Federal Trade Commission v. National Lead Company

PETITIONER:Federal Trade Commission
RESPONDENT:National Lead Company
LOCATION:California State Capitol

DOCKET NO.: 63
DECIDED BY:
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 352 US 419 (1957)
ARGUED: Dec 12, 1956
DECIDED: Feb 25, 1957

Facts of the case

Question

Audio Transcription for Oral Argument – December 12, 1956 in Federal Trade Commission v. National Lead Company

Earl Warren:

Number 63, Federal Trade Commission versus National Lead Company.

Mr. Kintner.

Earl W. Kintner:

May it please Your Honors.

This case concerns the validity of a cease and desist order issued by the Federal Trade Commission which order the Commission feels is necessary to terminate a price fixing conspiracy that existed in the lead pigments industry for nearly a quarter of a century.

The complaint charged that suppression of price competition was accomplished by dividing the country into geographic zones and that the respondents charged the same delivered prices to all buyers within a particular zone, irregardless of the location of the buyer.

The Commission alleged and found that the respondents’ use of this system permitted the respondents to exactly match the prices of their competitors at every single point in the country, in every single zone, which was drawn by the response.

And that there was no price competition among the purchasers of this product as a result of the alleged price fixing conspiracy.

The order prohibited —

Earl Warren:

Mr. Kitner, did they break it down within the zones so that there could be a great many different prices within this zone depending upon what each other charged or — or was it blocked out zone by zone where there must be one price?

Earl W. Kintner:

It was blocked out, Your Honor, zone by zone.

There — and here again, the pricing structure buried with the three principal products in the industry.

There were varying zones allocated to each product.

In general, there was a par zone and then additional zones to which differentials were added and the respondent sold at the same price to all buyers within each zone.

That was the crux, a difference per portion of the price fixing agreement.

The order prohibited a conspiracy or agreement to sell at prices determined according to the zone delivered price system, or any system resulting in identical prices at the points of sale.

And additionally, the order prohibited the respondents from individually quoting and selling pursuant to a zone delivered pricing system, for the purpose or with the effect of systematically matching the delivered prices of other sellers of lead pigments, thereby, depriving purchasers all the benefits of price competition in the industry.

I think it is essential and it is this portion of the order that I have just mentioned that is at issue here.

I think it is essential to refer to the findings of fact in this case because it is in the context of those findings that the Commission feels that it has exercised an allowable judgment in drafting this particular portion of the order in question in requiring the respondents to individually to each cease and desist from the use of a system of zone delivered prices with the purpose and with the effect of systematically matching the prices of their competitors in this industry.

John M. Harlan:

Is the crucial part of the order in issue here what you’ve got quoted at page 6 of your brief?

Earl W. Kintner:

It is sir.

John M. Harlan:

That it —

Earl W. Kintner:

The court below sustained the Commission’s portion of the order as to conspiracy and that is not at issue here.

The respondent, National, according to the findings, is the dominant factor in the lead pigments industry, controlling an excess of 50% of the products manufactured by that industry.

Eagle-Picher controls a substantial portion of the remainder of the industry’s products which are white lead in oil used principally as a — as a partly mixed paint and sold to the dealers, to the painters and to consumers.

A dry white lead, the second product which is primarily sold to manufacturers of paint and lead oxides which are including red lead and litharge which are sold primarily or the — as a principle constituent in the manufacturer of battery place but also sold as — in the instance of red lead as a constituent of red lead paint.

The picture in the industry prior to 1933 is an — is a picture of an industry dominated by few manufacturers and by a dwindling number of manufacturers.

Although the industry had a dwindling number of factors prior to that time, it was also characterized by at least some vestiges of localized price competition, for instance, the National, the largest factory in the industry and the dominant factor in the industry add 589 points in 40 space where the prices were either equalized or where the points were free delivery points.

A somewhat somewhere but a different situation existed with respect to the pricing structure of Eagle-Picher.

(Inaudible), one of the respondents which also sells paint in its own company own stores said, through one of its representatives in the trial of this case, that’s difficulty was in attempting to locate the equalization of points of its larger competitors in order to follow the price so that there was indeed a considerable amount of price competition prior to 1933.

This was also, as has been pointed out by the Commission in its findings, a — a relatively complicated pricing system in which one competitor can never be sure unless he knew in advance of his — of competitors pricing structure, unless, he knew in advance of the exact equalization points and also if he had advanced knowledge of the exact freightage used.

Earl W. Kintner:

There are also other practices in problem in the industry, a difference in many instances of conditions and terms of sale and there was the practice of diversification at which orders would be accepted under old price — on an old price in the face of new increased prices.

This was a picture of the industry prior to NRA days.

Then in connection with the drafting of a code of fair competition under NRA, meetings were held in July of 1933 through January of 1934 for the purpose of drafting a code of fair competition for this industry.

There was discussion of — during these meetings of — for — of a uniform basis of sale.

A telegram from the Secretary of the Association says as follows, “Block referring to the counsel for the — for the Industry Trade Association, a lease agreement upon suggested uniform basis of sale pending approval from Washington to code might place us on uncertain legal ground and might be embarrassing later and stop.

He suggest one member to use uniform basis and others follow voluntarily.”

That was done.

There was discussion of a uniform agency or consignment method of selling which the president of National, stated at a meeting, quote, ” Permits us to control the resale price.”

Now, this control of the resale price was necessary because Glidden and Sherwin-Williams, two of the relatively minor but very competitive factors in the industry, own their own paint stores.

And it was necessary that the method be devised so that the prices to the consumers across the boards would be the same.

Commission found that the respondents agreed to and did sell white lead and oil at delivered prices in 12 zones, one, a par zone, and the remainder premium zones varying from 12.5 cents per $100 to $1 per 100 varying as to zones.

There was a also a par zone in the San Francisco Bay area, the other par zone being roughly in the North Central and Northeastern United States.

The dry white lead was a product that was sold according to a par zone up to the Rocky Mountains with a premium zone beyond the Rocky Mountains.

And the findings indicate that prior to this time, the product actually sold at less beyond the Rocky Mountains and it did east of the Rocky’s.

There was a different — slightly different arrangement with respect to lead oxides.

There were two-zone, the zoning systems for this product.

One, for less than carload sales and one for carload sales.

The less than carload sales had a par and four premium zones, the carload, two par zones and one premium.

There were other arrangements made, first for a — for a consignment basis for the sale of white lead in oil.

And then, there were uniform discounts in terms of sales or these products including dry and white lead.

Uniform differentials between the case in which the product — the lead and oil products were sold.See, all of that was necessary in order to effectuate the conspiracy.

The parties also agreed to eliminate guarantees against price decline.

Lead — red lead and litharge sold on the basis of six differentials over the big lead prices of the American Smelting and Refining Company.

In the minutes, concerning this transaction, it was said, it was agreed in deference to existing statues that no reference to prices should appear in the outlines except for the specification that prices were to be agreed upon between the buyer and the seller.

Interestingly enough, the parties met — had to meet a situation where National’s, Dutch Boy brand, was a dominate brand in the industry and possessed the — a great deal of consumer acceptance and where Eagle-Picher also had a brand well known accepted by the public, the Eagle brand of paint that by no means is well known or is accepted by the consumers as National’s Dutch Boy brand.

So the arrangement was made that the other — the products, the lesser known products of the respondents should be sold to the dealers at a differential of 25 cents for 100 pounds less in order to encourage the dealers to push the sale of the lesser known brands.

But to the consumers, the price was the same across the board’s regardless of whether it was Dutch Boy paint or pigment are regardless of whether it was a much lesser known brand or indeed a brand that was not known to the consumers at all.

This was the only method by which the dominant respondents, National Eagle and Eagle-Picher could induce the two paint manufacturers, Sherwin-Williams and Glidden, to continue into — in this agreement.

The price in uniformity existing is indicated by the fact that between 1935 and 1941, 16 deferent bids were submitted by National Eagle & Sherwin-Williams to the City of Cincinnati, 11 of those bids were identical to the fourth decimal point.

And it is not in mitigation that the bids, all the respondents to the three federal government agencies were completely different.

Earl W. Kintner:

The same situation as to uniformity of bids also applied according to the findings and bids submitted to the City of Milwaukee.

