DISTRICT COURT, S.D. NEW YORK
September 30, 1941;
ALUMINUM CO. OF AMERICA et al. (Part 2 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.
The Packard lawyer had two conversations with Mr. Arthur V. Davis. One was in 1922 and the other was in 1933 (pp. 16827-38; 16856-9; 16864-6; 16880-97; 16905-8; Exhibit 921). In neither was purchase of aluminum from Alcoa more than casually mentioned. The only reference to the subject I discover in the evidence is that the Packard lawyer said he asked Mr. Davis to use his influence to procure licenses for two outside manufacturers (Ray Day and Sterling) and Mr. Davis replied that he considered it unreasonable to request that licenses be granted to piston manufacturers who were not buying aluminum from Alcoa but from foreign sources and thereby give them the result of all the research work of Alcoa (pp. 16832; 16866). In fact, the Packard Company apparently did not buy pistons from Alcoa, but procured them from Bohn and Aluminum Industries (p. 16867).
United Engine complained that Alcoa refused it a license to manufacture aluminum alloy pistons (pp. 17371; 28935; 30219; 30233). Even if so, however, that would have denied United Engine no right. On the contrary, it would have been merely the exercise by Alcoa of a right conferred on it by the patent law.
The testimony of the representative of United Engine was chiefly about Alcoa's claim against it of patent infringement and litigation over the matter. When on the stand, in substance that representative said that Alcoa's representatives had conceded that its purpose was to exclude United from manufacturing aluminum castings or aluminum pistons (p. 17371). This was denied by Alcoa witnesses (pp. 28831-2; 28842-4; 28893-4; 28941-4; 30216-23; 30234; 30276; 30298-319; 30326-29A; Exhibits 941-942 and 1502-4); but even the admission of the truth of the charge would not sustain the contention of the Government. If Alcoa did what United asserts, it would have amounted to no more than saying that Alcoa insisted the patents of itself and the Cleveland trust had priority over United Patents and that United was infringing.
What the representatives of three concerns engaged in manufacturing aluminum pistons said was supplemented by the testimony of the chief engineer of the H. H. Franklin Manufacturing Company. In substance, he said that a representative of Aluminum Manufactures refused to sell metal with which Franklin could manufacture its own pistons (pp. 3206-7). This was denied (pp. 35546-7); but even if what the Franklin representative says took place, so far as affects the branch of the case now under consideration it would not have amounted to a violation of the Sherman Act by Alcoa, much less an offense alleged in the bill.
It may be noted that the expiration of many of the piston patents now held by the Cleveland trustee has been disregarded; also that no attention has been given to the problem of whether sufficient live patents are still held by the trustee or by Alcoa to enable them to interfere with the manufacture of aluminum pistons by unlicensed concerns.
If Alcoa employed patents of which it was the owner or exclusive licensee to effect a monopolization of the subject matter of the patents, precisely as pointed out in the discussion of the Hall patents, that (as I believe) would not entitle the Government to complain under the Sherman Act. Right to enjoy such a monopolization is one of the very things that the Congress itself expressly granted in 1790 and continuously since has granted by statute to patent holders. It would be wasteful of time, therefore, to go over all the evidence relied on by Alcoa to support its denial of any such intent as was alleged by the Government.
My conclusions, therefore, are as follows:
1. The percentage of aluminum pistons manufactured or sold by Alcoa and its licensees has not been proved.
2. It has not been shown that Alcoa employed a piston patent to further the sale of aluminum.
3. So long as the Piston Patent Estate is unassalied, and by virtue of exemption from attack must be treated for the purposes of this case as lawful, what Alcoa has done with respect to the production and sale of pistons must be deemed within the protection of patents of which it is owner or licensee.
I hold, therefore, that no violation of the Sherman Act growing out of anything relating to pistons has been established.
(8) Extrusions and Structural Shapes
We come now to the eighth monopolization charge. This concerns extrustions and structural shapes.
In paragraph 49 the bill charges that Alcoa produces and sells virtually 100 per cent of the extruded and structural shapes made of aluminum or aluminum alloys moving in interstate commerce.
The evidence shows that Alcoa produces all the large rolled structural shapes made in the United States out of aluminum or aluminum alloys. For this purpose it built a mill at Massena, New York, about 1930. That was done at a cost of $3,000,000. It is the only mill in the world used exclusively for that purpose. It was erected before any business was acquired for it and it has been a success. The large rolled shapes it produces are for use on bridges, railroad cars, street cars, trucks, buses and the like.
Outside of on those large rolled shapes (i.e., on smaller shapes made by extrusions) Alcoa has four competitors. These are the Bohn Aluminum & Brass Corporation, the Reynolds Metals Company, the Revere Brass & Copper Company and Extruded Metals, Inc. The competition is keen between the four named and Alcoa, and all the competitors are successful.
Structural shapes can be made from foreign or from domestic primary aluminum or from secondary aluminum or from aluminum scrap. They compete also with like products made from steel and from other metals. In addition, steel companies can roll aluminum shapes on their own structural mills (pp. 33524-5).
I have prepared table 7, which is as follows:
Alcoa's share of sales (pounds) of extrusions by four companies, 1934-8
A B C
Year Alcoa Bohn Revere
1934 4,137,906 241,849 183,944
1935 5,546,041 391,103 178,216
1936 9,607,575 1,012,923 271,946
1937 12,094,364 1,930,984 1,037,459
1938 6,962,648 1,636,699 302,161
Total 38,348,534 5,213,558 1,973,726
D E F
(A B of Total
Year Reynolds C D) (A / E)
1934 4,563,699 90.67%
1935 6,115,360 90.69
1936 10,892,444 88.20
1937 35,000 15,097,807 80.11
1938 88,300 8,989,808 77.45
Total 123,300 45,659,118 83.99
This table is a collection of statistics, with a computation, to show Alcoa's share of the sales (in pounds) of extrusions by four companies in 1934 to 1938.
The four companies are the ones to which I have previously referred, namely, Alcoa, Bohn, Revere and Reynolds. The years in the first column to the left are 1934 to 1938, inclusive. There is a column for each of the four companies I have mentioned. There is then a total for each year of all four companies. In the final column to the right, column F, there is a computation of Alcoa's percentage of the total. This is obtained by dividing the total of Alcoa, column A, by the total of all the companies in column E. The result of the computation is that it is shown that in 1934 Alcoa's percentage of the total was 90.67 per cent and in 1938 that Alcoa's percentage of the total was 77.45 per cent.
You will notice that Extruded Metals is not included in the table. This is because that company started in 1939. When you examine the table you will see also that Alcoa's relative percentage was approximately the same in 1934 and 1935 and has declined each year since.
Reynolds has in process an increase of its capacity to two million pounds a year. The greatest quantity of production of Reynolds shown in this table was for 1938 and was 88,300 pounds. Extruded Metals, which began operations in March, 1939, for the year ending in February, 1940, fabricated over one million pounds of extrusions (pp. 17711-13; 28599-600; 28606). And you will recall that I stated heretofore that no fugures are included in the table for Extruded Metals.
With respect to the matter of extrusions and structural shapes, therefore, I conclude this: Save with respect to what was said above about large structural shapes rolled at the Massena mill (pp. 33304-5; 33523-5), no allegation of the charge has been proved. Neither what was said about the large shapes produced at the Massena mill, nor anything else charged or proved with respect to structural shapes made from aluminum, states or establishes an offense committed by Alcoa.
We come now to the ninth monopolization charge. This is as to foil.
Paragraph 50 of the bill (pp. 26829; 34965) alleges that Alcoa is the largest producer and seller of aluminum foil which moves in interstate commerce in this country. Even if that were so, however, for reasons previously assigned in the course of the discussion of virgin aluminum, what is alleged about foil, without more, would not state a violation of the Sherman Act; but the evidence does not show that the charge is true.
Alcoa, Reynolds Metals Company and Johnston Tin Foil & Metal Company produce and sell aluminum foil in the United States. Several other concerns sell aluminum foil in the United States -- how many is not made clear, although apparently all of them import and it is uncertain if any of them manufacture (pp. 28314-6; 33291-2; 33641-4; 35827; 35834; 35840; 35843-5; 35849). The United States producers and the importers are in active competition with each other.
As noted at the foot of Exhibit 1627, the figures concerning production and sale of foil by Reynolds are incomplete. Yet, despite substantial omissions (pp. 34939-77), the Reynolds sales for 1935 to 1939 shown on the books totalled 27,859,642 pounds as against Alcoa's total sales for the same years of 26,663,218 pounds; and for the year 1939 alone the sales of Reynolds on the same basis exceeded those of Alcoa by approximately 800,000 pounds (Exhibit 1627; Alcoa's answer to interrogatory 11(r); Exhibit 1642, exhibit p. 6961). In its application to the Reconstruction Finance Corporation in 1940 for financial assistance, which was laid before this Court near the close of the taking of testimony, Reynolds described itself as "the largest and most dominant factor in the foil industry" (Exhibit 1800, exhibit p. 7442).
Certain of the Reynolds books (showing its sales) were lost by flood. If estimates of sales by Reynolds for those years were taken into account, it is pretty clear that there would be quite a substantial enhancement of the amount by which Reynolds has exceeded Alcoa in sales of foil for the past few years (pp. 34966; 34972-4).
In addition, in the period of 1930 to 1939 Johnston's aluminum foil production totalled nearly five million pounds. The growth of the company's annual production has been very considerable and for the major part the annual increase has been steady (Exhibit 1470; pp. 28268-9).
As between itself, Reynolds and Johnston, th percentage of aluminum foil produced by Alcoa fell from 62.39 per cent in 1933 to 44.3 per cent in 1939. In other words, while Reynolds and Johnston have gone up, Alcoa has gone down.
In direct and active competition with aluminum foil are two things: (1) Many articles manufactured in the United States from other metals and materials serve, and are sold for, some of the identical purposes for which aluminum foil is used. (2) Imported aluminum foil usually sells at a lower price than domestic foil (p. 22675).
The imports of foil from Switzerland are large and increasing. These have increased particularly since a reciprocal agreement was made between Switzerland and the United States in January, 1936. This agreement reduced the tariff rates on aluminum foil. The diversity and extent of the competition has been very great (pp. 12663-5; 22675-8; 28263-9; 28289-307; 28314-21; 28402-3; 33292-3; 35822-59; 40275-6; Exhibit 457, exhibit pp. 2749, 2753 and 2755. See also Exhibits 1791 and 1792 for identification, pp. 40275-8).
My conclusion is that not alone is the charge against Alcoa unproved, but that it is affirmatively and indisputably established that with respect to foil Alcoa has committed no violation of law.
(10) Miscellaneous Fabricated Articles
This brings us to the tenth monopolization charge. That relates to miscellaneous fabricated articles. A number, which are minor, are mentioned in paragraphs 7, 9, 49, 50 and 53 of the bill.These are bronze powder, wire, rods, bars, tubing, nuts, bolts, bottle seals, caps and similar articles.
What is said in paragraphs 7 and 9 is merely descriptive. It charges no offense.
In paragraph 49 it is alleged that Alcoa produces and sells virtually 100 per cent of the wire, rods, bars and tubing made of aluminum which move in domestic interstate commerce. In paragraph 50 it is alleged that Alcoa is the largest domestic producer of bronze powder moving in interstate commerce. In paragraph 53 the charge is that, by virtue of its 100 per cent monopoly of production and sale of alumina and virgin aluminum, Alcoa has acquired and has maintained monopolistic control of the production and sale of products manufactured therefrom.
The last mentioned charge is an illustration of what I called attention to yesterday; of the difficulty, arising from the form of pleading in this case, of knowing with accuracy what the Government's charge actually is. The very use of the expression "100 per cent monopoly," when whether any such exists is the subject of inquiry, conveys to me nothing and I do not know what the Government's position is.
It is obvious that, with respect to a great proportion of the articles under consideration, no cause of action is stated; also that there is doubt whether a cause of action is stated as to any of them. Even though, however, there be some charge which may be treated as good in law, it is not sustained by proof; nor is any one of the charges sustained by proof. Indeed, the evidence is silent as to a good many of the articles and, relatively, none is important or of any considerable volume.
In so far as my attention has been directed to or I have discovered evidence relating to these matters (whether specifically named or covered by general description), such evidence will be found in the record as follows: As to bronze powder, at pp. 12637-46; 26829; 33293; 34937-8; in Exhibit 704 and Exhibit 1626. As to wire, at pp. 23004; 23009; 23011; 33288; 34521. As to rods, at pp. 21187; 23004; 23010; 24643; 34509-12; 34527; and in Exhibit 1642. As to bars, at pp. 21187; 23004; 23010; and in Exhibit 1642. As to tubing, at pp. 32140-1; and in Exhibit 1642. As to screw machine products, at pp. 34520-3; 34527; and in Exhibit 1642. As to rivets, at p. 23011; and in Exhibit 1642. As to nuts, at p. 34520. As to forgings, at pp. 23004; 23011; 34509; 34511-13; 34520; and in Exhibit 1642.
I think a cursory reading of the record at the pages I have mentioned, coupled with a reading of the exhibits I have mentioned, will demonstrate that Alcoa has committed no offense with respect to any of the matters which I have included under the heading of miscellaneous fabricated articles.
We come now to the eleventh monopolization charge. This concerns aluminum sheet.
Perhaps sheet has been more provocative of controversy at this trial than any other single subject. In order fairly to consider all the issues which have been raised in those controversies, I feel it is quite essential that I go into the evidence at length. On this account I anticipate that we shall probably be engaged for several days on the subject.
The bill makes five separate sets of charges about sheet. These are contained in paragraphs 47, 48, 53, 83, 92, 93, 98 and 99 of the bill.
The testimony about sheet is very extensive. A full discussion of it would require a great deal of time. By analysis, however, I think the issues can be brought within rather narrow compass; also that it will be necessary to comment on the relatively few of them which are crucial. As I have previously indicated, and I call it to your attention on account of the statement I have just made, in the findings I shall be prepared to deal with every pertinent question presented by the pleadings.
Ordinarily up to this point, in entering on the discussion of a new matter, or very soon after I had entered on the discussion, I have set out fully the substance of all the allegations of the bill containing the charges in respect to the subject. Here, however, I have concluded that it will be better to adopt, and perhaps helpful if I adopt, a different procedure. The plan I shall follow will be to take up a single charge at a time, recite the evidence bearing on it, and dispose of it before I go into another charge; and thus in time I shall discuss all the charges contained in the eight paragraphs of the bill of which I have given you the numbers.
In dealing with the controversy I must consider twelve companies. These are, or have been, engaged in rolling sheet. It is material to have, and to hold in mind, the dates when certain events affecting those companies occurred.
Alcoa began rolling aluminum sheet in 1895. It was the pioneer in this country. It sought first to induce others to take up that phase of the business, with the view to selling them ingot. This plan, however, failed. Having failed, in order to get a market for its aluminum, or for products therefrom, Alcoa itself took up the rolling of sheet.
Aside from Alcoa, eleven other companies went into sheet rolling. The names of these, with the dates on which they began that business, were as follows: (1) Goods, in about 1914, with plants at Manitowoc and Two Rivers, Wisconsin. (2) Standard Aluminum Company, in 1913, which had a plant at Two Rivers, Wisconsin. (3) Cleveland Metal Products Company, in 1915, which had a plant at Cleveland, Ohio. (4) United Smelting & Aluminum Company, in 1917, which had a plant at New Haven, Connecticut. (5) Bremer-Waltz Corporation, in 1918, which had a plant at St. Louis, Missouri. (6) Baush Machine Tool Company, then and now chiefly engaged in the machine tool business, which in 1919 established and for a time had an aluminum sheet plant in, or on the edge of, Springfield, Massachusetts, part of the property being in Chicopee, immediately adjacent to Springfield. (7) Aluminum Products Company, in 1920, which has a plant at LaGrange, Illinois. (8) Sheet Aluminum Company, in 1926, which has a plant at Jackson, Michigan. (9) Fairmont Aluminum Company, in 1927, which has a plant at Fairmont, West Virginia. (10) Reynolds Metals Company, in 1931, which has plants at Louisville, Kentucky, Richmond, Virginia, and Farmingdale, Long Island, New York, and may have plants elsewhere, -- established since the close of the taking of evidence in this case, but as to which I have no direct knowledge. (11) Scovill Manufacturing Company, in 1935, which has a plant at Waterbury, Connecticut.
The eleven companies just mentioned, other than Alcoa itself, are divided into three classes. The first consists of four companies which formerly manufactured and sold sheet, but are no longer in the business. The second consists of three companies which, ever since they were organized, have rolled and still roll sheet, but have themselves exclusively, or almost exclusively, used their own output and have not themselves sold sheet in substantial quantities to the public or to other companies generally. The third consists of four companies which since their organization, or at least for many years past, have rolled and sold, and still roll and sell, sheet to customers generally.
The companies of the first class, namely, those which are no longer in the sheet business for themselves, are (1) Standard Aluminum Company, which was sold in 1916 to Goods; (2) Bremer-Waltz Corporation, which was sold in 1919 to Goods; (3) Cleveland Metal Products Company (or Aluminum Rolling Mill Company, the two together for the purposes of discussion being treated as a single enterprise and for convenience being called in this discussion the Cleveland Company), which was sold in 1924 to Alcoa; and (4) the Baush Company, which quit manufacturing or selling sheet at some date between 1927 and 1931.
The companies of the second class, which produce but usually do not sell sheet, are (1) Goods; (2) Aluminum Products; and (3) Scovill.
The companies of the third class, which have heretofore produced and regularly sold and still produce and regularly sell sheet, are (1) United Smelting; (2) Sheet Aluminum; (3) Fairmont; and (4) Reynolds.
As I have already indicated, I shall take up the charges separately. I shall state one charge only and then follow with a discussion of the evidence bearing on the issue raised before going on to another charge.
There are two other charges which are general and in a sense may properly be characterized as preliminary. Those are contained in paragraphs 47 and 48 of the bill.
I shall begin with the charge in paragraph 47. It is there alleged that Alcoa produces and sells upwards of 90 per cent of aluminum sheet moving in interstate commerce of the United States. This charge is not sustained by the evidence.
2S and 3S aluminum sheet are referred to by some of though not by all, the witnesses as aluminum sheet or pure aluminum sheet. For commercial purposes the two, that is, 2S and 3S, are practically identical.
Exhibit 1703 shows that in 1923 Alcoa furnished 95.8 per cent of the 2S and 3S aluminum sheet supplied to the public by sheet rollers in the United States who manufactured and sold such sheet to customers; also that thereafter the proportions furnished by Alcoa (as between itself and competitive sheet sellers) gradually, but very nearly uniformly, decreased annually; and that in each of the years 1938 and 1939 this had fallen below 72 per cent.
It is to be observed, however, that the figures contained in Exhibit 1703 take no account of sheet produced by companies of the second class (which use their output for their own fabrication of articles from sheet). If they were considered, obviously the 72 per cent would be further reduced. It is clear, therefore, that the charge made by the Government in paragraph 47 of the bill has not been proved.
In paragraph 48 of the bill it is alleged that Alcoa produces and sells over 95 per cent of the alloys of aluminum moving in interstate commerce of the United States; also that this is commonly called duralumin.
In support of the charge the Government relies solely (original brief, p. 496) on Exhibit 1730. I think, however, that this exhibit does not support the allegation.
The charge in the pleading is as to the percentage of "alloys of aluminum" or "hard alloys" which Alcoa produces and sells. Exhibit 1730 gives statistics only as to "sheet" other than 2S and 3S. The commodity covered in the exhibit is specifically stated in the exhibit title to be "Aluminum Alloy Sheet." When so confined it, of course, excludes from the figures used in the exhibit both castings and forgings, as well as some other articles which are in fact "hard alloys" of aluminum. If this be true, then it follows that the exhibit does not embrace figures as to all alloys of aluminum, to which paragraph 48 by its express terms relates. Outside of Exhibit 1730 I discover nothing in the evidence which furnishes, nor does Exhibit 1729 furnish, the information called for by paragraph 48. In consequence, the charge as made is not sustained.
The difficulty, as I see it and repeat, is this: Paragraph 48 of the bill relates to "alloys of aluminum," commonly known as "hard alloys" or "duralumin." On the other hand, Exhibit 1730 deals with "aluminum alloy sheet other than 2S and 3S."
We are thus brought to the four companies constituting the first class, which formerly manufactured and sold sheet but are no longer in that business. They are Standard, Bremer-Waltz, the Cleveland Company (i.e., Cleveland Metal Products Company, as previously defined) and Baush. Each will be considered in turn.
Standard Aluminum Company is not mentioned in the bill. In paragraph 53, however, it is alleged that Alcoa employed its monopolistic control of the production and sale of aluminum sheet and of alloy sheet to exclude others from engaging in competition with it. It is also there alleged that the monopolistic control of Alcoa has had, and will continue to have, the effect of preventing substantial competition which would otherwise have arisen in the production and sale of products manufactured from aluminum. Possibly it was designed to include the Standard transaction in that wide sweeping charge, although it is not mentioned by name. Even though that were not the intention, however, Standard Aluminum Company will be so treated; that is to say, it will be treated as if this charge had been made in regard to the transaction which involves it.
The Standard mill was built in 1913. It was sold to Goods in 1916, three years later. At the time of the sale Mr. Arthur V. Davis and Mr. Roy Hunt, Alcoa officials, were on the board of directors of Goods. However, there is no evidence that Mr. Davis participated in the purchase. His recollection is that he opposed it (pp. 20862-3); and the evidence shows that Mr. Hunt was not active in the purchase or in the negotiations leading up to it (pp. 22113-5). Indeed, there is no evidence which indicates that either Mr. Davis or Mr. Hunt had any active share in the purchase and none whatsoever which connects Alcoa with the purchase.
The facts are that Standard was considerably in debt and was being pressed by its bank (pp. 9223; 9225; 9226; 9696; 9698; 19285-6). It seems obvious that it is those conditions which brought about the sale.Alcoa did not promote it. On the other hand, because of the financial distress of Standard, its owners induced Goods to take the property off of their hands (pp. 9229; 9771-2).
The next year, after the Standard sale, Messrs. Bremer and Waltz, owners of Standard, had the Bremer-Waltz Corporation, which they also owned, build a new aluminum sheet rolling mill at St. Louis (pp. 9232-5). Nothing in the Standard transaction stood in the way of their doing this (pp. 9771-3). The new mill at St. Louis began operation in 1918, but it did not prosper (pp. 9382; 9384; 9387; 9390; 9393-4; 9396-7; 9599-9600; 9702-6; 9773; 9791-9804; 9898-9907; Exhibit 470).On account of its not prospering the owners offered the property to Alcoa, but Alcoa declined to buy it (pp. 9392-3; 9598; 21732-7; 22082). In February, 1919, the next attempt to sell the mill was made. This was to a group who are described by Mr. Waltz in the testimony as the St. Louis Board of Trade. That also failed (pp. 9821-4). Subsequently, in the latter part of 1919, having decided that it needed another mill, Goods bought the St. Louis mill (pp. 9400; 9403; 9595-9602; 9775; 9821-5; 22096; Exhibit 467; Exhibit 471).
Accordingly, on the evidence thus far without more, Alcoa would be entitled to a complete acquittal on the charges relating to the Standard and St. Louis Mills. But there is additional evidence on the subject.
In paragraphs 93 and 98 of the bill the allegations with respect to the St. Louis mill, in substance, are as follows: In 1919 Alcoa was a stockholder and was represented on the directorate of Goods. Alcoa shared responsibility for the policies and activities of Goods. The competition of Bremer-Waltz with Alcoa in producing and selling sheet terminated in 1919, when the Bremer-Waltz sheet rolling mill was acquired by Goods. The purpose and effect of the purchase were to eliminate competition with Alcoa.
Preliminarily it should be observed that here again the pleading consists in part of mere conclusions and so leaves the Court with a problem of trying to ascertain with accuracy what really is the position of the Government on the point.
What I have stated is the Government's accusation; but so far from Alcoa having influenced Goods to buy the St. Louis mill, the evidence satisfactorily establishes that Alcoa officials who were on the Goods board flatly opposed and advised against the purchase (pp. 19095-6; 21060-32; 21572-72A; 21583; 21735; 22073-7; Exhibit 474, item 5). In this instance, as in many other instances (pointed out elsewhere), the majority of the directors of Goods favored a course which the minority directors disapproved. Yet the majority prevailed and carried through the transaction (pp. 21571-2).
The negotiator of the sale in behalf of Bremer-Waltz testified unequivocally that Alcoa had nothing to do with it (pp. 9599-9600); also that he personally assented to the sale in which Goods was the purchaser (pp. 9771-2; Exhibit 471). I am persuaded, therefore, that the charge as to the Bremer-Waltz mill is entirely unfounded.
Because it has been discussed, perhaps a bit of the subsequent history of the mill should be mentioned.
For a time Goods operated the property at St. Louis, but the results were financially unremunerative. Accordingly, the mill equipment was moved to the two Wisconsin plants of Goods and the St. Louis real estate was sold (p. 22096). None of these things was done on the request or at the suggestion of Alcoa or its officials. It and its officials were without responsibility for any of those things.
We come next to the Cleveland Metal Products Co. transaction.
In paragraphs 92 and 98 it is alleged that Cleveland Metal Products Company (called herein the Cleveland Company) was a competitor of Alcoa in the production and sale of aluminum sheet; that in March, 1918, the two companies entered into a contract, pursuant to which the Aluminum Rolling Mill Company (hereinafter called the Mill Company) was organized to purchase and operate the Cleveland Company's mill and that Alcoa purchased 60 per cent of the stock of the Mill Company and obtained control of its management; that the purpose and effect of the contract were to establish Alcoa's monopoly in the production and sale of aluminum sheet by the elimination of the Cleveland Company's competition; that in 1923, pursuant to court order, Alcoa sold to the Cleveland Company the 60 per cent of the Mill Company's stock it owned; that shortly thereafter Alcoa obtained a judgment against the Mill Company for indebtedness and acquired the mill at sheriff's sale; and that competition by the Cleveland Company terminated in 1918 when its mill came under the control of Alcoa.
Parenthetically it may be remarked that in their original briefs (Government, p. 503; Alcoa, p. 423) both sides said that the ratio of Mill stock taken was two-thirds by Alcoa and one-third by the Cleveland Company (instead of 60 per cent by one and 40 per cent by the other, as alleged in the bill). Though the variance is immaterial, the evidence indicates that the actual proportion was two-thirds and one-third and that will be taken as true.
The Cleveland Company began operations in 1915. Its plant was good; but, because too small, neither when in the hands of the Cleveland Company nor when in the hands of the Mill Company was it ever able to operate profitably (pp. 19221; 19225; 22077A).
In 1918, during the first World War, the Government fixed the prices of sheet; or some say fixed the maximum, but it doesn't make any difference which. Thereupon, or shortly previously (in anticipation of the schedule going into effect), the Cleveland Company decided that it could not continue to operate under the newly prescribed scale of prices. Everybody apparently realized that whatever the scale was, whether it was a maximum or not, it would be adopted by all engaged in the industry. The Cleveland Company's president, Mr. Ramsey, so represented to Alcoa and appealed for help, Alcoa at that time being a creditor (pp. 19220-3; 20978; 20981; 21054; 21069; Exhibit 728; Exhibits 463-5 for identification, of which judicial notice is taken, -- these being War Industries Board papers).
This led to the organization in 1918 of the Aluminum Rolling Mill Company to take over, and it did take over, the Cleveland Company's mill. The stock of the new company was distributed, as I have said, two-thirds to Alcoa and one-third to the Cleveland Company; and $600,000 of fresh money was put in (pp. 19223-5; 21065; 22078; Exhibit 727, item 2, exhibit p. 3558; Exhibit 729, exhibit p. 3574).
Promptly after the organization of the Mill Company, in the same or the next year, the Federal Trade Commission brought suit assailing the transaction and specifically seeking a court order compelling Alcoa to divest itself of the Mill Company stock (pp. 21065-7; 22079; Exhibit 727, item 1). This resulted in a decision by the Commission adverse to Alcoa, which directed it to abandon the enterprise. An appeal was taken. In 1922 the ruling below was sustained by the Third Circuit Court of Appeals (Aluminum Co. of America v. Federal Trade Comm., 284 F. 401).
In obedience to the court order which followed, the Mill Company plant was abandoned by Alcoa and it sold its Mill Company stock to the Cleveland Company (pp. 19225-6; 21067). In the meanwhile, the indebtedness to Alcoa for ingot had grown to about $600,000 (pp. 19225-6; 21067-8; 22079; 22082; Exhibit 727, item 2, exhibit pp. 3559-60), -- a sum in excess of the worth of the entire Mill Company assets (Exhibits 737-8). Alcoa brought suit for the amount of its debt, obtained judgment, had execution levied on the property and, in 1924, bought it in at sheriff's sale (pp. 19225-7; 21065; 22082; Exhibits 738-9).
The Federal Trade Commission thereupon sought a court order to prevent Alcoa from holding the property which it had acquired under the execution sale, but this effort failed (299 F. 361; pp. 19227-8). After it had obtained the property in the way described, Alcoa discontinued operation of the mill and shortly afterwards, as a measure of economy, removed the equipment to some of its other plants (pp. 22079; 22096-7).
From the recitals it will be observed that the original plan, pursuant to which the Mill Company was created, was formulated by or at the insistence of the Cleveland Company when in a financially failing condition. This called for a division between Alcoa and the Cleveland Company of the benefits. The shares of these were to be measured by the stockholdings; that is, two-thirds to Alcoa and one-third to the Cleveland Company. When, after court proceedings, it had been determined that the plan was not lawful, Alcoa, strictly in pursuance of its legal rights, availed itself of the only remedy open to it, which was by suit to collect the money owing to it.
There is no evidence which would sustain a finding, or none in my opinion which would sustain a finding, that it was the purpose of Alcoa to drive the Cleveland Company out of business. Rather it appears that its purpose was to conserve its debtor, the Cleveland Company, and in doing so to treat it leniently and, so far as I can see, fairly. When this purpose had been frustrated by litigation, in order to exercise an indisputable right and, if possible, to collect something on a debt Alcoa was compelled to institute an action the consequence of which was its purchase of the property of its debtor at public sale.
There is failure to prove that the purpose of Alcoa was to limit or to destroy competion. Alcoa went no farther and its conduct carried it no farther than to avail of the provisions of law open to every creditor for the collection of what was justly owing to it.
Moreover, in a case arising under the Clayton Act, the Supreme Court has held that the purchase of a failing business is not unlawful, for the reason that it does not deprive anyone of the opportunity to compete (International Shoe Co. v. Federal Trade Commission, 280 U.S. 291, 301, 302, 50 S. Ct. 89, 74 L. Ed. 431). It would seem equally that in the case at bar, under the Sherman Act, the acquisition of the Cleveland Company or its property by Alcoa did not constitute a violation, because it did not lessen competition.
Paragraph 99 of the bill contains charges concerning Baush. These are confined to the period 1924 to 1931. They relate chiefly, if not wholly, to the spread between the prices of virgin aluminum ingot and the prices of aluminum alloy (duralumin) sheet. In substance, the allegations are as follows:
(1) At the time, as theretofore, Alcoa was and it still is the sole producer of virgin aluminum in the United States. It has fixed prices for the ingot moving in interstate commerce. Aluminum of that kind is indispensable in the manufacture of aluminum alloy sheet. Alcoa also manufactured such a large proportion of the total domestic output of aluminum alloys that it was able to and did establish the prices for all aluminum alloy sheet moving in interstate commerce.
(2) As Alcoa knew, Baush was then its only competitor in the field of aluminum alloys. Baush had been manufacturing aluminum alloy sheet since 1919 and selling it in interstate commerce. Knowing that any competitor therein would be required, because of Alcoa's control over prices, to purchase virgin aluminum and sell his sheet at prices established by it, Alcoa effected changes in the respective prices of virgin aluminum and of aluminum alloy sheet which so reduced the differentials between those prices that any competitor in the manufacture and sale of aluminum alloy sheet, even though he should roll efficiently and conduct his business efficiently, would be unable to carry on operations without incurring losses destructive of his business.
(3) The result (as Alcoa intended) was that Baush was obliged to conduct its sheet operations at losses, accumulated over the 1924-1931 period, until Baush was compelled virtually to suspend such production.
(4) The purpose and effect of the reduction in the differentials mentioned were to eliminate Baush competition and to maintain Alcoa's monopolistic control of said commerce.
As heretofore indicated, what has been said in the four last preceding subdivisions is a paraphrase of paragraph 99 of the bill. To put the matter still more briefly, however, the essence of the charge is that, by unduly narrowing the spread between the prices of ingot and the prices of duralumin sheet, Alcoa made business unprofitable for Baush and thereby drove Baush out of business.
It will be observed that the complaint with respect to Baush grows wholly out of what affected duralumin and that the sole alleged misconduct of Alcoa complained of in the bill as having affected duralumin was narrowing the spread between the prices of ingot and the prices of duralumin. Elsewhere that very charge, relating to the spread, will be taken up. In that discussion, where the charge as considered will be stated in a somewhat more comprehensive way, the effect on others, as well as the effect on Baush and other sheet mill owners, will be dealt with. So also the spread between the prices of ingot and the prices of all types of sheet (including 2S and 3S or so-called pure sheet, as well as all kinds of alloy sheet, whether duralumin or 17S or some other kind) will be taken up. In consequence, if at this stage we should treat only the phase of the spread issue that concerns Baush, we should be forced later to indulge in repetition. Accordingly, we might with considerable appropriateness, at the moment, postpone all comment on the charge made in paragraph 99 until we reach the subject of spread generally.
Nevertheless, there is evidence relating particularly to Baush, and in part wholly to Baush, with respect to the charge that, through unfair competition (apart from the spread), Alcoa drove Baush out of the aluminum business. So also discussion of that special unfair competition charge has been intermingled with discussion of the alleged spread controversy. On that account I deem it proper to take up the excluding charge now in advance of dealing with the general complaint about spread.
Moreover, there is evidence from which it might well be argued, even though there were an undue narrowing of the spread, that this is not what drove Baush out of the aluminum business (if it was driven out) and that it can be demonstrated by such evidence that there was another identified independent cause which, in and of itself, was sufficient to bring about and did bring about the result and that for the result Alcoa has no responsibility whatever. If that argument can be maintained, then certainly it would be fitting to go into it ahead of consideration in a broad way of the spread question.
Let it be remembered that the pleading (paragraph 99 of the bill) relates exclusively to the period of 1924 to 1931. It appears, however, that the quantity of sheet rolled by Baush in 1930 and 1931 was quite small (Exhibits 1703, 1729 and 1730). It appears further that in 1928 Baush commenced suit against Alcoa to recover treble damages alleged to have been suffered by it as a result of Alcoa's violation of the Sherman Act; also, as is manifest from the evidence, that, after the beginning of the suit, Baush executive lofficials (who afterwards were witnesses) gave more real attention to accumulating evidence for use in the trial than to the operation of their company's aluminum mill.
Viewing the evidence as a whole, it is clear that in 1928 Baush had already become far from active in rolling sheet and that the poundage of its production of sheet in 1929 was small. Its maximum production shown by the exhibits referred to was in 1927.Then was the peak. It might with some reason, therefore, be urged that the effort of Baush to produce sheet after 1927 was too small to be regarded as affording any basis for charging responsibility for its diminishing business to Alcoa.
The contest between Baush and Alcoa was one of the important topics dealt with at the trial. The evidence about it was elaborate. I do not believe, however, that it would be fruitful to assemble or to talk about the whole of it. As I understand, the Government shares this view. I shall, therefore, select instances which seem to me perhaps the best for exploration and elucidation.
Furthermore, for a reason which will be gone into later, it would be of comparatively little consequence now to determine which participant is right in the controversy involving the conduct of Alcoa and Baush toward each other.
In its original brief (pp. 535-6) the Government's statement on the subject was as follows:
"The manner in which Alcoa took sales of both sheet and forgings away from Baush is shown in the following concrete illustrations. In all of them, Alcoa succeeded in taking the business solely by means of underbidding Baush, which is merely another way of saying that Alcoa reduced the spread between ingot and the finished product to such an extent that Baush could not afford to compete."
