§ 15.97 Trade association code governing dealings with customers.

(a) The Commission rendered an advisory opinion advising a trade association of suppliers that a number of serious questions would be likely to arise from an agreement by its members as to a code or set of conditions governing the members' dealings with their customers.

(b) Among the conditions singled out by the Commission for question was one creating uniformity in the terms of delivery. The Commission stated its view to be that the method and manner of delivery can be an element of competition among the members of an industry which this provision would at least have a tendency to eliminate. The creation of uniformity in the terms of delivery may be convenient for the members of an industry but this factor is outweighed by the benefits to the public of competition among those members and it is this competition which the law seeks to protect and preserve.

(c) Much the same objection was raised to the sections which provided that by accepting goods the purchaser shall be deemed to have approved them and no action shall lie against the vendor except as regards hidden defects; that claims for defects must be made within 30 days; and that the purchaser shall not be entitled to any compensation for any consequential loss whatsoever. The Commission advised that while it may be that a unilateral agreement among the members could not change the legal liabilities as between the parties when disputes arise, entering into this agreement could result in the suppliers presenting a solid front to their customers. In the Commission's view, such matters are best left to the business judgment of the individual suppliers.

(d) The Commission then singled out the provision dealing with prices, which provided that the purchaser shall pay the prices current in the relative trade area at the time of delivery and that the vendor shall, if so requested, send to the purchaser a list stating the prices of goods and the period for which such prices are to apply. Noting that the section was ambiguously worded and susceptible of more than one interpretation, the Commission concluded that the suppliers might well feel justified thereunder in agreeing among themselves to adhere

to their published price lists until such are changed. Under well-settled principles of antitrust law, such an agreement would clearly be illegal.

(e) The Commission also expressed some concern with the section dealing with payments, which provides that the purchaser shall pay the invoiced amounts within 30 days after date of delivery and if payment is made at a later date the vendor shall be entitled to interest. The Commission advised that it could not put its stamp of approval upon an agreement by the members of an industry as to the length of time during which credit is to be extended. stating that it would seem such matters are best left to the independent judgment of each supplier and should not be determined adversely to the interests of the customers by agreement among those suppliers.

(f) Finally, the Commission took note of the provision dealing with contracts, which stated that all or part of the conditions could be declared applicable to a contract entered into for a specified period, which could be a calendar year unless otherwise agreed. Such contract shall imply that the purchaser agrees that during the period specified in the contract all and any goods specified "or as customarily purchased from such suppliers will be obtained solely from the vendor * * The Commission felt

that this clearly sanctions full requirements contracts for periods of 1 year or more and that such contracts are nothing more than exclusive dealing agreements for limited periods of time. Whereas they are not per se illegal, generally, the law may be stated to be that they are illegal if they foreclose competition in a substantial share of the market. This would naturally require knowledge of a number of factors not known to the Commission and not likely to be known when dealing with a proposed course of action. In the case of any particular supplier, the Commission would need to know the duration of the agreements, the number of customers covered by such agreements and the percentage of the total market which would thereby be foreclosed to competitors. In view of these uncertainties, the Commission felt the best it could do would be to advise that the problem exists but that no opinion could be expressed on a prospective basis because of lack of knowledge of the essential

factors which would need to be known before an opinion could be rendered. [31 F.R. 13754, Oct. 26, 1966]

§ 15.98 Removal of foreign origin disclosure and use of word "manufacturing."

(a) The Commission advised a distributor of imported time clocks that the "removal or obliteration of foreign origin disclosures on imported products is under certain circumstances a violation of the Tariff Act which is administered by the Bureau of Customs" and invited the distributor to contact that Bureau on this particular point. The distributor wanted permission to remove the foreign origin label prior to reselling the time clocks in the United States. "Regardless of the position of that Bureau," the Commission added, "such removal or obliteration in the circumstances you describe may result in a deception of the purchasing public as to the country of origin" and might be found to be in violation of the FTC Act.

(b) Permission was also requested to use the word "manufacturing" in the trade name of the company and in advertising, even though the time clocks are imported in their finished state. The Commission was of the opinion that the use of such word "would have the tendency to lead consumers and others into the belief, contrary to fact, that they are dealing directly with the manufacturer and so to mislead or deceive them. In these circumstances, it would not be proper to use the word 'manufacturing' or any other word of similar import in your trade name or in your advertising or to otherwise represent your company as a manufacturer."

