Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States v. Aluminum Co.

decided: March 12, 1945.

UNITED STATES
v.
ALUMINUM COMPANY OF AMERICA, ET AL.



Before L. Hand, Swan, and Augustus N. Hand, Circuit Judges.

Author: Hand

L. HAND, C.J.: This appeal comes to us by virtue of a certificate of the Supreme Court, under the amendment of 1944 to § 29 of Title 15, U.S. Code. The action was brought under § 4 of that title, praying the district court to adjudge that the defendant, Aluminum Company of America was monopolizing interstate and foreign commerce, particularly in the manufacture and sale of "virgin" aluminum ingot, and that it be dissolved; and further to adjudge that that company and the defendant, Aluminum Limited, had entered into a conspiracy in restraint of such commerce. It also asked incidental relief. The plaintiff filed its complaint on April 23, 1937, naming sixty-three defendants: ten of these were not served and did not appear; one died, and one corporate defendant was dissolved before the action was brought: the complaint was dismissed against another. At the date of judgment there were fifty-one defendants who had been served and against whom the action was pending. We may divide these, as the district judge did, into four classes: Aluminum Company of America, with its wholly owned subsidiaries, directors, officers and shareholders. (For convenience we shall speak of these defendants collectively as "Alcoa," that being the name by which the company has become almost universally known.) Next, Aluminum Limited, with its directors, officers and shareholders. (For the same reason we shall speak of this group as "Limited.") Third: the defendant, Aluminum Manufacturers, Inc., which may be treated as a subsidiary of "Alcoa." Fourth: the defendant, Aluminum Goods Manufacturing Company, which is independent of "Alcoa," as will appear. The action came to trial on June 1, 1938, and proceeded without much interruption until August 14, 1940, when the case was closed after more than 40,000 pages of testimony had been taken. The judge took time to consider the evidence, and delivered an oral opinion which occupied him from September 30, to October 9, 1941. Again he took time to prepare findings of fact and conclusions of law which he filed on July 14, 1942; and he entered final judgment dismissing the complaint on July 23rd, of that year. The petition for an appeal, and assignments of error, were filed on September 14, 1942, and the petition was allowed on the next day. On June 12, 1944, the Supreme Court, declaring that a quorum of six justices qualified to hear the case was wanting, referred the appeal to this court under § 29 of Title 15, already mentioned. The district Judge's opinion, reported in 44 Fed.Sup. 97, discussed the evidence with the utmost particularity; it took up every phase and every issue with the arguments of both parties, and provided a reasoned basis for the subsequent findings of fact and conclusions of law. For the purposes of this appeal we need not repeat the greater part of the facts; so far as it is necessary, we do so, leaving acquaintance with the remainder to the opinion itself. Although the plaintiff challenged nearly all of the 407 findings of fact, with negligible exceptions these challenges were directed, not to misstatements of the evidence, but to the judge's inferences - alleged to be "clearly erroneous." For convenience we have divided our discussion into four parts: (1) whether "Alcoa" monopolized the market in "virgin" aluminum ingot; (2) whether "Alcoa" was guilty of various unlawful practices, ancillary to the establishment of its monopoly; (3) whether "Limited" and "Alcoa" were in an unlawful conspiracy; and whether, if not, "Limited" was guilty of a conspiracy with foreign producers; (4) what remedies are appropriate in the case of each defendant who may be found to have violated the Act.

I. "Alcoa's" Monopoly of "Virgin" Ingot

"Alcoa" is a corporation, organized under the laws of Pennsylvania on September 18, 1888; its original name, "Pittsburgh Reduction Company," was changed to its present one on January 1, 1907. It has always been engaged in the production and sale of "ingot" aluminum, and since 1895 also in the fabrication of the metal into many finished and semi-finished articles. It has proliferated into a great number of subsidiaries, created at various times between the years 1900 and 1929, as the business expanded. Aluminum is a chemical element; it is never found in a free state, being always in chemical combination with oxygen. One form of this combination is known as alumina; and for practical purposes the most available material from which alumina can be extracted is an ore, called, "bauxite." Aluminum was isolated as a metal more than a century ago, but not until about 1886 did it become commercially practicable to eliminate the oxygen, so that it could be exploited industrially. One, Hall, discovered a process by which this could be done in that year, and got a patent on April 2, 1889, which he assigned to "Alcoa," which thus secured a legal monopoly of the manufacture of the pure aluminum until on April 2, 1906, when this patent expired. Meanwhile Bradley had invented a process by which the smelting could be carried on without the use of external heat, as had theretofore been thought necessary; and for this improvement he too got a patent on February 2, 1892. Bradley's improvement resulted in great economy in manufacture, so that, although after April 2, 1906, anyone could manufacture aluminum by the Hall process, for practical purposes no one could compete with Bradley or with his licensees until February 2, 1909, when Bradley's patent also expired. On October 31, 1903, "Alcoa" and the assignee of the Bradley patent entered into a contract by which "Alcoa" was granted an exclusive license under that patent, in exchange for "Alcoa's" promise to sell to the assignee a stated amount of aluminum at a discount of ten per cent below "Alcoa's" published list price, and always to sell at a discount of five per cent greater than that which "Alcoa" gave to any other jobber. Thus until February 2, 1909, "Alcoa" had either a monopoly of the manufacture of "virgin" aluminum ingot, or the monopoly of a process which eliminated all competition.

