ANNUAL REPORT OF THE FEDERAL TRADE COMMISSION FOR THE FISCAL YEAR ENDED JUNE 30, 1926

INTRODUCTION

To the Senate and House of Representatives:

Pursuant to statute the Federal Trade Commission herewith submits to the Congress its annual report for the fiscal year July 1, 1925, to June 30, 1926. The commission was created by an act of Congress approved September 26, 1914, and was organized March 16, 1915. The present is the twelfth annual report.

On June 30, 1926, the commission consisted of John F. Nugent, of Idaho, chairman; Charles W. Hunt, of Iowa, vice chairman; Huston Thompson, of Colorado; William E. Humphrey, of Washington; and Vernon W. Van Fleet, of Indiana.

Mr. Van Fleet tendered his resignation July 31, 1926, and was succeeded by Mr. Abram F. Myers, of Iowa, who was given a recess appointment by the President, and took oath of office thereunder on August 2, 1926.

Gratifying progress was made during the last fiscal year in discharging the duties confided to the commission. By pursuing a consistent policy the commission is gradually working out a high code of business ethics for the protection of the public and the guidance of industry. The value of this work is coming more and more to be appreciated, as is attested by the increasing degree of cooperation on the part of industry in carrying out the principles of fair competition and sound practice fostered by the commission. This cooperation is particularly manifested in the trade practice conferences.

The powers of the commission in obtaining information in connection with investigations prosecuted under section 6 of the Federal Trade Commission act are involved in several pending cases. Failure to obtain an authoritative ruling as to the commission's powers in this particular has somewhat hampered the work under certain resolutions of Congress, although excellent progress has been made as shown by the report of the economic division.

After the close of the fiscal year and before the submission of this report the Supreme Court handed down its decisions in the cases of

Federal Trade Commission v. Western Meat Co., No. 96; Thatcher Mfg. Co. v. Federal Trade Commission, No. 213; and Swift & Co. v. Federal Trade Commission, No. 231, under section 7 of the Clayton Act. The propositions laid down in these decisions may be summarized as follows:

(1) That if there has been an acquisition by one competitor of the stock of another, and the commission files a complaint under section 7 of the Clayton Act, and the holding company thereafter causes the assets of the controlled company to be transferred to it, the commission may issue an order requiring divestiture of both the stock and the assets.

(2) That if there has been an acquisition by one competitor of the stock of another, and the holding company causes the assets of the controlled company to be transferred to it, and the commission thereafter files a complaint, the commission exceeds its power if it attempts to order a divestiture of the assets.

The commission has been hampered in its work by being quartered in one of the temporary war-time buildings, subject to extremes of heat and cold. Since June 1, 1925, 392 working hours have been lost by necessary suspension of work on account of extremely high or low temperature. The average number of employees on duty being 225, it results that practically 1,270 working days, or the equivalent of the full working time of four employees for a year, was lost to the Government during that period.

The commission here reports in detail concerning its administration of the Federal Trade Commission act, approved September 26, 1914 (38 Stat. 717); delegated sections of the Clayton Act, approved October 15, 1914 (38 Stat. 730); and the export trade act, approved April 10, 1918 (48 Stat. 516). The administration of these acts by the commission falls under four major subjects, i. e., legal, economic, export trade, and administration, and the work of the year is reported under these captions in the order given.

REPORT BY DIVISIONS OF WORK

LEGAL DIVISIONS

Under this caption is reported the work relating to the prevention of unfair methods of competition prohibited by section 5 of the Federal Trade Commission act; and cases of price discrimination, tying contracts, corporate-stock acquisitions, and interlocking directorates, arising under sections 2, 3, 7, and 8, respectively, of the Clayton Act.

The various phases of the legal work are apportioned among five separate, independent divisions, each of which is responsible only to the commission. These are: Chief counsel's division, legal investigating division, board of review, trial examiners' division, and division of trade practice conferences.

STATISTICS AND PROCEDURE ON LEGAL WORK

The character and volume of the legal work performed can best be reflected in this report by the use of statistical tables supplemented by comment on representative cases. Therefore, tables have been prepared summarizing the work of the legal divisions and court proceedings for the current fiscal year, and also for the period covered by the life of the commission from its organization March 16, 1915, down to and including June 30, 1926. These tables are on pages 78 to 81.

Details of the procedure upon legal matters are set out in the following pages, being arranged in natural sequence from the initiation of a case to its final determination by the commission and review by the courts. This has been done under headings: (a) Legal investigating division, (b) board of review, (c) trial examiner, (d) chief counsel, (e) court cases, and (f) trade-practice conferences. In addition, a list has been prepared of the methods of competition heretofore condemned by the commission. This list is on page 50.

LEGAL INVESTIGATING DIVISION

OUTLINE OF PROCEDURE

The work of the chief examiner's division is divided into two classes: (1) Special legal investigations by direction of the President, the commission, or by Congress, and (2) investigations preliminary to the possible issuance of complaints of law violations.

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The former are handled under the personal supervision of the chief examiner, the results being compiled and forwarded to the commission for its information or transmittal to Congress or the President.

Investigations preliminary to the possible issuance of complaints originate in several ways, i. e., by the direction of the commission, by information developed in other investigations, and in the great majority of cases by direct application to the commission at its headquarters or branch offices.

In filing a complaint with the commission no formalities are required. A letter sufficies if it is signed by the complaining party and contains the name and address of the party complained against, together with a statement of the nature of relief sought. It should also transmit all the evidence in the possession of the complaining party.

Upon receipt by the chief examiner all matters are examined for necessary jurisdictional elements, such as public interest, unfair competition, interstate commerce, etc. Whenever necessary this examination is supplemented by correspondence or interviews. If the material is first presented at a branch office, the attorney in charge conducts the preliminary investigation, together with any necessary correspondence or interviews, and forwards the result of his work to the chief examiner, who passes upon it in the same manner as material originating at headquarters.

If the material examined is not within the jurisdiction of the commission or is without merit, or if the matter is satisfactorily disposed of by conference or correspondence, the file is closed as an "Undocketed application." If the matter is within the commission's jurisdiction, is well founded, and can not be satisfactorily disposed of by informal consultation or correspondence, it is docketed as an Application for the issuance of complaint."

Each docketed application is assigned by the chief examiner to an examining attorney, whose duty it is to gather all facts. Without identifying the applicant, the party complained against is presented with a complete statement of the matter and requested to submit such statements, evidence, documents, etc., in defense or explanation of his position, as he may desire brought to the attention of the commission. The examining attorney makes such other investigation as may be necessary for full development of all facts, and thereafter summarizes his work in a final report which is submitted, with the record, to the chief examiner.

The chief examiner passes upon the examining attorney's report and indicats his approval or disapproval. If the examining attorney and chief examiner agree in their opinion that the application should be dismissed, the case passes to the full commission for its im