Petition — Encyclopaedia Britannica, Inc. v. Federal Trade Commission

Supreme Court brief1980

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OCT 31 1979

IN THE

Supreme Court of the Unite

OCTOBER TERM, 1979

No. 79-697

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Neue, .

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pay 20 OKK, JR., CLERR

ENCYCLOPAEDIA BRITANNICA, INC. AND BRITANNICA

HOME LIBRARY SERVICES, INC.,

Petitioners

vs.

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT.

EDMUND A. STEPHAN,

ROBERT L. STERN,

BRYSON P. BURNHAM,

JOHN R. SCHMIDT,

MAYER, BROWN & PLATT,

231 South LaSalle Street,

Chicago, Illinois 60604,

312-782-0600,

DAVID C. MURCHISON,

ROBERT W. STEELE,

JOHN W. NIELDS, JR.,

ELIZABETH N. MORGAN,

HOWREY & SIMON,

1730 Pennsylvania Ave, N. W.,

Washington, D.C. 20006,

202-783-0800.

Of Counsel:

ROBERT BORK,

142 Huntington Street,

New Haven, Connecticut 06511,

PHILIP B. KURLAND,

Two First National Plaza,

Chicago, Illinois 60603.

Gunthorp-Warren Printing Company, Chicago e Financial 6-6565

TABLE OF CONTENTS.

PAGE

ERE Cl a et 1

I, NN or et 2

LIE LR LIS IOS 2

Constitutional and Statutory Provisions Involved ....... 3

I ss via. cus kc ccncceceatss 3

ee PO oe evs occu eee dices st 6

The Court of Appeals Decision .................. 9

Reasons for Granting the Writ ............... 0.0005. i:

I. The Writ Should Be Granted to Decide the Important

First Amendment Question Left Open in Virginia

State Board of Pharmacy Which Should Now Be

Settled Because of the FTC’s Widespread Program of

Seeking Under Its “Fencing-In” Doctrine to Dictate

the Form and Content of Commercial Communications 13

A. The Writ Should Be Granted to Resolve the Ques-

tion Left Open in Virginia State Board of Phar-

Mca! KR ER RRND EO ty oy Se oe a aD os 13

B. The Writ Should Be Granted Because of the

FTC’s Customary Imposition of Overbroad Prior

Restraints in the Form of Affirmative Disclosure

Orders Under Its “Fencing-In” Doctrine .... 16

II. This Court Should Grant the Writ to Resolve the

Serious Conflict Between the Circuits on the Scope of

Review of FTC Orders Prescribing the Content of

Commercial Communications .................. 19

Ill. The Writ Should Be Granted Because the Judgment

Below Conflicts with the First Amendment Principles

Enunciated by This Court Which Are Applicable to a

Prior Restraint on the Communications of a Publisher

Engaged in the Distribution of its Publications .... 24

IV. The Writ Should Be Granted to Decide the Important

Issue of the FTC’s Statutory Authority to Prescribe

Conduct Which Unnecessarily Threatens the Con-

tinued Viability of an Established Method of Doing

MN 8 fos LidhgtP Wide Fo Sob 6 Bei whee voean a. 27

a RY An Te A lee Ra a 30

TABLE OF AUTHORITIES CITED.

Cases

Bantam Books Inc. v. Sullivan, 372 U.S. 58 (1963) .... 25

Bates v. State Bar of Arizona, 433 U.S. 350 (1977) .... 13

Beneficial Corp. v. FTC, 542 F. 2d 611 (3d Cir. 1976),

cert. denied, 430 U. S. 983 (1977) ..2, 3, 10, 12, 16, 19-23

Engel v. Vitale, 370 U. §, 421 (1962) .............. 25

FTC v. Eastman Kodak Co., 274 U.S. 619 (1927) .... 28

FTC v. National Lead Co., 352 U. S. 419 (1957) ...... 15

FTC v. Royal Milling Co., 288 U.S. 212 (1933) ...... 27

Gooding v. Wilson, 405 U.S. 518 (1972) .......... 26

Griswold v. Connecticut, 38i U.S. 479 (1965) ...... 24

Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946) ......

eeehin Repent eRe tak Seedy Wea BACK wan't 25 95:42, 49; 21, 22,23, 27

Jay Norris, Inc. v. FTC, 598 F.2d 1244 (2d Cir. 1979) 16

Miami Herald Pub. Co. v. Tornillo, 418 U.S. 241 (1974) 25

National Commission on Egg Nutrition vy. FTC, 570 F. 2d

157 (7th Cir. 1977), cert. denied, 439 U.S. 821

ERE Tekin sea Chee ore Chibi 10, 16

Near v. Minnesota, 283 U. S. 697 (1931) ............ 25

Organization for a Better Austin v. Keefe, 402 U.S. 415

GEER PEPE IEC ee eth reer eke ore ears. 25

Porter & Dietsch, Inc. v. FTC, 1979-2 Trade Cas, (CCH)

TGs Fe Ate Ge RTD in nic 8 oR) ha wd ede awe 16

Procunier v. Martinez, 416 U. S. 396 (1974) ......... 26

Shelton. v. Tucker, 364 U.S. 479 (1960) ............ 26

Smith v. California, 361 U.S. 147 (1959) ............ 24

ill

Standard Oil of California v. FFC, 577 F.2d 653 (9th

Coe. TTB) at BER ile nlnnd odie MP EA ee oe 6 Ok 16

U.S. v. National Society of Professional Engineers, 555

F, 2d 978 (D.C. Cir. 1977), affirmed on other grounds,

GOo 5, a PROCITE 65 STL O TA S24 Pld Beas 16

Virginia State Board of Pharmacy v. Virginia Citizens

- Consumer Council, Inc., 425 U.S. 748 (1976)

Chis Von We Ae eRe aK Gee aes oF 2, 41, 33,:15, 16, 23

Warner-Lambert Co. v. FTC, 562 F.2d 749 (D.C. Cir.

SE ee Sk ee PRT 5 ww keh ws wa kee ae OR 16

West Virginia State Board of Education v. Barnette, 319

U.S. 624 (1943). -...5... iS CSSA ORO Ee ee OE Ure 14, 25

Wooley v. Maynard, 430 U. S. 705 (1977) .......... 14, 25

FTC Proceedings

In re American Home Products Corp., No. 8918 (Sept. 1,

5p RP CER. os re nn vo ace» 848 0c ER 17

In re Amrep Corp., No. 9018 (July 18, 1979) (initial

IE Wi edie beer cy exci ke kae Ce ok ce 17

In re Arthur Murray Studio, Inc., 78 F. T. C. 401 (1971),

affd, Arthur Murray Studio v. FTC, 458 F. 2d 622 (Sth

Ray RN er re bie wala Ma wanes 34 ahve cok Kn 17

In re Baldwin Bracelet Corp., 61 F. T. C. 1345 (1962),

aff'd, 325 F.2d 1012 (D.C. Cir. 1963), cert. denied,

SE hs WOR CEOOO eet TR AE. 19

In re Bristol-Myers Co., No. 8917 (Sept. 28, 1979)

(SMRERE GOCNNNOND > Fics cb ORE, EGE, 17

In re Crowell-Collier Publishing Co., 75 F.T.C. 241

(1969), affd, P. F. Crollier & Son Corp. v. FTC, 427

LR Pe a I A PPD ak ik es LER 17

In re Crown Central Petroleum Corp., 84 F.T.C. 1493

(1974), modified, 88 F. T. C. 210 (1976) ..........

In re Firestone Tire & Rubber Co., 81 F.T.C. 398

(1572), affd, 481 F.2d 246 (6th Cir. 1973), cert.

denied, 414 U..3.. 1112 .( 1973) 03 62355 ha OS

In re General Transmissions Corp., 73 F.T.C. 399

CIRGR o.0 oes vicdes aun een aS bees eee

In re Great Atlantic & Pacific Tea Co., No. 8916 (March

23, TITSP :. ovivins S00 Wade Ree Ee ee

In re Grolier, Inc., 91 F.T.C. 315 (1978) ...........

