DISTRICT COURT, S.D. NEW YORK
September 30, 1941;
ALUMINUM CO. OF AMERICA et al. (Part 1 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.
I approach the rendition of a decision with great diffidence. There are several reasons for this. Some of them I think should be explained.
For me there are four chief difficulties. The first is the size of the record. The second is a condition of the law applicable, -- to which I shall refer. The third is the outcome, including especially the divergencies in the outcome, of sundry previous litigations. The fourth is certain features of the testimony, particularly conflicts, imposing the responsibility of passing on relative credibility of witnesses.
According to my estimate, the record consists of upwards of 58,000 pages.That number is made up of 41,722 pages of minutes, what counsel on both sides have referred to as 15,000 pages of exhibits and what, according to my own estimate, exceeds 1,500 pages of answers to interrogatories.
The size of the record is not surprising in view of the proceedings which continued for two years and two months, actually consumed in the trial, regardless of certain proceedings that occurred preceding the commencement of the trial on June 1, 1938, and certain proceedings which have followed the closing of the taking of testimony on August 14, 1940.*
During the time of the actual trial there were 155 witnesses. There were introduced or offered, and mostly introduced, 1,803 exhibits. The interrogatories and answers, nearly all printed but partly typewritten, are about nine inches thick. Many of the pages in the exhibits and in the answers to the interrogatories would consume as much as four pages of the ordinary size for minutes, others three pages, others two.
So that in giving you my estimate of 58,000 pages I think not improbably it is considerably under the actual number if we were to translate the exhibits and the interrogatories into pages of the ordinary court minutes size.
The second trouble is with the law. There are three branches that are brought into the case and as to which there must be rulings. These are the Sherman Act, the patent law and the tariff law -- including the Anti-Dumping Act, 19 U.S.C.A. §§ 160 to 173.
At the moment I shall not discuss the provisions of the patent law or the tariff law, but shall take up those later when I reach a branch of the case to which they chiefly relate. For the present I shall discuss only the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, and that to the limited extent of trying to make clear to you what, as I conceive, is the difficulty that arises from the law itself in reaching a correct decision in the case at bar.
In a lay sense every sale of every article, of any kind, that is the subject of interstate or international transaction, restrains trade. A shopkeeper who sells an apple restrains the trade of his next-door neighboor who also sells apples. Plainly, and as matter of common sense, that is not the meaning of restraint of trade as the phrase is used in the Sherman Act. That the Sherman Act does not employ "restraint of trade" in any such sense has been decided, and attention called to its real significance, by the Supreme Court over and over again. So also the Supreme Court has specifically directed attention to the fact that every sale restrains some other sale.
In Board of Trade v. United States, 246 U.S. 231, at page 238, 38 S. Ct. 242, at page 244, 62 L. Ed. 683, Ann.Cas.1918D, 1207 the Court said:
"The case was rested upon the bald proposition, that a rule or agreement by which men occupying positions of strength in any branch of trade, fixed prices at which they would buy or sell during an important part of the business day, is an illegal restraint of trade under the Anti-Trust Law. But the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition."
So the Court, as I have indicated, has frequently drawn attention to the sources from which we are to derive the meaning of "restraint of trade" as that term is employed in the Sherman Act.
The Sherman Act was adopted in 1890. As is manifest from reading the proceedings in Congress during its consideration, and indeed from considering only what appears on its face, the terms employed in the Sherman Act were derived directly from the common law. The consequence is that those words have the meaning which they had at common law.
During the pendency of the trial of this case, on May 27, 1940, an opinion was handed down by the Supreme Court in Apex Hosiery Company v. Leader, 310 U.S. 469, 60 S. Ct. 982, 84 L. Ed. 1311, 128 A.L.R. 1044. There, after referring to the statute as having been adopted by Congress in 1890, at pages 497, 498 of 310 U.S., at page 994 of 60 S. Ct., 84 L. Ed. 1311, 128 A.L.R. 1044, the Court said this:
"In seeking more effective protection of the public from the growing evils of restraints on the competitive system effected by the concentrated commercial power of 'trusts' and 'combinations' at the close of the nineteenth century, the legislators found ready at their hand the common law concept of illegal restraints of trade or commerce. In enacting the Sherman law they took over that concept by condemning such restraints wherever they occur in or affect commerce between the states."
I refer to the Apex Hosiery case, however, for a more important purpose than that of reading the extract I have just quoted. At page 489 of 310 U.S., at page 989 of 60 S. Ct., 84 L. Ed. 1311, 128 A.L.R. 1044, there occurs a statement which really focuses attention on the exceeding responsibility and on the difficulty of a judge who has to decide a Sherman Act case. No longer than last year the Court said this:
"The prohibitions of the Sherman Act were not stated in terms of precision or of crystal clarity and the Act itself did not define them. In consequence of the vagueness of its language, perhaps not uncalculated, the courts have been left to give content to the statute, and in the performance of that function it is appropriate that courts should interpret its word in the light of its legislative history and of the particular evils at which the legislation was aimed."
The Court has gone further and a number of times has issued admonitions addressed to the judges, perhaps also intended for members of the bar. Three extracts from those opinions will illustrate these.
In Maple Flooring Association v. United States, 268 U.S. 563, at page 579, 45 S. Ct. 578, at page 583, 69 L. Ed. 1093, in 1925 the Court said:
"* * * it should be remembered that this court has often announced that each case arising under the Sherman Act must be determined upon the particular facts disclosed by the record, * * *."
Again, in Sugar Institute v. United States, 297 U.S. 553, at page 600, 56 S. Ct. 629, at page 642, 80 L. Ed. 859 in 1936 the Court said:
"* * * the Sherman Act, * * * does not go into detailed definitions. * * * in applying its broad prohibitions, each case demands a close scrutiny of its own facts."
So also in United States v. Hutcheson, 312 U.S. 219, at page 230, 61 S. Ct. 463, at page 465, 85 L. Ed. 788, in which the opinion was handed down this year, the Court, when speaking as of the date of the adoption of the Clayton Act, said:
"By the generality of its terms the Sherman Law had necessarily compelled the courts to work out its meaning from case to case."
Both on the facts and the law, if there were no other features, I think, therefore, we should realize that decision of a case of the kind now on trial imposes on the judge who must make it a responsibility which is grave and a burden which is heavy.
The third feature contributing to my difficulties arises out of the volume of anti-trust proceedings against Alcoa which have been heretofore terminated, including an account of what happened in those proceedings.
The first of these was a suit by the Government, brought in the United States District Court for the Western District of Pennsylvania, the proceedings in which are in evidence in the present case as Exhibits 1009 and 1010. The decree in the case was rendered on June 7, 1912. There will be occasion several times later to refer to that case and I shall call it, as it has frequently been called at the trial, the Pittsburgh case.
The decree contained sweeping injunction provisions. Sections 1, 6 and 7 particularly include clauses which are quite broad. In so far as there were issues in that case which are raised or sought to be raised also in this case, what was determined in the Pittsburgh case is res adjudicata and cannot be made the foundation and cannot contribute to sustaining a foundation basis for this suit. In other words, when charges have been made and adjudicated by the courts, those same charges and the bases for them cannot be employed as the basis of another suit; they have exhausted the ground of complaint growing out of what was involved in that case and adjudicated by the decree in that case.
The result is that, so far as concerns what was brought within that case by the pleadings and was passed on there must be excluded from my consideration as a part of the cause of action sued on in the case at bar. The limit to which I can go is that, in determining the intent of the Aluminum Company of America, the sole defendant in that case, I may take into account things done by the company that are in evidence here which were mentioned in that case.
The second legal proceeding was that brought by the Federal Trade Commission against the Aluminum Company of America, to which I shal refer, as we have referred to it throughout the trial, as Alcoa. In that suit the complaint was about transactions related to the Cleveland Metal Products Company.
The Cleveland company was in financial difficulties. The evidence in the case at bar indicates that those difficulties grew primarily out of Government action during the World War. At any rate, the officials of the Cleveland company informed Alcoa of their embarrassment and asked for help. Alcoa was a creditor for a considerable amount. A plan was worked out for the formation of a new corporation, called the Aluminum Rolling Mill Company. The stock in that new corporation was divided between the Cleveland Metal Products Company, or its proprietors, and Alcoa. The Federal Trade Commission brought suit to compel Alcoa to divest itself of the part of the stock that it had received. The Commission was successful. There was an appeal to the Circuit Court of Appeals for the Third Circuit. In 1922 the decision below was affirmed in Aluminum Co. of America v. Federal Trade Comm., 284 F. 401.
As matter of course Alcoa proceeded, as it was directed, to divest itself of the stock. Nevertheless, the debt to Alcoa had not been paid. There was merely an unscrambling operation. Accordingly, Alcoa brought suit to recover a judgment on its debt. The Commission thereupon renewed its proceeding and sought an order adverse to Alcoa.However, that suit was not successful, and the Commission's petition to modify the earlier decree was denied in 1924. The denial of the petition, by the same Circuit Court of Appeals, is in 299 F. 361.
The third legal proceeding to which I call your attention is one that was brought by the Federal Trade Commission against Alcoa. There were numerous charges and grounds of complaint. The proceeding was pending from 1925 to 1930. The testimony was approximately 10,000 pages and there were numerous exhibits.
The violations of law charged were under the Federal Trade Commission Act, 15 U.S.C.A. § 41 et seq. and the Clayton Act. Nevertheless, as you will see from what I shall read in a moment, there were issues of fact of the identical kind that can be raised under the Sherman Act and what makes the particular proceeding of greater consequence in its bearing on creating difficulties for the judge is that among the issues determined, as between the Commission and Alcoa, were some which were identical with issues that are now involved in the case at bar.
The Examiner made findings on December 16, 1929. The whole history of the case can be obtained by reading Exhibits 138, 139, 153 and 256. These exhibits are to be found at exhibit pages 602-18, 827-42, 1716-89 and when I say "exhibit pages" I think all of us understand that the reference is to the printed copies of exhibits.
The findings of the Examiner were affirmed by the Commission and were in favor of Alcoa. The findings are at pages 1784-9 of the printed exhibits; also at pages 6655-61 of the minutes of the present trial.
The findings are quite extensive. I shall refer to only eight and from these I shall read only brief extracts. The respondent in this proceeding, as I have already explained, was Alcoa. Among the findings the Examiner made were eight, as follows:
1. "The record also shows that respondent [Alcoa] never attempted to monopolize the scrap market; that it is impossible to do so, the scrap market being so scattered and diversified and in such great available quantities that one concern, no matter how large its purchases, could never corner the said market."
2. "Respondent has no monopoly on bauxite (the ore of aluminum); there being sufficient supplies of bauxite in the world, exclusive of respondent's holdings, available for many generations to come."
3. "Respondent has no monopoly on water power; its holdings now being only a small per cent of the available water power in the world."
4. "The respondent does not now nor has it ever attempted to control or dominate the policy of the Aluminum Goods Manufacturing Company."
5. "Respondent has never attempted to control and does not now control the market for foreign aluminum in the United States."
6. "That foreign aluminum is imported into the United States and competes with respondent in the sale of virgin aluminum ingots."
7. "There is no arbitrary or direct differential between the purchase price of scrap aluminum and the selling price of virgin aluminum. The purchase price of scrap depends upon the law of supply and demand."
8. "That respondent has never had a monopoly of the sand casting industry of the United States."
Of course, I realize that what the Commission found is not evidence in support of or adverse to the position of Alcoa in this case, nor has it any direct bearing upon this case. For one thing, the pleadings here are quite different. They extend over a period long following the period that was covered by the Commission. In referring to the matter my sole concern is to draw attention to the circumstances as indicative of the difficulty that faces the judge who must decide this case. It is to be noted, for example, that on some of the exact issues now facing me the Commission found squarely in favor of Alcoa. Yet twelve years later, partly on substantially the same evidence and partly on additional evidence, I am asked to hold the other way.
The fourth litigation was a suit brought by Mr. Haskell, who was president of the Baush Machine Tool Company. Defendants in that suit were the executors of Mr. James B. Duke. The complaint by Mr. Haskell was of violations of the Sherman Act by which he individually suffered damage. There was a judgment for him in the trial court.
An appeal was taken to the Circuit Court of Appeals for the Third Circuit. Its opinion on the appeal, handed down in 1929, is found in Perkins v. Haskell, 31 F.2d 53. The judgment below was reversed. In its opinion the Court of Appeals reviewed the testimony and declared that there was no evidence to sustain a finding of an agreement between Mr. Duke and Mr. Haskell with respect to the matters involved, -- which related to the aluminum industry and Alcoa.
The fifth litigation is one which occurred between the Baush Machine Tool Company and Alcoa. The suit was first brought in 1928 in Massachusetts. It was not pressed there. Another suit for the same cause of action was brought by the same plaintiff against the same defendant in the United States District Court for Connecticut in 1931. The case was tried twice, once for eleven weeks at New Haven in 1933 and again at Hartford for nine weeks in 1935. In one trial Alcoa won; in the other trial Baush won. In other words, there were two trials of the same case. The plaintiff succeeded in one and the defendant in the other. Both decisions were reversed by the Circuit Court of Appeals for this Circuit, in Baush Machine Tool Co. v. Aluminum Co. of America, 72 F.2d 236 and Id., 79 F.2d 217.
I shall not go into any details of explanation, because it is not essential, as to why the decisions below were reversed. The significance is that two juries in the same case, perhaps because there was some variance in the testimony, reached opposite conclusions.
The fourth difficulty arises out of my having to pass on the credibility of a great many witnesses. That difficulty would not be so great but for these circumstances: The testimony runs over a period of more than 50 years. Many persons having first-hand knowledge have died or were not produced. We are therefore without the benefit of testimony which, if the case had been tried a great many years ago, might have been available.
I explain again that my sole purpose in referring to the facts into which I have gone at some length is to point out the difficulties that I am compelled to face in rendering a decision. The variegated nature of the conclusions reached in the proceedings mentioned, of itself, carries a warning that my task is not easy.
Sixty-three defendants were named in the present suit. Ten were not served. There was a dismissal as to one. Ond corporation included as a defendant was dissolved before the suit was commenced. Deducting those twelve from sixty-three left fifty-one defendants. Of the fifty-one, several individuals died and the suit has been revived as against their successors. Of the fifty-one also two corporations were dissolved pending suit. That left, therefore, forty-nine defendants.
The forty-nine defendants are divided into four groups or rather, to state it more accurately, the defendants consist of two groups and two individual companies.
The first group has been referred to throughout the trial as Alcoa. It is composed not alone of the Aluminum Company of America (commonly called Alcoa) itself but also of its subsidiaries, directors, officers and stockholders who have been named as defendants.
The original name of the principal defendant was Pittsburgh Reduction Company. This was changed in 1907 to Aluminum Company of America. Again in 1925 there was a merger and the same name was taken by the new company.
I shall continue to refer to the entire first group, as counsel have done during the course of the trial, as Alcoa. Furthermore, as matter of fact, the evidence shows that the subsidiaries actually are mere departments of Alcoa.
The second group is made up of a Canadian company, called Aluminium Limited, and three of its officers. They also will be treated as one, under the name, which we have employed throughout the trial in identifying them, of Aluminium.
One of the additional corporate defendants is Aluminum Manufactures, Inc., which stands out, without subsidiaries or directors or officials or anybody connected with it, as a single defendant. As heretofore, this will be hereafter referred to as Manufactures.
The last individual corporate defendant is the Aluminum Goods Manufacturing Company. As in the case of Manufactures, this last named company has no officers or directors or subsidiaries who are parties to this suit and will be called, as it has heretofore been called, Goods.
The lawsuit divides itself into three topics, and three only. These are:
3. Other misconduct.
The sense in which each of these words is used will be defined. Unless so defined, use of them might lead to misunderstanding. On the other hand, if properly understood, their employment will reduce the number of things that must be taken into account.
I am convinced that I can make a clearer presentation of what I have to say if I adhere to the three named topics as describing everything I am going to say. I shall take up monopolization first.
Later I shall also divide the lengthy branches of my discussion into sub-topics under one or more of the major headings I have given. I think this also will be helpful, -- especially with respect to monopolization, -- to getting clarity and a balanced view. The result may be some repetition; but, even so, the fault will be a small price to pay for assistance toward getting an accurate understanding.
Near the commencement of this trial I announced that I should make an effort to adhere to a practice I have followed ever since I came on the bench; that is, to render oral opinions in non-jury cases. I said to you then that I was not sure that I should be able to do this in the present case and the fact is, as I have now determined, that I cannot carry out my original intentions fully. This is due to the fact that in the case there are so many things which are highly technical or complex or which involve statistics or giving numerous pages that it is physically impossible for me accurately to make my statement and compose everything I say as I go along with respect to any such matters as those. In consequence, there will be parts of what I have to say as to which my notes are practically as full as if I had written out such parts.
Toward the end of the trial, when both sides asked for early disposition, I told you that I should be unable to give you that unless I confined myself to crucial issues; and in the course of my work in reaching the point of decision I found, in addition, that it is much better that I confine myself to the crucial issues.
So also the number of issues is so great that I shall not hold myself responsible for giving more than one reason for any single conclusion. I may sometimes give more than one, but the fact that I give only one does not mean that I feel that there are not other valid reasons. There are numerous instances in the record in which I could assign quite a good many reasons for a conclusion I have reached.
Another thing I call to your attention is that counsel disagreed, particularly at the oral argument and to a considerable extent, indeed, in their briefs, as to what the record shows on particular issues. The result of that has been that I have had to search the record, -- and I agreed that I would search the record, -- as to each of those issues. I have endeavored to do that. Whether I have succeeded or not, I do not know.
Again, where I have felt that there was occasion to furnish citations to the record, I have done so or am prepared to do so. That also I could not do unless I had very full notes.
The method of procedure which I shall follow does not mean that there will be any single issue in the case on which I shall not make a definite finding if there is occasion to do so. With the purpose of reaching a decision of the case I shall, as I have already indicated, however, confine myself to what I conceive to be the crucial and determining issues.
* * *
As a commercial article, it is correct or substantially correct to say that aluminum made from bauxite is but little more than fifty years of age in the United States. It has interested me to make a bit of inquiry into the relative ages of aluminum and a few other metals. The investigation was not exhaustive and for statements of the facts as to other metals I have relied on the Encyclopedia Britannica.
First, copper: That has been known from the most ancient periods of which we have any historical account. Its alloy with tin is and to remote times has been referred to as bronze. That runs back so far that we have what we refer to as the Bronze Age. Bronze is the first metallic compound used by mankind of which we have a record. It was known preceding 3500 years before Christ. The account of it in the Encyclopedia Britannica of the fourteenth edition will be found in volume 4 at page 240 and volume 6 at page 401.
The second metal I looked into is steel.Tis working and hardening were common 3000 years ago in Greece. It probably required a number of centuries for it to reach the stage that it had arrived at in Greece three throusand years ago. The production of Damascus steel has been generally practiced from very remote periods in oriental counties. For this see volume 12, page 649, and volume 7, page 4.
There are numerous other metals than aluminum, but there is no occasion to mention them. The two examples given indicate how young, commercially, aluminum is.
In this country commercial aluminum is made from bauxite. That is an ore. There are, in the United States, however, other ores from which aluminum can be made. Among them is alunite. According to the reports, that exists in great quantities in Utah, for example, and, according to some of the statements, exists elsewhere in the United States. For that see the fourteenth edition of the Encyclopedia Britannica, volume 1, page 720. You will recall also the testimony with respect to this given by Mr. Bohn and Mr. Markey, particularly by Mr. Markey.
Another ore from which aluminum can be made is leucite.According to the statements of some of the experts, it can also be made of clay -- common clay -- one of the most plentiful articles that covers the surface of the earth. I have gathered from sundry general statements as well as from the testimony, however, that, so long as there are available better materials like bauxite, alunite, leucite and others, it would be inadvisable to resort to clay, because of the increased expense of producing aluminum from it.
As I have previously remarked, the name of the Aluminum Company of America was first Pittsburgh Reduction Company. The name was changed to Aluminum Company of America in 1907. If I refer to Alcoa preceding 1907, which is the more convenient thing to do, you will understand, of course, that the name actually used then was Pittsburgh Reduction Company.
The financial and business history of Alcoa to the end of 1939 runs back but 51-1/3 years. It began with a total capitalization of $20,000.On December 31, 1939, its capitalization, according to Exhibit 1663, was $242,000,000. Up to June 4, 1928, Alcoa, for a good many years, owned interests in quite a number of companies and properties in foreign countries. A great part of those foreign holdings were transferred at that time to Aluminium, which was then organized. At the moment I go no further into details with respect to the story of Aluminium or the story of Alcoa, because it is not necessary to do so now in order that my meaning may be clear later.
In a considerable part of what I am going to say -- much the greater part -- I shall deal with the case only as it affects Alcoa. In doing that, however, incidental reference will be made to other defendants -- Aluminium, Manufactures and Goods -- but that will be only incidental. Later those three defendants will be taken up separately.
So far as concerns Alcoa, all three of the major classes of charges have been made; namely, it has been charged with monopolization, with conspiracy and with other misconduct. I shall first take up monopolization.
As I have said, I have adopted the term monopolization largely as matter of convenience. It has a more extensive meaning than can be derived from a single word.
The source of the charge of monopolization is Section 2 of the Sherman Act, 15 U.S.C.A., § 2; see, also, 26 Stat. 209, c. 647. This reads as follows:
"Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, * * *."
By monopolization I mean to include everything specified in Section 2 of the statute as constituting an offense. There are three things. These are, first, to monopolize; second, to attempt to monopolize; and, third, to combine or conspire with any other person or persons to monopolize, -- all of course relating to trade or commerce among the several States or with foreign nations.
In order to avoid misunderstanding, I repeat that I shall use monopolization to cover all that I have specified as being embraced in Section 2 of the Sherman Act.
It may clarify the meaning of monopolization if I draw your attention to a statement by the Supreme Court. There an effort was made to distinguish or discriminate between monopolization and conspiracy. In United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 226, in footnote 59, 60 S. Ct. 811, 845, 84 L. Ed. 1129, the difference between the two offenses of monopolization and conspiracy was stated.
In the case cited the prosecution was for a price-fixing conspiracy. It was brought, of course, under Section 1. Yet the line of demarcation was drawn between the two sections. In footnote 59 on page 226 of 310 U.S., at page 845 of 60 S. Ct., 84 L. Ed. 1129, the Court said:
"The existence or exertion of power to accomplish the desired objective (United States v. United States Steel Corp., 251 U.S. 417, 444-451, 40 S. Ct. 293, 296-299, 64 L. Ed. 343, 8 A.L.R. 1121; United States v. International Harvester Co., 274 U.S. 693, 708, 709, 47 S. Ct. 748, 753, 754, 71 L. Ed. 1302) becomes important only in cases where the offense charged is the actual monopolizing of any part of trade or commerce in violation of § 2 of the Act * * *. An intent and a power to produce the result which the law condemns are then necessary. As stated in Swift & Co. v. United States, 196 U.S. 375, 396, 25 S. Ct. 276, 279, 49 L. Ed. 518, '* * * when that intent and the consequent dangerous probability exist, this statute, like many others and like the common law in some cases, directs itself against that dangerous probability as well as against the completed result.' 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 [6 Cir., 222 F. 599], page 620."
Charges of monopolization against Alcoa, and sometimes against some of the others, are in twelve sections. All of those charges are, as they must be, under the statute, allegations of offenses or what the Government claims are offenses against the United States; but so far as concerns monopolization in the United States, the twelve subjects into which these charges divide themselves are (1) bauxite; (2) water power; (3) alumina; (4) virgin aluminum (pig and ingot); (5) castings; (6) cooking utensils; (7) pistons; (8) extrusions and structural shapes; (9) foil; (10) miscellaneous fabricated articles; (11) sheet; and (12) cable.
The second of the charges or subjects to which I have referred is water power. As will be drawn to your attention when I reach the subject, there is room for controversy as to what is the nature of the offense charged in regard to water power. I shall not go into that for the moment.
The eleventh and twelfth subjects which I have named are sheet and cable. If these had been taken up in their logical order, they would not have been placed at the end. I put them at the end, however, as matter of convenience, because both those subjects involve a controversy that has much engaged counsel in regard to the alleged spread. I deem it more convenient, therefore, to postpone treatment of sheet and cable until after I have finished the other subjects, so that there will be no misunderstanding as to my discussion of spread.
I have said there are three branches of the law with which we are compelled to deal in this case. These are (1), the anti-trust law; (2), the patent law; and (3), the tariff law. All have to do with or have a bearing on monopolization. Nevertheless, it should be noted that the word monopoly as used in connection with the Sherman Act and in the patent law has different meanings. We must, therefore, keep in mind under which branch of the law we use the word monopoly.
There are three periods which must be covered in discussing the subject of monopolization as it affects the charges against Alcoa. The first is from 1888 to 1909 or, to be precise, from September 1, 1888, until the 2nd day of February, 1909. That I shall refer to as the patent period.The second is from 1909 to 1928 or, to be precise, from February 3, 1909, to June 4, 1928, which, from the end of the patent period, precedes the setting up of Aluminium on the 4th day of June, 1928. The third followed the separation off of Aluminium and runs to date. For the present I shall consider only the patent period.
Alcoa was founded on patents. Those were issued to Mr. Hall. His invention and his application for the first patent were in 1886. The patent was granted in 1889. Its life being but seventeen years, it therefore expired in 1906. It is not amiss for us to remember that the patent law, and the rights growing out of the patent law, are all derived primarily from the Constitution of the United States itself. In Article 1, Section 8, Clause 8 of the Constitution, in part it is provided as follows:
"The Congress shall have Power * * * To promote the Progress of Science and useful Arts, by securing for limited Times to * * * Inventors the exclusive Right to their respective * * * Discoveries; * * *."
You will observe, therefore, as I have said, that the right of a patent comes direct from the Constitution itself.
The first patent statute was enacted in 1790, 1 Stat. 109. In that the grant was described as being "the sole and exclusive right" in whatever invention was involved. Later there were changes. What was included in section 4884 of the Revised Statutes was carried forward into and is now included in 35 U.S.C.A. § 40.There the pertinent provision is as follows:
"Every patent shall contain * * * a grant to the patentee, * * * for the term of seventeen years, of the exclusive right to make, use, and vend the invention * * * throughout the United States and the Territories therof, * * *."
The Supreme Court, in referring to a grant under the patent statute, has characterized it as "exclusive." United States v. Dubilier Condenser Corp., 289 U.S. 178, 186, 53 S. Ct. 554, 77 L. Ed. 1114, 85 A.L.R. 1488.
I shall, of course, have more to say about the Hall patents later.
In 1883, three years preceding the Hall invention, one Bradley applied for a patent. That was issued in 1892. It expired, as heretofore said, on February 2, 1909. At this point it is not necessary to go into further details about it.
As I have said, bauxite is the ore from which aluminum comes. The first product direct from bauxite is alumina (AlO). Alumina is made by the Bayer process.At one time this process was protected by a patent. That patent expired a great many years ago. For some years after Alcoa began its business career it did not make alumina; it bought its alumina from others. It did not prepare itself to produce alumina from bauxite until approximately 1903.
Exhibit 1008, referred to at pages 18371-2; 18398-406 of the minutes, describes an aluminum furnace or pot. It is to be noticed that bauxite and alumina are not at all covered by the Hall patent. The making of alumina from bauxite was by the Bayer process and when Alcoa reached the point of going into the production of alumina it employed the Bayer process, and, as I recall, at that time the patent on the Bayer process had already expired or expired soon after.
Exhibit 1008, which I have mentioned, is a picture or representation of the furance or pot employed in making aluminum from alumina. The Hall patent covers the making of aluminum. In that process, under the Hall patent, there was employed in this furnace or pot a cryolite bath, carbon electrodes and alumina. An electric current, which produced heat, great heat, was applied. The elements embraced in alumina (AlO) were separated by the use of this process and the application of the electric current. The oxygen of the AlO passed off. The aluminum which resulted fell to the bottom of the pot. That was tapped off from the bottom of the pot as pig. When remelted, pig runs off as ingot and is the common commercial article we mean to refer to as primary aluminum or virgin aluminum.
Cryolite, in a fused state, will dissolve alumina and an electric current, when passed through such solution, will separate the alumina into oxygen and aluminum before the current attacks the cryolite itself. The reason for this is that cryolite is more resistant to decomposition than alumina. I am not going into the details of this in a technical way, but solely by way of general description in lay language so as to be of assistance in understanding the testimony which will later be discussed.
As I have said, an electric current which produces a great deal of heat is necessary to bring about the result of the decomposition of the elements contained in alumina. External heat, applied from the outside to the pot, may be sufficient to keep the cryolite bath in a fused or melted state. It has been frequently applied, and was customarily applied, in the early history of the Hall patent and it can be applied today. But a more convenient and more efficient, as well as less expensive, method of supplying the heat is through an electric current that passes through the material in the pot. The passing of the electrical current fuses the cryolite. As I have said, fused cryolite is the solvent. It is the electric current passing through the fused cryolite that decomposes the alumina.That solvent is lighter than aluminum. The electric current, in a sense, is substituted and was early substituted in the operation of the Hall process for external heat.
Mr. Hall died in 1914. It may be interesting to note that about the same time he made his invention, an almost identical invention was made in France by a scientist or engineer named Herault. Surprise was expressed by one of the counsel in this case as to how remarkable it was that this incident should have happened. As I recall, I told him at the time, and whether I told him or not, from my experience in the trial of patent cases, I know it is true that it is really not infrequent that two workers arrive at inventions of substantially the same thing at substantially the same time without either ever having heard of the other.
The Herault patent was granted in France but no United States patent was ever granted or could have been granted to Herault on his invention, because the Hall patent, so far as this country is concerned, preceded it.
Following the issuance of the Hall and Bradley patents, there was litigation over them. The first suit was between Alcoa and what we have referred to as the Cowles Company. The title of the case is Pittsburgh Reduction Company v. Cowles Electric Smelting & Aluminum Company, C.C., N.D.Ohio, 55 F. 301, the decision having been rendered in 1893 and the opinion written by then Circuit Judge Taft, afterwards Chief Justice of the United States.
Another decision of vital consequence to understand is that of Electric Smelting & Aluminum Company v. Pittsburgh Reduction Company, 2 Cir., 125 F. 926, rendered in 1903, the opinion being written by Judge Coxe (whose son is now one of the judges of this court).
In the case before Judge Taft, Alcoa was successful and procured an injunction against the Cowles Company using the Hall invention.
In the case in which Judge Coxe wrote the opinion, the suit was brought in the United States Circuit Court at Buffalo by the Electric Smelting & Aluminum Company, which belonged to the Cowles group of companies, against Alcoa. The decision in the Circuit Court was in favor of Alcoa. On appeal to the Circuit Court of Appeals for the Second Circuit the Circuit Court was reversed in the case, reported in 125 F., as I described to you, where the opinion was written by Judge Coxe.
For the purpose of the present case it is not necessary to go into the details of the two litigations I have mentioned. If one be interested in getting the details, however, he need read nothing else than the opinions of Judge Taft and Judge Coxe. What I have said about the litigation between Alcoa and Cowles is quite adequate for an understanding of the only real question that arises in the case at bar in regard to the conflicting claims made by the litigants in those two cases.
Note that in the case before Judge Taft Alcoa procured an injunction. That was followed by hearings before a master to determine the amount of damages to which Alcoa was entitled because of infringement by Cowles of the Hall patent. Before the suit at Buffalo was begun, the Cowles people acquired the Bradley patents.On the basis of ownership of one Bradley patent, Cowles sought a recovery against Alcoa for infringement of that patent.
During the period of the pendency of the litigations, -- the Taft decision, you will recall, having been rendered in 1893 and the Coxe decision in 1903, -- during the intervening ten years a good many things had happened. There had been a great deal of expense; an injunction had been granted against Cowles and was outstanding in Ohio; the master in the Ohio case had found that Alcoa's damages from infringement of the Hall patent aggregated a large sum; there had been a recovery against Alcoa in New York. In consequence, as not infrequently happens in patent controversies, negotiations for an adjustment ensued. These led to an agreement in 1903 on an adjustment between Cowles and Alcoa. That agreement is Exhibit 265.
That such a method of adjustment is lawful, in principle, was held by the Supreme Court in United States v. United Shoe Mach. Co., 247 U.S. 32, 51, 52, 38 S. Ct. 473, 62 L. Ed. 968.
It would be unfortunante if such a composure did not have the approval and sanction of a court, because here there had arisen a deadlock, -- as often occurs between disputants where there are different patents outstanding relating to the same subject. The two litigants could have spent years in further litigation, at enormous expense and with doubt as to the outcome. Instead, both took the view that they preferred to put their time on making aluminum.
Out of the adjustment there arises the first or a preliminary charge against Alcoa of monopolization.
The initial charge of monopolization against Alcoa rests exclusively, or well-nigh exclusively, upon a paragraph of the settlement agreement of 1903 between Alcoa and Cowles. In substance Cowles agreed not to produce aluminum by electrolysis from a fused bath. The first sentence of paragraph 12 is as follows:
"The parties of the first and second parts [those being the two Cowles companies] and their officers jointly and severally agree, that during the term of this contract, they will not engage, directly or indirectly, in the manufacture of aluminum in the United States, by electrolysis from a fused bath."
The period of the contract was for the balance of the life of the Bradley patents. The contention of the Government is that this so-called restrictive covenant is evidence of monopolization. My response is that if the contract had not contained the assailed provision at all, from the date of the contract until the expiration of the longest lived Bradley patent protecting the invention, by force of other provisions of the contract, Alcoa would have had the exclusive right to use the invention covered by these patents. If that be so, then incontrovertibly the contract cannot be evidence of monopolization.
In order to see more about what were the terms of the 1903 settlement agreement, let us read from paragraphs 2, 3 and 4.
In paragraph 2 there is a clause as follows:
"* * * the said parties of the first and second part [being, as I have heretofore said, the two Cowles companies] do hereby grant to the party of the third part [that being Alcoa] the sole and exclusive right, nonassignable in whole or in part, within and throughout the United States and its territories and dependencies to use in the manufacture of aluminum and aluminum alloys the inventions described" in the Bradley patents.
In paragraph 3 of the agreement there are provisions for payments by Alcoa to the Cowles companies for the exclusive license of the Bradley patents. Among the payments was to be a royalty for all aluminum made under the patents "by electrolysis from a fused bath."
In paragraph 8 it is recited that the parties to the agreement believe that the patents, which are identified by number, "are effective to cover all commercial methods of manufacturing aluminum by electrolysis from fused baths." In other words, the clause by which the Cowles companies committed themselves not to produce aluminum by electrolysis from a fused bath was merely saying that they promised not to violate the grant they had made. The thing they said they would not do is the thing which by the license they had conferred or undertaken to confer on Alcoa the exclusive right to do.
The Supreme Court had previously held that an exclusive license carried with it a right which was the equivalent of the licensee having thereby been made the owner of the patent which was licensed for the period covered by the license. In this instance the period covered was to the expiration of the license. For that see Waterman v. Mackenzie, 138 U.S. 252, 255, 256, 11 S. Ct. 334, 34 L. Ed. 923, a case to which I called the attention of counsel about the time the controversy first arose over the effect of the settlement agreement and again called to their attention near the close of the case. In support of the same proposition see also Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 344, 345, 48 S. Ct. 194, 72 L. Ed. 303.