The extraction of aluminum from alumina requires a very large amount of electrical energy, which is ordinarily, though not always, most cheaply obtained from water power. Beginning at least as early as 1895, "Alcoa" secured such power from several companies by contracts, containing in at least three instances, covenants binding the power companies not to sell or let power to anyone else for the manufacture of aluminum. "Alcoa" - either itself or by a subsidiary - also entered into four successive "cartels" with foreign manufacturers of aluminum by which, in exchange for certain limitations upon its import into foreign countries, it secured covenants from the foreign producers, either not to import into the United States at all, or to do so under restrictions, which in some cases involved the fixing of prices. These "cartels" and restrictive covenants and certain other practices were the subject of a suit filed by the United States against "Alcoa" on May 16, 1912, in which a decree was entered by consent on June 7, 1912, declaring several of these covenants unlawful and enjoining their performance; and also declaring invalid other restrictive covenants obtained before 1903 relating to the sale of alumina. ("Alcoa" failed at this time to inform the United States of several restrictive covenants in water-power contracts; its justification - which the judge accepted - being that they had been forgotten.) "Alcoa" did not begin to manufacture alumina on its own behalf until the expiration of a dominant patent in 1903. In that vear it built a very large alumina plant at East St. Louis, where all of its alumina was made until 1939, when it opened another plant in Mobile, Alabama.

None of the foregoing facts are in dispute, and the most important question in the case is whether the monopoly in "Alcoa's" production of "virgin" ingot, secured by the two patents until 1909, and in part perpetuated between 1909 and 1912 by the unlawful practices, forbidden by the decree of 1912, continued for the ensuing twenty-eight years; and whether, if it did, it was unlawful under § 2 of the Sherman Act. It is undisputed that throughout this period "Alcoa" continued to be the single producer of "virgin" ingot in the United States; and the plaintiff argues that this without more was enough to make it an unlawful monopoly. It also takes an alternative position: that in any event during this period "Alcoa" consistently pursued unlawful exclusionary practices, which made its cominant position certainly unlawful, even though it would not have been, had it been retained only by "natural growth." Finally, it asserts that many of these practices were of themselves unlawful, as contracts in restraint of trade under § 1 of the Act. "Alcoa's" position is that the fact that it alone continued to make "virgin" ingot in the country did not, and does not, give it a monopoly of the market; that it was always subject to the competition of imported "virgin" ingot, and of what is called "secondary" ingot; and that even if it had not been its monopoly would not have been retained by unlawful means, but would have been the result of a growth which the Act does not forbid, even when it results in a monopoly. We shall first consider the amount and character of this competition; next, how far it established a monopoly; and finally, if it did, whether that monopoly was unlawful under § 2 of the Act.

From 1902 onward until 1928 "Alcoa" was making ingot in Canada through a wholly owned subsidiary; so much of this as it imported into the United States it is proper to include with what it produced here. In the year 1912 the sum of these two items represented nearly ninety-one per cent of the total amount of "virgin" ingot available for sale in this country. This percentage varied year by year up to and including 1938: in 1913 it was about seventy-two per cent; in 1921 about sixty-eight per cent; in 1922 about seventy-two; with these exceptions it was always over eighty per cent of the total and for the last five years 1934-1938 inclusive it averaged over ninety per cent. The effect of such a proportion of the production upon the market we reserve for the time being, for it will be necessary first to consider the nature and uses of "secondary" ingot, the name by which the industry knows ingot made from aluminum scrap. This is of two sorts, though for our purposes it is not important to distinguish between them. One of these is the clippings and trimmings of "sheet" aluminum, when patterns are cut out of it, as a suit is cut from a bolt of cloth. The chemical composition of these is obviously the same as that of the "sheet" from which they come; and, although they are likely to accumulate dust or other dirt in the factory, this may be removed by well known processes. If a record of the original composition of the "sheet" has been preserved, this scrap may be remelted into new ingot, and used again for the same purpose. It is true that some of the witnesses - Arthur V. Davis, the chairman of the board of "Alcoa" among them - testified that at each remelting aluminum takes up some new oxygen which progressively deteriorates its quality for those uses in which purity is important; but other witnesses thought that it had become commercially feasible to remove this impurity, and the judge made no finding on the subject. Sine the plaintiff has the burden of proof, we shall assume that there is no such deterioration. Nevertheless, there is an appreciable "sales resistance" even to this kind of scrap, and for some uses (airplanes and cables among them), fabricators absolutely insist upon "virgin": just why is not altogether clear. The other source of scrap is aluminum which has once been fabricated and the article, after being used, is discarded and sent to the junk heap; as for example, cooking utensils, like kettles and pans, and the pistons or crank cases of motorcars. These are made with a substantial alloy and to restore the metal to its original purity costs more than it is worth. However, if the alloy is known both in quality and amount, scrap, when remelted, can be used again for the same purpose as before. In spite of this, as in the case of clippings and trimmings, the industry will ordinarily not accept ingot so salvaged upon the same terms as "virgin." There are some seventeen companies which scavenge scrap of all sorts, clean it, remelt it, test it for its composition, make it into ingots and sell it regularly to the trade. There is in all these salvage operations some inevitable waste of actual material; not only does a certain amount of aluminum escape altogether, but in the salvaging process itself some is skimmed off as scum and thrown away. The judge found that the return of fabricated products to the market as "secondary" varied from five to twenty-five years, depending upon the article; but he did not, and no doubt could not, find how many times the cycle could be repeated before the metal was finally used up.

