DISTRICT COURT, S.D. NEW YORK
September 30, 1941;
ALUMINUM CO. OF AMERICA et al. (Part 3 of 3)
The opinion of the court was delivered by: CAFFEY
EDITOR'S NOTE: With the full approval of Judge Caffey, certain portions of the opinion, indicated by asterisks, have been omitted. The omitted portions consist of explanations given by the court of the procedure to be followed in delivering or revising the opinion and of certain colloquy between court and counsel with respect to findings. The matter omitted in no way affects the merit of any of the issues discussed in the opinion.
New York, September 30, 1941
CAFFEY, District Judge.
With the explanations given, I believe it will be easy to understand the plan on which table 12 has been made up.
Table 13 contains merely summaries of what has been established by table 12. It can be verified by anybody. I think there is no occasion for additional comment on it.
That, under normal conditions, the ratios between the quantums of stock in the two companies (Alcoa and Aluminium) held by any single group of individuals would not remain stationary was to be anticipated. Again, it is plain that, unless changes in the holding of stock in one company were permissible without an accompanying requirement that like comparable changes be made in the holding by the same individual of stock in the other company, as a practical matter ordinarily the general market for the stock of both companies would be destroyed.
Perhaps enough has been said on the subject. Nevertheless, it may avoid misunderstanding, and certainly may assist in clearness, to inject two further statements (even though that be at the expense of some repetition).
(1) On June 4, 1928, the proportion of stock in Alcoa and in Aluminium held by each stockholder was the same. In the course of the years, however, save in exceptional cases continuance unchanged of any such proportion could not reasonably have been expected; and the record shows numerous individual instances in which the proportions have shifted widely. Illustrations appear on the face of table 12.
It would require extensive investigation to ascertain with precision the many variances which have occurred from time to time in the proportions. Moreover, I do not believe it is essential or would even be helpful to determine definitely what have been all the proportions or their variances.
(2) The part played with respect to the lodging of Alcoa and Aluminium stock with holding corporations, insofar as disclosed by the evidence, will next be described.
There were four such holding corporations. Their names were Aloxite, Ricsar, Coalesced and Ascalot. On September 20, 1937, three of these held Alcoa and Aluminium common stock. The fourth (Ricsar) held none (Exhibit 774, exhibit p. 3722). As previously remarked, all were dissolved, -- in fact fully liquidated, -- in December, 1938 (exhibit p. 3720).
Numbers 2 and 3 of the list of stockholders in table 12 (column A) were children of Richard B. Mellon and numbers 4 and 5, of Andrew W. Mellon (exhibit p. 3729). The fathers named were the two associates of Arthur V. Davis when on June 4, 1928, the holdings of these three stockholders when combined made a majority of the common stock in each company.
Apparently it has been assumed (and perhaps it is true) that stockholders numbered 2, 3, 4 and 5 acquired all or most of their 1937 stock from their fathers, -- though that has not been proved nor does it appear when the holding corporations acquired the stock they held for the children.
Apparently it has also been assumed that from the holdings by the children of common stock of the holding corporations (exhibit p. 3728) the relative shares of the beneficial interests of the children in Alcoa and Aluminium stock in the hands of the holding corporations can be determined. For example, since the two children of Richard B. Mellon each held an equal number of shares of the common stock of Aloxite (exhibit p. 3728), it seems to have been assumed that each likewise was entitled to one half the common stock of Alcoa and of Aluminium shown by schedule A of Exhibit 774 (exhibit p. 3722) which Aloxite held on September 20, 1937. The same method has been applied to determine the beneficial interests of the children in Alcoa and Aluminium stock held by the other holding corporations at that time.
If what results from a computation on the basis just outlined be added to what has already been included in table 12 as having stood in the names of the children in 1937, we get the respective total holdings of Alcoa and Aluminium stock which they personally held or beneficially owned September 20, 1937.
In conformity with the method explained, I have prepared table 12A. As indicated, it is designed to show what the holdings of the Mellon children would have been on September 20, 1937, if by then the holding corporations had already delivered to them the Alcoa and Aluminium stock held for them and is as follows:
Revision of columns D and E of table 12 to show in columns F and G below the total numbers of shares of Aluminium and Alcoa common stock that would have been held on September 20, 1937, by stockholders numbered 2, 3, 4 and 5 in list of stockholders' names, column A of table 12, if (1) the numbers shown in columns D and E of table 12 and (2) the numbers computed from the evidence, on assumptions stated in the note below, to have been held at that time by holding companies for those numbered stockholders, were added together.
A F G
Held in Held in
Stockholders' names Aluminium Alcoa
2. R. K. Mellon 56,363 128,123
3. Sarah M. Scaife 56,250 127,983
4. Ailsa M. Bruce 59,375 1/2 97,500
5. Paul Mellon 56,275 1/2 102,500
NOTE: Numbers of Aluminium and Alcoa common shares held by holding corporations for stockholders numbers 2, 3, 4 and 5 above on September 20, 1937, but not included in columns D and E of table 12, were estimated by (1) taking Aluminium and Alcoa common shares held by holding corporations (Aloxite, Ricsar, Coalesced and Ascalot) from schedule A to Exhibit 774 (exhibit p. 3722) and (2) assuming (exhibit p. 3728) that (a) Aloxite held one half of such stock in its hands each for stockholders numbers 2 and 3 above, (b) Ricsar held no Aluminium or Alcoa common stock, (c) Coalesced held one half of such common stock in its hands each for stockholders numbers 4 and 5 above and (d) Ascalot held all Aluminium and Alcoa common stock in its hands for stockholder number 5.
By comparing tables 12 and 12A it will be observed that the inclusion in table 12A of the beneficially owned Alcoa and Aluminium common stock in the hands of the holding corporations with what had already been incorporated in table 12 does not alter the result already stated in regard to the effect of time on the shifting of stock control of a corporation. On the contrary, it emphasizes and further illustrates that result. The primary purpose of table 12A is to safeguard against confusion or misapprehension.
Nevertheless, it is worthwhile to note the result of substituting table 12A for the 1937 figures in table 12. Thereby we can see with precision the number of holders of Aluminium common stock that would have been necessary on September 20, 1937, in order for their holdings then to constitute a majority if preceding that day the holding corporations had distributed to the Mellon children such of the common stock as was held for them.
It will be recalled that upwards of 338,368 1/2 shares of Aluminium common stock are required to constitute a majority. If tables 12 and 12A were combined in the way I have suggested, the minimum number of the holders of Aluminium common stock to make up a majority would have been eight (being the first eight named in column A of table 12). The total of their holdings would have been 347,354 shares.
There are two features of the situation, however, that should not be overlooked. These are that (1) on September 20, 1937, the eight Aluminium stockholders referred to held 711,550 shares of Alcoa common stock (nearly 25,000 less than a majority) and (2) on January 2, 1939, the eight held only 331,166 shares of Aluminium common stock (more than 7,000 less than a majority).
On the assumption as to 1937 mentioned, a recapitulation shows that the number of holders of Aluminium common stock needed to make a majority was 3 in 1928, 8 in 1937 and 11 in 1939. There is nothing in the evidence to suggest that this number will not steadily increase in size with the passage of time.
Accordingly, on review of all the evidence, I think that it would not support a finding of conspiracy between the stockholders of Alcoa and Aluminium or between either a large or a small group of those stockholders; nor would the evidence warrant a finding in regard to the conduct of the stockholders other than that they left officials of Aluminium a completely free hand in running the business of the company.
If in shaping the transfer of the foreign properties the purpose of Alcoa had been to retain control, then an easy way would have been to adopt the scheme suggested by the Government at the argument. Merely by turning over those properties to an Alcoa subsidiary, the control of all the properties would have remained complete and absolute in the hands of Alcoa.
As one ground for their attempted refutation -- as they insist, standing alone, constituting a complete refutation -- of the proposition of the Government, Alcoa and Aluminium rely on facts which will be presented in the form of several tables.
The first, table 14, is as follows:
Aluminium's and Alcoa's mill costs (in cents per pound) of producing aluminum pig, 1928-1937, computed on two plans.
Section 1. With profits of subsidiaries included:
A B C
Excess of A
Year Aluminium Alcoa over B
1928 11.41 10.64 .77
1929 11.35 10.06 1.29
1930 10.80 9.63 1.17
1931 11.00 9.21 1.79
1932 13.07 10.01 3.06
1933 12.55 10.43 2.12
1934 12.44 11.40 1.04
1935 10.86 10.23 .63
1936 10.11 9.32 .79
1937 9.19 9.15 .04
Section 2. With profits of subsidiaries omitted:
D E F
Excess of D
Year Aluminium Alcoa over E
1928 11.11 9.81 1.30
1929 10.93 9.41 1.52
1930 10.51 8.60 1.91
1931 10.75 8.51 2.24
1932 12.08 9.56 2.52
1933 12.09 10.30 1.79
1934 11.34 11.17 .17
1935 9.68 9.40 .28
1936 8.57 8.09 .48
1937 7.22 7.94 .72 (Less)
This table compares Alcoa's and Aluminium's mill costs of producing aluminum pig from 1928 to 1937. There is some controversy between Alcoa and the Government as to what such costs of Alcoa were. I have, therefore, taken the costs from the Government exhibits and that was acquiesced in by Aluminium. In so far as concerns the figures in the table relating to both Alcoa and Aluminium, counsel do not question their mathematical correctness for use in passing on the issue now under consideration. Their disagreement is only as to the effect to be given to the figures. Details of table 14 will be brought out hereafter.
The second table is 15. This is as follows:
United States taxes on imports of aluminum ingot and fabricated articles 1890-1939.
Years Ingot Sheet Foil Utensils factures
(Cents per pound and per cent ad valorem)
1894-1897 10** 35% 35%
1897-1909 8 13* 45% 45%
1909-1913 7 11* 45% 45%
1913-1922 2 3 1/2* 25% 20%
1922-1930 5 9 35% 11 55% 40%
1930-1939 4 7 40% 8 1/2 40% 45%
(26 Stat. 567; 28 Stat. 509; 30 Stat. 151; 36 Stat. 11; 38 Stat. 114; 42 Stat. 858; 46 Stat. 590, 19 U.S.C.A. § 1001 et seq.)
NOTE: Certain of the foregoing general rates have been modified in recent years by trade agreements. For example, the rate in ingot of Canadian origin was reduced to 3 in November, 1938 (U.S. Executive Agreements Series, No. 149), and the rate on foil of Swiss origin was changed in 1936 to 11 per pound, but not less than 20% nor more than 40% ad valorem (49 Stat., Part 2, 3917).
Table 15 sets out the tariff rates which for many years preceding January 1, 1939, applied to importations into the United States of aluminum and the products therefrom. There is no dispute about the figures. What the table shows is the tariff rates under the customs laws prescribed by the United States for various years from 1890 down to and including 1939.
The rates are in cents per pound or in percentages ad valorem. The table gives the rates in one form or another of the tariff tax on ingot sheet, foil, utensils and other manufactures. We are not much interested manufactures. We are not much interested in any of the figures except those in the last two lines of the table. The next to the last line shows that from 1922 to 1930 -- and we are interested during that period only with the rates from 1928 to 1930 -- the tax on the importation of ingot was 5 cents a pound and the last line shows that for the period of 1930 to 1939 the rate was 4 cents a pound. I shall not go into the rates set out in the table for the other aluminum commodities which are given. As I have said, these are sheet, foil, utensils and other manufactures.
Apparently on their face -- and I think the inference is well-nigh inescapable -- the rates, whether in cents per pound or in percentages ad valorem, were higher on every other type of aluminum importation than on ingot. For example, on sheet they were, as against 5 cents on ingot, 9 cents on sheet and, as against 4 cents on ingot later, they were 7 cents on sheet and so on. The facts in table 15 will be referred to again later.
The third table is 16. It is as follows:
Aluminium's sales of ingot to customers in different countries, 1928-1937.
1928 1929 1930 1931 1932
British Empire 25.0% 15.8% 5.4% 16.9% 24.6%
Italy 14.0 5.1 11.2 26.5 11.6
Total 39.0% 20.9% 16.6% 43.4% 36.2%
China .0% .0% .0% .0% 2.2%
Japan 10.7 5.6 7.6*a*a
Russia 1.4 2.5 19.4 .3 18.2
South and Central
America 1.5 .7 .6 1.7 2.2
All others 7.0 4.8 2.3 8.0 3.2
Total 20.6% 13.6% 29.9% 55.3% 63.7%
France .0% .3% 1.3% .6% .0%
Germany .5 .2 .3 .1 .0
Switzerland 1.6 4.5 4.1 .0 .0
United States 38.3 60.8 47.8 .6 .1
Total 40.4% 65.5% 53.5% 1.3% .1%
1933 1934 1935 1936 1937
British Empire 38.2% 41.5% 35.4% 39.7% 40.6%
Italy 21.3 17.7 13.9 11.0 5.1
Total 59.5% 59.2% 49.3% 50.7% 45.7%
China 4.4% .9% .7% .6% .5%
29.9 31.0 26.3 41.4 42.1
Russia 1.6 .0 .0 .0 .3
South and Central
American 3.3 6.8 3.3 2.0 1.9
All others .8 2.0 2.1 4.3 5.0
Total 40.0% 40.7% 32.4% 48.3% 49.8%
France .0% .0% .0% 1.0% .0%
Germany .0 .0 10.9 .0 1.5
Switzerland .0 .0 7.3 .0 .0
United States .5 .1 .1 .0 3.0
Total .5% .1% 18.3% 1.0% 4.5%
# Aluminum was produced to some extent in Japan commencing in 1934 and in Russia commencing in 1931 (Ex. 985).
This table is a little bit more difficult to understand or to follow than either table 14 or table 15. It is of considerable importance. It gives Aluminium's sales of ingot to its customers in various countries from 1928 to 1937, inclusive, I have divided the countries in which the sales were made by Aluminium into three groups. I designate these as group 1, group 2 and group 3. There is controversy about the grouping; whether it is correct. The contention of Aluminium, which in its brief furnished an arrangement of the figures corresponding very nearly to the arrangement of them in table 16, took the position that the three groups should be these:
1. What it called domestic markets.
2. What it called foreign markets with no domestic producer.
3. Foreign markets having a domestic producer or domestic producers.
As to whether that grouping is correct I shall say nothing at this time. Later the matter will be discussed fully.
You may note, however, that the results arrived at from table 16 as to the averages of Aluminium's sales from 1931 to 1937 were as follows:
(1) The sales into group 1 countries, to which Aluminium referred as domestic markets, were 49.1%;
(2) The like sales into group 2 countries, to which Aluminium referred as foreign markets with no domestic producer, were 47.2%;
(3) The sales into group 3 countries, to which Aluminium referred as foreign markets having a domestic producer or domestic producers, were 3.7%.
The last three figures, of course, make 100 per cent.
I think the bearing of the tables on the controversy here is clear. Nevertheless, I believe their significance can be better appreciated if, before going into details, there be further amplification of the facts showing the positions of Alcoa and Aluminium. Moreover, while there is little or no difference between counsel as to the arithmetical correctness of the figures that are used in the tables, there is vigorous dispute as to whether the computations are made up on correct theories. Because of this difference between the parties it seems to me better to deal with evidence not involving figures before taking up the tables further.
What the accused defendants say, in support of their denial of guilt of the charge with respect to not competing, has been partly set out heretofore; but if my presentation now is to be clear, I must indulge in some repetition. A summary of the statements of Alcoa and Aluminium, in essence, is as follows:
(1) The properties which Aluminium took over on June 4, 1928, -- especially when supplemented, as was then contemplated, by the later additions, -- in and of themselves were very valuable.If properly handled they were capable of development into a unified whole of very much greater value. Nevertheless, they were heterogeneous, incomplete and lacking in many respects. Out of the deficiencies there grew numerous problems.
(2) The largest and by far the most valuable properties were in Canada. Those properties included an alumina plant and two aluminum producing plants; but there were no adequate fabricating plants (pp. 16158-9; 21494-5; 22566-8; 22570; 40365-6). The alumina plant was positively inefficient. One of the aluminum producing plants was at Shawinigan Falls; the other at Arvida. It is important to remember that there were no adequate fabricating plants. That was an obvious handicap to Aluminium of large consequence.
(3) At the time of its organization Aluminium was supplied with sufficient bauxite deposits (located in British Guiana), but for making alumina therefrom it was solely dependent on a so-called dry process plant at Arvida. That was still then in the experimental stage. Ultimately (about 1930) it had to be abandoned and a Bayer process plant was constructed in its stead, -- which was completed in 1936. The dry process plant had proved to be too costly in its production. In addition, it would not eliminate titanium, which was a very objectionable element (pp. 13986-8; 16100-2; 16245-7).
Because it had no satisfactory alumina plant in Canada, from June 4, 1928, onward for several years Aluminium had to procure alumina from elsewhere. Some was made in the United States by Alcoa, by the Bayer process, at Alcoa's East St. Louis plant. The bauxite from which alumina was manufactured for it at East St. Louis was supplied by Aluminium. Some of the alumina that came to Aluminium was procured from Europe.
So also the absence of adequate fabricating facilities of its own in Canada for some years following 1928, before it completed its Bayer process plant, imposed on Aluminium the necessity of procuring much toll rolling. This was done by Alcoa in the United States of aluminum furnished by Aluminium.
(4) In June, 1928, Alcoa turned over to Aluminium very little cash. Aluminium began its career with quite a small working capital. Not only was there absence of cash, but the constituent companies of Aluminium also owed substantial current debts. Among those debts were considerable sums due by the subsidiaries to Alcoa. Again, Aluminium had to look forward to the necessity of meeting what it had engaged to pay for the three companies to be acquired, and agreed to be acquired, from Alcoa which had not been purchased for stock. The total of the payments was large. In round figures the amounts turned out to be: $95,000 for Laate-Foss, a small water power site in Norway; $1,558,000 (which was cost) for Prodotti, where an experiment with leucite to develop from it alumina as a by-product of potash was in progress; and $35,000,000 (that also being cost) for the assets of Alcoa Power Company. The last named sum was for two items: (a) the site at the Lower Development on the Saguenay River, acquired by Alcoa from Mr. Duke in 1925 at a valuation of $17,000,000, and (b) improvements installed on that site by Alcoa, composed of a dam, a power house and power equipment, at an expense of $18,000,000.
(5) Incidentally, it was matter of obvious self-interest for Alcoa to shape its own course with a view to promoting the collection of the debts mentioned. These were what was already owing to Alcoa by Aluminium's subsidiaries and what was to become due in future for the three companies which were to be taken over by it from Alcoa not already paid for in stock. In other words, it was plainly good business for Alcoa, as a creditor of Aluminium, to assist Aluminium to get on its feet, so as to be able to discharge its obligations to Alcoa.
(6) The assets of Aluminium located in the British Empire (chiefly in Canada) were a large proportion of what it had received from Alcoa. In 1932 (the earliest date for which the evidence affords information) they constituted nearly 70 per cent of Aluminium's entire investment. The proportion is still about the same.
(7) As previously said, the properties Aluminium received in 1928 included two reduction plants in Canada. Soon afterwards Aluminium succeeded in exchanging the stock it held in the Spanish aluminum producing company (item 16 of table 10) for the theretofore unacquired balance of the stock of the Italian aluminum producing company (Alluminio Italiano -- item 15 of table 10). Thus Aluminium came into complete ownership of the Italian company and of course ceased to have any interest whatsoever in the Spanish company. The total annual capacity of the Italian company was small. At the time it was 1,500 tons. Later it rose to 3,000 tons.
(8) In 1928 France, Italy and Switzerland imposed and ever since have imposed customs duties on the importation of aluminum. So far as disclosed, the sole abatement in these rates has been by Switzerland and that only on foil. This resulted from a reciprocal agreement between that country and the United States, entered into in 1936. Formerly it was necessary to procure a license from Germany in order to import aluminum into that country. That has been succeeded by a tariff which imposes taxes on imports of aluminum.
(9) Since some time in 1932 Canada has enjoyed the benefits of a preferential tariff system, which is widely prevalent throughout the British Empire. The new tariff system resulted from the so-called Ottawa Conference of 1932. Under the system aluminum and articles made from aluminum produced in Canada are entitled to admission free of duty into the United Kingdom, India and many other parts of the Empire. Non-Empire produced commodities of the same kind must pay an import duty, even when to other parts of the Empire, of 10 per cent.
It is crucial to understand the British Empire situation. Mr. Edward K. Davis made it clear in his annual report for 1932 to Aluminium stockholders. He there said (Exhibit 876, exhibit p. 4097):
"Of particular benefit to companies operating in the British Empire, are the trade agreements between Canada and the United Kingdom, Canada and Australia, Canada and New Zealand, and the United Kingdom and India, made pursuant to the program of the Ottawa Conference of July and August, 1932. With relatively unimportant exceptions, they give our products, made within the British Empire either free entry into these markets or preferential rates of duty over similar products of non-Empire countries. Other Empire trade agreements are in negotiation. The full benefit of the Ottawa trade agreements already made was not felt in 1932 since they were in operation only in the latter part of the year, but we anticipate that substantial benefits will accrue to our business on account of them."
At the trial (pp. 16114-21), on May 1, 1939, Mr. Edward K. Davis testified more fully about the situation. He expressed the view taken by Aluminium as to other countries and as to the British Empire as well. His description, which I accept, is so excellent that I think it worth while to quote from it at length.
He said --
"When Aluminium Limited commenced its business, it was not a very strong company; it was short of capital and the management of Aluminium Limited felt that the prospects of building up eventually a substantial business -- a profitable business -- for our group of companies was better in the relatively undeveloped parts of the world, places where the population, although enormous, had not yet reached a stage where they could use as much aluminum per capita as was the fact in the more developed parts of the world.
"The potential sales of aluminum to these undeveloped regions -- these highly populated regions -- looked very promising to us for the long run and we decided to spend our energies there rather than to enter more highly developed markets like the United States. * * *. In the British markets, although it is true that the British Aluminium Company was in operation in 1928, and for many years before, nevertheless we felt that the possibilities of large consumption of aluminum in the British Empire and particularly in the United Kingdom, were very much beyond what the British Aluminium Company was likely to build up to. So that in the United Kingdom we felt, admitting the existence of another company there, that we were not working against very heavy odds.
"In countries like India, China, Japan, in none of which countries at that time was there any production of aluminum, we felt that our efforts to build up a market for ourselves were at least on all fours with everybody else, and we did not admit that we were inferior in ability to get those markets. We believed, and it has since proved to be a fact, that the governments and people in authority in those countries and regions where we chose to develop our business, were quite cordial to the development of our business, and it was helpful and encouraging. In contrasting those instances with the possibility of developing not only a profitable but a permanent business in the United States, we recognized, firstly, that we were outsiders to the United States, and our plants were without exception outside of the United States.We recognized that in order to get into the United States market it required at least one initial step and that is to pay the duty, which in the early days of Aluminium Limited was 5 cents per pound on raw material -- raw aluminum -- later four and now [May 1, 1939] three from Canada, and we realized that to attempt to develop our business in an important way in the United States, even after taking into account these possibilities which I have just mentioned, would involve trying to get customers in a market which so far as aluminum is concerned is probably the best or as well served with respect to aluminum as any part of the world. The diversity of aluminum products in the United States is unequalled anywhere and the location, set-up and organization of the Alcoa has served to make aluminum easily available to everybody in the United States.
