introduced there, that maybe Mr. O'Hara's bill would not pass Mr. O'HARA. Has that practice been followed, do you know? Mr. O'HARA. I have heard the complaint that in one instance that was done, the attorney raised the question by formal motion, and it was overruled; and then followed quite a long series of hearings upon the question, and I do not know how it turned out, but I would assume that it would be rather difficult for the Commission to act as judge of its own capacities if they thought something should be investigated. Would that be true? Mr. DIGGES. Well, of course, there you get to the basic flaw in the entire administrative process, respecting quasijudicial agencies that are passing on specific statements of fact, regarding the specific rights of individuals. I think there is a distinction in theory to be made between rule-making bodies, where you have general rules laid down for the guidance of an entire segment of the public, and what is really an administrative method of trying cases on specific facts. I think that the flaw that we find in the theory is where there is the commingling of prosecutor and judge on specific facts, affecting specific individuals, where it is not a general rule applicable to everybody. Mr. O'HARA. Well, in these cases, the investigator is an employee of the Commission, is he not? Mr. DIGGES. Yes, sir. Mr. O'HARA. The examiner is an employee of the Commission? Mr. DIGGES. Yes, sir. I am not sure how that is going to work out under the Administrative Procedures Act, but I understand that they are. Mr. O'HARA. That is all that I have. Mr. Lea has some questions. Mr. LEA. Mr. Digges, this question of what is needed to support the administrative findings, has been a controversy over a long period of time. The leading example has been the Interstate Commerce Commission, which was the first great regulatory commission that was created. As we look at the situation, we cannot escape the necessity of having findings by administrative agencies, and we cannot eliminate that. Then it is a question of what burden of proof should be required to be shown by the record, to justify the acceptance of the findings by the appellate body. Congress has always steered away from the idea of making an appeal from an administrative body a trial de novo in the appellate court, and I think there is little probability that we can depart from that. So there is that question that worries us still, as to how we can write a law that would give the appellate courts as much jurisdiction as they should have, to prevent, decisions that are not properly supported by evidence. But is not the broad question there rather what questions should be submitted to administrative determinations? If they are submitted to administrative determinations, then we should have some rule to protect that body and not make it a trial de novo in the appellate court. Is not the real question as to what problems we want to submit to these administrative agencies and what problems the court should handle? Mr. DIGGES. What you are saying is very close to what I have in mind. First, let me say in respect to the Interstate Commerce Commission, while I have no particular competence in that field, I have always understood that the Interstate Commerce Commission acted as a rule-making body with respect to laying down rules, and that in other matters before the Interstate Commerce Commission it is not a party to the proceeding. Mr. LEA. It is a rule-making body, but that is true of all of these main regulatory agencies. They have rule-making authority, which is important, of course, and they proceed under the rules they themselves make. The Interstate Commerce Commission does that. Mr. DIGGES. I do not consider that the Federal Trade Commission, in its formal proceedings, is a rule-making body. It looks to me, and this would be my experience under it, it is acting as a court, to determine whether certain specific facts are true, and what is the significance of those facts once determined. Mr. LEA. That brings in the judicial judgment as to whether, under a given state of facts, there is a violation of the unfair practice prohibition. Mr. DIGGES. That is correct. Mr. LEA. So it is pretty hard to separate that judicial or semijudicial function from purely administrative ones. It is very difficult. Mr. DIGGES. I think so. I think it is very difficult. وو Now, of course, I do not think that the term "unfair competition is quite so broad as one of the previous witnesses suggested this morning. I think the term "unfair competition," means that which was unfair competition at law, at the time of the enactment of the Federal Trade Commission Act. Mr. LEA. Would you mind repeating that? Mr. DIGGES. I think that unfair competition is what it was at the beginning, at the inception of the Federal Trade Commission Act. At the time that act was put on the books, unfair competition meant that which was unlawful at common law prior to the enactment of the act. Now, of course, the common law changes gradually. Mr. LEA. And under modern conditions, it changes from time to time. The relations of business are constantly changing under the economic