sion of such matters as the fairness of the notice provisions, the apportionment of costs, the recovery of attorney and expert witness fees, the jurisdictional amount limitation, and the wisdom of specifying detailed procedural requirements for a particular category of action in federal and state courts. However, in order that the Commission's own enforcement activities not be prejudged by the results of such private actions, we think there should be a provision that such a private action should not have any res judicata or collateral estoppel effect on FTC enforcement action. A decision that a respondent had not violated an order or rule in a private action should not foreclose or limit a civil penalty action or an action for consumer redress by the FTC when the FTC was not a party to the private action. A similar concept is already reflected in proposed Section 18(b) (2) (B) (iv), as set forth in Section 11 of the bill. While this principle may be implicit in the reference in proposed Section 20 (b) to Section 19 (e) of the FTC Act, to avoid needless litigation the point should be made clear. CONFORMING AMENDMENTS TO CLAYTON ACT CONCERNING MATTERS Section 13 of the bill would expand the jurisdictional scope of Sections 2 and 3 of the Clayton Act from "in commerce" to "in or affecting commerce." The Commission supports this provision of S. 1288 as it would place those two sections of the Clayton Act in conformity with the Commission's jurisdiction under the FTC Act, as amended by the Magnuson-Moss Warranty Federal Trade Commission Improvements Act in 1975. We believe, moreover, that this conforming amendment should also be extended to the other provisions of the Clayton Act. DEFINITION OF PERSON, PARTNERSHIP OR CORPORATION Section 14 (a) of S. 1288 would replace the definition of "corporation" contained in Section 4 of the FTC Act, 15 U.S.C. § 44, with a more simplified and inclusive definition of "person, partnership or corporation" concerning all individuals and organizations of any form. We support this change. When the FTC Act was enacted in 1914, some of its provisions applied only to "corporations." Section 4 defines corporation as including companies other than partnerships which are organized to carry on business for its own profit or that of its members. In 1975, however, Congress amended the Act to add "persons" and "partnerships" to most references to "corporations." Section 203, 88 Stat. 2198. The present definition of "corporation", coupled with the absence of any definition of "person" or "partnership", has posed several problems. One problem involves organizations such as nonprofit corporations or other organizations that claim they are not "persons, partnerships, or corporations" within the meaning of the compulsory process provisions of the FTC Act, even though the Commission may be seeking evidence or information from them concerning a violation by someone else. Although this contention has been rejected in court decisions, it continues to be raised. 3 In addition, the existing definition of "corporation" has been judicially construed so as to hinder the ability of the Commission to challenge otherwise actionable behavior by certain nonprofit corporations. In some instances clearly anticompetitive or deceptive practices have escaped Commission challenge altogether; in others, the Commission has only been able to reach the challenged activities after time-consuming, expensive factual showings wholly ancillary to the main issues. For many years the language of Section 4 did not present a serious problem in this respect, partly because most of the Commission's efforts were directed 2 "Corporation" shall be deemed to include any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, which is organized to carry on business for its own profit or that of its members, and has shares of capital or capital stock or certificates of interest, and any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, without shares of capital or stock or certificates of interest, except partnerships, which is organized to carry on business for its own profit or that of its members. 3 See FTC v. Cockrell, CCH 1977-1 Trade Cas. 61,347 (D.D.C. March 30, 1977). toward corporations engaged in ordinary for-profit activity and partly because the Commission was successful in asserting jurisdiction over nonprofit trade associations serving as vehicles for anticompetitive practices. Chamber of Commerce v. FTC, 13 F. 2d 673 (8th Cir. 1926); FTC v. Cement Institute, 333 U.S. 683 (1948). This problem came to a head when the Commission began to challenge the activities of nonprofit corporations of a less traditionally commercial character. In Community Blood Bank of Kansas City Area, Inc. v. FTC, 405 F. 2d 1011 (8th Cir. 1969), the Commission attempted to restrain anticompetitive efforts of a hospital association and a "community" blood bank to hamper certain commercial blood banks. If more conventional respondents had engaged in these same practices, there would have been little difficulty in proving an illegal boycott. However, the court held that the Commission lacked jurisdiction over