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United States of America v Basic Products Co.

has undertaken to ascertain the cost of producing the product known as Syndalog. The Commission also desires to ascertain the investment involved in the production of this product. It will, therefore, be necessary for its examiners to have full access to your books and records, including not only your cost sheets, but your profit and loss statement, and balance sheet. The period to be covered is the year 1918.

The Commission requests your prompt co-operation with its examiners.

Very truly yours,

Chief Economist.

L. H. H."

(5) No complaint has at any time been filed or entered against defendant by the Governmeni, or by any citizen, in regard to the organization, business, trade practices or conduct of the defendant in any respect, nor has the defendant been guilty of unfair competition, nor has it been charged therewith.

(6) The defendant has refused, and unless required by Court, will continue to refuse to surrender its trade secrets as aforesaid to any such examiners, or to any other representatives of said Trade Commission, or said Navy Department.

(7) The defendant charges that the demand of said Trade Commission is unlawful, unconstitutional and void for the following seasns

(a) It is in direct violation of the provisions of the Act creating said Trade Commission, Section 6 whereof forbids the publication of trade secrets, whereas the demand upon defendant by said Trade Commission affirmatively shows that the purpose of said “investigation" is the ascertainment of trade secrets and the disclosure of information thereof t) the Navy Department.

(b) That in the absence of charges or complaints against defendant, said Trade Commission is without power or authority to make the "investigation" demanded.

(c) That the access to defendant's properties and records, demanded by said Trade Commission and by the petition of the Attorney General, would constitute an unreasonable search and seizure from which defendant is entitled to protection by the Fourth Amendment of the Constitution of the United States.

(d) That the access to defendant's properties and records, demanded by said petition, would constitute a taking of the property of the defendant without due process of law in violation of the Fifth Amendment of the Constitution of the United States.

The reasons in support of the demurrer filed by the plaintiff are:
1st. A general demurrer that the answer is insufficient and irresponsive.

2nd. That the defendant company has no standing to question the right of the plaintiff to a mandamus on the ground that no individual complaint or information has been made against it. That the right of the plaintiff is the right of original investigation conferred upon the Federal Trade Commission by Congress.

3rd. That any reason which the defendant might have to withhold its books, etc., from inspection should have been presented to the Trade Commission and not to the Court.

4th. There is no attempt in this proceeding to take the properties or records of the defendant without due process of law, because the plaintiff in filing this proceeding, is acting according to due process of law and not in violation of any constitutional provision or any law thereunder.

United States of America v Basic Products Co.

In view of the Federal Trade Commission's letter of March 1st, 1919, its resolution of the 8th day of the same month, and its notice and demand under date of the 11th of the same month, it plainly appears that said Commission has undertaken to ascertain the cost of producing a product which is the subject of a patent and to ascertain also the annual production thereof and the capital invested in the manufacture thereof. Why it has undertaken to do that is explained by the averments in the answer which must be taken as true. The purpose of such investigation is that the Commission can give information as to the result of its investigation to the Navy Department. It would seem that it was intended by the Commission to ascertain what is the just compensation which the Navy Department should pay for acquiring a right to such patented article, as is to be inferred from the following quotation from the Brief of Counsel on behalf of the plaintiff:

"It is inconceivable that the ascertainment of the cost of the production of a commodity produced by defendant under a process patent which gives it a legal monopoly in the production of that product, could work any hardship upon the defendant; it has an exclusive property in the patented invention which cannot be appropriated or used by the Government itself without just compensation (30 Cyc., 818) and certainly an orderly proceeding to ascertain what is just compensation in a given case could not violate the due process clause of the Constitution or any other provision.”

Under the constitutional power vested in Congress “to promote the progress of science and useful arts," letters patent of the United States secure to inventors the exclusive right to their discoveries. There is no reservation of right in the United States as against the inventor. The United States cannot appropriate or use the invention without just compensation, in any different way than it can appropriate or use any other articles owned by a private citizen. James v Campbell, 104 U. S., 356.

The Act of Congress under which the Federal Trade Commission has proposed to investigate the cost of producing a patented product and perhaps the amount of compensatior. which should be paid by the United States, in order that the Navy might acquire the same, does not in terms justify such proceeding. The Act is aimed at unfair methods of competition in commerce. This is clearly seen by the first paragraph of Section 5, which consists of this language: “that unfair methods of competition in commerce are hereby declared unlawful.” That provision is qualified by the meaning given in the Act to the word "commerce.” In Section 4 it is provided that the word "commerce” when found in the Act, means "commerce among the several States or with foreign nations or in any territory of the United States, or in the District of Columbia, or between any such territory and another, or between any such territory and any State or foreign nation, or between the District of Columbia and any State or territory or foreign nation." By applying that definition then, to said first paragraph of Section 5, we ascertain that it was the intent of Congress by the passage of the Act, to excrcise some of the powers vested in it by the Constitution to regulate interstate and foreign commerce.

