AMEND FEDERAL TRADE COMMISSION ACT

TUESDAY, MARCH 5, 1946

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C.

The subcommittee reconvened at 10 a. m., Hon., George G. Sadowski, chairman of the subcommittee, presiding.

Mr. SADOWSKI. The subcommittee will come to order.

STATEMENT OF RICHARD P. WHITELEY, ASSISTANT CHIEF COUNSEL, FEDERAL TRADE COMMISSION

Mr. WHITELEY. Mr. Chairman, at the session last Thursday, just before the closing of the session, I gave my name and position with the Commission. I believe the record already contains that, and I will begin with my prepared statement.

Mr. Chairman and members of the committee, I shall address my-. self primarily to the proposed section 2 of H. R. 2390, which deals with civil penalties and amends the present act so as to read as follows:

(1) Any person, partnership, or corporation who violates an order of the Commission to cease and desist after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $1,000 for each violation, not to exceed the sum of $10,000 in the aggregate, which shall accrue to the United States and may be recovered in a civil action brought by the United States.

Under the present law; that is, the Wheeler-Lea amendment adopted in 1938, there is a maximum penalty provided of $5,000 for each violation with no aggregate limitation. The proposed amendment would provide a maximum penalty of $1,000 for each violation, with a further provision that the aggregate civil penalty in any one case shall not exceed the sum of $10,000.

Since the passage of the Wheeler-Lea amendments, approved March 21, 1938, penalties and costs for the violation of cease and desist orders issued by the Federal Trade Commission have been assessed in 41 cases. As the committee is well aware, proceedings for the recovery of civil penalties are brought under the direction of the Attorney General by the several United States attorneys in Federal district courts.

The following table gives the name of the respondent in each of the 41 cases, the commodity involved, the United States district court in which the penalty proceeding was brought, the amount claimed in the bill of complaint, and the penalty and costs assessed in each

case.

I ask that this table be incorporated as a part of my remarks at this point so that it will be available to the committee, but I shall not take the committee's time to recite the above-stated details of each case.

(The table referred to is as follows:)

Mr. WHITELEY. I do desire to call the attention of the committee to the fact that in only one of the 41 cases has the penalty assessed by the district court exceeded the aggregate of $10,000 which is sought to be imposed as a limitation in the proposed amendment. This was in a particularly aggravated case in which an individual in Bergen County, N. J., who called himself "Dr. Emile Carpentier," manufactured and sold a product called "TB compound," a proprietary preparation, advertised as a cure for tuberculosis of the lungs, larynx, bones, intestines, kidneys, and brains, and as a cure for chronic bronchitis, colitis, chronic gastritis, and for ulcerated duodenum, stomach, and intestines. The Commission found that this so-called TB compound had no curative, remedial, or therapeutic value in the treatment of the various types of tuberculosis, or in the treatment of the other ailments for which it was recommended, that no one had been cured of tuberculosis by its use, and that physicians had not successfully prescribed it in the treatment of patients, all of which claims had been made by respondent. The Commission further found that the respondent was not a doctor of medicine, had never had any medical training, had never served as an interne in any hospital, or been connected with the medical profession in any way other than as an orderly in hospitals. It also found that he maintained no office or place of business where the condition of purchasers or prospective purchasers of his compound might be determined. The bill of complaint filed by the United States attorney asked the imposition of penalties totaling $15,000, and the court assessed aggregate penalties of $15,000, plus court costs of $29.21.

In every other case, although the amounts claimed for violations extended from $5,000 in several cases to as high as $95,000 in one case where there were numerous and constant violations, the aggregate penalties assessed varied from as low as $40 to as high as $5,000. Manifestly, had the limitation sought to be imposed by the pending amendment been a part of the present law, the amounts claimed in the several bills would have been much smaller and the penalties assessed would have been correspondingly less. The Carpentier case referred to above and one other involving a medicine falsely advertised were the only 2 of the 41 in which the amount sought in the bill of complaint was allowed by the district court.

I think these figures show conclusively that there is no fear that the courts will "run wild" and assess huge amounts as penalties, or that, as one witness before the committee stated, "astronomical figures could be assessed." The courts take into consideration before assessing penalties both the gravity of the offense and the ability of the defendant to pay. This accounts for the rather small penalties assessed in several of the cases listed above.

On the other hand, if the maximum penalty for each violation were reduced from $5,000 to $1,000, with an aggregate limitation of $10,000 for all vlolations, however numerous and continuous they may have been, the courts would be powerless to assess adequate penalties against large corporations and others engaged in price-fixing or other activities in restraint of trade for violations of the Commission's orders to cease and desist. In some of such cases whole industries are involved, and the practices sought to be prohibited might easily have resulted in very considerable profits. In such a case, the public interest would

be served only if penalties sufficiently substantial to constitute a real deterrent were assessed. Penalties as small as the proposed amendment provides would only lend encouragement to continuing violations, and in effect operate as a license to violate the law.

