295 F.2d 869 | 2d Cir. | 1961
Lead Opinion
Exposition Press, Inc. and Edward Uhlan, its president, petition for review of an order directing them to cease and desist from certain deceptive advertising practices entered by the Federal Trade Commission pursuant to § 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45.
Petitioners attack the order on a number of grounds; that the complaint before the Federal Trade Commission did not state a cause of action, that the Commission’s findings of deceptiveness are erroneous, that on principles of res judicata the Commission’s proceedings were barred by an earlier consent order, and that in any event the Commission’s order is too broad and should be modified. We find these contentions to be without merit.
Exposition Press, Inc. is a “subsidy” or “vanity” publisher. Its business differs from that of most publishing houses in that normally most or all of the expense of publishing its books is paid in advance by their authors. Less than 10% of its authors recoup their investments and derive actual profit from their writing.
The Commission’s complaint attacked Exposition’s use of the following advertisement, which was inserted in a variety of newspapers and magazines:
“Free to Writers
seeking a book publisher
Two fact-filled, illustrated brochures tell how to publish your book, get 40% royalties, national advertising, publicity and promotion. Free editorial appraisal. Write Dept. STM-3.
Exposition Press / 386 4th Ave., N. Y. 16”
The hearing examiner found that the application of the term “royalty” to any payments from sales receipts made to an author before his entire investment had been returned was deceptive per se.
The Commission vacated the examiner’s findings and made more limited findings to the effect that the advertisement as worded tended to “mislead and deceive a substantial portion of the purchasing public with respect to the payment they will receive for the publication of their books. * * * ” It entered an order that petitioners cease and desist from:
“Representing through the use of the term ‘royalties’ or in any other manner that they will make payments to an author based on sales of the author’s book unless a disclosure is made in immediate conjunction therewith that such payments do not constitute a net return to the author but that the cost of printing, promoting, selling and distributing the book*872 must be paid in whole or in substantial part by the author.”
A subsequent motion to modify the order was denied.
1. Res Judicata — We agree with the hearing examiner and the Commission that the consent order agreed to between Exposition and the Commission in November 1957 does not bar the present proceeding. Exposition argues that this earlier order, which dismissed “all other charges in the complaint,” disposed of the question whether the mode of advertising now attacked was unfair. Its argument is not that the earlier complaint specifically alleged misuse of the term “royalty,” but rather that because of a statement by Commission counsel at the earlier hearing that “respondents have dubbed it a royalty when it is only a percentage paid back” the question was put in issue, or in any event should have been.
The advertisement here in question was first used by Exposition only after the completion of the earlier proceeding. There is no indication that pri- or to the earlier proceeding similar representations had been made to the public at large that Exposition was a regular trade publisher which paid extraordinarily high compensation to its authors. In any event, new violations will support new proceedings dealing with different periods of time, as least where there is no indication of harassment by the Commission. See F.T.C. v. Raladam Co., 1942, 316 U.S. 149, 62 S.Ct. 966, 86 L.Ed. 1336; 2 Davis Administrative Law Treatise 570-71 (1958); cf. Grandview Dairy, Inc. v. Jones, 2 Cir., 157 F.2d 5, certiorari denied, 1946, 329 U.S. 787, 67 S.Ct. 355, 91 L.Ed. 675. Incidental mention in the earlier hearing of misuse of the word “royalty” could not possibly have put in issue the questions raised by this advertisement.
2. Findings and Conclusion of the Commission — Considering the record as a whole, see Universal Camera Corp. v. NLRB, 1951, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456, we find substantial support for the Commission’s finding that Exposition’s advertisement had “the tendency and capacity to deceive a substantial portion of the purchasing public.” Great weight must be given by us to the Commission’s factual inferences. Corn Products Ref. Co. v. F.T.C., 1945, 324 U.S. 726, 65 S.Ct. 961, 89 L.Ed. 1320. Although only one of the author-witnesses testified to having been actually deceived by the advertisement in question, a majority of the Exposition clients who testified said that, although they had begun their dealings with Exposition prior to the use of this advertisement, it would have deceived them but for their present sophistication. Considering this testimony, the dictionary definition of “royalty” as “a duty or compensation paid to the owner of a * * * copyright for the use of it * *
Nontheless, we hold that it was within the Commission’s power to prohibit the initial deception. “The law is violated if the first contact * * * is secured by deception * ■* *, even though the true facts are made known to the buyer before he enters into the contract of purchase.” Carter Prods., Inc. v. F.T.C., 7 Cir., 1951, 186 F.2d 821, 824; see Book-of-the-Month Club, Inc. v. F.T.C., supra; Progress Tailoring Co. v. F. T. C., 7 Cir., 1946, 153 F.2d 103.
