QUALITY STANDARDS, INFORMATIVE LABELING, AND GRADE LABELING AS GUIDES TO CONSUMER BUYING CARL A. AUERBACH* I A PROGRAM FOR THE FORMULATION AND USE OF QUALITY STANDARDS, A. Need for a Program We justify the American system of producing and distributing goods because we believe that it enables us to enjoy more goods, of better quality and at a cheaper price, than any other system yet devised, and because under it we, as consumers, by the choice we freely make in the market place, determine the kind, amount, quality, and price of what is produced. Basic to this justification is the assumption that we *A.B. 1935, Long Island University; LL.B. 1938, Harvard University. Associate Professor of Law, University of Wisconsin. Associate General Counsel, Office of Economic Stabilization, 1946; General Counsel, Office of Price Administration, 1946-1947. 'I have relied heavily throughout this paper on the work done by Donald E. Montgomery in the course of the investigations of the Temporary National Economic Committee when Mr. Montgomery was Director, Consumers' Counsel Division, Department of Agriculture (see Hearings before the Temporary National Economic Committee, 76th Cong., 1st Sess. (1939); id. pt. 8, Problems of the Consumer (1939); S. P. KAIDANOVSKY And Alice L. EDWARDS, CONSUMER STANDARDS (TNEC Monograph 24, 1941); FINAL REPORT OF THE EXECUTIVe Secretary to THE TNEC, 77th Cong., 1st Sess. 319-339 (1941); FINAL REPORT AND RECOMMENDATIONS OF THE TNEC, SEN. Doc. No. 35, 77th Cong., 1st Sess. 439-452 (1941)) and upon the excellent study by Gragg and Borden, MERCHANDISE TESTING AS A GUIDE TO CONSUMER BUYING (Business Research Studies No. 22, Harvard Graduate School of Business Administration, 1938). This paper was provoked by Professor Ralph S. Brown's excellent article, Advertising and the Public Interest: Legal Protection of Trade Symbols, 57 Yale L. J. 1165 (1948). Professor Brown's proposed cure, not his diagnosis, fails to satisfy me because, in my opinion, even the adoption by the courts of his suggested approach to the law of trade symbols would not contribute materially to the solution of the problems which modern advertising poses for an economic order relying upon competition as a motive force. Because the trade symbol is the vehicle of both informative and persuasive advertising, protection of the former, as Professor Brown recognizes, carries with it protection of the latter. But does this not give persuasive advertising all the protection it needs? In the main, the proposals which Professor Brown makes reinforce the stand which most courts have already taken in refusing to accept the dilution theory as a basis for extending the protection afforded against imitation of trade symbols. But is not persuasive advertising flourishing without such additional protection? Furthermore, I doubt whether we can look forward to any significant restriction by the courts of the protection now afforded against imitation of trade symbols. The principal difficulty in the way of such a development is that it cannot be shown that the public will necessarily benefit by a policy of restriction. It is true that it is difficult for newcomers to enter many fields of business today because they lack the large amounts of money that must be spent on persuasive advertising if they are to compete successfully. But since it is by no means clear that new entries under imitated trade symbols will serve the public interest, perhaps the courts, after all, are faced only with "private disputes among hucksters" in which the originator may have a better claim. Brown, supra, at 1167. Stork Restaurant, Inc. v. Sahati, 166 F. 2d 348 (C. C. A. 9th 1948), seems to be such a case. These doubts should make us look elsewhere for additional aids to the solution of our problem. consumers have alternatives from which to choose, that we know what these alternatives are, and that our choice is made primarily by consideration of the price and quality of the various goods and services offered for sale. Only consumer preference exercised in this manner impels producers competing for the consumer's dollar to produce cheaper, better goods. Whatever other arguments are advanced for or against the institution of brandname advertising as we know it, it seems clear that its primary purpose is not to inform the prospective purchaser about the price and quality of the article offered for sale. To the extent that advertising creates irrational consumer preferences, it negates one of the basic assumptions of our competitive system. Therefore, we must find other means of providing commodity information which will help consumers to buy more efficiently. Much progress has been made in protecting the consumer against false and misleading information about the commodities he buys, but not enough has been done to require the disclosure of information which will enable the consumer intelligently to compare the products competing for his preference. Especially needed is comparative information about quality, without which price loses much of its meaning. By quality I mean primarily those characteristics of a product or a service which determine its performance and serviceability in meeting the need for which it is intended.2 B. Elements of a Program A great amount of merchandise testing and evaluating is now being carried on by the Government, individual manufacturers and distributors, trade associations, technical and professional societies, and consumer groups.3 Except for the work done by consumer groups, surprisingly little of this effort reaches the consumer in a form that permits intelligent product comparison. Gragg and Borden inform us that there are six steps in the comparative evaluation of the quality of products: (1) determining how many and what types One of the great difficulties in dealing with this subject matter is the lack of any commonly accepted nomenclature. In the main, I shall use the terminology employed by