Federal Trade Commission v. Mary Carter Paint Company

PETITIONER:Federal Trade Commission
RESPONDENT:Mary Carter Paint Company
LOCATION:Juvenile Court

DOCKET NO.: 15
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 382 US 46 (1965)
ARGUED: Oct 21, 1965
DECIDED: Nov 08, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – October 21, 1965 in Federal Trade Commission v. Mary Carter Paint Company

Earl Warren:

Number 15, Federal Trade Commission petitioner versus Mary Carter Paint Company. et al.

Mr. Lewin.

Nathan Lewin:

Mr. Chief Justice, may it please the Court.

This Federal Trade Commission case, which is here in on writ of certiorari to the Court of Appeals for the Fifth Circuit presents the question whether respondent’s use of the word ‘free’ in its advertising slogans was properly held by the commission to amount to a deceptive practice within the meaning of Section 5(a) of the Federal Trade Commission Act.

The critical facts are undisputed and I shall state them briefly.

Respondent began manufacturing various kinds of paints and selling it under the trade name Mary Carter in about 1950 and it now distributes its products to the public as it has done in the past through wholly owned and franchise retail stores in the Southern and Eastern sections of the country.

The company has been resoundingly successful.

It grew at a great rate in the first decade of its existence concededly because of the effectiveness of the advertising slogans and sales policy which had been advertised which is at issue here.

Respondent’s own officers in the testimony before the Federal Trade Commission called it the keystone of respondent’s advertising policy.

It has been so successful that in five years from 1955 to 1960 its total sales increased from slightly over $1 million annually to more than $12 million.

The disputed policy is as follows.

Respondent packages its paint in quart and gallon cans, but it sells to the public on terms which are succinctly stated in its two most commonly used advertising slogans, “Buy one get one free” or “Every second can of paint free”, occasionally they add to that the words “of extra cost”.

Consumers are told in other words that a single quart can of Mary Carter paint sells for 225, that’s the usual price most of the quart cans, but that a free can, “free” is given with every can that’s purchased for 225.

Similarly, respondent represents that the price of most of its one gallon cans is 698, but that a second can will be “Given free” with every 698 purchase.

On these facts, the Federal Trade Commission after appropriate proceedings found with one member dissenting that the use of the word free violated Section 5 and that it impliedly misrepresented the customary and usual retail price of Mary Carter paint and it entered a cease and desist order.

The Court of Appeal disagreed and they entered an order directing the commission to dismiss the complaint.

I should like to turn first to the question of deception, which troubled the dissenting commissioner and the majority of the Court of Appeals and more particularly to the broader issue whether even if Mary Carter makes its entirely clear on its advertisements that this is a consistent sales policy buy one get one free or every second can free, the use of the word free is deceptive.

I should say at the outset that we accept for purposes of this case Mary Carter’s claim that it consistently directed its retailers, franchise dealers and wholly owned retail outlets not to sell a single can of paint at less than 698 or 225.

In other words that these dealers were instructed that two cans of paint and one can of paint should bear the same price.

The question is whether under these circumstances the commission could find that it was deceptive to call the second can free.

Now there can hardly be any doubt I would think that the word free or any language carrying that kind of meaning is a very potent attraction to consumers and buyers.

It makes them buy maybe out of what Judge Brown and his concurring opinion call a habit of self delusion as to free products.

If buyers are likely to be mislead by Mary Carter’s use of the word free into thinking that they are being given a bonus that they are not actually receiving and if they then buy that can or that product of paint rather than a competing product because of that reason, the representation if it is false or misleading may certainly be prevented by the commission.

The representation is misleading in this case we submit simply because the word free as used by Mary Carter means nothing more that the company is chosen to call one can of a two can package free and has chosen to attach to the other cans the full retail sales price.

If it’s sales policy is stripped of the Mary Carter slogan, then it’s obvious that what all that the company is doing is it’s selling paints in combination packages of two cans and it is charging for the two cans what is in effect a two can price.

Potter Stewart:

So it would be relevant as to what paint of equal quality, sold a competitive paint of equal quality, but it’s sold for whether it was around about $2.25 a quart or whether it was closer $4 a can or a $1.15?

Nathan Lewin:

No, Mr. Justice Stewart.

In the commission’s opinion and we submit that was right, the quality of the paint was irrelevant.

The commission examiner excluded testimony regarding —

Potter Stewart:

I was asking about the price for paint of competitive quality?

Nathan Lewin:

Well, the price of paint of competitive quality is I think irrelevant as to question of whether Mary Carter’s own sales policy is deceptive, in other words the fact that Mary Carter paint maybe equal to paint of 698 quality or maybe better or worse doesn’t we submit entitle it to call one of two cans that it sells free.

