BOSTON PUBLIC LIBRARY
3 9999 06317 363 5
OFFICE OF NATIONAL RECOVERY ADMINISTRATION
DIVISION OF REVIEW
INFORMATION CONCERNING COMMODITIES
A STUDY IN NRA AND RELATED EXPERIENCE IN CONTROL
PART A. MISREPRESENTATION AND DECEPTION
By
Hunter P. Mulford
WORK MATERIALS NO. 38
Work Materials No. 38 falls into the following parts:
Part A. Misrepresentation and Deception
Part B. Standards and Labeling
Appendices I, II and III
Trade Practice Studies Section
February, 1936
OFFICE OF 1IATI01TAL RECOVERY ADMINISTRATION
DIVISION 0? REVIEW
IlJEORh'ATIOI! CONCERNING- COMMODITIES
A STUDY IiT BRA AND RELATES EXPERIENCE III C01ITR0L
PART A. MISREPRESENTATION AID DECEPTION
37
Hunter P. Mulford
Trade Practice Studies Section
February, 193G
710
FOREWORD
This study on "Information Concerning Commodities — A Study in ITRA
and Related Experience in Control" was prepared "by ;:r. Hunter P. Mulford,
of the Trade Practice Studies Section, Mr. Corwin D. Edwards in charge.
The study deals with two distinct types of control, (l) measures
designed to prohibit the use of false and deceptive representations of
various sorts in the marketing of commodities, and (2) positive require-
ment'-; for the furnishing of accurate information through the development
of uniform product standards and the use of informative labeling. These
two types of control are in many respects closely related and interdependent.
Various forms of misrepresentation flourish, and arc made difficult or im-
possible to deal with, when there are no agreed standards or definitions of
the products concerned against which inaccurate or false and fraudulent
statements may be measured. Other forms of misrepresentation, resulting
from failure to disclose significant facts concerning the commodity offered
for sale, may be met only by specific requirements for the inclusion of
such information in the labeling, marking, branding, or even advertising,
of the products concerned.
This close connection between the two principal forms of commodity
information control has led to tl:eir treatment in a single study. However,
due to differences in the nature of the fundamental problems involved, the
subject has been divided for the purposes of presentation. Part A of the
report deals with Misrepresentation and Deception, and Part E with Standards
and Labeling.
Since the code provisions prohibiting misrepresentation and deception
were largely statements of existing law, the principal matters for study were
the manner in which the codes were administered, and the results which were
obtained through them. The study examines the code provisions concerning
misrepresentation, outlines the typical itBA method of administration, and
presents what evidence the central NRA records offer on the significance
of these provisions to the industries adopting thorn. From the available,
but not complete, compliance records, and a limited sample of first-hand Code
Authority opinion, certain conclusions have been drawn concerning the extent
of application of the provisions, their effectiveness in operation, the type
of industry principally applying them in practice, and the chief obstacles
to their successful functioning. For general comparative purposes various
aspects of the work of the Federal Trade Commission in restraining mis-
representative and deceptive practices ha/ve been given.
Unlike misrepresentation and deception, standards and labeling are
subjects on which there is no general- agreement of opinion. The records of
code proposal and adoption were therefore of special importance as illustrating
the controversial nature of the problems and the various attitudes existing
within tie industries concerned. These records have proved equally illuminat-
ing with respect to the difficulties involved in obtaining reconciliation of
the various interests. As to the actual operation of the standards pro-
visions, limitations placed upon field work and the difficulty of obtaining
representative expressions of opinion or objective data resulted in only a
small body of evidence being secured. However, a number of what arc believed
to be justifiable conclusions have been c^ravm.
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Summaries of findings and conclusions with respect to each of the
two parts of the report have been included at the beginning of the
respective sections. Broadly speaking, although only a minority of
the industries were seriously concerned with the problem of mis-
representation, the code provisions, when actively administered, tended to
produce beneficial results. On the other hand, efforts tc apply standards
and labeling to the solution of industry problems on a mandatory basis
were generally frustrated by conflicts of competitive groups within the
industry, or by the apparent irreconcilability of industry and consumer
interests, - inevitable difficulties which the tenure of IJRA existence
was entirely too short to smooth away.
The principal limitations of the report as a reflection of 1TEA
experience have resulted from the great area to be covered, as repre-
sented by the number of codes with pertinent provisions, and from the
relatively slight opportunity given for the collection of first-hand
data and opinion. For further development cf the subject extensive
field work with former Code Authorities, trade associations, and in-
dividual industry members, is of prime importance. Other suggested
fields for further inquiry are indicated in the Appendix to the report.
Preparation of the Standards and Labeling section of the report was
carried out with the aid of Mr. H. A. Mereness. Various other in-
dividuals contributed special industry summaries, as indicated in
Appendix II. Special assistance in the development of material for the
final report on Misrepresentation was given Tb'y Miff. E. S. Tobey.
At the back of this report will be found a brief statement of the
studies undertaken by the Division of Review.
L. C. Marshall
Director, Division of Heview
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IITPORLiATIOl? CONCERKIUC COlMCDITIES
A STUDY II; ..... A] D .. 1LAT D : XPERIEUCE III CONTROL
Table of Contents
Page
Summary of Findings: Part A - Misrepresentation and Deception... 1
INTRODUCTION
The leaning of Commodity Information 4
PART A - MISREPRESENTATION AID DECEPTION
Chapter One ~ General Background
I. Nature and Extent of Misrepresentative Practices 6
II . Economic Consequences of Misrepresentation 7
III .Development of Control 8
Chapter Two - The Common Law Affecting Misrepresentation
I. General Basis of the Common Law of Unfair Competition.. 10
II. Development of the Law of Unfair Competition in the
United States 10
Chapter Three - The Federal Trade Commission
I. Legal Basis of the Commission
A. The Meaning of "Unfair Competition" 13
B. Types of Misrepresentation Dealt with by the
Commission 17
C. Classification and Citations of Typical Cases. 18
II. Federal Trade Commission Administration and Procedure
A. Irf ormal Procedure 22
B. Formal Procedure..... 22
C . Judicial Enforcement and Review 23
D . Stipulation Procedure 23
E. Trade Practice Conference Procedure 24
F. Other Considerations 26
III. Record of Federal Trade Commission Activity
A. General Legal Record. 27
B. Cases Affecting Misrepresentation 27
C . General Reasons for Dismissals 28
D . The Corami ssion and the Courts 29
E. Reasons for Reversals in Misrepresentation Cases 29
F. Types of Industries Affected by Trade Commission
Action 30
G . General Summary 31
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Chapter Four - NBA Experience in the Control of Misrepresentation Page
I. General View of the Code Provisions
A- Freauency of Misrepresentation Provisions in
the Codes 33
B. Form of the Code Provisions 34
C. General Comparison with the Federal Trade Statute 3G
D. Limitations in Practice of the NRA Provisions... 33
II. ERA Administration of the Code Provisions
A. The Code Authorities 39
B. H.R.A. Compliance Agencies 39
C. Some Comparisons with Federal Trade Organization. 40
III. Results of Operations of the Misrepresentation Provisions
A. General Sources of Information 41
B. Operation of the Provisions in Selected Industries
1 . Betail Trade 43
2 . Coffee Industry 56
3. Dog Food Industry. 60
4. Plumbing Fixtures 63
5. Canning Industry 65
6 . Macaroni Industry 67
7. Other Industry Summaries 69
C. Data Developed by Code Authority Questionnaire
1. Sizes and Types of Industries Reporting.. 70
2. Nature of Information Requested 70
3. General Analysis of the Returns 71
4. Types of Misrepresentation Complained of. 72
5. Effect of KftA in Checking the Practices 73
6. Success of Code Authorities in Effecting
Compliance 74
7. Obstacles to functioning of Misrepresenta-
tion Provisions 74
8 . General Conculsions 75
D. Field Work with Lpcal and Regional Code Authorities
1. Retail Trade 77
2 . Retai 1 Drug Trade 80
3. Retail Food and Grocery Trade 81
4. Crushed Stone, Sand and Gravel Industry.. 83
5. Motor Vehicle Retailing 84
6. Paper Distributing Trade 85
7 . Set-up Paper Box Industry 85
8. Retail Monument Industry 86
9. Wholesale Confectionery Industry 86
10. Farm Equipment Efg. Indtistry 87
11. Household Goods Storage and Moving.... 87
12. Graphic Arts (Commercial Relief Printing) 87
13. Fnolesale Monumental Granite 87
14. General Summary 87
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-IV-
E. Analysis of MA Compliance Cases Page
1. Tabulations of State Compliance Records 91
a. Relative Frequency of Misrepre-
sentation Cases 91
b. Distribution in Retail and ITcn-
Retail Cedes 93
c . Summary 94
2. Further Analysis of Type and Disposition
of Compliance Cases 96
Chapter Five - Other Misrepresentation Control
I. Federal Legislation
A. The Food and. Drug Administration 101
3. Other Regulatory Statutes 102
II. State Statutes 103
III .Private Agencies 105
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-J.~
INFORMATION CONCERNING COMMODITIES
A STUDY OF NRA A1ID RELATED EXPEDIENCE IN CONTROL
FART A. MISREPRESENTATION A'TD DECEPTION
SUMMARY OF FINDINGS
The aim of this first section of study of Commodity Information has
been to inquire into the effects of the use of prohibitory provisions
written into NRA codes as a method of controlling misrepresentative and
deceptive practices in commerce, and to make comparisons with the results
attained by other methods aimed at the same end, notably those of the
Federal Trade Commission.
The forms of misrepresentation taken as within the scope of the study
include inaccurate and misleading advertising; false and deceptive label-
ing, marking and branding; deceptive packages and containers; misrepresen-
tations concerning competitors or their products; and similar deceptive
sales devices.
Since such methods are already eccepted as basically unlawful, no
question- of general policy as to their control arises, as is the case with
certain other types of trade practices. The principal subjects for con-
sideration relate to form of law and methods of administration and applica-
tion,,
Three different degrees in the development of a conception of legal
control of misrepresentative competitive practices on a national scale
have been noted: ' (l) the common law concept, viewing such practices in
terms of invasion of private property right, and offering only the right
of individual action for relief of individual injury; (2) the concept em-
bodied in the Federal Trade Commission Act - "unfair methods of competi-
tion" declared unlawful, but without statutory definition of the term, and
their suppression made a function of public authority, with the public in-
terest an express consideration; and (3) the concent exemplified in the
code system created under the National Industrial Recovery Act - unfair
methods of competition defined in terms of the individual industry's
problems; and the industry, through its Code Authority, made a party with
the government in the application of the Code requirements.
Data concerning the operation of the Federal Trade Commission in the
restraint of misrepresentative practices were drawn almost exclusively from
the published records of that body. Analysis of these records shows that
a great deal of valuable work in the field of misrepresentation control
has been done by the commission. Through its formal restraining orders and
its more flexible stipulation procedure, the Commission has acted effec-
tively to compel the abandonment of questionable practices in advertising,
labeling, marketing, branding,, and other merchandising methods in a large
number of individual cases, urincipally affecting the consumer goods in-
dustries. At the same time it has added materially to the number of
specific misrepresentative practices recognized as unlawful, as compared
with the previously existing precedents of the common law0 Through its
Trade Practice Conferences it has encouraged fair dealing by approving rules
which restate for individual industries the general prohibitions upon mis-
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representations, and set up definitions of product standards "by which false
representations may be measured, "
Obstacles to the most effective functioning of the Commission as an
instrumentality for controlling misrepresentations have been found in the
dual statutory requirement placed upon it to show both public interest and
actual or potential competitive injury as conditions precedent to its
jurisdiction; in the extent of judicial review provided and the insistence
of the courts upon their right of final interpretation as to "unfair methods
of competition"; and in the delays incident to the methods provided for
making fully operative the Commission's restraining orders, A certain dis-
parity also appears between the size and relatively centralized nature of
the Commission's administrative organization, and the nation-wide scope
of the responsibility placed upon it.
For information concerning the effect of the MA codes in dealing
with misrepresentations there have been used the records of code making
and code administration in Washington; and, in the degree available, com-
pliance records collected from the State ERA offices throughout the country;
data gathered from Code Authorities and trade associations by questionnaire
and by field contact; and from consultation with industry members and
former Deputies and their staffs who handled the various codes.
More than four-fifths of all basic and supplemental codes approved
contained prohibitions upon some form of misrepresentation, principally de-
ceptive advertising, and false marking and branding. The provisions were
for the most part broad in phrasing and were more comprehensive than the types
deceptive acts already recognized as unfai r practice in Federal Trade
Commission procedure. As to application of the provisions and their
effects in actual operation, the evidence which has been obtained and em-
bodied in this report points to the following conclusions:
Despite the large proportion of codes containing the provisions, mis-
representative practices constituted a serious competitive problem and the
prohibitions upon them were sought to be actively enforced in only a minor-
ity of the codes, the chief of these being the large retail trade codes.
Where such practices constituted a serious industry problem, an
active and capable Code Authority was usually able to apply the provisions
for their elimination with a considerable degree of success, and with a
minimum of assistance from MA enforcement agencies or from the courts.
The support of some measure of authority was found essential, how-
ever and a chief difficulty claimed to have been encountered by the Code
Authorities in securing compliance with the misrepresentation provisions
was the progressive loss of prestige by MA among their industry members,
due to delays and uncertainties of enforcement, even in cases of flagrant
violation. Especially they complained of the frequent acceptance of cer-
tificates of compliance in such cases, in place of the penalties provided
by the Act,
Other obstacles encountered by the Code Authorities in administering
the misrepresentation provisions included (1) the difficulty in practice of dr?:
ihg a line between truth and falsity in advertising; (2) loose phrasing of
the early code provisions; (3) difficulty of obtaining evidence of viola-
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tion; and (4) lack of definite product standards to provide criteria for
judging misrepresentations concerning them.
In general, as compared with the Federal Trade Commission, the N.R.A.
and its codes, as they were meant to operate, were more comprehensive in
their declaration of the law of unfair competition affecting misrepresen-
tation, were under fewer legal restrictions in its application, were more
decentralized and direct in their potential machinery of enforcement, and
possessed, in the Code Authority system, an informal medium for obtaining
compliance only distantly approached by the voluntary cooperation afforded
the Commission by some trade associations.
Through its machinery for code amendment and interpretation , also,
the N.R.A. provided a flexible and responsible medium for adapting the
general law of misrepresentation to the immediate problems of individual
industries, with the adequate protection of the interests of industry
members apparently afforded, in cases of non-compliance, by the rights of
hearing, protest and appeal, with ultimate court review.
With respect to the Federal Trade Commission, various suggestions
have been offered for reducing the legal restrictions upon its operation
in the field of misrepresentations, and simplifying the procedure for
obtaining enforcement of its orders. One of the most recent is that of
the Commission itself, advanced in its 1935 annual report, and now sub-
stantially embodied in the pending Wheeler- Eayburn bill. This suggested
change would make "unfair or deceptive acts and practices in commerce"
unlawful as well as "unfair methods of competition in commerce". Such a
change, it is argued, would enlarge the Commission's scope in certain de-
sirable directions, with the other terms of the Act and ultimate judicial
review still standing to prevent rigid restrictions upon merchandising
initiative.
Furthermore, if means could be found to give to the Federal Trade
Commission statutory authority to approve Trade Practice Conference
Agreements, with power to enforce the rules approved, including those of
the Croup II (*) type, much that was beneficial in the trade practice
work of the N.R.A. codes might be continued.
(*) Group II trade practices consist of those rules that have been
accepted as expressions of the trade but not already recognized by
cease-and-desist orders of the commission as unlawful.
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INFORMATION COifCS31TIlTG COMMODITIES: A STUDY OF NBA.
T CONTROL
INTRODUCTION
I . THL ivlEANING OF COLl.KDLITY INFORMATION
, The exchange of commodities constitutes essentially that
which we term business. Exchange is the central economic fact.
Behind it, however, and indispensable to it, lies another exchange -
the exchange between seller and buyer of information concerning the
commodities which are to be bought and sold. Without this primary
interchange of information, which might be termed advertising in its
widest sense, the very continutation of a complex industrial system
such as our own is hardly -to be conceived. And the nature of the
information which is so exchanged, its accuracy and completeness or
lack of these, must affect in substantial ways the functioning of the
system as it touches the' interests of all parties concerned.
The means of exchange may be of many kinds - advertising copy in
newspaper or periodical, representations on label or wrapper, verbal
claims of sales representatives, the su gestion in a skilfully-
selected trade name, the apparent bulk of package or container, or a
dozen others. Whatever the methods, their total effect is largely to
determine whether the public does or does not buy, and which of
various competing articles it will choose. For the buyer the adequacy
of the information he has received will go far to decide whether in
his choice he actually obtains whit he intends and wants. For the
seller, the jractices in supplying such information which prevail in
his trace help to set the standards of competition which he must meet.
Both parties therefore have, important interest involved" in the
question of commodity information. The consumer is concerned with more
and better knowledge of what he buys in order that he may obtain value
for what he spends, and to be protected in his purchases from actual
harm. The business mail in many cases, seeks, to be freed from the
pressure of certain competitive practices, practices which he feels
tend to shake mblic faith in the integrity of his entire industry,
and to disturb its price structure through the debasing- of industry
products and deceptions employed to conceal what is done. Other
interests and aims occur and will be considered in their place, but
these are basic and most frequently appear.
The object of this study is to examine the nature of these interests
and -the methods which are employed to satisfy them through improvement in
the quality and increase in the quantity of the commodity information in
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current use; in particular, to review the experience of ISA with
respect to the subject; and to compare, so far as the facts seem to
warrent, the effects of the 1J3A experiment Ln this field with the results
obtained by other methods of control.
The lines of approach to the problem which have been chiefly
followed in r cent decaJ.es are two. One seeks to decrease the
amount of misinformative information with which the purchaser is
supplied; the other aims to increase the quantity of soundly informa-
tive material provided. The first effort has taken the form of
Federal and State statutes prohibiting, either specifically or by
general intent, practices such as deceptive advertising, false
marking and branding, and misrepresentation in whatever form. The
second has been carried on largely through the cooperative efforts
of industry organizations and government agencies. It involves the
setting up of definite, uniform standards of quality, size, nomem-
clature, performance, etc., for industry products, and promotion of
the use of these standards in labelin , branding, packing and all forms
of advertising.
Although opposite in form, the one being negative in its
control and the other positive, both of these methods are aimed pri-
marily at the same immediate end, namely, the protection of legitimate
consumer and industry interests through the promotion of adequate
and dependable commodity information. Furthermore, there is a relation
in practice between the two, since as experience of the Federal Trade
Commission to be noted later shows, the existence of some recognized
form of standards as to the composition or identity of goods is
extremely helpful, if not indispensable, in controlling certain types
of misrepresentative practices. In fact it uiay be said that a con-
siderable portion of the work directed toward development of positive
standards and their use in labelin., has lor its principal aim the
drivin;. out of misrepresentations otherwise found impossible to
reach.
Because of this close connection between the two subjects of
misrepresentation and standards they have be n comu, ned for treatment
in this single study. On the other hand, owing to the different legal
questions involved, and the varying problems as to adoption and
application of the two types of control, the" have been treated in
separate sections of this report, Part A dealing with Misrepresentation
and Deception, and Part 3 with Standards and Labeling.
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PART A - LiISRkFRgSZ;:TATIOiT AiTD DECEPTION
CHAPTER OITE
'"IkERAL BACKGROUND
I. NATURE AND EXTENT OF telSRSPRESENTATIVE PRACTICES
The practices here considered include all types of misrepresen-
tation, by whatever means employed, which have the intent or effect
to mislead the rar chaser concerning the nature of the product itself,
or the terms upon which it may be obtained. The latter point, as to
terms, while not strictly an aspect of "commodity information" in
the sense of providing knowledge of the product itself, nevertheless
is so closely related to it in practice that the two are taken to-
gether for the purposes of this study.
Inaccurate or misleading advertising, and false or deceptive mark-
ing, branding, labeling, packa ;ing, are the forms which misrepresen-
tation as dealt with in this study most characteristically take. On
the other hand, by the above definition of . the subject as restricted
to the commodity itself or to immediate representations concerning it,
there are seen to be excluded several types of deceptive practices
which fi ure prominently in the codes and are seemingly matters of
serious concern to various industries, but which relate only indirectly
or not at ail to the products involved. Such practices include rebates
and other concealed price concessions which are not misrepresentations
to the buyer; false invoicing or other deception as to the facts of a
transaction whose intent is rather to deceive competitors than the
customer; commercial bribery, seen as primarily a problem of trespass
or interference; and imitation of trade marks, viewed as a violation
of property right.
Even so restricted, the field is large. Taken only in terms of
types, a considerable catalogue of ractices may be collected. It would
include such matters as plain misstatements of facts concerning the
quality, content, composition, or source of the article; extravagant
claims or guarrantees as to its performance; assertions as to the nature
of the seller's business, its affiliations, etc. designed to suggest
special advantages in dealing ("factory- bo-you" where no factory is
owned); descriptive trace names which are unrelated to the content of
the product (Butterkrust and Kremekrust breads which are innocent of any
connection with these ingredients); similar names based upon microscopic
presence of the material indicated ("wool" jjoods having a kj content of
v/ool) and so one, bounded apparently only by the limits of the merchan-
dising imagination. (*)
(*) See more extended list in discussion of Federal Trade Commission,
Chapter S, p. 17 , below; also, Federal Trade Commission, Annual
R' 'tort, (Fiscal year ended June 30, 1935) pp. 67-71.
3710
These are the types of practices with which the study is
concerned. What the extent of their use may be it is impossible even
to estimate in any concrete terms. Obviously figures are not obtainable
to show what proportion of the country's total industrial output is
characterized in its distribution by deceptive means. That it is
sufficiently large to warrant and receive serious consideration seems
evident. Eighty-four per cent ( 34 of a total of 754) of all cases
involving unfair trade practices arising under Section 5 of the F.T.C.
Act, (other, that is, than anti-trust) ordered ajainst by the Feaeral
Trade Commission from 1915 to 193'.., as reported in Volumes 1-18 of its
Decisions, involved some form of misrepresentation^*)
Of 143 industries which prior to ERA. cooperated with the
Commission developing Trade Practice Conferences, 102 incorporated
provisions dealin ; with misrepresentations in their conference codes. (*)
And when ITRA came along, the industries presenting "438 of 557 basic
codes, and 175 of 200 sup demental codes, did the same.(*) If further
-'roof were needed in support of what is a matter of common knowledge it
might be found in the activities of trade associations, business organi-
zations such as the Better Business Bureaus, women's clubs, Consumers'
Research, etc., and in a mass of State legislation, municipal regulations
and the like, dealing with the subject in various ways.
II. SCOUOLilC C0I7SEQUENCES OR LIISREPRBSEiITATIOiJ
The classical economist had no reason in their theory of free
competition to recognize such iractices as deception and misrepresenta-
tion. They habitually assumed a commodity which was standardized in
every respect and one about which "ouyers had complete knowledge. Under
their assumed conditions supply and demand determined ;orice at the
sellers cost of uroduction; and reward for jrouuetion efforts varied
directly with the efficiency of their effort and the abundance of their
results. i>Io individual could visibly affect the market price by with-
holding his sup <ly; and no individual buyer could affect the market
price by witliholding his demand. With a standardized ;oroduct there was
little jurpose in misrepresentation or little reason for advertising
and other forms of sales uromotion.
(*) Data drawn from Legal Research Report if-94, December, 31, 1934.
"Pon-iT.R.A. Precedents Concerning Trade Practices." Legal
Division File.
(**) Tabulation _Tre_oared by Commocity Information Unit, Trade practice
Provisions in F-T.C. Trade Practice Conference Codes, drawn from
Federal Trade Commission, Trade Practice Conferences, June 30, 1933,
and other F-T.C. sources.
(***) Records of Post Code Analysis Unit, Research & Plannin Division.
(Misrepresentation File)
710
Under present-day conditions, however, where there is frequently
an absence of commonly advertised standards, grades, and quality identi-
fying labeling and descriptive terms, misrepresentation and deception
may yield profitable results. Under these circumstances technically
unskilled buyers, especially ultimate consumers, are left at the mercy
of liaise rural ous sellers, a fact which militates not only against consumer
interest but also against the honestly conducted enterprise. Such a
situation is incompatible with "fair" competition which requires that
there be some direct relation between the economical and abundant pro-
duction of commodities of rood value and the rewards for such effots.
<_.*-
These are the fundamental grounds upon which those who rise to
oppose raisrepresentative practices generally take their stand. The
consumer or his spokesman bases his protest on the plain but sufficient
contention that he is beiny, yyvrpec.. Thu1 industry element which does not
employ the practice which is a sore spot in their trade is aroused by
the fact that those who do are getting the business and they are not.
Simple interest is the primary test. This interest may be extended on
the part of the industry members to include concern for the integrity and
good-will of their entire trade (*) or fear for the continued effective-
ness of a whole medium of sale, such as advertising. (*) But the interest
remains, and unfair diversion of trade is the basic issue. IThere the
unfair practices are employed by those having undue power, and the diver-
sion is sufficient, questions of monopoly and destruction of competition
may arise, and there is added the interest of those primarily concerned
with public policy.
Whatever the motivating interests, the business history of this
century shows a variety of activities directed toward more effective con-
trol of misrepresentation as a method of competition.
III. DIVZLOPiJmT OP CONTROL
The course of development of this control (which is also the course
which the discussion of this re >ort will follow) may be briefly summarized
here.
Up and through the first decade cf the century, where relief from
unfair competitive practices was sought it was to be looked for through
the operation of the common law. This law provided (and still provides)
only a ri lit of individual action for individual injury, and it imposed
requirements in proof which made successful action difficult. Although
the common law conception of unfair competition had made some progress
in evolution in response to the changing demands of a rapidly developing
industrial economy, this progress had be n slow, and the concept remained
relatively narrow. Misrepresentation' as a competitive practice was in
the eyes of the common law very largely a matter of "passing off" one's
(*) Cf. Can. .in, Industry, Appendix II, Exhibit C, of this report.
(**) "Less than jOb of present advertisements are profitably productive.
The reason is lack of consumer confidence." Mr. P. A. C'Connell,
former President, National Retail Dry Goods Association. (Trans-
cript cf Kearin '. Retail C.nf.p^
-9u
goods for a competitor's by some "colorable" imitative means.
Such views were increasingly felt to be inadequate to meet the
needs of a more complex economic order, and in 1914 the Federal Trade
Commission Act was passed. Although this Act, as interpreted by the
Courts, retained the basic common lav? conception of unfair competition, it
did give recognition to the public interest in the question and empower-
ed .the Government to act to irotect competitors and the public in general
without the necessity to prove specific injury or fraudulent intent.
During the years which followed the activity of the pederal Trade
COi. mission was very largely concerned with the curbing of misrepresenta-
tive practices in interstate commerce. In the same period there grew up
a considerable body of trade association activity directed toward coopera-
ting with the Commission to make these efforts effective. In the local
field a , Teat deal of effective work along the same lines was done by the
Better Business Bureaus and other groups.
In 1933 came the National Industrial Recovery Act, which in turn
sought to carry the conception of unfair competition and the means of
its control still farther beyond the common law view than the Federal
Trade Commission Act had done.
This main line of uevelopment, represented by the common law, the
PTC, and the IJRA, is the principal subject matter of this study, and each
of these will be considered separately and more in detail in Chapters
Two, Three and Pour which follow.
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CHAPTER TWO
THE COMMON LaW AFFEC1ING- MISREPRESENTATION
I. GENERAL BASIS OF THE COMMON LAW OF UNFAIR COMPETITION
Unfair competition at common law, as it concerns this study,
consists essentially in "passing- off" one's goods as those of another,
or by use of other false representations securing patronage which should
be the competitors. By whatever means a particular trader's goods are
identified, whether by a personal, geographical or descriptive name, a
form of receptacle, a style or color of label, or by the appearance or
configurat/ra*i of the goods themselves, if it is shown as a fact that any
of these things perform the function of identification, duplication of
the identifying element by a rival trader, under such circumstances as
to render deception of purchasers a probable consequence, is looked up-
on as unfair competition by the common law.
The most recent restatement of this doctrine appears in the
Schechter decision, declaring the National Industrial Recovery Act un-
constitutional, in which Chief Justice Hughes had occasion to say:
"Unfair competition, as known to the common lav;, is a
limited concept. Primarily, and strictly, it relates
to the palming off of one's goods as those of a rival
trader. In recent years its scope has been extended.
It has been held to apply to misappropriation as well
as misrepresentation, to the selling of another's goods
as one's own - the misappropriation of what equitably
belongs to a competitor." (*)
The modern common law of unfair competition originates out of
the necessity for the protection of trade-marks and the development of
legal precedents to meet this need. Actions in the unauthorized use of
a mark by a rival trader were maintained in the English courts as early
as the 17th century, though rarely. The early English cases also es-
tablished another precedent which has largely held, at least in America,
to the present time. This was an unwillingness to grant an injunction
against an infringing trader unless fraudulent intent could be proved,
or reasonably inferred. (**)
II. DEVELOPMENT OF THE LAW OF UNFAIR COMPETITION IN THE UNITED STATES
The first trade-mark infringement case to appear in the reports
of a State court of the United States was in 1837, (***) but with the
growth of mass production and the consequent increased importance of
trade-mark, the courts built up a considerable body of protective law.
