Petitioners Brief — Ford Motor Co. v. Federal Trade Commission

Brief in Support of Petition for Writ of Certiorari

I. THE METHOD COMPLAINED OF, THAT IS THE AD.

VERTISING OF THE FINANCE PLAN, IS NOT A

METHOD OF COMPETITION IN INTERSTATE COM-

MERCE.

Section 5 of the Federal Trade Commission Act, as in

effect during the period when the acts complained of took

place, provides as follows:

‘*Whenever the Commission shall have reason

to believe that any such person, partnership, or

corporation has been or is using any unfair method

of competition in commerce, and if it shall appear

to the Commission that a proceeding by it in re-

spect thereof would be to the interest of the pub-

lic, it shall issue and serve upon such person, part-

nership or corporation a complaint stating its

charges in that respect * * *.’’

By definition in the act, of course, the words ‘‘in com-

merce’? mean as applicable to this case, ‘‘interstate com-

merce’’.

(a) The plan of financing described above is not, and

could not be, the subject of complaint by the Com-

mission. It is the method of advertising that is

complained of. The plan itself and the advertisement

thereof relate solely to the financing of retail sales

by automobile dealers in intrastate commerce. No

claun is made by the Commission that the plan, or

the advertising thereof, has anything to do with the

financing of sales made by Ford Motor Company

in interstate commerce.

The Supreme Court in Federal Trade Commission

v. Bunte Bros. Inc., 61 Sup. Ct. Rep. 580 (decided

eae

February 17th, 1941) decided that ‘‘an unfair

method of competition’? where employed wholly in

intrastate commerce was beyond the jurisdiction

of the Federal Trade Commission to regulate, re-

gardless of the extent to which it affected compe-

tition in interstate commerce. The court points out

the distinction between such a statute as we are

concerned with here, where the methods used must

be in interstate commerce, and such statutes as

the National Labor Relations Act, which may per-

mit regulation of local activities if they affect in-

terstate commerce.

It may be urged in answer to the foregoing that

in the Bunte case the manufacturer itself only

shipped intra-state and that in such cases as Fed-

eral Trade Commission v. Keppel & Bro., 291 U. 8.

304, 54 Sup. Ct. 423, where the manufacturer

shipped interstate, the Commission was given jur-

isdiction; and that the present case is distinguish-

able from the Bunte case on the ground that Ford

Motor Company is engaged in competition in inter-

state commerce as against other manufacturers

that ship interstate to their own dealers. The

answer to this, however, is that in such cases as

the Keppel case the unfair method of competition

(consisting of the shipment of so-called ‘‘break

and take’’ packages) was actually used in the inter-

state transaction or shipment. In our case the al-

leged unfair method of competition, namely the

advertising, does not enter into the interstate trans-

action, that is the shipment of cars by Ford to the

dealers, at all.

The financing, and the advertising thereof, relates

solely to intrastate sales by dealers who have tak-

en title to the automobiles, and in respect to sales

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which take place after the interstate commerce

in the cars has wholly and definitely terminated.

It is obvious from the decision in the Bunte case

supra that if a Ford dealer, thus selling intrastate,

made a false representation to a prospective purchas-

er of a car, the Federal Trade Commission would

have no jurisdiction to enter any cease and desist

order against him. The use by Ford Motor Company

itself of an alleged unfair method in promotion of

such intrastate sale could not convert that which

would be essentially a method of competition in in-

trastate commerce into a method of competition in

interstate commerce; and this is true notwithstand-

ing that that practice might have some effect upon

the competition in interstate commerce existing be-

tween Ford Motor Company and other manufactur-

ers of automobiles. In other words, it might then

affect interstate commerce but it would not be a

method of competition in interstate commerce. This,

to our mind, is the rationale of the Bunte case.

The opinion of the Circuit Court of Appeals clearly

shows that that court thought it sufficient if the

methods complained of affected interstate com-

merce. It states that petitioner urged ‘‘that the

method of petitioner does not affect competition in

interstate commerce’’. This is not a correct state-

ment of the question as presented in the court be-

low. Petitioner’s brief there stated the proposi-

tion as follows: ‘‘The methods complained of are

not methods of competition in interstate com-

merce’’. The opinion below says:

**All of those things which stimulate or de-

crease the flow of commerce, although not di-

rectly in its stream, are essential adjuncts there-

to, and the Congress has power to confer on the

Federal Trade Commission their regulation’’.

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And, again, it states:

‘‘The sale on credit of petitioner’s cars by its

local dealers, when separately considered, may

be intrastate in character but when the activi-

ties of petitioner’s local agencies are weighed in

the light of ‘their relationship to the petitioner,

and its financing sales of cars, it is at once ap-

parent that there is such a close and substantial

relationship to interstate commerce that the con-

trol of such activities is appropriate to its pro-

tection.”’

