Great Atlantic & Pacific Tea Company, Inc

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

IN THE MATTER OF THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., , ET AL.

Docket 8866. Interlocutory Order, June 27,1978. Order placing administrative law judge’s subpoena directed to the Secretary of the Commission on the Commission’s docket for review; quashing said subpoena insofar as it directs the appearance and production by the Secretary; quashing the first sentence of Paragraph F of the definitions contained in said subpoena and also Paragraph 2 of the subpoena; and returning the subpoena to the administrative law judge for further action consistent with the Commission’s opinion and order. ORDER PLACING ADMINISTRATIVE LAW JUDGE’S SUBPOENA DI- RECTED TO THE SECRETARY ON THE COMMISSION’S DOCKET FOR REVIEW AND QUASHING THE SAME IN PART The Secretary of the Commission has been served with a subpoena duces tecum issued May 30, 1978, by the administrative law judge pursuant to the judge’s ruling of April 17, 1978, and May 17, 1978, on a motion by respondent Borden, Inc., under Section 8.386 of the Commission’s Rules of Practice. The subpoena directs, in part, that the Secretary appear before the judge on July 2, 1973, and produce certain specified records of the Commission. It also directs, under -certain provisions of the subpoena, that the Secretary identify or list other records of the Commission which are not to be produced under the subpoena. The Commission, pursuant to Section 3.28(a) of the Commission’s Rules of Practice, has determined to place this subpoena on its own docket for review. The scope of this review will be limited to the following issues: (1) Whether, under the circumstances in this case, it is necessary that the response to the subpoena be made by the Secretary of the Commission rather than by complaint counsel; and (2) The appropriateness of the subpoena provisions which require the identification or listing of certain Commission records which are not to be produced in response to the subpoena. Each issue is hereinafter discussed seriatim. GREAT ATLANTIC & PACIFIC TEA CO., INC., ET AL. 1861 1860 Order I, APPEARANCE AND PRODUCTION BY THE SECRETARY It is clear from the record that since this proceeding began complaint counsel have made an extensive effort to search Commission files in order to locate any material which could be considered discoverab!e by respondent. Much material already has been turned over to respondent by complaint counsel. What little remains to be produced under the instant subpoena is in complaint counsel’s possession and requires no further search of the Commission’s files. Accordingly, no point is served in requiring the Secretary of the Commission to appear and make the return. This function can, under the circumstances, be performed adequately and appropriately by complaint counsel.

II], PROVISIONS REQUIRING IDENTIFICATION OR LISTING OF COMMIS- SION RECORDS 1 Paragraph F, Definitions Section of the Subpoena It is noted that Paragraph F of the definitions section of the subpoena contains the following first sentence: If any requested documents are deemed privileged or otherwise not subject to subpoena as internal Commission communications, Commission minutes, staff memoranda and staff work product, such documents shall be identified. By his ruling of April 17, 1978, the judge denied Borden’s motion for discovery insofar as it called for items such as internal Commission communiéations and staff work product.: His ruling to that extent is clearly consistent with prior Commission decisions.? But his ruling contains no explanation or justification for the inclusion of the above-quoted first sentence of Paragraph F. As far as we can determine, it is the result of a compromise over a more elaborate provision which appeared as the first sentence of Paragraph F of the definitions in the proposed subpoena specifications submitted by Borden with its motion for discovery dated February 9, 1973. This earlier provision would have required each such document to be identified by source, date, author and specific type of information contained therein and a separate statement of grounds on which the claim or privilege as to each document rested. In support of this earlier provision, Borden 1 Order on Motion of Borden, Inc., for a Subpoena Directed to the Federal Trade Commission, dated April 17, 1978, at pp. 3-6.

2 See for example, School Services, Inc., 71 FTC 1708 (1967); Statesman Life Insurance Co., 70 FTC 1835 (1966); Sperry & Hutchinson Co., 69 FTC 1112 (1966); Modern Marketing Services, Inc., 69 FTC 1077 (1966); Graber Manufacturing Co. Inc., 68 FTC 1235 (1965). Order 82 F.T.C.

argued that it was necessary to “permit an informed ruling by the Judge and an adequate record on appeal.”3 We disagree. The administrative law judge’s April 17 ruling makes it clear precisely what types of documents respondent has been denied discovery of, namely internal Commission communications and staff work product. Those rulings constitute an adequate record on appeal, and we see no need for burdening the Commission with having to identify each such item. Accordingly, the first sentence of Paragraph F of the definitions section of the subpoena shall be quashed. 2. Paragraph 2 of the Subpoena Specifications Paragraph 2 of the subpoena specifications calls for: A listing of documents containing 1963-1968 Chicago market or price information obtained in the investigation of Southland Corporation by category or by title and by date and time period covered. According to the record, respondent Borden already has obtained voluntary discovery from Southland Corporation.4 The administrative law judge included the above-quoted provision in the subpoena so as to afford the respondent an opportunity to compare what it has received voluntarily from Southland with what the Commission has obtained in connection with a current, ongoing investigation of that corporation. This procedure, however, imposes a burden upon the Commission which is not authorized by the Commission’s discovery rules. If respondent has reason to believe that Southland’s voluntary disclosure is incomplete, a conclusion not evident from the record before us, the appropriate solution would be a subpoena directed to Southland, not to the Federal Trade Commission. Accordingly, It is ordered, That the subpoena duces tecum issued May 30, 1978, upon the Secretary of the Commission, be, and it hereby is, placed on the Commission’s docket for review. It is further ordered, That said subpoena insofar as it directs the appearance of, and production by, the Secretary of the Commission, be, and it hereby is, quashed.

It is further ordered, That the first sentence of Paragraph F of the definitions contained in said subpoena, be, and it hereby is, quashed.

It is further ordered, That Paragraph 2 of said subpoena, be, and it hereby is, quashed.

3 Motion of Borden, Inc., for Subpoena Directed to the Federal Trade Commission, dated February 9, 1978, at p. 6.

4 Response in Support of Borden’s First Motion for Subpoena Directed to the Federal Trade Commission, dated April 5, 1978, at p. 8. GREAT ATLANTIC & PACIFIC TEA CO., INC., ET AL. 1863 1860 Order It is further ordered, That said subpoena be, and it hereby is, returned to the administrative law judge for further action consistent with this opinion and order.

ADVISORY OPINIONS WITH REQUESTS THEREFOR Legality of a proposed cumulative refund plan whereby distributors would earn refunds on amounts paid to the supplier if the distributor increases quarterly purchases over those in the corresponding quarter in the immediately preceding year. (File No. 733 7003) Opinion Letter January 11, 19738 Dear Mr. Breeling:

This is in response to your letter request dated October 24, 1972, for an advisory opinion.

It is the Commission’s understanding that Scott Publishing Company has devised a cumulative refund plan. In essence, under the plan, Scott distributors would earn a refund on amounts paid to Scott if the distributor increased his quarterly purchases over those in the corresponding quarter in the immediately preceding year.

All distributors of Scott’s stamp albums, album supplements and accessories would be enrolled and advised as to how the plan would operate; however, their purchases of Scott’s standard stamp catalogs and related items would not be covered under the plan.

If a distributor’s purchases from Scott increased over the corresponding quarter in the immediately preceding year, percentage refunds would be offered him on the following basis: Quarterly Quarterly | Increase Refund 20% 2% 380% 38% 40% 4% 50% 5% Retail outlet customers buying direct from Scott would not be included in the plan.

It is the Commission’s opinion, based on its understanding as outlined above and the available information, that the plan raises questions under the Robinson-Patman amendment to the Clayton Act in that the price discriminations which would necessarily result from its implementation may have the effect of substantially lessening competition among your distributors. Price discriminations which may adversely affect competition are prohibited by Section 2(a) of the Clayton Act, as amended, unless they are justified by savings in cost or unless the lower price is made in good faith to meet the equally low price of a competitor.

The Scott plan arbitrarily categorizes distributors on the basis of a percentage increase in sales bearing no. relationship to Scott’s lower cost in doing business with a distributor. For example, if competing distributors, “A” and “B,”. each purchased $1,000 worth of merchandise during a given quarter of the year and this represented a 50% increase for distributor “A” and only a 20% increase for distributor “B,” the latter would get a 2% rebate while the former would receive a 5% rebate. Such differentials between competitors, absent a cost justification, are illegally discriminatory if the requisite adverse effects on competition are found.

You are advised further that the Commission is of the view that a legally inoffensive incentive program might be devised under which all resellers are treated alike, e.g., all of those with an increase in volume over a given base period receive the same percentage refund and new entrants are allowed to qualify. By direction of the Commission.

Letter of Request and Enclosure October 24, 1972 Dear Sir:

Enclosed is a detailed factual sketch of a proposed incentive program which Scott Publishing Company intends to initiate as soon as, and if, a favorable response to this request is issued. If any further information is needed, please contact me by telephone (collect) and I will immediately make it available to you. The plan is not presently in effect and, to the knowledge of the corporation and this office, it is not the subject of investiga- ADVISORY OPINIONS WITH REQUESTS THEREFOR 1867 tion or any other proceeding by the Commission or any other governmental agency.

Thank you.

Sincerely yours, /s/Roy G. Breeling CORPORATE INFORMATION Scott Publishing Company is a Nebraska corporation with its registered office and corporate headquarters at 10102 “F” Street, Omaha, Nebraska, 68127. The sole stockholder of Scott is Mr. Duane Hillmer of Omaha, Nebraska. The Board of directors is composed of Mr. Duane Hillmer, Chairman; Mr. Carl Mammel; Mr. R. R. Nantkes; and Mr. Jack Taub. The corporate officers are Mr. Duane Hillmer, President; Mr. R. R. Nantkes, Vice President; Mr. Henry Eberley, Vice President, Mr. Jack Taub, Vice President; Mr. Morton Fisher, Secretary; Mr. Jack Taub, Assistant Secretary; and Mr. Morton Fisher, Treasurer.

Scott owns more than 80% of Epsen Lithographing Company. Espen is not engaged in activities related to the business of Scott. BUSINESS INFORMATION Scott is engaged in the supplying of information and materials for stamp collectors. The annual sales of the corporation in the fiscal year 1971 amounted to $1,681,873. Scott products include two somewhat distinct lines of products. Scott publishes and produces a three-volume set of Standard Catalogues. These catalogues are generally recognized as a major authority by which stamp prices are determined not only in the United States, but in a number of foreign nations. Supplementary to these Standard Catalogues, which are produced on a yearly basis and released in the Fall of the year, are monthly journals which update and correct the Standard Catalogues. Also, Scott, publishes a coin catalogue, but this is a minor part of its business. The sales of these items are relatively stable and it is not anticipated that the incentive program hereafter set forth will apply to these sales. Of the annual sales figure noted above, approximately $832,740 was derived from sales of the Standard Catalogues and related items. The other line of products produced by Scott is stamp collecting supplies and accessories. This line includes stamp albums in which stamps are to be _ placed, yearly supplements to these albums, accessories, special albums, etc. These sales amount to $843,133 annually. Approximately $6,000 is derived annually from the sale of advertising space in the monthly supplement to the Standard Catalogues.

The majority of the annual sales of Scott is to distributors, who perform a wholesaler function. However, Scott does. sell directly to retailers and individuals, especially in geographical areas where no distributor conducts business on a regular basis. Sales to such retail outlets are generally competitive in price with prices offered by distributors. Such direct sales during the last fiscal year amounted to approximately $126,000, or about 7% of Scott’s total sales. .

The following are the state locations of distributors, the number of distributors in each state, the total volume of sales into such state, and a breakdown between the two lines of product sales into each state. CHART I (d) (b) (c) Materials (a) Total Standard and Number of Volume Catalogue - Accessory State Distributors of Sales Sales Sales Alabama 1 $ 36,073.98 $ 15,417.88 $ 20,656.10 California 4 242,761.81 | $117,475.62 $125,285.69 Florida 2 32,911.38 $ 16,477.55 $ 16,433.81 Illinois 2 126,352.75 | $ 65,945.30 $ 60,407.45 Indiana 2 80,779.73 | & 35,052.88 $ 45,726.85 Kansas 1 13,011.76 | $ 4,927.00 $ 8,084.76 Maine 1 11,103.81 | $ 5,380.38 $ 5,723.43 Massachusetts 2 108,480.21 | $ 28,448.21 $ 80,032.00 Michigan 1 81,282.58 $ 18,539.91 $ 17,742.67 Minnesota 1 45,783.12 | $ 36,614.48 $ 9,168.64 Nevada 1 8,147.76 $ 6,822.31 $ 1,825.45 New Jersey 1 13,502.47 $ 11,848.87 $ 1,658.60 New York 10 591,289.73 | $827,420.17 $268,869.56 Oklahoma 1 11.53 | $ 11.53 $ — Pennsylvania 1 84,140.57 $ 14,524.42 $ 19,616.15 Texas 2 84,119.80 | § 18,439.26 $ 20,680.04 Virginia 1 5,852.60 | $§ 1,808.78 $ 3,548.87 Wisconsin 1 18,726.79 | $ 38,622.86 $ 15,108.98 Canada 1 83,995.18 | $ 62,482.76 $ 21,512.42 TOTAL DISTRIBUTOR SALES $1,517,826.54 $781,250.12 $736,576.42 To the knowledge of Scott, most of the distributors in each of the states ’ above are unrelated. However, one distributor has related operations in five (5) states; another in three (8) states; and one in two (2) states. Thus, the actual total number of distributors is twenty-nine (29). The total number of distributors on a state by state basis without reference to related business operations is thirty-six (36) as shown in Chart I. Since the Scott incentive refund program will involve only those sales figures shown in column (d) of the chart, the following is a breakdown of those sales.

ADVISORY OPINIONS WITH REQUESTS THEREFOR 1869 CHART II Annual Number of Sales Volume Distributors Up to $ 1,000 1 $ 1,000 to $ 10,000 8 $ 10,001 to $ 20,000 8 $ 20,001 to $ 30,000 6 $ 30,001 to $ 40,000 1 $ 40,001 to $ 50,000 0 $ 50,001 to $ 60,000 3 $ 60,001 to $ 80,000 0 $ 80,001 to $ 90,000 1 $ 90,001 to $130,000 0 $130,001 to $131,000* 1 TOTAL 29** * These sales were to a distributor operating facilities in three states. *%* The sales figures of each of the distributors with multi-state facilities are grouped together as to that distributor and inserted into the appropriate sales volume category. The lowest dollar volume purchaser among the distributors, considering related distributors as single operations, of non-catalogue sales (column (d) of Chart I) had purchases amounting to approximately $950. Distributors range up to approximately $130,960 for one multi-state distributor. The average volume of the 29 distributors is $25,399.19. The larger-volume distributors tend to deal with a different clientelle than the smaller-volume distributors, although there is undoubtedly some competition between them. The larger-volume distributors tend to deal primarily with larger retail outlets while smaller-volume distributors generally deal with individual retail stamp shops. THE PRODUCT As previously mentioned, the present management of Scott does not feel that an incentive program could significantly improve business in the area of the sales of Standard Catalogues and related items. Thus, the incentive program hereinafter set forth will apply solely to sales of albums, album supplements and accessories. The sales figures for those items are set forth in column (d) of Chart I and are the basis for categorization in Chart II. The problem which has arisen to cause Scott to seek to initiate the incentive program is stagnant sales in albums and related items. Scott sells a complete line of “high line” albums. These stamp albums use top grade paper stock and are of high quality materials and workmanship. Only one other album manufacturer produces a high line album but little direct competition exists between Scott and this manufacturer because the other manufacturer sells directly to large retail outlets (i.e. department store chains). The other competitors of Scott sell “low line” albums. Scott’s high-line prices are higher than its competitor’s low-line prices. Scott also produces an incomplete line of “low line” albums. Scott’s prices on these low-line albums are somewhat above the price level of its competitors’ low-line albums.

For explanatory purposes.a “complete line’ of albums means that the albums offered generally cover all countries and allow for the collection of all or nearly all of the stamps of said countries. An ‘Incomplete line” means that not all countries and/or not all stamp issues of said countries are covered by the albums offered for sale. A “low line” album is produced from less expensive paper stock, has a less substantial binding, and is, perhaps, less complete and colorful. Also, the stamp holders in such album may not provide the degree of protection and fullness of view that one would find in a high-line album.

THE PROGRAM Scott intends to offer an “incentive refund program” to all of its distributors upon the sale of those items represented by the sales figures in column (d) of Chart I. The product items included in those figures and, the items in the incetive program will be the same for every distributor. In other words, there will be no instance where sales of Standard Catalogues are included within one distributor’s sales figures under the incentive program while not being included in another distributor’s sales figures. The incentive refund program offers an increasing scale of cash refunds for increasing levels of percentage increase in sales over and above a given base period. Each year will be divided into quarters of three calendar months. Comparison will be made between the current quarter’s sales and those of the corresponding quarter of the immediately preceding year. The percentage increase in sales, if any, will then be computed for the current quarter and, if the sales have increased from the previous year’s quarter sales by a given percentage, a set cash refund will be paid to the distributor. The following percentage refunds are proposed to be offered in the incentive program:

CHART III Percentage Increase Percentage Refund In Sales Volume For Quarter 20% 2% 30% 3% 40% 4% 50% or More 5% Example A If Company X, a distributor handling Scott products, had sales in the first quarter of 1972 of $10,000 and attained the sales level of $12,000 during the first quarter of 1978, it would be entitled to an incentive refund of 2% of its $12,000 in 1978 first quarter sales—a sum of $240. ADVISORY OPINIONS WITH REQUESTS THEREFOR 1871 Computations:

First Quarter 1973 Sales $12,000 First Quarter 1972 Sales $10,000 Increase $ 2,000 P . _ $ 2,000 tas :

percentage Increase= $10,000 or 20% entitling Company X to a 2% incentive cash refund.

Example B If Company X had sales in the first quarter of 1972 of $10,000 and attained the sales level of $11,900 during the first quarter of 1973, it would not be entitled to any incentive refund because of the failure to attain the 20% increase bracket.

_ Computations:

First Quarter 1973 Sales $11,900 First Quarter 1972 Sales $10,000 Increase $ 1,900 Percentage Increase= Ske 19%, not entitling Company X to an incentive refund.

The program presently does not anticipate that a failure to reach the base quarter’s sale figure in one quarter will have any effect on the next quarter’s incentive refund. However, if it becomes a common practice of distributors to hold back purchases in one quarter and dump those sales into another quarter to receive the incentive refund, the corrective measures outlined below may be instituted.

Example C If Company X had sales of $10,000 in the first quarter of 1972 and sales of $7,000 in the first quarter of 1973; sales of $10,000 in the second quarter of 1972 and sales of $18,000 in the second quarter of 1973, Scott will require (provided it feels distributors are attempting to lump sales into quarters where they do not belong) the distributor to make up the difference between the base quarter sales and first quarter sales of 1973 before sales count toward an incentive refund. In this example, Company X would show no increase in sales for the second quarter of 1978. Computations:

First Quarter 1972 Sales $10,000 First Quarter 1973 Sales $ 7,000 Decrease $ 3,000 Second Quarter 1978 Sales $13,000 Second Quarter 1972 sales $10,000 Increase $ 38,000 Offset:

Second Quarter Increase $ 3,000 First Quarter Decrease $ 3,000 Adjusted Second Quarter Increase 0 If such corrective measures are deemed necessary by Scott, they will be applied to all distributors and become an irrevocable and non-waivable part of the incentive program. No distributor will be allowed to obtain a refund if it does not make up its decrease for the preceding quarter. Scott does not intend to cause decreases for quarters, other than the immediately previous quarter, to effect current quarter incentive availability. Example D If Company X has the following sales history during the first three quarters of 1972:

First Quarter 1972 Sales — $10,000 Second Quarter 1972 Sales $10,000 Third Quarter 1972 Sales $10,000 and attains the following sales levels during the first three quarters of 1978: First Quarter 1973 Sales $ 6,000 Second Quarter 1973 Sales $13,000 Third Quarter 1973 Sales $13,000 and the corrective enactment of this phase of the program has been instituted, the following incentive refunds will have been paid to Company X at the close of each Quarter:

1. First Quarter 19738 First Quarter 1972 Sales $10,000 First Quarter 1973 Sales $ 6,000 Decrease $ 4,000 (No incentive paid) 2. Second Quarter 1973 Second Quarter 1973 Sales $18,000 Second Quarter 1972 Sales $10,000 Increase $ 3,000 Offset:

First Quarter Decrease $ 4,000 Second Quarter Increase $ 3,000 Adjusted Decrease Second Quarter § 1,000 (No incentive paid) ADVISORY OPINIONS WITH REQUESTS THEREFOR 1873 3. Third Quarter 1973 Third Quarter 1978 Sales $138,000 Third Quarter 1972 Sales $10,000 Increase $ 38,000 $ 3,000 Percentage Increase = or 30% entitling Company X to a 8% in- $10,000 centive refund for the third quarter ($390). As noted in the example above, Company X was not entitled to an incentive for the second quarter of 1978 because of the decrease which occurred in the first quarter. However, the fact that the second quarter sales did not fully cover the first quarter decrease had no effect on the third quarter computations.

