The Federal Trade Commission, its nature and powers : an interpretation of the trade law and related statutes

Front matter

HARLAN & MCCANDLESS

FEDERAL TRADE COMMISSION

)(oll

Foreword

The following pages present an interpretation of the Trade Law, and related statutes, the meaning and operation of which are somewhat vague and obscure in certain particulars, and have not yet been fully declared by the courts. If this interpretation shall assist the bar in reaching a conclusion as to what business conduct is prohibited by the statutes considered, and as to how those statutes should properly operate, we shall accomplish all we hope.

John Maynard Hablan.

Lewis W. McCandless.

Chicago, Illinois, February 1, 1916.

Contents

[References are to pages.]

ICHAPTER I. NATURE OF COMMISSION 1-8

Sec. 1. Organization of Commission 1

Chapter II. Regulative Power 9-67

Sec. 8. Scope of Power 9

Sec. 9. Violations of the Clayton Law 11

Sec. 10. Price Discriminations and Exclusive Purchase and

Sale Arrangements 12

Sec. 11. Intercorporate Shareholding 15

Sec. 12. Interlocking Directorates 17

(1) Banking corporations 18

(2) Non-banking corporations 19

Sec. 13. Clayton Law Creates Merely a New Remedy 20

Sec. 14. Violations of the Trade Law 23

Sec. 15. Injury to Public Essential to Violation of Trade

Law 23

Sec. 16. Unfairness Essential to Violation of Trade Law... 29

Sec. 17. What Is "Unfair" 31

Sec. 18. Local Price Cutting , 35

Sec. 19. Payment of Rebates 36

Sec. 20. Bogus Independent Companies 36

Sec. 21. Espionage 37

Sec. 22. Fighting Brands 37

Sec. 23. Full Line Forcing 38

Sec. 24. Boycotts and Blacklists 39

Sec. 25. Definition Impossible 39

Sec. 26. Trade Law and Clayton Law Construed Together. . 41

Sec. 27. Trade Law Does Not Create a New Wrong 43

Sec. 28. Trade Law Creates Merely a New Remedy 46

Sec. 29. Proceedings by Commission 47

(1) Complaint and notice 47

(2) Service of complaint and notice 48

(3) Commission the complainant 49

(4) No compulsory process 49

(5) No default 50

(6) Report and order by Commission 50

CONTENTS

[References are to pages.]

