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portion is not leather by such language

as:

"Not leather." "Imitation leather."

"Simulated leather."

"The reason for this," the Commission added, "is that the outer portion of the case has the appearance of leather and in order to remove the potential deception inherent in its appearance, it is necessary to disclose the fact that the material is not leather."

[31 F.R. 9794, July 20, 1966]

§ 15.72 Franchise agreement.

(a) A distributor of electronic equipment requested the Commission to render an advisory opinion with respect to the legality of a proposed franchise agreement with its dealers. A Schedule of Fair Trade Prices was to be attached to and made a part of the agreement and the dealer must agree that he will not advertise, offer for sale or sell any products at less than the fair trade prices, nor make any refunds, discounts, allowances, or concessions which will have the effect of decreasing those prices, nor offer any of the fair traded items in combination with other merchandise at a single, combination, or joint price. The agreement further provided that this provision should be applicable only in those States where agreements of this character are lawful.

(b) The Commission advised that in view of the McGuire Act amendment to section 5 of the Federal Trade Commission Act it could see no objection to inclusion of the provision in the agreement. However, the Commission added, the responsibility rests squarely upon the seller exacting such agreements from his dealers to see that they are not given effect outside those areas where permitted by State law, for then no exemption would exist to protect the agreements from established antitrust rules applying to resale price maintenance.

(c) Even though the contract provides that this provision shall be applicable only in those States where such agreements are lawful, it would appear that to some extent the burden is placed upon the dealer to ascertain whether or not the agreement is lawful in his own State before he can know whether or not he is obligated to honor it. If this has the effect of creating a situation whereby the Schedule is generally adhered to in States where fair trade is not legal, the

presence of the provision in the franchise agreement could raise a serious inference of an unlawful resale price maintenance program in those States.

(d) The Commission further advised that such pitfalls can be avoided in the franchise agreements with dealers in nonfair trade States by specifically eliminating therefrom provisions relating to the maintenance of fair trade prices. If the distributor desires to circulate price schedules to dealers in nonfair trade States, it would be more appropriate to circulate them under the heading "Suggested Prices" rather than "Fair Trade Prices." In the alternative, the danger of involving dealers in illegal resale price maintenance could be avoided by expressly noting on the franchise agreement those States wherein the provisions relating to maintenance of fair trade prices cannot be given effect.

(e) Additionally, the Commission noted the provision that the distributor will establish, with the aid of the latest marketing information, a reasonable yearly sales volume objective of $---and this volume will be a consideration in yearly franchise renewal. The Commission advised that it could see no objection to the establishment of such quotas so long as they are reasonable. However, the distributor was advised that much of the legality of any franchise system depends upon the manner in which the agreements are implemented and enforced, for if apparently reasonable reservations of rights by the distributor are in practice administered in an unreasonable manner, so as to unfairly encroach upon the freedom of the licensees, an agreement which is legal on its face can become illegal in effect. [31 F.R. 9794, July 20, 1966]

§ 15.73 Rejection of description “golden” for nongold thimble.

(a) The Federal Trade Commission has rendered an advisory opinion objecting to both the description "golden" for a nongold thimble, and the accompany explanatory phrase "electroplated with real gold".

(b) "Since the thimble in question is not composed throughout of 24 karat gold, unqualified use of the word 'golden' would be improper," the FTC's advisory opinion stated.

(c) Further advising that "the phrase, 'electroplated with real gold', would constitute neither adequate qualification of

the word 'golden', nor a proper representation standing alone", the Commission pointed out that the gold flashing on the thimbles is between three and seven millionths of an inch thick and that "a coating of gold of less than 7/1,000,000 of an inch in thickness is too thin and insubstantial to warrant the description 'gold electroplate'." [31 F.R. 9977, July 22, 1966]

§ 15.74 Conditional approval given 3party promotional plan.

(a) The Federal Trade Commission has given conditional approval to a promotional concern's plan to provide a music service to supermarkets which would include "spot" advertisements paid for by their suppliers.