All dates of recording of orders as to the quarter in which the sales will be recorded will be uniform as to all distributors and the policies in relation to the program will be published and made available to all distributors. CONCLUSION Scott feels that the program outlined herein offers an incentive to increase sales which is factually as well as theoretically available to all distributors on an equal basis. It is not the intent of Scott to discriminate in any way against any distributor or class of distributors. Scott requests a favorable ruling in the advisory opinion from the Commission. ADVISORY OPINIONS AND REQUESTS THEREFOR 1875 Marketing and labeling practices in connection with forming a business enterprise for the purpose of manufacturing and selling a product called “copy cloth.” (File No. 733 7004). Opinion Letter February 9, 1973 Dear Mr. MacDonald:

This is in response to your letter of August 31, 1972, requesting an advisory opinion on behalf of your clients, W. James and Barbara Neill, as to whether Copy Cloth, a loosely woven cotton material impregnated with wax, falls within the purview of the Flammable Fabrics Act, the Fair Packaging and Labeling Act, or the Textile Fiber Products Identification Act, or whether any of your clients’ marketing or labeling plans violated the Federal Trade Commission Act.

It is the Commission’s understanding that the material is to be used for making master patterns for clothing, upholstery, etc. When heated to a temperature of 130 to 150 degrees Fahrenheit, Copy Cloth becomes pliable and may be molded to the body or to any other contoured surface. After it has cooled it can be removed, flattened by making appropriate slits in the material, and used as a model for a paper pattern. This, you have advised, saves much time and many errors in measuring the surface directly. The marketing aspects of your clients’ proposed plan are not explained in sufficient detail to provide the basis for issuance of an advisory opinion. Therefore, your request will be denied pursuant to Section 1.1(c) of the Commission’s Rules of Practice. By direction of the Commission.

Second Supplemental Letter Relative to Request November 7, 1972 Inre: Copy Cloth Advisory Opinion Request Dear Ms. Cavanagh:

Attached for your file is a copy of the Report of Test Number LA-60913 dated November 3rd, 1972 conducted by United States Testing Company, Inc. ;

Said test report concludes that COPY CLOTH, “......... meets the requirements of the Flammable Fabrics Act, and is considered suitable for wearing apparel use.” As you know, the aforesaid testing was accomplished for our own information only and we still contend that COPY CLOTH and its use is not within the scope of said Act nor subject to regulation thereunder.

To more fully explain our position, the term “article of wearing apparel” means any costume or article of clothing worn or intended to be worn by individuals (see Section 1191(d) of the 1967 amendment to the Act). In part, this amendment eliminated the prior exceptions of hats, gloves and footwear from the definition of ‘wearing apparel.”

The legislative history reveals that the need for the legislation, as to wearing apparel, arose from the wearing of highly flammable cowboy playsuits and the so called torch or explosive sweaters. The catalog of tragedies and near tragedies in the congressional hearings by Dr. Fredric Bonnet, the National Fire Protective Association and others included tulle dress, plastic raincape, costume at lodge entertainment, grass dress, three (3) childrens costumes, bathrobe, pajamas, pants and various other articles of ordinary clothing and clothing accessories. Inasmuch as said Act expressly limits the meaning of the term “article of wearing apparel” to any costume or article of clothing, the said legislative history reveals the congressional intent in enacting the Flammable Fabrics Act and aids in interpretation of the above limitation. In part we submit that said Act express terms as well as the legislative history circumscribes the meaning of “article of wearing apparel” so as to exclude COPY CLOTH or its uses from operation of said Act or regulations. COPY CLOTH is never intended to be worn as a costume or clothing. It is a pattern material applied to only part of a person’s body at a time by another, e.g. one half bodice, one sleeve, at a time, etc. Within minutes of application, COPY CLOTH becomes a semi-rigid mold, is marked and removed from that part of the body, reduced from three dimensional to planar form for subsequent pattern making sequential steps.

The Presidential message giving rise to said amendment to the Act in 1967 called for legislation to keep “extremely flammable clothing out of the nation’s stores’ ....... “current law does ADVISORY OPINIONS AND REQUESTS THEREFOR 1877 not cover many articles of clothing which can be consumed by fire instataneously,” (sée Wilfred H. Rommel letter to Hon. Harley O. Staggers of April 4th, 1967).

The Attorney General’s letter to Hon. Staggers of April 5th, 1967 states in part, “The bill implements the recommendations contained in the President’s message.”

The 1967 legislative history reveals that the intended victims to be protected by the Act, “are very largely concentrated among the very young and the aged. The former often have not learned the significance of what is happening to them; the latter often suffer from disabilities and cannot protect themselves rapidly enough.”

We submit that COPY CLOTH or its uses are not within any reasonable definition of the language used in the said Act which is even more clearly made evident when considering the provisions of the Act in the context of the legislative history and Presidential statements at the time of enactment. We trust that the above brief outline satisfactorily describes at least the nature of our thinking as to these matters. It was our aim to give a reasonable interpretation to the documents reviewed. In a spirit of cooperation and with respect to this particular situation, subject to reservation of our position stated hereinabove, we are pleased to make the aforementioned test report available to you.

It is our understanding that within the next few days you will recommend to the Commision that a favorable advisory opinion issue with respect to COPY CLOTH, its uses and our proposed course of action.

We appreciate the attention you have given to this matter and request to be advised at the earliest possible date of the advisory opinion and its content.

Very truly yours, /8/ John N. MacDonald First Supplemental Letter Relative to Request October 6, 1972 Dear Ms, Cavanagh:

This letter is in response to your September 14th letter of inquiry.

This office has discussed the questions contained in your letter at length with our clients. It is our desire to answer each of your questions fully, limited only to the extent of not revealing proprietary information or trade secrets.

We trust that the answers attached hereto as an enclosure are satisfactory to fulfill your needs. The answers are organized in the same number sequence you ascribed to the corresponding question in your letter of September 14th. We greatly appreciate the attention you have given to this matter.

Very truly yours, /s/ John M. MacDonald REPORT OF TEST CLIENT: Copy Cloth Corp. NUMBER 815 Centinella Ave. LA-609138 Santa Monica, Ca. 90403 11-8-72 SUBJECT: One (1) sample gauze, submitted and identified by Client as impregnated with wax.

Reference: Telecon with W. James Neill, 10-80-72. Object: To determine whether or not the submitted sample meets the requirements of the Flammable Fabrics Act, in original state only.

Apparatus and Procedure: The apparatus and methods of testing were those described in Commercial Standard for Flammability of Clothing Textiles CS—191-58, to which the Flammable Fabrics Act refers. Due to the wax coating on the samples, the oven drying (221° F) procedure was omitted and samples were allowed to dry out overnight in a des-— sicating cabinet at approximately 5% relative humidity, room temperature.

Page 1 of 2 ADVISORY OPINIONS AND REQUESTS THEREFOR 1879 Page 2 of 2 ) Number LA-60913 11-3-72 REPORT OF TEST [continued] Test Results:

Flammability, Rate of Burning, Seconds ORIGINAL CONDITION DNI* DNI DNI DNI DNI Average DNI *DNI—Did Not Ignite—Specimen not ignited to Standard 1-second flame impingement.

SIGNED FOR THE COMPANY BY /s/8.N. Burmer /s/ K. Heywood Classification (original state only) Class I—Normal Flammability The sample reported herein meets the requirements of the Flammable Fabrics Act, and is considered suitable for wearing appare] use.

Comments:

Due to the modification in drying procedures, the following additional studies were made. The flame source was held down until ‘ignition after the one-second impingement. All samples were found to ignite between 1.3 and 1.6 seconds. ANSWERS TO FTC QUESTIONS—COPY CLOTH 1. Have actual tests for flammability, durability, etc., been made of COPY CLOTH? Please explain procedure and results of any such tests. As to flammability: The actual tests for flammability were simple experimentation burning samples of COPY CLOTH and the loosely woven all cotton fabric used in COPY CLOTH simultaneously. Such tests were conducted in an open indoor area at average ambient temperature and humidity conditions found in the home and industrial work areas where pattern making is usually carried on. Extensive testing as described in the Flammable Fabrics Act and Regulations was not attempted because we submit that COPY CLOTH is not within the scope of said Act or Regulations, ie, it is not either wearing apparel nor interior furnishing, fabric nor related material as defined therein.

Observations from such testing were that the wax acted as an inhibitor, i.e. markedly decreasing the rate of burning of COPY CLOTH as against the all cotton fabric. The burning intensity of COPY CLOTH and the all cotton fabric appeared the same.

Therefore, we believe that COPY CLOTH does not present any unreasonable hazard when used in the home environment or industrial areas as against other fabrics, materials and products generally available in ‘the open market place.

The risk of flammability of COPY CLOTH in use 'is minimal. We do propose to advise the ultimate user in the instructions for use of the product, to use the recommended methods of heating COPY CLOTH described in paragraph 2.3 on the bottom of page 4 and continuing on page 5 of the memorandum from us to you dated August 81st, 1972, ie. heating by use of hot tap water, the lowest setting on a conventional household iron, ete. In testing using the recommended methods of heating COPY CLOTH, but substantially exceeding 180 degrees Fahrenheit, the recommended heating temperature, it was observed that the wax was either absorbed into the cotton fabric which forms part of COPY CLOTH or drained off harmlessly.

As to durability: In repeated use we have found COPY CLOTH is very durable and may be reused. COPY CLOTH may be folded many times and restored to its original smooth finish when warmed according to instructions, i.e. by said recommended heating methods. If a mistake is made in use, e.g. a wrong line drawn, etc, one may start over again simply by reheating the COPY CLOTH as recommended. 2, What are the chemical composition and properties of “petroleum wax?” How does it differ from paraffin? Please provide the name of the manufacturer.

We do not intend to use the term “petroleum wax” with respect to or describing COPY CLOTH in any instructions literature or advertising. The criteria for wax selection requires FDA approved wax used generally for household. purposes and the characteristics specified in our memo of August 81st, ie. a softening temperature of approximately 130 degrees Fahrenheit, is relatively hard and non-elastomeric at approximately 100- 110 degrees Fahrenheit, etc. In a generic sense, paraffin is the class within which the wax in COPY CLOTH would fall, eg. it is not easily acted upon by reagents, obtained chiefly from crude petroleum and used for making various household products such as candles, forming preservative coatings, waterproofing paper, etc.

We purchase the wax used in manufacture of COPY CLOTH in accordance with the above criteria from the market place and do not alter its chemical composition or properties. The precise wax in COPY CLOTH was discovered only after extensive experimentation and expenditure of funds by us and is considered a trade secret. We believe you will understand that such secret information used in the conduct of our client’s business which is of some competitive advantage to him, and which is not disclosed to the public or anyone, must not be disclosed in order to protect and preserve the equitable theory of protection. ; 8. Please explain the assertion that “its burning rate approximates that of a common household candle”. - ADVISORY OPINIONS AND REQUESTS THEREFOR 1881 COPY CLOTH is not combustible, it burns slowly. As stated in response to 1 above, the wax acts as an inhibitor to burning COPY CLOTH. The analogy to candle burning seems germane and within the common experience of everyone. No testing with candles was conducted. 4, Is the product aimed principally at the home seamstress, the professional seamstress, or industry? It is aimed equally at all of them. The product is for the home seamstress, professional dressmaker, design schools, and a myriad of industrial pattern applications. It is particularly useful for asymmetrical figure fitting problems and patterns for other complex three dimensional articles without measurement or dimensioning.

By way of example and not by way of limitation, COPY CLOTH enables one to drape a design in third dimension directly on the body as well as make an accurate semi-mold simultaneously to be used as a basic block for flat pattern drafting. One may thereafter adapt commercial dress patterns to the peculiarities of her own body configuration with the use of her COPY CLOTH master pattern block. COPY CLOTH may also be cut larger than, but from commercial pattern pieces of a pattern to be made, correcting any fitting problems when molded to the body, pinned marked along original lines in third dimension.

5. What price do your clients intend to charge for COPY CLOTH? Will a price be suggested for resale? If so, what? Our clients intend to charge from $1.00 to $1.50 per yard (36 inch width) as a function of quantity purchased per order. The suggested retail price is $2.98 per yard.

6. What yardage of COPY CLOTH would be necessary to fit a complete garment (e.g. the longsleeved dress in the brochure) ? We recommend two (2) yards.

7. Who will receive the elegantly printed brochure? Will it or something comparably elaborate be available to the ultimate consumer? Will it cost extra? For the home seamstress or dress/garment designer, amateur or professional, a free data sheet entitled, “COPY CLOTH * * * Now it’s a whole new world of sewing-your very first step is COPY CLOTH!” is available and shall be at all places where COPY CLOTH is sold. A proof sheet of said data sheet is attached [p. — mfra]—it shall be amended to include heating methods stated in our August 31st memo to you and flammability statement in bold face or contrasting type face. Similar data sheets for industrial users have not yet been composed, but we intend to provide them as the market uses develop.

The brochure, “Introduction to COPY CLOTH” is the first manual for using our totally new method of pattern drafting. We intend a sales price of $2.98 for it and it shall be available wherever COPY CLOTH is sold to the ultimate consumer.

8. How will your clients assure that part of the paper tape will be given to and will be read by the ultimate consumer? Will it be affixed to COPY CLOTH or simply rolled with it? It would, furthermore, be helpful if we could see a projected sample of the paper tape (your description, Section 4 in the memo, asserts the inclusion of a vast amount of information). The tape will be affixed to the core of the bolt roll and be rolled along the median line the length of the Copy Cloth roll. During the intervening period since August 31st we have determined that rotary press printers can produce plastic tapes of 18 inch widths and greater to be rolled in the above described manner with COPY CLOTH on the bolt. Information in form of text and illustrations similar to the concise information on the data sheet under 7 above shall be printed each quarter yard which is the anticipated minimum quantity sold. A survey of retailers in the Los Angeles area indicates that separate sheets are rarely given to the ultimate consumer by sales persons, but that a tape of information rolled in the bolt and cut with the material will not be overlooked by sales people and will be included with the product purchased. The retailer shall also be instructed to give the information tape insert cut from the bolt to the ultimate consumer. We know of no practical manner that any manufacturer can assure that the ultimate consumer will read or understand instructions and other data given him at the time of purchase.

A copy of the tape is not available at this time. 9. Is the “muslin fitter” (brochure p. 18) necessary to the proper construction of a garment using COPY CLOTH? If so, please explain why the COPY CLOTH process is superior to the mere fitting of a muslin “preview” garment.

A muslin fitter should always be made of any COPY CLOTH or conventionally drafted pattern because any changes desired is accomplished on inexpensive muslin rather than upon expensive garment fabric. A pattern drafted by conventional means requires a series of over ninty measurements to make a basic block, e.g. front and back bodice, front and back skirt, sleeves: See reference book “Pattern Drafting and Graphing Womens and Misses Garment Design,” M. Rohr, Rohr Publishing Co., P.O. Box 88, Waterford, Conn. 06385. Mr. Rohrs book is used as a standard text in California public adult vocational classes. Weeks of personal instruction in class is required to acquire the rudiments of measurements alone. COPY CLOTH methods avoid such dimensioning or measurements. Th- COPY CLOTH pattern method is the only way today to make an individually fitted garment without measurement or grading for any garment. Muslin, if used alone, is a two dimensional fabric which can take weeks of fitting to assure proper fit or to test the success of any given design. COPY CLOTH makes an actual third dimensional, semi-rigid mold, of any part of the body or other complex article, e.g., See pp. 6-fig 9, 10-fig 18, 13-all figures, in brochure previously provided to your office. 10. Please explain reference (brochure p. 1) to “COPY CLOTH classes.” What are their terms, format, description? Are they useful or necessary to seamstress purchasers of COPY CLOTH? If so, do your clients warrant its “speed and simplicity” as used by less-than-expert home seamstress, without attendance at the classes? In conducting initial market research we have found: A. COPY CLOTH classes are requested by accredited home economics teachers in Junior and Senior high schools, adult extension, university level, expert free-lance sewing and pattern teachers, trade school, professional dress makers as well as home seamstresses, and B. Home use by relatively unskilled persons who have not attended any ADVISORY OPINIONS AND REQUESTS THEREFOR 1883 COPY CLOTH class has been successful by the user simply following the concise data and instructions on the data sheet and brochure, “Introduction to COPY CLOTH”. ;

In pilot studies of COPY CLOTH use, men who don’t sew, have made a perfect fitting bodice with COPY CLOTH on their first try. We understand that the format for classes for the home seamstress and home economics classes shall follow the text of the brochure, “Introduction to COPY CLOTH”. Class fees vary, but are nominal. We do not warrant “speed and simplicity” which seems to be self evident, e.g. see answer to question 9 above.

11. What are “established commercial representatives’ (memo p. 6)? Salesmen hired by COPY CLOTH? Drummers selling other companies’ fabrics? Wholesale fabric distributors? Our stated methods of distribution of COPY CLOTH are merely a statement of future plans. We have been and are conducting initial discussions with wholesale distributors and chain stores with as little as a dozen stores in a single metropolitan area to one as large as having sewing centers in virtually every American city. Some of said discussions have entered a more formal negotiating stage, but we cannot as yet reveal the identity or other details as to any such matters.

We shall only resort to the use of salesmen hired by COPY CLOTH if other methods of distribution are not realized or successful. 12. If COPY CLOTH is “even easier to handle” (brochure p. 24) on the bias, why not manufacture it that way? COPY CLOTH is not manufactured on the bias because it would be too expensive, greatly increasing the price to the ultimate consumer. For this reason, almost no fabric materials are woven on the bias. The ultimate consumer may, if desired, cut and mold COPY CLOTH on the bias or straight of the goods, for the desired effect. 13. Are the Neills currently engaged in a related business, company, or corporation? Or is this an entirely new entrepreneurial venture? This is a new entrepreneurial venture. The Copy Cloth Corporation was incorporated in accordance with the laws of California on September 20, 1972.

COPY CLOTH ...

1. Mark the body with removable eyeliner or eyebrow pencil (a step that may be omitted later as your skill progresses). 2. Warm Copy Cloth between layers of aluminum foil with iron on lowest setting—or—on foil or foil pan. (NEVER overheat or heat with open flame.) 3. Mold to any part of the body—bodice, sleeve, skirt or even pants.

4. Trace the markings from the body and mark dart and style lines.

5. Trim Copy Cloth on body marking lines and split on dart lines. (Darts may also be folded out and fold clipped away.) 6. Flatten carefully—then trace the pattern onto paper, correct and add seam allowance.

Use your Copy Cloth Master Pattern for fitting or drafting any style you choose, use it for perfecting commercial patterns, or create your own styles directly on the body with Copy Cloth—then smile and sew! Get complete instructions, special uses and beginning pattern drafting guide in “Introduction to Copy Cloth” available now at $2.95 wherever Copy Cloth is sold.

Patent Pending Letter of Request August 31, 1972 Subject: Request for Advisory Opinion and Approval Enclosures: (a) Technical, Marketing and Labeling Data. (b) Copy Cloth Material Samples.* (c) Brochure, Introduction to Copy Cloth.’ Gentlemen:

Clients of this firm, W. James and Barbara Neill, are presently engaged in the preliminary steps to form a business enterprise for the purpose of manufacturing and sales of a product “Copy Cloth.”

The purpose of this letter is to respectfully request of the Secretary of the Commission an advisory opinion as to a proposed course of action, details of which are set forth in enclosures forwarded under cover of this letter.

Preliminary market research has been done on a limited basis, however, the proposed course of action described herein has not and is not currently being followed by the requesting. party and has not or is not the subject of a present or pending investigation or other proceeding, order, or decree initiated or obtained by the Commission or any other governmental agency. We believe that the enclosed data and materials present sufficient information such that an informed decision thereon may be made by the Commission staff members without extensive investigation, clinical study, testing, or collateral inquiry. If additional 1 Available upon request to Division of Legal and Public Records, Federal Trade Commission, Sixth St., and Pennsylvania Ave., Washington, D.C. 20580. ADVISORY OPINIONS AND REQUESTS THEREFOR 1885 information is required, we shall be pleased to provide it upon receipt of your request.

Thank you for your attention to this matter. Very truly yours, John N. MacDonald Enclosure (a) to Letter dated August 31, 1972 TECHNICAL, MARKETING AND LABELING DATA A PROPOSED COURSE OF ACTION TABLE OF CONTENTS SECTION DESCRIPTION PAGE 1 INTRODUCTION 11 SCOPE... . we eee ee ee ee 0022 2 DESCRIPTION OF PRODUCT—COPY CLOTH 21 PURPOSE... ... 2... eee ee 4 0022 2.2 USES . 2... we ee ee ee ee 0022 2.3 TECHNICAL CONSIDERATIONS .... . 0028 38 MARKETING 3.1 METHOD OF PACKAGING AND DISTRIBUTION 0024 4 PRODUCT MARKING AND LABELING 4.1 ° COPY CLOTH MATERIAL ....... . 024 im) INSTRUCTIONS AS TO USES AND HEATING 5.1 PRINTED MATTER TO BE GIVEN EACH PURCHASER ........ . . 0024 5.1.1 Size of Material . . . ..... s+ + « 0025 5.12 Heating. 2. 2... ee eee ee ee ee 0025 5.1.8 Manual Forming ........ . . « + 0025 5.1.4 Cooling—Retains Contours . ...... . . 0025 5.1.5 Other Instructions—Pattern Making . . . . . 0025 5.1.6 Flammability. . . . ..... 2... . +. 0025 5.1.7 Sales and Marketing Data . . . .... . . 0025 6 FEDERAL STATUTORY AND REGULATORY LAWS 6.1 INTENT OF REQUESTING PARTY .. . . 0025 TECHNICAL, MARKETING AND LABELING DATA A PROPOSED COURSE OF ACTION 1. INTRODUCTION 1.1 SCOPE This enclosure provides detail information concerning the characteristics, uses, aspects of marketing as it relates to informing the purchaser and ultimate user of such characteristics and uses, and labeling of a material product called, “COPY CLOTH”. This information includes a detailed description of the product, proposed content of product marking and labeling, as well as printed matter to be given each purchaser at the time of original purchase at the retailer.

