Source: https://supreme.justia.com/cases/federal/us/268/588/
Timestamp: 2019-04-24 08:04:31+00:00

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1. Dissemination of information enabling sellers of goods under contracts for future delivery individually to prevent purchasers from fraudulently procuring deliveries on the pretense that the sellers are obligated by their contracts to make them is not an unlawful restraint of trade, even though the information be gathered by and disseminated among the sellers themselves through cooperation. P. 268 U. S. 603.
2. Cooperation of manufacturers in gathering and exchanging (1) information concerning production of cement and the prices for which it was sold by them in actual, closed "specific job" contracts constituting but a part of their business, and (2) information of transportation costs from chief points of production held not an unlawful restraint on commerce even assuming that the result may tend to bring about uniformity of price through the operation of economic law. P. 268 U. S. 604.
3. In this case, the government did not rely upon any agreement or understanding for price maintenance, and the record fails to establish, either directly of by inference, any concerted action other than that involved in the gathering and dissemination of information respecting sale and distribution, which, in itself, the Court finds not unlawful; nor does the evidence show any effect on price and production except such as would naturally flow from the dissemination of such information in the trade, and its natural influence on individual action. P. 268 U. S. 606.
contractors from obtaining more cement than they were entitled to under such contracts by the practice of entering into several such contracts with several manufacturers for the same specific job, the details of such contracts were reported by the members to the Association, agents of the latter visited the jobs, and the fullest information respecting the contracts and the use of cement shipped under them was reported to the members by the secretary, and there were many cancellations of deliveries under such contracts on the ground that purchasers were not entitled to delivery by the terms of their agreements; (3) that the Association compiled and distributed to its members books listing freight rates from established basing points to many cities and towns, enabling the manufacturer to calculate a delivery price on the basis of its own mill price (determined by itself) to places nearest in point of freight rate to its own mill, and also to determine at once the freight differential it must offset in its mill price in order to compete with other manufacturers serving any other given territory; (4) that members of the Association rendered monthly detailed reports concerning delinquent accounts of their customers; (5) and reports of production, shipments and stock on hand, which, being compiled and distributed, informed each member fully of the available supply of cement and by whom it was held; (6) that, by universal practice of the trade, the price of bags in which cement was shipped was included in the mill base price, and that quarterly reports were made to the Association showing the total number of bags returned to each member by customers during the preceding quarter and the percentage found unfit for use, but no information was reported concerning the charge and allowance for bags returned, the number received from any particular customer, or the portion found unfit for use; (7) that periodical meetings were held at which minor subjects, such as return of bags, bag reports, and trade acceptances were discussed, but not current or future prices, or production or market conditions, which meetings were not proved to have resulted in any agreement or in any uniformity of trade practice. Held that a purpose to control production and price of cement could not be inferred from such activities, and they were not in themselves unlawful restraints of commerce prohibited by the Anti-Trust Act. P. 268 U. S. 592.
enjoining the continuance of a combination of various cement manufacturers in the form of a trade association.
This is an appeal from a final decree of the District Court for the Southern District of New York granting a perpetual injunction in a proceeding brought by the United States under § 4, Chapter 647, of the Act of July 2, 1890, 26 Stat. 209, commonly known as the Sherman Act. Defendants are the Cement Manufacturers' Protective Association, an unincorporated association, four individuals, the officers of the Association and 19 corporations, members of the Association, engaged in manufacturing and shipping Portland cement in interstate commerce, in Pennsylvania, New Jersey, New York, Maryland, and Virginia. The petition, which was filed on the 30th day of June, 1921, alleges restraint of interstate commerce in violation of § 1 of the Act. The complaint prays that the Cement Manufacturers' Protective Association be adjudged a violation of § 1, and enjoined accordingly. After final hearing, the district court entered its decree enjoining the continuance of the Cement Manufacturers' Protective Association and enjoined it and the several defendants from engaging in the activities of which the government complains, and of which a summary account will presently be given.
and dissemination of such accurate information as may serve to protect each manufacturer against misrepresentation, deception, and imposition, and enable him to conduct his business exactly as he pleases in every respect, and particularly free from misdirection by false or insufficient information concerning the following matters, to-wit:"
"(b) Information concerning contracts which have been made for the delivery of cement sufficiently complete to enable the manufacturer to protect himself against spurious contracts and like transactions induced by misrepresentations;"
"(c) Information concerning freight rates on cement;"
"(d) Statistical information as to production, stocks of cement and clinker on hand, and shipments."