There are various ways of computing "Alcoa's" control of the aluminum market - as distinct from its production - depending upon what one regards as competing in that market. The judge figured its share - during the years 1929-1938, inclusive - as only about thirty-three percent; to do so he included "secondary," and excluded that part of "Alcoa's" own production which it fabricated and did not therefore sell as ingot. If, on the other hand, "Alcoa's" total production, fabricated and sold, be included, and balanced against the sum of imported "virgin" and "secondary," its share of the market was in the neighborhood of sixty-four per cent for that period. The percentage we have already mentioned - over ninety - results only if we both include all "Alcoa's" production and exclude "secondary". That percentage is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three per cent is not. Hence it is necessary to settle what we shall treat as competing in the ingot market. That part of its production which "Alcoa" itself fabricates, does not of course ever reach the market as ingot; and we recognize that it is only when a restriction of production either inevitably affects prices, or is intended to do so, that it violates § 1 of the Act. Apex Hosiery Co. v. Leader, 310 U.S. 469, 501. However, even though we were to assume that a monopoly is unlawful under § 2 only in case it controls prices, the ingot fabricated by "Alcoa," necessarily had a direct effect upon the ingot market. All ingot - with trifling exceptions - is used to fabricate intermediate, or end, products; and therefore all intermediate, or end, products which "Alcoa" fabricates and sells, pro tanto reduce the demand for ingot itself. The situation is the same, though reversed, as in Standard Oil Co. v. United States, 221 U.S. 1, 77, where the court answered the defendants' argument that they had no control over the crude oil by saying that "as substantial power over the crude product was the inevitable result of the absolute control which existed over the refined product, the monopolization of the one carried with it the power to control the other." We cannot therefore agree that the computation of the percentage of "Alcoa's" control over the ingot market should not include the whole of its ingot production.

As to "secondary," as we have said, for certain purposes the industry will not accept it at all; but for those for which it will, the difference in price is ordinarily not very great; the judge found that it was between one and two cents a pound, hardly enough margin on which to base a monopoly. Indeed, there are times when all differential disappears, and "secondary" will actually sell at a higher price: i.e. when there is a supply available which contains just the alloy that a fabricator needs for the article which he proposes to make. Taking the industry as a whole, we can say nothing more definite than that, although "secondary" does not compete at all in some uses, (whether because of "sales resistance" only, or because of actual metallurgical inferiority), for most purposes it competes upon a substantial equality with "virgin." On these facts the judge found that "every pound of secondary or scrap aluminum which is sold in commerce displaces a pound of virgin aluminum which otherwise would, or might have been, sold." We agree: so far as "secondary" supplies the demand of such fabricators as will accept it, it increases the amount of "virgin" which must seek sale elsewhere; and it therefore results that the supply of that part of the demand which will accept only "virgin" becomes greater in proportion as "secondary" drives away "virgin" from the demand which will accept "secondary." (This is indeed the same argument which we used a moment ago to include in the supply that part of "virgin" with "Alcoa" fabricates; it is not apparent to us why the judge did not think it applicable to that item as well.) At any given moment therefore "secondary" competes with "virgin" in the ingot market; further, it can, and probably does, set a limit or "ceiling" beyond which the price of "virgin" cannot go, for the cost of its production will in the end depend only upon the expense of scavenging and reconditioning. It might seem for this reason that in estimating "Alcoa's" control over the ingot market, we ought to include the supply of "secondary," as the judge did. Indeed, it may be thought a paradox to say that anyone has the monopoly of a market in which at all times he must meet a competition that limits his price. We shall show that it is not.

