RESPONDENT:Nashville Coal Company
LOCATION:Trailways Bus Terminal
DOCKET NO.: 87
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Sixth Circuit
CITATION: 365 US 320 (1961)
ARGUED: Dec 15, 1960
DECIDED: Feb 27, 1961
Audio Transcription for Oral Argument – December 15, 1960 (Part 1) in Tampa Electric Company v. Nashville Coal Company
Number 87, Tampa Electric Company, Petitioner, versus Nashville Coal Company Et Al.
William C. Chanler:
Mr. Chief Justice —
William C. Chanler:
— may it please the Court.
This case is here on writ of certiorari from the Sixth Circuit which divided Court affirmed decision of the District Court and the Middle District of Tennessee holding that a certain contract supply part of the requirements coal of Electric Utility Company for a period of 20 years violated the Clayton Act, Section 3 of the Clayton Act and was therefore void.
The case arose on an action for a declaratory judgment.
The respondent moved for summary judgment and there was no dispute as to the facts, the present petition of the plaintiff although of course moved for summary judgement.
The Section 3 of the Clayton Act set forth in full at page 2 of my brief, so far as pertinent here, if Your Honors are about pretty vague, provisions are that it shall be unlawful for any person engaged in commerce to make a sale or contract of sale or to fix the price of goods, or to fix the price charged therefore or a rebate of such price on the condition agreement or understanding that the lessee office thereof shall not deal in the goods of a competitor or competitors of this lessor or so.
Then follows the qualifying clause where the effect of such lease, sale or contract to sale may be to substantially lesser competition or tend to create a monopoly in any line of commerce.
Now it’s our contention that this contract it has to bring out, it doesn’t come within that act in any manner at all.
The petitioner, Tampa Electric Company is a regulated electric utility operating in the area around Tampa, Florida serving 3% of the land area and 11% of the population of the State of Florida.
The respondents mine and sell coal in the Ohio River coal areas of the Western Kentucky.
The National Coal Company, the operating company which is assumed this contract is a subsidiary of Nashville Coal Inc. which it’s entirely a subsidiary of West Kentucky Coal Company.
The background of contract is this.
Well 1955, well, probably 1957, Tampa produced all its electricity in oil burning plants.
It had two plants on Tampa Bay, focus point, (Inaudible) the name when use five together six boilers all burning coal.
It is a fact of a recent meeting (Inaudible)
They’re burning oil.
William C. Chanler:
Burning oil, thank you sir.
It is a fact as the reason to brought out where the Federal Power Commission that Florida as a fuel have not state and until very recently, would monopolize entirely by oil which it could most conveniently brought — be brought by Tampa across the Gulf of Mexico.
In 1955, the management of Tampa got in touch with some coal merchants finding a coal producer named Justin Potter, Potter Tolling Company to consider the possibility of introducing coal as boiler fuel, in Florida and as a result, this contract was entered into on May 23, 1955.
Tampa, the petitioner was to build a new plant, the Gannon Station initially with two coal burning units ultimately possibly with six units which might or might not burn coal.
Potter was to supply the requirements coal for the first two units a minimum of 225,000 tons a year for a period of 20 years at a price fixed in the contract, and in addition, he was to supply the coal for any additional units added to Gannon Plant during the first 10 years of the contract which was built as coal burning units.
Tampa was free after the first two units to construct 50 units as oil burning or gas burning or any other fuel but if they burnt coal, they came within the contract.
So that this contract covers as I said a part of the fuel requirements of this electric utility company.
In 1956, Potter’s contract was taken over by National Coal and its parent West Kentucky.
The deliveries were to commence in the Spring of 1957 after some discussion as to whether the price would be reduced.
Finally in April 1957, the respondents announced that they would not perform the contract because they contended they have been advised by counsel that it violated Section 3 of the Clayton Act.
We then brought this proceeding for declaratory judgment.
None of these — none of the facts I think are in anyway in dispute.
William C. Chanler:
The basis of the decision below was that the contract violated the Act because it embraced the total requirements, the first two coal burning units and such other coal burning units at Gannon Station as might be constructed to burn coal and that that was an enormous market with huge quantity of coal.
Now Your Honors, I think are familiar with the purpose of Section C of the Clayton Act that disclosed by the statutory history, an Act of 1914 largely because at that time, they have grown up throughout the country the practice whereby large manufacturers and sellers who owned or control some particularly desirable article of commerce sought to tie up the resale or retail outlet for their goods over a large portion of the country as they could by selling their desirable product only on the condition that the purchaser would not deal with their competitors.
The classic example was the International Shoe Company which possessed the patent that made it so much cheaper to manufacture shoes that no shoemaker could operate unless he had their patent.
So they made a condition that they wouldn’t license anyone to use their patent any shoemaker unless he also ordered leather in his last and everything else that he could use in making shoes, permitted International Shoe.
