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The examiner in the book paper case was therefore hard put to it to find any evidence to support the Commission's charges that the respondents had agreed in this regard. But, as usual, he combed the record, and at last his patience was rewarded.

It was revealed that one witness had testified, in response to the usual leading questions, that after the NRA had been abolished, the industry's trade customs had continued to be observed "by common consent." Those three words are quoted, for they were used by the witness himself. Now, every custom the world has ever seen, in industry or elsewhere, has, from the beginning of time, been observed by "common consent.” Without that, there could be no custom at all. None could even have genesis without it. What the witness was trying to say, of course, was that the old customs, as they had always been known and recognized as a matter of course, continued to be observed after the demise of the NRA simply as a matter of habit or common assumption. And he so testifient to his meaning when interrogated on cross-examination. Moreover, as against the testimony of this one man, at least 20 others stated, under oath, that the trade customs were exactly what they purported to be customs which had grown up with the industry from its earliest days, taken for granted by everyone and by implication made a part of every transaction unless specifically excepted in given cases. They further swore that nobody was or ever had been bound by them by any agreement or understanding or was compelled to adhere to them in any way. Every witness so testifying was a man of education and integrity, no contradiction was attempted, and there was no suggestion that they were not telling the truth. But nevertheless, in spite of the fact that the testimony, including that of the witness who used the term “common consent," was 100 percent against him, the examiner found and reported as a fact that the trade custom had boen carried forward and observed by agreement after the protection of NRA had been removed. What court of equity of your acquaintance or mine would have made that finding on such a record? Let me illustrate further.

In a recent proceeding against the tag industry and its members, still pending before the Commission, an issue was raised with respect to the effect upon prices and competition of an open price reporting plan used by the respondents. In that case the evidence showed that every price involved in every transaction was publicly reported after the transaction had been fully closed. The plan operated on the principle employed by the stock and commodity exchanges throughout the country. Counsel for the Commission called two witnesses, identified as economists in the employ of the Commission, who claimed and were accorded the privilege of testifying as “experts." These gentlemen testified, in effect, that a price list, subject to change without notice, filed with the understanding that the seller could and would deviate from it whenever he felt like it, but that subject to such deviations, it would remain in effect until such time as he saw fit to change it, would have a tendency to stabilize future prices. Nothing in their testimony related to any system shown to have been employed by the respondents, and their cross-examination revealed that neither of them had made any study of the facts of the case nor had any knowledge at all of the tag industry or its operation. Opposed to them was the testimony of a nationally known economist, retained by the respondents, skilled in this field and who had made an exhaustive study of the tag industry and the manner in which it was and had been conducted. Commenting on the price-reporting system used by the respondents, he gave it as his considered opinion that it would improve the open, competitive character of the industry. There can be no question about the relative weight of testimony, yet the examiner in finding against the respondents, relied heavily on the Commission witnesses while utterly ignoring all testimony of respondents' witness to the contrary. In a court of equity, it is inconceivable that the Commission's witnesses would have been permitted to give any opinion evidence at all since it would have been utterly impossible for them to qualify.

These are merely two illustrations which in my own experience could be multiplied many times. But they show the trend of thought of the examiners and the bias to which respondents in these proceedings are constantly exposed. Of course, the examiner's report is merely advisory and is in no way binding upon the Commission, but who will pretend that the Commission which neither hears the witnesses nor observes their demeanor is not guided almost entirely by what the examiner says? True, we may file exceptions to the examiner's report and argue them to the Commission, but it is idle to suppose that the Commission, with its enormous burden of work, can devote the time required to examine in detail all of these exceptions which, because of the laxity in the matter of evidence, must always be very numerous in any important case. Furthermore, to reject the report of the examiner is to disavow the work and conclusions of their own trusted agent, which they naturally would be anxious to avoid if possible.

The real vice of the situation represents a combination of two elements. The first is that the Commission acts as prosecutor, judge, and jury. Being one and the same, and being no more than human, the jury is anxious to give a verdict for the prosecutor and the judge wants so to instruct the jury as to permit them to convict. The second element is that, as the law is now written, the prosecution need not prove its case beyond a reasonable doubt nor even by a preponderance of the evidence. All it needs is "evidence” and conviction is assured beyond even the power of the courts to undo.

