is guilty of the practice complained of, then a complaint is drawn and served. Then the respondent gets adequate time in which to file an answer, and then the matter is set down for hearing at some future date. Mr. O'HARA. Then is that also a part of the investigation, as a matter of fact, when the hearing comes on, or is the evidence already developed so far as the Commission is concerned when they start out on the hearing, or is it developed oftentimes during the course of these hearings, which cover a great many years in some instances? Mr. DIGGES. Well, I assume, and I am making an assumption now, sir-first, I consider this entire thing as a part of the investigatory process in a broad sense, up to the time the order issues. But I should assume that the Commission knows pretty well, by the time it issues the complaint, as to who its witnesses are going to be and what they are going to testify to. It would be rather unusual if it did not. Mr. O'HARA. In other words, by the time you reach trial, you have the feeling, do you, that the Commission has sort of made up its mind already; is that a fair inference? Mr. DIGGES. I think the fair inference is that there is enough in their preliminary investigation to give them reason to believe that they at least should proceed to trial. In other words, they have made up their mind that it is worthy of a Commission proceeding. I am making assumptions now, Mr. Chairman, and I cannot say, because I do not know what goes on in the minds of these gentlemen. Mr. O'HARA. Well, it is a different situation than you have in the courts, where you have the plaintiff or the prosecutor on one side and the defendant on the other, and the judge, whose duty it is to be impartial, to sit in the middle and to weigh and to rule and to carry out the judicial functions; is that true? Mr. DIGGES. That is so obvious, Mr. Chairman, I did not bother to go into that question in my paper this morning. It has been stated so many times by so many representatives of the bar. There is one point that I want to make there, sir, and I think one of the best things about a trial in Federal court, particularly under the new Rules of Federal Procedure, is that you can get down to the guts of a case, and get there very fast, by the pretrial conference method and by going in at special term on motions, and getting the thing cut down to just exactly what it is all about; and then you can raise at that point, the real issue in the case, the question of whether or not this is or is not an unfair method of competition. Now, that can be done under our new Rules of Federal Procedure. But in respect to these administrative proceedings, we cannot get into court until all of the administrative process is exhausted; there is no way to get into court. Mr. O'HARA. There is no way to question where to take a hypothetical case where there is a charge made and the attorney representing the person charged raises a question of law as to whether that is a proper function or that the Federal Trade Commission should act upon it; is there any way in which the attorney can raise that question before the Commission or before the court? Mr. DIGGES. I have suggested informally several times to friends of mine at the Commission that I thought that would be a very fine practice. I suggested to one of them that if such a practice were introduced there, that maybe Mr. O'Hara's bill would not pass Congress. Mr. O'HARA. Has that practice been followed, do you know? Mr. O'HARA. I have heard the complaint that in one instance that was done, the attorney raised the question by formal motion, and it was overruled; and then followed quite a long series of hearings upon the question, and I do not know how it turned out, but I would assume that it would be rather difficult for the Commission to act as judge of its own capacities if they thought something should be investigated. Would that be true? Mr. DIGGES. Well, of course, there you get to the basic flaw in the entire administrative process, respecting quasijudicial agencies that are passing on specific statements of fact, regarding the specific rights of individuals. I think there is a distinction in theory to be made between rule-making bodies, where you have general rules laid down for the guidance of an entire segment of the public, and what is really an administrative method of trying cases on specific facts. I think that the flaw that we find in the theory is where there is the commingling of prosecutor and judge on specific facts, affecting specific individuals, where it is not a general rule applicable to everybody. Mr. O'HARA. Well, in these cases, the investigator is an employee of the Commission, is he not? Mr. DIGGES. Yes, sir. Mr. O'HARA. The examiner is an employee of the Commission? Mr. DIGGES. Yes, sir. I am not sure how that is going to work out under the Administrative Procedures Act, but I understand that they are. Mr. O'HARA. That is all that I have. Mr. Lea has some questions. Mr. LEA. Mr. Digges, this question of what is needed to support the administrative findings, has been a controversy over a long period of time. The leading example has been the Interstate Commerce Commission, which was the first great regulatory commission that was