There is, therefore, no basis whatsoever for treating the so-called restrictive covenant as conveying anything to Alcoa which Alcoa did not already have by virtue of the grant of an exclusive license.
Again, what is it that was included in the Bradley patents? What was actually included, and as the agreement itself recites what both parties understood to be included, was a right to produce aluminum by electrolysis from a fused bath.
In consequence, nothing outside of a right to produce aluminum by electrolysis from a fused bath was granted nor did paragraph 12 recite anything else as having been granted.
The Government argues that Cowles was a predecessor of Alcoa because Mr. Davis in his testimony or in his pleading had claimed that Cowles for two years, 1891 to 1893, had waged ruinous competition against Alcoa. The fact is, however, that this testimony is nothing more than a claim by Mr. Davis that Cowles had infringed the Hall patents. That is all the testimony or the claim of Mr. Davis consists of; and Judge Taft held, preceding the case in which Judge Coxe wrote the opinion, that Cowles had infringed the Hall patents. After the rendition of the Taft decision in 1893, in the proceedings before a master, which were pending for a long time, the master determined that, as a result of the infringement, Cowles was liable to Alcoa in a considerable sum for damages, -- the amount, stated by the master, as I recall, aggregating approximately $195,000.
As I see it, there is no escape, therefore, from the proposition that, under the law as laid down by the Supreme Court, the provision in paragraph 12 of the 1903 agreement was not a restrictive covenant at all nor was there elsewhere in the agreement any restrictive convenant; and the reason, I repeat why this is true is that if the provision in paragraph 12 had been ommitted Alcoa, under the terms of the other paragraphs of the agreement and as matter of law, by reason of the fact that it became an exclusive licensee to the end of the life of the patents, would have had just exactly as much right as if paragraph 12 had been omitted from the agreement.
There are other alleged restrictive covenants to which the Government calls attention. These are in agreements with the General Chemical Company in 1905, with the Pennsylvania Salt Company in 1907 and with the Norton Company in 1909. Those agreements, however, are the identical agreements on which in considerable part the bill of complaint in the Pittsburgh case rested. They are the identical agreements there complained of and there having been a decree in that case by which those agreements were cancelled, none of them can now be given weight toward the support of a cause of action in the case at bar.
Why is that so? The reason seems to me manifest.
It is true because, having been complained of and a decree having been granted, the original rights under the agreements no longer had any existence. They became merged in the decree.One result of the decree was that the issues raised in regard to those matters were completely adjudicated. If the contracts mentioned were now treated as the basis of a present cause of action, then there is nothing that can be adjudicated in any case and ripen into a judgment which cannot be sued on again the very next day. The claim of such a right to maintain a fresh suit, of course, rests on a wholly unsound proposition.
That the three contracts are no part whatsoever of a cause of action in the case at bar is settled, in principle at least, by numerous decisions of the Supreme Court. One of these is Baltimore S.S. Co. v. Phillips, 274 U.S. 316, 47 S. Ct. 600, 71 L. Ed. 1069. As heretofore remarked, however, I conceive that I may give some consideration to the fact that the agreements were entered into as part of the history of the conduct of Alcoa in so far as that is of assistance in determining the intent with which Alcoa may have done other things that may properly be complained of in this suit; but I think I cannot properly go further.
There is one circumstance in this connection which is rather extraordinary and which I did not discover until during my recent study of the case. This is a clause in the bill of complaint in the Pittsburgh case (Exhibit 1010). The portion to which I draw your attention is two extracts from paragraph XIV, exhibit pages 4971-2. The paragraph has a sub-title which reads "WHEREIN THE ANTITRUST LAW HAS BEEN AND IS BEING VIOLATED." In the body of the paragraph are the two statements to which I referred. The first is as follows:
"It is not claimed by petitioner [that being the Government] that it was unlawful for defendant to exclude all others from the manufacture of aluminum while it was operating under the Hall and Bradley patents, and hence it is not insisted that the monopoly held by defendant [that is, Alcoa] in the manufacture of aluminum in the United States when said patents expired in 1909 was an unlawful one."
Later in the same paragraph it is said:
"* * * petitioner concedes that defendant's practical monopoly in both bauxite and the manufacture of aluminum in the United States which it held at the expiration of said patents was lawful, * * *."
In other words, here we have of record an unequivocal admission by the Government that up to February 2, 1909, there had been no monopolizing by Alcoa and this for the reason that it was protected in its patent monopoly up to that date, that being the date when the Bradley patents expired.
As I have said heretofore, I have seen no occasion for describing what was embodied in the Hall patent or in the Bradley patents, further than was done in my statement above. Nor do I think now there is occasion to go into details, because to the extent that the details have a bearing they are embodied in the opinions of the courts in the Ohio case and in the case that went to the Second Circuit Court of Appeals.
There is one thing which is important, however. This is in the opinion of Judge Coxe. There, in substance, he said that the Hall patent was, to the extent that there was conflict between the two patents, an improvement on the Bradley patent; with the consequence, as he held, that the Bradley patents could not be operated for the making of aluminum without the use for that purpose thereby infringing the Hall patent.
Again, it must be remembered that up to the time of the settlement the injunction granted in the Ohio case was still standing against the Cowles Company. In addition to the Bearing that this fact had on the proposition that the settlement agreement was not a restrictive covenant, it also has the significance of further showing the extent to which there was confusion and an impossible situation as between Alcoa and Cowles which justified, and in a sense demanded, that there be an adjustment between the companies if either of them wanted to do any business. As I conceive, Alcoa was in the stronger position. This is so because it had practiced under the Hall patent the making of aluminum by the use of external heat. The result is that, in order to continue making aluminum under its patent, Alcoa was not required to use electric equipment in the way covered by and in a way which would have infringed the Bradley patents.
The conclusion from all of this is that up to February 2, 1909, when the patent protection of Alcoa came to an end, no real ground has been shown for an accusation against Alcoa of monopolization. The period which I call the first period and named the "patent period" may therefore be disregarded and certainly disregarded insofar as the Government has called to my attention any ground or contention on its part for the existence of monopolization up to the date mentioned. Disregarding details, as I see it, to that day Alcoa had availed of no more than a right expressly conferred on it by the patent statute, which in turn had been enacted to implement the constitutional provision with respect to inventions.
We are, therefore, brought to the first of the twelve subjects that I announced I would take up in the discussion of the issue as to whether or not monopolization has been shown.The period that will be examined in regard to the issues as to all those subjects is from February 2, 1909, down to the date of the close of the taking of testimony in this case.
The first charge is confined to the subject of bauxite and bauxite in the United States. The charges of monopolization made in connection with bauxite are contained in paragraphs 40, 43 and 83 of the bill of complaint. In paragraph 40 the allegations with respect to bauxite are as follows:
"Defendants have violated and are now violating the provisions of said Sherman Antitrust Act, by monopolizing, attempting to monopolize, combining and conspiring to monopolize, * * * interstate and foreign trade and commerce, and more particularly by enabling the Aluminum Company to acquire and maintain a monopoly of bauxite, * * * and by excluding others from the fair opportunity to engage in interstate and foreign trade and commerce in said articles."
In paragraph 43 the allegations are these:
"Defendant The Republic Mining and Manufacturing Company, wholly owned subsidiary of Aluminum Company, owns or holds more than 90 per cent of the bauxite deposits in the United States commercially suitable for the production of aluminum; and Aluminum Company controls and uses 100 per cent of the bauxite produced in the United States for the manufacture of aluminum."
In paragraph 83 it is alleged:
"For the purpose and with the effect of * * * maintaining an illegal monopoly in the United States in the production and sale of bauxite, * * * defendants have engaged in the following activities in the United States and foreign countries from about 1890 to the present: They have entered into agreements and understandings with competitors and potential competitors to limit production, fix prices, allocate markets and restrict production and sale of bauxite, * * * and have acquired, in excess of their reasonable needs, * * * bauxite, bauxite deposits, * * * and have acquired bauxite * * * and properties and rights therefrom and interests therein; * * * and have fixed unreasonable, arbitrary, discriminatory and oppressive prices for bauxite, * * * and have fixed prices for bauxite, * * *."
As I have remarked heretofore, bauxite is an ore. It is dug from the ground much like other ores. In requires two tons of bauxite to make one ton of alumina; it requires two tons of alumina to make one ton of aluminum (p. 2346). It follows that it requires four tons of bauxite to make one ton of aluminum.
Alumina is a white powder. It is not needful to go into other details in respect of what alumina is. It is, however, important to understand what must be the grade of Bauxite in order that there may be economical production out of it of alumina in the present state of the art. It does not follow that alumina may not be made out of bauxite of a lower grade. It is true, however, that if the bauxite be of a lower grade the alumina would cost a good deal more to produce. The result of this is that bauxite which is spoken of as commercially fit for the production of alumina is called aluminum grade.
Aluminum grade means that the bauxite must have 55 per cent or more of alumina and that it must not have in excess of 7 per cent of silica. There is no need to go into explanation of what those two chemical elements are. All that is of consequence for us to know in that connection is that bauxite must be of the quality I have described in order to reach aluminum grade and in order to be fit for the production from it of alumina without excessive expense.
Outside the United States the supply of bauxite is practically inexhaustible. We are not concerned, however, with that fact in connection with the present matter. What is complained of here is the monopolization of bauxite in the United States, not of monopolization of bauxite in the world.
Bauxite has been found in seven States in this country. In only one, so far as the proof shows, was the supply of bauxite ever very large. The seven States are Pennsylvania, Virginia, Georgia, Tennessee, Alabama, Mississippi and Arkansas.
The evidence discloses that in 1940, outside of Arkansas, so far as presently discovered, there were not exceeding 45,000 tons of bauxite of aluminum grade. Of course 45,000 tons, in and of itself, is of consequence and is of importance. Nevertheless, for the purpose with which we are now concerned, we can ignore it absolutely, because, in comparison with the quantity of bauxite of aluminum grade in Arkansas, 45,000 tons is entirely too small to change a fraction of the bauxite in Arkansas much more than a feather's weight. The 45,000 tons therefore may be disregarded, because our inquiry really is reduced to and concerns only Arkansas.
The Government has made the charge that Alcoa monopolizes bauxite. The burden to prove this allegation rests on the Government. In other words, for the purposes of this lawsuit with respect to bauxite, Alcoa could remain silent and unless by affirmative proof the Government establish that Alcoa has monopolized bauxite, the Government must fail so far as concerns the allegation of monopolizing bauxite.
Two witnesses for the Government have mentioned the subject of bauxite. One is Mr. Unhlein; the other is Mr. Haskell.
Mr. Uihlein inquired into bauxite in the United States about 1917. He testified that he found little or none outside of Arkansas. He testified further that there were about seven million tons in Arkansas. He added that all of that was owned by Alcoa (pp. 5879; 6141-2). The search of Mr. Uihlein, however, according to his own testimony, was merely superficial. There was no showing by his testimony or otherwise that he was qualified to make an estimate of or to express an opinion upon the quantity of bauxite in Arkansas or elsewhere in the United States. His own statement shows that he was not qualified to furnish us any such opinion (pp. 5878-80; 6139-49; 6153-4; 6246).
Mr. Haskell made no statement of what he regarded as the quantity of bauxite available in the United States apart from what was owned by Alcoa.In 1924 he told Mr. Duke that he knew of no bauxite in the United States other than that owned by Alcoa (p. 2395). His search also was merely superficial. It was not shown by him or otherwise in the testimony that he was qualified to furnish information or to express an opinion as to the amount of bauxite, much less the amount of bauxite of aluminum grade, in the United States (pp. 2348; 2618; 2845-7).
In the state of the record described, therefore, Alcoa was entitled to prevail without putting in any testimony whatsoever with regard to the amount of bauxite of aluminum grade in the United States.
It appeared in evidence that it is common to speak of bauxite land. This means land under which it is believed that bauxite can be found. It was shown by the testimony that in the so-called dumbbell area of Arkansas there were lands that came within the general class which were called bauxite lands; part of which were owned by Alcoa and part of which were not owned by Alcoa. The percentage of the surface space in land so referred to that was owned by Alcoa was much larger than the remaining land in that area. On the basis of that the Government has made the argument that, based merely on the percentage area of the surface, there is some evidence of the proportion of the bauxite land in Arkansas owned by Alcoa or, more precisely, the proportion of the bauxite in Arkansas owned by Alcoa.
In the first place, even if what has just been said about the dumbbell area were true, it would not be enough to sustain the Government. This is so because the accompanying evidence does not show that the bauxite which lay beneath, way under the ground beneath the surface, owned by Alcoa was of aluminum grade or fit for the production from it of alumina. More important than that, however, and what is conclusive that the Government's argument on the point has no significance or value, is that it is indisputably established by the proof that beneath land such as I have referred to, commonly spoken of as bauxite land, bauxite does not lie uniformly; it lies scattered about, sometimes in what are called pockets, and there is no indication whatsoever that, if one man owns 95 per cent of the surface and another man owns 5 per cent of the surface, the owner of 95 per cent of the surface may not own much less bauxite than is owned by the man who has the 5 per cent. There is no dispute in the testimony to this effect.
If, therefore, to the testimony of Mr. Uihlein and Mr. Haskell were added the testimony as to area owned by Alcoa and area owned by others, it would not strengthen the Government's case.
What, however, as I said in a different connection today, escaped my attention until engaged in studying this case, is another piece of proof that was put in by the Government. The Government itself offered and there was admitted in evidence against Alcoa the answer of Aluminium to an interrogatory. That interrogatory is subdivision (d) of interrogatory 114. The interrogatory asks for this information: "Acreage of bauxite lands known to be underlaid by bauxite." That is the precise question. Here is the answer, -- this answer having been brought into the evidence by the Government: "In the investigation of bauxite deposits no attempt is made to determine specific acreages of surface under which bauxite may be found since such determinations are of no value in estimating the tonnage of bauxite available for commercial use. It is impossible to foretell with any degree of accuracy the bauxite which underlies any given acreage because of the irregularity in the natural placement of the ore."
By proof for which it stood sponsor by introducing it, therefore, the Government itself has declared that the area argument should not prevail.
Alcoa offered two witnesses to testify on the subject of bauxite. Their testimony covered much more than bauxite in Arkansas and much more than bauxite of aluminum grade. As I have previously indicated, however, in the present connection, we really are not concerned with bauxite in the United States outside of Arkansas or with bauxite outside the United States. I shall therefore go into the testimony that was given with respect to bauxite of aluminum grade owned by Alcoa and bauxite of aluminum grade owned by others than Alcoa in Arkansas.
The two witnesses who testified at the instance of Alcoa, are Dr. Branner and Mr. Litchfield. Dr. Branner is the State Geologist of Arkansas. He has occupied that office since 1923 continously. Mr. Litchfield is an official of Alcoa. He has been in charge of its bauxite since 1925. I shall give you first the results of the estimates made by these experts. I shall then discuss the method by which their estimates were made.
Dr. Branner gave his estimates of aluminum grade bauxite in Arkansas as of May 1, 1940. That was the date or approximate date as of which he had completed his investigations in Arkansas particularly and, for the most part, outside of Arkansas. His estimate was this: In Arkansas Alcoa owned bauxite of aluminum grade, as of the date I have given you, totalling 4,898,703 tons (pp. 37737; 38365-7). Others than Alcoa as of the same date owned the same kind of bauxite, aggregating the holdings of quite a number of owners, of 5,398,293 tons (pp. 37663; 37753; 38365-6). The total owned by Alcoa and by others, therefore, was 10,296,996 tons. When reduced to percentages, that owned by Alcoa constituted 47 plus per cent, say 48 per cent; that owned by others constituted 52 plus per cent, say 52 per cent. In other words, outsiders other than Alcoa, in Arkansas, owned approximately 4 per cent more of bauxite of aluminum grade than Alcoa owned.
Mr. Litchfield, who was, as I have said, an Alcoa official and whose testimony showed the most intimate acquaintance with its business and the conduct of its business and the methods of its business, insofar as concerns bauxite, testified without as much detail as Dr. Branner; in fact, with much less detail than Dr. Branner. Mr. Litchfield said his estimate was that Alcoa owned 6,000,000 tons (p. 36669) and that others owned about 5,500,000 tons (pp. 36692; 36799-801). The total of these two amounts is 11,500,000 tons. Reduced to approximate percentages, according to the estimate of Mr. Litchfield Alcoa owned 52 per cent and others owned 48 per cent of bauxite of aluminum grade in Arkansas. In other words, as the estimate was given by Mr. Litchfield, Alcoa owned 4 per cent more than others owned of bauxite in Arkansas of the grade specified.
In general, the testimony of Mr. Litchfield corroborates the testimony of Dr. Branner. On the other hand, he gave no exact date as of which his estimates were made and furnished fewer details than Dr. Branner. As matter of fact, there were not drawn out from Mr. Litchfield by questions numerous details that would have been helpful, if they be not really essential to me in estimating the value of his appraisal in accordance with the principle which the Supreme Court has laid down, as set out in The Conqueror, 166 U.S. 110, 131, 133, 17 S. Ct. 510, 41 L. Ed. 937.
Both of the experts, Dr. Branner and Mr. Litchfield, were highly qualified and I regard both as reliable. There was some criticism of Dr. Branner in argument. I do not feel that the criticism was justified.I feel, therefore, that I ought to add that he impressed me as modest, learned and conscientious. Moreover, Dr. Branner fortified his opinions quite fully by the details he gave.
Now what was the method by which the investigation was carried on by Dr. Branner on which he based his precise estimates?
The bauxite is hidden down under the ground.It is various distances below the surface. Only in exceptional instances may one investigating it get any very complete view and rarely a view so complete that he sees all of the ore. There has grown up, therefore, in Arkansas, a customary method of making an inquiry into the amount and quality of bauxite on anybody's place. Among the important things about the investigation is the use of what are called test holes and their use by people who are experienced in the business. By the test holes, according to the testimony of the witnesses, competent investigators are able to map out with approximate accuracy the exterior boundaries or perimeter of a deposit of bauxite. So also by the borings from which the test holes grow, the investigators gather samples and by use of the samples they can determine not merely the thickness of the deposit but also its quality and can definitely determine whether it contains the percentage of alumina or the percentage of silica that is required, -- the percentages to which all agree in order that the bauxite may come within the aluminum grade.
The method which I have thus very briefly described has been practiced in Arkansas for a long time. Many people there are familiar with it. There are people who do certain parts of it who are relied on. The method has been accepted among people interested in the bauxite industry and, so far as disclosed, no other method has yet been applied or is known.
In making his estimate, Dr. Branner relied on a good deal of information that he personally did not gather, but which was submitted to him and which it is customary for people making estimates of this kind to rely on. A part of the material was records in the shape of reports, particularly reports under the tax laws, that are filed in the public offices and are required to be filed in the public offices by the owners of the property underneath which bauxite lays. Other records which it is customary also to use and which are relied on are records made by so-called drillers, a class of people who put down the test holes and who gather the information on the basis of which there will be analyses which disclose the chemical composition of the samples of bauxite and also from which records are gotten of the depth and the perimeter of the several deposits of bauxite.
At the trial there was controversy at to whether, under the rules of evidence, it was permissible to rely on such information as that which was gathered by other people than Dr. Branner himself who, as an expert, went over the material and used it in making his estimates.
In addition, numerous documents, including tabulations, relating to bauxite (the majority of which were prepared by or under the direction of Dr. Branner) were introduced in evidence. Among them are Exhibits 1670; 1672-4; 1677-8; 1680; 1682-5; 1688-95; and 1698 (see also Exhibits 1686 and 1687 for identification). I do not feel that it is necessary to go into these papers at the present stage. Nevertheless, they will be found very useful to one reviewing the testimony of the bauxite experts.
In my memorandum of November 15, 1940, afterwards published in D.C., 35 F.Supp. page 820, I dealt with the question of the competency of the testimony given and the documents brought in by Dr. Branner and discussed it fully. It was my view that such evidence is admissible under the laws of evidence at those laws of evidence are applied in this court. Since that time the Circuit Court of Appeals for this circuit has rendered an opinion which, as I believe, confirms precisely the rule of evidence which was applied in this court in regard to the testimony of Dr. Branner and the material he used. That decision is United States v. Mortimer, 2 Cir., 118 F.2d 266, at page 269, handed down on March 17, 1941.
The testimony given by these two experts was quite extensive and quite thorough. It occupied approximately 1,900 pages of the record. These are pages 36464 to 38447, except for 53 pages covering the testimony of an out-of-town witness, which was quite brief. And, so far as I can see, the testimony of the Government in regard to the amount of aluminum grade bauxite in Arkansas completely fails to sustain its contention. I think the testimony of the two experts is the best we can get and is the kind of testimony which we must rely on if we are to have any information at all on a subject like this.
If the estimate of either of the experts, which, as you will see, varies somewhat, be accepted, it completely negatives the monopolization charge and the allegation in paragraph 43 of the bill, that Alcoa owns upwards of 90 per cent of the bauxite in Arkansas.
These witnesses estimated that Alcoa had a supply of aluminum grade bauxite in Arkansas to last, at the then rate of consumption, that is, at its rate of consumption, as prevailed back in the Spring of 1939, for eight years.
Suppose, however, that we were to reject all the testimony of the experts.What would be the situation? Obviously the Government would not be materially helped. Its case on the bauxite issue would be left completely unsustained. Though it has the burden, it has made no proof whatever in support of its allegation -- none on which we can rely.
Furthermore, it must be borne in mind that what we are doing here is making a comparison -- a comparison of the quantity of bauxite that is owned by Alcoa and the quantity that is owned by others. The scheme employed to ascertain the respective quantities of the two groups was the same for each group. If we have no reason to doubt that the estimate made of the amount owned by Alcoa is correct, then why should we doubt that the estimate of the amount owned by others is correct or approximately so? In other words, in determining whether or not there is evidence of the guilt of monopolization of bauxite by Alcoa, all that we are concerned with is to compare what Alcoa has with what somebody else has and, as I have said, I see no reason to suppose that if it be correct as to one, it is not correct as to the other.
There is one feature of the material produced by Dr. Branner in explanation of how he made his computations that was impressive. That is this: He identified, by township, range, section and quarter or half-section, or other fraction of a section, every single unit of land under which he made his investigation. Anybody who is an expert is therefore in position to go there and find the particular piece of land, with almost the identical portion of the land he looked into. He has given the names of the owners of each of those pieces of land, identified in the way I have described, under which there exists bauxite which he has put together as owned by Alcoa or as owned by others than Alcoa.
In order to determine the quantity of gas or the quantity of oil beneath the ground, methods in general similar to those used by Dr. Branner are applied. I have had the experience of trying both oil and gas cases. Of course, the methods shift in detail, the one to apply to gas, another to apply to oil and another to apply to ore; but from listening to the testimony in the oil and gas cases I have been satisfied that the testimony given by the experts is reliable and that approximately correct results can be reached. From listenting to the testimony in those cases and listening to the testimony as to ore in this case, my strong impression is that it is easier to make an approximately correct estimate as to the amount of an ore than it is of the amount of gas or the amount of oil.
A witness named Moore appeared here and testified in regard to his connection with a concern called the Central Aluminum Company of Montgomery, Alabama. While spoken of as a company, that was probably a misnomer. Under the evidence I could not discover that it was more than a prospect, and perhaps that is too strong -- possibly I should say any more than a hope.
In 1924, according to the statement of Mr. Moore, he desired to purchase alumina from Mr. Uihlein, the witness to whom I have referred heretofore; or, if not that, to buy some bauxite land from Mr. Uihlein that is situated in South America. But the testimony is very indefinite. I haven't the slightest doubt that Mr. Moore had a hope. Yet there is no testimony in the case that Alcoa or anybody connected with Alcoa ever heard of him; and Alcoa cannot properly be accused of excluding Mr. Moore if it never heard of him.
I have said that this case, so far as concerns bauxite, relates only to bauxite of aluminum grade and that is true for the reason that we have comparatively little, if any, interest in bauxite which is not of the grade which, in the present state of the art of producing aluminum, is of a quality that can be economically used commercially in producing aluminum. Nevertheless, it does not follow that aluminum may not be made of bauxite of grades quite inferior to the grades now used and particularly to the grade called aluminum grade.
In the testimony as to bauxite in Arkansas, it was estimated by Dr. Branner that in the State there is what is referred to as potential bauxite, which is estimated to be up to from ten to twenty million tons. I lay no stress on this testimony, not because I have any doubt about it but because the case does not require that we reach a conclusion, and indeed I doubt if the technical evidence in the case is sufficient to enable us to reach a conclusion, as to whether, in considering the amount of available bauxite, we are entitled to include for consideration bauxite which is merely potential.
My conclusion, therefore, as to bauxite is that the Government has not proved its allegation in support of its charge of monopolization with respect to bauxite.
(2) Water Power
We come now to the second charge. This relates to water power. There is some ambiguity in the pleadings as to what is the Government's position; as to whether it claims that what has been done by Alcoa constitutes monopolization of water power. That there exists some ambiguity can best be brought out by reading an extract from paragraph 83 of the bill. There this is said:
"For the purpose and with the effect of * * * maintaining an illegal monopoly in the United States in the production and sale of * * * aluminum and products manufactured therefrom, defendant have engaged in the following activities in the United States and foreign countries from about 1890 to the present: They * * * have acquired, in excess of their reasonable needs, water power sites, power plants, power equipment, * * * and have entered into unreasonable and restrictive power contracts designed to prevent potential competitors from obtaining water power for the manufacture of aluminum; and have acquired water power rights in excess of their reasonable needs for the production of aluminum; * * * and have acquired * * * power companies and properties and rights therefrom and interests therein; * * *."
Because of a feeling of doubt as to what the Government's position was with respect to water power, I have gone into other material furnished me by the Government in the hope that it might assist me in interpreting the allegations I have just quoted.
The first document supplementing the pleading that I have examined is a brief by the Government submitted to me, dated September 21, 1938. My recollection is that before we adjourned for a holiday in the summer of 1938 I asked counsel if they wished to supply me briefs somewhat elucidating and clarifying their positions on several points. What I hold in my hand is the brief of the Government. It came in response to that suggestion. At page 56, running over to page 57, there are these statements by the Government:
"The unparallelled success of the Aluminum Company's monopoly creates a strong inference that there existed abnormal or artificial barriers to competition. We believe that the evidence will show that such barriers were created by the Aluminum Company's monopolization of supplies of suitable bauxite and cheap power, a monopolization which, while not absolute, was sufficiently [sufficient -- sic?] effectively to bar competition. * * * The two requisites for successful commercial production of virgin aluminum are an assured supply of bauxite of the proper quality and an assured supply of cheap water power properly located. If either bauxite supplies or cheap water power could be readily procured, a partial monopoly of the other could be overcome by determined effort. * * * partial monopolization of either of these requisites to successful commercial production produces a monopolizing effect vastly greater than that which would ordinarily flow from such partial monopoly itself."
Again, on page 59 this brief continues:
"* * * Acquisition of such a proportion of the available supply of an essential raw material that competitors are effectively barred from entering the field, prevents the competitive process from operating * * *."
On page 60 there is added this statement:
"* * * the Aluminum Company's power to exact a monopolistic price for virgin aluminum rests upon its effective monopolization of essential raw materials."
On October 24, 1938, Mr. Rice, counsel for the Government, made a statement on the record at the trial (pp. 5035-7) as follows:
"* * * Aside from any allegations of conspiracy between Aluminium Limited and Alcoa, we charge that the Aluminum Company's monopoly in the United States is effective for a number of reasons. * * * the Aluminum Company pre-empted the commercially available bauxite deposits in the United States and it pre-empted the commercially available water power which was strategically located and which was never permitted to be available to competitors, and the consequence of that is * * * that other potential competitors who might wish to compete against the Aluminum Company's monopoly in the United States, cannot get bauxite in the United States and in the past they have not been able to get power. * * *
"* * * I am assuming that there is no question of conspiracy between Alcoa and Aluminium Limited, then I say aside from that this court must take into account, in determining whether or not the Aluminum Company's one hundred per cent control of production in this country, whether it is control of bauxite, of power and facilities for the manufacture of aluminum is an illegal monopoly; that the court must take into account the availability of power. Now, * * * if there was no available water power on the American continent for potential competitors, that is a relevant fact which the court will take into consideration along with a lot of other facts in determining the extent of the Aluminum Company's power; the extent to which it had preempted the field, so that potential competitors could not enter the field."
Lastly, in the Government's reply brief, at pages 91-2, it is said:
"* * * The Government's charge of monopoly applies to the aluminum industry, not the power industory. The Government does charge, however, in Paragraphs 83, 84 and 85 that one of the means employed in gaining monopolistic control of the aluminum industry in the United States was the corralling of power suitable for aluminum manufacture to the point where potential competitors would not be able to get such water power. * * * Nowhere is there any blanket charge of water power monopoly made by the Government."
After studying all the statements of the Government's positions just quoted, I must say in frankness that I am still in doubt as to what is its actual position with respect to water power. Possibly the Government draws a line between a monopoly of water power and a monopoly of power suitable for aluminum manufacture.
In view of the circumstances it seems to me, therefore, that if there be no charge of monopolization of water power, then the water power issue is out of the case. On the other hand, if the bill is to be interpreted as some of the statements made by Government counsel would indicate, -- namely, that it is intended to be taken as charging monopolization of water power, -- then obviously I should go into the evidence to determine whether or not the testimony sustains the monopolization charge.
The charges are contained in paragraphs 83, 84, 85, 96 and 97 of the bill. In substance, what they allege is this:
1.Alcoa has monopolized water power suitable for making aluminum in the United States and Canada, so that no one could obtain water power or a site for producing it.
2. In 1925 and 1926 Alcoa acquired (at an exaggerated price) large water power in Canada with the intent of eliminating, and has eliminated, potential competition in the production of aluminum and with the further purpose and effect of deterring European producers from competing and selling aluminum in the United States (paragraphs 83, 96 and 97).
3. Alcoa has acquired water power sites and facilities in the United States and in Canada in excess of its reasonable needs.
4. Alcoa has caused restrictive covenants, which are still in effect, to be imposed on the production of water power by the Niagara Falls (New York) Power Company in 1894 (paragraph 84) and by the Shawinigan Falls (Canada) Power Company in 1902 (paragraph 85), obligating them not to sell or supply power to any other aluminum producer.
5. Alcoa has entered into other restrictive contracts in the United States and Canada designed to prevent potential competitors from obtaining water power for the manufacture of aluminum (paragraph 83).
In answer to the allegations just summarized, it seems to me enough to say that statistics published by the Federal Power Commission (Exhibits 1576 and 1577), standing alone, completely disprove the charge of monopolization by Alcoa of water power in the United States.
So far as I can discover, Mr. Uihlein was the sole witness for the Government on the issue. He made no personal search in the United States. It does not appear that he had any reliable information. Accordingly, as I see it, his testimony on the point under those circumstances must be ignored. The Government has the burden of proof in establishing the charge. It has furnished no evidence whatever in support of the charge.
As of December 31, 1938 (Exhibit 1577, exhibit pages 6821-3; see also minutes page 32406), there had already been developed in the United States 4,088 electric generating plants. These were owned by 1,632 establishments. During 1938 the electric energy produced in the United States was approximately 117 billion kilowatt-hours. The output of water power was approximately 45 billion kilowatt-hours. In 1920 privately-owned hydroelectric plants produced less than 3,600,000 and publicly-owned less than $200,000 kilowatts. By the end of 1937 the amount produced by both had grown to upwards of ten and one-half million, and by the end of 1938 to over eleven million kilowatts.
In 1935, the last year for which Federal Power Commission figures on the subject appear to be available (Exhibit 1576; Table 14, exhibit page 6815), there were 1,883 undeveloped water power sites in the United States. These had an estimated annual average potential output of about 276 billion kilowatt-hours, with a capacity as estimated by the Commission, when developed, of 53 billion kilowatts (pp. 32402-4).
To appreciate the significance of the kilowatt figures just given, two things should be borne in mind:
(1) In manufacturing aluminum, electricity at the rate of 10 kilowatt-hours to one pound of aluminum is required.
(2) One horsepower represents about three-quarters of a kilowatt (pp. 32985-6; 32404-6; 32671; 31675-6).
Mr. Growdon gave testimony to the same effect. He is a highly qualified hydraulic engineer. He is and for 16 years past has been in the service of Alcoa. He testified as to most of the items mentioned of his own personal knowledge and as to the remaining items apparently in reliance on Government publications.
Mr. Growdon said that there are available in the United States undeveloped water power sites of an approximate capacity of from 9,900,000 to 11,000,000 horsepower which is suitable for the production of aluminum at dams of substantially the same general type as those owned by Alcoa (pp. 32384-401; 32409-420; 32556-8; 32703-7; 32709-15; 32722-6; 32987-96; 33016-7; 33022; 33029). He also described power developed during the period Alcoa had been engaged in constructing dams, and of the general type of power projects, running into very large numbers of horsepower (ibid.).
The testimony of Mr. Arthur V. Davis corroborates Mr. Growdon on the subject (pp. 18432-8). Other witnesses also corroborated Mr. Growdon.
At the end of 1937 Alcoa had in the United States 408,000 horsepower (equivalent to 306,000 kilowatts) of developed electric energy (Alcoa's answer to interrogatory 4(c)) and a comparatively small amount of ndeveloped water power (Alcoa's answer to interrogatory 109, interrogatory page 265; minutes, pp. 32638-46).
Four or five of Alcoa's sites are undeveloped or were at the time Mr. Growdon testified. These are Nantahala, Glenville, Tuckerton, Fontana, and possibly Needmore (pp. 32707; 32757-8). By 1940 Alcoa had developed water power capacity of 540,000 horsepower (equivalent to 360,000 kilowatts). All this was either used by Alcoa or sold or exchanged by an economical method which avoided waste (pp. 32566-70; 32765; 32772; 33017).
Moreover, Alcoa employs steam power when needed. Production of this is growing cheaper (p. 23318). Whether a manufacturer shall use steam or water is a question of cost; and that varies from time to time. What is of greater consequence, however, is that the Germans use steam exclusively in producing power and their production of aluminum by 1939 had surpassed in quantity that of Alcoa. What the Germans have done with steam can be done also in the United States.
It is plain that the amount of power developed or potential and fit to produce aluminum, owned by Alcoa, is but an insignificant portion of the total available in the United States (p. 18432). In other words, the charge against Alcoa of monopolization of water power in the United States is entirely without foundation.
The Court judicially knows that within recent years (about 25 years) the United States Government has developed large amounts of water power. These are partially described in the record (pp. 18434-6; 23312-17; 32383; 32397-9; 32411-3; 32558-9; 32567-8; 32653-4; 32680; 32693-702; 32729-30; see also p. 32401). The proof shows that what is owned by Alcoa in the United States is but a small fraction of what is owned in the United States by the Government itself or of what is owned by non-Government concerns other than Alcoa. Alcoa's water power sites are not and have never been a substantial portion of all the sites capable of producing water power in the United States (p. 18432).
