PART III. SETTLEMENT OF CASES BY STIPULATION

AGREEMENTS ON CORRECTIVE ACTION RESULT FROM INFORMAL CONFERENCES WITH BUSINESSMEN

The Commission on August 12, 1946, created the Division of Stipulations, consisting of a Director and Assistant Director, a staff of attorney-conferees and a small clerical force. All matters considered appropriate for settlement by stipulation1 are referred by the Commission to this division, which serves upon the proposed respondent a statement of the allegedly illegal practices the Office of Legal Investigations recommends should be stopped. The Division of Stipulations takes no part in the investigation or prosecution of any matter.

When served with such statement, the proposed respondent may reply by correspondence or confer with the Director of the Division of Stipulations, or with a designated attorney-conferee, either in person or through his authorized representative. Usually such conferences are presided over by an attorney-conferee and are participated in by one or more representatives of the Office of Legal Investigations and any other interested divisions, the proposed respondent and his representatives.

Thus all business is afforded an opportunity for an informal hearing. After a frank, informal and thorough discussion of the issues involved, amicable settlements are reached whereby any previous errors are corrected, matters of no public interest eliminated, and stipulations in disposition of the cases, covering such charges as are deemed to have been substantially proved, are forthwith drafted, signed and presented to the Commision for its consideration in settlement of any remaining law violations. Or a recommendation for closing the case in whole or in part, or for such other action as appears to be in accordance with law and the public interest, is then submitted by the division for consideration and final action by the Commission.

Since its inception in August 1946, the division has reported 198 cases to the Commission with recommendation for their disposition as follows:

The Commission, through this division, encourages informal conferences with businessmen and whenever in the course of negotiations for a stipulation, facts and conditions are ascertained to exist in the industry involved which show a rather uniform indulgence by the proposed respondents' numerous competitors in the same or similar

The policy of the Commission with respect to disposition of cases by stipulation is set forth in its Statement of Policy on p. 119.

66 ANNUAL REPORT OF THE FEDERAL TRADE COMMISSION, 1947

acts, the division recommends, for the Commission's consideration, the institution of investigations on an industry-wide basis. Such recommendations have been made in the floor wax industry, the mothproofing industry and the shoe industry.

The objective is to provide uniform and concurrent voluntary corrective action, if any action is indicated, applicable to all the members of the various industries, so that all may be placed on an equal competitive basis for the betterment of the public interest.

The Division of Stipulations is also charged with the duty of obtaining reports from parties who have entered into voluntary agreements to cease and desist, showing in detail the manner and form of their compliance with such agreements.

PART IV. TRADE PRACTICE CONFERENCES

ESTABLISHMENT AND ADMINISTRATION OF TRADE PRACTICE RULES FOR INDUSTRIES

Trade practice conferences provide a cooperative procedure for preventing unfair competitive methods and other business practices contrary to laws administered by the Commission. Under this procedure rules defining and cataloging unfair trade practices are established after industry conferences and hearing of interested and affected parties, including representatives of the purchasing public. Such conference proceedings being industry-wide in scope, industry members are thereby placed on a fair and equal competitive basis. The accomplishment of law observance by this industry-wide cooperative action is aimed to effectuate substantial economies in the cost of law enforcement, both to Government and industry.

The work of administering promulgated rules is directed to the maintenance of active cooperation between the industry and the Commission in promoting voluntary observance of the rules and in ascertaining new industry situations requiring amendment of the rules or other appropriate action. Through this work industry members are afforded guidance and assistance to the end that the conduct of their business may be in accordance with the law.

Trade practice conference procedure.-The procedural steps and requirements applicable to industry proceedings for the establishment of trade practice rules are covered in the Commission's Rules of Practice (see p. 114). Trade practice conference proceedings may be instituted by the Commission upon its own motion or upon application therefor whenever such proceedings appear to the Commission to be in the interest of the public. Any interested party or group in an industry, large or small, may apply to the Commission for the institution of such proceedings. Prior to the beginning of proceedings and during the course thereof, members of the Commission's staff are available to afford guidance and assistance to industry in working out constructive solutions of the various competitive problems. As a part of such proceedings, industry-wide conferences are held and, before the Commission finally approves rules, public hearings on proposed rules are had to afford all interested or affected parties opportunity to present their views, suggestions, or objections, and to appear and be heard.

GROUP I AND GROUP II RULES EXPLAINED

Trade practice rules appropriate for approval or acceptance by the Commission may include not only provisions for the elimination of practices which are illegal per se or are conducive to unfair competitive conditions in industry, but also provisions for fostering and promoting fair competition in the public interest. The rules as finally promulgated are classified by the Commission as Group I and Group II rules, respectively.

68 ANNUAL REPORT OF THE FEDERAL TRADE COMMISSION, 1947

Group I rules.-The unfair trade practices which are embraced in Group I rules are considered to be unfair methods of competition, unfair or deceptive acts or practices, or other illegal practices, prohibited under laws administered by the Federal Trade Commission as construed in the decisions of the Commission or the courts; and appropriate proceedings in the public interest will be taken by the Commission to prevent the use, by any person, partnership, corporation, or other organization subject to its jurisdiction, of such unlawful practices in commerce.

