United States v. E. I. Du Pont De Nemours and Company (351 U.S. 377)/Concurrence Frankfurter

Mr. Justice FRANKFURTER, concurring.

I concur in the judgment of the Court and in so much of Mr. Justice REED'S opinion as supports the conclusion that cellophane did not by itself constitute a closed market but was a part of the relevant market for flexible packaging materials.

Mr. Justice REED has pithily defined the conflicting claims in this case. 'The charge was monopolization of cellophane. The defense, that cellophane was merely a part of the relevant market for flexible packaging materials.' Since this defense is sustained, the judgment below must be affirmed and it becomes unnecessary to consider whether du Pont's power over trade in cellophane would, had the defense failed, come within the prohibition of 'monopolizing' under § 2 of the Sherman Act. Needless disquisition on the difficult subject of singlefirm monopoly should be avoided since the case may be disposed of without consideration of this problem.

The boundary between the course of events by which a business may reach a powerful position in an industry without offending the outlawry of 'monopolizing' under § 2 of the Sherman Act and the course of events which brings the attainment of that result within the condemnation of that section, cannot be established by general phrases. It must be determined with reference to specific facts upon considerations analogous to those by which § 1 of the Sherman Act is applied. These were illuminatingly stated by Mr. Justice Brandeis for the Court:

'The true test of legality is whether the restraint imposed     is such as merely regulates and perhaps thereby promotes      competition or whether it is such as may suppress or even      destroy competition. To determine that question the court     must ordinarily consider the facts peculiar to the business      to which the restraint is applied; its condition before and after the      restraint was imposed; the nature of the restraint and its      effect, actual or probable. The history of the restraint, the     evil believed to exist, the reason for adopting the      particular remedy, the the purpose or end sought to be      attained, are all relevant facts. * *  * ' Board of Trade of      City of Chicago v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 244, 62 L.Ed. 683.

Sections 1 and 2 of course implicate different considerations. But the so-called issued of fact and law that call for adjudication in this legal territory are united, and intrinsically so, with factors that entail social and economic judgment. Any consideration of 'monopoly' under the Sherman law can hardly escape judgment, even if only implied, on social and economic issues. It had best be withheld until a case inescapably calls for it.

Mr. Chief Justice WARREN, with whom Mr. Justice BLACK and Mr. Justice DOUGLAS join, dissenting.

This case, like many under the Sherman Act, turns upon the proper definition of the market. In defining the market in which du Pont's economic power is to be measured, the majority virtually emasculate § 2 of the Sherman Act. They admit that 'cellophane combines the desirable elements of transparency, strength and cheapness more definitely than any of' a host of other packaging materials. Yet they hold that all of those materials are so indistinguishable from cellophane as to warrant their inclusion in the market. We cannot agree that cellophane, in the language of Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 613, 73 S.Ct. 872, 883, 97 L.Ed. 1277, is "the selfsame product" as glassine, greaseproof and vegetable parchment papers, waxed papers, sulphite papers, aluminum foil, cellulose acetate, and Pliofilm and other films.

The majority opinion states that 'It will adequately illustrate the similarity in characteristics of the various products by noting here Finding 62 as to glassine.' But Finding 62 merely states the respects in which the selected flexible packaging materials are as satisfactory as cellophane; it does not compare all the physical properties of cellophane and other materials. The Table incorporated in Finding 59 does make such a comparison, and enables us to note cellophane's unique combination of qualities lacking among less expensive materials in varying degrees. A glance at this Table reveals that cellophane has a high bursting strength while glassine's is low; that cellophane's permeability to gases is lower than that of glassine; and that both its transparency and its resistance to grease and oils are greater than glassine's. Similarly, we see that waxed paper's bursting strength is less than cellophane's and that it is highly permeable to gases and offers no resistance whatsoever to grease and oils. With respect to the two other major products held to be close substitutes for cellophane, Finding 59 makes the majority's market definition more dubious. In contrast to cellophane, aluminum foil is actually opaque and has a low bursting strength. And sulphite papers, in addition to being opaque, are highly permeable to both moisture and gases, have no resistance to grease and oils, have a lower bursting strength than cellophane, and are not even heat sealable. Indeed, the majority go further than placing cellophane in the same market with such products. They also include the transparent films, which are more expensive than cellophane. These bear even less resemblance to the lower priced packaging materials than does cellophane. The juxtaposition of one of these films, Cry-O-Rap, with sulphite in the Table facilitates a comparison which shows that Cry-O-Rap is markedly different and far superior.

