Hon. EDWIN C. JOHNSON, NATIONAL SECURITY RESOURCES BOARD, Chairman, Committee on Interstate and Foreign Commerce, United States Senate, Washington 25, D. C. DEAR MR. CHAIRMAN: This will asknowledge your letter of February 18, 1949, with which you enclosed a copy of S. 1008, introduced by Senator Myers. This is a bill to provide a 2-year moratorium with respect to the application of certain antitrust laws to individual, good-faith delivered-price systems and freightabsorption practices. Reference is made to my letter dated February 10, 1949, to Mr. Edward Jarrett, clerk of the Committee on Interstate and Foreign Commerce, in response to a request for comment on S. 236, which also deals with basing-point pricing. I do not at this time have anything to add to the comment contained in that letter concerning this subject. Sincerely yours, JOHN R. STEELMAN. FEDERAL TRADE COMMISSION, Hon. BRIEN MCMAHON, United States Senate, Washington, D. C. MY DEAR SENATOR: Referring to some of the questions you were asking me at pages 1282 to 1284 of the record concerning the statement of Miss Ann M. Olson. secretary-treasurer of the Wire Specialties & Manufacturing Corp., I am taking the liberty of offering some further comment. Apparently Miss Olson has the erroneous impression that freight absorption is unlawful per se, under the present decisions. Unless it could be established that its use by her company injures competition, either with its competitors or among its customers, the law as now interpreted by the courts does not inhibit it. Aside from that, however, it seems altogether probable that a substantial part of her company's disadvantage in shipping toward Chicago and in competing with concerns shipping from Chicago toward Denver arises from railroad rate differences against Denver and in favor of Chicago. Such differences presumably are a part of the interregional rate discriminations which were adjudicated by the Supreme Court in 1947. The point I am now making is that the amount of freight disadvantage which a small concern in the Denver area may feel called upon to overcome through freight absorption may be determined in no small measure by the existence of discriminatory rail freight rates. But, even assuming the absence of such discriminatory rates, a small concern which, for example, absorbs freight on half its business in the territory of its large competitor gets much less advantage from such absorption than the large concern gets when it absorbs freight on half its business in the territory of its smaller competitors. If it has twice or 10 times the volume of any given competitor, it has a proportionally greater advantage. If it has 10 plants located in different places, it has 10 places from which to absorb freight against one place for the one-plant concern. And if 10 approximately equal competitors were each to absorb freight in the territory of the other 9, it is highly improbable that any one of them could gain as much by it as it would lose to the other 9. I also attempted to make clear to you certain respects wherein it is unsafe and illogical to conclude that price advances since the Cement decision were caused by the decision. It is possible on the one hand to contend that big business interests using the basing-point system are profiting from the decision by many millions of dollars. On the other hand, it is possible to contend that the decision has been injurious to basing-point industries. But it is a patent contradiction to make both contentions at the same time, which is what is being done. Industry would seem to be in the position of objecting to the windfall of profits which the decision has allegedly given it. Referring to the testimony of Mr. Munck at page 1231 of the record as to the individual ownership and small-volume character of the retail lumber yards for which Mr. Munck spoke, it would be well to note that a very heavy per centage of the yards in that territory consists of what are known as line yards, that is, a large number of yards at different places owned by the same company. There may be as many as 30 to 50 yards owned by a single company, and some of them are allied in ownership or otherwise with important lumber manufacturers. Very truly yours, WALTER B. WOODEN. SUMNER S. KITTELLE ATTORNEY AND COUNSELLOR AT LAW NEW YORK, N. Y., February 21, 1949. WILLIAM SIMON, Esq., Counsel, Trade Policies Committee, Senate Office Building, Washington, D. C. DEAR MR. SIMON: This will serve as my supplemental statement as requested by the subcommittee at the close of my testimony on Friday 18, 1949. After completing my prepared statement on S. 236, I made the statement to the subcommittee that, while I had no wish to try my cases before the subcommittee, I felt that I was not doing so in pointing out that, in a case I am trying before the Federal Trade Commission, the attorney for the Commission had, in his brief, made statements at variance with the Commission's October 12, 1948 statement of policy toward geographic pricing practices. Specifically, I stated that the attorney for the Commission had, in the case of Chain Institute, Inc., et al. (FTC Docket No. 4878), reiterated the "mill net return" theory of measuring price discrimination notwithstanding the apparent position of the Commission, as reflected in its October 12th policy statement, that that theory has been abandoned. The statements I had reference to appear in the brief of the attorney for the Commission filed in the above case on December 3, 1948, which was almost 2 months after the October 12th policy statement of the Commission was issued. Unfortunately, I find