Group II rules.-These rules embrace the wholly voluntary or recommended industry practices as distinguished from mandatory requirements. No such industry rule is received by the Commission unless the provision is in harmony with law and the public interest and is constructively in support of the maintenance of fair competitive conditions in the industry.

CONFERENCE AND RULE MAKING ACTIVITIES DURING YEAR

During the fiscal year the conference and rule making work was considerably expanded. Conference proceedings for several industries were initiated by the Commission upon its own motion in addition to those instituted pursuant to applications received from interested industry groups. Comprehensive sets of rules clarifying legal requirements applicable to their trade practices were promulgated for nine important industries under the trade practice conference procedure; formal conferences and hearings for several other large and important industries were held; and pending and newly instituted proceedings were advanced. In addition, the practices of some other industries were surveyed and studied, and informal meetings held with various industry groups with a view to determining whether conference proceedings should be initiated.

The rules promulgated during the year are specifically applicable to the problems of the respective industries to which they apply and cover a wide diversity of practices.

New rules promulgated during fiscal year.—Trade practice rules for the following industries were promulgated during the fiscal year: (1) household fabric dye industry; (2) masonry waterproofing products industry; (3) vertical turbine pump industry; (4) watch industry (respecting the terms "waterproof", "shockproof", "nonmagnetic", and related designations); (5) saw and blade service industry; (6) doll and stuffed toy industry; (7) construction equipment distributing industry; (8) piston ring industry; and (9) wholesale confectionery industry (Philadelphia trade area). These nine industries have an estimated annual volume of business of over one billion dollars in the aggregate.

Rules for the household fabric dye industry.-Proceedings for the establishment of rules for this industry were initiated by the Commission after an industry-wide survey of the practices prevalent in the industry. In the course of the proceedings a general industry conference and public hearing were held on the proposed rules. The industry to which such rules apply is composed of persons, firms, and corporations engaged in the business of placing on the market fabric dyes,

1 With respect to the last three industries named, the conference proceedings were completed during the fiscal year ended June 30, 1946, but rules for the industries were

CONFERENCE AND RULE MAKING ACTIVITIES DURING WAR 69

tints, and color removers which are prepared and packaged for use in the home in dyeing, redyeing, coloring, tinting, or retinting wearing apparel and fabric home furnishings or decorations, or removing color therefrom preparatory to redyeing or retinting. Subjects covered by the rules include misuse of the terms "all fabric", "all purpose", and similar representations as applied to industry dyes or tints; misuse of the words "fast", "fadeless", "fadeproof", "unfadable", "sunfast”, "wash-fast", and representations of similar import; deception respecting efficacy of color removers; deceptive guarantees; confusion as to "tint” and “dye”; and deception by failure to disclose essential information. Improper use of demonstrators and payment of "spiffs", push money, etc., also are defined and proscribed.

Rules for the masonry waterproofing products industry.-Proceedings for the establishment of rules for this industry were instituted by the Commission upon a showing of widespread use of certain unfair practices in the industry. Rules covering these practices were promulgated after a general industry conference and public hearing for consideration of the proposed rules. Products of the industry are admixtures or coatings for concrete, brick, stone, stucco, concrete blocks, mortar, and other masonry, which are designed to render structures made thereof impermeable or resistant to water or moisture. In addition to the manufacturers and primary producers of such products, numbering about 150 concerns, there are many hundreds of marketers, including building supply houses, distributors, contractors, dealers, applicators, and other concerns through which the various industry products reach the purchasing public. Practices which are unfair are defined and proscribed in the rules, and members of the industry are thereby afforded a definite guide for keeping the conduct of their business in constant adjustment with the law. The rules prescribe the requirements for proper use of such significantly descriptive terms as "waterproof", "dampproof", "water-resistant", "damp-resistant", "weatherproof", "watertight", "moistureproof", "vaporproof", etc., as descriptive of industry products or the results to be obtained by their use. The industry's products are of vital importance and the promulgation of rules is especially timely by reason of the expected extensive construction of masonry buildings, basements, foundations, floors, piers, docks, dams, reservoirs, swimming pools, etc.

Rules for vertical turbine pump industry.-The rules promulgated for this industry are of considerable public interest. The industry's products are used extensively in water works, mining, agriculture, smelting, milling, construction work, marine operations, and in many other activities for pumping water, sewage, gasoline, fuel oil, chemicals, and other liquids. The rules proscribe various unfair methods of competition and unfair or deceptive acts or practices, such as commercial bribery, use of false or deceptive guarantees or warranties, deception as to rebuilt or used products, combinations to fix prices or suppress competition or restrain trade, and unfair selling methods. The industry is most essential to postwar construction and the rules are designed to keep the business practices of industry members in consonance with the requirements of law.

Rules respecting the terms "waterproof", "shockproof", "nonmagnetic", and related designations, as applied to watches, watch cases and watch movements.-These rules clarify requirements for proper