Source: https://caselaw.findlaw.com/us-supreme-court/253/421.html
Timestamp: 2019-04-25 22:55:20+00:00

Document:
Messrs. Huston Thompson, of Washington, D. C., Alexander C. King, of Atlanta, Ga., and Claude R. Porter, of Washington, D. C., for petitioner.
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.
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.
'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.
'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 [253 U.S. 421, 426] 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.
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 [253 U.S. 421, 427] 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.
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 [253 U.S. 421, 428] 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 [253 U.S. 421, 429] in respect of his own business methods must be preserved. United States v. Colgate, 250 U.S. 300 , 39 Sup. Ct. 465; United States v. A. Schrader's Son, Inc. (March 1, 1920), 252 U.S. 85 , 40 Sup. Ct. 251.
The first count of the complaint fails to show any unfair method of competition practiced by respondents and the order oased thereon was improvident.
This suit, begun in the Circuit Court of Appeals for the Second Circuit, was brought to set aside an order of the Federal Trade Commission. Before the latter the matter involved was thoroughly tried on the merits. There was a complaint and answers. Thirty-five witnesses were examined and cross-examined. A report of proposed findings as to facts was submitted by the examiner and exceptions were filed thereto. Then, the case was heard before the commission, which made a finding of facts, stated its conclusions as to the law, and ultimately issued the order in question. The proceedings occupied more [253 U.S. 421, 430] than 16 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.
Second. If the sufficiency of the complaint is held to be open for consideration here, we should, in my opinion, hold it to be sufficient. The complaint was filed under section 5 of the Federal Trade Commission Act which declares unlawful 'unfair methods of competition in commerce,' empowers the commission to prevent their use, and directs it to issue and serve 'a complaint stating its charges in that respect' whenever it has reason to believe that a concern 'has been or is using' such methods. The function of the complaint is solely to advise the respondent of the charges made so the he may have due notice and full opportunity for a hearing thereon. It does not purport to set out the elements of a crime like an indictment or information, nor the elements of a cause of action like a declaration at law or a bill in equity. All that is requisite in a complaint before the commission is that there be a plain statement of the thing claimed to be wrong so that the respondent may be put upon his defence. The practice of the Federal Trade Commission in this respect, as in many others, is modeled on that which has been pursued by the Interstate Commerce Commission for a generation and has been sanctioned by this as well as the lower federal courts. United States Leather Co. v. Southern Ry. Co., 21 Interst. Com. Com'n R. 323, 324; Clinton Sugar Refining Co. v. C. & N. W. Ry. Co., 28 Interst. Com. Com'n R. 364, 367; Stuarts Draft Milling Co. v. Southern Ry. Co., 31 Interst. Com. Com'n R. 623, 624; New York Central, etc., R. R. Co. v. Interstate Commerce Commission (C. C.) 168 Fed. 131, 138, 139; Dickerson v. Louisville & Nashville R. R. Co. (C. C.) 187 Fed. 874, 878; Texas & Pacific Ry. v. Interstate Commerce Commission, 162 [253 U.S. 421, 431] U. S. 197, 215, 16 Sup. Ct. 666;C incinnati, Hamilton & Dayton Ry. Co. v. Interstate Commerce Commission, 206 U.S. 142, 149 , 27 S. Sup. Ct. 648.
The complaint here under consideration stated clearly that an unfair method of competition had been used by respondents, and specified what it was, namely, refusing to sell cotton ties unless the customer would purchase with each six ties also six yards of bagging. The complaint did not set out the circumstances which rendered this tying of bagging to ties an unfair practice. But this was not necessary. The complaint was similar in form to those filed with the Interstate Commerce Commission on complaints to enforce the prohibition of 'unjust and unreasonable charges' or of 'undue or unreasonable preference or advantage' which the act to regulate commerce imposes (Comp. St. 8565). It is unnecessary to set forth why the rate specified was unjust or why the preference specified is undue or unreasonable, because these are matters not of law but of fact to be established by the evidence. Pennsylvania Co. v. United States, 236 U.S. 351, 361 , 35 S. Sup. Ct. 370. So far as appears neither this nor any other court has ever held that an order entered by the Interstate Commerce Commission may be set aside as void, because the complaint by which the proceeding was initiated, failed to set forth the reasons why the rate or the practice complained of was unjust or unreasonable; and I cannot see why a different rule should be applied to orders of the Federal Trade Commission issued under section 5.1 [253 U.S. 421, 432] 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 proceeding is thus a novelty. It is a new device in administrative machinery, introduced by Congress in the year 1914, in the hope thereby of remedying conditions in business which a great majority of the American people regarded as menancing the general welfare, and which for more than a generation they had vainly attempted to remedy by the ordinary processes of law. It was believed that widespread and growing concentration in industry and commerce restrained trade, and that monopolies were acquiring increasing control of business. Legislation designed to arrest the movement and to secure integration of existing combinations had been enacted by some of the states as early as 1889. In 1890 Congress passed the Sherman Law (Comp. St. 8820-8823, 8827-8830). It was followed by much [253 U.S. 421, 433] legislation in the states2 and many official investigations. Between 1906 and 1913 reports were made by the Federal Bureau of Corporations of its investigations into the petroleum industry, the tobacco industry, the steel industry, and the farm implement industry. A special committee of Congress investigated the affairs of the United States Steel Corporation. And in 1911 this court rendered its decision in Standard Oil Co. v. United States, 221 U.S. 1 , 31 Sup. Ct. 502, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734, and in American Tobacco Co. v. United States, 221 U.S. 106 , 31 Sup. Ct. 632. The conviction became general in America, that the legislation of the past had been largely ineffective. There was general agreement that further legislation was desirable. But there was a clear division of opinion as to what its character should be. Many believed that concentration (called by its opponents monopoly) was inevitable and desirable; and these desired that concentration should be recognized by law and be regulated. Others believed that concentration was a source of evil; that existing combinations could be disintegrated, if only the judicial machinery were perfected; and that further concentration could be averted by providing additional remedies, and particularly through regulating competition. The latter view prevailed in the Sixty-Third Congress. 3 [253 U.S. 421, 434] The Clayton Act (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 (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 section 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. 4 As Standard Oil rebates led to the creation of the Interstate Commerce Commission,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.
