Federal Trade Commission v. Raladam Co

• Citation: 51 S.Ct. 587,283 U.S. 643,75 L.Ed. 1324,79 A.L.R. 1191
• Decision Date: 25 May 1931
• Docket Number: No. 484,484
• Parties: FEDERAL TRADE COMMISSION v. RALADAM CO
• Court: United States Supreme Court

283 U.S. 643

51 S.Ct. 587

75 L.Ed. 1324

FEDERAL TRADE COMMISSION

v RALADAM CO.

No. 484.

Argued April 24, 1931.

Decided May 25, 1931.

The Attorney General and Mr. John Lord O'Brian, Asst. Atty. Gen., for petitioner.

Mr. L. W. McCandless, of Detroit, Mich., for respondent.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

Under section 5 of the Federal Trade Commission Act, c. 311, 38 Stat. 717, 719 (U. S. C., Title 15, § 45 (15 USCA § 45)), the relevant parts of which are copied in the margin,¹ the Commission issued its complaint charging the respondent with using unfair methods of competition in interstate commerce.

Respondent manufactures a preparation for internal use, denominated an 'obesity cure.' The complaint charges that this preparation is sold by respondent in and throughout the several states, generally to wholesalers who resell to retail dealers, and these, in turn, to consumers; that it is offered for sale and sld i n competition with other persons who are engaged 'in offering for sale and selling, printed professional advice, books of information and instruction, and other methods and means and certain remedies and appliances for dissolving or otherwise removing excess flesh of the human body'; that respondent advertises in newspapers, etc., circulated generally in the United States, and in printed labels, etc., that the preparation is the result of scientific research, knowledge, and accuracy, that it is safe and effective and may be used without discomfort, inconvenience, or danger of harmful results to health. Among the ingredients is 'desiccated thyroid,' which, it is alleged, cannot be prescribed to act with reasonable uniformity on the bodies of all users, or without impairing the health of a substantial portion of them, etc., or with safety, without previous consultation with, and continuing observation and advice of, a competent medical adviser. The complaint further avers that many persons are seeking obesity remedies, and respondent's advertisements are calculated to mislead and deceive the purchasing public into the belief that the preparation is safe, effective, dependable, and without danger of harmful results. By way of conclusion, it is said that 'the acts and practices of the respondent are all to the prejudice of the public and of competitors of respondent, * * * and constitute unfair methods of competition.'

Respondent answered, and hearings were had before an examiner. The Commission found against respondent, and issued a cease and desist order. The findings in general follow the language of the complaint. There was no finding of prejudice or injury to any competitor, but the conclusion was drawn from the findings of fact that the practice of respondent was to the prejudice of the public and respondent's competitors, and constituted an unfair method of competition.

The Court of Appeals reviewed the action of the Commission upon respondent's petition, and reversed the order. 42 F.(2d) 430. We brought the case here by certiorari, limiting the briefs and argument to the question of the jurisdiction of the Commission. 282 U. S. 829, 51 S. Ct. 86, 75 L. Ed. —.

In substance, the Commission ordered the respondent to cease and desist from representing that its preparation is a scientific method for treating obesity, is the result of scientific research, or that the formula is a scientific formula; and from representing its preparation as a remedy for obesity, unless accompanied by the statement that it cannot be taken safely except under medical advice and direction. Findings, supported by evidence, warrant the conclusion that the preparation is one which cannot be used generally with safety to physical health except under medical direction and advice. If the necessity of protecting the public against dangerously misleading advertisements of a remedy sold in interstate commerce were all that is necessary to give the Commission jurisdiction, the order could not successfully be assailed. But this is not all.

By the plain words of the act, the power of the Commission to take steps looking to the issue of an order to desist depends upon the existence of three distinct prerequisites: (1) That the methods complained of are unfair; (2) that they are methods of competition in commerce; and (3) that a proceeding by the Commission to prevent the use of the methods appears to be in the interest of the public. We assume the existence of the first and third of these requisites; and pass at once to the consideration of the second.

