Full opinion text
TABLE OF CONTENTS. COMPARISON OF THE ECONOMIC AND LEGAL CONCEPTS OF MONOPOLY. THE PRESENT ECONOMIC AND LEGAL VIEWS OF MONOPOLY AND COMPETITION a. Competition and monopoly in the economic sense. b. The competition intended by the Sherman Act. c. The economic view of the effect of potential competition upon monopoly. d. The economic view of the effect of substitute products upon monopoly. PART I — CELLOPHANE. A. DuPONT’S POSITION DOES NOT VIOLATE § 2 OF THE SHERMAN ACT. 1. DuPONT DOES NOT HAVE MONOPOLY POWER. a. Plaintiff must establish duPont has sufficient power arbitrarily to raise prices or to exclude competitors. FINDINGS OF FACT. I. Description of Defendant duPont (Findings 1-6). II. Description of Cellophane (Findings 7-12). III. DuPont’s Entry Into the Cellophane Business and Organization of duPont Cellophane Company (Findings 13-36). IV. The “Market Setting” in Which Cellophane is Sold (Findings 37-79). V. DuPont Competed by Research to Improve Quality and Lower Cost (Findings 80-122). VI. DuPont Competed by Lowering Prices (Findings 123-149). VII. Competition Between Cellophane and Other Flexible Packaging Materials (Findings 150-278). SPECIFIC USES: 1. White Bread. 2. Specialty Breads. 3. Caice and Sweet Goods. 4. Meat. 5. Candy. 6. Crackers and Biscuits. 7. Frozen Foods. 8. Potato Chips, Pop Corn and Snacks. 9. Cereals. 10. Fresh Produce. 11. Paper Goods and Textiles. 12. Cigarettes. 13. Butter. 14. Chewing Gum. 15. Other Food Products. 16. Other Tobacco Products. 17. Cheese. 18. Oleomargarine. VIII. Results of duPont’s Competition With Other Materials (Findings 279-292). IX. DuPont Competed With Sylvania (Findings 293-330). X. The Basic Moistureproof Patents (Findings 831-339). XI. DuPont Did Not Engage in Predatory Practices as Alleged. A. DuPont’s decisions as to changes in its business capacity were made on the basis of proper business considerations, and not to suppress competition or to create artificial shortages (Findings 340-353). B. Potential competitors were not excluded (Findings 354-388). C. Distribution outlets were not controlled (Findings 389-455). D. Patents were not abused (Findings 456-532). XII. DuPont Did Not Conspire to Monopolize. A. With Sylvania (Findings 533-591). 1. Patent License Agreement (Findings 533-583). 2. Prices (Findings 584-591). B. With foreign concerns to exclude imports (Findings 592-645). XIII. DuPont Did Not Attempt and Is Not Now Attempting to Monopolize. A. General (Findings 646-660). B. Olin license (Findings 661-686). XIV. DuPont Has Not Monopolized (Findings 687-732). CAPS AND BANDS (Findings 733-819). OTHER FACTS (Findings 820-834). CONCLUSIONS OF THE MASTER FACTS (Findings 835-854). RESUMPTION OF THE OPINION. b. Competitive conditions preclude acquisition of market control and hence of monopoly powers over cellophane. i. “Market Setting”. ii. Candy — A Case History. iii. Testimony op Independent Witnesses. c. DuPont has not “power to raise cellophane prices”. d. DuPont has not the “power to exclude competition”. 1. General. 2. Potential Competitors. 3. Patents. 4. Sylvania Competition. e. Application of recognized economic tests further evidences the lack of monopoly power. 2. DuPONT’S POSITION IS NOT TO BE ATTACKED BECAUSE IT, RESULTS FROM TECHNICAL SKILL AND COMPETITIVE ACTIVITY. a. The moistureproof patent is, I conclude, a defense. b. Monopolization requires a factual showing of illegality. c. Technical skill and other competition were responsible for duPont’s position in the field. B. IS ORIGIN OF DuPONT’S POSITION LAWFUL? C. WAS DuPONT’S POSITION MAINTAINED BY PREDATORY ASSERTION OF MONOPOLY POWER? 1. TESTS TO BE APPLIED. 2. ALLEGED SUPPRESSION OF SYLVANIA. a. The Moistureproof Patent License Agreement. b. The Alleged Price Agreement. 3. PATENT PRACTICES. 1. Ultra-Violet Light License. 2. Ribbon Licenses. 3. Ethylene Glycol License. 4. Marathon License. 5. The Sealing Licenses. 6. Interferences. 7. Tying Provisions. 4. CONTROL OF DISTRIBUTION OUTLETS. 5. EVIDENCE PLAINTIFF IGNORES. PART II — CAPS AND BANDS. NO FACTUAL BASIS EXISTS FOR CLAIMING A VIOLATION OF § 2 AS TO CAPS AND BANDS. CONCLUSION OF LAW. LEAHY, Chief Judge. This is a civil suit by United States of America under § 4 of the Sherman Act, 15 U.S.C.A. § 1 et seq., charging defendant with monopolizing, attempting to monopolize and combining and conspiring to monopolize trade and commerce among the several states of the United States in cellophane and caps and bands. The Act of July 2, 1890, 26 Stat. 209, commonly known as the Sherman Act as amended, provides in part: “Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemean- or * * *. [15 U.S.C.A. § 2]. ****** “Sec. 4. The several circuit courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. * * * [15 U.S. C.A. § 4.]” This case was instituted originally in the District Court of the United States for the District of Columbia on December 13, 1947. On April 28, 1949, the case was transferred to the District of Delaware. Defendant, E. I. duPont de Nemours and Company, is a Delaware corporation. It is successor to duPont Cellophane Company, Inc. Throughout the period covered by the complaint, it or its predecessors manufactured and sold, in interstate and foreign commerce, regenerated cellulose in the form of film (cellophane) and in the form of bands. Prior to the filing of the complaint in this case, it also manufactured and sold cellulosic caps. DuPont entered the cellophane business in 1923. It collaborated, under written agreements with La Cellophane (a subsidiary of the Comptoir which is the largest French rayon producer), in establishing the first duPont cellophane company. In 1929 duPont Cellophane Company, Inc., was reincorporated as a wholly owned subsidiary of duPont. In 1936, duPont took over the operation of this business and dissolved duPont Cellophane Company, Inc. In addition to La Cellophane, the following European producers have been named as co-conspirators but not party defendants: British Cellophane, Ltd. (England); Canadian Industries, Ltd. (Canada); Kalle & Co. (Germany); Viscose Francaise (France); and Viscose Development Company, Ltd. (England) . Plaintiff’s argument and briefs treated in a highly interesting fashion the comparison of the economic and legal concepts of monopoly. But the final legal definition of the economic view of monopoly is to be left for decision by the Supreme Court. COMPARISON OF THE ECONOMIC AND LEGAL CONCEPTS OF MONOPOLY. Economic philosophies concerning monopoly and what should be done about it are legion; no one view can be said to be “the economic” concept. While these philosophies can not be classified into air-tight compartments, they do fall into distinct schools of thought. These schools are presently engaged in debate over the degree of monopoly power which is economically desirable and which the law should permit. The economic discussion had its genesis in an attempt to bridge what was believed to be a gap between the legal and economic concepts of monopoly. This discussion has resulted in some agreement among economists upon classifications of various types of competition which exist in the market today, but in sharp disagreement upon their significance as indicia of monopoly. Plaintiff contrasted first the legal and economic concepts of competition and monopoly as presently understood, and as affected by potential competition and the presence