PART II. GENERAL LEGAL WORK

DESCRIPTION OF PROCEDURE

A case before the Federal Trade Commission may originate in any one of several ways: through complaint by a consumer or a competitor; from Federal, State, or municipal sources; or upon observation by the Commission. The Commission itself may initiate an investigation to determine whether the laws administered by it are being violated. No formality is required in making application for complaint. A letter setting forth the facts in detail is sufficient, but it should be accompanied by all evidence in possession of the complaining party in support of the charges made.

PROCEDURE UPON APPLICATIONS FOR COMPLAINT

Upon receipt of an application for complaint, the Commission through its Office of Legal Investigations considers the essential jurisdictional elements before deciding whether it shall be docketed for investigation. When docketed, it is assigned to the Chief Examiner or the Chief of the Radio and Periodical Division depending upon the type of investigation to be made. Cases requiring field investigations are assigned to the Chief Examiner; other matters, as more fully set out on pages 44 to 47, are assigned to the Radio and Periodical Division. The matter is thereafter assigned to an attorney for the purpose of developing all the essential facts.

The general procedure in matters requiring field investigations is to interview the party complained against, advise him of the charges and request such information as he may care to furnish in defense or in justification. It is the policy of the Commission not to disclose the identity of the complainant. If necessary, competitors of the respondent are interviewed to determine the effect of the practice from a competitive standpoint. Often it is desirable to interview consumers and members of the general public to obtain their assistance in determining whether the practice alleged constitutes an unfair method of competition or unfair or deceptive act or practice, and also to establish the existence of the requisite public interest.

After developing all the facts the examining attorney summarizes the evidence in a report, reviews the law applicable, and recommends the action he believes the Commission should take. The record is reviewed by the Chief Examiner or the Chief of the Radio and Periodical Division and, if found to be complete, is submitted, with a statement of facts together with his conclusions and recommendations, to the Commission for its consideration.

The Chief Examiner or the Chief of the Radio and Periodical Division may recommend to the Commission (1) that the case be closed without further action because of lack of evidence or because the practice does not violate any law administered by the Commission;

1 A brief statement of the provisions of these laws appears on pp. 1 and 2.

(2) disposition of the application by the respondent signing a stipulation as to the facts and an agreement to cease and desist from the practices as set forth in the stipulation; or (3) issuance of formal complaint.

If the Commission decides that a formal complaint should issue, the case is referred to the Chief Trial Counsel for preparation of the complaint and trial of the case. Should the Commission permit disposition by stipulation in lieu of formal complaint, the case is referred to the Director of the Division of Stipulations for negotiation of stipulation and submission thereof to the Commission for approval. All proceedings prior to issuance of a formal complaint or stipulation are confidential.

PROCEDURE UPON FORMAL COMPLAINTS

Only after careful consideration of the facts developed by the investigation does the Commission issue a formal complaint. The complaint and the answer of the respondent thereto and subsequent proceedings are a public record.

A formal complaint is issued in the name of the Commission acting in the public interest. It names the respondent, or respondents, alleges a violation of law, and contains a statement of the charges. The party complaining to the Commission is not a party to the formal complaint and the complaint does not seek to adjust matters between parties; rather, the prime purpose of the proceeding is to prevent, for the protection of the public, those unfair methods of competition and unfair or deceptive acts or practices forbidden by the Federal Trade Commission Act and those practices within the Commission's jurisdiction which are prohibited by the Clayton Act as amended by the Robinson-Patman Act, the Export Trade Act, and the Wool Products Labeling Act of 1939.

The rules of practice before the Commission provide that a respondent desiring to contest the proceeding, within 20 days from service of the complaint, shall file answer admitting or denying each allegation.

Upon request made within 15 days from service of the complaint, any respondent shall be afforded an opportunity to submit offers of settlement or proposals of adjustment where time, the nature of the proceeding and the public interest permit, and due consideration shall be given to them.

Where evidence is to be taken either in a contested case or in one where the respondent has failed to file answer, the matter is set down for hearing before a trial examiner, which hearing may be held anywhere in the United States, the Commission's complaint being supported by one of its trial attorneys and the respondent having the privilege of appearing in his own behalf or by attorney.

