Federal Trade Commission v. Gratz/Opinion of the Court

By an act approved September 26, 1914 (chapter 311, 38 Stat. 717 [Comp. St. §§ 8836a-8836k]), Congress made provision for the Federal Trade Commission and declared its powers.

Section 4 (section 8836d) defines commerce as:

'Commerce among the several states or with foreign nations,     or in any territory of the United States or in the District      of Columbia, or between any such territory and another, or      between any such territory and any state or foreign nation or      between the District of Columbia and any state or territory      or foreign nation.'

'That unfair methods of competition in commerce are hereby     declared unlawful. The commission is hereby empowered and     directed to prevent persons, partnerships, or corporations,      except banks, and common carriers subject to the acts to      regulate commerce, from using unfair methods of competition      in commerce. Whenever the commission shall have reason to     believe that any such person, partnership, or corporation,      has been or is using any unfair method of competition in      commerce, and if it shall appear to the commission that a      proceeding by it in respect thereof would be to the interest      of the public, it shall issue and serve upon such person,      partnership, or corporation a complaint stating its charges      in that respc t, and containing a notice of a hearing upon a      day and at a place therein fixed at least thirty days after      the service of said complaint. The person, partnership, or     corporation so complained of shall have the right to appear      at the place and time so fixed and show cause why an order      should not be entered by the commission requiring such      person, partnership, or corporation to cease and desist from      the violation of the law so charged in said complaint. * *  *      If upon such hearing the commission shall be of the opinion      that the method of competition in question is prohibited by this act, it shall make a report in writing in which it      shall state its findings as to the facts, and shall issue and      cause to be served on such person, partnership, or      corporation an order requiring such person, partnership, or      corporation to cease and desist from using such method of      competition.'

Section 5 further provides that the commission may apply to the designated Circuit Court of Appeals to enforce an order—

'and shall certify and file with its application a transcript     of the entire record in the proceeding, including all the      testimony taken and the report and order of the commission. Upon such filing of the application and transcript the court     shall cause notice thereof to be served upon such person,      partnership, or corporation and thereupon shall have      jurisdiction of the proceeding and the question determined      therein, and shall have power to make and enter upon the      pleadings, testimony, and proceedings set forth in such      transcript a decree affirming, modifying, or setting aside      the order of the commission. The findings of the commission     as to the facts, if supported by testimony, shall be      conclusive. * *  * The judgment and decree of the court shall      be final, except that the same shall be subject to review by      the Supreme Court upon certiorari as provided by section 240      of the Judicial Code. Any party required by such order of the     commission to cease and desist from using such method of      competition may obtain a review of such order in said Circuit      Court of Appeals by filing in the court a written petition      praying that the order of the commission be set aside. A copy     of such petition shall be forthwith served upon the      commission, and thereupon the commission forthwith shall      certify and file in the court a transcript of the record as      hereinbefore provided. Upon the filing of the transcript the     court shall have the same jurisdiction to affirm, set aside,      or modify the order of the commission as in the case of an      application by the commission for an enforcement of its order, and the findings of the commission      as to the facts, if supported by testimony, shall in like      manner be conclusive.'

Sections 6 and 7 (sections 8836f, 8836g) empower the commission to require reports and compile information concerning corporations; to inquire concerning execution of decrees restraining violations of the anti-trust acts; to investigate alleged violations of such acts; to recommend readjustments of corporate business; to publish information and make reports to Congress; to classify corporations and make rules and regulations; to investigate trade conditions; to act, under orders of the court, as a master in chancery in certain designated circumstances, etc.

Undertaking to proceed under section 5, June 4, 1917, the commission issued a complaint containing two counts against respondents. The first related to unfair methods of competition, and the second charged violation of section 3 of the Clayton Act, approved October 15, 1914 (chapter 323, 38 Stat. 730 [Comp. St. § 8835c]). Respondents denied both charges. After taking much testimony the commission held there was no evidence to support the second count; but it ruled that respondents had practiced unfair competition and ordered that they—

'their officers and agents, cease and desist from requiring     purchasers of cotton ties to also buy or agree to buy, a      proportionate amount of American Manufacturing Company's      bagging and fr ther that the respondents cease and desist      from refusing to sell cotton ties unless the purchasers buy      or agree to buy from them corresponding amounts of American      Manufacturing Company's bagging, or any amount of cotton      bagging of any kind.'

Upon respondents' petition the Circuit Court of Appeals, Second Circuit, annulled the commission's order. 258 Fed. 314, 169 C. C. A. 330. It said:

'We think there is no evidence to support any general     practice of the respondents to refuse to sell ties unless the      purchaser bought at the same time the necessary amount of the      American Manufacturning Company's bagging, and that the commission has no      jurisdiction to determine the merits of specific individual      grievances.'

The challenged order is based solely upon the first count of the complaint which follows:

'Federal Trade Commission v. Anderson Gratz and Benjamin     Gratz, Copartners Doing Business under the Firm Name and      Style of Warren, Jones & Gratz, P. P. Williams, W. H.      Fitzhugh, and Alex. Fitzhugh, Copartners Doing Business under     the Firm Name and Style of P. P. Williams & Co., and Charles      O. Elmer.

'The Federal Trade Commission having reason to believe, from     a preliminary investigation made by it, that Anderson Gratz      and Benjamin Gratz, copartners doing business under the firm      name and style of Warren, Jones & Gratz, P. P. Williams, W.      H. Fitzhugh, and Alex. Fitzhugh, copartners doing business     under the firm name and style of P. P. Williams & Co., and      Charles O. Elmer, all of whom are hereinafter referred to as      respondents, have been and are using unfair methods of      competition in interstate commerce in violation of the      provisions of section 5 of the act of Congress approved      September 26, 1914, entitled 'An act to create a Federal      Trade Commission, to define its powers and duties, and for      other purposes,' and it appearing that a proceeding by it in      respect thereof would be to the interest of the public,      issues this complaint, stating its charges in that respect,      on information and belief, as follows:

'I.