So far as concerns Canada there is no evidence showing the extent of the water power resources there, other than on the Saguenay River. It is impossible, therefore, to estimate what proportion the Saguenay power is of all the power throughout Canada.The burden of proof to show that rested on the Government.The monopolization charge as to Canada, therefore, is not established.
I think that, on the evidence, the failure of the Government with respect to its water power monopolization charges is so clear that there is no real necessity for going further with the subject. Nevertheless, the controversy has taken a range so much wider than what I have already covered, that I deem it advisable to comment on several aspects not already specifically dealt with.
October 1, 1941
* * *
In the further consideration of the second charge, of monopolization of water power, we are brought now to some discussion of the Saguenay River.
That river is entirely in Canada. The Government claims that the acquisition of water power and rights by Alcoa on the river in 1925 and 1926 were as follows:
1. A water power site capable of producing 780,000 horsepower at the Lower Development, -- sometimes referred to as Shipshaw and located near Chicoutimi.
2. 53-1/3 per cent of the stock of the Duke-Price Company, which owned a water power site capable of producing 400,000 horsepower at the Upper Development, -- which is sometimes referred to as Ile Maligne, near the outlet of Lake St. John.
3.A contract right to 100,000 horsepower annually at the Upper Development for 50 years.
These totals, we may say are (as they approximate) a million hrsepower. Yet, while Mr. Duke said there were 400,000 primary horsepower at the Upper Development, it may be noted that when he and Alcoa were trading he assumed that the capacity there was only 300,000 horsepower (pp. 20166-8). Moreover, the evidence shows that the dam at the Lower Development, begun in 1925 and completed in 1931, was capable of furnishing 260,000 horsepower (p. 32857). The evidence also shows that the installed capacity of the Upper Development in 1926 was 365,000 horsepower and that today it is about 540,000 horsepower (pp. 32774-6).
Although the evidence shows otherwise, let us assume, however, that Alcoa acquired all the horsepower that existed on the Saguenay River -- that which was originally owned by the Duke-Price Company at the Upper Development, in its entirety, as well as all that was acquired by Alcoa at the Lower Development. This, say, would aggregate about 1,200,000 horsepower.
For purposes illustration let us go further. Paragraph 97 of the bill alleges that the total facilities for the production of electric energy on the Saguenay aggregated approximately 1,540,000 horsepower. This is not borne out by the evidence. But if we take it as true, it would not at all change the case.
Preceding the Duke-Alcoa merger of 1925, the natural supply of water resources on the Saguenay River were supplemented by raising the level of Lake St. John, out of which the river rose. The level of the lake was raised about 17-1/2 feet (pp. 32559-60). But the evidence shows a substantial number of rivers in the United States, each affording a greater supply of water than the Saguenay if we take its capacity at the pleaded figure of 1,540,000 horsepower. If, as is true, the evidence does not show the supply of water power on other rivers than the Saguenay in Canada, then the proof furnishes no basis for the monopolization charged in Canada. Determination of the issue of the monopolization charge necessitates our having in hand not alone what is the power from the Saguenay but also what is the power from other sources in Canada as well.
The Government further charges that Alcoa had water power in excess of its reasonable needs, and has laid great emphasis on this allegation. The charge is made in two paragraphs of the bill. These are 83 and 96.
In paragraph 83 it is alleged that, for the purpose and with the effect of acquiring and maintaining "an illegal monopoly in the United States," the defendants "have acquired, in excess of their reasonable needs, water power sites, power plants, power equipment, * * * and have acquired water power rights in excess of their reasonable needs for the production of aluminum; * * * and have acquired * * * power companies and properties and rights therefrom and interests therein; * * *."
In paragraph 96 it is alleged that in 1925, through its merger agreement with Mr. Duke, Alcoa acquired "power sites on the Saguenay River"; also that
"The additional water power acquired by Aluminum Company was far in excess of its legitimate requirements, and was not needed for the normal operation and development of Aluminum Company."
The evidence affords several answers to this charge. It is sufficient, however, to mention a part only.
First, no definition is given of the phrase "reasonable needs." In its absence, at best it may well be doubted whether any violation of law whatsoever is stated.
Second, as it seems to me, at least in its argument, the Government assumes that if water power sites be not availed of promptly after acquisition by actual construction of dams or other facilities for substantially immediate production of power, such delay demonstrates that the acquisition was in excess of reasonable needs. In my view there is no basis for such a proposition. The Sherman Act does not strait-Jacket industry in the United States to any such extent or in any such artificial manner. Under the statute there is sufficient leeway for the exercise of a reasonable, honest judgment, without subjecting one's self to a penalty.
Third, there is no evidence from which it can be inferred that sites acquired by Alcoa, either in the United States or in Canada, were capable of producing more water power than business men in charge of its affairs might have reasonably concluded would probably be needed for future development of the company, including its expansion within a reasonable additional time. Acquisition of what it is prudently anticipated may be needed, as I understand the decisions, does not violate the law or even evidence unlawful intent. On the contrary, under such circumstances it would be imprudent for directors completely to neglect preparations for expansion (pp. 33010; 33020), as witness what might happen in a period of national emergency in event there had been failure in advance to equip the company with additional facilities for use during emergency.
Fourth, the evidence shows that if buying of sites for development of water power is to be on economical terms and construction is to proceed at times when the investment is likely to be profitable, usually plans must be made much in advance and that a long period may elapse before those plans can be consummated. An excellent account of the complexities of the problems can be found in the testimony of Mr. Growdon, who displayed on the stand a great familiarity with the subject (pp. 32285-90; 32294-5; 32299-311; 32335-6; 32562-3; 32566-7; 32607-12; 32615; 32620-39; 32679-89; 32855-9; 33002-7; 33010. See also pp. 4794-5; 22833-5; 40386-7; where other witnesses talked on the same subject).
Reading the account given by Mr. Growdon, and confirmed by other witnesses, would much assist anyone in gaining an understanding of the nature of the difficulties and responsibilities of reaching a wise or businesslike decision as to when to increase and how much to spend for increasing the water power of any manufacturing company.
Fifth, the evidence shows that heretofore and today, on account of its delay in equipping or failure to equip itself with water power resources adequate to meet its needs for increased production of aluminum, Alcoa has resorted to, and apparently was forced to resort to and (under contracts made in 1936, 1937, 1939 and 1940) is availing itself of, electric energy supplied to it from Governfment built dams in the TVA and Bonneville areas (exhibits 1571-1575. See also pp. 32383; 40516-21). Some of these additions have been in connection with the present national emergency, of which, so far as the evidence discloses, there was no advance or adequate warning or one more definite than a speculative guess and which reasonably may not have been anticipated or prepared for.
Sixth, denial by Alcoa (pp. 18432-3; 32344; 33010; 40360) of having obtained water power or water power sites in excess of its reasonable needs, if it was lawful (as I think it was lawful) for it to provide for expected expansion, is sustained by the evidence. If the sense of the law, in the meaning I have ascribed to it, be correct, I think the evidence does not warrant and is far from warranting a findig that Alcoa ever acquired water power or water power sites in excess of its reasonable needs, either in the United States or in Canada.
The Government relies on Exhibit 709 to support the contrary; but, because of its own misinterpretation of the engineering terms used elsewhere in the evidence, I think, as pointed out by Mr. Growdon (pp. 32570-85; 32924-82), that this Government contention, as set out in the percentage computations embraced in Exhibit 709, necessarily rests on theories which are wholly erroneous. In short, as put by Mr. Growdon, the so-called losses of power of which the Government complains in the exhibit "were inherent in the use of power" (p. 32576; see also pp. 32969-71).
We next come to a matter about which a great deal of evidence was taken. This is the alleged exclusion of potential competitors of Alcoa through its Saguenay purchases.In paragraphs 83, 96 and 97 of the bill, in substance, it is alleged as follows:
(1) Alcoa had knowledge of the plans of Mr. Duke and Mr. Haskell to use Mr. Duke's water power from the Saguenay River to manufacture aluminum in Canada.
(2) With the intent to eliminate them as potential competitors, in 1925 Alcoa made an agreement with Mr. Duke.
(3) Under the agreement Alcoa merged with the company controlled by Mr. Duke, which owned undeveloped water power on the Saguenay and Mr. Duke became a stockholder and director of Alcoa.
(4) Alcoa obtained from Mr. Duke, or companies controlled by him, other water rights on the Saguenay, including 53 per cent of the stock of the Duke-Proce Power Company, which owned and operated a hydroelectric plant on the Saguenay that complemented the undeveloped water power Alcoa had obtained or obtained a right to by the merger.
(5) By the means described Mr. Duke and Mr. Haskell were eliminated as potential competitors of Alcoa.
(6) The purpose and effect of the acquisition of the Duke-Price stock by Alcoa was to enlarge Alcoa's capacity for lowcost production outside of the United States, to operate as a further threat to dissuade European producers from interfering with Alcoa's monopoly in the United States.
It is also alleged generally that by the means above recited Alcoa excluded potential competitors "in the production and sale of * * * aluminum and products manufactured therefrom." Specifically, the Government contends that, by its purchases of water power on the Saguenay, Alcoa excluded Mr. Duke, Mr. Haskell and the Uihleins from going into the aluminum business there.No suggestion is made of anyone else having been excluded, or even hindered, from engaging in the aluminum business in Canada. The Government further contends that, through incidental terrorizing, European aluminum producers were prevented from competing with Alcoa in the sales of aluminum and its products in the United States.
Now what are the facts?
The evidence establishes that Mr. Duke concurrently negotiated about Saguenay power with several persons. These were Alcoa, or Mr. Davis or someone else for Alcoa, Mr. Haskell and Mr. Joseph Uihlein (hereinafter called Mr. Uihlein, unless otherwise indicated, because there were two Uihleins).
Mr. Duke undoubtedly gave consideration to making use of Saguenay power, or some of it, for the production of aluminum. Unfortunately, by reason of his death, which occurred in October, 1925 (p. 20084), we are deprived of his testimony with respect to these matters. The testimony that has come in, however, does contain repetition of statements by him which will be mentioned later.
Alcoa and the Shawinigan Power Company, a Canadian concern, opened negotiations with Mr. Duke about Saguenay power in 1922, apparently early in the year (pp. 4985-6; 20240-1). For about two years, that is during 1922 and 1923, these negotiations were carried on on behalf of both the applicants, that is, on behalf of both Alcoa and the Shawinigan Company, by Mr. Aldred, president of Shawinigan; but they had gone well (pp. 5048-9; 5410; 20241). In October, 1924, Mr. Davis and Mr. Aldred were returning from Europe. They were on the same ship (pp. 5049; 20241). While on board at sea they discussed the matter that had been in progress the preceding two years with Mr. Duke. As a result they agreed that Mr. Davis should take charge of future negotiations (pp. 5049; 20239; 20242).They reached the United States on October 15, 1924 (p. 5409). From then on Mr. Davis acted on behalf of the two companies. Both were concerned to buy an interest in the water power (pp. 20242-3).
Mr. Davis did not take up the business immediately on his arrival in New York; but very soon (Mr. Davis says about as soon as he landed, p. 5410) he had a visit at his office from a Mr. W. S. Lee. Mr. Lee was the chief hydraulic engineer for Mr. Duke (pp. 5049-50; 5411; 20078-9; 20090; 20093). The precise date of that visit is not fixed by the evidence. We know, however, that it was in October, 1924; and, by reason of knowing the date of the arrival of Mr. Davis in New York from his European trip, we know also that the meeting was subsequent to the 15th of October of that year.
The meeting between Mr. Davis and Mr. Lee occurred at the office of Mr. Davis. Mr. Lee announced that he had come to see if he could interest Mr. Davis in using power from the Upper Development (pp. 5049-50; 20076; 20108-9). Out of this conversation there came a suggestion by Mr. Davis however, that Alcoa would like to acquire a participation in the power company itself or a participation in the undeveloped power (pp. 20076-8). Out of this, in turn, at the instance of Mr. Lee, also grew a visit by Mr. Davis to Mr. Duke at Mr. Duke's office on November 6, 1924 (pp. 20076-8). At the meeting in Mr. Duke's office that day Mr. Lee reported what had taken place when he had called at the office of Mr. Davis. Mr. Duke encouraged the taking by Mr. Davis of a large amount of power. Mr. Davis explained that he preferred a proprietary participation in the power, because it did not entail the payment of annual charges by Alcoa, which would be required in bad times if he took power as a tenant.
Mr. Allen, an assistant of Mr. Duke and his business adviser, then suggested that the participation scheme could best be accomplished by a merger. So far as I can discover, that is the first time the notion of merger was ever mentioned (pp. 20079; 20083; 20092; 20099; 20107-9).
Out of the November 6th meeting and other meetings which followed, there resulted an oral agreement early in January, 1925, between Mr. Duke and Mr. Davis. By this agreement, for the Lower Development Mr. Duke would get one-ninth of the securities issued by the merged company, without any specification whatever of what the securities issued by the merged company should consist, whether of stock or of bonds or of both (pp. 5415; 20093-7; 20350). The oral agreement led to the execution of a letter contract dated April 15, 1925 (Exhibit 170). This was of the same purport as the preceding oral agreement, but more exactly defined the terms of the merger. The letter contract was followed by a formal agreement of merger on July 9, 1925 (Exhibit 184).
Thus success was attained after about three years or more of effort by Alcoa to get additional power in Canada, -- power which, as it thought, would be needed for the future enlargement of its business (pp. 5061-3; 5070-72).Alcoa thereupon proceeded promptly to develop the property. In fact, the initial steps to that end were taken in January, 1925, after the oral agreement on the terms was made (pp. 5062-4; 20347-64; 23736-9; 32562-4).
Previous to trading with Mr. Davis, Mr. Duke had considered the possibility of himself going into the production of aluminum on the Saguenay. Yet before he agreed on the merger, whether the date of that be taken as in January or in April or in July, 1925, I think the evidence shows that Mr. Duke had never decided to engage in such production, either alone or in association with Mr. Haskell or with the Uihleins or with anybody else. Much less does the credible evidence show that Mr. Duke ever committed himself to do so or that previous to the consummation of the merger Alcoa, through its president or through any other representative, had knowledge or notice that Mr. Duke had determined or intended to go into such production.
The Government argues that July 9, 1925, was the merger consummation date. At the trial Government counsel said that Alcoa "was not bound until July 9, 1925" (pp. 20331-2). In its original brief (p. 387) the Government said "the merger was not finally consummated until July 9, 1925," -- thereby implying that, according to its view, the merger was "finally consummated" on July 9, 1925.
For present purposes, based on reasons to be given hereafter, I do not adopt the date advocated by the Government.Nevertheless, I think it immaterial to go further back than July, 1925, for the time which the Government regards as the date when the merger was "finally consummated." This is true because, as I Weigh the credible evidence, I feel that there is no warrant for a finding that by that date Mr. Duke had ever agreed with anybody (other than Alcoa), or himself alone determined, to go into the aluminum business or to engage in the manufacture of aluminum on the Saguenay River or elsewhere (pp. 20329-45).
It is true that at times preceding January, 1925, Mr. Haskell and Mr. Uihlein made investigations into bauxite. Undoubtedly at times both considered the question of going into the production of aluminum. Moreover, it seems clear that Mr. Haskell had the definite desire to engage in such production and it is not impossible that at some time Mr. Joseph Uihlein had the desire. On the other hand, I am fully persuaded by the evidence that neither ever got an express or even an implied agreement from Mr. Duke to join either of them in any kind of an aluminum enterprise beyond what was merely exploratory or investigatory or for the gathering of information.
It is true also that Mr. Duke talked to Mr. Haskell in June, 1924, and talked with Mr. Uihlein in October, 1924, on the subject. But the evidence does not convince me that he committed himself to either or told either at any time that he would or that he intended to go into the aluminum business. As I conceive, mere negotiation with Mr. Duke by Mr. Haskell or by Mr. Uihlein, even if known at the time to Alcoa, was wholly insufficient to impose on Alcoa an obligation to quit its own negotiation with Mr. Duke to obtain water power, particularly when, as appears from the evidence, for more than two years preceding Mr. Haskell or Mr. Uihlein coming on the scene, Alcoa had been seeking such power to meet what it regarded and reasonably could have regarded as needed in its business.
By way of emphasis let me say that I have concluded from the evidence as follows:
1. That on the testimony of Mr. Haskell itself, when analyzed in its entirety, it does not appear that he ever reached an agreement with Mr. Duke to go into the production of aluminum on the Saguenay -- which, though of no binding force here, it may be remarked parenthetically is what was decided by the Third Circuit Court of Appeals in Mr. Haskell's suit against the Duke executors in 1929 (pp. 2365-79; 2385-2404; 2411-2522; Exhibits 37 to 65).
2. That there has been a failure to show that, previous to its trading with Mr. Duke (taking the date as July 9, 1925), Alcoa ever knew or had been informed that Mr. Haskell had ever so much as negotiated with Mr. Duke for the establishment of an aluminum plant on the Saguenay or that Mr. Duke contemplated producting aluminum there (pp. 5062; 20329-44; 21670-1; 22663; 26249. See also pp. 6023-4). Indeed, it is a somewhat striking circumstance that the Government itself drew out testimony that, after Mr. Haskell began suit against the Duke executors (which was commenced on September 25, 1925, Exhibit 1135, and therefore within a month preceding the death of Mr. Duke), Mr. Duke specifically told Mr. Davis that he had never agreed with Mr. Haskell or had any plan to go into the aluminum business (pp. 20323; 20343-4; 26341-3).
In this connection it is likewise interesting to note that Mr. Uihlein testified that he had never heard Mr. Duke mention the name of Mr. Haskell, much less speak of dealings with Mr. Haskell (pp. 6016-23; 6026-7; 6035-40). Especially when it is recalled that the negotiations of Mr. Duke with Mr. Haskell, Mr. Uihlein and Mr. Davis were for most of the time concurrent, the silence of Mr. Duke about Mr. Haskell while talking with Mr. Uihlein may be treated as of some significance. If silent to Mr. Uihlein about Mr. Haskell, why not silent to Mr. Davis about Mr. Haskell and Mr. Uihlein?
So also, by way of emphasis, I wish to add that not alone is there complete failure to show that the Uihleins ever reached an agreement with Mr. Duke, but it is affirmatively established that in September or October, 1924, as well as previously, Mr. A. V. Davis was told by Mr. Joseph Uihlein or by Mr. Robert Uihlein, the brother, or by both, that they had entirely abandoned the idea of going into the aluminum business (pp. 18833-4; 19527-8; 19810; 19834-7; 19841-2; 19849-52; 19927-8; 19996-8; 20017).You may recall the testimony of Mr. Joseph Uihlein about how tired he had grown of carrying the burdens of the family and getting no returns or that in substance.
As I see it, there is no direct evidence, and certainly there is none which is credible, nor is there any evidence whatever which would warrant an inference, either (a) that the purpose of Alcoa in acquiring water power in Canada was to deter competition in the United States by European producers of aluminum or (b) that by any act of Alcoa in relation to water power in Canada such producers, or any of them, were so deterred.
The Government makes two arguments to the contrary. These will now be taken up.
First. It is said that there is testimony to the effect that in a meeting on May 6, 1925, at the Union Club in Cleveland, Ohio, Mr. Davis admitted in substance that Mr. Duke had planned to produce aluminum on the Saguenay; also that Mr. Davis said on that occasion that if the plan were carried out the competition would be hurtful to Alcoa and that the purpose of the merger was to head this off. The Government asks that this testimony be accepted as an adequate refutation of the statements of Mr. Davis on these points while on the stand as a witness in this case.
It is enough to say in reply, however, that the overwhelming testimony of others who attended the Union Club meeting, several of whom were independent and were impressive witnesses, fully sustains Mr. Davis and I am convinced that he made no such admissions or statements as those attributed to him by the Government.
Second. The Government insists in substance that in June, 1925, Mr. Allen put Mr. Davis on notice that Mr. Haskell planned to go into the manufacture of aluminum on the Saguenay; that this was before the merger arrangement between Alcoa and Mr. Duke had been "consummated"; and that disregard of such notice by Alcoa tainted its conduct with the vice of intentionally suppressing a potential competitor.
Mr. Allen was called as a witness by Alcoa. He said he had an interview with Mr. Davis about the middle of June, 1925, shortly preceding the return of Mr. Haskell from Europe (pp. 26044-6; 26053; 26104-17). In this conversation, according to Mr. Allen, he told Mr. Davis that Mr. Haskell previously had had an option on power on the Saguenay. He stated further that Dr. Landis, who was connected generally with some of the companies in which it was said Mr. Duke was interested, had been engaged by Mr. Duke to search for bauxite deposits; that Mr. Haskell also had been searching for bauxite and had inquired whether there was objection to his cooperating with Dr. Landis; and that he had been told that there was not. After this explanation, Mr. Allen says he made an inquiry of Mr. Davis. His testimony as to the conversation was admitted soley for the purpose of showing that the statements were made and not as proof of their truth. They got in, as you may recall, only by an indirect method.
The question to Mr. Davis by Mr. Allen was whether he (Mr. Davis) would put Mr. Allen in position to tell Mr. Haskell that his (Mr. Haskell's) future requirements of aluminum would be furnished by Alcoa on favorable terms. Mr. Allen says that Mr. Davis replied that he would be glad to furnish aluminum to Mr. Haskell on regular terms (pp. 26050-1; 26053; 26104; 26111-12; 26117-8; 26149-53).
On cross examination by the Government, Mr. Davis testified (pp. 20323; 20343) that shortly before the death of Mr. Duke in October, 1925, Mr. Duke tole him that he (Mr. Duke) had never made any plans to go into the aluminum business; also that the reason was "because he could not get any bauxite" (p. 20343. See also pp. 6023-4).
In reliance on what Mr. Allen said, the Government urges that thereby Mr. Davis learned (as early as about the middle of June, 1925) that Mr. Duke intended and had arranged to manufacture aluminum on the Saguenay.
As I view the matter, however, the argument stretches the testimony of Mr. Allen far beyond its permissible meaning. Contrary to the Government's contention, what Mr. Allen said is wholly consistent with Mr. Duke's statement, in substance that, because he had not found a satisfactory supply of bauxite, he had never decided to go into the production of aluminum.
In this connection it may be important to bear in mind that what Mr. Duke had for sale was water power, and that alone. His search for bauxite occurred only after he had failed, up to then, to discover an adequate market for his water power. It is also to be steadily borne in mind that Mr. Duke's dealings were carried on concurrently with Mr. Davis, Mr. Haskell and Mr. Uihlein and that, at least as I view the evidence, there has been failure to show that, preceding the consummation of the merger of the Lower Development with Alcoa, Mr. Davis had notice that Mr. Duke was engaged in negotiation either with Mr. Haskell or with Mr. Uihlein.
Moreover, I repeat that, according to my view, it affirmatively appears that neither Mr. Haskell nor Mr. Uihlein ever reached a point of having an agreement with Mr. Duke with respect to going into the production of aluminum; also that preceding the Pittsburgh interview of Mr. Joseph Uihlein in October, 1924, Mr. Davis had been told by Mr. Robert Uihlein, the brother of Joseph, that the Uihleins had abandoned their idea of going into the aluminum business at all; further, that Mr. Allen had cautioned Mr. Haskell to observe secrecy about his search for bauxite.
Again, -- by way of emphasis of what I have heretofore indicated, though not up to this point expressly stated, -- I now say definitely that as I measure the evidence, in the first place, it is established that Alcoa had been negotiating with Mr. Duke from time to time since 1922; in the second place, that on May 6 1925, the day of the conference in the Union Club at Cleveland of representatives of various holders of Alcoa common stock with Mr. Davis, he had not been informed of negotiations between Mr. Haskell and Mr. Duke with respect to any plan of Mr. Duke to go into the production of aluminum; and, in the third place, that the letter contract of April 15, 1925, between Mr. Davis and Mr. Duke was a complete meeting of minds upon the merger of the Lower Development with Alcoa.
If I be right in regard to these matters, then it would be wholly immaterial even if in June, 1925, two months subsequent to what was essentially a merger agreement, Mr. Allen had definitely told Mr. Davis that negotiations were pending between Mr. Duke and Mr. Haskell for the building of an aluminum plant on the Saguenay.
I need not, however, rest on the premise that there was a meeting of minds on the merger as early as April 15, 1925, or in advance of June 15, 1925, the day of Mr. Allen's talk with Mr. Davis. There is sufficient answer to the Government's contention with respect to the alleged notice by Mr. Allen, even though there was no consummation of the merger agreement until July 9, 1925. I feel that this is so because, as indicated near the beginning of my treatment of this point, what Mr. Allen said was no notice at all that Mr. Haskell himself contemplated or had contemplated going into the production of aluminum.
Exhibit 170 is an agreement between Mr. Duke and Mr. Davis dated April 15, 1925.It is important that you observe the date and the parties to that agreement. Note that it was an agreement between Mr. Davis and Mr. Duke and that it was dated April 15, 1925. On the other hand, it should be observed also that Exhibit 184 is an agreement between Alcoa and -- not Mr. Duke -- but the Canadian Manufacturing & Development Company. This was dated July 9, 1925. Disregarding form and detail, those two documents contain the terms of the merger and are indeed the sole resort to ascertain the terms on which Mr. Duke sold the Lower Development to Alcoa (that is, the merged company) and received stock of the merged company in payment therefor. The so-called side agreement between Mr. Davis and Mr. Duke, in which Mr. Davis obligated himself to see that additional shares of common stock should be available for purchase by Mr. Duke at $5 a share (Exhibit 172), is not a part of the terms of the agreement which fixed the price that old Alcoa agreed to pay, and did pay, for the Lower Development. Exhibit 184, th second of the two agreements to which I drew your attention just a moment ago, was between the two constituent companies which were merged.
The parties to the agreement of April 15, 1925, were two individuals, to wit, Mr. Davis and Mr. Duke. The parties to the agreement of July 9, 1925, were two corporations. For convenience, one of the constituent companies which were merged will be called "old Alcoa" and the other (which Mr. Duke controlled) will be called "the Canadian company." The new Alcoa may also be called the "merged company."
Paragraph 96 of the bill furnishes the Government's statement of the terms of sale of the Lower Development to Alcoa. It specifically says that the sale was pursuant to an agreement made in 1925 and that this agreement was between Mr. Duke and Mr. Davis, of necessity meaning thereby Mr. Davis as an individual. In paragraph 96, Mr. Davis as a signatory, was specifically identified as "then President of Aluminum Company, acting on its behalf." That could not possibly have had reference to the agreement of July 9, 1925, for the reason that the agreement of that date was between Alcoa and the Canadian Manufacturing & Development Company. The Aluminum Company referred to also is shown to have been old Alcoa (see paragraph 3 of the bill). Mr. Davis was president at that time; he is referred to in the pleading as then president of Alcoa and acting on its behalf.
It follows from what I have said, -- necessarily, as I see it, from the allegation quoted from paragraph 96 of the bill, -- that the agreement counted on in the bill is Exhibit 170, dated April 15, 1925, the parties to which were Mr. Davis and Mr. Duke (hereafter in the course of discussion designated as Exhibit 170). That agreement is the only one in evidence which, by any possibility, could fit the Government's description in the bill of the agreement under which the property was sold by Mr. Duke.
In paragraph 96 there are two sets of further allegations to be examined. Preliminarily it is alleged that in 1925 the Canadian company owned "power sites on the Saguenay River in Canada"; also, in effect, that under the terms of Exhibit 170 "said undeveloped water powers in Canada were conveyed to Aluminum Company as a part of said merger." In Exhibit 170 (see exhibit p. 958) it is said that the "properties" with which the instrument deals (exhibit pp. 956-7) constitute what are essential for the construction, etc., of "a hydroelectric development of the Saguenay River located at or near the mouth of the Shipshaw River, as above stated, hereinafter referred to as the Lower Development." Throughout the trial the properties which Mr. Duke caused to be transferred to the merged company for one-ninth of its stock (exhibit p. 962) have been called the Lower Development.
It will be noted further that in the bill what was sold is spoken of as "undeveloped water powers" and that by reason of describing "a hydroelectric development" to be constructed in future, it also was speaking of "undeveloped water powers."
Save for the purpose of further identification of precisely what the merged company bought and of certainly identifying the instruments which govern the definition of what was bought, as well as furnishing an introduction to what was later alleged in paragraph 96, the preliminaries heretofore referred to are relatively unimportant.
The Government next urges that Alcoa made an overpayment to Mr. Duke for the Lower Development on the Saguenay and that this fact, which it contends has been shown, was an indication of bad faith on the part of Alcoa. Is that true? Let us examine the evidence for the answer.
Following the preliminaries above recited, paragraph 96 among other things contains this allegation:
"* * * Under the terms of said merger, Aluminum Company paid many millions of dollars in excess of the true value of the properties acquired by it, * * *."
This constitutes the charge with which at the moment we are concerned.
It is clear, as will be seen by mere scanning of Exhibits 170 and 184, that except for certain things incident to the Lower Development, which themselves are plain and which it is unnecessary now to specify in detail, "the properties acquired by the merged company" under the terms of Exhibit 170 consist exclusively of the Lower Development. Our only questions for debate, therefore, are these:
1. How much did the merged company pay for the Lower Development in fulfillment of its agreement, Exhibit 170?
2. Did the sum paid exceed the "true value" at the time of this water power site?
3. If so, by how much?
No money passed in the transaction, nor was the price stated in the terms of dollars. The price was stated and payment was made exclusively in stock. Literally, therefore, no "millions of dollars" or "dollars" at all were involved. I take it, however, that the pleading should not be construed so narrowly as to demand evidence of dollar payments and that going to realities our problem is to ascertain the worth of the stock which was delivered to the Canadian company or its stockholders in compliance with the merged company's promise set out in Exhibit 170. The stock constituted payment and its par value is shown by table 1.This table is as follows:
Par value Total par
Shares Class per share value
163,625 Preferred $100 $16,362,500
140,250 Common 5 701,250
Total 303,875 $17,063,750
In the first column of the table we have the number of shares, in the second column the class of the shares, in the third column the par value per share of each class of shares and in the final column to the right the total par value of all stock of each class.
The purchase price consisted, in part, of 163,625 shares of preferred stock of the par value of $100 each, making a total par value of $16,362,500. That figure is to be kept in mind for its bearing on what I shall say subsequently. In addition, there were 140,250 shares of common stock of the par value of $5 per share, making a total of $701,250. The total number of shares was 303,875 and the total par value of the shares, of both classes, was $17,063,750. So that on the face if these shares be of the value of par, the price paid for the Lower Development was approximately $17,000,000.Manifestly, however, par value is not evidence of actual value and, so far as I have discovered or has been called to my attention, the record contains no evidence which would show, or at least satisfactorily show, what at the date of the transaction was the "true value" of the $17,063,750 par value of stock.
In the circumstances but for a concession by Alcoa I think the Government would fail completely for lack of evidence of value. In the reply brief of Alcoa (p. 157), however, it is said that "alcoa concedes that it paid $17,063,750 for the property" (meaning the Lower Development with incidentals as escribed in Exhibit 170). That sum, therefore, may be taken as the value, unless better evidence has been presented, -- a matter which will now be discussed.
One witness testified that Mr. duke told him that he had paid about one million dollars for the water powers on the Saguenay (pp. 5930; 5983). The Government's original brief (p. 360) and Alcoa's reply brief (p. 156) show that both understand, and I am sure the language for the witness, particularly at page 5930, implies, that he was speaking of the "entire Saguenay property." I also understand, and I believe counsel agree, that what the witness referred to was the direct expense of buying up the physical properties without development or improvement.
If Mr. Duke made the statement attributed to him about the million dollars cost of buying up the properties, I shall assume that he referred merely to the amount of his outlay for the physical properties that he had bought up on the Saguenay -- expended simply in the way described by Mr. Davis and Mr. Growdon as the only method by which anyone can prudently buy property of that kind.Even so, the price paid in gross for ad great many parcels, and small parcels generally at that, to a great many people, the owners, over a long period, is no test of the value of the water power made available by the purchase. Furthermore, I think no one examining all the evidence on the point would have the temerity to suggest, and I do not think the Government suggests, that in 1925 a million dollars was the fair value of all the Saguenay water power or even of the Lower Development alone. I wholly reject any such notion.
Again, cost alone is not a fair criterion of value. It is only a single piece of evidence which may be considered along with other facts in arriving at an estimate of value. When so considered, though we assume that only a million dollars has been spent for acquiring the water rights on the Saguenay, or even those rights at or appurtenant to the Lower Development, there is one circumstance which, standing apart, prevents acceptance of that figure as stating the "true value" of what was transferred to the merged company. This is that what has been referred to as incidentals accompanying the Lower Development, and embraced in what the merged company acquired, are omitted from consideration and were themselves obviously of great value. In order to ascertain the value of the water site these must be included in the estimate and there is no evidence from which an opinion can be formed as to the extent to which they enhanced what would have been the value of the Lower Development without them. Among such incidentals described in Exhibit 170 (exhibit pp. 958-61) are at least three separate rights, each important, with respect to the value of which the record is silent. Consequently, on that ground alone the Government has failed on the present issue for lack of proof.
The Saguenay River rises inor at, -- I cannot tell with precision which, -- Lake St. John, whose location is shown in Exhibit 2 attached to Exhibit 258. The Lower Development down the river is 18 or 20 miles from the lake or from Ile Maligne, the Upper Development which is on the river at or near the mouth of the lake. The surface area of the lake is not precisely given, but it is large. Its diameter is from 10 to 18 miles; one witness spoke of it as something like "thirty miles long and eighteen miles wide" (pp. 4987-8; 20101-3; 40392). Preceding the contract Exhibit 170 the surface of the lake had been raised, or arrangements had been made to raise it, by 17-1/2 feet (pp. 32559-62; 40386. See also Exhibits 258 and 1582). The extra flowage resulting after use by the Upper Development could be re-used at the Lower Development.
Exhibit 170 expressly conferred on the merged company the right to the increased flowage gained by raising the level of Lake St. John; rights along and on both sides of the Saguenay River from Ile Maligne to Shipshaw (sometimes referred to as Chute-a-Caron); and a right (revocable on one year's notice) to 100,000 horsepower generator voltage from Ile Maligne station, at the price of $6.50 per horsepower per annum. Without evidence, it is manifest that those additions to the Lower Development, in and of themselves, were of a value which was considerable and probably very great. Without affirmative evidence which would enable us to make a determination, we are unable to fix a value for the properties that the merged company acquired.
It is true that at a later stage controversy arose as to the extent to which the acquisition of the supplemental rights was complete at the time the Lower Development was transferred; but I think there can be no doubt that at the time of the transfer Alcoa considered that it was getting the rights as I have described them. So, also, it is indisputable that what we are now seeking to find out is what was the intention of the parties.
I think that in the absence, as here, of direct or circumstantial evidence of the value of the physical properties and of the accompanying rights themselves, taken together, we may properly give consideration to other evidence. The differences of opinion on the subject which have a arisen between counsel are as to what, if any, such other evidence in the record may be taken into account and what weight should be given to that which it is permissible to consider.
