Amend Federal Trade Commission Act

and quasi-judicial powers of the Federal Security Administrator in the enforcement of that act would both be significantly impaired.

I have noted Mr. Reece's statement in the Appendix to the Congressional Record (March 6, 1945, p. A1117) in connection with the introduction of this bill, in which he disclaims any intention of disturbing the conclusiveness of administrative findings in quasi-legislative orders. It seems to me, however, that this may nevertheless be used as a precedent for legislation applicable to rule making. The Congress used the provisions for court review of quasi-judicial orders of the Federal Trade Commission as both precedent and pattern for the then novel provisions of the Food, Drug, and Cosmetic Act for review of quasi-legislative orders. Certainly the change would be a clear precedent for legislation affecting the present method of review of applications for interstate commerce in new drugs.

It has been our consistent policy to limit the findings of facts in orders we have promulgated to those facts which we think are supported by a preponderance of the evidence. We would be disturbed at any proposal looking toward a transfer to the judiciary of the duty of weighing the evidence and determining its preponderance in records as technical as those ordinarily made in hearings under the Food, Drug, and Cosmetic Act.

We have no comment to offer on section 2 of the bill which would amend section 5 of the Federal Trade Commission Act by changing the penalties prescribed for its violation.

Section 3 of the bill would amend the definition of false advertisement in section 15 (a) of the Federal Trade Commission Act. The amendment would change a provision of the act which is identical in its import with a provision of section 201 (n) of the Food, Drug, and Cosmetic Act. It would repeal the mandate of the present law to the administrative agency and to the courts to take into account, in determining whether representations for an article are misleading, failure to reveal facts material with respect to the consequences which may result from the use of the article under the conditions prescribed in those representations, or under such conditions as are customary or usual. In deleting this mandate, we think the conclusion is inescapable that the standard of truthfulness set up by the statute is lowered. While the amended language could perhaps be construed as broadly as the original provision, it is by no means apparent how the courts could do so in the light of the legislative history created by Mr. Reece's declared purpose in making the change.

We are gravely concerned that the adoption of this amendment will furnish a persuasive basis for a similar amendment to section 201 (n) of the Food, Drug, and Cosmetic Act. This would unquestionably impair the effectiveness of the act in controlling misrepresentations that result in harm to health.

Section 4 of the bill would include the Food, Drug, and Cosmetic Act definition of labeling in section 15 of the Federal Trade Commission Act which lists definitions "for the purposes of sections 12, 13, and 14." Because of its limitation to these sections, we do not see that it would have any practical effect on the relationship between activities in the enforcement of the two laws since, so far as we are aware, the Federal Trade Commission's proceedings against labeling have not been under sections 12, 13, and 14 but under section 5. (See Fresh Grown Preserve Corp. v. Federal Trade Commission, 125 Fed. (2d) 917, 919.)

The final section of the bill is apparently designed to deny control under the Federal Trade Commission Act of anything that could be controlled under the Food, Drug, and Cosmetic Act. The text of the language is derived from section 902 (b) of the latter law, which exempts from it articles subject to the Meat Inspection Act. This wording, in the context in which it appears in the Food, Drug, and Cosmetic Act, is not entirely clear in all of its aspects. It seems even less clear when transposed to the context of the Federal Trade Commission Act. We have no adverse comment to offer on the purpose of the provision but we doubt that it will accomplish what Congressman Reece seems to have had in mind in referring in his statement for the Congressional Record to the Willard Tablet case. There the question was not one of dual jurisdiction over labeling. It concerned identical representations made in both labeling and advertising, and both the district court and the appellate court held that an administrative adjudication by the Federal Trade Commission, determining that a representation in advertising was not misleading, constituted res adjudicata which precluded courts of law from trying the truth or falsity of that same representation in labeling. If the Willard Tablet decision correctly states the law, this problem

will continue so long as the issue of the truth or falsity of a representation is tried in an administrative proceeding if it occurs in advertising, and in a judicial proceeding instituted by another administrative agency if it occurs in labeling. In our judgment, the bill is calculated to impair the benefits to the public authorized by existing legislation for the control of foods, drugs, devices, and cosmetics. The bill would at best effect little if any improvement in the confused situation and attendant impairment of public protection that stem from the basic faults of differing procedures and divided responsibility for determining the truth or falsity of identical representations in labeling and advertising. The Bureau of the Budget advises that there is no objection to the submission of this report to your committee.

