Barbara E. Martin

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF BARBARA E. 1\IARTIN ET AL. DOING BUSINESS AS HOUSEHOLD SEWING MACHINE COl\1P ANY ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 6148. Complaint, Dec. 1953-Decision, Sept. 16, 1955 Order requiring retailers of new and rebuilt sewing machines in Washington, D. C., to cease selling sewing machines of which Japanese-made heads were a part without adequate disclosure of foreign origin; to cease, in advertising their machines, using "bait" prices which were not bona fide offers to sell but were made to obtain leads to possible purchasers, using a misleading 20 Year Guarantee" carrying no qualifications, and implying that attachments and sewing lessons were included in the price of the machines; and representing through use of words "Home," "American Home " etc., as brand names, that their Japanese~made machines were products of the well-known firm of that name.

Mr. William L. Taggart counsel supporting the complaint. Mr. Leonard B. Sussholz and ilir. Marvin P. Sadur of Washington D. C., counsel for respondents.

INITIAL DECISION OF HEARING EXAl\IINER JOHN LEWIS STATE1rIENT OF THE CASE The Federal Trade Commission issued its complaint against the above named respondents on December 3, 1953, charging them with the use of unfair methods of competition and unfair and deceptive acts and practices in comlnerce, in violation of Section 5 of the Federal Trade Commission Act. Copies of said complaint and notice of hearing were duly served upon respondents. Said complaint, in substance, charges respondents with failing to properly disclose the cOlmtry of origin on certain Japanese sewing machines sold by them, with improperly using American trade names on such sewing machines, with engaging in what is commonly known as "bait advertising," and with engaging in certain other false and deceptive practices with respect to the prices of the sewing machines advertised by them, the nature of the guarantee covering such machines, and other terms and conditions of sale. Respondents appeared by counsel and filed a joint answer in which they denied having engaged in certain of the illegal practices charged, and alleged that they had HOUSEHOLD SEWING MACHINE CO. 251 250 Findings discontinued others of the practices prior to the issuance of the complaint herein.

Pursuant to notice, hearings were thereafter held before the undersigned hearing examiner, theretofore duly designated by the Commission to hear this proceeding, on various dates between March 30 1954, and January 6, 1955 , in 'iV ashington, D. C. At such hearings testimony and. other evidence were offered in support of and in opposition to the allegations of the complaint, which testimony and other evidence were duly recorded and filed in the office of the Commission. Both sides were represented by counsel, participated in the hearings, and were afforded full opportunity to be heard, to examine and cross-examine witnesses, and to introduce evidence bearing on the issues. At the close of the evidence in support of the complaint' counsel for respondents moved to dismiss the complaint for insufficieney of evidence and, pursuant to leave granted, memoranda were filed in support of and in opposition to said motion. Said motion was denied, except as to one allegation of the complaint, by order of the undersigned dated September 29, 1954. At the e1ose of aU the evidence, counsel for respondents ren~wed their motion to dismiss the complaint. Said motion is disposed of in accordance with the findings, eone1usions and order hereinafter made. Proposed findings of fact and cone1usions of law have been filed by counsel supporting the complaint, and counsel for respondents have also filed proposed findings and cone1usions, together with a supporting memorandum and a motion for oral argument upon their proposals. In view of the fact that the issues are fully discussed in the proposed findings and supporting memorandum, and in view of the fact that there are no novel or unusually conlplex issues involved in this proceeding, the examiner is of the opinion that there is no need for further argument and the motion for oral argument is accordingly denied.

Upon the entire record in the ease and from his observation of the witnesses, the undersigned finds that this proceeding is in the public interest and makes the following:

FINDINGS OF FACT I. The Business of Respondents On December 3 , 1953, when the complaint herein was issued, the respondents Barbara E. :Martin, Hershel ~lartin l and Dennis Martin were, and had been since approximately August 1952, copartners doing business under the name of Household Sewing Machine Com- 1 The first name of this respondent is incorrectly spelled in the complaint as Herschel. 252 FEDERAL 'l' TRADE COMMISSION DECISIONS 52 F. T. C. Findings pany, having their principal place of business at 1226 H Street, N. E. Washington, D. C. On January 5, 1954, said respondents formed a corporation known as Household Sewing Machine Company, Inc. which was orga,nized and exists under the la ws of the State of Delaware. Said corporation is the successor in interest of the copartnership previously conducted by saidrespondents. The respondents are now, and have been for several years last past engaged in the retail sale of sewing machines, including sewing machines the heads of which are imported from Japan.3 In the course and conduct of their business, respondents cause their said products, when sold, to be transported from their place of business in the District of Columbia, to purchasers thereof located in the States of l\laryland and Virginia and in the District of Columbia and maintain, and at all times mentioned herein have maintained, a course of trade in said products in commerce among and between the District of Columbia and the States of Maryland and Virginia and in the District of Columbia. Their volume of trade in said commerce has been and is substantial.

II. The Alleged Illegal Practices A. The Sale of Inadequately or Deceptively Labeled Japanese 1,1 achines A substantial portion of the heads on the sewing machines sold by respondents are imported from Japan. l\fost of these machines are purchased by respondents from Royal Sewing Machine Company of Brooklyn, New York, which imports the heads from Japan. 'Vhen the machines are received by respondents, they have affixed thereto on the front lower portion of the vertical arm of the machine head a small medallion bearing the legend "~fade in Japan." The machines also contain on the front of the horizonal arm, the brand or trade name "American Honle Deluxe." The complaint contains two separate charges concerning the labeling or marking of these machines (1) that respondents have failed to adequately disclose on the heads of the machines that they are of Japanese origin, and (2) that the 2 Respondents have waived service of process upon said corporation and have requested that this proceeding be regarded as one against the corporation. In view of the responsibility of the respondents hereinabove named for the acts and practices hereinafter found, said request is denied to the extent that it seeks a substitution of the corporation in place and in lieu of said respondents.

3 In their proposed findings counsel for respondents state that the respondent Dennis Martin sold and conveyed his interest in the business on :March 6, 1954. There is no evidence in the record to sustain this statement. Moreover, in view of the association said respondent, with the business during the period when the acts and practices hereinafter discussed occurred, his departure from the business after the issuance of the complaint herein would not relieve him from responsibility, $)_ HOUSEHOLD SEWING MACHINE CO. 253 250 Findings use of the trade or brand name "American Home" has tended to lead the public to believe that the machines are manufactured by American companies using a similar name. These charges are separately discussed below.

1. Sufficiency of markings of Japanese origin The complaint alleges that the markings of Japanese orlgm on (a) Thatrespondents ' sewing machines are deficient in three respects: when the machines are received by respondents they contain the inscription "~iade in Japan" on the back of the vertical arm of the machine head, but that the inscription becomes obscured from view when respondents attach a motor to the head; (b) that the medallion containing the inscription "Made in Japan" which is affixed to the front of the vertical arm can easily be removed; and (c) that the inscription on the medallion does not constitute adequate notice to the public that the heads are imported because it is too small and indistinct. In their answer respondents have denied the foregoing allegations aild allege affirmatively (a) that. they do not perfonll any assembling operations which would cause any inscription to become obscured; (b) that the medallion appearing on the front of the machine cannot easily be removed, and when removed leaves unsightly holes; and (c) that the medallion affixed to the front of the vertical arm is conspicuous and distinct and has been approved by the United States Customs Bureau. The issues thus raised with respect to the sufficiency of the markings of Japanese origin on respondents' machines are each hereinafter discussed. a. The obsctwing of cou,ntry of origin There is no evidence in the record, whatsoever, with respect to a label or other inscription of foreign origin on the back of the vertical arm of respondents' machines. Moreover, the record fails to establish that respondents perform any assembling operations in the course of which any such inscription is obscured by a motor. Assembling operations consisting of the attachment of a motor, light and rheostat are performed by Royal Sewing :Machine Company prior the receipt of the machines by respondents. The only further operation performed by respondents is the placing of the sewing machine heads in a portable case or console cabinet. There is no evidence that this causes any inscription of Japanese origin to become obscured. b. RemovabiUty of the rneda,llion It is undisputed that a small medallion showing country of origiil appears on the front lower portion of the vertical arm of the machine 451524- 1 Q , , Findings 52 F. T. C.

head. The only evidence offered by counsel supporting the complaint tending to establish the charge that this medallion can easily be removed is that of the manager of a competitor of respondents who expressed the opinion that all metal medallions can be removed without marring the machine. It does not appear from the record that this witness has had any actual experience in removing a medallion of the type used by respondents. Another witness, who had purchased one of respondents' machines, testified that he reIlloved the medallion in order to have it available in connection with his testimony and to obviate the necessity of bringing the sewing machine to the hearing room. :However, he gave no indication of whether it was 'difficult or easy to remove the medallion or whether it could be done without marring the machine.