A valuation, which Alcoa concedes, of $17,063,750 is the same as the book value. The items consist of $16,362,500 for the preferred stock and $701,250 for the common stock as set out in table 1, with which payment was made for the Lower Development. The Government derives its valuation by combining values which it assigns to the same number of shares of preferred stock and to the common stock, but a different number of shares. As we shall see, the Government uses the same valuation of the preferred stock as is used by Alcoa. That is why when I began the discussion of this point I called your attention to the valuation of the preferred stock as set out in the table, being upwards of $16,000,000. In consequence, the controversies are solely as to how many shares of common stock were turned over in the payment and what was the value per share.
The Government relies on two kinds of evidence as to the value of this common stock. These are, first, capitalization of the merged company's net earnings in 1925 (Exhibit 1709) and, second, the New York market prices of Alcoa stock in that year subsequent to the merger (Exhibit 261).In the circumstances are these trustworthy types of evidence?
The first thing that strikes one's attention is the enormous earnings spread which results from employing in the one instance capitalization of earnings and in the other instance stock market prices as bases for valuing the common stock. When using the one the Government computes the payment to have been $64,555,745 and when using the other $29,212,865. The difference is upwards of $35,000,000. I feel that the mere size of this difference begets lack of confidence in the methods employed.
In both the totals the Government includes three items: (1) the preferred stock; (2) the common stock described in Exhibit 170, referred to as the "merger" common stock; and (3) the common stock described in Exhibit 172, referred to as the "bonus" common stock -- that is, the common stock which Mr. Davis agreed to procure an opportunity for Mr. Duke to purchase at $5 per share.
As previously noted, both sides use the same valuation for the preferred stock (the first item). I regard the third item as wholly irrelevant; that is to say, it constituted no part of the price the merged company paid for the Lower Development (see pp. 5425-8).
The third item consisted of 80,643 common shares. This was included in the larger total of $17,338,245 (made up by multiplying the number of such group of shares by $115, which is $5 less than what the Government took as the value per share arrived at by using the alleged capitalization of earnings method). It is included in the lesser total as $4,435,365 (made up by multiplying the same number of such shares by $55, which is $5 less than what the Government took as the market price per share). If these erroneously included figures were eliminated, then the total the Government would reach by the capitalization of earnings method would be $47,217,500 and by the market price method it would be $24,777,500. The difference is nearly $23,000,000. I feel, as I said about the other difference, that this difference is so great that it likewise condemns the figures to rejection.
Perhaps if no other facts were available and net earnings over a long period established a reasonably continuous financial behavior by a manufacturing company, then the capitalization method might be helpful or might even be acceptable. On the other hand, I think the mere chance figures of a single year are neither acceptable nor even helpful. One illustration alone will be enough to sustain this conclusion.
Exhibit 1006, put in by the Government, and Exhibit 1665, put in by Alcoa, show that in each of the years 1921, 1922 and 1932 Alcoa suffered large deficits. In 1921 the Government states the deficit at $5,240,000 and Alcoa at $5,913,870. In 1922 one stated it as $6,034,000 and the other as $5,967,666. In 1932 it was stated as $2,893,000 by one and as $2,893,868 by the other. The ground on which I partly rest my feelings that the capitalization method is worthless is brought out sharply by the query which necessarily arises from these figures.
If the capitalization method were satisfactory when there were net earnings, should we not be required to employ it when there were deficits? If so, then in 1921 and 1922 and 1932 Alcoa's stock ceased to have any value whatever. The consequence is that, if Alcoa had purchased the Lower Development in 1921 or 1922 or 1932, according to the Government's theory it would have paid nothing for it; or, on the other hand, the purchaser might have asked Mr. Duke to pay something to have the property taken off his hands.
Again, the capitalization method would be unavailable here because of lack of evidence which would enable us to select the percentage rate on which to make the computation. Obviously, the rate very nearly goes to the root of the matter and certainly is of crucial consequence.
No one disputes that prices at which stocks are sold on an exchange are admissible evidence on the issue of value. That has been held by the Supreme Court itself in Com. of Virginia v. West Virginia, 238 U.S. 202, at pages 211, 212, 35 S. Ct. 795, 59 L. Ed. 1272.Nevertheless, they are not conclusive and I feel that those shown here were so few that they furnish no real or acceptable measure of value (Cf. also ibid., at pages 212, 213 of 238 U.S., 35 S. Ct. 795, 59 L. Ed. 1272).
If we are to substitute quotations as a method of ascertaining the value of the common stock which went into the payment for the Lower Development, then that method must be adequate for use in computing the value of at least 140,250 shares (the number which confessedly went to the Duke group), without including the shares which went to Mr. Duke individually under the terms of Exhibit 172 for which he paid $5 a share. It is a matter of general knowledge that, save with respect to stock regularly bought and sold in large unit quantities, a great and unusual number of shares cannot be sold at one time, or even within a short period, without, as the phrase goes "breaking the market" and completely upsetting the scale of prices at which sales have to be made.
I feel, therefore, that neither kind of evidence on which the Government relies with respect to the point under consideration is reliable or to be accepted. I feel, further, that if we are to follow any circuitous method, one which, though not wholly satisfactory, would more nearly approach being satisfactory would be to take account of the entire stockholders' equity for a year preceding the occurrence of the transaction. As the facts are not in the record for that exact period. I shall adopt the figures for the calendar year 1925 as the next best choice we can make.
There are two exhibits which undertake to furnish the 1925 stockholders' equity. One is Exhibit 1006, introduced by the Government; the other is Exhibit 1665, put in by Alcoa. The former in column C states the equity as $132,857,975; the latter in column A states it as $154,327,956.
The preferred stock, of course, stands ahead of the common stock. Of the preferred stock there were 1,472,625 shares having a par value of $100 a share. To support it, therefore, assets of the value of $147,262,500 were required.Not until there was an excess above that amount were there any assets supporting the common stock.
According to the Government's figures, therefore (the equity being $132,857,975 and the precedence accorded the preferred demanding assets of $147,262,500 in value), there was a deficiency in the sum which should have stood behind the preferred stock and no support whatever for the common stock. Alcoa's figures showed assets of $7,065,456 value (being the excess of $154,327,956 over $147,262,500) standing behind the total 1,472,625 shares of common stock outstanding. This was at the rate of slightly under $4.80 per share. At that rate, behind the 140,250 shares of common stock which went to Mr. Duke and his associates (stockholders of the Canadian company) in the merger, there were assets of the value of $673,200. This sum added to the $16,362,500, allocated by both sides as the value of the preferred stock, makes a total valuation of the combined preferred and common which composed the stocks with which payment was made in the merger of $17,035,700. This amount is slightly less than the valuation which Alcoa has conceded. I shall, therefore, adopt the latter as correct. If correct, then there was no overpayment for the Lower Development.
There was other power on the Saguenay. The Government criticized the acquiring by Alcoa of two additional blocks of water power (or of rights to water power) on the Saguenay at the Upper Development. These acquisitions were from the Duke-Price Power Company, owner of the Upper Development. One was the purchase of 53-1/3 per cent of the stock in the company.The other was a long-term lease from the company of 100,000 horsepower per year. Both events occurred in 1926 and are separate from or additional to Alcoa's acquisition in 1925 of power at the Lower Development.
The grounds on which the Government bases its objections, in so far as I can discover, are stated in paragraphs 83 and 97 of the bill; but they are not clear. When liberally interpreted, I think they may be said in essence to charge (1) that, when joined with power acquired at the Lower Development, Alcoa's acquisition at the Upper Development was excessive in amount and (2) that the price paid was so disproportionate from the real value of what Alcoa got at the Upper Development as to impeach the good faith of Alcoa.
Specifically it is also alleged by the Government in paragraph 97 of the bill that the purpose and effect of the Duke-Price stock acquisition was to enlarge Alcoa's capacity for low-cost production outside of the United States, "to operate as a further threat to dissuade European producers from interfering with" Alcoa's monopoly in the United States market. As previously remarked, however, the evidence does not sustain the charge.
As heretofore stated, the proportion of Duke-Price stock which Alcoa purchased was 53-1/3 per cent. For the sake of argument accepting the Government's estimate of 400,000 horsepower as the output of which the Upper Development was capable, and treating the acquisition of 100,000 horsepower, or one-fourth, or 25 per cent, as if it were an acquisition of title, then, out of the total of 400,000 horsepower at the Upper Development, what Alcoa acquired from the Duke-Price Company through the stock and the lease was 78-1/3 per cent. This would be slightly over 313,000 horsepower. For the present purpose, therefore, we may treat the question as if it were an inquiry into Alcoa taking 313,000 horsepower at the Upper Development.
Heretofore I have discussed the question of the quantity of Saguenay power which Alcoa acquired as if it consisted of all of the electric power on the Saguenay. For reasons then given, I think that, even on that assumption, the evidence would not warrant a finding that Alcoa was guilty of monopolization. So, also, when previously dealing with the question, I expressed the view that the Government was wrong in its position that the measure of whether an acquisition is reasonable is what the purchaser needs for immediate use; also that, on the other hand, on grounds explained by Mr. Arthur V. Davis and Mr. Growdon, it is reasonable for officials of a manufacturing company to shape their conduct of its business on a long range program.
If I should adhere, as I do adhere, to those opinions, then the sole additional matter for consideration is whether the prices paid for the Duke-Price stock and the Duke-Price leased power are or whether either is excessive.
There is no showing that when Alcoa purchased the Lower Development it had in mind buying any share in the Upper Development. On the contrary, the evidence discloses that the suggestion of Alcoa acquiring an interest in the Upper Development grew out of an application to Mr. Davis by Mr. Duke's executors for advice. According to the evidence the executors were faced with the problem of raising money out of Mr. Duke's investment in the Duke-Price Company with which to meet estate taxes. Through negotiations with Mr. Davis, and as a result of a request by the executors for his suggestion, he worked out a plan. Without entering into details, through the efforts of himself and Alcoa and through the use of Alcoa's credit, he was able to solve the difficulties by two things being done: first, Alcoa taking the stock on an outlay by it of attorneys' fees of approximately $26,000 (Exhibit 1133, pp. 5410-11; 14173; 18984; 19537-9; 22825-8; 23319-20; 23323; 23326) and, secondly, Alcoa taking a lease and inducing two others to take leases of electric power, that of Alcoa being for 50 years, for 100,000 horsepower at $12 per horsepower per year (Exhibits 262 and 263, pp. 5064-5; 5070; 5416-7; 14172-88; 16143; 18982-4; 19538-44; 23320-26; 23733-9).
On these facts sufficient comment is that $26,000 was not an excessive price for the stock and that the evidence does not support a conclusion that $12 per horsepower was excessive for the leased power.
The argument of the Government to the contrary is predicated merely on surmise or suspicion. Neither is enough. The burden of proof which rests on it has not been met.
The result is that I conclude, with respect to the Duke-Price stock and the Duke-Price lease, as I have previously concluded with respect to power at the Lower Development, that the prices paid by Alcoa are not shown to have been so excessive as to carry with them a badge of bad faith or even to have been excessive at all.
In 1928 the stock and the lease passed to Aluminium.Since then Alcoa has not been interested in either. It has been urged that, because the property is located in Canada and because there is lack of showing that the transactions involved have even affected the commerce of the United States, there is no occasion for this Court, and possibly this Court is without jurisdiction, to inquire into the acquisition or holding of the Duke-Price stock or the Duke-Price lease.I refrain from going into those aspects of the matter. I deem it unnecessary, for the reason that if these contentions were sustained they would merely supplement the support for the conclusion I have already reached on other grounds (see also Exhibits 262, 263 and 1134; pp. 14171-88; 20105; 22828-9; 40390-2).
The Government makes charges based on alleged restrictive electric power covenants. The bill, in paragraphs 84 and 85, specifically mentions only covenants of the Niagara Falls and Shawinigan Power companies not to furnish power to others than Alcoa for the production of aluminum. There are several covenants of this type in evidence. None corresponds precisely with the allegations in paragraphs 84 and 85. There is, however, a general charge on the subject in paragraph 83. All such restrictive covenants as to which there is some evidence, whether pleaded or not, will be discussed.
At Niagara Falls there were five such covenants. These were dated at various times from 1895 to 1905. One of them (Exhibit 191) expired in 1920. The others (Exhibits 188, 189, 190 and 192) were cancelled by mutual consent of the parties in 1921, -- 20 years ago (Exhibit 1026). Mr. A. V. Davis explained that it was by mere oversight that the remaining covenants were not cancelled, as they were intended to be cancelled, some years earlier (pp. 19331; 19343-7; Exhibits 1031 and 1032). Obviously the reference is to cancellations preceding the 1912 decree in the Pittsburgh case, which itself cancelled several restrictive covenants, some of them the same covenants as had theretofore been cancelled by mutual consent. It should be noted also that of those covenants the last to survive was terminated 20 years ago.
Again, let it be noted that, during the period when the Niagara Falls covenants were entered into, that is the period of 1895 to 1905, there was at best uncertainty as to whether the Sherman Act prohibited covenants of the type involved. Alcoa may well have believed in good faith that these covenants, or other covenants of the kind, were permitted by law.
In 1874, preceding the enactment of the Sherman Law, the Supreme Court stated the common law on the subject of restrictive covenants. This is covered in Oregon Steam Navigation Co. v. Winsor, 20 Wall. 64, at pages 68 to 69, 22 L. Ed. 315, as follows:
"* * * a stipulation by a vendee of any trade, business, or establishment, that the vendor shall not exercise the same trade or business, or erect a similar establishment within a reasonable distance, so as not to interfere with the value of the trade, business, or thing purchased, is reasonable and valid. * * * a stipulation by the vendor of an article to be used in a business or trade in which he is himself engaged, that it shall not be used within a reasonable region or distance, so as not to interfere with his said business or trade, is also valid and binding. * * * a stipulation is unobjectionable and binding which imposes the restraint to only such an extent of territory as may be necessary for the protection of the party making the stipulation, provided it does not violate the two indispensable conditions, that the other party be not prevented from pursuing his calling, and that the country be not deprived of the benefit of his exertions."
That was the common law as laid down by the Supreme Court preceding the passage of the Sherman Act. So far as I have discovered, between 1874 and 1895, which is the first of the dates of the period with which we are concerned, there had been no announcement by the Supreme Court of a different view on its part as to what restrictive covenants were lawful under the common law. As late as 1940, in the Apex Hosiery case, the Supreme Court said, in the quotation I read to you yesterday, that even today the meaning of the Sherman Act in many respects is exceedingly ambiguous. At least the Court said that in substance. After the enactment of the Sherman Act the subject of restrictive covenants was discussed by the Supreme Court in a number of decisions. Two of those were United States v. Trans-Missouri Freight Association, 166 U.S. 290, 17 S. Ct. 540, 41 L. Ed. 1007, decided in 1897, and United States v. Joint Traffic Association, 171 U.S. 505, 19 S. Ct. 25, 43 L. Ed. 259, decided in 1898.
In the Trans-Missouri case the Court said this at page 329 of 166 U.S., at page 554 of 17 S. Ct., 41 L. Ed. 1007:
"A contract which is the mere accompaniment of the sale of property, and thus entered into for the purpose of enhancing the price at which the vendor sells it, which, in effect, is collateral to such sale, and where the main purpose of the whole contract is accomplished by such sale, might not be included within the letter or spirit of the statute in question."
In the John Traffic case, at page 568 of 171 U.S., at page 31 of 19 S. Ct., 43 L. Ed. 259, it was said:
"* * * the sale of a good will of a business with an accompanying agreement not to engage in a similar business was instanced in the Trans-Missouri case as a contract not within the meaning of the act, and it was said that such a contract was collateral to the main contract of sale, and was entered into for the purpose of enhancing the price at which the vendor sells his business. * * * To suppose, as is assumed by counsel, that the effect of the decision in the Trans-Missouri case is to render illegal most business contracts or combinations, however indispensable and necessary they may be, because, as they assert, they all restrain trade in some remote and indirect degree, is to make a most violent assumption, and one not called for or justified by the decision mentioned, or by any other decision of this court."
In Darius Cole Transportation Co. v. White Star Line, 186 F. 63, at page 65, in 1911, citing numerour Supreme Court decisions, the Circuit Court of Appeals for the Sixth Circuit, within which Alcoa had plants and then did business summarized the well settled law as follows:
"* * * the sale of a business, and the surrender of the good will pertaining to that business, and an agreement thereunder, within reasonable limitations as to time and territory, not to enter into competition with the purchaser, when made as part of the sale of the business, and not as a device to control commerce, is not within the federal anti-trust law."
Nevertheless the circumstances will be considered in connection with all the other facts, for the purpose of arriving at a conclusion as to Alcoa's intent. I think we must begin the inquiry with a recognition that at the stage of 1895 to 1905, when the several restrictive covenant contracts now under consideration were made, it was an extremely difficult thing for any lawyer, or for that matter for a court itself, to determine when such restrictive covenants were in violation of the Sherman Act.
As I believe I have remarked previously, the plant of the Shawinigan Falls Company was located in Canada. There were several covenants to which that company was a party. We are concerned with Exhibits 163, 164, 165, 166, 167 and 187. The last of those, Exhibit 187, expired by its own terms in 1940. The first, Exhibit 163, dated in 1899, is the only one that was entered into by Alcoa as a principal. Four years later Alcoa ceased to be a principal under that contract. In 1903, with the consent of Shawinigan, Alcoa transferred its rights under Exhibit 163 to Northern Aluminum Company, Limited (a Canadian subsidiary of Alcoa). The other contracts containing restrictive covenants at their inception were entered into by Northern as the purchaser.Alcoa joined in these only as a guarantor of Northern. The name of Northern was later, previous to 1928, changed to Aluminum Company of Canada. In 1928 Alcoa transferred to Aluminium all its interest in the Aluminum Company of Canada. Since that date Alcoa has had no interest in or rights to any of the Shawinigan contracts containing restrictive covenants. In 1932 (Exhibit 1028) Aluminium, with the consent of Shawinigan, was substituted as guarantor for the purchaser (that is, the Aluminum Company of Canada) under the Shawinigan contracts. Thereby Alcoa's liability as guarantor for Northern or for the Aluminum Company of Canada ceased.
Apart from justifiable doubts entertained at the time with respect to the meaning of the Sherman Act as applied to restrictive covenants in contracts between two residents of the United States, there is here an additional ground for doubt as to whether, either preceding 1928 or subsequently, the Sherman law had any application to restrictive covenants in contracts made, as were these, between two Canadian corporations such as the Shawinigan Company and Northern (or its successor, Aluminum Company of Canada).
Nevertheless, as said above in regard to the Niagara Falls contracts, the facts about the Shawinigan Falls contracts will be taken into account in determining Alcoa's intent; but, so far as relates to Alcoa, all the covenants, whether with respect to power at Niagara Falls or power at Shawinigan Falls, having long ago expired or ceased to be effective, there is no occasion -- and this Court has no authority even if there were in theory occasion -- to grant an injunction concerning any of them.
The next charge by the Government is that Alcoa made an overpayment to the Republic Carbon Company.That company owned a plant at Niagara Falls. It was controlled by the Uihleins. It was engaged in manufacturing large carbons. As I called to your attention yesterday, these large carbons are used by being put, along with the other things I described, into the furnace or pot in which aluminum is manufactured.
Alcoa made an investment in the Republic Carbon Company. The Government criticizes the investment. The ground (as it claims) is that Alcoa knowingly paid Republic Company more than the value of the property it acquired from that company. With a single exception (later mentioned), the pertinent figures are stated in Exhibit 1765. In so far as they are given, these figures are correct.
The relevancy to the present branch of the case of the Government's contention is this: The purpose of the Government is to show that the amount paid was so grossly excessive that it demonstrates that Alcoa acted in bad faith and was trying to get rid of a prospective competitor.Apart from mere details, the evidence affords several convincing answers to the contrary; but I shall discuss only one.
What Alcoa purchased was one-third of the common stock of the Republic Company. The company's assets consisted of the plant mentioned above, at Niagara Falls, for manufacturing carbon electrodes, certain securities and certain bauxite deposits or rights in regard to such deposits in South America. After the purchase the Republic Company property was operated for about nine years. It was then liquidated by sale of the property to National Carbon Company. National took all the assets of Republic except the bauxite deposits. The sale of the stock of Republic took place in December, 1924.Two items of bauxite deposits were included. One item was in British Guiana and the other in Dutch Guiana. The British Guiana deposits were known as Aurora and Lower Semerie. Republic owned those deposits outright. The Dutch Guiana deposits were known as Accaribo. Republic had an option on that group of deposits from the Norton Company, which was the owner.
Otherwise than as theretofore described, assets of Republic consisted of the Aurora and Lower Semerie deposits, an option on the Accaribo deposits, some securities and other miscellaneous property. The securities and preferred stock in Republic were reserved to themselves by the Uihleins and were not included in the sale.Accordingly, what was sold was the plant, the bauxite deposits and the remaining miscellaneous property (other than the securities and the preferred stock). For the moment, however, we are not interested in what the securities were or what the preferred stock was.It will be noted that for all the outstanding preferred stock bonds were later substituted. In form, as well as in reality, the transaction was confined to Republic common stock as the subject matter of the sale.All of this was purchased by Alcoa and two associates.
The three concerns which constituted the group of buyers were Alcoa, Acheson Graphite Company and Cargorundum Company. Each took one-third of the common stock. Every participant assumed responsibility on precisely the same terms, except in respect to a loan obtained from Alcoa, which must be understood.
Soon after the purchase of the common stock the bauxite option was exercised.The price for the Accaribo deposits in Dutch Guiana, the subject, of the option, was $150,000. Alcoa loaned $100,000 to Republic for use in meeting this. Another partner loaned the balance of $50,000. In other words, one member of the buyer group did not loan Republic anything toward making up the $150,000 option fund. However, we are interested only in Alcoa's participation in the matter. Except as an incident to that, I shall omit reference to the parts played by the other two investors.
I think that the outcome of the investment for Alcoa establishes that from the beginning it might reasonably have been anticipated by the buyers that they would make a profit out of the investment or, if not, at least would not lose anything in the venture. I shall give you the reasons which I think sustain this proposition.
The discussion will hinge mostly around Exhibit 1765. That is the exhibit to which I have previously referred as giving correctly the figures relating to Alcoa's investment in the Republic stock. For convenience, I shall use approximate round figures.
The Uihleins paid only $11,000 for the Aurora and Lower Semerie bauxite deposits in British Guiana. Nevertheless, they incurred a good deal of expense in upholding their title to those deposits, which was disputed by Alcoa, and about which there was long litigation.While Mr. Uihlein was with Mr. Duke on the Saguenay River, in October, 1924, there was talk about the British Guiana deposits. Mr. Uihlein said their cost plus litigation, without separating the two, had been approximately $1,000,000 (pp. 26449-52; 26572-3). On the Republic books, however, they were carried at $156,300.
Precisely as I think that a million dollars is too much, I think also that $11,000 is too small a valuation, for the British Guiana deposits. My impression is that they were probably worth the sum at which they were carried on the books; but even if I be mistaken on that point, it is certain that no one could properly be deemed guilty of bad faith who appraised them at the book value of $156,300. For the purpose of our present inquiry, therefore, they will be taken as of that value.
Shortly after the purchase of the Republic stock in 1924, the option on the Dutch Guiana bauxite deposits was exercised. As I have previously told you, the price paid for these deposits was $150,000.Of that sum, as heretofore stated, Alcoa loaned Republic $100,000 (which was double its share if all the group of buyers had participated in raising the total fund in proportion to their individual holdings of Republic common stock). The $100,000 loan was evidenced by a demand note payable to Alcoa, with interest at 5 per cent.
If the book value of the British Guiana properties and the amount paid for the Dutch Guiana properties be accepted for purposes of valuation, then the value of all the bauxite deposits, at the time of their purchase from the Uihleins in 1924, may reasonably have been taken by Alcoa and its associates as $306,300; in other words, the valuation at the book figures as to the British Guiana deposits plus $150,000, which is the precise amount in cash which was paid on the exercise of the option for the Dutch Guiana deposits.
Exhibit 561 consists of correspondence which passed between the Republic and Alcoa in 1925, 1926 and 1933. This shows that $306,300 is the total paid for the deposits after eliminating the interest on the $150,000 borrowed by Republic with which to make the payment for the optioned deposits. Of the $306,300 paid for all the deposits, $102,100 represents Alcoa's share (pp. 10545-50; 10554-7).
We have no precise knowledge of the rate of interest at which the purchasers of the Republic common stock could have borrowed money, say from a bank, with which to pay cash for the stock. For the purposes of a calculation, however, I shall take the interest rate as 3 per cent. I think we are justified in exempting the purchasers from conviction of bad faith if we assume that they believed that they could have procured the money at that rate.
Two analyses have been made of Alcoa's investment in Republic stock. One was made by Alcoa in Exhibit 1765, which I have mentioned before. The other was made by myself in table 2 and is as follows:
Computation (in approximate round figures) of amount of Republic Carbon Co. funds applicable to dividends on common stock of that company held by Alcoa, made on bases explained in note below.
January 7, 1925 (1) Alcoa paid for 1/3 of
(2) 1/3 value of bauxite
deposits acquired 102,100
(3) Balance necessary to
reimburse (1) $264,000
March 10, 1925 (4) Advance to working
June 8, 1934 (5) Int. on (3) from Jan.
7, 1935 (9 y. 5 m.) at 3% 74,580
(6) Int. on (4) from Mar.
H 10, 1925 (9 y. 3 m.) at 3% 9,435
(7) Total necessary to re-
imburse (1), (4) and int. $382,015
(8) Payment on account 80,000
(9) Balance necessary to
reimburse (1) and (4) $302,000
July 23, 1934 (10) Int. on (9) from June
$8, 1934 (1-1/2 m.) at 3% 1,133
(11) Loan to retire bonds 453,400
(12) Total necessary to re-
imburse (1), (4), (11)
and int. $756,533
(13) Payment on account 753,400
(14) Balance necessary to
reimburse (1), (4) and (11) $ 3,000
July 27, 1934 (15) Int. on $100,000 loan
from Apr. 4, 1925 (9 y.
3 m. 23 d.) at 5% 47,000
(16) Total necessary reim-
burse (1), (4), (11) and
pay int. on loan (15) $ 50,000
Nov. 21, 1935 (17) Int. on (16) (1 y. 4m.) at 3% 2,000
(18) Total necessary reim-
burse (1), (4), (11) and
pay int. on loan (15)
with int. at 3% 52,000
(19) Payment on account 87,000
(20) Applicable to divi-
dends in excess of in-
vestment $ 35,000
NOTE: The assets of Republic Carbon Co. consisted of bauxite deposits and other property. It had outstanding common stock and owed certain obligations. All of its property, other than what was reserved from sale to new common stockholders and other than bauxite deposits, has been liquidated and (except for the $67,000 item near the end called "Dividends received in excess of total investment," which Alcoa contends is its share of the proceeds and of the company's income) has been applied as set out in Exhibit 1765 and that item will hereafter be considered as excluded from the exhibit. The bauxite deposits, which are located in British Guiana and in Dutch Guiana, respectively, are carried on the books of the company at valuations stated in Exhibit 561 (from which, for the purpose of the above computation, the item of $66,179.79, accrued (but unpaid) interest on the $150,000 loan therein described, will be deducted). Such loan was on the terms stated in Exhibit 561 and the principal of $100,000 owing to Alcoa was paid July 27, 1934 (minutes, pp. 40070-2; 40121-3; 40178-82).
In addition, for the purpose of the computation, the following assumptions will be made: (1) Exhibit 1765 and Exhibit 561 are correct. (2) One-third of the bauxite deposits of the company, when acquired, was worth $102,100, being one-third of the book value, less the accrued interest item, carried on the books as shown in item 6 of Exhibit 561. (3) The sum of $102,100 is deductible, as of the date of the investment, from what Alcoa paid for its one-third of the common stock (purchased when the company had other assets than the bauxite deposits and owed certain obligations, later paid out of the proceeds of the liquidation of those assets and out of income). (4) Alcoa could have borrowed money at 3% with which to pay (if it had chosen to obligate itself to pay) interest on amounts equal to the several net balances included in the computation to the extent that they exceed the sums totaling $920,400 available from the Republic Carbon Co. treasury and specified in the computation as paid "on account."
It is to be observed that Exhibit 1765 deals only with Alcoa's individual investment in Republic Carbon Company (consisting, as heretofore noted, of one-third of the common stock). Table 2 deals with that one-third.This table is intended to present a possible alternative to the analysis of the figures in Exhibit 1765. My analysis is made on the plan fully explained in the note to the table.
Exhibit 1765, without giving all the details, shows that on certain dates there specified designated payments were made by Alcoa for the stock, totaling $853,400. Following that there were certain dividends, chiefly out of proceeds from partial liquidation of the property and inventory. The total derived from that source was $664,405.33. Deducting this from the amount Alcoa had paid for the stock, there was a balance of $188,994.67. Against that certain dividends had been received, which were credited to income. These total $255,994.67. The difference between the last two mentioned sums is $67,000 -- which Alcoa calls the profit on its investment.
Again, according to the summary of the figures in the last paragraph, the total investment of Alcoa in Republic Carbon stock was $853,400 and the total receipts from the investment were $920,400. In other words, the dividends received exceeded the total investment by $67,000. On the basis of that the contention of Alcoa is that out of the investment in the stock it made a profit of $67,000 -- and be it noted the Republic Company still owns the bauxite deposits.
I have computed the amount of the profits in a different way. How I made my computation is fully explained in the note to table 2. I have used only approximate round figures. This computation is so long and, in a sense, somewhat so technical that without copies of it in your hands I doubt if you could follow what I have said. I believe therefore that I shall leave you to examine the computation from the minutes when they are furnished you by the reporter; but I think I should call your attention to several things.
One of the chief features of the table is this: In ascertaining what, if any, net dividends Alcoa received on the stock up to the date the last payment shown in Exhibit 1765 was made (November 21, 1935), the value of the bauxite deposits which have stood behind the stock ever since they were acquired, has been credited against the total payment. In other words, in order fairly to compute, it would seem to me that, inasmuch as the bauxite deposits passed at the time of or substantially the time of the acquisition of the stock by Alcoa, the value of those deposits acquired should be credited as of that date against the amount Alcoa had paid for the common stock.
By way of further illustration, let the matter be stated this way: Alcoa paid for one-third of the common stock $366,000. Its one-third share of the bauxite deposits, as I have stated heretofore, had the value of $102,100.In other words, as of that date, in order to reimburse Alcoa for its investment, there was a balance coming to Alcoa of $264,000 -- the difference between those two figures. So I have taken each of the items in Exhibit 1765 and credited or charged it in the account and allowed interest of 3% whenever there was a balance owing. After making the computation in that form -- which, according to my own conceptions, is the fair way to make it for the purpose at which we are aiming -- my conclusion is that there was a profit of $35,000, instead of $67,000 as computed by Alcoa in Exhibit 1765.
At the time the common stock was purchased the debts and preferred stock had a priority over and so were ahead of the common stock. Subject to the preference of the debts and the like preference of the preferred stock (later superseded by bonds), all assets of Republic stood behind the common stock.As returns came in to Republic from the liquidation of its assets (other than bauxite deposits) and from income earned, the debts (including bonds) were paid off. When those had been paid off (as Exhibit 1765 shows was done by or before November 21, 1935) there remained standing behind the common stock all the bauxite deposits owned by Republic and the excess (if any) of cash earnings left in its treasury after payment of debts.
The promissory notes in favor of stockholders, given as evidence of indebtedness to them for loans they made to Republic for use in exercising the Norton option, were surrendered to Republic upon payment of principal, without payment of interest. Nevertheless, it seems to me that a method for determining whether income available for dividends on the common stock was actually earned would not be fair unless, in making up the account, a sum equal to the stipulated 5% on the loans were first deducted. In the table such deduction has been made.
As previously stated, for the purpose of making up the table, it has been assumed that not more than 3% interest would have been required of Alcoa if it had chosen to borrow from a bank the money with which to make the payments by it shown in the account.
In Exhibit 1765, as I have said, Alcoa computed the dividends it received as in excess of its total investment by $67,000, whereas in the table, as I have also heretofore said, made up in accordance with the plan I have explained, the sum computed, as shown in item 20 on that table, as applicable to dividends in excess of Alcoa's investment on November 21, 1935, was $35,000.
Further discussion of the table would be quite tedious and, perhaps, useless. As I have said, without a copy of it before you it is difficult for you to follow my statement. I shall leave it, therefore, for you to examine when you receive the minutes.
If either Exhibit 1765 or the table be correct, it would seem indisputable that the charge of bad faith in knowingly paying an extravagant amount for Republic common stock has not been and cannot be sustained against Alcoa.
Additional general facts have a bearing on whether Alcoa acted in bad faith. Among these are the following:
(1) Previous to October, 1924, the Uihleins had made several attempts to sell the Republic Carbon Company to Alcoa, but without success (p. 19937).
(2) In October, 1924, Mr. Joseph Uihlein (of his own initiative) sought Alcoa and renewed the suggestion that it buy the Republic Company (p. 18879).
(3) At the October, 1924, meeting between Mr. Davis and Mr. Uihlein, Alcoa refused to go into the enterprise alone. It assigned as a reason that it regarded the investment as too large for it to make single handed at the time. It agreed, however, to continue consideration of the matter if it could find partners who would be interested. Acheson Graphite and Carborundum Company each decided to take one-third, thus leaving Alcoa to take one-third.
(4) At the time of the investment, Alcoa had an experiment in progress. This experiment related to the so-called dry-process method of manufacturing alumina and was being conducted at Arvida in Canada. For the purpose, large carbon electrodes were required. On this account Alcoa felt that it had need of the Republic plant's production or at least of its chief product. In the operation of the plant, after it was acquired, large carbon electordes were a portion of the output.After Alcoa became a stockholder it purchased these carbon electrodes or a portion of them from Republic and used them in the way it had contemplated. The dry process method, however, turned out to be a failure (pp. 18887-8; 19069-72; 21648-9). Subsequently, the assets (except bauxite deposits) of the Republic Carbon Company, as heretofore stated, were liquidated. Republic, however, as I have already said, still retains the bauxite deposits.
I think that it is plain that Alcoa had a bona fide hope of getting a needed article as a reduced cost and of making a gain by going into the Republic investment. As the record abundantly establishes, Alcoa has been continuously alert to discover new methods or devices which it regarded as giving promise to advance the aluminum industry. In some instances it has lost money; in others, by its research and foresight, it has made money. The testimony of some of the witnesses, composed of both competitors and customers, has included many expressions of high appreciation by them of the progressiveness of Alcoa in its experimentation and of its generosity in sharing with the industry benefits which it had derived.
The Government makes several arguments in support of its position. These should be and now will be taken up.
First: Before the purchase of Republic, Alcoa referred to two of its engineers the question of whether it would be advisable for it to take part in the purchase. The engineers made a written report (Exhibit 228). In this the engineers expressed the opinion that the price asked by the Uihleins was excessive. Nevertheless, the purchase was made. Apparently assuming that the engineers were right, the Government urges that the overpayment (as claimed) clearly indicates that Alcoa acted in bad faith.
Whether the price paid was so large as of itself to impugn Alcoa's motive is a crucial if not the crucial question. It seems to me if Alcoa came out with a profit, however, that this fact, standing alone, completely negatives the contention that the officials of Alcoa were not justified in overruling the engineers.
