United States v. E. I. du Pont de Nemours & Company – Oral Argument – October 11, 1955 (Part 1)

Media for United States v. E. I. du Pont de Nemours & Company

Audio Transcription for Oral Argument – October 11, 1955 (Part 2) in United States v. E. I. du Pont de Nemours & Company

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Earl Warren:

Number 5 on the docket, United States of America versus E.I.du Pont de Nemours & Company.

Mr. Weston.

Charles H. Weston:

If it please this Court.

This suit was instituted late in 1947.

The Government’s complaint charged that du Pont had been monopolizing interstate commerce in cellophane from about 1923.

The complaint made certain other charges that they are not material now.

After a lieu trial, the District Court ruled that the evidence did not sustain any of the Government’s charges.

The Court gave several grounds for its rule.

The one which is attracted the most attention is that du Pont did — could not have monopoly power over trade in cellophane because it did not have monopoly control over trade in, what the Court called, “flexible packaging materials”.

The Court also held that du Pont did not have power to exclude competitors that certain agreements which it had made which allocated market areas were not in illegal restraint of trade and that a product patent on a moistureproof cellophane which du Pont had and which was in existence during part of the period covered by the monopolization charge was a defense to the monopoly charge.

The Government is asking for reversible upon the ground that the Court seriously misconstrued the Sherman Act in its rulings on the various issues, which were presented to it.

The proof which the Government introduced was entirely documentary.

It consisted almost entirely of du Pont documents, agreements which was made, minutes of meetings of its executive committee, du Pont correspondents, internal du Pont memoranda and reports.

This proof is contemporaneous record of du Pont’s action and it comes straight from horse’s mouth.

Du Pont put in evidence over 1000 exhibits and called 20 witnesses.

It also took 16 depositions and introduced in evidence summaries of these depositions.

The opinion which the Court filed is a very lengthy one.

Part of its length is due to the fact that the Court included in its opinion 854 findings of fact.

Du Pont submitted to the District Court 854 proposed findings of fact.

The Court adopted all of these without a single substantive change.

One of the findings which it made does not make sense on its face.

One of the proposed — an error crept into one of the proposed findings and the Court took over this finding as it was written.

It did not notice that the finding with this error contradicted another finding.

It was contrary to the exhibit cited for support and also did not make sense.

The Government does not contend that the findings were invalid because of the Court adopted wholesale, the findings which du Pont proposed.

But we think its action in this respect is not entirely immaterial.

Du Pont’s brief states that this case was meticulously tried.

I suppose the trial includes adjudication.

The Government is contending that the Court misconstrued the Sherman Act.

To find out what that construction was, we have to look at the Court’s findings and opinion and this was shown both by what is in them and what — what is not in them.

Charles H. Weston:

Certain very important evidence was given the silent treatment and we think this is not unrelated to the source of the findings.

And so, we believe that paternity should be established whether or not we question the legitimacy of the offspring.

The Court’s conclusion of law is at some —

Felix Frankfurter:

Before you move on to the conclusion of law, what are we to understand as the Government’s position in regards to what I call findings of fact, do you challenge any of them or all of them or what?

Charles H. Weston:

We do not ask this Court to reverse any finding of fact upon the grounds that it is not supported by evidence or is contrary to the evidence.

We challenge only those conclusions of the Court, which it labeled findings of fact with which in fact rest upon and grew out of its construction of the underlying statute.

Felix Frankfurter:

Well I’m very — are you going to point out which ones they are or are they also included in the conclusions of law or — or they not count to be segregates?

Charles H. Weston:

The majority of them, you will find under what the Court calls conclusions of the master facts which appears at page 282 of the record and runs through 285.

There are certain others of the same character.

We have mentioned —

Felix Frankfurter:

Well, up to that — I wish be assumed and I — I do assume that up to that time, up to 2834, you do not challenge that the findings of fact —

Charles H. Weston:

No reason —

Felix Frankfurter:

— and sustainable and justifiable as the others?

Charles H. Weston:

We challenged those which have essentially the same character as those in what the Court call conclusions of the master facts.

In some cases, you repeated practically the same finding in different places in his finding.

Felix Frankfurter:

Are you making — are you indicating either your brief or your argument which we may assume under attack and which we may assume is the starting point of consideration?

Charles H. Weston:

I’ve already said that we are not attacking any finding on the basis that it’s not supported by evidence.

Some findings are difficult to assess because they use such an ambiguous word as competition which may have very different meanings in its different applications.

And among the findings which we do attack outside of those latter conclusory — conclusory findings are 356, the 721, 727, I think — I — I’m not — I don’t want to be bound to say that there are no — no other findings than those as I have mentioned but we assume that under the new rules, it is not necessary to specify precisely the findings attacked.

There is so much ambiguity in some of the findings that you hardly know.

If you give the one meaning, we would have to attack them, if you give them another, it would not be attacked.

Now, I would like —

Hugo L. Black:

You — you said — you said Findings 356 and what were the other two you mentioned?

Charles H. Weston:

721 and 727 and 356.

Now, the Court’s conclusion of law if you care to look at it, it can be found in page 9 of our brief, it’s relatively short and I think I will read it.

This is headed conclusions of law.

The facts destroyed the charges here made.

There’s been no monopolization or conspiracy or combination or attempt to monopolize shown.

The record reflects not the dead hands of monopoly but rapidly declining prices, expanding production, intent competitions stimulated by creative research, the development of new products and uses and other benefits of a free economy.

Du Pont nor any other company similarly situated should be punish for its success.

Charles H. Weston:

Nothing warrants intervention of this Court effectively.

The complaint should be dismissed.

I find in that a good many conclusions and some rhetoric but only think overtones of law.

On appendix to du Pont’s brief is instances of alleged contradiction between various statements in the Governments brief and certain findings of the Court.

We deal with that in our reply brief and I will just state what our position is.

It is that in most instances and careful examination, it would be seen that there is no actual contradiction.

And where there is contradiction that is with one of the conclusory findings which we are attacking.

I’d like to illustrate one of these conclusory findings.

Finding 835 at record 282, I will read it, the record establishes, this is the finding, the record establishes du Pont has not monopolized trade and commerce in cellophane or in caps and bands.

There’s nothing there except the word “monopolized” and that, of course, is the heart of Section 2.I’ll read one other finding, Finding 37, and I should say that Finding 37 is one of these conclusory findings which we do attack, it’s repeated in Finding 8 in one of the conclusory findings.

This is Finding 37 at record 72, irrelevant market for determining the extent of du Pont’s market control is the market for flexible packaging materials (judicial notice after examination and observation).

This is a compound of law effect and judicial notice.

I just don’t know in my proportions.

From the time available, it’s possible to state only the facts which we regard as of major importance.

The fact stated will be facts found by the District Court and in some instances, facts established by undisputed evidence but ignored in the findings.

Du Pont became interested in getting into manufacture of cellophane in early 1920s after it had learned that a French company called La Cellophane had developed a successful process for making cellophane.

The Court found this process had been developed as the result of years in research and practical operating experience.

And the Court found that it would have taken du Pont from five to eight years to reach the same point of development and would have cost it a considerable sum of money.

A witness for du Pont, chemical director of its cellophane subsidiary testified that the process had at least 50 variables and that a company starting from scratch would have to test out each of these 50 variables in all their permutations and combinations which he said he wasn’t a mathematician but went into the million.

This testimony is not mentioned in our brief, it’s at record 2063.

I also want to emphasize that the Court found that up to time of the trial, no other — the only other commercial process which had been developed was inferior to cellophanes in cost of manufacture and quality of product.

La Cellophane and du Pont both kept this process secret by a system of fences, plant guards and passes.

When the director of —

Stanley Reed:

Wants to be a patent on cellophane.

Charles H. Weston:

There was no patent at that time.

There were patents — some — the French had some patents that du Pont decided and counsel for du Pont conceded in the lower court that they were practically useless.

Stanley Reed:

So the question of —

Charles H. Weston:

Secret process.

Stanley Reed:

Solved the know how.

Charles H. Weston:

It was — it was a very intricate process involving chemical compositions and chemical controls especially designed machinery, especially designed plan.

Stanley Reed:

And you urge as an element (Inaudible)

Charles H. Weston:

Yes because I — I will come to it in a minute.

This was all put in du Pont’s hands and under an agreement whereby nobody else could get.

Stanley Reed:

They have a secret process.

Charles H. Weston:

Yes.