Omitting sheet and spread from present consideration, the substance of the Government's express contention is that, by underbidding, Alcoa took away business from Baush and, impliedly, that this misconduct of Alcoa drove or contributed to driving Baush out of the aluminum business.
I am not sure that underbidding is charged as being an offense or, if so charged, is sufficiently pleaded to state a cause of action; nor am I sure that it is connected with sheet in such a way as appropriately to be brought in for consideration at this point. Nevertheless, it does directly relate to Baush, particularly the Government's contention that Alcoa improperly drove Baush out of the aluminum field. For that reason, as I feel, the subject of underbidding should now be gone into.
The Government says it is unnecessary for the Court to make final rulings on the merits of the underbidding examples on which it relies. Yet it goes into them. So I think I should go into the same examples. Those described by the Government (original brief, pp. 536-547) are transactions with the Franklin Motor Car Company, the Stutz Motor Car Company, the Hupp Motor Company and the Eastman Kodak Company.
It is not disputed that Alcoa did compete with Baush, as it has generally competed with others, in the various lines of its business and that the competition was vigorous. The primary issues raised are (1) whether the competition was fair and (2), if not, whether unfairness forced Baush to give up the aluminum business.
The first batch of evidence the Government relies on relates to connecting rods for automobiles. In connection with those the three automobile companies, as to which evidence was given and which were discussed, are Franklin, Stutz and Hupp. All the charges concerned with connecting rods are of underbidding. On sheet there is no charge of underbidding. That we shall take up when we reach Eastman.
In 1920 and 1927 H. H. Franklin Manufacturing Company manufactured the Franklin automobile for the Franklin Motor Car Company. The Manufacturing Company (hereinafter called Franklin) purchased the connecting rods used in the automobiles. The Government claims that Alcoa undersold Baush when competing with it in selling these connecting rods to Franklin. Whether, if so, this would show or can show monopolization will not be discussed. Instead, the charge as made will be considered on its facts side alone.
There are a good many minor disputes between the witnesses as to what was said in conversations. Thse occurred between fifteen and twenty years ago, during the period that Mr. Stellman was chief engineer for Franklin. They relate to dealings of Baush and Alcoa with Franklin. We need not go into more than one of those, however, because only that one has any bearing on the underbidding issue. Indeed, the underbidding question turns wholly on a single transaction. On the facts in that transaction there is no substantial dispute. As indicated, there is no occasion to discuss any other transaction.
In December, 1926, Alcoa made a written bid (Exhibit 111) to Franklin of 81-1/2 cents per piece (that is, per rod) on 6600 pieces of connecting rods (having an estimated weight of 8250 pounds). Baush made a bid of 86 cents per piece on the same rods (pp. 3263; 3272; 3276-7). The evidence as to the latter bid is entirely oral. No writing concerning it was produced from the Baush files. This is probably because the papers of Baush relating to the aluminum branch of its business were misplaced, lost or destroyed some time after the second trial of its suit against Alcoa. Neither was any writing relating to the bid produced from the files of Franklin. Apparently after it quit business in 1932 or 1933 and their present whereabouts are not known (pp. 3198; 3214; 3286). Nevertheless, the oral testimony indisputably establishes that the Baush bid was 86 cents per piece.
Each bid was for the whole of the connecting rods. The prices in both bids were per piece. Inasmuch, however, as we have the total number of pieces and the total weight of the rods, it is easy to translate the per piece prices into per pound prices. By computation it is shown that Alcoa's bid of 81-1/2 cents per piece is equivalent to 65.2 cents per pound and Baush's bid of 86 cents per piece is equivalent to 68.8 cents per pound. In other words, the bid of Alcoa was 3.6 cents per pound under the bid of Baush. But so far as concerns the charge of underbidding, there is not a scintilla of evidence establishing or even suggesting or furnishing basis for an inference that in bidding Alcoa went below its own cost of production plus a reasonable profit. However, if we go somewhat into details, it will be even clearer that the evidence affords no foundation for criticizing the conduct of Alcoa.
Exhibit 1423 contains a long list of the principal aluminum alloys which Alcoa produces and sells or has heretofore produced and sold, with the names of commodities in which the several alloys are commercially available. The list is divided into groups. One of those is group 2. That consists of forged products (all made from aluminum alloys).Included in group 2 are 17S forgings and 25S forgings (Exhibit 1423, exhibit pp. 6477-8). Connecting rods are made from 17S or 25S alloy by forging.
As far back as 1919, or a bit later, when Baush began production of duralumin (which is a hard alloy of aluminum) and continuing until it quit the aluminum business, 17S corresponded to and was known and accepted in the trade as the commercial equivalent and a competitor of duralumin. Sometime preceding December, 1926, Alcoa established an alloy called 25S (pp. 29550; 29707). This had never been in production of Franklin connecting rods before 1926 and it went on the market that year (pp. 3272; 3440; 3442; 33254; 33257-8). The bid Alcoa submitted to Franklin under date of December 22, 1926, was for connecting rods forged from 25S alloy (p. 3272; Exhibit 111).
There is no evidence from which it can be determined whether a connecting rod could be forged cheaper from 17S or from 25S. At least there is no evidence on the subject so far as I can discover or has been called to my attention. Moreover, 25S being new at the time, conceivably there may then have been warrant for selling an article made from it cheap, by way of advertisement, or even for selling it at a price below cost, so as to introduce it to the trade and regardless of whether the cost of producing the 25S may have been as much as or more than the cost of producing 17S (pp. 22516-7; 22671-3). However that may be, in the absence of any showing on the point, certainly, as it seems to me, the evidence would not justify a finding that Alcoa sold the 25S connecting rods too low.
In Exhibit 1423 the chemical composition of every alloy it mentions is stated. A comparison of what is said in the exhibit concerning 17S and 25S will indicate how unlikely it is that the costs of producing these two alloys were the same.
The percentages of the elements entering into the two are set out in table 8, which is as follows:
Copper 4.0% 4.5%
Manganese 0.5% 0.8%
Iron plus silicon plus minor
Iron plus minor impurities 0.6%
Aluminum 94.1% 93.3%
Table 8 is made up in this way: Out to the left is a list of several metals, the bottom one being aluminum. In the second column, under 17S, there are percentages stated, -- these being for the metals named out at the left. To the right is a column under the heading 25S. There also the percentages are stated for the metals out at the left.
The metals out at the left are copper, silicon, manganese, magnesium, iron plus silicon plus minor impurities, iron plus minor impurities and aluminum. For copper, under 17S, the percentage is 4%; for 25S 4.5%; for silicon the percentage under 17S is 0 and under 25S it is .8%; for manganese the percentage under 17S is .5% and for 25S it is .8%; for magnesium the percentage under 17S is .5% and under 25S it is 0; for iron plus silicon plus minor impurities under 17S the percentage is .9% and under 25S it is 0; for iron plus minor impurities under 17S the percentage is 0 and under 25S it is .6%; for aluminum, under 17S it is 94.1% and under 25S it is 93.3%; in each instance making the entire total 100% of the composition.
It will be noted that some of the elements in the alloys are different and that the percentages are different for each one of the elements of which the two sets of alloys are composed. There is no single element the percentages of which are the same for both of the commodities, 17S and 25S. These circumstances emphasize the insufficiency of the evidence to uphold the Government's contention.
The two bidders were on an equal footing. Each bid, without embarrassment or limitation, was on the precise terms specified by Franklin in the invitation to bid. So far as appears, neither bid was for all-or-none (pp. 3264-5; 3292-5).
Some former officials of Baush say that if it had gone lower in its bid, it would have lost money; also that in order to make a profit, it would have had to get for its duralumin from 7 to 10 cents per pound more (pp. 3128-30; 3268-71; 3277). If that be true, then three comments seem pertinent:
1. It was a piece of good fortune for Franklin and other customers wishing to purchase connecting rods to have Alcoa to hold down the price by competing with Baush.
2. Baush bought practically all its raw aluminum from foreigners. The purchases were almost uniformly at prices below the prices prevailing in the United States for aluminum produced in the United States. From aluminum produced nearly altogether in Europe and imported into the United States from there, Baush manufactured in its own plant the duralumin it used in fabricating the articles (such as connecting rods) which it sold. The fact that the cost of its duralumin was so great that it would have been necessary to sell it from 7 to 10 cents higher than it was sold, in order to earn a profit from sales in competition with Alcoa, strongly corroborates the contention of Alcoa that the cause of the failure of Baush to survive was its relative inefficiency.
3. New articles (such as connecting rods forged from 25S) frequently could first be sold only in competition with, as well as in displacement of, articles made from other materials (as was true of products from 25S). So also, as previously stated, in the beginning, when necessary in order to introduce them, it was justifiable to sell such articles at prices below cost of production (pp. 22516-7; 22671-3).
There is no occasion to pursue the matter further. Shortly after December, 1926 (though precisely how long after is not clear), Franklin abandoned aluminum connecting rods and shifted to rods made of steel, which was a competitor of aluminum (pp. 3206; 3215; 3441-3; 22672).
I think the Government's claim of fault on the part of Alcoa, with respect to the sale of connecting rods to Franklin, has no foundation in the evidence. We, therefore, go on to the facts relating to Stutz connecting rods.
Preceding the 1926 model Stutz car going on the market, the connecting rods used by Stutz were steel (p. 34562). For the 1926 and 1927 models, more generally called the 1926 and 1927 cars, the connecting rods were of hard aluminum alloy. The controversy in regard to the Stutz Motor Company is about the rods in those cars. Alcoa furnished them for both years, 1926 and 1927.
Baush and Alcoa made their rods from aluminum alloy; not from sheet. The process was forging. They competed for the Stutz order each year. The negotiations on behalf of Stutz were conducted by its selling agent (Kelly). He testified that the sole reason for the business going to Alcoa was that in both years its prices were lower (p. 34606). The negotiations for Alcoa were carried on by its Indianapolis sales manager (O'Connor) and for Baush mostly by its engineer or sales manager (Calkins), though in September, 1926, its president (Mr. Haskell) was active (pp. 2543-9; 34571-2; 34611).
The customary procedure among automobile manufacturers in obtaining material for constructing cars, during the period when the connecting rods under consideration were sold by Baush and Alcoa, was substantially as follows: Within the year preceding the date of the model, and usually some months in advance of the articles being needed (the length of time varying with circumstances), purchase inquiries (constituting invitations of quotations) were sent out by the manufacturer. Generally (one witness said nine times out of ten, p. 34621) those desiring to bid sent written replies containing their quotations. Frequently, however, there were also oral negotiations between the parties. Later, when the manufacturer reached a decision, usually it was followed by a formal or informal written contract setting out the terms of the order.
The practice described was followed in the present instance with respect to rods for the 1926 and the 1927 cars. It will be well to discuss the facts relating to rods for the Stutz 1926 car separately from what I shall say in regard to rods for the Stutz 1927 car.
For rods to go into the 1926 car, so far as the evidence shows, each bidder submitted but a single quotation. Certainly there was no more than one written bid by either. There were some oral negotiations, but what (if any) quotations were orally discussed does not appear (pp. 34633-6).
The documentary evidence shows indisputably that the first bid was by Alcoa. On May 27, 1925 (Exhibit 1617), Stutz and on May 29, 1925 (Exhibit 1618), Alcoa confirmed in writing an oral quotation by Alcoa made May 26, 1925, of 98 cents per rod (pp. 34598-602; 34622-3). There is no evidence that Baush made any oral quotation and it was not until August 10, 1925, approximately two and a half months subsequent to the Alcoa quotation, that Baush sent a letter to Stutz containing a quotation. This was $1.06 per rod (Exhibit 68, item 1; pp. 34567; 34623). The quotation of Alcoa therefore was 8 cents lower than that of Baush. It was accepted by contract dated September 28, 1925 (Exhibit 1619).
So far as disclosed by the evidence, the transaction was merely an ordinary instance of competitive bidding where the low bidder won. There is no evidence from which it can be determined that either quotation was below cost of production, plus a reasonable profit, on the part of the bidder who made it. Nor have I found anything which would justify even a suspicion that either quotation was so low that, if accepted, it would have caused the bidder to lose money; nor does the evidence afford any indication of an attempt or purpose on the part of Alcoa to put Baush out of business; nor have I discovered anything for which the conduct of either party properly could be criticized.
In its original brief (p. 540), speaking of rods the 1926 car, the Government says that Alcoa took the business "upon the condition that all of the Stutz business for the 1926 model car be given to Alcoa." Is that charge proved? If so, what is the consequence? Before these questions can be answered it is essential that we have the exact facts in mind.
In its letter of May 27, 1925, concerning receipt in a conversation the previous day of a quotation by Alcoa of 98 cents per rod for the 1926 model rods, Stutz described the quotation as "on 40,000 rods to be supplied to us [Stutz] over a period of 12 months" (Exhibit 1617; pp. 34567-8). In the contract of September 28, 1925, between Stutz and Alcoa, covering rods for the 1926 car, it was provided that "Seller [Alcoa] agrees to furnish and buyer [Stutz] agrees to purchase one year's requirements" and in a covering letter dated October 2, 1925, transmitting to Alcoa a signed copy of the contract, Stutz referred to "our year's requirements" as "40,000 connecting rod aluminum-alloy forgings" (Exhibit 1619; p. 34568). It is, therefore, clear that the contract was for 40,000 rods to be used in the 1926 cars, then believed by the parties to be all Stutz would need in that model.
Yet it does not follow from the writings, nor so far as I have discovered is there elsewhere in the evidence anything to show, that it was Alcoa who determined that the price quoted by Alcoa should apply to the whole of the connecting rods desired for the year. Much less is there in the extracts quoted, or so far as I have discovered anywhere in the evidence, a showing that Alcoa insisted on or even initiated the suggestion of having all the business; nor is there any foundation whatever for finding, so far as I have discovered, that Alcoa ever indicated that it would refuse to furnish a part unless it got the right to furnish all.
In addition, even if the negotiation had included an all-or-none feature, manifestly, unless the evidence pins on Alcoa responsibility for introducing it, blame therefor does not rest on its shoulders. Certainly the manufacturer was free -- if it chose, and particularly, with respect to connecting rods, since, as he said, the Stutz purchasing agent preferred (pp. 34623-6; 34636) -- to buy the total requirements of any year from a single supplier. The Sherman Act has interposed no objection. If the manufacturer were free to buy, then surely the Sherman Act did not forbid the supplier to sell.
The very limit of an inference which could be drawn from the evidence on the point under consideration is that, when asked by Stutz, Alcoa consented to furnish all. Moreover, the preference of the purchasing agent to have all rods for a particular year come from one supplier was based on his view that thereby money was saved for his employer; for example, when there were two sources of supply, it was necessary to furnish each a separate set of dies, handling expense was doubled and there were other duplications of or increases in cost items, as the agent thought and stated (pp. 3295-7; 3445; 34623-5; 34636; Exhibit 68, items, 1, 2 and 4; Exhibit 1617; and Exhibit 1619).
Is it not probable, therefore, that the purchasing agent himself was responsible for not dividing the order for the 1926 cars?
Next, the Government says (original brief, p. 540) that "Baush submitted its bids on the basis of receiving a part only of the total Stutz requirements" for the 1926 car. Because I discover nothing else possibly affording support to the argument, I assume that the contention of the Government is based on the use by baush of the words "quantities of not less than 10,000" (Exhibit 68, item 1) in its letter dated August 10, 1925, making a quotation of $1.06 a rod. If so, the foundation for the contention strikes me as very frail and the language seems to me insufficient to convey to Stutz any indication of a wish by Baush to get an order for part of the year's supply. Outside of the words just quoted, there is no showing whatever that Baush desired, or even was willing to take, much less that it made an effort to secure, an order for a portion only of the rods for the 1926 car.
As will be pointed out later, despite the Stutz purchasing agent's preference to have all rods for a single season from a single supplier, when he was negotiating for the 1927 model rods and Baush expressed a definite desire to have half, the Stutz representative readily yielded, although he yielded only on an express condition. He said that Baush could have part of the 1927 order, provided the price was not in excess of the price Stutz would have to pay for the other half. Perhaps if Baush had conducted its negotiations for the 1926 rods in the same way as was done with respect to the rods for the 1927 car, an order for some of the 1926 rods would have resulted.
The only other argument by the Government regarding the price of rods preceding July, 1926, grows out of occurrences in which Baush and Stutz were concerned that took place in December, 1925.
On December 29, 1925, Baush sent a letter to Stutz (Exhibit 68, item 2). This followed a call on the Stutz purchasing agent by the chief engineer or sales manager of Baush, whose name, you will recall, was Calkins (pp. 34568-9). Mr. Calkins said that he could give Stutz lower prices. Mr. Kelly told him "go ahead and submit me [Kelly] a quotation, although at the time we [Stutz] were not able to place any business." The price mentioned in the letter was $1.02 (which was 4 cents lower than Baush had quoted in the previous August for the 1926 rods). The parties disagree as to whether the December, 1925, price was a quotation for the 1926 or for the 1927 models.
I think the dispute is academic. Yet, in view of the discussion of counsel, I feel that I should comment on the matter.
The December, 1925, communication preceded by more than six months Stutz sending out purchase inquiries for quotations on rods for the 1927 car (Exhibit 68, item 3; Exhibit 1619; pp. 2793-6; 34567-71; 34582) and was later by three months than the signing of the contract between Stutz and Alcoa for the 1926 car rods.
The between-season date of the letter may engender some doubt as to which model Baush had in mind, but there is no supplementary evidence which affords an accurate or certain answer. If forced to make a determination, I should lean to the 1926 car. This because of the unlikelihood that as long as six months in advance of the announcement of specifications for the 1927 model any supplier would have attempted to frame a bid in a vacuum. But, as I see it, what is more important, and renders it wasteful to attempt to reach a conclusion, is that the thing referred to as a price in reality was not a quotation at all.
In the first place, the writer of the letter says that "you [Stutz] may consider the prices which we [Baush] are quoting below [i.e., later in the letter] as tentative" (Exhibit 68, item 2). If tentative, they were no quotation at all; they were useless; nobody could act on them. As I feel, that is tantamount to saying that no price whatever was stated. Indeed, I think the entire letter was utterly without significance, beyond being an effort by a manufacturer to keep in contact with a prospective customer.
In the second place, the letter includes a request that "when you [Stutz] are actually ready to purchase, you give us [Baush] a regular inquiry for a specified number of forgings with definite dates of delivery." Baush, of course, was familiar with the practice by automobile manufacturers to distribute purchase inquiries near the middle of the year preceding the model year (p. 34569). Specifying, even though under the guise of a request, that before relying on the figure stated, Stutz make further inquiry of Baush, necessarily rendered conditional what is referred to as a price. When made conditional, necessarily it ceased to be a quotation.
It seems clear in regard to the 1926 model rods, therefore, that there is no warrant for criticizing Alcoa in any of the respects urged by the Government.
Disregarding Baush's December, 1925, letter to Stutz, as a preliminary to taking up the subject of rods for the 1927 model it should be noted that the first communication next after December, 1925, which so far as the evidence, discloses passed between Stutz and Baush, was dated July 2, 1926; that is, over six months later. This July, 1926, letter was a purchase inquiry. In it Stutz requested from Baush a quotation on rods for the 1927 car (Exhibit 68, item 3) and included a clause as follows:
"In quoting us [Stutz], kindly base your [Baush's] quotation on from 40,000 to 50,000 pieces, which is estimated as our next year's requirements."
It is incontrovertible, therefore, that at the inception Stutz made it clear that what was called for was a quotation on its entire requirements for the 1927 car. Stutz, not Alcoa, injected into the negotiation the specification that the quotation be on all (instead of a part only) of the 1927 requirements.
The purchase inquiry of July 2, 1926, was sent to Baush at Springfield, Massachusetts (Exhibit 68, items 3 and 4). The Stutz purchasing agent made a like inquiry of Alcoa at or about the same time, though he is not sure, he says, whether it was written or oral (pp. 34570-1; 34582). The explanation of his uncertainty seems to be that his office was in Indianapolis, where Alcoa's sales agent for that territory (Mr. O'Connor) was also located, and that the two frequently saw each other (p. 34571).
On July 8, 1926, Baush responded to the July 2nd inquiry. In the Baush July 8th letter a quotation of 98 cents was made, without any indication that the quantity to which the quotation applied was less than the entire requirements of Stutz for the year (pp. 2796; 34569-70; Exhibit 68, item 4; Exhibit 89).
From July 8, 1926, onward, through his pressure on Baush and Alcoa, the Stutz purchasing agent played them off against each other. There was nothing new or unusual about using the method employed (pp. 34584-9). By means of it a series of reductions in the quotations by each bidder in turn was obtained (pp. 34582-9; 34609; 34611; Exhibit 68, items 5 and 9; Exhibits 89-94. See also pp. 2787-8).
As the outcome of the bidding, Baush went to 87 cents (Exhibit 68, item 7; Exhibit 94) or, as the purchasing agent understood but Baush denies, as low as 85 cents per rod (Exhibit 68, items 6 and 8; Exhibit 90) and Alcoa as low as 84 cents per rod (pp. 2542-6; 2553; 34572-7; 34579; 34582-9; 34602; 34607; 34614-6).
In other words, the final Alcoa quotation was 3 cents, or (as the Stutz purchasing agent thought) 1 cent, below the lowest quotation of Baush. Consequently, the business went to Alcoa as the low bidder.
In the period from July 8 to August 27, 1926, so far as the evidence discloses, no written communication passed between Baush and Stutz, -- although the inference is plain that there were verbal negotiations during the interim.
At the beginning of negotiations (on July 2, 1926) for the 1927 car rods the quotation requested by Stutz was for its "next year's requirements" (Exhibit 68, item 3). In the Baush reply, dated July 8, 1926, quoting 98 cents per rod, the inquiry of six days earlier was mentioned. It was also said that the rods would be supplied "in lots of not less than 20,000" (Exhibit 68, item 4); but in a letter to Stutz dated August 27, 1926, Baush made it plain, as I think, that its previous 98 cents quotation had been on all of Stutz's supply of 1927 rods. This letter included a paragraph as follows (Exhibit 68, item 5):
"We [Baush] understand that your yearly requirements are about 48,000 rods and that these would undoubtedly be released periodically."
In addition it should be observed that the word that was used by Baush in the July 8 letter (item 4) was "lots" and not "lot." The expression Baush quoted was that rods were to be supplied "in lots" of not less than $20,000. You could not have many lots of 20,000 each in 40,000. It is plain that the minimum on which Baush quoted was 40,000.
It is important to observe that the August 27th letter of Baush to Stutz was sent from Springfield, Massachusetts. It is difficult to construe its language as meaning other than that the 94 cents quotation therein was for Stutz's total 1927 supply. If that be true, there was never a later quotation which was exclusively for less than the whole; although, as elsewhere pointed out, Baush furnished a quotation for a part which was identical with the quotation for the whole; or, as it can otherwise be put, a time was reached when the Baush quotation was applicable either to the whole or to the half of the 1927 rods.
The failure of the August 27th letter to express a desire by Baush to bid for less than all the year's requirements is the more significant because it constitutes the second instance in which, without complaint or suggestion with respect to quantity or proportion, Baush had made a written quotation for the whole or apparently for the whole (one of 98 cents and the other of 94 cents) that was not accompanied by a quotation for a part.
On the very day (August 27, 1926) of Baush sending the 94 cents quotation from Springfield, the Stutz purchasing agent wrote a letter at Indianapolis which was addressed to Baush at Springfield (Exhibit 89). In this letter the writer referred to a recent conversation in his office (that is, at Indianapolis) regarding Baush's 98 cents quotation for rods. The writer also expressed the belief that the Baush representative had "further stated that you [Baush] would meet the price of the Aluminum Company of Amercia, in order to obtain at least 50% of this business."
I discover in the evidence no dispute about the date of the conversation referred to in the August 27th letter to Baush. I think it may be taken as true, therefore, that the first mention by Baush of a wish for half the 1927 business was oral and that it was not made until shortly preceding August 27, 1926. The identity of the representative of Baush who participated in the Indianapolis conversation has not been definitely shown; nor is it of consequence to know who he was. Nevertheless, the inference is clear that it was Mr. Calkins (who was the chief engineer or sales manager or Baush, p. 34568). He did some traveling out of Springfield for Baush and customarily called on the Stutz purchasing agent at Indianapolis several times a year (pp. 34571; 34609; 34611).
The last paragraph of the August 27th letter from Stutz to Baush (Exhibit 89) is as follows:
"We [Stutz] certainly would be glad to enter into negotiations with your company regarding 50% of our business on this part [connecting rod forgings], and would suggest that you write us in detail, at the earliest possible date, regarding this matter."
From August 27, 1926, when the Stutz letter was sent, down to September 29, 1926, when Alcoa finally accepted the order for the 1927 rods, so far as I can discover Stutz never varied from or did anything inconsistent with the position taken in its August 27th letter. As late as September 13, 1926 (Exhibit 68, item 9), the Baush president showed in his letter of that day to Stutz that he perfectly understood the position of the Stutz selling agent. The September 13th letter says that in a telephone conversation of September 3, 1926, with the Stutz purchasing agent, Baush's president (Mr. Haskell) stated that "we [Baush] would like half the business at the price of our competitor [Alcoa];" but the fact is that Baush never lived up to the condition to which its president had assented. The condition plainly was that for half of the rods furnished by it, Baush would accept the same price as Alcoa; and that was 84 cents. Yet, Baush insisted on having half the order at its own price of 87 cents (Exhibit 68, items 8 and 9; Exhibits 92 and 94).
At the risk of some repetition, by way of explanation or emphasis I call attention to the three features of the August 27th letter from Stutz to Baush (Exhibit 89), which I think should be clearly understood:
1. The "part" mentioned in the last paragraph is the rod of Stutz for 1927. Elsewhere it is identified as being in compliance with drawing or blueprint No. 24012 and it is spoken of as No. 24012 (Exhibit 68, item 10, exhibit p. 298).
2. The Stutz purchasing agent's understanding was, and the letters specifically stated that he understood, that, if Baush obtained half the order, it "would meet the price of the Aluminum Company of America."
3. The Stutz agent also suggested that Baush write in detail regarding the matter "at the earliest possible date." The evidence, however, discloses no written communication thereafter passing between Baush and Stutz earlier than September 3, 1926 (Exhibit 68, item 6; Exhibit 90).Moreover, the record does not contain, or show that there was ever made, any written answer by Baush to the Stutz letter of August 27, 1926.
In the correspondence following August 27, 1926, the proposed sale by Baush of half the rods was mentioned a number of times, down to and including September 13, 1926 (Exhibit 68, items 6, 7, 8 and 9; Exhibit 90; Exhibit 93). Although Baush knew that Stutz stood ready to give it (Baush) an order for half the 1927 rods at the same price at which the balance would go to Alcoa, Baush did not accept. On the contrary, on September 4, 1926 (Exhibit 92 coupled with Exhibit 68, items 6, 8 and 9), and again on September 7, 1926 (Exhibit 68, item 7; Exhibit 94), eleven days after Stutz stated its position in the August 27, 1926 letter (Exhibit 89), Baush unequivocally refused to submit a bid for half the rods at a price as low as the quotation of Alcoa (namely 84 cents) or, indeed, lower than 87 cents.
The matter remained open, pending further negotiations between Stutz and Baush, for about two weeks longer; and not until September 29, 1926, a month after the August 27th letter of Stutz to Baush, was a contract with Alcoa signed by both parties thereto for the whole of the 1927 supply (Exhibits 1620-21).
The contract between Stutz and Alcoa for the 1927 rods is evidenced by two papers. This is in accord with the method which Alcoa customarily, or at least generally, employed in making its contracts for the sale of commodities.
A letter dated at Indianapolis September 23, 1926 (Exhibit 1620), was signed by the purchasing agent of Stutz (Kelly) and addressed to Alcoa at the office of its selling agent (O'Connor) in Indianapolis. This purported to set out the terms of the contract between Stutz and Alcoa for the 1927 rods and asked confirmation of the writer's understanding. As the evidence abundantly shows, a field agent like Mr. O'Connor was without authority to close a contract of this kind. His duty was to refer it to Pittsburgh. The authority as to whether to close on behalf of Alcoa was vested exclusively in the Pittsburgh office (pp. 35951-2). Accordingly, Mr. O'Connor sent the Kelly September 23rd letter to Pittsburgh.
The sales manager of Alcoa received the letter in Pittsburgh on September 29, 1926. On the same day he sent a letter (addressed to Stutz at Indianapolis) in which he qualified the terms of the contract as recited in the Stutz September 23 letter (Exhibit 1620). In substance, the change consisted of releasing Stutz from the portion of its letter which, in the language of the reply letter, "lays upon you [Stutz] the obligation to give us [Alcoa] your entire requirements" (Exhibit 1621). With that exception, the contract, as set out in Exhibit 1620, was accepted by Alcoa.
The evidence makes it clear that there was active competition between Baush and Alcoa for the 1927 Stutz business. The struggle was continuous through July and August and nearly through September, 1926, -- more than two and one-half months. I am impressed that during the whole of the period the Stutz purchasing agent exercised skill in stimulating competitive bidding. My impression is also that he was impartial as between Baush and Alcoa; that this sole concern was to serve what he regarded as the business interests of Stutz, his own company. It was by means of excitation of the bidding that he obtained a price which was fourteen cents lower than the opening quotation of 98 cents.
On the other hand, I have found nothing, and my attention has been directed to nothing, in the evidence about the 1927 rods which points to any effort by Alcoa to drive Baush out of business or which points to anything done by either of them except to carry on a clean contest to get the Stutz order.
In the correspondence with Stutz, Baush stated that its cost of production was more than 87 cents per rod, the lowest price which it conceded it had quoted (Exhibit 68, item 7; Exhibit 94; pp. 2546; 2553A; 34608-9; 34616). On the other hand, the Stutz purchasing agent said that it was familiar experience with him to have sellers make similar claims as a part of their efforts to bolster up their quotations (p. 34628).
However that may be, there is no actual evidence in the record of what it cost Baush to produce its rods.Likewise, there is no evidence whatever that the 84 cents price at which the contract went to Alcoa was below its cost of production plus a reasonable profit.
As already indicated, the Stutz purchasing agent and Baush disagreed as to whether Baush ever gave Stutz a quotation as low as 85 cents. As I see it, however, there is no occasion to resolve the controversy. The only feature of the matter worthy of attention is the probability, which suggests itself, that the Stutz agent used what he declared to be Baush's 85 cents bid to drive Alcoa down to an 84 cents bid.
Different from the situation with respect to the rods for the 1926 car, Baush (shortly previous to August 27, 1926) specifically asked that an order be placed with it for half the rod requirements for the 1927 car (Exhibit 89).
At some time, -- it does not appear when, -- the Stutz president told the Baush president that "he would be glad to see Baush get some of the business" and told the Stutz purchasing agent that, on account of his personal friendship with the Baush president, he would like the business placed with Baush, "everything being equal" (pp. 2542-3; 2549-51; 34614; 34627-8. See also Exhibit 68, items 12 and 13).
Whether the intervention of the Stutz president had any influence on the 1927 outcome is not shown. Nevertheless, it is established that the Stutz agent on August 27, 1926, definitely offered to place half the 1927 order with Baush on the single condition that the price be as low as the quotation of its competitor. Inasmuch as Alcoa went down to 84 cents as its last quotation, it would follow that if Baush had accepted the proposition embodied in the Stutz letter of August 27, 1926, Baush would have taken half the business and Alcoa would have taken the remainder for 1927, -- both alike, at the price of 84 cents per rod. But, as we have seen, Baush refused to take half the 1927 order on the condition prescribed by Stutz.
Even if, preceding the modification and the acceptance, the terms of Exhibit 1620 (when assented to by both parties) would have been in violation of law, it seems to me plain that when (promptly after being informed of the proposed inclusion in the contract of an obligation on Stutz to take all the 1927 rods from Alcoa) the sales manager of Alcoa deleted it, that action by him would have saved Alcoa from guilt of the charge now made by the Government so far as concerns the 1927 rods. But I think the position of Alcoa is even stronger and can be sustained on three grounds:
1. In the circumstances described, the documents do not show, nor have I discovered evidence elsewhere in the record which would support an inference, that Alcoa conditioned its quotation on getting an order for all the rods.
2. Preceding the signing of the agreement by either Stutz or Alcoa, Baush had unequivocally refused to furnish any part of the rods at the low quotation (made by Alcoa). Even if the agreement had remained in the form in which it stood when signed by Kelly, it would not have deprived Baush of anything. For that reason no blame can attach to Alcoa for Baush not getting a part of the order.
3. If Stutz throughout had steadily refused to divide the 1927 order, or if after expressing its willingness to divide the order it had determined to place the whole with one supplier, in the absence (as here) of evidence showing or even tending to show that the price of Alcoa (84 cents) was less than its cost of production plus a reasonable profit or that Alcoa's purpose was to put Baush out of business, there would have been no violation of the Sherman Act.
Two classes of cases on the subject are pertinent; one class in general terms, the other specific.
I think that in Federal Trade Commission v. Sinclair Company, 261 U.S. 463, 475, 476, 43 S. Ct. 450, 454, 67 L. Ed. 746, the Supreme Court has laid down the principle I invoke. It was there speaking of the powers of the Federal Trade Commission under the Clayton Act 15 U.S.C.A. § 12 et seq. and the Federal Trade Commission Act 15 U.S.C.A. § 41 et seq.; but what was said seems to me equally applicable to the powers of this Court under the Sherman Act. Of the Commission it was said:
"It has no general authority to compel competitors to a common level, to interfere with ordinary business methods or to prescribe arbitrary standards for those engaged in the conflict for advantage called competition. The great purpose of both statutes was to advance the public interest by securing fair opportunity for the play of the contending forces ordinarily engendered by an honest desire for gain.And to this end it is essential that those who adventure their time, skill, and capital should have large freedom of action in the conduct of their own affairs."
So in Federal Trade Commission v. Curtis Co., 260 U.S. 568, 582, 43 S. Ct. 210, 213, 67 L. Ed. 408, it was said:
"Effective competition requires that traders have large freedom of action when conducting their own affairs. Success alone does not show reprehensible methods, although it may increase or render insuperable the difficulties which rivals must face."
Likewise, in Locker v. American Tobacco Co., 2 Cir., 218 F. 447, 450, a case under the Sherman Act, the Court said:
"The laws of trade are not wholly altruistic, they may often be hard and selfish, but it is no part of the duty of courts to attempt to enforce the precepts of the decalogue. In the struggles engendered by fierce competition, losses must occur and injustice may be done, but this is frequently inevitable and cannot be prevented so long as the parties keep within the law."
The second group of decisions comes from the lower courts. They deal more particularly with the phase of the law which concerns us at the moment.
One is United States v. Great Western Sugar Co., D.C.Neb., 39 F.2d 149, 151. There Judge Munger said:
"It would be going far" -- and I inject my own statement, that I think it would be going too far -- "to say that a dealer may not buy or sell at a uniform price that yields him a profit if the only objection is that he has the intention to obtain customers, who would otherwise deal, in interstate commerce, with competitors at a different price."
Another is American Steel Co. v. American Steel & Wire Co., D.C.Mass., 244 F. 300, 302, dealing with the charge of monopolization under the Sherman Act. I think there Judge Morton stated the line of demarcation correctly and with perfect clarity. He said:
"The thing forbidden by the statute, * * * is monopolizing or attempting to monopolize. These would usually involve -- and are here alleged to have involved -- many separate acts, each of which, so far as it was part of the monopolizing, or attempt to monopolize, would be forbidden, * * *. The defendant had a perfect right, for instance, so far as the Sherman Act goes, to undersell the plaintiff in ordinary business competition, or for the purpose of putting the plaintiff out of business. It had no right to do so as part of a plan to drive everbody out of the trade in order to obtain a monopoly for itself, * * *."
