which would prohibit a member from advertising that its service is faster and better in other towns than that of members who actually are in business in those towns.

(b) The Commission said in its advisory opinion that "the adoption of this proposal would be highly questionable under the antitrust laws for the reason that advertising is an element or form of

competition and any agreement among competitors to refrain from legitimate and truthful advertising restricts competition.

(c) "If * * * [an industry member] wishing to compete in another city is denied the right to advertise that despite his geographical disadvantage he can furnish faster and better service than his local competitors, assuming the representation to be truthful, he is to that extent denied the right to compete effectively and local * * * [industry members] are thus insulated from outside competition.

(d) "If competition in an industry is to survive, the members must be left free to exploit in a lawful manner such advantages as they actually possess. Consequently, the proposed amendment to the Association's bylaws cannot Commission approval."

[31 F.R. 10572, Aug. 6, 1966]

§ 15.81

tee.

receive

Advertised satisfaction guaran

(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

sale of these fuses should also contain a disclosure of their used or rebuilt nature, [but] it is not necessary, once this disclosure is clearly and conspicuously made, to repeat the word over and over again even where technical instructions are being given. Technical instructions for the use of these fuses are not ordinarily part of the advertising designed to induce customers to buy and, if not, there would be no requirement for disclosure in the instructions as distinguished from advertising."

(e) "Generally speaking, * * * the disclosure must be on the cartons, invoices and in advertising literature, as well as on the fuses themselves. However, the disclosure need not be placed on the fuses themselves if you can establish that the disclosure on the bags, boxes, or other containers is such that the ultimate purchasers, at the point of sale, are informed that they are rebuilt fuses. The question of informing the ultimate purchasers here becomes important in the event any of your customers also resell the fuses to others under circumstances where those ultimate purchasers are not informed as to their rebuilt nature."

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

(a) A national trade association has been advised by the Federal Trade Commission that its proposed reference service for members concerning problems encountered by them would not be unlawful "so long as the program embraces only an interchange of information and experience among members of the Association, and is not used as a device for a concerted boycott of particular sellers."

(b) The Association stated the purpose of the program is to assist its members to communicate with each other so that there may be a greater availability of the knowledge and experience acquired by them on materials used in the industry. Especially of interest is the experience of members with materials that have been newly developed and the properties and suitability of which are not yet widely known. Under the reference service members would be invited to write the Association advising it of any special experience or knowledge they have had with materials, either favorable or unfavorable.

[31 F.R. 11302, Aug. 26, 1966]

§ 15.86 Sales promotion plan involving a lottery rejected.

(a) In an advisory opinion the Federal Trade Commission informed a retailer that his proposed sales promotion is illegal because it involves the sale of merchandise by means of a lottery and therefore is an unfair method of competition and an unfair practice.

(b) The retailer planned to list certain selected items with the local bank. After the customer makes his regular purchase at the retail store, he checks with the bank, and if that particular item is listed with the bank, the customer is entitled to keep the merchandise without charge. On the other hand, if the item is not listed at the bank, the purchaser must pay the regular price for it.

(c) In reaching its conclusion that the plan was illegal, the Commission reasoned that "the mere fact that a purchaser receives a thing of value for his contribution does not negate the existence of a lottery."

[31 F.R. 11302, Aug. 26, 1966] § 15.87 Sale of silverware through plan involving lottery rejected.

(a) The Commission issued an ad(with visory opinion Commissioner Elman not concurring) in which it disapproved a silverware manufacturer's plan because it involved the sale of merchandise by means of a lottery.

(b) Under the terms of the proposed plan, advertisements will be published inviting the reader to complete a contest entry form specifying his preference among certain flatware featured therein, together with his name and address. The reader will be invited to leave said form with the manufacturer's dealer or, in lieu of using the form featured in the advertisement, he can obtain the same form at his dealer or print the same information on a blank piece of paper and leave it with the dealer. At the conclusion of the contest, each dealer will draw the name of one contestant who will receive a free 4-piece place setting in the pattern specified on his entry form.

(c) There is absolutely no requirement on the part of any participant or winner to purchase or promise to purchase any merchandise. However, the rules further provide that if the winner purchased other settings in his particular pattern during the period of the contest, the dealer will donate additional pieces in that pattern equivalent in retail value to those purchased.

(d) In its advisory opinion, the Commission took the position that "the portion of the plan which awards a 4-piece place setting to the winner is unobjectionable."

(e) "However," the Commission added, "the matching provision on the part of the dealer creates the element of consideration on the part of participants and therefore constitutes the sale of merchandise by means of a lottery or by means of a chance or gaming device contrary to the provisions of section 5 of the FTC Act. As a result, the Commission cannot give its approval to this aspect of your proposed plan in its present form.” [31 F.R. 11607, Sept. 2, 1966]

§ 15.88 Three-way promotional plan set up by radio station and financed by participating retailers and their suppliers.

