order on a proper showing that substantial delay may be involved in the issuance of a complaint by the Federal Trade Commission or the determination of the case before the Federal Trade Commission; or in the alternative that the order provide for the transfer of the proceeding to the district court for hearing and determination on the merits. The bills provide further that after an acquisition has been consummated, the FTC may obtain an injunction requiring the maintenance of the "status quo." This term would present many difficulties of interpretation particularly where assets rather than stock are acquired. For example, would a "status quo" injunction prevent the sale of one or more piece of obsolete machinery obtained in a merger? Would it prevent the sale of a division of a business losing money? Would it, in the case of a stock acquisition, prevent the holding of stockholders' meetings, election of officers, approval of directors, etc.? A "status quo" injunction pending a determination by the GFTC could be ruinous to the business affected. CONCLUSION We are opposed to the legislation in its present form. SUPPLEMENTAL STATEMENT ON BEHALF OF COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, INC., BY JAMES F. HOGE This is supplemental to statement made before the committee on June 2, 1956. During the course of testimony at that time, the chairman of the subcommittee stated that an additional statement to the committee with respect to H. R. 9424, Subcommittee Print No. 2 (containing departmental amendments), would be welcome. It was requested that such additional statement include information about the Commerce and Industry Association and some reference to the way in which section 13 of the Federal Trade Commission Act has worked out as to those provisions on which the injunction powers in this bill are patterned. COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, INC. The association is a corporation of the State of New York. As stated at the hearing on June 2, it is a service chamber of commerce for the New York metropolitan area and the largest such association in the East. It represents approximately 3,500 firms and a cross section of business ranging from small machine shops to the largest and most prominent firms in the country. It was organized in 1897 as the Merchants Association "to foster the trade and welfare of New York"; to promote business unity, to fill the city's rapidly growing need for an organization geared to provide day-to-day services for business and industry, and for civic improvement. Because of its widened sphere of activity and influence, its name was changed to Commerce and Industry Association in 1941. The association has, from its beginning, consistently contributed to the general welfare of the city, and particularly to its business and industry, by taking a hand in constructive and progressive programs for civic improvement and advancement. Specifically, the association is the spokesman for and adviser to its members on matters in relation to city, State, and Federal legislation, procedures and regulations; world trade and transportation; personnel management; taxation; property ownership; salary and business practices and social security. The association is recognized as "the voice of New York business" and is dedicated to serving the best interests of the business community, not only locally but nationally and on an international scale. DEPARTMENTAL AMENDMENTS These amendments, shown in Subcommittee Print No. 2, meet several of the suggestions in our original statement. However, they are all based upon the premise of a waiting period of 90 days. We, therefore, reiterate our position that, from a practical standpoint, any enforced waiting period will endanger and, in many instances, preclude corporate acquisitions, many of which would be to the advantage of the parties and to the good of the national economy. We therefore, urge-as we did at the hearing on June 2-that if there is to be a waiting period it should not exceed 30 days.. We also renew our request that the bill should provide that information furnished to the Attorney General and to the Commission and other boards should be received in confidence and safeguarded against disclosure other than that necessary in proper enforcement of the law. The proposed departmental amendment shown on pages 4 and 5 of Subcommittee Print No. 2 to the effect that the notice provisions should not apply "to any acquisition by an corporation *** from any corporation where either party to the transaction holds or controls, * * * more than 50 percent of the voting rights, *** in the other" does not provide sufficiently broad relief. Under the language suggested by the departmental amendments, the notice provisions would still apply to a transfer of assets from one wholly owned subsidiary to another wholly owned subsidiary. The reason for the change suggested in the bill by the departmental amendments, it is submitted, is also applicable to the transfer mentioned, namely, from one subsidiary to another. Therefore, we would suggest that the opening portion of the third paragraph of the bill be amended to read as follows: "The preceding paragraph shall not apply to any acquisition by any corporation from the Government of the United States or from any corporation which is a member of an affiliated group of corporations of which