1. The Federal Trade Commission, proceeding under § 5 of the
Act, ordered respondent, one of numerous candy manufacturers
similarly engaged, to desist from selling and distributing in
interstate commerce candy in a certain type of package, in
assortments so arranged and offered for sale as to avail of the
element of chance as an inducement to the retail purchaser. Each
package contained
Page 291 U. S. 305
display material, attractive to children and explaining the plan
by which either the price or the amount of the candy received by
the purchaser was affected by chance. The Commission found that the
candy in this type of package was inferior in size or quality to
that in other classes of packaged candy marketed without the aid of
the chance feature, and that the competition between the two
classes resulted in substantial diversion of trade from others to
the manufacturers and distributors of the former; that this type of
package was sold extensively in the retail trade to school
children, among whom it encouraged gambling, and that many
manufacturers refrained on moral grounds from making it, and as a
result were placed in a disadvantageous competitive position.
Held:
(1) The practice complained of is a method of competition in
interstate commerce. P.
291 U. S.
308.
(2) The proceeding is "to the interest of the public" if
otherwise within the purview of the Act. P.
291 U. S.
308.
(3) The Commission correctly concluded that the practice was an
unfair method of competition within the meaning of the Act. P.
291 U. S.
314
2. The fact that a practice does not involve any fraud or
deception and that competitors may maintain their competitive
position by adopting it does not necessarily put it beyond the
jurisdiction of the Commission. P.
291 U. S.
309.
3. The types of practices held in earlier litigation in this
Court to be subject to the Commission's prohibition do not mark the
limits of the Commission's jurisdiction. P.
291 U. S.
309.
4. The Act is not restricted in its operation to those methods
of competition in interstate commerce which are forbidden at common
law or which are likely to grow into violations of the Sherman Act.
P.
291 U. S.
310.
5. The phrase "unfair methods of competition," as used in the
Act, does not admit of precise definition, but its meaning and
application must be arrived at by a gradual process of judicial
inclusion and exclusion. P.
291 U. S.
312.
6. A method used by a competitor is not necessarily fair because
others may adopt it without restricting competition between them.
P.
291 U. S.
312.
7. The normal meaning of the words used is the first criterion
of statutory construction. P.
291 U. S.
313.
8. A practice of the sort which the common law and criminal
statutes have long deemed contrary to public policy, and which
Page 291 U. S. 306
a large share of the industry regard as unscrupulous, would seem
clearly to come within the meaning of the word "unfair." P.
291 U. S.
313.
9. While it is for the courts finally to determine what are
unfair method of competition under the Act, yet the conclusion of
the Commission on this question are of weight, and should be
sustained when based upon clear, specific, and comprehensive
findings supported by evidence. P.
291 U. S.
314.
10. It is unnecessary, even if it were possible, to define in
advance what unfair methods are forbidden by the Act; new or
different practices must be considered as they arise in the light
of the circumstances in which they are employed. P.
291 U. S.
314.
63 F.2d 81 reversed.
Certiorari, 290 U.S. 613, to review a judgment reversing an
order of the Federal Trade Commission.
MR. JUSTICE STONE delivered the opinion of the Court.
This case comes here on certiorari to review a decree of the
Court of Appeals for the Third Circuit which set aside an order of
the Federal Trade Commission forbidding certain trade practices of
respondent as an unfair method of competition. 63 F.2d 81; § 5,
Federal Trade Commission Act, 38 Stat. 717, 719.
