available from or through a participating retail organization, implementation of the proposed program in the manner outlined will raise no questions under section 2 (d) or (e) of the amended Clayton Act.

[35 F.R. 10950, July 8, 1970] § 15.426

Quality designation on jewelry

of identical construction.

(a) The Commission responded to a request for an advisory opinion concerning a proposal to use the quality designation "Yellow Gold or White Rhodium Electroplated" on jewelry of identical construction which may be electroplated with either metal.

(b) The view was expressed by the Commission that although there may be some instances where a consumer might be able to properly interpret such a quality designation, the vast majority of consumers would be confused through use of any dual designation. Moreover, if the use of such a dual designation were to be approved, it would logically follow that approval would have to be given to the use of triple, quadruple, etc., designations. The end result would be utter chaos for the vast majority of consumers who would be thrown into a jungle of quality designations from which they could not intelligently extricate themselves.

(c) Under these circumstances, the Commission advised that it cannot give its approval to such dual quality designation because the use thereof would probably serve to confuse and deceive prospective purchasers in regard to the quality of the products being bought. [35 F.R. 10951, July 8, 1970]

§ 15.427 Guarantee advertising for refrigerated compressors.

(a) The Commission rendered an advisory opinion regarding the proposed advertising of a 10-year guarantee for compressors used in refrigerators.

(b) The proposed advertising, which would appear as a 30-second television

Sec. 17.1

commercial, would guarantee the compressors for 10 years in writing and if they do not last that long a new compressor will be given the customer free, and further, for the first 5 years the manufacturer will pay labor charges and the customer will pay for pickup and delivery.

(c) The Commission advised that the proposed advertising is not in harmony with the language used in the submitted guarantee or with Guide 1 of the Commission's Guides Against Deceptive Advertising of Guarantees in three important aspects.

(1) The advertising offers a replacement for any compressor found to be defective, whereas the guarantee provides that any defect will be repaired or replaced. Thus, the advertising is inconsistent with the actual provisions of the guarantee. Either the advertising should be revised to conform with the guarantee and include the disclosure of a possible repair job or replacement, or the guarantee should be changed and made consistent with the proposed advertising. If an election is made to change the advertising, it should also disclose whether the guarantor or the purchaser has the option of repairing or replacing.

(2) The guarantee provides that the manufacturer will repair or replace any parts he finds defective. The fact that the manufacturer alone makes the determination as to whether or not a part is defective is a material limitation and should be disclosed in advertising.

(3) The guarantee provides that the customer will pay an "analysis charge for determining defects." This is a material limitation on the 10-year guarantee which could be a significant factor in the purchaser's selection of a refrigerator, and therefore the fact that an analysis charge is imposed should be disclosed in the advertising.

[35 F.R. 10951, July 8, 1970]

PART 17-APPLICATION AND DEFINITIONS

Application of guides and trade practice rules in preventing unlawful competitive restraints.

17.2 Definition of "commerce."

17.3 Definition of Group I rules.

Sec.

17.4 Definition of Group II rules.

AUTHORITY: The provisions of this Part 17 issued under sec. 6(g), 38 Stat. 722; 15 U.S.C. 46 (g), unless otherwise noted.

SOURCE: The provisions of this Part 17 are derived from the Trade Practice Conference rules in this subchapter.

§ 17.1 Application of guides and trade practice rules in preventing unlawful competitive restraints.

(a) Industry guides are administrative interpretations of laws administered by the Commission for the guidance of the public in conducting its affairs in conformity with legal requirements. They provide the basis for voluntary and simultaneous abandonment of unlawful practices by members of industry. Failure to comply with the guides may result in corrective action by the Commission under applicable statutory provisions. Guides may relate to a practice common to many industries or to specific practices of a particular industry.

(b) Trade practice rules promulgated by the Commission are designed to foster and promote the maintenance of fair competitive conditions in the interest of protecting industry, trade, and the public. It is to this end, and to the exclusion of any act or practice which suppresses competition, restrains trade, fixes or controls price through combination or agreement, or which otherwise injures, destroys, or prevents competition, that the rules are to be applied.

[32 F.R. 15540, Nov. 8, 1967]

§ 17.2 Definition of "commerce."