In the case of a monopoly of any commodity which does not disappear in use and which can be salvaged, the supply seeking sale at any moment will be made up of two components: (1) the part which the putative monopolist can immediately produce and sell; and (2) the part which has been, or can be, reclaimed out of what he has produced and sold in the past. By hypothesis he presently controls the first of these components; the second he has controlled in the past, although he no longer does. During the period when he did control the second, if he was aware of his interest, he was guided, no alone by its effect at that time upon the market, but by his knowledge that some part of it was likely to be reclaimed and seek the future market. That consideration will to some extent always affect his production until he decides to abandon the business, or for some other reason ceases to be concerned with the future market. Thus, in the case at bar "Alcoa" always knew that the future supply of ingot would be made up in part of what it produced at the time, and, if it was as far-sighted as it proclaims itself, that consideration must have had its share in determining how much to produce. How accurately it could forecast the effect of present production upon the future market is another matter. Experience, no doubt, would help; but it makes no difference that it had to guess; it is enough that it had an inducement to make the best guess it could, and that it would regulate that part of the future supply, so far as it should turn out to have guessed right. The competition of "secondary" must therefore be disregarded, as soon as we consider the position of "Alcoa" over a period of years; it was as much within "Alcoa's" control as was the production of the "virgin" from which it had been derived. This can be well illustrated by the case of a lawful monopoly: e.g. a patent or a copyright. The monopolist cannot prevent those to whom he sells from reselling at whatever prices they please. United States v. General Electric Co., 272 U.S. 476, 484. Nor can he prevent their reconditioning articles worn by use, unless they in fact make a new article. Wilson v. Simpson, 9 How, 109, 123. At any moment his control over the market will therefore be limited by that part of what he has formerly sold, which the price he now charges may bring upon the market, as second hand or reclaimed articles. Yet no one would think of saying that for this reason the patent or the copyright did not confer a monopoly. Again, consider the situation of the owner of the only supply of some raw material like iron ore. Scrap iron is a constant factor in the iron market; it is scavenged, remelted into pig, and sold in competition with newly smelted pig; an owner of the sole supply of ore must always face that competition and it will serve to put a "ceiling" upon his price, so far as there is enough of it. Nevertheless, no one would say that, even during the period while the pig which he has sold in the past can so return to the market, he does not have a natural monopoly. Finally, if "Alcoa" is right, precisely the same reasoning ought to lead us to include that part of clippings and trimmings which a fabricator himself saves and remelts - "process scrap" - for that too pro tanto reduces the market for "virgin." It can make no difference whether the original buyer reclaims, or a professional scavenger. Yet "Alcoa" itself does not assert that such "process scrap" competes; indeed it was at pains to prove that this scrap was not included in its computation of "secondary."

We conclude therefore that "Alcoa's" control over the ingot market must be reckoned at over ninety per cent; that being the proportion which its production bears to imported "virgin" ingot. If the fraction which it did not supply were the produce of domestic manufacture there could be no doubt that this percentage gave it a monopoly - lawful or unlawful, as the case might be. The producer of so large a proportion of the supply has complete control within certain limits. It is true that, if by raising the price he reduces the amount which can be marketed - as always, or almost always, happens - he may invite the expansion of the small producers who will try to fill the place left open; nevertheless, not only is there an inevitable lag in this, but the large producer is in a strong position to check such competition; and, indeed, if he has retained his old plant and personnel, he can inevitably do so. There are indeed limits to his power; substitutes are available for almost all commodities, and to raise the price enough is to evoke them. United States v. Corn Products Refining Company, 234 Fed.Rep. 964, 976; United States v. Associated Press, 52 Fed.Sup. 362, 371; Fashion Originators Guild v. Federal Trade Commission, 114 Fed.(2) 80, 85 (C.C.A. 2). Moreover, it is difficult and expensive to keep idle any part of a plant or of personnel; and any drastic contraction of the market will offer increasing temptation to the small producers to expand. But these limitations also exist when a single producer occupies the whole market: even then, his hold will depend upon his moderation in exerting his immediate power.