In re Horizon Corp., No. 9017 (Sept. 21, 1979) (initial

Gacihm) ... 6.63 ved gn a coins OE

In re Hollywood Carpets, Inc., 86 F. T. C. 784 (1975) ..

In re Household Finance Corp., No. 911 (March 16,

1979) -Gabeed GD 3 oicis cis cea ek.

In re ITT Continental Baking Co., 83 F.T.C. 1105

(1973), rev'd in part, 532 F. 2d 207 (2d Cir. 1976)...

In re Kroger Co., No. 9018 (June 11, 1979) (initial de-

|) BPP ere ea s Slee pO ée a Beak ned elena he

In re Manco Watch Strap Co., 60 F. T. C. 495, modified,

Ol F. 7.0, 26 CHS. ccancaewccrcnae aoe eee

BPFE). > oo 5 08.0 cxngu Agen uv sins ace a ae

In re Mather Hearing Aid Distrib., Inc., 78 F.T. C. 709

CUSTER) nw tike3a:da eesacks oe ae

In re National Housewares, 90 F. T. C. 512 (1977)....

In re Peacock Buick, Inc., 86 F. T. C. 1532 Gos +) ae

In re Raymond Lee Organization, Inc., 92 F.T.C. 489

(I97E) nn. cncchwndckesdhl ee eee

In re Simeon Management Corp., 87 F. T. C. 756 (1976),

affd, Simeon Management Corp. v. FTC, 579 F. 2d

I Ee i Bhd irs os kk ons 18

In re S. S. S. Co., 73 F. T. C. 1058 (1968), enforced, 416 »

Pe ee ee ee ee oe AS 17

In re State Credit Control Board, 7 F. T. C. 1318 (1966) 18

In re Tashof, 74 F. T. C. 1361 (1968), aff'd, 437 F. 2d

Oe £e. Gy GO P9IO) ince cscs ahh Mid aie 6a os 19

In re Taylor-Friedsam Co., 69 F. T. C. 483 (1966) .... 18

In re Thermochemical Products, Inc., 76 F.T.C. 107

I Nn ee a ra a es as wis 19

In re Travel King, Inc., 86 F.T. C. 715 (1975) ...... 18

In re U. S. Life Credit Corp., 91 F. T. C. 984 (1978), va-

CORI eiciec Ms ON ais $. be Fe, ) ere eee 18

In re Universal Credit Acceptance Corp., 82 F. T: C. 570

(1973), rev’d in part on other grounds, Heater v. FTC,

ee es me ee Ae Oe, FOIA) ions cbse enc Fh%% 19

In re Western Radio Corp., 63 F. T. C. 882 (1963), modi-

fied on other grounds, Western Radio Corp. v. FTC,

334 339 F.2d 937 (7th Cir.), cert. denied, 381 U.S.

it! gr A Bip Tere eras ie RR RA Sb ate 19

Statutory and Constitutional Provisions

| RRR i eC Sag EET Vien ran eee Passim

RS ES ae 4 Oe Se Passim

Other

Consumer Information Remedies (FTC Staff Publication,

WR Ni eae De pk ee 17

Elman, “The New Constitutional Right to Advertise,” 64

ABA Journal 206 (February, 1978) ............. 15, 16

Emerson, The System of Freedom of Expression (1970).. 24

Hearings Befcre the Committee on Interstate and Foreign

Commerce of the House of Representatives on Senate

Bill 3744 (74th Congress) (1937) .Wo.... ee. oe, 28

Note, 44 Univ. Chi. L. Rev. 205 (1976) ............. 24

Oversight Hearings on the Federal Trade Commission Be-

fore the Consumer Subcommittee of the Senate Commit-

tee on Commerce, Science and Transportation (90th

CS. AE) SG ck AN es ri 29

Pederson & Wright, Salesmanship Principles and Methods

CEFF ER a esos FF bos Likes aoe 7

IN THE

Supreme Court of the United States

OCTOBER TERM, 1979

ENCYCLOPAEDIA BRITANNICA, INC. AND BRITANNICA

HOME LIBRARY SERVICES, INC.,

Petitioners

vs.

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT.

Petitioners Encyclopaedia Britannica, Inc. and its subsidiary

Britannica Home Library”Services, Inc. (hereinafter referred to

jointly as “Britannica”) pray that a writ of certiorari issue to

review the judgment of the United States Court of Appeals for

the Seventh Circuit affirming an order issued by the Federal

Trade Commission.

OPINIONS BELOW.

The majority and dissenting opinions in the Court of Appeals,

not yet reported officially but reported unofficially at 1979-2

Trade Cas. (CCH) { 62,793, are set forth in the Appendix (pp.

Al-A25). The administrative proceedings before the Federal

Trade Commission are reported at 87 F.T.C. 421 and are set

forth in the Appendix (pp. A26-A184).

JURISDICTION.

The judgment of the Court of Appeals was entered on

August 2, 1979. This Court’s jurisdiction is invoked under 28

U. SC. § 1254(1).

QUESTIONS PRESENTED.

In Virginia State Board of Pharmacy v. Virginia Citizens

Consumer Council, Inc., 425 U.S. 748 (1976), which held that

non-deceptive commercial speech is entitled to First Amend-

ment protection, this Court expressly referred to and left un-

resolved the question whether, and to what extent, the govern-

ment may affirmatively require a commercial communication

to appear in a certain “form” and to “include such additional

information, warnings, and disclaimers, as are necessary to pre-

vent its being deceptive.” Jd. at 771 n. 24.

The first question presented in this case is whether the Fed-

eral Trade Commission’s “fencing-in” doctrine, under which the

FTC asserts the authority to issue remedial orders which reach

beyond practices actually found to be deceptive, violates the

First Amendment when it is applied to require a publisher to

include in its sales communications verbatim affirmative state-

ments dictated by the FTC which are not necessary to prevent

deception.

II.

The second question presented, on which the Court should

grant the writ to resolve the sharp conflict between the decision

of the Seventh Circuit below and the decision of the Third Cir-

cuit in Beneficial Corp. v. FTC, 542 F. 2d 611 (3d Cir. 1976),

cert. denied, 430 U.S. 983 (1977), is whether the appro-

priate standard of judicial review of FTC remedial orders re-

stricting commercial speech is the new more exacting one formu-

lated in Beneficial for commercial speech. cases or the old defer-

ential one formulated in Jacob Siegel Co. v. FTC, 327 U.S.

608 (1946), and applied by the Seventh Circuit below. This is

the precise issue on which the FTC sought certiorari in Beneficial

before a conflict developed.

III.

The third question presented, on which review is required

because the decision below is in direct conflict with established

First Amendment principles enunciated by this Court, is whether

a prior restraint on the truthful communications of a publisher

engaged in the distribution of its publications, which prior re-

straint has not been demonstrated to be necessary to achieve a

valid governmental objective, is constitutional under the First

Amendment.

IV.

The fourth question presented is the unresolved statutory issue

whether the FTC has the power under the Federal Trade Com-

mission Act to issue an order which destroys the established

manner of doing business of an enterprise when such drastic

interference has not been demonstrated to be necessary to ac-

complish the FTC’s remedial purpose.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED.

The constitutional provision involved is the First Amendment

which provides in relevant part:

“Congress shali make no law... .

of speech or of the press . . .”

abridging the freedom

The statutory provision involved is the Federal Trade Com-’

mission Act, 15 U. S. C. § 45, which is set forth in the Appendix

(pp. Al84-A192).

STATEMENT OF THE CASE.

Britannica seeks review by this Court of a decision of the

Court of Appeals for the Seventh Circuit affirming, by a 2-to-1

vote, an order (the “Order”) of the Federal Trade Commission

(“FTC”) which directs Britannica to make affirmative state-

ments in words and form dictated by the FTC in all its future

communications to prospective purchasers of its publications.*

Britannica publishes the Encyclopaedia Britannica, widely

recognized as the outstanding comprehensive reference work in

the English language. Its principal method of marketing this

reference work has for many years been to identify interested

potential customers by seeking responses to promotional adver-

tisements offering information, and then to visit them at their

homes for sales presentations. Britannica’s business depends

upon these two brief opportunities to communicate its sales mes-

sage to prospective customers. The FTC found that Britannica

encouraged customers to listen to its sales presentations through

use of misleading techniques in the advertisements and at home

visits and it ordered Britannica to stop such misleading sales de-

vices. Britannica does not contest this part of the Order. How-

ever, the Order goes on to require Britannica to make verbatim

affirmative statements in its ads and at-home presentations which

will actively discourage the customer from listening to Britan-

nica’s sales presentations.** It is these intrusive affirmative re-

quirements, which go far beyond what is necessary to prevent

deception, which Britannica claims violate the First Amendment

and exceed the FTC’s statutory authority.