Stanley Reed:

And as a secret process is part of (Inaudible)

Charles H. Weston:

That an agreement to keep others from getting a secret process.

Stanley Reed:

(Inaudible)

Charles H. Weston:

Yes, it — it certainly — the secret process —

Stanley Reed:

Did the seller agree that he would not sell it to anyone else?

Charles H. Weston:

Yes and that he would not — not come in into the territory himself, that he would not any — let — let any licensee of his come into the territory and that you would have an exclusive dominion in the given territory.

Felix Frankfurter:

That was on the direction if the French, owner or the process to all the patents but you say the patent is useless to gain profit and up to that time of the people —

Charles H. Weston:

Yes.

Felix Frankfurter:

— to du Pont.

Charles H. Weston:

Yes.

Felix Frankfurter:

Is that it?

Charles H. Weston:

That’s right.

Felix Frankfurter:

Submission to restriction of few merits.

Charles H. Weston:

Yes.

Stanley Reed:

Well, then — then cellophane’s price (Inaudible)

Charles H. Weston:

It had —

Stanley Reed:

— quite to operate under that.

Charles H. Weston:

It had some old patents and —

Stanley Reed:

That, I could understand.

Charles H. Weston:

— it had some patents which had been taken out a number of years earlier when du Pont’s — and it did transfer what it had to du Pont —

Stanley Reed:

Unlike — like —

Charles H. Weston:

Yes, but when du Pont’s counsel came to investigate that, they found that the patent situation was practically useless.

They said we won’t be able to maintain a monopoly on the basis of the patents.

Felix Frankfurter:

Has went to a prior art or what?

Charles H. Weston:

Because the patents were apparently very sketchy.

Charles H. Weston:

And it was testified that you could not have made cellophane as La Cellophane made it by following the instructions of the patents.

Felix Frankfurter:

But — but the words of the secret process did not — has not on that question.

Charles H. Weston:

No, I think that is not the questioned at all.

It’s found by the District Court.

And court found that it — it was essential to commercial manufacture.

Now, du Pont looked into the profit possibilities that having a company making cellophane and which would have exclusive rights in North and Central America, it is decided that the profit possibilities were excellent.

1923, it made an agreement with La Cellophane and La Cellophane turned over its complete information.

It sent over an engineer to plan and supervise the construction of the new plant, it trained personnel in France and United States.

The agreement between the companies granted to du Pont exclusive rights —

Harold Burton:

What’s the reason to this?

Charles H. Weston:

That is that when — record 3245 it begins, there — there was a subsequent Greentouch GX-1001 and that was implemented by another agreement, GX-1003.

Harold Burton:

What — what page is that?

Charles H. Weston:

At record 3245.

The exclusive selling rights were without any limitation in time.

Exclusive manufacturing rights were without limitation of time except as against La Cellophane itself and it was impliedly authorized to come in and manufacture after December 31, 1935, more than 12 years after this agreement was made.

It expressly provided that these exclusive rights should continue in effect if French saw their stock interest in the new company.

I should say that the French got 48% of stock, du Pont 52%.

In 1929, Du Pont got all the stock, but later merged with du Pont.

Now, we’ll generally refer to the — this new company as — as du Pont.

The Court found that La Cellophane was not willing to turn over the secret process unless du Pont can find manufacture sale to North and Central America.

It did not find that La Cellophane demanded that it be excluded from du Pont’s territory.

Du Pont came into the cellophane business and — and were set up which was designed to prevent any — and it would be American manufacture from obtaining access to necessary technology.

The things work according to plan.

Du Pont would have a monopoly with the North and Central American Trade for indefinite future.

Things did work according to plan.

In fact, the only real reach in it resulted from the filing of this present suit, for 27 years until 1951, only one company came into the business and it came in under circumstances which the parties could hardly foreseen and which was not likely to be repeated.

Now, plan to exclude competitors and success in achieving it pinpoint power to exclude in very unusual degree, but in this case, these powers pinpointed even more precisely.

A very substantial company tried and tried hard to get into the business and failed until du Pont itself opened the door in 1951 after the suit has been tried.

Now, the company which came in, in 1930 was Sylvania, called Sylvania.

It came in because it was able to obtain the same complete information about the La Cellophane process that had enabled du Pont to begin to manufacture cellophane in 1924.

Charles H. Weston:

And this came about in this way.

La Cellophane’s chief engineer absconded with blueprints and complete information about its process.

A syndicate was formed and with this information, a Belgian company was established to manufacture cellophane under the La Cellophane process.

It established Sylvania as an American affiliate and in turn transmitted to it this complete information.

La Cellophane’s former chief engineer came over to design and supervise construction of Sylvania’s plant which at Fredericksburg, Virginia.

Now, I mentioned that the company started to manufacture cellophane in 1951.

This is Olin Industries, which would be called Olin.

It became interested in getting into the cellophane business as far back as 1929.

Three different years conferred with representatives with the one company which had a commercial independent process for making cellophane.

It visited that company’s plants in Germany.

It decided after a complete investigation that this was not a satisfactory process, then spend about a million dollars in trying to develop the process of its own.

It finally gave up this attempt in 1944.

These facts were given by du Pont witness, vice president (Inaudible), on direct examination by du Pont’s counsel.

Du Pont’s brief suggests that this evidence should be ignored because the Government in pretrial proceedings had not name Olin as an excluded company.

I submit that evidence is evidence, whether it was known to the Government in advance of the trial or whether it was introduced by the defendant or by the Government.

Felix Frankfurter:

Did du Pont take any active measure, that is this company (Inaudible)

Charles H. Weston:

No, it — it — but it’s under the American Tobacco case.

It is possession of power to exclude —

Felix Frankfurter:

I — I don’t — I don’t —

Charles H. Weston:

— rather than it’s exercising.

Felix Frankfurter:

— I’m worried about the law.

Charles H. Weston:

No, no.

Felix Frankfurter:

I just want to know —

Charles H. Weston:

No, there was no overt — no overt act in du Pont’s part in that connection.

Felix Frankfurter:

If that’s true, is there any overt acts on du Pont’s part with reference to anybody of potential competitors other than what you are arguing, monopoly tradition?

Charles H. Weston:

No — no overt act.

It was — really wasn’t necessary.

Felix Frankfurter:

All right.

Charles H. Weston:

As if they never reached that point.

Felix Frankfurter:

Did it prevent — I mean take the shoe prints —

Charles H. Weston:

No.

Felix Frankfurter:

— of whether they like to prevent its plan from using a competitive machinery.

Charles H. Weston:

There was no proof that it — it was an overt act other than stopping at — stopping it at the source, if we may say —

Felix Frankfurter:

You mean (Voice Overlap) —

Charles H. Weston:

— by foreclosing access.

Felix Frankfurter:

You mean that it was exclusive licensee or whatever of — of the French company.

Charles H. Weston:

And it is also — this wasn’t a license if this was to go on forever.

Felix Frankfurter:

Well, I’m not —

Charles H. Weston:

It was —

Felix Frankfurter:

— I’m not (Inaudible)

Charles H. Weston:

Yes.

Felix Frankfurter:

— I’m raising a legal question.

I —

Charles H. Weston:

Yes.

Felix Frankfurter:

— want to know whether as a matter of facts —

Charles H. Weston:

No, I —

Felix Frankfurter:

— government charge or anything substantial.

If anything was done from any other company to the scale of this finding, discovering an effective and possible formula to manufacture it itself.

Charles H. Weston:

We — we did charge that they had taken steps to prevent certain companies from getting into the business.

The Court found against us on those charges and —

Felix Frankfurter:

Are you challenging those findings?

Charles H. Weston:

We are not challenging those findings.

Stanley Reed:

(Inaudible)

Charles H. Weston:

Yes, we certainly do.

Stanley Reed:

(Inaudible)

Charles H. Weston:

Well, that —

Stanley Reed:

— monopoly power?

Charles H. Weston:

— that on the power to exclude that — that was the basis of it.

Stanley Reed:

Well, how about the surveillance of the company (Inaudible)

Charles H. Weston:

No, it — but it came in as we — as I just explained that through circumstances that it could it hardly been foreseen.

Charles H. Weston:

In other words — in effect, the La Cellophane process was stolen.

I may say that La Cellophane sued this Belgian company and evidently the suit was regarded as pretty serious because it was settled by transferring about one-third of the Belgian company stock to La Cellophane in the settlement of this suit.