The case at bar is however different, because, for aught that appears, there may well have been a practically unlimited supply of imports as the price of ingot rose.Assuming that there was no agreement between "Alcoa" and foreign producers not to import, they sold what could bear the handicap of the tariff and the cost of transportation. For the period of eighteen years - 1920-1937 - they sold at times a little above "Alcoa's" prices, at times a little under; but there was substantially no gross difference between what they received and what they would have received, had they sold uniformly at "Alcoa's" prices. While the record is silent, we may therefore assume - the plaintiff having the burden - that, had "Alcoa" raised its prices, more ingot would have been imported. Thus there is a distinction between domestic and foreign competition: the first is limited in quantity, and can increase only by an increase in plant and personnel; the second is of producers who, we must assume, produce much more than they import, and whom a rise in price will presumably induce immediately to divert to the American market what they have been selling elsewhere. It is entirely consistent with the evidence that it was the threat of greater foreign imports which kept "Alcoa's" prices where they were, and prevented it from exploiting its advantage as sole domestic producer; indeed it is hard to resist the conclusion that potential imports did put a "ceiling" upon those prices.Nevertheless, within the limits afforded by the tariff and the cost of transportation, "Alcoa" was free to raise its prices as it chose, since it was free from domestic competition, save as it drew other metals into the market as substitutes.Was this a monopoly within the meaning of § 2? The judge found that, over the whole half century of its existence, "Alcoa's" profits upon capital invested, after payment of income taxes, had been only about ten per cent, and although the plaintiff puts this figure a little higher, the difference is negligible. The plaintiff does indeed challenge the propriety of computing profits upon a capital base which included past earnings that have been allowed to remain in the business; but as to that it is plainly wrong. An argument is indeed often made in the case of a public utility, that the "rate-base" should not include earnings re-invested which were greater than a fair profit upon the actual investment outstanding at the time. That argument depends, however, upon the premise that at common law - even in the absence of any commission or other authority empowered to enforce a "reasonable" rate - it is the duty of a public utility to charge no more than such a rate, and that any excess is unlawfully collected. Perhaps one might properly use the same argument in the case of a monopolist; but it would be a condition that one should show what part of the past earnings were extortionate, for not all that even a monopolist may earn is caput lupinum. The plaintiff made no such attempt and its distinction between capital, "contributed by consumers" and capital, "contributed by shareholders," has no basis in law. "Alcoa's" earnings belonged to its shareholders, they were free to withdraw them and spend them, or to leave them in the business. If they chose to leave them, it was no different from contributing new capital out of their pockets. This assumed, it would be hard to say that "Alcoa" had made exorbitant profits on ingot, if it is proper to allocate the profit upon the whole business proportionately among all its products - ingot, and fabrications from ingot. A profit of ten per cent in such an industry, dependent, in part at any rate, upon continued tariff protection, and subject to the vicissitudes of new demands, to the obsolescence of plant and process - which can never be accurately gauged in advance - to the chance that substitutes may at any moment be discovered which will reduce the demand, and to the other hazards which attend all industry: a profit of ten per cent, so conditioned, could hardly be considered extortionate.

There are however, two answers to any such excuse; and the first is that the profit on ingot was not necessarily the same as the profit of the business as a whole, and that we have no means of allocating its proper share to ingot. It is true that the mill cost appears; but obviously it would be unfair to "Alcoa" to take, as the measure of its profit on ingot, the difference between selling price and mill cost; and yet we have nothing else. It may be retorted that it was for the plaintiff to prove what was the profit upon ingot in accordance with the general burden of proof. We think not. Having proved that "Alcoa" had a monopoly of the domestic ingot market, the plaintiff had gone far enough; if it was an excuse, that "Alcoa" had not abused its power, it lay upon "Alcoa" to prove that it had not. But the whole issue is irrelevant anyway, for it is no excuse for "monopolizing" a market that the monopoly has not been used to extract from the consumer more than a "fair" profit. The Act has wider purposes. Indeed, even though we disregarded all but economic considerations, it would by no means follow that such concentration of producing power is to be desired, when it has not been used extortionately. Many people believe that possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone. Such people believe that competitors, versed in the craft as no consumer can be, will be quick to detect opportunities for saving and new shifts in production, and be eager to profit by them. In any event the mere fact that a producer, having command of the domestic market, has not been able to make more than a "fair profit, is no evidence that a "fair" profit could not have been made at lower prices. United States v. Corn Products Refining Co., supra, 1014, 1015 (234 Fed.Rep. 964). True, it might have been thought adequate to condemn only those monopolies which could not show that they had exercised the highest possible ingenuity, had adopted every possible economy, had anticipated every conceivable improvement, stimulated every possible demand. No doubt, that would be one way of dealing with the matter, although it would imply constant scrutiny and constant supervision, such as courts are unable to provide. Be that as it may, that was not the way that Congress chose; it did not condone "good trusts" and condemn "bad" ones; it forbade all. Moreover, in so doing it was not necessarily actuated by economic motives alone. It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few. These considerations, which we have suggested only as possible purposes of the Act, we think the decisions prove to have been in fact its purposes.

