All proceedings prior to issuance of formal complaint or publication of a stipulation are confidential. FORMAL PROCEDURE Only after careful consideration of the facts developed by the investigation does the Commission issue a complaint. The complaint and the answer of respondent thereto and subsequent proceedings are a public record. A complaint is issued in the name of the Commission acting in the public interest. It names a respondent and charges a violation of law, with a statement of the charges. The party complaining to the Commission is not a party to the formal complaint issued by the Commission, nor does the complaint seek to adjust matters between parties; rather, the prime purpose of the proceedings is to prevent, for the protection of the public, those unfair methods of competition and unfair or deceptive acts or practices forbidden by the Federal Trade Commission Act and those practices prohibited by the Clayton Act, as amended by the Robinson-Patman Act, and those prohibited by the Export Trade Act. The Commission's rules of practice and procedure provide that in case the respondent desires to contest the proceedings he shall, within 20 days from service of the complaint, file answer thereto with the Commission. The rules of practice also specify a form of answer for use should the respondent decide to admit the facts alleged and not contest the proceeding. * * Under the rules of practice, "failure of the respondent to file answer within the time provided or failure to appear at the time and place fixed for hearing shall be deemed to authorize the Commission, without further hearing or notice to respondent, to proceed in regular course on the charges set forth in the complaint, and to make, enter, issue, and serve upon respondent findings of fact and an order to cease and desist." In a contested case the matter is set down for hearing before a trial examiner. This may occupy varying lengths of time, according to the nature of the charge or the availability and number of witnesses to be examined. Hearings are held before a member of the Commission's staff of trial examiners, who may sit anywhere in the country, the Commission and the respondents being represented by their respective attorneys. After the submission of evidence in support of the complaint, and then on behalf of the respondent, the trial examiner prepares a report of the evidence for the information of the Commission, counsel for the Commission, and counsel for the respondent. Exceptions to the trial examiner's report may be taken by counsel for either side. Within a stated time after the trial examiner's report is made, briefs are filed, and the case is set for final argument before the Commission. Thereafter the Commission reaches a decision either sustaining the charges made in the complaint, or dismissing the complaint, or closing the case. If the complaint is sustained, the Commission makes its findings as to the facts and states its conclusion that the law has been violated, and thereupon an order is issued requiring the respondent to cease and desist from such violation. If the complaint is dismissed or closed, an appropriate order is entered; sometimes such order of dismissal or closing is accompanied by a written opinion, although more often reasons for the action appear only in the order. PROCEDURE SUBSEQUENT TO ISSUANCE OF A CEASE AND DESIST ORDER Up to and including the issuance of an order to cease and desist, there is no difference in procedure whether the case is under the Federal Trade Commission Act, as amended, or under the Clayton Act. Both acts embody procedure for their enforcement by the Commission and their provisions in this regard were substantially the same until the passage of the act of March 21, 1938 (the Wheeler-Lea Act). However, the provisions of this act worked substantial changes in the provisions of the Federal Trade Commission Act, applicable after the Commission has issued its order to cease and desist, but did not amend the applicable provisions of the Clayton Act. Under the Federal Trade Commission Act, as amended, an order to cease and desist becomes final 60 days after its issuance, unless within that period the respondent petitions the United States Circuit Court of Appeals to review the order. In case of such a review, the Commission's order becomes final after affirmance by the Circuit Court of Appeals or by the Supreme Court of the United States, if taken to that court. Violation of an order to cease and desist after the same shall have become final and while it is in effect subjects the offender to a civil penalty of not more than $5,000 for each violation, recoverable by the United States. Under the Clayton Act an order to cease and desist does not become final, in the sense that its violation subjects the violator to a penalty, until the United States Circuit Court of Appeals shall have issued its order commanding obedience, on the application of the Commission for enforcement. Under both acts the respondent may apply to the Circuit Court of Appeals for a review of an order, and either upon the application of the Commission for enforcement or of the respondent for review, the court has power to affirm, or affirm as modified, and to enforce to the extent affirmed, or to set aside, the order. Also, under both acts, either party may apply to the Supreme Court for review, under certiorari, of the action of the Circuit Court of Appeals. SPECIAL PROVISIONS FOR PREVENTING DISSEMINATION OF FALSE The Wheeler-Lea Act of March 21, 1938, further amended the Federal Trade Commission Act by adding special provisions for the prevention of the dissemination of false advertisements concerning food, drugs, devices (meaning devices for use in the diagnosis, prevention, or treatment of disease), and cosmetics. In addition to the regular proceeding by way of complaint and order to cease and desist, the Commission may, in a proper case, bring suit in a United States District Court to enjoin the publication of such false advertisements pending final disposition of the matter under the complaint. Further, the publication of such a false advertisement where the use of a commodity advertised may be injurious to health or where it is published with intent to defraud or mislead, constitutes a misdemeanor and conviction subjects the offender to a fine of not more than $5,000, or imprisonment of not more than 6 months, or both. Succeeding convictions may, with certain exceptions, result in a fine