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That statement, gentlemen of the committee, is not made by the bar here, by any witness here; it is not made by anyone who has some special purpose to serve. It is made by Mr. Justice Jackson, and he said [reading]:
If we are to hold a rate is reasonable, just because the Commission has said it is reasonable, review becomes a costly, time-consuming pageant of no prac. tical value to anyone.
If you will paraphrase that and use the Federal Trade Commission in place of the Federal Power Commission, I think we are right back where we were with Mr. Jackson on review-your Commission case, as a practical matter, is a costly, time-consuming pageant of no value to anyone.
Now, with respect to the preponderance of evidence, I wish to make one observation, and then I will have finished. I cannot see any logic in permitting this law to continue in such form as to exclude judicial review of Federal Trade Commission cases. My mind goes back to a labor case in Chicago not long ago where, to use Mr. Rogers' statement, the judge of a Federal court had no hesitation in setting aside a ruling of the President taking over a billion-dollar mail-order house, and yet that same judge would have been completely powerless to set aside an action of the Federal Trade Commission, if there was any evidence to support it, even though he knew it was clearly wrong. It seems to me from the standpoint of logic it almost reaches the point of absurdity, and I want to say that it seems to me that his bill proposed by Mr. Reece is completely reasonable; it takes no powers away from the Commission that the Commission has a right to have, and it is
step in assuring justice in those relatively small number of cases in which the question of justice is still open, irrespective of the fact that the Commission has rendered its relief.
Finally, I would like to make one brief comment with respect to that provision of Mr. Reece's bill which seeks to clarify the confusion and conflict which has arisen between the Federal Trade Commission and the Food and Drug Administration on essentially the same state of facts.
I listened very attentively yesterday when Mr. Reece gave a chronological statement with respect to the enactment of the Food, Drug, and Cosmetics Act, and the Wheeler-Lea bill. It happens that I was active in those matters at that time and conferred many times with others, and with Senator Copeland, as the bill went through its various stages leading up to the one finally adopted; and if there is one thing that is clearly impressed on my mind, it is that for once in our lives we thought we had rendered impossible a conflict in jurisdiction, such as has since developed.
I have gone back and read the reports of the committees, and it is clear beyond doubt that Congress meant to leave all questions of labeling in the Food and Drug Administration and to give the Federal Trade Commission jurisdiction over advertising. In reading that language and in going back to the records of the committees, it is difficult to understand how this conflict developed. If language can accomplish anything, I thought we had accomplished that aim back in 1934 to 1938.
Mr. REECE. May I interrupt?
Mr. REECE. I feel quite confident in my own mind that you are correct in your statement that it was assumed at the time of the enactment of the Pure Food, Drug, and Cosmetics Act, and the Wheeler-Lea Act, that all parties felt the possibility of conflict if jurisdiction had been removed, and I understand it was not thought otherwise in any quarter at that time, and that the conflict of jurisdiction actually arose out of the interpretation which the court placed upon the provisions of section 15.
Dr. Swain. That is right.
Mr. REECE. Which decision gave the commission this authority which reached out into the field of labeling, and then after the Court gave the authority to the Commission there was no longer any question that the Commission did have authority. Therefore, the conflict in jurisdiction arose as a result of judicial interpretation, which was not anticipated by any of the parties, and I think I am righteven by the Federal Trade Commission itself.
Mr. O'HARA. And you get back to the position of the industry. They are wondering where they are going to be harassed, and from which side.
Mr. REECE. Quite so. The statement, not only of the industry, but also, Dr. Swain, of yourself, who was concerned with this law, not primarily as it affects industry, but primarily as it affects the consuming public, as to whether all advertising of food, drugs, and cosmetics, should not be placed with the Food and Drug Administration. For that reason you were one, Mr. Dunn was another, and, of course, Mr. Campbell, Director of Foods, Drugs, and Cosmetics, and others, who were primarily concerned with the effect upon the consuming public, took a very strong position that all exercise of authority over these commodities should be placed in the Pure Food and Drug Administration, and I am one of those who undertook to effect a compromise in view of the fact that the Federal Trade Commission already had jurisdiction over advertising in general, by which this subject could be divided without suffering a conflict in jurisdiction which all parties admitted would be harmful, and, of course, the Federal Trade Commission has not yet spoken, but in view of the history of this legislation, I would be very much disappointed should the Federal Trade Commission take an unrealistic attitude at this time and not show a disposition to cooperate in removing the conflict in jurisdiction which all wished to avoid, and, most of all, I would be disappointed if the Commission indicated that any who now felt the conflict should be removed were undertaking to cast a reflection upon any agency of the Government.