As already pointed out, the analysis of the figures followed in Exhibit 1765 is only one way of testing the reasonableness of the price. In it no attention was given to the bauxite deposits which are still owned by the company and are the thing on which the value of the common stock now depends and has depended since completion of the liquidation of all the other assets of the company.
Table 2 is another method of analysis that seems to me permissible. If it be permissible, it is an unanswerable refutation of the Government's argument.
Second: The Government urges further that Alcoa's officials could not have acted in good faith because, in 1924, shortly before the purchase of the Republic stock, Alcoa had invested in the Soderberg process for the manufacture of a new kind of electrode (Alcoa's answer to interrogatories 2, p. 13 and 515, p. 745) and that, therefore, there was no need for the Republic carbon electrodes.
As I see it, the result does not follow. As I have already pointed out, the record is replete with evidence of expenditures by Alcoa of large sums in experimenting with patented inventions and with other devices not patented, designed to improve or to cheapen production of aluminum or its products. Some of the devices covered by these inventions have been disappointing; others have been helpful to Alcoa and have contributed much to the aluminum industry as a whole.
We need not go into the details as to the Soderberg process, however. It is enough to say that it is commercially operative and is still in use by Alcoa. The sole reason that its use has not been further extended is that, after thorough testing, up to date it has been the judgment of Alcoa that the first cost of installation has been so large that its employment is not commercially profitable when account is taken of such first cost (pp. 20717-24).
It must not be overlooked that the investment of Alcoa in Republic under consideration is in common stock. No one with certainty can tell what it will eventually yield. For the moment, however, that is immaterial. Our sole problem is to determine whether the evidence so convincingly shows that at the time of purchase there was no chance of avoiding financial loss in making the investment that this fact, standing alone, demonstrates that Alcoa was guilty of bad faith in making the investment. I am convinced that this has not been shown.
Whether the Government has charged or has not charged Alcoa with monopolization of water power, I feel that it has not shown a right of recovery on the water power branch of the case. On the one hand, if it does claim that there was no monopolization, then at least we can say that there has been much loss of time in adducing evidence with respect to the quantity of water power available. On the other hand, if the claim be that Alcoa has been guilty of monopolization of water power, then I think we can say with equal confidence that the Government has failed to sustain its position.
As to the merger of the Alcoa and Duke properties, I feel also that it has not been shown either (a) that, in advance of the agreement by Alcoa to purchase, it had notice that Duke planned to go into the production of aluminum or (b) that, if a business man be accorded, as I think he must be accorded, the right to look far ahead in conducting his business, the quantity of power Alcoa acquired on the Saguenay can properly be characterized as in excess of what was reasonable.
I desire to make another observation, though I do not regard its acceptance as essential to sustain the view I have taken. What I wish to add is this: Suppose serious negotiations had been pending a long time and while they were still in progress an intermeddler or one with an animus or one having a motive to frustrate them, without warrant, should announce that their consummation would result in the suppression of competition. Under those circumstances I feel that the Sherman Act would not require that the parties engaged in the negotiations abandon them. Mere rumor or untruth is not entitled to be accorded that much weight. If it were otherwise, it seems to me that, contrary to the intention of the statute, easy opportunity would thereby be opened for defeating the conduct of honest business in a lawful way.
It has been argued that many of the transactions we have discussed in connection with the question of whether Alcoa has monopolized water power are outside the jurisdiction of this court; also that this is true either because of their not having occurred within the borders of the United States or because it has not been shown that they directly and materially affect the commerce of the United States.However, so far I have omitted passing on that contention; I have preferred to place my decision on other grounds
On May 4, 1938, at pages 932-3, Government counsel described what he spoke of as the Government's theory of "one of the principal methods whereby this [Alcoa's] monopoly was built up." He said that it could be found "on the face of the bill." Of it he added the following:
"They [Alcoa] excluded others from a fair opportunity to engage in the business, first by getting control of bauxite; second, by getting control of power; and, third, by tying the hands of other potential competitors and intimidating them from competing with the Aluminum Company."
If this Court be right on the conclusions it has reached, that monopolization of bauxite has not been proved and that monopolization of water power has not been proved, then it would seem to me that it well may be argued that the issue of monopolization is at an end in this case.
In order to produce aluminum it is necessary, according to the Government's own statement and as we know from the proof, only to have bauxite and water power; of course, accompanied by energy and industry and brains. So far as materials are concerned, however, only bauxite and water power are needed. There is no patent protection, either of the Bayer process for producing alumina from the bauxite or of the process univesally practiced in this country, and largely, if not wholly, practiced abroad, for producing aluminum. If aluminum be produced, then from it all the variety of articles with which we have become familiar during this trial may be produced.
I shall not go so far at present as to put it stronger than to say that it well may be argued, if I be right in my conclusions as to bauxite and my conclusions as to water power, that there is no basis in this case for sustaining a contention that there has been monopolization by Alcoa. I prefer not to go farther than that, but to continue the discussion on all the other branches that have been assigned in support of its contention by the Government and which I outlined to you yesterday as constituting the ten subjects, in addition to bauxite and water power, which I shall discuss in connection with the major charge of monopolization.
That brings us to the third monopolization charge, and that is with respect to alumina.
Alumina is a white powder (AlO). It is made, as I have previously stated, from bauxite. The process employed consists of grinding and chemical treatment. It is known as the Bayer process.
Though it be repetitious, I add, as a reminder, that aluminum is made from alumina; that it requires two tons of bauxite to make one ton of alumina; and that it requires two tons of alumina to make one ton of aluminum. So that it requires four tons of bauxite to make one ton of aluminum (pp. 2346; 4220).
Up to 1903 the Merrimac Chemical Company had a license under the Bayer patent in this country. The license expired and the patent expired that year. Since then it has been open to the world to use the Bayer process. From 1888, when it began, down to 1903 Alcoa did not produce alumina; it bought its supply, wholly or almost wholly, from the Pennsylvania Salt Manufacturing Company. As I have said, and as has been true ever since 1903, anybody without any obstruction by patent or otherwise could employ the Bayer process in producing alumina.
The Government charges that Alcoa has monopolized the production and sale of alumina in the United States. In the bill it alleges specifically that Alcoa has excluded others from opportunity to produce or sell alumina. It alleges specifically also that Alcoa, through a subsidiary, produces 100 per cent of the alumina used in the production of aluminum in the United States. All of this is contained in paragraphs 40, 44, 53, 83 and 102 of the bill.
As I see it, the charge in the bill with respect to alumina of necessity falls with the charge as to bauxite. If I be right in regard to that, then there is no occasion to make any further answer to the charge relating to alumina.There is, however, another answer, and, as I conceive, it can best be brought out by a table. I have prepared a table, which is as follows:
Alumina (pounds) available, 1928-1937, to non-producers of aluminum (including as so available all alumina sold by Pennsylvania Salt Mfg. Co.).
Alcoa Pro- Used by Supplied by
duction Alcoa Alcoa to
A B C
1928 575,646,896 446,532,180 107,840,328
1929 598,547,561 441,662,198 128,528,746
1930 611,486,171 455,583,765 133,017,404
1931 451,076,117 309,047,476 127,084,794
1932 249,141,297 196,300,811 50,963,632
1933 178,045,808 159,771,660 6,223,240
1934 187,728,784 160,500,324 16,156,604
1935 307,061,740 224,059,882 72,062,827
1936 496,416,998 419,364,020 57,546,848
1937 664,634,277 562,652,260 78,877,704
Totals 4,319,785,649 3,375,474,576 778,302,127
Alumina Available to Non-
Producers of Aluminum
By Alcoa By Pa Salt Total
D E F
1928 21,274,388 6,284,864 27,559,252
1929 28,356,617 7,661,309 36,017,926
1930 22,885,002 8,737,035 31,622,037
1931 14,943,847 7,364,495 22,308,342
1932 1,876,854 5,902,036 7,778,890
1933 12,050,908 9,952,670 22,003,578
1934 11,071,856 8,358,154 19,430,010
1935 10,939,031 10,504,987 21,444,018
1936 19,506,130 10,839,835 30,345,965
1937 23,104,313 9,331,499 32,435,812
Totals 166,008,946 84,936,884 250,945,830
NOTE: Computed from Alcoa answers to interrogatories 96 and 100 and Exhibit 981. If production figures of Exhibit 980 were used in column E, totals in column F would be larger.
This table is in regard to alumina, stated in terms of pounds available during the years 1928 to 1937 to the non-producers of aluminum (counting as so available all alumina produced and sold by the Pennsylvania Salt Manufacturing Company).In the table there are six columns. The first column, A, gives for each of the years 1928 to 1937 the total production in pounds of alumina by Alcoa; the second column, B, gives the total in pounds for each year of such alumina used by Alcoa itself; the third column, C, gives in pounds for each year the quantity of alumina supplied by Alcoa to producers of aluminum; the next column, D, is the alumina available to non-producers of aluminum out of the alumina produced by Alcoa; the next column, E, is the quantity of alumina available to non-producers of aluminum out of what is produced by the Pennsylvania Salt Manufacturing Company. Column D, which gives the quantity of alumina available to non-producers of aluminum out of the alumina produced by Alcoa, is made up by deducting from the figure for any particular year in column A the sum of the figures for that particular year in columns B and C. The last column, F, is the total in pounds of alumina available to non-producers of aluminum and is made up by adding together what is contained in columns D and E.
The grand total of alumina available to non-producers of aluminum, being the footing at the bottom under column F, for all of the years from 1928 to 1937, is 250,945,830 pounds. Of that total the contribution to it by Alcoa is 66 plus per cent and the contribution to it by the Pennsylvania Salt Manufacturing Company is 33 plus per cent. Of the entire production of alumina by Alcoa over this entire 10-year period, that used by Alcoa itself is 78 per cent and that which it has supplied to other aluminum producers plus that which out of its total was made available to non-producers of aluminum was 21 plus per cent.
Alcoa produces and sells all the alumina used for the production of aluminum in the United States and does so because nobody else produces aluminum in the United States from alumina. Alcoa having the alumina employs it in the manufacture by itself of aluminum; but, so far as the evidence discloses, there is no restraint upon any other person by Alcoa from producing aluminum out of this quantity of alumina which is disclosed by table 3 as available to non-producers of aluminum.
Moreover, all the chemical companies could produce alumina out of bauxite and probably would produce it if the price which they could get for it were sufficiently inviting. As I have indicated, they are free as air to go into the production of aluminum in this country out of alumina.
Let me call your attention again to something I have already said, because it will have a bearing on something I am going to say.
What I wish to repeat is this: From 1888 to 1903 all the alumina Alcoa used was furnished to it by someone else, -- chiefly by the Pennsylvania Salt Manufacturing Company and at times wholly by the Pennsylvania Salt Manufacturing Company. Following 1903, the year in which it began the production of alumina, Alcoa still (from 1903 to 1907) procured a substantial portion of its alumina from others.
The Government complains of a contract made in 1907, which is Exhibit 123. Under this contract Alcoa agreed to purchase alumina from the Pennsylvania Salt Manufacturing Company for a period of 10 years; or, to put it more exactly, for a period of 5 years with an option to renew or extend for another 5 years. In the contract there was a covenant by which the Pennsylvania Salt Manufacturing Company agreed not to engage in the manufacture of aluminum during the life of the contract. Complaint of this by the Government is contained in paragraph 87 of the bill.
On the 30th day of January, 1912 (Exhibit 1025), the last mentioned covenant was cancelled by consent of the parties. On June 7, 1912, a decree was rendered in the Pittsburgh case to which I referred yesterday (Exhibit 1009). In paragraph 4 of the decree (exhibit p. 4931) this same covenant was cancelled by the Court. In other words, there was a double cancellation of the covenant in 1912. One of these was by the parties voluntarily on January 30th of that year; the other, on consent of Alcoa, was by the Court June 7th of the same year. As I called to your attention yesterday, the adjudication in the Pittsburgh case exhausted that restrictive covenant as the basis, in whole or in part, of any cause of action in this case. In other words, the same facts which are used in a lawsuit which results in a final adjudication cannot be used as the basis of another lawsuit for the same purpose.
The extent to which any effect can be given to the restrictive covenant of the Pennsylvania Salt Manufacturing Company is to take it into account in determining the intent with which other acts complained of may have been done by Alcoa. There is no other evidence of any misconduct by Alcoa with respect to this restrictive covenant. So also the evidence shows without dispute that Alcoa has sold or been ready to sell alumina to anybody who applied for it, if it had the commodity on hand (pp. 20841; 21831; 40537). There is no evidence that Alcoa ever applied its production wholly to its own wants.
The next specific complaint which the Government makes is in respect to the Merrimac Chemical Company.
Merrimac was the holder of the Bayer license up to its expiration in or about 1903. Its plant was located in Woburn, Massachusetts. Up to 1920 it was in charge of Mr. Howard, who testified as a witness in this case. During the period that it held the Bayer license and thereafter until 1917, the company produced alumina.Subsequently it entered into a contract with Alcoa to buy its requirements of alumina from Alcoa, for the period 1917 to 1927 (Exhibit 1033).The contract prescribed annual instalments of the alumina to go under it from Alcoa to the Merrimac Company. It contained a provision that if the cost of production by Alcoa decreased, the Merrimac should have the benefit of the decrease by a decrease of the price.
There is no claim that the price was excessive. The contract was made on the initiative of Merrimac. Mr. Howard, then at the head of Merrimac, sought Mr. Davis, the head of Alcoa. So also there had been no previous competition between Alcoa and Merrimac. Merrimac's cost of production was greater than the price at which Alcoa sold to it. In addition, as I have called to your attention, there was a clause in the contract which entitled Merrimac to a reduction to the extent, if any, that Alcoa's cost of production decreased during the life of the contract.
There was no limitation whatever put on Merrimac. Except for the cancelled Pennsylvania Salt restrictive covenant of 1907, the evidence furnishes no instance of a covenant suppressing competition or attempting to suppress it with respect to alumina.
The covenant with Pennsylvania was cancelled 29 years ago. The Pennsylvania and Merrimac companies were equipped so that they could produce and sell alumina if the price they got for it or could get for it was attractive. That was true also of others. Among the others who were equipped to manufacture and sell alumina were the Allied Chemical & Dye Corporation and every other well organized chemical manufacturer. The evidence, as I have said heretofore, shows that (if it had on hand sufficient to meet the requirements) Alcoa sold and was willing to sell to anybody who applied to it.
There are also in evidence three distinct instances in which others well equipped to go into the manufacture of aluminum considered producing alumina. I shall discuss these in turn.
The first is the Bohn Aluminum & Brass Corporation. It had the problem under consideration three times: once in 1922, again in 1928 and the last time shown by the evidence in 1932 or 1933. The principal witness who gave us the story as to the Bohn company was Mr. Markey, one of its officials. He said that his company was able to get both power and bauxite or substitutes for bauxite out of which to make alumina. In 1932 actually Bohn contemplated the use of a substitute. The substitute was alunite, of which, according to the evidence, there is quite a large supply in and possibly also in the neighborhood of the State of Utah.
You may recall that when Mr. Markey was on the stand he produced voluminous papers relating, as he stated, to investigations his company had made, with reports of engineers and others, as to the availability of the necessary materials for manufacturing alumina out of which to produce aluminum. Among the papers were reports which he considered of such value to his company that he objected to disclosing them to Alcoa or to any other company engaged in the same business. On that account the papers were submitted to the Court and the Court examined them fully. After the examination a statement was put on the record as to the substance of the contents of the papers, without the revelation of any business secret. It was my understanding that this procedure was satisfactory to both sides, as well as to Mr. Markey.
There was never any interference by Alcoa which frustrated Bohn, or in the slightest prevented or hindered it, from going forward with its enterprise.
According to the testimony of Mr. Markey, the directors of Bohn determined not to go into the branch of the business solely on grounds which had no relation whatsoever to Alcoa. The reasons, as he stated them while on the stand, were solely on account of taxation and legislation situations. The directors, he said, concluded that the possibility of gain from their company itself producing alumina or aluminum from its own produced alumina did not in the judgment of the directors justify the risk. As I think the evidence satisfactorily established, it is clear that in reaching the decision Bohn acted exclusively in its own interest.
For an account of the examination of the papers by the Court, see pages 24643-8; that Bohn acted independently and without interference by Alcoa, see pages 24595-6; 24843.
The second concern which considered going into the production of aluminum from alumina was the Aluminum Products Company, the head of which was Mr. Hastings, who also testified in this case. He considered the matter in 1934 and again in 1936.
The testimony is without dispute that Alcoa agreed to sell Aluminum Products alumina (Exhibits 638 to 660). The prices, because there was a change in the price, were not shown to be unreasonable. As matter of fact, Alcoa offered to sell at about half the price per ton which the British quoted. Mr. Hastings so stated and further testified that he was not dissatisfied with the quantity which Alcoa was willing to sell him; also that the sole reasons he did not go further were that he was unable to get for his company the financing required if he should go into that branch of production and that he failed to obtain the requisite water power which he hoped to get from the TVA. There is no ground whatever in the evidence on which to criticize Alcoa in connection with the failure of Aluminum Products to go into the production of aluminum.
The third instance was that of the Reynolds Metals Company. In 1940, shortly before the close of taking testimony in this case, evidence was introduced that the Reynolds Metals Company contemplated going and had applied to the Reconstruction Finance Corporation for the advance of money with which to go into the production of alumina from bauxite for the production of aluminum.
So far as the evidence discloses, the Reynolds story before the Court does not go further than I have recited. However, in connection with it there is no evidence whatsoever of any interference or any effort to obstruct on the part of Alcoa.
The next complaint by the Government is with respect to new processes and materials. Some of the processes were patented; some were not. Alcoa has been continuously or practically continuously active in seeking out and investigating new processes. The sole aim was cheaper production.
The first complaint is in regard to the Serpek process. The contract as to that was entered into in 1912 (Exhibit 179).
The charge by the Government is in paragraph 91 of the bill. There it is alleged that there was a contract between the French owner of the patents covering the Serpek process, along with several others the names of which are unimportant, and Alcoa for the production of alumina from bauxite. This provided for the organization of a corporation in the United States to own and operate under the patents. The purpose, as is charged, was to prevent the manufacture of alumina under patents by others in the United States and Canada. It is further alleged that the adventure proved impracticable and therefore in 1920 the contract was cancelled. This was 21 years ago.
The process covered by the Serpek patents was for the simultaneous manufacture of alumina and ammonia, with some nitrogen by-products. If it had been successful it would have been cheaper than the Bayer process (pp. 19025-6; 40306-7). After the 1912 contract (Exhibit 179) was executed, Alcoa built an experimental plant. Alcoa operated the plant for two or three years. It concluded, however, that it was unable to make the process work. It, therefore, abandoned the process on that account (pp. 19038-9).
What has been described was nothing but the ordinary instance of an experiment on a new process with the hope, if it worked, of thereby advancing the aluminum industry. Moreover, bear this in mind: if it had been a success and anybody who had not taken a license had been excluded from using the process, that would have been nothing but the exercise of the usual patent right. The whole purpose of a patent is to exclude all except the owner or those who have a license from the owner. There would, therefore, have been no misconduct in excluding from operation under the Serpek patents, if it had proved commercially successful.
The next process complained of is the Hoopes process, more generally spoken of as the dry process.
From the year 1904 to the year 1928 Alcoa worked with and over that new proposed method of producing alumina. The experiments of Alcoa were last carried on at Arvida. In 1928 when Aluminium was organized what existed at Arvida, relating to the dry process, was turned over to Aluminium. Thereafter Aluminium continued the experiments.
For a long time those concerned with the dry process were quite hopeful. Aluminium abandoned it because neither Alcoa nor Aluminium itself had been able to rid the product of titanic acid and zirconium oxide. Both the acid and the oxide were objectionable elements, except that at prohibitive expense possibly those elements could have been eliminated.A large amount of money was spent in the effort to effect the production of alumina under the dry process and the very length of the experiment, coupled with the amount of money expended, indicates good faith on the part of those engaged in it.
Here again we have only an ordinary instance of a manufacturer trying to improve and cheapen production, which failed. No possible ground for criticism of Alcoa in connection with the dry process has been shown.
The third process which is complained of, or in connection with which there is complaint, is the Blanc process which related to leucite.
Leucite is an Italian mineral. It was a proposed substitute for bauxite in the manufacture of alumina and it was anticipated that it would have a potash by-product which would be of value. The company which was to operate the leucite enterprise was Prodotti Chimici Napoli. The charge in regard to the matter is contained in paragraph 71 of the bill. There it is alleged that Alcoa incorporated Prodotti in Italy in 1927 to engage in the refining of alumina from leucite for the purpose and with the effect of obtaining alumina for supplying its European aluminum producing plants, so as to restrain the exportation of aluminum to the United States by threatening European producers with low-cost production and underselling them in their own home markets.
The stock in Prodotti was acquired by Alcoa on May 31, 1928. That was just four days prior to the transfer on June 4, 1928, by Alcoa to Aluminium of nearly all the stocks and other property owned by Alcoa outside of the United States. The agreement, however, on the part of Alcoa to transfer the Prodotti stock to Aluminium was made shortly after the June 4, 1928, arrangement. The transfer was completed in 1931.
Up to the completion of the transfer Alcoa conducted an experiment with the process in Italy. From 1931 to 1935 the experiment was continued by Aluminium. In 1935 the effort was abandoned. It had been worked on by Alcoa and Aluminium for a period of seven years. Quite a large amount of money was expended on it. So far as I can see, there is nothing in the evidence on which can possibly be founded any criticism of the conduct of Alcoa in connection with the leucite experiment.
What happened about the experiment was also but an ordinary effort by a progressive manufacturer to cheapen production, where the experiment turned out to be unsuccessful. The evidence shows that both Alcoa and Aluminium were very hopeful about leucite. There was a bona fide effort by both to find a substitute for bauxite. The very largeness of the amount of money spent by the two companies in the experiment, of itself, refutes any charge of misconduct or bad faith on their part.
I conclude that the Government has wholly failed to prove the charge made with respect to leucite.
Several other materials for producing or substituting for bauxite to produce alumina were mentioned. I shall comment on those briefly.
The first, to which I called attention yesterday, is the so-called potential bauxite in Arkansas. According to the testimony of Dr. Branner the quantity of that may run to from 10 to 20 million tons.Whether, however, the potential bauxite can be employed in a profitable way is a question for the future. I believe, in fact I am very confident from the testimony of Dr. Branner that he believes, that the so-called potential bauxite in Arkansas can be used; but the question really is whether it will not be too expensive to employ, and be so expensive that there will not be profit in the present state of the art in using, that bauxite (pp. 37543-54; 38060-1; 38364-8).
Yesterday I also commented on clay as a material which might be substituted for bauxite. That is one of the most abundant materials extant, familiar to everybody, over the surface of the earth. No doubt alumina can be produced from it. Up to this time, however, it has been too expensive to be adopted as a practical material for producing alumina. What the future holds with respect to clay none can say.
The third suggested possible substitute for bauxite, which was also mentioned yesterday, is alunite. As I look on the evidence, that material has not yet been fully exploited. It probably is what has been referred to as, up to this time, a laboratory material. However, I was impressed by the testimony of the representatives of the Bohn company. Their statements indicated clearly that, when the businessmen constituting its board of directors were considering going into the production of alumina from alunite, they were not deterred from proceeding with the enterprise on account of alunite being the material which they anticipated using. The testimony shows that the laboratory tests had been completely favorable. It also shows that the quantity in this country was very large. I think undoubtedly alunite is worthy of further inquiry.
Alcoa denies the monopolization charge as it relates to alumina. In its answer (paragraph 53), however, it says as of the date of the filing of the bill that "it does produce and sell all the alumina used for the production of aluminum in the United States and it does produce all the virgin aluminum manufactured in the United States." The Government charges as to alumina, as well as aluminum, that there is and has been a monopolization per se of these articles. It further argues in that connection that with respect to aluminum it is unnecessary, in order to sustain the charge of monopolization, for the Government to show that Alcoa excluded or attempted to exclude anyone from that branch of the business.
When I take up the next section of my statement I shall go into these issues as they relate to aluminum. What will there be said will apply as well to alumina on the same issues. For this reason at the moment I shall postpone discussing the charges in so far as they relate to alumina.
My conclusion is that, apart from the question reserved, the Government has entirely failed to prove any of its charges regarding alumina.
October 2, 1941
(4) Virgin Aluminum
We come next to the fourth monopolization charge. This relates to virgin aluminum. As you will recall, the process employed for manufacturing it was covered by patents up to February 2, 1909. The period, therefore, for present consideration of virgin aluminum is since that date.
In addition to the qualities common to alumina and aluminum, already discussed, I should mention one thing. The elements which compose alumina adhere to each other with great tenacity.It is necessary in producing virgin aluminum to drive off oxygen. The making of aluminum, particularly on account of the persistence with which the elements cling together, is a very difficult as well as very expensive operation.
It was claimed by the Government over and over again, in the bill, in argument and in briefs, that Alcoa and its subsidiaries are the sole producers and sellers of virgin aluminum produced in the United States. There is no dispute about this; it is expressly conceded in the answer.
There are three parts in the bill which mention virgin aluminum. In the first the charge of monopolization is stated. In the second it is alleged that by restraints of foreign competition, and in the third part that by unfair and oppressive tactics, Alcoa has maintained its monopoly. For the moment I shall not discuss the second and third parts. Those will be taken up separately later. In connection with my present treatment of virgin aluminum I shall confine myself to the charges in what I have referred to as the first part. These are quite extensive. They are contained in paragraphs 40 to 53. We are concerned, however, chiefly with three of those paragraphs. These are 40, 45 and 53.
For the purpose of getting a clear comprehension, or as clear as I can state, I think it will be enough to outline the allegations in the three paragraphs mentioned.
In paragraph 40 it is alleged:
"Defendants have violated and are now violating the provisions of said Sherman Antitrust Act, by monopolizing, attempting to monopolize, combining and conspiring to monopolize, * * * interstate and foreign trade and commerce, and more particularly by enabling the Aluminum Company to acquire and maintain a monopoly of * * * aluminum, * * * and by excluding others from the fair opportunity to engage in interstate and foreign trade and commerce in said articles." (the words "said articles" including aluminum and several other commodities which I have not read to you).
In paragraph 45 these are the allegations:
"Aluminum Company, and its wholly owned subsidiary, defendant Carolina Aluminum Company, are the sole producers of virgin aluminum in the United States. Said virgin aluminum is produced at three plants operated by Aluminum Company, at Lacoa, Tennessee, Massena, New York, and Niagara Falls, New York; and at a fourth plant operated by Carolina Aluminum Company at Badin, North Carolina."
You will note, therefore, that there are four aluminum producing plants located at the places I have just stated. In that connection there has come from Alcoa an admission of record, that there it produces all the virgin aluminum that is produced in the United States.
In paragraph 53 it is further alleged:
"By virtue of its 100 per cent monopoly of the production and sale of alumina and virgin aluminum in the United States, Aluminum Company has acquired and is maintaining a monopolistic control of the production and sale of * * * aluminum, * * * and possesses the power to fix arbitrary, discriminatory, and unreasonable prices and to extend and perpetually maintain said monopolistic control and to exclude others who would, except for said monopolistic control, engage in competition with Aluminum Company in the production and sale of * * * virgin aluminum, * * *. Because new enterprises desiring to engage in the aluminum industry would be placed at the mercy of a single powerful corporation controlling essential raw materials, and because of the great hazard necessarily involved in venturing into a business so completely monopolized by Aluminum Company and its wholly owned subsidiaries, said monopolistic control has had and will continue to have the direct and immediate effect of suppressing and preventing substantial competition which would otherwise arise in the production and sale in interstate and foreign commerce of * * * aluminum, * * * and is inimical to the public interest and in violation of Section 2 of said Sherman Antitrust Act."
Before we get away from the wording of the three extracts I have just read relating to virgin aluminum, let me call your attention to a fact which I shall take up for discussion later. This fact is that in paragraph 40 and in paragraph 53 the word "and" is employed between the two parts of the allegations made in those two paragraphs with respect to alleged monopolization of aluminum. What follows the word "and" in both of those paragraphs is in paragraph 40 the word "excluding" and in paragraph 53 the word "exclude." I shall not take up for consideration just at this point the significance of the use of those words following the word "and"; but I shall deal with them a bit later. All I ask now is that you bear in mind the use of the words I have mentioned.
As I conceive, it has already been demonstrated, at least it is my view that it has been shown, that Alcoa has never monopolized bauxite or water power or alumina; that Alcoa is not guilty of monopolization of any of those articles. As I conceive also, and I believe in a measure indicated yesterday, strong argument can be made in support of the proposition that monopolization of alumina or monopolization of water power or monopolization of both is a necessary condition precedent to the monopolization of aluminum. I make no final statement of my views on the point at the moment. Nevertheless, I do not wish the record left without my having called attention to the fact, as I feel, that at least argument of great strength can be advanced in support of the proposition. If the proposition be sound, one of the reasons why it is of the greatest consequence is that perhaps we are wasting time in discussing the other points. However, I shall discuss them. By the additional discussion I hope at least to furnish a supplemental reason for adopting the same conclusion.
Coming back to the use of the words "and" and "excluding" in paragraph 40, and the words "and" and "exclude" in paragraph 53, this means that the Government itself in making the charge of monopolization has used two elements conjunctively. What is the consequence of having used the two conjunctively in the pleading? As I think the Government thereby has committed itself to the view that, in order to establish monopolization, there must be proof to sustain both the elements which have been combined in the description of what constitutes the offense charged.
As I have said, it is without dispute that Alcoa is the sole producer and seller of virgin aluminum manufactured in the United States. There is no controversy about that; there never has been. But if I construe the pleading correctly, then on its own theory, as announced in the pleading, the burden rests on the Government to prove the other element, namely, the element of exclusion.
There has been a great deal of discussion of the element of exclusion throughout the trial. The Government has not adhered to a consistent or definite position with respect to it. What it has said at times, as I read it, is in square conflict with the pleading and parts of what it has said on the point are in square conflict with other statements made on the point.
Of course, I may be in error in my interpretation of the Government's position; but so far I have found no escape from this interpretation. I think, therefore, that I should call attention to the statements of record made by the Government in regard to the matter.
On May 4, 1938, counsel for the Government made this statement, at page 930:
"The theory of this petition is that the defendants have monopolized and conspired to restrain interstate and foreign commerce in aluminum.The more important of the offenses charged is that of monopoly. Monopoly, of course, means primarily exclusion of others, engrossing the business to yourself, and excluding others from a free opportunity from engaging in that business."
On the same day, at page 932, Government counsel made this statement:
"If you read this bill of complaint as a whole I am sure that you can gather from it the fact that the Government has pursued the theory that the Aluminum Company of America has a 100% monopoly on virgin aluminum and that it acquired that monopoly by excluding others from a fair opportunity to engage in the business."
On pages 932-3 the Government made this additional statement:
"* * * I submit that you can find on the face of the bill the theory spelled out carefully that that was one of the principal methods whereby this monopoly was built up. They [meaning Alcoa] excluded others from a fair opportunity to engage in the business, first by getting control of bauxite; second, by getting control of power; and, third, by tying the hands of other potential competitors and intimidating them from competing with the Aluminum Company."
Again, on October 25, 1938, which was after the case had been on trial since the 1st of the preceding June, Government counsel said at page 5163:
"* * * we urge that irrespective of intent, that the power to fix prices and to keep others out of the market, the power to control the market, irrespective of intent, is a monopolization."
This injects an additional idea, namely, that to establish monopolization there need be no proof of intent whatever. At least that is the way I read the sentence I have just put on the record.
On the same day, at page 932, Government counsel made the alleged piston patent monopoly. With respect to that, at pages 16755-6, Government counsel made this statement:
"The first proposition, as I stated, is the charge that Alcoa has undertaken to get a monopoly on the manufacture of aluminum pistons. * * * The thing that makes it unlawful is the attempt to engross to one's self the entire manufacture of a particular product with the intent of acquiring that sole right of manufacture plus the exclusion of others from the field."
The Government made a statement as to the matter substantially to the same effect on May 17, 1939, at pages 17374-5.
Again, on November 22, 1939, testimony was being taken about negotiations of Mr. Hastings with Alcoa for the purchase of alumina. He wanted the alumina for the use of Aluminum Products Company, which was his organization, in manufacturing aluminum. As I recall, Mr. Gibbons was on the stand at the time. At pages 22598-9 the following appears to have occurred that day:
"The Court: What is the definition of monopolization? I have understood you to say that it included the element of excluding others.
"Mr. Rice [Government counsel]: Excluding others from the manufacture of it. Now Alcoa does have a monopoly on alumina, that is about a 99 per cent monopoly on alumina, and the fact it is willing to sell its alumina to someone else does not detract from the monopoly at all.
"The Court: I will hear you on that in time, but the element of exclusion is an essential element to the establishment of monopolization, is it not?
"Mr. Rice: Yes, * * *."
I have said to you that, according to my reading, the record also discloses an inconsistency between the pleading and the positions taken by the Government on the record, including statements in its briefs. On June 6, 1938, at pages 1814-5, the following is recorded in the minutes:
"The Court: * * * I am trying to find out, first, whether you conceive that under the admissions of well pleaded facts, in part or whole of the bill, the Government is now entitled to a decree in its favor that they [Alcoa] are monopolizing, and your answer is no, is that right?
"Mr. Rice: Yes. * * *.
"The Court: * * * Now, if you make that admission, that is not enough. What, in addition to that, must the Government establish in order to be entitled to a decree of monopolizing?
"Mr. Rice: the additional fact that we must prove is the fact which we allege in paragraph 53, that is, with this one hundred per cent monopoly of alumina and aluminum, the Aluminum Company and the other defendants have the power to fix arbitrary or discriminatory or unreasonable prices or the power to extend or perpetually maintain the monopoly or the power to exclude others."
For the first time in this lawsuit, so far as I can discover, the Government took the position that in effect it ought to have drawn its bill by substituting in paragraphs 40 and 53 the word "or" for the word "and" preceding the word "excluding" in paragraph 40 and the word "exclude" in paragraph 53.
At page 1817 the following occurred:
"The Court: * * * Then as I understand it, your position is this, as far as concerns part 1 of the bill, that is the monopolization charge, it is your position that when you couple with the admissions in the answer proof of power by Alcoa, either one, arbitrarily to fix prices, or two, to exclude others from transactions in interstate commerce and foreign commerce in these articles, that entitles you to a decree?
"Mr. Rice: That is correct."
The substance of this was repeated at pages 1818-9. There were further statements by the Government in its briefs upon this phase of the controversy.
In its original brief, at page 6, the Government said:
"Monopolization does not require power to exclude others from entering the industry."
In its original brief, at page 38, the Government intimated, if it did not expressly say, that its position is as follows: "an enterprise producing 100% of the product in a large industry constitutes a monopolization per se in violation of Section 2 of the Sherman Act," -- although on the same page it concedes that "no reported cases will be found squarely ruling upon" what it calls "the narrow question"; and at page 5 of its reply brief it says that there is "absence of direct authority upon this initial proposition."