It is settled, at least as to § 1, that there are some contracts restricting competition which are unlawful, no matter how beneficent they may be; no industrial exigency will justify them; they are absolutely forbidden. Chief Justice Taft said as much of contracts dividing a territory among producers, in the often quoted passage of his opinion in the Circuit Court of Appeals in United States v. Addystone Pipe and Steel Co., 85 Fed.Rep. 271, 291. The Supreme Court unconditionally condemned all contracts fixing prices in United States v. Trenton Potteries Company, 273 U.S. 392, 397, 398: and whatever doubts may have arisen as to that decision from Appalachian Coals Inc. v. United States, 288 U.S. 344, they were laid by United States v. Socony-Vacuum Co., 310 U.S. 150, 220-224. It will now scarcely be denied that the same notion originally extended to all contracts - "reasonable," or "unreasonable" - which restrict competition. United States v. Trans-Missouri Freight Association, 166 U.S. 290, 327, 328; United States v. Joint Traffic Association, 171 U.S. 505, 575-577. The decisions in Standard Oil Co. v. United States, 221 U.S. 1, and American Tobacco Company v. United States, 221 U.S. 106, certainly did change this, and since then it has been accepted law that not all contracts which in fact put an end to existing competition are unlawful. Starting, however, with the authoritative premise that all contracts fixing prices are unconditionally prohibited, the only possible difference between them and a monopoly is that while a monopoly necessarily involves an equal, or even greater, power to fix prices, its mere existence might be thought not to constitute an exercise of that power. That distinction is nevertheless purely formal; it would be valid only so long as the monopoly remained wholly inert; it would disappear as soon as the monopoly began to operate; for, when it did - that is, as soon as it began to sell at all - it must sell at some price and the only price at which it could sell is a price which it itself fixed. Thereafter the power and its exercise must needs coalesce. Indeed it would be absurd to condemn such contracts unconditionally, and not to extend the condemnation to monopolies; for the contracts are only steps toward that entire control which monopoly confers: they are really partial monopolies.

But we are not left to deductive reasoning. Although in many settings it may be proper to weigh the extent and effect of restrictions in a contract against its industrial or commercial advantages, this is never to be done when the contract is made with intent to set up a monopoly. As much was plainly implied in Swift & Co. v. United States, 196 U.S. 375, 396, where the court spoke of monopoly as being the "result" which the law seeks to prevent; and, although the language on pages 60 and 61 of Standard Oil Co. v. United States, 221 U.S. 1, is not altogether clear, it seems to presuppose as a premise that a monopoly is always an "unreasonable restraint of trade." Again, the opinion in Sugar Institute v. United States, 297 U.S. 553, 598 - borrowing from Appalachian Coals Inc. v. United States, supra, (288 U.S. 344, 374) - said: "Accordingly, we have held that a cooperative enterprise otherwise free from objection which carries with it no monopolistic menace" need not always be condemned. These were indeed only thrown out as steps in the argument; but Fashion Originators Guild v. Federal Trade Commission, 312 U.S. 457, was a ruling. That concerned a combination of dressmakers who set up a boycott against all retailers who should deal in dresses copied - "pirated" - from the dressmakers' designs. Before the Commission the dressmakers had offered to prove that "the practices of FOGA were reasonable and necessary to protect the manufacturer, laborer, retailer and consumer against devastating evils growing from the pirating of original designs and had in fact benefited all four." (p. 467.) All such evidence the Commission refused to hear, raising as sharply as possible the issue whether the combination could excuse itself as "reasonable" because of the benefits it conferred upon the industry. The court sustained the Commission because "the purpose and object of this combination, its potential power, its tendency to monopoly, the coercion it could and did practice upon a rival method of competition, all brought it within the policy of the prohibition," p. 467. Moreover, the Clayton Act itself ( §§ 14 and 18, Title 15, U.S.C.) shows that practices harmless in themselves will not be tolerated when they "tend to create a monopoly." Perhaps, it has been idle to labor the point at length; there can be no doubt that the vice of restrictive contracts and of monopoly is really one, it is the denial to commerce of the supposed protection of competition. To repeat, if the earlier stages are proscribed, when they are parts of a plan, the mere projecting of which condemns them unconditionally, the realization of the plan itself must also be proscribed.

We have been speaking only of the economic reasons which forbid monopoly; but, as we have already implied, there are others, based upon the belief that great industrial consolidations are inherently undesirable, regardless of their economic results. In the debates in Congress Senator Sherman himself in the passage quoted in the margin showed that among the purposes of Congress in 1890 was a desire to put an end to great aggregations of capital because of the helplessness of the individual before them.*fn* Another aspect of the same notion may be found in the language of Mr. Justice Peckham in United States v. Trans-Missouri Freight Association, supra, 323 (166 U.S. 290). That Congress is still of the same mind appears in the Surplus Property Act of 1944, and the Small Business Mobilization Act. Not only does § 2(d) of the first declare it to be one aim of that statute "to preserve the competitive position of small business concerns," but § 18 is given over to directions designed to "preserve and strengthen" their position. In United States v. Hutcheson, 312 U.S. 219, a later statute in pari materia was considered to throw a cross light upon the Anti-trust Acts, illuminating enough even to override an earlier ruling of the court. Throughout the history of these statutes it has been constantly assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other. We hold that "Alcoa's" monopoly of ingot was of the kind covered by § 2.