Specifically, the challenged provisions of the Order require

every Britannica sales representative to direct every prospective

customer answering the door to read a Miranda-like warning

card starkly proclaiming, in 10-point boldface type, the rep-

resentative’s identity, business affiliation, and sales purpose

—and nothing else—in words and format selected by the FTC,

before the representative may engage in any. sales presentation.

The card-at-the-door wouid appear as follows:

* The complete text of the Order appears in the Appendix (pp.

A37-AS1). . 2 yg

** Studies indicate that the Order would more than cut in half the

number of consumers responding to Britannica’s print advertising.

See p. 8 infra.

ENCYCLOPAEDIA BRITANNICA, INC.

JOHN DOE

ENCYCLOPEDIA SALES REPRESENTATIVE

THE PURPOSE OF THIS REPRESENTATIVE’S

CALL IS TO SOLICIT THE SALE OF

ENCYCLOPEDIAS.

In addition, the Order directs Britannica to include in all adver-

tising or promotional material containing an offer of books or

information and seeking a reply from the customer the follow-

ing exact words in the following precise format:

NOTICE TO CONSUMER—PERSONS WHO REPLY AS

REQUESTED MAY BE CONTACTED BY A SALES-

PERSON FOR THE PURPOSE OF SELLING. . .*

Britannica offers for sale a product which many informed

members of the public decide to purchase once they have listened

to Britannica’s sales messages. The words and conduct required

by the Order, however, convey the impression that Britannica

and its e1.-yclopedia are, in the words of the dissenting judge

below, “afflicted with a strange marketplace malady.” (Dissent-

ing opinion of Wood, J., at p. A23). Britannica does not wish

to express its messages in the form dictated by the FTC. It

does not wish, for example, to introduce its sales representatives

as persons intending to “solicit”—a word defined in Webster’s

New Collegiate Dictionary, inter alia, as meaning “to entice or

lure esp. into evil.”

* A similar prescribed “warning,” in bold-face type, is required

to be included on any return card or coupon attached to the promo-

tional material.

The utterances required by the Order are not necessary to

prevent deception. Salesmen are not generally required to engage

in a comparable procedure when contacting their customers,

but no one would seriously suggest that their customers are

thereby being deceived. Yet the Order—ijustified by the FTC

under its “fencing-in” doctrine by which remedial orders may

extend beyond practices found to be unlawful—bars all com-

munications, irrespective of their truthfulness, which do not

comply with the precise specifications as to wording and form

dictated by the FTC.

Britannica submits that this unnecessary interference with its

right to use words of its own choosing in speaking about its

publications violates the First Amendment and exceeds the

remedial authority of the FTC under the Federal Trade Com-

mission Act.

The FTC Proceedings.

A complaint against Britannica was issued by the FTC on

December 11, 1972. On December 16, 1974, an FTC admin-

istrative law judge (“ALJ”) entered his findings, two portions of

which formed the basis for the challenged provisions of

the Order.

First, the ALJ found that in contacting prospective purchasers

at their homes, Britannica sales representatives “misrepresented

and failed to disclose” their sales purpose, frequently by repre-

senting that they wished to conduct an advertising survey

(pp. A82-A86) or to deliver a prize or certificate of some

nature. (pp. A86-A91)*

Second, the ALJ found that Britannica utilized magazine and

direct mail advertising, inviting readers to send in response cards

in order to receive free books or information concerning Brit-

annica’s products, without disclosing in the advertising that

persons responding to such advertisements would be contacted

* Prizes or gifts were in fact delivered; however, the ALJ found

that such visits were simply a method of gaining entrance for the

purpose of selling.

by salesmen. (pp. Al110-A112) He found that Britannica’s use

of the terms “send” and “direct from the publisher” affirmatively

misrepresented that the free information would arrive by mail

rather than by personal delivery by a salesman. (pp. A111-

A112) The ALJ also found that contest entry cards similarly

failed to disclose Britannica’s sales purpose, and that the term

“no obligation” and the statement that winners would be notified

by telephone misrepresented the fact that winners would re-

ceive their prizes directly from a Britannica sales representative.

(p. Al12)*

Concluding that such practices'violated Section 5 of the Fed-

eral Trade Commission Act, the ALJ included in the Order

express prohibitions against future representations that Britan-

nica sales representatives were: (1) engaged in any endeavor

other than door-to-door sale of encyclopedias, (2) conducting

a survey or other information-gathering activity, or (3) calling

on a prospective customer for the primary purpose of delivering

prizes or other items. (p. A41) Britannica does not challenge

these prohibitions.

However, the ALJ then proceeded to go beyond the prohibi-

tion of communications found to be deceptive and affirmatively

required Britannica and its salesmen to speak the words, quoted

above, chosen by the FTC. The ALJ did this over Britannica’s

contention, with respect to the at-home visits,- that the conduct

found deceptive could be remedied in a far less intrusive man-

ner by a simple cease and desist order forbidding Britannica

salesmen from claiming that the purpose of their visits was any-

thing other than to sell; or at most by an order requiring sales-

men to orally disclose their identity, affiliation, and sales objec-

tive or requiring them to present an ordinary business card stat-

* There was never any claim that Britannica failed to deliver

booklets or information to customers who requested them or that

the contests were themselves in any way deceptive. The only claim,

and the only finding, was that it was deceptive to offer booklets or

prizes implying that they would come only through the mail, without

disclosing in writing that those who responded would be placed on

a list of prospective customers to be contacted by a salesman.

ing their identity, affiliation, and occupation as Britannica sales

representatives. *

Similarly, with respect to its promotional ads, Britannica

argued that the required disclosure—that responding persons

might be contacted by a salesman—could be included in its

advertising in any One of a variety of ways which would not

so severely inhibit response as the rigid and intrusive “warning”

language and format. For example, the statement “Responding

persons may be contacted by a Britannica representative to see

if they would like further information about Britannica’s prod-

ucts” was suggested by Britannica as an alternative.**

In rejecting these suggested alternatives and in refusing to

limit the Order to what was necessary to prevent deception, the

ALJ relied on the FTC’s “fencing-in” doctrine (p. A156)

stating:

. once the Government has successfully born the

considerable burden of establishing a violation of law, all

doubts as to the remedy are to be resolved in its favor.’ ”

(p. A158)

Without discussion of the proposed alternative forms of dis-

closure, the ALJ stated that “No satisfactory alternatives are

suggested.” (p. A160)

On appeal to the FTC, Britannica renewed its objections to

the portions of the Order which affirmatively required it to

speak words chosen by the FTC. However, the FTC stated that

the card-at-the-door “should suffice” to provide clear and con-

* Standard works on marketing underline the importance of the

manner in which such initial contact is made. See, e.g., Pederson &

Wright, Salesmanship Principles and Methods, 320-21 (1971):

“The first few seconds that a salesman spends with a prospect

often makes or breaks a sale. . . . A negative first impression

. . . Sets up a barrier which may never be hurdled.”

** Britannica urged the Seventh Circuit that the case be remanded

to the FTC so that Britannica could present evidence of copy testing

which has shown that inclusion of the “warning” in the form pre-

scribed by the Order results in a drastic decline (substantially in

excess of 50% ) in the number of persons responding to Britannica’s

advertising.

spicuous disclosure of Britannica’s sales objective (pp. A30-

A31) and that affirmative disclosure that a sales representative

may call was necessary in the promotional advertisements. (p.

