M.L. Countryman Jr.: -- what I was saying at adjournment yesterday afternoon, Northern Pacific land grant amounted to approximately 39 and a half million acres. All of this acreage has at all times been for sale and as fast as the sentence could be induced to the company and as purchasers could be found, the land had been sold. So that at the time the complaint was filed in May, 1949, the company had sold all but approximately 2,700,000 acres. In the sales of these lands, the traffic clauses were ever used where the lands were agriculture in character or were grazing lands. But in the case of lands which were valuable solely for their natural resources such as timber, minerals, coal and iron and the like. Traffic clauses were used from the beginning of the character that I have explained. Because those natural resources had a special value to the Northern Pacific and not to obtainable market price and that Northern Pacific have a transportation agency. It had railroad to transport these commodities to market to resume the transportation business.
Earl Warren: May I ask you Mr. Countryman? What is the relationship between the Northern Pacific Railway Company and the Northwestern Improvement Company?
M.L. Countryman Jr.: The Northwestern Improvement is wholly on subsidiary. Originally incorporated under the laws of New Jersey and later transferred to Delaware, it's organized as a New Jersey corporation in 1897 to takeover lands that were subject to Missouri division mortgage of the old company in order to keep them up to (Inaudible).
Earl Warren: Are all the lands of the Northern Pacific Railway Company of this character in -- in the ownership of the Improvement Company?
M.L. Countryman Jr.: No, Your Honor, relatively small proportion of the lands are in ownership of the Improvement Company.
Earl Warren: Why -- why is the differentiation?
M.L. Countryman Jr.: The Improvement Company took over only these lands that were subject to the Missouri division mortgage. Those were in -- principally in North Dakota and they're practically old and sold to agricultural lands. Very little remained in Northwestern Improvement Company ownership although I think the Improvement Company did have some timberlands in Montana. And as I've stated to yesterday, the Improvement Company has at all times has been treated as the department of the railroad. The land department of the railroad is the land department of the Improvement Company. And this -- well it doesn't appear in the record, we are now in the process of dissolving the Improvement Company. Of the lands that had been sold, only 2,144,000 acres were timberlands subject to traffic clauses and all but about 218,000 acres of that 2,144,000 were sold prior to 1910, 900,000 acres were sold to warehouses in 1900 and the traffic clauses in that contract expired in 1915. The Railway Company as I say had an interest in land -- in the natural resources and when the lands containing coal or iron which I might say were included in the grant were sold. Generally, the minerals were accepted and reserved to the company. If other minerals were suspected to be present, a reservation of minerals is also made so that in 1949, the Railway Company had about -- had mineral rates in about six and a half million acres of land. In all leases of it are mineral rights or timberlands or cutting timber or for removal of natural resources. They have included the traffic clause providing that the lessee with ship products over our line upon which were equal to those of any competitors and when the destination to be reached by our land.
William J. Brennan, Jr.: Are the -- are the clauses coterminous with the periods of the leases?
M.L. Countryman Jr.: I beg Pardon?
William J. Brennan, Jr.: Are the clauses, the traffic clauses coterminous with the leases?
M.L. Countryman Jr.: Yes sir.
Speaker: Are these clauses peculiar to your railroad or at the same time the clauses found another --
M.L. Countryman Jr.: No, Your Honor. They are very general among railroads. They have been used for 75 years I would say. There are quite a number of cases of the books, where the reasonableness or the validity of traffic clauses of this character had been before the Court. Only a few have involved to questions of violation of the antitrust laws. They have been uniformly upheld to deal with as against to numerous different charges of objection that has been made to. I say uniformly in the Revenue case in this Court about 253 U.S., two types of the traffic clauses were involved. One where the (Inaudible) have leased a shipper's railroad from the shipper serving the shipper's coal mine. And the lease contained the provision that the shipper would ship three fourths of his coal over the leased line and the line of (Inaudible). The Court said that the claim of violation of the Sherman Act was too insubstantial to be considered. Other traffic clauses involved in that case were found to be a part of the scheme for the monopolization of the coal of the school fields in Pennsylvania and its transportation to markets, and were condemned as being a part of that scheme of monopolization.
Speaker: Is it common to have in these clauses the provision to ship over the railroad only if it can be considered (Inaudible)?
M.L. Countryman Jr.: Only if they can't --
Speaker: If they cannot get better rates of service elsewhere?
M.L. Countryman Jr.: Yes.
Speaker: That's common in all of them?
M.L. Countryman Jr.: Yes that's in everyone. I should say the words “and service” is not included in grazing leases, it's included in our timber contract or timber cutting contract. But the administration has at all time recognized that we couldn't expect the shipping business unless we can provide them good service as to our competitor. And I say that the word “rates being equal” implies service equality because unless the services are the same, you can't compare the rates. For example, frequently, there may be transit privilege that connects with the rate over one line that isn't available by another to stop privilege that to has appearing on measure of the rate even though the rate itself may be the same number since per hundred pounds.
Speaker: What happens if the shipper wants the ship to a point that your line is not reached?
M.L. Countryman Jr.: If we can transport it in the direction of movement, if it can be reached by a connection, then we're entitled to the whole as far we can hold. If he is shipping in a different direction he doesn't need to use our lines.
Charles E. Whittaker: He, of course, the shipper would have the right to route to destination from your terminal?
M.L. Countryman Jr.: Yes, Your Honor.
Charles E. Whittaker: Yes.
Hugo L. Black: Suppose a wholesale (Inaudible)?
M.L. Countryman Jr.: I'm not exactly clear as to what sort of a provision the --
Hugo L. Black: Suppose a (Inaudible) that it would sell only to people who would agree to buy all the other products (Inaudible) would that violate the antitrust act?
M.L. Countryman Jr.: I think not necessarily, but I think probably he will get in trouble with Section 3 of the Clayton Act. Now Section 3 of the Clayton Act is different from Section 1 of Sherman Act and that all that needs to be shown is a potential lessening of competition or a potential tendency to monopoly, whereas, the restraints of the Sherman Act are unlawful only if they're unreasonable and they are unreasonable only if they have actual harmful effects on competition to the detriment result.
Hugo L. Black: Substantial is what you actually mean by that?
M.L. Countryman Jr.: Substantial --
Hugo L. Black: Substantial or harmful --
M.L. Countryman Jr.: Yes.
Hugo L. Black: -- effect on competition.
M.L. Countryman Jr.: Yes.
Hugo L. Black: Substantial amount.
M.L. Countryman Jr.: Yes, Your Honor. Now, on this --
Hugo L. Black: Why do you insist that it's not a substantial amount?
M.L. Countryman Jr.: Well, we think there's no effect, no substantial effect on competition from this traffic clause. Because in the first place, our rates have to be published and filed therein, open to all shippers the same -- on the same commodity between the same points for everybody and subject to change only on 30 days notice. We are in competition in courts for the commodities of all other shippers from the same shipping point, and the -- it is observed to suppose that either our competitors or our self would disregard the business of other shippers because we have clauses that gave us priority on the particular -- of the business with particular shipper.
Felix Frankfurter: But it binds the shipper to select you rather than some competitor of yours whose rates maybe the same but whose service condition maybe different, is that right?
M.L. Countryman Jr.: Yes and they frequently do. They ship by truck, even though they may pay a higher rate but the service is better and it's more economical to them and we recognize --
Felix Frankfurter: And this -- this bars that.
M.L. Countryman Jr.: I beg your pardon?
Felix Frankfurter: This clause bar such choice by the shipper, does it not?
M.L. Countryman Jr.: I think not, Your Honor.
Felix Frankfurter: It's not.
M.L. Countryman Jr.: I think not. I think it is not merely a matter of non-enforcement on our part with a continuing potential for enforcement but it is the practical construction over a long period of years, down to all the shippers of our territory who were subject to these traffic clause.
Felix Frankfurter: Well I don't understand then what you got if its -- if the shipper have a -- I'm afraid I'm sure I miss -- I misapprehend you. You say that the shipper is not bound to select this land area. This shipper is not bound to select you although from the point of view of service he may prefer another line, is that right?
M.L. Countryman Jr.: If he -- if he prefers we have the line because of friendship or reciprocity.
Felix Frankfurter: Service preference.
M.L. Countryman Jr.: A preference?
Felix Frankfurter: Yes.
M.L. Countryman Jr.: He is obliged by this clause to ship over our line.
Felix Frankfurter: Yes.
M.L. Countryman Jr.: He has agreed to give us the preference.
