eliminated insofar as the agencies were concerned when they were arriving at their decision as to whether to join or whether to remain under the code after having joined. The Commission made it clear, however, that this conclusion was a tentative one since there was little recorded experience upon which to predicate such a judgment. Therefore, the opinion was based on the understanding that there will be no coercion of any agency to subscribe to the plan, no coercion of any agency to remain in it after it has subscribed and no retaliation of any kind against any agency which does not choose to join or which subsequently elects to leave after having joined.

(i) The industry was also advised that the Commission approval extended in the opinion was given for a three year period, following which the industry should resubmit its request, and, in the meantime, the Administrator must submit reports to the Commission of each complaint which was received, considered or investigated and of each action taken. Further, the opinion was rendered with instructions to the staff of the Commission to initiate periodic inquiries after the plan had been put into effect to determine and report to the Commission as to how it is actually working. [32 F.R. 7749, May 27, 1967]

§ 15.129 "Solid" and "karat" used together in describing articles composed of gold.

The Commission advised an association that the word "solid" could be used in conjunction with the karat indication of gold of 10 or more karats in fineness. For example, it would be proper to use the expression "14 karat solid gold" or "solid 14 karat gold" to describe an article which was both in fact solid and in fact made of gold 14 karat in fineness. The use of such descriptions, or appropriate abbreviations therefor, provided both factors in the description were given adequate prominence, would be unobjectionable.

[32 F.R. 8406, June 13, 1967]

(b) The Commission was advised that a group of members of the industry had cooperated in the founding of the association, an unincorporated group. These members were active in several different States. They are now soliciting memberships from every industry member known in the United States, which exceed 2,500 in number. The purpose of the association will be to foster the wellbeing and growth of the industry, as is common with trade associations. Within a short time, the group expects to achieve substantial and widespread representation.

(c) The opinion advised that the Commission had considered the facts presented and the steps which the group planned to take and that it had no objection to the use of either word in the name of the proposed association. [32 F.R. 8407, June 13, 1967]

§ 15.131 Acceptance of free merchandise by grocery retailer.

(a) The Commission was requested to render an advisory opinion with respect to the legality of the acceptance by a grocery retailer of offers of free merchandise from some of its suppliers. Basically, the retailer was interested in the legality of accepting an offer, in connection with the purchase of merchandise, of one case of free goods for every location the purchaser operates. According to information supplied by the requesting party, such offers are often introductory in nature, and are used by manufacturers to acquire new customers or to introduce new products. Only one free case of goods is given and the offers are generally not repeated.

(b) Under well-settled principles, the Commission advised that it was of the opinion that where a seller gives his customers free merchandise without expecting any promotional performance in return, the retailer having advised that no such performance was expected, he has in effect and in law granted a reduction in price to the extent of the value of the free merchandise. This being so, the practice of making such offers would be governed by the provisions of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, which, in brief, provides that it shall be unlawful for a seller to discriminate in price between different purchasers of goods of like grade and quality where the effect may be to substantially lessen competition or to create a monopoly and

where none of the defenses afforded by the Act are present.

(c) As the buyer, the Commission advised that the retailer was governed by the provisions of section 2(f) of the Act, which would make it unlawful knowingly to induce or receive a discrimination in price which is prohibited by section 2(a). Thus the suppliers could give and the retailer could accept free merchandise under these circumstances to the same extent and in the same amounts as lower prices would be lawful.

(d) Considering the nature of the statute involved, the Commission stated that it was difficult to rule categorically with respect to any particular proposal such as presented in the context of an advisory opinion. This is especially true when it comes to measuring the competitive effects of a proposal which has not yet been placed into effect. Despite the presence of these unknown factors, the Commission felt it could offer certain comments of a cautionary nature which might be helpful to the retailer in determining whether or not to accept such offers.

(e) Under the formula which the suppliers proposed to use for determining the amount of free goods to be given each customer, namely, one free case for every location the purchaser operates, the Commission felt it was very unlikely that any of the defenses made available by the Act could be established. The only ones which seemed to have any possible application to this situation would be good faith meeting of competition and cost justification. The very statement of facts seemed to negate any question of meeting competition, for the suppliers obviously would not be reacting to any competitive situation but would instead be motivated solely by their own marketing purposes.

