Tampa Electric Company v. Nashville Coal Company – Oral Argument – December 15, 1960 (Part 2)

Media for Tampa Electric Company v. Nashville Coal Company

Audio Transcription for Oral Argument – December 15, 1960 (Part 1) in Tampa Electric Company v. Nashville Coal Company

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Earl Warren:

Mr. Chanler, you may continue.

William C. Chanler:

Mr. Chief Justice, may it please the Court.

As I was pointing out just before the recess, one of my contentions is that a single contract whereby a single consumer arranges for the supply of its requirements of raw material over a period of years, cannot come within Section 3 of the Clayton Act because there is no basis for inferring under such a contract that the effect or purpose or use of the contract shall in any way be to limit competition or tend to create a monopoly.

It stands on a totally different footing than a contract tying up large section of actual retail or consuming market.

The reason for that – it’s perfectly true that large volume of coal is withdrawn from competition, I’ll put it that way, and that, of course, is their point, but quantitative test alone is not enough.

In the first place, you have to show that somehow it tends to join some connection with illegal method of limiting competition as Mr. Justice Brandeis stated long ago in Board of Trade v. Chicago quoted at page 19 of my brief.

Every agreement concerning trade, every regulation of trade restraints from buying to restrain is of the very essence.

Obviously, the contract to buy 225,000 or 2 million tons of coal a year has effect or preventing the purchaser from buying that coal from anybody else, or from many other sellers, for selling that coal to the purchaser but there’s nothing illegal about that type of contract, if there was, every contract in which you buy a large volume of goods would be illegal.

There must be some connection between the volume, the quantity and restraint in the competition and that in terms of the Clayton Act as hitherto construed by the courts and as intended by Congress occurs only in this type of contract when the effect is to tie up competition for the resale or the tying up of outlets of the sellers goods.

Moreover, as Mr. Judge Frankfurter pointed out in Standard Oil, purely — a purely quantitative measure of the effect of the contract is inadequate because the narrower the area of competition, the greater the competitive effect on the areas of competitors.

Since it is the preservation of competition which is at stake, the significant proportion is that of the area of effective competition.

Now my friends, talk about the area of fixed competition as being in Florida and I say why, we’re selling half the coal that’s being burned in Florida.

We may sell more than half the coal.

Well, that’s because we’re the first ones to burn fuel coal as a fuel in Florida.

We are the newcomers in the field.

We are now contemplating building an atomic power plant in Florida.

When that’s built, we have 100% of the atomic power plant market for Florida, that won’t be a monopoly.

We’ll be introducing a new competitive fuel as — a method of making electricity so that the fact that we have — selling a large proportion of the coal being burned and sold in Florida is just prickly beside the point, what we’ve done is to open up, to the sellers’ competitors.

The entire boiler fuel market and fuel market in general is the whole Peninsula of Florida which has to do with monopolizing entirely by oil.

The sellers’ competitors can vote anybody who is buying oil and say “Look, we can bring coal in the way they’re doing it in Tampa, will you deal with us,” something that nobody that would thought of doing before, but the real market here is the market in which the competitors and their sellers and their competitive seller and their competitors market their coal and the market from which our competitors in Florida could buy their coal in that market.

This contract shows — is up in the — the coal, it can be sold from coal mines located up in the head waters of Ohio river and the center or Eastern part of the country, and that market extends at least from the Rocky Mountains to the Atlantic Coast if not beyond.

Actually, this contract involves quantitatively 1%, less considerably less than 1%.

Even if we had six units — we only have three, all burning coal to maximum, it would involve much less than 1% of all the coal marketed by this seller, this respondent and its competitors in the area where they market — from which they market coal, where they dig coal and which they sell it.

If you —

Earl Warren:

Is that all — all of their coal Mr. Chanler of this particular kind of coal — type of coal?

William C. Chanler:

Well I think — I think it’s coal all of their coal causes this boiler fuel.

I don’t know enough about the coal — I don’t know the — we’ve been talking about exercise if that’s what Your Honor means.

Earl Warren:

(Inaudible)

William C. Chanler:

I think I’ll figure (Inaudible) I suppose and —

Earl Warren:

So I have an idea there were different — different kinds of coal, boiler coal, or coal that would be used for other purposes.

William C. Chanler:

Well, I yes.

I think that it’s broken up in different sizes depending on what you’re going to use it for and that coal is so forth.

Earl Warren:

But the coal —

William C. Chanler:

I don’t know but I understand the figures we got from some government (Inaudible) it’s on our brief.

It is less 1% of the coal which they do sell —

Earl Warren:

I see.

William C. Chanler:

— from that area and if you recognize that the market is the boiler fuel market, it seems to me it’s really is.

Tom C. Clark:

What area (Inaudible)

William C. Chanler:

Well, I said it was the area in which Peabody Coal Company, West Kentucky Coal Company and all its competitors along the Ohio river and West of Virginia sell their coal and they sell their coal as I understand it form the east of the Rocky Mountains along the — end of high plains all the way over to the Atlantic Coast.

Tom C. Clark:

Would that exceed West Virginia?

William C. Chanler:

Oh, West Virginia is in the same.

Well I don’t — I’m not drawing a distinction, I mean the Central Appalachian of coal fields which is West Virginia, Ohio, Tennessee, Kentucky, it’s all in together now.

I wasn’t trying to do a —

Tom C. Clark:

That’s where the number of —

William C. Chanler:

What’s that?

Tom C. Clark:

That’s where the number of —

William C. Chanler:

Yes.

Oh yes.

It’s that whole area because as we see it from anyone of those coal producers, you can buy coal and have it shipped either to Florida or Maine or Colorado and therefore that is the market that we’re talking about.

Florida is even the market until this contract.

Earl Warren:

My question was prompted by curiosity.

It just seemed to me that — that this wouldn’t be as much as 1% of all the coal, all that coal —

William C. Chanler:

I’m surprised to introduce to —

Earl Warren:

I thought it go — would only be infinite testimonial part of that.

William C. Chanler:

I’m surprised that it is much 1% and I don’t — I didn’t really check where they cut the figures and gave to me.

It seemed to me that it would be much less because of the enormous quantities of coal.

It may be just boiler of coal.

Tom C. Clark:

(Inaudible) I think use of it is (Inaudible)

William C. Chanler:

Of coal.

Tom C. Clark:

Done.

William C. Chanler:

Done.

Yes.

And we only have two minutes.

Tom C. Clark:

(Inaudible)

William C. Chanler:

I think it must be discounted coal.

Tom C. Clark:

But (Inaudible) risky because (Inaudible)

William C. Chanler:

And of course in the —

Charles E. Whittaker:

That might be the — all of the producers throughout the whole country (Inaudible)

William C. Chanler:

Well, I’m limiting it to the productive area in the Appalachian mountains including West Virginia and Ohio.

I think that’s all included in this figure because that is the area as I see it which from which coal moves out by rail or water in any — in all directions.

They could bring the coal in West Virginia down to the coast and down to Florida and Atlantic Coast or down the Ohio or Florida, either one or anywhere else in the country.

And when you measure these little utility’s requirements in terms of the fuel, boiler fuel market that these coal producers can reach including oil burners of oil and gas, of course it becomes even more infinite testimonial through this.

That’s what it is (Inaudible).

In other words, my contention here is that you can’t diffuse one of 700 coal dealers of attempting to limit competition or attempt to create a monopoly in coal.

It just doesn’t make sense even though the producer is trying to accuse himself, establish that monopoly, but it just doesn’t make sense.