of substitute products. Second, it discussed the coalescence of the old patterns of economic and legal thought. Third, it discussed the economic concepts of monopoly whose application is proposed for the future and their contrast with the existing legal tests of monopoly. THE PRESENT ECONOMIC AND LEGAL VIEWS OF MONOPOLY AND COMPETITION. Recent economic discussion has focused attention upon differences of opinion which exist among economists themselves and between economists and the courts as to the type and degree of competition which public policy, as expressed in the Sherman Act, contemplates. Differences also appear in the significance certain economists and courts attach to potential competition and to presence in the market of alternative or substitute products. a. Competition and monopoly in the economic sense. Today economists regard “perfect competition” and “pure monopoly” only as theoretical ideals of the opposite boundaries of possible market sitúations. While economists have not crystallized their terms, in a semantic sense, they recognize between the two extremes of perfect competition and pure monopoly there are “pure competition”, “imperfect competition”, “oligopoly”, and “monopolistic competition” We start, Clark tells us, “with recognition that all practicable forms of competition are ‘imperfect’, and that the ‘perfect competition’ of economic theory is academic.” Pure competition, sometimes defined as a less perfect form of competition than perfect competition, has been said by Mason to be that state of the market wherein “no buyer or seller could, by his own action, influence the price of the goods to be bought and sold.” Mason views the concept of “pure competition of the economic theorists” as “divorced from time and space and independent of technological and other considerations.” Imperfect competition in economic parlance is a term which includes all market situations falling between pure competition and pure monopoly, including what is known as oligopoly and monopolistic competition. Monopolistic competition is now recognized as embracing those situations where either a few or many sellers trade in differentiated products, whereas “oligopoly” is regarded as consisting of those situations where a few sellers sell only a standardized product. There is much debate among economists with respect to the significance which should be attached to market behavior in industries which are oligopolistic. While some economists take the view* oligopolistic competition or oligopolies controvert the spirit of the antitrust laws, others contend oligopolies are able to pass along the benefits of efficiency of size to the consumer and are not socially disadvantageous. Some admit in oligopolistic industries a considerably higher degree of competition than that which exists would be “workable” or effective. In attempting to evolve an economic approach to the concepts of monopoly and competition, some economists have proposed a theory of “Workable competition.” This theory has, as yet, received no precise definition. Rather it is an approach by which some economists propose to determine, in any given industry, whether the industry is competitive or monopolistic, and what degree of competition is obtainable by a practical policy without substantial loss of efficiency. Monopoly, then, in economics, is not the simple test of perfect monopoly. In between the theoretical economic concepts of perfect competition and perfect monopoly lie various forms of imperfect competition which possess varying degrees and characteristics of monopoly. Pure monopoly which stands at the other extreme in economic thought from pure competition, has been defined by Stocking and Watkins as follows: “Pure monopoly means a single seller of a product for which no substitute is available. But, like perfect competition, such a monopoly is a theoretical ideal.” While some economists stress what they believe to be the efficiencies of oligopoly, others believe while a competitive structure may have imperfections, it is nevertheless the greater spur to progress and benefits to society. Corwin Edwards states: “But although the maintenance of competition will not guarantee that the economy will work well, impairment of competition by monopolistic restrictions, public or private, increases the chance that it will work badly. Although the imperfections of the competitive process are too great to make economic adjustments quick, neat, and exact, the forces of competition tend to reduce many substantial economic maladjustments.” Stocking and Watkins state: “To maximize his earnings a monopolist must so regulate the inflow of new capital as not to impair the value of the old, whether it is a question of new processes or of new products that will compete with old. Where a monopolist can realize profits from a new product only by accepting smaller revenues from an old, he will be reluctant to introduce the new. Unless he can expect a monopoly return from the new that more than offset the losses of monopoly revenue from the old, he will not put the new product on the market. A monopolist restricts not only output but new investment as well. In this way monopoly tends to block innovation and change, to retard technological progress and to deprive society of its benefits.” b. The competition intended by the Sherman Act. Plaintiff shows the Sherman Act does not define the degree of competition which its policy contemplates, nor label it as either “perfect”, “pure”, “monopolistic”, or “atomistic”. The purpose of Congress in passing the Sherman Act was to preserve our system of free trade and competitive economy in order to protect the public from the evils thought to flow from undue restraints and monopolies. The object of Congress was “to secure competition and preclude combinations which tend to defeat it.” International Harvester Co. of America v. State of Missouri, 234 U.S. 199, 209, 34 S.Ct. 859, 862, 58 L.Ed. 1276. The purpose of the statute was “to prohibit monopolies, contracts and combinations which probably would unduly interfere with the free exercise of their rights by those engaged, or who wish to engage, in trade and commerce —in a word to preserve the right of freedom to trade.” United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992. As Chief Justice White remarked in Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 56, 31 S.Ct. 502, 514, 55 L.Ed. 619, both at common law and under the Sherman Act, “practical common sense caused attention to be concentrated not upon the theoretically correct name to be given to the condition or acts which gave rise to a harmful result, but to the result itself and to the remedying of the evils which it produced.” c. The economic view of the effect of potential competition upon monopoly. Freedom of entry of new firms into a given industry has been suggested by some economists as the distinguishing feature between competitive and monopolistic industries. As pointed out by Stocking and Watkins: “Economists who believe it impracticable to change greatly the structure of American industry count on potential competition and the competition of substitute products to make the existing structure of industry workably competitive by curbing monopoly power over the long run.” Under this approach the continuation of monopoly is condoned so long as there is sufficient likelihood potential competition