Sincerely yours,

PAUL V. MCNUTT, Administrator.

FEDERAL TRADE COMMISSION,
Washington, March 27, 1945.

MEMORANDUM FOR THE CHAIRMAN, COMMITTEE ON INTERSTATE AND FOREIGN

COMMERCE

In a letter dated March 2, 1945, from the chairman of the Committee on Interstate and Foreign Commerce of the House of Representatives, there was referred to the Federal Trade Commission for report, together with such comment as the Commission might desire to make, copy of H. R. 2390, Seventy-ninth Congress, first session, a bill to amend the act creating the Federal Trade Commission, to define its powers and duties, and for other purposes, introduced on February 27, 1945, by the Honorable B. Carroll Reece.

The Commission desires to submit the following comments upon the provisions of this bill:

The Federal Trade Commission Act presently provides that if, after notice and hearing, the Commission is of the opinion that a person is engaged in practices prohibited by the act, the Commission shall enter an order requiring such person to cease and desist such practices. Any person against whom an order to cease and desist is entered may obtain a review of the order in an appropriate circuit court of appeals of his own choice by the timely filing of a petition to review. The Commission is thereupon required to certify to the court the "entire record in the proceeding, including all the evidence taken." Upon receipt of the record, the court acquires "jurisdiction of the proceeding and of the question determined therein," and the "power to make and enter * * a decree affirming, modifying, or setting aside the order of the Commission." The Commission's findings as to the facts, the statute provides, "if supported by evidence, shall be conclusive."

This is exactly the same procedure which has been applicable to the review of the Commission's orders under both the Federal Trade Commission Act and the Clayton Act for more than 30 years, and is substantially the same as that applicable to the review of orders of the National Labor Relations Board, the Federal Communications Commission, the Securities and Exchange Commission, the Interstate Commerce Commission, and other agencies. H. R. 2390, which applies only to the Federal Trade Commission, and only to orders issued by the Commission under the Federal Trade Commission Act, would make two important changes in this long-standing and more or less uniform administrative procedure. First, the statute's present provision that the Commission's findings as to the facts shall be conclusive if supported by evidence would be so amended as to make the Commission's findings conclusive only "if supported by the preponderance of the evidence." Second, the bill would authorize the reviewing court to make any such modification of the Commission's order as in the court's judgment "the circumstances of the case require." The purpose of these two changes, as stated by the author of H. R. 2390, is "To afford effective judicial review of the Commission's cease-and-desist orders."

In the opinion of the Commission the changes are both unnecessary and inadvisable.

It is common knowledge that the practice of Congress in entrusting to administrative agencies the enforcement of various statutes designed to give effect to congressional policy has lately been the subject of vociferous criticism in certain quarters. And such critics have contended that administraitve findings as

to the facts possess a peculiar form of conclusiveness which makes them, for all practical purposes, virtually immune to effective judicial review. That is not true.

The statutory rule that the Commission's findings as to the facts are conclusive if supported by evidence has been been uniformly construed to refer to substantial evidence, and this, of course, means substantial evidence in support of. every essential fact. The courts therefore are not powerless to set aside a finding merely because there is some evidence to support it. Nor are they precluded from reviewing the entire record for the purpose of determining the substantiality of the evidence relied on in support of a finding.

"Substantial evidence," the Supreme Court has declared, "is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion," and the rule that administrative findings are conclusive if supported by substantial evidence "does not go so far as to justify orders without a basis in evidence having rational probative force" (Consolidated Edison Co. v. National Labor Relations Board, 305 U. S. 197, 229, 230 (1938)). On the contrary, the evidence in support of such findings must be sufficiently substantial in character to justify, if the trial were to a jury, a refusal to direct a verdict against the agency (National Labor Relations Board v. Columbian Enameling & Stamping Co., 306 U. S. 292, 300 (1939)). The question whether the evidence relied on is of such character is a question of law for the courts to determine. And in reaching their conclusion, they are at liberty to, and do, "examine the whole record" (Federal Trade Commission v. Curtis Publishing Co., 260 U. S. 568, 580 (1923)), for "the persuasiveness of evidence may upon occasion be destroyed by analysis even though uncontroverted" (Goodyear Tire & Rubber Co. v. Federal Trade Commission, 101 F (2d) 620, 624 (C. C. A. 6, 1939), cert. denied 308 U. S. 557 (1939)).

