Federal Trade Commission v. Sperry & Hutchinson Trading Stamp Co.

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Federal Trade Commission v. Sperry & Hutchinson Trading Stamp Co.
Seal of the United States Supreme Court.svg
Argued November 15, 1971
Decided March 1, 1972
Full case name Federal Trade Commission v. Sperry & Hutchinson Trading Stamp Co.
Citations 405 U.S. 233 (more)
92 S. Ct. 898; 31 L. Ed. 2d 170; 1972 U.S. LEXIS 154; 1972 Trade Cas. (CCH) P73,861
Holding
The Federal Trade Commission (FTC) may act against a company’s “unfair” business practices even though the practice is none of the following: an antitrust violation, an incipient antitrust violation, a violation of the “spirit” of the antitrust laws, or a deceptive practice. This legal theory is termed the "unfairness doctrine."
Court membership
Case opinions
Majority White, joined by Burger, Douglas, Brennan, Stewart, Marshall, Blackmun
Powell and Rehnquist took no part in the consideration or decision of the case.
An S&H Green Stamp

Federal Trade Commission v. Sperry & Hutchinson Trading Stamp Co., 405 U.S. 233 (1972), is a 1972 decision of the United States Supreme Court holding that the Federal Trade Commission (FTC) may act against a company’s “unfair” business practices even though the practice is none of the following: an antitrust violation, an incipient antitrust violation, a violation of the “spirit” of the antitrust laws, or a deceptive practice. This legal theory is termed the "unfairness doctrine."

Background[edit]

The Sperry & Hutchinson Trading Stamp Co. (S&H) was in the business of issuing and "redeeming" S&H trading stamps. As explained in the Court’s opinion, trading stamps are a form of “scrip.” They can be used to purchase goods but only at a designated “store.” S&H sold the stamps to merchants, such as supermarket chains, and they “gave” the stamps to their customers, typically at the rate of one stamp for each ten cents' worth of purchases. The customers were instructed to paste the S&H stamps into booklets, and when they had accumulated enough booklets full of S&H stamps they could “redeem” them at an S&H redemption center for “gifts”—merchandise, such as golf clubs or blenders. S&H accounted for 40% of the US trading stamp business and more than 60% of US consumers saved S&H stamps; the industry annually issued 400 billion stamps to more than 200,000 stores, and they were distributed to the public in connection with retail sales of $40 billion.

S&H placed restrictive notices in the booklets, advising consumers that they did not own the stamps, that their only right was to paste the stamps into the booklets and redeem booklets at an S&H redemption center, and that they could not buy, sell, or swap stamps.[1] Other trading stamp companies (such as Gold Bond) operated on a similar basis. S&H enforced the restrictions by suing merchants who “trafficked” in S&H stamps, for example, by accepting them in partial payment for merchandise. S&H also sued “trading stamp exchanges,” which were businesses that permitted consumers, for a fee, to swap one kind of stamp for another, in order to consolidate the consumers’ stamp holdings into one brand and thus more rapidly redeem their stamp holdings. Some consumers, the Court noted, “may seek to sell [their] stamps in order to use the resulting cash to make more basic purchases (food, shoes, etc.) than redemption centers normally provide.” S&H attempted to suppress all such “trafficking.”[2]

The FTC sued S&H for this practice (among others) on the ground that this was unfair and oppressive to consumers. After administrative hearings, the FTC ordered S&H to stop interfering with consumers and trading stamp “traffickers” by trying to “suppress the operation of trading stamp exchanges and other ‘free and open’ redemption of stamps.”

Judgment[edit]

Court of Appeals[edit]

S&H appealed to the Fifth Circuit, which reversed the FTC’s order because section 5 of the FTC Act,[3] under which the FTC had proceeded, “empowers the Commission to restrain only such practices as are either in violation of the antitrust laws, deceptive, or repugnant to public morals.” The Fifth Circuit added that the FTC could declare “unfair” and prohibit only antitrust violations or violations of the spirit of the antitrust laws.

Supreme Court[edit]

The Supreme Court reversed the decision of the Fifth Circuit. After reviewing the legislative history of the statute and the case law, the Court held that

Legislative and judicial authorities alike convince us that the Federal Trade Commission 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.

Significance[edit]

The FTC has occasionally invoked the unfairness doctrine against practices that did not readily fit into existing antitrust or deceptive practices categories, but until recently has not brought many such cases. Currently, however, the FTC has been using the unfairness doctrine against use of Spyware.[4]

Notes[edit]

  1. ^ A notice on the inside cover of each booklet read:

    Neither the stamps nor the books are sold to merchants, collectors or any other persons, at all times the title thereto being expressly reserved in the Company. . . . The stamps are issued to you as evidence of cash payment to the merchants issuing the same. The only right which you acquire in said stamps is to paste them in books like this and present them to us for redemption. You must not dispose of them or make any further use of them without our consent in writing. . . . [I]f the stamps or the books are transferred without our consent, we reserve the right to restrain their use by, or take them from other parties. It is to your interest that you fill the book, and personally derive the benefits and advantages of redeeming it.

  2. ^ The Court noted:

    Between 1957 and 1965, by its own account, the company filed for 43 injunctions against merchants who redeemed or exchanged its stamps without authorization, and it sent letters threatening legal action to 140 stamp exchanges and 175 businesses that redeemed S&H stamps. In almost all instances, the threat or the reality of suit forced the businessmen to abandon their unauthorized practices.

  3. ^ Section 5 provides: “The Commission is empowered and directed to prevent persons, partnerships, or corporations . . . from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.” 15 U.S.C. § 45(a)(6).
  4. ^ FTC Permanently Halts Unlawful Spyware Operations (FTC press release with links to supporting documents); see also FTC cracks down on spyware and PC hijacking, but not true lies, Micro Law, IEEE MICRO (January -February 2005), also available at IEEE Xplore; and Court Orders Halt to Sale of Spyware (FTC press release November 17, 2008).