created. As we look at the situation, we cannot escape the necessity of having findings by administrative agencies, and we cannot eliminate that. Then it is a question of what burden of proof should be required to be shown by the record, to justify the acceptance of the findings by the appellate body. Congress has always steered away from the idea of making an appeal from an administrative body a trial de novo in the appellate court, and I think there is little probability that we can depart from that. So there is that question that worries us still, as to how we can write a law that would give the appellate courts as much jurisdiction as they should have, to prevent, decisions that are not properly supported by evidence. But is not the broad question there rather what questions should be submitted to administrative determinations? If they are submitted to administrative determinations, then we should have some rule to protect that body and not make it a trial de novo in the appellate court. Is not the real question as to what problems we want to submit to these administrative agencies and what problems the court should handle? Mr. DIGGES. What you are saying is very close to what I have in mind. First, let me say in respect to the Interstate Commerce Commission, while I have no particular competence in that field, I have always understood that the Interstate Commerce Commission acted as a rule-making body with respect to laying down rules, and that in other matters before the Interstate Commerce Commission it is not a party to the proceeding. Mr. LEA. It is a rule-making body, but that is true of all of these main regulatory agencies. They have rule-making authority, which is important, of course, and they proceed under the rules they themselves make. The Interstate Commerce Commission does that. Mr. DIGGES. I do not consider that the Federal Trade Commission, in its formal proceedings, is a rule-making body. It looks to me, and this would be my experience under it, it is acting as a court, to determine whether certain specific facts are true, and what is the significance of those facts once determined. Mr. LEA. That brings in the judicial judgment as to whether, under a given state of facts, there is a violation of the unfair practice prohibition. Mr. DIGGES. That is correct. Mr. LEA. So it is pretty hard to separate that judicial or semijudicial function from purely administrative ones. It is very difficult. Mr. DIGGES. I think so. I think it is very difficult. Now, of course, I do not think that the term "unfair competition" is quite so broad as one of the previous witnesses suggested this morning. I think the term "unfair competition," means that which was unfair competition at law, at the time of the enactment of the Federal Trade Commission Act. Mr. LEA. Would you mind repeating that? Mr. DIGGES. I think that unfair competition is what it was at the beginning, at the inception of the Federal Trade Commission Act. At the time that act was put on the books, unfair competition meant that which was unlawful at common law prior to the enactment of the act. Now, of course, the common law changes gradually. Mr. LEA. And under modern conditions, it changes from time to time. The relations of business are constantly changing under the economic evolution. Mr. DIGGES. That is correct, sir, but I have yet to see a case where the Commission, having determined that such and such a practice was unfair, without legal precedent for it, would have its views sustained by the courts. Now, I will take an illustration, a matter which is presently being controverted, where the Commission takes one view and a lot of other people take another view, with regard to the use of the word "free" in advertising. The Commission takes the view that whenever you use the word "free" in advertising, there cannot be any condition whatever attached to the offer which you make. Now, the test, the judicial test on a question of that sort has been whether or not there was a tendency and capacity to mislead the public. The term "public" has gotten to be broader and broader as time has gone on, and it now includes the stupid and the gullible and the frivolous and lots of other types of people that are not encompassed within the common-law definition of an ordinary prudent man. But there introduced there, that maybe Mr. O'Hara's bill would not pass Congress. Mr. O'HARA. Has that practice been followed, do you know? Mr. O'HARA. I have heard the complaint that in one instance that was done, the attorney raised the question by formal motion, and it was overruled; and then followed quite a long series of hearings upon the question, and I do not know how it turned out, but I would assume that it would be rather difficult for the Commission to act as judge of its own capacities if they thought something should be investigated. Would that be true? Mr. DIGGES. Well, of course, there you get to the basic flaw in the entire administrative process, respecting quasijudicial agencies that are passing on specific statements of fact, regarding the specific rights of individuals. I think there is a distinction in theory to be made between rule-making bodies, where you have general rules laid down for the guidance of an entire segment of the