FTC v. R. F. Keppel & Bro., Inc. - 291 U.S. 304, 54 S. Ct. 423 (1934)

Rule:

A trader may not, by pursuing a dishonest practice, force his competitors to choose between its adoption or the loss of their trade. A method of competition which casts upon one's competitors the burden of the loss of business unless they will descend to a practice which they are under a powerful moral compulsion not to adopt, even though it is not criminal, is thought to involve the kind of unfairness at which § 5 of the Federal Trade Commission Act, 38 Stat. 717, 719, was aimed. 

Facts:

The Federal Trade Commission, proceeding under § 5 of the Act, ordered respondent, one of numerous candy manufacturers similarly engaged, to desist from selling and distributing in interstate commerce candy in a certain type of package, in assortments, so arranged and offered for sale as to avail of the element of chance as an inducement to the retail purchaser. Each package contained display material, attractive to children and explaining the plan by which either the price or the amount of the candy received by the purchaser was affected by chance. The Commission found that the candy in this type of package was inferior in size or quality to that in other classes of packaged candy marketed without the aid of the chance feature, and that the competition between the two classes resulted in substantial diversion of trade from others to the manufacturers and distributors of the former; that this type of package was sold extensively in the retail trade to school children, among whom it encouraged gambling; and that many manufacturers refrained on moral grounds from making it, and as a result were placed in a disadvantageous competitive position.

Issue:

Was the Commission correct in concluding that respondent's practice was an unfair method of competition within the meaning of the Federal Trade Commission Act?

Answer:

Yes.

Conclusion:

The Court determined that it was not disputed that the practice complained of was a method of competition in interstate commerce and that it was successful in diverting trade from competitors who did not employ it. The Court found that it would seem a gross perversion of the normal meaning of the word, which was the first criterion of statutory construction, to hold that the method was not "unfair." The Court concluded that, even if the point had been more doubtful than it appeared, the Court would have hesitated to reject the conclusion of the Commission, based as it was upon clear, specific, and comprehensive findings, supported by evidence. The Court held that the Commission correctly concluded that respondent's practice was an unfair method of competition within the meaning of the Federal Trade Commission Act, 38 Stat. 717, 719.