In support of their contention that the medallion is not easily removable and cannot be removed without marring the machine, counsel for respondents rely largely on the testimony of the respondent Hershel ~fartin, who stated that he had removed one of the medallions with a screw driver and that although he had proceeded with due care, the machine was scratched and the medallion bent. He further stated that after the medallion had been removed, there appeared underne,ath on the head of the machine, the inscription "Made in Japan." The manager of Royal Sewing :M~machine Company, who also testified on behalf of respondents, stated that the medallions on the machines sold to respondents were difficult to remove because they were riveted to the machine from the inside. Considering the evidence as a whole, the examiner is of the opinion and finds, that counsel supporting the complaint has failed to sustain the burden of proof with respect to the charge concerning the removability of respondents' medallions.

c. Legibility of the medallion ~fost of the evidence offered by counsel supporting the complaint regarding the charge of insufficiency of notice of country of origin is based on the allegation that the inscription l\fade in Japan " appearing on the medallion which is affixed to the lower front portion of the vertical arm of the machine, is too small and indistinct to give adequate notice to the public. The evidence relates mainly to a giltcolored medallion with raised letters of the same color which was used by respondents until approximately November 1953, when respondent' s source of supply began shipping machines with a gunmetal colored medallion. Typical of the gilt medallions is one which is approximately 1% by 1% inches in size and bears the following inscription: On top, the legend "1952 Series" in numbers and letters HOUSEHOLD SEWING MACHINE CO. 255 250 Findings Vs inch in height; in the center, the words "Deluxe Model" in letters 1,4 to 1/6 of an inch in height; and on the bottom, the words "~Iade in Japan" in letters 1/12 of an inch in height. The Commission in its recent decision in the Standard Sewing 4 in which it reviewed most of the casesEquipment Corporation case dealing with the sale of Japanese sewing machines, held that a gilt in gilt lettersmedallion containing the inscription "~iade in .J apan" VB inch in length, does not give adequate notice to purchasers and the public of the country of origin of the machine. Since the inscription Made in Japan" on the gilt nledallion used by respondents in this case is only 1/12 of an inch in height, there would appear to be no question, under the precedent cited, that the medallion does not give adequate notice of country of origin.

Aside from this precedent, however, and based solely on the record in this case, the examiller is satisfied and finds that the gilt medallion used by respondents does not give adequate notice of country of origin. Most of the witnesses who purchased respondents' machines containing the gilt-colored medallion, did not notice the medallion at the time the machine was demonstrated to them and, in a number of instances, were not aware that the machine was of Japanese origin until sometime after it was delivered to their homes. This was true not only of witnesses called in support of the complaint but also of a number of purchasers whom respondents called as witnesses. Counsel for respondents sought to show that the inscription ":macle in Japan" could be read by witnesses in the hearing room when standing a distance of one or l1h feet from the machine. In most instances, however, it was necessary for the witness to bend his or her head to the level of the machine in order to read the inscription. Aside from this, the fact that a witness can read an inscription in isthe hearing rOOlll when his attention is specifically directed to it, hardly a fair test of the adequacy of notice of the medallion under normal conditions of purchase. The most eloquent testimonial to the inadequacy of the notice given by the medallion is that most of the witnesses 'who testified, including a number called by respondents had not seen the medallion until the machine had been in their homes for some time. Some of respondents' witnesses who had purchased the machine did not know even at the time of the hearing what inscription the medallion contained.

Counsel for respondents also sought to show that respondents salesmen were instructed to advise prospective purchasers of the foreign origin of the machines. The record shows that many pur- 4 Docket No. SSSS, May 2, 1955.

Finuings ' 02 F. T. C.

c.hasers were not informed by the salesmen that the sewing mac.hine heads had been importp,d from Japan.5 Aside from this, however, it is the opinion of the hearing examiner that the giving of adequate notice to the public. cannot be made to depend on the whim of individual salesmen who are paid on a commission basis, but requires that the machine itself should be adequately 111arked. In the answer filed on their behalf, respondents take the position, that the medallion used by them gives adequate notice to the public. Counsel for respondents appeared to take a similar position during most of the course of the hearings held herein. However, counsel sought to show through the testimony of respondents Barbara and Hershel Martin that respondents have been using a gun-metal medallion instead of the gilt medallion since approximately November 1953, and that they do not propose to resume the use of the latter. Counsel for respondents contend that the gun-metal medallion which respondents are now using has been accepted by the Commission as complying with the Ad in a proceeding against respondents' source of supply, Royal Sewing ::Machine Company, in which an order, based on the use of a gilt. medallion, was issued l\lay 5, 1953 (49 F. 1351). Counsel accordingly argue that since respondents abandoned use of the gilt medallion prior to the issuance of the complaint herein and have been using a gun-metal medallion of the type which has been approved by the Commission in the Royal Sewing ill machine 001npany case, there is no longer any public interest in this aspect of the proceeding. vvith this argument the examiner cannot agree. "\Vhile the case of counsel supporting the complaint was based mainly on the testimony of witnesses who had purchased sewing machines containing the gilt medallion, one of the witnesses caned by him had purchased a se' wing machine with the gun-metal medallion from respondents in November, 1953. This witness~ testimony was substantially similar to that of purchasers who had bought machines with the gilt medallion viz that she did not notice the medallion at the time the machine was demonstrated to her and was not a ware that the machine 'was of Japanese origin until someone c.alled her attention to the medallion after the machine had been in her hol)le for some time. From the testimony of this witness, it would appear that the gun-metal medallion now in use is not significantly clearer 5 'The testimony of most of the witnesses called in support of the complaint, who purchased a Japanese sewing machine from respondents, indicates that they were not informed by the salesmen at the time of purchase that the head was of Japanese origin. While some of the purchasers called as witnesses by responden ts recalled being told that the machine was made in Japan, or that the "parts" were imported, or that the machine was imported," several of them testified that the;y had not been informed that the machine was of Japanese origin. (See, e. g., R. 768, 838. HOUSEHOLD SEWING MACHINE CO. 257 250 Findings than the gilt one previously used. It may also be noted that the gunmetal medallion accepted as compliance in the Royal Sewing Machine Oo1'poration case, is referred to in the Coll'llnission s decision in the Standal'd Se~()ing Equipment CO1'poration case supra as having letters Vs of an inch in height, while the letters in the legend "Made in Japan" in the instant case are 1/12 of an inch in size. Moreover it is not lnerely a question of the size of the letters on the medallion or the color of the medallion but also where the medallion is placed on the sewing machine head. In the instant case, the medallion is :affixed to the lower portion of the vertical arm where it is considerably less conspicuous than it would be were it placed near the top of the vertical arm, adjacent to the brand name "American Home Deluxe. However, it is not necessary to determine at this time whether the gun-metal medallion gives any more adequate notice to the purchasing public than did the gilt one which preceded it, since the examiner is not convinced that respondents intend irrevocably to abandon selling machines with the gilt medallion. Although counsel for respondents argue that respondents have agreed not to use the gilt medallion, the testimony of respondent Barbara E. Martin indicates that she still regards the gilt medallion as giving adequate, notice to the public and that her basic reason for stating that she did not intend to use this medallion was "because the machines are not coming through (from Royal Sewing ~1machine CompanyJ that way" (R. 1085), rather than because of any true conviction as to the inadequacy ,of the medallion. l\ioreover, irrespective of what respondents have :stated concerning their intention to abandon the use of the gilt lnedallion, the record shows that respondents are still selling machines with the gilt medallion and may reasonably be expected to do so for :some time in the future. The intention expressed by respondents Barbara and Hershel l\1:artin, not to sell machines with the gilt l11edallions, specifically excepts therefrom machines which have been repossessed from customers. Such machines constitute approximately 5 to 10 percent of the machines sold monthly by respondents, an amount which cannot be regarded as de nlinimus.6 Furthermore while respondents Barbara and Hershel Martin testified that their firm had not been selling the machines with the gilt medallion since apprqximately November, 1953 (except for repossessions), the testi- 1110ny of their store manager indicates that respondents have been selling machines with the gilt medallion during the past twelve lllonths (R. 1010).

6 The fact that such machines are sold at a lower price than the new machines does not, as argued br counsel for respondents, dispense with the necessity for giving adequate notice of country of origin to the public. The requirement for adequate notice does not depend on whether a machine is new or repossessed or is sold at a greater or lesser price. Findings 52 F. T. C.

Despite the contention of counsel for respondents that respondents have abandoned the use of the gilt-colored medallions, in the memorandum submitted in connection with their proposed findings counsel have questioned the authority of the Commission to require re.. spondents to change the origin marking on their machines in view of the fact that the Bureau of Customs of the Treasury Department, has approved such markings under the Tariff Act. This contention has been specifically overruled by the Commission in the Standard S erwing Equipment 0 o1'poration case supra and it is unnecessary for the examiner to discuss it at this point. However, the fact that respondents continue to question the legal right of the Commission to require them to properly mark the country of origin on their sewing machines is an additional indication of the need for corrective, action.

d. The preference for Ame1'ican products The question of whether respondents' sewing machines are adequately marked as to country of origin presupposes that there some obligation to the public, on the part of a vender, to makes~ch disclosure. In this connection, the complaint alleges that, (a) when sewing machines are not clearly marked, the purchasing public assumes the machines are of American origin, and (b) there is a preference among members of the public for American-made products over those of other countries. Respondents have admitted in their answer, and it is so found, that in the absence of proper notice, the public aSSlill1es a product is domestically manufactured. However respondents contend that most purchasers are primarily concerned with price, quality and availability of replacement parts rather than with country of The position of respondents in this respect overlooks the essential origin. principle which controls in determining whether a practice has the tendency to mislead or deceive. It is not a question of whether all or even a majority of the public has a preference for A.1nerican-made products. It is sufficient, to require the giving of adequate notice, if a substantial segment of the public has such a preference. It is not necessary, moreover, that this preference be the primary factor controlling the purchase of a product. It is sufficient if it is a significant factor which the public takes into consideration in making its, purchases.

