given unrestricted and nondiscriminatory access to its certification program whether they were members of the association or not.

* *

(d) In response to the second question, the Commission reached the following conclusion: "* nonmembers of the association may be charged a higher fee than members provided it represents no more than a reasonable differential to insure that members and nonmembers of the association alike pay an equal share of the costs necessary to support the program. In short, if members of the association by payment of dues or other assessments have borne some of the cost of the program not reflected in the certification fees charged them then the payment of that portion of the costs may be reflected in the fees charged to nonmembers. This advisory opinion of course can not give you more than general guidance on this matter and the question of what is a reasonable differential would have to be decided on the facts of each case."

[32 F.R. 17856, Dec. 13, 1967]

§ 15.153

Proposal to grant discounts for increased annual purchases.

(a) The Commission rendered an advisory opinion in which an applicant was informed a proposal to grant discounts to a certain class of customers-jobbers who bought his products for resale-to be given at the end of a sales year based on increased amounts of purchases over purchases in the preceding sales year cannot be approved because it appears on its face the proposal would violate section 2(a) of the Clayton Act if it were put into operation. The proposal was based on the following scale:

(1) 2 percent discount on a 20 percent to 29 percent inclusive increase;

(2) 3 percent discount on a 30 percent to 39 percent inclusive increase;

(3) 4 percent discount on a 40 percent to 49 percent inclusive increase; and

(4) 5 percent discount on a 50 percent or more increase.

(b) The Commission further pointed out that price discriminations to customers who in fact compete with each other in resale of commodities of like grade and quality would violate section 2(a) of the Clayton Act unless cost justified or unless the lower price is a good faith meeting of a competitor's equally low price. [32 F.R. 18087, Dec. 19, 1967]

§ 15.154 Legality under antitrust laws of complying with State milk marketing orders.

(a) The Commission rendered an advisory opinion that a distributor who complied with a State's milk marketing order fixing the minimum resale prices of dairy products would not be subject to a charge of violating the antitrust laws.

(b) The distributor in question did not have a warehouse in the State in question, but shipped dairy products into the State from its warehouses located in neighboring States. In most cases, the price increases required by the order issued pursuant to the State's dairy products marketing act would be significant and the distributor sells the same products at substantially lower prices to stores located in the neighboring States because competitive pressures dictate lower prices except where the higher prices are required by law.

(c) The distributor expressed concern that by agreeing to comply with the orders of the State, it would subject itself to possible action under the Sherman Act, the Federal Trade Commission Act, or possibly even the Clayton Act, as amended by the Robinson-Patman Act, since sales will be made at different prices to purchasers in different States of commodities of like grade and quality. Hence an opinion was requested as to whether the distributor will be in violation of any of the laws administered by the Commission if it complies with the State laws fixing the minimum resale prices of dairy products.

(d) The Commission advised that it was of the opinion that the distributor would not be subject to a charge of violating any of the laws it administers because of its compliance with the lawful orders of the State as to the minimum resale prices of dairy products. In the Commission's view, it is well settled that the antitrust laws have application to the actions of individuals, partnerships, and corporations and not to the activities of a State. While a State may not authorize individuals to perform acts which violate the antitrust laws nor declare that such action is lawful, it may, in the exercise of its sovereign power, itself conduct such regulation of business activities within its borders as its own legislature shall properly deem

necessary in the public interest. So long as the resulting regulation is a State as opposed to individual activity, those subject to the regulation would not be subject to a charge of violating the antitrust laws by reason of their compliance with the State's orders.

[32 F.R. 20716, Dec. 22, 1967]

§ 15.155 Varying discount price schedule-distributor recruitment through grant of override.

(a) The Federal Trade Commission advised a manufacturer of household products that his proposed varying discount price schedule and his proposed granting of bonus payments to recruiting distributors on the business of distributors whom they recruit would, under the facts presented, in all probability result in violation of both section 2(a) of the amended Clayton Act and section 5 of the Federal Trade Commission Act.

(b) The manufacturer proposed to appoint as independent distributors such persons as would buy the requisite amount of inventory. Initial sales to such distributors would be at 33% percent off the manufacturer's suggested prices for his products. Incentive bonuses, computed at from 5 percent to 60 percent of the value of their purchases, increasing as the value of purchases increased, would be paid from time to time to the distributors. Distributors would be encouraged to recruit additional distributors who would also make a capital investment in inventory. A recruiting distributor would be given a 10- to 12-percent override on the dollar volume of purchases of any distributor whom he had recruited.

(c) The Commission noted that because of the nature of the plan it was almost inevitable that very wide differences in prices would be charged customers, some of whom would, by reasonable assumption, be competitive with others. These differences would be so great that the anticompetitive effects made unlawful by the amended Clayton Act would almost certainly follow.

(d) In addition, it is clear from the facts presented that the requesting party contemplates that the so-called independent distributors would be for the most part selling at retail. The marketing plan is not primarily designed as

an offer to knowledgeable businessmen, competent to weigh and evaluate commercial risks. It is designed, rather, to appeal to uninformed members of the general public, unaware of and unadvised of, the true nature of the risks run-persons with limited capital who are led to part with that capital by promises and hopes which are seldom, if ever, fulfilled. A particular vice of the plan is that part which provides override bonuses for recruited distributors. Implicit in such an arrangement is the promise, rarely if ever kept, that the recruiting distributor can, without himself working, profit greatly from the work of others.

