Petition for Writ of Certiorari — FTC v. Raladam Co.

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_e nthe Suyremed aur of he nite States

Ov TOBER* TERM, 1941. ie:

lf eprraL TRapre- COMMISSION, PETITIONER

he ra

~—-RALADAM, COMPANY

TIRION FOR A WRIT OF CERTIORARI TO THE UNITED

ATES CIRCUIT COURT OF APPEALS’ FOR THE SIXTH

RCU IT

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INDEX

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Opinion below =. _-.__-_.- an MsswaS pias eee ce eid 1

Jurisdiction — __—- Se Gee a ae ee placa teens acta ee 1

Questions presented. ~-_.......-- ee ede nbcwsecensenesescus

Statute involved _. - - _ -- habs Shusanuctedenennheateneeeiins 2

Statement. _* aca peeled Geen Ooo 3

Specification of errors to be urged. paeetuns aged Maestaeaseaee 8

* Reasons for granting the Writ _- ied Spee Eide @ a ie hs ie 9

Conclusion - Aad senenerensneepivbhwacddusvenapbusseusnt 16

fe CITATIONS *

Cases: - ‘

Alberty.v. Federal Trade Commission, 118 F. (2d) 669, cer-

tiorari denied, Octobe r 13, 1941, No. 104, this Term _-_ 11

: Aiden B. Wrisley Co.'v. Federal Trade Commission, 113 F.

er Gee cock. 12

E. Griffiths Hughes, Inc. v. Fe de ral Trad Cssuadinton: 77 F.

(2d) 886, certiorari deified, 296 U.S. 617_____.. on -: S

Electro The rmal.Gp. v. Federal Trade Commission, 91 F. (2d)

477, certiorari denied, 302 U. S. 748__..- Sea |

Federal Trade Commission v. Algoma Lumber Co., 291 U.S

67 = 4

Federal Trade Commission v. Artloom Corp., 69 F. (2a) 36 ; 12

Federal Trade Commission v. ro © States Paper ‘Trade

Assn., 273 U. 8.52... __- “a 14

Federal Trade Commission v. Raladam Co 283 U. S.. 643. 3, 7, 8,9

ee . Trade Commission v. Winsted Hosiery Co., 258. .. @

U. S. 483_- ci puwwecndscabiatedunkec tes ~ 10

Subenational An Co: v. -Federal Trade Commission, 109 F.

hile theater wkescehigait nett one es 12

‘National Labor Relations Board v. W aterman Steamship

a SER ae er pueene eye Te 15°

Statutes: . q .

Act of Marck 21, 1938, 52 Stat..111, 15 U: 8. C:, eel? V,

i, aa Coie Sena om clot ches wean eC waet coe 2, 13

Federal Trade Commision Act, sec. 5, 38 Stat. 719, 15 U.

NS Ng Capita ee ee ec ee ee > 2

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434055—41——1

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OcTOBER TERM, 1941

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—— TRADE Ca, PETITIONER | “5 J

v.

_Ratapawe Company

PETITION FOR A Await OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SIXTH

CIRCUIT e

: |

The ofieitor General prays that a writ of cer-"

—tiorari be issued. to review a decree of the Circuit

Court of Appeals for the Sixth Circuit entered in —

this cause on October 7, 1941, which set-aside an

order of the Commission directing tht respondent.

ito cease and desist from certain alleged unfair

3 méthods of competition. -

SS ‘~

_ OPINION BELOW

7 Fe opinion of the Cireuit Court of peers

R. 781) is reported in 123 F. (2d) 34.

be _.. JURISDICTION =i i(‘“( ee

The decree of the Circuit-Court of Appeals was: |

entered October 7, 1941 (R. 780). ‘The jurisdic-

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°tion of this Court is invoked under Section 5 of

the Federal Trade Commission Act, 38 Stat. 719,

15. U.S. C., see. 45, and Section 240 (a) of the

Judicial Code as amended by the Act of. February

‘13, 1925. “

_ QUESTIONS PRESENTED

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"¢ 1): Ww hether an order. of the . Federal Trade |

Commission pr ohibiting unfair methods of compe-

tition requires for its support direct proof of

actual damage to: particular competitors.

