Union Circulation Company v. Federal Trade Com'n

• Decision Date: 18 February 1957
• Docket Number: No. 16,Docket 23588.,16
• Citation: 241 F.2d 652
• Parties: UNION CIRCULATION COMPANY, Inc., National Circulating Company, Inc., Publishers Continental Sales Corporation, Corporations, and Leo E. Light and Roy C. Hodge, Co-Partners, doing business as National Literary Association, Petitioners, v. The FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

241 F.2d 652 (1957)

UNION CIRCULATION COMPANY, Inc., National Circulating Company, Inc., Publishers Continental Sales Corporation, Corporations, and Leo E. Light and Roy C. Hodge, Co-Partners, doing business as National Literary Association, Petitioners, v. The FEDERAL TRADE COMMISSION, Respondent.

No. 16, Docket 23588.

United States Court of Appeals Second Circuit.

Argued November 8, 1956.

Decided February 18, 1957.

COPYRIGHT MATERIAL OMITTED

Gilbert H. Weil, New York City (Alfred T. Lee, New York City, on the brief; Mortimer M. Lerner, New York City, of counsel to National Circulating Co., Inc.), for petitioners.

Earl W. Kintner, Gen. Counsel, Robert B. Dawkins, Asst. Gen. Counsel, John Carter, Jr., Washington, D. C., Atty., Federal Trade Commission, for respondent.

Before MEDINA, LUMBARD and WATERMAN, Circuit Judges.

WATERMAN, Circuit Judge.

Petitioners are agencies engaged in the business of selling subscriptions for magazines and periodicals by door-to-door solicitation. They were charged with engaging in unfair methods of competition and unfair or deceptive acts or practices in violation of the Federal Trade Commission Act, 15 U.S.C.A. § 45(a). At the conclusion of the administrative proceedings before the Federal Trade Commission that Commission issued a cease and desist order. Petitioners bring their petition to us seeking to review this order.

The door-to-door subscription solicitation business is conducted through crews of solicitors who travel from place to place throughout the country. A crew may have from a few to forty or more solicitors, together with a supervising crew manager. The petitioners, the agencies, contract directly with the crew manager, who in turn usually engages the solicitors and controls their work. The solicitors, the managers, and the petitioners are all paid on a commission basis determined by the number and nature of periodical subscriptions secured. The solicitors collect part or all of the subscription money. The proper amounts are remitted by the crew managers through the agencies to the publishers.

The Federal Trade Commission found that door-to-door solicitation of subscriptions to periodicals conducted in this manner accounts annually for millions of subscriptions valued at millions of dollars; that the petitioners are among the leaders in the field and constitute a very substantial segment of the industry; and that they contract for the services of 3,000 solicitors, who procure $15,000,000 of such subscriptions annually.

The Trial Examiner found that for many years the reputation of the magazine-selling industry, both with the publishers and the general public, has been undermined by the deceptive selling practices and other fraudulent conduct of many of the solicitors in the field. Misrepresentation of magazine content, misappropriation of subscription monies, and false sympathy appeals are among the practices that plague this industry. The history of the petitioners and other subscription agencies over the past twenty years is a chronicle of attempts to curb these abuses by such devices as jointly sponsored "Standards of Practice," a Central Registry providing information about individual solicitors, and a trade association created to study new remedial techniques and to sponsor their industry-wide adoption.

In recent years the petitioners have entered into "no-switching" agreements with each other, typically providing that each agency will not hire any solicitors who have been employed by the other signatory agency at any time during a certain period, usually the preceding year. Petitioners have also agreed at various times not to hire solicitors who have been employed by any other agency, whether or not a party to the agreement. The petitioners contend that these agreements have been entered into solely in order to prevent the fraudulent practices of certain crew members, it being maintained that they are less likely to respond to agency discipline or to observe agency standards when they are able to move about freely from one agency to another; and, in particular, that such crew members, when their fraudulent practices are discovered by one agency, find it easy to obtain new employment with a less scrupulous agency.