(c) Finally, the distributor wanted to know if it would be proper to represent his company as a manufacturer if it performed a "small part" of the manufacturing process on the time clocks. In regard to this question, the Commission reached the following conclusion:

(d) "The amount of manufacturing which a concern must engage in to justify representing itself as a manufacturer will vary from case to case, depending on the specific circumstances. Your question, however, indicates you intend to operate as a manufacturer only in the technical sense and not in a substantive way, in an attempt to justify the use of a term not otherwise a correct description of your business. We likewise do not believe, in these circumstances, that

it would be proper to represent your company as a manufacturer."

[31 F.R. 13913, Oct. 29, 1966]

§ 15.99

Retailer's advertising of "reward" approved.

(a) The Commission advised a retailer of mobile homes and house trailers that he might properly advertise a $100 "reward" to be paid to anyone referring a purchasing prospective customer provided such offer was a bona fide offer implemented in good faith. In the Commission's view, such advertisement would amount to the offering of a finder's fee or, perhaps, a commission on a sale.

(b) The Commission pointed out that the prospective purchaser might himself claim the "reward." In such case, the purchaser must realistically benefit in the amount of $100.

[31 F.R. 13913, Oct. 29, 1966]

If, af

(b) The proposed guarantee would represent that the siding will not rust, peel, blister, flake, chip, or split under conditions of normal weathering for the lifetime of the original owner. ter inspection, the seller determines that a claim is valid under the guarantee the seller will within 3 years after installation furnish all materials and labor necessary to repair or replace, at the seller's option, all siding at no cost to the owner. For the next 7 years, the seller will furnish all materials and labor at a cost to the owner of 8 percent of the then current price for each year or part thereof after the third year. For the next 10 years, the seller will furnish all materials and labor at a cost to the owner of an additional 3 percent of the then current price for each year or part thereof after the 10th year. Thereafter, the seller will furnish only the material necessary to repair or replace, at the seller's option, at a cost to the seller of 10 percent of the then current price. The owner must assume all other costs, including 90 percent of the cost of materials and 100 percent of the cost of labor.

(c) In addition, the seller furnished the results of extensive laboratory and field testing of house siding since 1948 under every type of environment which

I would lead to the conclusion that no aluminium siding, no matter what its finish, will last for a lifetime. In fact, the evidence submitted, if accepted as true, would establish that the maximum life expectancy of such siding under normal conditions would come closer to 20 years and would be considerably less under more extreme circumstances. This is based upon experience indicating that even if it does not rust, peel, blister, flake, chip or split, the finish will weather to such an extent as to require repainting within that time.

(d) The Commission made it plain that it has not conducted its own investigation in order to verify the accuracy of this evidence and that the comments set forth in its opinion were based upon the facts as presented and upon the assumption that those facts were correct. On this basis, the Commission advised that it would not be legal for the seller to employ a guarantee to represent that the siding will last for a lifetime or for any other period beyond what can reasonably be expected.

(e) The opinion pointed out that both the trade practice rules for the Residential Aluminum Siding Industry and the Commission's Guides Against Deceptive Advertising of Guarantees contain the principle that a guarantee shall not be used which exaggerates the life expectancy of a product. In such a case, the guarantee itself constitutes a misrepresentation of fact even though all required disclosures of material terms and conditions might be made in all advertising of the guarantee. This simply recognizes the principle that a guarantee can be used as a representation of an existing fact as well as a guarantee. Viewed in this light, use of this guarantee would constitute an affirmative representation that the siding will last for the lifetime of the owner when the evidence furnished would indicate this is not true. The gravamen of the offense would be the affirmative misrepresentation of the life expectancy of the product and this could not be corrected by a mere disclosure that what is represented to be a fact is not actually true.

(f) Of equal importance in the Commission's view was the fact that the seller here proposed to couple two basically inconsistent provisions in the same guarantee. One was the use of the lifetime representation and the other was prorated feature. The Commission stated its opinion to be that it is concep

the

tually impossible to combine the two in the same guarantee when the proration period virtually terminates at the end of 20 years. A guarantee cannot be for a lifetime if it terminates after 20 years. Undoubtedly, many owners will live far beyond that period of time and so the guarantee cannot help but confuse even though a careful reading of its terms might show that it states all relevant facts and even though all advertisements make the required disclosures.