That the respondents must suffer under such procedure is self-evident. To say to a man that he must forthwith cease and desist from a practice which may be a principle factor in his business, and its success is a serious matter. He should not be so compelled unless it shall be established that he has in some way violated the law of the land or that he threatens to do so. It matters little to the victim that a court of equity would refuse to enjoin him from doing what he does if the Federal Trade Commission can order him to abandon a practice on the same evidence, or lack of it, which the court would reject as insufficient and where that evidence must be taken by the court on review to be conclusive if it exists at all. It does not seem unreasonable to observe that if the defendant is protected in court in a suit for an injunction, he should have the same protection as a respondent before the Commission which is judging its own proceeding in an effort to obtain exactly the same final result. That he who makes a charge must sustain the burden of proof has been a fundamental rule of justice in this country from the beginning, and it is impossible for me to understand why it should be flouted as it is by the so-called administrative tribunals.

Yet that is so. In case after case, the circuit courts of appeals and the Supreme Court of the United States have held consistently that it was the intent of the Congress to confer upon the Commission exclusively the power to weigh the evidence and find the facts. The courts have sustained the Commission wherever on the record there could be found any evidence beyond a mere suspicion or scintilla, regardless of the proof to the contrary. This they have sometimes done unwillingly, as witness Judge Swan's opinion in the case of Federal Trade Commission v. Indiana Co. (26 F. (20) 340, 341), in which he says:

I reluctantly concur in the result, because the Commission has made findings of deception of the public, which there is some evidence to support, though in my opinion it is greatly outweighed by contrary evidence Interference with such commercial usage does not seem to me justifiable, but in view of the Commission's findings, the court is powerless. Had the case in which Judge Swan so wrote been on appeal from a decree of injunction of the district court, there would have been no question of the power of the circuit court to review the weight of the evidence. Yet merely because the Commission had made its findings, the court was helpless. I find it impossible to believe, notwithstanding the interpretation given by the courts, that it was really the intent of Congress to make possible oppression and injustice through a proceeding before the Commission which would not be tolerated in a suit in court. Possibly it was felt originally that since the Trade Commission had no means of enforcement of its decrees other than what amounted to a retrieve of the issues before a court and subject to court rules and procedures, there was little danger. But since the recent amendments to the Trade Commission Act, the decrees of the Commission become in practical fact final injunctions backed by all the power of the Federal courts including fines and contempt proceedings. To invoke the powers of fine and imprisonment for violation of an injunction based on evidence which would not conceivably have resulted in an injunction if produced before any other agency of the Government, seems to me clearly to be repugnant to our American concept of justice and fair play.

What are the objections to this proposed amendment? Is it a reflection upon the Commission? I think not. Certainly if the district courts are subject to effective review of their findings and decisions, the Commission should claim no exempt status. Would it interfere with administrative process? I do not understand how it could. On the contrary, I would think that the necessity of proving a case by a fair preponderance of evidence would tend to discourage the present custom of cumbering the record with a mass of totally incompetent



and irrelevant “evidence” in the hope that by culling out selected portions here and there, both disconnected and out of context, some sort of straw-man case might be made. Furthermore, it is quite probable that the time of the Commission and its staff would not be wasted in instituting baseless proceedings which would have no reasonable prospect of success. Would it result in the escape of any guilty parties? Not unless we are now prepared to say that guilt need not be established by a fair preponderance of evidence, which I hope we are not. In short, I can conceive of no reasonable objection to this proposal which can be urged.

In my opinion this question of power of effective review of decisions of administrative bureaus is paramount. In addition to a refusal to review the weight of evidence, the courts have consistently declined to interfere with the remedial action prescribed by the Commission. An injunction may be modified and frequently is when its terms are too harsh. An order of the Commission is seldom altered in any way, although the courts have indicated many times that they felt the penalty imposed was too severe. This being so, it seems all the more to be desired that administrative decisions such as these should be subject to the same restraints as are imposed upon the judiciary. Since this is, at least in part, the object of this bill, I respectfully urge its enactment.



