March 12, 1958
In the Matter of the Petition of
CHANNEL NORTHWEST, INC.
for a review of proposed denial of second-class mailing privileges.
H.E. Docket No. 5/178
March 12, 1958
William A. Duvall Hearing Officer.
POST OFFICE DEPARTMENT, OFFICE OF THE CHIEF HEARING EXAMINER, Washington 25, D. C.
HEARING OFFICER'S REPORT AND RECOMMENDATION
Application for entry of the publication "Channel" into the mails as second-class matter was filed on behalf of Channel Northwest, Inc., 201 South Fifth Street, Tacoma, Washington, by Marshall Riconosciuto, its President, on October 19, 1957. This application is Respondent's Exhibit 1. 1/ On October 21, 1957, Mr. Riconosciuto wrote a letter (Respondent's Exhibit 2) to the postmaster at Tacoma transmitting a list (Respondent's Exhibit 2-A) of approximately 720 subscribers to the publication.
On November 7, 1957, the Director, Postal Services Division of the Bureau of Operations of this Department sent to the publisher a notice (Respondent's Exhibit 4) advising him that it was proposed to deny the application for second-class mail privileges for the magazine. The substance of the grounds for the proposed denial were that (1) the publisher did not establish that the magazine had a legitimate list of subscribers; (2) it appeared that the magazine is designed primarily for free circulation or for circulation at nominal rates; and (3) it appeared that the magazine is designed primarily for advertising purposes.
On behalf of the publisher there was duly filed, on November 22, 1957, a petition requesting that the Director, Division of Mail Classification (now Postal Services Division) be required to show cause why the proposed denial should not be reversed and the application granted, and that a hearing be granted upon the issues involved. The petition also contained statements purporting to negate the grounds of the proposed denial of the application.
The order to show cause requested by the publisher (Petitioner) was issued on November 25, 1957, and an answer on behalf of the Director, Division of Postal Services (Respondent), was filed on December 20, 1957. The answer denied the allegations of the petition and affirmatively alleged that the publication does not meet the requirements for entry into the mails as second-class matter in that it does not comply with the provisions of Section 226 of Title 39, United States Code, in the particulars set forth in the notice of proposed denial of the application.
The hearing was conducted before the undersigned duly designated Hearing Officer on January 20, 1958.
At the hearing, in addition to the exhibits previously mentioned and described, the following exhibits were introduced on behalf of the Respondent:
1-A Issue of "Channel" for week of
October 27, 1957
3 Memorandum dated "10-8-57,"
signed with what appears to be
the signature "J. Kurtz," and
reading "This is in addition to
the lists you are now working
3-A List of additional subscribers.
Counsel for the Respondent then pointed out certain features of the magazine which in the view of the Respondent support the Respondent's position as stated in the proposed denial and in the answer. These matters will be considered hereinafter in more detail when attention is focused on the magazine itself. The Respondent then rested.
Mr. Riconosciuto, the president of the Petitioner, next proceeded to testify. His testimony revolved largely around his assertion that there is a legitimate list of subscribers to the publication; that the subscription rate is not nominal; that, while the magazine is used for advertising purposes, the advertising is for the benefit of persons other than the Petitioner, and that the prohibition of the statute involved is not applicable to this publication; and that certain changes in the publication, hereinafter indicated, have been made. Related to Mr. Riconosciuto's testimony two exhibits were received in evidence, the first one being the issue of "Channel" for the week of December 29, 1957, to January 4, 1958, and the other exhibit being a folder giving information as to rates for advertising space in the publication.
The first issue to be disposed of is whether the publication has a legitimate list of subscribers.
"The phrase 'a legitimate list of subscribers' evidently means a list of subscriptions taken at more than a nominal price, and the price must have been paid, or the subscriber, or someone in his behalf, be under obligation to pay the agreed price; and that subscriptions taken at a nominal price, or without prices, do not answer the requirements of the statute in this particular and cannot be counted in making up a legitimate list." Myrick v. United States , 219 F. 1, 4.