, (2) Whether & court in reviewing an order of

‘the’ Commission ‘may disregard the statutory. re-

quirement that the findings of the Commission,

wher supported by. testimony, shall be conclusive, -

by making its own — of the

testimony and of the Thferences reasonably to be

drawn thérefrom. eo oo

STATUTE INVOLVED

Section 5-of the Federal Trade Commission

‘Act, 38 Stat. 719, 15 U. S. C., see: 45, provides in

part as follows:* 9.

Unfair methods . of competition in com-.

merce are hereby declared unlawful.

The commission is hereby empowered and . °

- directed to _— persons, partnerships,

*The C ommission issued its order in this case prior to

_ passage of the Act of March 21, 1938, 52 Stat. 111,15 U.S.C.

' Supp. V, sec. 45, which amended Section 5 by authorifing

the Commission to prevent “unfair . or deceptive acts or

practices in‘commerce.”

3

or corporations, eniept banks, and common

Friers subject to the Acts to regulate com-.

(merce, from using unfair methods of com- °

_ petition in’ commeree. .

- _ * * *

* *:'°* the findings of. the commission

.as to the facts, if supported by testimony,

shall * * * be conclusive.

ee.

in citation a cinerea. for stadia weight

called ‘‘Marmola’’.- An: order of the Federal .

Trade Commission . issued in 1929 directing re-

spoiident to cease from mmgking misleading rep-

resentations in the sale . f Marmola was held

- invalid in Federal Trade Commision v. Raladam

Co., 283 U.S. 643, upon ‘the ground that there

was no substantial evidence to show that any

other. products were sold in-interstate commerce

in competition with respondent’s preparation and

that, in the absence of such evidence, the Com-

mission lacked jurisdiction-to issue dn drder

against .unfair methods of ‘‘competition’’. ~The

Court, however, stated (p. 646) that the evidence * €

supported the finding that respondent’s prepara- .

tion “‘eannot be ‘used generally with safety to

physical health except under medical direction -

and advice.’”.

The present proceeding was. instituted in July

1935 by the filing: of an amended complaint

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against respondent “( R. 44)... After evidence had

been. taken, thé Gishanisciontiinaie detailed’ find-

inigs of fact (R. 16-39) and entered an order pro-

—hibiting certain ‘specified misrepresentations (R.°

. 40-43). Among the. facts found by the eel

sion a re:

Respondent sells its preparation in competition:

- with many other articles and pr bducts designed to

_yeduce weight. These competitive products, 26 ea

which are named, are chiefly - patent. medicines,’ |

‘pharmaceutical products containing desiceated

thyroid, and books of instruction on ‘weight Te-

duction. (R. 17~21.)

Marmola contains certain innocuous ingredi-

ents, others: having a laxative effect, and desic-.

_ eated thyroid. The latter is the only one actively

' affecting weight. The taking of thyroid inereases |

“the oxidation of all tissues of the body and when.

“the tissues (including fatty tissue) are burned up

more rapidly than, they are restored by food, loss /

of weight requits. But the taking of thyroid does

not, restore ‘an inactive. or underactive thyroid

gland ; it simply supplements the secretions of |

this-gland. (R. 22.) ee

Most cases of overweight are Caused by incor--

rect eating habits and less than 5% are due to

? By “patent medicine” we’mean a preparation advertise “d

as a remedy und sold to the general public for use. without *

a doctor's prescript ion. 5 ;

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thyroid deficiency: Where ‘the latter id fe;

“be the cause many physicians use Atesi

_ thyroid as a treatment but they do so only if the .

patient is found to be free from any pathological

condition making ‘this treatment harmful or

-. dangerous. Among the conditions which inhibit

administration of thyroid are various heart de-

~ fects, kidney diseases, pregnancy, and abnormal —

or diseased. conditions of - organs of the body. |

~ Only. a’ trained and experienced person can deter-———

mine ‘whether obesity is due to thyroid deficiency,

whether the prospective user’s physical condition

is such as to make it safe.to administer thyroid, ia

the amount of the dose, the effect it produces, and

how long it should be continued. (R. 23-24.)

