United States v. E.I. du Pont de Nemours & Company – Oral Argument – February 20, 1961

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

Audio Transcription for Oral Argument – February 21, 1961 in United States v. E.I. du Pont de Nemours & Company

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Earl Warren:

Number 55, United States, Appellant, versus E.I. du Pont de Nemours et al.

Mr. Davis.

John F . Davis:

Mr. Chief Justice, if the Court please.

This is the second stage of the antitrust proceeding relating to du Pont’s acquisition of 63 million shares of the stock of General Motors Corporation.

Four years ago, this Court held that this acquisition was a — was in violation of Section 7 of the Clayton Act.

The present issue is what relief should be granted in order to cure this violation.

And most specifically the question is, whether the decree of the court below which transferred the voting rights in the 63 million shares from du Pont to its stockholders, the decree also eliminating interlocking directors and enjoining specific business relationships between the two corporations.

The question is whether this decree gives adequate relief.

The Government argues that the illegal acquisition should be undone by ordering a surrender of the stock.

This is a rare case in that one of the parties has tried to frighten the courts into deciding a corporate case its way by asserting that disaster will follow the divestiture and by parading a long list of expert witnesses, du Pont presents an in terrorem argument as to why it should not make a clean break with its past.

These are the same tactics which were employed in opposing the enforcement of the Public Utility Holding Company Act many years ago.

And there, they met with no success.

The truth of the matter is that there is nothing of inherent value which is taken away when one untangles one of this corporate (Inaudible).

Once the illegal advantage would — is the object of the statute to prohibit is removed, then the corporate relationship is in effect excess baggage.

And in the end, all of the participants will gain by dividing — by simplifying the corporate structure and separating it into its component parts.

And that is what we purpose should be done here.

Merely four years ago when the Court determined that the du Pont investment — the du Pont holdings were in violation of Section 7 of the — of the Clayton Act, it sent the case back to the District Court with instructions to the Court frame and appropriate decree.

The Government told the District Court that it believe that the only adequate decree must require divestiture of the acquired stock.

And when the Court requested that the — that the Government present a specific plan, the Government presented a plan in which it suggested that the stock should be divested over a period of 10 years by the declaration of the G. M. stock as dividends to its own stockholders.

It proposed that the stock which would have been allocable to the two du Pont holding companies, Delaware Investment and — Realty & Investment and Christiana Securities should be sold by trustees in order to prevent a continuation of any influence through these two holding companies.

It proposed that there should be a — an outlying of interlocking directors and offices and it did propose certain — that certain transactions between the two companies be enjoined.

The Internal — the Internal Revenue Service advised that the declaration of the General Motors stock as dividends would be taxable to the recipients as ordinary income rather than as a capital gain.

This plan proposed by the Government was opposed by du Pont, by General Motors.

It’s opposed by Christiana — Christiana and Delaware.

It was also opposed by two amicus curiae who were appointed by the District Court to represent the interest of the stockholders of General Motors and of du Pont stockholders as such.Du Pont and the amici proposed plans under which du Pont would keep the stock but would transfer the voting rights to its stockholders.

This would mean that each du Pont’s stockholder would be given a permanent proxy to vote about 1-1/3 shares of General Motors stock in addition to power he had with respect to his own du Pont stock, under this plan to interlocking directors and officers which —

Potter Stewart:

I didn’t quite understand that.

That each du Pont —

John F . Davis:

Each du Pont —

Potter Stewart:

— shareholder —

John F . Davis:

— shareholder would be given a right to vote his proportionate part of du Pont’s holdings of Generals Motors stock, which would mean that he would have about 1-1/3 of votes that when you distribute the 63 million shares among the 45 million stockholders of du Pont, you get about 1-1/3 votes for —

Potter Stewart:

For —

John F . Davis:

— each share.

Potter Stewart:

— for a share —

John F . Davis:

Yes.

Potter Stewart:

— shareholder, but this goes first — this doesn’t go to shareholders, this goes on the amount of the shares owner.

In other words —

John F . Davis:

Well, yes but —

Potter Stewart:

(Voice Overlap) — on the third votes — 1-1/3 share for each share of du Pont.

John F . Davis:

Well, I’m — I’m — when I say shareholders, I’m wrong, I mean stock.

Each — each stock, each share of stock would carry 1-1/3 votes of — of General Motors.

Potter Stewart:

Each share would carry —

John F . Davis:

Each share.

Potter Stewart:

— 1-1/3 shares of General Motors.

John F . Davis:

That is right.

Potter Stewart:

After the complete distribution.

John F . Davis:

That is right.

So that if he’d have a hundred share he’d get a 130 votes of the General Motors.

The District Court held very extensive hearings on these plans in both sides presented their experts and offered studies to prove that divestiture was practical or was not practical.

The District Court published its opinion in October of 1959 followed by its decree a month later.

And that is the decree which is now before the Court.

In general, it accepted the — the du Pont General Motors’ proposals rather than the Government’s proposal, not in detail but in general.

It provided that General Motors could — that du Pont could continue to hold the stock of — of General Motors, but did require that the votes to be passed on to the stockholders, except that it further provided that the votes which would have been passed on to Delaware and to Christiana and to the officers of those two companies should be sterilized, no one should exercise that vote.

It also provided for outlying, interlocking to officers and directors.

And it went further than the — than the Government even went in outlying certain transactions between General Motors and — and du Pont such transactions says, where it presumed might give some advantage to one corporation or the other.

And the decree also included the provision under which the Government could reapproach the Court for additional relief in case there was any change in the tax law or in the case it was demonstrated that the decree was not being effective to — to terminate the violation.

Now, we believe that this decree provided inadequate relief.

And I pose to divide my argument roughly into — into three parts.

First, I will argue that divestiture is the remedy required by the statute for violations of Section 7 of the Clayton Act.

And second, I shall argue that the Court’s order provides inadequate relief in the circumstances of this case.

John F . Davis:

And then third place, I shall argue that divestiture can be achieved without the undue hardships which the appellees claim.

Charles E. Whittaker:

Why do the third make any difference if the first is right (Inaudible)?

John F . Davis:

If the first was right — the second and third are — are unnecessary.

If it’s a required relief, why, the Court would have to issue it whether the adequate relief could be given under the other and whether or not it caused hardships.

So that these are really in the alternative, the second too, in alternative to the first.

This — this particular proceeding was commenced under Section 15 of the Clayton Act.

And in — and on my first point, the question is whether Section 15 of the Clayton Act requires — in itself requires divestiture.

Section 15 is quoted at page 5 of our brief.

It is not particularly helpful on this question because it is stated in very general language.

It provides that the Court may prevent and restrain such violations, referring to violations of the Clayton Act.

Potter Stewart:

It is not helpful — it’s not helpful to your (Voice Overlap) —

John F . Davis:

It’s not helpful to me.

Potter Stewart:

Yes.[Laughter]

John F . Davis:

It is natural that it was stated in these general terms because of the fact that it is the general enforcement — provision which supplies not only to Section 7, which deals with ownership of stock, but deals with Section 8 which deals with interlocking directories and it deals with the other sections of the Clayton Act which involved price discrimination in other matters.

Some help, however, can be — can be had in the proper interpretation of Section 15 from Section 11 of the Act.

Section 11 of the Act is a section which authorizes various administrative commissions to enforce the Clayton Act, the — the Federal Trade Commission, the Commerce Commission, the Federal and the Federal Reserve Board.

And in connection with those proceedings which are commenced through the administrative commissions, it is specifically provided that after they hold the hearing and find the facts, if they find the violation, they shall issue an order requiring such person to cease and desist from such violations and divest himself of the stock held.

