Federal Trade Commission v. FA Martoccio Co.

• Decision Date: 12 February 1937
• Docket Number: No. 401.,401.
• Citation: 87 F.2d 561
• Parties: FEDERAL TRADE COMMISSION v. F. A. MARTOCCIO CO.
• Court: U.S. Court of Appeals — Eighth Circuit

87 F.2d 561 (1937)

FEDERAL TRADE COMMISSION v. F. A. MARTOCCIO CO.

No. 401.

Circuit Court of Appeals, Eighth Circuit.

January 23, 1937.

Rehearing Denied February 12, 1937.

Martin A. Morrison, Asst. Chief Counsel, Federal Trade Commission, of Washington, D. C. (W. T. Kelley, Chief Counsel, Federal

Trade Commission, and Henry C. Lank and James W. Nichol, Sp. Attys., Federal Trade Commission, all of Washington, D. C., on the brief), for petitioner.

Arnold L. Guesmer, of Minneapolis, Minn., for respondent.

Before STONE, SANBORN, and WOODROUGH, Circuit Judges.

STONE, Circuit Judge.

This is a proceeding brought by the Federal Trade Commission for the enforcement of a "cease and desist" order entered by it against the respondent.

Respondent is a manufacturer of candy selling its product, in interstate commerce, to wholesalers and jobbers. The candy was packed in cartons, each containing a large number of uniform small candy bars, a smaller number of one-quarter pound bars, a yet smaller number of one-half pound bars and a "push card." The candy is of good quality. The smallest bars are of the size and kind usually retailing for five cents each. A push card is a stiff pasteboard card with covered holes in each of which is a concealed number. On the card is set forth certain numbers which entitle the purchaser (who uncovers one of them) to a quarter pound bar and certain other numbers entitling to a half-pound bar. For five cents, any purchaser may uncover a number on the card. He may secure a number calling for one of the two larger size bars. If he does not, he gets a five-cent bar which is reasonably worth what he pays. The purchaser may buy a five-cent bar and pay no attention to the card. There is no requirement that the purchaser use the card in buying the small bars. These cartons of candy are sold by the wholesalers and jobbers to retailers who may use the card or not in selling the candy.

The essential portions of the "cease and desist" order are as follows:

"(1) Selling and distributing to wholesale dealers and jobbers, for resale to retail dealers, candy so packed and assembled that sales of said candy to the general public are to be made, or may be made, by means of a lottery, gaming device, or gift enterprise;

"(2) Supplying to, or placing in the hands of wholesale dealers and jobbers, packages or assortments of candy which are used, or may be used, without alteration or rearrangement of the contents of said packages or assortments, to conduct a lottery, gaming device, or gift enterprise in the sale or distribution of the candy or candy products, contained in said assortment, to the public;

"(3) Supplying to, or placing in the hands of, wholesale dealers and jobbers assortments of candy together with a device, commonly called a `punch board' or `push card,' for use, or which may be used, in distributing or selling said candy to the public at retail;

"(4) Furnishing to wholesale dealers and jobbers a device, commonly called a `punch board' or `push card,' either with packages or assortments of candy or candy products, or separately, bearing a legend, or legends, or statements, informing the purchasing public that the candy, or candy products, are being sold to the public by lot or chance, or in accordance with a sales plan which constitutes a lottery, gaming device, or gift enterprise."

Respondent has filed here its "petition to set aside Commission's order" wherein it presents 34 challenges to the findings, the conclusions or the order of the Commission.

For convenience, we treat the case by consideration of the grounds and reasons advanced by respondent in its brief why the order of the Commission should not be enforced but should be set aside. At the threshold of our inquiry we are faced with a decision of the Supreme Court upon a situation so near to this one before us that the heavy burden is upon respondent to distinguish that case from this one. In fact, this is the main task of respondent in this litigation and we find it convenient to treat most of respondent's arguments in connection therewith.

