Sterling Materials Company, Inc.

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

IN THE J\iatter OF STERLING J\fATERIALS COJ\fP ANY, INC., ET AL. CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COl\Tl\IISSION ACT Docket 6426. Oomplai- , Oct. 4, 1955-Decision, Mar. 6, 1956 Consent order requiring three associated New York paint firms to cease maldng false representations, with respect to exclusive sales territory and sales and promotional assistance; through their salesmen whom they trained to falsely;y in advertising in recruit "Franchise Dealers; and representing newspapers and periodicals, and in circulars and other literature furnished products for 30 to 35 to dealers, that they had been selling their paint industrial firms, rail- years, and that many well-known manufacturers, roads, and agencies of the U. S. Government had used and approved them. Before JJl1' . Abne'J' E. Lipscomb hearing examiner illi'. Terral A. J onlan ror the Commission. JJl1'. S. Michael Ress of New York City, for respondents. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission having reason to believe that Sterling :Materials Inc., a corporation; David J a-cobs and Jacob Nadler, individually Inc.; Carboziteand as officers or Sterling :M:aterials Company, Protective Coatings, Inc., a corporation; Sidney Jacobs and Jacob N adler, individually and as officers or Carbozite Protective Coatings , Inc. , a corporation, and Inc.; Ohmlac Paint and Refining Co. Charles A. Jacobs and Lillian N ~_than, individually and as officers ; all hereinafter referred of Ohmlac Paint and Refining Co. Inc. to as respondents, have violated the provisions or said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows: PARAGRAPH 1. Respondent Sterling J\1aterials Company, Inc. , is a corporation organized and existing under and by virtue of the principal place laws of the State of New York, with its offices and or business at 1860 Broadway, New York 23 New York. Respondents David Jacobs and Jacob N acller are president-treasurer corporate respondent, Sterling and secretary, respectively, of said these individuals acting in coopera- :Materials Company, Inc., and tion with each other, formulate, direct and control the acts policies 451524--59-- 910 FEDERAL TRADE COl\li\lission DECISIONS Complaint 52 F. T. C. and practices of said corporate respondent. Their addresses are the same as that of said corporate respondent. Respondent Carbozite Protective Coatings, Inc., is a corporation organized and existing under and by virtue of the la ,vs of the Commonwealth of Pennsylvania, with its offices and principal place of business at 24-13 Bridge Plaza, North, Long Island City New York. Respondents Sidney Jacobs and Jacob Nadler are president-treasurer and secretary, respectively, of said corporate respondent, Carbozite Protective Coatings, Inc., and these individuals acting in cooperation with each other, formulate, direct and control the acts, policies and practices of said corporate respondent. Their addresses are the same as that of said corporate respondent. Respondent Ohmlac Paint and Refining Co., Inc., is a corporation organized and existing under and by virtue of the laws of the State of N ew Y ork, with its offices and principal place of business at 24-13 Bridge Plaza, North Long Island City 1 New York. Respondents Charles A. Jacobs and Lillian Nathan are president and seeretary-treasurer, respectively, of said corporate respondent Ohmlac Paint and Refining Co. , Inc., and these individuals acting in cooperation ",ith each other, formulate, cErect and control the acts, policies and practices of said corporate respondent. Their addresses are the same as that of said corporate respondent. PAR. 2. Said respondents are now, and since January 1947 have been, engaged in the sale and distribution in commerce, as the term commerce is defined in the Federal Trade Commission Act, of various types of roofing and foundation paints and coatings, which products are manufactured at plants owned and operated by the respondent Ohmlac Paint and Refining Co., Inc., at Newark, New J ersey and Chicago, Illinois. Said respondents and each of them cause their said products when sold to be shipped, transported and distributed in commerce to dealer-distributors thereof located in various States of the United States other than the States in which said products are manufactured and sold. Respondents maintain and at all times mentioned herein have maintained, a substantial course of trade, in commerce, among and between the various States of the United States, and are now and at all times mentioned herein have been, in substantial competition in commerce with other corporations, firms or businesses similarly engaged in the manufacture, sale and distribution of roofing and foundation paints or coatings.

