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UNITED STATES v. ALCOA

June 2, 1950

UNITED STATES
v.
ALUMINUM CO. OF AMERICA et al.



The opinion of the court was delivered by: KNOX

Procedural History and Applicable Law

The procedural history of this litigation- spreading as it does over a period of thirteen years- is such as to entitle it to be designated as a res nova in anti-trust law enforcement. Notwithstanding the antiquity of the action, the issues involved must be determined in accordance with the more recently established anti-trust principles, and not by those that were well recognized in an earlier day. In order to find solutions to the novel questions presented, my first effort must be directed to the ascertainment of the current interpretations of the anti-trust statutes as they apply to the facts revealed by this record.

 The start of the action was on April 12, 1937, when the Government filed a petition charging defendant, Aluminum Company of America, hereinafter referred to as Alcoa, with monopolizing interstate and foreign commerce, particularly in the manufacture and sale of 'virgin' aluminum ingot.

 The trial got under way on June 1, 1938, and continued without much interruption until August 14, 1940. Thereafter, on September 30, October 1, 2, 3, 4, 6, 7, 8, 9 and 10, 1941, Judge Caffey delivered his opinion from the bench, finding in all respects for the defendant, 44 F.Supp. 97. On July 23, 1942, he entered judgment, dismissing the complaint on the merits.

 The Government appealed to the Supreme Court of the United States but, due to the absence of a qualified quorum in that Court, the case was certified to the Court of Appeals for the Second Circuit, 1944, 322 U.S. 716, 64 S. Ct. 1281, 88 L. Ed. 1557, in which tribunal full appellate review was vested by Act of Congress 58 Stat. 272, Act June 9, 1944, 15 U.S.C.A. 29.

 The Court of Appeals rendered its opinion on March 12, 1945, 2 Cir., 148 F.2d 416. The result below was affirmed in part, and in part reversed. Alcoa, the court held, had exercised an unlawful price 'squeeze' in aluminum sheet, 148 F.2d at pages 437-438- a matter not presently of concern- and also had illegally monopolized the aluminum ingot market within the stricture of Section 2 of the Sherman Act, 15 U.S.C.A. 2. However, no relief against the latter offense was then decreed.

 This was prompted by the uncertainties that then surrounded the post-war aluminum industry, and which were occasioned by the existence of large and important aluminum facilities that had been constructed to meet metal emergencies of the late war, and which were in the ownership of the United States. The Surplus Property Act of 1944, 58 Stat. 765, 50 U.S.C.A.Appendix, 1611 et seq., directed that these facilities be disposed of in such manner, and with such purpose, as would foster competitive conditions in the aluminum industry of the nation.

 Inasmuch as the disposal program, at the time of the decision of the appellate court had not yet been undertaken, the court took the view that the pronouncement of remedial measures should be withheld until such time as would enable this Court to evaluate the effects of the disposal program of the War Assets Administration. In this connection, the court said:

 'It is as idle for the plaintiff to assume that dissolution will be proper, as it is for 'Alcoa' to assume that it will not be; and it would be particularly fatuous to prepare a plan now, even if we could be sure that eventually some form of dissolution will be proper. Dissolution is not a penalty but a remedy; if the industry will not need it for its protection, it will be a disservice to break up an aggregation which has for so long demonstrated its efficiency. The need for such a remedy will be for the district court in the first instance, and there is a peculiar propriety in our saying nothing to control its decision, because the appeal from any judgment which it may enter, will perhaps be justiciable only by the Supreme Court, if there are then six justices qualified to sit.' 148 F.2d at page 446.

 Thereafter, the Court of Appeals expressed itself more specifically. This occurred when a mandamus proceeding instituted by the Government challenged the conformity of the judgment entered by the District Court to the mandate issued by the appellate tribunal. United States v. District Court for S.D.N.Y., 2 Cir., 1948, 171 F.2d 285. The appellate court then spoke as follows:

 ' * * * the article as a whole conforms with our mandate, in which we tried to make it plain that the final judgment must secure the establishment of those 'competitive conditions' which the Anti-Trust Acts, 15 U.S.C.A. 1 et seq., demand. Dissolution is one remedy which may be necessary to that end; and in any event it will not depend upon the single issue whether 'Alcoa' at the time of the judgment shall have a monopoly of the ingot market. On the contrary, it will depend upon what it 'Alcoa's' position in the industry at that time: i.e., whether it must be divided into competing units in order to conform with the law. The continuance of the monopoly in ingot aluminum may in the court's judgment be enough to justify dissolution; but its absence will forbid neither dissolution, nor any other remedy.' 171 F.2d at 286.

 Thus, the crucial issue before me is the need for a remedy in terms of the existence of competitive conditions conforming to law. In determining the specific criteria applicable to ascertaining this need, one possible standard is whether Alco's present situation, notwithstanding all that has happened since 1945, is still violative of the Sherman Act, 15 U.S.C.A. 1-7, 15 note. Another is that competitive conditions, i.e. 'effective competition' may not exist even though the Sherman Act were not violated, because of Alcoa's stronger market position in relation to its competitors.

 A third alternative rests on the proposition that dissolution decrees, in order to prevent the recurrence of condemned conditions, have reduced offenders to market positions quite below those which might be considered violative of the anti-trust laws. Accordingly, if Alcoa now occupies a market position substantially stronger than that which the largest fraction of the company would have been assigned if dissolution had been ordered immediately following the trial, it would mean that 'effective competition' does not presently exist.

 It is difficult fully to reconcile the third alternative with the language of the Court of Appeals in 1945. The court then said that dissolution may not be necessary to protect the industry, not that the protection of the industry is only accomplished by the equivalent of dissolution having occurred. Nor does the 1948 opinion suggest that Alcoa must still be in violation of the Sherman Act in order that remedial action be taken against it. The court observed that the absence of monopoly will not necessarily forbid dissolution. Neither of the previous two alternatives are necessarily compatible with Section 4 of the Sherman Act, the purpose of which is to require the district courts to 'prevent and restrain such violations' of the Act. Rather, they are simply ad hoc criteria for determining the sole issue which is the existence of 'effective competition,' which will insure lawful market conditions throughout the foreseeable future.

 The precise ingredients of 'effective competition' cannot be said to have been a static concept under the Sherman Act. Their applications, as well as their implications, have varied with changes in judicial thought with respect to economic and legal philosophies. Recent precedents, unfortunately, but as is usual, have fallen short of definite specifications as to the requirements of 'effective competition.' But, by examining the prior law and theory which have evolved in relation to both substantive violations, and the purposes of the remedy under the Sherman Act, it is perhaps possible to formulate a more or less concrete delineation of the standards that should be met in seeking a just decision upon the complicated facts of this case.

 In considering the substantive offense of monopolization under Section 2 of the Sherman Act, a marked development in the application of the anti-trust laws has been the diminishing significance attributable to the presence of actually abusive practices in the exercise of a corporation's market power. Courts formerly looked to an overt misuse of a defendant's dominant competitive position as a sine qua non of illegality. But this in no longer true. The more recent authoritative precedents indicate that the mere existence of what is denominated 'monopoly power,' irrespective of its exercise, may be the focal element that will resolve the outcome of a particular suit.

 Thirty years ago, Judge McKenna, in United States v. U.S. Steel Corp., 1920, 251 U.S. 417, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121, took occasion to say:-'The corporation is undoubtedly of impressive size, and it takes an effort of resolution not to be affected by it or to exaggerate its influence. But we must adhere to the law, and the law does not make mere size an offense. It, we repeat, requires overt acts, and trusts to its prohibition of them and its power to repress or punish them. It does not compel competition, nor require all that is possible.' 251 U.S.at page 451, 40 S. Ct.at page 299, 64 L. Ed. 343, 8 A.L.R. 1121,.

 The changing attitude of judicial opinion was reflected by Justice Cardozo in United States v. Swift & Co., 1932, 286 U.S. 106, 52 S. Ct. 460, 76 L. Ed. 999. He took note of the potential for abuse which underlies the possession of sizeable market power. 'Mere size, according to the holding of this court, 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.' 286 U.S.at page 116, 52 S. Ct.at page 463, 76 L. Ed. 999.

 In this present suit, Judge Learned Hand demonstrated that the requirement of abusive practices in addition to that of monopoly power is inconsistent with the long established rule declaring that price fixing agreements are illegal per se. United States v. Trenton Potteries Co., 1927, 273 U.S. 392, 47 S. Ct. 377, 71 L. Ed. 700, 50 A.L.R. 989; United States v. Socony-Vacuum Oil Co., 1940, 310 U.S. 150, 60 S. Ct. 811, 84 L. Ed. 1129. From his reasoning, as quoted with approval in American Tobacco Co. v. United States, 1946, 328 U.S. 781, 813, 66 S. Ct. 1125, 90 L. Ed. 1575, an incident of monopoly is the power, necessarily exercised, to fix prices.

 '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.' United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 427-28.