The legal remedy against trade-mark infringement, however, was found in-
sufficient to give protection against other developing devices for pas-
sing off, and as a result the present law of unfair competition develop-
ed., of which the law of trade-mark is but a part. McLean v. Fleming
(*) Schechter v. U. S., 55 S.Ct. 037-850 (1935).
(**) G. Blanchard v. Hill, 2 Atk. 484 (1743).
(***) Thomson v. Winchester, 19 Peak - 214 (Mass. 1837).
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may "be considered the first case in which the Supreme Court stated the
doctrine:
"Ilcr is it necessary, in order to give a right to an
injunction, that a specific trade-nark should be in-
fringed; but it is sufficient that there was an at-
tempt on the part of the respondent to palm off his
goods as the tJoods of the complainant . n (*)
McLean v. Fleming and other cases (**) also set up what the
courts and text writers have taken as another fundamental principle -
that there can be no action in unfair competition without actual or
potential competitive injury. The plaintiff comes into the court to
protect his property rights. The private right of action is given, not
for any relief of the public which is deceived, although this may be an
incidental effect, but bee-use by this deception there is invaded that
which is an exclusive property right of the plaintiff.
As far back as McLean v. Fleming, also, the Supreme Court
ruled that a showing of fraudulent intent was necessary to obtain in-
junctive relief against unfair competition. This requirement was again
stated in the Elgin vTatch Coimany case, decided in 1900. (***)
This attitude of the Supreme Court is contrary to the weight
of oninion of the modern English cases, where honesty of purpose or ab-
sence of intent to deceive is no defense. It is also hot shared by all
American courts, the English rule being followed by the New York Court
of Appeals, and the courts of California and Kansas. (****)
While the required fraudulent intent may in any _.iven case be
inferred from the circumstances, nevertheless so far as the Supreme
Court decisions are concerned such intent is an essential condition for
the granting of relief from unfair competition at common law, rather than
the actual economic effect upon a competitor of what in itself may have
been an innocent a.ct.
The relief which is nrovided in cases of unfair competition
may be obtaincu by action either at law or in equity. The former is em-
ployed where damages are the main end. It is seldom used. The great
majority of the ca.ses are brought in equity, and the relief obtainable
is two-fold: an injunction to prevent injury through threatened acts of
O) McLean V. Fleming, 96 U.S. 2.45. (1877).
(**) Cf. Lawrence Mfg. Co. v. Tennessee Mfg. Co., 138 U.S. 537
(***) Elgin National Watch Co. v. Illinois Watch Co., 179 U.S. 665(1900).
(****)ln the case of Dodge Stationery Co. v. Dod0e, 145 Calif. 380 (1904),
the court held that it was quite unimportant whether the defendant used
the name "Dodge" with fraudulent intent or not. If the necessary re-
sult was deception, and the public was being confused, the fact that the
defendant used the name with an honest intent will not aid it, and
equity will exercise its injunctive powers to prevent a fraud upon the
public, even though there may not have been technical fraud upon the
plaintiff, due to the absence of fraudulent intent on the part of the
defendant.
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unfair competition, and an accounting of profits and for damages al-
ready sustained if such can be -Droved.
Briefly, then, the common law of unfair competition provides
only a right of private action in protection of a private property
right. Actual or potential competitive injury is the indispensable
fact to be shown. Deception of the purchaser must also be shown, but
only as evidence of such injury. The element of fraudulent intent is
required. No right of public action for the protection of competitors
as a group is allowed by the common law, and no public interest is
recognized. Any protection of the purchaser from deceit is purely in-
cidental to the main end.
Expressed in other words:
"Fostering competition directly by the provision of a
few private remedies for -orivate wrongs, rather than
preserving competition by positive measures administered
by public authorities, was the burden of legal regula-
tion of competitive practices under the common law." (*)
It is the second of these two contrasted methods, that of
"Preserving competition by positive measures administered by public
authorities," with the public interest made a specific and essential
consideration, which is embodied in the Act creating the Federal Trade
Commission, the sco-oe and effect of which are to be considered in the
next chapter.
(*) National Industrial Conference Board, Public Regulation of
Competitive Practices, Revised. (1939) p. 30.
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CIIAPTER TERSE
nI3: FEDERAL TFulDL COMMISSION
I. LEGAL BASIS 07 THE COKiISSIOU
The Federal Trp.de Commission Act "bee me lav; September 26,
1914. Section 5 of the Act declared "That unfair methods of competi-
tion in commerce are hereby declared unlawful," and authorized the
Commission to take action where there is found to be a "using of any
unfair method of competition in commerce , and if it shall appear to
the Commission that a proceeding by it ** would be to the interest of
the public." Orders of the Commission are made subject to review by
the Circuit Court of Appeals, but "the findings of the Commission as to
the facts, if supported by testimony, shall be conclusive."
A. The Meaning of "Unfair Cormetition.
ii
No definition of "unfair competition" was included in the
Act. There has always been question as to just where Congress proposed
that discretion in deciding what constituted unfair competition should
rest, many holding that this was of the very essence of the Commission's
intended function. For practical purposes, however, the question was
settled by the Supreme Court in the Gratz case:
"The words 'unfair methods of competition1 are not de-
fined in the statute and their exact meaning is in dis-
pute. It is for the courts and not the Commission ul-
timately to determine, as a matter of law, what they
include." (*)
Further in this same case the Court indicated its general
conception of the meaning of the phrase:
"They (the words 'unfair competition') are clearly in-
applicable to practices never heretofore regarded as
opposed to good morals because characterized by decep-
tion, bad faith, fraud or oppression, or as against
public policy because of their dangerous tendency un-
duly to hinder competition or create monopoly. }t
This tendency of the courts to restrict the interpretation
of the phrase to legal conceptions previously established has been looked
upon by many as hampering a necessary broadening of its meaning in
terms of social and economic criteria imposed by the evolution of our
industrial system. It has had less of this effect with respect to mis-
representative practices, however, since the court's definition plain-
ly includes that idea; and further, because the courts have rejected
any pleas that, since the standards of previously existing law are made
(*) F.T.C. v. Warren, Jones and Gratz, 253 U.S. 421 (1920)
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the test, the authority of the Act is restricted to specific practices
already ruled unlawful.
"The commissioners ... are to exercise their common
sense, as informed "by their knowledge of the general
idea of unfair trade at common law, and stop all those
trade practices which have a capacity or a tendency to
injure competitors directly or through deception of
purchasers, quite irrespective of whether the spec-
ific practices in question have yet been denounced in
common-law cases." (*)
In addition to the -common-law criteria imposed by the courts,
three conditions precedent to FTC jurisdiction are set by Section 5 of
the Act and have been reaffirmed by the Supreme Court. First, the
practices complained of must be unfair. Second, they must 'be methods
of competition in commerce. Third, action by the Commission must be
in the interest of the public. (**) And, of course, the competition
must be in interstate commerce.
Thus, while "the commissioners are not required to aver and
prove that any competitor 1ms been damaged or that any purchaser has
been deceived" (***) as would have been the case at common law, (****)
they still have a double requirement to meet in that they must show that
the act complained of has at least "a capacity or a tendency to injure
competitors" and that there is a public interest involved. There is
carried over in effect the common-law conception that unfair competi-
tion is primarily concerned with the rights of competitors, and regards
the deception of purchasers only as that constitutes an invasion of
such rights. This has stood as a bar to the development of a concep-
tion of misrepresentation or deception affecting the consuming public
as being unfair competition per se, despite the increasing tendency of
the Commission to maize this a principal test.
A leading case in 'which the courts have i ejected public pro-
tection as a sufficient grounds for Commission action is that of
Raladam Co. v. F.T.C. (*****)
(*) Sears, Roebuck &• Co. v. F.T.C, 258 Fed. 307 (1919)
(**) Raladam Co. v. F.T.C, 4-2F (2d) 430 (1930); 51 S.Ct. 587 (1931 )
(***) Sears, Roebuck & Co. v. F.T.C. quoted above
(****) jjor j_s showing of fraud required. "It was not necessary for the
commission to establish intent to deceive the -ourchasing public. For
the test of unfair competition was whether the natural and probable
result of the use by the petitioner of such words was deceptive to the
ordinary purchaser and made him purchase that which he did not intend
to buy." Indiana Quartered Oak Co. v. F.T.C, 26 Fed. (2d) 340 (1928)
(*****) Cit. page 15, supra.
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This case involved misrepresentations concerning the ef-
ficacy of an obesity cure, which was also shown by testimony to be
potentially harmful to the uninstructed user, nevertheless, the Com-
mission's restraining ord<'jr was overruled by the Circuit Court of /
Appeals, the Court saying:
"The general law of unfairness uses the misleading
of the ultimate purchaser as evidence, of the primary
vital fact, injury to the lawful dealer; the Commission
uses this ultimate presumed injury to the final user
as itself the vital fact."
The Supreme Court in turn upheld the Circuit Court of Ap-
peals, reiterating the requirement that
"The trade whose methods are assailed must have present or
potential "rivals in trade whose business will be, or is
likely to be lessened cr otherwise injured,"
and finding that the Commission had failed to present the necessary
evidence of such injury, since all other members of the trade involved
employed the same questionable tactics as the respondent. The Court
could not bring itself to conceive that Congress had set up the Com-
mission "for the purpose of preserving the business of one knave a-
gainst another" - nor, apparently, for the purpose of protecting the
public against both.
It has been claimed that the Raladam case turned in reality
upon the mere technical omission of the Commission to show competitive
injury, and that it did not therefore constitute a check upon the
liberalizing tendency of the Commission above referred to. As a mat-
ter of fact the decision shows that the Supreme Court, at least,
weighed the possibility of such injury in the circumstances carefully,
and rejected it as insufficient. The case therefore amounts to a firm
reiteration of the necessity of this element for jurisdiction under
the terms of the Act as interpreted by the cou.'ts.
On the other hand, in the Griffith Hughes case which came
after Raladam and was somewhat similar to it, but which dia not turn
upon the point in question, (since competitive injury was shown), the
Circuit Court of Appeals in supporting the Commission used the follow-
ing language in which the element of public protection is particularly
stressed:
"To strike down unfair methods of competition or unfair
practices on the public is the duty imposed on the Com-
mission by Congress. The object of the Act is to pre-
vent public deception, and to preserve free competition. " (*)
(*) E. Griffith Hufahes Inc. v. R.T.C. 65 F. (3d) 362 (1933) (An
appeal to the Supreme Court in this case is now pending.)
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In the Kcppel case, touching the practice of "break-and-take"
in candy selling (a form of sale, especially of penny candies, invol-
ving lottery or chance), the Supreme Court stated,
"It is true that the statute does not authorize
regulation which has no purpose other than of re-
lieving merchants of troublesome competition, or of
censoring the morals of business men."
But the Court goes on to stress the social aspects of a competitive
method which "is shown to exploit consumers, children, who are unable
to protect themselves", "devices v/hich have met with condemnation
throughout the community." (*)
It may be that there is thus being evidenced a liberalizing
tendency on the part of the courts which will help to give the Commis-
sion's efforts along this line greater effect; nevertheless the word-
ing of the statute as it stands does act as a bar in the way.
The Commission's own sense of this is indicated by recommenda-
tions for change in the Act which are put forth in its latest Annual
Report. Section 5 of the Act is recommended to be amended as to its
first two paragraphs, to read:
Sec. 5. Unfair methods of competition in commerce and
unfair or deceptive acts -and practices in commerce are
hereby declared unlawful.
The Commission is hereby empowered and directed to prevent
persons, partnerships or corporations, except banks,
and common carriers subject to the acts to regulate com-
merce, from using unfair methods of competition in com-
merce and unfair or deceptive acts and practices in com-
merce. (**)
The Commission at the same time offers this explanation of
the purposes of the proposed changes:
"This recommen.ia.tion is made in order to give the Com-
mission clear jurisdiction over a practice which is un-
fair or deceptive to the public and is not necessarily
(*) F.T.C. v. R. F. Keppel. ft Br. Inc. 291 U.S. 304 (1934) (The
Commission was reversed in this case by the Circuit Court of
Appeals, on grounds very similar to the Raladam decision, the
Court finding that all competitors might, and many of them did,
use the device complained of. The Supreme Court, in sustaining
the Commission, would appear to have been materially influenced
oy social considerations.)
(**) Federal Trade Commission, Annual Report (1935), p. 15.
9710
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unfair to a competitor. There arc times when such
a practice is so universal in an industry that the
public is primarily injured rather than individual
competitors. In such cases it is very difficult,
if not impossible, to show injury to competitors,
but the injury to:the public is manifest."
A bill to emend the Federal Trade Commission Act, embodying
the recommended language and certain procedural changes, was intro-
duced by Representative Rayburn in the House of Representatives
January 20, 1936, (*) and in the Senate oy Senator Fneeler. Should
the bill become law, it would unquestionably enlarge the Commission's
opportunities for action in certain situations. Probably only the
test of court actions would determine whether it would materially add
to the number of forms of misrepresentation with which the Commission
is already able to deal, as enumerated in the following section of
this chapter.
To summarize, what the Federal Trade Commission Act primarily
did from the legal view was to set up a public agency having the spec-
ific function to prevent and restrain unfair competitive practices;
to assert the public interest 'as' one, if not the first, consideration
in such actions; and, so far a's' misrepresentations at least went, to
provide a means for adding specific practices to the list of the un-
lawful more rapidly than the ■cc-imaon 'law, cautiously following precedent,
was able to do. Also, in due course, the Federal Trade Commission Act
became one of the foundations upon which the IDA jurisdiction over un-
fair trade practices was sought to be based.
Among the causes which might be adduced for any failure on
the part of the Commission to 'extend more fully its oontrol over un-
fair competitive practices are, first, the restrictions upon its sphere
of action set up in the Act itself, and second, the insistence of the
courts upon their right to final definition of what unfair competition
includes - not to mention the gigantic nature of the task itself.
B. Types of Misrepresentation Dealt with by the
Commission. Despite the various conditions imposed upon it, the
Federal -Trade Commission, since its inception has been able to take
action in many kinds df cases involving misrepresentation, and with a
high degree of success. 'The practices condemned in orders to cease
and desist (**) are printed in the annual reports of the Commission,
and have been fully outlined and condensed in the following section.
(*) H. R. 10385, 74th Congress, 3d Session.
(**) Federal Trade Commission, Annual Report (1935) pp. 67-71.
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C. Classification and Citation's of Typical Cases,
For a more concrete presentation of the specific forms of mis-
representation with which the Federal Trade Commission principally deals,
there are given below a number of actual Commission cases, classified
as to type, and with their case citations: (*)
I. HISKCPIffiSZ^TATION.
1. As to weight or quantity.
(a) Fictitious weights.
Selling soaked or "loaded" sponges by weight.
Cease and desist orders issued in Complaints
!Tos. 374, 375, etc.
(b) False Packaging.
Packing of butter in cartons of definite size
and shape, but with contents less than stand-
ard weight. F.T.C. v. Mountain Grove Cream-
ery Co. 6 F.T.C, D. 426 (1923)
2» Composition, quality, condition or character of
•products.
(a) Composition.
(1) Sale of goods chiefly made out of cotton
as wool. F.T.C. v. Winsted Hosiery Co.,
258 U.S. 483 (1922)
(2) Advertising a product composed of common
salt with, its impurities as containing
sixteen different chemical and vegetable
ingredients 1
Guarantee Veterinary Co. v. F.T.C.
285 Fed. 853 (CCA. 2d, 1922)
(Order affirmed).
(3) Misbranding paint by terming it "Com-
bination White Lead."
touis Leavitt v. F.T.C, 16 F. (2d)
1019 (CCA. 2d, 1926) (P^r curiam)
(Order affirmed).
(*) Condensed from "Anti-Trust Laws and Unfair Competition", Document
of Division of Review, July 20, 1935,
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(4) "Satinsilk" as a brand or label for cotton
thread.
Sea Island Thread Co. v. F.T.C., 22 P.
(2d) LI19. (G.G. A. 2d, 1927) (Affirmed
without opinion. )
. (5) Branding imitation leather products as
Duralcather. M
Masland Duraleather Co-, v. F.T.C, 34 F.
(2d) 733 (CCA. 3d, 1929) (Order modified
in an immaterial particular.)
(6J :Tsing term "Good Grape" in connection with an
artificially colored and flavored preparation.
Federal Trade Commission v. Good-Grape Co.,
45 F. (2d) 70 (CCA. 5th, 1930) (Order
modified by permitting use of term on con-
dition that artificial nature of prepara-
tion be indicated. )
(b) As to quality or condition.
(l) Lrbel bearing pictorial representation show-
in0 mattresses with an uncovered end flaring
to an exaggerated thickness.
Ostermoore .& .Co. Inc., v. F.T.C 16 F. (2d)
9S2 (CCA. 2d, 1927) (Order vacated on
ground representation was simply fanciful,
not deceptive, and merely constituted the
time-honored practice of "puff inj' one1 s
wares. )
(?) Representation of "obesity cure" as "scienti-
fic"; failure to state that the preparation
could not be taken safely except under medi-
cal advice.
F.T.C v. Raladam Co. 283 U.S. 643 (l93l)
(Order vacated, since jurisdiction of Com-
mission is limited to unfair trade method
which affect competition, and there was no
evidence that respondent's advertisements
injured competitors. )
(o) Selling rebuilt tires as new.
F.T.C v. H.P. Jones, 1. F.T.C. D. 360 (1932).
9711
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(4) Advertising a weak chemical preparation as
"ten times stronger as a germicide than un-
diluted U.S. P. carbolic acid."
F.T.C. v. G-inse Chemical Co., 4 F.T.C. D.
155 (1931)
(5) He-issue of old films as new releases.
Fox Film Corp., v. F.T.C, 296 Fed. 353 (C.C.
' A. 2d, 1924) (Or dor affirmed).
3. False claim to Endorsement or Use.
( a ) Off icial endorsements and recommendations
(l) False statement- that product was adopted or
purchased "by the United States Government.
Guarantee Vetinary Co. v. F.T.C, 285 Fed.
353 (CCA. 2d, 192").
(b) Endorsement by "iriv:.te individuals.
(l) Publishing testimonials of nationally known
characters without disclosing that substantial
payments are made.
,....-, Hortham Warren Corp. v. F.T.C, 59 F^. (2d)
196 (CCA. 2d, 1932) (Order vacated* on
ground payment for truthful testimonials
deceives ne one. )
4 . As to Business St' tus.
( a ) Misrepresenting chat respondent is a manufacturer.
(1) Trade or corporate name including word "Mills"
where respondent does not rwn or operate a
factory in which its products are made.
Federal Trade Commission v. Pure Silk Hosiery
Mills, Inc., 3 F. (3d) 155 (CCA. 7th, 1925).
(2) By pictorial representations.
Use of pictures of plants and factories on
letter-heads and advertising', to indicate re-
spondents own them - ordered discontinued in
Complaints. Nos. 193, 491, 11©4, 1107, 172\
(b) Misrepresenting commercial rating (Stipulation #645)
-20-
( - ) ^ "-'.''■ . - •..--. . - distribution
centers, '-'hen in fact it is untrue ( Stimulation
Ho. 617.7).
(d) Representing respondent '.-as not engaged in in
a bus iness for profit.
(l) Trade name "Anti- Tobacco League" implying
non-profit organization, when in fact it was; -
discontinued in Stipulation ITo. 0130.
As to Origin of Product.
(a) Labeling product made in the United States as
"English Tub Soap".
F.T.C. v. Bradley , 31 F. (2d) 569 (CCA. 2d,
1929) (Order affirmed).
As to Price Reductions.
(a) False representation that usual sale price for
product was $20, in sale ox two for $10.
Chicago Portrait Co. v. F.T.C., 4 F (2d) 259
CCA. 7th 1925), Cert. Den. 269 U.S. 5^6 (1925)
(Order evacated. on ground there was no evidence
that customers were deceived or competition
injured, )
(b) False representation that "loose leaf extension
service" for encyclopedia, was given free with purchase
of books
Consolidated Book Publishers, Inc. v. Federal
Trade Commission 58 F. (2d) 942 (CCA. 7th, 1931)
( Order af i i rmed) .
(c) By means of combination sales.
Selling groceries at a fixed aggregate "price, placing
theprice of the staple articles below retail price
and charging excessive ■prices for the other articles.
Ordered discontinued in Complaints ITos. 349, 352.
(d) I-jsre -presenting that there was "no extra, charge for
credit" whereas substantial discounts were given on
goods sold for cash. ( Corn-plaints Nos. 765 and 766).
(e) I.Ijsre'Presenting that repairs were free, when in fact
the charge was made up by excessive postage and
package charges.
(f ) falsely advertising that the sale was below cost
(Cor.; plaint IIos. 1TL).
97 10
•*21-
([•) Representing that the rrice of the product would "be
advanced (Stipulations I!o:s 521, 463).
(h)' Represent in: that "products are offered at "special"
or "introductory" prices. (Complaint IJo. 2010,
Sti ul at ions 72 ' , J21, 483, 740, 607).
( i ) Fictitious1 trices.
Larking enhanced prices on fountain pens, to mis-
lead the purchaser as to the value of the product.
(Complaints iJos. 561, 663-68, 670-673).
7 . As to ..ecrici-ial or Curative Value of the Froeuct.
( a ) 3y means of advertising.
(1) That an electrical device wa.s beneficial for
certain ailments and had the endorsement of
physicians, when those facts were not true.
(Complaints 16~;;, 1703, 1679).
(b) 3y means of false brands.
(1) Labeling soap as containing olive oil, pero;:ide,
palm ail, witch -hazel, medicines or drugs
(Complaint .IIo. 873).
8. 1-jsre presentations in_ the Sale of. Corporate Securities
(a) Misleading and deceptive statements in advertising,
letters, naps, concerning the value of oil leases,
properties, assets, and productivity. Ordered dis- .
continued in Complaint" ilos. 795, 596, 336, 857.
(b) Misleading announcements and reports in regard to
nature and volume of business done. (Ordered dis-
continued in Complaint ho. 273).
An outline of the administrative machinery anc. methods of procedure
by means of which these and other unfair practices are dealt with by the
Commission is given in the section following.
r\mi s\
-22r
II. FEDERAL TRADE C01&II3SIGN ADUf&I STRATI 2T AND PROCEDURE
The serai -judicial nature of the Commission1 s function in the re-
straint of unfair methods of competition impose upon it rather elaborate
procedural requirements, which may be only briefly noted here.
A case before the Federal Trade Commission may originate in sev-
eral ways. The most common is through complaint by a competitor or from
public sources other than the Commission itself. The Commission, how-
ever, may initiate an investigation. Once initiated, a case runs some
part of the following course. (*)
i
A. Informal Procedure
An "application for complaint" being received from any of the
above sources, the Commission, through its Chief Examiner, considers
first its jurisdictional elements, i.e., whether it involves interstate
commerce and whether the facts presented are such that prosecution
appears to be in the public interest. On the basis of this examination
the application may be either dismissed or docketed for complaint.
(Approximately two out of three of all cases are dismissed at this
stage). (**)
If docketed for complaint, the case is assigned to a Com-
mission attorney to develop the facts by interviews with the respondent,
with his competitors, or consumers if necessary, or from any other
available so\irces. The record is then presented to the chief examiner,
who will rec:mmend either (l) dismissal, (3) closing of the case by
stipulation, or (3) issuance of formal complaint. All proceedings up
to this point are confidential, the name of respondent being protected
throughout the preliminary investigation.
3. Formal Procedure.
"Only after most careful scrutiny11 does the Commission issue a
formal complaint. The respondent is given opportunity to answer, and
if the case is contested, hearings are held before a Commission trial
examiner, who for the convenience of the parties may sit anywhere in the
country. The Commission and the respondent are botn represented by
their attorneys. After report to both sides by the trial examiner,
briefs are filed by each, and the case is heard before the full Commis-
sion. If the complaint is sustained, the Commission states its findings
as to fact and its conclusion that the law has been violated, and
issues an order requiring the respondent to cease and desist from the
practice. If the complaint is dismissed or closed, an order to that
effect is issued. These orders constitute the final functions of the
Commission as far as its own procedure is concerned.
(*) Abridged from Federal Trade Commission, Annual Report (1935)
pp. ^3-46.
(**) See figures presented in Sec. Ill of this Chapter, page 27 below.
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C. Judicial Enforcement and Review.
The Commission has no power to enforce its orders to cease and
desist, or to assess penalties for failure to comply. For this it must
appeal to the Federal courts. Likewise the respondent may appeal to
the courts for review of the Commission' s actions. To obtain a decree
of enforcement the Commission must prove violation, while for a penalty
it must show respondent to be in contempt of the court' s decree.
The Commission has sought the courts' aid in enforcement in
only a relatively few cases (38 in all). (*) This may indicate that
its procedure is effective without specific penalties, or it may re-
flect the difficulties of the procedure. As to this the Commission it-
self has said:
"Punishment for a violation of the law can not be
secured until the Commission has proved in its own pro-
ceeding that the statute has been violated, has proven
before the court that its order has been violated, and
has proved that the offender is in contempt for a vio-
lation of the decree of the court. The requirement to
thrice prove a violation of a prohibitive statute be-
fore punishment can be inflicted, and to prove it twice
before an injunction can be secured, probably does not
have a parallel in our statutes. "(**)
In the recommendations contained in its 1935 Report the Com-
mission includes certain changes in the Act designed to increase the
simplicity and uniformity of its enforcement procedure. (***) These
have likewise been incorporated in the Xieeler-Rayburn bill now pend-
ing in Congress.
D. Stipulation Procedure.
A simplification of procedure which the Commission has it-
self instituted is that of stipulation. This is an informal proceed-
ing whereby a respondent may voluntarily enter into a stipulation of
the facts complained of and agree to- cease and desist from the
alleged unfair practice without issuance of formal order to do so.
The stipulation is not a right but a privilege extended by the Commis-
sion, and is used only where the offense is considered of a less seri-
ous nature. In signing the stipulation respondent agrees that if he
ever resumes the practice, the facts as stipulated may be used against
him in the trial of a complaint which the Commission may issue.
During the 9jr years in which the stipulation system has been
(*) Federal Trade Commission, Annual Report (1935), p. 87,
(**) F. T. C. Annual Report (1923) pp. 77-78.
(***) y. T. C. Annual Report (1935) p. 15.
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employed (to June 30, 1935) a total of 2,257 stipulations have been
approved by the Commission, as compared with a total of 1,446 cease and
desist orders issued throughout the approximately 21 years of its entire
history. Only 14 stipulations have ever been rescinded. ( *) As to the
results of this form of procedure the Commission has said:
"The Commission believes that its stipulation pro-
cedure is protecting tne American consumer from numerous
unfair methods of competition which, in the aggregate,
are an important consideration, reaching, by reason of
the simplicity ana economy of the procedure a very much
larger number of abuses than the Commission could have
reached through proceeding solely under the formal pro-
cedure already outlined. " ( **)
E. Trade Practice Conference Procedure.
The trade practice conference is- a method developed by the Com-
mission for fostering voluntary efforts by individual industries to
correct their competitive abuses, and to formulate recognized standards
of. commercial practice. Under it a trade group may develop a "code" of
fair practice and submit it for the Commission1 s approval and support
in enforcement, so far as that may be legally allowable. Provisions of
the trade practice conference codes are divided primarily into two
classes. Group I rules are "affirmatively approved" by the Commission
as expressions of existing law. These include declarations that vari-
ous forms of misrepresentation, commercial bribery, price discrimination,
etc. are unfair practices. The Group II rales are merely accented as
"expressions of the trade", desirable but not as yet backed by any
legal authority. Such rules include positive standards and packaging
and labeling requirements, and other subjects of particular concern to
the individual industries. Some 150 of these trade practice conference
codes had been approved prior to the passage of the National Industrial
Recovery Act.(***)
The general resemblance of the conference codes to the trade
practice portions of trie NRA codes is obvious. A principal difference -
and chief weakness of the former - was that no legal power existed for
enforcing the broader, Group II rules, (Rules accepted as expressions
of the trade but not deemed unlawful by cease and desist orders) such
as was intended to be conveyed by the terms of the NIHA. Furthermore,
no official share in enforcement of the conference rules was allowable
to the cooperating industries, as was the case with NRA through the
Code Authority set-up.
(*) Ibid. p. 51.
(**) Ibid. p. 50.
(***) por detailed discussion of the Trade Practice Conference system
see: Federal Trade Commission, Trade Practice Conferences,
June 30, 1933; National Industrial Conference Board, Public
Regulation of Competitive Practices, pp. 224-241; Geo .3. C-alloway,
Industrial Control in the U. S. Before NRA NRA Training
Section, ?eb. 1935, pp. 14-18.
