Antidiscrimination Act and the Wheeler-Lea Act, which required greatly augmented expenditure of time and effort, especially in matters involving petitions for temporary injunction under section 13 and certification of facts to the Attorney General pursuant to section 16 involving alleged criminal violations of the provisions of section 14.

The Chief Examiner conducts supplemental investigations (1) in matters originating with the Radio and Periodical Division (relating to false and misleading advertising); (2) where additional evidence is necessary in connection with the trial of a 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 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 respectively at 45 Broadway, New York; 433 West Van Buren Street, Chicago; 548 Federal Office Building, San Francisco; 801 Federal Building, Seattle, and 217 Custom House, New Orleans.

STOCK ACQUISITIONS, MERGERS, AND CONSOLIDATIONS (SECTION 7,

CLAYTON ACT)

The legal investigational work of the Commission includes inquiries into illegal stock acquisitions, mergers, and consolidations. These inquiries seldom originate by application for complaint, but are instituted upon the Commission's own motion.

Section 7 of the Clayton Act prohibits 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 to restrain commerce or tend to create a monopoly.

Under the statute, corporations are not precluded from acquiring stock solely for investment purposes, provided the stock is not used to bring about or in attempting to bring about the substantial lessening of competition.

The Commission is empowered to enforce the statute except as to unlawful stock acquisition involving common carriers subject to the jurisdiction of the Interstate Commerce Commission; common carriers engaged in wire or radio communication subject to the jurisdiction of the Federal Communications Commission; air carriers

subject to the Civil Aeronautics Authority; banks and trust companies subject to the jurisdiction of the Federal Reserve Board; public-utility companies subject to the jurisdiction of the Securities and exchange Commission; and livestock and meat-packing industries subject to the jurisdiction of the Secretary of Agriculture. Pursuant to and by virtue of the authority vested in the Commission, preliminary inquiries were instituted during the year with respect to 13 important acquisitions, mergers, or consolidations involv ing corporations engaged in the sale and distribution of building materials, chemicals, coal, foods, glassware, liquors, refractories, steel products, storage batteries, and other lines of commerce. There were pending at the beginning of the year 4 such inquiries involving corporations engaged in shipbuilding and in the sale and distribution of building materials, music publications, and paper products. By direction of the Commission, 9 of these inquiries were closed during the year, 1 was placed on suspense, and 7 were in the course of investigation or awaiting Commission action at the close of the year. Seven of the 9 inquiries closed involved the acquisition or merger of assets as to which the Commission was without power to take corrective action. The Supreme Court of the United States has held that section 7 of the Clayton Act does not forbid mergers made pursuant to State laws, or mergers effected directly by the shareholders, and that the statute confers no authority upon the Commission to order divestiture of physical assets, even though obtained as a result of an illegal acquisition of stock (291 U. S. 587 and 272 U. S. 554).

No orders of divestiture or formal complaints were issued during the year. A previously issued complaint against a distilling corporation and another against a holding company engaged through subsidiaries in the manufacture and sale of hydraulic products were pending at the close of the year.

CASES UNDER OTHER SECTIONS OF THE CLAYTON ACT

The progress of the Commission's work under the Clayton Act as amended by the Robinson-Patman Act is reviewed at page 5.

Concurrently with the growing volume of the Robinson-Patman cases there has been a substantial increase in the number of investigations and proceedings under section 3 of the Clayton Act. This section makes it unlawful to lease, sell, or contract to sell, fix a price, discount from or rebate upon a price on condition that the lessee or purchaser shall not use or deal in the commodities of a competitor of the lessor or seller where the effect may be substantially to lessen competition or tend to create a monopoly in any line of commerce.

PRICE FIXING AND OTHER TRADE RESTRAINTS

One of the fundamental purposes behind the passage of the Federal Trade Commission Act was to establish an agency which would detect and eliminate illegal trade restraints in their incipiency before they developed into monopolies. The importance of this phase of its work is indicated by the fact that at the beginning of the fiscal year, July 1, 1938, 160 cases of this type were on the Commission's calendar, either awaiting investigation or in the process of being investigated. During the year 123 new cases were instituted, making a total of 283 restraint-of-trade cases on its calendar during the fiscal year. During the same period, 117 investigations of this type were completed and the files, containing the Chief Examiner's recommendation, were forwarded to the Commission for its consideration and disposition. This left a total of 166 cases pending on the Commission's active investigational calendar as of June 30, 1939.

Price fixing continues to be the most frequently recurring charge among the restraint-of-trade cases. However, the whole category of trade restraints will be found among the charges in the cases pending before the Commission during the last year. These include such practices as conspiracy to boycott or threats of boycott; interference with sources of supply and with distributing outlets; threats of infringement suits not made in good faith; sales below cost for the purpose of injuring competitors; collusive bidding; intimidation of competitors or potential competitors; coercive practices; espionage; operation of bogus independents; commercial bribery; allocation of territory among ostensible competitors; and a variety of other methods of competition which have been condemned as unfair by both the Commission and the courts.