"membership in the Association shall be recognized as implying that the member is absolutely free to conduct his business exactly as he pleases in every respect and particular."
to the general trade for immediate use. Of this 60% to 65%, approximately two-thirds is sold to dealers who are allowed a differential from the sales price to the retail trade.
(1) By the use of "specific job contracts" for future delivery of cement, accompanied by a system of reports and trade espionage having as its objective the restriction of deliveries of cement under those contracts.
(4) By activities of the Association at its meetings.
limit the amount of cement distributed to the trade under those contracts; that the exchange of information complained of generally tended to limit production; that the dissemination of this information, especially that contained in the freight rate book, tended to produce uniformity in price, and that there was accordingly a restraint of commerce within the principles laid down in American Column & Lumber Co. v. United States, 257 U. S. 377, 257 U. S. 393; United States v. American Linseed Oil Co., 262 U. S. 371.
(5) Charging purchasers of cement for bags in which the product is shipped and allowing credit for bags returned to the manufacturers in good condition.
consider more at length the activities of the defendants in connection with specific job contracts, and incidentally their other activities as related to sales of cement under specific job contracts and the information exchanged with respect to such contracts.
The specific job contract and the practices of the trade with respect to making deliveries in performance of those contracts were customary in the trade long before any of the collective activities complained of in this case. We do not understand the government to contend that the use of specific job contracts by defendants, or that their use generally by the trade, is the result of any agreement or understanding, or, in itself, constitutes any violation of the Sherman Law. It is contended that the violation arises rather from the cooperation among the several defendants in acquiring and distributing information with reference to specific job contracts and the effect of the dissemination of that information on the trade, to which reference will now be made.
"whereby a manufacturer is to deliver, in the future, cement to be used in a specific piece of work, such as a particular building or road, and the obligation is that the manufacturer shall furnish and the contractor shall take only such cement as is required for or used for the specific purpose."
the delivery of the cement to him; that he is not obligated, in any event, to take the cement contracted for unless he chooses to; that he is not held to the price named in the contract in the event of a decline in the market price, whereas the manufacturer may be held to the contract price if the market advances, and may be held for the delivery of the full amount of cement required for the completion of the particular piece of construction described in the contract. The practical effect and operation of the specific job contract, therefore, is to enable contractors who are bidding upon construction work to secure a call or option for the cement required for the completion of that particular job at a price which may not be increased, but may be reduced if the market declines. It enables contractors to bid for future construction work with the assurance that the requisite cement will be available at a definitely ascertained maximum price.
to members, and thus placing them in a position to prevent contractors from securing future deliveries of cement which they are not entitled to receive under their specific job contracts, and which experience shows they endeavor to procure, especially in a rising market.
Members are required to make to the secretary of the Association prompt reports of all specific job contracts, describing in detail the contract and giving the name and address of the purchaser, the amount of cement required, the price and delivery point, also the date of expiration of the contract. They are also required to make detailed reports of all changes in the contract, including increases in the amount of cement to be delivered and cancellations. The Association also employs "checkers," whose business it is, by actual inspection and inquiry, to ascertain, so far as possible, the amount of cement required for specific jobs referred to in specific job contracts, and whether cement shipped under specific job contracts is actually used or required for use under such contracts. Without entering into any detailed discussion of this phase of the activity of defendants, we accept fully the government's contention that the defendants regularly take all practicable steps to ascertain whether cement contracted for under the specific job type of contract was actually being used for the job described in the contract, and that the fullest information with respect to such contracts and the use of cement shipped under said contracts is reported to the members of the Association through the mediation of the secretary.
not entitled, under the terms of their contracts, to receive such deliveries. In 1920, of 1,392 contracts investigated and found to be "padded" to the extent of more than 3,500,000 barrels of cement, 978 were partially cancelled to the extent of 2,014,653 barrels.