It does not follow because "Alcoa" had such a monopoly, that it "monopolized" the ingot market: it may not have achieved monopoly; monopoly may have been thrust upon it. If it had been a combination of existing smelters which united the whole industry and controlled the production of all aluminum ingot, it would certainly have "monopolized" the market. In several decisions the Supreme Court has decreed the dissolution of such combinations, although they had engaged in no unlawful trade practices. Perhaps we should not count among these Northern Securities Co. v. United States, 193 U.S. 197, 327, because it was decided under the old dispensation which ended with Standard Oil Co. v. United States, supra, (221 U.S. 1); but the following cases were later. United States v. Union Pacific R.R. Co., 226 U.S. 61, 88; International Harvester v. Missouri, 234 U.S. 199, 209; United States v. Reading Company, 253 U.S. 26, 57-59; United States v. Southern Pacific Company, 259 U.S. 214, 230, 231. We may start therefore with the premise that to have combined ninety per cent of the producers of ingot would have been to "monopolize" the ingot market; and, so far as concerns the public interest, it can make no difference whether an existing competition is put an end to, or whether prospective competition is prevented. The Clayton Act itself speaks in that alternative: "to injure, destroy or prevent competition." ( § 13(a) Title 15, U.S.C.) Nevertheless, it is unquestionably true that from the very outset the courts have at least kept in reserve the possibility that the origin of a monopoly may be critical in determining its legality; and for this they had warrant in some of the congressional debates which accompanied the passage of the Act. In Re Greene, 52 Fed.Rep. 104, 116, 117; United States v. Trans-Missouri Freight Association, 58 Fed.Rep. 58, 82 (C.C.A. 8). This notion has usually been expressed by saying that size does not determine guilt; that there must be some "exclusion" of competitors; that the growth must be something else than "natural" or "normal"; that there must be a "wrongful intent," or some other specific intent; or that some "unduly" coercive means must be used. At times there has been emphasis upon the use of the active verb, "monopolize," as the judge noted in the case at bar. United States v. Standard Oil Corporation, 173 Fed.Rep. 177, 196; United States v. Whiting, 212 Fed.Rep. 466, 478; Patterson v. United States, 222 Fed.Rep. 599, 619 (C.C.A. 6); National Biscuit Co. v. Federal Trade Commission, 299 Fed.Rep. 733, 738 (C.C.A. 2). What engendered these compunctions is reasonably plain; persons may unwittingly find themselves in possession of a monopoly, automatically so to say: that is, without having intended either to put an end to existing competition, or to prevent competition from arising when none had existed; they may become monopolists by force of accident. Since the Act makes "monopolizing" a crime, as well as a civil wrong, it would be not only unfair, but presumably contrary to the intent of Congress, to include such instances. A market may, for example, be so limited that it is impossible to produce at all and meet the cost of production except by a plant large enough to supply the whole demand. Or there may be changes in taste or in cost which drive out all but one purveyor. A single producer may be the survivor out of a group of active competitors, merely by virtue of his superior skill, foresight and industry. In such cases a strong argument can be made that, although the result may expose the public to the evils of monopoly, the Act does not mean to condemn the resultant of those very forces which it is its prime object to foster: finis opus coronat. The successful competitor, having been urged to compete, must not be turned upon when he wins. The most extreme expression of this view is in United States v. United States Steel Corporation, 251 U.S. 417, from which we quote in the margin;*fn** and which Sanford, J. in part repeated in United States v. International Harvester Corp., 274 U.S. 693, 708. It so chances that in both instances the corporation had less than two-thirds of the production in its hands, and the language quoted was not necessary to the decision; so that even if it had not later been modified, it has not the authority of an actual decision. But, whatever authority it does have was modified by the gloss of Cardozo, J. in Swift & Company v. United States, 286 U.S. 106, when he said, p. 116: "Mere size * * * is not an offense against the Sherman Act unless magnified to the point at which it amounts to a monopoly * * * but size carries with it an opportunity for abuse that is not to be ignored when the opportunity is proved to have been utilized in the past." "Alcoa's" size was "magnified" to make it a "monopoly"; indeed, it has never been anything else; and its size, not only offered it an "opportunity for abuse," but it "utilized" its size for "abuse," as can easily be shown.