It may justify Mary Carter in setting its price at 698 and advertising to the public, we are giving you paint that’s as good as 698 paint or setting the price of 349 a can and advertising to the public, our paint it is good as 698 quality paint at 349.

So you are getting double your value.

Potter Stewart:

Was there any evidence on this subject in the record?

Nathan Lewin:

Mary Carter attempted to introduce evidence into of the record that their paint was equal in quality to competitor’s paint selling at 698.

Potter Stewart:

Per gallon.

Nathan Lewin:

Per gallon and the examiner excluded that.

Now for purposes of the case at the present juncture we’re willing to accept for our arguments sake that the paint is as good as other paint of 698 quality and that Mary Carter maybe able to truthfully to represent that it is as good as other paint of 698 quality.

Well of course these are the kinds of things that consumers choices maybe determined by in terms of quality, in other words Mary Carter can sell its paint at any price it chooses and claim that it is of a certain quality and the consumers are free to believe or disbelieve that.

All the commission says is that they may not set as six — therefore claim that another can is being sold free.

(Inaudible)

Nathan Lewin:

I think that’s covered by the commission’s order and properly so Mr. Justice Harlan, I think that gives the consumer the very same impression — they could say the two cans for 698 and you can’t get less.

Abe Fortas:

Mr. Lewin suppose Mary Carter had sold it’s paint at these same prices for a year let’s say — and then for the succeeding year, two years or however you may want to vary it, had made this special offer, what would the government’s position be as to the theory applicable there?

Nathan Lewin:

The commission I believe would say that, that is proper so long as the offer is a limited time offer, in other words it will ultimately within a reasonable time, I don’t think the commission would allow this to go on for a year or two, but if it’s a one month offer or a two month offer and the price then would go back to 698 per gallon and two gallons would sell in effect $14, then that would be a fair representation to consumers for that limited period they are in effect receiving a bonus which they can’t receive when the offer does not exist.

Abe Fortas:

And why would that be misleading, suppose Mary Carter said, we just don’t want to do that in the Federal Trade Commission, we want to sell this one.

Why is that misleading in one case and not misleading in the other?

Nathan Lewin:

If there is no time limit put on the duration of the offer, then a buyer who sees the advertisement is being deceived because he thinks that the seller has and intends to have in the future a regular price for the one can.

If Mary Carter decided he is going to do it, in effect intermittently, then it has no intention of selling a single can any longer at 698, it will be selling into the future two cans for 698.

Abe Fortas:

But this couldn’t rise that regular price issue, that’s another problem, isn’t it?

All it says is, is you buy, all these ads say you is that you buy one can and you get another can free.

Now it doesn’t make any — or am I wrong about this, do they make any representations about buy one can at the regular price and get another can free?

Is there any such representation here?

Nathan Lewin:

I think that representation is implicit in the advertisement.

Abe Fortas:

But not explicit.

Nathan Lewin:

Not explicit Mr. Justice Fortas.

In effect, that the slogan buy one, get one free or every second can free is misleading in two related respects really.

When a consumer is told buy one, then he assumes, as he has every right to assume that buy one means buy one at the price of one and then you get the second can free.

When in effect, Mary Carter has a consistent policy of selling two for what is purportedly — it’s price for one, then the consumer is not buying one at the price of one, he is buying one and getting an additional can for the price of two.

In effect both buy one and every second can free mean the same as two for the price of one.

Respondent in its brief in this Court claims that it has never advertised two for the price of one.

Nathan Lewin:

But the representations are indistinguishable, every second can free means that you’re getting two cans for the price of one.

And when Mary Carter sets its price in effect at a price for two it is no longer giving two for the price of one.

Now, even if the advertisement had added to it, the caveat that this is a permanent policy of the company, that doesn’t in any way avoid the misrepresentation.

Saying to consumers we always give everyone a second can free, is self contradictory.

The only way you can translate the words we always give everyone a second can free into comprehensible English, is to say that it means we always sell our product in two can packages.

And if that’s what Mary Carter is doing then the commission’s order on this case just requires it to say that and not use the words free.

Now, it’s true that a buyer who stops to think and can puzzle out the meaning that we always give everyone a second can free may be able to discover after considerable thought that this just means a two for the price of two policy.

(Inaudible)

Nathan Lewin:

Well, Mr. Justice —

(Inaudible)

Nathan Lewin:

They don’t do it in quite the same size as the buy one get one free, but there are several advertisements in the record here in which, Mary Carter does in small print state that it is and will be its consistent policy to sell this at this — on these terms.

There is one in which Mary Carter, reportedly the woman who is in-charge of the corporation says that she tells her Board of Directors every year, that we should start selling — the Board of Directors tells her that we should start selling paint at half price and she responds to them no I’ll never do that.

