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) 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.

(d) 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 by 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 purchasers on proportionally equal terms.

(e) Illegal price discrimination. It is an unfair trade practice for any member of the industry or other person engaged in commerce, in the course of such commerce, to discriminate in price in any other respect contrary to section 2 of the Clayton Act as amended by the act of Congress approved June 19, 1936 (49 Stat. 1526–8; 15 U. S. C. 13–13b, 21a), or knowingly to induce or receive a discrimination in price which is prohibted by such section as amended.

(Sec. 2, 88 Stat. 730, as amended, secs. 2, 3, 4, 49 Stat. 1527, 1528; 15 U. B. C. 13, 188, 13b, 21a)

§ 136.0 Definitions.

(a) Industry members. Persons, firms, corporations, and organizations engaged in the manufacture, sale or distribution of industry products as defined in this section.

(b) Industry products. The term "industry products" and the word "brushes" as used in the rules in this part includes all types and kinds of brushes which are designed for use in applying paint, varnish, lacquer, calcimine, wallpaper or other decorative or protective coatings or primers or undercoatings for such coatings. Also non-wire brushes for use in dusting or cleaning surfaces preliminary to the application of such coatings or undercoatings.

§ 136.1

Deception (general).

In the sale, offering for sale, or distribution of industry products it is an unfair trade practice to use, or cause or promote the use of, any trade promotional literature or advertising matter, however disseminated or published, or to use any marking, brand, or label on any such product, which, directly or by implication, or through failure to disclose material information in conjunction therewith, has the capacity and tendency or effect of deceiving purchasers or prospective purchasers of such product in any material respect.

§ 136.2

Deception as to the kind of material of which the brushing part of a brush is composed.

In the sale, offering for sale, or distribution of industry products, it is an unfair trade practice:

(a) To represent or imply that the brushing part of a brush is of a different kind or type of material than is in fact the case; or

(b) To fail correctly to identify, in the manner set forth in this paragraph, the kind of material of which the brushing part of a brush is composed when, by reason of the similarity of such material to another or other kinds of material used in the brushing part of brushes, the failure to make the identification has the capacity and tendency or effect of deceiving purchasers or prospective purchasers as to the true composition thereof.

(1) Such identification shall be in the form of a legible marking or stamping on the handle or ferrule of the brush and shall be of such size, conspicuousness,

and degree of permanency, as to be noticeable and readable upon casual inspection when the brush is offered for sale to consumer purchasers.

(2) When the composition of the brushing part of a brush is of two or more kinds of material, the identification required by this paragraph shall be of each kind in the order of its predominance by weight or be immediately accompanied by the percentage by weight of the entire composition which it represents (Examples: When, by weight, composed of 60 percent horsehair and 40 percent bristle "Horsehair and Bristle" or "60 percent Horsehair and 40 percent Bristle;" and when, by weight, composed of 60 percent nylon and 40 percent bristle-"Nylon and Bristle" or "60 percent Nylon and 40 percent Bristle"): Provided, however, That when any kind of material constitutes but an insubstantial proportion of the entire mixture, the percentage by weight of the mixture accounted for by such kind shall immediately accompany the identification thereof.

(3) In identifying the composition of the brushing part of a brush:

(1) The word "bristle" shall not be used as descriptive of any material other than hog or swine hair;

(ii) The term "China bristle" shall be confined to hog or swine hair imported from China;

(iii) No part of the composition shall be described as tipped or flagged, or as tapered or leveled, when such is not the fact;

(iv) No part of the composition shall be represented as being "natural black" or "undyed" when such is not the fact;

(v) Any part of the composition which is used material shall be immediately accompanied by a clear and non-deceptive disclosure of such fact.

§ 136.3 Misrepresentation as to setting.

It is an unfair trade practice to misrepresent the materials used in the setting of a brush or the process by which the brushing part is affixed to the handle, through the use of such terms as "Vulcanized in Rubber," "Epoxy," or otherwise, when such is not the fact.

§ 136.4 Misleading price quotations, etc.

It is an unfair trade practice for any industry member, in the course of or in connection with the offering for sale, sale, or distribution of industry products, to publish or circulate price quotations,

price lists, or terms or conditions of sale, which have the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers, or the consuming public, in any material respect.

§ 136.5 False invoicing.

Withholding from or inserting in invoices any statement or information by reason of which omission or insertion a false, inaccurate, or incomplete record is made, which has the capacity and tendency or effect of deceiving purchasers, prospective purchasers, or the consuming public in any material respect, is an unfair trade practice.

§ 136.6 Substitution of products.

It is an unfair trade practice for any industry member, in the course of or in connection with the sale or distribution of industry products, to make an unauthorized substitution of products, where such substitution has the capacity and tendency or effect of misleading or deceiving purchasers or the consuming public, 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 order, without advising the purchaser of the substitution and obtaining his consent thereto prior to making shipment or delivery; or

(b) Falsely representing the reason for making a substitution.

§ 136.7 Inducing breach of contract.

