Case Name: SPIEGEL, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1974-03-18
Citations: 494 F.2d 59
Docket Number: No. 73-1233
Parties: SPIEGEL, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 494
Pages: 59–67

Head Matter:
SPIEGEL, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
No. 73-1233.
United States Court of Appeals, Seventh Circuit.
Argued Oct. 31, 1973.
Decided March 18, 1974.
Pell, Circuit Judge, dissented and filed opinion.
Jacob A. Stein, Washington, D.C., Patrick W. O’Brien, Chicago, 111., for petitioner.
Harold D. Rhynedance, Jr., Asst. Gen. Counsel, William A. E. Doying, Atty., Federal Trade Commission, Washington, D.C., for respondent.
Before KILEY, Senior Circuit Judge, and PELL and SPRECHER, Circuit Judges.

Opinion:
KILEY, Senior Circuit Judge.
The Federal Trade Commission ordered petitioner, Spiegel, Inc., to cease and desist from engaging in deceptive trade practices and unfair competition in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(c). Spiegel petitions to have the order reviewed and set aside. We deny the petition and direct enforcement of the Commission's order.
Spiegel is a catalogue retailer of, among other things, clothing, household appliances and kitchenware, with principal office and place of business in Chicago, Illinois. During the relevant period prior to November, 1971, it shipped its merchandise, when sold, from Chicago into several of the United States. In its sales efforts it advertised for credit customers in circulars to "established" and "new" customers, and seasonal cata-logues to "new" customers. The Commission's complaint, issued November 8, 1971, alleged that Spiegel's advertising practices were deceptive and unfair in violation of the Act, and that the complaint was "in the public interest."
The cease and desist order followed upon Spiegel's answer denying deception, a pre-hearing stipulation of facts, a limited evidentiary hearing before a Commission hearing officer, appeals to the Commission by both parties, and the Commission's adoption, with modifications, of the hearing officer's decision.
The complaint alleged that the statements contained in circulars and seasonal catalogues which offered "free trial" or "percent off" of merchandise represented directly or by implication that the offers were available "without condition of restriction;" that "in truth and in fact" the offers of shipment to the "new" customers were conditioned upon the offerees qualifying for credit under Spiegel criteria; and that no shipments were made under the offers to the "established . . . credit customers" unless the amount of the purchases, added to the pre-existing credit charges of the purchaser, was less than the total credit amount Spiegel had previously allowed the customer.
The complaint charged that Spiegel's use of these alleged "false, misleading and deceptive statements" had the "capacity and tendency" to mislead the public into purchasing Spiegel's merchandise in reliance upon the truth of the statements "all to the prejudice and injury of the public and of [Spiegel's] competitors," and constituted unfair and deceptive practices and unfair competition in violation of the Act.
Spiegel's answer denied that the complaint was in the public interest, stated that the advertising followed the custom and usage of the trade, stated the alleged unlawful practices had been abandoned, and denied deception and injury to customers or competition.
The Commission's Final Order directed Spiegel to desist from its "free trial" or "percent off" advertising practices as to prospective and established customers, unless it "conspicuously disclose [d] in immediate conjunction" with the offers that they are subject to Spie-gel's credit approval; disclosed at the top of questionnaires requesting information about credit that the questionnaire is an application for credit; and disclosed any condition or restriction rendering an offeree ineligible to qualify for the offer. Finally, the order directed Spiegel to desist from representing directly or by implication that a free trial offer or price reduction is without condition when such condition exists.
I.
There is no merit in Spiegel's contention that the order should be set aside as too trivial for Commission attention because there was no proof of injury to the public or to Spiegel's competitors.
Protection of the public is essential to justify filing a Section 5 complaint. FTC v. Klesner, 280 U.S. 19, 27, 50 S.Ct. 1, 74 L.Ed. 138 (1929). However, proof of actual injury is unnecessary to support a Commission cease and desist order.
Significant in the examiner's decision, adopted by the Commission, are the statements that "an advertisement must be truthful . To comply with the Federal Trade Commission Act, an advertisement must be akin to a passport for the complete truthfulness of the statements contained therein;" and that where, as here, the offers are conditioned, "unsophisticated clues to the conditions should be as obvious on the face of the advertisement as the inducing offers themselves."