Now even if that were to bring across to consumer the message that this is not a limited time offer, but that it will be available into the foreseeable future, nonetheless we contend all it does is confuse and puzzle consumers and they can only assume that there is some bonus being hidden in here some place and then they go out and buy the product, whereas actually there is no bonus there at all.

An illustration of the fact that there is nothing here that’s really free, may serve to demonstrate the point more clearly.

If I have a dozen oranges that I want to sell for $0.50 for example.

I can list the sale price a dozen oranges for $0.50 or I can advertise that I am prepared to sell six of them for $0.50 and give away one free with every orange I sell.

Now of course the six free oranges aren’t free in any sense other, than that I attach that word to those six oranges.

The consumer is really — has no reason to buy my product rather than someone else’s because I’m just not giving him anything in the way of a bonus.

Or in effect, what Mary Carter is doing here is the same as if anybody who sold product in pairs, a manufacturer of socks would advertise that he’d sell one sock and give the other one free.

Or a haberdasher would say I’m selling only the coats and the trousers are being given away free.

Of course, nothing is given away free there, these products are being sold in pairs.

Abe Fortas:

I should be — I hope you are going to get to the distinction between this and the practice permitted by the commission’s rules in the Book-of-the-Month Club fees and Black.

Nathan Lewin:

I was just coming there.

Abe Fortas:

Thank you.

Nathan Lewin:

The commission distinguished between Mary Carter’s use of the word free, and the use of that word in cases like Black and Book-of-the-Month club on the ground that in those cases, the product being sold had a usual and customary or usual and regular price.

This distinction, we believe was sound, because when there is an established price for what we call the tying items, in other words the product that has to be purchased as a condition for receiving the supposed free item, neither of the two misrepresentations that we’ve previously discussed, neither the misrepresentation as to usual and customary price nor the representation that something is being given away free has actually been made.

The word free under those circumstances has an objectively ascertainable meaning and entirely apart from the seller’s own manipulations of his product, a purchaser can honestly conclude entirely on his own that he is receiving something as a bonus.

The simplest case of course in which some is free is when it’s given when it’s given with no strings attached.

But if the condition of obtaining the free item is the purchase of another product, the commission has held that it can still be meaningfully free if there is a standard, objective standard for comparing the offer being made, either to — at a limited time or to a limited group of people, with what is the practice when the offer is not in existence.

In other words, if a buyer can say to himself, I had to pay $0.25 for item X last week or others who are not in my special class had to pay $0.25 for item X.

Nathan Lewin:

And either this week or because I am in a particular class, I am able to obtain both items X and Y for $0.25, then he is getting something free in a meaningful sense.

He is getting something which he could not obtain at some other time or which other people who are not in his position would not be able to obtain.

Now that’s the distinction which the commission made between this case and the Book-of-the-Month Club and Black.

In both Black and Book-of-the-Month the offer was being made to new enrollees only.

In other words they were told, if you sign up in our book club you will receive free a certain number of books on the condition that you purchase certain others.

Now, the other members of the club who were not new members, were not able to obtain the very same offer, they could buy all the books which were being sold as a condition for receiving the free premium and yet they would receive no free premium at all.

So that the limited class of people to whom the offer was directed were in effect receiving something free in some sense other than merely the seller’s own arrangement of his — of products sold in a package.

It’s not as if the seller was just saying, I will call something free because I’ll throw it into the package at the same price.

He was in effect saying only if you were in that class, can you receive these books without any further cost.

Abe Fortas:

I see what you are saying.

But I wish you had helped me and explained to me why one is misleading and the other is not, now in Mary Carter’s case, you tell us that you will assume for purposes of this case that the quality is as good as other products, competitive products selling at the same price, that’s number one.

Number two, you tell us that the examiner excluded evidence as to other products.

Number three, perhaps I’d better ask you this, is there any dispute with respect to the assertion that the selling price is more adhered to as stated, that is the 698 a gallon or whatever it is.

Nathan Lewin:

No we don’t think that.

Abe Fortas:

That is not disputed.

So what you are in effect saying I take it is that there is only one way that you can have a non-misleading free offer and that is if the precise product has previously been sold at the stipulated price, is that right?

But that if it’s — if there is any other standard, if it’s misleading, it seems that’s perhaps an incorrect way to state your argument, and I would like to hear you elaborate on it.

Nathan Lewin:

I think Mr. Justice Fortas it’s broader than just it having been previously offered at that price, it has to be offered at that price in the usual course, meaning either previously or maybe after the offer is terminated.

In other words, there could be an introductory free offer.

When a product first comes on the market and a manufacturer has the intention of selling it at a given price, he can attach something to it at the outset and say this is free.

Or it could be an offer made to — an offer or unlimited in time, made to only a limited class of people which is in effect what Black and Book-of-the-Month Club were.