As Judge White said in his dissent below, “I cannot consider a single contract with a single utility serving only 3% of the land area and 11% of the population of a single state as “substantially lessening competitions or tending to create a monopoly” and I think that disposes of that angle of my case.

Now, I’d like — just one more point and I said, in none of the cases, none of the 19 cases that — except one, the 20th case Boeing Company, I’ll come to it in a moment, none of the prior cases before a year ago had a seller even attempting to get out of this contract on the ground that he had entered into a sale on the condition that the purchaser wouldn’t deal with its competitors.

In other words, the seller had violated the Act.

Every prior case, well, three quarters of them were cases brought by the Federal Trade Commission which tried to stop the seller from enforcing an exclusive dealing condition on the ground that the inclusive dealing condition violated the Act, tended to limit the competition and was unfair to the purchasers.

The whole purpose of the Act repeated over and over and the congressional record is that the purpose was to protect the little dealers throughout the country who weren’t allowed to sell more than one brand of goods on there, in their stores by virtue of these requirements contracts.

The act, as I have said, contains no provision outlawing contracts at all and as — thrown a stone these recent cases.

Kelley v. Kosuga was pointed out and many other cases, the Court will not impose in party provision outlawing contracts into a prohibitory or penal statue when Congress didn’t put it there.

The only time you hold the contract unlawful because of a violation asserts contract is when such a statute is when the illegal act is inherent in the contract itself or when the seller, the wrong doer is trying to profit by his own wrong, for the wrong do — as a seller.

He is trying a profit by his own wrong here by getting out of a legitimate contract.

If he was trying to enforce the contract and had violated the Act, we could prevent it from doing a pursuit with the Trade Commission perhaps.

Charles E. Whittaker:

May I ask you please, I understand that you entered into a replacement contract.

William C. Chanler:

Requirement.

Charles E. Whittaker:

A replacement —

William C. Chanler:

Oh Yes.

Charles E. Whittaker:

The fault was made here, you made another kind of track with another supplier.

William C. Chanler:

Well I think mostly we’ve been buying year by year because we never knew — for a long time, we didn’t know whether these people were going to begin supplying us again.

So at first, we bought on short term.

Now, I think we have a fairly long-term contract.

I think it should be difficult of this.

Charles E. Whittaker:

And at a higher price?

William C. Chanler:

Oh yes.

Charles E. Whittaker:

I see.

William C. Chanler:

Dollar or dime.

At least it can be a dollar or a dime.

I think they’ve got it readily down closer now, but I think during the first year they say they had to pay, when they quit, they had to pay a dollar or more, that’s why they didn’t want to sell it.

Charles E. Whittaker:

And your interest here is the fruits of the contract, damages?

William C. Chanler:

Yes, that’s right.

Yes.

Yes, we didn’t bring an action for damages because it was an anticipatory breach.

We didn’t know what we have to pay for coal so we wanted to establish what we were entitled to, but we’ve got first cancel claim, I thought we had to keep — we’ve been under a duty as a public utility to keep the plant running and we have to scatter around and get the best coal we could find as quickly as we could to keep the plant running and produce electricity.

Now as I said, the only — there is only one case that I know of in which a seller has attempted to get out of a requirements contract and that was the true one with a real (Inaudible) condition on the ground that he violated the act that is in the case of (Inaudible).

There, there had been a contract that you couldn’t buy, use for special salt water softening device unless you bought all the water softening device from the same seller.

Federal Trade Commission stepped in and issued an order enjoining the seller from enforcing the contract.

The seller then refused to continue to sell to the buyer.

The buyer brought a proceeding gets as we did for declaratory judgment that the contract was enforceable by him.

Judge Igo in the District Court said that he was and the Court of Appeals for the Seventh Circuit affirmed, pointing out that the Act is designed to protect purchasers against sellers and could not be turned around to commit a seller try and get out of his contract by saying he has violated the act when the purchaser was anxious to have it performed.

Charles E. Whittaker:

But wouldn’t it be true sir — let me ask.

I’m one — I don’t know I just would like to have your view.

If the contract was made in violation of law, would it not be void?

William C. Chanler:

No, sir not necessarily.

It tends whether the — if the statute says that any such contract shall be void, can be void, of course, but if the statute says no person shall impose this, as I construed this Section 3, what in effect says no person shall impose an exclusive dealing condition on a contract of sale.

That means no seller may impose condition.

When the Act was originally drawn, sir, it was criminal statute directed solely against the substance.

Any person who shall make a contract of sale on the condition that the purchaser will not deal with the sellers’ competitors will be guilty of a crime of misdemeanor.

For Senate, that was the house burden.

William C. Chanler:

The Senate didn’t like it, it was too harsh.

They had a very much louder bill.

In conference, the bill was the criminal sanction was taken out and the qualifying clause softening its effect was added where the effect of such condition might be to lessen competition or tend to create monopoly.

But the major portion of the Act that it shall be unlawful to make sale on this condition remains substantially the same.

A thing that has drawn when the seller was guilty of a crime, that totally was directed towards the seller and the fact that the seller has committed that crime did not mean that the contract which he had illegally made was void, voidable by him as against the purchaser, the innocent party for whom benefit, the law was passed.

And that’s what the Court has held in the only case before this one where an attempt by a seller to take advantage of this alleged wrong doing has been testified.

I don’t believe that the seller in the (Inaudible) case, petitioned this court fortiori so that I went no further than the Seventh Circuit but I maintain sir, that the contract of this kind — like many contracts where many particularly contracts in this very field of antitrust statutes, Sherman Act, there are contracts of which where there have been violations of the Sherman Act.

Well, in Kelly against Kosuga and (Inaudible), there had been violations of the Sherman Act but the violations were not of Section 2 which declares contracts unlawful under Section 1.

And this Court said, “Well, that doesn’t declare the contract unlawful and therefore the contract still impossible unless the wrong doer is trying to benefit by his own wrong or where as in the Connelly (Inaudible) case I think it was, where enforcement of the contract would require the Court to sanction, the performance of the unlawful act.

Charles E. Whittaker:

Were those cases that involved recoveries for partial performance?

William C. Chanler:

Well in — in Kelly against Kosuga, there was a breach of contract and the seller sued for the contract price as I remember, damages between what he resell, the good ads to the public and the contract price.

He tended to gauge if the buyer wouldn’t take them.

He sold them on the market sued for the difference and this Court held that he was entitled to recover even though that was the — even though he had — even though there had been a violation of the Act.

It’s only I think sir, if you could say that Section 3 forbids the performance of a contract which has a — an exclusive dealing conditions in its buy for purchaser that this contract would be void, but the Act doesn’t say that.

There’s only that the seller may not impose the condition.

And for that reason, I think this is the type of case where the seller himself cannot avoid his factual obligations by pretending that he has violated that Act.

I like to preserve the —

Earl Warren:

You may.

Mr. Fortas.

Abe Fortas:

Chief Justice, may it please the Court.

In view of the presentation by Mr. Chanler, I find it necessary briefly to state for the Court the facts of this case.

I will then, with the Court’s permission, proceed to address myself to each one of the points that Mr. Chanler has made and some of which have been the subject of inquiries by the Court.

But it is first essential, if I may respectfully say so, that we be clear as to the facts in this particular case.

Mr. Chanler began by what was perhaps a slip of the tongue saying that this was a contract to supply part of the requirements of coal.

I call the Court’s attention to the complaint which appears in the record at page 5 in paragraph 8 and towards the middle of that paragraph the contractors proscribed as a contract providing for the sale and delivery to plaintiff, that is the petitioner in this Court, of all — of all of the coal required by the plaintiff for the production of the electric energy at a new plant it was constructing near Tampa, Florida for a period of 20 years.