As used in the sections of the rules on the subject of discrimination, the word "commerce" means "trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular pɔssessions or other places under the jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States."

§ 17.3 Definition of Group I rules.

The unfair trade practices embraced in the Group I rules herein are considered to be unfair methods of competition, unfair or deceptive acts or practices, or other illegal practices, prohibited under laws administered by the Federal Trade Commission; and appropriate proceedings in the public interest will be taken by the Commission to prevent the use, by any person, partnership, corporation, or other organization sub

ject to its jurisdiction, of such unlawful practices in commerce.

§ 17.4 Definition of Group II rules.

Compliance with trade practice provisions in Group II rules is considered to be conducive to sound business methods and is to be encouraged and promoted individually or through voluntary cooperation exercised in accordance with existing law. Nonobservance of such rules does not per se constitute violation of law. Where, however, the practice of not complying with any such Group II rules is followed in such manner as to result in unfair methods of competition, or unfair or deceptive acts or practices, corrective proceedings may be instituted by the Commission as in the case violation of Group I rules.

(a) In the sale, offering for sale, or distribution of industry products, or in the promotion and distribution thereof, it is an unfair trade practice to demonstrate any of such products in a manner, or under circumstances, having the capacity and tendency or effect of creating a false impression in the minds of purchasers or prospective purchasers as to the actual benefits they will obtain as the result of their purchase and use of said products.

(b) It is an unfair trade practice for a member of the industry to represent, claim, or guarantee that his laboratory has the skill, ability, equipment, or personnel to construct, fabricate, or process a product of the industry under a specific technique or method, unless such representation, claim, or guarantee is made with the knowledge that complete and satisfactory accomplishment can be furnished with the facilities and personnel of such member laboratory.

(c) It is an unfair trade practice for any member of the industry to represent, claim, or guarantee that any technique or method of manufacturer used is the equivalent of, or substitute for, any other method or technique, unless such is the fact.

[22 F.R. 4192, June 14, 1957] § 18.3

Substitution of products.

It is an unfair trade practice for a member of the industry to make an unauthorized substitution of products, where such a substitution has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers by:

(a) Shipping or delivering industry products which do not conform to samples submitted, to specifications upon which the sale is consummated, or to representations made prior to securing

The defamation of competitors by falsely imputing to them dishonorable conduct, inability to perform contracts, questionable credit standing, or by other false representations, or the false disparagement of the grade, quality, or manufacture of the products of competitors, or of their business methods, selling prices, values, credit terms, policies, services, or conditions of employment, is an unfair trade practice.

§ 18.6 Enticing away employees of competitors.

It is an unfair trade practice for any member of the industry willfully to entice away employees or sales representatives of competitors with the intent and effect of thereby unduly hampering or injuring competitors in their business and destroying or substantially lessening competition: Provided, That nothing in this section shall be construed as prohibiting employees from seeking more favorable employment, or as prohibiting employers from hiring or offering employment to employees of competitors in good faith and not for the purpose of inflicting injury on a competitor.

§ 18.7 Deceptive use of trade or corporate names, trade-marks, etc.

The use of any trade name, corporate name, trade-mark, or other trade designation which has the capacity and tendency or effect of misleading or deceiving the purchaser as to the name, nature, efficacy, or origin of any product of the industry, or of any material used therein, or which is false or mis

leading to any other respect, is an unfair trade practice.

§ 18.8 Use of the word "free."

In connection with the sale, offering for sale, or distribution of industry products, it is an unfair trade practice to use the word "free," or any other word or words of similar import, in advertisements or in other offers to purchasers or prospective purchasers, as descriptive of an article of merchandise, or service, which is not an unconditional gift, under the following circumstances:

(a) When all the conditions, obligations, or other prerequisites to the receipt and retention of the "free" article of merchandise or service offered are not clearly and conspicuously set forth at the outset so as to leave no reasonable probability that the terms of the offer will be misunderstood; and, regardless of such disclosure;

(b) When, with respect to any article of merchandise required to be purchased in order to obtain the "free" article or service, the offeror (1) increases the ordinary and usual price of such article of merchandise, or (2) reduces its quality, or (3) reduces the quantity or size thereof.