The significance of that is that, that really communicates a bona fide message to the consumer which should affect his purchasing choice, in other words a consumer can say, if I can obtain a premium or a bonus for this month, whereas as I couldn’t at other times or I can obtain it because I am in a special class, where these other people aren’t, he should buy on that account but he shouldn’t buy because the buyer just says I am pegging my package and I am splitting it in half and I am calling it half of it free and I am attaching the whole sale price to the other.

That’s just misleading and to the extent that a consumer will be confused and will think he is really obtaining a bonus or something when he isn’t in the second of these cases, the commission can justifiably prohibit the use of the word free.

In effect, really, we submit that what Mary Carter has done in this case is really no different than what sellers might do in violation of the rules announced in the Black case.

The Black case, in which the commission decided in 1954, in the Black case, the commission set down guidelines for certain types of free advertisement and it stated that in cases where combination or in cases where free premiums were given on a condition that another product, the tying product was purchased, the seller could not raise the price of his tying product for purposes of covering the cost of the supposed free premium, because that would obviously be deceptive.

A seller would then be doing not — would not be offering anything free he would merely be adding whatever the premium cost to the basic product.

Now what Mary Carter has done here is simply done this at the outset of it’s business, if it is able consistently to offer a free premium or a free can of paint with every can that’s purchased, then it should really be in no different position from a paint manufacturer, a hypothetical competitor of Mary Carter who not having maybe had the ingenuity to devise these advertising slogans at the outset, so this paint at 349, although it’s quality was 698 quality.

Now that kind of -– that competitor could not under the Black rules which respondent accepts as valid, raise its price from 349 to 698 and then advertise as giving one can free.

They made the Black case and this case, what was he supposed to do then, that is it all good or is it all bad and was it?

Nathan Lewin:

Well, the commission’s opinion of course is based on a difference between this case and Black and I think, the only thing the Court could do is of course if there was really no difference between this case and Black would be possibly to remand the case to the commission for consideration in light of that rule of law to see whether the commission would overrule Black if it were faced with that choice.

Nathan Lewin:

In other words, the commission would then have the choice of either overruling Black entirely and going back to its old rule which had been sustained by the Second Circuit or condoning the practice involved in this case.

Byron R. White:

Really, I gather the commission really thinks that somebody be confused by accepting consistently advertising in this manner, anybody can add or subtract or divide by two, is this — are they really confused at all by any part of it?

Nathan Lewin:

It’s not merely a matter of adding, it’s that word free, that really has a magic, a magic flavor, otherwise respondents don’t accept it.

Byron R. White:

Well, of course it has a certain magic there, but do you think anybody is really fooled, that you have to put out some money to be given — take home two gallons of paint or whatever it is.

He knows he put out some money.

Nathan Lewin:

He knows he put out some money but he thinks he is getting a bargain that he is not getting.

This is the very same type of deception in effect, as the commission has prohibited and let’s say in pre-ticketing cases, where the commission say that it’s deceptive to say that something has been sold at a higher price and then or is offered for sale at a higher price and then actually sell it at a lower price.

Although the consumer goes home with his product and he knows what he is paying, he thinks he is getting a bargain.

But the same thing is true here, the consumer thinks he is getting a bargain, he thinks he is getting something free, of course he knows what he has bought, but he doesn’t know —

Byron R. White:

Well, I know that’s what you stated and what the consumer thinks.

Are you suggesting that maybe a consumer would think that at all?

I have had a lot of —

Nathan Lewin:

Well, the commission —

Byron R. White:

They have got two gallons of paints for whatever cost it is.

Nathan Lewin:

Right, but the commission —

Byron R. White:

If there is a bargain or not may depend on that what they think of paying the price.

Hugo L. Black:

Is this man in the court’s opinion below correct as to what the advertisement contains, buy one, get one free.

Every second can free of extra cost, every second can free, is that what is in the advertisement?

Nathan Lewin:

Yes, Mr. Justice Black that’s was in the advertisements.

The advertisements themselves are reproduced in the record.

Hugo L. Black:

That’s frequently done isn’t it, I happen to do it last week myself.

At the new grocery store they were advertising, you buy one case of this, we’ll give you a case free and I went in and did.

Nathan Lewin:

Oh, yes.

Well, and the commission thinks that’s perfectly alright, when it’s really done as it was in that case with a new grocery store, they are giving you something because they opened the store —

Hugo L. Black:

Well why wouldn’t it be all right, whether they’ve opened a new grocery store or not, if they didn’t deceive you of anything. What they did was to say you buy one case at the regular price, that’s what they said and did and we’ll give another one free.

Well would the commission let that?

Nathan Lewin:

If they always did it Mr. Justice Black, I think they would, it’s precisely the same practice as —

Hugo L. Black:

Yes, but they always did it because then they would not be doing it, that would be the regular price.

Nathan Lewin:

Right.

