Full opinion text
MAJOR, Circuit Judge. These are petitions, joint and several, filed on behalf of the Cement Institute, 74 cement producers and 23 individuals, officers and agents of the Institute, for review of and to set aside or modify an order to cease and desist issued by the Federal Trade Commission July 17, 1943, against the petitioners (respondents before the Commission and referred to in this opinion as such). Nine separate briefs have been filed in this court on behalf of respondents, seven singly by seven of the corporate respondents in Nos. 8371, 8373, 8386, 8389, 8393, 8399 and 8402. One brief has been filed on behalf of 59 corporate respondents, No. 8360, the Cement Institute and certain officials thereof, No. 8361, and certain other officers and agents of the Institute, No. 8410. Another brief has been filed on behalf of seven of the corporate respondents, No. 8372. In No. 8409, the corporate respondents rely upon the points made by Aetna, et al. in No. 8360. These briefs comprise a total of about 775 printed pages. In reply, the Commission has filed a brief of more than 300 pages. Reply briefs have been filed by respondents with a total of about 444 pages. In addition, respondents have filed what is designated as Appendix A, consisting of four volumes containing a voluminous digest or statement of facts. This court heard oral argument for three days, April 30, May 1 and May 2, 1946. This argument was reported, transcribed and furnished to the court in a volume which totals more than 550 pages. Some twenty pages of the Commission’s findings are devoted to the naming of the corporate respondents and a narration of certain information pertaining to each. So far as here material, such information has to do with the naming of the State of incorporation of each corporate respondent, the location of its place of business as a producer of cement, the date when each became a member of the Institute, and the period during which it continued as such. The corporate respondents are located in thirty-six different States, in fact in all portions of the United States. Eleven of such respondents are located in Pacific Coast States west of the Rocky Mountains. The Commission’s complaint consists of two counts, both charging that “for more than eight years last past, respondents have maintained and now have in effect a combination among themselves to hinder, lessen, restrict and restrain competition in price, among producing respondents * * * made effective by mutual understanding or agreement to employ, and tiy the actual employment of * * * what is known as a multiple basing point system of pricing,” which results in the quoting of an identical delivered price by all producers who seek business at any given destination. This combination is alleged to be an unfair method of competition, in violation of Sec. 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 46. Count 1, under a heading entitled “Methods for making system effective,” enumerates other practices and means used cooperatively in pursuance of and in support of the alleged combination, as follows: (1) an agreement to determine prices by using freight rates contained in freight rate books prepared and distributed by the Institute, regardless of the accuracy of such rates and with the alleged result that official tariffs are nullified; (2) an agreement to eliminate diversions of cement in transit, which allegedly result in concessions in delivered prices to the transferees; (3) an agreement to thwart the efforts of the Federal government to secure f.o.b. mill prices on cement; (4) an agreement arbitrarily to classify customers and to sell only to middlemen who fall within an “agreed and arbitrary definition of a ‘cement dealer’ ”; (5) mutual understanding and concerted action to use uniform terms of sale and discounts; (6) an agreement to prevent price competition resulting from the sale of foreign cement, and (7) the interpretation and formulation by the Institute of official policies for the industry where individual action might result in breaking down the pricing system. Count 2 charges that delivered prices made pursuant to the combination as alleged in count 1 are not actual prices received because they include the cost of transportation; that the true prices of each seller are the amounts realized at the mill (called -“mill nets”) after deduction of such transportation costs; that the variations in such mill nets have resulted from the alleged combination to use the “multiple basing point system” and constitute dis-criminations in price by each seller among his customers; and that the effect is to injure, destroy and prevent competition in price among producing respondents in violation of Sec. 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13. It will thus be noted that the restraint on competition alleged in both counts of the complaint is between producing respondents and that the discriminations alleged in count 2 are apiong the customers of each seller. In other words, there is no allegation of restraint on competition between customers, and no allegation of dis-criminations between customers of different producing respondents. Answers were filed by all respondents, denying all allegations of the complaint as to understanding, agreement or combination. Many of the answers also set forth various affirmative defenses predicated upon their individual practices and policies. From December 1, 1937 until November 29, 1940, with some short intervals, evidence was taken before a trial examiner appointed by the Commission. This evidence consists of about 49,000 pages of oral testimony and over 50,000 pages of exhibits. The trial examiner filed his report on the evidence in May 1941, to which exceptions were filed by respondents. Briefs were filed and oral argument was had before the Commission in April and May 1942. On July 17, 1943, the Commission entered its findings and conclusions, which cover 171 pages of the printed record. It also entered its Order to Cease and Desist and certain ancillary orders denying motions theretofore made by the respondents. The petitions to review and set aside the Commission’s order were filed in this court July 26, 1943. Pursuant to extension of time granted, respondents on March 20, 1944 filed their statement of points and a motion to adduce additional evidence. By order of this court dated July 31, 1944, the motion to adduce additional evidence was denied, without prejudice to its being renewed at the time of hearing on the merits. The contested issues are stated by the respective parties in numerous and divers ways. They present questions both factual and legal. We think the fundamental issue under count 1 of the complaint may be divided into two parts, (1) whether the Commission has found that respondents have entered into a nation-wide conspiracy, as charged, to restrain competition in price in the sale of cement by use of the multiple basing point system of pricing, in violation of Sec. 5 of the Federal Trade Commission Act, and (2) whether such finding, if made, is substantially supported by the record and constitutes a violation of law. Under count 2, the issue appears to be whether the combination or conspiracy alleged in count 1, if found to exist, resulted in variances in the mill net prices of the respective corporate respondents and variances in their respective delivered price quotations not accounted for by differences in the respective