Alright, what we are dealing with here is a 20-year requirements contract, that is to say a contract to supply petitioner here with all of the coal that it presently requires and thus found by the courts below.

With all of the coal that is presently required and presently contemplated a full requirements contract and not only a full requirements contract but if the Court please a full requirements contract for the period of 20 years following the date of the first delivery.

Now, let me be very specific about this contract.

The contract provided, contemplated that the petitioner was going to build a new station, the Gannon Station.

At that time, the petitioner had two other stations at which it was generating electric power.

Abe Fortas:

Those two existing stations burned the oil.

It had no coal facilities.

It determined to build the Gannon station and entered into the contract which is here in issue.

That contract provides that there will first be constructed two units in the Gannon Station.

That those two units would be coal burning units that their total requirements for 20 years following the date of first delivery would be supplied under this contract all of their requirements that if and when the petitioner constructed any additional units at this Gannon Station to burn coal and it had the theoretical choice anyway of deciding whether the additional units would burn coal or burn oil.

But if it decided within 10 years at any time within 10 years after this contract was executed to build an additional burn — coal burning unit in the Gannon Station that that coil burning unit would automatically being covered by this contract.

So then the requirements for any additional coal burning units at the Gannon Station would automatically be withdrawn from any possibility of competition by suppliers of coal and would come funder the preclusive provisions of this contract.

Now I remember, if the Court please, the petitioner has no other coal facility, no other coal burning facility.

It’s only coal burning facilities are at the Gannon Station.

They are necessarily absolutely covered by these requirements contract for a period of 20 years.

Now, the after this litigation was begun —

Potter Stewart:

Just before you get to that, (Inaudible) and terms of the contract.

Abe Fortas:

Yes.

Potter Stewart:

Of course the — Judge White below, I can’t find it a moment about the — made a reference to the fact that the — that the buyer to get 15 % of his coal needs from — what else, under the contract.

Abe Fortas:

Yes.

There is a provision on the contract which has not been stressed by petitioner, the reason I’ll come to, to the effect that 15% of the buyers’ requirements at any kind maybe supplied by byproduct fuels supplied by any costumer.

In other words Tampa Electric reserve to itself the opportunity to take 15% of its requirements in the form of byproduct fuel if and when such was furnished to Tampa Electric by any of its costumers.

Now, Mr. Justice Stewart, number one you will note that that does not contemplate getting coal from anybody else.

Number two, this is so far as it appears in the record, from this years, it’s purely theoretical possibility that perhaps sometime —

Potter Stewart:

What’s the provision of the contract?

Abe Fortas:

There was a provision in the contract —

Potter Stewart:

There was a provision of the contract.

Abe Fortas:

Yes sir.

Potter Stewart:

It’s not —

But I say —

— not theoretical to that extent.

You’re talking about the provisions of contract.

Abe Fortas:

Well, I’m totally — that depends Mr. Justice upon whether the principle — what principle is about the looking of this contract.

I believe as both courts below held that the contract should be reasonably construed in the light of the realities and one of the unrealities, if I may say so here, is the talk in which petitioner has engaged about the possibility that it may at sometime converts one of its oil burning plants to the use of coal.

Now, as the courts below said that there was no prospect to do that there is no plan to do it.

Abe Fortas:

Petitioner in his brief states — let me withdraw that to cite first.

After this litigation was begun petitioner received a letter from the Peabody Coal Company to which Mr. Chanler has referred.

That letter offered to supply coal to be used in one of the petitioner’s present oil burning plants if petitioner should convert.

Now note, the record, as the record here indicates it is no simple matter to turn from coal to oil in an electric utility plant.

They themselves say that it cost them $3 million to construct coal burning facilities here at Gannon then if they had used oil.

Note number two that as petitioner states in — in its reply brief which is in clear statement of it, the offer of Peabody Coal was rejected and they never went — they never accepted that offer, so that the situation remains entirely theoretical.

I may say Mr. Justice that the mere possibility that someone may use another fuel as I was coming through later in my argument does not lift a contract from a requirement’s contract into something less than a requirements contract as Mr. Justice Frankfurter noted in the opinion for the Court in Standard Oil, the requirements contracts there replied only to particular stations and it was urged that the contracting buy might get another station which would not be bound by the exclusive contract which stand at all — I’m willing what the Court concluded that that was a no matter.

Similarly in the Standard Fashion case which is sort of the grand daddy and one of the ancestors in this field, the exclusive contract there covered the sail of patents to buyers on — at their particular stores, their particular premises.

It was there said just as petitioner here says, well, if I may have another story says we may have another plant to use coal and at that other store in the Standard Fashion we may buy some patents from somebody else.

But this Court there again rejected that argument and as the two courts below here have said you must look at the real situation not the existing situation not at possible possibilities.

Felix Frankfurter:

Mr. Fortas, you seem to find some importance in the provision of the contract of another coal burning facility might have been in the future be erected by Standard and that — and that the requirement provision would be tied to the new facility.

My question is whether that the record shows that that was an incipient enterprise or that was also just another that’s been given (Inaudible) provisions in the contract.

Abe Fortas:

It shows more than that Mr. Justice Frankfurter.

Actually as the record shows, a third unit was actually constructed to burn coal and was under the contract.

Felix Frankfurter:

You mean after the contract had been —

Abe Fortas:

Yes, sir.

Felix Frankfurter:

But what I want to know is at the time of the making of the contract was that (Inaudible) contemplations of the Court.

Abe Fortas:

I think so Mr. Justice as —

Felix Frankfurter:

Any note?

Abe Fortas:

— the contract shows — as the contract show six units were contemplated and also — it’s also fair inference that there was a possibility that Tampa Electric could have decided that any one of those units would not burn coal.

Now, there’s another fact that is relevant here.

You will note — I think it was Mr. Justice Harlan who asked about the — no I believe in Mr. Justice Whittaker, I beg your pardon, asked about the replacement contract.

There was a replacement contract and it is in the record at page 20 — pages 26 and 27.

Now you will note on page 27, Mr. Justice Frankfurter —

Felix Frankfurter:

What page?

Abe Fortas:

27 of the record; that the coal requirements for the Gannon — for the Gannon Stations stated in this replacement contract with the Levin Ames Coal Company were estimated to increase to about 2,250,000 tons per year.

Now the minimum requirement stated in the contract per unit was 225,000 tons per unit per year.

Now, this 2,250,000 ton estimate here would indicate that the — there was a contemplation of Tampa Electric Company that all of the units to be installed at Gannon would be coal burning.

We have the mathematical computation set out in our brief and I will pause to develop that here.

But my answer to your question is that yes Your Honor I believe that it is a fair inference that it was always contemplated that certainly more than two units positively with respect to three, certainly, more than two of these units would be coal burning —

Felix Frankfurter:

(Inaudible)

Abe Fortas:

I believe that it’s fair to infer that it was in contemplation that all of them would be covered.

Felix Frankfurter:

They — they also involved typically expenditures, do they not?

I mean you said that in while ago that to turn from oil to coal is what is it, three million?

Abe Fortas:

That is petitioner’s figures to what it costs.

Felix Frankfurter:

To install new plants and new units and also in rather to make figure (Inaudible)

Abe Fortas:

I would doubt, Mr. Justice.

That is to say once the station is set up I used to have some do it coal industry once a station is set up for coal burning units I doubt very much that source — a matter of fact precise converse of that might be true.

Felix Frankfurter:

It might be more economical if you have no units.

Abe Fortas:

Yes, sir, and it might be more economic to put in a particular coal unit in the station designed to burn coal.

