Court Opinion

ID: 9448227
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:26:41.670884+00
Date Added: 2024-06-11T17:31:20.197045
License: Public Domain

FRIENDLY, Circuit Judge
(dissenting).
Some people think they have written books for which the world is waiting. Publishers who must back judgment with investment take a less sanguine view. Rejection slips accumulate, and frustration mounts. Petitioners are in the business of relieving it.
In September, 1956, the F. T. C. issued a complaint, Docket 6638, CCH Trade Regulation Reporter, 1956-1957, f 26,220, challenging a number of petitioners’ then trade practices, many of them apparently subject to fairly serious criticism. A hearing followed, in which 1000 pages of testimony were taken and more than 200 exhibits filed. Ultimately, the Commission entered a consent order directing petitioners to cease and desist from 25 specified practices and dismissing all other charges in regard to unfair methods of competition and unfair deceptive acts and practices, 54 F.T.C. 908 (1958). Advertising similar to the ad, first published in November, 1957, which is the subject of the order here under review, was not among the acts or practices so prohibited ■ — although three of the authors called by the Commission to support the instant complaint testified they had begun to deal with Exposition Press as a result of similar advertisements published in 1955 or early 1956.
The F. T. C. makes no claim that petitioners have failed meticulously to observe the comprehensive cease and desist order entered as a result of the previous proceeding. Instead, in May, 1959, only fifteen months later, the Commission issued a new complaint. This charged that respondents (now petitioners) “have made many statements and representations, directly or indirectly, concerning the nature and operation of their said business, the sales and payments made therefor to author customers. Among said statements set out in a variety of ways is that respondents pay their authors a 40% royalty on books published and sold by them,” whereas “In truth and in fact, respondents do not pay their authors a 40% royalty or any kind of royalty.”
As Chief Judge Lumbard’s opinion reveals, these broad charges ultimately simmered down to a single narrow one. Not only the head and front but the whole of petitioners’ offending is an advertisement, an inch and a quarter long and two inches and a quarter wide. The brochures there offered as “free” were, in fact, free — the case thus bears no resemblance to F. T. C. v. Standard Education Society, 1937, 302 U.S. 112, 58 S.Ct. 113, 82 L.Ed. 141, or to Book-of-the-Month Club, Inc. v. F. T. C., 2 Cir., 202 F.2d 486, certiorari dismissed, 1953, 346 U.S. 883, 74 S.Ct. 144, 98 L.Ed. 388. The brochures did tell “how to publish your book, get 40% royalties” etc. Moreover, and this is the essential, they told it in a way that left no slightest doubt that the author must pay Exposition “a subsidy in three installments for the publication of the first edition of his book.” Beyond that, Exposition advised him “to seek publication *875on a non-subsidized basis, if possible,” and to turn to Exposition only if that endeavor failed. If Exposition then found the manuscript acceptable, “we will submit our terms for your careful consideration.” While the hope of financial success was not snuffed out, the brochures recognized “The uppermost question in the mind of an author considering a subsidized publication venture is: ‘What will it cost to publish my book?’ ” Specimen figures showed to anyone endowed with even an elementary knowledge of arithmetic, that, for example, the “subsidy” required to publish an edition of 2500 copies of a 176 page book would exceed the 40% royalties unless some 1800 copies were sold. If the author ever arrived at a contract with Exposition, the “subsidy” he was required to pay was plainly set out immediately under a paragraph entitled “No Sales Guarantee,” reciting “that neither party estimates or guarantees the number of copies of this work which shall be sold, it being recognized that it is impossible to predict such sales.”
Although there was no dispute as to any of this, the Commission proceeded to amass a record formidable in size, if not in content. Hearings were held on nine separate days, some in New York City and others in Richmond, Va., where Exposition was not represented by counsel,1 and accumulated a transcript of 1100 pages and numerous exhibits. The Commission called ten authors who had dealt with Exposition. Six of these had begun their dealings before the advertisement now banned was published; hence their testimony, taken most favorably to the Commission, is not that they were misled by the challenged advertisement but that they thought they would have been if they had seen that and nothing more. Of the four who had answered the ad, only one would have interpreted it as not calling for any payment by him, and none were dissatisfied. The slender evidence supplied by these ten authors was sought to be eked out by the testimony of five “professional publishers” and three professional authors. The role of these eight witnesses is somewhat puzzling; apparently they were giving testimony, as experts, how they would have understood the ad if they had not been.
With the best-known writers receiving royalties of 15% to 20%, an author yet unknown to fame must possess altogether inordinate na'iveté to suppose that anyone would pay all the costs of publishing his brainchild and a 40% royalty to boot. Thus I am by no means sure the Commission’s basic finding that the ad conveyed a misleading impression of what the free brochures would convey is sustainable, even taking into account Judge Augustus Hand’s statement that the Commission may insist “upon a form of advertising clear enough so that, in the words of the prophet Isaiah, ‘wayfaring men, though fools, shall not err therein,’ ” General Motors Corp. v. F. T. C., 2 Cir., 1940, 114 F.2d 33, 36, and the Commission’s admittedly broad power to draw inferences. However, there is no occasion to debate this, for the evidence makes it plain beyond peradventure, and the absence of any contrary findings confirms, that any remote tendency of the ad to mislead was ended when the brochures arrived. Hence the only prejudice possibly suffered even by the most wayfaring and foolish authors would be a if stamp, the depression when the brochures dissipated the temporary euphoria of thinking their books would be published without cost, and perhaps an occasional decision, taken with all the facts fully disclosed, to move into a flame of publication that otherwise would have stayed unseen.
