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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 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. 78u (d), title 15, U. S. C. A.).
This report is transmitted to you in duplicate for your convenient use.
GARLAND S. FERGUSON, Jr.,
[H. Rept. No. 1613, 75th Cong., 1st sess.] EXTENSION OF FEDERAL TRADE COMMISSION'S AUTHORITY OVER UNFAIR ACTS ANI)
PRACTICES AND FALSE ADVERTISING OF FOOD, DRUGS, DEVICES, AND COSMETICS
The Committee on Interstate and Foreign Commerce, to whom was referred the bill (S. 1077) to amend the act creating the Federal Trade Commission, to define its powers and duties, and for other purposes, having considered the same, report favorably thereon, with an amendment and recommend that the bill as amended, do pass.
The amendment consists of striking out all after the enacting clause and inserting a substitute bill.
The bill as passed by the Senate amended sections 1, 4, 5, 6, and 9 of the Federal Trade Commission Act. As reported here it amends only section 5 of the present act, and adds new sections, not in the Senate bill, dealing with control of advertising of food, drugs, devices, and cosmetics. The amendments to sections 1, 4, 6, and 9 were not included by this committee as it was felt that there was no pressing need for them at this time.
GENERAL PURPOSE OF PROPOSED LEGISLATION
Outside of procedural matters there are two general purposes of this legislation.
The first is to broaden the powers of the Federal Trade Commission over unfair methods of competition by extending its jurisdiction to cover unfair or deceptive acts or practices in commerce.
The second general purposes is to provide the Commission with more effective control in the exercise of its jurisdiction over false advertisements of food, drugs, devices, and cosmetics.
More specifically, it is proposed to amend section 5 of the Federal Trade Commission Act and add several new sections to said act.
The proposed amendments to section 5 are:
(1) An amendment making “unfair or deceptive acts or practices in commerce" unlawful.
(2) An amendment making an order of the Commission to cease and desist final upon the expiration of the time allowed for filing a petition for review, if no such petition has been filed within such time.
(3) Procedural amendments fixing the time when the Commission's orders to cease and desist shall become final where they are reviewed by the courts.
(4) A provision fixing a civil penalty of not to exceed $5,000 for each violation of an order of the Commission to cease and desist, after such order has become final and while it is in effect.
(5) A provision exempting from the act persons subject to the Packers and Stock Yard Act, 1921, except as provided in said act.
The amendments to the Federal Trade Commission Act by way of new sections are:
(1) Section 12, which prohibits dissemination of any false advertisement, through the mails or in commerce, for the purpose of inducing, or which is likely to induce the purchase of food, drugs, devices, or cosmetics; or the dissemination of any such advertisement, by any means, for the purpose of inducing, or which is likely to induce, the purchase in commerce of such commodities.
(2) Section 13, which authorizes, in certain cases, the enjoining of the dissemination of such advertisements pending the issuance of and action upon a complaint by the Commission and its review by the courts.
(3) Section 14, which provides that a violation of section 12 shall, if the use of the commodity advertised may be injurious to health because of results from such use, or if such violation is with intent to defraud or mislead, be a misdemeanor, punishable by a fine of not more than $5,000 or by imprisonment for not more than 6 months, or by both such fine and imprisonment; with the further proviso that if the conviction is for a violation committed after a first conviction the fine be not more than $10,000, and imprisonment not more than 1 year, or both.
(4) Section 15, which defines the terms "false advertisement," "food," "drugs," "device,” and “cosmetic."
(5) Section 16, which provides that whenever the Commission has reason to believe that any person, partnership, or corporation is liable to a penalty under section 14 or under subsection (1) of section 5, it shall certify the facts to the Attorney General, whose duty it shall be to cause appropriate proceedings to be brought for the enforcement of the provisions of such section or subsection.
(6) Sections 17 and 18, which provide the usual separability clause and fix the date' when certain provisions of the act are to take effect.
UNFAIR OR DECEPTIVE ACTS
The Federal Trade Commission Act has not been amended since its passage in 1914. The experience of the Commission has demonstrated the need of broader powers and more effective procedural methods such as are proposed in this bill.
The words “unfair methods of competition" in section 5 have been construed by the Supreme Court as leaving the Commission without jurisdiction to issue cease and desist orders where the Commission has failed to establish the existence of competition. In other words, the act is construed as if its purpose were to protect competitors only and to afford no protection to the consumer without showing injury to a competitor. Thus, if a person, partnership, or corporation has a monopoly in a certain field, so that there is no competitor, his acts, no matter how deceptive or misleading and unfair to the consuming public, may not be restrained. Similarly, where all of those engaging in a particular line of commerce are participating in the same unfair method, the Commission may be powerless to act for consumer's protection.