As to misrepresentations, tue great majority of the tride prac-
tice conference codes contained one or more provision concerning them.
These were more or less uniform and for the most part couched in rather
general terms, (which in several instances, with minor changes, became
the basis for the customary type of KRk code provisions dealing with
the same subject). The following are one or two typical provisions:
"The making or causing or permitting to be made
or published any false, untrue, or deceptive statement
by way of advertisement or otherwise concerning the grade,
quality, quantity, substance, character, nature, origin,
size, or preparation of any product of the industry having
the tendency and capacity to mislead or deceive purchasers
or prospective purchasers and the tendency to injuriously
affect the business of competitors, is an unfair trade
practice. "(*)
"The false marking or branding of products of the
industry, with the effect of misleading or deceiving
purchasers with respect to the quantity, quality, grade,
or substance of the goods purchased, and the tendency to
injuriously affect the business of competitors, is an un-
fair trade practice. " (**)
In some instances the phrase concerning competitors was omitted,
though this of course did not affect the obligation of the Commission
under the FTC Act to show competitive injury. A few of the Group I
rules deal with specific misrepresentative practices. On the other
hand, a large number of the trade practice conference codes contain in
their Group II rules statements of qualitative and quantitative
standards for industry products, designed to aid in the stamping out
of misrepresentative practices, concerning them. Although, as previous-
ly stated, these rules have no effect of law, they tend to emphasize
the necessity of positive definitions of standards for that purpose.
With respect to t.iis p.iase of the work the National Industrial Confer-
ence Board has said:
"The clearest and most substantial advantage from
the trade practice conference procedure is in the defini-
tion of wnat amounts to misrepresentation or misbranding
of goods in various lines of trade. . . They (trade evils of
this type) thrive on the absence of clearly defined and
universally recognized trade standards. . . Only the
highest commendation can be given the efforts of the Com-
mission to assist various industries in establishing fixed
standards of quality or grade for their products. " (***)
(*) Rale 1, Group I, Bituminous Coal Operators of the Southwest.
(**) Rule 3, Group I, Cut Tack, Mail and Staple Industry.
(***) National Industrial Conference Board, Public Regulation of Compe-
titive Practices, (1929)., pp. 237-238.
'9710
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This essential tie "between the establishment of specific commod-
ity standards and the adequate restraint of misrepresentations concern-
ing them will find further illustration later, in the discussion of N3A
experience. Here it may be also noted that the Commission itself, in
certain of its cases concerning misrepresentatiai of commodities (as
white lead paint, fur or wool garments, etc.), has found it necessary
to adopt standard definitions of the products in order to provide nec-
essary criteria for showing deception Concerning them.
F. Other Considerations.
Perhaps the most striking consideration about the Commission1 s
procedure in general is the very heavy administrative burden which the
Commission's semi-judicial character is seen to place upon it in the
discharge of its function. While the development of stipulation pro-
cedure has doubtless helped materially in this respect, the various
necessities of investigation, hearing and review which are inherent
in the Commission's regular processes would appear to be a drag upon
full effectiveness of operation, especially with the existing limita-
tion s upon available staff.
Another point concerning the Commission's organization, and
one which is in marked contrast with the later NUA organizations, is
its centralisation. Though its activity is national in scope, outside
of Washington the Commission now maintains regular field offices in
4 cities - New York, Chicago, San Francisco and Seattle. Besides
clerical help these offices are staffed by 20 examiners each in
New York and Chicago, and 3 to 5 each in San Francisco and Seattle.
As noted above, trial examiners may hold hearings in various parts of
the country, but all final hearings on formal cases are before the
Commission itself. For t.ie performance of all its functions, including
those of conducting general investigations, the Commission has at this
time a staff of about 600.
A summary of some of the results of the Commission's operation
under this set-up, in the field of unfair competition, is given in the
section following.
£710
J2?- ■
T^I. F3C03E OF FIDF7.AL T7JGZ COii: JS3IOII ACTIVITY.
A> 'General Legal Record.
The offici 1 record of the activity of the Commission with
res >ect to unfair competitive Drrctices, as shorn by its published cum-
ulative sum : rii s cov Tin, the entire eriod from the creation of the
Commission to June 30, 1935, . ives a total of 34,757 inquiries instituted
during the period, of which 17,465 were dismissed and closed after pre-
liminary inve tigation. (*) Am licationc for complaints docketed
numbered 3,6 !6. Of these 3,059 were subsequently dismissed •" for lack of
merit." Formal com al ints were issuea in 2,434 of the esses docketed,
of vhich 1,446 resulted in orders to cease and desist. Cases settled by
stipulation totaled an additional 5,257. Some 634 amplications for
complaint "-ere ending at the close of the year. (**)
From this it is seen that the Commission was successful in
effect in,; some form of restraining action, either by cease-and-desist
order or by stipulation, in 3,703 instances'- that is, in a.mprox-
imately 16 percent of all the cases "presented to it vhich were definitely
disposed of during the period. At the same time., appro:dmately 21,300
cases were dismissed without issuance of complaint, the great majority
after a first invest.i5a.ti0n.
3 . Cases Af fee t ing .'. sre presentation.
ihat the rela.i ive success of the Commission may have been in
dealing -r,ith those dealing with misrepresentation and deception, the
particular types of ca„ses in 7/hich this study is interested, it has not
been possible to determine. Je know, as previously noted, (***), that
somewhat more than one-h If of all the cease-and-desist orders issued
(and 94 percent of those ris n.r out of Section j of the Federal Tra.de
Commission Act alone - that is, other than rnti-trust cases) concerned
this general subject; Of the stipulations, it is reported that not less
than 95 Percent - sre in the sane category. (****)
(*) "Tables Summarizin; Fork of the L 1 Division and Court Pro-
ceedings, 1915-35", Federal Trade Commission, Animal Report
(1935), pp.
o
pQ
(**) Aote: The. Commission's tabular summaries are rather com-
plicated, due in part to changes in the status of some cases
at different stages in the proceedings. For detailed explan-
ation and reconcilic tion of figures with respect to the Com-
mission's legal operations se? the text of the summaries, as
cited in note above.
(***) See note, page 5, Chapter O.,-, supra.
(****) Aisleading representations of the "general" class, tilus the
special false and misleading advertising type of cases (Data
irom Offic= of Chief Trial Examiner, Federal Trade Commission,
II 0 v emb er 11, 1 9 ■' 5 .
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But we have no way of knowing -hat proportion of the more
than 21,000 dismissed cases had to do with the same subject. The
records of these cases, as a group, are held confidential. "Tithout
some classification of these cases "by subject-natter there is no way
of determining whether the number of instances of successful restraining
iction taken in misrepresentation cases alone was greater or less, in
relation to the entire number of cases of this same type, than the
16 percent av°ra:;e for affirmative action in cases of all types, given
above.
C. General Reasons for Dismissals.
Without a knowledge of the reasons for dismissal, also, of
all or a representative sample of these .31,000 cases, it is not feasible
to attempt any appraisal of the grounds for this large proportion of
dropped cases or the policy involved in their handling, or to obtain
light on the administrative difficulties and practical problems in-
volved in the nature of the cases the. ..selves. The more frequently en-
countered causes for disposal of the cases without restraining action
prob,ably are those listed by the Commission itself in a. recent Annual
Report :
"The Commission disposed of 1,597 cases (during the
year) for the reason that they were found to be private contro-
versies lacking public interest, that the practices complained of
had been discontinued, that the firms or persons complained
against had gone out of business, or for lack of jurisdiction,
etc." (*)
In its tabular summaries referred to above the Commission
offers the following similar explanatory note to its classification
of cases "Closed, for other reasons" -
"This classification includes such reasons as death,
business or practices discontinued, private controversy, con-
trolling court decisions, etc." (**)
The classification of applications for complaints "dismissed
for lack of merit" is offered without further explanation, as is the
larger group of preliminary inquiries reported merely as "Closed after
investigation" .
llo data have been found to indicate the causes, specifically,
for dismissals of the misrepresentation and deception group of cases,
or whether these causes differ materially from the general reasons given
above. An analysis to shed light upon this joint, as well as upon the
extent of dismissal of this type of case, might well prove of value in
any consideration of the whole problem of w.blic dealing with deceptive
practices.
(*) ■ Federal Trade Commission, Annual Report (1934) p. 4
(**) Federal Trade Commission, Annual P.eport (1935), p. 8?, note.
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D. The Commission' and the Courts.
As to the Commission's record with the courts, of the 1,446
cease-and-desist orders issued in the period dealt with in the cumulative
summaries ouotecl above, the vast majority '.ere accented as "binding by
the respondents without recourse to judicial review. (Only 1,000 of the
orders were contested in pnj degree before the Commission itself, 409
being issued by consent, and 37 by default). In 151 cases, appeals
were taken by the respondents to the lower courts, and in 33 cases the
Commission petitioned the lover courts for enforcement of its decrees.
In 37 of the 151 appealed cases the Commission's ruling was
either reversed or modified; in 46 instances the Commission was sus-
tained; 15 petitions were withdrawn, and 3 are pending. It is pointed
out, however, that in several instances where the Commission was re-
versed, a number of cases in the sane industry and turning on the same
point were briefed, tried and decided as one case, but given each an
individual docket number. If cases a.ctually tried, and not docket
numbers, were counter*, it is said, the total of uecisions adverse to
the Commission would be 56, i: t-tead of '7. (*) In \JC cases annealed by
the Commission or others to the Supreme Court, the Commission has been
upheld 24 times, and reversed 13 tines; 3 petitions were withdrawn; and
in 17 cases certiorari was denied. Cut of 33- cases in which the
Commission applied to the courts for enforcement of its orde/s, it
was supported in 24 cases and reversed in 4; 3 petitions being withdrawn
and 2 oending.
Statistically at least this is a creditable record. Some
criticism of the Commission has inclined to attribute the relative in-
freauency of its judicial reverses to its conservatism, its disinclina-
tion to try conclusions in newer, more doubtful fields of jurisdiction.
7/hatever the justification of such a charge in some areas of competitive
practice, it does not appear to apply with respect to misrepresentations.
Here the Commission has shown consistent activity, and has inclined to
entend its restraint to the limits of judicial approval, and sometimes
a little beyond, as its reversals in these cases show.
-^ • Reasons for Reversals in kisr -^-presentation Causes.
An examination of the cases involving misrepresentation in which
the Commission has suffered reversal at the hands of the courts reveals
such cases to have turned orincinally uoon these points: (l) whether the
practice cor.rolained of wa.s really nisre-oresentative or deceptive in
nature, or constituted merely trade "puffing" (**); (3) whether the
public was in fact deceiver1, or liable to be deceived by the uractice,
and competitive injury suffered in conse-mence (***); and (3) whether,
(*) Federal Trade Commission, Annual keport (1935), ilote to Table 5,
•0. 35.
(**) Ostemoor & Co., Inc. , v. F.T.C. 16 F (2d) 962 CCA. 2d, 1927.
(***) Berkey ft Gay Furniture Co-, v. F.T.C. , 42 F (3d) 427; Chicago
Portrait Co- 4 F (2d) 259 (CCA. 7th 1925).
9710
-30-
in spite of admitted deception of or possible injury to the oublic,
there existed any competitor liable to suffer from the practice. (*)
In certain ernes, also, the Commission1 s orders '-'ere modified to permit
the respondent to continue the practice complained of, but vith modifi-
cations designed to remove the likelihood of misleading. (**)
P. Types of Industries Affected by Trp.de Commission Action.
r
To obtain some idea of the types of industries which, in
practice, have been most freouently affected by action taken by the
Federal Trade Commission with respect to raisre Presentation, a check of
cases contained in the Commission's official reports was made. (***)
B0th the type of commodity dealt in by the respondent, and the form of
his business - whether manufacturing, wholesale, retail, etc. - were
noted, where it was felt that these joints were sufficiently indicated
by the data. given in the reports.
A total of 555 cease-and-desist orders covering misrepresenta-
tion cases were so tabulated, with the results shown below:
Product
Faint, Varnish, Shellac, etc.
Foods (GPneral
Cutlery, Silverware, Uovelties ,
etc.
Furniture and Rags
Schools & Institutes of Health
Building Material - Glass,
Hoofing, etc.
Publishers & Printers
Cotton Textiles C-, Lace
Chemicals, Stain Remover,
Disinfectant, Soar>
Fountain Pens H Pencils
Cigars
Electrical Appliances (Health,
B e aut y , Household )
Candy
Merchandise (General )
Lumber
Oil, Gas, & Ga.s Revivers
Business Equipment (Typewriters,
che c ! ■:- wr iters, etc.)
Jewelry "• Eyeglasses
3eeds
Spongers
Shirts
no. oi
Cases
30
41
36
36
32
21
20
18
if:
18
12
11
11
10
10
8
7
7
7
Product
Hosiery
Outerwear
Underwear
Toilet Articles C iI0tions
for Beauty & Health
Bedsprings, Mattresses, etc.
Auto Accessories, Batteries,
etc.
Tires and Rubber
Rope
Medicinal Products and Drugs
Coffee
Leather & Imitation Leather
Shoes
Fats ,
Machinery- Oil Pumps, etc.
Music - Pianos,
Coal
Sporting Goods
Photographs
lotion Pictures
Fur Coats
Ho. of
Cases
28
27
27
26
Phonograohs
(*)
(*** \
F.T.C. , v. Hal ad am CO. 283 U.S. 643 (1CF1).
F.T.C. , v. Morrissey; 47 • F. (2d) 101 (C.C.'A. 7th, II
II. Flueg'elman fi Co., v. F.T.C, 37 F (2d) 50 (CCA.
1C30).
Vols. 1-18, June 30, 1915-193 .
?i);
, 2d.
5
5
5
5
4
4
4
4
3
3
3
3
1
1
1
9710
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Form of Business No. of C^ses
Manufacturer 294
Wholesaler CO
Hetp.iler .' 72
Kail order and other correspondence
selling ; 64
Broker, Importer, Agent, etc. ... 35
Sor.ie questions as to exact classification arose in the prep-
aration of the above, but the results clearly indicate the
principal conclusion to "be drawn, namely that the great majority
of Trade Commission actions as to misrepresentation are in con-
nection with consumer goods industries. Also, a very considerable
ironortion of the cases deal with elements of the distributive
system in direct contact with the ultimate consumer, despite the
fact that the greet bulk of retail trade lies outside the juris-
diction of the Commission through limitations of the interstate
commerce clause.
G. Cpneral Summary
In general as to the work of the Commission, there is no
doubt that a large share of its attention and activity has been
directed toward the stamping out of mi ^representative and deceptive
practices, and that in a numerous body of cases it has acted
effectively to that end. Whether, over a period of some 20 years,
a total of perhaps 3,500 restraining actions (stimulations and
cease-and-desist orders combined) effected in this field represents
a reasonably sufficient policing of this problem in the sphere of
nation,-;! commerce might at first glance arouse a nuestion.
"whatever inadequacy there may be felt to be must be attri-
buted in large measure to the various limitations placed upon the
Commission's work, by the interstate commerce clause, by the other
legal conditions specifically imposed by its organic Act, by the
interpretations of the courts, and by the extent of the task itself
in relation to the physical facilities provided for handling it.
The Commission itself, by the recommendations for amendments to its
Act which have been previously mentioned, has indicated its own
sense of the need for an increase in its scope of activity through
relaxation of some of these restrictive conditions.
Furthermore, the extent of the influence of the Commission
in discouraging deceptive practices and encouraging a more whole-
some tone in advertising and other marketing methods is not to be
measured by number of orders issued alone. Such orders deal with
individual cases, but they also serve in a measure to set precedents
which have widespread restraining effect umon others in the same
lines of trade employing, or who might be inclined to employ,
similar tactics. Through these orders also, and in the informal
stipulations entered into, a considerable body of decisions as to
the nature of misrepresentation has flowed from the Commission which
have never been carried to the courts, and which have contributed
9710
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materiplly to an enlarging law merchant in this country.
The "omaission has particula 1 ■ sought to keep abreast of
the development of practice in the • rertising field by its
Special Boar:- of Investigation functioning in the newspa :>er,
-periodical and rs Lio fields. (*) Thf-ne efforts are claimed to have
met with very considerable success, really, through its Trade
Practice Conference work the Commission has assisted in cooperation
with the individual trades in emphasizing the restriction of decep-
tive practices, and has given as istance, to the extent of its
powers, in the formulation of >ositive trade standards looking to
this result. Altogether, it seems probable that with respect to
this type of unfair competition, fully as iuch as any other falling
within1 its sphere, the Commission has fulfilled the aims and expec-
tations with which it was established.
The nature end work of the Federal Trade Commission have been
dealt with at considerable length in this chapter because in
certain respects it was the forerunner of the trade practice work
embodied in the IRA code;,. As the first agency set up for coping
with misrepresent- i ive practices in commerce on a national scale,
also, it furnishes, the chief available basis for comparison with
the work in this field achieved under the HRA codes, which is to
be considered in the chapter following.
(*) Federal Trade Commission, Annual Report (1935) , pp. 101-104,
S710
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CHAPTER FOUR
N»R.A. EXPERIENCE III THE CO'TROL OF MISREPRESENT ATI ON
1. GENERAL VIET; OF THE CODE PROVISIONS
The National Industrial Recovery Act "became law on June 16, 1933.
Section 3 (b), of Title I of the Act provided:
"After the President shall have approved any such code, the pro-
visions of such code shall be the standards of fair competition
for such trade or industry or subdivision thereof. Any violation
of such standards in any transaction in or affecting interstate
or foreign' commerce shall be deemed an unfair 'method of com-
petition in commerce within the meaning of the Federal Trade
Commission Act, as amended;11..
This was in effect the next step beyond the Federal Trade
Commission Act. The codes were to supply the specific definitions of
the practices constituting "unfair methods of " competition" which had
been omitted from that Act. Fiirthermore , by use of the phrasing "in
or affecting interstate or foreign commerce" it was "oroposed to avoid
the limitations involve! in a strict interpretation of the interstate
commerce clause of the Constitution to which the Federal Trade Com-
mission was subject.
A. Frequency of Misrepresentation Provisions in the Codes
Prohibitions unon misrepresentations were among the most fre-
quently-appearing of all trade practice provisions in the codes.
Slightly more than four in five of the total number of codes, both
basic and supplemental , which were ultimately approved included in
their schedule of unfair practices one or more methods of misrepre-
sentation or deception. Specifically, the principal types of pro-
visions so included were: (*)
Prohibition of misrepresentation
in general (widely inclusive
provision) 356 codes and supplements
Misrepresentation of products . . 148 " " "
Misrepresentation of prices ... 74 " " "
Misrepresentation of, or deceptive
credit terms - . . 22 " " "
(*) From "Trade Practice Provisions in Codes of Fair Conmetition" ,
Daniel Gerig and Beatrice Strasburger, Division of Review5> I'TRA,
December 20, 1935. Table I.
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Frequency of Misrepresentation Provisions in the Codes (Continued)
Misrepresentation of services, form
of business, affiliations, etc. 35 Codes and supplement c
Inaccurate advertising 494
ii n it
Deceptive labeling, branding, mark-
ing or packing 416 ' " " "
Deceptive "selling methods". ... 57 " " "
Deceptive offers, orders, agree-
ments, etc 425
ii ii ii
Misrepresentation of competitors
or their products ("defamation"). .529 " " "
Inaccurate or persistent under-
selling claims 19 " " "
False measures 19 " " "
Lotteries 67 " " "
B. Form of the Code Provisions.
numerous variations in the form of these provisions are found,
particularly in the earlier codes. (*) Later they tended to become
more standardized in form and legalistic in phrasing. In many in-
stances the langLiage followed closely, if not verbatim, the text of
the similar provisions appearing in the voluntary trade practice conference
codes of the Federal Trade Commission.
The forms in which several of the frequently appearing provisions
were included in the 1TEA "model code" are as follows: (**)
Misrepresentation (General)
Inaccurate Advertising
"iTo member of the trade/industry shall publish adverti-
sing (whether printed, radio, display or of any other nature),
which is misleading or inaccurate in any material particular,
nor shall any member in any way misrepresent any goods, (in-
cluding, but without limitation, its use, trade-mark, grade,
quality, quantity, origin, size, substance, character,
nature, finsih, material, content or preparation) or credit
terms, values, policies, services, or the nature or form of
(*) See text accompanying the .tabulation of trade practice provisions,
(op.cit. supra, for discussion of the method of tabulation followed,
variations i" thp fn^m of the "provisions , overlaps, etc.
(**) liRA Office Manual, PP. 1800-1831.1.
9710
• 35-
Misrepresentation (General) (Continued)
Inaccurate Advertising
the business conducted."
Deceptive Marking, Branding or Packing
"No member of the trade/ industry shall brand or mark or
pack any goods in any manner which tends to deceive or mis-
lead purchasers with respect to the brand, grade, quality,
quantity, origin, size,' substance, character, nature, finish,
material 'content or preparation of such goods."
Defamation of Competitors
"Ho member of tne trade/industry shall defame a com-
petitor by falsely imputing to him dishonorable conduct, in-
ability to perform contract, or questionable credit stand-
ing, or by other false representation, or by falsely dis-
paraging the grade or quality of his. goods."
The code provisions dealing with misrepresentation were generally
broad in their phrasing, and added little if anything specific were
more comprehensive than the types of practices which had already been
recognized as unfair competitive methods in Federal Trade Commission
procedure. For the most part also they provided little in the way of
criteria for determining just what might be considered misrepresentative
or deceptive in any given case with respect to any of the points
enumerated in the provisions.
In some instances there was simply a flat prohibition: "Mis-
branding, mislabeling, and false, deceptive, and misleading advertis-
ing are prohibited by this code." (*) "Misrepresentation or mis-
branding of mercnandise is an unfair practice.... ITo person shall
enter into any false or misleading advertisings" (*** A more usual
form added the qualification "with the intent or effect of deceiving
the purchaser". (***)
The model provision as to marking and. branding given above
employed the form "which tends to mislead or deceive purchasers" ,
doing away with any requirement of proof of i tent or actual deception!
as matters of fact. For misrepresentations in advertising the qualifi-
cation "in any material particular" was: Used- ivr the "'-m^del' clause, and
in numerous codes, apparently to avoid drawing the rein on the mer-
chandising imagination too tight. In many other instances however it
is simply stated, "Ho member shall use advertising methods which have
capacity cir tendency' to deceive or mislead the customer or prospective
(*) Paint anc Varnish Code ," Part ' 3 , Art. XII. Codes of Fair Com-
petition ,_ Vo 1 . II. p . 178.
T**7 Underwear and" Allied Products' Code. Art. VI'. 4, ibid." Vol.1 .p. 323,
f***)Retail Solid" Fuel. Art. VI. 2, ibid, Vol." VI. n.433.
•#■'- .. t
9710 ' *
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Defamat,ion of Competitors (Continued)
customer, n or the equivalent.
As previously stated, practically no attempt was made in the
code provisions themselves to provide definite criteria to guide the
administrative authorities in deciding just where the line between
truth and deception in advertising runs., or what are the permissible
boundaries of "trade puffing". This apparently was left to their
discretion in the particular circumstances, with the shadow of the
courts in the background for passing of final judgment. There is
little evidence, also, of effort on the "art of the Code Authorities
to set up any general standards of guidance for themselves in these
matters.. Apparently they dealt with such questions in piecemeal
fashion, and more or less by rule of thumb, as the individual cases
arose.
i
Such a system was flexible and perhaps well adapted to deal
with the specialized problems of the individual industries. Had the
NRA continued in effect long enough for a body of precedent to be
built up through the actions of the different Code Authorities, no
doubt more specific rules could have been drawn. .At least there would
have evolved lists cf the particular practices barred in the several
industries, similar to that of practices condemned by orders to cease
and desist already quoted from the Federal Trade Commission.
In one code, that for general Retail Trade, a series of inter-
pretations were in fact adopted defining and .clarifying the meaning of
the advertising provisions with respect to certain merchandising
practices of the industry. (*) And an effort was made by a special
Advertising Committee set up by the Coffee Code Authority to formulate
a code of advertising ethics for use in deciding as to borderline
cases, this Code Authority apparently having beon particularly alive
to the complexities of the subject. (**)
As far as the physical qualities and characteristics of the
commodities themselves were concerned, certain criteria for deter-
mining misrepresentation were provided in those codes which set up
come form of product standards er labeling requirements. These are
dealt with in detail in Part II of this report,
C. General Comparison with the Federal Trade Statute.
What was essentially significant about the codes as a whole,
from a comparative legal point of view, was that they carrd«d their
own definitions of what constituted unfair competition, as a natter
of law; this was not left lor a court to decide. The acts were for
the most part branded as unfair in themselves, thus freeing the code
law_ from the hampering double requirement to show both competitive
injury and public interest, as in the case of the Federal Trade Com-
mission Act, (although as a matter of practice the-se points were
usually plead for the purpose of strengthening the cases presented by
(*") See pages -5«-53, bel»w
,**) See pages 57, 58* fcolow
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C-eneral Comparison with, the Federal Trade Statute (Continued)
NBA fT litigation). What was essential to he shown was tha.t the code
had "been legally adopted and contained the provision in question
(evidenced usually "by affidavit), and that violation of the provision
had tai:en place.
Furthermore, the NBA law was also, theoretically at least and to
some degree in effect, free of the necessity to show that the act com-
plained of was directly in interstate commerce, by grace of the "in or
affecting" clause already referred to, (*)
Finally, violations of the standards of unfair competition em-
bodied i • the codes were made misdemeanours by the NBA Act and (again,
theoretically at least) immediately subject to criminal prosecution
and penalty, as contrasted with the restraining procedure of the
Federal Trade Commission Act with its penalties only upon action in
contempt where violations of the restraining orders of the Commission
and the courts had occurred. (**)
(*) That is, the Code Authorities were able to obtain a ronsiderable
amount of compliance, as in the retail code, without the inter-
state commerce issue being raised. On the other hand, "...every
time that we filed a suit for enforcement of a code provision,
the defendant presented first a denial of the constitutionality
of the NIBA as a whole; second, the allegation that the delegation
of authority to the Administrator had exceeded the powers of
Congress; and third, that the business involved was not interstate
commerce and Congress had nothing to do with it." Wm. H. Davis,
former Compliance Director, Bulletin of Crushed Stone, Sand &
Gravel Code Authority, Fob. 20 ,1935.
(**) The points noted in the preceding three paragraphs apply only to
legal proceedings undertaken by or on behalf of 1TBA itself in con-
junction with the District or State Attorneys and the Department
of Justice. A rather complicated dual system of legal enforcement
was in fact sot up, involving criminal prosecutions as aDove on
the one hand, and action by the Federal Trade Commission on the
other. By the terms of NIBA, violations of the codes became un- .
fair methods of competition "within the meaning of the Federal ^
Trade Commission Act", thereby giving the Commission jurisdiction;
but that jurisdiction was in turn still restricted to the terms of
the F.T.C. Act itself, as in ordinary cases of unfair competition.
Further, the President by Executive Order, gave a right of appeal
to the Federal Trade Commission from the action of any Federal
agency, except the Department of Justice, in cases of alleged code
violations involving promotion of monopoly or discrimination
against small enterprises; but the order also instructed the
Coi.imission to turn over to the Department of Justice all such
appeals where the practices complained "f were found to be not
contrary to section 5 of the F.T.C. Act, or sections 2,3, or 7 of
the Clayton Act. (Executive Order o_f .January__20_. 1934) __ _ _
9710
D. Limitations in Practice of the IIBA Provisions.
The somewhat larger legal scope for enforcement allowed by the
Recovery Act had its limitations. Many cases were settled by the sign-
ing of a certificate of compliance by the offender, which amounted to
a promise to obey the code in the future, unaccompanied by any present
penalty and/or increased hazard of future penalty in case of continued
violation**.
As long as public opinion demanded display of the Blue "la'gle ,
violators were very anxious to have the insignia restored to them and
this condition aided administration agencies in the adjustment of the
code violations without the necessity of resorting to the usual court
procedure. However, the Administration was hampered in its efforts to
obtain compliance and/ or enforcement by the very nature of the com-
plaints themselves; because of the incompleteness of the preparation
of the cases, the insufficiency of the supporting evidence and the
bias which frequently accompanied the data submitted by the Code
Authorities when demanding action.
Greater experience and proficiency on the part of the Code Ad-
ministering bodies in discharging their own responsibilities as well
as complete cooperation from the complainants and the prosecuting
officials would doubtless be required in order to make a system of
code administration function with a high degree of efficiency.
The general nature of the machinery of administration which was
employed to give effect to the code provisions is outlined in the
succeeding pages.
(*) Compare FTC stipulation procedure, page 23i below
-39-
II. ESi jffiKIfllSTRAJtltlH OF THE CODE PR OVISIOATS
The ERA machinery for obtaining compliance with the Code require-
ments and restraining violation of the Code law t ook its most charac-
teristic pattern from the conception of cooperative control "fcy industry
and government which was basic in the National Industrial Recovery Act.
