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FAILS TO MEET PRESIDENT'S VIEW

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President Roosevelt, in his message of March 22, 1935, regarding the necessity for food and drug legislation, made the following statement as to the need for advertising control, after having outlined the need for revision in the present food and drug law :

"It is time to make practical improvements. A measure is needed which will extend the controls formerly applicable only to labels to advertising also;

From this it is perfectly clear that the President had in mind the need for enforcement of prohibitions against false advertisements of food, drugs, devices, and cosmetics by appropriate penalties of a character comparable to those which have been in the Food and Drug Act for 30 years. Under that act enforcement has not been only by the seizure of falsely labeled articles but also by criminal penalties.

It was urged in the committee, and it is now strongly urged, that once the dissemination of false advertisements has been prohibited the only effective means of enforcement is to provide appropriate penalties. Unless the disseminator of a false advertisement knows at the time of the dissemination that he may at some time in the future be held accountable by a criminal or civil penalty action for the unlawful dissemination, he will not be deterred from such dissemination. It is just this deterring effect that is lacking when dependence is placed upon the cease-and-desist order for enforcement.

WEAKNESS OF CEASE-AND-DESIST ORDER

The cease-and-desist-order machinery will not be effective to protect the public against false and misleading advertisements of these articles. This was demonstrated by exhibits before the committee consisting of cease-and-desist orders against certain false advertising, and advertisements subsequently appearing over a period of years conveying essentially the same false representations prohibited by the orders. The Federal Trade Commission, acting under its authority to prevent unfair methods of competition, has been active against false advertising of food, drugs, devices, and cosmetics for a number of years. The frequency with which false advertisements have been disseminated for the same products previously covered by cease-and-desist orders, particularly in many of the lower-grade magazines and in the programs of certain radio stations, would seem to demonstrate the ineffectiveness of the cease-and-desist-order machinery in the case of false advertising. This is in no way a criticism of the Federal Trade Commission or its personnel, or of its diligence in enforcing the law under which it operates. No governmental agency has executed its functions more efficiently or more courageously. But it is a recognition of the fact that the method of procedure under which the Commission operates is subject to limitations which make it ill adapted to coping with false advertising as it is conducted today.

An impartial appraisal of the effectiveness of the cease-and-desist order as contrasted with enforcement by appropriate penalties is contained in an authoritative work entitled "The Federal Trade Commission,” by Gerard C. Henderson (1924). This book was published under the sponsorship of the Commonwealth fund, under the supervision of a legal research committee composed of some of the foremost legal authorities of the country, including Mr. Justice Cardozo and Mr. Justice Stone, now members of the Supreme Court of the United States. In Mr. Henderson's book the following statement appears :

“Looking at the matter from a more critical viewpoint, however, it becomes apparent that there are certain limitations in the powers of the Commission and certain obstacles in its procedure which impair its usefulness in some of the cases involved.

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“The second limitation which suggests itself, is that the Commission should not, except in special cases, institute proceedings where the practice in question falls within the scope of the Pure Food and Drugs Act, or of similar Federal legislation. The reason is that in such cases the law confers on the Department of agriculture powers in many ways more effective than those of the Federal Trade Commission, and that the Department has a scientific personnel more competent to deal with the technical questions involved. The Food and Drugs Act of June 30, 1906, makes it unlawful to manufacture in any Territory or in the District of Columbia, or to ship in interstate or foreign commerce, any article of food or any drug which is 'adulterated or misbranded.' The words 'adulterated' and 'misbranded' are comprehensively defined, and it is obvious that the definitions are framed with an eye to practical administration as well as scientific accuracy. They cover every conceivable case of misrepresentation as to the ingredients, strength, quality, or purity of a drug or food product, or (by an amendment added in 1912) as to its curative or therapeutic effect; and all cases of misbranding, including imitation of the distinctive name of another article, misstatement as to weight, measure, or numerical count, and misrepresentation as to the State, Territory, or county in which the article is produced. In its enforcement the act has great advantages over the cumbersome procedure of the Federal Trade Commission. One who violates the act may be criminally prosecuted, whereas the Federal Trade Commission can only order him to cease and desist, without even forfeiting the unlawful gains derived from the violation. An adulterated or misbranded article, if transported in violation of the law, may be libeled and forfeited in proper proceedings, whereas there is nothing in the Federal Trade Commission Act to prevent a dealer who has been ordered to cease from shipping certain misbranded articles in interstate commerce, from selling them to another dealer in the same State. The latter can ship them with immunity, so far as the Federal Trade Commission Act is concerned, until the Commission's procedure has again set in motion and a new order issued and confirmed by the Court. As a police measure the Food and Drugs Act is therefore vastly superior to the Trade Commission law.”

It is not difficult to foresee how impossible it will be to effectively control false advertising of food, drugs, devices, and cosmetics through the cease and desist order machinery. A manufacturer, let us assume, puts an advertisement in a number of magazines and newspapers and broadcasts the advertisements over the radio. By this means the advertisement is quickly brought to the attention of millions of persons all over the country.