In other words, Section 11 is mandatory in its language as to the relief which should be granted for a violation of Section 7.

It would seem to me that there would have to be some very persuasive reason why Congress would give a different method of relief in Section 15 and in Section 11 if it did not intend that the same procedure — the same relief should be given.

Also, I think it helps in construing Section 15 to know that it is in terms — is lifted verbatim from the Sherman Act, from Section 4 of the Sherman Act, I think it is.

So, one would assume that when Congress took the very language from the Sherman Act and put it in the Clayton Act, that Congress might very well have intended that there should be the same relief granted under the Clayton Act which had previously been granted by the courts under the Sherman Act.

And it is a fact that in this merger type of violation, the Sherman Act covers many other types of violation but in this merger type of violation, the relief, which has always been granted under the Sherman Act, is divestiture.

This was so before 1914 when the Clayton Act was thought it was passed and it has been so since that time.

The most — most recent determination by this Court in the Sherman Act case was the International Boxing Club case just two years ago.

By this Court said, “It is antitrust policy to decree dissolution where the creation of the combination is itself the violation.”

And it cites to support this United States against Crescent Amusement Company, although it could have cited many other cases.

Thus, when Congress borrowed this language from the — from the Sherman Act and put it in the Clayton Act, it probably intended to impose the same type of relief which it characteristically been imposed under that statute.

So we urge that divestiture was what Congress intended.

However, if the Court should not accept this proposition, then I think that the least that can be said is that Congress intended that the normal relief, that the relief in the ordinary Section 7 case should be divestiture.

Where the offense is the acquisition of stock, it seems but natural that the cure is to undo the offense, to undo the acquisition that is to require divestiture.

John F . Davis:

The appellee say that may be so but this is an abnormal case.

And why it is abnormal?

It’s abnormal in the first place because of the size of the enterprises which are involved.

Well, I think the size of the enterprises work — works both twice.

If the fact that 2.5 to 3.5 billion dollars that is involved results in the remedy being heroic, the same fact, it means that the economic effect to the violation is also enormous.The factor of size, we do not think, is pertinent in fixing the remedy.

It may make the remedy harder to administer, it may make it harder to endure but it also makes it more necessary.

Potter Stewart:

What if everybody in the United States were shareholder in the General Motors or du Pont?Is public interest would be served by carrying out the total divestiture?

John F . Davis:

Well, assume — you mean — assuming — assuming —

Potter Stewart:

Assuming everybody in United States were shareholder one or the other, here about — well, how many?

John F . Davis:

I think even more would — would be — be necessary under those circumstances.

Potter Stewart:

To have everybody in United States pay tribute to the Federal Government.

John F . Davis:

Well, I — I will meet this question of paying tribute of whether it’d be any hardship but assuming for a minute —

Potter Stewart:

(Voice Overlap) — higher taxes in the — otherwise.

John F . Davis:

— assuming for a minute that it would cost the money that put this thing through.

Then the anti — if the antitrust policy is that these businesses shouldn’t be restraining trade, why, the fact that it’s — that someone’s got to pay something, presumably they will get it back more and more through the divestment in the end, it’s a — it’s a temporary loss rather than a permanent loss.

Hugo L. Black:

I presume if everybody if everybody in the country owns stock in it, confirm the statement, what could the General Motors had just (Inaudible)[Laughter]

John F . Davis:

In fact — in fact, they might be able to elect the Congress which would — which should make an exception in the antitrust laws to take care of it too.

Potter Stewart:

Or at least in the internal revenue laws.

John F . Davis:

[Laughs] Or at least in the internal revenue laws.

Felix Frankfurter:

What’s your brief is this, that that is not a crucial — at least one half of the statements that was made is not crucial.

John F . Davis:

Which of the — that’s — that’s not good for General Motors.

Felix Frankfurter:

(Inaudible) but just supposing.

John F . Davis:

That’s right.

Felix Frankfurter:

One half of the (Inaudible)

John F . Davis:

I think both house if — are not true.

I think that — that —

Felix Frankfurter:

Are you (Voice Overlap) —

John F . Davis:

— this divestiture is not — is — is not good — I mean that we maintain this situation isn’t good for anybody.

Felix Frankfurter:

I’m sorry, you should pay both has a wrong — I was thinking of the second half, is good for the United States (Inaudible)

John F . Davis:

[Laughs] The second reason, the appellee say that this is an abnormal situation is because —

Potter Stewart:

Well, I didn’t quite get you.

John F . Davis:

Yes.

Potter Stewart:

My — my question was a silly one.

It was directed to your point that the — the magnitude of this impact on the number of people isn’t important from the point of view of the public interest.

I thought you said that.

John F . Davis:

That’s right.

I say that if it —

Potter Stewart:

And if this does, this may affect, how many?

John F . Davis:

— it — it may — it —

Potter Stewart:

How many thousands?

Millions of people?

John F . Davis:

Yes, it is — let’s say roughly a million, and I mean counting indirect holdings of the two — of the two corporations.

Let’s assume for the purpose of the argument, and it’s not particularly accurate but it’s close enough.

But there are about 700,000 people directly or indirectly interested in the stock of General Motors and about 300,000, let’s say, in du Pont.

So we’re dealing with a million of people.

Potter Stewart:

A million people, a million.

John F . Davis:

A lot of people.

And when you multiply as the appellees do, the tax drops in market by —

Potter Stewart:

Right.

John F . Davis:

— the numbers of shares involve you — you work up for sizeable sums.

But my point is merely this.

That this size also goes to the effect of whatever antitrust restrictions there are here that it’s the very size of these two corporations and they are tying together makes it tremendously more a greater economic effect and as though you have the lobsterman in — in —

Potter Stewart:

But not the number of shareholders doesn’t make it more serious?

John F . Davis:

No.

It’s the size of the corporations and the importance of the corporations and —

Potter Stewart:

The number of shareholders if anything would send, we would have to say (Voice Overlap) —

John F . Davis:

That’s right.

The number of shareholders but not the — the amount —

Potter Stewart:

I mean that’s what I — that’s what I was addressing myself.

John F . Davis:

That is right.

John F . Davis:

The second — the second basis for this is being an abnormal case is that the acquisition occurred about 40 years ago, and this is an unusual factor in the Section 7 case.

And it does make it more difficult to undo what happened 40 years ago.

But again, it also makes it more necessary to have divestiture because the relationships between the two companies have become that more — much more intimate and that much more difficult to — to cure.

If you’re having new acquisition, so far the — where the two corporations have not worked together, it’s relatively simple thing, and — and it’s conceivable that — that if you — if you prevent voting and you have no other relationships, this will cure the situation but it isn’t much less like this as this will happen when you have 40 years of — of both connection between the two corporations.

Charles E. Whittaker:

Now, if there’s a means of a (Inaudible) other than by divestiture under Section 15, would not the Government (Inaudible) way of him successful is that produced in this industry to the General Motors’ profit?

John F . Davis:

Well, not — not if Congress intended that divestiture should be the method to be followed.

If it’s mandatory, of course, not.

Charles E. Whittaker:

Well, I say —

John F . Davis:

Yes.

Charles E. Whittaker:

— if it’s not mandatory.

John F . Davis:

If it is not mandatory, then the — the Government is — would certainly doesn’t want to use the divestiture or any method of relief as it club to enforce the antitrust laws.

It’s perfectly willing that the — that the corporation should work out — the best method from its — from its point of view of curing, curing the violation.

