(a) In the sale, offering for sale, or distribution of industry products, or in the promotion and distribution thereof, it is an unfair trade practice to demonstrate any of such products in a manner, or under circumstances, having the capacity and tendency or effect of creating a false impression in the minds of purchasers or prospective purchasers as to the actual benefits they will obtain as the result of their purchase and use of said products.

(b) It is an unfair trade practice for a member of the industry to represent, claim, or guarantee that his laboratory has the skill, ability, equipment, or personnel to construct, fabricate, or process a product of the industry under a specific technique or method, unless such representation, claim, or guarantee is made with the knowledge that complete and satisfactory accomplishment can be furnished with the facilities and personnel of such member laboratory.

(c) It is an unfair trade practice for any member of the industry to represent, claim, or guarantee that any technique or method of manufacture used is the equivalent of, or substitute for, any other method or technique, unless such is the fact.

[22 F. R. 4192, June 14, 1957]

§ 18.3 Substitution of products.

It is an unfair trade practice for a member of the industry to make an unauthorized substitution of products, where such a substitution has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers by:

(a) Shipping or delivering industry products which do not conform to samples submitted, to specifications upon which the sale is consummated, or to representations made prior to securing the order, without advising the pur

chaser of the substitution and obtaining his consent thereto prior to making shipment or delivery; or

(b) Falsely representing the reason for making a substitution. § 18.4 False invoicing.

Withholding from or inserting in invoices or order tickets any statements or information by reason of which omission or insertion a false record is made, wholly or in part, of the transactions represented on the face of such invoices or order tickets, with the capacity and tendency or effect of thereby misleading or deceiving purchasers or prospective purchasers, is an unfair trade practice. § 18.5 Defamation of competitors or false disparagement of their prod

ucts.

The defamation of competitors by falsely imputing to them dishonorable conduct, inability to perform contracts, questionable credit standing, or by other false representations, or the false disparagement of the grade, quality, or manufacture of the products of competitors, or of their business methods, selling prices, values, credit terms, policies, services, or conditions of employment, is an unfair trade practice.

§ 18.6 Enticing away employees of competitors.

It is an unfair trade practice for any member of the industry willfully to entice away employees or sales representatives of competitors with the intent and effect of thereby unduly hampering or injuring competitors in their business and destroying or substantially lessening competition: Provided, That nothing in this section shall be construed as prohibiting employees from seeking more favorable employment, or as prohibiting employers from hiring or offering employment to employees of competitors in good faith and not for the purpose of inflicting injury on a competitor.

§ 18.7 Deceptive use of trade or corporate names, trade-marks, etc.

The use of any trade name, corporate name, trade-mark, or other trade designation which has the capacity and tendency or effect of misleading or deceiving the purchaser as to the name, nature, efficacy, or origin of any product of the industry, or of any material

used therein, or which is false or misleading in any other respect, is an unfair trade practice.

§ 18.8

Use of the word "free."

In connection with the sale, offering for sale, or distribution of industry products, it is an unfair trade practice to use the word "free," or any other word or words of similar import, in advertisements or in other offers to purchasers or prospective purchasers, as descriptive of an article of merchandise, or service, which is not an unconditional gift, under the following circumstances:

(a) When all the conditions, obligations, or other prerequisites to the receipt and retention of the "free" article of merchandise or service offered are not clearly and conspicuously set forth at the outset so as to leave no reasonable probability that the terms of the offer will be misunderstood; and, regardless of such disclosure:

(b) When, with respect to any article of merchandise required to be purchased in order to obtain the "free" article or service, the offerer (1) increases the ordinary and usual price of such article of merchandise, or (2) reduces its quality, or (3) reduces the quantity or size thereof.

NOTE: The disclosure required by paragraph (a) of this section shall appear in close conjunction with the word "free" (or other word or words of similar import) wherever such word first appears in each advertisement or offer. A disclosure in the form of a footnote, to which reference is made by use of an asterisk or other symbol placed next to the word "free," will not be regarded as compliance.

§ 18.9

Coercing purchase of one product as a prerequisite to purchase of other products.

The practice of coercing the purchase of one or more products as a prerequisite to the purchase of one or more other products, where the effect may be substantially to lessen competition or tend to create a monopoly or unreasonably to restrain trade, is an unfair trade practice.