that I have only one marked-up copy of that brief in my New York office; hence am unable to transmit a copy of it with this letter. However, I am asking my Washington office to furnish you with a copy of the brief and, in addition, you can obtain copies from the Commission if you wish. In order to understand the purport of the statements of counsel for the Commission in the Chain Institute case, it is necessary to know the major issues involved in that proceeding. The amended complaint, under which the case was tried, contained two counts. Count I charged broadly a conspiracy to fix prices and to use various delivered pricing methods in violation of section 5 of the Federal Trade Commission Act. Count II charged that the individual use of these delivered pricing methods by the respective respondent manufacturers resulted in discriminations in price in violation of the Robinson-Patman Act. Except to the extent that the Commission's attorneys contend that the alleged Conspiracy caused the alleged discriminations in price to work injury to competition at the sellers' level, the issue of conspiracy does not enter into count II at all. One of the types of chain covered by the amended complaint was tire chains of the type used on automobiles and trucks, and my comments herein are directed solely to that type of chain. Tire chains are, and since about 1904 have been, sold on what is sometimes referred to as a "universal delivered price basis," le, tire chains cost the buyer the same amount delivered anywhere in the Tited States. This is sometimes referred to as the "postage stamp" method of selling and is used on common consumer articles such as chewing gum, shaving cream, etc. Although we deny (for reasons not germane to this discussion) that the aliended complaint fairly puts in issue the legality of the individual use of this method of selling under the Robinson-Patman Act, the attorneys for the CommisBon contend that it is in issue under count II. It will be seen at once that if a seler employs a method of selling that produces the same delivered price at any and every destination in the United States, he cannot be charged with discriminating in price (since all buyers of the same class pay the same price) unless "price" means "mill net return" or something other than the delivered price. The attorneys for the Commission argue, in effect, that "price" means "mill net return." Their first reference to "mill net return" in connection with tire chains appears on page 3 of their brief, in the fourth full paragraph on that page, where they State: * * They (the respondent manufacturers of tire chains) allow or refund the freight which the purchasers pay on the tire chain from the producers' mills to the various destinations (R. 621-2). Under this formula, respondents secure varying mill net prices from their customers, because they must deduct from their mill prices, the freight they refund their customers, and the result is their mill net prices. The further away a customer is from the mill of the producer, the more freight the producer must refund to the customer and the less mill net price the producer gets. * * (Italics is that of the attorneys for the Commission.) The foregoing quotation appears in the portion of the brief devoted to count I (the conspiracy count) rather than count II (the price discrimination count), but it illustrates the fact that the attorneys for the Commission have not abandoned the "mill net return" theory of measuring "price." The next reference to the "mill net return" theory appears on page 29 of the brief of the attorneys for the Commission where they discuss the facts under count II of the amended complaint. The statements made on this page deal with "mill net return" by reference to an appendix to the brief in which is shown, among other things, the selling prices, amount of freight allowed, and "mill net return" of each tire chain manufactured on certain sales of tire chains made in October 1941. The particular pages of the appendix on which appear the tables showing "mill net returns" on tire chains are pages 50 to 63, inclusive, of appendix "B." Reference to and adoption of the "mill net return" theory, as supported by these tables in appendix "B" appears in the paragraph at the top of page 29 of the brief in these words: "The three pricing systems used in this case necessarily and inevitably result in discriminatory prices by the respondents in the sale of their chain which are not the result of making due allowances for differences in the cost of manufacture, sale or delivery resulting from the differing methods or quantities in which the chain is sold (R. 1009, 1021-2, 1027, 1144, 2019)." There then follows a description of the tables in appendix "B" and reference is made to the fact that these tables show "mill net return." Insofar as it refers to tire chains, the above-quoted statement means that, in the opinion of the attorneys for the Commission, the "universal delivered price" method by which each manufacturer sold tire chains resulted "necessarily and inevitably" in discriminatory prices. As evidence in support of that statement the tables in appendix "B" are presented showing a variable "mill net return" depending on the destination to which the tire chains were shipped. Under no theory except the "mill net return" theory of measuring "price" for purposes of proving a price discrimination could the tire-chain method (which produces no discrimination in delivered prices whatsoever) be called discriminatory. In the argument portion of their brief, the attorneys for the Commission do not separate their arguments