order has become final, violations are subject to a civil penalty of "not more than $5,000" for "each violation." Such penalties may be recovered by the United States in a civil action.

There is nothing in the act to indicate what is meant by "each violation," and apparently no attempt has been made in the few cases that have arisen to date, under the act as amended, to define the term “violation”—very possibly because both sides preferred not to raise the point. If, as has been suggested, every single publication of an advertisement could constitute a separate violation, the aggregate penalty for violation of a cease-and-desist order of the Commission might run into fantastically high figures. In the case of many commodities, the penalty might likewise be astronomical if each single sale were considered a separate violation.

Such penalties would have no relation whatever to any monetary damage to the public, to competitors, or to the Government. For example, merchandise sold pursuant to an advertisement which violates an order of the Commission may be as good as the customer supposed he was buying, or better; nevertheless there may be a violation of the Commission's order and a substantial penalty therefor. For instance, in Federal Trade Commission v. Royal Milling Co., et al. (288 U. S. 212), respondents who were not grinders of wheat were ordered to cease and desist from using such names as "Royal Milling Company" unless such names were accompanied by an explicit representation that the respondent was not a grinder of the grain from which the flour prepared and put out was made. The court stated (p. 216):

* * * If consumers or dealers prefer to purchase a given article because it was made by a particular manufacturer or class of manufacturers, they have a right to do so, and this right cannot be satisfied by imposing upon them an exactly similar article, or one equally as good, but having a different origin. Here the findings of the Commission, supported by evidence, amply disclose that a large number of buyers, comprising consumers and dealers, believe that the price or quality or both are affected to their advantage by the fact that the article is prepared by the original grinder of the grain. The result of respondents' acts is that such purchasers are deceived into purchasing an article which they do not wish or intend to buy, and which they might or might not buy if correctly informed as to its origin.'

The courts have held that the purpose of the Federal Trade Commission Act is protection of the public, no punishment of a wrongdoer (Federal Trade Commission v. Klesner, 280 U. S. 19, 27; Royal Banking Powder Co. v. Federal Trade Commission, 281 Fed. 744, 752). It is submitted that the public interest can best be protected by the provision of penalties large enough to be an effective deterrent, but not so large as to be confiscatory or a possible instrument of oppression. The proposed amendment provides a penalty of $1,000 for "each violation, not to exceed the sum of $10,000 in the aggregate." Such a penalty provision should be adequate for the purpose of the act.

THE PROPOSED AMENDMENTS TO ELIMINATE DUAL PROCEEDINGS UNDER THE FEDERAL TRADE COMMISSION ACT AND THE FEDERAL FOOD, DRUG AND COSMETIC ACT These amendments will, to some extent, eliminate a situation which has arisen in at least two reported cases. In these cases not only was there a duplication · of proceedings against the same company, upon the same state of facts, but the Government attempted to find against the company in the second proceeding, after a finding favorable to the company in the first.

In George H. Lee Co. v. Federal Trade Commission, (113 F. (2d) 583), the Government had brought an earlier proceeding against the petitioner claiming that its product was misbranded, by reason of statements on labels and circulars, in violation of the Food and Drug Act. In that proceeding, the court had resolved the issues in favor of the petitioner after a trial, and dismissed the proceeding. Thereafter the Federal Trade Commission issued a complaint charging the petitioner with the use of unfair methods of competition under the Federal Trade Commission Act, and the Commission found that the same representations (on labels, pamphlets, and other advertising matter) upon which the earlier libel proceeding had been based were false and misleading. Although the circuit court, on petition for review of the Commission's order, vacated the order because, as it found, the issue had already been settled in petitioner's favor by a court of competent jurisdiction, the petitioner had been put to the trouble and expense of the Federal Trade Commission proceeding and the court review, after a favorable determination on the same issues under the Food and Drug Act. The following excerpt from the court's opinion is of interest (p. 585):