2, DESCRIPTION OF PRODUCT——COPY CLOTH 2.1 PURPOSE COPY CLOTH relates to a new and improved method of and material for making patterns for garments, garment components and other three dimensional contoured articles of manufacture. A method of making patterns for garments and other contoured articles in which the pattern maker or garment designer uses as a starting material a petroleum wax impregnated loose weave material, COPY CLOTH.

A piece of such material, of a size approximating the article or garment component to be fabricated, is first heated to a temperature at which it becomes limp, pliable and readily distortable; it is then draped over and manually shaped to conform to the body contours of the person or other object which is to be fitted. Thereafter, and when the petroleum wax has cooled sufficiently to be substantially non-elastomeric, the contoured material piece is removed from the person or other object, is cut or slitted at all locations where necessary to enable flattening on a planar surface to form a master pattern without dimensional distortion from which paper patterns, garment components or manufacturing drawings may be fabricated and/or dimensioned.

2.2 USES One of the primary objects of COPY CLOTH is to provide an improved method and material suitable for home use by relatively unskilled persons for the making of master patterns from which perfect fitting garments or other complex three dimensional articles may be fabricated without tedious dimensioning or complexity.

Another object of COPY CLOTH is to provide an improved method and material for making master patterns accurately representative of the configuration of all or any part of a particular person or object and from which paper patterns may be made or garment components may be cut without redimensioning and with confidence that the ultimate garment will be perfectly fitted to the particular person without multiple fittings or alterations.

COPY CLOTH may also be used by professional and industrial users to make master patterns.

ADVISORY OPINIONS AND REQUESTS THEREFOR 1887 Your attention is directed to the brochure entitled “Introduction to COPY CLOTH” forwarded herewith as enclosure (c) to the cover letter. It is proposed that such brochure and other literature describing advanced techniques in the use of COPY CLOTH shall be prepared from time to time and supplied to the retailers selling COPY CLOTH material to the public. The price of the material shall not include such supplementary literature. Instructions shall be provided free of charge to each purchaser of COPY CLOTH as set forth more fully in section 5 hereof. 2.3 TECHNICAL CONSIDERATIONS COPY CLOTH is a material consisting of at least two layers of an all cotton fabric, about 10 by 12 weave, with the interstices and interlayer spaces impregnated with a petroleum wax having a softening temperature in the range from 180 to 150 degrees Fahrenheit. The wax manufacturer represents that the flash point of the wax used in COPY CLOTH is 415 degrees Fahrenheit.

COPY CLOTH is sold to the purchaser as a pre-impregnated double layer material.

The COPY CLOTH material is relatively hard and non-elastomeric at temperatures of 100-110 degrees Fahrenheit. Extensive experimentation with combinations of other fabrics and impregnating materials did not provide a product characteristic to permit substantial dimentional distortion and manually conformable to contoured articles.

One prior art approach has been to manufacture a sweater-like garment from fabric of metallic thread, e.g. soft copper wire, having sufficient ductility so that the fabric can be shaped to the contour of the body and thereafter have sufficient rigidity to maintain a record of the contours reasonably adequate to create patterns. This approach has the disadvantage of being very expensive to the purchaser and is either insufficiently ductile to be manually conformable to contoured articles or, if made highly ductile, is insufficiently rigid to maintain a reliable representation of such contours during the subsequent conversion of the shaped garment to planar pattern form.

Another general approach, previous attempted by others, has been to place a sweater-like garment on the body of an individual and thereafter spray or coat the garment with hot wax or some thermoplastic or thermosetting resin. This approach has distinct disadvantages which COPY CLOTH does not have, to wit, it is aesthetically objectionable to the person being fitted, it is not suitable for home use, and it may give rise to allergenic reactions. In home use, a convenient and preferred method of heating the COPY CLOTH pre-impregnated material until limp and pliable is to place a piece of the material of the desired size in hot tap water impounded in a tray or sink of suitable size and regularly replenished to maintain maximum heat for usual household use, ie. from 180-140 degrees Fahrenheit. Alternatively, COPY CLOTH may be heated between two thin sheets of aluminum foil and then apply heat energy by ironing the material-and-foil sandwich with a conventional household electric iron. COPY CLOTH may also be heated (either with or without foil) by the use of infra-red lamps or other thermal radiation devices. COPY CLOTH should not be used near fire or flame. It is flammable, but not highly combustible. Its burning rate approximates that of a common household candle. Two samples of the COPY CLOTH material are enclosed herewith for your evaluation. One piece approximates 8” by 11” and the other 8” by 9”.

A patent application for COPY CLOTH methods and material has been filed with the United States Patent Office. A patent is presently pending. 3. MARKETING 3.1 METHOD OF PACKAGING AND DISTRIBUTION COPY CLOTH is a loose weave material impregnated with wax. The pre-impregnation of the double layer fabric shall not be performed in the home, but rather such pre-impregnated material shall be produced in quantity and marketed to the amateur, professional and industrial users in roll form or in the same manner as other yard goods. It is presently intended that COPY CLOTH shall be distributed to existing yard goods and sewing center retailers through established. commercial representatives in a manner other yard goods are distributed in yardage bolts approximating 36 inches in width and 25 yards per bolt. Said representatives shall be middle-men. Some shall inventory the COPY CLOTH material and supply retailers in their territory from their existing inventories. Others may merely solicit orders for acceptance by the manufacture from existing retailers of yard goods in specified territories throughout the United States. These comments relate to future plans, no representatives shall be authorized to distribute COPY CLOTH pending your advisory opinion resulting from this request.

4, PRODUCT MARKING AND LABELING 4.1 COPY CLOTH MATERIAL It is intended that COPY CLOTH shall be sold in a manner similar to yard goods, i.e. from a bolt by the piece. It is proposed that a paper tape approximately 4 inches in width be sandwiched the full length of the COPY CLOTH material when it is rolled on the bolt. Said tape shall be imprinted with instructions for use and heating methods and in bold or contrasting type face state, “CAUTION: FLAMMABLE. DO NOT USE NEAR FIRE OR FLAME.” No other marking or labeling of the product is presently intended or proposed.

5. INSTRUCTIONS AS TO USES AND HEATING METHODS 5.1 PRINTED MATTER TO BE GIVEN EACH PURCHASER The distributing representatives and each retailer shall be instructed that at the time of the orginal purchase by the user/public, when the COPY CLOTH material is cut from the bolt that the paper tape, discussed in section 4 hereof, shall also be cut and given to the purchaser. The content of the text on the paper tape shall be repeated on the tape so that purchasers of even small quantities of COPY CLOTH shall be assured ADVISORY OPINIONS AND REQUESTS THEREFOR 1889 of obtaining the full text. Such text shall include detailed instructions concerning the following topics:

5.1.1 SIZE OF MATERIAL Use COPY CLOTH in sheet sizes generally corresponding to the elements of the garment intended to be designed or articles whose contour is to be copied.

5.1.2 HEATING Heating at least one piece of said material to a substantially uniform temperature as recommended in section 2.3 hereof. 5.1.3 MANUAL FORMING Manually form the piece of COPY CLOTH, while at temperature, contiguously on and conforming to the skin surfaces of the model, i.e: apply while COPY CLOTH retains its limp and pliable condition. 5.1.4 COOLING—RETAINS CONTOURS As COPY CLOTH cools, it retains a configuration corresponding to the surfaces of the model.

5.1.5 OTHER INSTRUCTORS RELATING TO PATTERN MAKING Marking, removal from model, cutting and flattening. 5.1.6 FLAMMABILITY State in bold or contrasting type face, CAUTION: FLAMMABLE. DO NOT USE NEAR FIRE OR FLAME. Note: Please refer to comments in sections 2 and 4 of this enclosure concerning flammability. 5.1.7 SALES AND MARKETING DATA Sales and marketing data may also be stated on said sheet. 6. FEDERAL STATUTORY AND REGULATORY LAWS 6.1 INTENT OF MANUFACTURER/ REQUESTING PARTY It is the intent of the requesting party to manufacture and market COPY CLOTH fulfilling all Federal statutory and regulatory law requirements. We trust that our proposed plan fulfills that intent. We request an advisory opinion highlighting any aspect of our plan which may not fulfill such requirements. We submit that our proposal is not within the scope of the following Acts:

Fair Packaging and Labeling Act, Textile Fiber Products Identification Act, nor Fammable Fabrics Act. - Never-the-less, we believe that our proposed plans fulfills the spirit of the Flammable Fabrics Act.

1890 FEDERAL TRADE COMMISSIO:- DECISIONS Proposed merger of a major producer of rosin and a producer of hydrocarbon resins. (File No. 733 7002). Opinion Letter February 12, 1973 Dear Mr. Sachs:

This is in response to your request for an advisory opinion re­ garding the proposed acquisition of Picco by Hercules. Although the informatioil " submitted to the Commission is not wholly adequate for the Commission to render an advisory opin­ ion, the Commission wishes to inform you that it is of the present view that an investigation would not be warranted if the acquisi­ tion were consummated.

You are cautioned, however, that the Commission may initiate an investigation in the future if it has reason to believe that sub­ stantial adverse competitive effects attributable to the acquisition have resulted, or that they probably will result. By direction of the Commission.

Fourth Supplemental Letter Relative to Request October 31, 1972 Attention .Joseph P. Dufresne, Esquire Attorney, Offce of General Counsel Re: Request for advisory opinion-Acquisition by Hercules Incorporated of Pennsylvania Industrial Chemical Cor­ poration (Picco) (;entlemen:

Here is the information which Joseph P. Dufresne, Esquire, in a letter dated September 26 , 1972 , requested Herbert B. Sachs, Esquire, to have Hercules submit.

Previously, we completed the "Acquiring Company Special Re­ port" (Form OMB No. 56-R0026 which we furnished to Mr. Sachs, who has delivered it to the Federal Trade Commission. We believe the information is clear, but if it isn t we shall be glad to explain it or answer any question that you may have. *The material not classified as confidential is available foi" inspection and copying at the Division of Legal and Public Records, 6th and Pennsylvania Avenue, Washington, D. , , ADVISORY OPINIONS AND REQUESTS THEREFOR 1891 As discussed at a conference with Staff Members Charles Koch Esquire, and Norman Smith, Economist, and Herbert B. Sachs Esquire, Ralph Thompson, Vice President of Picco, and George Gregory and Gerard P. Kavanaugh, Esquire, of Hercules, on October 10, 1972, we have prepared a statement as an introduc­ tion to the answers which appear below.

INTRODUCTION In consideration of the supplementary questions posed by the Federal Trade Commission relative to the acquisition of PICCO by Hercules, a com­ mon understanding of the definitions of several terms is essential to a proper interpretation of the answers to the questions. In particular, the terms resins polymer hydrocarbon, and "rosin" must be defined. Historically, a "resin " has been defined as an amorphous organic solid or semisolid of relatively low molecular weight, usually of natural origin, usually somewhat lusterous and often transparent or translucent. These natural resins can be of plant origin or animal origin. Examples of the former are "rosin " (from the pine tree), copal (from various tropical trees), dammar (from trees in Malaya), etc. A common example of a resin of animal origin is shellac, a substance secreted by the lac insect. In recent years, man-made or "synthetic" resins have been produced from a variety of raw materials. Resins are relatively low in molecular weight, usually in the 400-3000 range, melt to syrupy liquids, are brittle and low in strength, and are soluble in a variety of solvents. Polymers " are relatively high molecular weight substances (50,000 to several milion in molecular weight) which contain repeating units, like th(, links in a chain. Each link is one molecule of the "monomer, or starting material from which the polymer is produced by chemical reaction. Hence polymers like polyethylene are made from ethylene as the monomer, poly­ styrene from styrene, etc. Since resins may also contain repeating units the molecular weight distinction is more basic. In marked contrast to resins, most polymers soften upon heating to give a molten immobile mass rather than a liquid, are generally insoluble in sold vents, and are tough with high strength, rather than brittle and weak like the resins.

Polymers are used as the source of strength in fabricated products like plastic bottles, plastic film, boxes, luggage, tubes, pipes, toys, textile fibers etc. Resins are used to modify, or to impart special properties to, the poly­ mers used in paints and protective coatings, adhesives, chewing gum, inks etc.

Despite the rather clearcut distinctions between resins and polymers in their fundamental properties and behavior, some industrial vocabulary docs confuse the issue. In the plastics industry, where polymers are molded or extruded or otherwise fabricated to finished products, the polymer molding powder or flake, prior to fabrication, is usually termed a "resin . Another confusing use of the term "resin " is in describing the common phenolformaldehyde "resins" which are really pre-polymers or lower molecular weight polymers. Upon heating, these phenol formaldehyde " resins" are converted irreversibly to high melting r infusible solids. 1892 FEDERAL TRADE COMMISSIO DECISIONS Thus, the term "resins " must be defined and differentiated from "poly­ mer, In answering the FTC questions, we are defining "resins " to mean natural or synthetic substances, either weak brittle solids or liquid products in the molecular weight range 400-3000 , which are used to modify polymers to obtain specific properties. Generally speaking, resins and polymers do not perform the same functions, hence are not fully substitutable fot each other. The term "hydrocarbon " classically is defined as a substance containing , thereforeonly the elements carbon and hydrogen. A "hydrocarbon resin is a resin which contains only carbon and hydrogen and no other elements. (Traces of contaminants or catalyst residues do not influence this nomen­ clature.

We believe the definitions given above to be accurate and consistent with accepted terminology in the field of organic chemistry. Specific refpreJlce is made to:

a) The Condensed Che7ltl:cal DicUnnnr!j. 6 Edition, Reinhold Publishing Company, 1961.

b) O?' ganic Chemistry, Fieser & Fieser, D. C. Heath & Co. , 1944 and sub­ sequent editions.

c) "Rosin and Rosin Derivatives F:ncyclolH3din of Chemical Technology, Vol. 17, p. 475, 1968. \Written by H. 1. Enos and G. C. Harris of Hercules and G. \V. Hedrick, U. S. Department of Agriculture. See Attachment 1. PICCO is a producer of hydrocarbon resins by the above definitions. To the best of our kno\vledge only a few of PICCO' s products are producerl from compom nts containing significant amounts of other elements, such as oxygen. PICCO's raw materials are essentially hydrocarbons of petroleum or coal tar origin. Although these raw materials may contain components in which other elements occur, the presence of these components is normally incidental to the production of the desired final product. In addition, we believe that PICCO also purchases pure hydrocarbons, like styrene, alphamethyl styrene and vinyl toluene, which may be produced synthetically, rather than isolated from petroleum or coal tar sources. Hercules is a major producer of rosin as a basic raw material. Rosin is an example of a natural resin which can be isolated from the Jiving pine tree (gum rosin), from pine stumps (wood rosin), or from crude tall oil (tall oil rosin), a by-product of paper production. The chief chemical constituents of rosin, regardless of source, are abietic acid and its common isomers (Figure I), all of which ure monobasic acids. As a result of the presence of the re­ active acid group, as wen as the double bond system present in many of the isomers, rosin can be chemically modified in many ways. By this means Hercules produces a line of resins termed "modified rosins, obtained by various reactions involving the double bond system present in the resin acid molecules. By catalytic dehydrogenation, Resin 731 is produced. By dimerization, Poly- pale, H.esin 8Al and Dymerex are produceel. By hydrot!­ enation, Staybelite and Foral arc produced. By reaction \vjth maleic anhydride or fumaric acid, in the classical Diel" Alder reaction, Hercules produces still other resins wJ1ich arc tri-carboxylie acids, rather than mono. carboxy1ic acids, like abietic acid and its isomers. ADVISORY OPINIONS AND REQUESTS THEREFOR 1893 The modified rosins can be further chemically converted to metal resinates by noaction with metallic oxides to yield the Pexate resins, or by esterifica­ tion 'with alcohols to yield ester resins. These products, produced by the chemical conversion of the modified rosins, are termed " synthetic resins in Hercules and industry nomenclature. (See Figure II). The term "resins/rosins, used by the Federal Trade Commission, we interpret to mean the modified rosins and synthetic resins produced by the cl,emical conversion of rosin as the basic raw material. Since rosin is itself not a hydrocarbon, neither the modified rosins nor the synthetic resins produced by Hercules ate hydrocarbon resins as defined. Although Hercules does produce hydrocarbon polymers, such as polyethyl­ ene and polypropylene, Hercules docs not now produce a hydrocarbon resin on a commercial scale. A limited number of hydrocarbon resins are under development, for reasons to be given later. During the period October 1961-1970, Hercules produced for sale mixed alpha, beta-pinene resins whjch would conform to the above classical defini­ tion of a hydrocarbon resin. Due to the small scale of this operation, having an annual production of 2-3::fM lbs., unit costs were high and the project was judged to be unprofitable. Production vms discontinued in 1970. Since that time, any occasional sale of these poly terpene resins by Hercules has been merely the disposal of old inventories. These resins were reported in previously submitted Federal Trade Commission Acquiring Company Special Report Form OMB No. tG-R0026 in the answer to Question 6(a) under Product Code 2861l98-other Derivatives of Softwood Distillation. They are not included in this report since they do not meet the definition of resins/rosins as used herein.

HERCULES' UTILIZATION OF ROSIN To satisfy its requirements for rosin as a basic raw material, Hercules produces both wood rosin and tall oil rosin and, in addition, purchases annually quantities of gum rosin, wood rosin and tall oil rosin. Of tho total rosin of all types available to Hercules in 1971, 42% was converted to resins/rosins for domestic markets. About 7.8% was sold as such mostly to Hercules' foreign affliates for production of resins/rosins, with PICCO purchasing only O.007 of the total Hercules rosin. The remaining 50';-;' of Hercules ' rosin moved to the paper industry as paper size, to mis cellancous industrial uses, and, in the form of Resin 731, to the rubber industry as an emulsifier for use in the production of synthetic rubber. The costs of the resins/rosins virtually preclude their use in paper size and in most miscellaneous industrial applications. Only the special proper­ ties of Resin ?HI, primarily its stability under polymerization conditions render it suitable on a cost/performance basis for the production of synthetic rubber.

The " resins/rosins" are sold to diverse markets including adhesives printing inks, coatings, floor covering, food products and chewing gum floor polishes, plastic materials, distributor sales and other miscellaneous uses.

Although In certain of these applications the Hercules resins/rosins are competitive with certain hydrocarbon resins, the area of this competition 1894 FEDERAL TRADE COM MISSION DECISIONS is relatively restricted technically, by virtue of the greater polarity and reactivity of the rosin-based resins. Hydrocarbon resins are notably non­ polar and unreactive as compared to the greater polarity and reactivity resulting from the carboxyl and ester groups present. in the rosinMbased resins. Hercules' resins/rosins compete with comparable products produced by many other manufacturers WfJO have access to rosin as H raw material (see Question 8. (a)).

PICCO resins compete with those of other producers who rely prjmarily upon the hydrocarbon raw materials available from petroleum, coal tar and other similar feed streams. We believe PICCO's chief competitors in hydro­ carbon resins to be Nevile, Velsicol, Reichhold, Goodyear, Amoco, Schenectady and Eastman and potentially Arco, Enjay, Monsanto, Dow and Union Carbide. Foreign competitors who are currently marketing or could market hydrocarbon resins in the U. S. are Mitsui, Arakawa, Toho, Kippon Petro­ chemical ICI Repalsa, Cledca, CdF Chimie, Faime, and VfT-Rutgers. For a more complete list of names and addresses of companies mentioned, see Attachment 2.

To the best of Hercules knowledge, instances of direct competition be­ tween Hercules resin/rosins and PICCO hydrocarbon resins are infrequent and insignificant.

HERCULES' MARKETING OF RESINS/ROSINS In the production and sale of the resins/rosins to the Hercules markets mentioned above, areas of application have emerged in which resins/rosins appear superior to hydrocarbon resins and vice versa, As Hercules has learned more about these markets and their growth potential, it has become apparent that a resin which would combine the best features of both the resins/rosins and the hydrocarbon resins would satisfy industry needs for which no existing resins is entirely suitable. As a result of many years of experimentation with the resins/rosins, Hercules has acquired certain unique technology, much of which would be applicable to the upgrading of relatively low-cost, hydrocarbon resins. Y.le believe that this synergistic combination of resins/rosins and hydrocarbon resin technologies is capable of producing new products which would compete both with hydrocarbon resins and with other resins based upon rosin. Such new products could provide cus­ tomers in many industries with equivalent performance at lower cost. or superior performance at no increase in cost. With a broad raw material base in rosin, Hereules is in a strong position to increase competition in many marketing areas, provided that Hercules can obtain technology in the production of hydrocarbon resins. The only technology possessed Hercules in the production of hydrocarbon resins other than acquired from Mitsui (see below), is strictly limited to that required for the production of the poly terpene resins, mentioned previously, which were discontinued be­ cause of the small scale and consequent poor economics of the operation. This Hercules technology is, gencratJy speaking, not adaptable to the pro­ duction of n broad spectrum of hydrocarbon resins. In an effort to acquire the necessary technology for the production of hydrocarbon resins, Hercules has explored several avenues. An agreement with :Ylitsui Petrochemical Industries, Ltd. , dated January 1 , 1971 , granted to Hercules, for a monetary consideration, an option to use certain !limited .

