Source: https://supreme.justia.com/cases/federal/us/253/421/
Timestamp: 2019-04-22 10:21:58+00:00

Document:
Under the Federal Trade Commission Act (Sept. 26, 1914, c. 311, 38 Stat. 717), an order of the commission requiring parties to desist from a course of business as unfair competition must correspond with the complaint which the commission is required to issue and serve as the basis for the proceedings, and where the complaint, liberally construed, is plainly insufficient to show unfair competition, the order is without foundation and, when challenged, will be annulled by the court. P. 253 U. S. 427.
The commission's complaint alleged that some of the respondents were engaged in selling, in interstate commerce, directly to the trade or through their co respondents, steel ties, manufactured by a certain company, made and used for binding bales of cotton, and jute bagging, manufactured by another company, used to wrap bales of cotton; that the other respondents, as their agents, sold and distributed such ties and bagging, in interstate commerce, principally to jobbers and dealers who resold the same to retailers, cotton-ginners and farmers, and that, with the purpose, intent and effect of discouraging and stifling competition, all of the respondents refused, and for more than a year had refuged, to sell any such ties unless the prospective purchaser would also buy from them the bagging to be used with the number of ties proposed to be bought. Held plainly insufficient to show an unfair method of competition. Id.
By an act approved September 26, 1914, c. 311, 38 Stat. 717, Congress made provision for the Federal Trade Commission and declared its powers.
"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."
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."
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 empower the commission to require reports and compile information concerning corporations; to inquire concerning execution of decrees restraining violations of the antitrust 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.
"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 further 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."
Company's bagging, and that the commission has no jurisdiction to determine the merits of specific individual grievances."
"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:"
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 bagging."
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 § 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.
certainly not intended to fetter free and fair competition as commonly understood and practiced by honorable opponents in trade.
Count one 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.
in respect of his own business methods must be preserved. United States v. Colgate, 250 U. S. 300; United States v. A. Schrader's Son, Inc., 252 U. S. 85.
The first count of the complaint fails to show any unfair method of competition practiced by respondents, and the order cased thereon was improvident.
MR. JUSTICE BRANDEIS dissenting, with whom MR. JUSTICE CLARKE concurs.
The pleading held defective is not one in this suit. It is the pleading by which was originated the proceeding before the Federal Trade Commission, an administrative tribunal, whose order this suit was brought to set aside. No suggestion was made in the proceeding before the commission that the complaint was defective. No such objection was raised in this suit in the court below. It was not made here by counsel. The objection is taken now for the first time and by the court.
than sixteen months. The report of them fills 400 pages of the printed record. In my opinion, it is our duty to determine whether the facts found by the commission are sufficient in law to support the order, and also, if it is questioned, whether the evidence was sufficient to support the findings of fact.
U.S. 197, 215; Cincinnati, Hamilton & Dayton Ry. Co. v. Interstate Commerce Commission, 206 U. S. 142, 206 U. S. 149.
In considering whether the complaint is sufficient, it is necessary to bear in mind the nature of the proceeding under review. The proceeding is not punitive. The complaint is not made with a view to subjecting the respondents to any form of punishment. It is not remedial. The complaint is not filed with a view to affording compensation for any injury alleged to have resulted from the matter charged, nor with a view to protecting individuals from any such injury in the future. The proceeding is strictly a preventive measure taken in the interest of the general public. And what it is brought to prevent is not the commission of acts of unfair competition, but the pursuit of unfair methods. Furthermore, the order is not self-executory. Standing alone, it is only informative and advisory. The commission cannot enforce it. If not acquiesced in by the respondents, the commission may apply to the circuit court of appeals to enforce it. But the commission need not take such action, and it did not do so in respect to the order here in question. Respondents may, if they see fit, become the actors and ask to have the order set aside. That is what was done in the case at bar.
The Clayton Act (Oct. 15, 1914, c. 323, 38 Stat. 730) was framed largely with a view to making more effective the remedies given by the Sherman law. The Federal Trade Commission Act (Sept. 26, 1914, c. 311, 38 Stat. 717) created an administrative tribunal largely with a view to regulating competition.