Section 5 of the Trade Commission Act (15 USCA § 45) is supplementary to the Sherman Anti-Trust Act (15 USCA §§ 1-7, 15) and the Clayton Act (38 Stat. 730). Federal Trade Comm. v. Beech Nut Co., 257 U. S. 441, 453, 42 S. Ct. 150, 66 L. Ed. 307, 19 A. L. R. 882. The latter was discussed and passed at the same session of Congress. The Sherman Act deals with contracts, agreements, and combinations which tend to the prejudce o f the public by the undue restriction of competition or the undue obstruction of the due course of trade, United States v. American Tobacco Co., 221 U. S. 106, 179, 31 S. Ct. 632, 55 L. Ed. 663; and which tend to 'restrict the common liberty to engage therein,' United States v. Patten, 226 U. S. 525, 541, 33 S. Ct. 141, 145, 57 L. Ed. 333, 44 L. R. A. (N. S.) 325.

The Clayton Act, so far as it deals with the subject, was intended to reach in their incipiency agreements embraced within the sphere of the Sherman Act. Standard Co. v. Magrane-Houston Co., 258 U. S. 346, 355-357, 42 S. Ct. 360, 66 L. Ed. 653. 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.' 'The great purpose of both statutes was to advance the public interest by securing fair opportunity for the play of the contending forces ordinarily engendered by an honest desire for gain.' Federal Trade Comm. v. Sinclair Co., 261 U. S. 463, 476, 43 S. Ct. 450, 454, 67 L. Ed. 746. All three statutes seek to protect the public from abuses arising in the course of competitive interstate and foreign trade. 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 competition or the restriction of it in a substantial degree, and this presupposes the existence of some substantial competition to be affected, since the public is not concerned in the maintenance of competition which itself is without real substance. Compare International Shoe Co. v. Commission, 280 U. S. 291, 297-299, 50 S. Ct. 89, 74 L. Ed. 431.

The bill which was the foundation of the act, as it first passed the Senate, declared 'unfair competition' to be unlawful. Debate apparently convinced the sponsors of the legislation that these words, which had a wellsettled meaning at common law, were too narrow. When the bill came from conference between the two Houses, these words had been eliminated and the words 'unfair methods of competition' substituted. Undoubtedly the substituted phrase has a broader meaning, but how much broader has not been determined. It belongs to that class of phrases which 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.' Davidson v. New Orleans, 96 U. S. 97, 104, 24 L. Ed. 616. The question is one for the final determination of the courts and not of the Commission. Federal Trade Comm. v. Gratz, 253 U. S. 421, 427, 40 S. Ct. 572, 64 L. Ed. 993; Federal Trade Comm. v. Beech Nut Co., supra, page 453 of 257 U. S., 42 S. Ct. 150.

The authority of the Commission to proceed, if that body believes that there has been or is being used any unfair method of competition in commerce, was then qualified in conference by the further requirement, not in the original bill,-'and if it shall appear to the commission that a proceeding by it in respect thereof would be to the interest of the public.' By these additional words, protection to the public interest is made of paramount importance, but, nevertheless, they are not sub- stantive words of jurisdiction, but complementary words of limitation upon the jurisdiction conferred by the language immediately preceding. Thus the Commission is called upon first to determine, as a necessary prerequisite to the issue of a complaint, whether there is reason to believe that a given person, partnership, or corporation has been or is using any unfair method of competition in commerce; and, that being determined in the affirmative, the Commission still may not proceed, unlss i t further appear that a proceeding would be to the interest of the public, and that such interest is specific and substantial. Federal Trade Comm. v. Klesner, 280 U. S. 19, 28, 50 S. Ct. 1, 74 L. Ed. 138, 68 A. L. R. 838. Unfair trade methods are not per se unfair methods of competition.

It is obvious that the word 'competition' imports the existence of present or potential competitors, and the unfair methods must be such as injuriously affect or tend thus to affect the business of these competitors-that is to say, the trader whose methods are assailed as unfair must have present or potential rivals...