In the public interest, the Commission has exercised jurisdiction over many methods and practices which are also actionable under the common law, such as fraud and deceit, boycott, restraint of trade, and monopoly. But in addition thereto, its jurisdiction has been upheld by the courts over many types of cases which could not be reached at common law. For instance, in an action for fraud and deceit, reliance on the false representation and injury flowing from such reliance must be shown at common law. The Federal Trade Commission may proceed against the use of false advertising in commerce as an unfair method of competition without proving actual deception of any customer, providing the advertisement is characterized by what the Supreme Court has called "an inherent capacity and tendency to deceive."

The principal dissimilarity between the common law action and the procedure of the Federal Trade Commission springs from the fact that the Commission acts ex parte and only where substantial public interest is involved. Private controversies between competitors, where a private remedy at law is available, are seldom entertained by the Commission and then only where substantial public interest is involved. And even in such a case, the aggrieved competitor is not a party to the proceeding. Restraints of trade and monopolistic practices which at common law would reach the courts only when enforcement was sought or when someone was particularly injured, may be curbed by the Commission through a proceeding initiated upon its own motion solely for the benefit of the public.

The proponents of the O'Hara bill have argued that the issuance of a complaint by the Commission is a prejudgment of the case. This argument is answered in an article entitled "Separation of Functions in Administrative Agencies," by Prof. Kenneth Culp Davis, of the University of Texas Law School, published in the Harvard Law Review for April 1948, wherein Professor Davis discussed the procedure of the Federal Trade Commission, and stated:

"In a typical prosecuting agency a subordinate officer to whom investigators report decides whether or not to recommend to the agency heads that proceedings be instituted. The agency heads study the recommendation and the supporting materials to whatever extent may be necessary to dispose of the problem. This is true, for instance, in the FTC. To the extent that the Commissioners decide whether or not to approve recommendations for initiation of proceedings, a combination of functions results. Is it harmful?

*

*

"If the agency heads were announcing, in effect, that 'we believe the defendant is guilty,' they would be taking a position incompatible with impartial judging. * But it is a distortion to say that such an agency as the FTC is taking a position on factual issues by the issuance of a complaint, except to the extent of finding a prima facie case on the facts and determining that the allegations, if uroved, are sufficient as a matter of law. This closely resembles a judge's task of deciding on demurrer-and no one would contend that a judge who overrules a demurrer should be disqualified from proceeding to try the case. The difference is that the agency heads who approve the issuance of a complaint do not merely assume that the allegations of fact are admitted for demurrer purposes, but they must to some extent appraise the factual materials to determine whether or not the investigators have produced enough to justify prosecution. Perhaps the closest analogy is the granting of a temporary restraining order by a judge who then proceeds to hear evidence on the question of a temporary or permanent injunction. The award of the restraining order commits the judge to some extent as to his view of the probable facts in advance of a full development of the evidence.

"It is commonly held that even in a criminal case a trial judge who has expressed his belief in the defendant's guilt is not disqualified from serving as judge after the case has been reversed and remanded. The Supreme Court, in holding that an examiner who excluded evidence as immaterial is not disqualified from presiding at the reception of the evidence after a reviewing court has held the exclusion to be error and has remanded the case, has recently reminded us that 'it is not the rule of judicial administration that, statutory requirements apart, * * * a judge is disqualified from sitting in a retrial because he was reversed on earlier rulings.' The reasons for disqualifying such a judge are, of course, far stronger than the reasons for deeming agency heads disqualified merely because they have approved the institution of proceedings. It is unsound, of course, to argue that whatever is traditional in the judicial process may be properly copied by the administrative process. But it may be sound to suggest that any adjudicator, judicial or administrative, who is worth his salt, can maintain the scales of justice in even balance and still grant a temporary restraining order or authorize the institution of administrative proceedings" (pp. 644–645).

* *

In O'Malley v. United States (128 Fed. 2d. 676 (C. C. A. 8, 1942)), reversed on other grounds (317 U. S. 413 (1943)), the judge who later tried the case provided the initial impetus by requesting the United States attorney to institute proceedings. The judge said there was "ground for believing that there has been a very gross imposition and fraud The Circuit Court of Appeals for the Eighth Circuit declared, "There was no prejudgment of guilt in any remarks the court made directing contempt proceedings to be commenced." The analogy of "prosecutor, judge, and jury" applied to procedure before the Federal Trade Commission is not apt for the Commission has no power to punish or to inflict penalties. If penalties or punishment are exacted from a party to a Commission proceding, it must be by a court of law in the usual manner. The Commission has no power to enforce its orders-this must be effected through a court of law. The Commission cannot issue a cease and desist order which is not subject to judicial review in any court of law as provided in the statute.