costs of delivery, thereby constituting unlawful discriminations in price between customers of the same corporate respondent under Sec. 2 of the Clayton Act as amended. Numerous other issues are raised by reason of respondents’ contentions (1) that the Commission committed prejudicial error in the reception of evidence upon which its findings were in whole or in part predicated, as well as in the rejection of evidence ; (2) that the order to cease and desist exceeds the jurisdiction of the Commission and should be set aside for that reason, and (3) that the decision of the Supreme Court in Cement Mfrs. Protective Ass’n v. United States, 268 U.S. 588, 45 S.Ct. 586, 69 L.Ed. 1104 (generally referred to as the old Cement case), makes res adjudicata or is otherwise determinative of the issues relevant to count 1 of the complaint. The issues just stated are common to all of the respondents. Certain other issues are raised which are pertinent only to some of the respondents. Such issues include (1) that'assuming that a nation-wide conspiracy has been found as charged, there is neither finding nor proof that certain of the respondents were members thereof; (2) that .respondents have been deprived of the constitutional rights of due process of law because of the bias and prejudice of the Commission and its pre-judgment of the case, and (3) that the Commission is without jurisdiction as to certain respondents because their sales of cement were made solely within the State in which their mills are located and they are in no manner engaged in interstate commerce. At this point it seems pertinent to make a general statement relative to the cement industry. Cement is a binding agent which, when mixed through the agency of water with sand, stone or other such ingredients, produces concrete or mortar. It is a perishable product which cannot readily be stored and is therefore produced and purchased by the user as needed. The location of cement mills is determined primarily by availability of raw materials, but sources of fuel, prospective demand and proximity and access to markets are also considered. The first mill for the commercial manufacture of cement in this country was established in Pennsylvania some seventy years ago. Prior to that time cement was imported from abroad. Subsequently, its manufacture gradually spread until there are now cement producing plants located in at least thirty-six States. On the date of the complaint, July 2, 1937, the 74 producing respondents were operating 144 cement mills and 19 packing plants. Such mills in all but a few instances are located at the site of the primary raw material, that is, limestone or shale. Some mills, however, are located with reference to the source of fuel. Packing plants are invariably located at or near large points of consumption, and bulk cement is shipped by water in large quantities to these points for packing and sale. Numerous maps found in the record show that there are several areas where a number of mills are grouped in close proximity to each other. Cement is not marketed on a national scale. As found by the Commission (Par. 3(a)) : “Cement is a heavy and bulky commodity and the cost of transporting it from point of manufacture to point of use generally constitutes a substantial part of the delivered cost. Freight charges of 300 to 600 per barrel for delivery are quite usual, charges approximating $1 per barrel are not uncommon, and in extreme instances the delivery charges sometimes reach amounts such as $1.33, $1.52, and $1.71 per barrel. The high transportation cost constitutes one of the factors which have contributed to. the extension of the manufacture of cement throughout the United States:” The marketing area of each mill is thus limited by freight and competitive price factors, and most mills sell the bulk of their output within a radius of not more than two to three hundred miles from the mill. Cement is used largely in the construction of permanent structures. This accounts for the fact, no doubt, that there is little if any competition between the users of cement and, as we have already noted, the competition alleged to be restrained is confined to that between producers, and the discrimination between customers of the same producer. As to the use made of cement, finding 3(b) states: “Cement is used in street and highway construction, in water power, irrigation, and flood control works, in most heavy construction work, in general building, in various public projects, in the production of blocks, pipes, and other products, and in many other ways. In some of these uses cement constitutes a very substantial part of the total cost of all materials used in the project.” Cement perhaps more than any other product is highly standardized. This was recognized in the old Cement case, wherein the court stated (268 U.S. at page 591, 45 S.Ct. at page 586, 69 L.Ed. 1104): “Cement is a thoroughly standardized product.” This fact is also recognized by the Commission. Finding 20(b) states r “For many years the minimum specifications for portland cement have been standardized and all cement has been sold subject to such minimum specifications.” The record discloses that minimum standards-for cement have been steadily increased since standard specifications were introduced by the American Society of Civil Engineers and the American Society for Testing Materials in 1904, While the Commission has found that cement produced by some mills has exceeded the minimum specifications, the record discloses without controversy that buyers will not pay more for one brand than another, regardless of variations above the minimum standards. In other words, it is an interchangeable product and, as some of the-witnesses stated, “Cement is cement.” In the complaint it is alleged, “ * * a difference in delivered price of only one cent' (10) a barrel will deflect business away from one manufacturer to another.”' Finding 9(a) states: “A difference in price as small as one cent per barrel may divert business from one seller to another.” The Commission in its brief states : “ * * * a difference of only a fraction of a cent per barrel on sealed bids for large Government orders will ordinarily determine the award.” Cement is usually packaged in paper or cloth bags containing 94 pounds each, and when thus, packaged four bags constitute a barrel of cement, the gross weight of which is 380 pounds. As found by the Commission (3(c)): “Manufacturers customarily market cement by sales to dealers for resale- * * *. In periods of normal business, sales to dealers constitute the most important channel of distribution * * *.” This finding goes on to point out that during the depression years of 1930 to 1937, sales were made to governmental agencies ón a large scale. There are some 30,000 dealers located in cities, towns and hamlets throughout the country. Each dealer is free to handle several brands of cement if he chooses; in fact, most of them handle several, and substantially all handle more than one. The Commission concedes that dealers are the “backbone” of the business. There is voluminous evidence in support of respondents’ assertion that dealers are practically unanimous in their desire to purchase on a destination price basis. The Commission does not dispute this assertion; in fact, it substantially corroborates it. Finding 7(a) states: “Substantially all sales of cement by the corporate respondents are made on the basis of a delivered