Montgomery Ward & Co. v. FTC

• Decision Date: 27 June 1967
• Docket Number: No. 15887.,15887.
• Citation: 379 F.2d 666
• Parties: MONTGOMERY WARD & CO., Incorporated, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

379 F.2d 666 (1967)

MONTGOMERY WARD & CO., Incorporated, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 15887.

United States Court of Appeals Seventh Circuit.

June 27, 1967.

COPYRIGHT MATERIAL OMITTED

Daniel Walker, Narcisse A. Brown, John P. Brundage, Chicago, Ill., for petitioner.

J. B. Truly, Asst. Gen. Counsel, W. Risque Harper, Atty., Federal Trade Commission, Washington, D. C., James McI. Henderson, Gen. Counsel, for respondent.

Before HASTINGS, Chief Judge, and SCHNACKENBERG and KILEY, Circuit Judges.

HASTINGS, Chief Judge.

Montgomery Ward & Company, Inc. (Wards), has petitioned this court to review an order of the Federal Trade Commission requiring it to cease and desist representing that certain of its merchandise was guaranteed unless, inter alia, the nature and extent of the guarantees were conspicuously and clearly defined.¹

On February 19, 1964, the Commission issued a complaint against Wards charging that while in its advertising Wards guaranteed merchandise without condition or limitation, Wards' actual guarantees for the merchandise were subject to limitations and conditions not revealed in the advertising of the guarantees. This deviation between advertised and actual guarantees was charged to constitute an unfair method of competition and unfair and deceptive practice in commerce, in violation of § 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45.²

At the hearing on the complaint, complaint counsel based his case entirely on the discrepancy between Wards' newspaper advertisements for specific products and the respective guarantee certificates for the products.³ Almost all of the evidence introduced by both sides was documentary. At the conclusion of complaint counsel's case, Wards moved to dismiss, which motion was taken under advisement.

On March 29, 1965, the trial examiner granted the motion to dismiss. The dismissal was based upon the ground that there was no evidence "that any customer made any claim under any guarantee involved in this proceeding, or that Wards failed to satisfy any claim under any of its guarantees." From this it was concluded that the record could not support a finding that the advertisements were misleading or deceptive.

The Commission, two members dissenting, adopted the examiner's findings in part, but concluded that Wards had violated the Act. The Commission determined that the legality of Wards' practices was to be tested by their capacity to deceive and not by actual deception. The Commission rejected Wards' argument that, notwithstanding the limitations in its guarantees, it had a policy of honoring guarantees as stated in its advertisements. The Commission reasoned that a customer might purchase on the basis of the advertisement and only then learn of the guarantee limitations. In addition to the finding of deceptive advertising, the Commission found the advertising to constitute an unfair method of competition.

On this petition to review, Wards claims the complaint against it charged it with false advertising. Wards contends there was no false advertising since it always honored guarantees as advertised. Since it honored its advertising, it argues the Commission had the burden of proving that Wards' guarantees were subject to limitations and conditions and that the public was actually deceived.

Wards also contends it has an advertising policy of strict conformance to legal requirements, but that notwithstanding central direction, local stores occasionally and without authorization deviate from the required practice. Such deviations are claimed to be isolated instances when viewed in the light of the magnitude of Wards' advertising operations. It is urged, therefore, that they do not constitute enough of a violation of the Act, as a matter of public interest, to require a cease and desist order.

On review of an order of the Commission, we are bound by a general principle of administrative law, the substantial evidence rule. If the Commission's factual findings have the support of substantial evidence, then we must accept them and consider their legal effect with the benefit of the Commission's administrative experience. F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374, 385, 85 S.Ct. 1035, 13 L.Ed. 904 (1965); Niresk Industries, Inc. v. F.T.C., 7 Cir., 278 F.2d 337, 340 (1960), cert. den., 364 U.S. 883, 81 S.Ct. 173, 5 L.Ed.2d 104 (1960).

