Northam Warren Corporation v. FEDERAL TRADE COM'N

• Decision Date: 06 June 1932
• Docket Number: No. 300.,300.
• Citation: 59 F.2d 196
• Parties: NORTHAM WARREN CORPORATION v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Second Circuit

59 F.2d 196 (1932)

NORTHAM WARREN CORPORATION v. FEDERAL TRADE COMMISSION.

No. 300.

Circuit Court of Appeals, Second Circuit.

June 6, 1932.

Breed, Abbott & Morgan, of New York City (Dana T. Ackerly and Edward A. Craighill, Jr., both of New York City, of counsel), for petitioner.

Robert E. Healy, Chief Counsel, Federal Trade Commission, Martin A. Morrison, Asst. Chief Counsel, and Richard P. Whiteley, all of Washington, D. C., for respondent.

Blake & Voorhees, of New York City, (Clinton H. Blake, Jr., and Miner W. Tuttle, both of New York City, of counsel), amicus curiæ.

Covington, Burling & Rublee, of Washington, D. C. (J. Harry Covington and Dean Acheson, both of Washington, D. C., and H. Thomas Austern, of New York City, of counsel), for Standard Brands.

Before MANTON, SWAN, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

This is a petition to review an order of the Federal Trade Commission of December 14, 1931, ordering the petitioner to cease and desist in its advertising and use of testimonials and indorsements of its toilet articles and preparations, for which testimonials or indorsements the petitioner has paid substantial sums of money without disclosing that fact in the advertisements. The petitioner concedes that it paid to certain well-known persons of the theatrical and social life of the community substantial sums for consent to use their testimonials with their signatures thereto. The statements contained in the testimonials, the Commission expressly found, were truthful expressions of opinion of and concerning petitioner's products. They accurately set forth the opinion of each of the several authors of the testimonials or recommendations. The Commission, however, found that the failure to disclose that the petitioner paid substantial sums of money to the persons named for the testimonials "has the capacity and tendency to mislead and deceive the ultimate purchasers of said preparations into the erroneous belief that said testimonials are entirely voluntary and unbought, and tends to and does divert trade from competitors who do not use purchased testimonials in advertising their products."

The petitioner is a New York corporation engaged in manufacturing toilet articles, and particularly preparations for the care of finger nails and cuticle which are sold under the trade name of "Cutex." These preparations are sold in interstate commerce through jobbers and retailers. It has an annual sales volume of between two and three million dollars.

The question is therefore presented whether Congress has conferred upon the Federal Trade Commission jurisdiction, in the interest of the public, to prohibit as an unfair method of competition, tending to create a monopoly or unduly to restrain trade, the use of admittedly truthful testimonials, unless accompanied by a statement that payment has been made for their use.¹ There is no claim of misbranding, falsity, or insufficiency in the statement labeling the product. In such case action by the Commission would be justified under the provisions of the act, for such would be deception necessarily tending to promote unfair competition with those who were selling the true article as the genuine product. Federal Trade Comm. v. Eastman Kodak Co., 274 U. S. 619, 47 S. Ct. 688, 71 L. Ed. 1238; Federal Trade Comm. v. Western Meat Co., 272 U. S. 554, 47 S. Ct. 175, 71 L. Ed. 405; Berkey & Gay Furniture Co. v. Federal Trade Comm., 42 F.(2d) 427 (C. C. A. 6). The quality of the petitioner's products is not brought into question; nor is there a charge that its products were inadequately labeled or so testified to, by testimonials, as to induce the public to purchase from it under practices of deception. The indorsements are said to be neither exaggerations nor untruthful. There is no claim of monopoly. It would seem, therefore, that there was no violation of the Sherman Anti-Trust Act (15 USCA §§ 1-7, 15) or Clayton Act (38 Stat. 730). While the testimonials, if having merit, may tend to increase the volume of business, still, if an honest opinion is expressed under the signature of the giver of such testimonial, the public cannot be presumed to be induced to purchase the petitioner's products in any way or manner that might be said to tend to divert trade from competitors who do not use testimonials in advertising their products. It is doubtful if the public is gullible enough to believe that such testimonials are given without compensation. But, if they are paid for, providing they are truthful, no one is deceived.

Section 5 of the Federal Trade Commission Act (U. S. C. title 15, § 45 15 USCA § 45, 38 Stat. 717) was recently considered by the Supreme Court in Federal Trade Comm. v. Raladam Co., 283 U. S. 643, 51 S. Ct. 587, 589, 75 L. Ed. 1324, where the court pointed out that the act was supplementary to the Sherman Anti-Trust Act and the Clayton Act (Federal Trade Comm. v. Beech Nut Co., 257 U. S. 441, 42 S. Ct. 150, 66 L. Ed. 307, 19 A. L. R. 882), and said: "The object of the Trade Commission Act was to stop in their incipiency those methods of competition which fall within the meaning of the word `unfair.' * * * In a case arising under the Trade Commission Act, the fundamental questions are whether the methods complained of are `unfair,' and whether, as in cases under the Sherman Act, they tend to the substantial injury of the public by restricting competition in interstate trade and `the common liberty to engage therein.' The paramount aim of the act is the protection of the public from the evils likely to result from the destruction of...