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United States Vs E I Du Pont De Nemours and Co - Citation 99044 - Court Judgment | LegalCrystal
United States Vs. E. I. Du Pont De Nemours and Co. - Court Judgment
LegalCrystal Citation legalcrystal.com/99044
Case Number 351 U.S. 377
Respondent E. I. Du Pont De Nemours and Co.
united states v. e. i. du pont de nemours & co. - 351 u.s. 377 (1956) u.s. supreme court united states v. e. i. du pont de nemours & co., 351 u.s. 377 (1956) united states v. e. i. du pont de nemours & co. no. 5 argued october 11, 1955 decided june 11, 1956 351 u.s. 377 appeal from the united states district court for the district of delaware syllabus in a civil action under § 4 of the sherman act, the government charged that appellee had monopolized interstate commerce in cellophane in violation of § 2 of the act. during the relevant period, appellee produced almost 75% of the cellophane sold in the united states; but cellophane constituted less than 20% of all flexible packaging materials sold in the united.....
U.S. Supreme Court United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377 (1956)
Held: the judgment is affirmed. Pp. 351 U. S. 378 -404.
(a) The ultimate consideration in determining whether an alleged monopolist violates § 2 of the Sherman Act is whether the defendant controls prices and competition in the market for such part of trade or commerce as he is charged with monopolizing. P. 351 U. S. 380 .
(b) A party has monopoly power contrary to § 2 of the Sherman Act if it has, over "any part of the trade or commerce among the several States," a power of controlling prices or unreasonably restricting competition. Pp. 351 U. S. 389 -394.
(c) Determination of the competitive market for commodities depends upon how different from one another are the offered commodities in character or use, how far buyers will go to substitute one commodity for another. P. 351 U. S. 393 .
(d) It is not a proper interpretation of the Sherman Act to require that products be fungible to be considered in the relevant market. P. 351 U. S. 394 .
(e) Where there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist merely because the product said to be monopolized differs from others. P. 351 U. S. 394 .
declared than that commodities reasonably interchangeable by consumers for the same purposes make up that "part of the trade or commerce" monopolization of which may be illegal. P. 351 U. S. 395 .
(g) Cellophane's interchangeability with numerous other materials suffices to make it a part of the market for flexible packaging materials. Pp. 351 U. S. 395 -400.
(h) On the record in this case, it cannot be said that the variations in price between cellophane and other flexible packaging materials prevent them from being competitive or gave appellee monopoly power over prices. Pp. 351 U. S. 400 -401.
(i) On the record in this case, it cannot be said that appellee has excluded competitors from the flexible packaging material market. Pp. 351 U. S. 402 -404.
The United States brought this civil action under § 4 of the Sherman Act against E. I. du Pont de Nemours and Company. The complaint, filed December 13, 1947, in the United States District Court for the District of Columbia, charged du Pont with monopolizing, attempting to monopolize and conspiracy to monopolize interstate commerce in cellophane and cellulosic caps and bands in violation of § 2 of the Sherman Act. Relief by injunction was sought against defendant and its officers, forbidding monopolizing or attempting to monopolize interstate trade in cellophane. The prayer also sought action to dissipate the effect of the monopolization by divestiture or other steps. On defendant's motion under 28 U.S.C. § 1404(a), the case was transferred to the District of
Delaware. After a lengthy trial, judgment was entered for du Pont on all issues. [ Footnote 1 ]
The Government's direct appeal here does not contest the findings that relate to caps and bands, nor does it raise any issue concerning the alleged attempt to monopolize or conspiracy to monopolize interstate commerce in cellophane. The appeal, as specifically stated by the Government, "attacks only the ruling that du Pont has not monopolized trade in cellophane." At issue for determination is only this alleged violation by du Pont of § 2 of the Sherman Act. [ Footnote 2 ]
During the period that is relevant to this action, du Pont produced almost 75% of the cellophane sold in the United States, and cellophane constituted less than 20% of all "flexible packaging material" sales. This was the designation accepted at the trial for the materials listed in Finding 280, Appendix A, this opinion, post, p. 351 U. S. 405 .
The Government asserts that cellophane and other wrapping materials are neither substantially fungible nor like priced. For these reasons, it argues that the market for other wrappings is distinct from the market for cellophane, and that the competition afforded cellophane by other wrappings is not strong enough to be considered in determining whether du Pont has monopoly powers. Market delimitation is necessary under du Pont's theory to determine whether an alleged monopolist violates § 2. The ultimate consideration in such a determination is whether the defendants control the price and competition in the market for such part of trade or commerce as they are charged with monopolizing. Every manufacturer is the sole producer of the particular commodity it makes, but its control in the above sense of the relevant market depends upon the availability of alternative commodities for buyers -- i.e., whether there is a cross-elasticity of demand between cellophane and the other wrappings. This interchangeability is largely gauged by the purchase of competing products for similar uses considering the price, characteristics and adaptability of the
The burden of proof, of course, was upon the Government to establish monopoly. See United States v. Aluminum Co. of America, 148 F.2d 416, 423, 427. This the trial court held the Government failed to do, upon findings of fact and law stated at length by that court. For the United States to succeed in this Court now, it must show that erroneous legal tests were applied to essential findings of fact or that the findings themselves were "clearly erroneous" within our rulings on Rule 52(a) of the Rules of Civil Procedure. See United States v. United States Gypsum Co., 333 U. S. 364 , 333 U. S. 393 -395. We do not try the facts of cases de novo. Timken Roller Bearing Co. v. United States, 341 U. S. 593 , 341 U. S. 597 . [ Footnote 3 ]
I. Factual Background. -- For consideration of the issue as to monopolization, a general summary of the development of cellophane is useful.