(a) A radio station has been advised by the Federal Trade Commission that its proposed three-party promotional plan as originally presented would be unlawful because it would not be available to all competing customers in a practical business sense, but that subsequent revisions in the basic plan, coupled with the addition of an alternative plan, now bring the basic plan within the requirements of functional availability. However, the revised plan contains one defect which will be discussed later, and which will receive correction before Commission approval can be given.

(b) The proposal involves the furnishing of background music and in-store commercial announcements to retail establishments. The radio station would install, without cost, the necessary receiving equipment in each participating retail store. The products advertised will be limited primarily to grocery store items. Each store would pay a fixed amount for the background music, depending upon the number of speakers (one speaker for every 600 square feet of floor space). The value of the instore message to the participating supplier will be measured and paid for on the basis of the total number of persons exposed to the in-store commercials at a fixed rate per thousand estimated weekly transactions. As originally submitted, no alternative plan or plans would be offered.

(c) In its first advisory opinion, the Commission said that the legality of the proposed plan raised the following two questions: (1) Did it meet the require

ment of functional availability since there was no provision for an alternative plan or plans? (2) Did it provide for payments to all competing purchasers on proportionally equal terms if the method of payment for the in-store commercials is based upon the number of customers who are exposed to said commercials?

(d) With respect to the first question, the Commission noted that a promotional plan must be within the reach of all competing customers of the supplier in a practical business sense, otherwise it does not comply with the requirement of functional availability. After having examined the plan, the Commission concluded it would not be available to all competing customers in a practical business sense for a variety of reasons.

(e) "In the first place," the Commission said, "retail outlets such as drug and department stores which may carry some food products but which may also carry a variety of other products may find it impractical to participate in the plan, since, due to the layout of these stores, the broadcasting of commercials limited primarily to food products, may interfere with their sales of other products. Second, retailers who already have existing contracts for background music from other sources would find it difficult, if not impossible, to operate under the proposed plan. Third, those food stores which do not carry all participating brands could not be expected to broadcast in-store commercials promoting the sale of products which they do not stock and which may be carried by their competitors. We have doubts that the alternate solution offered under the plan would resolve these difficulties. In the first place, an assumption of contracts of competitors by the radio station under the circumstances might raise other antitrust problems. Second, although the proposed plan provides that any store may discontinue the plan at the end of the first year without any obligation for outstanding charges if the credits earned for in-store commercials do not offset music and speaker charges, this provision would in no way eliminate possible discrimination against such stores during subsequent years."

(f) The Commission was of the opinion that the foregoing examples "clearly demonstrate that the basic plan would not be available in a practical business sense to a substantial number of compet

ing retailers and therefore would not meet the requirement of functional availability." Under these circumstances, and in the absence of an alternative plan or plans for those who cannot use the basic plan, the Commission concluded that the proposed plan, if enacted, would not be in conformity with the requirements of sections 2 (d) and (e) of the Robinson-Patman Act. It cited with approval the following portion of its announcement of September 21, 1965, setting forth certain guidelines for three-party promotional assistance plans: "* ** a reasonable alternative means of participation must be included in such plans for eligible customers who are unable to use the basic plan."

(g) Having concluded in its original opinion that the proposed plan does not meet the test of functional availability, the Commission did not find it necessary to discuss or reach a conclusion with respect to the second question presented by the request as to whether the method of payment for the in-store commercials, which is to be based upon the number of customers exposed to said commercials, meets the requirement of proportionality.

(h) Shortly after the Commission issued its original opinion, counsel for the requesting party filed an amendment to the original plan. The amended plan made provision for an alternative plan for those who could not use the basic plan, and also made certain revisions in the basic plan.

(1) Revisions of the basic plan provide for the installation of broadcast equipment in drug and department stores in such a manner that the instore commercials will not interfere with the sale of other products. Retailers who presently subscribe to background music from other sources may have equipment installed by the requesting party, without cost, which would permit interruption of the music by spot announcements (alternative plan 1). Retailers who do not carry all products sponsored under the plan can have instore announcements which merely urge customers to buy those products identified by the sponsor's marker, rather than promoting specific brands (alternative plan 2). A third alternative plan has also been proposed under which the facilities of retail stores will be provided with promotional and advertising services at the point-of-sale of the sponsor's products.

(j) Under both the basic plan and the alternative plans, the value of the services performed by the retailers for the participating supplier will be measured and paid for on the basis of the total number of persons exposed to the in-store commercials and point-of-sale material at a fixed rate per thousand estimated weekly transactions.