 Moreover, Judge Hand declared that another indicium of the monopolization of an industry, is the power to exclude competitors. He answered the question left undecided in United States v. Pullman Co., D.C.E.D. Pa. 1943, 50 F.Supp. 123, 126, viz., ' * * * whether a violation of the Sherman Act is involved where a business enterprise * * * has acquired the sole possession of the field by absorption, in nonpredatory fashion, of all of its competitors.'

 Judge Hand's point of view was approved by the Supreme Court when it quoted him as follows: ' * * * we can think of no more effective exclusion than 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 maneuvers 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.' American Tobacco Co. v. U.S., 1946, 328 U.S. 781, 814, 66 S. Ct. 1125, 1141, 90 L. Ed. 1575; U.S. v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 431.

 The American Tobacco case summarized the currently controlling principles of monopoly litigation: 'The authorities support the view that the material consideration in determining whether a monopoly exists is not that prices are raised and that competition actually is excluded but that power exists to raise prices or to exclude competition when it is desired to do so.' 328 U.S.at page 811, 66 S. Ct.at page 1139, 90 L. Ed. 1575.

 As I understand the foregoing language, it means that the mere existence of monopoly power, though not exercised abusively, is some indication of illegality. A violation of the statute will come to completion if the defendant has nothing more than a purpose or intent to exercise the power, American Tobacco Co. v. United States, 1946, 328 U.S. 781, 66 S. Ct. 1125, 90 L. Ed. 1575; United States v. Griffith, 1948, 334 U.S. 100, 68 S. Ct. 941, 92 L. Ed. 1236, but as the cases show, a 'purpose or intent' is present if the acquisition or retention of the power comes about as a consequence of defendant's conduct or business arrangements. United States v. Griffith, 1948, 334 U.S. 100, 105-107, 68 S. Ct. 941, 945, 92 L. Ed. 1236; United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416. In considering the matter of monopoly power, two ingredients are of outstanding significance: viz., the power to fix prices and the power to exclude competitors.

 Concurrent with this modification regarding the substantive law, a reinterpretation of Section 4 of the Sherman Act has amplified the purpose of the remedy. When the offense consisted of the unlawful exercise of power, the purpose of the remedy was to inhibit the potential for abuse, and the need for a remedy was determined by the likelihood of recurrence of abusive practices. In the situation where monopoly power had been unlawfully acquired, followed by a substantial period of voluntary forbearance from abuse of power, remedial measures were held inappropriate. The abandonment of abuse was a sufficient indication of future lawful behavior to permit unlawfully acquired power to remain unmolested. United States v. American Can Co., D.C.D. Md. 1916, 230 F. 859; United States v. U.S. Steel Corp., 1920, 251 U.S. 417, 40 S. Ct. 293, 64 L. Ed. 343, 8 A.L.R. 1121; Contra: United States v. International Harvester Co., D.C.D. Minn. 1914, 214 F.987.

 The culmination of this view was reached in United States v. International Harvester Co., 1927, 274 U.S. 693, 47 S. Ct. 748, 71 L. Ed. 1302. With a procedural setting closely approximating that involved in the instant case, the Court found the existence of 'effective competition' notwithstanding that defendant enjoyed 64 per cent of the trade in harvesting machines, and had capital and resources in excess of the aggregate of its competitors. Nor did it matter that the competitors of Harvester were accustomed to follow the prices set by the latter. The factor of significance was that defendant had not engaged in price cutting or other abuses of its power, and upon this rested the refusal to enlarge the remedies applied to Harvester.

 When the change in substantive emphasis from 'abuse' to 'power' is coupled with the new doctrine presently governing the application of the remedy, it will be seen that the International Harvester case of 1927 must be relegated to a now discarded stage of legal development.

 The opinion of Judge Learned Hand in the case of United States v. Corn Products Refining Co., D.C.S.D.N.Y. 1916, 234 F. 964, clearly indicated that if the mere existence of monopoly power were the prime factor for inquiry, such criterion would necessarily affect the choice of remedy to be applied. He there spoke as follows:

 ' * * * if power alone be forbidden by the statute, it can make no difference whether its results are beneficent or sinister, whether a dissolution will affect the industry to its prejudice or to its advantage, whether it will promote or depress foreign trade. * * * Such questions concern the wisdom of the act, and with it I have nothing to do if once its purpose be authoritatively declared.

 'If, on the other hand, the exercise of the power is what the statute touches, then the question arises What is practically necessary to prevent the repetition of those unfair means?' 234 F.at page 1015.

 Recent precedents do not present a factual parallel to the abandonment of an abuse situation. The latest authoritative statements regarding remedies appear in contexts wherein abusive and predatory practices continued up to the time of litigation. Nevertheless, the expansion of remedies which can be observed in these cases is general evidence that the court's functions under Section 4 should be more vigorous, more searching, and even more drastic, than those which have heretofore been applied.

 The latest remedy cases indicate two modifications of earlier judicial pronouncements, one practical, the other theoretical. On the practical side they show that courts are less likely than formerly to be impressed by evidence which tends to establish that defendants who have violated the Sherman Act in the past will not do so in the future. On the theoretical side, a rule has been formulated which, when applied, will serve to deprive defendants of the fruits of their wrongdoing. This, no doubt, is an outgrowth of an awareness that strong measures are required to restrain a tendency to recidivism.

 The first reflection of a closer scrutiny to restrain any such tendency appears in United States v. Swift & Co., 1932, 286 U.S. 106, 52 S. Ct. 460, 76 L. Ed. 999. In that case, the defendant sought to be relieved of a consent decree provision entered against it in 1920 which forbade it from engaging in the wholesale or retail grocery business. In denying the relief Justice Cardozo said:

 'Size and past aggression induced the fear in 1920 that the defendants, if permitted to deal in groceries, would drive their rivals to the wall. Size and past aggressions leave the fear unmoved today.' 286 U.S.at page 117, 52 S. Ct.at page 463, 76 L. Ed. 999.

 The opinion in United States v. Crescent Amusement Co., 1944, 323 U.S. 173, 65 S. Ct. 254, 89 L. Ed. 160, further emphasized the need of a practical approach towards the possibility of the return to improper conduct on the part of a monopolist. It also enunciated the 'fruits' doctrine. Defendant having been found in that case to have conspired to restrain and monopolize trade in the exhibition of motion pictures, was prohibited from acquiring additional theatres without a showing that competition would not thereby be unreasonably restrained, and was ordered to divest itself of the stock of certain affiliated corporations. The Court said:

 'The pattern of past conduct is not easily forsaken. Where the proclivity for unlawful activity has been as manifest as here, the decree should operate as an effective deterrent to a repetition of the unlawful conduct and yet not stand as a barrier to healthy growth on a competitive basis.' 323 U.S.at page 186, 65 S. Ct.at page 261, 89 L. Ed. 160.

 'Those who violate the Act may not reap the benefits of their violations and avoid an undoing of their unlawful project on the plea of hardship or inconvenience. That principle is adequate here to justify divestiture of all interest in some of the affiliates since their acquisition was part of the fruits of the conspiracy.' 323 U.S.at page 189, 65 S. Ct.at page 262, 89 L. Ed. 160.

 At first glance, United States v. National Lead Co., 1947, 332 U.S. 319, 67 S. Ct. 1634, 91 L. Ed. 2077, appears as a step that backs away from the Crescent case. The Court held that the National Lead Co. and the duPont Co. were acting in unlawful restraint of trade by virtue of a patent pool and related agreements. The Court refused to order divestiture of any of defendant's plants even though they may have been acquired or used incidentally or relative to the agreements. The Court said:

 'It is not for the courts to realign and redirect effective and lawful competition where it already exists and needs only to be released from restraints that violate the antitrust laws. To separate the operating units of going concerns without more supporting evidence than has been presented here to establish either the need for, or the feasibility of, such separation would amount to an abuse of discretion.' 332 U.S.at page 353, 67 S. Ct.at page 1650, 91 L. Ed. 2077.

 In the following year, however, the Supreme Court made a clear declaration as to the purpose to be served by an anti-trust remedy. In Schine Theatres v. United States, 1948, 334 U.S. 110, 68 S. Ct. 947, 92 L. Ed. 1245, after finding that defendants had conspired to restrain and monopolize trade in the exhibition of motion pictures, the Court held that an injunction against future violations was an insufficient remedy. Without divestiture the defendants 'could retain the full dividends of their monopolistic practices and profit from the unlawful restraints of trade which they had inflicted on competitors.' 334 U.S.at page 128, 68 S. Ct.at page 957, 92 L. Ed. 1245.

 Divestiture, like restitution, had the purpose of depriving a defendant of the gains of his wrongful conduct. The National Lead case was distinguished on the ground that ' * * * there was no showing that the plants sought to be divested were either unlawfully acquired or used in a manner violative of the antitrust laws.' 334 U.S.at page 128, 68 S. Ct.at page 957, 92 L. Ed. 1245.