public, and what is really an administrative method of trying cases on specific facts. I think that the flaw that we find in the theory is where there is the commingling of prosecutor and judge on specific facts, affecting specific individuals, where it is not a general rule applicable to everybody. Mr. O'HARA. Well, in these cases, the investigator is an employee of the Commission, is he not? Mr. DIGGES. Yes, sir. Mr. O'HARA. The examiner is an employee of the Commission? Mr. DIGGES. Yes, sir. I am not sure how that is going to work out under the Administrative Procedures Act, but I understand that they are. Mr. O'HARA. That is all that I have. Mr. Lea has some questions. Mr. LEA. Mr. Digges, this question of what is needed to support the administrative findings, has been a controversy over a long period of time. The leading example has been the Interstate Commerce Commission, which was the first great regulatory commission that was created. As we look at the situation, we cannot escape the necessity of having findings by administrative agencies, and we cannot eliminate that. Then it is a question of what burden of proof should be required to be shown by the record, to justify the acceptance of the findings by the appellate body. Congress has always steered away from the idea of making an appeal from an administrative body a trial de novo in the appellate court, and I think there is little probability that we can depart from that. So there is that question that worries us still, as to how we can write a law that would give the appellate courts as much jurisdiction as they should have, to prevent decisions that are not properly supported by evidence. But is not the broad question there rather what questions should be submitted to administrative determinations? If they are submitted to administrative determinations, then we should have some rule to protect that body and not make it a trial de novo in the appellate court. Is not the real question as to what problems we want to submit to these administrative agencies and what problems the court should handle? Mr. DIGGES. What you are saying is very close to what I have in mind. First, let me say in respect to the Interstate Commerce Commission, while I have no particular competence in that field, I have always understood that the Interstate Commerce Commission acted as a rule-making body with respect to laying down rules, and that in other matters before the Interstate Commerce Commission it is not a party to the proceeding. Mr. LEA. It is a rule-making body, but that is true of all of these main regulatory agencies. They have rule-making authority, which is important, of course, and they proceed under the rules they themselves make. The Interstate Commerce Commission does that. Mr. DIGGES. I do not consider that the Federal Trade Commission, in its formal proceedings, is a rule-making body. It looks to me, and this would be my experience under it, it is acting as a court, to determine whether certain specific facts are true, and what is the significance of those facts once determined. Mr. LEA. That brings in the judicial judgment as to whether, under a given state of facts, there is a violation of the unfair practice prohibition. Mr. DIGGES. That is correct. Mr. LEA. So it is pretty hard to separate that judicial or semijudicial function from purely administrative ones. It is very difficult. Mr. DIGGES. I think so. I think it is very difficult. Now, of course, I do not think that the term "unfair competition" is quite so broad as one of the previous witnesses suggested this morning. I think the term "unfair competition," means that which was unfair competition at law, at the time of the enactment of the Federal Trade Commission Act. Mr. LEA. Would you mind repeating that? Mr. DIGGES. I think that unfair competition is what it was at the beginning, at the inception of the Federal Trade Commission Act. At the time that act was put on the books, unfair competition meant that which was unlawful at common law prior to the enactment of the act. Now, of course, the common law changes gradually. Mr. LEA. And under modern conditions, it changes from time to time. The relations of business are constantly changing under the economic evolution. Mr. DIGGES. That is correct, sir, but I have yet to see a case where the Commission, having determined that such and such a practice was unfair, without legal precedent for it, would have its views sustained by the courts. Now, I will take an illustration, a matter which is presently being controverted, where the Commission takes one view and a lot of other people take another view, with regard to the use of the word “free” in advertising. The Commission takes the view that whenever you use the word "free" in advertising, there cannot be any condition whatever attached to the offer which you make. Now, the test, the judicial test on a question of that sort has been whether or not there was a tendency and capacity to mislead the public. The term "public" has gotten to be broader and broader as time has gone on, and it now includes the stupid and the gullible and the frivolous and lots of other types of people that are not encompassed within the common-law definition of an ordinary prudent man. But there |