Earl Warren: Number 29, United States, Appellant versus the Concentrated Phosphate Export Association, et al. Mr. Attorney General.
Warren Christopher: Mr. Chief Justice and may it please the Court. This is a civil antitrust case which comes here directly from the Southern District of New York. The court below dismissed the Government's complaint which had charged that the defendant's activity has violated Section 1 of the Sherman Act. The issue presented here is whether or not the antitrust exemption of the Webb-Pomerene Act extends to the procurement of goods under the United States for foreign aid program where the goods are shipped abroad and where the funds to pay for the goods come from the United States Treasury. The facts are all stipulated here and they're not in dispute. The defendants below appellees here are five major United States corporations which produce concentrated phosphate and the export association which they formed in 1961 and which is called the Concentrated Phosphate Export Association. This association was organized in order to enable these members to act jointly in the overseas sales of phosphate which is used in the production of plant food or fertilizer. The association is properly registered with the Federal Trade Commission under the Webb-Pomerene Act. Now, the Board of Directors of this association determines the prices at which the corporate members of the association will sell their phosphate to the association and it determines the prices at which the association will sell the phosphate to others. In addition, the Board of Directors of the association also allocates the available business among the members of the association. Transactions here on issue involved some 43 million dollars in sales to the Republic of Korea by the export association. These sales were all made pursuant to our United States Foreign Aid Program. Indeed, under this program, the United States through AID, the Agency for International Development has been making grants to Korea since 1953. Two basic methods of procurement are involved in this case in two of the transactions which are before the court involving some 8 million dollars. The procurement was handled by the United States General Services Administration. In that situation, GSA issued a standard invitation to bid, accepted the low bid on behalf of the United States, paid the Association, took delivery of the phosphate and arrange for it shipment to Korea. In nine other transactions before the Court involving some 35 million dollars, eight authorize the Office of Supply of the Republic of Korea to handle the procurement of the phosphate. Each face of this transaction however was rigidly controlled by AID. In these transactions, the Phosphate Association was paid by United States Bank which in turn received its funds from the United States Treasury. Whichever method of procurement was followed, either through GSA or through the Office of Supply of the Republic of Korea, AID supervised every aspect of the transaction. Until final delivery, the aid -- AID retained the right to divert the shipment. As indicated above, my comments in both cases, the funds for the phosphate came from the United States Treasury. The court below said, AID initiated controlled, directed, and financed the transactions involved.
Abe Fortas: Mr. Christopher, I may have missed you when you're talking about the two transactions in which GSA did the procurement directly. Did you say that GSA took delivery?
Warren Christopher: Yes and then transshipped to Korea.
Abe Fortas: Oh! What's the basis of that statement? Did GSA take -- it didn't take physical delivery, did it?
Warren Christopher: The --
Abe Fortas: It just what happened there.
Warren Christopher: GSA did take the --
Abe Fortas: Forgive me for interrupting here but I -- to me the importance, I'm troubles by the mootness point in this case and that has an important -- may have an important bearing.
Warren Christopher: My understanding of the transaction Mr. Justice Fortas is that the goods, the phosphate in each case were shipped from Florida to Korea but in the GSA transaction, GSA actually took legal control of the goods before they were shipped out from the country. On the other hand, the Government makes no distinction between the two types of transactions. We think we do not argue that there is a legal difference between the two types of transactions.
Abe Fortas: Well, if you -- I see you place no emphasis upon the possibility that the G -- if GSA did take delivery on those two transactions. There may be a difference in terms of the issues on this case which you -- there is such a difference you'd like to waiver is that it?
Warren Christopher: Well, Mr. Justice Fortas, we think the crucial fact here is that the funds came from the United States Treasury and that the transaction was controlled in every respect by AID. We do not think that the legal steps in the procurement differed significantly to make the legal difference between the GSA procurement and the Republic of Korea Procurement.
Abe Fortas: Do you contend in the two cases that GSA took delivery in other words that so far as I am concerned the contract was completely performed within the United States?
Warren Christopher: Yes, sir and I believe the stipulation bears that out Mr. Justice.
Abe Fortas: But, with respect to the other transactions, delivery was not effective until the phosphate arrived in the Republic of Korea, is that right?
Warren Christopher: With respect to the other transactions, the Republic of Korea sought the bids in Korea, bids were made there and the phosphate was transferred I believe from the Export Association to the Korean Government in Korea.
Abe Fortas: But you -- you nevertheless make no point about that difference?
Warren Christopher: No, sir. I think that in all the transactions before the court, all 11 of the transactions, the United States should prevail because the funds came from United States Treasury.
Abe Fortas: But if you don't prevail in the ROK transactions and you don't care about prevailing in the other two.
Warren Christopher: Well, Mr. Justice, I think the differences between the two types of procurement are not significant to make it turn on those factors sir. Now, under the stipulation, Korea is under no obligation to repay the funds expanded to the United States. However, so that the matter is fairly before the Court, I should say that when Korea sells the phosphate to private purchasers in Korea, the funds generated which are not necessarily equal to the value of United States must be set aside as counterpart funds. These funds have been used in practice mostly to support the Korean defense establishment but as I say, the stipulation makes clear that Korea is under no obligation to repay the funds expended in these procurements. In 1964, the United States filed a complaint in the Southern District of New York charging that the activities of this association constituted illegal price fixing and an allocation of business in violation of Section 1 of the Sherman Act. The court below dismissed the complaint holding that the transactions were within the Web-Pomerene exemption. In the view of the court below, because the goods were shipped to a foreign country, the District Court thought they constituted export trade within the meaning of the Act. However, the District Court noted in its opinion that it seems obviously unfair to the United States to permit the defendants to charge and artificially set price and to deprive the United States of the benefits which might come from price competition between the association notwithstanding that statement, the District Court felt that the exports here were within the exception -- exemption of the Webb-Pomerene Act and therefore held that the Government's complaint must be dismissed.
Byron R. White: Is there any contention here that there was not competition between the association and other bidders?
Warren Christopher: Mr. Justice White, there was competition between the association and other foreign bidders and other bidders from the United States.
Byron R. White: And there were foreign bidders in this picture all the time, weren't there?