 In United States v. Paramount Pictures, 1948, 334 U.S. 131, 68 S. Ct. 915, 92 L. Ed. 1260, the Court indicated that divestiture is warranted where the acquisitions were the fruits of monopolistic practices or restraints of trade, or if lawfully acquired, they were utilized as part of a conspiracy to eliminate or suppress competition in furtherance of the ends of the conspiracy. The propriety of divestiture, it seems, is to be determined by the relationship of the unreasonable restraints of trade to the position of the defendant in the market.

 That a new principle has been injected into the interpretation of Section 4 of the Sherman Act is amply demonstrated by the following comparison. The purpose of the remedy in an anti-trust suit was initially defined in Standard Oil Co. of New Jersey v. United States, 1911, 221 U.S. 1, 78, 31 S. Ct. 502, 523, 55 L. Ed. 619, 34 L.R.A.,N.S., 834, Ann. Cas. 1912D, 734

 '1st. To forbid the doing in the future of acts like those which we have found to have been done in the past which would be violative of the statute. 2d. The exertion of such measure of relief as will effectually dissolve the combination found to exist in violation of the statute, and thus neutralize the extension and continually operating force which the possession of the power unlawfully obtained has brought and will continue to bring about.'

 The same thoughts were expressed in the Schine case, but the 'fruits' theory was added. Divestiture or dissolution, it was said, serves several functions:

 '(1) It puts an end to the combination or conspiracy when that is itself the violation. (2) It deprives the antitrust defendants of the benefits of their conspiracy. (3) It is designed to break up or render impotent the monopoly power which violates the Act.' Schine Chain Theatres v. United States, 1948, 334 U.S. 110, 128-129, 68 S. Ct. 947, 957, 92 L. Ed. 1245.

 It is clear from the last function enumerated in the Schine case and, as heretofore suggested, that a satisfactory starting point in this remedy phase is an inquiry into the existence of monopoly power. Such power, if found to exist, must be reduced to impotence. To further the detection of monopoly power, attention must also be given to recent cases which discuss the facts that indicate its presence. These cases must be understood as defining monopoly power for purposes of finding violations of the Sherman Act in the first instance.

 Two basic signs of monopoly power are size and vertical integration. In a short-hand summary of the law, Judge Hand, in this case, said: 'That percentage (90%) 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.' United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 424.

 The most recent and authoritative statement as to what constitutes unlawful size and market domination is contained in the opinion which decided United States v. Columbia Steel Co., 1948, 334 U.S. 495, 68 S. Ct. 1107, 92 L. Ed. 1533. The issue involved therein was the propriety under the Sherman Act of the acquisition by the United States Steel Corporation of the Consolidated Steel Corporation. The latter company was a fabricator of rolled steel. The merger was opposed on two grounds: 1) that it unlawfully reduced competition by diminishing the market of those competitors of United States Steel who produced rolled steel, and 2) that it unlawfully reduced United States Steel's competition in the fabricated steel market. The Court found against the government on both grounds. In what was designated as the Consolidated Steel market area, the acquisition by United States Steel was said to reduce demand for rolled steel from United States Steel's competitors by only three per cent. In the same market, but considering fabricated steel production, the acquisition by United States Steel would increase the latter's percentage control from 13 to 24 per cent. The Court set out the following guide for determining the propriety of the merger:-

 'In determining what constitutes unreasonable restraint, we do not think the dollar volume is in itself of compelling significance; we look rather to the percentage of business controlled, the strength of the remaining competition, whether the action springs from business requirements or purpose to monopolize, the probable development of the industry, consumer demands, and other characteristics of the market. We do not undertake to prescribe any set of percentage figures by which to measure the reasonableness of a corporation's enlargement of its activities by the purchase of the assets of a competitor. * * * The relative effect of percentage command of a market varies with the setting in which that factor is placed.' 334 U.S.at pages 527-528, 68 S. Ct.at page 1134, 92 L. Ed. 1533.

 But, in the background of the Columbia Steel case lurks the fact that United States Steel controlled 51 per cent of the rolled steel and ingot capacity in the market therein considered. Moreover, Columbia Steel was a case presenting the issue of permissibility of merger. It is not unreasonable to suggest that a court may act more readily to keep apart what has never been joined together, than to dismember an existing entity which, in general, has well served the public.

 If a percentage control of the market is viewed, not as a short cut to decision, but rather as a short-hand expression of power when evaluating resources, trade, and the nature of the market, it can be said that Columbia Steel is not inconsistent with the summary guide announced by Judge Hand.

 Vertical integration is simply a particular of size. As viewed in United States v. Paramount Pictures, Inc., 1948, 334 U.S. 131, 68 S. Ct. 915, 92 L. Ed. 1260, it is a relevant consideration in ascertaining monopoly power.

 'Likewise bearing on the question whether monopoly power is created by the vertical integration, is the nature of the market to be served. * * * , and the leverage on the market which the particular vertical integration creates or makes possible.' 334 U.S.at page 174, 68 S. Ct.at page 937, 92 L. Ed. 1260.

 But it was left to the Supreme Court in the Columbia Steel case to reasure that the Sherman Act took cognizance of the economic needs and organization of American industry. The fact that a subsidiary will in all probability deal only with the parent for goods the parent can furnish does not make the acquisition of such subsidiary unlawful. But,

 ' * * * When other elements of Sherman Act violates are present, the fact of corporate relationship is material and can be considered in the determination of whether restrain or attempt to restrain exists.' United States v. Columbia Steel Co., 1948, 334 U.S. 495, 523, 68 S. Ct.at page 1122, 92 L. Ed. 1533.

 ' * * * vertical integration as such without more, cannot be held violative of the Sherman Act. * * * the extent of permissible integration must be governed, as other factors in Sherman Act violations, by the other circumstances of individual cases. Technological advances may easily require a basic industry plant to expand its processes into semi-finished or finished goods so as to produce desired articles in greater volume and with less expense.

 ' * * * no direction has appeared of a public policy that forbids, per se, an expansion of facilities of an existing company to meet the needs of new markets of a community, whether that community is nationwide or county-wide. * * * If businesses are to be forbidden from entering into different stages of production that order must come from Congress, not the courts.' 334 U.S.at page 525-526, 68 S. Ct.at page 1123, 92 L. Ed. 1533.

 The conclusion is inescapable, for the Columbia Steel decision, that the possession of monopoly power is something other than the status in a market of a dominant firm. The dominant firm may have neither the power to exclude competitors, nor the power to fix prices.

 If Alcoa should be found, in this proceeding, to possess monopoly power, as above defined, it is not necessary that a purpose or intent to exercise such power also be found to exist in order to justify this Court in granting relief to the Government. In this respect, the doctrine now governing the application of remedies imposes a different standard than would be requisite in determining illegality in the first instance. On the practical side, the mere existence of monopoly power is instinct with the threat of future violations. On the theoretical side, it seems proper to consider monopoly power the fruit of an unlawful monopolization and, as such, provide that it be rendered impotent. However, when dealing with an integrated monopolizer, the 'fruits' rule cannot literally be applied. A court cannot blindly divest particular ill-gotten gains without viewing constructively the creation of competitive units. Therefore, the power itself, and not the specific elements thereof, must sometimes be viewed as the 'fruit.'

 Nevertheless, reliance upon the existence of monopoly power, as defined by Sherman Act violations, even without the requirement of purpose or intent to exercise that power does not permit as searching as inquiry as the remedy phase demands. This Court must provide against the reasonable expectation of the resumption of future unlawful conditions. United States v. United States Alkali Export Ass'n, D.C.S.D.N.Y. 1949, 86 F.Supp. 59, 81; United States v. Standard Register Co. D.C.D.C. 1947, 7 F.R.D. 287. To a certain extent, this function is accomplished by the rule which requires all doubts regarding remedies to be resolved in favor of the Government, and against an adjudged monopolist. Hartford Empire Co. v. United States, 1945, 323 U.S. 286, 409, 65 S. Ct. 373, 89 L. Ed. 322; United States v. Bausch & Lomb Co., 1944, 321 U.S. 707, 726, 64 S. Ct. 805, 88 L. Ed. 1024. But, it is not fully satisfied unless this Court investigates present power potentials with a view to their propensities under reasonably foreseeable market conditions. The existence of monopoly power in a de novo proceeding contemplates only the present power to fix prices or exclude competitors. But in a remedy proceeding, it is enough to justify relief that this Court can reasonably predict that monopoly power will probably arise in a discernable future market. As an example, if it can now be said that Alcoa shall have monopoly thrust upon it under reasonably predictable market developments because of the economic collapse of a competitor or competitors, remedial action is appropriate.

 The criteria applicable to this case as above described necessitate two basic inquiries: (1) whether competitors flourish, and the extent to which they flourish, and whether they do so at the sufferance of Alcoa; (2) whether a forseeable change in market conditions can secure an alteration in Alcoa's present condition, either by expansion where any competitor can not, or by perseverance where any competitor would fall.