evolution. Mr. DIGGES. That is correct, sir, but I have yet to see a case where the Commission, having determined that such and such a practice was unfair, without legal precedent for it, would have its views sustained by the courts. Now, I will take an illustration, a matter which is presently being controverted, where the Commission takes one view and a lot of other people take another view, with regard to the use of the word "free" in advertising. The Commission takes the view that whenever you use the word "free" in advertising, there cannot be any condition whatever attached to the offer which you make. Now, the test, the judicial test on a question of that sort has been whether or not there was a tendency and capacity to mislead the public. The term "public" has gotten to be broader and broader as time has gone on, and it now includes the stupid and the gullible and the frivolous and lots of other types of people that are not encompassed within the common-law definition of an ordinary prudent man. But there you might have a test of whether the Commission itself can make law. I do not know of any case where that has arisen. Mr. LEA. Assuming there is no dispute about the facts in that case, would not the appellate court be free to make its decision, and they would not have to vary with the facts found by the Commission, but they would vary as to the legal conclusions, and in that case the courts would protect you? Mr. DIGGES. That is correct. Mr. O'HARA. Are there any other questions, gentlemen? Mr. Digges, the committee is very grateful to you for your testimony, and we have just been summoned by a quorum call over to the House, and we thank you very much. The committee will be adjourned until 2 o'clock this afternoon. (Whereupon, at 12: 10 p. m., the hearing was recessed until 2 p. m., of the same day.) AFTERNOON SESSION The committee reassembled in room 1334, New House Office Building, at 2 p. m., pursuant to the taking of a recess, Hon. Joseph P. O'Hara presiding. Mr. O'HARA. The committee will to order. The next witness will be Mr. Henry B. King, secretary of the United States Trade Mark Association, New York, N. Y. STATEMENT OF HENRY B. KING, SECRETARY, UNITED STATES TRADE MARK ASSOCIATION, NEW YORK, N. Y. Mr. KING. Mr. Chairman, my name is Henry B. King. I am the secretary of the United States Trade Mark Association, New York City, and I appeared here today as a representative of that organization. The United States Trade Mark Association was founded 70 years ago in 1878 and is incorporated under the laws of the State of New York as a nonprofit organization. The association seeks to promote the rights of the public. Members of the association and trade-mark owners generally in the use of trade-marks and trade names and to give aid and encouragement to all efforts for the advancement and observance of the trade-mark system. The association is composed of 160 American manufacturing companies, some large, some small, some medium-sized, who are owners of trade-marks and who employ the media of national advertising in merchandising their goods. The O'Hara bill, H. R. 3871, has been the subject of considerable study by our lawyers' advisory committee and the board of directors. For your information, the lawyers' advisory committee is composed of 22 prominent trade-mark attorneys who are recognized in their profession as authorities in this field of law. The committee devotes its services to the association freely and without compensation of any kind. The lawyers' advisory committee approved the O'Hara bill in principle and recommended it to the board of directors. In October 1947, the board of directors conducted a poll of the members of the association to learn their views on this proposed legislation. The members were almost unanimous in support of the principles of H. R. 3871. Over 95 percent of the members expressed no doubt as to the necessity for such legislation. On April 21, just 1 week ago, our lawyers' advisory committee affirmed its position in support of H. R. 3781. The board of directors at the seventh annual meeting of the association on April 23 went on record in support of H. R. 3871 and it is at their request that I appear here to testify in favor of the bill. The trade-marks of any business are its most valuable assets. Just a few days ago I was talking to an officer of one of our member companies. His firm has been in business for over 50 years and the trademarked products they produce have come to be accepted by the public as reliable and dependable. He told me that their trade-marks were their most valuable assets-more important than the plants, more important than the machinery that produced the products. Were a fire to destroy the plant, were a flood to ruin the machinery, the company could commence again because of their reputation. Their reputation is symbolized by their trade-marks. Their trade-marks are their franchise to the public. Were they to lose the use of their trade-marks by the action of a Government agency they would not be able to continue in business. Because trade-marks are so important to American business and because the Federal Trade Commission has been taking an