(7) Enforcing and overthrowing Commission's orders 51

(8) Commission's control over its own orders. 53

(9) Court not bound absolutely by Commission's record 53

(10) Jurisdiction of Court of Appeals exclusive 53

(11) Procedural rules 54

Sec. 30. Commission Not a Court.. 54

Sec. 31. Jurisdiction of Court of Appeals Original, Not Appellate 58

Sec. 32. Court of Appeals Not to Proceed De Novo 60

Sec. 33. Conclusiveness of Commission's Findings -. 62

(1) Legal effect of facts for court 62

(2) Fair hearing essential 62

(3) Testimony essential 64

(4) What is "testimony" 65

(5) Jurisdictional facts 65

Chapter III. Advisory Power 68-78

Sec. 34. Scope of Power 68

Sec. 35. Violations of Antitrust Laws 68

Sec. 36. Enforcement of Decrees 71

Sec. 37. Drafting Decrees 72

Sec. 38. Foreign Trade 75

See. 39. Additional Legislation 76

Sec. 40. Publicity 78

Chapter IV. Investigative Power 79-98

Sec. 41. Scope of Power 79

Sec. 42. As Limited by Purpose of Grant 79

Sec. 43. As Limited by Method of Exercise 81

Sec. 44. Requiring Reports 82

Sec. 45. Examining and Copying Documents 85

Sec. 46. Examining Witnesses 88

Sec. 47. Obtaining Information from Other Departments.. 91

Sec. 48. Narrow Construction Possible 91

Sec. 49. Self Incrimination 92

Sec. 50. Immunity Clause 92

Sec. 51. Unreasonable Searches and Seizures 95

Sec. 52. Methods of Enforcing Power 95

Sec. 53. Criminal Proceedings 96

Sec. 54. Actions for Penalties 97

Sec. 55. Contempt Proceedings 97

Sec. 56. Mandamus 97

Sec. 57. Improper Disclosures 98

VI

Chapter I. Nature Of The Commission

§ 1. Organization of Commission: The Federal Trade Commission 1 consists of five Commissioners, appointed by the President, by and with the advice and consent of the Senate. The first Commissioners 2 appointed are to continue in office for three, four, five, six, and seven years respectively, from and after the taking effect of the Trade Law on September 26, 1914, but their successors are to be appointed for terms of seven years, except that a person appointed to fill a vacancy is to be appointed only for the unexpired term of the Commissioner whom he succeeds. The salary of a Commissioner is $10,000 a year. None of the Commissioners may engage in any other business, vocation, or employment, and not more than three of the Commission-

iCreated by the Trade Law, en- Harris, Will H. Parry, who

titled "An Act to create a Fed- are to serve, respectively, for

eral Trade Commission, to define seven, six, five and four years

its powers and duties, and for from September 26, 1914, and

other purposes" (H. R. 15613; George Rublee (a recess ap-

Pub. No. 203; 63d Congress) in pointee), who is to serve at all

force September 26, 1914. Printed events during the pleasure of the

in full in appendix. For organ- President, and until the end of

ization of Commission, see Trade the session of the Senate next

Law, Sees. 1-3. after March 6, 1915, and there-

2The first Commissioners ap- after, if confirmed, until Septem-

pointed were Joseph E. Davies, ber 26, 1917. Edward N. Hurley, William J.

§1.] THE FEDERAL TRADE COMMISSION. [Ch.I.

ers may be members of the same political party. Any Commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office, and in case of a vacancy in the Commission, the remaining Commissioners may exercise all of the Commission's powers. 3 The principal office of the Commission is at Washington, D. C., 4 but it may meet and exercise all of its powers at any other place, and may, by one or more of its members, or by such examiners as it may designate, prosecute any inquiiy necessary to its duties in any part of the United States.

The Commission has a chairman chosen by it from its own membership, and a secretary appointed by it. 5 It has an official seal, of which courts are required to take judicial notice. It may employ and fix the compensation of such attorneys, special experts, examiners, clerks, and other employees as it may from time to time find necessary for the proper performance of its duties, and as may be appropriated for by Congress. Other departments and bureaus of the government are required to detail to the Commission from time to time such of their officials and employees as the President may direct. Upon the organization of the Commission, and the election of its chairman, all the clerks, employees, records, papers, and property of the Bureau of Corporations were transferred to the Commission, and the Bureau of Corporations, and the offices of Commissioner and Deputy sThree Commissioners consti- As to sessions of the Commission,

tute a quorum. See Rules of Prac- see Rules of Practice, No. I, in

tice, No. I, in appendix. appendix.

*A11 communications to the ^Commissioner Joseph E. Davies

Commission shall be addressed to is Chairman. At the time of his

Federal Trade Commission, Wash- appointment to the Trade Commis-

ington, D. C, unless otherwise sion he was Commissioner of

specifically directed. See Rules Corporations. See Sec. 2, infra.

of Practice, No. XI, in appendix. Leonidas L. Bracken is Secretary.

Ch. I.] NATURE OF THE COMMISSION. [§ 2.

Commissioner of Corporations, automatically ceased to exist.

§2. Derivation of Commission: The Trade Commission is an outgrowth of the office of Commissioner of Corporations abolished by the Trade Law, 6 and is plainly modeled upon the lines of the Interstate Commerce Commission. The principal function 7 of the oL fice of Commissioner of Corporations, created in 1903, was to acquire, and to report to the President, information as to the organization, conduct and management of the business of corporations engaged in interstate commerce, to the end that the President might thereby be enabled to make recommendations to Congress for legislation regulating such commerce. It is one of the several functions of the Trade Commission to furnish information as a basis for the enactment of additional legislation regulating interstate and foreign commerce. 8 But the Trade Commission may report to Congress directly, and is not under the domination of the President. The Commissioner of Corporations made his investigations under the direction and control of a member of the cabinet, the Secretary of Commerce and Labor. The Trade Commission is more independent and may act upon its own initiative and at its own discretion to a large degree. 9 The office of Commissioner of Corporations was a political office, and the incumbent changed with the administration. The Trade Commission is nonpolitical and its membership will change infrequently. 10 The legislative purpose appears to have been that the Trade Commission should accumulate experience, form-

