving of interlining cloth for sale to textile wholesalers and to e10thing manufacturers. During this period Stanrich operated a min in 1Vorcester, Massachusetts, where it performed both spinning and weaving operations, sending out its cloth on a commission basis to be finished and dyed by others. The yam used in the weaving of its doth was spun from wool stocks, consisting of thread and eard waste from other mils, which Stanrich purchased through a middleman. Toward the end of 1951, Stanrich eeased making interlining cloth almost entirely and began manufacturing cloth which it eut up into blankets and sold as such.

During the middle of 1952, Stanrich bought out the Thayer Woolen Mills, a considentbly larger mil, in North Oxford, Massachusetts and since that time it has been performing many of the operations which were theretofore performed for it on a commission or subcontract basis. It is now engaged almost exclusively in making cloth for blankets which it completes and sells to the trade. The complaint charges respondents with misbranding certain wool products in violation of the vVool Products Labeling Act of 19B9 and the Rules and Regulations promulgated thereunder. Specifically, respondents are charged with falsely labeling as "100% vVool" 100% Virgin 'VooF' , or as "An vVool" certain of its interlining fabrics and blankets which contained reused or reprocessed wool, together with substantial quantities of miscellaneous fibers other than wool, and with failing to disclose on certain interlining fabrics the Jlame or registered identification number of the marmfacturfJr or other proper person.

The evidence offered in support of the complaint revolves about eleven pieces of fabric alleged to have been manufactured by Stanrieh. Three of the pieees (Com. Exs. 22, 2B and 24) were obtained from Stanrich by a Commission inyestigator and purport to be samples of interlining fabries manufactured by Stanrieh for sale to the trade. The remaining eight pieces (Com. Exs. 25-A to B2-A) were obtained by another Commission investigator from various customers of Sb11 rich. Sewn of these eight pieces purport to be samples of interlining fabrie actually manufactured and sold by Stanrieh and the eightJ) (Com. Ex. BI-A) is a blanket also alleged to have been manufacture( and sold by Stanrich.

40::)44:3- ;-7 - J..l FEDERAL 'trade COMMSSION DECISIONS Decision 50 P.

Identiiication tags attached to the various samples of interlining fabric describe them as containing "All "'V ool-Exclusive of Ornamentation. According to tests made by the National Bureau of Standards these fabrics contain varying amounts of non-wool fibers. The amount of non-wool fiber in most of the samples is approximately 9 percent, although one sample (Com. Ex. 32-A) is as much as 20 percent non-wool and another (Com. Ex. A) is as high as 32 per cent non-wool. The blanket (Com. Ex. 31-A) tested 98 percent wool and counsel supporting the complaint has waived any claim of misbranding with respect to it. Although the reports of the tests state that the various samples reflect "wool fiber damage" which is considered indicative of the presence of reused or reprocessed wool, they concede that there is no method known for the quantitative determina tion of such reused or reprocessed fiber. According to respondent Marcus and the expert witness Musgrave, the presence of damaged fiber may be the result of the rather harsh picking and garnetting process to which the thread and card waste is subjected in reducing them to fiber form, and not to the presence of reused or reprocessed wool. On the present state of the record no finding can be made as to the presence of reused or reprocessed wool in the samples received in evidence. This leaves as the primary issue for disposition the question of whether respondents are responsible for misbranding wool prod acts containing substantial quantities of non-wool fiber. Hespondents concede that the three pieces of fabric obtained from their place of business were manufactured by Stanrich but, for the reasons which will hereafter appear, contend that no claim of mis branding may be based thereon. They likewise admit that the blanket (Com. Ex. 31-A) and one of the seven pieces of interlining fabric (Com. Ex. 27-A), which were obtained from Stanrich's customers were manufactured and sold by Stanrich. Wl1ile admitting that they sold the remaining six pieces of interlining fabric to various cus tomeI's, respondents deny having manufactured these pieces and deny responsibility for their misbranding. A considerable portion of the evidence in this proceeding was devoted to the question as to whether these six pieces of fabric were manufactured by Stanrich. Since in the opinion of the undersigned a resolution of this issue is important 10 the UUkOllC of this proceeding, it will be disposed of first. 1. The Six Pieces of Interlining Fabric Obtained From SLmrich' Customers respondents' explanation of how six pieces of fabric which they !ad not manufactured came into the hands of their customers is sub tantially as follows:

rANRICH MILLS COHP. ET AL. 1123 1120 Decision During the early part of 1951, StaIlich sold several hundred pieces of interlining fabric to one of its customers in ew York City, Henry Gewirt;" Textile Corp. (hereinafter referred to as Gewirtz). According to respondents, the market in textiles at the time of these sales was rising sharply due to the Konmn ,Val', but that after a slump in the market later in the year, Gewirtz, in August 1951, insisted on returning most of the fabric, using as a Pretext the claim that he had found it was not all-wool. Hespondents accepted the return of the merclJandise, agreeing to refund the purchase price and pay Gewirtz $i350. 00 in damages. According to respondents, they later concluded after investigation, that Gewirtz had not returned merchandise which they had sold him, but had substituted for it other part-wool fabric which had been manufactuJ'ed by other concerns and had substituted respondents' identification tags for those of the other manufacturers. 00 in dam- Hespondents, acconIingly, refused to pay Gewirtz the Si350. lges. In the meantime, however, respondents had resold the merchandise to other customers, being under the impression that it was actually the all-wool hbric which they had sold to Gewirtz. In support of their defense, respondents showed first that during the ea,rJy part of 1951 Gewirtz had purchased several humh'ed pieces of part-wool interhning JaIn'ic from Thayer ,Voolen Mils and that during the spring and summer of that year Gewirtz hac! also had nmde up for him on a commission basis, substantial quantities of interhning :fabric by one Panl Bousquet front wool stocks which Gewirtz had purchased. Although the wool stocks used by Bousquet were supposed to be all-wool, Gewirt;" later ascertained that the cloth contained substanti d quantities of noll-wool fiber. It further appears that when Gewirtz returned several hundred pieces of interlining fabric to Stanrich in August HJ,")l he had on hand a subsUmtial quantity of the part-wool interlining fabric which had been manufactured 1'01' him by Thayer and Bousquet. The record also discloses ihat \vhen the fabric, alleged to have been respondents, was returned to a pubhc warehouse in New York by GewiJ'tz, 1'01' the account of Stmllich, the wrappings on a number of pieces were torn and had to be rephlCe, a.nd some of the identi!ic;ation tags had to be replaced. It further appears that it was Gewirt;,' practice to remove the nHlIUc facturer s identification tag from fabric before selling it to his customers and there is reason to believe that Gewirtz had on Imnd at the Lime of the return i number of Stanrich's identification tags. This evidence tends to establish the existence of circumstances under which an interchnJlge or confusion of merchandise" such as that chimed by respondents, could have ()ccl1'Jed. It is true that the mere existence of an opportunity for the snbstitution of merchandise is 1124 FEDERAL TRADE COM:vnSSION DECISIONS Decision 50 P. '1. C fact of limited persuasive value when considered by itself. However, respondents offered additional evidence to show that some of the fabric claimed to be theirs contains identifying features different from the type of fabri(' manufaC'nred by them and, further, that som of the features of the fabric aneged to be tllCirs were similar to that of cloth manuf:lctured by Bousquet or Thayer. Among the identifying features claimed by respondents to distinguish some of the disputed cloth from their own was the fact that several pieces contain a "selvage" or bound edge on only one side of the doth, whereas their own fabric has a selvage on both sides. Ordinarily when cloth is woven both sides have a bound edge as it comes off the loom. However, sometimes it is woven in double width with a space and connecting threads in the center, which are later cut, and eachtbe cloth is rolled into two separate rolls of narrower width, having a selvage on only one side. In this connection, respondents established that the cloth woven by Bousquet for (",ewirtz was of this latter type. It was woven on a 92-inch loom and was split down the middle into two pieces, each approximately 42-inches wide, with a selYage on only one side of each piece. The record also discloses that respondents' cloth was woven on a 72- inch loom, which was the only loom thev had at the time, and that their cloth was woven in 60- or 42inch widths with a selyage on both sides. Ordinarily, it would not be possible to weave two bolts of 42-inch cloth simultaneously on a 72-inch loom. "While counsel supporting the complaint attempted to show that this could be done by a freak process, the method is not commercially feasible and no reason was suggested why respondents would have used it. Moreover, the resulting fabric would not have a selvage on both sides.

