3. The Arguments over Whether There Is an Argument

3. The Argument over Whether There Is an Argument From where a newspaperman sits, there seems to be considerable confusion over the meaning of the antitrust laws as now interpreted. For instance the recent Cement Institute case,l which was largely about whether cement companies could legally pay the freight for distant cus tomers, said at one place, about two previous Supreme Court decisions, "Thus the combined effect of the two cases was to forbid the adoption for sales purposes of any basing-point pricing system." And right after the decision, the Federal Trade Commission put out a press release which was headed, "Court Holds Basing-Point Methods of Pricing to be Unfair Irrespective of Con spiracy." From this, one might pardonably assume that the Su preme Court had held the use of basing-point pricing systems of methods of pricing to be illegal. However, it turned out to be not quite so simple.

They were-but they weren't. Illegal, that is. Another reason why one might assume that the use of basing-point pricing was rendered illegal by the Cement Institute decision was that the FTC was the winner in the case, and the FTC had been haranguing Congress for 18 THE ARGUMENT 19 ten years before the Cement decision to outlaw basing point pricing. FTC CommissionerRobert Freer had ad vocated before the Temporary National Economic Committee (TNEC) a "specific ban by statute" on basing-point pricing so as to "avoid the delay, expense, and uncertainty of protracted and expensivelitigation in each individual case." However, the FTC shortly after the Cement casebegan to sing another tune. It was that basing-point pricing might be legal some times, and illegal other times, and that nobody could tell beforehand, except the FTC. The Commissionput out a 4,500-word "explanation" of its attitude, which said that basing-point pricing was not in itself illegal. By this time, a Senate Committee had started hearings to straighten.the matter out. FTC lawyers testified. But their testimony did not agree.

One said such pricing systems were not illegal in them selves. Another said that only f.o.b. mill pricing was really safe. .A third said that the safest thing for a manu facturer to do was to remain ignorant of his competitors' prices (thus avoiding "conscious parallel action"). Senator Capehart, who conducted the hearings, said (October, 1948) that "Confusion inside the FTC is just as great as outside it. We had the commission'ssix top lawyers before us in executive session. I asked them about two proposed selling methods that had been con demned by the commissionand the courts, and they said that so far as they knew they were all right." Within the next few months, FTC Commissioner Mason said explicitly that "Freight absorption is out the window," and another Commissioner, Freer, said ex plicitly in December that freight absorption "is not out the window." Senator Capehart's successor on the Committee, Sen...

20 THE ARGUMENT ator Johnson, told the Senate (January 5, 1949) that "not only are businessmen confused, but that members of the Federal Trade Commission and its staff are in complete disagreement as to when a seller may payor absorb transportation costs." Commissioner Mason ridiculed the majority of the Commission,saying that the "agencies of government dealing with the problems of businessconduct have created a Tower of Babel." 2 Again in 1950 Mr. Mason made the same charge. Spc~aking at Marquette University on April 11, 1950 he said: . . . I openly defy the entire University to explain to any businessman what he can or cannot legally do when making up his next season's price policy. Can he absorb freight? Perhaps, if he only does it now and then, or if he is not too big, or if the amount of the freight is not too much. But who is to say? How often. is 'now and then'? What size is 'too big'? And how much is 'too much'?

What a young law student needs most after a diploma and a shingle and a client is a good pair of eyebrows and broad shoulders. Then when his client asks him how to stay out of trouble with the government, he can raise the first.and shrug the second . . . This kind of uncertainty has come to be a frequent result of Supreme Court decisions. Thus, in the South east Underwriters case Justice Roberts remarked that "It is regrettable that in an era marked by doubt and confusion . . . this Court; which has been looked to as exhibiting consistency ... should now itself be come the breeder of fresh doubt and confusion in the public mind. . .. With these frequent reversals. . . the law becomes not a charge to 'govern conduct, but a game of chance. . . instead of settling rights and liabili ties, it unsettles them.. ."

THE ARGUMENT 21 Adding to the uncertainty, the Supreme Court, it has been estimated, reversed earlier decisions in 30 cases be tween 1937 and 1949, and in three years to the middle of 1949 had handed down 86 five~to-four decisions. If the Court itself finds it so hard to agree, it is natural that businessmen find it hard to know what the law is or will be. Five-to-four decisionsmean that one Justice casts the determining vote in what may be a major case. An example of this was the Standard of California case cited in Chapter 2. The decision of one Justice meaJ.i1t that the contracts of at least 20,000 dealers may be illegal and their relations with their suppliers may have to be rearranged. However, many people feel that this uncertainty is rather a good thing. Thus, for instance, Justice Douglas has recently said that 8 "the law will always teem with uncertainty . . . under the democratic scheme of things.