Charles E. Whittaker:

Particularly, I would seem that it should not be sold here when the Government stands as beneficiary to the extent of 52.5% of the proceeds of sales.

John F . Davis:

Well, it —

Charles E. Whittaker:

If this is taxable —

John F . Davis:

Yes.

Charles E. Whittaker:

(Voice Overlap) taxable as normal dividends.

John F . Davis:

That —

Charles E. Whittaker:

Does it then would get 52.5%, wouldn’t (Inaudible) of the — the proceeds is there?

John F . Davis:

It — it has been estimated that’s — there is testimony to that — to this effect.

Its —

Charles E. Whittaker:

Or — or about $50 billion.

John F . Davis:

How much is actually receive depends on the — depends on what the market price as the time it’s divested and the methods of divestiture.

And we — as I shall point out later I think there are ways of divestiture where this amount is cut way, way down below that.

But if it were divested through dividends, straight dividends, with the sale of the — sale of the Delaware and Christiana stock, then the tax is — would be and about in that neighborhood if the price stays around 45 of General Motors stock.

Charles E. Whittaker:

And if it doesn’t stay around 45 (Inaudible) where the stockholders (Inaudible)

John F . Davis:

If it — if it — it is less than 45 for any reason the tax will be less.

That is right.

I’ll turn now to the second point of my argument and that is whether the —

Felix Frankfurter:

Does your brief, I haven’t looked at, does your brief on the compulsory nature of divestiture, divestiture, the compulsory feature of the decree, does your — does the Government’s brief put before us the practice regarding divestitures in past decrees —

John F . Davis:

Yes.

Felix Frankfurter:

— other than —

John F . Davis:

Yes.

Felix Frankfurter:

— or it’s under the Clayton Act, under the Sherman law, and under the Sherman law.

John F . Davis:

Yes, but —

Felix Frankfurter:

Can you differentiate between the two?

John F . Davis:

Not — not when the Clayton — no — in the Sherman Act violation is the merger type of violation.

There are many violations of the Sherman Act which would not require divestiture because the heart of the thing isn’t the merger between — of anything like this kind.

Felix Frankfurter:

You — you can — you can make differentiation regarding Section 11, can you?

John F . Davis:

No.

Section — well —

Felix Frankfurter:

So that — so that your Clayton Act — your claim under the Clayton Act, the claim of requirement under the Clayton Act by this argumentative construction of the statute would bring about compulsion under the Clayton Act provision is not applicable to Sherman law, indeed where Sherman law violations have not been found.

John F . Davis:

That is right.

That is right, because the Clayton Act goes to the tendency and — it’s — the — the degree of proof is — is much less.

Felix Frankfurter:

Well, then the — the reasons for the differentiation that you suggested a minute ago regarding the Sherman law violation, although practically as of — to the Clayton violations wouldn’t apply, wouldn’t be operated in that.

Is that right?

Because your argument is there must be always the divestiture in Clayton Act.

John F . Davis:

Under — in Clayton Act, yes.

Felix Frankfurter:

Yes.

Although there may not be this threatened monopolistic tendency.

John F . Davis:

Under Clayton — well, under Clayton Act there has to be the tend — there has to be proof that —

Felix Frankfurter:

It will be (Voice Overlap) —

John F . Davis:

— that tend to create a monopoly on — in the line of commerce, under the Clayton Act —

Felix Frankfurter:

On —

John F . Davis:

— under Section 11 or 15 which both enforce Section 7.

Section 7 outlaws acquisitions of stock which tend to create a monopoly in any line of commerce, and you have to prove that or else to restraints.

Felix Frankfurter:

Or else to restraints, yes.

It is a different thing.

John F . Davis:

That’s right.

Felix Frankfurter:

That’s a very different thing.

Felix Frankfurter:

That’s my point.

To may have non-monopolistic tendencies under the Clayton Act compelling to this — from your point of view which would not be applicable, not be true of Sherman law situation.

John F . Davis:

They wouldn’t consider the violation of the — of the Sherman Act.

The Clayton Act pinpoints and goes —

Felix Frankfurter:

No, no.

I understand that this is — what I mean the remedy for non-monopolistic violations of the Clayton Act would be followed by divestiture whether monopolistic or merely restrain.

John F . Davis:

That is right.

And I think it would be under the Sherman Act.

I think that whenever the —

Felix Frankfurter:

(Voice Overlap) —

John F . Davis:

— whenever the evil is the merger evil, whenever what is causing the antitrust result is the acquisition of stock by one corporation of another which leads to restraints or leads the monopoly.

That then the cure under the Sherman Act or the Clayton Act will be divestiture and I think that —

Felix Frankfurter:

What —

John F . Davis:

— what’s been done.

Felix Frankfurter:

Under the Sherman Act, it’s not compulsory so.

John F . Davis:

It’s not — well, if that —

Felix Frankfurter:

Well, either it is or it isn’t, you say your point one under the Clayton Act is that they actually require divestiture.

John F . Davis:

Yes.

Felix Frankfurter:

The Sherman law does not require though it maybe highly desirable and relevant to have it.

John F . Davis:

Well, this — as —

Felix Frankfurter:

Isn’t that what your statement?

John F . Davis:

— as interpreted by this Court when the heart of the violation is the acquisition, then it does require it.

That is what was —

Felix Frankfurter:

But that’s because it’s an appropriate equity of remedy not because the statute requires it.

John F . Davis:

Well, yes, I think that’s right.

That — that’s true, that the — the statute doesn’t say so.

But the statute —

Felix Frankfurter:

But you say as to the Clayton Act, the statute in effect said so.

John F . Davis:

I say that the — that the statute in adopting the same language of Sherman Act which had been interpreted this way means that this should be the relief.

Felix Frankfurter:

Must be, not should.

John F . Davis:

Must be the relief.

Felix Frankfurter:

It must be.

John F . Davis:

Must be the relief.

We do not believe that the decree which the District Court ordered provides adequate relief.

Intercorporate marriages are — are complex relationships.

It doesn’t suffice to say that corporations are managed by their officers and the officers are chosen by the directors, and the directors are elected by the stockholders and then if you cut the line at any place you — you’ve broken the control.

What we have here is a deeply ingrained combination of too extensive and very complicated business corporations.

No one would deny that in the early 20s, the du Pont Corporation, not only exercise the controlling influence of General Motors, but in the words of its own officials, it had working control of General Motors.

From the time when it first made its investment in General Motors, du Pont accepted the chief responsibility for the General Motors’ financing.

From time to time, it suggested or vetoed appointments to the Board of Directors or to the slate of officers of General Motors.

When necessary, it is intervened in its — in its day to day activities with respect to whether it is given sufficient use to du Pont products in this kind of relationship that’s going on in one way or another to one degree or another for 40 years.

Now, the decree of the District Court would try to end all of these by enjoining interlocking directors, by transferring du Pont’s right to vote the G.M. stock to its stockholders and by enjoining certain specific business relationships which the Court believed to be particularly dangerous.

Now, the fault with this game is that at least untouched the real heart of the matter.

Du Pont will continue to hold, as an investment, stock worth $2.5 to $3.5 billion from which it receives about 30% of its income each year.

It owned 63 million shares.

It gets $2 a share as regular dividends, gets about a $126 million a year of income from du Pont.

Now, it is not possible to conceive of these two corporations really dealing with each other as strangers under these circumstances.

General Motors cannot feel free to buy its paint from a du Pont competitor or to make its own plastics of fabrics or to go into competition with du Pont in manufacturing a gasoline additive or — or antifreeze.

