might be unlawful under section 2 for a vessel having a slot machine on board in a locked compartment to carry such machine from a port in California, where the possession under such circumstances is lawful, to a port in New York. The courts have held that the actual carriage of furniture and equipment on board a vessel, even though not for commercial purposes, is a transportation in interstate commerce. Mr. HARRIS. I think that that would be a very fair interpretation of it, personally. But if you were leaving New York and going to Venezuela, there would not be any prohibition against that, would there, according to the language of this?

Mr. KREBS. If that vessel comes back, yes; I think that this would be a transportation in foreign commerce, and the vessel would be in violation of the provisions of the act.

Mr. HARRIS. Î cannot place that interpretation on it that such machines were illegal in the country to which you were transporting

passengers.

Now, there is a provision here, as I understand, that it is illegal to transport machines into other countries for sale.

Mr. KREBS. The bill prohibits the exportation or importation of the machines, and it might very well be that the courts would hold that the actual carriage of the machine in such an instance would be an exportation of it.

Mr. HARRIS. You raise, I think, a very interesting subject here. The United States Government has jurisdiction over such ships as engage in common carriage as passenger ships, under their flag registry, and under the laws of the United States; and yet you say here that the ships should be exempted from the provisions of this bill and placed on the same basis as a State is where the laws of that State provide that they may be legal. In other words, it seems to me that you are suggesting that the Government give sanction to gambling on ships where passengers are going across the waters.

You might as well say that you should give the same sanction in lands owned by the Government, should you not?

Mr. KREBS. I think the situation is a little different because, as the report of the Attorney General points out, section 5 is designed to cover lands under the jurisdiction of the United States. As I understand it, the section was striking at the situation where Army posts located in a State prohibiting the use of slot machines have permitted such machines to be used on the posts. The Attorney General felt that the least that the Congress could do in such instances was to go along with the policy of the State. He believed that the policy of the State would be assisted by prohibiting the use of the machines on lands under the jurisdiction of the Federal Government which are located in the particular State. I think that is quite different from what we are talking about here.

Mr. HARRIS. I believe that is all.

Mr. WILSON. Mr. Chairman, I would like to inquire of the witness as to what percentage, and also as to what volume, if you know, of revenue that the individual companies might or might not take from the operation of gambling ships on the high seas.

Mr. KREBS. I do not know.

Mr. WILSON. The purpose of my question, although you cannot answer it, was to inquire as to whether or not this revenue, which

undoubtedly they do receive, is of such volume that it might affect the question of further subsidy of any company in its operations.

Mr. KREBS. Well, I do not see that it ties into the subsidy question, because

Mr. WILSON. On your over-all revenue, it affects whether you are operating at a profit or at a loss.

Mr. KREBS. That is correct.

Mr. WILSON. That is why I asked the question.

Mr. KREBS. But, as you know, the purpose of the operating differential subsidy

Mr. WILSON. Can you answer this question: Do they or do they not take a cut or a share or a percentage of the operation of the machines on the vessels on the high seas?

Mr. KREBS. I do not know, but I believe they do.

Mr. BENNETT. Mr. Krebs, I know very little about maritime law, but could Congress enact legislation to prohibit the use of slot machines on American vessels after they got on the high seas and beyond the territorial limits?

Mr. KREBS. Frankly, I do not know, but I would be inclined to say that they could.

Mr. BENNETT. If that is true, then, what would be the difference, so far as American shipping is concerned?

Mr. KREBS. I think that the result would be that foreign flag vessels would be able to provide a different form of entertainment for their passengers, and a greater number of people would travel on such vessels. The American flag vessel in that instance would not to able to offer the same type of accommodation as his competitor. Mr. BENNETT. Other than that, if Congress does have a right to regulate gambling on American ships on the high seas, there is not much difference, then, between prohibiting it on the territorial waters and prohibiting it on the high seas, is there, other than this discrimination that you are talking about so far as competition with foreign flag vessels is concerned? You are right in the same field there, are you not?

Mr. KREBS. Well, that is true. As I said, we feel that there was no intention to cover that type of situation. We are not really discussing the question as to whether they should attempt to cover that type of situation. We are saying that we do not believe that these bills intended to cover it.