House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: I am in receipt of a communication from a large paper manufacturer in the district that I represent. He has a deep interest in the passage of H. R. 2390, and I am anxious to record myself as in favor of this


It is my feeling that this proposed amendment of the Federal Trade Commission Act is wholly in the public interest and would go far in removing present injustices. As you know, it permits the appellate court to determine the weight of evidence and thereby review the Commission's findings.

I would appreciate your communicating this thought to the members of your committee. Sincerely yours,

JAMES M. CURLEY. Mr. RABIN. I understand that the witnesses who were called and were not present will appear at a later date. The committee will adjourn subject to the call of the Chair.

(Whereupon, at 11:45 a. m., the committee adjourned, subject to call.)




Washington, D. C. The subcommittee reconvened at 10 a. m., Hon. George G. Sadowski, chairman of the subcommittee, presiding.

Mr. SADOWSKI. The subcommittee will come to order. We will proceed with the hearings on H. R. 2390. I believe the first witness for the morning is Mr. William Kelley, chief counsel of the Federal Trade Commission.

Before we proceed, I think that we ought to state that we will be unable to hold hearings this afternoon because we have this housing bill up for consideration under the 5-minute rule, and every one of us will be interested in being on the floor. Now, if there is anybody here who is from out of town and it will be inconvenient for them to come tomorrow, we would like to hear them this morning. Are any of the witnesses from out of town? If not, we will proceed according to the schedule that I have here.

State your name and position, please.



Mr. KELLEY. My name is William T. Kelley, chief counsel to the Federal Trade Commission. I have been chief counsel since 1934, and I have been with the Commission since it was organized in 1915.

This statement is addressed only to that portion of H. R. 2390 which provides that the findings of the Federal Trade Commission as to the facts shall be conclusive "if supported by the preponderance of the evidence." I shall divide my statement into two parts, as follows: First, what is the present state of the law regarding the status of the Commission's findings of fact in the appellate courts? And secondly, how has the present law on that subject operated in the light of a retrospective survey of the actual cases arising under it?

The present statutory provision is that the findings of the Commission as to the facts shall be conclusive “if supported by evidence." Prior to the Wheeler-Lea amendment of 1938 the only difference was that the word "testimony” was used instead of the word "evidence" and that had been the law since passage of the act in 1914. A number of statutes enacted prior to the Wheeler-Lea amendment employed language similar to the present provision of the Federal Trade Commission Act. The National Labor Relations Act and the Securities Act of 1933 incorporated the language of the original Federal Trade Commission Act except that they substituted the word "evidence" for "testimony." The Federal Power Act and the Securities Exchange Act of 1934 refer to "substantial evidence.”

All of these statutes have been construed as embodying the substantial evidence rule. The statutory language that "the findings of the Commission as to the facts, if supported by evidence, shall be conclusive" has been uniformly construed by the courts to refer to substantial evidence. This means substantial evidence in support of every essential fact.

The Supreme Court has declared that "substantial evidence is more than a mere scintilla” (1.C.C.v. Jersey City, 322 U. S. 503; Rochester Telephone Co. v. U.S., 307 U. S. 125; Consolidated Edison Co. v N. L. R. B., 305 U. S. 197). It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. The rule of law that administrative findings are conclusive, if supported by substantial evidence, does not, so the Supreme Court has held, "go so far as to justify orders without a basis in evidence having rational probative force” (ibid. 230).

The question whether the evidence relied on is substantial is a question of law for the courts to determine and in reaching their conclusion they are at liberty to and do examine the whole record. The rule of law applicable to the court 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 conclusion 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 closely approximates the rule developed out of their own experience by appellate courts in reviewing jury verdicts. It is the right of a jury to determine issues of fact. A well-established 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. U. S., 319 U. S. 372; N. L. R. B. v. Columbian Enameling Co., 306 U. S. 292).

Mr. REECE. Would it interfere, Judge, to ask you a few questions? Mr. KELLEY. Surely you may.

Mr. REECE. In the memorandum submitted to the committee in March of last year, the Commission said that the adoption of the pre

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