So that Sylvania came in because somebody had ran of with information and —

Stanley Reed:

And all of (Inaudible)

Charles H. Weston:

No, Sylvania was that — got that right, but now, Olin is the company that was not able to manufacture, wasn’t just trying to and I’m going to say now how — how du Pont brought it in, in 1951.

Felix Frankfurter:

Why was Olin not able?

Charles H. Weston:

Because it turned to the only independent source of this German company and found his process satisfactory and it was unable to develop in the other process of its own.

Felix Frankfurter:

Because it tried to — inability was still on the part of (Inaudible) is that right?

Charles H. Weston:

Because this was — this was apparently the only satisfactory, workable way of making cellophane and it was exclusively in du Pont’s possession as far as this county was concerned.

Felix Frankfurter:

Suppose they independently found the secret formula without (Inaudible)

Charles H. Weston:

Of course, a company can use its own discoveries —

Felix Frankfurter:

That’s what I’m asking.

Charles H. Weston:

— but you cannot, I think, deal with so-called secret processes and use them as means of agreement with other companies in a way that would go beyond what would be permissible with those with patent rights.

A — a — when patents are use in such way as to allocate market territories, in ways beyond the limited rights, the monopoly rights with patent, they do not constitute a defense to the Sherman Act.

Now —

Felix Frankfurter:

Construct an act.

Apart from the conventional unfair competition, there’s an unpatented leeway process and another person independently without utilizing any employee, without any misconduct — any misconduct, independent work in the laboratory, hits upon the same secret process and doesn’t promote it under the name that misleads (Inaudible)

Charles H. Weston:

No, I — I think it does not.

Felix Frankfurter:

All right.

Charles H. Weston:

Now, how did Olin come into the business?

After this suit was filed, du Pont decided that it would not go ahead with plans which it had for — taking a — adding a new plant and it would be desirable to bring a new competitor into the business.

It prepared a memorandum which was submitted to companies which might be interested.

The opening sentence in this memorandum is to help meet the U.S.need for more cellophane and to reduce the hazards of being judge to have a monopoly of the U.S.cellophane business, du Pont is interested in having a new competitor established common substantial scale.

And du Pont’s brief had suggests that the secret technology which was essential to successful manufacture might have been obtained from the Belgian company.

But Sylvania with this company’s subsidiary and was doing very nicely on sharing the monopoly which — sharing with du Pont, the monopoly of the business in this country on this 25% — 75% basis.

That business is 25%?

Charles H. Weston:

No, that was — it was remarkably stabled but there’s no evidence of agreement.

Now, this was a monopoly of a very rapidly growing and profitable industry and the Belgian company was not likely to upset the (Inaudible)

Now, the significance of long continued non-entry into an industry depends partly on what opportunities this holds out for others.

In this case, the growth of the cellophane industry was constant and spectacular from the very beginning.

Charles H. Weston:

But we’re not going to figure it in the Court’s findings.

They are referred to in our brief.

Profits were high, very high and certainly sets us to attract others.

In 1929, du Pont bought the stock which the French shown in the cellophane subsidiary.

It bought that stock on the basis that it was then worth 15 times where du Pont had paid for it when the company was organized.

The company then had been in operation for five years.

In other words, du Pont bought on the basis that that stock had tripled in the value in each year of operation.

And I don’t mean to say that they make 300% profit every year.

I’m sure that du Pont was discounting the monopoly outlook for that company.

This was before Sylvania had come in.

Now, I’ve been discussing up to this point chiefly facts appearing on power to exclude.

Du Pont’s power over the prize of cellophane is not really in dispute.

Cellophane’s price has been whatever du Pont chose to make it.

But the Court did not find that it did not have this power.

All that it found was that it did not have arbitrary pricing power.

And what the Court meant as its finding showed is that du Pont did not have pricing power free from such indirect and impartial limitation as resulted from competitions of lower price substitutes for cellophane.

Stanley Reed:

The (Inaudible) completed the Government statement about the monopoly in secret.

Charles H. Weston:

On — on power to exclude, but obviously, monopoly power over prices also known and I want to the state the facts on that.

I was just (Voice Overlap) —

Stanley Reed:

(Inaudible)

Charles H. Weston:

What is it?

Stanley Reed:

Obviously, du Pont had power over prices.

You only have the facts on cellophane.

Charles H. Weston:

Yes, it did up until 1930, Pennsylvania came in and I want to show what’s — it’s — whether that brought a change in this situation or not.

Stanley Reed:

And this has directed that

(Voice Overlap)

have an agreement or understandings —

Charles H. Weston:

No.

Stanley Reed:

— or just in between du Pont and these companies?

Charles H. Weston:

No, no, it’s just that it had superiority in manufacturing efficiency, the Court found in quality of its product and service to customers and it also had about 50 times the resources of this company and the company never competed with du Pont in price.

Charles H. Weston:

The Court found that each time du Pont issued a new price list, Sylvania issued a list copying du Pont’s prices dating it back to the date of the du Pont list.

Now, this did not only did Sylvania do this but the process was automatic.

Sylvania’s office manager testified that the standing instruction from Sylvania management was that when he obtained a copy of the new du Pont price list, you should have a new Sylvania list printed and copying du Pont’s price list and sent to customers.

This testimony is at pages 756 and 757 and also not mentioned in our brief.

Now, du Pont takes the position that this is mere price leadership.

Price leadership implies that, at least sometimes, there is a change in leader.

It implies that, at least occasionally, the followers exercise a little independent judgment before following the leader that they are not mere automatized.

And it implies that there is more than one private in the ranks that it’s price command not price leadership.

Now, I want to mention a few facts about the product patent which du Pont had on moistureproof cellophane.

It issued in November 1929 and expired in November 1946.

Stanley Reed:

(Inaudible)

Charles H. Weston:

No, that — no, this is solely on what is called moistureproof, which is — means as the name implies that it —

Stanley Reed:

As the references, some 300 patents.

Charles H. Weston:

Well, there — there was — the Government did raise the issue of whether du Pont had assembled a great body of patent which serve to block the cellophane industry.

The facts are very complex.

The Court —

(Inaudible)

Charles H. Weston:

We’re not pressing that point.

So that the only — only patent is used as a defense by du Pont.

They did have some accessory patents with the basic patent on which they relies its product patent.

Now, it resulted from research to make cellophane more resistant to moisture which was recommended by the director of the cellophane subsidiary, provided du Pont was prepared to spend up to $5000 to $10,000 before calling off the project.

The evidence does not show how much the research cost except that it shows that it’s considerably under $41,000.

Moistureproof cellophane is made by taking plain cellophane, and — the plain cellophane film and running it through a solution containing such things as resins, paraffin and more vegetable fats.

When its — went through this solution, there is a very thin moistureproof coating applied in each sides of the film.

So you cannot make moistureproof without first making plain.

The du Pont had illegal power to exclude to manufacture plain.

That illegal power equally excluded others from making moistureproof.

This power did not become legal because du Pont obtained a patent which gave it a secondary legal power of exclusion.

It never had to invoke that patent because no one ever came in.

It didn’t — didn’t invoke it against Sylvania but this suit was settled — settled by an agreement under which du Pont licensed Sylvania for the life of the patent.

Charles H. Weston:

This agreement provided for a — relatively small royalty, but if Sylvania’s percentage of total production of the two companies exceeded certain stated amounts, it was an absolutely prohibitive royalty.

In addition, the agreement — the license agreement provided that each company would transfer to the other on request any future moistureproof patent which it might obtain and that such a patent would not be licensed to any third person without the consent of both parties.

Now, du Pont’s agreement with La Cellophane required it to exchange with all its future acquired information, apparatus and patents, so that this moistureproof patent passed to La Cellophane under this agreement, but only for use outside of du Pont’s territory.

Furthermore, du Pont had entered into agreements with two subsequent licensees of La Cellophane, an English company and the German company.

And du Pont had made agreements for exchange of present and future technology and patents with each of these companies and each provided that this all was to be used only in the respecting exclusive territories of the parties.

Now, I come to the question whether competition of flexible packaging materials prevented du Pont from having to not compare us to cellophane.

Stanley Reed:

Do you think (Inaudible)

Charles H. Weston:

Whether competition of other flexible packaging materials prevented du Pont from having monopoly power as to cellophane.

It could be put this way, can cellophane be monopolized only if the entire packaging field is monopolized.

But the District Court’s view was that there could be no monopoly control over cellophane without control over this, what it called the flexible packaging materials market.

I want to say that there is no defined recognized market of this kind.