A36) The FTC took it upon itself to draw the extraordinary

conclusion that the language it required Britannica to speak was

not “negative” (p. A36)* and, without even referring to the

alternative forms of disclosure suggested by Britannica, it pro-

ceeded to uphold the Order with one minor exception.**

The Court of Appeals Decision.

Britannica petitioned for review in the Seventh Circuit which

upheld the Order, in a 2-to-1 decision, on August 2, 1979.

Despite the First Amendment issues raised by the Order, the

Court began its analysis by endorsing the Siegel *** standard

of review, which accords “wide latitude” to the FTC in framing

remedial orders. It stated “once a violation of the Act has been

found, our role in reviewing the remedy is a narrow one” (p.

AQ), and that it was sufficient that “the requirement of the dis-

closures on initial contact and in the so-called promotional ma-

terials were reasonably related to the deceptive practices found.”

(p. Al0) Despite the fact that the Order dictated the wording

of a sales communication to an extent never before approved by

any court, the majority expressed “no hesitancy in concluding”

that the reasonable relation standard had been satisfied and

affirmed the Order on the ground that the FTC had not “abused

its discretion.” (pp. A10-A11) In so holding, the majority ex-

pressly relied upon the FTC’s “fencing-in” rule, which asserts

the FTC’s authority to fashion a remedial order whose provisions

*No decision of this Court has ever intimated that the First

Amendment permits the government to determine whether certain

speech is “positive” or “negative.”

** The requirement that the 3-by-5 card state that “This card

should be kept as part of your permanent records of this transaction”

was deleted because, in the FTC’s opinion, it “did not appear to

be necessary in order to provide a clear and conspicuous disclosure

of the nature and purpose of the call.” (p. A30)

*** Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946).

extend beyond the particular practices held to be unlawful. The

majority stated: “‘Having been caught violating the Act,

respondents “must expect some fencing it.”’ .. .” (p. A10)

The majority rejected Britannica’s contention that the affirma-

tive disclosure requirements violate its First Amendment right

to engage in truthful communications of its own choice concern-

ing its publications. It concluded that, as the Order neither re-

quired Britannica to argue the opposing side of a controversy

contrary to its beliefs nor required the deletion of a copyrighted

advertising phrase (such orders had been partially or wholly

overturned on appeal in National Commission on Egg Nutrition

v. FTC,* and Beneficial Corp. v. FTC,** respectively), the

Order was not impermissibly broad. (p. Al5) With respect to

Britannica’s proposed alternative methods for curing the decep-

tion found by the FTC, the majority conceded, “It is true that

the ALJ and the Commission made no express comparison” in-

volving the proposed alternatives. (p. All) However, it excused

this failure stating, in utter disregard of First Amendment prin-

ciples, that the issue was “only the form of the disclosure to be

required.” (p. Al2) The majority found an “implication” that

a comparison had been made by the FTC (although the FTC

did not even refer to the alternatives) and made no such com-

parison itself. (p. A12)

Judge Wood dissented from the affirmance of the Order,

stating that the alternative methods of disclosure suggested by

Britannica had been ignored by the FTC in favor of a harsh

remedy “without any apparent consideration of the adverse

effects upon Britannica likely to result from its prescription”

(p. A22):

“In my view this is a case where an agency, though with

good intentions, in its big brother role has unnecessarily

* 570 F.2d 157 (7th Cir. 1977), cert. denied, 439 U.S. 821

(1978).

** 542 F.2d 611 (3d Cir. 1976), cert. denied, 430 U.S. 983

(1977).

intruded too far into the conduct of legitimate business.”

(p. A23.)

Focusing upon the severely intrusive nature of the Order, Judge

Wood stated that:

“The remedies appear to me to go beyond any reasonable

cure . . . Britannica makes plain the severe, adverse

business impact which can be anticipated by its use of the

prescribed stark warnings and procedures. It seems to me

that to require a salesperson to use the warning card will

suggest to many prospects that the sales representative and

his company are afflicted with some strange marketplace

malady. Even prospects who are predisposed to acquire

for themselves and families the wealth of information found

in an encyclopedia may be expected to turn to some com-

petitor who does not exhibit such abnormal and strange

commercial behavior.” (p. A23.)

Judge Wood concluded that enforcement of the Order should be

denied and the case remanded to the FTC “for reconsideration

of a more appropriate remedy to be supported by a rational

analysis.” (p. A24)

REASONS FOR GRANTING THE WRIT.

The judgment below places a prior restraint of extraordinary

severity upon speech protected by the First Amendment. In

permitting the FTC to prescribe in rigid detail the exact words

that Britannica must use in communicating with prospective

customers—words not necessary to prevent deception—the

Seventh Circuit has answered incorrectly the precise question

left open by this Court in Virginia State Board of Pharmacy,

supra, and sanctioned a widespread and overbroad FTC effort,

under its so-called “fencing-in” doctrine, to dictate the form

and content of commercial communications. This effort has al-

ready resulted in at least 44 reported orders, seven of which have

already been reviewed by courts of appeals. The total failure

of the FTC to curb its application of the “fencing-in” doctrine

and to tailor its program of affirmative orders dictating the

form and words of commerical messages to new commercial

free speech requirements has resulted in at least a partial reversal

—as overbroad—of five of the seven orders thus far subjected

to judicial review.

In applying, at the FTC’s urging, the old “wide latitude” stand-

ard of review of remedial orders formulated in Jacob Siegel Co.

v. FTC, 327 U.S. 608, 611-13 (1946), the Seventh Circuit’s

decision squarely conflicts with the decision of the Court of

Appeals for the Third Circuit in Beneficial Corp. v. FTC, supra,

which announced a new more exacting standard of review of

FTC orders applicable in commercial speech cases. By adhering

to the old deferential standard of review of FTC remedial orders,

the Seventh Circuit has failed to adjust the standard of judicial

review to new commercial free speech requirements, and by

attributing to the FTC a First Amendment expertise which it

does not possess has let stand an order which is simply un-

constitutional.

Further, the Seventh Circuit has approved such an FTC

restraint here applicable not to an ordinary commercial message

but to the communications of a publisher of important educa-

tional, literary and scientific works engaged in the distri-

bution of its publications—an activity subject to the most

rigorous standards of First Amendment protection under this

Court’s decisions.

Finally, and apart from the issues arising under the First

Amendment, the judgment of the Seventh Circuit accepts as a

lawful exercise of the FTC’s remedial powers under Section 5 of

the Federal Trade Commission Act an order which largely

destroys an established and valuable mode of doing business

developed over many years without any demonstrated necessity

for such drastic intrusion in order to prevent deception or

achieve any other valid remedial objective.

I. The Writ Should Be Granted to Decide the Important First

Amendment Question Left Open in Virginia State Board

of Pharmacy Which Should Now Be Settled Because of the

FTC’s Widespread Program of Seeking Under Its “Fencing-

In” Doctrine to Dictate the Form and Content of Com-

mercial Communications.

A. The Writ Should Be Granted to Resolve the Question Left

Open in Virginia State Board of Pharmacy.

The decision of the Seventh Circuit in this case presents the

First Amendment issue which this Court expressly referred to

and left unresolved in Virginia State Board of Pharmacy, supra,

regarding the permissible scope of governmental authority to

dictate the exact wording and form of a commercial message.

In Virginia State Board of Pharmacy this Court stated that cer-

tain attributes of commercial speech “may make it appropriate

to require that a commercial message appear in such a form, or

include such additional information, warnings and disclaimers,

as are necessary to prevent its being deceptive.” Jd. at722 n. 24.*

The issue is presented in this case because the FTC has

applied, and the Seventh Circuit majority has upheld, a “fencing-

in” order far broader than the conduct found to have been

unlawful and far broader than is necessary to prevent deception.

This has become a routine practice by the FTC despite the fact

that a “fencing-in” order which commands the actual words to

be used and the type size in which they must appear is the most

severe form of prior restraint possible. In addition to putting

words in the mouths of Britannica’s salesmen which they do not

* Subsequently, in Bates v. State Bar of Arizona, 433 U.S. 350

(1977), this Court again referred to and left open this question,

stating: “We do not foreclose the possibility that some limited sup-

plementation, by way of warning or disclaimer or the like, might be

required of even an advertisement of the kind ruled upon today so

as to assure that the consumer is not misled.” Jd. at 384.

choose to speak,* the affirmative disclosure requirement restrains

the salesmen from introducing their sales presentation with any

other words delivered in any other manner.

