Mr. CASSEDY. Your statement is broad, sir, and if you will let me develop it, I will fully answer your question.

Mr. RABIN. All right.

Mr. CASSEDY. I started out on unfair methods of competition under section 5 as it was originally drawn in 1914.

Under that provision, the Federal Trade Commission has the power to prevent any unfair methods of competition, whether the misrepresentation be included in advertisements, such as I have mentioned, or in labeling of commodities.

Mr. REECE. Before you go ahead into the detailed explanation, I would like to

Mr. CASSEDY. Permit me to say this: that provision relating to unfair methods of competition and that jurisdiction would be exercised only to stop the dissemination of the misrepresentation. It would have nothing to do with what is contained on the label, except to stop whatever misrepresentation is contained thereon.

Mr. REECE. I was not concerned with the method by which you controlled it, but whether you did exercise control.

I was going to give as an example which you could keep in mind in your discussion of the case; it is this: take, for instance, the Emerson or Bromo-Selzer case; as I understand, the Company work out with the Food and Drug Administration a label which, in its opinion, was proper and adequate to protect the health of the public. And in connection with reaching that determination, the Emerson Co. went to very considerable expense.

Then, after that was done and they had been used with the acquiescence of the Food and Drug Administration, the Federal Trade Commission brought proceedings against the Emerson Co. I do not know whether they are still pending or not. I presume they are. The action was based upon the theory that they must change, extend the labeling beyond what was required by the Food and Drug Administration, or they would be subject to action by the Federal Trade Commission. That was placed as a requirement under the advertising provisions of the act but nevertheless it would appear to be an indirect way of controlling labeling.

It seems to me there is a conflict in jurisdiction here. The same thing is true with numerous other headache remedies. And that is what I wanted to get discussed in a general way. As I see it, that goes beyond the authority which was intended to control advertising.

Mr. SADOWSKI. I think that this question involves the whole subject matter that is going to come up here before us in this presentation. I think it better if the witness be permitted to present his paper and then a little later have the answers.

Mr. CASSEDY. If you will permit me to interrupt, I will assure you that I will cover that specific point in great detail and that I have with me copies of the complaints in the Miles Laboratories, Inc., the Capudine Chemical Corp. case, the Larned Corp., three of the cases which Mr. Hoge represented the respondents, in which the questions that you present with reference to the Emerson Drug Co., are similar, and I assure you that I know personally about the Emerson Drug Co. case, also, because I am handling that case as well as these in the trials thereof, and that no where in any of the complaints in any of those four cases, does the Commission seek to control labeling. They are based on a failure to disclose consequences of the use of the product

that may result from the use of the product, and the failure to disclose is charged to be in the advertisement under section 15 (a).

Mr. REECE. Bear with me for 1 minute further, for the purpose of getting the issue clarified: You say controls for the purpose of determining whether the therapeutic value of the remedy is what it is purported to be.

Mr. CASSEDY. The complaints are based upon false advertisements, Mr. Congressman.

Mr. SADOWSKI. Suppose you proceed with your statement. Let us get some information from the witness.

Mr. CASSEDY. I wish to proceed, and I will assure you again that that question will be fully covered to your satisfaction.

The jurisdiction of the Commission over such unfair methods of competition has been firmly established by many court decisions and has been limited only by the decision of the Supreme Court in the case of Federal Trade Commission v. Raladam Company (283 U. S. 643), to those cases where the existence of competition and injury or potential injury to such competition is alleged and established.

The Wheeler-Lea amendments to the Federal Trade Commission Act, enacted in 1938, left undisturbed the authority of the Commission to act against "unfair methods of competition in commerce" and gave to the Commission the additional power to proceed against "unfair or deceptive acts or practices in commerce," thus avoiding the limitations placed upon the jurisdiction of the Commission by the decision in the Raladam case.

The report of the Committee on Interstate and Foreign Commerce of the House of Representatives, of which this is a subcommittee, in discussing the purposes and intended effect of the clause in the Wheeler-Lea amendment which added the words "and unfair or deceptive acts or practices" to section 5 making such acts or practices unlawful, stated

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.

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. (H. Rept. No. 1613, 75th Cong., 1st sess., August 19, 1937, p. 3).

In addition to the amendment of section 3 of the Federal Trade Commission Act, the Wheeler-Lea amendments of 1938 added sections 12, 13, 14, 15, and 16 which broadened the jurisdiction of the Commission over the false advertising of food, drugs, devices, and cosmetics.. Section 12 is as follows:

SEC. 12. (a) It shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement

(1) By United States mails, or in commerce by any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase of food, drugs, devices, or cosmetics; or

(2) By any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in commerce of food, drugs, devices, or cosmetics.

(b) The dissemination or the causing to be disseminated of any false advertisement within the provisions of subsection (a) of this section shall be an unfair or deceptive act or practice in commerce within the meaning of section 5.

That provision is in distinction from and separate from the provision that was already in the act and remained in the act relating to unfair methods of competition.

Section 13 relates to injunctive proceedings to restrain the dissemination of any advertisement in violation of section 12, pending the issuance of a complaint and the concluison of the case.

Section 14 relates to penalties and, in part, provides:

(a) Any person, partnership, or corporation who violates any provision of section 12 (a) 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, and upon conviction shall be punished 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;

Section 15 relates to definitions of terms, including the term "false advertisement," which is contained in section 15 (a), as follows:

SEC. 15. For the purposes of sections 12, 13, and 14—

(a) The term "false advertisement" means an advertisement, other than labeling, which is misleading in a material respect, and in determining whether any advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such condition as are customary or usual. advertisement of a drug shall be deemed to be false if it is disseminated only to members of the medical profession, contains no false representation of a material fact, and includes, or is accompanied in each instance by truthful disclosure of, the formula showing quantitatively each ingredient of such drug.

