event that they do not do so, then it will be presumed that it is illegal, I have very serious doubts as to whether you can convict a person on a presumption of that kind. In other words, having an individual on trial, and the thing for which he is tried is legal in that State, but the failure of some State officer to have so certified to the Attorney General makes that individual guilty by presumption, I think that is stretching it quite considerably. I do not believe it would hold up. I do not believe that you could convict a person by presumption of that kind that is due to the failure of some other person to do what they should have done.

Mr. PLAINE. If you would like a word of comment on that last thought, I think that you may have misunderstood that provision, Mr. Wolverton. What we have said flatly is that the shipment or transportation knowingly of the gambling device or the gambling machine is illegal. We have added a proviso that it shall not be illegal to ship into a State where the use is legal. In order to provide certainty for any person acting in reliance under the statute, be it a manufacturer, carrier, private individual, or law-enforcement officer, we say that he does not have to make his own judgment of whether use or possession is legal in a particular State or not. He is going to assume, it being a gambling device, that shipment is illegal unless there is published notice to the world in the Federal Fegister that it is legal in the particular State. That is all that is intended by that provision.

So that today, shipment into a State may be illegal, but tomorrow, if a notice has been published in the Register, it is legal. There will be of course no retroactive test in these things.

Mr. WOLVERTON. If the individual whom you charged with the duty of making that certification fails to do so, then the act is presumed to be illegal.

Mr. PLAINE. That is right. I think people are entitled to certainty. Mr. WOLVERTON. That is where I draw the line. The law of that State is the law of the State. The Federal courts would take judicial notice of the laws of a State in a prosecution of this kind, and I am not sure that I feel that it is necessary to have the certification that you speak of. Certainly it does not seem to me to make a man guilty or presumably guilty because some State official has not taken some action, and I could never subscribe to that kind of a principle, whether it be constitution or unconstitutional. I have my doubts as to whether it would be constitutional. I am not a constitutional lawyer sufficiently these days to say what any court will hold on any subject, but using my own judgment and taking away the question of constitutionality, and considering it from the standpoint of right and justice, I do not think that a man should be put in a position where he is presumably guilty of an illegal act just because some State official did not perform the functions that the bill required of him.

Mr. PLAINE. I did not want to elongate on the point. I think there are perfectly clear answers to the proposition. I will be happy to give them at another time, if you wish. I assume you are on the verge of recessing.

Mr. WOLVERTON. The committee will recess until Tuseday morning next at 10 o'clock.

(Whereupon at 1:10 p. m., the committee recessed, to reconvene Tuesday, May 2, 1950, at 10 a. m.)

GAMBLING DEVICES

TUESDAY, MAY 2, 1950

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., 1334, New House Office Building, Hon. Lindley Beckworth presiding. Mr. BECKWORTH. The committee will come to order.

We have as our first witness this morning Mr. Morehouse, Director of Stipulations, Federal Trade Commission.

It is my understanding Mr. Morehouse has a very brief statement incident not exactly to this specific bill, but more along the line of suggesting that which the committee might want to consider in addition to the bill.

May I say that the only witness we have available, it seems, is Mr. Morehouse he is the only witness we have this morning. I am wondering if there is anyone here who is opposed to the bill, although scheduled to come on tomorrow, who would be in a position to testify after Mr. Morehouse has finished. If such a person is, or persons are present, I request them to contact the clerk. We would undertake to hear these additional witnesses today.

Very definitely the committee does have lots of work to do and if there is any person who could testify or any who might be in a position to do so, if would be a favor to the committee if you would see fit to testify today.

You may proceed, Mr. Morehouse.

STATEMENT OF PGad B. MOREHOUSE, DIRECTOR, BUREAU OF STIPULATIONS, FEDERAL TRADE COMMISSION, WASHINGTON, D. C.

Mr. MOREHOUSE. Thank you, Mr. Beckworth.