(f) Additionally, it was difficult for the Commission to visualize how these offers could be cost justified since cost factors obviously do not enter into the determination of the amount of free goods to be given. Quite the contrary, the amount is to be determined solely by the number of outlets which the purchaser operates, without regard to quantities ordered or differences in the cost of manufacture, sale, or delivery.

(g) If the offer is made to obtain new customers, the Commission felt price discriminations could result as between new customers who would receive varying amounts of free goods depending

upon the number of outlets which they operate, or between any given new customers and competing old customers who would receive nothing under the proposal. Even if the offers were made to all customers for the purpose of introducing a new product, price discriminations could result because of the varying amounts of free goods depending upon the number of outlets which they operate. The question of whether such price differentials would have the probability of anticompetitive effect requisite to a finding of illegality under the statute would depend on the specific circumstances of the individual case. This determination cannot be made with certainty at this time. In view of the possibility of a violation of section 2(a) of the Clayton Act as amended by the Robinson-Patman Act, the Commission is unable to give its approval to this plan. [32 F.R. 9063, June 27, 1967]

§ 15.132 Giving free merchandise to obtain new customers.

(a) The Commission was requested to render an advisory opinion with respect to the legality of a proposal by a seller to give free merchandise in order to obtain new customers among retail food outlets not presently selling the products of the seller. According to information supplied by the requesting party, such offers are often introductory in nature, and are used by manufacturers to acquire new customers or to introduce new products. Only one free case of goods is given and the offers are generally not repeated.

(b) Under the proposal, for each such outlet which has from one to six checkouts, both inclusive, the seller will give one free case of each product which is purchased by or for sale through such outlet. The requisite purchase must be in case lots. For each such outlet which has seven or more check-outs, the seller will give two free cases of each product which is purchased by or for sale through such outlet and the requisite purchase again must be in case lots. For the purpose of this offer, the term "check-outs" means cash registers or other places in the outlet at which customers regularly pay for food purchases made in said outlet.

(c) The Commission advised that it was of the opinion that where a seller gives his customers free merchandise without expecting any promotional performance in return, he has in effect and

in law granted a reduction in price to the extent of the value of the free merchandise. This being so, the practice would be governed by the provisions of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, which, in brief: Provided, That it shall be unlawful for a seller to discriminate in price between different purchasers of goods of like grade and quality where the effect may be to substantially lessen competition and where none of the defenses afforded by the Act are present. Thus the seller was advised that it could give free merchandise under these circumstances to the same extent and in the same amounts as it could grant lower prices to the recipients thereof.

(d) Considering the nature of the statute involved, the Commission went on to advise that it was difficult to rule categorically with respect to any particular proposal in the context of an advisory opinion. This is especially true when it comes to measuring in a prospective manner the competitive effects of a proposal which has not yet been placed into effect. Despite the presence of these unknown factors, the Commission did feel that it could offer certain comments of a cautionary nature which might prove helpful to the seller in determining whether or not to embark upon this program.

(e) Under the formula which the seller proposed to use for determining the amount of free goods to be given each customer, namely, one free case for each outlet with up to six check-outs and two free cases for each outlet with more than six, it appeared unlikely to the Commission that any of the defenses made available by the Act could be established. The only ones which would seem to have any possible application to this situation would be good faith meeting of competition and cost justification. The very statement of facts seemed to negate any question of meeting competition, for the seller obviously would not be reacting to any competitive situation but would instead be motivated solely by its own marketing purposes.

(f) Additionally, it was difficult for the Commission to visualize how these offers could be cost justified since cost factors obviously do not enter into the determination of the amount of free goods to be given. Quite the contrary, the amount is to be determined solely by the number of check-outs per outlet which the purchasers operate, without

regard to quantities ordered or differences in the cost of manufacture, sale or delivery.