Felix Frankfurter:

Well what I’m saying, the one might be more economical to turn the use of oil into coal?

Abe Fortas:

No.

Your Honor, you see, that’s a totally different and disconnected station.

Felix Frankfurter:

Yes, I am — but in the long run it might be more profitable for them.

I don’t know to think about it.

Abe Fortas:

Well, I don’t know either, Mr. Justice, but the fact of the matter here —

Felix Frankfurter:

What I’m if you once traveled — if you once traveled outside the terms of the contract that Mr. Justice Stewart suggested, he have certainly things are written into contract which are business preferences.

Abe Fortas:

Exactly.

Yes sir.

And the terms of this contract are clear, they’re definite, they covered every ounce of coal that this Company utilized or could buy at — to use in its facilities at this time and this is – in short, a full requirements contract.

Now let me hasten along if I may here.

There wasn’t any coal delivered under this contract.

This is not a case of partial performance.

The seller terminated the contract before the delivery.

The action here that has been brought by the petitioner, it is an action for a declaratory judgment as it appears in the record on page 6.

The complaint asked for this relief, the complaint asked that this Court declares the contract to be a valid, lawful, and enforceable contract and binding upon the plaintiff and defendants according to its terms.

Of course, if the contract is unlawful, I should think it would follow that the Court cannot enter a judgment to the effect that it is valid, lawful, and enforceable, and is binding upon the plaintiff and defendants according to its terms.

Actually, what petitioner is seeking here is an order from this Court to the defendants to compel the defendants for 20 years to perform a contract which in our contention is unlawful and if I may anticipate myself a little bit here, the interest the — Mr. Chanler made a very interesting statement at the conclusion of his argument.

He said that the buyer, namely, petitioner could compel the seller to perform, but that the seller could not compel the buyer to perform.

I know of no such contract and no such decree that can be entered into our system of law.

Abe Fortas:

Now I’ll come to that in more detail in a moment I hope.

Now, let me get to, quickly get to the amounts covered by this contract.

The amounts are set forth, the actual amount is set forth in the replacement contract, the Levin Ames contract to which I refer a moment ago and they’re set out on page 27.

They begin with 350,000 tons in 1958.

They rise from one million tons in 1961 and then to increase as required to about 2,250,000 tons per year.

Now, what — in dollar terms what does that mean?

In dollar terms, let’s take the one million tons figure from 1961.

Under the minimum specified in this contract that means $6,400,000 a year and a $128,000,000 over the 20 years of the contract.

Of course it’s greatly more to use as your base not the one million tons but the 2,250,000 tons.

Now, as the court below found and as petitioner admits just taking the 700,000 thousand tons, if you please, embraced by this contract for the year 1960 that is equal to the total amount of coal used and sold in all of Peninsula, Florida in the year 1959 which was also 700,000 tons.

Petitioner concedes and the courts below so found that within a few years, the Gannon Station covered by this contract will consume more coal than it is presently consuming in the entire State of Florida.

Let’s take another measure here.

In terms of fuel equivalent, the coal requirements for the Gannon Station exceed all of the oil burned in petitioners other plants.

Now, I’m just taking this in terms of energy equivalence.

Now, so that our point which I hope I’ll have time to elaborate in a moment, if Your Honors please, with respect to the amounts engrossed by this contract is that this contract engrosses so much coal that its competitive effect is so great that whether you take the minority of the majority opinions of this Court or take any standards that anybody has ever referred to, this contract meets the qualifying clause of Section 3 of the Clayton Act.

In the first place, if you take the amounts standing by themselves they are certainly substantial.

They are huge.

This contract engrosses a huge amount of coal.

If you take the amount and compare it on any reasonable market basis, this contract is huge and embraces a large share of the market.

I am sorry to — but perhaps I’d rather take time to comment upon Mr. Chanler’s suggestion about what the market ought to be.

Mr. Chanler says that you ought to take us some market, the Rocky Mountains to the Atlantic coast.

Why?

Because he says that Florida might draw upon producers, 700 of them according to this record who supply — who supply in the area from the Rocky Mountain to the Atlantic Coast.

As a matter of fact, those producers also sell coal in foreign countries but obviously, that is not the market.

The market is the consumer market.

Let us take this kind of a situation quickly to illustrate the point.

Let’s suppose that general motors came into the District of Columbia or in the New York City and made a contract in restrain of trade or a price fixing agreement in one of those areas.

Now, what is the market?

First thing we are lawyers doing antitrust basis and say, what is the market in the section of one case.

What’s a market?

Abe Fortas:

Oh, the market is the District of Columbia or the market’s New York City.

The market certainly is — is not every place in the world where General Motor sells cars.

If that was so General Motors could pick out the District of Columbia and monopolize that and Ford could monopolize some other place and so on.

The market is the consuming market.

Let me put it more precisely as —

Felix Frankfurter:

Put it in terms of geography in this case.

Abe Fortas:

But in terms of geography, Mr. Justice Frankfurter, the market is either and were alright on any basis.

Peninsular Florida or all of Florida or it is the market as defined under the old Bituminous Coal Act which we have cited in our brief which included Peninsula Florida and a finger up in to Georgia.

That was based upon taking into account the freight rate structure and the common factors that operate in a market.

The one structured as far — as far as it could possibly be stretched further that it can be stretch, you’d say Florida and Georgia going beyond Bituminous Coal Act.

We’ve got some figures in our brief on Florida and Georgia because there the only current figures available.

There are no figures or current figures on the market as defined in the Bituminous Coal Act.

You take all of Florida and Georgia, Mr. Justice, this contract taking just the one million ton and that the — taking just the one million ton requirements, not the two million 250,000, includes 18% of that huge and excessively huge market.

That’s in out brief, the appropriate references.

Though I say no matter what the standard is, this — this is a — a quantitatively a contract that satisfies standards.

Now, —

Earl Warren:

Mr. Fortas, I’ve been wondering if that proportion of the coal under this contract to the total amount in use in part is of any great value to us because the situation in my own state we use practically no coal out there.

And they — if one small utility was to set up a unit, a coal unit out there it would probably — it could be more than the whole State of California uses of coal and would that — would that make any difference?

Abe Fortas:

It would mean — I don’t believe so Mr. Chief Justice.

Let me approach the problem this way.

The standard as establish by the cases in this Court is whether if — under Section 3 of the Clayton Act is whether the quantity engross by the coun — contract is not in substantial or not insignificant.

Here, it is very substantial.

The law under Section 3 as announced by this Court is confined to that standard.

Is it a not insignificant or not insubstantial amount?

I merely wanted to go a little further in an attempt to impress upon the Court the fact that even if you measure this by a market standard, even if you measure it by Sherman Act standard which you shouldn’t do, of course, under your decisions, this is an enormous contract that satisfies the qualifying clause.

Now, your question to me is whether the competitor — whether a contract would still meet the qualifying clause if it were for a new commodity introduced into a particular community.

I believe I state that forever.

That is precisely one of the considerations considered in the Standard Oil case.

Mr. Justice Frankfurter’s opinion for the Court there and rejected in that case as something that Congress did not have in mind in terms of Section 3, and I think properly so and let me, if I may, elaborate that.

Mr. Chief Justice, the easiest thing in the world to do in many commercial situations as every lawyer knows is entered into requirements contracts.

Abe Fortas:

The requirements contracts makes everybody feel nice and secured, but what it does is to remove a whole area of our economy from competition pro tanto with the requirements contracts.

Now let’s take this case.

Here, we had not only a requirements contract, we got a requirements contract for 20 years, if you please.

Now, the coal industry is a depressed industry.