. Respondent widely advertises its. product (R.

36) and: in this advertising makes various false

and misleading representations, of which the fol-

-- lowing are typical: Thyroig deficiency -is the»

usual cause of overweight (R@4-25) ; all modern |

physicians use thyroid in the treatment of obesity ; _

this medication has. the support of world-wide

medical opinion; it would prabably be prescribed.

if the purchiaser consulted a physician (R. 25-26) ;

_ taking: Marmola is the best way .to reduce (R. 27-

28) ; taking it restores the thyroid gland to normal-

-and thus removes the cause of obesity (R. 28-29) ;

_. all relevant information concerning Marmola and ’

its effect which a prospective purchaser needs to

have before deciding upon the use of Marmola isa —

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_ fully-and truthfully. disclosed in respondent! s Jad: ¥

vertising material (R. 30-36).

The foregoing false and misleading representa-

tions induced members of the public to purchase

Marniola in preference to the products of com-

petitors and diverted trade from such competitors

- .(R, 36-87).

In *naking ‘these findings: the~Ccgnritnaiout had ©

béfore it, the following ev evidence pears ‘ing upon com- _

. petition:

The trade in Marmola i is -substanitial, averaging |

~ -between $350,000 and $400,000 a year (R.°107).

Respondent: does not sell through the mails * but

sells either to wholesale druggists or to retail drag

stores. Ayfcither ease sales to the consuming

‘ publie are through the retail drag store (R.. 90).

Many other, patent medicines advertised as effec- |

tive in reducing: weight are sold through the same .

trade channels ‘as Marmola.. One wholesale drug

firm handling Marmola haridled 1% other patented

3 remedies ‘ sold for reducing purposes (R. 257-

267, 272). Another wholesale firm dealing in Mar-

mola. handled tive other. patent medicines ° adver-

S Respondent? $ sieht had discontinued mail Sales of .

Marmola after the Post Office Department had objetted to

this use of the mails (UR. 92-94).

‘Nitra Phen Fifties, Arbolene Tablets, Van Nay Tablets,’

Reducoids, Slendrets, ages Herb Tea No. 14, Stardom’?

Hollywood Dietede No. Jad Salts, Eskay’s Dextrettes\,

‘. Dieterie, Bon Kora.

* Jad Salts, Van Nay Tablets, Dr. McCaskey’s RX Tablets, |

Reducofds, Slendrets

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tiged as- remedies for excess sweiant (R. 239-243,

24 5-247, 254-255). ° There “was a like situation

“in the retail ‘field. © One ‘chain of retail drug stores.

- (Liggett’s) sold Marmola and veight. other pack-

aged antiobesiiy remedies“ side. by side’ over the

" seounter (R. 474-482), “Another such chain sold

~~ Marmola and oe’ other like. — een (Re wt

333-335). ae ba,

_ These same wholesale and retail: druggists : sold

various pharmaceutical products containing desic-

cated tliyroid whielr are advertised only to the medi-.

cal profession and are ordinarily bought by con-

sumers on a doetor’s prescription (R, “ 252-254, ;

270-272 , 339, 481). | :

. Various books advertised as vivid forth sys-

tems: or methods for reducing weight have be

widely sold in intérstate commerce (R. 4-2

§16-418, 420-423, 488-490): 3 :

From this evidence tyat other obesity cures were

sold ‘to the public through same outlets, the |

AVommission inferred ‘as a fact that the producers

of such other products were in competition with :

re spondent: and ‘that they would be injured by

respondent’ s misrépresentations (R. 36-37). ES :

The court below set aside the Cosinmniasds’ 8 Fs Ie

order. upon the ground that, under the tests es ao

down in Federal Trade Commission v. -Raladam

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“Van Nay: ‘Tablets. Boin Kora, Cole’s No’ 19, —

- Eliphat, Retardo, Phytoroides, Dietene.

