Sears, Roebuck & Co. v. Federal Trade Commission

258 F. 307, 6 A.L.R. 358, 1919 U.S. App. LEXIS 1210

• Court: Court of Appeals for the Seventh Circuit
• Decided: April 29, 1919
• Docket: No. 2659
• Status: Published

Opinions

BAKER, Circuit Judge.

This is an original petition to review an order entered by the respondent, the Federal Trade Commission, against the petitioner, Sears, Roebuck & Co., a corporation, commanding the petitioner to desist from certain unfair methods of competition in commerce. Respondent’s order was based on its complaint, filed on February 26, 1918, on the petitioner’s answer, and on a written stipulation of facts. Procedure before the commission and also before this court on review is prescribed in section 5 of the act to create a Federal Trade Commission, approved on September 26, 1914 (38 Stat. 719, c. 311 [Comp. St. § 8836e]). Respondent’s authority over the subject-matter of its order is derived from the following provision in the same section: “Unfair methods of competition in commerce are hereby declared unlawful.” Section 4 (Comp. St. § 8836d) is a dictionary of terms used in the act. “Commerce” means interstate or foreign commerce; but the general term, “unfair methods of competition,” is nowhere defined specifically, nor is there a schedule of methods that shall be deemed unfair.

In its complaint respondent averred that petitioner is engaged in interstate and foreign commerce, conducting a “mail-order” business; that petitioner for more than two years last past has practiced unfair methods of competition in commerce by false and misleading advertisements and acts, designed to injure and discredit its competitors and to deceive the general public, in the following ways:

(1.) .By advertising that petitioner, because of large purchases of sugar and quick disposal of stock, is able to sell sugar at a price lower than others offering sugar for sale;

(2) By advertising that petitioner is selling its sugar at a price much lower than that of its competitors and thereby imputing to its competitors the purpose of charging more than a fair price for their sugar;

(3) By selling certain of its merchandise at less than cost on the condition that'the customer simultaneously purchase other merchandise at prices which give petitioner a profit on the transaction, without letting the customer know the facts ;

(4) By advertising that the quality of merchandise sold'by its competitors is inferior to that of similar merchandise sold by petitioner, and that petitioner buys certain of its merchandise in markets not accessible to its competitors, and is therefore able to give better advantages in quality and price than those offered by its competitors.

Petitioner extensively circulated the following advertisements, among others:

“We can afford to give this guarantee of a ‘less than wholesale price’ because we are among the. largest distributors of sugar wholesale or retail in the world. We sell every year thirty-five million pounds of sugar. And, buying in such vast quantities, and buying directly from the refineries, we naturally get our sugar for less money than other dealers.”

“For instance, every grocer carries granulated sugar in stock, but does he tell you which kind? There are two kinds — granulated cane sugar and granulated beet sugar — and they look exactly alike. Some people prefer the one and some the other. But beet sugar usually costs less than cane sugar, so if you are getting beet sugar you should pay less for it. Do you know which kind you are getting and which you are paying for?

•‘Our teas have a pronounced, yet delicate, tea flavor with an appealing fragrance because we spare neither time nor expense to get the very best the • greatest tea gardens of the world can produce.

“Mrst, because of the difficulty of getting in this country the exact character and flavor of certain teas, we. do our own importing and critically test every toa. Our representative goes to the various tea-growing countries and makes the selection in person. Then, the greatest care is taken to get only first-crop pickings from upland soil.

“Also, by buying direct from the tea gardens, while the crops are being harvested, we are able to have them always perfectly fresh.

“it would be natural for you to conclude that all this care' in buying and selecting would make our teas very high in price, but in reality, our prices are unusually low for such high quality. Here is a reason: By buying direct from the tea gardens we cut out the middleman’s profit.”

“Over land and sea, from the greatest coffee regions in the world wo bring you the choicest of the crop, and make it possible for you to have that fresh, savory, and fragrantly tempting cup of coffee for your breakfast. You see, we buy direct from the best plantations in the world. We get the pick of the crop — upland coffees from rich, healthy soil and growers of unquestioned experience and skill. We buy enormous quantities and pay cash, thus making it possible to offer our customers the very best coffees at very low prices.”

