Opinion ID: 238008
Heading Depth: 2
Heading Rank: 2

Heading: Scope of Order.

Text: 66 There remains the question of whether the order is too broad, in that it purports to prohibit certain individual activity, i.e., whether the Commission exceeded its authority in this respect. In pertinent part the order prohibits any conspiratorial agreement or other concerted action to do those things which, according to the Commission's findings, amount to statutory violations. It expressly excludes from its edict agreements between any petitioner and its subsidiaries or affiliates which relate solely to the business of such petitioner and do not have the purpose or effect of unlawfully restricting competition. Petitioners do not challenge the propriety of the form of these provisions, but make an attack on the next paragraph, which restricts individual activity as follows: 67 It is Further Ordered that each of the respondents, its officers, agents, representatives, and employees, in or in connection with the offering for sale, sale or distribution of lead pigments in commerce, as `commerce' is defined in the Federal Trade Commission Act, do forthwith cease and desist from quoting or selling lead pigments at prices calculated or determined in whole or in part pursuant to or in accordance with a zone delivered price system for the purpose or with the effect of systematically matching the delivered price quotations or the delivered prices of other sellers of lead pigments and thereby preventing purchasers from finding any advantage in price in dealing with one or more sellers as against another. 68 This portion of the order is assailed on the grounds first, that it is improper, since the complaint did not charge, and the Commission did not find, that individual use of the zone delivered price method was an unfair method of competition and, second, that the Commission is authorized under Sec. 5 to prohibit unlawful acts only and, conversely, is without power to prohibit behavior which has not been found to be unlawful. 69 The Commission insists that the paragraph represents an allowable judgment in its choice of a remedy, as is best shown by the language of its opinion, that Such a prohibition is necessary, not because it is unlawful in all circumstances for an individual seller, acting independently, to sell its product on a delivered prices basis in specified territories, but to make the order fully effective against the trade restraining conspiracy in which each of the respondents participated. 70 Reported judicial authorities and the elementary principles of statutory construction compel the conclusion that this paragraph is beyond the power of the Commission and must, therefore, be set aside. The grant of power in Sec. 5 of the Act is expressly restrictive. Under subsection (a) the Commission is empowered to prevent any person from using unfair methods of competition    and unfair or deceptive acts or practices in commerce. Subsection (b) provides that, after a hearing and on a finding that the method of competition or the act or practice    is prohibited by the Act, the Commission may issue an order requiring the person adjudged guilty of such conduct to cease and desist from using such method of competition or such act or practice. 15 U.S.C.A. § 45 (a, b). 71 The Commission may exercise only such powers as are granted to it by statute, Arrow-Hart & Hegeman Electric Co. v. F. T. C., 291 U.S. 587, 598, 54 S.Ct. 532, 78 L.Ed. 1007, and its remedy against practices must comport precisely with the legislative grant of power The section is specific; the permissible order is restricted to a prohibition of unfair methods of competition found to exist. In the Arrow-Hart case, supra, the Court said, 291 U.S. at page 598, 54 S.Ct. at page 537: 72 The Commission is an administrative body possessing only such powers as are granted by statute. It may make only such orders as the act authorizes; may order a practice to be discontinued and shares held in violation of the act to be disposed of; but, that accomplished, has not the additional powers of a court of equity to grant other and further relief by ordering property of a different sort to be conveyed or distributed, on the theory that this is necessary to render effective the prescribed statutory remedy. 73 To the same effect see F. T. C. v. Eastman Kodak Co., 274 U.S. 619, 623-624, 47 S.Ct. 688, 71 L.Ed. 1238; F. T. C. v. Sinclair Refining Co., 261 U.S. 463, 475, 476, 43 S.Ct. 450, 67 L.Ed. 746. While it is true that violations of the Clayton Act were charged in each of these cases, the same principle controls the scope of the permissible remedy under Sec. 5 of the Trade Commission Act. Compare the grant of power under the Clayton Act, 15 U.S.C.A. § 21 with that under Sec. 5 of the Trade Commission Act, 15 U.S.C.A. § 45(a, b). 74 To support its reasoning that it may prohibit lawful actions where such a course is deemed necessary effectively to restrain an unlawful practice, the Commission relies on certain language in the opinion in Jacob Siegel Co. v. F. T. C., 327 U.S. 608, 611-613, 66 S.Ct. 758, 760, 90 L.Ed. 888, as follows: 75 The Commission has wide discretion in its choice of a remedy deemed adequate to cope with the unlawful practices in this area of trade and commerce. Here, as in the case of orders of other administrative agencies under comparable statutes, judicial review is limited. It extends no further than to ascertain whether the Commission made an allowable judgment in its choice of the remedy.    