May I quote from the decision, [reading]:

The Trade Commission * * * is called upon simultaneously to enact the roles of complainant, jury, judge, and counsel.

Under the present act, when the Commission believes that the act is being violated, it issues a complaint against the alleged offender, who must come in and defend; but all the proceedings from beginning to conclusion are controlled by the Commission and its staff, to and including the issuance of a cease and desist order. The act specifically provides that

the findings of the Commission as to the facts, if supported by evidence [italics mine] shall be conclusive

in the event that the respondent appeals to the Circuit Court of Appeals for a review.

I might read the precise language from subsection (c) of section 5 of the act, which concludes with these words:

The findings of the Commission as to facts if supported by evidence shall be conclusive.

In actual practice, when the Commission believes that a person or company is operating in violation of the act and issues its complaint, its own staff prepares the case by obtaining witnesses, subpenaing documents and other evidence. Its own attorney thereupon presents the case before the trial examiner, who is also an employee of the Commission-Mr. Taggart referred to that fact. The trial examiner presides at all the hearings. After the hearings close he files an advisory report with the Commission. The members of the Commission do not see the witnesses nor attend the hearings; they have no means of exercising a judgment as to the creditability of the witnesses as does a court or jury, by hearing them and seeing them.

After the report is filed the respondent may file a brief with the Commission within 20 days after receipt of the trial examiner's report. The Commission's attorney also files a brief in support of the complaint. The Commission may also permit the respondent and its own counsel oral argument after the briefs are in, whereupon the case is then referred to one or more Commissioners for study. The Commissioner may personally study the record, as does a court or jury, or refer it to his legal assistant, and the Commission usually follows the single member's recommendation in deciding the case.

The circuit courts and the United States Supreme Court have held generally that they are bound by the Commission's judgment as to the quality and sufficiency of the evidence. The appellate courts have said that the Commission has authority to base its findings on biased testimony, hearsay or prejudicial evidence.

And in the extreme case, in Segal v. Federal Trade Commission (142 Fed. 2d, 255), the court observed that a part of the testimony was obviously biased and added here in the decision:

Even so, if the Commission wished to rely on such testimony, we may not intervene, whatever might be our indisposition to accept what he said.

And I refer here in my memorandum to the case of Harriett Hubbard Ayer, Inc. v. Federal Trade Commission (15 Fed. 2d, 274), in which it was held that the Commission's findings could not be disturbed if supported by any evidence.

In Arkansas Wholesale Grocers' Association v. Federal Trade Commission (18 Fed. 2d, 866), it was held that assignments of error on the ground of incompetent testimony could not be entertained and I quote again from the decision

provided there is any substantial testimony to support the findings.

In practical effect the only way in which a respondent can win his case is to be prepared effectively to break every Commission witness on cross-examination. If the case is decided against the respondent and upon any evidence whatever, the right of appeal as provided for in the present subdivision (c) of section 5 of the act and as interpreted under the decisions, becomes an empty one.

We believe that the need for the correction of this situation is apparent, both because of the procedure now followed and because of the restrictions placed upon the circuit court in reviewing a case on appeal. The bill would simply give to the respondent his day in court in which the proceeding can be tried under the rules of civil procedure obtaining in that court; and if the respondent felt himself aggrieved by the decision, he would have an effective right of appeal.

Most Federal Trade Commission cases involving misbranding, false advertising, deceptive trade-marks, disparagement of competitors, are of the same type as those which district courts are constantly trying. The Federal Trade Commission never hears conflicting claims of two private parties. Instead it always acts as plaintiff as well as judge in its own case, although the vast majority of its cases probably arise from complaints made by third parties. There is no way of proving that conclusively, of course, but that seems to be the accepted judgment, at least, that they do not just arise alone out of the inquiry of the Commission or its staff.

Even the functions of the National Labor Relations Board are not analagous to those of the Commission. When the National Labor Relations Board sits as a court, which is now its only function, it weights the claims of two private parties.

Under the Taft-Hartley Act, the National Labor Relations Board as a judicial body is entirely separate from the office of general counsel, who is the chief administrative officer. The general counsel is nominated by the President and confirmed by the Senate. He is not selected by the Board. Undoubtedly, the Congress in making this change had in mind the segregation of the functions of prosecutor and court, so that they are not performed by the same agency.

