Consolidated Book Publishers, Inc. v. Federal Trade Commission

53 F.2d 942 (1931) CONSOLIDATED BOOK PUBLISHERS, Inc., v. FEDERAL TRADE COMMISSION. No. 4423. Circuit Court of Appeals, Seventh Circuit. November 25, 1931. Rehearing Denied December 31, 1931. Raymond P. Fischer, Herman A. Fischer, John G. Campbell, Carlton L. Fischer, Edward W. Everett, Winston, Strawn & Shaw, and Campbell, Clithero & Fischer, all of Chicago, Ill., for petitioner. Robert E. Healy, chief counsel, Federal Trade Commission, Martin A. Morrison, and G. Edwin Rowland, all of Washington, D. C., for respondent. Before EVANS and SPARKS, Circuit Judges, and WILKERSON, District Judge. This is an original proceeding by petitioner in which it seeks to have this court review a proceeding brought by the Federal Trade Commission against it under the act creating the commission, approved September 26, 1914, 38 Stat. 717 (title 15, U. S. C., § 41 et seq. [15 USCA § 41 et seq.]), resulting in an order[1] issued against petitioner May 6, 1930, to cease and desist from certain acts. *943 The evidence shows that petitioner was, at the time of the hearing before the commission, and previously thereto had been, engaged in distributing a set of books under the title "New World Wide Cyclopedia" in interstate commerce in competition with others similarly engaged. In the course of its business, it sent what it called a "lead letter"[2] to persons whose names appeared on selected mailing lists, seeking to interest them in the set of books mentioned. It sent salesmen to call upon prospects who returned the postal card which was inclosed in such letter. Petitioner published a set of books (with subject-matter substantially identical to the set known as "New World Wide Cyclopedia") under the name of "Times Encyclopedia and Gazeteer," which is sold at wholesale to Times Sale Company for $4.50 a set, which company disposed of the books at retail to the public in the same manner and by the same methods as employed by petitioner in the disposition of the "New World Wide Cyclopedia," and, in so doing, it used the same advertisements as those used by petitioner, except as to name of company and title of publication. This advertising matter was printed and furnished to Times Sale Company by petitioner, and the Times Sale Company paid one-half of the net expense in producing and printing the loose-leaf extension service. Petitioner used the term "World Wide Educational Service" upon its letterheads in order to conceal the fact that it was engaged in the bookselling business, and to eliminate sales resistance. The contract[3] which the inquirer was required to sign before receiving the books was first submitted to the inquirer when the salesman called upon him. After the contract was signed, it was returned to petitioner, and at the time or after the books were delivered petitioner sent subscriber a certificate of membership in the bureau of research,[4] which entitled subscriber to have any submitted questions answered for a period of ten years, provided petitioner deems the questions proper, and provided further that subscriber pays the postage both ways. With this certificate was also sent to subscriber forty coupons, which were necessary to be signed and returned by him, one each quarter year, in order for him to receive the loose-leaf extension service referred to in the contract; and with each coupon subscriber was required to remit to petitioner *944 the sum of twenty cents. Thus for the first time the subscriber was informed that he was required to pay $41.20 instead of $33.20, and that if he defaulted in any payment he was not in good standing, and hence lost the benefits, if any, of the bureau of research. At the time of the hearing in this case before the commission, petitioner was mailing about 2,000 of its lead letters each month to the small towns and cities of Illinois, Nebraska, and New York, and had eight salesmen soliciting orders; though formerly at times it had as many as thirty salesmen. These salesmen were not instructed by the officials, and no printed sales talks were given to them, as they were experienced salesmen. In petitioner's advertisements many extravagant statements were made with relation to its bureau of research. Petitioner agreed to furnish accurate information on every subject through its staff of competent editors, all expert in their particular fields. This bureau in reality consisted of one old man in New York City by the name of Coumbe, whose duty it was to produce the quarterly supplements, attend to all revisions, and do all the work of the bureau of research, with the exception of acting on a few questions which manager Flood might be able to answer and which did not require much research. Mr. Coumbe was employed at a salary of $40 a week. The evidence further shows that the plates from which the cyclopedia was printed were purchased from a publisher in New York in May, 1917, and previous to that time had been used in publishing the "People's Encyclopedia." There had been at least two general revisions by petitioner, but as late as August, 1929, there were many glaring defects running all through the books, as testified to by Mr. Coumbe. The advertisements stated that the Cyclopedia was new and up to date, and that it contained 150,000 individual titles as compared with 50,000 or 60,000 in the ordinary cyclopedia. There were subscribers who testified that petitioner's saleswomen, when calling upon them, stated the books were to be a gift; that the $33.20 to be paid by them was for the extension service, and that nothing was said about the extra charge of twenty cents for each quarterly extension sheet; that only a few copies were to be given in the neighborhood in consideration that the donees would recommend the books to others when asked about them. The president of petitioner testified that it was not petitioner's intention to give the books to subscribers. SPARKS, Circuit Judge (after stating the facts as above). The