the acquiring corporation is also a member; an affiliated group of corporations shall mean one or more chains of corporatins connected through stock ownership with a common parent corporation if (1) stock possessing more than 50 per centum of the voting power of all classes of stock of each of the corporations in the group (except the common parent corporation) is owned by one or more of the other corporations in the group and (2) the common parent corporation owns directly stock possessing more than 50 per centum of the voting power of all classes of stock of at least one of the other corporations." THE INJUNCTION PROVISION Section 3 of the Subcommittee Print No. 2 is the same as was section 2 in the bill as it passed the House. As stated above, it was requested that this supplemental statement include some reference to the way in which section 13 of the Federal Trade Commission Act has operated. That is the section which authorizes injunction in the enforcement of the provisions of the Federal Trade Commission Act with respect to false advertisements of food, drugs, and cosmetics. This authorization was included in the Wheeler-Lea amendments to the Federal Trade Commission Act. That was in 1938. While there have been a number of cases instituted since that time, only a very few have been reported and they do not afford any basis for forecasting the operation of the provision in the bill-or, indeed, of section 13 in the Federal Trade Commission Act. One reported case went off simply on the definition of the word "drug”. In Federal Trade Commission v. Liggett & Myers Tobacco Co. (108 F. Supp. 573, (U. S. D. C., S. D. N. Y., 1952; affd. C. A. 2d, per curiam, 203 F. 2d 955)), the Commission sought to enjoin the dissemination of allegedly false advertising by the Liggett & Myers Tobacco Co. pending the issuance of a complaint under sections 5 and 12 of the Federal Trade Commission Act. The court held that since tobacco was not a "drug," the court had no jurisdiction under section 13 of the Federal Trade Commission Act to grant the injunctive relief sought. Another case construed the language in section 13 with respect to what constitutes a "proper showing" quite as interpreted in our original statement and in our discussion at the hearing. It was a court of appeals decision. In Federal Trade Commission v. Rhodes Pharmacal Co. (191 F. 2d 744 (C. C. A. 7th, 1951)), the court held as follows: "It is true that there is nothing in the Act or in its legislative history to indicate what should be considered as a 'proper showing.' We think, however, that it is fair to say that all the Commission had to show was a justifiable basis for believing, derived from reasonable inquiry or other credible information, that such a state of facts probably existed as reasonably would lead the Commission to believe that the defendants were engaged in the dissemination of false advertisements of a drug in violation of the Act * * * The District Court was not required to find the charges made to be true, but to find reasonable cause to believe them to be true *** This is to say, in the instant case, the court had only to resolve the narrow issue of whether there was 'reasonable cause' to believe that the alleged violation had taken place." The question was presented to the court on appeal from a denial by the district court judge of the temporary injunction sought. The judge below had pointed out that where the allegations of the complaint are fully and explicitly met by denials under oath, a preliminary injunction would not be granted. The lower court, therefore, felt that where there were substantial issues of fact involved, the court had no power to grant such extraordinary relief as a temporary injunction. In commenting on the judgment below, the court of appeals stated: "The trial judge denied the injunction and dismissed the complaint because he was of the opinion that the verified pleadings and affidavits presented debatable questions which were not resolved by the supporting affidavits, and adjudged that '[W]here the equities of the complaint are fully and explicitly met by denial under oath, a preliminary injunction will not be granted.' While that may be the rule in private disputes which do not involve the public interest, we think that in the instant case the court failed to apply the proper applicable legal principles." [Italic added.] It is evident from the holding in the Rhodes case that the Court of Appeals for the Seventh Circuit is clearly of the opinion that where injunctive relief is provided to assist the Federal Trade Commission in carrying out its functions, the courts have no authority to question the probable outcome of the hearing on the Commission's complaint but are restricted to a consideration of whether there is reasonable basis for the Commission's "reason to believe" the public interest is affected. In the case of the injunctive provisions of the bill, it must be assumed that courts following this holding would require only a showing that the Commission had reason to believe that the proposed acquisition would be against the public interest. Thereafter, such an injunction would be continued for a long period of time in view of the admitted delay in administrative procedure. Once issued, the temporary injunction would have the effect, in most cases, of precluding the consummation of any proposed acquisition. If