Globe Cardboard Novelty Co. v. FEDERAL TRADE COM'N

• Decision Date: 16 November 1951
• Docket Number: No. 10424.,10424.
• Citation: 192 F.2d 444
• Parties: GLOBE CARDBOARD NOVELTY CO., Inc., et al. v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Third Circuit

192 F.2d 444 (1951)

GLOBE CARDBOARD NOVELTY CO., Inc., et al. v. FEDERAL TRADE COMMISSION.

No. 10424.

United States Court of Appeals Third Circuit.

Argued October 4, 1951.

Decided November 16, 1951.

Michael von Moschzisker, Philadelphia, Pa. (Nathan Lavine, Alexander B. Adelman, Philadelphia, Pa., on the brief), for petitioners.

John W. Carter, Jr., Washington, D. C. (W. T. Kelley, Gen. Counsel, James W. Cassedy, Asst. Gen. Counsel, Washington, D. C., on the brief), for Federal Trade Commission.

Before McLAUGHLIN, STALEY and HASTIE, Circuit Judges.

STALEY, Circuit Judge.

We are asked to review a cease and desist order entered by the Federal Trade Commission against petitioners.

The Commission instituted this proceeding by a complaint issued on August 10, 1942. An answer was duly filed and hearings were subsequently held. On April 21, 1950, petitioners filed a substituted answer in which they admitted all the material allegations of fact set forth in the complaint and waived all intervening procedure and further hearing as to the facts. The Commission rendered findings of fact based on the allegations of the complaint. The salient facts so found are that petitioners manufacture and sell in interstate commerce push cards and punchboards. Some of their products are sold to manufacturers, wholesalers, and jobbers of candy, cigarettes and other articles of merchandise, who, in turn, pack the push cards and punchboards with their merchandise and sell the assortments in interstate commerce to retailers. Petitioners also sell directly to retailers. Thus, all petitioners' devices flow either directly or indirectly into the hands of retailers, who utilize petitioners' products as sales promotional devices. The Commission found that the sale of merchandise to the public by means of these devices involves a game of chance or the sale of a chance to procure articles of merchandise at prices much less than the normal retail prices, thereby encouraging members of the public to gamble. The Commission further found that consumers are induced to deal with those retailers who utilize lottery methods to the detriment of retailers who refrain from using such sales promotional schemes. At the manufacturers' and wholesalers' levels, the same forces are at work: trade is diverted from manufacturers and wholesalers who do not pack lottery devices with their merchandise. The Commission concluded that, by placing in the hands of others the means of conducting lotteries in the sale of merchandise, petitioners had committed unfair acts and practices in commerce within the meaning of Section 5 of the Federal Trade Commission Act.¹

The order of the Commission, issued December 29, 1950, directed petitioners to cease and desist from "selling or distributing in commerce, as `commerce' is defined in the Federal Trade Commission Act, push cards, punchboards, or other lottery devices which are to be used, or may be used, in the sale or distribution of merchandise to the public by means of a game of chance, gift enterprise, or lottery scheme."

Petitioners attack the order of the Commission on the ground that their sales of lottery devices do not constitute unfair practices in commerce within the contemplation of Section 5 of the Federal Trade Commission Act. They argue that they compete fairly with their competitors in the punchboard business; that any unfairness is committed by their vendees who utilize lottery methods to distribute their merchandise. Thus, we are urged to hold that petitioners' activities are beyond the jurisdiction of the Commission.

Since the decision of the Supreme Court in Federal Trade Comm. v. Keppel & Bro., 1934, 291 U.S. 304, 54 S.Ct. 423, 78 L.Ed. 814, it has been settled law that the sale of merchandise by lottery methods constitutes an unfair method of competition under Section 5 of the Federal Trade Commission Act. Thus, we accept as our starting point the proposition that it is contrary to the public policy of the United States for sellers to market their goods by taking advantage of the consumer's propensity to take a chance. Petitioners actively aid and abet others to commit such unfair practices. They manufacture and sell devices the sole function of which is to sell merchandise by lottery methods. Does this render petitioners' interstate sales of lottery devices unfair? We are in agreement with the Commission's affirmative answer.

The instant proceeding no doubt would have been beyond the jurisdiction of the Commission under the unamended Federal Trade Commission Act, as interpreted by the Supreme Court in Federal Trade Comm. v. Raladam Co., 1931, 283 U.S. 643, 51 S.Ct. 587, 75 L.Ed. 1324. The Wheeler-Lea amendment,² however, effectively broadened the scope of the Commission's powers. Not only unfair methods of competition in commerce were restrainable, but Section 5 was expanded to embrace unfair and deceptive practices in commerce as well. It has generally been agreed that the purpose of the amendment was to eliminate the necessity of proving competition. All the Commission need show now is that there is an act or practice in commerce inimical to the public interest. Perloff v. Federal Trade Comm., 3 Cir., 1945, 150 F.2d 757, 759; Progress Tailoring Co. v. Federal Trade Commission, 7 Cir., 1946, 153 F.2d 103, 105.³ Hence, the fact that petitioners are not unfair toward other manufacturers of lottery devices does not preclude the Commission from assuming jurisdiction.

The exact issue with which we are faced has been raised on petition for review in only one prior case. In Charles A. Brewer & Sons v. Federal Trade Comm., 6 Cir., 1946, 158 F.2d 74, the Court of Appeals for the Sixth Circuit affirmed an identical cease and desist order.⁴ The fact situation in the Brewer case is, in all material respects, the same as that in the case at bar. That court concluded that the petitioners there had aided, abetted, and induced manufacturers and wholesale and retail dealers in merchandise to use unfair or deceptive acts or practices and unfair methods of competition. In so doing, the court found that petitioners themselves had committed unfair practices. We think the decision in the Brewer case is a sound one and in harmony with the Congressional intent behind the Wheeler-Lea amendment.

The opinion in the Brewer case relies in part on the common-law rule of unfair competition that one who furnishes another with the means of consummating a fraud is himself a wrongdoer. See Coca-Cola Co. v. Gay-Ola Co., 6 Cir., 1912, 200 F. 720; see also Federal Trade Comm. v. Winsted Co., 1922, 258 U.S. 483, 42 S.Ct. 384, 66 L.Ed. 729. We agree that the above-stated rule can be applied as an apt analogy here.

Petitioners argue that the Brewer case was wrongly decided and is contrary to the decision of this court in Scientific Mfg. Co. v. Federal Trade Comm., 3 Cir., 1941, 124 F. 2d 640. A careful study of these two cases, however, has convinced us that they are not contradictory. The Scientific Mfg. Co., which was in fact the alter ego of one Force, was engaged in the publication and...