Exposition Press, Inc. v. FTC, 17

• Decision Date: 06 November 1961
• Docket Number: Docket 26840.,No. 17,17
• Citation: 295 F.2d 869
• Parties: EXPOSITION PRESS, INC. and Edward Uhlan, Petitioners, v. FEDERAL TRADE COMMISSION, Respondents.
• Court: U.S. Court of Appeals — Second Circuit

295 F.2d 869 (1961)

EXPOSITION PRESS, INC. and Edward Uhlan, Petitioners, v. FEDERAL TRADE COMMISSION, Respondents.

No. 17, Docket 26840.

United States Court of Appeals Second Circuit.

Argued September 29, 1961.

Decided November 6, 1961.

COPYRIGHT MATERIAL OMITTED

Philip Adler, New York City, for petitioners.

Charles C. Moore, Jr., Federal Trade Commission, Washington, D. C. (James McI. Henderson, Gen. Counsel, Alan B. Hobbes, Asst. Gen. Counsel, and Jno. W. Carter, Jr., Federal Trade Commission, Washington, D. C., on the brief), for respondents.

Before LUMBARD, Chief Judge, and FRIENDLY and SMITH, Circuit Judges.

LUMBARD, Chief Judge.

Exposition Press, Inc. and Edward Uhlan, its president, petition for review of an order directing them to cease and desist from certain deceptive advertising practices entered by the Federal Trade Commission pursuant to § 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45.¹

Petitioners attack the order on a number of grounds; that the complaint before the Federal Trade Commission did not state a cause of action, that the Commission's findings of deceptiveness are erroneous, that on principles of res judicata the Commission's proceedings were barred by an earlier consent order, and that in any event the Commission's order is too broad and should be modified. We find these contentions to be without merit.

Exposition Press, Inc. is a "subsidy" or "vanity" publisher. Its business differs from that of most publishing houses in that normally most or all of the expense of publishing its books is paid in advance by their authors. Less than 10% of its authors recoup their investments and derive actual profit from their writing.²

The Commission's complaint attacked Exposition's use of the following advertisement, which was inserted in a variety of newspapers and magazines:

"Free to Writers

seeking a book publisher

Two fact-filled, illustrated brochures tell how to publish your book, get 40% royalties, national advertising, publicity and promotion. Free editorial appraisal. Write Dept. STM-3.

Exposition Press / 386 4th Ave., N. Y. 16"

The hearing examiner found that the application of the term "royalty" to any payments from sales receipts made to an author before his entire investment had been returned was deceptive per se.

The Commission vacated the examiner's findings and made more limited findings to the effect that the advertisement as worded tended to "mislead and deceive a substantial portion of the purchasing public with respect to the payment they will receive for the publication of their books. * * *" It entered an order that petitioners cease and desist from:

"Representing through the use of the term `royalties\' or in any other manner that they will make payments to an author based on sales of the author\'s book unless a disclosure is made in immediate conjunction therewith that such payments do not constitute a net return to the author but that the cost of printing, promoting, selling and distributing the book must be paid in whole or in substantial part by the author."

A subsequent motion to modify the order was denied.

1. Res Judicata — We agree with the hearing examiner and the Commission that the consent order agreed to between Exposition and the Commission in November 1957 does not bar the present proceeding. Exposition argues that this earlier order, which dismissed "all other charges in the complaint," disposed of the question whether the mode of advertising now attacked was unfair. Its argument is not that the earlier complaint specifically alleged misuse of the term "royalty," but rather that because of a statement by Commission counsel at the earlier hearing that "respondents have dubbed it a royalty when it is only a percentage paid back" the question was put in issue, or in any event should have been.

The advertisement here in question was first used by Exposition only after the completion of the earlier proceeding. There is no indication that prior to the earlier proceeding similar representations had been made to the public at large that Exposition was a regular trade publisher which paid extraordinarily high compensation to its authors. In any event, new violations will support new proceedings dealing with different periods of time, as least where there is no indication of harassment by the Commission. See F.T.C. v. Raladam Co., 1942, 316 U.S. 149, 62 S.Ct. 966, 86 L.Ed. 1336; 2 Davis Administrative Law Treatise 570-71 (1958); cf. Grandview Dairy, Inc. v. Jones, 2 Cir., 157 F.2d 5, certiorari denied, 1946, 329 U.S. 787, 67 S.Ct. 355, 91 L.Ed. 675. Incidental mention in the earlier hearing of misuse of the word "royalty" could not possibly have put in issue the questions raised by this advertisement.

