Source: https://supreme.justia.com/cases/federal/us/291/67/
Timestamp: 2019-04-22 08:33:44+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 291 › FTC v. Algoma Lumber Co.
1. The Federal Trade Commission Act makes the Commission's findings of fact conclusive if supported by evidence, and, upon appeal from the Commission's order, the Circuit Court of Appeals is not at liberty to make its own appraisal of the testimony and pick and choose for itself among uncertain and conflicting inferences. P. 291 U. S. 73.
2. The Commission ordered Pacific Coast lumber dealers to desist from the practice of selling, under the tradename of "California White Pine," lumber made from "Western Yellow Pine" (Pinus ponderosa), finding it an unfair and prejudicial method of competing with lumber made from the true White Pines (Pinus strobus and closely related species), a product of better quality and commanding a higher price.
(1) That the evidence supported the Commission (a) in finding that the lumber sold by the tradename "California White Pine" is inferior to the true white pine lumber; (b) in finding that the tradename is misleading and causes both confusion and prejudice to retailers, architects, builders, and consumers. Pp. 291 U. S. 76-77.
(2) The fact that "California White Pine" is listed as a trade equivalent of Pinus polderosa in a list of standard commercial names for lumber, forming part of a report of "Simplified Practice Recommendations" issued by the Bureau of Standards, is of little weight as evidence, considering the nature of the Bureau's function and the basis and purpose of its recommendations. P. 291 U. S. 73.
3. In being sold a substitute in the name of a better article, the consumer is prejudiced, even though he save money by it; the public is entitled to get what it chooses, though the choice may be dictated by caprice, or by fashion, or perhaps by ignorance. P. 291 U. S. 78.
4. The practice of marketing a cheaper kind of lumber under the name of a better and more expensive kind is prejudicial to honest dealers and manufacturers; orders that would come to them if the lumber were rightly named are diverted to others whose methods are less scrupulous. P. 291 U. S. 78.
5. The facts that a deceptive tradename was adopted without fraudulent design and has long been in use are not a defense under the Act if its continued use is, in the circumstances, unfair and prejudicial to the public interest. P. 291 U. S. 79.
6. In this case, the evidence contradicts the proposition that the name "California White Pine," misleading in the beginning, had acquired an independent or secondary meaning rendering it innocuous. P. 291 U. S. 80.
7. A tradename, legitimate in one territory, may generate confusion when carried to another, and must be given up. P. 291 U. S. 81.
8. A method of competition may be unfair without being fraudulent in law, but equity perceives a kind of fraud in clinging to a benefit begot of misrepresentation, however innocently made. P. 291 U. S. 81.
9. The contention that the proceedings of the Trade Commission in this case were not "to the interest of the public," based on the thought that, by encouraging the use of Pinus ponderosa, the eastern forests of Pinus strobus would be conserved, is rejected. P. 291 U. S. 81.
10. In requiring that the word "White" be omitted from the name of respondent's product, the Commission did not abuse its discretion. P. 291 U. S. 81.
Certiorari, 290 U.S. 607, to review a judgment of the Circuit Court of Appeals annulling an order of the Federal Trade Commission.
In May, 1929, the Federal Trade Commission filed and served complaints against a group of fifty manufacturers on the Pacific Coast charging "unfair competition in interstate commerce" in violation of § 5 of the Federal Trade Commission Act. 38 Stat. 717, 719, c. 311, § 5, 15 U.S.C. § 45.
After the service of answers, the proceedings were consolidated and many witnesses examined. The outcome was a series of reports sustaining the complaints as to thirty-nine manufacturers, with orders to "cease and desist" from the practice challenged as unfair. Twelve companies thus enjoined petitioned the Circuit Court of Appeals for the Ninth Circuit to review the orders of the Commission. Such review being had, the orders were annulled. 64 F.2d 618. A writ of certiorari brings the case here.
The practice complained of as unfair and enjoined by the Commission is the use by the respondents of the words "California white pine" to describe lumber, logs, or other forest products made from the pine species known as "Pinus ponderosa." The findings as to this use and its effect upon the public are full and circumstantial. They are too long to be paraphrased conveniently within the limits of an opinion. We must be content with an imperfect summary.
