Under the Federal Trade Commission Act (Sept. 26, 1914, c. 311,
38 Stat. 717), an order of the commission requiring parties to
desist from a course of business as unfair competition must
correspond with the complaint which the commission is required to
issue and serve as the basis for the proceedings, and where the
complaint, liberally construed, is plainly insufficient to show
unfair competition, the order is without foundation and, when
challenged, will be annulled by the court. P.
253 U. S.
427.
The commission's complaint alleged that some of the respondents
were engaged in selling, in interstate commerce, directly to the
trade or through their co respondents, steel ties, manufactured by
a certain company, made and used for binding bales of cotton, and
jute bagging, manufactured by another company, used to wrap bales
of cotton; that the other respondents, as their agents, sold and
distributed such ties and bagging, in interstate commerce,
principally to jobbers and dealers who resold the same to
retailers, cotton-ginners and farmers, and that, with the purpose,
intent and effect of discouraging and stifling competition, all of
the respondents refused, and for more than a year had refuged, to
sell any such ties unless the prospective purchaser would also buy
from them the bagging to be used with the number of ties proposed
to be bought.
Held plainly insufficient to show an unfair
method of competition.
Id.
258 F. 314 affirmed.
The case is stated in the opinion.
Page 253 U. S. 422
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
By an act approved September 26, 1914, c. 311, 38 Stat. 717,
Congress made provision for the Federal Trade Commission and
declared its powers.
Section 4 defines commerce as:
"commerce among the several states or with foreign nations, or
in any territory of the United States or in the District of
Columbia, or between any such territory and another, or between any
such territory and any state or foreign nation or between the
District of Columbia and any state or territory or foreign
nation."
Section 5:
"That unfair methods of competition in commerce are hereby
declared unlawful. The commission is hereby empowered and directed
to prevent persons, partnerships, or corporations, except banks,
and common carriers subject to the acts to regulate commerce, from
using unfair methods of competition in commerce. Whenever the
commission shall have reason to believe that any such person,
partnership, or corporation, has been or is using any unfair method
of competition in commerce, and if it shall appear to the
commission that a proceeding by it in respect thereof would be to
the interest of the public, it shall issue and serve upon such
person, partnership, or corporation a complaint stating its charges
in that respect, and containing a notice of a hearing upon a day
and at a place therein fixed at least thirty days after the service
of said complaint. The person, partnership, or corporation so
complained of shall have the right to appear at the place and time
so fixed and show cause why an order should not be entered by the
commission requiring such person, partnership, or corporation to
cease and desist from the violation of the law so charged in said
complaint. . . . If upon such hearing the commission shall be of
the opinion that the method of competition in question is
prohibited
Page 253 U. S. 423
by this act, it shall make a report in writing in which it shall
state its findings as to the facts, and shall issue and cause to be
served on such person, partnership, or corporation an order
requiring such person, partnership, or corporation to cease and
desist from using such method of competition."
Section 5 further provides that the commission may apply to the
designated circuit court of appeals to enforce an order,
"and shall certify and file with its application a transcript of
the entire record in the proceeding, including all the testimony
taken and the report and order of the commission. Upon such filing
of the application and transcript, the court shall cause notice
thereof to be served upon such person, partnership, or corporation
and thereupon shall have jurisdiction of the proceeding and the
question determined therein, and shall have power to make and enter
upon the pleadings, testimony, and proceedings set forth in such
transcript a decree affirming, modifying, or setting aside the
order of the commission. The findings of the commission as to the
facts, if supported by testimony, shall be conclusive. . . . The
judgment and decree of the court shall be final, except that the
same shall be subject to review by the Supreme Court upon
certiorari as provided by § 240 of the Judicial Code. Any party
required by such order of the commission to cease and desist from
using such method of competition may obtain a review of such order
in said circuit court of appeals by filing in the court a written
petition praying that the order of the commission be set aside. A
copy of such petition shall be forthwith served upon the
commission, and thereupon the commission forthwith shall certify
and file in the court a transcript of the record as hereinbefore
provided. Upon the filing of the transcript, the court shall have
the same jurisdiction to affirm, set aside, or modify the order of
the commission as in the case of an application by the commission
for an
Page 253 U. S. 424
enforcement of its order, and the findings of the commission as
to the facts, if supported by testimony, shall in like manner be
conclusive."
