Petition for Review and Modification of an Order by the Federal Trade Commission.
Before SWAN, CHASE, and CLARK, Circuit Judges.
The petitioner Parke, Austin & Lipscomb, Inc., is a corporation which since 1914 has been engaged in the publication and distribution of books. The petitioner Smithsonian Institution Series, Inc., is a subsidiary corporation wholly owned by Parke, Austin & Lipscomb, Inc. The petitioners Monett, Hogan and McAndrews are officers of the two corporations.
In 1926 negotiations between the Smithsonian Institution of Washington, D.C., and Parke, Austin & Lipscomb, Inc., culminated in an agreement whereby a set of books written and edited by the scholars of the Institution would be published and distributed by a subsidiary corporation to be organized by Parke, Austin & Lipscomb, Inc., for the express purpose. A quarter of a million dollars was placed in escrow by the petitioners to ensure their proper preparation and distribution of the volumes, and a ten per cent royalty was agreed upon for payment to the Smithsonian Institution.
The name of Smithsonian Institution Series, Inc., was adopted for the subsidiary corporation at the request of a member of the board of regents of the Institution, whose expressed desire was to indicate by the name adopted that a relationship existed between the Institution and its publisher, and at the same time to limit the publisher to the manufacture and distribution of books issued by the Institution and designed to make its vast resources more readily available to the American people, as a "pocket edition of the Institution in all its activities."
Preparation of the manuscript was completed in 1932, and thereafter thirteen volumes comprising the "Smithsonian Scientific Series" were published. The work was done according to the agreement by the petitioner Smithsonian Institution Series, Inc., which employed a staff of several hundred salesmen engaged solely in the distribution of the books.
Testimony taken at the hearing before the Commission's trial examiner shows that some 250,000 prospects were interviewed over a period of years and that more than 34,000 sets of books were sold to purchasers throughout the country. A number of complaints were received from time to time from persons solicited by the petitioners' salesmen, most of them asserting that they had been misled by statements made to them by the salesmen. This proceeding and the order under review were the culmination of these complaints.
The trial examiner and the Commission found that in the course of offering their books to the public the petitioners made various misleading statements and misrepresentations having the purpose and effect of causing prospective purchasers to believe that the books were published and sold by the Smithsonian Institution of Washington, D.C., that the salesmen were in the employ of the Institution, that the entire selling price accrued to it, and that only a relatively small selected group of persons were being offered an opportunity to purchase the books because by virtue of social standing or influence or some commendable deed they were specially entitled to become patrons of the Institution.
The order to cease and desist from these practices contains six parts or paragraphs and enjoins the following activities: (1) Representing that the petitioners' salesmen are employed by or directly connected with the Smithsonian Institution of Washington, D.C.; (2) representing that the books are published by the Institution and that it receives all the proceeds from sales; (3) representing to persons solicited that they have been selected from the public at large for special consideration or that they have been singled out to be patrons of the Institution; (4) making use of "patron certificates" in such a manner as to imply that the individual prospects have been specially selected for any reason or that the enterprise benefited is other than an ordinary commercial venture; (5) using the words "Smithsonian Institution" in their corporate name or in any other connection to designate a commercial enterprise which in fact is not a part of or directly connected with the Institution in Washington; and (6) representing that the petitioner is engaged in anything other than a commercial enterprise for profit.
The evidence shows that in a substantial number of isolated instances the petitioners' salesmen approached prospective customers and did endeavor to better their chances of making sales by falsely representing directly or indirectly that they were employed by the Smithsonian Institution, and did make the other misstatements condemned by the Commission's order. The petitioners presented evidence that they habitually instructed all their salesmen to explain fully the true relationship existing between the Institution and the publisher and to make sure that no false impression would be gathered by the persons interviewed. All prepared sales talks were checked and approved by the petitioners, and deviations by salesmen which tended to give false impressions were followed up by disciplinary action which frequently included discharge of the offenders. In all instances of complaint on the part of purchasers that they bought the books because of misrepresentations by the salesmen, the contracts of purchase were cancelled and the price refunded.
Such was the zeal of the petitioners, we are told, to avoid any semblance of an unfair practice in their dealings with the public, and it is argued that their efforts in this direction relieve them of the interdiction of the Federal Trade Commission Act, 15 U.S.C.A. § 41 et seq. But however unauthorized the offending conduct of the salesmen may have been and however condemned and discouraged by their superiors, it still was conduct which subjects the employers to the jurisdiction of the Commission and to its cease and desist order. Federal Trade Commission v. Standard Education Society, 2 Cir., 86 F.2d 692, 697.
An adequate answer to the contention that the petitioners themselves have done nothing to mislead the public in violation of the spirit and the text of the Act is to be found in the materials which they furnished to the salesmen to assist them in their work. These materials include a broadside description of the series of books, profusely illustrated with pictures of prominent members of the board of governors of the Institution and describing at length the Institution and its work. No reference is made to the separate corporation publishing the books, and unless the salesmen affirmatively pointed out its existence the readers of this broadside might readily be led to believe that the Institution there so fully discussed was the publisher of the books. There is also included among the salesmen's materials a statement by the secretary of the Smithsonian Institution describing the series of books being published and discussing the motives which impelled the Institution to bring them out. Again there is no reference to Smithsonian Institution Series, Inc., and no mention that publication of the books was undertaken by a private organization for its own profit. Moreover, in the complete and the short forms of the "authorized presentation" or sales talks there is a reference characterizing the actual publishers as "friends" of the Institution who came forward and assisted it in the work of publication, inviting the conclusion that they were actuated by friendship rather than the prospect of business profits. This presentation also tends to indicate, without baldly asserting it, that the persons approached by the salesmen have been carefully selected from the public at large for the purpose of being invited to share the privilege of becoming patrons of the Institution by buying its books.
The use of these devices tending to mislead the public, making up in part what are ostensibly carefully worded presentations of the true facts surrounding the publication of the books, made the petitioners active participants in the kind of unfair trade practices condemned by the Federal Trade Commission Act. Whether any deception was actually intended ...