United States. Temporary National Economic Committ.

Investigation of concentration of economic power; monograph no. 1[-43] (Volume no. 34) online

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Printed for the use of the
Temporary National Economic Committee





JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman

HATTON W. SUMNERS, Represeniatire from Teias, Vice Chairman

WILLIAM H. KING, Senator from Utah

WALLACE H. WHITE, Jr., Senator from Maine

CLYDE WILLIAMS, Representative from Missouri

B. CARROLL REECE, Representative from Tennessee

THURMAN W. ARNOLD, Assistant Attorney General,

•WENDELL BEROE, Special Assistf^nt to the Attorney General,

Representing the Department of Justice


♦SUMNER T. PIKE, Comm.issioner,

Representing the Securities and Exchange Commission

GARLAND S. FERGUSON, Com.missioner,

*EWIN L. DAVIS, Chairman,

Representing the Fed^-ral Trade Commission

ISADOR LUBIN, Commissioner of Labor Statistics,

♦A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics,

Representing the Department of Labor

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel,

•CHARLES L. KADES, Special Assistant to the General Counsel,

Representing the Department of the Treasury

* * *

Represei ting the Department of Comn:erce

LEON HENDERSON. Economic Coordinator

DEWEY ANDERSON, Executive Secretary

THEODORE J. KREPS, Economic Adviser


Monograph No. 34



The Temporary National Economic Committee is greatly indebted
to the Federal Ttade Commission for this contribution to the litera-
ture of the subject under review.

The status of the materials in this volume is precisely the same as that
of other carefully prepared testimony when given by individual witrtesses;
it is information submitted jor Committee deliberation. No matter what
the official capacity oj the vritness or author may be, the publication of
his testimony, report, or monograph by the Committee in.no way signifies
nor implies assent to, or approval of, any of the facts, opinions, or recom-
mendations, nor acceptance thereof in whole or in part by the members of
the Temporary National Economic Committee, individually or collec-
tively. Sole and undivided responsibility for every statement in such
testimony, reports, or monographs rests entirely upon the respective

Joseph C. O'Mahoney,
Chairman, Temporary National Economic Committee.



Letter of transmittal vii

Introduction 1

Legal objectives 1

Actual operation extends through 20 years 1

Procedure 2

Public interest of primary concern 2

Industry conference 3

Public hearing 3

Approval and promulgation of rules 3

Requirements for approval of rules 3

Classification of rules and enforceability 4

Group I. Mandatory requirements 4

Group II rules. Advisory and optional provisions 5

Industries and types of trade practices covered 6

Size and type of industries 6

Typical practices covered by promulgated rules 8

Illustrations of effective treatment of difficult industry problems 1ft

Some distinctive advantages of the trade practice conference procedure. . 14

Voluntary correction en masse 14

Application of compulsory process against persistent violators facil-
itated .' 15

Certainty as to application of the law; rallying point for constructive

forces in industry; aid to small business 15

Corrective effect in specifying harmful practices 16

Plan tested by actual experience 16

Public acceptance and recognition 16

Minimum standards of product 16

Flexibility to meet changing conditions ^ 16

Supervised self-regulation in business afforded 17

Consumer rights, as well as those of sellers, protected 17

Advantage in economy of operation 18

Administrative agencj' of quasi-judicial and nonpartisan character-. 18
Constructive accomplishments as indicated in expressions of members of

industry, trade organizations, and from authoritative writings 19

From individual members and representatives of industry 19

Published statements from 'authoritative sources 22

Conclusion 25


Kules of procedure relating to the trade practice conference work of the

Federal Trade Commission 27


Trade practice rules 29

Baby chick industry 29

Radio receiving set manufacturing industry . 39

Rubber tir6 industry 47

Silk industry 53



September 18, 1940.
Dr. H. Dewey Anderson,

Executive Secretary to the Temporary National Economic

Com-niiitee, Federal Trade Commission Building,

Washington, D. C.

Dear Dr. Anderson: I am transmitting herewith for consideration
by the Temporary National Economic Committee a report of the Fed-
eral Trade Commission entitled ''Control of Unfair Competitive Prac-
tices Through Trade Practice Conference Procedm-e of the Federal
Trade Commission."

This report has been read and approved by the Commission.
Very truly yours,

Willis J. Ballinger,
Director oj Temporary National Economic Committee Studies

for the Federal Trade Commission.




To maintain free and fair competition in trade and commerce, to aid
business, and to protect the public interest, rules of fair trade practices
are established by the Commission for respective industries, under
what is known as the trade practice conference procedure. This is a
cooperative method for preventing unfair methods of competition,
monopolistic restraints, and other business practices that are contrary
to the laws which the Commission is directed to enforce.