Well that’s what this case involves, this case involves a situation where Mary Carter has always done it and admittedly has always done it and always intends to continues to do it, so they are not giving anything free —

Potter Stewart:

Except Mr. Lewin, I thought you told us you accepted and conceded as a fact that if you bought one quart it would be the same price to an quarter.

Nathan Lewin:

Definitely, but that’s like buying one half of amount, you want one half of amount —

Potter Stewart:

I suggest it’s not like buying one sock, because there is some use for one quarter paint.[Laughter]

Nathan Lewin:

Right, but they are candy bars Mr. Justice Stewart, for example that are sold in two fragments at a dime.

If you were interested in buying one you’d have to pay a dime.

Now the manufacturer of that candy bar couldn’t advertise and given you one free, he is not giving anything free, he is selling you two for a dime.

Hugo L. Black:

What’s the difference in this case in standard education?

Nathan Lewin:

We think that there is no appreciable difference in standard education.

Hugo L. Black:

What the Court — what Judge Han (ph) wrote there and which we reversed, that we cannot take seriously the suggestion that a man who is buying a set of books, on ten years extension service will be factious enough to be misled by the mere statement that the first are given away and that he is paying only for the second one.

He said such trivial messages are too implausible for practical affairs, they are really (Inaudible) which divert attention from substantial evil.

We held he was wrong, he might be practical enough to know that, but other people might not be.

And we reversed it unanimously.

What they were doing, said you buy one book, we’ll give you another one free.

What should one do if they think you’ve departed from that change and these other cases that we mentioned, but have stuck to it here, you say they want (Inaudible).

Nathan Lewin:

Well, I think since the commission based its reasoning on — did not base its result on any principle like that, that you are suggesting Mr. Justice Black, the rules of cases like Chinery and these others would require that the commission reexamine this, that the case be sent back and then to consider what the result would be under what this Court determines as the proper standard.

I guess the Court really couldn’t sustain the commission if it felt otherwise on the commission’s reasoning.

Hugo L. Black:

Why should there be much argument about man being fooled at least many people being fooled, they advertised and told to come in there, because you going to buy one of these cans, then we’re going to give you another.

Why should anybody, how can anybody argue, that, that wouldn’t be deception?

Nathan Lewin:

I don’t know Mr. Justice Black.

Hugo L. Black:

And is that what was done in these Book-of-the-Month Club?

Nathan Lewin:

Well, the commission believed the Book-of-the-Month Club was different because there was an established price at which the Book-of-the-Month Club and Black offered it’s books to people who were not in the class which was being given the free offer, In other words, those people, the ones who were given the free offer, could say we’re getting something, we’re getting a bonus that other people are not getting, and if the commission — if the Book-of-the-Month Club or Black is going to tell them that, they have to have words with which to communicate that information and all that the commission said is they can communicate that information by means of —

Hugo L. Black:

In other words, the use of the word free.

Nathan Lewin:

That’s right.

Hugo L. Black:

Well what you’re saying is that I gather, the Book-of-the-Month Club would advertise a $3.50 book and everybody knows that’s the regular price.

They say now the regular price was $3.50.

If you buy one for $3.50, we’ll give you another one free, is that what happened there?

Nathan Lewin:

In our view that’s not what the Book-of-the-Month Club decision involved, we’ve set out at length in our reply brief what it did involve, because we think —

Hugo L. Black:

Well, I won’t ask you more, your time is up.

Nathan Lewin:

Thank you.

Earl Warren:

Judge Peck.

David W. Peck:

Mr. Chief Justice, may it please the Court.

I would like first to address myself to the matter of fundamental or essential honesty in the product and pricing here and satisfy the Court as to that element which I found it rather strange that the commission wanted to treat as a complete irrelevancy.

It has as been the Mary Carter Paint Company here, and it alone who has wanted to go into the question of quality.

And the evidence is in and it is abundantly in, despite the fact that the hearing examiner ruled it immaterial, because under the rules, he took it and under the rules he made a finding.

The evidence could not be clear and it is cumulative and it is abundant, that the paint of this company is just as good or bad, than comparably priced paints of the leading brand manufacturers.

This company was born with a basic idea which I submit is fundamentally honest, that it was going to produce a high quality product, that it was going to sell it on the basis of economy, by giving what was fairly expressed as double value and that it was going to express that in it’s advertising in the terms of saying that every second can was free.

Now the question naturally arises why did it pick on this slogan, every second can free, because the Federal Trade Commission had ruled precisely on the question that, that form of advertising and merchandising was permissible or as Commissioner Elmen said in his dissent in the Federal Trade Commission here, Mary Carter had every right to rely upon the Book-of-the-Month Club and Black decisions.

Now, I would like to spend a few minutes upon those decisions because to appreciate this case you have to get the sequence of events as to exactly what has happened with the Federal Trade Commission’s dealing with the word free.