the view taken by the Court of Appeals in the Seventh Circuit ultimately prevails, then applications for an injunction will be a mere formality. In effect, the function of the district courts will be merely to authenticate the fiat of the administrative agency. If that will be the will of Congress, then the same result could be achieved, without detracting from the dignity of our courts, by authorizing the Federal Trade Commission to issue its own restraining orders. Congress ought not require the district courts to "rubber stamp" the Commission's requests for injunction. The Commission ought not have authority either to compel or to issue temporary injunction orders. Another case took a different view of what might constitute a "proper showing." It was a district court decision with opinion by Judge Chestnut. In Federal Trade Commission v. National Health Aids (108 F. Supp. 340 (D. C., Md., 1952)), counsel for the Commission maintained that all the Commission has to show to obtain a temporary injunction under section 13 is that it has reason to believe that it would be in the public interest for the temporary injunction to issue. Accordingly, the Commission argued that the proper showing required is merely the existence of a reasonable belief on the part of the Commission that the temporary injunction sought would be in the public interest. The court, however, felt that, in view of the nature of the extraordinary remedy sought, to proceed affirmatively merely on the basis of reasonable belief of administrative agency was not within the intention of the statute. The court pointed out that while the injunction is described as merely a temporary injunction, it is admitted by the Commission that once granted it may continue in force for a long period of time. The court noted that a possible 2-year delay in the pendency of a temporary injunction could be completely destructive of the business interests of the party enjoined. Accordingly, the court held as follows: "The reasonable belief of the Commission is sufficient to warrant its application for the injunction, but the action of the court should be based on the general considerations that properly apply in the issuance of preliminary injunctions." The same fears that troubled the judge in that case concern us with respect to the injunction provisions contained in the proposed bill. In view of the division of authority and the problems involved, as highlighted by these cases, it is submitted that the proposed bill should clearly specify the circumstances constituting a "proper showing" on the part of the Commission. Another case shows how difficult it would be to lift an injunction once it had been granted. This was also in the court of appeals. In Federal Trade Commission v. Thomsen-King & Co., Inc. (109 F. 2d 516 (C. A. A. 7th, 1940)), defendants moved in the circuit court for a supersedeas pending appeal from an order of the district court granting a preliminary injunction restraining defendants from disseminating false advertising. The court conceded that continuing the injunction would cause irreparable damages to defendants' business but stated that lifting the injunction until the appeal could be heard would enable defendants to reap the benefits of their wrongdoing. The Federal Trade Commission had not at the time of this application for a supersedeas issued a complaint. The court held in denying the application : "Under the circumstances, we are to balance the gains and losses, and as we record the score, continue or lift the injunction in question. The vote is not even close. Our conclusion is in favor of continuing the injunction and denying the motion for supersedeas. In other words, defendants' losses through the interference (or destruction) of their business is not of such a character as to invite preventive orders by a court of equity who has no duty, irrespective of the Federal Trade Act, to protect illegitimate profits or advance business which is conducted by unfair business methods." CONCLUSION One of the issues involved in such cases as there have been under section 13 of the Federal Trade Commission Act has been with respect to the time at which an injunction or restraining order may be granted. The holding seems to be that temporary injunctions or restraining orders may be granted either before or after the issuance of a Commission complaint, although the bill is not too clear in that respect. In section 3 (2) of the subcommittee print (p. 6, lines 11-13), it seems contemplated that the Commission would apply for the injunction "pending the issuance of a complaint or the completion of proceedings pursuant to a complaint by the Commission ***", whereas the last sentence of the section (p. 6, line 24, to p. 7, line 3) provides that "In any case where injunction or restraining order is granted under this paragraph, the Federal Trade Commission shall proceed as soon as may be to the issuance of the complaint and to the hearing and determination of the case." Then as above shown, in such meager case law as we have, there is clearly a division of judicial thought with respect to what constitutes a "proper showing" required to obtain a temporary injunction or restraining order under section 13. The appellate court's view is that it is sufficient that the Commission entertains the belief that there has been a violation of law and that an