increasing interest in restricting the use of trade-marks, the United States Trade Mark Association has concerned itself with H. R. 3871. In recent years a substantial number of the more important cases brought by the Federal Trade Commission have sought to prevent or restrict the use of well-known trade-marks in use for long periods of time. Briefly, let me call to your attention a few of these cases. There was the well-known Canadian Act case in which the Commission in 1943 held that the use of the words "Canadian Act" was a deceptive mark for bottled ale-even if the label stated that the product was "Made in U.S.A." Four years prior to that time, the mark had been approved by the Alcohol Tax Unit and the company had expended about 750,000 dollars in advertising the trade-mark. Three years later, in 1946, the Commission decided to reopen the case, reversed itself, and approved the use of the mark. Another case involved the trade-mark "Alpacuna." The Federal Trade Commission held that the public could be deceived into thinking that Alpacuna coats contained hair of the vicuna, a very rare animal native to the mountains of Peru. The Commission reached this decision in spite of the fact that Alpacuna coats sold for $40 while vicuna coats were sold in the neighborhood of $900. As a result, the use of the trade-mark was prohibited, and the Jacob-Siegel Co., owners of the mark, lost a valuable and well-known trade-mark after 14 years of use. Later the Commission modified its order after the Supreme Court suggested that a somewhat milder remedy would be in order. The Commission has also sought to require that a seller give a generic name the same prominence with his trade-mark in labeling and advertising. In the Celanese case, the Commission insisted that the word "rayon" must always accompany the mark, even though the corporation maintains its product is not rayon. In the Pompeian Olive Oil case, the Commission issued a complaint seeking to prohibit the use of that mark for olive oil clearly labeled as a domestic product. The Commission based its argument on the ground that the same name had been used in prewar days for imported oil, which was not available in this country at the time the complaint was issued. There are many other recent cases in which the Commission has either prohibited or sought to prohibit certain trade-marks, such as in the A. P. W. case, the cases involving the use of "elasti-glass" for men's accessories, the use of "favorite of the stars" for cosmetics, "olive-ollo" for soap containing olive oil and other ingredients and "Hudseal" for rabbit furs. It is with these types of cases that the United States Trade Mark Association is concerned. Let me say at this time that our association is very much aware of the good work accomplished by the Commission and of the deep sense of public duty that its personnel hold. Nevertheless, we believe as a matter of principle that the Commission should be required to try its cases before an impartial court so as to put a stop to the multiple functions of the Commission as investigator, prosecutor, judge, and jury in its own cause. This is the fundamental purpose of the O'Hara bill and it is for this reason that we support it. Most Federal Trade Commission cases deal with misbranding, false advertising, deceptive trade-marks, and disparagement of competitors. These are the same types of cases being constantly dealt with by the district courts. The Commission, unlike the courts, is presently forced to prejudge its case, for no proceeding can be started unless in the view of the Commission the law is being violated. Under the Commission's procedure, trial of its cases is held before a trial examiner, who alone sees the witnesses and listens to the arguments. The trial examiner then presents his recommendations which are advisory only. It is the five Federal Trade Commissioners who, sitting as a court in Washington, decide the case. The Commissioners never see the witnesses and most certainly do not have the time to read the complete transcripts of the cases. They usually permit on the average about an hour for oral argument by their own attorney and defendant's counsel. There is a substantial difference between the judicial procedure of the Commission and that of the courts. The Federal Trade Commission Act provides no standards for the type of evidence the trial examiner may admit, nor must the evidence admitted be of the character required by the courts. The Commission may base its decisions on biased testimony, incompetent evidence, and hearsay. It may pick and choose between the contradictory evidence given by its own witnesses. The Commission attorneys during trial are supplied with blank subpenas. The defendant's attorney must apply to the Commission in Washington or the examiner for such subpena, which may be denied. Under its procedure, the Commission has the right to require the defendant to present his case before the Commission concludes its own. The powers of the Commission are very broad. It has power under the act to prohibit "unfair or deceptive acts or practices in commerce. However, in sustaining charges, it need not prove that any of the public |