FTC v. Sperry & Hutchinson Co.Annotate this Case
405 U.S. 233 (1972)
U.S. Supreme Court
FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972)
Federal Trade Commission v. Sperry & Hutchinson Co.
Argued November 15, 1971
Decided March 1, 1972
405 U.S. 233
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
The Federal Trade Commission (FTC) entered a cease and desist order against Sperry & Hutchinson Co. (S&H), the largest and oldest trading stamp company, on the ground that it unfairly attempted to suppress the operation of trading stamp exchanges and other "free and open" redemption of stamps. S&H argued in the Court of Appeals that its conduct was beyond the reach of § 5 of the Federal Trade Commission Act, which it claimed permitted the FTC to restrain only such practices as are either in violation of the antitrust laws, deceptive, or repugnant to public morals. The Court of Appeals reversed the FTC, holding that the FTC had not demonstrated that S&H's conduct violated § 5 because it had not shown that the conduct contravened either the letter or the spirit of the antitrust laws.
1. The Court of Appeals erred in its construction of § 5. Congress, as previously recognized by this Court, see FTC v. R. F. Keppel & Bro.,291 U. S. 304, defines the powers of the FTC to protect consumers as well as competitors, and authorizes it to determine whether challenged practices, though posing no threat to competition within the letter or spirit of the antitrust laws, are nevertheless either unfair methods of competition or unfair or deceptive acts or practices. The Wheeler-Lea Act of 1938 reaffirms this broad congressional mandate. Pp. 405 U. S. 239-244.
2. Nonetheless, the FTC's order cannot be sustained. The FTC does not challenge the Court of Appeals' holding that S&H's conduct violates neither the letter nor the spirit of the antitrust laws, and its opinion is barren of any attempt to rest its order on the unfairness of particular competitive practices or on considerations of consumer interests. Nor did the FTC articulate any standards by which such alternative assessments might be made. Pp. 405 U. S. 245-249.
3. The judgment of the Court of Appeals setting aside the FTC's order is affirmed, but, because that court erred in its construction of § 5, its judgment is modified to the extent that the case is remanded with instructions to return it to the FTC for
further proceedings not inconsistent with this opinion. Pp. 405 U. S. 249-250.
432 F.2d 146, modified and remanded.
WHITE, J., delivered the opinion of the Court, in which all Members joined except POWELL and REHNQUIST, JJ., who took no part in the consideration or decision of the case.
MR. JUSTICE WHITE delivered the opinion of the Court.
In June, 1968, the Federal Trade Commission held that the largest and oldest company in the trading stamp industry, [Footnote 1] Sperry & Hutchinson (S&H), was violating § 5 of the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U.S.C. § 45(a)(1), in three respects. The Commission found that S&H improperly regulated the maximum rate at which trading stamps were dispensed by its retail licensees; that it combined with others to regulate the rate of stamp dispensation throughout the industry; and that it attempted (almost invariably successfully) to suppress the operation of trading stamp exchanges and other "free and open" redemption of stamps. The Commission entered cease and desist orders accordingly.
S&H appealed only the third of these orders. Before the Court of Appeals for the Fifth Circuit, it conceded that it acted as the Commission found, but argued that its conduct is beyond the reach of § 5 of the Act. That section provides, in pertinent part, that:
"The Commission is empowered and directed to prevent persons, partnerships, or corporations . . . from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce."
15 U.S.C. § 45(a)(6). As S&H sees it, § 5 empowers the Commission to restrain only such practices as are either in violation of the antitrust laws, deceptive, or repugnant to public morals. In S&H's view, its practice of successfully prosecuting stamp exchanges in state and federal courts cannot be restrained under any of these theories.
The Court of Appeals for the Fifth Circuit agreed, and reversed the Commission, Judge Wisdom dissenting. 432 F.2d 146 (1970). In the lower court's view:
"To be the type of practice that the Commission has the power to declare 'unfair,' the act complained of must fall within one of the following types of violations: (1) a per se violation of antitrust policy; (2) a violation of the letter of either the Sherman, Clayton, or Robinson-Patman Acts; or (3) a violation of the spirit of these Acts as recognized by the Supreme Court of the United States."
Id. at 150 (footnote omitted). Holding that the FTC had not demonstrated that S&H's conduct violated either the letter or the spirit of the antitrust laws, the Court of Appeals vacated the Commission's order.
The FTC petitioned for review in this Court. We granted certiorari to determine the questions presented in the petition. 401 U.S. 992 (1971).
The Challenged Conduct
S&H has been issuing trading stamps -- small pieces of gummed paper about the size of postage stamps -- since 1896. In 1964, the year from which data in this litigation are derived, the company had about 40% of the business in an industry that annually issued 400 billion stamps to more than 200,000 retail establishments for distribution in connection with retail sales of some 40 billion dollars. In 1964, more than 60% of all American consumers saved S&H Green Stamps.
In the normal course, the trading stamp business operates as follows. S&H sells its stamps to retailers, primarily to supermarkets and gas stations, at a cost of about $2.65 per 1200 stamps; retailers give the stamps to consumers (typically at a rate of one for each 10