¡1J Petitioner’s sales of sugar during the second half of 1915 amounted to $780,000 on which it lost $196,000. Petitioner used sugar as a “leader” (“You save 2 to 4 cents on every pound”), offering a limited amount at the losing price in connection with a required purchase of other commodities at prices high enough to afford petitioner a satisfactory profit on the transaction as a whole, without letting the customer know that the sugar was being sold on any other basis than that of the other commodities. Petitioner obtained its sugar in the open market from refiners and wholesalers. Competitors got their sugar from the same sources, of the same quality and at the same price. Sugar is a staple in the market. Price concessions upon large purchases are’ unobtainable. From the facts respecting petitioner’s methods of advertising and buying and selling sugar respond-eat found, and properly so, in our judgment, that petitioner intentionally injured and discredited its competitors by falsely leading the public to believe that the competitors were unfair dealers in sugar and the other commodities which petitioner was offering in connection with sugar.

Petitioner purchased 75 per cent, of its teas from wholesalers and importers in the United States. The remainder it purchased through its representative Peterson in Japan; but there was no proof that Peterson made or was qualified to make “selections in person” or “first-crop pickings from upland soil.” All of petitioner’s coffees were purchased from wholesalers and importers in the United States. Respondent found that petitioner’s advertisements of teas and coffees were false and designed to deceive the public and injure competitors.

By the order, issued on June 24, 1918, petitioner was commanded' to desist from:

“(1) Circulating throughout the states and territories of the United States and the District of Columbia catalogues containing advertisements offering for sale sugar, wherein it is falsely represented to its customers or prospective customers of said defendant or to customers of competitors, or to the public generally, or leads them to believe, that because of large purchasing power' and quick-moving stock, defendant is able to sell sugar at a price lower than its competitors:

“(2) Selling, or offering to sell, sugar below cost through catalogues circulated throughout the states and territories of the United States and the District of Columbia among its customers, prospective customers and customers of its-competitors;

“(3) Circulating throughout the various states and territories of the United States and the District of Columbia, among customers, prospective customers- and customers of its competitors, catalogues containing advertisements representing that defendant’s competitors do not deal justly, fairly and honestly with their customers;

'‘(4) Circulating throughout the various states and territories of the United’ States and the Distx-ict of Columbia, among customers, prospective customers or customers of'its competitors, catalogues containing advertisements offering for sale its teas, in which said advertisements it falsely stated that the defendant sends a special representative to Japan who personally goes into the tea gardens of said Country and personally supervises the picking of such teas;

“(5) Circulating through the various states and territories of the United-States and the District of Columbia, among customers, prospective customers or customers of its competitors, catalogues containing advertisements offering for sale its coffees, in which it falsely stated that the defendant purchases all •of its coffees' direct from the best plantations in the world.”

[2, 3] I. Petitioner insists that the injunctional order was improvidently issued because, before the complaint was filed and the hearing, had, petitioner had discontinued the methods in question and, as stated in its answer, had no intention of resuming them. For example,, no sugar offers of the character assailed were máde after August, 1917. But respondent was required to find from all the evidence before it what was the real nature of petitioner’s attitude. It was permissible for respondent to take judicial notice of the government’s wartime control of sugar sales and consumption. It was also proper to note that petitioner was contending (and still contends) that the act is void for indefiniteness, that the act is unconstitutional, and that the act, even if valid, under any proper construction has not been infringed by petitioner’s practices. In Goshen Mfg. Co. v. Myers Mfg. Co., 242 U. S. 202, 37 Sup. Ct. 105, 61 L. Ed. 248, which was a suit for infringement of a patent, the defendant company averred and introduced evidence to prove that six months before the bill was filed, and with notice to complainant it had sold its factory, wound up its business, and had no intention of resuming. But throughout the intervening period and also in the answer to the bill the defendant company was attacking the validity of the patent and the right of the complainant to compel desistance. This conduct was held to be such a continuing menace as to justify the maintenance of the bill. So here, no assurance is in sight that petitioner, if it could shake- respondent’s-hand from its shoulder, would not continue its former course.

