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Law School Case Brief

FTC v. Sperry & Hutchinson Co. - 405 U.S. 233, 92 S. Ct. 898 (1972)

Rule:

The Federal Trade Commission has described the factors it considers in determining whether a practice that is neither in violation of the antitrust laws nor deceptive is nonetheless unfair: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise -- whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen).

Facts:

The Federal Trade Commission (FTC) alleged that the largest and oldest company in the trading stamp industry, Sperry & Hutchinson (S&H), was violating § 5 of the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U. S. C. § 45 (a)(1), in three respects: first, that S&H improperly regulated the maximum rate at which trading stamps were dispensed by its retail licensees; second, that it combined with others to regulate the rate of stamp dispensation throughout the industry; and third, that it attempted (almost invariably successfully) to suppress the operation of trading stamp exchanges and other "free and open" redemption of stamps. The FTC entered cease-and-desist orders accordingly. S&H argued in the Court of Appeals that its conduct was beyond the reach of § 5 of the Federal Trade Commission Act, which it claimed permitted the FTC to restrain only such practices as are either in violation of the antitrust laws, deceptive, or repugnant to public morals. The Court of Appeals reversed the FTC, holding that the FTC had not demonstrated that S&H's conduct violated § 5 because it had not shown that the conduct contravened either the letter or the spirit of the antitrust laws.

Issue:

Did the Fifth Circuit err when it reversed the FTC’s order and declared that the latter can only prohibit antitrust violations or violations of the spirit of the antitrust laws?

Answer:

Yes

Conclusion:

The United States Supreme Court modified and remanded the appellate court's judgment holding respondent did not violate the spirit or letter of the antitrust laws. Where the scope of the antitrust laws was wide, the FTC's conduct was questionable. The FTC has broad powers to declare trade practices unfair;  furthermore, the FTC does not arrogate excessive power to itself if, in measuring a practice against the elusive, but congressionally-mandated standard of fairness, it, like a court of equity, considers public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws. However, the cease-and-desist order insufficiently linked S&H's conduct to unfair practices, so the matter was remanded for a determination of whether violations occurred.

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