 In determining the extent of permissible power that is consistent with the anti-trust laws in a particular industry, the following factors are relevant: the number and strength of the firms in the market; their effective size from the standpoint of technological development, and from the standpoint of competition with substitute materials and foreign trade; national security interests in the maintenance of strong productive facilities, and maximum scientific research and development; together with the public interest in lowered cost and uninterrupted production.

 The inquiry into power, however, does not wholly resolve the issues. An examination into the intent of defendant is an equally apt indicium to predict consequences. See Appalachian Coals, Inc. v. United States, 1933, 288 U.S. 344, 372, 53 S. Ct. 471, 77 L. Ed. 825. Thus, when results fall short of a violation of the Sherman Act, a finding as to the specific intent of the defendant may convert the conduct into a violation. United States v. Columbia Steel Co., 1948, 334 U.S. 495, 525, 68 S. Ct. 1107, 92 L. Ed. 1533; United States v. Griffith, 1948, 334 U.S. 100, 105, 68 S. Ct. 941, 92 L. Ed. 1236; Swift & Co. v. United States, 1905, 196 U.S. 375, 396, 25 S. Ct. 276, 49 L. Ed. 518. But here, no specific intent need by shown. It is for Alcoa to dispel any inference of 'innate proclivity' for unlawfulness arising from its past adjudication of monopoly. Relevant thereto is the extent to which Alcoa achieved its past monopoly not so much by predatory, unfair, or vicious trade practices, in knowing violation of the law, but by the more restrained expedient of preempting business opportunities in advance of potential competitors, formerly of much more doubtful illegality. Alcoa must convince, as evidenced by the developments during the period now under review, not only that its ability to monopolize has been dissipated, but its intent to do so similarly abated. For only in such event can the duty to safeguard against future violations be discharged.

 Even yet, there remains a further inquiry. Remedial action is justified even though defendant retains no vestige of power, or intent, to obtain monopoly, where a relationship exists between defendant and any one or more of its competitors which materially inhibit free competition. Thus, any agreement, conspiracy, or understanding which in any way retards the restoration of competitive conditions to this market must be carefully scrutinized by this Court, and, if its effects be found to prejudice the public interest, undone.

 Issue has been joined upon two petitions presently before me. The first, filed by Alcoa on March 31, 1947, (and subsequently amended and supplemented) asks for a decree that the company has ceased to monopolize the aluminum ingot market and that, in consequence, in such market, effective competitive conditions now prevail. The Government filed its petition on September 24, 1948. It avers that Alcoa continues its monopolization of the market and that, in order to restore competitive conditions, Alcoa should be divested of such of its properties as will accomplish this purpose; and that the United States may have such other relief as they are entitled to receive.

 Trial of the issue was begun on March 28, 1949, and continued through April 28th of that year. The trial was resumed on October 4, and proceeded to November 9, 1949. Additional proof was taken on January 16, 1950.

 The discussion that follows, unless otherwise indicated therein, is an attempt to reflect the situation in the aluminum industry as it existed as of September 30, 1949. Little data of probative force was thereafter available. After oral argument in early February of this year, the case was submitted for decision.

 Description of the Stages of Production in the Aluminum Industry

 In any effort to describe Alcoa's present competitive position, attention must be given to the entire structure of the aluminum industry. Essentially, there are four principal stages of production, (1) mining the ore known as bauxite; (2) the separation therefrom of its aluminum oxide content; (3) the removal of oxygen from the aluminum oxide, which results in a residue of virgin aluminum; and (4) the fabrication therefrom, with, in some cases, certain alloys, of useful products.

 (1) In addition to aluminum oxide, bauxite contains quantities of silica and iron. In some places, the ores is found on the earth's surface; at others, it is underground and must there be mined. While it is possible to manufacture aluminum from certain other materials, present day commercial manufacture is limited exclusively to the use of bauxite. High-grade bauxite contains at least 55% aluminum oxide, and no more than 7% of silica. Low-grade bauxite contains more silica and less aluminum oxide. The less silica, or the more aluminum oxide, the more desirable is the ore.

 (2) Aluminum oxide is also know as alumina. A process, called Bayer, is employed in the extraction of alumina from bauxite. This process consists of grinding ore into relatively small particles and then dissolving them by the application of a caustic, whereupon the alumina settles out and is dried. The patent on the Bayer process expired in 1903.

 In order to separate alumina from low-grade bauxite at commercially practicable costs, it is also necessary to employ the so-called lime-soda-sinter process, on which Alcoa holds patents presently in force. This process recovers the alumina out of the 'red mud' which is a waste product of the Bayer process. By the use of these patents, alumina can be economically produced from ores containing as high as 20% silica.

 For both high and low grade bauxites, one pound of dried ore produces approximately .45 pounds of alumina. If the ore is undried, one pound yields approximately .39 pounds of alumina. The factories in which there operations are conducted are called alumina plants.

 (3) The next step in production is to separate oxygen from alumina. This is accomplished by means of the well-known Hall process, the patent on which expired in 1906. Judge Caffey described that process as follows:

 'The Hall process may be described briefly as the electrolytic decomposition of alumina in a fused bath. Its essential feature is putting oxide (alumina) into solution in a fused bath and passing an electric current through the mixture. The bath consists of melted cryolite, which is more resistant to decomposition by electrolysis than is alumina. Cryolite is also lighter than aluminum so that when the aluminum and oxygen of the alumina are separated by the electrolytic action the aluminum sinks to the bottom of the crucible or reduction pot, where it may be tapped off.' (Finding of Fact No. 27).

 The electolysis is performed in large pots, arranged in rows, called 'potlines'. The structures that house the potlines are known as reduction plants.

 In the process of reduction, the pots consume enormous quantities of electricity, and also, large amounts of carbon. Roughly, 10 kilowatt hours of electricity, 2 pounds of alumina, and three-quarters of a pound of carbon are required to produce one pound of aluminum.

 A further feature of aluminum production is that the pots must be operated continuously, 24 hours a day. If the power be shut off, the cryolite freezes into a soft rock. It is a difficult and expensive operation to rehabilitate a pot that becomes frozen. However, it is necessary, every one or two years, to close down a pot in order to replace its carbon lining, the partial consumption of which gradually occurs in the reduction operation.

 (4) Aluminum products are fabricated out of either 'pig' or 'ingot'. Unfortunately, the terms 'pig' and 'ingot' do not have a single connotation within the industry, though these names are widely used. I shall denote as pig- and also as primary aluminum- the aluminum which issues from the reduction pot. Almost invariably, this is 'virgin pig', that is, pig to which no alloys have been added. Virgin pig contains impurities, inasmuch as any impurities in the reduction pot, whether from alumina, cryolite, or carbon, will appear in the pig. Sometimes, alloying materials are added to the reduction pot, the resulting aluminum being known as alloy pig. The development of aluminum alloys has greatly extended the uses for which the metal is suitable. Virgin ingot is virgin pig either remelted and poured, or carried directly from the reduction pot to a large holding furnace, from which it is subsequently withdrawn. These operations give ingot a greater uniformity of composition than pig. Alloy ingot is frequently produced by remelting virgin pig along with alloying ingredients. Alloys are of two sorts- ordinary and hard- the latter being subjected to a special heat treatment.

 There are only a few basic mill products from which the ultimate fully fabricated articles are derived. Various mills employ different processes and, accordingly, utilize ingots of sizes and forms best suited to the treatment to be received.

 Aluminum sheet and plate are produced by rolling processes which operate on the metal both when it is heated and when it is cold. Additional rolling of sheet produces foil, which is actually a very thin sheet.

 Rod, bar, and structural shapes also evolve from a rolling process, but the rolls have grooves which impart a particular shape to the ingot. Wire is made by drawing cold rod through dies of smaller diameter, and the stranding of the wire, sometimes around a reinforcing core, results in cable.

 The extrusion process permits the manufacture of shapes not possible by other operations. Extrusions are made by placing heated ingot in an enclosed cylinder of a powerful press and forcing the metal under high pressure through a die opening at the end of the cylinder. Tubing is produced by this process.

 Numerous kinds of closed-end containers are made by a process called impact extrusion. The essence of the operation is to strike an aluminum slug, located in a cup-shaped die, with a sufficiently powerful single blow that will force the metal up between the punch and the die to form the desired article.

 Aluminum is forged by two processes. Either the heated metal is hammered into shape, or, in press forging, by squeezing it into appropriate contours.

 The casting of aluminum is accomplished in three ways. The metal may be poured into sand molds. This is used when large and intricate products are desired, but in relatively small quantities. The permanent mold method employs metal molds in which the aluminum is poured. It yields an unusually sound and strong product, and is widely used. In die casting, the metal is forced into the die under pressure. This gives a high degree of dimensional accuracy to the product, as well as an excellent finish which requires little or no further processing. This method is used for small articles that are desired in considerable numbers.

 From the products of these basic mill operations, articles intended for ultimate consumer use may have to be fashioned by additional manufacturing steps. A conservative estimate indicates that there are today at least four thousand end uses for aluminum.