I think it is not necessary to make any further reference to the proposed change with respect to civil penalties. The pending bill does not provide any amendments to section 13 with respect to temporary injunctions and section 14 with respect to criminal prosecutions, but I want to make a very brief reference to those two sections, to show that the Commission and the Attorney General have been very reasonable in the application of the provisions of those two sections.

One of the provisions in the amendments adopted by Congress to the Federal Trade Commission Act in 1938 was section 13, with respect to the securing of a temporary injunction in cases where the Commission, pending the trial of a case before it, has reason to believe that the injunction of the dissemination of any false advertisement of a food, drug, device, or cosmetic in violation of section 12 would be in the interest of the public.

The Commission has used this injunction authority sparingly, and has applied for it in 38 instances only. Thirty-seven of the applications were granted, and that the thirty-eighth should have been granted was demonstrated by the fact that as the result of the Commission's trial of the case, an order to cease and desist was issued against respondent, which order has since become final.

Under section 14 of the Commission's act, also one of the provisions of the Wheeler-Lea amendments of 1938, it is provided that any person violating any provision of section 12 (a) with respect to the dissemination of a false advertisement shall, if the use of the commodity advertised may be injurious to health because of results from such use under the conditions prescribed in the advertisement thereof or under such conditions as are customary or usual, or if such violation is with intent to defraud or mislead, be guilty of a misdemeanor punishable by a fine or imprisonment or both. In one instance only has the Commission applied to the Attorney General for criminal prosecution under section 14, and in that case the defendant was convicted and a fine of $1,000 was imposed.

I make these references both to the injunction and criminal proceedings to show that the Commission has been very sparing in exercising the authority granted it under its act, and has never sought the institution of proceedings in any injunction or criminal case, with the single exception of the injunction above referred to, in which the prosecution was not successful, and all of these proceedings in the civil penalty cases and the injunction cases and in the single criminal prosecution were proceedings before Federal district courts.

At this time I should like to correct a misunderstanding that may have arisen in the minds of the committee as the result of the testimony of one of the witnesses who appeared in support of the provisions of the bill, Mr. Isaac W. Digges, attorney, of New York City. In response to a question by a member of the committee as to whether, in the trial of cases before the Commission, the employees of other Federal agencies are equally available to the Commission and the respondent, Mr. Digges replied that he had had only one experience in that regard; that he had desired in behalf of a respondent to secure the testimony of a representative of the Bureau of Standards which was

thought to be important. Mr. Digges further stated that the representative, in reply to an inquiry from him, said that he could not testify for respondent without the prior consent of the Federal Trade Commission that there was an interdepartmental rule of comity in that respect. In answer to a further question of another member of the committee as to whether he did not have the power of subpena in behalf of his client, Mr. Digges correctly stated that plain subpenas might be issued either upon request to the trial examiner or to the Secretary of the Commission, and that he had never had any experience of such a subpena being unreasonably withheld. Upon a further question from the committee as to whether the witness from the Bureau of Standards appeared, Mr. Digges stated:

No, sir. The consent and the permission of the trial counsel was not forthcoming, and I didn't get him.

As the inability to secure the testimony of the witness, under the circumstances outlined by Mr. Digges, would amount to a denial of due process to respondent, on the day after Mr. Digges testified, I had the following letter written by one of my assistants to Mr. Digges:

DEAR MR. DIGGES: Mr. Whiteley has requested that I secure from you some information, if possible, in connection with the incident that you mentioned yesterday in your testimony at the hearings on the Reece bill when you testified in substance that upon an attempt to secure from the National Bureau of Standards of the Department of Commerce a witness to testify in a proceeding before the Commission, you were advised that the Bureau could not furnish the witness unless it had the consent of or permission from the Federal Trade Commission. As Mr. Whiteley recalled, you stated that this occurred in connection with some case you had before the Commission in 1935.

Would you kindly advise me the name of the case, the name of the desired witness, if you recall it, and the circumstances under which you made your request. I should also like to know whether or not you reported this matter to the trial attorney for the Commission, the trial examiner, or to the Commission itself, with the request that the attendance of this witness be secured, and, if so, with what result.

It would be appreciated if you would supply me this information at your earliest convenience.

To this letter Mr. Digges replied:

DEAR MR. THOMERSON: Answering your letter of January 30th, the incident referred to occurred during the late winter or early spring of 1940 during the course of the Good Housekeeping case—

that was a case brought against the Hearst Publishing Co., who publish Good Housekeeping, for alleged false representations made in that publication.

We had sought to produce witnesses from the Bureau of Standards in order to show (1) that the consumer testing done by Good Housekeeping was equal if not superior to that conducted by the Bureau, (2) that the Bureau made provision for marginal error in its testing, and (3) that the Bureau has often sought and received the assistance of Good Housekeeping with regard to testing consumer items, and in many cases adopted our own standards.

We do not recall the name of the person contacted in the Bureau.

We did not, ourselves, bring the matter to the attention of the Commission as we had been advised by the person in the Bureau of Standards that he had sought the Commission's permission and had been denied it.

In his testimony before the committee Mr. Digges had stated that he was prevented from securing the testimony of the Bureau of Standards' representative because the "consent and the permission. of trial counsel was not forthcoming."