ADVISORY OPINIONS A:-D REQUESTS THEREFOR 1895 Mitsui technology in the production of two types of petroleum-based hydro­ carbon resins. Hercules has exercised this option, for the European Conti nent only, by commencing construction of a plant at Middelburg, The Nether lands, for the production of these two resins. The option to Mitsui technology for the continental United States must be exercised prior to January 1, 1976, by construction of a plant in the U . 8. If Hercules does not commence suel, construction prior to that date, it will Jose all rights to the Mitsui technology for the United States. Because of the limited scope of the Mitsui technology (it pertains to only two hydrocarbon resins), Hercules at the present time has no definite plans to exercise tJle option for the U. S. (See Question fi (d) (1) below.

The acquisition of broader hydrocarbon resin technology for the United States would be of much greater potential value to Hercules. PICCO is a broad base producer of hydrocarbon resins in the U. , having been engaged in this business since the early 1930's. PICCO's proprietary technology, generated internally, is judged to be of much greater value to Hercules and to the American market than the relatively limited technology available from ::itsui. The acquisition of PICCO by Hercules would present the opportunity for a synergistic combination of t\VO technologies to produce new products which would compete both with other hydrocarbon resins and other resins/rosins, thus increasing competition in several marketing areas. TJle numbered paragraphs which follow con espond to the numbered para­ graphs in the FTC letter dated September 26 , 1972, to Herbert B. Sachs, Esquire, Baskin, Boreman, Sachs, Gondelman & Craig. 1. The state and date of incorporation and a complete description of the business and geographic area of operations of Hercules. Hercules Incorporated was incorporated in Delaware on October 18 , 1912. Its principal activity is the manufacture and sale of a widely diversified line of chemicals, allied products and morlular structures. See Exhibit 1 for a complete description.

2. A description of each class of stock of Hercules, the total number of hares of each class authorized and outstanding on December 1 , 1971. A list of all owners of record on December 1, 1971 , who owned 1( or more of each :;uch class of stock.

i) For a description of each class of capital stock of Hercules, see Exhibit 2(i).

ii) The total number of shares of each class authorized and outstanding " of December 1 , 1971:

Class A utho?'izerl Outstanding Common 000,000 192,857 Cumulative Convertible Class A 401 840 Convertible Preferrecl 000,000 Kane. iii) Rather than submit a list of owners of record on December 1, 1971 who own 1 or more oi' each class of stock, the Company is furnishing a list of stockholders owning 20,000 shares or more as of February 11 , 1972. This list covers only the holders of the Common Stock of the Company. None of the autl,orized Convertible PrefelTed has been issued. All of the outstand­ ing Cumulative Convertible Class A Stock has been redeemed or converted as of March 15, 1972 , and none of it is currently outstanding. 3. The names and address of all offcers and directors of Hercules, and the location of all the firms' offces, plants and distribution terminals. i) For the name:- and address of all offcers and directors of Hercules see Exhibit 3 (0.

ii) For the location of all the firms' offces and plants, see Exhibit S(ii). jii) For the location of 348 distribution terminals, see Exhibit 3 (iii). These terminals include 13 Bulk Storage Locations, 113 Toxaphene (Insecti­ cide) Storage Tank Locations, 81 Public Warehouses, 132 Explosive Maga­ zine Locations and 9 Smokeless Powder Dealers. 4. Copies of contracts, options and agreements relating to the acquisi­ tion. Please include letters of intent, correspondence, internal memoranda summaries, minutes of meetings, reports, surveys, analyses, studies, or writings by or for Hercules, referring in any way to the purchase of assets or stock, commitment to buy stock, or the purchase of stock voting right. from Picco.

See Exhibits 4.

Prior to the September 22, 1972, conference with members of the Staff of the Federal Trade Commission, Herbert B. Sachs, Esquire, Baskin. Boreman, Sachs, Gondelman & Craig, Counsel for Picco, Mr. Robert Ostermayer Jr. , President of Picco, and Gerard P. Kavanaugh, Esquire, Assistant Gen­ eral Counsel of Hercules Incorporated, no contracts, options or agreements relabng to the acquisition of Picco by Hercules had been entered into. At the conference the representatives of Picco and Hercules were advised in accordance with the FTC practice that an announcement of the request for an advisory opinion as described in the caption of this letter would be made public during the week of September 24. In view of this, Picco and Hercules entered into a letter of intent on September 22 , 1972. Risk analysis:­ studies of the Picco acquisition daied ,July 17 , 1972, and a memorandum dated July 26 , 1972, describing the factors affecting the outcome of the Picco risk analysis prepared by Hercules can be made available in STRICT CONFIDEXCE.

5. Original or photocopies of:

(a) All annual, quarterly and other reports mane by Hercules and its affliates to its stockholders since!: .January 1 , 1969. See Exhibits 5 (a).

(b) All prospectuses, solicitations or proxy statements, and statements listing securities filed by Hercules, or its affliates with any state corpora­ tion and/or stock exchange since ,January 1 , 1969. See Exhibits 5 (b).

(c) All reports and prospectuses submitted by Hercules and its affliates to the Secl1rities and Exchange Commission since January 1, 1969. In response to this question are the following reports and prospectuses: (1) Hercule Incorporated Stock Option Plan Definitive Prospectuses dated May 5, 1969-May 8 , 1970-June 11 , 1971. and ,Tune 5, 1972. The Prospectus given each option holder is the same for the 1956 , 1962 and 1967 Stock Option Plan so we have furnished only one copy for all Plans for each year.

ADVISORY OPINIONS AND REQUESTS THEREFOR 1897 (2) Hercules Incorporated Employe Savings Plan Definitive Prospectuses dated April 30 , 1969-May 1, I970-May 27, 1971- lay 15, 1972 , and October 12, 1972.

(3) The Prospectuses included in two 8-16 Registrations. One Prospectus is dated October 25, 1971; the other July 18, 1972. (4) The following Form 8 K Current Reports for: (b)(a) MarchAugust, 1969 (j)(i) August,Kovcmber 19711971 1972 (d)(c) MarchMay, 1970 (1)(k) March,January, 1972 1972 (e) July, (m) April, (f) September, (n) July, 1972 (g) March, (0) September, 1972 19711971 (h) July, (5) Form 9-K Semi-Annual Reports for the six months ended June 30 1969, and for the six months ended June 30, 1970. (6) The following Form lO- Q Quarterly Reports ior the quarters ended: (d) March 31, 1972 (a) March 31, 1971 (b) June (e) June 30, 1972 (c) September,30, 19711971 (7) Form 10-K Annual Report of Hercules Incorporated to the Securities and Exchange Commission for the years 1968 , 1969 , 1970 and 1971. We have not included the Exhibits in 10-K Filings which are: Report for 1971­ (1) Excerpts of Minutes relating to changes in the membership of the Board of Directors of Hercules.

(2) Computation of Earnings per share of Common Stock. Report for 1970­ (1) Excerpts of Minutes relating to changes in the membership of the Board of Directors of Hercules.

(2) Computation of Earnings per share of Common Stock. (3) Hercules Pension Plan Booklet, approved December 30, 1970. (4) Composite Certificate of Incorporation of Hercules Incorporated. (5) By-Laws of Hercules Incorporated as Revised and Amended dated March 19, 1968.

(6) Specimen of Hercules Incorporated Voting Common Stock Certificate. (7) Specimen of Hercules Incorporated S1.65 Cumulative Class A Stock Certificate.

Report for 1969-­ (1) Excerpts of Minutes relating to changes in the membership of the Board of Directors of Hercules.

(2) Copy of HercuJcs Incentive Compensation Plan which was incor­ porated by reference to the February 10 , 1969 Proxy Statement. (This Plan never became operative and has been abandoned. 1898 FEDERAL TRADE COMMISSION DECTSIO:-S Report for 1968­ (1) Excerpts of Minutes relating to changes in tjl€membership of the Board of Directors of Hercules.

(2) Copy of Bonus Plan incorporated by reference to Exhibit in 8­ Report flied for October, 1968.

(8) Form l1-K Annual Report of the Hercules Employe Savings Plan to the Securities and Exchange Commission for the years 1968. 1%9 , 1870 and 1971.

(d) All documents, including- correspondence, internal memoranda, sum­ maries, minutes of meetings, press releases, reports, surveys, analyses. "tndies, announcements and writings of any sort, including printed or type­ written matter, made by, made for, or in the possession of Hercules, or any subsidiary, affliate or stockholder, or any agent acting on behalf (1f any of tlwm, referring in any way to:

(1) entry or expansion by Hercules into new product lines or new mal'JH ing are::3 at ilny time during the past five years, or in the future; In the related area of resins/rosins, Hercules has entered into three new product lines in the past 5 years. The three products, Resin 1977, Permalyn XA resins and the Terpalyn XC resins are shown in Exhibit G (d) (1). The sources of research information are listed under the column headed Source of Information" and can be made available in STRICT C01'­ FIDE::CE. Resin 1977 is manufactured for internal consumption only for polyolefin fiJm manufacture. The current sales brochures for the Permalyn \ and Terpalyn XC resins are included as part of Exhibit 5 (d) (1). In addition to tile specific ne\\' product lines/marketing areas shown in Exhibit 5(d) (1), Hercules and l\Iitsui Petrochemical Industries, Ltd. have entered into an agreement, having an effective date of January 1, 1971, under which Hercules acquired an option to certain Mitsui know-ho\v in the production of two types of l ydrocarbon resins. The agreement i marl$er! Exhibit 5(d) (1).

In addition, Hercules has studied the economics of entering the hyrlro­ carbon resin bu iness by construction of its own plant, utilizing Mitsui know-how. A risk analysis of this proposal is contained in a letter from D. A. Palmer to R. G. Fajans, rlated July 14, 1972. Thi;; nocumrnt can bE' made available in STRICT C01\FIDE)JCE.

A letter, Gregory to Leahy, ::lay 2 , 1972, qualitiyely describes the potential synergism obtainable through a combination of resin/rosin and hydrocarbon resin technologies. This document can b9 made available in STRICT CO?\­ FIDENCE.

(2) Hercules' market share, rank, or position with reference to the sale and distribution of the resins/rosins, or components thereof or products derived therefrom, \which are a part of its product hlf. during the /last five yeClrs, or in the future:

The information required to 2nwer this question is unavailahle to Hercules. We are aware of the indentities of our competitors in th, production r,f ins/rosins, but have no means of determining Hercules market share rank or position . The resins/rosins from all producers move into a broad spectrum of marketing areas. No single supplier, to the best of our knowledge ADVISORY OPI:HONS A:-D REQUESTS THEREFOR 1899 occupies a dominant position in all of these individual markets, some sup­ pliers being more active in certain markets than others. Hercules has never had access to jnformation which would permit it to determine Hercules position in each of the diverse markets served by resins/rosins. (3) general studies, surveys, and analyses of the resins/rosins industry within the geographic marketing area of Hercules during the past five years, or in the future;

To the best of our knowledge, no general studies or surveys of the resins/rosins industry" exist because such an "industry" cannot be de­ fined, since these products move to many diverse industries. (4) the most recent brochures and catalogs describing and illustrating all products manufactured 01' distributed by Hercules. See Exhibit 5(d) (4) which contains the most recent brochures and data sheets describing Hercules resins/rosins. (e) Reports regarding resins/rosins, or components thereof or products derived therefrom, filed in connection with the 1967 Census of Manufacturers, or in lieu thereof, the quantity and dollar value of shipments of each LC., 7- digit product code item so reported for the year 1967. See Exhibit 5 (e).

The data reported in this Exhibit were extracted from the Annual Survey of Manufacturers Report (Form MA-100) submitted to the U. Department of Commerce, Bureau of Census. The seven digit Standard Industrial Classification Product Code is reported on products where the code was shown on the forms provided by the Census Bureau. There were cases where the seven digit code was not shown and we reported under the six digit code furnished in the Bureau of Census Instruction Manual (MA-IOO-RI).

(f) Industry statistical data regarding production, shipments, and sales of resins/rosins, or components thereof or products derived therefrom, contained in reports prepared and submitted to, or received by Hercules from industry sources.

There is no trade association or group which publishes industry statis­ tical data regarding the production, shipment and sale of resins/rosins. Again, trade associations do exist for some of the markets using these products. However, no statistical data are available which would pertain to all of these industries. (See comments under 5(d) (2) and 5(d) (3) above). 11. Provide the following information:

(a) Identify each Hercules ' plant manufacturing resins/rosins, or compo. nents thereof or products derived therefrom, showing: (1) the yearly capacity of each in barrels, tons, or other appropriate term for each of the years 1969 , 1970 and 1971; See Exhibit 6(a) (1).

Hercules ' plant capacities for the manufacture of resins/rosins for the years 1969 , 1970, and 1971 are given in the three tables in Exhibit 6(a) (1). Hercules, at present, has the capacity to make about 280 million pounds of wood rosin from the extraction of pine stumps and about 150 million pounds of tall oil rosin via recovery from crude tall oil. These rosins are interchangeable to some degree. 1900 FEDERAL TRADE CO IMISSION DECISIONS A portion of the total rosin production is used to make the resins/rosins , alongof current interest. The various classes of derivatives are shown with the Hercules manufacturing capability for each, by plant. in Exhibit 6(a) (J).

Certain resins/rosins are made from others in the group. A given quantity of rosin may pass through as many as four distinct product identitie:: before being offered for sale. For this reason, the total net capacity shown for each plant is not necessarily the sum of the capacities of the various production units. but is the total capacity of that plant to produce al1 resin/rosin products.

In some cases, significant yield losses are incurred, the quantity of a specific resin/rosin produced being much less than the rosin consumed. In other cases, as in reaction with alcohols, the combining weight of the alcohol may offset yield losses, so that more resin/rosin is produced than rosin consumed. Specific information concerning this is proprietary and can be made available under STRICT CONFIDENCE.

(2) total shipments of resins/ rosins, or components thereof or products derived therefrom, by quantity and value of shipment, for each of the years 1969, 1970 and 1971. (Include any transshipped through distribution terminals.

See Exhibit 6(a)(2).

Exhibit 6(a) (2) shows total shipment of resins/rosins to customer?' which are substantiated by invoices, for each of the years 1969 , 1970 , and 1971. The totals include shipments to both d011Udic and f01' eign customers since they are based UpOll a computer print-out of shipments by plant of origin. Separation of these shipments by plants of origin and by dpstinatiO'ii would be extremely laborious.

The invoiced value.' are based upon the gross price to the customer therefore do not show any freight charges paid or allowed by Hercules. The sales price applied is the average net sales price to all customers for the year and product involved.

Transshipped products through distribution terminals are not shown in Exhibit 6 (a) (2) since this would duplicate shipments from producing plant sites. Sales to distributors al' shown in Exhibit 10(a). For a com­ plete list of the 348 distribution terminals see Exhibit 3 (iii). The shipment of each resin/rosin product by quantity and by plant is considered proprietary information and can be made available in STRICT CONFIDENCE.

(b) Identify and locate each terminal and/or other type of storage capacity for each of the years 1969 , 1970 and 1971. It is not practical to identify and locate each terminal and/or other type of storage capacity for each of the years 1969, 1970 and 1971 with respect to resins/rosins.

7. Df'scribe the classes of customers to which Hercules sells and/or dis­ tributes each of its resins/rosins, or components thereof or products derived therefrom, indicating the method and means used to sell, advertise and promote the saJe of sucll products to each class of customers. Hercules sells resins/rosins to ihe following classes of customers: ADVISORY OPINIONS AND REQUESTS THEREFOR 1901 S.I. C. Code/Codes 1. Adhesives 2891, 3842 2. Coatings 2641, 2851, 3479 3. Distributors 5000 4. Floor Coverings 3996, 3292 5. Floor Polishes 2842 6. Food and Kindred Products 2073 2086 7. Printing Inks 2893 8. Plastic Materials 2821 g. Other The "other " class of customers covers various manufacturers such as fragrances, hair care, plasticizers, solding fluxes, rubber compounding, lens grinding and leather impregnating.

All resins/rosins are marketed directly by Hercules to the classes of customers listed above utilizing Technical Representatives. A limited amount of advertising in trade journals is used to help promote the sale of these products.

8. (a) List Hercules' competitors in the sale or distribution of resins/ rosins, or components thereof or products derived therefrom. The products covered in responding to Question ii (e) should be used in determining whether competition exists.

See Exhibit 8 (a).

Hercules' competitors in the sale of resins/rosins falls into two categories: (a) those who produce rosin and modify it chemically to resins/rosins; (1) those who purchase rosins or modified rosins for further chemical processing to resins/rosins. The S. LC. product codes (see 5(e)) are too broad in scope to permit a definitive answer to this question. The com­ panies in Exhibit 8(a) are, to the best of our knowledge, Hercules' major competition in the sale of resins/rosins. (1) List Hercules' shipments of each of the resins/rosins, or components thereof or products derived therefrom, which it produces (a) to Picco (1) to all customers for each of the years 1969, 1970 and 1971. (Include any resins/rosins, or components thereof or products derived therefrom, trans­ shipped through distribution terminals.

See Exhibit 8(b) (a) and Exhibit 8(b) (b). 9. (a) Identify each product Hercules purchases from Picco. As to each provide the total dollar value of such purchases for each of the years J 969, 1970 and 1971.

Hercules ' purchases from PICCO for the years 1969, 1970 and 1971 were as follows:

Year Piccotex 120 Picco 6000 Resins 1969 $ 59,260. None 1970 244, 659. Xone 1971 388, 779. 346. (1) Identify all other suppliers of each such product. As to each, provide the total dollar value of Hercules' purchases from each such supplier for each of the years 1969 , 1970 and 1971.

1902 FEDERAL TRADE COYlMISSION DECISIONS PICCO has a composition of matter patent on the Piccotex resins. We are not aware that they are available from any other supplier. Resins comparable to the Picco 6000 Resins are available from other suppliers in the U.S. and abroad. We believe that in the United States, evile, Velsicol, Rcichhold and perhaps Schenectady and Amoco produce resins more or less comparable in properties to the Picco 6000 series. Abroad Mitsui Petrochemical Industries, Ltd. produces a series of resins termed Petrosin G which are also comparable to the Picco 6000 Resins. Prior to calendar year 1970 , Hercules purchased no resin comparable to the Picco 6000 Resins from any supplier. In 1970 and 1971, Hercules purchased from Mitsui quantities of Petrosin G having values of $3 663. and $3, 127. 46, respectively, During 1971 , Hercules decided that the Picco 6000 Resins are more representative of the type of resin which Hercules would contemplate using than the Petros in G resins from Mitsui. The feedstocks used by PICCO in producing the Picco 6000 Resins were thought to include those \which Hercules has found to be most acceptable for its use. Consequently, due to Hercules ' small requirement for interim supplies of resins of this type, it was not judged necessary or even advisable to seek alternative sources of supply at this time. 10. For each class of customer described in answering Question 7 , (a) state the total dollar value of Hercules' sales to such class during 1970 and 1971; and (b) within each class, identify by name, address and dollar value of purchases, Hercules ' twenty largest customers for each of the years 1970 and 1971.

(a) See Exhibit 1O(a).

(b) See Exhibit 10(b).

11. Provide copies of any agreement and explain any understandings condition between Hercules and Picco, or anyone acting on behalf of them. relating to Hercules' purchases of resins from Picco. If such ag-reement, understanding, or condition is not in writing, describe its terms in detail. ).0 written agreement exists between Hercules and. PICCO relating to Hercules' purchases of PICCO resim;. Periodically Hercules orders Piccatex ) 20 and the Picco 6000 Resins, on a spot basis at list price, using a standard Hercules purchase order form.

Very truly yours is/ Gerard P. Kavanaugh Assistant General Counsel Th1:rd Supplemental Letter Relative to Request October 27, 1972 Attention: .Joseph P. Dufresne, Esquire Re: Hercules- Pennsy Ivania Industrial Chemical Corporation proposed merger ADVISORY OPINIONS AND REQUESTS THEREFOR 1903 Gentlemen:

Industrial Chemical Regarding the submittal of Pennsylvania ofCorporation re the above, the writer requests that Exhibit "J" the transmittal letter be given confidential treatment. Very truly yours, Isl HERBERT B. SACHS Second Supplemental Letter Relative to Request October 18, 1972 Attention: Joseph P. Dufresne, Esquire Re: Request for advisory opinion-Acquisition by Hercules Inc. , of Pennsylvania Industrial Chemical Corporation (Picco) Dear Mr. Dufresne:

In response to your letter dated September 22 , 1972 requesting certain information relative to thc above subject matter, pI case be advised of the fo1Jowing:

1. Picco was incorp01'ated on August 11, 1920 under the name of Pitts­ burgh Soda Products Company, as evidenced by a Certificate of Incorpora­ tion flied in the offce of the Department of State of the Commonwealth of Pennsylvania on August 11, 1920. On January 10, 1924 Articles of Amend­ ment were approved and flied in the said otfce changing the name to Pennsylvania Industrial Chemical Corporation. The said company is engaged in the business of manufacturing and selling industrial resins employed as a raw material in a wide variety of in­ dustries more fully detailed herein.

