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Mr. WOODRUM. Of course, one justification for that fee that the chain gets from the portion of fees charged is the fact that the chains give them sustaining programs, do they not-a lot of free programs?

Mr. Fly. Well, in effect they charge them for the sustaining programs and they pay them for carrying the commercials. Again, there is a pretty complex scheme of balancing them off.

TAXATION ON STATIONS AND NETWORKS

Mr. WIGGLESWORTH. Now, you spoke about the matter of taxation. As you know, a year ago the Treasury made a study and recommended some taxes on these chains which I think ran up to about $10,000,000 and the House put those taxes in the bill. Subsequently, I think you appear before the Senate Finance Committee in opposition to those taxes, and the Senate threw them out. I wonder if you have completed the study of that question that you have been working on for a good many years, and whether you have any recommendations?

Mr. Fly. I thought, sir, my previous answer had covered that. In view of the fact that the Treasury itself has begun a study of this specific subject-and I assume, of course, they are interested in it from a revenue-producing point of view—we have made our material and our personnel available to the Treasury so that what we have done by way of studies can be utilized in that way. You see, we are in somewhat of an embarrassing position. It is hardly our job, as a Commission, to appear before the Congress and recommend a tax measure, a revenue measure. Of course, we are concerned with it and that sort of thing, but we recognize that that is primarily a function of the Treasury Department.

Mr. WIGGLESWORTH. How do you reconcile that with the fact that, after they had studied the matter and made recommendations and the House had adopted it, you appeared in opposition before the Senate committee?

Mr. Fly. I think you will find there, sir, I did not appear in opposition to a tax. That was a high gross revenue tax and I did appear and I think it is not unfair to say in opposition. I expressed the thought it was dubious and I still think so. I do not think it was studied through. It would have hit rather severely in certain spots and perhaps it would not have touched substantially at all in many other spots. But I doubt if there was a feasible scheme of taxation, and certainly I was not opposed to the idea of taxation under a wellconsidered scheme of taxation of the industry; I think there ought to be one.

Mr. WIGGLESWORTH. I may be wrong in my figures and, if I am, I would appreciate it if somebody would correct them, but I think after the proposed Treasury tax of $10,000,000 had been imposed, the Treasury indicated there would still have been a 40-percent net profit to the stations and networks. I think also your own figures, which you have made public in the course of the last year or so, show that if you take the net profits of the net works and the 700 or more stations before Federal-income taxes are paid, there has been a net profit of something like 66 percent. And that if you do the same thing for just the networks and their 23 managed stations, you find a net profit of something like 300 percent.

If those figures are anywhere near right, it seems to me there is every reason in the world, in these times, for imposing a substantial tax on those who are making a killing out of licenses from the Federal Government for which they do not pay a cent.

Mr. Fly. I agree with you, sir, that there is an appropriate field here for taxation and that many of them can pay such a tax without there being any substantial impact. For example, many of them can pay a tax without being driven out of the profit class. Of course, the major return in the industry is to the networks.

MONOPOLY INVESTIGATION OF CHAIN BROADCASTING Mr. WIGGLESWORTH. Just one other thing. I understand there is an injunction sought by the three big chains against a threatened antitrust investigation.

Mr. Fly. No. The injunction is sought against the antimonopoly regulations which the Commission has issued.

Mr. WIGGLESWORTH. What lawyer is representing the Government in that connection?

Mr. Fly. Our General Counsel and his assistants are doing the most of the work, sir, in cooperation with the Department of Justice.

Mr. WIGGLESWORTH. Where does Mr. Cahill come into the picture?

Mr. Fly. Mr. John Cahill is former United States Attorney in the Southern District of New York and now a member of the law firm of Wright, Gordon, Zachry, Parlin, and Cahill.

Mr. WIGGLESWORTH. Is Mr. Cahill representing the networks?

Mr. Fly. He has represented the National Boradcasting Co. and, Judge John Burns, former General Counsel of the Securities Commission, up to the present time has represented the Columbia Broadcasting System. Recently Charles Evans Hughes, Jr., has been brought into the case by the Columbia Broadcasting System, and I think he and Judge Burns are associated in the case.

Mr. WIGGLESWORTH. Where does Mr. Brodsky come into the picture-Mr. Samuel Brodsky?

Mr. Fly. Well, Mr. Brodsky is a special assistant attorney genera) attached to the United States district attorney's office at New York and where, as here, the United States is formally a party in the proceedings he, of course, represents the United States. The Commission, however, is the main party defendant and is the active defendant.

Mr. WIGGLESWORTH. Was Mr. Brodsky a former assistant to Mr. Cahill?

