Mr. REECE. What ulterior motive might Printers' Ink have in discussing this bill? Mr. DAVIS. This is in the February 18, 1946, issue of N. A. R. D. Journal: "NARD supports Reece bill." They go on here and first they say they advertise in different newspapers, then, "If a manufacturer placed an advertisement in a newspaper having a circulation of 250,000 and then were found in violation by the Federal Trade Commission, each separate copy of the newspaper could be cited as a violation in penalizing the manufacturer." Now, that, certainly, casts a lot of reflection on the Federal Trade Commission and on the courts, because no fine can be imposed except by the court, and to say that a court would make such a finding as that is simply violently contrary to what has happened in the past 8 years under the Wheeler-Lea Act. Those facts have already been filed here showing that in only one case was there as much as $10,000 fined against a man and he was selling an absolutely worthless remedy, according to the evidence, as a cure for tuberculosis. Then they go on here and state that this bill is pending before the Committee on Interstate and Foreign Commerce of the House, and that they had filed a brief supporting the intent of H. R. 2390. Then they say, "We urge our members who live in States having Representatives on the House Committee on Interstate and Foreign Commerce to ask that they support the Reece bill," and then they go on and give the names of the committee. These letters are already coming in because we had one sent down to us yesterday by a Member of Congress. It had ridiculous statements in the letter and in the memorandum that accompanied it that had been sent to this druggist, and he wrote in to ask his Congressman about it. Mr. O'HARA. I would like to say in connection with Dr. Swain's article, I do not recall anybody out home talking to me last summer, and I do not recall receiving over one or two letters from the entire State of Minnesota with regard to the Reece bill. So the advertising is not very effective from my viewpoint of your statement. Mr. DAVIS. I suppose it did not work everywhere. Mr. SADOWSKI. It is now 5 o'clock and perhaps you can extend the balance of your statement in the record. I do not want to stop you, but I think you have just about concluded your main statement, and if you have some other things, perhaps you can put them in the record. Mr. DAVIS. All right, Mr. Chairman. Mr. SADOWSKI. With the exception of a few statements that will go in the hearings, that will complete this hearing. Mr. DAVIS. The Federal Trade Commission designated Commissioner Freer to make a statement before the Commission, too. He has been ill, recovering from the effects of the flu. He was out of the city for a while but he is back, and here, and I would like for you to hear him. Mr. FREER. I would take about a minute, Mr. Chairman. That is all I want. STATEMENT OF ROBERT E. FREER, MEMBER, FEDERAL TRADE COMMISSION Mr. FREER. There is only one phase they asked me to talk about. My name is Robert E. Freer, member of the Federal Trade Commission for the past 11 years. Mr. SADOWSKI. We will grant you permission to revise and extend your remarks. Mr. FREER. All I was asked to talk about was that analogy of the prosecutor, judge, and jury, and I can do that very readily by handing you a copy of this statement on that subject, if you will put that in the record. Mr. REECE. I have very great respect for Commmisssioner Freer's judgment and views. Mr. SADOWSKI. We will let that go in as part of your statement. Mr. FREER. Thank you very much. Mr. DAVIS. We would like for the statement he has handed in to read not as a quotation but as his statement, in the large type, because he is presenting that as his statement. Mr. SADOWSKI. It will go in as his statement. Mr. REECE. In the same size print as if he had made it himself. Mr. DAVIS. That is right. It covers some subjects that really have not been discussed and if the committee will read his statement, it will be illuminating and interesting. (The statement referred to is as follows:) PRACTICE BEFORE THE FEDERAL TRADE COMMISSION Mr. FREER. One of the most serious problems facing the average practitioner at the bar today roots in the general trend toward providing administrative procedures to supplement or replace the traditional judicial processes. Determination of a host of controversies, historically in the province of the courts, has been placed in the concurrent or exclusive jurisdiction of boards, commissions, and other administrative or quasi judicial agencies. Effects of this shift are many and of varied importance. To a large extent the technicalities of pleading and to some extent even the rules of evidence have been relaxed. Limitations have been placed upon the power of the courts to review orders of administrators-and where powers of review are granted, the courts are often limited to socalled questions of law. I should like to outline briefly for you the substantive part of the work of the Federal Trade Commission and then to sketch its procedure and the manner in which its varied tasks are handled. NATURE OF COMMISSION'S JURISDICTION The Federal Trade Commission Act and the Clayton Act were both enacted in the fall of 1914 to supplement the Sherman Antitrust Act. The Clayton Act prescribed a number of specific business practices which were considered as contributing to monopoly, such as certain types of price discrimination; contracts tying several articles of commerce together for purposes of sale; exclusive dealing contracts; ac quisitions of capitol stock of competing corporations and interlocking directorates. The Federal Trade Commission Act, however, contained no such detailed list of unlawful practices. It created a Commission of five members for the purpose, among others, of "preventing unfair methods of competition in commerce." In the words of the Supreme Court in the Schechter case,1 this was "an expression new in law." And as the court said further: Debate apparently convinced the sponsors of the legislation that the words "unfair competition," in the light of their meaning at common law, were too narrow. We have said that the substituted phrase has a broader meaning, that it does not admit of precise definition, its scope being left to judicial determination as controversies arise. The jurisdiction thus conferred upon the Commission is by language broad enough to permit of flexibility of administration while containing adequate legal standards for the guidance of both the Commission and the courts. It is my opinion that this was indeed a fortunate approach to the problem from the standpoint of good administration. The Commission was designed to be an expert body, trained and experienced in the problems of business relationships. While a list of all the practices considered in 1914 to be detrimental to the public and to honest businessmen might have been attempted and the results incorporated in the form of prescriptions in a statute, no one could foretell what unfair practices might in the future be devised, or what practices, then considered unobjectionable, might under new conditions become undesirable. In the public interest, the Commission has exercised jurisdiction over many methods and practices