Felix Frankfurter: So I understand it. So why isn't -- isn't competition seriously or substantially restrained in that regard that the shipper has no choice by virtue of this clause. And therefore his freedom of -- of selecting a competitor if the order is cut off, that's the whole point of this (Voice Overlap) --
M.L. Countryman Jr.: Well, he -- of course in dealing with that and given these agreements, he does give up his freedom of choice to that extent, that where -- where the choice depends only on considerations of friendship or reciprocity and solicitation where it depends only on those things. He has agreed to prefer us.
Felix Frankfurter: And he is not bound to prefer you if he preferred the services of the other competitors.
M.L. Countryman Jr.: He's not probably preferred us to service the competitors better or if their rates are lower as they often are.
Felix Frankfurter: Well rates, yes, but where -- where is he free to prefer a competitor of yours who -- which I suppose I would say, which although it charges the same rates, gives more -- gives a preferable service.
M.L. Countryman Jr.: We think he is free to --
Felix Frankfurter: He is free?
M.L. Countryman Jr.: To accept that service.
Felix Frankfurter: Why? What -- doesn't this clause bind him against it?
M.L. Countryman Jr.: Is it binding? Yes, Your Honor.
Felix Frankfurter: What -- what's the basis for your saying that, although the rates maybe the same over the same distance, the shipper thinks there are service advantages in shipping over a competitor of yours, why is he free to do that in view of this clause?
M.L. Countryman Jr.: Because I think that makes a competitor's rate more favorable. For example, some of the shippers testified that by shipping over to Milwaukee, they -- shipping livestock over to Milwaukee and they could make better time and avoid one stop for feed and rest or unload. They ship over our line while they have to unload, to feed or rest --
Felix Frankfurter: Is this --
M.L. Countryman Jr.: -- additional time.
Felix Frankfurter: -- is this your construction or is that is what you say without questioning it binding on us as a matter of law, is that -- is that construction, is the government agree to your construction?
M.L. Countryman Jr.: Well I think it's a practical construction. But I would say this Your Honor, there are thousands of these leases or contracts, many of them, a great many of them expressly say, rates, services and facility fee or rates and service fee and the court below treated them all alike, he enjoined all of them and made no difference whether the term services and facility to them or not. And I say that if there is a distinction, the case should go back to trial on the merit. Now, I say, we have no intention of making a distinction. It's just a matter of craftsmanship I suppose drew up the timber contract in the first place since we forgot to put in the word and services.
Felix Frankfurter: But that's very important in transportation (Voice Overlap) --
M.L. Countryman Jr.: I think also myself, Your Honor.
Felix Frankfurter: Isn't that very important Mr. Countryman?
M.L. Countryman Jr.: I think it's important that the service is just as important as the rates. And it is not our intention to require the shippers who use our line unless it's a matter of indifference to him which he uses.
Hugo L. Black: Well, if it's a matter of indifference why would he -- he is to be bound by contact? What you do, isn't it, is to get balance (Inaudible) agree that they won't trade with another railroad even if they want to because they must (Inaudible). Now, I understand you say this condition but in the final analysis, if it gets down to it, they can't exercise their freedom of judgment to contract with other railroad even if they desire to do so. And they do that because you tell them that and tie them down by that validity (Voice Overlap) --
M.L. Countryman Jr.: Well, Your Honor, I think that these clauses require us to remain to be always competitive with our competitors if we want to get the business of our lessee. Now --
Hugo L. Black: It certainly destroys the competition to some extent, does it not, if the man has agreed in advance as the terms is binding as it appears to be that he is not going to buy from another railroad because you sold him some land.
M.L. Countryman Jr.: Well, Your Honor, the shippers who are subject to this clauses are relatively few, I think. Each ship is important. There is much other traffic that is identical that is competitive that to -- we must maintain rates and service for, so much to our competitor and I say that the Sherman Act is concerned only with competition as in effect to public.
Hugo L. Black: Well I thought we've decided several times that the contracts who violated Sherman Act, restraining a man with his freedom to trade, didn't have to just like everybody (Inaudible) to substantial number of people so as to destroy competition from a substantial number of people located at one place or in any places.
M.L. Countryman Jr.: Your Honor, I don't think your decisions go that far. I think that the restraints are -- have been held to be per se unreasonable in the absence of any showing as to the actual effect only if they fix prices, represent boycotts or exclude competitors from the substantial bargain. Now --
Hugo L. Black: But how -- does this exclude competitors to some extent from the right -- the opportunity to get to sell their services to thousands of people?
M.L. Countryman Jr.: I'm not sure that I understand Your Honor's point.
Hugo L. Black: What I meant was does this agreement bar to some extent the freedom of a man to deal with your competitors and does that affect thousands of people depriving the other railroads of the chance to have them exercise their full freedom of choice.
M.L. Countryman Jr.: I don't think it does any more so than if we are able by solicitation to get the business and shipment.
Hugo L. Black: But you have this in addition to solicitation. The other people are limited to solicitation.
M.L. Countryman Jr.: Yes, I think this is solicitation.
Hugo L. Black: And you have a contract with these thousands of people.
M.L. Countryman Jr.: And I don't think the public is much concerned with solicitation. I think the Sherman Act is not quite concerned with whether we get the business of a particular shipper or our competitor so long as --
Hugo L. Black: I rather (Voice Overlap) concerned with leading people free to buy and other is free to sell according to their own will and according to their own judgment of what's better at best interest and what they desire to do.
M.L. Countryman Jr.: No I don't think, Your Honor, the Sherman Act goes that far.
Hugo L. Black: If it does go that far, this violates (Voice Overlap) --
M.L. Countryman Jr.: Yes, I would agree.
Speaker: I thought -- excuse me.
Felix Frankfurter: No. Go on. I just want to where that clause. Where is -- where is the clause in the record, the exact terms?
M.L. Countryman Jr.: A number of them are cited in the decision of the trial court on page 186 of the record.
Felix Frankfurter: Well, let me ask you this question basing on 186.
M.L. Countryman Jr.: Yes, Your Honor.
Felix Frankfurter: First one.
M.L. Countryman Jr.: Yes, Your Honor.
Felix Frankfurter: Now, all shipments of livestock et cetera, whenever its freight rates do not exceed the rates of the line. As I understood you and I want to be sure I did, you said two things. In the first place, that if a shipper as a mere (Inaudible) out of his own physical relations with officers of the Milwaukee prefers to ship over to Milwaukee. Not a penny advantage in his pocket but he just likes those officers -- you say under this clause he is allowed to do so.
M.L. Countryman Jr.: No, Your Honor. I say not allowed to do (Voice Overlap) --
Felix Frankfurter: Not allowed. Well, now (Inaudible) -- I notice their difference, is this freight rates (Inaudible).
M.L. Countryman Jr.: Yes.
Felix Frankfurter: He can't say, I prefer to ship over the Milwaukee although the rates are the same, can he?
M.L. Countryman Jr.: No. Your Honor.
Felix Frankfurter: All right. Now the next question, suppose the services -- suppose he thinks that Milwaukee is faster or allows him more of a stop or one of the other innumerable elements that make up services that that's a more advantageous thing for him from his point of view under the grazing leads, that is not included as a rate, is it? So you say practically it is.
M.L. Countryman Jr.: Yes, I say that the testimony of our land commissioner the deposition of 17 the grazing lessees all show that that's the way it could interpret (Voice Overlap) --
Felix Frankfurter: Well, I put this to you Mr. Countryman, that unless this is an absolutely clear industry construction at all events you will be puzzled and at all event, there will be -- maybe a litigious question there whether the service does include rates and to that extent, the shipper is constrained, you say that it doesn't make any difference to the public. But I like to put it to you, if I may, that the shipper is part of the public. You can't say -- when we say restrained competition as against disadvantageously to the public, you can't antithesis the outside public and the class of shippers can you?
M.L. Countryman Jr.: No, Your Honor, I agree with you, and I would say this that I put that object to consent decree of joining us from using this clause unless we put in the word services and facilities.
Hugo L. Black: If you did that, you would still have a right to litigate with every person (Inaudible) and claim damages the amount of the presentation (Inaudible) every time he traded with another railroad.
M.L. Countryman Jr.: Even --
Hugo L. Black: How would he ever know at the end of the lawsuit (Inaudible) sometimes a ship without his -- you don't have law (Inaudible)?
M.L. Countryman Jr.: Your Honor, we don't sue shippers very often.
Hugo L. Black: Well, how will you enforce a contract? That's what I'm curious about, how would you enforce it?
M.L. Countryman Jr.: Well, our people who testified that the main value of it is the assistance to the solicitor that matters agree.
Charles E. Whittaker: Mr. Chief Justice, may I ask (Voice Overlap) --
Earl Warren: Yes, go ahead.
