Giant Food Inc. v. FTC

• Decision Date: 13 June 1963
• Docket Number: No. 17269.,17269.
• Citation: 322 F.2d 977
• Parties: GIANT FOOD INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

322 F.2d 977 (1963)

GIANT FOOD INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 17269.

United States Court of Appeals District of Columbia Circuit.

Argued April 26, 1963.

Decided June 13, 1963.

Petition for Rehearing Denied October 14, 1963.

Petition for Rehearing Denied October 14, 1963.

Mr. Robert F. Rolnick, Washington, D. C., with whom Messrs. Raymond R. Dickey and Bernard Gordon, Washington, D. C., were on the brief, for petitioner.

Mr. Richard Whittington Whitlock, Attorney, Federal Trade Commission, with whom Mr. James McI. Henderson, General Counsel, Federal Trade Commission, was on the brief, for respondent.

Before FAHY, BASTIAN and McGOWAN, Circuit Judges.

Petition for Rehearing En Banc Denied October 14, 1963.

Petition for Rehearing Before the Division Denied October 14, 1963.

McGOWAN, Circuit Judge.

This is a petition to review a Federal Trade Commission cease and desist order against allegedly false and deceptive advertising in violation of § 5 of the Federal Trade Commission Act: "Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful."¹ Petitioner was ordered to cease and desist from referring to "regular price," unless petitioner had usually and regularly sold the particular product at that price "in the recent, regular course of its business;" and from referring to the "manufacturer's list price," when that list price was not the usual and customary retail selling price of the product in the area.²

The major issues presented by this petition are: (1) the power of the Commission to proscribe the use of "manufacturer's list price" as a deceptive advertising practice; (2) the fairness of the administrative hearing afforded to petitioner; (3) the sufficiency of the evidence to support the Commission's order; and (4) the scope of the cease and desist order.³

I

Giant Food Inc., a Delaware corporation, operates a chain of more than fifty retail stores in Maryland, Virginia and the District of Columbia, located primarily in the Washington Metropolitan Area. Most of the outlets are "Giant Food" Stores; some are designated "Super Giant." A "Super Giant" combines all of the attributes of a supermarket and department store. It sells food, food products, and non-food products which would normally be found in a large chain grocery; small durable consumer goods, such as housewares and electrical appliances; durable goods; and soft goods, including clothing, drugs and soaps.

In the conduct of its business, and for the purpose of inducing the public to purchase goods at its stores, Giant regularly advertises in the three major newspapers serving the Washington Metropolitan Area. Typical of the "ads" placed by Giant were the following:

"Proctor Steam & Dry Iron #10010 Reg. Price $15.95. Adv. Price $8.47."

"Regina Twin Brush Waxer #400 Reg. Price $66.00. Adv. Price $35.47."

"Regina Twin Brush Waxer $35.47-Mfg. List $66.00."

"Sunbeam Mixmaster $24.88-Manufacturer List Price $37.95."

On February 4, 1960, the Commission issued a complaint against Giant based on this type of advertising as used in promoting the sale of small household appliances. The complaint charged that "Reg. Price," and variants thereof, represented that Giant had sold the particular product at such price "in the recent, regular course of its business," and that such representation was untrue. The complaint also charged that "Mfr. List," and variants thereof, represented that the particular product was "usually and customarily sold at retail" at such price, when in fact the represented price was "substantially in excess of" the usual and customary retail price.

Hearings were held during 1960-61. Concerning the charge of misuse of "regular price" and similar terms, an employee of Giant admitted that his company's stores had never sold the items at that price. It appeared, however, that Giant had ceased using the term soon after the Commission began investigating Giant in 1959, in accordance with a directive issued by the company to its employees not to refer to the regular price of a product unless Giant had in the recent past sold the product at that price. Giant does not now contest the finding by the Hearing Examiner, adopted by the Commission, that reference to regular prices was deceptive advertising amounting to unfair competition within the proscription of § 5.⁴ As to this portion of the order, Giant challenges only the propriety of banning practices which it had stopped and which it had promised the Commission not to reinstitute.

