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are substantially different from those of the courts. The Federal Trade Commission Act declares unlawful unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce, and charges the Federal Trade Commission with the responsibility of preventing use of such methods, acts and practices. These offenses against the community's judgment as to decent and moral business operations are not peculiar to the jurisdiction of the Commission. Most were bad at common law. Defamation, disparagementincluding trade libel and slander of title—such interferences with business relations as passing off, misleading appearance of goods, misuse of trade secrets, false advertising, commercial bribery, and improper use of trade mark and trade name which the Commission deals with under this statute have traditionally and competently been handled by the courts. Business practices interdicted by the common law of restraint of trade and by the Sherman Act—which was enacted a quarter of a century before the Federal Trade Commission Act, are unfair trade practices under the Federal Trade Commission Act (Federal Trade Commission v. Pacific States Paper Trade Association, 273 U. S. 52 (1927)). If there are any practices forbidden by the Federal Trade Commission Act but not by other legislation or at common law, they are not more obscure or intricate, or more difficult to determine, and do not require more technical background to understand than, for example, practices forbidden by the Sherman Act.

Furthermore, the primary method used by the Commission to carry out its functions—and the only method with which the Reece bill is concerned—is through individual adjudication. The Commission charges alleged violators, holds hearings, and issues cease-and-desist orders, if it feels them to be warranted by the facts. Its orders are like decrees of courts of equity in scope and become final and binding in 60 days unless a petition for review in the circuit court of appeals is filed. Violations of the Commission's orders are subject to substantial penalty.

It may be that in some types of administrative determination administrative expertness warrants a greater degree of finality than judicial experience and background. This would seem to be particularly true where an administrative agency is drawing general rules for entire industries or areas. But the determination of questions of fact in specific situations is the type of problem with which courts deal daily. They can decide between conflicting views of experts on scientific questions as well as members of the Commission. Moreover, the Commission operates largely in a field where matters cannot be determined with mathematical precision or scientific exactness. Perhaps this is why the members of the Commission themselves are generally attorneys with training and background not dissimilar to that of members of the judiciary.

The Commission deals with a great number of difficult problems involving the practices of all of the innumerable trades, businesses, and industries which exist in the United States today. It is inevitable that, under such circumstances, even the most capable and well-meaning men will occasionally commit error. The function of judicial review is to reduce the possibility of such error without crippling the administrative process. When the Commission tries a case under the Federal Trade Commission Act, it is exercising no less a judicial function than does a Federal district court when, for example, it tries a case under the Sherman Act involving perhaps the exact same conduct. To say that the one is "judicial” and that the other is “pasi judicial” is to engage in idle semantics. It is only the fact of human fallibility and the possibility of error which require that there be adequate review of the proceedings of either a trial court or of an administrative tribunal. To warrant less appellate discretion in reviewing the findings of the Federal Trade Commission than in reviewing those of a trial court whch handles comparable, similar and frequently the same subject matter as the Commission, it must be assumed that the Commission is more infallible and more impartial in the exercise of its functions than a trial court. This assumption is obviously untenable. In fact, there are a number of considerations indicating that the Commission should be subject to broader appellate review than the courts.

COMBINATION OF POWERS The Federal Trade Commission fills the functions of investigator, grand jury, prosecutor, jury, and judge. Formal proceedings before the Commission are instituted either as a result of a complaint from an outsider, very likely a competitor and in any case no friend of a proposed respondent, or upon the Commission's own motion. Upon the basis of a preliminary investigation by the Commission's staff, the Commission determines whether to issue a complaint, presumably giving substantial weight to its staff's recommendations. Obviously no one outside the Commission can know just what tests are applied in determining whether a complaint should be issued. The statute requires, however, that the Commission have reason to believe there is a violation, and it is plain that the Commission authorizes complaints only in cases where it is reasonably satisfied of a violation. The Commission's Annual Report for the fiscal year ending June 30, 1945, showed a total of 5,429 complaints since the inception of the Commission, of which 444 were undisposed at the end of the year; 196 cases had been closed for such reasons as death of the parties, retirement from business, or discontinuance of the practices in question. Twelve complaints had been rescinded and 31 had been disposed of by acceptance of trade practice rules. Of the remaining 4,746 complaints 3,808 were disposed of by an order to cease and desist or by a stipulation and only 938 were dismissed. In other words, once a complaint has been issued by the Commission a respondent has less than 1 chance in 5 of successfully defending itself.