The procedure involves the holding of trade practice conferences in
industries and the voluntary participation of industry groups and
affected parties with the Commission in joint undertaking to formulate
the rules and to carry them into effect. The rules are passed upon
and approved by the Commission, and are promulgated as com-
petitive standards for the respective industries to which they apply.
Trade practices in the industry which are harmful and unfair are
defined and cataloged, and provision is made for the elimination of
such evils. Voluntary cooperation is utilized as a primary means to
this end.

In addition to providing such detailed specifications as to unfair or
harmful practices to be avoided, provision may also be made, and
often is, whereby certain positive trade methods in the particular
industry are defined and sanctioned as being proper and promotive of
sound business methods in keeping with the policy of the law and the
public interest.

The organization and encouragement of voluntary cooperative
effort to end trade abuses, the creation of officially recognized standards
of fair competition with consequent guidance to industry as to what
may or may not be done under the law, and the exercise of a sub-
stantial measure of self-regulation in business under supervision of the
Commission, are distinctive features of the plan.

Legal objectives. — Under the organic act creating the Federal
Trade Commission,^ that body was set up as an agency to deal with
competitive conditions in industry, and to act in prevention of unfair
methods of competition and other unfair practices in interstate com-
merce. Subsequently, by the Clayton Act and amendments thereto,
other practices of a monopolistic character were more specifically
brought within the orbit of the Commission's correctional functions.
To effectuate observance of these laws by industry-wide cooperative
action under rules is, in legal contemplation, the immediate objective
of the trade practice conference procedure.

Actual operation extends through 20 years. — The trade practice con-
ference plan has been in operation ior some 20 years, and rules have

' Federal Trade Commission Act, passed September 26, 1914, amended March 21, 1938 (16 U. 8. C. A. 41-68).

283999— 41— No. 34 2


been established thereunder for many industries. The inception of
the idea goes as far back as 1918. In an early report of the Commis-
sion, the procedure was referred to, in part, as follows:

The trade practice conference was the logical development of the efforts of the
Commission, cooperating with industry, to protect the public against unfair
methods of competition and to raise the standards of business practices. As
early as the year 1919 the Commission established the procedure of holding con-
ferences witl\ industry for the purpose of eliminating unfair methods of competi-
tion as well as trade abuses existing therein .*

Since the early beginnings in 1918 and 1919, there has been a
steadily increasing application of the plan. It has become progres-
sively popular as a needful and effective method for treating the com-
plicated questions in the elevation of standards of business practices
and the removal of obstructions from the channels of distribution and
commerce. Through demonstrated results its various advantages
have received recognition on the part of industry and the public, and
this has led to widening demands for the help such conference method
affords' in the solution of competitive problems. Growth has taken
place not only in number of industries covered, but also in scope of
usefulness and subject matter treated. In addition to the numerous
industries which are now operating under established trade practice
conference rules, applications from other industries are being received
by the Commission in sustained volume.


The Commission's rules of procedure applicable to its trade practice
conference work are set forth in appendix A (p. 27). These point out
that the plan affords opportunity for voluntary participation by in-
dustry groups and that any interested party or group desiring to do
so may file application for trade practice conference rules for an in-
dustry. Proceedings are usually initiated upon application commg
from the industry itself. It was in this way generally that the pro-
ceedings for those industries for which rules have heretofore been
established had their inception. Such appendix A also sets out the
applicable provisions as to form and content of the application, and as
to opportunity for informal meetings and discussions with the Commis-
sion's staff, the holding of the industry conference, the subsequent
public notice to and hearing of intefested or affected parties, and the
final approval and promulgation of rules.

Public interest of primary concern. — The Commission acts in the
public interest and trade practice conference proceedings are not
authorized by the Commission, either upon application or otherwise,
unless it appears that they would substantially serve such interest of
the public. On the question of public interest in authorizing pro-
ceedings for a particular industry, the Commission may consider
whether under the circumstances existing in the case the undertaking
is feasible and shows substantial possibilities of constructively advanc-
ing the best interests of industry on sound competitive principles in
consonance with public policy, and of bringing about more adequate
and equitable observance of the laws under which the Commission
has jurisdiction. The public interest extends to the welfare of both
the purchaser and the seller, and all facts which constructively sup-
port their legitimate interests are pertinent. Consumer protection is,
of course, a matter of major concern (cf. p. 17).

» Annual report of the Federal Trade Commission for flscal year 1933.


Industry conjerence. — When proceedings for an industry are directed
to be undertaken, a trade practice conference of all members of the
industry is called by the Commission to consider and submit sugges-
tions and proposed rules for the elimination of unfair trade practices
and the improvement of competitive conditions in the industry.
Public notice of the time and place of such conference is issued and all
members are invited to attend and participate in the proceedings.
Each is encouraged to contribute his views and best thought on the
subject, in joint effort to arrive at constructive results within the law.