The testimony in this case is that as of the date of the hearing there were eight hundred and six druggists who, together, were buying a total of 161,000 copies of each issue of the publication (Tr. 17, 18). We are now going to consider only the druggists. The Petitioner states in paragraph 4 of his proposed findings of fact and paragraph 2 of his supporting reasons that the rate or price of subscription is at least compensatory. In order that the Respondent's contention that there is no legitimate list of subscribers should prevail it would appear that the Respondent should have come forward with proof either (1) that these druggists receive the magazine without cost to them or (2) that the price paid by them is inadequate. The Respondent offered no proof as to either of these points and it was not contended that any of the druggists are excessively, or at all, in arrears in their payments for the publication. It is true that these pharmacists are few in number, but this single fact does not, in my opinion, vitiate the Petitioner's claim that they constitute a group of legitimate subscribers.
As pointed out by the Respondent, the pertinent Departmental regulation on the subject (Postal Manual, Section 132.225) provides that:
"Publications must have a list of persons who have subscribed by paying or promising to pay for copies to be received during a stated time."
There is nothing in this regulation which is inconsistent with regarding these eight hundred and six persons as legitimate subscribers.
We now come to the question as to whether the publication is designed primarily for free circulation or for circulation at nominal rates. Departmental regulations pertinent to this issue provide, in part, as follows and are found in the Postal Manual:
132.227 Free Circulation Publications. Publications designed primarily for free circulation may not qualify for second-class privileges. Publications that are not circulated principally to a list of subscribers are considered to be designed for free circulation. (Underscoring added).
132.463 Copies Paid For As Gifts. A minor portion of the subscription list may consist of persons whose subscriptions were paid for as gifts. Subscriptions paid for by advertisers or other interested persons to promote their own interests are not gift subscriptions. (Underscoring added).
The way in which the vast bulk of the copies of the publication are distributed is disclosed by the following testimony of Mr. Riconosciuto:
"There has not been in our magazine for four or five weeks -- three weeks, for certain -- and I have copies of the issue here, any reference to Channel being a free magazine or for free distribution.
"We take the position that we have the subscription price. We sell the magazine to the druggist, and he, in turn, passes it out as he sees fit to his customers or whomever he may want to give them to." (Tr. 13)
Later (Tr. 18, 19), Mr. Riconosciuto testified that some druggists distribute the magazine free to anyone who wants it; others make a purchase by the customer a prerequisite to taking the magazine; and still others are preparing to make a charge for the magazine. This witness also stated (Tr. 13) that subscriptions from individuals will be accepted, but there is no indication as to when this method of sale will be adopted, or that this practice, when adopted, will materially alter the present method of distribution or the proportion of the copies so distributed.
In view of the provisions of the Departmental regulations quoted above and the testimony of the Petitioner's witness, it must be concluded that the publication "Channel" is designed primarily for free distribution. There are 806 subscribers, but approximately 160,000 copies of the publication are distributed without cost to the ultimate recipient. The magazine is not circulated "principally" to the list of subscribers, and the 160,000 copies which are distributed without cost far exceed a "minor" proportion of the printing of each issue.
Finally, there is the issue as to whether the publication is "designed primarily for advertising purposes."
Let us look at the magazine (Respondent's Exhibit 1-A, and Petitioner's Exhibit 1). It is approximately eight and one-half inches by five and one-half inches in size and contains, including the front and back covers, sixteen pages. The content of each issue is made up of listings of television shows for the forthcoming week which appear on the right-hand pages; editorial matter appears on the inside of the front covers; on the left-hand pages are program notes, listings of movies to be telecast, photographs of performers and other persons connected with the industry, and short narratives or comments about various performers. In Respondent's Exhibit 1-A, there are several statements interspersed through the issue to the effect that the publication is being distributed free as an additional service furnished by the druggist. On the back cover of Petitioner's Exhibit 1, there is a general statement in praise of the service performed by pharmacists, but the statement does not refer to any particular pharmacist, and the occasional references to the free distribution of the magazine found in the earlier issue are not found in the later one. On the bottom of the front cover of each copy of the publication in evidence there is a blank space of approximately two inches in height extending across the width of the magazines. Immediately above this space, on both exhibits, are the words "THE PUBLICATION OF YOUR RETAIL PHARMACIST." It is the testimony of the Petitioner's witness (Tr. 19) that the purpose of the two-inch space below this legend is to permit the distributing druggist to display his name or the name of his business there.