. .. Philosophers of the democratic faith will rejoice in the uncertainty of the law and find strength and glory in it." Federal Trade Commission officials have repeatedly said the same. Thus its Chief Economist, Dr. Corwin D. Edwards, has said, "If the statute contained a series of specific prohibitions of particular practices and of agreements about particular subjects, the ingenuity of businessmen would soon devisenew ways of accomplish ing restrictive ends. . . ." 4 And the late Associate General Counsel of the Commission, Mr. Walter B. Wooden, told a Senate Committee that Congress "could not expect to keep its precise definitions abreast of the inventiveness of the human mind in devising new forms of restraint on competition." 5 And FTC Commissioner Robert E. Freer, opposing clarification of the law on the basing-point question, said that "the real question" is 22 THE ARGUMENT "whether the FTC and the courts are to remain free to examine the facts in each individual case and ascertain whether particular pricing systems have . . . had the effect of injuring or suppressing competition." 6 The Department of Justice seems also to take the view that the law should not be too specific. Thus Attorney General Howard McGrath has been quoted as follows in a~press interview: Question: Then doesn't it all boil down to one thing shouldn't there be developed a set of standards by which a businessman would know whether he was violating the anti trust laws?

Answer: I would think it would be a disadvantage to businessmen generally if we tried to write hard and fast rules. I do agree there should be a general understanding of what the law means and we have that stated in the law.... I don't think it would be desirable to try to put down a specific code. I just don't think that you can develop a body of antitrust lav/s adequate to the country's need that way. Business practices are constantly changing and the generality of the laws makes them adaptable to new and different circumstances . . . 7 And the Chairman of the House Judiciary Committee, Emanuel Celler, has echoed this view, saying: I want to make it clear that I would vigorously oppose any antitrust laws that attempted to particularize violations, giving bills of particulars to replace general principles. The law must remain fluid, allowing for a dynamic society. Otherwise, to put it bluntly, the process would become a rat-race between the monopolist seizing upon omissions and the Congress trying to fill them into the law, always eighteen steps behind ...8 Som.e noted men have not shared these views. Thus the Viennese economist, Dr. Friedrich Hayek, in his book, The Road to Serfdom, recently wrote: THE ARGUMENT 23 Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary govern ment than the observance in the former of the great principles known as the Rule of Law . . . that government in all its actions is bound by rules fixed and announced beforehand. 9 And a great American lawyer once said, "Clean-cut and specific rules make it possible for men to accomplish in their business dealings the legal results they intend without the necessity of constant recourse to the courts to resolve doubts." 10 In fact, President Woodrow Wilson, the father of the Federal Trade Commission Act itself, when he first pro posed the idea to Congress, said, The business of the country awaits also, has long awaited and has suffered because it could not obtain further and more explicit legislative definition of the policy and meaning of the existing antitrust law.

Nothing hampers business like uncertainty. Nothing daunts or discourages it like the necessity to take chances, to run the risk of falling under the condemnation of the law before it can make sure just what the law is. Surely we are sufficiently familiar with the actual proc esses and methods of monopoly and of the many hurtful restraints of trade, to make definition possible, at any rate up to the limits of what experience has disclosed.11 The British have been going through somewhat the same problem. A recent Act of Parliament (Monopo lies and Restrictive Practices Act, 11 and 12 George VI, c.66 (1948) was so vague that the London Economist remarked that· "some principles of economic justice should be drawn up so that businesslnen may have an idea, as precise as may be, of what they may do and what not, and so that the enforcing authorities may have something other than their own prejudices to guide them." 12 24 THE ARGUMENT In fact the British went through somewhat the same controversy three hundred years ago, in the days of the Commonwealth. The contestants were the same -the Crown (the government) and the Parliament (the congress). The issuewas the same-whether the Crown should be governed by specific rules of law or should be free-wheeling in its actions. Men of the Massachu setts Bay Colony went back to England to join issue, and when the controversy was finally decided with the Whig "Revolution" of 1688, in favor of the rule of law and a limited monarchy, Britain embarked on her two greatest centuries of achievement.

However, the new antitrust law. interpretations now have come to mean not only confusion, but straight out contradictions. Some of these contradictions are obvious, as in the "Detroit gasoline case" (to be discussed in Chapter 5). In this the FTC, to prevent "price discrimination," re quired resale-price-maintenance. Others are more pro found, though less immediately apparent, as in the (apparent) ban on basing-point pricing. This tends to Balkanize trade or to build up local monopolies-which the Antitrust Division will then have to attack; or in the Supreme Court's requirement of functional discounts in the Morton Salt case (next chapter) which will drive businesstoward vertical integration, which the Antitrust Division is opposed to. But the main contradiction is a broad one. The antitrust laws are now being used to force· both "hard competition" and "soft competition." The collision (with businessmencaught in between) will be discussedin Chapter 6.