Court of Appeals for the Third Circuit

Black & Yates, Inc. v. Mahogany Ass'n

129 F.2d 227 · 148 A.L.R. 841 · 1942 U.S. App. LEXIS 3329 · 54 U.S.P.Q. (BNA) 55

June 10, 1942 · Docket 7561

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Opinion

CLARK, Circuit Judge.

The learned district judge seems to us to have been influenced by his solution of an issue that did not happen to be before him. The parties are the protagonists in a fifteen year battle.1 The contest began with botany and is ending with geography. The three plaintiffs sell a hardwood which grows in the Philippine Islands and to which they have added the designation “mahogany”. The defendants are an association and the members thereof which and who claim to be the true prophets of mahogany. They base that claim on certain botanical considerations with which the Federal Trade Commission and the courts at first (1927 and 1928) agreed.2, 3 After that original agreement, however, the statutory body vested with jurisdiction abandoned botany for geography. It approved (1931) a stipulation which reads: “Respondent hereby stipulates and agrees that in its sale, description, and advertisement of the wood of the Philippine Islands which it has heretofore designated and described as ‘Philippine Mahogany’ and articles of commerce made therewith, it will not employ the word ‘mahogany’ in connection with the sale of said wood without the modifying term ‘Philippine’.” Gillespie Furniture Co., 15 F.T.C.Decisions 444.

As the Federal Trade Commission had changed its mind, the enforcing Circuit Court of Appeals was compelled to do likewise and so modified its original decree. 4 Thereafter a 1934 decision in the United States Supreme Court occasioned still further irresolution on the part of the Commission. That case5 prescribed a high degree of proof as essential to the acquisition of a “secondary” trade meaning. 6 In obedience to the ratio decidendi of this California White Pine holding, the Federal Trade Commission was constrained to and did reopen the controversy for the second time. The reopening, of course, took the form of a call for a further evidential interpretation of the term “Philippine Mahogany”.

At this point, the defendant association indulged itself in a bit of forecasting. It did not wait for the revised decision — it attempted a preview. It is of the nature of its anticipation that the plaintiffs now complain. It consists of statements (both oral and written) which were based on the assumption that Philippine Mahogany had not acquired a secondary meaning and which were widely circulated in the hardwood trade. From the assumption it followed, to quote typical assertions of the defendants, that :

(1) “Philippine mahogany is a substitute, is not a mahogany wood, is a misnomer, is in no way related to mahogany, is an inferior wood and not comparable to mahogany, has none of the qualifications of mahogany and will not stand up, is a counterfeit, a substitute and a fraud”.

(2) “A dealer is unethical who sells Philippine mahogany under that name”.

(3) “To sell Philippine mahogany under that name deceives the public’’.

(4) “To sell Philippine mahogany is unfair competition.”

(5) “In the case pending before the Federal Trade Commission, it is expected that the Commission will rule that the name ‘mahogany’ cannot be applied to any of these Philippine woods.” Plaintiffs’ Bill of Particulars, paragraphs a, b, f, h, i, r, d, e, s, and u, Appendix to plaintiffs-appellants’ brief, pp. 33-34.

It is conceded, as it must that these statements are disparaging. They reflect seriously upon the plaintiffs’ property and business practice; and falsely so, unless and until such reflection is sanctioned by a court’s condemnation. The learned district judge unconsciously influenced, as we think, by his own disapproval of the practice and by his confidence that the courts will ultimately share his view — as well they may — dismissed the bill. He placed the refusal to enjoin the continuance of the uncomplimentary references on what we deem to be an obsolete conception of the law. The case7 relied on is of doubtful application and was decided in 1886. We believe that the law has developed since that time.

The right of action for disparagement of property was slow in developing at common law. The early cases took a Shaksperian view. 8 So they lagged behind the analogous attack on personality by way of defamation, although an attack on what a man owns and sells would seem to be just as injurious as an attack on what he is. As one might expect the classic exposition is by Professor Jeremiah Smith.9 After the courts crystallized the tort10 certain elements remained uncertain. There was not entire agreement on two points, the always technical and confusing conception of malice and the matter of special damage. The learned professor takes the position that in disparagement of quality the rival competitor is not entitled to the qualified privilege of the rival claimant for title and so malice need not be shown in forfeiture thereof.11 The same view seems implicit in the Restatement of Torts12 and it is interesting to observe that the more modern codes of business ethics follow the French and German law in proscribing all forms of truthful disparagement.13 It may be that allegation and proof of special damage is necessary for a common-law recovery,14 although even here one notices a relaxation 15 particularly where the trade libel includes assertions of unethical business conduct.16 The very purpose of the equitable remedy indicates that there is no need for applying any such rigid rule to that side of the court.17 In the case at bar, however, the learned court acted at a stage in the proceedings whereat such considerations are not before us. In dismissing the complaint, he takes two allegations as true and so is bound by the assertions of malice and loss of sales in paragraphs 29 and 32.18