question presented to us is whether or not the facts and the law warranted the Federal Trade Commission in making the "cease and desist" order. We think the commission acted within the scope of its authority, and was abundantly justified by the facts. A close analysis of the contract convinces us that it was drawn by experienced hands and with the obvious intention of perpetrating a fraud upon the subscribing public. A mind trained in the law might well conclude that few rights, and less benefit, moved to the subscriber by virtue of the contract, and that, under a technical construction of it, no gift was intended. But the general public, not skilled in legal construction, upon reading the lead letter and contract would very naturally conclude that the books constituted a gift, and in our judgment this is what petitioner wanted them to think. This is essentially true, for if all the facts were known to the subscriber, he, if only of ordinary intelligence, in all probability would have declined the offer because the cyclopedia was neither new, up-to-date, nor accurate. It is quite obvious that it would not sell on its merits. A fair construction of the lead letter is that petitioner was distributing, as an advertising medium, a few sets in each community free to certain influential people, in consideration of their acting as local references to other unpreferred subscribers; and that, on account of his standing in his community, a free set was being held by petitioner for the person receiving such letter. This view is confirmed by the fact that the letter asks the receiver of it to treat it as personal and confidential. This was quite an unnecessary statement if petitioner was in good faith, for it no doubt would have permitted any person to sign the contract. This interpretation of the letter is further confirmed by the fact that petitioner's sales agent Mrs. Cowherd construed it the same way. Of course, petitioner contends that the agent exceeded her authority, and that it should be protected against the dishonest and unscrupulous agent; but we think the agent made no representation which was not warranted by the letter and contract. If the agent did exceed her authority, it does not come with good grace from petitioner, who instituted the fraud, to abuse and bemean the agent for continuing the fraud which petitioner had started. The order of the commission is supported by findings of fact, and the findings of fact are supported by substantial evidence. Federal *945 Trade Commission v. Curtis Publishing Co., 260 U. S. 568, 43 S. Ct. 210, 67 L. Ed. 408; Fox Film Corp. v. Federal Trade Commission (C. C. A.) 296 F. 353; Moir et al. v. Federal Trade Commission (C. C. A.) 12 F.(2d) 22. The following propositions of law fully support the ruling: False and misleading representations resulting in deception of the public are matters of public interest which the commission has power to prevent. Federal Trade Commission v. Winstead Hosiery Co., 258 U. S. 483, 42 S. Ct. 384, 66 L. Ed. 729; Federal Trade Commission v. Kay (C. C. A.) 35 F.(2d) 160. The commission's jurisdiction is not limited to practices which tend to create a monopoly, but embrace false and fraudulent advertising, misbranding, and other practices which result in deceiving the public. Such practices injure competitors who do not use them. Federal Trade Commission v. Winstead Hosiery Co., supra; Royal Baking Powder Co. v. Federal Trade Commission (C. C. A.) 281 F. 744; Federal Trade Commission v. Kay, supra. The sale at the same time of a cyclopedia under two different names is an unfair method of competition, which ruling is supported in principle by Fox Film Corp. v. Federal Trade Commission, supra. Practices opposed to good morals because characterized by deception, bad faith, fraud, and oppression are unfair methods of competition. Federal Trade Commission v. Gratz et al., 253 U. S. 421, 40 S. Ct. 572, 64 L. Ed. 993. The order of the Federal Trade Commission is affirmed. On Petition for Rehearing. Petitioner in its petition for a rehearing has called our attention to the fact that this court has not referred to nor commented upon the additional evidence taken on respondent's motion since the argument of the cause, relative to competition with and resulting injury to other concerns engaged in the same line of business; and it further contends that this court failed to consider Federal Trade Commission v. Raladam Co., 283 U. S. 643, 51 S. Ct. 587, 75 L. Ed. 1324, decided after the argument in this cause. Petitioner bases its right to a rehearing upon the following grounds: (a) The commission has failed to show the existence of competition between petitioner and the traders who it claims were injured; (b) competitors were not injured by any acts of petitioner; (c) competitors used methods the same as, or substantially similar to, those employed by petitioner. These matters were fully presented to this court and argued prior to the taking of additional testimony as referred to above; and the pendency of the Raladam Case in the Supreme Court was also called to our attention. When that case was decided by the Supreme Court and the opinion was published, it was considered by this court. Subsequently, when respondent asked permission to take additional testimony, as above referred to, a part of the membership of this court thought that the evidence then in the record was sufficient to support the finding of the commission to the effect that there was competition and resulting injury; and also that the Raladam Case was not controlling in the instant case, because the facts of that case showed neither competition nor injury. Out of abundance of precaution, however, the court permitted the additional evidence to be taken, after which the commission found the existence of both competition and resulting injury to such competitors. It may be also stated that petitioner, in its answer to respondent's original complaint, admitted that it was in competition with various