Mr. BENNETT. Well, the Attorney General testified that in prohibiting the sale of these things in foreign shipment, it was part of our foreign policy, in his judgment. I assume if you follow that line of reasoning, it would apply to American vessels on the high seas. Mr. KREBS. As far as the actual transportation, yes, sir.

Mr. BENNETT. Or the use. He would forbid the use by foreign countries insofar as American machines are concerned.

Mr. KREBS. I think one objective there was an effort to discourage the manufacture of these devices.

Mr. BENNETT. This bill could not only cover gambling devices, but it could cover any kind of amusement device which you might have on board ship.

Mr. KREBS. It is my understanding that the only thing that we are really talking about on passenger vessels is a slot machine. Mr. BENNETT. Is that the only kind of devices they carry?

Mr. KREBS. I have been told by our people that there are no mechanical devices on board except slot machines.

Mr. BENNETT. That is all.

The CHAIRMAN. Are there any other questions?

I would like to have the clerk read a letter here before we proceed. We will excuse the witness at this time.

The CLERK. This letter just came in from the Department of Justice, signed by Peyton Ford, the Assistant to the Attorney General :

Hon. ROBERT Crosser,

Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C.

JUNE 1, 1950.

MY DEAR MR. CHAIRMAN: It has come to our attention through the recent hearings held on S. 3357 by the House Interstate and Foreign Commerce Committee that there has been some question as to whether or not the members of the Attorney General's Conference on Crime and the Department of Justice were in favor of or intended to include in this bill machines manufactured for pure amusement.

During the meetings of the Subcommittee on Federal Legislation of the Attorney General's Conference on Crime the question of machines manufactured and used purely for amusement was discussed, and it was the intention of this committee to exclude from the bill this type of machine. It was also the intention of the Department of Justice that such machines for pure amusement should be excluded.

In the event the committee desires to further clarify the bill, it is suggested that they might include a sentence in section 1 of S. 3357 along the lines that "anything of value" shall not mean pure amusement.

The CHAIRMAN. The next witness is Mr. Smith.

STATEMENT OF J. BOND SMITH, SHOREHAM BUILDING, WASHINGTON, D. C., REPRESENTING HAMILTON MANUFACTURING CO., MINNEAPOLIS, MINN.

Mr. SMITH. Mr. Chairman and members of the committee, my name is J. Bond Smith, and my address is Shoreham Building, Washington, D. C. I am a lawyer.

Prior to engaging in private practice, I was connected with the Bureau of Corporations of the Department of Commerce which, during the first Wilson administration, became the Federal Trade Commission, through the enactment of the Federal Trade Commission Act. I assisted in the studies which led to the enactment of that statute. Thereafter I served as an attorney for the Post Office Department in the Solicitor's Office which had the duty of determining the mailability of various things under the Postal Statutes. My present practice is both administrative and general. I am here representing Hamilton Manufacturing Co., 413 South Fifth Street, Minneapolis, Minn., which manufactures sales boards, commonly called punch boards.

HAMILTON MANUFACTURING CO.

Hamilton Manufacturing Co. is a Minnesota corporation whose office and factory are and always have been located in Minneapolis, Minn. It has no connection with any other person or concern. It normally employs over 200 people. Its shop is unionized by the American Federation of Labor. The business has a working capital of

half a million dollars. The company makes its boards in Minneapolis and sells them in many of the States of the Union. The founder went into the printing business for himself, in a small way, when he was 17 or 18 years old. One of his customers was the Paris Candy Co., then an old and reputable concern in Minneapolis engaged in manufacturing and marketing high grade candy. That concern asked him whether he could make punchboards, of which they had samples, and he proceeded to make these in a small way. At first they were made of wooden boards in which holes were bored. He printed the slips with numbers on them and had the numbers put in by people who were not otherwise employed and who did that work in their homes. After the numbered slips had been put into the holes the boards were covered with a paper sheet with printed matter on it. In the course of time he found other customers who wanted such boards. This board work started in 1910. In 1911, Mr. Hamilton, now president of the company, started to make the wood part of the boards with the holes in them. In the course of time he worked out machinery to do the work of making the boards and the method of making them changed, so that they were made by machine and all the work was done in one place. The factory was gradually established and enlarged. This alert young American thrived because of his ability and industry. This business has existed for 40 years and has always had a good reputation.