(b) The requesting party would set up a background music network specializing in supermarkets. It would own the equipment and install same without charge to the store operator. About every 21⁄2 minutes a "spot" advertisement paid for by advertiser-suppliers to the store would be made over the network, for each of which, each participating store outlet would receive a small commission.

(c) In addition, the requesting party will offer an in-store promotion service to advertiser-suppliers so that they may provide proportionally equal treatment for nonparticipating stores, who will receive either in-store advertising materials or cash payments based on a designated formula.

(d) Most of the advertisements would feature products sold in the stores. In some stores, announcements regarding house brands could be made by means of separate circuits. Advertisers would pay for the service on a per spot-per store basis. The contracts between the parties are to contain a clause to the effect that suppliers agree not to discriminate between participating and nonparticipating customers.

(e) In the advisory opinion the Commission said that "implementation of the plan probably would not result in violation of Commission administered statutes. This approval is being given conditionally and is contingent on the plan when in operation actually providing on a realistic basis for promotional assistance to all competitors entitled to it under sections 2 (d) and (e) of the Robinson-Patman Amendment to the Clayton Act."

[31 F.R. 9977, July 22, 1966]

§ 15.75 Publisher's display allowance plan given conditional approval.

(a) A magazine publisher has received conditional approval from the Federal Trade Commission of its promotional assistance program proposed for the New York City area.

(b) The Commission said its understanding is that the program would operate substantially as follows:

(1) Each competing retail magazine seller in or out of the area would be notified of the program by first class mail by the publisher and afforded the opportunity to choose either of two plans for each publication of the publisher he sells.

(2) Under Plan 1, the dealer would be given a rebate of 10 percent of the cover price for each copy of a magazine sold, provided he maintained two displays (full cover exposed, flat stack or vertical display) of the publication through its "on sale" period in (1) the maximum traffic area of his newsstand and (2) on the main or auxiliary racks. Under Plan 2, the dealer would be given a rebate of 5 percent on the same basis as under Plan 1 for maintaining one display in the maximum traffic area. "Maximum traffic area" means: Where the retailer sells most of his magazineswhere the largest display of magazines is located.

(3) In the event of a sellout of an issue, the dealer would agree to reorder immediately. Both the publisher and its distributor would spot check on dealer compliance. A dealer would submit quarterly reports together with statements of performance to the publisher to claim his rebate.

(c) The Commission's advice was that "implementation of the program as described probably would not result in violation of laws administered by the Commission provided (1) the program is offered to eligible new entrants into magazine retailing when they receive their initial shipment of magazines and (2) the notice to dealers is changed to include a definition of 'maximum traffic area' conforming to the meaning set forth above."

[31 F.R. 10116, July 27, 1966]

§ 15.76 Foreign origin disclosure of individual items repackaged in combination sets.

(a) The Federal Trade Commission announced that it had rendered an advisory opinion dealing with disclosure of

foreign origin of imported novelty items which will be repackaged in various combination sets in this country.

(b) The items, both textile fiber and nontextile fiber products, which are labeled as to specific country of origin at the time of their importation, will be repackaged in sets in such a manner that the labels will not be visible to prospective purchasers.

(c) As to sets composed entirely of imported nontextile fiber products, the Commission said "that a proceeding by it to require disclosure of origin on the package would not appear to be warranted in the absence of any showing of material deception."

(d) However, as to any combination set containing only imported textile fiber products, the Commission said the specific country of origin of these products must be disclosed in such a manner that it would be observed upon casual inspection by prospective purchasers before, not after, the purchase. The necessity of this disclosure is based upon the requirements of the Textile Fiber Products Indentification Act and the rules issued thereunder. The disclosure, the Commission said, "does not necessarily have to be on the outside of the package; it could be inside the package, provided it would be clearly visible through the cellophane cover. The point is that the disclosure must be in some position on the package where it would be observed prior to the purchase, not afterward."

(e) If imported textile fiber products are packaged in the same combination set with imported nontextile fiber products, the Commission advised that "it would also be necessary to disclose the foreign origin of the nontextile fiber components. Otherwise, prospective purchasers are likely to be misled into the mistaken belief, through the affirmative disclosure of the foreign origin of the textile fiber products, that the nontextile fiber products packaged therewith are of domestic origin."

