Mr. Taggart, the point which you make principally with reference to H. R. 3871 is that you prefer as an individual representing your clients to go into court rather than to go before the Commission where the Commission acts as prosecutor and judge and also sometimes the executioner?

Mr. TAGGART. That is a correct statement. And, I believe that the clients would prefer it that way, to. I am sure that they would.

Mr. O'HARA. Well, you have brought up the fact of the Food and Drug Act, which I think goes back to 1907. They have had to go into court and prosecute their cases which are very similar with reference to food and drugs that the Federal Trade Commission exercises over trade-marks, and the business interests of the country; is that not true?

Mr. TAGGART. That is true, sir.

Mr. O'HARA. And that procedure has been eminently successful under the Food and Drug Act, that form of proceeding, because when the individual is brought into court he knows that he has a fight on his hands. Is that true?

Mr. TAGGART. That is true; and he knows that if his position is correct and that the Food and Drug is wrong, that he can win. Allowing for the variance in human beliefs, if a man honestly believes that he can win in a matter that is up before the Federal Trade Commission, you can give no assurance whatsoever that he will win.

Mr. O'HARA. You made the statement in your original statement to the effect that you customarily advise your clients when they come in where a prosecution has been brought before the Federal Trade Commission that they cannot win. Why do you make that statement?

Mr. TAGGART. Because the Commission has in effect decided its case even before it brings the complaint and even before it files the complaint. In other words it does not file a complaint and then decide the respondent's action was wrong, but just the reverse.

Some people say-I think facetiously-I am sure facetiously-that the Federal Trade Commission writes its final order and then prepares its complaint. I am sure that is wrong, because the members of the Federal Trade Commission are lawyers and lawyers never do anything until they have to, so they could not possibly prepare their order until they have gotten down toward the end of the case. But, I think theoretically it could be done, because the Commission as I say is required by the statute to prejudge the case. It must. I have forgotten the language. I will read a part of section 5 (a) of the present statute, and I will skip unimportant parts.

The Commission is hereby empowered and directed to prevent persons, and so forth, from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.

The only way that the Commission can act is after it makes a determination that such an act comes within that statute.

Mr. HALE. One more question, Mr. Chairman. Suppose a client comes to me and says that the Federal Trade Commission complains that he is usurping a trade-mark of the X. Y. Co. and has filed a complaint against him. Is there any way that I can get my client to go directly into court in the ordinary way by an injunction proceeding or something of that sort so as to take it out of the Commission?

Mr. TAGGART. You cannot stop the Commission from acting. I suppose it would be possible there to file a complaint under the

Declaratory Judgment Act against the competitor himself, but that will not stop the Commission. The Commission will not stop unless it determines that it has made a mistake.

Mr. HALE. Then you might be in the position of having one case on infringement of a trade-mark before the Commission and the same case pending in the district court?

Mr. TAGGART. That is perfectly possible.

Mr. HALE. And, of course, if that is possible the decisions might each be different or contrary to the other.

Mr. TAGGART. That is right.

Mr. HALE. Then, of course, that could be appealed in the circuit court of appeals, I suppose?

Mr. TAGGART. Yes; it could, but I do not see how the circuit court of appeals would have power to set aside the action of the Federal Trade Commission if there is any evidence to support it, more than a scintilla. The circuit court of appeals might be in the very peculiar position of having to affirm both decisions. You see, it cannot modify or reverse the order of the Federal Trade Commission if there is any evidence to support it. On the other hand, it, like Judge Swan, might feel that the district court in making decision of this action was 100 percent right, then it would have to affirm both. What would the Supreme Court of the United States do? I think it would have to do the same thing too, and the Commission there would have more power than the Court itself.

Mr. O'HARA. Any further questions?

Mr. ROGERS. Mr. Chairman.

What is your method or rule or criteria for arriving at what is not deceptive and what is deceptive?

Mr. TAGGART. Mr. Rogers, I wish I could answer that question. The courts have been trying for two or three hundred years to find out what that is. I think it really is the consensus of the feeling of the public at large toward certain acts. Are these acts which shock judicial sensibilities; are these acts which shock the individual sensibilities?

Mr. ROGERS. Some judges might be shocked and others would not. Mr. TAGGART. That is right.