The first move of the Federal Trade Commission would be to decide that it has reason to believe that the advertisement is false or misleading, and normally it only would be able to come to this conclusion after getting evidence and expert advice with regard to the matter from the technicians of the Food and Drugs Administration, unless a duplicate technical staff is to be established.

Having come to its conclusions, the Commission would serve upon the manufacturer a complaint and fix a date for a hearing which must be at least 30 days after the service of the complaint. At the proceeding the testimony would be reduced to writing and filed in the office of the Commission, and if the Commission found that the advertisement was false, it would have to make a report in writing in which it stated its findings as to the facts and would cause to be served upon the manufacturer an order requiring him to cease and desist from the dissemination of the false advertisement.

Only after the order had become final, probably after long delay in the courts, would it be necessary for the person complained against to stop disseminating the advertisement. During the time all of this procedure is being complied with, which in the ordinary course would involve the lapse of many months and sometimes many years, the manufacturer would be able to disseminate the particular advertisement freely and for a much longer period than he desired. Everyone is aware of the frequency with which advertisements are changed in modern times. Ordinarily they change from week to week.

Even after the order became effective, the false information or claims contained in the advertisement would still repose in the minds of the millions of persons who had read or listened to or been told about the claims made in the ad. vertisement. And the manufacturer will have reaped the benefits of the false advertisement without the slightest fear of a penalty of any kind.

And after the order becomes effective the advertiser can change his advertising claims, or change the composition of the article, and repeat the process all over again. Therefore, in the absence of a possible penalty to act as a deterrent, the racketeering fringe, which has created the necessity for effective advertising control, is in nowise hampered in its depredations on public health and the consumer's pocketbook.

INJUNCTION WILL NOT PROTECT PUBLIC

The bill provides that the Commission may, whenever it has reason to believe that any person is disseminating or about to disseminate a false advertisement, seek an injunction against the dissemination pending the action of the Commission on a cease-and-desist order, but this provision has been limited by pro

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viding that the Commission is to ask for such injunction only if it believes that the issuance of such injunction "would be to the interest of the public.” When it is borne in mind that an advertisement is not, under the definition in the bill, false advertisement unless it is misleading in a material respect, there seems no justification for giving the Commission the authority to decide, according to how it happens to feel about the effect on the public, that it will not seek to have the dissemination of such advertisement enjoined. Under such circumstances the bill should have made it the duty of the Commission in every such case to seek an injunction.

Furthermore, even if the Commission decides that the public interest will be served by seeking an injunction, it can only do so after it has made substantially the same determinations, with the incident delays, that it would have to make before deciding to issue a cease-and-desist order. This involves, as in case of proceedings looking toward a cease-and-desist order, the necessity for seeking the experienced counsel of the Food and Drug Administration unless, as has been previously suggested, it is intended to set up in the Federal Trade Commission a duplicate technical staff.

It will thus be seen that the injunction, in this situation, is a slow and uncertain method of enforcement.

NARROW APPLICATION OF PENALTIES

From the foregoing it is obvious that the only effective means of preventing false advertisements is to enact provisions under which the unscrupulous would be deterred from violation by a knowledge that risk of penalty is involved for each offense.

But the bill provides a penalty for the dissemination of a false advertisement only where the “use of the commodity advertised may be injurious to health because of results from such use, or if the violation is with intent to defraud or mislead." While this provision on its face may appear to be a strong enforcement provision, it is of very limited application and will not cover the great bulk of misleading food, drug, device, and cosmetic advertisements. The cases of injury to health resulting from the medicine itself are unusual. They are in the comparatively rare cases of patent-medicine advertising where the product contains dangerously potent drugs. While there are occasional cases of this kind, the great bulk of patent-medicine advertising is in the case of products that are innocuous, like the tuberculosis cure which was a simple liniment, or the diabetes cure which was a brew of horsetail weed. These are the commodities responsible for most of the damage to health resulting from false advertising. Persons relying upon the unconscionable claims made in such false advertising unknowingly permit the disease to progress unchecked instead of seeking rational treatment by physicians. There have been many cases where persons who could have been cured by proper treatment have sunk to such a low condition while relying upon such worthless concoctions that their cases have become hopeless. Nevertheless, under this bill the penalty will not apply to such advertisements.

It is also going to be of little help to consumers to have the criminal penalty apply in cases where the violation is with intent to defraud or mislead. The effect of a false advertisement on the consumer is the same whether the intent of the advertiser is good or bad. The difficulty of proof of wrongful intent and the inadequacy of control where such proof is required have been demonstrated through 25 years of enforcement of the amendment to the Food and Drugs Act applicable to patent medicines. This provision (the repeal of which was approved by both Houses of Congress during the last session in the bill that failed in conference) requires the Government to prove that curative claims: on labels are both false and fraudulent, thus making it necessary to prove wrongful intent. Efforts to enforce this provision have too frequently been futile and have always been inordinately expensive because of the long-drawnout investigations necessary to acquire proof of what was in the manufacturer's mind. If for no other reason than that of expense alone, proceedings under the law here proposed will, it is predicted, ordinarily be by the ineffective ceaseand-desist-order method.