California and Oregon to customers in other states and foreign lands. Much of what they sell comes from the species of tree that is known among botanists as "Pinus ponderosa." The respondents sell it under the name of "California white pine," and under that name, or at times "white pine" simply, it goes to the consumer. In truth it is not a white pine, whether the tests to be applied are those of botanical science or of commercial practice and understanding.
Pine trees, the genus "Pinus," have for a long time been divided by botanists, foresters, and the public generally into two groups, the white pine and the yellow. The white pine group includes, by common consent, the northern white pine (Pinus strobus), the sugar pine, and the Idaho white pine. It is much sought after by reason of its durability under exposure to weather and moisture, the proportion of its heartwood as contrasted with its sapwood content, as well as other qualities. For these reasons, it commands a high price as compared with pines of other species. The yellow pine group is less durable, harder, heavier, more subject to shrinkage and warping, darker in color, more resinous, and more difficult to work. It includes the long leaf yellow pine (Pinus palustris), grown in the southern states, and the Pinus ponderosa, a far softer wood, which is grown in the Pacific Coast states, and in Arizona and New Mexico as well as the "inland empire" (Eastern Washington, Oregon, Idaho, and Western Montana).
along the Appalachian highlands. It was almost the only building material for the settlers of New England, and so great is its durability that many ancient buildings made from it in the seventeenth and eighteenth centuries survive in good condition. The sugar pine is native to the upland regions of California, Southern Oregon, and parts of Nevada. The Idaho white pine grows in the mountainous sections of Idaho, Washington, and Oregon, and in parts of British Columbia. The white pine species "still holds an exalted reputation among the consuming public," and, "in general esteem, is the highest type of lumber as respects the excellences desired in soft wood material."
"It is coming more and more to be a specialty wood, largely devoted to special purposes, as it becomes scarcer and higher in price. It is in great demand."
some producers in California and Arizona, voluntarily gave up the use of the adjective "white" in connection with their product, and adopted the description "pondosa pines," pondosa being a corruption or abbreviation of the ponderosa of the botanists. "Pondosa pine is the term employed for ponderosa by the representatives of producers of slightly more than half of the ponderosa marketed." The respondents and others, however, declined to make a change. During the next five years, California white pine and its equivalents became an even more important factor in the lumber markets of the country. Accumulating complaints led to an inquiry by the Commission, which had its fruit in this proceeding.
white pine, are nearer to that species in mechanical properties than they are to the kinds of yellow pine indigenous to the south. The fact that, for many purposes, they are halfway between the white species and the yellow makes the practice of substitution easier than it would be if the difference were plain. Misrepresentation and confusion flourish in such a soil. From these findings and others, the Commission was brought to the conclusion that the respondents compete unfairly in transacting business as they do, and that, in the interest of the public, their methods should be changed.
"The findings of the Commission as to facts, if supported by testimony, shall be conclusive." 15 U.S.C. § 45. The Court of Appeals, though professing adherence to this mandate, honored it, we think, with lip service only. In form, the court determined that the finding of unfair competition had no support whatever. In fact, what the court did was to make its own appraisal of the testimony, picking and choosing for itself among uncertain and conflicting inferences. Statute and decision (Federal Trade Commission v. Pacific States Paper Trade Assn., 273 U. S. 52, 273 U. S. 61-63) forbid that exercise of power.
First. The argument is made that unfair competition is disproved by the "simplified practice recommendations" of the Bureau of Standards when read in conjunction with the testimony as to the comparative utility of the genuine white pine and Pinus ponderosa.
(a) The Bureau of Standards is a branch of the Department of Commerce. At its instance, representatives of manufacturers, sellers, and users of lumber, as well as architects, engineers, and others, met in conference at various times between 1922 and 1928 in an endeavor to simplify methods of business in the lumber industry. Following these conferences, the Bureau, in 1929, issued a report entitled "Lumber, Simplified Practice Recommendations." Many subjects that were considered are without relation to this case. The report dealt with standards of size, of inspection, of structural material, and other cognate themes. One of its subdivisions, however, enumerates the standard commercial names for lumber of many types. Sixteen names of pines are stated in the list, and among them is the name "California white pine," with its botanical equivalent, Pinus ponderosa.
advisory. Dealers may conform or diverge, as they prefer. The Bureau has defined its own function in one of its reports. The Purpose and Application of Simplified Practice, National Bureau of Standards, Department of Commerce, July 1, 1931, pp. 2, 7, 10, 17.
