Federal Trade Commission v. Winsted Sted Hosiery Company/Opinion of the Court

[Argument of Counsel from pages 487-490 intentionally omitted]

Messrs. Frank F. Reed and Edward S. Rogers, both of Chicago, Ill., representing The Armstrong Cork Company, George W. Blabon Company, American Linoleum Manufacturing Company, Nairn Linoleum Company, and Cook's Linoleum Company, Manufacturers of Linoleum.

Mr. Morten Q. Macdonald, of Washington, D. C., representing Paint Manufacturers Association of the United States and National Varnish Manufacturers Association.

Mr. Walter Gordon Merritt, of New York City, representing The Silk Association of America, amici curiae.

Mr. Justice BRANDEIS delivered the opinion of the Court.

The Winsted Hosiery Company has for many years manufactured underwear which it sells to retailers throughout the United States. It brands or labels the cartons in which the underwear is sold, as 'Natural Merino,' 'Gray Wool,' 'Natural Wool,' 'Natural Worsted,' or 'Australian Wool.' None of this underwear is all wool. Much of it contains only a small percentage of wool; some as little as 10 per cent. The Federal Trade Commission instituted a complaint under section 5 of the Act of September 26, 1914, c. 311, 38 Stat. 717, 719 (Comp. St. § 8836e), and called upon the company to show cause why use of these brands and labels alleged to be false and deceptive should not be discontinued. After appropriate proceedings an order was issued which, as later modified, directed the company to—

'cease and desist from employing or using as labels or brands     on underwear or other knit goods not composed wholly of wool,      or on the wrappers, boxes or other containers in which they      are delivered to customers, the words 'Merino,' 'Wool,' or      'Worsted,' alone or in combination with any other word or      words, unless accompanied by a word or words designating the      substance, fiber or material other than wool of which the      garments are composed in part (e. g., 'Merino, Wool and      Cotton'; 'Wool and Cotton'; 'Worsted, Wool and Cotton';      'Wool, Cotton, and Silk') or by a word or words otherwise      clearly indicating that such underwear or other goods is not      made wholly of wool (e. g., part wool).' A petition for review of this order was filed by the company in the United States Circuit Court of Appeals for the Second Circuit. The prayer that the order be set aside was granted; and a decree to that effect was entered. That court said:

'Conscientious manufacturers may prefer not to use a label     which is capable of misleading, and it may be that it will be      desirable to prevent the use of the particular labels, but it      is in our opinion not within the province of the Federal      Trade Commission to do so.' 272 Fed. 957, 961.

The case is here on writ of certiorari. 256 U.S. 688, 41 Sup. Ct. 625 65 L. Ed. 1172.

The order of the Commission rests upon findings of fact; and these upon evidence which fills 350 pages of the printed record. Section 5 of the act makes the Commission's findings conclusive as to the facts, if supported by evidence.

The findings here involved are clear, specific and comprehensive: The word 'Merino,' as applied to wool, 'means primarily and popularly' a fine long-staple wool, which commands the highest price. The words 'Australian Wool' mean a distinct commodity, a fine grade of wool grown in Australia. The word 'wool' when used as an adjective means made of wool. The word 'worsted' means primarily and popularly a yarn or fabric made wholly of wool. A substantial part of the consuming public, and also some buyers for retailers and sales people, understand the words 'Merino,' 'Natural Merino,' 'Gray Merino,' 'Natural Wool,' 'Gray Wool,' 'Australian Wool' and 'Natural Worsted,' as applied to underwear, to mean that the underwear is all wool. By means of the labels and brands of the Winsted Company bearing such words, part of the public is misled into selling or into buying as all wool, underwear which in fact is in large part cotton. And these brands and labels tend to aid and encourage the representations of unscrupulous retailers and their salesmen who knowingly sell to their customers as all wool, underwear which is largely composed of cotton. Knit underwear made wholly of wool, has for many years been widely manufactured and sold in this country and constitutes a substantial part of all knit underwear dealt in. It is sold under various labels or brands, including 'Wool,' 'All Wool,' 'Natural Wool' and 'Pure Wool,' and also under other labels which do not contain any words descriptive of the composition of the article. Knit underwear made of cotton and wool is also used in this country by some manufacturers who market it without any label or marking describing the material or fibers of which it is composed, and by some who market it under labels bearing the words 'Cotton and Wool' or 'Part Wool.' The Winsted Company's product, labeled and branded as above stated, is being sold in competition with such all wool underwear, and such cotton and wool underwear.

That these findings of fact are supported by evidence cannot be doubted. But it is contended that the method of competition complained of is not unfair within the meaning of the act, because labels such as the Winsted Company employs, and particularly those bearing the word 'Merino,' have long been established in the trade and are generally understood by it as indicating goods partly of cotton; that the trade is not deceived by them; that there was no unfair competition for which another manufacturer of underwear could maintain a suit against the Winsted Company; and that even if consumers are misled because they do not understand the trade signification of the label or because some retailers deliberately deceive them as to its meaning, the result is in no way legally connected with unfair competition.

This argument appears to have prevailed with the Court of Appeals; but it is unsound. The labels in question are literally false, and, except those which bear the word 'Merino,' are palpably so. All are, as the Commission found, calculated to deceive and do in fact deceive a substantial portion of the purchasing public. That deception is due primarily to the words of the labels, and not to deliberate deception by the retailers from whom the consumer purchases. While it is true that a secondary meaning of the word 'Merino' is shown, it is not a meaning so thoroughly established that the description which the label carries has ceased to deceive the public; for even buyers for retailers, and sales people, are found to have been misled. The facts show that it is to the interest of the public that a proceeding to stop the practice be brought. And they show also that the practice constitutes an unfair method of competition as against manufacturers of all wool knit underwear and as against those manufacturers of mixed wool and cotton underwear who brand their product truthfully. For when misbranded goods attract customers by means of the fraud which they perpetrate, trade is diverted from the producer of truthfully marked goods. That these, honest manufacturers might protect their trade by also resorting to deceptive labels is no defense to this proceeding brought against the Winsted Company in the public interest.

The fact that misrepresentation and misdescription have become so common in the knit underwear trade that most dealers no longer accept labels at their face value does not prevent their use being an unfair method of competition. A method inherently unfair does not cease to be so because those competed against have become aware of the wrongful practice. Nor does it cease to be unfair because the falsity of the manufacturer's representation has become so well known to the trade that dealers, as distinguished from consumers, are no longer deceived. The honest manufacturer's business may suffer, not merely through a competitor's deceiving his direct customer, the retailer, but also through the competitor's putting into the hands of the retailer an unlawful instrument, which enables the retailer to increase his own sales of the dishonest goods, thereby lessening the market for the honest product. That a person is a wrongdoer who so furnishes another with the means of consummating a fraud has long been a part of the law of unfair competition. And trade-marks which deceive the public are denied protection although members of the trade are not misled thereby. As a substantial part of the public was still misled by the use of the labels which the Winsted Company employed, the public had an interest in stopping the practice as wrongful; and since the business of its trade rivals who marked their goods truthfully was necessarily affected by that practice, the Commission was justified in its conclusion that the practice constituted an unfair method of competition; and it was authorized to order that the practice be discontinued.

Reversed.

Mr. Justice McREYNOLDS dissents.