which are also actionable under the common law, such as fraud and deceit, boycott, restraint of trade, and monopoly. In addition, its jurisdiction has been upheld by the courts over many types of cases which could not be reached at common law. For instance, in an action for fraud and deceit, reliance on the false representation, and injury flowing from such reliance, must be shown at common law. The Federal Trade Commission may proceed against use of false advertising in commerce as an unfair method of competi tion without proving actual deception of any customer, providing the advertisement is characterized by what the Supreme Court has called "an inherent capacity and tendency to deceive." But the principal dissimilarity between the common-law action and the procedure of the Federal Trade Commission springs from the fact that the Commission acts ex parte and only where substantial public interest is involved. Private controversies between competitors, where a private remedy at law is available, are seldom entertained by the Commission and then only where substantial public interest is involved. And even in such a case, the aggrieved competitor is not a party to the proceeding. Restraints of trade and monopolistic practices which at common law would reach the courts only when enforcement was sought or when someone was particularly injured, may be curbed by the Commission through a proceeding initiated upon its own motion. solely for the benefit of the public. 1295 U. S. 495, 55 Sup. Ct. 837, 79 L. ed. 1570 (1935). The Federal Trade Commission, exercising the broad jurisdiction granted to it by section 5 of its organic act, in formal cases has held numerous practices and methods of competition to be unfair methods of competition, and, in the large majority of its cases, it has been sustained by the courts. Practices and methods which are generally regarded as falling within the prohibition of section 5 when carried out in commerce or when substantially affecting commerce, include(a) Comination or conspiracy to fix or control prices. (b) Combination or conspiracy between competitors to hamper or obstruct business of rivals. (c) Misbranding, mislabeling, or misrepresenting products as to composition, origin, quality, or source. (d) False and misleading advertising. (e) Passing off one's goods as those of another. (f) Sale of products by means of lottery or chance devices. (g) Concerted refusal to sell or refusal to buy where the effect is to suppress competition. (h) Monopolization of trade channels. (i) Combination and conspiracy to obstruct a competitor's source of supply. (j) White-listing, black-listing, or other forms of concerted boycotting. (k) Commercial bribery. (7) Threats of litigation not in good faith. (m) Disparagement or misrepresentation concerning a competitor. (n) Causing breach of contract between competitor and customers. (0) Secret control of a supposed competitor. (q) Full line forcing. WHEELER-LEA AMENDMENTS TO THE ACT An important opinion of the Supreme Court of the United States affecting the Commission's jurisdiction was handed down in the Federal Trade Commission v. Raladam.2 The Commission had proceeded against the advertiser of a patent reducing compound for representing it to be safe and harmless. It was found that the medicine contained desiccated thyroid, a potentially dangerous drug. Appeal was taken from the Commission's cease and desist order to the Circuit Court of Appeals for the Sixth Circuit. That court, sitting in Cincinnati, reversed the Commission's order, holding that the only competitors affected by the practice were guilty of substantially similar conduct. The Supreme Court upheld reversal of the Commission's order, stating that there are three essential jurisdictional elements to a Commission proceeding against "unfair methods of competition." First, a method must be unfair. Second, a method must injure or affect actual or potential competitors, and third, there must be substantial public interest in the prevention of the method of competition. The court stated that it doubted that the Commission was intended to "protect one knave from the unfair competition of 2 283 U. S. 643, 51 Sup. Ct. 587, 75 L. ed. 1324 (1931). another." The effect of this decision was to make the Commission's protection of the consumer merely an incident to the protection of honest competitors, likewise injured by the practices of unethical traders. This was considered by the Commission to present a serious defect in its act and recommendations were made to Congress for curative amendments. As early as 1935, bills were introduced in Congress in response to these recommendations and for the purpose of amending the act. In March 1938 the Wheeler-Lea Act was passed and approved, making the first direct amendments to the Federal Trade Commission Act since its original passage in 1914. The principal change effected by the Wheeler-Lea Act broadens section 5 to make unlawful "unfair or deceptive acts or practices" as well as "unfair methods of competition." Under the new language, it will not be necessary for the Commission to allege or prove injury to competition where an act or practice in commerce can be shown to be unfair or deceptive and that there is substantial public interest in its prevention. Seven entirely new sections were also added by Congress to the act and five of these implement the Commission with definite and specific power over the dissemination of false advertisements regarding food, drugs, curative devices, and cosmetics. A highly interesting section relating to advertising of the products directs the Commission "in determining whether any advertisement is misleading" to take 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 conditions as are customary or usual. The Commission is given additional and specific jurisdiction over advertising of food, drugs, curative devices, and cosmetics when disseminated in interstate commerce by any means; or when disseminated either locally or in commerce where it is intended or is likely to induce a purchase in interstate commerce; or when disseminated by United States mails irrespective of commerce. Another new section empowers the Commission, when it has reason to believe that a party is engaged in or is about to engage in the dissemination of any false advertisement of food, drugs, curative devices, or cosmetics, in violation of the act, to seek an injunction in any district court of the United States. These courts are directed, upon proper showing, to issue a temporary injunction or restraining order. About 1 month ago, the first injunction under this new section was granted in the Federal district court in Chicago, restraining the advertisement of a reducing compound which the Commission had reason to believe was dangerous to health.3 Another new section makes it a misdemeanor to violate the provision forbidding false advertisement of food, drugs, curative devices, or cosmetics, if violation is with intent to defraud or mislead or if the suggested or customary use of the commodity advertised may prove injurious to health. When the Commission has reason to believe the 3 F. T. C. v. Harry Goron, Trading as Isabella Laboratories and the Hartman Chain of Drugstores (D. C. Ill., September 1938). |