Warren Christopher: That's correct Mr. Justice White. The extent of them can be indicated from the fact that they made less than 16% of the bids and got less than 18% of the business. But under our theory of the case, the presence of foreign competition even to that limited degree does not change what we regard as the proper result and that is that where United States pays the bill and where AID supervises the transaction, the Webb-Pomerene exemption should not apply.
Byron R. White: And this doesn't make any difference that the fact that one of the purposes of the Act was to permit Americans to compete successfully with foreign bidders? Is that -- that purpose is present here but nevertheless you think should be limited where the United States pays the bill?
Warren Christopher: That's correct.
Byron R. White: Even though -- even though if the purpose of the action is satisfied, you would think the purpose was affected in having a bit lower than foreign bids?
Warren Christopher: Well, the basic purpose of the Act was to enable the American exporters to compete in foreign markets for what I would call traditional foreign business where the foreign source pays the money. Now the framers of the Act were very careful to make sure that there'll be no injury to the American consumer, to the American taxpayer. Now, I think it's that legislative purpose which illuminates the Act and which makes it clear here that where Uncle Sam pays the bill and aids and supervises the transaction that the exception does not apply. Our -- it seems to me that as we look at the Webb-Pomerene Act, we must look at the underlying reasons, we're not prisoner of the dictionary by any means, I think our obligation is to look at the history and purpose of Congress. As just indicated in my comments to Mr. Justice White, Congress was trying in this Act to give the American exporters a better chance to compete against foreign monopolies especially foreign buying cartels. The philosophy of the Act was United States business is it should be freed of antitrust restraints and their approach to foreign market. Congress thought it was acting primarily to aid small companies which had thought could not compete effectively in foreign markets unless they could act jointly. Now, the purpose of the Act in my view was frankly a very chauvinistic one. Both of them in for whom the Act is named emphasized this point. In the House, Congressman Web indicated his willingness to allow a combination between anyone or anything for the purpose of capturing export trade but only so long as it did not punish the people of the United States. In the Senate, Senator Pomerene pointedly remarked were not concerned about giving to the foreign consumer a minimum price. Indeed, the FTC report from which the Act is from emphasized that the form of organization permitted must not operate to the prejudice of the American public reflecting that chauvinism this Act authorize joint activity in circumstance where the resulting non-competitive price would be borne by a foreign country or by the people of the foreign country. But the Act in its legislative history make it clear as we read it that this joint activity was to be permitted only so long as there had been no adverse effect upon the American economy. Only so long as the American people would not be punished, the whole purpose of the Act points out we think an exclusion of those transactions whereas here the anticompetitive conduct, the joint activity might be involved would be at the expense of the American taxpayer. Congress was trying to strengthen the hand of the American exporter to be sure as Mr. Justice White said But the export trade within the contemplation of the Act in our view was the traditional export trade between America and foreign countries, American businesses trying to get business and foreign countries that will be paid for by foreign sources or by foreign governments. Now, there are powerful reasons we think in addition to the legislative history supporting the construction that we advance here. The Webb-Pomerene Act is an exception to the broad mandate of the antitrust laws. It's a familiar principle that such exceptions are to be narrowly construed. We think that this rule requires the Webb-Pomerene Act be confined to its underlying purpose and not given the expansive construction argued for here by the appellees which would involve as we see it a potential burden on the American taxpayer. We think also that the history of Government procurement points the same direction in all Government procurement; it's been a strong policy of Congress that there should be no interference with normal competition. We think that when the taxpayers are paying the bill as they are inevitably in procurement situations, the benefits of competition should be available. Now, Mr. Justice White one of the limitations of history is that it doesn't tell us what the circumstances would be under a different set of assumptions, rather a different set of premises.
Byron R. White: (Inaudible)
Warren Christopher: I think the assumption that Congress had when it drafted the Webb-Pomerene Act was that they were going to be aiding small companies in getting together small American companies in getting together in competing in the world market but I think it was an equally important intention of the Congress of 1918 that they should not permit any activity which would be at the expense of the American taxpayer or which would penalize the American people. Now, in the brief of the appellees, they make good deal of the point that the AID officials invited the defendant association to bid and that is certainly a fact that is borne out by the stipulation.
Byron R. White: (Inaudible) itself, suggested that (Inaudible)
Warren Christopher: Yes, that is correct Mr. Justice White and --
Byron R. White: (Inaudible)
Warren Christopher: -- as to that I would only say that procurement officials do not act as the final arbiters of the antitrust laws. They do not control United States antitrust policy and frequently they take actions which in the long run turn out to be in violation of antitrust laws. Indeed, the only other time that this Court I think has written an opinion on the Webb-Pomerene area and the Alkali Export Association case in 325 U.S., this Court made it clear that it was the responsibility of the Department of Justice to invoke the Sherman Act against the Webb-Pomerene Associations when the associate -- when the circumstances were appropriate. Perfectly clear, I think under all the precedence that the officials at AID have no power to waive or suspend the provisions of the Sherman Act no matter what they might have done to encourage the formation of Webb-Pomerene Associations or their bidding on these contracts. Neither does it seem to me to be persuasive here that in the course of the legislative history, there are indications that Congress was aware that there might be loans to foreign governments during the World War 1 period when this Act was enacted or thereafter. The crucial difference is that the loans refer to in that portion of the legislative history were repayable and the burden of noncompetitive conduct, the burden of joint activity would fall on the foreign governments or their citizens where it isn't the case of United States grants which has been the familiar pattern under AID. The burden of noncompetitive conduct falls on the American taxpayer. It's our position here that the framers of the Act, although they wanted to encourage export trade and wanted to encourage small business in the United States to get together to compete in foreign markets. They were equally clear that this was not to be in any respect at the expense of the American taxpayer. Now, would you take five companies as large as these companies are, I think one might not unnaturally think that if they were competing against each other and this or comparable situations that a lower price might be achieved as I say history in this transaction does not tell us that but the whole premise of our antitrust laws is that competition will produce lower prices and it is those lower prices of that competition which I believe the framers of the Act would have wanted to preserve for the American taxpayer and those instances where there is federal government procurement.
Abe Fortas: Are you going to address yourself to the mootness problem, Mr. Christopher?
Warren Christopher: Pardon me?