In the Government's reply brief, at page 8, there is the following statement:
"An accurate restatement of the Government's position was made by the Court following the opening statements, to the effect that the Government claimed the right to a decree under its charge of monopolization if it proved 'power by Alcoa, either one, arbitrarily to fix prices or, two, to exclude others' (R.1817, 2055)."
It would seem, therefore, that the position of the Government finally is (1) that the control of domestic production is monopolization per se and (2) that it is not necessary for the Government to show the exclusion of others in order to establish monopolization.
There is one minor aspect, in regard to the bill as a pleading, to which I wish to call attention; that is, as to its form. It has caused me, and caused me throughout the trial, some difficulty. What I have in mind is that the form of the pleading as to monopolization, in some respects at least, begs the question. It alleges, in effect, what is the result of an existing 100 per cent monopoly. That is the form of words most frequently used; or sometimes what is the result of Alcoa's monopoly. When I have read such allegations it has left me in some uncertainty as to precisely what the Government is talking about. This has been true because our inquiry, and our sole inquiry on this branch of the case, is whether there is any monopoly.
What I am most concerned with is getting help from the Government to understand what it means.It is for this reason that I have had a lot of trouble in construing the bill, particularly on the branch of the case at present under consideration.
As is obvious, up to February 3, 1909, Alcoa's patents protected it, or at least according to the view I have taken and for the reasons I have given I consider they protected it, from the monopolization charge. That is what the patents were for. I think my position on this point has been made clear. Save, therefore, as part of the history, what has been said about the patents and so forth, in fact nearly everything that has been said about Alcoa preceding Feruary 3, 1909, is merely descriptive and helpful to some extent in understanding what the company consisted of, although there are occasions where perhaps -- and I have treated it as if it were always true -- I might consider these facts as an aid in interpreting the intent of Alcoa. In other words, for the most part evidence as to these facts preceding February 3, 1909, was irrelevant; and we are concerned primarily, if not only, with acts that were subsequent.
"Monopolize," as used in Section 2 of the Sherman Act, is what the grammarians call an active verb. Inherently the necessary meaning is directly opposed to an inert condition.
On principle it seems to me that it would be little short of absurd to construe Section 2 without qualification to mean that production of the entire output in the United States of a particular article, or of any article, or that the possession or sale of it by the producer, without other complaint or criticism of his conduct, would constitute monopolization of the article. I think that such an interpretation would be wrong. I think it would be wrong, among other things, because if adopted the statute as so interpreted thereby would provide punishment for what others than the producer (even though wholly unrelated to and disconnected from him) might do or had done. That this is so can be brought out, as I conceive, by considering a hypothetical case which I shall state to you.
Assume these facts: (1) A and B were domestic manufacturers of the same article in the same neighborhood and sold it, through the channels of interstate commerce, in the same communities. (2) In the course of time A grew to do his work better and at less cost than B. (3) During the same period, without fault on his part and while working with equal industry, the article B produced was inferior in quality or his cost of production was greater than that of A. (4) In consequence, all the customers of B shifted to A and B was forced to close his factory for lack of customers. (5) The competition between A and B was fair. (6) A has continued to run his factory for 50 years and, ever since the point was reached where he did his work better and at less cost than B, A has sold all the articles marketed in the communities formerly served in part by himself and in part by B.
Those are the facts that I assume. Now what shall we say with respect to application to the facts of a charge against A of monopolization? In the circumstances recited A became the sole domestic producer and seller of the article. Did that render him guilty of monopolization? There is no showing that he unduly or unfairly or at all restrained trade, except in the very literal sense that I referred to on Tuesday. I pointed out that, in the lay sense, any merchant in the world who sells an article restrains trade because his neighbor engaged in the same business has no chance to sell that identical article. But, in the legal sense, that is not monopolization by A. On the contrary, the withdrawal of B from the contest arose wholly out of his own deficiencies.
Customers voluntarily elected to patronize A. Plainly A is not responsible for what B or for what the customers did. Without imposing on A responsiblity for what B did, or for what the customers did, or for what B and the customers did, it cannot be said that he caused withdrawal of B from the contest.
It is clear also that it was the difficulty or the financial loss or the risk of financial loss from engaging in the manufacture of the article that led one of the competitors concerned in the industry to discontinue producing the article. This competitor preferred to leave someone else to meet the difficulty or to incur the hazard. Does the statute, without more, prohibit the single remaining manufacturer from continuing in business, or from continuing to produce the article, or from continuing to sell the article? If so, then certainly it would follow necessarily that the only recourse open to him would be to abandon production and thus, so far as concerns domestic production, let it disappear from the commerce of the United States. The construction which brings about such a result should be rejected and I feel certainly will be rejected unless imperatively required by the Sherman Act.
The sole domestic manufacturer might do so well, might charge such reasonable prices and might conduct the marketing of his product so satisfactorily, that everyone in the community would prefer to patronize him. If so, then snother citizen who, though without fault on his part, could not carry on the business with equal satisfaction to his customers, -- either because his product would be inferior or because greater costs of production would compel him to charge higher prices in order to survive, -- would necessarily be driven out of the business. Yet, if the theory of the Government, stated by its counsel, as to what Section 2 of the Sherman Act means be accepted, then obviously A would be punished for what B, or what B's customers, or what B and his customers had done.
So far as I can discover the Supreme Court has never given the slightest support to such an interpretation as the Government advocates. As I understand the statements of Government counsel in their briefs, they have found no support in the decisions for their proposition. Even they themselves have gone so far as to say that they find no direct support for their position. On the contrary, the Supreme Court, in defining monopolization under Section 2, has coupled with the existence of power to control, or that in essence, the further element of affirmative utilization of that power to keep out or with the purpose of keeping out competitors, -- which keeping out is identical in significance and meaning with "excluding."
In other words, to put it differently, the possession of unexerted power to control is not an offense. This was held in United States v. United States Steel Corp., 251 U.S. 417, 451, 460, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121, and United States v. International Harvester Co., 274 U.S. 693, 708, 47 S. Ct. 748, 71 L. Ed. 1302.
The Circuit Court of Appeals for the Second Circuit has ruled to the same effect (National Biscuit Co. v. Federal Trade Commission, 299 F. 733, 736. See, also, Federal Trade Commission v. Paramount Famous-Lasky Corp., 2 Cir., 57 F.2d 152, 157).
In the way described, and as I feel in that way alone, can there be ascertainment of whether an accused is guilty of monopolization. The only way to get an answer to the question is by an inquiry into his conduct.
The Government seeks to distinguish the decisions to which I have referred in support of my own view. Before going into them, however, we should have as background the significance which, in dealing with the subject of monopolization, the Supreme Court has ascribed to the use in Section 2 of verbs instead of a noun or nouns.
On inspection it immediately becomes apparent that Section 2 does not inhibit or even mention a monopoly. On the other hand, the only thing it condemns is "to monopolize" or "attempt to monopolize" or "combine or conspire * * * to monopolize." It follows that if all that governs in the premises be Section 2 of the Sherman Act -- and that is all we are concerned with on the branch of the case now under consideration -- a monopoly is lawful. Certainly at least Section 2 does not make it unlawful. What the Supreme Court said on the subject as long ago as 1911 has remained entirely undisturbed and entirely unmodified.
In the Standard Oil case, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734, attention was called to two features of the law with respect to monopoly as such. First, without going into the great learning there displayed with respect to the common law, it is enough to quote the statement (page 55 of 221 U.S., page 514 of 31 S. Ct., 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734) that "nowhere at common law can there be found a prohibition against the creation of monopoly by an individual." Secondly, it was said (page 62, of 221 U.S., page 516 of 31 S. Ct., 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734) that likewise, as at common law, the Sherman Act omitted "any direct prohibition against monopoly in the concrete." The Court went further and, with respect to the statute, made an explanation of the omission last mentioned. We need not pursue this feature further, however, than to call attention to the Court's statemet (page 62 of 221 U.S., page 516 of 31 S. Ct., 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734) that this omission "indicates a consciousness that the freedom of the individual right to contract, when not unduly or improperly exercised, was the most efficient means for the prevention of monopoly."
In other words, our highest court has declared that the Congress deemed it wiser to leave undisturbed the citizen's right freely to contract than to bar him from creating a monopoly. Instead, in a sense Section 2 prescribes rules of conduct for the citizen. This end is accomplished solely by using verbs in defining prohibitions relating to that conduct.
In 1915 the District Court of the United States for the Western District of New York had before it a suit in which the Government complained that certain acquisitions of property by the defendant had violated Section 2 of the Sherman Act (United States v. Eastman Kodak Co., 226 F. 62).In the course of its opinion the District Court said (page 80 of 226 F.): "There is no limit in this country to the extent to which a business may grow." This proposition seems axiomatic. Yet so far as I have discovered Judge Hazel, who wrote that opinion, made the first specific announcement of it in connection with a charge of monopolization in contravention of Section 2 of the Sherman Act; but in 1920 the Supreme Court spoke on the subject in United States v. United States Steel Corp., 251 U.S. 417, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121.
Before setting out what was decided in the Steel Corporation case, however, consideration should be given to the Government's contention that the case should not be followed because it was decided by a minority of the whole number of Justices, although a majority of those who sat, and because, as the Government claims in effect, the Justices who composed the majority joining in the opinion later used expressions or said things which were at variance with what was said in that opinion.
What are the facts? They are these: Two Justices did not sit; four Justices joined in the majority opinion; three Justices joined in a minority opinion. As will be seen by extracts, however, all of the Justices participating, all the Justices who sat, being the majority, agreed with the statement or the substance of the statement made earlier by Judge Hazel. Indeed, as I read the opinion, in full concurrence with each other all seven of the Justices sitting in the Steel Corporation case went beyond what Judge Hazel had said.
If I rightly construe the opinion, the differences between the two groups who sat were confined to other matters and upon the phase of the decision with which we are at present concerned, the seven Justices were unanimous and in complete accord.
At page 451 of 251 U.S., at page 299 of 40 S. Ct., 64 L. Ed. 343, 8 A.L.R. 1121, Mr. Justice McKenna for the majority said this:
"* * * the law does not make mere size an offense, or the existence of unexerted power an offense. It, we repeat, 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."
At pages 460, 461 of 251 U.S., at page 302 of 40 S. Ct., 64 L. Ed. 343, 8 A.L.R. 1121 Mr. Justice Day, speaking for the minority, said:
"I agree that the [Sherman] act offers no objection to the mere size of a corporation, nor to the continued exertion of its lawful power, when that size and power have been obtained by lawful means and developed by natural growth, although its resources, capital and strength may give to such corporation a dominating place in the business and industry with which it is concerned. It is entitled to maintain its size and the power that legitimately goes with it, provided no law has been transgressed in obtaining it."
If there could have remained any doubt about the proposition, I feel it was conclusively settled in 1927 that unexerted power is not an offense. It was so held in United States v. International Harvester Co., 274 U.S. 693, 708, 47 S. Ct. 748, 753, 71 L. Ed. 1302. The statement there was this:
"The law, however, does not make the mere size of a corporation, however impressive, or the existence of unexerted power on its part, an offense, when unaccompanied by unlawful conduct in the exercise of its power."
Finally, in 1940, the Supreme Court further elucidated the statute generally. It also further fortified its interpretation when speaking generally of cognate features, especially the confinement of the prohibitions of the statute to the conduct of individuals. That was in Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S. Ct. 982, 84 L. Ed. 1311, 128 A.L.R. 1044.
The case there was under Section 1. On that account it may be suggested that what was stated about Section 2 was a dictum and need not be followed; but I have not yet reached the point where I disregard what the Supreme Court says, even though I think it may be dictum. It is not within my official province to criticize a dictum by the Supreme Court. I accept its dictums as well as its decisions. If any change is to be made in the law after the Supreme Court announces it, I want the Supreme Court itself to make it, because certainly I am not going intentionally to make or try to make it.
The case contained two relevant statements. The first was this (page 495 of 310 U.S., page 993 of 60 S. Ct., 84 L. Ed. 1311, 128 A.L.R. 1044):
"A second significant circumstance is that this Court has never applied the Sherman Act in any case, whether or not involving labor organizations or activities unless the Court was of opinion that there was some form of restraint upon commercial competition in the marketing of goods or services * * *."
Again, it was said on page 500 of 310 U.S., at page 996 of 60 S. Ct., 84 L. Ed. 1311, 128 A.L.R. 1044:
"In the cases considered by this Court since the Standard Oil case in 1911 some form of restraint of commercial competition has been the sine qua non to the condemnation of contracts, combinations or conspiracies under the Sherman Act, and in general restraints upon competition have been condemned only when their purpose or effect was to raise or fix the market price."
In United States v. Gold, 2 Circ., 115 F.2d 236, the Court had before it a charge under Section 1 against an official of a labor union. He sought to compel nonunion factories to employ only members of his union. Failing in that he caused a strike by the members of the union against the factories. On November 4, 1940, Judge Learned Hand, speaking for the Court, said (page 238 of 115 F.2d):
"There can be no question that the accused intended to acquire a monopoly of the whole supply of the services rendered by the employees; * * *. But the court in the Apex case expressly declared that the Sherman Act did not cover any restraint of competition in such services * * *."
Even though brought under Section 1 and not directly in point here, it seems to me that in general the Apex Hosiery case as construed by Judge Hand at least lends support to the holdings in the Steel Corporation and the International Harvester cases, that a charge of monopolization cannot be sustained by merely showing existence of power to control if such power were never used or designed to be used to keep or drive others out of the business involved. Certainly there is nothing in the Apex Hosiery case at variance with the rule announced in the Steel Corporation and International Harvester cases to which I have referred.
I think there is no decision of the Supreme Court or of the Second Circuit Court of Appeals which lends support to, and certainly no such decision called to my attention supports, the position of the Government as finally announced by it with respect to the question that we are now discussing.
For example, the Government cites the Socony-Vacuum Company case, 310 U.S. 150, and quotes language from page 224, 60 S. Ct. 811, page 844, 84 L. Ed. 1129. It is to be noted, however, that there the Court was not dealing with monopolization; it was concerned only with a pricefixing conspiracy, as I called to the attention of Government counsel when he referred to it. It was in respect to this that the pronouncement was made that the conduct complained of was "illegal per se" (page 223 of 310 U.S., 60 S. Ct. page 844, 84 L. Ed. 1129). That was obviously right. It is so clear and so undisputed, and was so throughly established long before this decision was handed down, that there is nothing new about it. At page 224 of 310 U.S., at page 844 of 60 S. Ct., 84 L. Ed. 1129, in the interest of clarity and, I believe, for that purpose only, the Court explained that "Monopoly power * * * is not the only power which the [Sherman] Act strikes down."
When taken in its context it seems to me indisputable that what the Court said was intended to be applicable only under Section 1. It seems to me also that it was in order surely to avoid misunderstanding or confusion that note 59 (pages 224-226 of 310 U.S., pages 845, 846 of 60 S. Ct., 84 L. Ed. 1129) was brought in just at this point.
Let it not be overlooked that in the case at bar we are now dealing with the charge made in part 1 of the bill under Section 2. Note 59 in the Socony-Vacuum case states with precision the distinction between sections 1 and 2. At page 226 of 310 U.S., at page 845 of 60 S. Ct., 84 L. Ed. 1129, it was said that where "actual monopolizing," in violation of Section 2, is charged, an "intent * * * to produce the result which the law condemns" is "then necessary."
What I have said, as I conceive, is in accord with and is sustained by what was said in note 59 to the Socony-Vacuum opinion. Indeed, as I feel, it would be impossible for one having power to control to accomplish exclusion of a competitor unless the power of control were actually exercised and incidentally, therefore, were used with intent to exclude.
I see no doubt, at least I entertain no doubt, that exclusion is one of the essential elements of the crime of monopolization.
There is another entirely separate but related class of cases which specifically deal with exclusion. They hold that it is an essential element of monopolization. As I understand them, in order to establish monopolization it must be shown that the accused excluded or attempted or by his conduct intended to exclude his competitor or competitors. The decisions to which I call your attention as sustaining the proposition are Patterson v. United States, 6 Cir., 1915, 222 F. 599, 619, 620, certiorari denied 238 U.S. 635, 35 S. Ct. 939, 59 L. Ed. 1499, and cited with apparent approval in United States v. Socony-Vacuum Co., May 6, 1940, 310 U.S. 150, at pages 225, 226, 60 S. Ct. 811, 84 L. Ed. 1129, and National Biscuit Co. v. Federal Trade Commission, 2 Cir., 1924, 299 F. 733, 738.
In the Patterson case, at pages 619 and 620, of 222 F., there appears the following:
"The word 'monopolize' is used in this section [Section 2] in a legal and accurate sense. Its root idea is to exclude. To monopolize trade or commerce, or a part thereof, is to exclude persons therefrom. * * * But in the case of monopolizing under the second section, where there is exclusion by a competitor, or a combination of competitors, of competitors substantially from interstate trade or commerce, it is in order that the former may have the whole or approximately the whole of the field to itself or themselves. It is penalized, so that there may be no such exclusion, and the field may be occupied by all on equal terms."
The Patterson case, having been cited by the Supreme Court and particularly cited so recently as in 1940, takes on, as I feel, a significance that it did not have before. Such citation in the absence of some declaration to the contrary, I take it, is an adoption or approval of the decision.
Again, in the National Biscuit Co. case to which I have referred, this was said (page 738 of 299 F.):
"It is the exclusion of others from the opportunity of doing business that is regarded as monopolizing."
The decision in the National Biscuit Co. case was by the Circuit Court of Appeals to whose decisions I owe obedience. For that reason it takes on a significance for me that I would not accord to it if it were made by a Circuit Court of Appeals for another circuit or made by a District Court.
Throughout this case the Government has done its work with great thoroughness, apparently with a quite adequate staff of competent lawyers. I am in a different position. I have to do all my work myself, without anybody to help me. After having had opportunity thoroughly to investigate the law, the Government properly announced in its briefs, in effect, that it could find nothing in the decisions to sustain or at least directly to sustain its position that exclusion is not an essential element of the crime of monopolization. In view of two decisions, -- one cited by the Supreme Court of the United States and the other being by the Circuit Court of Appeals for this circuit, -- which squarely and directly do hold that exclusion is a necessary element of the crime of monopolization, however, I feel bound to adhere to that view.
There are numerous other cases I have run across which are to the same general effect as the Patterson and the National Biscuit Co. cases. Nevertheless, I do not cite them because, as guides for me, they stand no higher than my own decisions do and there is no use in citing them. So also, where there have been, as I have found, a decision by a Circuit Court of Appeals for another circuit which the Supreme Court has cited, and a decision by the Circuit Court of Appeals for this circuit, I feel that there is no use of my searching for decisions by Circuit Courts of Appeals for other circuits or by district courts standing on the same level with the district court of which I am a member.
As I read the Government cases dealing with the point, there is no one of them that supports or even tends to support its theory with respect to the element of exclusion.
As I understand the law as laid down in the decisions on which I have relied, it is requisite to success on a monopolization charge that the Government prove the element of exclusion.
You will recall the statement in the Apex Hosiery case, which was a mere repetition or reaffirmance of holdings by the Supreme Court, theretofore, that when we are in doubt as to the meaning of a statute (that is, when it is ambiguous), then we should resort to its legislative history.
Ordinarily I should have recited the legislative history of the Sherman Act before citing the court decisions to which I have referred. In the present instance, however, I preferred to postpone consideration of the legislative hostory until after I had drawn your attention to some court decisions.
On going over the legislative history of the Sherman Act, it seems to me strongly to confirm the interpretation I have put on Section 2.
In the Apex Hosiery case, 310 U.S. 469, at pages 497, 498, 60 S. Ct. 982, 84 L. Ed. 1311, 128 A.L.R. 1044, it was said, in substance, that the method for getting at the meaning of terms employed in the Sherman Act having to do with restraint of trade was to ascertain their definition at common law.
Section 2 is, or at least some of the courts have said it is, ambiguous. In fact, there are very few things about the Sherman Act that some courts do not say are ambiguous. That it is ambiguous was announced by Circuit Judge Howell E. Jackson shortly before he became a member of the Supreme Court. He made the announcement in 1892, when sitting in the Circuit Court for the Southern District of Ohio, in the case of In re Greene, 52 F. 104, at page 115. The existence of ambiguity was also recognized in 1911, in the Standard Oil case, 221 U.S. 1, at pages 61, 62, 31 S. Ct. 502, 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734. Lastly, as I have called to your attention heretofore, it was definitely stated in the Apex Hosiery case, 310 U.S. at page 489, 60 S. Ct. at page 989, 84 L. Ed. 1311, 128 A.L.R. 1044 that the language is vague -- vague is the word -- and I take it this means it is ambiguous.
It is a well established rule that ambiguity in a statute permits resort for help to its legislative history.In the Apex Hosiery case, at page 489 of 310 U.S., at page 989 of 60 S. Ct., 84 L. Ed. 1311, 128 A.L.R. 1044, the Court said:
"In consequence of the vagueness of its [the Sherman Act's] language * * * it is appropriate that courts should interpret its word in the light of its legislative history * * *."
In Duplex Printing Press Co. v. Deering, 254 U.S. 443, at pages 474, 475, 41 S. Ct. 172, at page 179, 65 L. Ed. 349, 16 A.L.R. 196, the Court said:
"* * * reports of committees of House or Senate stand upon a more solid footing [that is, more solid than something that had been talked about immediately preceding], and may be regarded as an exposition of the legislative intent in a case where otherwise the meaning of a statute is obscure. * * * And this has been extended to include explanatory statements in the nature of a supplemental report made by the committee member in charge of a bill in course of passage."
Let us, therefore, turn to the Congressional Record and see if we can discover evidence there os the prescribed type for consideration in resolving the meaning of an ambiguous word or phrase used in the Sherman Act and more particularly whether there be in the Congressional Record any assistance that we can get from the prescribed material in determining the meaning of monopolization (monopolization, of course, meaning what I have defined at the beginning as included within Section 2 of the Sherman Act in the three sets of verbs there employed).
The bill which resulted in the adoption of the Sherman Act was known as S1.It was passed at the first session of the Fifty-first Congress. In the Senate Mr. Edmunds of Vermont, Chairman of the Judiciary Committee of the Senate, was in charge of the bill. In the House, as stated by the Chairman of the Judiciary Committee, Mr. Culberson (a member of the committee) was in charge of the bill. There arose in the Senate a discussion, brought on by Senator Kenna of West Virginia. The inquiry made by Mr. Kenna was as to the wording of Section 2 of the bill. That wording, as to the meaning of which he propounded his question, was precisely what is contained in Section 2 of the Sherman Act today.
As shown by the Congressional Record, Volume 21, Part 4, pages 3151-2, the proceedings included the following:
"Mr. Kenna. * * * I would like to ask * * * the Senator from Vermont [that being Senator Edmunds, Chairman of the Judiciary Committee] a question touching the second section: * * *.
"Is it intended by the committee, as the section seems to indicate, that if an individual engaged in trade between States * * *, or between a State and a foreign country, by his own skill and energy, by the propriety of his conduct generally, shall pursue his calling in such a way as to monopolize a trade, his action shall be a crime under this proposed act? * * *.
"Mr. Edmunds. I think I understand the Senator.
"Mr. Kenna. Suppose a citizen of Kentucky is dealing in short-horn cattle and by virtue of his superior skill in that particular product it turns out that he is the only one in the United States to whom an order comes from Mexico for cattle of that stock for a considerable period, so that he is conceded to have a monopoly of that trade with Mexico; is it intended by the committee that the bill shall make that man a culprit?
"Mr. Edmunds. It is not intended by it and the bill does not do it. Anybody who knows the meaning of the word 'monopoly,' as the courts apply it, would not apply it to such a person at all; * * *.
"Mr. Kenna. * * * here is a provision in the bill which * * * provides a penalty for such conduct on the part of any citizen of this country engaged in the commonest and most legitimate callings of the country, who happens by his skill and energy to command an innocent and legitimate monopoly of a business.
"Mr. Edmunds. It does not do anything of the kind, because in the case stated the gentleman has not any monopoly at all.He has not bought off his adversaries. He has not got the possession of all the horned cattle in the United States. He has not done anything but compete with his adversaries in trade, if he had any, to furnish the commodity for the lowest price. So I assure my friend he need not be disturbed upon that subject."
Senator Gray of Delaware thereupon proposed an amendment to include in Section 2 the element of combining or conspiracy. After discussion, Senator Edmunds said (p. 3152):
"I have only to say, in regard to the amendment suggested by my friend from Delaware and the suggestions of the Senator from West Virginia, that this subject was not lightly considered in the committee, * * * and the best answer I can make to both my friends is to read from Webster's Dictionary the definition of the verb 'to monopolize:'
"1. To purchase or obtain possession of the whole of, as a commodity or goods in market, with the view to appropriate or control the exclusive sale of; as, to monopolize sugar or tea.* * *
"2. To engross or obtain by any means the exclusive right of, especially the right of trading to any place, or with any country or district; as, to monopolize the India or Levant trade."
In the House Mr. Culberson, in commenting on Section 2, quoted Webster's definition of a monopoly as follows (21 Congressional Record, Part 5, p. 4090):
"To engross, to obtain by any means exclusive right of trade to any place or within any country or district, as to monopolize the trade."
I think, therefore, it is very clear that it was the understanding of Senator Edmunds and of Mr. Culberson, who were in charge of the bill which resulted in the Sherman Act, during the course of the consideration of bill by the Senate and the House, that the element of exclusion was an essential to monopolization.
If I be right on that interpretation, then it has the support of two court decisions which I have found and, so far as I have discovered, they arethe only ones which have spoken specifically on the subject. The first is the case of In re Greene, C.C.S.D.Ohio 1892, 52 F. 104, 116, wherein Circuit Judge Howell E. Jackson, in speaking of Section 2 of the Sherman Act, said this:
"When this section of the act was under consideration in the senate, distinguished members of its judiciary committee and lawyers of great ability explained what they understood the term 'monopoly' to mean; one of them saying: 'It is the sole engrossing to a man's self by means which prevent other men from engaging in fair competition with him.' Another senator defined the term in the language of Webster's Dictionary: 'To engross or obtain, by any means, the exclusive right of, especially the right of trading, to any place or with any country, or district; as to monopolize the India or Levant trade.' It will be noticed that, in all the foregoing definitions of 'monopoly,' there is embraced two leading elements, viz., an exclusive right or privilege, on the one side, and a restriction or restraint on the other, which will operate to prevent the exercise of aright or liberty open to the public before the monopoly was secured. This being, as we think, the general meaning of the term, as employed in the second section of the statute, an 'attempt to monopolize' any part of the trade or commerce among the states must be an attempt to secure or acquire an exclusive right in such trade or commerce by means which prevent or restrain others from engaging therein."
The other decision by a lower court, to which I referred as one commenting on the significance of what occurred during the course of legislative consideration of Section 2 of the Sherman Act, was joined in by Judge Hook, whose opinions, of course, all lawyers who practice in the Federal courts have read. This was a concurring opinion.It was rendered in 1909 when four Circuit Judges were sitting in the case of the United States v. Standard Oil Co., C.C., 173 F. 177, 195-197. You will recall, of course, that the decision below in that case was affirmed by the Supreme Court in 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann.Cas.1912D, 734.
What Judge Hook said that is pertinent is set out at pages 195-197 of 173 F. and is as follows:
"One person or corporation may offend against the second section by monopolizing, but the first section contemplates conduct of two or more. * * * That it was the intention of Congress to condemn monopolies, not based on illegal combinations among several, but secured by single persons, natural or artificial, by other means, also appears from the history of the legislation. * * * after much difference of view, the bill, with many amendments, was referred to the judiciary committee of which Senator Edmunds was chairman. * * * A motion was made to amend the second section. * * * But it was rejected. * * *
"During the discussion of the amendment above referred to, apprehension was expressed over the broad language of the second section of the proposed act, and inquiry was made whether the committee having the bill in charge intended it should make it an offense if an individual engaged in interstate and foreign commerce, 'by his own skill and energy, by the propriety of his conduct generally, shall pursue his calling in such a way as to monopolize a trade.' Assurances were given that the term 'monopolize' had no such signification, but that it contemplated the employment of means which prevented others from engaging in fair competition, the engrossing of the trade, and the like. Undoubtedly this view prevailed at the passage of the law."
If the answer which Senator Edmunds gave to Senator Kenna be accepted, then it seems to me, particularly on the interpretations of Judge Jackson and Judge Hook, the offense of monopolization cannot be established unless there be proved, as one of the constituents, the element of exclusion.
On my own account I may repeat what I have said before, that on the undisputed evidence I think it clear that Alcoa comes squarely and effectively within the horned cattle raiser example about which Senator Kenna put his question. If so, we are entitled to follow the interpretation constituting the response by one in charge of the bill which resulted in the enactment of the Sherman law. If this be true, then at least it follows, on that ground alone, that Alcoa is not guilty of monopolization unless the element of exclusion be proved. This brings us, therefore, to consider the evidence bearing on the exclusion issue.
Assuming that I was not fully justified in saying that, as it seemed to me on the undisputed evidence, the element of exclusion has not been sustained; even though we do not go that far, let us examine all the evidence -- any evidence there is in the case -- to see whether it does sustain the proposition that, on the part of Alcoa, there was exclusion or attempt to exclude or intention to exclude others from the manufacture of aluminum, -- that is, to exclude them from the production of aluminum within the United States.
Outside of what are treated elsewhere under various subdivisions of my statement, including in part things that I have already stated, including also a number of additional things that I shall say, which, as I think, refute the charge that Alcoa excluded others, there is only one instance in the record on which the Government relies for its proposition of exclusion. That instance constituting the single exception, which is most insisted on by the Government, is that of the Southern Aluminium Company (frequently spoken of during the trial as the Southern Aluminum Company and owned by the French Aluminum Company). This should be described at some length.
When the World War broke out August 1, 1914, Southern Aluminium Company was engaged in constructing an aluminum plant at Badin, North Carolina. Much that was planned had not even been started; there had been no construction work on certain parts of it whatever. Much also was merely in its initial stages. The dam (an essential factor) was only between one-eighth and one-fourth finished (pp. 20438; 20464). When the war commenced in Europe all work on the plant ceased. Indeed, the French Government regulations forbade the sending of any further funds out of France for continuance of the work.
After negotiations through American lawyers representing the owners of the property, occurring from time to time over a period of about a year, a sale of the property in its unfinished state was made to Alcoa in 1915 (Exhibits 145 and 152). The property sold was all the assets of Southern (p. 23340). The price, agreed on in francs, was the amount Southern had expended on the project.A statement itemizing the cost in dollars to Alcoa was made up, checked by both sides from Alcoa's books and introduced in evidence by the Government (Exhibit 745; pp. 12996-8; 18202-3).
The gross price in dollars, which Alcoa paid in full, was $6,990,627.02. In the form in which the computation was made, however, there was a deduction of three items of salvage, designated in the exhibit as Schedules D, E and F, leaving a net cost to Alcoa of $6,172,247.59. The net cost was arrived at in this way: the gross price, as I have stated, was $6,990,627.02; the salvage was $818,379.43; deducting the latter from the former, the balance or net cost as shown by Exhibit 745, on exhibit page 3644, was $6,172,247.59.
No definite complaint of the transaction was made in the bill. The only specific mention of it is in paragraph 13. What is there alleged, in substance, is merely that in 1915 Alcoa purchased the Southern property, with which through a subsidiary Alcoa has since been engaged in the production of aluminum at Badin -- though (it should be noted) the evidence shows that not until 1917 did Alcoa complete making various changes and finish the plant.
At the trial and in the argument, however, the Government assailed the transaction. In its original brief at page 242 it said that when Alcoa purchased Southern's "partially completed plants and equipment * * * it throttled the potential competition of the first and only project to get as far as to commence construction of an independent aluminum plant in the United States." In argument the Government also asserted that the price at which the property was purchased so greatly exceeded its value that it is shown thereby that the purpose of the purchase by Alcoa was to rid itself of potential competition.
What occurred in the way of sale's negotiations is pertinent for consideration. The evidence without dispute establishes three things:
(1) The negotiations for the sale were initiated, and when suspended were thereafter resumed, by Southern's attorneys.
(2) When the negotiations began the work on the plant had already been completely abandoned and it was never resumed by the French company. It was estimated that it would require seven and a half million dollars to complete the plant (Exhibit 146, exhibit p. 788).
(3) There was neither financial ability by the French company to complete the plant nor the prerequisite French Government leave to spend the money in the United States, if the company had then had it; nor, so far as is shown, was there any prospect of the work ever being taken up again by French company (pp. 19118-24; 19128; 20390-3; 20398-407; 23447-50).
There were three stages in the negotiations (pp. 20399-402):
(a) Between August 1 and September 14, 1914 (Exhibit 567), one of Southern's New York attorneys sought to interest Alcoa (or its president) in purchasing the company or its assets. Alcoa replied, in substance, that until it ascertained whether it could procure the money needed to make the purchase it would not be interested. After an effort and failure to find the money available, Alcoa notified Southern (Exhibit 567) and declined to proceed further (pp. 19119; 19122-4; 19128; 20390-6; 20399-400).
(b) In June, 1915, one of the New York attorneys resumed the negotiations with Mr. Davis, -- and apparently it was the same attorney who had approached Mr. Davis in 1914. Nothing resulted except that Mr. Davis defined the terms on which he was willing to discuss an investment in Southern's bonds and stock, provided the proper United States officials approved and other specified conditions were met. But Alcoa then made no offer (Exhibit 1073, item 1; pp. 19120-2; 20398; 20401). The evidence does not disclose further details with respect to this aspect, but it does show that nothing came of it -- that is, of the discussion as to purchasing bonds and stock issued by Southern.
(c) In July or August, 1915, the negotiations were again resumed by one of the New York attorneys of Southern (pp. 20389; 20397; 20399; 20401-7). These resulted in the execution of a contract for the sale -- not a contract of sale, but a contract for the sale, looking to the sale -- of all of Southern's assets at Badin at a price of Southern's cost to date (Exhibit 145). The agreement also provided that the matter should be submitted to the Department of Justice with a request for an indication that it (that is, the Department of Justice) would not claim that the agreement violated the injunction contained in the 1912 consent decree in the Pittsburgh case. Southern's lawyers suggested that they ought to present, and they did present, the question to the Department of Justice (Exhibits 146 and 148). Under date of September 3, 1915, the Department replied that it saw "nothing in the facts concerning the proposed transaction as set forth in" the letter from Southern's attorneys, "which would call for any action by it [the Department of Justice] under the decree" (Exhibit 149). This was followed by a confirmatory contract of sale dated November 23, 1915 (Exhibit 152).
Extensive testimony was taken, parts of which that seemed pertinent have heretofore been summarized (pp. 19118-28; 20380-474; 23339-43a; 23438-62; 23776-8; 23818-31; 24023-7; 24120-1; Exhibit 1311).