So in like of these facts, which the Commission found existed pursuant to agreement and conspiracy and resulted in absolute absence of price competition in this industry for almost a quarter of the century, I believe it comes in for grace or the respondents’ status they do in their brief and I quote, point two of the brief “the injunction with hamper competition in this industry.”

My question is what competition in the industry would be a hamper.

The pricing system, the lawfulness of which say they so stably defend is a very one that is a cornerstone and the essence of the conspiracy setup in 1933 and 1934 and which prevails to the state.

Also, respondents have said, such an order would needlessly restrict the lead pigment manufactures and deprive them of a valid competitive weapon.

In the context of this case, if the Court please, this system of zone delivered pricing has not banned a valid competitive weapon and has not been so used the Commission seeks effectively to divest the respondents of that weapon.

Harold Burton:

Is is your position that without this, you cannot have an effective order?

Earl W. Kintner:

Exactly sir.

The position is that the order may not be effective.

The Commission believes that it has exercised its allowable judgment in terminating and requiring the respondents each to cease selling, according to a system where the purpose or effect is systematically matched prices.

Does — does this provision keep the individual lead producer from using the zone pricing system?

Earl W. Kintner:

The — the order does not so read.

The order reads purpose and effect of systematically as matching — the — the order here is sharply qualified.

Now, it may be, it will be that the respondents may temporarily, at least, some of them have to cease using that zone delivered pricing system.

But you — you haven’t directed this issue at hand.

Earl W. Kintner:

It has not been directed sir.

Only the qualified order which is at bar here.

And if they want to add on so much for each zone provided that would not violate?

Earl W. Kintner:

As long, sir, as they do not by doing so systematically match the prices of their competitors and that so long as it is not done for the purpose of and with the effect of systematically matching the prices of their competitors because that is precisely what has been done in this instance for almost a quarter of the century.

If the result is a matching of prices, can you say they violate the order, they brought us a purposes if that is.

Earl W. Kintner:

If it’s — if after the issuance of this order, they systematically match prices to his own delivered pricing system.

I would say, sir, that that would constitute a violation of the order.

Where — where is — where are biggest of these companies located?

Where is the National located?

Do they have several factories?

Earl W. Kintner:

They — they have points of production primarily in the north, central and eastern portion of the United States but the — the points of production are varied as among the respondents.

There are some similarity as there is a considerable similarity as to production points but not an absolute similarity.

But take — take National with four or five or ten or twelve production points, does it always make the same price the Cincinnati, Ohio?

Earl W. Kintner:

Under the — they practices —

Well, just acting for itself, it can do that.

It doesn’t publish price list?

Earl W. Kintner:

The — yes sir.

The — these respondents all publish with the price list and the price list were identical at every point in the country and made so by this zone delivered pricing system which they devised in addition to other matters including uniform conditions or the term “sale.”

The opinion of the Commission presents in some detail here its reasons for concluding that the provision in question was necessary to eliminate the effects of the long standing conspiracy and to guarantee against its continuance.

John M. Harlan:

Did the Court of Appeals in the striking down this section go simply on the question of power of the Commission to do this or did it go on to say that even assuming there was power, this was beyond the scope of proper discretionary relief?

Earl W. Kintner:

The court below held that the order — that the Commission had no authority to issue this order, that in effect, it had exceeded its allowable judgment saying also — holding also that the Commission should have charge in its complaint that the pricing system in question constituted in effect, a perceived violation of the law but not at the Commission not having so charged, so alleged that it was without authority to issue the order.

John M. Harlan:

In other words, the order had been limited to conspiring agreement to do these things.

Now, would have been all right —

Earl W. Kintner:

The court below —

John M. Harlan:

— but it couldn’t — the Commission had no power under its complaint and under the Act to prescribe these individual acts, is that it?

Earl W. Kintner:

That is substantially the case except that the Court seem to have bottomed its decision in large measure upon the factor that I have just mentioned that the Commission had not alleged that individual use of this pricing system by each of the respondents constituted an unfair method of competition and not having so alleged it could not now issue an order but it’s a position of the Commission that the whole factual situation was involving this form of pricing, was alleged in the complaint and that the findings adequately justify the action which the Commission here seeks to take.

The — it’s Commission position that using it’s allowable judgment under the statute and which this Court and other courts has many times held that it has and must have in order to make its orders effective in order to effectively prevent and permitted the competition that the Commission has — must necessarily issue this type of an order in order to effectively terminate the conspiracy and to destroy the very vehicle which was the basis, the foundation and the essence of this illegal pricing structure existing in the industry for a quarter of a century.

(Inaudible)

Earl W. Kintner:

Of that — had reference to a telegram which the — one of the officials in the industry sent to others in the industry quoting the advice which he had received from Mr. Lock, the counsel for the industry.

(Inaudible)

Earl W. Kintner:

Oh yes sir, not only that, but correspondence to the same effect.

This, if the Court please, does not involve — this case does not involve practices or forever inserted in an NRA code.

The practices either were not inserted in the code or such as were inserted in instances where practices were inserted in the code, covered by the code, the respondents immediately secured exemption from it so that the code was never effective.

The NRA code was never effective as to the practices alleged and found in this complaint.

(Inaudible)

Earl W. Kintner:

I beg your pardon?

(Inaudible)

Earl W. Kintner:

Yes, sir.

I have referred to the telegram on page 2457 of volume 4 of the record.

(Inaudible)

Earl W. Kintner:

Yes, sir, it’s referred to —

(Inaudible)

Earl W. Kintner:

It’s — it’s not in full in the brief as referred to there.

But —

Earl W. Kintner:

But it’s in the appellate brief but not here.

Earl W. Kintner:

I refer, Your Honor, to page 2457 of volume 4 of the record and that Mr. F.M. (Inaudible) Carter, their plumber house, Chicago, Illlinois, lock the lease agreement upon suggested uniform basis of sale pending approval from Washington to code might place us on uncertain legal ground and might be embarrassing later on to stop.

He suggest one member use uniform basis and others follow voluntarily, (Inaudible), Secretary of Lead Industries Association.

There is Your Honor a considerable amount of correspondence and excerpts from minutes in this record all to the same effect.

(Inaudible)

Earl W. Kintner:

That sir was in part but the whole context of the — of the conspiracy, all of the facts surrounding the conspiracy amply and extensibly found by the Commission and as to the conspiracy portion sustained by the court below lead the Commission to the conclusion that this forms in — of order is reasonably necessary in order to the effectuate a firm of cease and desist order and to terminate the conspiracy.

The Commission’s opinion is somewhat extensive on this point.

It sets out in some detail its reasons for issuance of this portion of the order.

Commission says, for instance, they maintenance of the delivered price zones and the quotation of delivered prices therein constituted the very cornerstone of the respondent’s conspiracy.

It was the adherence by each of them to this system of pricing that made the combination work unless the respondents, again reading from the Commission’s opinion, representing practically the entire economic power in the industry or deprived of the device which made their combination effective in order merely prohibiting the combination may well be useless gestures.

In other words, is that (Inaudible)

Earl W. Kintner:

Yes, sir.

Putting it in another way sir, the Commission would have a — paper of victory or a stuff moose head on the (Inaudible)

The charge in the order recognized serious ambiguities (Inaudible) by the conspiracy.

Earl W. Kintner:

Yes, sir.

(Inaudible)

Earl W. Kintner:

And it is significant but in this opinion, the Commission said if after competition is restored, any other respondents can make a proper showing to the Commission that this prohibition or any other prohibition in the order is no longer necessary or desirable.

The Commission will, of course, at that time, take such action as may be appropriate in the light of the facts in the law and as this Court well knows the – the holding in the American Chain and Cable case in a well reason opinion by Judge Parker is that even though the Commission deny a petition to reopen and modify an order that the Court of Appeals may review such action and may on its own motion and of its own accord reopen and modify an order of the Commission if it feels that such is justified by the change of fact are circumstances existing at that time and the Commission — this a meeting of this particular paragraph in the Commission’s reasoned opinion in this case.

Hugo L. Black:

(Inaudible)

Earl W. Kintner:

That order sir was a — involved a standard conspiracy order requiring the respondents to cease and desist form conspiring or agreeing to do and perform the illegal acts and practices.

(Inaudible)

Earl W. Kintner:

As were order would — of course we concede to go beyond this main order but in the context of this case, the Commission feels that it is reasonable and necessary that such an order be issued that the order bars a rational connection to the facts of this particular case and that is — is exercising its allowable judgment in issuing the order in the form that it has issued.