will act as a brake upon the monopolist’s use of its power, and regardless of the effect which the monopoly may have upon actual competitors. Edwards views potential competition as a curb upon monopoly power “so long as entry is easy.” Clark, who thinks industries having large scale production may be competitively workable, ascribes lesser effect to the power of potential competition. He says neither potential competition nor the presence of substitutes “is a perfect check; but both together may come near it under favorable conditions.” Lewis represents another view when he states: “The key to the effectiveness of competition is to be found in its power systematically and predictably to compel economic decisions, and I do not believe that any such power or force characterizes the competition present in industries composed of, or dominated by either a single firm or a few large firms. * * * To speak of potential competition as a compelling regulatory force in this situation is to be blind to the strength of the factors that retard and will continue to retard the drive of potential competition to become actual competition.” Plaintiff argues potential competition does not serve as adequate legal test of the existence of monopoly, although the ability of new firms to enter an industry may give some indication of the strength of the barriers erected by the monopolist. One eminent legal writer, Milton Handler, pointed out some time ago that a combination may be held unlawful even though it has imposed no restraints upon new competition. Handler stated: “Many economists who have disagreed with the major purpose of the anti-trust laws have felt that the public is adequately safeguarded if potential competition remains free and unfettered at all times. This is not the premise on which the Sherman Law is based. The instrument of control under this statute is both actual and potential competition.” d. The economic view of the effect of substitute products upon monopoly. Economists differ on the question of what significance should be attached to the presence in the market of products which are substitutes or alternatives for the product said to be monopolized. In an address before the New York State Bar Association in 1950, Professor Meriam decried the action of Judge Learned Hand in United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416, both in restricting his consideration of the product involved to virgin aluminum ingot and ruling out secondary aluminum which competes with virgin, and in paying “no attention to the very significant business fact that aluminum competes with other light metals of different chemical composition.” Other economists point out there are few commodities for which no substitutes are available. The “monopolistic competition” school of thought is based upon the premise differentiation in products confers some degree of monopoly power. Wallace, in expressing his understanding of that school of thought, states: “The theory of monopolistic competition emphasizes the significance of variation or differentiation of products. Successful differentiation confers some monopoly power by attracting a clientele which has some preference for the article of a particular seller.” Chamberlin, a pioneer of the monopolistic competition school states: “A monopoly of ‘Lucky Strikes’ does not constitute a monopoly of cigarettes, for there is no degree of control whatever over substitute brands. But if, in order to possess a perfect monopoly, control must extend to substitutes, the only perfect monopoly conceivable would be one embracing the supply of everything, since all things are more or less imperfect substitutes for each other. * •» * The term ‘monopoly’ is meaningless without reference to the thing monopolized. A monopoly of diamonds is not a monopoly of precious stones, nor, to go still further, of jewelry. Differentiation implies gradations, and it is compatible with perfect monopoly of one product that control stop short of some more general class of which this product is a part, and within which there is competition.” After pointing out this idea was no departure from accepted doctrine, and citing as his authority both Taussig and Ely, Chamberlin writes (p. 67): “Of course, prices might be higher yet if, instead of a monopoly of each different brand, there existed a monopoly of the entire class of product. The more substitutes controlled by any one seller, the higher he can put his price. But that is another matter. As long as the substitutes are to any degree imperfect, he still has a monopoly of his own product and control over its price within the limits imposed upon any monopolist — those of the demand.” Clearly, there are different schools thought in economic circles with respect to the effect upon monopoly of the presence of substitute products. of In general, plaintiff charges defendant maintains a monopoly position in the production and sale of cellophane and bands. It is charged defendant unlawfully acquired and maintains a monopoly position in the field of cellophane and bands — that defendant’s predatory practices in the markets for these products ■demonstrate an intent to monopolize and the exercise of monopoly power. The unlawful acquisition is traced, in the beginning, to defendant’s foreign relations with European companies, which resulted in a cartel which divided world markets. There is the charge of abuse of patents; exclusionary and oppressive acts and practices; and restraint of trade in distribution of the products in connection with both direct and indirect sales. PART I — CELLOPHANE. Certain issues of fact and law must ■control the decision in this case. When these controlling issues are isolated, it will be apparent there are fatal deficiencies in the Government’s proof, and the record fails to establish those facts which are essential to support the charges in the complaint. The history of duPont’s cellophane business is a record of competitive .achievement. DuPont was the first American company to manufacture this new wrapping material. To pioneer the cellophane business required foresight, and a willingness to take risks. DuPont had little technical experience in this line of ■chemistry. The product had not been proven as a packaging material. It had had little acceptance in this country. DuPont entered the business in the ■only manner that was practicable. It ac■quired the commercial process from the French. This process was obtained on the best terms duPont could negotiate. The two groups, American and French, had already been successful partners in rayon. No desire to limit competition was involved, for neither partner to the venture was engaged in business in competition with the other, and there is no indication anyone was interested. DuPont saw the chance for profit and utility for cellophane if it could be introduced into the mass production packaging markets of the United States. It decided to bring a new competing material into the flexible packaging market, an established field of competitive business activity. Cellophane was not at first acceptable in the trades to which it was offered. Manufacturing techniques were crude; quality unsatisfactory, and costs made price of cellophone prohibitive for many uses. There were distribution and merchandising problems to be met. Only by effective competition could duPont hope to gain recognition for its