One reason advanced in committee for providing penalties only in the limited classes of cases indicated above was that the definition of "false advertisement" is so broad and sweeping that the result would be that advertisers would find themselves in the position of incurring penalties even though they were innocent

of any wrongful intent and had no knowledge of having violated the law. This view seems hardly to be in accord with the realities of the situation. Certainly advertisers should know enough about the representations and claims they make to know whether they are justified by the facts. Surely this is not an unreasonable requirement to impose upon the small minority in the food, drug, device, and cosmetic field whose unscrupulous methods of advertising make this legislation necessary. The great majority of advertisers in these industries have nothing to fear from the requirements of this legislation, because the standard of conduct it sets up is no higher than that they have already set up for themselves. The definition is no broader than is necessary for public protection.

VIRGIL CHAPMAN.
EDWARD A. KENNEY.
CARL E. MAPES.

[Conference Report]

HOUSE OF REPRESENTATIVES
[H. Rept. No. 1774, 75th Cong., 3d sess.)

AMENDMENTS TO FEDERAL TRADE COMMISSION ACT

The committee of conference on the disagreeing votes of the two Houses on the amendment of the House to the bill (S. 1077) to amend the act creating the Federal Trade Commission, to define its powers and duties, and for other purposes, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows:

That the Senate recede from its disagreement to the amendment of the House and agree to the same with an amendment as follows:

In lieu of the matter proposed to be inserted by the amendment of the House, insert the following: That section 1 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 (U. S. C., 193, ed., title 15, sec. 41), is hereby amended by inserting before the period at the end of the third sentence thereof a colon and the following: Provided, however, That upon the expiration of his term of office a Commissioner shall continue to serve until his successor shall have been appointed and shall have qualified.

Sec. 2. Section 4 of such Act, as amended (U. S. C. 1934 ed., title 15, sec. 44), is hereby amended to read as follows:

Sec. 4. The words defined in this section shall have the following meaning when found in this Act, to wit:

'Commerce means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation.

Corporation shall be deemed to include any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, which is organized to carry on business for its own profit or that of its members, and has shares of capital or capital stock or certificates of interest, and any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, without shares of capital or capital stock or certificates of interest, except partnerships, which is organized to carry on business for its own profit or that of its members.

* Documentary evidence includes all documents, papers, correspondence, books of account, and financial and corporate records.

“ 'Acts to regulate commerce' means the Act entitled 'An Act to regulate commerce', approved February 14, 1887, and all Acts amendatory thereof and supplementary thereto and the Communications Act of 1934 and all Acts amendatory thereof and supplementary thereto.

Antitrust Acts' means the Act entitled 'An Act to protect trade and commerce against unlawful restraints and monopolies', approved July 2, 1890; also sections 73 to 77, inclusive, of an Act entitled 'An Act to reduce taxation, to provide revenue for the Government, and for other purposes', approved August 27, 1894; also the Act entitled 'An Act to amend sections 73 and 76 of the Act of August 27, 1894, entitled “An Act to reduce taxation, to provide revenue for the Government, and for other purposes', approved February 12, 1913; and also the Act entitled 'An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes', approved October 15, 1914."

Sec. 3. Section 5 of such Act, as amended (U. S. C., 1934 ed., title 15, sec. 45), is hereby amended to read as follows:

Sec. 5. (a) Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are hereby declared. unlawful.

The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks, common carriers subject to the Acts to regulate commerce, and persons, partnerships, or corporations subject to the Packers and Stockyards Act, 1921, except as provided in section 406(b) of said Act, from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.

(6) 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 person, 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 the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time, or, if a petition for review has been filed within such time then until the transcript of the record in the proceeding has 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. After the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time, the Commission may at any time, after notice and opportunity for hearing, reopen and alter, modify, or set aside, in whole or in part, any report or order made or issued by it under this section, whenever in the opinion of the Commission conditions of fact or of law have so changed as to require such action or if the public interest shall so require: Provided, however, that the said person, partnership, or corporation may, within sixty days after service upon him or it of said report or order entered after such a reopening, obtain a review thereof in the appropriate circuit court of appeals of the United States, in the manner provided in subsection (c) of this section.

"(c) Any person, partnership, or corporation required by an order of the Commission to cease and desist from using any method of competition or act or practice may obtain a review of such order in 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, by filing in the court, within sixty days from the date of the service of such order, a written petition prauing 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 entire record in the proceeding, including all the evidence taken and the report and order of the Commission. Upon such filing of the petition and transcript the court 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 de

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