Charles E. Whittaker: Mr. Countryman, I -- from my understanding of the principle points you argue in the brief which you haven't here discussed at all, deals with the basis upon which the trial court rested its decision.
M.L. Countryman Jr.: Yes, Your Honor.
Charles E. Whittaker: Namely, that as the Government here concedes apparently by its brief, there was no evidence of any monopoly by your railroad or the land market. And the trial court said as a matter of law, it was not necessary to show that you did have any monopoly of the land market, it was enough alone that title to the particular piece of real estate was invested in fee in the railroad. Now is that correct or not?
M.L. Countryman Jr.: Well, I wanted to argue that point, Your Honor but I think my time has expired. We disagree sharply on whether mere ownership of land and just to ownership of the piece of land with monopolistic result.
Charles E. Whittaker: But one -- one section of land, the court said -- the trial court said, if the Railroad has titled to that we're not concerned with any monopoly in any market of land. But it is enough if he own -- that the railroad owns title to the one piece of real estate, and that's the basis of the decision, wasn't it?
M.L. Countryman Jr.: Yes, Your Honor, I think the court is entirely wrong.
Felix Frankfurter: What -- why is that the basis of the decision?
M.L. Countryman Jr.: Because the --
Felix Frankfurter: What difference does that make suppose it wasn't a land, suppose this is a contract unrelated to the land relation of the -- of the railroad, and they just got out of the goodness of their heart for self interest, makes such an agreement, would that be alright?
M.L. Countryman Jr.: Your Honor, aren't we entitled to go out and make contract to shippers for one transportation or have the transportation?
Felix Frankfurter: Whereby the shipper binds himself not to use a rival -- a competing railroad?
M.L. Countryman Jr.: Yes, Your Honor.
Felix Frankfurter: You are?
M.L. Countryman Jr.: Yes, of the Great Western case in this Court.
Felix Frankfurter: I didn't understand that.
M.L. Countryman Jr.: Interstate Commerce Commission against Great Western Railroad. The Rock Island Railroads -- no the Great Western Railroad put on a reduce rate, a published rate for the shippers of packing house products in Missouri River markets. And in consideration of the Great Western publishing that reduced rate, the packers agreed to give the Great Western three fourths of all their business. And it was enforced to this Court. It was attacked and a violation of the antitrust law. This Court said, railroads are free to have a business the same as others and the big contracts looking into the entries of their business.
Felix Frankfurter: What -- what is that case, Mr. Countryman?
M.L. Countryman Jr.: Chicago Great Western Railway Company against the Interstate Commerce Commission -- the Interstate Commerce Commission against the Great Western, 209 U.S.108.
Felix Frankfurter: How did that came up, in the Sherman or Government?
M.L. Countryman Jr.: That was Sherman Act case, Your Honor.
Felix Frankfurter: 209 108?
M.L. Countryman Jr.: It was not as -- it was not an enforcement of the Sherman Act, it was a proceeding before the Interstate Commerce Commission where the question of violation of the Sherman Act was involved.
Felix Frankfurter: I don't see that the Interstate Commerce Commission has any authority to involve Sherman --
M.L. Countryman Jr.: No, it was not an enforcement proceeding either by a judge in the criminal proceeding.
Felix Frankfurter: But you say that you -- it's your understanding that the construction of Sherman law applicable that is to the railroads arrangements, that is the shipper of consideration that he deem appropriate, I don't care what it is. For the next two years bind himself because railroad X assures him that they will always have cut. That he can make an agreement that for the next two years he will never use any competing service. You think that's alright under the Sherman law?
M.L. Countryman Jr.: Yes, Your Honor. Now, we have to say the case --
Felix Frankfurter: I'm not denying it. I'm a little surprised. That's all.
M.L. Countryman Jr.: Well, we have enforcement to -- of such contract against St.Paul and Tacoma Lumber Company. It is cited in here, decision by the Eighth Circuit.
Earl Warren: Mr.-- Mr. Countryman, isn't the mere fact that you have millions of acres of land that cannot be opened up to settlement and development unless they make agreements with you that they will not use the services of any of your competitors, a restraint to some kind on your competition and therefore on commerce?
M.L. Countryman Jr.: I don't think so, Your Honor.
Earl Warren: Well, you've got -- you check a board this -- this country for ten miles on each side of your right of way, every order in this section belongs to railroad. Now if you can -- you can prevent any of that land from being opened up to development and settlement until the purchasers agree with you that they will use services of no competitors, do you not think that that places some burden on your competitors in developing the service that will be as -- as good or as cheap as yours?
M.L. Countryman Jr.: Well, I might say this, Your Honor, while we were using these traffic clauses, the (Inaudible) Railway built west to the Pacific Coast in 1893.
Earl Warren: Yes.
M.L. Countryman Jr.: Milwaukee built west in 1907. The Panama Canal was opened, the ship line operated through the canal, highways come in, truck lines, the contract carriers -- common carrier, motor trucks, private carriers on the highways has come in to the Pacific. It's a pretty --
Earl Warren: Yes, but that might have been in spite of your -- your policies and not because of it.
M.L. Countryman Jr.: I think it's rather indicative of the fact that our clauses have not suppressed competition.
Earl Warren: Well, they might be -- they might prevent competition or at least suppress competition and still not be great enough force to prevent those great things from happening.
M.L. Countryman Jr.: Well, Your Honor, 37 million acres of this land has been sold and almost all of it without any traffic clauses. What we have left are scattered remnants and only part of those were subject to traffic clauses. Now the --
Earl Warren: But I suppose if you can do it for some --
M.L. Countryman Jr.: -- the grazing land --
Earl Warren: -- you can do it for all, couldn't you?
M.L. Countryman Jr.: The grazing lands are open at all times to sale without a traffic clause. We only lease them pending sale and we only put the traffic clause in lease. We don't put it in the -- in the contract -- in the sales.
Speaker: You're not claiming here as I understand that this complaint should be dismissed. You're claiming that you're entitled to trial?
M.L. Countryman Jr.: That's it, Your Honor.
Speaker: Is that it?
M.L. Countryman Jr.: That's exactly the point. The question is whether the summary judgment was properly granted.
Charles E. Whittaker: In other words, you insist upon trial an opportunity to be heard upon the question of whether or not there is a contract or combination or conspiracy that was strange trade in this market, isn't that right?
M.L. Countryman Jr.: That's exactly the point, Your Honor.
Charles E. Whittaker: But the trial court didn't place it upon -- he said that the government was entitled to the judgment it received simply upon a finding that you had the simple title to a particular section of land, is that right?
M.L. Countryman Jr.: That's correct, Your Honor.
Felix Frankfurter: Well not on that abstract proposition but because you have the simple title and therefore could dispose of the transfer of that title and made the condition of transfer on getting the business that on its faith shows that the shipper -- the shipping public was constrained in the choice that was open to it in selecting its carrier, isn't that it? Have I stated the case fairly?
M.L. Countryman Jr.: I don't think that it's a proof of compulsion that they entered into this contract.
Felix Frankfurter: Well compulsion in the nature of things that if a fellow said you can't get my land unless you promise to send stuff over my line that that necessarily is an inducement for shipment unrelated to the mere fact of the service rendered.
M.L. Countryman Jr.: Suppose the situation is the other way, Your Honor and we're out trying to sell our land to purchasers or to lease it to, he's not coming to us, we are trying to sell it to him. And that is a question of fact in the Court.
Earl Warren: Mr. Friedman.
Daniel M. Friedman: Mr. Chief Justice, may it please the Court. The contract restrictions which are involved in this case are ones which basically give the Northern Pacific Railway Company a claim, the right to get the business of the shippers to whom it has sold or leased various categories of its land, as long as the Northern Pacific's rates and in some instances, the service are equal. Mr. Countryman has suggested that it's a practical matter this case must be treated as though rates and service were written into all of these contracts. The fact is that they're not written into all of these contracts. The contracts vary in their form but the contracts which cover the majority of the acreage involved in this case are limited to rates and do not authorize a shipper to ship via some competing carrier merely because the service is better either in his opinion or in the Northern Pacific's opinion.
Felix Frankfurter: What do you say to his reediness to have the decree modified so that there could be no doubt on that subject?
Daniel M. Friedman: In our opinion, Mr. Justice, that would not be the end of this case. We think even assuming that service and rates are covered in all of these contracts, these agreements will nevertheless be bad.
Felix Frankfurter: Well, should we -- would you think it was appropriate to argue the case on the assumption that the decree is so verified?