A. The Code Authorities
On the industry side were the Code Authorities, often with local
and regional Sub-Authorities of various s orts, composed of industry mem-
bers supposedly representative of all competing groups, and with public
representation through an Administration member. These Authorities, by
the terms of their codes, received various powers for their administra-
tion, subject in most instances to NBA approval in their actual perform-
ance .
For the more adequate dealing with trade practice questions, Trade
Practice .Complaints Committees were set up in conjunction w ith.lthe
Code Authorities of most of the codes, the personnel and methods of
procedure of these being required to be passed upon by the central ERA
organisation. These Committees were authorized to receive and investi-
gate complaints of violations of the code's trade practice provisions,
or initiate such action of their own; and to endeavor by education,
persuasion, arbitration, etc., to obtain compliance f rom t he violator
without recourse to NBA or the institution of legal proceedings . Where
no such committees were set, up the corresponding functions were common-
ly performed by the Code Authorities themselves.
Such a mechanism, closely in contact with industry conditions and
familiar with industry problems, was expected to prove a responsive
and effective means for dealing with these. When properly ooerated it
did, in fact, orovide a flexible, informal, useful and often s-oeedy
mea,ns of making the codes effective. (*)
3. ERA Compliance Agencies.
Cases where compliance could not be obtained by the Code Authori*
ties were referable to the ERA compliance machinery, the first stages
of which comprised the State and Regional Compliance offices, and the
Regional Compliance Councils. Here, also, effort would be made to
settle the controversies by adjustment rather than through court pro-
ceedings; neither the Code Authorities nor the ERA Compliance agencies
having the right to subpoena witnesses (as could the Federal Trade
Commission), or to issue legal processes of any kind.
Cases which still remained obdurate might be referred t o the Com-
(*) For discussion of the organization and functioning of the Code
Authorities see Administrative Studies, ERA, Division of Review.
9710
-40-
pl-iance Division in Washington, and finally to the Litigation Division
to fee prepared for prosecution.
Legal enforcement provided "by the NRA Act was of 'two kinds , first
by means of criminal proceedings instituted through the various Dis-
trict Attorneys' offices, and second, through the Federal Trade Com-
mission, in cases subject to the Commission's jurisdiction under its
own Act .
Though generally, power to assess penalties was only granted
Code administration agencies by liquidated damage provisions, which had
been a greed upon bv members of industry, the compliance division pen-
alised many recalcitrants by removal of the Blue Eagle. The penalty
thus achieved was of course the most severe "hen consumers and t he
public in general shunned those who had been penalized by the removal
of the insignia. When such action did not bring the required result
it became necessary in many sections to bring the offenders before the
several District Courts in the respective areas. The point to be noted,
is, that the Act itself permitted v iolators to be brought before the
courts at once and charged with t he offense, incase the compliance
agencies could not cope with the situation.
C . Some Comparisons With Federal Trade Organization.
The foregoing outline indicates some points both of comparison and
of contrast between the NRA administrative set-up and that of a body
such as the Federal Trade Commission.
Compared to the rather closely c entralized organization of the
Commission the NRA was widely decentralized, both on a geographical
and on an industry basis. NRA Compliance Offices were operative in ,
every state for the purpose of cooperating with the code authorities,
State and local agencies, and the public itself in seeing that the
codes were properly put into effect. In its Code Authority organiza-
tion the URjL possessed a medium of direct administrative contact with
the . individual coded industries only remotely approached by the link eai
between the Trade Commission and those organized' industries which had
presented Trade Practice Conference codes.
On t he other hand, the entirely official character of the Fed-
eral Trade Commission enables it to retain an objective position with
respect to industry interests which the Code Authority set-ups under
HRA were not often able to attain.
In their method of operation the Code Authorities themselves bore
some degree of resemblance to the Commission. They could, in their
own particular fields, receive or initiate complaints of unfair prac-
tices, make investigations' concerning them, collect evidence, decide
the issues, and call upon those found to be in violation of the code
to desist from their practices. Like the Commission, they could dis-
miss cases found to be "without merit", or close others upon informal
agreement to abandon the practice complained of; but lite it again
they had no power to enforce their orders by imposition of any direct
penalties. Unlike the Commission they could not apply to the courts
-41-
in their own names for enforcement of their orc.ers, out -'ere required
to seek this through the regular channels of the NRA»
As an administrative agency the NM had the operation of hundreds
of diverse trade practice laws, with varying jurisdictions, to oversee,
as compared with the two basic charters of the Federal Trade Commission
in this field. The NRA moreover, under its original concept, possessed
the authority and, responsibility, in conjunction with industry, to de-
termine the specific constituents of its own trade law, a po'-'er denied
to the Federal Trade Commission in its Trade Practice procedure.
So long as its legal basis stood, also, thelTRA. had in its machin-
ery for amendment and interpretation a flexible medium for altering
and adjusting code law to meet the experienced needs of industry and
changing circumstances, as contrasted with the established and rela-
tively inflexible legal precedents under which the Commission was
largely compelled to operate.
The next section of this chapter will set forth some of the re-
sults in the field of misrepresentation achieved under this system,
as the ITPA' s own records of operation, and the comments of various
Code Authorities and other industry groups, reveal them.
III. RESULTS OP OPERATION OE THE MISREPRESENTATION PROVISIONS
A. General Sources of Information
For the information necessary to ca.st light upon the Question of
how the code provisions concerning misrepresentation operated in ac-
tual practice the following sources of information were used: the
records of code adoption and administration in the NRA files in Wash-
ington; the compliance and enforcement records both in that city and
as collected from the State anc1 Regional Compliance Offices throughout
the country; questionnaires directed to officers of the former Code
Authorities; field contact, through the State offices, with representa-
tives of the former Local and Regional Code Authorities of codes
which "ere organized uoon that basis; and some direct contact with in-
dividual industries.
In comparison with the very large number of codes which contained
one or more forms of misrepresentation provision, a relatively small
amount of significant information concerning either their genesis or
operation was found in the NPA file records. In all but a handful of
cases - the most notable of which was the general Retail Trade Code -
the provisions were, so far as the transcripts of code hearings re-
veal, adopted almost wholly vrithout discussion or controversy, as de-
sirable general objectives or the expression of existing law. Little
more concerning them is found, in the file records of code administra-
tion.
For data as to operation of the provisions as revealed by the
compliance records, the Washington compliance files for more than 400
individual codes, including those covering the 60 largest codified
industries, were searched. Only 61 of these codes showed any misrep-
9710
-42-
*
resentc.tion cases whatever ref erie d f or action, and in nearly half of
then not tore than :wo or three cases each.
Composite compliance figures concerning; trade practice violations
for 1113 representative industries, gathered f rom the State Compliance
Offices throughout the country, show a total of 23,611 cases concerning
all types of trade practice provisions, of which only 1,619, orless
thai1. 7 per cent, represented all types of misrepresentation violations
of interest in this report. Moreover, four— fifths of the total numoer
of misrepresentation cases were contributed "by 9 retail codes. 3?orty«»
six of the entire 115 codes reported showed no misrepresentation cases,
and 42 others showed five or less such violations each. (*)
T'70 reneral conclusions might be drawn from the foregoing faops,
either, first, that in the great majority of industries, the retail
trades excepted, misrepresentations constituted no problem, or at
least not one actively so\ight to be controlled; or, second, that the
Code Authorities of these industries had been largely able to deal
'With their misrepresentations problems by means of their code pro~
visions without calling upon 1TRA for compliance or enforcement aid.
In the following sections there will be considered, in order,
(l), the data concerning misrepresentation for a group of industries
largely representative of those with a story appearing in the NRA
files; (2) results obtained from a questionnaire largely circulated
among former Code Authorities; (3) data obtained by field contact with
Local Code Authorities in a selected group of industries; and (4) fur~
ther analysis of the data presented by the compliance and enforcement
records.
(*) Detailed figures are presented on pp. 92, 93, below
-43-
Is. Operation of the Provisions in Selected Industries
In the pages following there is presented the story of the opera-
tion of the misrepresentation provisions in a group of selected indus-
tries. The industries included are for the most part those in which
control of misrepresentation in some form was a recognized industry
problem, usually making its appearance in the very beginning of the code
making, and continuing as a matter of concern in the administration
phase. Taken together they arc illustrative of most of the circumstances
connected with the misrepresentation problem which the NBA experience
served to emphasize.
The data presented for these cades was obtained very largely from
the various NBA file records in Washington, supplemented by conference
with former Deputy Administrators in charge of the codes, and to a
limited extent by correspondence and personal contact with Code Author-
ity and industry representatives. The codes follow:
1. Retail Trade (Code Ho. 60)
This is probably the largest and most important code in which the
question of misrepresentation, including particularly the definition of
false or misleading advertising, was a matter of major concern. Pr«m
the inception *f the code the subject aroused a controversy, first with
respect to "underselling claims", and later as t» "free deals", which
came to be only second in importance t» that which surged about the
"loss leader" question.
The general retail trade code, covering a wide variety of
commodities, including retail drugs, was presented to NRA for appreval
by 10 sponsoring national retail trade associations on July 29, 1933.
The code was designed to cover a combined business comprising approxi-
mately 300,000 establishments, employing 1,070,000 workers, and having
net sales aggregating some $8,600,000,000. (*)
a. The Proposed Code Provisions.
The code as originally proposed contained the following pro-
visions touching upon deceptive advertising and other mis representative
practices:
(a) "No member of the retail trade shall use advertising,
(whether printed, radio, display or of any other nature) which
is inaccurate and/or in any way misrepresents merchandise,
; (including its use, trade-mark, grade, quality, quantity, substance,
character, nature, origin, size, material content or preparation) ,
or credit terms values, policies, or services, nor shall any mem-
ber ef the trade use advertising or selling methods which tend to
(*) Estimates of Research and Planning Division, 1TEA, for 1933.
9710
-44-
deceive or mislead the consumer, including '"bait1 offers of mer-
chandise. "
(b) "The term ;'Bait offer of mercliandiso ' as used herein
means the practice whereby a member of the trade through an
appeal by price, brand, description, or ether means, attracts
prospective customers' into his store and then through inad'cqiiatc
or disparaging sales presentation or through the quantity avail-
able, or through other means places obstacles in the way of the
purchase of the advertised merchandise and forces upon the pros-
pective customer's attention other merchandise upon which a great-
er profit is to bu realized."
(c) "Ho member of the retail trade shall use advertising
which refers directly or by"' implication to any competitors or
their merchandise, prices, values, credit terms, policies or
services."
And the following: "The usb of, participation in, publishing
or broadcasting of, any statement or representation that lays
claim to a policy or continuing practice of generally undersell-
ing competitors, is an unfair and uneconomic practice." (*)
A public hearing was hold August 24-26, 1933, at which a great
deal of time was "given to discussion of the trade practice provisions
to be adopted. Of 203 speakers who presented their views the record
indicates that only clno seriously opposed the advertising provisions. (**)
This was Mr. Percy S. Strauss. 'President of the R. H. Lacy Company, New
York, who presented his company's views in opposition to the "under-
selling" clause given above.
b. The Underselling Claim Problem.
According to the testimony offered the sales policy of the
3. H. Macy Company has been developed and widely advertised over a
period of years. All mercliandise is sold' for cash and it is the
company's claim that they are,, because of cash sales, able to soil for
six per cent less than their competitors. They have consistently
followed this policy and claim to be always ready to sell six per cent
below any competitive price. It was further developed at the hearings
that the Macy Company owns the Bamberger Store, Newark, IT. J., and two
or three other stores which do not operate on a cash basis. It has been
the contention of the R. H. Macy Co., that because of their intimate
knowledge of sales c«st under the two systems they were able to judge
and know the exact advantage which they were able to offer the consumer.
The general opposition of the trade to the advertising of such
a general policy may bo summed up in the terms of "a brief subsequently
submitted by the National Retail Dry Goods Association, which held
that:
(*) Text of original draft of code submitted. Code Record files.
(**) See Transcript of Public Hearing, August 24, 1933, Vols. 1-12.
S710
-45-
(1) "The claim to undersell all competitors never has been
and cannot he sustained."
(2) It is therefore inherently rr.isrepresentative to the
public.
(3) ~Such claims "break down public confidence in adver-
tising, arc detrimental to sound "business, and are
unfair and uneconomic."
(4) "The loss-limitation provision of the Code establishes
a fixed point beyond which no merchant can go in an
effort to undersell his competitor, and therefore he
should not be able to claim his ability to do so."(*)
In defense of his firm's position 'Mr. Strauss cited the conclu-
sions reached by the Federal Trade Commission in its investigation of
the operations of their business. He stated:
"Sevcral years ago interested parties filed application
with the Federal Trade Commission to prohibit the advertis-
ing by Macy of its cash policy statement. The commission
made a thorough and exhaustive examination which occupied
over two years. Macy produced its records. The Commission
also examined records of Macy competitors. The Commission
found neither unfair competition nor false and misleading
advertising in connection with Macy'a cash policy statement
and concluded its investigation by denying the application.
"We oppose any attempt to prevent any merchant from
presenting to the public in any form of appropriate words
his economically justifiable claim that generally lower
cost operation, whether by reason of cash sales exclusively
or otherwise, permits economies which are passed on to his
customers.
"The only restriction upon such sales would be their
truthfulness.
"That economics resulting from cash sales exclusively
are possible and exist cannot fairly be denied." (**)
The Consumers' Advisory Board supported the Macy contention, in
the general interests of truth of statement.
"The Board also opposed the provision that, 'No retailer
shall use advertising which lays claim to a policy or continu-
ing practice of generally underselling competitors'. This
provision may make it an offense to tell the truth, and that
resembles the ancient and nyw discredited doctrine that 'the
greater the truth the greater the libel'." (***)
(*) Brief presented by T. 3. Moeeer, Vice President, national Retail
Bry Goods Association, July 27, 1934. Deputy Files.
(**) Transcript of Hearings, page 593.
(***) Volume A-l, Memorandum to A. D. Whiteside, Bcputy Administrator,
September 29, 1933.
9710
-46-
The difficulty apparently lay in the fact that while the Macy
example admittedly might have given rise to much improper advertising
of a similar nature by other industry members, there was no way to
prove that an underselling policy could not "be truthfully claimed
and honestly carried into effect.
C. The Code Provisions as An-oroved.
Nevertheless, the Code as finally agreed upon by the sponsors
did not recognize the I.fecy position, and the trade practices were
forwarded to the Administration for approval with the underselling clause
in its original form. The code was approved October 21, 1933, to be-
come effective October 30.
The Code thus approved was not in several respects the code which
had originally been presented by the sponsoring trade groups, nor was it
precisely as finally agreed upon by them; and there was considerable
outcry in the industry. Article IX, 1-c, as actually approved read:
"No 'retailor shall use advertising which inaccurately lays claim to a
policy or continuing practice of generally underselling competitors."
The "bait" advertising clause had disappeared, and in place was a
provision simply against "switching". (Art. IX, 1, e) The clauses
concerning inaccxirate advertising and disparagement of competitor had
been qualified by the addition of the phrase "in any material particu-
lar." The text of the entire misrepresentation provision as approved
is as follows:
"Section 1. Advertising and selling methods. — (a) No
retailer shall use advertising, whether printed, radio,
or display or of any ether nature, which is inaccurate
in any material particular or misrepresents merchandise
(including its use, trade-mark, grade, quality, quantity,
size, origin, material, content, preparation, or curative
or therapeutic effect) or credit terms, values, policies,
or services; and no retailer shall use advertising and/or
selling methods which tend to deceive or mislead the cus-
tomer.
(b) No retailer shall use advertising which refers
inaccurately in any material particular to any competitor
or his merchandise, prices, values, credit terms, policies,
or services.
(c) Ho retailer shall use advertising which inaccurately
lays claim to a policy or continuing practice of generally
underselling competitors.
(d) No retailer shall secretly give anything of value
to the employee or agent of a customer for the purpose of
influencing a sale, or in furtherance of a sale render a
bill np statement of account to the employee, agent or
customer which is inaccurate in any material particular.
(e) No retailer shall place obstacles in the way of
the purchase of a product which a consumer orders by brand
name by urging upon the consumer a substitute product in a
manner which disparages the 'product ordered." (Article IX)
9710
-47-
Therc were other changes in the code, the net results of which
were to cause the industry at large to feel that it had "been "let
down", and to create a mental reservation which later tended to
weaken the support which the code obtained. (*)
When the Darrow report appeared these changes were further
castigated. The clauses, it was claimed, had "been "unwarrantably
amended". The changes were characterized as
"startling and most disquieting. The elimation of reference
to 'bait offers', or 'loss leaders' largely cancels the pur- •
pose of the paragraph. The addition of the phrase 'in any
material particular' virtually wrenches from the paragraph
any degree of effectiveness. The change that allows 'accurate'
reference to competitors completes the same emasculation of
the reform of this evil ... It is a matter of public con-
cern to know how and "oy whom the coles thus prepared for
public protection and the welfare of the industry are in
this stealthy manner ruined. :' (**)
In July 1934, the national Retail Dry Goods Association sought
to reepen the question of general underselling claims, and in a brief,
whose substance has been previously quoted, (***) urged deletion of the
word "inaccurately". Ho action was taken upon this.
With respect to the whole subject, Mr. ?.. IT. ITeustadt, Managing
Director of the National Retail Code Authority, stated that while the
"Macy policy" problem was a sore spot in parts of the Northeast, it did
not present great difficulties elsewhere. While other department
stores did attempt the same tactics, they were not so careful nor so
thorough-going as the original, and the Local Code Authorities were
able to curb the improper advertising. Many stores were glad to stop a
practice which they found they could ill afford. (****)
d. Proposed Amendments.
A public hearing was held on May 4, 1934, for the purpose of
considering various proposed amendments to the Retail Code, several
touching upon misrepresentation.
(*) Opinion of Mr. Richard IT. Neustadt, Managing Director, National
Retail Code Authority, expressed in conversation, November 5,1935.
(**) Report of the National Board of Review, May 10, 1934, p. 23.
This Board, under the chairmanshro of Mr. Clarence Darrow, was
set up by the President to receive testimony and report concern-
ing certain controversial aspects of NRA operation, particularly
with reference to their effect upon the smaller units of industry.
(***) Page 63 supra.
(****) Opinion expressed in conversation with representative of Commod-
ity Information Unit, November 5, 1935.
9710
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The question of ""bait" offers, which had been dealt with in the
code as originally proposed, ".as again considered out it was concluded
that the loss-limitation provision would sufficiently icstrict the
practice. (*)
An amendment concerning the advertising of Installment- Payment
Plans was considered, the proposed text reading -
"Advertisements offering merchandise for sale in install-
ment payment plans shall clearly and unequivocally indicate all
terms and charges which must be complied with in order to ob-
tain the merchandise so advertised."
This amendment was favored by the National Retail Code Authority
and the Consumers1 Advisory Board. Expert testimony, however, developed
the fact that the problems of installment selling were so intricate that
a simple statement in an advertisement would not suffice adequately to
explain the sales terras. The question was referred for further study. (**)
e. The "Free Deal" Problem
On the question of free goods advertising Mr. Peterson, Chairman
of the National Retail Code Authority said:
"We wish to inform you that there have probably been more
complaints filed with local and with the National Retail Code
Authority on unfair practices involving the use of the word
'Free' or its synonyms than any other class of trade prac-
tice." (***)
Accordingly the following amendment was proposed:
"No retailer shall use the word 'free' or any word or
words similar import with reference to any article or service,
when the delivery of such article or the performance of such
service is contingent upon the purchase of another article
or service."
The amendment was held for further changes, and finally was sent
to the Advisory Council for a policy ruling. The Council in a memoran-
dum signed by Willard Thorpe, January IV, 1935, (****) discussed the
various concepts of "free deals" and recommended that the proposed
(*) Transcript of Public Hearings, . May 4, 1934, "Proposed Amendments".
"(**) Transcript of Hearing, p. 9.
(***) Transcript of Hearing, p. 60.
(****) Memorandum, Advisory Council, Deputy File, Folder "Free Amcndmont".
9710
-49-
amendment "bo disapproved as fundamentally in conflict with Office
Memorandum No. 316.
Office Memorandum ITo. 316 provides in part:
3. "Although there should "be no general prohibition against
the use of premiums or 'free deals', the use of premiums or
'free deals' in the following way may "be prohibited:
(e) "The use of premiums or 'free deals' in ways which
involve misrepresentation, or fraud, or deception in any form.
It should be noted that the use of the word 'free', 'gift',
'gratuity' or language of similar import in connection with
premiums or 'free deals' cannot be declared deceptive in and
of itself. It will be proper, however, to prohibit the use of
this or any other language with. intent to deceive, or in such
a way that it does in fact mislead or deceive customers in some
material particular."
The Industry would not accept the provision in any.other form to
cover the use of the word "free". Division Administrator Carr suggested
that evidence of widespread abuse of the word "free" in advertising be
collected to support the recommendation for a change: in NRA policy on
the point.
Meanwhile, on March 15, 1935, Mr. Edwin L. Davis of the Federal •
Tirade Commission presented the Commission's attitude on the subject of
"froo" deal advertising.
"The Commission, through the medium of orders to cease
and desist and stipulations, has forbidden, in connection
with theJSLtcrstate sale of various commodities, representations
to the effect that such commodities are free, unless they are
sent to the prospective customers without requiring the payment
of any money, the rendering of any service, or the purchase of
any merchandise. Its action is predicated upon facts which
disclosed that the so-called 'free' goods or services were not
free at all, but that their price was included in the purchase
price of the combination offer; in other words, that there was,
in fact, a misrepresentation.
"It lias been the experience of the Commission that there
have been comparatively few instances of bona fide 'free' goods
or services. By your amendment, the use of the word 'free' is
prohibited when used in connection with the delivery of an article
or the rendering of a service, even though, if the article be
purchased or the service rendered, no additional charge is made.-
Hence, it is not necessary to establish, as a violation of the
Code (as proposed to be amended), that the cost of the alleged
'free' article or service is a part of the purchase price of the
article concerned. The Commission and the Courts, as far as I
am aware, have not passed upon this precise question." (*)
(*) Letter to Assistant Deputy H. C. Rogers, March 15, 1935. Deputy file,
Folder "Free Amendment".
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Additional evidence in the shape of various "free" advertisements
was submitted to the Deputy's office "by the National Code 'Authority,
which tended to "bear out the Commission's statement that few such offers
were really "free". No final action on the subject was taken, however.
A side light on the possible results to be derived from the in-
clusion of this amendment in the Code, is shown in a statement of the
Secretary of the Code Authority, that when he attempted to collect
"free advertisements" as evidence he had difficulty in finding them.
This he attributed to the fact that members of the industry, being
aware of the proposed amendment and believing it was soon to be approv-
ed by the NPA, had stopped the insertion of the "free" types of adver-
tisement.
There was approved on August 23, 1934, Amendment 3 to the Code,
which provided in part:
Art. IX, Sec. 1, (f) "Ho retailer shall sell or offer
' for sale any merchandise upon a condition which involves a
lottery, gamble, or element of chance, similar to what is
commonly known as a 'Suit Club Plan', provided, however, that
this sub-section shall not apply to non-profit organizations
not definitely constituted to carry on retail trade."
The objection to these t>racticos was in considerable part the
misrepresentations which appear to be inseparable, in practice, from
them; in particular the use of fraud in the conduct of drawings and
awards.
f. Interpretations of Misrepresentation Provisions.
While no great success; was had with obtaining approval of amend-
ments extending the scope of the false advertising provisions, a number
of interpretations of these provisions were issued by the Administration
which set up definite criteria for determining the fact of misrepresenta-
tion in various situations, and which amounted so far as this code was
concerned to marked extensions of the law of the subject. Because of
their significance in this respect, as well as their intrinsic interest,
the essential rulings of these interpretations are given below. All
relate to Art. IX, SGc. 1 or ,2. (*)
Administrative Order No. 60-18D, March 6, 1934:
"Clearance Merchandise"
"If the merchandise is segregated from all other merchandise,
and clearly identified with signs as clearance merchandise, it
need not be individually marked. Clearance Merchandise may be
. intermingled with other merchandise but if so intermingled, each
piece must be individually marked and clearly identified as
(*) See text of provision, p. 46 supra.
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-51-
clearance merchandise."
Administrative Order Uo. 60-18G, March 6, 1934:
"Retailers as Wholesalers or manufacturers11
"A retailer shall not represent himself as other than a
retailer or represent his establishment as other than a retail
establishment; provided, however, that this interpretation
shall not prevent a retailer performing another separately
economic process, from presenting himself as a retailer and/or
his establishment as a retail establishment in combination
with such steps, if, indeed, such is the case; for example
'Retailer and Wholesaler', 'Retailer and Llanuf ac ture r ' . "
Administrative Order No. 60-59, April 20, 1934:
"Pi s cont inuance-o f-bus ines s Sale "
"It shall be considered as false, inaccurate and misleading
advertising, and a violation of the Code for any retailer to
advertise a sale as a closing out sale, a going out of business
sale, a bankrupt and/or receiver's sale or any sale of a like
nature, without disclosing, if such be the fact, that additional
merchandise, except such as may be in transit, on order, or
under firm contract, is added to the stock of merchandise on
hand at the beginning of said sale."
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Administrative Order ITo. 60-65, April 26, 1934:
"Factory to You"
"No retailer shall use a statement in advertising such as
'Factory to You', 'Direct to You', 'Buy from the Wholesaler',
or similar phrases or statements, unless such phrar.es or state-
ments refer to all the merchandise illustrated and/or advertised
and/or otherwise offered for sale in connection v,ith such phrase
or statement, or unless the merchandise sold, illustrated and/or
advertised, is clearly segregated in fche advertisement or state-
ment in such a manner to show clearly just what merchandise is
intended for sale under the conditions specified therein.
Administrative Order Fo. 60-66, May 29, 1934:
"ITo Down Payment"
"It shall he considered an unfair trade practice for any
retailer subject to the provisions of this Code, in any ad-
vertisement and/or other form or forms of selling publicity,
to use the phrase 'no down payment', and/or other phrases of
similar or like meaning, .unless each item in the entire stock
or class of merchandise offered for sale, to which the said
advertisement and/ or publicity is directed, may "be purchased
without any form of initial payment whatsoever, in every case,
whether such payment be termed a "deposit1, a 'down payment',
an 'interest charge', a 'cost of delivery' arrangement, an
'advance on the first payment* , an arrangement whereby the
purchaser is obliged to open an account and pay a fee or charge
for such service, or any other form of initial payment on or
before the date of delivery.
"Whenever the retailer desires to limit the above terms
to any specific article or articles of the entire stock of
merchandise for sale, this limitation must be set forth in a
manner to clep.rly segregate and identify the items of merchan-
dise so advertised."
Administrative Order No. 60-68, April 26, 1934:
"Bankrupt Sale"
"It shall be inaccurate and misleading advertising and
a violation of the Retail Code for any retailer to use such
statements as 'save one-half, or 'one-fourth off, or 'bank-
rupt sale', or 'fire sale', or 'removal sale', unless such
statements apply to all merchandise in the advertisement or
section of the advertisement in which said statements are made."
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Administrative Order Ho. 60-113, June 25, 1934:
"Deferred payment Plan"
"It shall be an unfair trade practice under Article IX,
Section 1 (a) of the Code, for a retailer to ao/vertise or offer
for sale any merchandise with a statement or representation
that the merchandise may he purchased on any deferred-payment
plan, of whatever nature, without charge for such deferred pay-
ment, interest, services, privilege, or other comparable desig-
nation, rhen, in fact, discounts from quoted or marked prices
are given on identical goods sold for cash or when differentials
between prices for cash and prices for installment are quoted,
marked or wade available for identical merchandise, at any time
during the period in which such merchandise is on sale or offered
for sale."
Administrative Order ITo. 60-557, February 5, 1935:
"Budget Spies"
"It shall be a violation of Article IX, Section 1 (a) for
a retailer, in connection - ith any offer of sale on a deferred,
'budget' or installment payment plan, whether in advertising
natter or direct to the consumer or otherwise to quote or to
fix a price or solicit deferred, 'budget' or installment payments
of r.ny hind without at the time definitely, if such is the case,
that additional financing or other charges will be made or im-
posed. "
g. Informal Interpretations.
Besides these general interpretations issued by the Administra-
tion there were several informal interpretations made by the Deputies to
cover specific cases. In response to a request from the United Drug
Corroany for a ruling on a contemplated. "Factory to You" sale the Deputy
Administrator stated .that the advertising of "Jactory to You" in the pro-
posed sale would not be considered misleading provided the goods covered
by the advertising was actually made by the United Drug Company or its
totally owned subsidiaries. (*)
Although no formal interpretation was issued with regard to the
controverted question of use of the word "free", a complaint of the Local
Code Authority of Ehoxville, Tennessee against the Lane Drug Store of that
city, gave rise to an informal interpretation on the point as follows:
(*) Letter of A.S. Donaldson to Z. T. Clark, Vice President, United
Drug Company, parch 16, 1935. Code History.