On the basis of the opinions from which I have quoted, I think it plain that the facts in the Stutz case show no exclusion of or attempt to exclude Baush from the business in which it was competing with Alcoa nor any wrong to it of any kind done by Alcoa.
At the trial (pp. 2551-3; 2788-9; 34590-97) the Government argued that, in connection with the 1927 contract, Alcoa was guilty of giving a rebate. In the Government briefs, filed since the trial closed, the claim has not been repeated. I assume, therefore, that the intention was to withdraw the charge. Nevertheless, it has not been expressly disavowed. For this reason I think I should comment on it.
The facts are that the 1926 contract was for "approximately 40,000 connecting rod aluminum-alloy forgings," spoken of between the parties as 40,000 rods (exhibit 1619, exhibit p. 6924), and that the 1927 contract included a clause which, in substance, provided that the 84 cents price, that is the 1927 contract price for 1927 rods, should apply to rods for use in the 1926 car in excess of the 40,000 (Exhibit 1620).
The clause on the subject of such excess (consisting of the next to the last paragraph of Exhibit 1620) reads as follows:
"It is further understood that all rods manufactured for us [Stutz] by your company [Alcoa], over and above the original 40,000 rod contract [Exhibit 1619], which was entered into last Fall [September 28, 1925], the new price of 84 will exist in place of the 98 price now being paid."
The difference between the 98 cents price for 1926 and the 84 cents price for 1927 only affected the excess (apparently 4,862 rods, Exhibit 68, item 11) above the maximum of 40,000 rods to which the 1926 price applied. Until the 1927 contract was made, no price had been fixed for such excess. It was the 1927 contract which first named a price therefor and that price is what Alcoa charged (Exhibit 68, items 10 and 11).As I feel, it is obvious, therefore, that this did not constitute a rebate.
Accordingly, I conclude that none of the Government charges with respect to Stutz has been proved.
As to the Hupp Motor Company transaction the evidence is indefinite and sparse.
For a time, -- apparently from about 1919 to about 1926 or 1927, -- Baush sold duralumin connecting rods to Hupp; sometimes all and sometimes half the requirements (pp. 3297-8; 3301; 3446-7). For the year following 1926 and 1927 the order went to Alcoa. This was due to the fact that Alcoa's bid was lower (pp. 3301; 3303-4; 3447).
In the contest, when it lost the order, the bid of Baush was 88 cents (p. 3304). Alcoa's bid is not shown nor have we been told what alloy it used (whether 17S or 25S or some other). Likewise, there is no showing of what was the production cost of either bidder. The only statement relating to the subject was made by an officer of Baush. He said his company believed that the business would not have been satisfactory at a price lower than its bid (p. 3304).
It follows, for the reasons assigned in discussing Franklin and Stutz, that no violation of law by Alcoa concerning the Hupp business has been shown.
Three comments, though not requisite, are permissible. They are pertinent, especially because they bring out the looseness of the evidence on the Hupp branch of the controversy:
1. The weight, shape and size of rods vary from year to year. Changes in any of those respects necessarily affect costs (p. 3443). In 1926 Franklin had a rod weighing 1-1/3 pounds. Baush's bid on it that year was 86 cents (pp. 3262-3; 3272). We have no information about the dimensions or other characteristics of Hupp's 1927 rod, except that it was patented (p. 3449). Consequently, we cannot compare the Hupp and Franklin prices nor can we even guess what price would have been necessary in order to be compensatory to the supplier of the Hupp rod.
2. Baush, which made its rods under a hammer, could produce only one at a time (p. 3450). Alcoa could produce two and sometimes four at a time (p. 40585). Whether, however, Alcoa had that particular advantage in costs as for back as when Baush lost the bid is not clear.
3. The treasurer of Baush said that he thought the president of the company was mistaken if he (the president) had testified before the Federal Trade Commission that, following loss of its bid by Baush, Hupp shifted to steel as the material for its rods (pp. 3448-9). We are, therefore, uncertain whether Alcoa furnished rods to Hupp longer than a single year.
A lot of testimony has been taken about a controversy as to whether, in getting an order from the Eastman Kodak Company, Alcoa was trying to put Baush out of business. Much is rather vague and much is irrelevant. Nevertheless, the issue turns on a single transaction and I believe a decision can be reached which will be based on a few credible and well established facts; but before the problem can be fully comprehended, it is essential that we have as a background an account of the branch of the aluminum business that is involved, -- though it may prove a bit tedious to go over it.
There are two ways of cold-rolling sheet. One is called the coil method and the other the flat method. It is of considerable consequence which is used. Generally which is used is determined in a particular instance by what qualities the manufacturer is looking for. In the evidence the story of this phase of the matter was best told by Mr. Nagel (pp. 24434-9).
Coiled sheet rolling is resorted to when a relatively long, narrow piece is desired. The sheet is handled in the form of a coil as soon as it can be coiled (pp. 24435; 24437). On the contrary, flat sheet rolling is resorted to if the manufacturer wants a short wide piece. Such sheet is produced flat in the beginning of the operation and continues flat from start to finish (p. 24435).
What I have described is the state of the art up to date. Efforts are in progress to improve it.
When the coiled sheet method is employed, greater reduction per pass is obtained by using, and the only way heretofore or now known to get the advantage of coiled sheet rolling is by using an apparatus which causes what is called back-tension (sometimes spoken of as back-pulling). The advantage of coiled rolling comes from the application of back-tension. The apparatus uncoils the already coiled sheet as it enters the roll and then rerolls it as it comes out of the rolls on the other side (pp. 24437-8).The tension apparatus is not used at all in flat sheet rolling (p. 24438). This is because flat rolled sheet, as manufacturers have heretofore been able to manufacture it, is too short to permit backpulling (pp. 11919-21; 24438).
By the coiled sheet method the sheet easily may be, and apparently usually is, stretched to between 200 and 600 feet in length; and one instance is mentioned in the evidence where a single piece was drawn out to 1200 feet. On the other hand, by the flat sheet method the average length usually attained in Alcoa's plants is about 15 feet, -- although (when a customer wants it) a considerably greater length can be produced (pp. 24435-6).
Baush never commercially succeeded in rolling flat sheet of a which greater than 18 inches (pp. 2759-60; 3401-3); but Alcoa has done much better. The limit to 18 inches by Baush is due to the fact that, with the kind of mill and appurtenances Baush had, it could not economically do commercial rolling at a greater width than the 18 inches (p. 3404).
In the period of 1922 to 1931, with the common alloys, Alcoa produced coiled sheet to approximately 36 inches wide (pp. 24481-3), duralumin coiled sheet to about 20 inches wide (p. 24482), duralumin flat sheet 60 inches wide (p. 24483) and flat sheet of common alloys (2S, 3S, 4S and 52S) over 100 inches wide (pp. 24483-4). Since 1931 the length of all the kinds mentioned, except duralumin coiled sheet, has been further increased by Alcoa (pp. 24482; 24484).
Another characteristic difference is that a coiled sheet mill operates at considerably greater speed than a flat sheet mill (pp. 11040; 24438-9). While variations in finish and other differences exist, there is no occasion to go into them.
Normally the making of coiled sheet is cheaper than the making of flat sheet and the coiled sells at a less price (pp. 3357; 11040-1; 11051; 24438; 35516). The cheaper production of coiled sheet occurs where a separate coiled sheet device is used. Baush, however, had no coiled sheet rolls; all its sheet was made, from the beginning stage and throughout the time it was in the aluminum business, of flat sheet rolls. When it desired coiled sheet it took the already manufactured flat sheet and, by using what is known as a coiler, converted it into coiled sheet. But both its coiled sheet and flat sheet were made on the same set of rolls (pp. 2781; 3357; 3478).
Necessarily, therefore, production of coiled sheet by Baush was more expensive; after using its only equipment to make the more expensive article (normally a flat sheet) it then had to add the expense of converting it into coiled sheet, -- thus further increasing its total expense of production. Manifestly, it follows from its exclusive reliance on a less efficient method that it was handicapped in competing with Alcoa in the sale of coiled sheet.
So much by way of introduction to the consideration of the controversy over the Eastman business.
Preceding the transaction in which Eastman gave an order for coiled sheet to Alcoa and none to Baush, both had been included generally among the suppliers patronized by Eastman. Purchases from Alcoa went back to 1913 or earlier (pp. 35503-6; 35956); from Baush back to 1920 (pp. 2557-60) or possibly (as Baush officials remember) to 1919 (pp. 2554; 3227; 3230-1; 3436-7).
There was a time when Eastman preferred to use flat sheet. So long as that condition existed, some, though the evidence does not disclose what proportion, of the Eastman purchases of flat sheet were made from Baush.
In June, 1925, however, in a letter to Baush, in substance Eastman stated that it was considering procuring coiled sheet for additional parts; that if it did so, its requirements for flat sheet would be considerably reduced and its requirements for flat sheet would be placed with Baush (p. 3506).
The evidence does not make certain the year of the occurrence of the transaction around which the controversy under consideration hinges; whether in 1925, 1926 or 1927. The dispute relates to 3S sheet. From the quantity of sales of that kind of sheet by Baush to Eastman in 1925 and its great relative fall-off in 1926 (pp. 2555-7; 2560), I infer that the event was in 1926, -- perhaps pursuant to Eastman's announcement of the new plan in the 1925 letter (pp. 3505-6). But, it is unimportant whether the date was 1925, 1926 or 1927. This is so because the facts are undisputed that, when Eastman changed from 2S and 3S flat sheet to 2S and 3S coiled sheet (which was some time subsequent to 1923, p. 35507) the price Alcoa charged for coiled sheet on the order it got was, according to the recollection of its sales agent, about 5 cents a pound below the price then prevailing for flat sheet (p. 35515). At any rate, the price at which the sale was made to Eastman was the same as that at which Alcoa made sales at the time to its customers generally (pp. 35517-9). The Baush treasurer testified that his company would have lost money if it had met Alcoa's price (pp. 3240-2).
However, other than the testimony of Alcoa's sales agent just referred to, there is no evidence of what Alcoa's price was; nor is there any showing of what had been Baush's cost of producing coiled sheet; nor is there the slightest basis in the evidence for a finding that Alcoa ever cut prices to Eastman in order to take business from Baush (see p. 35528) or was ever unfair in its competition or made an effort, or had an intention, in connection with any of its Eastman dealings, to put Baush out of business.
As earlier stated, the question of spread is reserved for later consideration. The Government's argument about spread in connection with the Eastman business has, therefore, been disregarded for the moment.
The conclusion seems to me inescapable, therefore, that Alcoa must be declared not guilty underbidding to Eastman.
October 4, 1941
When I adopted the program of endeavoring to present the questions in this case by subjects, I realized that it had defects. One obvious fault is that if followed, necessarily it will involve repetition. When I take up one subject and in the course of it discuss certain phases of the evidence, that is not enough. When I reach another subject, it frequently happens that the same evidence must be considered in passing on the other subject. Despite its imperfections, however, I have adhered to the plan because it seemed to me more likely that by it I could make a clearer presentation than by some alternative method.
* * *
Evidence has been taken as to numerous other individual instances in which the Government claims that Alcoa endeavored to exclude Baush from the Aluminum business. Many of those instance are not included in what I have already said. In the interest of saving time, however, I shall content myself with treating the additions in groups, without going into details about each.
I think it is true that some of the evidence (if accepted as correct) is capable of being interpreted as at least creating a suspicion of Alcoa, -- though I believe that general matters of that type relate to a rather distant past. Of course, however, suspicion is not enough. Likewise also, in the state of the evidence, in some respects the conduct of Alcoa may have left it open to criticism. Yet such occasions (if any), when after full review of the evidence suspicion remains unremoved or criticisms remain unanswered, at best are merely spasmodic and, even when taken together, do not make out maltreatment of Baush by Alcoa. In none do I regard it as satisfactorily shown by credible evidence that Alcoa has therein been guilty of unfair competition with the purpose of putting or of ever engaging in a contest to put Bauch out of the aluminum business.
Where the law requires or even encourages competition, the line between what is permitted and what is prohibited is extremely difficult to draw with accuracy. It must be borne in mind that in many instances, under the law, a business man is as much blamed, or deemed open to blame, for under-competing as for over-competing. Nevertheless, if the public is to enjoy, as it is entitled to enjoy, the benefits of competition, then some leeway must be allowed to those actively engaged in opposition to each other before malevolent motives may properly be attributed to them. Compare, for example, Federal Trade Commission v. Sinclair Co., 261 U.S. 463, 474-476, 43 S. Ct. 450, 67 L. Ed. 746.
As already indicated, so far as concerns individual cases brought into the evidence, I do not think it has been shown that Alcoa crossed the line to the wrong side.
So also I feel that the reasons I have given justify me in refraining from multiplying instances or extending discussion of particular individual charges against Alcoa of under-selling or of other forms of misconduct affecting Baush. I shall now turn rather to the somewhat more general phases of the issue.
Alcoa urges that Baush's misfortunes arose largely out of inadequacy in equipment. Baush claims that its plant was well equipped. This raises a question which can be answered only after patient examination of the evidence on the subject.
In 1919 Baush hired a brass mill and a grey iron foundry. These were located at Chicopee, which is adjacent to and I believe now is a part of Springfield, Massachusetts. The mill and the foundry combined came to be called the metals division and were so referred to at the trial.It will be convenient to continue the use of the name. About half a mile from the metals division and located in the city of Springfield was a machine tools establishment, referred to at the trial as the machine tools division (or the tools division), which Baush was conducting and had conducted since about 1896.
Before Baush became owner of the mill (that is, the brass mill coupled with which was the grey iron foundry), steps were taken toward converting the mill into a place for carrying on aluminum sheet manufacturing. The plant was substantially completed for the duralumin business about 1923 (p. 2856). From 1919 on, for about two to four years, Baush conducted experiments there. In addition, preceding October, 1921, preparation was in progress to manufacture, and apparently to some extent there was actual manufacture of, duralumin sheet in this plant (pp. 2153-6; 2185-6; 2195-6; 2204-7; 2755-6; 3224; 3226).
In October, 1921, Baush purchased the metals division plant. This included the machinery and equipment already there (pp. 2752; 2755-7). In the meanwhile the grey iron foundry equipment had been or then was scrapped (p. 2758).
The plant was acquired by Baush primarily for the purpose of rolling aluminum sheet. While Baush was occupying the metals division premises as a tenant (1919 to 1921), it expended $18,000 (in round figures) on improvements (pp. 2733-4; 2738; 2759-68). Saving that expenditure and the widening of the rolls so that they could commercially roll sheet 18 inches wide, so far as I can discover, up to 1922 there were no substantial improvements over the condition of the mill and equipment as they existed in 1919 (pp. 2759-60) and the value of the total equipment when the mill was acquired (including the improvements from the $18,000 expenditure, but exclusive of the land and the buildings housing the equipment), was $550,000 (p. 2758).
While the pleading is confined to the years 1924 to 1931, the evidence relating to the mill and changes in it made by Baush, after becoming the owner, begins with a time two years earlier. I shall therefore treat the matter back to 1922.
During the period 1922 to 1931 the limit of the expenditures by Baush for improvements in its mill, for the manufacture of flat or coiled sheet, was $15,000 and for rim rolls (which are used to shape sheet to a particular form) was $27,000. The total expenditure for such improvements did not exceed $42,000 (pp. 2736-40; 2760-8).
So far as appears, there were no other improvements for sheet production during the period. There was testimony that the $42,000 expenditure over ten years was inadequate to keep the mill efficient (pp. 18970-1; 21603-9; 24508-27; 40588. See also p. 22140). This evidence does not seem to me unreasonable. On the other hand, during approximately the same period Alcoa's expenditures for improvements in sheet production aggregated $7,500,000 (pp. 18971; 20959-61). At the time, and as time went on, the trade demand for better kinds and greater sizes of sheet constantly grew (pp. 2821; 2856-7; 3403-6; 3451-6; 18970-1).
The very disparity in the figures, standing alone, would lead one to expect that the sheet business of Baush would suffer from failure to better the facilities for conducting manufacture of the sheet. The figures are the more impressive because, as brought out by the Government, Baush lost money in its metals division every year the division was in existence (pp. 2598-9; 2606-8; 2826-35; 2837-8; 2880; 2883; 3129-30; 3460-7; 23403-4; Exhibit 73, items 1 and 2).
Again, it is significant that the Baush president conceded that the competition of Alcoa had been fair and clean. What he said is that his complaint in essence was that Alcoa undersold him when he was endeavoring to introduce a new product to the trade. He also said, however, that it is a reasonable anticipation that a manufacturer with superior equipment, through incidental resulting decreased cost of production, will win a competitive test for the sale of his products (pp. 2726-33). I have already called attention to the court decisions which seem to me to hold that a fair competitor having such an advantage as that I have just described is entitled by law to avail himself of it.
In reply, the Government makes two contentions: (1) that the improvements of the Baush plant cost $143,000 and (2) that, if this amount be not taken as the total in contrast to what Alcoa spent for improving its sheet producing facilities, at least the $18,000 spent by Baush in improving the plant preceding 1922 should be added to the $42,000, -- thus bringing the value of the aggregate improvements Baush made up to $60,000. Even to these contentions, however, I think there are adequate answers.
The $143,000 is made up by adding together the $18,000 spent on improvements by Baush previous to buying the plant and $125,000 it spent on improvements after it became owner (pp. 2736-9). But the $18,000 had already been included in fixing the value of the equipment in the plant at the time it was acquired; and the $125,000 covers Baush's expenditures for all improvement purposes -- for fabrication facilities as well as for sheet manufacturing facilities -- in the period of 1922 to 1931. In making the comparison of what Baush and Alcoa spent on improving their relative sheet producing capacities, we are only concerned with that period and with what went to improving the facilities for manufacturing (not for fabricating from) sheet.Indeed, I incline to think that the $27,000 spent for rim rolls should be classed as going into the improvement of fabrication facilities. If that be true, then the gross expenditure of Baush during the years 1922 to 1931 for increasing its sheet producing facilities was no more than $15,000.
For the reason that the $18,000 was expended preceding 1922 it has already been included in the $550,000 valuation of equipment at the time Baush became owner of the plant. It may be noted also that the evidence does not show the items of which the $18,000 was composed. I think it clear that this sum should not be credited to Baush in making the comparison with which we are concerned. However, if that feature be waived and the figure be included, the $42,000 allocated to improvements for manufacturing sheet would be increased to but $60,000. I think if we should treat the entire $60,000 as expended on Baush improvements, the change would not be sufficient materially to impair the weight I have given heretofore to $42,000 when contrasted with $7,500,000.
Again, as a second ground for contrasting the sheet producing facilities of Baush and Alcoa during the same period, let us examine what the evidence shows about the methods employed by them in coldrolling sheet.
For the entire time (1922-1931) Baush used exclusively cast iron (sometimes spoken of as chilled) rolls. In producing sheet (chiefly duralumin) Baush never used forged steel rolls in its mill (pp. 2211-12; 2619-20; 2755-6; 2758-9). On the other hand, through the greater part of the period Alcoa used forged steel rolls in manufacturing sheet. Beginning about 1925 a large proportion (apparently upwards of two-thirds) of the rolls employed by Alcoa in rolling sheet were forged steel and the balance were chilled alloy iron rolls (pp. 24423-4).
It is true that, preceding 1922, temporarily Alcoa largely used cast iron rolls; but about 1920 it added cast iron alloy rolls, which are different things from cast iron rolls (pp. 24429-30). Subsequently Alcoa completely discarded cast iron rolls; that is, cast iron rolls in the sense of the rolls under that name used by Baush (pp. 18972; 19019-20; 24426), and for rolling hard alloys, corresponding to duralumin, since abandoning cast iron rolls Alcoa has used steel rolls exclusively (pp. 19020; 21005).
For manufacturing sheet, steel rolls are vastly superior to any other kind of rolls. They are much more efficient and their use effects a good deal of saving in the cost of producing sheet (pp. 18972; 19020; 21003-5; 24424-35).
Baush did refrain from making added improvements because it lacked money. The evidence shows that Baush had the money with which to supply its plants with steel rolls, but that it preferred not to spend it for this purpose (pp. 2620; 2845; 3401). In other words, Baush deliberately elected to continue a method of production which was less economical.
As pointed out in the discussion of the Eastman matter, Baush could only make flat sheet and then, through use of a coiler, convert the flat sheet into coiled sheet. It made both kinds of sheet on the same set of rolls (pp. 2781; 3355-7; 3477-9).On the other hand, Alcoa had separate machinery for taking the two kind of sheet. In consequence, Baush was at a disadvantage. Not only was its production of coiled sheet by comparison more costly, but, because it employed the substitute or roundabout method in producing coiled sheet, it could not fill orders at all for greater widths than the 18 inches which was the maximum width of its flat sheet.
Baush's restriction to 18 inches as the width of the sheet it could manufacture was a serious handicap. For this reason it deserves further comment.
Illustrations of Baush being hampered by narrow width capacity are in the Eastman case and, at another time, in the matter which has been referred to as the Harrison Radiator case. The former has been explained already; the latter has not yet been explained and will be taken up now.
It was part of the business of the Harrison Radiator Corporation to procure radiator shells for Chevrolet automobiles. In 1924 Baush, when afforded the opportunity, was unable to accept an order for these aluminum radiator shells because Chevrolet wanted them made of 30 inch sheet. Baush did not have equipment capable of rolling sheet of that width, or beyond 18 inches wide, and was unwilling to buy it (pp. 2686-9; 2805-21; 2887-95; 3387-3406; 3411-4; Exhibit 87; Exhibits 95, 97 to 103).
In 1924 Baush quoted its duralumin sheet at 52 cents a pound (provided Harrison took 5 tons) and Alcoa quoted 46 cents a pound (pp. 2889-91; Exhibit 87, exhibit p. 380). The next year, according to Harrison, Alcoa made a so-called "tentative" quotation of 47 cents, with an intimation that if the order was large and it proved practical to roll, there might be a substantial reduction. Mr. Harrison believed that 37 cents and 40 cents per pound were mentioned. So far as I have discovered, however, Baush submitted no quotation in 1925.
The facts are somewhat indefinite. Nevertheless, if it can be said that Alcoa underbid Baush either year in connection with radiator shells, it would be purely academic. That is true because Baush did not have, and declined to supply itself with, the equipment necessary to enable it to produce what its prospective customer wanted. Moreover, Baush said the competition it could not meet in 1924 was a radiator shell made of "steel" and "nickelplated" which Chevrolet was then using (Exhibit 98, exhibit p. 393); not one made of aluminum at all.
So also for flat sheet Baush could furnish only a dull finish, while Alcoa could furnish bright flat sheet. The bright flat sheet is much preferred by many customers (pp. 3478; 24441-3; 24480-1). Inability to supply a bright finish is one reason among the several reasons why Baush lost the Eastman business already discussed.
Another baush deficiency was that it had inadequate forging equipment (pp. 2821-3; 3481-91; 3499-3504; 29571-3). One result of this was that it was necessary for it to hire much of its forging done by outsiders. This was an uneconomical, and apparently a dilatory, method for supplying forgings. It vitally affected propellers for airplanes and connecting rods for automobiles. It was also unsatisfactory to customers (pp. 3295-7; 3450; 3486-91; 3504-5; 24506-8; 29541-73; 29609-11; 29617-9; 29662; 29722-3). At the time Alcoa was able, in its own plants, to produce both articles satisfactorily (pp. 24505-6; 29574-8; 40585).
Many examples could be given of the consequences to Baush of the comparative inferiority (except for a very restricted range of purposes) of the equipment in its mill. Perhaps the most striking single illustration is the one already partially dealt with, concerning the narrowness of the sheets produced. Its importance is so great, however, that, even at the expense of some repetition, I think it deserves amplification. I think also that it is typical and, if a bit amplified, will be enough to say about the width aspect.
In the period under consideration Baush produced 2S and 3S sheet (p. 3335). It was never able commercially to roll sheet of any kind (either flat or coiled) of a width greater than 18 inches (pp. 2625; 2760; 3401-3; 18972-3; 32434). Meanwhile, Alcoa had increased the width of various types of its rolled sheet to much over 18 inches. Since 1916 Alcoa has been producing 17S sheet (from 1919 a direct competitor of duralumin; pp. 2526; 2599; 2727-8; 3314; 23398-9; 32050-65) and later produced 25S, 51S and other hard alloys which also competed with duralumin (pp. 2525-6; 24172; Exhibit 1423). As early as 1922 Alcoa rolled and sold flat duralumin (or 17S) sheet as wide as about 36 inches and 2S and 3S to nearly 100 inches in width (p. 24330); as early as 1923 it rolled flat duralumin sheet up to 40 inches (pp. 24330A-31); in 1925 or 1926 it rolled flat duralumin sheet of 50 inches and by 1928 of 60 inches (pp. 24332-3); in 1931 it rolled flat duralumin sheet of 60 inches (pp. 24483-5) and thereafter of 100 inches; and throughout the period (pp. 2620; 18973-4; 24330-6; 24481-4; 32434-5) it rolled coiled duralumin sheet 20 inches wide (p. 24482) and coiled aluminum sheet of 36 inches (pp. 24481-2) and common alloy flat aluminum sheet of 100 inches in width (pp. 24483-4).
The evidence further shows that since Baush quit the aluminum business Alcoa has rolled sheet reaching to a width of about 144 inches. Increasing width of both coiled and flat sheet is, and for some years has been, one of Alcoa's liveliest problems.
Such tremendous increases in width as those already accomplished by Alcoa not only met new trade demands, but resulted in large savings in the manufacturing cost of sheet (pp. 18972-7; 21601-3; 32435-9; 34688-91; 35374-83; 40585-7). Moreover, it is obvious that the inferiority in equipment, which relatively incapacitated Baush, was capable of having caused, wholly or in part, and, as I cannot fail to believe, was a chief if not the chief cause of, the failure of Baush to survive competition with Alcoa.
Even if the equipment of Baush had been adequate, however, I think it plain that the Baush selling force was quite insufficient to meet competition in introducing its new products to the trade. Outside of three officials, who gave only part of their time to selling, at various times Baush had only one or two or three salesmen. Both the officials and the salesmen divided their energies between the metals division and the tools division, and for several years preceding 1931 the metals division had only one salesman (pp. 2741-4; 2804-5; 2842-5; 3137-41; 3456-8; 3507-10; 21609-14; 22121-2). On the other hand, apart from a well organized sales department maintained at Pittsburgh, and apart from the fact that a good many of its principal officials were engaged in selling, especially in making sales of large lots, Alcoa had an extensive organization of sales offices and salesmen stationed at strategic points throughout a good portion, and especially plentiful in the eastern half, of the United States. While the precise number Alcoa employed in selling has not been shown, it does appear that it ran into hundreds.
I may sum up by saying that, when considered in its entirety, the evidence convinces me that, among the causes for the failure of Baush to survive the competition it encountered, for which it must bear sole responsibility, were its own errors of judgment. I think these led to inadequate and in some respects inferior equipment, employment of insufficient capital, unwillingness to spend money to keep abreast in improvements, limitation of production to a restricted line of commodities, high cost of production in its plant as conducted and inadequate sales effort. But even if I be mistaken in my particularization, at least it seems to me certain that fair appraisal of the evidence now before this Court compels the finding that it has not been shown that unfair competition or misconduct by Alcoa forced, or materially contributed to forcing, Baush to quit the aluminum business.
It would take a long time to summarize all the evidence which I regard as supporting the view I have stated. Much has already been stated and need not be repeated. Perhaps, standing alone, what I have already cited is enough. In any event, I think the great weight of the evidence shows that the causes I have listed were responsible, rather than that any misbehavior of Alcoa was responsible, for Baush's failure to continue. In addition to the parts of the record previously referred to in discussing Baush, among other things, I rely on the following (pp. 2574; 2620; 2727-9; 2732-3; 2737; 2748; 2752-68; 2773-80; 2805-20; 2855-7; 3128-30; 3326-35; 3341-3; 3387-3419; 3451-70; 11039-40; 18575-7; 18970-7; 20950; 21601-9; 22140; 22671-3; 24330-505; 24526-7; 29216-18; 29293-331; 29513-33; 29561-78; 29691-704; 32037-173; 32434-9; 34688-91; 35374-7; 40583-8).
Moreover, if one doubt that the deficiencies in equipment which existed at the Baush plant were, of themselves, a sufficient cause, I suggest that he begin his study of the matter by reading the testimony of Mr. Nagel explaining the unavoidable effect of such deficiencies on the cost of production.
Aside from urging the sufficiency of various evidence (already considered) to refute the conclusions I have reached, the Government has advanced four special arguments. These will now be taken up:
1. It is urged that Mr. Hunt (president of Alcoa) in 1929 admitted that his company had followed a plan of trying to wear down Baush by a policy of attrition.
In my judgment, however, the evidence to the contrary greatly preponderates and I think indeed is convincing (pp. 2999-3000; 3025-7; 3031-2; 21629; 21641-4; 22131-40; 22131-63; 22620-33; 23062-8; 27644-50; 27686-93; 27749-64; 33313; 33467-8; Exhibit 108).
2. It is next claimed that Baush's duralumin was superior to Alcoa's corresponding sheet (17S) and that, because of this, Baush should have prevailed in competition.
It is undisputed that Baush's flat duralumin was good and, particularly in the early stages (say between 1919 and 1923), that it was regarded by some (though not by all) as better in quality than Alcoa's 17S, which was then Alcoa's competing article (pp. 3165-6; 3184; 6525-6; 32128-31; 32133A; 32136; 32138-40; 32145; 32150. See also pp. 3178-80; 3203-4; 32122-3). In fact, Alcoa itself concedes (original brief, p. 537; reply brief, p. 327) the good quality of its competitor's duralumin flat sheet; and Alcoa has never disparaged it nor, indeed, disparaged to the trade any of Baush's products (p. 2727).
On the other hand, so far as appears, complaint of Alcoa's duralumin occurred only during the period of experimentation. Thereafter the defect was remedied by Alcoa. Since then the quality of Alcoa's duralumin sheet has been satisfactory (pp. 3616-26; 6525-6). Moreover, better quality of a single article would not be enough to assure financial success of the Baush plant as a whole, when the range of articles which duralumin met in the market was great and many of them were of indisputable excellence.
Another thing Alcoa has urged is that the line of Baush's articles was too restricted. I think that position is well taken (pp. 2619; 2729; 3184-5; 32140-1; 32145-7; 32150-3; 32156-9).
3. Baush claims that the test of efficiency in rolling sheet is the quantity of resulting process scrap; also that its plant threw off a smaller proportion of such scrap than any Alcoa plant.
Though the Baush officials are not unanimous, the contention is that the less the scrap the greater the efficiency of the rolling and that in some years Baush rolling produced less scrap (pp. 3311-5; 3409-11; 3423-33; Exhibits 113-14); but I do not accept this view and in making reply we shall not have to go into the question of whether, in fact, Baush's process scrap was less than Alcoa's. I think it plain that relative scrap losses is not a test and that the evidence on the point is quite convincing to that effect (pp. 18976-76A., 21602-3; 24527-39; 40589-90).
I am particularly impressed by the statement of Mr. Nagel. He is a highly qualified expert of experience. He says, as it seems to me necessarily must be true, that the quantity of process scrap depends primarily on the shape of the articles cut from the sheet and to some extent on the thinness of the sheet (pp. 24527-32). No evidence is required to show that if circles be cut from sheet, the resulting scrap will be more than it would be if the cutting were of rectangles or otherwise on straight or nearly straight lines. I think that fact alone is a complete answer to the Baush contention.
Again, it is established that where sheet is wide (as in the case of Alcoa sheet), the saving by cutting on straight lines will be much greater.
4. As I understand the position of the Government it insists, and certainly by implication at least it urges, that the Circuit Court of Appeals for this Circuit has decided, as shown by its opinions reported at 72 F.2d 236 and 79 F.2d 217 in the suit of Baush against Alcoa, that Alcoa violated the Sherman Act in its dealings with Baush and, hence, that I should so hold.
Of course, I recognize my duty to follow rulings on the law by the courts to which I am directly subordinate. Nevertheless, I do not interpret the 72 F.2d or the 79 F.2d opinion referred to, or any other Circuit Court of Appeals opinion in the Baush-Alcoa suit, as containing a ruling of the kind which counsel invokes for my obedience. One of the several grounds for my view on the subject is that what counsel relies on is certain statements of fact included in the opinions. But these do not bind me. One reason why this is true is that the evidence in the case at bar affecting the relations of Baush and Alcoa is much more extensive than, and in many respects vastly different from, the evidence at either trial of the treble damage suit of Baush against Alcoa. I am not conscious of failure to accept any ruling by the Circuit Court of Appeals of this Circuit in the treble damage suit on a question of law.
Accordingly, I conclude that none of the charges against Alcoa of unfair competition with Baush or of excluding or trying to exclude Baush from the aluminum business is sustained by the evidence.
We come now to a question relating particularly to the Sheet Aluminum and the Fairmont companies.
Paragraph 98 of the bill relates to these two companies, the one located in Jackson, Michigan, and the other at Fairmont, West Virginia. The allegations naturally fall into three subdivisions, as follows:
(1) In 1927 both of those companies were producing and selling aluminum sheet. Between August 1, and October 20 of that year there were changes in the prices at which they bought virgin aluminum (i.e., ingot) and sold aluminum sheet they produced. The changes so reduced the differentials between the prices of ingot and sheet that, though he rolled efficiently and conducted his business with thrift, skill and good judgment, a sheet manufacturer competing with Alcoa could not continue his operations without incurring losses destructive of his business.
(2) In consequence, Sheet Aluminum was obliged virtually to suspend operations and Fairmont to suffer serious losses, curtail operations and establish an interlocking interest with a foreign aluminum producer in order to remain in business.
(3) Alcoa reduced the spread, its purpose was to eliminate the competition of the two companies named and the practical effect was virtually elimination of Sheet Aluminum competition and contraction of Fairmont competition.
As previously said, I shall not take up the subject of spread generally until I have reached the matter as it affects all engaged in or desiring to engage in sheet production. Accordingly, at the moment I shall go no further than to make some preliminary comments and then to discuss the charges specifically made in which Sheet Aluminum and Fairmont are specially concerned.
In advance of the coming in of evidence taken from the account books of Alcoa, several witnesses gave testimony about spread charges against Alcoa. Usually this was entirely devoid of details. Almost none included statements which gave the impression of accuracy. Some even seemed reckless and there was little, if any, substantiation. On this account I felt it incumbent on me to give warning that such testimony might prove worthless. The reason I so regarded it, as I explained in substance at the time (e.g., pp. 9258-84; 9363-79; 22186-7; 40992-3), is that the prices of aluminum sheet shift with variances in gauge, in width, in finish or in other characteristics; and yet, in the testimony there was no discrimination on account of those variances. They were either not touched on at all or information about many was omitted. In consequence, it is impossible from such evidence to make reliable comparisons.
If we disregard (as I feel we must substantially disregard) the vague testimony I have spoken of and postpone considering the figures from Alcoa's books until the general spread question is reached, the only possible remaining evidence in the record, with respect to the 1927 spread charges affecting Sheet Aluminum and Fairmont, is contained in Exhibit 112.
There are a number of reasons why Exhibit 112 is not acceptable as proof. Among those relating to sheet are: (1) The exhibit is confined to 30,000 pound lots and we are not informed whether either of the two companies mentioned made sales in lots of that poundage. (2) The prices set out in the exhibit are list prices of Alcoa, not its actual prices. (3) The price changes in the exhibit are for numerous gauges and vary, as appears in the exhibit, with the gauges, though how much as between gauges cannot be ascertained with precision. (4) There is no evidence of what it cost either of the companies mentioned to manufacture and market sheet.(5) The exhibit, consisting of eight tables, gives prices diverging with gauges for 17S, 25S and 51S coiled and flat sheet and for 2S and 3S coiled and flat sheet, but not for other kinds of sheet.
It is plain on the face of the document, therefore, that from Exhibit 112 it is impossible to ascertain with certainty what was the spread between prices at which aluminum was purchased and prices at which various types of sheet produced therefrom were sold.