Another feature which respondents claim distinguishes some of the disputed fabric from their own is the fact that the yarn of which it is composed has been spun with a left twist to it, whereas their own fabric, at the time in question, was made from yarn with a right twist. while counsel supporting the complaint sought to show through an expert witness that the direction of the twist is only one of many features used in identifying cloth, it is undoubtedly a relevant negatjye factor in eliminating a particular lnanufadurer as having woven a particular piece of cloth. Counsel supporting the complaint also endeavored to show that the direction of the twist of the yarn could be changed by changing an of the bands on the spinning mule. Eoweyer, this is a time-consuming and commercially wasteful process and no reason is suggested why respondents would have undertaken it during the period at issue.

1 During 1DG2. after res110ndf'nts had hou!!ht out tlw Thayer mill. ,which had !'ever::11 1Jl11cs WitJl a IPtt twist, re poIldents cl1anged their own single mule from right to left tW1::t to makt- it confnrm with the others. TJlis . hOWf'Vf, occurrNl HttPf th0 events nt u(' InHl transplr('l anfl merely demonstrntcs H commercially feasible circumstance when a manufacturer might want to change the dire('tion of the twist in bis fabric. ;\.

STANRICH MILLS CORP. ET AL.

1120 Decision Finally, respondents contend that the samples of the disposed cloth are alj different from their own eJoth in that the samples all have a rather coarse texture due to the fact that they have not been put through a "fullng" or "felting" process in their finishing, unlike respondents' own cloth which they claim was always put through such a process. A comparison of the samples which respondents concede are theirs (Com. Exs. 22 , and 27- with those which respond. ents deny manufacturing, discloses that the former have a soft, felted type of finish which appears to be different from the finish of the latter samples. The testimony of respondent Marcus that his cloth was always put through a fulling process in the finishing was corroborated in part, by the witness Musgrave, who testified that during 1950-1951 while he was employed by a company which finished respondents cloth it was always put through the fulling process. ,,yhile it is possible that other firms which did finishing for respondents during this period did not put it through a fulling process, no evidence to this effect was offered by counsel supporting the complaint and the undersigned feels obliged to accept the apparently credible testimony of Marcus, supported as it was by the witness Musgrave. The evidence offered by respondents was thus suffcient to establish the following significant facts with respect to respondents' cloth during the period at issue: (1) that respondents' cloth contained a selvage on both ends; (2) that it is highly improbable that they could have woven two pieces of 42- inch cloth having a single selvage, simultaneously on their 72-inch loom; (3) that their cloth was made from yarn having a right twist; and (4) that their cloth was put through a fulling or felting process.

An examination of the six disputed samples in the light of the above facts reveals the following:

1. Commission s Exhibits 26- , 2S-- , and 30-A all appear to be 42 inches wide. They were identified by the witness Bousquet as being 42-inch cloth woven double on a wide loom and as having a selvage on only one side. While Bousquet conceded that it was possible that the samples in evidence were originally of a wider width and had been cut down to 42 inches, the witness Musgrave confirmed that it was 42-inch cloth. Although the Commission s investigator, Scott testified in rebuttal that it was his belief that the samples he had received were all cut from 60.inch fabric, this possibility would appear to be precluded by the relatively low price of the fabric." Moreover" the evenness of the cut at the unbound edge, as compared with somf :; MusgTave was conceded to be an unbiased witness by counsel supporting the complain' S The fabric was sold at from 44if to 551 per yard, as compared to 70c and upwar from the 60-inch fabric.

"-V FEDERAL TRADE COMMISSION DECISIONS Decision 50 F. T. C obyioL1sly ut from a large pie, militatesof the samples which were against the possibility of these samples having been cut from a wider prece.

2. According to the credible testimony of the witness Musgrave Commission s Exhibits 25- 28- , and 29-A are comprised of yarn having a left twist, thus distinguishing thel'n from respondent's fabric spun from yarn with a right twist. In this connection it may be noted that the sample conceded by respondents to be theirs (Com. Ex. 27has a right twist in the yarn.