-54-
"The use of the word 'free1 or a word or ror&s of similar ^r
identical meaning in an advertisement of premiums, which are
in fact gifts contingent upon the purchase of other merchandise,
shall not he in itself construed as ina.ccurate or misleading to
the consumer, so long as the advertisement clearly and plainly
states that the gift of the premium is contingent upon the pur-
chase of other merchandise, and so long as the advertisement is
not inaccurate in its description of the premium, the merchandise,
or .the price thereof." (*)
An unofficial "interpretation" or definition adopted at the
original hearing on the code provided:
"Reference to the value of an article shall mean that such merchan-
dise cannot be purchased elsewhere in the normal course of business,
at a price less than the value quoted." (**)
h. Compliance Results.
The procuring of compliance with the provisions of the Retail
Code was in the hands of a large number of Local Retail Trade and Retail
Drug Authorities in all parts of the country. It appears that in general
they performed their tas1': with a very slight reliance uoon either the en-
forcement machinery of NRA, or the national Code Authorities. A compila-
tion of figures totaling complaints for the first year of operation of
the Retail Trade Code, prepared by the National Code Authority from data
of the 278 Local Code Authorities that made reports, show 17,600 trade
pra.ctice complaints, of which 12,129 were adjusted by the Locals, 4,621
were dismissed as without basis, 644 were referred to the National Re-
tail Code Authority, and 115 were referred to NRA. (***)
A similar report on Retail Drug Compliance, dated April 10,
1935, but not showing the period covered, gives 14,095 less limitation
complaints received and 12,637 adjusted by the Local Code Authorities;
1,605 "other trade practice complaints" received, and 1,449 adjusted.
(*) Letter of Assistant Deputy har1-: Terrell, to R. B. Creech,
Secretary, Retail Drug Code Authority, Knoxville, Tenn. ,
July 23, 1934. Deputy Files, "Code Authority-General No. 1".
(**) Transcript of Hearings, August 24, 1933, Vol. 1, p. 85.
(***) Code Administration Study, Research and Planning Division.
(****) Deputy Files. "Compliance".
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This would seen to indicate that in the handling of general
trade practice violations the Local Code Authorities achieved a consi-
derable degree of success, and there appears to be no reason to suppose
that the advertising provisions did not fare at least as well as the
rest.
Further indication that the Local Retail Trade Authorities '
rere in fact able to make the code provisions effective in suppressing
misrepresentations is found in the results of field contacts made with
Local Code Authorities all over the country, to be presented, later in
this re-oort. (*)
On the other hand, that compliance in general declined during
the later code period, due in part to the spread of cynicism over the
code as approved and in part to the difficulties of obtaining NRA
administrative action in enforcement, is the opinion of the Managing
Director of the National Retail Code Authority. (**)
i. Sffect of the provisions.
As to the general results achieved by the limitations placed
upon misleading advertising and other misrepresentations by the code the
following expressions of opinion, from the NRA and the Code Authority
points of view, may be offered.
Deputy Administrator A. S. Donaldson, reporting on the results
of the retail codes, gives this summary of the situation:
"It may be said that the entire 'truthful advertising'
features of the Retail Code are primarily in the interest
of the consumer. Prior to the adoption of the Code,
in an atmosphere of cut-throat competition, the most out-
landish claims were made oy stores to lure the consumer
into the store at any cost. 'Sensational Sales', 'Greatest
Value of all Times', 'Free Goods', 'S10 Values for $2.95!,
and all such advertising claims bewildered rnd misled the
consumer. The advertising provisions of the Code definitely
placed a brake on such advertising and even more stringent
rules have been applied by amendment and interpretation of the
Code since its inception. Thousands of untruthful advertising
complaints have been settled satisfactorily to the great gain
of the consumer, as well as to honest merchants. The use of
the 'Loss Leader' , which was no better than a bait to draw
customers into the store, has been greatly reduced by the 'Loss
Limitation' provision of the Retail Code. It appears in each
case that Trade Practice provisions- of the Retail Code which
have protected the consumer are the same as those which have
protected the honest advertiser.
(*) See pages 77-3'T , below, ~~~
(**) Xr. R. IT. ITeustadt, in conversation, ITov. 5, 1935.
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"The national Better Business Bureau lias nade the state-
ment that retail advertising is at" the present tine on a
much higher plane and natural1.:/ had automatically reduced
the number of cases where the consumer is subject to "being
misled, than "before the adoption of the Code." (*)
Mr. reus tad t stated (**) it to "be his opinion .that if the intcrsta
question could "be settled the industry would "be practically unanimous
in desiring, a code; that the former code with only minor changes rould
"be acceptable; and that the tre.de practice provisions covering advertis-
ing would "be especially desired, as a great deal of benefit had' resulted
from these provisions.
There is no evidence at hand as to trends in advertising prac-
tices in the retail trades since the lapse of the code.
j . Summary •
This code experience' is of particular interest because of the
size and importance of the industry, and the significance of the problems
of misrepresentation both to the 200, 00C industry members and to the va,st
mass of the purchasing public. The industry grappled with specific forms
of deceptive practice in formulating its code and employed amendments and
interpretations as mediums for expanding and 'clarifying the conception of
code law concerning them. Practices connected with questionable price
competition appear to have been of principal concern. Active efforts seem
to have been made by the majority of the Local Code Authorities to enforce
the misrepresentation provisions, and, so long as the prestige of KRA held,
apparently with a considerable degree of success. Little demand was made
upon ERA by the Local Authorities for help in effecting compliance, and
little complaint was heard that in applying these 'provisions discrimina-
tory tactics were employed. It is believed that both the trade and the
public were benefited, and that this aspect of the operation of the code
offers an illustration of the possibilities of the basic NBA conception
of a code' authority system as a medium for effectuating cooperative in-
dustrial control
2. Coffee Industry - (Code ?To. 265)
This Code, sponsored by the Assbciated Coffee Industries of
America, was submitted August 18, 1933 and approved on February 6, 1934.
The Code Authority. '-as a Coffee Industries Committee composed of 9 mem-
bers generally elected, the Managing Agent of the Code Authority being
the Secretary of the trade association* A Trade Practice Complaints
Committee was approved on- January 9, 19S5, but was practically identical
in composition with the Code Authority.
(*) "Economic Importance and Effectiveness of Retail Codes",
June, 1935. p. 5. •
(**) Ir. Conference, llovember 5, 1935.
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a. Provisions Concerning Misrepresentation
The Code as approved contained general provisions prohibiting
misrepresentation, false advertising, and defoliation of competitors.
(Article VI, 1, 2). No protests of these provisions are recorded in the
Transcript of Code Hearings, although subsequently a recomnendation was
made that the practice of "dating" coffee be prohibited as r.is representa-
tive. (*) ITo action was taken upon this.
A special "orovision ained. to prevent misrepresentations through
failure to label products to show the content of ingredients other than
coffee was adopted, largely at the suggestion of the Consumers' Ad.visory
Board, and Consumers Counsel of AAA. (Article VI, 3.) One protest was
recorded against this, claiming that it struck at those providing a cheap
but satisfactory beverage for the poor man. (**)
Despite this meagre record- concerning adoption, the organized
industry appears to have been much interested in the provisions, and the
Code Authority active in making them effective. Because of this interest,
and "because the problems raised by these (advertising) complaints were
complicated and. required extended, discussion and study by men experienced
in the methods and. problems of advertising", (***) a special Advertising
Sub-Committee of the Code Authority, composed of three members, ras formed,
apparently earl]- in 1935, to give particular attention to this subject.
b. Compliance Results
Compliance records show only three cases of advertising
violations reported, to ERA and only one of these referred for action.
The reason is indicated by the following;
"Eo cases (sic) on advertising were referred, to the ERA
for action, and the cases were either satisfactorily adjusted
or continued in the hope of adjustment without reference to
ERA. . . Having had extensive experience with the impossibility
of securing ERA cooperation for actual enforcement, re limited
our efforts to securing compliance." (****)
The nature of the violations dealt with is indicated, by another
extract:
"Complaints centered mainly on alleged false disparagement
of competitors products (Eote: chiefly by manufacturers of coffee
substitutes, apparently), and misrepresentations concerning the
nature or handling of a product. A leading example is the advertis-
ing of coffee as a 'Blend with Uocha and Java' when these coffees
are only a small percentage of the total." (*****)
(*) Letter to Deputy Administrator from rosa'ra Hills, Saint Louis,
To., February 5, 1934, Deputy's Files'.
(**) Letter of TJm. Schotten Coffee Co., August 27, 1933, Deputy's Files.
(***) Letter from J. Rosenthal, Asst, Secretary, Associated. Coffee In-
dustries of America, October IS, 1935. Commodity Information Unit
File. :
(****) Trade Association letter of October 18, 1935, referred to above.
(*****) Idem.
-58-
The case referred for HRA action concerned claims of Chase &
Sanborn by radio that all its "dated" coffee was sold on a system where-
byrnio pound remains on our grocer's shelf for -:ore than ten days". Evi-
dence showed that in various rural communities the date stamped covered
a thirty day rather than a ten day period. The care was closed "by
Standard Brands signing a certificate of compliance and agreeing to date
its coffee only in accordance with its advertising, although the Deputy
Administrator considered this a case of trade puffing rather than sub-
stantial misrepresentation. (*)
Compliance Report Ho. 368, September 1, 1934 - April 4, 1935,
shows out of a total of ?5 trade practice complaints, 11 concerned with
misrepresentations by false labelir^;, principally failure to show the
required data concerning adulterants. Seven of these cases were closed
by the signing of certificates of compliance. One was referred to the
Federal Trade Commission and dismissed by it as not involving inter-
state commerce. (**) There is no record of the disposition of the
other three.
c. Effectiveness of the Provisions,
As to the general effectiveness of the provisions and the
work of the Code Authority in administering them, Mr. 17. F. Uilliamson,
Managing Agent of the Code Authority, stated;
"Commenting on the administrative problems involved under
the fair trade practice section of the Code, during the life
. of the Code the Coffee Industries Committee worked consistently
to bring about an improvement in the advertising practices with-
in the industry . . . The work of the Committee resulted in a
material improvement in conditions, especially in securing
modification: of .advertising cony used by coffee substitutes and
by some of the larger advertisers of nac^age coffees ... In
the main . companies answering complaints against them under
these sections of the code exhibited an honest and sincere de-
sire to cooperate with the "Commit tee in the elimination of
objectionable advertising." (***)
d. Criteria for Determining Misrepresentation
One difficulty encountered was with respect to criteria, for
judging as to the fact of misrepresentation. Mr. Williamson wrote on
this point:
"The Committee encountered some difficulty in drawing an
exact line between advertising that might be considered as
legitimate trade puffing, and advertising which clearly fell
under the provisions of the Code." (****)
("*) Deputy's Files, Compliance Folder.
(**) Complaint in re: New England Tea and Coffee Co., Docket
Ho. 2299, February 19, 1935.
(***) Letter to Assistant Deputy C. T. Estes, June 6, 1935.
Deputy's Files.
(****) Letter quoted above.
9710
The Advertising Committee tool: steps to have formulated by the industry
"a specific Code of Advertising Ethics as a standard and guide with which
to handle all such border-line cases", but with what success is not known.
Problems presented by difficulties in obtaining adequate coopera-
tion in matter of compliance from ilRA. have been suggested in an earlier
quotation from the industry. More specifically, on this point Mr. William-
son stated:
"The most embarrassing phase in the Cab Authority's efforts
to obtain compliance lias developed as a result of the Administration
permitting a violator who through his violation lias gotten a large
amount of business, to avoid conviction through acceptance of his
certificate of compliance and promise of obedience in the future.
Ey that time the damage has already been done. . . .The industry
felt that the trade practice provisions could have been more '
effectively enforced if KRA had prosecuted violations . . ." (*)
Other difficulties reported encountered included "lack of a
clear-cut decision as to the Committee's authority over coffees manufac-
tured and sold exclusively intrastate" and "lack of uniformity in en-
forcement procedure as between various Regional Officers of the NBA."(**)
"If the Code authority had actually had the authority it was pre-
sumed to have had under the code it would have been possible to eliminate
entirely (certain practices) . . and the administrative problem would
have been relatively simple." (***)
The pre-code history of the industry shows effort to cope with the
problem of misrepresentative practices both by a voluntary Cede of Ethics
and by cooperation with the Federal Trade Commission. There is no record
as to post-code tendencies in the matter of advertising or labeling
practices.
e . Summary
In this instance we have a very complete expression of Code'. Authority
attitude and experience with respect to misrepresentations from which the
following points appear: Special interest was taken in the subject through
formation of an Advertising Committee of the Code Authority. The difficulty
of drawing a line between deceptive and legitimate advertising was recognized
and efforts were made to formulate basic principles for guidance.
(*) Quoted in Memorandum from Hobert M Beattie, Administration Member
on Coffee Code Authority, tc C. I Dunning, Deputy Administrator,
March 21, 1955, see also memorandum from Code Authority to
C. T. Estes, June 6, 1955.
(**) Letter to C. T. Estes, quoted above.
(***)Same.
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The complia.-ice efforts of the Committee resulted in "material improve-
ment" in advertising conditions in the industry. In the main, re-
spondents to compliance cooperated willingly in the elimination of '
objectionable copy. Difficulty in administering the provisions result-
ed largely from failure of N3A enforcement, specifically from the
practice of closing complaints with certificate of compliance and no
penalty, after the offender had reared the profit of his act. No
quality standards ^ere set up in this industry, "but the reauirement
of labeling to show ingredients furnished a factual "basis for a mumber
of complaints as to this type of misrepresentation.
3. Do- Food Industry - (Code Ho. 450)
This Code presents another instance of an industry in which mis-
representations by means of advertising or labeling appear to hs.ve
been considered of primary importance, and to have received active at-s
tention from the Code Authority to secure compliance, with considerable
success .
The industry, which has developed largely s ince 1920, has enjoyed
very rapid growth, industry statistics for 1933 as estimated by the
Code Authority, ( *) showing number of concerns 170, number of employees
2,500, dollar value of products $32,000,000, of which ^20,000,000 was
represented "oir canned dog food. As to the industry's narked expansion,
and the effect of this on competitive practices, the Code Authority
stated;
"The Canned Dog Food Industry, as a comparatively new
industry, has developed into a large national business. Because
of its youth and amazing success the industry has become involved
in practices as to composition, labeling and advertising which
make necessary new corrections to protect the purchasing public
and assure fair competition." (**)
Nothing more specific is shown as to the reasons for the develop-
ment of the practices referred to. Apparently, however, the industry
because of its youth had attracted little outside regulation, and the
rapid influx of concerns interested in the profits promised by rapid
expansion had made difficult any orderly development'., of standards of
practice by the industry itself.
Prior to the Code only one court decision existed with respect
to the industry under the Ture Food & Drug Act. In this case, (***)
judgment of condemnation and forfeiture was entered against the de-
fendant, the roods being labeled "Tuns, for pets, not intended for
human consumption", and having been found to be composed of decomposed
animal substances,
(*) In conference with ?.. S. Scott, Assistant Deputy in chars® of Code,
(**) Code Authority Bulletin lTo. 57, October 23, 1934.
(***)U. S. v. 620 case of canned tuna (California Sea Food Co.) Dis-
trict Court, Western District of Washington, 1931.
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The court held that the same standards applied as those prescribed under
the act for food for human use. Prior to the Code, also, no complaint
or stipulation had ever teen issued "by the Federal Trade Commission in
a dog food case .
The Code was originally submitted to the AAA in September 1933,
by the jtfational Dog Pood Manufacturers Association. It was transfer ed
to NBA in January 1334, and approved May 31, 1934. The Code as adopted
contained provisions prohibiting four types of misrepresentative prac-
tice - inaccurate advertising, false labeling, disparagement of compet-
itors, and deceptive containers. ( *)
The transcript of hearing records no controversies with respect to the
adoption of t he provisions, and there is no evidence of subseauent com-
plaints, ITo Trs.de Practice Complaints Committee was ever approved, and
there were no amendments, exemptions, stays or interpretations pertinent
to t his study.
The Code Authority, however, filed with the N?A what appears to be
a complete record of the individual complaints of violations of the
misrepresentation provisons which were handled by the Authority itself,
jogether with the action taken with respect to them. (**) This record
shows a total of 29 cases; 10 dealing with misleading advertising, 4
with false labeling, and 15 with disparagement of competitors' products.
The complaints in these cases were initiated in some cases by competi-
tors and in some causes by the Code Authority itself. Numerous forms
of deception are complained of, the principal ones involving (1) mis-
statements of fact, as "from choise cuts of meat" ; (2) extravagant
claims requiring scientific proof - "complete food for dogs", "balanced
diet" , "proved biological value", etc.; and (3) indirect reflections on
the nature or value of ingredients used by competitors. (***)
(*) Dog Food Code, Article IX, 12-15. Codes of Fair Competition,
Vol. XI, pp 106-107.
(**) Report of Code Violations, Folder of Charles Wesley Dunn,
Secretary, in Deputy's Files.
(***) Details of the individual cases are included in the report noted
above .
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All the reported cases dealing with advertising and dispar-
agement were settled by respondents agreeing to discontinue the ob-
jectionable practices when notified to do so by the Code Authority.
As to its success in this respect the Code Authority stated:
"As to labels and advertisement representations which
are patently false and deceptive, it suffices to say
that we have vigorously acted against each as it has
come to our attention. And, to date, the industry has
satisfactorily responded to our corrective action along
the aforesaid lines. I do not recall a single instance
of defiance in this respect. And the manufacturers to
whom we have written have voluntarily acquiesced upon '
the basis that the requested corrective action is in-
herently right and should be taken." (*)
In appraising this statement it should be noted that it is
addressed to industry members as part of a general statement evidently
designed to encourage compliance, and so may contain an element of op-
timism. Nevertheless, taken in connection with the factual record of
enforcement given above, it has weight in indicating a successful com-
pliance performance.
It is also to be noted that the code contained enabling oro-
visions (**) calling for development and adoption of positive standards
for industry products, and labeling regulations based- upon these.
Serious efforts were made to carry this provision into effect, and con-
siderable progress was achieved £**) , although -no standards were ac-
tually adopted before lapse of the codes. It was evident*, however,
that the industry felt the necessity of definite product and labeling
standards in order to cope adequately with the varied misrepresenta-
tions, both in advertising and labeling, which. seem to have been preva-
lent in this industry.
Two cases of misrepresentation in labeling and advertising
were referred to the Federal Trade Commission. These involved un-
supported assertions of "U. 5. Government Inspection", and inaccurate
claims as to the nature and proportion of the meat ingredients con-
tained. One case was settled by stipulation and agreement to cease
and desist. (****)
(*) Code Authority Bulletin No. 57, quoted above.
(**) Dog Food Code, Article VII, Codes of Fair Competition. V.IX
p. 104.
(***) See under Dog Food Industry, Part II of this report, Standards
and Labeling.
(****) Vaughan Packing Company, Inc., Stipulation No. 1333,
April 4, 1933.
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In the other the respondent is repeated. us having quite recently
agreed to accept a consent decree to cease and desist subject to the
Commission' s approval. (*)
One false labeling; action was referred to the State of
Kentucky for prosecution as being primarily a violation of the State
la?/ requiring a marking of percentage of fat, fibre and protein on
the label of the product. (**)
No information is available as to the course of .events with
respect to misrepresentation practices since the Code, although, the
National Dog Food Manufacturers Association reported earlier in the
year that "The Federal Trade Commission is now broadly investigating
the labeling and advertising of dog food." (***)
4. Plumbing Fixtures Industry - (Code No. 204)
Misrepresentation of products became a problem in this in-
dustry during the building boom which followed the World War. The
demand for increased production caused manufacturing standards to be
lowered, and large ouantities of second grade or "cull" ware were
marketed, much o'f it in the guise of first grade material. When build-
ing slackened, the competition of this cull ware became a serious mat-
ter to sellers of regular grades. The matter was further complicated
by development of direct-to-you and mail-order methods of plumbing fix-
ture distribution, which threatened the traditional manufacturer- whole-
saler-master plumber channels, and which furnished a particularly ready
outlet for cull types of material. (****)
The industry's concern over this situation was based upon (1)
the effect of such misrepresentation on the competitive price situation
within the industry itself, and (2) the injur?- to the consumer through
deception and possible delivery of unsanitary wares. The first con-
sideration seems to have been much the more important.
a. Pre-Code Efforts at Regulation
Attempts were made ^oy the industry to remedy the condition,
and to eliminate the confusion resulting from general unstandardized
nomenclature and grading of industry products, by cooperation with the
National Bureau of Standards. A series of Commercial Standards were
approved, most of which provided for grade marking and labeling, as a
means of eliminating uneconomical and fraudulent selling practices.
(*) Old Trusty Dog Food Company, Docket No. 2537, formal complaint
dated August 21, 1935.
(**) Continental Packing Company, Covington, Kentucky. Case referred
April 30, 1935. There is no record of the outcome of this case.
(***) Bulletin No. R3.
(****) The material presented here is summarized from a detailed and
documented treatment of the subject of standards in this industry,
Appendix 2, Exhibit A, of this report, q.v.
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These efforts were greatly limited in effectiveness by the
fact that the standard requirements did not have the force of law, out.
depended upon voluntary acceptance by the industry. Indirect evasion
of the labeling requirements was also achieved by placing the labels in
illegible locations, and by removal or obliteration of grade marks.
b, Regulation in the Code
When HRA came, the industry in its code sought drastic meas-
ures to deal with the problem, by prohibiting entirely the sale of
"cull" grades within the continental United States. (*) Sponsors of
the provision asserted its necessity on the grounds that labeling alone
was inadequate to control the misrepresentative practices. Considerable
testimony was given, however, claiming that a more immediate aim of the
provision was to eliminate the competition of the lower grade products,
and their producers, entirely.
The provision was. opposed in various ouarters, including the
Research and Planning Division of IT3A, and the Consumers' Advisory
Board, on grounds that it constituted unlawful restraint of trade, that
it was discriminatory between competing groups in the industry, and
that it deprived the consumer, under guise of protecting him, of the
right to purchase a grade of goods for which there was a legitimate mar-
ket in the lower-price field. The provision was,, nevertheless, approved.
c. Failure of the Provision
The Code Authority found itself unable from the first to ob-
tain satisfactory compliance with the provision. As a matter of fact
its ostensible aim of controlling misrepresentation appears to have been
largely ignored; and the issue developed into a contest between industry
interests. Producers rasing older types of equipment, which turned out
a larger proportion .of culls, campaigned actively against the restric-
tion and refused to be bound by it. By a series of steps which need
not be detailed here (Cf. Appendix 2, Sxhib. A) the provision became
practically inoperative, and was finally officially staged.
d. Alternative Effort At Control.
Following the break-down of the prohibition upon sale of
seconds, or culls, an effort was made by the Vitreous China Division
of the- industry to revise its Commercial Standard CS 20 to provide for
the marking of culls with a non-removable label placed in a position
to be readily legible after, installation, and to embody this provision
as a mandator-- requirement in the code. A Committee was appointed, and
a draft of the proposed provision was presented to HRA for approval.
The codes were terminated before action could be taken.
e, Sumi lary
The experience of the Plumbing Fixtures Industry with its
aAtenE?As A? cjon.trp.l, Pl?-p}''f-PT.e.s.e}\^a.W\e. .1?.r.a.c.JGA.c.e-s. A-k-kJisA3T.aAe^. .^e. -AMt-
(*) Plumbing Fixtures Code, Article VIII, -, Codes of Pair Competition,
Volume V, p. 129.
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ficulty of making such control effective by merely voluntary label-
ing rules, even when definite product standards nave "been developed.
It also indicates the tendency of industry interests to take ascendency
over consumer interests, and the possibility, where mandatory controls
are invoiced, that a movement to curb a generally unfair practice may
mer^e into an attempt to promote a special competitive interest. It
is to be regretted that the method of mandatory ..grade. IjabejLing,, without
other marketing restriction, was not used by this industry sufficiently
early in its code history to provide a comparative test of results,
5. Canning Industry - (Code No. 445)
a, Pre-Code Situation as to Misrepresentation
A condition of general confusion, and a certain amount of
actual misrepresentation, as to the Quality and grade of the products
sold by this industry had existed for some time prior to the 1IHA code
periou. The effect of this had been an increasing dissatisfaction on
the part of the consuming public, which, together with growing competi-
tion from fresh fruits and vegetables, had come to constitute a threat
to the industry's markets.
The unsatisfactory situation probably resulted less from de-
liberate intent to mislead the public through inexact labeling and ad-
vertising than from the lack of definite commodity standards and label-
ing requirements, by which the public could be guided in its buying.
Under the McHary-Mapes amendment to the Food and Drug Act the Depart-
ment of Agriculture was empowered to prescribe minimum quality stand-
ards for canned goods, and require that grades below this be labeled
n3alow U. S. Standard-Go odFood - Hot High Grade". For goods above these
minimum standards, however, there were no requirements as to marking for
grade. Each producer might designate and label his product according
to his own "standards". At the same time, severe price competition in
the industry had supplied a strong incentive to the general lowering of
quality of industry products. (*)
b. Consumer and Industry Attitudes
The resulting situation, from the consumer point of view,
may be summarized as follows from testimony offered by consumer rep-
resentatives at public hearings on the Canning Code:-
Consumers have no guide in buying canned goods in general
since T>rice is no sure indication of the quality which will be re-
ceived. At least SO percent of the canned merchandise on display is
totally unmarked as to grade. There is often a wide variation of
quality found in a single brand. Quality 0f brands does not remain
uniform from season to season. Many can labels contain extravagant and
misleading brand names which the quality of the contents fails to jus-
tify. Tests have indicated that widely or nationally advertised canned
goods are not necessarily superior to the products not so advertised.
The tests have also shown that buyers of goods in the lower price range
(*T Dor full discussion of standards and labeling in this code see
appendix II, Exhibit C, tf this renort.
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frequently, receive either first, second or third grade merchandise,
and that the same holds true for even the highest price ranges. (*)
The industry in turn was genuinely concerned to meet the
rising tide of consumer criticism, but, as the code experience demon-
strated, it wished to do so in a manner quite satisfactory to itself.
c. Experience under the Code.
Owing to inability of the industry and the ISA to agree upon
a standards program prior to adoption of the code, no provision deal-
ing with the subject was incorporated in the code as approved. The
following general provision as to misrepresentation v/as incorporated:
"Section 9 - False Label or Advertisement or Container -
IJo member of the industry (a) shall sell a product of
the industry falsely or deceptively labeled or marked;
or (b) falsely or deceptively advertise a product; or
(c) use a deceptive container or give short weight or
measure or count." (Article VII I ) (**)
In view of the unreconciled controversy on standards mentioned above,
the terms of this provision were evidently a little indefinite for
practical effect.
However, in his Executive Order approving the Canning Code(***)
the President required the industry to designate a committee to co-
operate with iI?A in the formulation of standards and labeling require-
ments. This cooperative effort resolved itself into a contest between
iPA and consumer advocacy of a system of simple A, 3, C, D or equivalent
grade labeling, and the insistence of the industry upon a more elabo-
rate and lengthy method of "descriptive" labeling, which the consumer
group held would be little more enlightening to the purchaser than the
methods already in use* (****) As in the pre-code period, no agreement
between the views was obtained, and the code lapsed, through the
Schechter decision, with the controversy still largely unresolved.
There is no available evidence of any particular effort made by the
Code Authority to make effective the broad prohibitions' upon misrepre-
sentation contained in Article VII, Section 9, of the code quoted above.
d. Summary
The experience of this code is chiefly illustrative of two
points: (l) the difficulty of dealing with borderline misrepresenta-
tions with respect to the physical quality or characteristics of con-
sumer goods without specific quality standards or product definitions;
and (2) the ineffectiveness of "cooperation" between ISA and industry
to achieve amelioration of the situation in the interest of the con-
sumer except upon terms satisfactory to the industry, irrespective of
other opinion as to the suitability of those terms.
(*) See "Testimony on Standards for Consumer Goods at Canning Indus-
try Hearings, Feb. 8-9, 1934", Consumers' Advisory Board, Index
#1767.
(**) Canning Industry, No. 446, Codes of Pair Competition, V. XI , p. 43.
(***) Codes of fair Competition, Vol. XI, |p. 25.
(****) See Appendix II, Exhibit C, for aetails of this controversy,'
-67-
fi. Macaroni Industry - (Code No." 23^
This industry, also, prior to the code had suffered from de-
structive price-cutting effectuated largely through adulteration and
debasing of industry products, and from various misrepresentative prac-
tices in labeling, paclraging ana advertising. Here, however, a very
comprehensive group of standards provisions and labeling rules were in-
corporated into the code as approved.