It goes back to 1948, when the Book-of-the-Month was advertising just as Mary Carter is advertising, that you buy two books and you get one free and that the Book-of-the-Month Club had done from the day it started business, that was the Book-of-the-Month stock in trade, that was its policy, it began that way and so far as I know it has continued that way.

And a complaint was made by the commission on the subject and the commission held that this was misleading advertising, on a very simple basis in an opinion by Commissioner Meede (ph), he said free means free.

The absolute meaning of the word, it has no other meaning.

And unless you’re giving something away with no strings attached and you don’t have to buy anything to get it, it’s not free.

Now that’s an understandable position and that’s the position that the commission took.

But the very next year, this was their decision in Book-of-the-Month in 1952, the very next year 1953, the composition of the commission having changed somewhat, the Black case came up and the Black case was like the Book-of-the-Month Club in which they were saying enroll here, buy four books and we’ll give you one free.

Now there was no question that if the commission was going to adhere to its 1952 Book-of-the-Month Club decision, Black was impermissible.

But the commission in quite a lengthy opinion, certainly in a most carefully considered opinion, philosophically and practically facing up to this matter, they said we are going to reverse ourselves; we are going to change the rule, because we are convinced there is a matter of reality.

That this use of the word free is something that the business men of this company have been doing for 100 years and so long as it’s done clearly, so that nobody can misunderstand it, we’re going to allow it, as a matter of considered judgment and with the most solemn pronouncement of the fact, they said until Congress changes the Federal Trade Commission Act or a Court gives it a different interpretation, this is now going to be our rule and they said we state it now for the advice of the business men of the company so that they can understand what is permissible and what is not permissible.

And at the end of their decision, they said it would however be an unfair trade practice.

If you use the word free without making it clear what your proposition is, or if you raise the price, your usual price or reduce the quantity or reduce the quality as a predicate for your free offer, that was not only the decision of the commission but they adopted a rule, among their pricing guides in which they incorporated this term of the decision into a rule of the commission and announced in the year 1953.

And they said in their Black decision quoting from a brief, that their counsel had submitted to this Court, they expressed it philosophically this way.

Said, but if the regular price of the article sold without the premium is the same as the price with the premium, the premium doesn’t cost the customer anything, it is free to him.

And they put the free to him in capital letters, every letter of those words to emphasize the point that they were making, that under those circumstances it was free to the purchaser and he didn’t care whether it was an advertising promotion, whether the seller was charging so much that he could recoup and make plenty of profit on that basis or whether he sold at a loss, in any event it was the proper use of the word free, and may I say Mr. Justice White, that the commission has never deviated from that position up until this moment and it faced up to this matter anew as lately as the year 1964.

(Inaudible)

David W. Peck:

The 1958 guide line referring to the two for one —

Byron R. White:

And those statements were a representation of an offer to sell two articles for the price of one or phrase the similar imports to be used in this sales price for the two articles is the advertiser’s usual and customary retail price.

David W. Peck:

Which is certainly true as Mr. Lewin has admitted, a can of this paint is sold for the price that is on it is $6.98, you couldn’t buy it for any less, nobody has bought it for any less.

As Commissioner Elman said of the statement in the commission’s majority opinion that this wasn’t the usual price, he said this simply is not so and I stand on it, it simply is not so and Mr. Lewin has admitted to the Court rightly and frankly that $6.98 is the single gallon price of this paint and the only price at which it can be bought.

Now, usually somebody if he can get a second can free is going to take the second can but not always, not always.

And you buy the single can.

David W. Peck:

You can buy a single can for $6.98, yes and people come in, say I only want that.

Hugo L. Black:

After buying, can he get one free?

David W. Peck:

He can get one free if he wants it, yes.

Hugo L. Black:

And if he’s paid $6.98 for one can —

David W. Peck:

Oh, you mean come back the next day?

Hugo L. Black:

No, well after he pays the regular price for it, or a can, if he can get one free.

David W. Peck:

Yes.

Same transaction, yes just like in Book-of-the-Month, he can buy two books and he gets one free.

Now, the economics of it is perfectly plain as the Federal Trade Commission has said.

Hugo L. Black:

Now what do you say, I don’t see why there is any quarreling between you.

That would not be deception if you do what you say you do.

If you say you’ll let him buy, walk in and buy — let’s take something else.

If you’re selling a can of something else for $4, that’s your regular price, that’s what you always get for it, you advertise and say if you come in and buy one of our cans on our regular price, we will give one, another one just like it free, can you do that, is that what you did here?

David W. Peck:

Yes, yes Your Honor, yes Your Honor, yes Mr. Justice Black.

Hugo L. Black:

Then why is there any dispute between them?