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Co., 283 1: S. 643, there vas no substantial. evi-

dence to support. the Commission’s finding that

respondent? s misrepresentations were injurious to

‘ competitors: . (RNBL-785). ‘What the Court -ap-

parently. ‘regarded as a fata defect under this

decision was the absence ‘of any. direct. testimony

that particular products werg competitive and the

-. absence of: direct proof of actual damage to par-

_ ticular eqfpetitors.’ The court, while purporting

to set forth the evidence releyant:to the qiestion

of competition, ignored most of the evidence to

which we > have previpusly referred.

SPECIFICATION OF ERRORS TO BE URGED

The Cireu#t Court of Appeals erred—

(1)° ‘Tn holding that. there was no substantial

evidemee to support the fromntissioh’ s finding that

respondent’ s misrepresentations were injurious to.

- competitors. 4

(2) In disregarding the. statutory provision that

the findings of the Commission, if supported by ;

testimony, shall be conclusive.

(3) In setting aside the order of ¢he Com-

misston. . . ° as

is Immediately preceding the statement that there was “no

substantial Avidence supporting the formula of the eT

“Court” in the PRaladam, case, the court said 784) :

“There was slight evidencé that one or two ¢ saa sell-

_ ing the patented remedies had had a recent decline in sales.

Only one or two witnesses were expressly questioned as to.

whether they considered Marmola a, competing preparation.

One emphatically¥ disclaimed any such competition.”

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REASONS. KOR GRANTING THE WRIT

1. We submit that the decision below is in con-

flict with Federal: Trade Commission v. Raladam

Co., 283 U. S. a 4 That case held that Section 5

of the Tiade Commission Act does not authorize

. the Commission to’ prevent unfair tr ‘ade practices .

in commerce *‘apart from their actual or potential

¢ffect upon tlie ‘trade of competitors” and that if,

as ‘in “that case, the evidence leaves such effect

“without proof’? and within the realm of mere

“eonjecture,’’ the Commission lacks jurisdiction ¢6 -

act... But the Court was‘careful to staté that the ,

F evidence need not identify the competitors injured

and “reed not éstablish specific. injury—that it, is’

sufficient if the showing as to competition reason-—

ably warrants the infererice that the unfair trade

practices. will adversely affect the trade of com~

petitors. The Court said (p. 651)—

*-* * it is not necessary that.the facts.

point to any particular trader or traders

It is enough that there be present or paten-

tial substantial competition, which is shown

by proof, or appears by necessary in ference,

; to have been injured, or to be clearly threat-

a.

* There the sole evidence concerning competition aed

of a list of various alleged antifat remedies which an officer

_ of the American Medical Association had prepared “within

the last two days” and testimony by this witness that he had

recently been able to purchase six such remedies in Chicago

drug stores. See the Raladam opinion, p. 653. and Record

n that case, PP. 111-112.

al

me ae .

ened with injury,-to a substantial . extent,

by the use of the unfair’methods complained .

. [Italics supplied. ] |

In the present case the court below apparently

misconstrued. the state ment in, the Raladam case

‘(p. 653) : Ns e

| ‘ eaie'ok the supposed we ee ad

‘or was ealled upon to show what, if any,

effect the misleading. advertisements had,

or were likely to have, upon his business.

All that this méans iy that the absence of - such *

evider@e is a relevant consideration, but this Court

neither held nor implied that evidence, of” this -

- character is prerequisite to a valid finding of*

injury fo competitors.

The decision Below is also, in conflict w ith Fed-

‘eral Trade Commission v. Winsted Hosier y Co.,

258 U, S. 483, where the evidence showed that re-

spondent 's labels deceived members of the general

_public as to the material of which its underwear

was composed and that there were other manufac-

turers selling underwear ‘not thus mislabeled.