What the Court meant by this was the materials which are primarily used for prepackaging, retail packages.

In other words, it was a selected kind of market to start with.

The materials which the Court designated as flexible packaging materials are cellophane, other films, certain products made of paper and aluminum foil.

We can set aluminum foil at one side, what could be said about the paper products applied generally — generally to it and it was competitive with cellophane anyway only for very limited uses.

The competition of the other films can also be disposed off.

They came into the market almost at the end of the period and covered it by the monopolization charge.

Competition which did not even exist in this period could not have precluded possession of monopoly pricing power.

In addition, the — their sales were very small and their prices are away above the price of cellophane.

I will refer to what was said in a du Pont exhibit to the 1948 report of its cellophane division.

These report sales that nonviscous films, that is those other cellophane, had been competitive with cellophane only to a very minor degree that some are used very little or not at all in packaging.

Stanley Reed:

(Inaudible)

Charles H. Weston:

Well, we think that that — that is entirely irrelevant to the issues presented by this monopoly case.

Stanley Reed:

(Inaudible)

Charles H. Weston:

Yes and I think — I think —

Stanley Reed:

No — no one else can make cellophane except (Inaudible)

Charles H. Weston:

Yes and — and —

Stanley Reed:

So therefore —

Charles H. Weston:

— du Pont was so completely dominant in the field that it by — all except the test had monopoly power.

Stanley Reed:

Over cellophane?

Charles H. Weston:

Over cellophane.

And I have just shown that there are only three other things considered and really, you’ll get back to the paper products because these films came into the picture too late and too little.

Now, I would just —

Findings (Inaudible)

Charles H. Weston:

Oh, yes, yes, glassine and grease — all that first group of paper and the second group of paper, the third group of paper, all those first — first three, the big —

Felix Frankfurter:

Mr. Weston, did cellophane replace an entire commodity expert (Inaudible) serving that one film that is created, a new model?

Charles H. Weston:

It — it did.

Felix Frankfurter:

One of its kind with a little of its function.

Charles H. Weston:

It — it did both.

It did both.

Felix Frankfurter:

Well, as to the things that it explained, did it place competitors in regard the functions?

Did that market shrink from the commodity of this claim?

Charles H. Weston:

The figures on growth, overall growth over a period of years or somewhat inconclusive, cellophane grew faster than these others.

They — none of them stood still.

It is obvious that packaging has grown enormously, but cellophane has grown faster than any of the others.

Felix Frankfurter:

There was — there was — there were commodities that served the function that cellophane did before cellophane didn’t appeal, is that what I’m — as you understand?

Charles H. Weston:

It depends on what you call by function.

Felix Frankfurter:

All right.

Charles H. Weston:

Cellophane provided something different than any of the others did.

It — and a purchaser of packaging materials looks at its composite qualities and no other material approached the composite qualities of cellophane.

It —

Felix Frankfurter:

They were wrappings of course (Voice Overlap) —

Charles H. Weston:

Oh, of course, they we’re wrapping —

Felix Frankfurter:

But — but the particular thing that cellophane does or did, that that has to persons, that has to people who conceded it as giving that — that purpose.

Charles H. Weston:

It was no — no — it was the first film of the kind if — if that is your question.

The film — of course, the characteristic of that is transparency.

Felix Frankfurter:

And these — these other packaging is comparable as these in Finding 280.

Did they come into the field after the cellophane?

Charles H. Weston:

Oh, no, they — well, it — you have to distinguish the paper products were in there and they’ve always been in there, the first three groups.

Felix Frankfurter:

Would you indicate them?

Felix Frankfurter:

We have a submission date to determine how much of (Inaudible) as the cellophane as that market have.

In other words, when the cellophane increase, the market of those who are competing with the cellophane would get —

Charles H. Weston:

It had — the monopolistic cellophane had a monopoly of a — of the markets where cellophane was superior to anything else and that was a very large market.

There was no competition between cellophane and these other materials on the basis of price.

The price of cellophane was an early period seven times out of these paper products.

Later on, it was four times.

Subsequently, it came — it became in 1949 about double.

With competition in this sense, that some purchasers and any would compare these superior qualities and characteristics of cellophane as against the lower cost of paper made products.

They might sometimes choose one or sometimes choose the other but there was no price competition.

It was — we might say that because I have a monopoly, we’ll say, oil burners that because there are some gas burners that somebody else has but then, I couldn’t have a monopoly of the oil burner business.

Felix Frankfurter:

Wouldn’t it be of his — what you call a superior quality of superior (Inaudible)q

Is that relevant to your — to your mind with this problem as I’ve got it?

Charles H. Weston:

I — I certainly think it is.

Let us look at the situation, just brought it broadly.

Cellophane has grown enormously.

The trade and the profits have been high.

But it’s always been a way above the prices of these paper products.

It did not differ functionally and materially from the lower price products.

How could it have grown and expanded and profited when the other products were always available at half or less cellophane’s price?

Now, the — of course, the characteristics of these wrapping materials are shown in the Court’s findings.

We refer to them in our brief and they are functionally wide apart.

Now, what did — what did this du Pont management itself think was the competition which it faced in its cellophane business?

In reports submitted year after year by the cellophane division to the executive committee and reports submitted to the executive committee and other higher officials, provide information as to — for making major policy decisions such as plan expansion.

The sole competition referred to was the competition of other cellophane and other films.

There are three and — out of 23 reports, there are three trifling references to paper products almost completely varied.

Now, I submit that the salients respecting competition of paper products cries out loud.

I want to call attention to a 1950 report, prepared by the cellophane division, which still among other things with cellophane’s future competition.

Stanley Reed:

(Inaudible)

Charles H. Weston:

That is — that is GX-587 at Record 4070.

You might possibly be interested in —

Stanley Reed:

What volume?

Charles H. Weston:

In Volume VI.

The first page is called survey future —

Stanley Reed:

There are only four volumes regarding that.

Charles H. Weston:

Oh, well, the —

Felix Frankfurter:

Although —

Charles H. Weston:

— the exhibit volumes known as (Inaudible)

Felix Frankfurter:

What page did you read that one?

Charles H. Weston:

4061.

Stanley Reed:

And do you refer to the brief?

Charles H. Weston:

Yes.

Stanley Reed:

Where?

Charles H. Weston:

At page 85.

Now, the subheadings under — under table of contents relating to economics and competition, the two dealing with competition, competition — competitive position-against cellophane.

Next one, competitive position-against non-cellophane films.

Now, the text of the report conforms to that, those headings, there is not a mention made of paper products.

Now, I want to read the first sentence under the part dealing with competition, that’s at Record 4070 under that heading.

Competition for du Pont cellophane will come from competitive cellophane and from non-cellophane films made by us or by others.

I may say that du Pont manufactured also certain other films.

Stanley Reed:

(Inaudible)

Charles H. Weston:

Now —

Stanley Reed:

(Inaudible) or the advantages of cellophane or was it paper products?

Charles H. Weston:

Well, of course, as you notice the source of the findings and — and there — there is nothing in it that is not favorable to du Pont.

There is a table which shows the characteristics —

Stanley Reed:

What —

Charles H. Weston:

— physical.

Stanley Reed:

— and what do you say is the characteristic?

What is your evidence?

Charles H. Weston:

Well, the evidence was that — it was a very tough, transparent, flexible and it also had the moistureproof qualities as — as — will not just develop if the cost is around —

Stanley Reed:

(Inaudible)

Charles H. Weston:

— $41,000.

Stanley Reed:

— this paper has moistureproof quality.

Charles H. Weston:

What paper?

Stanley Reed:

(Inaudible)

Charles H. Weston:

Well, each one of this can perhaps be partly paralleled but the purchasers buy on the basis of composite whole.

And now take a thing like fresh meat —

Stanley Reed:

It’s a better product of a flexible remedies, is that — that arises?

Charles H. Weston:

For serve — yes, for serving the — especially retail needs where the customer can see what he’s buying.

Now, take fresh meat in the self-service stores where it’s sold by the individual units, 75% of that has been du Pont’s cellophane.

Now, of course, there’s competition in the sense that some purchasers see only a small advantage between the qualities of — which cellophane gives and it’s our cost.

But as I said, this is not competition in the basic price.

Du Pont has had the power to fix the price of cellophane at the particular point at which sales volume, probable sales volume multiplied by a price would yield the highest profit and I submit this is the essence of monopoly pricing power.