"On balancing the advantages and disadvantages and taking fully into account the fact that our plants and organization are foreign to the United States, we decided to spend our efforts in building up a business in the regions in which my company has principally dealt for the past ten years. But at no time have we ever renounced our right to extend our business to any part of the world we choose to, including the United States, France, Germany and Switzerland, and other countries which, like the United States, have a highly developed aluminum business. * * *.
"* * *. According to my judgment, to make anything even approaching a satisfactory job of building up a profitable and permanent market in the United States would have required a great deal of expenditure of money and time. * * *.
"* * * amongst the companies which were acquired by Aluminium Limited, were four or five companies which had been trained and built up to carry on selling operations in countries foreign to the United States, such countries as the Argentine, Brazil, England, Italy, India. The selling organization acquired by Aluminium Limited was distinctly a foreign, non-United States selling organization.* * *.
"* * * sentimentally a company in the British Empire employing British people, using British materials and paying taxes to British dominions enjoys quite a noticeable sentimental preference in the United Kingdom as compared with foreign countries. That is true not only of the trade but of the entire governmental authorities. During the past ten years the sentiment in Great Britain, which is described by the slogan 'Buy British', has been quite a powerful element in enabling British companies to deal successfully as compared with non-British companies in the United Kingdom and elsewhere in the British Empire. * * *.
"* * *. I won't say that the British put the Canadian companies quite on a par with their United Kingdom companies, but they recognize a solidarity.
"Q. But when a Canadian company comes to deal with India, Australia, New Zealand and other places, have you observed some of this sentimental advantage that you speak of? A. Yes, it exists.
"Q. And of course it exists in Canada? A. Yes."
The facts, so far recited, themselves have a direct bearing on the issue under consideration. They also constitute a background for weighing other evidence bearing particularly on the question whether there was an agreement or understanding between Alcoa and Aluminium to fix prices or to restrain imports, such as is alleged in paragraph 74 of the bill.
As I view the matter, not only has the Government failed to establish its charge or to adduce evidence which would justify a finding in its favor on the charge, but the evidence is convincing the other way:
(1) Aluminium, under the guidance of Mr. Edward K. Davis as its president, had clearly in mind all the factors I have mentioned and had in mind everything pertinent except a few things which probably could not be foreseen. These exceptions were fixing the precise amounts of debts and prices of property referred to, exchange of stock of the Spanish company for stock of the Italian company and later tariff changes.
(2) Mr. Davis also forecast the future with remarkable accuracy. He correctly appraised the "Buy British" spirit. In substance, he anticipated the establishment of the preferential tariff system of the British Empire, which was adopted soon after.
(3) He was familiar with the United States tariff system and he appreciated the effect tariff walls in other countries, like France, Switzerland, Italy and Germany, would have on trade.
(4) He believed that the best prospect for the success of his company was to extend its business within the British Empire, where at the time the aluminum business was much undeveloped, and elsewhere outside the British Empire, where previously the aluminum business had been wholly undeveloped or hardly developed at all.
(5) Accepting the facts to be substantially as I have stated them, without agreement (express or implied) between Alcoa and Aluminium, Mr. Edward K. Davis formulated, and under his leadership there has been executed, the plan under which Aluminium has operated ever since June 4, 1928.
I do not mean to imply that Mr. Davis has not had to adopt or to yield to some modifications. I do not mean that he has not sought advice. I am persuaded, however, that the Government has failed to show that he acted in combination with Alcoa or to show that there existed between Alcoa and Aluminium any agreement, expressed or implied, not to compete in each other's markets. This means that I am convinced that no conspiracy between Alcoa and Aluminium, such as the Government alleges in the bill, has been proved.
When Mr. Edward K. Davis began his task, both Canada and the United States were or seemed to be prosperous; but a financial crash followed in 1929. Almost continuously since 1929 business men have been forced to adjust their conduct to the depression which followed the crash. So far as affects the issue of whether there has been a conspiracy between Alcoa and Aluminium, such as is alleged in paragraph 74 of the bill, I am persuaded, however, that there has been no material change in the relations of Aluminium and Alcoa, as conceived by Mr. Edward K. Davis when he made his plan, and that through pursuing the plan he has led his company into its present position.
The Government recognizes that the officials of a manufacturing company are free, without infringement of the Sherman Act, bona fide to determine where, as a matter of good business and in the interest of their principal, its output had best be sold. At least I so construe what was said in the Government's original brief, pages 706-7. There, referring to the markets in which Alcoa and Aluminium had chosen to sell their products, the comment was this:
"if there existed adequate business reasons which would operate to make it unprofitable or undesirable for Alcoa and Aluminium Limited to cultivate each other's markets, the mere fact of their failure to compete standing alone would not be convincing evidence of conspiracy."
I think the statement just quoted is indisputably true. I think also that, on the Government's own test, Aluminium must be acquitted of having violated the Sherman Act by selling in the markets in which it did sell. With quite sufficient "business reasons" and influenced exclusively by those, as I see it, Aluminium's officials, on the facts in evidence, might reasonably have decided that it was undesirable to cultivate the markets which the evidence shows have been cultivated by Alcoa.
The inherent nature of the conduct of these officials did not necessarily, or even probably, embrace or bring about undue restraint of trade. It is relevant, therefore, to consider whether there was intent to accomplish that result. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 360, 361, 372, 53 S. Ct. 471, 77 L. Ed. 825; Apex Hosiery Co. v. Leader, 310 U.S. 469, 500, 501, 60 S. Ct. 982, 84 L. Ed. 1311, 128 A.L.R. 1044. On this issue, in circumstances indistinguishable in effect from those here, the applicable principle is well stated in Montpelier & W.R.R.R. v. United States, 2 Cir., 187 F. 271, 273. There it was said that "no man should be convicted of a crime for giving to a doubtful document an interpretation which an intelligent and honest man might easily adopt." While the Montpelier case dealt with a document, the rule as to the interpretation of facts must be the same.
At this point we might end the discussion on the question in regard to the companies choosing separate markets. Counsel have so earnestly pressed their divergent views as to the material embodied in the tables previously mentioned, however, that I feel they are entitled to have the Court express itself on the subject.
There are facts, condensed in two of the tables, without the consideration of which it would have been difficult and perhaps impossible for the responsible officials intelligently to steer the business courses of Alcoa and Aluminium, respectively, after they were separated on June 4, 1928. Of necessity those facts bore on what it was wise for the companies to do. Table 14 gives the companies' relative costs of producing aluminum. Table 15 gives the tariff rates on imports which had prevailed in the United States from time to time since soon after the organization of Alcoa.
As previously remarked, counsel do not disagree as to the arithmetical correctness of the figures in the tables. They do disagree, however, about the theory on which the first table should be made up and about the significance of the second table.
The accountant who prepared Aluminium's answer to interrogatory 179 thinks the profits of subsidiaries should be included in ascertaining the cost of producing aluminum pig (pp. 14883-6; 14933-8). Section 1 of table 14, which is designed for use in comparing the costs of the two companies, includes those profits. Section 2 eliminates them. As I understand its argument, the second section complies with the view of the Government. However, there is no occasion to determine which section is to be preferred, because I shall use section 2 as the Government prefers.
Ingot is produced by remelting pig. The cost of remelting is one-half cent a pound. The evidence shows, and by their conduct at least counsel have indicated they agree, that the comparative mill costs of the two companies producing pig (fully brought out in the evidence) afford a fair criterion for comparing the mill costs of producing ingot. In consequence, all pig costs have been used and counsel have acquiesced in their use.
Column C of table 14 purports to show that for each year from 1928 to 1937, inclusive, Aluminium's costs of producing pig were greater than those of Alcoa; column F, that for each year except 1937 the costs of Aluminium were greater and that in 1937 they were only .72 of a cent less than the costs of Alcoa. The fact, however, that the cost was less in 1937, -- that is, less by .72 of a cent, -- may be disregarded. This is true because the policy of each company toward trading in the territory in which the other traded had been determined long before then and has been followed ever since it was determined.
As I see it, the significance of section 2 of table 14 is that, when the companies decided on their business courses in regard to where to sell their products, both parties knew that they had to take into account that Aluminium's mill costs of producing aluminum ingot in Canada were greater than those of Alcoa in the United States. We have no way, with precision, of ascertaining how great was the influence of Canadian costs being higher. Nevertheless, the fact must be deemed, in some measure, to have retarded or contributed to retarding the coming of Canadian imports into the United States; especially when, in order to get into the United States, Canadian aluminum had to jump a tariff wall.
The evidence establishes that when aluminum produced in one country is sold in another country and the latter taxes imports, customarily it is, and long has been, sold duty prepaid by the seller. Table 15 shows that from 1928 to 1930, as I have previously called to your attention, the customs tax on imports of ingot into the United States was 5 cents a pound and from 1930 to 1937 was 4 cents a pound. I think it obvious that this tax has also been a factor. Necessarily it has hampered the selling of foreign ingot in the United States, though we cannot say exactly how much. If retardation had not resulted, would not our tariff laws have failed of their purpose and, in consequence, probably their rates have been increased?
This brings us to the discussion of Aluminium's sales of its ingot in various countries, the comparative percentages of which are stated in table 16. The only difference between the parties as to the figures is that in three instances (one in 1928, one in 1930 and one in 1934) there were variances of one-tenth of one per cent in computations. These differences are relatively petty. For that reason they will be ignored as counsel have ignored them, saying in substance that the figures in the tables are arithmetically correct. On the other hand, there has been much controversy as to how the tables should be construed; also as to what bearing the facts have on this case.
Aluminium, as I have previously explained, selected labels for each of the groups in table 16. It would prefer to have group 1 there called "domestic markets"; group 2, "foreign markets with no domestic producer"; and group 3, "foreign markets having a domestic producer."
In seeking to point out the significance of the table Aluminium's argument is as follows:
1928, 1929 and 1930 were within a period when, with the new relation between Alcoa and Aluminium in its initial stage, extraordinary things were happening. It suggests, therefore, that those years be disregarded. When the years 1931 to 1937 were reached, however, it appears that on the average 49.1 per cent (nearly half) of the sales by Aluminium went to markets in countries wherein neither the United States nor any other nation outside of the British Empire and Italy had a tariff advantage or its equivalent; also that an average of 47.2 per cent went to markets in countries having no domestic producer or having no domestic producer for a considerable part of the period and that a very small fraction (on the average 3.7 per cent) went to countries having a domestic producer or more than one such producer.
On the basis of these percentages Aluminium urges that its success is attributable or largely attributable to its having located itself where it could sell to countries wherein it would enjoy tariff protection or a similar preference which would not be accorded to an outsider and wherein it would not encounter a local producer of aluminum who would enjoy a position better than that of itself (that is, Aluminium). Accordingly, as Aluminium says, the table demonstrates that conspiracy cannot properly be deemed the cause of its growth or be deemed to have had any share in bringing about its growth.
The Government has not urged, and I do not believe it could sustain a contention, that, if Aluminium's analysis be correct, room would be left in the evidence for an inference of conspiracy. Hence, it is of great consequence to consider whether the analysis be correct.
The dispute about the table is confined to two points of classification. One relates to the British Empire; the other to Japan.
Aluminium urges that the British Empire in its entirety belongs to group 1 (domestic markets) and that Japan in its entirety belongs in group 2 (foreign markets having no domestic producer). On the other hand, the Government insists that only the part of the British Empire exclusive of the United Kingdom (which the Government says means exclusive of Great Britain and Ireland) should be retained in group 1; also that for the whole period, 1928 to 1937, the United Kingdom and, as I understand, that for the years 1935, 1936 and 1937 Japan should be transferred to group 3 (foreign markets having a domestic producer).
In support of its positions the Government points out, and it is not denied, that within the boundaries of the British Empire in 1928 to 1937 Aluminium produced no ingot except in Canada; while, apparently or impliedly, it urges that in Japan from 1935 to 1937 some ingot was produced by Aluminium and some by others.
Which of the contentions advanced by the litigants is right?
If we were merely faced with an academic debate, turning on words, I think there would be plausibility in an objection to calling the United Kingdom, so far as concerns its geographical relation to Aluminium, a "domestic" market. If the objection be good, however, it seems to me that it would lie equally to the remainder of the British Empire as well as to Italy and that, therefore, the class of domestic markets would have to disappear altogether from the table. I feel also that the difficulty arises wholly, and if not wholly, then certainly in great part, out of the lack of precision which characterizes and is widely prevalent in the English language. Nevertheless, if we discard form and consider substance only, I think it will be clear what Aluminium means by the word "domestic" when used in the phrase "domestic markets" to describe group 1.
In the first place, ever since shortly after the 1932 Ottawa Conference aluminum produced by Aluminium in Canada, without payment of import duty, could be sold in the United Kingdom and generally in other parts of the British Empire, whereas aluminum produced outside of the British Empire, without exception, has had to pay a 10 per cent import tax before it could enter the British Empire. Preceding the adoption of the 10 per cent tax Aluminium could avail of a somewhat similar advantage over a non-British Empire producer, through the practical operation of the "Buy British" slogan.
Moreover, as I see it, the sole purpose of Aluminium in employing the words "domestic markets" was to identify the class of countries into which, on account of a tariff or some equivalent or substitute advantage, commodities belonging immediately or derivatively to Aluminium could go, that was not applicable to commodities belonging to an outsider. Otherwise, why associate Italy with the British Empire?
As matter of substance, it must be recognized that the evidence shows that since shortly after June 4, 1928, through a subsidiary, Aluminium has owned an aluminum producing plant in Italy; also that it could sell its output within the confines of Italy without competition from aluminum produced in any other country unless a tax were first paid on the importation into Italy of the non-Italian produced aluminum.
I conclude, therefore, that for the purpose of the ingot sales table 16 there is no justification for removing from group 1 therein any part of the British Empire percentages.
So far as concerns Japan, I think there are three grounds against removing its 1935-7 production figures from group 2.The first is that Aluminium's determination to adopt its program was made long previous to 1935 and there is no evidence from which, if there were no conspiracy previously, one could be inferred which began in 1935 or thereafter. The second is that, as appears by the table embodied in the Government's April, 1941, supplemental brief at page 37, in the three years, 1935-7, taken as a single period, Aluminium's sales of aluminum in Japan exceeded the total production of aluminum there by all producers combined. The third is that from the evidence it is to be inferred that Aluminium did not produce ingot in Japan, but that the ingot it sold there was imported (p. 16261; Aluminium answer to interrogatory 195, exhibit pp. 191, 205).
The comparison to which I have just referred is set out in table 17, which is as follows:
Comparison (in pounds) of (a) sales of aluminum in Japan by Aluminium with (b) the total production of aluminum in Japan by all producers, 1935-7.
Sales of alumin- Production of alu-
um in Japan by minum in Japan by
Year Aluminium all producers
1935 7,222,325 8,818,400
1936 12,306,408 14,770,820
1937 28,462,784 23,148,300
Total 47,991,517 46,737,520
NOTE: Column A is from Aluminium's answer to interrogatory 166 and includes sales made for the account of the other parties to the Zurich Agreement. The figures in column B are from the Government's supplemental brief, while for the same items the figures (in pounds) in Ex. 985 are 8,806,400 for 1935; 14,750,720 for 1936; and 23,116,800 for 1937 (making a total whose difference from the total in the brief is immaterial).
This table contrasts Aluminium's sales of aluminum in Japan with the total production of aluminum in Japan by everybody from 1935 to 1937.
It will be noted that the total of these sales, which are shown in column A, exceeds the total production, which is stated in column B. Why that is true is not unambiguously clear. I have discovered in the evidence no definite explanation, though of course the indication is plain that there was importation of aluminum into Japan. If the evidence were fully developed on the point, possibly complete information about the sales under the Zurich Agreement (hereafter mentioned) might shed light. Yet it is to be noted that, in table 16 (Aluminium's sales of ingot in different countries) sales for all parties to the Zurich Agreement (1931-7) were included. In order that the two tables relating to the same general subject matter might be considered together and compared, if all the relevant facts had been brought out, it would seem that both should have been made up on the same plan.
It will be noted further that its heading shows that table 16 (Aluminium's sales) concerns only ingot, while as framed the heading of table 17 (comparison of Japan's sales and production) speaks of aluminum. It may be suggested, therefore, that different articles have been compared. I think there should be explanation of why aluminum is employed in the headings of table 17.
The reason for my wording the headings of table 17 as I did is that in its table (April, 1941, brief, p. 37) the Government used the word "aluminum"; but reference to Aluminium's answer to interrogatory 166 shows that the figures in column A actually relate to ingot and alumina, while Exhibit 985 indicates that the figures in column B deal with aluminum (though possibly meaning ingot). Even if, however, the figures in column B include some commodities other than ingot, that would be of advantage to the Government.It, therefore, has no ground of complaint of the tables.
In the way described, I have reached the conclusion that there is no support, save in respects which are wholly immaterial, for the Government's criticism of table 16 (that is, the table of Aluminium's ingot sales in foreign countries).
There is one additional circumstance of weight.Whild I direct attention to it, I am not forced to rely on it for support of the view I take on the present branch of the case.
Apparently the local Japanese company on which the Government chiefly predicates its contention that for the years 1935-7 Japan should be removed from group 2 is Sumitomo. If so, it may be well to note that Aluminium owns half the stock in that company and that company is not shown to produce aluminum, but confessedly is engaged in manufacturing sheet and foil (p. 16261). Indeed, as heretofore said, the inference from the proof seems inescapable that neither Sumitomo nor Aluminium produces or has ever produced aluminum in Japan and that what it fabricated or sold was imported.
Accordingly, I think the evidence does not warrant the removal of Japan from group 2 of table 16.
I believe that a good many additional phases of the facts fortify the views I have expressed about table 16 and its significance, as well as generally about the question of conspiracy between Alcoa and Aluminium subsequent to June 4, 1928. It would unduly prolong my statement, however, if I should undertake to cover all of them. Yet it may be worthwhile to mention a few things which strike me as impressive.
First: When the 1928 transfer occurred, with it went to Aluminium a system of offices and sales agencies, theretofore organized and maintained by Alcoa, in the United Kingdom and sundry other countries outside of the United States. Many of those were continued and additions were installed by Aluminium in the foreign countries where it made sales. On the other hand, Alcoa retained its own numerous offices in the United States. These were strategically located throughout the United States and were well equipped with trained salesmen. On the other hand, Aluminium did not take over from Alcoa, nor has it ever since provided itself with a sales organization in the United States.
Aluminium has had in the United States a single general office, where were stationed a few of its officials; but no one there ever has been engaged in making sales to the general trade in the United States. Moreover, following the 1982 transfer, after Alcoa's sales representatives outside of the United States had passed into the employment of Aluminium, no effort was made by Alcoa to fill their places or to form an alternative type of organization nor has it since supplied itself with sales representation in foreign countries.
In those circumstances it would have been strange if, after June 4, 1928, Aluminium had made large sales in the United States or Alcoa had made large sales in Canada or elsewhere outside of the United States to the general trade. The lack of such sales, therefore, does not justify an inference that absence of sales by each to the markets of the other, respectively, is attributable to agreement between Alcoa and Aluminium to that end.
Second: With the coming in 1937 of the prospect of war in Europe, without having soliciting agents stationed there (i.e., in Europe) to seek orders, Alcoa's sales for shipment to European countries were considerable. In 1937 the amount of those sales, of which there were direct shipments by Alcoa to foreign customers, was 1,875,118 pounds; in 1938 was 12,717,465 pounds; and in 1939 to June 19th was 19,092,459 pounds.
As bearing on Alcoa's intent, it was also shown in evidence that there were sales by Alcoa to its local customers in the United States for shipment abroad, as it was informed in advance and for which it packed the goods in a way indicating their preparation for foreign shipment, of 1,326,465 pounds in 1937; 5,525,424 pounds in 1938; and 5,479,333 pounds in 1939 up to June 19th.
The figures of both types of sales for 1937 total 3,201,583 pounds; for 1938 they total 18,242,889 pounds; and for 1939, January 1 to June 19, they total 24,571,792 pounds.
These sales apparently were made to any foreigner who desired them. They are an indication, at least, that Alcoa either was not, or did not feel that it was, prohibited by agreement from selling aluminum abroad in 1937, 1938 and 1939. If not restrained in those years, there is no basis for inferring that it was so restricted in preceding years.
Third: On approaching the problem in an entirely different way, there seems to me to emerge from the evidence another ground for believing, or at least one which corroborates the belief, that during the period in question there never was an agreement between Alcoa and Aluminium not to compete in each other's markets. This is that the outcome demonstrates that the plan adopted by Mr. Edward K. Davis was of great benefit to Aluminium and probably of greater benefit than any other plan would have been. In retrospect this result appears so clear that I should hesitate to believe that one of his business acumen ever would have hampered himself, or incurred the peril of injury to his company, by abdicating its right to compete in the United States, if, in his judgment, occasion should arise.
What has Aluminium accomplished in the approximate ten to eleven years which have intervened between its organization and the giving of testimony at the trial? The evidence shows a great many things. Some of these are as follows:
(1) In 1928, when formed, Aluminium (including its constituent companies) owed upwards of $25,000,000 (created preceding June 4th) and shortly thereafter contracted other debts to Alcoa. These ran the total to above 33 millions (Exhibit 775). By June 30, 1930, their total had been reduced to 20 millions, for which bonds had been issued in 1928. Omitting obligations incurred for after-acquired property, the total indebtedness of 33 millions has been practically wiped out. At the time testimony about it was taken at the trial, the unpaid balance of $20,000,000 of bonds had been called and Aluminium had set aside the money with which to pay it (pp. 16140-1). It may be safely assumed that this balance has since been actually paid.
(2) The number of Aluminium's employees in 1928 was about 4,000. By 1939 they had increased to between 12,000 and 16,000; that is, to three times or more.
(3) The number of its offices and agencies throughout the territory in which it sold its output has greatly increased. It is difficult for me in precise terms to say how great that increase was, because it was chiefly delineated by manikins on a map.
(4) Its annual production at Arvida had increased from at the rate of 60 million pounds in 1928 to about 150 million pounds in 1938 and had largely increased at Shawinigan Falls, where in 1928 to 1937 the capacity was about 33 million pounds (pp. 14274-5; 14277; 16125-7).
(5) Aluminium now has in Canada a complete system of well integrated plants needed for the operation of an aluminum manufacturing and fabricating company. You will recall that in 1928 the company has two aluminum producing plants and experimental alumina producing plants and very inadequate fabricating plants.
(6) In 1939 Aluminium's business had increased over what it was in 1928 by threefold.
(7) Extracts from Aluminium's consolidated balance sheets for 1932 and 1938 are set out in table 18. This is as follows:
Extracts from Aluminium's year-end balance sheets (round figures).