NOTE: The disclosure required by paragraph (a) of this section shall appear in close conjunction with the word "free" (or other word or words of similar import) wherever such word first appears in each advertisement or offer. A disclosure in the form of a footnote, to which reference is made by use of an asterisk or other symbol placed next to the word "free," will not be regarded as compliance.

§ 18.9 Coercing purchase of one product as a prerequisite to purchase of other products.

The practice of coercing the purchase of one or more products as a prerequisite to the purchase of one or more other products, where the effect may be substantially to lessen competition or tend to create a monopoly or unreasonably to restrain trade, is an unfair trade practice.

§ 18.10 Fictitious prices.

It is an unfair trade practice to sell or offer for sale industry products at prices purported to be reduced from what are in fact fictitious prices, or to sell or offer for sale such products at a purported reduction in price when such purported reduction is in fact fictitious or is otherwise misleading or deceptive.

(b) To use any guarantee respecting an industry product in which conditions or limitations relating to the liability of the guarantor are deceptively minimized or concealed; or

(c) To offer or use any guarantee respecting an industry product under which the guarantor fails to scrupulously observe his obligations.

§ 18.12 Prohibited discrimination.'

(a) Prohibited discriminatory prices, rebates, refunds, discounts, credits, etc., which effect unlawful price discrimination. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, to grant or allow, secretly or openly, directly or indirectly, any rebate, refund, discount, credit, or other form of price differential, where such rebate, refund, discount, credit, or other form of price differential, effects a discrimination in price between different purchasers of goods of like grade and quality, where either or any of the purchases involved therein are in commerce, and where the effect thereof may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such

1 As used in this section, the word "commerce" means "trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places under the jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States."

discrimination, or with customers of either of them: Provided, however:

(1) That the goods involved in any such transaction are sold for use, consumption, or resale within any place under the jurisdiction of the United States, and are not purchased by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit, as supplies for their own use.

(2) That nothing contained in this paragraph shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered;

NOTE: Cost Justification under the above proviso depends upon net savings in cost based on all facts relevant to the transactions under the terms of subparagraph (2) of this paragraph. For example, if a seller regularly grants a discount based upon the purchase of a specified quantity by a single order for a single delivery, and this discount is justified by cost differences, it does not follow that the same discount can be cost justified if granted to a purchaser of the same quantity by multiple orders or for multiple deliveries.

(3) That nothing contained in this section shall prevent persons engaged in seiling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade;

(4) That nothing contained in this paragraph shall prevent price changes from time to time where made in response to changing conditions affecting the market for or the marketability of the goods concerned, such as but not limited to obsolescence of seasonal goods, imminent deterioration of perishable goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned;

(5) That nothing contained in this section shall prevent the meeting in good faith of an equally low price of a competitor.

(b) Prohibited brokerage and commissions. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in

connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

(c) Inducing or receiving an illegal discrimination in price. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by the foregoing provisions of this section.

(d) Purchases by U.S. Government; applicability of Robinson-Patman Antidiscrimination Act to same. In an opinion submitted to the Secretary of War under date of December 28, 1936, the U.S. Attorney General advised that the Robinson-Patman Antidiscrimination Act "is not applicable to Government contracts for supplies." (38 Opinions, Attorney General 539.)

[22 F.R. 4192, June 14, 1957]

§ 18.13 Exclusive deals.

It is an unfair trade practice for any member of the industry to contract to sell or sell any industry product, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the purchaser thereof shall not use or deal in the products of a competitor or competitors of such industry member, where the effect of such sale or contract for sale, or of such condition, agreement, or understanding, may be substantially to lessen competition or tend to create a monopoly in any line of commerce.

APPENDIX

For the information of industry members, there is appended to the rules in this part, but not made a part of them, a copy of the Federal Denture Act. This act is not administered by the Federal Trade Commission, but is a criminal act administered by the United States Department of Justice. Nothing in the rules in this part is to be construed as relieving any member of the industry from complying with the provisions of the said act.

FEDERAL DENTURE ACT (18 USCA 1821; 62 STAT. 786, JUNE 25, 1948)

Whoever transports by mail or otherwise to or within the District of Columbia, the Canal Zone or any Possession of the United