(g) Literally speaking, some benefit may be claimed for the remainder of the owner's life after the expiration of the 20-year period, for the seller will still assume 10 percent of the cost of materials. But this would appear to be more a matter of form than substance. The owner would be given a mere pittance in order to furnish some color of justification for the claim that the guarantee is for a lifetime. The situation is that the owner must pay more than 90 percent of all costs in order to receive the benefit of the remaining 10 percent of the cost of materials, which does not leave him with anything of substantial value to justify the representation of lifetime warranty. In the Commission's view, the purchaser must be afforded something of substantial value for his lifetime in order to support the representation and the Commission did not feel that less than 10 percent of all costs was of substantial value.

(h) Finally, the Commission noted that the proposed guarantee excludes damages resulting from normal weathering of surfaces. In view of the fact that this appears to be the most prevalent cause for repainting aluminum siding, the Commission also advised that this is a material term or condition which not only should be set forth in the guarantee, for whatever period of time it runs, but also should be clearly and conspicuously set forth in all advertising which mentions the guarantee.

[31 F.R. 14393, Nov. 9, 1966]

§ 15.101 Recipe promotional plan.

(a) The Commission announced it had given conditional approval to the use of a tripartite recipe plan promoting the sale of food products.

(b) According to the terms of the proposed plan, the promoter will install a dispensing machine (approximately 18 inches square) in each retail grocery store containing a sufficient number of recipe cards to meet the demands of its customers. In addition to containing a

recipe of the week, the card will also feature the specific brand name of one of the ingredients of the participating food suppliers.

(c) Each participating retailer will be paid $10 per month and furnished with posters and shelf markers publicizing the recipe cards and products of the participating manufacturers. Cost of the plan will be borne by the participating manufacturers. Notification of the plan will be by a printed promotional piece and/or letter to be mailed to all retailers in an area which was not defined with exact precision.

(d) In its opinion the Commission said that sections 2 (d) and (e) of the Robinson-Patman Act "require a supplier to treat all of his competing customers on a nondiscriminatory basis, which means that if the supplier furnishes promotional assistance to one customer he must make that assistance available on proportionally equal terms to all competing customers. The courts have also held that the supplier must comply with these provisions of the law irrespective of whether the promotional assistance is furnished to the retailer directly or through an intermediary."

(e) The three conditions which must be met before the Commission can give its approval to the plan are as follows:

(1) "First, the plan must be offered to all competing retailers within a given marketing area. Under the facts outlined in your letter, there appears to be an indication that the plan, as presently contemplated, may be offered only to those competing retailers within an arbitrarily drawn geographical area."

(2) "Second, the plan must be offered to all competing retailers within that marketing area. Competing retailers located on the periphery of said market areas are considered by the Commission to be included within the marketing area if in fact they do compete with those therein who are offered participation in the plan."

(3) "Third, the plan must be made available to all competing retailers irrespective of their functional classification. It appears that grocery stores will be the principal beneficiaries of the plan. However, if the items involved in the plan are also sold by nongrocery stores, they must be accorded the same opportunity to participate in any promotional assistance given by the suppliers to competing grocery outlets."

[31 F.R. 14520, Nov. 11, 1966]

§ 15.102 Disapproval of proposed weight-reducing claims for garments. The Federal Trade Commission, basing its action on scientific information available to it and on its knowledge and experience, advised a manufacturer of plastic slimming garments that the Commission had reason to believe that proposed advertising and representation to the effect that these garments, through inducing perspiration, would effectively cause weight reduction, or spot weight reduction in preselected body areas or reducing generally, would be actionable under section 12 of the Federal Trage Commission Act.

[31 F.R. 14520, Nov. 11, 1968]

§ 15.103 Three-party promotional and merchandising assistance plan available to direct and indirect purchas

ers.

advised the

(a) The Commission promoter of the three-party promotional assistance plan outlined below that, subject to the admonitions indicated, the plan would not violate Commission administered law.