Now, this is as it should be. The Commission should not put a businessman to the trouble and expense of defending a formal proceeding unless it has substantial grounds for believing that there has been a violation of law. If the Commission dismissed a great percentage of its own complaints, it would be subject to legitimate criticism. It must be recognized, however, that where the body which determines that a complaint shall issue decides whether that complaint is justified doubts inevitably arise. It is difficult to see how one who has recommended the commencement of a lawsuit can decide that lawsuit uninfluenced by his original recommendation.

Furthermore, each formal proceeding conducted by the Commission represents a substantial investment of the time and energies of the Commission's staff and of the funds appropriated for its use. Thus, there is necessarily psychological presure upon the Commission to show some tangible result in the form of an order or stipulation rather than a record of failure in terms of a dismissal.

Against a background like this, the Commission's announced adherence to the rule that it has the burden of proof in a proce before it provides little practical protection to alleged violators. This is not meant, of course, to detract from the Commission's integrity or fairness. The Commission was established to prevent breaches of its statute. Presumably, it has what James M. Landis, dean of Harvard Law School, at one time a member of the Commission and later Chairman of the Securities and Exchange Commission, has described as “a proper bias toward the [administrative] point of view.” Landis, The Administrative Process, page 104. Perhaps, from its very nature, it must have that bias. Perhaps it should have that bias. But, if this be the case, it is accordingly necessary and desirable that there be an external means of assuring that no person is injured by it. So long as the Commission's decisions are not subject to a more adequate review in the courts, it will be questionable whether persons appearing before the Commission can ever obtain the full hearing to which they are entitled. A prosecutor's office is subject to the check of ultimate decision by a court; a trial court to the check of real review by an appellate court. Where the prosecuting and judicial functions are combined in one body, the need for adequate review is enormously increased.


Under the Federal Trade Commission's procedure the actual hearings in disputed cases are before trial examiners-ordinarily subordinate employees of the Commission-who take and determine the admissibility of the evidence. Since the Commission does not see the witnesses, it does not have any more opportunity to judge their credibility than does an appellate court. Thus, it is difficult to see why the particular regard which is given to a trial court's determination in matters of credibility should apply in the case of the Commission.

Although the Federal Trade Commission Act is silent regarding the application of the usual rules of evidence, the Commission is not "restricted to the taking of legally competent and relevant testimony." John Bene & Sons, Inc., v. Federal Trade Commission (299 Fed. 468, 471 (C. C. A. 2d 1924)); cited with approval in Opp Cotton Mills, Inc., v. Administrator (312 U. S. 126, 155 (1941)); Stanley Laboratories, Inc., v. Federal Trude Commission (138 F. (2) 388 (C. C. A. 9th 1943)), in accord. Since the normal rules of evidence, employed by courts to protect the rights of the accused, do not apply to proceedings before the Federal Trade Commission, it would seem that less weight should be given to findings based upon the evidence introduced in such proceedings than the evidence introduced in court.

A recent trend in the cases has crystallized the problem of inadequate judicial review. In the past, the inability of the courts to correct clear error in the Commission's findings of fact was to some extent alleviated by the discretion which the courts exercised in modifying orders by the Commission to cease and desist which they deemed to be unjustified by the facts. This discretion, however, has only lately been circumscribed within limits at least as narrow as, and perhaps even narrower than, those circumscribing judicial review of the findings of fact.

The Circuit Court of Appeals for the Third Circuit was presented with this problem in Jacob Siegel Co. v. Federal Trade Commission (150 F. (20) 751 (C. C. A. 3d 1944)), where there was a real conflict in the testimony. The court said:

“Although we sustain the Commission on its finding as to the name because of substantial evidence supporting that finding, we think strongly that the order is far too harsh. It destroys a widely and favorably known trade name, in existence for 14 years. It causes serious in ry to the petitioner and its retail outlets. The infraction, as the case now stands, is slight and could be cured by simple qualifying language. We could dispose of the problem by modifying the Commission's order as suggested, if the practice as outlined in Federal Trade Commission v. Royal Milling Co. (288 U. S. 212, 53 S. Ct. 335, 77 L. Ed. 706) and Federal Trade Commission v. Hires Turner Glass Co., supra, a third circuit case, was still the law. While the Supreme Court has not dealt with the question of remedy in a Fair Trade Commission suit since the Royal Milling case, there have been a number of opinions from that court concerning remedies prescribed by the Labor Board. In those cases the court has forcibly pointed out that the matter of remedy is also for the administrative agency" (p. 755).