If the common law has been the tortoise, equity assuredly has been the hare. This is the more surprising because equity came into existence for the exactly opposite reason. As one might also expect, the leading article on the judicial slothfulness in this field has been penned by another Harvard Law School professor. The learned Dean pulverizes the precedents and ends with the often quoted: “* * * Most of the cases that grant relief speak strongly of the injustice that must result from denial of jurisdiction in these cases. In substance the traditional doctrine puts anyone’s business at the mercy of any insolvent malicious defamer who has sufficient imagination to lay out a skillful campaign of extortion. So long as denial of relief in such cases rests on no stronger basis than authority our courts are sure to find a way out.” Pound, Equitable Relief Against Defamation and Injuries to Personality, 29 Harvard Law Review 640, 668.

In view of this critic’s eminence, it is not necessary to add much to his demolition of the reasons advanced for the Chancellor’s hesitations. Later commentators have discussed them and have greeted with enthusiasm each decision which edges away from the traditional doctrine of negation.19 The irrelevance of “free speech” and of “a libel is for a jury” are patent. Freedom of discussion of public issues does not demand lack of “previous restraint” for injury to private individuals. Disparagement of goods presents no confusing or complicated matter of personality requiring the sympathetic attention of one’s peers.

We are quite willing to repudiate the “waning doctrine that equity will not restrain the trade libel”. 20 We are further willing to do so directly and without hiding behind the other equitable principles put forward in some of the cases. 21 In so doing we may well repeat the words of a leading writer: “What does it really matter whether old customers are induced not to carry out their obligations or new customers are persuaded by unfair means not to enter into contractual relations? One practice is as unfair as the other, and in both cases the growth and success of the plaintiff’s business are seriously affected.” Derenberg, TradeMark Protection and Unfair Trading, p. 143. 22 Furthermore, we are satisfied that we have ample support in the better reasoned cases. 23

The views just expressed make it unnecessary for us to elaborate upon plaintiffs’ failure to state a cause of action under the Sherman or Clayton Acts. 24 We quite agree with the learned district judge in that respect. The vital allegations in such an action are similar to those in any civil conspiracy case. A general allegation of conspiracy without a statement of the facts is an allegation of a legal conclusion and insufficient of itself to constitute a cause of action. Although detail is unnecessary, the plaintiffs must plead the facts constituting the conspiracy, its object and accomplishment.25 The plaintiffs have pleaded none of these facts. Neither the date of the alleged conspiracy nor its attendant circumstances are set forth. Nor is it averred who make the statements, where, when, or to whom.

The order dismissing the complaint is reversed, and the cause remanded for further proceedings in accordance with this opinion.

Black & Yates, Inc. et al. v. Mahogany Association, D.C., 34 F.Supp. 450.

450 .

Indiana Quartered Oak Co. v. Federal Trade Commission, 2 Cir., 1928, 26 F.2d 340.

According to the botanists, mahogany is produced only by the genera Swietenia of the Meliaceae family, no specimen of which grows in the Philippine Islands. Wright, Handbook of the Philippines, p. 122 et seq.; Williams, United States and the Philippines, p. 300; Lamb, The Mahogany Book, 3d Ed., published by the Mahogany Association, Inc.; The Texture of Philippine Mahogany (pamphlet), Philippine Mahogany (pamphlet), both published by the Philippine Mahogany Manufacturers’ Import Assn.; Stately Mahogany, A Condensed Reprint of Four Radio Talks Broadcasted from Station WEAF, New York City.

Wright, Handbook of the Philippines, p. 122 et seq.; Williams, United States and the Philippines, p. 300; Lamb, The Mahogany Book, 3d Ed., published by the Mahogany Association, Inc.; The Texture of Philippine Mahogany (pamphlet), Philippine Mahogany (pamphlet), both published by the Philippine Mahogany Manufacturers’ Import Assn.; Stately Mahogany, A Condensed Reprint of Four Radio Talks Broadcasted from Station WEAF, New York City.