Many of the duties imposed upon the Trade Commission had been theretofore performed by the Bureau of Corporations. That which was, in essence, new legislation was the power conferred by § 5. The belief was widespread that the great trusts had acquired their power, in the main, through destroying or overreaching their weaker rivals by resort to unfair practices. [Footnote 4] As Standard Oil rebates led to the creation of the Interstate Commerce Commission, [Footnote 5] other unfair methods of competition which the investigations of the trusts had laid bare led to the creation of the Federal Trade Commission. It was hoped that, as the former had substantially eliminated rebates, the latter might put an end to all other unfair trade practices, and that it might prove possible thereby to preserve the competitive system. It was a new experiment on old lines, and the machinery employed was substantially similar.
Furthermore, an enumeration, however comprehensive, of existing methods of unfair competition must necessarily soon prove incomplete, as, with new conditions constantly, arising novel unfair methods would be devised and developed. In leaving to the commission the determination of the question whether the method of competition pursued in a particular case was unfair, Congress followed the precedent which it had set a quarter of century earlier, when, by the act to regulate commerce, it conferred upon the Interstate Commerce Commission power to determine whether a preference or advantage given to a shipper or locality fell within the prohibition of an undue or unreasonable preference or advantage. [Footnote 9] See Pennsylvania Co. v. United States, supra, p. 236 U. S. 361; Texas & Pacific Railway v. Interstate Commerce Commission, 162 U. S. 197, 162 U. S. 219-220. Recognizing that the question whether a method of competitive practice was unfair would ordinarily depend upon special facts, Congress imposed upon the commission the duty of finding the facts, and it declared that findings of fact so made (if duly supported by evidence) were to be taken as final. The question whether the method of competition pursued could, on those facts, reasonably be held by the commission to constitute an unfair method of competition, being a question of law, was necessarily left open to review by the court. Compare Interstate Commerce Commission v. Diffenbaugh, 222 U. S. 42; Interstate Commerce Commission v. Baltimore & Ohio R. Co., 145 U. S. 263.
"under the circumstances therein set forth, unfair methods of competition in interstate commerce against other manufacturers, dealers, and distributors in the material known as sugar-bag cloth, and against manufacturers, dealers, and distributors of the bagging known as rewoven bagging and second-hand bagging in violation of"
"refusing to sell to any jobber any brand of any tobacco product manufactured by it except upon condition that such jobber shall purchase from the vendor some other brand or product also manufactured and sold by it. . . ."
cotton tie and bagging trade were, in 1918, such that the Federal Trade Commission could reasonably find that the tying clause here in question was an unfair method of competition: cotton, America's chief staple, is marketed in bales. To bale cotton, steel ties and jute bagging are essential. The Carnegie Steel Company, a subsidiary of the United States Steel Corporation, manufactures so large a proportion of all such steel ties that it dominates the cotton tie situation in the United States, and is able to fix and control the price of such ties throughout the country. The American Manufacturing Company manufactures about 45 percent of all bagging used for cotton baling, one other company about 20 percent, and the remaining 35 percent is made up of second hand bagging and a material called sugar-bag cloth. Warren, Jones & Gratz, of St. Louis, are the Carnegie Company's sole agents for selling and distributing steel ties. They are also the American Manufacturing Company's sole agents for selling and distributing jute bagging in the cotton-growing section west of the Mississippi. By virtue of their selling agency for the Carnegie Company, Warren, Jones & Gratz held a dominating and controlling position in the sale and distribution of cotton ties in the entire cotton-growing section of the country, and thereby it was in a position to force would-be purchasers of ties to also buy from them bagging manufactured by the American Manufacturing Company. A great many merchants, jobbers, and dealers in bagging and ties throughout the cotton-growing states were many times unable to procure ties from any other firm than Warren, Jones & Gratz. In many instances, Warren, Jones & Gratz refused to sell ties unless the purchaser would also buy from them a corresponding amount of bagging, and such purchasers were oftentimes compelled to buy from them bagging manufactured by the American Manufacturing Company in order to procure a sufficient supply of steel ties.
"adopted and practiced the policy of refusing to sell steel ties to those merchants and dealers who wished to buy from them unless such merchants and dealers would also buy from them a corresponding amount of jute bagging."
that the apprehended effect of an unfair method in suppressing competition by destroying rivals could be averted. As the circuit court of appeals found that the evidence was sufficient to support the facts set forth above, and since, on those facts, the commission could reasonably hold that the method of competition in question was unfair under the circumstances, it had power under the act to issue the order complained of.
In my opinion, the judgment of the circuit court of appeals should be reversed.
