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When proceeding under § 5 of the Act of September 26, 1914, 38 Stat. 717, it is essential, first, that, having reason to believe a person, partnership or corporation has used an unfair method of competition in commerce, the Federal Trade Commission shall conclude a proceeding in respect thereof would be to the interest of the public; next, that it formulate and serve a complaint stating the charges in that respect and give opportunity to the accused to show why an order should not issue directing him to cease and desist from the violation of the law so charged in said complaint. If after a hearing the Commission shall deem the method of competition in question is prohibited by this Act, it shall issue an order requiring the accused to cease and desist from using such method of competition. If, when liberally construed, the complaint is plainly insufficient to show unfair competition within the proper meaning of these words there is no foundation for an order to desist - the thing which may be prohibited is the method of competition specified in the complaint. Such an order should follow the complaint; otherwise it is improvident and, when challenged, with be annulled by the court.
Petitioner Federal Trade Commission issued a complaint against respondents Gratz et al., co-partners doing business under the firm name and style of Warren, Jones & Gratz et al. The complaint alleged that some of the respondents were engaged in selling, in interstate commerce, directly to the trade or through their co-respondents, steel ties that were manufactured by a certain company. The steel ties were made and used for binding bales of cotton and jute bagging used to wrap bales of cotton. The complaint likewise alleged that the other respondents, as their agents, sold and distributed such ties and bagging principally to jobbers and dealers who resold the same to retailers, cotton ginners and farmers. The complaint further alleged that with the purpose, intent and effect of discouraging and stifling competition, all of the respondents refused to sell any such ties unless the prospective purchaser would also buy from them the bagging to be used with the number of ties proposed to be bought. Thus, petitioner held that respondents had practiced unfair competition and ordered that their officers and agent to cease and desist. Respondents appealed, upon respondent’s petition, the court of appeals annulled petitioner's order. Petitioner commission appealed the judgment.
Were respondents guilty of practicing unfair competition?
The court affirmed the appellate court’s judgment annulling petitioner’s order. The court found that petitioner's complaint was insufficient to charge respondents with practicing unfair methods of competition in commerce. The Court held that nothing in the complaint was alleged that would justify the conclusion that the public suffered injury or that competitors had reasonable ground for complaint against respondents. Hence, the court held that petitioner’s ruling that respondents had practiced unfair competition was erroneous. Thus, the Court ruled that if real competition was to continue, then the right of the individual to exercise reasonable discretion in respect of his own business methods must be preserved.