We respectfully submit that this is wholly beside

the point. As the Supreme Court said in the Bunte

case, supra:

‘“‘This case presents the narrow question of

what Congress did, not what it could do. And

we merely hold that to read ‘unfair methods of

competition in (interstate) commerce’ as though

it meant ‘unfair methods of competition in any

way affecting interstate commerce’, requires, in

view of all the relevant considerations, much

clearer manifestation of intention than Congress

has furnished.”’

Here, it is not even shown that the method com-

plained of directly affects interstate commerce in

any way, and there would therefore be no juris-

diction even under acts of Congress permitting )

regulations of local activities affecting interstate :

commerce : .

Anderson v. United States, 171 U. S. 604, 615, )

19 Sup. Ct. 50 (at page 54) ; :

Schecter Poultry Corporation v. United States,

995 U. S. 495, 55 Sup. Ct. 837.

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However, even if it did affect such interstate com-

merce directly, it is clear from the foregoing that

the Federal Trade Commission has no jurisdic.

tion, because the method complained of is not in

interstate commerce.

(b) There is no showing in the record that the method

complained of has any injurious tendency to affect

the business of Ford Motor Company’s competi-

tors. There is no evidence that any automobile

manufacturer or any finance company felt it nec-

essary to adopt any particular form of advertising

in order to meet competition either of Ford Motor

Company or any other company which had adopt-

ed this plan. It is clear that it was not the method

of advertising that affected any competitor, but

that it was the plan itself. The rates offered by the

new plan were lower than those offered by any

other plan then in existence and other companies

were obliged to adopt the plan for that reason and

on account of other meritorious elements of the

plan itself. The testimony is uniform in this re-

spect. We submit that for this reason it is not

shown that the alleged method affected competition

in such a manner as to give the Federal Trade

Commission any jurisdiction within the rule laid

down in Federal Trade Commission v. Raladam

Company,” 283 U. S. 643, 51 Sup. Ct. 587 (1931).

*On March 21, 1938, a year and four months after the complaint

in this case was filed, the Federal Trade Commission Act was amended

(52 Stat. 111, Chap. 49) to include a prohibition against “unfair or

deceptive practices in commerce” in addition to the former prohibition

against “any unfair method of competition”. This amendment cannot

affect the rights of petitioner, for it affirmatively appears that no ad-

vertising of the character referred to has been used by petitioner

since some months prior to the filing of the complaint, and in any

event the present complaint was brought under the act prior to the

amendment referred to.

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Il, THE METHODS COMPLAINED OF ARE NOT

UNFAIR.

The advertising used by petitioner was literally true.

Furthermore, the public was either given the exact work-

ing of the plan in the advertisements or was invited to

consult dealers respecting the operation of same. The

calculation was simple. The testimony of the witnesses

produced by the Commission demonstrates that such

witnesses had no difficulty in making the calculations in-

volved, and thoroughly understood the difference between

the operation of this plan and the charging of 6% simple

annual interest upon declining balances. There was noth-

ing secret or concealed about the operation of this finane-

ing plan. It did not involve any constituent of the goods

sold, for the character of which the purchaser must rely

upon statements made by the seller. The amount charged

for financing and the exact character thereof was open

and clear to anyone entering into a transaction involving

this plan. The testimony of Commission’s witnesses

clearly demonstrates this if it needs any demonstration.

The fallacy of the Commission is in assuming that a

percentage figure can refer only to simple interest upon

declining balances. No reference was made to ‘‘interest”’

in the advertising. Even if the word ‘‘interest’’ had been

used, the same would have been entirely consistent with

ordinary practice as demonstrated by this record. Fed-

eral Housing Administration and the Federal Electric

Home and Farm Authority, both organized pursuant to

authority of Congress, in connection with financing of

certain of their public activities use plans identical in

principle with that used by petitioner, and actually adver-

tise the financing charge as ‘‘interest’’. Small loan de-

partments of banks do the same thing. It is ordinary

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practice. The undisputed testimony in the record, by

Commission’s own witnesses, fully demonstrates this,

The record also fully demonstrates, out of the mouths

of Commission’s own witnesses, that no purchaser was

actually deceived in any way, or even relied upon any

of the company’s advertisements of the 6% plan in pur-

chasing an automobile. Only three of the Commission’s

witnesses bought any automobile on any deferred pay-

ment plan during the period during which the 6% plan

was being advertised. The advertising of the plan had

nothing to do with the purchase by any of the three.