The Paris Candy Co. and other customers supplied the boards to retailers who used them for the purpose of advertising and selling merchandise and increasing the volume of sales.

PUNCHBOARDS ARE USED PRIMARILY AS ADVERTISING MEDIUM BY SMALL BUSINESSES AND BY MANY WORTHY ORGANIZATIONS

The use of punchboards started as a system of advertising and selling merchandise, and the boards have been used for that purpose for over 40 years. The small merchandise manufacturer and the small retailer need that method of advertising to build up their businesses and to meet the competition of their big competitors, who have within their financial reach means of advertising not within the financial reach of the small manufacturers or retailers, such as magazine and newspaper space, billboards, and the radio. The board advertising and selling system is the only system wherein the advertising expenditures go to the consumers, from whom all advertising expenditures necessarily come, no matter what the method of advertising may be. The small manufacturer, the retailer, and the consumer found the board advertising and selling system commercially beneficial. After over 40 years experience with it they want to keep it.

A few illustrations give an idea of use of the boards for legitimate purposes.

For example, a retailer, in a neighborhood store, may desire to attract customers or hold existing custobers by giving away, each day or each week or each month, a certain number of candy bars or other articles of merchandise. If he should choose the donees, he would be confronted by the risk of being accused of favoritism by some of the customers, and would thus defeat his purpose of building up patronage. He can solve that problem by putting a board on the counter and giving to each customer, free of charge, the privilege of

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punching the board once. Thus each of them has an even chance with the others to get, free of cost, a bar of candy or some other article of merchandise. A card near the board would list the numbers entitling a customer to something and would state what that something is. Some of the customers would get something and some of them would not; but each would have a fair chance. Since consideration, one of the three essentials of a lottery, is absent, this is not even technically a lottery. No customer risks anything or loses anything. If he does not happen to punch out a number that brings him a bar of candy or something else, he is no worse off than he would have been if the board had not been on the counter and if the storekeeper had not given anything away. The board is used purely as an advertising medium to stimulate trade and attract customers. The cost of what the storekeeper gives away is an advertising expense to the storekeeper. Advertising expense invariably comes out of the pockets of the patrons. In other kinds of advertising, that expense goes to some advertising medium. In this kind of advertising that expense goes to customers in the form of gifts of merchandise.

Similarly a manufacturer who wants to introduce a new line of candy or some other new line of goods can give away certain units of the candy or the other things to some people but not to all. He can make an arrangement with the retailer for a course similar to that last described.

Instead of slips containing numbers only, numbers and questions can be used. A person who punches out a slip with a question on it can be given a bar of candy, or something else, for a correct answer to the question. This is similar to radio quiz programs.

Every scheme of advertising, including the giving away of premiums and prizes, naturally has for its object, not purely a philanthropic purpose, but increased business. Even the corner grocer who gives candy to the children of the neighborhood may be prompted by that motive, but that does not make the gift unlawful. And if a grocer, instead of giving candy to all the children, gives it only to some as determined by lot, that circumstance does not make the gift unlawful. And in neither event is the gift made unlawful by the further circumstance that the business of the grocer in the neighborhood may be thereby increased (State v. Hundling (Iowa, January 21, 1936), 264 N. W. 608, 610).

The board advertising and selling system has been proven effective. The purchasing public has had experience with it, and it is so simple that they can understand it. There is nothing complicated to fool anybody. It succeeds because the public supports it. The public supports it because it finds that selling and advertising system satisfactory.

The

Some big competitors, noting the competition of the small concerns, want to stop the use of that advertising and selling method. After that method had been in use for many years, the Federal Trade Commission commenced proceedings against candy concerns and others to stop them from supplying the boards to their retailer customers. Commission relied on the testimony of representatives of big competitors who said that advertising and selling method was detrimental to their business. However, it appeared that those who were against that method were still prospering, in spite of the use of it by others. Some manufacturers who do not use or supply the boards, testify they do not object to the use of them by others and that their businesses prosper notwithstanding the use of boards by others.