United States v. Standard Oil Co., 4131.

Citation33 F.2d 617
Decision Date11 June 1929
Docket NumberNo. 4131.,4131.
CourtU.S. District Court — Northern District of Illinois

Before EVANS, PAGE, and ANDERSON, Circuit Judges.

John G. Sargent, Atty. Gen., William J. Donovan, Assistant to the Atty. Gen., George E. Q. Johnson, U. S. Atty., of Chicago, Ill., Rush H. Williamson and Horace R. Lamb, both of Washington, D. C., and Benjamin T. Rauber and Ralstone R. Irvine, Sp. Assts. Atty. Gen., for the United States.

Chauncey W. Martyn, Harry A. Daugherty, Louis L. Stephens, and Russell Wiles, all of Chicago, Ill., for Standard Oil Co. (Indiana).

Chester O. Swain, of New York City, and Stuart Templeton, of Chicago, Ill., for Standard Oil Co. (New Jersey) and another.

C. B. Ames, of Oklahoma City, Okl., and Drury W. Cooper and Harry T. Klein, both of New York City, and Silas H. Strawn, of Chicago, Ill., for Texas Co. and another.

Cutting, Moore & Sidley, of Chicago, Ill., Cutcheon, Taylor, Bowie & Marsh, and Ram say Hoguet, all of New York City, and Thomas E. Scofield, of Kansas City, for Gasoline Products Co., and others.

Frank L. Crawford, of New York City, and John A. Massen, of Chicago, Ill., for Galena Signal Oil Co. (Texas).

Humphrey, Crawford & Middleton, and Marvin H. Taylor, all of Louisville, Ky., for Standard Oil Co. (Kentucky).

Vermilion, Evans, Carey & Lilleston, of Wichita, Kan., and Harry A. Daugherty, of Chicago, Ill., for Standard Oil Co. (Kansas).

G. H. Dorr, of New York City, for Standard Oil Co. (New York).

W. T. Holliday, of Cleveland, Ohio, and Donald Defrees and Stephen E. Hurley, both of Chicago, Ill., for Standard Oil Co. (Ohio).

James H. Ball and Burton W. Musser, both of Salt Lake City, Utah, and Albert L. Green, of Chicago, Ill., for Utah Refining Co.

Hopkins, Starr & Hopkins, of Chicago, Ill., and H. O. Bentley, of Lima, Ohio, for Solar Refining Co.

Weeks, Morrow & Francis, of Wichita Falls, Kan., and Jeffery, Townley, Wild, Campbell & Clark, of Chicago, Ill., for American Refining Co.

Bates, Hicks & Folonie, of Chicago, Ill., for Humble Oil & Refining Co.

Koerner, Fahey & Young, of St. Louis, Mo., and Adams & Hawley, of Chicago, Ill., for Roxana Petroleum Co.

Mayer, Meyer, Austrian & Platt, of Chicago, Ill., and Pillsbury, Madison & Sutro, of San Francisco, Cal., for Standard Oil Co. (California).

James M. Johnson, Donald W. Johnson, and Charles French, all of Kansas City, Mo., for Interstate Refineries, Inc.

Edward D. Ellison, and Patrick Carr, both of Kansas City, Mo., for Lion Oil Refining Co.

Ashcraft & Ashcraft, of Chicago, Ill., for Owl Oil Co.

Francis I. Fallon, Rupert B. Thomas, T. Houston Solley, and Frank M. Swacker, all of New York City, and W. C. Franklin, of Tulsa, Okl., for Tide Water Oil Co. and another.

Gaston, Snow, Saltonstall & Hunt, of Boston, Mass., for Beacon Oil Co.

W. H. Francis and A. S. Hardwicke, both of Dallas, Tex., for Magnolia Petroleum Co.

John J. Jones, of Kansas City, Mo., for White Eagle Oil & Refining Co.

Fisher, Boyden, Kales & Bell, of Chicago, Ill., and Joseph H. Adams, of New York City, for Pure Oil Co.

S. S. Searcy, of San Antonio, Tex., for Jones & Co., Inc.

Victor Keller, of Chicago, Ill., for Grayburg Oil Co.

Wilkinson, Huxley, Byron & Knight, of Chicago, Ill., for Vacuum Oil Co.

EVANS, Circuit Judge.

Petitioner brought this suit to enjoin alleged violations of sections 1 and 2 of the Sherman Act (15 USCA §§ 1, 2). Defendants are grouped into two classes, one called primary defendants (the Standard Oil Company of Indiana, the Texas Company, the Standard Oil Company of New Jersey, and Gasoline Products Company) and the other, described as secondary defendants, included forty-six corporations and one individual.

Two defendants, Joseph H. Adams and M. W. Kellogg Company, were later made parties defendant. As to Adams, petitioner sought the cancellation of certain patents to him issued because of fraud practiced in their procurement. As to Kellogg Company, it was charged that it was in a conspiracy with the primary defendants to injure competitors who were engaged in licensing producers under processes covered by patents belonging to one Fleming.

