Part 15
The Government charged that competition was restrained successfully by means of the joint companies in Canada, Argentina and Brazil, pointing out that because I. G. Farben was encroaching on the field in Argentina, certain arrangements were made for a further joint company to be partly controlled by Farben. However, because of the war this procedure was not carried out, although du Pont’s Foreign Relations Department stated in February, 1940, that “the du Pont Company informed I. G. that they intended to use their good offices after the war to have the I. G. participation restored.”
The purpose of the Government’s suit was to bring about the abrogation of the illegal contracts, to secure a perpetual injunction against ICI from violating the American Antitrust Acts, and to require du Pont and ICI to take further steps to prevent future use of joint companies.
* * * * *
On May 1, 1944, the Department of Justice filed a complaint charging the maintenance of an international cartel in the manufacture and distribution of matches, in violation of the Sherman Antitrust Act, by six American companies, two British companies, a Canadian company, a Swedish company, two American agents of the Swedish company, and six of their officers.
Named as defendants in the suit were: Diamond Match Company, New York City (including William A. Fairburn, President, and Howard F. Holman, Vice-President); Berst-Forster-Dixfield Company, New York City (including Robert G. Fairburn, President); William Gordon Corporation, New York City; Universal Match Corporation, St. Louis, Missouri; Ohio Match Company, New York City; Lion Match Company, Inc., New York City; British Match Corporation, Limited, London, England (including Sir Clarence Bartholomew, Managing Director); Bryant & May, Limited, London, England; Eddy Match Company, Limited, Pembroke, Ontario, Canada; Svenska Tändsticks Aktiebolaget (Swedish Match Company), Jönköpings, Sweden; Transamerican Match Corporation, New York City (including Fritz Otterberg, President); New York Match Co., Inc., New York City, American agents of Swedish Match Company (including Paul Bertil Lind, President).
The Government’s complaint made the following charges:
(1) A cartel comprising American, Swedish, British, and Canadian match producers eliminated competition throughout the world in the manufacture and distribution of matches. This cartel has been in existence since 1901.
(2) The defendants divided world territories into non-competing areas, established production and sales quotas, and restricted the production of matches in the major markets of the world.
(3) The defendants suppressed inventions and improvements in the match art. By the acquisition of patents controlling the “repeating” or “everlasting” match, the defendants have been able virtually to suppress its production and use.
(4) Defendants controlled patents, raw materials, chemicals, machinery, and processes in order to maintain their grip on the industry and prevent competitive capital from entering the market.
(5) The defendants acquired competing match producers and distributors wherever and whenever competition threatened.
(6) The amounts of matches imported into the United States from Sweden, Russia, and Japan have been curtailed and prices have been fixed by agreement with the Diamond Match Company with the approval of the other American defendants. Imports into the United States from Canada, the British Empire, and other markets of the world have been virtually eliminated.
(7) As part of the conspiracy, match factories in the United States have been withdrawn from production and scrapped.
(8) As the result of agreements between the Diamond Match Company and I. G. Farbenindustrie, American production of chlorate of potash, essential to match production and certain types of ammunition, was virtually halted during the period between the first World War and the second World War. This conspiracy resulted in a grave shortage of chlorate of potash for military purposes and match production.
(9) Post-war plans have already been made by the defendants to resume the conspiracy in full as soon as the difficulties created by the war disappear.
The conspiracy in the world match industry against which the complaint was directed was reinforced by an agreement entered into in 1920 by Ivar Kreuger, the late so-called “match king,” and William Fairburn on behalf of their respective companies, the Swedish Match Company and the Diamond Match Company.
These two companies are the major factors in the match industry of the world. The Swedish Match Company is the world’s largest match producer and exporter. The Diamond Match Company is the largest American match producer. Diamond, through its President, William A. Fairburn, and his personal holding company, the William Gordon Corporation, dominates and controls the policies of Diamond’s partly-owned and affiliated company, Berst-Forster-Dixfield Company, and the Universal Match Corporation, Ohio Match Company, and Lion Match Company, Inc.; these companies together with Diamond, produce approximately 83 per cent of American matches. The annual sales of matches in the United States are in excess of $40,000,000.
Prior to the first World War, Diamond was the exclusive agent for Swedish Match for the sale in the United States, Canada, Cuba, and Puerto Rico of safety matches, the type most widely used by the armed forces. When Swedish imports to the United States were cut off during the first World War, Diamond, in 1917, erected a large safety match factory at Savannah, Georgia, to supply the urgent needs of the armed forces of the United States and its allies and civilian requirements for this kind of match.
