WILLIAM E. HUMPHREY

THE FEDERAL TRADE COMMISSION

The following address explaining and vigorously defending the new policy of the Federal Trade Commission was delivered before the Economic Club at the Hotel Astor, New York City, on April 28, 1926. The Honorable William E. Humphrey was born in 1862 and has been a resident of Seattle, Washington, since 1893. He was a member of Congress from 1903 to 1917, and in 1925 was appointed a member of the Federal Trade Commission.

THE Act creating the Federal Trade Commission provides that it is the duty of the Commission, whenever it shall have reason to believe that a party is using any "unfair methods of competition," to proceed against such party, provided that it shall appear to the Commission that such proceeding "would be to the interest of the public."

In the "interest of the public" is the chart and compass that should direct always the course of the Commission. Since I became a member of the Commission, although it has been but a short time, many changes have been made in its purpose and methods. I believe these changes are right and in the public interest I believe that these changes are in the interest of honest business. It is my purpose to tell you briefly some of the more important changes that have been made, and why they were made. For all these changes, the credit and responsibility belongs equally to each member of the majority of the Commission.

The majority believe that those engaged in business are generally honest. The foundations of the changes in the rules are found in the fact that the majority believe that there should be some reasonable showing before branding as crooks those accused of breaking the anti-trust laws. We demand

evidence. We refuse to convict on suspicion and possibilities. In the past, when a complaint was received, an ex parte investigation was made. Sometimes these investigations were extensive, often they were superficial, and not infrequently they were merely formal. Upon such an investigation, a complaint was issued against the respondent-that being the term used to designate those against whom the Commission proceeds -and immediately upon the issuance of this complaint, the Commission itself officially gave out publicity as to the charges against the respondent. Such publicity, coming with the official stamp, especially in cases where the respondent was prominent or the political effect important, was given wide circulation. Particularly was this true of any sensational statements made in the publicity. It sometimes happened that the respondent knew nothing of the matter whatever until he saw himself advertised as a crook by the headlines in the public press, and never was the respondent given an opportunity to be heard before such publicity was issued. It frequently happened that thereafter, on the hearing of the case, sometimes months afterwards, sometimes years afterwards, it was found that the respondent was entirely innocent and the case was dismissed. But this dismissal brought no headlines in the press. It was not news. It furnished no text for socialistic and bolshevist propaganda. It furnished no political weapon for those who preach the doctrine of universal dishonesty in the conduct of American business. The injury done to the respondent, the poison injected into the public mind was not removed by the dismissal of the case.

My mind goes back down the centuries to a scene enacted in the streets of Jerusalem, one of the outstanding events in the record of the race, when the mob cried out for the death of Paul, the greatest of the apostles. To satisfy this cry the chief captain, not knowing whether he was guilty or innocent, or even what the charge might be against him, ordered that he be Scourged. They seized and bound him. Then Paul asked them the question that has lived through the ages-"Is it lawful to Scourge a man, a Roman citizen and uncondemned?" When the centurion heard this question, he told the chief captain and warned him of the consequences of scourging a Roman

citizen without trial. Immediately the chief captain ordered the apostle unbound and set free.

We are told that in that elder day to be a Roman was greater than to be a king. In this day, certainly it is greater to be an American than it was in that elder day to be a Roman. Should we show less consideration to the American citizen than was shown to the Roman citizen? Personally I do not believe that we should to-day at the cry of the mob, the Bolshevist, the reformer and the fool, treat the American business man as only a barbarian was treated nearly two thousand years ago. I think the time has come to stop scourging American Business first and finding out afterwards whether it is guilty or innocent. Let me give you an illustration. In giving these illustrations, the facts may not be exactly as they occurred. If they are not, they might very easily have occurred. The Commission issued a complaint against a company, charged with having illegally acquired the stock and assets of several competitors. That respondent had arranged to borrow some forty million dollars to finance this transaction. When the case came to trial, it was found that the transaction was perfectly legitimate and would have been to the public interest. But what a travesty on justice! The publicity given out when the complaint was issued caused the banks to withdraw the loan, the credit of the respondent was destroyed, it was a bankrupt long before the case was heard. Not only the respondent, but the other companies that were to be consolidated with it, were ruined, and a great, legitimate industry destroyed. Both the public and the respondent were entirely without redress.