There is no question from the record in this proceeding, and it so found, that a substantial part of the purchasing public has a 7 See C. Howard Httnt Pen Co. v. FTC, 197 F. 2d 273, 282 (C. A. 3, 1952). &:

HOUSEHOLD SEWING MACHINE CO. 259 250 Findings preference for American-made products, including sewing machines. This preference has been found to exist in a number of cases, both by the Commission and the courts.8 While some of the witnesses called in support of the cOlnplaint conceded on cross-examination that price and quality are important factors in making a purchase, this does not gainsay the fact, as counsel for respondents apparently assume, that the origin of the product is also a significant factor and that there exists a preference for American-made products, all other things being equal.

2. The use of the brand name "American Home Across the front of the horizontal arm of respondent's machines there appears in large, conspicuous letters, the brand name ".A1nerican Home Deluxe." The complaint charges that the word " Home is part of the name of well-known American companies and that some of these companies use the word "Home" as part of the brand name of their product, including sewing machines. It is alleged that by using the word "Home" as part of the brand name of their machines, respondents have represented that such machines are made by one of the An1erican companies with which such name has been associated. Respondents contend that the word Home" is a free word which is not the dominant part of respondents' brand name and that their machines are different in appearance from those using the word "Home" as part of their The evidence shows that there hasname.been a sewing machine on the American market using the name "New Home" since the 1860' , and that millions of dollars have been spent in advertising this machine in various national magazines 'and other publications. The machine is presently n1anufactured by the Free SewingJ\tIachine Company, which also manufactures the Free Westinghouse machine. Advertising literature and circulars used in connection with the sale of the New Home sewing machine refer to the manufacturer as the "New Home Sewing l\lachine Company." It is not clear from the record whether the New Home Sewing l\lachine Company is a separate entity or a division of the Free Sewing l\1machine Company. However, this fact has no material significance since it is clear that the name "New 8 See Standard Sewing Eq1tiprnent Corporation, 8u-pra and L. Heller Son, Inc. v. FTC, 191 F. 2d 954 (C. A. 7, 1951).

\I In the Heller case, the Court of Appeals specifically recognized that the preference for American-made products presupposed that "other considerations such as style and quality are equal." The relativity of the preference was also recognized: by one of respondents witnesses who testified that, "everything else being equal," he preferred American-made products and wished to be advised whether a product was of foreign origin (R. 899, 903). 260 FEDERAL, TRADE COMMISSION DECISIONS Findings 52 F. T. C.

Home" is widely associated in the public mind with a sewing machine .of domestic origin.

Counsel supporting the complaint produced a number of witnesses who had purchased respondents' American Home machine and who testified that- they had confused the name with that of the New Home n1machine or thought it was made by the same company. Some of the witnesses testified that they actually thought they were getting a N ew Home machine and did not learn until some time later that the American Home and New Home were not one and the same machine, or were not made by one and the same company. Counsel for respondents, on the other hand, produced a number of witnesses who had purchased the American Home machine and who, with one -exception, testified that they had not confused the name American Home with the name New Home.

Counsel for respondents suggest in the memorandum submitted by them that there is a necessary conflict between the testimony the two groups of witnesses, and argue that the testimony of their witnesses should be accepted while the testimony of the witnesses !called in support of the complaint should be rejected as not worthy .of belief. Counsel c.ite numerous examples from the testimony of the witnesses in support of the complaint purporting to show that they were either confused or lying or were prejudiced against respondents. However, substantially all the examples cited are of such a minor :and inconsequential nature that they do not, in the opinion of the ,examiner, materially affect the credit or weight to be given to the testimony of these witnesses.

10 Counsel for respondents argue that under the complaint, counsel supporting the complaint must not only establish that the word "Home" is part of the name of a well-known American machine, but must also show that it is part of the corporate name of the Ameri- .can Company inanufacturlng such 'machine. The examiner cannot agree with this highly technical construction of the complaint. The confusion in the pubhc mind, if it does exist, results from the pubhc s identifying the name "Home" with an American-made sewing machine, irrespective of whether that word: is technically a part of the name of an Amer!- ,can company. It ma~' also be noted, in connection with the question of whether there is a New Home Sewing Machine Company, that respondents' manager testified that it was his understanding that the New Home machine was made by the New Home Sewing Machine Company (R. 1006).

11 Examples of the alleged confusion, contradiction or prejudice cited by counsel for respondents are: (0) The fact that some of the witnesses who testified that they had confused the two names had failed to mention this fact in a letter of complaint which they wrote to the Better Business Bureau; (b), the fact that some witnesses referred: to the New Home" machine as a product of the "New Home Sewing Machine Company," whereas, according to counsel, there is no such company; (0) the fact that some of the witnesses were uncertain as to the color or appearance of the New Home machine or when they had seen it; (d) the fact that some witnesses thought that the machine demonstrated to them was the "New Home" ; and (e) the fact that many witnesses have received and read copies ,of the complaint in this proceeding. Most of the examples cited hardly require comment. However, it may be noted in passing that the fact some witnesses thought the machine they saw bore the name "New Home, " so far from indicating a lack of credit-worthiness in their testimony, actually tends to establish the very confusion in names charged in the HOUSEHOLD SEWING MACHINE CO. 261 250 Findings Counsel apparently expect a degree of precision in recollection and testimony that is beyond the capacity of most lay witnesses of the type here involved, including not only those who testified in support of the complaint, but also those called on behalf of respondents. Similar instances of confusion and minor contradiction could be cited from the testimony of respondents' witnesses most of whom like those called in support of the complaint, had evidently had little or no courtroom experience and were at times nervous and confused. In the opinion of the hearing examiner, both groups of witnesses ga ve a substantially accurate accolUlt of their experiences in dealing' with respondents. There is no necessary conflict, as counsel for respondents seeks to suggest, in the fact that one group of witnesses experienced a confusion in names while another, by and large, did not. It is quite possible that some members of the public Inay find two names confusing because of their apparent similarity, while others may not.

The hearing examiner is convinced, however, that the experience of the witnesses who testified in support of the complaint is not at all unusual or atypical, but'is such that it can reasonably be expected to be shared by many other members of the purchasing public. The, reasonableness of their confusion is attested to by the fact that one of respondents' own witnesses testified that she too had confused the names American Home and New Home briefly, but that the confusion was cleared up when the salesman told her the American Home machine was foreign made. Since a number of other witnesses called by respondents also claimed to have been told by the salesman of the machine s foreign origin, this may account for the lack of confusion on their part.

In any event, the record establishes the existence of confusion and, the likelihood of confusion from the use of the name " American Home" of sufficient proportions as to establish a need for corrective action in the public interest. As has already been suggested above, it is not necessary that all or that even a majority of the members of the public be misled. The Federal Trade Commission Act was intendcomplaint. The fact that, admittedly, many of the witnesses receiyec1 copies of the complaint is a fact of very minor significance in the opinion of the examiner, and there is no evidence that any of the witnesses were prejudiced against respondents because of this fact. Furthermore, it appears that some, at least, of respondents' witnesses had talked to a representative of respondents prior to testifying in this proceeding and apparently were informed as to respondents' version of the facts. J2 Counsel for respondents cite the case of a witness called in support of the complaint whose excessive loquacity and lack of responsiveness to questions caused the examiner to admonish her several times. However, a similar example may be cited of a witness called' on behalf of respondents, and there were a number of other instances of volunteering of' information and lack of responsiveness among respondents' witnesses. 262 FEDERAL TRADE COMMISSION DECISIONSi Findings 52 F. T. C.

ed to protect not merely the cognitive and the sophisticated, but the ignorant, the unthinking, and the credulous." 13 The fact that any significant segment of the public may be deceived is sufficient to support a finding that the Act has been violated.14 Based on the credible testimony in the record, the examiner is convinced and finds that the name "American Home Deluxe" used by respondents on their sewing machines can be readily confused with the name "New Home," a name used on a well-known machine of American origin, and that the use of said name by respondents has tended to, and does, mislead :and deceive a significant portion of the purchasing public. B. The "Bait Advertising" Charge The complaint charges respondents with having engaged in what is known in common parlance as "bait advertising." It is alleged, in this respect, that respondents advertised Free-vVestinghouse machines purporting to sell for as much as $119. , for prices as low as $38.88; that respondents' offers to sell such machines were not genuine and bona fide but were made for the purpose of obtaining leads as to pei' sons interested in buying sewing machines; and that when persons -responded to respondents' advertisements, respondents or their salesmen refused to sell, made no effort to sell, or ignored or disparaged the advertised machine, and tried to sell a higher-priced machine usually one of Japanese origin. Respondents, while admitting in their answer that one of the purposes in advertising was to obtain leads and information as to persons interested in purchasing sewing ma- ,chines and also that they have apprised prospective purchasers of other machines carried, have denied the remainder of the bait advertising charge.

