Korber Hats, Inc. v. FTC, 6008.

• Decision Date: 31 December 1962
• Docket Number: No. 6008.,6008.
• Parties: KORBER HATS, INC., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — First Circuit

311 F.2d 358 (1962)

KORBER HATS, INC., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 6008.

United States Court of Appeals First Circuit.

Heard November 7, 1962.

Decided December 31, 1962.

Ira M. Millstein, New York City, with whom Marshall C. Berger and Weil, Gotshal & Manges, New York City, were on brief, for petitioners.

Thomas F. Howder, Atty., Federal Trade Commission, with whom James McI. Henderson, Gen. Counsel, and J. B. Truly, Asst. Gen. Counsel, were on brief, for respondent.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

HARTIGAN, Circuit Judge.

This is a petition for review of a cease and desist order of the Federal Trade Commission which found that certain labelling practices of petitioners constituted a violation of Section 5(a) (1) of the Federal Trade Commission Act (15 U.S.C. § 45(a) (1)).

Petitioner, Korber Hats, Inc.,¹ is a Massachusetts corporation which maintains its principal place of business in Fall River and manufactures and distributes men's hats. As part of its line of summer offerings, petitioners manufacture — in their Fall River plant — a hat made out of Philippine hemp braid which it imports from Japan and markets them in commerce under labels variously styled as follows: "Genuine Milan," "Genuine Imported Milan," "Genuine Milan, Imported Handblocked." These words appear variously on the "tag" or label in the crown and in some instances were imprinted on the sweatbands.

The Commission found such labeling to be false, misleading and deceptive and ordered petitioners to cease and desist from:

"(1) Using the terms `Milan\', `Genuine Milan\', `Imported Milan\', `Genuine Imported Milan\' or any other substantially similar representation as descriptive of men\'s straw hats not manufactured in Italy of wheat straw.

"(2) Using the terms `Milan\', `Genuine Milan\', `Imported Milan\', `Genuine Imported Milan\' or any other substantially similar representation as descriptive of men\'s straw hats not of the same construction, design and workmanship as that traditionally characteristic of men\'s straw hats manufactured in Italy and designated as `Milan\'.

"(3) Using any words or phrases which directly or indirectly, represent that said products are manufactured in a given country or out of certain materials or in a particular manner or style unless such is a fact.

"(4) Furnishing or otherwise placing in the hands of retailers or dealers in said products the means and instrumentalities by and through which they may mislead or deceive the public in the manner or as to the things hereinabove inhibited."

The principal issues raised here relate to the substantiality of the evidence to support the Commission's findings of fact as to the falsity or deceptiveness of the labels and, secondly, to the scope of the order.

The record establishes that the term "Milan" is one of long standing in the field of men's straw hats. It appears that in former days the area around the Po River Valley in Italy was a fertile source of wheat straw. The inhabitants of this region would harvest this material and the straw would then be woven into an artistic and distinctive type of braid and ultimately sewn into hat "bodies" in the cities of northern Italy. The bodies would then be exported from Italy to various countries including the United States. Inasmuch as the vast majority of these shipments were made from Milan these hats came to be known as "Milan" hats.

The evidence discloses that in the ensuing years wheat straw was also grown on the Chinese mainland and this too was woven into a braid which was used in men's straw hats. For many years this braid was imported directly into the United States and thereafter utilized to manufacture straw hats under a "Milan" label.

In recent years international events forced a cessation in the import of such raw material from Communist China. Now wheat straw from China is sent to Italy where it is sewn into hat "bodies" which are exported to the United States.

The evidence shows that hats made of wheat straw and sold as "Milan" are "quality" or "luxury" items and range in retail price from $11.95 to $20.00. The hat is extremely light in weight, has a desirable "feel," and superior shape-retention qualities. It has a "sharp" and "firm" bead to the braid and is more "lustrous" because of the superior dyes with which it is prepared.

On the other hand, hats made of Philippine hemp normally range in price from $3.95 to $7.95. There is evidence that the hats are slightly heavier than those made of wheat straw, have inferior shape-retention features and, as opposed to the smooth variegated texture of the wheat straw product, have a woody "feel" or texture.

The foregoing distinctions between wheat straw hats and hemp hats were made by men of broad experience in the hat industry. Despite these distinctions, there was ample testimony that the two types of hats possessed such a surface similarity that the average customer — uninitiated in the lore of the hat industry — might fail to perceive a difference in the two products.

