SPERRY AND HUTCHINSON COMPANY v. FTC, 26739.

• Decision Date: 29 September 1970
• Docket Number: No. 26739.,26739.
• Citation: 432 F.2d 146
• Parties: The SPERRY AND HUTCHINSON COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

432 F.2d 146 (1970)

The SPERRY AND HUTCHINSON COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 26739.

United States Court of Appeals, Fifth Circuit.

September 29, 1970.

Samuel K. Abrams, Washington, D. C., J. Sam Winters, Austin, Tex., E. Smythe Gambrell, Harold L. Russell, Atlanta, Ga., for petitioner; Gambrell, Russell, Moye & Killorin, Atlanta, Ga., Clark, Thomas, Harris, Denius & Winters, Austin, Tex., Casey, Lane & Mittendorf, New York City, Morison, Murphy, Abrams & Haddock, Washington, D. C., of counsel.

James McI. Henderson, Gen. Counsel, John V. Buffington, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Daniel H. Hanscom, Atty., Federal Trade Commission, Washington, D. C., for the Federal Trade Commission.

Before JONES, WISDOM, and COLEMAN, Circuit Judges.

COLEMAN, Circuit Judge.

The Sperry and Hutchinson Company ("S. & H.") seeks review of a cease and desist order issued by the Federal Trade Commission ("the Commission").

The litigation was initiated by a complaint, issued November 15, 1965, alleging that S. & H., in connection with its trading stamp business, engaged in unfair methods of competition and unfair acts and practices in commerce, in violation of § 5 of the Federal Trade Commission Act.¹

Upon hearing, briefs, and argument, the Hearing Examiner filed his initial decision February 10, 1967. He held that business practices of S. & H., including the prevention of trafficking in its stamps, were lawfully essential to the Company's services and that the charges relating to business practices of S. & H. acting alone were not supported by the evidence. He sustained those portions of the complaint dealing with alleged combinations or conspiracies with retailers or other trading stamp companies.

The Commission sustained the Examiner's findings as to alleged combinations and conspiracies but rejected his findings as to S. & H.'s unilateral practices. In short, the Commission sustained all of the charges in the complaint.

Portions of the order entered under Count III of the complaint directed S. & H. to cease and desist from preventing persons from trafficking in its trading stamps. S. & H. was also ordered not to institute suits to enjoin such trafficking and to notify traffickers that injunctions presently in effect in state and federal courts would not be enforced.

S. & H. urges that these portions of the order (relating to Count III) be vacated. We are of the view that the petition should be granted.

The Business of S. & H.

Sperry and Hutchinson is the oldest, and by far the largest, trading stamp company in the United States. It has been engaged in the trading stamp business for over seventy years. By 1964 it accounted for about 40% of all trading stamp volume in the United States.² Approximately 60% of all households in the Nation save S. & H. "Green" stamps. This percentage amounts to at least 35 million American families.

S. & H. issues its stamps to approximately 55,000 licensed retailers, who then dispense the stamps from over 70.000 stores throughout the Country. In 1964, S. &. H. issued over 140 billion stamps to these retail licensees. The retail merchants then gave out the trading stamps in connection with sales of ten to fifteen billion dollars worth of goods and services.

S. & H. licenses the use of its trading stamp service to retailers engaged in almost every type of retail business conducted in the United States.³ The licensee then issues the stamps, usually on a purchase volume basis, to those members of the public buying the particular type of goods or services offered for sale.

After filling at least one book containing 1200 stamps, a stamp saver may present them to S. & H. for redemption in merchandise. In certain states stamps may also be redeemed in cash, but during 1965 such cash redemptions represented less than 1% of the total redemptions made by S. & H. in those states.

S. & H. maintains more than 850 redemption centers located throughout the Country. Of these, approximately 750 maintain inventories of merchandise from which redemptions can be made immediately. The remainder, many of which display samples of merchandise items, accept orders which are filled within a few days by one of S. & H.'s nine distribution centers.

S. & H. redemption merchandise is of high quality, is made by well known and reliable manufacturers, and is carefully selected with a view to meeting consumer desires. S. & H. goes to substantial expense to keep its redemption merchandise updated to meet current consumer demands.

The purpose of S. & H.'s service is to enable its licensees to increase and to maintain their sales by attracting customers and inducing those customers to return, again and again, until they have collected enough stamps to secure the redemption articles of their choice.