(k) After having reviewed the plans as now proposed, the Commission was of the opinion that the basic plan now meets the requirement of functional availability. The Commission was also of the opinion that under the circumstances of the intended use of this plan, the proposed method of payment for the in-store commercials and point-of-sale advertising, which is to be based upon the number of consumers exposed to said advertising, meets the requirement of proportionality under section 2 (d) and (e) of the Robinson-Patman Act.

(1) Insofar as using the number of consumers exposed to the commercials as the standard for measuring payments to retailers, the Commission felt this method accords with the value of the service to the supplier and in the long run will probably correspond fairly close to the amount of purchases of the supplier's product. One reason for this is that suppliers probably will not join the plan or stay with it if they find they are making payments to stores without any corresponding increase in their volume of sales by those stores. Therefore, under these circumstances the Commission felt it was reasonable to permit proportionalization to be based on the estimated number of customers, particularly where, as in this case, the measure for estimating the number of customers is weighted in favor of the smaller stores.

(m) The Commission, however, was of the opinion that the proposed plan must be rejected because the rate of payment under the alternative plans is onehalf the amount paid under the basic plan and is therefore clearly not proportionally equal to the payments to be made under the basic plan. The Commission feels that such discriminatory payment provisions cannot be justified on the ground that the services rendered under the basic plan may be more valuable to the supplier. In a typical case under the basic plan, a store with 20 speakers would clear approximately $65 per month over and above the amount it would pay for music charges, whereas an equivalent size store utilizing the al

ternative plan would clear approximately $5. Thus, if a supplier were to furnish free music to one store and not to its competitor, it would be clear that section 2(e) would be violated; the discrimination herein would be equally unlawful. The Commission felt, therefore, that this substantial disparity in payments must be eliminated before the plan can be approved. If this is done, the Commission would give its approval to the plan.

[31 F.R. 12014, Sept. 14, 1966]
§ 15.89 Proportionalized equal

treat

ment for competing customers under three-way promotional program involving recipes for free distribution. (a) The Commission approved, with qualification, the use of a tripartite recipe plan promoting the sale of food products.

(b) Under the terms of the proposed plan, recipes will be supplied without charge to all food stores in a given marketing area for free distribution to the stores' customers. Each store which participates in the plan will have its name imprinted on the recipe card, together with the names of the participating food suppliers and their products. Availability of the plan will be publicized in a monthly trade magazine.

(c) No money will be paid to retail stores which participate in the plan, and it will be supported solely on the basis of the sale of advertising to various food suppliers who will pay a certain fee per 1,000 recipe cards to the promoter of the plan. The promoter will in turn have the recipe cards printed and distributed to the participating retailers.

(d) In its opinion the Commission said that section 2(e) of the Robinson-Patman Act "requires 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 Commission also pointed out that the courts have affirmed the principle that a "supplier must comply with this provision of the law (sec. 2(e) of the R-P Act) irrespective of whether the promotional assistance is furnished to the retailer directly or through an intermediary."

(e) In giving its qualified approval to the proposed plan, the Commission said that the following three conditions must be met:

(1) All competing retailers must in fact be notified of their right to participate in the proposed plan. (The Commission did not pass upon the adequacy of the proposed means of notification because it did not have the facts upon which to base a judgment.)

(2) The plan will be offered to all competing retailers. This means that some retailers who, geographically, are not in a given marketing area must be offered the plan if they are on the periphery of that marketing area and in fact compete with the favored retailers.

(3) The plan will be made available to all competing retailers irrespective of their functional classification. Thus, nonfood stores which handle food items sold in grocery stores must also be accorded the same opportunity to participate in any promotional assistance given by the food suppliers to competing grocery outlets.

[31 F.R. 12015, Sept. 14, 1966]

§ 15.90

Legality of notice calling attention to page on which magazine publisher's promotional assistance program is located.

(a) The Commission advised the publisher of a monthly magazine that implementation of the promotional assistance plan outlined below would not result in violation of Commission administered law.

(b) Under the plan, a notice would be printed quarterly on the cover of the magazine calling attention to the page in that issue on which the payment and the essentials of the retailers' service obligations would be set forth in an item in the same size type as the magazine's textual material. The item would also reflect that the retailer must write to the magazine distributor to obtain a copy of the agreement containing full details. A retailer would obtain quarterly payments of 10 percent of the cover price of copies sold after certifying to the distributor that he-the retailer-had complied with the terms of the agreement. The agreement requires display of the magazine full cover flat or full cover prominent position on the principal magazine rack or full cover vertical in a rack at each checkout counter for the entire sales period of an issue.

[31 F.R. 12479, Sept. 21, 1966]