When the product is sufficiently unique to invest consumer acceptance that cellophane has, it’s inevitable that there are some uses in which it is — stands out above all others.

Now, take the ordinary package of cigarettes with which you’re all familiar, for years and years, cellophane has been practically exclusively the other wrap for cigarette packages.This trade alone runs into many millions of dollars.

Now, it sales to users like the cigarette companies, the monopolies to cellophane certainly has the monopoly pricing power.

I submit that this power does not vanish into thin air because he chooses to expand his sales into areas where there may be a relatively small margin of advantage.

Section 2 of the Sherman Act makes it unlawful as everyone knows to monopolize any part of the interstate commerce.

Now, direct and immediate dominion over a particular product or a segment of trade which constitutes part of interstate commerce certainly — obviously comes directly within these words.

And most of the decisions deal with Section 2, the courts have considered only whether that dominion was shown and when it was shown and held that Section 2 was violated.

They have not even intimated that the indirect limitation and pricing power that may come from availability of substitutes makes the power which is exercised over the commodity itself not a monopoly power which Section 2 condemns.

If this kind of indirect nebulous uncertain limitation on pricing power where a defense, Section 2 of the Act would be a dead letter because there are substitutes for every product.

There is always this — this kind of indirect limitation on pricing power.

The competition or availability of substitutes has been considered in a few cases, the courts have held that they should limit their attention to those which are indistinguishable or substantially indistinguishable in use value and so with substantially the same price.

Now, our brief used the words substantially fungible, it’s a shorthand phrase for substantially indistinguishable in use value.

We did not mean that one product had to be precisely the same in all its physical characteristics to be indistinguishable in use value.

Du Pont’s brief suggest that our interpretation would mean that there could be monopolization of a particular make of automobile.

There was this purchaser buys as what the car as a whole represents.

Two cars of approximately the same price or for the great body of purchasers indistinguishable use value.

If one is two inches longer than another or if some will buy that car because they think it gives some additional prestige or comfort and others will not buy it because it’s harder to park or put in the garage.

The holding of the Court that du Pont did not have monopoly pricing power was rested solely on the ground that Section 2 does not make a legal pricing power which is limited, however, remotely by the existence of a free market in lower price substitutes of the kind which the evidence discloses.

Charles H. Weston:

If this was a misconstruction in Section 2, the Court erred in its determination of the monopoly pricing power issue.

And if — since possession of either monopoly pricing power or power to exclude is a monopolization which Section 2 condemns error in this determination of the monopoly pricing power required reversal.

We also submit that there were errors in its determination of car to exclude each required reversal.

In American Tobacco case, it was held that mere — that the existence of power to exclude, irrespective of its exercise, its actual exercise, violates Section 2 that what is forbidden is not merely power of total exclusion but power to exclude competition to its substantial extent when it is desired to do so.

The District Court did not cite the American Tobacco case in the portion of its opinion dealing with power to exclude.

It did not cite this case anywhere else in its 65 page opinion with reference to this matter, except for its short quotation, which merely sets forth the basic proposition that — where there is power to exclude that as a violation of Section 2.

Felix Frankfurter:

Mr. Weston, may I ask you whether you raise the question of size as meaning by that, the extensive demand for or use of this party Is that a — is that a relevant factor in your field for adjudication (Inaudible).

If it is in short by way of contract?

Suppose instead of dealing with a commodity or his friend has just had and used all over the United States resulting to mean (Inaudible)

Suppose it had been a commodity which only the power of the wealth can be — can be deprived so that the — the market in restriction to American species.

Otherwise, the monopoly position of — in your view unless like this, would the legal question be the same?

Charles H. Weston:

Well, I think as to power over prices it would be now as to power to exclude.

There might —

Felix Frankfurter:

Speaking of a commodity whether it’s a very fine — something that’s called $10 unit, therefore it involves decision instrument instead of (Inaudible)

Charles H. Weston:

Well, I — I think that it would also depend on whether it — there was free entry.

In other words, if — nobody came in because he didn’t choose to do so, there would not be —

Felix Frankfurter:

Well, I’m not going to make a — for instance, a problem — for instance, as a matter of practical or a special kind of — of grace, cigarette or what you see, some luxury articles.

Otherwise, the condition would say, I’m — I’m trying to find out by using the size of penetration, the economic penetration of this particular commodity is a relevant fact at all — entered at all into your calculations.

Charles H. Weston:

I think that it is relevant in the sense that size could not be obtained without the size of trade that was obtained here, could not be obtained unless that product was unique and for which there was a great demand.

Now, if — if there’s a raiser through other raisers —

Felix Frankfurter:

Perhaps not the proper size of a luxury trade (Voice Overlap) —

Charles H. Weston:

Oh, well, no, no.

There — there you — you can pay your price and get — get your product.

There are plenty of things on the market.

You may want to buy a luxury item and somebody else may not but that is your free choice and there is no monopoly that pinches anybody there.

Now, I’ve mentioned the failure to cite the American Tobacco case.

Felix Frankfurter:

But I don’t think the downfall make a difference whether you’re dealing with a commodity that has the national market, has a — has a — 100% would buy or merely 50%, 100,000 would buy, doesn’t it?

Charles H. Weston:

No, that’s directly, certainly.

Felix Frankfurter:

Well, (Inaudible)

Charles H. Weston:

Well —

Felix Frankfurter:

— the patent for it, the Government has made that concession, the Attorney General and that conferred with the geographical (Inaudible)

Charles H. Weston:

Yes, but I think when you come to find out what the monopoly is, then besides the market may has some bearing on it.

Now, let me — let me say what the Court did — the grounds upon which the Court did find or the grounds it considered in finding that there was not power to exclude.

It’s said that du Pont did not prevent it particular companies from coming into the business.

Well, this is exercise of the power not its existence.

It said that Sylvania come in and stated, this is both exercise of the power and the question of whether the power means power of total exclusion or something less than that.

It never mentioned the exclusion written directly into the agreement with La Cellophane.

It’s never mentioned in connection with power to exclude.

Stanley Reed:

When you — when you consider power to exclude or perhaps you consider it with intent or the power to monopolize.

Charles H. Weston:

No, courts have held —

Stanley Reed:

In regard with that.

Charles H. Weston:

— this Court has held that —

Stanley Reed:

— talking about the power, certainly, all the power with intent to monopolize.

Charles H. Weston:

That — that will be true if it’s conspiracy to monopolize but not straight monopolization.

It’s the —

Stanley Reed:

Power alone?

Charles H. Weston:

— it’s the act of doing it.

Stanley Reed:

Power alone?

Charles H. Weston:

Yes, the power alone.

Well, if we — if we want to look at intent, of course, it’s written into these agreements.

Du Pont didn’t keep — provide for keeping out all others without purpose.

Stanley Reed:

Well, I agree, this is (Inaudible)

Charles H. Weston:

If it’s necessary.

Stanley Reed:

You refer — refer — referring right now to the exclusion that they had power to monopolize, perhaps you would have trouble except to those powers.

Charles H. Weston:

Well, could I read what the Court said in the Griffith case in 334 U.S, it is sufficient that a restraint of trade, this is at page 105, that a restraint of trade or monopoly results as the consequence of defendant’s conduct or business arrangements, it’s quoted at page 89 of our brief, to require a greater showing would triple the act, stated in the Aluminum case.

No monopolists monopolizes unconscious of what he is doing.

Specific intent, in the sense in which the common law used the term, is necessary only where the acts fall short of the results condemned by the Act.

Now, Judge Learned Hand in the Aluminum case expressed the view that Section 2 is not violated if monopoly is attained solely by research, superior business scale or what have you and not accompanied by any trade restraining conduct.

He gave us an example of company which in free and fair competition was the sole survivor rivals filled by the wayside.

Du Pont can get no comfort out of this interpretation of the Act.

Charles H. Weston:

Very foundation of its monopoly was trade restraining agreements and agreements which incidentally under the Timken Roller Bearing case and other cases were clearly an illegal restrain of trade.

Furthermore, du Pont did not emerge as the sole survivor in a competitive struggle.

It never have more than one competitor and not one who survived.

Now, this moistureproof patent which was said to be a defense to the monopoly charge and du Pont says in its brief, this is an unprecedented attack from the patent system itself.

Monopoly rights conferred by patent are to be respected.

But when they are blown up, when the immunity from the Sherman Act asserted in the name of monopoly patent rights is blown up as it has been in this case, I submit that deflation is an order.