"Simplified practice is a method of eliminating superfluous variety through the voluntary action of industrial groups. . . . The Department of Commerce has no regulatory powers"
with reference to the subject, and hence "it is highly desirable that this recommendation be kept distinct from any plan or method of governmental regulation or control." There is nothing to show that, in making up the list of names, the Bureau made any investigation of the relation between Pinus ponderosa and the white pines of the east. Certainly it had no such wealth of information on the subject as was gathered by the Commission in the course of this elaborate inquiry. There is nothing to show to what extent its advice has been accepted by the industry. The record does show that the recommendation does not accord with the practice of other governmental agencies. For example, the United States Forest Service, in its publications and forest signs, describes the ponderosa species as western yellow pine. In such circumstances, the action of the Bureau was, at most, a bit of evidence to be weighed by the Commission along with much besides. It had no such significance as to discredit in any appreciable degree a conclusion founded upon evidence otherwise sufficient. The powers and function of the two agencies of government are essentially diverse. The aim of the one is to simplify business by substituting uniformity of methods for wasteful diversity, and, in the achievement of these ends, to rely upon cooperative action. The aim of the other is to make the process of competition fair. There are times when a description is deceptive from the very fact of its simplicity.
(b) The wood dealt in by the respondents is not substantially as good as the genuine white pine, nor would sales under the wrong name be fitting if it were.
The ruling of the court below as to this is infected by a two-fold error. The first is one of fact. The supposed equivalence is unreal. The second is one of law. If the equivalence existed, the practice would still be wrong.
The Commission found as a fact that the genuine white pine is superior for many reasons to Pinus ponderosa, and notably because of its greater durability. The court held the view that the difference in durability had not been proved so clearly as to lay a basis for the orders, and this, it seems, upon the ground that, though the superiority exists, the evidence fails to disclose its precise degree.
"What the testimony appears to establish is that Northern white pine has relatively a greater durability for exterior use without establishing any comparative degree of such durability."
64 F.2d 618, at 622.
"The general experience with the use of the white pines during the two hundred years since they began to be used indicated that those pines had moderately high durability. The general experience with Pinus ponderosa indicated that that wood had low durability in contact with the ground or any place favoring the growth of decay. That is a matter of common knowledge."
heartwood of the white pine has more decay resistance, will give longer service under conditions favoring decay than the heartwood of Pinus ponderosa,"
and "the mill run of the white pine probably would average higher in durability under decay producing conditions."
This testimony, even if it stood alone, would tend to sustain, rather than to discredit, the findings by the Commission that the genuine white pines are materially superior to the woods that the respondents are selling as a substitute. It is fortified, however, by evidence from many other sources. To be sure, there is contradiction which we have no thought to disparage. For present purposes, we assume the credibility of those who spoke for the complainants. Wholesalers, retailers, manufacturers, lumber graders, laboratory experts, and others bore witness to the comparative merits of the woods, stating their own experience as well as common opinion among their fellows in the industry. If all this may be ignored in the face of the findings of the Commission, it can only be by turning the court into an administrative body which is to try the case anew.
Second. The argument is made that retailers and consumers are not shown to have been confused as to the character of the lumber supplied by the respondents, and that, even if there was confusion, there is no evidence of prejudice.
manufacturers and take what is sent to them, passing it on to their customers. At times, they do this knowing or suspecting that they are supplying California white pine instead of the genuine article, and supplying a wood that is inferior, at least for the outer parts of buildings. Its comparative cheapness creates the motive for the preference. At times, they act in good faith without knowledge of the difference between the California pines and others. Architects are thus misled, and so are builders and consumers. There is a suggestion by the court that, for all that appears, the retailers, buying the wood cheaper, may have lowered their own price, and thus passed on to the consumer the benefit of the saving. The inference is a fair one that this is not always done, and perhaps not even generally. If they lower the price at all, there is no reason to believe that they do so to an amount equivalent to the saving to themselves.