Mr. Fly. Yes; he was an assistant in the district attorney's office when Cahill was there. He was not appointed by Cahill. And I ought to say that the United States attorney there who was formerly associated with Cahill's firm recused himself because of the fact he was formerly associated with Mr. Cahill.

Mr. WIGGLESWORTH. There has been no association between Cahill and Brodsky?

Mr. FLY. None other than I have indicated.

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Mr. WIGGLESWORTH. Now, I do not know whether you saw this, but I will just read a quotation from one of the recent radio business letters. I do not know whether there is any further comment you may care to make or not. The letter says:

In 1940 the Antitrust Division wearied of the Federal Communications Commission monopoly investigation of chain broadcasting and demanded all of the evidence and testimony given to the Federal Communications Commission in this inquiry. Federal Communications Commission delayed but promised to get out its monopoly report right away and then send over the desired records. Then the Antitrust Division began to prepare its own action against National Broadcasting Co. and Columbia Broadcasting System and any others believed violating the Sherman Act. However, the Federal Communications Commission issued its chain broadcasting rules and Thurman Arnold's office sat back to see if they would have a salutary effect upon the industry. When radio executives resorted to congressional committees and then showed signs of going into court, Thurman Arnold called officers of National Broadcasting Co., Columbia Broadcasting System, and Mutual Broadcasting System into his office to tell them that he had an antitrust case against them in his mind. That was on October 29, and the next day National Broadcasting Co. and Columbia Broadcasting System went into court to ask injunction against the United States (Federal Communications Commission).

Since the Antitrust Division of the Department of Justice is assigned to defend the Federal Communications Commission in the Federal courts, it was understood that Victor O. Waters, of the Department of Justice staff, began to study the National Broadcasting Co. and Columbia Broadcasting System arguments. Then in a surprising move Attorney General Biddle appointed Samuel Brodsky as Special Assistant to the Attorney General, which left the Antitrust Division wondering if its own case against the radio companies had not already received à coup de grâce.

Is there any additional comment you want to make?

Mr. Fly. I think our own case, that is, the Commission's own report, and the regulations resulting from that were brought into issue by this injunction suit, in which the networks are the plaintiffs and, in that, we have had the cooperation of the department generally—the Attorney General and members of the staff, particularly of the Antitrust Division, including Mr. Waters and others. But the question as to whether the department itself would bring an antitrust action against the networks was a different question and would have involved a different case, in which the United States would have appeared as the plaintiff and as the prosecuting agency, and would have been doing it pursuant to the antitrust laws.

MR. WIGGLESWORTH. Has that been dropped now? What is the status? Has it been dropped, pending a hearing on the injunction?

Mr. Fly. I do not know, sir. I know it has been given substantial attention by the Department of Justice over a long period, and more intensively since we forwarded our record over there after we completed our own report. I do not know whether they have concluded to proceed or to abandon.

Mr. WIGGLESWORTH. What is the status of the injunction proceeding?

Mr. Fly. There are presently pending motions by the networks for a preliminary injunction and we, in turn, have motions to dismiss and for summary judgment.

Mr. WIGGLESWORTH. When will those be heard?
Mr. Fly. They will be argued next Monday, December 15.
Mr. WIGGLESWORTH. That is all I have, Mr. Chairman.
Mr. WOODRUM. Thank you, gentlemen.

DECEMBER 12, 1941.

FEDERAL TRADE COMMISSION

STATEMENTS BY CHARLES H. MARCH, CHAIRMAN; COMMIS

SIONERS GARLAND S. FERGUSON, EWIN L. DAVIS, WILLIAM A. AYRES, AND ROBERT E. FREER; OTIS B. JOHNSON, SECRETARY; WILLIAM T. KELLEY, CHIEF COUNSEL; WILLIAM H. ENGLAND, CHIEF ECONOMIST; JAMES A. HORTON, CHIEF EXAMINER; HENRY MILLER, DIRECTOR, TRADE PRACTICE CONFERENCES; PGAD B. MOREHOUSE, DIRECTOR, RADIO AND PERIODICAL DIVISION; AND ANDREW N. ROSS, BUDGET OFFICER

SALARIES AND EXPENSES

Mr. WOODRUM. We will take up the items for the Federal Trade Commission, the first item for salaries and general expenses being in the amount of $2,252,224, and a second item for printing and binding, in the sum of $50,250, making a total of $2,302,474, as follows:

For five Commissioners, and for all other authorized expenditures of the Federal Trade Commission in performing the duties imposed by law or in pursuance of law, including secretary to the Commission and other personal services, contract stenographic reporting services; supplies and equipment, lawbooks, books of reference, periodicals, garage rentals, traveling expenses, including not to exceed $900 for expenses of attendance, when specifically authorized by the Comn ission, at meetings concerned with the work of the Federal Trade Commission, for Dewspapers not to exceed $500, foreign postage, and witness fees and mileage in accordance with section 9 of the Federal Trade Commission Act; $2,252,224: Provided, That no part of the funds appropriated herein for the Federal Trade Commission shall be expended upon any investigation hereafter provided by concurrent resolution of the Congress until funds are appropriated subsequently to the enactment of such resolution to finance the cost of such investigation.

