(c) Specifically, the following questions were raised in regard to the proper marking of the material:

(1) When the material is used for shoe soles and/or heels but does not have the appearance of natural leather, need there be any marking or labeling whatsoever?

(2) In those instances where the material is used for shoe soles and/or heels and does have the appearance of natural leather, is it necessary to mark or label the material with a designation indicating that it is not natural leather?

(3) In all cases where the answer to question 2 is in the affirmative and assuming that the material is easily visible, is it sufficient to mark the shoe part made from this material with its trade name?

(4) If the answer to question 3 is in the negative, what would constitute adequate and sufficient disclosure of the nature of the material?

a

(d) In regard to the first question where a manufacturer produces leather-type product for use in shoes and knows or has reason to believe that after processing it will look like leather, the manufacturer must label the product as indicated in question 2.

(e) Second, when the material is used for shoe soles and does have the appearance of leather, it is necessary for the shoe manufacturers to mark or label such materials with a designation which clearly discloses either: (1) The material is simulated or imitation leather, or (2) the general nature of the material in such manner as to show it is not leather or split leather. This requirement is imposed by Guide II of the Shoe Guides, but it should be noted that heels are specifically exempted from the marking provisions thereof.

(f) Third, marking the shoe soles with the trade name would not be sufficient to remove the deception created by the false impression where the material is finished to have the appearance of leather. In short, there is nothing in the use of the trade name alone which would meet the requirements set forth in answer to question 2.

(g) In response to the fourth question, Guide VI of the Shoe Guides sets forth a number of terms which would be acceptable in describing the nature of the material when it is finished to have the appearance of leather. Those terms are as follows: "simulated leather," "imitation leather," or that it is "ground, pulverized or shredded leather" (as the case

(a) The Federal Trade Commission rendered an advisory opinion in regard to the legality of labor unions entering into collective bargaining agreements with their employer manufacturers whereby the manufacturers will agree to cease importing products of the type they manufacture.

(b) It is alleged that the unions have made such a proposal to their employer manufacturers because of the increased imports which have resulted in decreased domestic production, increased domestic unemployment, loss of wages, etc. It is contemplated that penalties will be assessed against any manufacturer who violates the proposed agreement.

(c) The Commission concluded that the immunity afforded to labor unions for certain labor activities is lost if the union combines with non-labor groups to effect a restraint of trade not intimately related to wages, hours, and working conditions and otherwise prohibited by the antitrust laws or Federal Trade Commision Act.

[35 F.R. 2656, Feb. 6, 1970]

§ 15.404 Franchise sales promotion plan with pyramiding franchises and "Functional Override" commission implications.

(a) In a previous advisory opinion the Commission advised that a violation of section 5 of the Federal Trade Commission Act would result from the adoption of the following proposed franchise sales promotion plan.

(b) The plan centers around the sale of a fruit juice drink through franchise independent businessmen who will assist in the franchisor's growth by training additional franchisees. For such performance an original franchisee will be paid a "Functional Override", or commission, of 1 percent of the gross sales of those they recruit and train (direct franchisees) and one-half of 1 percent of the gross sales of those recruited and trained by direct franchisees (indirect franchisees). In addition, original franchisees will be granted loan credits and cash bonuses

for persons proposed and accepted as franchisees.

(c) Although the plan was not intended to have "pyramid sales" implications and the "Functional Override" was to stop with the indirect franchisees insofar as an original franchisee is concerned, a direct franchisee may become an original franchisee and indirect franchisees may become direct, and subsequently original, franchisees by sponsoring other persons as franchisees. This being so the "Functional Override" continues throughout the chain down to the last indirect franchisee recruited who would be unable to derive any benefits from the plan for the reason that the continually expanding pyramid of franchises would prevent the later franchisees from successfully recruiting still other participants.

(d) A tabulation distributed through an operations manual to potential franchise purchasers indicates that an original franchisee may, in theory, benefit from the effort of at least twenty (20) other franchisees. This is in the Commission's judgment is somewhat beyond the realm of possibility since an original franchise purchaser does not know the number of prior franchise purchasers nor the degree to which an available market has been saturated with franchises. The return to any given franchise participant will unquestionably be a great deal less than the theoretically achievable amount set forth. No single franchise participant can be certain what his return will be, if any, beyond perhaps that from his first few direct franchisees. Any further amount he might receive would accrue to him sheerly through chance. [35 F.R. 3067, Feb. 17, 1970]

§ 15.405 Disclosure of imported fabric used in American flags.