It seems to be agreed, however, that the disclosures of these early patents were not sufficient to make possible the manufacture of commercial cellophane. The inadequacy of the patents is partially attributed to the fact that the essential machine (the Hopper) was improved after it was patented. But more significant was the failure of these patents to disclose the actual technique of the process. This technique included the operational data acquired by experimentation. [ Footnote 4 ]
In 1917, Brandenberger assigned his patents to La Cellophane Societe Anonyme and joined that organization.
Subsequently, du Pont and La Cellophane licensed several foreign companies, allowing them to manufacture and vend cellophane in limited areas. Finding 601. Technical exchange agreements with these companies were entered into at the same time. However, in 1940, du Pont notified these foreign companies that sales might be made in any country, [ Footnote 5 ] and, by 1948, all the technical exchange agreements were canceled.
In 1931, Sylvania began the manufacture of moisture-proof cellophane under its own patents. After negotiations over patent rights, du Pont, in 1933, licensed Sylvania to manufacture and sell moisture-proof cellophane produced
Between 1928 and 1950, du Pont's sales of plain cellophane increased from $3,131,608 to $9,330,776. Moisture-proof sales increased from $603,222 to $89,850,416, although prices were continuously reduced. Finding 337. It could not be said that this immense increase in use was solely or even largely attributable to the superior quality of cellophane, or to the technique or business acumen of du Pont, though doubtless those factors were important. The growth was a part of the expansion of the commodity packaging habits of business, a by-product of general efficient competitive merchandising to meet modern demands. The profits, which were large, apparently arose from this trend in marketing, the development of the industrial use of chemical research and production of synthetics, rather than from elimination of other producers from the relevant market. That market is discussed later at p. 351 U. S. 394 . Tables appearing at the end of this opinion (Appendix A, Findings 279-292, inclusive, post, pp. 405-410) show the uses of cellophane in comparison with other wrappings. [ Footnote 6 ] See the discussion infra, p. 351 U. S. 399 et seq.
II. The Sherman Act and the Courts. -- The Sherman Act has received long and careful application by this Court to achieve for the Nation the freedom of enterprise
Appalachian Coals, Inc. v. United States, 288 U. S. 344 , 288 U. S. 359 -360. Compare, on remedy, Judge Wyzanski in United States v. United Shoe Machinery Corp., 110 F.Supp. 295, 348. It was said in Standard Oil Co. v. United States, 221 U. S. 1 , 221 U. S. 50 , that fear of the power of rapid accumulations of individual and corporate wealth from the trade and industry of a developing national economy caused its passage. Units of traders and producers snowballed by combining into so-called "trusts." Competition was threatened. Control of prices was feared. Individual initiative was dampened. While the economic picture has changed, large aggregations or private capital, with power attributes, continue. Mergers go forward. Industries such as steel, automobiles, tires, chemicals, have only a few production organizations. A considerable size is often essential for efficient operation in research, manufacture and distribution.
Judicial construction of anti-trust legislation has generally been left unchanged by Congress. This is true of the Rule of Reason. [ Footnote 7 ] While it is fair to say that the Rule
is imprecise, its application in Sherman Act litigation, as directed against enhancement of price or throttling of competition, has given a workable content to antitrust legislation. See note 18 infra. It was judicially declared a proper interpretation of the Sherman Act in 1911, with a strong, clear-cut dissent challenging its soundness on the ground that the specific words of the Act covered every contract that tended to restrain or monopolize. [ Footnote 8 ] This Court has not receded from its position on the Rule. [ Footnote 9 ] There is not, we think, any inconsistency between it and the development of the judicial theory that agreements as to maintenance of prices or division of territory are in themselves a violation of the Sherman Act. [ Footnote 10 ] It is logical that some agreements and practices are invalid per se, while others are illegal only as applied to particular situations. [ Footnote 11 ]
Difficulties of interpretation have arisen in the application of the Sherman Act in view of the technical changes in production of commodities and the new distribution practices. [ Footnote 12 ] They have called forth reappraisal of the effect of the Act by business and government. [ Footnote 13 ]
That reappraisal has so far left the problems with which we are here concerned to the courts, rather than to administrative agencies. Cf. Federal Trade Commission Act, 38 Stat. 721. It is true that Congress has made exceptions to the generality of monopoly prohibitions, exceptions that spring from the necessities or conveniences of certain industries or business organizations, or from the characteristics of the members of certain groups of citizens. [ Footnote 14 ] But those exceptions express legislative
determination of the national economy's need of reasonable limitations on cutthroat competition or prohibition of monopoly. "[W]here exceptions are made, Congress should make them." United States v. Line Material Co., 333 U. S. 287 , 333 U. S. 310 . They modify the reach of the Sherman Act, but do not change its prohibition of other monopolies. We therefore turn to § 2 ( note 2 supra ) to determine whether du Pont has violated that section by its dominance in the manufacture of cellophane in the before-stated circumstances.