Picco has manufacturing facilities in the City of Clairton, Pennsylvania Baton Rouge, Louisiana and Dax, France a facility owned and operated r;j­by a French company known aR Derpicco, in which it owns a 50 equity, Details relating to the p-urchase of supplies from suppliers located out::ide of the Commonwealth1 of Pennsylvania, together with their respective nameR and addresses are described in Exhibit "A" attached hereto. As to the identification of Picco s customers to whom sales are made see Exhibit 0" \which contains the names and addresses of its principal customers in the eight market areas within the United States and total approximately 66 accounts. The total number of accounts to w11ich Picco sells products is roughly 1200 companies in number, many of whicl1 have more than one receiving point. It would therefore be a burdensome task to provide a list of aJl of Picco s customers outside the Commonwealth of Pennsylvania. 1904 FEDERAL TRADE COMMISSIO:- DECISIONS In the years 1969 , 1970 and 1971 , 90% of the company s total sales were delivered to points outside of the Commonwealth of Pennsylvania. 2. Picco is authorized to issue 600,000 shares of one class of stock, to-wit Common, and has in fact issued a total of 284 461 shares thereof, from which Picco has purchased 83 243 shares of Treasury Stock leaving issued and outstanding 201 218 shares. Those individuals who, alone or with members of their family, own in excess of l'i of the issued and outstanding shares of said stock are, together with the number of shares so owned, identified in Exhibit HB" attached hereto. The writer has no knowledge of any beneficial interest in any of the said shares which is not reflected on the records of the company. Picco maintains its own registry and acts as its own transfer agent. 3. The names and addresses of all offcers and directors of Picco. together with a description of the capacity in which they serve, are identi­ fied in Exhibit C" attached hereto. In addition to the locations of its manufacturing facilities described in paragraph 1 hereof, Picco SA , a company formed under the laws of the Canton of Friborg, Switzerland. a wholly owned Picco subsidiary, maintains an offce in Friborg, Switzerland. Other than those specifically elf'f'where referred to herein, Picco hm no distribution terminals.

4. The only writing relating to the proposed acquisition is a Jetter of intent dated September 22, 1972, a copy of which is marked Exhibit " and attached hereto.

5. (a) All of the annual and quarterly financial reports made or published by Picco and its affliates to shareholders since January 1, 1969 are marked collectively as Exhibit " E" and attached hereto. (b) All prospectuses, solicitations or proxy statements, together with statements listing securities filed by it or its affliates with any state eor­ poratjon and/or stock exchanges, are collectively marked Exhibit 'I F" and attached hereto.

(c) All reports, statements and prospectuses submitted by Picco and it. affliates to the Securities and Exchange Commission since January, 1969 are collectively marked Exhibit " G" and attached hereto. (d) (1) Picco has developed and made no new product lines or new marketing areas at any time within the past five (5) years. (2) and (3) The information requested is contained in an inter-offce memorandum dated September 29 , 1972 to R. W. Ostermayer, Jr. , which is marked Exhibit " H" and attached hereto. (4) The information requested is contained in Exhibit " I" attached nereto.

(e) The information requested is contained in Exhibit "J" attached here­ to.

(f) An exhaustive research discloses that no such statistical data has been published or received by Picco.

6. (a) (1) and (2) The information requested is contained in Exhibit K" attached hereto.

ADVISORY OPINI01\S AND REQUESTS THEREFOR 1905 (b) The information requested is contained in Exhibit " attached hereto.

7. (a) The information requested is contained in Exhibit "M" attached hereto.

(b) The information requested is contained in Exhibit fin" attached hereto.

8. See Exhibit "

9. Since Picco does not have twenty customer in each class described in the preceding answer, Exhibit " 0" attached hereto contains a summary of sales by market area for the years 1970 and 1971. For each market all sales in excess of $50 000 worth of annual sales of product are shown together with the individual accounts, Sales to other accounts and total accounts are also sllown in each market area. 10. There is no agreement or understanding between Picco and Hercules or anyone acting on behalf of either, relating to the purchases by Picco of resins from Hercules. All purchases are made at Hercules ' published prices and are all arms-length transactions.

We trust that the foregoing is suffcient for your purposes. However, should any additional information be required or de­ sired, please advise at your earliest convenience and the same \vill be promptly forthcoming.

Very truly yours /s/ HERBERT B. SACHS First Supplemental Letter Relative to Request October 9, 1972 Attention: Joseph P. Dufresne Attorney, Offce of General Counsel Re: Request for advisory opinion-Acquisition by Hercules Incorporated, of Pennsylvania Industrial Chemical Cor­ poration (Picco) (;en tlemen:

This is a reply in part to the letter dated September 26, 1972, addressed to Herbert B. Sachs, Esquire, Baskin, Boreman, Sachs, Gondelman & Craig, Counsel for Pennsylvania Industrial Chemi­ cal Corporation (Picco) concerning the request for an advisory opinion described in the caption.

Accompanying this letter is the Acquiring Company (Hercules Incorporated) Federal Trade Commission Special Report (Form 1906 FEDBRAL TRADE COMMISSIO:- DECISIONS OMB No. 56-R0026). Where necessary, the data was extracted from the Annual Survey of Manufacturers Reports (Form MA­ 100) submitted to the United States Department of Commerce Bureau of Census in the form and manner required by that De­ partment. In some instances the information called for was not available, and in others the available information is not in the form in which requested, but in a1l instances every effort has been made to answer fully the questions set forth in the FTC Acqui r­ ing Company Special Report Form.

Some information, because of its proprietary nature, is sub­ mitted in confidence with the understanding that it wil not be disclosed to third parties without the prior written consent of Hercules Incorporated. This information has been stamped " Con­ fidential" and appears in connection with questions 6 and Very truly yours / s/ Gerard P. Kavanaugh Assistant General Counsel Letter of Request June 26 1972 Dear Mr. Mezines:

The writer is counsel for Pennsylvania Industrial Chemical Corporation (Picco), corporation organized and existing unoer the laws of Pennsylvania. The purpose of this letter is to ascertain the possibility of seeking an advisory opinion, based upon the facts furnished herein, relating to action contemplated by the c.client in conjunction with Hercules, Inc. Picco is a corporation whose principal business is the manu­ facture of industrial resins used as a ra'\" material in a \"ide variety of industries. In 1971 it did a dollar volume of 31/2 mil­ lion, the highest in its history. It sells its products, primarily synthetic hydrocarbon resins, under a variety of tradenames in both domestic and foreign markets to the rubber, printing, floor­ ing, paint, textiles, plastics, paper, adhesive and coating ino.u8­ tries, as well as in other related fields. Its products are manufac­ tured primarily from by products of the petroleum industry, terpene products and petro chemical raw materials, and are used as rav,' materials by manufacturers in the industries noted above. ADVISORY OPINIONS A:-D REQUESTS THB:REFOR 1907 Roughly 9070 of its sales in 1971 were domestic markets and 10 % foreign.

Picco has manufacturing facilities in Clairton, Pennsylvania Baton Rouge, Louisiana, and in Dax, France, its equity in the latter being a one-half interest as a result of a joint venture with a French company.

Hercules, Inc. and its consolidated subsidiaries serve many of the same industries that Picco serves, by way of example, the paper, construction, plastics, rubber, synthetic fibers, etc. , and does a total dollar volume in excess of $800 000 000. Oddly enough the products of Hercules and Picco are not competitive although each buys and sells to the other. Picco sells to Hercules approximately one-half million dollars worth of resins per an­ num. These resins are consummed by Hercules as raw materials in the formulating of some of its finished products. On the other hand, Picco purchases from Hercules one-quarter million dollars worth of beta pinene (a fractionated part of turpentine) which is used as a base for the manufacture of some of its low molecular weight hydro carbon resins.

Hercules approached Picco to explore the possibility of a joint venture in foreign markets and proposed that the two companies build manufacturing plants in foreign markets to produce those hydro carbon resins which Hercules now purchases from Picco and others. Hercules ' primary interest in a joint venture v,rith Picco stems from its lack of technology in compounding the hydro carbon resins which would be manufactured in those foreign markets. While Hercules could secure from others a similar type of technology adequate to achieve its purpose in manufacturing the contemplated resins, the proposed venture with Picco would result in a time saving factor which would enable Hercules to penetrate this market several years sooner than it could if it were forced to secure the technology elsewhere. The most likely source for such technology would be from one of the many J apa­ nese companies that are currently trying to penetrate the do­ mestic hydro carbon resin market. A joint venture with Hercules is unattractive to Picco since the use of such technology by Hercules in domestic markets v,Tould, of course, have an adverse impact on Picco s position in such markets. It is because of this factor that Hercules suggested the possibility of a merger, and hence this inquiry.

The following are some of the salient facts I suspect would be helpful to you to respond, if you are so inclined, with an unoff­ cial opinion.

1. The management of both Hercules and Picco are confident that a consolidation of efforts and technologies in the manufac­ ture and compounding of certain hydro carbon resins would have a beneficial effect upon the economy of the Country insofar as it wil broaden research and experimentation which in turn may produce new uses and applications for such products. Histori­ cally, in this industry as in others, such is the ultimate result. Certainly it would appear that from an economic point of view the proposed combination would be more desirable than an ar­ rangement for the acquisition of technology for the manufacture of hydro carbon resins between Hercules and one of the .Japanese companies, the effect of which would be to provide such foreign companies with an opportunity to penetrate domestic markets, As matters stand presently the Japanese companies, later iden­ tified herein, are now attempting to enter into and Bell their resins in domestic markets.

2. It is diffcult to describe with definity the uses and applica­ tions of all of Picco s 151 low molecular weight hydro carbon resins, since new ones are constantly appearing that are gen­ erally employed as base ingredients in the manufacturing and compounding of products generally used in the industries cited above, and more particularly in the manufacture of products used in connection with the following industries, viz. , glass, paints, cloth, ink, automotive, dry cleaning, chemical milling, hyc1raulic fluids, rubber, electric installations, furniture, toners \\Toad lami­ nating, ceramic leather, sealents, cellophane, construction, medi­ cal, dental, etc. In describing the total expanse of products made from hydro carbon resins it would be diffcult to point to any object with which we have daily contact that does not contain some type or form of a hydro carbon resin. 3. I can identify Picco s "competitors " only by using the term competitor" in a very limited manner so as to include only those companies that manufacture the same type of 10"" molecular weight hydro carbon resins included in Picco s line. Some of these are Goodyear, Reichhold, Veliscol, Chemfax, Nevile Chemical Amoco, Tenneco, Eastman, Dow, Mattson, Ziegler, Arizona Chemi­ cal, Schenectady, Crosby Chemical, Dupont, Pfaudler Permutit, Rohm & Haas, Catalin, Hooker, Schen. , p, Hunt, Cyanamid Stauffer, Carlisle and Monsanto. It should be borne in mind that the above named are direct "competitors " in the context of simi­ larity of product composition wise, and that there are many others ADVISORY OPINI00:S A!\' D REQUESTS THEREFOR 1909 who manufacture products that compete with those of Picco at both a functional and economic level.

4. In an attempt to provide you with a maximum amount of helpful information in terms of Picco s percentage of some spe­ cific markets in the industries identified, construing "market" in the broad and practical sense, I submit the following: Ma1' ket Picco s Percentage Adhesive and Coating less than 1 % Plastics (fim) 1;70 Paper less than 1 % Textiles less than 1 % Rubber less than 1 % Printing and Toners Inks Toners 50% Flooring Tile Asphalt 82% Vinyl Carpeting less than 1 % Paint 5. It is my understanding that Picco sells approximately three milion dollars worth of products manufactured from beta pinene. Approximately one-half of the sales of such products are manu­ factured from raw materials purchased from Hercules. 6. Within the past ten years there have been a number of new enterants into the commercial manufacture and sale of hydro carbon resins, and for what value it may have in your terms of reference, they are Eastman, Goodyear, Amoco, Arizona Chemical Tenneco, Ziegler and several other small companies. 7. In addition to those companies named in the preceding para­ graph as new enterants into the hydro carbon resin field, there are a number of Japanese companies making strong efforts to penetrate the industry. Some of these are Arakawa (manufac­ turers of both petroleum and terpene resins); Mitsui Chemical (manufacturers of petroleum resins); Toho Seldya Yushi (manu­ facturers of petroleum resins); Kippon Petro Chemical (manu­ facturers of petroleum resins) .

As I have previously stated, the management of both companies are thoroughly convinced that the purposed combination would have an extremely desirable effect upon both present and future domestic market conditions and, therefore, are hopeful that some favorable reaction wil be forthcoming.

If there is any additional information you may wish or require, please advise and I will oblige promptly. I gratefully acknowledge your courtesy in this matter. Very truly yours Isl HERBERT B. SACHS ADVISORY OPINIONS AKD REQ1.ESTS THEREFOR 1911 Proposed acquisition of assets of 'VIed i- Hair International, Inc., a franchisor of hair replacement system salons. (Docket No. 8830 * ) ()jJillio)l fAdtpr Fehruary 13, 1973 Deal' MI'. Palomho:

This is in response to the request dated December I , 1972, of Dura-Hair late1'ational, lnc. (" Dura-Hair ) that the order to cease and desist in the above-cited matter he modified by entry of a consent Ol'Oel' against Durn-Hajj' as proposed by the request. Rule :,. 72 (h) (2) of the Commission s "ules of Practice pro­ joes for the filing of a petition to modify a final oreier ani:,' by a person subject to that ordcr. Inasmuch as Dura-Hail' is not prcs­ ently suhject to the ahove-citecl order, the request, qua a petition under Hule :J.72(b) (2), is denied. The Commission, however, has netel'rninerl to treat the request as a request for an advisory opin­ ion under Rule 1. 1 of the Commission s Rules. Rased on the documents and information submitted, the fol­ lm\" ing appears rele\"ant to the request: corporate respondent Medi-Hair lntemational, Inc. (" :Vlecli-Hair ) is presently in bank­ ruptcy, ' On August 18 1972, an order \\' as entered by the Hefel'ee in Bankruptcy providing for the .-ale to Dura- Hair of certain assets from the Estate in Bankruptcy of Iedi-Hair'. Among thl' assets Dura-Hair ,,' iil acquire are c,united States Patent 3:',,3737 dated .Jnuary 12 , 1971 , Patent Application .\o. 88279, dated :\T ovemheJ' 10 , 197n, the business name, accounts receivable and records of 'VJedi-Hair, and all right, title and interest in Medi- Hair s Jicensing or franchise agreements. These assets are pJ'es pnily held in cscro\\' , and title to them will pass to Dura-Hair upon payment of the purchase price ,,' within 180 days of thc date of the order, or hefoJ'c Fcbmary 14 , 1973. The order to cease and desist, issued April 21 , 1972 , in Docket No. 8R30 pl'ovirles, among other things, that it shan run against not only '\ferli- Hair and .Jack 1. Bauman but also their successors ann assigns. ' In \'ie\\' of this, it is the Commission s opinion that OF,,!, case befm' ,' th., C(,nlrnis jon . f'"p S C. (,27. n S- 50-,V In Hiln"l'ptcy, L"united Statl'- Di Li(. 1 Coull f()l. the Efl tel- n D, trict f CalifolT.ia.

'The on!,,)" ;Ho\. idc, hi 1H'1'(;nent pa,- . as follows IT IS ORDERED hilt 1csp"nrlen!s :\!edi-Hail Int )"r. ational. a (,OI.)Jnliition. and .Il!ck : 1912 FEDERAL TRADE CO:JMISSION DECISIONS ,should Dura-Hail' acquire the asset, of Medi- Hair as contemplated hy the above-rnentionen orner of the Referee in Bankruptcy, Dura-Hair would thereupon be subject to the Docket 8830 order to cease and ctesist.

\,\Chen the However, if ann acquisition is accomplished, Durn- Hair' may, if it wishes, renew its petibon requesting that the Commission modify the order. Enforcement of the order will be ,tayed for 30 days subsequent to tbe date of any such acquisition to allow you to renew such petition and have it acted upon by the Commission.

By direction of the Commission.

rttrr of Request December 1, 1972 C;cntlemen:

Dura-Hair International, Inc. , a California corporation (" Dura- Hair ) has tentativel r agreen to purchase a patent ann certain other assets from the Trustee of the Estate in Bankruptcy of Merli-Hair International, Inc;. (" I'vledi- Hair ). Those assets are presently held in escrow and it is expected that title will pass to Dura-Hair OJ1 01' before February 14 , 1973. There is not now, nor has there ever hecn, any affliation or other connection between Dura- Hair ann Medi-Hair. During the course of negotiating for the purchase of the Jleoi- Hair assets \with t.he Trustee, Dura-Hail' became aware of the Consent Order entered into by the Federal Trade Commission, Medi-Hair and .Tack I. Bauman on October 5, 1971. That Order sets omvn very stringent terms with respect to the aovertising ann sales practices in \which I'ledi-Hair and its licensees were' engaged. The Consent Oroer also provides in part as follows: IT r.s FURTHER ORDERED that in the event that the corporate re­ OJ"spondent (IIlf'di-Hair) nlerQ:es with anotllEr corporation or transfers all ;J substantial part of its busines or a. pts to any other corporation or to any other persml, said respondent shall reCJuire such ucceRsor 01' tl' fnee to fie promptly with thp Commi sion ft written ag"leement to be bound by the terms of this Ordpr: jJl.ovidecl that if saici respondent wishcs to present to the Commissjon any re,lS(jn why said Order should not apply in its present form to said successor or transferee, it shall submit to the Commission a written statemed setting forth said rpftR01B prior to (hI" ('onsummation of said succession or transfer, Bauman. individual,y, and as nn offccr and directo). of said COl";JOl"ation * . * (here:naftcl $ometimes J'ef€1'I't''\ to as ' respond€Il ) and rcsponrlento " successor and assi,,n 4 . do forthwith cease and desj t from * * * ,. ADVISORY OPINIONS AND REQUESTS THEREFOR 1913 Because Dura-Hair expects to acquire "a substantial part" of the assets of Medi-Hail' , it will consider itself bound by the Consent Order when title to those assets passes. However, Dura- Hair earnestly believes that certain terms of the Consent Order should be modified insofar as the)' would apply to the conduct of business by Dura- Hair. The reasons for Dura-Hair s application fol' modification of the Consent Order, insofar as it would apply to Dura- Iail' , are set forth fully in the enclosed Motion'" of Dura- Hair Intel'ational, Inc, for Modification of Consent Order. The basic reasons for the l\.lotion (11'e(l) Dura- Hair was in no way responsible for, 01' connected with, the practices which resulted in the issuance of the Commission s complaint against YIedi-Hail' and .Jck I. Bauman, (2) compliance with certain terms of the Order would he extl'cmel damaging and burdensome to Dura- Hair, (3) Dura-Hair s business practices are, and have always been, dramatically different from those apparently practiced by ;V!edi-Hair, and (4) if the Order is not modified, Dura-Hair will, in effect, be punished for acts and practices by Medi-Hair over which it h1:o no control or responsibility. Because there is a period of only about two months before Dura-Hair expects to take title to the l\lecti-Hair assets, we ur­ gent!)' request t.hat. tbe Commission consider this matter at the earliest possible time. Dura- Hair would, of course, be pleased to submit any additional information that. the Commission might lind helpful.

In order to facilitate the Commission s review of this matter, we are sending a copy of this letter and the enclosed Motion directly to Messrs, Paul R. Peterson and Gerald E. Wright, the Attorneys in thc San Francisco Regional offce, who handled the proceeding against Medi- Hair and Mr, Bauman. Sincerely, -',I Dan J, Belcher ot rep\'uctuC!:rl herein, but available for inspection and copying 1\t th Division) of Legal & Public Reco!'1s, Roum 130. Federai Trf1de Conlm;ssion mc1"". , \Vashington. D, 1914 FEDERAL TRADE ('():'IMISSION DECISIOj\:S Proposed acquisition by a grocery wholesaler of the assets and business of Clover Farm Stores Corporation. (Docket No. 6444* 0j)iu/o'l Letter March 23, 19n Deal' :vr. Houston:

This is in reference to your letter of June 19 , 1972 wherein VOll request, on behalf of Fox Grocery Company, an advisol';\' opinion from the Commission with respect to the proposed acquisition by Fox Grocery Company of the assets and business of CJovel' F,um Stores Corporation. Your letter requests aSSlll'­ anees from the Commission that the proposed acquisition, in and of itself, \I ill not be in violation of the 2 (c) order in the above­ captioned matter and that Fox Grocery Company will not he bound by the profit and dividend limitations contained in the compliance report fi1erl hy C10\'rr Farm Stole Corporation in May of 1956.