2. Findings and Conclusion of the Commission — Considering the record as a whole, see Universal Camera Corp. v. NLRB, 1951, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456, we find substantial support for the Commission's finding that Exposition's advertisement had "the tendency and capacity to deceive a substantial portion of the purchasing public." Great weight must be given by us to the Commission's factual inferences. Corn Products Ref. Co. v. F.T.C., 1945, 324 U.S. 726, 65 S.Ct. 961, 89 L.Ed. 1320. Although only one of the author-witnesses testified to having been actually deceived by the advertisement in question, a majority of the Exposition clients who testified said that, although they had begun their dealings with Exposition prior to the use of this advertisement, it would have deceived them but for their present sophistication. Considering this testimony, the dictionary definition of "royalty" as "a duty or compensation paid to the owner of a * * * copyright for the use of it * * *,"³ and the somewhat ambivalent testimony of publishers as to the technical usage of the word, we find ample reason to believe that the ordinary reader of the advertisement would be misled as to Exposition's terms of publication. Actual consumer testimony is in fact not needed to support an inference of deceptiveness by the Commission. Charles of the Ritz Distributors Corp. v. F. T. C., 2 Cir., 1944, 143 F.2d 676, 680; cf. E. F. Drew & Co. v. F. T. C., 2 Cir., 1956, 235 F.2d 735, certiorari denied, 1957, 352 U.S. 969, 77 S.Ct. 360, 1 L.Ed. 323. In evaluating the tendency of language to deceive, the Commission should look not to the most sophisticated readers but rather to the least. F. T. C. v. Standard Educ. Soc'y, 1937, 302 U.S. 112, 116, 58 S.Ct. 113, 82 L.Ed. 141; Book-of-the-Month Club, Inc. v. F. T. C., 2 Cir., 202 F.2d 486, certiorari dismissed, 1953, 346 U.S. 883, 74 S.Ct. 144, 98 L.Ed. 388. For this reason we must reject the argument that any reasonable author should have known enough not to expect a free-and-clear 40% royalty; the fact that a person has produced a manuscript does not necessarily mean that he has any knowledge of publishers' prevailing rates.

A more serious problem is raised by the argument that, even granting the deceptiveness of the initial advertisement, no cause of action under Section 5 was made out since any prospective customer answering the advertisement was immediately sent literature which made it clear, before any contract was made, that the author was required to subsidize the expenses of publication. Since the Commission's findings was only that the advertisement was deceptive, we must accept this contention that the initial misconception was soon clarified.

Nontheless, we hold that it was within the Commission's power to prohibit the initial deception. "The law is violated if the first contact * * * is secured by deception * * *, even though the true facts are made known to the buyer before he enters into the contract of purchase." Carter Prods., Inc. v. F.T. C., 7 Cir., 1951, 186 F.2d 821, 824; see Book-of-the-Month Club, Inc. v. F.T.C., supra; Progress Tailoring Co. v. F. T. C., 7 Cir., 1946, 153 F.2d 103.

In any event, the Commission found that Exposition's competitors were injured by the tendency of the deception to "induce authors * * * to enter into correspondence with respondents, leading in many instances to the acceptance of a contract for respondent's services." It was a permissible inference that Exposition by its misleading initial approach attracted business which it would not otherwise have obtained. In such a situation testimony of actual injury to specific competitors is not required. F. T. C. v. Raladam Co., 1942, 316 U. S. 149, 152, 62 S.Ct. 966, 86 L.Ed. 1336. Although the Commission did not explicitly marshal evidence of the existence of other subsidy publishers competing with Exposition, the fact that there are such publishers emerges amply from a reading of the record as a whole. Even if these competing publishers did use various unfair methods of their own for attracting business (which the record in this case does not show), this would not excuse Exposition's unfair deception. Cf. Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 1951, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219.

Although the Federal Trade Commission can act against a deceptive advertiser only if it finds such action to be "to the interest of the public," Federal Trade Commission Act § 5(b), 15 U.S.C.A. § 45(b), and although its finding of public interest is subject to our review, F. T. C. v. Klesner, 1929, 280 U.S. 19, 50 S.Ct. 1, 74 L.Ed. 138, we think there is sufficient public interest in preventing Exposition's deceptive advertising to justify our enforcement of the Commission's order. This is not, like the Klesner case, an instance of Federal Trade Commission intervention in a private dispute. Nor was the deception only as to trivial matters, see Moretrench Corp. v. F. T. C., 2 Cir., 1942, 127 F.2d 792, 795 (dictum). That the deception may be remedied before the customer has suffered any more pecuniary loss than the price of a postage stamp does not foreclose the Commission from acting to proscribe it in the first instance.

Ju...