All the defendants are engaged in manufacturing, selling, or handling gasoline within the confines of the United States. Petitioner charges an unlawful combination and conspiracy to monopolize interstate trade and commerce in cracked gasoline. This alleged monopoly or illegal restraint of trade exists, so it is alleged, because of certain agreements which deal with the right to use certain patented processes and apparatus.

The primary defendants executed certain so-called cross-license agreements. The secondary defendants thereafter took sublicenses from one or the other of the primary defendants.

It appearing that the time consumed in the taking of evidence would cover months, and the business of the Court of Appeals not permitting of the withdrawal of three judges for such a period, a reference was had, and Attorney Charles Martindale of Indianapolis was appointed a special master in chancery to hear the evidence and to make findings of fact and conclusions of law thereon.

The testimony taken was voluminous, and its presentation required many months. After a full hearing, the master found for defendants. He made findings of fact and conclusions of law (covering 384 printed pages). Petitioner duly excepted, and the questions here presented arise out of such exceptions to the master's report. Space prevents our incorporating in full the exhaustive report of the master. A brief résumé is herewith attempted:

Beginning about 1900, and coincident with the successful development of the internal combustion hydrocarbon engine, there arose in this country a tremendous demand for petroleum as a motive power. Following this demand, came improved methods for the separation of gasoline from crude oil. Generally speaking, the effective method of disintegration was through the application of heat. But the demand continued to multiply. This increased demand presented the perplexing problem of increasing the volume of gasoline from a given amount of crude oil. The gasoline consumption which in 1904 was 290,000,000 gallons rose in 1925 to 11,173,806,000 gallons. During the same time, the production of crude oil increased only 600 per cent. Increased production of gasoline followed the introduction of distillation processes whereby a larger percentage of gasoline was extracted from crude oil. In 1904 only 2.48 gallons of gasoline were obtained from a barrel of crude oil. In 1925 this amount was increased to 14.63 gallons per barrel.

It is out of the agreements respecting the use of the processes and the apparatus to apply the processes for producing gasoline that the alleged monopoly arises. These processes generally relate to what is known as "pressure cracking." In other words, an increase of heat or prolonged application of heat to the crude oil, or an application of it under pressure, increased under certain circumstances the amount of gasoline obtainable from a given quantity of oil. Generally speaking, this separation of the molecules that results from the application of heat to the petroleum distillate is what those skilled in this art call "cracking." Respecting it, we quote from the master's report.

"`Cracking' is a very broad term which covers almost any splitting apart or joining together of hydrocarbon molecules. In this Record we have to deal only with pyrogenetic `cracking.' The reactions are extremely complex — so complex that the most learned chemists and physicists are careful to limit and qualify what they know about what takes place in the reactions. Eminent chemists and physicists who know the most about this art are the most modest about what they know. There are still volumes to learn as to why these molecules composed of hydrogen and carbon split in quite unexpected ways. One cannot make such generalization in regard to reactions because things which are true for one set of conditions or for one type of oil are not true for some other set of conditions or some other type of oil. Instead of being a simple, well-understood art, this is a highly complex art with a very large field, still, for exploration and for the revelation of new methods and new compounds.

"The phenomena of behavior of molecules and atoms in petroleum are still mysterious. Molecular behavior when the existing arrangement is broken up can be predicated under certain now known conditions. Given a certain substance derived from petroleum, apply selected factors of degrees of heat, degrees of pressure, and time of reaction, and one may expect a certain result. New molecular arrangements have resulted in new compounds. Given a different substance of a different molecular arrangement and apply the same factors and something different happens. What substance to choose; what factors of heat, pressure and time to apply; the means to apply them and means for separation of resulting fractionation to get more and better motor fuel, was the extensive field of research and experiment into which the chemist adventurer was to fare forth in the first decade of this century armed with what discoveries in the chemistry and physics relating to the art had been made prior thereto.

"It is conceded that in the cracking of oil there are generally produced by `cracking' both lighter constituents and heavier constituents, and the attention of the chemist in this art is usually focused merely on the lighter constituents; and also that if cracking is carried to an extent sufficient to make any considerable amount of gasoline, there will be resultant coke and gas.

"The great advancement in the last quarter of a century in the development of steels has made it possible to control pressure so far beyond those which were formerly considered dangerous that the new compounds of high distillation have revolutionized some industries. In this industry, where...

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    ...are the following, which are here enumerated, for convenience, in the order in which they will be discussed: United States v. Standard Oil Co., D.C. N.D.Ill.1929, 33 F.2d 617, reversed on other grounds, 1931, 283 U.S. 163, 51 S. Ct. 421, 75 L.Ed. 926; Crosby Steam Gage & Valve Co. v. Mannin......
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