Wolf v. Federal Trade Commission
| Decision Date | 19 May 1943 |
| Docket Number | No. 7931.,7931. |
| Parties | WOLF v. FEDERAL TRADE COMMISSION. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Arthur D. Herrick, of New York City, for petitioner.
Jos. J. Smith, Jr., W. T. Kelley, Chief Counsel, and Donovan R. Divet, Sp. Atty., Attys. for Federal Trade Commission, all of Washington, D. C., for respondent.
Before SPARKS and KERNER, Circuit Judges, and LINDLEY, District Judge.
Petitioner seeks review of an order of the Federal Trade Commission directing him to cease and desist from using lottery methods and devices in the interstate sale of merchandise. Certain other practices were involved in the order, but petitioner states that these have been discontinued and he does not question the order as to them. He states that the sole issue presented by his petition for review is whether his method of conducting business constitutes the use of lottery methods and devices. The original complaint was directed to a group of four persons, including petitioner Wolf, doing business as De Luxe Products Company and Delco Novelty Company. Before hearing, three of the respondents had sold their interests to Wolf and one Schwartz, who was not a party to the proceeding, hence we refer throughout our opinion to only the one party, Wolf, as petitioner.
The Commission in its findings of facts describes the offending mode of distribution as follows: Petitioner obtained distributors for his merchandise through answers to magazine advertisements offering to send three initialed handkerchiefs for six cents, or a four-piece beautifying kit for ten cents, to pay postage. To the persons who answered these advertisements, he then sent catalogues and circulars describing the articles of merchandise sold by him, and the method to be used in their sale. The catalogues contained pictures and descriptions of various pieces of merchandise offered as premiums, rewards or compensation to the distributor for his services in selling twenty articles of merchandise, some of which were also illustrated in the catalogue. This catalogue also contained a list of the twenty articles to be offered for sale, with the price of each article, and a blank space opposite each article for inserting the name of the purchaser. At the right of this list was pasted a device commonly known as a "pull card," containing twenty tabs, on the under side of each of which was concealed the name of one of the twenty articles for sale, and the price thereof, neither of which was revealed until after the tab was separated from the card. Exhibits show that these tabs carried girls' names, and the caption above them directed the purchaser to "Pick your favorite four leaf clover girl."
The mode of procedure was for the purchaser to detach one of the tabs, thereby ascertaining the article he was to purchase and the price he was to pay for it. In one assortment, the prices varied from seven cents for a chromium plated tray to thirty-five cents for a box of face powder. When the purchaser had paid the amount called for by his tab, his name was written in the blank provided. When the distributor had sold all the articles and collected the price therefor he remitted the amount to the petitioner, receiving from him the merchandise which he was to deliver to the purchasers, along with the article chosen by himself as his premium or reward for his services. He might, instead of selecting a merchandise premium, elect to take his compensation in cash, and if so, retain 35% of the amount of his sales.
Immediately above the pull tab device the following appeared, in small print, as found by the Commission:
The Commission found that distributors sometimes called attention of their prospective customers to this "notice" and at other times did not. The Commission further found that the successful operation of the sales plan was dependent upon the ability of the distributor to sell all the twenty articles listed, so as to provide for remittance of the required amount to petitioner in order to obtain the merchandise purchased.
The Commission concluded that the "notice" was a subterfuge, intended to avoid the consequences incident to the operation of a game of chance, gift enterprise or lottery scheme. It also found that some of the merchandise had greater value and ordinarily sold at higher retail prices than the prices listed, thereby inducing purchasers to pull the tabs in the hope that they would receive articles of greater value than the prices designated to be paid for them. Whether a purchaser received one of these, or which of the twenty he might receive and the price he was to pay were determined wholly by lot or chance. The Commission therefore found that petitioner had placed in the hands of others, devices to be used in the sale and distribution of their merchandise by means of which a game of chance, gift enterprise or lottery scheme might be used, and by the use of such devices, the merchandise was sold and distributed to the ultimate consumer wholly by lot or chance, contrary to the established public policy of the United States. It further found that many persons selling and distributing merchandise in competition with petitioner were unwilling to...
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