If the conduct of buyers indicated that glassine, waxed and sulphite papers and aluminum foil were actually 'the selfsame products' as cellophane, the qualitative differences demonstrated by the comparison of physical properties in Finding 59 would not be conclusive. But the record provides convincing proof that businessmen did not so regard these products. During the period covered by the complaint (1923-1947) cellophane enjoyed phenomenal growth. Du Pont's 1924 production was 361,249 pounds, which sold for.$1,306,662. Its 1947 production was 133,502,858 pounds, which sold for $55,339,626. Findings 297 and 337. Yet throughout this period the price of cellophane was far greater than that of glassine, waxed paper or sulphite paper. Finding 136 states that in 1929 cellophane's price was seven times that of glassine, in 1934, four times, and in 1949 still more than twice glassine's price. Reference to DX-994, the graph upon which Finding 136 is based, shows that cellophane had a similar price relation to waxed paper and that sulphite paper sold at even less than glassine and waxed paper. We cannot believe that buyers, practical businessmen, would have bought cellophane in increasing amounts over a quarter of a century if close substitutes were available at from one-seventh to one-half cellophane's price. That they did so is testimony to cellophane's distinctiveness.

The inference yielded by the conduct of cellophane buyers is reinforced by the conduct of sellers other than du Pont. Finding 587 states that Sylvania, the only other cellophane producer, absolutely and immediately followed every du Pont price change, even dating back its price list to the effective date of du Pont's change. Producers of glassine and waxed paper, on the other hand, displayed apparent indifference to du Pont's repeated and substantial price cuts. DX-994 shows that from 1924 to 1932 du Pont dropped the price of plain cellophane 84%, while the price of glassine remained constant. And during the period 1933-1946 the prices for glassine and waxed paper actually increased in the face of a further 21% decline in the price of cellophane. If 'shifts of business' due to 'price sensitivity' had been substantial, glassine and waxed paper producers who wanted to stay in business would have been compelled by market forces to meet du Pont's price challenge just as Sylvania was. The majority correctly point out that:

'An element for consideration as to cross-elasticity of     demand between products is the responsiveness of the sales of      one product to price changes of the other. If a slight     decrease in the price of cellophane causes a considerable      number of customers of other flexible wrappings to switch to      cellophane, it would be an indication that a high cross-elasticity of demand exists      between them; that the products compete in the same market.'

Surely there was more than 'a slight decrease in the price of cellophane' during the period covered by the complaint. That producers of glassine and waxed paper remained dominant in the flexible packaging materials market without meeting cellophane's tremendous price cuts convinces us that cellophane was not in effective competition with their products.

Certainly du Pont itself shared our view. From the first, du Pont recognized that it need not concern itself with competition from other packaging materials. For example, when du Pont was contemplating entry into cellophane production, its Development Department reported that glassine 'is so inferior that it belongs in an entirely different class and has hardly to be considered as a competitor of cellophane.' This was still du Pont's view in 1950 when its survey of competitive prospects wholly omitted reference to glassine, waxed paper or sulphite paper and stated that 'Competition for du Pont cellophane will come from competitive cellophane and from non-cellophane films made by us or by others.'

Du Pont's every action was directed toward maintaining dominance over cellophane. Its 1923 agreements with La Cellophane, the French concern which first produced commercial cellophane, gave du Pont exclusive North and Central American rights to cellophane's technology, manufacture and sale, and provided, without any limitation in time that all existing and future information pertaining to the cellophane process be considered 'secret and confidential,' and be held in an exclusive common pool. In its subsequent agreements with foreign licensees, du Pont was careful to preserve its continental market inviolate. In 1929, while it was still the sole domestic producer of cellophane, du Pont won its long struggle to raise the tariff from 25% to 60%, ad valorem, on cellophane imports, substantially foreclosing foreign competition. When Sylvania became the second American cellophane producer the following year and du Pont filed suit claiming infringement of its moistureproof patents, they settled the suit by entering into a cross-licensing agreement. Under this agreement du Pont obtained the right to exclude third persons from use of any patentable moistureproof invention made during the next 15 years by the sole other domestic cellophane producer, and, by a prohibitive royalty provision, it limited Sylvania's moistureproof production to approximately 20% of the industry's moistureproof sales. The record shows that du Pont and Sylvania were aware that, by settling the infringement suit, they avoided the possibility that the courts might hold the patent claims invalid and thereby open cellophane manufacture to additional competition. If close substitutes for cellophane had been commercially available, du Pont, an enlightened enterprise, would not have gone to such lengths to control cellophane.