Unless it be in a certain tax brief submitted by Alcoa to the Bureau of Internal Revenue (Exhibit 156), which remains to be and will be taken up, I discover nothing in the evidence to sustain the Government's contention that, in acquiring the Southern assets, Alcoa acted in bad faith or for the purpose of avoiding prospective competition. As I view the evidence, it does not establish nor is there justification for an inference either that, if Alcoa had not made the purchase, the project at Badin would ever have been completed or even the construction of it resumed by the French company or that any concern other than Alcoa sought to purchase or contemplated purchasing or would have purchased it or that there is likelihood that anyone else would have purchased the property in event it had not been acquired by Alcoa. At best these things are left wholly in the realm of speculation.
The Government insists that the statements of losses in the tax brief are to be taken as admissions by Alcoa of overpayments made by it for the Southern property. This is contested by Alcoa.
Among other things, the evidence with respect to the property shows without dispute the following: The locations for a power house and an aluminum plant, construction of which by Southern had been commenced, were completely changed after Alcoa's purchase. A dam had been planned for Southern so that the flood waters would pass out through a tunnel or tunnels, whereas after the purchase eminent engineers advised Alcoa that this feature was a mistake and that the water when high should go over the top of the dam (pp. 20428-31; 23342). In consequence, the design was altered. There were also several other changes, the details as to which need not be stated.
The application in support of which the brief was submitted sought the allowance of deductions, from what Alcoa had paid for the property, of losses it claimed to have suffered, chiefly through the scrapping of work and materials growing out of the redesigning of the project (pp. 23821-2).
Alcoa's brief represented that the total of its losses was $1,735,699.09. Against this Alcoa credited a gain in exchange, due to the cheapening of the franc, aggregating $491,707.03. Deducting the gain from the total loss there was left a net loss, as claimed by Alcoa, of $1,243,992.06.
Table 4 which I have prepared is a compilation of items contained in Alcoa's brief (Exhibit 156) in support of a request for reassessment of its income taxes, so that what Alcoa called losses might be allowed it as deductions, and that table is as follows:
Computation from Ex. 156 of Alcoa's losses on Southern Aluminium Co. transactions, as claimed in its brief on application to Bureau of Internal Revenue for reassessment of income taxes.
Abandoned construction work on dam
and spillway $ 504,160.05
Abandoned sub-structure of power house 207,413.82
Abandoned super-structure of power
Unusable equipment at power house
(total loss) 104,964.59
Penstocks-cost, less salvage 117,632.65
Arbitrators' award to contractors 236,793.46
Grading and foundations at abandoned
Abandoned sub-structure alumina build-
ing, less salvage 49,603.04
Temporary work, entire loss 29,585.29
Abandoned transmission system from
Whitney, less salvage 1,707.23
Deficit in supplies inventory 14,206.67
Miscellaneous items charged off, less
Cost building dam abandoned, less sal-
vage $ 157,162.69
Year's expenses charged off 150,272.61
Total actual loss $1,735,699.09
Stated (exhibit p. 858) as $1,735,699.09
Less gain on exchange fluctuations 491,707.03
Net total loss $1,243,992.06
This table purports to be a computation, from the tax brief, of Alcoa's losses on Southern as claimed in the brief, on application to the Bureau of Internal Revenue for reassessment of its income taxes. It subdivides items into certain of them that relate to the Narrows or occurred at the Narrows, -- the Narrows being a designation of one of the places included in the property acquired from Southern; next certain items at Badin; next certain items at Whitney; then certainitems that were general; and then the final summary at the end.
It is to be observed that each of the items in the brief, which constitute the items included in the table, were taken from Exhibit 745 and that Exhibit 745 was made up from Alcoa's books; also that Exhibit 745 was checked by both sides. It was put in evidence by the Government. It was regarded as correct by both sides and I believe is correct. We are certainly entitled to assume that it is correct.
By reference to table 4 you will observe also that the nature of each item is there stated and that out at the right in money terms is the amount allocated as against the item for which Alcoa claims a loss. For example, under the subdivision relating to the Narrows the first item is "Abandoned construction work on dam and spillway" and out to the right $504,160.05. Another item a little lower down is "Unusable equipment at power house (total loss)" and out to the right $104,964.59. Another item, by way of illustration, is "Temporary work, entire loss" -- this is at Badin -- and out at the right, $29,585.29.
So it continues, with each item which, according to the description in terms of the item, it might reasonably be contended constituted a loss by Alcoa. The total of all those items claimed to be losses is $1,735,699.09.
It will be further noted that the items in table 4 are identical with the items in the brief, which in turn are identical with Exhibit 745, which in turn are identical with Alcoa's books. In other words, the items in table 4, as in the brief before the Bureau of Internal Revenue, came directly from Alcoa's books.
In the language of the brief itself, the position taken by Alcoa, as shown in Exhibit 156 at exhibit page 852, is that the loss which it incurred, as a consequence of changes in work that had been begun (meaning thereby the portion of the purchase price allocable to the property and equipment rendered unusable and abandoned by reason of the redesigning of the project) "was a loss which was really sustained by it [that is, Alcoa] and one which resulted from bad judgment or faulty engineering in the original location and designing of this partially finished work for which the Aluminum Company had paid."
As I view the matter, in circumstances such as these it cannot properly be said that Alcoa had made an admission that these items were payments in excess of the reasonable value of the property. Indeed, I see no foundation whatsoever for support of any such contention. As I construe the brief, it does not show that Alcoa is guilty of having represented that the property was worth less than was paid for it; much less did Alcoa in the brief admit that it knew what it had paid was in excess of the fair value. I feel, therefore, that the criticism of Alcoa in respect to the Southern transaction has not been sustained.
A great deal has been said about the exclusion of other possible producers of aluminum. But, as I think has been demonstrated already, the evidence does not establish that Alcoa excluded or attempted or intended to exclude from the aluminum business any of the following; Mr. Duke, the Uihleins, Mr. Haskell for himself or for the Baush Company or Central Aluminum Company, of which Mr. Moore was the representative. Something has also been said, but has not been completed, which pointed to the conclusion that there had been no exclusion or attempt to exclude or intention to exclude the Bohn Aluminum & Brass Corporation, the Aluminum Products Company or the Reynolds Metals Company. In respect to all of these, however, there will be additional statements in which I shall summarize the evidence necessarily in connection with other subjects that I am to cover and it would be waste to go into all that evidence at this stage.
So also there has been criticism about the alleged exclusion by Alcoa of the Norwegian companies, either the Norsk or the DNN company. Hereafter I shall undertake to point out that neither of those companies was excluded by Alcoa nor did Alcoa attempt or intend to exclude either of them from producing aluminum; nor, as I shall undertake also to point out hereafter, did Alcoa drive the Baush Machine Tool Company out of the aluminum business.
By way of supplement I wish to add that, in my view, the evidence satisfactorily shows that, in greater or less degree, there is and for many years past there had been active competition between aluminum produced in the United States and the following:
1. Aluminum of foreign production imported into this country (as I understand is admitted by the Government).
2. Scrap and secondary aluminum, as in fact is alleged, in paragraph 46 of the bill, to be partially competitive and has been proved to be in a high degree competitive. Among other things, the evidence goes to the extent of showing that much secondary aluminum is of precisely the same chemical content as virgin aluminum; also that for some purposes (for example, where brittleness is or certain forms of precise lines or edges are desired) secondary is actually more useful than primary aluminum. At times, particularly when emergencies or wars or other unusual conditions prevail, secondary aluminum sells and has sold in the markets at prices above those of virgin aluminum.
3. Steel (meaning stainless steel), nickel, tin, zinc, copper and lead are affirmatively alleged in paragraph 38 of the bill to be the chief industrial competitors of aluminum. Moreover, the proof establishes that these metals, as well as other materials, are commercial competitors of aluminum for many purposes.
The phase of competition just mentioned, as I have indicated, will be discussed further elsewhere.
As the parties agree, Alcoa through itself and a subsidiary produces and sells all the virgin aluminum produced in the United States; but I hold, as matter of law, that (1) this does not constitute monopolization in the sense or in contravention of the Sherman Act; (2) Alcoa has not excluded or attempted or intended to exclude any competitor or potential competitor from producing or selling virgin aluminum in the United States; (3) in no respect, related to the production or selling of virgin aluminum, has it been shown that Alcoa violated Section 2 of the Sherman Act.
We come now to the fifth monopolization charge. This relates to castings.
Paragraph 50 of the bill alleges that Alcoa is the largest producer and seller of aluminum castings moving in interstate trade in the United States; also in paragraph 7 that it is the largest producer in the United States of aluminum sand and die castings.
In briefs and oral argument the Government admits that there is substantial competition in castings. I do not think that either paragraph 7 or paragraph 50 sufficiently charges a violation of the statute.Probably also the Government concession to which I have referred renders it unnecessary to recite the evidence. Nevertheless, the statistics in evidence, standing alone, adequately negative the charges.
There are three methods of making castings: sand, die and permanent mold (including as permanent mold some called semi-permanent mold).
Bohn Aluminum & Brass Corporation makes castings by both sand and permanent mold processes, but not die castings. Aside from Alcoa, the chief maker of die castings in the United States is the Doehler Die Casting Company.
I have made a computation in table 5, which is as follows:
Sales of Castings.
SECTION 1. SAND CASTINGS (pounds) 1934-8.
1934 14,151,032 6,957,517
1935 20,705,576 7,059,387
1936 15,291,602 7,773,423
1937 8,265,519 7,145,840
1938 1,737,332 4,195,904
SECTION 2. DIE CASTINGS (pounds) 1934-9.
1934 2,703,615 1,803,055
1935 4,612,884 2,345,027
1936 6,488,245 3,876,455
1937 8,113,088 4,781,522
1938 5,584,418 2,651,237
1939 7,482,225 4,255,511
SECTION 3. PERMANENT MOLD CASTINGS (pounds) 1934-8.
1934 8,595,508 11,395,647
1935 11,074,540 18,691,754
1936 11,424,491 18,839,170
1937 9,181,995 15,342,427
1938 4,303,663 7,832,425
SECTION 4.PERMANENT MOLD PISTON CASTINGS (pieces) 1934-8.
1934 5,705,733 4,668,235
1935 7,005,246 7,445,275
1936 6,192,359 6,111,582
1937 4,982,534 4,827,403
1938 2,235,199 2,750,552
SECTION 5. SAND, DIE AND PERMANENT MOLD CASTINGS (pounds) COMBINED FROM SECTIONS 1, 2 AND 3 ABOVE.
Section 1 33,132,071 60,151,061
2 15,457,296 27,502,250
3 72,101,423 44,580,197
Sec. 2 (1939) 4,255,511 7,482,225
NOTE: The 1939 figures of Bohn for sections 1 and 3 are not in evidence. The figures for Bohn in section 3 include what are called semi-permanent mold castings (p. 13015).
Table 5 is composed of five sections. It deals in its entirety with the sales of castings. The quantities sold are stated in pounds. In all the sections the years 1934 to 1938 are covered.Those are the only years in respect to which there is comprehensive information in the evidence as to all these different kinds of castings. As to some of the kinds of castings, information is given for the year 1939. Where that is true, separated off first there is a statement in pounds for the years 1934 to 1938; then below the number of pounds for 1939 is set out and a second total is taken which covers the period from 1934 to 1939.
Section 1 deals with sand castings; section 2 deals with die castings; section 3 deals with permanent mold castings; section 4 deals with permanent mold piston castings, but in terms of pieces instead of pounds, the poundage not being available in the evidence; section 5 deals with sand, die and permanent mold castings, in pounds, and combines the poundage as set out in sections 1, 2 and 3.
As I have said, Bohn produces sand castings. In section 1 of the table for each of the years from 1934 to 1938 there is set out under the column to the left the poundage of sales of sand castings by Bohn for each of those years and to the right the like poundage for each of the same years sold by Alcoa. Without giving all the details, but taking the totals, the total sales of Bohn for those years was 60,151,061 pounds; the sales of Alcoa were 33,132,071 pounds. In other words, Bohn's sales were nearly twice those of Alcoa.
In section 2, which relates to die castings for the same period, in pounds, in the column to the left the poundage of Doehler is given for each of the years 1934 to 1938 and in the column to the right the like poundage for the same years sold by Alcoa. For those years the total sales of Doehler were 27,502,250 pounds and the total sales of Alcoa were 15,457,296 pounds -- again, sales by Doehler were of somewhere roughly in the neighborhood of nearly twice as much as Alcoa.
For the year 1939, which is added below, the sales of Doehler were 7,482,225 pounds and those of Alcoa were 4,255,511 pounds. Adding those amounts to the preceding totals, for the years 1934 to 1939 the poundage sales of Doehler were 34,984,475 pounds and of Alcoa 19,712,807 pounds -- again, somewhere roughly in the neighborhood of twice as much by Doehler as by Alcoa.
As appears by section 3, the same condition of totals does not obtain with respect to permanent mold castings. From 1934 to 1938, in pounds, for Bohn the total was 44,580,197 and for Alcoa the total was 72,101,423. In other words, the reationship was of about 72 for Alcoa to 44 for Bohn.
However, with respect to that relationship between sales, the relationship of 72 Alcoa to 44 Bohn, the table further shows these facts: Section 4 shows the number of pieces of permanent mold piston castings. Those by Bohn total for the period of 1934 to 1938 26,121,071 and those by Alcoa 25,803,047. There, as you will observe, Bohn's sales of permanent mold piston castings in pieces exceeded the total of Alcoa.
Again, in section 5 I have combined for the years 1934 to 1938 the results of sections 1, 2 and 3, not including section 4, which deals with pieces. The result of this combining of the three types of castings is that the total sold by Alcoa was 120,690,790 whereas that for Bohn and Doehler alone combined was 132,233,508. In other words, Bohn and Doehler combined sold approximately eleven or twelve millions more in the period from 1934 to 1938 than Alcoa did.
If to these figures I add the sales by Acloa, Bohn and Doehler for 1939 so far as given, it shows that for 1939, Alcoa sold 4,255,511 whereas in 1939 Bohn and Doehler sold 7,482,225 pounds, making the totals of these three for the years 1934 to 1939 for alcoa 124,946,301 and for Bohn and Doehler 139,715,733.
I should call your attention to the fact that, according to my note -- it appears right on the face -- in section 1, dealing with sand castings, and in section 3, dealing with permanent mold castings, the figures for 1939 are not given as to Bohn or as to Alcoa.
What I have said, however, does not complete the story. There are other companies that produce and sell castings for which the evidence contains statistics.
Among such other companies is the National Bronze & Aluminum Foundry Company. This concern made both sand and permanent mold castings, but apparently not die castings (pp. 23356; 27560). Of the sand and permanent mold castings National produced and sold, in pounds, according to figures which are not separated in the proof (that is, not separated by years), for the period from 1934 to 1938 it sold 48,716,549 pounds and from 1934 to 1939 it sold 53,400,951 pounds (exhibit 1454, exhibit p. 6522). Now, if we take account of sales by National and add those for the years 1934 to 1938 to the totals in section 5, it would leave the sales of the three kinds of castings, that is, sand, die and permanent mold, by Alcoa a total of 120,690,790 and bring the total for those years of Bohn, Doehler and National up to 180,950,057 pounds.
It is to be noted that the result I have stated is without including figures as to some additional companies to which I am going to call your attention later. Without those, what has been stated, standing alone, is quite enough to refute the charges made by the Government with respect of the excessive amount of the sales and control of the market by Alcoa.
The further figures to which I wish to call your attention are these:
The Advance Aluminum Castings Corporation in 1934 to 1938 produced and apparently sold 23,593,577 pounds and in 1934 to 1939 produced and apparently sold 28,043,974 pounds of sand and permanent mold aluminum castings (Exhibit 1474, exhibit p. 6582).
The Black Hawk Foundry & Machine Company in 1934 to 1938 produced and apparently sold 1,055,113 pounds and in 1934 to 1939 produced and apparently sold 1,313,650 pounds of aluminum castings (Exhibit 1465, exhibit p. 6570).
The United Engine & Machine Company in 1934 to 1938 sold 893,275 pieces of piston castings which it made of aluminum (Exhibit 941, exhibit p. 4609).
There were quite a number of other foundries each of which had a capacity of producing 5 tons a day of castings (pp. 24826-9).
As I have said, I have not embodied in the totals previously given any of the figures except for Alcoa, Bohn, Doehler and National.
In the last few paragraphs, out of abundance of caution, in several instances I have spoken of the output or production as being apparently sold. Of course, the castings were manufactured only for the purpose of sale. The implication from the evidence seems to be clear that the pounds stated were, and I have no doubt that they were in fact, sold by the respective producers. However, other evidence in regard to those particular producers does not specifically and definitely establish that their entire production was sold.
As appears by section 5 of table 5, from 1934 to 1938 Bohn and Doehler alone produced and sold more castings of the three prevailing commercial types than Alcoa did. If to the total there shown for Bohn and Doehler, namely, 132,233,508 pounds, we should add the figure for National Bronze which, as you will recall, produced and sold sand and permanent mold castings, that total, as I believe I have previously told you, would be carried up to 180,950,057 pounds as against Alcoa's total of 120,690,790 pounds. This merely accentuates the result. It would, therefore, be useless to add the totals of the other castings producers which I have named as having actually competed with Alcoa.
There are many other producers and sellers of castings who competed with Alcoa and were identified by the witnesses whom I have not mentioned by name. In argument the Government stated that there are hundreds of foundries which produce aluminum castings. As matter of fact, the evidence shows that there are approximately two thousand such foundries. The evidence also shows that there has been and is active and vigorous competition among those engaged in the castings business.
The Government claims that Alcoa maltreated or excluded or attempted to exclude Michigan Aluminum Foundry Company or their officials in 1909. But the charge is not sustained by the evidence, nor is it established as charged (pp. 12215-19; 12274; 21128), that Mr. Arthur V. Davis stated in 1909, or at any time, that it was the purpose of Alcoa to control the castings business or the aluminum business or to put out of business foundries which did not join the combination with Alcoa.
As matter of fact, the evidence indicates strongly, and I am persuaded it is true, that the difficulties of the Michigan Aluminum Foundry Company came from an official of one of the banks which had got tired of carrying the Michigan account.
Likewise, the claim of maltreatment of the Fulton-Harwood Brass Works is completely disproved by the overwhelming weight of the testimony from a number of witnesses, some of whom are entirely disinterested.
I conclude, therefore, that the evidence does not substantiate any of the Government's charges as to castings.
(6) Cooking Utensils
This brings us to the sixth monopolization charge. That relates to cooking utensils. The pleadings on the subject are very lengthy. They contain considerable repetition. They also contain much detail and many figures. The pertinent allegations in the bill are in five paragraphs. These are numbers 6, 51, 89, 93 and 102.
In paragraph 6 of the bill it is alleged that since 1909 Goods has been engaged in the manufacture and sale of aluminum cooking utensils and other fabricated aluminum products. In its answer Alcoa says that in 1909 Goods was engaged in the manufacture and sale of certain fabricated aluminum products, but denies that it was then or until several years later engaged in the manufacture or sale of cooking utensils.
In paragraph 51 of the bill Alcoa and its 100 per cent subsidiary (the Aluminum Cooking Utensil Company) are mentioned. In the discussion of aluminum cooking utensils that follows, for convenience, unless otherwise stated, both together or the subsidiary alone will be referred to as Alcoa.
In paragraph 51 it is alleged that Alcoa produces and sells approximately 50 per cent of the aluminum cooking utensils moving in interstate commerce of the United States; also that Alcoa owns 26 per cent of the capital stock and is represented on the directorate of Goods which, except for Alcoa, is the largest domestic manufacturer of aluminum cooking utensils. In its answer Alcoa denies knowledge of the percentage of such sales moving in interstate commerce that it produces or sells, but admits its ownership of stock and representation on the directorate of Goods, as alleged, and says that, with the exception of itself, Goods is the largest domestic manufacturer of aluminum cooking utensils.
In paragraph 89 it is alleged that in 1909 Alcoa acquired 26 per cent of Goods stock and has since retained it; also that in 1909 it acquired and has since retained representation on the Goods directorate. It is then alleged that in 1909 Goods was engaged in the manufacture of aluminum cooking utensils and other fabricated products and in selling them in interstate and foreign commerce in competition with Alcoa. In its answer Alcoa admits that in 1909 it acquired and has since retained 26 per cent of Goods stock. It says also that it has representation on the Goods directorate in the form of two directors out of six. It denies, however, that in 1909 Goods was engaged in the manufacture or sale of aluminum cooking utensils and says that Goods did not engage in that business until several years later. It admits that in 1909 Goods was engaged in the manufacture and sale in interstate commerce of certain fabricated aluminum products, but says that if in selling those fabricated products Goods then came into competition with Alcoa, such competition was negligible and Alcoa is without knowledge whether or not such competition existed in fact.
In paragraph 89 of the bill it is further alleged that the purpose of Alcoa's acquisition of Goods stock and representation on the Goods board was to obtain for Alcoa influence over the policies of Goods and to restrain competition by Goods with Alcoa in cooking utensils as well as in other fabricated aluminum products. Again, it is alleged that Alcoa and its officers now own about 31 per cent of the Goods stock and that two of Alcoa's officers are directors of Goods. Next, it is alleged that in 1931 Aluminium caused a corporation (called Aluminum Goods, Limited) to be organized in Canada to engage in the manufacture of cooking utensils and other products and sold 49 per cent of the stock to Goods, the balance of the stock being retained by Aluminium. It is then alleged that the purpose and effect of the sale to Goods of the 49 per cent of the new corporation's stock were to give Alcoa, Aluminium and Goods "monopolistic control of the interstate and foreign trade and commerce in aluminum cooking utensils in the United States and Canada."
In its answer Alcoa denies that the purpose or effect of its acquisition of Goods stock was to obtain for Alcoa an important influence over the policies of Goods or to restrain competition. Alcoa admits that it and its officers own about 31 per cent of the Goods stock and that among the directors of Goods are two of Alcoa's officers.It denies the remaining allegations of paragraph 89 and specifically denies that if any of the transactions mentioned occurred their effect was to give Alcoa monopolistic control of any trade or commerce.
In paragraph 93 of the bill it is alleged that in 1919 Goods purchased a sheet rolling mill at St. Louis, then owned and operated by the Bremer-Waltz Corporation, which was engaged in producing and selling in interstate commerce aluminum sheet in competition with Alcoa and was its only competitor therein. It is also alleged that the purpose and effect of that purchase were to eliminate the Bremer-Waltz Corporation competition.
In its answer Alcoa admits that in 1919 Goods purchased the rolling mill referred to, but alleges that the acquisition was contrary to the advice of Alcoa's two directors of Goods. It also alleges that the Bremer-Waltz concern was small and its competition negligible. It then denies that either the purpose or the effect of the purchase by Goods was to eliminate competition or that at the time Bremer-Waltz was its only competitor in producing and selling aluminum num sheet. In addition, Alcoa alleges that when Goods determined, in 1919, to produce some or all of the aluminum sheet consumed by it in the manufacture of aluminum cooking utensils and other aluminum fabricated products, it bought the St. Louis plant of Bremer-Waltz Corporation and in 1923 erected a new aluminum sheet rolling mill at Manitowoc, Wisconsin, which has ever since been engaged in the manufacture of aluminum goods and in the production of sheet. It is then alleged that, after the erection and equipment of its rolling mill at Manitowoc, Goods discontinued rolling sheet in the St. Louis mill (because the new Manitowoc mill was more economical and efficient); also that in 1924 Goods dismantled the former Bremer-Waltz St. Louis mill and subsequently sold the property.
In paragraph 102 it is alleged, and in the answer thereto is denied, that by the means heretofore described Alcoa has suppressed competition in and excluded others from competition in or monopolized interstate and foreign commerce in fabricated aluminum products.
Out of the mass of allegations just summarized in regard to the relations between Alcoa and Goods in regard to Goods going into the cooking utensil business, and in regard to its conduct therein, there emerge several issues. Giving the charges made against Alcoa the most favorable interpretation toward the Government that the language permits, in substance the questions that arise are three in number. These are as follows:
(a) Was the purpose or effect of Alcoa acquiring Goods stock, through influence gained over the policies of Goods, to restrain competition in the manufacture or sale of cooking utensils?
(b) Did Alcoa, through domination of Goods, eliminate the Bremer-Waltz St. Louis sheet mill as a competitor?
(c) Was the purpose or effect of Alcoa's course in the transactions described to monopolize or to participate in the monopolization of the manufacture or sale of cooking utensils?
Before the evidence directly bearing on the charges stated can properly be appraised, it is necessary to have in mind the general facts which lie in the background. I believe those are without material dispute. At any rate, as I think, they are fully established by the evidence. This background is somewhat as follows:
The Aluminum Cooking Utensil Company (100 per cent subsidiary of Alcoa) was organized in 1901. About 1899 Alcoa had tried, but was unable, to induce others to go into the manufacture of cooking utensils (pp. 18658-66). This is precisely the kind of thing that, according to the testimony, carried Alcoa into fabrication of some of the other commodities which it put out on the market. That is to say, it endeavored to induce others to take up the fabrication end of the business, but being unsuccessful then itself took up the fabrication. In this instance, when it failed to induce others to take up manufacturing cooking utensils, it took upon itself such manufacture; but apparently it did not reach a substantial scale in the manufacture or sale until 1909 or 1910 (p. 21178). Even so, Alcoa entered the business ahead of Goods.
Goods was organized in 1909. It was not until several years afterwards, however, that it began making cooking utensils (pp. 21178-9) and the Goods production of cooking utensils was not of much consequence earlier than about 1914 (p. 21179).
Goods has its principal office at Manitowoc and has plants at Manitowoc and Two Rivers, Wisconsin. When it began operations in 1909 its chief products were aluminum novelties, including articles for decorations, and certain dining room personal conveniences. It did not then produce or sell cooking utensils. As heretofore said, it went into cooking utensils later. Apparently it did that about 1912, though the precise date has not been fixed with certainty (pp. 19091; 21567-8; 21961-70). As previously remarked, however, its production of cooking utensils was not of much account previous to 1914.
When Goods was organized in 1909 Alcoa participated and subscribed for stock (pp. 5330-1). The first block of stock was acquired in April, 1909. Other acquisitions brought the total up to 26-1/2 per cent (for convenience, herein called 26 per cent; Alcoa's answer to interrogatory 218). Alcoa paid for the stock partly in cash and partly in ingot (pp. 21102-7). Approximately 5 per cent of additional Goods stock was acquired and is now held by officers or others connected with Alcoa. This brought the total holdings of the Alcoa group up to about 31 per cent. The slight variance from 31 per cent in the aggregates shown as of September 20, 1937, by the answer of Goods to question 5 addressed to it by the Government is inconsequential and may be ignored.
Goods has six directors. Its by-laws provide for cumulative voting of the stock. It is important to bear this in mind. The cumulative voting feature is of genuine consequence. Because of it, the stock owned by Alcoa enables it as of right to elect two directors. From the beginning these directors have been officers of Alcoa (who, for the purpose of the present discussion, will be called Alcoa's directors). The remaining four directors have always been stockholders of Goods coming from the neighborhoods of Goods plants -- that is, Manitowoc or Two Rivers (for convenience hereinafter referred to as the Wisconsin directors).
By the cumulative voting system Wisconsin stockholders now or formerly residing in the locality of the plants (and said to hold about 53 per cent of the stock) as matter of right are able to elect four of the directors. Appearently from the inception to date -- the evidence indicates that from at least as early as 1914 (p. 17888) and certainly since 1926 -- the Wisconsin directors have consisted of two members of the Vits family, one member of the Hamilton family and one member of the Koening family (pp. 21103-4; answer of Goods to question 8 addressed to it by the Government). In addition, the president of Goods since about 1910 has been a member of the Vits family.
There are two methods of producing aluminum cooking utensils. One is by casting; the other is by forming them from aluminum sheet. In producing cooking utensils it is possible to use either primary or secondary aluminum. In fact, for the purpose primary and secondary aluminum are interchangeable. Neither Goods nor any of Alcoa's competitors is dependent on Alcoa for materials. Though Goods has procured the greater part of its ingot from Alcoa, it has purchased from whom it pleased (pp. 19106; 21127-8). Moreover, for most of the time since Goods was organized, and at all times except during a war or a similar emergency, any producer of cooking utensils in the United States has been able to buy imported as well as domestic aluminum (pp. 28731-2; 29801-2; 30366-7; 31892-3; 31964; Exhibits 1463, 1505 and 1557).
The estimates of the comparative sales by Alcoa and Goods of cooking utensils on the witness stand by Mr. Davis and Mr. Hunt, Alcoa's directors on the Goods board, that is of the relative amount of aluminum cooking utensils business done by Alcoa and Goods, were made without the use of documents and were rather indefinite (pp. 19093; 21179; 21967-8). However, if the problem is to be approached through inquiry, our initial concern is not to know the amount of such business done by Alcoa and Goods considered together. For the present purpose what we chiefly want to know, and for the moment all that we need to know in this connection, is the relative sizes of the business done by Alcoa separately and of that done by all other cooking utensils concerns in the country taken as a single group.
In its answer to paragraph 51 of the bill, Alcoa disclaimed knowledge of whether it produced and sold as much as approximately 50 per cent of all aluminum cooking utensils moving in interstate commerce and said that Goods stood next to Alcoa as a manufacturer of those articles in the United States. In consequence, without at the moment making a specific finding on the point, Alcoa will be taken as first and Goods as second in size as a producer and seller of aluminum cooking utensils in this country.
Quite a number of companies, approximately 30, are engaged in producing and selling aluminum cooking utensils in the United States. As to most of these the evidence does not show the quantity or value of their sales. We have figures for only five of the companies, including Alcoa and Goods, and these are merely in dollars, without giving either pounds or pieces.
The five companies are Alcoa and Goods, the two largest, and Enterprise, Aluminum Products and Leyse, which in contrast are small. These are taken from Alcoa's answer to interrogatory 11(z); answer of Goods to question 4; and Exhibits 637, 1551 and 1569.
Among the active competitors for which we lack sales figures are Club Aluminum, Century Metalcraft, West Bend Aluminum, Advance Aluminum Castings, Monarch Aluminum and Stewart Die Casting.These were highly successful concerns. Facts showing their gains will be brought up later.
In its original brief, at page 87, speaking of aluminum cooking utensils, the Government said that "in no year have the sales of the Goods Company even approached those of Alcoa." For support it cited Alcoa's answer to interrogatory 11(z) and the answer of Goods to question 4.
The only cooking utensils sales figures of Alcoa in the record are for 1933 to 1937 and, except in 1921, of Goods for 1930 to 1937. The only years for which we have the figures for both companies are 1933 to 1937. If for any particular single year during the period 1933 to 1937 we set off against each other the sales of the two companies, those of Alcoa are greater than those of Goods. On the other hand, if we consider in their entirety the figures referred to by the Government in the statement above quoted from its brief, it appears that the sales of Goods for each of the years 1930, 1931, 1936 and 1937 were greater in money amount than the sales of Alcoa for 1933. So also the sales of Goods for 1930, out of more than $6,000,000, were but approximately $22,000 less than the sales of Alcoa for 1934. Again, during the ten months of 1921, Goods sales of cooking utensils were more than $7,000,000 (item 7 of Exhibit 969, a letter from Mr. Vits to Mr. Hunt, dated November 17, 1921). That is greater than Alcoa sold during any entire year preceding 1935 for which we have the figures. And if we assume that the sales of Goods for the remaining two months of 1921, for which we do not have the figures, kept up at the rate for which we have the ten months figures, then the sales of Goods for the whole year 1921 were larger than the sales of Alcoa were in 1935.
Mr. Davis and Mr. Hunt stated their impressions or understandings to be that at a time, or at some times, during the past the production and sales of Goods had exceeded those of Alcoa (pp. 19093; 21964-9; 22023).
While the proof is not conclusive, their views are rather strongly corroborated right on the face of the undisputed figures.
On page 25 of its reply brief, the Government has assembled the 1937 figures for the five companies previously mentioned -- for which alone the record contains the sales figures. If the sources be examined, it will be seen, however, that the information furnished is quite incomplete.It is given in the sources for all the five companies for four years only, namely, 1934, 1935, 1936 and 1937. It is solely from this that we can make computations for comparison purposes. It would be fruitless to consider any other single year or any part of the years less than all.
It must be realized, of course, that figures arrived at by computation are not very satisfactory and are far less satisfactory than those coming directly from the account books of those concerned. Nevertheless, due to the condition in which the evidence introduced has left the matter, computation is the only device open to the Court for gathering essential facts needed for making the comparisons.
Table 6 indicates the 1934-7 figures for the five companies. It is as follows:
Sales of Aluminum cooking utensils by five companies
Companies 1933 1934 1935 1936 1937
Alcoa $4,286,488 $6,360,481 $8,415,327 $10,240,901 $10,143,333
Other Co. 's:
1. Goods 3,452,933 3,712,030 4,420,385 5,192,753 5,060,271
2. Enterprise (not shown) 2,248,200 2,764,366 2,673,942 2,467,446
3. Products (not shown) 501,149 415,600 538,963 651,000
4. Leyse 78,477 119,365 161,192 196,077 211,820
Totals Nos. 1-4 $6,580,744 $7,761,543 $ 8,601,735 $ 8,390,537
NOTE: Full names of companies afe Aluminum Co. of America, Aluminum Goods Manufacturing Co., Enterprise Aluminum Co., Aluminum Products Co. and Leyse Aluminum Co. Sources of figures are Alcoa's answer to interrogatory 11(z); Goods answer to question 4; Ex. 637; Ex. 1551; Ex. 1569. The sources do not give the 1933 figures for Enterprise and Products.
The table undertakes to state the sales of aluminum cooking utensils by the five companies to which I have referred. These are Alcoa, Goods, Enterprise, Products and Leyse, -- the same companies for which the Government furnished the figures on page 2 of its reply brief for the year 1937. The names of the companies are in the column of the table to the left; then there are separate columns for each of the years 1933, 1934, 1935, 1936 and 1937. The figures for each of those years (except 1933) are given for every company whose name appears in the column to the extreme left.The figures for Alcoa are set off separately. Then the figures are given for the other companies, four in number, which are Goods, Enterprise, Products and Leyse. The totals for those four companies are given at the bottom of each of the yearly columns for 1934-7.
As said in the note to table 6, in 1933 there are no figures available for Enterprise or Products. On that account, for the moment the figures during that year for other companies will be disregarded.
For 1934 the total for Alcoa is $6,360,481; of the other four companies it is $6,580,744. The sales of the four companies therefore, for that year, were about $200,000 greater than the total sales of Alcoa. In 1935 the total sales of Alcoa were $8,415,327 and for the four other companies were $7,761,543. In 1936 for Alcoa the total sales were $10,240,901 and for the other four companies $8,601,735; and in 1937 for Alcoa $10,143,333 and for the other four companies $8,390,537.
Thus you will observe that for each of the years of 1935, 1936 and 1937 the total of Alcoa was greater than the total of the other four companies.
The figures of Alcoa for 1935 are, in round numbers, $700,000 more for Alcoa; in 1936 $1,600,000 more for Alcoa; and in 1937 $1,700,000 more for Alcoa. However, you will recall my statement, which is thoroughly sustained by the evidence, that there are about thirty concerns engaged in the business of making and selling cooking utensils. We have the figures here for only five of those concerns. We have no figures for the other approximately 25 concerns. Nevertheless, it is so likely as to amount to a practical certainty, that, if we knew the sales of the remaining companies, -- including the companies as to which we have no figures as all and mostly consisting of those, -- the proportion for Alcoa as against all the others for all the years would be considerably less than half the whole for all the companies. That, however, is a mere guess.