"It is believed that the term 'unfair competition' has a legal significance which can be enforced by the commission and the courts, and that it is no more difficult to determine what is unfair competition than it is to determine what is a reasonable rate or what is an unjust discrimination. The committee was of the opinion that it would be better to put in a general provision condemning unfair competition than to attempt to define the numerous unfair practices, such as local price-cutting, interlocking directorates, and holding companies intended to restrain substantial competition."
See Laws on Trusts and Monopolies, Compiled under direction of the Clerk of the House Committee on the Judiciary, Sixty-Third Congress, by Nathan B. Williams, Revised January 10, 1914; also Trust Laws and Unfair Competition (Federal) Bureau of Corporations, March 15, 1915.
"Some would found such a commission upon the theory that monopolistic industry is the ultimate result of economic evolution, and that it should be so recognized, and declared to be vested with a public interest and as such regulated by a commission. This contemplates even the regulation of prices. Others hold that private monopoly is intolerable, unscientific, and abnormal, but recognize that a commission is a necessary adjunct to the preservation of competition and to the practical enforcement of the law. . . ."
"The commission which is proposed by your committee in the bill submitted is founded upon the latter purpose and idea."
See "Unfair Competition," by William S. Stevens, Political Science Quarterly (1914) p. 283; "The Morals of Monopoly and Competition" (1916) by H.B. Reed.
See Railway Problems, by William Z. Ripley (1907) p. x.
"Unfair competition must usually proceed to great lengths and be destructive of competition before it can be seized and denounced by the antitrust law. In other cases, it must be associated with, coupled with, other vicious and unlawful practices in order to bring the person or the corporation guilty of the practice within the scope of the antitrust law. The purpose of this bill in this section, and in other sections which I hope will be added to it, is to seize the offender before his ravages have gone to the length necessary in order to bring him within the law that we already have."
"We knew little of these things in 1890. The commerce of the United States has largely developed in the last 25 years. The modern methods of carrying on business have been discovered and put into operation in the last quarter of a century, and as we have gone on under the antitrust law under the decisions of the court in their effort to enforce that law, we have observed certain forms of industrial activity which ought to be prohibited whether, in and of themselves, they restrain trade or commerce or not. We have discovered that their tendency is evil; we have discovered that the end which is inevitably reached through these methods is an end which is destructive of fair commerce between the states. It is these considerations which, in my judgment, have made it wise, if not necessary, to supplement the antitrust law by additional legislation not in antagonism to the antitrust law, but in harmony with the antitrust law, to more effectively put into the industrial life to America the principle of the antitrust law, which is fair, reasonable competition, independence to the individual, and disassociation among the corporations. . . ."
"The committee gave careful consideration to the question as to whether it would attempt to define the many and variable unfair practices which prevail in commerce and to forbid their continuance, or whether it would, by a general declaration condemning unfair practices, leave it to the commission to determine what practices were unfair. It concluded that the latter course would be the better. . . ."
See also "Unfair Competition," by W. H. S. Stevens (University of Chicago Press, 1916) pp. 1, 2. For laws prohibiting specific acts of unfair competition, see "Trust Laws and Unfair Competition," (Federal) Bureau of Corporations (March 15, 1915) pp. 184, 199.
"In discussing the competitive methods of the company, it should be recognized that some practices which might be regarded with indifference if there were a number of competitors of substantially equal size and power may become objectionable when one competitor far outranks not only its nearest rival, but practically all rivals combined, as is true of the International Harvester Company so far as several of its most important lines are concerned."
The Australian Industries Preservation Act, 1908-1910, expressly declares that "unfair competition means competition which is unfair in the circumstances." "Trust Laws and Unfair Competition," (Federal) Bureau of Corporations (March 15, 1915) pp. 552, 747.
See "The Morals of Monopoly and Competition," by H.B. Reed (1916) pp. 120-122.
Report of the (Federal) Bureau of Corporations on the International Harvester Company (March 3, 1913), p. 308.
See "Unfair Methods of Competition and their Prevention" by W. H. S. Stevens, Annals, American Academy of Political and Social Science (1916) pp. 42, 43. "Trust Laws and Unfair Competition," (Federal) Bureau of Corporations (March 15, 1915), pp. 484-486, 493.
"Unfair Competition," by W. H. S. Stevens (1916) p. 54.
See "Trust Laws and Unfair Competition," (Federal) Bureau of Corporations (March 15, 1915), pp. 319-323, 328.

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