PAR. 3. Respondents since January 1947, have operated and continue to operate a sales plan by means of which they secure agents or dealers for the sale and distribution of their products to the purchasing public. These agents or dealers are secured or re- , STERLING MATERIALS CO. , INC., ET AL. 911 909 Complaint cruited by salesmen employed by the respondents which salesmen are specially selected and trained by the respondents for this purpose. The primary function of these salesmen is to establish said dealerships and to obtain orders fO"~ the products of the respondents by means of written contracts or agreements with which are combined a provision for tile- initial orders for respondents' products. These agents or dealers a~ e hereafter described and referred to as Franchise Dealers.

Said written agreements which are referred to therein as "Special Dealer s Franchise" or as "Exclusive Franchise for ( ) Dealership" are executed for a definite period of time ranging from one ~o two calendar years and they include the initial order for the products of the respondents together with optional provision for" payment therefor.

PAR. 4. As a part of said sales plan, but not restricted theTete said salesmen for the respondents acting within the scope of their employment and with knowledge, acquiescence and support on the part of the respondents, and for the purpose of inducing prospective dealers to enter into the aforementioned franchise agreements and to purchase respondents' products, falsely represented and C'ontill::e to falsely represent to prospective dealers that: 1. Following the execution of the aforementioned franchise agreements, respondents will:

(a) designate and assign to said dealer certain definite, exclusive and restricted sales territory for the period of time in said franchise agreement provided;

(b) furnish the dealer with adequate and timely selling or sales assistance in the form of missionary sale,smen and demonstrators assisting thewho will call shortly thereafter for the purpose of sell tone"wly established franchise dealer in order that he may his prospective customers all of the materials included in the initial order executed simultaneously with saiel franehise dealer agreement; (c) furnish the dealer with adequate quantities of advertising materials and related sales helps in the form of direct mail advercirculars, folders, and bro-tising, including letters, testimonials, chures, all at no cost to said dealer;

d) will undertake to and arrange for the direct mailing of respondents' advertising material to prospective customers of said dealer in accordance with lists of such prospects furnished by the cost to thedealer to the respondents for that purpose, all at no dealer;

(e) assume and payor allow to the dealer up to fifty percentnm of the total cost of special or periodic newspaper advertising in- (g) 912 FEDERAL TRADE COMMISSION DECISiIONS Complaint 52 F. T. C.

curred by said dealer for the purpose of advertising the products of the respondents based upon newspaper mats to be furnished free of charge by the respondents to the dealer for that purpose; (I) assume and payor allow to the dealer up to fifty percentum of the total cost of outdoor advertising, described by said salesmen as billboards or bill-posters for the purpose of advertising the products of the respondents;

assume and payor allow to the dealer up to fifty percentum of the total cost of radio spot advertising for the purpose of advertising the products of the respondents; h) furnish free of charge to the dealer or to his prospective customers, free samples of the respondents' products; (i) furnish promptly and free of charge to the dealer adequate displays or models showing the application of the products manuiactured by the respondents.

2. That certain designated leading manufacturers, oil companies railroads and industrial corporations throughout the lTnited States are users and indorsers of the products of the respondents. PAR. 5. Respondents, acting by and through said salesmen in turn acting within the scope of their employment, enter into written contracts or agreements with dealers or franchise distributors for said agreementsthe sale and distribution of their said products, being described as franchise agreements as hereinbefore set forth. Among the covenants and stipulations provided therein are those denominated "Sales Corporation" and "Sales Promotion " whereby said respondents stipulate and agree with the franchise dealer to provide a factory representative to assist said dealer in selling to such prospects of the dealer as have therefore been furnished with samples of respondents' products; and to correspond directly with such prospects on behalf of the said dealer in case the dealer has furnished respondents with the names and addresses thereof. Notwithstanding said covenants and stipulations with respect to sales cooperation and promotion as above set forth respondents carry out the provisions in said have failed and continue to fail to the said agreements set forth although called upon to do so by franchise dealers.