price; that is, at a price determined by the location at which actual delivery of the cement is made to the purchaser.” Commission's counsel stated before the examiner: “If there is anything that I think has been shown in this case over and over again, and shown by us, it was the usual method of requesting business on a destination basis.” The reason buyers are so insistent that cement be sold at a destination price is their desire to know how much it will cost them delivered. This is especially true of contractors who use large amounts of cement. The difficulty otherwise confronting the buyer who wants to know the cost at delivery is that he is required to figure the complicated railroad tariffs which constitute a material part of such cost. There is also much evidence to the effect that producers of cement, in common with producers generally, are dependent upon the favor of their customers and must establish their sales policies so as to meet their approval.' All cement, however, was not sold on a delivered price basis. Some was sold on an f.o.b. plant basis, and the Commission made no finding of a refusal on the part of respondents to sell on the latter basis. The Duration of the Alleged Conspiracy. The complaint fixed no time as to the inception of the alleged conspiracy but merely alleged its existence “for more than eight years.” The complaint was filed July 2, 1937, and the Institute was organized in August 1929. Evidently it was intended to fix the inception of the conspiracy charged at a time prior to the organization of the Institute. In fact, the case appears to have been tried upon the theory that the conspiracy had been in existence for as long as thirty-five years. Respondents assert that upon the filing in this court of the Commission’s brief they learned for the first time that it was the Commission’s position that the conspiracy charged came into existence with the organization of the Institute. Undoubtedly this assertion is sustained by the record and the Commission’s brief. The Commission states: “Each of the corporate petitioners [respondents] * * * for a substantial period of time, directly associated itself with and constituted a part of the combination through membership in the Institute * * At another point: “The conspiracy charged was against the Institute and its members. It is what they did during the existence of the Institute that constituted the conspiracy and the order to cease and desist is directed only against those things.” Referring to the Institute, the Commission further states: “It is the chief common bond which united them, the common purpose which is the core of every conspiracy.” Again the Commission states: “The findings as to their Institute membership are sufficient to make them responsible for the Institute’s program.” It appears rather plain that the Commission first took a definite stand as to the time of the inception of the conspiracy when confronted with respondents’ contention that the old Cement case was res ad-judicata of the issues here involved, and that the Commission improperly considered evidence as to the practices and customs of the cement "industry prior to the organization of the Institute. In reply to respondents’ contention in this respect, the Commission states: “As stated elsewhere we rely upon the acts of the Institute and its members since 1929 and upon our right to rebut petitioners’ [respondents’] claim and evidence that the system was the byproduct of normal competitive evolution in prior years.” The Order to Cease and Desist. The order is directed against the Institute, its officers and agents, and 74 corporate respondents. It enjoins respondents: “ * * * from entering • into, continuing, cooperating in, or carrying out any planned common course of. action, understanding, agreement, combination, or conspiracy between and among any two or more of said respondents, or between any one or more of said respondents and others not parties hereto, to do or perform any of the following things: “1. Quoting or selling cement at prices calculated or determined pursuant to or in accordance with the multiple basing-point delivered-price system; or quoting or selling cement pursuant to or in accordance with any other plan or system which results in identical price quotations or prices for cement at points of quotation or sale or to particular purchasers by respondents using such plan or system, or which prevents purchasers from finding any advantage in price in dealing with one or more of the respondents against any of the other respondents. “2. In connection with or in aid or support of any plan, system, acts, or practices prohibited in paragraph 1 above [then follow sixteen injunctive paragraphs which we summarize in footnote]. “3. Discriminating in price between or among their respective customers by systematically charging arid accepting mill net prices which differ by the amounts necessary to produce delivered costs to purchasers identical with delivered costs available to such purchasers through purchases from other respondents. “4. Using any means substantially similar to those specifically set out in this order with the purpose or effect of accomplishing any of the things prohibited by this order.” We set forth the*order at this point for, the purpose of clarifying a somewhat confused situation as to the precise objective of this proceeding. The order leaves no room for doubt bpt that the purpose of the Commission is to outlaw not only the multiple basing point price systeiri but any and all price systems which permit the selling of cement “pursuant to or in accordance with any other plan or system,” which results in identical prices or which prevents purchasers from buying from one producer at a less price than from another. The order further makes plain that it is the purpose of the Commission to require each producer to sell cement on an f.o.b. mill price basis. The numerous other acts enjoined (see footnote 4) are practices which the complaint alleges were utilized for the purpose of making effective the multiple basing point system and are referred to by the Commission as acts of implementation. In other words, the order enjoins not only the use of a multiple basing point price system but all acts and practices in aid or support of such system. It is evident, so we think, that if the record fails to disclose the alleged combination or if its use be not illegal, the acts and practices alleged to support such system become immaterial. Moreover, paragraph 3 of the order appears to be directed against respondents in their individual capacity, thereby ignoring the charge of combination or conspiracy. As we understand the Commission’s argument, it so concedes. It states: “Paragraph 3 is by its nature applicable only to the respective corporate petitioners [respondents], but to a practice which to the extent used by all would in effect recreate the system and have the same effect in making delivered prices identical.” If our construction of this paragraph is correct, it means that the charge of combination is "little more than a pretense to get all the members of the industry, leaders and followers alike, into the same proceeding and before the same court. Further, this paragraph would prohibit each individual respondent from absorbing freight even though done in good faith to meet an equally low price of a competitor. That this is the Commission’s purpose is in effect conceded. In response