The first impediment to this freedom is the fact that even with the sterilization of the Delaware and the Christiana stock, at least 15% of General Motors voting rights will continue to be tied up with the stockholders of — of du Pont.

There will be a group of these stockholders who have a common interest which is different from the interest of the General Motors stockholders generally.

And I suggest that there will be circumstances under which — even without any formal combination of these hundreds of thousands of people led general interest in one direction will lead them to cast their votes in the — in a certain tend to lead them to cast their votes in a certain way which would be advantageous to them particularly.

Potter Stewart:

Now, am I wrong in my understanding that the Government’s plan would have put the voting power in the same people?

John F . Davis:

It would, during the period of divestiture, who would temporarily place within the same people rather than —

Potter Stewart:

Well, temporarily until they saw the General Motors stock.

John F . Davis:

That is right.

Potter Stewart:

I’m talking about the shareholders of du Pont.

John F . Davis:

That is right.

It would —

Potter Stewart:

With the Government’s plan, they would — they would get the stock and therefore, would get the very voting power that you’re saying is so simple right now.

John F . Davis:

They — well, they — they would get it initially.

John F . Davis:

But it isn’t tied together and it would gradually — it would gradually dissipate.

Potter Stewart:

(Voice Overlap) they dispose —

John F . Davis:

That is right.

Potter Stewart:

— of their General Motors or their du Pont shares.

John F . Davis:

That’s right.

The — the real fault with this system is that it ties these two things together in perpetuity.

If one du Pont stockholder sells his stock in the market and the new man comes in, he immediately picks up the interest in — in General Motors, he picks up the right to vote 1 1/3 share for each share that he finds, whereas in the situation where you have a divestment by distributing the stocks, stocks separating it, this will gradually disperse itself.

Now, in some of the antitrust cases, it was felt that it was improper to — to divest by giving the stock to the stockholders because it was felt that this continuing control by the same people would have this — this evil effect.

The Government has not suggested that in this case except with respect to Delaware and Christiana which are so closely tied in with the — with the du Pont history.

Potter Stewart:

Well, on the effect that the — the District Court has got along.

John F . Davis:

It sterilized the votes entirely.

Potter Stewart:

Yes (Voice Overlap) —

John F . Davis:

That’s right.

So that there is no voting power on those at all.

I use that as a shorthand expression.

It’s more than the Delaware and the Christiana stock, it’s also the — the stock held by their officers and directors in — but — it’s roughly 20 million shares.

Charles E. Whittaker:

Does not du Pont suggest in its brief here that it’s neatly — it’s willing to sterilize and put its own shares?

John F . Davis:

It does — it does suggest that and it suggested in all three briefs.

This would be some help.

I mean it would end any — it would end any effect of the voting power of these — to the — of the shares and to that extent, it would — would help the matter.

Charles E. Whittaker:

Does it satisfy the (Inaudible)

John F . Davis:

No, we would not think that even then, you have completely divided the interest of these corporations.

Lines of — these lines of corporate relationship don’t extend only through — through voting power than they — there are about as many subterranean lines of — of influence between one corporation and another is — is there are in the surface.

And remember that even if you cut off the voting power, du Pont will continue to have — still rely on General Motors for $126 million of income annually.

They — they must be concerned with what’s going in — in du Pont whether they have such — in General Motors when they have such a tremendous investment.

How their influence would be — would be exercise?

It’s hard to tell.

It could be exercised through — through their common financial advice.

Both companies who had Morgan — had Morgan Stanley as the regular investment factors.

I’m — I — I don’t know that this would happen but it’s — it’s entirely probable that if du Pont was unhappy with something that was going in General Motors that someone in Morgan Stanley would — would speak to General Motors and suggest that maybe it would be better if it were done differently.

John F . Davis:

Or it maybe that the — maybe that they would be concerned about whether or not du Pont would be willing to give them his favorable contracts with respect to chemicals and — and plastics as they would otherwise give them.

Or maybe it would be that they would have in mind that there about 300,000 stockholders of du Pont who were particularly concern with this relationship and the — perhaps this people and their wives and their families and the businesses which they manage would turn to buying Fords or Plymouths if suddenly General Motors should start painting their — painting their Chevrolets with — with the competitors’ paint.

The lines — the lines of communication are — are enormous and it’s hard to tell how this influence would percolate through but the weight of it is such that it would be pretty sure ought to be felt.

The Securities and Exchange Commission in administering its statute says several of them in which the question of control is important, it appears in the Securities Act and it appears very prominently —

Potter Stewart:

I don’t quite get.

John F . Davis:

— in the public utility holdings.

Potter Stewart:

Just before you — I was trying to follow these — some of these — indirect subterranean lines of communication and influence that you were speculating about.

I — I don’t quite understand how that work.

Your basic — your basic premises that whether or not there were sterilization, as you call it, of the voting power either in du Pont Company itself as it has now provided or has — has been suggested also in the — in the shareholders of the du Pont Company, your basic proposition is that, nevertheless, there would be a very real continuing interest — interest on the part of du Pont and of its shareholders in the continuing prosperity and success of General Motors.

John F . Davis:

That’s right.

Potter Stewart:

Well, I don’t see how this would — could be carried out by all the shareholders buying Plymouths and Fords.

John F . Davis:

Well, it also a [Laughter] — they also have a very real interest in the prosperity of du Pont, these stockholders do.

And —

Potter Stewart:

But if — if General Motors, in its own best interest in order to make maximum profits and run its companies to — in the best possible way decided to buy chemicals and paints of somebody else, do you think that shareholders would —

John F . Davis:

Well — well, if it’s a clean cut decision —

Potter Stewart:

— buy Fords and Plymouths.

John F . Davis:

— if there’s no question that the du Pont paint is going to peel off and the new paint is going to last forever, nobody can fit.

But these — but these decisions must be — we must assume that there — there are relatively close decisions as a matter of judgement — matters of judgement.

And all I am suggesting is that the du Pont stockholders are going to be distinctly unhappy when they see this large piece of — when they read in the manuals about the — the Chevrolet cost of — have a brand new paint and they find this isn’t du Pont paint, there are going to be about 308 of these potential buyers of — of Chevrolet cars and they’re going to be distinctly unhappy about it, and this isn’t the way to — to — this is something which is a way in the minds of General Motors’ management.

They — they’re not going to be anxious to — to lose this — this interest.

Potter Stewart:

Suppose we’re going to speculate and I’m just thinking.

John F . Davis:

[Laughs]

Charles E. Whittaker:

It cut two ways, doesn’t it?

They’re interested in selling — they have the du Pont sell the painting, but they still would buy the Chevrolet because they want to get the dividend.

John F . Davis:

That’s right.

It might well cut both ways.

They might feel they were buying from their own corporation and so it was to their own advantage.

Charles E. Whittaker:

Well, it’s pretty hard to balance that fact.

John F . Davis:

It is — it is hard to balance these things.

I’m not — I’m not trying to foresee exactly how this thing could — would work.

John F . Davis:

I am merely saying that these two corporations are not going to be strangers to each other and that these considerations that they’re going to have to be balanced by the managements of both in all their decisions.

And that this is not a — this is not a severing of this relationship even if you cut up the votes.

It’s just a suppressing of it.

It is suggested that if these things do happen that we can then go to the Court and get further relief and a specific provision is included in the — in the decrees so that we can.

I don’t really get much comfort out of this.

We weren’t able, in our main case, to prove any actual restraints by du Pont over General Motors.

Whether they existed or not, we couldn’t prove that they were actual restraints.

I don’t think that we would have much more luck in proving restraints if they did exist in the future.