§ 18.10 Fictitious prices.

It is an unfair trade practice to sell or offer for sale industry products at prices purported to be reduced from what are in fact fictitious prices, or to sell or offer for sale such products at a purported re

(b) To use any guarantee respecting an industry product in which conditions or limitations relating to the liability of the guarantor are deceptively minimized or concealed; or

(c) To offer or use any guarantee respecting an industry product under which the guarantor fails to scrupulously observe his obligations.

§ 18.12 Prohibited discrimination.'

(a) Prohibited discriminatory prices, rebates, refunds, discounts, credits, etc., which effect unlawful price discrimination. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, to grant or allow, secretly or openly, directly or indirectly, any rebate, refund, discount, credit, or other form of price differential, where such rebate, refund, discount, credit, or other form of price differential, effects a discrimination in price between different purchasers of goods of like grade and quality, where either or any of the purchases involved therein are in commerce, and where the effect thereof may be substantially to

1 As used in this section, the word "commerce" means "trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places under the Jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States.

lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, however:

(1) That the goods involved in any such transaction are sold for use, consumption, or resale within any place under the jurisdiction of the United States, and are not purchased by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit, as supplies for their own use:

(2) That nothing contained in this paragraph shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered;

NOTE: Cost justification under the above proviɛo depends upon net savings in cost based on all facts relevant to the transactions under the terms of subparagraph (2) of this paragraph. For example, if a seller regularly grants a discount based upon the purchase of a specified quantity by a single order for a single delivery, and this discount is justified by cost differences, it does not follow that the same discount can be cost Justified if granted to a purchaser of the same quantity by multiple orders or for multiple deliveries.

(3) That nothing contained in this section shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade;

(4) That nothing contained in this paragraph shall prevent price changes from time to time where made in response to changing conditions affecting the market for or the marketability of the goods concerned, such as but not limited to obsolescence of seasonal goods, imminent deterioration of perishable goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned;

(5) That nothing contained in this section shall prevent the meeting in good faith of an equally low price of a competitor.

(b) Prohibited brokerage and commissions. It is an unfair trade practice for

any member of the industry engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

(c) Inducing or receiving an illegal discrimination in price. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by the foregoing provisions of this section.

(d) Purchases by U. S. Government; applicability of Robinson-Patman Antidiscrimination Act to same. In an opinion submitted to the Secretary of War under date of December 28, 1936, the U. S. Attorney General advised that the Robinson-Patman Antidiscrimination Act "is not applicable to Government contracts for supplies." (38 Opinions, Attorney General 539.) [22 F. R. 4192, June 14, 1957]

§ 18.13 Exclusive deals.

It is an unfair trade practice for any member of the industry to contract to sell or sell any industry product, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the purchaser thereof shall not use or deal in the products of a competitor or competitors of such industry member, where the effect of such sale or contract for sale, or of such condition, agreement, or understanding, may be substantially to lessen competition or tend to create a monopoly in any line of commerce.

APPENDIX

For the information of industry members, there is appended to the rules in this part, but not made a part of them, a copy of the Federal Denture Act. This act is not administered by the Federal Trade Commission, but is a criminal act administered by the United States Department of Justice. Noth

ing in the rules in this part is to be construed as relieving any member of the industry from complying with the provisions of the said act.

FEDERAL DENTURE ACT (18 USCA 1821; 62 STAT. 786, JUNE 25, 1948)

Whoever transports by mail or otherwise to or within the District of Columbia, the Canal Zone or any Possession of the United States or uses the mails or any instrumentality of interstate commerce for the purpose of sending or bringing into any State or Territory any set of artificial teeth or prosthetic dental appliance or other denture, constructed from any cast or impression made by any person other than, or without the authorization or prescription of, a person licensed to practice dentistry under the laws of the place into which such denture is sent or brought, where such laws prohibit;

(1) The taking of impressions or casts of the human mouth or teeth by a person not licensed under such laws to practice dentistry;

(2) The construction or supply of dentures by a person other than, or without the authorization or prescription of, a person 11censed under such laws to practice dentistry;

19.1

19.2

19.3

19.4

19.5

19.6

19.7

19.8

Misrepresentation of products.
Misrepresentation as to character of
business.