I suppose probably because the Senate bill 3357 mentioned the Federal Trade Commission, we were interested to that extent, and I understand from the Secretary of the Commission that the committee said that the Commission should send someone up, and the acting Chairman of the Commission, Senator Mead, sent me to point out that since 1920 the Commission has issued 492 orders to cease and desist and entered into 106 stipulations, in what we call lottery cases; that is, sale and shipment in interstate commerce, of punchboard, push card, and other lottery devices which are to be or may be used in connection with the sale and distribution of merchandise, by gift enterprise, lottery, or chance.

The Commission, of course, is only interested in trade and in the distribution of merchandise by chance in channels of interstate com

merce.

Of course, as the committee probably already knows, these cases culminated in 1934 with the leading case of Federal Trade Commission v. Keppel, in the United States Supreme Court (201 U. S. 304), sustaining the Commission's hands in ordering such practice to cease and desist, holding them to be unfair methods of competition in violation of the Federal Trade Act of 1914.

Then, the next leading case came along in 1937, known as Chicago Silk Hosiery case, decided by the seventh circuit, reported in 90 Federal Reports, second, 689. That was a case involving these punch cards which we are all familiar with, I think, where cards are sent out in the mail to a list of prospects. They are sent free. They have little places to pull a tab, or punch a name, such as Gertrude, Mabel, and so on, and maybe pay 15 cents or 20 cents-in this case it was 60, and was used as the means of selling and distributing hosiery. They gave a pair of hose to the person who sold the card. The card sold for $5.95 in this case and the person selling the card got a pair of hose, and then certain ones who were lucky would get a pair of hose. It was contended that they were not subject to the Federal jurisdiction and particularly to the jurisdiction of the Federal Trade Commission, because these cards were distributed free and it was optional with the recipient as to whether or not the card was used at all, and the circuit court also held that was an unfair method of competition, and an unfair way to distribute merchandise in competition with others who might not see fit to use gambling methods in competing for the sale of their merchandise.

Then the last one of prominence is the case of Charles A. Brewer & Sons v. Federal Trade Commission. That was decided in 1946 and is reported in 156 Federal Reports, second, 74. That involved a mechant who was selling only the lottery device itself, the punchboard. He sold nothing else in interstate commerce. But, the punchboard was designed and intended to be used for, and was used, for the distribution of merchandise in intrastate, and the second circuit court of appeals for the sixth circuit held that that was an unfair method of competition. They upheld an order directing the respondent to cease and desist from selling or distributing in commercepunchboards, push cards, or other lottery devices which are to be used or may be used in the sale or distribution of merchandise to the public by means of a game of chance, gift enterprise, or lottery scheme.

The Commission found that these punch cards were sold by the petitioners and "many are designed for use by retail dealers in the sale and distribution of merchandise to the public 'by means of a game of chance, gift enterprise, or lottery scheme,'" and upheld the Commission's cease-and-desist order, and Judge Martin, if I may quote a few lines, said:

The Commission found that petitioners thus supply and place in the hands of retail dealers, either directly or indirectly, the means of conducting lotteries or games of chance in the sale of merchandise to the general public: "A practice which is contravention of an established public policy of the Government of the United States"; and that, through the supplying of such means petitioners knowingly and purposely assist and participate in the violation of this public policy.

Quoting from Mr. Justice Stone, later Chief Justice, in Federal Trade Commission v. Keppel as follows:

Without inquiring whether, as respondent contends, the criminal statutes imposing penalties on gambling, lotteries and the like, fail to reach this particular package in most or any of the States, it is clear that the practice is of the sort which the common law and criminal statutes have long deemed contrary to public policy.

That is from the Keppel case.

It may be of interest to the committee to know that in two cases, the court of appeals for the second circuit affirmed an order of the Federal Trade Commission restraining the use of bingo paraphernalia in aid of the sale of merchandise in violation of the Federal Trade Commission Act on the same reasoning.

Now, I think that Senator Mead, now Acting Chairman of the Federal Trade Commission, had in mind that this committee might possibly want to consider, if and when they report a bill out similar to Senate 3357, whether it would be desirable to include a provision with respect to the shipment in interstate commerce of punch boards, push cards, and other lottery devices, knowingly shipped and intended to be used and designed to be used for the sale and distribution of merchandise in commerce as an unfair method of competition, feeling perhaps that since we had had so many cease-and-desist orders and so many stipulations over this period of time that I have mentioned, if the same thing which is now unlawful were made criminal under proper safeguards for the protection of the public it might act as a greater deterrent and maybe during the next 20 years we would not have to issue so many cease-and-desist orders and stipulations with regard to this practice which has become universal and has been consistently held by the courts to be unfair practice when used in connection with competitive sale of goods.