The power of the Commission conferred by Congress to initiate proceedings on its own motion is highly important to the objectives of the act. In fact, this power represents one of the principal departures from the common-law method of dealing with the situations which are within the Commission's jurisdiction. This was recognized by the Congress at the time and has been referred to since passage of the act by the courts as one of the impelling reasons for the legislation. Under the common law doctrines of unfair competition, fraud and deceit, restraint of trade and monopoly, the courts could only act when a justiciable controversy was presented to them by a party having sufficient interest to maintain a suit. Thus a voluntary agreement among manufacturers to fix prices might never reach the courts unless one of the parties to the agreement brought suit, either to enforce the agreement against one who had breached it or because of special injury from its operation. And the public, which might be most seriously injured by such an agreement, would have no protection, unless one or more of the chief beneficiaries of the agreement brought it to court. A more specific illustration of the advantage in having an administrative agency with the power to institute a case involving unfair competition on the basis of the public interest is contained in American Washboard Company v. Saginaw Manufacturing Company (103 Fed. 281 (C. C. A. 6, 1900)). The American Washboard Co., a manufacturer of genuine aluminum-faced boards, brought suit to restrain use by a competitor of the word "aluminum" on a washboard which did not contain any of that metal. Judges Taft, Lurton, and Day, each of whom later served upon the Supreme Court of the United States, held that the facts as shown did not entitle the complainant to relief. In the course of his opinion, Judge Day Said:

"Can it be that a dealer who should make such articles only of pure wool could invoke the equitable jurisdiction of the courts to suppress the trade and business of all persons whose goods may deceive the public? We find no such authority in the books, and are clear in the opinion that, if the doctrine is to be thus extended, and all persons compelled to deal solely in goods which are exactly what they are represented to be, the remedy must come from the legislature, and not from the courts."

In commenting upon the decision in the Washboard case, the Circuit Court of Appeals for the Second Circuit in the case of Royal Baking Powder Co. v. Federal Trade Commission (281 Fed. 744 (C. C. A. 2, 1922)), stated:

"The above case illustrates one of the reasons which led Congress to enact the statute creating the Federal Trade Commission and making unfair methods of competition unlawful and empowering the Commission to put an end to them. By that statute the identical situation which the court in the above case said it was beyond its power to suppress has been brought within the jurisdiction of the Federal Trade Commission-created to redress unfair methods of competition. Before the enactment of the Federal Trade Commission Act the courts appear to have had jurisdiction of an action for unfair competition only when a property right of the complainant had been invaded. But the Federal Trade Commission Act gave authority to the Commission itself when it had reason to believe that any person, partnership, or corporation was using any unfair method of competition in commerce, if it appeared to it that a proceeding by it in respect thereof 'would be to the interest of the public,' to bring such offending party before it to answer to its complaint and after a hearing could, upon good cause shown, require it to cease and desist from its unlawful methods."

A complete answer to the criticisms of the Federal Trade Commission made by the proponents of the O'Hara bill is implicit in the Administrative Procedure

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Act, approved June 11, 1946, and its legislative history. For more than 10 years this legislation, which proposed to improve the administration of justice by prescribing fair administrative procedure, was investigated, studied and considered by the President's Committee on Administrative Management, the Attorney General's Committee on Administrative Procedure, the administrative law section and many outstanding officials and members of the American Bar Association, and by the Committees on the Judiciary of the House of Representatives and Senate of the United States.

In 1937, the President's Committee on Administrative Management issued its report, which the President approved, recommending the complete separation of investigating-prosecuting functions and personnel from deciding functions and personnel. In 1938, the Senate Committee on the Judiciary held hearings on a proposal of the creation of an Administrative Court.

In 1939, the Walter-Logan administrative procedure bill was reported favorably to the Senate. It was passed by the Congress, but was vetoed by the President in 1940 on the ground, in part, that action should await the then imminent final report by a committee appointed in the executive branch to study the entire situation. In December of 1938, the Attorney General had recommended the appointment of a commission to make a thorough survey and recommend improvements. The President authorized the Attorney General to appoint a committee for that purpose. It was composed of Government officials, teachers, judges, and lawyers in private practice. Its staff prepared, and in 1940-41 issued, a series of studies of the procedures of the principal administrative agencies and bureaus (including the Federal Trade Commission) of the Federal Government. The Committee held executive sessions over a long period, at which the representatives of Federal agencies were heard. It also held public hearings. It then prepared and issued a voluminous final report.