The judgment below requires Britannica to have its salesmen

direct each and every prospective customer to read a 3-by-5 inch

card on which is printed in 10-point type, in Miranda-warning

fashion, the statement: “THE PURPOSE OF THIS REPRE-

SENTATIVE’S CALL IS TO SOLICIT THE SALE OF

ENCYCLOPEDIAS,” and requires Britannica to include in

its promotional advertisements the statement: “NOTICE TO

CONSUMER—PERSONS WHO REPLY AS REQUESTED

MAY BE CONTACTED BY A SALESPERSON FOR THE

PURPOSE OF SELLING. .. .” Britannica has a product of

undeniable quality, an encyclopedia, which members of an in-

formed public often wish to buy, read and enjoy once they have

received a fair presentation of Britannica’s messages relating to

it. The Order, however, requires Britannica to introduce its

messages with words and conduct dictated by the FTC,

giving the impression that Britannica and its encyclopedia

are, in the words of the dissenting judge below, “afflicted

with a strange marketplace malady.” (p. A23) Britannica does

not wish to express its sales messages in the form dictated by

the Order. Britannica’s salesmen do not wish, for example, to

describe their conduct to a prospective customer as involving an

effort to “solicit’—a word defined in the dictionary, inter alia,

as meaning “to entice or lure esp. into evil.” Nor does Britannica

wish to introduce the message that a salesman may contact a

customer with the bold-face warning phrase “NOTICE TO

CONSUMER,” as though the salesman will be carrying a com-

municable disease rather than useful information regarding a

valuable and desirable product.

* The First Amendment does not generally leave “it open to

public authorities to compel [a person] to utter what is not in his

mind.” West Virginia State Board of Education v. Barnette, 319

U.S. 624, 634 (1943). The First Amendment protects both “the

right to speak freely and the right to refrain from speaking.” Wooley

v. Maynard, 430 U.S. 705, 714 (1977).

Utterances in the form dictated by the FTC are not neces-

sary to avoid deception. Potential customers would not be de-

ceived if visiting salesmen identified themselves as Britannica

representatives in a less startling manner or if Britannica’s pro-

motional advertising disclosed in more normal language that a

responding consumer might be called upon by a salesman. The

prior restraint embodied in the Order was sustained, however,

on the basis of the FTC’s “fencing-in” doctrine under which,

having found a violation, the FTC claims authority to draft an

order broader than the conduct found to have been unlawful.

However valid the FTC’s “fencing-in” doctrine may be in

general, Britannica asserts that, following this Court’s decision in

Virginia State Board of Pharmacy, supra, the doctrine is uncon-

stitutional where it bans broad ranges of truthful commercial

messages.* Britannica asks this Court to grant its petition and

to announce a rule that the government may not dictate the con-

tent of a commercial message unless it can demonstrate that such

an order is necessary to prevent deception and that alternate

forms of curative messages proposed by the speaker are in-

adequate.

* The “fencing-in” doctrine was initially applied in antitrust cases

having no First Amendment implications. See FTC v. National Lead

Co., 352 U.S. 419 (1957). In recent years, however, the FTC has.

applied it in false and misleading advertising cases. In the words of

one commentator:

“For more than sixty years the F.T.C. has gone its way

oblivious to the First Amendment. Conceived as an antitrust

agency, it has drawn on antitrust principles and remedies in

regulating advertising. In fashioning relief, for example, the

commission has issued broad ‘fencing in’ orders to advertisers

and price fixers alike. . . . But advertisers are now in a different

situation: there is no constitutional right to fix prices, but there

is a constitutional right to advertise truthfully.” Elman, “The

New Constitutional Right to Advertise,” 64 ABA Journal 206,

209 (February, 1978).

B. The Writ Should Be Granted Because of the FTC’s Customary

Imposition of Overbroad Prior Restraints in the Form of

Affirmative Disclosure Orders Under Its “Fencing-in” Doctrine.

Resolution of this issue is now critical because there is an

inherent conflict between the FTC’s “fencing-in” doctrine as

applied to advertisers, on the one hand, and their First Amend-

ment rights enunciated in Virginia State Board of Pharmacy, on

the other. A former FTC commissioner predicted, “The most

serious impact on the FTC of these recent First Amendment

decisions will be in curbing issuance of unjustifiably broad

‘fencing in’ rules and orders against against advertisers. . . .”

Elman, “The New Constitutional Right to Advertise,” 64 ABA

Journal 206, 208 (February, 1978). Yet the FTC has not re-

sponded to this Court’s decisions by tailoring its application of

the “fencing-in” doctrine to meet First Amendment require-

ments, but has instead continued routine application of the

doctrine in advertising cases.

The FTC considers the “fencing-in” doctrine to be generally

applicable to its remedial authority. It has expressly relied upon

it in no fewer than 36 cases, 17 of which were decided sub-

sequent to this Court’s decision in Virginia State Board of

Pharmacy. To date, the FTC’s application of its “fencing-in”

doctrine in false and misleading advertising cases decided sub-

sequent to Virginia State Board of Pharmacy has spawned seven

decisions in the Courts of Appeals, five of which have resulted

in partial or complete reversals of overbroad orders. See Bene-

ficial Corp. v. FTC, 542 F. 2d 611 (3d Cir. 1976), cert. denied,

430 U. S. 983 (1977); Warner-Lambert Co. v. FTC, 562 F. 2d

749 (D.C. Cir. 1977), cert. denied, 435 U.S. 950 (1978);

National Commission on Egg Nutrition v. FTC, 570 F. 2d 157

(7th Cir. 1977), cert. denied, 439 U.S. 821 (1978); Porter &

Dietsch, Inc. v. FTC, 1979-2 Trade Cas. (CCH) 4 62,796 (7th

Cir. 1979); Standard Oil of California vy. FTC, 577 F.2d 653

(9th Cir. 1978); Jay Norris, Inc. v. FTC, 598 F. 2d 1244 (2d

Cir. 1979). See also U. S. v. National Society of Professional En-

gineers, 555 F.2d 978 (D.C. Cir. 1977), affirmed on other

grounds, 435 U. S. 679 (1978). Moreover, the FTC’s broad

construction of its remedial authority has resulted in the issuance

of at least 37 orders (in addition to those reviewed in the court

of appeals decisions mentioned above) both before and after

Virginia State Board of Pharmacy, in which the FTC has not

only ordered that deceptive advertising practices be discontinued

but also affirmatively required certain words to be uttered, often

specific words chosen by the FTC and often words not necessary

to prevent deception.* Indeed, an FTC staff publication entitled

Consumer Information Remedies states (at p. 276) “Affirma-

tive disclosure requirements form the backbone of current FTC

initiatives . . .” against misleading advertising.

* See, e.g., In re Grolier, Inc., 91 F.T.C. 315 (1978) (en-

cyclopedia publisher subject to affirmative disclosure provisions

identical to those imposed in this case); Jn re Crowell-Collier

Pub. Co., 75 F. T. C. 241 (1969), aff'd, P. F. Collier & Son Corp.

v. FTC, 427 F. 2d 261 (6th Cir. 1970) (door-to-door sales repre-

sentatives of encyclopedia publisher required to disclose sales purpose

orally); In re Mather Hearing Aid Distrib., Inc., 78 F.T.C. 709

(1971) (hearing aid seller required to disclose that persons respond-

ing to its advertisements may be contacted by a salesman); In re

National Housewares, 90 F. T. C. 512, 602 (1977) (seller of house-

hold appliances, tools and books required to say, when offering a

gift by mail or phone, “We would like the opportunity to sell our

products to you”); In re Horizon Corp., No. 9017 (F. T.C., filed

Sept. 21, 1979) (Initial Decision) (land sale company required to

state, in specified language, that the land is not being sold as a

financial investment, that its value is uncertain, and that any attempt

by the buyer to resell the land would meet competition from the

original seller); In re Amrep Corp., No. 9018 (F.T.C., filed July

18, 1979) (Initial Decision) (land selling enterprise required to

disclose, in specified language, that value of land is uncertain, that

the land was not a financial investment, and “do not count on...

being able to resell it”); In re Raymond Lee Org., Inc., 92 F. T. C.