the respondents, interpreting Section 4 to exclude from Commission jurisdiction "nonprofit corporations *** which are organized for and actually engaged in business for only charitable purposes." The court affirmed the Commission's jurisdiction over nonprofit corporations whose activities redound to the economic benefit of their shareholders or members, yet it offered no guidelines or rationale for distinguishing truly charitable organizations from other nonprofit corporations. After Community Blood Bank, Commission efforts to reach nonprofit corporations engaged in deceptive or anticompetitive practices have succeeded only after the often time-consuming proof that the respondent, whatever its nominal form, was in reality a conduit for essentially commercial interests. For instance, in National Commission on Egg Nutrition, the Commission entered a cease-and-desist order against a nonprofit corporation only after protracted litigation on the issue of the extent to which the activities of the respondent actually inured to the benefit of other parties who were themselves concededly or demonstrably subject to the Commission's jurisdiction. (Accord FTC v. National Comm'n on Egg Nutrition, 517 F. 2d 485 (7th Cir. 1975). See also, Ohio Christian College, 80 F.T.C. 815 (1972), involving a sham college, with tax-exempt status, which dispensed worthless degrees.) Thus, recent interpretations of Section 4 have made it difficult for the Commission, without considerable delay and expense, to reach the anticompetitive or deceptive practices of any nonprofit corporation, whether of a charitable character or not. The result has naturally been to discourage Commission activities with respect to nonprofit organizations, even though it is increasingly clear that even "charitable" organizations have been responsible for very substantial fraud and other conduct that violates the FTC Act. Furthermore, where anticompetitive or deceptive behavior is involved, there is no convincing reason to draw a strict distinction based on whether the particular organization is organized for the economic benefit of its members or for charitable purposes. The harm to the public is the same whether the corporation engages in such behavior for profit or for charity. CLARIFYING AMENDMENT TO SECTION 5 (M) OF THE ACT AUTHORIZING COURT TO GRANT EQUITABLE RELIEF Section 14(b) of the bill clarifies the Commission's existing equitable relief power under Section 5(m) of the FTC Act. Section 5 (m), added to the FTC Act in 1975, authorizes the Commission in certain circumstances to recover civil penalties for violation of Commission rules or Section 5 of the FTC Act. The provision generally parallels the penalty provisions of Section 5(1) of the FTC Act, concerning violation of Commission cease-and-desist orders. However, Section 5 (m) does not include a counterpart to the language added to Section 5(1) in 1973 explicitly authorizing the court to grant equitable relief in a penalty action. The absence of such authority in Section 5(1) had led to litigation over whether the court in a penalty action could issue equitable relief. Although the weight of authority supported the Commission's view that such authority existed under Section 5(1) before the 1973 amendment, a similar clarifying amendment to Section 5(m) would be useful to eliminate doubts and unnecessary litigation on this issue. Compare United States v. ITT Continental Baking Co., 485 F. 2d 16, 21 (10th Cir. 1973), rev'd on other grounds, 416 U.S. 968 (1975), with Herbold Labs, Inc. v. United States, 413 F. 2d 342, 344 (9th Cir. 1969). VOLUNTARY AND UNCOMPENSATED SERVICES 5 Section 14 (c) would amend Section 6 of the FTC Act to permit the Commission to accept gifts and voluntary and uncompensated services. The Commission is currently subject to Section 665 of Title 31 of the United States Code which prohibits officers or employees of the federal government from accepting voluntary service or employing personal service exceeding that authorized by law except in an emergency. This section was enacted as a safeguard against unauthorized executive activities to prevent agencies from escaping Congressional control as exercised through the budgetary appropriation. However, this provision precludes the Commission from accepting reimbursement for the costs to the government of official travel to speak to groups who have an interest in our activities. Because funds are appropriated to cover expenses of this kind, the acceptance of such payment is a gift to the government, not the individual. It should be stressed that this amendment serves only to allow the Commission to accept this reimbursement, not individual employees of the Commission. Existing law could preclude the Commission from accepting the services of individuals, such as students, who may conduct program-related research, assist in inquiries, or participate in surveys. This is an unfortunate result as the availability of such services could reduce the needless duplication of efforts and could serve as a useful adjunct to Commission law enforcement efforts. A provision similar to the proposed amendment is