The custom in the cement trade of selling cement at a delivered price, which includes the mill price, the price of bags, and freight charges, was an established trade practice before the organization of the defendant association. As required by the bylaws of the defendant association, it has distributed to its members freight rate books, listing freight rates from established basing points to practically every city and town in the northeast section of the United States. The freight rates contained in the freight rate book are compiled from the official tariffs and translated from the rate per ton of the official tariffs into the rate per barrel of 380 pounds, the unit for the sale of cement. Similar lists of freight rates embracing substantially the same subject matter were prepared and used by individual manufacturers before the organization of the defendant association. The Association freight rate book took the place of previous separate publications by individual manufacturers, with a consequent saving of money and increase of accuracy and a more thorough and continuous checking of rates. The basing points from which freight rates were calculated were not selected by the Association, but were the same as those appearing in prior books published by individuals before the publication of the Association freight rate book. The basing points are points of actual shipment from which the larger proportion of the cement in a given locality in which cement is manufactured is actually shipped. The rates published are the actual rates, omitting fractions of cents between the basing points and actual points of delivery.
Manufacturers customarily, and for the purpose of the convenient conduct of their business, maintain a uniform base or factory price so far as the customers of the individual manufacturer are concerned. That is to say, the business is conducted on a "one-price" basis. In order, however, to determine the delivered price, there must be added to the factory price of a given manufacturer the cost of transportation to the point of delivery. Prompt quotations of a delivered price therefore involves the ability to carry out promptly the mechanical process of adding to the mill price the cost of transportation to the point of delivery. Lists of freight rates in convenient and readily available form are therefore necessary adjuncts to the quotation of delivery prices for cement.
blanket freight rate, the competing mills must still use the rate from a given basing point in order to compete with the mills located in the vicinity of that chief point of production. In either case, the freight rate from the basing point is an essential element in making a delivered price, since selling by any particular manufacturer at the lowest of the delivered prices computed from several basing points is a necessary procedure in competing in the sale of cement. The freight rate book therefore not only enables the manufacturer to calculate a delivered price on the basis of his own mill price, which he determines, to points in the territory nearest in point of freight rate to his own mill, but it enables him also to determine at once the freight differential which he must offset in his mill price in order to compete with other manufacturers serving any other given territory.
or with respect to the persons to whom or conditions under which credit should be extended. The evidence falls far short of establishing any understanding on the basis of which credit was to be extended to customers, or that any cooperation resulted from the distribution of this information, or that there were any consequences from it other than such as would naturally ensue from the exercise of the individual judgment of manufacturers in determining, on the basis of available information, whether to extend credit or to require cash or security from any given customer.
The statistical activities of the Association, other than those relating to specific job contracts which have already been referred to, dealt with information as to existing supplies of cement and the so-called bag report, which gave information concerning returned bags which are the usual containers in which cement is shipped and delivered.
Each member of the Association, in addition to the reports on specific job contracts already referred to, sends to the Association a monthly statement of its production of clinker and ground cement, shipments, and stock on hand for the past month and for the corresponding periods of the previous year. These were compiled and distributed to members without any change or comment. In addition, semimonthly statements of shipments were also received and likewise distributed. Each member of the Association was thus given full information as to the available supply of cement and by whom it was held.
during the preceding quarter and the percentage thereof found unfit for use. The reports show that the loss varied from about 3/4 of 1% by one manufacturer to about 4 1/2% by another, and the diversity continued throughout the period covered by the reports. In 1918, a questionnaire was sent out inquiring as to the practice of each company to determine whether better results were obtained by cleaning before or after counting, showing that some counted before cleaning and some after cleaning, and some both before and after. No information was reported concerning the charge and allowance or deposit for bags returned, or concerning the number received from any particular customer, or the portion found unfit for use.
"the Association's counsel was present at every meeting to steer the discussions away from illegal subjects and to have them confine the matters strictly within the purview of the bylaws and the constitution of the Association."
that, from time to time, individual representatives of the companies expressed themselves on subjects of minor importance, such as return of bags and bag reports, discounts, the use of trade acceptances where customers desired more than the customary 30 days' discount. But, with reference to these suggestions and discussions, either no action was taken or action was taken adverse to the suggestions made. There is no evidence that any agreement was reached affecting any of the matters discussed, nor does the government point specifically to any uniformity of trade practice or custom followed which is urged as even inferentially the result of activities at meetings.
the opinion in Maple Flooring Association v. United States ante, p. 268 U. S. 563.