Members of the industry and interested parties are afforded every
assistance by the Commission. Preliminary meetings and discus-
sions by members of the Commission's staff are had with industry
committees, members, or parties in interest, to afford guidance and
assistance in fully understandmg the proceed.ing and its objectives, in
preparing applications and drafts of proposed rules, and in working
out solutions of competitive problems in a manner which will avoid
hardships and be constructive.

A transcript is made of the general industry conference, recording
ail proposed rules, resolutions, amendments, and other matters offered,
and the discussion concerning the same. Such record, the proposals
and suggestions developed at the conference, and the industry prob-
lems involved, are submitted to the Commission. They are examined
and studied by the Commission's staff, to the end that the rules finally
approved may cover adequately and constructively the unfair com-
petitive practices and trade abuses affecting the industry and be
within the boundaries of legal propriety.

Public hearing. — ^As part of the Commission's collaboration with all
parties in interest and before final action is taken, a draft of proposed
rules, based upon a study of the various problems and suggestions
made and the requirements of law and the public interest involved,
is prepared and made available by the Commission to all concerned.
Public notice is also issued in connection therewith, affording the
members of the industry and all interested or affected parties oppor-
tunity to consider the proposals in concrete form, to submit such
pertinent information, views, suggestions, amendments, or objections
as they desire to present for consideration of the Commission, and to
be heard at public hearing held for the purpose. Thus all parties
concerned in the matter, whether members of the industry or not, are
invited to collaborate with the Commission, to present their views
and suggestions, and to be heard.

Approval and promulgation of rules. — After due consideration of the
entire matter the Commission proceeds to final action in the premises,
and the rules as thereupon approved and received by the Commission
are promulgated and put into effect as rules for the industry. Such
promulgation is made officially through the Federal Register. Copies
of the rules are supplied to all members of the industry, and each is
afforded opportunity to record his intention to observe the rules in
the conduct of his business by signing an acceptance form which is
filed with the Commission.


In passing upon the rules proposed for approval and acceptance,
the Commission applies the test of law. The rules must not sanction
practices which are contrars' to law, or which v^hen put into effect


may bring about a result that is illegal or opposed to the public
interest. The possibilities of inequities or of undue advantage of
one group over another are also guarded against. The rules must be
such as are well calculated to elevate the standards of competitive
practices in the industry and to promote law observance, to the end
that business may be liberated fn the waste and fetters of unfair
practices and the rights of the public may be protected.


Rules under Trade Commission procedure are divided into two
classes — :"Group I" and "Group II." Group I rules contain the man-
datory requirements, and Group II the advisory or voluntary pro-

Group I. Mandatory requirements. — Approved provisions which
proscribe practices as being unfair are placed in Group I and are
mandatory because they are expressive of legal requirements. They
may therefore be said to have the force of law behind them. They
cover as "unfair trade practices" types of competitive conduct which
fall within the broad inhibitions in acts of Congress under which the
Commission exercises enforcement powers. The offender or party
indulging in such inhibited practices, in a manner involving that com-
merce which is subject to Federal control, renders himself liable to
corrective proceedings under such acts. These statutes are the
Federal Trade Commission Act, the Webb-Pomerene Export Trade
Act, certain sections of the Clayton Act, and tlie Robinson-Patman
Antidiscrimination Act. The Group I rules may include any type
of practice which in contemplation of law comes within the broad
field of "unfair methods of competition" or of "unfair or deceptive
acts or practices in commerce," ^ or which falls within the categories
of discriminatory and monopolistic restraints condemned by the
Robinson-Patman Antidiscrimination Act/ the Clayton Act,^ or the
Federal Trade Commission Act.'

There are many volumes of court and Commission decisions con-
struing such statutes, and these decisions, as well as the pro^■isions of
the laws themselves and their legislative histories, supply a large body
of source material which is drawn upon in determinmg wlir ther a given
rule is eligible for Group I.

As indicated elsewhere, the Group I rules comprise about 90 per-
cent of the entire set for an industry. They are of major importance,
largely because of the fact that they strike directly at the trade evvils
in the industry. Group I rules being aligned with and detailing legal
inhibitions, obedience to their requirements is not a matter of choice.
The obligation to observe such requirements in interstate distribu-
tion, and to refrain from practices thus prohibited within the scope
of the law, is binding upon all, quite irrespective of the fact that the
alleged offender may have refused to take part in the establishment
of the rules, or refused or failed to pledge obedience thereto. Vol-
untary adherence is general under approved trade practice rules, and
nsually resort to the compulsory processes becomes necessary only in
comparatively few cases which may arise from a recalcitrant minority.