product in markets where other materials were entrenched. The business had to be built up by creative research. DuPont’s technological achievements were of high order. Through research it improved manufacturing efficiency, reduced costs, improved quality, developed new types of materials and lowered prices to obtain acceptance for its product, all in the face of competition. Research results were continuously put to use in its plants. The product obtained from the French did not meet the needs of the American market. DuPont invented a new product, moistureproof cellophane, which proved to be the product upon which the cellophane business has been built. It obtained a product patent under which all its moistureproof cellophane was produced during the period of the monopoly charged in the complaint. It then exploited that patent, well within the purposes and intentions of the patent grant. Its production expanded; it made many types of moistureproof cellophane; it gave increasing service to its customers; it neither curtailed its initiative nor restricted the capital which it was willing to devote to the enterprise. DuPont achieved through business method an increasing success in its competition with other packaging materials. As cellophane got recognition in the trade, others entered various phases of the business as converters, users, suppliers of raw materials, manufacturers of equipment, and the like. Cellophane creates competition. Throughout the flexible packaging markets this competition is felt. It stimulates efforts of other producers to manufacture more efficiently. It stimulates research. The consumption of flexible packaging materials including cellophane has grown at a rapid rate. Within these markets the competition is intense. New producers have entered. No one material or one supplier controls — certainly not duPont, which has neither the power to raise prices nor to exclude competitors. After reviewing the development of this business, plaintiff has been unable to bring a single person who says he was injured or who claims to have been denied an opportunity to participate. Prices have consistently been lowered and reflect competitive pressures. Production has expanded. Benefits from research have been passed on to consumers. DuPont has not conducted its cellophane business in a restrictive way. There are no artificial controls which it can exercise in the markets where its product is sold. A. DuPONT’S POSITION DOES NOT VIOLATE § 2 OF THE SHERMAN ACT. The charge here is duPont monopolizes cellophane. The charge involves two questions: 1. does duPont possess monopoly powers; and 2., if so has it achieved such powers by “monopolizing” within the meaning of the Act and under United States v. Aluminum Company of America, 2 Cir., 148 F.2d 416, 429. Unless the first is decided against defendant, the second is not reached. First, then, to the question of existence of monopoly power. 1. DuPONT DOES NOT HAVE MONOPOLY POWER. a. Plaintiff must establish duPont has sufficient power arbitrarily to raise prices or to exclude competitors. Ultimate determination of issues raised by a charge § 2 has been violated, involves application of established principles. The tests are clear. They have been laid down in numerous cases. The issues in this litigation are fact issues, not law issues. When facts are analyzed! in the light of established tests* result is clear. The voluminous record in this case requires the distillation of a great mass of facts which are basic to a decision. FINDINGS OF FACT. I. Description of Defendant duPont. (Findings 1-6) 1. E. I. duPont de Nemours & Co. (hereafter called “duPont”) is a Delaware corporation. It manufactures chemical products, including many types of plain and moistureproof cellophane. Prior to 1936, duPont engaged in the manufacture of these products through subsidiary companies: From 1923 to 1929, through duPont Cellophane Company in which duPont had 52% interest, and from 1929 to 1936, through duPont Cellophane Company, Inc., in which duPont had a 100% interest. 2. Within the duPont organization responsibility for the manufacture and sale of cellophane and bands rests with the Film Department which makes and sells other products, such as cellulose acetate film, polyethylene film, cellulose sponges, and cellulose bands. From 1936 until formation of the Film Department in April 1950, cellophane was handled with other products by the Cellophane Division of the Company’s Rayon Department. The Cel-O-Seal section of the division handled caps and bands. 8. DuPont built cellophane manufacturing plants and commenced operations in them: Plant and Location Operation Started Buffalo #1 (N.Y.) April, 1924 Old Hickory #1 (Tenn.) October, 1929 Old Hickory #2 (Tenn.) August, 1930 Spruance #1 (Richmond, Va.) November, 1930 Buffalo #2 (N.Y.) February, 1932 Spruance #2 (Richmond, Va.) May, 1937 Clinton #1 (Iowa) March, 1941 Clinton #2 (Iowa) February, 1947 All plants are operating today except plant known as Buffalo #1 which was ■closed in 1942 and thereafter converted to manufacture of rayon for tire cord at the request of the United States to meet urgent production problems during the war. 4. DuPont sells types of cellophane designed to serve specific packaging needs. In 1949, duPont sold 108 varieties of cellophane. 5. In 1950, duPont produced 202,000,-000 lbs. of cellophane and its sales in that year totalled $99,181,192 of which $89,850,416 was moistureproof cellophane. 6. DuPont sells cellophane in interstate trade. Cellophane is sold in foreign commerce. II. Description of Cellophane. (Findings 7-12) 7. Plain cellophane is a thin flexible non-fibrous film of regenerated cellulose containing glycerol as a softener. It has little resistance to the passage of moisture vapor and is used for wrapping products as to which the gain of moisture is not important. Moistureproof cellophane is a different product. It is a thin transparent flexible non-fibrous film of regenerated cellulose containing a softener, one of which is glycerol, combined with a moistureproofing composition. Moistureproof cellophane is used for packaging foodstuffs; gain or loss of moisture is important. Plain cellophane is manufactured in various thicknesses, colors, as well as transparent form. Types of moisture-proof cellophane differ in their resistance to moisture vapor, ability to be sealed by heat and anchoring of the coating to the base film. Specific types of moistureproof cellophane were developed to meet' the packaging requirements of specific products. 8. In commercial practice moisture-proof cellophane is 100 times as impervious to the transmission of moisture vapor as plain cellophane 9. Plain cellophane is manufactured by extruding viscose made to specifications through a narrow slot in a hopper into a chemical bath where it coagulates in the form of a thin sheet; this sheet is run through a succession of purifying baths and while wet is immersed in a water solution of glycerol, some of which is absorbed; excess moisture is then removed from the surface of the film and the material is dried to a predetermined moisture content. Moistureproof cellophane is manufactured by combining with a base thin transparent film of regenerated cellulose, containing a softener, one of which is glycerol, a moistureproofing coating composition, which may comprise waxes, resins, nitrocellulose or other film forming materials and plasticizers. The manufacturing processes are chemical in nature and require for successful commercial operation a degree of technical knowledge and controls. The mechanical aspects of the operations are intricate. 