From this testimony the hearing examiner concluded that the "no-switching" agreements represent a reasonable attempt at self-regulation by members of an industry and therefore the practice of entering into them should not be enjoined. The Commission rejected this conclusion, however, finding that the "no-switching" agreements were an unreasonable restraint of trade and constituted unfair methods of competition within the meaning of Section 5 of the Federal Trade Commission Act, 15 U. S.C.A. § 45(a).

The Commission also found that several of the petitioners had illegally attempted to coerce the publishers into withdrawing the authority to sell subscriptions from the Federal Readers Guild, an agency that was not a party to any "no-switching" agreement.

The Commission accordingly enjoined the petitioners from: "* * * 1. Entering into, carrying out, enforcing or giving effect to any agreement not to employ parties who have previously been actively engaged for themselves or for others in the business of soliciting magazine subscriptions.

"2. Ceasing or limiting, or threatening to cease or limit, their efforts to obtain subscriptions for magazines for publishers unless such publishers refuse or discontinue authority to solicit subscriptions for their magazines to subscription agencies employing sales representatives formerly connected with other subscription agencies."

The petitioners appeal from the order of the Commission, and seek to have both of its provisions set aside.

Substantial evidence was adduced at the hearings to support the second part of the order. The Commission found that several of the petitioners joined in a concerted effort to coerce the magazine publishers into withdrawing their authorizations from a newly formed competitor, the Federal Readers Guild. Several experienced crew managers, with their crews, had switched employment to the new competitor. At the Commission hearings the owner of Federal Readers testified without contradiction that he had attended a meeting with several representatives of the petitioners at which petitioner Leo Light threatened to have all the publishers "cancel out" the Federal Readers Guild. Light indicated that a meeting would be held that evening to discuss ways and means to accomplish this. Although no evidence was introduced to show whether the meeting was ever held, there was evidence that several publishers subsequently canceled their authorizations with Federal Readers. Since the Commission could reasonably infer that the petitioners carried out their illegal scheme of coercion, the second part of its order enjoining such conduct in the future is clearly justified.

Of much greater significance are the "no-switching" agreements proscribed by the first part of the order. Petitioners readily admit the widespread existence of these agreements, but contend that they are not unfair methods of competition because they are directed only at the prevention of abuses within the industry and are not directed at the elimination or obstruction of competition.

A violation of the Sherman Act, 15 U.S.C.A. § 1 et seq., is an unfair method of competition under the Federal Trade Commission Act. F. T. C. v. Beech-Nut Packing Co., 1922, 257 U.S. 441, 453, 42 S.Ct. 150, 66 L.Ed. 307; Keasbey & Mattison Co. v. F. T. C., 6 Cir., 1947, 159 F.2d 940, 946. Under the Sherman Act the test of validity for any restraint of trade is not the motive of the parties who act in concert. Restraints of trade must be examined not merely for the intent of their creators but for their reasonableness, Standard Oil Co. of New Jersey v. United States, 1911, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619, and therefore they must be considered in the light of their impact upon the competitive structure of the industry affected.

Since the Standard Oil decision, many concerted restraints of trade have been held unlawful or unreasonable perse,¹ and "no showing of so-called competitive abuses or evils which those agreements were designed to eliminate or alleviate may be interposed as a defense." United States v. Socony-Vacuum Oil Co., 1940, 310 U.S. 150, 218, 60 S.Ct. 811, 842, 84 L.Ed. 1129. Many group boycotts or concerted refusals to deal, and certain other restraints such as price-fixing, market-sharing, or production control, are considered so inimical to competition that they will not be countenanced regardless of the portion of the industry that they actually affect or the alleged beneficial ends that they are designed to serve. See United States v. Columbia Steel Co., 1948, 334 U.S. 495, 522, 68 S.Ct. 1107, 92 L.Ed. 1533; Fashion Originators' Guild of America v. F. T. C., 1941, 312 U.S. 457, 467-468, 668, 61...