Maple Flooring Mfrs Ass v. United States

• Citation: 268 U.S. 563,69 L.Ed. 1093,45 S.Ct. 578
• Decision Date: 01 June 1925
• Docket Number: No. 342,342
• Parties: MAPLE FLOORING MFRS.' ASS'N et al. v. UNITED STATES. Re
• Court: United States Supreme Court

268 U.S. 563

45 S.Ct. 578

69 L.Ed. 1093

MAPLE FLOORING MFRS.' ASS'N et al.

v UNITED STATES.

No. 342.

Reargued March 3, 1925.

Decided June 1, 1925.

Messrs. Edward R. Johnston, Jacob Newman, Conrad Poppenhusen, H. L. Stern, and Henry Jackson Darby, all of Chicago, Ill., for appellants.

Mr. James A. Fowler, of Knoxville, Tenn. for the United States.

[Argument of Counsel from page 564 intentionally omitted] Mr. Justice STONE delivered the opinion of the Court.

By bill in equity filed March 5, 1923, the United States asked an injunction restraining the defendants, who are appellants here, from violating section 1 of the Act of Congress of July 2, 1890, entitled, 'An act to protect trade, and commerce against unlawful restraints and monopolies,' 26 Stat. 209 (Comp. St. § 8820), commonly known as the Sherman Act.

The defendants are the Maple Flooring Manufacturers' Association, an unincorporated 'trade association'; 22 corporate defendants, members of the association, engaged in the business of selling and shipping maple, beech, and birch flooring in interstate commerce, all but 2 of them having their principal places of business in Michigan, Minnesota, or Wisconsin (one defendant being located in Illinois and one in New York); the several individual representatives of the corporate members of the association; and George W. Keehn, secretary of the association. Of the corporate defendants, approximately one-half own timber lands and sawmills and are producers of the rough lumber from which they manufacture finished flooring, sold and shipped in interstate commerce. The other defendants purchase rough flooring lumber in the open market and manufacture it into finished flooring which is sold and shipped in interstate commerce. In 1922 there were in the states of Illinois, Michigan, Minnesota, and Wisconsin, 17 nonmember manufacturers of maple, beech, and birch flooring, and there were 58 nonmember manufacturers of maple, beech, and birch flooring in the United States who reported to the government. In that year 38 nonmember manufacturers reported a manufacturing capacity of 238,610,000 feet of flooring of the types mentioned, and during the same year the manufacturing capacity of the defendants was 158,400,000 feet. Estimates submitted in behalf of the government indicate that in the year 1922 the defendants produced 70 per cent. of the total production of these types of flooring, the percentage having been gradually diminished during the five years preceding, the average for the five years being 74.2 per cent. It is also in evidence that aside from nonmember manufacturers who reported to the government, there are numerous other nonmember manufacturers of such flooring in the United States and Canada. The defendants own only a small proportion of the total stand, in the United States, of maple, beech, and birch timber from which the various types of flooring produced and sold by defendants is manufactured.

In March, 1922, the corporate defendants organized the defendant the Maple Flooring Manufacturers' Association, but for many years prior to that time, and certainly since 1913, a substantial number of the corporate defendants have participated actively in maintaining numerous successive trade associations of the same name, which were predecessors of the present association. The oral testimony and documentary evidence have covered a wide range and have reached a great volume which it will be impossible, within the limits of an opinion, to review in detail. The defendants have engaged in many activities to which no exception is taken by the government and which are admittedly beneficial to the industry and to consumers; such as co-operative advertising and the standardization and improvement of its product. The activities, however, of the present association of which the government complains may be summarized as follows:

(1) The computation and distribution among the members of the association of the average cost to association members of all dimensions and grades of flooring.

(2) The compilation and distribution among members of a booklet showing freight rates on flooring from Cadillac Mich., to between 5,000 and 6,000 points of shipment in the United States.