[4] II. Petitioner urges that the declaration of section 5 must be: held void for indefiniteness unless the words “unfair methods of competition” be construed to embrace no more than acts which on September 26, 1914, When Congress spoke, were identifiable as acts of unfair trade then condemned by the common law as expressed in prior cases. But the phrase is no more indefinite than “due process of law.” The general idea of that phrase as it appears in Constitutions and statutes is quite well known; but we have never encountered what purported to be an all-embracing schedule or found a specific definition that would bar the continuing processes of judicial inclusion and exclusion based upon accumulating experience. If the expression “unfair methods of competition” is too uncertain for use, then under the same condemnation would fall the innumerable statutes which predicate rights and prohibitions upon “unsound mind,” “undue influence,” “unfaithfulness,” “unfair use,” “unfit for cultivation,” “unreasonable rate,” “unjust discrimination,” and the like. This statute is remedial, and orders to desist are civil; but even in criminal law convictions are upheld on statutory prohibitions of “rebates or concessions” or of “schemes to defraud,” without any schedule of acts or specific definition of forbidden conduct, thus leaving the courts free to condemn new and ingenious ways that were unknown when the statutes were enacted. Why? Because the general ideas of “dishonesty” and “fraud” are so well, widely and uniformly understood that the general term “rebates or concessions” and “schemes to defraud” are sufficiently accurate measures of conduct.

On the face of this statute the legislative intent is apparent. The commissioners are not required to aver and prove that any competitor has been damaged or that any purchaser has been deceived. The commissioners, representing the government as parens patriae, are to exercise their common sense, as informed by their knowledge of the general idea of unfair trade at common law, and stop all those trade practices that have a capacity or a tendency to injure competitofs directly or through deception of purchasers, quite irrespective of whether the specific practices in question have yet been denounced in common-law cases. But the restraining order of the commissioners is merely provisional. The trader is entitled to his day in court, and there the same principles and tests that have been applied under the common law or under statutes of the kinds hereinbefore recited are expected by Congress to control. This prima facie reading of legislative intent is confirmed by reference to committee ’reports and debates in Congress, wherein is disclosed a refusal to limit the commission and the court to a prescribed list of specific acts. Cong. Rec. 63d Cong. 2d Session, pp. 13, 18, 533, 12246. And this interpretation is not affected by the subsequent adoption of the Clayton Act, October 15, 1914 (38 Stat. 731, c. 323), condemning certain specific acts.

[5] III. But such a construction of section 5, according to petitioner’s urge, brings about an unconstitutional delegation of legislative and judicial power to the commission. Grants of similar authority to administrative officers and bodies have not been found repugnant to the Constitution. Buttfield v. Stranahan, 192 U. S. 470, 24 Sup. Ct. 349, 48 L. Ed. 525; Union Bridge Co. v. United States, 204 U. S. 365, 27 Sup. Ct. 367, 51 L. Ed. 523; Penn. Rld. Co. v. International Coal Co., 230 U. S. 184, 33 Sup. Ct. 893, 57 L. Ed. 1446, Ann. Cas. 1915D, 315; National Pole Co. v. Chicago & N. W. Ry. Co., 211 Fed. 65, 127 C. C. A. 561.

With the increasing complexity of human activities many situations arise where governmental control can be secured only by the “board” or “commission” form of legislation. In such instances Congress declares the public policy, fixes the general principles that are to control, and charges an administrative body with the duty of ascertaining within particular fields from time ,to time the facts which bring into play the principles established by Congress. Though the action of the Commission in finding the facts and declaring them to be specific offenses of the character embraced within the general definition by Congress may be deemed to be quasi legislative, it is so only in the sense that it converts the actual legislation from a static into a dynamic condition. But the converter is not the electricity. And though the action of the commission in ordering desistance may be counted quasi judicial on account of its form, with respect to power it is not judicial, because a judicial determination is only that which is embodied in a judgment or decree of a court and enforceable by execution or other writ of the court.

[B] IV. In the second paragraph of the order petitioner is commanded to cease selling sugar below cost. We find in the statute no intent on the part of Congress, even if it has the power, to restrain an owner of property from selling it at any price that is acceptable to him or from giving it away. But manifestly in making such a sale or gift the owner may put forward representations and commit acts which have a capacity or a tendency to injure or to discredit competitors and to deceive purchasers as to the real character of the transaction. That paragraph should therefore be modified by adding & it “by means of or in connection with the representations prohibited in the first paragraph of this order, or similar representation.”

Sufficient appears in this record and in the presentation of the case to warrant us in expressing the belief that petitioner’s business standards were at least as high as those generally prevailing in the commercial world at the times in question, and that the action of the commission is to be taken rather as a general- illustration of the better methods required for the future than a specific selection of petitioner for reproof on account of its conduct in the past.

Respondent is directed to modify its order as above stated; and in other respects the petition is denied.