PAR. 6. Respondents, in the course and conduct of their business and for the purpose of inducing the purchase of their products statements with respect to their have made and now make certain said products in newspapers and periodicals and in circulars and other advertising literature furnished to their dealers. Among and typical of such statements are the following: ,,: ::: ;

STERLING MATERIALS CO. , INC., ET AL. 913 909 Complaint For over 30 years CARBOZITE PROTECTIVE COATINGS have served America industries * * * including Railroad, Automotive, Rubber, Steel Chemical and Oil Companies.

UNANIMOUS ACCLAIM: BY HUNDREDS OF ELATERITE PRODUCTS Users Offers Concrete Evidence of This Materials' Enduring and Protective Qualities (together with reproductions of order forms or letterheads grouped to one side showing names of a number of large railroads and manufacturers). OVER 30 YEARS IN USE-For over 30 years America s largest industries have put ,all their faith in CARBOZITE. * * DURING THE PAST 30 YEARS, CARBOZITE PROTECTIVE COATINGS HA VE BEEN CONSPICUOUS IN SERVING AMERICA'S LARGEST INDUS- TRIES, SOME OF WHICH APPEAR IN THE LISTING BELOW: (There follows the names and addresses of a large number of nationally known manufacturers, railroads, public utilities, mailorder houses, United States Army and Navy bases, and Federal agencies. ) CARBOZITE PRODUCTS MUST BE TOPS TO BE ACCEPTED BY USERS LIKE THESE.

(There follows a number of names of well-kno\Vn manufacturers railroads, and references to the U. S. Army and Navy, concluding with) :;: and many hundreds of others. FOR OVER 30 YEARS CARBOZITE PROTECTIVE COATINGS HAVE SERVED AMERICA' S MOST PROMINENT INDUSTRIES. Listed on this vage are only a few of the thousands of famous users of Carbozite products. . The approval of these large nationally known corporations is your assurance of Carbozite s outstanding quality and dependability. (There follows, listed in three parallel rows the names and addresses of some 66 well-known railroads, manufacturers, oil companies, etc. For over 30 years, Carbozite Protective Coatings have been widely used by America s largest industries. * * * For over thirty years CARBOZITE PROTECTIVE COATINGS ha\'e servell America s leading industries. Included are Railroads, Automotive, Rubher Steel, Chemical and Oil Companies-also the United States Army, Navy and other government agencies.

For o\'er 30 years, Carbozite Protective Coatings have served America s industries, including keJ' railroads, and automoti\'e, rubber, steel, chemical and oil companies. * * It, (Carbo-tex) is backed by a concern which, !':ince 1900, has Rel'\'ed America s largest industries; Railronds, Steel, Chemical and Oil Companies. Carbozite has been manufactured for 35 years and numbers among its users many of the most prominent concerns in the United States. PAR. 7. By and through the use of the statements set out above respondents represented that they had marketed and sold their said products for a continuous period of time of 30 to 35 years and that the various manufacturers, industrial corporations, railroads and the various agencies and departments of the United States Decision 52 F. T. C. Government designated in the advertising matter had used and approved their said products.

PAR. 8. Said statements were false, misleading and deceptive. In truth and in fact, the length of time during which each or the respondents has sold its said products is much less than 30 years and many or the manufacturers, industrial corporations, railroads and agencies and departments of the United States Government listed in said advertising have neither use'd nor approved any of respondents' products.

PAR. D. The use by the respondents or the aroresaid raise, deceptive and misle.ading statem,ents and representations with respect to their said products has and has had the tendency and capacity to mislead and deceive a substantial numbet or their said franchise dealers as well as members of the purchasing public into the erroneous and mistaken belief that such statements and representations were and are true, and to cause substantial numbers of said franchise dealers as well as members of the purchasing public to purchase substantial quantities of the respondents' products because of such erroneous and mistaken belief. As a consequence, substantial trade in commerce has been unfairly diverted to the respondents rrom their competitors and substantial injury done to competition in commerce.

PAR. 10. The acts and practices or the respondents as hereinbefore set forth were and are all to the prejudice and injury of their representatives or franchise dealers and the public and of their competitors and constituted and now constitute unrair and deceptive acts and practices and unfair methods of competition in commerce within the intent and meaning of Section 5 of the Federal Trade Commission Act, as amended.