They — it’s a very hard problem of proof.

And even if we could prove them, it would probably take four or fives years if — if the history of this particular proceeding is — of relief is any — is any example.

So I don’t think that, really, to say that we can get relief if it doesn’t work, is any substitute for giving us adequate relief at the present time.

“But,” say the appellees, “the relief ordered is appropriate because divestiture would be disastrous”.

Now, the — the truth of the matter is that nothing of inherent value is destroyed by divestiture.

General Motors will be released from any obligation which it now as to du Pont.

In du Pont, while it may lose — while it will lose the illegal advantages, it is achieved through acquisition, will be relieved of the not inconsiderable problem of trying to run not only a huge chemical industry but also of the largest manufacturing complex that there is in the country.

Let’s say the appellees, the income taxes which will be imposed on the recipients of the General Motors stocks, when — when it has distributed its dividends, will be an unfair burden on what is in effect a return of capital.

Well, this is just the wrong forum to complain about the unfairness of taxation.

That is a legislative manner and not a judicial one.

If Congress, in its wisdom, feels that to transform an indirect interest in General Motors stock into a direct interest in General Motors stock is a taxable transaction, which under the tax law should be imposed, then it’s not — it’s no function of the — of the District Court to try and prevent this from occurring.

To be sure, du Pont should be given freedom within the decree to arrange its business in anyway that it can to reduce the impact of these taxes, just as they can in any of their other financial transactions.

But I’m not suggesting that the taxes themselves, the — the very considerable taxes should be used as a club to enforce the antitrust laws.

But we think that it’s — the impact — the fact they have to pay on this particular transaction is a matter for them to take to Congress.

Felix Frankfurter:

Do you think — do you think the consequences of an existing tax system — the existing tax systems upon the kind of a decree a District Court molds is an irrelevant consideration?

John F . Davis:

It’s — yes, it’s irrelevant — it’s irrelevant — it’s hard to say yes or no.

It’s irrelevant in that —

Felix Frankfurter:

Assuming there’s a choice.

I’m — this is going beyond your first point.

John F . Davis:

Yes.

Felix Frankfurter:

Assuming there is an area of discretion for the District Court within which you can move or cast consequences irrelevant to your selection of the charge.

John F . Davis:

Well, they’re not totally irrelevant in the sense that — and this is what I mean that the Government should not order, shouldn’t seek a particular decree without being conscious of what the types of consequences are so that if there is another method which accomplishes the end equally, this matter should be — should be considered and the — and the company should be given its right to choose the lesser of these two methods.

John F . Davis:

Unless one method is —

Felix Frankfurter:

I’m not talking about the company making a choice.

I’m talking about alternatives that are open, having passed the compulsory requirement —

John F . Davis:

Yes.

Felix Frankfurter:

— as a matter of law.

But that brings me to what scope you give for the discretionary power, if any, to the District Court in molding the decree.

That — that’s really what’s involved here.

John F . Davis:

Well, I —

Felix Frankfurter:

(Voice Overlap) —

John F . Davis:

I think it has a great deal of discretion in — in molding the decree.

I think that this Court, at many times, held that the District Courts must be given a good deal of discretion.

But I think there are limits to it.

Now, think that it’s —

Felix Frankfurter:

Now, in — in determining the limit, do — does consequences have a relevant share?

John F . Davis:

They have a relevant share in this respect that an order should not be entered which needlessly imposes tax consequences.

This is what Judge Wyzanski said in the Minnesota Mining case that when there are two or three methods, in — in that case, he changed the decree when he — when the tax consequences were pointed out to him.

He said, “There is no need of making an order in this particular way because it will have these tax consequences.”

And in this respect, it’s — it’s appropriate to know what is — what is going on.

What — what the tax consequences are.

But — and the decree should be framed so as to allow the company to minimize this.

But that’s — that’s as far as I think it can go in this.

Felix Frankfurter:

Well, let see if I understand that, you say that there must be divestiture in order to accomplish the result of the — of the decision of this Court, then how does the divestiture should be accomplished may take into account of that consequence?

John F . Davis:

I think that’s right.

Felix Frankfurter:

But your starting point is that divestiture is indispensable.

John F . Davis:

That is right.

Actually — actually I’m not sure that this Court should — should assume that the tax consequences at the time of divestiture will be the same as they are today.

Congress has in the past been quite sympathetic to the pleas for — for relief against this involuntarily — involuntary type of conversion.

Charles E. Whittaker:

Well, then for an equity court to fall on to act the statute and conditions (Inaudible) now.

John F . Davis:

That is right.

But I think you can take into consideration that if the — the Congress may well not act instantly in this situation.

Felix Frankfurter:

Or are you suggesting you might hold up the formulation of the decree, he’ll come with expression of sympathy of what you speak.

John F . Davis:

No, I’m not suggesting that, Mr. Justice Frankfurter.

I — I think that — I think that in tax legislations introduced the last session of Congress, of course, there was Senate, 200 and there was a house bill on the thing too.

I think no one pressed it very hard.

As a matter of fact, in the last —

Potter Stewart:

You’re suggesting that Congress is not likely to exercise its sympathy or express its sympathy until it has some to be sympathic (Voice Overlap) —

John F . Davis:

That is right.

That’s (Voice Overlap) —

Potter Stewart:

So far it has it.

John F . Davis:

Now, I come to the next argument that the innocent stockholders are going to suffer disastrous loses because of the drop in market values of both General Motors and du Pont stock.

In a minute, I shall deal with the — with the merits of this, but for the present, let me accept the appellees evidence at its full value just for the purposes of argument.

Their evidence is that divestiture under the Government’s plan, that is, the through — through dividends — through declaring dividends of the General Motors stock that the divestiture would impair General Motors the — market value of General Motors stock to the extent of 20% to 25%.

And that it would impair the value of the du Pont stock market wise 25% to 30%.

Now, no one wants to depress stock market values to any extent.

But even if this drop should occur, I suggest that it’s not the other disaster that the appellees would have you believe.

During the year 1960, General Motors fell off 27% from its high of the year to the low of the year, and du Pont dropped 33% from the high of the year to the low of the year.

The innocent stockholders, so far as I know, haven’t treated this as a disaster.

I mean no one is happy to see his stock go down, but the way — the way you make it appear as a disaster is to take this — take this drop in stock market values and — and multiply it by the number of shares outstanding and you get the astronomical figures.

But actually — actually, there are fluctuations up and down in the stock market.

What — so that even if we accept their argument that there will be this drop in this — in the — in the stockmarket, it — it isn’t a factor which should frighten us.

I mean it’s something that we may want to avoid that we can but it’s something that isn’t, by itself, disastrous.

As a matter of fact, stockholders, of course, when they — when they buy common stock, pick the chances of gains and losses.

It doesn’t really make much difference to them whether the loss occurs because of an antitrust decree or bad weather or an international disturbances — disturbance.

As a matter of fact, as far as the antitrust decree goes, it may be less serious to them because in that case, as here, nothing is taken away from their corporation’s earnings or — or dividends other than the dividends of separating.

But nothing is done to the business entities so that they cannot continue to earn same kind of — of profits that happened before and the stock market is thereupon not reflecting inherent worth, it’s merely reflecting a matter of supply and demand.

This isn’t much comfort if they have to sell immediately but it is some comfort if they are like the big trust and so forth that can just — just hold on and let the — whatever market disturbance there is right itself.

But I think that the argument that the General Motors and the du Pont stock will fall off 20% to 30% by reason of divestiture is, on its face, unsound.