Sections 6 and 7 empower the commission to require reports and
compile information concerning corporations; to inquire concerning
execution of decrees restraining violations of the antitrust acts;
to investigate alleged violations of such acts; to recommend
readjustments of corporate business; to publish information and
make reports to Congress; to classify corporations and make rules
and regulations; to investigate trade conditions; to act, under
orders of the court, as a master in chancery in certain designated
circumstances, etc.
Undertaking to proceed under § 5, June 4, 1917, the commission
issued a complaint containing two counts against respondents. The
first related to unfair methods of competition, and the second
charged violation of § 3 of the Clayton Act, approved October 15,
1914, c. 323, 38 Stat. 730. Respondents denied both charges. After
taking much testimony, the commission held there was no evidence to
support the second count, but it ruled that respondents had
practiced unfair competition, and ordered that they,
"their officers and agents, cease and desist from requiring
purchasers of cotton ties to also buy or agree to buy, a
proportionate amount of American Manufacturing Company's bagging,
and further that the respondents cease and desist from refusing to
sell cotton ties unless the purchasers buy or agree to buy from
them corresponding amounts of American Manufacturing Company's
bagging, or any amount of cotton bagging of any kind."
Upon respondents' petition the Circuit Court of Appeals, Second
Circuit, annulled the commission's order. 258 F. 314. It said:
"We think there is no evidence to support any general practice
of the respondents to refuse to sell ties unless the purchaser
bought at the same time the necessary amount of the American
Manufacturing
Page 253 U. S. 425
Company's bagging, and that the commission has no jurisdiction
to determine the merits of specific individual grievances."
The challenged order is based solely upon the first count of the
complaint which follows:
"Federal Trade Commission v. Anderson Gratz and Benjamin Gratz,
Copartners Doing Business under the Firm Name and Style of Warren,
Jones & Gratz, p. P. Williams, W. H. Fitzhugh, and Alex.
Fitzhugh, Copartners Doing Business under the Firm Name and Style
of P. P. Williams & Co., and Charles O. Elmer."
"The Federal Trade Commission, having reason to believe, from a
preliminary investigation made by it, that Anderson Gratz and
Benjamin Gratz, copartners doing business under the firm name and
style of Warren, Jones & Gratz, P. P. Williams, W. H. Fitzhugh,
and Alex. Fitzhugh, copartners doing business under the firm name
and style of P. P. Williams & Co., and Charles O. Elmer, all of
whom are hereinafter referred to as respondents, have been and are
using unfair methods of competition in interstate commerce in
violation of the provisions of section 5 of the act of Congress
approved September 26, 1914, entitled 'An act to create a Federal
Trade Commission, to define its powers and duties, and for other
purposes,' and it appearing that a proceeding by it in respect
thereof would be to the interest of the public, issues this
complaint, stating its charges in that respect, on information and
belief, as follows:"
"
I
."
"Paragraph one: That the respondents Anderson Gratz and Benjamin
Gratz are copartners doing business under the firm name and style
of Warren, Jones & Gratz, having their principal office and
place of business
Page 253 U. S. 426
in the City of St. Louis and State of Missouri, and are engaged
in the business of selling, in interstate commerce, either directly
to the trade, or through the respondents hereinafter named, steel
ties made and used for binding bales of cotton, and which steel
ties are manufactured by the Carnegie Steel Company of Pittsburgh,
Pennsylvania, and also selling, in the same manner, jute bagging,
used to wrap bales of cotton, and which jute bagging is
manufactured by the American Manufacturing Company, of St. Louis,
Missouri."
"Paragraph 2: That the respondents P. P. Williams, W. H.
Fitzhugh, and Alex. Fitzhugh are copartners doing business under
the firm name and style of P. P. Williams & Co., having their
principal office and place of business in the City of Vicksburg and
State of Mississippi, and the said last-named respondents and the
said respondent Charles O. Elmer, who is located and doing business
at the City of New Orleans and State of Louisiana, are the selling
and distributing agents of the said firm of Warren, Jones &
Gratz, and sell and distribute the ties and bagging, manufactured
as aforesaid, in interstate commerce, principally to jobbers and
dealers, who resell the same to retailers, cotton ginners, and
farmers."
"Paragraph 3: That, with the purpose, intent, and effect of
discouraging and stifling competition in interstate commerce in the
sale of such bagging, all of the respondents do now refuse and for
more than a year last past have refused, to sell and of such ties
unless the prospective purchaser thereof would also buy from them
bagging to be used with the number of ties proposed to be bought;
that is to say, for each six of such ties proposed to be bought
from the respondents, the prospective purchaser is required to buy
six yards of such bagging."