The moral tone of those statements is implicit in Justice Cardozo's language in FTC v. Algoma Co., 291 U.S. 67, 78-79, 54 S.Ct. 315, 320, 78 L.Ed. 655 (1934):
Fair competition is not attained by balancing a gain in money against a misrepresentation of the thing supplied. The courts must set their faces against a conception of business standards so corrupting in its tendency. The consumer is prejudiced if upon giving an order for one thing, he is supplied with something else. Federal Trade Comm'n v. Royal Milling Co., 288 U.S. 212, 216, [53 S.Ct. 335, 77 L.Ed. 706]; Carlsbad v. W. T. Thackeray & Co., 7 Cir., 57 F. 18. In such matters, the public is entitled to get what it chooses, though the choice may be dictated by caprice or by fashion or perhaps by ignorance. Nor is the prejudice only to the consumer "A method inherently unfair does not cease to be so because those competed against have become aware of the wrongful practice." Federal Trade Comm'n v. Winsted Hosiery Co., 258 U.S. 483, 494, [42 S.Ct. 384, 385, 66 L.Ed. 729], 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. (Footnote omitted.)
The primacy of truthfulness in advertising was made explicit in FTC v. Colgate-Palmolive, 380 U.S. 374, 85 S.Ct. 1035, 13 L.Ed.2d 904 (1965), wherein the Supreme Court held that it was a deceptive practice to convey to television viewers the impression that they were watching an actual experiment when they were viewing only a simulation, notwithstanding the fact that the experiment had been conducted off-camera and the product had performed as represented. The Court stated, at 388-389, 85 S.Ct. at 1044:
We find an especially strong similarity between the present case and those cases in which a seller induces the public to purchase an arguably good product by misrepresenting his line of business, by concealing the fact that the product is reprocessed, or by misappropriating another's trademark. In each the seller has used a misrepresentation to break down what he regards to be an annoying or irrational habit of the buying public — the preference for particular manufacturers or known brands regardless of a prod uct's actual qualities, the prejudice against reprocessed goods, and the desire for verification of a product claim. In each case the seller reasons that when the habit is broken the buyer will be satisfied with the performance of the product he receives. Yet, a misrepresentation has been used to break the habit and, as was stated in Algoma Lumber, a misrepresentation for such an end is not permitted.
The Ninth Circuit, citing Colgate-Palmolive, has held that "[deception itself is the evil the statute is designed to prevent." Floersheim v. FTC, 9 Cir., 411 F.2d 874 (1969). That holding is faithful to the Supreme Court decisions.
The promise of an unconditional "free trial" or "percent off," when both are conditional, is not in the public interest. A good society depends upon promises being kept. And individuals in society have a right to be told the truth, so that their choices among products, or, as in this case, among offers, can be understandingly made. If sellers in our society are free to compete for consumers' patronage with others by unfair advertising, not only is the consumers' right violated, but our commitment to fair competition becomes a pretense. The courts "must set their faces" against those practices which are harmful to the public interest.
The record here contains ample proof of the need to protect the public interest. Spiegel's catalogues were distributed in interstate commerce and its advertisements inserted in numerous metropolitan newspapers. Between 1969 and July 1970, approximately three million circulars offering price discounts were distributed. Spiegel distributed two million "free trial" offers annually. Net sales by "hot merchandise" cata-logues were estimated at $27,000,000 in 1969 and 1970, and $30,000,000 in 1971.
We hold that the complaint was justified and that the Commission did not waste its time with trivia in considering the alleged deceptive and unfair practices.
II.
Spiegel argues that the Commission's order is not supported by the evidence. We need not discuss the circular and catalogue statements at length in disposing of the argument. Suffice to say that the statements are clearly designed to attract credit customers to Spiegel's offers. For example, a multipaged circular is sent with a typewritten invitation to the "Dear Customer" to try the nineteen "outstanding values . at our risk." "[Y]ou can order any or all of these values on 30-DAY FREE TRIAL . All we require is that your order be for $10 or more . We'll rush your merchandise to you." "[R]emember, you're not buying . . . merely trying." In the margin of the first page in large type is the following: "SEND NO MONEY. TRY ANY OF THESE VALUES 30 DAYS FREE." There is no statement in the circular itself of any condition or restriction, other than the $10 minimum. In another free trial offer there are small print statements of credit qualifications, such as "subject to [Spiegel's] acceptance."