10. Until the invention and development of moistureproof film, cellophane sales were relatively unimportant. Production of moistureproof cellophane, which began in 1927, by 1930 had exceeded production of plain cellophane. Subsequent growth of cellophane sales has been due to moisture-proof cellophane. In 1936, United States production of plain cellophane amounted to 24,650,000 lbs. and by 1947 had increased to only 25,780,000 lbs. During the same period, United States production of moistureproof cellophane increased from 50,941,000 lbs. to 148,-769,000 lbs. 11. After preparation of viscose solution, cellophane is extruded through a casting machine. These machines are 200 feet long and are operated by duPont at speeds up to 120 meters per minute, carrying a film 1/1,000th of an inch thick (300 gauge) from a semi-coagulated to a coagulated condition with an allowable variation in gauge of only 1/10,000th of an inch. DuPont’s moistureproof cellophane goes through the further stage of a six story coating tower in which the film running at a speed of 200 meters per minute has applied to it on each side a coating of 1/100,000th of an inch thick, with an allowable tolerance in coating thickness of approximately 1/1,000,000th of an inch. 12. Plain and moistureproof cellophane are separate products from cellulose caps and and bands which are made by separate processes, used for different purposes and sold to a different trade. III. DuPont’s Entry Into the Cellophane Business and Organization of duPont Cellophane Company. (Findings 13-36) 13. DuPont was the first company to manufacture plain cellophane in the United States, and the first to manufacture moistureproof cellophane anywhere in the world. 14. La Cellophane, Societe Anonyme, referred to as “La Cellophane”, is a French corporation with principal place ■of business at Paris, France. Prior to 1941 it had association with an organization known as Comptoir des Textiles Artificiéis, referred to as “Comptoir”, a French organization with interests in rayon. La Cellophane produces cellophane in France. It was the first company to manufacture plain cellophane •on a commercial basis, and was engaged in this business in France in 1917. 15. Jacques Brandenberger of France invented the process and machinery for the manufacture of plain cellophane about 1912. He obtain patents both in Europe and United States on his inventions. Brandenberger’s processes and patents were transferred to La Cellophane on its formation, at which time Brandenberger joined La Cellophane. The United States patents were assigned to duPont Cellophane Company in 1923. Some of these were subsequently used in duPont Cellophane Company’s operations. 16. Prior to duPont’s decision to manufacture plain cellophane, duPont had been associated with Comptoir in the manufacturing of viscose rayon in the United States through a jointly owned company called duPont Fibersilk Company (later, duPont Rayon Company). This association had been profitable. The processes and technical information, including viscose chemistry, engineering and other details of manufacture of rayon, had been acquired from the Comptoir after fruitless experimentation by duPont to develop an artificial fiber. 17. DuPont management decided to invest money in cellophane manufacture as part of a policy determined after World War I to diversify into a broad line of chemical products. In entering the cellophane business, duPont had no intention to commit any act violative of the Sherman Act. 18. About 1923, duPont became interested in cellophane when it learned through the Comptoir, La Cellophane had developed and was operating a commercial process for the manufacture of plain cellophane. DuPont conducted negotiations with the French interests for the American rights to this process, which culminated in the formation of duPont Cellophane Company and execution of certain technical agreements. No evidence exists any other concern in the United States was interested in securing the French process at this time. 19. The French would not disclose any aspect of their cellophane process to duPont unless duPont would agree to refrain from manufacturing cellophane for five years in the event it determined after disclosure not to take a license. 20. The French were not willing to make their process available to duPont unless duPont agreed the French could participate in the profits of United States manufacture and unless duPont was willing to confine to North and Central America its manufacture and sale of cellophane made by the French process. DuPont sought to obtain ex-elusive right to La Cellophane’s patents and processes and responsibility for the manufacturing operations. 21. By contract dated June 9, 1923, duPont and the French agreed to form duPont Cellophane Company to manufacture cellophane in the United States. Each party agreed it would not prior to December 31, 1935 except by duPont Cellophane Company become interested in any other business in North or Central America engaged in the manufacture of cellophane. 22. By agreement of June 9, 1923, duPont Cellophane Company was organized to manufacture cellophane in the United States. DuPont contributed $866,666.67 and received 52% of the voting stock. La Cellophane contributed its patents, processes, technical assistance, and $133,333.33, for all of which it received 48% of the voting stock. 23. The contribution of La Cellophane to duPont Cellophane Company in exchange for 48% of its voting stock was neither cash nor patents but its secret process and technical assistance. 24. On December 26, 1923, an agreement was executed between duPont Cellophane Company and La Cellophane by which La Cellophane licensed duPont Cellophane Company exclusively under its United States cellophane patents, and granted duPont Cellophane Company the exclusive right to make and sell in North and Central America under La Cellophane’s secret processes for cellophane manufacture. DuPont Cellophane Company granted to La Cellophane exclusive rights for the rest of the world under any cellophane patents or processes duPont Cellophane Company might develop. 25. There was no agreement between La Cellophane and duPont beyond the written agreements of June 9, 1923 and December 26, 1923. 26. La Cellophane had four representatives on the Board of eleven (later nine) Directors of duPont Cellophane Company. La Cellophane had a minority interest and veto power over major expenditures, over obligations of the company which would alienate, mortgage or diminish the corporate assets, and over changes in the number of Directors. Similar veto powers were held by the minority over changes in the charter and by-laws. 27. The representatives of La Cellophane on the Board of duPont Cellophane Company attended Directors’ meetings and participated in the functions of the Board. The French were most actively represented by a New York lawyer, Benjamin Paskus, and two American businessmen, Messrs. Henry Blum and Albert Blum. 28. In 1929 duPont purchased the shares of the French in duPont Cellophane Company, and reorganized it as du Pont Cellophane Company, Inc. In exchange for the French shareholding in the duPont Rayon and Cellophane Companies the French interests received duPont Company stock with a market value at that time of nearly $90,000,000. French interests continued their membership on the Board of duPont Cellophane Company, Inc., maintained their previous degrees of participation in the management of the affairs of the company, and technical cooperation continued between duPont Cellophane Company, Inc. and La Cellophane. 