The — there are 700, according to petitioner’s admission, producers of coal who are able and eager to supply this company with coal.

There’s a very vivid statement by the president of this company that is in the record saying that sellers of coal were in and out of his office so fast, if you please and so many of them, if you please, that his secretary couldn’t find any place to let them sit.

It’s on page 62 of the record.

Now, what does this contract mean?

This contract means that for 20 years these people have no look in.

I suppose every utility company did that, if Your Honors please.

About a quarter, one quarter of the bituminous coal in this country is consumed by electric utilities companies.

They are large buyers.

They are principal buyers.

If this Court ever gave its sanction to that kind of a deal, this kind of a preclusive contract, I need not to elaborate on what it would mean to the bituminous coal industry.

It would mean instead of having a lot of little coal producers who live by reason of orders from time to time from utility companies, you would necessary have a few big companies.

And those few big companies, if you please, would in effect be kept to the consumers.

There are many ways of skinning a cat in economic relationships.

A utility company does not have to buy a coal mine for example, to get it captive.

It can make a long term requirements contract and it is just this sort of thing that the Clayton Act as this Court has pointed out and has so eloquently pointed out in my opinion in the Standard Oil of California is just this sort of thing, that Section 3 of the Clayton Act was intended to reach in its incipiency.

Now, Mr. Chanler —

Felix Frankfurter:

I’m sure your coming to the — to the time provision but you have repeatedly put particular stress on plaintiff.

Abe Fortas:

Yes sir.

Felix Frankfurter:

I suppose in due you will deal with the time element.

Abe Fortas:

Well —

Felix Frankfurter:

— and actually my mind thinks of the element of time and recipient covenant in the sale of businesses.

Abe Fortas:

Or in the time in the patent, Mr. Justice and here we have a time that is greater than a patent and what always comes to my mind is the statement that the three-judge court made in the Pullman case as a competition killer, the long term contract is a powerful weapon.

Felix Frankfurter:

But in the — in the recipient contract — covenant cases, the sale of business limiting the — the seller to non-engaging in that business for x years, I take it by now that you collect an indication that’s clear that there’s absolute limit as to time.

The time must be a function of the reasonableness of the requirements and therefore in due course I hope you will deal with the relevance of 20 years to this kind of an arrangement.

Abe Fortas:

I would tell – I’ll say this — I’ll deal with it now Mr. Justice.

The 20-year provision here in my opinion although I don’t believe the Court need reach this, but together with the other facts of this contract.

Felix Frankfurter:

Does that mean when you certainly reach that no requirements contract would be valid?

Abe Fortas:

I say didn’t reach what I’m about to come to, I beg your pardon sir.

I was about to say that the 20-year provision coupled with the other provisions in this contract in my opinion, making it also violative of Sherman Act.

I don’t believe the Court need to reach Sherman Act provision here.

There is absolutely when we get to the Sherman Act, of course, we have to look at it in terms of reasonableness in some cases and the tying cases, you’ll look at the question of dominance under the Sherman Act but not under the Clayton Act.

But you also look at – you may also look at other things bearing upon reasonableness.

20-year contract here was totally — is totally indefensible as a matter of law.

Now, Your Honor, we recall that in the Standard Oil Case, you pointed out that we may assume that the contracts here involved in Standard Oil are not excessive in duration.

You remember that great many of them were six-month contracts and with the — even without that, she went on to the coaling and that leading case, but here, we have a requirements contract, we have it for 20 years.

Now what they do when they made a replacement contract?

As the record shows a contract with Levin Ames on pages 26 and 27 of the record was cancelled upon 12 months notice.

In other words, it was a year-to-year contract.

Now, did that take care of its needs?

Well, I think the best evidence of that is a statement that Mr. Chanler has in his reply brief and I don’t know this goes outside of the record.

It’s in his reply brief.

This sports public utilities fortnightly as saying that as of September 1960 — as of September 1960, after the lower court opinions in this case that Tampa Electric is thinking about building a new coal station which will begin operations at the end of the 1960, that is to say as around 1970 that would be after this contract has operated along for 13 years.

Now what I’m saying, Mr. Justice, with respect to the time factor here, is that if we take this case, the time factor, in this case standing alone makes it clear and beyond dispute that the qualifying clause of Section 3 is satisfied.

That is to say, this — since this ties up commerce for 20 years in most certainly has a tendency to restrain trade or to create monopoly.

So we have here two rather staggering facts in my opinion.

First is a tremendous volume of the commerce that’s tied up, and second, is a practically extraordinary length of time, a 20-year contract.

Felix Frankfurter:

What we have to (Inaudible) on behalf of page 2, questions, what were the — any kind of certain requirements under (Inaudible) is the Levin Ames and to living in, what the relevance or the ratio of relevance of the duration of the contract during which assured that there was a requiremnt?

Abe Fortas:

Yes, sir.

Well, I think those two considerations are interacting.

You asked me whether — any requirements contract.

Felix Frankfurter:

Because as you know, we don’t have to borrow of our time.

If no such agreement — every such agreement offense Section 3 then we don’t have them.

Abe Fortas:

Oh, yes.

I don’t take that position, Your Honor.

Felix Frankfurter:

Very well.

Then if we start at some length and then you do have to face the reasonableness in relation to the particular unit or units, the particular enterprise in relation of the business, if justifiable that non Section 3 of them exhibit interest by the length of time during which certain requirements are made.

Abe Fortas:

Well, let me put it this way.

Felix Frankfurter:

Can we — can we do that just out of the clear and just say, well, 20 years is a long time.

Abe Fortas:

No, Your Honor —

Felix Frankfurter:

The proviso, soon they had, Mr. Fortas (Inaudible)

Abe Fortas:

I’ve noticed that myself, Mr. Justice, but Mr. Justice, I want to make my position perfectly clear on this.

Let’s — in terms of the law as it exists today, established by the cases of this Court, a full requirements contract is unlawful if and only if it made attempts substantially to restrain, create or tend to create a monopoly.

To satisfy that so called qualifying clause, the cases in this Court say, in a Section 3 Clayton Act case, you look only to whether the contract involves a substantial or not insubstantial amount of commerce.

Now, that is the law of this Court as I understand it and I don’t want to be misunderstood if I may say so.

I am not — I — I believe that’s the law I believe in that as the law.

I’m saying merely that this contract in the circums in — that this contract, this record goes far beyond that.

Now, I want to quickly to get to some other points from Mr. Chanler’s statement.

Mr. Chanler’s state of four criteria here and I’m always surprise when I hear him say them because they’re directly contrary to the rulings of this Court.

First, he says that — first he talked about coal and oil.

Coal is a separate line of commerce for purposes of the Clayton Act, for the purposes of Section 3.

I’ve already covered this.

It’s covered by the decisions of this Court.

You cannot measure the extent of the engrossment of this contract by going to oil.

Indeed you couldn’t — couldn’t even do it for purposes of the Sherman Act case much less to a particular kind of agreement that’s here involved.

Mr. Chanler likes to refer to cello — to Cellophane whether — it’s DuPont case the Cellophane case, but it’s very significant that even in Cellophane in which was a monopoly case if you please and in — in which you market concept has to be search very carefully this Court said that you would not take — you must not take into account for it.

You must not assume for its example that wood, coal — that wood, cement and steal although they’re all building materials, all constitute of market said that each one of them has sufficient distinctive characteristics so that you must define the market for each separately.

And in the General Motors case, the DuPont-General Motors case, this Court said that automobile paints and fabrics constitute separate and distinct lines of commerce, that was Section 7 of the Clayton Act and that you look to the peculiar characteristics and uses of each.