Abe Fortas: Are you going to address yourself to the mootness problem?
Warren Christopher: I'm glad to do so Mr. Justice Fortas. There might be two possible grounds on which mootness could be suggested neither of them persuasive I believe sir. First, the Webb-Pomerene Association here has been dissolved but it is a familiar rule of this Court that the right to antitrust relief cannot be undercut by the dissolution of an association or corporation during the course of litigation. That goes back to, I think the Freight Association case in 166 U.S. The second ground on which on which mootness might be suggested is that on January 1, 1967 the AID officials adopted a regulation forbidding Webb-Pomerene bidding or bidding by Webb-Pomerene Associations and know his instances where there is procurement from United States sources only. Now that's a limited high type of regulation. It would not in terms affect this case. Even if it did though Mr. Justice Fortas, it seems to us that the fact that AID could change that regulation, modify and go back to its own rules, makes it clear that this case is not moot and underscores the need for a determination here. We're seeking a statutory determination of what we regard as a very important underlying question. It's a reconciliation of two important statutes, the Webb-Pomerene Act and the Sherman Act, the determination of that statutory question and the importance of it has not been diminished by anything that's transpired and for the reasons I've given, I believe the case is not technically moot. Mr. Chief Justice, if I might reserve the remainder of my time, sir.
Abe Fortas: You may do so. Mr. Murphy.
Samuel W. Murphy, Jr.: Mr. Chief Justice if the Court please. I think we would differ a bit with to the Deputy Attorney General in stating the question presented on this appeal. We would state the question as being whether AID finance export sales made in competition with foreign producers. This export trade, as those words are used in the Webb Act, it seems to us of considerable importance on the stipulated facts of this record. Importance both in terms of the general significance of the case to the propositions the government is putting forward and the importance in terms of the outcome of the case that there was active foreign competition here in each of the transactions challenged by the Government with one exception, that one exception being a transaction on which the defendants received no award of the business. In the Webb-Pomerene Act in defining export trade, Congress went to particular care to outline first what export trade was to be covered by the immunity of the Webb-Act defining it in terms of the export of goods from this country to another. It also defined export trade in terms of what it is not. It is not production. It is not manufactured. And it is not sale within the United States for resale or consumption here. In addition, Congress attached a series of provisos in which it was stated that even no one act might be within export trade as literally defined. It would nevertheless be subject to the Sherman Act prohibitions if it resulted in any effect, artificial or intentional effect on prices on the United States, any restraint of the export trade of domestic competitors on the association or any restraint of trade in the United States. This is a stipulated record. It is stipulated here that the goods sold by the defendants were exported from this country, not only to Korea but to 38 other countries. It is stipulated that the defendants met all of the requirements of the Webb-Pomerene Act. Now, it is conceded that they did not violate any of its provisos. Consequently that being so, it seems to us that the ultimate question presented to this Court by this appeal is whether the transaction is challenged by the Government were so radically different from anything that Congress might have had in mind in 1918. As to justify or require a departure from the otherwise pretty plain English of that law.
Abe Fortas: Under the Webb-Pomerene Act if this were, if the sale in question were sale to the United States and paid for by the United States and then the merchandise were shipped by the United States out of this country. Would it be -- would the transaction have the benefit of the Sherman Act exemption and antitrust exemption?
Samuel W. Murphy, Jr.: I think a practical sense, Justice Fortas, that would depend on other facts not in your question. Our position is that as a general proposition, the test of whether the Webb Act applies is the ultimate and intended destination of the goods. But I would believe that in the case where the sale were to the United States and for used by the United States, some place out that one of the provisos attached by the Act might well come into play dependent on the facts of the situation.
Abe Fortas: You mean, that that might not be -- that transaction might not be entitled to the antitrust exemption?
Samuel W. Murphy, Jr.: Yes, sir.
Abe Fortas: And suppose that the United -- same facts that I gave you before in the United States instead of sending it abroad for use by the United States, send it abroad for use by another country.
Samuel W. Murphy, Jr.: I think that that transaction given only those facts would be entitled to the exemption of the Webb Act by the test that Congress has laid down.
Abe Fortas: So that what you're relying on here are two facts perhaps. One, that the purchases were made and with possible exception of the two transactions purchases were made by an agency of the Republic of Korea. And two, although they were turned over to the Republic of Korea, although the merchandise has turned over to the Republic of Korea it was intended for resale there. Are those the two points on which you rely to distinguish this from the last case I put through?
Samuel W. Murphy, Jr.: We also rely very heavily Justice Fortas on the presence of foreign competition. There's just no question that the Webb-Pomerene Act was designed basically to encourage American companies to participate more extensively in export trade by allowing them to collaborate not only for the purposes suggested by the Government but also for the purposes of reducing cost and mastering greater resources.
Abe Fortas: Well, would you agree that theoretical matter if the procurement were by the United States for used by the United States abroad, in fact that there would be foreign competition would not put the transaction under the antitrust exemption umbrella of the Webb-Pomerene Act?
Samuel W. Murphy, Jr.: No, I don't believe I would agree with that Justice Fortas.
Abe Fortas: Do you think that if there is foreign competition that that fact standing alone entered to the export of the goods of course makes it a Webb-Pomerene transaction perhaps as an antitrust exemption.
Samuel W. Murphy, Jr.: I wouldn't agree that that fact standing alone is determinative but it seems to me certainly one of the most significant facts. In our case, as I understand it, the government's position comes down solely that a proposition that there was injury to the United States. An injury which they presumed as I understand there case from applying to the sales of this Webb-Pomerene Association, Sherman Act principles to which Congress has said are not to apply so long as that association is engaged in export trade and that seems to us a peculiar avenue along which to approach the question of whether this was export trade. But even if you start down that avenue at a reason why we emphasize foreign competition here, even if you start down that avenue, it is our further position that you find no injury, no injury in fact. Now, Mr. Christopher has emphasize that in his argument and the Government has in its brief the point that the Republic of Korea bought concentrated phosphates in this particular transactions using grant funds and that therefore there was a burden on the United States. I suggest the burden is far greater where a foreign competitor wins an award of that business because that's foreign competitor was just as eligible as where this defendants to be paid an AID dollars. And every AID dollar paid to a supplier from Tunisia on account of his sale to the Republic of Korea was a dollar that was gone from the United States. Whereas every dollar that these defendants obtained in this Korean Market as was true with the dollars it obtained in selling in 30 (a) other markets was a dollar kept in the United States and to that extent on the facts of this case it seemed to me if there is a physical burden of any kind we help to reduce it.