As to "manufacturer's list price," and similar terms, Giant had neither ceased their use nor voluntarily consented to do so. The Commission called as its witnesses buyers for The Hecht Company, S. Kann Sons Company, and Woodward & Lothrop, Inc., three of the larger department stores serving the Washington Metropolitan Area. The buyers testified that their stores had never sold at list price the products which Giant advertised with the comparison of its selling price to the list price. Taking just one example, Giant advertised the Sunbeam Hand Mixer, with a list price of $21.00, for $13.97. The highest prices at which the other stores sold the same product at that time were $16.49 (Hecht), $14.97 (S. Kann), and $13.49 (Woodward & Lothrop). Additionally, the Commission produced the testimony of several consumer witnesses, all of whom testified that they understood Giant's advertising to mean that the manufacturer's list price was the price they would pay if they purchased the product elsewhere, and that, by buying at Giant, they would realize a "savings" of the difference between list price and Giant's price.

In rebuttal, Giant showed that the catalogue of the Goodyear Service Stores, which operated several stores in the Metropolitan Area, advertised at least some of the same products at prices the same as the manufacturer's list prices to which Giant referred in its advertising; that manufacturers advertised their products at suggested list prices in Life Magazine, McCalls, Look Magazine, and Consumer Reports Buying Guide; and that several purchases had been made by agents of Giant in stores in the Metropolitan Area at the manufacturer's list price for the item. On this record the Trial Examiner issued the cease and desist order which, with certain modifications in language by the Commission, is the subject of this appeal.

II

Giant's first major contention is that the Commission exceeded its authority by defining "manufacturer's list price" as the usual and customary retail price in the trade area where the term is used, and that the term is neither "false, misleading, nor deceptive." We do not understand the Commission to hold that use of the term "manufacturer's list price" is unlawful per se; rather, it is unlawful only if it is not the usual and customary retail price in the area. The use of price lists and suggested retail prices is not confined to any one industry. Although not of recent origin, it could be justifiably called a modern phenomenon of large-scale merchandising.⁵ It has been used as a means of effecting unlawful resale price maintenance;⁶ but it has also been justified as a means of enabling consumers to identify products and compare actual retail prices of the same product.⁷ Indeed, Giant urges the latter justification in the instant case. A suggested retail price may perhaps serve as an identifying factor for comparison purposes. But, if the "advertisements * * * are capable of two meanings, one of which is false, they are misleading."⁸ Thus, if the Commission was correct that Giant's use of "manufacturer's list price" was false and deceptive, then the order must be upheld, even though the term might have performed a different — and lawful — function.

There can be no doubt at this late date that advertising which is false or deceptive is within the proscription of § 5.⁹ As noted above, two other courts of appeals have previously upheld Commission orders against the use of "regular price" unless the company had itself sold the product at that price.¹⁰ Similarly, orders have been upheld against manufacturers, prohibiting pre-ticketing of products unless the product is "usually and regularly sold at retail" at the preticketed price in trade areas where the representation is made.¹¹ The Commission here has determined that the use of the term "manufacturer's list price" represents to the public that that was the price at which the product was usually and customarily sold by other stores in the area. This determination was within its power, unless it was "arbitrary or clearly wrong."¹² We cannot say that it was, particularly in view of the consumers' testimony adduced at the hearing. If a manufacturer can be prevented from placing a deceptive price on its product, we see no reason to permit a retailer to make reference to a deceptive suggested price. It is immaterial that all potential buyers are not included in that class of persons who would be cajoled by Giant's use of the term. The Act was not intended to protect "sophisticates."¹³

Two other contentions of petitioner can be disposed of here. Giant urges that the policy behind the Automobile Information Disclosure Act,¹⁴ which requires automobile dealers to disclose the manufacturer's suggested retail delivery price to customers, prevents the imposition of a contrary policy where small appliances are involved. We agree with the disposition made of a similar contention by the Fourth Circuit in Baltimore Luggage Co. v. F. T. C., supra, where the court reviewed the legislative history of the Act and held:

"It is quite obvious that the Automobile Information Disclosure Act was enacted in the effort to remedy a situation peculiar to the automobile industry brought about by widespread fraudulent or deceptive practices principally indulged in by retailers. The Act does indicate that preticketing per se is not illegal, but the Commission does not so

...