The Commission has considered your submission of June 19 1972 ann based solely upon the information ann representations et forth therein, has determined that the proposed acquisition in and of itself, will not be in violation of the 2 (c) order in the ahove-captionerl matter. The Commission has further deter­ mined that Fox Gl'cery Company would not be bound by the provisions of CJO\-el' Farm Stores Corporation s rviay 1956 com­ pliance report as relating to profit am1 dividend limitations. Such limitations, stanrling alone, we consider to be irrelevant to the clear prohibitions of the order as affecting receipt of broker­ age. Fox Groce :\- Company, 1100, eyer, has been ann would con­ tinue to be bound by the provisions of such 2 (c) order should the acquisition he consummated.

This advisory opinion of the Commission is limited solely to the issues of tbe effect of the 2(0) order upon the proposed ac­ quisition and the effe(t of the pl'fit and dividend limitations contained in the compliance report filed in T\lay of 1956. The Commission is not addressing itself to, or giving advjce with respect to, an ' of Fox s operations as they ma:\' affect Rn,\ of the statutes administered by the Commission. By direction of the Commission.

*For case before the Commis ion, see 52 F. C. 1140 ADVISORY OPINIONS AND REQCESTS THEREFOR 1915 Lp,ttm' of Request .June 19, 1972 Deal' ;YIr, Tobin:

We represent Fox Grocery Company (Fox) and on its behalf we request an advisory opinion of the Federal Trade Commis­ sion with respect to the proposed acquisition by Fox of the assets ann business of Clover Farm Stores Corporation (CFSC). The acquisition will not be consummated until receipt of the re­ questen advisory opinion: to the best of our knowledge, the pro­ posed acquisition is not the subject of a pending investigation or other proceeding by the Commission or any other govern­ mental agency.

Fox is a Pennsylvania corporation with its principal offce at Rehoboth Valley, Belle Vernon, Pennsylvania. Its principal business is seiling at wholesale a broad line of groceries, pro­ (111Ce, dairy products, meats, delicatessen items, tobacco products housewares and health ano beauty aids.

Fox s principal customers consist of approximately 285 inde­ pendent retail grocery stores in \Vestcrn Pennsylvania, Eastern Ohio, West Virg-inia, Northeastern Eentuc1(y and Western Mary­ land. Of these retail g-rocery stores, approximately 147 are re­ tailers who operate unner their own names; of the balance, 110 are supermarkets operating under the name Foodland, and 28 are stores operating under the name CJover Farm. Fox makes available to a1I retailers a comprehensive range of store-operating' services including advertising and promotion, accounting, per­ sonne! selection and assistance in store layout and site selection. The net sales of Fox for 1971 were $187 645 600 and net earnings $1,176 400. Fox s net worth is approximately $7, 500 000, It has presently approximately 110 shareholders. However, on May 31 , 1972 it fied with the Securities and Exchange Commis­ sion a registration statement under the Securities Act of 1933 in connection with the propo,ed sale of 425, 000 shares of its com­ mon stock.

CFSC is an Ohio corporation having its principal offce at 2135 Columbus Road, Cleveland, Ohio. CFSC was formed in the late 1820s by a group of some 25 grocery wholesalers in an effort to combat the destructive competition of national and local chains. The group established a central offce force to adminis­ ter a program built around the trademark 'I Clover Farm . This involved the fntnchising of retailers to use the name Clover Farm, painting the stores a uniform color and having uniform 1916 FEDERAL TRADE COMMISSIO!\T DErISIONS signs and supplying \'linrlo\\ posters and other in-store adv€rtif'­ ing under a weekly sales program.

Over the years, the operations of CFSC have expanded, The company has adopted new trademarks and trade names including Foodland, Bestmart, Tenderbest and Freshbest. Its stock is now owned by 19 independent wholesale grocers, one of which is Fox, All shareholder-wholesalers hold franchises to use the various trademarks and trade names of CFSC and to license retailers to use the same in various territories Jocated throughout the Eastern part of the United States and in several States West of the Mis­ sissippi, (There are also 4 wholesalers holding franchises who are not shareholders of CFSC). These wholesalers, collectively, presently franchise approximately 900 Clover Farm retail stores, 325 FoodJand supermarkets and 100 Bestmart retail stores.

As of December 31 , 1971 , the net worth of CFSC and its wholly-owned subsidiaries (including preferred stock of $47,800 and trademarks and trade names then carried at approximately $126 000) was approximately $ROO OOO. The net income of CFSC and its wholly-owned subsidiaries for the year 1971 was approximately $18 000, For a number of years, the president of CFSC and its chief executive offcer has been Grant A. ::Iason. lVII'. IVlason has reached retirement age and the board of directors is faced with the prob- Jem of finding a successor who \\-ol1Jd be acceptable to al1 tne wholesaler-stod::hoJdel's. As an alternative to naming a successor to Mr. Mason, it has been suggested that Fox take over the opera­ tion and management of the company. A proposal is under con­ sideration by which Fox would form a new, wholly-owned subsid­ iary which would acquire substantially all the assets of CFSC subject to liabilities in exchange for which it would issue its cer­ tificates of indebtedness which would be distributed to the com­ mon stockholders of the company in liquidation of CFSC, The certiflcates would not be payable in cash but wouid be redeem­ able in payment of services to be performed by the new Fox subsidiary in the future in connection with the servicing of the franchise agreements of the former stockholder-wholesalers. Tbe operations of the company he moveci from CJeveJanci to some other location, It is a condition to the execution of a formal agreement for ",bmission to the shareholders of CFSC that Fox receive appro­ priate assurances from the Fecieral Trade Commission that the proposed acquisition will not be in violatjon of a certain cease anrl ()() ADVISORY OPINIOKS ANn REQUESTS THEREFOR 1917 Commission entered in 1956desist order of the Federal Trade against CFSC, a wholly-owned subsidiary of CFSC and all its stockholder-wholesalers, including Fox, and that Fox will not be bound by the provisions of a Report of Compliance filed by CF- SC.

On N"ovemb8l 8, 1905, the Commission issued a complaint at Docket No. 6444 charging CFSC, its wholly-owned subsidiary, the Lane Lease Co. , Tnc., and its member-wholesalers, including Fox, with violation of subsection (c) of Section 2 of the Clayton Act, as amenden by tbe Robinson-Patman Act, by receiving and accepting, directly or indirectly, commissions, brokerage or other compensation, or allowances, or discounts in lieu thereof, from purchasedvarious sellers from whom the member-wholesalers food products for resale. A consent cease-and-desist order under subsection (c) was entered by the Commission on April 24 , 1956. On 01' about ;\hy 1 , 1956 , CFSC and the Lane Lease Co. , Inc. fied a lceport of Compliance with the Commission. The compli­ ance report incorporated by reference a previously submitted nocument entitled " Informal Statement of Proposed Compliance with a Consent Cease and Desist Order . A copy of the Report of Compliance is attach en hereto as Exhibit " . Fox and the other wholesaler-respondents filed Iteports of Compliance which they adopten the Report of Compliance of CFSC and Lanc Lease Co. , Inc.

The Compliance Report contained, inter alia, a statement that the CFSC board bad adopted the following policy with respect to div)(lends and earnings of tde company in the future: 1. No dividends ;:h,,!1 he paid in any year upon the common stock of thi. corporation from its earnings from operations which are in excess of %5. per ;:hare on the presently issued COlnmon stock; 2. In case thp net earnings of this corporation from its operations for any year, after paying or allowing therefrom an amount equal to $4. outstanding f1rl' share for earn snare of preferred stock in tne corporation at December :il of suen year, plus such, ammlnt (not in excess of $5. ref snare) as shall have been pain during such year as dividends on the common stock, fi1-:all exceed '-n ,lmount equal to 71,'2 of the aggregate of th!; common stock c,lpit;ll account and all surplus accounts of the corpora­ tion as shown upon its books at the commencement of such year, then during the next succeeding- year, amounts aggregating not less than sue)) pxcess shall be expended by this corporation in im;titution!11 advertising:. , it pro­ If Fox acquires the assets of CFSC as above outlned poses to operate the business as a profit-making enterprise ano would not be \Yil1ng to be hound by profit and divinend limita­ tions.

1918 FEDERAL TRADE Cn:V1MISSIOi\ DECISIOI\S respondent in the above It is our opinion that while Fox as a proceeding at Docket No. 6444 is subject to the cease and desist order under Section 2 (C), its acquisition of the CFSC assets and business would not in itself constitute a violation of that order. acquire the assets andFurther, we believe that if Fox were to business of CFSC, it would not be bound by the terms and con­ ditions of the CFSC Report of Complianc:e, since they are not a part of the Commission s order.

We respectfully request an exprcssion of the Commission views on the points covered in the preceding paragraph. Respectfully, /s/JAMES M. HOUSTO:­ Exhibit "

UNITED STATES OF AMERICA BEFORE THE FEDER.\L TRADE COMMISSION In the Matter of CLOVER FARM STORES Docket K o. G411J CORPORA TION THE LA:\E LEASE CO., INC. REPORT OF COMPLIANCE et al. BY CLOVER FARM STORES CORPORATION AND THE LANE LEASE CO. , INC.

Respondents Clover Farm Store" Corporation and The Lane Lease Co.. Inc. , both Ohio corporations, and being the first named Respondents in these proceedings, hereby, pursuant to Rule 1\; 0. 2. 26 of the Rules of Practice of the Federal Trade Commission, file this report of their compliance with the order to cease and desist issued in these proceedings--, 1956. Said Respondents hereby incorporate by reference, as if fully rewritten. herein, the printed document entitled " Informal Statement of Proposed Compliance With a Consent Cease and Desist Order, a copy of which marked Exhibit A is hereto attached, and: 1. Amend the title of said document to read " Statement of Compliance With Cease and Desist Order 2. Amend Section I , entitlpd "I:\TRODUCTION" of said Statement by deleting the entire first two paragraphs of said Section J and inserting in lieu thereof the following:

Respondents Clover Farm Stores Corporation and The Lane Lease Co., Inc. submit the following Statement which, to the extent the same set;: forth representations of facts as existing at the time of writing- thereof, shall be taken to be part of the report of said Respondents of their com­ pliance with the order entered in these proceedings-, 1956. 3. Supplement said Statement by reporting that at a duly called and held special meeting of the stockholders of Clover Farm Stores Corporation held. on February 17 , I95R, the following resolutions were adopted and are now in full force and eifect, namely:

ADVISORY OPI;-IONS AND REQ"ESTS THEREFOR 1919 RESOLVED , that effective January 1, 1956 , Article VIII of the Code of Regulations of this corporation captioned " Patronage Refunds " be and the "ame hereby is repealed in its entirety, provided tj,at nothing herein shall affect in any way any rights or liabilities under said Article hereby repealed which were accrued as at thf' close of business on Decembpr :31 1955; and FURTHER RESOLVED , that there is hereby adopted, effective January 1, 195' , a new Article VIII of the Cod.e of Regulations of this corporation captioned " Policy as to Profits From Operations, reading as follows: , to be carried It is hereby declared to be the policy of this corporation out by its Board of Directors that:

1. No dividends sl1all be paid in any year upon the common stock of this corporation from its earnings from operations which arc in excess of $5. per share on the presently issued common stock; 2. In case the net earnings of this corporation from its operations for perany year, after paying or allowing therefrom an amount equal to $4.00 share for each share of preferred stock in the corporation outstanding at excess of S5.00 perDecember 31 of such year, plus such amount (not in share) as shall have been paid during such1 year as dividends on the common stock, shall exceed an amount equal to 7%( of the aggrcgate of the common stock capital account and all surplus accounts of the corporation as shown upon its books at the commencement of such year, then during the next hE'succeeding year amounts aggreg(\ting not less than such excess shah f'xpended by this corporation in institutional ad\' ertising; ;3. All net gains or proflts arising from the sale, exchange or liquidation by this corporation of capital or depreciable assets shah not be taken into account in any way in determining th amount to be paid or expended for institutional advertising as aforesaid, and nothing herein contained shall in any way limit or restrict the authority of the Board of Directors to retain and/or distribute among the stockholders of this corporation, in any manner permitted under the laws of Or. , the Articles and Code of Regula­ tions of this corporation, the net amount realized by this corporation by reason of any such sale, exchange or liquidation; and 4. The policy herein prescribed may be mod1ned, amended or repealed only by the stockholders of this corporation in the manner provided for amend­ ment of the Code of Regulations, but no modification or amendment may become effective so long as this corporation shall be receiving compensation from producers of products sold to the wholesale members of this corporation in the nature of the compensation for Advertising Service no being offered by this corporation to such producers.

FeRTHER RESOLVED. that the offcers of this corporation be and they hereby are authorized l1d empowered to embody the text of the foregoing amendments of the Code of Reg-ulations of this corporation as a part of the report of comrJliance by this corporation ir. proceedings under Docket No. fi144 before said Federal Trade Commission. \VHEREFOH.E, having fuiJy reported, sairl Respondents Clover Farm Stores Corporation and The Lane LC;Jt;c Co., Inc. pray that the Federal Trarle Commission will advise cac)l of them that, based on this report of 1920 FEDERAL TRADE COM "rsslOr- DECISIONS compliance, it docs not appear that these Respondents are in violation of said cease and desist order.

Dated this 1 day of May, 1956 CLOVER FARM STORES CORPORATIOr- Its THE LANE LEASE CO.

INC, Its ADVISORY OPI:-WNS AND REQUESTS THEREFOR 1921 Retention o.f the stock of an insolvent dairy company by the original acquiring company. (Docket No. 8674* Opinion Letter March 30 , 1973 Dear Mr. Jentes:

This is in reference to your letter of March 8 , 1973 , submitted both as a review of recent developments concerning Bowman Dairy up to. and including the March 7 , 1973 public sale of Bow­ man s capital stock and as a request by Dean Foods Company for Commission approval for Dean s retention of Bowman with­ out any further obligation to divest. According to your letter Dean was the only bidder at the public sale. Based upon thc information furnished and representations made in your letter of March 8 , 1973, as well as on other perti­ nent information and data previously submitted by Dean and Bow­ man in connection with this matter, the Commission has deter­ mined to approve Dean s request. In making this determination the Commission has relied upon the information submitted and the representations made in connection with respondent' s request and has assumed the same to be accurate and complete. By direction of the Commission.

Lette1' of Request March 8, 1973 Dear Mr. Ward:

As a follow-up to our telephone conversation, this letter will briefly review the recent developments regarding Bowman Dairy Company which culminated on March 7 , 1973 in the public sale of its capital stock pursuant to the Ilinois Co.mmercial Code. Since Dean was the only bidder at that sale and appears to be the only party willing and able to continuc the Bowman opera­ tions, this letter will also serve as our request that Dean be per­ mitted to retain Bowman without any further obligation to divest. As we explained during our meeting with the Staff on Febrn­ ary 20, 1973 , the reason for the public sale of Bowman was *For case before the Commission, see 71 F. C. 731. 1922 FEDERAL TRADE cnMMISSIO" DECISIO:-S the bankruptcy of Dextra Corporation, the company to which BO\\'man \vas divestect by Dean in 1969. Dextra still owes Dean 8481 000, plus interest, on the original purchase price which Dextra has been unable to pay due to its insolvency. As of Feb­ ruary 2, 1973, the Referee in thc Dextra bankruptcy proceeding lifted his earlier stay on Dean s efforts to realize on its Jien against the Bowman stock. Dean thereupon published notice of its intention to sell the Bowman stock at public auction on March 1973.

The notice of tbe public sale, a copy of which was previously supplied to the Staff, slated that interested parties could secure necessary financial and operating information concerning BO\\' man from a representative of Lehman Brothers, which has assisted Dean in its original efforts to divest Bmvman. Approxi­ mately 20 persons contacted Lehman, but only 3 parties at­ tenderl the auction. These were Mr. Owen Coon, a former direc­ tor of Dextra: a representative of the Mississippi Valley Milk Producers Association, Inc. : and an attorney for 1\-11'. Raymollrl Pedtke, a Chicago daily consultant. None of these parties made a bid for Bowman at the auction. As a result, Dean was the onlv bidder and it is now the owner of the Bowman stock. As we discussed with the Staff, these developments pose the question of what is nmv to become of Rmyman. '.Vhen Dean ini­ tially made its efforts to divest that company several years ago it was only able to find two prospects. One ,vas unable to come up with the necessary financing and the other was D-xtra which has subsequently gone into bankruptcy. The results of the public sale indicate that there are also no buyers who are jJrcsently wii1ing to come forward and take over Bowman. This is undoubtedly explained by the fact that Bowman owes 375 000 to the American National BanJ, which is secmed by a Jien ag-ainst all of the company s assets; the loan is in rlefault and the Bank has stated that it will foreclose unless a respon­ ible party tal(es over the Bowman operations; BO\vrnan has a negative working capital of 31,'93, 717 and a negative stockhold­ ers ' efluity of $358 744: BO\vrnan has been unable to make mol' than stop-gap repairs to its facilities for nearly 5 years with the result that they have seriously deteriorated and the Wisconsin Department of Agriculture has threatened to halt processing at its Racine plant; ano Bo"'man is currently operating at a Joss which amounted to $178, 743 for the 9-month period ending- December 31 , 1972. In addition, a $1.1 million suit was filed ADVISORY OPII'IOI'S A"ID REQUESTS THEREFOR 1923 against Bo\vrnan on March 6, 1973 by a company which was formerly involved with Dextra.

In short, Bowman is insolvent and a foreclosure by the Bank will put it out of business. This wil have serious repercussions for its employees and its customers. It will also result in a signifi­ cant loss for Dean, since a forced sale of the Bowman assets would be unlikely to realize more than the amount owing to the Bank. Thus, Dean would be forced to write off not only the $481 000 still owing on the purchase price, but also approxi­ mately $400 000 owed by Bowman on open account for milk which Dean has processed for Bowman in the Louisvjlle and 11aci11e markets.

ot only is the situation critical, but time is of the essence. The Bank has stated that unless it receives assurances in the next 30 days that Bowman s financial house is in order, the Bank will stop advancing the ,,;working capital funds 'Ivhich are neces­ sary to Bowman s continued operation. Dean is not prepared to assume this undertaking if it is faced with the prospect of once again attempting to find a buyer for Bowman, a task which it believes is hopeless. Employee moralc is deteriorating; creditors are expressing deep concern about extending further credit; and customers have become uneasy about their source of supply since the notice of the BO'lvrnan auction \vas published. For these reasons, wc respectfully request that thc Commission permit Dean to retain Bowman and not be required to make further efforts at divesture. Since the matter is a pressing one we sincerely hope that it will receive the earliest possible atten­ tion of the Staff and the Commission. Any assistance which you can render in this regard 'ivouJd be greatly appreciated. Ver:v truly yours, William R. ,Jentes

ADVISORY OPI:-IONS AND REQl:ESTS THEREFOR 1925 Acquisition of three department stores, located in shopping cen­ ters in the Washington, D.C. metropolitan area, by a realty and development corporation. (Docket C-1106) Opinion Letter Re: J. Korvette, Inc. May 30 , 1973 Docket No. C-1l06 Dear Mr. Harkrader:

This is in reference to your letter of April 23 , 1973 with annexed exhibits, requesting Commission approval for a transaction in which Arlen Realty and Development Corp. (Arlen), successor to E. J. Korvette, Inc., will accept assignment of leases and purchase fixtures and leasehold improvements of Lansburgh department stores in Langley Park, Maryland and Tyson Corner, Virginia; and additionally will purchase the real estate and fixtures of the Lansburgh store in Springfield Mall, Virginia from City Stores Company, New York, ;.ew York. Based upon all attendant circumstances, the Commission has concluded that the proposed acquisition wil not significantly affect competition and, therefore, has approved the proposed acquisition as set forth in your letter of April 23 , 1973, and supplemental materials thereafter furnished. In according its approval, the Commission has relied upon the information submitted and the representations made in connection with respondent' s application and has assumed the same to be accurate and complete.

By direction of the Commission.

Letter of Request Dear Sir: April 23 , 1973 Pursuant to Commission Rule 3. 61(f), Arlen Realty and Development Corp. successor to E. J. Korvette, Inc. , respondent in FTC Docket C-1l06 , (hereinafter referred to as Korvettes) hereby seeks Commission approval on an expedited basis, for a 1926 FEDERAL TRADE COMMISSIO:- DECISIONS transaction in which Korvettes would purchase certain real property interests and store fixtures owned by City Stores Company (City). The real property interests pertain to City Lansburgh' s stores in Tyson s Corners and Springfield Mail Virginia, and Langley Park, Maryland, and the fixtures located in those stores. Lansburgh' s is a six-store operation which because of increasing losses, City determined to discontinue prior to beginning negotiations for this transaction, If the transaction is consummated, it is anticipated that the Korvettes stores would commence operating at the locations mentioned from thirty to sixty days after City s closing. At the present time there are two Korvettes stores in the Washington area. Like Lansburgh' , the Korvettes stores have experienced deteriorating sales and earnings in recent years. It is the hope of Korvettes ' management that the opening of three new stores in the area will permit Korvettes to compete effectively in the area.