 Factual Review

 Alcoa's Position in 1940

 Prior to a consideration of facts which bear on the position of Alcoa in today's aluminum market, it is appropriate to give a brief description of the industry as it was constituted on August 14, 1940, at the close of the testimony before Judge Caffey; and against, as it was after war constructions were completed, but before the Government disposal program was formulated. It was in the latter period that the Court of Appeals handed down its decision.

 The facts as of August 14, 1940, appear in Judge Caffey's opinion 44 F.Supp. 97 in his Findings of Fact, dated July 14, 1942, as amended April 23, 1946, and in the Court of Appeals decision, 2 Cir., 1945, 148 F.2d 416. They will be summarized under five headings: (1) bauxite; (2) alumina; (3) virgin aluminum (primary); (4) fabrications; and (5) Aluminium Limited.

  (1) Bauxite: Alcoa possessed about 48% of the known domestic deposits of high-grade bauxite, being 4,898,703 long tons, which quantity 'would be exhausted within far less than eight years' at Alcoa's then rate of consumption. No estimate of the reserve of low-grade bauxite was made. Bauxite was said to have been found outside the United States in 'practically inexhaustible quantities', no estimate being made of the absolute amount, or of the percentage of Alcoa's holdings of such bauxite. Judge Caffey also found that Alcoa's bauxite holdings were not in excess of its reasonable requirements, and that Alcoa sold bauxite to all who wished to purchase it.

  (2) Alumina: Judge Caffey made no statements or findings bearing on the period 1938-1940. However, the record before him indicated that over the period from 1928 to 1937, Alcoa had produced 4,319,785,649 pounds, while within the same time, the Pennsylvania Salt Manufacturing Co.- apparently the only other domestic producer- had manufactured 86,936,884 pounds. Alcoa itself consumed during this period 3,375,474,576 pounds, and sold 778,302,127 pounds to other aluminum producers. These customers were foreign companies.

  (3) Virgin aluminum (primary): From 1909 to the date on which the evidence closed, Alcoa was the sole producer of primary aluminum in the United States. Alcoa's output was in part consumed in its own fabrications, and, in part, sold to independent fabricators. Quantitatively, the year of highest output was 1939, when production reached 327 million pounds. Percentage-wise, as against the competition offered by imports from foreign producers, Alcoa's share was reported in amended Finding of Fact 154 to be as follows:

  'The percentage of this total (Alcoa's production and imports) which was both produced and imported by Aluminum Company of America during the period from February 2, 1909, to August 14, 1940, * * * varied from a low of 67.90% in 1921 to a high of 99.99% in 1918. Except for the year 1921 and the years 1910, 1913 and 1922, when its percentage was 74.08%, 72.74% and 72.09%, respectively, its percentage was always over 80%, and, from 1934 to 1938, it averaged a trifle over 90%.'

  In addition, there was produced in the United States in the years 1935 through 1938 an annual average of 102 million pounds of secondary aluminum; that is, aluminum ingot produced by remelting scrap aluminum. The Court of Appeals held that secondary was not to be included in the base against which Alcoa's percentage of the market should be computed.

  (4) Fabrications: Judge Caffey's opinion and findings contain an extensive examination of Alcoa's position in the fabricating field. Briefly, his conclusions were to this effect: In all classes of fabrications, except aluminum cable and large rolled aluminum structural shapes, of which Alcoa was the sole fabricator, Alcoa was subject to vigorous competition from other aluminum fabricators, and it was the company's policy to encourage such competition. Aluminum cable and large structural shapes were subject to extensive competition from other metals. Alcoa was not the largest producer of any of the three types of castings, that is, sand castings, die castings, or permanent and semi-permanent mold castings, although it apparently was the largest producer of cast products as a class. There were approximately 2000 foundries engaged in the manufacture and sale of aluminum castings. In the cooking utensils line, there were 28 competitors, Alcoa's sales being considerably less than half of the total.

  The Aluminum Goods Manufacturing Co., in which Alcoa held a 26% interest, and its officers, and members of their families, held an additional 5%, and for whose Board Alcoa selected two of the six directors, was found not to have been dominated or controlled by Alcoa. This company was a large seller of cooking utensils, probably next in amount to Alcoa. As for extruded shapes, Alcoa's production averaged 84% of the domestic total in the years 1934 through 1938.

  In the field of aluminum foil, Reynolds Metals Company was the largest domestic producer. For the period 1933-1939, Alcoa averaged 47% of the United States' output, and for 1937 produced 35% of the entire United States's supply, including imported foil. As to sheet, there were seven other producers, three of whom consumed their own output, while four sold sheet on the open market. In the year 1939, the proportion of unalloyed sheet supplied by Alcoa to the market was 72%. No figures or percentages were given which indicate Alcoa's production of sheet for its own fabrication.

  (5) Aluminium Limited: In this brief description of Alcoa's position as of 1940 mention should be made of Aluminium Limited whose status has been much controverted in both the past and present proceedings. Limited is a Canadian corporation organized by Alcoa in 1928 to take over almost all of the numerous foreign properties then belonging to the latter concern. In exchange for these properties Limited issued all of its stock to Alcoa, which company distributed it to its own shareholders. Judge Caffey found that Limited was not organized with the intention that it would be controlled by Alcoa' that Limited was not dominated or controlled by Alcoa, and that no agreement or conspiracy existed between the two companies to restrain trade or fix prices, and particularly, that there was no agreement that each would not compete in the other's market. He also found that no stockholder of Alcoa ever influenced the policies or activities of Limited in favor of Alcoa, and vice versa, even though the Mellon and Davis families, if not owning between them a majority of the voting stock of both corporations, owned stock very closely approaching such a proportionate interest, and notwithstanding also, that two brothers, Arthur V. Davis and Edward K. Davis, were the Presidents of Alcoa and Limited, respectively.

  Aluminum Industry at the End of the War The important and resultant change in the aluminum industry, and which came about in the American war effort, was the erection of a number of aluminum plants that were built for the United States during the emergency period. The Government, in its petition, does not tabulate certain scrambled facilities, that is, Government-owned equipment built into privately-owned plants, certain miscellaneous establishments, including housing and power projects, and also four plants built to produce alumina from ores other than bauxite, an operation which is possible but not at competitive costs. Following the Government's example in ignoring facilities such as these, the nationally-owned aluminum establishment after the completion of war constructions was as reported in Table I. Table I -- Government Owned Aluminum Plants After the War Reported Original Cost (First Supplementary Report of WAA -- Feb. 12, 1947) Plant Location and Function (thousands of dollars) Alumina Hurricane Creek, Ark. * (1) 39,349 Baton Rouge, La. * (1) 26,363 65,712 Aluminum Reduction Jones Mills, Ark. * (1) 29,353 Troutdale, Ore. * (1) 19,387 Spokane, Wash. (Mead) * (1) 23,202 Tacoma, Wash. (1) 6,290 Maspeth, N.Y. * (2) (Navy) 32,863 Riverbank, Cal. * (2) (FWA) 11,826 Burlington, N.J. * (3) 16,716 Los Angeles, Cal. * (2) 24,493 Massena, N.Y. * (St. Lawrence) (3) 19,953 184,083 Aluminum Sheet Spokane, Wash. (Trentwood) (1) 48,376 Chicago, Ill. (McCook) * (1) 43,546 Listerhill, Ala. (1) 20,767 112,689 Aluminum Foundries Cleveland, Ohio (1) 1,938 Vernon, Cal. (1) 168 Bedford, Ind. (2) 2,766 Springfield, Mass. (2) 3,112 Dearborn, Mich. (2) 7,924 Cleveland, Ohio (2) 4,369 Kansas City, Mo. * (2) 6,270 Flint, Mich. (2) 9,017 Chicago, Ill. (2) 7,478 Lockland, Ohio (2) (War Dep't) 6,416 49,458 Aluminum Forgings Louisville, Ky. (1) 2,137 Massilon, Ohio (1) 794 Monroe, Mich. * (2) 13,875 Cannonsburg, Pa. * (2) 26,648 Saginaw, Mich. (2) 8,703 New Castle, Pa. * (2) 8,960 Anderson, Ind. (2) 4,295 Erie, Pa. (2) (FWA) 9,526 74,938 Aluminum Extrusions Grand Rapids, Mich. (1) 6,730 Phoenix, Ariz. * (1) 35,363 Cressona, Pa. * (1) 26,026 Los Angeles, Cal. (1) 8,258 Adrian, Mich. (2) 16,623 Halethorpe, Md. (3) 7,612 Louisville, Ky. (3) 6,235 106,847 Aluminum Rivets Detroit, Mich. (1) 780 Aluminum Powder Rochester, Mich. (2) 353 Webster Grove, Mich. (2) (Vet. Adm.) 379 Cleveland, Ohio (2) 1,026 Glassmere, Pa. * (3) 1,066 2,824 Aluminum Rod and Bar Newark, Ohio * (1) 23,181 Total $620,512 The record shows that between August, 1940, and early 1945, Alcoa spent slightly over 225 million dollars for additions and improvements to its own facilities. Table II is taken from Alcoa's answer to the Government's petition, and compares the company's capacity in 1940 and 1947. While the figures therein contained may not be precisely accurate, and do not necessarily reflect the present situation, the Table as a whole is a fair indication of Alcoa's wartime expansion. Table II -- Comparison of Alcoa's Capacity (in pounds) 1940 and 1947 % of Change Dec. 31, 1940 Dec. 31, 1947 1947/1940 (A) (B) (C) Alumina 1,126,000,000 1,940,000,000 72.3 Pig 490,000,000 650,000,000 32.7 Sheet 192,031,000 465,361,000 힍.3 Sand Castings 35,856,000 35,580,000 - .8 Permanent Mold Castings 47,976,000 41,100,000 - 14.3 Die Castings 10,142,000 12,943,000 27.6 Extruded Shapes 35,590,000 92,730,000 ힾ.1 Foil 14,052,000 22,800,000 62.3 Electrical Conductor Cable 63,600,000 69,600,000 9.4 Cable Accessories 1,956,000 4,200,000 흞.7 Wire, Rod, Bar and Rolled Structural Shapes 29,885,000 114,913,000 �.5 Tubing 8,773,000 51,185,000 .4 Forgings 35,214,000 39,003,000 10.8 Powder and Paste 7,688,000 7,560,000 - 1.4 Rivets 3,291,000 4,780,000 45.2 Screw Machine Products 816,000 1,080,000 32.4 Collapsible Tubes 1,512,000 1,320,000 - 12.7 Impact Extrusions and Customers Blanks 2,880,000 11,040,000 �.3 Cooking Utensils 12,000,000 16,800,000 40.0 Jobbing 5,500,000 7,400,000 34.5

