Carl Drath

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IN THE l\tia TTER OF CARL DRATH TRADING AS BROADW A Y GIFT Camp ANY ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 6185. Complaint, Feb. 24, 1954-Decision, Feb. , 1956 Order requiring an individual in New York City to cease furnishing to members of the public who were prospective representatives and operators, push and pull cards and instructions for the sale of his watches, cameras, novelties, household articles, and other merchandise to the public by means of a lottery scheme.

Mr. J. W. Brookfield, J7' for the Commission. Mr. Horace J. Donnelly, Jr. of vVashington, D. for respondent.

INITIAL DECISION BY WILLIAl\I L. l)ACK, BEAnING EXAMI~ER 1. The complaint in this matter charges respondent with violation of the Federal Trade Commission Act through the use of lottery schemes or games of chance in the sale and distribution of his merchandise. After the filing of respondents answer to the complaint, hearings were held at which testimony and other evidence were offered in support of the complaint (no evidence being offered by respondent), and such testimony and other evidence were duly recorded and filed in the office of the Commission. The matter is now before the hearing examiner for final consideration on the complaint, answer, evidence, oral argument of counsel and proposed findings and conclusions submitted by counsel. I-laving duly considered the matter, the examiner finds that the proceeding is in the interest of the public and makes the following findings as to the facts, conclusions drawn therefrom, and order. 2. Respondent Carl Drath is an individual trading as Broadway place of business atGift Company, with his office and principal 121 East 24th Street, New York, New York. He is engaged in the sale and distribution in commerce, as that term is defined in the Federal Trade Commission Act, of numerous and varied items of jewelry,merchandise including, among others, cameras, watches, safety razors, and various household and toilet articles. 3. l\10st of respondent' s sales are made through members of the addresses of individualspublic. Upon obtaining the names and as prospectivemembers of the public, ",ho are regarded by him distributors of his merchandise, respondent mails to such persons BROADWAY GIFT CO. 845 844 Decision ~certain advertising and sales material. One of the pieces~ of material employed by respondent is a circular describing and depicting . certain articles of merchandise and containing a device commonly known as a pull card. This card contains a number of partially perforated 'abs under each of which. is a feminine or masculine name, together with the name of one of the articles described in the circular, and the price of the article. Persons pulling the tabs pay to the individual circulating the pull card the amount specified and their names are noted on the circular in a place provided for that purpose. The information under the pull tabs is concealed from view, and persons pulling the tabs have no information as to the article they are to receive or the price to be paid therefor until the tab has been pulled or separated from the card. 4. The pull card also contains a master seal which conceals a name corresponding to one of the names beneath the tabs. The person who happens to pull the tab containing this name receives, in addition to the first article, a watch as a special prize. , 5. After all of the tabs on the card have been pulled and the respective amounts paid by the several persons pulling the tabs, the individual circulating the card remits the total amount to respondent and receives from him the merchandise, including the watch. The respective. articles are distributed by this individual to the persons entitled thereto, the master seal on the pull card is removed to ascertain which of the persons receives the watch, and the watch delivered to such person. For his compensation the individual circulating the pull card receives an article of merchandise selected by him from a designated group.

6. In addition to the circular and pull card just described, respondent has used a device known as a push card. This card contains 36 partially perforated discs, each of which bears a feminine name. Concealed within each disc is a number which is not revealed until the disc has been pushed or separated from the card. Legends on the card read: "No. 1 pays 1~, No. 9 pays 9~, No. 28 pays 28;, all others pay 29~-None Higher" and "No. 1 and No. receive a handsome fountain pen. Persons pushing the discs pay in accordance with the first of these legends. The card also contains a master seal, concealed beneath which is the name corresponding to one of the names appearing on the discs. The master seal is not broken nor the name beneath it revealed until all of the discs have been pushed. The person who pushes the disc bearing the same name as that under the master seal receives a camera. The other persons pushing discs on the card receive nothing except the persons who push numbers 1 and 9, each of whom receives a 451524--59----55 52 F. T. c~ Opinion fountain pen. As in the case of the circular and pull card described above, these push cards are mailed by respondent to members of the public. If a recipient elects to do so, he sells the pushes on the card to other members of the public, collects the money therefor, remits it to respondent, receives the camera and fountain pens and delivers them to the persons who pushed the lucky discs.. For his compensation the individual circulating the card also, receives a camera.

