P.S. Docket No. 2/6
June 28, 1974
In the Matter of the Petition by )
)
VERTICAL MARKETING, INC. )
625 North Michigan Avenue )
Chicago, Illinois 60611 )
)
)
Denial of Application for Second- ) P.S. Docket No. 2/6
Class Mail Privileges for "SPHERE/ )
THE BETTY CROCKER MAGAZINE" )
APPEARANCES: For Petitioner:
David G. Bress, Esq.
Fred W. Drogula, Esq.
Ginsburg, Feldman and Bress
Washington, D. C.
For Respondent:
D. Scott Railsback, Esq.
Michael J. Vandamm, Esq.
Arthur S. Cahn, Esq.
Washington, D. C.
Wenchel, Adam G.
POSTAL SERVICE DECISION
Facts
This proceeding is before the Judicial Officer on Respondent's appeal from an Initial Decision of Administrative Law Judge Rudolf Sobernheim. In his Initial Decision, Judge Sobernheim reversed the action of the Respondent Manager, Mail Classification Division, Finance Department, in denying second-class mail status to "SPHERE/THE BETTY CROCKER MAGAZINE".
In 1971 Petitioner Vertical Marketing Inc. was incorporated for the purpose of publishing a women's magazine to be known as SPHERE. In order to speed customer acceptance, and to obtain rights to a coupon program, Petitioner entered into a license agreement on July 26, 1971, with General Mills, Inc., for use of the trademark "Betty Crocker" and other trademarks owned by General Mills in connection with the magazine. The terms of that license agreement gave General Mills authority to exercise control over some aspects of the content, format and scope of SPHERE. The following specific provisions were included in the agreement:
1. Vertical was required to submit creative material for the magazine to General Mills in advance of publication (approval was "not to be unreasonably withheld");
2. General Mills reserved the right to research and test materials related to food preparation and presentation prior to publication "to the extent that Licensor General Mills deems necessary or desirable in order to demonstrate the practicability of the material";
3. General Mills reserved the right to approve or disapprove of the advertising of specific products or types of products;
4. Advertisement of products competitive with those of General Mills or products incompatible with the nature of the magazine and General Mills' interest was prohibited;
5. To protect its interests, General Mills was empowered to establish "acceptable advertising standards", including a list of categories, products, services and companies not acceptable as the subject of advertising or as advertisers in SPHERE;
6. General Mills retained the right to modify the advertising standards which it established, and Vertical was forbidden to make contractual commitments for advertising of longer than one (1) year's duration without the right to terminate such commitment on one (1) year's notice;
7. Vertical agreed to conduct its business operation in accordance with such reasonable standards of quality as General Mills might establish (and in a manner which would not damage General Mills' Trademark);
8. Vertical agreed to use General Mills Betty Crocker Coupon Plan mailing lists in accordance with specified limitations;
9. Vertical agreed not to use or make available to third parties its own mailing lists without prior consent of General Mills. The right to give such approval was made "completely within the discretion" of General Mills.
On January 15, 1972, Vertical made its first sample application for second-class mail entry for SPHERE at the Chicago Post Office, that city being the location of Vertical's executive offices. On April 13, 1972, circulation of the charter issue of SPHERE having been completed, Vertical made formal application for second-class entry for SPHERE.
By letter of September 14, 1972, Respondent denied Vertical's application. The stated reason for the denial was that the publication was primarily designed for advertising purposes in that it was owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business of those who own or control them (i.e., General Mills). As evidence of General Mills' control of SPHERE, Respondent cited various terms of the license agreement, including those given above. Vertical was advised that it had the right to submit further information with supporting evidence to show that SPHERE complied with the legal requirements for eligibility as a second-class publication, and also to appeal the decision by filing an appropriate petition. Vertical took both courses.
This proceeding was commenced with the docketing of a petition on December 11, 1972. In the meantime Vertical renegotiated the agreement with General Mills to delete the provisions on which Respondent relied as showing General Mills' editorial and advertising control over SPHERE. A revised agreement was signed on November 7, 1972. This revised agreement was submitted to the Manager Mail Classification on November 14, 1972, and on November 20, 1972, the latter informed Vertical that Vertical was granted second-class mail entry for SPHERE, effective November 7, 1972, the date of the revised agreement.
The effect of the decision of November 20, was to grant Vertical's application prospectively from November 7, 1972, but to reaffirm the denial of Vertical's application for the period January 15, 1972, through November 6, 1972. At stake in this proceeding is the net difference between postage charges for the mailing of SPHERE at the third-class rate rather than the second-class rate for the period of January 15, 1972, through November 6, 1972.
Discussion
SPHERE obviously is not owned by General Mills and the Administrative Law Judge determined that General Mills did not control SPHERE despite the contract provisions cited above. Respondent contends "a contractual right and power to control the advertising content and editorial policy of a publication constitutes control 'as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them' under section 132.226(b) of the Postal Service Manual." 1/
Respondent takes two exceptions to Findings of Fact in the Initial Decision.
The first exception is:
"Respondent specifically excepts to the following portion of Finding of Fact number 9, on page 11, which provides:
"Upon review of the Manager's decision Vertical and General Mills agreed to forego the benefit of the contract terms on which the Manager had rested his adverse decision and entered into a revised license agreement dated 7 November 1972 and retroactively effective to 26 July 1971 (Ex. B, Ex. 2)."
The finding accurately states what occurred and the exception must be denied for that reason. The Administrative Law Judge did not suggest, as Respondent contends he did, that the agreement retroactively qualified SPHERE for a second class mail permit.
The second exception is:
"Respondent specifically takes exception to Finding of Fact number 22(e), on page 17 in which the Administrative Law Judge adopted as a finding of fact the assertion of Vertical's vice-president that:
"Vertical's obligation to 'promote' the General Mills' trademark was mere boiler plate and without meaning as to Vertical's conduct as publisher of SPHERE. . . ."
Respondent has misread the Initial Decision. Paragraph 22 is merely a summary of assertions made by Vertical's vice president. The Administrative Law Judge did not adopt the assertions as fact. Rather he made his ultimate findings of fact in paragraph 23. Respondent does not dispute the Administrative Law Judge's findings in the latter paragraph to the effect that despite the contractual provisions Respondent relies on, General Mills in fact did not exercise control over SPHERE either actively or passively.
The regulation on which Respondent relies covers publications "controlled" by the owner of another business. "Control" is different from the right to control. Neither the advertising content nor the editorial policy of the publication changed after the agreement was revised. General Mills in fact never actually exercised control over SPHERE under the agreement. It would be incongruous to deny the second class permit on the basis of language whose presence in the contract did not affect the publication in any way.
Conclusions of Law and Decision
1. For the reasons stated above, the Initial Decision of the Administrative Law Judge is affirmed and the denial of the application of April 13, 1972, for a second class mail permit for "SPHERE/THE BETTY CROCKER MAGAZINE" is set aside.
2. The application for a permit is remanded to the Director for issuance of a second class mail permit.
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