Litton Industries, Inc. v. F.T.C.

• Decision Date: 03 May 1982
• Docket Number: No. 81-7148,81-7148
• Citation: 676 F.2d 364
• Parties: 1982-2 Trade Cases 64,751 LITTON INDUSTRIES, INC. and Litton Systems, Inc., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 364

676 F.2d 364

1982-2 Trade Cases 64,751

LITTON INDUSTRIES, INC. and Litton Systems, Inc., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 81-7148.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 9, 1981.

Decided May 3, 1982.

J. Wallace Adair, Howrey & Simon, Washington, D. C., for petitioners.

Jerold D. Cummins, Deputy Asst. Gen. Counsel, Washington, D. C., argued, for respondent; Ernest J. Isenstadt, Howard E Shapiro, W. Dennis Cross, FTC, Washington, D. C., on brief.

Petition for Review of an Order of the Federal Trade Commission.

Before SKOPIL, POOLE and CANBY, Circuit Judges.

SKOPIL, Circuit Judge:

FACTS

Litton Industries, Inc. ("Litton") and Litton Systems, Inc. seek review of a final order of the Federal Trade Commission ("FTC") holding that certain microwave oven advertisements published by Litton Microwave Cooking Products ("LMCP") violated section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and ordering petitioners to cease and desist from certain practices.

Litton Microwave Cooking Products is a division of Litton Systems. Litton Systems is a wholly-owned subsidiary of Litton Industries. LMCP manufactures and distributes microwave ovens.

Litton disseminated advertisements for microwave ovens from October 1976 to February 1977 and from August through October 1977. The ads were placed in trade and general publications. Local advertisements, based upon copy disseminated by Litton, were placed in 1976 and 1977.

The ads presented results of a survey of "independent microwave oven service technicians" indicating that 76% of the surveyed population "recommend Litton." The ads contained a chart showing percentage preference figures which revealed a strong preference for Litton.

The survey was devised for internal use. After seeing the results, Litton decided to advertise them. The survey was designed to elicit preferences from independent microwave oven service agencies, defined as agencies which serviced one or more brands of microwave ovens but did not sell microwave ovens and were not controlled by a manufacturer. Litton used only its own service agency lists. It had lists of two of its competitors, Sharp and Magic Chef. The survey was to be a census, questioning all independent service agencies, not a sample.

Litton knew that its service agency lists did not include the names of all its service agencies, but only those authorized to do warranty work. This excluded at least 100 agencies. One qualified technician at each agency was surveyed. Litton did not question whether that technician's opinion agreed with the opinions of other technicians at the agency. The Administrative Law Judge ("ALJ") held that Litton knew or should have known that its service agency lists included at least 52 servicing-dealers, and that Litton had reason to know that some of the survey respondents had insufficient experience with other brands to respond accurately.

In December 1976 the Federal Trade Commission questioned the ads. The ALJ held that Litton "showed a certain amount of cooperation with Commission staff in halting the advertisements and revising the copy thereof, (but) their cooperation was far from perfect." Litton published additional ads in January and February 1977 and revised ads from August through October 1977. The revised ads disclosed in very fine print the fact that its surveys included only "Litton-authorized" agencies. Litton continued to cooperate in the cost and dissemination of local ads placed by its dealers from September 1976 through February 1978.

PROCEEDINGS BELOW

In 1979 the FTC issued a complaint charging Litton with unfair and deceptive advertising of microwave ovens. The complaint was later amended to include Litton Systems as a co-respondent. A hearing was conducted before an ALJ. The ALJ held that Litton violated 15 U.S.C. § 45 because it lacked a reasonable basis for making claims about preferences for its microwave ovens. Litton knew that its lists included servicing-dealers; that at least one-sixth of the universe of respondents was not contacted, and that this group might have different preferences; that agencies, not technicians, were surveyed; and that a number of the technicians indicated inadequate experience with other brands to make comparisons. These facts, plus Litton's failure to re-evaluate the surveys before converting them from internal use to advertisements, negated "both the 'reasonableness of the advertiser's action' and its 'good faith' ".

The ALJ ordered Litton to cease and desist from making any representation, directly or by implication, about the qualities of its microwave ovens "unless and only to the extent that respondents possess and rely upon a reasonable basis for such representation at the time of its initial and each subsequent dissemination." He ordered Litton to retain documents used in connection with future market surveys and permit inspection by FTC staff on reasonable notice. The order addressed both Litton Industries and Litton Systems because Litton Industries directly oversaw LCMP's operations and because Litton Systems is a paper entity with no real separate identity.