I cannot believe this came within the area with which Congress was concerned when it created the Federal Trade Commission and empowered it to prevent “unfair methods of competition in commerce” in 1914, 38 Stat. 717, 719, § 5, or even, when Congress added “unfair or deceptive acts or practices in commerce” in *8761938, 52 Stat. 111, 112. Whether a particular activity offends § 5 remains a question for the courts to decide, F. T. C. v. Gratz, 1920, 253 U.S. 421, 40 S.Ct. 572, 64 L.Ed. 993. Although the 1914 debates reveal “no clear agreement” on the meaning of § 5, all the speakers were a long way from anything with so ephemeral an effect as what was proven here,2 and the 1938 amendment, designed to eliminate the need of proving a potential adverse effect on competition, did not eliminate the need of establishing the potentiality of the kind of adverse effect of which the law customarily takes note. Although the Commission is not limited to common law concepts, F. T. C. v. R. F. Keppel & Bro. Inc., 1934, 291 U.S. 304, 54 S.Ct. 423, 78 L.Ed. 814, that decision itself indicates the type of showing needed to support a departure from them.
Neither the language nor the history of the statute reveals a purpose to bring the vast power of the Federal Government into play simply to prevent what at most is a slight excess in a blurb, completely rectified before it can have any adverse economic effect on any reader. The General Motors case, supra, is not a parallel. It dealt with nationwide advertising involving a mathematical concept which, though simple to the initiate, may well have lain beyond the ken of the multitude who were committing their funds, even when it was explained in greater detail, as it not always was. So too, Carter Products, Inc. v. F. T. C., 7 Cir., 1951, 186 F.2d 821, is altogether different, since there the disclosure on the package did not come to the purchaser’s attention until he had spent his money. The broad statement in that opinion quoted by my brothers is a dictum going far beyond F. T. C. v. Standard Education Society, supra, which was cited to support it; in Standard Education, the false statement was repeated in the purchase contract and the defense that was overruled was simply that no one in his senses could really have believed it. Progress Tailoring Co. v. F. T. C., 7 Cir., 1946, 153 F.2d 103, merely applied the principle, of Standard Education, that a seller may not advertise as free what is not in fact free. The injury to Exposition’s competitors on which my brothers rely, although “found,” was not proved; and at the argument before us counsel for the Commission properly disclaimed any reliance on it. The appendices to the briefs contain almost nothing to show the existence of other “subsidy" publishers and surely nothing to indicate that petitioners’ present methods, more ethical than theirs so far as the appendices show, were likely to cause any diversion from them. In contrast, in the second Raladam case, 1942, 316 U.S. 149, 62 S.Ct. 966, 86 L.Ed. 1336, cited by the majority, there was evidence permitting the Commission to “conclude that numerous antifat remedies were offered for sale in the same market as Marmola” and that unless the misleading representations were stopped, “trade will be diverted from [other] competitors who do not engage in such ‘unfair methods,’ ” 316 U.S. at page 152, 62 S.Ct. at page 968. I realize that, under the Wheeler-Lea amendment of 1938, it is enough for the Commission to prove an injury to consumers even though there be none to competitors, the first Raladam case, 1931, 283 U.S. 643, 51 S.Ct. 587, 75 L.Ed. 1324, being thereby overruled to that extent;3 but if injury to competitors is relied on to bring an order within § 5, there being none to consumers, both Raladam decisions demand that such injury be established.
Moreover, the Wheeler-Lea amendment left unimpaired the provision in § 5(b), 15 U.S.C.A. § 45(b), limiting the Commission’s jurisdiction to cases where “it [shall appear], to the Commission that a proceeding * * * would be to the interest of the public.” In F. T. C. v. Klesner, 1929, 280 U.S. 19, 30, 50 S.Ct. 1, 4, 74 L.Ed. 138, the Supreme Court held *877that although the Commission’s preliminary determination that institution of a proceeding is in the public interest “will ordinarily be accepted by the courts,” such action “is subject to judicial review” ; that if it appears at any time that the proceeding is not in the public interest, the Commission ought dismiss the complaint; and that if the Commission nevertheless enters an order, “the court should, without enquiry into the merits, dismiss the suit.” 4
It is deeply significant that the Klesner opinion was written by Mr. Justice Brandéis. For “he, more than any other man, was the begetter” of the Federal Trade Commission.5 Two years before that opinion, Henderson had published his critical study of the Commission, suggesting, among other things, that “it should exercise a greater discretion in selecting those cases which involve questions of public importance” and querying, as to the Klesner proceeding, 5 F.T.C. 24 (1922), “what there was in the case to call for the intervention of a federal administrative tribunal.” 6 It is hardly accidental that Mr. Justice Brandéis placed the Supreme Court’s decision in Klesner on the ground that he did, rather than simply affirming the Court of Appeals, 1928, 25 F.2d 524, 58 App.D.C. 100, on the merits. His opinion was a summons to the Commission to do what it had been created to do, to get on with “the great purpose of the act,” as Mr. Justice Sutherland, also not without direct knowledge of the Act’s origins, was later to say in an opinion in which Brandéis joined, F. T. C. v. Raladam Co., 283 U.S. at page 650, 51 S.Ct. at page 591, 75 L.Ed. 1324. True, as my brothers point out, Klesner involved a private controversy as the instant case does not; but the basis of the Klesner decision was not the presence of a private interest but the absence of a public one. In Moretrench Corporation v. F. T. C., 2 Cir., 1942, 127 F.2d 792, 795, Judge Learned Hand, reviewing Klesner in the light of subsequent decisions, said that it “is to be put down as deciding that the court may consider whether the controversy is not in general too trivial to justify the attention of the Commission.” See also S. Buchsbaum & Co. v. F. T. C., 7 Cir., 1947, 160 F.2d 121, 123. To me this second round against petitioners, brought to correct what at worst is a trifling lack of candor, passed over in the first one, and having a merely temporary and non-pecuniary effect on a handful of people presumably of some sophistication, precisely fits Judge Hand’s test; the government funds that have been spent on this proceeding, not to speak of the diversion of energies from more worth-while tasks, outrun any possible public benefit by a tremendous margin.
I would grant the petition to review and annul the order.