Du Pont had to go in monopoly when this patent issued in 1929 issuing the patent did not change that going monopoly, did not loose its monopoly when it licensed Sylvania in 1933, licensing — if anything strengthened the monopoly because it gave du Pont a veto over Sylvania’s licensing any third person under — under any later acquired Sylvania moistureproof patent.

The most that can be attributed to the monopoly rights of the patent is that it gave du Pont a secondary defense against intrusion into the part of the industry represented by moistureproof cellophane.

Since no one ever did intrude this secondary defense, it never came into play.

There’s something out of all proportion when this patent is viewed in relation to the immunity from the Sherman Act which is claimed in its name.

On the one side, there is a patent never adjudicated as to validity, developed a trifling cost for applying a moistureproof coating to cellophane film.

On the other side, there’s the charge of monopolizing an industry, the sales in the year the patent issued were $6 million and over $57 million from the year it expired, a charge of monopolizing before the patent issued and after it expired and the charge of monopolizing trade in plain cellophane which was never within the scope of the patent.

A brief makes the further point that the moistureproof patent was used to implement trade restraining agreements because it was brought under the agreements to allocate territories and that — this use of the patent was not one which is related to securing pecuniary reward for the monopoly given by the patent.

Another patent tainted in this way is not a defense against violation of the Sherman Act.

I will reserve the rest of my time, Your Honor.

Earl Warren:

Mr. Gesell.

Gerhard A. Gesell:

If the Court please.

This is a fact case, a case which we come before you on now with the concession from the Government that they do not challenge the findings of fact.

The difficulty I had with Mr. Weston’s argument was a very real difficulty and that was that he didn’t present to Your Honors what this record shows in the findings of the District Court were the facts.

It is very easy to develop a theory of monopolization.

I supposed in any industry, if one can select a fact here, a half fact there, a quarter truth here and put them together with theory and surmise but we litigated these issues in the District Court.

These arguments were made advance and pressed.

There were witnesses who appeared and testified.

There were many, many documents read, studied and analyzed.

The Court went out into the field and looked at these products being sold, examined how they were made and saw the actual operations of the marketplace.

And we had buyers and we had sellers who came and said that this is not the way the industry works, that is — where the Government says it is, but it worked in a different way.

So, that my theme here is talk to the Court today about the facts.

And my argument is that when the facts of this industry are understood, you come and are compelled to the conclusion that this complaint was properly dismissed below.

And I intend in every way I know how to bring before Your Honors what is in this eight volumes which is only a portion of the record below and which it took weeks and weeks and days of trial to develop with examination and cross-examination of witnesses, discovery, discussion of individual documents and bring it to you in terms of these findings which aren’t challenged to show you what this true industry position is.

Out in the first place, let’s look at what we were charged with because that’s what we litigate, we had a complaint and we tried it out.

Gerhard A. Gesell:

If Your Honors will turn to page 6 of Volume I where the complaint is found, you’ll see a recital there of the offenses charged.

Now, this, I say to you, is the starting point for this analysis.

The Government concedes there was no conspiracy to monopolize.

The Government concedes there is no attempt to monopolize.

The Government concedes there is no monopolization as to caps and bands, another issue in this case that we’ve litigated, and the Government has dropped all of paragraph 22 (e) with respect to restraints on the distribution side of this case as to which there are many unchallenged findings and the record isn’t even here.

So we are in this Court now with a very specific single charge, that is the charge of monopoly power, the charge of market control.

You will see in 22 (a) the definition of the power over price which was alleged.

It was alleged that we had a power to fix and then train arbitrary noncompetitive prices in terms of sale.

And that was what we litigated.

And you will see in (b) and (c) power to exclude.

And it is said on the top of page 7 that these powers have become self-sustaining and self-perpetuating.

Now, the Court understands, I hope, that there are no agreements here that are attacked to be stricken down.

There is no practice in terms of any trade or commerce or conduct which is attacked.

We are there with that position and this case is a challenge to that position on the ground that it gives us as of the date of the complaint, 1947, power over price and power to exclude and those are the issues —

Stanley Reed:

I understand that the Government (Inaudible) not only that but that opinion (Inaudible)

Charles H. Weston:

The —

Stanley Reed:

Agreements by territories.

Gerhard A. Gesell:

Those agreements, Your Honor —

Stanley Reed:

Yes.

Charles H. Weston:

— are claimed to have been the process by which we reached our position.

Those agreements are not extended.

The first agreement went out in 1939.

The other agreement relating to the patent went out in 1945.

Stanley Reed:

And what year did the charge cover?

Gerhard A. Gesell:

This charge covered with — the complaint was filed in 1947 and the charge says that we have monopolized and are presently monopolizing, so I take it, it covers the period from 1923 to 1947.

Stanley Reed:

1923 was when this agreement was made?

Gerhard A. Gesell:

When first agreement was made and when we entered the business.

But the — the issue that comes to the Court in my judgment is whether or not our position is a position of monopoly.

Stanley Reed:

(Inaudible)

Gerhard A. Gesell:

Only if it — you first determine that it is the position of monopoly, then the question of how we achieved it becomes quite relevant.

Stanley Reed:

Well, that, let me ask you some questions.

I’m sure that your contract (Inaudible)

Gerhard A. Gesell:

Section 1.

Harold Burton:

(Inaudible)

Gerhard A. Gesell:

Yes, Your Honor, for this reason that they must show because we’re not litigating Section 1 questions here.

They must show that that agreement had a causal relation and effect on our position.

You must show that that agreement was one of the contributing factors to our position.

The Court explicitly found it was not.

So if I take your assumption, which Your Honor appreciates I — I don’t agree with, that there was a division of territory.

The case showed clear that that agreement could not and did not contribute in anyway to our position, for reasons which I intend to cover in my argument.

And I say they must show that causal relation.

But starting first with our position, which is the question of attack, I submit that that is a question of fact which has to be determined by normal fact finding processes and that these issues of power cannot be speculated about but they must be proven.

The fact that we have 68% of the cellophane business or 75% depending on whether you look at it in 1947 or the time of the decision is no QED.

You don’t just automatically say that somebody has 75% of a product, that they the power to exclude and power over price.

The teachings of this Court in every decision on this subject have — have spoken continually of the need of analysis of the market setting, of the patents of phrase that are followed in practice, of the buyers habits, of what takes place in the marketplace.

And we must look to those things to determine the significance of the percentage or, if you will, to determined the significance of any other single fact.

Now, I want to make it perfectly clear that we recognize and we state to the Court that cellophane is a product capable of being monopolized.

We are not saying that you have to show a monopoly over flexible fact, the material.

We say that cellophane is — is the product we made.

It is made in substantial volumes and the question presented is whether we have these powers as to cellophane not whether we have these powers over flexible packaging materials.

And that’s the way the court below approached the case.

And he determined, we did not have these powers over cellophane, either is the price or as to power to exclude.

And in determining the issue of price, he looked not only to cellophane, its manufacture and sale.

When he looked to the market setting to the conditions under which it is sold, to the competitive influences in the market to determine whether those were such as to deprive the part of the power to price of cellophane in the manner which we were charged of being able to do in the complaint, arbitrarily to set predetermined rates of profits.

We have a very unusual case here on power to price — over price which is the first thing I want to discuss because we are not before this Court with any charge of the predatory use of this price and power.

Every case that I know of in this field has involved — that has involved the power over price has been a case where there has been a predatory use of that frequently coupled with exclusion.

Felix Frankfurter:

Is that true of aluminum?

Gerhard A. Gesell:

That is true of aluminum, Mr. Justice Frankfurter, because it was shown that by the — the power over the price of ingots, a squeeze had been placed upon the fabricators, keep them from competing without cause.

A straight clear example of — of a predatory use of price and in the Redding cases for example where this was early presented to the Court, there are persons who — who shipped over the railroad or required to charge certain prices for their products in the market as a condition of shipping over the railroad.

The same thing was do — present in the — present in Socony-Vacuum cases where it was shown that these prices had been static and remained unchanged and we’re not responsive to business and economic pressure.

Gerhard A. Gesell:

Corn Products case, there was specific proof of the use of this predatory power.

Now, we don’t have that here.

We have no selling below cost.

We have one price throughout the country, to all users.

There has been no arbitrary increases in price.

There had been no price jiggles, price up and down to shake out a competitor or take advantage of the situation in a particular locality.

There had been no static prices.

The prices have been responsive to competitive and economic pressures.

There’s been no price conspiracy.