Measured quantitatively, the greater bulk of the publication consists of information concerning television programs and personalities. The publisher testified that he feels "that the magazine has as its primary function the dissemination of news of vital interest to the general public." (Tr. 12) He testified that "the purpose of this magazine is an advertising for promotional purposes," (Tr. 19) and a statement to the same effect is contained on page 3 of the petition. In both instances, however, it is contended that the benefit from the advertising goes to the druggists who distribute the magazine and not to the publisher, and that the statute was not intended to be applicable to such a situation as is here presented. (Petitioner's brief, page 3, paragraph number 3).
Thus, we have seen the physical characteristics of the magazine and we have understood the publisher's contention as to the purpose of it.
The statute (39 U.S.C. 226) establishes conditions which a publication must meet in order to be eligible for admission to the mails as second-class matter. The concluding sentence in this section provides that "Nothing herein contained shall be so construed as to admit to the second class rates regular publications designed primarily for advertising purposes, or for free circulation, or for circulation at nominal rates."
The regulations of the Post Office Department bearing upon the question are found in Section 132.226 of the Postal Manual:
132.226 Advertising Publications. Publications designed primarily for advertising purposes may not qualify for second-class privileges. They include:
a. Those having advertising in excess of 75 percent in more than one-half of their issues during any 12-month period.
b. Those owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them.
c. Those that consist principally of advertising and editorial write-ups of the advertisers.
d. Those that consist principally of advertising and that have only a token list of subscribers, the circulation being mainly free.
e. Those that have only a token list of subscribers and that print advertisements free for advertisers who pay for copies to be sent to a list of persons furnished by the advertisers.
f. Those published under a license from individuals or institutions and that feature other businesses of the licensor.
Because the question involved in the determination of this issue for many years has been a thorny problem, because the problem undoubtedly will continue to recur and in order that the question may be considered fully, it is believed to be desirable - if not, indeed, necessary - that there be available for consideration some of the legislative history of the phrase "designed primarily for advertising purposes." This history has been prepared, but, because of its length, it is attached hereto as Appendix A. The material in Appendix A is not exhaustive of the subject, but it is sufficiently complete to reveal the background and the reason for the enactment of the provision containing the vexing phrase.
Briefly, the history of this provision of law may be stated along the following lines. Prior to 1874, postage on newspapers and periodicals mailed might be paid at the office of mailing or at the office of delivery. By the Act of June 3, 1874, postage on newspapers and periodicals was made payable in advance at the office of mailing and the amount of postage on such mail matter was considerably reduced.
Persons engaged in various businesses saw an opportunity to advertise their services or products through the mails at very low cost, and published or caused to be published certain sheets or bulletins containing the desired advertising matter. These publications were issued with sufficient regularity to make them eligible for entry into the mails as newspapers or periodicals under the then existing state of the law. Because it was felt that this practice was a perversion of the statute and the postal service to uses not intended, it was sought to distinguish between these publications and publications the purpose of which it was to inform, educate or entertain, or any combination of them.
Thus it was that on July 12, 1876, in a Departmental appropriation bill, a special and higher rate of postage was fixed for certain third-class matter, including "regular publications designed primarily for advertising purposes, or for free circulation, or for circulation at nominal rates." It was thought that the enactment of this provision would resolve the problem, but this was not the case. Advertisers of goods and services sought to circumvent the new legislation by including in their publications more material of a "public information" character and by minimizing, quantitatively, the advertising material contained in each issue.
The Department again called the attention of the Congress to the situation and on March 3, 1879, there was approved another Act in which mail classifications and rates were established. After prerequisites for entry into the mails as second-class matter were set forth, the exception with which we now are concerned was enacted as a proviso in the provision of law now codified in Section 226 of Title 39, United States Code.