The Commission is the expert body to determine what remedy is necessary to eliminate the unfair or deceptive trade practices which have been disclosed.    [A]nd the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist. 76 The quoted language must be read in context, in the light of the facts there involved. The Commission had determined that Siegel's trade name Alpacuna as applied to coats was misleading and had prohibited further use of the term. The Court of Appeals affirmed. Jacob Siegel Co. v. F. T. C., 3 Cir., 150 F.2d 751. On certiorari, the finding that use of the trade name was misleading and thus illegal was not attacked; the only question before the Supreme Court was whether the Commission properly ordered excision thereof. The Court reversed and remanded, 327 U.S. 608, 66 S.Ct. 758, 90 L.Ed. 888, on its determination that the Commission had not considered whether, by employing some qualifying language in connection therewith, use of the trade name might be preserved. The quoted language appears in the general discussion of the propriety of the excision order, and, when read in that context, does not, we believe, sanction a prohibition against lawful acts. 77 We have found no decision sanctioning an order such as this. True, the Commission is not restricted in its choice of a remedy to prohibiting the illegal practice in the precise form in which it is found to have existed in the past. F. T. C. v. Ruberoid Co., 343 U.S. 470, 473, 72 S.Ct. 800, 803, 96 L.Ed. 1081. It may frame its order broadly to reach all phases of existing unlawful conduct. Thus, in Ruberoid, the Commission prohibited the use of all price differentials on its findings that differentials employed by that Company of 5% and greater were discriminatory in violation of § 2 of the Clayton Act, as amended. The Court held that the Commission was not required to restrict its order to the specific differential previously used, namely 5% and greater, in the absence of a showing by Ruberoid that differentials of less than 5% might be lawfully employed. 78 The same principle was applied in Hershey Chocolate Corp. v. F. T. C., 3 Cir., 121 F.2d 968. On a complaint charging unfair methods of competition in the sale of one candy item, the Commission had found that similar unlawful practices were being employed in the sale of several other confectionery items as well. The court sustained an order which prohibited all such unlawful practices which the Commission had found to exist, on the theory that the entire unlawful conduct was related to the specific unlawful practice of which complaint was made. 79 Other cases cited by the Commission fail to support its contention. In Dorfman v. F. T. C., 8 Cir., 144 F.2d 737, no question was raised but that the practice prohibited by the challenged portion of the order was unlawful. The determination in California Lumbermen's Council v. F. T. C., 9 Cir., 115 F.2d 178, 185, certiorari denied 312 U.S. 709, 61 S.Ct. 827, 85 L.Ed. 1141, was that the practices which the Council insisted were lawful were, in fact, an unlawful restraint of competition, under the holding in Eastern States Retail Lumber Dealers' Ass'n v. United States, 234 U.S. 600, 612, 34 S.Ct. 951, 58 L.Ed. 1490. And, finally, F. T. C. v. Wallace, 8 Cir., 75 F.2d 733, must be read in the light of the unique situation there involved. That was a proceeding brought to enforce an order. The objectionable conduct existing prior to the proceeding in which the order was entered had been accomplished through the offices of an association, composed of all individual respondents, but, as the Commission found, wholly controlled by Wallace. After a cease and desist order was entered, the association was dissolved, but Wallace continued the same practices unabated in behalf of himself and the other ex-members of the association. The Commission filed a petition against Wallace only, for enforcement of its order. His answer did not deny the averments made; he demurred on the ground, inter alia, that the order restrained concerted conduct and, therefore, enforcement could not be decreed against him alone, to restrain his individual conduct. He did not deny that his own conduct was illegal, but argued merely that it did not come within the purview of the order. The court entered a somewhat unique decree, first modifying the Commission's order to prohibit individual as well as concerted use of the admittedly unfair practice, and then enforcing the order as thus modified, against Wallace alone. 