on count I from their arguments on count II. However, on page 38 appears the following reference to the "mill net return" theory as the attorneys for the Commission seek to apply it to tire chains under count II of the amended complaint: "Each sale is one involving discrimination in price which does not make only due allowance for differences in the cost of manufacture, sale or delivery resulting from the differing methods or quantities in which such respondents' products are to their purchasers sold or delivered.” (The italic here is mine; this quotation is the last full paragraph on page 38 of the brief.) Again, on page 40 of their brief, still arguing the "law" on the tire-chain method of selling the attorneys for the Commission state: "We now specifically refer to the discriminating prices made by respondents on tire chain to their customers, and how they thereby eliminate all price competition among themselves. These facts have been amply proven. It has been demonstrated that such discriminations do not make only that due allowance for difference in the cost of manufacture, sale or delivery resulting from the differing methods or quantities in which chain is sold to the purchasers thereof." (Again the italic is mine; this quotation is the last paragraph on page 40 of the brief.) I have italicized the word "only" in the above two quotations because it is the emphasis on that word which supplies the proponents of the "mill net return" theory with the only color of plausibility they could possibly find in support of it. Personally, I have never been able to follow their argument, but, as will be seen by the foregoing quotations from their brief in the Chain Institute case, they continue to make it despite the apparent rejection of it in the Commission's October 12th policy statement. I enclose an extra copy of this letter which I understand you will deliver to Mr. Everette MacIntyre, Assistant Chief Counsel for the Commission so he may have an opportunity to reply to the same. I trust that you will deliver me (or ask Mr. MacIntyre to send me) a copy of whatever statement he presents. Sincerely yours, SUMNER S. KITTELLE. FEDERAL TRADE COMMISSION, The CHAIRMAN, SUBCOMMITTEE ON TRADE POLICIES OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, MY DEAR MR. CHAIRMAN: At the conclusion of a hearing before the subcommittee on trade policies of the Senate Committee on Interstate and Foreign Commerce Friday, February 18, 1949, Mr. Everette MacIntyre, on behalf of the Bureau of Litigation of the Federal Trade Commission requested that you afford it the opportunity to file for inclusion in the record of your hearings of Friday, February 18, a statement responsive to testimony by witness Sumner 8. Kittelle, appearing at pages 440-442. That testimony was expected to be Supplemented by a letter from Mr. Kittelle to the counsel for your subcomttee. The letter has been submitted and is dated February 21, 1949, copy of which was received in this office 9 a. m., February 23, 1949. It is understood that you acceded to the request of Mr. MacIntyre and assured him that this response would be printed in the record along with the mentioned statements of Mr. Kittelle. The portion of the testimony of Mr. Kittelle to which this office particularly desires to reply at this time is that where he appears to have accused a member of the legal staff of this bureau with ignoring and acting contrary to the Federal Trade Commission policy as stated in its release of October 12, 1948, entitled Commission Policy Toward Geographic Pricing Practices." A pertinent part of Mr. Kittelle's testimony on that point is quoted as follows: "I say this only because this brief was filed in December 1948, after the stateent of policy of October 12, 1948; and yet this brief is written as though The man who wrote it had never read that statement of policy. It has got the se reference to mill net return; it has got the same conscious parallelism of action; it has got some 20-odd pages of appendix designed only to show that tal net returns differed in the sale of the commodity, which, incidentally, was sold on the uniform delivered price basis, one price delivered anywhere n the United States, like chewing gum; and is the first case before the Comassion where that method of selling is directly in issue. "Senator CAPEHART. In other words, you are saying that what they have said of October 12, they did not mean, and that in a case filed by them in December they completely ignored their declarations of October 12? "Mr. KITTELLE. That is the inference that I draw. I think it is inescapable. They say one thing in their statement. They say one thing here. But they are trying their cases in the same way." His testimony as supplemented by his letter of February 21, 1949, makes it ear that Mr. Kittelle was basing his accusations upon a brief filed with the Secretary of the Federal Trade Commission in docket 4878, In the Matter of Chain Institute, Inc., et al., December 3, 1948. To that brief Mr. Kittelle and ther counsel for respondents filed reply briefs on February 11, 1949. The Comission has not yet had the opportunity to consider the material in the briefs thus fled. Therefore, it is clear that statements in the briefs filed for the Commisson's consideration do not necessarily state the Commission's position. That is true because: 1. If in a case before the Commission a lawyer on the Commission's staff arguing in support of the complaint should take a position contrary to that the Commission has taken in a policy statement, the appropriate presumption would be that the Commission in deciding on the