Dr. SWAIN. Mr. Reece, your position today is exactly what it was in the middle thirties. You are trying to do what all of us thought at that time was the perfectly proper thing to do, and more or less logical. Here was the Food and Drug Administration on this side dealing with labeling, and here was the Federal Trade Commission, which already had charge of the advertising, so far as it had to do with unfair competition.
I would like the record to show that the National Drug Trade Conference, which included every segment of the drug industry, was unanimously in favor of the Food, Drug, and Cosmetics Act, and I don't think you would find there was much opposition to the Wheeler-Lea bill as of that time, which is the measure under which the Federal Trade Commission exercises control over advertising. But, nevertheless, we are faced with this situation; a conflict has arisen, and you are correct in saying this thing may be embarrassing to the Federal Trade Commission and the FDA, but, as a matter of fact, the public is the victim of this conflict, and the hands of the Food and Drug Administration, in dealing with the very vital matters of labeling, are tied.
Mr. REECE. Those of us who were in a position of responsibility before are now confronted with the fact which we were then charged our action would give rise to.
Dr. SWAIN. Well, that may be a realistic view of the thing.
Mr. REECE. And the conflict, in fact, was not removed, when we thought it had been removed—due to the unexpected interpretation by the courts.
Dr. SWAIN. I think, however, after having studied the matter over very carefully, and with no desire on earth except to see that the original purposes are carried out, I think the language of your act will in very large degree, and maybe totally, meet the situation. At any rate, I give the Reece bill my very earnest support, and I hope it will be finally passed by the Congress.
Mr. RABIN. Dr. Swain, I can't go along with you on your grand-jury analogy. In most instances it doesn't hear the other side. You won't say that the Federal Trade Commission does not hear the respondent?
Dr. Swain. No. My point is maybe the grand jury analogy may be overstressed—but I do think, in this respect the grand jury indicts if substantial evidence is collected and the issues are tried in court. The Federal Trade Commission may or may not predicate its con- . clusions on a preponderence of the evidence, but it has got some substantial evidence
Mr. RABIN. I understand that the rule is that the appelate court does not apply the rule of preponderance of evidence, but there has been nothing testified to here to indicate that the Federal Trade Commission does not use the fair prepondertnce of evidence rule. In fact, I know of no other rule it could use.
Dr. Swain. I am not in any sense saying they do not use the rule you refer to.
Mr. RABIN. It is the only rule it can use.
Dr. SWAIN. What I am saying is, whether or not evidence qualifies under the rule is clearly a matter for the Commission, because the court on appeal cannot weigh, measure, assay, and evaluate. So it does come down finally to the fact that the Commission is the judge of whether or not it lives up to a rule such as you have stated. Don't you think that is true?
Mr. Rabin. I want to get it clear. You were discussing the rule on review. You were not discussing the rule as applied by the Commission in making a finding. Because, as I understand, the Commission does give the respondent an opportunity to come in and make a statement. I know of no rule, and there has been no evidence presented here, that indicates the Commission decides the issue by any other rule than that of fair preponderance, after weighing the evidence given by both sides.
Dr. Swain. I understand that is true.
Mr. RABIN. I understand that the court cannot review that. That is what you are discussing now.
Dr. Swain. That is what I am discussing. The court cannot review that, and the Commission itself is the judge of whether or not it is living up to its rule.
Mr. Rabin. Of course that is the issue we are discussing.
Mr. REECE. With reference to the question that has been raised as to whether H. R. 2390 gives the court adequate authority to modify an order, a suggestion for a further change which applies to the act in general has been made, and I would like to read it so as to have it in the record for the convenience of the committee if it should care to consider it.
It is in subsection (d) of section 5 of the Federal Trade Act, about the middle of subparagraph (d), after the word "opinion” insert “based upon a preponderance of all the evidence received during the hearing."
I am merely putting that in the record so that it will be there for the convenience of the committee.
Also I received a copy of a brief which was submitted by Parke, Austin & Lipscomb, Inc., of New York, which deals with what has been referred to in this hearing as the Smithsonian Institution case. With the permission of the committee, I will submit that as part of the record.
Mr. RABIN. It will be received.
MEMORANDUM IN SUPPORT OF H. R. 2390 FILED BEFORE THE HOUSE SUBCOMMITTEE
ON INTERSTATE AND FOREIGN COMMERCE BY PARKE, AUSTIN & LIPSCOMB, INC. Our interest in the enactment of the Reece bill is not confined to the specific reforms which it proposes. Our interest runs to the fundamental principles on which the bill is grounded. We feel very deeply that for the full enjoyment of the constitutional guarantees of due process of law, the doors of the courts must always be kept open to all the citizens—not for the perfunctory examination of a record or the “rubber stamping” of the actions of an inferior tribunal, but for a real adjudication of the merits of the case presented.