Daniel M. Friedman: Well the --
Felix Frankfurter: If it doesn't make any difference then nothing can save it, but if it does make a difference, then his readiness of the decree is modified, it doesn't make a difference (Inaudible).
Daniel M. Friedman: Well, I'm not -- still not clear as to whether you mean by that that he concedes and in all instances, every one of these contracts applies to rates and service.
Felix Frankfurter: That's what --
Daniel M. Friedman: We --
Felix Frankfurter: -- I'm assuming to indicate to be ready to have a decree modified to read.
Daniel M. Friedman: Even if the decree was so modified, we still would not be satisfied.
Felix Frankfurter: All right.
Daniel M. Friedman: Because we think --
Felix Frankfurter: In other words, you said it does not make any difference, so no use of -- of accepting his modification.
Daniel M. Friedman: The -- in any event, if a shipper for whatever reason as a matter of whimsy as Your Honor suggested, wishes to patronize a competing carrier, we think, he has the right to do that. Now, I'd like to mention one other thing in describing these restraints. In some instances, they go beyond merely requiring the lessee or the grantee to ship the products produced on a particular land. In some instances, they're acquiring to ship products produced not only on the lands received from Northern Pacific but on adjacent lands in the same area which he then or thereafter own. And indeed in some of the leases, leases for the coal lands, there's a provision requiring him to ship incoming freight destined to those areas by the Northern Pacific. Now --
Hugo L. Black: Does all of that make any difference or premise of the antitrust law?
Daniel M. Friedman: No it doesn't, Mr. Justice, but this, I think, is significant in showing the bold anti-competitive purpose of these particular clauses.
Felix Frankfurter: Well, if -- if you argue as to the anti-competitive purposes within argument a part from the document then Justice Whittaker's question becomes relevant. That's a matter for determination and not a matter for legal assumption on a summary judgment.
Daniel M. Friedman: Well, I would suggest Mr. Justice that on their face --
Felix Frankfurter: All right.
Daniel M. Friedman: These agreements --
Felix Frankfurter: Very well.
Daniel M. Friedman: -- are designed solely to exclude competitor.
Felix Frankfurter: I understand that if you make that argument, but if you talk about intention then intention can be -- is an issue of controversy.
Daniel M. Friedman: I like to suggest to point out to the Court that unlike some of the tying situations where there is a claim at least, the agreement may be necessary to protect the goodwill of a seller, for example, the claim by International Salt Company that international salt was not used in the machines, the machines will not operate properly, the claim by International Business Machines Company that any other clause do not permit the machine to function if there's only -- there is no possible claim of that kind in this case. In this case, you have land which is sold or leased and there's no possible argument that these restrictive clauses are needed to permit the more efficient use or the better use of the remaining land which Northern Pacific has. This is a --
Speaker: Supposing -- supposing that Northern Pacific had one part of land and it made a deal with the purchaser saying, "I'll sell you this land if you ship over our land” rates being equal by using that land, is that bad under the antitrust law?
Daniel M. Friedman: That would depend, Mr. Justice, upon how substantial a volume of commerce was affected.
Speaker: All right.
Daniel M. Friedman: If the Northern Pacific leased an enormous track and say General Motors and General Motors ship many millions of dollars worth of product over (Voice Overlap) --
Speaker: Assuming -- assuming that the volume of commerce is substantial, is that all you've got to show under Section 1?
Daniel M. Friedman: Where they are or in the position, Mr. Justice to impose this agreement. I believe so.
Speaker: Well, when you say and suppose the agreements, you're talking about some showing monopoly power?
Daniel M. Friedman: Monopoly power?
Speaker: Don't you concede in this case that you have to show two things under Section 1. Number one, that is a substantial effect on the market. And number two that as far as the tying matter was concerned with the land that the -- there was a leverage there which the Northern Pacific had and could exercise to bring about this restraint.
Daniel M. Friedman: We suggest Mr. Justice that this case maybe approached on two different theories. The theory which you have suggested is the theory of the tying cases enunciated in the Times-Picayune case and I will come to that in a moment and believe what -- show why I believe we have established that. But we think this particular situation has a further vice, this is a situation in which you have contracts which on their face show no demonstrable business purpose, no legitimate business aim and the effect of them is to preclude competing sellers of transportation from any access to a very substantial market. In other words, it narrows the outlet as this Court have said of competing sellers and at the same time denies to the use of the transportation their freedom to patronize competing carriers and that we think that where you have that kind of a situation whether it's on a wide scale and whether it's a substantial restraint of interstate commerce, the principles which this Court has applied in such cases and associated press and fashion originated skill, compel the conclusion that these agreements are invalid on their face.
Felix Frankfurter: Let me -- let me vary the case put to you by my brother Harlan. Suppose the -- the railroad says, the Northern Pacific advertises or makes known that it will sell some of its fee for X dollars per acre, but it will sell it for X minus Y dollars per acre if the purchaser agrees to shift his products over to Northern Pacific.
Daniel M. Friedman: Mr. Justice, I would suggest that the railroad can't do that because of the Elkins Act because I think they will be giving a concession to one shipper over another. They're providing the identical transportation service to two shippers.
Felix Frankfurter: Not at all. They're having different rates for a piece of land. Anyhow, put the Elkins Act aside because I'm having so difficulty. What would you say under the Sherman law? Will that be better under Sherman law, the case I put you? They're in the market and they sell land as the Northern Pacific was and they have two prices, forget about the Elkins Act for the moment, would that be violating the Sherman law?
Daniel M. Friedman: I would think so.
Felix Frankfurter: You would think so?
Daniel M. Friedman: Yes.
Charles E. Whittaker: Now, may I ask you Mr. Friedman, is there any finding by the court below that the Northern Pacific did have any monopoly on the real estate market or in that area?
Daniel M. Friedman: No, Mr. Justice. There's no finding that they had monopoly of all the lands in the area.
Charles E. Whittaker: Or monopoly in the market. Didn't the Court simply say that that wasn't essential to his conclusion?
Daniel M. Friedman: That -- that is correct because the Court says if the --
Charles E. Whittaker: Now, isn't it true that in the Sherman Act case, there has to be some monopolization of the market that restraints competition?
Daniel M. Friedman: I don't think so Mr. Justice. I think in the tying situations or --
Charles E. Whittaker: Isn't that what the Times-Picayune case held, the Dupont case recently?
Daniel M. Friedman: I respectfully don't think so Mr. Justice. I think that if we start with the International Salt case, if I may refer to that briefly for a moment. That was a case in which the salt company leased patented machines and as a condition to the lease of the machines, the lessees were required to use in the machine the salt manufactured by the International Salt Company.
Speaker: (Inaudible)
Daniel M. Friedman: There was no showing in that case as to what percentage of the market for the tying product, that is, the salt leasing machine International Salt had. Despite this, the District Court granted summary judgment, and this Court upheld the grant of summary judgment. Now, in their appeal to this Court, International Salt challenged the ruling of the trial court because they said they're entitled to show that there were competing machines. That in fact competitors were not excluded, and furthermore, they said they're entitled to show what percentage of the market, the salt machines they had. And this Court deemed those considerations irrelevant and then subsequently in the Standard Oil case, this Court in discussing the International Salt case pointed out that those factors were present in that case and they were deemed irrelevant. Now --
Hugo L. Black: Can you think of case off hand that a person has been found guilty of violating antitrust law, shown to have a complete monopoly?
Daniel M. Friedman: I cannot think of any case.
Hugo L. Black: The Standard Oil Company had a complete monopoly.
Daniel M. Friedman: No. The Standard Oil Company had --
Hugo L. Black: The (Voice Overlap) originated here?
Daniel M. Friedman: Roughly 60%.
Hugo L. Black: The International Salt?
Daniel M. Friedman: The International Salt, the Court deemed it irrelevant. We don't know what percent of that.
Tom C. Clark: Well, can you think of any case where there maybe some. I was just stating what I think of where anyone group that ever get perhaps the advantage -- got hold of the flower once (Inaudible) where anyone had a complete monopoly over the (Inaudible).
Daniel M. Friedman: Suppose in some situations involving a unique patented article which was so distinct from any other, there might be a situation, I don't know of any such case.
Felix Frankfurter: I don't think the order relied too much on International Salt because the determining consideration there was within abuse of the patent and that goes a long way. I'm not saying -- all I'm saying is that if that's all you have to rest on, I'd like to hear more argument in this (Inaudible).