the Office of Price Administration for purposes of its work in this field. See OPA Administrative Order No. 49, September 3, 1942, National Archives. The consumer is also interested in the inherent physical and chemical properties of a commodity, which may be considered part of its “quality”—e.g., is a commodity made of silk or rayon, butter or oleomargarine? See GRAGG AND BORDEN, op. cit. supra note 1, at 11. information is presently available to the consumer about the physical and chemical properties of a commodity than about its serviceability. More *As of October, 1940, there were forty-six federal agencies concerned with the formulation and use of quality standards, most important of which were the Department of Agriculture, the National Bureau of Standards, and the Federal Trade Commission (Trade Practice Conferences). Some of the principal technical and professional societies doing standards work are the American Standards Association, the American Society for Testing Materials, the American Home Economics Association, the Society of Automotive Engineers, the American Institute of Electrical Engineers, and the Illuminating Engineering Society. Consumers' Union and Consumers' Research are the principal consumers' organizations testing and rating commodities. The activities of these private and governmental agencies are fully described in KAIDANOVSKY AND EDWARDS, op. cit. supra note 1. For results of the FTC Trade Practice Conferences, see FTC TRADE PRACTICE RULES, SEPTEMBER 1, 1935 to JUNE 30, 1945 (1946). of products should be grouped together for the purpose of comparative evaluation; (2) deciding upon the criteria to use for judging worth; (3) defining the criteria in terms susceptible of measurement;5 (4) deciding how many and which units are to be examined; (5) making the measurements and classifying the units; and (6) translating the findings into forms usable by the consumer. 1. Government Encouragement and Coordination of Technical Research Without sound technical research, meaningful and usable quality standards cannot be formulated. The present difficulty with technical research in this field is that the various organizations conducting it operate independently of each other and quite naturally do not produce uniform results. Unless there is uniformity, the results are of no help to the consumer trying to compare the worth of different commodities. Uniformity cannot be hoped for "unless criteria, sampling and test procedures are agreed upon in detail and unless the individuals making the tests are given common training and instruction." Only a government agency (it might be a committee of all the interested government agencies, a separate Standards Board or the National Bureau of Standards) will be able to provide the necessary encouragement and coordination of technical research. This agency might be authorized to issue certificates to those testing laboratories which agreed to use the uniform criteria and procedures which it specified. This certificate would not be a condition of doing business, but laboratories which obtained it might be permitted to use it in the conduct of their business. 2. Promulgation of Quality Standards by the Government in Forms Usable by the Consumer Many devices are currently employed to translate the technical findings of the research laboratories into forms usable by the consumer. a. Informative labeling. The informative label is a marking or statement on the commodity itself, or, most often, on a label or tag attached to the commodity or its container, which passes on to the consumer test data about its quality, leaving consumers to draw their own conclusions as to the values to assign to the commodity. Labels or tags which carry instructions as to the effective use and care of These terms will be referred to as specifications. By "specification" is meant the description in measurable terms of one or more construction, content, or performance characteristics of a product. A specification may define or set forth two or more levels of quality, thereby defining grades or series of the same product. B 8 The term "standard" is often used interchangeably with "specification." It refers more broadly to any uniform measure of quality established by law or by general usage and consent. A standard may be expressed in the form of uniform specifications or methods of test or even in a simple definition of one important characteristic of the product. By "classification" is meant the listing of similar or related products into classes, groups, or grades for the purpose of defining or making clear the differences between the classes, groups, or grades. I have somewhat modified the Gragg and Borden presentation in order to use "classification" in this limited sense. 7 GRAGG AND BORDEN, op. cit. supra note 1, at 17. Id. at 18. Thus, for example, one large department store gives the following information regarding its muslin sheets and pillow-cases: "These sheets and pillow-cases are made from a good quality of cotton. the commodity are also included within the term "informative label." For many reasons, informative labeling at present is inadequate as a guide to intelligent consumer buying. Producers and distributors follow no uniform practice regarding the amount of available information the label should carry or the terminology it should use. This makes it impossible for the consumer to compare the worth of similar products marketed by different sellers. Furthermore, in most cases only a technician will understand the information that is given. The ordinary consumer, and that includes most of us, will not comprehend the label, even if, as is also unlikely, it is read carefully. b. Grade labeling. A “grade label" is a marking on the commodity itself, or on a tag or label attached to the commodity or its container, of a phrase or symbol which implies a qualitative judgment of relative inferiority or superiority in a graduated scale. Thus, for