Another fatal defect, or missing link, is the complete lack of showing that the changes in prices, if they followed the prices appearing in the tables, affected actual transactions of Sheet Aluminum or Fairmont so as to cause material loss or to inflict material injuries to either.
The explanation at the trial of the difference between taking prices from lists issued by Alcoa and using actual prices at which sales were made by Alcoa, as recorded in Alcoa's books, was in substance as follows: Lists are for the use of salesmen. For one thing, they are exhibited to prospective customers or are otherwise resorted to while soliciting orders. Upon authorization by officials, however, such prices may, and frequently are, departed from in actual sales, especially if of large volume. It was the habit of Alcoa also to exercise much caution in changing list prices, even though it made many changes in actual prices. One important reason for that habit was that not infrequently customers used warehouse receipts for sheet (as well as for other aluminum products) as collateral at banks. If list prices were carelessly or suddenly changed, there was danger of upsetting credit arrangements of Alcoa's customers with their banks.
In the oral testimony there was a good deal of complaint of what was claimed to be undue narrowing of the spread preceding the year 1933. This criticism was especially and chiefly aimed at the period 1927 to 1932.These dates have some significance. That will not be gone into now; but it will be pointed out hereafter.
I do not doubt the good faith of some of the competitors and customers of Alcoa who took the position that what occurred preceding 1933 constituted an undue or unfair narrowing of the spread. Plainly the evidence contains enough at least to engender suspicion or discontent, even though it be not sufficient predicate for relief by a court, -- which, of course, must have legal proof as a basis of action. But, as already indicated, and is known to all, suspicion is no enough.
What I have said about the oral testimony relating to the spread and about Exhibit 112, of course, applies to the cases of the Sheet Aluminum and Fairmont companies. Yet I cannot too strongly emphasize this: an essential feature of establishing the spread charge is a showing that Alcoa sold sheet at prices materially below the prices at which its competitors sold it. Because of deficiencies in the evidence I have referred to, I am unable to tell therefrom whether the things contrasted are comparable; that is to say, whether the prices at which Alcoa sold and at which the other two companies sold are comparable. For example, there is a difference in terminology arising from Sheet Aluminum employing the phrase pure sheet in giving its figures (without, so far as I have discovered, furnishing a precise definition of the sense in which it is used but certainly including 2S and probably 3S). Also, both Sheet Aluminum and Fairmont failed to specify the gauges in which they dealt. Illustrations could be multiplied. It is for reasons like those given that I feel compelled to hold that the Sheet Aluminum and Fairmont charges are not established by the evidence.
By tables setting off against each other, as nearly as can be, the prices of Alcoa and the prices of the other two companies referred to, I think the inference is inescapable that the evidence does not show oppression by Alcoa of, or an intent by it to oppress, either of these two sheet competitors. I have made up two of those tables, but overnight I determined to omit them because they are not necessary and are rather complicated; also because it would require considerable time to make them clear.
Assume, however, that in the mass of evidence on the subject I have overlooked something pertinent, or that I am in error in the view that there is not a sufficient number of instances of undue narrowing of the spread to warrant award of relief against Alcoa. Nevertheless, for reasons which will specifically be brought out later and which I have heretofore a bit referred to, if I have made a mistake on this point as a practical matter it will do the Government no harm.
There is much evidence on the present branch of the case which I have not mentioned. I content myself, however, with pointing out that what I have already referred to, among other things, is supplemented by other testimony supporting the proposition that the competition between sheet rollers has been active (pp. 10881-3; 12649-83; 20868-71; 29156-7; 29801-5; 31094-8; 31135-6; 31964; 33284-5; 34528-38; 34545-6; 34548; 34553-4; 35034-5; 35579; 35798-822; 40416-40).
With reservation of the general spread question, my conclusions as to the claim by the Government that Alcoa excluded or endeavored to exclude or otherwise maltreated its sheet competitors are as follows:
(1) The evidence does not establish that Standard or Bremer-Waltz or Cleveland Metals Products or Baush was driven out of business or injured by Alcoa or that Alcoa attempted to drive out of business or to injure any of them.
(2) It is established (a) that, aside from Alcoa, seven sheet rolling companies are and for some years past have been actively engaged in rolling sheet; (b) that four of these (United, Sheet Aluminum, Fairmont and Reynolds Metals) now sell, and for varying numbers of years past have sold, sheet they themselves rolled in active competition with Alcoa; and (c) that three of the companies (Goods, Aluminum Products and Scovill) now are equipped and since their respective entries on the production of sheet for varying years in the past have been equipped so that, if heretofore they had desired, they could have engaged, and if in future they should desire they can engage, in the production of sheet in competition with Alcoa.
(3) The sheet monopolization charges against Alcoa have not been proved.
That brings us to a highly controversial question. About it a great deal of testimony has been taken. This question is as to the so-called sheet spread.
Before adjournment I cannot today get very far into a discussion of the matter. Nevertheless, I consider it better to proceed today and get into the record as much as is reasonably practicable on the subject.
In amended paragraph 83 of the bill it is alleged that the defendants "have fixed and maintained price differentials between virgin aluminum and fabricated aluminum products at such levels as to suppress, prevent and eliminate competition from independent fabricators."
So far as concerns the present branch of the case, these allegations are the equivalent of charging that Alcoa has kept the spread between the prices of ingot and sheet so low that independent sheet rollers were prevented from competing with it. Practically the accusation is aimed exclusively at Alcoa because, as is obvious and I believe is not disputed, there has been no evidence to establish the offense against anybody other than Alcoa and those subordinate to Alcoa. As heretofore indicated, the articles involved are ingot and sheet.
I have already pointed out that in paragraph 98 it is alleged that the reduction of the differentials (or narrowing of the spread) in 1927 virtually prevented Sheet Aluminum Company from continuing in business, as well as caused the Fairmont Company to contract its business; also in paragraph 99, that between 1924 and 1931 the narrowing of the spread compelled Baush virtually to suspend the production of duralumin.
The charges in paragraphs 98 and 99 (save to the extent, if any, that they are affected by the general spread evidence) have already been disposed of. Likewise, it has been shown, or at least I think it has been shown, that neither the oral testimony about what the spread was nor Exhibit 112 is sufficiently reliable to help the Government. We are, therefore, now faced with a single issue as it concerns all sheet producers, as well as all ingot producers.
At the beginning it must be determined what evidence should be considered in order to reach a decision.
It is plain, and I believe is not denied, that the issue about spread, as raised in the pleadings, was much reduced and clarified at the trial. The evidence made two things clear. These are (1) that narrow sheet differentials have not existed since 1932 and (2) that the extent, if any, to which they existed previous to 1933, if at all, is determinable only from Alcoa's books of account. If either of these propositions were contested, I think both would be sustained. In my view both are incontrovertibly established by the proof. Indeed, as I understand the position of Government counsel, announced that the trial as well as in argument since the close of the trial, they are expressly conceded.
What does the record show in regard to the matter?
In its opening on June 3, 1938, the Government said (pp. 1780-1):
"During the period from about 1926 to about 1931 the Aluminum Company of America subjected these independent sheet rollers to a price squeeze, * * *. Today, * * * the independent sheet rollers who survived are prosperous, because the Aluminum Company has seen fit to widen the margin -- and they are making money today, and temporarity they are satisfied with the situation."
Again, at the final oral argument on March 4, 1941, this colloquy occurred between Government counsel and the Court (pp. 40992-3):
"The Court: The widening of the spread substantially began in 1933, didn't it?
"Mr. Rice: Yes, sir.
"The Court: And it has continued since then up to the time of these figures [embodied in chart] you present, hasn't it?
"Mr. Rice: There was a further widening of the spread in 1934, and I think a further widening in 1937. I will get to those figures in a few minutes, * * *.
"The Court: Well, now, isn't it true that so far as this evidence about spread is concerned, prior to your taking the facts from the books of Alcoa itself, that the testimony of the witnesses was so indefinite that it is almost impossible to draw any safe conclusion from them? Isn't that true?
"Mr. Rice: Yes, * * *. A great deal of the testimony, for example, of Mr. Waltz regarding the spread is very vague and indefinite.
"The Court: Oh, I know what it is. It doesn't amount to anything. I told you time and again it did not, because it was so indefinite. And in your brief you do not seem to rely upon any of that.
"Mr. Rice: No. * * *.
"The Court: All right. Then we get right down to the exhibits here that you are taking from the books of the company.
"Mr. Rice: Yes, sir, because those figures are definite and concrete."
The statements in the Government's original brief as to widening of the spread were substantially to the same effect. Thus, speaking of the spread charge, it was said in that brief (pp. 612, 626):
"While losses occurred in all gauages of 2S and 3S sheet before 1933, when Alcoa was endeavoring to squeeze out the independent rollers, the reversal of Alcoa's spread policy in 1933 converted losses into porfits in every gauge. * * *.
"Alcoa cannot say that it did not know that competitors were being injured by the narrow spread from 1926 to 1933. * * *.
But in spite of their pleas for Alcoa to relieve the pressure, it did nothing about it until at least by 1931, by Davis' own admission, and the exhibits show that it was not until 1933 that Alcoa relaxed the spread by reducing its ingot prices."
Then at page 628 of the Government's original brief there is an italicized subheading to a section of the argument, entitled, "Pressure upon Alcoa forced it to relax the spread in 1933." In what follows on the same page there are two statements as follows:
"It [Alcoa] argues that it narrowed the spread in 1927 and 1928 because of its [Alcoa's] increasing efficiency.
* * *
"An inspection of both Alcoa's Spread Exhibit 1748 and the Government's Spread Exhibit 1753 shows that in every gauge, without exception, Alcoa's costs were lower in 1933 than in 1932."
There are numerous voluminous tabulations bearing on the spread question which are based on Alcoa's books. Among them two are especially important. These are Exhibit 1748 and Exhibit 1753. I believe they are typical.
Exhibit 1748 was made in conformity with the theory of and under the supervision of Alcoa. Exhibit 1753 was made up in conformity with the theory of and under the supervision of the Government. Accordingly, in ascertaining what the books show, attention will first be given to those exhibits.
Before going into the figures, however, note should be taken of an introductory fact that was brought out in the evidence. This relates to a dilemma in which Alcoa was placed by conflicting demands made on it by its competitors and customers. Apparently these separated into groups. Each adopted a separate view. The two views were squarely opposed. Alcoa had to consider both.
What is spoken of as the "spread" (also called the "differential" or the "margin") means the difference between the price at which ingot could be purchased and the price at which sheet was sold. Some wanted the difference narrow or small. Others wanted it wide or large. Apparently the positions taken by the groups vary to a great extent, if not wholly, with their normal self-interests. If one was a seller of ingot, he wanted the price high. If he was a buyer, he wanted it low. So if he was a manufacturer and seller of sheet, he wanted its price high. If not, he wanted it low.
It cannot properly be said, however, that the positions of everybody involved adhered rigidly or uniformly to lines so simple as those just stated. For example, Alcoa itself was a producer and seller of both ingot and sheet. In this way it came to have competitors and customers who pressed on it divergent arguments and thereby created or contributed to its dilemma.
In speaking of the dilemma in the way I have done, it should be understood that I am not exonerating Alcoa from bringing it about. Whether it was to blame and, if so, to what extent the blame went are among the problems to be solved. But, nevertheless, the position of Alcoa growing out of the cross-fire to which it was subjected by its competitors and customers, together with the accompanying factor that the cross-fire was the consequence of its being engaged in producing and selling the two articles (ingot and sheet), -- between the prices of which the spread prevailed (and, of necessity, as I see it, a spread always will prevail), -- must be taken into account.
What were the positions of the two groups of Alcoa's competitors and customers themselves can perhaps be better and more nearly precisely ascertained by referring to actual testimony by members of the groups who took the stand at the trial. Examples of such testimony will be given.
The West Bend Aluminum Company is a manufacturer of cooking utensils. It has no sheet mill. It wanted the spread between ingot and sheet narrowed. The reason assigned was that if this were done it would assist one having no sheet mill (like itself) in competing with those who had mills. As a witness, one of its officials said that he had asked Alcoa to narrow the spread; that he had told Alcoa that "the differential was too great between ingot and sheet." When asked why that was important, his response was as follows (pp. 31849-51):
"Well, we have one of our competitors, the Aluminum Goods Manufacturing Company, that have a rolling mill, and we have always felt that that was an advantage which they had over us.
"Q. Is that the only cooking utensil company that has a rolling mill? A. No. Aluminum Products Company has one also.
"Q. How often have you made such requests of the Aluminum Company of America? A. Very often, during the past 25 or 26 years. * * *.
Q. Will you explain just why the fact that certain of these cooking utensil companies have rolling mills, causes you to have an interest in these differences between the prices at which you buy your sheet and the price of ingot? A. The Aluminum Goods Manufacturing Company of Manitowoc, are one of our principal competitors. They are able to sell certain lines for less money than we do, and on the aggregate they make more money than we do and we believe we are as efficient a manufacturer as they are, and we have always felt that the reason they could make more money than we, was because they had an advantage in rolling their own sheet.
"Q. Was that because you believed they were making a profit on the rolling of the sheet as well as fabricating the sheet into cooking utensils? A. Yes, sir."
On the other hand, the Aluminum Products Company rolled (though it did not sell) sheet. It also manufactured cooking utensils.It took an opposing position to that taken by the West Bend Company. It wanted the spread widened. One of its officials, Mr. Hastings (whom you all remember and who certainly made on me a strong impression of fairmindedness and I think must have made a like impression on everybody) gave this explanation (pp. 11515-6; 11527; 11552-3):
"A. The spread between sheet and ingot began to narrow. When we operated the mill for the first year, as I recall, the spread was 11 cents per pound, * * *. * * * when the spread dropped to 6 cents or thereabout we were unable to continue a profitable operation in the mill as we had operated for the first few years. * * *.
"Q. * * * did you make complaints to the Aluminum Company of America after the spread narrowed as you have testified? A. I believe I did. * * *.
"Q. What was it that led you to make your complaint to the Aluminum Company of America? A. My intention and object in making that complaint was to obtain relief from a diminishing spread and I made my complaint to the Aluminum Company of America because I was buying metal from them."
Numerous other illustrations could be given of how competitors or customers with divergent interests (one being and the other not being a sheet roller) pressed their requests on Alcoa.
Representatives of Alcoa also testified about the opposing interests of its two groups of customers and as to how each group urged its claim. What was testified by Mr. Gibbons, one of Alcoa's vice-presidents, was summarized by the Court, at the oral argument last March, in a statement with which the Government agreed. This appears at pages 41031-2. Quoting it, without going back to the rather lengthy testimony, will be enough.It is as follows:
"The Court: * * * My recollection is that he [Mr. Gibbons] said that they [Alcoa] had two groups of customers, one group insisting on one thing and the other on the absolute opposite of that, and the suggestion was that so far as concerned the relations with their customers they were between the devil and the deep sea. * * *.
"Mr. Rice: Your Honor's recollection is right."
It is because of the agreement between Government counsel and myself that I deem it enough, in stating Alcoa's position, to rely on what I have just read.
What was said by additional witnesses on the phase of the matter under consideration at the moment is hardly more than repetition of what was brought out by the testimony quoted from two competitors, one of whom had and one of whom did not have a sheet mill. Essentially it is that a fabricator who had no sheet mill and bought his sheet wanted the spread as narrow as possible, while the owner of a mill wanted it as wide as possible. The position of Alcoa was different from either, because it produced both the articles between which the spread in controversy existed.
I shall go to a different phase of the matter just at this point.
October 6, 1941
* * *
Another preliminary matter should be discussed before we reach the question of what the figures from Alcoa's books show with respect to the spread. This is whether, on certain indisputable facts, in any event there is warrant for an injunction. As to the matter there are several pertinent considerations. Among them are the following:
It is shown without material controversy, and is clearly established, that the spread between the prices of ingot and sheet has not been unduly narrow since 1932. Moreover, as already demonstrated, the Government itself, in effect, has abandoned the sweeping charge on the subject made in the bill. Expressly or impliedly, the Government now admits that the spread widened in 1933 and that ever since it has continued sufficiently wide. The result of this admission is, in substance, to say that the evils complained of have been corrected; that the spread from 1932 to date is not and cannot justly be criticized; and that, with respect to the width of the spread, Alcoa has obeyed the law for nine years.
I am persuaded by the evidence also that there is little or no likelihood of Alcoa hereafter unduly narrowing the spread.
Moreover, a strong argument can be made in support of the proposition that the decree of July 7, 1912, in the Pittsburgh case (Exhibit 1009, exhibit pp. 4926-37) contains injunctive provisions forbidding narrowing the spread to the extent or for the purpose of reducing it (in the sense of the differential between the price paid for ingot and the price received for sheet) below the cost of producing sheet (consisting of mill cost of rolling the sheet plus administrative and selling expenses).
It is fundamental that an injunction cannot properly issue as punishment for a past violation of the Sherman Act or of any other act of Congress. If punishment be sought, it can come only through application of the criminal provisions of the appropriate statute. These have not been invoked here and, of course, proceedings under them could not even be initiated except through indictment.
The sole function of an injunction is preventive. Prevention applies to the future. An injunction may forbid continuance of a present practice or of an existing condition. So also if the practice or condition has been abandoned, the Court is authorized to forbid its renewal if there be sufficient ground for apprehension that it will be renewed in the absence of a prohibition. But lawfully an injunction cannot go further.I understand that the Supreme Court has sustained the view of the law I have just expressed.
Where it appears that an alleged evil under the Sherman Act exists no longer and danger of its renewal or occurrence hereafter has not been shown, or cannot properly be inferred, it has been squarely held that there is no justification for the issuance of an injunction. United States v. United States Steel Corp., 251 U.S. 417, 445, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121; Industrial Association v. United States, 268 U.S. 64, 84, 45 S. Ct. 403, 69 L. Ed. 849. The Supreme Court has explained that this is because an injunction relates only to the future. Furthermore, it has been specifically held that an injunction cannot be used to punish for what is past and out of existence. Standard Oil Co. v. United States, 283 U.S. 163, 181, 182, 51 S. Ct. 421, 75 L. Ed. 926.
In this connection I may add that in Sherman Act cases, as is true in other cases generally, the Court has also said that an injunction is not properly grantable unless the ground for it has been definitely and satisfactorily proved. Ibid., page 179 of 283 U.S., 51 S. Ct. 421, 75 L. Ed. 926; Appalachian Coals, Inc. v. United States, 288 U.S. 344, 377, 53 S. Ct. 471, 77 L. Ed. 825.
If the conditions be as I have summarized them, therefore, then because for nine years Alcoa has lived in harmony with the law in regard to the spread and danger of renewal of an unduly narrow spread has not been shown and does not appear, it follows that no ground exists for an injunction now to issue with respect to the spread. If I be correct in that conclusion, perhaps there is no occasion to go further into the figures from the books. However, I deem it appropriate at least to discuss Exhibit 1748 and Exhibit 1753.
Nobody doubts the correctness of the figures taken from the books. It is from them that the exhibits were made up. The only controversy is as to whether they have been rightly used in compiling the exhibits.
The general plans of the tabulations (Exhibits 1748 and 1753) are substantially identical. They cover the years 1925 to 1937. Each tabulation contains figures bearing on certain kinds and gauges of sheet. The two cover the same kinds and gauges of 2S and 3S sheet; but Exhibit 1748 contains figures as to five sets of gauges of 17S flat sheet, while Exhibit 1753 contains nothing about 17S sheet.
Both tabulations I have mentioned set out what purport to be annual average prices received for sheet sold. Exhibit 1748 sets out the annual average price received for ingot and Exhibit 1753, the annual average price paid by Alcoa's customers for the same grade of ingot. Each then, in a separate column, gives the result of subtracting one price (for ingot) from the other price (for sheet). Thereby the difference or spread between the two prices is obtained.
Lastly, in three columns, each exhibit contains what purport to be the several items of cost of producing and selling the particular class of sheet to which the figures relate (hereinafter, for convenience, called the production cost).
The consequence involved in making a choice between the two exhibits is great. What is involved in making the choice must therefore be described.
If Alcoa's tabulation (Exhibit 1748) were accepted, then the showing would be as follows: It deals with 14 kinds of sheet. The figures are given as to each kind for 13 years (1925-37). In other words, the figures cover 182 items. Out of those items the instances in which, during the years 1925 to 1932, inclusive, the table, if accepted, discloses that the production costs of the sheet were greater than the spread are these:
(1) For 2S and 3S coiled sheet, as follows: one for 12-17 gauge; none for 18-22 gauge; four for 23-24 gauge; none for 25-26 or 27-28 gauge; -- a total of five instances for all gauges of 2S and 3S coiled sheet which occurred in years from 1927 to 1930, inclusive, when production cost of sheet was above the spread.
(2) For 2S and 3S bright flat sheet, as follows: 13-14 gauge, none; 15-16 gauge, three; 20 gauge, three; 21-2 gauge, none, -- a total of six in years from 1928 to 1932, inclusive, for all grades of 2S and 3S bright flat sheet, when the same was true.
(3) For 17S flat sheet, as follows: one for 13-15 gauge; none for 16-17 gauge; two for 18-20 gauge; two for 21-23 gauge; four for 24 gauge, -- a total of nine during the years 1925 to 1931, inclusive, for all gauges of 17S flat sheet, when the spread was less than the production cost of sheet.
This makes a gross total of twenty instances in which (according to Exhibit 1748) production cost exceeded the spread, where the total items were 182.
The selection of Exhibit 1753 (the Government's tabulation) would paint a very different picture. It consists of 117 items. Of those the instances in which, if we accept the table, during the years 1925 to 1932, inclusive, the production cost was greater than the spread are these:
(1) For 2S and 3S coiled sheet, as follows: six for 12-17 gauge; five for 18-22 gauge; six for 23-24 gauge; three for 25-26 gauge; and one for 27-28 gauge, -- a total of twenty-one for the years 1927 to 1932, inclusive, for all gauges of 2S and 3S coiled sheet.
(2) For 2S and 3S bright flat sheet, as follows: four of 13-14 gauge; seven of 15-16 gauge; six of 20 gauge; five of 21-22 gauge, -- a total of twenty-two for all gauges of 2S and 3S bright flat sheet.
This makes a gross total of forty-three instances in which, according to Exhibit 1753, production cost was greater than spread from 1925 to 1932, inclusive, out of 117 items.
It will be noted (as heretofore stated) that Exhibit 1753 is confined to 2S and 3S sheet and, of that sheet, to coiled and bright flat. In other words, as will appear by inspection, while Exhibit 1748 contains the figures as to various gauges of 17S flat sheet, that sheet is ignored in Exhibit 1753.
I am not satisfied, however, with either of the exhibits. I cannot but feel that the theory on which each is framed leads to results which are partial or are erroneous (in the sense of being inaccurate or incomplete). A single respect in which plainly each is not both accurate and complete will be given by way of illustration.
On sheet sales covered by Exhibit 1748 Alcoa made a transportation allowance to customers. On the average the allowance amounted to approximately one-half cent a pound (pp. 38742-4, the answers there given being directed to Exhibit 1651 but relating to the same sheet prices as are set out in column B of Exhibit 1748). In Exhibit 1748, as made up, the half cent transportation allowance is not included. If that half cent per pound were deducted from the prices in column B which Alcoa received for sheet during the years 1925-1932, the number of instances in which the production cost exceeded the spread would be increased by three. That is, the total number would be carried to 23.
It is true that the resulting change, as applied here, is small in its effect. In one of the additions the excess is only 25/100ths, in another 26/100ths and in the third only 28/100ths of a cent a pound. Nevertheless, I think accuracy demands that the change be made. In addition, there may be other situations in which the change is of greater significance.
Alcoa argues that the transportation allowance should not be deducted from the prices set out in column B of Exhibit 1748. The reason assigned is that in making up the table the effort was not to ascertain profits.
It is true that we are not trying to get the amount of the profits. Nevertheless, it strikes me that the conclusion sought to be drawn from that is a non sequitur. It seems to me obvious that if Alcoa bore the transportation allowance, then its net return from sheet sold (in the sense of the price received) was less by the amount of the allowance than the price stated in column B.
Turning now to Exhibit 1753, its column E is entitled total mill cost of rolling sheet. In making up that mill cost, however, unabsorbed burden was included as one of the component elements.
Unabsorbed burden is an item much used by accountants. It represents fixed charges applicable to idle or unused facilities, or as sometimes put, the expense of such facilities during the idle period. There seems to be no doubt that it is proper to employ the item in ascertaining the profit from the operation of a factory as a whole; but also it would seem inherently improper, and even impracticable, to use it in ascertaining the cost of producing in that factory a single pound of a particular gauge of a particular type of sheet.
In reaching the conclusion just stated I do not rest exclusively on my own view. There are others who support it. For example, two experts testified at the trial on the subject. Both said the use in Exhibit 1753 of unabsorbed burden, in the way explained above, was erroneous (pp. 39565-74; 39620-1; 39667-70; 39735-43). There was no testimony to the contrary. Explanations by the experts of the bases for their opinions on this point appeal to me as sound. Accordingly, I adopt their views on the point.
In column E of Exhibits 1723 and 1726, which were introduced in evidence by the Government, the amounts of unabsorbed burden that are claimed to have been included in making up mill costs for the years 1929 to 1937 are stated.So also, while unabsorbed burden was claimed to have been included in mill costs for the years preceding 1929, the record does not disclose what the amounts were for those years.
At the oral argument of March 12, 1941, there was much colloquy with respect to unabsorbed burden. The specific problem discussed was whether the item should be eliminated from Exhibit 1753 (pp. 41026-8 41670-82; 41698; 41700-1).
The Government submitted a brief, dated April 9, 1941, dealing with the subject. At pages 22-26 of the brief there is a complete recomputation of all matters covered by the exhibit. In the recomputation, according to its claim, the Government omitted unabsorbed burden from cost of production whenever it considered that the element should not be retained. As a consequence, it is now contended that for the years 1926 to 1932, inclusive, there were 30 so-called "red figures;" meaning, as is argued, that, after eliminating unabsorbed burden as a production expense during those years, there remained 30 instances in which annual production cost was larger than spread. I think, however, the evidence establishes that there were only 20 such instances.
The difference of 10 between the 30 and the 20 grows out of a single set of facts. These are as follows:
In its revised table the Government sets out 10 items, purporting to depend in part on unabsorbed burden, which relate to years preceding 1929. It relies exclusively on Exhibits 1723 and 1726 for the amounts of such unabsorbed burden during the respective years involved. But, as matter of fact, neither of those exhibits contains information as to what was Alcoa's unabsorbed burden for any year earlier than 1929. Indeed, under the heading to column D of Exhibit 1726 it is definitely said that, for those years, unabsorbed burden had been included in mill cost as stated in column B; and, as appears from inspection, what is true on the point as to Exhibit 1726 is true also of Exhibit 1723.
In consequence, instead of removing unabsorbed burden as a portion of production cost down to and including 1928, the Government has retained it in each of the 10 instances mentioned. It is clear that this was error. Deducting the 10 from the 30, there remain only 20 cases on which the Government can rest its contention that during the years 1929 to 1932 production cost exceeded spread.
For 1929-1932 there are but two variances between the recomputation by the Government and the computation I made. Both agree, however, in the result that, with the elimination of unabsorbed burden, the number of times when annual production cost was greater than spread during those years was 20. The variances are, therefore, immaterial.
If unabsorbed burden ought to be (as I think it should be) ignored, then obviously its elimination would reduce the instances (heretofore tabulated as to Exhibit 1753) in which production cost appeared greater than the spread. Instead of such instances being 43, as appears on the face of the exhibit, it is clear that they should be reduced to 20.There is no support in the evidence for anything in excess of that number.
Upon directing attention merely to a single aspect of each of the two exhibits just reviewed, it seems to me to have been satisfactorily demonstrated that they have the faults which the Court has ascribed to them. I refrain, however, from going further with other aspects.
I am impressed that, in fact, there are respects, additional to those already mentioned, in which both Exhibits 1748 and 1753 are made up along erroneous lines; but I feel also that it would be useless to pursue the inquiry. I say this because, as I feel, it is possible to base an answer to the question with which we are concerned on definite facts of which we are sure; on facts which are not obscure or difficult to state with exactness.
Among facts of the kind just described are the following:
(1) On the face of the exhibits (1748 and 1753) it is manifest that the method adopted by Alcoa, for widening the spread for each of the years from 1933 to 1937, inclusive -- so as no longer to be subject to criticism for overnarrowness -- was by reducing the price of ingot. This lends strong color to the Government's contention that during the preceding period (1925-1932, inclusive) there were instances, and probably a substantial number of instances, with respect to the various types of sheet covered by the exhibits, in which the spread was too narrow; also that it was rendered too narrow by Alcoa holding up (that is, holding high) the price of ingot. If so, then, inasmuch as all the facts appeared on Alcoa's books, it would seem to me that it must be taken as true that Alcoa was conscious of the situation or, what in law is the same thing in effect, was obligated to know the situation.
(2) The next thing to be borne in mind is that, though the proportion be small, Exhibit 1748 (Alcoa's own tabulation) shows a substantial number of instances in which production costs were greater than the spread during the 1925-1932 period.
(3) Another thing is that, while proof is lacking as to years preceding 1925, because of the worthlessness of the evidence offered as to those years, the complaints in evidence as to the then conditions on the subject render it at least not unlikely that, at the time of or at some of the times covered by those complaints, the spread in fact was unduly narrow.
On the authority of the court decisions heretofore cited, in connection with my discussion of the Stutz Motor Car Co. matter, I think it clear that sales of an article at a loss may persist so long, and be of such nature and volume, that they will afford basis for an inference that the purpose of carrying on the business at the loss was to drive competitors out of it. As I conceive, it is because of these circumstances that the issues first, as to whether Alcoa's sheet production cost was greater than the spread and, secondly, if so how long that condition continued, are important. The facts brought out in those connections have a vital bearing on whether Alcoa was guilty of monopolization.
I do not think, however, that we need go through the wearisome task of analyzing or discussing the entire multitude of exhibits introduced by both sides containing tabulations of figures relating to the spread; nor need we give attention to the sundry charts and schedules submitted at the oral argument in March, 1941, or attached to briefs filed since, dealing with this issue.
So also I feel that there is no occasion to add to the previous discussion of the separate claims as to how Sheet Aluminum, Fairmont and Baush were affected. Outside of what has been heretofore said about them, I think nothing has been developed which differentiates the question as to the three companies named from the question as to other sheet rollers.
I believe that, so far as figures are concerned, there are quite enough in Exhibits 1748 and 1753 to enable us to pass on the controlling features of the spread inquiry.
This brings us, therefore, to the problem of what should be done. In endeavoring to find an answer unavoidably some repetition must be indulged in.Perhaps we have here another illustration of where the situation will be made clearer if first approached by consideration on a hypothetical basis.
Suppose the Court, as in substance desired by the Government, should make the following findings and adopt the following conclusions (a total of five) in regard to the spread:
(1) Preceding 1933 there were several years during the period beginning with 1925 when it was the practice of Alcoa to narrow the spread between it sales prices of sheet and ingot. This existed to such a degree that at times during that period Alcoa sold at a loss some of its sheet output of certain types and grades; that is, sold those articles at a loss, provided we take the market price of ingot as its cost. The suffering of loss to that extent and of that character occurred with sufficient frequency, and complaints to Alcoa of the practice were made by competitors or customers with sufficint frequency (see pp. 10961-2), to put Alcoa on notice of them.
(2) Knowledge of the spread and failure to correct it were the equivalent in law of intentionally bringing about the loss, unless the price which Alcoa took as the cost of ingot used in the production of the sheet was a reasonable price not in excess of the actual cost of producing the ingot plus a reasonable profit thereon; but, if it had examined them, Alcoa could not have escaped learning from its own books of account that such cost figure for ingot was more than its actual expense of producing the ingot plus a reasonable profit thereon.
(3) The facts with respect to what such cost was lay peculiarly within the knowledge of Alcoa. Yet, save that it very fully exhibited its books to, and facilitated their examination by, the Government, Alcoa did not bring these facts before the Court at the trial. The circumstance that Alcoa went into the manufacture of sheet or the fabrication of other products of aluminum because, after effort, it had been unable to induce anyone else to undertake it or to manufacture a satisfactory article (see pp. 18647; 18664-6), cannot alter the measure of its duty, prescribed by law for it as well as for all others who engage in manufacturing or selling such an article as sheet.
(4) It was lawful for Alcoa concurrently to produce sheet and ingot. Indeed, on the whole the industry has benefited from Alcoa engaging in the manufacture of both, though at the same time. Yet Alcoa's joinder of the two carried with it a responsibility which it cannot avoid. Moreover, if production of the two caused continuous loss therefrom over any considerable period, in fairness to its competitors and customers Alcoa was put under a duty to adopt corrective measures.
(5) That facts that for several years preceding 1933 no change was made and that when the spread was indened in 1933, as well as in later years, one of the factors employed was reduction of, and apparently the only thing of consequence done was to reduce, the ingot price strongly corroborate the Government's claim that Alcoa had knowledge theretofore that maintenance of the price of the ingot sold at a figure higher than its actual cost plus a reasonable profit thereon was the cause or one of the causes of Alcoa's continuous annual book loss on sheet through the production cost of sheet exceeding the spread in many instances.
For the moment, for what I deem good reasons, I do not make any definite findings, or state definite conclusions, to the effect set out in subdivisions (1) to (5) above or otherwise. You will recall that I stated the five sets of facts as describing an assumed situation.
In the first place, I refrain because, temporarily at least, it is unnecessary to reach findings or conclusions on the issues which would be covered thereby if made. Nevertheless, if hereafter, before final decree, it be shown that they are required, to the extent possible they will be supplied.
Secondly, I refrain because the burden was on the Government, and it did not discharge the burden, to introduce in evidence the facts showing the cost of producing ingot and what would have been a reasonable profit thereon. The books of Alcoa were in New York and were accessible to the Government. There has been no suggestion that they did not contain the requisite information. Alcoa went further. It offered, at its own expense, to supply experts from its staff who would make up from the books tabulations on any theory desired by the Government. According to the terms of the offer, such tabulations were subject to verification by the Government if it desired and the books were submitted to the jurisdiction of the Court, so that the Government's right to verify the figures could have been enforced if not readily accorded to it. Yet, as I have said, the Government did not produce the facts in question from Alcoa's books.
Thirdly, I think there are grounds on which, so far as concerns the present suit, I can probably dispose of the matter without having before me the additional facts referred to.
The use of the narrow spread was abandoned by Alcoa in 1932. It has not been resumed since. For nine years past Alcoa has kept the spread widened. The result is that during those years -- as I understand the Government agrees, but whether or not it agrees is true -- there has been no complaint or basis for complaint with respect to the spread by either competitors or customers of Alcoa.
So also it seems to me that, if we assume that the spread has been improperly used in the past by Alcoa, the evidence does not warrant me in saying that, unless a preventive presently be applied, there is danger of its renewal.
In these circumstances I feel that the matter can be handled, without violation of the rights of either side, in a way that will safeguard the public interest as nearly as it can be safeguarded.
I think that if jurisdiction were reserved in this cause for some period (say five years) to hear and determine complaints by the Government (if any there be) of future undue narrowing of the spread between the prices of sheet and ingot during that future period, the procedure should afford opportunity hereafter fully to protect against the practice. I am persuaded that the Court has power to make such a reservation of jurisdiction and that, although (if an offense has been committed) the fault for lack of evidence to show that rests on the Government, the power mentioned, if invoked, should now be used by the Court on the terms herein prescribed.
The loss to its competitors from Alcoa unduly narrowing the spread hereafter, if that should occur, would be so serious in nature and effect that, so far as within its power, I think this Court should adopt some measure to prevent its prevalence in the future (unless it appears that, by reason of the 1912 decree in the Pittsburgh case, there is no need for action by the Court on the subject).