The ALJ refused to specify a procedure governing conduct of future tests or surveys because such specificity would unduly restrict legitimate comparison advertising and the procedure proposed by the FTC staff ("complaint counsel") was not the best or only way to validate surveys or tests. The order covered only microwave ovens.

Complaint counsel appealed. Litton did not appeal nor cross-appeal. Litton opposed complaint counsel's appeal. Litton stated that the ALJ "reached a result with which respondents do not agree, but which they are willing to accept." It stated that the only possible disagreement was over relief, and the relief ordered by the ALJ "is the type normally considered appropriate by the Commission and the courts in such circumstances." The FTC denied Litton's motion and heard complaint counsel's appeal. Pursuant to 16 C.F.R. § 3.52(b)(3) (1981), complaint counsel specified the issues on appeal as whether the surveys contained more defects than the ALJ found, and whether a broader order was warranted.

The FTC's opinion states: "The principal question in this case, as it reaches the Commission, is what form of order should issue to prevent recurrence of deceptive advertising in which respondents have engaged." The FTC noted that the ALJ's findings "have not been appealed by respondents, and our own review yields no reason to disturb them." Although it was not necessary to decide the point, the FTC questioned the significance of Litton having contacted only one technician in each agency. As to the ALJ's order the FTC stated: "Respondents have not appealed from the order recommended by the ALJ, although they suggest in their Answer Brief to Complaint Counsel's appeal that only a 'narrowed' version of the ALJ's recommended order is appropriate." The FTC held that the ALJ's order, "so far as it goes, is appropriate."

The FTC refused to extend the order that Litton cease and desist from making claims with respect to its microwave ovens without adequate substantiation to all consumer products. It did extend the prohibition on misuse of survey results to all consumer products. The FTC further defined "reasonable basis" and "competent and reliable survey or tests". The FTC added three paragraphs elaborating on the sort of misrepresentations of survey or test results which were prohibited. Litton petitioned for review in this court.

ISSUES

1. Does Litton's failure to appeal the ALJ's opinion and order to the FTC preclude it from doing so in this court?

2. Are the remedial provisions added by the FTC reasonably related to the violations found?

DISCUSSION

I. Standard of Review.

The FTC's findings of fact, "if supported by evidence, shall be conclusive." 15 U.S.C. § 45(c). This court requires " 'such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.' " RSR Corp. v. FTC, 602 F.2d 1317, 1320 (9th Cir. 1979), cert. denied, 445 U.S. 927, 100 S.Ct. 1313, 63 L.Ed.2d 760 (1980) (quoting Consolo v. Federal Maritime Commission, 383 U.S. 607, 620, 86 S.Ct. 1018, 1026, 16 L.Ed.2d 131 (1966)). This test applies regardless whether the FTC agrees with the ALJ. Thiret v. FTC, 512 F.2d 176, 179 (10th Cir. 1975). A reviewing court may examine the FTC's findings more closely where they differ from those of the ALJ. Id.; American Cyanamid Co. v. FTC, 363 F.2d 757, 772-73 (6th Cir. 1966). See also ITT Continental Baking Co. v. FTC, 532 F.2d 207, 219 (2d Cir. 1976).

Courts give great weight to the FTC's legal conclusions in deceptive advertising cases, since such cases "necessarily require 'inference and pragmatic judgment'." Resort Car Rental System, Inc. v. FTC, 518 F.2d 962, 963 (9th Cir.), cert. denied, 423 U.S. 827, 96 S.Ct. 41, 46 L.Ed.2d 42 (1975) (quoting FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385, 85 S.Ct. 1035, 1042, 13 L.Ed.2d 904 (1965)). The need for deference results "in part from the statutory scheme and in part from the weight of accumulated agency expertise." Simeon Management Corp. v. FTC, 579 F.2d 1137, 1145 (9th Cir. 1978). See also FTC v. Colgate-Palmolive Co., 380 U.S. at 385, 85 S.Ct. at 1042. The statute's general language requires the FTC to apply it to particular situations. Determining whether an advertisement is deceptive draws upon the FTC's familiarity with the public's expectations. Simeon Management Corp. v. FTC, 579 F.2d at 1145.

The Commission also possesses expertise regarding what remedy is necessary to eliminate deceptive trade practices. "It has wide latitude for judgment and the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist." Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13, 66 S.Ct. 758, 760-761, 90 L.Ed. 888 (1946). See Floersheim v. FTC, 411 F.2d 874, 878 (...