Harold Burton:

Did the Smith Institute case prove not a —

Did you mean (Voice Overlap) — excuse me, go ahead.

Harold Burton:

Go ahead.

Does it mean to any — any particular point that there must be differing prices for pigments?

Earl W. Kintner:

No, sir.

If it means that —

If — if National sells its little of what the prices are but if it sells and excess profound, then all the others can sell at that locality of the same price?

Earl W. Kintner:

That would depend sir upon the —

They don’t make any conspiracy, they just find out what National’s selling for and they say, we’ll sell this (Inaudible)

Earl W. Kintner:

If they’re doing it pursuant to a zone delivered pricing system, I believe that that would constitute a violation of the Commission’s order.

And what is the zone delivered pricing system, that from the factory there should be a zone price that goes to everybody from United States.

Earl W. Kintner:

The — the price is uniform in every point within a given geographic zone.

No, I’m speaking of the one manufacture.

The one manufacture makes a price —

Earl W. Kintner:

Yes sir.

And he — he charges their three zones and all these zones left basis out in XX plus one and X plus two.

Now, can anybody else match that under your —

Earl W. Kintner:

There may be circumstances under which other competitors could impart match the zone delivered pricing of their competitors and not violate the order but if they exactly matched his zone delivered pricing system nationwide so that there existed a system to that effect and with the purpose and effect of exactly matching prices then such would constitute in my judgment, sir, a violation of this order but there —

You had admissive — you had admissive point system and each person used their own production point as the basic point in objection to that.

Earl W. Kintner:

No, sir.

And they might well divides a system where there might be concentric zones based upon common production points where they would find it necessary to exactly match price in their competitors in order to meet competition.

But in this instance, if they did that nationwide and with the disparity of production points, such would constitute a violation with the order.

There’s no (Inaudible) on the ground that meet competition in your act, is it?

Earl W. Kintner:

Oh yes sir and not in — not in the Federal Trade Commission Act but of course that’s implicit and is provided under Section 2 (b) of the manipulating act.

Yes.

What is — was this about the meaning of competition?

Earl W. Kintner:

I think so sir.

That is my judgment.

That is a remedy or that is the defense why under the law and the Commission must pay proper deference in honor to it.

Would — to the (Inaudible) or would the effect of systematically matching the delivered price of quotation?Delivered prices of other sellers with lead pigments, and thereby permitting purchaser in finding any advantage in price dealing with one or more sellers.

So whenever they — they match prices, I don’t just understand, if you match prices then you violate the ordinance?

Earl W. Kintner:

If you do it systematically — (Voice Overlap)

You do it because you want the business (Voice Overlap) cause of conspiracy.

Earl W. Kintner:

— and according to a zone delivered pricing system, the — the order seeks to force the respondents to advice their own individual pricing system which will not result in systematically matching prices through the type system that the Commission found in the order and which he found to be as used by the respondents’ illegal.

Respondents have a wide variety of pricing methods which they could use, indeed, they could go back to the methods which they use prior to the inception of this conspiracy.

Methods that were disparate that were based upon a wide variety of ever changing points of free delivery and equalization.

To that, they could return or the factors you have remaining one disappeared during this litigation, but there are remaining in the industry for factors now for principle factors, Eagle-Picher, National, Sherwin-Williams and Glidden.

Harold Burton:

Mr. Kintner, you mentioned the Cement Institute decree and that this is going a step further, has there been any experience under the Cement Institute decree that was ineffective, so that to be ineffective?

Earl W. Kintner:

Giving you a frank answer to that, Your Honor —

Harold Burton:

Yes indeed.

Earl W. Kintner:

— we find it difficult to enforce orders in some instances of this character.

Harold Burton:

This has grown out of your practical experience with that order —

Earl W. Kintner:

It has — it has grown in part out all the Commission’s practical experience over the years in the enforcement of these conspiracy — price fixing conspiracy orders and in part, in large part from the facts of this particular case and it is primarily upon the facts of this particular case that the Commission seeks this remedy.

Felix Frankfurter:

What does that mean?

It’s — it’s difficult to establish (Inaudible) practice and definitely strike down the individual’s rate.

Earl W. Kintner:

It is sir difficult.

The respondents’ say in their brief that they want the right to use and if they wish a zone delivered price which will substantially vary from the instant price, well that’s another law suit, another piece of litigation and this lasting over a period of 12 years is early extensive.

Felix Frankfurter:

And the litigation last that long?

Earl W. Kintner:

Yes sir.

Felix Frankfurter:

What was that (Inaudible)

Earl W. Kintner:

In part —

Felix Frankfurter:

— of anti-trust litigation?

Earl W. Kintner:

No, sir.

I think in part it was attributed — may be attributed to the fact that hearings were suspended because the respondents indicated to the Commission that they were engaged in more effort and that trial of the matter at that point would hamper their efficiency in engagement to more effort.

But it — this is a — also a complex case and involves an entire industry.

It was indeed a complex pricing structure that they evolved and to show the facets — facets of it in old price.

Felix Frankfurter:

When — when did the Commission begin to proceed after they did — after they pursued or (Inaudible)

How long was the system in effect before the Commission had underway?

Earl W. Kintner:

A system was effectuated in — in late 1933 and 1934, the Commission’s compliant was issued in 1944, the amended complaint in 1946.

Felix Frankfurter:

I just want to know if — if the record show on the Commission came aware of the gist of the fact?

Earl W. Kintner:

The record would not show that Of course, these matters must necessarily be investigated sometimes extensively and sometimes over a period of time.

That’s our experience with the Commission and with regard to industry wide price fixing cases.

Felix Frankfurter:

The whole theory of the Federal Trade Commission Act was to let these things in the bottom get on their way before they reestablish.

Earl W. Kintner:

Yes sir, to prevent unfair methods of competition and it is precisely that that the Commission seeks in this order to prevent a continuation of this practice.

Felix Frankfurter:

Now, when — the decree, is it?

When did they petition the order?

Earl W. Kintner:

In 1953.

Felix Frankfurter:

1953.

Earl W. Kintner:

Hearings were —

Felix Frankfurter:

If — if you got in the way in 1944, there’s not much left in the war, that was only a year, how long was it 40.26 after that?

Earl W. Kintner:

I — as I recall the hearings, it was taken the testimony were completed in 1948.

They were interlocutory matters rise in the meantime and the Commission had it —

Felix Frankfurter:

If it was completed in 1948 —

Earl W. Kintner:

Yes sir.

Felix Frankfurter:

— and an order amended in 1953.

Earl W. Kintner:

That is right sir.

Felix Frankfurter:

That’s (Inaudible)

Earl W. Kintner:

Yes sir.

Felix Frankfurter:

Now, (Inaudible)

What was the experience to which you refer that you — it’s indicated — the experience the petitioner had and this company or is coming to the conclusion that you had to have this (Inaudible) commission in order to carry out the main conclusion.

Earl W. Kintner:

I’m reluctant to speak of that point because it isn’t covered in the record.

I — I merely want it —

Felix Frankfurter:

Can you indicate the kinds of things of what the commission (Voice Overlap) —

Earl W. Kintner:

I merely wanted to indicate that the Commission necessarily in — in issuing these orders, considers its experience in —

Felix Frankfurter:

Other case.

Earl W. Kintner:

— other matters, similar matters.

I might indicate that there have been only, as I recall, two successful actions filed in the courts or enforcement of Federal Trade Commission cases in price fixing conspiracies.

Felix Frankfurter:

You mean violated therefore —

Earl W. Kintner:

Or violations of the order — it’s a —

Felix Frankfurter:

Well, the statute, they were not successful doesn’t prove either that there were violations.

Earl W. Kintner:

No.

It could prove that the respondents across the boards were uniformly desires of confirming the law and did so.

Felix Frankfurter:

Well, I don’t know —

Earl W. Kintner:

May I simply indicate that the Commission necessarily determines the remedy, not only according to facts and case what is reasonable and necessary according to those facts but on the basis of its expert experience in the drafting of orders and handling of similar cases.

Felix Frankfurter:

But Justice Minton’s question sought to elicit that experience and you say that we just (Inaudible)

Earl W. Kintner:

I would choose to — bottom our case upon the facts of this particular case.

I — I think in all fairness, I can only do that sir.