After the first World War, Kreuger threatened vigorous competition with Diamond in the United States. Faced with this threat, Diamond and Swedish Match entered into an arrangement in 1920 described by Diamond’s President, William A. Fairburn, as the “peace treaty with the Swedes.” Under the “peace treaty” Swedish Match appointed Diamond its exclusive agent in the United States for the sale of Swedish safety matches and agreed to discontinue all other selling agencies and establishments in the United States. In order to assure Swedish Match of its share of the American match market, it is charged, Kreuger and Fairburn entered into a secret agreement which required Diamond to destroy virtually its entire safety match business, including the scrapping of its largest plant at Savannah, Georgia. Swedish Match agreed that it would not otherwise make or sell matches on the North American Continent; Diamond, in turn, agreed not to make or sell matches in countries supplied by Swedish Match.
The understandings reached in 1920 between Diamond and Swedish Match are still in effect, although the limitation of production feature has been temporarily suspended. Upon the outbreak of the present war a match shortage, particularly of the safety match type, resulted in the United States and in certain South and most Central American countries. In accordance with the agreement between the parties the South and Central American markets were Swedish territory. But war conditions have made it impossible for Swedish Match to supply this market. Instead of selling directly in these markets, however, Diamond, through its controlled affiliate, Berst-Forster-Dixfield, supplied Swedish Match with matches for South and Central American countries. The condition for Diamond’s policy in thus helping out was expressed to Swedish Match as follows:
“We help you now. You stay out of the United States market after the war.”
By 1927 Kreuger became dissatisfied with the share of Swedish Match and its affiliated company, International Match, in the American match market. In violation of the “peace treaty,” he planned to erect new match factories and acquire existing concerns in the United States. William A. Fairburn, on behalf of Diamond, successfully appeased Kreuger for the time being by acquiring Ohio Match, then the second largest domestic match producer, and selling Kreuger a half interest in the company. By 1931 Kreuger, through an arrangement with Fairburn, acquired a one-third interest in Diamond itself. At the same time, Fairburn induced Kreuger to scrap a partly-constructed match factory at Natchez, Mississippi.
In 1901, the complaint charges, Diamond and Bryant & May, virtually the sole match producer in Great Britain, came to an understanding for the elimination of competition between them. Thereafter Bryant & May refrained from producing and selling matches in the United States and Diamond in the British Empire. It is also charged that the Berst-Forster-Dixfield, Universal, Ohio, and Lion companies have followed Diamond’s policies with regard to non-competitive relations with Swedish Match, Bryant & May, and the other corporate defendants.
About 1927 Bryant & May and Swedish Match eliminated competition in the British home market (the United Kingdom and Ireland) and the remainder of the British Empire. Fifty-five per cent of the match consumption of the United Kingdom and Ireland was allotted by Bryant & May’s domestic production; the remaining 45 per cent was allotted to Swedish Match’s imports. India was allocated to Swedish Match and the remainder of the British Empire to Bryant & May. To effectuate the division of markets, British Match Corporation was formed in 1927 as a holding company, and acquired all of the stock of Bryant & May. Swedish Match obtained 30 per cent of the stock of British Match.
In 1927, it is asserted, Diamond, Bryant & May, and Swedish Match eliminated competition in Canada by the formation of Eddy Match, which acquired virtually all of the match factories in that country.
In 1935, after consultation with and approval by Diamond, Swedish Match, by agreement with the Japanese producers and the Soviet Match Monopoly, fixed the price of and limited match imports into the United States from Japan and Soviet Russia. In about 1937 Diamond became the exclusive agent for all Russian and Japanese matches sold in the United States.
The complaint alleges that about 1922 Diamond’s wholly-owned subsidiary, Uniform Chemical Products, became exclusive agent in the United States for the sale of I. G. Farbenindustrie’s German-made chlorate of potash. Chlorate of potash is a chemical not only essential in match manufacture, but also in the production of ammunition, flares, and railway emergency warning signals. In return for Uniform’s exclusive agency, I. G. Farbenindustrie required Diamond virtually to cease the manufacture of chlorate of potash in the United States. As a result of the scrapping of American plants, this country had practically no plant capacity for the production of chlorate of potash at the outbreak of the war. Emergency plant construction has not yet overcome the shortage of this essential chemical.