(Sec. 1, 72 Stat. 1717, as amended; 15 U.S.C. 70) [31 F.R. 10116, July 27, 1966] § 15.77 Proportionally equal treatment for competing customers under promotional assistance programs.

(a) In advisory opinions by the Federal Trade Commission, two promotional assistance programs devised by third parties for grocery retailers and sup

pliers have been approved if the proposed plans are implemented as represented.

nish

(b) Under the one plan, an independent promoter would supply food retailers with racks in which to display recipe cards and uniformly pay the retailer for providing space for each rack used. Manufacturer-suppliers (1) would furparticipating customers with cards-containing recipes calling for the use of the manufacturer's product and a picture of the finished recipe item or of the manufacturer's product-on a proportionally equal basis related to the retailer's volume of sales of the product, (2) pay the promoter for the cards at a per-card-supplied rate, and (3) offer the plan to each customer by means necessary to insure complete notification of the plan to all competing customers. After each initial distribution, retailers would receive as many additional cards as requested up to 1,000 per month per product.

(c) The other plan, proposed by a separate promoter, would utilize a variation of the "jigsaw puzzle." Each time a shopper would pass the check-out stand (no purchase would be required) of a participating grocery retailer, she would receive a card from which four assorted pieces of a reproduction of a label could be removed. Upon collecting pieces necessary to form a complete facsimile of either a private or name brand label, she would be awarded a prize of trading stamps, cash or merchandise. In each 8-week period the plan would be in operation, eight different products will be involved, six of which will be name brands of participating suppliers and two private labels selected by participating retailers. If the retailer does not have private labels to enter in the program, his cost will be reduced on a pro-rata basis or he may select eight name brand products and pay the regular price which will be the same to each retailer and supplier per product per 1,000 cards (the cost of the program will be defrayed out of this charge). Each retailer will receive the same in-store displays and advertising material and each supplier will have his product pictured on each give-away card. Necessary notification of the proposed plan will be given, and all competing retailers will be afforded the opportunity to participate.

(d) The Commission pointed out to the promoters that "it remains the sup

plier's responsibility to assure that in fact the retailers who compete with one another are dealt with on proportionally equal terms." If the plans are implemented in such a manner, they "would appear to satisfy the supplier's obligation of proportionally equal treatment and the suppliers participating

✦✦ would not thereby violate any Commission administered laws."

(e) In reaching this conclusion, the Commission advised that it had relied particularly upon the below-described three representations by the promoters as to the manner in which the plans will be implemented.

(f) In each of the two promotions, the requesting party informed the Commission that:

(1) All competing retailers would be notified of their right to participate in the plan; and

(2) The plan would be made available to all competing retailers and offered to those located on the periphery of a given marketing area who compete with the participating retailers.

(3) The third representation relied upon by the Commission in the respective matters was that:

(1) (Puzzle promotion) A reduction in cost or alternative choice of either name brand products would be provided participating retailers unable to enter two labels in the plan.

(11) (Recipe card promotion) Small retailers who, for space or other reasons, cannot utilize the larger racks but wish recipe cards featuring one or two profitable items, will be provided with a "snapon" shelf rack for this purpose. [31 F.R. 10357, Aug. 2, 1966]

§ 15.78 Disapproval of merchandising plan involving a lottery.

(a) A retailer has been advised by the Federal Trade Commission that its proposed weekly drawings for portable radio-phonographs would be an unlawful lottery.

(b) Participants would be required to pay $2 a week for 20 weeks. The winner each week will be awarded a radio and will not be required to make any further payments. The participants who do not win will each receive a radio-phonograph at the end of the 20 weeks for which they would have then paid $40. The retailer advised that it regularly sells these instruments for $40.

(c) This proposal, the FTC's advisory opinion stated, "would constitute

a

scheme to sell merchandise by means of a lottery or game of chance, a sales device long held to be illegal under laws administered by this agency. The mere fact that each participant receives a thing of value for his contribution does not negate the existence of a lottery nor change the plan's essential nature as an appeal to the public's gambling instincts. Clearly, the participants in this drawing would be motivated by the chance of receiving something of more value than the amount they contributed. Hence, the nature of the appeal is unmistakable."