29. At the time duPont decided to enter the cellophane business it had limited technical resources useful in such business, and had no knowledge as to how to make cellophane or of the chemistry of the product. It was not staffed to develop the necessary chemical and engineering techniques at a cost which would have been reasonable. This information was essential to commercial manufacture of plain cellophane. 30. Although duPont believed it was a business risk to undertake manufacture of cellophane in the United States, success of the venture was not assured. The buildings for the initial casting machines at Buffalo were designed to permit conversion to use in rayon manufacture in the event the cellophane venture failed. 31. In France plain cellophane was sold in sheet form for hand application in the packing of luxury items, such as perfume bottles and for decorative uses. It was sold in small volume at high prices. DuPont felt while the business risks were substantial, it stood a chance ■of promoting cellophane in the United States by improving its quality and manufacturing processes so it could be sold for mass packaging uses at lower cost in competition with other flexible packaging materials already established in the American market. 32. Evidence shows duPont could not have developed a successful process for •cellophane manufacture in less than five to eight years and then only at very substantial cost. DuPont has continued to use La Cellophane’s basic process, and evidence shows the only other process commercially developed for continuous manufacture, Wolff’s casting on a wheel, was inferior in cost of manufacture and quality of product. '33. Technical information which La Cellophane granted duPont Cellophane Company represented the entire knowledge gained by La Cellophane as the result of years of research in developing the process. It included designs for all machinery including the hopper and all casting machine apparatus, together with information as to chemical compositions and controls from the initial step in the formulation of the viscose solution to the ultimate product. The French disclosed through plant inspection, manuals and training of personnel both in France and in the United States all phases of their own proven production line know-how. French technicians designed the initial duPone Cellophane plant, manufactured some of the machinery in France, and supervised the operations and training of essential personnel. 34. Communication of the process to duPont by La Cellophane was in confidence. The process for cellophane manufacture had been kept in secrecy by the French prior to its communication to duPont by a system of fences, plant guards, passes and an effort on the part of management to maintain secrecy. Following the communication of the process to duPont Cellophane Company, both it and La Cellophane used similar means to maintain secrecy of the process and the interior of the plants. 35. Some information as to La Cellophane’s process became available through the patent literature, but many key facts were not disclosed at any time prior to World War II and all phases of the process were kept secret by duPont until that time. 36. DuPont still employs the fundamentals of the secret process received from La Cellophane for continuous casting of an endless sheet of regenerated cellulose. IV. The “Market Setting” in Which Cellophane is Sold. (Findings 37-79) 37. The relevant market for determining the extent of duPont’s market control is the market for flexible packaging materials (judicial notice after examination and observation). 38. Both plain and moistureproof cellophane are packaging materials. Only 6 percent of duPont’s cellophane production is sold or used for non-packaging purposes. 39. When cellophane was first made by duPont, wax paper, glassine, and sulphite paper were the flexible packaging materials in use. These products were established in the trade and accepted. They remain today dominant materials sold for the end uses where cellophane is also employed by some packagers. 40. Since 1923 new types of flexible materials have been developed for packaging. These include, among others, rubber hydrochloride film, moisture-proof cellophane, polyethylene coated paper, heat sealing glassine, and polyethylene film. 41. From the beginning of duPont’s cellophane duPont has been aware of competition of other flexible packaging materials, particularly waxed paper and glassine, and has directed its price and sales policies toward selling successfully against these materials. This awareness is reflected from 1923 to the filing of this suit in correspondence and reports within the duPont organization. 42. Since 1923 there has been a growth in the use of flexible packaging materials; measured in millions of square yards, total United States production and imports of the principal flexible packaging materials has grown from approximately 4,170,000 in 1925 to 14,-720,000 in 1949. This has resulted from improvements in all the materials themselves; the rapid development of self-service distribution with its emphasis upon retail packaging units, higher standards of living and increased consumption, emphasis upon protective and other health aspects of packaging, the development of new merchandising techniques and the increased utility of the materials themselves. All principal flexible packaging materials have shared in this development and much of the growth of duPont’s cellophane business is due to the factors mentioned. 43. There is tremendous increase in packaging since the end of World War II in both transparent and non-transparent materials. Most of this increase has been in consumer-size packages. 44. DuPont employs sixty men in the selling of cellophane. These men are trained to have technical familiarity with packaging design, with packaging machinery, including printing and bag making machines, with physical and chemical properties of the various types of cellophane, and with the distribution, costs, sales promotion and other business problems of concerns that are direct users of cellophane and of concerns that process it for resale. 45. DuPont sells about 55% of its cellophane direct through its own salesmen to users who package products of their own manufacture for retail distribution such as bakers, food chains, candy manufacturers, meat packers, cereal manufacturers, and tobacco companies. This cellophane is sold without printing or other processing in roll or sheet form in various sizes to suit the customer’s needs. Most customers run cellophane through packaging machines to wrap their products. 46. DuPont sells cellophane to converters who print cellophane or process it into packaging units such as bags or special wraps and in turn sell in a form for use as a primary part of a package to concerns which package their produCts. About 35% to 40% of duPont cellophane is sold in this manner. The same customer often buys unprinted cellophane from duPont for certain purposes and buys converted cellophane from converters for other or the same purposes. DuPont sells cellophane in quantities to jobbers and to fabricators. The latter use cellophane in the manufacture of non-packaging items such as straws, pressure-sensitive cellulose tape, Christmas ornaments and ribbon. 