The Traffickers in Stamps

Trading stamp exchanges are businesses which, for a fee, will exchange the stamps issued by one company for those issued by another. Some retailers have attempted to acquire S. & H. stamps from some source other than S. & H. in order to issue them to their own customers. Some have offered to exchange S. & H. stamps for the stamps they were issuing or to accept S. & H. stamps in partial payment for their own goods or services. These retailers and the stamp exchanges are traffickers in S. & H.'s stamps.

Trading stamp exchanges also purchase and sell various trading stamps outright. The purchase of stamps from exchanges occurs when a consumer does not have enough stamps to redeem the merchandise she desires. The sale of stamps also occurs when a stamp saving consumer wants cash rather than any of the redemption merchandise offered by the company whose stamps are sold.

Usually the customer of an exchange simply wants to exchange one type of stamp for another. This type of exchange normally occurs when the consumer has accumulated a quantity of stamps not of the type she principally collects. She then desires to exchange the different varieties of stamps she possesses for a single variety in order to increase her choice of merchandise items or to acquire a particular item for which she had insufficient stamps prior to the exchange. This exchange service costs an exchange charge or "commission fee", of from twenty five cents to fifty cents.

S. & H. asserts that if a housewife can obtain S. & H. stamps from an exchange or an unlicensed retailer she will not have the same incentive to patronize S. & H.'s licensee's that she would otherwise have if their stamps were obtainable only from them. Therefore, the S. & H. system of promoting retail merchandise would become less attractive to a prospective or present licensee and S. & H.'s business would be materially injured.

Whenever S. & H. has learned of unauthorized trafficking in its stamps it has uniformly sought to stop the practice. The procedure normally involves, first, a letter written by the company's attorney to the trafficker telling him that he is trespassing upon S. & H.'s rights and informing him that S. & H. intends to seek an injunction if he does not desist. S. & H. supplies citations to the legal authorities which have unanimously supported its position, with the hope that the trafficker will voluntarily discontinue the unauthorized use. If the trafficker persists it is the practice of S. & H. to seek an injunction.

From 1904 to 1966, S. & H. was involved in forty three actions in eight federal districts and nineteen states to enjoin the unauthorized use of trading stamps. Each of the forty three cases resulted in an injunction against the defendant.

Four states have statutes prohibiting, in one way or another, the issuance or redemption of trading stamps without the consent of the trading stamp company that originally issued the stamps.

The Law

The Federal Trade Commission Act, 15 U.S.C.A. § 45, empowers the Federal Trade Commission to prevent unfair methods of competition in commerce. The Sperry and Hutchinson Company claims that the Commission has exceeded its authority in the issuance of the order now under review.

The Commission determined that S. & H.'s resort to the courts to eliminate trafficking in its stamps substantially reduced the volume business of the exchanges and that these actions constituted "unfair methods of competition in commerce and unfair acts and practices in violation of § 5". This finding being subject to review,⁴ we are compelled to disagree.

The traffickers in S. & H. stamps have been enjoined forty three times by state and federal courts. This court action has no doubt injured the businesses of the traffickers. However, the Commission cannot rest its case solely on the determination that injury to a competitor exists.

To be the type of practice that the Commission has the power to declare "unfair" the act complained of must fall within one of the following types of violations: (1) a per se violation of antitrust policy;⁵ (2) a violation of the letter of either the Sherman, Clayton, or Robinson-Patman Acts; or (3) a violation of the spirit of these Acts as recognized by the Supreme Court of the United States.

There is no per se violation, or violation of the letter, of the antitrust statutes in this case. The remaining question then is: Have the activities of S. & H. violated the spirit of the antitrust statutes? We think not.

In Atlantic Refining Company v. Federal Trade Commission, 381 U.S. 357, 85 S.Ct. 1498, 14 L.Ed.2d 443 (1965), the Supreme Court made it clear that, in determining when § 5 may be applied to conduct which does not specifically violate the existing antitrust laws, the Court means conduct which bears "the characteristics of recognized antitrust violations".

In Federal Trade Commission v. Brown Shoe Company, 384 U.S. 316, 86 S.Ct. 1501 (1966), a case relied on heavily by the Commission, the Supreme Court significantly broadened the reach of § 5. However, the Court simultaneously limited the restraining power of the Commission...