III. The Sherman Act, § 2 -- Monopolization. -- The only statutory language of § 2 pertinent on this review is: "Every person who shall monopolize . . . shall be deemed guilty. . . ." This Court has pointed out that monopoly at common law was a grant by the sovereign to any person for the sole making or handling of anything so that others were restrained or hindered in their lawful trade. Standard Oil Co. v. United States, 221 U. S. 1 , 221 U. S. 51 . However, as in England, it came to be recognized here that acts bringing the evils of authorized monopoly -- unduly diminishing competition and enhancing prices -- were undesirable, id. at 221 U. S. 56 -58, and were declared illegal by § 2. Id. at 221 U. S. 60 -62. Our cases determine that a party has monopoly power if it has, over "any part of the trade or commerce among the several states," a power of controlling prices or unreasonably restricting competition. Id. at 221 U. S. 85 .
Senator Hoar, in discussing § 2, pointed out that monopoly involved something more than extraordinary commercial success, "that it involved something like the use of means which made it impossible for other persons to engage in fair competition." [ Footnote 15 ] This exception to the
Sherman Act prohibitions of monopoly power is perhaps the monopoly "thrust upon" one of United States v. Aluminum Co. of America, 148 F.2d 416, 429, left as an undecided possibility by American Tobacco Co. v. United States, 328 U. S. 781 . Compare United States v. United Shoe Machinery Corp., 110 F.Supp. 295, 342. [ Footnote 16 ]
If cellophane is the "market" that du Pont is found to dominate, it may be assumed it does have monopoly power over that "market." [ Footnote 17 ] Monopoly power is the power to control prices or exclude competition. [ Footnote 18 ] It seems apparent
that du Pont's power to set the price of cellophane has been limited only by the competition afforded by other flexible packaging materials. Moreover, it may be practically impossible for anyone to commence manufacturing cellophane without full access to du Pont's technique. However, du Pont has no power to prevent competition from other wrapping materials. The trial court consequently had to determine whether competition from the other wrappings prevented du Pont from possessing monopoly power in violation of § 2. Price and competition are so intimately entwined that any discussion of theory must treat them as one. It is inconceivable that price could be controlled without power over competition, or vice versa. This approach to the determination of monopoly power is strengthened by this Court's conclusion in prior cases that, when an alleged monopolist has power over price and competition, an intention to monopolize in a proper case may be assumed. [ Footnote 19 ]
If a large number of buyers and sellers deal freely in a standardized product such as salt or wheat, we have complete or pure competition. Patents, on the other hand, furnish the most familiar type of classic monopoly. As the producers of a standardized product bring about significant differentiations of quality, design, or packaging in the product that permit differences of use, competition becomes, to a greater or less degree, incomplete, and the producer's power over price and competition greater over his article and its use, according to the differentiation he is able to create and maintain. A retail seller may have, in one sense, a monopoly on certain trade because of location, as an isolated country store or filling station, or because no
one else makes a product of just the quality or attractiveness of his product, as, for example, in cigarettes. Thus, one can theorize that we have monopolistic competition in every nonstandardized commodity, with each manufacturer having power over the price and production of his own product. [ Footnote 20 ] However, this power that, let us say, automobile or soft-drink manufactures have over their trademarked products is not the power that makes an illegal monopoly. Illegal power must be appraised in terms of the competitive market for the product. [ Footnote 21 ]
Determination of the competitive market for commodities depends on how different from one another are the offered commodities in character or use, how far buyers will go to substitute one commodity for another. For example, one can think of building materials as in commodity competition, but one could hardly say that brick competed with steel or wood or cement or stone in the meaning of Sherman Act litigation; the products are too different. This is the inter-industry competition emphasized by some economists. See Lilienthal, Big Business, c. 5. On the other hand, there are certain differences in the formulae for soft drinks, but one can hardly say that each one is an illegal monopoly. Whatever the market may be, we hold that control of price or competition establishes the existence of monopoly power under § 2. Section 2 requires the application of a reasonable approach in determining the existence of monopoly power just as surely as did § 1. This, of course, does not mean that there can be a reasonable monopoly. See notes 7 and | 7 and S. 377fn9|>9, supra. Our next step is to determine whether du Pont has monopoly power over cellophane -- that is, power over its price in relation to or competition with Ă 7 and S. 394Ă other commodities. The charge was monopolization of cellophane. The defense, that cellophane was merely a part of the relevant market for flexible packaging materials.
IV. The Relevant Market. -- When a product is controlled by one interest, without substitutes available in the market, there is monopoly power. Because most products have possible substitutes, we cannot, as we said in Times-Picayune Pub. Co. v. United States, 345 U. S. 594 , 345 U. S. 612 , give "that infinite range" to the definition of substitutes. Nor is it a proper interpretation of the Sherman Act to require that products be fungible to be considered in the relevant market.
But where there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist merely because the product said to be monopolized differs from others. If it were not so, only physically identical products would be a part of the market. To accept the Government's argument, we would have to conclude that the manufactures of plain, as well as moisture-proof, cellophane were monopolists, and so with films such as Pliofilm, foil, glassine, polyethylene, and Saran, for each of these wrapping materials is distinguishable. These were all exhibits in the case. New wrappings appear, generally similar to cellophane -- is each a monopoly? What is called for is an appraisal of the "cross-elasticity" of demand in the trade. See Note, 54 Col.L.Rev. 580.