Indiana Quartered Oak Co. v. Federal Trade Commission, 2 Cir., 1932, 58 F.2d 182.

Federal Trade Commission v. Algoma Lumber Co., 291 U.S. 67, 54 S.Ct. 315, 78 L.Ed. 655.

For discussion of secondary meaning, see: Nims, Unfair Competition and Trade-Marks, 3d Ed. 1929, §§ 36-42; Derenberg, Trade-Mark Protection and Unfair Trading §§ 28-32 ; 63 C.J. 393-396; Equity; Unfair Competition; The Shredded Wheat Case, 24 Cornell Law Quarterly 255; Unfair Competition— Trade-Name — Distinction Between Description and Secondary Meaning, 23 Washington University Law Quarterly 138.

Francis v. Flinn, 118 U.S. 385, 6 S. Ct. 1148, 30 L.Ed. 165.

“Who steals my purse steals trash; * * *

******

But he that filches from me my good name

Robs me of that which not enriches him

And makes me poor indeed.”

Othello, Act IH, Scene 3.

Othello, Act IH, Scene 3.

Smith, Disparagement of Property, 13 Columbia Law Review 13, 121.

* * * It is probably still true *230that unfair competition is a tort of that type where defendant has injured the plaintiff through the medium of the minds or influenced conduct of third persons.” Unfair Competition: Property Rights As The Basis of Action, 12 Cornell Law Quarterly 416, 418 (note).

Unfair Competition: Property Rights As The Basis of Action, 12 Cornell Law Quarterly 416, 418 (note).

Smith, Disparagement of Property, above cited, p. 139. He says: “But, on the other hand, a competing trader’s omission to disparage the quality of his rival’s goods does not involve the loss of his title to his own goods. By disparaging the quality of his rival’s goods he may be enabled to sell his own goods to better advantage. But the possibility of his enjoying this benefit does not furnish a sufficient reason why the law should confer upon him prima facie protection in uttering disparaging statements, which turn out to be untrue in fact and which cause damage.” P. 142.

He says: “But, on the other hand, a competing trader’s omission to disparage the quality of his rival’s goods does not involve the loss of his title to his own goods.By disparaging the quality of his rival’s goods he may be enabled to sell his own goods to better advantage.But the possibility of his enjoying this benefit does not furnish a sufficient reason why the law should confer upon him prima facie protection in uttering disparaging statements, which turn out to be untrue in fact and which cause damage.”P. 142.

Restatement of Torts (1938) §§ 626, 628; cf. Bower, Code of Actionable Defamation, 2d Ed. 1928, pp. 134, 135.

Bower, Code of Actionable Defamation, 2d Ed. 1928, pp. 134, 135.

Annales de la Propriete, Industrielle (Annales) 1878, 331; Gesetz gegen den unlauteren Wettbewerb, Reichsgesetzblatt (1909) 499; cf. Isolfeu v. Wanner Cour d’Appel, Paris, 1934, Annales, 1934, 227, discussed in Alexandroff, Concurrence Deloyale (1935) No. 616-618; Reichsgericht H. Z. S. of January 5, 1938, MW 38, 142, 144.

Isolfeu v. Wanner Cour d’Appel, Paris, 1934, Annales, 1934, 227, discussed in Alexandroff, Concurrence Deloyale (1935) No. 616-618; Reichsgericht H. Z. S. of January 5, 1938, MW 38, 142, 144.

Smith, Disparagement of Property, above cited.

Handler, Unfair Competition, 21 Iowa Law Review 175, 199.

Torts: Corporations: Libel: Disparagement of Product or Business Methods, 13 Cornell Law Quarterly 136 (note).

Trade Regulation — Remedy for “Disparagement” Amounting to Less Than Falsehood, 40 Columbia Law Review 341, 342-343 (note).

“On information and belief, defendants have made the false, misleading and disparaging statements, claims and representations hereinabove alleged deliberately and maliciously with knowledge of the fact that such statements, claims and representations are not true and that they are contrary to the findings of the Federal Trade Commission with respect to the matters involved in the proceedings in which the defendant Association participated as above alleged and defendants have made such statements, claims and representations with intent to injure and to impair the credit and to destroy the competition furnished by plaintiffs, and all other dealers in Philippine mahogany.” Complaint, Paragraph 29, Appendix to Plaintiffs-Appellants brief, pp. 11-12.