to criticism directed at this paragraph by respondents the Commission states: “This case will have been litigated in vain 'if petitioners’ [respondents’] views prevail on this subject, even though other provisions of the order were to stand.” The Cement Institute. The Cement Institute (hereinafter referred to as the Institute) is a voluntary unincorporated trade association. It was organized in August 1929 by fourteen cement producers located in the-northeastern part of the United States. As found by the Commission, its purpose was the promotion of the mutual interests of its members, and it has functioned through its officers, trustees, committees, and other agents. Its membership increased to forty by June 1930, but such membership had declined to twenty by May 1931. Its membership remained stationary until June 1933 when a campaign was inaugurated to obtain members so as to make the Institute the representative of the industry in order to comply with the N.I.R.A. in the submission of a proposed code. Under these circumstances, substantially all cement producers joined the Institute. At the time of the issuance of the complaint in the instant proceeding there were seventy-six members, representing about 95% of the productive capacity of the industry. Finding 5 states: “During a period of about 18 months beginning in November 1933, when partial self-government for the cement industry was authorized under the terms of the National Industrial Recovery Act, the Institute was the repository of the authority delegated and through its control of the Code Authority controlled the administration of the Code for the Cement Industry * * Has the Commission Found the Combination Alleged in Its Complaint. This brings us to the highly controverted issue as to whether 'the findings sustain the charge of combination alleged in the complaint and therefore the order under review. Closely related is the further issue as to whether the findings, even though sufficient, are supported by substantial evidence. In connection with the combination charged it is important to keep in mind that the Commission no longer relies upon a combination existing “for more than eight years last past,” but upon a combination which had its inception in August 1929 when the Institute was organized. As already noted, the findings are extremely lengthy, and we might add complicated, and difficult to comprehend. It is asserted and reasserted by respondents that the findings are vague, ambiguous, indefinite, uncertain, that there is no finding of the combination relied upon, and further that many of the findings are predicated upon incompetent testimony. It is especially emphasized by many of the respondents that assuming the combination charged to have been found, there is no finding which discloses how or in what manner they became or were members thereof. After a long and careful study of the situation, we are very definitely of the view that there is much merit in the criticism directed at the findings, notwithstanding the vigorous defense interposed by the Commission. As already shown, it is the Commission’s contention that the Institute was “the chief common bond which united them,” and the fact of membership alone is sufficient “to make them responsible for the Institute’s program.” As already shown, the Institute was organized in 1929, and findings 1 (a) to (z), (2a) to (2z), (3a) to (3z), and (4a) fix the dates when each corporate respondent became a member. We have already shown the number of mepibers at the beginning, ’as well as the increase and decline in such membership up to the time of the filing of the complaint. From what has been shown, it definitely appears that of the respondents who were members when the complaint was filed, thirty-nine had never been members prior to the N.I.R.A. period, and fifty-nine had not been members for at least two years prior thereto. Numerous of the findings are predicated upon statements and activities of the Institute and its members during the N.I.R.A. period, as well as testimony of what happened in the industry long prior to the organization of the Institute, now referred to as background testimony, which together with certain other testimony respondents challenge as incompetent. Some of this alleged incompetent testimony upon which the findings, in part at least, are predicated will be subsequently considered. The Commission states: “Only by evidence that an individual member was unaware of what objectives were being pursued by the Institute, and that his own policy and practice were completely at variance with that objective, can there be any ground for contention that particular corporate petitioners [respondents] were not properly found to have been partners with the others.” This is a novel and dangerous rule to be followed in the establishment of a conspiracy. It would place the burden upon the one charged to prove that he was not a member. The assertion is not supported by any authority, so far as we are aware, and must be rejected. Neither do we think that mere membership in the Institute, especially in view of the fact that a large'majority of the instant respondents were persuaded or induced to become members for the purpose of enabling the industry to cooperate with the Federal government in the time of emergency, creates the slightest inference that they were members of. an unlawful combination or conspiracy. Finding 7(6), strongly relied upon by the Commission in support of its thesis that the Institute was the vehicle employed by the alleged combination, states: “When the Institute was organized in August 1929, the statement of purposes contained in the articles of association included these provisions : “To adopt and promulgate a Code of Ethics for the government of the members. “To establish and maintain all such lawful trade customs and usages [italics ours] for the protection of the .members as the Institute may deem advisable. “The multiple basing-point delivered-price system was one of the ‘customs and usages’ to be maintained.” The Commission contends that the Institute by its express purpose to “maintain all such lawful trade customs and usages” actually embraced and made the multiple basing point price system a part of its pror gram. We think such contention is palpably untenable. If the system was lawful at that time, as the Institute and everybody else for that matter thought by reason of the decision in the old Cement case which had been decided only a few years previously, then it was included in the language quoted. If, however, it was unlawful, there certainly can be no inference from the language quoted that it was the express purpose of the Institute to maintain it. Finding 7(o) continues by quoting from the Code of Ethics adopted by the Institute, which was in effect only until the beginning of the N.I.R.A. Code period. One declaration from this Code labels as an unfair trade practice the diversion of carload shipments of cement from their original destination to some other for the purpose of enabling the purchaser to obtain cement at less than the , market price at the point of final delivery. Other statements from the Code have to do with provisions which should be included in a contract for the sale of cement, and a recommendation that prices be made f.o.b. a specific destination or destinations. Finding 7(p) relates in the main to activities in connection with the N.R.A., and concludes: “The multiple basing-point