And as the senate report pointed under its bill, there as a result, was impossible drainage more shoemaker anywhere in the country to operate unless he bought everything from International Shoe, they have the fact they have monopoly across that contract is what is commonly known as a time contract.
The Act also forbids contracts which merely require that the purchaser shall buy all of the particular type of goods from the seller.
It stand as examples there to dress fashion cases, standard fashion, fashion designer’s guild where they sold these specialized fashion — dress fashions that had a trade name and a value only on condition that the stores use them — showed them would not display or use any other maker patents in their stores.
More recent case of that type of exclusive-dealing agreement frequently referred to as the requirements contract is the Standard Oil of California case in which Standard Oil of California and its leading competitors sold oil, sold gasoline and oil to filling stations in the western seven States, Western Area, it only dealt with the seven States, Western Area because that was the only area in which Standard operated on the condition that the filling stations would not sell any other oil but Standard’s or if its competitors — of its competitors.
The result of Standard tied up some 6,000 retailers in that area all with these requirements contracts.
Now, of course those contracts were — they didn’t say you may not deal with our competitors like the fashion one contract said you can’t sell somebody else’s fashion but this merely said you must buy all your gasoline from Standard, but it had exactly the same effect.
Now, there was where the type of contracts, type of transactions that Congress was directing its attention to when it’s enacted Section 3 of the Clayton Act.
And it’s apparent from the debates of Congress what they objected to was a powerful manufacturer with leverage, economic leverage grow over the buyer, compelling the buyer if he wanted to deal with his goods at all, if he wanted to sell Standard gasoline to just buy nothing but Standard gasoline and that it was applicable only when they were trying to tie up the resale-retail outlets for their goods.
Now, if you examine the Act again for a moment on page 2, you’ll see that it was carefully drawn to carry out just that type of a prohibition.
It shall be unlawful for any person to make a sale or contract of sale of goods, or fix a price or a rebate on such price, on the understanding or agreement that the lessee or purchaser shall not deal in the goods of a competitor or competitor of the substance.
That’s the language you would use if you’re trying to say you can’t impose an exclusive dealing condition on the buyer as a condition to his buying your product.
The case — the Act has been reviewed some 19 cases and various courts which is cited in the briefs, eight and nine I think in this Court and in everyone of those cases, a powerful seller with an economic leverage due either to a patent or to control or they trade name (Inaudible), Standard Gas, Standard Fashion, and so forth, imposed conditions to exclusive dealing on a substantial segment of the resale market for their product.
As I said 6,000 retailers in the Western Area in Standard, 60% of the clothing manufacturers are better more expensive ladies dresses, in Standard Fashions, and so forth.
In every case, moreover, the contract was based either expressly on a condition that the purchaser wouldn’t deal with the seller’s competitors or was of the type of requirements contract which had precisely the same effect.
You must buy all your requirements from us or not.
That did not violate the Act.
As Mr. Justice Frankfurter pointed out in the Standard Oil case, a dealer who has entered into a requirements contact with Standard, that’s the one that said you can’t buy any gas from anyone else, cannot consistently with that contract sell the petroleum products of a competitor of Standard no matter how many pumps he has.
And in every case, the Stan — the seller had this economic leverage that’s pointed out and in every case it tied up this large area of resale outlets.
Now, it’s my contention also in every case, the decree of the Court was directed exclusively against the seller.
It was the seller against whom the Act was directed, the Act of it was saying divulge contract to be in that merely says a person shall not make a sale on this condition.
So there never before has been a case in which the Act was directed against anyone but the seller to prevent him from imposing this exclusive dealing condition.
Now, I think it’s fairly apparent that the Act we have here before is — it doesn’t contain anyone of the four criteria which this Court has relied on and the other courts have relied on, and which Congress had in mind when they adopted the Act.
In the first place, because it’s obvious, this contract doesn’t contain any express condition that the purchaser shall not deal in the goods of the seller’s patents.
It merely says that the seller will sale and the goods that were purchased, all of its requirements for the first two units and six other units of this one station as may be constructed as coal burning units during the first 10 years of the contract.
That is not the equivalent of the type of exclusive dealing contract that said you can’t buy anything from anybody else.
Proof of it is, we are now purchasing oil — merely a competitor of coal and boiler fuel in 11 oil burning units on Tampa Bay all integrated units producing electricity on the same wire and we can — we have a perfect right to construct additional units of Gannon oil burning or gas burning units, thus dealing with coal’s competitor of oil.
Charles E. Whittaker:
Is that the violation to these contracts?
William C. Chanler:
Under the contract.
Charles E. Whittaker:
Under the contract.
William C. Chanler:
Under the contract, we have the right.
That’s the concept.