(a) The Commission issued an advisory opinion with regard to the manufacture of American flags made from imported cloth that it would be necessary to clearly and conspicuously disclose the foreign country of origin of the printed fabric used in the production process under section 4(b) (4) of the Textile Fiber Products Identification Act.

(b) According to the facts considered in this opinion the printed fabric will originate in either Japan or Taiwan, depending upon where the best price can be obtained. The fabric will be shipped into the United States in a finished state in rolls of 50 to 100 yards per roll.

Thereafter, it will be cut, hemmed on the side where cut, grommets attached, assembled, and packaged. The cost of the imported printed fabric or flag material will represent approximately 25 percent of total production costs. The remaining 75 percent will represent domestic labor and material costs. The latter consisting primarily of a pole upon which to hang the flag.

(c) Section 4(b) (4) of the Textile Fiber Products Identification Act provides, among other things, that an imported textile fiber product shall be misbranded if it is not labeled so as to show the name of the country where the prod.. uct was processed or manufactured. [35 F.R. 3993, Mar. 3, 1970]

§ 15.406 Origin labeling on kits containing imported beads.

(a) The Commission rendered an advisory opinion concerning the proper labeling of a product line of craft kits containing imported glass beads,

*

(b) Under the facts considered, the box containing the various items in the craft kit would be marked "Manufactured by *" with the name of an American company and its address although some of the items representing 20 percent of the total cost will consist of glass beads imported from Japan and Czechoslovakia. Additionally, loose beads in glass bottles will be offered for sale, the imported beads here representing about 40 percent of the total cost. Advice was requested as to whether each bottle should be marked with the name of the country from which the beads were imported, such as "Made in Japan," "Made in Italy," or "Made in France" as the case might be.

(c) The Commission's advisory opinion reaffirmed the rule that "Made in U.S.A." markings are permissible only on products entirely of domestic origin. Therefore, "Manufactured by ***" with the name of the American company and its address, being synonomous, would be improper since 20 percent of the components of the kits consist of imported beads. However, in the absence of any affirmative representation as to the origin of the kits and their contents, the Commission ruled that such failure to mark or mention the origin of the components on the outside of the box would not be regarded as deceptive. This ruling will not prevail as to the glass beads being offered for sale to the public separately from the kits. In such circum

stances, the country of origin of such items must be fully disclosed. [35 F.R. 5174, Mar. 27, 1970]

§ 15.407

Association discussion limited to voluntary standardization not violative of outstanding cease and desist order.

(a) The Commission issued an advisory opinion in which an association of librarians was advised that contemplated meetings with various publishers for the limited purpose of discussing standardization of forms, definitions and cataloging would not be violative of Commission administered statutes or the terms of an outstanding cease and desist order prohibiting the publishers from meeting for the purpose of discussing industry selling practices and procedures. Because of the provisions of the order the publishers had heretofore refused to meet as a group.

(b) The Commission considered assurances that the proposed discussions would not involve matters of discounts, freight and other allowances, and other elements of price, and the fact that members of the association of librarians were book purchasers with a vital interest in the preservation of competition in the industry and the prevention of price fixing.

(c) The association was further advised that Commission approval was based upon an understanding that any agreements reached at such meetings are to be entirely voluntary actions of each party involved without compulsion in any form.

[35 F.R. 5542, Apr. 3, 1970]

§ 15.408 Debt collection forms and envelopes which simulate Government or other official documents.

(a) The Commission advised sellers of skip tracer and debt collection forms that a proposal to use forms simulating Government and other official documents would be regarded as violative of an outstanding cease-and-desist order and Commission administered statutes.

(b) In rejecting the proposal to use certain envelopes and forms, the Commission pointed out that:

(1) The general appearance of the proposed forms, when considered with numerous references to "Washington", "National", "Federal", Federal courts, and to the Federal Trade Commission, cause the forms to simulate Government or official documents.

(2) The forms do not disclose in a prominent place, in clear language and in type at least as large as the largest type (exclusive of captions) either that the sole purpose is to collect a debt, or that the U.S. Government is in no way connected with the request for payment.