(g) If the offer is made to obtain new customers, the Commission felt that price discriminations could result as between new customers who would receive varying amounts of free goods depending upon the number of outlets which they operate, or between any given new customers and competing old customers who would receive nothing under the proposal. Even if the offers were made to all customers for the purpose of introducing a new product, price discriminations could result because of the varying amounts of free goods depending upon the number of outlets which they operate. The question of whether such price differentials would have the probability of anticompetitive effect requisite to a finding of illegality under the statute would depend on the specific circumstances of the individual case. This determination cannot be made with certainty at this time. In view of the possibility of a violation of section 2(a) of the Clayton Act as amended by the Robinson-Patman Act, the Commission is unable to give its approval to this plan.

[32 F.R. 9064, June 27, 1967]

§ 15.133

Agreement among members of trade association to comply with government ruling.

(a) A trade association requested an advisory opinion as to its proposal to hold joint discussions among its members as to the proper description of the industry's product looking toward a possible agreement among all concerned to comply with the ruling of a government agency as to how the product should be labeled. The Association assured the Commission that the discussion would be for this limited purpose only and that there would be no price fixing, monopoly or other antitrust question involved.

(b) The Commission advised that there could be no objection to a discussion among the members looking toward a limited agreement to comply with this ruling on a voluntary basis. The members were further advised, however, that nothing in this opinion was to be construed as approval of any steps which might be taken by the members, acting in their private capacity, to enforce this ruling themselves as to any members who might not be inclined to agree. Such approval as was given was limited to the simple agreement in principle to comply

with the ruling, with enforcement being left to the properly constituted government authorities.

[32 F.R. 10297, July 13, 1967]

§ 15.134 Proposed lease of patented industrial machine.

(a) A manufacturer of a patented industrial machine designed to produce a nonpatented end product requested an advisory opinion as to the legality of its proposed form of lease.

(b) The manufacturer posed two specific questions pertaining to the lease and requested an opinion as to any other phase which the Commission might feel should be covered. The first question related to the lease term and royalty provisions, which provide that the lease shall continue in effect for three years with the lessee having the right to terminate upon 90 days notice during the second and third years and that the rental shall be 2.2 percent of the gross sales of products produced on the machine by the lessee. The Commission stated that it viewed the patent grant as conveying to the patentee the right to charge whatever royalty was satisfactory to the parties, measured by whatever patented or unpatented royalty base he desired for as long a period of time as he elects, so long as there is no attempt thereby to extend the patent monopoly beyond its intended scope. Therefore, it could see no objection to three provisions as written.

(c) The second question related to the paragraph providing that the lessor will not make any sales of the equipment and will not enter into a lease agreement for such equipment with anyone else whose place of business is located within the lessee's trading area as defined in the lease. The Commission noted that this provision did not grant the licensee an exclusive territory, although it had been advised that the nature of the end product would make it difficult for anyone else to compete within that area because of the freight factor. Be that as it may, the Commission was of the opinion that the owner or holder of exclusive patent rights to make, use and sell may carve out of his grant a limited monopoly for a licensee and, therefore, it could see no objection to this provision.

(d) The Commission further noted that following discussions with the staff the manufacturer authorized deletion of one sentence in the lease for editorial purposes and that in the paragraph deal

ing with alterations, the manufacturer requested deletion of the sentence requiring that any alterations, improvements, or changes, which are or may be patentable, shall upon request, be assigned to the lessor. Thus the manufacturer did not request an opinion as to the required grant-back of improvement patents incorporated in the original submittal.

(e) While the Commission did not purport to pass upon the purely contractual aspects of the lease, it did state that it had reviewed the other provisions of the lease and expressed no objections thereto from the standpoint of the laws it administers, particularly in view of the fact that it had been advised that there were other competitive machines which the lessees are free to rent or purchase and in view of the fact that there were no tie-ins requiring the purchase of auxiliary or other equipment or supplies from the lessor.

[32 F.R. 10298, July 13, 1967]

(a) The Commission was requested to render an advisory opinion concerning the legality of a tripartite promotional program featuring the sale by a promoter to grocery retailers of books in which customers can paste labels from suppliers' products and receive a cash reward depending upon the number of labels collected.