It is unnecessary now to discuss conflicting views concerning
validity and meaning of the act creating the commission and effect
of the evidence presented. The
Page 253 U. S. 427
judgment below must be affirmed, since, in our opinion, the
first count of the complaint is wholly insufficient to charge
respondents with practicing "unfair methods of competition in
commerce" within the fair intendment of those words. We go no
further, and confine this opinion to the point specified.
When proceeding under § 5, it is essential, first, that, having
reason to believe a person, partnership, or corporation has used an
unfair method of competition in commerce, the commission shall
conclude a proceeding "in respect thereof would be to the interest
of the public;" next, that it formulate and serve a complaint
stating the charges "in that respect," and give opportunity to the
accused to show why an order should not issue directing him to
"cease and desist from the violation of the law so charged in said
complaint." If, after a hearing, the commission shall deem "the
method of competition in question is prohibited by this act," it
shall issue an order requiring the accused "to cease and desist
from using such method of competition."
If, when liberally construed, the complaint is plainly
insufficient to show unfair competition within the proper meaning
of these words, there is no foundation for an order to desist --
the thing which may be prohibited is the method of competition
specified in the complaint. Such an order should follow the
complaint; otherwise it is improvident and, when challenged, will
be annulled by the court.
The words "unfair method of competition" are not defined by the
statute, and their exact meaning is in dispute. It is for the
courts, not the commission, ultimately to determine as matter of
law what they include. They are clearly inapplicable to practices
never heretofore regarded, as opposed to good morals because
characterized by deception, bad faith, fraud, or oppression, or as
against public policy because of their dangerous tendency unduly to
hinder competition or create monopoly. The act was
Page 253 U. S. 428
certainly not intended to fetter free and fair competition as
commonly understood and practiced by honorable opponents in
trade.
Count one alleges, in effect, that Warren, Jones & Gratz are
engaged in selling, either directly to the trade or through their
correspondents, cotton ties produced by the Carnegie Steel Company
and also jute bagging manufactured by the American Manufacturing
Company. That P. P. Williams & Co., of Vicksburg, and C. O.
Elmer, of New Orleans, are the selling and distributing agents of
Warren, Jones & Gratz, and as such sell and distribute their
ties and bagging to jobbers and dealers, who resell them to
retailers, ginners, and farmers. That, with the purpose and effect
of discouraging and stifling competition in the sale of such
bagging, all the respondents, for more than a year, have refused to
sell any of such ties unless the purchaser would buy from them a
corresponding amount of bagging -- six yards with as many ties.
The complaint contains no intimation that Warren, Jones &
Gratz did not properly obtain their ties and bagging as merchants
usually do; the amount controlled by them is not stated, nor is it
alleged that they held a monopoly of either ties or bagging, or had
ability, purpose, or intent to acquire one. So far as appears,
acting independently, they undertook to sell their lawfully
acquired property in the ordinary course, without deception,
misrepresentation, or oppression, and at fair prices, to purchasers
willing to take it upon terms openly announced.
Nothing is alleged which would justify the conclusion that the
public suffered injury or that competitors had reasonable ground
for complaint. All question of monopoly or combination being out of
the way, a private merchant, acting with entire good faith, may
properly refuse to sell, except in conjunction, such closely
associated articles as ties and bagging. If real competition is to
continue, the right of the individual to exercise reasonable
discretion
Page 253 U. S. 429
in respect of his own business methods must be preserved.
United States v. Colgate, 250 U.
S. 300;
United States v. A. Schrader's Son,
Inc., 252 U. S. 85.
The first count of the complaint fails to show any unfair method
of competition practiced by respondents, and the order cased
thereon was improvident.
The judgment of the court below is
Affirmed.
MR. JUSTICE PITNEY concurs in the result.
MR. JUSTICE BRANDEIS dissenting, with whom MR. JUSTICE CLARKE
concurs.
First. The Court disposes of the case on a question of
pleading. This, under the circumstances, is contrary to established
practice. The circumstances are these:
The pleading held defective is not one in this suit. It is the
pleading by which was originated the proceeding before the Federal
Trade Commission, an administrative tribunal, whose order this suit
was brought to set aside. No suggestion was made in the proceeding
before the commission that the complaint was defective. No such
objection was raised in this suit in the court below. It was not
made here by counsel. The objection is taken now for the first time
and by the court.