Daniel M. Friedman: Well, I think Mr. Justice that even though in International Salt, the company had abuse its patents by seeking to go beyond its patent monopoly. That factor, I don't believe was crucial on the question of whether International Salt had the recusant dominance to be able to effectively enforce upon its lessees the obligation to purchase the tied product. And what we're saying to this Court is that the kind of leverage which a patent holder is able to exert in a situation where there may be very many other articles, very similar which will do the same thing is comparable to the kind of leverage which the owner of land is able to exert as we think it's shown here by the fact that these people were able to impose these contracts upon their lessees and grantee. Now, in this situation--
Charles E. Whittaker: May I ask though, isn't that a factual situation and has -- as to whether or not the Northern Pacific did have such control over the market as to be able to restrain commerce and isn't that an issue of fact which they wanted to try but didn't get an opportunity to try in the court below?
Daniel M. Friedman: I don't think so Mr. Justice, anymore than there was an issue of fact in the International Salt case as to whether the salt company's particular patented salt machine nevertheless represented such a minor share of the market that in fact they didn't have monopoly power. I don't think that it's necessary in a Section 1 case of this type to show that they have monopoly power in the sense of a violation of Section 2 of the Sherman Act law.
Hugo L. Black: Would you mind stating? It hasn't been stated and I think these questions ultimately would be wise to state it. I do not think that the summary judgment should be used every time a judge (Inaudible) to use it when he gets submissions of fact. Would you mind stating what are the admitted issues of facts in this case on which the Court rests its summary judgment.
Daniel M. Friedman: The admitted facts in this case are that the Northern Pacific Railway Company has sold or leased a substantial volume of land.
Hugo L. Black: How about just approximate?
Daniel M. Friedman: Certainly several million acres, two or three million. It varies from things --
Hugo L. Black: Located where?
Daniel M. Friedman: Located in six western states. The further fact --
Felix Frankfurter: What -- over what period?
Daniel M. Friedman: Dated back 50 or 60 years and the leases in the record are as recent as 1946 and 1947 I think.
Felix Frankfurter: Are the recent -- are the recent sales or leases in acreage sizeable?
Daniel M. Friedman: Yes.
Felix Frankfurter: Or the sizeable -- the sizeable acreage owns that?
Daniel M. Friedman: I haven't made that analysis of the record but there are at the time this suit was filed, there was a sizeable acreages covered by the leases. It's a very elaborate breakdown in the record of each lease and the amount of acreage involved.
Earl Warren: How much land does it have left, do you happen to know?
Daniel M. Friedman: Except for the right of way, it's 2,700,000 acres out of the total land grant of some 39 million.
Hugo L. Black: Is that farming section mainly where the property has been sold or was it grazing or farming?
Daniel M. Friedman: A lot of it is grazing. The two major items are the grazing leases and some of the grazing land has been sold and the timber leases.
Hugo L. Black: It had been sold in large block as numbers of each according to the fact that you have in your record.
Daniel M. Friedman: It's been sold to a large number of people. It doesn't -- coming through this -- the acreage varies tremendously.
Felix Frankfurter: And were there shipper from centers? Shippers who did not have lease or fee holdings from the Northern Pacific in the -- in the centers from which these shipments were made?
Daniel M. Friedman: That is not shown by the record, but I -- in view of their contention that they had only a very small portion of the lands involved. I think we have to assume there are shippers but I'd like to point out --
Felix Frankfurter: Because if you -- if that is so, you put a thought in my mind that if the case I put to you is an Elkins Act case, I should think all these things (Inaudible) violations.
Daniel M. Friedman: The time -- return to the other agreed upon the facts in this case that in the sale and lease of these lands, Northern Pacific imposed covenants requiring the lessee or grantee to ship exclusively via Northern Pacific if the rates and in some instances the services were equal.
Hugo L. Black: Is there any dispute over there?
Daniel M. Friedman: I don't believe so.
Hugo L. Black: Is that conceded or stipulated?
Daniel M. Friedman: I believe that is not challenged.
Hugo L. Black: Covering large numbers?
Daniel M. Friedman: Yes, that is -- I -- there is a question as to whether it covers rates and service or rate. There is no dispute as to that.
William J. Brennan, Jr.: Are there any figures Mr. Friedman of the volume of traffic by shippers who have this kind of statutory in their agreement?
Daniel M. Friedman: No, Mr. Justice, all there is is a showing of the generally substantial volume of land covered and there is a stipulation in the record at page 99 that the information to the particular shipments, by particular shipments, is either not available to the defendant or cannot be furnished by the defendant without excessive expense and without consuming an unwarranted length of time. There is nothing in the record to show the precise dollar value of shipments affected by these traffic clauses. There is, however, the finding by the Court that a substantial volume of commerce moved in interstate commerce which was -- came off the land subject to these clauses.
William J. Brennan, Jr.: Now, do I understand you to say that the aggregate of the acreage presently subject to these clauses is in the neighborhood of 2,700,000 or something?
Daniel M. Friedman: No, the 2,700,000 figure is the amount of acreage which Northern Pacific still holds. The contracts which were enforced in 1949 when this complaint was filed as set forth in -- at series of detailed findings, 13 to 35 at record 203 to 208, and they're roughly about 2,200,000 or 2,300,000. Those are the contracts at the time of the suit that were covered by these rulings.
William J. Brennan, Jr.: Well now would that be 2,300,000 out of the retained holdings of about 2,700,000, is that it? Isn't -- didn't I understand that all of it about 2,700,000 or 2,800,000 acres had already been sold by the railroad?
Daniel M. Friedman: That is correct but of this amount, roughly, more than a million acres are timberland sales where the land has been sold as I -- in other words, some of the land has been sold. Now there's a million acres of that and then there's roughly a 1,200,000 acres that has been leased and 1,200,000 should properly subtracted by the 2,700,000 -- from the 2,700,000.
William J. Brennan, Jr.: Is there any concentration or does it appear in -- mentioned I think you said that this was distributed over several states?
Daniel M. Friedman: That's correct.
William J. Brennan, Jr.: Any one or more state, two states where most of it is or is it pretty widely distributed?
Daniel M. Friedman: It doesn't show in those terms. There's no findings as to where and what state in particular.
Charles E. Whittaker: Well it is actually in Minnesota, Dakota, Montana, is it not? Do you know?
Daniel M. Friedman: I do not know the precise areas where these lands are located.
Hugo L. Black: Has there been any departure from stipulation which it made with reference to the volume of shipments in interstate commerce, the lessee from land (Inaudible) land covered by these leases on page 99 to page 120. Has there been any -- is that still the agreement, is that the agreement with the -- did the Court have that agreement for that stipulation of a fact?
Daniel M. Friedman: Yes, it did. The stipulation is a substantial portion that there's -- I say there's no particular breakdown as to the precise dollar volumes from each individual shipper or from particular --
Hugo L. Black: And that shows that would have been very expensive and I gather you'd say --
Daniel M. Friedman: In fact stipulated --
Hugo L. Black: -- selected lessees from shipments under each various stations along the line?
Daniel M. Friedman: There wasn't -- basically, I would say a recognition -- a concession of substantial shipments were involved.
Hugo L. Black: That stipulation (Inaudible) would mean, I just understand that the counsel for the railroad (Inaudible) in fact that there was substantial amount of volume (Inaudible). I do not understand what -- what issues of the fact they had the court to decide or did they -- what was that issue of fact?
Daniel M. Friedman: The issue of fact, they wanted the Court to determine primarily was whether in fact Northern Pacific had a dominant position in all the particular types of lands involved. In other words they --
Hugo L. Black: You took the position that was given to you?
Daniel M. Friedman: That's correct.
Hugo L. Black: So did the Court?
Daniel M. Friedman: That's correct. They -- they wanted the Court to say whether in grazing lands in Montana which Northern Pacific leased whether in fact Northern Pacific had a dominant position in the sense of having 60% or 70% and whether it only had 5% or 10%, we took the position that that was immaterial. We said that the impact of these clauses was such and the fact that they have this position as the owners of the land and were able to exert leverage sufficient to get the shippers or the grantees to enter into these contracts that that was enough to violate the Sherman Act.
Hugo L. Black: The fact that they were able to exert leverage is essential if contracts are made or discover a substantial part of interstate commerce, suppose they're made voluntarily between the parties.
Daniel M. Friedman: Well this was --
Hugo L. Black: What difference does it make so far as the violation of the antitrust act --
Daniel M. Friedman: As we rate the International Salt case, we don't think it does make any difference but if the -- under the Times-Picayune case where it speaks in terms of exerting monopolistic leverage, we believe we -- as an alternative theory meet that test because they were able to exert that leverage in this case through the possession of their land. But we think there's a broader position and the situation involved here which is that they have tied up a substantial volume of commerce and with respect to that volume of commerce, they have excluded a --
Hugo L. Black: Suppose the a three steel company manufactured 35% of the steel of the country that would combine voluntarily either one being authorized to exert some kind of a power. They just decided they want to combine or fix grievance agreement between (Inaudible) would that not violate the Sherman Act?
