AMENDMENT OF FEDERAL TRADE COMMISSION ACT

THURSDAY, FEBRUARY 18, 1937

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C. The committee met, pursuant to call, at 10 a. m., in the committee room, New House Office Building, Hon. Clarence F. Lea (chairman) presiding.

The CHAIRMAN. The committee will be in order.

The object of the meeting this morning is to have a hearing on H. R. 3143, a bill to amend the act creating the Federal Trade Commission, to define its powers and duties, and for other purposes. (The bill referred to is as follows:)

[H. R. 3143, 75th Cong. 1st Sess.]

A BILL To amend the Act creating the Federal Trade Commission, to define its powers and duties, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 5 of the Act entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes", approved September 26, 1914, as amended, constituting section 44 of chapter 2, title 15, of the Code of Laws of the United States of America, be, and the same is hereby, amended to read as follows:

"SEC. 5. That unfair methods of competition in commerce, and unfair or deceptive acts and practices in commerce, are hereby declared unlawful.

"The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in commerce and unfair or deceptive acts and practices in commerce.

"Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person, partnership, or corporation so complained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the Commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so charged in said complaint. Any person, partnership, or corporation may make application, and upon good cause shown may be allowed by the Commission to intervene and appear in said proceeding by counsel or in person. The testimony in any such proceeding shall be reduced to writing and filed in the office of the Commission. If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by this Act, it shall make a report in writing in which it shall state its findings as to the facts and shall issue and cause to be served on such persons, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice. Until a transcript

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of the record in such hearings shall have been filed in a circuit court of appeals of the United States, as hereinafter provided, the Commission may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. "Whenever the Commission shall have reason to believe that such person, partnership, or corporation has failed or neglected to obey, or intends or is about to disobey, such order of the Commission while the same is in effect, the Commission may apply to the circuit court of appeals of the United States, within any circuit where the method of competition or the act or practice in question was used or where such person, partnership, or corporation resides or carries on business, for the enforcement of its order, and shall certify and file with its application a transcript of the entire record in the proceeding, including all the evidence taken and the report and order of the Commission. Upon such filing of the application and transcript the court shall cause notice thereof to be served upon such person, partnership, or corporation and thereupon shall have jurisdiction of the proceeding and of the question determined therein, and shall have power to make and enter upon the pleadings, evidence, and proceedings set forth in such transcript a decree affirming, modifying, or setting aside the order of the Commission, and enforcing the same to the extent that such order is affirmed, and to issue such writs as are ancillary to its jurisdiction or are necessary in its judgment to prevent injury to the public or to competitors pendente lite. The findings of the Commission as to the facts, if supported by evidence, shall be conclusive. To the extent that the order of the Commission is affirmed, the court shall thereupon issue its own order commanding obedience to the terms of such order of the Commission. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceeding before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The Commission may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of its original order, with the return of such additional evidence. The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari, as provided in section 240 of the Judicial Code.

"Any party required by such order of the Commission to cease and desist from using such method of competition or such act or practice may obtain a review of such order in said circuit court of appeals by filing in the court, within sixty days from the date of the service of such order, a written petition praying that the order of the Commission be set aside. A copy of such petition shall be forthwith served upon the Commission, and thereupon the Commission forthwith shall certify and file in the court a transcript of the record as hereinbefore provided. Upon the filing of the transcript the court shall have the same jurisdiction to affirm, set aside, or modify the order of the Commission and to enforce same and to issue writs as in the case of an application by the Commission for the enforcement of its order, and the findings of the Commission as to the facts, if supported by evidence, shall in like manner be conclusive. In no case shall it be necessary to establish a violation of the order of the Commission as a condition precedent to the affirmance, modification, or setting aside of the same or entering an order enforcing it.

"At the end of sixty days from the date of service of any order of the Commission to cease and desist, such order shall become final and conclusive against any person, partnership, or corporation subject thereto failing or neglecting during such sixty-day period to seek court review of such order as provided in this Act as amended; and in case any such person, partnership, or corporation shall fail or neglect to obey such order after the same shall have become final and conclusive and while the same is in effect, such person, partnership, or corporation shall be liable to a penalty of $500 for each such offense and of $25 for each day it continues, which shall accrue to the United States and may be recovered in a civil action brought by the United States.