(Inaudible)

Earl W. Kintner:

There were meeting, sir, at that time but this was not part of the code provisions.

Earl W. Kintner:

They were meeting together for the purpose of formulating a code and they — because we — because the Commission found in the court, sustained the Commission in this — as part of those meetings, they effectuated a price fixing conspiracy and agreement in the industry.

But it would not have the (Inaudible)

Earl W. Kintner:

Well, the code —

The reason I asked that is (Inaudible)

Earl W. Kintner:

No sir, I think you read it that — would correctly read it that these respondents on the advice of counsel were apprehensive, that any price fixing agreement of the character, providing for uniform basis of sale would violate the existing antitrust laws.

They were in my judgment —

(Inaudible)

Earl W. Kintner:

Yes sir and I may even have been leery of the constitutionality of NRA.

But in any event, they never had inserted in the code, the zone delivered pricing system.

Well, I noticed (Inaudible)

Earl W. Kintner:

Yes, sir.

(Inaudible)

Earl W. Kintner:

Only in part.

There — is on the record, a great deal of correspondence and testimony from which the Commission included.

(Inaudible)

Earl W. Kintner:

I would consider an important part, I do so, and the Commission did.

We have emphasized that in our briefs below, but it was, by no means, the only part of the evidence which indicated about the conspiracy.

There was a, in this instance, a record of about five thousand pages and much correspondence and much testimony adduced on the price fixing agreement.

Felix Frankfurter:

Mr. Kintner, is the — is it fair to put the essence of the Commission in this case in terms of something like this that the momentum of the past conspiracies as to the condemnation of which is not to challenge, that the momentum of that collaborative activist is so powerful that if each individually had a price owning — price owning system, the difficulty of discovering this, it is by collaboration by contrary is too great not to permit, striking down individuals over.

Is that the essence of the case?

Earl W. Kintner:

Yes, sir, it is.

Felix Frankfurter:

So that as — as an evidentiary matter, it would be too difficult to establish, it’s — it’s an unfair burden to cast upon the Government as a matter of practical experience, it would be too difficult to establish concert than normally their individual actions.

Earl W. Kintner:

Commission has not said that it would be too difficult.

Felix Frankfurter:

But it’s not at the heart of business (Inaudible)

Earl W. Kintner:

It — it certainly is a correct reflection of some of the thinking expressed in this opinion.

The Commission believes that and has said that it believes that the — it is absolutely necessary that the pricing pattern in this industry be effectively broken so as to once again bring a measure of competition into the industry.

Felix Frankfurter:

If you have not a prior establishment of the conspiracy, you wouldn’t possibly defend such a provision, could you?

Earl W. Kintner:

In the context of this case, I — I think that will be most difficult, Your Honor.

Felix Frankfurter:

Well, supposing it wasn’t — suppose that the — the Commission wasn’t maintaining as it had a knowledge (Inaudible) that what seems to be individual action if their guides still (Inaudible) that they must be in concert.

Earl W. Kintner:

Our test before this Court, Your Honor, in that instance would be infinitely greater and it is, as I stand here today, with these findings and —

Felix Frankfurter:

(Voice Overlap) because you haven’t established it.

The theory is likely to continue by the sheer force of inertia.

Earl W. Kintner:

The momentum of the system as —

Felix Frankfurter:

That’s the — that’s the case, isn’t it?

Earl W. Kintner:

Yes, sir.

And —

Felix Frankfurter:

Or rather perhaps the more narrowly that it’s an allowable judgment for the Commission to so believe —

Earl W. Kintner:

That states —

Felix Frankfurter:

— and there pursuant (Inaudible)

Earl W. Kintner:

That state necessary more precisely.

The Commission in the exercise of its expert judgment as a finder of the facts and as this Court has often held as a — as a framer of the remedy has used its allowable judgment in framing this cease and desist order for the purposes I have stated.

Earl Warren:

Mr. Kintner, carrying just a little — little farther, I suppose the Commission also thought that the momentum of this conspiracy is such that in the future whether there was any conspiracy or not without the guard, whether difficult to detect without regard or whether there was a conspiracy in the future or not, the pattern that had been fixed though would probably carry over and they would get the benefit of this conspiracy without even continuing the conspiracy.

Is that —

Earl W. Kintner:

Yes, sir and it is important that this is a system once devised —

Earl Warren:

Yes.

Earl W. Kintner:

— which is very simple in its operation, much more simple to operate than would be a multiple basing point system, for instance.

And it is because of this simplicity of operation.

Felix Frankfurter:

Multiple basing point system is bad in itself.

So I don’t think that helps it.

Earl W. Kintner:

Well, I don’t have to quarrel with you of that at this point on — on that matter in order to make the point I just made sir.

Felix Frankfurter:

Well, suppose — suppose you are in the position as you are now, to say to the Court, suppose the Commission made the opinion which said, we are only confident.

We have no doubt that these individual conspirators will — will — with fastidious scrupulosity, not under into any talks, settlement, agreement, they won’t (Inaudible), et cetera.

And yet, by a sheer force of the past, the future is bound to remain to say, would — could you take such a position?

If you really disavow any — I don’t mean conscious evasion but any kind of interplay between, would you still say —

Earl W. Kintner:

I —

Felix Frankfurter:

— that this system automatically is bound to go on because of the — the force of — or left loose by the conspiracy.

Earl W. Kintner:

I think sir that absent the overt acts that you have mentioned but only a slight variation in the — in their — in their system individually that the substantially — the same pricing structure could and would exist.

Felix Frankfurter:

It appears —

Earl W. Kintner:

Because of the momentum of what has been done over a quarter of century and because of the very simplicity of this — of this — of zone delivered pricing system.

Felix Frankfurter:

Is there a purging period at all?

Felix Frankfurter:

Because they come in and four years from now and say we are now — the momentum has been — has been interrupted.

Earl W. Kintner:

I could come in sir, six months from now and make a showing that there is no longer —

Felix Frankfurter:

But there’s no such escalated loss in the (Inaudible)

Earl W. Kintner:

No sir, but it is implicit in the statute.

They may come in at any time and show change, circumstances of fact or changed law or merely that the public interest no longer requires that order stand.

And the Commission must hear them out, may in appropriate instances require to take in testimony and that is reviewable by a Court of Appeals.

And whatever action the Commission takes, whether denial or petition modify or the modification itself is reviewable by a Court of Appeals which may itself in an order finding — a finding that the — this portion of the order is no longer necessary and —

Felix Frankfurter:

Is that specifically provided in the statute?

I don’t mean generally —

Earl W. Kintner:

It is —

Felix Frankfurter:

(Inaudible)

Earl W. Kintner:

The statute — the statute says sir that the Commission may modify or vacate its orders upon a showing of — upon a finding of changed circumstances, in fact of law and if the Commission feels that the public interest so demands and the — the opinion in the American Chain and Cable case holds very precisely that not only the propriety of any modification may be subject to court’s review but if the — the denial of a modification and that the Court of Appeals may itself feels so inclined.

Felix Frankfurter:

But that’s the general judicial reviews which — the statutes.

Its — there isn’t any specific judicial review hitched on to this modification.

Earl W. Kintner:

No, sir.

That’s implicit in the statute and — and implicit in the law as found in the —

Felix Frankfurter:

I understand that.

Earl W. Kintner:

— in the —

Felix Frankfurter:

As for myself —

Earl W. Kintner:

— Chain and Cable case.

Felix Frankfurter:

(Inaudible)

Earl W. Kintner:

In a very —

Felix Frankfurter:

(Inaudible) the various discretion modifying and otherwise that is the order, it should be.

Earl W. Kintner:

The Chain —

(Inaudible)

Earl W. Kintner:

Chain and Cable case, the decision, a well reasoned decision in that case deals with this point in — extensibly.

Earl Warren:

Mr. Kintner —

(Inaudible)

Earl W. Kintner:

I beg your pardon?

(Inaudible)

Earl W. Kintner:

We do have occasionally such an application.

(Inaudible)

Earl W. Kintner:

Oh, I — I would judge on the order of five or six such applications a year.

Is — is this the type of commodity that has a natural monopoly in the area around it like a cement production of that —

Earl W. Kintner:

It was not necessarily so —

Is it a high cost commodity that carry the — carry the transportation cost having the difficulty or — or is it a — a heavy weight low — low value commodity like cement that has a natural monopoly around every factory.

