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Marlene's Inc. v. Federal Trade Commission

November 4, 1954


Author: Lindley


LINDLEY, Circuit Judge:

Petitioners seek to set aside a cease and desist order issued by the Commission under the Federal Trade Commission Act, 15 U.S.C. ยง 45.They include Marlene's Inc., and R. J. Smasal and James O. Webb as officers of the corporate petitioner, R. J. Smasal individually, and Edward H. Larson and Nelson J. McMahon individually, and doing business as O'Neil, Larson & McMahon.

The Commission filed a complaint averring that Marlene's and its named officers, are now, and for some time past have been, engaged in the distribution and sale of a drug compound (Mynex) in conjunction with a caloric reducing regimen; that petitioners Larson and McMahon, individually and doing business as the aforesaid partnership, are the representatives for Marlene's in all advertisement of, and promotional schemes for the sale of, the drug; that petitioners, acting in concert, conducted an advertising campaign intended to induce, and tending to induce, the sale of the preparation; that many representations made in such advertising constituted false advertising as that term is used in the Act, many of which were misleading and deceptive and had the tendency to mislead and deceive a substantial proportion of the purchasing public into the erroneous belief that such representations were true, and thereby to induce purchase of the preparation. The answer admitted all material allegations of the complaint, but averred, inter alia, that the objectionable advertising material had been abandoned by petitioners.

Thereafter the parties entered into a stipulation which incorporated all material facts set forth in the complaint and answer. Included was a stipulation that the unlawful advertising had been discontinued some six months prior to June 4, 1952, when the complaint was filed. On January 22, 1953, petitioners filed a motion to dismiss on the ground that the cause was moot, relying on the fact that the false advertising had been discontinued as aforesaid.

On the basis of the record thus made, the trial examiner entered his initial decision finding the facts to be substantially as stated in the complaint, answer, and stipulation of the parties.He ordered petitioners to cease and desist from disseminating any advertising of the type found by him to be in violation of the Act and recommended denial of the motion to dismiss. Petitioners appealed to the Commission, assigning as error denial of their motion and challenging the sufficiency of the findings of fact to support paragraph 1(e) thereof. The Commission entered findings of fact substantially in accord with those of the trial examiner and denied the appeal. The initial order of the examiner was modified in certain particulars not here pertinent, and, as thus modified, the Commission issued its order enjoining petitioners to cease and desist from the advertising practices found to be objectionable. This petition followed.

Petitioners challenge the order as (a) improper and beyond the power of the Commission, (b) unsuported by the evidence, and (c) being more extensive than and bearing no reasonable relationship to the evils which the Commission had found to exist. The Commission contends that petitioners have abandoned all issues except the narrow one of whether paragraph 1(e) is sufficiently supported by findings of fact. Accordingly it had moved to strike all of petitioners' brief except the part thereof directed to that issue. We give first consideration to that motion.

On the record before us, petitioners have no standing to challenge the sufficiency of the evidence to support the findings, with the one exception of the finding as to the public necessity for a cease and desist order. They have admitted that the advertising of which complaint is made was unlawful under the Act and was calculated to, and tended to, deceive the purchasing public. They can not be heard to say that these admissions do not afford ample support for the findings to the same effect.

An attempt is made to inject into the cause for the first time the contention that the Commission's order is based in part on that body's notice of evidence de hors the record. During petitioners' appeal, a Commission brief was filed which directed attention to certain fraud orders against the several petitioners and their predecessors in other administrative proceedings, involving in some instances this same preparation and in others wholly unrelated products. However, it appears that no objection to this matter was raised before the Commission or in the petition for review filed in this court. Nor does the record indicate that the Commission took these extraneous matters into account in entering its order.The issue is not properly before us.

In addition to the factors just related, several so-called issues in petitioners' brief which relate to the jurisdiction of this court to set aside or modify administrative orders are not contested and are so well settled as to require no comment. For the foregoing reasons, the Commission's motion to strike the portions of petitioners' brief which relate to the proposed issues enumerated above is well found and is allowed.

Turning then to the first issue before us for decision, we conclude that paragraph 1(e) of the order, to which we have previously alluded, is sufficiently supported by findings of fact. This paragraph, enjoining as it does the dissemination of representations that Mynex has been approved for advertising by the Canadian government, is based on a finding that such representations had been made and that these were false and that advertising of products of this nature is expressly prohibited by Canadian law. Petitioners object that the paragraph should take into account the stipulated fact that such representations in petitioners' prior advertising were based on the apparent approval of advertising copy by an official of the Canadian government. This fact is relevant solely to the question of wilfulness and the weight to be accorded thereto was a question for the Commission as the trier of fact.Corn Products Refining Co. v. F.T.C., 324 U.S. 726, 739.

Thus, only one issue remains for our decision, namely, whether the cease and desist order was proper, inasmuch as the parties have stipulated and the Commission has found that the unlawful practices had been discontinued by petitioners some six months before the complaint was filed herein. Although this issue was stated as one ground for petitioners' appeal to the Commission, it is questionable whether it was not abandoned in oral argument before that body as the Commission now contends. In view of the substantial question presented, however, we believe we should resolve these doubts in favor of petitioners and deny the Commission's motion to strike portions of petitioners' brief addressed to this issue.

That discontinuance of an unlawful practice, of itself, does not necessarily preclude the issuance of a cease and desist order is so well settled as to preclude further argument. See e.g., Galter v. F.T.C., 186 F.2d 810, cert. denied 342 U.S. 818 (CA-7); C. Howard Hunt Pen Co. v. F.T.C., 197 F.2d 273 (CA-3); Deer v. F.T.C., 152 F.2d 65 (CA-2); Consolidated Royal Chem. Corp. v. F.T.C., 191 F.2d 896, 900 (CA-7); Corn Products Refining Co. v. F.T.C., 144 F.2d 211, 220, affd., 324 U.S. 726 (CA-7); Fairyfoot Products v. F.T.C., 80 F.2d 684, 686 (CA-7). As stated by the Court of Appeals for the Second Circuit, "the Commission has broad discretion to determine whether such an order is needed to prevent resumption" of the unlawful practice.Deer v. F.T.C., supra, at 66. This discretion must be confined, however, within the bounds of reasonableness. New Standard Pub. Co. v. F.T.C., 194 F.2d 181 (CA-4); Oregon-Washington Plywood Co. v. F.T.C., 194 F.2d 48 (CA-9); F.T.C. v. Civil Service T. Bureau, 79 F.2d 113 (CA-6). As the court said in the latter case, 79 F.2d at 116,

"The Commission is not authorized to issue a cease and desist order as to practices long discontinued, and as to which there is ...

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