Counsel for the Commission insisted upon attempting

to elicit from each of these witnesses for the Commis-

sion, in spite of their lack of interest in or reliance upon

the plan, his or her casual impression as to what the

phrase ‘‘6%’’, lifted bodily out of the advertisement,

would mean to such witness. The result was substantial-

ly an evenly divided expression of opinion as between

those who thought that it might refer to simple interest

upon declining balances and those who supposed it to

mean exactly what the plan in fact called for. This is

far, however, from indicating that any of the witnesses

was deceived. It was merely asking a witness to specu-

late in advance as to whether the percentage symbol re-

ferred to simple interest on declining balances or to a

financing charge of 6% of the original balance.

Every witness who was asked stated that if he were

interested in buying a car on time payments he would

have inquired of the dealer for details pertaining to same,

and the only witness who did inquire received a full ex-

planation and thoroughly understood the plan before he

purchased.

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IIL THY FORM OF THE ORDER IS INDEFENSIBLE.

This question really involves more than the mere form

of the order. The fact is that the order directs petitioner

to cease and desist from doing things that are not only

obviously perfectly legitimate but the doing of which is

not complained of in the complaint filed by the Commis-

sion. This complaint relates solely to the method of

advertising. The order of the Commission (affirmed in

toto by the Cireuit Court of Appeals) says nothing about

advertising but orders that Ford Motor Company

‘in connection with the offering for sale, sale and

distribution of motor vehicles in interstate com-

merce or in the District of Columbia, do forthwith

cease and desist from:

Using the word ‘six per cent’ or the figure and

symbol ‘6%’, or any other words, figures or sym-

bols indicating percentage, in connection with

the cost of, or the additional charge for, the use

of a deferred or installment payment plan of

purchasing motor vehicles, when the amount of

such cost or charge collected from, or to be

paid by, the purchaser of a motor vehicle under

such plan is in excess of simple interest at the

rate of 6% per annum, or at the rate indicated

by such words, figures or symbols, calculated on

the basis of the unpaid balance due as dimin-

ished after crediting installments as paid;

Acting concertedly or in cooperation with any

company, firm or individual, or with any of its

agents or dealers, in a way calculated to further

the sale of motor vehicles through use of the

methods referred to in paragraph (1) of this

order.”’

As this order now stands it practically amounts to a

prohibition of the use of the plan itself, a matter which

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has mever been complained of by the Commission. The

record shows (R. 55-56) that other companies that en-

tered into stipulations in regard to the advertising com-

plained of were permitted to advertise the plan under

the expression ‘‘6%’’ provided they used explanatory

language. In the present order not only does the Com-

mission refuse to permit Ford Motor to use the expres-

sion at all in advertising the plan, but it prohibits it

from any use whatsoever, without limiting its denial

thereof to use by petitioner in advertising, which was

the matter complained of.

As the order to cease and desist is not limited to the

matter charged in the complaint it is improvident and

should be annulled:

Federal Trade Commission v. Gratz, 253 U. 8.

421, 40 Sup. Ct. 572;

Wrisley Company v. Federal Trade Commis-

sion, 113 Fed. 2d 437, at 442.

THE GENERAL MOTORS CASE.

Under date of August 12th, 1940, the Cireuit Court of

Appeals for the Second Circuit in the case of General

Motors Corporation et al. v. Federal Trade Commission

(114 Fed. 2d 33) sustained the entry by the Commission

of a cease and desist order against General Motors Cor-

poration and certain subsidiaries substantially identical

with the cease and desist order of which petitioner is

here complaining. The application of General Motors for

a writ of certiorari in that case was denied by the Su-

preme Court on the 20th day of January, 1941 (61 Sup.

Ct. 550).

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‘The denial of a writ of certiorari imports no ex-

pression of opinion upon the merits of the case, as the

bar has been told many times’’:

United States v. Comer, 260 U. S. 482, 43 Sup.

Ct. 181;

Atlantic Coast Line R. Company v. Powe, 283

U. S. 401, 51 Sup. Ct. 498.

As petitioner pointed out in its reply brief in the Cir-

euit Court of Appeals, the presentation of the General

Motors case in the Cireuit Court of Appeals for the Sec-

ond Cireuit differed substantially from the presentation

of petitioner’s case in the Sixth Circuit Court of Appeals.

The same is true with respect to its application for writ

of certiorari to the Supreme Court. This can be made

clear by a reference to the briefs and records in the Gen-

eral Motors case and is also demonstrated by the fact

that in the petition of General Motors Corporation et al.

to the Supreme Court for a writ of certiorari (see page

2 of said petition) the only questions presented were the

following:

‘‘Does the power of the Federal Trade Commis-

sion to regulate unfair methods of competition in

commerce extend to advertising of a corporation

not engaged in commerce, by reason of the fact

that its capital stock is owned by another corpo-

ration engaged in commerce in a different activity?