[31 F.R. 10358, Aug 2, 1966]

§ 15.79

Rejection of deceptive firm name for skip-tracing operation.

(a) The Federal Trade Commission has rejected a proposal by a debt collection concern to send out skip-tracing material under a firm name such as Missing Heirs, Inc., requesting delinquent debtors to contact the company on a matter of importance and to furnish information concerning jobs, addresses, etc.

(b) Advising that "this proposal would be clearly illegal under previous Commission and court decisions dealing with skip-tracing practices," the Commission pointed out that its first "case involving a skip-tracing device was decided in 1943 and dealt with an identical subterfuge to that here proposed, that is the attempt to deceive debtors into believing that they were being contacted in connection with the settlement of estates. No matter what the device employed, and there have been many down through the years, the law has set its stamp against this type of deception."

(c) Consequently, the advisory opinion continued, the FTC "cannot approve the use of any representations or trade names which would have the effect of deceiving others as to the true nature of your activity or which fail to reveal that the purpose for which the representations are made or the information requested is that of obtaining information concerning delinquent debtors." [31 F.R. 10572, Aug. 6, 1966]

§ 15.80 By-law prohibiting certain advertising claims by members of trade association.

(a) The Federal Trade Commission has informed a trade association that it cannot give its approval to a proposed amendment to the association's bylaws

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(a) In an advisory opinion the Federal Trade Commission gave qualified approval to the proposal by a marketer of a facial cream to advertise a "10 day trial" satisfaction guarantee.

(b) Its approval, the Commission said, "is based upon the assumption that there are no material limitations or conditions whatsoever attached to the guarantee. If there are any such conditions or limitations, they must be disclosed."

[31 F.R. 10733, Aug. 12, 1966]

§ 15.82 Disapproval of the marking "US Made" for items with substantial imported components.

(a) A Federal Trade Commission advisory opinion disapproved the marking "US Made" for two electric devices, one consisting of an imported motor assembled with an American-made casing and cord, and the other of which both the motor and the casing are imported and the cord is domestic.

(b) The Commission stated that "it would be improper to label either of the finished products as 'US Made' because this would constitute an affirmative representation that the entire product was of domestic origin, when in fact a substantial part thereof was imported." [31 F.R. 10733, Aug. 12, 1966]

§ 15.83

Impropriety of labeling foreignmade machine with American-made parts added to it as "Made in U.S.A." (a) The Federal Trade Commission has advised an American manufacturer that a machine made in a foreign country with certain American-made parts added to it by the domestic manufacturer may not be labeled "Made in U.S.A."

(b) The Commission said that it would be "improper to label the machine in question as 'Made in U.S.A.' because this would constitute an affirmative representation that the entire machine was of domestic origin, when in fact a substantial part thereof was imported."

[31 F.R. 11030, Aug. 19, 1966]

§ 15.84 Proper labeling of rebuilt fuses.

(a) The Federal Trade Commission made public an advisory opinion concerning the proper labeling of rebuilt fuses to be used by public utilities and commercial consumers of electricity.

(b) The requesting company inquired as to whether it will be necessary to label a fuse as "rebuilt" or "remanufactured" if it is broken down to its smallest components and all parts that are used are inspected to meet new parts standards.

(c) Advising that the concern's "rebuilt fuses would have to be labeled as such," the Commission cited its frequent holding, "in connection with a variety of products, that in the absence of an adequate disclosure to the contrary, merchandise which resembles and has the appearance of merchandise composed of new materials but which is, in fact, composed of reclaimed materials, will be regarded by purchasers as being entirely new and that a substantial segment of the consuming public has a preference for merchandise which is composed of new and unused materials. This has been held to be so without regard to the comparative quality of the new and rebuilt products, for in such matters the public is entitled to get what it chooses no matter what dictates the choice."

(d) Answering other questions posed by the company, the Commission stated: All "advertising material promoting the

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