The Commission found that respondent, one of numerous candy
manufacturers similarly engaged, manufactures, sells, and
distributes, in interstate commerce, package assortments of candies
known to the trade as "break and take" packages, in competition
with manufacturers of assortments known as "straight goods"
packages. Both types are assortments of candies in packages in
convenient arrangement for sale by the piece at a small price
Page 291 U. S. 307
in retail stores in what is known as the penny candy trade. The
break and take assortments are so arranged and offered for sale to
consumers as to avail of the element of chance as an inducement to
the retail purchasers. One assortment, consisting of 120 pieces
retailing at 1 cent each, includes four pieces, each having
concealed within its wrapper a single cent, so that the purchasers
of those particular pieces of candy receive back the amount of the
purchase price and thus obtain the candy without cost. Another
contains 60 pieces of candy, each having its retail price marked on
a slip of paper concealed within its wrapper; 10 pieces retail at 1
cent each, 10 at 2 cents, and 40 at 3 cents. The price paid for
each piece is that named on the price ticket, ascertained only
after the purchaser has selected the candy and the wrapper has been
removed. A third assortment consists of 200 pieces of candy, a few
of which have concealed centers of different colors, the remainder
having white centers. The purchasers of the candy found to have
colored centers are given prizes, packed with the candy, consisting
of other pieces of candy or a package containing lead pencils,
penholder, and ruler. Each assortment is accompanied by a display
card, attractive to children, prepared by respondent for exhibition
and use by the dealer in selling the candy, explaining the plan by
which either the price or the amount of candy or other merchandise
which the purchaser receives is affected by chance. The pieces of
candy in the break and take packages are either smaller than those
of the competing straight goods packages, which are sold at a
comparable price without the aid of any chance feature, or they are
of inferior quality. Much of the candy assembled in the break and
take packages is sold by retailers, located in the vicinity of
schools, to school children.
The Commission found that the use of the break and take package
in the retail trade involves the sale or distribution
Page 291 U. S. 308
of the candy by lot or chance; that it is a lottery or gambling
device which encourages gambling among children; that children,
enticed by the element of chance, purchase candy so sold in
preference to straight goods candy, and that the competition
between the two types of package results in a substantial diversion
of trade from the manufacturers of the straight goods package to
those distributing the break and take type. It found further that,
in some states, lotteries and gaming devices are penal offenses;
that the sale or distribution of candy by lot or chance is against
public policy; that many manufacturers of competing candies refuse
to engage in the distribution of the break and take type of package
because they regard it as a reprehensible encouragement of gambling
among children, and that such manufacturers are placed at a
disadvantage in competition. The evidence shows that others have
reluctantly yielded to the practice in order to avoid loss of trade
to their competitors.
The court below held, as the respondent argues here, that
respondent's practice does not hinder competition or injure its
competitors, since they are free to resort to the same sales
method; that the practice does not tend to create a monopoly or
involve any deception to consumers or the public, and hence is not
an unfair method of competition within the meaning of the
statute.
Upon the record, it is not open to question that the practice
complained of is a method of competition in interstate commerce and
that it is successful in diverting trade from competitors who do
not employ it. If the practice is unfair within the meaning of the
Act, it is equally clear that the present proceeding, aimed at
suppressing it, is brought, as § 5 of the Act requires, "in the
interest of the public." The practice is carried on by forty or
more manufacturers. The disposition of a large number of complaints
pending before the Commission,
Page 291 U. S. 309
similar to that in the present case, awaits the outcome of this
suit. Sales of the break and take package by respondent aggregate
about $234,000 per year. The proceeding involves more than a mere
private controversy. A practice so generally adopted by
manufacturers necessarily affects not only competing manufacturers,
but the far greater number of retailers to whom they sell, and the
consumers to whom the retailers sell. Thus, the effects of the
device are felt throughout the penny candy industry. A practice so
widespread and so far-reaching in its consequences is of public
concern if in other respects within the purview of the statute.
Federal Trade Comm'n v. Royal Milling Co., 288 U.
S. 212,
288 U. S. 216.
Compare Federal Trade Comm'n v. Klesner, 280 U. S.
19,
280 U. S. 28.
Hence, we pass without further discussion to the decisive question
whether the practice itself is one over which the Commission is
given jurisdiction because it is unfair.
Although the method of competition adopted by respondent induces
children, too young to be capable of exercising an intelligent
judgment of the transaction, to purchase an article less desirable
in point of quality or quantity than that offered at a comparable
price in the straight goods package, we may take it that it does
not involve any fraud or deception. It would seem also that
competing manufacturers can adopt the break and take device at any
time, and thus maintain their competitive position. From these
premises, respondent argues that the practice is beyond the reach
of the Commission because it does not fall within any of the
classes which this Court has held subject to the Commission's
prohibition.
See Federal Trade Comm'n v. Gratz,
253 U. S. 421,
253 U. S. 427;
Federal Trade Comm'n v. Beech Nut Packing Co.,
257 U. S. 441,
257 U. S. 453;
Federal Trade Comm'n v. Raladam Co., 283 U.