SETTLEMENT BY STIPULATION

There is another change we have made that I think is of tremendous importance. We have adopted a rule that when our investigators make a report and we deem the facts sufficent to warrant the issuance of a complaint, we give the parties accused an opportunity to be heard before we issue a complaint. We believe that this is only fair and just, because we have heard those who have complained against the respondent.

Usually those making complaints are competitors of the respondent, and inasmuch as they had made their statements, we thought it but fair to give the respondent an opportunity to state his side of the case. After the respondent has made his statement, if we are satisfied that he is violating the law and is willing to sign a stipulation that he will quit such practice, with a condition in such stipulation that if he fails to keep it, that such stipulation may be used against him, we accept that stipulation instead of proceeding to trial, and the action is dismissed.

Remember that we have no power to punish. We have authority only to issue orders to cease and desist. If the respondent agrees by stipulation to quit the practice complained of, why is not the public interest as fully protected as it could possibly be by the issuance of an order?

It seems to me that our plan of stipulation not only accomplishes all that can be secured by trial, and saves the public expense, but that it is in harmony with the spirit of our jurisprudence, that always hold out every inducement to settle controversies by compromise and settlement without litigation, so long as the public interest is protected. And let it not be forgotten that in many cases a stipulation can be secured where conviction on trial would be impossible.

Do not forget that our rules in regard to publicity and to stipulation do not apply in cases where the business itself is inherently fraudulent or where the business is legitimate but is conducted in such a manner as to show the dishonesty of those engaged in it, or where the record and reputation of those complained of are such as to warrant the Commission in believing that a stipulation would not be honestly entered into, or honestly observed. To this class of cases belong stock selling schemes, those that commonly come under what is designated as the "Blue Sky Laws"; the so-called industrial schools, with their false and misleading advertisements, that are robbing and blackmailing the ambitious young men and women of to-day who are endeavoring to better their conditions; the merchant who sells one class of goods and delivers another to the purchaser. The public interest demands in cases of this kind, an immediate exposure of such parties. Stipulations with

them would not be justified on any ground. The Commission will give the widest publicity in its dealings with crooks. We accept no stipulations from this class. We call the attention of the Department of Justice to such cases when we believe they should be prosecuted, and to the postal authorities when we believe a fraud order should be issued.

OBJECTIONS TO STIPULATIONS

Nothing has aroused greater opposition from those who are opposed to the change in rules than our policy in settling cases by stipulation. Our opponents say that this should not be done; that in all cases where stipulations are warranted, the case should proceed to trial. As I construe it, the primal duty of the Commission is to protect the public from unlawful practices. If this can be accomplished by stipulation instead of litigation, leaving out of the question the great cost to the taxpayer in these days of dire necessity for economy, what can be the objection to so stipulating? I know the objection voiced by the opponents to such procedure. They say that they want to terrorize dishonest business. To use the stock phrase of the professional demagogue, they tell us that they want to "put the fear of God into the hearts of the dishonest."

I will not stop to discuss whether giving publicity-parading on front pages, over sensational headlines the details of fraud and vice and crime, tends to lessen these evils or benefit the public. But while we are terrorizing the ten men in business that are dishonest, are we not at the same time terrorizing the ninety men that are honestly trying to obey the law? It is absolutely dishonest to claim that there is a clear and distinct line between what is and what is not unlawful under the antitrust acts. It is, therefore, absolutely dishonest to say that when they are violated, it is always done purposely. It is absolutely dishonest to say that when men violate the anti-trust act, their action is always as reprehensible and that it is done as knowingly as when men violate laws that for ages have been recognized by common consent without statutes. The Supreme