of not more than $10,000, or imprisonment of not more than one year, or both. LEGAL INVESTIGATION INQUIRIES PRIOR TO FORMAL COMPLAINT OR STIPULATION The legal investigational work of the Commission includes the investigation of applications for complaint preliminary to formal action for the correction of unfair methods of competition or other practices violative of the laws administered by the Commission. This work is directed and supervised by the Chief Examiner and the Special Board of Investigation. Preliminary investigations are conducted by the Special Board of Investigation in cases which involve allegations of false and misleading advertising, and are handled through a special procedure more fully described beginning at p. 122. All other cases are investigated by the Chief Examiner. At the beginning of the fiscal year, July 1, 1937, there were pending for investigation by the Chief Examiner's staff, 320 applications. for complaint in preliminary or undocketed cases. During the fiscal year, 718 additional applications of this character were received, making a total of 1,038, of which 727 were investigated during the year. As a result, 212 of such investigated cases were docketed and transmitted to the Commission for action and 515 transmitted without docketing were closed because of lack of jurisdiction or other deficiencies. This left 311 preliminary cases of this type pending for investigation at the end of the fiscal year, June 30, 1938. Four hundred forty-seven applications for complaint which had been docketed without preliminary investigation were pending for regular investigation at the beginning of the fiscal year. During the year, 813 additional cases of this type were received for investigation, making a total of 1,260 such cases docketed for investigation. Of these cases, 843 were investigated and transmitted to the Commission for action, leaving 417 cases of this character still pending for investigation at the end of the fiscal year.3 Thus the Chief Examiner's Division, during the fiscal year, completed 1,570 investigations of preliminary and docketed applications for complaint. The Chief Examiner conducts supplemental investigations (1) in matters originating with the Special Board of Investigation (relating to false and misleading advertising); (2) where additional evidence is necessary in connection with formal complaint; (3) where it appears or is charged that cease and desist orders of the Commission are being violated, and (4) where it appears or is charged that a stipulation entered into between a respondent and the Commission, wherein the respondent agreed to cease and desist from certain unfair competitive practices, is not being observed in good faith. The legal investigational work of the Commission is directed from its central office in Washington and conducted through that office and five branch offices, located at 45 Broadway, New York, 433 West Van Buren Street, Chicago; 548 Federal Office Building, San Francisco; 801 Federal Building, Seattle, and 217 Customhouse, New Orleans. ILLEGAL STOCK ACQUISITIONS, SECTION 7, CLAYTON ACT Part of the legal investigational work of the Commission includes inquiries into illegal stock acquisitions, consolidations and mergers under Section 7 of the Clayton Act, which prohibits the acquisition by one corporation of the share capital of another corporation engaged in commerce, or acquisition by one corporation of the share capital of two or more corporations engaged in commerce, where the effect, in either case, may be to substantially lessen competition between. the acquiring and acquired companies, or between two or more of the acquired companies, or to restrain commerce or tend to create a monopoly. 3 For statistics on Special Board of Investigation cases, see p. 121. One preliminary matter involving acquisition of capital stock was pending July 1, 1937. Twenty-six additional preliminary inquiries were instituted during the fiscal year. Of the 27 matters, 22 were closed, one was docketed as an application for complaint, and, on June 30, 1938, 4 were pending. One formal complaint alleging violation of Section 7 of the Clayton Act was issued. (See pp. 10 and 55.) DISPOSITION OF CASES BY STIPULATION PROCEDURE AFFORDS OPPORTUNITY TO AVOID FORMAL COMPLAINT IN CERTAIN INSTANCES Under certain circumstances the Commission, instead of disposing of cases by formal complaint and trial, affords a respondent the privilege of disposing of a case by signing a statement of fact and agreement to discontinue the alleged unfair method of competition. The Commission determines the form and subject matter of all stipulations which are prepared in accordance with the facts as disclosed by an investigation. If a respondent alleges the facts to be other than the investigation discloses, then the matter is not subject to stipulation and the proper and only procedure is to try the issue in order to develop the true facts. In those classes of cases in which the Commission affords the respondent an opportunity to dispose of a matter by stipulation, that procedure accomplishes economically and expeditiously the same result as a complaint and order to cease and desist. It also simplifies the Commission's legal procedure and saves both the Government and the respondent the expense incident to trial of the complaint. Often it appears that a violation occurs through ignorance or misunderstanding, and that the attention of the offender has only to be called to such violation to induce discontinuance of the practice. In such an instance the Commission, instead of issuing a formal complaint, grants the respondent an opportunity to sign a statement of facts disclosed by the investigation and agreement to cease and desist from the practices charged. If such stipulation is signed, further action is suspended; if it is not signed, the case goes to trial. Stipulations are entered into where the public interest does not require formal action. They are not permitted in cases where a fraudulent business is concerned, where a legitimate business is conducted in a fraudulent manner, where the circumstances are such that there is reason to believe that an agreement entered into with the concern involved will not be kept, or where a violation of Section 14 of the Federal Trade Commission Act, of certain sections of the Clayton Act, or the criminal sections of the Sherman Act or any other statute, is believed to have occurred. The Commission reserves 101741-38- 4 |