After reviewing the authorities, the court concluded:

“It is evident, therefore, that the discretion as to the remedy in such controversy as this has now been vested in the Federal Trade Commission. That discretion has been exercised to totally prohibit the use of the name 'Alpacuna' to the petitioner. Since the Commission has such power, we are unable, in view of the evidence, to say that the power has been abused in this instance, though under the same facts and circumstances if we were still in control of the remedy, we would modify the order as above indicated” (p. 756).

That the third circuit's understanding of its discretion in this matter under the existing law and Supreme Court decisions is adequate appears clear from other Federal Trade Commission cases (Hertzfeld v. Federal Trade Commission, 140 F. (20) 207 (C. C. A. 2d 1944); Charles of the Ritz Distributors Corporation v. Federal Trade Commission, 153 F. (2d) 676 (C. C. A. 2d 1944) and Parke, Austin and Lipscomb, Inc., V. Federal Trade Commission, 142 F. (20) 437 (C. C. A. 2d 1944).)


It is submitted that the existing scope of judicial review over findings of fact and orders of the Federal Trade Commission is inadequate and that H. R. 2390 will correct this inadequacy. Respectfully submitted.


ERNEST W. JENNES. Mr. SADOWSKI. All right. We will hear Mr. Montague next.



Mr. MONTAGUE. I shall take at least 45 minutes, and I would much sooner come back next week, sir. I can come back to meet your convenience.

It was merely that I was asked by Judge Sumners and Congressman Kefauver to appear this morning before the House Judiciary Committee on a bill.

I explained my mission to Judge Davis—told him that because of this I hoped he would make my explanations to the committee.

I have just left there. Because of that, I would very much sooner start in some morning when you are going to resume because I shall have quite a bit to tell. I cannot finish this morning, anyway.

Mr. SADOWSKI. We expect to l'esume next Monday when we adjourn today.

Mr. MONTAGUE. I will be very glad to be here at 10 o'clock and go on Monday if that suits your convenience.

Mr. WHITELEY. I am prepared to go ahead if you want another witness.

Mr. MONTAGUE. I emphasize my apologies. Judge Sumners spoke to me yesterday afternoon. I explained my predicament. I then got in contact with Judge Davis. Then Congressman Kefauver spoke to me. They kept me until about 20 minutes ago.

Mr. SADOWSKI. We will go ahead now and hear Mr. Whiteley. Mr. Davis. May I inquire whether you are going to continue this afternoon?

Mr. SADOWSKI. We will not be able to continue this afternoon. We will continue until we get a call from the House, which may come within the next half hour.

Mr. Davis. We just want to see how to arrange our plans, our witnesses.

Do you contemplate adjourning today until next Monday? Mr. SADOWSKI. That is right, Judge. We still have that housing bill. Mr. Davis. That is perfectly all right. We have no objection at all, but I just wanted to learn definitely about it.

Mr. SADOWSKI. We will go ahead on Monday morning.



Mr. Sadowski. Give your name and your position. Mr. WHITELEY. I am Richard P. Whiteley, assistant chief counsel of the Federal Trade Commission. I have not been with the Commission since its inception like my predecessors, Mr. Kelley and Mr. Wooden. I am a comparative newcomer. I have been only with it the last 22 years.

During the last 12 years, I have been assistant chief counsel in charge of that part of the trial work before the Commission, with the exception of that which Mr. Wooden stated he was in charge of.

And so I have had under my immediate direction the cases growing out of the Wheeler-Lea amendment—that is, those amendments have ing to do with food, drugs, devices, cosmetics.

I am not going into the question of labeling, Mr. Congressman. I am going to confine myself primarily to a discussion of the section dealing with civil penalties and then making answers to some of the statements made.

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Mr. O'HARA. No reference to the Food and Drug Act?
Mr. WHITELEY. I will not go into that.

Mr. SADOWSKI. The bell is being rung for the call to the House and we will have to answer the call.

I think Mr. Reece will want to ask some questions along this line.
Mr. WHITELEY. I will return any time the committee desires.
Mr. SADOWSKI. It would be better to come back Monday morning.
We will recess to next Monday morning at 10 o'clock.

(Thereupon, at 12 noon, Thursday, February 28, 1946, the committee recessed until Monday, March 4, 1946, at 10 a. m.)

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