The complaint recites the heretofore undisclosed history of the so-called “everlasting” match, which has long been a matter of considerable rumor and speculation. About 1932, it is charged, Kreuger obtained control of the patents on this match, and subsequently Bryant & May obtained an interest in them. Diamond later was offered a participation in Swedish Match’s patents and also negotiated with the inventor of certain improvements. Although it was commercially successful in Holland and Switzerland, the everlasting match has never been manufactured commercially by Diamond or any other American manufacturer. Diamond’s decision not to acquire the patents and manufacture the everlasting match was expressed as follows in a document found in their files: “The patents have not so long to run and if it becomes a marketable commodity by our pushing it, once the patents are out--as in the case of book-matches--it would be a fertile field for the rottenest kind of competition. It is to be hoped that if the item is not put out and pushed by a strong manufacturer, no one else will take it up even if the patents expire.”
The Government sought, among other things, the abrogation of the illegal contracts and agreements and a perpetual injunction against the defendants, prohibiting them from violating the Sherman Antitrust Act. The Government also asked that Diamond, Berst-Forster-Dixfield, and the William Gordon Corporation be required to divest themselves of holdings in any other match producer, including the foreign corporate defendants.
12
_The Webb Act_
An expanding foreign trade is one of our chief economic objectives. Both Government and business should desire and promote policies that will open up new markets to American enterprise, encourage sound foreign investment and facilitate the flow of goods between this and other countries. There can be no issue, surely, over this basic purpose. Nor is there room for disagreement on the proposition that a crucial, if not indeed the ultimate, test of our economic policy should be its efficacy in promoting free enterprise as opposed to a controlled economy. Differences, if any, relate only to methods.
However, anyone who has been under the impression that the Webb Act provides an easy backdoor entrance for American firms to join forces with cartels seeking domination and control of world markets is in for sad disillusionment. The Webb Act was intended to strengthen American competition against foreign cartels. It was enacted by Congress in the belief that it would provide a means of assistance to American business in combatting the power of foreign cartels dominating world markets. The Act was not passed to permit American firms to take part in cartel restrictions on American trade--such restrictions are directly contrary to Congressional purpose.
It should be emphasized that associations organized under the Webb Act cannot legally enter into international agreements which restrict production and distribution, divide territories and fields of operation, fix prices or other wise regiment industry throughout the world. Neither can they legally enter into agreements which restrain trade within the United States, restrain the export trade of any domestic competitor or association, or which enhance or depress prices or substantially lessen competition within the United States.
We have instituted a suit against the United States Alkali Export Association, the California Alkali Export Association and others, charging them with maintaining international cartel agreements to restrain trade in the manufacture and distribution of alkalis in violation of the Sherman Act. In this case we have charged that activities by the defendants were not authorized by the Webb Act. I shall refer later to this case in more detail. It is sufficient to say at this point that other associations are under investigation for similar activity, and that new antitrust suits will be instituted whenever evidence discloses illegal activity by export associations or others.
The alkali suit may very well have prompted the resolution of the Board of Directors of the Commerce and Industry Association of New York to declare that Congress should restudy the Webb Act and by proper amendments bring it up to date so that there can be achieved under it all of the objectives that President Wilson sought to attain when he procured the enactment of this Act in 1918. The resolution recited that the Department of Justice program for enforcement of the Sherman Act seemed to be seeking to impose the competitive system and the antitrust philosophy, as interpreted by the United States Supreme Court, on other countries, and implied that antitrust enforcement was frustrating the purposes of the Webb Act. And in other quarters it has been suggested that perhaps the Webb Act provides a vehicle for attaining cartel objectives without incurring the penalties of the Sherman Act.
These suggestions that the enforcement of the Sherman Act in the field of foreign trade somehow constitutes a betrayal of the Congressional policy embodied in the Webb Act, and that the Webb Act legalizes restrictive cartel practices, are based upon a misconception of the meaning and purpose of the Act. The Webb Act was enacted to help American business compete with foreign cartels. It was not passed to provide a conduit for joining them. It was designed to stimulate the position of American concerns as competitors for world trade and to stimulate the growth of our export trade. The Act created only a very limited exemption from the Sherman Act which I shall presently discuss.
But, before taking up the Act itself, let us look at the conditions which brought about its enactment. The background of the Act is set forth extensively in a report by the Federal Trade Commission, dated June 30, 1916, on cooperation in American export trade. This report set forth that other nations had certain advantages in foreign trade because of superior facilities and more effective organizations; it pointed out that doubt and fear as to legal restrictions prevented Americans from developing effective organizations for engaging in international trade, and that as a result the smaller concerns suffered because of their lack of organization and facilities. It emphasized that in seeking business abroad, American manufacturers and producers had to meet aggressive competition from powerful foreign combinations often international in character. It recited that in some industries the smaller manufacturers had to compete abroad with great American companies having much more efficient worldwide selling organizations. In order to assist these smaller businesses to acquire proper facilities for doing an international business, and to enable them to meet the competition in prices and services of major American concerns and all foreign competitors, the report recommended that small American producers and manufacturers should be permitted to unite their efforts for purposes of conducting foreign trade. By combining their efforts it was thought that these small firms would be better able to advertise, maintain an adequate selling force, and create markets abroad.