Prohibited sales below cost.
False invoicing.

False and misleading price quota-
tions, etc.

Prohibited discrimination.

Substitution of products.

Deceptive use of trade or corporate name, trademarks, etc.

19.9 Inducing breach of contract. 19.10 Defamation of competitors or false disparagement of their products.

19.11 Commercial bribery.

19.12 Procurement of competitors' confildential information.

19.13 Prohibited forms of trade restraints (unlawful price fixing, etc.)

19.14 Enticing away employees of competitors.

19.15 Misrepresenting products as conforming to standard.

§ 19.1 Misrepresentation of products. It is an unfair trade practice to use, or cause or promote the use of, any trade promotional literature, advertising matter, mark, brand, label, designation, or other representation, however disseminated or published, which has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers with respect to the grade, quality, quantity, price, value, origin, weight, strength, width, composition or packing, count, finish, manufacture, or distribution of any product of the industry, or in any other material respect.

§ 19.3

Prohibited sales below cost.

(a) The practice of selling products of the industry at a price less than the cost thereof to the seller, with the purpose or intent, and where the effect is, or where there is a reasonable probability that the effect will be, to substantially injure, suppress, or stifle competition or tend to create a monopoly, is an unfair trade practice.

(b) This section is not to be construed as prohibiting all sales below cost, but only such selling below the seller's cost as is resorted to and pursued with the wrongful intent or purpose referred to and where the effect is, or where there is reasonable probability that the effect will be, to substantially injure, suppress, or stifle competition or to create a monopoly. Among the situations in which the requisite purpose or intent would ordinarily be lacking are cases in which such sales were: (1) Of seasonal goods near the conclusion of the season; (2) of perishable goods in respect to which deterioration is imminent; (3) of obsolescent goods; (4) made under judicial process; or (5) made in bona fide discontinuance of business in the goods concerned.

(c) As used in paragraphs (a) and (b) of this section, the term "cost" means the respective seller's cost and not an average cost in the industry whether such average cost be determined by an industry cost survey or some other method. It consists of the total outlay or expenditure by the seller in the acquisition, production, and distribution of the products involved, and comprises all elements of cost such as labor, material, depreciation, taxes (except taxes on net income and such other taxes as are not properly applicable to cost), and general overhead expenses, incurred by the seller in the acquisition, manufacture, processing, preparation for marketing, sale, and delivery of the products. Not to be included are dividends or interest on borrowed or invested capital, or nonoperating losses, such as fire losses and losses from the sale or exchange of capital assets. Operating cost should not be reduced by items of nonoperating income, such as income from investments, and gain on the sale of capital assets.

(d) Nothing in this section shall be construed as relieving an industry member from compliance with any of the requirements of the Robinson-Patman Act.

§ 19.4 False invoicing.

Withholding from or inserting in invoices or sales slips any statements or information by reason of which omission or insertion a false record is made, wholly or in part, of the transactions represented on the face of such invoices or sales slips, with the effect of thereby misleading or deceiving purchasers, prospective purchasers, or the consuming public, is an unfair trade practice. § 19.5 False and misleading price quotations, etc.

It is an unfair trade practice for any industry member, in the course of or in connection with the offering for sale, sale, or distribution of industry products, to publish or circulate to or among purchasers or prospective purchasers false price quotations, price lists, or terms or conditions of sale; or to publish, or circulate among purchasers or prospective purchasers, any price quotations, price lists, or terms or conditions of sale which have the capacity and tendency or effect of thereby misleading or deceiving purchasers or prospective purchasers in any material respect. [24 F.R. 4327, May 29, 1959]

§ 19.6 Prohibited discrimination.1

(a) Prohibited discriminatory prices, rebates, refunds, discounts, credits, etc., which effect unlawful price discrimination. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, to grant or allow, secretly or openly, directly or indirectly, any rebate, refund, discount, credit, or other form of price differential, where such rebate, refund, discount, credit, or other form of price differential, effects a discrimination in price between different purchasers of goods of like grade and quality, where either or any of the purchases involved therein are in commerce, and

1 As used in this section, the word "commerce" means "trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places under the jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States."