other persons, partnerships, and corporations similarly engaged. From a perusal of all the evidence, including the additional testimony given, it is quite apparent that the commission's findings are supported by material and competent evidence with respect to competition and resulting injury to competitors. It is true the injury shown is not expressed in specific terms of money, but this we do not regard as necessary. The statement of petitioner that the competitors are guilty of the same or similar methods as those charged to petitioner is not supported by the evidence. The petition for rehearing is overruled. NOTES [1] It is now ordered that the respondent, Consoldated Book Publishers, Inc., its officers, agents, representatives, and employees, in connection with the offering for sale of any books, set of books, or publications in commerce among the several states of the United States, or in the District of Columbia, cease and desist from: (1) Selling or offering for sale, either at wholesale or retail, any set of books of the same text and content material under more than one name or title at the same time. (2) Advertising or representing in any manner to purchasers or prospective purchasers that any book or set of books offered for sale and sold by it will be given free of cost to said purchaser or prospective purchaser when such is not the fact. (3) Advertising or representing in any manner that a certain number of sets or any set of books offered for sale or sold by it has been reserved to be given away free of cost to selected persons as a means of advertising, or for any other purpose when such is not the fact. (4) Advertising or representing in any manner that purchasers or prospective purchasers of its encyclopedia are only buying or paying for loose leaf supplements intended to keep the set of books up-to-date, or that purchasers or prospective purchasers are only buying or paying for services to be rendered by a research, or other bureau, for a period of ten years, when such is not the fact. (5) Selling the text and content material of any set of books in such a way or manner, and with the purpose and intent, that said text and content material may be resold by any other person, firm, or corporation under any other name or title than that being used by respondent for said text and content material. (6) Advertising or representing in any manner that it maintains a research bureau employing a staff of competent editors and experts for the purpose of answering inquiries from subscribers, when such is not the fact. (7) Advertising or representing in any manner the inquiries addressed to its research bureau are referred to and answered by experts and specialists in the particular subject inquired about, unless such inquiries are actually referred to and answered by said experts and specialists. (8) Advertising or representing in any manner that its set of books is a new and up-to-date encyclopedia, when such is not the fact. [2] Wide Educational Service 537 South Dearborn St., Chicago Dear Sir: Without cost to you and without any obligation on your part, we are holding a complete 8-volume set of the World Wide Cyclopedia. A few of these sets are being distributed as an advertising feature to obtain an original owners list in certain communities. Because of the standing you enjoy in your community we feel your name would be of special value to us as a local reference. Should your opinion be asked at some future time, we request only that you speak of the work as you find it and say what you conscientiously think of its merits. A most attractive feature is the Loose Leaf Extension Service, which keeps the work constantly up-to-date. It is necessary for you to initial and return the enclosed card, confirming the correctness of address (or make corrections) and we will see to it that you are supplied with complete details without cost or obligation. Please treat the foregoing as personal and confidential. [3] Consolidated Book Publishers, Inc., 537 S. Dearborn Street, Chicago, Illinois. Date _______ Gentlemen: Please enter my order and deliver by express (charges collect): 1. One set of the New World Wide Cyclopedia, 1929 Edition — 8 volumes in DeLuxe Art Craft binding. (Designs in colors and lettering in gold.) 2. Enroll my name as a subscriber for your quarterly pictured Loose-Leaf Extension Service for a period of Ten Years. 3. Supply me with binder for Loose Leaf Extension Service. 4. Enroll my name as a member of the Research Bureau for a period of Ten Years. I have to-day paid your representative $9 and agree to pay the balance of $24.20 as follows: $12.20 to the expressman upon delivery of the set. $12 thirty days from the date of this order, to be remitted to your office at the above address. I am retaining a copy of this agreement, and have no verbal understanding with your representative other than the terms herein stated. [Subscriber's signature.] _______ Consolidated Book Publishers, Inc., By _______ [4] of Research Non-Transferable ______ Maintained for the Benefit of Subscribers of The World Wide Pictorial Loose Leaf Service and the New World Wide Cyclopedia This Certifies That: ________ is a bona fide subscriber and as such is entitled to all privileges and benefits as set forth hereunder from ________ to ________. The World Wide Bureau of Research is maintained for the benefit of subscribers in good standing only. The registered holder of this certificate is entitled to write to the Bureau of Research and receive during the period above stated, special information on all subjects coming within the scope of an Encyclopedia, in the judgment of the editors. A stamped and self-addressed envelope must accompany each inquiry and each inquiry must be written on a separate piece of paper. On each inquiry must appear the above register number, otherwise it will be rejected and returned unanswered. Consolidated Book Publishers, Inc. President. Dated at Chicago, Illinois _____ day of _____ 192_.