The varying circumstances of each case determine the result. [ Footnote 22 ] In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that "part of the trade or commerce" monopolization of which may be illegal. As respects flexible packaging materials, the market geographically is nationwide.
Industrial activities cannot be confined to trim categories. Illegal monopolies under § 2 may well exist over limited products in narrow fields where competition is eliminated. [ Footnote 23 ] That does not settle the issue here. In
determining the market under the Sherman Act, it is the use or uses to which the commodity is put that control. The selling price between commodities with similar uses and different characteristics may vary, so that the cheaper product can drive out the more expensive. Or the superior quality of higher priced articles may make dominant the more desirable. Cellophane costs more than many competing products, and less than a few. But, whatever the price, there are various flexible wrapping materials that are bought by manufacturers for packaging their goods in their own plants or are sold to converters who shape and print them for use in the packaging of the commodities to be wrapped.
Cellophane differs from other flexible packaging materials. From some it differs more than from others. The basic materials from which the wrappings are made and the advantages and disadvantages of the products to the packaging industry are summarized in Findings 62 and 63. They are aluminum, cellulose acetate, chlorides, wood pulp, rubber hydrochloride, and ethylene gas. It will adequately illustrate the similarity in characteristics of the various products by noting here Finding 62 as to glassine. [ Footnote 24 ] Its use is almost as extensive as cellophane, Appendix C, post, p. 412, and many of its characteristics equally or more satisfactory to users. [ Footnote 25 ]
"Other flexible wrapping materials fall into four major categories: (1) opaque nonmoisture-proof wrapping paper designed primarily for convenience and protection in handling packages; (2) moisture-proof films of varying degrees of transparency designed primarily either to protect, or to display and protect, the products they encompass; (3) nonmoisture-proof transparent films designed primarily to display and to some extent protect, but which obviously do a poor protecting job where exclusion or retention of moisture is important; and (4) moisture-proof materials other than films of varying degrees of transparency (foils and paper products) designed to protect and display. [ Footnote 26 ]"
An examination of Finding 59, Appendix, B, post, p. 351 U. S. 411 , will make this clear.
But, despite cellophane's advantages, it has to meet competition from other materials in every one of its uses. Cellophane's principal uses are analyzed in Appendix A, Findings 281 and 282. Food products are the chief outlet, with cigarettes next. The Government makes no challenge to Finding 283 that cellophane furnishes less than 7% of wrappings for bakery products, 25% for candy, 32% for snacks, 35% for meats and poultry, 27% for crackers and biscuits, 47% for fresh produce, and 34% for frozen foods. Seventy-five to eighty percent of cigarettes are wrapped in cellophane. Finding 292. Thus, cellophane shares the packaging market with others. The over-all result is that cellophane accounts for 17.9% of flexible wrapping materials, measured by the wrapping surface. Finding 280, Appendix A., post, p. 351 U. S. 405 .
Moreover, a very considerable degree of functional interchangeability exists between these products, as is shown by the tables of Appendix A and Findings 150-278. [ Footnote 27 ] It will be noted, Appendix B, that, except as to permeability to gases, cellophane has no qualities that are not possessed by a number of other materials. Meat will do as an example of interchangeability. Findings 205-220. Although du Pont's sales to the meat industry have reached 19,000,000 pounds annually, nearly 35%, this volume is attributed "to the rise of self-service retailing of fresh meat." Findings 212 and 283. In fact, since the popularity of self-service meats, du Pont has lost "a considerable proportion" of this packaging business to Pliofilm. Finding 215. Pliofilm is more expensive than cellophane, but its superior physical characteristics apparently offset cellophane's price advantage. While retailers
An element for consideration as to cross-elasticity of demand between products is the responsiveness of the sales of one product to price changes of the other. [ Footnote 28 ] If a slight decrease in the price of cellophane causes a considerable number of customers of other flexible wrappings to switch to cellophane, it would be an indication that a high cross-elasticity of demand exists between them -- that the products compete in the same market. The court below held that the "[g]reat sensitivity of customers in the flexible packaging markets to price or quality changes" prevented du Pont from possessing monopoly control over price. 118 F.Supp. at 207. The record sustains these findings. See references made by the trial court in Findings 123-149.
The Government stresses the fact that the variation in price between cellophane and other materials demonstrates they are noncompetitive. As these products are
all flexible wrapping materials, it seems reasonable to consider, as was done at the trial, their comparative cost to the consumer in terms of square area. This can be seen in Finding 130, Appendix C. Findings as to price competition are set out in the margin. [ Footnote 29 ] Cellophane costs two or three times as much, surface measure, as its chief competitors for the flexible wrapping market, glassine and grease-proof papers. Other forms of cellulose wrappings and those from other chemical or mineral substances, with the exception of aluminum foil, are more expensive. The uses of these materials, as can be observed by Finding 283 in Appendix A, are largely to wrap small packages for retail distribution. The wrapping is a relatively small proportion of the entire cost of the article. [ Footnote 30 ] Different producers need different qualities in wrappings, and their need may vary from time to time as their products undergo change. But the necessity for flexible wrappings is the central and unchanging demand. We cannot say that these differences in cost gave du Pont monopoly power over prices in view of the findings of fact on that subject. [ Footnote 31 ]
It is the variable characteristics of the different flexible wrappings and the energy and ability with which the manufacturers push their wares that determine choice. A glance at "Modern Packaging," a trade journal, will give, by its various advertisements, examples of the competition among manufacturers for the flexible packaging market. The trial judge visited the 1952 Annual Packaging
"lack of power to inhibit entry into this so-called market [ i.e., flexible packaging materials], comprising widely disparate products, is no indicium of absence of power to exclude competition in the manufacture and sale of cellophane."