After the submission of evidence in support of the complaint and on behalf of the respondent, the trial examiner prepares and files a recommended decision which includes a statement of (1) findings and conclusions, as well as the reasons or basis therefor, upon all the material issues of fact, law, or discretion presented on the record; and (2) an appropriate order. Exceptions to the trial examiner's recommended decision may be taken by either counsel.

Briefs may be filed within a stated time after the trial examiner's

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recommended decision is made and, in the discretion of the Commission, upon the written application of the attorney for the respondent or the attorney supporting the complaint, oral argument may be had before the Commission. Thereafter, the Commission reaches a decision either sustaining the charges of the complaint or dismissing the complaint, sometimes without prejudice.

If the complaint is sustained by the evidence, the Commission makes its findings as to the facts and states its conclusion that the law has been violated, and thereupon an order is issued requiring the respondent to cease and desist from such violation. If the complaint is dismissed, an appropriate order is entered.

Up to and including the issuance of an order to cease and desist, there is no difference in procedure whether the case is under the Federal Trade Commission Act, the Clayton Act, or the Wool Products Labeling Act, but the Clayton Act provides a procedure for enforcement of cease and desist orders different from the other two acts.

Under the Federal Trade Commission Act and the Wool Products Labeling Act, an order to cease and desist becomes final 60 days after date of service upon the respondent, unless within that period the respondent petitions an appropriate United States Circuit Court of Appeals to review the order. In case of review, the order of the Commission becomes final after affirmance by the circuit court of appeals or by the Supreme Court of the United States, if taken to that Court on certiorari. Violation of an order to cease and desist after it shall have become final, and while it is in effect, subjects the offender to a civil penalty of not more than $5,000 for each violation, recoverable by the United States.

Under the Clayton Act, an order to cease and desist does not become final by lapse of time. The order must be affirmed by a United States Circuit Court of Appeals on application for review by the respondent or upon petition of the Commission for enforcement. Thereafter, appropriate contempt proceedings may be brought in the particular court of appeals for violation of the court order.

Under all three acts, the respondent may apply to a circuit court of appeals for review of an order and the court has power to affirm, or to affirm after modification, or to set aside the order. Upon such application by the respondent and cross-application by the Commission, or upon application by the Commission for enforcement of an order under the Clayton Act, the court has power to enforce the order to the extent it is affirmed. In any event, either party may apply to the Supreme Court for review, by certiorari, of the action of the circuit court of appeals.

PROVISIONS OF WHEELER-LEA AMENDMENT FOR PREVENTING DISSEMINATION OF FALSE ADVERTISEMENTS

Sections 12 to 15, inclusive, of the Federal Trade Commission Act, which were added by the Wheeler-Lea Act, approved March 21, 1938, make specific provision for the prevention of the dissemination of false advertisements of food, drugs, cosmetics, and devices (meaning devices for use in the diagnosis, prevention, or treatment of disease). The act as amended also empowers and directs the Commission to prevent advertisers of food, drugs, devices, or cosmetics which may cause injury when used under prescribed or customary conditions from

disseminating advertisements that fail affirmatively to reveal that such products are dangerous or that their use under certain conditions may cause bodily injury.

In addition to the regular proceeding by way of complaint and order to cease and desist, the Commission may, in a proper case, bring suit in a United States district court to enjoin the dissemination of such false advertisements, whenever it has reason to believe that such a proceeding would be to the interest of the public. These temporary injunctions remain in effect until an order to cease and desist has been issued and become final, or until the Commission's complaint is dismissed by the Commission or set aside by the court on review.

Further, the dissemination of a false advertisement of a food, drug, device, or cosmetic, where the use of the commodity advertised may be injurious to health or where the act of disseminating is with intent to defraud or mislead, constitutes a misdemeanor; and conviction subjects the offender to a fine of not more than $5,000, or imprisonment of not more than 6 months, or both. Succeeding convictions may result in a fine of not more than $10,000, or imprisonment of not more than 1 year, or both.

LEGAL INVESTIGATIONS

INQUIRIES PRIOR TO FORMAL COMPLAINT OR STIPULATION

The Commission makes legal investigation of all applications for complaint preliminary to instituting formal action for the correction of unfair methods of competition or other acts or practices violative of the laws it administers.