The principal practices which had been complained of included
use of inferior flours, principally soya, bean flour, for higher grade
ingredients normally used; use of artificial coloring matter to simulate
egg content; wrapping in yellow coverings for the same purpose; inaccu-
rate labeling of packages as to content and weight.
a. Code Provisions Concerning Misrepresentation
The code provisions forbade the use of artificial coloring or
deceptive wrappings; set a minimum egg content for noodles; required
labeling to show the content of various ingredients of all products by
weight; and imposed a substandard labeling requirement upon products
failing to meet a minimum cash test. (*) The provisions had received the
auproval of a committee from the Food and Drug Administration.
The macaroni industry is distributed over the entire country,
though centering largely in metropolitan districts. Individual units
vary from numbers of small family establishments catering to local trade
only, to large up-to-date factories having a substantial output and com-
peting through channels of inter-state commerce. According to figures
submitted in connection with the 1934 code buaget, the industry was com-
posed of 383 concerns employing 5,498 employees exclusive of executives
and salaried employees.
The industry in general seems to have approved, or least not
contested, the code provisions. Complaints of violation were frequent,
however, due in part at least to the numbers of small, local concerns
engaged in the industry. The Code Authority appears to have been active
in its effort to secure compliance. The records compiled from reports
of the State Compliance offices show an unusual number of violations of
this type of provision referred to ISA for action.
b. Compliance ?.ecord
Cases concerned with mislabeling and misbranding so reported
total 50, and false advertising cases 9; as compared with 34 complaints
of failure to file prices, and 46 of failure to adhere to prices so
filed. Of the 50 misbranding cases, 25 resulted in findings of viola-
tions and were adjusted; in 19 no violation was found, 1 case was
dropped, and 5 were pending when the code lapsed. Adjustments were
made in 7 of the advertising cases, and 2 were dropped.
The specific types of violation principally complained of
(*) Macaroni Code, No, 234, Codes of Fair Competition, Vol. V pp. 532, 33.
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were (l) not disclosing on the label the farinaceous contents of the
product, (2) labeling products as being made from pure seninola when
in truth the product was made of an inferior flour, generally soya
bean flour colored with artificial coloring to imitate the true semi-
inola product, and (3) though less frequently, inaccurate marking of
net weight, or not showing weight at all.
'^here is no complete record available at this time of the
method of disposition of the misbranding, false advertising cases
which were adjusted. In two instances, however, the records of the
Compliance Division in Washington show that the cases were closed upon
respondents agreeing to relabel their products. The Code Authority
Chairman, Mr. G. G. Hoslcins, is reported to have been much concerned
at the settling of one case in such fashion without fine or punishment,
feeling that "one example of punishment would deter other members from
similar violations." (*)
c. Effects of the Code Provisions
As to the general effect of the provisions, Mr. Hoslcins
stated (**) that during the early life of the code the rules concern-
ing false advertising, misbranding, standards of identity and quality,
and labeling requirements, performed an excellent function for a lim-
ited period, raising the standards of ingredients, temporarily doing
away with artificial coloring, and going far to prevent palming off
upon the consumer inferior products advertised as composed of the best
ingredients.
Later however, according to Mr, Hoskins, during the , summer
and fall of 1934, artificially colored soya bean flour came to be ex-
tensively used to simulate "fine grade seminola. The Code Authority
attempted to correct this under the code without success, and finally
enlisted the aid of the Pood and Drug Administration-, which made a
number of seizures of the soya flour.
In general it appears, from the same source, that the indus-
try felt that the code fell short of its objectives largely because of
failure on the part of ERA to back up the provisions forcefully and
promptly. What seemed to the industry the dilatory tactics of the Li-
tigation Division, and failure to assess penalties tended, it is claimed,
to undermine confidence and discouraged the industry, which "came to the
conclusion that no real effort was being made to effect compliance with
the trade practice reouirements, "
(*) Code Administration Study, Macaroni Industry, pp. 50-51.
(**) In conversation with Assistant Deputy Administrator Scott,
Macaroni Code.
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Since the lapse of the code, it is further reported, there has been
complete abandonment by the industry of the standards and labeling
regulations which the code sought to /rat into effect.
d . Summary
This industry furnishes another instance of a situation where
positive product standards and labeling requirements were felt to be nec-
essary in order to curb misrepresentative ppractices injurious to both
the industry and the consumer. The code enabled such provisions to be
put into operation, apparently with a considerable degree of success so
long as the authority of ISA gave the code requirements force. Later,
failure of the -provisions became general; due, again - in the view of the
Code Authority - to the weslmess of 1I?A coimliance and enforcement .
7. Other Industry Svjnmaries
In addition to the individual industries dealt with in the preceding
pages, the code experiences of nine other industries, primarily from the
standpoint of their standards and labeling provisions, are presented in
Appendix II, following PART II - STANDARDS AID LABELIHG, of this report.
In each of these some indications of the collateral effect of these
provisions upon different forms of misrepresentation will be found.
These additional industry exhibits include; Mayonnaise, Wood Cased Lead
Pencil, Hosiery, Preserve and Maraschino Cherry, Fertilizer, Agricultural
Insecticide, Paint & Varnish, and Cleaning & Dyeing.
In the pages now immediately following are stu.;marized the general
situation as to misrepresentation, and the effects of the code provisions,
in a representative group of industries, as reported by the Code
Authorities which administ:red them.
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C. Data Developed by Code Authority Questionnaire.
Owing to the limited scope of the opportunity for field work which
was finally allowed the trade practice studies, an attempt was made to
elicit necessary information as to code operation "by means of a question-
naire. A combined form, dealing with "bot^ open price filing and mis-
representative practices, was sent out to the former Code Authority
secretarics of 330 industries. There are available for this analysis a
total of 49 replies, in questionnaire or letter form, which are
sufficiently definite, either positively or negatively, to be included
he re .
1. Sizes and Types of Industries Replying.
Twenty-four of the 49 industries which replied included in their
responses an answer to a general question as to estimated industry out-
put in 1934. The aggregate reported production of these 24 amounts to
approximately $243,000,000. Of this total, however, $75,000,000 was
accounted for by a single industry (Scientific Instrument). Of the
remaining 23, 2 reported $15,000,000 each, 8 reported from $10,000,000
to $15,000,000, and 10 reduced less than $5,000,000 each during the year.
It thus appears that the industry sample represented by the question-
naire returns is composed largely of industries in the smaller size groups.
Probably not more than 13 of the 49 industries may be definitely
included under the head of consumers' goods industries. The remaining 36,
while perhaps preponderantly classifiable under heavy machinery and
equipment, or building materials and operations, nevertheless cover a very
wide range of products. Two or three distribution codes appear, but no
retail trade is included among these.
As to selection of the industries to be covered by the questionnaire,
this was done upon the basis of interest to the open price filing study,
misrepresentation provisions of one kind or another being so generally
distributed through the codes that it was felt special choice might be
waived. The result is that the returns constitute, from the standpoint of
misrepresentation, a genuine random sample of the entire body of codes.
2. llature of Information Requested
The misrepresentation section of the questionnaire consisted of tlae
following questions:
"Indicate which of the following kinds of misrepresentation
(deceptive advertising, false marking or branding, deceptive
packaging) or others were a serious problem in this Industry
before the NRA code. Also indicate whether such mis-
representative practices were still of a serious nature during
. the code and after the code.
"Please explain briefly the nature of the above practices which
were or are a serious problem to this Industry during any of
the above periods,
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"Did the provisions in your code prohibiting misrepresentations
serve materially to lessen the prevalence of practices of the kind
which you have indi ca ted( a"bo ve ) ?
"Was the Code Authority able -to obtain compliance with such
provisions without recourse to NRA enforcement?
"What were the chief obstacles encountered to effective
functioning «f the code provisions concerning misrepresentations of the
kind you have indicated?"
Tlie questions' propounded were deliberately restricted to the above
scope because of the necessarily extended nature of the open price
filing queries, and from a desire to avoid overstraining the responsive-
ness of those to whom they were directed.
3. General Analysis of the Returns
In 20 of the responses, or 40 per cent of the entire 49 received,
no information whatever is given with respect to the subject-matter of
this study.
In 1J5 instances it is definitely stated that misrepresentations do
not constitute a serious problem of the reporting industry.
In 12 cases misrepresentation is shown to be an industry problem. In
11 of these the operation of the code is credited with having served in
some degree to lessen the difficulty. In one case it is asserted that the
code did not help. In all 11 of the above cases, also, the Code Authority
is reported to have obtained compliance with the misrepresentation pro-
visions of the code wholly or largely without recourse to NRA.
In 1_ case (Canning & Packing Machinery) a general statement is made
by letter that "Hie trade practice provisions of this code were quite ex-
tensive and were enforced, with the "result that many unfair practices
were discontinued and a better feeling engenered among the members of the
industry."
The 20 industries whose replies gave no information whatever with
reference to misrepresentation include: Commercial Stationery & Office
Outfitting, Hardwood Distillation, Chemical Engineering Equipment, Hoist
Builders, Saw Mill Machinery, Shovel Dragline & Crane, Valves and Fittings,
Insecticide and Disinfectant, Marking Devices, Folding Paper Box, Small
Arms and Ammunition, Secondary Aluminum, Ingot Brass and Bronze, Electrical
Contractors, Fly Swatter, Dental Goods and Equipment, Reduction Machinery,
Boiler Mfg., Wood Cased Lead Pencil, and Felt Mfg.
In some instances these industries replied by questionnaire, but
more often merely by an explanatory letter. In several cases information
was supplied with respect to open price filing, and none with respect to
misrepresentation. In the greater number of instances, however, the Code
Authorities in this group reported themselves unable to supply any in~
formation whatever, giving as reasons, among others - "code never operative"
(Small Arms & Ammunition, Wood Cased Lead Pencil); "code approved too late",
9710
-72-
or effective period otherwise too short, to provide a sufficient history
(Fly Swatter, Dental Goods & Equipment, Commercial Stationery); code
records returned to NBA, destroyed, or otherwise dispersed- (ingot Brass
and Bronze, Valve & Fittings); "so little "business during tie period" that
no data of value resulted (Hoist Builders).
The 16 returns which reported no serious misrepresentation problems
in their respective industries include: Marble Quarrying, Rolling Kill
Machinery, Wholesale Hardware Trade, Asphalt & Liastic Tile, Concrete
Mixer, Marble Contracting, Household Ice Refrigerator, Talc and Soap stone,
Transparent Materials Converters, Roller and Silent Chain Mfg., Card
Clothing Mfg. , Wholesale Monumental Marble, Road Machinery, Scientific
Apparatus, Power and Gang Lawn Mower, and one unidentified. (*)
The following are the 12 industries which reported misrepresentation
in some form to be a problem: Batting and Padding, Metal Tank, Metal Window
Motor Fire Apparatus, Pulp and Paper Mill Wire Cloth, sheet Metal Dis-
tributors, Warm Air Furnace, Water Meter Mfg., Cutlery, Mnnicure Implements,
etc., Slide Fastener, and 2 unidentified.
4. Types of Misreprecentative Practices Complained of.
In most instances the returns reporting misrepresentation as an
industry problem gave some details as to the form of misrepresentation in
question. These are not greatly illuminating, but they may be summarized as
follows:
Deceptive Advertising - ""Over-optimistic advertising and sales
talks a common fault." - Water lipter Mfg.
Deceptive Advertising, False 'Marking - "Misrepresenting -size and
capacity of product." - Warm Air Furnace Mfg.
Deceptive Advertising - ( in the case of one or two small companies
only) . - Pulp and Paper Mill Wire Cloth Industry.
Defamation of Competitor's Product - Mo tor. Fire Apparatus.
False Marking or Branding - "Using materials of lighter gauge than
specified or generally furnished by most manufacturers. - Metal
Tank Industry.
False Marking and Branding - Second-hand materials. - Batting and
Padding Indurtry.
(*) Information supplied by questionnaire is kept unidentified for the
purposes of these reports in certain cases where this was requested
by those supplying the data.
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:;isrepresentation of Ratine of Capacity - (Unidentified)
Misrepresentation arising from "unlimited variety of quality stand-
ards.1" - ("Not very mucii misrepresentation in the industry.") -
Cutlery, Manicure Implements, etc.
Departure from Agreed Standards - Metal Window.
"Every known form of unethical competition is practised in this
industry." - (Unidentified)
In addition to these forms of misrepresentation which fall within the
scope of this study the questionnaires also reported various types of
deception which have been excluded from it by definition, e. g. secret
rebates, consignment shipping without publishing fact, unjustified quantity
discounts, selling new machines as used, and other devices for evasion of
price provisions. Industries reporting these have been included in this
analysis of the questionnaires only where they also reported practices
properly within the scope of the study.
5. Effect of NRA in Checking the Practices.
As already stated, 11 of the 12 industries (*) which reported mis-
representation an important concern with them indicated that conditions
with respect to it had improved as a result of NRA. The one return in the
group which stated unequivocally that the code had not improved the situa-
tion was that for the Sheet Lietal Distributors'.
The question asked was whether the code provisions .served "materially
to lessen the prevalence of the practices." The 11 affirmative replies
were given with varying degrees of emphasis. In five cases there was a
simple "yes" , or its equivalent. Some of the variants, both up and down
the scale of enthusiasm, are as follows:
"Yes - very much so." - Batting and Padding Industry.
"Most decidedly so - they practically disappeared." - Metal Window
Industry.
"Some effect noted; difficult to say how much." - (Unidentified)
"Very largely" (with respect to one practice); "to some extent"
(as to another). - Motor Fire Apparatus.
"Yes, very materially." - Warm Air Furnace.
"Not enough to get excited about - but the condition was being
improved a bit." -Water lie tor Mfg.
I See list in last paragraph of saction 3, "General Analysis of the Returns",
page 71 .
'10
-74-
6. Success of the Code Authorities in Effecting Compliance.
The question asked here was "Was the Code Authority able to obtain
compliance- . . . without recourse to NRA enforcement?" All 11 of the
replies which admitted misrepresentation as a problem, and found the
codes helpful, were also in agreement as to the results being obtained
practically without aid of NRA. enforcement. Six of the 11 answered a
flat "yes " to the question. Most of the others indicated very slight
ITRA participation.
"Yes, to a certain extent. Reference of complaints to NRA did
not help in enforcement." - Metal Tank Industry.
"In about 75$ of the cases. IIEA successful in about 5$ only of
the cases referred to it." - Cutlery, Manicure, etc.
"Not in all cases, but in a very great many." - Batting and Padding.
"Did not resort to NRA. enforcement methods; what was accomplished
was through voluntary means - except in a few cases where USA
Regional setups were employed." - (Unidentified)
"The only compliance wo received ^rta through Code Authority. NRA
was too _ hesitant to act." - Warm Air Furnacs.
7 . Obstacles to Functioning of the Misrepresentation Pro-
visions,
Two of the replies (Metal Window. 1 unidentified) indicated that no
obstacle to effective functioning of the provision had been encountered.
Various difficulties were listed by the others, the one most frequently
voiced having reference to failure of NRA enforcement and the uncertain-
ties of the underlying situation. Difficulties of proof, and the im-
portance of definite product standards, are also stressed. Some of the
quotations follow:
"Our code would have been 100$ effective had we been able to
secure definite compliance through NRA. against one member in the
early days of the code period; only one definite conviction was
necessary." - Metal Tank Industry.
"Industry members did not believe codes could be sustained in
court. If the legality had been sustained there would have been
no further trouble." - Batting and Padding.
"Failure of enforcement program, with consequent psychological
effect on members." - (Unidentified)
"Members attorneys advising members that fair trade practice rules
could not be enforced . . NRA was too hesitant to act." - Warm Air
Furnace Industry.
"Difficult to procure evidence in support of complaint (of
defamation of competitor's products)" - Motor Fire Apparatus.
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"Takes a considerable neriod of time to nail these things down,
as they are difficult to nrove". - Water Meter Mfg.
"Pure stubbornness of one individual." - (Unidentified)
"Lack of uniformity in standards." - Cutlery. Manicure, etc.
"Misrepresentation was not a factor .... after code inauguration
led to adoption of uniform standards of quality." -Metal Window
Industry.
A single note of somewhat unusual strain appears when one Code
Authority (also unidentified) lists, in addition to the failures of
NBA enforcement, "Certain errors of omission or commission on this
side of the fence", as among the obstacles to smooth functioning of
their code.
8. General Conclusions to be Drawn from the Questionnaires
To whatever extent the data presented in the preceding pages
may be taken as having general or representative significance, the
following conclusions based upon them appear to be warranted:
(l) A total of 12 codes in which misrepresentation was
viewed as a serious problem, as compared with 16 in
which it was expressly stated not to be such, and 20 others
in which no nention of the subject was made, tends strong-
ly to support the suggestion previously advanced that the
number of industries in which misrepresentation was viewed
as a natter of importance was much smaller than the num-
ber of codes containing provisions concerning it would
indicate. In fact it is believed that the figures above
represent a much nearer approximation to the truth namely,
that the industries in which this type of lorovision was
given serious attention in practice were in the minority.
(2) In practically all instances where misrenresentation was
reported as constituting an industry problem the codes
helped, often very materially, to mitigate it.
(3) Compliance with the misrepresentation -orovisions was
effected almost wholly by the Code Authority themselves,
with a minimum of recourse to NBA enforcement agencies;
the latter being due not to any reluctance to invoke
assistance but to belief that such assistance was in-
effectual.
(4) The most serious obstacle to successful administration
of the provisions, in the view of the Code Authorities,
was the basic legal weakness of the 1TBA and the fail-
ure to attempt vigorous enforcement which sprang from it.
(5) The Code Authority system, as originally designed, with
firm backing of NBA would, it was felt, have resulted in
very satisfactory control by the reporting industries of
971D
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their problems of misrepresentation - at least so far as
competitive interest was. concerned.
(6) Lack of uniform product standards was found in some in-
stances to be another obstacle to the obtaining of sat-
isfactory compliance with the misrepresentation provis-
ions; and adoption of such standards operated, in at
least one instance, to eliminate the difficulty.
(7) There is no clear correlation observable, from these
questionnaire returns, between the type of industry re-
porting and the existence of misrepresentation as an
industry problem.
With respect to the questionnaires in general it is felt that
they represent a very reasonable return from the total mailing and
that, except for the absence of any retail code, they offer a repre-
sentative random sample of the codes as a whole. Furthermore, .the
conclusions which they indicate will, in general, be found to be sup-
ported by the evidence presented elsewhere in this report.
A very considerable expression of the retail trade point of view
as to the misrepresentation provisions will be found included in the
data from Local and Regional Code Authorities presented in the sec-
tion following.
9710
-77-
D. Field Work With Local and Regional Code Authorities*
In order to increase the amount of direct evidence tending to
throw light u'oon operation of the code provisions, arrangements were
made for direct contact .work "between representatives of the IRA. State
and Regional Offices, and the former local code authorities of a group
of industries which had employed a decentralized system of code admin-
istration*
The questions propounded '-ere designed to "bring out the facts
concerning the compliance effort of the code authorities an general,
and that affecting misrepresentative and deceptive practices in parti-
cular. Originally a coverage in the areas of all the State Offices had
been intended. The work was only partially completed when the field
staff was terminated.
A considerable amount of data relative to misrepresentations
was, however, secured from representative groups of local authorities in
several industries, notably the large retail trades, and in various lesser
degrees from a number of others. These industries include:
Retail Trade Crushed Stone, Sand & Gravel
Retail Drug Farm Equipment Mfg.
Retail Food & Grocery Graphic Arts - Commercial Relief
Motor Vehicle Retailing ' Printing
Wholesale Confectionery Household Goods Storage & Moving
Retail Monument Paper Distributing
Wholesale Monumental Granite
The information specifically requested with respect to misrep-
resentation included: (l) what, if any, misrepresentative practices had
been a problem with the industry in that area; (2) what efforts had been
made to correct them prior to NEA. and with what success; (3) specifi-
cally, had the aid of the Federal Trade Commission been invoked; (4) did
the liRA code serve effectively to check the practices, and what princpal
difficulties of administration were encountered; (5) ernlain the definite
procedure employed for dealing with violations.
The replies received are summarized, code by code, in the sec-
tions following. (*)
1. Retail Trade (Code No. 60)
Interviews with 47 Local Retail Code Authorities were planned
in order to c'over this field. Returns from 27 of these were received.
Three of the reports were without definite information of any sort, go
far as misrepresentative practices were concerned, leaving a usable total
of 24, an approximately 50 per cent coverage. The returns were very well
distributed, geographically, as the following list of cities represented
shows. A wide copulation range is also included.
(*) Original reports in files of Trade Practice Studies Section, Divi-
sion of Review, 1IRA.
9710
-78-
Alban;-, lie1" York
Atlanta, Georgia
Augusta, Maine
Casper, Wyoming
Charleston, South Carolina
Dallas, Texas
Hartford, Connecticut
Helena, Montana
Houston, Texas
Indianapolis, Indian?.
Jackson, Mississippi
Los Angeles, California
Louisville, Kentucky
Manchester, lie1- Hampshire
Menrphi s , Tenne sc ee
Milwaukee, Wisconsin
Minneapolis , Minnesota
Horfolk, Virginia
Philadelphia, Pennsylvania
Providence, Rhode Island
Richmond, Virginia
Santa Pe , lie'-' Mexico
Sioux Palls, South Dakota
Topeka, Kansas
The following is an analysis of the inf ro/.iation as furnished
to the field workers by representatives of the Local Code Authorities
which operated in these cities.
a. General Results of the Questions.,
Twenty-one of the 24 replies tabulated stated that nisrepre-
sentative practices of some kind constituted an industry problem. Man-
chester, Hew Hampshire, found "ITo misrepresentation or deception in trade
evident;" Helena, Montana., reported no particular problem; and Providence,
R. I. indicated that the Better Business Bureau had the situation well
in hand.
In 20 of these 21 cases the 1TRA was repoi ted as having served
to improve the situation.
Prior to NRA, attempts to co :>e with the practices had been
made in 15 instances, in 12 of these with some measure of success.
In only 2 instances had cooperation with the Federal Trade
Commission been attempted, in ooth cases successfully,
b. Types of Practices Complained Of
The question put to the code authorities had enumerated the
following unfair practies:' inaccurate advertising, deceptive labeling
or packaging, price misrepresentations, misrepresentations concerning
competitor or his goods. Eight of the 21 affirmative responses stated
that "all" of these practices were indulged in in cheir territory. In
10 other cases false advertising was specified; in 8, price misrepre-
sentations; in 8, misrepresentation of competitors; and in 2, deceptive
labeling. False advertising was thus a fa'ctor in 18 of the 21 terri-
tories., .and misrepresentations of price or competitor in 16 each. IIo
specific instances of the form in which any of these were encountered
were given.
c. Efforts at Control Prior to IIRA.
The mediums reported employed to check the practices prior
to IRA wore: Better Business Bureaus (in six instances), trade asso-
ciations (twice), local Chamber of Commerce, State -advertising laws
(Minnesota) State and local ordinances (Connecticut). Of the 12 in-
stances where some success was reported obtained, 4 ',vere only "fair".
-79-
The Better Business Bureaus appear as most frequently successful.
"Friendly cooper- tion" , - Chamber of Commerce, and in one case a
Better Business Bureau, were credited with total failures.
d. Effect of NBA Operation.
Twenty of the 21 local authorities which found misrepresen-
tation a problem reported that 1IEA helped the situation, but with
various qualifying expressions - "usually", "largely so", "very help-
ful", "yes, but not very effective", "moderately", "substantially'1',
"as much as could have been expected", and so on.
The one response which flatly denied any benefit from USA
gave c-.s its reason "lack of enforcement from ITashington."
Other obstacles encountered include: the difficulty of secur-
ing of proof, difficulty of drawing a proper line between true and mis-
representative advertising, opposition of one or two large violators,
"so many items they coulu keep on misrepresenting - a different article
each day" (perhaps a commentary on the practice of settling violations
by signing of "certificates of compliance" )«
e. Methods of Effecting Compliance.
Fourteen of the local authorities reported having some estab-
lished procedure for determining and dealing with violations. Some' of
the particular devices mentioned follow. Two stated that they used the
Better Business Bureaus, nine employed shoppers to make purchases, 2
employed regular investigators, 2 regularly checked on the local retail
advertising, one made a practice of photographing misrepresentative win-
dow displays, one employed a detective agency, two relied principally
on affidavits and other evidence supplied by complainants.
One statement of method and attitude in the matter of com-
pliance may be quoted verbatim:
"By far the great bulk of our work was done informally.
To handle the great bulk of cases that are involved in
. trade practice procedure it is impossible, to handle them '
in a formal manner; that' is, by following some judicial
procedure such as the Federal Trade Commission. This
can be done for the particularly difficult and incorri-
gible case. We collected evidence through shoppers and
if we felt the case was sufficiently serious and might
involve later controversies, we got our information in
affidavit form." (Indianapolis, Indiana, Code Authority).
f. Conclusions.
The following conclusions appear to be indicated by the infor-
mation summarized above:
9710
•■-80-
1. Misrepresentations of various types were widely prevalent
in retail trade throughout the country,
2. Deceptive advertising, and misrepresentations as to price
and competitors' goods, were the forms most frequently en-
countered.
3. No generally adequate method of dealing with the practices
existed before 1IRA.
4. 1THA, through the local code authorities, was successful
in nearly every area queried, in abating in some degree
the use of such methods.
5. The local retail code authorities were on the whole active
and effective in securing compliance with the. misrepresen-
tation provisions of their code,, generally without recourse
to HRA.
6. The complaint of failure of 1IRA enforcement, heard so fre-
quently elsewhere with relation to this subject, is notice-
ably absent, with one exception, from these reports.
2. Retail Drug Trade
Twenty- two out of a projected 45 reports were received from
the Local Code Authorities of this industry. The geographical coverage
was very largely the same as for the Retail Trade inquiry, for the rea-
son that the work for both these industries (and for the Retail Pood &
Grocery Trade which is considered below) was in the main done concurrently
in each area, so that where there is a return for one there is usually,
though not always, a return for each.
In the present case St. Louis, Denver, San Francisco, Wilmington,
Del., Essex County, N. J., and Nashville, Tenn. are added to the list
shown under Retail Trade above, while Albany, Augusta, Me., Casper, T7yo. ,
Indianapolis, Jackson, Miss., Louisville, Ky. , Manchester, N.H., Memphis,
Providence, Sante Pe, and Sioux Palls, S.D. do not appear.
The questions concerning misrepresentation put to the local
authorities were the same.
a. Summary of Results
The general picture presented by these returns is very similar
to that already outlined for the general Retail Trade. Twenty-one of
the 22 reporting authorities found misrepresentation a source of trouble
in their areas. Eight reported ""all" of the types in question as present,
while 8 others specified false advertising, 9 specified price misrepre-
sentation, 5 deceptive labeling, 3 defamation of competitor, 1 dece2otive
packaging, and 1 substitution for standard brands.
9710
-81**
Less effective work appearently had "been done in dealing with
the subject prior to 1JRA than in the general retail trade, only 8 re-
turns reporting any prior activity, with results negative in two in-
stances, "fair" in four, and good in only two. The Better Business
Bureaus were reported influential in only two instances. Other factors
given help were the Virginia Trade Law, and the Wisconsin State Depart-
ment of Markets, The federal Trade Commission had "been invoked in two
instances, without success in oither.
In 18 of the 21 reports the effect of IDA was stated to have
been helpful. In 2 cases it did not help, and in 1 the authority felt
the record was not sufficient "for an intelligent answer." There are
the usual qualifications, running the gamut from "excellent results",
"decided aid", to "fairly well", "not much - no help from Washington".
This latter note begins to appear more frequently. "The principal dif-
ficulty of enforcement was the delay in getting any action from IDA in
Washington and red tape connected with the administration." "It
appeared in every case we failed because IDA officials seemed to think
they were all border-line cases, and violators soon found this out."
Also two more to the same general effect.
A considerably smaller proportion of the retail drug author-
ities reported jiny definite form of compliance procedure than for the
general retail trade. The same general methods are mentioned - check-
ing of ads, shopping with witnesses, affidavits as to purchases, photo-
graphs of displays, etc.
b. Conclusions.
Again it is to be concluded that misrepresentations were a
general problem of the trade, and that in the large majority of cases
NRA was effective to a greater or less degree in restraining the prac-
tices.
The retail drug trade aopears to hrve been less generally
active before IDA than the retail trade in combating the use of misre-
presentations; and perhaps there was somewhat less effort put forth by
the local retail drug code authorities during the period of code admin-
istration.
There is an increased complaint of the failure of IDA encorce-
ment to back up the code authority compliance effort, which may or may
not be indicative also of an increased tendency to lean upon the IDA
agencies in the handling of the job.
3. Retail Pood and Grocery Trade.
Returns from the local authorities. i$ this trade number 25,
out of a possible 47. The cities represented all fall within the two
groups already given for the two preceding trades, with the single addi-
tion of Bismarck, II. I). The identical questions concerning misrepresen-
tation were employed.