No

Section 16 relates to the certification of cases by the Commission to the Attorney General for penalty action.

The purpose of Congress in the enactment of sections 12 to 16 of the Wheeler-Lea amendments was obviously to afford more adequate protection to the consumer or user of food, drugs, devices, and cosmetics. This purpose was manifested by the report of the Committee on Interstate and Foreign Commerce of the House of Representatives in the following words:

* * * we cannot ignore the evils and abuses of advertising; the imposition 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.

Among the most obvious needs of the Federal Trade Commission Act are those giving more effective control of advertisements affecting the public health and fraudulent impositions as to its food and medicinal supplies.

Mr. REECE. I am in agreement with what you say there that no statements should be made that are in any way misrepresentative, and I think that is what the report of the committee to which you refer · there states. Mr. Lea stated that in that report, 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 only incumbent upon the advertiser to reveal facts material in light of representations made.

Commissioner Freer made a similar statement when testifying before the Senate committee. And when this bill was up on the floor for discussion, various Members put that interpretation upon it. But what seems to me to have happened is that, as was stated in the Commission's brief in the Dearborn case, when it said, and that it was not intended as a limitation upon the Commission's jurisdiction to suppress false labeling by an order to cease and desist. It seems to me that the Commission has used this device for controlling the label. That is, it determines whether an advertisement is false on the basis of what does appear or does not appear on the label. That is, if the labeling is satisfactory to the Commission, then the advertisement is not false. If the labeling is not satisfactory to the Commission, the advertisement is false. And unless the producer modifies the labeling to comply with the views of the Commission, they issue a cease and desist order. So, after all, the point involved is what is or what is not on the label as to whether it complies with the wishes of the Commission.

I had felt that was not the purpose of the bill when it was enacted. Authority to control labeling was vested in the Food and Drug Administration. And, as Mr. Whiteley or Judge Kelley remarked a while ago, I had an active part in helping to formulate the Wheeler-Lea bill, so as to retain in the Federal Trade Commission jurisdiction over false advertising, but it was then the unanimous agreement among the representatives of the Federal Trade Commission, I think, and of the committee that had jurisdiction of the legislation, that so far as the labeling was concerned and what should go on the label, was placed in the Department of Agriculture, and it was on that basis that we compromised the legislation and gave the Federal Trade Commission jurisdiction over the advertising and the Food and Drug over labeling. Pardon me, again, Mr. Chairman, I was simply interjecting here for the purpose of trying to get the issue resolved, so that when we discuss it we will discuss it with reference to the matter which, at least, I feel that the proposed amendment deals with.

Mr. RABIN. May I ask this-assuming that be so, and assuming the conditions as now exist are undesirable-I have been trying to study section 15 (a) in the law as it now stands, and section 15 (a) as you would change it, to see how you pick that up, how you correct that.

I do not see how this bill corrects it. I see the difference in language, but I cannot see how it corrects it.

Mr. REECE. The interpretation of that language by the courts has been such as to give them the authority.

Mr. RABIN. I understand that. How would this correct that?

Mr. REECE. That takes out the language that by the court's interpretation they were given that authority.

Mr. RABIN. After the word "representations" you substitute the phrase "other than" and you say by the substitution of that phrase it will correct that situation? That is what I have been trying to determine.

Mr. REECE. That is my understanding and that is also covered with the last sentence in the proposed amendment which makes specific reference to jurisdiction.

I again repeat, I am only interjecting here, trying to get the issue clarified.

Mr. CASSEDY. If you will permit me with respect to that, to answer one or two matters you mentioned in the statement you have just made, if the idea is in your mind that the Commission is exercising some sort of control over what is placed; that is, the wording placed upon a label of food, drugs, devices, or cosmetics, I wish to assure you that the Commission does not exercise any such control and has never exercised any such control.

With reference to the Dearborn Supply Co. case and the brief in that case that you mentioned, I would like to state that the brief is not in point and is entirely irrelevant. That case was begun prior to the enactment of the Wheeler-Lea amendments in 1938. The complaint itself in that case was issued before the enactment of the Wheeler-Lea amendments and has nothing to do with section 15 (a). That case is based entirely upon the provision that I first referred to in section 5 that relates to unfair methods of competition.

I wish to further say that that case does not deal with labeling, but with advertising.

It is true there was some discussion of the law relating to the control by the Commission over false advertisments and with relation to the power of the Commission over unfair methods of competition to stop a false representation.

Mr. REECE. I was reading only the Commission's brief as to what the Commission held, its authority there.

Mr. CASSEDY. That is not relevant to the point that you make when you define the issue. I want to say further that the Commission does contend that it was the intention of Congress that the disclosure provisions of section 15 (a) did provide that advertisements should reveal the facts with respect to consequences that may result from the use of the commodity.

And I would say this, from my study and reading of the congressional debates, and I have read every word of them, not once but several times, that the congressional debates and this very report I am reading from right now from this committee indicate and show that that was the purpose of this amendment.

And if I could be permitted to read further from that report, I would like to point out just where it does show that intention. In fact, I am citing it in my prepared statement for the purpose of showing that specific intention on the part of Congress.

Mr. SADOWSKI. That is why I would rather you would proceed with your statement and develop it first, and then, perhaps a lot of these questions will not be so pertinent. You may proceed, Mr. Cassedy.

Mr. CASSEDY. I will continue to read from the report of the Committee on Interstate and Foreign Commerce of the House of Representatives:

The advertisement amendments to this bill revolve around the definition of a "false advertisement" 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.

If there could be any question about what was intended, that statement in the report would clear up any confusion.

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