'Paragraph 1: That the respondents Anderson Gratz and     Benjamin Gratz are copartners doing business under the firm      name and style of Warren, Jones & Gratz, having their      principal office and place of business in the city of St. Louis and state of Missouri, and are      engaged in the business of selling, in interstate commerce,      either directly to the trade, or through the respondents      hereinafter named, steel ties made and used for binding bales      of cotton, and which steel ties are manufactured by the      Carnegie Steel Company of Pittsburgh, Pennsylvania, and also      selling, in the same manner, jute bagging, used to wrap bales      of cotton, and which jute bagging is manufactured by the      American Manufacturing Company, of St. Louis, Missouri.

'Paragraph 2: That the respondents P. P. Williams, W. H.     Fitzhugh, and Alex. Fitzhugh are copartners doing business     under the firm name and style of P. P. Williams & Co., having      their principal office and place of business in the city of      Vicksburg and state of Mississippi, and the said last-named      respondents and the said respondent Charles O. Elmer, who is      located and doing business at the city of New Orleans and      state of Louisiana, are the selling and distributing agents      of the said firm of Warren, Jones & Gratz, and sell and      distribute the ties and bagging, manufactured as aforesaid,      in interstate commerce, principally to jobbers and dealers,      who resell the same to retailers, cotton ginners, and      farmers.

'Paragraph 3: That with the purpose, intent, and effect of     discouraging and stifling competition in interstate commerce      in the sale of such bagging, all of the respondents do now      refuse and for more than a year last past have refused, to      sell and of such ties unless the prospective purchaser      thereof would also buy from them bagging to be used with the      number of ties proposed to be bought; that is to say, for      each six of such ties proposed to be bought from the      respondents the prospective purchaser is required to buy six      yards of such bag ing.'

It is unnecessary now to discuss conflicting views concerning validity and meaning of the act creating the commission and effect of the evidence presented. The judgment below must be affirmed, since, in our opinion, the first count of the complaint is wholly insufficient to charge respondents with practicing 'unfair methods of competition in commerce' within the fair intendment of those words. We go no further and confine this opinion to the point specified.

When proceeding under section 5 it is essential, first, that, having reason to believe a person, partnership, or corporation has used an unfair method of competition in commerce, the commission shall conclude a proceeding 'in respect thereof would be to the interest of the public'; next, that it formulate and serve a complaint stating the charges 'in that respect,' and give opportunity to the accused to show why an order should not issue directing him to 'cease and desist from the violation of the law so charged in said complaint.' If after a hearing the commission shall deem 'the method of competition in question is prohibited by this act,' it shall issue an order requiring the accused 'to cease and desist from using such method of competition.'

If, when liberally construed, the complaint is plainly insufficient to show unfair competition within the proper meaning of these words there is no foundation for an order to desist-the thing which may be prohibited is the method of competition specified in the complaint. Such an order should follow the complaint; otherwise it is improvident and, when challenged, will be annulled by the court.

The words 'unfair method of competition' are not defined by the statute and their exact meaning is in dispute. It is for the courts, not the commission, ultimately to determine as matter of law what they include. They are clearly inapplicable to practices never heretofore regarded as opposed to good morals because characterized by deception, bad faith, fraud, or oppression, or as against public policy because of their dangerous tendency unduly to hinder competition or create monopoly. The act was certainly not intended to fetter free and fair competition as commonly understood and practiced by honorable opponents in trade.

Count 1 alleges, in effect: That Warren, Jones & Gratz are engaged in selling, either directly to the trade or through their correspondents, cotton ties produced by the Carnegie Steel Company and also jute bagging manufactured by the American Manufacturing Company. That P. P. Williams & Co., of Vicksburg, and C. O. Elmer, of New Orleans, are the selling and distributing agents of Warren, Jones & Gratz, and as such sell and distribute their ties and bagging to jobbers and dealers, who resell them to retailers, ginners, and farmers. That with the purpose and effect of discouraging and stifling competition in the sale of such bagging all the respondents for more than a year have refused to sell any of such ties unless the purchaser would buy from them a corresponding amount of bagging-six yards with as many ties.

The complaint contains no intimation that Warren, Jones & Gratz did not properly obtain their ties and bagging as merchants usually do; the amount controlled by them is not stated; nor is it alleged that they held a monopoly of either ties or bagging or had ability, purpose or intent to acquire one. So far as appears, acting independently, they undertook to sell their lawfully acquired property in the ordinary course, without deception, misrepresentation, or oppression, and at fair prices, to purchasers willing to take it upon terms openly announced.

Nothing is alleged which would justify the conclusion that the public suffered injury or that competitors had reasonable ground for complaint. All question of monopoly or combination being out of the way, a private merchant, acting with entire good faith, may properly refuse to sell, except in conjunction, such closely associated articles as ties and bagging. If real competition is to continue, the right of the individual to exercise reasonable discretion in respect of his own business methods must be preserved. United States v. Colgate, 250 U.S. 300, 39 Sup. Ct. 465, 63 L. Ed. 992; United States v. A. Schrader's Son, Inc. (March 1, 1920), 252 U.S. 85, 40 Sup. Ct. 251, 64 L. Ed. 471.

The first count of the complaint fails to show any unfair method of competition practiced by respondents and the order oased thereon was improvident.

Affirmed.

Mr. Justice PITNEY concurs in the result.

Mr. Justice BRANDEIS dissenting, with whom Mr. Justice CLARKE concurs.