It was charged and litigated and the Court found that we didn’t have it and so they accept the finding.

There has been no resale price maintenance.

There’s no — been no tying, no full line forces.

So, that we come to this question of power over price without any of the customary indicia of that power, which have been the decisive factor without the existence of that power.

It has been the basis of a determination of monopolization under Section 2.

Felix Frankfurter:

The suggestion is that this have to resort when go straight because of either you had an excluding (Inaudible)

Gerhard A. Gesell:

That — the suggestion is that, Your Honor, but I intend to develop that that was not so because there were, in this field, in the market place where we — we work and did our business, competitive forces which did not give us control over price.

I’m coming to it in more detail in a moment, but this has been a history of price reduction as Your Honors are probably aware from the briefs, some 20 or more price reductions in response to competitive forces.

Now, the question —

Stanley Reed:

Do I understand you to raise that they use (Inaudible)

Gerhard A. Gesell:

I say cellophane is a part of trade and commerce within the meaning of Section 2, Mr. Justice Reed, and it’s capable of being monopolized.

But I say that it was not monopolized here because in the market setting in which it was sold, the competitive forces from other cellophane producers and from producers of flexible packaging materials was such as to the private of monopoly power over price and that, therefore, it did not have monopoly power over price.

Stanley Reed:

That’s — that’s the record as to the (Inaudible) monopoly power over price.

Gerhard A. Gesell:

Yes.

Stanley Reed:

And that is what is (Inaudible)

Gerhard A. Gesell:

We say — we say equally —

Stanley Reed:

(Inaudible)

Gerhard A. Gesell:

We — we say equally we had no power to exclude others from the manufacture of cellophane.

Stanley Reed:

(Inaudible)

Gerhard A. Gesell:

That’s right.

Stanley Reed:

(Inaudible)

Gerhard A. Gesell:

For — for determining the question of our power over price.

Stanley Reed:

(Inaudible)

Gerhard A. Gesell:

I think not.

I think that the Court did not decide that, Your Honor, and we do not contend that it was necessary for the Government here to show a monopolization of flexible packaging materials.

We say that in the language of Section 2, this is a part — the substantial part of trade and commerce cellophane and that it is capable of being monopolized but — that we did not do so.

That you have to show a power to exclude from others from the manufacture of cellophane and we say we did not have that power, the reasons which I intend to cover in that section of the argument.

And I am now addressing myself to the question of power over price and there we say, the competition between the other materials is both relevant and pertinent to determine what our power over price was.

Were we able to set it to reach predetermined rates of profits?

Were we able to set it arbitrarily?

Were we able to raise prices?

Were we able as charged in paragraph 29 of the complaint, which Your Honors will find on page 8, to price cellophane to yield predetermined profits without regard for cost of productions or other factors determinative in a competitive industry?

And we say we did not have that power and that in determining that you must look beyond simply competition cellophane and other cellophane producers, but you must look to all of the competitive factors in the market.

Now it is, I think, clear, Your Honor, that the question you addressed to Mr. Weston suggested an answer which on analysis it should not be accepted.

I think Mr. Justice Reed, you asked, would not you obviously have power over price if you have 75% of the manufacture of cellophane.

I think — or it is clear that you would not obviously have that power over price if in order to sell your goods, you met in competition not only the manufacturers of the other 25% of cellophane, but the manufacturers of other flexible packaging materials who because of their competitive activity forced your prices lower and lower, kept from you the power to raise the prices or to seek arbitrary levels of profit and that’s what we’re concerned with here.

Stanley Reed:

And concern over the market price.

Gerhard A. Gesell:

That depends on what the market is and here —

Stanley Reed:

The marketed practice of special materials?

No.

Market to sell the cellophane?

Yes.

Gerhard A. Gesell:

The question is what is the market for determining price and we say and that is what I am coming to the stage of my argument that it is the flexible packaging market.

Earl Warren:

What is — what is the relevant market for determining monopoly?

Gerhard A. Gesell:

Your Honor, I think that depends on each case on the facts.

We — we presented here — we presented here evidence to show that the relevant market was the market for flexible packaging materials and that is the market which the Court found it was relevant on the basis of the facts which were shown.

So that in this case, that is the answer.

Now, it — it depends upon what the product is, how its merchandized and a host of other factors which makes it difficult to generalize and take the case.

Earl Warren:

I understood you to say a little while ago that — that cellophane could be monopolized.

And I take it — I took it between that within the — the trade off cellophane.

Gerhard A. Gesell:

I meant as a matter of theory.

Gerhard A. Gesell:

It is a — as a matter of theory, which is the basis on which the Government argues to your court that it’s a separate product in — in substantial sales.

But as a matter of fact —

Earl Warren:

Well, they —

Gerhard A. Gesell:

— in this market, it cannot be.

Earl Warren:

The theory here (Inaudible)

Gerhard A. Gesell:

I think so, Your Honor.

Earl Warren:

(Inaudible)

Gerhard A. Gesell:

And except the Government has argued, Mr. Chief Justice, on and on that that is the basis upon which this case must be decided, that you must just take this product and move it away from the realities of a marketplace and say — and reach your conclusions about it without hearing what the buyers and sellers have to say concerning it all the factors in the market setting.

Now, I say that’s wrong and it’s against the teachings of the cases.

Now, I have something of a task before me and that is to see if I cannot present to Your Honors some picture of what this flexible packaging market is like.

And I’ve chosen as the best way to do that to present to Your Honors some folders which I have prepared from exhibits that are in evidence.

They were on Mr. (Inaudible) desk but I think he’s absent.

And perhaps, it would be possible for someone to hand them up to the Court.

Earl Warren:

(Inaudible)

Gerhard A. Gesell:

There are seven — there are seven volumes in all.

Felix Frankfurter:

Why don’t you tell us what they are (Inaudible)

Gerhard A. Gesell:

In each of these volumes and that is what I’m going to ask you to turn to first.

You will find at the back some white pages that one of these could go to each member of the Court, at the back, if you will turn first to the back, you will find what appears on white pages under part two, a– a group of these materials and they are designated unconverted materials and if Your Honors will examine —

Felix Frankfurter:

Before you go on, you find (Inaudible) is that all right?

Gerhard A. Gesell:

That’s quite all right.

(Inaudible)

Gerhard A. Gesell:

They are all different as to end-use.

They are all the same as to the white pages at the back.

They are all the same as the white pages at the back and all different as — and uses.

At the back, you will see physical samples of these different materials starting on the white pages, the foils, the acetate, glassines, the greaseproof papers, the pliofilm, polyethylene, the saran, vegetable parchment and the cellophane wax paper on the last sheet.

Those will give you some idea of what these materials are, what they’d be like, what they look like, the red dot that you see underneath them gives some indication of the degree of their transparency in the raw non-converted form.

Now, 50% of the —

Stanley Reed:

All products have different kinds, I think.

Gerhard A. Gesell:

There are different manufacturers, Mr. Justice Reed.

There are both large and small companies making these products, companies like Goodyear, Eastman Kodak.

Gerhard A. Gesell:

It would be found in it various glassine, manufacturers.

They are all listed in the findings.

Now, these — these products in the — on the white sheets, which are similar in all of your books, are the — are the products as they are made by the manufacturer.

About 50% of du Pont’s sales, for example, are in the form of the plain and the moistureproof cellophane which you see, examples of — on the very last sheet.

These are sold in rolls to users of flexible packaging materials.

Du Pont has salesman to travel on the road and sell them.

Your Honors may be interested to know that there are approximately 60 different kinds of cellophane not just one kind or two kinds.

These are tailor made for different end-uses.

Types of cellophane designed to wrap up doughnut.

Types of cellophane designed to wrap tomatoes.

Types of cellophane designed to meet different marketing problems and the wax papers and the glassines and the other materials are sold also in large varieties for the same purpose.

Then if Your Honors will look at the converted materials which appear at the beginning of the volumes, you will see examples of wrappers that are actually used in the trade.

These are wrappers which were made by a large group of people in the market known as converters who buy the raw materials in the form we were looking at a moment ago and then who print it or who process it or who combined it with other materials and make it to suit the needs of a particular packager or a particular user.

Coloration is put on, design, advertising material and so forth.

Felix Frankfurter:

As soon as they buy the — the cellophane from du Pont.

Gerhard A. Gesell:

From du Pont.

Felix Frankfurter:

They then —

Gerhard A. Gesell:

They then process it on the orders of the particular packager who wants the particular design of package.

