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Hearings were held for four days on the bill (S. 3744) and all parties desiring to appear were heard or filed statements. Printed hearings will be available.
It is the opinion of the committee that the bill, amended by striking out, subsection (i) of section 3, is in the public interest and should be enacted.
The following report on the bill was received from the Federal Trade Commission:
FEDERAL TRADE COMMISSION,
Washington, February 11, 1936. Hon. BURTON K. WHEELER, Chairman, Committee on Interstate Commcrce,
United States Senate, Washington, D. C. DEAR MR. CHAIRMAN: With further reference to yours of the 4th instant, submitting copy of bill S. 3744, and advising that your committee would appreciate having the views of the Federal Trade Commission on this proposed legislation, I beg to report as follows:
The amendments to the Federal Trade Commission Act embodied in this bill all tend to clear up doubtful points and to expedite proceedings and reduce expense. In the opinion of the Commission the proposed amendments are in the public interest, and the bill has the approval of the Commission.
Section 1: This section amends section 4 of the act. The “trust” or so-called Massachusetts trust is included (p. 2, lines 9, 13) in the definition of a corporation. There are some extensive businesses operated under the so-called commonlaw or Massachusetts trust which resembles a corporation in its organization and operation in many particulars. There may be some doubt whether the trust would be considered a company or association.
To the definition of antitrust acts, the Clayton Act is added (p. 3, line 8). It is one of the antitrust acts but had not been passed at the time the Federal Trade Commission Act was written.
The definition of "documentary evidence” is amended by adding the words, "books of account, financial and corporate records” (p. 2, line 19). This serves to remove any doubt that such books and records are included in the documentary evidence which is subject to the Commission's inspection and subpena under section 9 of the present act. It has been the experience of the Commission that this definition should be clarified by these added words.
Section 2: This section amends section 5 of the present act, first, by adding the words “deceptive acts and practices” (p. 3, lines 14, 20, 24–25), so that the first paragraph would read:
“That unfair methods of competition and deceptive acts and practices in commerce are hereby declared unlawful."
Without these amendatory 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. In one 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.
The fourth paragraph of section 5, as amended by the bill, provides (p. 5, line 7) that the Commission may proceed in the circuit court of appeals for the enforcement of its order whenever it has reason to believe that its order is not being obeyed or is about to be disobeyed. This part of the present act provides that "If such person, partnership, or corporation fails or neglects to obey such order," the Commission may proceed in the circuit court of appeals to enforce its order. In Federal Trade Commission v. Standard Education Society (14 Fed. (20) 947), the seventh circuit court of appeals held that the Commission's application for enforcement first presents the question whether the respondent has failed to obey the order, and this fact must be presented and passed upon before the validity of the order is to be considered. However, in the second circuit, in Federal Trade Commission v. Paul Balme, (23 Fed. (20) 615), it was held that the question of the violation of the Commission's order is not involved until a valid order has been
recognized by the court. A majority of the circuit courts of appeals have followed the interpretation of the second circuit, and the proposed amendment will settle this conflict in harmony with the majority opinion and settle it in such a way that the Commission will not be put to the expense, which in some cases may be great and in all cases will be substantial, of proving the violation of an order that the court may later, in the same proceeding, declare invalid.
It is evident that this amendment will not prejudice any right of the person being proceeded against. The purpose and result of the Commission's application to the circuit court of appeals to affirm or enforce its order is to establish the validity of the order and make the Commission's order the order of the court. Only when the Commission thereafter asks the court to punish the person being proceeded against for violation of the order should the Commission be required to prove that it has been violated. Under the seventh circuit's interpretation the Commission must make that proof both when it asks the court to affirm the order and again when it asks for the punishment of the respondent for a violation of the court's order.
The fourth and fifth paragraphs are further amended (p. 6, line 1; p. 7, line 15), so that either upon an application by the Commission for the enforcement of its order, or upon an application by the respondent to set the Commission's order aside, the circuit court of appeals may enter its order enforcing the Commission's order to the extent that it is affirmed. This amendment makes it clear that while the court has the matter before it, either upon the application of the Commission or upon the application of the person being proceeded against, it may enter its decree commanding obedience to the Commission's order, or, if it modifies the Commission's order, commanding obedience to the modified order. The amendment is in the interest of expeditious enforcement of the law.