delivered-price system was continued in full operation during the NRA Code period.” Finding 12(c) refers to a recommendation by the Institute that no freight allowances be shown on invoices, and that receipted freight bills be accepted as part of payment of invoices. The finding goes on, however, to state that the recommendation was rejected by respondents. Finding 8(d) has to do with rate books published by the Institute in order to provide common freight rate factors for pricing purposes. Findings 8(h), (m) and (n) refer to the dissemination by the Institute of land grant freight rates. Finding 13(a) refers to the services rendered by the Institute in connection with specific job contracts. Without a detailed discussion of these various activities of the Institute as found, it is sufficient to state that they are all within the legal sphere of a trade association, as held in the old Cement case. It is also material to note some of the things the Institute did not do. Except for open price filing under the N.R.A. Code and for three months thereafter, there was no exchange of prices or price data among the members through the Institute or otherwise, and the Institute did not receive from members or send out to them any reports as to prices, either daily or otherwise. Even in the specific job contract reports, prices were omitted, although the old Cement case held that inclusion of prices in such transactions was lawful. The Institute did not receive or send out any information as to basing points, base prices, change of mills from non-base to base, or vice versa. Even the freight rate books were not limited to rates from basing points, although under the old Cement case they might have been so limited. The Commission does not find that any pricing practice of the industry generally or that any pricing practice or policy of any respondent was developed or changed by or through membership in the Institute or by or through any act of the Institute. Most important of all perhaps is that there is no finding that the Institute either had or exercised any power or authority or could or did impose any restriction upon the activities of its members. Findings 5 and 6 have to do with what is now asserted to be background testi,mony. In the former, it is stated that the Association of American. Portland Cement Manufacturers was organized in 1902 and that in 1916 its name was changed to Portland Cement Association. Between 1907 and 1911, several members of the Association of American Portland Cement Manufacturers were also members of the Association of Licensed Cement Manufacturers. The Cement Manufacturers Protective Association was organized in 1916, and remained active until shortly before the decision of the Supreme Court in 1925 in the old Cement case. Finding 6(a) states that cement producers from 1902 to the present time have evidenced a strong aversion to free competition and that its members have “by understandings and agreements, developed and maintained substantial uniformity of action among themselves with respect to practically every marketing procedure which involves price or other competition.” It goes on to point out that many of the current practices of the industry originated in agreements as long as 20 to 30 years ago. The finding then contains this remarkable statement as applicable to the instant situation: “Some of the respondents have been parties to substantially all of these activities; other respondents have participated in a lesser degree, or fully or partially for shorter periods of time; other respondents have been mere followers, adopting and supporting the practices of their more active associates; and a few respondents have from time to time, for various reasons, participated only reluctantly in some of the practices, and have occasionally opposed for a time particular instances of group action.” It will thus be noted that the respondents are divided into four classes, some who have been active, some less active, some mere followers, and some who only participated in some of the practices some of the time. No attempt is made here or elsewhere to classify the various respondents or the particular practices in which they have participated or the period of such participation. Finding 6(a) states that the cooperative activity among cement producers commenced with the A.A.P.C.M. in 1902 and continued to the present time. Finding 7(i) refers to the period of time during which the multiple basing point price system evolved and quotes from the minutes of a meeting of the A.A.P.C.M. held in December 1904. A resolution was adopted at that meeting and statements were made by representatives of certain cement producers. Also is quoted a statement by a representative of Lehigh made at an association meeting in Philadelphia in 1905, and also statements made by certain other representatives of the industry. Further, extracts are quoted from a report made by a chairman of the committee on trade and from a letter written in 1908. Finding 7(j) relates to certain patent litigation which resulted in a decision in 1906 and which was compromised by the issuance of a license to certain named cement manufacturers. Finding 7(k) is an excerpt from minutes of an A.A.P.C.M. meeting in 1910 designed to show that certain Michigan mills had agreed to follow the prices fixed by Lehigh. Finding 8(b) states that members of the industry commenced the preparation and publication of special freight rate books in 1914, which was continued until 1922 in much the same form as was subsequently supplied by the Institute. Finding 8(d) contains extracts from three letters written in 1916 and 1918 relating to the C.M.P.A. freight rate books. Finding 13(c) contains excerpts from reports relating to specific job contracts of A.A.P.C.M. in 1915 and of P.C.A. in 1919. Finding 14(b) contains numerous excerpts from meetings of the A.A.P.C.M. in 1905, 1906, and 1915, relating in the main to the conditions of sale and agreement to standardize the customs and usages of the cement trade and certain other trade policies, which it is asserted demonstrate collective action. Finding 14 (c) has to do with a pamphlet adopted by the P.C.A. in 1919, containing various recommendations adopted by that association. It is pertinent to note that this finding states that the P.C.A. was “largely composed of respondents herein,” without designation as to which respondents are referred to. Finding 15(b) contains excerpts from minutes of A.A.P.C.M. meetings in 1903, 1904, 1910 and 1911, relating to overproduction of cement resulting in lower prices. Finding 17(b) contains excerpts from reports issued by A.A.P.C.M. in 1915 and P.C.A. in 1919, dealing with recommendations as to the definition of a dealer, which it is asserted shows concerted action which “began many years ago.” Finding 20(a) refers to minutes of a meeting of the A.A.P.C.M. in 1904, recommendations of the same association in 1915, and recommendations by the P.C.A. in 1919, concerning the standardization of cement which it is asserted shows “collective action by the cement industry.” Finding 20(c) contains a statement made by a cement manufacturer in 1904, designed to show that cement was to be sold according to “agreed specifications.” The Commission contends that the propriety of this background testimony is sustained by substantial judicial precedents, and cites American Tobacco Co. v. United States, 6 Cir., 147 F.2d 93, which was a