Earl W. Kintner:

It’s not a — an homogenous product because there is a matter of brands which enter in as you note from my argument that some of the products were sold in carload, some in less than carload and — and that is applying to the lead oxides which are quite heavy but the lead and oil is sold in case of varying sizes.

So if it’s really a competitive —

Earl W. Kintner:

It — it is sir.

There — there was competition in this industry prior to 1933 and the product.

But if I want — buy it from National Lead, I get a different product if were to buy — buy it from Dutch Boy or (Inaudible) or some other —

Earl W. Kintner:

There is indication in the record that —

Unlike sugar, cement —

Earl W. Kintner:

That there — there is a difference in quality of the products in many instances particularly in the products used in manufacturing batteries, for instance, some better manufactures.

The finding indicates — tends to stay with the producer of whose products he is set up to use.

Earl Warren:

Mr. Du Bose.

Eugene Z. Du Bose:

Your Honor.

Your Honor, I think, first, that we must get this case in the proper perspective.

Mr. Kintner has stressed the findings of conspiracy.

Now, we’ve always maintained that there was no such conspiracy but we were beaten in the Seventh Circuit and this Court denied certiorari when we sought to have that reviewed.

But it would appear that now the Commission, contrary to the teaching in the Ruberoid case, it says that this order is necessary to punish us for our past bad conduct and not merely to prevent illegal practices in the future.

Now, let us first look at this matter of the delay and to whom it is attributed.

I think it’s interesting to note that the complaint here was issued in November 1944.

The Commission spent several months in the early part of 1945 identifying documents.

It’s then attempted to put in a freight study and on cross examination, my one other for counsel for respondent, the period that the freight data was inadmissible, it was stricken from the record and nothing happened until April 1946, when the amended complaint served.

There was no application on the part of respondents to delay it because of the war.

They delay it solely attributed to the Commission.

From 1946 on, we held hearings all over the country and we finished in the fall of 1947, we filed our briefs shortly before Christmas of 1947, the trial examiner’s recommended decision came down March 31st, 1948.

There was one final argument so called before the Commission in February 19 and January 1949, then the case was set down for reargument on February 1st and 2nd, 1950 and having been changes in the Commission’s personnel.

And it was three years later, in January 1953, that the order here was issued.

Eugene Z. Du Bose:

Now, Mr. Justice Brennan, you were asking about that telegram from Mr. (Inaudible) and the somewhat naive advice that he’d received from counsel.

We have always maintained and the record shows this that what they we’re talking about had nothing to do with zone pricing of price fixing.

It had to do with terms of sale, and perhaps credit terms when delivery should be made but the counsel was super cautious.

And however, the Commission went to find that although the matter of uniform contracts of sale, was discussed, there was no evidence and no showing that such uniform contract were ever adopted or used generally.

And that’s from the record, volume 5, page 3776.

Now, let’s again get this case back to its proper prospective.

This is the first time in this entire litigation since 1944 and it’s the first time since the order was issued that I’ve heard anybody representing the Commission say that this order merely prevents nationwide matching of zone prices and does not prevent local, regular meeting of prices in good faith competition.

As we read the order, it applies to both situation.

In other words, this order, and certainly, we would advice our clients that they couldn’t use a zoned system where either the purpose to meet a low price of the competitor or the effect without any purpose would be regularly to meet a competitor’s price in any given area and I certainly don’t think it can be stated that this merely applies to a nationwide precise fixing of prices.

Now, again, I think it’s important to note that ultimately, as Mr. Kintner said, the Commission feels that without this part of the order, which was rejected by the court below, the same pricing pattern will continue.

Well, I know, we have advised our client, and I’m sure that other counsel for the other respondents advised their clients that when the order against conspiracy which is — will be in effect, no question about that, does actually go into effect, they’ve got to change their pricing system radically for we feel that if a merely continuance to use a same pricing pattern under the teaching of the Morgan case and the Borden case and the Socony-Vacuum case, they would merely be continuing acts having their origin in illegal agreement and would be held to renew the illegal agreement by just continuing to do the same thing regardless of any actual meaning of the mind.

I think the law is settled on there.

Now, what will this order do?

Let’s take National Lead as an example, it has six white lead plants, it not merely in the east, a string from New York all the way to San Francisco, it has nine oxide plants which supply the material for battery manufactures, those are located in the east and the southeast in Texas, in Los Angeles, in San Francisco and in the midwest.

Suppose National Lead were to adopt its new entirely different from any system involved here is new, nondiscriminatory zone method, withdraw the zone boundaries so there’d be no question of — of possibility of injury to competing purchases in contiguous zones.

Now, there is nothing in this order which would prevent National Lead if it acted initially from setting up its own zone pricing system.

Then what would happen to the others, almost no other.

So, acceptance of very smallest pods has the advantage of location.

Suppose Sherwin-Williams, Glidden, Eagle-Picher wanted to compete for certain business in a particular area by lowering their delivered zone price to meet National’s, which as we read the Act is permitted by Section 2 (b) under Clayton Act.

Under this order, they couldn’t do that as we read it, at least they couldn’t do it if they regularly try to get that business because we think that the word systematically means the same thing as regularly.

Now, what would happen?

Are these smaller sellers suppose to go out of business and yet as we read this order, that’s what would happen, whereas they say, all right you can use some other method and meet prices.

Well, why is it any difference?

Why is it noncompetitive to use a competitive individually established zone method of pricing if anybody wants because the customers want it and competitively meet prices were necessary.W

hy is one bad and the use of say, an FOB freight equalize system to meet the lower prices of another is perfectly all right.

They say it’s in the context of this page.

Well, we say in the context of this case, we’ve got to make radical changes and when we do make radical changes, they’re going to be fully competitive zone pricing if the customers want it, or perhaps there will be some other method, I don’t know, we can’t tell it this time.

And also to get this case into it’s proper setting, this Court should know that this particular idea that respondent should be enjoined from using individually employed zone pricing where in any area of the country, there might be meeting of prices.

It was drag into the case after the hearings, after the filing of the trial examiner’s recommended decision and by counsel for the Commission would made no argument even before on this point had restricted his contention to the conspiracy issue but counsel brought it in on this theory.

He said that count one of the amended complaint actually does charge, that the individual use of zone pricing is an unfair method of competition.

Eugene Z. Du Bose:

There — the Commission, in ruling on his exception said, oh no, paragraphs 8 to 10 which he was relying on, merely spell out, how the conspiracy was carried out and it did not allege separately and distinctly that the individual use of zones was an unfair method of competition.

As a matter of fact, the Commission in his ruling said, if it have been the Commission’s intentions to charge that the acts of each of the respondents individually were unlawful, it could and undoubtedly would have so alleged in clear and unambiguous terms.

That’s their own construction.

However, they said, despite that, we think that in order to extricate the effects of the conspiracy and to guarantee against its continuation, this type of order is necessary.

Under these circumstances, the respondents were given no opportunity to meet the issue.

They could, we believe, now there is nothing in the record on this, have brought full testimony showing that zone delivered pricing was desired by customers, that competitive products, and we must keep this in mind here.

White lead in oil is a paint, it’s not quite a finished paint but it’s sold as a paint product and you remember the old master painter who used to add his own thinners and oils and mix it up and apply, dry white lead, sold to paint manufacturers as an ingredient in ready mix of paint, directly competes with titanium, pigments, with lithotone and with lead and zinc oxide.

Lead oxides are more or less sui generis but many battery manufacturers manufacture their own needs of lead oxide.

Now, since we were denied that opportunity, and since we say that the statute, Section 5 of the Clayton Act, clearly, and without any ambiguity, states how the Commission may go about declaring a method, the unfair and showing that the Commission is limited to preventing illegal acts bound to be illegal.

We say that we would deny due process and that the court below correctly struck from the order this particular provision.

Now, we keep hearing about the device or the cornerstone of the conspiracy was this zone pricing system.

Well, I say that there is no such thing as a zone pricing system except in a very broad sense.

Now, there are four broad methods of delivered pricing.

You got the — the right equalization, the basing point, the universal price throughout a nation and zone price.

Now, the facts of this case show that zones may differ radically in size, in area, in location of zone boundaries and in price differentials between boundaries.

For instance, the white lead in oil agreement, illegal agreement concerned 13 zones.