Growing out of the work of the Attorney General's Committee on Administrative Procedure, several bills were introduced in 1941 and hearings were held. The international situation prompted a postponement of further consideration. Based upon the studies and hearings in connection with prior bills, and after consultation with interested parties, S. 2030 and H. R. 5081 were introduced in the Seventy-eight Congress on June 21, 1944. With the opening of the 79th Congress, a revised and simplified bill was introduced by Senator McCarran, chairman of the Senate Judiciary Committee, as S. 7, and by Congressman Sumners, chairman of the House Judiciary Committee, as H. R. 1203.

Much discussion followed. The House Committee on the Judiciary held hearings in the latter part of June 1945. Previously that committee and the Senate Committee on the Judiciary had requested administrative agencies to submit their views in writing.

Congressman Francis E. Walter, who had submitted the report of the Judiciary Committee to the House and was the indefatigable chairman of the subcommittee in charge of the bill, gave an autohoritative explanation of this legislation. In substance, Congressman Walter stated:

For generations Americans have been brought face to face with new forms or methods of government, which we have come to call administrative law. It is administrative because it involves the exercise of legislative and judicial powers of government by officers who are neither legislators nor judges. It is law because what they do is binding upon the citizens.

What administrative officers or agencies do falls into a few simple categories. Compulsory or regulatory administrative operations fall into three main groups: First, there are the legislative functions of administrative agencies, where they issue general or particular regulations which in form or effect are like the statutes of the Congress. The second kind of administrative operation is found in those familiar situations in which an officer or agency determines the particular case just as, in other fields of law, the courts determine cases. The third type of administrative compulsory power is investigative in nature and may be incidental to either legislative or judicial powers of administrative agencies, or it may be entirely independent of either, as when they issue subpenas, require record or reports, or undertake mandatory inspections.

The present measure distinguishes between these three basic types of administrative regulatory powers. But it does more than merely analyze the administrative process and lay down the forms of procedure for each. It really deals with three separate subjects: First, public information; second, administrative operation; and third, judicial review.

Probably no measure in the history of modern legislation has been considered as long and as carefully by as many persons interested and qualified to advise

and assist in its development. An impressive fact about this legislation is the unanimity with which it was approved and acted upon. No votes were cast against it.

The Administrative Procedure Act dealt comprehensively with the subjects of procedure, the rules of evidence, the separation of prosecuting and deciding functions, and judicial review in proceedings before administrative agencies including the Federal Trade Commission on which Congress had in numerous instances conferred remedial powers and commingled functions. The fact that Congress contented itself in this act with safeguarding against possible abuses, by requiring a more effective internal separation of the prosecuting and deciding functions of such agencies, is itself an approval of the administrative process and an answer to the argument that the Federal Trade Commission acts as prosecutor, judge, and jury.

Section 5 (c) of the Administrative Procedure Act in substance requires each agency in the adjudication of cases to establish an internal separation of functions between the officials who hear and decide and those who investigate or prosecute. This section provides that "No officer, employee, or agent engaged in the performance of investigative or prosecuting functions for any agency in any case shall, in that or a factually related case, participate or advise in the decision, recommended decision, or agency review pursuant to section 8 except as a witness or counsel in public proceedings." In compliance with this section, the Federal Trade Commission has separated the functions of its investigative and prosecuting officers from that of the trial examiners who preside at the reception of evidence and make the recommended decision. It should be pointed out that trial examiners, under section 11 of the Administrative Procedure Act, are selected by the Civil Service Commission and cannot be removed by the Federal Trade Commission except for good cause established and determined by the Civil Service Commission after opportunity for hearing. These examiners receive compensation prescribed by the Civil Service Commission, independently of the Federal Trade Commission's recommendations or ratings. The examination and selection of trial examiners by the Civil Service Commission are regarded as long steps forward in the direction of independence, capacity, impartiality, and judicial-mindedness on the part of the hearing examiners under the Administrative Procedure Act.

The rules of evidence which now apply to Federal Trade Commission proceedings are stated in section 7 of the Administrative Procedure Act, as follows: "Except as statutes otherwise provide, the proponent of a rule or order shall have the burden of proof. Any oral or documentary evidence may be received, but every agency shall as a matter of policy provide for the exclusion of irrelevant, immaterial, or unduly repetitious evidence and no sanction shall be imposed or rule or order be issued except upon consideration of the whole record or such portions thereof as may be cited by any party and as supported by and in accordance with the reliable, probative, and substantial evidence. Every party shall have the right to present his case or defense by oral or documentary evidence, to submit rebuttal evidence, and to conduct such cross-examination as may be required for a full and true disclosure of the facts. In rule making or determining claims for money or benefits or applications for initial licenses any agency may, where the interest of any party will not be prejudiced thereby, adopt procedures for the submission of all or part of the evidence in written form."