The record discloses that respondents regularly advertised the' Free- Westinghouse machine, on the average of three and four times a week in most of the newspapers in vVashington, D. C. The advertisements which were substantially similar to content, carried the familiar slogan "You Can Be Sure If It' s Free-Westinghouse " underneath which was a picture of the machine; contained reference to a relatively high price as the "Value" of the machine but offered to sell it at a substantially lower price, payable $1 down and $1 a week; listed a number of desirable performance "features" of the machine; referred to a "20 Year-Guarantee; and invited interested persons to call for 13 Posit-ire Prod-ucts Co. v. FTC 132- F. 2d' 165 (C. A. 7 , 1942). 14 P"'ima Products Inc. v. FTC, 209 F. 2d 405, 409 (C. A. 2, 1954). 15 In making the above finding the examiner finds it unnecessary, in view of the more direct evidence in the record, to rely on the testimony of the manager of the firm which manufactures the New Home machine that his company has received complaints from persons who confused the name American Home with New Home. ;

HOUSEHOLD SEWING MACHINE CO. 263 250 Findings a home demonstration and to reserve a lllachine. In most instances when a person called in response to the advertisement an appointment was made for a salesman to call at his or her home to demonstrate the machine. The salesman in almost every instance brought with him a more expensive machine, usually one of the Japanese American Home'" machines. Counsel supporting the complaint called fourteen witnesses who testified as to their experiences in attempting to purchase a Free- Westinghouse machine in response to one of respondents' advertisements. In most instances, the machine was demonstrated in the home of the witness but a few came directly to respondents' store. The testimony of most of these witnesses reflects a tactic on the part of respondents and their salesmen of seeking to discourage the purchase of the Free- Westinghouse by advising customers not to purchase it, by disparaging its performance, by stating that it would not perform certain operations although they were among the advertised "features" of the machine, and by displaying a general attitude of reluctance to sell the machine or of indifference toward it and finally of seeking to induce customers to purchase a more expensive type machine, usually one of the Japanese machines~ The attitude of respondents' salesmen was characterized by some ,of the witnesses as: " (V) ery reluctant" to answer questions concerning the machine (R. 25) ; " (h) e talked it down in a lot of different ways" (R. 254); (h) e kept telling me how bad the machine was and trying to discourage me" (R. 296) (h) e more or less began to run down the machine, much to my amazement" and "immediately began trying to sell me a different machine" (R. 340) ; he "sort of shrugged it off" (R. 575). ~iost of the witnesses referred to the unusually noisy performance of the machine and mentioned, in some instances, that this had received comment from the salesman as inclicative of the undesirability of the machine. Other adverse comments by the salesmen which were referred to by witnesses supporting the complaint were, that the machine wollld not sew backward and forward (although the advertisements stated that is "Sews forward and reverse ), that it skipped stitches or that the stitch could not be regulated (although the advertisement stated that the machine had a Precision stitch regulator ), that it would not sew over pins (although the advertisement stated "Sews over pins and heaviest seams that you couldn t get parts for the machine (although the advertisement stated that there was a "20- Year parts guarantee ), that it was a "toy," and that it had a long bobbin which was less desirable than the round bobbin on the Japanese machines.

Findings 52 F. T. C.

After the customers had been sufficiently discouraged by the disparaging remarks of the salesman and noisy performance of the machine 16 the salesman then tried to sell a more expensive machine usually one of the "American Home~' Japanese machines some of which sold for several times the price of the Free-vVestinghouse. Seven of the witnesses called in support of the complaint eventually succumbed to the tactics of the salesman and bought a more expensive machine, but six of them stuck to their guns and despite all efforts: to discourage them, insisted on buying the Free- 'Vestinghouse machine.

However, none of these witnesses was successful in their efforts to, obtain the Free- vVestinghouse at the time they sought to purchase it. They were given various excuses and were shunted back and forth between the salesman and persons at the store, all to no a vail. In several instances, the salesman would not take a deposit but told the customer to telephone the store or that a driver would get it. When they telephoned the store, they were given some excuse for not selling them the machine, such as the fact that respondents had "oversold" on the machine or that the machines in stock had certain attachments which the customer would have to take at additional cost. Several witnesses who were successful in getting the salesman to accept a deposit were later told, upon telephoning the store, that respondents were "oversold" on the machine. Several witnesses who went directly to the store in response to an advertisement, were told that respondents did not have any machines in stock.I7 In most instances according to the testimony of a number of these witnesses, shortly after they had been told that they could not obtain a Free- 'Vestinghouse machine because respondents were "oversold" or for some other reason, they saw another advertisement by respondents in the newspaper offering to sell the machine. 'Vhen several of them telephoned they were again met with an offer to send a demonstrator. One witness, after several months of telephoning, was finally told that she could have a Free-'Vestinghouse machine, but she had become skeptical of the way respondents did business that she no longer wished to deal with them.

Counsel for respondents urge that the testimony of the witnesses called in support of the complaint not be credited because they were prejudiced against respondents and because their testimony was 16 The noisy performance of the Free-Westinghouse was alone sufficient to discourage one customer, without any active support from the salesman. 17 One of these witnesses had first telephoned respondents and stated~ that he wanted to buy the machine. He was met with an offer to send a demonstrator. .After declining this offer and stating that he wished to buy the machine and not to have it demonstrated, he went directly to the store where he was told that the salesmen had all the machines out as demonstrators (R. 316).

HOUSEHOLD f3EWING MACHINE CO. 265 250 Findings contradicted by the witnesses who testified on behalf of respondents. Counsel apparently regard the witnesses who testified in support the complaint as a group of disgruntled customers who embellished and distorted their experiences because of their "animus" toward respondents, aided and abetted by the "blueprint" furnished to them in the form of copies of the complaint herein. The examiner is wholly in disagreement with counsel's evaluation of the testimony. If these witnesses had any "animus" toward respondents it would not be surprising in the light of the experiences which they related. However, after a careful review of their testimony and from his recollection of their demeanor in testifying, the examiner is convinced that the accounts they gave were essentially true. It is inconceivable to the examiner that such a large group of persons, so apparently lacking in guise and stratagem, could have all fabricated essentially similar accounts of their experiences with respondents. while counsel suggests that the centrality of their theme may be accounted for by the fact that they had received copies of the complaint in advance of the hearing, the hearing examiner cannot agree with this argument. Despite the similarity of their testimony in essentials the wide variety in the details of their individual testimony ,vas such as to indicate that it sprang from the wellspring of actual experiellce rather than from some Machiavellian plot among them and possibly, counsel in support of the complaint. Moreover, the testimony of the witnesses called by respondents, so far from contradicting the testimony of those called in support of the complaint, in many respects corroborates it and tends to support the charges in the complaint. Counsel for respondents called fourteen witnesses who had responded to advertisements for the Free-"'\V estinghouse machine. Of this number, seven actually bought the machine and the remainder purchased the "American Home" Japanese Inachine.18 "\Vhile many of these witnesses attested to the conclusionary fact, frequently in response to leading questions, that the salesman who demonstrated the Free-vVestinghouse did not "disparage" or "criticize" it, thetestimony of some of them reveals that the salesman did in fact engage in a tactic of discouraging the purchase of the Free- Westinghouse machine, albeit in some instances i~ was more subtle and less pronounced than that experienced by witnesses called in support of the complaint. Thus, one witness, when asked the leading question \vhether the salesman had "disparaged:' the Free-vVestinghouse maehine, gave the answer: "No. If it ,vas what I wanted, it was all right 18 It was stipulated that respondents could call four additional witnesseswbo would also testify that they had purchased tbe Free-Westinghouse machine. In addition, there were received in evidence nine sales invoices representing sales of Free-Westingbouse macbines to other retail customers.

Findings 52 F. T. C. with him." 'Vhen the same witness was asked what the salesman actually did say, he testified: "He told me I could get a better machine if I wanted one" (R. 723). The witness insisted, however, that wasn t "pressured. " Another witness, after testifying that he hadn purchased the Free-'Vestinghouse because it " sounded like a rattletrap," when asked whether the salesman made any comment about this, replied: "I believe he made one statement to the effect that you probably wouldn t want this, you would want a little better machine (R. 770). Another witness, while stating that the salesman "didn run down" the Free- 'Vestinghouse machine, testified that he told her that the American Home machine was "a much better machine" and would last longer" (R. 840). Another witness was told by the salesman that the Free- vVestinghouse would not go forward and reverse but that the American Home would although, as previously mentioned, this was one of the advertised features of the Free-vVestinghouse niachine. Several witnesses were told that the noisy performance of the machine was due to the fact that the Free-vVestinghouse had a long bobbin, while the round bobbin on the American Home machine was quieter and better.