S. 643,
283 U. S. 652;
Federal Trade Comm'n v. Royal Milling Co., supra,
288 U. S. 217.
But we cannot say that the Commission's
Page 291 U. S. 310
jurisdiction extends only to those types of practices which
happen to have been litigated before this Court.
Neither the language nor the history of the Act suggests that
Congress intended to confine the forbidden methods to fixed and
unyielding categories. The common law afforded a definition of
unfair competition, and, before the enactment of the Federal Trade
Commission Act, the Sherman Anti-Trust Act had laid its inhibition
upon combinations to restrain or monopolize interstate commerce
which the courts had construed to include restraints upon
competition in interstate commerce. It would not have been a
difficult feat of draftsmanship to have restricted the operation of
the Trade Commission Act to those methods of competition in
interstate commerce which are forbidden at common law or which are
likely to grow into violations of the Sherman Act, if that had been
the purpose of the legislation.
The act undoubtedly was aimed at all the familiar methods of law
violation which prosecutions under the Sherman Act had disclosed.
See Federal Trade Comm'n v. Raladam, supra, 283 U. S. 650.
But, as this Court has pointed out, it also had a broader purpose,
Federal Trade Comm'n v. Winsted Hosiery Co., 258 U.
S. 483,
258 U. S. 493;
Federal Trade Comm'n v. Raladam Company, supra,
283 U. S. 648.
As proposed by the Senate Committee on Interstate Commerce and as
introduced in the Senate, the bill which ultimately became the
Federal Trade Commission Act declared "unfair competition" to be
unlawful. [
Footnote 1] But
Page 291 U. S. 311
it was because the meaning which the common law had given to
those words was deemed too narrow that the broader and more
flexible phrase "unfair methods of competition"
Page 291 U. S. 312
was substituted. [
Footnote
2] Congress, in defining the powers of the Commission, thus
advisedly adopted a phrase which, as this Court has said, does
not
"admit of precise definition, but the meaning and application of
which must be arrived at by what this Court elsewhere has called
'the gradual process of judicial inclusion and exclusion.'"
Federal Trade Comm'n v. Raladam Company, supra,
283 U. S. 648;
compare Davidson v. New Orleans, 96 U. S.
97,
96 U. S. 104.
[
Footnote 3]
The argument that a method used by one competitor is not unfair
if others may adopt it without any restriction of competition
between them was rejected by this Court in
Federal Trade Comm'n
v. Winsted Hosiery Co., supra; compare Federal Trade Comm'n v.
Algoma Lumber Co., ante, p.
291 U. S. 67.
There, it was specifically held that a
Page 291 U. S. 313
trader may not, by pursuing a dishonest practice, force his
competitors to choose between its adoption or the loss of their
trade. A method of competition which casts upon one's competitors
the burden of the loss of business unless they will descend to a
practice which they are under a powerful moral compulsion not to
adopt, even though it is not criminal, was thought to involve the
kind of unfairness at which the statute was aimed.
The practice in this case presents the same dilemma to
competitors, and we can perceive no reason for distinguishing
between the element of chance as employed here and the element of
deception involved in labeling cotton goods "Natural Wool," as in
the
Winsted case. It is true that the statute does not
authorize regulation which has no purpose other than that of
relieving merchants from troublesome competition or of censoring
the morals of businessmen. But here, the competitive method is
shown to exploit consumers, children, who are unable to protect
themselves. It employs a device whereby the amount of the return
they receive from the expenditure of money is made to depend upon
chance. Such devices have met with condemnation throughout the
community. Without inquiring whether, as respondent contends, the
criminal statutes imposing penalties on gambling, lotteries, and
the like fail to reach this particular practice in most or any of
the states, it is clear that the practice is of the sort which the
common law and criminal statutes have long deemed contrary to
public policy. For these reasons, a large share of the industry
holds out against the device, despite ensuing loss in trade, or
bows reluctantly to what it brands unscrupulous. It would seem a
gross perversion of the normal meaning of the word, which is the
first criterion of statutory construction, to hold that the method
is not "unfair."
See Federal Trade Comm'n v. Royal Milling Co.,
supra, at
288 U. S. 217;
Federal Trade Comm'n v. Algoma Lumber Co., supra, at
291 U. S.
81.