9710
-82-
a. Summary of Results,
Results '"'ere approximately the same as those already reported
for the general retail arid drug trades. Twenty-one of the retail food
and grocery authorities attested the general presence of the misrepre-
sentation problem, with much the sane proportion of specific types of
practice noted. The score in favor of NBA was somewhat smaller here,
17 affirming with varying emphasis that its effect had been good, 4
stating unequivocally that no "benefits had accrued.
Complaints of the failure of NRA enforcement continued: "There
was a complete "breakdown of the trade practice provisions. This was en-
tirely due to lack of enforcement byllJBAin Washington. ITeither this
agency nor the State 0 f ice were supported in the prosecution of a single
ca.se." "Ho action taken "by IfEA, such as prosecutions." "No difficulty
as long as we had them bluffed. Broke down completely when retailers
found there were no teeth in the law,"
On the Other side of the picture the following may "be quoted
from a State Office's contribution to one of the returns:
"The. .. .Local Retail Pood and Grocery Code Authority, like
most others with which this office had experience, practically
ceased to function after organization, with the exception of
the collection of assessments.
"There is no evidence that the Code Authority handled any
Trade Practice complaints after the State HRA Office was set
up in early 1934, AH such complaints were "brought to the
State Office by members of the trade or of the Code Author-
ity. It was impossible to get the Code Authority' to take
any action on complaints, and the burden of compliance was
taken up by the State Office. In the one or two instances
where the State Office insisted the Code Authority handle
the complaint, nothing was done by the Code Authority."
There is definitely less material on the organization and pro-
cedure of the local authorities for obtaining compliance in the returns
for this trade than in either of the two preceding.
b. Conclusions.
The information supplied as to this trade tallies to a very
high degree with that received from the two preceding or.es. It would
appear reasonably evident, if no other evidence existed, that in these
three largest and most important of the retail trade groups, handling
a great variety of commodities and dealing directly with the vast mass
of the consuming public misrepresentative practices of various kinds
are of general prevalence.
It is also apparent that, while industry efforts to control
the situation prior to ITtA ^ere only occasionally effective, under the
codes improvement was very generall"'' achieved.
9710
-83-
That these conditions and results may be taken as probably
characteristic, not only of thesd three codes but also of the retail
sector of the distributive system in general, is indicated by further
comparison with the data concerning two other retail trades - Motor
Vehicle Retailing and Retail Monument - to be presented below, and also
by contrast with the information supplied with respect to the eight
codes other than retail which are included in these local code author-
ity results. (*)
4. Crushed Stone, Sand and Gravel Industry (Code No. 109)
Reports were received of 23 interviews with former members
of the District or Area Committees (sub-code authorities^ of this
industry. A total of 106 such interviews were originally projected.
Twenty- three states also were included in the areas covered
by the reports. These included Arizona, California, Colorado, Connecti-
cut, Indiana; Iowa, Kansas, Kentucky, Maine, Massachusetts, Minnesota,
Montana, New Hampshire, New Mexico, New York, South Dakota., Tennessee,
Texas, Utah, Vermont, Virginia, Wisconsin and Wyoming.
In some instances the .reporting committee represented an
area of several states, and in others only a local region within a
state.
a. Da.ta Reported. . ,
To the question whether misrepresentations were a problem in
the industry in that area 11 of the 23 replies said "no", 8 said "yes",
and 2 made no definite statement. As to the specific types of misrepre-
sentation encountered, 1 stated deceptive advertising, 3 price misre-
presentations, 4 misrepresentation of competitors' goods, and 1 "all".
Of the 3 replying "yes" to the above, 7 stated that NRA ha.d
improved the situation, ("to certain degree", "effectively", "very
helpful", "very salutary effect", "effectively until members learned
ways to evade it"); 1 denied any benefit - "no enforcement over at-
tempted". Three others made the familiar complaint that weakness of
NRA enforcement was the principal obstacle to effective administration.
One reply reported attempt to work with the Federal Trade
Commission, without result. Several others reported_ "no" - ("processes
too slow ana too timid"). Only two committees reported definite proced-
ure for handling complaints.
b. Summary.
In contrast to the retail codes, only a little more than a
third of the responses showed misrepresentations to be an industry
problem. Misrepresentative advertising dropped to a secondary place
among the practices reported, while misrepresentation of prices and
of competitors' goods assumed first importance. Both of these show-
ings are what might be expected the type of industry being such as
would apparently not readily lend itself to ordinary misrepresenta-
tions, and one in which, as was stated several, times, "little ad-
vertising is done".
(*) Comoare table y, 87, below
9710
-84-
The results of HRA were again almost unanimously reported
beneficial where the unfair practices existed, and again the com-
plaint of inadequate enforcement was repeatedly raised. ' The general
tenor of the replies gives the impression that the trade practice
work of the committees was rather loose-jointed.
5. Motor Vehicle Retailing- (Code Ho. 46).
Sixteen of a possible 35 State or Regional Advisory Committees
provided responses to the queries concerning misrepresentation. The re-
porting 'Committees were loc-tedm Atlanta, 'Des Moines, Denver, Hartford,
Los Angeles, Louisville, Minneapolis, Milwaukee, Jackson, Miss., Newark,
Omaha, Richmond, Seattle, Sioux Palls, Santa Fe, and. Wilmington,. Del.
a. Data Reported
Fifteen committees reported misrepresentative practices preva-
lent - advertising, 9; price, 9; competitors' goods, 4; '"all", 1.
Twelve stated that HRA had' helped; 3 that it had not.*
4 A t I
Five had sought aid from the Federal Trade Commission; 4 with-
out success.
As to the degree of effectiveness of HRA: "partially", '"ade-
quately", "during first 6 months", "somewhat", "effectively", "99$ dur-
ing first 6 months", "only temporarily"" , were among the qualifying
phrases.
Five replies stressed failure of HRA enforcement - ("Code was
very detrimental to legitimate, conscientious dealers. It placed a prem-
ium on dishonesty on account of lack of enforcement"). Other difficul-
ties cited were the looseness and indefiniteness of the dode provisions
concerning advertising (mentioned twice), and difficulty of securing evi-
dence of violation. '. ' ',
A considerable number of the'se Committees appeared t'o have
well-established procedure for dealing "ith complaints.
b. Summary
. In general', the pro3)ortion of IIRA success here appears to be
somewhat less than with the codes already dealt, and the complaints of
failure of enforcement somewhat greater. Genuine misrepresentative
practices appear to have been less of an industry 'oroblem than in the
other three retail trades, but considerably more so than in the Crushed
Stone Industry. There is evidence in the replies that' in reporting
"price misrepresentations" there has been a tendency to interpret the
term as referring to deception as to -orices actually charged the customer,
(that is, evasions of the minimum ^rice provisions), rather than to -orice
deceptions to_ the- customer. In all but two instances, however, where
price misrepresentations were reported misre-orecentative .advertising
was also shown to be present. Like most of the local retail code auth-
orities, these committees seem to have been rather generall]' on the job
in their compliance effort.
9710
II
-85-
6. Paper Distributing Trade (Code No, 176).
Regional Committees or Sub- Commit tees from 12 areas representing all or
a part of 13 states (*) furnished data for this code. Six answered "yes
to the question whether misrepresentation constituted an industry prob-
lem, 5 "no", and 1 failed to deal with the subject.
Price misrepresentations, deceptive labeling, and misrepresen-
tation of competitors' goods were "orincipally complained of. ("Another
trick of the industry was to change and remove labels "out on by the manu-
facturer when the goods did not meet .the standards of the trade.") False
advertising seems to have been of relatively little importance.
In 4 cases the effect of '.HA was reported favorable; in 2 the
results were negative. In one of the favorable fcur the benefit was
during "the first three months". Three complaints of laxity of NRA
support in enforcement are made. The majority of the committees seem
to have had definite compliance procedure.
This industry appears in a number of areas to have been suc-
cessful prior to HRA in handling misrepresentative practices through
its trade associations and other organized effort. The Pine Paper
Group (Hew York City) "called upon the Federal Trade Commission and were
successful to a. large degree in eliminating these conditions in their
group." '
The influence of standardisation is indicated by the follow-
ing excerpt (Minneapolis Trading Area.) -
"It was determined (in the pre-NRA period) that
the main source of the troubles besetting the trade
arose from the lack of simplification and standardization
of the kinds of paper handled. Eventually considerable
standardization resxilted, thus removing many of the past
difficulties."
7. Set-Up Paper Box Industry - (Code No. 167)
Five of ten Divisional Committees of this industry (Minnea-
polis, St. Louis, Nashville, Dalla.s, and Richmond) were interviewed.
Four reported various types o" misrepresentation, principally as to
price. Cne found no problems of the sort. Three stated emphatically
that the NRA had been of no hel ) ("All coi:roetition continued as if
there had been no code"). One considered that it had. Efforts of the
industry to deal with its own rroblems prior to NRA seem to have met
with about the same degree of non-success. There is indication that
in several instances the Code Authorities were either ina.ctive or in-
effectual in their methods, which may be a partial explanation of the
negative results obtained.
(*) New York, Montana, Georgia, Maine, Hew Hampshire, Minnesota,
Missouri, Colorado, Oklahoma, Kansas, Connecticut and Texas.
9710
-86-
8. Retail Monument Industry - (Code Ho. 366)
Returns from 4 of 8. Regional Committees ('California, Oregon,
Nebraska, Iowa, Kansas, Missouri', South Dakota) showed nisrepresentative
practices of various, sorts prevalent in each. All reported s-one de-
gree of benefit from "RA - "material extent", "very well",, "to some
degree", "only partially" . All also sounded the note of comalaint
over handicaps imposed by ineffective enforcement backing.'. Little
appears to have been accomplished by the industry itself in combating
the practices prior to the code.
9. Wholesale Confectionary Industry- (Code Ho. 458)
Misrepresentative practices were a distrubing influence in
a distinct minority of the areas reporting for- this trade. Iline of
the 14 (out of a possible 51) replies indicated no oroblem; 5 answered
affirmatively. (*) Four of these reported iiRA benefit, but for the
most part in very mild terms ("to certain extent", "for a little
while"). Three complaints as to lack of enforcement appear.
(*) The reporting cities: Hew York,Des Moines, Minneapolis, Denver,
Louisville, Jackson, Miss., Indianapolis, Hashville, Roanoke,
Concord, II. II., Oklahoma. City, Dallas, Atlanta, Milwaukee.
9710
-87-
10. Farm Equipment Mfg. Industry - (Code No. 39)
Only 3 replies, of apossible 13, were received from this indus-
try, and none indicated' any problem with respect to misrepresentation,
JTwo stated that what practices cf the sort had existed prior to the code
lhad been taken care of by cooperative efforts within' the industry
11. Household Goods Storage & Moving - (Code No. 399)
Results of 4 interviews out of 12 projected were received from
this industry. Three reported difficulty with misrepresentations, chief-
,ly with respect to price and competitors' services, 'Ho results due to
MA were reported, this being attributed to the fact that the entire
code quickly failed to function as a result, among other things, of con-
troversies over relations with the code for the Trucking Industry. One
reply stated it to be the consensus of opinion that if the code provi-
sions had been given opportunity to function, they would have served
effectually 'to check the misrepresentative practices.
12. Graphic Arts (Commercial Relief Printing) - (Code No. 287)
Six returns were received for this group. ; Five reported no mis-
representation problem. The sixth reported misrepresentations as to
price and competitors' products, which were "reasonably" corrected by the
code, \
13. Wholesale Monumental ;Granite - (Code No, 449)
Reports were received from two Divisional Control Committees of
this industry, both of which stated that no problem as to misrepresen-
tative practices existed.
14. General ; Summary
The principal information :set forth in the preceding pages is
presented below, for comparative purposes, in tabular form:
9710
-88-
Industry
Tabulation of Local Code Authority Returns
: No. of:Misrep'n : NRA :
:Returns:Rept 'd a, : 'Code:
:Rec'd : Problem :a Ifelo:
Complaint : Success ' :
Work
as to En- : in Prior :
With
forcemt. : Regul'n :
PTC
* He tail Trade : 247
*Retail Drug *: 32
21
21
20
18
12
♦Retail Pood &
Grocery i
25 :
21 :
17 •
3 :
5
1
*Motor Vehicle
Retail
16
15
12
5
5
* Re tail Monu-
ment
4
4
4
4
1
#Crushed Stone,
Sand, etc.
21
8
7
3
2
2
#Paper Dis-
, tributing.
12-
6
4
! 3.,
2
1
# Set-up
Paper Box
5
4
1
: l
1
^Wholesale
Confectionery
14 :
5
4
3
1
#Parm :
Equipment : 3
p
^Household G-oods
Moving, etc.
4
3
1 _u
#Graphic Arts
6
1
1
#T/holesale Monu
mt. Granite
2
Total, 13 codes
158
109
88
: 26
31
: 14
* Total, 5 Re-
tail codes
91
82 s
71
16
24 '
: 10
#Total, 8
other codes
67 "'
27
17
: 10
: 7
: 4
An examination of these figures shows that 109 of the total of
158 responses received, or 69 percent, reported misrepresentations as
constituting an industry problem. The proportion is not evenly distribut-
ed through the different types of reporting industries, however. Taking
the five retail trades as a group, we find that the proportion of affirma-
tive replies on this point is slightly in excess of 90 percent, whereas
for the other group comprising the remaining 8 miscellaneous industries
it is only a little over 40 percent.
Taking the 109 affirmative replies as a base, the portion of
this entire number in which it is said that the NRA codes were of assis-
tance in dealing with the existing misrepresentation problem amounts to
88, or approminately 81 percent. Again, however, there is considerable
disparity between the groups, the retail codes showing nearly 87 percent
reporting MA a help, as against 63 percent of the miscellaneous group
so finding.
9710
-89- ...
By the side of the 81 percent of cases in which NBA was in some
degree successful may "be placed the 31 instances, or something over 26
percent, in which the industries, by their own efforts prior to NBA, had
I met with some measure of success in handling the problem of these, practices.
1 • In 14' of the 309 replies answering "yes" to the question whether
there was misrepresentation, some attempt to work with the Federal Trade
Commission was reported. In 3 cases this course had been found helpful.
In 7 instances no benefit was reported. The other 4 reports were to the
effect that Trade Practice Converence agreements had been' adopted, but
without further statement as to the results obtained from these.
In nearly one-fourth of all the instances where misrepresentation
was reported, failure of the NBA to back up the codes with adequate' en-
forcement was affirmed as the cause of the ineffectiveness, or failure of
full effectiveness, of the code provisions in dealing with the situation.
The conclusions indicated by the summary data are substantially
those which have been noted in dealing with the individual codes:
(1) M'isrepresentative practices were industry problems in the
great majority of all the codes reporting, and were
prevalent , ' in one or more of 'the industries, in all sections
of the country.
(2) Such practices were more generally encountered in the re-
tail trades than in the industries comprising the miscellane-
ous group.
(3) Prior to MA no generally effective method of dealing with
the practices had been developed by the industries them-
selves, although some success in this had been achieved by
the three large retail trades.
(4) The effect of ERA was helpful in abating the practices in a
very large majority of the areas reporting, and particularly
so among the retail trade codes.
(5) The local code authorities in the retail trade codes appear
to have been somewhat more active in dealing with the
practices in question than were those in the miscellaneous
codes.
(6) Little effort had been made by the regional trade groups to
enlist the aid of the Federal Trade Commission in attacking
their problems of misrepresentation, and the efforts which
had been made were in half the cases not productive of im-
portant results.
(7) State laws, municipal ordinances, trade associations, Better
Business Bureaus, and technical societies were factors men-
tioned in one or more instances as having contributed to
successful efforts to discourage misrepresentations prior
9710
-90-
to the codes.
(8) Lack of adequate enf orceraent , including specifically failure
to assess penalties against violators, was the principal,
and in fact the only cause generally alleged as explanation
for failure of the provisions to operate satisfactorily.
In the great majority of cases, especially in the retail
trades, the reporting groups appear to have felt that with
proper enforcement to "back the efforts of the local code
authorities the codes would have very largely solved their
problems with respect to misrepresentations.
(9) In several instances the general problem of drawing a proper
line bet-veen truthful and deceptive advertising, and of a
working definition of misrepresentations of other kinds,
was touched upon by the code authorities as one of the
difficulties of administering the provisions; but no con-
structive suggestions were advanced.
(10) In one or two instances, also it was reported that aid in
.dealing with misrepresentations had been derived from the
adoption of definite commodity standards.
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E. Analysis of OA Compliance Cases.
The preceding sections of this chapter have discussed the opera-
tion of the misrepresentation provisions largely in terms of opinions
and attitudes, as expressed by the Code Authorities, or otherwise on
record in the NRA files. This section aims to supplement that evidence
by such statistical data as is obtainable from the records of ERA compli-
ance and enforcement.
1. Tabulations of State Compliance Records.
As a part of the general compilation of NRA records, tabulations
have been made by the Statistics Section, Field Division, of the various
types of trade practice complaints referred to the State Compliance
Offices for action by Code Authorities or other complainants. Data for
115 codes (75 basic, 40 supplemental) are available at the time of com-
pleting this report.
The figures for these 115 codes give a total of 23,611 trade
practice cases of all types reported for compliance action to the NRA
State offices throughout the country. Of this number, 1,619 or 6.8 per-
cent, are shown to have been misrepresentation cases of some type.(*)
The forms of misrepresentation specifically reported in the
Field Division tabulations include different types of advertising mis-
representations, false labeling, marking and branding, inaccurate under-
selling claims, misrepresentations of a competitor or his goods, and
miscellaneous deceptive selling methods.
The tabulations also break down the cases into four classes, ac-
cording to general disposition effected: (l) Adjusted (that is, viola-
tion found and some corrective action taken); (2) No violation found;
(3) Case dropped (for lack of evidence, withdrawal of complaint, etc.);
and (4) Case pending on May 27, 1935, w.ien the codes lapsed.
a. Relative Frequency of Misrepresentation Cases
To indicate,! irst, the relative freouency with which the various
type of misrepresentation cases occurred in this group of codes, and,
second, the comparative disposition of the different classes of case,
the following summary table has been prepared:
(*) Summary figures in files of Commodity Information Unit, Trade
Practice Studies Section, Division of Review; Compliance
folder.
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Cases Affecting
False, misleading and
inaccurate advertising
Disposition of Cases
Total Adjusted No Viol'n Dropped Pending
517
346
120
37
14
False and misleading
labeling, branding, etc.
131
71
44
10
Advertising provisions of
Retail & Retail Food Codes 392
260
101
16
15
Inaccurate underselling
claims
84
56
23
Other advertising
re ■-trictions !
105
10
Misrepresentations of com-
petitors or their goods
(defamation)
225
49
101
7
Deceptive selling
methods
125
24
Other
mi srepresentations
40
24
TCTAL-i ;i 33EP3S33NTATI0NS
1,619 1,005
376
139
49
These figures show misrepresentative advertising of some sort to
have characterized the great majority of all the cases, with defamation
of competitors second, and deceptive labeling third.
Of the total 1,619 cases, violation was f-und and adjustment of
some sort effected in 1,005 instances, or something more than 62 percent
of the entire number. This was a slightly larger proportion of adjust-
ments than for the trade practice provisions as a whole, which showed
12,449 out of 23,611 cases adjusted, a little less than 57 percent.
As between the different types of violations, adjustments were
effected in tne following proportions of cases: false advertising in
general, 67 percent; advertising provisions of the retail codes, 66 per-
cent; inaccurate underselling claims, 67 percent; other advertising re-
9710
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strictions, 88 percent; deceptive selling methods, 70 percent; misbrand-
ing, 54 percent; defamation of .competitor, 30 percent.
b. Distribution in Retail and Won- Retail Codes
The most conspicuous point tc be observed concerning the rela-
tive distribution of the misrepresentation cases as between types of
codes is their very great concentration in the retail trade group. Nine
retail trade codes are found to account for 1,298 of the 1,619 misrepre-
sentation cases shown for the entire 115 cedes, a proportion of 80.2
percent. Three codes - Retail Trade, Retail Food and Grocery, and Re-
tail Jewelry contributed 891 of these cases.
The distribution of the misrepresentation cases among this
group by code and by type of Violation, is shown in the table following:
Code
Type of Provision Affected (*)
A 3
D
Misrep'n Tr.Prac.
C- Total i of All Cases
47 11 79
Retail Trade 180 1 235 34
Retail Food & Groc 62 2 107 24
Retail Jewelry 49 [ -
Retail Solid Fuel 33
Motor Tehicle Retail 56 -
Retail Tire & Bat. 9 -
Retail Monument 19 1
Retail Tobacco 12 -
Retail Lumber 5 1
43 10
95 4
4 1
8 66
505
295
191
107
28.9
11.3
64.5
6.3
-
-
3-
17
76
17.1
6
20
26
5
66
8.5
2
1
3
12
38
4.8
-
-
-
1
13
3.5
-
-
-
2
8
1.6
TOTAL - 9 RETAIL 425 0 389 77 103 182 1,299 14.1
The general distribution among the remaining 106 codes is as
follows;
No misrepresentation cases 46 codes
1 to 5 such cases 42 codes
5 to 10 cases 11 codes
More than 10 cases 7 codes
Average number per code 3.0 cases
(*) A- False and misleading advertising
B- False labeling, marking, branding
C- Advertising provisions of Retail Trade, Retail Food and
Grocery and Retail Jewelry codes.
D- Inaccurate underselling claims.
E- Other advertising restrictions
F- Misrepresentations of competitors or their goods (defamation)
G- Other deceptive soiling methods.
9710
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Among the group of codes shown to have referred either none, or
not more than five misrepresentation cases, are: Sill: Textile, Undergar-
ment and Negligee, Toy and Plaything, Business Furniture, Bottled Soft
Drink, Can Manufacturing, Candy Manufacturing, Electrical Manufacturing,
Rubber Manufacturing, Fire Extingui slier, Cotton Garment, Luggage and
Leather Goods, Funeral Supply, Canvas Goods, Lumber and Timber, Mayonnaise,
Men's Clothing, Dental Laboratory, Paper and Pulp, and nearly all
supplements of the Wholesale Trade Code.
The seven codes with 10 or mere reported cases each are: Bedding,
Macaroni, Cleaning and Dyeing, Scientific Apparatus, Wholesale Confection-
ery, Plumbing .Fixtures, and the basic Wholesale Trade Code.
c . Summary
The two points indicated above, the particular activity with
respect to misrepresentative practices in the retail codes, and the lack
of record of suca activity in a large proportion of the remaining codes,
bear out evidence to a similar effect which has been presented in earlier
sections of this chapter.
Suggestion has also been made of the possible reasons for the
relative scarcity of record, as contrasted with the preponderant number
of codes which contain misrepresentation provisions, i.e. that the pro-
visions in many cases were merely formally included, without real indus-
try interest in the subject; and/or, tnat in others an interest existed,
but the subject was dealt with without recourse to 17RA aid to effect
compliance.
In many instances no doubt the provisions were included principal-
ly at the suggestion of the Deputies, or because it was being generally
done. In various industries, too, misrepresentations such as this report
is concerned with do act, in fact, constitute appreciable problems.
Data from the Federal Trade Commission records shown above (*) indicate
a rather restricted group of industries, chiefly concerned with consumer
goods, with respect to which the Commission has found occasion to take
action in restraint of misrepresentative practices.
Again, what the code-sponsoring industries were primarily inter-
ested in were practices which were competitively troublesome; they
would hardly be apt to concern themselves greatly about methods which,
while perhaps vexatious to the buying public, did not create difficulties
for the industries themselves. It is notable that in the retail trades,
where the record of referred cases is largest, the types of misrepre-
sentative practices employed were particularly obnoxious competitively.
As to the handling of misrepresentations without reference to NRA,
the discussions of tne Coffee and Dog Food codes previously presented,
and various returns from the Code Authority questionnaires, indicate that
in a number of cases the Code Authorities did actively attempt to admin-
(*) Chapter III, Section III, p. 30, above.
9710
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ister the misrepresentation previsions without calling upon NRA, either
because they found themselves able to obtain satisfactory compliance by
their own efforts, or because they felt that no effective help was to be
had .
Informal representations received from one or two Quarters, also,
indicate that in some cases the Code Authorities were inclined simply to
file away the records of complaints of misrepresentation violations in
their archives, rather than to take any action tending to draw attention
to the presence of such practices in their industries.
Finally there must be borne in mind the fact that, with a very
considerable number of the codes, no Code Authority organization was
ever effected for dealing with code violations of any sort.
9710
-ye-
2- Farther Analysis of Tyue anc: Disposition of Compliance Cases,
The tabular material given above indicates only the 2"eneral type -
not the specific form - of the misrepresentation violations reported;
and in the cases where violations '/ere found, the "adjusted" column
gives no indication of the irecise form which the adjustment took. These
further details are not obtainadld at the present time from the Field
Division's compilations. To supply them in some degree, a sample of
cases obtained from the Washii. ton Cn^pliance Division files has been
analyzed.
The material . iven below illustrates in a number of instances the
specific deceptive practices which '.'.'ere coi.i '■lainec' of in the different
industries representee, and shows the nature of the disposition made of
the case where violation was found.
Code Violation Char ed Disposition
Retail Trade Misleading combination sale Case closed by Certif-
prices. icate of Compliance.
11 " false claim that pods were Oral Agreement with State
union made and labeled. Office tc comply.
"■ " Advertising "no interest do violation found.
added" in tim u ■.- lent sales.
" " Misleading statement re Certificate of Connli-
repossessed ool.c . ance .
" " Advertising current ,poo(3-s Certf . of Comp.
at cue rates and sellin dis-
continued items.
" " Misleading advertising, "buy Respondent removed ads
direct from mill" . and case closed.
False advertising of goods. Certf. of Compl .
False "clearance sale." 31ue Eagle removed.
Violation of advertising After F.T.C. report,
provisions. Certf. of Compliance.
G-oods not as advertised. Certf. of Compl.
Goods not as advertised. ho violation found.
Advertised "forced sue" Consent decree obtained
but bought pods to include and -penalties assessed.
in sale.
Two-price policy. Case rejected - no vio-
lation found.
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Code
Retail Trade
Violation C^ar.ed
Inaccurate advertising
Disposition
Case closed when both
Parties stopped ads.
ii n
ii n
ii ii
Falsely advertised merchan-
dise as unclaimed freight.
Falsely advertised stock as
part of "bankrupt stock "
Advertising "irre -alar1.'
Ho s i o ry as "p e rf set. "
jondent desisted;
case closed.
Case dropped. Respond-
ent too small.
After I'.T.C - report,
Certf. of compi'. ; also
another later.
ii ti
ii it
ii it
I ne c cur at e ly adv e r t i s e d
wal 1 ; ap e r .
Misrepresentation of costs
and sale "orices.
Inaccurate advertising •
Certf. of Compl,
Case .lending May 27,
1935.
Case pending May 27,
n it
Advertised "Forced to
Vacate" and then later
renev/ed lease .
Inaccurate advertisin_ ,
Blue Eagle removed.
Referred to F.T.C. who
secured Certf. of Compl
ii ii
it ii
ii it
Retail Dm:
n ii
Misleading advertising re
trade-in-allowance on furni-
ture .
Falsely advertised savin s
to buyers of --O.j-SOjJ.
Misleading statements by
force. .
Slogan "We will not be
under-sold" mi sleading
and inaccur, ,te .
Inaccurate advertising and
underselling claims.
Blue Eagle removed for
refusal to sign Certf.
of Compl . and case
pending.
Case pending May 27,
1955.
F.T.C investigated and
secured Certf. of Compl,
Certificate of Com-
pliance .
Case dropped, because
poorl5r prepared and un-
important .
Motor Vehicle
Retail
Inaccurate advertising.
Closed by Certf. of
Compliance.
Ho. 9710
-98-
Code
Motor Vehicle
Retail
Motor Vehicle
Retail
Violation Charged
Disconnect in-' speedometer .
Misrepresented condition of
truck.
Disposition
Closed by Certf . of Compl,
Case adjusted. No Certf.
of Compliance.
Motor Vehicle
Retail
Disconnectin, ; speedometers.
Obtained consent decree and
case closed.
Motor Vehicle
Retail
Disconnecting speedometer,
etc .
Insufficient evidence;
case droij ied.
Motor Vehicle
Retail
Motor Vehicle
Retail
Disconnect in"- speedometer
Inaccurate advertising and
failing, to connect speedo-
me t e r .
Lack of evidence; case
dropped .
lTo violation.
Motor Vehicle
Retail
Incorrect and misleading prices
in newspaper advert i sin'..
Certificate of Compliance.
Retail Food and
Grocery
Retail Pood and
Grocery
Canvas Goods
Industry
Lumber & Timber
Products
Selling merchandise inferior
to that advertised.
Misleading advertising of
egg grades.
Misrepresentation of pro-
due t s by s al e smen .
Billing No . 2 Common Fir as
No . 1 .
Certificate of Com-
pliance .
Certificate of Com-
; iliance.
Certificate of Com-
pliance .
Case dropped. Respondent
was wholesaler and not in
code .