In a recent case involving the alleged false and deceptive advertising of a drug ,where the Commission had issued its order to cease and desist, the 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 (Federal Trade Commission v. Raladam Co., 283 U. S. 643).”
In that case the Court further stated that although two of the three essentials to jurisdiction were present namely, (1) that the methods complained of were unfair, and (2) that a proceeding by the Commission to prevent the use of the methods appeared to be in the interest of the public, the Commission was deprived of jurisdiction to proceed because it had not established the third essential, namely, that the unfair methods in question were “methods of competition in commerce."
By the proposed amendment to section 5, the Commission can prevent such acts or practices which injuriously affect the general public as well as those which are unfair to competitors. In other words, this amendment makes the consumer, who may be injured by an unfair trade practice, of equal concern, before the law, with the merchant or manufacturer injured by the unfair methods of a dishonest competitor.
This amendment will also enable the Commission to act more expeditiously and save time and money now required to show actual competition and the injurious effect thereon of the unfair methods in question.
At the present time, both the investigation of unfair methods of competition and in actual proceedings after the issuance of a formal complaint, the Commission must develop this jurisdictional prerequisite, even though the methods or practices involve representations that are flagrantly false or deceptive and dangerously injurious to the purchasing or consuming public.
Representatives of the Commission appearing before the committee stated that competition and injury to a competitor can be established in almost every case, but that considerable time and money must be expended in many cases in order to do so. Since it is the purpose of Congress to protect the consumer as well as the honest competitor, the Commission should be empowered to prevent the use of unfair or deceptive acts or practices in commerce, regardless of whether such acts or practices injuriously affect a competitor.
The provision exempting persons subject to the Packers and Stockyards Act except as provided in that act conforms to the existing practice and assures no change in view of the amendments to the Federal Trade Act. The Federal Trade Commission would retain its existing jurisdiction under the provisions of the Stockyards Act.
PROCEDURE AND PENALTIES The provisions of subsections (g) to (k) of section 5, inclusive, are for the purpose of making definite and certain when the Commission's orders to cease and desist become final, and are similar to those found in the Revenue Act of 1926, fixing the time when the orders of the Board of Tax Appeals become final.
Subsection (1) provides that any person, partnership, or corporation who fails to obey an order of the Commission to cease and desist after it has become final, and while it is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation, which shall accrue to the United States and may be recovered by a civil action brought by the United States. The object of the provision is to enforce obediance to the Commission's orders to cease and desist after such orders have become final through approval of the courts or through the failure of respondents to seek review. Similar provisions are contained in the Packers and Stockyards Act of 1921 (sec. 195, title 7, U. S. C. A.) and in the Securities Exchange Act of 1934 (sec. 78y (a), title 15, U. S. C. A.).
Salesmanship and advertising are inextricable from the promotion and operation of business under our economic system. They have the common purpose of inducing the purchase of the seller's product. It is the case of the advocate boosting his own cause. Common experience discounts statements of a zealous advocate and weighs his declarations in the light of his own self-serving financial purposes. Reasonable latitude must be conceded to the salesman and advertiser in boosting his own product.
It is not the purpose of this committee to ignore the realities of this situation.
On the other hand, we cannot ignore the evils and abuses of advertising; theimposition upon the unsuspecting; and the downright criminality of preying upon the sick as well as the consuming public through fraudulent, false, or subtle misleading advertisements.
The need of amending the existing act to give the Federal Trade Commission more effective control over advertising as an unfair practice, is urgent and" manifest.
The provisions of this bill covering false advertising are far reaching but we believe entirely warranted, necessary for the effective control of illegitimate advertising and yet drawn with due regard to the rights of legisimate advertising. We believe the legislation is based on necessity and sound reason and that due discrimination has been made in applying penalties to fit the varying magnitude of the offenses involved.
AMENDMENTS AS TO ADVERTISING
Among the most obvious ne of the Federal Trade Commission Act are those of giving more effective control of advertisements affecting the public health and fraudulent impositions as to its food and medicinal supplies.
The advertisement amendments to this bill revolve around the definition of a "false advertisement” in section 15. A false advertisement is defined as one "which is misleading in a material respect.” Certain specified matters are to be considered in determining whether or not an advertisement is misleading. This definition is very broad. It will be noted that a fraudulent intent is not a necessary element of a false advertisement. The essential elements of a false advertisement are that it is misleading, and misleading in a material respect. It places on the advertiser the burden of seeing that his advertisement is not misleading.
The definition is broad enough to cover every form of advertisement deception over which it would be humanly practicable to exercise governmental control. It covers every case of imposition on a purchaser for which they could be a practical remedy. It reaches every case from that of inadvertent or uniformed advertising to that of the most subtle as well as the most vicious types of advertisement.
