Cement Mfrs Protective Ass v. United States 1925

• Decision Date: 01 June 1925
• Docket Number: No. 551,551
• Parties: CEMENT MFRS.' PROTECTIVE ASS'N et al. v. UNITED STATES. Argued March 3-5, 1925
• Court: U.S. Supreme Court

268 U.S. 588

45 S.Ct. 586

69 L.Ed. 1104

CEMENT MFRS.' PROTECTIVE ASS'N et al.

v UNITED STATES.

No. 551.

Argued March 3-5, 1925.

Decided June 1, 1925.

[Syllabus from pages 588-590 intentionally omitted] Messrs. John W. Davis and Archibald Cox, both of New York City, for appellants.

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

Mr. Justice STONE, delivered the opinion of the Court.

This is an appeal from a final decree of the District Court for the Southern District of New York granting a perpetual injunction in a proceeding brought by the United States under section 4, chapter 647, of the Act of July 2, 1890, 26 Stat. 209 (Comp. St. § 8823), commonly known as the Sherman Act. Defendants are the Cement Manufacturers' Protective Association, an unincorporated association, four individuals, the officers of the association and 19 corporations, members of the association, engaged in manufacturing and shipping Portland cement in interstate commerce, in Pennsylvania, New Jersey, New York, Maryland, and Virginia. The petition, which was filed on the 30th day of June, 1921, alleges restraint of interstate commerce in violation of section 1 of the act (Comp. St. § 8820). The complaint prays that the Cement Manufacturers' Protective Association be adjudged a violation of section 1 and enjoined accordingly. After final hearing, the District Court entered its decree enjoining the continuance of the Cement Manufacturers' Protective Association and enjoined it and the several defendants from engaging in the activities of which the government complains and of which a summary account will presently be given.

The association was organized in January, 1916. Its purposes, as described by the constitution, were:

The 'collection and dissemination of such accurate information as may serve to protect each manufacturer against misrepresentation, deception and imposition, and enable him to conduct his business exactly as he pleases in every respect, and particularly free from misdirection by false or insufficient information concerning the following matters, to wit:

'(a) Information concerning credits;

'(b) Information concerning contracts which have been made for the delivery of cement sufficiently complete to enable the manufacturer to protect himself against spurious contracts and like transactions induced by misrepresentations;

'(c) Information concerning freight rates on cement;

'(d) Statistical information as to production; stocks of cement and clinker on hand, and shipments.'

The constitution also provides that——

'Membership in the association shall be recognized as implying that the member is absolutely free to conduct his business exactly as he pleases in every respect and particular.'

Cement is a thoroughly standardized product. It is manufactured from limestone and shale which are crushed to extreme fineness. then subjected to high temperatures which process produces a fused mass, which when cooled is known as clinker. The clinker is then ground into the finished product, which is then ready for transportation and use. Clinker is not subject to deterioration, but the ground clinker or cement deteriorates rapidly on exposure to moisture and cannot be kept in storage except for a limited period of time. The defendant corporations are manufacturers of this product, which is shipped in interstate commerce principally within the areas of the several states in which the several defendants are located, and they are competitors in the business of shipping the product in interstate commerce. From 60 per cent. to 65 per cent. of the total product of the several corporate defendants is sold to the general trade for immediate use. Of this 60 per cent. to 65 per cent. approximately two-thirds is sold to dealers who are allowed a differential from the sales price to the retail trade.

The activities of defendant, on which the government bases its case for an injunction, may summarily be stated as follows: The government charges that the defendants, through the activities of the association, control prices and production of cement within the territorial area served by the several defendants in the following manner:

(1) By the use of 'specific job contracts' for future delivery of cement, accompanied by a system of reports and trade espionage having as its objective the restriction of deliveries of cement under those contracts.

(2) By compiling and distributing, among the members, freight rate books which give the rate of freight from arbitrary basing points to numerous points of delivery within the territorial area served by the several defendants;

(3) By exchange of information concerning credits;

(4) By activities of the association at its meetings.

The government asserts that uniformity of prices and limitation of production are necessary results of these activities of the defendants. It does not, however, charge any agreement or understanding between the defendants placing limitations on either prices or production. The evidence does not establish that prices were excessive or unreasonable, and the District Court found 'as compared with the rise of prices of other basic commodities, it is possible to say that the quotations of cement advanced less than others.' The court also found that competition had not been destroyed by the association and that upon many occasions the defendants were active in endeavoring to take business from companies associated with them. The court, however, held that the activities of the defendant in connection with specific job contracts tended to limit the amount of cement distributed to the trade under those contracts; that the exchange of information complained of generally tended to limit production; that the dissemination of this information, especially that contained in the freight rate book, tended to produce uniformity in price; and that there was accordingly a restraint of commerce within the principles laid down in American Column & Lumber Co. v. United States, 257 U. S. 393, 42 S. Ct. 114, 66 L. Ed. 284, 21 A. L. R. 1093; United States v. American Linseed Oil Co., 262 U. S. 371, 43 S. Ct. 607, 67 L. Ed. 1035.

It is conceded, and the court below found, that before the organization of the present association there was substantial uniformity of trade practices in the cement trade, so far as is pertinent to the present discussion, in the following respects:

(1) The sale of cement by specific job contracts for future delivery;

(2) The selling of cement, f. o. b. delivery;

(3) Using freight basing points in the quotation of prices;

(4) Including in all quotations for sale of cement, a freight rate from a basing point to the place of delivery;

(5) Charging purchasers of cement for bags in which the product is shipped and allowing credit for bags returned to the manufacturers in good condition.

Since there is no exchange of information among the defendants with respect to contracts for the sale of cement for immediate delivery, which constitutes more than 60 per cent. of the business, the government's contention before this court centered upon the use of the specific job contract by defendants and their activities in connection with such contracts, since without the use of the specific job contract the other activities complained of could have no substantial bearing on restraint of competition with respect either to prices or production. It will therefore be necessary to consider more at length the activities of the defendants in connection with specific job contracts and incidentally their other activities as related to sales of cement under specific job contracts and the information exchanged with respect to such contracts.

Specific Job Contracts.

The specific job contract and the practices of the trade with respect to making deliveries in performance of those contracts were customary in the trade long before any of the collective activities complained of in this case. We do not understand the government to contend that the use of specific job contracts by defendants or that their use generally by the trade is the result of any agreement or understanding or in itself constitutes any violation of the Sherman Law. It is contended that the violation arises rather from the co-operation among the several defendants in acquiring and distributing information with reference to specific job contracts and the effect of the dissemination of that information on the trade, to which reference will now be made.

The specific job contract is a form of contract in common use by manufacturers of cement whereby cement is sold for future delivery for use in a specific piece of construction which is described in the contract. As was stated in the opinion of the court below, they are contracts 'whereby a manufacturer is to deliver, in the future, cement to be used in a specific piece of work, such as a particular building or road, and the obligation is that the manufacturer shall furnish and the contractor shall take only such cement as is required for or used for the specific purpose.' These contracts have, by universal practice, been treated by cement manufacturers as, in effect, free options customarily made and acted upon on the understanding that the purchaser is to pay nothing until after the delivery of the cement to him; that he is not obligated in any event to take the cement contracted for unless he chooses to; that he is not held to the price named in the contract in the event of a decline in the market price; whereas the manufacturer may be held to the contract price if the market advances and may be held for the delivery of the full amount of cement required for the completion of the particular piece of construction described in the contract. The practical effect and operation of the specific job contract therefore is to enable contractors who are bidding upon construction work to secure a call or option for the cement required for...