489 (1978) (promoter of inventions required to disclose, in speci-

fied language, the actual cost of its service and the number of clients

whose earnings exceeded their costs); In re American Home Products

Corp., No. 8918 (F.T.C., filed Sept. 1, 1978) (Initial Decision)

(maker of Anacin required to state in all ads, “Anacin is not a

tension reliever”); Im re Bristol-Myers Co., No. 8917 (F.T.C.,

filed Sept. 28, 1979) (Initial Decision) (manufacturer of Bufferin

and Excedrin required to disclose that its products contain aspirin

(Footnote continued on next page.)

A clear rule requiring the FTC to limit application of its

“fencing-in” doctrine to avoid unnecessary interference with

freedom of commercial expression protected by the First Amend-

ment has not emerged. Britannica submits that the First Amend-

ment requires at a minimum that the government demonstrate

that the remedial order is necessary to prevent deception and

(Footnote continued from preceding page.)

and to state that Bufferin and Excedrin are no faster, gentler or

stronger than aspirin); In re Travel King, Inc., 86 F.T.C. 715

(1975) (promoters of “psychic surgery” tours to the Philippines

required to state in response to all inquiries, “Psychic surgery has

been shown to be fraud and fakery . . .”); In re Arthur Murray

Studio, Inc., 78 F.T. C. 401 (1971), aff'd, 458 F. 2d 622 (Sth Cir.

1972) (dance studio required to reveal sales purpose behind con-

tests—consent order); In re Simeon Met. Corp., 87 F.T.C. 1184

(1976), affd, 579 F.2d 1137 (9th Cir. 1978) (weight reduction

clinic required to disclose that its program included injections of a

drug not approved by the FDA for treatment of obesity); In re

Kroger Co., No. 9102 (F. T. C., filed June 11, 1979) (Initial Deci-

sion) (grocery retailer required to state in comparative pricing adver-

tisements, “Whether you will save or how much you will save will

depend on how much you buy”); In re Household Finance Corp.,

No. 9111 (F. T. C., filed Mar. 16, 1979) (Initial Decision) (lender

required to send specified “NOTICE OF RIGHT TO CANCELLA-

TION” to customers who reaffirm a previously discharged debt which

is not disclosed as a finance charge); In re Great Atlantic & Pacific

Tea Co., No. 8916 (F. T. C., filed Mar. 25, 1975) (grocery retailer

required to include in each advertisement containing prices of iden-

tified items the following statement, “Each of these advertised items

is required to be readily available for sale at or below the advertised

price in each A&P store, except as specifically noted by this ad”);

In re Peacock Buick, Inc., 86 F.T.C. 1532 (1975) (used car

dealer required to disclose the exact amount of any handling or

service charge, that credit insurance is optional, and the words,

“FOR EXACT MILEAGE, SEE ODOMETER”); In re State Credit

Control Bd., 70 F.T.C. 1318 (1966) (collection agency required

to disclose the extent and nature of its authority to act in connection

with each debt); In re Taylor-Friedsam Co., 69 F. T. C. 483 (1966)

(seller of imported ribbon required, whenever making representa-

tions about fiber content, to affix a tag with fiber content informa-

tion to the ribbon); Jn re USLife Credit Corp., 91 F.T.C. 984

(1978), vacated, ........ Wail -cacskess (Sth Cir. 1979) (lender required

to state on forms, “You are not required to purchase” credit insur-

ance in connection with a loan).

Other cases involving affirmative disclosure requirements include:

In re Firestone Tire & Rubber Co., 81 F.T.C. 398 (1972), aff'd,

(Footnote continued on next page.)

that proffered alternatives are false or misleading before it can

thrust its phraseology upon an unwilling speaker.

If there is constitutional doubt about the FTC’s continuing

program of prior restraints in the form of overbroad affirmative

disclosure orders under its “fencing-in” doctrine, as there must

be, the Court should grant the writ to state the appropriate rule.

II. This Court Should Grant the Writ to Resolve the Serious

Conflict Between the Circuits on the Scope of Review of

FTC Orders Prescribing the Content of Commercial Com-

munication.

In Beneficial Corp. v. FTC, 542 F.2d 611 (3d Cir. 1976),

cert, denied 430 U.S. 983 (1977), the Third Circuit adopted

a new and more exacting standard of judicial review of remedies

ordered by adminstrative agencies in First Amendment com-

mercial-speech cases and rejected for such cases the old standard

of review formulated in Jacob Siegel Co. v. FTC, 327 U. S. 608

(Footnote continued from preceding page.)

481 F. 2d 246 (6th Cir. 1973), cert. denied, 414 U.S. 1112 (1973);

In re Thermochemical Products, Inc., 76 F.T.C. 107 (1969); In

re S.S.S. Co., 73 F.T.C. 1058 (1968), enforced, 416 F.2d 226

(6th Cir. 1969); In re General Transmissions Corp., 73 F.T.C.

399 (1968); In re Western Radio Corp., 63 F.T.C. 882 (1963),

modified on other grounds, 339 F.2d 937 (7th Cir.), cert. denied,

381 U.S. 938 (1965); In re Tashof, 74 F.T.C. 1361 (1968),

aff'd, 437 F.2d 707 (D.C. Cir. 1970); In re Universal Credit Ac-

ceptance Corp., 82 F.T.C. 570 (1973), rev’d in part on other

grounds, Heater v. FTC, 503 F.2d 321 (9th Cir. 1974); In re

Hollywood Carpets, Inc., 86 F. T. C. 784, 822 (1975); In re Crown

Central Petroleum Corp., 84 F.T.C. 1493 (1974), modified, 88

F. T. C. 210, 211 (1976); In re Baldwin Bracelet Corp., 61 F. T. C.

1345, 1377 (1962), aff'd, 325 F.2d 1012 (D.C. Cir. 1963), cert.

denied, 377 U.S. 923 (1964); In re Manco Watch Strap Co., 60

F.T.C. 495, modified, 61 F.T.C. 298 (1962); In re ITT Con-

tinental Baking Co., 83 F.T.C. 1105, 1108 (1973), rev’d in part,

532 F. 2d 207, 220-21 (2d Cir. 1976); In re Marketing Dev. Corp.,

No. 9067 (F. T.C., filed June 7, 1979).

(1946).* Recognizing that the Beneficial standard would

significantly curb its broad exercise of remedial discretion, the

FTC filed a certiorari, petition asking this Court to reject the

Beneficial formulation and re-instate the Siegel formulation

even for First Amendment cases. This Court denied certiorari

leaving the Third Circuit’s decision standing. In the court below,

the FTC asked the court to adopt the Siegel standard of review

in this case. The Seventh Circuit did so, affirmed the overbroad

FTC order as a result, and its decision is consequently in direct

‘conflict with that of the Third Circuit.

In Beneficial, the Third Circuit reversed an FTC order pro-

hibiting the use of the phrase “Instant Tax Refund” on the

basis of appellant’s First Amendment claim that the phrase

could have been rendered non-deceptive by the alternate means

of adding certain explanatory words. The Third Circuit stated

that the FTC’s “broad construction of its §5 remedial

authority cannot survive the demise of the commercial speech

exception to the First Amendment.” 542 F.2d at 620. In

addressing the standard of review to be applied to the FTC

order, the Third Circuit held:

“[W]e are ordinarily obliged to defer broadly to the Com-

mission’s exercise of informed discretion in framing re-

medial orders that bear some rational relationship to the

. . Violation . . . . But we are dealing in this case with

the Government regulation of a form of speech. The first

* In the most frequently cited formulation, this Court stated in

Siegel (327 U.S. at 611-13):

“The Commission has wide discretion in its choice of a

remedy deemed adequate to cope with unlawful practices in

this area of trade and commerce. . . . Judicial review is limited.