*

* * It is apparent, however, that the Government-having failed, in the libel proceeding, to secure a determination that the 'Gizzard Capsules' were misbranded and that the representations made by the petitioner on labels and circulars were false * * -then initiated this proceeding through the Federal Trade Commission to secure a determination that the same or substantially the same depresentations which were asserted to be false and fraudulent in the libel proceeding were in truth and fact false and misleading and therefore constituted an unfair method of competition in commerce within the meaning of the Federal Trade Commission Act. Although the remedies sought by the Government in the two proceedings were different-condemnation in the first, and a cease-anddesist order in the second-it is obvious that the alleged falsity of the representations of the petitioner with respect to the therapeutic value and effectiveness of its product constituted the main basis for each of the proceedings; that in the libel proceeding the court determined that the representations that the product was a remedy for tapeworms and pinworms as well as large roundworms were not false, while the Commission later determined that the representations with respect to pinworms and large tapeworms were false and misleading. It is equally obvious that the Commission completely disregarded the effect of the decree entered in the libel case on conducting its proceedings and in making its findings of fact, conclusions of law, and order."

In United States v. Willard Tablet Company (141 F. (2d) 141), the opposite situation arose. After the Federal Trade. Commission had determined that certain statements were not false, a libel proceeding was brought under the Food, Drug, and Cosmetic Act charging misbranding upon the basis of the identical statements. As the court said (p. 143):

"We, therefore, have the incongruous situation of one branch of the Government approving the method now pursued by the claimant and another branch seeking to condemn. This is, to say the least, placing claimant in an embarrassing situation and should be avoided if possible."

The circuit court sustained the order of dismissal of the district court, but again the respondent had been subject to unnecessary trouble and expense.

Had both governmental agencies found the representations in the above proceeding to be false, the imposition of different penalties for the same acts would have been unfair. As it was, with one agency attempting to enforce its remedy after the other had found the representations to be proper, the situation was indefensible.

The proposed amendment provides a necessary and proper demarcation of jurisdiction, at least as far as representations upon packages and accompanying circulars are concerned.

Respectfully submitted.

CHADBOURNE, WALLACE, PARKE & WHITESIDE.

NEW YORK, N. Y., January 24, 1946.

DRUG, CHEMICAL AND ALLIED TRADES SECTION,
NEW YORK BOARD OF TRADE, INC.,
New York 7, N. Y., March 20, 1945.

Re Reece bill (H. R. 2390) to amend F. T. C. Act
Hon. B. CARROLL REECE,

House of Representatives, Washington, D. C. DEAR SIR: We enlist your support in the passage of the bill referred to above, and for your information quote below a resolution which was unanimously adopted at the meeting of the executive committee of the drug, chemical and allied trades section of the New York Board of Trade, held March 15, 1945.

“Be it resolved, That the drug, chemical, and allied trades section of the New York Board of Trade urges the enactment of H. R. 2390, a bill to amend the act creating the Federal Trade Commission, to define its powers and duties, and for other purpose; and be it further

"Resolved, That copies of this resolution be sent to the Committee on Interstate and Foreign Commerce and to the New York Members of the House of Represntatives and of the Senate of the United States."

Very truly yours,

CARL M. ANDERSON, Chairman, Legislative Committee.

CHAMBER OF COMMERCE OF THE STATE OF NEW YORK

[NOTICE. This report was mailed to all members of the chamber 5 days before the meeting and copies were also placed in the hands of each member attending the meeting, when opportunity was given for discussion. The vote thereon therefore can fairly be said to represent the opinion of the entire membership. The meetings of the chamber are attended by three or four hundred members]

At the regular monthly meeting of the Chamber of Commerce of the State of New York, held December 6, 1945, the following resolutions and report, submitted by its committee on law reform, were unanimously adopted:

AMENDMENT TO THE FEDERAL TRADE COMMISSION ACT

To the Chamber of Commerce:

The committee on law reform offers the following resolutions:

Resolved, That the Chamber of Commerce of the State of New York urges enactment into law of the Reece bill, H. R. 2390, to amend the Federal Trade Commission Act, the purpose of which is to

(1) Afford effective judicial review of the Commission's cease-and-desist order;

(2) Put a ceiling on the aggregate amount of penalties which may be assessed for a single violation of these orders; and

(3) Avoid duplication of administration between the Commission and the Food and Drug Administration; and, be it further

Resolved, That copies of this report be sent to the President and the Members of Congress.

The chamber has gone on record on various occasions against the arbitrary procedure of Government agencies, bureaus, and commissions. Congress has given to some Government agencies, not only the power to make rules, but also to construe and enforce them. Accordingly, such agencies possess the legislative, executive, and judicial power, and these three powers are all possessed by one and the same personnel, not one of whom is elected by the people. Over and above all this the defendant is given little opportunity to appeal to the courts of law.