This suit, begun in the Circuit Court of Appeals for the Second
Circuit, was brought to set aside an order of the Federal Trade
Commission. Before the latter, the matter involved was thoroughly
tried on the merits. There was a complaint and answers. Thirty-five
witnesses were examined and cross-examined. A report of proposed
findings as to facts was submitted by the examiner, and exceptions
were filed thereto. Then the case was heard before the commission,
which made a finding of facts, stated its conclusions as to the
law, and ultimately issued the order in question. The proceedings
occupied more
Page 253 U. S. 430
than sixteen months. The report of them fills 400 pages of the
printed record. In my opinion, it is our duty to determine whether
the facts found by the commission are sufficient in law to support
the order, and also, if it is questioned, whether the evidence was
sufficient to support the findings of fact.
Second. If the sufficiency of the complaint is held to
be open for consideration here, we should, in my opinion, hold it
to be sufficient. The complaint was filed under § 5 of the Federal
Trade Commission Act, which declares unlawful "unfair methods of
competition in commerce," empowers the commission to prevent their
use, and directs it to issue and serve "a complaint stating its
charges in that respect" whenever it has reason to believe that a
concern "has been or is using" such methods. The function of the
complaint is solely to advise the respondent of the charges made,
so the he may have due notice and full opportunity for a hearing
thereon. It does not purport to set out the elements of a crime
like an indictment or information, nor the elements of a cause of
action like a declaration at law or a bill in equity. All that is
requisite in a complaint before the commission is that there be a
plain statement of the thing claimed to be wrong, so that the
respondent may be put upon his defense. The practice of the Federal
Trade Commission in this respect, as in many others, is modeled on
that which has been pursued by the Interstate Commerce Commission
for a generation, and has been sanctioned by this as well as the
lower federal courts. United States Leather Co. v. Southern Ry.
Co., 21 I.C.C. 323, 324; Clinton Sugar Refining Co. v. C. &
N.W. Ry. Co., 28 I.C.C. 364, 367; Stuarts Draft Milling Co. v.
Southern Ry. Co., 31 I.C.C. 623, 624;
New York Central, etc.,
R. Co. v. Interstate Commerce Commission, 168 F. 131, 138-139;
Dickerson v. Louisville & Nashville R. Co., 187 F.
874, 878;
Texas & Pacific Ry. v.
Interstate Commerce Commission, 162
Page 253 U. S. 431
U.S. 197, 215;
Cincinnati, Hamilton & Dayton Ry. Co. v.
Interstate Commerce Commission, 206 U.
S. 142,
206 U. S.
149.
The complaint here under consideration stated clearly that an
unfair method of competition had been used by respondents, and
specified what it was -- namely, refusing to sell cotton ties
unless the customer would purchase with each six ties also six
yards of bagging. The complaint did not set out the circumstances
which rendered this tying of bagging to ties an unfair practice.
But this was not necessary. The complaint was similar in form to
those filed with the Interstate Commerce Commission on complaints
to enforce the prohibition of "unjust and unreasonable charges" or
of "undue or unreasonable preference or advantage" which the act to
regulate commerce imposes. It is unnecessary to set forth why the
rate specified was unjust or why the preference specified is undue
or unreasonable, because these are matters not of law, but of fact,
to be established by the evidence.
Pennsylvania Co. v. United
States, 236 U. S. 351,
236 U. S. 361.
So far as appears, neither this nor any other court has ever held
that an order entered by the Interstate Commerce Commission may be
set aside as void because the complaint by which the proceeding was
initiated failed to set forth the reasons why the rate or the
practice complained of was unjust or unreasonable, and I cannot see
why a different rule should be applied to orders of the Federal
Trade Commission issued under § 5. [
Footnote 1]
Page 253 U. S. 432
In considering whether the complaint is sufficient, it is
necessary to bear in mind the nature of the proceeding under
review. The proceeding is not punitive. The complaint is not made
with a view to subjecting the respondents to any form of
punishment. It is not remedial. The complaint is not filed with a
view to affording compensation for any injury alleged to have
resulted from the matter charged, nor with a view to protecting
individuals from any such injury in the future. The proceeding is
strictly a preventive measure taken in the interest of the general
public. And what it is brought to prevent is not the commission of
acts of unfair competition, but the pursuit of unfair methods.
Furthermore, the order is not self-executory. Standing alone, it is
only informative and advisory. The commission cannot enforce it. If
not acquiesced in by the respondents, the commission may apply to
the circuit court of appeals to enforce it. But the commission need
not take such action, and it did not do so in respect to the order
here in question. Respondents may, if they see fit, become the
actors and ask to have the order set aside. That is what was done
in the case at bar.