It extends no further than to ascertain whether the Commission

made an allowable judgment in its choice of the remedy. .. .

The Commission is the expert body to determine what remedy

is necessary to eliminate the unfair or deceptive trade practices

which have been disclosed. It has wide latitude for judgment

and the courts will not interfere except where the remedy

found to exist.”

selected has no reasonable relation to the unlawful practices

a eS eee

amendment requires, we believe, an examination of the

Commission’s action that is more searching than in other

contexts.” (Emphasis added.) 542 F. 2d at 618-19.

In addressing the substantive First Amendment standard to be

applied by the FTC, the Third Circuit stated:

“The Commission, like any governmental agency, must

start from the premise that any prior restraint is suspect,

and that a remedy, even for deceptive advertising can

go no further than is necessary for the elimination of the

deception.” 542 F.2d at 620.

Applying the strict standard of review formulated above, the

Third Circuit analyzed whether the total ban on the use of the

offending phrase was permissible and concluded that the ad-

vertising might be rewritten in various ways to eliminate decep-

tion while still utilizing the specified phrase. The Third Circuit

held that the First Amendment required the FTC to permit

use of such alternative forms of disclosure, and the court con-

sequently remanded the case to the FTC.

The FTC filed a petition for a writ of certiorari in Beneficial

asking this Court in its “Question Presented” to decide whether

the Third Circuit “applied an erroneous standard of judicial

review of remedies of administrative agencies.” The FTC quoted

the standard formulated in Siegel and argued that even in First

Amendment cases courts should apply the Siegel “wide latitude”

“reasonable relation” “abuse of discretion” standard of review.

The FTC stated:

“The restrictions that the court of appeals decision [in

Beneficial] imposes upon the Commission’s ability to

frame effective remedies in such cases and the expanding

role of the courts in reviewing its orders which that

decision presages would seriously handicap the agency’s

ability properly to perform its duties in this important

aspect of its work.”* FTC Petition for Certiorari at

p. 17.

This Court denied the FTC’s petition.

Although the FTC failed in its efforts to have Beneficial

reversed, the FTC in this case asked the Seventh Circuit to apply

the Siegel standard of review** and the Seventh Circuit did so.

The Seventh Circuit stated the standard of judicial review of the

Order as foliows (p. A9):

“Once a violation of the Act has been found our role in

reviewing the remedy is a narrow one. ...

‘The Commission . . . has wide latitude for judg-

ment and the courts will not interfere except where

the remedy selected has no reasonable relation to the

unlawful practices found to exist.’ Jacob Siegel Co.

The Seventh Circuit upheld the disclosure requirements of the

Order because they “were reasonably related to the deceptive

practices found” and were not “an abuse of discretion.” (pp.

A10-All1) The Seventh Circuit engaged in no independent

judicial analysis, as required by Beneficial, into whether the

alternatives suggested by Britannica were adequate to achieve

the objective of truthful communications. Further, it conceded

that the ALJ and the FTC made “no express comparison”

* The FTC in its certiorari petition in Beneficial did not dispute

the general First Amendment proposition, also quoted by the Seventh

Circuit in its opinion in this case, that a remedy should “go no further

than is necessary to prevent deception.” Instead, it quoted and di-

rectly attacked the Third Circuit’s refusal in a First Amendment

case to “defer broadly to the Commission’s exercise of informed

discretion,” arguing that this Court’s First Amendment commercial

speech decisions did not “change the scope of judicial review of

Commission orders.” FTC Petition for Certiorari at pp. 14-15.

** The FTC contended in the Seventh Circuit:

“It is well settled that the Commission has wide latitude in

fashioning remedies to stop the unlawful practices found to

exist, and ‘courts will not interfere except where the remedy

selected has no reasonable relation to the unlawful practices

found A. exist’ [citing Siegel].” Brief of FTC in Seventh Circuit

at p. 13.

——

involving the alternative remedies (p. All) and justified the

FTC’s failure on the ground that the issue was “only the form

of disclosure to be required.” (p. Al2)* Through applica-

tion of the Siegel standard of review, and rejection of the Bene-

ficial standard, the Seventh Circuit let stand an order which

is simply inconsistent with the First Amendment.**

The Seventh Circuit, at the express urging of the FTC, thus

placed itself in square conflict with the Third Circuit’s decision

in Beneficial.

Britannica agrees with the FTC as to the importance of the

standard of judicial review of FTC orders in First Amendment

cases. In its petition to this Court in Beneficial the FTC stated:

“The issue is important in the Commission’s administra-

tion of the Federal Trade Commission Act. A major por-

tion of the Commission’s work under the Act involves the

elimination and prevention of false and misleading adver-

tising.” FTC Petition for Certiorari at p. 16.

The conflict between the Third and Seventh Circuits now makes

resolution of the issue by this Court critical. As discussed in

Point I, supra, the FTC regularly elects to “remedy” deceptive

practices by overly broad orders dictating the form and content

of communications. Unless the conflict is resolved, those orders

reviewed under the standard applied in this case by the Seventh

Circuit will stand while similar orders reviewed in the Third

Circuit will not.

The writ should be granted to resolve the conflict.

* It was this precise issue—the extent to which the government

could constitutionally impose a certain form of expression upon a

commercial speaker—which this court expressly left open in Virginia

State Board of Pharmacy and which makes the Beneficial standard

of reyjew appropriate.

° e effect of the Seventh Circuit’s decision under the Siegel

standard is to defer to the FTC as an “expert body” the resolution

of the serious First Amendment issues presented by the Order.

But the FTC has no “expertise” in evaluating First Amendment

claims, any more than a movie censorship board has “expertise” to

evaluate the First Amendment claims of movie patrons.

Ii. The Writ Should Be Granted Because the Judgment Be-

low Conflicts with the First Amendment Principles Enun-

ciated by This Court Which Are Applicable to a Prior

Restraint on the Communications of a Publisher Engaged

in the Distribution of Its Publications.

The judgment below affirms a government-imposed prior

restraint which—even if it were constitutional as applied to a

seller of toothpaste, mouthwash, or other such products—is in

direct conflict with the decisions of this Court according full

First Amendment protection to a publisher engaged in the dis-

tribution of its publications.

It is axiomatic that the right to distribute is part of the First

Amendment freedom of speech and of the press. See Smith v.

California, 361 U.S. 147 (1959) (subjecting government

regulation of booksellers to First Amendment scrutiny).*

In Griswold v. Connecticut, 381 U.S. 479, 482 (1965), this

Court stated:

“The right of freedom of speech and press includes not

only the right to utter or to print, but the right to dis-

tibute. .. .”

Britannica does not contend that the FTC lacks the power to

enjoin speech relating to the distribution of books that is actually

iSO) Smith v. California, supra, the Court said (361 U.S. at

“(T]he free publication and dissemination of books and other

forms of the printed word furnish very familiar applications of

these constitutionally protected freedoms. It is of course no

matter that the dissemination takes place under commercial

auspices.”

See also, Emerson, The System of Freedom of Expression at pp. 416-

17 (1970); Note, 44 Univ. Chi. L. Rev. 205, 235-36 (1976): “Ad-

vertisements for . . . protected written works should be fully protected

as an incident to the first amendment value of the underlying speech

or activity. . . . To treat such activity as commercial speech would

mise se the rights of publishers and authors to distribute their

works. .. .”

false or deceptive. But in this case the FTC and the Seventh

Circuit have gone far beyond a prohibition on fraud and- have

established an unprecedented requirement that a publisher under-

take to utter specified words put in its mouth by a government

agency—a requirement of a type never sustained by this

Court.* It is as if the FTC, having determined that the slogan

contained in the upper left-hand corner of the first page of every

New York Times, “All the News That’s Fit to Print,” is false

and misleading, then ordered not only the deletion of this mis-

representation but that the paper carry in its stead in inordinately

bold type:

“WARNING: Some of the news contained herein is not

fit to print and some of the news that is fit to print is

Omitted herefrom.”

Further, the Order not only imposes a requirement that

Britannica make statements affirmatively prescribed in rigid

detail by a government agency, but it constitutes a prior restraint

on all communication, including entirely truthful communica-

tions, not complying with such specifications.