Byron R. White: What I gathered from Mr. Christopher's statement that, what percentage did he say of trade had been obtained by foreigners?
Samuel W. Murphy, Jr.: I believe he used the figure about 16%.
Byron R. White: Of the trade of the AID business or at the trade this Korea or what?
Samuel W. Murphy, Jr.: I was not clear. There were 13 transactions with Korea.
Byron R. White: Well, I understand that.
Samuel W. Murphy, Jr.: Two of which are not challenged in this case Justice White.
Byron R. White: Which are involved in this case but none of the 16% are these transactions. None of these transactions that are foreign company get. Now the foreign companies have been successfully bidding against this association I gather.
Samuel W. Murphy, Jr.: Quite so and it won awards in the most (Voice Overlap).
Byron R. White: Not just bidding but successfully (Voice Overlap)?
Samuel W. Murphy, Jr.: Absolutely.
Earl Warren: We'll recess now Mr. -- Mr. Murphy you may continue your argument.
Samuel W. Murphy, Jr.: Mr. Chief Justice, if the Court please, I should like to return briefly to two questions as just before the recess. Mr. Justice Fortas asked the question of where delivery was made on the two transactions in which GSA participated. According to the agreement, Justice Fortas, between GSA and AID and the pertinent part is printed at page 288 of the appendix, delivery was to be made to AID or to its designee which in this case was the Republic of Korea and the papers on one of those transactions which are printed in the appendix beginning at page 293 shows that in that transaction delivery of the commodities was made to a vessel in a Florida Port consigned to the Republic of Korea. As to the questions of Justice White about this excessive foreign producers on these transactions which I'm not sure I answered too clearly. Of the 11 Korean procurements financed by the agency for international development, foreign producers won 18% of the total amount of business awarded on 11 transactions. Just before the recess, I was saying --
Byron R. White: (Inaudible)
Samuel W. Murphy, Jr.: Sir?
Byron R. White: How did you sell the participating (Inaudible)?
Samuel W. Murphy, Jr.: Korea awarded --
Byron R. White: (Inaudible)
Samuel W. Murphy, Jr.: Well, Korea invited tenders on and awarded very substantial tonnages and a particular bidder would also make a variety of bids depending on delivery time, different prices for different quantities, different delivery periods and in many of these transactions, the awards were split so much to these defendants and so much to another American supplier, so much to a foreign producer.
Byron R. White: Do you think that in these (Inaudible)?
Samuel W. Murphy, Jr.: Oh! No question about that. Now before getting back into the facts which at least as we view of them showed that these who are not totally different transactions from the kind -- Congress contemplated, I would also like to note in passing that the Congress which enacted the Webb-Pomerene Act in 1917 and 1918 was itself very busy in foreign aid. It was during that period that Congress was authorizing and appropriating very considerable sums of money for foreign assistance programs. So that certainly Congress had within its general contemplation in adopting the Webb Act that export trade associations would trade in foreign markets that were supported in United States that recognition was expressed during the debates prior to passage of the Act and at the end of World War 1 and immediately thereafter, Export Trade Associations did sell at that time to European customers who were totally dependent on the financial assistance of the United States. Export Trade Associations have continued to make those sales from time to time during the 50 years since the Act was passed. During war time and post-war period in the Land Lease Program as it stipulated in various of the modern foreign aid programs. During that same period, the Congress has regularly reviewed the foreign assistance programs and has frequently reviewed the Webb Act and has never at anytime suggested that it intended in anyway in adopting the modern foreign assistance programs to roll back the Webb Act as the Government now acts. Now, Mr. Christopher referred to a sentence in Judge Ryan's opinion below which does seem to me a good way to get into a more detailed discussion as some of the facts here in which Judge Ryan and I am referring to page 362, the joint appendix says it seems obviously unfair to the United States in describing the situation in which Webb Associations sell the foreign aid finance customer. It's quite clear to us that Judge Ryan in that sentence was describing the Government's argument. He says, herein is the core of the Government's argument. We cannot say that it does not have appeal and then follows the sentence that Mr. Christopher referred to. But Judge Ryan then goes on in the balance of his opinion to set forth his conclusions. As to why the Government's position why the superficial appeal of unfairness in the Government's position is simply not so as a matter of fact. Now, in this particular case, we rely quite heavily on the aspect of foreign competition as meeting any suggestion of fairness -- unfairness as well as two other aspects of the case. First, the full disclosure to and yet encouragement by officials of both the Korean and United States Government of the defendant's participation in a finance business; and secondly, the facts, the stipulated facts which is we view and I'm quite clearly demonstrate that there was no injury here to United States as a matter of fact. Now, these defendants and their association registered with the Federal Trade Commission, there's no question about that, observed all of formal requirements of the Webb Act. They did what Congress intended where the Associations to do. The Association went out and sold American produced phosphates wherever it could find or create demand all over the world in 38 countries in addition to Korea, although Korea was the single most important consumer or purchaser of these association's products. At all times, it is stipulated AID, GSA, and the Office of Supply of the Republic of Korea, knew what the defendants were, knew how they did do business and at all times, all of our bids to Korea were made in response to formal invitations in competitive public bidding procedures. Now, we don't suggest that those facts themselves give rise to any kind of an antitrust immunity and we don't suggest that AID's regulations and activities take the place of either the Webb Act on the one hand or the Sherman Act on the other. But they are facts which do seem to us to be quite significant as they relate to the threat running through the Government's case suggesting unfairness on our part and perhaps even more importantly, we believe that they are significant to the question of injury. Had AID officials believed that their program was being in any way burdened by the activities of these defendants, in any way injured or frustrated as the Government has suggested by these defendants. I think it's unreasonable to conclude that they would nevertheless have solicited bids from us. When AID clearly did possess the authority which it exercised on January 1, 1967 they shot Webb Act Associations out of AID finance markets. Now, a second important fact is this factor foreign competition which is already been covered quite thoroughly and that brings me to what I think is the quite clear fact that there is just no evidence in this stipulated record that there was any injury of any kind. That there was any burden of any kind on the United States any harm either that Korea or to the United States foreign aid program and this is a stipulated record. During the hearing below before Judge Ryan which took the place of a full trial, he probed quite carefully into this question and in response to his questions, the Government's counsel conceded there was no suggestion here by the Government that the defendant or their association had in any way overcharged either AID or Korea, or had engaged in any way in any unfair, unreasonable or discriminatory price. There is never been any suggestion in this case of any damage, any injury, any burden, any unfairness. As a matter of fact, the only injury that is set to flow here flows from applying to business activities which are exempt from the Sherman Act, principles that would apply only if the exemption were lost. Now, not only is there no injury but if the Court please, we think the record is quite clear that the evidence relating to that question is quite to the contrary.