The Pittsburgh decree contains an injunction in broad terms. It has been argued that it prohibits every kind of well pleaded offense the bill charges against Alcoa in the case at bar. In connection with the settlement of findings in the present case, if they wish, counsel may be heard by memoranda on that question (that is, the question as to whether the Pittsburgh decree already covers this matter). I feel warranted in saying now, however, that it strikes me as manifest that if the spread of already enjoined, it would be superfluous to enjoin it again.
In so far as the Sherman Act deals with remedies, where no dissolution and no injunction or other form of prohibition has been granted, Section 4, 15 U.S.C.A. § 4, impliedly confers on the Court authority by its final decree to reserve jurisdiction to make further orders or decrees. I think that, in principle at least, the Supreme Court has approved keeping jurisdiction alive after final decree when it appears that supervision is probably the only adequate means, or even when it is the most efficient means, to compel future lawful behavior by a litigant. United States v. United States Steel Corporation, D.C.N.J., 223 F. 55, 178, 179, affirmed 251 U.S. 417, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121; Appalachian Coals, Inc. v. United States, 288 U.S. 344, 378, 53 S. Ct. 471, 77 L. Ed. 825. See also Sugar Institute v. United States, 297 U.S. 553, 605, 56 S. Ct. 629, 80 L. Ed. 859.
With respect to a matter such as is involved in the case at bar, where a condemned practice is not enjoined on the ground that (as I feel here) the proof of the practice is not wholly satisfactory, and where (as I feel here) if it heretofore existed it has been abandoned, it would be a misfortune for both sides if its occurrence or recurrence, within a specified period, could not then be stopped and thenceforth enjoined, without an additional plenary trial or the institution of an entirely new suit. Later proceedings of that kind in substance would be merely, and would be no more than, ancillary or supplementary in nature.
If no injunction of the spread be already outstanding in the Pittsburgh case, then, if the Government so desire, there may be reservation for a period to be specified (say five years) of jurisdiction on the lines above indicated.
We come now to the twelfth monopolization charge, which is as to cable. This is the last of the twelve subjects into which, for convenience, I have divided my discussion of the issue of monopolization in this case.
It is alleged in the bill (paragraph 49), and admitted in the answer, that Alcoa produces and sells virtually 100 per cent of the aluminum cable for electrical transmission moving in interstate commerce in the United States.
The commercial article is aluminum cable steel reinforced, commercially called A.C.S.R. (pp. 22661-2; 22670-1). Some phases of the problem presented are very complicated. Some of the relevant facts are highly technical. I think it would be helpful, and perhaps it is necessary for its understanding, to examine the engineering features involved before going into the problem. These have been described by Mr. Snider and Mr. Eales, who testified in this case (pp. 28971-29135; 33046-233). They are outside engineers. They are wholly disinterested and are highly competent. What they said would be too long to set out now. I feel, however, that it would be advantageous for anyone who did not hear their testimony to read what they said before taking up the question with which we are now called on to deal.
For reasons heretofore given, I do not think that what is conceded by Alcoa in its answer constituted a so-called monopolization per se and that, in order to establish the offense charged, the element of exclusion or attempt or intention to exclude must be proved.
The contentions of the Government are predicated on Exhibits 887 and 888. For convenience table 9 has been made up from those exhibits. This is as follows:
Comparison of what the Government claims were (1) spread in excess of prices of aluminum cable above prices of ingot and (2) cost of fabricating and profit on fabrication of aluminum cable (per pound), 1930-1937.
Cost of Profit on
Spread ing Cable of Cable
A B C
1930 5.615 6.840 1.225 (Red)
1931 1.698 6.910 5.212 (Red)
1932 0.664 (Red) 7.552 8.216 (Red)
1933 0.346 7.810 7.464 (Red)
1934 2.653 6.645 3.992 (Red)
1935 5.685 7.883 2.198 (Red)
1936 5.146 7.414 2.268 (Red)
1937 8.272 8.181 0.091
NOTE: Column A above is from column C of Ex. 887; column B above, from column B of Ex. 888; and column C above, from column E of Ex. 888.
This table is a comparison of what the Government claims were (1) the spread in excess of the price of aluminum cable above the price of ingot and (2) the cost of fabricating aluminum cable (per pound) for the years from 1930 to 1937, inclusive.
The years are stated to the left. To the right are three columns: the first, A, is headed "Spread"; the middle column B is headed "Cost of Fabricating Cable"; and the third column C to the extreme right is headed "Profit on Fabrication of Cable."
The profit it column C for each year is computed by subtracting cost of fabricating cable from spread, or rather vice versa in most instances; where cost of fabricating the cable is greater than the spread, then in column C the figure is entered in red, -- showing that there was a loss instead of a profit.
The table runs through the period 1930-1937, showing for each year from 1930 to 1936 a loss and for 1937 a small profit.
Substantially all of the Government's argument consists of the contention that during each of the years 1930 to 1936 the cost per pound of fabricating cable was greater than the spread between Alcoa's selling price of aluminum cable and the selling price of aluminum ingot from which the cable was produced (the production cost being the larger). The table represents, as I have explained, the outcome of computations by the Government showing, as it claims, how the spread compared with the cost of fabricating cable annually during the 1930-37 period.
First, I wish to mention a matter which I regard as unimportant.
I think Alcoa is right in its criticisms of the figures (contained in the table) on which the Government predicates its argument. As I see them, the primary faults of those figures are as follows: (a) The prices of aluminum ingot, as given in column B of Exhibit 887 and column A of Exhibit 888, on the basis of which the Government has computed the spread (constituting column A of the table), do not correspond with the prices of aluminum ingot in Exhibit 1701 or Exhibit 1753; and Exhibit 1701 is correct. (b) Column B of the table is from column B of Exhibit 888 and that, in turn, was taken from Exhibit 719. I think Exhibit 719 is incomplete. Nevertheless, the variances in the table from figures which I regard as right are not great. I shall, therefore, discuss the controversy on the basis of the table as if it were exactly right.
There are several comments on the subject, however, which I deem of significance. These rest on what either was undisputed or is indisputedly shown:
(1) In dealing heretofore with the same issue in regard to the prices of sheet and ingot, as I understood the Government conceded and certainly the Court concluded, that a spread not much larger than that in table 9 for the years 1930, 1935 and 1936, and much smaller than that for 1937, was sufficient in size to rebut the charge that it was unduly narrow.No reason has been given, nor have I discovered any reason, why the same measure of ascertaining whether the spread here is free from objection should not be adopted. If that view be right, then the only years when the spread is shown to have been quite substantially less than the cost of production are 1931 to 1934, inclusive. The last of these years was seven years ago.
(2) The prices at which Alcoa has sold aluminum cable have been called by the Government itself "relatively low," though it expressly disclaims charging that they are "too low" (original brief, pp. 635; 638).
(3) There is, and continuously since Alcoa entered the cable field there has been, active competition between aluminum cable and copper cable. The Government itself says that the two are "highly competitive" (original brief, p. 635) and the evidence abundantly establishes that this is true (pp. 18656-8; 22183; 22288-8A; 22653-8; 25681-3; 29026; 29030-1; 29043).
In consequence, the substance of the position the Government is necessarily forced to support is that it should have relief, although as to aluminum cable, if all it says be true, it has not been shown that there is any substantial actual evil to complain of. It follows that, if the Government be sustained, it must be solely on the academic proposition that for the years 1931-34 the spread was small and, as the Government would urge, was too small.
I think it is obvious, however, that the size of the spread, standing alone, is not enough to entitle the Government to recover; also that in order to appraise the significance of the size of the spread, the surroundings must be considered. What were these? The Court judicially knows some at least. Among them were the following:
(1) In 1929 there occurred a great crash in the business of this country. Indeed, it was the greatest business crash of recent years. Certainly it was the initial financial event or one of the earliest financial events from which the country, in varying degrees, has suffered ever since.
(2) The depression reached its depth in 1932 (pp. 10967; 19208-9; 26973-4). Inasmuch as, during the depression period, it has been the practice of Alcoa to keep up, and in the interest of its customers it has felt bound to adhere to the practice of keeping up, its prices (or in any event its list prices), may not the narrowness of the spread shown in table 9 for 1931-4 be a mere incident of the depression period, rather than an indication of a conscious effort by Alcoa to keep competition out of aluminum cable production or sale?
The Government suggests, though it seems fair to say that it does not press the suggestion, that excessive prices of ingot deter Sheet Aluminum Company and General Cable Company from engaging in the production of aluminum cable.I do not think, however, that the evidence would support the charge, if directly made, that either of those concerns or any other identified concern or person has been kept out of aluminum cable manufacture by the price of ingot (pp. 5160-64; 10883-7; 11041; 18647-58; 29068-70; 29088; 29126-31; 34854-6; 34906-7; 40590).
Next, the Government, in essence, urges that the existence of copper cable competition would not exempt Alcoa from blame for keeping others from producing aluminum cable. With the statement of the proposition in that unqualified form I agree. But, as I conceive, the adoption of the proposition would not help the Government. I deem this to be so because, in order to show that Alcoa has been guilty of excluding competition from the aluminum cable field in the situation here presented, it would at least be necessary to establish two things: (1) that for a long period (without at the moment specifying its length) Alcoa has carried on the manufacture and sale of aluminum cable when the production cost thereof exceeded the spread between the sales prices of cable and ingot; (2) that, without necessarily having any particular one in mind, this was done for the purpose on the part of Alcoa, and had the effect, of keeping others generally from engaging in such manufacture or sale.
Plainly, proof to the effect stated has not been adduced nor is there sufficient evidence to warrant drawing an inference to that effect.
I take it that all would agree that competition with copper cable is one of the facts of which account must be taken in reaching a conclusion as to the effect of the spread between the prices of aluminum cable and aluminum ingot. If that competition were in existence, then obviously two separate forces were operating at the same time in the same economic area. It would not be easy to segregate them or to make certain which would bring about an identified specific result or whether both would contribute or, if both did contribute, what share of responsibility should be assigned to each.
Indeed, I feel that the topic has not been sufficiently developed in the evidence to enable me to come to a firm decision on the aspect of the controversy presently under consideration. On account of this deficiency in the evidence, I think the Government's charge ought not to be upheld.
Alcoa argues that the depression going so low in 1932 was responsible for the fabricating costs of aluminum cable being greater then, as well as in immediately preceding and succeeding years. This may be true or be true to a large degree; but whether so or not, the evidence does not warrant me in saying definitely. My feeling is that, on the evidence as it stands in the record, a statement of what was the effect unavoidably would be merely speculative.
Alcoa also urges that copper cable competition furnishes an adequate stop-gap to excesses of fabricating cost over spread being a deterrent to newcomers coming into aluminum cable production. Undoubtedly that competition is to some extent a safeguard and must always be taken into account. But, as already indicated, standing alone it does not seem to me to afford assurance of normal operation of competition in a broad field. I think that those in the aluminum industry are entitled to that kind of competition (if anyone be willing and able to furnish it) with respect to cable, precisely as with respect to other articles fabricated from aluminum.
Moreover, while Alcoa makes no unambiguous admission on the point, I think it may fairly be implied from one of its own briefs (original, pp. 296-7; 305-6) that Alcoa does not deny that for 1930 to 1936 its cable costs did annually exceed its spread. If so, then I think that possibly the continuance of production cost above spread from 1930 to 1936, inclusive, may have been (though I cannot say on the evidence that it was) sufficient ground for the inference that, if others desired to go, it was enough to repel and possibly to exclude them from going, into the manufacture of cable; also that the facts, being on its books, must be taken to have been known to Alcoa.
On the other hand, after reviewing all the evidence and weighing the matter as best I can, I am impressed that, if Alcoa were prohibited from conducting its cable production and sale along the lines it has heretofore pursued, there would be genuine danger that no one else would take up the business and that, in consequence, the public would lose the benefit that it now enjoys from the competition which indisputably prevails between copper and aluminum cable.
If I be right in what I have stated, what action, if any, should the Court take with respect to the aluminum cable question?
These things seem clear: (1) Copper cable competition has the capacity to keep, and possibly has kept or contributed to keeping, the aluminum cable spread at least within rather narrow limits. (2) In 1937 already the ratio during the depression period has so improved that the spread has risen above production costs and there was a profit in fabricating cable. (3) It is quite uncertain how an injunction could be framed, and it would be very difficult to frame one, that would not do more harm than good to the industry as it stands today.
On account of the facts recited, my present feelings are: (a) that the evidence leaves me doubtful whether the case has been established in regard to cable and (b) that supervision under reservation of jurisdiction might be the more appropriate, as well as more effective, method for accomplishing the desired result. Accordingly, without yet determining that question and subject to hearing counsel by memoranda on the point in connection with settlement of the findings, I think the plan of handling the cable matter so far as concerns future conduct of Alcoa for a period to be fixed (say of five years), possibly had best follow substantially the same lines as have been prescribed as to the sheet spread.
I have now completed consideration, as planned, of the twelve subjects into which, for purposes of discussion, I divided the monopolization charges against Alcoa. With respect to certain aspects relating to sheet and cable, already specifically stated and not necessary to repeat, I have expressed a willingness or possible willingness to reserve jurisdiction if the Government so desire. Apart from that, my conclusions are (1) that none of the monopolization charges has been satisfactorily proved and (2) that in regard to them the Government has not shown that it is entitled to any relief.
This brings us to the second major branch of the case. That deals with the question of conspiracy.
Section 1 of the Sherman Act, 15 U.S.C.A., § 1, see also 26 Stat. 209, c. 647, and 50 Stat. 693, c. 690, provides as follows:
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal: * * *. Every person who shall make any contract or engage in any combination or conspiracy declared by sections 1-7 of this title to be illegal shall be deemed guilty of a misdemeanor, * * *."
You will observe that there are three things each of which is made an offense. The first is a contract of a described nature, the second is a combination of a certain type and the third is a conspiracy. Any one of these is a crime, provided it restrain trade or commerce among the several States or with foreign nations.
While the Act speaks of contract, combination and conspiracy, for convenience I shall include all of them under the word "conspiracy." It will, therefore, be understodd that in discussing conspiracy in this branch of the case there is included also the kind of contract and the kind of combination that is prohibited by Section 1.
In the beginning I think I should resort again to what was said in the Socony-Vacuum Oil Company case, 310 U.S. 150, 60 S. Ct. 811, 84 L. Ed. 1129. There attention was drawn to the line of demarcation between monopolization and conspiracy.
In note 59 to the case, at pages 225 and 226 of 310 U.S., at page 845 of 60 S. Ct., 84 L. Ed. 1129, the Court definitely pointed out the essential difference between Section 1 and Section 2 of the Sherman Act. That is to say, it drew the distinction between monopolization and conspiracy in the sense in which I have defined those two words for purposes of discussion in the consideration of the case at bar.
In the note 59 the statement was as follows:
"It is the 'contract, combination * * * or conspiracy, in restraint of trade or commerce' which § 1 of the Act strikes down, whether the concerted activity be wholly nascent or abortive on the one hand, or successful on the other. See United States v. Trenton Potteries Co., 273 U.S. 392, 402, 47 S. Ct. 377, 381, 71 L. Ed. 700, 50 A.L.R. 989. Cf. Retail Lumber Dealers' Ass'n v. State, 95 Miss. 337, 48 So. 1021, 35 L.R.A., N.S., 1054. And the amount of interstate or foreign trade involved is not material (Montague & Co. v. Lowry, 193 U.S. 38, 24 S. Ct. 307, 48 L. Ed. 608), since § 1 of the Act brands as illegal the character of the restraint not the amount of commerce affected. Steers v. United States, 6 Cir., 192 F. 1, 5; Patterson v. United States, 6 Cir., 222 F. 599, 618, 619. * * * But the crime under § 1 is legally distinct from that under § 2 (United States v. MacAndrews & Forbes Co., C.C., 149 F. 836; United States v. Buchalter, 2 Cir., 88 F.2d. 625) though the two sections overlap in the sense that a monopoly under § 2 is a species of restraint of trade under § 1. Standard Oil Co. v. United States, 221 U.S. 1, 59-61, 31 S. Ct. 502, 515 516, 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734; Patterson v. United States, supra, 222 F. page 620."
In an opinion in the case at bar, published in D.C., 1 F.R.D. 1, and also set out in the minutes at pages 21455-73, I dealt briefly with the subject of conspiracy. I also there referred to discussions of the subject elsewhere in the record of the present case. For these reasons I see no occasion now for going further into the law phase of the matter.
The charges in the bill, in brief, are as follows: that there was a conspiracy between Alcoa and the major foreign aluminum companies between sometime in 1902 and June 4, 1928; also that from the latter date to the present there has been a conspiracy between Alcoa and Aluminium or between Alcoa or both Alcoa and Aluminium on the one hand and the foreigners on the other.
In the course of the trial, in substance, the Government has also charged orally that there has been one continuous conspiracy from 1896 to date and that Alcoa has been the nucleus of that conspiracy throughout.
What the conspiracy consisted of has been rather vaguely stated both in the bill and in oral discussion. So also it has been difficult, if not impossible, at times to determine who, according to the Government's contention, were the parties to the conspiracy.
The Government says, or has stated in the course of the trial (for example, at p. 5250), that conspiracy constitutes only about 5 per cent of this case. I have made an estimate, however, of approximately what I anticipated would be the time that I should have to devote to a discussion of the conspiracy issue. According to this estimate, conspiracy will require about three-fourths the length of time that has been required in discussing the entire topic of monopolization.
Treatment of the conspiracy question is one of the things of which I gave warning this morning that it will be tedious. There is no proper way to escape going into the matter extensively.
The charges cover many paragraphs of the bill. Among those which are devoted wholly or almost exclusively to the subject of conspiracy are paragraphs 54 to 80.
In paragraph 54 the allegations are, in substance, as follows:
There was a conspiracy between Alcoa and the foreigners to limit production, fix prices and allocate sales, with the intent to restrain and with the effect of restraining imports of aluminum into the United States and thus to free Alcoa from the competition of those articles in the United States. To this end Alcoa purchased interests in foreign companies and foreign properties connected with the aluminum industry. These foreign companies and foreign properties were used by Alcoa to intimidate foreign aluminum producers into suppressing shipments to the United States of aluminum and aluminum products for sale in competition with Alcoa and thereby to maintain Alcoa's monopolistic control in the United States.
In furtherance of or as parts of the conspiracy, three things are alleged to have occurred:
(1) In paragraphs 55 to 57, that Alcoa (directly or through a subsidiary or subsidiaries) joined cartels with aluminum producers in 1902, 1908 and 1912.
(2) In paragraphs 58 to 71, that Alcoa purchased (1916 to 1928) properties in foreign countries or stock in foreign corporations engaged or to engage in the aluminum industry.
(3) In paragraphs 72 to 80, that, pursuant to or as parts of the conspiracy from 1928 to date, Aluminium was organized in 1928, various foreign interests were then transferred to Aluminium by Alcoa; that sundry misconduct by those two companies occurred; and that sundry relations of one or both of those companies have existed with the foreign companies, including relations with the Alliance (also called a cartel).
Further descriptions of the three groups mentioned will be added when those matters are specifically taken up for consideration.
Otherwise put, the pleading in effect amounts to this: there was a general conspiracy between Alcoa and foreign companies. Pursuant thereto (1) cartels were formed (1902 to 1912) between Alcoa and the foreigners; (2) Alcoa acquired (in 1916 to 1928) sundry foreign interests; (3) Alcoa (1928) formed Aluminium, with which it has since been in conspiracy (1928 to date) and through the Alliance (formed in 1931 and called a cartel, as I have said) both Alcoa and Aluminium have been in conspiracy with European producers of aluminum.
The discussion, therefore, will cover three periods: (1) 1888, the date of organization of the Pittsburgh Reduction Company, to 1915; (2) 1916 to 1928 (June 4); and (3) 1928 (June 4) to date.
There are two of these periods, as you will observe, namely, the period from 1888 to 1915 and the period from 1916 to 1928, -- the latter of which ran only to June 4, 1928 (that being the date on which Aluminium was organized). It follows that, being prior to Aluminium's coming into existence, if the conspiracy charged up to June 4, 1928, ever existed, it was only between Alcoa and the foreign companies. On the other hand, since June 4, 1928, the conspiracy as charged concerns the relations between Alcoa and Aluminium or the relations between Alcoa and foreign producers or the relations between Alcoa, Aluminium and the foreign producers.
Heretofore I have referred briefly to the organization of Aluminium and the transfer of properties to it by Alcoa. In order, however, with accuracy to comprehend the part played in this lawsuit by Aluminium, it is necessary to go into details with regard to that company.
As I have said, the transfer took place on June 4, 1928. Preceding that event Alcoa had acquired and on that date owned interests in 34 foreign companies or properties. It now retains but two. The balance went to Aluminium. On June 4, 1928, Alcoa transferred 29 of these companies or properties to Aluminium. Pursuant to understandings reached at or about June 4, 1928 (as parts of the same transaction), Alcoa has since transferred to Aluminium three of these companies or properties. The 29 and the three make up the 32 companies or properties which formerly belonged to Alcoa and now belong to or are connected with or are subsidiaries of or the proceeds of which have gone to Aluminium. The additional two of the total of 34 formerly owned by Alcoa, as I have stated, still belong to Alcoa.
The two companies or properties retained by Alcoa are Cedars Rapids Transmission Company and the Surinaamsche Bauxite Company. The Cedars Rapids Company has a line through or over which power was and is brought from Canada to Alcoa's plant at Massena, New York. The Surinaamsche Company holds bauxite deposits in Dutch Guiana.
Save that some slight acquaintanceship must be made with the Cedars Rapids and Surinaamsche companies, -- that by this means we shall the better understand some of the evidence and, indeed, that we need the information in order to comprehend the whole picture, -- these two companies cut little if any figure in the conspiracy controversy. For practical purposes we can pretty nearly forget those two companies.
There is one difference in the facts as to the acquisition of the two groups of foreign interests by Aluminium which it is important to have in mind. The 29 companies transferred on June 4, 1928, were paid for by the issuance of Aluminium's common stock. That stock was distributed ratably to the holders of Alcoa's common stock. The additional three companies, transferred to Aluminium later, were separately paid for by Aluminium otherwise than with stock. The consideration for those three companies was cash or its equivalent which went directly to Alcoa, but of course inured indirectly to the benefit of Alcoa's stockholders.
The foreign interests held by alcoa up to 1928 were acquired by it between 1920 and 1928, -- the last of them in fact having been acquired by Alcoa on the 31st of May, 1928, only four days preceding the transfer of 29 of the properties to Aluminium.
As I have already stated, the transfers of the three companies or properties to Aluminium, additional to the 29 transferred to Aluminium on June 4, 1928, were made in general accordance with the understanding reached contemporaneously, or almost contemporaneously, with the transfer of the 29 properties. The transfer of one of the three was carried out in October, 1928. The understanding as to the transfer of the other two of the three was confirmed in writing in July, 1930 (Exhibit 386, items 3 and 4). The dates of actual transfers of the three, and the prices in round figures (equal to cost in the case of the last two), were as follows:
(a) Laatefos, having water rights in Norway, was transferred to Aluminium in October, 1928 for $95,000 cash, which was paid at or about that time by Aluminium to Alcoa.
(b) Stock of Prodotti Chimici Napoli, owner of leucite deposits in Italy, was transferred at cost to Aluminium in 1931. As I have said, this stock was agreed to be transferred substantially contemporaneously with the transfer of the 29 properties. For that, including the expenses of operation of the property by Alcoa from 1928 to 1931, Aluminium paid $1,558,000.
(c) The assets of the Alcoa Power Company, consisting of the Lower Development site on the Saguenay River, acquired by Alcoa from Mr. Duke in 1925, plus the dam, power house and power generating equipment which had subsequently been erected on the site by Alcoa (Exhibit 381; Exhibit 447), were transferred (at cost) to Aluminium in 1938 for $35,000,000.
So much I have stated merely by way of a general introduction to the conspiracy branch of the inquiry. That is all I have undertaken thus far to furnish. I shall now take up specifically the various aspects of the controversy.
The first charge is that within the period of 1888 to 1915 there were five cartels. These are alleged to have been parts or in furtherance of a conspiracy between Alcoa and foreign producers of aluminum. None of the cartels is alleged to have preceded 1895. According to the Government's claim, all five of the cartels were between 1895 and 1915. In other words, there is no claim that between 1888 and 1895 there were any cartels. These cartels, according to the Government's contention, were in effect for only parts of the time and none were for long periods.
As to the five the Government's claim is that (1) the 1895 cartel is set out in Exhibit 478, (2) the 1901 cartel is set out in Exhibit 268, (3) the 1906 cartel is set out in Exhibit 308, (4) the 1908 cartel is set out in Exhibit 343 and (5) the 1912 alleged cartel is set out in Exhibit 143.
Only one of the cartels was signed by Alcoa. That is the first, the one back in 1895, -- although sometimes in the evidence referred to as the 1896 cartel. The others were signed by Canadian subsidiaries of Alcoa. The latest of the five, as you will observe, was dated in 1912.
Outside of the Canadian subsidiaries of Alcoa, the foreign members of the cartels, according to the Government, were as follows: (1) the 1895 and 1908 cartels were with the Swiss company; (2) the 1901 and 1906 cartels were with the Swiss, the British and two French companies; (3) the 1912 cartel was with the British, the Swise, the French and two small companies, -- one Norwegian and the other Italian.
The 1895 cartel provided that Alcoa was not to sell aluminum or aluminum products in four specified European countries and that the Swiss company, which was the other party, was not to sell in America.
The 1901, 1906 and 1908 cartels provided for allocation of certain markets or the fixing of prices or both.
The 1912 cartel on its face applied only to sales outside the United States. It provided that quantities of sales and prices be fixed by a committee. The Government claims that in actual operation this cartel applied to sales in the United States.
The 1895 (or as it is sometimes called the 1896) cartel and the 1901 (sometimes referred to as the 1902) cartel and the 1906 cartel were plainly violations of the Sherman Act. There is no dispute about it. The 1908 cartel was adjudicated in the Pittsburgh case by the decree of June 7, 1912, to be in violation of the Sherman Act. This also was without dispute, the decree itself being by consent. For the moment I shall not try to determine or even discuss whether the 1912 cartel was a violation of the Sherman Act. For present purposes I shall assume that it was a violation. Before going into these cartels -- and it is of the greatest importance -- we should ascertain, and we should keep in mind, the dates of their termination.
The 1895 cartel ended in July, 1896, 45 years ago. The 1901 cartel expired by its terms (Article 13) in 1906, 35 years ago. The 1906 cartel was dissolved by consent October 1, 1908, 33 years ago. The 1908 cartel was terminated in two ways; first, by consent of the members on February 17, 1912, and, second, by cancellation through decree in the Pittsburgh case on June 7, 1912 -- 29 years ago. Lastly, the 1912 cartel became moribund in August, 1914, through the outbreak of the World War and, in the words of paragraph 57 of the bill, it was "cancelled by the parties January 23, 1915" -- that precise language being taken from paragraph 57 of the bill -- that, is, 26 years ago.
In other words, of the five cartels of the earliest period, which constitute the principal basis for the charge by the bill of conspiracy during the first period, that is, down to 1915, the oldest of the cartels was terminated 45 years ago and the youngest of them 26 years ago.
The present suit was begun April 23, 1937. If we take that as the date as of which to make estimates, then all five of the cartels ended various periods of time from 22 to 41 years preceding the commencement of this suit.
Now what are the consequences in the case at bar of the termination of these cartels under the circumstances which have been described? They are several. It will be sufficient to mention one. This is, that the Court has no power whatever to enjoin Alcoa with respect to the 1895-1912 cartels. Before this suit was begun, all of them were dead and gone -- dead and gone years ago -- and there is not the slightest danger of the revival or renewal of any of them.
As I called to your attention in discussing the sheet problem, the sole purpose of an injunction is preventive; there cannot be an injunction for the purpose of punishment. These cartels having passed out of existence, there can be no injunction. As I understand, the Government does not contest that proposition; its claim as to the cartels is that they may be considered as a part of the conduct of Alcoa and may be employed by the Court in connection with all the other facts of the case in determining the intent on the part of Alcoa in doing some act.
There are three rather parenthetical remarks I should make now and perhaps ought to have made earlier:
1. Alcoa stoutly denies that the 1912 cartel was a violation of the Sherman Act. I said this morning that for the present I should assume that it was a violation. This, however, does not mean I have determined that it was. On the contrary, if necessary, the question will be determined later. My present impression is that, in and of itself, it does not make any difference whether it was a violation or not. So that in saying that I assume it was a violation, my statement is entirely without prejudice to Alcoa or to later passing on the issue, if it be material to do so, in the findings or otherwise.
2. The Government does not suggest that the cartel of 1895, or 1896, whichever it may be, or the cartel of 1901, or 1902 as it is sometimes called, or the 1906 catel, is any part of a cause of action in this suit. The limit to which the Government goes, as I understand its position with regard to any of those cartels, or as to the 1908 cartel or the 1912 cartel, is that they may be taken into account for their bearing, along with the other facts, upon the issue of intent on the part of Alcoa.
3. At the moment we are not directly concerned, but nevertheless we shall be concerned later, with the fact that, -- outside of the group of cartels of which I have spoken, the last of which according to the bill of complaint expired 26 years ago, -- there were other cartels of which Alcoa was never a member. Two of these are identified by dates, or at least counsel on both sides have referred to them as being of specified years, and the evidence indicates that the years counsel gave are substantially correct. One of those is the cartel of 1923 and the other is the cartel of 1928 of which, as I have said, Alcoa was never a member (pp. 5185; 16199-200; 16302-3; 21301-7).
Perhaps there were other cartels; but, if so, outside of the alliance of 1931 or subsequently, hereafter discussed, none of them was identified in the evidence.
Bear in mind that as to these other cartels preceding 1931 -- that is, the 1923, 1928 or later ones -- Alcoa was not a member. In saying this I do not at the moment definitely deal with, though I shall later squarely pass on, the controversy as to whether Alcoa had any interest in or instigated Aluminium to join the 1931 cartel or any cartel thereafter, That I put aside temporarily. It is, however, important to remember that during this period which ran back of 1923, and possibly to as early as 1920 and up to 1928, and running certainly for two or three or four years after that, there were cartels in Europe; also that the European aluminum producers were members of those cartels. Why it is of consequence to remember all this will appear later.
Alcoa contends that the cartels of the so-called earlier group, which I have referred to as between 1895 and 1915, have no real bearing on intent or that, if they have any bearing, at least there are other counter facts which should be taken into account in determining the extent, if any, to which they have a bearing on intent. For its position Alcoa assigns a number of reasons. These will be discussed in turn:
1. During the period of 1895-1915 the Sherman Act had a very unsettled meaning. According to the Apex Hosiery case, it still has an unsettled meaning; but it was much more unsettled in the years between 1895 and 1915. As the Supreme Court has said, it has gradually been clarified and is in process of being clarified, but its meaning can be determined now only by taking up and dealing with individual cases on their own peculiar and specific facts in each instance.
2. Alcoa calls attention to the fact that it is substantially inconceivable that Alcoa had any intent of violating the Sherman Act, or that it ever occurred to Alcoa that it was violating the Sherman Act, in attaching itself to the 1895 cartel. Alcoa says this is shown to be true by its publishing the fact of its membership in the 1895 cartel in its 1896 annual report.
3. At the time of the 1901, 1906 and 1908 cartels, of which the Canadian subsidiaries were members but of which Alcoa itself as a principal was not a member, it was believed by Alcoa and believed by its lawyers that participation by a Conadian subsidiary in a cartel was lawful.
I am merely touching on these points; there is no use spending a great deal of time on or going into an extensive discussion of them.
4. As the Government expressly concedes (reply brief, p. 252), the parties to the 1908 cartel themselves clearly understood that it was a mere temporary arrangement.
5. In the latter part of 1911 and the early part of 1912 Alcoa gave advance information direct to the Department of Justice that it was negotiating the 1912 cartel (pp. 18735-71; 18889-929; 18940-52; 19676-90; 19749-51; 19754-79; Exhibit 1013; Exhibit 1015).
You may recall the testimony by Mr. Arthur V. Davis, as well as some of the correspondence, indicating that in the course of the negotiations with the Department of Justice, both on the part of Mr. Davis and on the part of Mr. Gordon, the attorney for Alcoa in the Pittsburgh case, and quite some time in advance of the signing of the first form of the 1912 cartel, Mr. Davis went abroad and negotiated with respect to that cartel.
You may recall also that the proof sheet of a draft of the decree put in evidence (Exhibit 1014) shows the insertion, as there appears in the decree itself now, of a clause which in the language of the cartel provided that it should apply only to trade other than that in the United States.
In the bill criticism is made of the fact that the 1912 cartel, as we have it in evidence here in its final form, is dated June 10, 1912, whereas the decree in the Pittsburgh case is dated June 7, 1912. In the bill this is referred to as if three days after the decree was signed Alcoa had proceeded with the kind of misconduct which was condemned by the decree and had done it secretly from the Department of Justice. Is that a fair statement or is that borne out by the evidence?
The statement of the bill, as so interpreted, is wholly without warrant and is not sustained by the evidence. The 1912 cartel was signed in its first form on the 28th day of April, 1912, weeks in advance of the signing of the decree of June 7, 1912. It turned out, however, that Giulini Bros., a European concern which had expected to join and be a member of the 1912 cartel, had decided to withdraw and not become a member. It was on this account and solely on this account that it became necessary to change the form of the cartel by the elimination of Giulini Bros. as a party and the consequent relative rearrangement of the sizes of participation of the other members.
It is perfectly clear on the proof that the June 10, 1912, form of the 1912 cartel differed from the April 28, 1912, form of cartel only by embodying in the later form the changes which were required as the result of Giulini Bros. withdrawing after the April 28th or earlier cartel had been signed by a number of the other members. So also it is clear from the proof that the purpose of Alcoa, through Mr. Davis and through Mr. Gordon, engotiating with a representative of the Department of Justice, -- either Mr. Fowler or his assistant, -- as to the form of the 1912 decree was to embody in the decree a provision so that there could be no doubt on the part of Mr. Davis and Mr. Gordon that the decree was not intended to interfere with or prohibit Alcoa through its subsidiary from joining in the 1912 agreement.
6. Alcoa furnished to the Department of Justice a copy of the cartel on November 25, 1912 (Exhibit 1021; minutes, pages 19757-8). That was nearly 29 years ago and the first complaint that has been heard of it, so far as appears in the proof, is in the present suit.
7. Alcoa urges that the subsidiary of Alcoa joined in signing the 1912 cartel on the advice of counsel that it was lawful to do so (Exhibit 141; pp. 18947; 19762; 19768-70).
On the other hand, what does the Government say with regard to these same matters?
In the first place, the Government contends that there was insufficient revelation of the 1912 cartel to the Department of Justice and that intentional violation of the Sherman Act by Alcoa is shown by the following: (a) There was a large increase of importations into the United States in 1910 over the importations of 1908. This was attributable, according to the argument, to the British and French companies ceasing in 1908 their membership in the 1906 cartel and in 1910 not being members of the 1908 cartel (Exhibit 453). (b) There was an increase of nearly 7 cents per pound in the United States market quotation between Arpil, 1912, when the first form of the 1912 cartel was signed, and the end of that year, while alumimum sold in 1911 at 16-1/2 to 17 cents per pound (pp. 19806; 21190; Exhibit 77).
Assume that the facts relied on by the Government are accurately stated and that the Government is right on what are the facts as to the prices.How does that establish that there was an agreement between Alcoa and the members who had quit the cartel? So far as I can see, it has no bearing whatever, -- not even on the question of whether there was an agreement, -- and without an agreement there was no conspiracy.
However, at this stage it is inappropriate to attempt to make any final decision on the intent with which Alcoa did various of the many acts that occurred subsequently; and all that we can do is to bear in mind the conduct of Alcoa during the period up to 1915 as having a bearing, when coupled with various other facts, on the intent with which Alcoa did the acts, outside of joining the cartels, that are complained of as constituting a violation of the Sherman Act.