Daniel M. Friedman: Clearly Mr. Justice, it would violate the Sherman Act because there was a substantial -- it was a restraint on a substantial volume of commerce.
Felix Frankfurter: Mr. Friedman, counsel often tell us the things of interest by way of background. Well, the judges also have that curiosity at times and I have the curiosity of -- curiosity to ask you whether this record shows what blew -- what can this litigation is being in 1949 when this is a long standing arrangement on the part of the Northern Pacific.
Daniel M. Friedman: Now, the record --
Felix Frankfurter: Anything in the record on that?
Daniel M. Friedman: There's nothing --
Felix Frankfurter: Is there something that's on 50 to 60 years?
Daniel M. Friedman: No. There's nothing in the record on that Mr. Justice, and I frankly don't know what was the emphasis to this litigation except that I supposed that it's conceivable that with a limited step of the antitrust division, we never got around to doing it until this time.
Felix Frankfurter: But the record doesn't show that something from new -- of course effort or anything like that is made by the railroad.
Daniel M. Friedman: No, it does not Mr. Justice. And in conclusion, I just like to point out once again that these agreements have no demonstrable business purpose. They're solely anticompetitive. They're designed solely to give Northern Pacific a priority on this business and we believe that affecting as they do a substantial volume of commerce and narrowing the outlets to which competing sellers may sell and from which purchase of transportation they buy, they're invalid and that it is not necessary in holding them invalid to establish if Northern Pacific in fact had any dominance of all the lands in the area. Thank you.


Earl Warren: Washington Public Power Supply System, Petitioner, versus Federal Power Commission et al. Mr. Smith.
Hugh Smith: Mr. Chief Justice, may it please the Court. In the few minutes remaining to me, I should like to discuss the question of notice which is the essential nexus of the argument made by Mr. Ely in this particular case. In accordance with the statute in 1955, the Federal Power Commission gave notice of our application for a preliminary permit. And the question that Mr. Ely raises is what at that point happens. Now whatever that notice meant to anybody or to Mr. Ely or anyone else, there's one thing quite clear. It did not mean that we were going to build the project described in that notice because as Mr. Solomon explained to you at some length yesterday and as I've commented, this is the one thing you do know, and that experience is shown that everybody involved in this particular activity knows that it is so unlikely that anything is going to come up, its exactly what's describe. Anyone reading that notice knew that whatever else it might mean it did not mean that that was the project that was going to be built. Now we say that the notice served its statutory purpose. And that is that there had been set in motion this statutory process which would eventuate in a project best adapted to a comprehensive plan within the standards of Section 10 (a). And, that consequently anyone who had purposes or plans or ambitions that would be affected by that eventuality were on notice that the time had come for them to come in and take the obligation, undertake the obligation if they wished to assert a preference to undertake the obligation to carry out the expirations to develop the particular project. Now, viewed in light of this statutory purpose, I think that it is clear that the scope that the Commission has given to a preliminary permit is a very sensible and workable rule. Because what the Commission has said in this case is that a permit applies to the project described, to any project that is mutually exclusive so long as it occupies substantially the same reach of the river and substan -- and develops substantially the same head. Now the phrase is substantially the same, are concepts that are very familiar to lawyers, something that violate is not an exact rule. It is something that lawyers are accustomed to apply. Reach and head are of course more engineering terms but they're very familiar to engineers, and the engineers are the people who are involved in this kind of a thing we're talking about. And it's very workable to them, and mutually exclusive as something that anybody even the layman can easily see once they look at the map. Even this map by Mr. Ely shows immediately what we've got in this little area up here that I can cover with my hand is mutually exclusive and that consequently this is what is now involved. Now this is a very workable thing, you see. It's a very easy thing, the nature of the resource automatically tells anybody that this is what is about to happen. Now, of course Mr. Ely argues this isn't what the notice was. That all it was, was that this is like a illegal process which were not – this isn't really illegal process, it's the process of developing a resource. But let's for the moment look at his argument which is a technical argument on notice, it's almost black letter law, that a person who asserts a right -- be on the ground of faulty notice has got to come in and show at least three things, that he has a right to notice, that notice was given, that he saw that notice, that he relied upon that notice to his injury. Now, it's quite evident that as far as the particular petitioner in this case is concerned, no one of those requirements can be met because WPP -- the supply system was not even in existence in 1954 when this all started. When it came into existence and came into this case, the claim of Pacific Northwest that we were operating under -- our preliminary permit was abundantly claimed and consequently it seems to me that as far as the supply system is concerned, they've got to stand or fall on the legal effect of the permit that was granted to us. They have no technical right to assert notice. But let us even pass that by for the moment and assume that the supply system can stand on the shoes of either what they call their predecessors and interests which doesn't really do them much good because their predecessors and interests were not construction agencies. They obviously were not agencies that had the capacity to start so that -- they had no interest in the notice or even -- or leading that and going back to the individual public utility districts of which they are composed. Let's say that they could assert faulty notice there. Now, the one clear thing that we could see in this record is this. If any public util -- if any qualified public agency in the Northwest had in 1954 any ambitions to build High Mountain Sheep and it sat back as Mr. Ely says they would and had not come in because they were misled by this notice, what would have happened was that the first pleading that ever came into this case, somebody would have said so. We would have had some evidence. This is the kind of thing on which evidence is the easiest thing to produce, the most persuasive, of the most easy thing, and we have no such evidence at all. There's a broad generalized statement made by Mr. Ely where he says they, the whole area. But in fact, nobody relied on this and we all know that they didn't.
Earl Warren: Your time is up.
Hugh Smith: Thank you very much.
Earl Warren: Mr. Ely.
Northcutt Ely: May it please the Court. Mr. Chief Justice, as I shall not have time to cover all of the points that I would like to -- remaining, now I should like to --
Hugo L. Black: May I ask you one question --
Northcutt Ely: Pardon me, yes sir.
Hugo L. Black: -- before you start?
Northcutt Ely: Yes sir.
Hugo L. Black: Suppose your application has been granted and the other one had been denied, could they then have gotten a new dam at the point they wanted it? Or would that have excluded any other dam at that point?
Northcutt Ely: Had our application for a license on the High Mountain Sheep been granted?
Hugo L. Black: Yes.
Northcutt Ely: That would have excluded the granting of a license to the company for any project in conflict with ours.
Hugo L. Black: Would that have been in conflict?
Northcutt Ely: They were applying for exactly the same site, Your Honor, High Mountain Sheep. If you're referring to the earlier context --
Hugo L. Black: The earlier one –-
Northcutt Ely: In which the –-
Hugo L. Black: The one --
William O. Douglas: The one covered by the preliminary permit.
Hugo L. Black: Yes, the one covered --
Northcutt Ely: The preliminary permit, we did not have a preliminary permit, our opponents did.
William O. Douglas: Yes.
Northcutt Ely: If they had built a project, had the Commission licensed the project at Pleasant Valley, the high dam there, this would have been in conflict with the -- any project that High Mountain Sheep or Nez Perce and it would've been physically impossible thereafter build a project to either of those places, that is correct.
Hugo L. Black: If that's true, why should one be exclusive of the other, if they are there at the same time --
Speaker: Here's the other one.
Northcutt Ely: If why should one application be exclusive of the other one?
Hugo L. Black: Yes, by priority.
Northcutt Ely: The statute Your Honor in Section 7 (a), directs that in the event of conflicting applications preference shall be given to the application of a mini state or a municipality. The company relies upon the single exception to that preference which is -- makes the preference inoperative where a preliminary permit has been issued. They will -- they say that the permit which was granted to them for the Pleasant Valley project shown in red on the map behind me gave a priority which displaced an old -- our preference upon the High Mountain Sheep site and upon the Nez Perce site as well as upon the sites encompassed by the permit.
William O. Douglas: But they also claimed that your -- the agency or group, whatever you want to call it doesn't qualify as a municipality.
Northcutt Ely: That is not in the case Mr. Justice Douglas. The Commission below declined to agree with them this -- the Commission and the court below both had specifically (Voice Overlap) --
William O. Douglas: That's before the Ninth Circuit now, isn't it?
Northcutt Ely: No, the issue before the Ninth Circuit is not whether we are a municipality. The issue before the Ninth Circuit is an appeal from a decision of a district judge to the effect that we were not qualified to do business in Idaho and Oregon, not upon our status under Washington law.
