Story Case

The Federal Trade Commission, established by Congress in 1914, is given jurisdiction to supervise and regulate corporations, firms, and individuals engaged in commerce between the states. In the course of its investigations, the commission entered an order against a corporation named the Vacation League, requiring it to appear and produce its books of account before the commission. The league refused to regard the order, and an application was made to the federal court to have it enforced. The Vacation League showed that its only business was to collect contributions toward giving free vacations to children and young people of the city poor. Since it owned a farm in the Wisconsin Lake district, to which it sent the children from Chicago, Illinois, the interstate nature of the transaction was not denied. The league had an office in Chicago, with a paid staff. It induced small agricultural operations upon its farm, and would not accept any one who would not agree to give a small amount of time, while on the vacation, to perform a regular task upon the farm. Its object was to have the expense of each vacation as nearly as possible discharged by the value of the work done, but there never failed to be a large deficit to be removed by contribution. Because of the admitted attempt to make the scheme self-supporting, it was claimed by the Federal Trade Commission, that it was a commercial and not a philanthropic scheme, and, therefore, subject to its control. Should the Vacation League be required to submit its books and to obey the regulations of the commission, or is it a non-commercial organization over which the commission has no control?

Ruling Court Case. People Vs. Klaw & Erlanger, Volume 106 New York Supplement Reports, Page 341

Marc Klaw and Abraham Erlanger were the owners of many theatres in different parts of the United States. In order to reduce the expenses of transporting theatrical productions, to simplify the routes, and to insure a continuous supply of attractions for their theatres, they entered into an agreement, together with other owners and lessees of theatres, that for a period of five years the theatres should be "booked" as a continuous chain, providing a direct line of travel for each attraction, avoiding conflict between leading attractions by preventing two productions at one time in a small city, and "pooling" profits from all the theatres in the chain. It was also agreed that parties to the agreement would produce their performances only in theatres owned by other parties to the agreement unless there was no theatre so owned in the town where the production was to be given. Because of this last provision, the owners of theatres not in the chain complained that they were prevented from securing theatrical entertainments for their theatres, and producers complained that they were often unable to secure a theatre for the exhibition of their performances, because the members of the syndicate refused to deal freely with outsiders. As a result, a criminal prosecution, in the name of the people of the state of New York, was brought against Klaw and Erlanger, and they were indicted by a grand jury for violating a statute of New York, for conspiring and combining to form a monopoly injurious to commerce. The defendants denied that their agreement dealt with a subject of commerce, or that their acts were injurious to commerce in violation of the statute. The question for the court, therefore, was whether the owning, leasing, and controlling of theatres, the producing of plays and entertainments, and the booking of contracts for theatrical productions constituted commerce.

Mr. Judge Rosalsky delivered the opinion of the court: "Commerce is defined as, 'The exchange of merchandise on a large scale between different places or communities; extended trade or traffic.' In the Standard Dictionary, 'commerce' is defined as, 'the exchange of goods, productions of property of any kind; extended trade.' Commerce consists of intercourse and traffic and includes transportation of persons and property. In the light of these definitions of commerce, it seems that plays and entertainments of the stage are not articles or commodities of common use, and the business of operating theatres and producing plays therein is not trade, and we hold, therefore, that the defendants did not commit acts injurious to trade or commerce. The evidence fails to show that any crime has been committed by the defendants, and the indictments will therefore be dismissed."

Ruling Law. Story Case Answer

Commerce is not limited to the sale of goods. All business intercourse is commerce, as the word is used in law. The sending of free samples through the mail, the solicitation of orders by telephone, personal calls to collect the price - these are all parts of a commercial transaction just as fully as the closing of the contract of sale or the actual delivery of the goods. They are acts done in the furtherance of and incidental to a course of business dealing. But there is no commerce without the business or mercantile element. A social letter, an idle chat over the telephone, a friendly visit, or other intercourse without economic or financial significance would not constitute commerce, no matter how great the distance covered nor how frequently repeated. There are three propositions to be clearly perceived in order to understand the following cases developing and applying the meaning of the word "commerce." They are: (1) Any contact, communication, or intercourse may be commerce, if it is business; (2) No intercourse or dealing is commerce, if it is not business; (3) No business is commerce which is not intercourse, contact, or relationship which is more than "one-handled." Commerce implies a dealing between parties, and includes all the means and instruments by which that dealing is completed.

In the Ruling Court Case, the business element is present. There is no doubt that the activities of the producers and theatre owners were carried on solely for the purpose of making money. But there is no dealing, in the sense of commerce. Nothing is sold at any stage of the affair. People are admitted to the performance, but the admission is a charge for a privilege rather than the price of a service or commodity. A doctor is not engaged in commerce merely because he receives money for his calls. Commerce implies that parties deal each with the other, that there be some sort of exchange. In the Story Case, there are intercourse and exchange, but it is not a business transaction, and, therefore, it is not commerce. The Federal Trade Commission has no jurisdiction, and judgment should be given for the Vacation League.

It is of interest that at the time of this writing, these principles are being further developed in a law suit now pending in the Federal Court at Chicago. An injunction is asked against certain practices of the organized baseball league, on the ground that they are practices which unlawfully restrain trade and commerce. It will be decided in this suit whether baseball, as conducted by the professional clubs, is commerce. The decision may be very valuable as a more precise indication of the rule upon this general question. In the opinion of the writer, baseball, even professional, is not commerce. Should this case decide otherwise, parts of this section might require restatement.