It would completely misconstrue "Alcoa's" position in 1940 to hold that it was the passive beneficiary of a monopoly, following upon an involuntary elimination of competitors by automatically operative economic forces. Already in 1909, when its last lawful monopoly ended, it sought to strengthen its position by unlawful practices, and these concededly continued until 1912.In that year it had two plants in New York, at which it produced less than 42 million pounds of ingot; in 1934 it had five plants (the original two, enlarged; one in Tennessee; one in North Carolina; one in Washington), and its production had risen to about 327 million pounds, an increase of almost eightfold. Meanwhile not a pound of ingot had been produced by anyone else in the United States. This increase and this continued and undisturbed control did not fall undesigned into "Alcoa's" lap; obviously it could not have done so.It could only have resulted, as it did result, from a persistent determination to maintain the control, with which it found itself vested in 1912. There were at least one or two abortive attempts to enter the industry, but "Alcoa" effectively anticipated and forestalled all competition, and succeeded in holding the field alone. True, it stimulated demand and opened new uses for the metal, but not without making sure that it could supply what it had evoked. There is no dispute as to this; "Alcoa" avows it as evidence of the skill, energy and initiative with which it has always conducted its business; as a reason why, having won its way by fair means, it should be commended, and not dismembered. We need charge it with no moral derelictions after 1912; we may assume that all it claims for itself is true. The only question is whether it falls within the exception established in favor of those who do not seek, but cannot avoid, the control of a market. It seems to us that that question scarcely survives its statement. It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion that progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel. Only in case we interpret "exclusion" as limited to manoeuvres not honestly industrial, but actuated solely by a desire to prevent competition, can such a course, indefatigably pursued, be deemed not "exclusionary." So to limit it would in our judgment emasculate the Act; would permit just such consolidations as it was designed to prevent.

"Alcoa" answers that it positively assisted competitors, instead of discouraging them. That may be true as to fabricators of ingot; but what of that? They were its market for ingot, and it is charged only with a monopoly of ingot. We can find no instance of its helping prospective ingot manufacturers. We do not forget the Southern Aluminum Company in whose origin it did have some part; though that was over before the end of 1914 and was in any event scarcely late enough to count. We are speaking, not of its purchase of the remains of the plant in 1915; we are not suggesting - as the plaintiff argues - that that was a move to keep the plant out of the ingot market; we are speaking of the original venture. In December, 1911, Arthur V. Davis was in Europe, engaged in forming the "cartel" of 1912, which we will assume not to have been meant to affect the production of ingot in the United States; for so the judge found. The first form of the project was a corporation in which all the members of that "cartel" were to share - "Alcoa," through its Canadian subsidiary. That plan was abandoned; but the French interests, which had been parties to it, organized the Southern Aluminum Company in its place; and the correspondence between those interests and "Alcoa" in 1913 - especially the French letter of April 16 and "Alcoa's" answer of May 10 - even though it may not justify the conclusion that the two were acting in conjunction, leaves no doubt that they were not to be competitors at arms length.**fn** Perhaps, as the plaintiff argues, "Alcoa" did think that the new project might be useful in persuading the plaintiff, whose attack had just ended in the decree of 1912, that the company was to be a real competitor. Be that as it may, the expected competition was not to be of the ordinary kind.

We disregard any question of "intent." Relatively early in the history of the Act - 1935 - Holmes, J. in Swift & Company v. United States, supra, (196 U.S. 375, 396), explained this aspect of the Act in a passage often quoted. Although the primary evil was monopoly, the Act also covered preliminary steps, which, if continued, would lead to it. These may do no harm of themselves; but, if they are initial moves in a plan or scheme which, carried out, will result in monopoly, they are dangerous and the law will nip them in the bud. For this reason conduct falling short of monopoly, is not illegal unless it is part of a plan to monopolize, or to gain such other control of a market as is equally forbidden. To make it so, the plaintiff must prove what in the criminal law is known as a "specific intent"; an intent which goes beyond the mere intent to do the act. By far the greatest part of the fabulous record piled up in the case at bar, was concerned with proving such an intent. The plaintiff was seeking to show that many transactions, neutral on their face, were not in fact necessary to the development of "Alcoa's" business, and had no motive except to exclude others and perpetuate its hold upon the ingot market. Upon that effort success depended in case the plaintiff failed to satisfy the court that it was unnecessary under § 2 to convict "Alcoa" of practices unlawful of themselves. The plaintiff has so satisfied us, and the issue of intent ceases to have any importance; no intent is relevant except that which is relevant to any liability, criminal or civil: i.e. an intent to bring about the forbidden act. Note 59 on page 226 of United States v. Socony-Vacuum Oil Co., supra (310 U.S. 150), on which "Alcoa" appears so much to rely, is in no sense to the contrary. Douglas, J. was answering the defendants' argument that, assuming that a combination had attempted to fix prices, it had never had the power to do so, for there was too much competing oil. His answer was that the plan was unlawful, even if the parties did not have the power to fix prices, provided that they intended to do so; and it was to drive home this that he contrasted the case then before the court with monopoly, where power was a necessary element. In so doing he said: "An intent and a power * * * are then necessary," which he at once followed by quoting the passage we have just ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.