Section 5 of the Act makes unlawful unfair methods of competition and unfair or deceptive acts or practices in commerce. Congress thus gave the Commission a broad mandate to prevent public deception in the give and take of the market place. It is clear that what is an "unfair" method of competition can only be assayed in the environmental and marketing context of the particular practice put in issue. In Schechter Poultry Corp. v. United States, 295 U.S. 495, 532, 533, 55 S.Ct. 837, 844, 79 L.Ed. 1570 (1935), the Court said: "What are `unfair methods of competition' are thus to be determined in particular instances, upon evidence, in the light of particular competitive conditions and of what is found to be a specific and substantial public interest."

The power of the Commission to issue cease and desist orders against mislabelling or false advertising was recognized at an early date. Federal Trade Comm. v. Winsted Co., 258 U.S. 483, 42 S.Ct. 384, 66 L.Ed. 729 (1922). Courts have consistently upheld the Commission's efforts to compel manufacturers and retailers to adhere to a high level of honesty in connection with their labelling and advertising habits, see Kalwajtys v. Federal Trade Commission, 237 F.2d 654, 656, 65 A.L.R.2d 220 (7th Cir., 1956), cert. denied, 352 U.S. 1025, 77 S. Ct. 591, 1 L.Ed.2d 597 (1957), and to "insist upon the most literal truthfulness" in marketing their goods. Moretrench Corporation v. Federal Trade Commission, 127 F.2d 792, 795 (2nd Cir., 1942). In this area not only the cynical but the naive are to be protected and if the Commission, in its discretion, "thinks it best to insist upon a form of advertising clear enough so that, in the words of the prophet Isaiah, `wayfaring men, though fools, shall not err therein,' it is not for the courts to revise their judgment." General Motors Corp. v. Federal Trade Commission, 114 F.2d 33, 36 (2nd Cir., 1940).

While advertising and labelling are frequently considered together, there is good reason to insist upon a higher degree of veracity in the latter. It may well be argued that consumers accept labelling statements literally while perhaps viewing with a more jaundiced eye the vaunted claims of the advertising media.

The question here is whether there is substantial evidence to support the Commission's findings that a consumed in buying petitioners' hemp hats, bearing the label "Milan," "Genuine Milan," or "Genuine Imported Milan," might be mislead. In the final analysis, the validity of a label should undoubtedly be judged by the predictable inference a prospective customer will draw from it. What inferences are likely to be drawn from petitioners' labels?

Reginald Borgia, a fifteen year employee of the Hat Corporation of America and manager of its Dobbs Hat Sales Division in New York, testified that to him the term "Milan" had always meant a hat made of wheat straw. He stated that if he saw the word "Milan" appearing alone on either a sweatband or in some other part of a hat, this would indicate to him that the hat was "a genuine Milan straw, a wheat straw." He testified that this was not only his own interpretation but was an industry-wide understanding. Thus, he stated that: "if I refer to somebody that this is a Milan hat, they would say the same thing. It is made out of wheat straw. When I am dealing with buyers from various concerns and I mention the word `Milan,' they automatically consider it that type, wheat straw Milan." Finally he testified that in his view the average customer would be unable to tell the difference between the hemp hat and the "Milan" hat.

Gerald Rolnick, vice-president of the Byer-Rolnick Hat Corporation, testified that if he saw the legend "Genuine Milan" or "Imported Genuine Milan" imprinted on a sweatband or the crown of a hat that it would mean to him that it was a wheat straw hat. He also testified that, in his opinion, the average customer coming to a store to buy a hat would not be able to tell the difference between a hat made out of wheat straw and one made out of hemp.

Ellis A. Campus, office manager of the Ecuadorian Panama Hat Company, who had some forty years experience in the men's straw hat industry, testified that if he saw the word "Milan" affixed to a hat that he would think that it was made from wheat straw. It was his view that the average customer "would think he was buying a Milan hat" if a "Milan" label was appended to a hemp hat. Thus, he stated: "I think that when a man goes into a store and picks out a hat with any particular name, it is one thing. When he goes into a store and wants to buy a Panama hat or a Milan hat, he expects the hat to be what they are marked, Milan or Panama * * * and * * if you went in and bought a hemp hat marked Milan, you would be going against the usage of the name."

William R. Manning, manager of the straw hat division of the John B. Stetson...