The trial examiner's recommended decision and the decision of the Commission are required by the Commission's Rules of Practice XXII and XXV to be based upon the greater weight of the evidence.

The scope of judicial review of Federal Trade Commission decisions and orders by the United States circuit courts of appeals and the Supreme Court is provided in section 10 (e) of the Administrative Procedure Act, as follows:

"So far as necessary to decision and where presented the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of any agency action. It shall (A) compel agency action unlawfully withheld or unreasonably delayed; and (B) hold unlawful and set aside agency action. findings, and conclusions found to be (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right: (4) without observance of procedure required by law; (5) unsupported by substantial evidence in any case subject to the requirements of sections 7 and 8 or other

wise reviewed on the record of an agency hearing provided by statute; or (6) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court. In making the foregoing determinations the court shall review the whole record or such portions thereof as may be cited by any party, and due account shall be taken of the rule of prejudicial error."

The statutory language in section 5 (c) of the present Federal Trade Commission Act that "The findings of the Commission as to the facts, if supported by evidence, shall be conclusive," which the proponents of the O'Hara bill contend limits judicial review of Commission orders, has been uniformly construed by the courts to refer to substantial evidence. This means substantial evidence in support of every essential fact. It means such relevant evidence as a reasonable mind might accept to support a conclusion and does not justify orders without a basis in evidence having rational probative force. (Consolidated Edison Co. v. N. L. R. B., 305 U. S. 197 (1938); Rochester Telephone Company v. U. S., 307 U. S. 125 (1939).) The question whether the evidence relied on is substantial is a question of law for the courts to determine and in reaching their conclusions they are at liberty to and do examine the whole record. The rule of law applicable to judicial review of Federal Trade Commission findings as to the facts is: If capable men, acting reasonably could have reached the same conclusion and made the same findings as did the Commission, then the courts will not disturb the Commission's judgment. The court will determine, however, upon the basis of the whole record whether reasonable minds could have reached the same conclusions as the Commission and if the courts think that they could not, they may set the Commission's findings aside.

The substantial evidence rule applied by the appellate courts in reviewing the Commission's findings is for practical purposes the same as the rule developed out of their own experience by appellate courts in judicial review of jury verdicts. It is the right of a jury to determine issues of fact. A wellestablished rule is that the jury is the trier of the facts but the court may set aside a jury's verdict if the evidence supporting it is not substantial. The existence of some evidence or a scintilla of evidence supporting the verdict is not enough. Substantial evidence, the Supreme Court has held, means more than a scintilla. It must do more than create a suspicion of the facts to be established. The Court said it means "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." It is left to the jury to pass upon the credibility of witnesses and determine the weight of the evidence and to draw inferences from the evidence and the verdict will be sustained if it is grounded upon substantial evidence. (Galloway v. United States, 319 U. S. 372 (1943); N. L. R. B. v. Columbian Enameling Co., 306 U. S. 292 (1939).)

Judicial review of Federal Trade Commission's findings is based exactly on the same principle. The substantial evidence rule applicable to jury verdicts is the rule governing review of findings of the Commission. A finding of the Commission unsupported by such evidence is beyond the power of the Commission as it is contrary to law and would be set aside by the courts. It is the duty of the appellate court to examine the whole record, to determine whether there was no evidence, a scintilla of evidence, or whether the evidence was substantial enough to base a reasonable judgment thereon.

In conclusion, it is submitted that there is no irreconcilable conflict between the administrative process and the judicial process. Both processes can and do exist in harmony with the fundamental concept of judicial supremacy of the courts of law. The author of the O'Hara bill has frankly stated in substance that the enactment of this bill is only the beginning and that he intends to propose similar legislation depriving all of the Federal administrative agencies of their quasi-judicial powers. The proposal of such legislation is a challenge to the Congress to determine whether its past legislative policy with respect to monopoly and unfair competition is to be supported and continued by the defeat of this legislation or seriously weakened, if not entirely destroyed, by its enactment. It is submitted that this legislation is neither necessary nor desirable and that the approach of the Administrative Procedure Act is the proper one (rather than through legislation similar to the O'Hara bill) for those who are not satisfied with the functioning of administrative agencies prior to the passage of that act.

The CHAIRMAN. The hearings are closed.

(Whereupon, at 6 p. m., the hearings were closed.)