The second paragraph of Section 5 contains the expression of a general power conferred upon, and a general duty imposed upon, the said Commission in these words:

"The Commission is hereby empowered and directed to prevent persons, partnerships or corporations, except banks and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in commerce."

Following that broad provision there are set forth many powers and

United States of America v Basic Products Co.

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duties. The remaining paragraphs of Section 5 relate to complaints against persons, partnerships or corporations; the methods of proceeding upon such complaints; the findings of fact by the Commission which, "if supported by testimony shall be conclusive," and methods of enforcement of the orders of said Commission through the aid of the Courts.

As appears from the resolution of the Commission hereinabove set forth, the provisions of Section 5 are not relied upon as justification for the C mmission's action in the present case. The Cominission relies upon sub-division (a) of Section 6 of the Act. Section 6 contains a further statement of particular powers vested in the Commission and appears to authorize proceedings in which no complaints against any person, partnership or corporation are required to be served. The opening of that Section, including sub-division (a), is as follows:

"That the Commission shall also have power

(a) To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any corporation engaged in commerce, excepting banks, and common carriers subject to the Act to regulate commerce, and its relation to other corporations and to individuals, associations, and partnerships.”

The substance only of the remaining sub-divisions of Section 6 need be stated:

(b) The Commission may require detailed reports from such corporations under oath.

(c) May investigate whether a final decree intended to restrain any violation of the anti-trust acts, is being carried out, and upon the application of the Attorney General, are required to do so.

(d) Upon direction of the President or either House of Congress, the Commission shall investigate alleged; violations of the anti-trust acts by any corporation.

(e) Upon the application of the Attorney General, the Commission shall investigate and make recommendations for the re-adjustment of the business of any corporation alleged to be violating the anti-trust acts.

(f) The Commission may make public, information obtained, "except trade secrets and names of customers," and may submit recommendations to Congress for additional legislation.

(g) May from time to time classify corporations, and make rules and regulations for the purpose of carrying out the provisions of the Act.

(h) The Commission may investigate trade conditions in and with foreign countries.

The remaining sections of the Act have little to do with the matter now before the Court, yet their provisions may tend to assist the Court in reaching the proper conclusion.

Section 7 authorizes the Court, in any suit in equity brought by the Attorney General, as provided in the anti-trust acts, after the conclusion of the testimony therein, if the Court be of opinion that the plaintiff is entitled to relief, to refer said suit to the Commission as a Master in Chancery, to formulate a decree. Section 8 provides that when directed by the President, the several departments and bureaus of the Government shall furnish, upon its request, papers and information, in their possession, relating to any corporation subject to the provisions of the Act. Section 9 gives the Commission power to secure testimony, issue subpoenaes, and compel the attendance of witnesses, and the production of documentary evidence from any place in the United States, at any designated place of hearing (which by Section 3 may be "in any part of the United States"). Such section also authorizes the District Court to enforce obedience to subpoenaes issued by the Commission and gives the District Courts of the United States juris

United States of America v Basic Products Co.

diction to issue writs of mandamus upon the application of the Attorney General, commanding any person or corporation to comply with the provisions of this Act. Section 10 provides the penalties for failure to comply , with the provisions of the Act or with the orders of the Commission. The punishment of any person disobeying a subpoena is by fine of not less than $1,000.00, nor more than $5,000.00, or by imprisonment for not more than one year, or by both. The punishment of any person who shall wilfully make, or cause to be made, any false entry or statement of fact in any report required, or in any account, record or memorandum kept by any corporation subject to this Act, or who shall wilfully neglect or fail to make, or cause to be made, full, true and correct entries in such accounts, records or memoranda, of all facts and transactions appurtenant to the business of such corporation; or who shall wilfully remove out of the jurisdiction of the United States, or wilfully mutilate, alter, or by any other means, falsify any documentary evidence of such corporation; or who shall wilfully refuse to submit to the Commission or to any of its authorized agents, for the purpose of inspection and taking copies, any documentary evidence of such corporation within its possession or within its control, shall be subject, upon conviction, to a fine of not less than $1,000.00, nor more than $5,000.00, or to imprisonment for the term of not more than three years, or to both such fine and imprisonment. If any corporation required by the Act to file any report, shall fail to do so within the time fixed by the Commission and such failure shall continue for thirty days after notice of such default, such corporation shall forfeit to the United States, the sum of $100.00 for each and every day of the continuance of such failure. There follows then, a provision in said section, for the punishment of any officer or employe of the Commission who shall make public any information obtained by the Commission without its authority, unless directed by the Court.