There are undeniably a number of instances in the record where customers rejected the Free-vVestinghouse machine because of its deficiencies in performance, particularly its unusual noise in operation and where there is no evidence of any overt criticism or disparagement by the salesmen. However, this does not necessarily impugn the testimony of those witnesses who claimed that the salesman had discouraged them from purchasing the machine, nor does it necessarily disprove the bait advertising charge. In the first place, the examiner is not convinced that the noisy performance of the Free- vVestinghouse machine was due entirely to the fact ,that, it had along. bobbin as contended by respondents. The testimony of so many of the witnesses on both sides concerning the unusually noisy performance of the machine suggests that the demonstrated models had been tampered witli in some way so as to accentuate the noise.19 while long bobbin machines may be noises' than the round bobbin variety, the examiner is not convinced that the difference is as great as that of the machines here demonstrated.

19 The unusually noisy character of the machine was described by the witnesses in such terms as "rattletrap, threshing machine, terribly noisy, terrific amount of noise" and awful noise.

20 One of respondents' own witnesses testified that she had owned an inexpensive long bobbin machine for ten :rears and that it was no noisier than the round bobbin Japanese machine which she purchased from respondents and was less noisy than the Free-We-stinghouse which she rejected because she "couldn t stand the noise" (R. 841, 842). One of the witnesses called in support of the complaint testified that she and her husband decided to buy the Free-Westinghouse despite its noise because they felt the noise could be remedied by tighting a few screws.

HOUSEHOLD SEWING MACHINE CO. 267 250 Findings Even assuming, however, that the noise was a normal incident of the operation of the machine which resulted in persuading many purchasers to buy the American Home machine in preference to the Free- Westinghouse, this does not disprove the claims of these witnesses, who testified that they were discouraged from buying the machine by the salesman since it is possible that some salesmen engaged in open disparagement of the machine, while others did not, relying instead on the performance of the machine to do the job for them. The fact that respondents continued to advertise the machine three and four times a week in such glowing terms, creating the impression that here was a most wonderful machine which was being practically given away, while knowing that 11lany customers would decline to buy because of its disappointing performance and would be induced to buy a more expensive machine 21 is itself part of a pattern of bait advertising of a more subtle variety. Under these circumstances, it was unnecessary in many instances for the salesman to dissuade the customer from buying the Free- vVestinghouse and to switch him to the American Home, since the salesman had a built-in dissuader in the form of the performance of the Free- Westinghouse nlachine which he demonstrated.

The fact that a number of respondents' witnesses were able to purchase the Free- vVestinghouse machine does not, as argued by counsel for respondents, demonstrate the falsity of the testimony of the witnesses called in support of the complaint who claimed that they were unable to buy the machine. The fact that respondents refused to take orders or avoided taking orders for the advertised machine is not only attested to by the credible testimony of witnesses called in support, of the complaint, but by the testimony of respondents' own sales manager who admitted receiving complaints with regard to salesmen not taking orders for the machines. while he claimed that this occurred only "once in a while " the examiner is not convinced that this was a sporadic occurrence. At least two salesmen engaged in this practice with sufficient regularity that, according to the sales manager s testimony, one of them was discharged and the other one was asked to resign. The witness also conceded that other salesmen had engaged in the practice as well. Since the salesmen were paid on a straight COlllmission basis of 10 per cent, it would not be unusual if they sought to avoid selling the inexpensive Free-Westinghouse machine and tried 21 Respondents' sales manager testified' that most customers commented on the noisy performance of the machine. Both he and one of the salesmen conceded that it did not have the advertised "forward and reverse feature. 268 FEDERAL TRADE COMMISSION DECISIONS' Findings 52 F. T. C.

to sell the more expens~ve Japanese machine.22 Despite the claims of respondents' sales manager, the examiner is convinced that the practice of not taking orders for the Free- \Vashinghouse was not sporadic practice among a few salesmen. The credible testimony in the record establishes that it was widespread and that even the respondents themselves participated in the practice of trying to avoid selling the advertised machine.23 In any event, respondents are responsible for the acts of their salesmen acting within the scope of their apparent authority.

Counsel for respondents regard the allegation of refusal to sell the Free- vVestinghouse machine as being the core of the bait-advertising charge and contend that the fact the record discloses a number of Free- \Vestinghouse machines were actually sold to customers disproves the charge that the offers to sell the machine were not genuine. Aside from the fact that the record also discloses there was a refusal to sell the machine in a number of instances, colillsel's argument overlooks the fact that the sale (or the refusal to sell) was merely the culmination of a tactic of dissuasion, sometimes brazen and sometimes subtle in which every effort was made to induce the purchase of something other than the advertised machine. This tactic was so successful, as demonstrated by the record, that in most instances there ,vas no necessity of a refusal to sell because the customer was induced to buy more expensive machine. So far from establishing that any considerable number of Free-\Vestinghouse machines were sold by respondents, as contended by counsel, the record indicates that the sale of such machines was a relatively minor factor in respondents' business amounting to probably less than 14 a month. 22 The motivation of the salesman under these circumstances was described by the sales managerWell, a salesman \vouldn t turnasthe orderfollows:in because if he had' only a dollar deposit he might go back and get a larger deposit and sell the person a more expensive machine. 23 One witness who went to respondents' store in response to an advertisement was told by a person whom he identified as the respondent Barbara E. Martin, that the respondents did not have an~' machines other than those which the salesmen were using as demonstrators (R. 316). Another witness who went to the store testified that a man identified as Mr. Martin "more or less began to run down" the Free-Westinghouse machine and induced him to buy another one (R. 340). Another witness testified that Mr. Martin told him at the store that the Free- "-estinghouse was a "toy" and that he wouldn t want it (R. 474 501). Other witnesses testified to telephone conversations with :r.f1ss Martin .in which they were told the advertised machine had been oversold. Standard Distriblttors, Inc. FTC 211 F. 2d 7, 13 (C. A. 2, 1954). ~ While the evidence is somewhat fragmentary, insofar as showing the total sales of the Free-Westinghouse machine, it is possible to approximate such figures. According~ to respondents' sales manager, his sales of the Free- Westinghouse amounted to 1 or 2 a week ns compared to 7 or 8 of the American Home. Another salesman estimated his sales of Free-Westinghouse as 10 to 15 a month as compared to 25 or 30 American Home. It may be doubted that the sale of the Free-Westinghouse ran even as higli as these estimates since invoices of respondents' Free- Westinghouse purchases during the nine-month period August 1952 to April 1953 indicate that their total purchases of such I11nchines, including some different and more expensive models, averaged only nbont 14 machines a month. may be assumed that respondents didn t sell more machines than the~' purchased. HOUSEHOLD SEWING MACHINE CO. 269 250 Findings illy doubt as to whether respondents were seriously trying to sell the Free- vVestinghouse machine or were merely advertising it as way of getting leads for the purpose of selling the American Home machine and other III ore expensive machines is dissipated when consideration is given to the economic realities of the situation. The record discloses that the Free-Westinghouse machines advertised by respondents were actually being sold below the cost of such machines to respondents.26 when other items of cost are included in addition to what respondents paid for the machines, such as salesmen s commissions and advertising costs, it is evident that respondents could vV est-not long remain in business if they relied on the sale of the Freeinghouse machine. Contrasting with the loss factor which the sales of the Free-Westinghouse represented, the evidence discloses that the American Home machine, which was usually involved in the competition with the Free- \Vestinghouse during the period in question, was In the light of being sold at well above the cost of such machine.27 these stark economic facts, the possibility that respondents were seriously offering to sell the Free-\Vestinghouse machine becomes extremely remote. Such facts establish beyond doubt the reasonableness of the testimony of the witnesses called in support of the complaint. The practice of respondents in offering to sell these machines at a loss cannot be analogized to the "loss leader" type of practice or, as suggested by counsel, to the practice of offering a product which is found by the customer, after examination, to be less desirable than situation the store another product of the vendor. In a "loss leader" advertises a product at a loss in the hope of getting the customer into the store where he will buy additional articles. Respondents' scheme here involves an effort to su,bstitute another product for the advertised product.

Respondents' practices are wholly dissimilar to legitimate merchandising practices. Here the respondents have undertaken to ach-ertise a product which they hope and intend not to sell, except on a very limited basis, and to substitute therefor another, more expensive prod- 26 A console model (52 F-302) which respondents frequently advertised for $38.88 and .$43.33, actually cost respondents $59.96. A portable model (52F-1216) whicb was advertised for as low as $29. 50, actually cost $46.63 and $48.45. Counsel for respondents contend that evidence as to the prices paid by respondents is immaterial and cite a ruling of tbe examiner as purporting to uphold this position. However, the ruling which the examiner made was in connection with a line of examination which he understood as relating to another allegation of the complaint baving to do with misrepresentation of the retail price and not with the bait advertising charge. 27 The American Home machine, Model 772, which respondents sold for such prices as $119. 50 and $189.5.0, actually cost respondents $50. Model 771 whicbrespondents sold for $119.50, $129.50 and $139.50, cost respondents $52.50. Model 300, which respondents sold for $119. 50 and $189.50, cost respondents $51 and $52. 50. Similar differentials appear in other models.451524-59- 270 FEDERAL TRADE COMMISSION DECISIONS, Findings ;)2 F. T. O. uct. The product which they want to sell. and on which they make a profit is usually an unknown product, a Japanese sewing machine which would have limited advertising appeal. The product which they advertise is an .American product whose name is almost a household word. They embark upon a campaign to sell the unadvertised produce under the guise of offering to sell the well-knmvn product. They embellish their advertisements with the latter product's familiar You Can Be Sure~~ slogan, with a list of many desirable features with a 20-year guarantee and with an extremely low price. 'Vhen persons respond to the advertisements, respondents proceed to attempt get them to switch to the non advertised product. The switch tactic revolves about the so-called demonstration. Persons who call in response to the ad and offer to buy the machine outright are frequently told they must have a demonstration. The demonstrator inevitably brings along with him a more expensive Japanese machine. Then a process akin to "brain washing the salesman seeks to induce a switch to the more expensive machine. Sometimes the salesman is quite frank and tells the customer the Free- 'Vestinghouse is no good; sometimes he is more subtle and calls attention to features here and there which create doubt in the mind of the average housewife for whose benefit most of the demonstrations are performed; and in some instances the raucous performance of the machine does the trick. However, where the customer will not be switched from the Free~'Vestinghouse~ the salesmen seek in many instances to avoid selling the machine.