This bill would give appeals and a review of the Commission's orders "to cease and desist" from using a method of competition. A review can be had in the circuit court of appeals, and ultimately, if so desired, in the United States Supreme Court by certiorari proceedings.

False advertising, other than labeling, means an advertisement "which is misleading in a material respect." In determining this matter, consideration must be given to "not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations so as to prevent deception resulting from indirection and ambiguity, as well as from statements which are false."

The term "labeling" is defined to mean all labels and other written, printed, or graphic matter which may accompany the article.

A penalty of $1,000 for each violation, not to exceed the sum of $10,000 in the aggregate, is provided.

This measure will not apply to articles covered by the Federal Food, Drug and Cosmetic Act, approved June 25, 1938. Respectfully submitted.

Attest:

LAWRENCE B. ELLIMAN, Chairman,

WILLIAM S. KIES,

FLETCHER H. MONTGOMERY,

ARTHUR J. MORRIS,

ALFRED V. S. OLCOTT,

CLYDE S. STILWELL,

GEORGE E. WARREN,

Committee on Law Reform.

LEROY A. LINCOLN, President.

B. COLWELL DAVIS, Jr.,

Executive Secretary.

NEW YORK, December 6, 1945.

THE CREAM OF WHEAT CORP., Minneapolis 13, Minn., January 23, 1946.

BRIEF

As an introduction to my argument I will state that many years ago I was involved in a suit brought by the Federal Trade Commission, which, in my opinion, resulted in a serious miscarriage of justice which would not have occurred had the bill in question been a law at that time. The case resulted in no benefit to anyone, and no changes were effected in practice which had been in effect for some years. The only result was finding a guiltless firm guilty, and the expenditure of immense amounts of time and money. The FTC participants in that case were not vicious men. In my opinion they were merely prejudiced men with enthusiasm for convictions.

This is not the time and place to retry that case-I am simply mentioning it to show that what I am saying is not just theory, but is the judgment of one individual who has been through the mill.

The FTC has done many useful things. It has a valuable part in our system of government, but its powers are so absolute that it clearly has the power to commit the gravest sort of injustices. As you know, the FTC is an agency which combines all in one the duties and powers of investigator, prosecutor, judge, and jury. As a rule, the individual men who exercise these duties not only are acquainted with each other, but they travel together, stay at the same hotels at the same time, etc. Even when these men happen to be comparative strangers, they all work for, take instructions from, and get paid by the same organization. If this is not an ideal set-up to encourage abuse of power, history must be wrong. I have heard it said by the uninformed that as decisions resulting from this set-up are subject to review by the courts, the citizen has proper protection-that if he has been unjustly treated he can appeal. I have even heard this set-up compared with that of the Interstate Commerce Commission.

Taking the latter comparison first, there are great fundamental differences, particularly in regard to the ordinary citizen or business firm. As an employee of such a firm I have, over the years, had considerable contact with the ICC. All of such dealings have been in connection with rate matters involving differences between shippers and railroads. In these cases the ICC acted primarily as an impartial judicial body in settling conflicts between shippers and carriers. In such cases, which occupy so much of its time, the ICC is subject to conflicting urges, as well as acting as a judge between conflicting parties. On the one hand, it is interested in seeing that shippers get good value for their money, and on the other hand it is interested in seeing that carriers do not bankrupt themselves by dissipating their revenues.

Furthermore the ICC handles mostly matters that require specialized training in the very intricate and involved subject of transportation. On the other hand, the FTC cases generally involve matters which are exactly within the traditional scope of judicial judges.

As I see it, the FTC cases seem to be prosecution of persons by a governmental agency on its own initiative with very little of the substance of judicial action. Now getting back on the main track: It is true that one may have conclusions of law reviewed by the court, but the court's so called review of the facts is an admitted mockery. It has happened that in some trials the FTC has been able to prove only a sketchy sort of case, whereas the accused has been able to present a powerful and sound defense supported by all kinds of reputable evidence. Even in such cases the Commission has the power, if it so chooses, to decide the case against the overwhelming weight of evidence, provided it has been able to produce a connecting thread of evidence that will support its conclusion. In other words, if the Commission chooses to do so it could put a none too reputable witness on the stand who would testify to enough facts on which to build what might be called a substantial case, and it could then sit back, after hearing many reputable witnesses testify to the contrary, and proceed nevertheless to make its decision based upon the testimony of its own single witness.