(3) The gathering of statistics which at frequent intervals are supplied by each member of the association to the secretary of the association given complete information as to the quantity and kind of flooring sold and prices received by the reporting members, and the amount of stock on hand, which information is summarized by the secretary and transmitted to members without, however, revealing the identity of the members in connection with any specific information thus transmitted.

(4) Meetings at which the representatives of members congregate and discuss the industry and exchange views as to its problems.

Before considering these phases of the activities of the association, it should be pointed out that it is neither alleged nor proved that there was any agreement among the members of the association either affecting production, fixing prices, or for price maintenance. Both by the articles of association and in actual practice, members have been left free to sell their product at any price they choose and to conduct their business as they please. Although the bill alleges that the activities of the defendants hereinbefore referred to resulted in the maintenance of practical uniformity of net delivered prices as between the several corporate defendants, the evidence fails to establish such uniformity, and it was not seriously urged before this court that any substantial uniformity in price had in fact resulted from the activities of the association, although it was conceded by defendants that the dissemination of information as to cost of the product and as to production and prices would tend to bring about uniformity in prices through the operation of economic law. Nor was there any direct proof that the activities of the association had affected prices adversely to consumers. On the contrary, the defendants offered a great volume of evidence tending to show that the trend of prices of the product of the defendants corresponded to the law of supply and demand and that it evidenced no abnormality when compared with the price of commodities generally. There is undisputed evidence that the prices of members were fair and reasonable and that they were usually lower than the prices of nonmembers, and there is no claim that defendants were guilty of unfair or arbitrary trade practices.

The contention of the government is that there is a combination among the defendants, which is admitted; that the effect of the activities of the defendants carried on under the plan of the association must necessarily be to bring about a concerted effort on the part of members of the association to maintain prices at levels having a close relation to the average cost of flooring reported to members; and that consequently there is a necessary and inevitable restraint of interstate commerce; and that therefore the plan of the association itself is a violation of section 1 of the Sherman Act, which should be enjoined regardless of its actual operation and effect so far as price maintenance is concerned. The case must turn, therefore, on the effect of the activity of the defendants in the gathering and dissemination of information as to the cost of flooring, since, without that, the other activities complained of could have no material bearing on price levels in the industry and it was to this phase of the case that the oral argument was mainly directed.

Having outlined the substantial issues in the case, it will now be convenient to examine more in detail the several activities of the defendants of which the government complains.

Computation and Distribution, Among the Members, of Information as to the Average Cost of Their Product.

There are three principal elements which enter into the computation of the cost of finished flooring. They are the cost of raw material, manufacturing cost, and the percentage of waste in converting rough lumber into flooring. The information as to the cost of rough lumber was procured by the secretary from reports of actual sales of lumber by members in the open market. From five to ten ascertained sales were taken as standard and the average was taken as the estimated cost of raw material. Manufacturing costs were ascertained by questionnaires sent out to members by which members were requested to give information as to labor costs, cost of warehousing, insurance and taxes, interest at 6 per cent. on the value of the plant; selling expense, including commissions and cost of advertising and depreciation of plant. From the total thus ascertained there was deducted the net profit from wood and other by-products. The net total cost thus ascertained of all members reporting was then averaged.

The percentage of waste in converting the rough lumber into flooring was ascertained by test runs made by selected members of the association under the direction of the secretary of the association, in the course of which a given amount of rough lumber was converted into flooring of different sizes and the actual waste in the process ascertained and stated in terms of percentage. By combining the three elements of cost thus arrived at, the total cost per thousand feet of the aggregate of the different types and grades of flooring produced from a given amount of rough lumber was estimated. To this cost there was at one time added an estimated 5 per cent. for contingencies, which practice, however, was discontinued by resolution of the association of July 19, 1923. For the element of manufacturing and marketing cost, the first of these estimates prepared in the manner described was based upon an average of such cost for the first half of 1921. Other successive estimates were prepared on a like basis during the first, third, and fourth quarter of the...