3. None of the six samples in question appear to have the soft felted finish which is characteristic of those samples admitted to be respondents. In this connection it may be noted that Commission Exhibit 22, which was given to the Commission s investigator as a sample of fabric mallnfa tm'(l by respondent under Style Numbers 570 501 , and 801, and Commission s Exhibit 27- which was obtained by another investigator from one of respondents' customers and bears Style Number 801 , both appear to have the soft felted finish which was described by the respondent Marcus and by the witness Musgrave as resulting from the fusing process to which respondents' fabric was subjected during the finishing operation. It may also be noted that the disputed samples bear the Style Numbers 570, 501 , or 801, and accordingly, it would be assumed that they would be similar in texture and finish to the two samples bearing those numbers which respondents concede are theirs.

4. Commission s Exhibit 32 A is approximately 80 percent wool and 20 percent rayon, which coincidentally were the specifications of the fabric purchased by Gewirtz from Thayer. 5. while four of the contested pieces of cloth bear identification tags with Stanrich's name as the manufacturer, the tags on two of them (Com. Exs. 25- and 82-A) do not contain the name of auy manufacturer and respondents deny t.mt they are their tags. Although the piece number on one of the tags (Com. Ex. 82-13) coincides with that on Stanrich's l1woice purporting to cover the sale, and style number on the tag (570 15) differs from the style number on the invoice (801-12).

SUMMAHY The question of whether Stan rich mannfactnred the six disputed ieees is one which is not easy of decision. It must be conceded that Ie evidence oifered in the first instance by counsel supporting the ,mplaint is persuasive of a iinding in the affrmative on that issue. 11' almost precise correlation between the information appearing Oil identification tags attached to the JJwrchandise and Stanrich' STANRICH MILLS CORP. ET AL. 1127 1120 Deeision covcring invoices is strong evidence that the fabrics were manufactured by Stanrich. The undersigned is frank to admit that respondfabrics came into their customersents' explanation of how these hands at first impressed him as somewhat strained. However, the theory a reason-evidence which they developed gives to respondents' able degree of plausibility. Thus, the evidence oJl'ered by them establishes a backgronnd in which a confusion of fabrics and identification tags could have taken place. It further establishes that each of the fabrics in issue contains one or more identifying features disthatsimilar from the type of fabric manufactured by Stanrich and, in several instances, the contested fabrics are similar to fabrics manufactured by the two concerns from which Gewirtz purchased inter- Jining fabric.

the under- Although the matter is not entirely free from doubt, signed cannot conscientiously find, on the present state of the record that the fabric in question was manufactured by Stanrich. While may be that on the basis of the showing made by respondents no affrmative finding could be made as to what actuany occurred with respect to alleged interchange of fabrics, the undersigned is not required to make any such finding in order to dispose of this issue. Counsel supporting the complaint, as the proponent of the issue that respondents manufactured these fabrics, has the burden of establishing his position by a fair preponderance of the evidence. This, in the opinion of the undersigned, he has not done since the evidence bahnce the showingoffered by respondents is suffcient to at least made by him.