A more striking elucidation of the situation, as it seems to me, may be brought out by an assumption and, insofar as I can see, it is about the only way by which we can make a computation.
Mr. Hunt (p. 21968) estimated that the average productio of Alcoa and Goods combined would be under 50 per cent (but say full 50 per cent) of the total output of all manufacturers engaged in the business. If, momentarily, we accept this estimate as correct, then by deduction the precise total or the annual average contributions to the whole by the manufacturers for whom we have no figures can be ascertained.
For example, on the assumption stated, the results would be as follows: In 1937 the sales by Alcoa and Goods would be $15,203,604 -- half the total produced by all manufacturers, according to Mr. Hunt. The sales by the other three companies whose names have been given aggregated $3,330,266. The difference between the two sums is $11,873,388. If Mr. Hunt be right, that would, therefore, be the sales in 1937 by the companies for which no reports are in evidence.
Making the same assumption and same computation on the basis of all the figures in hand as to 1934 to 1937, would give resulting yearly averages for the period as follows: for Alcoa and Goods $13,386,370; for the three other companies whose sales are given $3,237,280; and for the companies not reported on $10,149,090.
Speaking in the present tense, without specifying any year or period, the Government itself alleges in the bill (paragraph 51) that the sales by Alcoa are about 50 per cent of the whole (though at the trial it undertook to prove by Mr. Hunt that the sales by Alcoa and Goods combined were 75 per cent, pp. 21966-70). Mr. Hunt's estimate was that the production of Alcoa and Goods together would average about 50 per cent (p. 21968).
By its pleading, therefore, the Government has limited Alcoa's share to about 50 per cent. Let us assume that it was that much. If so, as appears by a different method of analysis of the figures on which the Government relies in comparing the five companies, the unreported companies must have sold approximately 8-2/3 per cent of the whole. The addition of 8-2/3 per cent of the entire sales as the sales of the unreported companies in 1936 and 1937 (as will appear from the computation) would show that the sales by Alcoa were slightly under 50 per cent for each of those years. Of course, something approaching an approximation of this result of necessity follows from the assumption and it must be remembered that it rests only on an assumption.
In this connection it may be noted also that, in the absence of figures outside of those for 1934 to 1937, it seems not improbable that, in accordance with the recollection of Alcoa's directors, as they testified, there were years when the sales by Goods of aluminum cooking utensils were larger than the sales by Alcoa (pp. 19093; 21964). Likewise, when the available figures for the years 1934 to 1937 are considered, it seems most likely that in some of the years for which figures are absent, Alcoa's sales were, as Mr. Hunt testified, less than half of the whole.
However that may be, it seems clear that since Goods entered the field in no event has Alcoa sold more than approximately half of the aluminum cooking utensils produced in the United States.
Another strong indication that Alcoa has not suppressed competition in the aluminum cooking utensils business is the flourishing financial condition or striking success, I might call it, of seven of its smaller competitors as to which the facts have been put into the record. Four of those were principally and three were partially engaged in the aluminum cooking utensils manufacture and sale. The evidence on the subject is as follows:
1. West Bend Aluminum Company of West Bend, Wisconsin: Organized in 1911. In manufactured and sold aluminum cooking utensils; also it manufactured and sold some gift ware. Its original capital was $7,000. This was increased by $143,000, which stockholders paid in. The net worth of the company as of January 1, 1940, was $1,455,000. The cash dividends it had paid were $1,766,342.84. The dividends and increase in net worth (above the original $150,000 paid-in capital), totaling upwards of $3,000,000, came exclusively from earnings (pp. 21834-9; see also pages 31843-4; Exhibits 1546 and 1547).
2. The Enterprise Aluminum Company of Massillon, Ohio, and Eatonton, Georgia: This company was organized in 1914 with a capital of $50,000. Its present net worth is $962,000. It both manufactures and sells aluminum cooking utensils. The cash dividends it has paid aggregate $702,998. The dividends and increase in assets (aggregating $1,614,988) came exclusively from earnings out of the sale of aluminum cooking utensils (pp. 31957-9).
3. Club Aluminum Products Company of Chicago: It began business in 1932. Its capital then paid in was $12,000. It has paid $210,000 in cash dividends and has borrowed no money. It does some manufacturing, but mostly merchandising. At the close of 1939 its net worth was $320,000. Both the dividends and the increase in the net worth (together totaling $518,000) came exclusively out of earnings; in part from manufacture, but chiefly from the sale, of aluminum cooking utensils (pp. 29876-80).
4.Century Metalcraft Corporation of Chicago or of Lake Forest, Illinois, I cannot tell which: This company began business in 1933 with $3,000, later increased by $23,000 and by $5,000 (total $31,000), all paid in for capital stock. In addition, capital stock of $98,000 was issued for contracts, trademarks, copyrights and the like, bringing the total investment up to $129,000. It manufactures and sells aluminum cooking utensils. At the beginning the company borrowed $27,000, which has been repaid. At the close of the fiscal year on March 31, 1939, the capital and surplus totaled $354,354.55. By this time the company had paid out $499,157.50 in dividends, -- making a total of capital, dividends and surplus of $853,512.05 or earnings of $724,512.05 above the capital investment of $129,000 (pp. 28416-22).
5. The Monarch Aluminum Manufacturing Company of Cleveland, Ohio: Its predecessor began business in 1913. It manufactures and sells cooking utensils; also castings. 80 per cent of its manufacturing operations in 1939 consisted of the manufacture of cooking utensils -- apparently of aluminum (pp. 30364-7; 30381; 30400-1; 30404-5). It started in a building approximately 50 by 100 feet, or 5000 square feet, with between 15 and 20 employees. Today its plant occupies about 175,000 square feet and employs between 600 and 700 men (pp. 30359-60; 30367). The figures describing the financial history of the company are not given in the evidence in dollars.
6. Advance Aluminum Castings Corporation of Chicago and Rockford, Illinois: Its predecessor was organized in 1919. It manufactures and sells aluminum cooking utensils; also castings (pp. 28708; 28715). The total capital paid in by its stockholders or by stockholders of its predecessor corporation was $35,000 (pp. 28711-12). Its present worth is $1,068,432.52. Out of earnings it has paid off and retired $20,000 of the stock, reducing the stock to $15,000, and has paid $1,042,734.35 in dividends (pp. 28711-12). As shown by Exhibit 1477, its sales of cooking utensils (apparently made of aluminum, pp. 28709; 2874; Exhibit 1473) increased from $345,904.79 in 1935 to $1,152,122.13 in 1939 (see pp. 28724-7; 28733-4; Exhibits 1475-6).
7. Stewart Die Casting Corporation of Chicago: Exhibit 1584 shows that its sales of cook ware (apparently all made up from aluminum) increased from $8,770.26 in 1929 to $55,025.43 in 1939, in the meantime rising in 1931 to $258,613.32 and in 1934 to $186,320.95 (pp. 33039-43; Exhibits 1533 and 1584).
The figures as to the Bohn Company, which was also a competitor of Alcoa and engaged in producing and selling cooking utensils, are not set out here, but they will be furnished later in connection with another phase of the case.
So also there may be occasion to refer in a different way to the figures which I have just given relating to several of the smaller cooking utensils concerns.
We come, therefore, to a discussion of the charges which were summarized near the beginning of the present subdivision on cooking utensils. As there stated, the inquiry on the charges is reduced to three questions.
The first and second questions concern the relations between Alcoa and Goods. The substance of the charges is that, first, through holding common stock in Goods, Alcoa has restrained competition and, second, through domination of Goods, Alcoa has eliminated competition by the Bremer-Waltz St. Louis mill. In one essential feature at least, without going into other phases, both charges turn on whether Alcoa has controlled Goods. The two charges, therefore, may be considered together.
It is without dispute that sometimes the Wisconsin directors did and sometimes they did not do what Alcoa's directors asked (pp. 21571-2); but that Alcoa never controlled Goods is sufficiently demonstrated by the outcome of contests between the two groups of directors. Without exception, so far as the evidence discloses, when there was disagreement, the Wisconsin directors have had their way. Six illustrations of this will be given and, perhaps, will be enough. These are as follows:
1. Subsequent to 1909, and apparently not before 1912 (probably about 1913 or 1914, pp. 9217; 9689; 9766; 21176-9), the Wisconsin directors favored and the Alcoa directors did not favor Goods going into the cooking utensils business. The Wisconsin directors prevailed (pp. 22021-4).
2. In 1916, apparently over the opposition of Alcoa's directors and on the vote of the Wisconsin directors, Goods bought the Standard Aluminum Company mill, a Bremer-Waltz enterprise at Two Rivers, Wisconsin (pp. 20862-3). Alcoa had nothing to do with the purchase (pp. 9225; 9228-31; 9699; 9764-73; 20864).
3. In 1917 Bremer-Waltz began to erect and thereafter (perhaps in 1918) completed an aluminum rolling mill at St. Louis (pp. 9232-5; 9687).In 1918 apparently, negotiations to sell the mill to Goods were opened and fell through (pp. 9596-8), -- though the evidence leaves this a bit uncertain (pp. 9600-2). In early 1919 Mr. Waltz made attempts (or if he had conducted negotiations in 1918, he made further attempts) to sell the mill.One of these was to sell to Alcoa. Alcoa refused to buy. Another was to someone in St. Louis who is not clearly defined (pp. 9400; 9598; 9602; 9822-4; 9829; 21732-6; 22081-2). Later in 1919 the owner offered the mill to Goods (pp. 9594-5). The Wisconsin directors favored and Alcoa's directors opposed buying it. The Wisconsin directors prevailed (pp. 19094-6; 21060-63; 21571-2A; 21735; 21582-3; 22025; 22073-7A; 22081; 22086; Exhibit 474; Exhibit 961. See also pages 18703-12; 21027-43; 22080-96; 22421). Moreover, it affirmatively appears that Alcoa had nothing to do with the purchase, save only that out of the purchase money paid Alcoa collected $168,000 owing to it by Bremer-Waltz for supplies (pp. 9441-4; 9594-604; 9618-21; 9634; 9699; 9701-4; 9772-9; 9828; 9900-18; Exhibit 467; Exhibit 470; Exhibit 471; Exhibit 474. See also page 9393).
4. In 1921 the Wisconsin directors favored and Alcoa directors opposed Goods going into the further developing of the rolled molding business. The Wisconsin directors prevailed (pp. 19103-5; 21592-3; 21595-7; 22067-70; Exhibit 962). It does not appear that Alcoa had anything to do with the decision.
5. In 1922 the Wisconsin directors favored and, without notice to Alcoa directors or a board meeting, the Wisconsin directors ordered the erection of a new and larger mill by Goods. Alcoa's directors did not approve building a new mill at that time (pp. 22028-9), but what they complained of most was the irregular procedure of ignoring them. Nevertheless, the Wisconsin directors prevailed (pp. 19096-101; 21583-5; 22025-38; Exhibit 961). Again, so far as appears, Alcoa took no material part and the comment it made was merely incidental.
6. Apparently subsequent to 1922, though the dates are not specifically given, when there were differences of opinion as to whether dividends declared were not too large, the Wisconsin directors prevailed (pp. 22013-4).
The Wisconsin directors have always controlled Goods. The evidence justifies the belief that, with respect to matters of consequence in conducting the affairs of Goods, they always had their way (pp. 19115; 21961-3).
In support of its position, that Alcoa dominated Goods, the Government has advanced several arguments. Those which it seems worthwhile to discuss divide themselves substantially into nine points. These will be taken up in turn.
At the beginning it should be noted that in considerable part the Government relies on material not in evilence against Alcoa, -- among which are the testimony of an investigator for the Federal Trade Commission (excluded at pp. 17873-5; 17883-4; 17951-5; 18001; 18115) and Exhibit 1803 (excluded at pp. 40667-9).
The Government also relies on material not in evidence against Goods. Included are items 1 and 2 of Exhibit 963; items 1, 3 and 4 of Exhibit 964; items 1 and 2 of Exhibit 966 and items 2 to 7 and 9 of Exhibit 967 (whose admission was limited to showing that the letters were written, but not in proof of their contends; pp. 17679; 17684; 17723; 17843). In the comments which follow, sometimes the excluded evidence may be disregarded.
First: It is said that the president of Goods wanted to go into the manufacture of extruded moldings. Alcoa's directors expressed the opinion that it would be bad business for Goods at that time, because it would probably prove too expensive. Goods accepted this view (pp. 19104-5; 21590-3; 21594-7; 22062-3; 22066-70; Exhibit 962).
In this connection it is to be recalled that, contrary to the judgment of Alcoa's directors, Goods did go into the rolling mill business. Obviously, as it strikes me, the concurrence or even acquiescence or joining a single time in advice of Alcoa's directors would not overcome the probative effect of the numerous instances previously cited when the Visconsin directors rejected the advice of Alcoa's directors.
Second: It is argued that Goods had as its secretary and treasurer two men who had previously been employed by Alcoa. It is to be noted, however, that these were chosen after Alcoa's directors had furnished their names when the Goods president asked for suggestions. One, who had been a bookkeeper for Alcoa, was with Goods from 1914 to 1933. The other, who had been an assistant sales office manager of Alcoa, has been with Goods ever since 1937 (pp. 13802; 17887-9; 17893-5; 21107-11).
That friendly relations between Alcoa and Goods have existed for over 30 years is undisputed. I fail to see, however, what bearing the fact of former service with Alcoa has on the issue as to domination of Goods or domination of the Wisconsin directors. The fact seems to me irrelevant to the issue.
Third: In 1918, in order that Goods might get the benefit of a trade discount, and pursuant to a request of the buyer, Alcoa purchased two electric motors for Goods under the contract of Alcoa with the General Electric Company (Exhibit 967, item 1). Apparently there was nothing unusual in this incident (pp. 22052-4); but whether so or not, it was doing a favor which cost Alcoa nothing and its action has no tendency to prove or to disprove the charge of domination made by the Government.
Fourth: In 1919 a non-exclusive license of a patent on duralumin (Exhibit 1107) was granted to Alcoa "its subsidiaries and affiliated companies." For the purpose of the license Alcoa, its subsidiaries and affiliated companies (whose names were not there given) were therein defined to constitute the "licensee," as that word was employed in the document. The "licensee" was required to make reports at short intervals of business done under the license and annually to pay a minimum royalty. Immediately following the execution of the license Mr. Davis (who had negotiated it with the licensor) sent letters to Goods and another company, telling them that the clauses as to output and paying royalties applied to the three (Alcoa and themselves) taken together (Exhibit 4). Whether Goods ever manufactured duralumin does not appear. However that may be, I think it clear that the interpretation put on the license was reasonable. It certainly, at least, was not unreasonable. Moreover, whether reasonable or not, I feel that the transaction about the patent has no bearing on the domination issue (pp. 20898; 20914-22; 22103-4).
Fifth: When Goods was making plans for the construction of the new rolling mill at Manitowoc, heretofore mentioned -- which, contrary to the views expressed by Alcoa's directors, the Wisconsin directors had decided to build -- Goods asked the professional advice of Alcoa's engineers on the foundation for the structure. They also requested suggestions about equipment and Alcoa obtained quotations on motors for use in the mill. Regardless of whether the Alcoa engineering staff rendered the services desired without cost (pp. 22035; 22043-51; Exhibit 967, item 3, though there is doubt whether this item is in evidence against Goods; Exhibit 1126), the assistance described shows nothing about domination. Moreover, the record is replete with instances where, without charge. Alcoa has done like favors for others (including those who indisputably were competitors) engaged in the industry.
Sixth: In or about 1922 Goods consented that employees of Alcoa might buy Goods stock on a deferred basis, partial payment plan. This was like, or at least somewhat similar to, the scheme that was open to employees of Goods (pp. 21116-18). Again, the fact does not even tend to support, much less does it justify, an inference of domination by Alcoa. As I see it, the chief feature, and perhaps the sole feature, was to provide a safe market for the inexpensive sale of Goods stock.
Seventh: The Government criticizes two groups of Alcoa transactions which occurred 19 or more years ago. These consisted of Alcoa calling the attention of Goods to business opportunities in 1919 and granting concessions to Goods on the price of aluminum purchased by it so as to enable Goods to obtain contracts from new customers for sale of fabricated articles (Exhibit 966, items 1 and 2; Exhibit 963, items 1 and 2, though there is doubt whether some of the items are in evidence against Goods); also of allowing Goods, in 1922, to take over a protion of 150,000 tons of imported aluminum at the price of cost to Alcoa plus brokerage, and making an explanation to Goods in 1921 of what appears was a reason why two banks had refinanced Goods to an extent which (among other things) enabled Goods, -- by whom upwards of $2,000,000 was then owing to Alcoa, partly on notes and partly on open account (Exhibit 968; item 1, Exhibit 1123), to discharge its indebtedness to Alcoa.
The 1919 events present a case of the kind of which the record contains many instances, of Alcoa helping those in the industry with whom it was on friendly terms, without it ever having been suggested or there ever being ground for believing that the recipients of the benefit were being dominated by Alcoa.
So far as concerns the 1921-22 events, the facts are not fully developed; but the impression made by the evidence is that Alcoa was chiefly serving itself by getting rid of an excess of aluminum on hand and collecting overdue bills.
What occurred in 1919 or in 1921 or in 1922 is quite remote from domination.
Eight: A group of minor respects in which Goods has sought and received advice from Alcoa on principles of business practice in 1919, 1921 and 1922 are described. The Government charges that these constitute permitting scrutiny by Alcoa of confidential information pertaining to Goods. The evidence comes from a few scattered letters (Exhibit 964, items 1 to 7; Exhibit 969, items 1 to 7; Exhibit 1122).
It is probable that some of the letters are not in evidence for the purpose of proving facts, but if so that will be disregarded (e.g., item 4 of Exhibit 964). Practically the entire correspondlence was between Mr. Hunt and Mr. George Vits. Of course, it would have been distasteful if the letters had become public. Nevertheless, as I conceive, there would have been little danger of substantial harm to Goods if they had been published in the newspapers. Certainly they contained nothing which should have been withheld from a director or from the president (Mr. George Vits at the time being the president of Goods).
The exceptional letter was from Mr. Hunt to the Goods treasurer. It is essentially an inquiry and is entirely appropriate for any director to address to his company treasurer. The form of the figurer used suggests that the letter is a mere discussion of a Goods balance sheet which Mr. Hunt had examined. If so, of course, there was nothing secret about it. I do not believe that there is any fact mentioned in any paper to which attention has been called that, in its nature, was genuinely confidential.
Ninth: From 1909 to date there have been 163 meetings of the Goods board of directors. Mr. Davis was present at 38; Mr. Hunt at 71 (Exhibit 1019). Most of those attended by either were held in Pittsburgh or in New York City at the office of Alcoa (pp. 21112-3; 22001-2).
There are several reasons which I think might be assigned for not regarding the holding of directors' meetings at Alcoa's office as indicating that Alcoa's directors controlled Goods. I think one will afford a sufficient explanation. This rests on four statements by persons who have actively opposed Alcoa at the trial of this suit.
A Government witness, who exhibited marked hostility on the stand, said of Mr. Arthur v. Davis that he had regarded him as "one of the greatest industrial managers I [that is, the witness] had ever met" (p. 5936).
Another Government witness (when his testimony conflicted with that of Mr. Arther v. Davis) said that he believed in the honesty and sincerity of Mr. Davis.
A Government accountant testified extensively. I think he must have impressed all who heard him as reliable as well as competent. He had investigated many of Alcoa's books and papers. He had frequently had access to them. He was being cross examined by counsel for one of the defendants other than Alcoa or a member of its group. The matter of discussion was a cost figure contained in Exhibit 409. The witness had prepared the exhibit and the figure he used came to him from Alcoa. He was asked if he would take the figure "as the last word on the subject." His reply was as follows (p. 8388):
"I have had a lot of dealings with Alcoa and its officials. They have never told me anything that was not true yet. * * * They gave me that figure, and I accepted it, absolutely."
Lastly, in its brief filed last December, the Government itself referred to Mr. Davis as "unquestionably the outstanding personality of the world's aluminum industry" (p. 640).
If Goods shared the views I have quoted, would not that fact furnish adequate explanation of its willingness to meet the convenience of Mr. Davis and Mr. Hunt as to a place for occasional meetings in order to have the benefit of retaining them as members of its board of directors? Can it be safely inferred from the majority yielding at times to the wishes of their associates with respect to so insignificant a matter as arranging a convenient place of meeting that control of the board had passed to the minority? I think not.
Perhaps there are other criticisms by the Government of things which transpired between Alcoa and Goods. If so, however, and they have been overlooked, I believe it safe to say that they come within some of the types of occurrences on which I have already commented.
I am uncertain whether, in its discussion of the subject, the Government always intended to condemn purchases of Goods stock by Alcoa or by its officials or employes. If it did so intend, however, its position does not seem to me justified by the evidence.
So far as concerns purchase of Goods stock, not only have Alcoa's officers denied that there was intent to restrain competition by Goods with Alcoa in the production or sale of cooking utensils, but the facts strongly, if not conclusively, indicate that up to the date of the original purchase of stock (1909) -- indeed for a substantial time thereafter -- Goods confined its manufacture to aluminum novelties. I have discovered nothing which even tends to show that, preceding Alcoa becoming a Goods stockholder, Goods had ever even contemplated going into the manufacture or sale of aluminum cooking utensils. So far as appears, the question of whether to do so, actually to do so, first arose at least several years after Alcoa had become a stockholder of Goods.
Next, is there warrant for the Government's accusation that Alcoa monopolized or attempted to monopolize the manufacture or sale of cooking utensils? This is the last of the three questions, previously stated, raised by the pleadings with respect to cooking utensils. As I see it, the answer turns largely on the evidence relating to the mills with which Mr. Waltz was connected that were taken over by Goods.
With respect to the Standard and the Bremer-Waltz St. Louis mills, it is plain that their owners sold both of their own initiative. There is testimony somewhat indicating that Messrs. Bremer and Waltz were not forced to sell the Standard mill when they did. It is clear, however, that sale of the St. Louis mill was rendered unavoidable and I am inclined to think the sale of the Standard mill was rendered advisable by the distressed financial condition of their owners. For the existence of the condition of either Alcoa has not been shown to have had the slightest responsibility nor does any blame for it attach to Alcoa (pp. 9270-8; 9372; 9390-1; 9393; 9396; 9401-5; 9594-601; 9634-7; 9688-92; 9695-724; 9769; 9773; 9781-9828; 19283-6; 21732-4; Exhibit 467; Exhibit 470). Indeed, the Government itself attributes the sale of the St. Louis mill to the "compelling necessity of selling" (reply beief, p. 204).
During the early stages of his testimony Mr. Waltz was rather insistent that the financial collapse of his company was caused by Alcoa unduly narrowing the spread between the sales prices of sheet and ingot.In connection with the contention he give some figures (pp. 9244; 9252-3; 9380-1; 9392; 9594; 9598-9; 9625-6; 9634; 21054-60; 21732). Aside from other sufficient responses, however, it is enough to say (as Mr. Waltz himself conceded after the question came up directly, pp. 9245-50; 9274; as the Court pointed out during the taking of the testimony, -- e.g., pp. 9272-4; 9378-9; 22187-8; and as the Government admitted at the oral argument in March, 1941, at least admitted as I understand the words used, pp. 40992-3) that when the witness gave single figures as constituting a spread, his failure to tell the gauge or otherwise to identify the grade or the kind or the quantity of ingot about which he was talking rendered wholly worthless his testimony in regard to any spread affecting cooking utensils (pp. 9245-50; 9274; 9624-31; 21060).
Much time also was consumed in taking testimony about various alleged grievances of the Bremer-Waltz Corporation. Apart from the fact that few if any of the complaints had any relevancy to the suit, it is sufficient to say that none of them was sustained by proof.
There is no occasion to discuss the charge that in 1931 Goods acquired 49 per cent of the Aluminum Goods Limited stock. Among the reasons for which that is so is this: through the sale back to Aluminium of the stock in July, 1938, Goods terminated all its connection with Aluminum Goods Limited (pp. 14018-9; 14033-4).
The evidence does not disclose, and its officers deny, that Alcoa ever had any connection with the matter. There is at least serious doubt also, on the view of the facts most favorable to the Government, whether in the present suit this Court could properly exercise jurisdiction of the subject matter (see also pp. 14025-8; 22110-13).
October 3, 1941
In determining whether there has been competition between Alcoa and Goods, a definition suggested by the Government is that "two articles compete where there is rivalry to sell the same product to the same customer for the same use" (p. 40817).For the purpose of considering the charge of monopolization with respect to cooking utensils this definition will be accepted. Indeed, Alcoa apparently consents to it; at least it seems implied (original brief, p. 379) that there is competition between utensils when they "are used for the same purpose and compete for the consumer dollar." That is Alcoa's statement.
I think a single fact constitutes an adequate answer to the charge that Alcoa and Goods did not compete. This is that the proof overwhelmingly shows that vigorous competition between the manufacturers and sellers of aluminum cooking utensils now exists and has long existed. Much of the testimony to that effect is from entirely independent sources. What was said, for example, by the representatives of the department stores is quite impressive. Those stores handle cooking utensils which came from all the manufacturers. Their testimony is quite extensive and complete with regard to the competition in their stores, by the insistence of the manufactuers, between the cooking utensils produced by each of the manufacturers. That there has been such competition is true as to Alcoa and Goods and has been true as to them ever since Goods entered the field, in which Alcoa had previously been engaged (pp. 11901-5; 12194; 21567-70; 21969-75; 22650-3; 28151-97; 28417-18; 28656-706; 28756-9; 28813-826A; 29805-19; 29823-46; 29877; 30364-6; 30417-8; 30448-9; 30838-41; 31834-6; 31844-9; 31959-63; 31979-83; 33293-4; 40580-3). The same is also true as between them, Alcoa and Goods, and about thirty other concerns as well, some of which concerns run back for thirty years (e.g., pp. 11504; 18664) and seem generally to have prospered (pp. 11612-15; 11891-906; 12180-2; 12194-8; 18664-5; 21032; 21973; 28154; 28156; 28170-1; 28173-4; 28188; 28193-6; 28418-21A; 28668-9; 28672-3; 28684; 28695; 28698-9; 28704-6; 28713-4; 28820-22; 29799-805; 29812; 29823-46; 29876-8; 30364-6; 30380-5; 30838-41; 31834-9; 31844-9; 31883; 31958-64; 31975-85; 32019-22).
Two additional supplemental features are that the competition of Alcoa in aluminum cooking utensils has been fair (e.g., pp. 12048; 29803-5; 30371; 31964-5) and that those utensils compete in greater or less degree with cooking utensils made of enamel, copper, cast iron, stainless steel, tin, glass and other materials (pp. 22650; 28713-14; 29799-801; 29831; 30366; 30448-9; 30841; 31836; 31845; 31961; 31972-3).
I conclude, therefore, that the evidence does not sustain any of the charges against Alcoa as to cooking utensils.
The seventh monopolization charge relates to pistons.
Aluminum pistons are largely, if not wholly, produced by the permanent mold method. For that reason, save with respect to the patent question which will be discussed, perhaps what has been said heretofore about permanent mold castings might be taken as disposing of the controversy over pistons.
There are two types of patents relating to pistons which interest us at this stage. These are process patents and structure patents. Since in or prior to 1922 Alcoa has owned process patents which were regarded as essential in the manufacture of pistons and, indeed, were believed by Alcoa to carry with them control of the manufacture of aluminum pistons. In 1922 Alcoa and several others owned structure patents. There were disputes among the owners about those structure patents. There had been litigation between the owners. Further litigation was threatened or feared. In 1927 Bohn owned and still owns a petent (granted to Nelson) for making a strut or control type of piston.
In composure of the differences between the structure patent owners (not including Bohn) a so-called Piston Patent Estate was created in 1922. Pursuant thereto the structure patents (other than the Nelson) were transferred to a Cleveland, Ohio, trust company as trustee. Alcoa then obtained an exclusive license from the trustee on the structure patents, with the right to issue sub-licenses. Thereupon Alcoa issued to several piston manufacturing concerns sub-licenses under the structure patents and licenses under its own process patents. Bohn also obtained a sub-license under the structure patents and a license under the process patents. In exchange for this, Bohn granted to Alcoa a license under the Nelson patent.
Aside from the licensees and sub-licensees just referred to, there are in the United States other manufacturers of aluminum pistons (pp. 16866-7; 16967-8; 17276-9; 30320-1; 30330; 30352-4; 30356); but for present purposes those may be disregarded. Pistons were also made from other metals (pp. 17095-8; 17265-75); but likewise, for the moment, these too will be disregarded.
It is unnecessary to go into details of the patents involved or into the details of the Piston Patent Trust Estate (Exhibits 918 and 919). This is true because of the positions taken by Alcoa and the Government in their briefs.
In the original Alcoa brief, furnished last December (p. 346), it was said:
"It should be remembered that Alcoa then [that is, when the Piston Patent Trust was formed] had what it believed to be a legal monopoly in the aluminum piston industry by virtue of its ownership of the controlling process patents. The manufacture of piston castings by the sand casting method was satisfactory only for experimental purposes and where only small quantities were desired. The only commercial process for the manufacture of aluminum pistons was by permanent molds, and Alcoa did not know of any economical process which could be used in the manufacture of piston castings without infringing its mold or process patents."
In its reply brief, submitted in January, 1941 (p. 185), the Government said:
"On the basis of Alcoa's brief and Norton's testimony, it can be considered as established that virtually no aluminum pistons can be made without infringing the process patents owned by Alcoa and the structure patents owned by the Piston Trust Estate and under which Alcoa is an exclusive licensee."
The bill (paragraphs 52 and 95) contains two charges: (1) That Alcoa and its licensees manufacture and seel about 80 per cent of the aluminum pistons moving in interstate commerce. (2) That the purpose and effect of Alcoa procuring an exclusive license under the structure patents were to obtain "a monopoly in the production and sale of such pistons in interstate and foreign commerce", which Alcoa and its licensees still hold.
In its original brief Alcoa insisted that evidence is lacking to support the first charge. In neither its original nor its reply brief has the Government drawn any such evidence to my attention and I have discovered none.
On the face of the pleading, and for reasons previously given in discussing the Hall patents, it seems to me that no cause of action is stated with respect to pistons. Moreover, both at the trial and in its briefs the Government has made express admissions which, if accepted, apparently mean that its own view is that no cause of action is stated. In other words, the situation may be described to be that if there be a cause of action it has not been pleaded.
Though licensed at different dates, the original sub-licensees and licensees (other than Alcoa itself) were the Bohn Aluminum & Brass Corporation, the National Piston Company, the Walker M. Levett Company and the Kant-Skore Piston Company. The Packard Motor Car Company indirectly transferred some patents to the Piston Patent Estate and acquired an interest in the estate.Some time subsequent to the beginning of the Piston Estate, National and Levett were taken over by Bohn and Kant-Skore changed its name to Aluminum Industries, Inc. The United Engine & Machine Company had no license or sub-license and held no interest under the estate. However, it owned piston patents.
None of the companies just mentioned is or ever has been nor is the trustee nor has it ever been a party to the case at bar. In the situation described, the crucial issue is what was the consequence of the Piston Patent Estate and its incidents.
On May 16, 1939, the Court suggested that the absence of necessary parties to this suit might prevent an adjudication in the pending litigation of whether the Cleveland Piston Patent Estate is lawful. Time was given counsel to consider the matter (p. 17222). The next day the Government counsel said (p. 17374):
"* * * we are not attempting to dissolve the patent trust estate. Your Honor was perfectly correct in stating that the necessary parties have not been made parties to this suit and consequently we could not dissolve the estate if we wanted to. There may be a separate cause of action there, but we are not trying that cause of action in this case."
The view announced at the trial has been confirmed since by the Government. In its principal brief, filed subsequent to the close of taking testimony, it said (pp. 24; 485-6; 494):
"* * * we seek no relief in this case against its [Alcoa's] piston monopoly. * * *. It should be made clear * * * that we are not seeking any relief in this case against the piston monopoly as such. As the court properly pointed out, the necessary parties are not defendants. * * * we are not seeking any separate relief in this case in so far as Alcoa's piston monopoly is concerned."
What the Government now urges is that (1) Alcoa has used the piston patents which it owns or holds as licensee from the estate to further the sale of aluminum and (2) it was the intention of Alcoa to monopolize the production and sale of aluminum pistons. The two points will be considered separately.
The manufacture of aluminum itself has not be covered by a patent as you will recall, since 1909 and (without at the moment definitely so deciding) it will be assumed that the patent statute confers no right to employ a patent for the promotion of marketing an unpatented article. Our initial inquiry, therefore, is whether the proof shows that Alcoa has used the piston patents, or any of them, to enforce sales of aluminum. Otherwise stated, has Alcoa conditioned the grant of benefit of a piston patent license on its customers purchasing aluminum from it?
In support of its contention, the Government put on the stand representatives of Aluminum Industries, Packard Motor Car Company and United Engine & Machine Company.
The general manager of and lawyer for Aluminum Industries testified on direct examination as to five or six conversations with officials of Alcoa between 1923 and 1931. Aluminum Industries procured a license from Alcoa in 1924. From then on it was a frequent applicant for an increase in the number of pistons it should be entitled to make. On direct examination some of the statements by its representatives, standing alone and unexplained, perhaps might be construed as designed to convey the impression that the officials of Alcoa had indicated that the requests of Aluminum Industries might be granted if its purchases of aluminum from Alcoa were increased (pp. 16939-45; 17153-4; 17160-1; 17164-5; 17173-5; 17178-80; Exhibits 939 and 940). On cross examination, however, the Aluminum Industries statements were modified to such extent that the testimony of its representatives, as well as the testimony of representatives of Alcoa, persuade me that at no time did Alcoa condition the grant of a license or the increase of a quota on the applicant purchasing or agreeing to purchase aluminum from Alcoa (pp. 16982-3; 17009-11; 17024-7; 17186-7; 17192-8; 17201-12; 19238-67; 22639-47; 23100-12; 28845-54; 28923-44; 33267-9; 33274-6; 33283; 33348. See also pp. 16949-61).
The position taken by Mr. A. V. Davis was that all licensees should be treated alike; that, as he asserted, for building up its sales Aluminum Industries had relied more on taking away customers from its competitors than on building up the aluminum pistons business as an industry (e.g., pp. 17188-90; 19244; 19246-9). It is also true that when, in 1929 and later, Aluminum Industries had increased its sales by promoting the use generally of and developing new markets for aluminum pistons, its license quotas were proportionately increased (pp. 16984-93; 17025-8).
Upon reviewing all the evidence, as I see the matter, however, the Government has attempted to put the shoe on the wrong foot. Instead of Alcoa having sought the purchase of aluminum as its price of consent that Aluminum Industries might manufacture more pistons, Aluminum Industries used the suggestion that it had bought or would buy more aluminum if Alcoa would give the consent. To this suggestion Alcoa never yielded.
© 1992-2004 VersusLaw Inc.