1930*b 1932 1938
Assets $65,000,000 $68,000,000 $86,000,000
Surplus $ 3,000,000 $19,540,000
Deficit $ 108,000
NOTE: The 1930 figures are from Ex. 388; those for 1932 from Ex. 876; and those for 1938 from Ex. 878. The 1938 surplus consists of $19,000,000 earned surplus and $540,000 capital surplus.
In the first line of this table there are set out at the left, assets; in the second line, surplus; and in the third line, deficit. The round figures are given in three columns. The first is for 1930, the second is for 1932 and the third is for 1938. These are as follows:
Assets: in 1930, $65,000,000; in 1932, $68,000,000; in 1938, $86,000,000;
Surplus: in 1930, $3,000,000; in 1938, $19,540,000;
Deficit: in 1932 of $108,000.
In the circumstances I feel that, on the evidence, it would be little short of preposterous to infer that the failure of Alcoa and Aluminium to sell in substantial quantities in the home territory of the other was attributable to agreement between them not to do so.
The Government has advanced a number of arguments to the contrary. Several, which impress me as typical, will be taken up.
First: It is alleged in paragraph 74 of the bill that the United States is a "logical" market for Aluminium; yet that, instead of selling to customers there, where it is located just next door, Aluminium went to the opposite side of the world to sell in Japan. It is contended that this points to conspiracy between Alcoa and Aluminium.
Sufficient answers are that the Sherman Act does not render it unlawful to be illogical and that it is not the Court's function to say where a litigant shall carry on its business. In the absence of governmental regulations no outsider is authorized to prescribe where business shall be done. On the contrary, the owner of a business is free to exercise his own judgment so long as he does not disregard some prohibition. As has been frequently said, the Act is composed of a mere set of prohibitions. Our sole concern, in the the present branch of the case, is to discover whether one of those has been infringed.
So far as I can see, the record does not contain evidence which would warrant a finding that propinquity should have governed Aluminium. Moreover, when the outcome of Aluminium is taken into account, I believe that it becomes manifest that no one can successfully maintain that the policy of Aluminium officials was wrong or even was a mistake.
Second: It is urged that Aluminium lost by not selling in the United States. To establish this prices of 1936 and 1937 are compared.
The Government arrived at its 1936 result in this way: to ascertain the expense of Aluminium it combined as production costs (at Arvida) 10.795 cents per pound; as tariff duty, 4 cents per pound; and as transmission expense to a United States destination, .79 cents per pound, making a total of 15.585 cents. For Alcoa's price it took the one year's average of prices at actual sales as 18.82 cents. By deducting 15.585 cents from 18.82 cents it computed Aluminium's profit at 3.235 cents per pound.
In 1937 the current production cost at Arvida was the lowest at either Canadian plant during the entire period from 1928 to 1937. By an identical method, using the Arvida production cost, the Government computed the 1937 profit as 5.827 cents (Aluminium's answer to interrogatory 179, p. 29 of the sealed volume; Exhibit 1701).
The Government's method, however, impresses me as faulty. There are several defects. Two will be mentioned. The first is that if Aluminium had sold in the United States as a general practice, obviously it would have been essential that it establish and maintain sales offices and sales agents there. If so, the expense would have had to be deducted before it could have been determined whether it would have earned any profit at all. Not only is the amount of such expense not included, but it is not known. In the second place, the Government rests its computation of Aluminium's cost of selling on Aluminium's answer to interrogatory 179. The interrogatory deals only with cost of production, -- not with sales costs. As was pointed out by the accountant who prepared it, whose testimony is without contradiction (pp. 14877; 14887-91), general overhead expense (p. 36, in item (k) of the sealed answer of Aluminium to interrogatory 182) has been almost entirely omitted and other items of expense of Aluminium's selling in the United States, specified by him, have been omitted from the overhead item carried in the answer to interrogatory 179.
In addition, it is not to be forgotten that our inquiry is whether the facts compel or justify an inference that conspiracy between Alcoa and Aluminium was the cause of Aluminium's refraining from selling generally in the United States. As I see it, there is nothing to show that this was the cause.
The decision of its officials as to whether it would be best for Aluminium to sell, and, therefore, to equip itself to sell generally in the United States involved a long-range view and a comprehensive inquiry. For example, in 1936 and 1937 the import duty on aluminum coming into the United States from Canada was 4 cents a pound. Yet, as the tariff table discloses, the rate once had been 15 cents a pound. If, through a shift in Governmental policy, the United States had gone back to 15 cents a pound (11 cents a pound greater than the 4 cents tariff actually applying) not alone would the so-called 1936 profit of 3.235 cents and the so-called 1937 profit of 5.827 cents a pound have disappeared, but the 15 cents rate would have been absolutely prohibitive.
Third: Aluminium had an office in the United States at Pittsburgh up to 1930. Since then it has had an office in New York City. Mr. Edward K. Davis and, from time to time, one or two others who, while in the service of Alcoa, had had experience in selling, have been stationed at Aluminium's United States office. On this account the Government insists, in effect, that Aluminium has been equipped with an adequate sales force in the United States.
The answers are that the officers referred to had other duties; also that, in order to match an extensive and capable force such as Alcoa used in selling throughout the United States, Aluminium would have needed a fully equipped corps of skilled salesmen, stationed in various places, whose employment on the work would have been constant and would have entailed large expense. In these circumstances the matter for determination by Aluminium officials was whether, as matter of policy and in the interest of Aluminium, it was wise to sell in the United States. An unavoidable incident to deciding the question was to take into account the size and the probable expense of an organization for pushing sales in the United States.
Fourth: The Government calls attention to the fact that in table 16 (Aluminium's ingot sales in different countries) the percentages of Aluminium's sales which went of the United States in 1928, 1929 and 1930 were much larger than in later years. From this it is urged, in substance, that an inference should be drawn that the amount of annual sales snce 1930 has been fixed by agreement, rather than from fair consideration of the merits.
It seems to me, however, that, without even a suspicion of collusion, there is very rational explanation of the course followed by Aluminium. This explanation rests on uncontroverted facts.
In 1928 there were deliveries on commitments outstanding on June 4th. In the two years following there were deliveries on purchases by Alcoa from Aluminium contracted for in 1929. One was for 10,000,000 pounds arranged for in May and the other for 42,000,000 pounds arranged for in October. The delivery suchedules ran well into 1930 (Exhibit 391). As previously indicated, the evidence is quite persuasive that the seller (Aluminium) was satisfied with the terms, because it brought quick money, of which need was pressing; and that the buyer (Alcoa) not only needed the additional supplies, but had a strong motive to assist the seller so as to assure its success.
The Government has also criticized the prices at which the 1929 sales were made. It insists that they were lower than average sales prices at the time in the United States.
In contrasting these average sales prices with the criticized contract prices, however, the Government takes no account of, nor does the evidence afford means of taking precise account of, the quantities and terms involved (including the place or places of deliveries) or their effect. It has been abundantly shown that those omitted features vitally affect prices. Without the missing evidence there can be no fair determination; nor can it even be inferred that there was a conspiracy from contrasting the prices at which large bulk sales were made with the prices at which small retail sales were made.
Disregarding details, however, it is plain that, whether the prices at which Aluminium sold to Alcoa in 1929 were higher or lower than a trier of facts might himself today feel they should have been, at least the difference above or below the Court's present standards would carry no implication that in 1929 there existed an agreement between the seller and the buyer with respect to whether either would sell or would not sell in the market of the other.
Again, as already indicated, the record furnishes ample explanation of the 1929 purchases. At the time Aluminium was low in cash. Alcoa had a vital stake in Aluminium's succeeding. If Aluminium did not succeed the chance of Alcoa Later collecting from Aluminium the sales prices of the three companies which had been included in the 1928 transaction and were later transferred to Aluminium would have been diminished. Nevertheless, even if it be true (though it has not been proved) that in 1929 Alcoa bought from Aluminium more aluminum than it needed, it has not been shown, nor does the record contain sufficient evidence on which to base a finding, that the prices at which the purchases were made were unduly favorable to Alcoa.
Fifth: Mr. Babson of the Baush Company described an incident which he stated occurred in New York City in 1931. He testified that he sought to buy aluminum from Mr. Van Alstyne of Aluminium. At their meeting, according to Mr. Babson, Mr. Van Alstyne refused to sell and said that Alcoa was then the agent of Aluminium for making sales for it (Aluminium) in the United States (pp. 3092; 3132-3). Though accessible, Mr. Van Alstyne was not called as a witness.
On this account the Government urges, in effect, that it be taken as true that in 1931 Alcoa was the agent for Aluminium for making sales in the United States of Aluminium's aluminum. On the contrary, Alcoa and Aluminium insist that the Government has not made out a prima facie case and, hence, that there was no occasion to refute Mr. Babson's statement. For support they rely on Galbraith v. Busch, 267 N.Y. 230, 196 N.E. 36 (see also Lahr v. Tirrill, 274 N.Y. 112, 8 N.E.2d 298).
I do not concur in the position of either side, -- at least in the way I understand and have stated the contentions of the parties.
On the one hand, an unavoidable premise of the Government's argument, as it seems to me, is that by neglect of a party to introduce available testimony of a friendly witness directly contradicting or designed to contradict the version of a conversation given by a witness for his opponent, the conversation as related acquires a kind of sacrosanct quality and is entitled to be accepted by the Court as true. If so, the premise is unsound in principle and flies in the face of court decisions, later mentioned, which govern me.
On the other hand, I do not think I can properly say, in the sense of the expression as used in Galbraith v. Busch, that the Government has failed to make out a prima facie case. At the March, 1941, oral argument on the present issue, as then presented, I was inclined toward the defendants. Further consideration has led me to feel, however, that the facts remove the question from coverage by the rule they invoke. At least, as I think, there is great uncertainty on the point. So also, in view of testimony Aluminium brought out by its cross examination of witnesses put on by others, I should doubt whether the situation, as it affects Aluminium, is so changed as to bring it within Lahr v. Tirrill. In consequence, in search of a solution, I have gone into the authorities from a wholly different angle.
Manifestly, the absence of Mr. Van Alstyne as a witness has not supplied and cannot supply any fact which is not supported by credible substantive evidence separately adduced. Northern Railway Co. v. Page, 274 U.S. 65, 74, 47 S. Ct. 491, 71 L. Ed. 929; Mammoth Oil Co. v. United States, 275 U.S. 13, 52, 48 S. Ct. 1, 72 L. Ed. 137. It is for this reason that I completely reject the Government's theory. On the other hand, it is the duty of the trial judge, along with all the other facts in evidence, to take into account the silence of Mr. Van Alstyne and to determine "the weight to be given" to such silence, United States ex rel. Vajtauer v. Commissioner of Immigration, 273 U.S. 103, 112, 47 S. Ct. 302, 71 L. Ed. 560.As said with respect to a person having an attitude friendly to one side, such as Mr. Van Alstyne must be assumed to have had at least toward Aluminium, his silence would be "a proper subject of comment". Kirby v. Tallmadge, 160 U.S. 379, 383, 16 S. Ct. 349, 350, 40 L. Ed. 463. As also said, it would be "permissible" to infer that he was not in position to deny what had been ascribed to him (northern Railway Co. v. Page, 274 U.S. 65, 74, 47 S. Ct. 491, 71 L. Ed. 929); it would be "persuasive" that, if he had testified, what he said would have been unfavorable (Interstate Circuit v. United States, 306 U.S. 208, 226, 59 S. Ct. 467, 83 L. Ed. 610); and it would be fair argument for the other side. United States v. Cotter, 2 Cir., 60 F.2d 689, 692.
The decisions just referred to completely refute the Government's proposition. Moreover, when the difference in the facts in the case at bar from the facts in the New York cases is kept in mind, it will be clear that there is no material variance between the Federal and the New York cases heretofore cited. Neither the New York courts nor the Federal courts have peremptorily prescribed the weight to be given to testimony which has not been specifically denied. The trial judge determines its weight, just as he determines the weight of other testimony.
I have discovered no case in a court of good standing for its learning that goes so far as to hold that, in circumstances such as those with which we are dealing, a trial judge is deprived of the power or relieved of the obligation to determne the weight of the testimony actually before him. While such testimony cannot lawfully be ignored, yet, as in all other instances, though not directly contradicted, the Court is bound to decide the extent of its credibility.
Accordingly, in order to discharge the responsibility imposed by the controlling decisions, I have reviewed all the relevant evidence bearing on the alleged admission that Alcoa represented Aluminium in making sales of Aluminium's aluminum in the United States. In doing so I have given to the undenied Babson-Van Alstyne conversation the full weight to which I deem it entitled.
When considered in its entirety, the evidence convinces me that Aluminium did not engage or authorize Alcoa to represent it in making sales of Aluminium aluminum in the United States. So to have engaged or authorized Alcoa would have been to do one of the very things which the evidence thoroughly establishes Aluminium was in fact scrupulously careful to avoid. And I may add that, in the circumstances, it is inconceivable that Mr. Van Alstyne would have made a statement such as attributed to him by Mr. Babson.
In reaching the conclusion just stated, I expressly disclaim any intention of accusing or even suspecting Mr. Babson of knowingly telling a falsehood. I mean merely to say that I think he was mistaken and failed either to comprehend or to recollect with accuracy what Mr. Van Alstyne said.
In consequence, I feel that none of the Government's counter-arguments is persuasive and I adhere to the view that failure to trade in each other's markets is not ground for inferring that Alcoa and Aluminium were in conspiracy.
I come now to consider the last ground on which the Government has predicated its contention that there was conspiracy between Alcoa and Aluminium during approximately ten or eleven years subsequent to June 4, 1928. Two grounds have already been discussed at length. If feel, however, that it would be wasteful to go into details about the third, because it has been sufficiently dealt with in what has been heretofore said.
If I am to adhere, as I do adhere, to what I have said with respect to the first and second grounds, then, consistently, the evidence with regard to the relations of the parties must be deemed insufficient to sustain a finding that, in the period under consideration, Alcoa and Aluminium conspired to restrain trade or to restrict imports or otherwise to violate the Sherman Act.
What did the parties do? To answer the question it will be enough to give a brief outline of the outstanding features of their conduct.
When the foreign properties were separated off from Alcoa and passed into the hands of Aluminium, they lacked a great deal which would have been essential to constitute a well rounded manufacturing and selling enterprise. Aluminium was not adequately equipped to produce alumina or to fabricate from aluminum. On the other hand, Alcoa had an excess of precisely what Aluminium did not have. For the time being, therefore, there was a strong mutual interest in the exchange of surplus for deficiency.
Moreover, Aluminium had way below the cash it required. Within but little more than a year after the June 4, 1928, transaction a world-wide depression began. In varying degrees this has continued ever since. In order to meet obligations undertaken as part of the June 4, 1928, transaction, and obligations which would arise later, Aluminium had to get money; preferably, of course, by earning it. Much of Aluminium's existing debts were owing, and much of its future debts would be owing, to Alcoa. It would have been a great misfortune to Alcoa if what it had transferred were thrown back on its hands. In consequence, it had a vital concern in the success of Aluminium. It was a matter of intelligent self-interest to help Aluminium succeed.
Another aspect of the problem was that, outside of selling, the prior experience of the head of Aluminium had ill equipped him with information about many of the foreign companies taken over. In order to form sound judgments as to their conduct, such information was essential. Where could he procure it? What was more natural than that he should seek it from Mr. Arthur V. Davis or others in the Alcoa organization?
The circumstances described seem to me sufficiently to explain the associations and the transactions between the two companies, their officials and employees, on which the Government bases its criticisms.
As I view the facts in their entirety, they do not warrant any other significance being ascribed to them. It seems to me that it is only by misinterpretation that a conclusion of misconduct can be tortured out of the evidence.
Again, gradually Aluminium has become a complete and independent organization. For the most part at varying dates, beginning in 1931 and running to 1934 or 1935, the quantum of the assailed relations has gradually but steadily diminished. Those relations, in their substantial features, were never more than temporary.At about 1935, except for closing up the Alcoa Power Company transfer and a few trifling matters, the associations and the help, which had been absolutely necessary earlier, had practically come to an end.
With the evidence affording a natural and reasonable interpretation which would relieve the post-1928 relations of any sinister meaning, I see no occasion for setting it out more fully than the outline I have given of the occurrences in the way I have done. Yet, after considering it all, I feel that in no event is there justification for inferring that during the period of 1928 to 1939 there was a conspiracy between Alcoa and Aluminium such as the bill charges.
(4) Relations of Alcoa to Foreign Aluminum Producers after June, 4, 1928
We come next to consider the relations of Alcoa to the foreign producers from June 4, 1928, to date.
In paragraphs 75 to 82 it is alleged that the substance of the conspiracy was to restrict imports to and fix prices in the United States.
Except for one piece of evidence, the Government charge of Alcoa's connection with the conspiracy was that it was through Aluminium.
There are five aspects, or sub-periods, of the longer period from June 4, 1928, to date:
The first sub-period is June 4, 1928, to July 2, 1931, relating to the 1928 cartel.
The second is from July 3, 1931 to December 31, 1935, which relates to the Alliance foundation agreement.
The third is from January 1, 1936, to March 31, 1938, relating to the so-called 1936 cartel.
The fourth is since April 1, 1938, and may be spoken of as the sub-period of preparation for war and war.
The fifth, not directly related to the other four, is from 1929 to 1937, relating to certain marketing agreements.
The chief controversy is about the Alliance. I shall put that aside for the moment. I shall first discuss all the other sub-periods and then take up the subject of the Alliance.
The testimony as to the so-called 1928 cartel is vague, incomplete and quite uncertain. The Government relies, and there is nothing else on which it can rely in regard to the matter, on four conversations of American business men with foreign producers or their representatives. One of these was in 1929; two were in 1930; and one was at a somewhat uncertain date in the period from 1920 to 1930. The Government also relies on the fact, as it says, that Aluminium usually followed the 1928 cartel prices.
The first conversation was by Mr. Babson with Mr. Kaufman of the Swiss company. This is said to have occurred in 1929. There is further testimony by Mr. Babson as to conversations he had with American agents of various foreign producers in the United States during the period from 1920 to 1930 (pp. 3056-63A; 3095-3128; 3150-1). The next conversation is one by Mr. Haskell with Mr. Kaufman of the Swiss company, which took place in 1930. Another by Mr. Haskell with Mr. Morrison of the British company occurred in the same year (pp. 2317-35).
Mr. Babson gave substantially this account of the conversation he had with Mr. Kaufman of the Swiss company in 1929:
Mr. Babson says he asked Mr. Kaufman for a quotation for use in the United States (meaning aluminum to be used in the United States). He says that Mr. Kaufman replied that the price would be substantially the same as Alcoa's. Mr. Babson added that he thought Mr. Kaufman said that the price was fixed; that it would be the same irrespective of where he (Mr. Babson) got the metal.
As to the period from 1920 to 1930, Mr. Babson testified that, from time to time, he tried to get price quotations from the import agents in the United States of the four major European producers. He said that he got none lower than Alcoa's quotations and that the price was always substantially the same as the price of Alcoa (pp. 3056-63A; 3095-3128; 3150-1).
Mr. Haskell told of his conversation with Mr. Kaufman of the Swiss company in 1930. He said he asked Mr. Kaufman for a price of aluminum for use in the United States and Mr. Kaufman referred him to his (Mr. Kaufman's) New York agent and said the price would be the same as that of Alcoa.
Mr. Haskell said that he did not remember Mr. Kaufman saying anything about breaking the cartel price. He says that at the previous meeting, or at previous meetings from 1924 to 1930, Mr. Kaufman had refused to break the cartel price.
He said, however, that Mr. Kaufman referred to contracts abroad and that he (Mr. Haskell) inferred that the reason Mr. Kaufman would not break the price in the United States was that there had been an agreement; but he repeated that this was an inference on his part. He added that he had failed to get a material concession in the price of ingot (pp. 2317-29).
Again, in 1930, Mr. Haskell had a conversation with Mr. Morrison of the British company. Of this his account, in substance, is as follows:
When I asked a price on aluminum in the United States Mr. Morrison referred me to his New York agent and I think said that the price would be that of Alcoa. This is what I was generally told by foreign producers in the period of 1919 to 1930. Mr. Haskell further said he did not remember Mr. Morrison saying anything about an arrangement he had with Mr. Davis; that he does not remember Mr. Morrison saying the arrangement he had related to the United States, but that he (Mr. Haskell) inferred that it did. He said also that he did not ask a quotation on any particular amount nor did he discuss deliveries.
He added that no doubt he (Mr. Haskell) had in mind his treble damage suit then pending against Alcoa and that he was seeking information which he thought would be helpful in that suit. He said also that the foreigners might have assumed from the nature of the conversation that he (Haskell) was not seeking actual purchases of aluminum. Lastly, he said that he was unable to distinguish between his recollection and his inferences (pp. 2329-35; 2691-6).
Doubtless you will recognize what I have just summarized as the identical conversations subsequent to 1928 which I recited a few days ago. They constitute the only instance, after June 4, 1928, in which the Government claims that there was any direct evidence bearing on the connection of Alcoa with any cartel.
As heretofore said, however, the testimony of the American business men I have referred to is about relations of Europeans themselves with each other and to their own 1928 cartel; also that it has no reference to Alcoa and consists of mere inferences. I think it is too indefinite to overcome square denials. When I was discussing this testimony a few days ago, in conjunction with other conversations which occurred preceding June 4, 1928, between the American business men and the foreign producers or their representatives, I gave you fully my reasons for reaching the conclusions just stated.
There were square denials of the truth of the facts as they purport to have been recited or related by these witnesses in the conversations after June 4, 1928. If find in the evidence no justifiable basis for inferring otherwise than that the denials are true.
There is testimony that Aluminium agreed to observe the 1928 cartel prices between July 3 and October 21, 1931; that is, between the date on which the socalled Alliance foundation agreement was signed and the date of the organization of the Swiss corporation that was organized for the purpose of executing or carrying out the terms of the foundation agreement. On the other hand, Aluminium was never a member of the 1928 cartel (pp. 16199-200). It only followed that cartel price of the 1928 cartel when it chose to do so. There is no basis in the evidence supporting or for inferring anything else.
So also Alcoa was never a member of the 1928 cartel. There is no credible evidence to sustain the contention that it was a member of that cartel. On the contrary, the undisputed evidence is that when Mr. Marlio and when Mr. Morrison, in the latter part of 1927 or the early part of 1928, endeavored to induce Mr. Arthur V. Davis to have Alcoa join the cartel, there was an absolute and unequivocal refusal to do so.
Skipping now, though I shall return to it, the testimony as to the Alliance, we come to the so-called 1936 cartel. You will recall that the Alliance was terminated as of January 1, 1936. It had no life after December 31, 1935. The testimony in this case -- testimony, be it noted, which was undisputed -- is that Alcoa officials never even so much as heard of the existence of a 1936 cartel until it was mentioned at this trial and effort then made to prove it.
There is no basis whatsoever for inferring that Alcoa joined, or for inferring that at the request of Alcoa Aluminium joined, the so-called 1936 cartel. Furthermore, the members themselves partially abandoned it on account of war preparations in 1937 and completely abandoned it on March 31, 1938.