Dry white lead had only two zones, a par zone up to the Rocky Mountain, and slightly higher west of the Rocky’s upon which many products in this country are sold.

As a matter of fact, the Commission conceives that the white lead in oil zone were altogether different from dry white zone.

Now, what importance is that?

Importance is that there’s no such specific device as a zone pricing system except in that very broad generic sense.

And if National Lead, for instance, were to individually adopt its none discriminatory zones, it could have all sorts of zone for the different products which would be totally different from these zones that the — the court below found were established through illegal agreement.

You say there — there is one white lead zone, everything east of the Rocky Mountains?

Eugene Z. Du Bose:

No sir, dry white — as dry white sold to paint to manufacturer.

Everything is east to the Rocky Mountains?

Eugene Z. Du Bose:

Yes.

Now —

Every — every producers sold lead at the same price throughout that area?

Eugene Z. Du Bose:

Well, there was —

William J. Brennan, Jr.:

Well, all of those that were charged in here.

Eugene Z. Du Bose:

The — there were certain variation in price from time to time, and certain products.

But — but for any one day, the price was the same from main to Utah?

Eugene Z. Du Bose:

Yes, and that is made impossible and in the case of dry white lead, because the freight factor involved here, unlike cement or the heavy products, in the lead pigments deal, it was very small.

As a matter of fact, the trial examiner found that the freight element laid in a delivered price here ran from only 2.5 or 3.5% of the — of the delivered price.

And there’s enough profit margin for — so far away for companies to absorb that.

Eugene Z. Du Bose:

Well, again, the Commission also in effect conceded that all lead pigments were sold at very low margins over the cost of pigment lead which represented 98% of the — of the lead pigments.

Now, lead pigment prices generally tended to fall increases or decreases in pigment lead, and most of the respondents here have to buy their pigment lead from outside people that are not involved in this case, it means, in other words, National Lead has to — has to buy on the open market.

It doesn’t produce its own lead from which it makes lead pigments.

Now, I think it’s important to know as some of Your Honors have mentioned that in the new Cement case, 333 U.S., involving the multiple basing point system, where the respondents before this Court had objected to certain portions of the Commission’s order, this Court took paints to observe that the entire order there was predicate on conspiratorial action and it specifically noted that the order did not prohibit individual, non-collusive, delivered prices similarly in the Gypsum case which was a Sherman Act proceeding, the defendant there had said that the District Court’s decree might be deemed to prevent individual, non-collusive delivered pricing.

And this Court modify the District Court’s decree, despite the fact that it said the District Court has brought powers in bringing it decree, same argument made here so as expressly to permit individual, non-collusive delivered prices.

Now, were we any worse in the people involved in the Gypsum case?

If the District Court exceeded as authority in the Gypsum in attempting to prohibit individual prices, how much more, and the same thing be said here of the Commission which is not at court but in the administrative agency with limited powers.

(Inaudible)

Eugene Z. Du Bose:

No, sir.

And there was no finding here.

(Inaudible)

Eugene Z. Du Bose:

Well, there was no finding, if you may say that their expression of that in their opinion is a — is finding then — then they did say that.

But they — they based it on no facts, no evidentiary facts.

Suppose there was a finding of that kind, would there be any difference (Inaudible)

Eugene Z. Du Bose:

I think the same principle would apply there.

We would say that necessarily implicit in the Cement and in Gypsum insofar that individual, noncollusive delivered price should not be prohibited.

Now, we think the proper rule is as this Court has laid down in May Stores, an express publishing company.

There, the National Labor Relations Board was involved.

And this Court, despite its holding that the Labor Board had brought powers in framing its decrees, stated that it would be restricted to uprooting the illegal practices found to exist and like or related unlawful acts.

Now, there has been absolutely no finding of illegality here.

As a matter of fact, this case is wholly stranger or strange in the light of the consent decree entered against the steel industry in 1951, two years before this order was issued.

There, the consent decree which the Commission was willing to accept or vice versa, Commission suggested in would limit it to the prohibition of conspiracy to employ the multiple basing point system, and the order specifically provided that, as follows, that in — in interpreting and in construing the foregoing provisions, it is understood that the Federal Trade Commission is not acting to prohibit or interfere with delivered pricing or freight absorption as such when innocently and independently pursued regularly or otherwise, with the result promoting competition.

That result, that is a diametrically opposed view to the order here in question.

And then, in the 1932, the Commission, in its study of the basing point formula said, probably the most important, single, determinative factor in adopting the use of the delivered price uniform for all destinations is the ratio of the delivered cost to total production and delivery cost.

If this is low, with only slight differences and delivery cost, as between destinations freight wise differently located a delivered price uniform for zones may be a method of quoting more convenient to buyer and seller and less costly than an FOB point of origin price.

In that case, such a price would not be inconsistent with price competition, and would not be indicative of any lack of such competition.

Eugene Z. Du Bose:

Well, here, I pointed, the freight factor was only 2.5%-3.5% of the delivered price.

And the other circumstances would make a different zone system, a different form the old system agreed upon for a right within that definition.

And again, in 1948, the Commission said, where uniformity of delivered prices within a zone all throughout the country has simple and logical explanations in the nature of the market, the product and the transportation cost.

The observance of such uniformity even in the parallel action of a number of competitors, does not in and of itself create inference of (Inaudible)

Now, if this order that we have before us, had merely said, and each of you individually is here by ordered to — to cease and desist from using the pricing zone described in the findings or anything substantial is similar thereto.

I don’t think we would have any quarrel before this Court.

I don’t think such an order would have been necessary because I think the order banning continuation of the conspiracy itself requires some substantial change in your pricing so that you can show the Court it’s such necessity — if such be necessary, all the Commission that you’ve actually abandoned your old prices.

I think you’re absolutely required to do that under the Borden case.

Well, this summer, we believe that the statute requires a charge in a complaint and a hearing on this subject, and that when an order is issued without any such charge or hearing, the respondents were denied due process.

We say the order here is not necessary to ensure effectiveness of the decree abandoning conspiracy and would needlessly, and as we see it, if zone pricing were — were to be used at all in this industry, it couldn’t be used competitively and perhaps the smaller sellers might be driven out.

For all of the reason, we — we submit that that the Seventh Circuit was entirely correct in setting aside the injunction.

(Inaudible)

Felix Frankfurter:

Before you sit down —

Eugene Z. Du Bose:

Yes, sir.

Felix Frankfurter:

— Mr. Du Bose, may I ask you this question.

You opened your argument, that’s — as my theory would obtain continuously that either Mr. Kintner in his argument gave in scope to the — to be contested, the feature of the decree of the order different from what you had assumed it to be —

Eugene Z. Du Bose:

Yes, Your Honor.

Felix Frankfurter:

You’re trying to be dealing that — so that one can understand whether there is and in — to what extent there is a disagreement between you and the Commission.

Eugene Z. Du Bose:

Yes, Your Honor.

Felix Frankfurter:

Because this is a serious business, this is a decree — this is an order which subjects you (Inaudible)

Eugene Z. Du Bose:

We — we do feel that way.

Felix Frankfurter:

Now, a great deal of Mr. Kintner’s, even would be good enough to — supposedly when it comes to respond, are we to agree or disagree to —

Eugene Z. Du Bose:

Well, as I understood Mr. Kintner, and this is only from my own notes, in answer to questions from the court, he said, as I recall it, that this order would not prevent meeting of prices and any local given area which is permitted by Section 2 (b) of the Clayton Act, but would only apply to a nationwide scheme of meeting and precisely matching prices.

We say that the way we read that order, you couldn’t — if any one seller adopted his own zone delivered price method, no one else could invade that seller’s territory or zone price and charge the same lower delivered price because, as we say it, it would be matching and if you did it regularly, it could be — as said, to be systematically matching its competitive freight.

Felix Frankfurter:

Now, suppose — suppose that the Commission wants to put in form — in formal terms what you understand of Mr. Kitner’s interpretation, what effect if any would that have upon your —

Eugene Z. Du Bose:

Again, I — I think it might — it might well result in any — in any competitive — that it’d be against competition.

You might well, here, as a result of competitive forces, an independent action, ultimately get matched prices but that would be as a result of competition and not as result of this artificial scheme.

Now, if there is any — a collusive scheme can’t work on just one seller and this —

Felix Frankfurter:

Well, collusion is out.

We are — that’s —

Eugene Z. Du Bose:

Right.