(3) The forms do not disclose in a prominent place, and in clear language, the identity of the creditor to whom the debt is allegedly owed.

(4) The forms contain only a general statement of the rights of a creditor under state law to attach the real or personal property, income, wages, and other property of the debtor; the statement is misleading and inaccurate because, while it will be sold and used in many states, it does not set out the many variations in state laws, particularly the exemptions and restrictions.

(5) The forms represent bp implication that the Federal Trade Commission and a federal court of appeals have approved them.

(6) The brown window envelope in which the forms are to be mailed simulate, by their general appearance and by reference to "Washington" and "Federal", envelopes used by the Federal Government for official purposes.

(7) Because of the similarity to envelopes used by the Federal Government, and references to "Washington D.C." and "Federal", the envelope seems to come from a party other than the creditor. [35 F.R. 5999, Apr. 11, 1970]

§ 15.409 Labeling of reconditioned automotive parts.

(a) The Commission issued an advisory opinion with respect to labeling requirements applicable to used automotive engine accessories such as alternators, generators, starters, and similar parts which will be marketed in the United States after having been reconditioned in Taiwan with some new American or Taiwanese components such as wire and diodes.

(b) It was proposed that scrapped and otherwise used automotive parts would be acquired in the United States and shipped to Taiwan for reconditioning with such new materials as might be necessary, and then returned to the United States for final assembling and marketing. No information was available as to what percentage of total costs would be accounted for by shipping, foreign labor, components of a foreign origin, domestic parts, or domestic labor.

(c) Under these circumstances the Commission advised in general terms that:

(1) Labeling the reconditioned automotive parts "Made in U.S.A." would be a deceptive act or practice violative of section 5, Federal Trade Commission Act.

(2) The Commission would not object to a full disclosure of all relevant facts to purchasers of the merchandise; and

(3) Insufficient information had been supplied to permit an informed decision as to whether all reference to origin or place of work done may be omitted entirely from labels on the commodities.

(d) The Commission added that the United States Bureau of Customs should be consulted for applicable regulations affecting such activities.

[35 F.R. 5999, Apr. 11, 1970]

§ 15.410 Speed ratings and safety claims for tires.

(a) The Commission advised that the proposed advertising of speed rating and safety claims for foreign made automotive tires would be considered deceptive and in violation of section 5, Federal Trade Commission Act.

(b) The statements to be used in advertising and promotional materials included: "The (tire) has an HR* speed rating-this means it has survived tests at 130 MPH for 24 hours straight." "The (tire) is rated at 130 MPH for 24 hours straight." At the bottom of the page would appear this asterisked footnote: "*Internationally-recognized speed rating of the European Tyre and Rim Technical Organization. Established in supervised tests by professional drivers. Not intended to encourage high-speed driving."

(c) In a policy statement of June 3, 1969, entitled "F.T.C. Will Challenge Misleading Speed and Safety Representation in Automobile Tire Advertising," the Commission announced that

*

**it intends to challenge automobile tire advertising which misrepresents the overall speed and safety performance capabilities of tires. Examples of current advertising claims are * built low and wide like a racing tire. Tested at 130 mph', * * * all new, wide tire made especially for the young crowd and totified safe at 100 mph. So you're safe at tified safe at 100 mph. So you're safe at 60, 70, or 80', 'Safety tested at over 100 mph * *', 'Stamina so great we safety tested them at 130 mph', and 'stops 25% quicker'."

*

(d) In the policy statement the Commission took the position that "There is reason to believe that claims of this type may be deceptive and misleading as to tire safety. The speed tests do not reveal how the tires will perform at such speeds under all road conditions encountered in normal driving at various stages of the life of the tires. Specifically, the tests do not reveal whether the tires at such speeds during normal use would withstand various road hazard impacts, the sustained flexing to which tires would be subjected, and whether the tires would remain seated on the rim of the wheel under such conditions." [35 F.R. 5999, Apr. 11, 1970]

§ 15.411 Tripartite promotional plan involving use of "cents off" coupons.

(a) The Commission rendered an advisory opinion concerning a tripartite promotional plan involving use of "cents off" coupons redeemable after purchase of certain products sold in retail grocery stores.