[32 F.R. 20960, Dec. 29, 1967]

§ 15.156 Origin of toilet preparations.

(a) The Commission rendered an advisory opinion in regard to the legality of using foreign words indicating French origin in the brand name of a toilet preparation, where the product is blended in the United States with domestic alcohol and French oils. Specifically involved in the opinion was the propriety of using foreign words in the brand name of the product immediately followed by the following qualification-"Blended with French Oils in USA".

(b) In its opinion, the Commission said that the question posed is governed by Rule 3(b) of trade practice rules for the cosmetic and toilet preparations industry. "This rule," the Commission said, "specifically forbids the use of any foreign word or depiction in the brand name of a toilet preparation which may tend to convey the erroneous impression that the product is made wholly in a foreign country, unless a conspicuous disclosure is made in close conjunction therewith of the fact that such product was blended in the United States."

(c) Concluding its opinion, the Commission said: "* ** * the proposed disclosure, 'Blended with French oils in USA,' would meet the requirements of Rule 3(b) as an adequate qualification of a French brandname to describe a product blended in the United States with domestic alcohol and French oils. It is not necessary to disclose the presence of French oils, but this disclosure is permissible so long as the statement is factually true."

[32 F.R. 20960, Dec. 29, 1967]

PART 16-INDUSTRY COMMITTEE UNDER TRADE PRACTICE RULES

§ 16.1 Industry committee under trade practice rules.

The industry may, at its option, form a trade practice committee, which shall be fairly representative of the industry, to cooperate with the Federal Trade Commission in the following respects:

(a) To assist in keeping the rules of the industry active by periodically bringing to the attention of industry members the provisions thereof;

disseminate

(b) To publicize and among all members of the industry Commission stipulations, orders, and opinions or administrative interpretations relating to practices covered by the rules;

(c) To meet periodically with Commission personnel for the purpose of discussing the rules, the need for their revision, and the administration thereof, the committee's function in connection with such meetings being informative only, with decisions as to any action to be taken being left solely in the hands of government officials. All such meetings shall be:

(1) Called and chairmanned by a fulltime Commission official; and

(2) Limited to a discussion of matters outlined in an agenda prepared by a fulltime Commission official.

Full and complete minutes of each such meeting shall be prepared and filed with the Commission.

(d) It is not the function of the committee to:

(1) Interpret the rules;

(2) Attempt to correct alleged rules violations;

(3) Make determinations or express opinions as to whether practices are violative of the rules;

(4) Receive or screen complaints of violations of the rules; or

(5) Perform any other act or acts within the authority of the Federal Trade Commission or any other governmental Agency or Department.

(e) All complaints of industry members and other parties respecting rule violations should be made directly to the Commission. In the event any complaint is received by the committee, or any information is brought to its attention indicating a probable violation of

a rule, all relevant information with respect thereto shall be promptly transmitted by the committee to the Commission without the committee contacting the party or parties alleged to have violated the rule.

(f) Immediately after its formation the committee shall inform the Commission of the identity of the members thereof, the names and addresses of the companies or concerns represented by such members, and shall supply the Commission with information showing that the membership of the committee is fairly representative of the industry. Changes in composition of the committee shall be reported to the Commission as soon as they may occur.

(g) Full and complete minutes of all meetings of the committee, identifying the members in attendance and informative of the matters discussed and actions taken, shall be kept. The minutes of the meetings falling under paragraph (c) of this section shall be filed with the Commission, and the minutes of all other meetings shall be kept by the committee and be made available to the Commission on request.

(Sec. 6, 38 Stat. 721; 15 U. S. C. 46) [21 F. R. 1174, Feb. 21, 1956]

17.3

Definition of Group I rules. 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).

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 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."

§ 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 subject 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 coop

AUTHORITY: The provisions of Part 18 issued under secs. 6, 5, 38 Stat. 721, 719; 15 U.S.C. 46, 45.

SOURCE: The provisions of Part 18 appear at 20 F.R. 8282, Nov. 4, 1955, unless otherwise noted.

§ 18.1 Deception (general).

It is an unfair trade practice to sell, offer for sale, or distribute any industry product, or promote the sale or distribution thereof, under any representation or by any method or under any circumstance or condition which has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers:

(a) With respect to a process or technique used in the preparation or fabrication of any industry product; or

(b) With respect to the materials used in the fabrication of any industry product; or

(c) Which is false, misleading, or deceptive in any other material respect.

(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 manufacture 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 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.

§ 18.4 False invoicing.

Withholding from or inserting in invoices or order tickets any statements or information by reason of which omission or insertion a false record is made, wholly or in part, of the transactions represented on the face of such invoices or order tickets, with the capacity and tendency or effect of thereby misleading or deceiving purchasers or prospective purchasers, is an unfair trade practice. § 18.5 Defamation of competitors or false disparagement of their prod

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