Investigation of cases in initial stages includes the general preliminary legal investigating work of the Commission under the several acts and the continuing survey of radio and periodical advertisements with the object of correcting false and misleading representations. Cases thus developed, unless closed without action, progress upon direction of the Commission to the status of either formal complaint or stipulation to cease and desist.

At the beginning of the fiscal year, in addition to cases pending as the result of the continuing survey of radio and periodical advertising (see pp. 44 to 47), there were pending for investigation2 132 preliminary or undocketed cases, and 176 additional applications of this character were received during the year, making a total of 308 on hand, of which 168 were investigated. Of the investigated matters 163 were docketed for action and 5 were closed without docketing because of lack of jurisdiction or other reasons. There remained 140 preliminary cases of this type pending for investigation at the end of the fiscal year.

Two hundred and ninety-one applications for complaint which had been docketed without preliminary investigation were pending for regular investigation at the beginning of the year. Subsequently 282 additional cases of this type were received, making a total of 573 such cases docketed for investigation. Of these, 209 were investigated and transmitted to the Commission for action, leaving 364 cases of this character pending for investigation at the close of the year. During the year, 282 further investigations were made, including

Statistics reported on pp. 38 to 47 concerning the legal investigation work are division records and not the consolidated record of the Commission, and therefore do not coincide with the figures reported in the tabular summary of the legal work for the entire Commission

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inquiries into alleged violations of cease and desist orders and stipulations, investigations for the Chief Trial Counsel and others of a supplemental and special nature. At the end of the year 250 such matters awaited completion of investigation.

Aside from matters handled as the result of the continuing survey of radio and periodical advertising and others of the same type not requiring field investigations, the Legal Investigations Division completed 752 investigations under the laws administered by the Commission, including those made in connection with industry-wide inquiries in the household fabric dye and the cosmetic and toilet preparations industries. There were also disposed of in connection with the legal investigational work of the Commission 15,299 pieces of incoming and outgoing mail relating to matters of complaints and inquiries involving varying degrees of research and study.

Price fixing and other trade restraints.—In the Congressional debates leading to the passage of the Federal Trade Commission Act in 1914, there was stressed the necessity for the establishment of an agency in Government to eliminate trade practices which, if carried to fruition, would result in monopoly or have a tendency toward that end. At the beginning of this fiscal year, 57 cases of this type were either awaiting investigation or being investigated. During the year, 135 additional cases were instituted, making a total of 192 restraintof-trade matters on the calendar. Seventy investigations of this type were completed for consideration and disposition by the Commission, leaving 122 cases pending on the active investigational calendar as of June 30, 1947.

Practically the whole category of trade restraints will be found among the charges in the cases pending before the Commission during the fiscal year. These comprise such practices as price fixing, conspiracy to boycott or threats of boycott, coercion, collusive bidding, control and limitation of supply, interference with sources of supply of competitors, intimidation, full-line forcing and tying contracts, various forms of basing-point, delivered-price and zoning systems designed to eliminate price competition, misuse of patents and licensing agreements for monopolistic purposes, resale price maintenance, and selling below cost with the intent and effect of injuring competitors. Of these, price fixing continues to be the most frequently recurring charge.

The following general classifications of commodities involved convey an idea of the widespread nature of the restraint-of-trade investigations: cellulose, lenses for traffic lights, magazines, drugs, bottled gas, toys, petroleum and petroleum products, sheet music, women's wearing apparel, display cases, quartz crystals, paper, cottonseed, watches, milk, hearing aids, household furniture and rugs, sheet steel, book matches, chemicals, motion picture films, beer, dental equipment and supplies, batteries, sewer pipe, natural gas, building materials, furnaces and furnace fittings, and many others.

Included in the above figures are 18 completed matters involving formal docketed cases. These consisted of a variety of matters, some to bring up to date investigations of complaints which had not yet been tried, but for the most part they consisted of complete investigations to determine whether the terms of Commission cease and desist orders had been violated. Where violations of orders were found, evidence was obtained in appropriate form to support civil