Moreover, as it seems to me, substantially we may disregard all the cartels we have been talking about, save to the limited extent that I have indicated, doen to January 23, 1915, when paragraph 57 of the bill says specifically that the so-called 1912 cartel was "cancelled." Certainly it is true that the cartels spoken of back in that period cut very little if any figure at all in this case; and I repeat, by way of emphasis, that the latest of those cartels, even if it be conceded for the sake of the argument that the 1912 cartel was a violation of the Sherman Act, terminated 26 years ago.
That brings us to the second period. This is from 1915 to 1928.
The Government says (original brief p. 641) that the conspiracy was "inert" from 1915 to 1919. If it was not inert in the sense that it did not exist at all, what does the Government mean by describing it as "inert"? So far as I can see, there is no proof of any existence whatsoever of a certel of which Alcoa was a member between 1915 and 1919. That appears to me to be the fact and in that sense the cartel was inert. As I view the matter, it is certain that a finding that during the 1915-19 period there was conspiracy would not be supported by any evidence that has been introduced in this case.
If the conclusion just stated be accepted, then the period of 1915 to 1928 will be shortened to 1919 to 1928 and the inquiry will become whether there was a conspiracy during the latter period.
As to the years 1919-1928 the Government says that there was a "tacit" understanding. What does that mean? I think it necessarily means that there is no evidentiary support of the existence of a conspiracy during the 1919-1928 period unless it can be implied or inferred from circumstances. If it were tacit, it was not explicit or outright agreed on. The resort of the Government, therefore, for support of its contention is to circumstantial evidence.
Before taking up the problem as to whether it may be inferred that there was conspiracy during the period last mentioned, it is important to note two facts:
1. The first fact is one to which I drew your attention earlier, without indicating its significance. This is that in the period of 1919 to 1928 from time to time there were cartels between European producers. The chief of these referred to in the evidence or by counsel are one of 1923 and one of 1928.
The evidence, however, indicates very strongly and I feel shows that during that period there were cartels additional to those of 1923 and 1928. The dates as to the latter calls of cartels are not precisely stated. As I have previously remarked, the evidence indicates that they ran from time to time between 1920 and June 4, 1928. The evidence also indicates that they existed after June 4, 1928; but, if so, we are not interested in the fact at the moment.
2. Apparently in 1923 there was, and at the trial counsel for the Government and Alcoa assumed that there was, a cartel between Europeans as to aluminum.We are the more certain of this being true because Mr. Arthur v. Davis testified that he was asked to join it and that he declined. The terms, as I have said, were not definitely stated (pp. 5184-6).
In 1927 or in 1928, or apparently in both (seemingly within the period running from January, 1927, to January, 1928), Mr. Marlio, head of the French Aluminum Company, and Mr. Morrison, head of the British Alumimium Company, besought Mr. Arthur V. Davis to have Alcoa join the cartel to limit imports into the United States. Mr. Davis testified that he flatly refused (pp. 21361-71; Exhibit 892, at exhibit pp. 4139-40; 4177). There is no testimony whatever to the contrary. That would be enough to reject the contention that Alcoa joined the cartel. But the case is stronger. In its original brief, pages 642-3, the Government says that it believes the statement of Mr. Davis that "he refused to comply with this demand." I believe him also.
Mr. Davis flatly denies, and there is no evidence to justify a finding, that Alcoa or any subsidiary of Alcoa was a member of any cartel during the period 1919 to 1928.
In support of its claim that there was a tacit understanding during the 1919-1928 period between Alcoa and the foreign alumimum producers, the Government makes four arguments:
(a) The prices of aluminum in Europe and in the United States during that period were uniform.
(b) There were statements by representatives of the foreign aluminum producing companies to American business men which showed that there was such an understanding.
(c) There is testimony that representatives of Alcoa admitted its membership.
(d) Acquisitions of property from and of stock in companies located in Europe engaged in the aluminum business point to confederation or conspiracy between themselves and Alcoa.
Each of the contentions will now be discussed.
The first ground on which the Government relies is that there were uniform prices between Alcoa and the European producers.
There is some testimony that there were quotations of Alcoa and foreign producers which were practically the same at various times between 1919 and 1928. There is other testimony to the contrary.
Assuming, however, the existence of uniformity in prices claimed by the Government, yet that standing alone does not establish the existence of an agreement on the subject between Alcoa and the foreigners. It was so held in United States v. International Harvester Co., 274 U.S. 693, 708, 709, 47 S. Ct. 748, 754, 71 L. Ed. 1302. There the Court said:
"* * * the fact that competitors may see proper, in the exercise of their own judgment, to follow the prices of another manufacturer, does not establish any suppression of competition or show any sinister domination."
Other evidence is required. In connection with the other evidence, if any, the trier of the facts, whether a jury or a judge, may consider, for what weight it or he sees fit to give to it, the fact that the prices were the same.
As I have indicated to you heretofore, however, and as I shall bring out later, the truth is that the prices were not uniform.
The second ground of the Government is that, as it says, statements that an agreement existed between Alcoa and the foreigners were made by representatives of the European companies to American business men.
In support of this contention the Government offers testimony as to twelve conversations. Nine occurred prior to 1928. Three occurred after 1928.
I have several times spoken of having to go into the recitation of evidence which is tedious. If I had to make a choice of what is the most tedious, my selection would probably be these twelve conversations.
I have gathered together the full testimony of the witnesses as to the twelve conversations. I have considered bringing the whole of that before you. It is difficult to condense.Nevertheless, I have decided not to lay all of it before you, but to endeavor to put it into shorter form. I think, however, that, if one wish to get the full force of that testimony and thoroughly to understand it, it would be better to read the full testimony in which the conversations are described in their entirety.
The first set of conversations occurred in the period from 1919 to 1927. The European companies concerned were the British, the French, the Swiss and the German. The four American business men who took the stand and recited those conversations were Mr. Haskell and Mr. Babson of the Baush Company, Mr. Waltz (who was an aluminum broker and formerly had been connected with the Bremer-Waltz Company) and Mr. Harwood of the Fulton-Harwood Brass Works of South Bend, Indiana.
The Government also relies on testimony that did not come from the foreigners. One of the witnesses in that class is Mr. Main of the Cadillac Motor Company and the other is Mr. Bohn of the Bohn Aluminum & Brass Corporation. The testimony of Mr. Main and Mr. Bohn will be taken up later and not intermingled with the testimony concerning statements by the European aluminum producers or their representatives.
I have indicated that some interviews by American business men with the foreigners occurred subsequent to the transfer of foreign properties to Aluminium on June 4, 1928. Possibly I should not take those up at this stage in connection with the other conversations that clearly occurred preceding June 4, 1928. However, I have concluded that it will be better to take up all those conversations as one group, partly because the dates of some of the conversations are rather uncertain and it is just as well to have all of them brought in now.
Before taking up any of the twelve conversations, I should call attention to a piece of testimony by Mr. Harwood not related to the conversations with the Europeans. He said that before 1922 there was real competition in the aluminum business in the United States between Alcoa and the foreigners (pp. 4614-5). If we accept that statement and I understand its meaning correctly, and I think I do, then the effect of it is to advance the beginning date of the inquiry from 1919 to 1922. You will recall that, on the Government's concession, it was moved up from 1915 to 1919.Now if we rely on this particular testimony of Mr. Harwood, -- and I see no reason for doubting its accuracy, -- such beginning date goes forward again and this time to 1922. If the starting point was in 1922, then in effect the charge of the Government is that the conspiracy complained of prevailed between 1922 and 1928.
The testimony with regard to the conversations with the representatives of the foreign aluminum companies, condensed as best I can, is as follows:
First. Mr. Waltz testified that in 1920 he had a conversation with Mr. Tait of the British Company. Mr. Waltz said that he tried to buy 500 tons of aluminum, that Mr. Tait would only sell him 300 tons, that he asked Mr. Tait for a price reduction and Mr. Tait then stated that he could sell me (Waltz) more and reduce the price but that there was an agreement he thought it best to live up to because he did not want to step on Mr. A. V. Davis's toes. The type of agreement, the witness says, was not discussed. Mr. Waltz added that the reason the foreigners preferred to sell others ahead of him (that is, ahead of Mr. Waltz) was that the others had money to pay and he did not (pp. 9460-4; 9718-9; 9737-8; 9762-3; 9868-70).
The second conversation was by Mr. Waltz in 1920 also. He says this was with Mr. Cohen of the French Company and occurred in New York. Mr. Cohen, he says, was not an agent of the French Company in the United States. Previously, he says, Mr. Cohen had sold him (Waltz) loose lots of aluminum in Paris. In 1920, when Mr. Waltz sought to buy from Mr. Cohen in New York, Mr. Cohen replied that it was impossible through him to get the aluminum into the United States. He said, according to Mr. Waltz, that the French Company had joined an association or was working under a cartel. He said the Europeans had adopted a suggestion of Mr. Arthur V. Davis that it was better to restrict production and sell at a higher price than to go full capacity and sell lower. He further stated that Mr. Cohen said that he (Cohen) could deliver to me (Waltz) in Mexico; but when I sought that, the freight precluded (pp. 9475-82; 9487-90; 9738-43).
The third conversation was in 1922. This was between Mr. Harwood and Mr. Morrison of the British Company. Mr. Harwood says that when he sought to buy, Mr. Morrison said that other arrangements had been made as to selling us. In future, Mr. Harwood reports Mr. Morrison as saying, we (that is, the Americans) should buy from Alcoa. He said that the British Company would distribute in other fields. Mr. Harwood further testified that he did not recall that Mr. Morrison discussed the character of the new arrangements to which he referred. Mr. Harwood said that he and Mr. Morrison discussed the anticipated new United States tariff, a bill being then pending in Congress for a new tariff. Mr. Harwood said further that Mr. Morrison remarked that there would be no more such severe competition after the tariff was enacted as there had been in the past. Mr. Harwood also stated that Mr. Morrison said that he estimated that the price advance on account of the new tariff would be more than three cents a pound; perhaps five cents and possibly ten cents. Mr. Harwood added that Mr. Suhr of the French Company and Mr. Kaufman of the Swiss Company had also mentioned the new tariff in about the same terms that Mr. Morrison did (pp. 4433-44; 4623-7).
The fourth conversation was in 1922. It was between Mr. Harwood and Mr. Suhr. According to Mr. Harwood, Mr. Suhr said that the reason he would not continue to sell Mr. Harwood was because other arrangements had been made for distribution and sale of their (that is, the French Company's) product. He (Mr. Harwood) represented that Mr. Suhr also said that they would sell elsewhere and that there would be a reallocation of distribution. He said that Mr. Suhr did not say in words that Alcoa was a member of the arrangement. He stated further that thereafter he (that is, Harwood) was not solicited by foreign aluminum representatives (pp. 4445-53; 4623-4). He further testified that Mr. Suhr could have been telling about an arrangement among the foreigners, not including Alcoa. He added, however, that "I don't believe it was" (pp. 4653-8).
Fifth, in 1922, Mr. Harwood says he had an interview with Mr. Kaufman of the Swiss Company. Mr. Harwood testified that Mr. Kaufman said that he would sell no more in the United States direct to consumers (Mr. Harwood adding "I being a consumer"). He says that Mr. Kaufman stated that a cartel arrangement had been made of world distribution of aluminum; that further Mr. Kaufman stated that certain territory had been allotted to each company and that the American market had been allotted to Alcoa. He testified further that Mr. Kaufman stated that there would be no competition under the new plan. He added that Mr. Kaufman said that if I wanted Swiss metal I should get it through Alcoa. He added that, according to Mr. Kaufman, the American market would be occupied by Alcoa after the passage of the tariff bill; that there would then (that is, after the passage of the tariff bill) be no competition. He said that this was because each would have his field, similar to the European cartel plan. He said he was not sure that Mr. Kaufman said anything about an agreement in that connection. He said that Mr. Kaufman stated that general plans had been entered into, that distribution of aluminum would be allocated all over the consuming world; also that Alcoa would get the American market. He said, according to Mr. Harwood, that foreign companies would not be concerned with sales in the United States; further, that Mr. Kaufman stated that reallocation of distribution had been agreed on. He said that he did not remember that Mr. Kaufman said anything about sales by Alcoa outside of the United States. He said that he (that is, Mr. Harwood) did not think that there was an arrangement among foreign producers without including Alcoa. He said his (that is, Harwood's) opinion was that Mr. Kaufman meant to convey that Alcoa was a member. He said "possibly this was inference on my part" (pp. 4453-63; 4523-7; 4550-2; 4608; 4610-3; 4618-27).
The sixth conversation was in 1924.This was between Mr. Haskell and Mr. Marlio of the French Company. Mr. Haskell testified that when he asked for a price Mr. Marlio said that he had an agency in New York and referred me (that is, Mr. Haskell) there; that Mr. Marlio said that the price would be the same as charged by Alcoa or there might be a small concession. Mr. Haskell said that Mr. Marlio referred to agreements between the foreigners with each other. Mr. Haskell also said that he was not sure that Mr. Marlio said anything about an arrangement with Alcoa, but he added "I inferred it." Mr. Haskell further testified that it was not his recollection that Mr. Marlio said that he had an agreement with Alcoa. In substance, Mr. Marlio stated that the French Company had been able to sell all the aluminum they produced at prices set by Alcoa. He said further (p. 2312) "My recollection is that reference was made to meetings of the producers of aluminum" (pp. 2304-13; 2335-9; 2869).
The seventh conversation was between Mr. Waltz and Mr. Bernstorff who at the time was the agent of the German Company in New York. This was in 1925. Mr. Waltz said that he had arranged with Mr. Bernstorff to sell VAW (that is, the German Company) aluminum on commission. He said that the market price at the time was 27 cents. Mr. Waltz said further that he himself sold at 26 cents. He said that the market price then rose to 28 cents and that he (Waltz) continued to take orders at 26 cents (that is, 2 cents below the market). He further testified that Mr. Bernstorff refused to fill orders from him of that kind and that he (Waltz) then cancelled the orders. He further said that when the market price went to 28 cents the New York agent of the British Company asked if he (that is, Waltz) was going to raise the price of German aluminum from 26 cents to 27 cents, saying (that is, the British Company agent saying) that all other importers and Alcoa had raised their prices; that the British agent said that he though that Mr. Waltz should raise his price, but that he (Mr. Waltz) refused (pp. 9490-9544; 9577-83).
The eighth conversation was in 1927. This was between Mr. Haskell and Mr. Von der Porten of the German Company. Mr. Haskell said that when he asked for a price on aluminum Mr. Von der Porten told him to get it through his (that is, Von der Porten's) New York agency. Mr. Haskell says he then requested Mr. Von der Porten to cut the price. He says Mr. Von der Porten refused and said his (Von der Porten's) price would be the same as Alcoa's. Mr. Haskell then added that he asked Mr. Von der Porten to quote him below the market price and that Mr. Von der Porten refused. Mr. Haskell further testified that the foreigners were already quoting lower prices and did that nearly all the time. Mr. Haskell said that he did not remember Mr. Von der Porten saying anything as to the policy of breaking the price in the United States. He testified further than Mr. Von der Porten said he had accumulated a surplus of ingot and that he contemplated selling it in America by lowering the price and selling it as distressed aluminum. He further said that Mr. A. V. Davis bought that distressed aluminum at a price which netted him (that is, Von der Porten) his regular price as if he had sold it in Amercia. Mr. Haskell further testified that the price, with freight and duty, was substantially equal to or only slightly less than the prices being charged in the United States by Alcoa and the foreign producers, including the German Company.
Mr. Haskell said finally that he thought that dominance in the market by Mr. Davis was discussed; also that there was discussion of what would happen in the German market if the Germans dumped a lot of aluminum in the United States. He said that he (Mr. Von der Porten) said he feared what Mr. Davis would do, but that he (Mr. Haskell) did not remember whether he (that is, Von der Porten) said what Mr. Davis had threatened to do (pp. 2313-7; 2707-8, 2713-5).
The ninth conversation occurred in 1927. It was the last of the series which preceded 1928. It was between Mr. Waltz and Mr. Seligman, an agent in New York of the British Company. Mr. Waltz said that he told the British agent that he (that is, Waltz) had heard that the customers in the United States had been allocated to different foreign agencies and that he (that is, Waltz) had been allocated to the British Company and that he (Waltz) thought that the British agent should have sold him aluminum. He said the British agent said that the companies had been allocated and he could not sell Waltz because there was a deal among importers not to sell to dealers; that if he (that is, Waltz) sold to a manufacturer, the British Company would fill the sale direct. Mr. Waltz said that he did not recall anything else said on the subject (pp. 8583-7).
I have related to you nine conversations about which there was testimony given by American business men.None of the foreigners and none of the agents of the foreigners took the stand except Mr. Bernstorff, who did not testify about the conversations. In other words, in the nine conversations I have referred to we have only the testimony of American business men as to what was told them by the foreigners or their representatives.
As I have previously stated, there is testimony of three conversations which occurred subsequent to the transfer in 1928 of certain of its foreign properties by Alcoa to Aluminium.
One of the conversations occurred in 1929.The second and third occurred in 1930. I shall have occasion in another connection, as I have indicated heretofore, at a later stage to discuss the three conversations I am now going to relate to you. Mr. Babson of the Baush Company participated in one of them. He had taken no part in any of the nine conversations which occurred before 1928.
As I have said, the first of the additional conversations was in 1929. It was by Mr. Babson with Mr. Kaufman of the Swiss Company. Mr. Babson said that he asked a quotation for use 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 that Mr. Kaufman said the price was fixed; by which he understood that it would be the same, irrespective of where I (that is, Babson) got the metal.
Mr. Babson further testified (and this is one of the instances to which I referred heretofore where the date is very uncertain) that during the period from 1920 to 1930, from time to time, he (that is, Babson) tried to get price quotations from import agents of the four major European producers in the United States. He said that he got none lower than Alcoa's prices. He said also that the price was always the same as the price of Alcoa (pp. 3056-63A; 3095-3128; 3150-1). Mr. Babson is the witness who testified to the identity of prices previously mentioned.
The second of the post-1928 conversations was in 1930. It was between Mr. Haskell and Mr. Maufman of the Swiss Company. Mr. Haskell testified that he asked Mr. Kaufman for a price of aluminum for use in the United States and that Mr. Kaufman referred him to his (Kaufman's) New York agent and said that the price would be the same as Alcoa's. Mr. Haskell says that he does not remember Kaufman saying anything about breaking the cartel price, but that at a previous meeting or meetings between 1924 and 1930 Mr. Kaufman had refused to break the cartel price. He testified further that Mr. Kaufman referred to contracts abroad. Mr. Haskell added that he (Haskell) inferred that the reason Mr. Kaufman would not break the price in the United States was that there had been an agreement; but that this was inference on his (Haskell's) part. He said that he was unable to get a material concession in the price of ingot (pp. 2317-29).
The third conversation was also in 1930. It was between Mr. Haskell and Mr. Morrison of the British Company. Mr. Haskell testified that when he asked the price of aluminum for use in the United States Mr. Morrison referred him to tis (Morrison's) New York agent. Mr. Haskell added that he thought Mr. Morrison said that the price would be the price of Alcoa. He added further that this was what he (Haskell) was generally told by foreign producers between 1919 or 1924 and 1930 (pp. 2327; 2331).
Mr. Haskell said further that he did not remeber Mr. Morrison saying anything about an arrangement that he (Mr. Morrison) had with Mr. Davis. He also said that he did not remember Mr. Morrison saying that an arrangement he had related to the United States, but Mr. Haskell says (p. 2335; see also pp. 2325-6; 2696), "I did infer it."
Mr. Haskell testified also that he did not ask a quotation on a particular amount nor discuss deliveries. He said that no doubt he (that is, Haskell) had in mind his treble damage suit then pending against Alcoa and that he (Haskell) was seeking information he thought would be helpful in that suit. Mr. Haskell said further that the foreigners might have assumed from the nature of the conversations that he (Haskell) was not seeking actual purchases of aluminum. He said finally that he (Haskell) was unable to distinguish between his recollection and his inferences (pp. 2329-35; 2691-6).
This completes the summary of the testimony of the four American business men about their conversations with the Europeans between 1920 and 1930. As I have said heretofore, none of the Europeans took the stand, nor did any of the agents of the Europeans take the stand except Mr. Bernstorff, who gave no testimony about these matters.
Later attention will be called to contradictions by other witnesses of the testimony I have summarized. Even if, however, that testimony were not disputed, I feel that on its face it is insufficient to establish conspiracy.
There are three observations I desire to make concerning the twelve conversations as a group. After those observations I shall discuss the individual conversations.
(1) The first observation is in regard to the attitude of the courts toward testimony such as that embodied in the twelve conversations. It is a perfect example of hearsay. The conversations occurred years ago. Such testimony stands rather low in the scale applied for measuring the weight of testimony. Dalton v. United States, 22 How. 436, 442, 16 L. Ed. 395. There the Court said this:
"In all cases, the testimony of admissions or loose conversations should be cautiously received, * * * They are incapable of contradiction. They are seldom anything more than the vague impressions of a witness of what he thinks he has heard another say -- stated in his own language, without the qualifications or restrictions, the tone, manner, or circumstances, which attended their original expression."
Next in Chaffee & Co v. United States, 18 Wall. 516, 541, 21 L. Ed. 908, the Court said:
"The testimony of living witnesses personally cognizant of the facts of which they speak, given under the sanction of an oath in open court, where they may be subjected to cross-examination, affords the greatest security for truth."
Also in Beckwith v. Bean, 98 U.S. 266, 280, 25 L. Ed. 124, the Court said:
"Verbal confessions or admissions, made in the presence of the witness alone, constitute, it is true, very unsatisfactory evidence, partly because of the facility with which they may be fabricated. It is, therefore, to be received with great caution; * * *."
Lastly in Tousey v. Hastings, 194 N.Y. 79, 80, 81, 86 N.E. 831, 832, it was said:
"We have frequently held, but it does not seem to be well understood, that there may be a question of fact when all the witnesses are worthy of belief and no witness contradicts another. Diverse inferences may be drawn from the narrative of a truthful witness; and when the narration is of oral admissions, made some time before, and, although the precise words are important there is no circumstance to impress them particularly on the memory, it is seldom that a question of fact is not presented as to whether the essential fact is fully proved. Aside from the danger of fabrication, verbal admissions are regarded as unreliable evidence, because experience shows that they are frequently misunderstood, imperfectly remembered, and inadvertently made."
(2) What in these twelve conversations related to cartels, of which there is no evidence that Alcoa was a member and of which there is evidence that Alcoa was not a member, are mere inferences of witnesses and not evidence on the issue as to whether Alcoa was in conspiracy.
(3) Of the four American business men who were witnesses and who related the twelve conversations, two undertook to state conversations they had had while in search of evidence for use in a treble damage suit under the Sherman Act against Alcoa; as witnesses in the trial of that case they committed themselves adversely to Alcoa before testifying in this case; and I think I may recall to you that to some extent it seemed necessary to lead those witnesses in order to get out the conversations. The other two witnesses on the stand displayed, and conceded, strong hostility to Alcoa (pp. 4542-9; 9648-9721; 9729-36), and, as I think, both of them were of the type who, -- though perhaps unconsciously, -- influenced by that bias, would perhaps unconsciously shade their testimony adversely.
Next, what did the witnesses who talked of conversations with foreigners or the representatives of foreigners say about there being or having been an agreement between producers of aluminum? That is what we are concerned with. The testimony we are now considering may contain all sorts of things of academic interest, but unless it bear on whether or not there was some form of concert or confederation between Alcoa and the European aluminum producers, we have no interest in it at this stage.
In reviewing the portion of the testimony which, as I see it, comes nearest to having a bearing on whether there was an agreement, I have selected four examples, -- and I think four examples of what, included in all the testimony of those twelve conversations, is the most favorable to the Government.
You may recall there were four witnesses who testified on the branch of the case at the moment being considered. They interviewed the representatives of four foreign companies. Their talk was about things that ran along from 1920 to 1930. Of the twelve conversations let me remind you also that nine occurred before and three occurred after June 4, 1928. The nine which occurred before 1928 were between 1920 and 1927; the three which occurred after 1928 were one in 1929 and two in 1930.
Of the four examples selected for comment, the first is a conversation in 1920 of Mr. Waltz with Mr. Tait of the British company. Mr. Waltz said that Mr. Tait stated that there was an agreement he thought it best to live up to so as not to step on the toes of Mr. A. V. Davis. The second is a conversation of Mr. Harwood in 1922 with Mr. Morrison of the British company. You may remember that, according to Mr. Harwood, Mr. Morrison said that other arrangements had been made for selling in the United States and that in future Americans should buy from Alcoa. The third is the testimony of Mr. Harwood as to his conversation in 1922 with Mr. Kaufman of the Swiss company. He said that Mr. Kaufman stated that an arrangement had been made for world distribution; that the American market had been allotted to Alcoa; also that, after passage of the tariff bill of 1922 by Congress in this country, there would be no competition. The fourth is the testimony of Mr. Babson about his talk in 1929 with Mr. Kaufman of the Swiss company. According to Mr. Babson, Mr. Kaufman stated that the price in the United States would be substantially the same as Alcoa's. Then he added that he thought Mr. Kaufman stated that the price had been "fixed."
On analysis it seems to me that the conversations are without any great probative weight in determining the relevant issues. Among the reasons for this view are the following:
First, each of the examples I have given is capable of an interpretation to mean only that the Europeans themselves were in a cartel or that in their sales in the United States they would closely follow Alcoa's prices or that they would substantially leave the United States market to Alcoa.
Second, no unambiguous statement, even second-hand, is shown to have been made by any European producer that Alcoa had joined in any agreement on prices or on other terms of selling aluminum in or importing aluminum into or keeping foreign aluminum out of the United States.
Thirdly, according to the statements made by the witnesses themselves, what they say rested largely on their own inferences.
Fourthly, accepting the evidence on its face, the evidence is vague and unsatisfying. Without more it strikes me that it is wholly insufficient to discharge the burden of proof which rests on the Government.
In the nature of things Alcoa officials have no personal knowledge of what was said out of their presence by European aluminum producers or by agents of those producers. Alcoa cannot directly contradict the testimony of the four American business men that the producers or their representatives made the statements which those American business men witnesses have attributed to them. If the producers made the statements and these be interpreted to mean that the producers charge Alcoa with having confederated or agreed or conspired, during the period of 1919 to 1928, to suppress or join in suppression of the importation of aluminum into the United States or otherwise to participate in the restraint of trade of aluminum, in their testimony the principal officials of Alcoa have made complete and unequivocal denials of knowledge that any such thing ever happened (pp. 5184; 5192-3; 5195-5200; 5222-5; 18389-91A; 18511-44; 18552-6; 18562-7; 19274-5; 19282-3; 19347-50; 20504-7; 20577-88; 21482-3; 21486; 22538-41; 22545-53; 33240-43; 33245-6; 40353-4; 40358-9).
As I conceive, as a practical matter the accusations could not be true and Alcoa's officials be ignorant of them. As I conceive also, if the accusations be untrue, there is no way to meet them except in the one way which the Alcoa officials have adopted. I believe their denials.
The next group of testimony on which the Government relies in connection with the matter now being discussed is some incidents, not previously described, which, it is contended, occurred between American business men and representatives of foreign aluminum companies.
(1) The Government claims that in 1919 the New York sales agent of the British Aluminium Company informed the Director of Purchases of the Cadillac Company, or the Cadillac Division of the General Motors Company, that the British company had set aside a quota of British aluminum to come to the United States for the Cadillac concern that year; also, that in 1920 the Cadillac purchasing agent had asked the British company's New York sales agent if there was an agreement with Alcoa as to limiting importation of foreign aluminum into the United States and that the sales agent did not affirm or deny it but "just smiled it off" (p. 4318).
Manifestly, as I conceive, if either incident occurred as insisted by the Government, it would prove nothing affecting the present controversy. For one thing, this is true because it is not even asserted by the Government, much less shown by evidence, that Alcoa had any share whatever in what was done by the British company with respect to a quota.
Apart from all this, however, the memory of the Cadillac agent, as all who heard him must recall, was so poor that no one can be sure what he intended to represent as being the facts. In saying that I do not mean in the slightest to criticize him (pp. 4311-3; 4315-8; 4341-7; 4372-4400). Curiously also, although present at one of the interviews and much interested (pp. 4316; 4373-4; 4381-2; 4395), Mr. Bohn when on the stand as a Government witness was not asked what was his recollection.
The evidence, therefore, seems to me wholly insufficient to establish anything wrong, much less to show the commission of an offense.
(2) This brings us to the Bohn Company matter. This has been previously mentioned, but has not yet been set out.
The Government claims: (a) that in 1922 Alcoa discriminated against the Bohn Company, and in favor of the International Motor Company, in prices of aluminum; and (b) that in 1923 several European producers of aluminum, without explanation, refused to sell the Bohn Company all the aluminum ingot it needed.
It might be enough to point out that if what is complained of occurred, it would fall far short of supporting a conspiracy charge against Alcoa. If Alcoa preferred another customer over Bohn or, without disclosure of a reason, foreign aluminum companies failed to supply all the ingot Bohn wanted, each may be subject to criticism; but it seems plain that, on the evidence, what was done is not shown to have been an agreement or confederation or conspiracy or any other violation of the law whatever.
I feel strongly that the facts fully sustain the view just expressed. These divide themselves, however, into two quite distinct branches -- one dealing with each charge -- and I shall take those up.
Certain sales referred to by the Government took place in 1922 -- partly in January and partly in August.It is around these that the first Bohn charge hinges. The other Bohn matter occurred in 1923.
It is not alleged, nor has it been proved, that Alcoa made no sales to Bohn during 1922. On the contrary, Mr. Bohn says he thinks that during the year his company did purchase aluminum from Alcoa (pp. 13323-5). What is alleged is that, as the Government says, in 1922 there was aluminum Bohn wanted which Alcoa refused to sell when concurrently it sold to others.
In January, 1922, Alcoa sold some rerun No. 12 alloy to the Clark Metal Last Co. at 15 cents a pound (Exhibit 753). Though apparently a bit uncertain, Mr. Bohn said he thought that he asked Alcoa for a quotation on the same alloy about the time there was a sale to Clark; but he says, "As far as I can remember" I got none (p. 13348). He said also the Bohn Company asked the Clark Company to obtain for it such an alloy; and the Clark Company sold the Bohn Company a carload of this metal about that time, but he does not remember the price (pp. 13343-65). Mr. Bohn said further that he did not think his company ever bought any rerun metal from Alcoa (p. 13359). He did recall that his company had bought a carload of metal from Clark (p. 13361) which his company had tried to buy from Alcoa; but, he added, "they did not have any available, so we bought it from Clark" (p. 13364).
Mr. Bohn indicated that the Clark remelt metal matter had been handled by his associate, Mr. Markey (p. 13355). When Mr. Markey later took the stand, he said he recalled that his company had been unable to obtain No. 12 remelt from Alcoa; that he then asked Clark to purchase the same metal from Alcoa; that Clark got the metal, turned it over to Bohn and Bohn reimbursed Clark for it (pp. 24684-5).
As I see it, there are two difficulties in the evidence about the Clark matter. The first is that it does not appear that there was any conspiracy to treat Bohn differently from any other customer; and when there is no conspiracy to treat them differently the law does not require that all customers be treated alike. The second is that the facts with respect to the sale to Clark and the failure to sell Bohn are not brought out with sufficient detail to enable one to say that there was no material difference in the terms on which Clark bought and on which Bohn asked Alcoa to sell.
Alcoa says, in substance, that the Peninsula division or subsidiary of Bohn was speculating in metal in 1922; that this division or subsidiary was the one which actually sought to buy the remelt No. 12 metal from Alcoa; and that these facts justified Alcoa's refusal to sell. In support of its argument Alcoa relies on the testimony of Mr. Markey (pp. 24916-7). I do not believe, however, that the evidence is sufficient to support Alcoa's contention. A missing link is that it does not appear that Alcoa knew at the time of the intention by Bohn's division subsidary to speculate with the No. 12 if acquired by Bohn.
There were also some occurrences later in 1922 which should be discussed.
Exhibit 751 contains correspondence in August between Alcoa and Bohn. In response to inquiries for quotations on two described kinds of aluminum for later shipment, Alcoa (through a salesman named Foote) gave 19 cents as its price on one lot and 21 cents as its price on the other lot (items 2 and 3 of Exhibit 751). On October 4 following Mr. Bohn wrote a letter to Mr. A. V. Davis about these quotations. He complained that at dates near the dates of those quotations Alcoa had sold to International Motors Co. at 18 cents and to Wilson Foundry & Machine Co. at 21 cents (item 5).
The evidence does not give details about the sale to Wilson; but Exhibit 752 shows that, through an agent named Brown, a sale was made to International at 18 cents, as asserted by Mr. Bohn in his October 4th letter to Mr. Davis. On October 11th Mr. Davis sent a reply (item 6 of Exhibit 751). In substance two things were there stated: (1) that the price given International was a mistake, committed by a subordinate while his superiors were absent from home (for which Mr. Davis was apologetic); (2) that Mr. Bohn was misinformed about the sale to Wilson Co. to which the price had been exactly the price to the Bohn Company.
There is nothing in the evidence to contradict or impair the account of the transaction given by Mr. Davis (pp. 13324-43). Moreover, what Mr. Davis said was introduced in evidence by the Government. Under the circumstances, I think it must be accepted. If taken as true, the criticism of the conduct of Alcoa in regard to the August sales vanishes. It is left wholly devoid of foundation.
The Government relies on Exhibit 749 to sustain the second or 1923 Bohn charge. This consists of communications which passed between Bohn and several foreign companies in that year.
The first group contains letters in which Bohn asked for prices, with deliveries during the last half of 1923; the second group contains a telegram (item 9) in which he asked for prices, with deliveries in the first half of 1924. The producing companies sent polite replies. These were in varying forms. Some explained, and some did not explain, why the orders were not accepted. For example, in item 2 the Swiss company said it did not then have tonnage free for delivery at the date desired; in item 3 a French company pleaded prior commitments and said its failure to offer tonnage was only temporary.
There is complete lack of evidence to impeach the genuineness of, or otherwise to support criticisms of, any of the refusals (pp. 13272-321); nor is there any evidence to pin responsibility on Alcoa. It follows that the charge must fall, because not sustained by proof.
Lastly, it should be emphasized that the matters covered by the first Bohn charge occurred in January and August, 1922, while those covered by the second Bohn charge occurred in May, June and November, 1923. The mere separation by such a long period, standing alone, prevents the coupling together of the conduct of Alcoa complained of in one charge with the conduct of the foreign aluminum companies complained of in the other in order to support a theory of conspiracy between Alcoa and the foreigners.
In connection with the conspiracy charges several miscellaneous other matters have been discussed by the Government. Inasmuch as these are not closely related to the aspects now under consideration, they will not be taken up at present. However, they will be dealt with later.
The third argument of the Government, as I have recited what its group of arguments now being considered consisted of, is that, as the Government claims, certain admissions of conspiracy were made by Alcoa officials; one by Mr. Arthur V. Davis and one by Mr. Edward K. Davis.
In March, 1919, and June, 1924, Mr. Haskell and Mr. Arthur V. Davis had conversations about purchases by Baush of aluminum from Alcoa. At the former date Mr. Haskell bought 20,000 pounds. At the latter date Mr. Haskell asked a price cut on 5 million pounds.
The request for a cut was refused and the sale was not made. Save with respect to whether there was concert between Alcoa or Mr. Davis and the foreigners, it is not necessary to go into the details of the testimony on the subject. This testimony is set out at pages 2168-84; 2275-94; 2633-48; 2677-82; 2860-5; 5196-5200; 5270-1; 18508-44; 18564-71.
Mr. Haskell does not definitely or certainly remember what Mr. Davis stated on either occasion. He merely inferred or got the impression at both meetings that there was agreement between Alcoa or Mr. Davis and the foreign aluminum producers on prices and on limiting importations of aluminum into the United States (pp. 2176-77; 2180-1; 2282-91; 2294; 2635-9; 2644-8; 2864-5). Mr. Davis squarely denies that there ever was, or that he told Mr. Haskell there ever had been, any such agreement (pp. 5196-5200; 5224-5; 18515; 18519-20; 18538-9; 18542A-44).