This €

Only a peWMissible buf a necessary inference from

these facts, It said (p. 494) that the Commis-“

viewed injury to competitors as not

*In that case ‘the ‘re Was hot even a finding th: at respond-

ent’s practivés diverted trade from. or otherwise injured,

competitors. The Commission limited its-findings- to the

" basic facts, from which it drew the conclusion that the prac-°

tices in questioh were unfair methods of competition. See

Ree ord in the W insted case, pp. 45-91. .

”

i. li a

sion was ‘justified in ‘conclyging that respondent’s

. practices constituted unfair methods of _competi-

tioti since the business of its tradg rivals was

‘necessarily affected by”’ its mislabeling.

2. The decision below is in conflict with deci- -

sions of: four other cir ‘cuit courts i appeals on

the same matter. In two. cases (each involving

misrepresentation ‘as to the therapeutic effect of |

a prodect) the Circuit Court of Appeals for the,

Ninth Cireuit has held that where the ‘evidence

shows the sale in commerce of other products serv-

ing the same purpose as the misrepresented prod-

uct, Injury to competitors may be properly in-

ferred and direct proof of injury is not requisite

to-‘the validity of the Commission’s order. Elec-

Thermal Co. v. Federal Trade Commission, 91

I’. (2d) 477, 480; certiorari denied, 302 U. Ss: “TA8;

Alberty v. Federal Trade Commission, 118 F. (2d)

669, 670-671, certiorari denied, Octeber 13. 1941,

a

No. 104, this Term. The court in the foxmer ease

said:

. In this cane there are definitely identified |

parties manufacturing and_selling in inter- -

state commerce a device adapted to the

sanf® purposes as is the petitioner’s.-* .* *

What the record lacks is any direct evi-

* .dence to the effect that q@¢titioner’s mis-

leading advertising claims diverted any

; business from its competitors. This, how-

ever, is not required by the decision in the

Raladam Case, and would in many. cases

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be impossible to prove. It would seeyi to

_be sufficient_to show actual or potential com-

~~ _ petition and unfair trade practices which

- reasonably tend to give the perpetrator’ an. -

advantage in such competition. * * * ©

The same test has been applied by three other.

eireuit courts of appeals. FE. Griffiths Hughes, Inc., ©

vy. Federai Trade Commission, 77 F. (2d) 886, 888

(©, 6 A.D), certiorari denied, 296 U. S.. 617:

Federal Trade Commission v. Artloom Corp., 69

F. (2d) 36, 38 (C. ©. A. 3); International Art Co.

v. Federal Trade Commission, 109 F. (2d) 393,

397 (C. C. A. 7); Allen B. Wrisley Co. v. Federal

Trade Commission, 113 F. (2d) 487, 442 (C. C. A.

3. The issue as to which this conflict has arisen

is of great importance in the gdministration of

the Federal Trade Commission Act. Practically

every proceed ling under the” ‘Act in which a ig-

spondent is charged with engaging in unfair

methods of competition presents the question of

the character of the proof necessary in order to.

support a gfinding ef injury. to competitors. In +

most am, definite proof that migrepresentations

have caused particular consumers to purchase one

product rather than another is difficult to obtain,

although: proof ‘of the. existence -of competition

leads te the obvious inference that misreprese nta-

tions will achieye their purpose of div erting tri ade

_. from eompetitors,

- The importance of an authoritative determina-

tion by this Court which will remove the doubt |

and uncertainty created by ‘the decision below is

not materially lessened by the recent afnendment -

of Section 5 by the Act of March 21, 1938, 52 Stat.

111, authorizing the Commission to prohibit ‘‘un- .

» fair or deceptive acts or practices in-commerce.”’

- While the purpose of this’ amendment. -was to

eliminate ‘the necessity of showing adverse éffect

upon competitors in everg proceeding under Sec-

tion 5, the phrase “unfair methods of competi-

tion” rémains-in the law and many pending pro-.

ceedings are, and many future ones will be, based

solely upon this phrase.”

The Commission has informed the Department

of Justice that, apart from the exder here in-

volved, there are now outstanding 29 orders issued

b#.it under tata 5-of the. Trade Commission Act,

as well as 50 stépulations to which it is a party,

prohibiting misrepresentation in the sale ef prod-

ucts advertised as efficacious remedies , devices, or

means for reducing weight. E. g., BE Griffiths:

Hughes, Ine. v. Federal Trade Commission, 7 F.