eTrade Law, Sec. 3. sSecs. 5, (5), (6), and 38 and

n U. S. Comp. Stat. (1913) Tit. 39, infra; Trade Law, Sec. 6, (f),

United States v. Armour & Go. »Sec. 35, infra.

§ 3.] THE FEDERAL TRADE COMMISSION. [Ch. I.

ulate precedents, maintain continuity and consistency of governmental policy towards business, and gradually bring about an evolutionary growth of regulation of industrial corporations engaged in interstate commerce similar to that which has resulted in respect of carrying corporations from the creation of the Interstate Commerce Commission.

§ 3. Powers of Commission: The general nature of the Trade Commission appears from the nature and scope of the powers which are conferred upon it by the Trade Law, and in part by the Clayton Law, 11 and are of course confined to the field of interstate and foreign commerce. 12 Its powers may be grouped as (1) regulative (2) advisory and (3) investigative.

§ 4. Regulative power: 13 The Commission has authority to institute and conduct against persons, 14 partnerships and corporations 15 engaged in interstate commerce, except banks and interstate common carriers, a statutory proceeding 16 designed to lead to a decree by a competent court, (1) restraining the use of "unfair methods of competition in commerce" which are declared unlawful by the Trade Law, 17 and (2) pre-

"The Clayton Law is entitled ton Law, in Sec. 1 thereof. The

"An Act to supplement existing two definitions are different,

laws against unlawful restraints isSee Chapter II, infra.

and monopolies, and for other "For meaning of "persons", as

purposes" (H. R. 15657; Pub. No. used in the Clayton Law, see Sec.

212; 63d Congress), in force Oc- 1 thereof.

tober 15, 1914. Printed in full isFor meaning of "corpora-

in appendix. For the provisions tion " as used in the Trade Law,

of the Clayton Law which confer see Sec. 4 thereof,

power upon the Trade Commis- isTrade Law, Sec. 5; Clayton

sion, see Sees. 2, 3, 7, 8 and 11 Law, Sec. 11; Sees. 29 to 33, in-

thereof. fra.

""Commerce", as used in the "As to what are "unfair meth-

Trade Law, is defined in Sec. 4 ods of competition", see Sees. 14

thereof, and as' used in the Clay- to 27, infra.

Ch. I.] natubb of the commission. [§4.

venting violations of sections two, three, seven and eight of the Clayton Law. 18 Those sections of the Clayton .Law forbid (a) price discriminations between purchasers of commodities, where such discrimination may substantially lessen competition or tend to create a monopoly in any line of commerce; (b) exclusive purchase and sale arrangements, consisting of sales or leases of commodities, or the fixing of prices of commodities, whether patented or unpatented, upon condition that the purchaser or lessee shall not use or deal in the goods of a competitor, where such transaction may substantially lessen competition or tend to create a monopoly in any line of commerce; (c) intercorporate shareholding, and holding companies, where one corporation's owning or voting shares of stock of another may substantially lessen competition between the corporations affected, or restrain commerce in any section or community, or tend to create a monopoly of any line of commerce; (d) any person, after October 15, 1916, to be a director, officer, or employee of more than one federal bank, if either of such banks has capital, surplus, and undivided profits of more than $5,000,000; (e) any private banker, or person who is a director of any state bank or trust company having deposits, capital, surplus, and undivided profits of more than $5,000,000 to be a director of any federal bank, after October "15, 1916; (f) any federal bank, after October 15, 1916, in a city of more than 200,000 inhabitants, to have as a director, or other officer or employee, any private banker, or any director, officer, or employee of any other bank located at the same place, with certain exceptions; and (g) any person, after October 15, 1916, to be at the same time a director in any two or more corporations, except banks

i8gpe Sees. 9 to 12. infra.

