CHAPTER IV DECEPTIVE AND DISHONEST PRACTICES N previous chapters I have outlined the method by which the Federal Trade Commission arrives at its findings of fact, and have commented on the form and quality of the findings. In this chapter and the next I will attempt a more detailed appraisal of the output of the Commission in the different types of cases which it has handled. The cases will be classified according to the nature of the practice involved, and the inquiry will be, as to each type of practice, what contribution the Commission has made toward the substantive development of the law, and whether the procedure to which the Commission adheres is such as to enable it to deal satisfactorily with the practice in question. The cases divide themselves conveniently into two major categories: those which involve an element of fraud or dishonesty, and those which involve practices not dishonest, but for some other reason supposed to be restrictive of fair competition. Cases in the first category arise exclusively under Section 5 of the Trade Commission Act, while cases in the second category arise either under that section, or under Sections 2, 3, 7, or 8 of the Clayton Act. Without attempting any academic catalogue of frauds, some preliminaries may be helpful before turning to the specific dishonest or deceptive practices with which the present chapter is concerned. When a citizen has been induced to part with his money by false representations, he is the person primarily injured, and it is his protection that has been the main concern of the host of punitive laws and ordinances designed to punish commercial fraud. The criminal law punishes one who obtains money by false pretenses; federal statutes protect consumers against misbranding or adulteration of foods and drugs; against the use of the mails to defraud; against deception by improper grading of certain agricultural staples. State statutes and local ordinances give protection against dishonest advertising, fraudulent weights and measures, and similar forms of commercial fraud. The Federal Trade Commission, however, is not a general censor of business morals. It can take cognizance of a dishonest practice only if it is a competitive practice in the course of commerce as defined in the statute. A fraud which merely injures the person defrauded, without affecting or tending to affect a competitor, appears to be beyond the Commission's jurisdiction. It is concerned with the consumer only because the consumer is in the long run benefited by honest competition. Although the approach is different, the field covered is nevertheless much the same, for it is rare that a deceptive practice in the course of commerce is not a method of competition. Two men are commercial competitors when they are endeavoring to fill the same commercial wants by offering the same or similar goods. Any practice, device, or course of conduct adopted by either to improve his relative position as compared with the other, or to prevent the other from gaining on him, is a method of competition. It may be aimed primarily at increasing his own sales, or it may be aimed at hindering the sales of the competitor. In either event, if the method used is deceptive, it is an unfair method of competition. Accordingly it is not surprising to find that the Federal Trade Commission has encroached upon many fields already well occupied by other tribunals or administrative agencies. Deception in the course of commerce is the foundation of the jurisdiction of courts of equity in cases involving trade marks and trade names, and "unfair competition" in the narrower sense of the word. The prevention of fraud, no less than the preservation of health, is the basis of the pure food and drugs acts, and of the many similar police measures, both state and federal, already referred to. For this reason it is especially important to estimate fairly the extent to which the Commission is fitted, by its powers and procedure, to deal with such cases, and whether it is expending time and energy upon cases which can more effectively be handled elsewhere. TRADE MARKS AND TRADE NAMES WILL begin with those cases, familiar to all lawyers, in which a manufacturer or dealer complains that a competitor is simulating his trade mark or trade name, or by some other form of misrepresentation is causing confusion among customers as to the origin or identity of the goods they purchase: The misrepresentation may take one of two forms. It may lead the customer to think that the goods he is buying from the competitor were in fact made by the complainant. Or it may lead the customer to think that the competitor, rather than the complainant, is the manufacturer of all goods sold under the brand in question. In either case good will belonging to the complainant has been wrongfully appropriated and the public has been deceived. The wrong may be aggravated where the competitor sells, under the complainant's brand, a grossly inferior article, thus in effect representing that all articles sold under that brand are equally poor in quality. Although analytically they are closely allied, in considering available remedies it is necessary to distinguish between cases in which the simulation is of a registered trade mark, and where it is of a trade name or device not registered. Where a mark, affixed to goods sold in interstate or foreign commerce, is eligible for registration and has been registered under the Trade Mark Act, it is protected by a special procedure set forth in that Act.1 Where there is a dispute as to the right to use a trade mark (in view of its possible interference with another mark previously in use), the question may be adjudicated, in the first instance, according to prescribed procedure, by an examiner in the Patent Office, with a right of appeal to the Commissioner of Patents, and to the Court of Appeals of the District of Columbia. Or it may be determined in a litigation in the district court, between the adverse claimants, the registration being in such cases prima facie evidence of "ownership." In such a case the jurisdiction of the district court does not depend upon diversity of citizenship, nor upon the amount in controversy. Where an infringement is found to exist, the infringing mark may be denied registration, or its registration canceled; further use of the infringing mark may be enjoined; where there is guilty knowledge, any wrongful profits derived from the infringement may be required to be accounted for; and damages may be awarded, whether the litigation is on the law or the equity side, up to three times the proven losses sustained by the plaintiff. Infringing labels and wrappers may be destroyed by the court. In addition state courts have concurrent jurisdiction, often aided by special statutory provisions. Where the mark is one which cannot be registered as a technical trade mark, or where the simulation is of the form, size, color, or other distinctive attribute of the complainant's goods, the statutory procedure is not available. A court of law, however (whether state or 1 1 U.S. Rev. Stat., Sec. 4965. federal), will give damages in a proper case for injury sustained on account of the fraudulent attempt of a competitor to pass off his goods as those of the plaintiff, or the plaintiff's goods as his own. A court of equity will enjoin such conduct, and will generally grant incidental damages. Where diversity of citizenship exists and the amount in controversy is sufficient, the litigation may be conducted in the Federal courts; otherwise the state courts are available. In a series of "conference rulings," the Federal Trade Commission has held that where nothing further is involved than a claim of infringement of a patent, copyright, or registered trade mark, the public interest does not warrant the issuance of a complaint, in the absence of important countervailing considerations. The rulings refer to the fact that special remedies are provided by Federal law in such cases. They are not, apparently, based upon any doubt as to the Commission's jurisdiction but upon an exercise of discretion in view of the adequacy of other available remedies. In several instances, however, the Commission has carried through to final order cases in which the violation of a registered trade mark appears to have been the gist of the offense charged. A maker of rebuilt automobile tires, for instance, was ordered to cease and desist from using the firm name "Racine Tire Sales Company," or the trade name "Multi-Cord" because they were found to infringe registered trade marks of the Racine Rubber Company. A milliner was ordered to cease doing business in the District of Columbia under the trade name "Louise," because it conflicted with the registered trade name "Marie 2 Conference ruling No. 74 (1 F.T.C.D. 560). * Conference ruling No. 58 (1 F.T.C.D. 554). * Conference ruling No. 46 (1 F.T.C.D. 548) and No. 68 (1 F.T.C.D. 557). F.T.C. v. Racine Tire Sales Co., 5 F.T.C.D. 327 (1922). |