William O. Douglas: Well, that would have bear upon this perhaps.
Northcutt Ely: Well, if that question is ever -- that question in the Ninth Circuit is taken off the docket awaiting the decision upon this review of the Commission's decision. Now on remand if the Commission decides if this is an issue which contrary to this Court's holdings in the first Iowa case or in the Tacoma case does mean that a state can veto a federal licensee, done that as a matter for another day in litigation. It is not right for litigation now. Your Honor, we offered a -- pardon, I may say at the outset that we claim a preference which the court below said was clearly applicable in the absence of a preliminary permit. We have offered in our briefs two reasons why this permit is not applicable at the High Mountain Sheep site. One is the reason I have argued, the major reason that as a matter of statutory construction and by the language of the permit, it never did apply to the High Mountain Sheep site. But we also point out in our briefs which I do not have time to argue, that if this particular permit would encompass this particular site, the permit was a dead permit by the time the license application was filed. And I should like to simply refer to the points in the brief -- briefs where that point is discussed. This is point number eight in our opening brief, beginning at page 53 where we give in some detail a sequence -- in events the citations of the record and is covered in our reply brief at pages 48 and 50. Pardon me, yesterday Mr. Solomon indicated -- they told the Court quite candidly that the permit did indeed as a matter of law encompassed the High Mountain Sheep site and the Nez Perce site -- may I have the blue overlay. The permit is indicated in red on this map, these are the areas shown in the notice and upon the face of a permit. What you're about to see is a reproduction of the information on the maps opposite page 3 of our opening brief. And this shows the legal consequences of Mr. Solomon's assertion yesterday. If indeed the issuance of a permit in 1955 for the area shown in red mainly for the Low Mountain Sheep and Pleasant Valley Dam sites did as a matter of law give this permitee the option, the right to transfer this priority to annul as of the date of issuance of that permit. The High Mountain Sheep and the Nez Perce da -- site, then these were the consequences from the day that permit issued in 1955 describing as I would show in a moment by metes and bounds and records of Public Land Surveys only the area in red. The permitee got without ever asking for it, without ever giving notice to anyone and without the permit saying -- so on its face these rights, the exclusive right of occupancy for three years, for three years of the High Mountain Sheep site and Nez Perce to the effect that he got the exclusive right from the Imnaha River and the exclusive right upon the Salmon River up to the Freedom Dam site, these are the areas that would have been flooded by the Nez Perce Dam. Now then this disclosure of the permitee's claim was not made until the last day the three years of the permit. On the day it expired, he filed this license application which for the first time, disclosed that he claimed the priority for the High Mountain Sheep site. We are now told and that as a candidate, in proper admission by Mr. Solomon that as a matter of law, it also encompassed the Nez Perce Dam site, it didn't encompass High Mountain Sheep. Now the problem is transposing this issue to Alaska or any other unknown rivers does a granting of a permit strictly limited to a specific site, give the permitee that kind of an option. No one can know from reading the permit, reading the application, reading the map that a company's permit, what is encompassed by that permit? Yesterday Mr. Chief Justice Warren asked a question that I don't think was answered and referring to the dams on the cascade map of the Government. This I believe is at page 525 of the record in volume 2. And the Chief Justice asked whether if a permit had been issued for one of the nine dams that are federal dams as it happens. The downstream from High Mountain Sheep whether the permitee would have got the option, an exclusive right on all nine, the answer Mr. Chief Justice says yes. The answer however depends with this qualification upon the permitee's ingenuity, engineering ingenuity in designing a dam. If you'll pick out again, assume we transpose this problem to Alaska, the Yukon, or wherever you like, we're dealing with the interpretation of the statute. But to keep these names of dams for easy identification and pick out the fits, the middle dam of the nine. If we refer to this map, then this means that a permitee for that dam automatically got a preemptive option, a right which displace the public preference on the number one dam upstream even though his plans, his designs, his notice didn't show any interference because of the relative heights of the dams, because he read the right to increase the height of his dam. This was a minor modification, a right that needed no amendment according to the Power Commission Council. Similarly he had an exclusive option upon the downstream dams even though if you look at the map at page 525, the Government's cascade series of maps. It would appear that the dams downstream could have no interference, no relationships to the middle dam. This is because the permitee if he comes in and says “No, I have found a way to build a dam at the downstream site, site number nine, downstream, three times the height that anyone else had thought of. My engineering is better. I've drilled the foundations. Then that dam will -- would indeed have interfered with the one that I named in my permit then because they are mutually exclusive, because they would interfere with each other. I got the option upon that downstream site too. Now this is a strange way to interpret a right in a navigable stream. Mr. Solomon said yesterday that the requirements of a specificity and application for a permit, and the permit itself do mean that you must apply for a specific project and you must describe it. But the reason says he is that this -- the Congress was concerned about excessive land withdrawals under Section 24. Now, mechanically under the regulations, the withdrawal under Section 24 as established by the Commission sending to the Secretary of Interior a copy of its notice that it gave to public agencies, the one notice handed to the Secretary effects ipso facto, a withdrawal of the public lands affected by that project, a rare instance where an individual by filing an application withdraws the lands for his private benefit. The carbon copy of the same notice sent to the public agencies and published in the counties where the project lies, do not have this effect according to the counsel for the Commission. The lands that are covered by the notice of the Secretary are indeed withdrawn and no other lands are withdrawn but the notice of public agencies does not have a meaning on the face of the permit. It is not limited in the withdrawal against the preference right under Section 7 (a) to the lands the power sites described. It extends up and down the river to all competing sites. Now the question of a notice to which I have referred, I should like to simply say here what I say at page 29 of my opening brief, the question is not whether the issuance of a permit or receive a notice of an application puts everyone on notice that the permitee hopes to build a project and that if he does, this will foreclose the development of competing projects. And the question is not whether the municipality learns somehow of what is going on after that permit issues. It's too late. His preference right upon the competing site, High Mountain Sheep and Nez Perce was killed off the day that permit issued and can never be revived while that permit is alive. The question is whether the Commission's issuance of a statutory notice to public agencies of a permit application for a specific site on a navigable stream puts them on notice that a permitee is to get an affirmative priority upon all other sites in competition with those that he has preempted. Now to translate this to any other field of a public land and navigable streams laws of which the Court is familiar, this means that under the Mineral Leasing Act enacted by the same Congress in 1920, if you apply for a prospecting permit on the public lands, they're good for a limited time just as these permits were described in specific areas, just as this permit did. And if you drill your well four miles outside the boundaries of your permit which is the distance of High Mountain Sheep was from the nearest boundary of this permit and affect the discovery that somehow you have acquired under the 1920 Mineral Leasing Act a right to a lease. Now Congress never before has granted any options, any floating easements upon either the public lands or this -- the navigable streams of the United States. And it did not intend we say to disable and cripple the public preference who have carefully made mandatory in the legislative history by giving the permitee this option to roam to transfer his priorities. Reference was made yesterday to the legislative history and again this morning. I should like to call the Court's attention to a rather careful review of the legislative history in Appendix C to my opening brief, this is at page 19A. And on the specific point that has made this morning and yesterday as to whether this priority of preference agencies must be asserted at the permit stage. Congress specifically took up this proposal by utility spokesman and did not adopt it. Instead, it adopted language that preserved the preference for assertion either at the permit stage or three years later at the licensing stage. And it specifically made it clear -- pardon me, I should give you the citations of this. This point is covered in our reply brief under my heading number 6 beginning to page 29. Congress refused to limit their preference to the permit stage. It preserved it to the licensing stage. Why should a public agency interested in the High Mountain Sheep or Nez Perce be forced to come in with a preemptive permit application because it receives a notice of an application for the project which it feels is worthless and is not going to get a license which is exactly what happened here. Now bear in mind that under Section 7 (a), a public agency fairly warned, fairly warned, can wipe the (Inaudible) clean of the competing permit application of the company instantly by filing a preemptive permit application of its own. There's no conditions to that, whatever. If the State of Washington --
Hugo L. Black: Would you explain -- will you explain exactly what you mean by that?
Northcutt Ely: Yes sir.
Hugo L. Black: As it works.
Northcutt Ely: Yes. Section 7 (a) is the statute time relying upon. And that section says in terms that a public agency shall have preference --
Hugo L. Black: Who shall have preference?
Northcutt Ely: -- to the public agency, the state or municipality, the language of the statute is, in issuing preliminary permits hereunder or licenses where no preliminary permit has been issued the Commission shall give preference to applications therefore by states and municipalities.