As predicted by its 1923 market analysis, du Pont's dominance in cellophane proved enormously profitable from the outset. After only five years of production, when du Pont bought out the minority stock interests in its cellophane subsidiary, it had to pay more than fifteen times the original price of the stock. But such success was not limited to the period of innovation, limited sales and complete domestic monopoly. A confidential du Pont report shows that during the period 1937 1947, despite great expansion of sales, du Pont's 'operative return' (before taxes) averaged 31%, while its average 'net return' (after deduction of taxes, bonuses, and fundamental research expenditures) was 15.9%. Such profits provide a powerful incentive for the entry of competitors. Yet from 1924 to 1951 only one new firm, Sylvania, was able to begin cellophane production. And Sylvania could not have entered if La Cellophane's secret process had not been stolen. It is significant that for 15 years Olin Industries, a substantial firm, was unsuccessful in its attempt to produce cellophane, finally abandoning the project in 1944 after having spent about $1,000,000. When the Government brought this suit, du Pont, 'to reduce the hazard of being judged to have a monopoly of the U.S. cellophane business,' decided to let Olin enter the industry. Despite this demonstration of the control achieved by du Pont through its exclusive dominion over the cellophane process, the District Court found that du Pont could not exclude competitors from the manufacture of cellophane. Finding 727. This finding is 'clearly erroneous.' The majority avoid passing upon Finding 727 by stating that it is 'immaterial * *  * if the market is flexible packaging material.' They do not appear to disagree with our conclusion, however, since they concede that ' *  *  * it may be practically impossible for anyone to commence manufacturing cellophane without full access to du Pont's technique.'

'Du Pont has no power to set cellophane prices arbitrarily. If prices for cellophane increase in relation to prices of     other flexible packaging materials it will lose business to      manufacturers of such materials in varying amounts for each      of du Pont cellophane's major end uses.' Finding 712.

This further reveals its misconception of the antitrust laws. A monopolist seeking to maximize profits cannot raise prices 'arbitrarily.' Higher prices of course mean smaller sales, but they also mean higher per-unit profit. Lower prices will increase sales but reduce per-unit profit. Within these limits a monopolist has a considerable degree of latitude in determining which course to pursue in attempting to maximize profits. The trial judge thought that, if du Pont raised its price, the market would 'penalize' it with smaller profits as well as lower sales. Du Pont proved him wrong. When 1947 operating earnings dropped below 26% for the first time in 10 years, it increased cellophane's price 7% and boosted its earnings in 1948. Du Pont's division manager then reported that 'If an operative return of 31% is considered inadequate then an upward revision in prices will be necessary to improve the return.' It is this latitude with respect to price, this broad power of choice, that the antitrust laws forbid. Du Pont's independent pricing policy and the great profits consistently yielded by that policy leave no room for doubt that it had power to control the price of cellophane. The findings of fact cited by the majority cannot affect this conclusion. For they merely demonstrate, that during the period covered by the complaint, du Pont was a 'good monopolist,' i.e., that it did not engage in predatory practices and that it chose to maximize profits by lowering price and expanding sales. Proof of enlightened exercise of monopoly power certainly does not refute the existence of that power.