‘Does the Federal Trade Commission’s power of

regulation for the protection of the unwary, trust-

ing or ignorant against statements which are false

extend to statements which are true as well as rea-

sonably informative?’’

In other words, on the matter of jurisdiction the G. M.

confines itself to the question of its responsibility for

an

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the acts of G.M.A.C. That this was treated as the only

question raised in the matter of jurisdiction in respect

to interstate commerce is also shown in the opinion of

the Circuit Court of Appeals, which devotes only one

paragraph, the final paragraph of its opinion, to this

phase of the case and dismisses the contention made by

G. M. upon the basis of Federal Trade Commission v,

Educational Society, 302 U. S. 112, and National Harness

Manufacturers Association v. Federal Trade Commission,

268 Fed. 705. The Educational Society case involved an

attempt by one corporation to evade a cease and desist

order by organizing another. A reading of the opinion

in that case will show that the sales were clearly in

interstate commerce and involved representations or

unfair practices in that commerce. The decision has

nothing to do with the issue raised by us in the instant

ease. A similar question was involved in the National

Harness Manufacturers Association, that is as to whether

a corporation could escape restraint by employing a

medium in the form of an unincorporated voluntary asso-

ciation. The question we are concerned with does not

appear to have been involved.

G. M.’s contention that no unfair method was involved

appears from its brief in the Second Cireuit (Page 27

et seq. thereof) to have been based almost solely upon

showing that in its initial advertisement of the plan and

some subsequent advertisements it explained the plan in

detail and that the testimony shows this was understood

by the members of the public. The argument almost

wholly ignores the other advertisements referring in brief

phrase to the ‘‘6% Plan’’. As we think we have shown

in our brief, the use of this title is in no way misleading,

but the brief in the G. M. case fails to develop this argu-

ment and relies, as stated above, largely upon the ex-

planation in certain of the advertisements. That this is

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a fair inference as to the restricted character of G. M.’s

argument is indicated in the opinion of the Circuit Court

of Appeals of the Second Circuit, wherein the court

takes care to point out that there was a body of adver-

tising matter on billboards and window posters not con-

taining the explanation in some of the other advertise-

ments and so much relied upon by G. M. in its argument.

A similar deficiency of argument is indicated in the peti-

tion for writ of certiorari and was promptly seized upon

in the brief filed for the Federal Trade Commission in

opposition to this writ, where it was pointed out by the

Commission that much of the advertising was without

any explanatory statement. It is diffienlt of course to see

why the Second Cireuit Court of Appeals in any event

would find the explanatory advertisements deceptive or

unfair, and we believe such finding is demonstrably an

error on the part of that court. The situation may be

summarized we think by: stating that so much emphasis

was placed by G. M. on the explanatory advertisements

that the court assumed in the absence of illuminating

argument that reference to a 6% plan as a title merely,

was in some manner deceptive, and that as the bulk of

the advertising was of this character it did not take the

pains to distinguish between the two in affirming the

order of the Commission in its totality.

No exhibits were introduced in the G. M. case such as

respondent’s Exhibits 7, 8 and 9 in the instant case,

showing that Governmental instrumentalities such as Fed-

eral Housing Administration and Electric Home and

Farm Authority engage in practices identical with those

complained of by the Commission here, and even in their

presentation of same to the public designate the financ-

ing charge as ‘‘interest’’, which petitioner has not done.

Nor have we been able to find in the G. M. case evidence

similar to that in the instant case relative to similar

20

practices on the part of banks in various localities. r

argument presented by us in this case (and supported §

the exhibits relating to F. H. A. and others and by teat

mony relative to practice of banks, and also supporte

by a number of Commission’s own witnesses), that eve

if the percentage be regarded as referring to interes

the latter is a generic term and does not necessarily h

the restricted meaning attributed to it by the Comp :

sion, was not advanced in the G. M. case. <

CONCLUSION,

Each of the foregoing propositions was presented te

the Sixth Circuit Court of Appeals. It, however, followe

the decision of the Second Circuit Court of Appeals il

the General Motors case referred to above, and affirmed

the order of the Commission in full. We submit that #

questions involved are substantial and that the foreg

petition for a writ of certiorari should be cranial

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P ey 7. ae

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< DA AG Roo "oe — o

y @y,

Cuirrrorp B. LEY,

Attorney for Petitioner,

1400 Buhl Building,

Detroit, Michigan,

Business Address.