conduct, inability to perform contracts, questionable credit standing, or by other false representations, or the false disparagement of the products of competitors in any respect, or of their business methods, selling prices, values, credit terms, policies, or services, is an unfair trade practice. [Rule 15]

§ 36.16 False or misleading price quotations, etc.

It is an unfair trade practice for any member of the industry to publish or circulate price quotations, price lists, or terms or conditions of sale or purchase, which directly, or by reason of concealment of any material limitations, have the capacity and tendency or effect of deceiving purchasers or prospective purchasers. [Rule 16]

§ 36.17 Deception by means of "bogus independents," "chick outlets," etc. It is an unfair trade practice for any member of the industry:

(a) To represent, directly or by implication, that a certain chick outlet is independent of, or in competition with, said member, when such is not the fact;

or

(b) To fail to disclose that any such outlet is not independent of, or not in competition with, said member, under circumstances where the failure to make such disclosure has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers. [Rule 171

§ 36.18 Misuse of words "hatchery," "chickery," "chick nursery," "farm," "poultry farm," "breeding farm," and related representations.

In the sale, offering for sale, or distribution of chicks, it is an unfair trade practice for any member of the industry, by trade or corporate name, through advertising or otherwise:

(a) To hold himself out as owning or operating a hatchery, chickery, chick nursery, poultry farm, poultry breeding business, or as being the producer of chicks, or as operating incubators or producing chicks under claimed or specified conditions, when such is not the fact; or

(b) To use the terms "hatchery," "farm," "poultry farm," "breeding farm," or similar representations, in such manner as to have the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers into

the belief that the chicks have been produced in a hatchery or on a farm, poultry farm, or breeding farm, of said industry member, when such is not the fact.

NOTE: Nothing in this section, however, shall be construed as prohibiting an industry member, who actually owns and operates a farm primarily devoted to the production of chicks, from selling, offering for sale, or distributing, under a trade, corporate, or other name containing the word "farm," chicks produced from flocks of cooperating farms along with chicks produced on such member's own farm, if and when the industry member has and exercises direct supervision and control over all operations and conditions material to the quality, health, and vigor of all said chicks, including selection of the breeding stock of which such chicks are the progeny, and all breeding and disease-control practices.

[Rule 18]

§ 36.19 Guarantees, warranties, etc.

(a) In the sale, offering for sale, or distribution of industry products, it is an unfair trade practice for any industry member:

(1) To represent that any industry product is guaranteed unless, in close conjunction with such representation, the identity of the guarantor, the extent and nature of the guarantee, and any material conditions or limitations relating to the liability of the guarantor under the guarantee, are adequately and nondeceptively disclosed; or

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

(3) To offer or use any guarantee which is otherwise deceptive or unfair.

(b) This section shall be applicable not only to guarantees but also to warranties, to purported guarantees and warranties, and to any promise or representation in the nature of a guarantee or warranty.

NOTE: The Commission on April 26, 1960, adopted "Guides Against Deceptive Advertising of Guarantees," copies of which will be mailed to industry members upon request. Such Guides supply specific guidance respecting guarantee representations and are to be considered as supplementing this section.

[Rule 19]

§ 36.20 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. [Rule 201

§ 36.21 Substitution of products.

(a) It is an unfair trade practice to advertise, describe, or otherwise represent, directly or by implication, any industry product as being of a certain stock, grade, sex, trade name, or quality, and, upon receipt of orders for it, Alling the same with any other industry product of a different stock, grade, sex, trade name, or quality, without first obtaining the consent of the purchaser to such substitution.

(b) It is also an unfair trade practice, upon receiving orders for industry products of a certain stock, grade, sex, trade name, or quality, to fill such orders with a different stock, grade, sex, trade name, or quality, without first obtaining the consent of the purchasers to such substitution. [Rule 21]

§ 36.22

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 any product 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" product 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 product required to be purchased in order to obtain the "free" product or service, the offerer (1) increases the ordinary and usual price of such industry product, or (2) reduces its quality, or (3) reduces the quantity or size thereof.

See footnote to § 36.13.

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.

[Rule 22]

§ 36.23 Prohibited sales below cost.

(a) The practice of selling industry products at a price less than the cost thereof to the seller, with the purpose or intent, and where the effect is, or where there is a reasonable probability that the effect will be, to substantially injure, suppress, or stifle competition or tend to create a monopoly, is an unfair trade practice.

(b) This section is not to be construed as prohibiting all sales below cost, but only such selling below the seller's cost as is resorted to and pursued with the wrongful intent or purpose referred to and where the effect is, or where there is reasonable probability that the effect will be, to substantially injure, suppress, or stifle competition or to create a monopoly. Among the situations in which the requisite purpose or intent would ordinarily be lacking are cases in which such sales were: (1) Of seasonal goods near the conclusion of the season; (2) of perishable goods in respect to which deterioration is imminent; (3) of obsolescent goods; (4) made under judicial process; or (5) made in bona fide discontinuance of business in the goods concerned.

(c) As used in paragraphs (a) and (b) of this section, the term "cost" means the respective seller's cost and not an average cost in the industry whether such average cost be determined by an industry cost survey or some other method. It consists of the total outlay or expenditure by the seller in the acquisition, production, and distribution of the products involved, and comprises all elements of cost such as labor, material, depreciation, taxes (except taxes on net income and such other taxes as are not properly applicable to cost), and general overhead expenses, incurred by the seller in the acquisition, manufacture, processing, preparation for marketing, sale, and delivery of the products. Not to be included are dividends or interest on borrowed or invested capital, or nonoperating losses, such as fire losses and

losses from the sale or exchange of capital assets. Operating cost should not be reduced by items of nonoperating income, such as income from investments, and gain on the sale of capital assets.