In Van Camp the — where we have got that brief, what the point is, that certainly oil and coal here are not interchangeable in any sense, not even for Sherman Act purposes.

And when you come to the very point prohibitions of Section 3, they are certainly distinct of lines of commerce, but I want to get Mr. Chanler’s second point.

Mr. Chanler wants this Court to rule that this — a contract does not violate Section 3 unless the seller has economic leverage sufficient to impose the condition.

Now I thought that was all settled.

It’s very interesting, Mr. Chanler in his principal brief here for the petitioner didn’t mention Times-Picayune although we have briefed it below, it came rather toward only in his reply brief.

But in Times-picayune, this Court very, which was a Sherman Act case, this Court very carefully delineated the distinction in this respect between the Sherman Act and the Clayton Act, and I want to quote Mr. Justice Black’s opinion for the Court.

From the tying cases, perceptible pattern emerges.

Under the Clayton Act if the seller enjoys a monopolistic position in the market for the tying product, or, and that is underlined in the opinion, or a substantial volume of commerce in the tied product is restrained, the arrangement violates the narrower standards of Section 3.

But under the Sherman Act, both conditions must exist.

Abe Fortas:

That is the statement of the law as it’s been established and as it’s been followed.

Under the Sherman Act, dominance or monopoly power by the seller is quite unnecessary.

The reason for that as pointed out in the Standard Oil is that Section 3 of the Sherman Act is — of the Clayton Act, Section 3 of the Clayton Act is a highly particularized, specific prohibition against contracts that exclude a competitor or competitors of the seller from any line of commerce.

Under the Sherman Act, all we look to is a general statement, general condemnation of contracts in restrain of trade and a general condemnation of contracts in restrain of trade must be viewed from the point-of-view of the rule of reason.

It maybe under the Sherman Act that the mere fact that the seller’s dominance and the mere fact that a tying contract was entered into is enough per se to show that the contract was unreasonable, but you must show the purposes of the Sherman Act that contract was unreasonable.

For the Clayton Act, that is not so as was exhaustibly analyzed in Standard Oil.

For purposes of Section 3 of the Clayton Act, you must show only two things.

One, that what is involved is a contract on the condition understanding or with the effect of foreclosing a competitor or competitors of the oil, and number two, you must show only that the effect of the arrangement may be, may be substantial to restrain commerce or to tend to create a monopoly.

So Mr. Chanler’s point in affect that the seller must have economic dominance or economic leverage or no matter what choice of words he may select is completely in opposition to the holdings of this Court.

Now let’s get to the next one.

Mr. Chanler says that this is the first case under Section 3 of the Clayton Act involving a single contract between a single consumer, a single buyer and a single seller.

That is true.

This Court has never had such case before it but it reminds me a bill of the distinction on the basis of the red-haired man with the squint on his left eye.

All the principles announced by this Court cover this case and as a matter of fact, all we need to do is to look at the statute.

If the Court will kindly turn to page two of our brief, this grey brief, we have set forth the statute and I’m sure the Court is familiar with it but I want to call the attention of a few particulars in the statute.

It should be unlawful for any person to lease or make a sale or contract for sale or use consumption or a resale on the condition agreement or understanding that the lessee or purchaser, note the single bearer shall not use or deal in the goods, wares, merchandise, machinery, commodities etcetera of a competitor or competitors.

In this, there’s no question.

But that that language includes a single contract was intended to include a single contract and if anyone chooses to enter the maze of legislative history here despite the Court’s — this Court’s admonition of the contrary in the Standard Fashions case, I am sure he must conclude that the Congress intended to reach a contract in a town as Mr. Justice Frankfurter has pointed out in the Standard Oil and as is shown in the legislative history.

In the good year of 1914, good in some respects, the Congress was very much concerned about antitrust.

It was very much concerned about monopoly.

It was very much dissatisfied with what had happened under the Sherman Act and Section 3 along with the other particular Sections of the Clayton Act were written for the purpose of catching up these situations in their incipiency.

I, myself don’t see how anybody can read the legislative history of the Clayton Act without being bewildered in particular by being — being certain in general that the Congress intended to leave no loopholes not to write.

Congress did not write Section 3 for the purpose of providing an escape on the basis of a single contract with a — between a single buyer and a seller, but that it intended to cover all such contracts.

Let me take this for as an illustration.

Let’s suppose Mr. Chanler in his remarks I believe before lunch referred to Sears Roebuck and A&P.

Now let’s take that.

Let us suppose, if you please, that Sears Roebuck, one enterprise, a largest retailer by far in this country, let us suppose that Sears Roebuck entered into a contract with a single textile company for all of the white goods as they call in that business, cover sheets and so on, all that Sears Roebuck needed and entered into that contract for a 20-year period.

Now the textile industry is in a bad way too and there’d be thousands of textile producers, hundreds of them I should say, who would be excluded for any chance at Sears Roebucks business for 20 years but that’s a contract, a single contract if you please, a — between a single seller and a single buyer.

Can there be any doubt that that would be prohibited by Section 3 or let’s take Du Point General Motors and if I may, let — if I’ll ask you to assume for me the absence of any stab (ph) connection between them from any ownership or start between the two.

And let us suppose that general — that Du Point and General Motors entered into a contract for automobile fabrics and paint for 20 years which would preclude all competitors who might want to sell automobile fabrics and paint.

Abe Fortas:

Can there be any doubt that that would be caught by the provisions of Section 3?

So I say that number one, this Court has precluded the argument that any dominance by the seller is needed.

Number two, that this — that the statute in all reason show that a sing — that it makes no difference whether we’re dealing with a single contract or many contracts, a single buyer or many buyers.

The important — two important questions are – first, is this a requirements contract in the sense that it excludes a competitor, a competitor or competitors of the seller and second, does it have a prescribed effect on competition.

Now finally and I will quit —

John M. Harlan II:

Could I ask you what wrong does your argument lead for requirement contracts under Section 3?

Aren’t they all caught in a substantial way?

Abe Fortas:

I would not think so Mr. Justice.

In actual practice, of course we try to avoid the requirements contracts in the sense that the — we — the law as I have understood it has always meant that you’ve got to leave room for competition to come in.

And for example, even if we have — even if we want to get somebody to build a new plant to supply something for us, we take care of the financial requirements there by an agreement to amortize the cost to the plant but we will not enter into a requirements contract because the requirements contract is unlawful.

Now I don’t believe that that — that the lack of necessity of the requirements contract means that they should all be outlawed.

It is possible that there are requirements contracts which do not run afoul of the qualifying clause that is to say that in the sense that they are not so large in the particular circumstances as to meet the standards of the qualifying clause.

On the whole, I would say that requirements contracts are an instrument and by their nature are suspect under the antitrust law.

May I suggest this, Mr. Justice?

I know that this Court has said — has said some harsh things about tying agreements in which a patented product is tied in with an unpatented and so on.

A requirements contract actually may have and generally does have a much more serious effect on competition than the typical tying contracts.

Let’s take for example, International Salt or let’s take the Signaled Steel which is Court of Appeals case.

It’s always possible in a tying situation for a — for the dealer, the licensee to get another machine from somebody else or I don’t say it’s always possible but sometimes possible, get a machine from somebody else and get out of the tying contract that way and then use a competitor’s supplies for — for the competitor’s machine.

But a requirements contract is total complete and absolute that no — there’s no way of getting out of that.

You can’t turn through a competitor but — so I wanted — want just one sum up on this.

Number one, I think the requirements contracts as a generality are — have to be highly restrictive on the trade.