Abe Fortas: Well, how about maybe -- the problem I think is a problem of statutory construction application here and the United States -- sales to the United States are not expressly outside of the coverage of the antitrust exemption under Webb-Pomerene Act. But do I understand that you agree that there are outside of that exemption on the basis of the doctrine that sovereign is excluded unless specifically -- unless otherwise specifically provided?
Samuel W. Murphy, Jr.: Well, I haven't thought about that on that basis, Justice Fortas but I do agree that a sale to the Untied States for consumption by the United States is not included.
Abe Fortas: So, it seems to me that the question here that at least threshold question is whether the various functions performed by the United States in these transactions convert this into in effect a sale to the United States by this association. If it is considered a sale to the United States, it may be some other questions to be answered but at least to that extent, you take it out of the Webb-Pomerene exemption and you may, then I think you would say, you want to find out what the United States does sale. What's your comment on that? Unfortunately compound question of mine.
Samuel W. Murphy, Jr.: I would begin by saying that that I do not agree that a sale of commodities to the United States which commodities the United States then gives away to a foreign consumer is outside the Webb exemption. I think that is within the Webb exemption.
Abe Fortas: Well, why is that?
Potter Stewart: You mean within the Webb Act?
Samuel W. Murphy, Jr.: Within the Webb Act, yes sir.
Potter Stewart: Not within the exemption?
Samuel W. Murphy, Jr.: That's correct. That that is export trade as the Webb Act defines it.
Abe Fortas: Even, even though, so you think that the United States, the United States, sovereign United States is deprived of the -- is affected by the antitrust exemption in the Webb-Pomerene Act depending upon what the United States does with the merchandise?
Samuel W. Murphy, Jr.: Well, quite frankly, Justice Fortas, I am unable to answer the sovereign -- the sovereignty aspects of your question and I do not think that this is a position that we have to defend in this case that it is --
Abe Fortas: But I'm not sure that it isn't. Where do you get -- what's the basis of your agreement or your statement that a sale to the United States for consumption by the United States in some foreign country --
Samuel W. Murphy, Jr.: Yes.
Abe Fortas: -- is not covered by the antitrust exemption? What's the basis of that? How do you arrive at that?
Samuel W. Murphy, Jr.: I must have misunderstood your questions Justice Fortas but my position would be and is that Congress set out a clear test in using the word "export" in that same sense that it had become settled in the law by that the sense of its ultimate resting place. I believe that I responded to your similar question before the recess Justice Fortas by saying that in my view, on the facts you post that is a Government purchase and Government consumption abroad.
Abe Fortas: That's right.
Samuel W. Murphy, Jr.: That the provisos would come into play and depending on the facts and the situation, it would be found that there was a kind of effect on domestic commerce which the Act, the Webb Act proscribes. But in this case, it has been stipulated that the United States was not the purchaser on page 49 of the appendix in our stipulation it states AID did not itself procure any concentrated phosphates for Korean and the record is replete with the fact --
Abe Fortas: I know but GSA is the United States too.
Samuel W. Murphy, Jr.: Well, the Government as I understand it attributes no significance to the difference and in our view GSA's participation did not order the substance of the transactions at all. Now, Mr. Christopher has suggested that this is a very significant case in which the Government needs a broad ruling which brings one naturally to the question Justice Fortas also raised this warning about mootness. In the first instance, we would emphasize that narrowness of this case stipulated record the fact that it relates to AID finance only to AID finance markets in which there is foreign competition. The emphasis placed in the case by the Government on the fact that Korea used grand rather than loan aid whereas at the present time, grants form a relatively small part of total foreign aid. Now, finally, the whatever significance this narrow case had was pretty well sucked out of it when effective January 1, 1967 AID adopted a regulation which went directly to the question of the extent to which Webb Associations can deal and aid finance markets by providing that such associations would not be eligible to bid unless foreign suppliers were also eligible to bid. The practical consequence of that regulation was to put this association out of business. The association seized all operations in June of 1967, has made no sales since then, and the association was formally dissolved and entirely abandoned at the end of last year. The Government's case it seems to us comes down to a policy argument that is somehow a bad thing to allow export associations to sell to foreign customers being finance to the United States Government. We suggest that that is an argument better addressed to the Congress and to this Court and that in any event, the narrow nature and now the dead nature of this case will not support the weight of that kind of policy consideration so that the judgment below should be affirmed. Thank you.
Earl Warren: Mr. Attorney General.