In his proposed findings, counsel supporting the complaint has suggested an alternative theory on which respondents can be held accountthese six pieces of fabric. Counselable for the misbranding of argues that even assuming, arguendo Stanrich did not manufacture retul' of the merchandisethe fabric, thltt by admittedly accepting the from Gewirtz and then reselling it, respondents thereby sold and distributed "in commerce" a misbranded wool product in violation of Section 3 of the Wool Prodlle1s Labeling Act. while this conclusion would be valid if the J'resale or distribution to respondents' customers had taken place "in commerce, unfortunately, from the viewpoint of counsel supporting the complaint, the resale and distribution of the merchandise all took place within New York City. The merchandise place of which Gewirtz returned had been stored partly in his own business and partly in a public warehouse, both located in N ew York. The merchandise in Gewirtz' place of business was returned to the warehouse for Stanrich' s account and that in the warehouse was retitled to Stan rich. Thereafter, so far as appears from the record, it 1128 FEDERAl, TRADE COMMISSION DECISIONS ;'0 T. C. ()ecision was al1reshi pped or resold to other concerns in New York City. The samples of the six disputed pieces were all obtained from customers located in N ew York. Unless, therefore, the merc handise was originttlly manufactured by respondents and shipped by them from Massachusetts, no finding can be made that the resale and shipment which took place in New York City occurred "in commerce 2. The Tlu/'ee SaJnpZe. Obtained From Respondents As previously mentioned, three samples of fabric, admitted by respondents to be theirs, were obtained by a Commission investigator from respondents' place of business. All of these samples were found on test by the National Bureau of Standards, to be approximately violation oecurred!Ji percent wool. Respondents contend that no with respect to these three samples since no orders were ever taken for these fabries and none oj' them were sold. The samples in question were obtained by the investigator during February 1952. AceOlding to the testimony of respondent Mareus his company had practically eeased making interliuing fabrie by the end of 1951 , and thereafter was engaged in making blankets ahnost exclusively. This fact was confirmed by the testimony of the Commission investigator, OU, to the etrect that he was advised by lVIarcus at the time of the investigation that Stanrieh was only making blankets at the time, although it did have on hand :1 small quantity of interlining fa.r.ric. According to OU, Marcus told him that two of the samples which he gave Ott (Com. Exs. 23 and 24) were samples of fabric which he intended to manufacture in the near future depending upon the demand. There is no evidence in the record that such fabric was ever actually manufactured or sold to customers in commerce; nor is there any evidence that samples of this fabric were ever used to promote or eiIect sales in commerce (d. Rule 22, Rules and Regulations promulgated under the 'Vool Products Labeling Act). It seems clear therefore, that with respect to Commission s Exhibits 23 and 24 the record fails to establish any violation of the Act. With respect to the third sample reeeiyed from ::larcus (Com. Ex. 22), Ott testified that Marcus told him that this was the type of material "he had been manufacturing which was sold under difJ'erent and various style numbers." The style numbers appearing on this sample are 570, 601 , and 801. The only evidence in the record of any actual sales of misbranded merchandise manufactured by respondent and s Exhibit 27- bearing any of these style numbers is Commission (bearing Style number 801) to which reference has already been made. STANRICH MILLS CORP. ET AL. 1129 1120 Decision CONCLUSION Out of eleven pieces of fabric offered by counsel supporting the complaint to establish his case, only two (Com. Exs. 27-A and 31were shown to have been manufactured by respondents and to have been sold in commerce. Commission s Exhibit 31- , the blanket, is 98 percent wool and counsel supporting the complaint has waived any claim of misbranding based thereon. Commission s Exhibit 27thus remains as the only piece of evidence of actual misbranding which took place in commerce, with the possible exception of Commission Exhibit 22, which was merely a sample 01' merchandise theretofore sold.

The question arises whether this is suffcient evidence to require the issuance of a cease and desist order in the public interest. while it is true that numerous violations need not be shown in order establish public interest, the insubstantiality of the evidence of actual violation is a factor to be considered. In such a setting the matter of the likelihood of similar violations occurring in the future has an important bearing on the disposition to be made of the proceeding. With regard to the latter consideration, the eyjclence shows that since the events at issue transpired, respondents have ceased making interlining cloth, that they are now making blankets exclusively, that the evidence with respect to their making of blankets discloses no substantial violations, and that they are no longer occupying the relatively ,;mall plant where due to the inefIciency of their operations violations might have previously occurred, but are now occupying a larger plant where t.hey are apparently endeavoring to be more careful in the t.est.ing of the wool content of the fabrics made by them. ITnder all circumstances, it. is t.he opinion of the undersigned that the public interest does not require the issuance of a cease and desist order, wit.h its possible adyerse effect upon respondents in their new operat.ion. In t.he opinion of the undersigned t.he bringing of the present proceeding will probably constitute suffcient corrective action for any possible violation which may have occurred. It will therefore be ordered that. the present proceeding be dismissed, without prejudice however, to its reopening in the event respondents' future conduct disc:oses the need for corrective action.

The undersigned being of the opinion, for the reasons above given that the public interest does not require the taking of any corrective aetioll ill this proceeding.

It is ordered That the complaint in this proceeding be, and the same hereby is, diornissed, without prejudice.