For all printing and binding for the Federal Trade Commission, $50,250.
Total, Federal Trade Commission, $2,302,474.

JUSTIFICATION OF ESTIMATE

Mr. March. May I submit the following statement in justification of these estimates?

JUSTIFICATION OF ESTIMATES OF APPROPRIATIONS, FEDERAL TRADE COMMISSION,

1943

This statement is respectfully submitted to the chairman and members of the House Committee on Appropriations for independent offices in explanation and justification of the estimates of appropriations of the Federal Trade Commission for the fiscal year July 1, 1942, to June 30, 1943.

Statutory authority. - The Federal Trade Commission, an administrative agency, created by the act of September 26, 1914, is charged with the enforcement of the Federal Trade Commission Act, as amended by the Wheeler-Lea Act, approved March 21, 1938 (52 Stat. 111-117); section 2 of the Clayton Act, as amended by the Robinson-Patman Act, approved June 19, 1936 (49 Stat. 1526), and sections 3,7, and 8 of the Clayton Act of October 15, 1914 (38 Stat. 730); the Export Trade Act, approved April 10, 1918 (40 Stat. 516); and the Wool Products Labeling Act of 1939, approved October 14, 1940 (54 Stat. 1128).

Duties.—The principal duties of the Commission under the above-mentioned statutes are

(1) The Federal Trade Commission Act.—Under this act, the Commission is charged with (a) the prevention of unfais methods of competition in commerce, and unfair or deceptive acts or practices in commerce; (b) the conduct of investigations relating to (1) alleged violations of the antitrust acts, (2) the manner in which decrees in antitrust suits brought by the United States have been carried out, and (3) the organization, business, conduct, practices, and management of corporations engaged in commerce (with certain statutory exemptions), and their relation to other enterprises; (c) the making of reports and recommendations to the Congress with respect to legislation; and (d) the conduct of trade conferences of industries for the elimination of unlawful and unethical business practices.

(2) Clayton Act.— Under the Clayton Act, as amended by the Robinson-Patman Act, which greatly enlarged and increased the jurisdiction and duties of the Commission in respect to unlawful price discriminations, the Commission is charged with the prevention of certain specific practices; i. e., unlawful price and related discriminations, tying contracts, stock acquisitions, and interlocking directorates.

(3) Export Trade Act.-- Under the Export Trade Act the Commission supervises the registration and operations of associations engaged solely in export trade, which for this purpose are exempt from the provisions of the antitrust acts, provided neither trade within the United States nor export trade of domestic exporters is restrained thereby.

(4) Wool Products Labeling Act of 1939.Under this statute the manufacture for introduction into commerce, or the introduction, sale, transportation or distribution, in commerce, of misbranded wool products, is unlawful, and constitutes an unfair method of competition and an unfair and deceptive act and practice under the Federal Trade Commission Act. The Commission is authorized to make inspections analyses, tests, and examinations of all wool products subject to the act and to make such rules and regulations as may be necessary and proper for the administration and enforcement of the act. In addition, the Commission is also empowered under the statute to prevent the movement of misbranded wool products in commerce by injunction and to proceed by libel action in certain cases for condemnation of such products.

APPROPRIATIONS AND ESTIMATES

Appropriations, 1942.- The total appropriations for all purposes, except printing and binding, for the fiscal year 1942 amount to $2,300,000. For printing and binding, 1942, $60,000. A grand total of $2,360,000.

Estimates for 1943.-For all purposes, except printing and binding, the estimates for the fiscal year 1943 amount to $2,252,224 and provide for the projects listed below in the amounts specified. For printing and binding, 1943, $50,250. A grand total of $2,302,474.

Net decrease for 1943.—The estimates represent a decrease of $47,776 in salaries and expenses under 1942 appropriations. For printing and binding the estimate for 1943 represents a decrease under the appropriation for 1942 of $9,750, or a total decrease of $57,526.

These estimates, together with estimated expenditures for 1942 and actual expenditures for 1941, are set forth in the following table:

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Decrease in and reallocations of funds by projects, 1943.The amount carried in the estimates represents a base decrease of $75,000 for the fiscal year 1943 under the fiscal year 1942. This decrease of $75,000 in the defense project, however, is offset in part by the sum of $27,224 which is allocated in the estimates for a portion of the annual cost of the automatic salary advancements under the provisions of the Ramspeck Act approved August 1, 1941, leaving a net decrease

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