David W. Peck:

There is no factual dispute, but for some reason or other which I am unable to follow —

Hugo L. Black:

You’re defending on the ground that you do what you actually say you will do, when you realistically interpret the fact?

David W. Peck:

No one has suggested that we don’t do what we say we do.

Byron R. White:

Well, the Commission found that you really didn’t have and the government argues that your regular price, isn’t for the price of one at all.

That it’s — you don’t have a regular price for one, you have a regular price for two.

David W. Peck:

To which Commissioner Elman said that simply is not so.

Byron R. White:

Well, I know but Elman was in the minority.

David W. Peck:

He was in the minority, but the Court of Appeal also agreed with it.

Byron R. White:

So somebody has said that you were doing something different than you say you were doing.

The commissioner says you don’t have a regular price for one.

David W. Peck:

To my mind Mr. Justice White, this is a matter of semantic.

Byron R. White:

Well isn’t that what they found —

David W. Peck:

They say that we do not have a usual price.

Byron R. White:

For one?

David W. Peck:

For one.

Byron R. White:

That’s right.

David W. Peck:

But the clear fact is that we do, because people buy it at that price and that’s the only price that they can buy it at.

And I can only say that it simply is not true.

Abe Fortas:

Is there anything in the record Mr. Peck showing the results of a survey or otherwise as to how much of this paint is sold or even a one shot basis where the customer can just pick up the free can.

David W. Peck:

No, no Your Honor, no Mr. Justice Fortas.

Abe Fortas:

You don’t have any evidence on that?

David W. Peck:

The only evidence is that it is sold and people buy it on the basis of a single can and when they buy it on the single can basis that’s the price they pay for it.

Abe Fortas:

And there is no evidence in the record, if I’m correct and understand you to the effect that some — that there have been sales at less than these — what, I suppose your suggested prices aren’t they?

David W. Peck:

Or there is a tiny, little, something that isn’t worth mentioning and my friend hasn’t mentioned — the fact is, that this price has been maintained and they haven’t fooled around with it.

Abe Fortas:

Well, like some states in which you don’t want to do that aren’t there?

David W. Peck:

Well, this — wherever they sell this product, if $6.98 a gallon.

Now, I’m going to come to —

Hugo L. Black:

$6.98, they don’t get another gallon free, do they?

David W. Peck:

Yes Sir.

Hugo L. Black:

Get another gallon free?

David W. Peck:

Just like the Book-of-the-Month, they buy two books and they get another one free.

Now, I think I should say this in all honesty Mr. Justice Black, I can understand the commission’s first Book-of-the-Month Club decision, I can understand the commission saying, we don’t like people using the word ‘free’ unless it’s absolutely free.

Hugo L. Black:

Well that’s what I thought the law refers.

David W. Peck:

But that’s not what they said in Black, what they said in the second Book-of-the-Month Club, they said, we are going to trim our sales to the reality of business practice and recognizing that nobody is fooled, this has been going on for a long time.

And people understand it.

As they put it in the Black decision, people understand the economics of this.

And in 1964, this matter all came up anew in this way, there’s been a lot of talk about the permissible use of the word free, so much so that, in the Summer of 1963, the commission held a public hearing, in which they invited everybody to come in and say what they thought about the proper use of the word free and whether or not the rule should be changed in anyway and they promulgated to focus attention.

Two different rules or versions of a free rule for the purposes of getting comments.

One; which they call Rule A, would have been a reversion to the old original Book-of-the-Month Club rule, that you can’t say something is free unless it is absolutely free with no strings attached, nothing you have to purchase, in other words, it’s given away.

And B, was virtually the rule as it has existed under Black, and a lot of people came in, a lot of people came in, this went on for a matter of two days and practically nobody wanted Rule A.

There was this discussion about Rule B which is highly irrelevant to the suggestion which is made here, that a free offer carries with it implicitly that it’s for a limited time, and not a regular practice.

Now, of course you can’t square Book-of-the-Month or Black with that argument because both Book-of-the-Month and Black like Mary Carter were from the beginning to the present always day in and day out on the same basis Book-of-the-Month buy two you get one free.

But, there were a number of people who came in with the thought which Mr. Lewin expresses, that this ought to be for a limited time and you shouldn’t be entitled to use the word ‘free’ unless it is for a limited time.

And they suggested that the rule be amended to make that provision.

Now, of course, the point at that is clear, everybody understood and Commissioner Dixon in his statements which I quote in my brief made it crystal clear, that there was no such limitation implicit or in any manner, shape or form in the rule as it exists, and by what talking about should we add something and when they got through hearing everybody, they republished the rule in 1964 in virtually the same language that they had it in 1953.

So that in 1964, the commission deliberately made the decision that it was going to stick by the Black and the Book-of-the-Month Club rule and was not going to graft on this idea of a time limitation which we are now told is part and parcel of the rule.