47. Most companies engaged in converting cellophane into bags or printed packaging material, including all of the principal converters of duPont cellophane also convert other flexible packaging materials, such as glassine, other papers, Pliofilm, polyethylene, Saran, and others. The products of such a converter made of flexible packaging materials other than cellophane are sold by the same salesmen who sell the converter’s products made of cellophane, to customers who are potential users of converted cellophane as well. 48. Most converters who handle duPont cellophane also handle other flexible packaging materials at the same time for sale for the same end uses. 49. Converters produce wrappers for nearly every type of customer. Converters hold themselves out to the public through advertising in trade journals, as ready to serve any type of customer with any type of flexible packaging material or combination. 50. Concerns which purchase cellophane from duPont, or converted duPont cellophane from converters, will purchase other packaging materials (such as glassine, foil, etc.) from manufacturers of such materials and from converters of them. 51. In addition to duPont two companies, American Viscose Corporation and Olin Industries, Inc., also manufacture and sell cellophane throughout the United States and in foreign commerce 52. Sylvania Industrial Corporation was a Virginia corporation organized in 1929 and began production of cellophane at a plant in Fredericksburg, Virginia in 1930. In 1946 it was acquired by American Viscose Company, a Delaware corporation, which is the largest producer of viscose and of viscose rayon in the United States, with assets in 1949 in excess of $222,000,-000. The term “Sylvania” is used with reference to events since that acquisition as meaning the Sylvania Division of the American Viscose Company, and prior thereto to mean Sylvania Industrial Corporation. 53. Olin Industries, Inc., referred to as “Olin”, is a Delaware corporation having a place of business at East Alton, Illinois. Ecusta Paper Corporation is a Delaware corporation having its principal place of business at Pisgah Forest, North Carolina. Ecusta is owned and controlled by Olin and carries on the entire cellophane business of Olin. Ecusta began production of cellophane in June 1951 at its plant in Pisgah Forest, North Carolina. 54. Manufacturers of flexible packaging materials other than cellophane promote their products by many of the means employed by duPont to promote cellophane. 55. Manufacturers of flexible packaging materials hold themselves out to the trade, through advertising as able to satisfy the packaging requirements of the principal customer trades. This advertising material appears in the principal packaging periodicals such as Modem Packaging, Package Parade, and the Modem Packaging Encyclopedia and in trade journals representing various end uses, such as Bakers Weekly, The Confectioner's Journal, Food Industries National Provisioner, etc. These advertising appeals constitute claims each material, including cellophane, has the desirable degree of protective property (against moisture, dirt, rough handling, etc.), consumer appeal and reasonable price to act as an economical merchandising medium and protective package for food and other products. 56. For any specific end use there is available a variety of flexible packaging materials that will satisfy the requirements of packaging a product. A number of materials can provide the combination of properties. It is solved by choosing combination of qualities and price which is considered most profitable to the purchasing concern at the time of the particular purchase. Persons who use cellophane for packaging a product regard cellophane as only one of several possible packages and often change to others on short notice 57. A customer for packaging materials is in the market for additional packaging material within a few weeks. All such customers are open to change from one packaging material to another at any time. 58. Cellophane is not a unique flexible packaging material in any functional or economic sense. In terms of uses for which cellophane is sold, and the qualities it brings to each use as a wrapping material, cellophane is interchangeable and in fact continually interchanged with many flexible packaging materials 59. The accompanying Table compares, descriptively, physical properties of cellophane and other flexible packaging materials: 60. Users and converters of these flexible packaging materials purchase materials principally on the basis of two criteria: (a) the composite of physical properties of a particular material, and (b) the price, or cost of using, a particular material. Neither price alone nor a single quality governs selection 61. Different purchasers of flexible packaging materials make different appraisals of the composite of properties and the importance of cost, and make widely varied selections of materials. 62. Other flexible packaging materials are sold to the same customers who buy cellophane from duPont and for the same uses. These materials include without limitation: Aluminum foil is a thin aluminum sheet. The gauges used for packaging are from .0015 to .00035 inches. The foil is used as a packaging medium. It is laminated to glassine, paper or tissue, to other films, or to cellophane. It is opaque, brilliant of surface, highly moistureproof, and readily takes a semi-permanent set, known as “dead folding”. It can be printed and like cellophane can be sealed by heat when coated. Cellulose acetate is a film made by the flowing of a solvent solution of cellulose acetate onto a large diameter, slow moving casting wheel, or metal belt. The solvent evaporates, and the dry film is stripped from the wheel or belt as it turns. The film can be made by an extrusion process. It is waterproof. It can be printed, and sealed by heat, if coated. It has a high surface gloss. Cry-O-Rap is the trade name of a film made from a modified polyvinylidene chloride resin. Its chief characteristics are chemical inertness, transparency, durability, and flexibility at low temperatures. It can be shrunk around irregularly shaped objects by application of moderate heat. Greaseproof paper is made by beating wood pulp in a vat filled with water until the fibers become saturated and gelatinous in texture. Resulting product is translucent and resistent to oil and grease. Glassine is produced by finishing greaseproof paper between highly polished metal rollers under heat and at pressure. This process develops the transparency and surface gloss which are characteristic of glassine. It is greaseproof, and can be sealed by heat, if coated. It is made moistureproof by coating and with appropriate lacquers or waxes and may be printed. Glassine and waxed paper are the two materials which have been sold in the largest quantities in direct competition with cellophane for the longest period of time. Pliofilm is a trade name of a film produced by flowing a solvent solution of rubber hydrochloride onto a moving web. The web passes through a