"The jurisdiction of the circuit court of appeals of the United States to affirm, enforce, modify, or set aside orders of the Commission shall be exclusive.

"Such proceedings in the circuit court of appeals shall be given precedence over other cases pending therein, and shall be in every way expedited. No order of the Commission or judgment of court to enforce the same shall in any wise relieve or absolve any person, partnership, or corporation from any liability under the Antitrust Acts.

"Complaints, orders, and other processes of the Commission under this section may be served by anyone duly authorized by the Commission, either (a) by delivering a copy thereof to the person to be served, or to a member of the partnership to be served, or to the president, secretary, or other executive officer or a director of the corporation to be served; or (b) by leaving a copy thereof at the residence or the principal office or place of business of such person, partnership, or corporation; or (c) by registering and mailing a copy thereof addressed to such person, partnership, or corporation at his or its residence or principal office or place of business. The verified return by the person so serving said complaint, order, or other process setting forth the manner of said service shall be proof of the same, and the return post office receipt for said complaint, order, or other process registered and mailed as aforesaid shall be proof of the service of the same.'

SEC. 2. That if any part of this Act, or the application thereof to any person or circumstance, is held invalid, the remainder of the Act, and the application of such part to other persons or circumstances, shall not be affected thereby. The CHAIRMAN. Commissioner Davis is present, representing the Federal Trade Commission, and we will now hear from him.

STATEMENT OF HON. EWIN L. DAVIS, ACCOMPANIED BY MR. GARLAND S. FERGUSON, COMMISSIONER, AND MR. WILLIAM T. KELLEY, CHIEF COUNSEL, FEDERAL TRADE COMMISSION

Commissioner DAVIS. Mr. Chairman and gentlemen of the committee: I wish to state that the Federal Trade Commission appreciates the invitation from the committee to appear and make such comment as may be desired and the Commission has requested me to represent it here. I want to be as helpful to the committee as I can, and to take up as little of your time as is necessary in the discussion of the bill under consideration.

H. R. 3143 is a proposed amendment to the Federal Trade Commission Act which was approved by President Wilson September 25, 1914, and the act has gone for more than 22 years without any amendment thereto. It has been before the courts, including the United States Supreme Court, many times, and every important feature of it has been considered and interpreted. The act has invariably been held constitutional and valid.

Mr. Chairman, we have had prepared some copies of the bill with the new language underscored in blue pencil in order that the members of the committee may readily see the changes which the pending bill would make in the present act. All these proposed amendments relate to only one section of the act, and that is to section 5.

(The clerk of the committee handed such copies of the bill to the members of the committee.)

During the last Congress, the Senate, without objection, passed a bill which embraced all of the proposed changes which are in this bill, also proposed amendments to several other sections of the act, and Senator Wheeler has reintroduced in the Senate, practically the same bill, as passed by the Senate before. However, this bill introduced by Chairman Lea of your committee, as I stated before, relates only to section 5, and there is omitted from this bill several amendments to other sections proposed last year and which were considered by your committee last year. I think it proper to say that those proposed amendments are omitted from this bill with the approval of the members of the Commission, for whatever that may be worth.

Those were all clarification amendments but as there was such a wide spread misunderstanding of the purpose and effect of some of those amendments, it was thought by some that they were not of

sufficient importance to provoke the controversies which they did and were relatively unimportant as compared to the proposed amendments to section 5.

Now, all these proposed amendments to the bill under consideration are procedural only with one exception. All of them, in the opinion of the Commission, make for clarity and economy of time and Government expense without the slightest impairment of any legitimate right of any citizen. They are for the better protection of the consuming public, as well as the ethical and honorable members of industry.

It is almost inevitable that an important act, and especially when it invades a comparatively new legislative field, as did the Federal Trade Commission Act not to result in more or less varied interpretations, both by the public and by the courts, and was true to a certain extent so far as the Federal Trade Commission Act was concerned, although on the whole under the long line of decisions it is, generally speaking, now pretty well clarified and pretty well understood.

Now, Mr. Chairman, I suppose the best way is to take up and discuss the different amendments. Shall I proceed in that way? The CHAIRMAN. Very well.