Since April 1, 1938, the so-called 1936 cartel has been wholly dormant, if it had any existence at all, and so far as the evidence shows there was no cartel after April 1, 1938. Moreover, even if there were any such certel, it has not now and has never had the slightest bearing on this case. Neither Alcoa nor, at the instance of Alcoa, Aluminium was ever connected with any such cartel.
I have said that there is a group of testimony as to so-called marketing agreements. There are six of these which were referred to in the evidence. Of the six only those relating to Japan and India are mentioned in the bill of complaint. They are spoken of in paragraphs 79 and 80.
The six marketing agreements were as follows:
(1) Prior to 1931, probably in 1930, a joint catalogue was issued by Aluminium and the British company. This contained prices agreed on for cooking utensils to be sold in India. There is no pretense in the evidence nor is there in the evidence basis for a pretense of Alcoa ever having the slightest connection with that catalogue or other form of agreement on the subject; nor is there any evidence that catalogue ever affected the commerce of the United States.
(2) The second marketing agreement is the so-called Zurich Agreement. This consisted of an agreement by Aluminium, at the instance of some of the European producers of ingot, to act as agent, and it did act as agent, in selling ingot and fabricated articles in Japan. That also has no relation to this lawsuit. There is not the slightest basis for a contention even that Alcoa had anything to do with it; nor is there any evidence which would establish, or from which it can be inferred, that it had any effect on the commerce of the United States.
(3) The third agreement was in 1935. The Norsk company, the French company and Aluminium pooled their orders for sales of aluminum and aluminum products for shipment to Russia. That also has nothing to do with this lawsuit and contained no provision which has ever had any effect whatsoever on anything involved in this lawsuit. Alcoa never was a party to, and never had any connection with, that or any similar agreement affecting commerce with the country to which the articles were to go.
(4) In 1936 or 1937, -- we do not know which, -- Aluminium and some European producers (the precise names of which are not shown) agree about prices for sales of fabricated goods and foil that they sent to Southeastern European markets (including Czecho-Slovakia and some Balkan States). That is subject to the same comment as has been made on the third agreement.
(5) In 1937 Aluminium and the British company agreed on selling prices of electrical conductors in the British Empire; if either sold more than half, there was to be an adjustment. That likewise is subject to the same comment.
(6) In 1937 Aluminium, the British company and the Swiss company agreed as to prices of ingot in the United Kingdom. That also is subject to the same comment.
It is enough to say with respect to the six agreements mentioned that Alcoa denies that it ever had any connection with any of them, and there is no evidence whatsoever otherwise.
This leaves for discussion only the controversy about the Alliance. That is most relief on by the Government in regard to the group of matters I am presently discussing.
The Alliance name actually was Alliance Aluminium Compagnie. It is the organization provision for which was made in the foundation agreement which was signed July 3, 1931 (as of July 1, 1931), and remained in effect until December 31, 1935.
The agreement is Exhibit 744. Outside of subsidiaries of signatories, which are of no consequence, the members of the Alliance were: Aluminium, the British Aluminium Co., Limited (or the so-called British company), Aluminium Francais (the French company), Aluminium Industrie Aktiengesellschaft Neuhausen (the Swiss company) and Vereinigte Aluminium Werke A.G. (the German company, frequently called V.A.W.). As I have said, the agreement was signed July 3, 1931; but it was to take effect as of July 1, 1931. It ceased to exist as of January 1, 1936.
There were two principal features. The first was that quotas for maximum production of aluminum by its members, and the second that prices at which the Alliance would buy unsold aluminum from its members, were to be fixed from time to time by the board of governors of the Alliance. The prices referred to were what is talked about as the Alliance buying prices. Other features were that the excess production above the stipulated maximum was to be forfeited without compensation. On the other hand, it will be observed, there was no provision for agreeing on prices of products to be sold. The votes of the members of the board were to be proportionate to the stock holdings of their respective companies in the Alliance. Aluminium had about 28 per cent of the stock. There were other features which are minor and do not concern us.
As I have said, a Swiss corporation, which was to provide the mechanics for carrying out the agreement, was formed October 21, 1931.
The allegations of the bill about the Alliance are in paragraphs 75 to 78. I shall set out briefly the substance of each of those paragraphs so far as concerns the branch of the case presently under consideration.
Paragraph 75: Aluminium was organized to enable it to enter into contractual relations with foreign aluminum producers restricting competition in world markets and curtailing imports of aluminum into the United States.
Paragraph 76: Aluminium, whose policies were directed through common control exercised over it and Alcoa by means of stock ownership, promotes agreements with foreign producers of aluminum "pursuant to which exportations of aluminum to the United States for sale therein * * * in competition with Aluminum Company have been, and are being, unlawfully restrained."
Paragraph 77: In July, 1931, Aluminium, whose policies were then directed through such common control over it and Alcoa, "acting in the latter's behalf" (that is, in behalf of Alcoa), entered into a contract (which was the so-called foundation agreement, Exhibit 744) with British, French, Swiss and German companies. The parties and their subsidiaries were the only substantial producers of aluminum outside of the United States (except a recent development in Russia whose product was not exported). In compliance with the agreement, the Alliance Aluminium Compagnie was incorporated under Swiss law in October, 1931. The amounts subscribed and paid for stock by the members were used to purchase from Alliance stockholders their accumulated stocks of aluminum, which they had been unable theretofore to market. The foundation agreement limited future production to such amounts as should be determined by the board of governors and authorized the board to fix prices for such aluminum.
Paragraph 78: Prior to and during July, 1931, the British, French, Swiss and German companies held large quantities of aluminum for which there was no market and in the production of which they had incurred heavy financial obligations. The intent and effect of Aluminium participating in the foundation agreement and acquiring stock in the Alliance were (1) to provide funds with which to purchase surplus stocks of aluminum in the world market, "thereby preventing the exportation of such surplus to the United States for sale therein in interstate and foreign commerce in competition with Aluminum Company at prices lower than those fixed and established by said Aluminum Company, and (2) to provide against future surplus accumulations abroad which might enter into said commerce, and (3) to suppress exportations of aluminum to the United States in the future at such prices or in such amounts as to endanger" the monopolistic control therein of Alcoa.
As previously noted, among the features of the foundation agreement (Exhibit 744) is a provision for a system of Alliance buying prices. These were to be the prices of aluminum ingot c.i.f. Antwerp. One of the purposes of making the provision in that form was to get a common base price.
The real question under the pleadings, emphasized in several different ways in the paragraphs to which I have referred and explicitly raised, is, Did Aluminium enter into the foundation agreement at the instance or request of Alcoa?
There is no claim that Alcoa itself ever signed or joined or was connected with the agreement except through Aluminium. The specific allegation is that Aluminium became a party to the agreement at the instance or the request or in behalf of Alcoa. Alcoa denies the allegation. So our crucial question is, whether that allegation is proved.
As you will recall, heretofore I have had occasion to discuss the foundation agreement. For example, see my remarks on April 13, 1939 (pp. 15293-9), when the document was admitted in evidence, and a memorandum opinion under date of November 1, 1939, embodied in the minutes at pages 21455-73 and published in D.C., 1 F.R.D. 1.
As I understand, the Government does not say that the question as to whether Aluminium joined the Alliance at the instance of Alcoa has been foreclosed. Nevertheless, there are expressions in its briefs and in its arguments which apparently lean very far toward that proposition. If, however, you will examine the minutes and the memorandum to which I have just referred, you will see that I carefully, or endeavored carefully, to safeguard what I said from any such interpretation. All I was doing in that decision was to determine a question of evidence.
In substance, I held that the New York rule, which was quite definite, applied in this case so far as concerned the admissibility of Exhibit 744. I said, in substance, that the rule on the subject, the rule as to the admissibility of a piece of evidence such as was then being considered, was that if there was evidence from which a jury could determine that the signature to or joinder in the agreement by Aluminium was at the request of Alcoa and the evidence was such that if I were the trial judge sitting in the case I would not set aside a verdict adverse to Alcoa on the issue, then the document was admissible.That is all I decided.
At the time of the ruling only a relatively small part of the evidence bearing on the issue had been taken. Much additional evidence came in later. The result is that the question before me now is wholly different from the question which was presented to me when I was asked to pass on whether to admit Exhibit 744 for consideration as evidence in this case.
As heretofore stated, the exhibit went into evidence on the 13th of April, 1939. At the time Mr. Edward K. Davis was on the stand. The admission of the exhibit is shown at page 15295A of the minutes.
The introduction of this item of evidence occurred about six weeks prior to the closing of the Government's direct case. None of the evidence after April 13, 1939, of course, was considered in passing on the question of the admissibility of the exhibit.
Subsequent to April 13, 1939, that is, subsequent to the coming in of the exhibit, a great deal of testimony was taken. Among the testimony given subsequently, there was much which has a bearing on the question now before me for determination as to whether, in fact, Aluminium's joining the Alliance was at the instance or request of Alcoa.
Following April 13, 1939, Mr. E. K. Davis remained on the stand and testified for three weeks. His later testimony covers approximately 1200 pages. Thereafter Mr. Arthur V. Davis was on the stand 29 court days. His testimony during that period covers over 3,000 pages. The testimony of those two witnesses alone, which had not come in at the time of the admission of the exhibit and which, therefore, was never considered in passing on the exhibit, covers 4200 pages of the minutes. In addition, four other Alcoa officers testified on the subject subsequent to April 13, 1939. They were Mr. Hunt, Mr. Gibbons, Mr. Stanley and Mr. I. W. Wilson. None of those had previously testified at all. The easy way to determine, immediately on looking at it, whether testimony you find in the record has been previously considered by the Court is to note its paging. No part of the record after page 15295A has ever yet been taken into account by the Court in dealing with the question with which we are now concerned.
Mr. Edward K. Davis and the Alcoa officials squarely denied that Aluminium acted at the instance of Alcoa or on its request or in its behalf. When the proof is considered in its entirety, it does not warrant an inference that there was any such instance or request or any such action in Alcoa's behalf.
I am convinced by the evidence that, without suggestion from Alcoa or anyone connected with Alcoa, the idea of the Foundation agreement originated with Mr. Edward K. Davis individually. This was after he had received a letter from Mr. Henry-Couannier in which Mr. Davis was told that the members of the 1928 cartel wanted Aluminium to join. Mr. Davis rejected the suggestion. He had an idea of his own. This is what he carried out. And he carried it out in the interest and solely in the interest, as he conceived, of Aluminium.
The depression, which had begun in 1929, still persisted. Mr. Davis had steadily resisted pressure from the European producers to join the 1928 cartel. He had resisted and continued to resist because, as he said, he regarded the 1928 cartel as a price-fixing arrangement and he was firmly opposed to price-fixing.
He stated that he believed the best chance for Aluminium's success was through sales in the British Empire and in undeveloped countries. He said that, although he did not favor price-agreeing cartels, he felt that he must in the interest of Aluminium go along with business men who did favor such cartels and among whom cartels like that of 1928 were much in vogue. He insisted, however, that the foundation agreement of 1931 was fundamentally different and was his solution or proposed solution of Aluminium's problem under the circumstances in which his company found itself.
I feel that no more reliable or candid witness than Mr. Edward K. Davis has testified in this case. I accept his account of what happened. This means that I reject the contention that there was any conspiracy, such as charged by the Government, in the organization or in the conduct of the Alliance.
With regard to the issue whether there was such conspiracy, what the officials of Alcoa named above said on the subject confirms the statement of Mr. Edward K. Davis. Nothing they have said or has been shown that they did would justify the finding that there was a conspiracy of the kind alleged by the Government or of any kind condemned by the Sherman Act.
Moreover, as elsewhere pointed out, the progress and accomplishment of Aluminium strongly indicates the wisdom, in the interest of Aluminium, of the course pursued by Mr. Edward K. Davis. That fact affords further confirmation of the truth of his testimony.
The additional evidence introduced subsequent to the ruling on Exhibit 744 when it was admitted in evidence and bearing, incidentally, on the question of whether there was a conspiracy, will be found at the following pages: pages 15302-3; 15306-10; 15334-8; 15378-82; 15403; 15407-9; 15419-21; 15519-25; 15545-8; 15590-601A; 16164-195; 16199-230; 16285-7; 16331-7; 16356-72; 16376-83; 16417-27; 16450-60; 16506-8; 16515-7; 18552-6; 19136-83; 19206-7; 19297-302; 21347-428; 21463-4; 21473; 21480-3; 21502-11; 21579; 21870-931; 22539-41; 22588-92; 22980-89; 23653-6; 33241-3; 40353-5; 40360-63; 40652; and in Exhibits 1304-5.
I shall not undertake now to summarize the whole of the testimony I have just cited. If one wish to form an independent opinion he should read it all. In rendering the decision announced I have endeavored to base it on the entire testimony on the subject, taking everything into consideration and making up my mind where, as I conceive, the truth lies with respect to the matter.
Though I have given you a long list of pages, I believe they are correct or substantially correct. Nevertheless, it is not improbable that sometimes I may have made an error. I have not had the time and it is unlikely that, unaided, I am going to have the time to verify every page. I shall welcome the assistance of the lawyers in an effort to get the pages right.
Discussion of the Alliance might end here. However, there is another proposition which, standing alone, as I see it, is fatal to success by the Government. This is that the Government has failed to show that the foundation agreement, the Alliance or anything that ever happened under either "directly and materially" affected the foreign commerce of the United States.
Here the agreement was wholly between foreign corporations and was entered into outside of the United States. The theory of the bill is that the purpose and effect of the alleged understanding was to restrict imports and, as an incident, to avoid interference with the prices at which Alcoa sold in the United States.
Counsel agree that, in circumstances like the present, an essential element of recovery by the Government is establishing that the alleged conspiracy has directly and materially affected the foreign commerce of this country. Both sides cite United States v. Hamburg-Amerikanische P. F. A. Gesellschaft, C.C.S.D.N.Y., 200 F. 806, at page 807. I have previously referred to that decision. Both sides, as I understand, also agree that the Hamburg-Amerikanische case correctly states the governing rule of law. There it was said:
"The vital question in all cases is the same: Is the combination to so operate in this country as to directly and materially affect our foreign commerce?"
Inasmuch as the burden of proof rested on the Government and it has not proved that what occurred pursuant to the alleged conspiracy "directly and materially" affected the commerce of the United States, that alone supplies a sufficient and, as it happens, an additional reason why the Government cannot properly be sustained on its charge of conspiracy between Alcoa and the European producers or between Alcoa and Aluminium during the period that the foundation agreement was in force.
The defendants, however, need not rest and have not rested on what is merely negative. They have gone further on the facts. They have undertaken to show, and I believe have shown, that in truth neither the foundation agreement nor the Alliance nor the conduct under either "directly and materially" affected the commerce of the United States.
There are two tables, 19 and 20, which bear on this subject.
Both tables are made up largely from exhibits put in by the Government. The sources of the figures employed are stated in notes to the tables. There are numerous computations. I think they are correct, but anybody can verify them. No good reason for criticizing them or the sources from which they are derived has been given; and I believe that the Court nd the parties are entitled to rely on them. As I see it, the sole problem for determination is, what do they establish?
It is true that in its briefs the Government, in substance, has urged that the Alliance prices for 1931 and 1932 carried in the first table (19) are erroneous. I do not share that view and for the moment I shall assume that those prices set out in the table are correct, but in due course the Government's point will be dealt with.
Table 19 deals with prices for the fraction of the year from July 1 to December 31, 1931, and for the whole of the years 1932, 1933, 1934, 1935, 1936 and 1937. The prices are of virgin aluminum ingot for those years. The comparison is between the annual average Alliance buying price per pound c.i.f. Antwerp in terms of United States currency at the prevailing rate of exchange with the annual average United States prices per pound (less import duty of 4 cents a pound, which was the tax at that time imposed on importations of aluminum), in terms of several things:
(1) New York market quotations;
(2) Alcoa's schedule prices; and
(3) Alcoa's actual sales prices.
These are supplemented by a statement (in terms of millions of pounds) of the volume of imports of virgin aluminum ingot into the United States by others than Alcoa.
This table is as follows:
Virgin alumnum ingot, 1931-7: comparison of (a) annual average Alliance buying prices per pound, CIF Antwerp, in terms of United States currency at prevailing rate of exchange, with annual average United States prices per pound (less import duty of 4 per pound) in terms of (b) New York market quotations, (c) Alcoa schedules and (d) Alcoa's actual sales; and (e) volume of imports into United States by others than Alcoa in terms of millions of pounds.
1931 1932 1933 1934 1935 1936 1937
A. Alliance buying
prices 13.94 15.54 20.07 25.26 21.75 21.79 21.86
B. N. Y. market
quotations 19.30 19.30 19.30 17.58 16.50 16.50 16.08
C. Alcoa schedule
prices 19.30 19.30 19.30 18.20 15.49 15.00 15.84
D. Alcoa sales
price 18.78 17.76 15.30 14.95 14.75 14.82 15.56
pounds) 5.13 6.05 15.03 15.51 16.10 22.57 21.10
NOTE: Line A from Ex. 931, exhibit p. 39 (computed by averaging figures in that exhibit for half of 1931 and for whole of each of other years); line B from Ex. 75, exhibit p. 356 (less 4 per pound duty); lines C and D from Ex. 1744 (computed by deducting 4 duty from figures in columns A and B, respectively, of that exhibit); line E from Ex. 971, exhibit p. 4703 (except computed for last half of 1931).
I should explain that this table is set up in the form of lines headed A to E.
In table 19 two things stand out:
(1) In each year from 1933 to 1935, inclusive, Alliance buying prices (line A) were considerably greater than the New York market quotations (line B) or than Alcoa's schedule prices (line C) or than the actual prices at which Alcoa sold ingot (line D), -- all of these things being true for each of these years. The same thing is true with respect to 1936 and 1937, but for the moment we are not interested in those years. We are not interested because the foundation agreement did not run beyond 1935.
(2) So also from 1931 to and including 1936 there is only one instance of the prices shown in New York quotations (line B) or in Alcoa's schedules (line C) or in Alcoa's actual sales (line D) when a price of a later year was greater than a price of an earlier year. That exception was in line D for 1936, when there was an increase by 7/100ths of a cent over the immediately preceding year. Aside from that, only in the year 1937 were any of the prices above the corresponding prices for the previous year, -- in that case 1936. The 1937 rises were very slight and undoubtedly even they were solely attributable to the war preparation demand which the evidence discloses was already in progress in 1937.
If, as is obvious from the table, Alliance prices were greater than Alcoa's prices, it would seem to follow indisputably that the existence and conduct of the Alliance from and including 1933 did not "directly and materially" affect the commerce of the United States.
In the second place, table 19 (line E) shows that from 1932 to 1936, inclusive, there was a steady increase of imports of aluminum into the United States. The slight falling off in 1937 almost surely was due to the war demand of that year in Europe.
Table 20 is as follows:
Virgin aluminum ingot, 1929-1937: comparison (in millions of pounds) of Alcoa's sales with net imports by others than Alcoa.
1929 1930 1931 1932 1933 1934 1935 1936 1937
A. Alcoa's sales 81.37 45.86 22.96 11.21 26.54 40.99 53.83 77.87 95.13
B. Others' imports 15.24 12.46 10.26 6.05 15.03 15.51 16.10 22.57 21.10
NOTE: Line A above from line G and line B above from line E of Ex. 971, exhibit p. 4703.
This table relates to virgin aluminum ingot for the years 1929 to 1937. There is a comparison (in millions of pounds) of Alcoa's sales with net imports by others than Alcoa.
In the first line, marked A, are Alcoa's sales. In the second line, marked B, are others' imports. As I have said, all of the figures are given for each of the years 1929, 1930, 1931, 1932, 1933, 1934, 1935, 1936 and 1937.
Table 20, much in the same way as was done in table 19, furnishes two confirmatory facts. From 1932 to 1937, inclusive, Alcoa's sales of ingot steadily increased annually and from 1932 to 1936, inclusive, the imports of ingot into the United States by others than Alcoa likewise increased each year. The failure of such imports to increase in 1937 over 1936 was doubtless due to the European demand for ingot growing out of the approach of war in Europe.
Stress is laid by the Government on the inclusion of section 10 in the foundation agreement. This provided, in substance, for Aluminium converting ore into aluminum in Canada for Alcoa and returning the aluminum to the United States, without the quantity being counted as a part of Aluminium's aluminum production quota. This provision, however, is purely academic, for the reason that under it no tolling was ever done (p. 16202).
What is of more importance, and what further fortifies the conclusion that the foundation agreement did not "directly" or "materially" affect the commerce of the United States, is the fact that during the life of the foundation agreement, with the exception of Aluminium, no signer of the agreement counted shipments to the United States as any part whatsoever of its production quota under the terms of the agreement.
As heretofore indicated, the Government contends that the figures in table 19 for Alliance buying prices in 1931 and 1932 are erroneous. Even if so, however, that fact would not affect the table for subsequent years.
Furthermore, as I see the situation, the Alliance buying prices as embodied in the table for 1931 and 1932 are correct. The Government predicates its criticism of the figures on irrelevant bits of evidence. These bits are contained chiefly in Exhibits 791, 793 and 842. Those deal with prices adopted by members of the Alliance in December, 1931, and in January, 1932, as between themselves individually and their respective customers. They are not the current Alliance buying prices at all. They are prices which were to become Alliance buying prices at future dates.When adopted, and members learned of them, then in anticipation they were sometimes taken into account in making up quotations to their individual customers. In this connection see pages 15382; 15834; 15386-7; 15389-94; 15403; 15407-9; 15418-22; 15445-54; 16350-1.
It is indisputably established that not until the trial of the present case in this room had Mr. Arthur V. Davis ever seen the foundation agreement or did Alcoa or its representatives learn that this agreement had been terminated on February 14, 1936, effective as of the first of the preceding January.
It seems inconceivable that if, as charged, Aluminium had acted under the domination of Alcoa in entering into the foundation agreement, Alcoa would have been kept in ignorance of its abandonment for several years afterwards.
It is not improbable that further exploration of the facts, particularly with the help of experts, would have put the Court in position to form opinions with respect to the effect of the world-wide depression and the frequent changes in currency systems growing out of the various countries going off the gold standard. Possibly also, by the same method, the Court might have been enabled to say whether, in connection with the over-production of aluminum in the United States and in other countries at the bottom of the depression in 1931 and 1932, the Anti-Dumping Act, 19 U.S.C.A. §§ 160-173, had any economic effect on the matter. I do not conceive, however, that anything added along the lines mentioned could have nullified or even adversely affected the views I have adopted, as heretofore stated.
In consequence, I conclude that the Government has failed to establish the charge of conspiracy between Alcoa and European producers of aluminum or Aluminium or either or any of them.
I further conclude that the Government has failed by credible evidence to show that either (1) there was ever a conspiracy between Alcoa and Aluminium or (2) that since January 23, 1915, there has ever been a conspiracy between Alcoa or any of the other foreign producers to fix prices or to restrict importations or to limit the quantities of production or to allocate customers or shipments to customers of aluminum or aluminum products of any kind.