They have to lead to captive situations which I — I don’t believe that our —

Felix Frankfurter:

You think —

Abe Fortas:

— system encourages.

Number two —

Felix Frankfurter:

Do you think that —

Abe Fortas:

That I —

Felix Frankfurter:

— to win the (Inaudible) to the standard argument that that to be a merely suspect —

Abe Fortas:

No sir.

Felix Frankfurter:

— really suspect?

Abe Fortas:

No sir, I do not.

I tried to introduce what I said Mr. Justice Frankfurter with something of an apology because I know that this Court has said that — has indicated that the tying contracts are more of a restrain on competition than the requirements contracts and that was merely in response to Mr. Justice Harlan stating my own view about the dangers of requirements contracts.

John M. Harlan II:

Because that is — come pretty close to the issue to decide which cases you put it to that.

Abe Fortas:

I don’t think so, Mr. Justice.

I think this contract is so extreme.

John M. Harlan II:

Now this comes on a summary judgment.

None of the — none of the seamen which this contract arouses in the records as far as I —

Abe Fortas:

Yes sir, I believe that the — everything is in the record.

It’s more possibly, yeah.

John M. Harlan II:

Therefore (Inaudible) seems to me you’re asking — I’m not saying that you’re not right but it seems to me that’s the issue you’re putting to us.

Abe Fortas:

I don’t think so Your Honor.

This contract shows for example the volumes involved here that would be in proscript shows the number of prod — competing — competing producers, 700 of them.

It shows the total requirements of peninsular Florida.

It shows the total requirements of the State of Florida.

It shows the — by reference to official sources only does it show the total consumption of both the State of Florida and Georgia.

Mr. Justice, I’ve been through this — I’ve been around these bases.

If this case went back on these considerations, it would lead to the employment of a lot of experts and a lot of statisticians but what you would come out with would be precisely what you have in this record in summary form and you have it in this record because both parties would agree that the facts here were available and both parties agree that this is an appropriate case for a summary judgment.

Neither side here has asked as was true in some of the other cases that came before this Court, neither side here is asked that — has objected.

John M. Harlan II:

You don’t think your leading this position would be affected if the case did — was tried and developed that there were sound economic reasons for this kind of a contract?

Abe Fortas:

No sir.

In the first place, that would be exactly contrary to law as set down by this Court and in the second place, I don’t believe that the economic reasons here make any difference and you can — and best proof of that is a substitute contract that they entered into and the fact that they now say they’re going to build another one about ten years now.

John M. Harlan II:

That’s what comes to my question and it seems to me this was escape of conclusion.

That’s what they’re face with it of this case if you take it on this record.

Abe Fortas:

That that is what?

John M. Harlan II:

That the issue that you’re putting to us is the question of whether requi — any requirement contracts short of (Inaudible) trying to approach and imagine that you would need another litigation about it and —

Abe Fortas:

With all respect, Your Honor, I think this is a 20-year contract then it has — it involves an enormous volume, both absolutely and relatively that this record does show.

And this might be a different case.

It might be a very difficult case if those two facts were different.

May I —

Charles E. Whittaker:

Would it be a very different case, Mr. Fortas if ti would have been 10-year contract (Inaudible)?

Abe Fortas:

I doubts — doubt it but I hate to have you ask me about a one-year contract Mr. Justice.

I’m glad you didn’t bring it down that low but when you get up to 20-year contract or 10-year contract, I personally don’t have any doubt.

Charles E. Whittaker:

I meant to come low, you have different answers.[Laughter]

Abe Fortas:

I was afraid you have that in mind.

That’s why I wanted to anticipate you.

May I —

Felix Frankfurter:

Even if — if — these are not absolutes Mr. Fortas.

I mean, come down to intended (Inaudible) then the line that’s drawn is drawn with reference to something.

It isn’t drawn with reference to some settled dogma (ph) like the in the law of (Inaudible) for security in reaching an insurer security to change the general contract or something like that or (Inaudible).

It gets down to consideration that have some relevance to what and then, that comes into play relevance to what is appropriately fairly protective of business on the one side without thereby substantially lessening competition.

In other words, you are roaming over into Mr. Justice Harlan’s question.

Abe Fortas:

Mr. Justice Frankfurter, I need not repeat what this Court has said and that is to say that there is a — an absolute standard here that is — that is to say that you judge the size of the restrain on an absolute basis.

I believe that in — in most of the cases if not all, I think there’s been some sort of peripheral look, may I say, at what’s involved here but I think that the important thing if I may suggest this, Mr. Justice, the important thing is — as — I believe the cases do show.

Section 3, the enforcement of Section 3 must not be entangled in a Sherman Act market concept and I don’t believe that it has been the date made in decisions of this Court.

Now —

Felix Frankfurter:

But it is entangled in economic reality that the standard or the case itself illustrates objective, external, economic phenomenon.

Abe Fortas:

Well Mr. Justice, they’re all objective economic phenomenon and of course it is, it’s a question of size.

Now here in my case I’m glad to say in my opinion anyway, there’s not enough going on this because the size is so fantastic and the length of the contract is — is a utterly beyond the comprehension.

But in a case, I can visualize a case in which a — a sharp question might be presented but I don’t believe that is this.

Mr. Chief Justice, my time has expired, I wanted to say something about Kelly against Kosuga but —

Earl Warren:

You may make — make a brief statement about it.

Abe Fortas:

Thank you Mr. Chief Justice.

The point about Kelly against Kosuga is this.

Mr. Chanler, the principle of law is I believe Mr. Justice Whittaker recogni — stated a moment ago is a — if contract is unlawful, it is void and will not be enforced by the Court.

The length here, this is an unlawful contract merely because it says a total offer for the seller to make — to make the contract doesn’t mean that Congress didn’t intend that it would be an unlawful contract.

Section 7 is phrased the same way.

Section 2 of the — of the Sherman Act, the monopoly section, we didn’t point this out in our brief, that’s framed the same way and certainly a contract to monopolize is unlawful, is an unlawful contract.

Kelly against Kosuga and the long line of cases in this Court recognize this principle that if there is a separable transaction, a transaction that is an intelligible economic transaction in and of itself and that is — and which is not part of the unlawful contract that may be enforced by the Court, but not the unlawful contract itself and that’s exactly what this Court — this petitioner is asking the Court to namely to enforce the unlawful contract.

Thank you very much.

Earl Warren:

Mr. Chanler.

William C. Chanler:

Mr. Chief Justice, may it please the Court.

I would like to remind Your Honors and we seem to gotten rather far away from it in the discussion that there is nothing whatever in Section C of the Clayton Act or the statutory history for that matter that refers to requirements contracts at all.

The question we are concerned with here is not whether somebody can call it as a requirements contract because we have agreed to purchase a part and that’s not a slip of the tongue, I mean a part of our fuel requirements from one seller.

The question is whether this is a contract to sell coal on the condition that the purchaser shall not use or deal in the goods of the seller’s competitors.

Now Mr. Fortas said “Oh but we’re not actually buying coal from anybody else.”

He admits the contract permits us to buy coal when Peabody Coal Company made us a written offer to sell us coal to burn in our other plants if the oil company hasn’t reduced their price, we deposit.

We were dealing with the seller’s competitors when we were negotiating with Peabody.

You cannot convert this contract into a contract upon the condition that the purchaser will not deal and goes to the seller’s competitors by saying that it still happens for economic reasons that we haven’t availed ourselves of our legal right to do so whenever any coal company comes and offers us coal at a competitive price with oil, we are free to deal with them, we intend to deal with them.

Now this word requirements contracts with all due respect isn’t even mentioned as far as I know in any case by the Standard Oil case and it isn’t mentioned as far as I’m aware anywhere in the legislative history.