Counsel for the Government and counsel for Alcoa declared that they regarded Mr. Haskell as honest. I do not mean to criticize him. Nevertheless, even taken at its face, I think his testimony is too vague and uncertain on which to rely for finding the existence of the agreement or conspiracy charged in the bill. Except very generally he does not give the terms of or parties to any agreement. He disclaims a definite recollection and relies, mostly if not exclusively, on inferences.On the other hand, during his several weeks on the stand Mr. Arthur V. Davis did not impress me as boastful, nor as one likely to confess, much less to initiate the suggestion, and much less to tell a stranger or a competitor, that he was guilty of a crime.
If we interpret Mr. Haskell's statement as directly saying that Mr. Davis stated that an agreement of the kind was made between Alcoa or himself and the foreigners, on review of all the circumstances in evidence I feel impelled to accept the denial of Mr. Davis.
There is some testimony that in 1923 Mr. E. K. Davis (then sales manager of Alcoa) told Mr. Main (the General Motors director of purchases): (1) that Aloca never interfered with the sales of aluminum, or tonnage or prices on sales of aluminum, by the British Aluminium Company to any of its old established customers, of which the Cadillac Division was one (pp. 4314-5); (2) that a quota had been made to take care of the customers of foreign aluminum (p. 4315); (3) that the foreign companies had agreed with Alcoa not to "dump" aluminum in the United States if Alcoa would not "dump" in their countries (p. 4315).
If all this occurred, it was not a violation of law because: (1) the law does not compel competition (United States v. United States Steel Corp., 251 U.S. 417, 451, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121) and the business policy described is permissible under the law in the absence, as here, of an agreement; (2) if there was a quota, it was fixed by the foreign companies as between themselves and Alcoa had no part in it; (3) it was lawful for Alcoa to agree with the foreign companies that if they (the foreign companies) refrained from violating the Anti-Dumping Law of the United States (39 Stat. 798, c. 463, section 801, 15 U.S.C.A. § 72), Alcoa would not be guilty of the same misconduct in their countries.
October 7, 1941
As I indicated yesterday, the fourth argument advanced by the Government, in support of its contention that in 1919-1928 Alcoa and European aluminum producers were in conspiracy to restrain imports into the United States, is that the foreign acquisitions by Alcoa themselves constitute a basis from which to imply the existence of such a conspiracy.
In substance, the bill alleges that the purpose and effect of the foreign acquisitions by Alcoa were to restrict importation of aluminum and aluminum products into the United States and to suppress competition in those commodities by the major European aluminum producers through three specified means: (1) intimidation of, (2) association with and (3) agreement with those producers by Alcoa. It is alleged also that it was the motive of Alcoa in acquiring these foreign properties to protect its monopolistic control of aluminum in the United States (paragraphs 54, 60-71 and 82).
For example, it is specifically alleged (paragraph 54) that Alcoa made agreements "with the major aluminum companies of foreign countries * * *, with the intent and effect of restraining importations of aluminum into the United States"; also that Alcoa acquired "interests in foreign aluminum producing and fabricating companies, water power sites, power plants, bauxite deposits, and leucite deposits (substitutes for bauxite deposits), and have thereby intimidated foreign producers * * * with the intent and effect of suppressing shipments of aluminum and aluminum products to the United States for sale in competition with Aluminum Company, * * *."
As all agree, the reference to foreign companies is alone to those in Europe. It does not include Canadian companies. It is conceded by Alcoa that it bought interests in European companies during the period 1920 to 1927. So the questions are:
(1) Did the actions of Alcoa restrain imports into the United States?
(2) Did those actions intimidate Europeans from shipping aluminum or aluminum products to the United States for sale in competition with Alcoa?Or, more accurately, was there agreement between Alcoa and the foreigners for either purpose?
At the beginning, it is worth noting that the Government charges appear to be inconsistent. There can be no conspiracy without concert between two or more. On the one hand, the Government alleges that there was agreement to restrict imports, -- obviously meaning that an agreement existed between Alcoa and the European producers to restrict imports into the United States. On the other hand, the Government alleges that Alcoa was seeking to intimidate the foreigners. But surely it is not intended, nor could it be maintained, that Alcoa agreed with the foreigners to intimidate them. Yet unless there was agreement, there was no conspiracy.
However, we need not rest on the inconsistency. Answers to the controlling questions can be derived from more important sources. There are several of these. Among them I think the most convincing are some tables. Those of consequence are tables 10 and 11.
For counsel to follow the tables without having before them copies, which I am now unable to supply, would be difficult. Nevertheless, with the minutes of my statement transcribed, containing the tables, before you, later by using items (instead of a lot of confusing foreign names) I hope the matter will be clear.
The first table is as follows:
European companies in which Alcoa acquired interests that it transferred to Aluminium.
A B C D E F
No. Bill Name Acquired Location Business
1 Northern Aluminium 1909 England Selling
2 70 Bauxites du Midi 1912 France Bauxite lands
3 60 Jadranski Bauxit 1921 Jugo Slavia Bauxite lands
4 61 Norsk Aluminium 1922 Norway Aluminum production
5 62 Det Norske Nitrid 1922 Norway Aluminum production
6 63 Carrieres de 1923 France Bauxite lands
7 Birmingham 1923 England Foundry
8 65 Laate-Foss 1924 Norway Water power rights
9 64 Fonderie de 1924 France Foundry
10 65 Det Norske 1924 Norway Water powers and
11 65 Kinservik 1924 Norway Water power rights
12 66 Mineraria Triestina 1924 Italy Bauxite lands
13 Aluminum Die 1924 Germany Foundry
14 69 Primorski Bauxit 1925 Jugo Slavia Bauxite lands
15 67 Societa 1925 Italy Aluminum production
16 68 Aluminio Espagnol 1925 Spain Aluminum production
17 Bauxites Francaises 1926 France Bauxite
18 Alcoa de France 1926 France Holding
19 70 Forces Motrices du 1926 France Water power rights
20 L'Aluminium Cable 1927 France Cable
21 71 Prodotti Chimici 1928 Italy Leucite
NOTE: Item no. 8 transferred in October, 1928; no. 21 in June, 1931; and all others on June 4, 1928. Nos. 1, 7, 13, 17, 18 and 20 are not mentioned in the bill.
This table lists, by name, 21 companies. Two of these were acquired by Alcoa preceding 1919. They are of little or no importance here. Indeed, substantially, they may be ignored. Of the 19 remaining names on the table, all had to do with properties or interests in properties situated in Europe which Alcoa acquired between 1919 and 1928, inclusive. The table consists of the names of all the European companies transferred, or interests in which were transferred, by Alcoa to Aluminum in 1928 plus one more. The additional one is Prodotti, item 21. Alcoa agreed in 1928 to transfer that company, but actually did not transfer it until 1931.
The second table is as follows:
Comparisons (in pounds) bearing on significance of Alcoa's acquisitions of Norwegian aluminum imported to U.S. 1919-1928.
Section 1. Comparisons of (a) total European production, (b) total imports from Europe to U.S., (c) total imports from Norway to U.S. and (d) total Alcoa acquisitions of (c).
A B C D
European Imported Imported Total of C
produc- from from acquired
tion Europe Norway by Alcoa
1919 130,953,240 5,257,600 223,995 (See note)
1920 115,741,500 27,689,847 6,592,890 00
1921 92,813,660 27,253,655 10,326,458 00
1922 106,261,720 32,181,233 6,884,925 343,047
1923 155,644,760 31,982,169 15,681,132 4,602,042
1924 195,768,480 23,441,999 16,868,983 9,335,490
1925 229,498,860 30,724,487 14,126,742 8,667,649
1926 246,274,280 55,117,087 19,868,944 15,197,185
1927 239,712,772 29,738,364 8,272,973 7,403,200
1928 265,590,366 14,456,202 3,809,720 9,327,056
Section 2. Analysis of Alcoa's acquisitions of Norwegian aluminum 1919-1928 (column D).
E F G H
Norsk D.N.N. not B less
exported exported stated columnD
1919 (See note) (See note) (See note) (See note)
1920 00 00 00 27,689,847
1921 00 00 00 27,253,655
1922 00 00 343,047 31,838,186
1923 2,518,283 1,346,666 737,093 27,380,127
1924 1,506,148 7,829,342 00 14,106,509
1925 782,849 7,884,800 00 22,056,838
1926 4,691,586 10,505,599 00 39,919,902
1927 33,600 7,369,600 00 22,335,164
1928 816 9,326,240 00 5,129,146
Section 3. Imports of aluminum to U.S. from countries of Europe (other than Norway) 1919 to 1928.
(a) From all (except Norway) for entire period.
United Kingdom 56,731,918
Total (four countries) 168,503,282
Total all Europe 175,185,881
(b) From four major exporting countries by years.
Kingdom France land Germany Totals
1919 2,864,642 2,168,963 00 00 5,033,605
1920 14,117,937 4,703,628 00 1,919,590 20,741,155
1921 6,653,600 814,621 5,410,448 3,701,052 16,579,721
1922 9,813,155 7,000,955 7,115,767 124,073 24,053,950
1923 6,880,939 1,785,733 6,393,760 1,240,605 16,301,037
1924 1,207,920 00 5,140,602 224,494 6,573,016
1925 2,888,898 224,000 8,553,818 4,481,057 16,147,773
1926 3,712,047 220,471 8,134,844 18,894,327 30,961,689
1927 5,429,281 4,252,246 6,623,406 5,159,921 21,464,854
1928 3,163,499 133 6,920,352 562,498 10,646,482
(c) From four minor exporting countries by years.
Spain Austria Italy lands Totals
1919 00 00 00 00 00
1920 00 00 342,195 13,607 355,802
1921 00 00 291,477 55,999 347,476
1922 00 551,147 184,856 506,355 1,242,358
1923 00 00 00 00 00
1924 00 00 00 00 00
1925 00 000 00 449,972 449,972
1926 00 3,502,503 00 783,951 4,286,454
1927 00 00 537 00 537
1928 00 00 00 00 00
NOTE: Column A from Ex. 985; columns B and C and section 3 from Ex. 458; columns E, F and G for 1920 to 1928 from Alcoa's answers to interrogatories 16 and 17, as amended (no figures there given for 1919); column D by adding figures for respective years in columns E, F and G; column H by subtracting figures in column D from those for corresponding years in column B.
Table 11 is in three sections. It contains a variety of statistics with respect to European producing companies and shipments of their products to the United States during the years 1919 to 1928, inclusive.
I believe that it will be helpful if, at the moment, I give some preliminary explanation of table 11, -- though I shall not complete my discussion of it in those preliminaries. I shall take up the table for further discussion later.
Table 11 is a comparison (in pounds) bearing on the significance of Alcoa's acquisitions of Norwegian aluminum imported into the United States in the period 1919-1928. There are three sections. In the third section there are three subdivisions.
Section 1 compares these items: (a) the total European production of aluminum by years for the entire period 1919 to 1928, which is set out in column A; (b) the total imports of aluminum from Europe into the United States for each of the same years, which are set out in column B; (c) the total imports of aluminum from Norway to the United States by years for the same period, set out in column C; and (d) the total Alcoa acquisitions of all the aluminum imported into the United States by years during the same period from Norway, set out in column D.
Section 2 is an analysis of Alcoa's acquisitions of Norwegian aluminum for the entire period, as set out in column D. In column E of section 2 Norsk aluminum imported into the United States is set out by years; in column F., D.N.N. aluminum imported into the United States from Norway is also set out; and in column G, the exportation of other aluminum from Norway during that period, the names of the exporters of which are not shown in the evidence. In section 2 there is a final column headed H. In that column there are set out the differences by years of aluminum imports into the United States, derived by substracting D (which is the total of aluminum imported from Norway that was acquired by Alcoa) from the total of aluminum imported during the period from Europe.
In section 3 there are set out, by countries, ther imports of aluminum to the United States from countries of Europe (other than Norway) during the period from 1919 to 1928.
In subdivision (a) the imports from all European countries except Norway are given for the entire period. In subdivision (b) there are given the figures for the importations by years from the four major European exporting countries, -- these being the United Kingdom, France, Switzerland and Germany. In subdivision (c) there are given the figures showing importations from the four minor exporting European countries, -- these being Spain, Austria, Italy and the Netherlands.
Coming back to section 1 of table 11, I call your attention to a fact which should be borne in mind. You will remember that I said yesterday that, previous to Alcoa acquiring interests in the Norwegian companies, it made express provision in the contract for the acquisition of the Norsk interests of a clause which exempted it from going forward with the contract until after the proper Government authorities in this country had passed on the matter. You will recall also that I said that, pursuant to and in execution of that clause of the contract for acquiring that company, application was made to the United States District Court at Pittsburgh for a modification of the consent decree of June 7, 1912, in the Pittsburgh case. The essence of the modification was a declaration by the Court in a supplemental decree that such acquisition of Norsk and D.N.N. would not be a violation of any prohibition contained in the 1912 decree.
The clause to which I call your attention is contained in the modifying decree of October 25, 1922 (Exhibit 1009, exhibit p. 4944).
In the supplemental decree it is provided that the so-called consent decree of 1912, which was rendered June 7, 1912,
"* * * shall be and the same is hereby modified so that nothing therein contained shall be considered or construed to enjoin or restrain the defendant, the Aluminum Company of America or any company or companies subsidiary to or affiliated with it from, at once or from time to time, acquiring, holding, exercising all rights of ownership in, and disposing of, any interest or interests, either controlling or otherwise, in the capital stock or securities of the companies mentioned in the 5th paragraph of this petition, * * *."
The companies mentioned in the fifth paragraph of the petition are the Norwegian companies which are now under consideration.
The modification decree, as I have said, was rendered on October 25, 1922. Until it had been obtained, Alcoa was not in position to close its arrangement with either of the Norwegian companies. The arrangement was closed with the Norsk Company in time after October 25, 1922, to enable Alcoa to import some of the Norsk aluminum into the United States during the remaining part of the year 1922. On the other hand, as to Det Norske Nitrid (or D.N.N. as it is commonly called) the arrangement, on some account, was not closed in time to permit any of the D.N.N. aluminum to be imported either during 1922 or sufficiently early in the year 1923 to give us figures of their importation of D.N.N. aluminum for the entire year 1923. In consequence, the first year as to which we have complete figures for D.N.N. aluminum being imported is 1924.
With the axplanation given, I wish now to call your attention to some of the figures in toble 11. In doing that I shall use generally round figures rather than all the details.
In 1923 the total European production af aluminum was 155 million pounds. Of that there was imported into the United States that year a total of 32 million pounds. For the same year (1923) of the 32 million pounds imported into the United States from Europe, 15,700,000 pounds came from Norway. Similar figures continue for each of the years. For the entire period from 1919 to 1928 the total imported from Europe was 278 million pounds. Of those importations approximately 103 million pounds came from Norway. You can get from this table the number of pounds for each of the years and draw your own deductions with respect to the importations as to each year.
In the same period, from 1919 to 1928, out of the total of aluminum imported from Norway approximately 55 millions came to Alcoa. In other words, a little in excess of half of all the aluminum imported from Norway during that period was imported by Alcoa.
In section 2 the figures of importations by Alcoa of Norwegian aluminum by years are broken down; and note that in 1919, in 1920, in 1921 and in 1922 no aluminum came either from Norsk or from D.N.N. to Alcoa. During the period 1919-1922 the only Norway aluminum that came to Alcoa was from an exporter whose name is not shown in the evidence. The importation from this third person other than Norsk or D.N.N. was in 1922 and its total was only 343,047 pounds.
Turning now to the years 1923 to 1928, dealing with the portion of all the aluminum that came from Norway to Alcoa for that period, that which came from Norsk was 9,533,282 pounds and that which came from D.N.N. was 44,262,247 pounds; or if we wish a comparison for the years as to which we have complete figures for both companies, towit, for the year 1924 and down to and including the year or rather the fraction of the year 1928, the total of importations from Norsk was 7,014,999 pounds and from D.N.N. was 42,915,581 pounds, an approximate total for both companies of 50 million pounds.
In this connection, that you may have it in mind when you read the table, it is to be remembered, as I have said, that these figures are not for the complete year 1928, because the companies or the properties of Alcoa in foreign countries, including those in Norway, were transferred to Aluminium on the 4th of June, 1928. We have, therefore, less than half a year in 1928 during which Alcoa had any concern under the contracts that were theretofore in existence with the Norwegian companies.
Another fact which must be borne in mind, as you will see on examining the table, is that the figures given for 1928 seem out of balance. The explanation of that, as I conceive and as I understand from the evidence, is that there were outstanding on June 4, 1928, some contracts that were not then completely fulfilled and that were later fulfilled; and thereby additional importations by Alcoa from Norway came into the figures which are included in the table for 1928. That and that alone, as I believe, is the explanation of the lack of precise balance of the figures of the imports from Norway for the year 1928.
As I have told you, in column D of section 1 of table 11, there are given the total importations of Norwegian aluminum by Alcoa for each of the years. We, of course, are concerned at the moment only with the years 1923 to 1928.
Perhaps I should call your attention further to the fact that, as will appear by column D, there were no importations of Norwegian aluminum to Alcoa for the years preceding 1923 save the single item of 343,047 pounds which came to Alcoa from an exporter whose name is unknown.
In column H, as I have also heretofore explained, it should be observed that there are set out by years the totals of the importations for the several years by persons in the United States less Alcoa's Norwegian importations. It is matter of interest to compare what those were. In other words, by comining column D and column H for consideration, we can get a compari son of the importations from Norway for these several years by Alcoa and by others than Alcoa in the United States.
In 1923, still using round figures, the figures for Alcoa were 4,600,000 and for others 27,400,000; in 1924, for Alcoa 9,300,000 while for others than Alcoa 14,100,000; in 1925, for Alcoa 8,700,000 and for others 22,000,000; in 1926, for Alcoa 15,200,000 and for others 39,900,000; in 1927, 7,400,000 by Alcoa and 22,300,000 by others; in 1928 (and here you will see an illustration of where you must reconcile figures and I think they are reconcilable along the line I have heretofore explained) by Alcoa 9,300,000 and by others 5,100,000.
In subdivision (a) of section 3 there is included a statement of the importations from all European countries except Norway for the entire period. The total importations from the four principal countries was 168,500,000, which, when we add the importations from the four smaller countries, carries the total for all of Europe except Norway to 175,000,000. Remember that those are the figures for the total importations from all European countries except Norway, whereas, on the other hand, the total of the importations from Norway for the same years was 102,700,000 pounds.
In subdivision (b) of section 3 you will find the figures of the importations for the same period by years from the four major European exporting companies. In subdivision (c) you will find the figures for the importations from the four minor European countries. I shall have occasion later to call attention in some detail to the importations from the latter.
I have said that, after completing some preliminaries with respect to tables 10 and 11, I should then add some comment. An inevitable consequence (or perhaps I should say one of the defects) of employing my methods is that, having taken very few notes of different parts of what in advance I contemplate saying, when I proceed beyond what is covered by the notes, not infrequently there occurs some repetition. In what I am about to say now there probably will be repetition of some things I have said already. However, no harm will result.
In its reply brief, page 267, the Government says that, except in the case of the Norsk Company (a part of whose stock, of course, Alcoa bought), it "does not consider it necessary to take up in detail each individual acquisition or proposed acquisition of foreign porperties during the period in question." Its contention is that "all followed essentially the same pattern."
I agree that, outside of Norsk and Det Norske Nitrid (commonly called D.N.N.) as I have said, the two Norwegian aluminum producing companies, items 4 and 5 of table 10, there is no occasion to go into the details of any item in the table.
Nevertheless, we do need a background in order fully to comprehend the significance of the table. Such a background should furnish some history of Alcoa's acquisition of the companies transferred by it to Aluminium; also something of the history of a part of the companies which, as you will see when I give you the history, were not included in the transfer, because Alcoa no longer owned them.
In 1891 or 1892 Alcoa built a plant at Saint Michel in France. There it began the manufacture of aluminum. How long the plant continued does not appear. Alcoa sold the property many years ago; precisely when is not stated (pp. 5275-8; 5297). The sale was far in advance of the time with which we are presently dealing. It is on this account that the Saint Michel company is not included in table 10. It does not now concern us.
Four companies which were included in the table can be or may be entirely disregarded. These are items 1, 2, 18 and 21.
Two (items 1 and 2) were organized or acquired by Alcoa preceding the first World War. One of those was a mere sales agency. No. 18 was a holding company. No. 21 (Prodotti Chimici Napoli) was purchased (that is, its stock was purchased) by Alcoa on May 31, 1928, -- only four days before the general transfer of 29 companies to Aluminium on June 4, 1928. In addition, the sole activity of Prodotti was experimenting with leucite to ascertain if that ore could be used as a substitute for bauxite. Moreover, none of the four companies referred to (items 1, 2, 18 and 21) relates to any alleged misconduct complained of as having occurred in the period (1919-1928) under consideration.
There remain 17 of the 21 companies. These 17 are Nos. 3 to 17, 19 and 20 of table 10. The dates they were organized or acquired, according to the bill, ran from 1921 to 1927. Several of the dates alleged differ from those established by the proof, but the variances are immaterial and will be ignored.
Of the 17 companies five were located in Norway and 12 were located outside of Norway, All were located in Europe. The five in Norway were Nos. 4, 5, 8, 10 and 11. For convenience, they will be called the major group -- that is, inside of Norway. They will be discussed hereafter.
The 12 companies, located outside of Norway, will be called the minor group. They will now be treated briefly.
Of the minor group (that is, outside of Norway), items 3, 6, 12, 14 and 17 were concerned exclusively with bauxite lands; items 7, 9 and 13 with foundries; items 15 and 16 with aluminum production; item 19 with water power rights; item 20 with cable.
Items 15 and 16 are the only companies of the minor group that produced aluminum. They are, therefore, really the only ones in that group in which we have any genuine interest at the moment. Item 16 was situated in Spain and item 15 in Italy. Part of the stock in each was bought by Alcoa in 1925.
As I have heretofore explained, Exhibit 458, summarized in section 3 of table 11, gives the facts as to shipments of aluminum by European countries to the United States from 1919 to 1928. Spain, as shown by subdivision (c) of section 3 of table 11, shipped none to the United States either before or after the 1925 purchase of stock in the Spanish company by Alcoa. The Italian company in which Alcoa took stock was Alluminio Italiano. Alcoa is not shown to have received any aluminum produced by that company either before or after the stock was purchased in 1925. Italy as a whole shipped to the United States only small amounts preceding 1923; none in 1919, none in 1923 and none in 1924. All those years were before Alcoa bought stock in the company. Only 537 pounds were shipped from Italy in the three years after stock was bought by Alcoa and there is no basis in the evidence for inferring that Alcoa influenced the Italian company not to ship.
It seems to me manifest from the statistics to which I have called attention that no foundation has been shown for any of the charges against Alcoa with respect either to the Spanish or to the Italian company.
But there is other evidence which supports the conclusion I have reached, resting on statistics, as to the Spanish and Italian companies.
In the first place, both were very small. Operations were carried on behind high tariff walls. Preceding as well as following Alcoa's buying stock in them, the sales of their products were wholly or almost wholly confined within the countries where they respectively were located.
Again, as shown without dispute, nothing Alcoa did had any observable effect, nor is there evidence that it had any effect, on the commerce of the United States (pp. 4862-7; 4873-80; 4884; 14280; 20631-34A). As elsewhere pointed out, and as I believe counsel agree, where there is no such effect the transactions do not come within the influence of the Sherman Act. For that reason alone, in passing on the issue now before us, we need give no further attention to the Spanish and Italian companies.
The line of cases holding that what does not directly and materially affect the commerce of the United States is excluded from regulation by the sherman Act perhaps is most helpfully elucidated -- not originally laid down, but elucidated -- in Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S. Ct. 982, 84 L. Ed. 1311, 128 A.L.R. 1044. See also United States v. Gold, 2 Cir., 115 F.2d 236.
Outside of the Spanish and Italian companies there are ten other companies in the minor group. In their nature the matters heretofore described in which these remaining ten companies (outside of Norway) were engaged likewise could not directly or materially affect the commerce of the United States; nor does the evidence establish that, after Alcoa acquired interests therein, so far as affects United States commerce, there was material alteration in their practices in regard to those matters.
As to the entire 12 items constituting the minor group, the evidence is somewhat sparse; but, as I feel, the proof is plainly insufficient to support a finding that the interests of Alcoa in them were employed, either wholly or partly, to restrain the commerce of the United States.
Thus we are brought to consider the Norwegian companies, heretofore called the major group. This consists, as I have said, of five companies. Of those, only items 4 and 5 of table 10 could really present any matter for consideration in the present connection. Those items are Norsk Aluminium and Det Norske Nitrid (D.N.N.). They produced and sold aluminum. That is the reason we now have an interest in them.
Aside from Norsk and D.N.N., three companies, described in table 10, should now be recited. These are Nos. 8, 10 and 11. They held water power rights. Their property consisted wholly or mostly of such rights. No. 10 also held electrode process patents.
Of all the water power rights companies, we may say, as has heretofore been said of items in the minor group, the proof does not warrant finding that Alcoa's interests therein were employed in restraining, nor did they directly or materially affect, the commerce of the United States. Indeed, it is difficult to conceive how any such companies could be used so as direclty or materially to restrain the commerce of the United States.
Eliminating the three companies mentioned, our inquiry is reduced to two remaining members of the major group. As I have heretofore said, these are the Norsk and D.N.N. companies.
For the purpose of refuting charges that Alcoa's interests in Norsk and D.N.N. were used to cut down imports into the United States, or to intimidate the major European aluminum companies from competing with Alcoa in the United States, it would be enough to call attention to table 11 which I have previously discussed rather fully. In it there are compiled figures which are relevant to the subject. There already has been comment on the statistics. Now I am going a bit more into details.
It will be helpful to a comprehension of the full meaning of the table, however, to get in mind some of the pertinent surrounding facts. These are as follows:
Representatives of both Norsk and D.N.N. took the initiative in efforts to induce Alcoa to become interested in their enterprises. The Norsk negotiations started in June, 1920; the D.N.N. negotiations about July, 1921.
At the time the negotiations began both companies were and long previously had been financially embarrassed; also the plants of D.N.N. actually had been closed.
Different schemes, particularly as to Norsk, were discussed before one acceptable to both sides was found.
The final arrangements as to the two companies were as follows: (1) In 1922 that Alcoa should take one-half the Norsk stock. (2) In 1923 that Alcoa should take one-third of the D.N.N. stock and by virtue of that stock be entitled to get and sell for its own account one-third of the output of the D.N.N. plants, for the production of which one-third Alcoa should furnish the requisite raw materials. The Norsk plan, however, did not get into operation until, in accordance with the understanding between the parties (Exhibit 22; Exhibit 162, exhibit p. 898), both proposed purchases had been submitted to the Department of Justice (Exhibits 23, 24 and 25). As a result of the submission, as I have heretofore said, a supplemental decree was obtained in the Pittsburgh case to the effect that the acquisitions did not come within the prohibitions of the 1912 consent decree. That, as I have said, was not made until October, 1922 (Exhibit 1009, exhibit pp. 4938-45). I have previously read from that decree.
It is for this reason, as I believe I have previously said, that the first statistics for a full year's operation are as to Norsk for 1923 and as to D.N.N. for 1924.
Preceding 1922 the total imports into the United States of aluminum produced by Norsk, since its organization in 1915, had been less than one million pounds (Exhibit 892, exhibit pp. 4138-9; 4151. See also Exhibit 21, exhibit p. 73).
At the time of the Norsk negotiations the Norwegian currency was depreciated. The effect of this was recognized by Norsk's director who conducted the negotiations. He said, as is obvious, "when the Dollar exchange grows more normal the production cost in cents will increase" (pp. 2231-2; Exhibit 12, exhibit p. 53). The return to normal of the currency did not occur until 1927. It was accompanied by increase in taxes and rise in manufacturing costs. The consequence was that in 1927 Norsk lost money from its operations (Exhibit 892, exhibit pp. 4136-7).
On June 4, 1928, the day of the transfer by Alcoa to Aluminum of numerous properties and as a consequence of the transfer, Alcoa ceased to have any interest whatever in either Norwegian company (except, perhaps, as I have pointed out heretofore, the completion of fulillment of shipments under a contract already then in existence and not yet completely fulfilled); but the evidence does not furnish the means for separating into parts the 1928 figures in table 11 as of that precise date (June 4, 1928).
Turning again to table 11 it is clear on its face, from casual inspection, that (1) from 1921 to 1928, inclusive, there was a steady annual increase in aluminum production by the European companies as a whole; (2) in 1920 to 1926, inclusive, with slight variations, there was substantially continuous growth in the size of the total annual imports of aluminum into the United States from Europe; (3) the imports of aluminum into the United States from Norway (column C) grew, with only slight variations, with approximate steadiness each year from 1923 to 1926.
I feel that the variations which appear in the table, instead of being a weakness, are a strengthening factor. To my mind they indicate that the influence of competition was at work.
It must also be remembered that from 1915 to 1922 the total importation into the United States of Norsk aluminum was, as previously stated, less than one million pounds. Comparison of columns E and F makes clear that beginning with 1924, when the arrangement with D.N.N. to turn over one-third of its stock to Alcoa went into effect, and continuing to 1928, the receipt by Alcoa of an increased amount of aluminum (shown in column D) was largely attributable to this identical arrangement. The figures in regard to that are for Norsk 7,014,999 pounds and for D.N.N. 42,915,581 pounds, -- a total of approximately 53 million pounds.
When these figures are taken into account, the increases of gross quantities of aluminum produced in Norway, which were acquired by Alcoa, are shown to be not materially disproportionate from the increases in size of either total European production or total imports from Norway.
As I see it, the facts demonstrate that competition in the United States by European aluminum producing companies was not diminished as a result of Alcoa acquiring interests in the Norwegian companies; also that the European companies were not deterred at all, much less by intimidation, from shipping aluminum to the United States for sale in competition with Alcoa.
It is true that what Alcoa received from the Norwegian companies and sold in the United States doubtless was commingled with what Alcoa itself produced in the United States. Nevertheless, if diminution or elimination of any competition occurred, it does not follow that intimidation either of Norwegian or of other European companies was the cause of it; nor, if it was the bona fide purpose of Alcoa to supply the needs of its own customers which it was unable to meet out of production at its own United States plants, would diminution of competition (if any occurred) have constituted violation of the Sherman Act.
That Alcoa correctly forecast the future course of its own business and prudently adopted the measures it took in 1923 and 1924 with respect to equipping itself to provide against shortages in its own United States production, -- which began in 1925 and continued for three years (pp. 5071-2; 5403), -- is brought out by a summary showing pounds of aluminum (in round figures) of Alcoa's production of ingot and sales of commodities, in the form of ingot or other articles fabricated at its United States plants, as follows:
In the year 1925 the sales were 195,000,000 pounds; the production was 140,000,000 pounds, -- resulting in a shortage for that year of 55,000,000 pounds.
In 1926 the sales were 189,000,000 pounds; the production was 147,000,000 pounds, -- leaving a shortage of 42,000,000 pounds.
In 1927 the sales were 185,500,000 pounds; the production was 163,500,000 pounds, -- leaving a shortage of 22,000,000 pounds.
Alcoa's intent not to violate the law in the Norwegian companies transaction is further substantiated by its submission of the matters, before finally going into them, both to the Attorney General of the United States and to the United States District Court at Pittsburgh.
I am persuaded by the evidence that, as he declared to the Attorney General in May, 1922 (Exhibit 25, exhibit p. 83; p. 4902), the dominant motive of Mr. A. V. Davis, in acquiring interests in European properties and companies, was to meet the necessity, which he conceived confronted Alcoa, "of providing for future expansion, presumptively outside of the United States" (pp. 4903; 4909; 5342; 5402-3; 18387-98; 18444-7; 19200-4; 19274-5; 19282-3; 20661; 21244-5; 21487-8; 22548-53; 33246-7) for anticipated later, as well as immediate nearby, growth of Alcoa.
Even though, however, I be mistaken with respect to some of the conclusions heretofore stated relating to the interests in European companies and properties acquired by Alcoa, as I conceive there are three separate reasons why the Government is not entitled to prevail against Alcoa in regard to those matters. These are as follows:
(1) The Government has failed to show that foreign acquisitions by Alcoa, or Alcoa's behavior in connection therewith, either directly or materially affected the commerce of the United States. Cf. United States v. Hamburg, etc., C.C.S.D.N.Y., 200 F. 806, 807; Schechter Poultry Corp. v. United States, 295 U.S. 495, 547, 548 55 S. Ct. 837, 79 L. Ed. 1570, 97 A.L.R. 947. See also Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S. Ct. 982, 84 L. Ed. 1311, 128 A.L.R. 1044. In the Hamburg case [200 F. 807], cited by both sides, the test is pithily stated in these words: "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?" I think it manifest that, on the evidence, this test has not been met by the Government in the case at bar.
(2) In 1928 the parties agreed that Prodotti company (No. 21 of table 10) would be sold, and in 1931 it was actually turned over, to Aluminium. As shown by the bill (paragraphs 60 to 71) and the evidence (p. 16474; Alcoa's answers to interrogatories 2, 535 and 536; Exhibit 386, items 3 and 4. See also pp. 1877; 14148-9; 16474), Alcoa completely disposed of all the remaining properties now involved. The evidence discloses no danger of Alcoa again becoming the owner of any of those foreign properties. Therefore, it would not be proper for the Court to award an injunction concerning them.
(3) Moreover, the evidence does not warrant a finding that the properties under discussion constitute, or that any of them ever was, a material element in building up or in the success of Alcoa. In consequence, a dissolution of Alcoa, on account of the acquisition of those properties, would be wholly without justification. Yet dissolution is the only possible form of civil punishment open under the law, if Alcoa has violated it, in regard to the acquisition of those Eruopean properties, -- of which it got rid 13 years ago. The only other means for seeking punishment is by criminal indictment.
This brings me to the discussion of a matter which has previously been referred to, but only briefly. This is the subject of prices.
It has heretofore been pointed out that if the foreigners and Alcoa sell aluminum in the United States at uniform prices, that does not necessarily indicate absence of competition or agreement not to compete. If prices have been uniform, that is only one fact which may be considered along with other facts in order to determine the significance of the whole set of facts. Also, as previously stated, prices at which sales of aluminum were actually made are of much more significance than list prices or quotations.
In addition, I have previously stated that I would assemble some facts indicating that prices were not really uniform during the period under consideration.
Some of the witnesses testified rather generally that in 1919 to 1928 (or part of that period) foreign "quotations" were not "substantially lower" than or were "practically the same" as prices "quoted" by Alcoa; or that foreign producers sold in the United States at "practically the same" prices as Alcoa's prices (pp. 2274; 3061; 3063; 9456-7).
It is notable -- at least so far as I have observed -- that in every instance cited the questions -- apparently with scrupulous care -- were framed so as to draw out information relating to quotations and to avoid inquiry as to prices which prevailed in trading transactions that actually occurred. This is the testimony on which the Government chiefly relies for support of its contention that, in effects, foreigners and Alcoa sold at what, as taked about, were identical prices.
Some of the Government's witnesses also undertook to give exact figures, or ranges of figures, at which foreign producers have sold in the United States. When these are examined, however, it will be seen that generally, and I believe without exception, they were lower than Alcoa's prices. Furthermore, whether the differences in specific figures are so small that they are not "substantially" or "practically" variant from Alcoa's prices manifestly rests on the opinions of the witnesses then testifying to the point. Those opinions are worthless unless substantiated by fact testimony. Perhaps the best test to apply is that which the Government itself has employed as its definition of competition. In essence it is this: Where rivals offer to sell the same prospective customer, how much difference in price is required to induce acceptance of the lower figure?
