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Consolidated Book Publishers Inc. v. Federal Trade Commission

CIRCUIT COURT OF APPEALS, SEVENTH CIRCUIT


November 25, 1931

CONSOLIDATED BOOK PUBLISHERS, INC.,
v.
FEDERAL TRADE COMMISSION

Petition to set aside Order of Federal Trade Commission.

Author: Sparks

Before EVANS and SPARKS, Circuit Judges, and WILKERSON, District Judge.

This is an original proceeding by petitioner in which it seeks to have this court review a proceeding brought by the Federal Trade Commission against it under the act creating the commission, approved September 26, 1914, 38 Stat. 717 (title 15, U.S.C., § 41 et seq. [15 USCA § 41 et seq.]), resulting in an order*fn1 issued against petitioner May 6, 1930, to cease and desist from certain acts.

The evidence shows that petitioner was, at the time of the hearing before the commission, and previously thereto had been, engaged in distributing a set of books under the title "New World Wide Cyclopedia" in interstate commerce in competition with others similarly engaged. In the course of its business, it sent what it called a "lead letter"*fn2 to persons whose names appeared on selected mailing lists, seeking to interest them in the set of books mentioned. It sent salesmen to call upon prospects who returned the postal card which was inclosed in such letter.

Petitioner published a set of books (with subject-matter substantially identical to the set known as "New World Wide Cyclopedia") under the name of "Times Encyclopedia and Gazeteer," which is sold at wholesale to Times Sale Company for $4.50 a set, which company disposed of the books at retail to the public in the same manner and by the same methods as employed by petitioner in the disposition of the "New World Wide Cyclopedia," and, in so doing, it used the same advertisements as those used by petitioner, except as to name of company and title of publication. This advertising matter was printed and furnished to Times Sale Company by petitioner, and the Times Sale Company paid one-half of the net expense in producing and printing the loose-leaf extension service.

Petitioner used the term "World Wide Educational Service" upon its letterheads in order to conceal the fact that it was engaged in the bookselling business, and to eliminate sales resistance. The contract*fn3 which the inquirer was required to sign before receiving the books was first submitted to the inquirer when the salesman called upon him.

After the contract was signed, it was returned to petitioner, and at the time or after the books were delivered petitioner sent subscriber a certificate of membership in the bureau of research,*fn4 which entitled subscriber to have any submitted questions answered for a period of ten years, provided petitioner deems the questions proper, and provided further that subscriber pays the postage both ways. With this certificate was also sent to subscriber forty coupons, which were necessary to be signed and returned by him, one each quarter year, in order for him to receive the loose-leaf extension service referred to in the contract; and with each coupon subscriber was required to remit to petitioner the sum of twenty cents. Thus for the first time the subscriber was informed that he was required to pay $41.20 instead of $33.20, and that if he defaulted in any payment he was not in good standing, and hence lost the benefits, if any, of the bureau of research.

At the time of the hearing in this case before the commission, petitioner was mailing about 2,000 of its lead letters each month to the small towns and cities of Illinois, Nebraska, and New York, and had eight salesmen soliciting orders; though formerly at times it had as many as thirty salesmen. These salesmen were not instructed by the officials, and no printed sales talks were given to them, as they were experienced salesmen.

In petitioner's advertisements many extravagant statements were made with relation to its bureau of research. Petitioner agreed to furnish accurate information on every subject through its staff of competent editors, all expert in their particular fields. This bureau in reality consisted of one old man in New York City by the name of Coumbe, whose duty it was to produce the quarterly supplements, attend to all revisions, and do all the work of the bureau of research, with the exception of acting on a few questions which manager Flood might be able to answer and which did not require much research. Mr. Coumbe was employed at a salary of $40 a week.

The evidence further shows that the plates from which the cyclopedia was printed were purchased from a publisher in New York in May, 1917, and previous to that time had been used in publishing the "People's Encyclopedia." There had been at least two general revisions by petitioner, but as late as August, 1929, there were many glaring defects running all through the books, as testified to by Mr. Coumbe.The advertisements stated that the Cyclopedia was new and up to date, and that it contained 150,000 individual titles as compared with 50,000 or 60,000 in the ordinary cyclopedia.