For instance, in certain types of cases such as those brought by the FTC designed to break up basing point systems, the FTC had apparently made up its mind that it wanted to eliminate certain long-existing business practices, and then proceeded to present evidence to itself in a supposed judicial capacity. It seems quite evident to me that the Commission had already had its mind made up in advance so that it was practically all set to decide the case in the way

which it wished, and it was of course certain to get sufficient evidence in the record to permit the upholding of its views.

That is has this power is evident from the following cases (references supplied me by our attorney): Federal Trade Commission v. Pacific States Paper Trade Association (273 U. S. 52, 63); Federal Trade Commission v. Algoma Lumber Co. (291 U. S. 67, 73); Federal Trade Commission v. Standard Education Society (302 U. S. 112, 117); Herzfeld v. Federal Trade Commission (140 Fed. 2d 207); Segal v. Federal Trade Commission (142 Fed. 2d 255).

In the last case the court said (p. 255):

"Hence the outcome turns, as it so generally does, upon whether there was 'substantial' evidence to support the Commission's finding. It is true that a part of the testimony was obviously biased, coming as it did from a witness whose sole occupation appears to have been to suppress the importation of any foreign goods whatever. Even so, if the Commission wished to rely upon such testimony, we may not intervene, whatever might be our own indisposition to accept what he said."

In this connection it is very appropriate to quote in part an address made by United States Circuit Judge John D. Martin of Tennessee, delivered on October 18, 1945, and printed in the American Bar Association Journal of December 1945. Speaking as one of the Federal judiciary he said in part as follows:

"No more startling innovation has come about within the past decade than the widespread building up of administrative tribunals in derogation of the judicial power, which some of us have thought was firmly vested by the Constitution in the courts alone.

"So frequently have we been reminded of our inferiority in expertness to various administrative boards and agencies exercising more than quasi-judicial powers but still subject to our review upon petitions for enforcement of their orders, that some fortitude on the part of a circuit judge is necessary for avoidance of an inferiority complex. So steadily has our power of independent decision been curtailed by acts of Congress and interpretative opinions of the Supreme Court, that we sometimes wonder whether we are considered inferior courts in an actual as well as in the comparative sense of the word 'inferior' as used in the Constitution.

"Our practical function in the review of rulings of administrative boards has been reduced to reading records for possible discovery of that rare case wherein there is no evidence, however slight, from which the Board could reasonably have drawn inferences upon which a finding of fact was based. We have been repeatedly and emphatically warned that we dare not substitute our own inferences from fact for those of the Board; and in tax cases, the mystery remains unsolved as to what constitutes a plain mistake of law made by the 'better staffed' Tax Court, formerly the Board of Tax Appeals, whose decisions, upon petition, we must continue to review.

"To my thinking, it is not in the public interest that the seal of a United States circuit court of appeals should, by compulsion, become a rubber stamp for the approval of the all too often arbitrary action of an administrative agency. Unless, through acts of Congress, the people restore to the United States circuit courts of appeal a modicum of their former significance in the scheme of National Government, their present partial eclipse may soon become total. A fair appraisal of the record of these intermediate appellate tribunals would impel the conclusion that they deserve a higher degree of faith in their intelligence, efficiency, and expertness in the administration of justice than has been evinced in the gradual divestiture of their right to reason and to render judgment with appropriate independence.”

I think it is clear that we have a set-up where the FTC for any reason, such as prejudice, caprice, political pressure, or just plain mistake can with impunity convict almost anyone against whom any witness wishes to testify, without danger of being reversed by the courts. With its present personnel no one expects the Commission to use these powers to the "most-à la Petrillo, but they could if they wanted to, and the dangerous situation is right there for all who wish to see. Furthermore, there are persons who are convinced that the Commission has already badly abused its powers.

This bill, H. R. 2390, does not attempt to correct all the faults of the administrative procedure. It takes only one step in that direction, but it is a valuable and important step. In my opinion, it should be taken right now without waiting for the more extensive and far-reaching reforms incorporated in S. 7 (entitled "A bill to improve the administration of justice by prescribing fair administrative procedure").