They don’t know about exclusive dealing contracts, contracts based upon the condition imposed on the purchaser that he would not deal with the seller’s competitors.

The word requirements contract were viewed first in standard because their — that contract, that exclusive dealing contract, that contract based on the condition that the filling stations in those filling stations wouldn’t deal with the seller’s competitors was passed in terms of requirements.

Contract said filling station X will buy all its gasoline requirements from Standard and Standard will fulfill all his gasoline requirements.

But the purpose and effect of that contract was exactly the same as the kind that the Act was directed at and that Congress was intended to attack.

It was as if they said nobody can sell Standard gas in any filling station anywhere in the country if they sell anybody else’s gas in that station.

That’s why it was Standard.

The requirements contract violated both the intent of Congress and the letter and spirit of the Act.

The contract that we have here has none of that thing whatever.

It is simply a contract whereby a consumer purchases his raw requirements that he needs in his business in order to enable him first to justify the capital expenditure of building a coal burning plant which will take 20 years to amortize and to fulfill his public utility duties of producing power at the cheapest rate and having continuity over the years so that he won’t have to be changing his rate all the time.

As Your Honor, Justice Harlan pointed out in Mobile — United Gas v. Mobile, 350 US 332 in page 48 of my brief, conversion by consumers particularly industrial users to the use there of natural gas may frequently require substantial investments which the consumer and thus will be unwilling to make without long-term commitments from the distributor and the distributor can hardly make such commitments if it’s supply contract (Inaudible) chain because that was the Clayton Act case but the economic proposition laid down there is exactly the same one we have here.

We couldn’t have built this plant and brought coal in, in any other way.

Now I would like also to point out on this question of the market because Your Honor, Chief Justice, put your finger right on it when you talked about the situation of California.

If a utility company in California, large or small suddenly decided that it could be economical to bring coal into California so they start a coal burning utility plant in California.

It would have a monopoly according to them because it would be burning all the coal being burned at least for boiler fuel in California.

It would of course be absurd to measure the market that was said to be embraced by the contract of supply, whatever contract they made on the basis of that use to coal as a new comer in the States.

I might add of course Your Honor, regularly doesn’t visualize that it would be very improvident probably the California Utility Commission for vehicle, a utility company to go into expense building a large electricity light producing plants in California that was going to burn oil unless they had a good contract, a long-term contract to supply if they’re going to burn coal that would supply coal long enough to make it economically feasible for them to have a coal plant there because that’s what the Federal Power Commission made them do in burning gas in Florida.

They can’t bring gas into Florida with the great expense of building a pipeline unless they have a 20-year requirements contract to make it economically feasible.

Felix Frankfurter:

I suppose your suggestion might be made Mr. Chanler that there is a difference between the Federal Power Commission granting a civic and a leading some necessity to a new pipeline to be built unless it has business looking ahead for 20 years as against a plant that is already installed for coal and merely securing it’s supply.

William C. Chanler:

This contract was made at the time the plants for the coal plant was still on the drawing board sir.

Before we started to build our plant, Just as before they began building the pipeline, we made our contract for the coal supplier.

We wouldn’t have built a coal burning plant if we hadn’t had this contract.

William C. Chanler:

We couldn’t have dared.

John M. Harlan II:

You mean the — the actual building was still in (Inaudible)

William C. Chanler:

Oh yes, the contract was made in 1956 and the plant was completed in 1958 — 1957.

I think that’s all it is.

And in regard to the record, Mr. Justice Harlan, there are quite complete affidavits on which these motions were made.

It’s set forth all pertinent facts as to why the contract was made, the circumstances under which it was made and everything I think which are found in the record.

The facts to a statement of the court below are quite specific as to the economic purposes and so called.

Now Mr. Fortas has stated that this Court, well his argument has been all the time that all you have to show assuming that you — he can show, and I don think he can that this is a condition — a contract on the condition, that the seller won’t buy or won’t deal from the goods of the seller’s competitors assuming that he causes that hurdle, that all he has to show is that the amount involved is large in terms of quantity.

And I would like to remind Your Honors that in the Standard Oil case, Justice Frankfurter stated in so many words, a purely quantitative measure of the effect of the contract is inadequate because the narrower the area of competition, the greater the comparative effect on the area’s competitors.

This question of quantity they talk about even if it were reasonable to talk about to coal of a single really small size utility as an enormous quantity of itself doesn’t prove anything here.

It certainly doesn’t prove that we come within main clause of the contract as the court below felt.

The court below felt said this was a contract in violation of the main clause of the Clayton Act.

In other words, the contract not to deal with the seller’s competitors because it embraced a huge amount of coal, but you can’t say that its contract not to deal with the seller’s competitors because the amount involved is large and has nothing to do with it under the court below decision if that were the law and if that should be affirmed, every contract for large volume of goods, even the fixed amount of goods would be void and illegal it seems to me because it would engross that he keeps saying an enormous volume of coal or an enormous volume of commerce that has nothing to do with limiting competition within the framework of what Congress had in mind when this act was adopted.

In regard to leverage, while it’s true that in Times-Picayune Your Honor, Justice Clark pointed out that as been previously pointed out in Standard in a Section 3 case, assuming that you had a contract that came within the Clayton Act at all and we’re talking only about the qualifying clause then the test of whether or not it came within the qualifying clause could be either that the seller had dominance in the market because if he was a large dominant figure in the market, then if he had tying contracts or exclusive dealing requirements contracts, it could be assumed that he was building up his monopoly.

And as Mr. Justice Frankfurter pointed out in Standard and Your Honor picked up Picayune — Times-Picayune, if you got to take net requirements contract, even though there isn’t dominance for the purposes of the requirements clause, it’s sufficient to show a substantial portion of the market, but that’s not the leverage I’ve been talking about.

The leverage that is necessary in any Clayton Act case whether tying or requirements is the one referred to by Mr. Justice Black in the (Inaudible) case and the one referred to by Mr. Justice Frankfurter later in commenting on the — the — the Standard Oil case.

In Standard Oil, we recognize the discrepancy of bargaining power between the buyer and seller and pointed out that the retailers might still insist on exclusive contracts if they wanted to.

The leverage I’m talking about here and that Mr. Justice Frankfurter was talking about is the leverage that enables a seller to impose a restrictive condition on then buyer.

If there isn’t that leverage, you don’t come in the Act at all.

Even though there is that leverage and therefore you come within the act, you still have to come to the qualifying clause and there, there is this question of whether you have to show dominance or not to come within the qualifying clause.

You can’t prove you come within the principle clause by proving over talking about cases dealings with the qualifying clause.

And I submit that if Your Honors come to read the briefs, I pointed this out in some detail in my reply brief, I think you will find that everyone of the arguments, that Mr. Fortas has made, well the ones he’s made here today and the ones that he makes in his brief, attempts to bring this contract within the act on various grounds that quantity is enormous or that you don’t need leverage or whatever other arguments he has made are taken from quotations and opinions of this Court dealing solely with the qualifying clause.

The fact is that every case that’s been here, all you ever talked about is the qualifying clause and your opinion started by saying so because there, there was a plain restrictive exclusive dealings condition at the beginning in Standard Oil contracts against it.

If it wasn’t for the qualifying clause, this contract would obviously be unlawful.

Here the question is, is the contract unlawful at all?

And I say you can’t prove the contract is unlawful in the sense that it has an inclusive dealing condition that quoting decisions and opinions of this Court that deals solely with the question of whether being a contract based on inclusive dealing condition and also that the effect of lessening competition or tending to create a monopoly.