The proceeding is thus a novelty. It is a new device in
administrative machinery, introduced by Congress in the year 1914
in the hope thereby of remedying conditions in business which a
great majority of the American people regarded as menacing the
general welfare, and which for more than a generation they had
vainly attempted to remedy by the ordinary processes of law. It was
believed that widespread and growing concentration in industry and
commerce restrained trade, and that monopolies were acquiring
increasing control of business. Legislation designed to arrest the
movement and to secure disintegration of existing combinations had
been enacted by some of the states as early as 1889. In 1890,
Congress passed the Sherman Law. It was followed by much
Page 253 U. S. 433
legislation in the states, [
Footnote 2] and many official investigations. Between 1906
and 1913, reports were made by the Federal Bureau of Corporations
of its investigations into the petroleum industry, the tobacco
industry, the steel industry, and the farm implement industry. A
special committee of Congress investigated the affairs of the
United States Steel Corporation. And, in 1911, this Court rendered
its decision in
Standard Oil Co. v. United States,
221 U. S. 1, and in
American Tobacco Co. v. United States, 221 U. S.
106. The conviction became general in America that the
legislation of the past had been largely ineffective. There was
general agreement that further legislation was desirable. But there
was a clear division of opinion as to what its character should be.
Many believed that concentration (called by its opponents monopoly)
was inevitable and desirable, and these desired that concentration
should be recognized by law and be regulated. Others believed that
concentration was a source of evil; that existing combinations
could be disintegrated if only the judicial machinery were
perfected, and that further concentration could be averted by
providing additional remedies, and particularly through regulating
competition. The latter view prevailed in the Sixty-Third Congress.
[
Footnote 3]
Page 253 U. S. 434
The Clayton Act (Oct. 15, 1914, c. 323, 38 Stat. 730) was framed
largely with a view to making more effective the remedies given by
the Sherman law. The Federal Trade Commission Act (Sept. 26, 1914,
c. 311, 38 Stat. 717) created an administrative tribunal largely
with a view to regulating competition.
Many of the duties imposed upon the Trade Commission had been
theretofore performed by the Bureau of Corporations. That which
was, in essence, new legislation was the power conferred by § 5.
The belief was widespread that the great trusts had acquired their
power, in the main, through destroying or overreaching their weaker
rivals by resort to unfair practices. [
Footnote 4] As Standard Oil rebates led to the creation of
the Interstate Commerce Commission, [
Footnote 5] other unfair methods of competition which the
investigations of the trusts had laid bare led to the creation of
the Federal Trade Commission. It was hoped that, as the former had
substantially eliminated rebates, the latter might put an end to
all other unfair trade practices, and that it might prove possible
thereby to preserve the competitive system. It was a new experiment
on old lines, and the machinery employed was substantially
similar.
In undertaking to regulate competition through the Trade
Commission, Congress (besides resorting to administrative as
distinguished from judicial machinery) departed in two important
respects from the methods and measures theretofore applied in
dealing with trusts and restraints of trade:
(1) Instead of attempting to inflict punishment for having done
prohibited acts, instead of enjoining the
Page 253 U. S. 435
continuance of prohibited combinations and compelling
disintegration of those formed in violation of law, the act
undertook to preserve competition through supervisory action of the
commission. The potency of accomplished facts had already been
demonstrated. The task of the commission was to protect competitive
business from further inroads by monopoly. It was to be ever
vigilant. If it discovered that any business concern had used any
practice which would be likely to result in public injury --
because in its nature it would tend to aid or develop into a
restraint of trade -- the commission was directed to intervene
before any act should be done or condition arise violative of the
Anti-Trust Act. And it should do this by filing a complaint with a
view to a thorough investigation and, if need be, the issue of an
order. Its action was to be prophylactic. Its purpose in respect to
restraints of trade was prevention of diseased business conditions,
not cure. [
Footnote 6]
Page 253 U. S. 436
(2) Instead of undertaking to define what practices should be
deemed unfair, as had been done in earlier legislation, the act
left the determination to the commission. [
Footnote 7] Experience with existing laws had taught
that definition, being necessarily rigid, would prove embarrassing
and, if rigorously applied, might involve great hardship. Methods
of competition which would be unfair in one industry under certain
circumstances might, when adopted in another industry, or even in
the same industry under different circumstances, be entirely
unobjectionable. [
Footnote
8]
Page 253 U. S. 437
Furthermore, an enumeration, however comprehensive, of existing
methods of unfair competition must necessarily soon prove
incomplete, as, with new conditions constantly, arising novel
unfair methods would be devised and developed. In leaving to the
commission the determination of the question whether the method of
competition pursued in a particular case was unfair, Congress
followed the precedent which it had set a quarter of century
earlier, when, by the act to regulate commerce, it conferred upon
the Interstate Commerce Commission power to determine whether a
preference or advantage given to a shipper or locality fell within
the prohibition of an undue or unreasonable preference or
advantage. [
Footnote 9]
See
Pennsylvania Co. v. United States, supra, p.