(b) Under the plan, manufacturers will be solicited for permission to show reproductions of their labels, box tops, etc., within the pages of the books at no charge. The promoter will then offer the books for sale to all retailers within the boundaries of the initial test area. The retailers can then distribute the books in any manner they choose, either by mail, house-to-house, or at their stores. They may offer them as a bonus for a certain purchase or for purchases of a specified amount.

(c) Consumers will be invited to buy and try the products shown and to paste or otherwise fasten the actual label or other product identification over the designated space in the book. The books are redeemable for cash at the issuing retailer's store and the value depends upon either the total number of product identifications returned in one type of book or whether all product identifications are returned in the other type of book. The retailer advances the cash

reward to consumers redeeming books issued by him. The promoter will then reimburse the retailer the full amount advanced and in addition pay him a checking and handling fee, which will vary depending upon whether it is a completely filled or partially filled book. The promoter will then invoice suppliers based on the number of product identifications returned. This invoice will include an amount sufficient to cover the cash reward to the consumer, the fee to be paid the retailer and a payment to the promoter for his costs plus his profit.

(d) Retailers stocking all the items shown on the inside pages, or willing to do so, will be offered a choice of the two types of books. First, is the book offering a cash reward based on the number of product identifications returned. The consumer can fasten one or more of the product identifications in the book and return it to the retailer for a cash reward. Second, is the book offering a flat cash reward for completely filling the book with all identifications shown. Retailers stocking one or more of the items shown, but not all of them, will be offered the book where redemption value is based on the number of identifications returned. The consumer can make purchases anywhere and fill as many spaces as desired, regardless of limit to items stocked by the issuing retailer.

(e) Retailers using either type of book can choose from individualized covers or preprinted stock covers and will have a choice of using a name coined by the promoter or a name of their own choosing. The cost to the retailer will vary according to the type and quantity of books purchased. The promoter has advised that the differences in costs of both the standard and individualized covers is solely attributable to differences in the cost of printing and distributing different quantities and that the books are to be sold to retailers at cost.

(f) The promoter will mail an “Offer to Retailers" to all grocery stores, supermarkets, headquarters of each local, regional and national chain, wholesalers and the area headquarters or warehouses of each cooperative or association within the geographic area, as their names can be found in trade and telephone directories, route lists, etc. Realizing that some stores might be missing from these lists and also that other types of retailers might be offering at least some of the products shown, the promoter will run an advertisement in every daily news

paper within the area outlining the features of the books and offering to furnish a copy of the notice to any interested retailer. In any county where there is no daily newspaper, the notice or advertisement will be run in a weekly newspaper of general circulation.

(g) The Commission advised that while it believed the promoter had done a commendable job of devising a plan which contained alternatives which should prove to be usable in one form or another by every customer of the participating suppliers, there was still lacking the element of proportionally equal treatment of those customers as required by sections 2 (d) and (e) of the Clayton Act, as amended. In brief, these sections require that whenever a seller makes payments and furnishes services for the benefit of one customer, he must make those payments or services available on proportionally equal terms to all competing customers. If a situation such as this, where a number of suppliers will be making payments to the promoter which will inure to the benefit of their customers, the responsibility rests on the promoter and the suppliers to see that the promotional assistance thereby rendered is made available on proportionally equal terms to each competing customer of each participating supplier.

(h) The Commission's concern with this proposal stemmed first from the fact that the retailers will be charged different prices for these books depending upon the quantities ordered. In one sense, this could be viewed simply as a sale from the promoter to the retailers and thus subject to the cost justification defense which the statute make available to one charged with a discrimination in price. However, the Commission found it conceptually impossible to lift this transaction out of the whole and view it as a separate price discrimination problem. The proposal involves one essentially promotional program in which the parts cannot be separated from the whole. While it is true that the promoter will sell the books to the retailers, he will do so at cost and this would not be possible were it not for the fact that he will derive his profit from payments made by the suppliers. Thus the Commission ruled that the entire plan was keyed to payments which emanate from the suppliers and this being so all parts must be judged according to the standards set forth in section 2 (d) and (e) of the Act.