(d) Nothing in this section shall be construed as relieving an industry member from compliance with any of the requirements of the Robinson-Patman Act. [Rule 23]

§ 36.24 Prohibited forms of trade restraints (unlawful price fixing, etc.)* It is an unfair trade practice for any member of the industry, either directly or indirectly, to engage in any planned common course of action, or to enter into or take part in any understanding, agreement, combination, or conspiracy, with one or more members of the industry, or with any other person or persons, to fix or maintain the price of any products or otherwise unlawfully to restrain trade; or to use any form of threat, intimidation, or coercion, to induce any member of the industry or other person or persons to engage in any such planned common course of action, or to become a party to any such understanding, agreement, combination, or conspiracy. [Rule 24]

§ 36.25 Tie-in sales; coercing purchase of one product as a prerequisite to the 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

The inhibitions of this section are subject to Public Law 542, approved July 14, 1952-66 Stat, 632 (the McGuire Act) which provides that with respect to à commodity which bears, or the label or container of which bears, the trade-mark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, a seller of such a commodity may enter into a contract or agreement with a buyer thereof which establishes a minimum or stipulated price at which such commodity may be resold by such buyer when such contract or agreement is lawful as applied to intrastate transactions under the laws of the State, Territory, or territorial jurisdiction in which the resale is to be made or to which the commodity is to be transported for such resale, and when such contract or agreement is not between manufacturers, or between wholesalers, or between brokers, or between factors or between retailers, or between persons, firms, or corporations in competition with each other.

86-034-70- -21

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. [Rule 25]

§ 36.26 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 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 products are to such purchasers sold or delivered.

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."

NOTE: Cost justification to be based on net savings in cost of manufacture, sale or delivery. Cost justification under subparagraph (2) of this paragraph 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 selling 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, actual or 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.

NOTE: Subsection (b) of Section 2 of the Clayton Act, as amended, reads as follows: "Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden or rebutting the prima facie case thus made by showing justification shall be upon the person charged with a violation of this section, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller rebutting the prima facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor."

(b) Examples of prohibited price differential practices. The following are examples of price differential practices to be considered as subject to the prohibitions of paragraph (a) of this section when involving goods of like grade.

and quality which are sold for use, consumption, or resale within any place under the jurisdiction of the United States, and which are not purchased by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit, as supplies for their own use, and when: (1) The commerce requirements specified in paragraph (a) of this section are present; and

(2) The price differential has a reasonable probability of substantially lessening competition or tending to create a monopoly in any line of commerce, or of injuring, destroying, or preventing competition with the industry member or with the customer receiving the benefit of the price differential, or with customers of either of them; and

(3) The price differential is not justified by cost savings (see paragraph (a) (2) of this section); and

(4) The price differential is not made in response to changing conditions affecting the market for or the marketability of the goods concerned (see paragraph (a) (4) of this section); and

(5) The lower price was not made to meet in good faith an equally low price of a competitor (see paragraph (a) (5) of this section).

Example No. 1. The granting of a percentage discount on a purchase made by a customer which is not granted on purchases made by all other customers, or which is not granted in the same percentage on the purchases of all other customers.

Example No. 2. At the end of a given period an industry member grants a discount to a customer equivalent to a fixed percentage of the total of such customer's purchases during the period and fails to grant a discount of the same percentage to all other customers on their purchases during such period.

Example No. 3. An industry member sells goods to one or more of his customers at a higher price than he charges other customers for like products. It is immaterial whether or not such discrimination is attended by misrepresentation as to the grade and quality of the product sold.

Example No. 4. Terms of 2 percent, if payment is made by the 10th of the following month, are granted by an industry member to some customers on products purchased by them from the industry member. Another customer or customers are, nevertheless, allowed to take an additional discount when making payment to the industry member within the time prescribed.

NOTE: As previously indicated, the foregoing are examples of practices to be considered violative of the prohibitions of para

graph (a) of this section when involving goods of like grade and quality and when not subject to the other exemptions, exclusions, or defenses set forth in this paragraph.

(c) 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.

(d) Prohibited advertising or promotional allowances, etc. It is an unfair trade practice for any member of the industry engaged in commerce to pay or contract for the payment of advertising or promotional allowances or any other thing of value to or for the benefit of a customer of such member in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such member, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

(e) Prohibited discriminatory services or facilities. It is an unfair trade practice for any member of the industry engaged in commerce to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for sale of such commodity so purchased upon terms not accorded to all competing purchasers on proportionally equal terms.

NOTE: See subsection (b) of section 2 of the Clayton Act, as amended, which is set forth in the note concluding paragraph (a) of this section.

(f) Inducing or receiving an illegal discrimination in price. It is an unfair trade practice for any person 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 paragraphs (a) to (e) of this section. [Rule 26]

§ 36.27 Aiding or abetting use of unfair trade practices.

It is an unfair trade practice for any person, firm, or corporation to aid, abet, coerce, or induce another, directly or indirectly, to use or promote the use of any unfair trade practice specified in this part. [Rule 27]