Obviously, a definition to be applied to the infinite variety of advertisements disseminated regarding thousands of different foods, drugs, devices, and cosmetics must be general in its terms. There will be difficulties and uncertainties of interpretation just as there have been in the case of provisions of the Federal Trade Commission Act, the Food and Drug Act, and the antitrust laws, and other laws prescribing in general terms standards of conduct to be applied to innumerable factual situations. These difficulties are inherent in the problem but should not prevent necessary and adequate consumer protection.
It will be observed that it is not mandatory on the advertiser to state anything. The only requirement is in case he does advertise, he shall not.make statements that are misleading in a material respect.
It is incumbent on the advertiser to reveal facts material in the light of representations made in the advertisement.
The Federal Trade Commission has the machinery and trained personnel to investigate in a proceeding against false advertising of all industries and all commodities. The common motive of false advertisement is the same in every line of industry, to gain an economic advantage through defrauding or misleading the purchaser. This method of protecting the public should be harmonized and unified under one organization with consistent and uniform methods of enforcement and penalization. Efficiency, uniformity, and economy suggest this course. This legislation is framed with that purpose in mind.
The Federal Trade Commission as an independent quasi-judicial body, has a procedure better calculated to handle multitudinous types of advertising and to do its work to the greater confidence and satisfaction of the public than any purely administrative body. Its work carries with it the combined elements of searching investigation, orderly procedure, prevention rather than penalization in minor cases, and that judicial fairness that is essential to the enlistment of confidence by the public.
FITTING PENALTIES TO THE OFFENSE
Having adopted this far-reaching definition of false advertisements, your committee attempted, so far as practicable, to provide remedies and penalties therefor in proportion to the offenses involved.
Manifestly all the various types and degrees of offenders under such a broad definition could not justly be placed in one common mold for the purpose of penalization. Therefore, the committee has recommended the different procedures and penalties provided in this act.
For the offender whose transgression is trivial, inadvertent, or innocent of law. offending purpose, the regular procedure of the Federal Trade Commission through a cease-and-desist order can be followed. The discretion that the Commission has under its direction to act where it appears to the Commission “that a proceeding by it in respect thereof would be to the interest of the public" will permit the effective and simple handling of this vast class of minor infractions. Such a procedure is particularly fitting where the accused is without wrongful purpose and desirous of conducting his business in compliance with the law.
In cases where the accused persists in the dissemination of a misleading advertisement after complaint, the Commission is given a prompt method of procedure to prevent the continuance of the offense by a temporary injunction issued by the court under section 13. For proper cause shown, this injunctive process can apply against a threatened dissemination of the advertisement and can be broad enough to prevent evasions of the order through technical changes in advertisements.
The amendments proposed further provide for a more effective prevention of misleading advertisements by procedural changes under cease-and-desist orders as now practiced. The order of the Commission would definitely become final as provided in section 5 and become operative as to further transgressions without the initiation of new proceedings as now required after the violation occurs.
Under section 5 (1) as amended, a violation of a cease-and-desist prder after it becomes final will entail a civil penalty of not more than $5,000 for each violation.
To cover the grosser cases of false advertising, in addition to existing penalties, it is provided in section 14 that where the advertisement is to induce the purchase of an article which may be injurious to health because of the result of such use, and also in cases where such advertisement is with intent to defraud or mislead, the offense shall be prosecuted as a crime and punishable by imprisonment for not more than 6 months or a fine of not more than $5,000 or by both. For a second offense after a first conviction, the penalty is a fine of not more than $10,000 or imprisonment by not more than 1 year or both.
These criminal offenses will not be prosecuted by the Federal Trade Commission, but through the Department of Justice. The Commission will report the facts to the Attorney General for appropriate proceedings.
The dissemination of such false advertisements is declared to be an unfair or deceptive act or practice in commerce within the meaning of section 5 of the Federal Trade Commission Act.
Food, drugs, devices, and cosmetics are within the terms of these advertising sections.
Speaking generally, "devices" within the terms of the act means instruments and contrivances intended for use in the cure or treatment of disease.
"Devices" are included within the bill because of their close association with drugs as a means for the treatment of physical ills.
“Cosmetics” are brought within the provisions of the bill because in many instances cosmetics are injurious to health and produce physical injuries to the body.
Disseminators of advertisements including publishers and radio broadcasters are afforded a proper exemption under section 14 (b) as to avoid unwarranted hardship on the person who has conducted his business with proper prudence.
A problem of some difficulty exists in the case of advertisements where there are differences of opinion. Perhaps the problem is most acute in the case of claims regarding the curative effect of drugs. The difficulty has two aspects— one of policy and the other of congressional power.
As to the policy, there is no intention to punish an advertiser for making a statement which he had good reason to believe was true, if made in such manner