INITIAL DECISION BY ABNER E. LIPSCOMB, HEARING EXA1IIINER On October 4, 1955 , the Federal Trade Commission issued its complaint in this proceeding, charging the respondents with unfair and deceptive acts and practices and unfair methods of competition in eol11merce by failing to carry out the provisions with respect to eooperation and promoti"ful assistance contained in contracts or agreements with dealers or franchise distributors for the sale and distribution in commerce of respondents' roofing and foundation paints and coatings, and by the use of false, misleading and deceptive representations as to the length of time respondents had marketed and sold their said products, and as to the use and approval thereof by various manufacturers, industrial corporations railroads, and agencies and departments or the Unite.d States Gov- STERLING MATERIALS CO,) INC.) ET AL. 915 909 Decision ernment, in violation of the Federal Trade Commission Act, as amended.

On November 14, 1955 , respondents submitted their answers to the complaint herein, and on January 6, 1956, all respondents, except Jacob Nadler and Lillian Nathan, entered into an agreement with c.ounsel supporting the complaint, and, pursuant thereto, submitted to the hearing examiner an Agreement Containing Consent Order To Cease And Desist, to which were attached three affidavits, one signed by respondent David Jacobs, averring that the duties of respondent Jacob Nadler, as Sec.retary of respondent Sterling J\1aterials Company, Inc., are nominal and clerical, and that he has not formulated, directed, controlled or participated in the acts or practices alleged in the c.complaint herein; another affidavit of similar import with regard to respondent Jacob Nadler as Secretary of respondent Carbozite Protective Coatings, Inc., signed by respondent Sidney Jacobs; and a like a.ffidavit respecting respondent Lillian Nathan as Secretary- Treasurer of Respondent Ohmlac Paint & Refining Co., Inc., signed by respondent Charles A. Jacobs. The agreement also states that the duties of respondents Jacob Nadler and Lillian Nathan are clerical, that neither formulated directed, controlled nor participated in the acts, policies or practices alleged in the complaint herein, that the complaint should be dismissed as to these two respondents individually, and that therefore they are not included in the term "respondent" as used thereafter in the agreement. In view of the foregoing facts, the complaint will be dismissed as to respondents Nadler and Nathan. Respondent Sterling J\1aterials Company, Inc., is identified in the agreement as anew York corporation, with its office and principal place of business located at 1860 Broadway, New York, New York and respondent David Jacobs as an individual and president-tre.asurer of respondent Sterling 1I-1aterials Company, Inc., his address being the same as that of the said corporate respondent. Respondent Carbozite Protective Coatings, Inc. , is identified in the agreement as a Pennsylvania corporation, with its office and principal place of business located at 24-13 Bridge Plaza, North Long Island City, New York, and respondent Sidney J ac.obs as an individual and president-treasurer of respondent Carbozite Protective Coatings, Inc., his address being the same as that of said corporate respondent.

Respondent Ohmlac Paint & Refining Company, Inc., is identified in the agreement as a New Yor1\: corporation, with its office and principal place of business located at 41-40 Crescent Street, Long Island City, New York, and respondent Charles A. Jac.obs as an 916 FEDERAL TRADE COMl\IISSION DECISIONS Order 52 F. T. C.

individual and president of respondent Ohmlac Paint & Refining Company, his address being the same as that of said corporate respondent.

Respondents admit all the jurisdictional facts alleged in the complaint and agree that the record herein may be taken as if findings of jurisdictional facts had been duly made in accordance with such allegations.