The majority opinion purports to reject the theory of 'interindustry competition.' Brick, steel, wood, cement and stone, it says, are 'too different' to be placed in the same market. But cellophane, glassine, wax papers, sulphite papers, greaseproof and vegetable parchment papers, aluminum foil, cellulose acetate, Pliofilm and other films are not 'too different,' the opinion concludes. The majority approach would apparently enable a monopolist of motion picture exhibition to avoid Sherman Act consequences by showing that motion pictures compete in substantial measure with legitimate theater, television, radio, sporting events and other forms of entertainment. Here, too, 'shifts of business' undoubtedly accompany fluctuations in price and 'there are market alternatives that buyers may readily use for their purposes'. Yet, in United States v. Paramount Pictures, 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260, where the District Court had confined the relevant market to that for nationwide movie exhibition, this Court remanded the case to the District Court with directions to determine whether there was a monopoly on the part of the five major distributors 'in the first-run field for the entire country, in the first-run field in the 92 largest cities of the country, or in the first-run field in separate localities.' 334 U.S. at page 172, 68 S.Ct. at page 936. Similarly, it is difficult to square the majority view with United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416, a landmark § 2 case. There Judge Learned Hand, reversing a district court, held that the close competition which 'secondary' (used) aluminum offered to 'virgin' aluminum did not justify including the former within the relevant market for measuring Alcoa's economic power. Against these and other precedents, which the Court's opinion approves but does not follow, the formula of 'reasonable interchangeability,' as applied by the majority, appears indistinguishable from the theory of 'interindustry competition.' The danger in it is that, as demonstrated in this case, it is 'perfectly compatible with a fully monopolized economy.'

The majority hold in effect that, because cellophane meets competition for many end uses, those buyers for other uses who need or want only cellophane are not entitled to the benefits of competition within the cellophane industry. For example, Finding 282 shows that the largest single use of cellophane in 1951 was for wrapping cigarettes, and Finding 292 shows that 75 to 80% of all cigarettes are wrapped with cellophane. As the recent report of the Attorney General's National Committee to Study the Antitrust Laws states: 'In the interest of rivalry that extends to all buyers and all uses, competition among rivals within the industry is always important (Emphasis added.).' Furthermore, those buyers who have 'reasonable alternatives' between cellophane and other products are also entitled to competition within the cellophane industry, for such competition may lead to lower prices and improved quality.

The foregoing analysis of the record shows conclusively that cellophane is the relevant market. Since du Pont has the lion's share of that market, it must have monopoly power, as the majority concede. This being so, we think it clear that, in the circumstances of this case, du Pont is guilty of 'monopolization.' The briefest sketch of du Pont's business history precludes it from falling within the 'exception to the Sherman Act prohibitions of monopoly power' (majority opinion, 76 S.Ct. 1004) by successfully asserting that monopoly was 'thrust upon' it. Du Pont was not 'the passive beneficiary of a monopoly' within the meaning of United States v. Aluminum Co. of America, supra, 148 F.2d at pages 429-430. It sought and maintained dominance through illegal agreements dividing the world market, concealing and suppressing technological information, and restricting its licensee's production by prohibitive royalties, and through numerous maneuvers which might have been 'honestly industrial' but whose necessary effect was nevertheless exclusionary. Du Pont cannot bear 'the burden of proving that it owes its monopoly solely to superior skill * *  * .' (Emphasis supplied.) United States v. United Shoe Machinery Corp., D.C., 110 F.Supp. 295, 342, affirmed per curiam 347 U.S. 521, 74 S.Ct. 699, 98 L.Ed. 910.

Nor can du Pont rely upon its moistureproof patents as a defense to the charge of monopolization. Once du Pont acquired the basic cellophane process as a result of its illegal 1923 agreements with La Cellophane, development of moistureproofing was relatively easy. Du Pont's moistureproof patents were fully subject to the exclusive pooling arrangements and territorial restrictions established by those agreements. And they were the subject of the illicit and exclusionary du Pont-Sylvania agreement. Hence, these patents became tainted as part and parcel of du Pont's illegal monopoly. Cf., Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 670, 64 S.Ct. 268, 273, 88 L.Ed. 376. Any other result would permitone who monopolizes a market to escape the statutory liability by patenting a simple improvement on his product.

If competition is at the core of the Sherman Act, we cannot agree that it was consistent with that Act for the enormously lucrative cellophane industry to have no more than two sellers from 1924 to 1951. The conduct of du Pont and Sylvania illustrates that a few sellers tend to act like one and that an industry which does not have a competitive structure will not have competitive behavior. The public should not be left to rely upon the dispensations of management in order to obtain the benefits which normally accompany competition. Such beneficence is of uncertain tenure. Only actual competition can assure long-run enjoyment of the goals of a free economy.

We would reverse the decision below and remand the cause to the District Court with directions to determine the relief which should be granted against du Pont.