  In addition to the Government's construction of aluminum facilities, and the expansion of Alcoa's plants, the period between the close of evidence before Judge Caffey, and the end of the uar, saw the entry into the industry of a new domestic producer of alumina and primary aluminum, namely, the Reynolds Metals Company.

  This organization, hereinafter referred to as Reynolds, built at Listerhill, Alabama, an alumina plant with a rated capacity of 200,000,000 pounds per year, and a reduction plant having a rated capacity of 99,750,000 pounds per annum. These plants, which went into operation in May, 1941, had a combined cost of $ 15,883,000. In September, 1941, Reynolds put into operation a reduction plant that it built at Longview, Washington, which had a rated annual capacity of 61,980,000 pounds of aluminum. This was done at a cost of $ 6,500,000. These three constructions were financed by a loan from the Reconstruction Finance Corporation, but, because of special wartime amortization privileges, they are not subjected to depreciation or amortization charges with respect to present production costs.

  Disposal Program

  At this point, it is well to pause a moment to comment upon the program for disposal of the Government aluminum properties.

  In the opinion of the Court of Appeals of March, 1945, it was stated that the Government disposal agency might believe that it could not perform its duties 'without some plan or design for the industry as a whole, some comprehensive model which shall, so far as practicable, re-establish 'free independent private enterprise,' 'discourage' monopoly, Strengthen' small competitors, 'foster' independents and not foster 'monopoly or restraint of trade."

  Furthermore, the court said that 'if the 'agency' does form a plan, it will have been an attempt to realize the same 'objectives' for which the court itself must strive; and the court may well feel that it should accord to the 'agency's' plan that presumptive validity which courts are properly coming more and more to recognize in the decisions of specialized tribunals.'

  The court, however, advised also that 'We do not of course mean that in deciding whether to dissolve 'Alcoa,' or how to do it, that court must be governed by any plan which the 'agency' may have devised, if it does devise one.' 148 F.2d 416, 446-447.

  Alcoa contends that the disposal program, as formulated and executed, was the kind of plan Judge Hand had in mind. The Government argues to the contrary.

  The program adopted contemplated that disposals were to be made to prospective competitors of Alcoa in a manner best suited to establish them in the industry. Ultimately, this involved the creation of integrated producers; the lease or sale of the available plants on terms not necessarily reflecting original cost or replacement value; undertaking alterations and other expensive engineering tasks and, in general, using the Government aluminum facilities as an instrument to create competition rather than primarily attempting to recover the Government's investment.

  The program, however, was not a plan for the industry as a whole, but merely a set of guiding principles for the disposal of the Government plants. The Surplus Property Board itself stated in its September, 1945, Report to Congress, 'Even if the Board is successful in selling some of the plants to competitors of Alcoa, this fact by itself may not satisfy the requirements of the Sherman law. It is not the province of the Board to work out a plan for the reorganization of the properties presently owned by Alcoa or to express any views on the question whether, after the completion of the Board's disposal program, Alcoa's operations will be lawful under the Sherman Act. That is a question which must be determined for the executive branch of the Government by the Attorney General and a question that will presumably be decided ultimately by the courts.' Id. at page 28.

  Thus, my conclusion must be that the disposal agency, though deserving high praise for its accomplishments, did not formulate and pursue a plan to which this Court must or should attach 'presumptive validity.' For this reason, I shall not detail in any one portion of this discussion, what has been done by the disposal agency. But such facts will incidentally appear as I review the presently existing competitive situation in the industry, and the conduct of Alcoa in regard to the formulation and execution of the Government program. The disposal agency will hereinafter be referred to as the War Assets Administration, though both before and after it was so named, it has had other appellations. See, e.g., 50 U.S.C.A.Appendix 1614a, 1614b.

  The Industry Today

  Aside from Alcoa and Reynolds, there now exists a third producer of primary aluminum in the United States. This firm is the Kaiser Aluminum and Chemical Corporation, formerly called Permanente Metals Corporation, and hereinafter referred to as Kaiser. Kaiser, along with Reynolds, has been a substantial beneficiary of the surplus property disposal program. The competitive abilities of these two firms, when compared to Alcoa, will largely determine the issues involved herein.

  It is necessary to note that the domestic aluminum industry is broader than the composite of these three integrated producers. There are thousands of firms which fabricate aluminum products in either finished or semi-finished forms. A number of these concerns can produce mill products such as sheet, foil, forgins, extrusions, wire and cable.

  Furthermore, some fifty firms are engaged in the production of secondary aluminum out of aluminum scrap.

  Moreover, to fully understand the operation of the present aluminum industry, recognition must be had of the multitude of substitute materials with which aluminum products compete. The alert adaptation of aluminum to particular uses has displaced other substances which had previously long occupied these fields. The continued growth and expansion of this industry depends on this ever widening area in which aluminum can advantageously be employed. Today, articles made from this metal compete against substitutes made from steel, copper, zinc, lead, tin, wood, textiles, plastics, paper, clay, glass, leather and cork.

  Market Position

  Commercial competition, theoretically, is the independent endeavor of two or more persons or organizations within the realm of a chosen market place, to obtain the business patronage of others by means of various appeals, including the offer of more attractive terms or superior merchandise. Practically, the conditions produced by this endeavor do not form a fixed pattern. In other words, the respective shares of a particular market that the competitors who trade therein are able to obtain do not conclusively establish the effectiveness of the competition in which they engage. The absence therefrom of a wholly dominant market operator is a fair indication that the competition between the rival concerns is a reasonable actuality. This is especially true, if the firm having the largest share of the market is losing its prime position, or is not, at least, unduly enlarging it.

  In the aluminum industry, the observable data bearing on the conditions of the post-war aluminum market are so scant, covering as they do a relatively short period of time, that they cannot be regarded as a wholly reliable basis upon which accurately to forecast the possible outcome of future competitive efforts on the parts of Alcoa, Reynolds and Kaiser.

  The year 1946 must be recognized as the period within which the industry was returned to peacetime activity. Although Reynolds first began the production of primary aluminum in 1941, the Government facilities acquired by that company, and by Kaiser, were not put into normal operation until 1946 was well under way. Until that time, Alcoa retained unquestioned dominance. Consequently, conditions prevailing in 1946 can be of but slight aid in reaching a conclusion as to what competitive factors will determine the market design of the future.

  The operations of Reynolds and Kaiser in the years 1947 and 1948, and the first nine months of 1949, for which some statistical information is at hand, provide the more valuable guides for appraising the competitive strength which Reynolds and Kaiser will hereafter be able to exert against the present power of Alcoa. These statistics, nevertheless, do not fully reveal the situation in which the three companies no find themselves. And, in order to prognosticate future conditions, inferences must be drawn from the resources available to the respective producers, rather than from their presently known operations in the market.

  In ascertaining market position three fundamental inquiries arise: 1) what constitutes the market; 2) what are the competitive elements in the market; 3) what aspect of the market, when measured, most precisely indicates the relative position of the competitors.