Hosiery Co., 258 U. S. 483, 258 U. S. 494. [Footnote 2] The careless and the unscrupulous must rise to the standards of the scrupulous and diligent. The Commission was not organized to drag the standards down.
Third. The argument is made that the name for the respondents' lumber was adopted more than thirty years ago without fraudulent design, and that a continuation of the use is not unfair competition though confusion may have developed when the business, spreading eastward, attained national dimensions.
not even a faint token that the misapplied name had the approval of the industry. It may well have meant no more than this -- that the evil was not great, or that there was no champion at hand to put an end to the abuse. Even silence thereafter will not operate as an estoppel against the community at large, whatever its effect upon individuals asserting the infringement of proprietary interests. French Republic v. Saratoga Vichy Spring Co., 191 U. S. 427. There is no bar through lapse of time to a proceeding in the public interest to set an industry in order by removing the occasion for deception or mistake, unless submission has gone so far that the occasion for misunderstanding, or for any so widespread as to be worthy of correction, is already at an end. Competition may then be fair irrespective of its origin. This will happen, for illustration, when, by common acceptation, the description, once misused, has acquired a secondary meaning as firmly anchored as the first one. Till then, with every new transaction, there is a repetition of the wrong.
The evidence here falls short of establishing two meanings with equal titles to legitimacy by force of common acceptation. On the contrary, revolt against the pretender, far from diminishing, has become increasingly acute. With the spread of business eastward, the lumber dealers who sold pines from the states of the Pacific Coast were involved in keen competition with dealers in lumber from the pines of the east and middle west. In the wake of competition came confusion and deception, the volume mounting to its peak in the four or five years before the Commission resolved to act. Then, if not before, misbranding of the pines was something more than a denial wrong. The respondents, though at fault from the beginning, had been allowed to go their way without obstruction while the mischief was not a crying one. They were not at liberty to enlarge the area of their business without adjusting their methods to the needs of new conditions.
An analogy may be found in the decisions on the law of trademarks where the principle is applied that a name legitimate in one territory may generate confusion when carried into another, and must then be given up. Hanover Milling Co. v. Metcalf, 240 U. S. 403, 240 U. S. 416; United Drug Co. v. Rectanus Co., 248 U. S. 90, 248 U. S. 100. More than half the members of the industry have disowned the misleading name by voluntary action, and are trading under a new one. The respondents who hold out are not relieved by innocence of motive from a duty to conform. Competition may be unfair within the meaning of this statute and within the scope of the discretionary powers conferred on the Commission, though the practice condemned does not amount to fraud as understood in courts of law. Indeed, there is a kind of fraud, as courts of equity have long perceived, in clinging to a benefit which is the product of misrepresentation, however innocently made. Redgrave v. Hurd, L.R. 20 Ch.D. 1, 12, 13; Rawlins v. Wickham, 3 De G. & I. 304, 317; Hammond v. Pennock, 61 N.Y. 145, 152. That is the respondents' plight today, no matter what their motives may have been when they began. They must extricate themselves from it by purging their business methods of a capacity to deceive.
Fourth. Finally, the argument is made that the restraining orders are not necessary to protect the public interest (see Federal Trade Commission v. Royal Milling Co., supra), but, to the contrary, that the public interest will be promoted by increasing the demand for Pinus ponderosa, though it be sold with a misleading label, and thus abating the destruction of the pine forests of the east.
name short of the excision of the word "white" would give adequate protection.
"It would not necessarily follow . . . that a yellow pine might be sold as a white pine if such sales were unfair to the trade and injurious to the public, notwithstanding the Bureau of Standards had specified a name such as 'California white pine' in a list of 'Standard commercial names' for pine lumber. It would be different, however, if the particular lumber sold under such name possessed substantially the same qualities possessed by the white pines of commerce, as distinguished from certain well known commercial yellow pines."
64 F.2d 618, at p. 620.

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