But, while recognizing the desirability of a certain degree of cooperation in seeking international markets, the Federal Trade Commission in its 1916 report was fully cognizant of the possibility of misuse of export associations and of the necessity to prevent their misuse by legislative safeguards and antitrust enforcement. Thus the Commission said:
“Two chief dangers from cooperation export organizations of American manufacturers and producers are apparent. They may be used to exploit the home market and they may be used unfairly against individual American exporters in foreign trade. The dangers in cooperative action must be faced frankly and provided against fully.
“The Commission is confident that this can be done without sacrificing the essential advantages of joint action and without altering the policy of the antitrust laws or interfering with their enforcement.”
And the Commission further declared that “This recommendation is made subject to the condition that the legislation shall be carefully safeguarded and shall make absolutely clear that the combinations for export business are subject to all of the rigors of the Sherman law if they are used to restrain trade in the United States.”
Bills were then introduced in Congress by Senator Pomerene and Congressman Webb, and were considered by Congressional committees and debated from 1916 to 1918, when the law was enacted. The Webb Act as finally passed provides that nothing in the Sherman Act shall be construed as declaring to be illegal an export association or any agreement made or act done in the course of export trade by such association, provided that such association, agreement or act does not: (a) restrain trade within the United States; or (b) restrain the export trade of any domestic competitor or association; or (c) enhance or depress prices within the United States, substantially lessen competition within the United States, or otherwise restrain trade therein.
Since the Webb Act is a statute creating an exception to the Sherman Act’s general application, the principle of interpretation governing all statutes which create such exceptions must be applied here; that is, the Webb Act must be strictly construed. It must not be taken to cover any more ground than appears to have been intended by the language of the Act itself read in the light of the legislative history.
The legislative history leaves no doubt whatever as to what Congress intended. In its report of May 11, 1917, the House Judiciary Committee stated:
“The bill is drawn so as to leave in full force our antitrust laws as applied to our own markets and as affecting different American exporters in their dealings with each other.... The bill does not authorize any violation of the present antitrust laws.... The bill prohibits the slightest violation of our antitrust laws within the United States.”
The Senate Committee report contained a similar declaration.
The House and Senate debates abound with declarations by the sponsors of the bill that it did not in any way interfere with the application of the Sherman Act to the domestic commerce of the United States and to agreements to restrain the export trade of competitors of the associations. In referring to antitrust jurisdiction over proposed export associations, Representative Webb stated: “If the combination for export trade affects unduly or artificially the prices in the United States then they come within the Sherman Antitrust Law.”
Senator Pomerene made the following significant arguments during debate on the bill:
“The position was taken in substance that this bill was a repeal of the Sherman Antitrust Law, and if it became the law of the land and these associations were authorized they would at once seek to control the foreign market and probably enter into a combination with foreign companies and cartels engaged in the same line of business and thus reenforced and worldwide in their control of products they would reduce the prices of food animals, of grain, and of other products and raise the prices to the consumer when it suited their purposes.”
“If the Senator when making this argument had recited facts instead of fancies, there might have been some force in his utterances but he was giving free reign to his imagination. The Senator overlooked the fact that this bill does not repeal the Sherman Law. He had in mind one paragraph only and lost sight of all the restrictions and qualifications it contains. I submit that when this bill is construed judicially it will be analyzed as a whole and not one part separate from the other.
“The Senator forgets that neither the associations, nor their agreements, nor their actions can be in restraint of trade within the United States, nor in restraint of the foreign trade of any domestic competitor and they cannot by any agreement, conspiracy, or act artificially or intentionally and unduly either enhance prices or reduce prices domestically, and if they do they violate the law of the land.”
During the debates some members of Congress, foreseeing the possibility that export associations might join in a combination with foreign companies, questioned the sponsors of the bill as to the effect of the bill upon such practices. In the House debates, Mr. Moore of Pennsylvania asked: “Suppose a combination in which Americans join with foreigners had been formed?” To this query Congressman Webb replied: “Then you violate the antitrust law and it has been so held by the court.” Later, in the Senate debates, Senator Pomerene stated: “There is nothing in this bill authorizing the division of territory abroad.”