This completes my consideration of the subject of conspiracy, the second main branch of the case concerning Alcoa, though incidentally, of course, concerning others. It brings us to the third main branch affecting Alcoa. This is other alleged misconduct on its part. That will now be taken up.
October 9, 1941
* * *
III. OTHER MISCONDUCT
As I said at the adjournment yesterday, we shall now take up the branch of the case that has been referred to as other misconduct.
There are two accusations which were much emphasized in the argument. Because of their nature I think both should be discussed. These are that Alcoa (1) charged extortionate prices and (2) made exorbitant profits.The accusations are not in the exact terms of anything alleged in the bill. Nevertheless, they will be considered as if they had been well pleaded and as they are urged by the Government. I have spoken of the accusations as being two in number. They are so intertwined, however, that in essence they are one. This appears to be the view of counsel on both sides. In its supplemental brief of April 9, 1941, page 3, the Government said: "To state that Alcoa's profits have been excessive is simply another way of stating that its prices have been excessive." In its supplemental brief of May 8, 1941, page 8, Alcoa said: "One cannot say that either profits or prices are excessive unless consideration be given to the rate of return on the capital employed in the business." I shall therefore treat the matter as a single controversy.
Alcoa strenuously denies both complaints.
As I see it, there are in form three reasons (which, in substance, can be reduced to two reasons) why the Government should not prevail on either criticism. The three reasons are (1) that, without reviewing all the pertinent evidence on the subject, if it be assumed that the contention of the Government as to what are the facts is sustained by the evidence, neither accusation, so supported and standing alone, would constitute a violation of the Sherman Act; (2) that, if the Sherman Act applies, when the pleadings are analyzed, it will appear that what the Government complained of in the bill, with respect either to prices or to profits, expressly or in essence was alleged to be a consequence or incident of monopolization by Alcoa; and (3) that, in reality, I have already held adversely to the Government on all the issues raised by the bill involving monopolization and, therefore, against all those involving prices or profits.
It is because in the circumstances stated, however, I think neither the prices nor the profits charge properly was embraced within the first or within the second branch of the case, that I added a third branch which I have entitled "other misconduct."
In support of the first proposition, that neither accusation states a violation of the Sherman Act, it is enough to call attention again to note 59 of the Socony-Vacuum case, 310 U.S. 150, at pages 225, 226, 60 S. Ct. 811, 84 L. Ed. 1129. In so far as I have discovered, that note contains the clearest and most concise statement of what the Sherman Act prohibits.
With respect to offenses, the Act consists only of prohibitions. One is monopolization; the other is conspiracy. Both words are to be taken, of course, in the comprehensive sense which I have heretofore adopted for the purpose of discussion in this case. What is neither monopolization nor conspiracy in that sense is not included or dealt with in the Sherman Act.
That their positions in regard to prices paid to and profits received by Alcoa are dependent in their nature on the allegations of the bill charging monopolization, or have heretofore been disposed of, or both, will appear from the summary of the portions of the pleadings relating to prices and profits.
On this branch of the case we are concerned with six paragraphs of the bill. These are numbers 41, 53, 98, 99, 100 and 101.
The substance of the pertinent allegations of those paragraphs with respect to prices or profits is as follows:
(1) In paragraph 41, that the profits of Alcoa to the end of 1934 were excessive and resulted from monopolization.
(2) In paragraph 53, that, by virtue of its monopolistic control of the production and sale of alumina and virgin aluminum in the United States, Alcoa possesses the power to fix arbitrary, discriminatory and unreasonable prices.
(3) In paragraph 98, that in 1927 Alcoa was the sole producer in the United States of virgin aluminum and fixed the prices of such aluminum and of aluminum sheet; also that, through its control over the prices of ingot and the prices of sheet (which it established), it reduced the spread between those prices, with the result that thereby Sheet Aluminum Corporation was virtually forced to suspend operations and Fairmont Aluminum Company was forced to suffer serious losses, curtail its operations and establish an interlocking interest with a foreign producer in order to remain in business.
(4) In paragraph 99, that in 1924 to 1931, through being the sole producer of virgin aluminum in the United States and of a large proportion of the total domestic output of aluminum alloys, Alcoa was able to fix and did fix the prices of those articles in the United States and, by reducing the spread between such prices, drove the Baush Company out of the aluminum business.
(5) In paragraph 100, that such monopolistic control by Alcoa has been used, and it possesses power to continue, to fix arbitrary, oppressive and unreasonable prices of aluminum and aluminum products.
(6) In paragraph 101, that on March 1, 1937, through exercise of its monopolistic power aforesaid, Alcoa unwarrantably and arbitrarily advanced the carload price of virgin ingot by 1 cent per pound.
From analysis it thus appears that every accusation set out in the summary made above (a), directly or inferentially, rests on and is included in the charge of monopolization embodied in the bill and (b), in the earlier stages of the case at bar, has already been decided against the Government.
We might, therefore, refrain from further discussion of the prices and profits aspect of the matter. Nevertheless, as counsel have debated this phase of the controversy at great length, I shall go into the facts side of it.
It is recognized, of course, that, however often the same facts may have been considered heretofore, they may properly be again pressed on the Court to the extent, if any, to which they bear on any new or other question.
What the Government claims need not extend to six things. These can be compressed into three and they are as follows:
(1) That in 1926 to 1937 Alcoa sold ingot at prices grossly in excess of what it had cost Alcoa to produce it.
(2) That in 1929 to 1932 the percentage of Alcoa's decline in the price of 99 per cent virgin aluminum was considerably less than the percentage of price declines by manufacturers of certain other articles in the same general field.
(3) That in 1937 to 1939 the prices maintained by Alcoa for the commodities it produced were greatly in excess of Alcoa's cost of producing them.
There are other arguments advanced by the Government along essentially the same lines, but all of them stand or fall with one or the other of the three contentions just stated.
As already indicated, the first controversy relates to profits on ingot; that is, virgin aluminum ingot. This hinges around Exhibit 718. The contention by the Government has been referred to in argument and is understood by all participating in this case as being an insistence on what is called by it the per pound basis.
In its original brief, page 180, the Government says that the rates of profit on ingot which Alcoa received during the period 1926 to 1937 ranged from 35 per cent to 104 per cent. If that be true, then obviously the rates were very excessive; but Alcoa denies that it made any such profits or anything even remotely like them.
In the Government's brief, as well as in the title to Exhibit 718, the article involved in the exhibit is called "commercial ingot." In so far as that name is concerned, consideration will be reserved until later.
The original brief of the Government, page 180, contains a table which fully explains its position. All the figures there are per pound. Those are arranged in four columns, -- A, B, C and D, -- with descriptive titles and are set out for each year, that is for the years from 1926 to 1937, under the respective columns. The first column (A) gives what the Government claims was the cost in cents per pound of ingot -- that is, Alcoa's cost of producing it. The second column (B) contains the Government's claim of what was the net selling price in cents Alcoa received for that pound of ingot. The difference between the first and second columns, called profit (C), is also stated in cents. In the fourth column (D) is the rate or percentage of profit (as the Government has computed it).
For example, for the year 1926, the first year of the table, the cost (A) is put at 13.82 cents and the net selling price (B) at 26.49 cents.By subtracting the former from the latter we get 12.67 cents. That is entered in the third column (C) as the profit. The rate, which appears in the fourth column (D), as matter of mathematics has been correctly calculated. By similar procedure for other years the rates of profit, which the Government says ran from 35 per cent to 104 per cent, were arrived at.
Alcoa argues that the fault with the Government contention is that it has compared the selling price of one thing with the production cost of an entirely different thing; that it is precisely as if, in order to get the profit on the sale of an apple, the cost of producing the apple were deducted from the price at which a potato had been sold.
Specifically, Alcoa insists that the selling prices in the table of the Government, of which selling prices complaint is made, are the prices at which only two high grades of ingot were sold (one for the years 1926 to 1934, inclusive, and the other for the years 1935 to 1937, inclusive), whereas the costs in the table are the averages of the costs of producing all grades of ingot (low as well as high). Is that true? That is the question presented for decision.
The selling prices (B) included in the Government brief table for 1926 to 1934 came from subdivision (e) of Alcoa's answer to interrogatory 11 and for 1935 to 1937 from Exhibit 1901. This is without dispute. The production costs (A) in the table came from Exhibit 718. This likewise is without dispute. By inspection of interrogatory 11 it will be seen that the article for which the selling prices are given in the table through 1934, that is from 1926 to and including 1934, is 98-99 per cent ingot. So also, by inspection of Exhibit 1701, it will be seen that the article for which selling prices appear in the table for subsequent years was 99 per cent plus ingot (now commonly called 99 per cent ingot). It is further without dispute that those two commodities (namely, 98-99 per cent and 99 per cent ingot) are the articles for which selling prices are given in the Government table.
What has just been said, and is agreed on, reduces the controversy, therefore, to the inquiry whether the production costs (A) in the table for the years involved are the production costs for the same grades of aluminum; that is, are they the production costs for 98-99 ingot from 1926 to 1934, inclusive, and for 99 per cent ingot or 99 per cent plus ingot for 1935 to 1937?
Upon the point just stated there is square dispute and the argument has been elaborate. I shall deal with only enough to enable me to determine, as best I can, which side is right on this matter. It is because the production costs set out in the table of the Government were taken from Exhibit 718 that I have said that the controversy about the rate of profit for 1926 to 1937 hinges around Exhibit 718.
The production cost figures in the Government table (original brief, p. 180) were given in the last column (F) of Exhibit 718. By comparison it will be seen that for each of the years 1926 to 1937 the production costs (column A of the Government's table) are precisely the same as the "Total Net Mill Cost, Conversion Cost, Administrative Expenses and Selling Expense," which is the heading of column F in Exhibit 718.
The first column (A) of the figures in Exhibit 718 (entitled "Mill Cost of Pig Aluminum" per pound) comes from two sources. The figures for 1926 to 1933 are from the lowest line in Exhibit 717 and those for the remaining years of 1934 to 1937 are from subdivision (n) of Alcoa's answer to interrogatory 351.The sources of the figures in columns B, C and E (the only other columns not derived from mere computation) in Exhibit 718 will be mentioned later.
From a consideration of all the evidence I am persuaded (as, indeed, seems manifest) that the production cost figures in the first column (A) of the Government's original beief table (which are identical with the figures constituting column F of Exhibit 718) are Alcoa's production cost figures of aluminum ingot of all grades. That means, if what I have just stated be true, that the cost figures given in the Government table on page 180 of its original brief consist of the costs of ingot both high and low in grade. That means further that the cost figures given in column A of the Government's brief are the cost figures of ingot of grades which run all the way from 99.75 per cent or higher grade down to and including 88 per cent grade, to which and, in a few instances, below which last named grade aluminum ingot sometimes reaches.
Among my reasons for believing that column A of the Government's brief table applies to the cost figures of aluminum ingot of all grades are the following:
(1) Mr. Risler, a Government accountant, prepared Exhibit 717. He got the figures which related to 1926-1933 from Alcoa's books and records. When on the stand he testified about the make-up of that exhibit (pp. 12788-92). He was asked, "Does this [meaning, as I think is clear, Exhibit 717] cover all the plants of the Aluminum Company of America producing pig?" His answer was "Yes" (p. 12789). I cannot conceive that by this answer Mr. Risler did not mean pig of all grades. Otherwise, I think surely he would have said that some of the grades were omitted.
(2) The title of Exhibit 717 is "Cost of producing ALUMINUM PIG as shown by the books and records of the Aluminum Company of America," followed by a star. In a starred footnote are the words "Consolidation -- All Plants."
Here again, is it conceivable that the books and records of Alcoa gave "Cost of producing ALUMINUM PIG" only of 9899 grade of pig? If other grades were omitted, why should the exhibit be silent on the subject? If the books and records of Alcoa contain nothing about grades lower than 98-99 per cent, is it possible that an accountant, who was as competent and experienced as Mr. Risler showed himself to be while testifying at the trial of this case, would have failed to mention that the books and records were blank as to some grades if that had been true? I think not.
(3) The mill cost figures for 1934-1937 came, as previously stated, from subdivision (n) of Alcoa's answer to interrogatory 351. The interrogatory asked that "the annual average cost per pound of producing pig aluminum for all Alcoa plants combined, separately for each year, 1932 through 1937" be stated, subdivided as to a number of designated items, including item (n). The unqualified answer for 1934-1937 was to the effect included for those years incolumn A of Exhibit 718. That was a definite representation tht the information furnished covered "all Alcoa plants combined." Could the answer possibly be construed as meaning to say that such information was confined to pig aluminum of the grades 98-99 and 99 per cent? Could the answer have meant that lower grades were omitted? It seems to me plainly not.
(4) The second column (b) of Exhibit 718 purports to state the profits which accrued to Alcoa's direct subsidiaries out of the materials they furnished for the production of pig aluminum, the mill cost of which is stated in the first column of the exhibit. The purpose of ascertaining such profits to subsidiaries was to deduct them from the mill cost stated in the first column of the exhibit, with a view ultimately to determining Alcoa's cost of producing the ingot with which the exhibit dealt.
Now note that the first column (A) of the Government's brief table -- I call it "brief table" to identify it and mean the table at page 180 of the Government's original brief -- dealing with costs of producing aluminum, or production costs, is taken precisely and wholly from Exhibit 718. The figures in that first column of the brief table are taken from column F of Exhibit 718. For example, for the year 1926 the figure in column A of the brief table is 13.82 cents. In Exhibit 718 for the year 1926 the mill cost or production figure in the last column (F) is 13.82 cents, -- identically the same figure. And so it is throughout the brief table and Exhibit 718. If that be true, and the Government has used the same figures in the brief table, and has taken the figures in Exhibit 718, then anything which in Exhibit 718 affects or has a part in bringing about the figures taken from Exhibit 718 of necessity affects the figures in the Government's brief table.
Inasmuch as it has been demonstrated that column A of the Government's brief table related to pig of all grades, -- as is true according to Mr. Risler, on whom everybody who heard him testify will confidently rely both as to competency and integrity, and according to all the papers to which I have referred, and according to the oral testimony to which I have referred, -- we cannot escape the conclusion that column A of the Government's brief table relates to every grade of pig aluminum. It relates to the grades which run as low as 87 and lower and to the grades which run as high as 99.75 per cent and higher as well. Inasmuch as it has been shown that column A related to pig aluminum of all grades, it follows of necessity that column B would be erroneous unless it also covered all grades of aluminum; and yet it is undisputed that column B of the Government's brief table relates only to two grades, namely, 98-99 per cent and 99 plus per cent (commonly now called 99 per cent).
In the footnote to column B of Exhibit 718 (the one relating to the profits of direct subsidiaries of Alcoa) we are told that information as to what were the subsidiaries' profits came from two sources: for the years 1926 to 1933 from the books and records of Alcoa (when examined by Mr. Risler, the Government accountant) and for 1934 to 1937 from Alcoa's answer to interrogatory 351. An examination of those sources of information should disclose whether the figures in column B of Exhibit 718 give the profits of subsidiaries for all grades of aluminum or whether the figures are confined to grades 99-99 per cent or 99 per cent. I think that table 21, which I have prepared, contains a demonstration on that point. This table is as follows:
Computation showing profits per pound (1926-1937) to subsidiaries of Alcoa which supplied to it materials for producing pig aluminum.
Pounds of pig Profits in dol- Such profits
aluminum pro- lars on materi- per pound to
duced in U.S. als supplied to such subsid-
by Alcoa. Alcoa by its di- iaries.
ies for produc-
ing pig alumi-
A B C
1926 147,386,177 $2,926,813.56 1.98
1927 163,606,787 1,133,249.00 .69
1928 210,543,931 1,744,185.14 .83
1929 227,972,893 1,491,692.94 .65
1930 229,036,636 2,365,431.37 1.03
1931 177,544,749 1,238,588.78 .70
1932 104,887,619 474,426.04 .45
1933 85,125,177 111,466.30 .13
1934 74,177,081 166,686.86*d .23
1935 119,295,103 987,813.36 .83
1936 224,928,899 2,881,841.38** 1.28
1937 292,680,554 3,534,299.51 1.21
NOTE: Column A is from Exhibit 721. Column B is from subdivision (d) of Alcoa's answer to interrogatory 356. Column C is computed by dividing the dollars in column B by the number of pounds in column A (see also subdivision (q) of Alcoa's answer to interrogatory 351 and column B of Exhibit 718).
This table is a computation showing profits per pound (1926-1937) to subsidiaries of Alcoa which supplied to it materials for producing pig aluminum. The years out at the left run from 1926 to 1937.
There are three columns. The first is A and is headed "Pounds of pig aluminum produced in U.S. by Alcoa." The second is B and is headed "Profits in dollars on materials supplied to Alcoa by its direct subsidiaries for producing pig aluminum." The third is C and purports to show what such profits per pound were to such subsidiaries.
The figures in column B of Exhibit 718 and the figures in column C of table 21 (profits of subsidiaries) are identical for every year, save only for a variance in 1934 of a few thousandths of 1 cent (which will be ignored). I think that all must agree that the correspondence (in practically complete identity) of these figures could not have occurred unless both came from the same source.
We turn, therefore, to an inquiry as to where the information came from and to what it related. Did it relate exclusively to 98-99 ingot, and with that only to 99 per cent or 99 plus per cent ingot also, or, on the other hand, did it relate to all grades of aluminum? If it related to all grades of aluminum in fact, then, inasmuch as the same figures are used in Exhibit 718, it must follow, as I see it, that Exhibit 718 also related to aluminum pig of all grades.
Column A in table 21 is taken from Exhibit 721. If you will turn to Exhibit 721, you will see that it gives the figures for the entire production of pig aluminum by Alcoa for the years 1926-1937. In column A of table 21 the pounds of pig aluminum produced in the United States by Alcoa correspond precisely with the statement in Exhibit 721 of the production in the United States of aluminum pig of all grades by Alcoa for each and every one of the years from 1926 to 1937.
Column B of table 21 is taken from subdivision (d) of Alcoa' answer to interrogatory 356 and states in terms of dollars the profits to subsidiaries on materials supplied by them to Alcoa for production by Alcoa of pig aluminum.
Column C of table 21 is computed by dividing the dollars in column B by the number of pounds shown in column A of the table.
As I have said, column C of table 21 is identical with column B of Exhibit 718.
Turn to Exhibit 721 and examine it. It gives the entire production each year in the United States of all pig aluminum, and hence of pig aluminum of all grades, for each of the years 1926 to 1937.
If you will look at Exhibit 721, you will see that the title is "Alcoa's Production of Pig Aluminum." You will see also that its first column has the heading "In the United States." It follows that the table represents that it contains every pound of every grade of pig aluminum produced by Alcoa in the United States for the several years covered. If you will compare those figures for the years 1926 to 1937 with column A of table 21, you will find that the figures in the first column of table 21 are the precise figures which make up the first column of Exhibit 721, so far as concerns the years 1926 to 1937.
There is no escape, therefore, from the conclusion that Exhibit 721 in its first column includes every pound of pig aluminum that was produced by Alcoa for all the years involved. By taking that poundage annually and then from subdivision (d) of Alcoa's answer to interrogatory 356 getting the total yearly profits in dollars on materials supplied to Alcoa by its direct subsidiaries for producing pig aluminum, you can for yourself, as I have done for myself, work out in cents what was the profit per pound of those subsidiaries for those years.
Having worked out the yearly profits in the way explained and compared them with column B of Exhibit 718, I have found that the two are precisely identical. Accordingly, if, in making up Exhibit 721, aluminum ingot of all grades was included, then of necessity it follows that in making up column B of Exhibit 718 to cover the profits of the direct subsidiaries of Alcoa, so also aluminum pig of every grade was included in that table itself (Exhibit 718).
Because the figures for subsidiaries' profits in table 21 come from a computation resting on Alcoa's entire production of aluminum pig during the years involved there is no escape from the conclusion that those profits in Exhibit 718 came from a computation based on the same entire production. In other words, what is inescapable is that the Government's computation of the profits of subsidiaries (column B of Exhibit 718) is made up by taking account of Alcoa's aluminum of all grades, low as well as high.
What is covered by the materials cited is confirmed by Alcoa's answer to subdivision (b) of interrogatory 9 and by Exhibit 459. There it is made unambiguous that the production of pig at all of Alcoa's United States plants was given. Indeed, the name and the location of each of the plants are there given as included in the computation.
It may by noted also that all the documentary evidence referred to was introduced by the Government itself (pp. 9203-4; 10027; 12809; 16561-3; 18173).
I regard the evidence, particularly Alcoa's answer to interrogatory 357 and Exhibit B to Alcoa's answer to interrogatory 355, both introduced by the Government, coupled with the testimony of Mr. Risler (pp. 12793-4), as showing that columns C and E of Exhibit 718 likewise relate to Alcoa's entire production of ingot.
I think there is no occasion to go further into details as to those columns. I say this because, even if those two columns did not include anything with respect to ingot lower in grade than 98-99 per cent, what has been discussed in detail as to other columns of Exhibit 718 has destroyed the value of the exhibit as a support of the Government.
The testimony is not full or precise as to the ranges of grades of aluminum content in Alcoa's ingot; but it clearly appears that it has been great. It abundantly appears that it frequently ran as low as 94 per cent and that it went lower; and a consideration of Exhibits 1423 and 1642, in combination, shows incontrovertibly that it ran much under 94 per cent, -- in one or more types of products to less than 87 per cent.
The Government urges in refutation (1) that Exhibit 718 is entitled "Commercial Ingot" and that the evidence establishes that this phrase means 98-99 per cent and 99 per cent ingot; (2) that Alcoa has not introduced evidence to show what was the cost of producing ingot. To these contentions I think there are responses which are adequate.
As to the first contention, that the title of Exhibit 718 is "Commercial Ingot," it may be pointed out that no sort of labeling of the exhibit can determine its content. What is actually embraced in the columns below the headings is what governs the decision of what, in substance and in fact, goes to make up each of the elements of production. Furthermore the Government directed attention to no evidence to sustain its assertion, or possibly it should be called intimation, that from 1926 to 1934 "commercial ingot" consisted of 98-99 per cent grade and, as I read them, the testimony of Mr. Hunt (p. 22307) and Alcoa's answer to interrogatory 28(b), cited by the Government in a footnote on page 180 of its original brief for its support, do not sustain the statement, in effect, that "commercial ingot" was the term employed exclusively to describe 98-99 and 99 per cent ingot.
As to the second contention, that Alcoa has not introduced evidence to show what was the cost of producing ingot, it is enough to say that the burden is not on Alcoa to show the cost or the items of cost of producing ingot. While I should have liked to have the information, I cannot properly cast blame on Alcoa for its absence (if it be absent) from the record.
Indeed, I think there is merit in an explanation which has been offered by Alcoa for its not introducing proof. In substance, it says that when Exhibit 718 came in, the document did not carry the suggestion that it had the meaning now sought to be attributed to it by the Government; also that the first time it realized that the Government took such position was after the Government's original brief of December 2, 1940, was submitted. This was long subsequent to the close of taking testimony in the preceding August, and too late, therefore, for putting in evidence with respect to the items of such cost.