General Motors’ earnings — well, earnings and the $2 dividend which is paid over the past few years will not be affected by this decree in any material effect.

And nether will du Pont’s earnings or its dividend except that General Motors is taken out of it.

Now, to me, it’s — it’s inconceivable that private and institutional investors which are for primarily concern with the yield of stocks would fail to come into the market and buy in very large volume, if the price of General Motors fails so that you could get a yield of 5.5% or 6% on — on a blue-chip investment like that.

John F . Davis:

The record is replete with evidence as to the interest of particularly institutional investors of growing interest in — in equity securities.

And if — if they have a chance to — to buy either one of these securities that are rate rather produced between 5.5% and 6%, it seems clear to me that they will — will come in and this will — will — seems obvious would stop the fall of this stock façade of what the — the appellees would have its belief.

The testimony of the appellees’ experts which led the District Court to accept the theory that there would be disastrous falls in the market price was specifically addressed to a particular plan of divestiture.

Now, we point out in our brief on this appeal that there are various combinations of divestiture which should be left open to the — to the appellees.

And we believe that if they are given the — the freedom and if they really put their shoulder to the wheel that they will be able to avoid some of these difficulties which they foresee.

For example on the tax consequences, if they substitute their du Pont — their General Motors dividend for part of their present cash dividend, so that instead of paying $2 — instead of paying $6.50 dividends, they now pay $4 in cash and $2.50 in — in stock, there will be no increase in the income tax burden on the — on the du Pont stockholders.

They will have the same overall cash burden that they had before.

The company can, if it — if it will, sell a good part of the stock either through private placements, perhaps to General Motors, perhaps to other purchases or it can make a secondary distribution as was so successfully done with the slowing stock in 1957.

And I think even more important, General Motors can, if it wish, divest itself of a very considerable portion of this stock by making exchange office of the General Motors stock to its own stockholders in return for their stock.

Now, this will have the obvious advantage that it will reduce their capitalization more or less in proportion to the — to the reduced — reduction in — in the assets.

Potter Stewart:

Is these — all these alternative suggestions are something new here in this Court, aren’t they?

This was suggested to the District Court.

John F . Davis:

It wasn’t spelled out.

We were asked to provide a particular plan and they’re not incorporated in our plan, but throughout our arguments in the District Court, we argue that any methods of divestiture that could be — that they could work out would be — would be desirable and — and would be acceptable to the Government.

The plans — the specific plans did not include these matters.

Potter Stewart:

So this — was the — for example, the tax consequences of this exchange alternative you just mention, was that — was that —

John F . Davis:

That —

Potter Stewart:

— the ruling has gotten on that?

John F . Davis:

There’s been no ruling nor receive — there was no ruling out —

Potter Stewart:

(Voice Overlap) —

John F . Davis:

That is right.

Then, certainly before —

Potter Stewart:

(Voice Overlap) —

John F . Davis:

— before it was done, a ruling would have to be honest.

Potter Stewart:

Could be the equivalent of a dividend even though —

John F . Davis:

Well —

Potter Stewart:

— technically even though it were informal exchange, could it not?

John F . Davis:

I think — I think it would not be so held.

I mean the — the nature of it is very different from the dividend, then I think it would not be held to be a dividend.

As a matter fact on the exchange offer, it’s interesting that in the — in the Christiana-Delaware merger proposal, which was approved by the Securities and Exchange Commission, I think in January and which will be voted on by the stockholders of those two companies in — later this week, the proposal is to merge Delaware and Christiana.

John F . Davis:

And one of the assets which is involve in — in this merger, 300,000 shares of Hercules Powder Company, which Delaware holds.

And for some reason, and I don’t pretend I know the reason of why, there is a feeling that’s inappropriate for this merged corporation to hold the du Pont Powder, there is some — some apprehension about the antitrust aspects of it.

So it’s been determined that this will be divested.

And the plan proposed by Delaware and Christiana for divesting this — these 300 shares of — of Hercules Powder is through making an exchange offer to the — to the stockholders of — of Christiana.

I don’t suggest that the $16 million which were involved or may be it’s $14 million that’s involved from the Hercules Powder case is the same as this case.

But this isn’t — this isn’t a new steam to this people.

They — they know how to — they know how to divest stock by making exchange of it when they want to.

Now, if the Court agrees with us that the decree of the District Court should be reversed, I believe that it would be appropriate that this Court include in its order, some provision to prevent the case from going back to the District Court for another four or five years.

This dispute between us is to who’s responsible for this delay.

I don’t think it’s important who’s — who’s responsible for the delay.

The — the public is the one that is hurt by the antitrust laws not being carried out.

And I suggest to this Court that it give consideration to including in its order a provision that the dividends on the du Pont stock on the General Motors stock be held up if divestiture is not commenced within one year, after the order of this Court.

This is — this is a harsh relief.

This is the kind of relief that used to be ordered in the railroad — in the railroad cases.

It would do one thing, it would — it would ensure that whoever is responsible for the delay in the past that there would be promptness in — in framing and agreeing to a decree.

I’ll save the rest of the time for rebuttal.

Earl Warren:

You may.

Mr. Cox.

Hugh B. Cox:

May it please the Court.

I should like to begin by addressing myself to the question whether the judgment which the District Court entered in this case after a flow hearing and in the exercise of its equitable discretion is an effective judgment.

We submit it is effective because it complies with a mandate of this Court.

It removes the — eliminates the effects of this stock acquisition that are offensive to the statute.

Now, I am aware that logically, perhaps I should begin this argument with — by considering the question whether it’s divestiture of the complete legal title is mandatory as a matter of law in every Section 7 case.

I do propose to deal with that question but with the Court’s permission, I — I should prefer to have that — to defer that question until I can put the question of this judgement, what it is and what it does, the question of its effectiveness, before the Court, because I think that the two things are so related that perhaps the second question might better be deferred until I have explained our position on the first, realizing that, of course, if it’s mandatory, as a matter law, that there’d be complete divestiture of the legal title.

That’s the end of the case because the judge below didn’t order complete divestiture of the legal matter.

Now, I should like to supplement very briefly in few respects the description that counsel for the appellant gave of the judgement.

As he said, the judgment, in the first instance, divested du Pont of any right to vote 63 million shares of General Motors which it owns.

It can’t vote it.

It can’t influence anybody else in the way that he shall vote it.

The judgment, as counsel said, passes those votes on to the du Pont stockholders except that no votes can be exercise by the officers and directors of du Pont or by Christiana or by their officers and directors.

Hugh B. Cox:

The judgment does more than really simply abolish interlocking directors.

What the judgment does is it provided a period of grace of 90 days in which anybody who was on both boards had to resign.

Everyone who was on both boards resigned from one of the others so that there are no interlocking directors.

That is the usual interlocking director provision.

But this judgement goes beyond them because it provides that if, after that 90-day period, a man has ever on the board or an officer of du Pont Company, he cannot, ever again, by resigning from the du Pont Company, qualify himself to be an officer or a director of General Motors.

And the same thing works the other way.

So that after the 90-day period, as far as the officers and directors are concern, there is a clean and absolute and permanent rate, there could no be shifting back and forth by resignations.

That’s the end of that relationship.

As far as the injunctive provisions of the judgment are concerned, I think it’s worthwhile to say that those provisions enjoining all contracts require when it comes to the relation of all contracts which — under which General Motors might buy any percentage no matter how small of its requirements of any commodity from du Pont.

For three years, no contracts of that kind at all can be made.

After three years, a contract of that kind can be made if it’s limited to one year or to one model car year.