example, a large food chain presently grades certain canned goods which it sells under its brand name, “Grade A," "Grade B,” or “Grade C." Information explaining the differences between the grades may accompany the grade notation or the notation may stand alone. To the consumer, grade labeling is much more helpful than informative labeling because the grade notation in and of itself represents a qualitative judgment by which purchase may be guided. At present the difficulty is that it reflects the judgment of the producer or distributor himself. The consumer is safely guided by the grade notation in selecting among the products sold by the same seller, but no basis is afforded for comparison with the products sold by others. c. Certifications of quality. Many products bear notations certifying that they meet certain standards of quality specified by the certifying organization. The value of these certifications to the consumer depends upon the reliability of the certifying organization. This type of certification can be and has been subject to abuse.1o In any event, it too, affords no basis for comparative product evaluation. To enable the consumer to compare competing products, informative and grade labeling and certifications of quality must be based on commonly accepted quality standards that reflect the uniform results of agreed methods of technical research. In addition, informative labeling requires agreement on the amount of information that will be furnished and on the terminology that will be used. These objectives cannot be achieved without government action. Since the conveying of understand They conform to the following specifications: Construction of cloth-warp 68; filling 72; equals: 140 threads to the square inch. Breaking strength-Not less than 70 pounds in the warp and filling direction. Shrinkage-Warp not more than 5 per cent-filling not more than 21⁄2 per cent. Weight-Not less than 4.6 ounces per square yard. They also meet our specifications for precision of size and quality of workmanship." For example, the same department store conveys the following information on a tag: "Attention. Cotton stockings are less elastic than silk. They must be laundered with special care. Use mild soap and water. Shape gently and hang to dry. Never hang them in hot sun or over a radiator. Do not iron... it weakens the fibers." These informative labels are sometimes referred to as "caution tags." See §14(d)(4) of the Lanham Act, 60 STAT. 433, 15 U. S. C. §1064(d)(4) (1946), which is intended to remedy some of these abuses. 10 able information about the comparative worth of commodities requires a balancing of the interests of producers, distributors, and consumers, it is primarily a regulatory, not a technical, problem. It is suggested, therefore, that this part of the program be entrusted to the Federal Trade Commission, which now deals with this type of problem at its Trade Practice Conferences. The Federal Trade Commission, too, is the logical agency to enforce any parts of the program which are made legally enforceable. d. Voluntary and mandatory aspects of suggested program. It is not part of the suggested program to prohibit a manufacturer from producing or selling any kind of product.11 It is proposed, in the interest of the consumer and the competitive system, that the Government assume responsibility for seeing to it that to the extent possible comparative evaluations are made of the quality of the commodities that are actually produced and the results made known to consumers so that they can be guided thereby. It is not suggested that the Government proceed immediately by law to impose mandatory labeling in accordance with government-promulgated quality standards on all goods and services offered for sale. That would be foolish. It is contemplated that if the responsible government agency concludes that adequate technical research has been done to permit intelligent formulation of quality standards for a particular product, it should, with the cooperation of all parties concerned, formulate the standards and promulgate them as official government standards. Furthermore, the Government should announce the kind of informative or grade labeling that will most appropriately tell the consumer about the official standards. Use of the standards and labeling should be voluntary, but sellers who employ them should be permitted to tell prospective buyers that they are doing so. In return, these sellers should be held accountable for the accuracy with which their product is graded and labeled. Inaccuracy might be designated an unfair competitive practice against which the Federal Trade Commission, or a competitor, could proceed. In some cases, only minimum specifications of quality might be formulated for a product and a government certification offered to all sellers meeting them. In other cases, quality grades might be feasible, accompanied by informative or even grade labeling. Mandatory government standards accompanied by government-approved methods of labeling should come only after a reasonable trial period of successful voluntary use. I do not wish to rest my case on each and every one of these more detailed suggestions. There may be other and better ways of effectuating the main purpose, which is to give consumers as much factual, rational guidance in buying as is possible. At this point, I wish to say only that if the Government accepts responsibility for the program, considering the technical resources already available and the 11 Failure to distinguish between the formulation and use of quality standards and a simplification program is responsible for much confusion. Simplification seeks to concentrate production upon the most essential types, sizes, grades, colors, and packagings of products, and upon the more essential and serviceable features of the product itself. Simplification was a wartime measure necessary to conserve labor and materials. |