So also it must be borne in mind that the burden of putting in proof with respect to the matter was on the Government.
There is another and entirely independent ground for rejecting the Government's view as to the significance of Exhibit 718. You will recall that Exhibit 718 was gotten up by Mr. Risler, upon whom, as I have said heretofore, I think everybody engaged in this trial was willing always to rely as to his good faith. If there were any difference of opinion as to him, it was not as to his good faith, but as expressed was merely an argumentative statement as to whether he may have made some mistake.
Again, in a footnote to Exhibit 718 the following statement was expressly made:
"Alcoa's Amended Answer to Interrogatory No. 355 -- Exhibit 'A' shows that for the years 1932 to 1937, inclusive, the following Overhead Expenses were not included in the Administrative Expenses or the Selling Expenses: -- Freight and Express, Duty Paid, Interest and Discount Paid, Cash Discount on Sales, Royalty Paid, Premiums and Special Items, Expense of A. M. I. Lease, Idle Plant Expense, Rent Expense -- Buffalo, Cleveland, Detroit, Edgewater."
What is the significance of the omissions from Exhibit 718 of the items described in the note thereto? I think this can best be brought out by a compilation of statistics. For that reason I have prepared table 22, which is as follows:
Comparison of Alcoa's general overhead with aggregate amounts annually of items mentioned in note to Ex. 718 as omitted from that exhibit, 1932-1937.
Total Amounts of
general overhead omitted items
1932 $11,184,290.97 $4,638,922.14
1933 10,586,925.23 4,446,422.06
1934 11,123,928.92 4,237,447.33
1935 11,977,042.01 3,733,343.48
1936 12,257,401.61 3,261,199.88
1937 14,624,961.37 3,996,231.12
Total of items omitted
NOTE: Column A is composed of totals of, and column B is computed from items under heading of "other overhead expenses" in, Ex. A to further answer of Alcoa to interrogatory 355, sheets 1 to 6, pp. 38-43.
In table 22 there is a comparison of Alcoa's general overhead with the aggregate amounts annually of the items mentioned in the note to Exhibit 718 as omitted from the exhibit for 1932-37.
To the left of the first column are the years from 1932 to 1937, which are the years mentioned in the note.
In the first column, A, the heading is "Total general overhead." In the second column, B, the heading is "Amounts of omitted items." It will be observed that the items called "Other overhead expenses" in the further answer of Alcoa to interrogatory 355 are described therein and in the note to Exhibit 718 (as not included in that exhibit) in the very same words.
Opposite each year the figures are given in dollars under both of the headings. I shall not read all the detailed figures; but the aggregate overhead shown by column A of table 22 is $71,754,550.11 and the total of the items omitted from the aggregate overhead is $24,313,566.01. In other words, the omitted items constitute more than one-third of the total general overhead.
It seems to me manifest that the failure to include the omitted items reduces the production costs by the respective amounts of those items for the years involved. To that extent the size of the computed annual rate of profit was increased.
The omission of so large a proportion as more than one-third of the total general overhead also so minimizes the value of Exhibit 718 that, as it would seem to me, it is not possible to rely on the exhibit to produce the figures as they are set out in its last column, which constitutes the basis on which the Government's brief table depends, namely, the figures that make up column A of the Government's brief table.
The Government says (brief of May 8, 1941, p. 3) that Alcoa stated in its further answer to interrogatory 355 that such omitted items should not be included as part of the cost of any aluminum product; but I fail to find there or in the footnote of Exhibit 1748 (exhibit p. 7186), as I interpret them, or elsewhere, any such statement by Alcoa.
I think there are in the Government's table at page 180 of its original brief other defects than those I have mentioned; but I think also that it would be useless to pursue them.
I have intentionally refrained at this time from going into the much-disputed question as to whether there is justification for the Government's interpretation of the material in the case as establishing a so-called "per pound" basis for calculating the rate of profit on every item produced by Alcoa or produced by any manufacturer or sold by any merchant. At a later stage, however, I shall go into that matter.
For the reasons I have assigned, my conclusions are as follows:
(1) The production cost of ingot, as stated in column F of Exhibit 718, and as used in column A of the table on page 180 of the Government's original brief, relates to ingot of all grades.
(2) Such production cost, as there set out, may not properly be compared with the selling price of 98-99 per cent and 99 per cent grades of ingot, set out in column B of that table (to which grades the selling prices in that column exclusively relate), in order to compute rate of profit.
(3) It follows that the Government has failed to establish its claim that the rates of Alcoa's profit on ingot for the years 1926-1937 ranged from 35 per cent to 104 per cent or to establish what the rate of profit was for any of those years.
This brings us to the second argument of the Government in the branch of the case now under consideration. That is as to comparative price declines. The Government says that in 1929 to 1932 the percentage of Alcoa's decline was less than the percentage declines of other specified articles.
In its original brief (pp. 175-6) the Government states that during the period 1929-1932 Alcoa's annual selling prices for 99 per cent virgin aluminum fell only 8 per cent; whereas, according to the Government, the selling prices of five other designated articles in the same general field fell in varying degrees ranging from 39 per cent to 71 per cent.
The commodities with which the fall in the price of virgin aluminum's selling prices is contrasted are (1) new aluminum clippings, (2) cast aluminum scrap, (3) electrolytic copper, (4) copper wire and (5) zinc.
For purposes of discussion it will be assumed that the figures assembled and the computations made by the Government, in regard to these matters, are correct.
Nevertheless, so far as I can discover or has been pointed out to me, there is a total lack of evidence of what were the varying influences which, during the period in question, faced the producers of the commodities concerned or which were responsible for bringing about the several declines stated for articles other than aluminum included in the table.
The use of such evidence, or evidence of that kind, is essential to a determination of the issue. It is judicially known that the years 1929 to 1932 presented numerous novel difficulties to business men; also that these were not identical in all lines of business. In order to appraise the relative demands for changes in prices in several branches of business, it would be necessary, therefore, to have evidence as to what were the conditions and what were their effects in each branch.
In consequence, in the absence (as here) of such evidence, we cannot properly accept as correct the comparisons made by the Government.
We come now to the third argument made by the Government in support of its position on this aspect of the case. This relates to annual earnings and expense statements that were issued by Alcoa. Exhibit 1721 contains such statements for three years.
The Government argues that in 1937-39, as shown by that exhibit, the prices at which Alcoa sold articles it produced greatly exceeded Alcoa's cost of producing them.
For a number of years past, -- how long I do not know and it is not shown, -- Alcoa every year has compiled a statement of its earnings and expenses. As I have said, those for the three years of 1937, 1938 and 1939 have been introduced in evidence and compose Exhibit 1721. These statements together, as embodied in the exhibit, consist of 43 pages. The commodities are not the same every year.Yet, in large measure, there is general identity and the scheme followed in making up the statements is the same for each year.
In the column near the left there are set out the names of numerous commodities in which Alcoa dealt during the year designated. To the right of the commodity column there are three sets of major columns. The first is headed "Sales"; the second, "Cost of Goods Sold"; and the third (which is at the extreme right), "Profit." Immediately beneath the title of each major column there are names given to sub-columns. Under the "Sales" heading there are three sub-columns. One of these is headed "Weight"; the next is headed "Amount"; the third of the subcolumns is headed with the word "Ave." (meaning yearly average). Below the "Cost of Goods Sold" there are a column headed "Amount" and a column headed "Ave." Under the heading "Profit" there are two sub-columns, one headed "Amount" and the other "Ave."
It is undisputed that what is included in the last column under "Profit" is what is commonly spoken of as the "Gross Profit" on the particular commodity that is described at the extreme left, in the "Commodity" column, in the same line in which, at the extreme right, the gross profit is stated.
Near the end of the statement for each year there are sets of figures of Alcoa's costs on various accounts in producing the commodities; but these figures, as all agree and as is manifest on inspection, were not taken into account in making up the gross profits figures throughout the body of the statement in the last column to the extreme right.
In its original brief, pages 182-5, the Government furnished 22 instances in Exhibit 1721 in which it says that the rate of approximate net profits during the period of the exhibit ranged from 54 per cent to 181 per cent. Alcoa squarely disputes the correctness of the Government's statement of each net profit claimed. It says that all are grossly wrong. Thus arises the question which must now be dealt with.
The Government has explained its computation of the rate of net profit on only one item and has furnished an exposition of how that computation was made (original brief, pp. 182-3). Observe particularly the note, part of which is on page 182 and part of which is on page 183. It is of importance to understand that note.
In exposition it appears that, in form, the Government's scheme is quite simple. Its chief feature is to reach a percentage figure (hereinafter, for convenience, called the key) for use in multiplying gross profits in order to ascertain net profits.
The procedure for using the key consists of two steps. These are as follows: (1) Ascertain the percentage or rate of gross profit for each commodity. (2) Multiply the gross profit, so arrived at, by the percentage which constitutes the key.
The ascertainment of the percentage of the gross profit is by dividing the gross profit in cents for the commodity (as set out in sub-column headed "Ave." under the column headed "Profit") by the cost of that commodity in cents (as set out in the sub-column "Ave." under the column "Cost of Goods Sold"). The multiplication of the gross profit by the key, in the way I have explained, will give the percentage or rate, as the Government claims, of the net profit on the commodity; and be it noted, this key percentage which is used for performing the multiplication, according to the Government's claim, may be used with respect to any item or commodity in the table. Note also that the key has been obtained by the investigation, according to a certain process, of but one item in the entire exhibit.
The crucial importance of the key percentage figure is manifest. While, as I have said, it has been arrived at by consideration of a single commodity, it has been used by the Government to compute the alleged net profits scheduled in the Government's brief as having been received by Alcoa on the other 21 commodities included in the Government's brief (pp. 184-5).
Let me go a bit further.As I have said, the way in which the key percentage was reached is explained in the note to which I invited your attention at pages 182-3 of the Government's original brief. The device there described is complex and quite difficult to apply. On this account, for the moment, I shall not undertake to analyze it. Rather, I shall content myself for the moment with merely saying that 79 per cent is the key percentage adopted by the Government for the application of its formula. I ask you, however, to remember that 79 per cent is the key which the Government applies for computing the net profit gain by Alcoa on every item in Exhibit 1721.
Perhaps the method followed by the Government in computing the rate of net profit for a particular commodity will be somewhat clarified by an illustration. For example, let us take the first item on the first page of Exhibit 1721.
The commodity selected is pig of the grade of 99.5 per cent or better.The facts relating to it, as set out in the exhibit, are as follows: It sold for 17.99 cents a pound. Its cost of production was 10.16 cents a pound. The difference between those two (that is, the gross profit) is 7.83 cents a pound. By dividing the 7.83, which was the gross profit, by the 10.16, which was the cost of production, we get a percentage of 77 per cent. That, according to the method under examination, is the rate of gross profit. The rate of net profit to Alcoa on that commodity in 1937, the year it was sold, was 79 per cent of the 77 per cent. This (omitting fractions) is 60 per cent.
Another illustration that is worthwhile examining is the commodity used by the Government is making its computation when it adopted 79 per cent as the key percentage figure (original brief, p. 182). This commodity is taken from line 32 of page 29 of the exhibit; it is 2S-3S alloy sheet strip.
According to the exhibit, the sales price of the sheet mentioned was 29.61 cents per pound and the cost of production was 14.88 cents per pound. The difference, or gross profit (in the sense in which the word is being used), therefore was 14.73 cents a pound. Dividing 14.73 by 14.88 (which was the cost of production) we get .99. This means that the gross profit on that commodity was 99 per cent. Multiply the 99 per cent by 79 per cent (the key) and we get 78 per cent. 78 per cent (according to the Government) is the net profit that Alcoa received on this commodity in 1939, the year it was sold.
The use of the key percentage figure, however, is of even greater significance than I have previously stated. The Government's view on this point is stated at page 183 of its original brief. Explanation of how to use the key in ascertaining the rate of net profit on its other commodities is given in a footnote on that page as follows:
"By applying this same procedure, it is possible to reduce the gross profit, as stated by Alcoa, to an approximate net profit which makes allowances for all cost items covered by Alcoa in its own cost exhibits (Ex. 1748). Since the percentages would be the same for any commodity in Alcoa's Statement of Earnings and Expenses, the approximate net profit can be ascertained by taking 79% of the stated gross profit."
Again, in the body of the brief, on the same page, it is stated:
"Similarly, the net profit on other items listed in Alcoa's Statement of Earnings and Expenses is approximately 79% of the gross profit as stated therein."
Why the Government regards the key as correct, or justifies the use made of it, is not explained.
In Exhibit 1721 there are quite a large number of commodities. 1718 of those items are there scheduled. Of these there are 166, on each of which, according to the face of the exhibit itself, there was an actual loss on the average for the year, instead of a profit.
In addition, as appears by table 23, there are numerous instances in which, on the face of the exhibit, the average profits for the year were small. The table is as follows:
Computation from Exhibit 1721 of approximate percentages (1937-9) of Alcoa's gross profits per pound (column C), averages of which gross profits purport to be stated on the face of such exhibit, on certain commodities bearing line numbers (column B) of exhibit pages (column A), without making cost deductions mentioned in section 2 of the note below.
ages of gross profits
on commodities, ar-
ranged in the order
in which the com-
Exhibit Commodities modities are arrang-
pages line numbers ed in column B
A B C
1937 1 29; 41 20; 1
2 5; 38; 49 23; 5; 12
3 1 23
4 4-5; 17; 23 2; 2; 17; 23
5 3; 6; 10 4/10; 12; 14
7 7 2
8 33 16
9 4 10
10 35 1
11 7 12
12 1; 5; 8; 11; 2/10; 6; 19; 5; 1; 2;
17; 19-23; 25- 3; 1/10; 4; 4; 3; 3;
32; 34; 36-37 2; 1; 3; 6; 11; 2; 11;
13 1-4; 8-26; 28- 2; 2; 2; 4; 3; 3; 4;
30; 32-34 3; 2; 3; 5; 5; 1; 0;
1; 3; 2; 2; 13; 9; 10;
6; 11; 3; 4; 3; 13;
1938 16 9 18
17 8; 42; 45 24; 7; 24
18 9-10; 12; 15; 9; 22; 16; 14; 16
19 6 17
20 29-30; 32; 38; 14; 9; 13; 3; 1
21 3; 21 12; 0
22 23; 28; 33; 40 14; 12; 6/10; 3
23 7-9; 29 13; 16; 24; 9
24 31; 32 24; 15
26 3; 6-7; 9; 29; 1; 4; 5; 16; 5; 10;
30; 31; 33; 35- 2/10; 1; 6; 3; 5
27 1; 4; 6-10; 12- 9/10; 8; 5; 17; 3; 4;
6; 18-20; 22; 3; 4; 2; 4; 7; 4;
24-32; 34; 36-8 2/10; 6; 3; 1; 2; 2;
3; 3; 1; 1/10; 5; 7;
6; 7; 1; 2; 14
28 1; 5 5; 8
1939 30 30 12
31 32 8
32 17; 26; 32; 49 8; 15; 18; 10
33 3; 35 11; 19
34 12; 27; 33; 36 5; 14; 16; 14
35 1; 34 18; 2
36 8; 10; 13; 15; 16; 23; 16; 17; 12; 6
38 9; 23 22; 1/10
39 4; 10 16; 14
41 5-6; 18; 32; 3; 5; 23; 5; 9/100; 3;
34; 36-40 1; 5; 2; 3
42 1; 4-20; 22; 7/10; 4; 4; 24; 1; 4;
24-33; 36; 38; 2; 3; 7/10; 3; 3; 3;
40; 42 8/10; 21; 3; 3; 2;
2/10; 4; 2; 3/10; 10;
1; 6; 5; 8; 5; 5; 3;
1; 2/10; 2; 11
43 2-3; 5-6; 10 3; 10; 11; 4; 2
In the several years covered, the table above gives in column C instances of percent rates of gross profits as follows:
1937, ranging from 0 to 23%, total 68
1938, ranging from 0 to 24%, total 69
1939, ranging from 9/100 to 24%, total 72
For three years,total 209
NOTE: Section 1. Column A gives the pages of the exhibit on which will be found the names and weights of the commodities whose several line numbers, under the heading "Line No." in the exhibit, are set out under column B above, opposite the respective exhibit pages as given in column A. In column B are given the line numbers of the commodities on the exhibit pages, which are designated in column A above, opposite such numbers. In column C (without fractions, except where the profits stated are less than 1%) are given the approximate percentages of the gross profits on the commodities, arranged in the same order as those commodities are arranged in column B.
Section 2. Before net profits of commodities can be ascertained, additional deductions from gross profits must be made. Without now determining of what all the deductions should consist, in part they arise out of the omission from costs of goods sold, as set out in the exhibit opposite the several commodities listed, of certain items of costs. Among those are the properly allocated shares of each commodity (if obtainable) in given totals of several items, designated in the exhibit, not already included in computing gross costs. The aggregates of these, stated in the exhibit, are $7,621,025.65 for 1937 (p. 11, lines 15 to 20, without additional cost figures being given at p. 14 for the Pacific Coast Division corresponding to those given for that division in 1938 at p. 28); $8,069,518.22 for 1938 (p. 25, lines 6 to 11, and the last three items following the word "total" near the bottom of p. 28); and $6,678,003.58 for 1939 (p. 40, lines 4 to 9, without additional cost figures being given at p. 43 for the Pacific Coast Division corresponding to those given for that division in 1938 at p. 28). As shown by the evidence (pp. 39062-78) and as conceded by the Government (original brief, pp. 182-3), other items of cost of the goods sold must also be deducted.
When computing the rates of percentages in column C, no costs were taken into account except those included in the figures, under the heading "cost of goods sold," set opposite the several individual commodities throughout the body of the exhibit.
This table purports to be a computation from Exhibit 1721 of the approximate percentages (1937-9) of Alcoa's gross profits per pound (Column C), averages of which gross profits purport to be stated on the face of such exhibit, on certain commodities bearing line numbers (Column B) of this table, of exhibit pages (stated in Column A of this table), without making cost deductions mentioned in section 2 of the note below.
In other words, if I may explain it again, this table has computed information for each of the three years 1937, 1938 and 1939. It includes computations of a comparatively small fraction of the total upwards of 1600 items. It identifies with precision the item with respect to which the computation is made. That identification is accomplished by giving in column A of the table the exhibit page from which the commodity is taken and in column B the line numbers of the commodities, as will appear in the exhibit. In column C there is computed the approximate percentages of the gross profits on each of these commodities that has been so described in column A and column B. In addition, you will note that in column C, where the percentage of the gross profits on each of these commodities is stated, the percentages are arranged in the identical order in which the commodities are arranged in column B. In consequence, you will be able, in using the table, to identify the percentage in column C as it relates to an identified commodity covered by reference to columns A and B.
The first item which I shall take up by way of illustration is the first one in the exhibit. This is to be identified by looking under column A and there you will find the exhibit page 1. In column B, under commodities, you will find the two figures, 29 and 41, separated by a semi-colon. In column C you will find in the same line the figures 20; 1. Now this means that for commodity 29 on page 1, which you can immediately put your hand on, the approximate percentage of gross profits is 20 per cent, -- 29 being the first commodity line number given under B and 1 being the page number given under A. The commodity number being the first of the commodity numbers appearing under column B, the percentage figure given in column C must be the first figure in that column. The second commodity dealt with in column B is 41 of page 1. In column C the second figure given is 1. That means, therefore, that 1 is the percentage of the gross profit on the commodity just described in line 41 on page 1 of the exhibit.
I have said that there are in this exhibit 1718 items. I have told you that there are 166 items as to which, on the face of the exhibit, there was an actual loss, instead of a profit, for the year in which it was sold.
In table 23 I have made no effort to be exhaustive. But, without making the effort, in the table there are identified 209 commodities with respect to which the average gross profits during the years 1937-9 ran from nothing to 24 per cent. Now, if we take 21 per cent of the gross profit and deduct it (that is, if the 79 per cent key be applied in compliance with the Government's formula), the maximum of the average yearly net profit of the last group of commodities mentioned, without the fractions (which are ignored), would be 18 per cent.
Adding the 166 commodities on which there were affirmative losses and the 209 commodities on which the highest net average profit was but 18 per cent, there is a total of 375 commodities on which at least it may be said that either there were no profits or the net profits were moderate.
The evidence as to how the annual reports embodied in Exhibit 1721 were constructed and as to how, if at all, computations with respect to profits could be made is not full or satisfactory (pp. 39044-5; 39051-79; 39491-92A). Several things, however, are clear:
(1) The reports are merely for statistical purposes and were not designed for use in computing profits, -- certainly not for learning what were the profits on the aluminum content of the respective commodities (pp. 39072-4; 39492).
(2) There are some elements of cost which are not included in these reports and how or where, if at all, some of such elements can be found, or what are omitted, is not established (pp. 39070-74. See also p. 39492A).
In these circumstances let us turn back to Exhibit 1721 itself.
As I conceive, there are several ways by which, without resort to anything outside of the exhibit, -- that is, relying on the exhibit standing alone, -- the position of the Government as stated in the extracts quoted above from page 183 of its original brief -- by which I understand is meant it justifies its "per pound basis" -- can be demonstrated to be erroneous. I feel that it will be enough to point out two of such ways. I feel also that, unless the Government can sustain the position mentioned, its proposition with respect to Alcoa having received profits running from 54 per cent to 181 per cent, or any other higher rates, has not been proved.
In the first place, as previously noted, there are 166 items in the sale of each of which, according to the exhibit, Alcoa suffered a loss. If the theory of the Government for the use of a per pound basis or the use of a 79 per cent key be sound, then it would follow, of necessity, that, in determining whether it had earned a net profit, Alcoa would have as much warrant for employing one of the commodities on which there was a loss as the Government would have for selecting the commodities on which, on the face of the exhibit, the profit was large.
In the second place, as appears by table 23, in 1937 there were 68 commodities on which the range of the rates of gross profits was from nothing to 23 per cent per pound; in 1938 there were 69 commodities on which the range of the rates of gross profits was from nothing to 24 per cent per pound; and in 1939 there were 72 commodities on which the rates of gross profits ranged from 9/100th of 1 per cent to 24 per cent per pound. In other words, during the three years period there were 209 commodities on the sale of which Alcoa's rates of gross profits were from nothing to 24 per cent.
As remarked with respect to the cases in which Alcoa suffered losses, so here it may also be said that if the Government may select a commodity on which to predicate its profit computation, or from which to derive a key or index figure, manifestly it should be equally open to Alcoa to select a modest profit or a no profit item on which to base a computation or from which to derive its key or index figure.
What all this means, as I conceive, is that it is wholly erroneous to select a single commodity and by use of that alone to reach a key or an index figure and then to apply such key or index to every commodity sold by Alcoa during the entire three years or during any one of the years.