This Court has repeatedly stated that any prior restraint of

expression comes to the Court bearing “a heavy presumption

against its constitutional validity.” Bantam Books, Inc. v.

Sullivan, 372 U.S. 58, 70 (1963). See also, e.g., Near Vv.

Minnesota, 283 U.S. 697 (1931); Organization for a Better

Austin v. Keefe, 402 U.S. 415, 419 (1971) (the government

“carries a heavy burden of showing justification for the im-

position of a such a restraint”). And this Court has repeatedly

made clear that any restriction on First Amendment freedoms

“must be no greater than is necessary or essential to the pro-

*The decisions of this Court have stood four-square for the

proposition that government has no quthority to compel a speaker

to utter words formulated by it for pronouncement by the speaker.

See, e.g., Wooley v. Maynard, 430 U.S. 705 (1977); Miami Herald

Pub. Co. v. Tornillo, 418 U.S. 241 (1974); Engel v. Vitale, 370

U.S. 421 (1962); West Virginia State Board of Education v. Bar-

nette, 319 U.S. 624 (1943).

ee ee eee eae ee

tection of the particular governmental interest involved.” Pro-

cunier Vv. Martinez, 416 U.S. 396, 413 (1974). See also, e.g.,

Shelton v. Tucker, 364 U.S. 479, 488 (1960); Gooding v.

Wilson, 405 U.S. 518, 521-22 (1972). Here the ALJ, in

direct contradiction of these established constitutional principles,

stated in sustaining the severe restraints contained in the Order:

“All doubts as to remedy are to be resolved in [the government's]

favor.” (p. A158) The Seventh Circuit majority upheld the

specifications because it “was not persuaded that a [sic] remedy

ordered by the Commission is not the least restrictive alterna-

tive.” (p. A15) The court thus reversed the applicable presump-

tion, placing the burden on Britannica to demonstrate that the

Order was not the least restrictive alternative rather than requir-

ing the government to meet the “heavy burden” placed upon it by

this Court’s decisions. The Seventh Circuit upheld the Order

without explaining, or requiring the FTC to explain, why the

less restrictive forms of remedy suggested by Britannica were in

any way inadequate to achieve the objective of completely

truthful communication.

The Seventh Circuit simply misconstrued in a fundamental

way the constitutional principles applicable to this case, ignoring

altogether the fact that the Order is a direct restraint on the

communications of a publisher engaged in the distribution of its

publications and, therefore, entitled to the fullest degree of First

Amendment protection.* This Court should grant certiorari to

prevent the clear violation of Britannica’s First Amendment

rights represented by the judgment below.

* As Britannica argued in the court below, if the sellers of erotic

literature are entitled to constitutional protection against over-broad

restraints, then surely Britannica, the publisher of the nation’s finest

reference work (esteemed by educators and employed by Americans

in al! walks of life to enhance their education) is entitled to the same

protection. Brief for Britannica in the Seventh Circuit at p. 45.

Despite Britannica’s strenuous urging, however, there is not one

word in the Seventh Circuit opinion to indicate a recognition that

this case involves a direct restraint on the dissemination of publi-

cations fully protected by the First Amendment.

ne ane a RR er

IV. The Writ Should Be Granted to Decide the Important

Issue of the FTC’s Statutory Authority to Prescribe Con-

duct Which Unnecessarily Threatens the Continued Viabil-

ity of an Established Method of Doing Business.

The FTC has overstepped the bounds of its statutory authority

in imposing its affirmative disclosure requirements upon Britan-

nica. By specifying what Britannica must say and minutely de-

fining how and when Britannica must say it, the Order renders

almost unusable Britannica’s principal method of conducting its

business. As the ALJ, the FTC, and the reviewing court ex-

pressly recognized, Britannica relies upon in-home presentations

as its principal method of marketing its encyclopedia and other

publications. (pp. A2, A26, A61) Consequently, the Order,

which dictates the content and format of Britannica’s initial

contacts with prospective customers, strikes at the very heart

of Britannica’s sales efforts.

In reviewing FTC orders prohibiting the use of trade names,

this Court has held that the FTC’s remedial power is limited

when it issues orders which would destroy valuable business

assets. In FTC v. Royal Milling Co., 288 U.S. 212 (1933),

this Court reversed an FTC order barring the use of certain

trade names. This Court said that the trade names “constitute

valuable business assets . . . the destruction of which probably

would be highly injurious and should not be ordered if less

drastic means will accomplish the same result.” 288 U.S. at

217. Similarly, in Jacob Siegel Co. v. FTC, 327 U.S. 608, 611

(1946), the Court, while acknowledging that the FTC generally

“has wide discretion in its choice of a remedy,” reversed an

order barring the use of a trade name on the ground that the

FTC had failed to consider whether qualifying language, as

opposed to a complete bar, would be sufficient to eliminate the

deception.

The Royal Milling and Siegel decisions, requiring a clear

demonstration by the FTC that less drastic alternatives are

ET NEE ee rn nn HSN A nasil n seit n MOno” DURE Stee ee ee ,

unavailable, apply by direct analogy to the present case in which

the FTC’s order threatens to deprive Britannica of its ability

to pursue its principal method of distributing its products. This

established and well-developed marketing technique is a busi-

ness asset at least as important and valuable to Britannica as

the trade names at issue in Royal Milling and Siegel. At a mini-

mum, Britannica submits that the purely remedial power

vested in the FTC under the Act* does not justify the destruc-

tion of a long-established mode of doing business without an

explicit consideration by the FTC of alternative remedies and a

demonstration of why such alternatives are inadequate to ac-

complish the objective.

Nothing in the language or legislative history of the Federal

Trade Commission Act indicates any Congressional intent to

vest in the FTC authority to go beyond the prohibition of

deceptive practices and impose its own views of “desirable”

business conduct. When the Federal Trade Commission Act

was amended to include “deceptive acts or practices,” a Federal

Trade Commissioner stated in the course of the hearings:

“Now another thing I wish you to remember is this: The

Federal Trade Commission cannot impose any penalties

whatever. The authority of the Federal Trade Commission

is wholly preventive or injunctive. All that the Federal

Trade Commission can do or undertake to do, if it finds

that someone is violating the law over which it has juris-

diction, is to say, ‘Stop.’ ‘Stop that practice.’ ‘Cease and

desist from that practice.’ That is all it can do.” Comments

of FTC Commissioner Edwin L. Davis, Hearings Before

the Committee on Interstate and Foreign Commerce of

the House of Representatives on Senate Bill 3744 in the

74th Congress (1937).

*In FTC v. Eastman Kodak Co., 274 U.S. 619, 623 (1927),

this Court stated:

“The Commission exercises only the administrative functions

delegated to it by the Act, not judicial powers. .. . It has not

been delegated the authority of a court of equity.”

oN nN RE

- <n

—

Members of Congress have continued to insist that the Act is

not intended to vest in the FTC broad authority to prescribe the

manner of conduct for business enterprises. On October 5, 1979,

two members of the FTC appearing at oversight hearings before

the Consumer Subcommittee of the U. S. Senate Committee on

Commerce, Science and Transportation, were questioned by the

Chairman of the Committee with specific reference to the 3-by-5

warning card and the other affirmative requirements of the

Order in this case:

Chairman: Well, I completely understand your cease

and desist type of things, but where you require a company

to affirmatively do a precise and specific thing that you do

not require a competitor to do affirmatively, then it seems

to me if you are taking that position you are wrong. That is

not my intent as a member of Congress. And if the courts

say that in interpreting the law that you have properly

applied your authority, then we need to take some of the

authority away. (Emphasis added. )

The statutory principles dictate that a remedy must be, in

fact, a remedy and not a gratuitous or punitive destruction of

established property interests. In failing to limit the FTC’s

action to what is necessary to achieve the remedial objective of

avoiding deception, the judgment below raises a serious issue

as to the limits of the FTC’s statutory authority which requires

review by this Court.

CONCLUSION.

For the foregoing reasons, the petition for a writ of certiorari

should be granted.

Respectfully submitted,