We have no disposition to seek to reform the Federal Trade Commission or to criticize the Federal courts. We are, however, conscious of the inequities which have developed in Federal Trade Commission proceedings and the inadequacy of the court review of these proceedings.
We became acutely aware of this situation in a case which we had before the Commission. This case is reported as Parke, Austin & Lipscomb, Inc. et al. y. Federal Trade Commission ((C. C. A. 2, 1944), 142 Fed. (20) 437).
In 1926, we entered into a contract with the Smithsonian Institution of Washington, D. C., whereby we agreed to form a subsidiary corporation to publish and sell a set of books to be written and edited by the scholars of the institution. It was agreed that the institution was to receive a royalty of 10 percent on the books. We placed in escrow a quarter of a million dollars to insure the proper preparation and distribution of the books.
A member of the Board of Regents of the Institution requested that we adopt the name "Smithsonian Institution Series, Inc.” for the subsidiary corporation, which we did. His reasons for suggesting this name were to indicate by the name that there was a relationship between the Institution and the publisher and at the same time to limit us to the manufacture and distribution of books issued by the Institution and designed to make its resources more readily available to the American people, as a "pocket edition of the Institution in all its activities."
In 1932. they completed their first manuscript and we published a 13volume work comprising the Smithsonian Scientific Series. We employed a staff of salesmen for the express purpose of distributing this set of books. We took every known precaution to prevent any misrepresentation of the books to the public. We checked and approved all prepared sales talks and when a salesman deviated from the truth in presenting the books he was immediately disciplined and usually discharged. In every instance where a customer complained that he bought the books because of a misrepresentation of a salesman we immediately canceled the contract of purchase and refunded all money that had been paid.
In 1937, the Federal Trade Commission made an investigation of our methods of publishing and distributing the Smithsonian Scientific Series and completely exonerated us of any wrongdoing. In its correspondence, the Commission said it was closing its files "without prejudice to the right of the Commission to reinstate the matter if conditions should warrant.” We did not change our trade practices in any particular, yet the Commission saw fit to reopen the case and file a complaint against us.
The investigation was conducted by representatives of the Commission. The Commission was obviously convinced that there had been a violation of the act, else it would not have issued its complaint. The Commission was represented at the hearings by its attorneys who prosecuted the case on its behalf, and the hearings were presided over by a trial examiner who was also an employee and representative of the Commission. After all the testimony was taken, the case was presented to the Commission and a cease-and-desist order was issued which enjoined us, among other things, from “using the words ‘Smithsonian Institution' in their corporate name or in any other connection to designate a commercial enterprise which in fact is not a part of or directly connected with the Institution in Washington.” From that order we appealed to the circuit court of appeals, which dismissed our petition for a review and modification of the order and directed that the order be enforced. The court apparently reached its decision with reluctance, for it said (p. 441) :
The petitioners are standing upon much firmer ground when they insist that this paragraph in the order is needlessly severe in its sweeping require ment that the words “Smithsonian Institution" must be eliminated from the corporate name of petitioner Smithsonian Institution Series, Inc.
There may well be some alternative remedy less drastic but adequately effective which might satisfy the requirements of fairness and should be adopted. On this record, however, we cannot be sure that the Commission has abused its discretion in this respect, and only in that event should we
interfere with its action. Circuit Judge Swan wrote a concurring opinion in which he said:
In my opinion paragraph (5) of the Commission's order, which forbids the use of the words “Smithsonian Institution” in respondent's trade or corporate name, is unnecessarily drastic. Until recently this court would have regarded itself as competent to modify an order which imposed a restraint broader than the necessitities of the case required, as was done in Federal Trade Com. v. Royal Milling Co. (288 U. S. 212, 218, 53 S. Ct. 335, 77 L. ed. 706) and Bear Mill Mfg. Co. v. Federal Trade Com. (2 Cir. 98 F. (20) 67, 69). But in Herzfeld v. Federal Trade Commission (140 F. (20) 207) we held that later decisions of the Supreme Court had in effect overruled the doctrine of the Royal Milling case, and that the court is now forbidden to disturb that measure of relief which the Commission thinks necessary to protect against unfair methods of competition. Only because I feel constrained to follow the Herzfeld decision regardless of my personal views, am
I willing to concur in affirming paragraph (5) of the order. From our own experience the need for the Reece bill is obvious. We do not think it consistent with our American system of law for an appellate court to be placed in the position of saying, as Judge Swan did, “Until recently this court would have regarded itself as competent to modify an order which imposed a restraint broader than the necessities of the case required."
To speak of court review is hollow indeed if upon such review the court says in effect that the order is too broad but it is not competent to modify it. The reason for providing machinery for an appeal to the courts is so that the courts can exercise some restraint over the administrative agencies. To do otherwise is to sanction administrative absolutism in its worst form.