' Section 5, Federal Trade Commission Act, 15 U. S. C. A. 45, as amended, and section 4 of the Webb-
Pomerene Export Trade Act, 15 U. S. C. A. 64.
« 15 U. S. C. A. 13, and 13a and b; 49 Stat. 1526; amended 52 Stat. 446.
« 15 U. S. C. A. 14, 18, 19, 21.


Group I rules as projnulgated by the Commission carry a headnote
in which their enforceabihty is described as follows:

Unfair trade practices which are embraced in these Group I rules are considered
to be unfair methods of competition, unfair or deceptive acts or practices, or
other illegal practices, prohibited under laws administered by the Federal Trade
Commission, as construed in the decisions of the Commission or the courts; and
appropriate proceedings in the public interest will be taken by the Commission
to prevent the use, by any person, partnership, corporation, or other organization
subject to its jurisdiction, of such unlawful practices in or directly affecting inter-
state commerce.

When cases of alleged violation come to the attention of the Com-
mission by way of complaint or otherwise, inquiry into the facts is
made by the Commission, and if such infraction as may be found is
not corrected through voluntary action, compulsorj'- process is
brought into play to effect the needed correction and bring the
offender's practices into harmony with the law as expressed in the
rules. This process is prescribed by the statutes mentioned. Under
these statutes and the rules of the Commission, all legal and constitu-
tional rights are accorded the accused. He has the right to file answer
to formal charges, the right to have a trial, to cross-examine witnesses,
.introduce evidence on his own behalf, file briefs, and be heard; also to
seek court review.

The members of the industry, through their trade association or in
direct contact, assist the Commission in seeing that the rules are
equitably observed, to the end that infractions are avoided or cor-
rected. In some industries a trade practice committee is estabhshed
under the rules to cooperate with the Commission in the compliance
work. An important point is that such trade practice committee is
not authorized to exercise any governmental powers, but serves as a
medium for keeping the Commission informed as to activities in the
industry in relation to the rules and to supply the Commission with
other information and helpful service.

Group II Rules. Advisory and optional provisions. — While the Group
I rules express compulsory requirements, in Group II are placed the
permissive practices and recommended volimtary restrictions, which
a,re to be promoted and followed on an optional basis. This status is
likewise explained in a headnote to such rules, which reads as follows:

Compliance with the trade practice provisions embraced in the Group II rules
is considered to be conducive to sound business methods and is to be encouraged
and promoted individually or through voluntary cooperation exercised in accord-
ance with existing law. Nonobservance of such rules does not, per se, consti-
tute violation of law. Where, however, the practice of not complying with any
such Group II rules is followed in such manner as to result in unfair methods of
competition, or unfair or deceptive acts or practices, corrective proceedings may
be instituted by the Commission as in the case of a violation of Group I rules.

Frequently there are instances in which the industry desires to
promote and foster certain practices on a purely voluntary basis,
with governmental acceptance. The opportunity to do so and to go
on record in support of such rules is afforded under the Group II
classification. Although not necessarily compulsory, provisions of this
class are those which are found to be within the law and are considered
desirable in the interests of good business and the promotion of fair
competitive conditions.

Adherence to Group II rules, on a voluntary basis and without
compulsion, is in general sufficiently adequate and effective. This
may be accounted for by the fact that ordinarily the Group II rules


are such that members of the mdustry are only too glad to abide by
them once they are assured through Commission acceptance that it is
proper to follow them and to cooperate with others in doing so.

Representative practices covered in the Group II and also in the
Group I rules are listed on pp. 8-10.


Over 200 conference proceedings for industries have been conducted
by the Commission since the inception of this phase of its work.
The following are representaitive of these industries and of the
established rules:

Subscription and mail order book
publishing industry.

Tuna industry.

Resistance welder manufacturing in-

Ripe olive industry.

Uniform industry

Folding paper box industry.

Umbrella industry.

Sardine industry.

Curled hair industry.

Public seating industry.

Marking devices industry.

Cotton converting industry.

Radio receiving set manufacturing in-

Mirror manufacturing industry.

Putty manufacturing industry.

Wine industry.

Ribbon industry.

Infants' and children's knitted outer-
wear industry.

Paint and varnish brush manufacturing

Baby chick industry.

Silk industry.

Oleomargarine manufacturing industry.

Tomato paste manufacturing industry.

Macaroni, noodles, and related products

Shrinkage of woven cotton yard goods.

Fur industry.

Carbon dioxide manufacturing industry.

Metal clad door and accessories manu-
facturing industry.

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