There were subscribers who testified that petitioner's saleswomen, when calling upon them, stated the books were to be a gift; that the $33.20 to be paid by them was for the extension service, and that nothing was said about the extra charge of twenty cents for each quarterly extension sheet; that only a few copies were to be given in the neighborhood in consideration that the donees would recommend the books to others when asked about them. The president of petitioner testified that it was not petitioner's intention to give the books to subscribers.

SPARKS, Circuit Judge.

The question presented to us is whether or not the facts and the law warranted the Federal Trade Commission in making the "cease and desist" order. We think the commission acted within the scope of its authority, and was abundantly justified by the facts. A close analysis of the contract convinces us that it was drawn by experienced hands and with the obvious intention of perpetrating a fraud upon the subscribing public. A mind trained in the law might well conclude that few rights, and less benefit, moved to the subscriber by virtue of the contract, and that, under a technical construction of it, no gift was intended. But the general public, not skilled in legal construction, upon reading the lead letter and contract would very naturally conclude that the books constituted a gift, and in our judgment this is what petitioner wanted them to think. This is essentially true, for if all the facts were known to the subscriber, he, if only of ordinary intelligence, in all probability would have declined the offer because the cyclopedia was neither new, up-to-date, nor accurate. It is quite obvious that it would not sell on its merits.

A fair construction of the lead letter is that petitioner was distributing, as an advertising medium, a few sets in each community free to certain influential people, in consideration of their acting as local references to other unpreferred subscribers; and that, on account of his standing in his community, a free set was being held by petitioner for the person receiving such letter. This view is confirmed by the fact that the letter asks the receiver of it to treat it as personal and confidential. This was quite an unnecessary statement if petitioner was in good faith, for it no doubt would have permitted any person to sign the contract. This interpretation of the letter is further confirmed by the fact that petitioner's sales agent Mrs. Cowherd construed it the same way. Of course, petitioner contends that the agent exceeded her authority, and that it should be protected against the dishonest and unscrupulous agent; but we think the agent made no representation which was not warranted by the letter and contract. If the agent did exceed her authority, it does not come with good grace from petitioner, who instituted the fraud, to abuse and bemean the agent for continuing the fraud which petitioner had started.

The order of the commission is supported by findings of fact, and the findings of fact are supported by substantial evidence. Federal Trade Commission v. Curtis Publishing Co., 260 U.S. 568, 43 S. Ct. 210, 67 L. Ed. 408; Fox Film Corp. v. Federal Trade Commission (C.C.A.) 296 F. 353; Moir et al. v. Federal Trade Commission (C.C.A.) 12 F.2d 22.

The following propositions of law fully support the ruling:

False and misleading representations resulting in deception of the public are matters of public interest which the commission has power to prevent. Federal Trade Commission v. Winstead Hosiery Co., 258 U.S. 483, 42 S. Ct. 384, 66 L. Ed. 729; Federal Trade Commission v. Kay (C.C.A.) 35 F.2d 160.

The commission's jurisdiction is not limited to practices which tend to create a monopoly, but embrace false and fraudulent advertising, misbranding, and other practices which result in deceiving the public. Such practices injure competitors who do not use them. Federal Trade Commission v. Winstead Hosiery Co., supra; Royal Baking Powder Co. v. Federal Trade Commission (C.C.A.) 281 F. 744; Federal Trade Commission v. Kay, supra.

The sale at the same time of a cyclopedia under two different names is an unfair method of competition, which ruling is supported in principle by Fox Film Corp. v. Federal Trade Commission, supra.

Practices opposed to good morals because characterized by deception, bad faith, fraud, and oppression are unfair methods of competition. Federal Trade Commission v. Gratz et al., 253 U.S. 421, 40 S. Ct. 572, 64 L. Ed. 993.

The order of the Federal Trade Commission is affirmed.


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