In any event, the Commission found that Exposition’s competitors were injured by the tendency of the deception to “induce [authors] * * * to enter into correspondence with respondents, leading in many instances to the acceptance of a contract for respondent’s services.” It was a permissible inference that Exposition by its misleading initial approach attracted business which it would not otherwise have obtained. In such a situation testimony of actual injury to specific competitors is not required. F. T. C. v. Raladam Co., 1942, 316 U.S. 149, 152, 62 S.Ct. 966, 86 L.Ed. 1336. Although the Commission did not explicitly marshal evidence of the existence of other subsidy publishers competing with Exposition, the fact that there are such publishers emerges amply from a reading of the record as a whole. Even if these competing publishers did use various unfair methods of their own for attracting business (which the record in this case does not show), this would not excuse Exposition’s unfair deception. Cf. Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 1951, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219.
Although the Federal Trade Commission can act against a deceptive advertiser only if it finds such action to be “to the interest of the public,” Federal Trade Commission Act § 5(b), 15 U.S.C.A. § 45(b), and although its finding of public interest is subject to our review, F. T. C. v. Klesner, 1929, 280 U.S. 19, 50 S.Ct. 1, 74 L.Ed. 138, we think there is sufficient public interest in preventing Exposition’s deceptive advertising to justify our enforcement of the Commission’s order. This is not, like the Klesner case, an instance of Federal Trade Commission intervention in a private dispute. Nor was the deception only as to trivial matters, see Moretrench Corp. v. F. T. C., 2 Cir., 1942, 127 F.2d 792, 795 (dictum). That the deception may be remedied before the customer has suffered any more pecuniary loss than the price of a postage stamp does not foreclose the Commission from acting to proscribe it in the first instance.
Judge Friendly argues with great force that this violation was trivial and that it is not in the public interest to kill this gnat with Commission dynamite. But it seems to us that once we say that the courts should exercise their judgment as to whether an alleged deception is of sufficient importance to warrant Commission action, we get into matters which are not entrusted to us and as to which we have little qualification and even less necessary information. For example, we cannot know but what a proceeding such as this might be the means whereby in the long run the Commission may use its influence to prevent continuance of many similar deceptions. It is by such means that laws are enforced and the government is able to bring about a better moral climate in the field of advertising. From the many hundreds of complaints it has before it, surely the Commission is better able to judge whether this proceeding is a step forward in the. attainment of a higher morality in the great mass of in
3. The Wording of the Cease-and-Desist Order — Considering the violation, the wording of the Commission’s order is unexceptionable. The Commission has wide discretion in framing its order, and “the courts will not interfere except whei'e the remedy selected has no reasonable relation to the unlawful practices found to exist.” Jacob Siegel Co. v. F. T. C., 1946, 327 U.S. 608, 66 S.Ct. 758, 760, 90 L.Ed. 888. The violation consisted in representing that the author’s share of sales receipts is income to him, free and clear, and no alternative formula has been suggested which would remedy the likelihood of such misrepresentation. To permit the advertisement to state, as Exposition proposes, that authors “get 40% of retail price” would perpetuate the same deception.
The petition to review and set aside the Commission’s order is denied. The order will be enforced pursuant to Federal Trade Commission Act § 5(c), 15 U.S. C.A. § 45(c).
. “Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are [hereby] declared unlawful.” 66 Stat. 632 (1952), 15 U.S.C.A. § 45(a) (1).
. Of the authors published by Exposition, Dr. Oleere, for example, advanced $2,-100 for publication of Ms book “Hello, Hello, Hello Doc” and received back $242 in “royalties.” Mrs. Royall, for her “Andrew Johnson, Presidential Scapegoat,” paid Exposition $2,600 and got $239 back. Miss Olaytor, for her “The God-Guided Life,” paid $1,150 and got $53 back.
. Webster’s New International Dictionary, 2 Ed. Unabridged (1960). See Charles of the Ritz Distributing Corp. v. F. T. C., 2 Cir., 1944, 143 F.23 676, 679.
Dissenting Opinion
(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
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,
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
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;
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
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.
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.