236 U. S. 361;
Texas & Pacific Railway v. Interstate Commerce
Commission, 162 U. S. 197,
162 U. S.
219-220. Recognizing that the question whether a method
of competitive practice was unfair would ordinarily depend upon
special facts, Congress imposed upon the commission the duty of
finding the facts, and it declared that findings of fact so made
(if duly supported by evidence) were to be taken as final. The
question whether the method of competition pursued could, on those
facts, reasonably be held by the commission to constitute an unfair
method of competition, being a question of law, was necessarily
left open to review by the court.
Compare Interstate Commerce
Commission v. Diffenbaugh, 222 U. S. 42;
Interstate Commerce Commission v. Baltimore & Ohio R.
Co., 145 U. S. 263.
Third. Such a question of law is presented to us for
decision, and it is this: can the refusal by a manufacturer to sell
his product to a jobber or retailer except upon condition that the
purchaser will buy from him also his
Page 253 U. S. 438
trade requirements in another article or articles, reasonably be
found by the commission to be an unfair method of competition under
the circumstances set forth in the findings of fact? If we were
called upon to consider the sufficiency of the complaint, and that
merely, the question for our decision would be whether the
particular practice could, under any circumstances, reasonably be
deemed an unfair method of competition. But, as this suit to set
aside the order of the commission brings before us its findings of
fact, we must determine whether these are sufficient to support
their conclusion of law that the practice constituted,
"under the circumstances therein set forth, unfair methods of
competition in interstate commerce against other manufacturers,
dealers, and distributors in the material known as sugar-bag cloth,
and against manufacturers, dealers, and distributors of the bagging
known as rewoven bagging and second-hand bagging in violation
of"
the statute.
It is obvious that the imposition of such a condition is not
necessarily and universally an unfair method, but that it may be
such under some circumstances seems equally clear. Under the usual
conditions of competitive trade, the practice might be wholly
unobjectionable. But the history of combinations has shown that
what one may do with impunity, may have intolerable results when
done by several in cooperation. Similarly, what approximately equal
individual traders may do in honorable rivalry may result in grave
injustice and public injury if done by a great corporation in a
particular field of business which it is able to dominate. In other
words, a method of competition fair among equals may be very unfair
if applied where there is inequality of resources. [
Footnote 10] Without providing for those
cases where the method of competition here involved would be
unobjectionable,
Page 253 U. S. 439
Massachusetts legislated against the practice, as early as 1901,
by a statute (c. 478) of general application. Its highest court, in
applying the law which it held to be constitutional, described the
prohibited method as "unfair competition."
Commonwealth v.
Strauss, 188 Mass. 229; 191 Mass. 545.
Compare People v.
Duke, 44 N.Y.S. 336. The (Federal) Bureau of Corporations held
the practice, which it described as "full-line forcing" to be
highly reprehensible. [
Footnote
11] Congress, by § 3 of the Clayton Act, specifically
prohibited the practice in a limited field under certain
circumstances. An injunction against the practice has been included
in several decrees in favor of the government entered in cases
under the Sherman Law. [
Footnote
12] In the decree by which the American Tobacco Company was
disintegrated pursuant to the mandate of this Court, each of the
fourteen companies was enjoined from
"refusing to sell to any jobber any brand of any tobacco product
manufactured by it except upon condition that such jobber shall
purchase from the vendor some other brand or product also
manufactured and sold by it. . . ."
United States v. American Tobacco Co., 191 F. 371, 429.
The practice here in question is merely one form of the so-called
"tying clauses" or "conditional requirements," which have been
declared in a discerning study of the whole subject to be "perhaps
the most interesting of any of the methods of unfair competition."