Abe Fortas:

Mr. Peck, as I understand Mr. Lewin’s argument, it is to the effect that in the book club type of arrangement you do have an objective practice by which a regular price for the same article is established, that is to say that you have a requirement and it’s for that reason that he places emphasis upon what he says is the fact that the free offer is made only to part of the group, that is to say to initial subscribers, which I had known, but that’s what he said.

And that in your particular case, there is no objective referral for establishing that this is anything accept a fictitious price, and that’s my understanding of his argument that is confusing.

David W. Peck:

Mr. Justice Fortas, I’m going to have to correct the impression you have about that and I want the facts to be perfectly clear, because there is an argument along this line and it is the argument of the reply brief and I might say that, that argument has a weight of the reply briefs in this Court before it’s been suggested here before.

Not before the commission, not before the Court of Appeals, not in their principal brief here, that they ever make this argument, but in the reply brief, they finally come up with another argument here.

Now, let’s be precise about it, Black’s free offer related only to new members who came in committed themselves to buy four volumes in the course of a year.

Volumes, by the way that had no standard in the market of any kind, these were triple volumes of the detective stories which Black and Black alone put together in manufacturing.

They said if you commit yourself to buy four of these, we will give you one free, that was Black.

Now Book-of-the-Month had two aspects to it, one was exactly that same as Black, in rule commit yourself to buy four books during the course of the year and you will get Andersen’s fairytales free.

But they went on and said also for every two books, you buy you get one free as a book dividend, they used the word ‘free’ and they used the word book dividend.

Now it was (Inaudible) that Commissioner Elmen said if I may quote him.

Comparing this Mary Carter case to Book-of-the-Month he said, “both involve a continuing offer over an indefinite period of time that can be acted upon again and again by the same purchasers.

Now it is suggested in the reply brief, that after all, the Book-of-the-Month Club decision didn’t pass upon that use of the word free in the second sentence.

But somehow or other the holding was confined to the use of the word free in connection with the enrollment book and therefore after all these years, it is now discovered that this is a brand new issue, which has never been passed upon before, as to whether you can say buy one can and get one free or buy two books and you can get one free.

Now, I will have to ask your indulgence for a few moments to answer that, because coming in the reply brief, I don’t have any opportunity to answer it unless Your Honors should see fit to give me leave to put in another piece of paper here.

But let me say this about it, in the first place, the commission either said it was all right or they said it wasn’t all right and I really don’t care, which it is.

What they said was that the use of the word book dividend as applied to the book that you get after you buy two, that, that charge has not been sustained and it is suggested by Mr. Lewin that all that means is that somehow or other there was some shortage of the evidence of the subject.

Now it isn’t the kind of a subject in which you need any evidence, there it was as plain as it could be, why the commission said the charge hadn’t been sustained, whether they had decided that, that was perfectly all right, which satisfies me or whether they didn’t.

The order that they entered clearly covered either use of the word ‘free’, because it was a broad order which said that the Book-of-the-Month could not use the word ‘free’ to describe any book that was not given away without the condition of buying anything to get it.

Now, plainly you had to buy two books to get the one book free and the cease and desist order plainly covered that use of the word free.

And if there could be any question about it, the dissenting opinion in the Book-of-the-Month case started out, that very first sentence it says this is a case about a company they gives its customers one book for every two they buy.

So there couldn’t be any question in anybody’s mind that the use of the word free on the broadest possible basis was involved there covered and disposed off.

And as Commissioner Elmen said that in this case, referring to Book-of-the-Month he said there the club’s offer amounted to buy two book and get one free.

And he said, the case is indistinguishable from Book-of-the-Month and the commissioner never said in the majority opinion or counsel for the commission in the Court of the Appeals, oh now that’s not what the case involved at all, it only dealt with this introductory offer.

Now, I needn’t argue to the Court that the commission cannot play fast and loose with its rules.

It cannot engage in what Judge Brown aptly said here was individualized discrimination against Mary Carter.

It hasn’t asked to reconsider this rule, it stands by Black and Book-of-the-Month.

It had the whole issue up in 1964 after Mary Carter and deliberately decided it was going to maintain its rules.

I submit as commissioner Elmen observed and as the Court of Appeals found, that this case is indistinguishable on any substantial ground from Book-of-the-Month and Black, that the attempted distinctions are really fascicle and upon the basis of the commission’s rules which they elect to stand by, the decision of the Court of Appeals here should be affirmed.

Earl Warren:

Mr. Lewin.

Nathan Lewin:

Do I have anytime for rebuttal Your Honor?

Earl Warren:

Beg your pardon?

Nathan Lewin:

Do I have anytime for rebuttal Mr. Chief Justice?

Earl Warren:

No, I guess you have finished your time.

Very well we’ll call the next case.