That a combination existed for the purpose of gathering and distributing these two classes of information is not denied. That a consequence of the gathering and dissemination of information with respect to the specific job contracts was to afford to manufacturers of cement opportunity and grounds for refusing deliveries of cement which the contractors were not entitled to call for, an opportunity of which manufacturers were prompt to avail themselves, is also not open to dispute. We do not see, however, in the activity of the defendants with respect to specific job contracts any basis for the contention that they constitute an unlawful restraint of commerce. The government does not rely on any agreement or understanding among members of the Association that members would either make use of the specific job contract, or that they would refuse to deliver "excess" cement under specific job contracts. Members were left free to use this type of contract and to make such deliveries or not as they chose, and the evidence already referred to shows that, in 1920, padded specific job contracts were cut down something less than two-thirds of the total amount of the padding as a result of the of gathering and reporting this information. It may be assumed, however, if manufacturers take the precaution to draw their sales contracts in such form that they are not to be required to deliver cement not needed for the specific jobs described in these contracts, that they would, to a considerable extent, decline to make deliveries upon receiving information showing that the deliveries claimed were not called for by the contracts.
sellers to prevent the perpetration of fraud upon them, which information they are free to act upon or not as they choose, cannot be held to be an unlawful restraint upon commerce even though, in the ordinary course of business, most sellers would act on the information and refuse to make deliveries for which they were not legally bound.
"from establishing and maintaining rules for the giving of credit to dealers where such rules in good faith are calculated solely to protect the defendants against dishonest or irresponsible dealers."
Distribution of information as to credit and responsibility of buyers undoubtedly prevents fraud and cuts down to some degree commercial transactions which would otherwise be induced by fraud. But, for reasons stated more at length in our opinion in United States v. Maple Flooring Association, supra, we cannot regard the procuring and dissemination of information which tends to prevent the procuring of fraudulent contracts or to prevent the fraudulent securing of deliveries of merchandise on the pretense that the seller is bound to deliver it by his contract as an unlawful restraint of trade, even though such information be gathered and disseminated by those who are engaged in the trade or business principally concerned.
Nor, for the reasons stated, can we regard the gathering and reporting of information, through the cooperation of the defendants in this case, with reference to production, price of cement in actual closed specific job contracts and of transportation costs from chief points of production in the cement trade, as an unlawful restraint of commerce, even though it be assumed that the result of the gathering and reporting of such information tends to bring about uniformity in price.
and may be enjoined, but the government does not rely on any agreement or understanding for price maintenance. It relies, rather, upon the necessary leveling effect upon prices of knowledge disseminated among sellers as to some of the important factors which enter into price. It is conceded that there is a substantial uniformity of price of cement. Variations of price by one manufacturer are usually promptly followed by like variation throughout the trade. As already indicated, the larger proportion of the product of the defendants is distributed through dealers, and prices to dealers are not reported to or through the Association. It is contended by the government that the report of prices on specific job contracts in effect informs the members of the Association of prices to dealers, since the differential allowed to dealers is well known in the trade. However this may be, the fact is that any change in quotation of price to dealers promptly becomes well known in the trade through reports of salesmen, agents, and dealers of various manufacturers. It appears to be undisputed that there were frequent changes in price, and uniformity has resulted not from maintaining the price at fixed levels, but from the prompt meeting of changes in prices by competing sellers.
the price of cement would approach uniformity in a normal market in the absence of all combinations between the manufacturers."
We realize also that uniformity of price may be the result of agreement or understanding, and that an artificial price level not related to the supply and demand of a given commodity may be evidence from which such agreement or understanding or some concerted action of sellers operating to restrain commerce may be inferred. But here, the government does not rely upon agreement or understanding, and this record wholly fails to establish, either directly or by inference, any concerted action other than that involved in the gathering and dissemination of pertinent information with respect to the sale and distribution of cement to which we have referred, and it fails to show any effect on price and production except such as would naturally flow from the dissemination of that information in the trade and its natural influence on individual action.
For reasons stated in United States v. Maple Flooring Association, supra, such activities are not, in themselves, unlawful restraints upon commerce, and are not prohibited by the Sherman Act.
THE CHIEF JUSTICE and MR. JUSTICE SANFORD and MR. JUSTICE McREYNOLDS, in a separate opinion, dissented from the opinions of the majority in this case and the next preceding. See ante, pp. 268 U. S. 586-587.

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