merits of the question would decide against that member of the Commission's staff. It is the opinion of this bureau that when all facts and circumstances of the record are taken into account, the position taken by the attorney in the brief in question, filed December 3, 1948, will be found to be consistent with the Position taken by the Commission in its October 12 policy statement. In his letter, as well as in his testimony, Mr. Kittelle refers to statements appearing on pages 3, 29 and 50-63 of that brief concerning mill net returns of the respondents and argues that since the attorney who wrote that brief used in those connections the term "mill net return," he and the Commission take a position in that respect in the brief different from that taken by the Commission in its policy statement of October 12, 1948. Thus, it appears that the Commission, as well as the attorney who is a member of the legal staff of this bureau, stands accused of stating to your committee and to the public generally that the Commission's policy is one thing and then acting to take an entirely different position. This office desires that the record show such accusation is without justification. It is believed desirable that the record clearly disclose what it is that Mr. Kittelle was complaining to your committee about. In the first place, Mr. Kittelle is an attorney for a number of the respondents before the Commission in Federal Trade Commission Docket 4878, In the Matter of Chain Institute, Inc., et al. That case is pending for an adjudication on the merits. The complaint in that case states that the Commission, at the time it issued its complaint, had reason to believe that the respondents were engaged in maintaining an unlawful pricefixing combination on welded chain, weldless chain and tire chain in violation of section 5 of the Federal Trade Commission Act, and in that connection were discriminating in price, the effect of which was to injure, destroy and prevent competition and tend to create a monopoly. Those allegations and denial answers filed thereto by Mr. Kittelle on behalf of the respondents have, of course, presented issues of fact which can only be resolved by considering all the evidence of record in the case. He complained to your committee concerning the use of the term "mill net return" by a member of the legal staff of this bureau in the brief which was filed on December 3, 1948. However, Mr. Kittelle failed to emphasize to your committee the significance of evidence of record on that point. Instead, he relied upon his self-serving assertion that "price" as used by the respondents he represents does not and cannot mean "mill net return" as used in the brief filed by counsel in the Chain Institute case on December 3. Mr. Kittelle in making those self-serving statements ignored, and took a position inconsistent with, statements in a stipulation of facts which he and other counsel representing respondents in this case, on May 6, 1947, proffered to and which was accepted by attorneys in this bureau. In that stipulation he and others representing respondents conceded that the manufacturers they represent (although the manufacturers were using formulae in computing the costs which would be incurred by any buyer at a particular destination so that such costs for the goods at destination would be matched, whether purchases should be made from one manufacturer or another) made their sales in accordance with their quotations and "such quotations being made f. o. b. manufacturer's plant" (see lines 22-23, p. 873, and lines 7-8, p. 875, of the transcript of testimony in the case). In that stipulation facts were conceded by Mr. Kittelle and other counsel representing respondents showing that the prices thus determined f. o. b. mill varied in terms of "mill net return," according to the locations of the customers of the manufacturers. Therefore it is submitted that the attorney on the staff of this office has taken no position in the Chain Institute case concerning the meaning of "mill net return" different from that which Mr. Kittelle and respondents in that case have conceded were the facts of the case. What the Commission will decide are the facts in the case will certainly rest upon the evidence of the record and not necessarily by what either Mr. Kittelle or the attorney on this staff supporting the complaint think and argue are the facts. case. While we are at a loss to understand why Mr. Kittelle failed to explain the foregoing circumstances to you when he discussed this point, it is understandable why he has not emphasized the conspiratorial and collusive aspects of this For example, included in the allegations of the complaint is ta charge that respondents employed one Dennis A. Merriman to manage and direct the affairs of their trade association, the respondent Chain Institute, Inc., and to serve respondent manufacturers "as a common agent to make more effective their suppression of price competition." There is evidence in the record showing that a committee of the Chain Institute was appointed to negotiate for the employment of a general manager of that organization. The committee consisted of George J. Campbell, Sr., D. D. Brisbin, and W. D. Kirkpatrick, officials in the Institute and of three manufacturing respondents. In order fully to understand the purpose and the effect of that committee's task and the work later performed by Mr. Merriman, it is necessary to understand the significance of a large portion of the evidence in the voluminous record in the Chain Institute case. However, some of the facts conceded by the respondents indicate that the |