Mr. ROGERS. And there is no direct rule to arrive at what is unfair and what is deceptive?

Mr. TAGGART. There is a very considerable body of law, of decisional law that indicates that certain types of acts have been decided in a certain way for so long that you can practically advise a person that if he were to do this he would be violating the law; but there cannot be any hard and fast rule as to what is unfair.

Mr. ROGERS. Does a man not have the right to know what the Commission would consider unfair before it brings any action against him?

Mr. TAGGART. I think I must almost take the position of the Commission there, because to try and define what is unfair would unnecessarily restrict the very necessary functions of the Federal Trade Commission and if it is a court action any definition of unfairness would unnecessarily restrict a district judge or a circuit judge and I am afraid that a wording of that sort must be left open, because we have fashions in unfairness and our judicial and other sensibilities change and what is unfair at one time may not be at others and vice versa.

Mr. ROGERS. Would it be possible to write into this bill a definition of what is unfair or what is deceptive practice so that a man dealing with this would know exactly what he is doing?

Mr. TAGGART. Well, Dr. Derenberg is here today. He has written a book about 6 inches thick which tries to give some answers to your question. I think he will admit-and I say this with all deference to him-that he has not completely answered the question, and if one cannot do that in a book 6 inches thick, I do not think we could do it in a statute. Further, I think any attempted definition would be very damaging to the public at large. It would restrict the power of the Federal Trade Commission in a way which I am sure all members of the bar would feel opposed to it, and I think it would be detrimental to the country.

Mr. O'HARA. Are there any further questions?

Mr. Taggart, the committee is very grateful to you and we thank

you,

STATEMENT OF JOHN DWIGHT SULLIVAN, GENERAL COUNSEL OF THE ADVERTISING FEDERATION OF AMERICA, NEW YORK, N. Y.

Mr. O'HARA. The next witness will be Mr. John Dwight Sullivan of New York.

Mr. SULLIVAN. Mr. Chairman and gentlemen of the committee, my name is John Dwight Sullivan and I am representing the Advertising Federation of America, whose offices are 330 West Fortysecond Street, New York City.

Mr. O'HARA. Mr. Sullivan, we will be very happy to hear you.

Mr. SULLIVAN. May I first describe my client. It is composed of 75 advertising clubs located in cities from the Atlantic to the Pacific coast, 8 national advertising associations and 987 firms and individuals having an interest in advertising. This latter group includes 219 newspaper publishers, 43 magazine publishers, 108 business and farm paper publishers, 74 radio stations and networks and 298 advertising agencies. From the foregoing it will be seen that the members of the Advertising Federation of America comprise a fair cross section of those who deal professionally with the printed and spoken word throughout the United States.

For many years this organization has conducted its own campaign within the advertising field to promote "truth in advertising." It recognizes and appreciates the outstanding contribution which has been made to advertising by the Federal Trade Commission in preventing or eliminating false advertising and in preventing unfair methods of competition. The Federation would oppose the present bill if it believed that the bill would diminish the effectiveness of the Commission in accomplishing those purposes.

In our opinion, however, the bill would not so affect the Federal Trade Commission; it would, on the other hand, correct a procedure and practice which call for remedy.

The crux of the present situation was stated by the Circuit Court of Appeals for the Second Circuit in the case of John Bone v. Federal Trade Commission (299 Fed 468, 471) as follows: Reference was made to this in a statement by the preceding witness, Mr. Taggart.

May I quote from the decision, [reading]:

The Trade Commission * * * is called upon simultaneously to enact the roles of complainant, jury, judge, and counsel.

Under the present act, when the Commission believes that the act is being violated, it issues a complaint against the alleged offender, who must come in and defend; but all the proceedings from beginning to conclusion are controlled by the Commission and its staff, to and including the issuance of a cease and desist order. The act specifically provides that

the findings of the Commission as to the facts, if supported by evidence [italics mine] shall be conclusive

in the event that the respondent appeals to the Circuit Court of Appeals for a review.

I might read the precise language from subsection (c) of section 5 of the act, which concludes with these words:

The findings of the Commission as to facts if supported by evidence shall be conclusive.