Warren Christopher: Mr. Chief Justice and may it please the Court. I wish to make only three brief points in concluding. First, the Government believes that the presence or absence of foreign competition is not the determinative factor on this issue of statutory construction. The foreign competition was present here was only that competition which was permitted by AID. As paragraph 23 of the record indicates, page 49 of the stipulation, the only foreign purchasers that were able to participate in the bidding, I'm sorry, the only foreign companies that were able to participate in bidding were those in countries which were authorize to bid under the aid regulation. Basically, aid permitted companies in the underdeveloped countries and the less developed countries to bid on this procurement. I think this demonstrates very well how irrelevant the presence or absence of foreign competition is to determination of the statutory issue. AID could tomorrow ban all foreign competition and is frequently done so in connection with its procurement or its supporting of foreign countries procurement. In a situation where American companies had a monopoly there would be a foreign competition at all. And yet, the statutory question would remain the same so I think we would say that the procurement agency determines the extent of the foreign competition, the procurement agency is able to determine whether or not it wishes on a given procurement to permit foreign companies to participate in the bidding and thus, to have some of our dollars go abroad to reflect on Mr. Murphy's concern and that fact the extent to which the procurement agency permits foreign competition is I say should not and cannot be controlling on the matters of statutory construction involved here. Second, while we do not contend that there was any fraud on behalf of the -- around part of the defendant appellees, at the same time we would not agree that there's been no conceivable injury that the Government in this case. The record shows that each of the defendant corporations which form this association is a company of more than a hundred million dollars in assets. One of them has four and a half billion dollars in assets. To suggest that if they were bidding against each other, the result would not have been different is I think to fail to look at the realities which lie behind the Sherman Act. Four of the five companies that make up this export association are in the top five in this industry. All five are in the top 10 and I think when you look at those facts, you have to recognize that if the bidding had been fully competitive of the American taxpayer it had the advantage of having American companies bidding against each other. It might have had a different result. So while as I say, we do not charge any fraud on the part of the defendant companies, we think this is the very pure question of statutory interpretation and an important one. Nevertheless, the premise of the antitrust law is I think is effective here to indicate that there should be bidding for the full competition where Government procurement dollars are involved. And finally, I would like to go back to Mr. Justice Fortas' questions and the points he has been making because I believe that shows, I believe they illuminate the fact that the form of this transaction should not be controlling here but rather, what should be controlling is that this is Government procurement. These are United States tax dollars and they ought to be spent under circumstances where the American taxpayers has the full benefits of competition. This has been the tradition in Government procurement. This should be followed in the Webb-Pomerene Act as well.
Abe Fortas: What's the basis for excluding the sales to the United States from antitrust exemption?
Warren Christopher: The Webb-Pomerene Act, Mr. Justice Fortas, provides the exemption for activities done in the course of export trade. It's the Government's contention that when Congress used those terms, it was referring to traditional export trade where American businesses sold in foreign countries to foreign purchasers who paid from foreign funds. We think that legislative history makes it clear that Congress did not use those words in referring to or to refer to American procurement.
Abe Fortas: In other words, it's not, you're not relying on any expressed provision on the statute but by implication derived from the fact that the United States has a sovereign in that doctrine and the legislative history?
Warren Christopher: Yes, Mr. Justice I believe that could be argued that the proviso taking out of the exclusion, things are -- that are in restraint of trade within the United States, I think it could be argued that that proviso might be effective here because this conduct restrains trade in American procurement. But the Government believes that the sound or articulation of the argument is that the history of the Act and the intention of Congress excluded Government procurement from the concept of export trade that they were trying to permit companies to get together on. Thank you sir.


Warren E. Burger: The case is submitted. We'll hear arguments next in Lewis against BT Investment Managers. Mr. Griswold, you may proceed whenever you are ready.
Erwin N. Griswold: May it please the Court. This case is here on appeal from a three-judge District Court in the Northern District of Florida. It is a constitutional case in the Commerce Clause area relating to banks, involves specifically the validity of two Florida statutes dully enacted by the Florida Legislature, designed to prevent activities in Florida by subsidiaries of out-of-state bank holding companies. The first of these statutes is Section 659.141 of the Florida statutes as amended effective in December 1972. This is set out in full in Appendix A at the close of the appellant's brief. That's the red brief. The appendices are separately paginated but I think it can be easily found at the beginning of Appendix A. The part which is relevant in this case is at the beginning of the section, on the first half of page A1, except it's provided in Subsection 3 “No bank, trust company, or holding company, the operations of which are principally conducted outside the State, shall acquire, retain, or own directly all or substantially all the assets of, or control over, any bank or trust company having a place of business in the State where the business of banking or trust business or functions are conducted.” That's the first part. “Any bank or trust company, or acquire, retain or own all or substantially all of the assets of or control over any business organization having a place of business in the State, where or from which it furnishes investment advisory services in the State.” Now, that statute was amended in 1972, the reading in its present form. Prior to that, it had been applicable only to the rendering of investment services to banks, but the restriction of the banks was taken out in December 1972. It will be seen that this bars an out-of-state bank holding company from one owning any bank or trust company, having a place of business in the State. And it also bars an out-of-state bank holding company from owning a subsidiary having a place of business in Florida from which it furnishes investment advisory services. The second of the Florida statute is Section 660.10. And that is in Appendix B at the close of the appellant's red covered brief and the essential part of it is that, “No one except a bank and trust company incorporated under the laws of the State and having trust powers, except the National Bank located in the State and having trust powers, can exercise any of the following powers which include acting as executive, guardian, trustee, trustee in various situations, receiver assignee, fiscal agent and so on, debarring anybody but Florida corporations from conducting the trust business in Florida.” You'll see that fits in with the corresponding provision in the other section.
William H. Rehnquist: Mr. Griswold, do you think that the effect of these statutes would bar an individual who did not wish to limit his liability from going into Florida and rendering this suit?
Erwin N. Griswold: Not, not at all. It's only applicable, an individual would have to incorporate in Florida but he -- he could not --
William H. Rehnquist: What if he didn't want to incorporate at all?
Erwin N. Griswold: He -- he -- well, I have to read the -- the language of the statute to see just how it applies to an individual.
William H. Rehnquist: I -- I was looking at page 82 of your appendix and on Section 2 there it says, “Referring to the business organization control in any manager in any manner of the election of a majority, the directors, or trustees of the bank, trust, or holding company.” And then Section 1 before that says, “The business organization directly or indirectly acting to one or more person's own controls as part about 25% of all the shares of any class of voting security.” So those -- now, that language to me connotes a corporation.
Erwin N. Griswold: And -- and Section 660.10, and I've been looking at it, is plainly applicable only to -- to corporations. It does not apply to individuals and you could have private individuals acting as trustees in -- in Florida in the trust business. And the section has no relation to it.
John Paul Stevens: Mr. Griswold, before you leave the statutes, may I -- do I correctly understand that 659.141 would prohibit the formation of a subsidiary to engage in the investment advisory business, whereas 660.11 would permit an out-of-state bank to own a local subsidiary if it's provided. We got a Florida charter (Voice Overlap) --
Erwin N. Griswold: As far as the Florida statute is concerned, it -- it would.