Package Medicine Inaccurate advertising.
Retail Jewelry
B edding I ndus try
Inaccurate advertising; re-
pair work at uniform ;rice.
False labels, "new Material"
tag when it was used material,
Not subject to Code.
Case dropped.
Blue Eagle removed and
case sending May 27, 1935.
Case .'ending on May 27,
1935.
Chain Mfg.
Industry
Mi si eading Advert i s ing .
Blue Eagle removed.
Case referred to Liti-
gation and returned; in-
sufficient evidence.
Photographic &
Photo Finishing
Advertised "new and better"
method of photography, which
Association claimed false.
No violation.
9710
-99-
Coc'.e Violation CI ar ed Pis .'0 sit ion
Retail Solid Fuel iviisre iresentation and usin ; Po violation.
ffal cc measures .
Coffee Industry Inaccurately advertising Certificate of
"dated" coffee as not over Comoliance.
10 days old.
11 " Misrepresentation as to in- To r.T.C. Dismissed
.predients other than coffee. for lac1-; of Jurisdic-
tion (Not interstate
commerce .)
" " Misrepresentation as to in :re-_ ■ Certificate of Com-
dients other than coffee. ^liance.
dialysis of the manner in which the above cases were disposed of
shows that in 19 instances they were closed uion respondent's signing of
a Certificate of Compliance, and in 6 other cases by oral or other informal
agreement to comply. In 5 cases the Blue Ba;le was removed, the action
in 3 instances being appealed. In two cases consent decrees were
obtained, ani. one of these a Denaltv was assessed.
"po violation" was found in 6 of the cases, and 6 others were
dropped, 4 for lack of evidence or faulty Presentation of the case, and 2
because respondent was found not subject to the code in question. Six
cases were still pendin at the time the codes lapsed.
'Without knowledge of the merits of these particular cases it is
not possible to pass upon this record as a commentary on 1I2A conuli^nce
work. The freqnent Code Authority complaint of lack of support, however,
insofar as it included the specific allegation of habitual use of the
Certificate of Compliance, ;.oes seem to receive some sup art. Prom the
available data it ap ieo.rs arobable that 31 of the cited cases involved a
real violation. In 2-~> oi these a Certificate of Compliance or other agree-
ment to desist was accepted as satisi'yin the charge, pive Blue Za.,les
were removeu, at least temporarily, and one actual penalty was assessed.
The above section rounds oat the Picture of the operation of the
ITRA with respect to the misrepresentation provisions of the codes as the
available records reveal it.
In the f ollouin , chapter an oxitline of some other forms of control and
influences which operate to discourage misrearesentative practices in
Particular fields will be . iven.
9710
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TTie general findings and conclusions of the entire LIISIGPSZSZLTTATIOIT
AiJD DECEPxIOlT portion of the study have already "been su uuarized at the
head of the report.
9710
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CHAPTZT. FIV3
0T' 3,3 ;.;iSHEPilESiJi:ri?ATIOi: ooi?trol
I. F3DFFAL LFC-ISLATIOiJ
The tvo preceding chapters have dealt rith the principal methods -
the Federal Trade Conmiission machinery and the 1TBA codes - which have
teen employed to exercise statutory control over, among other things,
misrepresentative and deceptive practices in advertising and selling,
on a national scale. Both of these attempts have viewed the practices
primarily in terms of unfair methods of competition, and have aimed at
their restraint chiefly in the interest of the members of the partic-
ular tra.de or industry involved. Other Federal legislation exists in
"•hich control of unfair and deceptive practices in a particular field
is the aim, and where the effort to this end is predicated largely
uoon other public concerns.
A. The Food and Drug Admiiiistratiox .
The Federal Food and Drag Act, adooted in 1906', seeks primarily to
project the consuming public from abuses in the preparation and marketing
in interstate commerce of these necessaries of life and health. The
Act confers upon the Secretary of Agriculture, through the Food and Drug
Administration, wide powers to prevent adulteration of foods and medicin-
al preparations, and misrepresentation concerning them in the form of
labeling and branding.
The Act forbids the movement in interstate commerce of "any article
of food or drug which is adulterated or misbranded within the meaning
of this Act". (*) Section 3 empowers the Secretary of Agriculture to
"make uniform rules and regulations for carrying out the provisions
of this act." The Act specifically provides that any drug or article
of food is to be deemed misbranded "the package or label of --hich shall
bear any statement, design, or device regarding such article, or the
ingredients or substances contained therein which shall be false or
misleading in any particular; "also "any food or drug product which is
falsely branded as to the State, Terrotory or country in which it is
manufactured or produced." (**) Various other specifications concern-
ing both adulteration and misbranding are written into the Act, and
numerous regulations having the force of lav/ have been promulgated by
the Food and Drug Administration.
The Act provides for enforcement of its provisions directly through
the courts, both ^oy criminal prosecution, v,ith fines and imprisonment,
and civil action with penalty of seizure and condemnation of the adul-
(*) The Food and Drugs Act, June 30, 1006, as Amended August 23, 1912,
Mar. 3, 1913, March 4, 1913, July -A,,- 1919, January IS, 1927,
and July 3, 1930.
(**) Ibid. Sec. 3
9710
-102-
terated or misbranded goods. A field staff of about 150 is employed
by the Administration in inspection and the collection of evidence
with respect to compliance with the requirements of the Act.
There is general agreement that the Food and Drug Act has worked
decided improvement in the character of interstate traffic in food, and
that it has ;one far to eliminate frlse and deceptive narking and
branding. The authority of the Act does not, however, e::tend to adver-
tising, and one result of this has been to cause a shifting over of
misrepresentations from the medium of branding to that of advertising.
The Food and Drug Administration has a collection of comparative exhibits
illustrating,. .product by product, the way in which subject matter
barred from the labels has concentrated in the advertisements. Modifi-
cations of the Food and Drug Act now pending in Congress provide specifi-
cally for extension of the Administration's control to mis representa-
tive advertising of foods and drugs. (*)
3. Other Regulatory Statutes.
The Federal Alcohol Administration Act of August 29, 1935, in
Sec. 5 entitled "Unfair Competition and Unlawful Practices", makes
illegal the labeling or advertising o^ the 5roducts concerned except
in accordance v/ith regulations to be prescribed by the Administrator
such as will, among other things, (1) "prevent the deception of the
consumer with respect to" and (2) "provide the consumer with adeauate
information as to"the products so labeled and. advertised. (**)
The Securities Exchange Act of 1934 provided:
"Regulation of the Us% of hani mlative or Deceptive Devices".
Sec. 10 "It shall be unlawful for any person, directly or indi-
rectly, by the use of any nierm:- or instrumentality of interstate
commerce or of the malls, or of any facility of any national
securities exchange -
(b) "To use or employ in connection with the purchase or sale
of any security . . my manipulative or deceptive contrivance in
contravention of such rules and regulations as the Commission may
prescribe. . in the public interest or for the protection of in-
vestors." (***)
Both Acts provide substantial fines as penalty for violation of
their terms.
The Postal Lai s empower the postmaster General to withhold use of
the mails and forbid payment of money orders -
(*) S. 5. 74 Cong. 1st. Ses. (Copeland Fill) "To prevent adulteration,
misbranding, and false advertising of food, drugs, devices and
cosmetics." etc. Also S. 580 fox* the same purpose.
(**) Public - N0. 401 - 74th Congress, Sec. 5. e.f.
(***) Public - No. 391 - 73d Congress (H.H. 9323) Section 10.
9710
-103-
"... upon evidence satisfactory to him that any -person or company
is engaged in conducting a lottery'. ..or is conducting any other
scheme or device for obtaining money or property of any kind
through the mails by means of false or fraudulent pretences. . "(*)
These penalties may he applied by Fraud Orders, without court
action, although relief may he sought by appeal. Criminal action is also
possible, this section of the Act employing the language "writing,
circular, pamphlet or advertisement." Technically, prosecution might
be brought solely on the fact of transmission of false or fraudulent
advertising through the mails; but as a. practical matter it is generally
found necessary to show direct harm, either physical or Pecuniary, to
the complainant, courts and juries being hesitant aJbout imposing
criminal penalties for the pr; ctices in themselves.
It will be noted with respect to each of the first three statutes
mentioned above - the Pood and Drug Act, the Federal Alcohol Control
Act, and the Securities Exchange Act - that general prohibitions u^on
misrepresentation in marking, branding, labeling and/or advertising
are further implemented by enabling clauses permitting, or renuiring,
the administrative agencies to adopt regulations for their enforcement -
that is, in effect, to define the sco^e of the control set uo by the
statute. It is the general type of method which, in the opinion of
many, was originally intended by Congress to be the procedure of the
Federal Trade Commission - "unfair methods of competition" declared
unlawful, with v.ide discretion left the Couimission to decide as to the
applicability of the phrase to specific practices.
In practice, as has been shown in the discussion of the Commission
above, the right to prescribe as to the definition and interpretation
of unfair methods of competition has been exercised by the courts.
Some modification of the Federal Trade Commission Act to empower the
Commission to set up affirmative standards for determining unfair
competition, as the Food, and Drug Administration is empowered to set
uo affirmative standards for determininp as to adulterations and mis-
brandings, would appear to be one possible solution of the auestion of
increasing the Commission1 s effectiveness in its field.
II. STATE STATUTES
State legislation affecting misrepresentation ha.s dealt with the
subject almost entirely in terms of police and general welfare powers.
All but si:: of the States (Arkansas, Georgia, Maine, Mississippi, Hew
Mexico and Wyoming) have some form of law prohibiting false advertising
and making violation a misdemeanour. (**) The following statute from
the Alabama, code is r-uoted as typical of the Sta.te laws on the subject:
(*) Paragraphs 259, and 732, of Title 39 of the Revised Code, 69th
Congress.
(**) Final Feport on Chain Store Investigation, F.T.C. Senate
Document ilo. 4, 74th Cong. 1C35. :>. 105.
9710
-104-
Untrue advertising is prohibited. If any person, firm corporation,
or association, or agent or employee thereof, with intent to sell
or any way dispose of merchandise, real estate, securities, service,
or anything offered oy such person, firm, corporation, or association,
or arent or employee thereof, directly or indirectly, offers to the
public for sale or distribution, or with intent to increase the
consumption thereof, or to induce the mblic in any manner to enter
into any obligation relating thereto, or to acnuire title thereto or
an interest therein, knowingly makes, publishes, disseminates,
circulates or xla'ces before the public or causes directly or in-
directly to be made, published, disseminated, circulated or placed
before the mblic in this 3tat°, in a newspaper, magazine or other
publication, or in the form of a booh, notice circular, pamphlet,
handbill, letter, poster, bill sign, placard, card, label or tag,
or in any other way an advertisement, announcement or statement of
any sort regarding merchandise, securities, service or anything
so offered to the public which contains any assertion, representa-
tion or statement that is untrue, deceptive or misleading; such
person firm, corporation or association or the members of such firm,
also the agent and employee shall be guilty of a misdemeanor,
punishable by a fine or not less than $25 nor more than $i,000, or
by imprisonment for more than on*3 year, or by both such fine and
imprisonment. (*)
Some of the States, namely, Maryland, Massachusetts, N0rth Carolina,
Pennsylvania, South Carolina, Texas, and '.Vest Virginia provide that, to
constitute a violation, the advertiser must be aware of the untrue and
misleading nature of the stad^mmnt, or, that it should be possible, by
the exercise of reasonable care, for him to have informed himself. (**)
As to misrepresentations through false labels, marking, or branding,
a number of the states have Food and Drug laws patterned upon the
Federal lav; and in addition there are a wide variety of statutes
designed to rrevent deception in the labeling of other products, such
as feedstuff s, fertilizer, paints, oils, and turpentine, etc. A compil-
ation of these would fill a large volume. finally there arc the la
and local ordinances dealing with false weights and measures and other
immediate frauds uoon the consumer.
Prior to IDA there was little if anything in the state statutes *
dealing with misrepresenta.tion as an aspect of unfair competition. The
com. ion law was, and is still, the means of relief in intrastate cases
of this sort. Fifteen states did pass some sort of ir.A statute, either
based upon the national Act or )a.relleling it in some degree. These
state Acts were generally limited by their o- n terns to two years, or
were to run concurrently with the ori ;inal ITI3A, and ara understood in
practically all cases to be now expired. (***)
(*) Alabama Code, sec. 4133.
(**) Senate Doc. 4, noted above, p. 106.
(***) The states: California, Colorado, Illinois, Kansas, Kentucky
(prison industries only), Massachusetts, Mississippi, Missouri,
Montana, Hew Jersey,, hew Mexico, IV: York, Ohio, Oregon,
Pennsylvania (Government purchases only), South Carolina, Texas,
Utah, Virginia, Washing'tqa, "Test Virginia, 'Wisconsin, Wyoming,
(Data orally from 3. DublicM, Legal research Section, Legal
Division, JI?JL. )
-105-
III. P3IVAT3 AG3NCI3S
A. Trade Associations .
A grea.t deal of valuable work in helping to restrain misre"oresenta-
tive practices in marking, branding, advertising and selling has been
done by the various trade associations of the country. Both by cooper-
ation with the Federal Trade Commission am through educational -caimaigns
carried on among their membership they have contributed to the develop-.,
ment of a higher concept of commercial ethics.
A number of associations work closely -nth the Commission in check-
ing uo on violation of fair practice standards and either themselves
filing applications for complaint or furnishing the data'upon which a
complaint may be based. Still more definite work is done by groups
like the National Varnish Manufacturers Association and Paint Manu-
facturers Association, and the Macaroni Industry, which maintain
testing laboratories to detect standards violations or discrepancies
between product and labeling, and report offenders to the Federal Trade
Commission or the Food ant'- Drue Administration. In some instances they
go a stea further and collaborate in the development of product
standards for their industries which will aid enforcement agencies in
establishing the fact of misrepresentation in cases where definite
criteria are required.
Other industries, recognizing the necessity for at least some
uniform definitions of products and trade terms to arevent deceptions
due to either confusion or deliberate fraud, have worked out and applied
this type of standard with a considerable degree of success. Notable
instances of this are the trade "dictionary" developed by the Tanners
Council and the standard definitions agreed upon by various fur trade
grouos. In a. number of cases work of this sort has been incorporated
in the Group II rules of Trade Practice Conference codes adopted by the
industries in conjunction with the Federal Trade Commission.
Approximately 150 industries formulated codes of this type a.rior
to NRA, almost all of which contained provisions of some sort aimed at
misrepresentative and deceptive practices. Nov;, with the passing of
NRA, the way appears to be open for a resumption of that work. If means
could be found to uive to the Federal Trade Commission statutory
authority to approve such agreements, with ower to enforce the rules
approved, including those of the Group II type, much that was beneficial
in the trade practice work of NRA might be preserved.
3. Better Business Bureaus.
Active cooperation in the work of defining trade terms and develop-
ing standards of nomenclature, referred to above, has been given by the
Better Business Bureaus, which have also been important agencies for the
general policing of advertising in both the national and local fields.
Founded in 1911, the National Better Business Bureau has been consist-
ently devoted to a "Truth in Advertising" program, as veil as the elimin-
ation of other misrepresentations and frauds. There a.re now more than 50
local bureaus in principal cities through the country.
9710
-106-
Th e Bu.rer3.us receive consumer complaints; maintain shopping services;
obtain the cooperation of newspapers and radio in suspending advertisers
who are shown to misrepresent; and work with Federal, State and local
authorities in "bringing to prosecution violators of the respective laws
relating to fraud and deceit. Through arrangement with the Periodical
Publishers Association, the National Bureau helps police the magazine
industry, doubtful advertisements "being referred to it for check.
The Bureaus are also important agencies for developing positive
standards of ethics and criteria of accuracy in advertising, which
to the extent of their acceptance by the local "business community
become in effect unofficial extensions of the law governing misrepre-
sentation.
During the NBA code period the Better Business Bureaus cooper-
ated actively with the Code Authorities, especially in the retail
trade codes. As a sidelight on the influence of IJBA upon advertising,
one of the Bureaus states:
"As an aid to persuasion the fact that advertisements
might be violating an IJBA code has brought many an advertiser
in. line with Bureau recommendations and oolicy." (*)
The work of this tyoe of organization, as well as retail and
wholesale trade associations and others active in the local field,
is of particular importance because of its effect uoon false and
unfair practices in intrastate trade, which neither the Federal
Trade Commission nor, under the doctrine of the Schechter decision,
any nationally sponsored form of regulation is able to reach. That
their efforts or those of any now available agencies are sufficient
to cope satisfactorily with the situation, however, the immense
amount of compliance work carried on by the local code authorities
of the various 1TRA retail trade codes in administering their fair
practice provisions would incline one to cnoubt.
(*) Annual Be^ort, Better Business Bureau, 'Washington, D. C. , 1934-35,
page
mi n .M.
OFFICE OF THE NATIONAL RECOVERY ADMINISTRATION
THE DIVISION OF REVIEW
THE WORK OF THE DIVISION OF REVIEW
Executive Order No. 7075, dated June 15, 1S35, established the Division of Review of the
National Recovery Administration. The pertinent part of the Executive Order reads thus:
The Division of Review shall assemble, analyze, and report upon the statistical
information and records of experience of the operations of the various trades and
industries heretofore subject to codes of fair competition, shall study the ef-
fects of such codes upon trade, industrial and labor conditions in general, and
ot.ier related matters, sha'l make available for the protection and promotion of
the public interest an adequate review of the effects of the Administration of
Title I of the National Inc. istrial Recovery Act, and ti.j principles and policies
put into effect thereunder, and shall otherwise aid the "resident in carrying out
nis functions under the said Title.
The study sections set up in the Division of Review covered these areas: industry
studies, foreign trade studies, labor studies, trade practice studies, statistical studies,
legal studies, administration studies, miscellaneous studies, and the writing of cede his-
tories. The materials which were produced by these sections are indicated below.
Except for the Code Histories, all items mentioned below are scheduled to be in mimeo-
graphed form by April 1, 1936.
THE CODE HISTORIES
The Code Histories are documented accounts of the formation and administration of the
codes. They contain the definition of the industry and the principal products thereof: the
classes of members in the industry; the history of cede formation including an account of the
sp )ns ring organizations, the conferences, negotiations and hearings which were neld, and
the activities in connection with obtaining approval of th9 code; the history of the ad-
ministration of the code, covering the organizati-a and operation of the code authority,
the difficulties encountered in administration, the extent of compliance or non-compliance,
and the general success or lack of success of the code; and an analysis of the operation of
code previsions dealing with wages, hours, trade practices, and other provisions. These
and other matters are canvassed not only in terms of the materials to be found in the files,
but also in terms of the experiences of the deputies and others concerned with code formation
and administration.
The Code Histories, (including histories of certain NRA units or agencies) are not
mimeographed. They are to be turned over to the Department of Commerce in typewritten form.
All told, approximately eight hundred and fifty (850) histories will be completed. This
number includes all of the approved codes and some of the unapproved codes. (In Work Mate-
rials No_ 18, Contents of Code Histories, will be found the outline which governed the
preparation of Code Histories.)
(In the case of all approved codes and also in the case of some codes not carried to
final approval, there are in NRA files further materials on industries. Particularly worthy
of mention are the Volumes I, II and III which c nstitute the material officially submitted
to the President in support of the recommendation for approval of each code. These volumes
9675—1 .
set forth the origination of the code, the sponsoring group, the evidence advanced to sup-
port the proposal, the report of the Division of Research and Planning on the industry, the
recommendations of the various Advisory Boards, certain types of official correspondence,
the transcript of the formal hearing, and other pertinent matter. There is also much offi-
cial information relating to amendments, interpretations, exemptions, and other rulings. The
materials mentioned in this paragraph were of course not a part of the work of the Division
of Review. )
THE PORK MATERIALS SERIES
In the work of the Division of Review a considerable number of studies and compilations
of data (other than those noted below in the Evidence Studies Series and the Statistical
Materials Series) have been made. These are listed below, grouped according to the char-
acter of the material. (In Work Materials No 17, Tentative Outlines and Summaries of
Studies in Process, these materials are fully described).
Industry Studies
Automobile Industry, An Economic Survey of
Bituminous Coal Industry under Free Competition and Code Regulation, Economic Survey of
Construction Industry and NRA Construction Codes, the
Electrical Manufacturing Industry, The
Fertilizer Industry, The
Fishery Industry and the Fishery Codes
Fishermen and Fishing Craft, Earnings of
Foreign Trade under the National Industrial Recovery Act
Part A - Competitive Position of the United States in International Trade 1927-29 through
1934.
Part B - Section 3 (e) of NIRA and it3 administration.
Part C - Imports and Importing under NRA Codes.
Part D - Exports and Exporting under NRA Code3.
Forest Products Industries. Foreign Trade Study of the
Iron and Steel Industry, The
Knitting Industries, The
Leather and Shoe Industries, The
Lumber and Timber Products Industry, Economic Problems of the
Men's Clothing Industry, The
Millinery Industry, The
Motion Picture Industry, The
Migration of Industry, The: The Shift of Twenty-Five Needle Trades From New York State,
1926 to 1934
National Income, A study of.
Paper Industry, The
Production, Prices, Employment and Payrolls in Industry, Agriculture and Railway Trans-
portation, January 1923, to date
Retail Trades Study, The
Rubber Industry Study, The
Statistical Background of NRA
Textile Industry in the United Kingdom, France, Germany, Italy, and Japan
Textile Yarns and Fabrics
Tobacco Industry, The
Wholesale Trades Study, The
9675.
- iii -
Women's Apparel Industry, Some Aspects of the
Trade Practice Studies
Commodities, Information Concerning: A Study of NRA and Related Experiences in Control
Distribution, Manufacturers' Control of: A Study of Trade Practice Provisions in Selected
NRA Codes
Design Piracy: The Problem and Its Treatment Under NRA Codes
Electrical Mfg. Industry: Price Filing Study
Fertilizer Industry: Price Filing Study
Geographical Price Relations Under Codes of Fair Competition, Control of
Minimum Price Regulation Under Codes of Fair Competition
Multiple Basing Point System in the Lime Industry: Operation of the
Price Control in the Coffee Industry
Price Filing Under NRA Codsa
Production Control Under NRA Codes, Some Aspects of.
Resale Price Maintenance Legislation in the United States
Retail Price Cutting, Restriction of, with special Emphasis on The Drug Industry.
Trade Practice Rules of The Federal Trade Commission (1914-1936): A classification for
comparison with Trade Practice Provisions of NRA Codes.
Labor Studies
Employment, Payrolls, Hours, and Wages in 115 Selected Code Industries 1933-1935
Hours and Wages in American Industry
Labor Program Under the National Industrial Recovery Act, The
Part A. Introduction
Part B. Control of Hours and Reemployment
Part C. Control of Wages
Part D. Control of Other Conditions of Employment
Part E. Section 7(a) of the Recovery Act
PRA Census of Employment, June, October, 1933
Puerto Rico Needlework, Homeworkers Survey
Administrative Studies
Administrative and Legal Aspects of Stays, Exemptions and Exceptions, Code Amendments, Con-
ditional Orders of Approval
Administrative Interpretations of NRA Codes
Administrative Law and Procedure under the NIRA
Agreements Under Sections 4(a) and 7(b) of the NIRA
Approved Codes in Industry Groups, Classification of
Basic Code, the — (Administrative Order X-61)
Code Authorities and Their Part in the Administration of the NIRA
Part A. Introduction
Part B. Nature, Composition and Organization of Code Authorities
Part C. Activities of the Code Authorities
Part D. Code Authority Finances
Part C. Summary and Evaluation
9675.
- iv -
Code Compliance Activities of the NRA
Code Making Program of the NRA in the Territories, The
Code Provisions and Related Subjects, Policy Statements Concerning
Content of NIRA Administrative Legislation
Part A. Executive and Administrative Orders
Part B. Labor Provisions in the Codes
Part C. Trade Practice Provisions in the Codes
Part D. Administrative Provisions in the Codes
Part E. Agreements under Sections 4(a) and 7(b)
Part F. A Type Case: The Cotton Textile Code
Labels Under NRA, A Study of
Model Code and Model Provisions for Codes, Development of
National Recovery Administration, The: A Review and Evaluation of its Organization and
Activities
NRA Insignia
President's Reemployment Agreement, The
President's Reemployment Agreement, Substitutions in Connection with the
Prison Labor Problem under NRA and the Prison Compact, The
Problems of Administration in the Overlapping of Code Definitions of Industries and Trades,
Multiple Code Coverage, Classifying Individual Members of Industries and Trades
Relationship f NRA to Government Contracts and Contracts Involving the Use of Government
Funds
Relationship of NRA with other Federal Agencies
Relationship of NRA with States and Munoipalities
Sheltered Workshops Under NRA
Uncodified Industries: A Study of Factors Limiting the Code Making Program
Legal Studies
Anti-Trust Laws and Unfair Competition
Collective Bargaining Agreements, the Right of Individual Employees to Enforce Provisions of
ommerce Clause, Possible Federal Regulation of the Employer-Employee Relationship Under the
Delegation of Power, Certain Phases of the Principle of, with Reference to Federal Industrial
Regulatory Legislation
Enforcement, Extra-Judicial Methods of
Federal Regulation through the Joint Employment of the Power of Taxation and the Spending
Power
Government Contract Provisions as a Means of Establishing Proper Econ mic Standards, Legal
Memorandum on Possibility of
Intrastate Activities Which so Affect Interstate Commerce as to Bring them Under the Com-
merce Clause, Cases on
Legislative Possibilities of the State Constitutions
Post Office and Post Road Power — Can it be Used as a Means of Federal Industrial Regula-
tion?
State Recovery Legislation in Aid of Federal Recovery Legislation History and Analysis
Tariff Rates to Secure Proper Standards of Wages and Hours, the Possibility of Variation in
irade Practices and the Anti-Trust Laws
Treaty Making Power of the United States
War Power, Can it be Used as a Means of Federal Regulation of Child Labor?
9675.
THE EVIDENCE STUDIES SERIES
The Evidence Studies were originally undertaken to gather material for pending court
cases. After the Schechter decision the project was continued in order to assemble data for
use in connection with the studies of the Division of Review. The data are particularly
concerned with the nature, size and operations of the industry; and with the relation of the
industry to interstate commerce. The industries covered by the Evidence Studies account for
more than one-half of the total number of workers under codes. The list of these studies
follows:
Automobile Manufacturing Industry
Automotive Parts and Equipment Industry-
Baking Industry
Boot and Shoe Manufacturing Industry
Bottled Soft Drink Industry
Builders' Supplies Industry
Canning Industry
Chemical Manufacturing Industry
Cigar Manufacturing Industry
Coat and Suit Industry
Construction Industry
Cotton Garment Industry
Dress Manufacturing Industry
Electrical Contracting Industry
Electrical Manufacturing Industry
Fabricated Metal Products Mfg. Industry and
Metal Finishing and Metal Coating Industry
Fishery Industry
Furniture Manufacturing Industry
General Contractors Industry
General Contractors Industry
Graphic Arts Industry
Graphic Arts Industry
Gray Iron Foundry Industry
Hosiery Industry
Infant's and Children's Wear Industry
Iron and Steel Industry
Leather Industry
Lumber and Timber Products Industry
Mason Contractors Industry
Men's Clothing Industry
Motion Picture Industry
Motor Vehicle Retailing Trade
Needlework Industry of Puerto Rico
Painting and Paperhanging Industry
Photo Engraving Industry
Plumbing Contracting Industry
Retail Lumber Industry
Retail Trade Industry
Retail Tire and Battery Trade Industry
Rubber Manufacturing Industry
Rubber Tire Manufacturing Industry
Shipbuilding Industry
Silk Textile Industry
Structural Clay Products Industry
Throwing Industry
Trucking Industry
Waste Materials Industry
Wholesale and Retail Food Industry
Waste Materials Industry
Wholesale and Retail Food Industry
Wholesale Fresh Fruit and vegetable Indus-
try
Wool Textile Industry
THE STATISTICAL MATERIALS SERIES
This series is supplementary to the Evidence Studies Series. The reports include data
on establishments, firms, employment, payrolls, wages, hours, production capacities, ship-
ments, sales, consumption, stocks, prices, material costs, failures, exports and import3.
They also include notes on the principal qualifications that should be observed in using the
data, the technical methods employed, and the applicability of the material to the study of
the industries concerned. The following numbers appear in the series:
9675.
- vi -
Asphalt Shingle and Roofing Industry
Business Furniture
Candy Manufacturing Industry
Carpet and Rug Industry
Cement Industry
Cleaning and Dyeing Trade
Coffee Industry
Copper and Brass Mill Products Industry
Cotton Textile Industry
Electrical Manufacturing Industry
9675.
Fertilizer Industry
Funeral Supply Industry
Glass Container Industry
Ice Manufacturing Industry
Knitted Outerwear Industry
Paint, Varnish, and Lacquer, Mfg. Industry
Plumbing Fixtures Industry
Ray^n and Synthetic Yarn Producing Industry
Salt Producing Industry
I
1
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11