I feel that it is but matter of common sense to say that one engaged in merchandising commodities, when in active competition, in order effectively to compete, will be forced to vary, and, in the absence of an effort to drive his competitors out of business, should be free to vary, the rate of profit he makes on the sales of particular commodities.
I am convinced that the only method which can be applied reasonably and fairly is one which takes into account the entire business for the year as a single unit. That method not having been applied, -- and the material from which such result can be obtained not having been put in evidence, unless it be the material which I shall next discuss, -- I feel compelled to conclude that the Government has failed to prove its charge that Alcoa exacted exorbitant profits on particular items.
This brings us to the much discussed question of Alcoa's average earnings.
In Exhibit 1665 Alcoa presented a list of figures which, according to its contention, shows that the average of its earnings for the 51-1/3 years of its business existence (from the year ending August 31, 1889, to the year ending December 31, 1939) was approximately 10 per cent. The Government submitted Exhibit 1006 for the years 1892 to 1937, inclusive, from which it concluded that the average earnings were only a small fraction in excess of 10 per cent. The difference between the two figures arrived at by the Government and by Alcoa is negligible and may be ignored.
Mr. Collins, an accountant for Alcoa, made the computation in Exhibit 1665 and fully explained it. To absorb his theory perhaps it would be well to read all or substantially all his testimony. However, I think the following would give a fair representation of his statement (pp. 36384-430; 39759-896; 39937-40030; 40039-53).
It is not even suggested that the figures themselves in Exhibit 1665 are inaccurate. Indeed, they are accepted. The sole criticism by the Government is that the theory on which the percentage was arrived at by Mr. Collins was wrong. Is that true?
In essence, as I understand Mr. Collins, what he did was to ascertain from the books what was the average rate of earnings on a base consisting of three items. These items were: (1) investment by the stockholders in Alcoa's capital stock; (2) earnings of Alcoa which had been "plowed back" by issuance of stock dividends to the stockholders; and (3) undistributed earnings on hand in the Alcoa treasury. The argument in behalf of Alcoa is that all these three types of monies had actually been employed by the company in making earnings and, hence, were entitled to be taken into account in ascertaining what the rate of its earnings had been.
Mr. Collins made a very persuasive statement of his views. No accountant appeared to refute him. What is the best and fairest method is somewhat perplexing. It seems to me plain, however, that there can be no valid objection to inclusion in the base for computation of all receipts on issuance of capital stock, whether such receipts be money or property, nor to inclusion of the plowed back earnings. Both indisputably were parts of the company's capital and were employed by it in producing the earnings. If there be room for controversy, I feel that necessarily it is confined to the question of the extent to which (if at all), in solving the rate of earnings problem, it is proper to include in the computation base earnings on hand which have not yet formally passed into a status equivalent to having been received by the company on the issuance of stock. Yet I believe it is indisputable that net funds in the treasury of a company, which had reached there as bona fide earnings, might properly be included in stating the net worth of the company. If so, then surely it is difficult, if not impossible, to distinguish between that treatment of such net earnings and their inclusion as the third element of the base for computing the rate of earnings as heretofore described.
In the absence of advice to the contrary by one skilled in economics or accountancy, or both, at least I should be strongly inclined to adopt the view that the third element mentioned should be included in the base. I go further and say that thie view impresses me as right. So also I say that I have discovered nothing in what the Government has presented, either in evidence or in argument, which would warrant exclusion of the third element from the base for the computation or would warrant finding as a fact that the rate of average earnings of Alcoa, over the period of its existence, has exceeded approximately 10 per cent, as insisted by Mr. Collins.
Another angle of approach is to inquire, on the evidence, what figure should this Court adopt as a criterion for determining whether a particular rate of average earnings is exorbitant? Perhaps the rates prevailing with other concerns may have a bearing on what is reasonable; but this has not been gone into directly or even generally by counsel and has not been touched on more than casually. Without hearing counsel, I should hesitate finally to adopt the suggested test. Nevertheless, I shall call attention to what the record shows on the point.
So far as I can recall or has been brought to my attention, no evidence has been introduced which would assist me in answering the inquiry, unless it be that which, apparently as an incident, came from witnesses in regard to the financial histories of their own companies. The purpose of such evidence, so brought in, seemingly was to establish that competitors of Alcoa, whose officials or employees took the stand at the trial, were financially capable of competing.
From representatives of seven companies of the kind mentioned, testimony about the financial history of their respective companies was adduced. Taken as a whole, this testimony indicates that these companies have made earnings as large as, or in the neighborhood of as large as, and some even larger than, Alcoa has made. But I do not refer to it for the purpose of drawing attention to that phase of the matter. What I think it does show without dispute, and what I rely on it for, is that Alcoa did not employ the power ascribed to it by the Government, -- which certainly was great, -- in preventing the companies involved from competing with it.
I have heretofore given the names of the seven companies and the substance of the statements of their representatives. The companies and the references to what was said are as follows:
(1) Advance Aluminum Castings Corporation, of Chicago and Rockford, Illinois, at pp. 28707-12; 28795-9.
(2) Blackhawk Foundry & Machine Co., of Davenport, Iowa, at pp. 28068-70; 28096-7; 28142.
(3) Bohn Aluminum & Brass Corp., of Detroit, in Exhibits 1507 and 1508 (see also Exhibit 1509; where it appears that Bohn itself estimated its net profits for 1912-1939 at $22,000,000; and Exhibits 1510 and 1511, containing further anaylses of Bohn earnings).
(4) Century Metalcraft Corp., of Chicago or Lake Forest, Illinois, at pp. 28416-22; 28444.
(5) Club Aluminum Products Co., of Chicago or nearby, at pp. 29876-80; 29893-95A.
(6) Enterprise Aluminum Co., with plants at Massilon, Ohio, and Etonton, Georgia, at pp. 31957-9; 31990.
(7) West Bend Aluminum Company, of West Bend, Wisconsin, at pp. 31832-9.
There are a few of the figures about the interpretation of which there is a bit of ambiguity in the testimony.I have construed them as best I could; but, for the purpose for which I am now about to use them, the differences are immaterial and the details need not be gone into. I have prepared table 24 on the subject. This is as follows:
Computation of net earnings of seven of Alcoa's competitors engaged, wholly or partly, in branches of the aluminum business during periods including years stated in column B below and continuing to the end of 1939, with exceptions specified in the note.
issued for cash Stock issued for Total
Name of competing Beginning or property and earnings and capital stock
company year outstanding outstanding outstanding
A B C D E
1. Advance 1919 $15,000 $735,000 $750,000
2. Blackhawk 1920 47,500 00 47,500
3.Bohn 1925 1,556,000 1,340,000 2,896,000
Metalcraft 1933 129,000 00 129,000
5. Club 1932 12,000 00 12,000
6. Enterprise 1914 50,000 550,000 600,000
7. West Bend 1911 150,000 00 150,000
Stock paid off Dividends Total net
Name of competing out of earnings paid from Net worth at ings (D F
company and retired earnings end of 1939 G H - C)
A F G H I
1. Advance $20,000 $1,043,000 $1,068,000 $2,851,000
2. Blackhawk 00 70,000 280,000 302,500
3. Bohn 00 11,967,000 8,954,000 20,705,000
4. Century Metalcraft*e 00 499,000 354,000 724,000
5. Club 00 210,000 320,000 518,000
6. Enterprise 00 703,000 962,000 2,165,000
7. West Bend 00 1,766,000 1,455,000 3,071,000
NOTE: The figures for Bohn (No. 3) include two months of 1924 and for Century Metalcraft end on March 31, 1939.
There are nine columns in the table. In column A are given the names of the seven companies I have spoken of. In column B is given the approximate year when each company, or one of the companies out of which it grew by merger, began business. With a single exception (specified in the note to the table), the figures for all companies run to a given date. That date is December 31, 1939. The excepted company (Century Metalcraft) runs to March 31, 1939, the end of its fiscal year.
During the period for each company there are set out: the capital paid in by the stockholders, whether in money or property, which is still outstanding (column C); the amount, if any, of earnings plowed back for which stock is still outstanding (column D); the total capital derived from contributions paid in by stockholders and earnings plowed back for which capital stock is still outstanding (column E); the amount of stock, if any, paid off out of earnings and retired (column F); the dividends to stockholders paid out of earnings (column G); the net worth of each company at the end of the period (column H); the total net earnings during the whole period, made up by adding together the amount of stock issued for earnings and still outstanding, the amount of stock paid off out of earnings and retired, the dividends paid from earnings and the net worth at the end of the period, and subtracting the amount of the capital from the sum thus obtained (column I). In other words, column I is made up by adding columns D.F.G and H and subtracting column C from the total.
Round figures only are used. In some instances the testimony furnishes the precise figures for the columns. In others they are computed from material found in the evidence. So also the dates are only approximate and, other than as stated, details are lacking. In consequence, it would be impossible with accuracy to compare the results with what the evidence discloses on corresponding points in regard to Alcoa. I shall not attempt, therefore, to reach any estimate of the rate of profits earned by any of the seven companies. It is not for this purpose that I have assembled the facts or embodied them in the table. What I had in mind in gathering the figures and putting them into the table, and what I think they establish, is this: They prove that Alcoa's power was not employed to drive any of the seven competitors out ot business; but that, on the contrary, those companies have flourished.
Now note that in column B only the beginning year is stated. Advance, the first company, to the end of 1939, therefore, had been in business approximately 21 years; Blackhawk had been in business 20 years; Bohn, 15 years; Century Metalcraft, 7 years; Club, 8 years; Enterprise, 26 years; and West Bend, 29 years. In other words, none of these was a fly-by-night company but all were genuine and substantial business concerns.
It is interesting also to note what the capital of each company was and compare that with what the total net earnings were, without going into details.
In the case of Advance the capital issued for cash or property, and still outstanding, was $15,000. The stock issued for earnings, and outstanding, totalled $735,000. There is, therefore, a total present capital stock outstanding of $750,000. The total net earnings of the company, as appears by column I, made up in the way I have explained, was $2,851,000.
In the case of Blackhawk the capital issued for cash or property, and still outstanding, was $47,500; but no stock which is now outstanding was issued for earnings. The total net earnings, shown in column I for that company, was $302,500.
In the case of the Bohn Company the capital stock issued for cash or property and outstanding was $1,556,000 and the stock issued for earnings and still outstanding was $1,340,000, -- making a total of present capital stock outstanding, whether derived from stock that was paid for in cash or property or stock issued for earnings, of $2,896,000. The total of its net earnings set out in column I for the period was $20,705,000.
In the case of Century Metalcraft the capital stock issued for cash or property and outstanding was $129,000, with none issued for earnings and outstanding. The total net earnings in column I for this company was $724,000.
In the case of Club Aluminum the total capital stock issued for cash or property and outstanding was $12,000, with none issued for earnings and still outstanding. The total of the net earnings in column I of that company was $518,000.
In the case of Enterprise the capital stock issued for cash or property and outstanding was $50,000 and stock issued for earnings and outstanding was $550,000, making a total of present capital stock outstanding of $600,000. The total net earnings of that company, set out in column I, was $2,165,000.
In the case of the West Bend Company the capital stock issued for cash or property and outstanding was $150,000, with none for earnings and outstanding. The total of its net earnings, set out in column I, was $3,071,000.
Another feature that should be observed is that only one of the seven companies has even a substantially large capital. That is Bohn. Its total capital stock outstanding is $2,896,000. Of this 54 per cent was received from stockholders, paid in cash or property, and 46 per cent from earnings. The capital of the other companies, in varying amounts, runs down to Club, whose total capital is $12,000.
Still another feature, graphically brought out by the table, is the futility of an attempt to measure relative net earnings or relative profits, or relative capacity to produce net earnings or to produce profits, exclusively on the basis of dollars of capital invested. As all of us know, in business as in the other departments of life, intangibles play a part. It is impossible to translate such a part into terms of percentages.
The indication of the existence of competition and of its nature is strongly corroborative. The overwhelming weight of the testimony, coming from customers and competitors alike, shows that, while Alcoa competed actively, it was fair. Apart from the spread controversy, elsewhere commented on, I think the quantum of complaints during a period of over 50 years of Alcoa's method of competing was astonishingly small. I think I have discussed the principal or typical (if not all) of the complaints definitely disclosed by the evidence If there be others of substance which are not typical and which I have overlooked mentioning, I feel sure that they are mere isolated instances. Moreover, the facts as to those isolated instances are completely overcome by the overwhelmingly greater weight of proof the other way.That proof exculpates Alcoa wholly or substantially from blame.
Table 24 contains seven concrete illustrations.To that showing several further showings, which are more or less pertinent, should be added.
While perhaps not of great moment, one of the Government witnesses, who was quite antagonistic to Alcoa, said that, after studying its balance sheets, he thought that Alcoa "had never made an extortionate profit but a very reasonable profit." He also expressed hearty approval of Alcoa's practice of plowing back its earnings because, as he said, of "unusual obsolescence, in the discoveries in the art of aluminum production" (p. 5936). The witness was Mr. Uihlein and that is what he said.
Another witness, whose company had been a buyer of Alcoa products, testified that Alcoa had been unusually reasonable in making unsolicited reductions in prices of pistons (pp. 31420-23; 31430-33).
Several other witnesses testified to the prevalence of the same practice, particularly in cases where, after long term contracts had been made, there was a reduction in price before the termination of the contract, of which the customers were given the benefit.
Perhaps also it should not be overlooked that Exhibit 1006, prepared by the accountant for the Government, and Exhibit 1665, prepared by the accountant for Alcoa, show that Alcoa has suffered annual losses for three years. In round figures these were as follows:
Exhibit 1006 Exhibit 1665
In 1921 $5,200,000 $5,900,000
1922 6,000,000 5,900,000
1932 2,900,000 2,900,000
In 1921 Exhibit 1006 stated that the loss by Alcoa for the year was $5,200,000 while Exhibit 1665 put it at $5,900,000.
In 1922 Exhibit 1006 stated the loss that year at $6,000,000 while Exhibit 1665 stated it at $5,900,000.
In 1932 Exhibit 1006 and Exhibit 1665 each stated the loss for that year at $2,900,000.
The Government's argument in support of its charge that Alcoa made exorbitant profits will next be examined. It rests, principally if not wholly, on three events. One occurred in 1904, another in 1909 and the third in or about and connected with 1925. In so far as these three events possess a characteristic in common, I think it is the alleged fault of plowing back earnings.
In 1904 Alcoa declared a stock dividend of 100 per cent.In 1909 it declared another stock dividend of 500 per cent. In each instance the par of the stock was $100 a share. In 1925, in connection with or pursuant to the reorganization of that year, each common stockholder of the old company received 7 shares of preferred stock and 6 shares of common stock of the new reorganized company. The par of the preferred was $100 and of the common was $5 a share. Accordingly, each old stockholder received stock of the par value of $730.
Predicated on these three events, the Government says that a person who paid $100 for a share of Alcoa stock previous to 1904, and has continued to hold it since, now has stock of the present Alcoa of a par of $8,760. For that reason, as the Government claims, for his $100 paid preceding 1904 such a stockholder today holds stock of the par of $8,760 and that this furnishes the correct measure of the extent to which the company has profited (Government's original brief, pp. 186-7; reply brief, p. 69).
The facts as stated by the Government -- the facts as distinguished from the conclusions -- are not disputed. Only the conclusions are denied. The argument has a sound of plausibility. The issue is, however, whether the test is correct. I think not. Some of the reasons for the view I take will be stated.
In the first place, as I see it, what the Government relies on is a showing of how the stockholders have apportioned among themselves their respective participations in the ownership of the corporation; whereas, obviously what we are concerned with, and all that we are here concerned with, is what the company as an entity, and solely as an entity, has done as between itself and its customers. It is from the customers alone that the company has received its earnings. It is the customers alone who were directly affected by the single thing out of which the company's income arose. In a way it is true to say that it is the customers who were the exclusive source of the income. Of course the stockholders were affected also; but they were affected only as a consequence of what the customers did.
If my analysis be right, then it seems clear that the Government's contention goes off into a complete irrelevancy. It has undertaken here, as seems to me, to use an inapplicable test, somewhat as it did in its effort to apply a "per pound basis" (e.g., original brief, p. 180) as the test of profits on the sale of individual items of commodities.
In the second place, so far as concerns the plowed back earnings of 1904 and 1909, if there was fault (save to the limited extent of eleven months following February 2, 1909, when the Bradley patent expired), those earnings that were plowed back in 1904 and 1909 were made by the company during the period when it had patent protection. If through the patent monopoly its earnings were large, -- and it seems to me certain that the patent monopoly was the chief, if not the exclusive, factor in enhancing the earnings of the period which included those years, -- that is the result of the enjoyment of an advantage which the law conferred on the company.This would appear, therefore, to be unassailable.
Moreover, if failure or refusal of the company to forego the patent advantage constituted misbehavior, that would not now, 37 or 32 years later, justify imposition of a penalty which, though indirectly, ultimately at least would be exacted from a vastly changed list of stockholders.
In the third place, in so far as concerns the rearrangement of stock in or pursuant to the 1925 reorganization, when we turn to the facts directly affecting the corporation, it would seem that a reasonable view of what actually happened would be this: (1) The old stockholders got in the new company what was the equivalent of some rearrangement of their participation. (2) For any increase in the total of the par value stock issued to carry out the reorganization, the company received wholly new consideration and was fully paid, such payment being partly in cash and partly in property.
No one, of course, complains or could properly complain of the company for having accepted cash as a portion of the payment. The property it received was the so-called Lower Development on the Saguenay River. Apart from the cash, that property constitutes the entire fresh consideration which came to the company in payment for all the stock which constituted the increase in the total of the par value (that is, outside of what was paid for in cash).
The evidence as a whole, especially in the light of subsequent facts, fails to show that an excessive price was paid to Mr. Duke for the Lower Development. That evidence indicates, and distinctly tends to show, that this property was not over-valued when the new company parted with it to Aluminium for $17,000,000 (exclusive of what was paid for improvements, which brought the total purchase price to $35,000,000). Indeed, in other connections in this case, the Government has criticized Alcoa for getting too little for the property when it was sold to Aluminium. If it was worth $17,000,000 to Aluminium, how can it properly be said that it was greatly over-valued or over-valued at all in 1925, when taken at that figure?
The Government has also criticized the earnings of 1939 as being too large. Before dividends or income taxes, in round figures, the amount of the earnings for that year was $49,000,000. It is enough to say three things in response: (1) The earnings of 1939 more than doubled those of 1938. This was undoubtedly due to the added business which came to Alcoa because of preparation for war in which European countries were engaged or were about to become engaged. (2) In the workout, those earnings constituted 20.62 per cent on the stockholders' equity. (3) That percentage has been taken into account in computing the average percentage of earnings for the entire period of the company's existence (for the good years alike as for the bad years; for 1939 alike as for 1921, 1922 and 1932 when there were great losses).
The average for 51-1/3 years, the entire business life of Alcoa, has been at the rate of 9.96 per cent or, as we have taken it, at the rate of 10 per cent a year if the computation by Mr. Collins be correct.
After considering all the alternatives which counsel on both sides have suggested or which the Court submitted to counsel for debate, I have found no method that impresses me as more nearly correct and fair than the one presented by Mr. Collins in Exhibit 1665.According to that, the averages of the company per year, on the stockholders' equity, have been as follows: (1) Earnings, 9.96 per cent. (2) Dividends paid, 4.88 per cent. (3) Earnings put back into the business, 5.08 per cent.
The test for measuring the rate of profits toward which I lean, and which (in the absence of a better suggestion) I prefer and shall adopt, rests wholly on earnings. The total per cent, column C of Exhibit 1665, as will be observed, is made up by combining the per cent of dividends paid and the per cent of earnings put back into the business, columns E and G of the exhibit (pp. 36414; 36416). Has the Government proposed any more equitable method of measuring the reasonableness of the profits which when to the company as the result of its operations? I think not.
If the percentages stated be correct, then I feel at least it can be said that Alcoa has not been shown to have made exorbitant profits.
I disclaim having demonstrated to a certainty that the theory of Mr. Collins is right. I go further: I frankly concede that, individually, I do not know enough either about economics or about accountancy to be able, without full economic or accounting evidence, to gain a feeling of certainty as to what precise formula on the subject is correct. On the other hand, I do say with confidence that the Collins theory has not been proved to be wrong and that the Government has not, by evidence, established its own theory; nor does the evidence sustain any other theory as a substitute for that of Mr. Collins.
Accordingly, I conclude that the Government has failed to show the guilt of Alcoa either (1) of the charge of having exacted extortionate prices or (2) of the charge of having made exorbitant profits.
Parenthetically, it should be added that this Court has never said that there have not been instances in which particular prices of individual commodities or instances in which particular profits on sales of individual commodities may have been high or higher than the Court today thinks were justifiable. But what the Court has said is that the Government has not, by evidence, established the charges it made as to either prices or profits.
This being another instance of failure of proof in the case at bar, I have given consideration to whether the Court should reserve jurisdiction of charges, if hereafter made by the Government against Alcoa of future excessive prices of future excessive profits. For several reasons, however, I think there is no warrant for adopting as to either of those matters the procedure which I have offered to adopt, on condition, in the case of a charge of future undue spread; but I shall mention only one. Because of that reason, I feel that it would be positive error to follow the same procedure as to charges of future other misconduct.
I am convinced, as I have heretofore indicated, that neither the charge as to prices nor the charge as to profits, as made in the bill, states a cause of action under the Sherman Act. It would, therefore, be an anachronism to reserve jurisdiction of what later occurs relating to either matter. In essence, such a reservation of jurisdiction would be tantamount to authorizing the maintenance of a lawsuit which, if brought, the Court would be bound by law to dismiss on motion.
There is another circumstance, to which I have made brief reference above, which should now be emphasized. It has a very direct bearing on the charges of other misconduct with which we have been dealing, as well as on the entire group of charges against Alcoa, including the charges of monopolization and conspiracy.
The matter which I deem particularly worthy of further consideration at the moment centers about virgin aluminum. As so frequently has been pressed by the Government, it is in virgin aluminum that the chief seat of the entire series of Government complaints against Alcoa is to be found.
With respect to virgin aluminum produced by Alcoa there is irrefutable proof that three classes of commodities are and long have been active competitors with Alcoa. These are (1) virgin aluminum produced in Europe, which is imported into the United States; (2) secondary aluminum produced from scrap; and (3) other materials and metals (e.g., steel, copper, zinc, plastics, etc.) which seek sales or the products from which seek sales among the same customers and for the same uses that are sought by virgin aluminum or by the products therefrom.
It is interesting also to note that competition by the first of these, namely, imported virgin aluminum, is conceded by the Government; also that paragraph 46 of the bill goes far toward conceding competition by the second; and that paragraph 38 of the bill outright does concede competition by the third.
In so-called peace time, practically without cessation for many years, despite tariffs designed to limit its importation, foreign virgin aluminum has come into this country. Once here, it has competed with Alcoa's domestic virgin aluminum which is offered for sale in the United States. The record contains a mass of evidence in support of this statement.
In paragraph 46 of the bill, secondary or "scrap" aluminum is referred to as "competitive," and a "small portion" as "fully competitive," with virgin aluminum.