John Paul Stevens: Yes.
Erwin N. Griswold: There are other --
John Paul Stevens: I have some question as to whether we really have to decide anything about 660. -- the second statute because I don't see that they ever tried to do that.
Erwin N. Griswold: I -- I agree with you entirely, Mr. Justice, however, the court below did grant an injunction against the enforcement of 659.141 and entered a declaration that Section 660.10 was unconstitutional. If either of those stand, the result is essentially the same with respect to trust companies. But I think the operative statute is 659.141. The court below held that, first to the statutes, was unconstitutional as applied to trust and investment advisory services as an interference with interstate commerce. In the Court's words, “This parochial legislation must be deemed per se unconstitutional.” It enjoined the enforcement of the statute except as to the ownership of banks. It also gave a declaratory judgment that Section 660.10 is invalid as violative of the Commerce Clause.
William H. Rehnquist: The District Court had originally abstained, had it not? And then been reversed by the Fifth Circuit?
Erwin N. Griswold: And they've been -- been reversed by the Fifth Circuit and they went back and they then decided the case. It's our contention that neither of these Florida statutory provisions violates the Commerce Clause as understanding of the effect of that clause has been developed in the teachings of this Court. As this Court recently said in its decision in Hughes against Oklahoma just last April, the case as defining a scope of permissible state regulation in areas of congressional silence, reflect an often controversial evaluation of rules to accommodate federal and state interest. And that is what we have involved in this case. The cases show that for the purposes of applying the Commerce Clause as a limitation on state power, the definition of interstate commerce while broad is not without limits. One of the cases which we discussed in our brief is United States against the Oregon State Medical Society which found that local personal services were not interstate commerce for the purpose of the claim involved in that case. Similarly, I would point out that this case does not involve movement of goods across state lines as in Philadelphia against New Jersey, the case upon which the court below primarily relied, or in Hughes against Oklahoma, nor does it involve any restrictions on the means of transportation of goods, such as railroads or trucking companies or airlines. In this case, the subject of commerce is the provision of a personal service on a local basis. The next is with interstate commerce, is much less obvious and proof of the substantial effect on interstate commerce is required before a straight -- state restriction can be struck down. But there is no such showing of a substantial adverse effect on interstate commerce here. No direct evidence of any sort was presented on that matter in the trial court. The case was tried entirely on a stipulation which is set out in full text on pages 22 to 25 of the appendix. The court below hypothesized the necessary effect on interstate commerce. The court expressly acknowledged that there was no direct evidence of that effect in this case. The appellees were the plaintiffs in the court below, and it is difficult, if not impossible, to conclude that they have met their burden of proof on this element. We have discussed a number of cases in our brief but the case which is closest to this, I believe, is the decision two years ago in Exxon Corporation against the Governor of Maryland. It's appropriate, I think, to point out that the court below didn't even discuss the Exxon case. It didn't even cite it in its opinion, though it is, I think, clearly the closest case. It involved a Maryland statute which prohibited all producers and refiners of petroleum products from operating retail service stations in Maryland or from discriminating between customers in Maryland. Now, there are no producers or refiners of petroleum products in Maryland which everyone knew. It is suggested in the other side of the brief here that this statute is bad because it is discriminatory on its phase whereas the Maryland -- Maryland statute was not. But this Court said in the Hughes against Oklahoma case last spring, that a statute must be determined as to whether it is discriminatory on its face or in its operation and effect. And the impact of the statute in the Exxon case was entirely on out-of-state refiners and producers which operated service stations in Maryland. This Court noted that statute did not totally block interstate marketers of petroleum from -- from entering the Maryland market and this statute does not totally block extra state corporations, individuals, businesses, other than banks and bank holding companies from entering the -- the Florida market.
Byron R. White: How do you enter the Florida market into these statutes? How would a New York bank enter the Florida market?
Erwin N. Griswold: A New York bank can't enter the market under the -- under the Paine, Webber, Jackson & Curtis can open an office and give investment advice in New York. Standard & Poor's which puts out much investment service can open an office and give investment advice in New York.
Byron R. White: The bank --
Erwin N. Griswold: Anyone --
Byron R. White: -- the banks and trust companies, especially trust companies who are usually in the business of giving investment advice --
Erwin N. Griswold: Any --
Byron R. White: -- they can't -- they can't enter the market at all.
Erwin N. Griswold: So are Paine, Webber --
Byron R. White: In any -- yes, but in any -- in any way, they can't enter the market.
Erwin N. Griswold: It is quite true. The effect of this statute --
Byron R. White: Either through a subsidiary or directly.
Erwin N. Griswold: Either directly or -- or through a subsidiary, they cannot enter this --
Byron R. White: Investment advisory business.
Erwin N. Griswold: -- this -- this investment advice or --
Byron R. White: Market. And -- and that -- that also means they can't act as a trustee?
Erwin N. Griswold: And the other part of the statute means they cannot act as a -- as a trustee.
Byron R. White: That is a -- and that -- that normally includes giving investment advice.
Erwin N. Griswold: It often includes giving investment advice. As in Exxon, the statute here does not prohibit the interstate movement of articles or goods. It doesn't prohibit the flow of fiduciary services into or out of Florida. It limits in-state outlets when owned by out-of-state banks, trust companies and holding companies just as the Maryland statute in Exxon, barred in-state outlets only to produces and refiners all of which were out of state. Similarly, Section 660.10 by itself --
John Paul Stevens: Mr. Griswold, could I ask you a question about the Exxon case? There, the State at least asserted the reason whether one agrees with it or not for discriminating against the refiners and ownership. What is the reason that Florida asserts for treating out-of-state banks differently than, say Paine Webber or other types of businesses that might want to open investment advisory services, if any? Is there any reason for it?
Erwin N. Griswold: The -- it is -- it is -- it wasn't too clear in Exxon. It was asserted but there were --
John Paul Stevens: Well, they --
Erwin N. Griswold: -- other --
John Paul Stevens: -- the -- at least the legislature had some hearings and -- and came to a conclusion that ownership of retail stations by refiners gave rise to certain kinds of discrimination that they thought -- that the legislature --
Erwin N. Griswold: And i think it is the --
John Paul Stevens: -- thought it was bad.