, 'Vhile respondents do sell a limited number of the Free- 'Vestinghouse machines ,,-here they have been unable to induce the customer to purchase the more expensive machine, this is a mere incidental byproduct of their fundamental strate,gy and is intended to give respondents' practices an aura of legitimaey. Since the Free- \tVestinghouse machines are sold below cost and respondents would go bankrupt if they continued to sell them in large numbers, the laws of probability suggest that they would bend every effort to sell the J apanese machines and avoid selling the Free- 'Vestinghouse. The record in this ease amply demonstrates that respondents and their salesmen have not failed to do the expected.

It is accordingly condudecl and found that respondents offers to sell the Free- 'Vestinghouse machine ,,-ere not genuine and bona fide but were made for the purpose of obtaining leads and information as to persons interested in purchasing a more expensiye machine and that when persons responded to their advertisements, respondents or their salesmen disparaged the advertised machine, made no effort to sell it or ignored it and attempted to sell a more expensive machine, usually HOUSEHOLD SEWING MACHINE CO. 271 250 Findings one of f apanese origin, and where persons indicated a desire to purchase the advertised machines respondents or their salesmen in many instances refused to see it.

C. The Ai isrepresentation as to Price Thecolnplaint charges respondents with having misrepresented the re~ular price of the Free- \Yestinghouse machine in their advertisements and the amount of savings to be realized at the price offered by respondents. Typical of the statements charged as misleading, which fj.appear in the advertisements, is one referring to the machiile as $119.50 Value " offering to sell it for $38. , and stating that this will "Save $80.62." Respondents have admitted in their answer advertising t~lemachine in the ~anner indicated, but deny that this COllStituted a representation that the stated value was the regular price of the machine.

The primary issue which arises under this allegation of the complain:t' revolves about the meaning of the term "value" in the context of respondents' advertisements. The theory of counsel supporting the complaint is that by stating that the machine had a particular "value respondents were representing that that was the price at which the respondents themselves had currently been selling the machine. The position of counsel for respondents is that by advertising the machine in this manner respondents were not claiming that the stated "value was their regular price for the machine, but rather that it was the regular market value" of the machine, by which the examiner assumes counsel mean::; the "regular market price" of the machine. The examiner does not agree with counsel supporting the complaint that a; statement that a product has a certain "value" amo1llits to a representation that the figure indicated has been the regular price of the particular advertiser. In the opinion of the examiner a product m~1Y be said to have a certain "value" if the product is being sold regularly, .i. , to any substantial extent, at that price in the community, even though the particular advertiser has never sold it at that price. The question which next arises is whether the statements made by respondents concerning the "value" and the concomitant "savings" on the machines are true or false. lVIost of the' advertise,ments in the record involve the same model Free- 'Vestinghouse machine, a console 52- F -302. There is only a minor difference in the testimony concerning the retail price of this machine. According to the testimony of the jn making the above findings the examiner has placed' no reliaI1ce on matters dehors the record herein which are referred to in the proposed findings of counsel supporting the complaint, such as the action taken by the Council of State Governments, the ::.\lassachusetts bait advertising statute, and a brochure of the Better Business Bureau. Findings 52 F. T: C.

witnesses called in support of the complaint, the retail price of this machine at the time it was advertised was $79. , while according to the testimony of the respondent Barbara E. Martin it was $89.95. Even accepting the latter figure, it is obvious that the regular retail price of the machine was substantiany l)(",low the advertised "value o~ $119.50.29 Alt11ough respondents Il1ake the doubtful claim that the current price of one of the other models advertised (8- 1482) was actually $119. , there are a sufficient nlUllber of other instances of price nlisrepresentation in the record to sustain the charges in the complaint, without regard to the advertisement in question. The only justification which respondents offered for advertising the Free-vVestinghouse machine as a $119.50 "value" was based upon the testimony of respondent Barbara E. ~Martin that the value was arrived at by taking the current list price of the machine, $89. , and adding thereto the value of certain additional items which were included in the price of the machine vi;:,. a pinking shears and ten sewing lessons. The examiner cannot accept this explanation as establishing the truthfulness of the representations made in the advertisements. In the first place, the nllue of the additional items cannot be deeIlled part of the value of the machines. The advertisements patently refer to the value of the Illachine and not to any ancillary items. Such items were offered "free~' or "at no extra cost" and cannot, therefore, be regarded as part of the represented value of the machine. ~foreover, the examiner is convinced that respondents' explanation is merely a bit of em lJost facto rationalizing and has nothing to do ,with respondent's reasons for fixing the "value" of the advertised machine. In 1952 respondents had used the phrase "regular value" in advertising their Inachines. According to the testimony of the respondent Barbara E. :Martin, she was advised by a Commission investigator in October 1952, that this amounted to a representation that the figure stated was the regular price of the Ina-chine and for 29 Counsel for respondents argue that their'e was no showing as to what the regular price of the machine in the Washington, D. C., market was since there ,i;as no evidence as to the number of retailers in the market and as to \\'ha t their prices generally were. Howe'"er, counsel supporting the complaint did establish what the current list price of this machine was, that retailers usually sold at or about the list price, that at least two retailers in the Washington area were selling the machine at that price, and that respondents were sellingit below the price. From this it may be readily~" inferred that the r('gular Ill~trket price of the machine was substantiall~' less than $119. 50. The burden of showing that any Hizable number of retailers were actually selling the machine at or about $119.50 would then shiftto 30 Respondentrespondents.Barbara E. :\lartin testified that the list price of this machine was ,$119. at the time it was so advertised. Counsel for respondents contend that her testimo.vy ,vas corroborated by that of a representative of the manufacturer of the machine. Howevet'. the latter s testimony was to the effect that thi1" was the price of the machil1ein 1950 and 1951, and that it had not been manufactured since that time. The manufacturer s pric.~ :list, which was introduced in e,oidence, fails to contain anr price for thii' model. 31 cr. Walter J. Black, Inc. Docket No. 5;'i 71 , September 11 , J953. HOUSEHOLD SEWING MACHINE CO. 273 250 Findings that reason the word "regular" was dropped from the advertisements thereafter. In the advertisements in evidence in which the phrase "regular value" was used, the amount mentioned coincides in most instances with the former list price of the machine. The amounts stated in the advertisements in evidence for 1953, in which the word value" alone was used, all coincide with the former list price of the machines. It seems evident that respondents were merely trying to continue their former practice of claiming that the old list price was the value of the machine, while purporting to meet the objections of the Commission investigator by dropping the word "regular." The examiner is convinced that this, rather than any additional value created by the offer of sewing lessons and pinking shears, is the explanation for the amounts chosen by respondents as the value of the machine. It may be noted, in this connection, that the word "value appeared in the advertisements without regard to whether pinking shears and sewing lessons were offered or not, and even though in some instances both of these additional inducements were offered while in others only one of the,m was offered. It is accordingly concluded and found that by advertising that the Free-vVestinghouse machines had a "value:' of $119. 50 or some other amount, respondents represented that such amount was the price at which said machines were regularly being sold in the market, and that the amount which the purchaser would "save:' was based upon the-, regular market price of said machines. It is further concluded ancl found that such representations were false, misleading and deceptive in that a number of the advertised machines were not being sold in the "\Vashington, D. C. market for the price indicated to be the value of the machines, at or about the time they were so advertised, and the amount of the savings which would be realized was substantially less than the amount represented, based on the regular market price of said machines.

D. The " GurP'antee The complaint alleges that respondents in their advertising have representeel that their sewing machine carries a "20 Year Guarantee. It is further alleged that the use of such statements of guarantee without disclosing the terms and conditions of the guarantee, the name of the guarantor and the manner in which the guarantor will perform is confusing and misleading. Respondents admit in their answer advertising a 20-year guarantee, but allege that since October 1952 the advertised guarantee has clearly contained the name of the guarantor and, substantially, the terms of such guarantee. It is further alleged that to require respondents to publish additional details of the gua-ran., tee would be unduly burdensome.

Findings G2 F. T: C.