  1) The market: A delimitation of the market, in and of itself, may sometimes determine the outcome of anti-trust litigation. The reversal by the Court of Appeals of Judge Caffey's decree in this case is illustrative. The present structure of the aluminum industry- three primary producers with twice as much fabricating capacity as reduction resources, plus a multitude of independent non-integrated fabricators, plus numerous independent secondary smelters- makes it difficult to fix the actual boundaries of the market. Logically, it may appear that in a case in which monopolization of the primary aluminum market has been adjudicated, the market in that commodity should be taken as the focal point. But, for the most part, primary aluminum is handled in two ways- much of it is utilized by the producer in his own fabrications; the remainder, to a large extent, is sold to non-integrated manufacturers. Sales for export, or to the United States for stockpiling, comprise but a small fraction of production, and will hereafter be discussed. Thus, the market price of primary is determined, in the main, by such sales of primary as are made to non-integrated fabricators. The evidence shows that Alcoa supplies these fabricators with 82% of the domestic primary. (See Table III.) Table III Supplying the Non-Intergrated Fabricators: Sales of Primary Aluminum of the Domestic Integrated Producers* Alcoa Reynolds /000 lbs. % $/000 % /000 lbs. % $/000 % 1947 171,934 88 25,519 90 16,754 9 2,009 7 1948 185,650 85 28,899 86 22,268 10 3,030 9 1949 (first nine months) 92,926 82 16,205 84 16,799 15 2,400 13 Table III Supplying the Non-Intergrated Fabricators: Sales of Primary Aluminum of the Domestic Integrated Producers* Kaiser /000 lbs. % $/000 % 1947 5,823 3 815 3 1948 11,009 5 1,618 5 1949 (first nine months) 4,046 3 663 3

  It appears, nevertheless, that the relative insignificance of the contributions of Kaiser and Reynolds to the supply of this market is one more of choice than disability.

  In fabricating aluminum of their own production, Reynolds and Kaiser are able to secure additional profits that arise in pursuing these later stages of production. Alcoa estimates that in the sellers' market of 1948, its allocation of primary to the non-integrated fabricators reduced its profits by $ 5,000,000. When, in 1949, there were signs that a buyers' market was about to ensue, Reynolds and Kaiser showed more concern than theretofore with the disposal of primary as compared to fabricating. Their success in so doing is not yet determinable. Having large investments and excess capacity in fabrication facilities, it is probable that Reynolds and Kaiser will continue to devote the major part of their production to supplying their own needs. To the extent that they remain intermittent sellers to the non-integrated fabricators, their success with these buyers can not be expected to be of an outstanding character. It must be concluded, therefore, that while their efforts to supply the demands of the non-integrated fabricators provide the major visible market for primary, the intramural consumption by the three integrated producers of their own primary- though a captive market- cannot be disregarded.

  Pig or ingot aluminum has little significant consumer demand until the metal is converted into a further product. It is in the market of these products- fabricated or semi-fabricated articles- that the impact of Reynolds and Kaiser is felt. Supplying the demand of the fabricating facilities of Alcoa, Reynolds and Kaiser is as much a part of the market as supplying the demand of the non-integrated fabricators. Thus, in the aluminum industry, competition manifests itself in the market for fabricated aluminum products rather than in that for pig and ingot. In determining the relative shares of the market among Alcoa, Reynolds and Kaiser, the integration of these producers requires 'market' to be a broad concept, unrelated to any particular aluminum product. Aluminum can be sold in the form of pig or ingot, or as a semi-fabricated or fully fabricated article. It is with reference to the totality of the markets for these products that the relative shares of the three integrated producers must be considered. This market in aluminum products is of nation-wide breadth.

  2) The competitive elements: From the evidence before me, it appears that, in the United States, there are but three basic sources of aluminum. The first is the primary production of the three integrated producers; the second is the secondary metal recovered from old scrap; the third is the imports of primary and secondary. Secondary aluminum is that metal which is recovered from scrap. Scrap is divisible into two components, market scrap and process scrap. Process scrap consists of trimmings, etc. which arise as an incident of the fabrication operations of the integrated producers, all of which have facilities for reclaiming the metal, and of the non-integrated producers who have similar facilities. This scrap is melted, and reused by these producers.

  Market scrap, on the other hand, consists of two kinds- new and old scrap. New scrap is the equivalent of process scrap except that many fabricators are without furnaces for remelting the metal, and they dispose of the same to a secondary smelter, or to other fabricators with smelting facilities. These smelters convert the scrap into secondary pig or ingot or otherwise use it in a fabricating operations.

  Old scrap consists of junked aluminum products. Such products usually begin to return to the market after five or more years of use. They are collected by junkmen and converted into secondary by smelters.

  It is seen that process scrap and new scrap are not a source of aluminum exclusive of a particular year's production. They are just fractions of the pig, ingot, or semi-fabricated production which are reused instead of being wasted. If Alcoa sells 100 pounds of primary or sheet, 25 pounds of which are recovered as new scrap, the market does not consist of 100 pounds of aluminum products supplied by Alcoa in competition with 25 pounds of secondary, but simply of 100 pounds of aluminum all of which had its source in Alcoa.

  In the Court of Appeals decision of 1945, old scrap was also excluded as a source of aluminum. The court reasoned that since Alcoa had long been the sole domestic producer of primary, all secondary was attributable to Alcoa, and not as being in competition with it. This was so because Alcoa always had the power to adjust its production to account for the return of secondary.

  In my opinion, the recent history of the aluminum industry requires a distinct change in this point of view. During the war period, due to Alcoa's obligation to meet the needs of the Government, it had no control of its own production. Much of the old scrap recovered in 1947 and 1948 was the return of metal from aircraft construction. With the exhaustion of scrap from this source, the scrap arising from aluminum products of the post-war period must be taken into account. During these years, Alcoa was forced to share this market with both Reynolds and Kaiser. In other words, Alcoa was no longer in exclusive control of the production with, in 1945, justified the Court of Appeals in disregarding the old scrap situation.

  Now, all three producers contribute to the production of aluminum for fabricated articles which, in due time, will return to the market as old scrap. There is no evidence that Alcoa controlled the production of Reynolds and Kaiser during the period now under review. Alcoa's loss of exclusive control of production during the war and post-war period warrants the inclusion of secondary recovered from old scrap as an independent source of aluminum. Such secondary has been shown to be competitive with primary metal.

  The Government contends that the differences between primary aluminum and secondary are similar to those between first and second run exhibitions in the motion picture industry. Inasmuch as the Supreme Court considered first-run exhibitions as the 'core' of the case, and that a separate examination of them was appropriate, United States v. Paramount Pictures Inc., 1948, 334 U.S. 131, 172-173, 68 S. Ct. 915, 92 L. Ed. 1260, argument is made that this Court should do likewise in regard to primary aluminum. The question as to whether secondary aluminum should be treated as a competitive element in the market for primary is one of fact, and not of law.

  The factual bases for distinguishing first-run exhibitions from second-run are inapposite to the aluminum industry. The evidence is unconvincing that the psychological influences, viz., publicity pressures, price patterns, together with equipment and location advantages, which made first-run exhibitions the 'cream' of the motion picture field, apply with equal force to primary aluminum. It may be true that, generally, first-run exhibitions and primary aluminum will sell at higher prices than second-run and secondary. But, the competitive factors and cost differentials which influence the price of secondary aluminum are distinguishable from those governing second-run pictures. In fact, for much of 1948, the price of secondary aluminum was higher than that of primary. These reasons compel me to reject the analogy drawn from the motion picture exhibition field.

  There is a possibility that some of the secondary appearing in imports may be market scrap derived in the further foreign processing of exported American aluminum products. It is at least as likely that the secondary is recovered from old scrap, or is new scrap recovered from old scrap, or is new scrap recovered from aluminum of foreign production, both of which would be independent sources. The components of this secondary are not knowable, but the amounts of aluminum involved, even if not an independent source, would not appreciably affect the ultimate result.

  The fact that there are three independent and competitive sources of aluminum does not necessarily mean that they are co-extensive with the competitive elements in the market. It can be argued, of course, that Alcoa is responsible for only part of one of the sources- that is, for its production of primary aluminum. But, in my estimation, the actual aluminum market should include the entire range of the aluminum products. It follows, therefrom, that the competitive elements in the market are not solely the three sources of aluminum because such sources measure competition only at the pig and ingot stage. Instead, the competitors are the users of aluminum pig, both the integrated producers and the non-integrated fabricators. The measure of their share of the market, accordingly, is not their contribution as a source of aluminum, but the extent to which they control a source and secure possession of aluminum from uncontrolled sources.

  The non-integrated fabricators are independent of the integrated producers only to the extent that they can buy aluminum from the other sources- imports and secondary. The amount of aluminum which the integrated producers obtain from these two sources reduces pro tanto the independent supply available to the non-integrated fabricators. Since the major market competition takes place at the fabrication stage, the actual share held by the competitors- Alcoa, Reynolds, Kaiser, and the non-integrated fabricators- is measured by the amount of metal which they can command in the fabrication stage as a result of their production or acquisitions.