That’s what —

Potter Stewart:

Of what kind?

A requirement’s contract?

Hugh B. Cox:

Contract that requires or provides for the purchase by General Motors at any percentage of its requirements of commodity.

Potter Stewart:

Any percentage —

Hugh B. Cox:

Any percentage —

Potter Stewart:

— of its total requirements.

Hugh B. Cox:

— of its total requirements.

Potter Stewart:

That kind of a contract.

Hugh B. Cox:

1%, 2%, 3%, 4%, any percent.

The injunctive provisions forbid any exclusive granting of patent rights by one company to the other.

They forbid General Motors from giving du Pont any — exclusive right to exploit or manufacture or develop any chemical discovery that’s made by General Motors.

They forbid General Motors to deal on any basis with du Pont to that all for first du Pont.

And then there is another provision in which I — we think it was improperly included in the judgement but we haven’t appealed which specifically enjoins du Pont from giving any favors to General Motors, in its dealings with General Motors.

Now, I should like to invite the Court’s attention to those provisions of the judgement which operate directly upon the stock, not these injunctive provisions that I have been speaking of but the stock provisions.

It is our position that — that the — what those provisions do is to deprive du Pont of every right and privilege and power that is inherit in stock ownership that might be used or that by — might, by its mere existence, had any capacity to control or to influence General Motors.

I should have suppose until this issue arose today that everyone would agree that the capacity of the stockholder, capacity of the stockholder influence or control corporate action depends ultimately upon his capacity to exercise, in one way or another, voting rights.

That is what appellant heretofore has always argued in this case.

When the case was here before, appellant argued that du Pont could control or influence General Motors because du Pont voted 23% of the stock of the stockholders’ meeting.

Hugh B. Cox:

It’s frequently a very large percentage of the stock present.

That that right to vote gave du Pont representation on the Board of Directors of General Motors.

That it gave it representation on the Committees of the Board.

And indeed that it give it representation in the management of General Motors.

Those were the arguments that were made by appellant, an argument which it prevailed.

Now, I invite the Court’s attention to the fact that each one of those things is going into this judgement.

Du Pont can’t vote.

It can’t have anybody on the Board.

It can’t have anyone who is an officer or a director.

It can’t serve on the Committees of the Board.

It can’t influence through that stock ownership the conduct of General Motors in any way.

I should like to — now, I point out that when the — what is left here, so far as the du Pont Company is concerned, is a legal title.

And I think it’s useful for us to — to consider what that title means in terms of control or influence of General Motors.

Title itself, of course, is an abstraction that means a bundle of rights.

Now, what are the rights and privileges that are elected?

Well, in the first place du Pont, under this judgement, can sell its stock provided it gets the approval of the Court and provided appellant doesn’t object.

But that’s not a right that can be used to influence or control General Motors.

In the second place, if there is a liquidation or dissolution of General Motors, du Pont, by virtue of this legal title, could share pro rata in the assets.

Well, I think everyone will agree that’s of no practical consequence.

Now, the third thing is that du Pont continues to receive dividends on the stock.

Two points I should like to make about those dividends.

In the first place, so far as this is important to consider whether du Pont can control or influence General Motors, I suggest that the fact that General Motors pays du Pont dividends in exactly the same way, in the same amount that it pays every other stockholder of General Motors, certainly doesn’t give du Pont any capacity to control or to influence General Motors.

The other comment I should like to make is, that — and this I — I feel and perhaps it’s not apparent known to the Court.

It has been that consistent practice of du Pont for years to pass the amount of those dividends on to its own shareholders less the amount of the intercorporate dividend tax.

Du Pont is merely a conduit to those dividends.

That practical situation isn’t any different than it would be, if, really, General Motors, to some arrangement, even under an order of the Court, paid the dividends directly to the shareholders of du Pont.

Now, counsel for the appellant has referred to fact that the amount of dividends that are paid to du Pont and that are passed on by du Pont to its shareholders is very substantial, and that is true.

But I ask the Court, what does that have to do with the violation of law that was found in this case?

What relationship is there between those payments and the probability that there may be some restraints or monopolization of trade?

The mere receipt of that money, I think, from the face of it, has no relationship.

Hugh B. Cox:

It creates no possibility or threat.

Restraint particularly in view of the facts to dividends had been direct and passed on to shareholders.

There is no suggestion of the fact to the presented testimony in the court below that that’s what du Pont intended to do.

Now, oddly enough, the plaintiff, although it talks the appellant or it talks about the dividends here, didn’t ask for any relief as to the dividends in the court below.

So that — that is what the judgement leaves in the du Pont Company and most — it’s a sterile kind of investment which is deprived of any capacity or power, we submit, to influence or to control General Motors.

Now, what — what does the appellant say in criticism of this judgement.

Well, it first makes the point that was made this afternoon that the stockholders of du Pont who are entitled to exercise these voting rights on 15% of the stock may act in the concerts or they may follow some common program or perhaps in management of General Motors will fear that they will do so and will act accordingly.

Now, I — the appellant — we press the appellant on this point in order to be more precise about this in our brief and in its reply brief at page 9, the comment it made was this, that even if the shareholders didn’t act in concert and didn’t go to the stockholders’ meeting with any prearranged plan, they could ask questions which would be very troublesome and difficult.

I really think we are entitled to somewhat more precise argument than that.

Does appellant mean that by this independent questions at the stockholders’ meeting, the management of General Motors is going to be intimated or coerced into buying paint from du Pont even it doesn’t want to buy or it doesn’t mean that the stockholders unorganized their 200,000 of — are going to conduct a proxy campaign for the opening of a valid purpose of removing the management of General Motors because it won’t buy paint from du Pont?

I think — I submit to the Court, when you state these arguments with any degree of precision and look at them in terms of practicalities, they fall of their own weight.

Now, there is another argument or — or group of arguments which — before I leave that subject let me say this.

Of course, if there is any danger, we think there isn’t, but if there is any danger in this exercise of voting rights by the stockholders of the du Pont Company, it does not require this divestiture of the legal title to deal with it.

I think that perhaps appellant’s counsel this afternoon, in effect, conceded that.

You could adopt measures that would prevent the stock from being voted at all.

Or you could, as an alternative, you could provide that it should be voted as a mechanical administrative matter in exactly the same percentages that the other 76% of the stock is voted.

And if that should be done, we don’t think it’s necessary, we are not advocating it.

We think it’s preferable to the divestiture of the legal title because it will not have the consequences to the stockholders of the two companies that divestiture would.

But if that should be done, it would remove completely any possibility that the exercise of voting rights by 200,000 diverse and independent shareholders could have any effect upon the practices of General Motors.

Potter Stewart:

I don’t quite understand the second suggestion.

Hugh B. Cox:

That suggestion, Mr. Justice Stewart, is this, there are two suggestions.

One, is you sterilize.

Potter Stewart:

Live stock.

Hugh B. Cox:

The other suggestion is that you provide that that stock shall be voted under the direction of the Court at the stockholders’ meeting in exactly the same percentages that the balance of the General Motors stock is voted, that is, if you have 76% of the stock of General Motors held by people who have no connection with this case.

Potter Stewart:

Right.

Hugh B. Cox:

If a proposition comes before the stockholders’ meeting and 15% of the stock voters’ votes for and the rest of it votes against, then you would take these shares of du Pont and split them the same way and vote them the same way.

It would make myself (Voice Overlap) —

Charles E. Whittaker:

Wouldn’t that be —

Potter Stewart:

Well, I’m just saying the same thing if ever would.

Hugh B. Cox:

Yes.