Felix Frankfurter:

— in controversy from what I understand your argument to be.

Eugene Z. Du Bose:

Yes.

Felix Frankfurter:

You say they had a right to — to prohibit as tightly as they pleased, collusion as such.

Eugene Z. Du Bose:

Yes.

Felix Frankfurter:

But you objected, as I had — opened as your argument is that independent action in and out itself cannot be deemed to be a way of remedy entire collusion on the theory that it didn’t have to operate collusiveness.

Eugene Z. Du Bose:

Yes.

Felix Frankfurter:

Is that the subject of your argument?

Eugene Z. Du Bose:

That’s — that’s the subject.

Felix Frankfurter:

I don’t mean to be unfair to those —

Eugene Z. Du Bose:

No, that’s the subject.

I thank you put it —

Felix Frankfurter:

That’s the heart of it.

Now, what I want to know is if they correspond as they have from — the — what — the way you read that order, to what extent does that qualify to (Inaudible) you may still lead you to object as I infer.

Eugene Z. Du Bose:

Yes.

Felix Frankfurter:

But it wouldn’t have to qualify the scope of your objection and distinction.

Eugene Z. Du Bose:

Oh, it would to — it would to —

Felix Frankfurter:

And that’s what becomes important when you (Inaudible) what order we are asked to support as against what the (Inaudible) —

Eugene Z. Du Bose:

Well, as I say, I — I only said this from my own notes.

I don’t want to put words to Mr. Kintner’s mouth.

Felix Frankfurter:

I — I just want to know your understanding whether it precipitates the apparent issue.

John M. Harlan:

Could I ask you —

Earl Warren:

Mr. Kitner — oh.

John M. Harlan:

Pardon me.

Earl Warren:

Go right ahead.

John M. Harlan:

Could I ask you one question before you sit down.

Did I take it from your argument you’re saying that the powers of the Federal Trade Commission in this respect to a narrow than the powers of a core down to the antitrust laws that the —

Eugene Z. Du Bose:

We do say that, but we don’t think you need to reach that point.

We say that even if this were a court procedure.

John M. Harlan:

That’s what I’m going to ask you.

John M. Harlan:

Even — even if this were a Sherman Act proceeding —

Eugene Z. Du Bose:

That that —

John M. Harlan:

— you — you would say and the complain have been the same that this would not — wouldn’t not been able that they allow the judgment in passing of the decree —

Eugene Z. Du Bose:

That’s our position.

But do you — do you agree with what the court said below, as I understand it, that here, there was no finding of the —

Eugene Z. Du Bose:

There was no charge in the complaint.

No charge and no finding.

Eugene Z. Du Bose:

No evidence on the subject, no finding, it was dragged in at the last minute.

Felix Frankfurter:

But this doesn’t justify to try — as vindicating a charge just to justify as a mode of enforcing the charge which has been (Inaudible)

Eugene Z. Du Bose:

That is true.

But we say that, for instance, in the Triangle Conduit case which was perhaps about local authorities since the Commission was affirmed by divided vote in this Court.

There, however, there was a separate charge in the complaint count two which said that the individual use of the formula there involved with knowledge of each seller that his competitors were using the same constitute and an unfair method of competition.

And there was a — there were hearing on there when the experts on both sides and there was a finding that such constituted an unfair method of the competition.

We believe that if any order here, even if it’s on the theory that it helps to prevent evasion, should at least have a basis, a finding of unfair competition in that context before it can be included in the order.

Felix Frankfurter:

Was there any argument before the Commission entered the term of the order regarding the scope of the order?

Eugene Z. Du Bose:

Oh yes, there was argument —

Felix Frankfurter:

(Voice Overlap) before the litigation, a proposed order to which you spoke.

Eugene Z. Du Bose:

Oh — oh, yes.

Felix Frankfurter:

So that you had — did that include the — the contested clause?

Eugene Z. Du Bose:

In — on — on a different theory, counsel for the Commission objected to the failure of the trial examine to include a paragraph directed at individual prices.

On the theory and that is the only thing that he argued that count one, a certain portion of count one did actually charge of the individual use of zone pricing was an unfair method of competition, we did argue that point and the — the Commission rule — ruled us on that point this other idea that it’s necessary —

Felix Frankfurter:

But that was not — this wasn’t — the order of the Commission wasn’t by way of the proposed decree for the court —

Eugene Z. Du Bose:

Oh no.

Felix Frankfurter:

— and the court asking counsel to address themselves in the —

Eugene Z. Du Bose:

Oh no.

Felix Frankfurter:

— proposed decree.

Eugene Z. Du Bose:

No Your Honor.

Earl Warren:

Mr. Kintner.

Earl W. Kintner:

Turning to the matter of which Mr. Justice Frankfurter has — has mentioned, it’s a position of the Commission that the purpose of this order is to prevent each respondent from using this own delivered pricing system in order to systematically match the prices of their competitors.

The Commission, of course, conceives the right of each of these respondents to individually devise its own pricing system.

Earl W. Kintner:

It doesn’t — it’s not concerned of what type of pricing system is devised by this respondents.

And frankly, we feel that it is unlikely that the respondents could, in the immediate future, continue using a zone delivered pricing system.

We — we believe that it’s possible that they might devise individually a system which would not constitute a systematic matching of the prices, but we can — we — we believe that it is well not impossible to do so and that they must turn.

Felix Frankfurter:

Does that mean — does that mean that if they — let’s say they were required to do so that you would have to establish in order to drag them up to determine the disobedience of the order and that (Inaudible) that the burden would be on that they have — they have systematically tried from that.

Earl W. Kintner:

Yes sir that there, they had devised this system and we’e using it for the purpose and with the effect of systematically matching prices and thus depriving the public of price competition.

Felix Frankfurter:

Now, would you state negatively what they are not prevented from doing by this order.

Earl W. Kintner:

Well, they are certainly not prevented from going back, returning to — to methods of pricing which existed in the industry prior to 1933 where National had 589 different pricing points in 40 states which should have varied from time to time and where Eagle-Picher had a somewhat similar but different pricing system.

And where there where differing conditions and on terms of sale, and where for example the white lead and some instances was tied to the price of pigment lead which is not the case here.

Here, the lead oxides are — have been tied —

Felix Frankfurter:

What could they do (Inaudible) not to offend your view of the order, and he thinks —

Earl W. Kintner:

That — that is somewhat difficult for me to answer, if they have — if — if two of the respondents have — have a common production point, I think it’s — it’s likely that there would be a tendency that for sameness in price.

But quality and brand names in or into the problem of pricing here, customer preference, the record shows that National’s Dutch Boy brand is — is more (Inaudible) any other brand that no one in the industry in the matter of consumer preference, there are many ways in which these respondents may compete and it is important sir, the fact that there are only now about four factors in the entire industry.

And that is important in — in the context of this whole situation.

Felix Frankfurter:

Mr. Kintner, may I ask you what Chief Justice’s concurrence, if you will be good enough to look at your brief and see if you want to add anything by way of a memorandum to the court on what you conceive to be, the — the requirements of this contested provision.

I’m not asking to apply that in memorandum but look at your brief and see whether you have said everything you want to say in view of Mr. Du Bose’s understanding, whether you want to add anything (Inaudible) order does or doesn’t do.

And I suggest —

Earl W. Kintner:

We’d be very glad to do that.

Felix Frankfurter:

When the Commission that make — makes the orders did not even sometimes say what — what an order doesn’t forbid.

Sherman Minton:

And Mr. Du Bose raised a question that he has to do the same that this would only affect the nationwide zoning — zoning prices, is that your understanding?

Earl W. Kintner:

If that is his understanding of my statement to this Court, he is in error and I was an error in making the statement if I may —

Sherman Minton:

Well, I thought that’s what he said in his (Voice Overlap)

Felix Frankfurter:

But you have covered that in —

Earl W. Kintner:

What the — what the Commission has sought to prevent here is a continuation of a systematic matching of prices by zone delivered pricing system.

Well, Mr. Kintner, let’s just take the simple illustration of single state, all three of these respondents, completely independently upon — happened they hit upon the boundaries of the single state as a zone and also completely independently although they happen to hit upon the identical price for a given products sold within that zone.

That was a fact situation left with bigger position as to the effects of this decree.