The evidence with respect to the advertising of a 20-year guarantee relates primarily to the Free- vVestinghouse maehille.32 The record. disdoses that in advertising such machines respondents used t:he phrase "20 Year Guarantee." This phrase appeared in a prominent place in the advertisements, usually directly underneath a picture of the Free- \Vestinghouse machine, and ",' as printed in bold letters approximately l6 of an inch in height. The contention of respondents with regard to changing their advertising is based on the testimony of re,spondent Barbara E. ~fartin, that around October 1952, a Commission investigator advised her that the advertisements should state what the guarantee covered, and that thereafter she changed the advertisements so as to indicate that the The change in advertising, upon whichguarantee was on parts only.33 respondents rely, does not involve any modification in the use of the phrase "20 Year Guarantee " which continues to hate the same prominent place in their ach-ertisements as before. There is no reference in this portion of the Rch-ertise,mellt to the fact that the guarantee is limited to parts. However;in another portion of the advertisement in which are listed the "Features" of the machine, there appears the phrase 20 Year Parts Guarantee. " This phrase is ineluc1ec1 in the middle of a number of performance "features" of the machine and is printed in small letters, approximately )tr of an inch in height. The contention of counsel supporting the complaint that the ;iguarantee" allegation of the complaint has been sustained by the eviclenee is based primarily on testimony and other eviclenee relating to a "Guarantee Bond," '\"which was given or promised to purchasers of respondents' Japanese " American IIollle" machine.34 The authority which counsel cites in support of his position, the B ega 8eIDl-Jlg ill ac7dne case 35 relates to a "\Varranty Certificate" which ,,- as ach-ertised in connection with the sale of J apane.se machines. Howe,. , in 32 l\.lost of the advertisements offered in evidence by coll11sel in support of tile complaint in which there is reference to a 20-year guarantee inyoln's the Free- Westinghouse machine. There are two exhibits relating to a Singer machine (CX 6 and 7) and one exhibit relating to an unknown brand of machine (CX 11).

33 The record discloses that as late as November 5" 1952. reRpolHlents were still ad,-ertising' the Free- Vi' estinghouse as bearing a 20-year guarantee, without qualification. The pa rliest evidence of an ad,ertisement referring to the guarantee a 8 being limited to parts is an advertisement dated March 11. 1953. It will he assumed. however, for ptII'l)oses of this decision that'sometime between N oyemher 1952 and :.\Iarcl1 195:~. there was a chang-e in respondents' advertising which is reflected in the adyertiseJllpnt of l\fnrch 11, 1 fl53, appearing in the record.

3~ Counsel's argument in this respect is as fonows : The writing itself shows on its face that there is neither :l. 20 year warranty nor any other kind of warranty, and no warranty backs up one of these imported JapnneH=' ma.chines when either wholesaled or retailed for the reason that any warrant;\- or guaranty hand is backed up by the force of its manufacturer for, warranties on bonds and not the retailer.

3.'; Docket No. 5893, September 18, 1953.

, ...

HOUSEHOLD SE'\VING MACHINE CO. 275 250 Findings the instant case the complaint is not based on the insufficiency of any guarantee bond" or "warranty certificate" advertised or given in connection with the sale of Japanese machines. The complaint alleges no failure to make lull disclosure or a "20-year guarantee" referred to in advertisements placed by respondents in newspapers. However, as already indicated above, such advertisements relate primarily to the Free- 'Vestinghouse machine, and there is no evidence that the "Guarantee Boner' given in connection with the sale of the Japanese machines is the same as the 20-year guarantee advertised in connection with the Free- ';Vestinghouse machines.

Despite the irrelevance of much of the argument of counsel supporting the complaint, there is, nevertheless, sufficient evidence in the record to sustain the allegations of the complaint without regard to any guarantee given in connection with the Japanese maehines. has already been found, respondents advertised the Free- 'Vestinghouse as carrying a ~' 20 Year Guarantee. " :Many readers seeing such advertisement would assume that it reflected a full 20-year guarantee '\,without Emitation. 'Vhile respondents did in the latter part of 1952 or early 1953 include an additional phrase in their advertisements relating to parts, this phrase appeared in much smaller print and in less prominent place in the aclvertiseme,nt. In the opinion of the examiner, in order to properly inform the public that the guarantee was limited to parts, either the word "parts" should have been inserted in the prominently used phrase "20 Year Guarantee " or the separate phrase 20 Year Parts Guarantee" should have been placed in close proximity to the phrase "20 Year Guarantee" and in. letters or sub- 36 It isstantially the same size. accordingly found that both the former and the prese.nt arrangement of respondents' advertisements tend to confuse and mislead the public in that they fail to adequately disclose material limitations with respect to the terms and conditions of the guarantee or the manner of performance thereof. Respondents' advertisements of a 20-year guarantee are objectionable for the additional reason that they fail to disclose the identity of the guarantor. "TJ.lile respondents state in their answer that the name of the guarantor is now clearly disclosed as a result of the changes which occurred around October 1952, reference to the advertisements indicates that there has been no change in this respect. 30 See in this connection Parke!' Pen Co. v. FTC 159 F. 2d 509 (C. A. 7, 1946), involving an unqualified guarantee appearing in large letters in a conspicuous place in advertisements, and a limitation on the guarantee appearing in small letters in a less conspicuous place, where the court commented:

We conclude that the objection to petitioner s arlnrtisement is that the limiting words of the I!llarantee appeal' in small print, plus the further fact that the location of the limiting words is some distance from the words of the guarantee. Findings 52 F. T. C. The name of the advertiser "Household Sewing lVIachine Company appears in the advertisements now, as it did prior to the alleged change in format. However, there is no indication whether that company or the manufacturer of the Free-vVestinghouse machine is the guarantor under the advertised guarantee.

Counsel for respondents argue that no case has been established because there has been no showing that anyone was misled or confused by respondents~ advertisements. However, it is elementary that evidence of actual deception is unnecessary since it is sufficient if the The finding here madeadvertisements have the capacity to deceive.37 that there is a tendency to mislead and deceive is not based on any naked allegation (in the complaint) alone " as counsel appear to assume, but on the advertisements which are in evidence and the admitted fact that the guarantee is limited to parts, from which the Commission and its examiner can appropriately draw inferences without the use of so-called public witnesses.

Neither the Asto1' Industries nor the illode'J'n Sel.()i' ng Ji achhLe cases 39 cited by counsel for respondents, is in any 'way inconsistent with the position here taken and with the authorities above cited. In the Astor Indl./;stries case, the allegation of deception was based on a "Guarantee Bond" appearing in a booklet given by respondents to their retailers, who in turn gave it to purchasers. It was alleged that the guarantee bond did not sufficiently set forth the terms and conditions of the guarantee. However, since the terms of the guarantee were actually set forth in the bond n extenso the issue narrowed down to whether the bond was sufficiently clear as to whether it was a guarantee by the manufacturer or the dealer. Based on the plain wording of the bond, which provided for signature by the "Dealer " and the testimony of reliable witnesses, it was found that the guarantee was not misleading. This does not amount to a holding that the Commission and the examiner cannot find a guarantee to be misleading based on the guarantee document itself or on an advertisement relating to it.

37 Pa1' ker Pen Co. v. FTC, supra; Chades of the RUz CO. Y. FTC, 143 F. 2d 6i6 (C. A.. 2, 1944) .

38 Zenith Radio Co1'po1'a,tion v. FTC, 143 F. 2d: 29 (C. A. 7, 1944) ; Rhodes Phanllacal Com,pany, Ino. v. FTC, 208 F. 2d 382 (C. A. 7, 1953). 30 Docket No. 5889, February 17, 1954; 49 FTC 1111. 40 Counsel for respondents refer, in this connection, to a ruling of the examiner which they contend requires that the guarantee itself be produced in order to establish a prima facie case. This was not the holding of the examiner in the ruling to which counsel refer The occasion for the ruling was an effort by counsel supporting the complaint to establish the terms of the warranty through a facsimile contained in a booklet. 'lhe substance of the examiner s ruling was that, to the extent counsel was seeking to establish the terms of the guarantee, he should do so through a copy of the guarantee and not by some facsimile In a booklet, HOUSEHOLD SEWING MACHINE CO. 277 250 Findings In the Ai modern Se1vi?t,g 111 acld'ne case, the allegation of deception ,yas based on circulars in which respondents described their machines as Guaranteed factory rebuilt sewing machines." It was found that there was no likelihood of confusion to the disadvantage of customers since the evidence showed that respondents either furnished another machine or refunded the purchase price to dissatisfied customers. This decision amounts to a holding that by using the expression "guaranteed~' respondents had, in effect, represented that their machines were fully guaranteed without qualification, and that since the evidence showed respondents had fully performed on their guarantee there "as no likelihood of dee-eption. In the present case there is not a full guarantee but a partial guarantee, ,which is not sufficiently disclosed in the advertiseme,nts nor is it adequately disclosed who the guarantor is. It is accordingly concluded and found that in advertising that their maehines carry a "20 Year Guarantee respondents have, in effect represented that their machines are fully guaranteed without limitation, and have failed to adequately cliselose a material limitation on the nature and e.extent, or manner of performance, of the guarantee and the identity of the guarantor. ,With respect to respondents' argument that it would be burdensome to set forth all the terms and conditions of the guarantee in advertisements, it may be noted that the examiner does not understand that they are required to do so. Only to the extent that there is a material limitation on "what might otherwise appear to be an unlimited guaranty, is there an obligation to make reference to it in their advertisements. E. The Ad'vej'Nslng of Attachments The complaint alleges that respondents in their advertising represented that their machines ,vould perform certain functions with the use of attachments, but failed to disclose that the cost of the attachments was not included in the advertised price. The advertisements complained of are mainly those for the Free-'Vestinghouse machine. It is not disputed that respondents stated in a number of their advertisements that their machines would pe~'form certain functions with the use of attachments, such as embroidering, buttonholing, darning, etc., and that they failed to disclose in certain of these advertisments that the price of the attachments necessary to perform these operations was not included in the advertised price of the machine. It is also undisputed that at some time after the visit of the Commission investigator, previously referred to, respondents changed their advertisements in order to make reference to the fact that the attachments were available at additional cost. Such change involved the addition of Findings 52 F. T. C.