Page 291 U. S. 314
While this Court has declared that it is for the courts to
determine what practices or methods of competition are to be deemed
unfair,
Federal Trade Comm'n v. Gratz, supra, in passing
on that question, the determination of the Commission is of weight.
It was created with the avowed purpose of lodging the
administrative functions committed to it in
"a body specially competent to deal with them by reason of
information, experience, and careful study of the business and
economic conditions of the industry affected,"
and it was organized in such a manner, with respect to the
length and expiration of the terms of office of its members, as
would "give to them an opportunity to acquire the expertness in
dealing with these special questions concerning industry that comes
from experience." Report of Senate Committee on Interstate
Commerce, No. 597, June 13, 1914, 63d Cong., 2d Sess., pp. 9, 11.
See Federal Trade Comm'n v. Beech Nut Packing Co., supra,
at
257 U. S. 453;
compare Illinois Central R. v. Interstate Commerce Comm'n,
206 U. S. 441,
206 U. S. 454.
If the point were more doubtful than we think it, we should
hesitate to reject the conclusion of the Commission, based as it is
upon clear, specific, and comprehensive findings supported by
evidence.
We hold that the Commission correctly concluded that the
practice was an unfair method of competition within the meaning of
the statute. It is unnecessary to attempt a comprehensive
definition of the unfair methods which are banned, even if it were
possible to do so. We do not intimate either that the statute does
not authorize the prohibition of other and hitherto unknown methods
of competition or, on the other hand, that the Commission may
prohibit every unethical competitive practice regardless of its
particular character or consequences. New or different practices
must be considered as they arise in the light of the circumstances
in which they are employed.
Reversed.
[
Footnote 1]
The Senate Committee on Interstate Commerce, in recommending the
bill in its original form, seems to have adopted the phrase "unfair
competition" with the deliberate purpose of giving to the
Commission some latitude for dealing with new and varied forms of
unfair trade practices. The Committee said in its report of June
13, 1914, Senate Report No. 597, 63d Cong., Second Session, page
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, for the reason, as stated by one of the representatives of
the Illinois Manufactures' Association, that there were too many
unfair practices to define, and, after writing 20 of them into the
law, it would be quite possible to invent others. . . ."
"
* * * *"
"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."
Senator Newlands, in introducing the bill for the Committee,
emphasized this feature. In answering the criticism that the phrase
"unfair competition" lacked definition he said, 51 Cong. Record,
11084:
"Our answer to this is that it would be utterly impossible for
Congress to define the numerous practices which constitute unfair
competition and which are against good morals in trade, for we are
beginning to realize that there is a standard of morals in trade,
or that there ought to be. Germany does not hesitate by law to
condemn practices in business that are
contra bonos mores.
It leaves their tribunals to determine what practices are against
good morals."
"
* * * *"
"It is the illusive character of the trade practice that makes
it, though condemned today, appear in some other form tomorrow. If
we should attempt to define all the trade practices that can be
devised that would create dishonest advantage in competition, we
would undertake a hopeless task."
[
Footnote 2]
The phrase "unfair methods of competition" was substituted for
"unfair competition" in the Conference Committee. This change seems
first to have been suggested by Senator Hollis in debate on the
floor of the Senate in response to the suggestion that the words
"unfair competition" might be construed as restricted to those
forms of unfair competition condemned by the common law. 51 Cong.
Record 12145. The House Managers of the conference committee, in
reporting this change said, House Report No. 1142, 63d Congress, 2d
Sess., September 4, 1914 at 19:
"It is impossible to frame definitions which embrace all unfair
practices. There is no limit to human inventiveness in this field.
Even if all known unfair practices were specifically defined and
prohibited, it would be at once necessary to begin over again. If
Congress were to adopt the method of definition, it would undertake
an endless task. It is also practically impossible to define unfair
practices so that the definition will fit business of every sort in
every part of this country. Whether competition is unfair or not
generally depends upon the surrounding circumstances of the
particular case. What is harmful under certain circumstances may be
beneficial under different circumstances."
[
Footnote 3]
References showing the details of the legislative history of the
Act may be found in Handler, The Jurisdiction of the Federal Trade
Commission over False Advertising, 31 Columbia Law Review, 527;
Montague, Unfair Methods of Competition, 25 Yale Law Journal, 20;
Henderson, The Federal Trade Commission, c. I.