This contract doesn’t forbid us to burn all the oil we want even in Gannon Station except in those the first two units and such other units as we designate this coal burning — so it’s not a requirement, full requirement’s contract at all.
The limited possible requirements contract limited to those new units in which we burn the coal.
Actually, for that reason it seems to me it’s really more like the contract for a fixed amount of oil — of coal.
Because everybody knows that the amount of coal burned in the particular unit can be told within 5% or 10%.
When it’s constructed, it’s usually constructed to burn so many tons and then when it starts, it burns a little more or a little less.
And then of course you can’t tell practically how much demand there will be so that they like a little flexibility.
Therefore, they make it a requirement’s contract but it’s only in the limited requirements of this one — these two original units, not to fill the third coal burning unit, but as I say, they can burn oil in the future units and they’re now burning oil.
Now my friend says and the court below held that oil and coal are separate lines of commerce.
Well, I point out that the basic clause of the Clayton Act doesn’t say any thing about line of commerce.
It says, “that the seller may not deal with the goods of the seller and purchaser, he may not deal in the goods of the seller’s competitors.
Coal is a competitor of a seller.
The word line of commerce comes in only in the qualifying clause and I’ll come to that later.
However, let’s assume that coals oil are separate line of commerce.
We can burn coal in any of the oil burning units that we are — where we are now burning oil and although of my friend and the court below say that that’s a very unrealistic approach, the record shows that as soon as we began operating Gannon Station, the first unit there as the coal burning station and it was shown that coal could be brought down the Ohio river by barge across the Gulf of Mexico and to Florida, thereby breaking in to oil’s monopoly, one of the respondent’s principle competitors, the Peabody Coal company wrote to my client to Tampa, and formally offered to supply coal for two of the oil burning units who then were burning oil on Tampa Bay if Tampa would convert those units to coal.
Thereupon, — first, when the Tampa may interrupt with his oil suppliers and they reduced their price of oil.
That’s how begins the competition, this type of contract is.
Coal was brought in to Florida, the price of oil dropped.
Now, the only reason we’re not burning coal right now at this very moment, purchased from their competitors in Tampa to produce our electricity has nothing to do with the restrictive conditions of this contract.
It is the free act — action of free and open competition.
The moment Peabody Coal Company or some other coal company can offer us coal at a price that is competing with the present price of oil and oil people don’t reduce their price any further, we are going to obviously convert and buy coal.
We have to because we have to produce electricity at the cheapest rate, we are bound to.
So that we are all free under this contract to buy, burn coal and buy coal from their competitors right now.
In other words, it seems to me obviously that this contract doesn’t and can’t come within the basic clause of the Clayton — of Section 3 of the Clayton Act because it doesn’t prevent the purchasers from dealing in the goods of the seller’s competitors and it’s no use to say that the courts below did — my adversary says “Oh but it does cover a very large quantity of coal because like any utility, we burn a lot of coal to produce our electricity” ultimately it may be a million or even more tons a year, the whole thing gets going.
The Clayton Act doesn’t forbid a contract for the large — sale of a large number of goods, large quantity of goods.
It only forbids the contract based on the condition that the buyer won’t deal in the goods in the seller’s competitors and this contract, of course, doesn’t have any such effect at all.
William C. Chanler:
Now the second criteria, also the statutory history and decided cases which I’ve just referred in determining illegality under Section 3 of the Clayton Act is the question of whether the seller has leverage, economic leverage sufficient to impose the condition on the purchaser.
The importance of that is very well express I think in Mr. Justice Black’s opinion in Northern Pacific Railway of the United States be sure that dealt with the tying contract when it came up under the Sherman Act, the effect, the remarks are jointly after they were here.
In discussing this issue of the seller having economic leverage is 356 U.S. at page 6 and 7.
Now of course where the seller has no control or dominance over the tying product so that it does not represent in the factual weapon to pressure buyers into taking the tying requirement, any restraint of trade attribute — attributable to set tying arrangements would obviously be insignificant at most.
As a simple example, if one of a dozen food stores in the community where they refuse to sell flour, unless the buyer took sugar, it would hardly taint to restraint competition in sugar if its competitors were ready and able to sell flour by itself.
Now, the same would be true if he said “I won’t sell you any flour unless you ready buy all of your flour from me” and the other stores say “Oh we’ll sell whatever flour you ask for.
Now, it’s conceded on the record in this case that there were 700 coal dealers in the Appalachian coal fields in Ohio, West Virginia and all around there who were ready, willing and even eager, as it does to sell us coal.
West Kentucky or Potter Towing Company with whom we made the contract have invested the slightest economic leverage to compel us — to deal with them at all or to compel us to say “if we deal with you, we don’t deal with anybody else”.