“The Commission has fuse the Presiabses of Jus-

tice that there are seven cases pending in court and ten pro-

ceealings pending before the Commission in which the com-_

paint was issued prior to. March 21, 1938, and that there are - _

_ bine cases pending in court and forty-nine jitoceedings pend-

"ing before the Commission in which the complaint, although

ie

issued after March 21, 1938, aHeged, solely, use of unfair ‘

mefhods of competition. «

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(2a) 886, 8g (c. TU. Ai: ®, certiorari denied, 296

U. S. 617. It would be a serious miscar riage of

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justice if, im the face of thesé outstanding pro-

hibitions against others engaged in the same type

of trade, respondent—probably the leading. con-

cern in this field of activity—should be: permitted’

to continue its misrepresentations because -of .an

‘erroneous: court decision. The fa¢t thaf it has

been found that respondent's representations are

likely to result in injury to the health of pur-

chasers of its product (R. 32-33) is an additional

reason for the granting of-the writ of certiorari.

4. We submit that the decision below constitutes,

in substance if not in form,‘a serious breach of the

statutory provision that the findings of the Com-.

missfon, ‘‘if supported by testimony,” shall be

conclusive, Furthermore, it is for the he-Commis- |

_sion, not the reviewing court, to determine the’

“inferences reasonably to be drawn” from: the

admitted or ‘established facts. Federal Trade

secre v. Pacific States Paper Trade. Assn.,

273 U.S. 52, 63. Adherence Yo these requirements

in. form a departure therefrom in substance has

been sharply condemned by this Court. ,In Fed-

eral Trade Commission v.-Algoma Lumber Co.,

291 U.S. 67, 73. it said?

In form the court_determined that the find-__

'. ing of unfair competition had ho support

.« Whatever.. In fact what the court-did-was—.

.to make its own appraisal of the testimony,

picking and choosing for itself’ amiong un-

) .

“15 nas say

ss eevtain ahd conflicting inferences. Statute —

‘and decision (Federal .Trade Comm/’n v.

Pacific States Frade, Assn., 273 U. S. 52,

61, 63), forbid that ‘exercise of . power.

In the ‘instant case the Conimissjon inferred,

"from evidence that other obesity cures were “sold

in the same markets, that resporident’s misrepre-

_ sentations would be harmful té competitors. This

conclusion would appear to be inescapable, and

yet the court below held fot only that the infer-

ence was not a permissible one bu . that it lacked

substantial support. ;

While certiorari, will ordinarily ‘not he granted

to review alleged: error in the determination of

questions of fact, this Court has indicated that it

is a matter of ‘‘high importance’’ that the courts

give due regard to a statutory command that the

findings of .am administrative bo@y be taken as

conclusive when they are supported by- evidence.

National Labor Relations Boatd v. Waterman

Steamshi. p Corp., 309 U. 8. 206, 208-209.. In that

ease this Court said, ‘in &plaining its grant of |

certiorari to review such: alleged error: 3

Not by. accident, but in line with a general

_ policy, Congress ha’s deemed. it wise to en--

.tyust the finding-of facts to these special-

» ized agencies.. It: is essential that co ard

regard this division,of responsibility whic

~ Congress: -as- a matter of _policy has em-

bodied in the very statute. fromi Which- the...

~ Court of a derived ite. jurisdiction =

aor i

bs.

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We submit that even -if there were no other

error worthy of review in the instant case, the

error of the court below in substituting its judg.

ment upon the facts for that of the Commission

‘presents, under the circumstancesy a question’

meriting review. : | .

“

CONCLUSION *

<a | - aa

\ The petition for a writ of certiorari should be

granted. ? :

Respectfully’ submitted.

CHarige Fany,

: Solicitor General.

DECEMBER 194t-

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US GOVERNMENT PRINTING CFRFITE. 1041

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