Hugo L. Black: Are you saying that if a private agency applies to in proper form under 7, thereafter a municipality appear -- applies that the preference to the municipality overcomes the preference, if there are a preference of the company?
Northcutt Ely: We refrain -- let me divide this into two parts.
Hugo L. Black: Yes.
Northcutt Ely: If your question refers to the permit stage --
Hugo L. Black: That's right.
Northcutt Ely: If a permit application notice fairly discloses what the company asks, and if a public agency responding to that notice files a competing application for a permit, the mandate is flapped. The --
Hugo L. Black: Would you say then that the municipality (Voice Overlap) --
Northcutt Ely: Gets the permit --
Hugo L. Black: Even though the company applied first?
Northcutt Ely: That is correct. There is no question about that in our legislative history. That's its purpose. The problem arises that if the company gets the permit as it did here on the phase of a notice restricting the application to a project in which we had no interest. Then three years later, as it did here on the last day of the permit say we changed our minds now. We now claim under that permit projects that we disclaimed when we asked for the permit the question is now whether at the licensing stage our preference has survived so that we may assert that preference against the project excluded on the day the permit was applied for but now purportedly included on the day that the company applies for a license on the new project.
Hugo L. Black: How can you say that you had no interest in the one the company applied for if it was one that would exclude you from getting the one that's close by to it?
Northcutt Ely: Because the public agencies of the Northwest had confidence that the application for the Pleasant Valley project would be rejected as an inferior project and it was rejected. The Commission turned it down. We're under no necessity to come in with the elaborate engineering and the expense of filing a prematurely, a competing application on some other site when the one being applied for on its phase didn't deserve a license. They took the gamble properly that the Commission would reject that application and it did. Now the question, one of the questions in the cases, did the permit survive the rejection of that license application? It was rejected on grounds which we say precluded its reassertion on the High Mountain Sheep site. And indeed the company asked for time to substitute the High Mountain Sheep site to make new investigations. The Commission denied this application on rehearing. But --
William J. Brennan, Jr.: Oh, I gather you concede however that the -- that if the Commission had -- if the company applied for a license on Pleasant Valley, that they would have had priority on that site?
Northcutt Ely: Yes, that is correct. The Pleasant Valley was within the red area, within the announced boundaries of their permit. No question about that. And the question is whether they got an extra --
William J. Brennan, Jr.: And the fact that they'd been granted the permit would give them a priority over you on that site?
Northcutt Ely: On that site because it was within the boundaries --
Byron R. White: That's right.
Northcutt Ely: -- of the notice. Now may I just point out in the record where you'll find some of the things to which I have referred here. First I should say now but I'm sure the Court realizes that this was a three to two decision by the Federal Power Commission dissent on the original opinion filed by Chairman Swidler joined by Vice Chairman Black on rehearing assigned by Vice Chairman Black joined by Swidler. These are powerful dissents and they appear in the record beginning at page 687 as it refers to the comments which I'd like to refer. Yesterday a great deal was made of the Commission's intent to deal fairly and of course it does intend to deal fairly. But two members of the Commission thought the result here was grotesquely unfair and it was a distortion of a statute. And Mrs. Chairman Swidler at page 701 of the record, the majority's position is unreasonable because of the inadequate notice. Indeed the wholly false and misleading notice provided by a preliminary permit under this interpretation and the resulting failure to get potential competing applicants and other interested parties, the statutory notice to which they are entitled. And he said at page 701 the majority position is mystifying because it interprets a permit application as meeting something other than what it says whereas to some compelling reason of congressional purpose advanced in support of this transmutation I might be persuaded but no reason is given. Now, I'd like to ask your attention to the particular permit application and the map which a company did. The --
Speaker: Mr. Ely can I ask you a question?
Northcutt Ely: Yes.
Speaker: Is this view, this interpretation as to the scope of the claimant wasn't before the Commission and incurred in other cases before it?
Northcutt Ely: Never in a contested case, Your Honor. There had been a number of uncontested cases in which as a matter of internal housekeeping. The Commission has sometimes required amendments, other times rejected them. But this is a case of first impression. This is the first time there's been a coalition between a preference claim and a claim of priority under a permit. As Chairman Swidler says, this is a benchmark case that in which the Commission gives vast and sweeping effect to the priority of permit and on unjustifiably restricts the preference Congress intended for public agencies.
William J. Brennan, Jr.: This clearly did -- did your client fight for a permit or a license on Nez Perce?
Northcutt Ely: Applied for a license.
William J. Brennan, Jr.: For a license?
Northcutt Ely: Yes.
William J. Brennan, Jr.: When?
Northcutt Ely: This was in 1960, about five months after we received a notice of license application by the company upon High Mountain Sheep. While a file pro forma application on March 31, 1958 accompanied by maps of the rejected dams, it filed finally 18 months later the papers you now have before you and then the Commission gave notice. And then within five months after that we filed our application.
William J. Brennan, Jr.: In what position did the company take on your Nez Perce application, I take it, of opposition?
Northcutt Ely: Yes.
William J. Brennan, Jr.: Because it conflict of High Mountain Sheep?
Northcutt Ely: That is right.
William J. Brennan, Jr.: Yes.
Byron R. White: Well, that they -- that they had priority or what?
Northcutt Ely: No, this priority issue was muted at that time. It was really -- came in rather later if I may say so. The notion that this permit did indeed give them priority was a very touchy one. They filed a petition for that.
William J. Brennan, Jr.: Well, I take it that would -- that probably didn't come to ahead until (Inaudible), we're losing out Nez Perce, went for High Mountain Sheep.
Northcutt Ely: Yes, I don't think it had occurred to anybody --
William J. Brennan, Jr.: Yes.
Northcutt Ely: -- that the permit in fact gave a priority on Nez Perce. The first time --
William J. Brennan, Jr.: Well, I gather their position would be if this were Nez Perce rather than High Mountain Sheep that it did.
Northcutt Ely: Yes, sir that's -- and Mr. Solomon is correct. If the priority extended by extra laterally beyond the permit to encompass High Mountain Sheep it did indeed include Nez Perce. But we never heard of that at the time.
William J. Brennan, Jr.: Well, what -- your application rejected on Nez Perce?
Northcutt Ely: No, we -- well, yes by the examiner. We did not push it after it became apparent that the fishery problems were (Voice Overlap) --
Byron R. White: (Inaudible)
Northcutt Ely: Pardon me?
Byron R. White: It is to mend the drafts.
Northcutt Ely: Yes, we sought to it, the examiner denied the -- our privilege. The Commission finally affirmed it on their final opinion to substitute High Mountain Sheep.
Byron R. White: In what grounds did the examiner reject this?
Northcutt Ely: Well, he did not feel that Public Power had any right to come in with this late in the day and move to amend to substitute High Mountain Sheep. He was just anti and the Commission overruled it, but too late to do as much good, the case was over by that time. I thank you, Mr. Chief Justice.
Hugo L. Black: May I ask you just one --
Northcutt Ely: Yes.
Hugo L. Black: You say it's not material yet on -- is that it, on your viewpoint that -- Justice Douglas have asked you several times about whether your company was a municipality.
Northcutt Ely: Yes.
Hugo L. Black: What is -- what kind of company is yours?
Northcutt Ely: We are called a joint operate -- joint operating agency created by a statute of the State of Washington. Mr. Justice Douglas, this is a response to your question, I understand Mr. Justice Black. The Washington Public Power Supply System is created as a joint operating agency under a statute of the State of Washington that authorizes public utility districts to exercise their powers jointly. We are also a successor by Act of the Washington legislature to the Washington Power Commission which it had been set up initially to do this kind of a job to build great projects perhaps outside the state's boundaries. The joint operating agency is a -- as a subsequent creation device of the Washington legislature described as a municipality by the Washington statute, by the Commission, and by the court below. It is a municipal corporation comprised of 16 public utility districts within the State of Washington exercising their joint powers in this way.
Hugo L. Black: It's a joint effort on the part of municipality.
Northcutt Ely: That is correct.
Hugo L. Black: To take advantage of the preference provisions of the Act.
Northcutt Ely: That is right. To do what is beyond the financial powers or anyone of them alone.
Hugo L. Black: Are these districts somewhat like the rural electrification?
Northcutt Ely: In a broad sense, yes, they are locally created, locally managed by board of three elected officers within each county. And they build and operate projects. The State of Washington is unique in this form of organization. About half of the population of Washington is served by the 16 public utility districts who are here exercising their joint powers. Before I leave, may I say I haven't said anything about the fish because the fish to my mind are indeed a red herring here, this subject is covered in my reply brief.
Earl Warren: Well --