Mennen Co. v. Federal Trade Commission

• Decision Date: 13 March 1923
• Docket Number: 69.
• Parties: MENNEN CO. v. FEDERAL TRADE COMMISSION. [1]
• Court: U.S. Court of Appeals — Second Circuit

288 F. 774

MENNEN CO. v. FEDERAL TRADE COMMISSION. ^[1]

No. 69.

United States Court of Appeals, Second Circuit.

March 13, 1923

Gilbert H. Montague, Joseph W. Goodwin, and Charles Furnald Smith all of New York City, for petitioner.

W. H Fuller, Chief Counsel Federal Trade Commission of Washington D.C., and W. T. Kelley, of New York City, for respondent.

Felix H. Levy, of New York City, for Wholesale Dry Goods Ass'n National Hardware Ass'n, National Supply & Machinery Dealers' Ass'n, National Wholesale Jewelers' Ass'n, National Floor Covering Ass'n, and American Brush Manufacturers' Ass'n as amici curiae.

This cause comes here on petition to review an order made on March 3, 1922, by the Federal Trade Commission.

The petitioner is a corporation organized under the laws of the state of New York, with its principal offices and place of business in the city of Newark in the state of New Jersey. It is engaged in the business of manufacturing and selling talcum powder, tooth paste, shaving soap, and various other toilet articles, causing the same to be transported to purchasers thereof from the state of New Jersey into various other states of the United States and foreign countries in direct competition with other persons and corporations similarly engaged. It is hereinafter referred to as the respondent.

The Federal Trade Commission on April 15, 1920, filed a complaint against the respondent and subsequently an amended complaint on January 27, 1921. It alleged that respondent had adopted a plan for the allowance of trade discounts in the marketing of its products; that in pursuance of such plan respondent has and continues to classify its customers into two groups according to a basis of selection adopted by it and has allowed and does allow to purchasers of the same quantity and quality of its products, different discount rates according to the classification of such purchasers by respondent. It is further alleged that this practice of varying discounts, irrespective of quantity and quality, tends unduly to hinder competition between distributors of respondent's products to retailers or directly to the consuming public. It is also alleged that, by reason of the facts recited, the respondent is using an unfair method of competition in commerce, within the intent and meaning of section 5 of an act of Congress, entitled 'An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes,' approved September 26, 1914 (Comp. St. Sec. 8836e).

It further alleged that the varying discount rates allowed by the respondent are a discrimination in price between purchasers of respondent's commodities for use, consumption, or resale within the United States and the District of Columbia, the effect of which may be to substantially lessen competition in the distribution of respondent's products or between distributors thereof.

It is further alleged that such discrimination is not founded in differences in the grade, quality, or quantity of the commodity sold and does not make only due allowance for difference in the cost of selling or transportation and is not made in good faith to meet competition; that the plan for classification of customers and the allowance of varying discount rates is not a selection of customers in bona fide transactions not in restraint of trade.

It is also alleged that the actions and doings of the said respondent referred to and recited are contrary to the intent and meaning of section 2 of an act of Congress, entitled 'An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes,' approved October 15, 1914 (Comp. St. Sec. 8835b).

The respondent filed an answer denying the jurisdiction of the Commission. It also denied the material allegations of the amended complaint and asked that it be dismissed. The motion to dismiss was overruled and denied.

Hearings were had and evidence was introduced, before an examiner of the Commission, in support of the allegations of the amended complaint and on behalf of the respondent. Then the proceeding came on for final hearing, and the Commission having heard argument and considered the record made its findings as to the facts and its conclusion. Its conclusion was that the practices of respondent amounted to unfair methods of competition in interstate commerce and a violation of the acts of Congress hereinbefore mentioned. And an order to cease and desist was entered.

Before ROGERS, MANTON, and MAYER, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

The transactions complained of are transactions in interstate commerce, and the acts with which the respondent is charged are done in the course of such commerce. The practices in which the respondent is engaged as charged in the complaint are admitted by it in its answer, but it denies that those practices tend unduly to hinder competition, or that they constitute an unfair method of competition in commerce, or amount to a restraint of trade.

Two acts of Congress are herein involved. The Federal Trade Commission Act, being the act of September 26, 1914, 38 Stat. 717, 724, which provides in section 5 (Comp. St. Sec. 8836e) 'that unfair methods of competition in commerce (i.e. interstate commerce) are hereby declared unlawful,' and the Clayton Act, being the Act of October 15, 1914, which was passed to supplement existing laws against unlawful restraints and monopolies, 38 Stat. 730, and which provides in section 2 (Comp. St. Sec. 8835b) as follows:

'That it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly to discriminate in price between different purchasers of commodities, which commodities are sold for use, consumption, or resale within the United States or any territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in any line of commerce: Provided, that nothing herein contained shall prevent discrimination in price between purchasers of commodities on account of differences in the grade, quality, or quantity of the commodity sold, or that makes only due allowance for difference in the cost of selling or transportation, or discrimination in price in the same or different communities made in good faith to meet competition: And provided further, that nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade.'

This section of the Clayton Act provides in substance that it shall be unlawful for any person engaged in interstate or foreign commerce to discriminate in price between different purchasers of commodities in transactions within the United States or under its jurisdiction 'where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in any line of commerce.'

Before considering the provision of section 2 of the Clayton Act, we find it necessary to consider the Federal Trade Commission Act which lies at the basis of this entire proceeding.

The Federal Trade Commission Act having declared that 'unfair methods of competition in commerce' are unlawful, and created a Federal Trade Commission, empowered and directed it to prevent persons, partnerships, or corporations except banks, and common carriers subject to the acts to regulate commerce, 'from using unfair methods of competition in commerce. ' And unless a person, partnership, or corporation is engaged in using 'unfair methods of competition' the Commission has no authority whatever to proceed under the act.

We are therefore confronted with the question as to what is meant by the words 'unfair methods of competition in commerce' as used in the act. That question was before the Supreme Court in 1919 in Federal Trade Commission v. Gratz, 253 U.S. 421, 40 Sup.Ct. 572, 64 L.Ed. 993. That case went up from this court (258 F. 314, 169 C.C.A. 330, 11 A.L.R. 793) and affirmed the conclusion at which we arrived. The defendants were partners and were engaged in selling ties and bagging for cotton bales. They sold principally to jobbers and dealers who resold the same to retailers, cotton ginners, and farmers. For more than a year they had refused to sell any such ties unless the prospective purchasers would also buy from them the bagging to be used with the number of ties proposed to be bought. This was held plainly insufficient to show an unfair method of competition. In the opinion, which was written by Mr. Justice McReynolds, the court said:

'The words 'unfair method of competition' are not defined by the statute and their exact meaning is in dispute. It is for the courts, not the commission, ultimately to determine as matter of law what they include. They are clearly inapplicable to practices never heretofore regarded as opposed to good morals because characterized by deception, bad faith, fraud or oppression, or as against public policy because of their dangerous tendency unduly to hinder competition or create monopoly. The act was certainly not intended to fetter free and fair competition as commonly understood and practiced by honorable opponents in trade. * * *

'The complaint contains no intimation that Warren, Jones & Gratz, did not properly obtain their ties and bagging as merchants usually do; the amount controlled by them is not stated; nor is it alleged that they held a monopoly of either ties or bagging or had ability, purpose or intent to acquire one. So far as appears, acting independently, they

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