  The use of the fabrication stage as an influential determinant of market position is but superficially inconsistent with the adjudication that Alcoa had monopolized the ingot stage and not fabrications. Reynolds and Kaiser are the present major instruments of market competition. But, by consuming the lion's share of their own primary production, their effectiveness as competitors at the ingot stage cannot be accurately measured. It is only at the fabrications stage that they appreciably enter the market as sellers, and, because of the integrated structure of their operations, it is here that they must survive as sellers. If their shares of this market, when compared to that of Alcoa, suggest their impotency, the need for a remedy of such situation is reasonably apparent. If such be not the case, then the amounts of metal controlled at the source by the three producers is highly significant in that it measures leverage on the market, and indicates potential power.

  3) The most accurate indicator: Accordingly, any market tabulation of the production of primary, sales and consumption of primary of own production, or production of primary and secondary and imports, reflects only sources of aluminum, and does not accurately report the actual market shares of the competitors.

  The actual market position can be measured either as a matter of input or outgo. The input method (Table IV), which was the one adopted by Judge Caffey in amending his Findings of Fact (No. 154) after reversal by the Court of Appeals, gives credit to each integrated producer for its production of primary; its purchases of primary exclusive of such metal acquired from another domestic integrated producer; and the estimated recoverable aluminum content of its scrap purchases, as well as secondary purchases, attributable to old or imported scrap. The non-integrated fabricators are credited with the amount of imports of primary and secondary not purchased by the integrated producers, plus the amount of secondary recovered from old scrap not acquired by the integrated producers. It is believed this tabulation accurately depicts the relative market position of the competitors on the basis of metal controlled or acquired.

  The figures show a drop from 51.1% for Alcoa in 1947 to 46.8% for 1948. The difference was absorbed approximately three-fourths by Kaiser and one-fourth by Reynolds. The year 1948 was one of short supply of metal. The strong showing of Kaiser and Reynolds indicates their active efforts to take profitable advantage of the sellers' market that then prevailed.

  Such estimates as can be made for the first nine months of 1949 show that small gains were made by both Reynolds and Kaiser, and this, notwithstanding that there was a transition from a sellers' to a buyers' market. The continuing gains of Reynolds and Kaiser indicate growing strength. Nevertheless, the overall advantage of Alcoa cannot be denied. Its trade position, alone, is just under one-half the market; it is two times in excess of Reynolds', and three times larger than Kaiser's, and immeasurably greater than that of any of the countless non-integrated fabricators. The other approach, the outgo method (Table IV), though more complicated to calculate, is even more instructive of the market. This method measures sales, and in doing so, throws light on the marketing practices and customer relationships which may favor a particular competitor. Whereas production and acquisition put a ceiling on successful market operations, profitable disposal of the metal actually measures the degree of success achieved by the competitor. Table IV -- Market Position -- Production and Purchases of Primary and Secondary Aluminum in the United States Alcoa Reynolds Kaiser /000 lbs. % /000 lbs. % /000 lbs. % 1947 Production 637,951 55.8 320,480 28.0 184,979 16.2 Purchased Primary (1) 114,468 85.7 5,152 3.9 13,949 10.4 Purchased Secondary (2) 91,431 79.3 19,581 17.0 4,265 3.7 TOTAL 843,850 60.6 345,213 24.8 203,193 14.6 51.1 20.9 12.3 1948 Production 652,309 52.3 338,313 27.1 256,289 20.6 Purchased Primary (1) 146,806 77.7 28,837 15.3 13,154 7.0 Purchased Secondary (2) 37,915 56.3 25,883 38.5 3,487 5.2 TOTAL 837,030 55.7 393,033 26.1 272,930 18.2 46.8 22.0 15.3 1949 (first nine months) Production 492,196 51.2 272,897 28.4 196,681 20.4 Purchased Primary (1) 76,223 89.0 4,924 5.8 4,490 5.2 Purchased Secondary (2) 23,103 61.2 11,565 30.6 3,096 8.2 TOTAL 591,522 54.5 289,386 26.7 204,267 18.8 47.1 23.0 16.3

  (1) These figures are exclusive of the intercompany sales among Alcoa, Reynolds, and Kaiser.

  (2) The secondary or scrap here referred to relates only to old scrap as explained in the text. The figures have been estimated, in part, by applying the proportion which reclaimed metal from old scrap bears to total market scrap, to the purchases of scrap and secondary by each producer. However, the figures for Alcoa include secondary purchased from Canada whether this is old or new scrap. Reynolds and Kaiser did not purchase any secondary from Canada. Table IV -- Market Position -- Production and Purchases of Primary and Secondary Aluminum in the United States Imports of Primary and Secondary (3) Secondary (4) /000 lbs. % /000 lbs. % 1947 Production Purchased Primary (1) (5) Purchased Secondary (2) TOTAL 35,137 223,065 2.2 13.5 1948 Production Purchased Primary (1) (5) Purchased Secondary (2) TOTAL 160,018 125,016 8.9 7.0 1949 (first nine months) Production Purchased Primary (1) Purchased Secondary (2) TOTAL (6) 77,354 (7) 93,762 6.1 7.5

  (1) These figures are exclusive of the intercompany sales among Alcoa, Reynolds, and Kaiser.

  (2) The secondary or scrap here referred to relates only to old scrap as explained in the text. The figures have been estimated, in part, by applying the proportion which reclaimed metal from old scrap bears to total market scrap, to the purchases of scrap and secondary by each producer. However, the figures for Alcoa include secondary purchased from Canada whether this is old or new scrap. Reynolds and Kaiser did not purchase any secondary from Canada.

  (3) For Reynolds and Kaiser, the purchases only of imported primary are deducted. For Alcoa, its purchases of imported primary are deducted, as well as its purchase of secondary from Canada. Reynolds and Kaiser imported no secondary from Canada. About one-half to two-thirds of imported scrap comes from Canada, the rest from United Kingdom.

  (4) If Alcoa, Reynolds, or Kaiser purchased any imported secondary from a source other than Canada it is accounted for in these figures which are computed by deducting from the total production in the United States of secondary from old scrap the estimated amount of secondary attributable to old scrap which the three producers purchased from all sources. However, for Alcoa, since the Canadian purchases were deducted under imports, they are not again deducted here. These calculations were necessary because outside of the purchases of secondary from Canada of the three companies, purchases of imported secondary by these companies from other countries do not appear in evidence.

  (5) No primary aluminum was sold to the non-integrated fabricators from the United States' stockpile.

  (6) The imports of secondary into the United States for September, 1949, do not appear in evidence. This figure has been estimated on the basis of the trend in prior months.

  (7) No figures are in evidence showing 1949 production of secondary. This figure represents three-quarters of the 1948 figure. (See footnote 5, Table V.) Table V -- Market Position -- Sales (All Stages of Production) Alcoa Reynolds Kaiser /000 lbs. % /000 lbs. % /000 lbs. % 1947 Pig and Ingot 172,090 76.8 23,351 10.4 28,762 12.8 Sheet 459,589 48.2 308,408 32.3 185,471 19.5 Other Fabrications 297,863 83.0 60,900 17.0 0 0 TOTAL 929,542 60.5 392,659 25.6 214,233 13.9 51.5 21.8 11.9 1948 Pig and Ingot 185,678 84.7 22,288 10.2 11,009 5.1 Sheet 491,010 45.8 319,082 29.7 262,966 24.5 Other Fabrications 354,264 79.7 85,284 20.1 786 .2 TOTAL 1,030,952 59.5 426,654 24.6 274,851 15.9 50.4 20.9 13.4 1949 (first nine months) Pig and Ingot 92,983 72.5 (3) 28,899 22.6 (3) 6,289 4.9 Sheet 201,817 40.6 166,921 33.6 127,863 25.8 Other Fabrications 250,233 76.0 75,456 22.9 3,440 1.1 TOTAL 545,033 57.1 271,276 28.5 137,592 14.4 47.8 23.8 12.0

  (3) These figures exclude sales to the War Assets Administration for stockpiling purposes. Table V -- Market Position -- Sales (All Stages of Production) Imports (1) Secondary (2) /000 lbs. % /000 lbs. % 1947 Pig and Ingot Sheet Other Fabrications TOTAL 42,923 223,065 2.4 12.4 1948 Pig and Ingot Sheet Other Fabrications TOTAL 186,976 125,016 9.2 6.1 1949 (first nine months) Pig and Ingot Sheet Other Fabrications TOTAL (4) 93,354 (5) 93,762 8.2 8.2

  (1) Includes all aluminum products imported whether primary, secondary or fabrications.

  (2) These are the same figures which appear in Table IV.

  (4) Figures for September, 1949, do not appear in evidence. They have been estimated on the basis of the trend in prior months.

  (5) No figures for the production of secondary in the United States in 1949 are in evidence. An amount representing three-fourths of the 1948 figure has been used. It is probable that recovery from old scrap declined in 1949 and will continue to do so. In 1948, the supply of scrapped military aircraft was finally exhausted. The construction industry is currently the largest consumer of aluminum; the ...


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