During the whole of this time, and subsequently to the present day, the Department has sought to devise a definition sufficiently broad to encompass the many variations in types of such publications but sufficiently precise to make it a simple matter to determine whether any publication goes beyond the pale into the proscribed areas. For evidence of the continuing effort of the Department to this end reference is made to Appendices A and B. Appendix A further justifies the conclusion that each publication about which the question arises is to be considered on its own merits based upon the facts and circumstances surrounding its issuance. 2/
The Petitioner contends and would have us believe that a publication designed primarily for advertising purposes is at odds with the statute if and only if the benefits of the advertising redound only to the publisher. It is conceded that an argument can be made that, based upon the information available at the time the Act of July 12, 1876, was passed, as reflected in the data contained in Appendix A, that Act was enacted because persons engaged in business were resorting to the subterfuge of publishing sheets carrying their own advertisements and excluding the advertisements of other persons or firms, thereby taking advantage of the very favorable postage rates provided for newspapers and periodicals. To enact this broadly-phrased legislation for the limited purpose of stopping the publication of these sheets, however, would be comparable to sending a man to hunt butterflies with a 12-gauge shotgun. If that had been the purpose of the legislation it would have been an easy matter to spell out exactly what was intended to be proscribed. Despite the fact that there were called to the attention of the Congress specific examples of the type which the Petitioner in this case insists were the sole targets of the Act, the language employed by Congress was very general. It has remained so. Under these circumstances, it is reasonable to conclude that it was the entire practice which the Congress sought to limit and not just one or two or a few varieties of the practice as insisted by the Petitioner. This conclusion is further buttressed by the fact that the Department, from time to time, has broadened its regulations to include different expedients employed to circumvent the statute and the Congress has never legislated to circumscribe the Department's efforts in this regard. Appendix B to this report consists of copies of the Department's regulations on this subject for various years after the enactment of the 1876 and 1879 Acts. It is obvious that the emphasis has been on extending the scope of the regulations to include a greater number of the devices employed to try to get publications within the letter of the law. There is no question but that an overzealous administration of the law by the Department would have brought forth remedial legislation by the Congress. Hence, giving to the words employed by the Congress the meaning ascribed to them in normal, ordinary usage ( N.L.R.B. v. Coca-Cola Bottling Co. of Louisville , 350 U. S. 264), it is concluded that the Congress intended that publications be analyzed with a view to determining their real purpose, and if, in fact, that purpose be primarily to advertise - for the publisher, for any other person or entity, or for any group or groups of persons or entities of common, similar or diverse interests - then the publication should not be carried at the low second-class postage rate.
Against this background, what is the "design" and primary purpose of the publication "Channel"? In this connection, particular attention is invited to Item 5 of Appendix A. It is undeniable, of course, that the publication consists chiefly, by volume, of information concerning various aspects of television. But there is more involved than that. What would be the fate of the magazine without the druggists? The indication is clear that without them, or some other category of persons or firms like them to purchase practically the entire printing of each issue, the magazine could not survive. What is the incentive of the druggists to buy and distribute the publication? The incentive is the advertisement of their goods and services and the creation of good will for their businesses. Is this incentive recognized and fostered by the publisher? That such is the case is evidenced by the testimony of the Petitioner's president (Tr. 19), and by statements made in the petition (p. 3, par. c) and in the proposed findings of fact, conclusions of law and reasons in support thereof submitted by the Petitioner (p. 1, par. 3; p. 3, par. 3). It is also evidenced by the physical make-up of the publication. The space at the bottom of the front cover is specifically designed in order that the druggist may insert therein his name or the name of his business.
Based upon the record of this proceeding and what I conceive to be the meaning of, and the legislative intent leading to the enactment of, the provisions of law involved, I make the following findings of fact, conclusion of law and recommendation. Proposed findings and conclusions submitted by the parties not adopted herein are denied for the reasons herein given.
Before stating my conclusions, however, I should like it to be understood that nothing contained in this report should be construed as suggesting that the publishers of "Channel" have acted in a reprehensible way in any degree by attempting to get second-class mail privileges for their publication. Sound business practice dictates that they employ all legitimate means to achieve the highest possible revenues at the lowest possible operating costs. This proceeding arose because of a sincere difference of opinion which existed between the publishers and the Department. In my view, the publishers' position is correct with respect to one issue in this case, and they have misapprehended the intent, meaning, and applicability of the statute as to the other two issues.
FINDINGS OF FACT
1. The publication "CHANNEL" has a legitimate list of subscribers.
2. The publication "CHANNEL" is designed primarily for free circulation.
3. The publication "CHANNEL" is designed primarily for advertising purposes.
CONCLUSION OF LAW
The publication "CHANNEL" does not meet the requirements of Section 14 of the Act of March 3, 1879, as amended (39 U.S.C. 226), for entry into the mails as second-class matter.
It is recommended that the application of Channel Northwest, Inc., for entry into the mails as second-class mail matter of the publication "CHANNEL" be denied.
2/ It is pointed out as an incidental matter that Item 12 of Appendix A is excerpted from a volume of over 900 pages. This volume contains the views of numerous people on the present problem and contains references to a wealth of other allied material.