The fourth and fifth paragraphs are also amended (p. 6, line 2; p. 7, line 15) to give the circuit court of appeals jurisdiction to issue writs necessary in its judgment to prevent injury to the public or to competitors, pendente lite. Experience has shown that cases may and do arise where the business practice in question is of such a nature that its continuance during the pendency of the proceedings in the circuit court of appeals will work irreparable injury to the public or competitors. The proceeding in the circuit court of appeals is an original pro
ing, but is also in the nature of a review of the Commission's proceedings. Federal courts of original jurisdiction ordinarily have authority to issue temporary injunctions pendente lite, and appellate courts have that power when properly auxiliary to their appellate jurisdiction; but since this is a special proceeding, it appears wise to give the circuit court of appeals express power to restrain the continuance of the unfair method pending final decision, whenever, in its opinion, the public interest requires it.
Precedent for such a provision is found in the Packers and Stockyards Act, 1921. It is provided (sec. 194 (c), title 7, U. S. C. A.) that after appeal has been taken from the Secretary's order to cease and desist to the circuit court of appeals, the court "may issue a temporary injunction restraining, to the extent it deems proper, the packer
from violating any of the provisions of the order pending the final determination of the appeal.” And in the Securities Exchange Act of 1934 (sec. 78 y (b), title 15, U. S. C. A.) it is provided that the commencement of proceedings in the circuit court of appeals to review an order of the Securities and Exchange Commission shall not operate as a stay of the order "unless specifically ordered by the court.”
At the end of the fifth paragraph is added a sentence as follows (p. 7, line 19):
“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."
This relates back to the first proposed amendment to the fourth paragraph discussed on page 3 hereof, providing that the Commission may make application to the circuit court of appeals to affirm its order whenever it has reason to believe that its order is not being obeyed or is about to be disobeyed.
Paragraph five of section 5 is amended (p. 7, lines 6–7) to limit the time to 60 days within which the person being proceeded against may make application to the circuit court of appeals to set aside an order of the Commission. A further amendment provides (p. 7, lines 2, 3) that at the end of this 60 days, if such application shall not have been made, the Commission's order shall become final and conclusive, and fixes a penalty for failure to obey it, recoverable in a civil action by the United States. Under the present act there is no time fixed within the application must be made and the respondent may, without incurring any liability, continue to use the unfair method until the Commission discovers the fact and secures an enforcement order in the circuit court of appeals. This proposed amendment would prevent a respondent playing fast and loose with the Commission's order, neither obeying it nor asking the court to set it aside.
Such provisions as are embodied in this amendment are not novel. Under the Packers and Stockyards Act of 1921 the procedure before the Secretary of Agriculture, in case of the use by a packer of certain practices declared by the act to be unlawful, is almost identical with the procedure before the Commission under section 5. The Packers Act provides (see sec. 194 (a) title 7, U. S. C. A.) that an order of the Secretary to cease and desist shall become final after 30 days unless appeal shall have been taken to a circuit court of appeals. And section 195 (1) provides that the violation of his order to cease and desist after the expiration of the 30 days without an appeal shall subject the violator to fine and imprisonment. A similar limit of the time for appeal appears in the Securities Exchange Act (sec. 78 y (a), title 15, U. S. C. A.).
The last paragraph of the present section 5 prescribes the method of serving "complaints, orders, and other processes" of the Commission; first, by delivering a copy to the person to be served ; second, by leaving the copy at his or its principal place of business; or third, by mailing, registered, a copy to his or its principal place of business. In practically every case service by mail is most convenient, expeditious, and economical. But in many cases, particularly where the process to be served is a subpena, the witness or person to be served has no “place of business.” This paragraph is amended to provide (p. 9, lines 2, 6) that process may be served also by registered mail to the residence of the person to be served.
At various places in the present section 5, the word “testimony" instead of “evidence" is used. "Testimony' strictly means oral evidence only, and the broader term "evidence” is evidently intended and has been substituted (p. 5, lines 17, 24; p. 6. lines 6, 21; p. 7, line 18).
Section 3: This section amends section 6 of the act as follows:
First is amended subdivision (a) of section 6 expressly giving the Commission power to proceed either upon its own initiative or upon the direction of the President or either Honse of Congress (p. 9, line 16). Section 6 contains the Commission's fundamental powers of investigation, and it is desirable to remove any doubt as to whether the exercise of its powers must await the transpiring of some condition precedent, such as the institution of legal proceedings or formal direction to investigate a situation, or whether its powers are available for use in the performance of all its statutory duties.