As will be seen and must always be true, one price by foreigners may be so much less than the price of Alcoa for aluminum of the same grade and quantity that no one could reasonably deny that the foreigners' price was "substantially" or "practically" lower. The problem is to ascertain the line of demarcation. The evidence on this branch of the inquiry is not very full or detailed; but, so far as I can discover, what is definite is without serious dispute and in all instances, or at any rate in nearly every instance, where the facts are brought out and the foreigners got the business, they put their prices below those of Alcoa. Clearly those instances are important. The testimony relating to them, therefore, will be assembled.
Though not of direct bearing, it may be worthwhile also to have in mind some of the circumstances existing during the 1919-1928 period affecting sales of aluminum in the United States by European producers.
In the first place, the cost of producing aluminum is and, save when conditions have been abnormal or very unusual, long has been less in Europe than in the United States. In the second place, European manufacturers are and long have been accustomed to join and to deal under cartels among themselves. Certainly as far back as 1923, and from then through 1928, there was a cartel or there were cartels, as between themselves, among all or some of the European aluminum producers. Apparently also a cartel continued to 1931, although when it began is not shown. At the trial counsel referred to two of which the evidence furnishes the dates as the 1923 cartel and the 1928 cartel. In the third place, the testimony is undisputed that members of the cartel or cartels acted together in making sales of aluminum in the United States. In the words of one of the witnesses, in their selling in the United States customarily the cartels competed as a "unit" (pp. 21713; 21861-5. See also p. 22700). In the fourth place, frequently, as heretofore noted, sales of aluminum have been made at actual prices quite different from, and when different generally below, list or quoted prices.
I shall not undertake here to recite all the evidence on the question of prices. There is quite a lot of evidence on the issue. Some of it consists of and its purport can be gathered by my setting out fourteen items. These are as follows:
(1) Mr. Haskell, the president of Baush, a vigorous competitor of Alcoa, said that in 1919 to 1932 his company bought aluminum from the British, French, Swiss, German and Norsk companies (pp. 2262-74; Exhibit 26; Exhibit 140). He also said that the "quotations" of the foreigners were "a little lower, a fraction of a cent," and in one instance his company "bought" at a cent, lower than the quotations of Alcoa (p. 2274).
From the list of Baush purchases (Exhibit 26) we must exclude sales by the General Aluminum & Brass, and American company, because the origin of the aluminum there mentioned is not shown and is unknown. I shall omit also deliveries or purchases from a forign seller made in 1929 under a contract of January 25, 1928.
After eliminating the items just specified, Exhibit 26 shows that under contracts dated between May 22, 1919, and January 25, 1928, and by December 19, 1928, the deliveries to the Baush Company were 5,336,014 pounds from European countries and 510,044 pounds from Alcoa; in other words, ten for one. The witness further said that "usually" the foreigners sold at from one-quarter to one-half cent a pound lower than Alcoa, though sometimes his company could break the price of the foreigners one cent; that the maximum concession to him by the foreigners was one cent below Alcoa, but that was for a comparatively short time (pp. 2315; 2336-8). Again, he testified that sometimes he bought aluminum from foreigners and paid them for aluminum of 98-99 grade, but required and tested for, and would not use unless it tested, 99 per cent grade (pp. 2160-1; 3459-60). 99 per cent, of course, was of higher grade than 98-99 per cent.
(2) Mr. Babson and Mr. Daniels, other officers of the Baush Company, testified that from 1920 to 1930, substantially, the price quoted by the four European companies was "always" the same as Alcoa's quoted price (pp. 3060-3); but that, during practically the entire period of the operations of the metals division of the Baush Company (which covers all the time it was concerned with aluminum), Baush purchased 98-99 per cent aluminum from the foreigners who "always" delivered 99 per cent (the higher grade) or better at from 4/10ths of a cent to one cent a pound less than Alcoa's price for 99 per cent grade (pp. 3459-60). Mr. Daniels said specifically that when his company bought metal as of 98-99 per cent grade from the foreigners, he analyzed it and "always" found the grade to be 99 per cent or better (p. 3460).
(3) In 1926 the Baush Company, three of whose officials just mentioned were witnesses for the Government, made a contract with the Swiss Company to purchase 600,000 pounds of 99 per cent or better ingot, for delivery in 1927, at 26 cents a pound. There was, however, a supplemental letter agreement that if, during the period of the contract, Alcoa should reduce its then current price of 27 cents for the same grade of aluminum, the Swiss Company would reduce its price by an amount equal to the reduction, applicable to the undelivered portion of the contract as of the date of the reduction (pp. 2338-41; Exhibit 26, contract No. 169, October 20, 1926, exhibit p. 94; Exhibits 34 and 88).
(4) It is undenied that from its inception until it quit the aluminum business, the Baush Company bought nearly all its aluminum from the foreign aluminum producing companies and that when the sales agent of Alcoa sought orders from it (at least from 1925 onward) Baush (without inquiring Alcoa's price) refused to buy and said that it had an adequate supply from other sources (pp. 35079; 35090; 35099; 35105-7). The latest date shown in writing (Exhibit 26) on which Baush purchased any aluminum from Alcoa was July, 1923.
(5) Mr. Main, the purchasing agent for an automobile company, testified that his company bought a "lot" of aluminum from the British Company at a price lower than he could get it from Alcoa. He said that the British price was "always" one-eighth to one-quarter of a cent lower than Alcoa's price (pp. 4314; 4324).
(6) Mr. Harwood, of the Fulton-Harwood foundry at South Bend, Indiana, testified that in 1921 his company bought 600,000 pounds of aluminum from the French Company at one cent to 1-1/2 cents a pound lower than Alcoa's price (pp. 4427; 4471). Prior to 1922 the South Bend company bought from foreigners at from 1/8-cent to 1-1/2 cents a pound below what the witness said his company paid Alcoa. He also said that on an average his company paid three-quarters of a cent per pound less than the price from Alcoa (p. 4471); and that in 1922 his company bought from Norsk at "a little less than we could buy aluminum for in America" (p. 4432).
(7) Mr. Waltz testified that the foreigners sold him and he paid for 98-99 per cent aluminum; but that 99 per cent or over was delivered (p. 9458). He further said that Alcoa charged him 1-5th of a cent additional for 99 per cent aluminum (p. 9458). The same witness stated that in 1925, when acting as a broker for the German Aluminum Company, on its instructions he sold between 3000 and 4000 tons of aluminum, part of it at 26 cents a pound when the market price was 27 cents a pound and part of it at 26 cents a pound when the market price was 28 cents a pound (pp. 9494-7; 9583); that is, from 1 cent to 2 cents below the United States market price.
(8) Mr. Hunt, the president of Alcoa, who from 1919 to 1928 was concerned with the sales for his company, testified that the foreign companies competed with his company and quoted ingot for sale in the United States at from 1/2 cent to 1 cent, and sometimes even at 2 cents, below Alcoa's price (pp. 21682; 21685); that the foreign companies frequentldy delivered a higher grade than they quoted, charging for the lower grade, e.g., they would quote and ship 99 per cent when they billed it as and charged the price of 98 per cent grade (pp. 21685; 21687-8); that in many instances the foreign companies undercut Alcoa's price and seemed to do so regularly on sales in the United States (p. 21861).
(9) Mr. Gibbons, one of the vice-presidents of Alcoa, said that "as a rule" the foreigners quoted prices from 1/2 cent to 2 cents below the current prices offered by Alcoa (p. 22690).
(10) Mr. Simmons, the assistant general sales manager of Alcoa, who in 1923 to 1928 was a sales agent of Alcoa, gave a full account of his experience with five named United States buyers of aluminum (Precision, Buffalo Bronze, Anstice, Northwest Foundries and Oberdorfer Brass) located in his territory at the time, whom he solicited and to whom he made few and to some no sales for the reason, assigned by his potential customers, that the foreigners gave lower prices (pp. 35568-72; 25760-66; 35775-82; 35791-4).
(11) Mr. Hellings, a former assistant sales manager of a castings corporation for a part and its sales manager for the remainder of the 1919-1928 period, then a competitor of Alcoa (pp. 30738-9), testified. He said, and the documents (Exhibits 1531, 1532) he produced showed, that in 1926 the Swiss Company sold his company 500,000 pounds of aluminum at 26 cents a pound for delivery in installments during 1927 when Alcoa's published price was 27 cents a pound and made a side agreement that if, during the life of the contract, Alcoa lowered its price below 27 cents, the Swiss Company would correspondingly reduce the price on the undelivered portion of the contract; e.g., if Alcoa reduced its price to 26 cents, as it actually did before any delivery was made, the Swiss price would go down to 25 cents, so that the price at which the castings corporation got the entire 500,000 pounds was 25 cents (pp. 30771-2; 30773-4; 30849-55). Apparently this is a transaction similar to that about which another witness testified to the same effect.
(12) In 1927 the British company sold the same castings company from 800,000 to 1,200,000 pounds of aluminum (with buyer's option to take either) at 26 cents under a similar arrangement; and when Alcoa's price went down 1 cent, the price to the castings company (which had contracted with the British company) went down 1 cent also, that is to 25 cents a pound (pp. 30772-4; 30855-6; Exhibit 1524).
(13) The witness also said that he later bought on the same terms, though the arrangement was not put in writing, from the Swiss and British companies (pp. 30773-4; 30851-3). Exhbit 1533 shows that from 1919 to 1928 the castings company bought 5,700,000 pounds of aluminum from those companies.
(14) Exhibit 26 shows that many purchases of aluminum by Baush were made from the European producers and Alcoa in 1919 to 1928; Exhibit 575, by Sheet Aluminum Corporation from foreign and American companies in 1925-1928 (p. 10866); and Exhibit 634, by Aluminum Products Company from European producing companies and Alcoa (pp. 11678-80). Analysis of these indicates that they contain numerous illustrations of rather wide variations between the prices of foreign companies and the prices of Alcoa. If the prices there set out apply to aluminum of the same respective graces of about the same dates, there were many instances during the period now under consideration when the prices of the foreigners (f.o.b. destination in U.S. and duty paid -- the customary terms of such sales in this country) were higher and a number when they were lower than those at which Alcoa was selling in the United States.
I cannot be sure whether the last group of comparisons I have made are accurate. This is due to the lack of explanatory details in the testimony. From my examination of the documents, however, I am confident, according to my interpretation of them, that they contain nothing pointing toward identity of prices at the same time in Europe and the United States.
After weighing all the testimony my conclusions are these:
1. There is nothing in the evidence by which with certainly I can determine -- or even can say there is great probability of -- how great must be the difference in a lower price from a higher price to cause a customer to shift from one seller to another. The Government disposes of the matter by a mere assertion. It says, in substance, that the differentials shown are too small to disclose a competitive market (original brief, pp. 676-7; 678-9; reply brief, pp. 30-1). Save by its assertion the Government does not attempt to sustain its position. In view of the facts assembled from the record, however, I am impressed that many of the differences were in fact entirely sufficient, -- in the absence of some special reason to the contrary in individual exceptional cases, -- to draw the average customer to buy from the one offering his goods at the lower price.
2. I have discovered in the record only two definite examples bearing on the size of the difference in price that may win a customer seeking to buy aluminum. Both occurred after 1928. In the first Alcoa asked Baush 19 cents a pound f.o.b. shipping point. The German company offered to sell Baush at 18-3/4 cents delivered in New York. The British and the Swiss each asked 22.9 cents. The German company got the business (pp. 3458; 3539-43). In the second case the French company got an order from Reynolds Metals Company where its price was 17.1 cents and Alcoa's price was 19 cents (p. 21866).
It must be recognized that those two instances are not conclusive. Yet if the 1/4 of a cent or 1.9 cents be a fair criterion, then the evidence certainly establishes at least that when competing with Alcoa the foreigners have offered to sell and have sold at prices below Alcoa's price at the time by much more than 1/4 of a cent or even 1.9 cents a pound.
I feel that the evidence as to actual prices supports Alcoa's claim, and, along with other evidence heretofore assembled, demonstrates that during the period of 1919 to 1928 Alcoa and the foreigners were not in conspiracy to commit any of the offenses charged in the bill.
I have now completed discussion of the four arguments I mentioned yesterday, which, as I understood, the Government advanced in support of its contention that for the period immediately preceding June 4, 1928, -- whether we call it 1916 to 1928 or 1919 to 1928 or 1922 to 1928, -- there was a "tacit" understanding or conspiracy between Alcoa and the European companies of the kind charged by the Government or of any kind. As already indicated, I think that none of the charges can properly be sustained.
We come now to the period subsequent to June 4, 1928, and running from then down to date.
The Government charges that there were two separate conspiracies existing after June 4, 1928, to which Alcoa is alleged to have been a party: (1) a conspiracy with Aluminium and (2) a conspiracy with foreign aluminum producers. That it is correct to interpret the bill as charging a conspiracy between Alcoa and Aluminium, regardless of the foreigners, is indicated by the Government's original brief. At page 690 of the brief it was said of this period that the proof demonstrates that "Alcoa and Aluminium Limited, as between themselves, and irrespective of relations with the foreigners, conspired to restrain the trade and commerce of the United States." Again, at page 783 of the brief, it was said:
"The Government maintains that irrespective of the foreign producers, Alcoa and Aluminium Limited conspired to fix prices and restrain imports into the United States."
Before taking up the inquiry whether the evidence shows guilt, it would be well to recall the situation in which, following Aluminium's organization, Alcoa and Aluminium found themselves. It is particularly important to have in mind what were the problems of Aluminium and what was the plan by which it undertook to solve them. The facts are without substantial dispute.
As heretofore stated, in its inception Aluminium was composed of or held stocks or other interests in 29 foreign companies or properties (both, for convenience, hereinafter sometimes referred to, as they were referred to in the trial, as the foreign companies). These were transferred to Aluminium by Alcoa on June 4, 1928. The consideration for them received by Alcoa was all of Aluminium's common stock. At about the same time it was agreed that Alcoa would later transfer to Aluminium three additional foreign companies.For these three companies Aluminium would pay cash. Thus the arrangement was for the transfer by Alcoa to Aluminium of 32 foreign companies. It was of these that Aluminium was to be composed.
With a few exceptions, previously noted, Alcoa had acquired the 32 companies (or the properties out of which they grew) in the years 1920 to 1927, inclusive. When it began their assembly, and for a considerable time thereafter, Alcoa believed that use of the companies as a supplement to its United States properties, and for its own further expansion, would be a good scheme. Gradually it changed this view. By 1928 it has reached the conclusion that the preceding plan was a mistake; also that a better plan would be, with a few exceptions, to transfer all its foreign companies to a Canadian corporation.
The grounds for the 1928 opinion may be described, in substance, as follows:
The old plan of Alcoa had failed in an important respect. The causes of its failure were (1) inability of Alcoa to give needed attention to the foreign business and (2) the inherent difficulty of its efficiently running both the domestic and the foreign properties as a single enterprise.There were both chief reasons and subordinate reasons for adopting the new plan.
Perhaps the most important reason was the conviction that the foreign companies were more likely to develop properly if segregated into a separate group and an organization provided to concentrate on their management. Another major reason was the fact that in countries where the properties were located, particularly in the British Empire, there had grown up a strong feeling that producing and selling manufactured commodities generally should be in the hands of localized organizations. For example, in the British Empire the Campaign to "Buy British" had attained great popularity. This means that throughout the British Empire it was widely urged that preference be given to goods which came from part of it (that is, were produced in the Empire).Gradually the opinion was formed that a positive business advantage could be gained by catering to this feeling which (as was believed) then prevailed and to an increasing extent had already pervaded not only the British Empire but also all or most of the other countries where Alcoa had interests outside of the United States.
The Alcoa officials thought also that Canada was especially well fitted, and probably was better fitted than any other country, to be the home of a new corporate owner of the foreign companies. This was partly because the largest and most valuable of those to be turned over by Alcoa to Aluminium were in Canada and partly because, with its principal plants located in Canada, the British Empire would afford more advantages than any other country for success under the new program.
There were two lesser grounds for favoring the transfer to a new corporation, -- though I am not certain what influence either of those grounds had. The first of these was that it would solve a personnel difficulty which had grown to be of concern to Mr. A. V. Davis. The second was that it would enable him individually to prepare for eventual retirement from headship of the whole Alcoa enterprise as it then existed.
The personnel problem concerned two officials who had been with Alcoa for 25 years. These were Mr. Roy Hunt, son of Alcoa's first president, and Mr. Edward K. Davis, younger brother of Mr. A. V. Davis. They had entered Alcoa's service in 1903. One had risen to be vice-president in charge of manufacturing; the other to be vice-president in charge of sales. Each had done well. Mr. A. V. Davis felt that both deserved and were well fitted for promotion. He also had the notion that if Alcoa were separated into two distinct parts and one of the vicepresidents were made the independent head of the domestic (United States) business and the other of the foreign business, discrimination between the two would be happily avoided.
Mr. Haskell, when on the stand, said that in 1924 Mr. Arthur V. Davis had indicated to him that he (Mr. Davis) was looking forward to retirement. This idea was not new in 1928. Mr. Davis then thought that if he could be relieved of active executive duties, by passing them into competent hands, he might appropriately become chairman of Alcoa's board.
Mr. A. V. Davis was the author of the idea out of which grew the plan of Mr. E. K. Davis assuming the practical details of the foreign business. As Mr. A. V. Davis felt, the primary reason for parting with all but a few of the foreign holdings was, in his words, as follows (pp. 19039-40):
"We were not giving sufficient attention to business outside of the United States, and what attention we were giving to that business was necessarily unsatisfactory in character, and the motives in forming Aluminium Limited were to have an organization which would devote itself exclusively to the foreign business, I mean foreign business outside of the United States, and to the building up of an organization whose work would be of a character which would be satisfactory. That was the main motive. It could perhaps be equally well expressed by saying that inasmuch as we were not satisfied with the growth and size of our foreign business, we felt we ought to do it better and make more of that business and make it bigger. But in order to do that we had to have as we conceived it or I conceived it, an organization such as we eventually set up and cut loose from Alcoa."
So much by way of introduction.What then was the alleged conspiracy between Alcoa and Aluminium?
What is claimed to have been the conspiracy is variously described by the Government in paragraphs 72 to 76 of the bill. It is well summarized at page 783 of the Government's original brief. There the statement about the two companies during the period following June 4, 1928, was as follows:
"There are three phases of the relations between Alcoa and Aluminium Limited which have been declared by the courts to be strong evidence of conspiracy: (1) The close personal and commercial relationships between them; (2) The element of common stock ownership; and (3) The failure to compete."
The Government has assigned no other reason for its insistence that it has proved there was the conspiracy at the stage presently under consideration. Apparently the contention rests, and I believe rests entirely, on what the Government claims to be the evidence supporting the three aspects mentioned in the last quotation from its brief. All of these will be taken up, but not in the same order stated. Unless out of the evidence bearing on them the charge of a conspiracy at the time between Alcoa and Aluminium (apart from the foreign producers) be established, the Government must fail on this branch of the case.
The first of the grounds to be considered is what has been called, and during the trial frequently called, the small group of stockholders' control. Probably this ground is more urged than is any other of the three relied on.
Although my statements involve some repetition, let us have clearly in mind at this stage that Aluminium, as it came finally to exist, was composed of 32 companies, or the properties connected with those companies, that it acquired from Alcoa. 29 of the companies (or the properties underlying them) were acquired on June 4, 1928, and were acquired in exchange for all the common stock of Aluminium. The other three going along with the 29, to make up the 32 companies, were transferred, or the property underlying them transferred, to Aluminium by Alcoa for cash.
Before taking up the distribution of the Aluminium stock among Alcoa's stockholders, -- on which rests the first main contention of the Government that the conspiracy is established by the existence of what is referred to as the small group of stockholders' control, -- let us briefly consider the situation growing out of a single fact and consider it as of the precise moment when that fact came into existence.
The single fact to which I have referred is that on June 4, 1928, the entire Aluminium stock passed into a single hand; that is, into the hand of Alcoa. Did that, in and of itself, constitute or establish a conspiracy such as is denounced by the Sherman Act? For example, suppose at that moment, with the conditions I have described, the Government had instituted an action, such as that now on trial, under the Sherman Act. In that action, so brought on those facts, would the Government have been entitled to succeed?
In order to bring out with clarity -- I hope with clarity -- the point I am about to present for consideration, I shall employ a rather extreme illustration.
Suppose ten persons had joined in an enterprise. One of the purposes of the ten was to organize a corporation to engage in the production and sale of steel ingot. Suppose the same stockholders at the same time also organized a corporation to engage in the production and sale of corn flakes.Could it be maintained that the facts that the stockholders in those two corporations were identical and that they joined together to create the two corporations, each individually to share alike in the stock of both corporations, would render them guilty of conspiracy?
I think obviously the answer must be in the negative. If so, then it follows that mere identity of the stockholders in two corporations does not establish either restraint of trade or attempt to restrain trade or confederation to restrain trade.
Let us put the case a bit differently. Let us change the picture slightly.
Suppose the steel ingot corporation was in existence with the same ten persons as its stockholders. Suppose that thereupon they withdrew from the steel ingot corporation funds with which they organized and paid for the stock issued by the corn flakes corporations; or suppose they withdrew from the steel ingot corporation properties which they transferred to the corn flakes corporation, which they then organized. Suppose also that in this instance, as in the first situation described in this paragraph, there were the same ten stockholders each owning in the cereal corporation the identical number of shares and the identical proportion of shares that he owned in the steel corporation. On those facts could it be said that thereby there was committed the offense of conspiracy as defined in the Sherman Act?
I take it that no one for a moment would undertake to sustain the proposition that in either of the two situations I have last described there would be a conspiracy.
The steel ingot and the corn flakes companies were entirely separate corporations. Nevertheless, they had the same stockholders. Every stockholder held absolutely and relatively the same number of shares in each of the corporations. Are the facts as I have outlined them in any of the supposed groups of circumstances different in essence from the situation that existed on June 4, 1928, as between Aluminium and Alcoa, at the moment when, on that day, Alcoa placed in the hands of Aluminium the 29 companies or the properties underlying them, which it had withdrawn from its own assets, and Aluminium delivered all its stock to Alcoa?
If none of the sets of transactions I have supposed constituted a conspiracy, why is that so? Why was it not a violation of the Sherman Act? It seems to me clear that one reason is this: The Sherman Act is composed solely of prohibitions. It contains no prohibition of common ownership by the same group, and in the same relative proportions, of the stock of two companies; there is no prohibition of that condition any more in the case where the condition has come into being through transfer from one corporation to another of part of the transferor corporation or part of its assets, in exchange for stock of the transferee corporation, than there would be if ten persons were to do precisely as I have supposed in the illustration of the steel ingot company and the corn flakes company -- organize two separate corporations, each consisting of stockholders whose absolute and relative participations in the stocks of the two companies were identical. In other words, the facts (1) that the stockholders of two corporations are identical and (2) that each stockholder owns the same number of shares in the one corporation as in the other corporation do not, in and of themselves, establish that the Sherman Act has been infringed.
The rule is universal, -- approved by the Supreme Court and denied by nobody, -- that there is no violation of the Sherman Act unless what is done be prohibited by that statute.
The Government has made an argument which, as I have been led to believe, it considers to be an adequate response. A number of times the Government has put its response in the form of a question. This is that if what was in the mind of Mr. Arthur V. Davis, and what was in the minds of the people who joined in the enterprise, in substance, was to carry out the intention professed by Mr. Davis (namely, to segregate all or most of the foreign companies or properties belonging to Alcoa into a separate organization), why was not the purpose accomplished by Alcoa transferring to one of its subsidiaries, -- whether one of its then existing Canadian subsidiaries or a subsidiary that it might then have organized for the purpose under the laws of Canada, -- the identical stock or properties with which Alcoa purchased from Aluminium all of Aluminium's common stock?
To the argument of the Government Alcoa has answered that if the plan now proposed by the Government had been followed, Alcoa would not have been able thereby to accomplish the purpose, and certainly not one of the main purposes, which most induced it to go into the new plan it had formed. Alcoa says that if it had undertaken to employ a subsidiary to effect or to provide the machinery for the plan, for the very reason that it was a subsidiary of a corporation existing under the laws of the United States it would not have had, and could not have obtained, the benefits which constituted one of the chief moving reasons for organizing the new transferee corporation under the laws of Canada.
Alcoa goes further. It says that if it be mistaken with respect to that view on its part, then at least great doubt would have been cast on the new corporation getting or entitling itself to get the benefits of the widely disseminated feeling in the British Empire that manufacturing enterprises in any part of the Empire, corporations organized under the laws of any subdivision of the Empire, should enjoy the special benefits that went along with the sentiment that was manifested in the slogan of "Buy British."
Alcoa, however, does no stop with this answer as constituting its entire refutation of the suggestion by the Government that transfer to a subsidiary might or could have been adopted and, if Alcoa's plan actually were what it professed, ought to have been adopted. An additional answer on which Alcoa relies is that it had the right to do what it did and that no law stood in the way; that the Sherman law did not stand in the way nor did any other provision of law, either in or out of the Sherman law, stand in the way. In other words, what Alcoa says is that the plan it pursued was not prohibited nor was it unlawful.
As I see it, the position of the Government that a subsidiary ought to have been employed cannot properly be sustained. As I see it also, the legal position of Alcoa is sustained by the authorities, including the decisions of the Supreme Court of the United States. If this be true, then we must inquire into the facts; for it is from the facts, and the evidence as to the facts, that a determination must come as to whether or not there was a conspiracy.
I shall, therefore, turn now to the situation resulting from the distribution of Aluminium stock. It is on such distribution that the Government predicates its contention. Indeed, without distribution of the stock to the stockholders of Alcoa, the situation on which the Government relies would never have arisen; the sole basis for the argument that the transaction constituted a conspiracy is that out of it came into being the small group control of both companies.
Upon the distribution of the Aluminium stock ratably to the stockholders of Alcoa it turned out that there were three stockholders of Alcoa who together owned 51.3 per cent of the common stock, which was the only stock, of Aluminium. They also retained the same percentage of Alcoa common stock. In time I shall go into this phase of the matter at some length and recite the facts. The facts which I have just stated, standing alone, however, should be noted and kept in mind; namely, that at the inception three Alcoa stockholders owned 51.3 per cent of the common stock of Alcoa and the same percentage of the common stock of Aluminium. The Government lays great stress on those facts. Obviously they are of great importance in considering the problem which is presented.
I have prepared two tables relating to stockholdings in the two companies on different dates. One is table 12; the other is table 13. At the moment I shall not go into the details of what is included in the tables; but I hand them to the reporter for insertion at this stage in the minutes.
The tables are as follows:
Number of shares of Aluminium and Alcoa common stock held by holders of majority of Aluminium common stock January 2, 1939, showing their holdings in (a) Aluminium January 2, 1939; (b) Alcoa same date; (c) Aluminium September 20, 1937; and (d) Alcoa same date.
January 2, 1939 September 20, 1937
A B C D E
Held in Held in Held in Held in
Stockholders' names Aluminium Alcoa Aluminium Alcoa
1. A. V. Davis 74,299 168,049 75,378 169,249
2. R. K. Mellon 56,388 128,685 1/2 113 140
3.Sarah M. Scaife 56,275 128,545 1/2 00 00
4. Ailsa M. Bruce 52,275 60,000 2,000 00
5. Paul Mellon 50,000 102,500 00 55,000
6. R. A. Hunt 20,798 55,306 21,848 55,306
7. Maria T. Hunt 12,633 16,000 12,633 16,000
8. E. K. Davis 8,498 14,689 9,231 14,889
9. G. R. Gibbons 4,026 14,394 4,277 14,394
10. G. H. Clapp 2,214 37,700 3,414 37,700
11. Trustees for Issue 1,860 59,900 1,035 22,400
of Ailsa M. Bruce
Totals 339,266 785,769 129,929 385,078
NOTE: Column A from schedule B of Ex. 774; columns B and C from schedule B of Ex. 774; columns D and E from schedule A of Ex. 774.
Sundry percentage comparisons by dates of holdings of common stock in Alcoa and Aluminium.
Section 1. June 4, 1928: Same in both companies; 3 stockholders held 51.3% in each company. By September 20, 1937, the sole survivor of the three (A. V. Davis, p. 5358) held under 12% of the stock of each company.
Section 2. January 2, 1939: 11 Aluminium stockholders held a majority of its stock.
Section 3. Shares of identical stockholders holding some stock in both companies, though in all except a negligible number of instances holding different percentages of stock in each of the two companies on September 20, 1937:
June 4, 1928 September 20, 1937
Alcoa and Alcoa Aluminium
Total percentages 100% 81.53% 83.93%
Held by brokers 0 3.65% 5.88%
Net 100% 77.88% 78.05%
Section 4. Holdings of stock in both companies by Alcoa Officers and directors and their immediate families and the immediate families of A.W. and R. B. Mellon:
September 20, 1937 January 2, 1939
Alcoa Aluminium Alcoa Aluminium
Shares 773,250 365,984 824,675 348,904
Percentages 52.51% 54.08% 56% 51.56%
Deducting shares held in trust will leave:
Shares 746,079 344,609
Percentages 50.66% 50.92%
NOTE: Section 1 from minutes, pages 13871-4; section 2 from table 12; section 3 from Exhibits 402, 421 and 774; and section 4 from Exhibit 774.
By 1939 there had been considerable change in the personnel of the stockholders of Alcoa, as well as in the numbers of shares that many of Alcoa's stockholders then held in Aluminium. By 1939, instead of three stockholders of Alcoa owning and holding a majority of the common stock of Aluminium as was true in 1928, it required eleven of the largest stockholders of Alcoa to hold a majority, -- and they held only a bare majority, -- of the stock of Aluminium. In other words, in the intervening eleven years the number of stockholders of Alcoa required in order to constitute their holdings of Aluminium stock a majority had risen from three to eleven.
It should be noted that the statement just made ignores four holding companies named in Exhibit 774. In 1937 they were record stockholders of both Alcoa and Aluminium. In 1938 they were dissolved. They will be referred to hereafter; but, in connection with the phase of the matter now under consideration, I think they cut no figure.
Of the eleven 1939 stockholders of Aluminium these things may be said:
(1) It does not appear how many as of the 1939 date got their Aluminium stock in 1928 or in what amounts though it does appear from table 12 itself that of the eleven largest 1939 stockholders four acquired all or substantially all of their stock in Alcoa and Aluminium subsequent to September 20, 1937.
(2) Only one of the eleven together holding the majority of Aluminium stock had in 1939 the same number of Aluminium shares as he or she had in 1937 (that is, but two years previously) and in the two years 1937 to 1939 five had increased and five had decreased the number of 1937 holdings of Aluminium stock.
(3) In 1939 four had the same number of Alcoa shares as in 1937, while five had increased and two had decreased the number of 1937 holdings of stock in Alcoa.
It is not only indisputable, but it is undisputed, that the majority stockholders of Aluminium possessed the power to control the company. The question, however, as to whether or not they violated or participated in the violation of the statute turns on whether they combined to exert that power by having Aluminium join Alcoa to restrain trade or to restrict imports or joined in a combination to do either. How then shall that be determined?
Where the question was whether a corporation, which acted through subsidiaries, was engaged in interstate commerce, in Electric Bond Co. v. Securities and Exchange Commission, 303 U.S. 419, 440, 58 S. Ct. 678, 686, 82 L. Ed. 936, 115 A.L.R. 105 the Supreme Court said, and as I conceive we can say here, "It is the substance of what they do, and not the form in which they clothe their transactions, which must afford the test." So in United States v. United States Steel Corp., 251 U.S. 417, page 451, 40 S. Ct. 293, 299, 64 L. Ed. 343, 8 A.L.R. 1121, as I have noted previously, the Court said that the Sherman Act does not make "the existence of unexerted power an offense. It, * * * requires overt acts, and trusts to its prohibition of them and its power to repress or punish them. It does not compel competition, nor require all that is possible."
Later to some extent I shall review the testimony; but I say now that clearly the Government has failed to show such overt acts and, hence, it has failed to establish a conspiracy between the stockholders themselves. We are, therefore, driven to inquire whether, apart from mere stockholdings, there is evidence as to the conduct of Alcoa and Aluminium which establishes the existence of a conspiracy between them. That conduct will now be discussed.
The first phase of it to which the Government calls attention is the failure of Alcoa and Aluminium to compete in each other's markets.
The charge that Alcoa and Aluminium did not compete in each other's markets is made in several forms; but nowhere more definitely than in paragraph 74 of the bill. There the statement of paragraph 72 was repeated, that failure to compete resulted from common control of the corporations by a small group of identical stockholders. In paragraph 74 it was alleged that this resulted from agreement among the corporations.
Paragraph 74 had best be read in full. It is as follows:
"Defendant Aluminium Limited produces large quantities of aluminum at low cost in Canada and Norway, and has shipped occasional quantities of aluminum to the United States for sale to Aluminum Company, but it does not export any aluminum to the United States for sale in interstate trade and commerce in competition with Aluminum Company although the United States is a logical market for products of Aluminium Limited; and Aluminum Company does not export any aluminum, or any products fabricated therefrom, for sale abroad in competition with defendant Aluminium Limited which directs its own operations so as to aid and supplement the operations of Aluminum Company and other corporate defendants. The failure of Aluminum Company and defendant Aluminium Limited to compete with each other is the result of the common control of said corporations by a small group of stockholders and of agreements and understandings between said corporations."
At the beginning let it be emphasized that, as the Supreme Court has said, the Sherman Act does not require persons to compete. It is, of course, unlawful for them to agree not to compete; but in order to establish a violation of Section 1, it is essential to show concert between at least two persons, -- that is, agreement to refrain from competing.
It is not suggested that in the case at bar there is direct evidence of agreement between Alcoa and Aluminium not to compete. The Government's sole contention is that from the evidence it may be, and that it should be, inferred that there was such an agreement. Does the evidence warrant this inference? The defendants involved say that Aluminium had a free hand and that, without pressure from and without agreement with Alcoa, Aluminium adopted the course it pursued.
October 8, 1941
I should like to make some additions to my statements of yesterday as to how tables 12 and 13 were made up.
I turn first to table 12.
The total of the common stock of Alcoa was 1,472,625 shares. Half of that is 736,312 1/2 shares. A majority, therefore, is something above the figure last given. The total of common shares of Aluminium was 676,737. Half of that would be 338,368 1/2. A majority, therefore, would be anything which is more than the latter figure.
I have already brought out that on January 2, 1939, it required eleven of the Aluminium stockholders to hold a majority control of the stock of the company. The eleven then having the greatest number of shares each together had a total of 339,266 -- which is a little less than 900 in excess of a bare majority.
Of the shares of Aluminium owned by Alcoa's stockholders on September 20, 1937 (table 13, section 3), 83.93 per cent of the Aluminium stock was held by holders of 81.53 per cent of Alcoa stock. However, a substantial quantity of the stock of each of the companies stood in the names of brokers. Of course, nobody would known without considerable inquiry, and probably nobody could find with certainty, who were the owners of the stock standing in the names of the brokers. Particularly is this true in large commercial centers. Deducting the stock standing in the names of brokers, then on September 20, 1937, 78.05 per cent of Aluminium stock was held by the holders of 77.88 per cent of Alcoa stock.
You will further observe from table 12 that, whereas on January 2, 1939, it required the holdings of the eleven largest Aluminium stockholders to make a majority (and they held 339,266 shares) of Aluminium common stock, on September 20, 1937 (less than a year and a half earlier), those identical eleven stockholders of Aluminium on the latter date held in Aluminium only 129,929 shares, -- although it will be noted that table 12 disregards the beneficial interests of stockholders of Alcoa and Aluminium held by holding corporations in 1937 as well as the effect of the dissolution of those holding corporations in December, 1938. This aspect of the matter has not been disregarded and will be gone into later.
If table 12 be correct and what I have said about it be accepted, then its significance is that it constitutes a demonstration that usually time does away, or can and is almost sure to do away, with control of a corporation by any small group of stockholders. Of necessity the result follows from voluntary sales by, or from insolvencies of, or from deaths among, the general mass of stockholders or from a combination of those causes or possibly from other causes.
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