“As a result of the unfair and unlawful competition and in violation of the antitrust laws as above alleged, the reputation and good will of the plaintiffs have suffered loss and damage and plaintiffs have been injured in their business and property and have lost sales to which they were justly entitled.” Complaint, Paragraph 32, Appendix to Plaintiffs-Appellants brief, p. 12.

Complaint, Paragraph 29, Appendix to Plaintiffs-Appellants brief, pp. 11-12.“As a result of the unfair and unlawful competition and in violation of the antitrust laws as above alleged, the reputation and good will of the plaintiffs have suffered loss and damage and plaintiffs have been injured in their business and property and have lost sales to which they were justly entitled.”Complaint, Paragraph 32, Appendix to Plaintiffs-Appellants brief, p. 12.

Nims, Unfair Competition by False Statements or Disparagement, 19 Cornell Law Quarterly 63; Price-Maintenance Practices as “Unfair Methods of Competition” Under the Federal Trade Commission Act, 75 University of Pennsylvania Law Review 248 (note); Trade Regulation — Remedy for “Disparagement” Amounting to Less Than Falsehood, 40 Columbia Law Review 341 (note); Has Equity Jurisdiction to Enjoin Publication of a Libel?, 12 Iowa Law Review 77; Disparagement of Goods as Trade Libel, 6 North Carolina Law Review 72 (note).

, 12 Iowa Law Review 77; Disparagement of Goods as Trade Libel, 6 North Carolina Law Review 72 (note).

Trade Regulation — Remedy for “Disparagement” Amounting to Less Than Falsehood, 40 Columbia Law Review 341 (note), above cited.

These are breach of trust, coercion, boycott, or “plan and scheme” and “conspiracy”, such as is alleged in paragraphs 30 and 31 of the complaint in the case at bar.

The trend has been described: “The law of unfair competition has developed and is still developing primarily as a judicial reaction against unfair trade practices. Its evolution is as yet far from complete; a survey of recent cases clearly indicates its state of flux. Coupled with decisions upon which precedent and judicial inertia have exerted a retarding influence are many others which show a distinctly liberal and progressive approach. These cases, together with the increasingly important work of administrative agencies and an awakening legislative interest, reveal an unmistakable trend towards greater insistence upon the application of ethical standards to business.” Developments in the Law —Unfair Competition, 46 Harvard Law Review 1171.

And our decision prophesied: “ * * * Probably it is safe to say, from the recent trend of decisions on this subject in this country, that some court will soon take advantage of the opportunity here presented to discard this indirect and unsatisfactory approach and blaze a trail direct to the heart of this problem.” Disparagement of Goods as Trade Libel, 6 North Carolina Law Review 72, 73.

Its evolution is as yet far from complete; a survey of recent cases clearly indicates its state of flux.Coupled with decisions upon which precedent and judicial inertia have exerted a retarding influence are many others which show a distinctly liberal and progressive approach.These cases, together with the increasingly important work of administrative agencies and an awakening legislative interest, reveal an unmistakable trend towards greater insistence upon the application of ethical standards to business.”Developments in the Law —Unfair Competition, 46 Harvard Law Review 1171.And our decision prophesied: “ * * * Probably it is safe to say, from the recent trend of decisions on this subject in this country, that some court will soon take advantage of the opportunity here presented to discard this indirect and unsatisfactory approach and blaze a trail direct to the heart of this problem.”Disparagement of Goods as Trade Libel, 6 North Carolina Law Review 72, 73.Maytag Co. v. Meadows Mfg.

Maytag Co. v. Meadows Mfg. Co., 7 Cir., 35 F.2d 403; Alliance Securities Co. v. De Vilbiss, D.C., 24 F.2d 530; Rollman Mfg. Co. v. Universal Hardware Works, 3 Cir., 238 F. 568; and see other cases discussed by the commentators noted in footnote 19 above.

Co. v. Universal Hardware Works, 3 Cir., 238 F. 568 ; and see other cases discussed by the commentators noted in footnote 19 above.15 U.S.C.A. § 1 et seq.

15 U.S.C.A. § 1 et seq.; 15 U.S.C.A. § 12 et seq.

Baylies, Pleading (3d ed. 1929) pp. 56, 311-313; Bates, Pleading, Practice, Parties and Forms, 4th Ed. 1932, § 1161.