(1) Instead of attempting to inflict punishment for having done prohibited acts, instead of enjoining the [253 U.S. 421, 435] continuance of prohibited combinations and compelling disintegration of those formed in violation of law, the act undertook to preserve competition through supervisory action of the commission. The potency of accomplished facts had already been demonstrated. The task of the commission was to protect competitive business from further inroads by monopoly. It was to be ever vigilant. If it discovered that any business concern had used any practice which would be likely to result in public injury-because in its nature it would tend to aid or develop into a restraint of trade-the commission was directed to intervene, before any act should be done or condition arise violative of the Anti-Trust Act. And it should do this by filing a complaint with a view to a thorough investigation; and, if need be, the issue of an order. Its action was to be prophylactic. Its purpose in respect to restraints of trade was prevention of diseased business conditions, not cure. 6 [253 U.S. 421, 436] (2) Instead of undertaking to define what practices should be deemed unfair, as had been done in earlier legislation, the act left the determination to the commission. 7 Experience with existing laws had taught that definition, being necessarily rigid, would prove embarrassing and, if rigorously applied, might involve great hardship. Methods of competition which would be unfair in one industry, under certain circumstances, might, when adopted in another industry, or even in the same industry under different circumstances, be entirely unobjectionable. 8 [253 U.S. 421, 437] Furthermore, an enumeration, however comprehensive, of existing methods of unfair competition must neces arily 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. 9 See Pennsylvania Co. v. United States, supra, 236 U.S. 361 , 35 Sup. Ct. 370; Texas & Pacific Railway v. Interstate Commerce Commission, 162 U.S. 197, 219 , 220 S., 16 Sup. Ct. 666. 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 , 32 Sup. Ct. 22; Interstate Commerce Commission v. Baltimore & Ohio R. R., 145 U.S. 263 , 12 Sup. Ct. 844.
'under the circumt ances 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 manufacurers, dealers and distributors of the bagging known as rewoven bagging and second-hand bagging in violation of' the statute.
The reason assigned by the Circuit Court of Appeals for so holding was that the evidence failed to show that the practice complained of ( although acted on in individual cases by respondents) had become their 'general practice.' But the power of the Trade Commission to prohibit an unfair method of competition found to have been used is not limited to cases where the practice had become general. What section 5 declares unlawful is not unfair competition. That had been unlawful before. What that section made unlawful were 'unfair methods of competition'; that is, the method or means by which an unfair end might be accomplished. The commission was directed to act, if it had reason to believe that an 'unfair method of competition in commerce has been or is being used.' The purpose of Congress was to prevent any unfair method which may have been used by any concern in competition from becoming its general practice. It was only by stopping its use before it became a general practice, [253 U.S. 421, 442] 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.
[ Footnote 2 ] 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.
'The commission which is proposed by your committee in the bill submitted is founded upon the latter purpose and idea.
[ Footnote 4 ] 'Unfair Competition,' by William S. Stevens, Political Science Quarterly (1914) p. 283; 'The Morals of Monopoly and Cop etition' (1916) by H. B. Reed.
[ Footnote 5 ] 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 anti-trust 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 anti-trust 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.
[ Footnote 7 ] See Report Senate Committee on Interstate Commerce, June 13, 1914, Sixty-Third Congress, Second Session, No. 597, p. 13: '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.
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.
[ Footnote 9 ] See note 1, supra.
[ Footnote 10 ] See 'The Morals of Monopoly and Competition,' by H. B. Reed (1916) pp. 120-122.
[ Footnote 11 ] Report of the (Federal) Bureau of Corporations on the International Harvester Company (March 3, 1913) p. 308.
[ Footnote 12 ] 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.
[ Footnote 13 ] 'Unfair Competition,' by W. H. S. Stevens (1916) p. 54.
[ Footnote 14 ] See 'Trust Laws and Unfair Competition' (Federal) Bureau of Corporations (March 15, 1915) pp. 319-323, 328.

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