The provisions of H. R. 3871 would restore the balance and the safeguards which are as old as our law; it would simply prevent the complainant from being prosecutor and judge in his own case. It would not, however, destroy or minimize the effectiveness of the Federal Trade Commission as investigator and prosecutor.

We believe that the purpose and the provisions of H. R. 3871 are sound and that the bill should become law.

All of which is respectfully submitted, Mr. Chairman and gentlemen. Mr. O'HARA. Any questions, gentlemen?

Mr. LEA. Mr. Chairman.

Mr. O'HARA. Mr. Lea.

Mr. LEA. I understand from your quotation that the present law provides that the judgment shall be affirmed if the findings are supported by the evidence.

Mr. SULLIVAN. Shall be conclusive. May I read the language?
Mr. LEA. Yes.

Mr. SULLIVAN. The findings of the Commission-this is from subsection (c) of section 5 of the present act, which refers to the appellate rights and it concludes with these words: "The findings of the Commission as to the facts if supported by evidence," not preponderance of evidence; supported by evidence, "shall be conclusive." That is the text of the present law.

Mr. LEA. If that provision were, "if supported by substantial evidence," would the decision of the court probably be any different? Mr. SULLIVAN. I am not at all sure, if it said "by substantial evidence." It would certainly give to the appellate court, if that qualifying wording were in, far more power than the appellate court now says it has under the law. To what extent it is practical, sir, I am unable to say. I think if it said "substantial evidence" it would have thrown out such a case-no, it would not even throw out the Segal case. The Segal case might have had substantial evidence even though it was biased evidence. Now, the courts could have found and they admit that it could have been a little different, the court said although the testimony was substantial and biased, it had to support the decision below.

Mr. LEA. Under the older statutes, Congress usually said in effect that the findings should be binding if supported by evidence; but in more recent time Congress has been adding the words "substantial evidence," and I was wondering if the court had clearly defined the difference between those terms.

Mr. SULLIVAN. I would not attempt to answer that, sir, with any degree of authority. I do not believe in the matter now pending of course if this does not have the words you referred to "substantial" in the matter now pending, I have no means of judging; I do not think anybody could judge in advance of the finding how a court would move under the proposed new rule if you had the word "substantial" in. It would help. But how far I just do not know.

Mr. LEA. Can you state how the Administrative Procedure Act affects this question?

Mr. SULLIVAN. I want to be entirely candid on that. I am not sufficiently informed with respect to the Administrative Procedure Act.

Mr. LEA. That is all, Mr. Chairman.

Mr. DOLLIVER. Mr. Chairman.

Mr. O'HARA. Mr. Dolliver.

Mr. DOLLIVER. I want to be sure that I understand your views as to the purpose and what this bill would accomplish if enacted.

Do I understand that this deprives the Federal Trade Commission of jurisdiction to hear cases on unfair trade practices?

Mr. SULLIVAN. It would do precisely that, sir. I am now referring to the proposed section, subsection (b) (1) which provides that [reading]:

Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce, and if it shall appear to the Commission that a proceeding in respect thereof would be to the interest of the public, it shall, by any of its attorneys designated by it for such purpose, file in the district court of the United States for the district, or in the United States court of any Territory, in which such person, partnership, or corporation

resides or maintains his or its principal place of business, à complaint stating its charges in that respect and praying that the court enter an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice.

Mr. DOLLIVER. Have you given any attention or study to the reasons which brought about the enactment of the Federal Trade Commission Act, the Unfair Trade Practice Act and putting that authority in the Federal Trade Commission?

Mr. SULLIVAN. Not on that precise point, sir. I think I know and have read and have studied something of the intent and purposes behind the original act.

Mr. DOLLIVER. Would you develop that for us?

Mr. SULLIVAN. It was designed then, and I can recall a quotation from then President Wilson, primarily to tell the businessman before the event had happened, if it were possible, what was and what was not unfair, to remove the uncertainty so far as any act could do it and remove the element of uncertainty from business. As I understand it, sir, it was upon that point. It was a preventive as distinguished from a cure.

The rest has come by process of time and development, but originally prevention was the dominant thought, and I read the text writers, and the commentaries on the subject.