Now, that is all I have to say, and I will be glad to answer any questions the committee desires to ask me.

Mr. DOLLIVER. Mr. Chairman.

Mr. BECKWORTH. Mr. Dolliver.

Mr. DOLLIVER. I have been very much interested in your statement about gambling devices and unfair trade practices.

Let me see if I understand the situation correctly. Is it true that the Federal Trade Commission issues these cease-and-desist orders only where they determine that the gambling device is an instrument of unfair trade?

Mr. MOREHOUSE. That is right.

Mr. DOLLIVER. In other words, there is no criminal intent nor criminal action involved in the matter?

Mr. MOREHOUSE. That is right. It is purely and simply a matter of unfair competition and unfair practice in violation of the Federal Trade Commission.

Mr. DOLLIVER. In other words, if a gambling device in interstate commerce is used, sold for gambling and not in connection with the sale of merchandise or dealing in merchandise, then it does not come within the purview of the laws which the Federal Trade Commission undertakes to enforce?

Mr. MOREHOUSE. I have no doubt that it does not.

Mr. DOLLIVER. Well, you know about that, do you not?

Mr. MOREHOUSE. That would be my opinion. There has been no case where the Commission has taken jurisdiction over the kind of a situation you mention, and I am certainly confident they would not. Mr. DOLLIVER. There is no disposition at the present time for the Federal Trade Commission to do that at all?

Mr. MOREHOUSE. No, sir. We are solely interested in the sale, distribution of merchandise, by means of lottery, gift enterprise, or chance.

Mr. DOLLIVER. Just to be specific now, if a slot machine goes into interstate commerce and has no connection with any selling scheme or anything dealing with merchandise, then the Federal Trade Commission keeps hands off?

Mr. MOREHOUSE. That is right. I do not think they have any jurisdiction.

Mr. DOLLIVER. Now, the situation which you mentioned in your testimony, coming as it does from Senator Mead, now a member of the Federal Trade Commission, is very interesting to me. The suggestion as I understand it is that the transmission of such devices as punchboards, be made a criminal offense, in order that it will help enforce the law which you now administer where punchboards are used as a device for unfair trade practice.

Mr. MOREHOUSE. Yes, sir; if it could be done with proper safeguards, recognizing the difference when making an unfair method of competition a criminal instead of a civil offense. I do not think you could very well say which are, as the court has said in several cases, "which are or may be used." I think would have to say knowingly shipped with the intention of using, or something like that; pin it down; and the Commission would only be interested in it still only so far as the sale, distribution of merchandise in interstate commerce is concerned.

you

Mr. DOLLIVER. Is it the opinion of the Commission-I assume you can speak for the Federal Trade Commission on this-that they would want to be charged with the administration of such a law, which would be a criminal offense?

Mr. MOREHOUSE. I can speak, I am certain, for the Commission on that, and I am certain they would not.

Mr. DOLLIVER. They would not want to administer a criminal statute?

Mr. MOREHOUSE. No, sir.

Mr. DOLLIVER. They would prefer that that be placed in the hands, as it normally would be, in the hands of the Department of Justice? Mr. MOREHOUSE. Certainly, sir; yes, sir.

Mr. DOLLIVER. Do you feel then that it would be of assistance in the enforcement of the law with which your Commission is charged? Mr. MOREHOUSE. I really think it would, because since the sale of merchandise through a game of chance or a lottery device is already illegal and an unfair method of competition. If under proper safeguards it were also made criminal, I think it would act as a greater deterrent and relieve the Commission of the necessity of issuing many orders to cease and desist and handling many cases that would otherwise have to be handled. Of course it would still have to handle some of those cases, but I think, because the deterrent would be greater, the Commission could therefore spend its time on much more important matters.