(b) It was proposed that the promotion, designed to ultimately cover a single large metropolitan trading area, would be operated in a small portion of the area for 30 days and then moved to an adjoining area for another 30 day period until the entire metropolitan area had been covered. The value of each coupon will depend upon the product purchased and will be attached on the shelf where the product is displayed. Each package of the promoted product will bear a sticker which the shopper removes and places on the "cents off" coupon as proof of purchase.

(c) Participating manufacturers will pay a fixed fee for each retailer serviced, plus the value of the redeemed coupons, plus 2 cents to be passed on to cooperating retailers for services rendered. Each such supplier will be cautioned to notify his retail customers that the plan is available to them. Notice of the availability of the promotional plan will be made to retailers through wholesale distributors, local trade associations, advertising in the trade press, and through the buying offices of cooperatives and chain stores. In addition, spot checks of retail grocery stores in an intended area will be made by personal contact or telephone to determine whether they have knowledge of the program and that it is available to them.

(d) The Commission expressed the view that implementation of the pro

posed course of action in the manner described would be unlawful unless (1) the plan is offered to all competing sellers of the supplier's products regardless of the type of store or location of the seller and (2) the value of the "cents off" coupon is accurately and adequately made known to the prospective purchaser prior to the purchase of the product to which the coupon relates. [35 F.R. 6184, Apr. 16, 1970]

§ 15.412 Country of origin labeling on imported textile fiber garments.

(a) The Commission issued an advisory opinion concerning the requirements for noting the country of origin on labels of certain nylon or acrylic knit garments to be imported in the greige and thereafter dyed and finished in the United States.

(b) One garment, made of nylon, has an f.o.b. price of $13.50 per dozen and the other garment, made of polyester, has an f.o.b. price of $23 per dozen. The cost of dyeing and finishing the garments in the United States is between $8 and $12 per dozen, an approximate increase of 50 percent in value. After dyeing and finishing, the garments become merchantable wearing apparel and will be appropriately identified as to fiber content and the RN number.

(c) The Commission noted that Rule 34(a) of the rules and regulations issued as required by the Textile Fiber Products Identification Act provides that: "Where the form of an imported textile fiber product is not basically changed, the country where such product was originally manufactured or processed shall be set out in the required information. As for example, a fabric imported into the United States in the greige but finished and dyed in this country must show the country where the fabric was manufactured or processed."

(d) The Commission advised that the failure to mark the imported garments as to their country of origin would be violative of the Textile Fiber Products Identification Act.

[35 F.R. 6184, Apr. 16, 1970]

§ 15.413 Country of origin labeling on boxes containing imported bearings. (a) The Commission rendered an advisory opinion concerning the proper marking of boxes containing metal bearings imported from Japan.

(b) It was proposed that the bearings, manufactured in Japan, will have the term "Made in Japan" etched into the metal of each bearing. Catalog advertising describing these bearings will bear the legend "Made in Japan".

(c) The Commission expressed the view that unless the box bears any representation that the content is a product of United States manufacture, the failure to mark thereon “Made in Japan" would not be deceptive.

[35 F.R. 6184, Apr. 16, 1970]

§ 15.414 Uniform warranty and warranty service system.

(a) The Commission rendered an advisory opinion concerning a "Zip" Warranty and Warranty Service System to be offered farm and industrial machinery manufacturers for use in connection with sales of their equipment.

(b) Under the proposed plan an equipment manufacturer, in warranting his merchandise, would supply (1) a geographically convenient replacement parts depot from which repair and replacement parts would be readily available to dealers and users; (2) a central means for receiving and handling equipment deficiency reports and complaints; (3) an incentive award program for employee-assemblers of individual troublefree equipment; (4) a comprehensive, uniform warranty on all equipment; (5) a cash award program for employee-assemblers based on annual sales of troublefree equipment. The heart of the seventeen (17) page warranty and service plan is a series of cash and other awards intended to encourage purchasers to report equipment deficiencies and to encourage service personnel to strive towards the goal of zero defects.

(c) The Commission advised that use by farm and industrial equipment manufacturers of the submitted warranty plan would be unobjectionable except for the possible adoption by competitors of a warranty common to both. The Commission was of the view that it would be preferable for any participating supplier to establish the terms and conditions of his own warranty program without reference to the terms and conditions of a competitor's warranty program.

[35 F.R. 10109, June 19, 1970]