the words "Attachment Extra~' in small letters, beneath a list of Features" of the machine. The position of counsel for respondents on this issue is (a) that there js a defieieney in the proof offered in support of the complaint since there has been no showings., that any member of the public was misled by respondents' former practice and (b) there is no longer any need for corrective action since the practice was discontinued prior to the issuance of the complaint. The examiner cannot agree '\with the contention of counsel based on the alleged lack of evidence of actual deception. "'\Vhere an advertisement states that a machine will perform certain functions with the use of attachments and offers to sell the machine at a speeified price, it is implied that the price includes the machine with the attaehments which will perform the stated functions. The fact that there is actually an additional charge for the attachments is a material fact which should be clearly revealed in the advertisements, the failure to reveal which, has a tendency to mislead and deceive the public. That the failure to reveal this fact has such a tendency is a matter which the Commission and its examiner can infer and find from the advertisements without the necessity for testimony of actual deception. ",With respect to counsel ~s second contention, based on the alleged change in respondents method of advertising with respect to attachments it ma,y be noted, first, that it is not entirely clear that respondents have abandoned the objectionable practice. The use of the phrase "Attachment Extra ~' appearing in small letters at a point removed from the description of the items ,,-hieh may be performed with the aid of wonderful easy-to-use attachments ~~ is hardly ealeulated to give the reader clear notice of the additional cost of such attachments. It nlay be noted further, in this connection, that in respondents more recent advertising they have dropped specific reference to the operations which may be performed with the aid of the attachments and have eliminated the phrase that the price of the attachments is extra. Hm\ever, they have continued to inelude among the so-called "Feature" items of the machine the phrase: "Cover feed for embroidering, darning, monogramming, hemstitching and buttonholing." There is no question that these latter operations can only be performed with the use of attachments. Counsel for respondents argue that the reference to a "cover feecF for the attachments is not the same as referring to the attachments themselves. However, while a sophisticated housewife who is thoroughly experienced in the fine points of the sewing art may appreciate this distinction. It is the opinion of the examiner that many persons, less well-informed, would assume that the attachments for performing these operations were included in the offer.

g., : HOUSEHOLD SEWING MACHINE CO. 279 250 Findings In any event, assuming that there has been a material change in respondents' advertising practices so as to eliminate the confusion which existed concerning the matter of attachments, it is the opinion of the examiner that there is still a need for corrective action in this respect. As counsel for respondents themselves recognize, the mere discontinuallee of an illegal practice does not necessarily dispense with the need for the issuance of an order in the public interest.41 The facts here indicate violations of the Federal Trade Commission Act on a wide scale and the engagement in some practices which were deliberately calculated to deceive the public.. Although respondents purported to modify some of their advertising practices on advice of a Commission investigator, they did so grudgingly, and in a manner calculated to bring them just barely 'within the law-the letter of the law, and c.ertainly not its spirit. Under a1l the circ.umstances, it is the opinion and finding of the examiner, that there is still a need for corrective action with respect to the practice here at issue and that unless appropriate provision is made, there is a reasonable possibility that respondents may resume the objectionable practices in the same or in an altered form.

F. The Oiler of F'J'ee J. e'l()ing Lessons The complaint alleges that respondents stated in their advertising that a purchaser would be entitled to and would rec.eive ten sewing lessons ul)On the purchase of a se,,'ing mac.hine. It is alleged that this representation ,vas untrue in that respondents "did not furnish any sewing lessons in the sense that the word 'lessons: is generally understood, that is, personal instruction but that any so-called lessons given by respondents were written.

As stated in the examiner s order of September 29, 1954, denying respondents' motion to dismiss at the close of the evidence in support of the complaint, there is a failure of proof with respect to this allegation of the complaint. Provision for dismissal thereof win, accordingly, he hereinafter made. IV. Effect. of the Illegal Practices The failure of respondents to adequately disclose on their sewing machine he,ads that they are made in Japan and also the use of the trade or orand name "American Home De Luxe" has had and now has the tendency and capacity to lead members of the purchasing public into the erroneous and mistaken belief that respondents: sewing 41 See, e. Con,wlidated Royal Chemical Corp. v. P. T. C. 191 F. 2d 886; HUlman Pe:riod,ical. . Inc. v. F. T. C", 174 F, 2d 122. 280 FEDERAL TRADE COMMISSION DECISIOKS Order 32 F. T. C.

machines are of domestic manufacture and to induce thepnrchase of their sewing machines because of such erroneous and mistakenbeliei. Further, the use by respondents of the other false, misleading and deceptive statements and practices hereinabove found has had and no,v has the tendency and capacity to mislead and deceive members of the purchasing public into the erroneous and mistaken belief that said statements were true and into the purchase of respondents~ sewing machines because of such erroneous and mistaken belief. Responents, in the course and conduct of their business, are in substantial competition in commerce with the makers and sellers of domestic maehines.42 As a result of the false, misleading and deceptive statements and practices hereinaboye fol~lld, it may reasonably be inferred that substantial trade in commerce has been and is being unfairly diverted to respondents from their competitors and that substantial injury has been and is being done to competition in commerce. CONCLUSION OF LAW The acts and practices of respondents, as hereinabove found, are all to the prejudice and injury of the public and of respondents' competitors, and constitute unfair methods of competition and unfair and deceptive acts and practices in commerce Iyithin the lntent and meaning of the Federal Trade Commission Act. onder 1 t is ordered That respondents Barbara E. Thiartin, Hershel JHal'tin and Dennis j\iartin, individually and as co-partners doing business as J-Iousehold Sewing :Machine Company, or under any other nari1e, and respondents' representati,- , agents and employees directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of sewing machines, sewing machine heads, or other merchandise in commerce, as "commerce~' is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Offering for sale, selling or distributing foreign-made sewing machine heads or sewing machines of which foreign-made heads are a part, without clearly and conspicuously disclosing on the heads the country of origin thereof, in such a manner that it cannot readily hidden or obliterated.

42 The complaint also alleges that respondents are in colllpeti tion with other sellers 0 f imported machines some of whom adequately inform the public as to the source of origin of their said products. There is no evidence to sustain the allegation with respect to other sellers of imported sewing machines adequately informing the public concerning the origin of their product, and accordingly no finding to this effect is made. HOUSEHOLD SEWING MACHINE CO. 281 250 Decision 2. Representing, directly or by implication, that a specified amount is the value of merchandise being offered for sale when such amount is in excess of the price at which said merchandise is regularly and customarily sold in the normal course of business in the same trade territory.

~ Representing, directly or by implication, that any savings are afforded on the sale of merchandise represented as having a certain value, unless the represented savings are based upon the price at which said merchandise is regularly and customarily sold in the normal course of business in the same trade territory. 4. Representing, directly or by implication, that certain merchandise is offered for sale when such offer is not a bona fide offer to sell the merchandise so offered.

5. Representing, directly or by implication, that tlleir sewing machine heads or sewing machines are guaranteed for 20 years or for any period of time, or that they are otherwise guaranteed, without clearly and conspicuously disclosing the existence of any material limitations upon the nature and extent of such guarantee or the manner of performance thereof, and the identity of the guarantor. 6. Representing, directly or by implication, that the price of a sewing machine includes any attachments for which an additional charge is inade.

7. Using the word "Home," or any simulation thereof, as a trade or brand name, or as a part of a trade or brand name, to designate describe, or refer to their sewing machines or sewing machine heads; or representing, through the use of any other word or words, or in any other manner, that their sewing machines or sewing machine heads are made by anyone other than the actual manufacturer. 1 t is fu,rthe?' ordered That with respect to any issue raised by the complaint other than those to which this order relates, the' complaint , and the same hereby is, dismissed.

DECISION OF THE COMl\:1:ISSION AND ORDER TO FILE REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission s Rules of Practice, th~ initial decision of the hearing exa.miner did on the 16th day of September, 1955, become the decision of the Commission; and, accordingly: 1 t is ordered That the respondents herein shall within sixty (60) days after service upon them of this order, file with the Commission a report in writing setting forth in detail the manner and form in w hieh they have conlplied with the order to cease a.nd desist. &.

Complaint 52 F. T. C.