The kinds and types of commodities involved in the restraint-oftrade cases are almost as numerous as the cases themselves. The following general classifications of commodities are given in order to convey some idea as to the widespread nature of the restraint-oftrade investigations conducted by the Commission: agricultural supplies; automotive equipment and supplies; beverages; clothing, cloth, notions, etc.; confectionery; construction materials and supplies; containers; dental equipment and supplies; drugs, chemicals, and pharmaceuticals; electrical equipment and appliances; food products; fuel; household furnishings and equipment; machinery, tools, and equipment; metal and metal products; office supplies and equipment; paint, varnish, etc.; photographic supplies and optical goods; publications, rubber and rubber products; and tobacco.

A development of interest during the last fiscal year was the increasing number of applications for complaint filed with the Com

191905-39

mission by various governmental agencies-Federal, State, and city. These dealt almost entirely with the receipt of identical bids or other evidence indicative of the existence of unlawful price fixing. Formerly, when these agencies received identical bids, the successful bidder was usually selected by lot or chance. This permitted an award without in any way correcting the condition that produced the identical bids. Instead of accepting this condition, they now frequently call upon the Federal Trade Commission to determine whether or not the identical prices are the result of agreements, understandings, or other collusive activities among the bidders. Many of these investigations have, in fact, established the existence of illegal practices, and appropriate steps have been taken to terminate them.

Of the 283 restraint-of-trade investigations which were active. during the last fiscal year, 71 resulted from applications for complaint filed by various governmental agencies, and 28 were initiated by the Commission on its own motion. A few applications for complaint came from various miscellaneous sources, but the great majority continued to come from individuals or concerns whose business was being jeopardized by the alleged unfair and illegal practices against which complaint was made. The group last mentioned was responsible for 173 of the applications for complaint filed with the Commission.

FIELD INVESTIGATIONS OF CASES INVOLVING FOOD, DRUGS, DEVICES, AND

COSMETICS

Since enactment of the Wheeler-Lea amendment to the Federal Trade Commission Act the Chief Examiner's Division has completed 549 field investigations of alleged violations of section 12 prohibiting dissemination of false advertisements of food, drugs, devices, or cosmetics. (See also p. 5.) Of this number, 298 represented new cases instituted by the Commission and which were handled in regular course, and 251 represented cases previously disposed of by the Commission but which were reinvestigated to determine (1) whether or not the prohibitions of orders to cease and desist entered by the Commission and of stipulations executed by advertisers and approved by the Commission, were being violated, and (2) whether or not other practices not prohibited under previous orders to cease and desist and stipulations, were being carried on in contravention of the amended act.

Since approval of the amendatory act the Commission has issued and served 125 formal complaints alleging unfair and deceptive acts and practices through the dissemination of false advertisements

of food (11 cases), drugs (63 cases), devices (12 cases), and cosmetics (39 cases). A total of 82 orders to cease and desist has been entered, preventing the further dissemination of false advertisements of food (5 cases), drugs (51 cases), devices (12 cases), and cosmetics (14 cases).

Investigations by the Chief Examiner's Division have, since the effective date of the amended act, resulted in negotiation by the Chief Trial Examiner and acceptance and approval by the Commission of 65 stipulations executed by manufacturers and distributors of food (25 cases), drugs (12 cases), devices (12 cases), and cosmetics (16) cases), under the terms of which the parties agreed to discontinue using false advertisements in promoting the various commodities.

At the close of the fiscal year the Chief Examiner's Division had under field investigation a total of 227 applications for complaint relating to alleged false advertisements of food, drugs, devices, and cosmetics. Of this number, 39 applications involved drug preparations which allegedly are injurious to health.

Injurious drug products.-Investigations have resulted in the granting of temporary injunctions and restraining orders by the United States district courts in 10 cases where such investigations revealed the dissemination of false advertisements of drug products which were found definitely to be of a dangerous nature and injurious to the health of users when taken as prescribed, or under such conditions as are customary or usual. These drug products included alleged cures for chronic alcoholism, obesity remedies or weight-reducing agents, and abortifacients and emmenagogues.

The Commission is mindful of the vital importance of protecting and conserving the public health and, by invoking its new procedure, has succeeded in causing manufacturers and distributors of these toxic drug preparations, promoted and sold throughout the country, to discontinue forthwith the dissemination of false advertisements. A serious menace to the health of the general public is being removed, since the effect of the temporary injunctions has been in most, if not all, instances actually to cause the manufacturers and distributors to discontinue selling these injurious products.

The Chief Examiner's Division has established and placed in operation a special food and drug section for the investigation of applications for complaint under sections 12, 13, and 14 of the amended act. Attorneys in this section are being trained in the new investigational procedure, and facilities are being provided for specialized work in cases involving advertisement of injurious products, as well as cases in which violations are with intent to defraud or mislead.