[
Footnote 13]
The following facts found by the commission, and which the
circuit court of appeals held were supported by sufficient
evidence, show that the conditions in the
Page 253 U. S. 440
cotton tie and bagging trade were, in 1918, such that the
Federal Trade Commission could reasonably find that the tying
clause here in question was an unfair method of competition:
cotton, America's chief staple, is marketed in bales. To bale
cotton, steel ties and jute bagging are essential. The Carnegie
Steel Company, a subsidiary of the United States Steel Corporation,
manufactures so large a proportion of all such steel ties that it
dominates the cotton tie situation in the United States, and is
able to fix and control the price of such ties throughout the
country. The American Manufacturing Company manufactures about 45
percent of all bagging used for cotton baling, one other company
about 20 percent, and the remaining 35 percent is made up of second
hand bagging and a material called sugar-bag cloth. Warren, Jones
& Gratz, of St. Louis, are the Carnegie Company's sole agents
for selling and distributing steel ties. They are also the American
Manufacturing Company's sole agents for selling and distributing
jute bagging in the cotton-growing section west of the Mississippi.
By virtue of their selling agency for the Carnegie Company, Warren,
Jones & Gratz held a dominating and controlling position in the
sale and distribution of cotton ties in the entire cotton-growing
section of the country, and thereby it was in a position to force
would-be purchasers of ties to also buy from them bagging
manufactured by the American Manufacturing Company. A great many
merchants, jobbers, and dealers in bagging and ties throughout the
cotton-growing states were many times unable to procure ties from
any other firm than Warren, Jones & Gratz. In many instances,
Warren, Jones & Gratz refused to sell ties unless the purchaser
would also buy from them a corresponding amount of bagging, and
such purchasers were oftentimes compelled to buy from them bagging
manufactured by the American Manufacturing Company in order to
procure a sufficient supply of steel ties.
Page 253 U. S. 441
These are conditions closely resembling those under which
"full-line forcing," "exclusive dealing requirements" of "shutting
off materials, supplies or machines from competitors" -- well known
methods of competition, have been held to be unfair when practiced
by concern holding a preponderant position in the trade. [
Footnote 14]
Fourth. The circuit court of appeals set aside the
order of the commission solely on the ground that it was without
authority to determine the merits of specific individual grievances
and that the evidence did not support its finding that Warren,
Jones & Gratz had
"adopted and practiced the policy of refusing to sell steel ties
to those merchants and dealers who wished to buy from them unless
such merchants and dealers would also buy from them a corresponding
amount of jute bagging."
The reason assigned by the circuit court of appeals for so
holding was that the evidence failed to show that the practice
complained of (although acted on in individual cases by
respondents) had become their "general practice." But the power of
the Trade Commission to prohibit an unfair method of competition
found to have been used is not limited to cases where the practice
had become general. What § 5 declares unlawful is not unfair
competition. That had been unlawful before. What that section made
unlawful were "unfair methods of competition" -- that is, the
method or means by which an unfair end might be accomplished. The
commission was directed to act if it had reason to believe that an
"unfair method of competition in commerce has been or is being
used." The purpose of Congress was to prevent any unfair method
which may have been used by any concern in competition from
becoming its general practice. It was only by stopping its use
before it became a general practice
Page 253 U. S. 442
that the apprehended effect of an unfair method in suppressing
competition by destroying rivals could be averted. As the circuit
court of appeals found that the evidence was sufficient to support
the facts set forth above, and since, on those facts, the
commission could reasonably hold that the method of competition in
question was unfair under the circumstances, it had power under the
act to issue the order complained of.
In my opinion, the judgment of the circuit court of appeals
should be reversed.
[
Footnote 1]
See Report Senate Committee on Interstate Commerce,
June 13, 1914, Sixty-Third Congress, Second Session, No. 597, p.
13:
"It is believed that the term 'unfair competition' has a legal
significance which can be enforced by the commission and the
courts, and that it is no more difficult to determine what is
unfair competition than it is to determine what is a reasonable
rate or what is an unjust discrimination. The committee was of the
opinion that it would be better to put in a general provision
condemning unfair competition than to attempt to define the
numerous unfair practices, such as local price-cutting,
interlocking directorates, and holding companies intended to
restrain substantial competition."
[
Footnote 2]
See Laws on Trusts and Monopolies, Compiled under
direction of the Clerk of the House Committee on the Judiciary,
Sixty-Third Congress, by Nathan B. Williams, Revised January 10,
1914; also Trust Laws and Unfair Competition (Federal) Bureau of
Corporations, March 15, 1915.
[
Footnote 3]
See Report of Senate Committee on Interstate Commerce,
June 13, 1914, Sixty-Third Congress, Second Session, No. 597, p.