Hugh B. Cox:

That’s right.

Charles E. Whittaker:

Wouldn’t that be exactly the same thing, Mr. Cox, is sterilizing —

Potter Stewart:

Yes.

Charles E. Whittaker:

— the stock?

Hugh B. Cox:

It is — it is the same thing.

I think that if there are some situations where possibly —

Potter Stewart:

Need a certain number of votes.

Hugh B. Cox:

— need a certain number of votes were that might solve the problem.

No, I don’t think that’s a very likely situation.

You — you’re aware, Mr. Justice Whittaker, sometimes, you need 60% or 70% of the votes to do certain things but —

Charles E. Whittaker:

One more question if I may.

Hugh B. Cox:

Yes.

Charles E. Whittaker:

How do you (Inaudible) 23% down to 15%?

Hugh B. Cox:

Well, the — the — that is because the — the judgement passes through the votes on an amount of the 63 million shares of du Pont that is equal to about 15% of the outstanding stock of General Motors.

The balance of it is sterilized under the provisions that have been described here this afternoon.

Now, I would — before I dealt with this matter of the — of the last comment I made on the voting rights, I was about to deal with the other argument which is the only other argument which appellant’s counsel has made this afternoon in attacking the effectiveness of this judgment in effect.

And I — I must concede to the Court that it is a difficult argument for me to get my hands on because it is a vague argument and it seems to me that tend to pretend when I lay hands on it in one shape and changes into another shape.

But as I understand the argument, and I — I perhaps run the dangers of stating it more precisely than — than the counsel for appellant had, it is an argument that under this judgement, du Pont will retain a large financial interest in General Motors.

And that is true in a limited sense that I’ve spoke of a little while ago.

It will hold a legal tittle to this stock.

Appellant argues that because of this financial interest, there will be some tendency, possibility or probability that General Motors will favor du Pont in their commercial dealings.

For example, that it will continue to buy paint from du Pont instead of buying it from competitive sources.

Now, here, again, we press appellant in our brief to be specific and in response, appellant made two arguments.

One of which has been made here this afternoon.

That is the argument that if in the future, Chevrolet, for example, should decide to stop buying paint from du Pont.

And again, buying paint from General Motors, these 200,000 shareholders of the du Pont Company or all the shareholders of du Pont Company would stop buying Chevrolet cars because they were annoyed by the change of the paint’s suppliers.

Now, I’m not sure how much I should say about that argument.

It — it seems to me to assume or rather extraordinary situation or make extraordinary assumptions about the buying habits of the American public.

As I understand the argument, it — it posits a situation like this.

Chevrolet salesman goes around to a prospective customer and says, “I would like to sell you a Chevrolet.”

Hugh B. Cox:

And the customer says, “Alright, now, before I ask you anything else about this car or before you tell me anything about it, I want to know who makes the paint on the car because I’m the shareholder of the du Pont Company and I’m interested in that.”

Now, I don’t know what the salesman would say.

I think in reality, he would probably say, “Well, look, brother, I don’t know who made the paint but I could tell you one thing, it’s a very good paint.”

But let’s assume that he knows everything about the paint that a plant superintendent of the Chevrolet Company knows.

And then he would say, “Well, it is true, they use to buy that paint from du Pont.”

But now, that’s a little different.

The — the topcoat on this car is made by Rinshed-Mason and the undercoat is made by Rin — Rinshed-Mason.

I think they still get the primer which goes underneath both of them from du Pont.

And as far as that black on the engine is concerned, that comes from the Acme Paint & Varnish Company.”

And then the customer says, “Alright, that’s enough for me.

I don’t care what the car cost, I don’t care what it looks like, I don’t care how many miles you get the gallon of gas or what kind of an engine it has, I’m finish.

I’m going to find a car that has nothing but du Pont paint on it.”

I think I should leave that argument.

The other argument that I make, which was again advanced, I think, this afternoon, is an argument which I think — so that I shall not run any risk of — of misstating it, with the Court’s permission, I shall read on page 10 of their reply brief.

This is a separate argument on this financial interest point.

Appellant says, “And it is wholly possible for du Pont without overt action to exert considerable pressure through its other business and financial connections.”

I take it that was the same argument that was being made this afternoon when appellant’s counsel referred to Morgan Stanley.

Now, there are two comments.

I think they are very important about that argument.

The motive for du Pont to do anything of that kind is, of course, a desire to increase the volume of what it sells to General Motors.

Now, that motive will remain even if you have complete divestiture of the legal title.

So that by divesting yourself of the legal — du Pont of the legal title, it does not remove the motive.

The other comment I should like to make is, that these connections, as to which there is no evidence in the record, but these connections would exist whether you divest it to legal title or not.

Precisely the same situation would exist.

You would have the motive, what the mystery story writers call “the opportunity”.

And you can’t change that by divesting the legal title.

So on that point, appellant’s proposals are no wit nor sufficient than ours.

That comment, I think, applies also to appellant’s argument that simply because of buying habits or custom or old acquaintance, the purchasing agents will keep on dealing with people from du Pont.

I don’t know whether that’s true or not.

I doubt whether it have a “quantship” quite that strong in the business where a cost is so important.

Hugh B. Cox:

But assume it is.

You can’t change that by divesting the legal title.

Those are — are parallels or imaginary dangerous which are not touched by appellant’s proposal.

In our judgment, they do not justify appellant’s demand for complete divestiture of the legal type.

Appellant has made another argument in its brief, which it has not made this afternoon here, and for that reason I’m not — I’m trying not to say very much about it, but I think I should mention it, and that is that even if you assume that this judgement is completely affected to prevent General Motors from favoring du Pont, it isn’t effective to prevent du Pont from favoring General Motors.

That is an argument which turns this case upside down.

The appellant prevailed in this Court before on the argument that the vice in this situation was that by reason of the stock ownership, du Pont was in a position where it could preempt the market represented by General Motors’ purchasers to its own advantage and to the detriment of its competitors.

This other argument, as I say, is an argument that reversed its answer.

It says that the danger is not bad at all.

The danger is that du Pont, by giving favors to General Motors, will enable General Motors to gain some advantages or monopolistic position in the markets in which General Motors operates.

I should like to make these comments about that argument.

In the first place, there is no adjudication in this case by this Court or by the District Court which would make it permissible in our view for the Court to grant divestiture on any such basis as that.

Certainly the fear that General — du Pont would give General Motors some advantages, which would now allow General Motors to monopolize some market, was not a probability adjudicated by this Court in its — on the merits.

The second, there are no findings, there are no evidence.

Such evidence, as there is, is directly contrary to this argument.

There is — there are evidences — it’s for the meager evidence because this issue was never tried.

There are three instances in the record where du Pont developed an extraordinary and remarkable product which it given the General Motors on exclusive basis with no doubt has given an — an advantage.

That didn’t happen in those cases.

Duco is the most striking one because there, General Motors asked for the exclusive right to use it and was refused.

The fact is that on — in economic terms, taking into account the amount of sales of — to General Motors in relation to du Pont’s total sales, it would not, I think, ever be du Pont’s advantage to do anything of that kind.

But beyond that, I should like to leave the Court with this contention this afternoon, that the — there is no authority precedent which would entitle appellant to obtain relief, the radical relief of divestiture.

On a legal theory that has never been adjudicated as to which there are no conclusions or findings which such evidence as there is, is contrary to the appellant’s contention.

In short, it is a theory in which the Court to accept would have to suppress what facts there are and invent other facts to supply the basis of the holding.

Earl Warren:

We’ll recess now.