Felix Frankfurter:

Does du Pont itself do that?

Gerhard A. Gesell:

Du Pont does not.

Du Pont is neither vertically or horizontally integrated in this business in any way.

And the findings are clear that there’s no control of any kind over these converters and they are free to deal with whom they choose and what volume they choose.

They have some 4000 salesman on the road themselves merchandizing cellophane and about 40% of du Pont cellophane is in that fashion through the converters.

And these converters, if Your Honor please, don’t just buy cellophane.

They buy all of these materials or a substantial variety of this material and they all fit in to their business and their sales that are out on the road and they sell them interchangeably on one or the other as the needs of a particular customer at the particular moment suggests.

These materials as the Court found are functionally interchangeable.

They are sold at the same time to the same classes of customers, to the same customers for the same uses, for the same purposes and there is a great deal of evidence on that.

Felix Frankfurter:

These are words might as — what are the differences in appeal in buying du Pont cellophane as against these valued products?

Gerhard A. Gesell:

In a word, there is no difference that one can put in a word, Your Honor.

It depends first of all on the use and it depends on the individual needs of a particular packager and — and it depends on the price quality combination, the price in relation to the composite of properties.

Gerhard A. Gesell:

Cellophane has deficiencies.

You would think it had none listening to Mr. Weston.

It has serious deficiency.

And perhaps, I shouldn’t be saying that but it is sold.

And those deficiencies are capitalized by the other material.

It has certain advantages too.

And it is the composite of properties in relation to the price and the proof showed that in this industry certain of these properties had come to be known as properties of consequences and they are the ones upon which the trade operated.

I’ll take an example, if I may at this moment, in frozen — in frozen foods, cellophane proved to be too brittle under temperature and — and tear and it lost out to wax paper and substantial volumes of its business has gotten back on some packages and I’m going to come for more of that.

But I want first to ask you to turn if you would to page 40 and 41 of my brief because there you see the end result, it isn’t — it isn’t just that these wrapping materials, the hard candies or the bread or the ham or the bacon which I distributed to the bench, but take a look at these statistics, if Your Honors will, on pages 40 and 41.

You will see in white bread, for example, that wax paper and glassine are sold to rough white bread and so as du Pont cellophane.

Du Pont cellophane sells between eight and nine million pounds to the white bread manufacturers but that is only 6% of the total usage by the white bread manufacturers of these wrapping materials.

And if you go on down the list, you’ll see by these various industry and users on page 40 that while we have substantial volume in these deals, we meet other materials and with the sole exception of cigarettes are percentage of the total is small.

And if you look on page 41 —

Stanley Reed:

On page 43 but —

Gerhard A. Gesell:

Yes, Mr. Justice —

Stanley Reed:

— I don’t understand the (Inaudible)

Gerhard A. Gesell:

Six — well, let’s take the specialty breads, 48% of specialty breads.

Stanley Reed:

Of white breads.

Gerhard A. Gesell:

Oh, white — the white breads.

6% of white breads are wrapped in cellophane.

In that case, you notice the parenthesis, Your Honor, we said all U.S.cellophane producers which is an exception from the heading and that’s why I wanted to slip down for the others.

In all the other cases, up to that one instance, the percentage or the percentages of du Pont cellophane, du Pont cellophane is 48% or 45% of specialty breads and cakes.

There’s 20% to 30% of frozen food wraps and the other wraps of frozen food or specialty breads are of the other materials listed in the third column.

Stanley Reed:

Are all U.S.cellophane — cellophane is — are the other cellophane produced — I thought the other (Inaudible)

Gerhard A. Gesell:

No, there are other two producers, American Viscose and Olin.

Stanley Reed:

Well, it means that all U.S.cellophane produces only —

Gerhard A. Gesell:

Only makes 6%.

That’s right.

And on the right of page 41, you will see the results of a very detailed analysis which we made by going into the field and counting literally millions of invoices on IBM cards.

And there’s what the — what the business of a representative group of these converters as the Court show — found shows.

Gerhard A. Gesell:

But 19% of their business is represented by cellophane and all of the rest of their business, they’re selling these products at the same time to the same people for the same users — uses are in these other materials.

Felix Frankfurter:

Does the record shows, finally show why cigarettes are consented by (Inaudible)

Gerhard A. Gesell:

There has been more successful competition by the other materials on — on the packages for that end-use obviously.

Felix Frankfurter:

All right.

Maybe not that fit.

Gerhard A. Gesell:

The record —

Felix Frankfurter:

(Inaudible)

Gerhard A. Gesell:

The record does show this.

It shows that the in the case of cellophane, that cellophane — in case of cigarettes that cigarette manufacturers are slowed-chain.

They — they have merchandised a package which has come to have large consumer acceptance so much so than in the war when foil went off and cellophane stayed on, many people couldn’t believe it was made by the same company whose made it before.

Cellophane displaced glassine for substantial amount of this package, it is competing on the package of paper and foil because it’s like a composite package and the proof shows that glassine and Pliofilm and these other people are busy at — at this business.

And du Pont is busy improving quality to avoid a — a shift.

Now, what we — what we would like to do against this background is to deal for a moment with this suggestion that we’re concerned with substitutes — substitutes, the word appears, oh, I guess 20 or 30 times in the Government’s brief and it — it’s very — it’s assiduously used by Mr. Weston on his argument.

The suggestion is that under some kind of circumstances, somewhere or other — other materials may come in or just — as Mr. Hand — Judge Hand said that there’s a substitute for everything, but we’re not concerned with substitutes here.

This case has nothing to do with substitutes.

If there’s any substitute at all, this — and suggested by or question of Mr. Justice Frankfurter, it is cellophane.

Wax paper, glassine and these other materials are found to have been dominant in the market at the time we started to make cellophane.

They are dominant today.

There is not a theoretical substitution here but a constant and continuous shifting back and forth of business, day-to-day in individual accounts and by end use.

The finding show that this has spread throughout these end users that it is — something that takes place rapidly and continuously and that come from a whole host of factors.

In the first place, if Your Honors please, cellophane is consumed.

It’s an obvious fact but it’s an important one.

It is used up on the package so that cellophane has to be constantly sold and resold.

The inventories of the packagers are low.

All of the machinery in this business is functionally interchangeable.

You can print different materials on the same machine with these colorations or design.

You can make a bag for peanuts with cellophane or a bag for peanuts with glassine with the same machine.

The packager’s equipment all permits a ready shift.

There are numerous suppliers in the market and the buyers are very knowledgeable, companies like General Foods, not the housewife or the buyers here.

They have trained staff of technicians and experts who measured these products and watch their prices and watch their qualities and there is a — a — an intense competition between them brought about in their own self-interest because they must keep their package prices in line and they must have the best packaging that they can and their own success and profits depend on it.

Gerhard A. Gesell:

And here is a business with all of those factors present of a constant change, over low inventory, machines that are interchangeable, materials that are interchangeable, intense competition, most of this is in food, Your Honors are aware of the intense competitions among food manufacturers and it is a rapidly expanding business.

And what happened?

By sales and by advertising, all of these products are held out to general foods or to A&T or who you will as being the best for his to pay the chips or the best for his frozen food or the best for his fresh products.

The ads are in this record, scores of ads.

The trade literature shows it.

The Court — judicial notice of large volumes of trade — literature which are on file with the clerk of this Court, for all of these different products are competing for the packaging trade.

The Court went out and went into the field and watched this sold and saw their competition at Atlantic City when we went through two big floors of an exposition there.

Now, this — this type of competition was testified to by every manufacturer who was on a stand.

It wasn’t just du Pont officials that were suggested by the Government’s brief, but the leading manufacturers of wax paper, the manufacturers of glassine, the manufacturers of these other products testified and described the nature of the competition, how it affected their business and what was going on.

And this competition is a competition in both quality and in price.

There is a constant effort to improve the quality of the material and a constant effort to lower its price.

The finding show that in this period, du Pont is supposedly static monopolist with these powers met over $24 million dollars on research in the improvement of these different products and of developing ways of opening new markets and making them more acceptable to the trades where they were used.

The other materials, glassine, wax papers are doing the same.

There had been an intense quality competition, an intense competition in terms of the composite of properties, which is to be offered to the packages.

And there has contrary of the suggestions from the — Mr. Weston earlier this morning, had been intense price competition and I plan, Mr. Chief Justice, when I returned from — when we return to discuss the price aspects of the competition in this deal.