heated chamber, which evaporates the solvent and leaves a transparent film. Pliofilm is tough, can be stretched to 5 or 6 times its original dimensions.. It is moisture-proof, and is capable of weldtype heat sealing. Heavier gauges are cloudy. It can be shrunk around an object by application of moderate heat, and can be printed. Polyethylene film is made from a solution formed from high-pressure polymerization of ethylene gas. This solution can be cast or extruded to produce the film. Principal characteristics of the film are chemical inertness, flexibility at low temperatures, and good inherent moistureproofness. Polyethylene film is transparent, but slightly hazy. Saran is the trade name of a film made from polyvinylidene chloride.. It is characterized by strength, toughness, flexibility, transparency, and chemical inertness. It has'the highest moistureproofness of all the packaging materials. Sulphite Paper is high grade, machine-glazed paper used as wrapping, for the packaging of food and other merchandise. It is the usual basis of wrappers (e. g. paper component of cigarette pack), waxing stock (for waxed paper) and other uses where moderate strength, flexibility and good coating and printing surface is required. Vegetable Parchment is made by passing unsized raw paper through a sulphuric acid bath, and drying on regular paper machine dryers. This “parehmentizing” covers the paper with a thin layer of gelatinous cellulose which fills the interstices of the fibres and cements them into a cohesive mass. Vegetable parchment is highly greaseproof, has wet strength, and is slightly translucent. Waxed Paper is made by applying melted wax to sulphite or sulphate paper.Waxed paper is made in various degrees of transparency, and is sealable by heat. Resins are added to the wax to enhance surface gloss, heat-sealing properties and low-temperature flexibility. In the printed forms, print is usually applied prior to waxing. 63. There are respects in which other flexible packaging materials are as satisfactory as cellophane: Waxed Paper — for an instance. Transparency is not necessarily desirable in a wrap, although waxed papers can be made with a degree of transparency. Waxed paper wraps have eye appeal arrived at through gloss, opacity, and colored printing. . Waxed paper is not difficult to heat-seal, and is as good as cellophane, in this respect. Waxed paper runs on high speed machines as well as cellophane. Better printing effects are available with waxed paper than with cellophane. Waxed paper affords as good moisture protection as cellophane. Moistureproof coating of moisture-proof cellophane will separate more readily in contact with fats and oils than waxed paper coatings. Waxed paper is cheaper than cellophane. Waxed paper is superior to cellophane in resistance to rancidity-inducing ultraviolet rays. Waxed paper is superior to cellophane in durability under rough handling," at low temperatures. Printing is applied to waxing papers prior to coating. Glassine. Glassine is, in some types, about 90 % transparent, so printing is legible through it. Glassine affords low cost transparency. Moisture protection afforded by waxed or lacquered glassine is as good as that of moistureproof cellophane. Glassine has greater resistance to tearing and breakage than cellophane Glassine runs on packaging machinery with ease equal to that of cellophane. Glassine can be printed faster than cellophane, and can be run faster than moistureproof cellophane on bag machines. Glassine has greater resistance than •cellophane to rancidity-inducing ultraviolet rays. Glassine has dimensional stability superior to cellophane. Glassine is more durable in cold weather than cellophane. Printed glassine can be sold against cellophane on the basis of appearance. Glassine may be more easily laminated than cellophane. . Glassine is cheaper than cellophane in some types, comparable in others. Aluminum Foil. Aluminum foil is most commonly used in .00035 gauge which is comparable to cellophane. In .00035 gauge aluminum foil is cheaper than moistureproof cellophane in cents per 1,000'sq. in. Aluminum foil after laminating' and coating is within competitive range of .the price of moistureproof cellophane. Moisture resistance of coated aluminum foil, even in .00035 gauge, is comparable with moistureproof cellophane, and is one -of the selling points for aluminum foil. Heat-sealing foil gives a heat-seal comr parable with cellophane. Aluminum foil has dimensional stability in the presence of humidity changes, and offers protection against water absorption. Cellophane is susceptible to water . absorption and dimensional change. Aluminum foil has a degree of eye appeal, and can be attractively printed Foil has a dead-folding property which cellophane lacks, which enables foil to give more complete protection to the contents of a package. Aluminum foil, being opaque, is superior to cellophane in resistance to rancidity-inducing ultraviolet rays. Cellulose Acetate. • There is no evidence the water-insensitivity of CA is a disadvantage. This feature is the basis of CA’s superior shrink .resistance and dimensional stability., CA is less susceptible than cellophane to softening by water, and is a superior wrap for fresh produce. CA permits free passage of moisture and gases more readily than cellophane, and is a superior wrap for fresh produce, fruit, iced cakes and doughnuts, and pies. CA is made in heat-sealing type, selling at the same price as ordinary CA film. Improvements have been made in elimination of static electricity when running CA film on machines. Static eliminators can be obtained for as little cost as 15‡. Largest producer of CA is attempting to reduce the price gap between CA and cellophane. This policy is intended to reduce a competitive disadvantage of CA and to stimulate sales. CA is superior to cellophane in clarity, luster and eye appeal CA is used on a variety of food and other products including: fresh produce, bacon, tomatoes, fresh meat, pies, rolls, iced cakes, laminations, window boxes. 40% of CA film made by its largest producer is sold for packaging food. CA’s major competition is cellophane. It is not more expensive to run CA on packaging machinery than cellophane. Cry-O-Rap. Cry-O-Rap can be shrunk around irregular objects, unlike cellophane, and for this reason is used to wrap frozen poultry. Cry-O-Rap is superior to cellophane as a wrap for frozen poultry because of its durability at low temperatures. Cry-O-Rap is superior to cellophane in its resistance to tearing, to water absorption, and in its dimensional stability. Pliofilm. Pliofilm, although 5 or 10 points less transparent than cellophane, is not cloudy when stretched. The odor of Pliofilm was a characteristic of the early years, and never a serious technical problem. Pliofilm is superior to cellophane in moistureproofness, resistance to tearing and heat-sealing. Static electricity can be inexpensively eliminated from machines using Pliofilm. The heat-sealing range of Pliofilm is not a narrow one. Pliofilm may be printed on the same presses that print cellophane. Pliofilm is tough, tougher than cellophane. Pliofilm is more flexible than cellophane at low temperatures Pliofilm’s resistance to shrinkage and resistance to water absorption are greater than cellophane. 90% of Pliofilm production goes for packaging, most of this for food packaging. In this field