Earl W. Kintner:

Well, of course, various factors that were entered in —

But it just doesn’t consider no factors except by the —

Earl W. Kintner:

But, if they — if they did — if they arrive at that common pricing through individual acts, completely innocently —

— that’s — that’s the high cost.

That’s the high cost.

Earl W. Kintner:

And no anti-competitive effects.

That’s the high cost, the one — the one that plans that —

Earl W. Kintner:

That that would be a —

Felix Frankfurter:

(Inaudible) I didn’t — I didn’t hear what you said, no anti?

Earl W. Kintner:

Competitive effects, no anti-competitive effects.

What’s that?

Earl W. Kintner:

You would — I was thinking in terms of the Clayton Act becauser there are other statutes that have to be considered in any one of these problems but as you pose the question, I — I see no illegality.

Felix Frankfurter:

Well, could there be an ant-competitive effects it you — assuming the situation (Inaudible)

What — when can you draw the basis of finding that anti-competitive effects?

Earl W. Kintner:

You had a particular price of the way to a particular customer on a state boundary line and a different price to the customer just beyond the state boundary line.

It might be price discrimination.

Felix Frankfurter:

That discrimination —

Earl W. Kintner:

Yes sir.

Felix Frankfurter:

— not because of the decree — to competitive independently as the —

Earl W. Kintner:

No sir.

Felix Frankfurter:

— did the same thing but it wouldn’t have to regard to competitors if I consider —

Earl W. Kintner:

That is right sir.

Felix Frankfurter:

It’s a different problem.

Earl W. Kintner:

Yes sir, it is.

William O. Douglas:

Now, Mr. Kintner, you answered my question that that you say would not and I have to say, Hypothesis I gave you would not do my list to this provision because this provision has right to say that?

Earl W. Kintner:

As I under — the — the provision itself does not say so in many words — in so many words but I think that if its basis is that the respondents shall individually develop their own pricing system and that if they use a zone delivered pricing system, it must not be with the purpose and effect of systematically matching one and others prices and there, if I understand it was what you were referring to — do in your example.

Innocent — innocent behavior individually arrived that and I would be compelled to say that always where the respondents have innocently and individually arrived at their own pricing system that that must necessarily — it must necessarily follow that the action is legal.

William O. Douglas:

Even — even when it looks at the other men’s price–

Earl W. Kintner:

Sir, you have injected another proposition.

Well — we — you have to be reasonably practical about the — what — what’s the manufacturer going do when he looks at the (Inaudible) —

Earl W. Kintner:

You —

— give it to one man or — or in his price?

Earl W. Kintner:

You — you inject a — a factor of knowledge and — and what are not the one manufacturer has with that knowledge adopted the pricing practices of another for the purpose of matching prices which gets pretty close to what the little Triangle avoid here in this — in the use of — continued use of his own delivered pricing system.

Felix Frankfurter:

What you’re — what you’re saying, what you’ve just said if I understand you is that in due of the past prices condemn that conspiratorial — you can’t put it the way your competitor does.

Earl W. Kintner:

It would be — he would be rather unsafe for him to do so.

Earl W. Kintner:

He’d better think about his own pricing practices and devise a system it’s lightly different from what he’s got today.

Felix Frankfurter:

I’m just trying to find out what — what this decree cover.

Well, it’s easy to devise a system that’s different from what your competitors devises but how you can devise a system that will serve your lead at a higher price to your competitor.

Earl W. Kintner:

I would —

But your competitor can sell at a higher price than you looks different (Inaudible)

Earl W. Kintner:

I — I would concede sir that there and it might be circumstance that there might be instance as many — where prices of competitors might be matched in the future in this industry.

That was true prior to 1933.

You wouldn’t recommend the production cost plus transportation for everyone?

Earl W. Kintner:

No sir, I — I wouldn’t recommend the adoption of any particular pricing method.

What the Commission has sought to do is to American industry free to adopt individually pricing methods and not to prohibit such methods as such, that’s why the charge wasn’t made in the complaint, but it’s only in the context of a price fixing conspiracy as hearing that the Commission feels that it mustn’t have proscribed such methods when done for the purpose of systematically matching prices.

John M. Harlan:

Well, since you’re going enlighten this further on the scope of this provision, I’d like to add one more question to it.

Take a simple case within a zone where one person — one company is selling at X dollars and another company wants to come down to meet that price.

He does it consciously, deliberately for that purpose.

You say that’s prohibited by this decree?

Earl W. Kintner:

Not necessarily, it — it may be wholly justified by the leading competition advanced in the Clayton Act.

John M. Harlan:

Well, isn’t that you (Inaudible) do it.

Earl W. Kintner:

And if it’s not part of a — of a system throughout matching prices but is done for the purpose of meeting the individual competitive situation, and assuming the — that that — that the Section 2 (b) of the Clayton Act would be applicable here that the factual situation would be such as to constitute a defense there then I would have to concede that that would be a lawful situation.

John M. Harlan:

Well, whatever your motive was, how does that run afoul the provision, in your decree it says thereby preventing matching prices, thereby preventing purchases from finding any advantage in price in dealing with one or more sellers as against another.

I had read that merely to mean that they — you weren’t to match prices by raising it, because I don’t understand how you can effect the competitive situation, vis-à-vis the public by reducing prices because the public then has two instead of one person — one — one company to deal with in the lower prices.

Earl W. Kintner:

That is true.

John M. Harlan:

But you don’t construe it that way.

Earl W. Kintner:

You — you can get in —

John M. Harlan:

You don’t construe it that way though, as I understand it.

Earl W. Kintner:

Well, you — you get into a situation involving 2 (b) of the Clayton Act of where the action could be completed defensively in meeting the prices.

John M. Harlan:

Well this is independent form the Clayton Act.

This is — I’m talking about the terms of the decree.

Mr. Du Bose said what — that even in that situation, his company could not match prices.

And now, I understand you agree with that interpretation.

Earl W. Kintner:

Whatever — I would say this that whatever the prices, whether high or low, if the parties operated for the purpose of matching prices and depriving the consuming public of price competition in the industry as was the case here, then that is illegal.

Felix Frankfurter:

The more I agree if —

John M. Harlan:

How are we —

Felix Frankfurter:

I beg your pardon.

John M. Harlan:

Excuse me.

Felix Frankfurter:

It’s all right.

John M. Harlan:

How are you depriving the public in the competition in prices when you lower your own prices to meet a competitive price?

Earl W. Kintner:

I don’t believe you would in that — just for the act of lowering prices but if — if you have adopted a — a system for exactly matching prices where some have to lower and some have to raise as was the instance here —

John M. Harlan:

I’m talking about lowering only.

I want to know —

Earl W. Kintner:

Only lowering.

John M. Harlan:

This catches the lowering as well as the raising (Voice Overlap) —

Earl W. Kintner:

Well, that is the — that is the result (Inaudible) to be desired in the comparative economy, lower — lower prices but it isn’t the way these price fixing conspiracies usually operate.

John M. Harlan:

No, but Mr. Du Bose says that under your decree as written, this company would be preventive from achieving what you now says that that was however the result.

Now, do you agree with that or not?

Earl W. Kintner:

From lowering prices, no sir.

John M. Harlan:

You don’t.

Earl W. Kintner:

I don’t agree that he would be — his company would be prevented from lowering prices or, in all instances, from meeting competition.

I think they’d have that right.

But —

William O. Douglas:

But — but (Voice Overlap) —

Earl W. Kintner:

— they would be —

William O. Douglas:

(Voice Overlap)

Earl W. Kintner:

— prevented from using the zone delivered pricing system in order to systematically match their competitor’s prices.

That is all that we have maintained.

Systematic and matched where?

Nationwide, zone wide, (Voice Overlap) —

Earl W. Kintner:

Well, I think it should well be nationwide or it could well be within a zone or an area.

It would depend upon the circumstances.

Well, if it’s in a zone or an area then — then you — you — you’ll say that if you can lower your price to beat your competitor’s price.

Earl W. Kintner:

Again, it would depend upon the artificial nature of the area, size, all the circumstances.

Felix Frankfurter:

Mr. Kintner, I hope I’m not alone in wishing in light of the discussion that we had and taking that it’s important to get in more detail that the clearer indication — definition was taken of what the scope of this to create and I think (Inaudible) in the light of this — of the arguments been exchanged between counsels in the bench.

Earl W. Kintner:

I’m very happy to do so, Your Honor.