The record shows the multiplicity of competitors and the financial strength of some with individual assets running to the hundreds of millions. Findings 66-72. Indeed, the
[For concurring opinion of MR. JUSTICE FRANKFURTER, see post, p. 351 U. S. 413 .]
[For dissenting opinion of THE CHIEF JUSTICE, joined by MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS, see post, p. 351 U. S. 414 .]
VIII . RESULTS OF DU PONT'S COMPETITION
United States v. E. I. du Pont de Nemours & Co., 118 F.Supp. 41. The opinion occupies 192 pages of the volume. The Findings of Fact, 854 in number, cover 140 pages. The citations to findings in our opinion, where references are not made to our appendices ( post, p. 351 U. S. 405 et seq. ), are to the Federal Supplement. We noted probable jurisdiction October 14, 1954, 348 U.S. 806.
See also United States v. Yellow Cab Co., 338 U. S. 338 ; United States v. Oregon State Medical Soc., 343 U. S. 326 , 343 U. S. 339 ; United Shoe Machinery Corp. v. United States, 347 U. S. 521 .
This was set forth and defined in Standard Oil Co. v. United States, 221 U. S. 1 , 221 U. S. 58 -62. It was based on the generality of §§ 1 and 2 of the Sherman Act, which were said to be "broad enough to embrace every conceivable contract or combination which could be made concerning trade or commerce" and therefore required a "standard." The standard of reason, drawn from the common law, was adopted. See Adams, The "Rule of Reason," 63 Yale L.J. 348; and Oppenheim, Federal Antitrust Legislation, 50 Mich.L.Rev. at 1156, notes 11 and 13.
United States v. Columbia Steel Co., 334 U. S. 495 , 334 U. S. 529 ; Times-Picayune Pub. Co. v. United States, 345 U. S. 594 , 345 U. S. 614 -615.
See United States v. Trenton Potteries Co., 273 U. S. 392 ; American Tobacco Co. v. United States, 328 U. S. 781 , 328 U. S. 813 ; Timken Roller Bearing Co. v. United States, 341 U. S. 593 .
United States v. Columbia Steel Co., 334 U. S. 495 , 334 U. S. 526 .
See p. 351 U. S. 381 .
Compare Standard Oil Co. v. United States, 221 U. S. 1 , 221 U. S. 74 , and American Tobacco Co. v. United States, 328 U. S. 781 , 328 U. S. 813 -814; United States v. Socony-Vacuum Oil Co., 310 U. S. 150 , 310 U. S. 226 , last paragraph, note 59.
See American Tobacco Co. v. United States, 328 U. S. 781 , 328 U. S. 811 ; Apex Hosiery Co. v. Leader, 310 U. S. 469 , 310 U. S. 501 ; Standard Oil Co. v. United States, 221 U. S. 1 , 221 U. S. 58 . See Stocking and Mueller, The Cellophane Case and the New Competition, XLV American Economic Rev. 29, 54; Cole, An Appraisal of Economic Change, XLIV American Economic Rev. 35, 61; Wilcox, TNEC Monograph No. 21, pp. 9, 11; The Schwartz Dissent, 1 Antitrust Bulletin at 39; Report of Attorney General's National Committee to Study the Antitrust Laws, p. 43; Neal, The Clayton Act and the Trans-America Case, 5 Stan.L.Rev. 179, 205, 213.
United States v. Columbia Steel Co., 334 U. S. 495 , 334 U. S. 525 ; United States v. Paramount Pictures, 334 U. S. 131 , 334 U. S. 173 ; Apex Hosiery Co. v. Leader, 310 U. S. 469 , 310 U. S. 501 ; cf. Rostow, 43 Ill.L.Rev. 745, 753-763; Oppenheim, Federal Antitrust Legislation, 50 Mich.L.Rev. 1139, 1193.
See United States v. Columbia Steel Co., 334 U. S. 495 , 334 U. S. 527 ; Times-Picayune Pub. Co. v. United States, 345 U. S. 594 , 345 U. S. 610 ; Standard Oil Co. v. United States, 283 U. S. 163 , 283 U. S. 179 .