The case of Federal Trade Commission v. R. F. Keppel & Brother, Incorporated, 291 U.S. 304, at page 307, 54 S.Ct. 423, 424, 78 L.Ed. 814, involved against a candy manufacturer using a candy sales plan known as the "break and take," which is described in the opinion as follows:

"The break and take assortments are so arranged and offered for sale to consumers as to avail of the element of chance as an inducement to the retail purchasers. One assortment, consisting of 120 pieces retailing at 1 cent each, includes four pieces, each having concealed within its wrapper a single cent, so that the purchasers of those particular pieces of candy receive back the amount of the purchase price and thus obtain the candy without cost. Another contains 60 pieces of candy, each having its retail price marked on a slip of paper concealed within its wrapper; 10 pieces retail at 1 cent each, 10 at 2 cents, and 40 at 3 cents. The price paid for each piece is that named on the price ticket, ascertained only after the purchaser has selected the candy and the wrapper has been removed. A third assortment consists of 200 pieces of candy, a few of which have concealed centers of different colors, the remainder having white centers. The purchasers of the candy found to have colored centers are given prizes, packed with the candy, consisting of other pieces of candy or a package containing lead pencils, penholder and ruler. Each assortment is accompanied by a display card, attractive to children, prepared by respondent for exhibition and use by the dealer in selling the candy, explaining the plan by which either the price or the amount of candy or other merchandise which the purchaser receives is affected by chance. The pieces of candy in the break and take packages are either smaller than those of the competing straight goods packages, which are sold at a comparable price without the aid of any chance feature, or they are of inferior quality."

After stating "that the practice complained of is a method of competition in interstate commerce and that it is successful in diverting trade from competitors who do not employ it" (291 U.S. 304, at page 308, 54 S.Ct. 423, 425, 78 L.Ed. 814) and that "a practice so widespread and so far reaching in its consequences is of public concern" (291 U.S. 304, at page 308, 54 S.Ct. 423, 425, 78 L.Ed. 814), the court discussed and determined the unfairness of the method. After stating that the case of Federal Trade Commission v. Winsted Hosiery Co., 258 U.S. 483, 42 S.Ct. 384, 66 L.Ed. 729, had decided that "A method of competition which casts upon one's competitors the burden of the loss of business unless they will descend to a practice which they are under a powerful moral compulsion not to adopt, even though it is not criminal, was thought to involve the kind of unfairness at which the statute was aimed" (291 U.S. 304, at page 313, 54 S.Ct. 423, 426, 78 L.Ed. 814), the court continued as follows: "The practice in this case presents the same dilemma to competitors, and we can perceive no reason for distinguishing between the element of chance as employed here and the element of deception involved in labelling cotton goods `Natural Wool,' as in the Winsted Case. It is true that the statute does not authorize regulation which has no purpose other than that of relieving merchants from troublesome competition or of censoring the morals of business men. But here the competitive method is shown to exploit consumers, children, who are unable to protect themselves. It employs a device whereby the amount of the return they receive from the expenditure of money is made to depend upon chance. Such devices have met with condemnation throughout the community. Without inquiring whether, as respondent contends, the criminal statutes imposing penalties on gambling, lotteries and the like, fail to reach this particular practice in most or any of the states, it is clear that the practice is of the sort which the common law and criminal statutes have long deemed contrary to public policy. For these reasons a large share of the industry holds out against the device, despite ensuing loss in trade, or bows reluctantly to what it brands unscrupulous. It would seem a gross perversion of the normal meaning of the word, which is the first criterion of statutory construction, to hold that the method is not `unfair.' See Federal Trade Comm. v. Royal Milling Co., supra, 288 U.S. 212, at page 217, 53 S.Ct. 335, 77 L.Ed. 706; Federal Trade Comm. v. Algoma Lumber Co., supra, 291 U.S. 67 at page 81, 54 S.Ct. 315, 78 L.Ed. 655."

From the above statements concerning the issues in and the above quotations from the Keppel Case, appear two matters vital here. One of these is that the court broadly asserted that "the element of chance as employed" there was an unfair method of competition within the Federal Trade Commission Act (section 5 15 U.S.C.A. § 45). The other is that the "element of chance" there employed would seem to be not different in essentials from the method employed here. We now turn to consideration of the reasons advanced by respondent to distinguish this case.

(1) Respondent contends there is no element of "chance" in a true sense present in its method because there is no possibility of loss to the consumer, since he gets five cents worth of good candy in any event and may get several times that amount for the same money. This distinction is not valid. Under the Keppel Case, the vice of the method there condemned is that the element of chance is employed as a factor in competitive sales. While most gambling or chance games involve possible loss to the player as well as possible gain, it does not change the character of the game as one of chance merely to remove the possibility of loss. In fact, to remove all possibility of loss would make more effective the incentive to play by removing the most...