This subdivision (a) is broadened to include persons and partnerships (p. 9, lines 20, 23) in addition to corporations, within the field of the Commission's power to investigate business practices and conditions in interstate and foreign commerce. It is manifest that unfair, detrimental, or illegal practices affecting or interfering with such commerce may be carried on as well by persons and partnerships as by corporations. This addition of persons and partnerships is carried into other subdivisions of this section (p. 10, lines 1-2, 11-12; p. 11, lines 1-2, 11; p. 12, lines 4-5), and into section 9 (p. 12, lines 17, 22–23) for the same reason.
Subsection (i), a new subsection (p. 12, lines 7-10) confers upon the Commission so much of the auxiliary powers of Congress to obtain information in aid of legislation as may be necessary to enable the Commission to carry out its duties under the section. In Humphrey's Executor v. U. S. (205 U. S. 602), the Supreme Court said (p. 628) :
“The Federal Trade Commission is an administrative body created by Congress to carry into effect legislative policies embodied in the statute, and to perform other specified duties as a legislative or as a judicial aid. In making investigations and reports thereon for the information of Congress under section 6, in aid of the legislative power, it acts as a legislative agency."
Since Congress has imposed upon the Commission the duty to make these investigations as its legislative aide, it undoubtedly intended to give it the necessary power to proceed.
Section 4: This section amends section 9 of the present act, which relates to evidence, testimony, and witnesses. There has been doubt and confusion on the question whether, and to what extent, the power of subpena conferred by section 9 applies to investigations under section 6. In the Millers' National Federation case (decided Sept. 22, 1926) the Supreme Court of the District of Columbia held that the power of the Commission to compel the attendance and testimony of witnesses and the production of documentary evidence is
limited to formal proceedings under section 5 and has no application to investigations under section 6. The Court of Appeals of the District upheld the Commission's power of subpena in investigations under section 6, where is was proceeding pursuant to a resolution of the Senate, but it seems to base its decision upon the ground that the resolution of the Senate was tantamount to a delegation of the power vested in the Senate itself. Under this ruling, the Commission would have no such power when proceeding on its own initiative, under section 6.
In the Electric Bond & Share case (34 Fed. (20) 323) the United States District Court for the Southern District of New York sustained the power of the Commission to issue subpena for the attendance of witnesses for oral testimony, but circumscribed and limited its power to subpena documentary evidence, when pursuing an investigation under section 6.
The proposed amendment is clarifying and removes the uncertainty arising out of the foregoing decisions, by expressly conferring upon the Commission the power, as was originally intended, to subpena witnesses for oral testimony and to examine and subpena documentary evidence, when it is proceeding either under section 5 or section 6 (p. 13, lines 22–25). It is customary to confer this power upon investigatory and fact-finding agencies. It is conferred upon investigating committees of Congress, and section 19 (b) of the Securities Act of 1933 (carried into the Securities and Exchange Act of 1934) provides :
"For the purpose of all investigations which, in the opinion of the Commission, are necessary and proper for the enforcement of this title, any member of the Commission, or any officer or officers designated by it, are empowered to subpena witnesses
and require the production of any books, papers, or other documents, which the Commission deems relevant or material to the inquiry.”
The same power is given the Interstate Commerce Commission, "and for the purposes of this chapter, the Commission shall have power to require, by subpena, the attendance and testimony of witnesses and the production of any books, papers, tariffs, contracts, agreements, and documents relating to any matter under investigation (sec. 12, title 49, U. S. C. A.).”
Further, there can be no danger of abuse of the power by the Commission since the command of the subpena can be enforced only by an order of a district court of the United States (see p. 13, lines 12–13, 24–25).
The third paragraph of section 9 is amended (p. 13, lines 15–16) so that in a case of contumacy or refusal to obey a subpena a proceeding to enforce obedience may be brought in any United States district court in which the person resides, or carries on business, or is found. Under the present act, the jurisdiction is confined to the district court of the district in which the Commission's inquiry is being carried on. This amendment is to the convenience both of the Commission and members of the public who may be subpenaed. The Commission hearing to which the witness has been subpenaed may be in a district remote from his residence. Under the amendment the Commission may bring the proceeding to force his attendance in the district court of the district of his residence.