(b) The promoter proposes to provide promotional and merchandising assistance to suppliers of products normally sold in grocery and drug stores. In return for in-store promotion of participating suppliers' products by (1) providing shelf space at least equal to that given competing products selling in the same volume (2) installing shelf markers or other in-store signs furnished by the promoter advertising the promoted products, (3) maintaining adequate supplies (i.e. what the retailer decides he needs to avoid a sellout) of promoted products and (4) periodic (1 week in each quarter) off shelf displays (aisle end or other than normal shelf position), the retailer would earn an amount equal to 2 percent of his net purchases of promoted products, subject to a maximum monthly payment of $40 per store. Earnings would be computed on a storeby-store basis. The amount earned would be based on purchases of promoted products regardless of whether the retailer purchased directly from the supplier or through a wholesaler.

(c) In addition, retailers could, at their option, buy or rent in-store sound equipment and purchase a background music service from the promoter. The speakers could be used for in-store announcements by the retailers; however,

participating suppliers' advertisements would not be broadcast over the network stores. The charges to the retailers for the sound system and music would be applied monthly or quarterly to promotional assistance payments earned for participation in the plan (i.e. the 2 percent of purchases). Any excess of earnings over charges would be paid to the retailers in cash.

(d) At the outset and every 6 months thereafter, the plan would be offered by letter from the promoter to all drug and grocery outlets listed in the yellow pages of the telephone book, which list would be supplemented by participating suppliers' lists of competing customers selling the promoted product.

(e) Participating retailers would agree to allow the promoter's representatives to check on performance and submit reports to suppliers. The reports would contain information regarding the shelf space given the supplier's promoted product, the prices at which it is sold, its shelf position (eye, waist, or bottom level) and the like.

(f) With regard to the admonitions, the Commission expressed the view that:

(1) In addition to the letter at the outset and every 6 months to each competing reseller of promoted products of the supplier, new, competing customers should be offered the plan when the first sale of the promoted product is made to them. The reason is that such new customers are entitled to be offered the assistance promptly.

(2) The reports the promoter submits to suppliers should not contain information which may be used for price fixing purposes.

(3) Prospective participants in the plan should be told: (1) The fact that the promoter is positioned between the supplier and the supplier's customersthe retailers-does not affect applicability of sections 2 (d) and (e) of the Robinson-Patman Act and section 5 of the Federal Trade Commission Act to the plan; (ii) even though the promoter is employed, it is the supplier's responsibility to make certain that each of his customers who compete with one another in selling the promoted product is offered the opportunity to participate. If opportunity is not offered, or an illegal discrimination results, the supplier, the retailer and the promoter may be acting in violation of section 2 (d) or (e) of the Robinson-Patman amendment to the

Clayton Act and/or section 5 of the Federal Trade Commission Act.

[31 F.R. 14772, Nov. 22, 1966] § 15.104

Approval of descriptions to be used by exclusive seller to U.S. Gov

ernment.

(a) The Federal Trade Commission advised a manufacturer's representative that in connection with its firm name it might properly describe its office as a "Government Sales and Contract Office," that it might in its promotional literature describe those of its products specifically designed for and sold only to the U.S. Government as "Model No. -G, designated exclusively for and sold only to the U.S. Government (or thus and so agency)," and that it might properly state on labels affixed to the machinery which it sells that "equipment parts and service are supplied by (whoever is the supplier).

(b) The advice given was predicated on assurances by the manufacturer's representative that his company sells exclusively to the U.S. Government, that the company's promotional material is sent only to, and is generally available only to, U.S. Government agencies, and that the company is the sole source for parts and service for certain of the products which it sells.

[31 F.R. 15238, Dec. 6, 1966]

§ 15.105 Foreign origin chemicals.

The Commission issued an Advisory Opinion to the effect that it would be improper to label chemicals composed of 45 percent imported and 55 domestic product as being of domestic origin, unless an equally clear and conspicuous disclosure was made that 45 percent of the product was imported. [32 F.R. 135, Jan. 7, 1967]

§ 15.106 Film projector promotional plan.

(a) The Commission announced it could not give its approval to a threeparty promotional plan, which involved the placing of a film projector in grocery stores to advertise certain food products, because it contained two provisions which would probably be in violation of the law.

(b) According to the terms of the proposed plan which were submitted by a third-party promoter, the entire cost of the plan will be borne by participating food suppliers. Each retailer who participates in the plan will be paid on a