. I gather that, due to the financial burden of FTC proceedings, this is not an uncommon development. See, e. g., Brief for petitioner in Ward Laboratories, Inc. v. F.T.C., 2 Cir., 1960, 276 F.2d 952, p. 4.

. See Henderson, The Federal Trade Commission (1927), 33-36; Cushman, The Independent Regulatory Commissions (1941), 205-213.

. Koch v. F. T. C., 6 Cir., 1953, 206 F.2d 311, 319. See Handler, The Control of False Advertising Under the Wheeler-Lea Act, 6 Law and Contemporary Problems 91, 96 (1939); Note, The Consumer and Federal Regulation of Advertising, 53 Harv.L.Rev. 828, 834-837 (1940).

. The Klesner decision has been cited with approval as recently as American Airlines, Inc. v. North American Airlines, Inc., 1956, 351 U.S. 79, 83, 76 S.Ct. 600, 100 L.Ed. 953, and Elor’s v. Broadway-Hales Stores, Inc., 1959, 359 U.S. 207, 211-212. fn. 4. 79 S.Ct. 705. 3 L.Ed.2d 741, the latter distinguishing the contrasting rule under § 1 of the Sherman Act, 15 U.S.C.A. § 1.

. See Mason, Brandeis: A Free Man’s Life (1946), p. 402.

. Henderson, op. cit, supra note 2, pp. 337, 171.