criminal conspiracy case. The court held that historical evidence of the relation of defendant corporations to the old American Tobacco Company, which had been dissolved as an unlawful combination, was admissible (147 F.2d at page 119) “for the purpose of throwing light upon the subsequent offenses, acts, and practices charged” against the defendants, and whether such evidence did throw any light upon them was “properly a question for the jury.” It will be noted the defendants in that case were the same as those connected with the old company, concerning which the background testimony was held admissible. In the instant proceeding the situation is quite different. Thirty-one of the present respondents against whom this evidence was offered were not even in existence prior to 1916. Twenty-five of the present respondents were not in existence during the life of C.M.P.A. Between 1902 and 1929, when the present conspiracy is asserted to have had its inception, there are wide gaps of time during which no proof was offered that the cement industry were members of any trade association or engaged in any cooperative activity. Thus between 1922 when the C.M.P.A. was dissolved and August 1929 when the Institute was organized, there was no association in existence. The evidence relating to the old A.A.P.C.M. extends no later than 1915. Thus there is a gap of fourteen years' between that time and the organization of the Institute. The evidence relating to the old A.L.C.M. is prior to ,1911. In the evidence relating to it there is a gap of eighteen years prior to the organization of the Institute. Much of this background testimony was before the Supreme Court in the old Cement case, and we know of no reason why it all could not have been used if deemed material. The Commission, in referring to the successful contention of the cement industry in that case states: “That same contention was successfully made in Cement Mfrs. Protective Association v. U. S., but it is obvious that it would not have prevailed had the historical facts disclosed by the evidence here in question been before the Court and had it been relied on by the Government.” As already stated, some of this background testimony was before the court, but whether so or not, it ill behooves the Commission at this late date to infer that government counsel at that time was so incompetent as to fail either to offer or rely upon evidence material to its case. The Commission also states: “Petitioners thus had every opportunity to meet this evidence long before they closed their defense * * We doubt the accuracy of such an assertion in view of the fact that some of this testimony antedated the hearing by 35 or 40 years, but in any event it is a lame excuse for the use now sought to be made of it. Again the Commission reiterates: “The conspiracy charged was against the Institute and its members. It is what they did during the existence of the Institute that constituted the conspiracy and the order to cease and desist is directed only against those things.” The Commission accuses respondents of using this old evidence “as the beginning of a continuing conspiracy” as the basis for their argument on res adjudicata and estop-pel, that is, “it is the same alleged conspiracy” which had its “origin” before 1925, the year the old Cement case was decided by the Supreme Court. There is no basis, however, for the inference or accusation that this theory of continuous conspiracy was conceived by respondents. The record discloses indisputably that it was promulgated and fostered by the Commission. The complaint charged a combination “for more than eight years last past.” The complaint was filed July 2, 1937, and the Institute organized in August 1929. “More than eight years,” of course, placed its inception prior to the organization of the Institute. Just how long before was not disclosed. The record shows unmistakably, however, that the case was tried by the Commission on the theory that the conspiracy had its origin some 25 or 30 years prior to the filing of the complaint and that it was in continuous operation up to that time. Moreover, the findings themselves strongly indicate that at the time they were drawn the Commission was still proceeding on such theory. It was only when the Commission’s brief was filed in this court that it first planted its position upon the ground that the conspiracy here alleged originated in 1929. From what we have said it is perfectly plain that this background testimony was not used “for the purpose of throwing light upon the subsequent offenses, acts, and practices charged,” but that it was used as a part of the foundation upon which the finding of combination was predicated. We now come to the findings based upon respondents’ activities during the N.R.A. Code period from 1933 to May 27, 1935. As already shown, the Institute was a trade association that applied to the President of the United Startes, under the provisions of the National Industrial Recovery Act of June 16, 1933, for the approval of a Code of Fair Competition for the cement industry. Some 57 of the corporate respondents became members of the Institute at that time for the express purpose of participating in the formation of and compliance with such Code. It is the contention of the respondents that all evidence as to activities of the Institute and its members in the preparation and submission to the N.R.A. of proposals for a Code of Fair Competition and amendments thereto for the industry, and all evidence as to the terms of the Code itself and its amendments, and as to activities in complying with its provisions and its administration by the Code authority, is incompetent, and that findings predicated upon such evidence are improper. This contention arises from the provision of the N.I.R.A. exempting certain activities performed in compliance with the provisions of the Act from the provisions of the anti-trust laws. The findings covering this period, like those referring to the background, are numerous and strongly relied upon by the Commission in support of its asserted finding of the combination charged. We shall refer to only a few of the many findings which come within this category. Finding 7(p) recites a proposal by the Institute for the proposed Code, which was never approved, that all cement should be sold f.o.b. point of delivery except that quotations to the Federal government should be f.o.b. mill where land grant rates are involved. Finding 11(g) recites a provision of the Code, declaring it an unfair method of competition by any transportation agency which makes concessions by rebate or otherwise. Finding 12(b) recites a provision in the Code making it a violation to divert shipments of cement from one destination to another. Finding 13(f) contains a Code provision relating to the terms and conditions of sale. Finding 14(f) contains a provision concerning cash discount. Finding 17(d) relates to a provision of the Code having to do with dealers and various classes of buyers. Finding 20(a) refers to a Code provision as to standard specifications for cement. Numerous other findings incorporate correspondence between the Institute and the Code authorities, correspondence between members of the industry relative to Code provisions and those proposed, as well as other statements made by representatives of some of the respondents relative to the same subject matter. We have read all this evidence as it appears in respondents’ appendix and if it reveals anything it is the great divergence of opinion which existed between members of this industry. It was with difficulty that 'many of them were persuaded to agree to what was proposed and done in connection with the Code. In fact, some never did agree. They were a queer lot of conspirators. The Commission contends that all this evidence as to their activities and Code agreements is competent to show the continuity of their objectives and methods “before, during, and after such period.” The Commission, referring to respondents’ contention as to this evidence, asserts: “From a logical standpoint it is a preposterous proposition and from the standpoint of judicial precedent it has no support.” The Commission further argues in support of its contention that it cannot be rationally contended that respondents can be protected by a statute “unanimously held unconstitutional and therefore void ab initio.” Both respondents and the Commission rely upon the same cases in support of their respective contentions, namely Dietz-gen Co. v. Federal Trade Commission, 7 Cir., 142 F.2d 321, and United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129. We do not see how the Commission derives any comfort from the decision of this court in the Dietzgen case. The price fixing combination charged in that case was based upon what happened subsequent to the invalidation of the N.I.R.A. The court states (142 F.2d at page 324) : “It [the Commission] also found that petitioners complied with the N.R.A. Code prices from November, 1933, to May 27, 1935, when the Supreme Court declared the pertinent part of the Act unconstitutional. In June of that year, the petitioners’ representatives again met and agreed to keep the N.R.A. Code prices in effect * * The opinion then goes on to recite the agreements which were made concerning the price structure. The court (142 F.2d at pasre 329) made this pertinent observation: " * * * the N.R.A. permitted price fixing. In fact, it decreed price fixing. It is true, it was allegedly enacted to meet a temporary condition, an emergency, but even so, price stabilization was its objective and its result.” The opinion proceeds to state what was done by the defendant after the death of the Code and that thereafter the defendant was not protected by its provisions. In a footnote (142 F.2d at page 329), this court made another pertinent observation: “We are convinced that notwithstanding this fact [the unconstitutionality of the Act], the Government was estopped to prosecute citizens who complied •with N.R.A. codes * * * because the N.R.A. was presumably valid until by judicial pronouncement it was declared to be invalid * * In the Socony case, the defendants were charged with having engaged in two concerted buying programs, from February 1935 to December 1936. The defense interposed in that case was not that the buying programs gained immunity under the N.I. R.A. but rather that the programs were undertaken and carried out with the knowledge and acquiescence of officers of the government charged with responsibility in the administration of the Code, and that proof of those facts should be taken into consideration in order to judge the purpose, effect and reasonableness of their activities in connection with the buying program. That defense was rejected. In short, since the buying programs were admittedly not authorized under the Code, proof of knowledge and acquiescence by the government .gave no immunity under the N.I.R.A. The court stated (310 U.S. at page 228, 60 S.Ct. ■at page 847, 84 L.Ed. 1129) : “The offers of tproof covering the background and operation of the National Industrial Recovery Act and the Petroleum Code * * * were properly excluded, insofar as they bore on the nature of the restraint and the purpose or end sought to be attained.” If the defendants were not entitled to rely upon their activities during the Code period as an explanation for what they did subsequently, we think the Commission in the instant case is not entitled to rely upon what happened during the Code period to show a conspiracy either during that period or any other time. Assuming this evidence might be proper for the purpose of “illumination” on the same theory that the Commission seeks to justify the admission of background testimony, it certainly is not admissible for the purpose of showing a conspiracy prior or subsequent to the N.I.R.A. period or a continuity of such conspiracy during such period. To hold that members of an industry can be invited and perhaps required by the government to participate in a program for the general welfare under a promise of immunity and that evidence of their doings and activities in connection therewith can be used to hold them for a conspiracy would constitute a fraud, or perhaps confidence game would be a more appropriate designation. There is a great volume of other evidence which respondents assert was improperly considered by the Commission. We shall not go into it any further except as to one incident and we only mention this for the reason that the Commission has, in our judgment, exaggerated its importance beyond all reason. A part of finding 7 (r) and a part of finding 21 (f) are predicated upon a letter dated May 17, 1934, written by John Treanor, president of respondent Riverside, to B. H. Rader, chairman of the Code Authority for the cement industry. We need not detail that portion of the letter contained in 7 (r). It appears that Rader as chairman of the Code Authority had been in negotiation with Barton W. Murray, Deputy Administrator of the National Recovery Administration, concerning the request of the latter for a provision in the Code permitting cement to be sold to the Federal government on an f. o. b. mill price. Treanor expressed the view in this letter that the request should be granted. In finding 21(f) a portion of this same letter, apparently directed at some of the advertising indulged in by the Institute in defense of the basing point system, is quoted as follows: “ ‘Do you think any of the arguments for the basing-point system, which we have thus far advanced, will arouse anything but derision in and out of the government ? I have read them all recently. Some of them are very clever and ingenious. They amount to this however: that we price this way in order to discourage monopolistic practices and to preserve free competition, etc. This is sheer bunk and hypocrisy [italics ours]. The truth is of course — and there can be no serious, respectable discussion of our case unless this is acknowledged — that ours is an industry above all others that cannot stand free competition, that must systematically restrain competition or be ruined * * ” Rader in his capacity as chairman of the Code Authority replied to this letter on May 21, 1934, in which he said among other things: “The Code Authority members feel that they sent the proper kind of a telegram. It is not arbitrary, but it is not giving everything they ask for without a chance to explain it.” Treanor sent copies of his letter to eight other individuals who were associated with him on a recently appointed group to study the industry’s public relations and to the president of the P.C.A. who also was participating in that work. It was not sent by Treanor or Rader to the other twenty-two members of the board of trustees of the Institute. ' The Commission states: “The relation of the Institute to the basing point system and of the