Respondents in the agreement waive any further procedure before the hearing examiner and the Commission; the making of findings of fact or conclusions of la"~ ; and all of the rights they may have to challenge or contest the validity of the order to cease and desist entered in accordance therewith. All parties agree that the answers heretofore filed by respondents shall be withdrawn, and for all legal purposes they will hereafter be. regarded as withdrawn; that the record on which the initial decision and the decision of the Commission shall be based shall consist solely of the complaint and the agreement; and that the agreement is for settlement purposes only and does not constitute an admission by respondents that they have violated the law as alleged in the complaint. The agreement sets forth that the order to cease and desist contained therein shall have. the same force and effect as if entered after a full hearing, and may be altered. modified or s:et aside in the manner provided for other orders; and that the complaint herein may be used in construing the terms of the order. After consideration of the charges set forth in the complaint the agreement, the three affida:vits appendant thereto, and the provisions of the proposed order contained in the agreement~ the hearing examiner is of the opinion that such order will safeguard the public intel est to the same extent as could be a.ccomplished by the issuance of an order after full hearing and all other adjudicative procedure waived in said agreement. Accordingly, in consonance with the terms of the aforesaid agreement, the hearing examiner accepts the Agreement Containing Consent Order To Cease And Desist; finds that the Commission has jurisdiction over the respondents and over their acts and practices as alleged in the complaint; and finds that this proceeding is in the public interest. Therefore It is ordered That the corporate respondents, Sterling :Materials Company, Inc. , Carbozite Protective Coatings, Inc. , Ohl111ac Paint & Refining Company, Inc.. , their officers; and David Jacobs, individually and as an officer of Sterling ~faterials Company, Ine.. Sidney Jacobs, individually and as an officer of Carbozite Protective Coatings, Inc. ; Charles A. Jacobs, individually and as an officer () STERLING MATERIALS CO,) INC.) ET AL. 917 Decision of Ohmlac Paint & Refining Company, and said respondents' respective representatives, agents and employees, directly or through any corporate or other device, in connection with the sale or distribution of roofing and foundation paints or coatings or other related products in commerce, as "commerce is defined in the Federal Trade Commission Act, do forthwith cease and desist from representing directly, indirectly or by implication, through salesmen, agents, solicitors, in advertising or in any other manner 01' by any other means:

1. That respondents will sell or dispose of or assume the responsibility for the sale or disposition in whole. or in part of the aforesaid products for the dealers, agents or other distributors to whom the aforesaid products are sold or that such distributors will not have to pay respondents until said products have been sold or that advertising material, direct mail eanvassing, advertising allowances or other sales assistance will be provided to an exte.nt not actually made available or furnished;

2. That the sales territory assigned to dealers, agents or other distributors for the sale and distribution of those of respondents aforesaid products specified in the franehise or agreement of assignment of said territory is exclusive where all or part of said sales territory has been or is subsequently assigned to others for the sale and distribution of the same named product during all or a part of the period of said assignment;

3. That respondents' aforesaid products have been used, endorsed, acclaimed or approved by persons, firms, corporations, organizations or instrumentalities either public or private which have not within' a reasonable period of time prior to the making of the aforesaid representations by respondents actually used substantial quantities of respondents' aforesaid products in the manner and for the purposes for which respondents represent said products to be effeetive, and which have not affirmatively given thereto their endorsement, acclamation or approval;

4. That respondents' aforesaid products have been offered for sale and sold for a period of time in excess of that for which substantially similar products have actually been offered for sale and sold by respondents or their predecessors in interest. complaint be, and it hereby is t is f'l.trthe1' ordered That the dismissed as to respondents Jacob Nadler aud Lillian Nathan. DECISION OF THE CO1\Il\fISSION A~D ORDER TO FILE REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission s Rules of Practice th daythe init i al Ilecision of the hearing examiner shall, on the Decision 52 F. T. C. of l\farch, 1956 become the decision of the Commission; and, accordingly :

It is ordered That respondents Sterling l\faterials Company, Inc. a corporation, and David Jacobs, individually and as an officer of Sterling l\1aterials Company, Inc. ; Carbozite Protective Coatings Inc., a corporation, and Sidney Jacobs, individually and as an officer of Carbozite Protective Coatings, Inc. ; Ohmlac Paint & Refining Co., Inc., a corporation, and Charles A. Jacobs, individually and as an officer of Ohmlac Paint & Refining Co., Inc., 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 mal1l1er and form in which they have complied with the order to cease and desist.

THOMAS Y. CROWELL CO. 91g, Complaint