From the foregoing review of the Act, it is plain that Congress intended to give the Commission a power unprecedented in its scope. In the argument on behalf of the plaintiff, it was insisted that, under the Act, the Commission was given the right to investigate any question having to do with any business of any corporation, except banks and common carriers subject to the control of the Interstate Commerce Commission; to conduct a hearing at any point in the United States and compel there, the attendance of any witnesses and the production of any records from any other point in the United States. There was no suggestion of the limitations to be found in the Act themselves, other than the limitation just mentioned. In other words, it was probably assumed that every corporation, with respect to which the Commission intended to conduct an investigation, was engaged in interstate commerce within the meaning of the Act. In the argument, as well as in the petition, there was lacking the assertion of facts which would bring the defendant within the terms of the Act of Congress. Nowhere has it becn made to appear that the defendant is engaged in interstate commerce in any other way than any other corporation or any citizen may be so engaged, by making one or more shipments of manufactured goods from one State into another.

The following quotation from the opinion of Judge Jackson, in Greene, 52 Federal, 104-113, contains not only a definition but an elaboration thereof, which suggests not only the limitations upon the power of Congress, but also possibilities of the existence of activities by entities corporate or otherwise, which might be brought within the jurisdiction conferred by the Act upon the Federal Trade Commission:

"Commerce among the States, within the exclusive regulating power of Congress, 'consists of intercourse and traffic between their citizens, and


United States of America v Basic Products Co.

includes the transportation of persons and property, as well as the purchase, sale, and exchange of commodities.' County of Mobile v Kimball, 102 U. S., 691-702; Gloucester l'erry Co. v Pennsylvania, 114 L. S., 203, 5 Sup. Ct. Rep., 826. In the application of this comprehensive definition, it is settled by the decisions of the Supreme Court that such commerce includes, not only the actual transportation of commodities and persons between the States, but also the instrumentalities and processes of such transportation. That it includes all the negotiations and contracts which have for their object, or involve as an element thereof, such transmission or passage from one State to another. That such commerce begins, and the regulating power of Congress attaches, when the commodity or thing traded in commences its tra:isportation from the State of its production or situs to some other State or foreign country, and terminates when the transportation is completed, and the property has become a part of the general mass of the property in the State of its destination. When the commerce begins is determined, not by the character of the commodity', nor by the intention of the owner to transfer it to another State for sale, nor by his preparation of it for transportation, but by its actual delivery to a common carrier for transportation, or the actual commencement of its transfer to another State, At that time the power and regulating authority of the States ceases, and that of Congress attaches and continues. until it has reached another Statc, and becomes mingled with the general mass of property in the latter State. That neither the production or manufacture of articles or commodities which constitute subjects of commerce, and which are intended for trade and traffic with citizens of other States, nor the preparation for their transportation from the State where 10duced or manufactured. prior to the commencement of the actual transfer, or transmission thereof to another State, constitutes that interstate commerce which comes within the regulating power of Congress: and, further, that after the termination of the transportation of commodities or articles of traffic from one State to another, and the ningling or merging thereof in the general mass of property in the State of destination, the sale, distribution, and consumption thereof in the latter State forms no part of interstate commerce.

Pensacola Tel. Co. v Western Union Tel Co. 96 U. S., 1: Brown v Houston, 114 U. S., 622. 5 Sup. Ct. Rep., 1091: Coe v Errol, 116 U. S., 517-520, 6 Sup. Ct. Rep., 475; Robbins v Taxing Dist., 120 U. S.. 497, 7 Sup. Ct. Rep., 592: and Kidd v Pearson, 128 U. S.. 1. 9 Sup. Ct. Rep., 6. In the latter case the Supreme Court pointed out the distinction between commerce and the subjects thereof, and held that the manufacture of distilled spirits, even though they were intended for export to other States, was not commerce, falling within the regulating powers of Congress."

Imagination, if not experience, can suggest that persons, partnerships and corporations may be engaged in interstate commerce by the transsortation of merchandisc solely by water; that their activities may give them their income from litcrage; or they may be engaged in the sole business of forwarding goods, with no interest in the vessels or wagons on which they are transported. The foregoing are merely illustrations of active ities which may perhaps be within the scope of the powers granted to the Commission by the Act as found in the fifth section thereof.

Imagination, however, cannot suggest such an extension of constitutional limitation as may justify the investigation undertaken by the Commission in this case. Indeed, so far as the matter has been brought to the attention of the Court, no such assertion of power has ever been made to the Courts. Investigation under sub-division (a). Section 6, is limited

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