The only reason this contract was made as a requirement’s contract — it’s perfectly well understandable business reason which Mr. Justice Harlan called attention to in the Mobil case seven years ago that when you are converting from one fuel to another, it is necessary to have a long-term requirements contract to make it economically feasible to invest large sums necessary to construct plant and in that case was also related to conversion.
The record shows that it cost us $3 million more to build the Gannon Plant as a coal burning plant than it would have if we built an oil burning plant.
The record shows also that these respondents had to invest upwards of $7.5 million, I believe it’s — I’m told now it’s $9 million in building barges to come down the Ohio river and the Mississippi river building especial docks in New Orleans to unload the coal from the barges and put it on the steamer that can cross the gulf and take it to Tampa and unloading facilities on Tampa’s dock.
Now, nobody’s going to go into those that type of a long term investment and then say “Well, now I want to go out and see where I want to get my coal.
Everyday I look at the market and buy sometimes from this man and sometimes from that.”
The only way anybody can justify that kind of an operation is to enter into a contract, the firm agreement that would supply all the coal that you need to burn in that plant or at least to long enough periods to amortize the cost of the plant.
Actually, while this litigation is going on in Houston Pipeline Company, I think it is where the Federal Power Commission requested the right to put a pipeline into western Florida or Eastern Florida, it won’t reach us on the other coast, the eastern coast.
And the Federal Power Commission said, “Well, you can’t do that unless you” enter into 20 year requirements contract with utilities on the eastern coast so that you’re sure to have somebody to buy the gas otherwise, it’s not economically feasible.
That’s why we entered into this contract and not in any way because of any pressure the seller could have put on us, because they tell us that the buyer had the pressure.
They say that Ohio — would say, “Oh yes, it was Tampa who insisted on the requirements.
Well, maybe we did.”
Certainly we wouldn’t build the contract unless we would build the plant, unless we were sure of our requirements.
Section C of the Clayton Act doesn’t say that it’s wrong for a buyer to go out and say “I want you to supply my requirements” and Your Honor pointed out in Standard Oil that a buyer always had the right to do that.
So that clearly this contract doesn’t come within the objection that the seller had any economic leverage.
The significance of it is as I said that where there is no such leverage there is no real attempt to monopolize or limit competition.
It isn’t that kind of transaction.
This isn’t the transaction that Congress was talking about when the Act was adopted.
Third, this is just a single contract by a single consumer for its raw materials from a single buy.
It’s the first time the Act has ever been applied or anyone has attempted to apply the Act to that type of contract.
Hitherto it is always been a situation as I’ve said where the seller is trying to tie up all the outlets in the country, the market.
The market is a place where a lot of people get together and buy.
They refer repeatedly to this huge market represented by the Gannon Station at Tampa.
William C. Chanler:
Well, that’s the electric light – electric producing sale.
They don’t buy or sell coal there.
They make electricity and it’s not a market.
Now, it is true as they point out that the Act speaks of a contract for use or consumption.
The reason the Act used a singular aid when Congress was talking about this — this practice of making a lot of contracts was in part, you might for instance tie up one contract with Sears and Roebuck or the A and B Company which you tie up all the outlets of that big company in the entire country.
Secondly, that the Act provided that it could be enforced by a single purchaser who said, “I am being discriminated against them” and because there are number of cases where a single purchaser came in, went to Court said, “I’m being penalized by this condition that the seller imposed on me and I don’t want to live up with it and the Court, this Court has held he doesn’t have to where the seller imposes an exclusive dealing condition in this manner.
Consumption, of course had to be covered as well as resale because — take the United Shoe Company.
They were consuming leather and so forth in making shoes with this machine and the manufacturing process, the same situation arises but the real reason — and so that language is perfectly consistent with the purpose of the Act and it certainly there’s no reason because they used the word “A contract for consumption”.
They suddenly turn around and say “We therefore can apply it to a type of contract and normal business transaction whereby the careful producer of electricity arranges for its supplies, a raw product which was never contemplated by Congress and never before passed on by Court.
Now, why do I say that it is wrong there to apply?
I think the reason is that there is no basis in its contract at this kind for inferring that the contract is all could be used for the purpose of limiting competition.
Mr. Justice Frankfurter pointed out in Standard Oil, one of the great questions was to find out what tests were necessary from which the inference could be drawn that the contract where or could be used for the purpose of limiting competition.
He discarded there the test to prove him whether or not it in fact limited competition and so forth.
But there to sound, to hit that the cause standard tied up 6,000 retail outlets a substantial part of the gasoline filling stations in that area and because the amount of gasoline sold was substantial and the substantial segment of the market, it could be inferred there that those contracts had the effect of limiting competition.
I’m talking now of course of the qualifying clause, the contract must be shown to limit the competition or tend to cause monopoly but I don’t —
We will recess now Mr. General.