The Commission did not find that Spiegel stated the offers were unconditional. It found that the conditions were not stated or located in such a way that customers, without undue difficulty, would understand that the "free trial" and "percent off" offers were not truly free but were conditioned on the customer meeting Spiegel's credit criteria. As Spiegel states it, the alleged deceptive factor was in the placement and print size of the conditions, not the lack of statement of conditions.
We have examined the circulars and catalogues in the record containing similar statements, and we hold that the evidence gives substantial support to the Commission's finding of a "capacity and tendency" to mislead the public. The testimony of Spiegel's vice-president that its advertisements lack "even the capacity to injure" does not compel a finding different from the Commission's.
III.
There is no merit in Spiegel's contention that there is a fatal variance between the complaint's allegation of failure to disclose conditions on the face of the advertisements and the Commission's finding that placement of the conditions was "far removed" from the allure of the advertisement. We find no variance. And this court's Wrisley Co. v. FTC, 7 Cir,, 113 F.2d 437, 442 (1940), does not support Spiegel.
IV.
Spiegel has not persuaded us that three of the four paragraphs in the order "violate the stipulation" entered into by the parties at the request of the hearing examiner, and consequently bear the "badge of unfairness." Nor is the order, in our opinion, "vague and ambiguous."
The thrust of the four paragraphs in the Commission's order is a requirement that the credit conditions, relating to both prospective and established customers, be stated "clearly and conspicuously in immediate conjunction with" the offer in order that the prospects not be misled by positioning conditions where the average person in Spie-gel's market would be likely to overlook them. The order is reasonably related to the violations found.
V.
We do not share Spiegel's concern that the Commission's order will effectively "ban" free trial offers. We refer to the apt statement of the Supreme Court in Colgate-Palmolive, supra, 380 U.S. at 390, 85 S.Ct. at 1045: "We think it inconceivable that the ingenious advertising world will be unable, if it so desires, to conform to the Commission's insistence that the public be not misinformed." In any event, unfair and deceptive advertisements cannot be justified on the basis that they are needed either as a service to the consumer or to meet competition in the market.
VI.
The original hearing examiner, at Spiegel's request, issued twelve subpoenas duces tecum against competitors of Spiegel. The succeeding examiner sua sponte quashed the subpoenas. Spiegel argues that the ruling deprived it of evidence bearing on the nature and extent of the order to be entered; and that the evidence sought would have shown Spiegel's conduct to have been exemplary viz-á-viz its competitors, since it alone of its competitors in the market stated credit conditions. It further claims the evidence was relevant to show it could believe its offers reasonable in light of its competitors' advertisements.
We hold that the ruling was not erroneous. The evidence sought was of no avail to Spiegel. Even if its competitors were more deceptive, the evidence was irrelevant. We note again the Cardozo statement, 291 U.S. at p. 79, at 54 S.Ct. at p. 320 of Algoma, that "the Commission was not organized to drag the standards down." See also the Sixth Circuit's statement in Collier & Son Corp. v. FTC, 427 F.2d 261, 276 (1970): "The purpose of Commission orders is not to put those employing deceptive acts or practices in pari delicto with each other." That Spiegel's competitors were worse does not require that Spiegel be permitted to continue the deception found by the Commission.
For the reasons given, the Commission's order is affirmed, and we direct its enforcement.
. Sec. 5(a) (6) : "The Commission is empowered and directed to prevent persons, partnerships, or corjiorations . . . from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce." [15 U.S.C. § 45(a)(6).]
. Sec. 5(a)(1) : "Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful." [15 U.S.C. § 45(a) (1).]
. The Commission is both prosecutor and judge under § 5(45) of the Act, FTC v. Klesner, 280 U.S. 19, 27, 50 S.Ct. 1, 74 L. Ed. 138 (1929).
. Commission Chairman Kirkpatrick dissented on the ground that the advertisements adequately notified the customers of the conditions and that where no substantial economic loss "appears" and no testimony of consumer misunderstanding was received, the order was not "warranted."
. See also Exposition Press, Inc. v. FTC, 295 F.2d 869, 873 (2nd Cir. 1961).
. The parties at the hearing stipulated that the sole issue before the examiner was whether Spiegel's advertisements of "free trial" offers or "percent off" offers are unfair or deceptive because of the manner in which customers are notified of Spiegel's requirement of credit approval in order to obtain the benefit of such offers.