80 In each of the cases upon which the Commission relies, the courts have sustained restraints only against conduct found to be unlawful, resolving all doubts in favor of the Commission's order in those gray areas wherein the legality or illegality of a particular course of conduct depends on the circumstances surrounding its use. Cf. F. T. C. v. Ruberoid Co., 343 U.S. 470, 473, 72 S.Ct. 800, 96 L.Ed. 1081. The individual practices against which this order runs are not shrouded in fog. On the contrary, the Commission expressly pointed out that it had not considered the individual use of the zone system, but concluded that the portion of the order with reference thereto was necessary in order to prevent evasion. This position presents a striking contrast to the language of the Supreme Court in F. T. C. v. Cement Institute, 333 U.S. 683, 727-728, 68 S.Ct. 793, 92 L.Ed. 1010, wherein the Court, in affirming an order prohibiting conspiratorial use of a basing point system, carefully pointed out that it did not affect individual use of such system. Although no question of individual restraint was presented, the Court's meticulousness, in emphasizing the limitations of the order before it, is important as indicative of the esteem which it attached to preservation of the individual's right to adopt and employ his own business practices, notwithstanding the fact that concerted action between competitors to employ the same practices may violate the Act. 81 The part of the order with which we are now concerned does not differ in any significant respect from the one we struck down in Salt Producers Ass'n v. F. T. C., 7 Cir., 134 F.2d 354, 356. There, as here, we sustained the Commission's findings that the petitioners, acting in concert, had employed a uniform zone delivered pricing basis in the sale of salt. There, as here, we sustained the determination that such concerted activity was violative of the Act and the order prohibiting its prospective use. There, as here, the complaint contained no allegations with respect to the individual use of the zone system. Petitioners were ordered to cease and desist from employing  any common cause of action    establishing or maintaining delivered price zones, or making quotations and sales of salt upon a delivered price basis under a zone system whereby the cost of salt    is made identical at all destinations within such zone. We set the order aside saying, 134 F.2d at page 358: 82 The complaint discloses the Commission's aim to eradicate and prohibit all concert of action by these petitioners, looking to the establishment and fixation of prices. There was no indication in the complaint that they were assailing the zone system per se as an unfair method of competition by one manufacturer in relation to two purchasers of his salt, in the same zone, where the freight costs are averaged, and one bears a greater burden than the actual freight cost incurred. 83 If the zone system per se is to be condemned, there ought to be a hearing by the Commission and a finding on the precise issue of the unfairness of such a commercial practice. 84 Although the Salt Producers' order is not identical with that before us, we think the two cannot be distinguished in principle. The Commission asserts that the present order does not restrain all individual use of the zone system but only that which has the effect of systematically matching the prices of a competitor at a particular designation. The fact remains, however, that there have been no complaint, no hearing and no findings relative to the effect of such parallel individual actions. Salt Producers' Ass'n v. F. T. C., supra. Cf. F. T. C. v. Gratz, 253 U.S. 421, 424, 40 S.Ct. 572, 64 L.Ed. 993. 85 Clearly, the Commission was concerned here with enforcement of its order prohibiting concerted action. In justifying the paragraph in question, it pointed up the likelihood that petitioners might continue to use the same zone systems and plead that they have abandoned the unlawful agreement and that such use is merely individual parallel conduct. It seems to us that this is an unwarranted anticipation of a situation which may never arise and an attempt to decide, by an anticipatory order, questions which will be a subject for this court to consider should some future enforcement proceeding become necessary. We refuse to sustain such a sweeping inroad on individual liberty of competitive action, without a prior determination by the Commission, after an appropriate hearing, that such activity is a violation of the Act. Lawful acts do not become automatically unlawful because of an administrative guess that a declaration of their illegality may facilitate enforcement of a valid order. 86 If individual use of the zone system by petitioners is to be restrained, that result must be achieved by a proper order in a proceeding conducted in conformity with the statute, in which the invalidity of such conduct is determined. The Commission's power to act is conditioned on such a determination. Salt Producers Ass'n v. F. T. C., supra; Cf. Arrow-Hart & Hegeman Co. v. F. T. C., 291 U.S. 587, 54 S.Ct. 532, 78 L.Ed. 1007; F. T. C. v. Eastman Kodak Co., 274 U.S. 619, 623-624, 47 S.Ct. 688, 71 L.Ed. 1238; F. T. C. v. Western Meat Co., 272 U.S. 554, 47 S.Ct. 175, 71 L.Ed. 405; F. T. C. v. Sinclair Refining Co., 261 U.S. 463, 475-476, 43 S.Ct. 450, 67 L.Ed. 746. 87 The order, as modified by this opinion, will be affirmed. The Commission shall, within 20 days, submit a proposed decree modifying its present order in accord with the views expressed herein and submit the same to petitioners and to this court. Within 10 days thereafter, petitioners shall consent or file objections thereto. The final decree will then be entered.