injunction would be to the interest of the public. The fact that there are a number of unreported cases would suggest that the courts in those instances have taken that view and, in those circumtsances, not seen the need or occasion to write decisions. In conclusion, while there has not been enough experience with section 13 of the Federal Trade Commission Act to settle an authoritative interpretation of it, there has been enough to show conflicting and confused views and to suggest that, with the more complex and substantial subject matter of corporate mergers, there would be even sharper conflict and wider confusion arising upon the inclusion of a similar provision in the Clayton Act. And it will be remembered that the nature of the subject matter is such that an injunction to restrain a merger or to "maintain the status quo" is far more drastic in nature and provocative of immeasurably more serious consequences than injunctions against the repeated dissemination of an advertisement of a food, drug, or cosmetic product. The need for clarity and certainty in the inclusion of such a power in the Clayton Act is in ratio with the importance of the subject matter and the seriousness of the consequences. Therefore, we renew our request that the bill should clearly define the circumstances under which a court may issue a preliminary injunction or restraining order sought by the Federal Trade Commission; that the court should continue in control of the subject matter so that it may give needed relief at various stages of the Commission's administrative procedure; that in reality-the cause should be tried by the court on its merits with the Commission as the moving party just as would be the case under section 15 with respect to the Department of Justice and under section 16 with respect to private parties. Finally, it may be asked why the Federal Trade Commission should be treated any differently than the Department of Justice and private parties in the institution and trial of suits for injunctions and restraining orders. And it may be asked with justified appropriateness and pertinent significance why the Federal Trade Commission should be vested with any authority in this connection beyond that which it now possess of referring to the Department of Justice matters in which it believes injunctions and restraining orders would be to the interest of the public. The Department of Justice is the constituted law-enforcement department of the United States Government, vested with the authority and charged with the responsibility of enforcing, by suits and actions in the courts, the laws pertaining to the Government of the United States in its many and varied divisions. Senator O'MAHONEY. These are additional papers to be filed? Mr. COLLINS. Those are the reports from the various Government agencies, Senator, to be included in the record and various letters and statements. Senator O'MAHONEY. They will be made a part of the record, sir. (The reports from the following agencies, letters and statements of various individuals and associations, will be found in the appendix to the record :) Letter of June 1, 1956, from the Board of Governors of the Federal Reserve System. Letter dated May 22, 1956, from the Federal Trade Commission, re S. 3341. Letter dated May 23, 1956, from the Interstate Commerce Commission. Letter with attached report dated May 23, 1956, from the Federal Power Commission. Letter dated May 22, 1956, from the Small Business Administration. A letter dated May 24, 1956, from the Federal Communications Commission. A letter dated May 22, 1956, from the National Association of Motor Bus Operators, with attached statement. A letter dated May 14, 1956, from F. Eberstadt & Co., New York. A letter dated May 14, 1956, from Abraham & Co., New York. A letter dated May 16, 1956, from McLanahan, Merritt & Ingraham, New York. A letter dated May 18, 1956, from the Eureka-Security Fire & Marine Insurance Co., New York. A letter dated May 23, 1956, from the New York Chamber of Commerce, New York. A memorandum dated May 21, 1956, from the National Association of Investment Companies. A letter dated May 22, 1956, from the Rayon and Acetate Fiber Producers Group, New York. A statement by the Mid-Continent Oil & Gas Association. A letter dated June 2, 1956, from the National Federation of Independent Business, Burlingame, Calif. A statement by Henry Mulryan, Los Angeles County, Calif., as to H. R. 9424. A statement by Alvin Shapiro, vice president, American Merchant Marine Institute, dated May 25, 1956. A statement by James F. Fort, assistant to the general counsel, American Trucking Associations, Inc. A letter dated May 21, 1956, from the Ohio Manufacturers Association, Columbus, Ohio. A letter dated May 18, 1956, from Laurence I. Wood, New York, with attached statement by the committee on trade regulation and trade-marks of the Association of the Bar of the City of New York. Senator O'MAHONEY. We have received a letter from Congressman Celler, chairman of the House Judiciary Committee, attached to which is a statement giving the factual background with regard to the merger of the Second National Bank of Copperstown into the National Commercial Bank and Trust Company of Albany, N. Y., which Chairman Celler asks be incorporated into this record. Without objection, that will be made a part of the record as though read. 79425-56-31 |