The added stores wi1 provide a greater sales base to support Korvettes advertising efforts. This wil permit Spreading advertising expenditures sales volume than is presently possible, thus achieving a substantial operating economy in this vital area. It wi1 also permit resort to more expensive and effective media such as television. The additional stores wil also permit area management and distribution costs to be spread over a larger sales base. Finally, Korvettes existing Washington stores-unlike the three proposed locations-are not located regional shopping centers, the most desirable location for retailers today. There is, in addition, no likelihood of additional centers in the foreseeable future (for environmental and other reasons ' ). Thus, this transaction represents the only realistic means for Korvettes to obtain regional shopping center locations and thus become a viable competitive force in the area. The Order in Docket No. C-ll06 requires Korvettes to obtain advance approval from the Commission for acquisition of " any department store or other GMAF store . The order also expressly states that nothing contained in the order restricts Korvettes right to open additional stores "through lawful internal expansion . On Aprij12, 1973 the Commission advised Korvettes that "the proposed arrangements (with City J require Ior!ltoria have been imposed in II number of counties and di tricts prohibiting development of regional shopping centers for reasons ndating to adequate sewerage disposal faciJitics, access roads, residential buffer zones and other similar matters. For example, Prince Gt'orges County, Maryland has recently imposed a sewer moratorium. In addition to environmental factors, economic factors such as land costs rising interest rates and the abi,ity of major department stores to Ilttractsufficientcustomertraffic to make regional centers viable have resulted in a drastic reduction of the development of such centers ADVISORY OPINIONS AND REQUESTS THEREFOR 1927 prior approval of the Commission under the above-mentioned order . In view of its prior agreement to abide by this determination, Korvettes does not intend to proceed with this transaction without the prior consent of the Commission. We submit that approval of the transaction is in the public interest, since it wi1 permit a highly aggressive price-and-quality-competitive firm now encumbered by an inadequate sales base to offer vigorous, widespread competition to the entrenched store operators in the Washington area. Meanwhile, no competitor in the market wil be lost by virtue of the transaction.

THE NEED FOR EXPEDITED ACTION For the reasons stated below; we urge Commission action on this request at the earliest possible time permitted by its Rules, Thus we ask (1) that this matter be placed on the public record as soon as possible; (2) that the staff make its recommendation duringthe 30-day notice period; and (3) that the Commission take action immediately upon the close of the 30-day period. The agreements with City mentioned in our letter to the Commission of April 11 , 1973, have been reinstated by the parties, subject solely to Commission approval ofthe transaction being obtained no later than May 31 , 1973.2 Submitted with this letter is the affdavit of Louis Me1choir executive vice president of City Stores, (Attachment A) which emphasizes City s critical need for expedited consideration of this request.

That affdavit establishes, first, that City has decided to cease its Lansburgh operation in the Washington area whether or not the Korvettes transactions are consummated. It shows, further that City s decision to cease the Lansburgh' s operation has become a matter of public knowledge. The virtually untenable position in which City has been suffering arises out of substantial losses sustained by its Lansburgh stores. City faces rapidly increasing losses with the public knowledge of Lansburgh' s coming demise. Its personnel organization is melting away, and customers are increasingly unwiling to deal with a store to which they know they wil not be able to turn for servicing or redress. City has ceased ordering new merchandise for these stores, causing their selections to be increasingly unsatisfactory to customers. Meanwhile, despite its mounting . The failure ofcertoin conditions precedent had cau ed the e ligreements to terminate on April 13, 197:. However, by virtue of an agreement of the parties a1l matters other than Commission approval by May 31 1973 have been waived.

(, ) ,, :\ 1928 FEDERAL TRAIm COMMISSIOl' DECISIONS losses, Lansburgh' s cannot halt operations because, at several locations, its leases require continuous operation of the stores. Thus, if the stores are closed, City may lose its leases. Indeed such closings, and consequent loss of lease rights, will thwart the proposed transactions with Korvettes, which, as hereinafter detailed, are clearly pro-competitive. City cannot even conduct going-out-of-business sales since, under law, such sales must be followed by an actual closing within a limited time period, an event City cannot be sure of while Commission review of the Korvettes transactions is pending.

Thus, the Commission is presented, on the one hand, with a transaction which, Korvettes submits, clearly merits approval as a desirable pro-competitive development in the Washington area department store market. On the other hand, the necessity for Commission review results in the imposition of extreme hardship on one of the parties to the transaction. Clearly, expedited Commission action is not merely justified, but imperative. Korvettes urges the Commission to take every step possible to ensure that its action is taken promptly following the 30 day notice period contemplated by its rules. DESCRIPTION OF THE TRANSACTION Copies of the operative agreements between the parties are submitted with this letter. (Attachment B) 3 The essential terms of the proposed transaction are as follows: Korvettes will accept assignments of the leases to the Tyson s Corner and Langley Park sites without paying any premium therefor and will acquire title to land and buildings in Springfield Mall. Korvettes will also purchase from City Stores at book value (depreciated to date of closing) certain fixtures located in the three premises. The transaction specifically excludes (1) the " goodwill" of City, (2) the name " Lansburgh' , (3) the inventory or stock of merchandise of either City or Lansburgh' , (4) customer or credit lists or applications therefor, (5) licensees and lease departments (e. the shoe department), (6) any other tangible or intangible property or property rights of City except as set forth in the Agreements. Nor does the transaction involve any commitment to the Lansburgh' s employees or any assumption of 'Korvet es reqt.eststf:atwo or. e page letten to Arlen from Cit . dated ;.!arci, :10 , 1873 anr: paragl" aph;J 0: a :etter from City to Arlen also dated :\jarch 30, 19,3 h aec(Jrd ,j confid.-nt:,,1 treat",,,r. !. by tiw rl11111,, ior. r"r8\Jar. to it Rulps. Tbs mill rial deals with possible future rel",ions wi\:1 some OJ' all o:1.he lanrJ:Qnb at lhr " s tes involved, Sucl non-published commercial and financial :nformatio!l would COne"lqLbl ' lJr used eith er by I a ndlord s to del a,' or frus,ra:e tle propo,ed prcI-O l petit I \' e trans actior. 0 I' by rom (Jr such. tile formalion ('onta ed there:n is higr, l,' confidential. S'Jh informal\t:or. fall:; within" :I protl', 'h'1. of Senior. 6(f of the Federal Trade Commi sjo" Act, ::; U. c. * 6(t; ar. :;5 (6)( : the F"E' d(1m of InforTlJation Act, :; 1;, 'i2(6)( ADVISORY OPINIOKS AKD REQ"ESTS THBREFOR 1929 maintenance and service contracts. In addition, all leased departments involved "in the Lansburgh's operation must be removed.

Korvettes is obligated to pay the following consideration: At Langley Park, in addition to assuming the lease, there is to be paid an aggregate of $127, 740 (book value as of February 3 1973) for leasehold improvements and fixtures less the depreciation (12 /2 percent annual rate at all three stores) to Date of Closing, and $1 000 (or actual cost) for those leased departments (e. the shoe department) fixtures which City Store must repurchase from its lessees. The aggregate cost for purchase of leased department fixtures in all three stores is not to exceed $100 000. At Tyson s Corner, in addition to accepting an assignment of the lease, Korvettes is to pay an aggregate of $1 781 908 (book value as of February 3 , 1973) less depreciation to Date of Closing for leasehold improvements and fixtures and $39 000 (or actual cost) for those leased department fixtures which City Stores must repurchase from its lessees. At Springfield, City Stores wil receive $3 730 795. 68 for the land and building (less depreciation to Date of Closing) and $1 600 000 (book value as of February 3 1973) for leasehold improvements and fixtures (less depreciation to Date of Closing), and $60 000 (or actual cost) cash for those leased department fixtures which City Stores must repurchase from its lessees. Pursuant to this agreement, Franconia Associates, tbe developer of Springfield :vall, may realize a profit. If Korvettes is able to operate a Korvettes store at Tyson Corner, it will pay Franconia Associates $700 000 to $800 000; if not, City is obligated to repurchase the Tyson s Corner fixtures from Korvettes for the original purchase price and City in turn is obligated to sell the fixtures to Franconia Associates for S1.00. Additionally, Korvettes bas agreed to indemnify City up to $60 000 annually for a possible lease loss in connection with City Stores ' Rockville store. Finally, in connection with the extension ofthe closing date necessitated by seeking FTC approval, certain provision of the agreements were modified in a manner which provides an additional $130 000 for City if the transaction is approved by the Commission.

A DESCRIPTIO:o OF THB KORVETTES OPERA TIO!' A complete description and recent history of Arlen s business and, in particular, its Korvettes department store division is contained in the reports to shareholders and prospectuses (from 1969 to present) that are submitted with this letter. (Attachment C) A brief summary of this description here follows: ( . :) ,!, ) , ;).

1930 FEDERAL TRAm; COM:VIISSION DECISIONS In addition to operating' Korvettes, Arlen is engaged in the development and construction of a wide variety of income-producing real estate, including shopping centers residential complexes, office buildings and planned communities in 30 states. In its fiscal year ending February 29, 1972 , Arlen had total net sales of $759 699 000 and net earning's of $5 817 000 (after an extraordinary loss of 85 855 000). A majority of the Korvettes department stores are located in major metropolitan areas, including ::ew York, Chicago Philadelphia, Detroit, Baltimore, Washington and St. Louis. The stores sen, for cash or credit, a wide assortment of merchandise including apparel and home furnishings, principally in the medium- priced lines. At the end of fiscal 1972 , Korvettes operated 51 stores.

In the last few years Korvettes, in common with all of the nation s major department store retailers, experienced rising costs and reduced profit margins. For Korvettcs, retailing on a national level has become l110re competitive than ever. In the \Vashington area in particular, Korvettes has experienced an adverse sales and profit trend contrary to the area in general. Thus, Chart 1 , attached hereto ' relating to the sales and earnings of the t\vo Korvettes stores in the Washington area is to be contrasted to the increase in total retail volume in Washington from 1970 to 1972 of 16% (From $5. 95 to $6. 9 billion) rSource: Washington Post research departments and a 13. increase in monthly sales figures from October 1971 to October 1972 (from $77. 5 million to $88.2 million 5 ). Accordingly, Korvettes sales have not even reflected the pressures and increases attributable to inflation.

In considerable part, this experience is believed to be attributable to the relationship between advertising costs and an inadequate sales base in the vVashington area which has prevented Korvettcs from being a rneaningful competitive force. At thc present time, Korvettes spends a percentage of its V\Tashington area sales on advertising which is disproportionate to its chain-wide average and department stores averages 'Kon. el,es rer:\a"l :lint Chart) be ,, ()"(i c: cOYJ ident:al tle"u"""t b, COlllli :o" . pClr,uant In ;ls HLdc_ . Kc' enes d() )ot rli close ~Jer:ol."'nr_ c" lccol'd 0: il;(ii"i,;\:,,1 "lorc, 'ocCE\l: e it cor. siders ,\\-,,,h don,Wli,1l highly,- col: idenli,li hum " CfJlJlpditi,e ol"r-dpoiJll. S' J('h l(lr. )Jubl:s;""d cOlllle'Ti,,1 ""d :in," lc:,,1 ::li ormntiun (' ou:d IH.' u,ed to Kune:te,; d..'u-illel t b,. l'(\llpet: 'i, Sue :, il hl"matio" falis withiYJ ,he protpctiol1 of Sect:ul: I,::l of t;1e Federal Tra( " ("clllli",:on .-\e:, ),5 FS- fi:f) an(: 52':01(-:) uf the cedom of Idol' nH\tlu l Ad, ,'j t'S, c. ,,216:'(11. El'Onn,":(, Inrlil'atr, , or"I:' \\,,"I :Lj!:O:1 ;.ielrn,wlita" Scollom,' for Octo 1,2 :s cOTlpiled by L1('partn "1 c.: 2"1' 0)1,)1 Var. ill". .\1.,,_ ,-o,JO:itf\' \r"";l!l;gUJll ('"", c;1 uf Go' 1n:,,"'I, 1931 ADVISORY OPINIONS AND REQUESTS THEREFOR generally. ' (See Chart 2 , attached hereto. ') Korvettes management estimates that a retail volume in the range of $50 000 000 is necessary to support the advertising program both as to type and volume, which is necessary for effective operations. Korvettes, for instance, has not been able to use the more expensive and effective television medium in Washington. could beOther fixed area management and distribution costs used more effectively if more stores were involved. Meaningful expansion of the sales base by means of new locations is not viable by virtue of the absence of development of new regional centers. The proposed construction of a Korvettes store at what was deemed to be a marginal location at Springfield, Virginia has been abandoned. It is Korvettes understanding that the space may be used for other retail purposes.

A DESCRIPTION OF CITY STORES, INC. , LANSBURGH S DIVISION City is fully described in the Melchior affdavit and its Exhibits (Attachment A). In summary, it is a general merchandise retailer which operates, among others, Lansburgh' Department Stores as a division of the company in the greater Washington, D. , area consisting of department stores located in downtown Washington, Shirlington (Va.), Rockville (Md. Langley Park, Tyson s Corner and Springfield Mal!.8 Lansburgh' s bas been owned by City since 1951. Lansburgh' s was late in expanding from a single downtown site to the suburbs, where nlost area department store sales are made. Starting in 1968 Lansburgh' s began to experience a sevcre decline in sales and profits. It has lost an aggregate of$l1 million during the fiscal years 1968 and 1972. While Lansburgh' s in the fiscal year ending February 28, 1973 , produced but 8% of City sales, its losses of $3.7 million partially offset the profit contribution of $5.2 milion made by City s 10 other divisions. At present Lansburgh' s is losing $100 000 a week. This weekly loss is expected to increase due to factors previously noted. By 1972 , City s management realized the Lansburgh' situation was hopeless, and on January 5 1973, City s board of Directors ordered the liquidation of the Lansburgh' s division. 'These diffic'JI "5 arc comp()un,ied by th hig) lineage rates for Washinr;tun advertising, ashin!,rton Post ofs1.10per h;e as ('lJllJpared to Bali"1orp Sun 8. 59 pe"line. KOJTettes reql,est, that Chart 2 be acconleri confidentifll treatment. pursuant to its Rules. for the reason, set O'Jt in 'J", footr.ote on page 10 hereof. , TLe location of these stores, the two KOJ"Vettes stor s ;lnd the other \\ l'shingi(\n area ricpartment stores areidentif:ednntheattachedrnf.p(1Ilap.-\ttachJJocnt). This decision and negotiations with other companies antedates the discussions which resulted in the instant transaction. Two facts are thus clear: (1) Lansburgh' s intends to close without regard to whether the Commission approves this transaction and (2) the transaction with Korvettes is the only one available City which provides City with a viable business arrangement. Further, the Melchior affdavit (Paragraphs 4 , 11 and 12) provides solid ground for the belief that disapproval of the transaction with Korvettes will lead to expansion by companies which are already present and dominant in the area, such as Sears, Roebuck & Co., J. C. Penney, Federated Department Stores, Garfinkel' s and L. S. Good.

DESCRIPTIO" OF THE MARKET Since there is no single readily available source of department store statistics, we set forth below market share data for the Metropolitan Washington market from a variety of sources. In the October 30 1972 issue Sales Management magazine reported (p. 98) that Metropolitan Washington would generate over $7. billion in retail sales during the year 1973. That same publication estimated that department store sales in Metropolitan Washington amounted to $1.3 billion in 1971. Accordingto Editor & Publisher s Market Guide, 1972 ed. , general merchandise sales for 1972 were $1 297 746 000 and, when added to the furniture and apparel sales, totalled over $2 billion for combined department and " GMAF" store sales.

Based upon assumptions that total department store sales are S1.3 billion and total department store GMAF store sales are billion, upon the number of stores operated by certain retailers in the area, upon sales figures published in the April 16, 1973 issue of \\Tomen s \Vear Daily and upon certain estimates by Korvettes officials, the following chart provides dollar sales volume and market shares of what are believed to be the fourteen leading department store chains in the Washington area.

;\ ... .............. ....., . . _ . .... 1933 ADVISORY OPINIONS AND REQUESTS THEREFOR Total Total Dept.

Sales In Dept. S o!'e Store G:\L\F Rank Stores ).Iilljor. Percent Percent Sears Roebuck $165 12. Woodward & Lothrop 153 11. Hecht 140 IO. Mon tgomery \Vard e. Penney 5.4 Zayre....

Garfinkels 38. Lansburgh' 28. 1.4 Mart 1.9 1.25 10. Korvettes 1.5 1.0 11. Kleins 1.2 12. Giant 1.2 13. GE2\ 14. ME1!CO Total Sales of Top Fourteen. 8832. 6:J. 41.65 lVloreover, while the discussion in the following section deals with competitive impact in terms of the department store market, such stores are in competition with many specialized retailers which sell tbe same sorts of goods (apparel, appliances, home furnishings, automatic accessories, etc.). Of total retail sales in the area, the competing store groups account for the percentages shown in tbe following table. -1i1be1'af rer ent of Area Catego1" F:stabli,hments' Rdb.il Sales 1971' Department stores. 15. Furniture, appliances, home furnishings. 829 Apparel 055 529Drug. .

Variety and other general merchandise., . 358 Tires-batteries-accessories .. 411 I "'number 0: estabJishme'lt, are for 1967 and are derived fram the Cents'-s of Retailing. The urrent nup.1bn i beiieved to be greater.

'Based nr. S(1!es \1rllwrlc1lJenl estimates, October 30. 1972 , p, is. J Estimated fron natio11a1 avera"e Korvettes sells appliances and thus competes not only with Sears, Montgomery Wards, Hechts, etc. , but also with George Dalmo, and many other highly effective retailers. Korvettes drug department competes with Drug Fail' , Dart, and Peoples among others. Its shoe and apparel departments are faced with competition from local and nationally-identified shoe chains and more than a thousand other stores selling diverse soft goods. In the sale of tires, batteries, and other auto accessories Korvcttes competes with Market Tire outlets for Firestone and other tire manufacturers, similar specialized sellers, and about 1 500 gasoline service stations. All told, as revealed in the table, the Washington area specialized stores that sell the same types of merchandise as are vended by Korvettes account for substantially more in dollar sales than all the department stores combined.

COMPETITIVE IMPACT It is relevant to note again that City s decision to close its declining Lansburgh' s operation in 1973 is irrevocable and that Korvettcs is paying City hook value of certain assets and is not acquiring a going operation. No customer lists, accounts receivable, trade name, goorlwill or similar assets are involved. These are all retained by City. Indeed, by virtue of City less than-vigorous merchandising since March (see 1\1elchio1' affidavit 15-16) there is, if anything, a ncgative public image of the stores now operated at the location at which Korvettes stores would operate if the transaction is approved. In light of these facts, this transaction should not be viewed as a conventional merger between two active competitors where the surviving firm can be anticipated to retain the share of the market equal to , inthe sum of the two firms prior to the merger. Korvettes attempting to project anticipatcd sales for 1973, regards the Lansburgh' s transaction as an internal expansion whereby Korvettes increased market share will depend solely upon the success of its own merchandising and promotional activities without any carry- over benefits from the Lansburgh' operation.

Korvettes vVashington operation has not been as effective a competitor as might be hoped principally because the volume of its vVashington sales cannot support an effective advertising effort and fixed area management and distribution costs are disproportionately high for two stores (see p. 10). By increasing the number of its \Vashington stores from two to five, Korvettes sales volume will increase to a level whicb will enable it to ADVISORY OPINIONS AXD REQUESTS THF:REFOR 1935 undertake the kind of promotional and merchandising activity needed to compete effectively in Washington. While this transaction will thus enable Korvettes to compete more effectively, Korvettes prospective market share increase is no cause for concern. On the basis of the estimates of the total market and existing shares set forth on page 15 above, Korvettes market share after the transaction will not be adverse to competition. Even if one made the invalid assumption that the dollar volume generated by all six Lansburgh' s stores in 1972 would flow to Korvettes in 1973 (although only 3 of the sites arc to become Korvettcs stores), the transaction with City would only result in a 3.7% share of the Washington market for Korvettes, based on 1972 figures.

We also note that the 3. 7% market share for Korvettes projected as a result of this transaction does not fail within the Department of Justice Guidelines for horizontal mergers which the Department stated that it would ordinarily challenge. Further, this market share figure, even if it were a meaningful measure within the department store market, must be regarded as a ceiling figure because of the competition from other retailers, as discussed at pages 15- supra. moreover given Korvettes limited market penetration and adverse trend in the area, it can fairly be regarded as analogous to a company not yet in the area. This is particularly true when the proposed transaction is reviewed in the light of likely alternative operations at the locations in question. Finally, the Commission should not ig-nore the fact that tbe proposed transaction will result in the acquisition of a site for Korvettes, an aggressive, price-and- quality competitive merchandiser, in the Tyson s Corner Shopping Center, an objective consistent with the Commission s own actions regarding that center (complaint issued on May 8 1972 , FTC Dkt. 8886 , 3 Trade Req. Rep. ';20 003).

Thus, the effects of the transaction can in no way be sug-g-ested to have any adverse implications on the market. No corporate merger activity appears likely to be encouraged. K 0 dominant or significant share of the market appears likely to concentrated. No trend toward concentration has existed or appears likely to be encouraged by the transaction. )/0 meaningful anti-competitive effect upon the suppliers or other firms or companies appears likely to occur as a result of the transaction.