It is true that the courts have intimated in a few cases-less than half a dozen of the more than 300 Federal Trade Commission cases decided by the courts— that if they possessed the fact-finding power granted the Commission by Congress, they might not have made the findings of fact made by the Commission. But the courts have not hesitated to set aside the Commission's orders when they were of the opinion that the Commission's findings were not supported by substantial evidence. And there is no case on record in which any court has sustained, or announced itself powerless to vacate, findings which in its opinion were unreasonable. So far, then, from possessing any peculiar immunity from judicial review, the Commission's findings are subject to exactly the same rule as that which applies "in a review of cases tried to a jury" (Stonewall Cotton Mills v. National Labor Relations Board, 129 F. (2d) 629, 631 (C. C. A. 5, 1942), cert. denied 317 U. S. 667 (1942)), in which, as the Supreme Court declared in Tennant v. Peoria & Pekin Union Ry., 321 U. S. 29, 35 (1944)):

"The focal point of judicial review is the reasonableness of the particular inference or conclusion drawn by the jury. It is the jury, not the court, which is the fact-finding body. It weighs the contradictory evidence and inferences, judges the credibility of witnesses * * * and draws the ultimate conclusion as to the facts. The very essence of its function is to select from among conflicting inferences and conclusions that which it considers most reasonable. * * * Courts are not free to reweigh the evidence and set aside the jury verdict merely because the jury could have drawn different inferences or conclusions or because judges feel that other results are more reasonable." Thus, the rule applicable in respect of the Commission's findings as to the facts comes to no more than this: If reasonable men, acting reasonably, could have reached the same conclusions and made the same findings as did the Commission, the courts will not disturb the Commission's judgment. The courts will determine for themselves, however, upon the basis of the whole record, whether reasonable and unbiased minds could have reached the same conclusions as the Commission, and if the courts think not, they will set the Commission's findings aside. In these circumstances, it would seem clear that the Federal Trade Commission Act already affords "effective judicial review" of the Commission's findings, and the enactment of H. R. 2390 is therefore not necessary to secure such review.

It is believed also that the bill is unwise.

The meaning of the phrase "preponderance of the evidence" is a matter on which courts are not in complete agreement (32 C. J. S., Evidence, sec. 1021), and the "preponderance" rule has been criticized as one apt to lead the courts "close to the danger line of the fallacious * * * theory" that the weight of the evidence lies with the side which offers the greater quantity of testimony

or the greater number of witnesses (4 Wigmore, Evidence (3d ed., 1940) sec. 2498, p. 334). H. R. 2390 would therefore substitute for the definite and certain "substantial evidence" rule, a rule indefinite in meaning and uncertain in effect. Because of its close relation to the fallacious "quantitative and numerical" theory of evidence, adoption of the "preponderance rule" would inevitably and materially increase the length of the record in Commission proceedings, unduly prolong the trial of cases, and increase the expense of litigation. It would also probably result in a greater number of Commission cases being taken to court, and it would certainly greatly increase the work of the already overburdened courts in requiring them-contrary to established appellate practice--to weigh the evidence, determine the credibility of witnesses, and absorb to a material degree the fact-finding function which the Commission has performed successfully and with little criticism for more than 30 years.

The proposal, in section 1 of H. R. 2390, to authorize the courts to modify the Commission's orders "as in [the courts'] judgment the circumstances of the case require" is likewise unnecessary to secure "effective judicial review" of the Commission's orders.

It is well settled "that it is for the courts to determine what practices or methods of competition are to be deemed unfair," i. e., whether a person has violated the law, Federal Trade Commission v. Keppel & Brother (291 U. S. 304, 314 (1934)); Federal Trade Commission v. Gratz (253 U. S. 421, 427 (1920)), and the Commission's judgment in that respect, while entitled to weight, is not at all conclusive upon the courts. Where the Commission has properly concluded that a person is violating the law, however, it has been held that the Commission may exercise its discretion in so drafting its orders to cease and desist as to afford the public effective relief, and the courts will not disturb its judgment as to the remedy prescribed unless the Commission has abused its discretion.