Until 1910, or thereabout, customarily scrap was thrown away. No use was made of it at all. Mr. Peter Markey (now with the Both Company but at the time connected with Alcoa) and an associate then bought scrap in Cleveland (from White Motor Co.) at 1 cent a pound. Since that date the business of purchase, recovery and preparation of scrap has greatly advanced. The business has progressed so far that now secondary aluminum in large quantities produced from scrap is constantly traded in on the market and has been so bought and sold in increasing quantities for many years.
In so far as I have heard no one has ever suggested, and certainly there is no justification for saying, that there are not demands which cannot be satisfied except out of virgin aluminum. Sometimes it is specified as mere matter of preference. At other times the nature of the article to be produced or the use to which the article is to be put is such as actually to require primary aluminum for its manufacture. On the other hand, it has been abundantly shown that, at periods of varying length after aluminum products have been originally fabricated and sold on the market, scrap therefrom or secondary aluminum produced from such scrap has come back, and has continued to appear, on the market in large volume.
Over a long series of years, and apparently indefinitely, after their allotted periods of usefulness in their original form have expired aluminum products have shown that they are capable of returning, and actually have returned, to the market in the form of scrap over and over again. This habit of scrap is so fixed that today there are many specialized dealers in it throughout the United States. In addition, numerous important concerns are engaged in producing and selling secondary aluminum made from such scrap.
Out of secondary aluminum produced from such scrap it is established without contradiction that, through use of well known processes, save (so far as disclosed) a possible grade which is of 99.75 per cent or higher purity, aluminum of every grade can be produced of the same chemical composition as if it had been produced from virgin aluminum and some factories claim that they can produce from secondary aluminum all the commodities that can be produced from primary aluminum listed in Exhibit 1423, which includes aluminum of 99.75 per cent purity (exhibit p. 6474).
From 1922 to 1936 the average production of secondary aluminum in the United States was upwards of 75,000,000 pounds a year and in 1937 it exceeded 125,000,000 pounds. Some cooking utensils companies at times have manufactured their entire annual output in the United States from secondary aluminum. It also has not been unusual for important companies in this country to sell or consume in the production of commodities they fabricated much more secondary than primary aluminum (e.g., Exhibits 1462, 1473, 1506 and 1513. See also Exhibits 1440, 1441, 1443, 1444, 1463, 1552, 1553, 1558 and 1559. See further the summaries by the Government and by Alcoa of Government specifications, with respect to use of primary and secondary aluminum, Exhibits 1464 and 1676 for identification, and minutes, pp. 41587-95, with citations there given).
Generally the price of secondary aluminum is less than the price of primary aluminum. Ordinarily the price of secondary aluminum ranges from about 1 cent to about 2 cents a pound lower, though at times it has fallen to 6 cents below and at other times it has been but 1/4 of 1 cent a pound lower. But what is indicative of the value of secondary aluminum as a competitor of, and of its being competitive to the extent that it does compete with, primary aluminum is the fact that at times, and under appropriate market conditions, secondary aluminum is sold at prices higher than the price of primary aluminum.
Paragraph 38 of the bill declares that steel, nickel, tin, zinc, copper and lead are the "chief industrial competitors" of aluminum. Numerous witnesses, without contradiction, have also established that there are many metals and materials (those named in the bill, as well as others) which, in a variety of fields, are constantly seeking to displace aluminum; likewise that, in many fields, aluminum is constantly struggling to displace those metals and materials.
After all, it should not be forgotten that the Sherman Act is predicated on the assumption that undeterred competition will prevent restraint of trade or undue restraint of trade if that end is ever to be accomplished. We are forced to rely on that assumption and on it alone. It is all the help that the statute affords us.
In summarizing the entire situation with respect to Alcoa, let me add that there are two angles from which the results as to that company should be covered. My conclusions, therefore, are as follows:
(1) On the negative side, I feel that the evidence compels the finding that it has not been shown that Alcoa is guilty of any of the violations of the Sherman Act of which it is accused in the bill. These offenses are monopolization, conspiracy and other misconduct, -- although, as previously stated, I do not think that any of the statements in the bill with respect to misconduct charges a crime. The terms monopolization and conspiracy, of course, are to be understood as being used in the comprehensive sense in which, for the purpose of this case, they have been defined and heretofore have been used. They embrace all the prohibitions contained in the Act.
(2) On the positive side, it appears without contradiction that there exist in the United States adequate supplies of bauxite and water power. There is no way of measuring the influence on success of intangible characteristics, such as good character, good will and community pride. Disregarding those, however, I think it clear that, with the access to the two raw materials of ore and power named which is and, save when prevented by a patent, always has been open to everybody in the United States, anyone possessing the four cardinal tangible elements of intelligence, industry, courage and money or credit is and has been able, with confidence, to go into the production of virgin aluminum. Anyone in the United States outfitted with the four prerequisites I have mentioned is now free, and since the expiration of the Bradley patent in 1909 has been free, to produce virgin aluminum. All such a person needs, or for 30 years past has needed, in addition are bauxite (or some proper substitute for it) and water power (or some proper substitute for it). No one stands in his way or, so far as has been shown, unless armed with a patent has ever stood in his way of obtaining either bauxite or water power or of his producing aluminum therefrom. He may encounter competition in buying bauxite or water power, but such competition is unobjectionable.
In the past others than Alcoa have considered going into the virgin aluminum branch of the industry. Without, so far as appears, anything emanating from Alcoa having been done to prevent or obstruct, all except the Reynolds Metals Company have refrained and, by choice, have left the field to Alcoa. Just before the close of the trial, however, evidence was introduced disclosing that the Reynolds Metals Company had formed a plan to produce virgin aluminum. If the plan succeed, then competition with Alcoa will exist hereafter in producing the only commodity needed from which it is possible for competition in the production of all commodities fabricated out of aluminum to spring.
No one with certainty can forecast what the future holds. Nor can the Court properly give weight to the Reynolds Company entering on the production of virgin aluminum beyond treating it as a single item, along with other items, of evidence indicating or having some tendency to show that, since its patents expired, or, if that be too early, since the 1912 consent decree in the Pittsburgh case, Alcoa has not excluded from the field anyone who desired to produce virgin aluminum in the United States.
I think we can feel confident, however, that, unless forbidden by decree, Alcoa will compete with any newcomer. Such competition is precisely what the statute encourages and, if we may judge the future by the past thirty years, I believe that we may expect that such competition will be fair as well as vigorous.
The result is, as I feel, that Alcoa and those represented by its counsel at this trial are entitled to have the bill dismissed as against them, with the proviso that, if the Government wish, jurisdiction may be reserved with respect to charges of certain specified future offenses on the terms and conditions that have been stated. On the settlement of the findings, counsel may be heard by memorandum on the question of whether, in order to be effective, it will be necessary that the reservation, if there be reservation, extend beyond Alcoa itself and, if so, to whom.
Up to this time the discussion in this case has been primarily, and frequently exclusively, with respect to Alcoa and those standing with it.
IV. DEFENDANTS OTHER THAN ALCOA GROUP
There are, however, defendants additional to the Alcoa group. These consist of one company, with some of its officials, and two individual companies, which remain to be discussed.
(1) Aluminium Limited
The first group of these is Aluminium and its officials, all of whom stand or fall together. The only charge against them is conspiracy. This has been fully covered in the discussion of the same charge against Alcoa. There is no occasion to repeat what was there said and there is but a single aspect on which I deem it pertinent to add a comment.
In connection with my discussion of Alcoa where Aluminium was concerned, I took occasion, as I thought was pertinent and indeed as I believe was demanded, briefly to comment on Mr. Edward K. Davis as a witness. In connection with the Aluminium group, however, it seems to me there is like occasion to add somewhat to that comment.
I think that Mr. Edward K. Davis, president of Aluminium, has a mind of his own. It is clear that he has, as I feel he deserves, the confidence of the directors and stockholders of his company. He has been their leader from its organization. They have backed him and have given him a rather free hand. I believe he is entitled to the chief credit for the success of the Aluminium enterprise under quite difficult conditions.
Mr. Davis was on the stand before me for seven and one-half weeks. I observed him closely. He impressed me, and I venture to say I believe he impressed everybody in this courtroom who heard him, as honest, frank and careful. I think I should accept, and I do accept, his testimony. With that testimony, along with all the other facts, I think the Government has failed to show that Aluminium or any of the defendants connected with it has violated the Sherman Act.
If what I have said be true, then it follows that there is no warrant for the award or relief against the Aluminium group of defendants.
(2) Aluminum Manufactures, Inc.
An individual defendant, standing alone in this case, is Manufactures.
Paragraph 7 contains the only mention of Manufactures in the bill. What was there said is merely descriptive. Plainly it states no cause of action against that company.
In the evidence only two things of consequence were brought out with which the name of Manufactures is connected. Without conceding that it goes so far, the limit of what it can, with any reason whatever, be argued has been shown, is this: (1) that Alcoa used Manufactures as an instrumentality by which to gain and hold control of the castings business and (2) that Manufactures turned over certain patents to the Cleveland Piston Patent Estate and received therefor certificates of interest, which were distributed, among others, to the Packard Motor Car Company and to Alcoa, who were engaged in producing pistons.
Indisputably, neither of the things just mentioned (in and of itself) states nor do the two combined state a violation of the Sherman Act. Moreover, it should be noted that participation by Manufactures in the piston matter was not even claimed in the bill.
Little of the evidence relating to castings or to pistons was received against Manufactures. Even though, however, all the evidence admitted against others in which Manufactures was mentioned were considered, what previously has been said about castings and pistons, while we were discussing the case against Alcoa, disposed of the case as it affects Manufactures. It would not show any violation of law.
For the reasons stated before, I think there cannot properly be a recovery against Manufactures.
(3) Aluminum Goods Manufacturing Company
Lastly, we come to Goods, a corporate defendant, standing apart by itself.
The charges against Goods were stated heretofore in connection with the charges against Alcoa. Except with respect to two things hereafter mentioned -- which either were not put in evidence against Alcoa or did not relate to it -- the evidence recited in the prior discussion of the charges against Alcoa completely refutes the charges against Goods. At this stage that evidence will not be repeated.
The matters concerning Goods not already disposed of are as follows:
(1) Aluminum Products Company now is, and ever since 1911 has been, a manufacturer and seller of certain aluminum cooking utensils. It is not a party to this suit. In 1911 it produced a roaster. Apparently this was not a four-piece round roaster and there is doubt from the testimony as to whether anyone else was then manufacturing an article of its precise kind (pp. 11381-5).
Nevertheless, for the purpose of the question being considered at the moment, it will be assumed that in 1911 the Products Company was producing and selling fourpiece round roasters.
In 1911 Goods and Products made an agreement. This provided that Goods would discontinue manufacturing a fourpiece round roaster set, in consideration of Products placing with Goods an order for 10,000 coffee percolators at $1.00 each (pp. 11361-448; Exhibit 617).
There is no proof that the arrangement was ever carried out. It must either have been fully carried out or have been abandoned many years ago; long before this suit was commenced.
Assuming, however, that what Goods did in 1911 (30 years ago) was a violation of the Sherman Act, there are two grounds why there should be no punishment; (1) It is very doubtful whether the charge of the offense can reasonably be brought within the allegations of the bill. (2) On account of the age, as well as the trifling nature, of the misconduct claimed, it would not now be basis for an injunction and it would be absurd to suggest, nor has it been suggested, that because of it Goods should be dissolved.
It the contract be entitled to any weight whatever, all that could properly be accorded it is to consider it, in connection with all of the evidence on the subject, in determining the intent of Goods.
(2) An investigator of the Federal Trade Commission testified about some talk he had in 1923 with George Vits, then president of Goods and now deceased. The witness says that in the conversation the Goods president admitted that Goods was dominated by Alcoa (pp. 17997-8; 18117-8).
Before discussing the merits of this charge, I wish first to direct your attention to something that was said by the Supreme Court in 1859. Its statement was as follows (Lea v. Polk County Copper Company, 21 How. 493, 504, 16 L. Ed. 203):
"* * * courts of justice lend a very unwilling ear to statements of what dead men had said."
I am persuaded, however, that the investigator either did not correctly understand or, when on the stand before me, did not rightly recollect what Mr. Vits had said. On the contrary, in my view, the credible evidence so firmly establishes that Alcoa did not in fact dominate Goods and that Mr. Vits and his associates out in the neighborhood of the plants did dominate Goods that I do not believe that its president ever conceded that Alcoa did dominate Goods.
Accordingly, I conclude that no violation of the Sherman Act by Goods has been established.
Near the beginning of the delivery of my decision, in stating the difficulties I faced, one of them described was the responsibility, peculiarly heavy in this case, of having to pass on the credibility of a good many witnesses.
Where a trial judge has before him a group of wilful falsifiers, the task of separating truth from untruth is relatively easy. In the case at bar in my judgment we have not had that class of witnesses. Nevertheless, we have had quite a number who are of the type that give a great deal of trouble to a trial judge. I think I may fairly say of this group of witnesses that for the most part they consisted of what are sometimes called wishful thinkers. The world is full of the type and all of us are familiar with it. Where an individual forms an opinion and has a preconceived idea as to what the facts are, he often testifies according to his preconception, rather than according to the facts. We have had a good deal of that in this case.
Then again, we have had several witnesses who were extremely biased. I do not accuse those men of intending to do wrong. The probability is that they were born that way and they can't help it.
There is one feature, however, about the witnesses that gives me pleasure. That is this: Though sometimes a duty, it is extremely disagreeable to indulge in comment on witnesses which is harsh. I think that any properly minded trier of facts will endeavor to avoid it. I feel that the position occupied by a judge is such that, when he unnecessarily criticizes witnesses, it is cowardly. So it is a satisfaction to me that I have not deemed it required that I speak severely of any witness or that I go farther than, in the general way I have explained, to tell you that there were witnesses here whose testimony I do not think was entitled to great weight and some whose testimony on important points, according to my view, was not entitled to even a featherweight of influence in leading me to a conclusion.
The astonishing thing is the great number of witnesses who appeared on the stand, competitors as well as customers of Alcoa, who have completely exculpated Alcoa from blame and have praised its fairness as well as its helpfulness to the aluminum industry. I think I should add that such conduct of those witnesses, nearly all of whom were entirely independent, is in great part a tribute to Mr. Arthur V. Davis.
I shall try to avoid any invidious distinctions in anything I shall say about Mr. Davis. There are, according to the proof, -- and that is all I am relying on, -- a number of men who in the little more than fifty years of the life of this company have contributed very materially to its success. Two names out of the many in the early history of the company stand out. They are Captain Hunt and Mr. Hall.
Mr. Davis entered the employment of Alcoa on the first day of September, 1888, and, therefore, was a member of the beginner group. He has been continuously with the company ever since. His connection with it is precisely the period covered by a number of the exhibits, including the accounting exhibits, that show the business growth of Alcoa.
At the start he worked as a laborer He daily wore overalls.He not infrequently was forced to whistle for his pay. When this small company was seeking to raise its initial capital of $20,000 only, Mr. Arthur V. Davis had no part because he did not have the money. Yet by 1900, practically, he had become the real leader in Alcoa. From that date to this date increasingly he has continued to be the leader and I think I am making no invidious distinction when I say that it is he who, chiefly and primarily, has built up and made Alcoa what it is today.
I say this not because I have any interest whatsoever in paying a tribute to an individual. That is none of my concern. I say it as introductory to what I wish to add about Alcoa itself in connection with the final disposition of this case.
Aluminum is in its infancy. From the evidence I am convinced that any man may properly look to enormous developments of aluminum in the future. Mr. Davis has been with the company since its birth. The entire existence of the company thus far has been within the period of his active business career. He knows more about the company and has contributed more to its advancement than any man alive, -- and, although specific evidence was not taken about the matter, I think probably than any one no longer living. He began with the company when what was produced was so rare and so small in quantity that it was locked in the office safe overnight. In the early days aluminum was so unknown and so far from being a commercial article that it sold at $8.00 a pound, -- though I gather from the proof that very little of it went at that price. Later, however, it did sell at $5.00 a pound. Now it has reached the point where, shortly before the close of the testimony in this case, it was shown that it was selling at 18 cents a pound.
Under the leadership of Mr. Davis the company has done many intelligent things Among the best of these is the establishment of a research organization, equipment, facilities and staff. On the laboratories alone it has spent $2,300,000.
Furthermore, Alcoa has not been selfish about research and the uses of it. On the contrary, the evidence establishes that it has been genuinely generous. The aluminum industry has had the benefit in large measure of what has been done by Alcoa.
Under these circumstances, and for reasons such as I have recited in part and for many other reasons, I am convinced and I wish to put on the record the statement that in my judgment it would be greatly contrary to the public interest either to dissolve or to enjoin Alcoa I add what I have just said to what I have heretofore said, that, as I feel, there is no warrant in fact or in law for dissolving or for enjoining Alcoa.
Since I found out what the case before me was, I have assumed that, whatever the decision, there would be an appeal.
Those who are not familiar with the daily grind of this court would be surprised if they should know, in the full way that any member of this court does know, the great number of litigants who come into this court with their grievances who are, or many of whom are, from the humbler walks of life and many of whom are almost wholly without financial resources. They ask help or relief to the extent that it can be granted by the court. Not infrequently litigants of this kind are represented by lawyers who, to say the least, are not highly qualified or experienced. It is with regard to litigants of the type just mentioned that a judge of this court feels the greatest responsibility. It is in the case of litigants like that, who are helpless and who in no event can ever enjoy the privilege of an appeal, that responsibility weighs heavily on the shoulders of a trial judge.
Among the difficulties I recited near the beginning of my present opinion, in explanation of the problem upon which I was about to enter in seeking to render a decision, was not the difficulty of having before me a litigant who would be unable to appeal if he lost in this court. I have assumed, and I suppose properly assumed, that both litigants are, and certainly both principal litigants are, amply able to prosecute an appeal. That has been and is today a great comfort to me. The comfort to me is that, recognizing as I do my own fallibility, -- although I think my decision is right, -- I do not want to do injustice to any man. For this reason I welcome an appeal.
That brings me, therefore, to * * * the settlement of the findings, for which a schedule must be fixed.
The plan for formulation of the findings was explained to counsel I think at the time or shortly after the closing of the taking or testimony in August, 1940. That date is pretty well fixed on my mind, because I recall that counsel asked whether I desired proposed forms of findings to accompany their briefs and I answered no.
I think at that time I also said that I thought the best method would be, and one that was frequently used, was this:
Let the winning side first propose findings and a time be fixed for service of a copy of those proposed findings on their opponents. Thereafter the losing side should have a reasonable period in which to consent to or approve or propose modifications of or to propose additions to or substitutes for the winner's proposed findings. After the counter-findings are proposed, then the winning side should have opportunity to acquiesce in or oppose the modifications or proposed substitutes (if any). I also suggested that as nearly as practicable, unless you could point out a good reason otherwise, the findings approximately follow the order of the allegations of the bill, the advantage being the greater ease with which they could be checked. I suggested also that if counter-findings should be proposed, they bear the same numbers and be in the same order as the findings originally proposed. In that connection I explained that if in place of one proposed finding of the winning side it was the desire of the losing side to substitute several findings, they bear the same number with letters. For example, assume that the proposed finding is 123; assume that instead of that the losing side desires three findings substituted. Number those 123-A, 123-B and 123-C. I think you will find that if you do that, you will greatly subserve your own convenience and also I am sure it will serve my convenience.
I further suggested that, along with the final submission of proposed findings, you furnish me a memorandum or brief in support of your own proposed findings and stating the grounds of opposition, if you objected to findings proposed by your opponent.
What is of most importance in connection with your memoranda is that you state as definitely as you can the page references to the minutes and the exhibit references you rely on and desire me to examine in support of your own contentions.
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I am entirely willing to hear, and anxious to hear, any suggestions by you gentlemen. It occurred to me, and I have had in mind, to suggest that you confer among yourselves and try to agree on a schedule that you know would be mutually convenient.
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October 10, 1941
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I think also that it may assist you if I recite briefly some phases of the history of findings insofar as they have affected procedure in this court.
For many years preceding 1930 the practice here in equity cases had been for the judges to write full memoranda or opinions stating the facts as they determined them and the law, as they viewed it, which governed.
In 1930 the Supreme Court adopted Equity Rule 70 1/2, 281 U.S. 773; 28 U.S.C.A. § 723 Appendix (applicable only in equity suits). It caused a lot of discussion in this court. The district judges were troubled about how to comply with it and yet keep the calendar up to date. Upon inquiry, however, they were told unofficially by several appellate judges to whom they were subordinate, in substance, that the practice which had theretofore prevailed in the Southern District of New York was satisfactory.
Accordingly, subsequent to Equity Rule 70 1/2 going into effect, the old practice (described above) continued to be used in this court, without change and, so far as I have been able to learn, without criticism, until the ruling by the Supreme Court, during this trial, in the Interstate Circuit case, Interstate Circuit v. United States, 304 U.S. 55, 58 S. Ct. 768, 82 L. Ed. 1146.
Under the rule as enforced in this court prior to the Interstate Circuit decision the problem of findings was relatively simple. As I understand the decision, however, it construed Equity Rule 70 1/2 to require meticulous findings.The provisions of that rule and in the new Rules of Civil Procedure, rule 52, 28 U.S.C.A. following section 723c, prescribing what findings shall consist of, are identical. It follows that the Interstate Circuit case must be complied with as an authoritative interpretation of the existing rule about findings.
Understanding the rule in that way, I feel it my duty to make meticulous findings in the present case. In order to do so, unavoidably a great deal of time will be consumed.
There is another thing or, in fact, there are two things I must add.
The first is this: As I announced at some time, when counsel on both sides expressed their desire for an early decision, I could not possibly comply with that request unless I confined my oral opinion to the crucial issues in the case; not going into numerous other issues, which were not crucial. In consequence there are a good many allegations in the bill on which I have not yet passed. I have considered all of them, but I have not dealt with them in my opinion. Nevertheless, to the extent I hereafter determine to be necessary, I will make findings on them.
The second thing is this: There are many allegations in the bill which, if the pleading were subject to the new rules of civil procedure, I think would be stricken out on motion. Among these are a number which merely describe historical matters and do not raise issues in the suit.
Doubtless evidence as to some of the historical matters would be relevant; but my impression is that, if so, admissibility of evidence concerning them would not depend on their being pleaded. Nevertheless, without at the moment finally deciding the question, I fear that failure on my part to make findings on them, as well as on other matters pleaded which do not raise pertinent issues, might be regarded by the Supreme Court as disobedience of their rules.
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For the reasons indicated, I have concluded to follow my original idea of a time-table. This means that I shall give three months from the date of the filing of my revised opinion for the defendants to serve proposed findings; three months after copy of the proposed findings is served for the Government to serve proposed counterfindings; and one months after copy of the counter-findings is served for the defendants to propose rebuttal findings.
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Memoranda in support of findings, 10 days after service of the rebuttal findings. That means you will have a little time on the rebuttal findings.
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