Commissioner DAVIS. And as I do so, I want to state that it will not disturb me, and I welcome any questions that any of you may desire to propound, and I will answer them if I can.

The first amendment to section 5 of the present act is the addition of the words: "and unfair or deceptive acts and practices in commerce". Found in lines 10 and 11, page 1 of the bill.

Mr. BOREN. Mr. Chairman.

The CHAIRMAN. Mr. Boren.

Mr. BOREN. I would like, if you will, as you go through these amendments to ask you to give examples to show why these amendments are necessary to the present act.

Commissioner DAVIS. Yes, sir; I will undertake to do that.

Mr. BOREN. I would appreciate it.

Commissioner DAVIS. Yes. As I said, the first amendment to section 5 of the present act is the addition of the words: "and unfair or deceptive acts and practices in commerce".

Found in lines 10 and 11 of the bill. In order to complete the amendment, the amendatory words "unfair or deceptive acts and practices in commerce" are also found in line 5, and in lines 8 and 9 of page 2, and the words "act or practice" are found in lines 3, 9, and 21 of page 3 and in line 12 of page 5.

Those subsequent references are in order to carry out the idea all through the section.

Without these mandatory words, there is a question whether the Commission has jurisdiction of a case of deceptive or other unfair practices where it develops that the offender has no competitor but has a monopoly in his field, or that all competitors in the industry are equally guilty. However much the public interest may be in need of protection in such a case, the Commission may be powerless to give it. În one case, the Raladam case, involving deceptive advertising in which the Commission had issued its order to cease and desist, the Supreme Court said:

If the necessity of protecting the public against dangerously misleading advertisements of a remedy sold in interstate commerce were all that is necessary to give the Commission jurisdiction, the order could not successfully be assailed.

In spite of the finding of the Court that the advertising in question was misleading and dangerous to the public, it held that the Commission had no jurisdiction to order the respondent to cease and desist because it had not been shown that the respondent had competitors who were injured by the deceptive advertisements.

In many cases it is very difficult, if not impossible, to show a specific injury to competitors, even though injury to both competitors and the public is manifest. The development of such evidence involves much time and expense. The Government should not be subjected to this expense.

Now, the Supreme Court in that case held that by reason of the language, "unfair methods of competition" in the statute, it was necessary to establish by proof that the respondent had competitors and that they were injured by this false and misleading advertising of the respondent the unfair method in that case was false and misleading advertising.

Since then the Commission investigators have been careful enough to develop by investigation and its trial attorneys have been careful to produce in evidence such proof of competition that the Commission has not since then been reversed by any court on that ground, but it has involved a vast deal of what the Commission considers unnecessary work by its personnel, loss of time in the disposition of cases, and expense. In many, many cases, I think I may say in most cases, more time and money is spent in proving competition and injury to competitors than is expended in the proof of the offense itself.

And, the same way in argument and in briefs. The greater portion of them are devoted nearly always not to whether the respondent has been guilty of an unfair practice, that being frequently admitted, and oftentimes not controverted; but they will say, "You have not proven injury to a competitor."

Now, as I have already indicated, gentlemen, that is frequently a very difficult matter, even aside from the time and expense involved. Mr. MAPES. Mr. Chairman

The CHAIRMAN. Mr. Mapes.

Mr. MAPES. Is this the one substantive amendment to which you referred in your opening statement?

Commissioner DAVIS. Yes, sir, Mr. Mapes; that is the only one of a substantive character. I shall later show in the discussion the procedural amendments.

Mr. MAPES. All of the rest procedural?

Commissioner DAVIS. Yes.

Mr. PEARSON. Mr. Chairman

The CHAIRMAN. Mr. Pearson.

Mr. PEARSON. May I ask, Judge Davis, if I correctly understand this amendment, any practice which of itself would be unfair to a consumer in the absence of any competition would be brought within the jurisdiction of the Federal Trade Commission?

Commissioner DAVIS. Yes, sir. In other words, the act itself says that we shall proceed in the public interest and no matter how fraudulent; no matter how vicious; no matter how burdensome or injurious to the public, an unfair trade practice may be, under the interpretation of the court in the Raladam case, we would be powerless to act and protect the public interest unless we could show that the respondent before us had competitors and had injured them.