contained in Section 27(b) (6) of the Consumer Product Safety Act (15 U.S.C. § 207(b) (6). CLARIFYING AMENDMENT MAKING SECTION 9 POWERS EXPLICITLY APPLICABLE TO ALL LAWS ENFORCED BY COMMISSION Section 9 of the FTC Act now authorizes the Commission to use the compulsory process authorized therein "for the purposes of this Act." Section 14(d) of S. 1288 would amend Section 9 to authorize the use of compulsory process for all the statutes enforced by the Commission. As the law now stands, most of the statutes administered by the Commission are enforced under the FTC Act. These statutes generally include provisions similar to Section 108 (c)) of the Truth in Lending Act. In enforcing these statutes, therefore, the process authorized by Section 9 may be used by the Commission, either because a violation is considered a violation of the FTC Act, or because Congress has expressly authorized the use of the powers conferred by the FTC Act. Several statutes enforced by the Commission do not include such provisions, including the Clayton Act and the Public Health Cigarette Smoking Act. In investigations under both of those acts it has been contended that the Commission's investigative powers under Section 9 were inapplicable. Although such an argument has been expressly rejected by the courts with respect to the Clayton Act, it continues to be made. In order to make explicit what we believe is the present meaning of the Act, a clarifying amendment would be appropriate to indicate that the Commission may use its powers under Section 9 to carry out all of its legislative mandates. In this connection, we believe that it would be appropriate to make a comparable amendment to Sections 5 (m) and 19 of the FTC Act to make it clear that the civil penalty and consumer redress provisions apply not only to violations of the FTC Act or rules thereunder but to violation of other laws or rules enforced by the Commission. This could be done by adding the following after "this Act" in the first sentence: "or under any other provision of law or rule enforced by the Commission." CLARIFYING AMENDMENT MAKING SECTION 9 POWERS EXPLICITLY APPLICABLE TO PHYSICAL EVIDENCE Section 9 of the FTC Act authorizes the Commission to demand access to and to require the production of “documentary evidence." Section 14(d) of S. 1288 5 "No officer or employee of the United States shall accept voluntary service for the United States or employ personal service in excess of that authorized by laws, except in cases of emergency involving the safety of human life or the protection of property." would also clarify the Commission's authority under Section 9 to require physical as well as documentary evidence. Section 4 of the FTC Act, 15 U.S.C. § 55, defines "documentary evidence" to include all documents, papers, correspondence, books of account, and financial and corporate records. Particularly in cases or investigations concerning deceptive acts or practices, it is at times necessary or desirable for the Commission to gain access to or require production of physical evidence that would not necessarily fall within a strict definition of "documentary evidence," in order to analyze or test such evidence with respect to representations that have been made. The Commission has read the FTC Act as authorizing such inquiries, since a narrow interpretation would hinder the Commission's efforts and be contrary to the broad mandate of the Act. Thus, Congress has granted the Commission extensive investigative powers in Sections 6 and 9 of the FTC Act, 15 U.S.C. §§ 46, 49. Section 6(a) authorizes the Commission to gather and compile information concerning, and to investigate various business operations. Section 6(b) authorizes the Commission to order the filing of special and annual reports containing such information as it may require. Section 9 authorizes the Commission to subpoena the attendance and testimony of witnesses and the production of evidence. Courts have recognized that these provisions must be interprted in a broad and flexible manner so that the Commission may carry out its statutory duties. Nevertheless, questions are still occassionally raised about the Commission's authority concerning nondocumentary physical evidence. To conform the actual language of Section 9 to what the Commission believes was and is its common-sense scope intended by Congress, a clarifying amendment such as contained is appropriate. Such a provision would be consistent with Rule 34 of the Federal Rules of Civil Practice. CLARIFYING AMENDMENT TO PERMITTING ELECTRONIC RECORDING OF DEPOSITIONS Section 9 of the FTC Act now provides that testimony in Commission depositions shall be "reduced to writing by the person taking the deposition." Similarly, Section 5(b) of the FTC Act and Section 11(b) of the Clayton Act contain similar language. Section 14 (e) of the bill would specify that depositions and testimony may also be recorded by electronic or mechanical devices. The Commission supports this change, which would eliminate doubts about whether such modern methods of transcription are permissible. Comparable flexibility has been added to the Federal