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
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:
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.
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.
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 ...