Mr. DOLLIVER. Has that development taken place by reason of the desire of the Federal Trade Commission to increase its authority or has it come about by reason of amendment to the laws; or has it come by judicial decisions?

Mr. SULLIVAN. I hesitate to characterize the motives of the Commission, sir. I just do not know; but may I speak generally?

Mr. DOLLIVER. Yes.

Mr. SULLIVAN. When a Federal agency has power, whether or not the power has been developed, somebody generally finds that the power resides in the act and finds a way of using it, and they use it. I have as yet in my own practice to find out that a Federal agency declines to use any jurisdiction given to it.

Mr. DOLLIVER. That, sir, I think is the general complaint about some of these Federal agencies: that they have extended their own jurisdiction beyond the original intent of Congress in passing the law which gave them any power at all. So I am not surprised that you have made that statement.

Now, this proposed law, not having deprived the Federal Trade Commission of any jurisdictional function, places them in the position of accuser of somebody who in their opinion has violated the act? Mr. SULLIVAN. Investigator and prosecutor.

Mr. DOLLIVER. Investigator and prosecutor.

Mr. SULLIVAN. Substantially.

Mr. DOLLIVER. And this reduces them, then, to that function?
Mr. SULLIVAN. Yes.

Mr. DOLLIVER. Would it destroy all judicial functions of the Federal Trade Commission or merely those that are involved in the unfair trade practices?

Mr. SULLIVAN. This bill refers only, as it states, to the case where a corporation has been using any unfair method of competition or unfair or deceptive act or practice in commerce. So it does cover a great deal of territory.

Mr. DOLLIVER. I think that is all, Mr. Chairman. Thank you.
Mr. OIIARA. Any further questions, gentlemen.

M. HALL. Mr. Chairman.

Mr. O HARA. Mr. Hall.

Mr. HALL. I think you have answered this question, Mr. Sullivan, in relation to what Mr. Dolliver has asked you. If this bill is enacted into law, just what will be the procedure, in your opinion, if a complaint is filed with the Federal Trade Commission?

Mr. SULLIVAN. If a complaint is filed with the Commission? M. HALL. Just what will be the procedure from that point on? Mr. SULLIVAN. Well, this is what would happen under the bill. If a complaint arose outside of an investigation made by the Commission itself, whether or not the complaint arose from information furnished by some authority or outside party, the Commission or its office would then examine and investigate, presumably, and find out whether they had a prima facie case; if they thought they had a good case, if they thought they were going to win, and that a wrong had been done, they would go into the Federal court and file a complaint. The bill provides, if it were enacted into law, that they, like any other litigant, could do that and then the defendant would, of course, be given his chance to respond and he would come in before the United States district court, which tries similar cases. The only difference is really in change of parties, and the defendant would have a chance to defend there under the same rules that attach in any other case.

Mr. HALL. In the preliminary investigation, does the Commission have the right to issue subpenas and examine witnesses under it?

Mr. SULLIVAN. I do not see anything in this bill which would take that away. There is nothing in here as I read it. So I do not see anything that will take away from the Federal Trade Commission anything except this judicial function.

Mr. HALL. What I have in mind is, Is there any set form of investigation that they must follow? For instance, does the accused have the right to have counsel present at the investigation or can it be onesided investigation?

Mr. SULLIVAN. Well, I can tell you out of personal experience, I have gone down representing clients and discussed the matter with the Federal Trade Commission's office. Whether I did it as a matter of right or whether I did it as a matter of courtesy to me, I have not even inquired. It happened, so I accepted it and never inquired into the reason for my being there. That was in the preliminary investigation stage.

Mr. HALL. In other words, as far as you know, they have no set rule or formula with respect to the investigations that they make? Mr. SULLIVAN. I am not sure of that, sir. I do know about it when you get to the hearing. I know that much about the procedure. I know that fact. As to where the authority is, I do not presume to know.

The Commission can issue its subpenas to everybody and his brother, and does, where it considers that is required; but when the respondent wants to subpena anybody he has got to go to the Commission to get the subpenas.

Mr. HALL. Well, this would not change that?

Mr. SULLIVAN. He would not have to bother about that. The Commission would act in that case as they would in any other case.