This rule is by no means unusual or exceptional. It is precisely the same as that applied in reviewing decrees of United States district courts under the Sherman Act, decisions of the Tax Court, and the administrative orders of various commissions. Nor is the rule a recent development in the law. More than 40 years ago, in Bates & Guild Co. v. Payne (194 U. S. 106, 108-109 (1904)), the Supreme Court said that it had long been established "that where Congress has committed to the head of a department certain duties requiring the exercise of judgment and discretion, his action thereon, whether it involves questions of law or fact, will not be reviewed by the courts, unless he has exceeded his authority or this court should be of opinion that his action was clearly wrong."

The reason for the rule is both obvious and sound. It was designed to secure uniform and efficient enforcement of such statutes as the Federal Trade Commission Act by delegating their administration to a single body "specially competent to deal with them by reason of information, experience, and careful study" (Federal Trade Commission v. Keppel & Brother, 291 U. S. 304, 314 (1934); Humphrey's Executor v. United States, 295 U. S. 602, 624 (1935)). That end, obviously, cannot be attained if administrative functions are to be delegated to 11 different circuit courts of appeals.

In the course of a year not one circuit court of appeals normally reviews as many as a half dozen Commission cases; and a number of them review, on the average, only one case every 5 or 6 years. The Commission, on the other hand, disposes of some 200 litigated cases annually. Moreover, the Commission annually investigates thousands of applications for complaints. After investigation, a majority of such matters are closed without corrective action by the Commission because the charges in the applications are not sustained, the matter is a private controversy or is trivial in character, no interstate commerce is involved, or because of the absence of public interest. With respect to the cases in which the Commission decides to take corrective action, it grants the proposed respondents the privilege of adjusting the matters by stipulations to cease and desist, except in cases involving intent to defraud or mislead; false advertisement of food, drugs, devices. or cosmetics which are inherently dangerous to health; suppression or restraint of competition through conspiracy or monopolistic practices: violations of the Clayton Act; violations of the Wool Products Labeling Act of 1939 or the rules promulgated thereunder; or where the Commission is of the opinion that such procedure will not be effective in preventing continued use of the unlawful method, act, or practice. The vast majority of such cases are disposed of by the execution of stipulations in which the proposed respondents agree to cease and desist from the continued use of the unfair methods or unfair acts or practices in question.

to the facts possess a peculiar form of conclusiveness which makes them, for all practical purposes, virtually immune to effective judicial review. That is not

true.

The statutory rule that the Commission's findings as to the facts are conclusive if supported by evidence has been been uniformly construed to refer to substantial evidence, and this, of course, means substantial evidence in support of every essential fact. The courts therefore are not powerless to set aside a finding merely because there is some evidence to support it. Nor are they precluded from reviewing the entire record for the purpose of determining the substantiality of the evidence relied on in support of a finding.

It is true that the courts have intimated in a few cases-less than half a dozen of the more than 300 Federal Trade Commission cases decided by the courts― that if they possessed the fact-finding power granted the Commission by Congress, they might not have made the findings of fact made by the Commission. But the courts have not hesitated to set aside the Commission's orders when they were of the opinion that the Commission's findings were not supported by substantial evidence. And there is no case on record in which any court has sustained, or announced itself powerless to vacate, findings which in its opinion were unreasonable. So far, then, from possessing any peculiar immunity from judicial review, the Commission's findings are subject to exactly the same rule as that which applies "in a review of cases tried to a jury" (Stonewall Cotton Mills v. National Labor Relations Board, 129 F. (2d) 629, 631 (C. C. A. 5, 1942), cert. denied 317 U. S. 667 (1942)), in which, as the Supreme Court declared in Tennant v. Peoria & Pekin Union Ry., 321 U. S. 29, 35 (1944)):

Thus, the rule applicable in respect of the Commission's findings as to the facts comes to no more than this: If reasonable men, acting reasonably, could have reached the same conclusions and made the same findings as did the Commission, the courts will not disturb the Commission's judgment. The courts will determine for themselves, however, upon the basis of the whole record, whether reasonable and unbiased minds could have reached the same conclusions as the Commission, and if the courts think not, they will set the Commission's findings aside. In these circumstances, it would seem clear that the Federal Trade Commission Act already affords "effective judicial review" of the Commission's findings, and the enactment of H. R. 2390 is therefore not necessary to secure such review.

It is believed also that the bill is unwise.

the evidence lies with the side which offers the greater quantity of testimony

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