(a) Knowingly inducing or attempting to induce the breach of existing lawful contracts between competitors and their customers or their suppliers, or interfering with or obstructing the performance of any such contractual duties or services, under any circumstances having the capacity and tendency or effect of substantially injuring or lessening present or potential competition, is an unfair trade practice.

(b) Nothing in this section is intended to imply that it is improper for any industry member to solicit the business of a customer or a competing industry member nor is this section to be construed as in anywise authorizing any agreement, understanding, or planned common course of action by two or more industry members not to solicit business

from the customers of either of them, or from the customers of any other industry member.

§ 136.8 Commercial bribery

It is an unfair trade practice for a member of the industry directly or indirectly, to give, offer to give, or cause to be given, money or anything of value to agents, employees, or representatives of customers or prospective customers, or to agents, employees, or representatives of competitors' customers or prospective customers, without the knowledge of their employers or principals, as an inducement to influence their employers or principals to purchase or contract to purchase products sold by such industry member or the maker of such gift or offer, or to influence such employers or principals to refrain from dealing in the products of competitors or from dealing or contracting to deal with competitors, or to effect any other advantage in favor of the industry member making such gift or offer with respect to the sale of industry products to such employers or principals.

§ 136.9 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 purchasing or consuming public as to the character, name, nature, or origin of any product of the industry, or any material used therein, or which is false or misleading in any other material respect, is an unfair trade practice.

§ 136.10 Misrepresenting character of business.

It is an unfair trade practice for any industry member, in the course of or in connection with the sale of industry products, to represent, directly or indirectly, that he is a manufacturer of industry products, unless he owns and operates or directly controls a factory wherein such products are made, or in any other manner to misrepresent the character or extent, or type of his business.

§ 136.11 Use of 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 the public, 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 merchadise, 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.

§ 136.12 Consignment distribution.

(a) It is an unfair trade practice for any member of the industry to employ the practice of shipping industry products on consignment without the express request or prior consent of the purchasers.

(b) It is an unfair trade practice for any member of the industry to employ the practice of shipping industry products on consignment or pretended consignment for the purpose and with the effect of artificially clogging or closing trade outlets and unduly restricting competitors' use of said trade outlets in getting their products to purchasers through regular channels of distribution, thereby injuring, destroying, or preventing competition or tending to create a monopoly or unreasonably to restrain trade.

(c) Nothing in this section shall be construed to authorize any understanding or agreement, combination or conspiracy, or planned common course of action, by and between industry members, mutually to conform or restrict their practice of shipping goods on consignment with the intent or effect of lessening competition.

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§ 136.13

Prohibited sales below cost.

(a) The practice of selling products of the industry 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 a 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 obsolescent goods; (2) made under judicial process; or (3) 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.

§ 136.14 Misrepresenting products as conforming to standard.

In connection with the sale or offering for sale of industry products, it is an unfair trade practice to represent, through advertising or otherwise, that such products conform to any standard recognized in or applicable to the industry when such is not the fact.

§ 136.15 Guarantees, warranties, etc.

(a) It is an unfair trade practice to represent, in advertising or otherwise, that any industry product is "guaranteed" unless the nature and extent of such guarantee is conjunctively disclosed and without deceptively minimizing the terms and conditions relating to the obligation of the guarantor.

(b) It is also an unfair trade practice to use, or cause to be used, any guarantee in which the obligations of the guarantor are impracticable of fulfillment, or in respect to which the guarantor fails or refuses to observe his liabilities thereunder.

(c) 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. § 136.16 Defamation of competitors or false disparagement of their prod

ucts.

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 or quality of the goods of competitors, their credit terms, values, policies, services, the nature or form of the business conducted, or in any other material respect, is an unfair trade practice.

§ 136.17 Misrepresentation as to origin and disclosure of foreign origin.

(a) It is an unfair trade practice to misrepresent the place of origin, production, assembly, or manufacture of industry products or their components.

(b) (1) It is also an unfair trade practice to offer for sale, sell, or distribute any industry product manufactured or produced in a foreign country, or any industry product containing a substantial or material part manufactured or produced in a foreign country, without affirmatively and clearly disclosing the

fact that such product or part was manufactured or produced in an identified foreign country, when the failure to make such disclosure has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers.

(2) Such identification, when required, shall be in the form of a legible marking or stamping on the handle or ferrule of the brush, or on a label or tag securely attached thereto, and shall be of such size, conspicuousness, and degree of permanency, as to be noticeable and readable upon casual inspection when the brush is offered for sale to consumer purchasers.

NOTE 1: Nothing in paragraph (b) of this section is to be construed as requiring disclosure of the foreign origin of material or parts which, by reason of further processing in this country subsequent to their importation, no longer retain the appearance and essential characteristics possessed by them at the time of their importation.

NOTE 2: Nothing in this section shall be construed as relieving any member of the industry or other party of the necessity of complying with the requirements of the customs laws or regulations relating to the marking of imported articles. § 136.18

Prohibited forms of trade re

straints.1

It is an unfair trade practice, 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

1 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 a 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.