Erwin N. Griswold: -- I think it is the -- the problem that all of the States have had over the years of trying to find a way to maintain, control over their own banking and economic facilities in such a way that their assets will not be drawn away by out-of-state operations. The States be led while the money goes elsewhere. It is -- it is in very large measure a -- a --
John Paul Stevens: Trying to protect local capital, is that right?
Erwin N. Griswold: No, protect local citizens, protect local people who may want to borrow money to buy houses and find the money as going to be lent on the Euro or Dollar market --
John Paul Stevens: But is there a greater danger --
Erwin N. Griswold: -- with very high rates of interest.
John Paul Stevens: But is there a greater danger of the outflow of money from Florida if the investment advisory service is owned by Paine Webber rather than some big bank? I don't see the difference. I don't see how your explanation justifies that kind of a distinction.
Erwin N. Griswold: The whole -- the -- the history of this country is filled for 150 years of the struggle between national banking and local banking. I think the history book show that a Chief Justice of this Court attained prominence because he supported President Jackson in opposition on behalf of the State of Maryland to the operations of the Bank of the United States. This is part of that same --
Byron R. White: But a bank -- a bank is kept out of Florida but an investment banker isn't.
Erwin N. Griswold: That is correct.
Byron R. White: And they both give investment advice and --
Erwin N. Griswold: They both give investment advice but --
Byron R. White: And Mr. -- would this -- you -- would -- would this statute -- under the statute, could a bank, could a Florida bank, acting as a trustee and -- and giving investment services, could it buy some investment advice from a New York bank?
Erwin N. Griswold: Yes, so far as I can see.
Byron R. White: Well, but I've -- I've -- then there was a New York bank doing business in Florida --
Erwin N. Griswold: No.
Byron R. White: -- selling investment advice.
Erwin N. Griswold: No, it's not -- it doesn't have an office in Florida but --
Byron R. White: Well, you mean -- you mean under the statute, New York banks may give investment advice to Florida citizens?
Erwin N. Griswold: They can do it by mail or telephone, and they can send representatives into the State, as long as they don't open an office and conduct business in the State.
Byron R. White: But they're acting -- they may -- could they act as trustee of assets located in Florida?
Erwin N. Griswold: Not -- not without complying with Section 660.10 --
Byron R. White: Yes.
Erwin N. Griswold: -- which means --
Byron R. White: You have to have a corporation.
Erwin N. Griswold: -- to be -- to be becoming incorporated in Florida.
Byron R. White: All right.
Erwin N. Griswold: I think it's appropriate now to -- to move on to the other aspect of the case which is the fact that we have two strings to our bow. I've tried to argue so far that under Exxon, there is not interstate commerce here, which is adversely affected by this statute, sufficiently to require the result reached below. But there are two federal statutes which are directly relevant. These federal statutes are important not only because of the text of their provisions but also because they represent important policy determinations made by Congress which are relevant in determining the validity of the Florida statutes here involved. They show that Congress made clear choices in this area, and this should not be frustrated by opening the doors to miners and sappers, to use in historical phrase, in the form of the devices involved here which, if allowed, and if allowed here soon extended, will enable out-of-state bank holding companies to do much of what they have been specifically forbidden to do by Congress.
William H. Rehnquist: Mr. Griswold, before you move on. Well, what would the District Court's decision here do to the general provisions in all of the Sunbelt States denying reciprocity of admission to the bar?
Erwin N. Griswold: I haven't the slightest idea, Mr. Justice. They -- there isn't any question of reciprocity involved in the decision of the court below.
William H. Rehnquist: But it is a common fact that the Sunbelt States simply refused to admit on -- on reciprocity where the most of the other States don't.
Erwin N. Griswold: And -- but the fact here is involving control by a State over admission to the bar, it seems to me, are historically and otherwise different factors in those involved in the admission of foreign incorporations to do business in the State, particularly in the light of the federal statutory provision to which I'm about to refer to. The first to these statutes was the McFadden Act which was passed in 1927, more than 50 years ago. It relates to national banks, but it says that national banks cannot have branches in a -- a State except to the extent that state banks can have branches in the State. And it also prevents interstate branching of national banks because branches whereby that statute limited to States within which the national bank was situated. But pressure to reach out is always found in the banking area. That indeed is what this case is all about. In due course, the effect of these limitations on banking including the limitations and the laws of most of the States led to the development of a new expensive device and thus, to a vast growth in the use of bank holding companies. By creating a corporation to own multiple banks, it was possible to avoid limitations on branching not only in intrastate but across state lines across many state lines. It was to deal with this problem that Congress passed the Bank Holding Company Act in 1956, and it contains three provisions that are relevant here. The first of this is Section 3 (d), and that appears in Appendix C as 12 U.S.C. 1842 (d). And it provides -- it -- it bars any bank holding company or subsidiary from acquiring any additional bank located outside of the State where the holding company's banking subsidiaries are operating unless this is expressly authorized by the outside State. And here, we have the Florida statute which says, “We don't authorize, just what's invited by that provision.” And the second provision is Section 4 of the Bank Holding Company Act, now found in 12 U.S.C. 1843. It's in Appendix D at the close of the appellant's brief. The basic provision there says, “Except as otherwise provided in this Act, no bank holding company shall acquire direct or indirect ownership or control of any voting shares of any company which is not a bank.” And if it has said that this investment advisory and trust company services are not banks, Congress has said, “The out-of-state holding company can't own it.” And then finally, there at Section 7 of the Bank Holding Company Act, which is in Appendix E, which broadly reserved to the States their powers to regulate bank holding companies and their subsidiaries, the last three words are “and subsidiaries thereof” as long as the state regulation is not inconsistent with the acts of Congress. Now, thus, the basic federal statutory scheme maybe stated very simply. “No bank holding company may own a bank outside the home state without the outside State's expressed permission.” It does not seem to me to be too difficult to construe this to apply to bits and pieces of banks, particularly when they are owned by a bank holding company and are so closely related to managing or controlling banks as to be a proper incident thereof as the federal board -- Reserve Board has determined.
Warren E. Burger: We'll resume there at 1 o'clock, Mr. Griswold.