Rules of Civil Procedure. (Fed. R. Civ. P. 30 (b) (4)). REPRESENTATION OF THE COMMISSION IN COURT ACTIONS OR PROCEDURES Sections 9(a), 10(b), 11(b) and 12(b) of the bill provide that in the following categories of cases (in addition to those now covered by Section 16 of the FTC Act) the Commission would be authorized to represent itself: civil penalty actions for noncompliance with Commission process; actions seeking noninjunctive equitable relief; proceedings to compel the Commission to institute rulemaking proceedings; and citizen actions for violation of Commission rules or orders. While we strongly support these self-representation provisions, the Commission believes that similar additional amendments are warranted. In particular, the provisions of Section 16 (a) (2) of the FTC Act should be revised to make clear that it applies to all actions or proceedings concerning Commission rules, cease-and-desist orders, rulemaking proceedings or adjudicative proceedings, and other Commission orders and process. Under the present language, while the Commission would have exclusive authority to represent itself in, for example, a proceeding to enforce a Commission subpoena, it would not clearly have such authority if the same question were raised in a preenforcement action against the Commission. In addition, the Commission believes that comparable amendments are needed with respect to civil penalty actions for violation of Commission rules or orders. For example, in one recent case the Commission affirmed an administrative law judge's order granting Commission counsel access to a lake contiguous to a condominium project. in connection with an inquiry concerning whether or not the lake was polluted. but when Commission counsel attempted to inspect the lake the respondent sought a restraining order, claiming that the Commission lacked authority to gain access to nondocumentary evidence. We have had a number of cases in which the need to be represented by the Department of Justice has resulted in unnecessary delay and, in some cases, serious prejudice to the Commission's case on the merits. By virtue of its work in such penalty actions, as well as in the other varied litigation in which the Commission represents itself, we believe that the Commission is well situated to represent itself effectively in the public interest in these added types of cases, which typically involve interpretation of or challenges to laws pertaining especially to the Commission or Commission rules, orders or practices. Finally, if Section 7 of the bill is enacted, there should be a corresponding provision authorizing the Commission to represent itself in such court proceedings. PENALTIES FOR VIOLATION OF CLAYTON ACT ORDERS Several provisions of the bill would properly make corresponding changes to the parallel provisions of the FTC Act and the Clayton Act. This prompts us to suggest the desirability of a further such conforming change. When Congress increased the maximum penalty for violation of a cease-and-desist order from $5,000 to $10,000 in 1973, it failed to make a corresponding change in the identical provision of the Clayton Act, resulting in a discrepancy which has led one court to conclude that the maximum penalty under the Clayton Act (for failing to divest an unlawful acquisition, for example) is still only $5,000. See FTC v. Papercraft Corp., 540 F. 2d 131 (3d Cir. 1976). Not only is this modest maximum outdated, the discrepancy may cause unnecessary confusion as to orders entered in cases involving both acts. Again, we thank you for the opportunity to express our views on this important piece of legislation. I'm ready at this time to respond to any questions you may have. Senator PACKWOOD. Congressman Metcalfe isn't here yet. We will go, therefore, to Mr. Rill, testifying on behalf of the Chamber of Commerce. STATEMENT OF BARRY FRIEDMAN; ACCOMPANIED BY PETER A. WHITE, COUNSEL, ON BEHALF OF THE CHAMBER OF COMMERCE OF THE UNITED STATES Mr. FRIEDMAN. My name is Barry Friedman. Mr. Rill was called away this morning. He apologizes for not being here and asks that his statement be made part of the record. Senator PACKWOOD. Give me your name again. Mr. FRIEDMAN. Barry Friedman. With me this morning, though, is Mr. Peter White of the law firm of Fulbright and Jaworski. He will be presenting on behalf of the Chamber our statement on the consumer class actions. Mr. WHITE. I am Peter White, a partner in the law firm of Fulbright and Jaworski. I am very pleased to be here today on behalf of the Chamber of Commerce of the United States. My testimony will address the proposal for consumer class actions which is embodied in section 12 of S. 1288. It is a very broad subject and one that deserves more attention than I can give to it today. I hope you will seek my specific views in the question period that follows. I might add that in the interest of saving time. I will attempt to summarize and perhaps delete some of my written statement which has been submitted for the record. The Chamber opposes the passage of section 12. The legislation would revolutionize trade regulation law and practice by overturning |