In actual practice, when the Commission believes that a person or company is operating in violation of the act and issues its complaint, its own staff prepares the case by obtaining witnesses, subpenaing documents and other evidence. Its own attorney thereupon presents the case before the trial examiner, who is also an employee of the Commission-Mr. Taggart referred to that fact. The trial examiner presides at all the hearings. After the hearings close he files an advisory report with the Commission. The members of the Commission do not see the witnesses nor attend the hearings; they have no means of exercising a judgment as to the creditability of the witnesses as does a court or jury, by hearing them and seeing them.

After the report is filed the respondent may file a brief with the Commission within 20 days after receipt of the trial examiner's report. The Commission's attorney also files a brief in support of the complaint. The Commission may also permit the respondent and its own counsel oral argument after the briefs are in, whereupon the case is then referred to one or more Commissioners for study. The Commissioner may personally study the record, as does a court or jury, or refer it to his legal assistant, and the Commission usually follows the single member's recommendation in deciding the case.

The circuit courts and the United States Supreme Court have held generally that they are bound by the Commission's judgment as to the quality and sufficiency of the evidence. The appellate courts have said that the Commission has authority to base its findings on biased testimony, hearsay or prejudicial evidence.

And in the extreme case, in Segal v. Federal Trade Commission (142 Fed. 2d, 255), the court observed that a part of the testimony was obviously biased and added here in the decision:

Even so, if the Commission wished to rely on such testimony, we may not intervene, whatever might be our indisposition to accept what he said.

And I refer here in my memorandum to the case of Harriett Hubbard Ayer, Inc. v. Federal Trade Commission (15 Fed. 2d, 274), in which it was held that the Commission's findings could not be disturbed if supported by any evidence.

In Arkansas Wholesale Grocers' Association v. Federal Trade Commission (18 Fed. 2d, 866), it was held that assignments of error on the ground of incompetent testimony could not be entertained and I quote again from the decision

provided there is any substantial testimony to support the findings.

In practical effect the only way in which a respondent can win his case is to be prepared effectively to break every Commission witness on cross-examination. If the case is decided against the respondent and upon any evidence whatever, the right of appeal as provided for in the present subdivision (c) of section 5 of the act and as interpreted under the decisions, becomes an empty one.

We believe that the need for the correction of this situation is apparent, both because of the procedure now followed and because of the restrictions placed upon the circuit court in reviewing a case on appeal. The bill would simply give to the respondent his day in court in which the proceeding can be tried under the rules of civil procedure obtaining in that court; and if the respondent felt himself aggrieved by the decision, he would have an effective right of appeal.

Most Federal Trade Commission cases involving misbranding, false advertising, deceptive trade-marks, disparagement of competitors, are of the same type as those which district courts are constantly trying. The Federal Trade Commission never hears conflicting claims of two private parties. Instead it always acts as plaintiff as well as judge in its own case, although the vast majority of its cases probably arise from complaints made by third parties. There is no way of proving that conclusively, of course, but that seems to be the accepted judgment, at least, that they do not just arise alone out of the inquiry of the Commission or its staff.

Even the functions of the National Labor Relations Board are not analagous to those of the Commission. When the National Labor Relations Board sits as a court, which is now its only function, it weights the claims of two private parties.

Under the Taft-Hartley Act, the National Labor Relations Board as a judicial body is entirely separate from the office of general counsel, who is the chief administrative officer. The general counsel is nominated by the President and confirmed by the Senate. He is not selected by the Board. Undoubtedly, the Congress in making this change had in mind the segregation of the functions of prosecutor and court, so that they are not performed by the same agency.

The provisions of H. R. 3871 would restore the balance and the safeguards which are as old as our law; it would simply prevent the complainant from being prosecutor and judge in his own case. It would not, however, destroy or minimize the effectiveness of the Federal Trade Commission as investigator and prosecutor.

We believe that the purpose and the provisions of H. R. 3871 are sound and that the bill should become law.

All of which is respect fully submitted, Mr. Chairman and gentlemen. Mr. O'HARA. Any questions, gentlemen?

Mr. LEA. Mr. Chairman.

Mr. O'HARA. Mr. Lea.

Mr. LEA. I understand from your quotation that the present law provides that the judgment shall be affirmed if the findings are supported by the evidence.