system to price competition was never more clearly and frankly stated than by John Treanor, one of the trustees of the Institute and at the time president of petitioner Riverside.” The Commission quotes in its brief the phrase from Treanor’s letter, “sheer bunk and hypocrisy,” on at least twelve different occasions. It commences and concludes its brief on that thesis. Treanor had died prior to the hearing. At the time his letter was offered, counsel for the Commission in arguing for its admissibility stated: “It is a part of the acts of the industry, of the Code Authority of the industry, of the Cement Institute, of which this man was a high official; and to argue that it is merely his personal expression — of course, everybody’s expression is personal, but it frequently goes beyond a personal responsibility and makes his associates responsible, if he is engaged with them in a common activity.” We think the letter was incompetent. In the first place, it was written to an official of the Code Authority during the N.R.A. period concerning a provision of the Code under consideration. In the next place, it contained no statement of fact but was clearly the expression of the opinion of the writer upon a question that was more legal than factual. It could hardly be classified as an act or statement in the execution or perpetuation of a conspiracy even though it be conceded one was in existence. In Bridges v. Wixon, 326 U.S. 135, 65 S.Ct. 1443, 89 L.Ed. 2103, the court held that in an administrative proceeding a written statement made by a person not á party to the proceeding was inadmissible, and on page 153 of 326 U.S. on page 1452 of 65 S.Ct., 89 L.Ed. 2103, stated: “We may assume they would be admissible for purposes of impeachment. But they certainly would not be admissible in • any criminal case as substantive evidence. [Citing cases.] So to hold would allow men to be convicted on unsworn testimony of witnesses — a practice which runs counter to the notions of fairness on which our legal system is founded.” Another pertinent observation is found in United States v. International Harvester Company, 274 U.S. 693, 703, 47 S.Ct. 748, 752, 71 L.Ed. 1302, where the court stated: “But it is entirely plain that to treat the statements in this report— based upon an ex parte investigation and formulated in the manner hereinabove set forth — as constituting in themselves substantive evidence upon the questions of fact here involved, violates the fundamental rules of evidence entitling the parties to a trial of issues of fact, not upon hearsay, but upon the testimony of persons having first-hand knowledge of the facts, who are produced as witnesses and are subject to the test of cross-examination.” If Treanor had been living and called as a witness by the Commission, we think he would not have been permitted to express the opinion contained in this letter. We know no reason why its competency would be enhanced by the fact that it was recorded in writing long prior to the hearing and his death. We have labeled finding 7 as the heart of the Commission’s case, which we afterward consider in detail. At this point we refer to it only in connection with its bearing upon the combination alleged. It contains a hypothetical illustration of the operation of the pricing system involved. Finding 7(h) in part states: “It is equally plain that this formula, once put into operation, is self-perpetuating in the sense that renewed understandings or agreements are not needed to maintain identical delivered prices over an indefinite period of time.” So we are informed by this finding that the multiple basing point price system is “self-perpetuating” and that “renewed understandings or agreements are not needed.” Certainly this is no finding of the combination or agreement here asserted. If it has any significance it is that when the Institute was organized in 1929 it was unnecessary to have an agreement or understanding because the system which had been in use by the industry long prior to that time was self-perpetuating. This finding, rather than furnishing support for the alleged combination, is in reality a recognition of respondents’ contention that the pricing system was one of the trade practices long followed in the industry and that it was continued after 1929 without combination, conspiracy or agreement. Finding 7(h) continues: “This formula was not evolved and put into operation at one stroke. It came into existence and its territorial application was extended from time to time as a result of understandings and agreements among cement manufacturers.” By whom such “understandings and agreements” were had is not disclosed, but it is evident that the finding refers to cement manufacturers long prior to 1929 for the reason that there follows, in finding 7(h), (i), (j), (k) and (1) a recitation of documentary and other evidence designed to show how the system was originated and practiced from 1901 to 1915. Finding 7(m) states: “In southern California the basing-point system of pricing is modified by an elaborate system of zone prices applicable in certain areas. * * * The limited number of points at which sales are made makes it possible for each respondent to publish, and each has published, complete price lists showing the delivered prices at substantially all delivery points.” Again we are left in the dark as to which of the respondents used this so-called elaborate system of zone prices, but it is evident from this finding that such respondents did not use the system alleged in the complaint. Again, 7(n) states: “The multiple basing-point delivered-price system was extended to western Washington in 1931. Its introduction there followed a price war which commenced when two new mills began operating in that territory, one in 1928 and the other in 1929, and was approximately coincident with the leasing of one of these new mills by Superior Portland.” It is to be noted that the finding does not disclose by whom the system was extended to Washington or for what purpose, or by which, if any, of the respondents it was used. Certainly there is not even an inference that the system was used either in California or in Washington in connection with any combination or conspiracy. The entire findings are permeated with uncertain and indefinite terms, such as 8(b) “some of the present respondents,” 8(g) “by most of the corporate respondents,” 8 (i) “respondents interested in particular bids,” 8(i) “groups of respondents concerned in the same bid,” 8(o) “certain respondents on the Pacific Coast,” 12(c) “with a few exceptions respondents did not continue to require,” 13(d) “a number of the corporate respondents,” 13(g) “one of the corporate respondents,” 15(b) “a number of the respondents herein,” 15(c) “some 50 of the corporate respondents herein,” 15(f) “among many respondents,” 15(g) “Some respondents,” 15(i) “A few members of the Institute,” 17(e) “by various of the corporate respondents,” 19(a) “corporate respondents who sell cement in some of the larger seaport cities,” and 19(b) “participating respondents.” Up to this point there is no finding of the combination charged. The Commission, however, places its chief reliance in this respect upon findings 22 and 26. Finding 22 is based upon the opinion testimony of numerous economists who testified in the proceedings concerning the application of the principles and theories of economics in hypothetical situations. The Commission stresses the f