§ 5.] THE FEDERAL TRADE COMMISSION. [Ch. I.

and interstate common carriers by rail, or water, engaged in whole or in part in commerce, any one of which corporations has capital surplus and undivided profits of more than $1,000,000, if such two or more corporations then are, or theretofore shall have been, competitors, so that the elimination of competition by agreement between them would violate any provision of any of the antitrust laws. 19 .

§ 5. Advisory power: 20 The Commission has authority (1) upon the direction of the President, or either House of Congress, to report the facts relating to the alleged violation of the antitrust laws by any corporation; (2) upon the request of the Attorney General, to make recommendations for the readjustment of the business of any corporation alleged to be violating the antitrust laws, in order that the corporation may thereafter conduct its affairs in accordance with law; (3) to report to the Attorney General, upon his request or upon the Commission's own initiative, the manner in which a final decree entered against a defendant corporation in any suit brought by the United States under the antitrust laws has been, or is being, carried out; (4) upon the request of the court, to ascertain and report an appropriate form of decree for complainant in any suit in equity brought by the Attorney General under the 'antitrust laws; (5) to make reports to Congress, with such recommendations as the Commission may deem advisable, in respect of foreign trade conditions which may affect the foreign trade of the United States; (6) to make annual and special reports to Congress, with rec-

i9For meaning of "antitrust trust laws", see appendix.

laws", see Sec. 1 of Clayton Law, 2°Trade Law, Sec. 6, (c), (d),

and Sec. 4 of Trade Law; and, (e), (f), (h), Sec. 7. See Chapter

for the provisions of the "anti- III, infra.

CH. I.] NATURE OF THE COMMISSION. [§6.

ommendations for additional legislation; and (7) to report to the public such information as the Commission may obtain and may deem it expedient in the public interest to publish, except trade secrets and names of customers, and to provide for the publication of its reports and decisions.

§ 6. Investigative power: 21 The Commission has authority (1) to prosecute any inquiry necessary to its duties in any part of the United States; (2) to continue all investigations and proceedings pending in the Bureau of Corporations at the time when that Bureau automatically ceased to exist by the organization of the Trade Commission and the election of its chairman; (3) to investigate the organization, business, conduct, practice's, and management of any corporation engaged in commerce, except banks and common carriers, and the relation of such corporation to other corporations and to individuals, associations, and partnerships ; (4) to conduct its investigations by (a) requiring reports from corporations, (b) examining and copying the documentary evidence of corporations, (c) subpoenaing and examining witnesses and documents and (d) obtaining information from other departments and bureaus of the government; and (5) to enforce its investigative power by requesting the proper governmental authorities to institute (a) criminal prosecutions, (b) actions for penalties, (c) contempt proceedings and (d) proceedings in mandamus, in case the exercise of its investigative power shall be obstructed or resisted.

§ 7. Commission an administrative body: The Commission thus appears, from the preceding sections, to be an administrative body, created in part to fur-

aiTrade Law, Sees. 3, 6, 8, 9, 10.

See Chapter IV, infra.

§7.] THE FEDERAL TRADE COMMISSION. [Ch. I.

nish information to the legislative and executive branches of the government in furtherance of the enactment of new and the enforcement of existing laws, in part to inform and mould public opinion, in part to regulate trade, and in part to assist the courts. The Commission is not a court, and does not possess judicial power. 22 Its investigative power is perhaps the most formidable of any it possesses. Its regulative power is not great. The subjects intended principally to be affected by the Commission's powers would seem to be the antitrust laws, unfair competitive practices, and foreign trade. While under its regulative authority the Commission may institute and conduct proceedings against natural persons, its powers in the main pertain to corporations and, with exceptions which will be noted, 23 cannot affect banks subject to the jurisdiction of the Federal Eeserve Board, or common carriers subject to the jurisdiction of the Interstate Commerce Commission.