CON CL US ION S It is clear that each of these sales plans contemplates and involves the use of a lottery or game of chance, and that respondent supplies to and places in the hands of others lottery devices for use in the sale of his merchandise. The use by respondent of such sales plans or methods and the sale and distribution of his merchandise to the public through the use thereof is a practice which is violative of an established public policy of the Government of the United States, is to the prejudice of the public, and constitutes unfair acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

ORDER It is ordered That the respondent, Carl Drath, individually and trading as Broadway Gift Company, or trading under any other name, and his agents, representatives and employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of any merchandise in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Supplying to or placing in the hands of others pull cards push cards or any other devices which are designed or intended to be used in the sale or distribution of respondent's merchandise to the public by means of a game of chance, gift enterprise or lottery scheme.

2. Selling or otherwise disposing of any merchandise by means of a game of chance, gift enterprise or lottery scheme. OPINION OF THE COMl\IISSION By I(ERN, Commissioner:

This matter is before the Commission on consideration of an appeal from the initial decision of the hearing examiner who has found that respondent has violated Section 5 of the Federal Trade Commission Act by supplying to others, through the chanl1els of &: , BROADWAY GIFT CO. 847 844 Opinion interstate commerce, lottery devices for use. in the sale of his merchandise, and has issued an appropriate order to cease and desist.

Respondent distributes two types of lottery device pull cards and "push cards. Their construction and method of operation is fully described in the initial decision, and it will here suffice to say that each type is designed to be used in the sale of merchandise by paid chance. Commission orders condemning the interstate distribution of such devices have been universally sustained on judicial review. Seymour Sales 00. v. FTO 216 F. 2d 633 (D.C. Cir. 1954) and cases cited cert. denied 348 U. S. 928 (1955); Wolf v. FTO, 135 F. 2d 564 (7th Cir. 1943); Colon v. FTO 193 F. 2d 179 (2d Cir. 1952). It is thus well-settled that the practices in which respondent was found to have engaged violate the Federal Trade Commission Act. United States v. Halseth 342 U.S. 277 (1952), which respondent insists holds that the Com.mission is without jurisdiction in these premises, arose under the postal statutes and did not purport to construe the Federal Trade Commission Act. This is clear from the decisions of those courts which have considered and rejected this same contention. Seymour Sales 00. FTO 216 F. 2d 633, 635, footnote 2 (D. C. Cir. 1954), cert. denied, 348 U. S. 928 (1955); U. S. Printing Novelty 00. , Inc. v. FTO, 204 F. 2d 737 (D. C. Cir. 1953), cert. denied 346 U.S. 830 (1953); Halseth v. FTO not reported, No. 11022, 7th Cir. , Sept. 15 , 1954 cert. denied 348 U.S. 928 (1955); lIlaltz v. FTO not reported No. 11399, 7th Cir., October 12, 1954. There is thus no basis for respondent' s contention that the Commission is without jurisdiction over his practices.

Respondent points to Section 9 of the Federal Trade Commission Act which inter alia provides thatno natural person shall be prosecuted 01' subjected to any penalty or forfeiture for 01' on account of any transaction, matter or thing concerning which he maj" testify or produce evidence, documentary or otherwise, before the Commission in obedience to a subpoena issued by it He argues that since he testified in response to a Commission subpoena concerning the matters which underlie this proceeding, the quoted statute saves him immune from the proposed order. A Federal Trade Commission order to cease and desist is injunctive only, forbidding future violations of law but imposing no sanctions for past misconduct. Injunctive relief is not a "penalty or a "forfeiture. Bowles v. lrlisle 64 F. Stipp. 835 , 838 (Neb. 1946). Proceedings to collect civil penalties for the disobedience of Commission orders are brought in United States District Courts 52 F. T. .C. Orderand must be based on independent evidence of misconduct occurring subsequently to issuance of the order to cease and desist. The immunity clause is therefore inapplicable to respondent. Standard 1954). LeeDistributors, Inc. v. FTO 211 F. 2d 7, 14 (2d Cir. OAB 225 F. 2d 950 (D.C. Cir. 1955), relied on by respondent in this regard, is not in point.

Upon consideration of the entire record herein we hold that the hearing examiner s findings are supported by substantial evidence and fully warrant the order that he has proposed. Accordingly, respondent' s appeal is denied and the initial decision of the hearing examiner is affirmed. Appropriate order will be entered. Commissioners Mason and Secrest did not participate in the decision of this matter.

FIN AL ORDER This matter having been heard by the Commission upon respondent' s appeal from the hearing examiner s initial decision, and briefs and oral argument of counsel in support thereof and in opposition thereto; and The Commission having rendered its decision denying respondent' appeal and affirming the initial decision: I t is ordered, That the respondent herein shall, within sixty (60) days after service upon it of this order, file with the Commission a report in writing setting forth in detail the manner and form in which it has complied with the order to cease and desist. Commissioners Mason and Secrest not participating. THE DIOPTRON CO. ET AL. 849 Decision