Another amendment in this connection (p. 13, line 18) provides that the court may order a witness to appear and testify either before the Commission or “before one of its designated examiners.” As a matter of practice, nearly all hearings are presided over by an examiner of the Commission, which the present act authorizes, rather than by a commissioner. The present act empowers the district court to order the witness to appear before “the Commission," and this amendment makes it clear that the court may also order his appearance at a hearing presided over by an examiner. The Commission's examiners conduct hearings throughout the country, and the court will be able to order the appearance of a witness before an examiner sitting at or near the place of residence of the witness instead of having to require his attendance before the Commission, which, as a body, sits only in Washington.
The last paragraph of section 9 relates to immunity of a witness from prosecution in any matter concerning which he may testify in obedience to a subpena of the Commission. It is proposed to amend this paragraph by providing (p. 15, lines 3-4) that this immunity shall not attach to a witness except where he shall have claimed his privilege prior to testifying or producing evidence. His making the claim prior to actually giving the testimony or producing the evidence would put the Commission on notice that he intends to claim immunity, in time for the Commission to decide whether the public interest would better be served by granting him the immunity or by foregoing his testimony or the production
of evidence by him. This provision is found in the Securities Exchange Act (sec. 78 u (d), title 15, U. S. C. A.).
This report is transmitted to you in duplicate for your convenient use.
GARLAND S. FERGUSON, Jr.,
[S. Rept. No. 221, 75th Cong., 1st sess.) AMENDMENTS TO FEDERAL TRADE COMMISSION ACT
The Committee on Interstate Commerce, to whom was referred the bill (S. 1077) to amend sections 1, 4, 5, 6, and 9 of the Federal Trade Commission Act, having considered the same, report the bill back to the Senate, with the recommendation that the bill do pass.
This bill, as reported by your committee, is identical to S. 3744, which was unanimously passed by the Senate on May 4, 1936. Hearings were held on S. 3744 during the Seventy-fourth Congress and the committee made several amendments to S. 3744 as a result. All such amendments and an additional amendment made on the floor of the Senate were adopted by the Senate last year and included in the present S. 1077 which is therefore reported without further amendment.
A brief explanation of the nature of the functions of the Federal Trade Commission will be helpful to the consideration of the amendments under this bill.
Under section 5, unfair methods of competition are declared unlawful and upon complaint the Commission is empowered to investigate and to call the parties before it for a hearing on the complaint. The Commission then either dismisses the complaint, or issues an order against the respondent to cease and desist from the specific trade practice which the Commission finds to be an unfair method of competition under the order.
The procedure is unlike that under the Pure Food and Drug Act or the Postal Statutes, in that it is merely preventive and cooperative rather than penal. An appeal from the order of the Commission can be taken to any circuit court of appeals, and the court, to quote from the Act, "shall have
jurisdiction to affirm, set aside, or modify the order of the Commission.” If the respondent violates the cease and desist order of the Commission, the latter must go to the court for enforcement of the order, and the same right of review, affirmation, modification, or setting aside is given to the court at this stage of the proceeding. constitutes an unfair method of competition, or, under the proposed legislation,
Under section 5 the Commission is a quasi-judicial body in determining what constitutes an unfair method of competition, or, under the proposed legislation an unfair or deceptive act or practice. This power was given to the Commission under the original act, rather than to attempt to define in the statute all the different unfair practices. On June 13, 1914, the Senate Committee on Interstate Commerce in reporting the bill used the following language:
"The committee gave careful consideration to the question as to whether it would attempt to define the many and variable unfair practices which prevail in commerce and to forbid their continuance or whether it would by a general declaration condemning unfair practices, leave it to the Commission to determine what practices were unfair. It concluded that the latter course would be the better, for the reason, as stated by one of the representatives of the Illinois Manufacturers' Association, that there were too many unfair practices to define, and after writing 20 of them into the law it would be quite possible to invent others."
It must be noticed in the above quotation that the committee was concerned with the elimination of unfair practices, and the phrase "unfair methods of competition” was adopted as the expression of policy behind the legislation. However, in the course of the past two decades during which the courts have considered and defined the jurisdiction of the Commission, the judicial construction placed on the words “methods of competition” has forced the Commission to prove competition and injury to competitors before it could order that the unfair methods be stopped.
The committee is of the opinion that the Commission should have jurisdiction to restrain unfair or deceptive acts and practices which deceive and defraud the public generally without being put to the necessity of proving that the competitors of the offender have suffered monetary damage.