The trial examiner's findings and actions are, of course, entitled to consideration in appraising the Commission's findings. Universal Camera Corp. v. Labor Board, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951).

We disagree with Wards' contention that it was charged with failing to honor its advertising guarantees. It was charged with advertising unconditional guarantees, while its actual written guarantee certificates were limited. This is what was found and what Wards was ordered to cease and desist doing.

Wards has misread the complaint to charge it with intentionally false advertising. The charge was deceptive advertising, and whatever Wards' intentions were in the advertising, they are not controlling in the determination of its deceptiveness. Actual deception, proved by deceived consumers, is not necessary: the likelihood of deception or the capacity to deceive is the criterion by which the advertising is judged. Feil v. F.T.C., 9 Cir., 285 F.2d 879, 896 (1960); Parker Pen Co. v. Federal Trade Commission, 7 Cir., 159 F.2d 509 (1946); Charles of the Ritz Dist. Corp. v. F.T.C., 2 Cir., 143 F.2d 676 (1944).

The capacity to deceive involved in Wards' advertisements lies in the inducement to buy created by the unlimited, advertised guarantee. Wards argues strongly, however, that its demonstrated complete willingness to perform according to the advertised guarantee precludes any deception arising from a customer's purchase in reliance on an advertised guarantee.

A policy of honoring advertised guarantees rather than requiring a purchaser to proceed under a limited written guarantee delivered with the merchandise, if invariably communicated to the purchaser, would create a situation not now before us. There was no evidence that such a policy was communicated to Wards' purchasers. The Commission's burden of proof was merely to show that Wards' advertising in relation to the actual facts had a capacity to deceive. It met this burden through a comparison of advertised guarantees and guarantee certificates, which was proper. Western Radio Corp., CCH Trade Reg.Rep. ¶ 16,023 (1961-63 Transfer Binder), aff'd Western Radio Corporation v. F.T.C., 7 Cir., 339 F.2d 937 (1964), cert. den., 381 U.S. 938, 85 S.Ct. 1770, 14 L.Ed.2d 701 (1965); Baldwin Bracelet Corp., 61 F.T.C. 1345 (1962), aff'd, Baldwin Bracelet Corporation v. Federal Trade Commission, D.C. Cir., 325 F.2d 1012 (1963), cert. den., 377 U.S. 923, 84 S.Ct. 1221, 12 L.Ed.2d 215 (1964). Having done so, and we find that a comparison between the advertised guarantees and the written guarantees supports the Commission's determination, the burden was on Wards to show that prospective customers were not deceived.

Assuming Wards has a policy of honoring guarantees as advertised, the issue is yet not one of performance, but one of advertising, of what a prospective purchaser is likely to think on the basis of the advertising alone. The delivery of limiting guarantee certificates with the product purchased might mislead customers notwithstanding Wards' policy. Given such a certificate, customers are not likely to ignore its limitations when seeking satisfaction under its guarantee, particularly in view of the certificate language, "the obligations assumed under this warranty are in lieu of all warranties express or implied." If, on the other hand, each purchaser actually was informed that advertised guarantees would be honored, the certificates were meaningless. The Commission determination that this state of affairs disclosed that purchasers from Wards would be likely to believe they would be bound by the certificate is not unreasonable. That Wards generally intended the certificates to be meaningful is indicated by internal advertising policy directives directing copywriters to accompany promotional copy with a disclosure of guarantee terms.

With respect to the guarantee certificates, Wards argues that the Commission did not show that any customers receiving guarantee certificates were sold advertised products or that the advertised guarantees were not in fact honored. This argument misconceives what the Commission must find. As stated, capacity to deceive and not actual deception is the standard by which to measure the advertising. The asserted lack of connective evidence between guarantee certificates and advertised merchandise is remedied by the fact that the subpoena which required Wards to produce samples of its guarantees specified guarantees for certain merchandise so...