10, reporting the bill:
"Some would found such a commission upon the theory that
monopolistic industry is the ultimate result of economic evolution,
and that it should be so recognized, and declared to be vested with
a public interest and as such regulated by a commission. This
contemplates even the regulation of prices. Others hold that
private monopoly is intolerable, unscientific, and abnormal, but
recognize that a commission is a necessary adjunct to the
preservation of competition and to the practical enforcement of the
law. . . ."
"The commission which is proposed by your committee in the bill
submitted is founded upon the latter purpose and idea."
[
Footnote 4]
See "Unfair Competition," by William S. Stevens,
Political Science Quarterly (1914) p. 283; "The Morals of Monopoly
and Competition" (1916) by H.B. Reed.
[
Footnote 5]
See Railway Problems, by William Z. Ripley (1907) p.
x.
[
Footnote 6]
Senator Cummins, chairman of the committee which reported the
bill, said (Cong.Rec. vol. 51, p. 11455):
"Unfair competition must usually proceed to great lengths and be
destructive of competition before it can be seized and denounced by
the antitrust law. In other cases, it must be associated with,
coupled with, other vicious and unlawful practices in order to
bring the person or the corporation guilty of the practice within
the scope of the antitrust law. The purpose of this bill in this
section, and in other sections which I hope will be added to it, is
to seize the offender before his ravages have gone to the length
necessary in order to bring him within the law that we already
have."
"We knew little of these things in 1890. The commerce of the
United States has largely developed in the last 25 years. The
modern methods of carrying on business have been discovered and put
into operation in the last quarter of a century, and as we have
gone on under the antitrust law under the decisions of the court in
their effort to enforce that law, we have observed certain forms of
industrial activity which ought to be prohibited whether, in and of
themselves, they restrain trade or commerce or not. We have
discovered that their tendency is evil; we have discovered that the
end which is inevitably reached through these methods is an end
which is destructive of fair commerce between the states. It is
these considerations which, in my judgment, have made it wise, if
not necessary, to supplement the antitrust law by additional
legislation not in antagonism to the antitrust law, but in harmony
with the antitrust law, to more effectively put into the industrial
life to America the principle of the antitrust law, which is fair,
reasonable competition, independence to the individual, and
disassociation among the corporations. . . ."
[
Footnote 7]
See Report Senate Committee on Interstate Commerce,
June 13, 1914, Sixty-Third Congress, Second Session, No. 597, p.
13:
"The committee gave careful consideration to the question as to
whether it would attempt to define the many and variable unfair
practices which prevail in commerce and to forbid their
continuance, or whether it would, by a general declaration
condemning unfair practices, leave it to the commission to
determine what practices were unfair. It concluded that the latter
course would be the better. . . ."
See also "Unfair Competition," by W. H. S. Stevens
(University of Chicago Press, 1916) pp. 1, 2. For laws prohibiting
specific acts of unfair competition,
see "Trust Laws and
Unfair Competition," (Federal) Bureau of Corporations (March 15,
1915) pp. 184, 199.
[
Footnote 8]
Report of (Federal) Bureau of Corporations on the International
Harvester Co., March 3, 1913, p. 30:
"In discussing the competitive methods of the company, it should
be recognized that some practices which might be regarded with
indifference if there were a number of competitors of substantially
equal size and power may become objectionable when one competitor
far outranks not only its nearest rival, but practically all rivals
combined, as is true of the International Harvester Company so far
as several of its most important lines are concerned."
The Australian Industries Preservation Act, 1908-1910, expressly
declares that "unfair competition means competition which is unfair
in the circumstances." "Trust Laws and Unfair Competition,"
(Federal) Bureau of Corporations (March 15, 1915) pp. 552, 747.
[
Footnote 9]
See note 1
supra.
[
Footnote 10]
See "The Morals of Monopoly and Competition," by H.B.
Reed (1916) pp. 120-122.
[
Footnote 11]
Report of the (Federal) Bureau of Corporations on the
International Harvester Company (March 3, 1913), p. 308.
[
Footnote 12]
See "Unfair Methods of Competition and their
Prevention" by W. H. S. Stevens, Annals, American Academy of
Political and Social Science (1916) pp. 42, 43. "Trust Laws and
Unfair Competition," (Federal) Bureau of Corporations (March 15,
1915), pp. 484-486, 493.
[
Footnote 13]
"Unfair Competition," by W. H. S. Stevens (1916) p. 54.
[
Footnote 14]
See "Trust Laws and Unfair Competition," (Federal)
Bureau of Corporations (March 15, 1915), pp. 319-323, 328.