Maple Flooring Assn. v. United States, 268 U. S. 563 , 268 U. S. 579 :
The Government notes that the prohibitions of § 2 of the Sherman Act have often been extended to producers of single products, and to businesses of limited scope. But the cases to which the Government refers us were not concerned with the problem that is now before the Court. In Story Parchment Co. v. Paterson Parchment Paper Co., 282 U. S. 555 , a conspiracy to monopolize trade in vegetable parchment was held to be a violation of § 2. Parchment paper is obviously no larger a part of commerce than cellophane. Recovery, however, was based on proven allegations of combination and conspiracy to monopolize, and the scope of the market was not in issue. 282 U.S. at 282 U. S. 560 . Similarly, Indiana Farmer's Guide Pub. Co. v. Prairie Farmer Publishing Co., 293 U. S. 268 , ruled that a combination or conspiracy for the purpose of monopolizing the farm paper business in the north central part of the Nation would be illegal by reason of the second section of the Sherman Act. Lorain Journal Co. v. United States, 342 U. S. 143 , a case not cited by the Government, was concerned with even a smaller geographical area (dissemination of news in a community and surrounding territory). But the Court held only that defendant had attempted to monopolize -- not that he had in fact monopolized. Also, this Court found in United States v. Columbia Steel Co., 334 U. S. 495 , that the "relevant competitive market" for determining whether there had been an unreasonable restraint of trade (or an attempt to monopolize) was the market for "rolled steel" products in an 11-state area. Women's dresses of "original design," Fashion Originators' Guild of America v. Federal Trade Comm'n, 312 U. S. 457 ; "first run" motion pictures, United States v. Paramount Pictures, 334 U. S. 131 ; the news services of one news agency, United States v. Associated Press, 52 F.Supp. 362, aff'd, 326 U. S. 326 U.S. 1, and newspaper advertising, as distinguished from other means of news dissemination, Times-Picayune Pub. Co. v. United States, 345 U. S. 594 , have all been designated as parts of commerce. All four were concerned only with the question of whether there had been an attempt to monopolize. United States v. Aluminum Co. of America, 148 F.2d 416, did involve the question of monopolization. Judge Hand found that the relevant market for measuring Alcoa's power was the market for "virgin" aluminum; he refused to consider the close competition offered by "secondary" (used) aluminum. The reason for the narrow definition was that Alcoa's control over virgin aluminum permitted it to regulate the supply of used aluminum even though the latter should be actually sold by a competitor. Consequently, the case is not particularly helpful in the problem of market definition now before the Court.
" Glassine "
Board of Trade of City of Chicago v. United States, 246 U. S. 231 , 246 U. S. 238 .
This case, like many under the Sherman Act, turns upon the proper definition of the market. In defining the market in which du Pont's economic power is to be measured, the majority virtually emasculate § 2 of the Sherman Act. They admit that "cellophane combines the desirable elements of transparency, strength and cheapness more definitely than any of" a host of other packaging materials. Yet they hold that all of those materials are so indistinguishable from cellophane as to warrant their inclusion in the market. We cannot agree that cellophane, in the language of Times-Picayune Publishing Co. v. United States, 345 U. S. 594 , 345 U. S. 613 , is "the self-same product" as glassine, grease-proof and vegetable parchment papers, waxed papers, sulphite papers,
aluminum foil, cellulose acetate, and Pliofilm and other films. [ Footnote 2/1 ]
The majority opinion states that "[i]t will adequately illustrate the similarity in characteristics of the various products by noting here Finding 62 as to glassine." But Finding 62 merely states the respects in which the selected flexible packaging materials are as satisfactory as cellophane; it does not compare all the physical properties of cellophane and other materials. The Table incorporated in Finding 59 does make such a comparison, and enables us to note cellophane's unique combination of qualities lacking among less expensive materials in varying degrees. [ Footnote 2/2 ] A glance at this Table reveals that cellophane has a high bursting strength, while glassine's is low; that cellophane's permeability to gases is lower than that of glassine; and that both its transparency and its resistance to grease and oils are greater than glassine's.
If the conduct of buyers indicated that glassine, waxed and sulphite papers, and aluminum foil were actually "the self-same products" as cellophane, the qualitative differences demonstrated by the comparison of physical properties in Finding 59 would not be conclusive. But the record provides convincing proof that businessmen did not so regard these products. During the period covered by the complaint (1923-1947) cellophane enjoyed phenomenal growth. Du Pont's 1924 production was 361,249 pounds, which sold for.$1,306,662. Its 1947 production was 133,502,858 pounds, which sold for $55,339,626. Findings 297 and 337. Yet, throughout this period, the price of cellophane was far greater than that of glassine, waxed paper, or sulphite paper. Finding 136 states that, in 1929, cellophane's price was seven times that of glassine, in 1934, four times, and in 1949 still more than twice
The inference yielded by the conduct of cellophane buyers is reinforced by the conduct of sellers other than du Pont. Finding 587 states that Sylvania, the only other cellophane producer, absolutely and immediately followed every du Pont price change, even dating back its price list to the effective date of du Pont's change. Producers of glassine and waxed paper, on the other hand, displayed apparent indifference to du Pont's repeated and substantial price cuts. DX-994 shows that, from 1924 to 1932, du Pont dropped the price of plain cellophane 84%, while the price of glassine remained constant. [ Footnote 2/3 ] And during the period 1933-1946, the prices for glassine and waxed paper actually increased in the face of a further 21% decline in the price of cellophane. If "shifts of business" due to "price sensitivity" had been substantial, glassine and waxed paper producers who wanted to stay in business would have been compelled by market forces to meet du Pont's price challenge, just as Sylvania was. The majority correctly point out that:
Surely there was more than "a slight decrease in the price of cellophane" during the period covered by the complaint. That producers of glassine and waxed paper remained dominant in the flexible packaging materials market without meeting cellophane's tremendous price cuts convinces us that cellophane was not in effective competition with their products. [ Footnote 2/4 ]
Certainly du Pont itself shared our view. From the first, du Pont recognized that it need not concern itself with competition from other packaging materials. For example, when du Pont was contemplating entry into cellophane production, its Development Department reported that glassine "is so inferior that it belongs in an entirely different class, and has hardly to be considered as a competitor of cellophane." [ Footnote 2/5 ] This was still du Pont's view in 1950, when its survey of competitive prospects wholly omitted reference to glassine, waxed paper, or sulphite paper, and stated that "[c]ompetition for du Pont cellophane will come from competitive cellophane and from non-cellophane films made by us or by others." [ Footnote 2/6 ]
Du Pont's every action was directed toward maintaining dominance over cellophane. Its 1923 agreements with La Cellophane, the French concern which first produced commercial cellophane, gave du Pont exclusive
North and Central American rights to cellophane's technology, manufacture and sale, and provided, without any limitation in time, that all existing and future information pertaining to the cellophane process be considered "secret and confidential," and be held in an exclusive common pool. [ Footnote 2/7 ] In its subsequent agreements with foreign licensees, du Pont was careful to preserve its continental market inviolate. [ Footnote 2/8 ] In 1929, while it was still the sole domestic producer of cellophane, du Pont won its long struggle to raise the tariff from 25% to 60%, ad valorem, on cellophane imports, [ Footnote 2/9 ] substantially foreclosing foreign competition. When Sylvania became the second American cellophane producer the following year and du Pont filed suit claiming infringement of its moisture-proof patents, they settled the suit by entering into a cross-licensing agreement. Under this agreement, du Pont obtained the right to exclude third persons from use of any patentable moisture-proof invention made during the next 15 years by the sole other domestic cellophane producer, and, by a prohibitive royalty provision, it limited Sylvania's moisture-proof production to approximately
20% of the industry's moisture-proof sales. [ Footnote 2/10 ] The record shows that du Pont and Sylvania were aware that, by settling the infringement suit, they avoided the possibility that the courts might hold the patent claims invalid, and thereby open cellophane manufacture to additional competition. [ Footnote 2/11 ] If close substitutes for cellophane had been commercially available, du Pont, an enlightened enterprise, would not have gone to such lengths to control cellophane.
As predicted by its 1923 market analysis, [ Footnote 2/12 ] du Pont's dominance in cellophane proved enormously profitable from the outset. After only five years of production, when du Pont bought out the minority stock interests in its cellophane subsidiary, it had to pay more than fifteen times the original price of the stock. [ Footnote 2/13 ] But such success was not limited to the period of innovation, limited sales, and complete domestic monopoly. A confidential du Pont report shows that, during the period 1937-1947, despite great expansion of sales, du Pont's "operative return" (before taxes) averaged 31%, while its average "net return" (after deduction of taxes, bonuses, and fundamental research expenditures) was 15.9%. [ Footnote 2/14 ] Such profits provide a powerful incentive for the entry of competitors. [ Footnote 2/15 ]
Yet from 1924 to 1951, only one new firm, Sylvania, was able to begin cellophane production. And Sylvania could not have entered if La Cellophane's secret process had not been stolen. [ Footnote 2/16 ] It is significant that, for 15 years, Olin Industries, a substantial firm, was unsuccessful in its attempt to produce cellophane, finally abandoning the project in 1944 after having spent about $1,000,000. [ Footnote 2/17 ] When the Government brought this suit, du Pont, "to reduce the hazard of being judged to have a monopoly of the U.S. cellophane business," [ Footnote 2/18 ] decided to let Olin enter the industry. Despite this demonstration of the control achieved by du Pont through its exclusive dominion over the cellophane process, the District Court found that du Pont could not exclude competitors from the manufacture of cellophane. Finding 727. This finding is "clearly erroneous." [ Footnote 2/19 ] The majority avoid
Finding 712. This further reveals its misconception of the antitrust laws. A monopolist seeking to maximize profits cannot raise prices "arbitrarily." Higher prices, of course, mean smaller sales, but they also mean higher per-unit profit. Lower prices will increase sales, but reduce per-unit profit. Within these limits, a monopolist has a considerable degree of latitude in determining which course to pursue in attempting to maximize profits. The trial judge thought that, if du Pont raised its price, the market would "penalize" it with smaller profits as well as lower sales. [ Footnote 2/20 ] Du Pont proved him wrong. When 1947 operating earnings dropped below 26% for the first time in 10 years, it increased cellophane's price 7% and boosted its earnings in 1948. Du Pont's division manager then reported that,
"If an operative return of 31% is considered inadequate, then an upward revision in prices will be necessary to improve the return. [ Footnote 2/21 ]"
It is this latitude with respect to price, this broad power of choice, that the antitrust
laws forbid. [ Footnote 2/22 ] Du Pont's independent pricing policy and the great profits consistently yielded by that policy leave no room for doubt that it had power to control the price of cellophane. The findings of fact cited by the majority cannot affect this conclusion. [ Footnote 2/23 ] For they merely demonstrate that, during the period covered by the complaint, du Pont was a "good monopolist," i.e., that it did not engage in predatory practices, and that it chose to maximize profits by lowering price and expanding sales. Proof of enlightened exercise of monopoly power certainly does not refute the existence of that power.