In fact, this transaction has pro-competitive effects which can only be a positive force in the Washington market. The 1936 FEDERAL TRADE CO:vMISSJON DECISJO anti-competitive and restrictive agreements which purport to exclude Korvettes and other promotional department stores from the original shopping centers in the District of Columbia area would receive a sharp setback. A potentially vital competitive force would be added to the market, quickly and with no apparent loss of any competitor or competition in the area by virtue of the transaction.

Respectfully submitted, WALD, HARKRADER & ROSS Carleton A. Harkrader George A. A very Alexander W. Sierck Of Counsel:

Donald R. Levin Barry J. Bratt Parker, Chapin & Flattau 520 Fifth Avenue J\ew York, J\ew York 10026 1937 ADVISORY OPINION:-S AKD REQUESTS THEREFOR Proposed establishment ofa wholly-owned subsidiary which would collect consumer indebtedness without identyfying American Oil Co. as owner (File 733 7005).

Opinion Letter May 16 , 1973 Dear Mr. Goetsch:

This is in response to your letter requesting an advisory opinion regarding the establishment by American Oil Company of a wholly-owned subsidiary to engage in the business of collecting consumer indebtedness without identifying American Oil as tbe owner thereof.

In that letter, you requested answers to two specific questions: 1) Would the operation of the collection subsidiary violate the Commission s Guides Against Debt Collection Deception; and 2) Would tbe operation of the proposal violate the September 13 , 1967, Assurance of Voluntary Compliance entered into by American Oil? The answers to each of these questions are in the affirmative. The Commission s Guides Against Debt Collection Deception provide that:

An industry member shall not use any deceptive representation or deceptive means to collect or attempt to collect debts or to obtain information concerning debtors.

The Guides describe misrepresentations that the Commission has prohibited, including:

(6) that debts have been turned over to an attorney or an independent organization engaged in the business of collecting past-due accounts. Your proposal to create a wholly-owned subsidiary to engage in debt collection urithoLd identifyi"ng Alnerican Oil as the o' owner of the subsidio)' is therefore precisely the type of deceptive representation prohibited by the Guides. The Assurance of Voluntary Compliance entered into by American Oil on Scptem bel' 13 , 1967, contains the representation of American Oil that it would discontinue representing to the pu blic that its receivables had been referred for collection to an independent agency or organization unless such receivables were in fact so referred. American Oil' s present proposal differs little in substance from the activity terminated by the 1967 1938 FEDERAL TRADE CO)lMISSIO:- DECTSIO:-S Assurance of Voluntary Compliance. The subsidiary proposed does not appear to the Commission to possess the attributes of independent organization. That lack of independence, coupled with the intention not to identify American Oil as its owner effectively brings the present proposal within the ambit of the 1967 Assurance.

Accordingly, you are hereby advised that your proposal that American Oil Company establish a wholly-owned subsidiary for the purpose of collecting consumer indebtedness without identifying then1selves as the owner of said subsidiary is disapproved.

By direction of the Commission.

Letter of Request September 8 , J 972 Dear Sir:

The American Oil Company, a wholly owned subsidiary of Standard Oil Company (Indiana) engaged in the refining, marketing, and transportation of petroleum products, currently evaluating the economic feasibility of establishing a subsidiary company to engage in the business of collecting consumer indebtedness.

It is contemplated that sucb a collection subsidiary would bc \wholly owned by American, that its directors would employees of American, but that it would operate independently of American and that its officers and employees would not be employees of American. The subsidiary would operate in all 48 contiguous states and would accept business from the public at large as well as from American. It is anticipated that, when 500(.. of itsestablished, this subsidiary \vould obtain no more than business from American Oil \with the remaining 500/6 coming from unconnected outside chents. In the inHial stages some\vhat marc than 500/0 of its business may come from American. The subsidiary would be an autonomous business and \vould have to be self-sustaining.

I would like to solicit your advise on the following two issues. First, would operation of such a collection subsidiary without identifying American Oil as the owner thereof be considered an infringement of any of the Commission s Guides against Debt Collection Deception. Secondly, would operation of such a collection subsidian,T infringe the Assurance of Voluntary Compliance filed by American with the Commission on ADVISORY OPJNIO:-S AND REQUESTS THEREFOR 1939 September 13 1967 in which American declared that it would not represent that its receivables had been referred for collection to an independent agency or organization unless such receivables were so referred.

In accordance with 1.2 of the Commission s Procedures and Rules of Practice, I can assure you that a collection subsidiary is not presently owned or operated by American Oil nor does it form the basis for any investigation or other proceeding by the Commission or any other governmental agency. Thank you for your consideration of this matter. Very truly yours /s/ RICHARD J. GOETSCH

ADVISORY DECISIONS AND REQUESTS THEREFOR 1941 Personal deodorant spray, Digest No. 265. Regal Chemical Corporation, (File 683 9004).

Letter Granting Access to Advisory Opinion Request June 26, 1973 Dear Mr. Young:

This is in response to your letters dated January 23 and Febru­ ary 13, 1973, in which you requested access to the file identified above.

Access to the request for the advisory opinion, together with the material submitted by the requesting party has been granted. You also have been granted access to the Se.cretary s response which contains the advisory opinion. You have not been granted access to other mate1"ials such as internal working papers which are exempt from disclosure pursuant to Section 552 (b) (5) of the FOIA.

You should contact Mr. Gerald Thuot in the offce of the Com­ mission s Secretary to arrange a mutually convenient time to ex­ amine the file and to make arrangements to obtain copies you may want. Mr. Thuot's telephone number is 962-3321. By direction of the Commission, Correspondence P"'taining to Request for Access. May 9, 1973 Dear Mr. Engman:

As attorneys for Mr. Anthony L. Young, we are forced to ap­ peal to your offce in order to obtain a prompt agency disposition on Mr. Young s request for the advisory opinion and the informa­ tion upon which the Commission based its conclusion, in the mat­ ter of Advisory Opinion No. 265 (16 C. R. S 15.265). Pursuant to the Freedom of Information Act, Mr. Young re­ quested these records in a letter on January 23, 1973. In a subse­ quent letter dated January 31 , 1973, Mr. Charles A. Tobin, Secre­ tary to the Commission, advised Mr. Young that his request had been "placed in the proper channel for expeditious treatment". On April 12, 1973 the Institute advised Mr. Tobin, by letter, that the Institute represents Mr, Young in his efforts to obtain disclosure 1942 FEDERAL TRADE COMMISSION DECISIO:-S of the records. We reiterated Mr. Young s immediate need for the records, restated the mandate of the Freedom of Information Act for prompt disclosure, pointed out the serious delay in agency action on the request, and urged prompt disclosure. In a letter dated April 20, 1973, Mr. Tobin advised us that a recommendation as to what action the Commission should take was prepared in the Offce of General Counsel, and that the re­ quest must be considered by the Commission. To this date, we have received no agency disposition on the matter. In view of the extreme and unwarranted delay in Commission action on the request, Mr. Young s immediate need for the infor­ mation, and the Freedom of Information Act's mandate for prompt disclosure of identifiable records, we respectfully request that the information be made available by May 25, 1973. Alterna­ tively, we request that the Commission s written reasons for non­ disclosure on the merits, be sent to us by that date. If neither the requested records nor the Commission s written reasons for nondisclosure is made available by that date, we wil be compelled to conclude that the Commission s inaction consti­ tutes final agency denial of the request and wil take further action consistent with the Act's requirement of prompt disclosure. Sincerely, Isl Richard B. Wolf, Esq.

Isl CaJiph Johnson, Esq.

Apr. 20, 1973 Richard B. Wolf, Esquire Caliph Johnson, Esquire Institute for Public Interest Representation Georgetown University Law Center 600 New Jersey Avenue, N.

Washington, D. C. 20001 Gentlemen:

This is in response to your Jetter dated April 12, 1973 in beha,f of Mr. Anthony L. Young who requested access to the Commis­ sion s file which is identified above.

ADVISORY OPINIONS AND REQUESTS THEREFOR 1943 The request for access to the file must be considered by the Commission (see Commission Rule 4. 11). A recommendation as to what action the Commission should take was prepared in the Offce of General Counsel.

Promptly after the Commission considers the request and acts upon it you wil be apprised of the result. Sincerely, /s/ Charles A. Tobin Secretary April 12, 1973 Dear Mr. Secretary:

Please be advised that the Institute represents Mr. Anthony L. Young in his efforts to obtain disclosure of the request for the advisory opinion and the information upon which the Commission Advisory Opinion No. 266based its conclusion in the matter of (16 C. R. S 15.265).

:vr. Young requested disclosure of these records in a letter dated January 23, 1973. In a letter dated January 31 , 1973, you advised him that his request had been "placed in the proper chan­ nel for expeditious treatment." To this date, Mr. Young has re­ ceived no agency disposition on his request. Because Mr. Young has an immediate need for the information the Commission has failed to act in nearly four months, and the Freedom of Information Act mandates prompt disclosure of iden­ tifiab:e records, we respectfully request that the information be made availab:e by April 30 , 1973. In the alternative, we request that the Commission s written reasons for nondisclosure be sent to us by that date.

If neither the requested records nor the Commission s written reasons for nondisclosure is made available by that date, we will be compelled to conclude that the Commission s inaction consti­ tutes a denial of the request for disclosure. Based on the provi­ sions of 16 C. R. S 4. 10(d) (revised as of February 3 1973), we will also be compelled to conclude that the inaction constitutes final agency action and wil take further action consistent with the Act' s requirement of prompt disclosure. Sincerely, /s/ Richard B. Wolf, Esq.

/s/ Caliph Johnson, Esq.

February 13, 1973 Dear. Mr. Dietrich:

By Jetter of January 23, 1973, I sought to inspect, pursuant to the Freedom of Information Act, 5 V. C. 552, the request and the information upon which the Commission based its conclusion in the matter of Advisory Opinion No. 265, 33 F.R. 9816, July 9 1968.

On January 31, 1973, Mr. Tobin acknowledged receipt of my request and advised that it had been placed in the proper channel for expeditious treatment.

On February 9, 1973, :lfr. Neil Arthur of your Offce of Legal Services advised by telephone that the file in the matter could be inspected at the Commission s Public Documents Room at my con­ venience. On February 12, 1973, Mr. Arthur advised that he had been in error on February 9 , and that this file was protected by some kind of grandfather clause and further that the request for inspection must be cleared either by you or the full Commission. On February 13, 1973, Mr. Arthur advised me that the request the digest and the opinion in the matter would be available but that the facts and scientific information to which the Commission specifically referred might be exempt from disclosure. REASON FOR REQUEST While the Freedom of Information Act does not require that a person requesting information from a federal agency give reasons for such request, I would like to explain that I am concerned with the regulatory status of feminine deodorant sprays, most of which contain ingredients which cause the products to inhibit the growth of body odor causing bacteria. Advisory Opinion :\0. 265 con­ cludes that such products are cosmetics. Inasmuch as the growth of body odor causing bacteria is a function of the body of man and inasmuch as "articles intended to affect the structure or any function of the body of man" are drugs ADVISORY OPINIONS AND REQUESTS THEREFOR 1945 by definition, it would appear that the Commission has made an error.

The Commission s possible error has been compounded by the reliance which the Food and Drug Administration, through its General Counsel, places on Advisory Opinion No. 265. In a tele­ phone conversation with Mr. Hutt on December 22, 1972, I raised the question of whether feminine deodorant sprays might be drugs since they utilize antibacterial ingredients to obtain deodorant effect. While not specifically agreeing with it, Mr. Hutt cited Advi­ sory Opinion No. 265 as authority for the proposition that these products are not drugs.

I might add that the Advisory Opinion No. 265 has the potential of clouding other important regulatory action. The FDA is now reviewing the safety and effcacy of antimicrobial ingredients used in bar soaps. Some of these products make claims of antibacterial effect (Safeguard) and are classified as drugs while others claim only deodorant effect (Lifebuoy) and are classified as cosmetics. , however, contain the same antimicrobial ingredients and an are intended to inhibit the growth of odor causing bacteria. The pernicious impact of Advisory Opinion No. 265 is so great that FDA has considered asking the Commission to withdraw it. Because of an this, it is necessary that I examine the facts and scientific information utilized by the Commission in reaching its decision. This is preliminary to asking that the opinion be reconsid­ ered.

SECRECY From my conversations with Mr. Arthur, it is my understand­ ing that prior to October 11 , 1969, the Commission granted blan­ ket confidentiality to requests for advisory opinions in order to encourage competitors to look before leaping. Although it is not apparent from the Code of Federal Regulations, the Commission advised its staff that this policy had changed on the above date. I would assume that only trade secrets are now protected. The Freedom of Information Act became Jaw on July 4, 1967. I would consider that any blanket grant of confidentiality by the Commission after that date to be u'tra vires and without effect. I do not desire to see Regal Chemical's trade secrets. Nor do I desire to see any of their commercial or financial information which is privileged or confidential. None of the above classes of information appear to have been necessary to the decision of the Commission.

I do not desire to see inter-agency or intra-agency memoranda. However, if these memoranda contain factual or scientific data which can be disentwined from the staff recommendation process and the factual data is not within some other exemption, so much of the memoranda as is of a factual character must be disclosed. By copy of this letter, I am advising Mr. Hut! of my request. I would also ask that you contact him with regard to this matter inasmuch as Advisory Opinion No. 265 appears to be covered by paragraph III (a) (1) and (2) of the FTC-FDA Memorandum of Understanding.

It is requested that the written reply I receive from you or from the Commission constitute final agency action. Sincerely yours, Isl Anthony L. Young 23 January 1973 The Secretary Federal Trade Commission VVashington D. , 20580 Dear Sir:

Pursuant to the Freedom of Information Act 5 U. C. 552, it is requested that the following information be made available for my inspection at the offces of the Federal Trade Commission; 1) The request for advisory opinion submitted by a manufac­ turer of a personal deodorant spray that resulted in Advisory Opinion #265, 16 C. R. 9 15.265 , 33 F. R. 9816 , July 9 1968. 2) All facts and scientific information, including submissions by the manufacturer, upon which the Commission based its conclu­ sion in paragraph (c) of Advisory Opinion #265. If there are any problems with this request the undersigned may be reached at 624-8379. Thank you for your consideration. Sincerely yours Isl hony L. Young ADVISORY OPINIONS AND REQUESTS THEREFOR 1947 Opinion Letter June 17, 1968 Dear Mr. Heilig:

This reply is in response to your request for an advisory opinion in regard to four proposed advertising concepts of your Code No. 3047 Medicated Personal Deodorant Spray designated " Skin Mate." The advertising was submitted to the Commission by the Market Planning Corporation of New York City. The Commission has given careful consideration to a1l of the data, reports, etc., submitted with your letter of March 13, 1968, in regard to this matter. After due consideration of all the facts and scientific information available to it, the Commission is of the opinion that the product is not a drug but a cosmetic, and that it has not been cleared, approved or endorsed by the Food and Drug Administration. Under these circumstances, therefore, the Com­ mission is of the opinion that the following claims appearing in concept ad # 1 are false and mis eading: The government would not let us print this if it were not true, Skin :Water * * * is cleared as a drug proven effective and safer for your skin, And while no government agency endorses a product, the facts of this clearance are important to you * * * because safe' and ' effective ' are precisely what you hope your deordor­ ant will be.

N 0 other personal deodorant you can buy has been so cleared. "

The Commission is also of the opinion that any advertising claims with respect to the safety and effcacy of the product which go beyond those which appear in the label would be improper. In essence, advertising claims should not exceed the claim that the product inhibits the growth of body odor causing bacteria. In view thereof, the Commission is of the opinion that the following claims, if published, would violate Seotions 5 and 12 of the Federal Trade Commission Act:

Concept Ad # 1 :

"* * * tested against the three most popular spray deodor­ ants by Price Research Laboratories and found to be more effective as measured by the scientifically accepted test of deodorant effectiveness.

"* * * use the one that has been proved effective and safer for you, Concept Ad # 2:

* * a medical answer to perspiration odor, , the medical answer is to fmd the most effective way of stopping the bacteria and you will find the most effective deodorant."

This is what Skin Mate does and is. Scientific tests in Price Laboratories prove that Skin Mate with Triamite plus is more effective against the six ' odor bacteria' than anyone of the three most popular deodorants-and safer for your skin. Skin Mate destroys bacteria that the other deodorants leave be­ hind, 11* you can have extra protection, more effective protec­ tion and safer protection against perspiration odor. "* * * why not use the one proven to be effective and safer. Concept Ad # 3:

Skin Mate is a safe deodorant-created to stop perspiration odor without irritation, Skin Mate eliminates the cause of odor. . . proven most effective against the six skin bacteria that cause odor. Sci­ entific tests show that Skin Mate is more effective against the cause of odor than the three most popular deodorants. "* * * the safe deodorant * . * will stop odor without irrita­ tion, no matter how much you perspire.

The Safe Deodorant, Concept Ad # 4 :

This double deodorant provides extra protection for those tense moments, and longer lasting protection so you won t be surprised at the end of a long evening.

By attacking the * * * six ' odor bacteria' found on every­ one s skin. Skin :\Iate is more effective at getting rid of these odor causers. It kills the bacteria other deodorants leave be­ hind. Yet Skin Mate is completely safe to your skin. Skin Mate. The safe deodorant, Finally, and with regard to the word "new" which appears in all four advertising concepts, it is the policy of the Commission, as a general rule, to question the use of any claim that a product is new" for a period of time longer than six months. By direction of the Commission.

ADVISORY OPINION:-S A:-D REQUESTS THEREFOR 1949 Letter of Request for Advisory Opinion May 3, 1967 Dear Mr. Helm:

We are contract aerosol fillers and do not market any products for our own account. We sen to distributors who accept our for­ mulation and claims as "Cleared" by the Food and Drug Adminis­ tration (pursuant to the Kefauver-Harris Drug Act of 1962) and market our product under their name.

In particular, a nationally known company, is interested in dis­ tributing and advertising our MEDICATED PERSONAL DEO­ DORANT SPRAY (Code 3017) as per attached copy of claim sheet submitted to the Food and Drug Administration and their Clearance " of same dated December 6, 1966. Since this product meets United States government standards for safety and eJJ'ec­ tiveness as implied in the enclosed FDA " Clearance, our account wants to use the following statement in their advertising- This product meets United States Government standards for safety and effectiveness It is not intended to vary from this particular phrase because it is a truthful statement.

We would appreciate your advisory opinion in the above matter. Sincerely, REGAL CHE:\ICAL CORPORATION Isl Theodore Heilg President Encl.

SKIN MATE"

MEDICATED PERSOKAL DEODORAKT SPRAY Contains Triamite-the new antibacterial agent. Immediately effective-prevents odor all day. Helps dry moisture.

Docs not clog skin pores.

Does not irritate skin.

Quick drying-non-sticky or gummy.

Does not stain clothing; or damage fabrics. As an aerosol, it is completely sanitary-convenient to use by the whole family.

Body odor is a social matter-be i'ocial1y safe-obtain relief by using SKIN i.HATE :Medicated Personal Deodorant for that extra deodorant effectiveness.

10. Tests have proven SKIN MATE effective against 97% of bacteria nor­ mally found on the body.

::leets safety and effectiveness requirements of government agencies. December 6, 1966 Regal Chemical Corporation 115 Dobbin Street Brooklyn, Xew York 11222 Attention: Mr. Theodore Heilig Gentlemen:

This is in reply to your letter of September 6 , 1966, regarding your "Code No. 3017 ::fedicated Personal Deodorant Spray. In our opinion, this proposed drug is not a new drug as defined in the Federal Food, Drug, and Cosmetic Act. \-Ve offer no objection to this formula­ tion under the proposed labeling.

Sincerely yours /s/ .John F. Palmer Assistant to the Director for Industry Coordination Bureau of Medicine Food and Drug Administration CODE NO. 3017 MEDICATED PERSONAL DEODORANT SPRAY contains TRIAMITE' , SURTENOL" , HEXACHLOROPHENE ALCOHOL 40% AXTIBACTERIAL INHIBITS THE GROWTH OF BODY ODOR CAUSING BACTERIA 2 SECOND SPRAY HELPS PREVENT ODOR ALL DAY DOES NOT DRIP, AND IS NOT STICKY OR MESSY REFRESHING, COOLING & SOOTHI"G QUlCK DRYING DRIES EXCESSIVE MOISTl'RE-UNDERARM OR FEET DOES NOT HARM FABRICS DIRECTIONS:

Hold about 6" from area to be sprayed (underarm or feet), point arrow and push button.

WARNING:

Do not spray toward face. Do not apply to broken or irritated skin. If rash develops, discontinue use. Contents under pressure. Do not store near heat, or open flame. Exposure to temperatures over 130 Fahrenheit ADVISORY OPINIONS AND REQUESTS THEREFOR 1951 may cause bursting. Do not puncture. Never throw container into fire or incinerator. KEEP OUT OF CHILDREN' S REACH. *Benzoic acid, n-propyl parahydroxybenzoate, parahydroxybenzoic acid trihydroxybenzoic acid (gallic).

equivalent to alkyl phenols, as amyl phenol 15% and aryl phenols, as phenyl phenols (0- and p- 0.45% Net contents oz.

Manufactured by Regal Chemical Corporation Brooklyn, N. #3017