The majority opinion purports to reject the theory of "inter-industry competition." Brick, steel, wood, cement, and stone, it says, are "too different" to be placed in the same market. But cellophane, glassine, wax papers, sulphite papers, grease-proof and vegetable parchment papers, aluminum foil, cellulose acetate, Pliofilm, and other films are not "too different," the opinion concludes. T he majority approach would apparently enable a monopolist of motion picture exhibition to avoid Sherman Act consequences by showing that motion pictures compete in substantial measure with legitimate theater, television, radio, sporting events, and other forms of entertainment. Here, too, "shifts of business" undoubtedly accompany fluctuations in price, and "there are market alternatives that buyers may readily use for their purposes." Yet, in United States v. Paramount Pictures, 334 U. S. 131 , where the District Court had confined the relevant market to that for nationwide movie exhibition, this Court remanded the case to the District Court with directions to determine whether there was a monopoly on the part of the five major distributors
334 U.S. at 334 U. S. 172 . Similarly, it is difficult to square the majority view with United States v. Aluminum Co. of America, 148 F.2d 416, a landmark § 2 case. There, Judge Learned Hand, reversing a district court, held that the close competition which "secondary" (used) aluminum offered to "virgin" aluminum did not justify including the former within the relevant market for measuring Alcoa's economic power. Against these and other precedents, which the Court's opinion approves but does not follow, the formula of "reasonable interchangeability," as applied by the majority, appears indistinguishable from the theory of "inter-industry competition." The danger in it is that, as demonstrated in this case, it is "perfectly compatible with a fully monopolized economy." [ Footnote 2/24 ]
"In the interest of rivalry that extends to all buyers and all uses, competition among rivals within the industry is always important. [ Footnote 2/25 ]"
(Emphasis added.) Furthermore, those buyers who have "reasonable alternatives" between cellophane
The foregoing analysis of the record shows conclusively that cellophane is the relevant market. Since du Pont has the lion's share of that market, it must have monopoly power, as the majority concede. [ Footnote 2/26 ] This being so, we think it clear that, in the circumstances of this case, du Pont is guilty of "monopolization." The briefest sketch of du Pont's business history precludes it from falling within the "exception to the Sherman Act prohibitions of monopoly power" (majority opinion, pp. 351 U. S. 390 -391) by successfully asserting that monopoly was "thrust upon" it. Du Pont was not "the passive beneficiary of a monopoly" within the meaning of United States v. Aluminum Co. of America, supra, 148 F.2d at 429-430. It sought and maintained dominance through illegal agreements dividing the world market, concealing and suppressing technological information, and restricting its licensee's production by prohibitive royalties, [ Footnote 2/27 ] and through numerous maneuvers which might have been "honestly industrial" but whose necessary effect was nevertheless exclusionary. [ Footnote 2/28 ] Du Pont cannot bear "the burden of
proving that it owes its monopoly solely to superior skill. . . ." (Emphasis supplied.) United States v. United Shoe Machinery Corp., 110 F.Supp. 295, 342, aff'd per curiam, 347 U. S. 521 .
Nor can du Pont rely upon its moisture-proof patents as a defense to the charge of monopolization. Once du Pont acquired the basic cellophane process as a result of its illegal 1923 agreements with La Cellophane, development of moisture-proofing was relatively easy. Du Pont's moisture-proof patents were fully subject to the exclusive pooling arrangements and territorial restrictions established by those agreements. And they were the subject of the illicit and exclusionary du Pont-Sylvania agreement. Hence, these patents became tainted as part and parcel of du Pont's illegal monopoly. Cf. Mercoid Corp. v. Mid-Continent Inv. Co., 320 U. S. 661 , 320 U. S. 670 . Any other result would permit one who monopolizes a market to escape the statutory liability by patenting a simple improvement on his product.
In Times-Picayune Publishing Co. v. United States, 345 U. S. 594 , 345 U. S. 612 , note 31, the Court said:
See Finding 24; GX-1001, R. 3253; and GX-1002, R. 3257-3260. The agreement of June 9, 1923, in which the parties agreed to divide the world cellophane market, is illegal per se under Timken Roller Bearing Co. v. United States, 341 U. S. 593 , 341 U. S. 596 -599. The supplementary agreement providing for the interchange of technological information tightened the cellophane monopoly and denied to others any access to what went into the common pool -- all in violation of United States v. National Lead Co., 332 U. S. 319 , 332 U. S. 328 . As was said in United States v. Griffith, 334 U. S. 100 , 334 U. S. 107 : "The antitrust laws are as much violated by the prevention of competition as by its destruction."
The agreement is summarized in Finding 545, and appears in full in GX-2487, R. 3383-3408. We believe that, under the principles set forth in Transparent-Wrap Machine Corp. v. Stokes & Smith Co., 329 U. S. 637 , 329 U. S. 646 , this agreement violated the Sherman Act.
See, e.g., American Tobacco Co. v. United States, 328 U. S. 781 , 328 U. S. 805 -806.
Report of Attorney General's National Committee to Study the Antitrust Laws, p. 322. The majority decision must be peculiarly frustrating to the cigarette industry, whose economic behavior has been restrained more than once by this Court in the interest of competition. See American Tobacco Co. v. United States, 328 U. S. 781 ; United States v. American Tobacco Co., 221 U. S. 106 .
Majority opinion, ante, pp. 351 U. S. 391 -392.