UNITED STATES V. SOCONY-VACUUM OIL CO., INC., 310 U. S. 150 (1940)
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U.S. Supreme Court
United States v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150 (1940)
United States v. Socony-Vacuum Oil Co., Inc.
No. 346
Argued February 5, 6, 1940
Decided May 6, 1940
310 U.S. 150
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Syllabus
1. Agreements to fix prices in interstate commerce are unlawful per se under the Sherman Act, and no showing of so-called competitive abuses or evils which the agreements were designed to eliminate or alleviate may be interposed as a defense. Pp. 310 U. S. 210, 310 U. S. 218.
2. Numerous oil companies and individuals were convicted under an indictment alleging that, in violation of § 1 of the Sherman Act, they conspired to raise and maintain spot market prices of gasoline, and prices to jobbers and consumers in the "Midwestern Area," embracing many States, by buying up "distress" gasoline on the spot markets and eliminating it as a market factor. In support of allegations of the indictment, there was evidence to prove that the defendants, with intent to raise and maintain prices, devised and carried out an organized program of regularly ascertaining the amounts of surplus spot market gasoline, of assigning its sellers to buyers who were in the combination, and of purchasing it at fair going market prices, and that this process, by removing part of the spot market supply, was at least a contributing factor in stabilizing the spot market and thereby causing an increase of prices, so that jobbers and consumers in the midwestern area paid more for their gasoline than they would have paid but for the conspiracy, their prices being geared to spot market prices.
Held:
(1) It is immaterial to the question of guilt that other factors also may have contributed to the rise and stability of the markets, and that competition on the spot markets was not entirely eliminated. P. 310 U. S. 219.
(2) The elimination of so-called competitive evils is no legal justification for such buying programs. So far as price-fixing agreements are concerned, the Act establishes one uniform rule applicable to all industries alike. P. 310 U. S. 220.
(3) Even though the members of the price-fixing group were in no position to control the market, yet, to the extent that they raised, lowered, fixed, pegged, or stabilized prices, they would be directly interfering with the free play of market forces. P. 310 U. S. 221.
(4) There was no error in the refusal to charge that, in order to convict, the jury must find that the resultant prices were raised and maintained at "high, arbitrary and noncompetitive levels." A charge in the indictment to that effect was surplusage. P. 310 U. S. 222.
(5) Nor is it important that the prices paid by the combination were not fixed in the sense of being uniform and inflexible. P. 310 U. S. 222.
(6) A combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se under the Act. P. 310 U. S. 223.
(7) Where the means for price-fixing are purchases of a part of the supply of the commodity for the purpose of keeping it from having a depressive effect on the market, power to fix prices may be found to exist though the combination does not control a substantial part of the commodity. P. 310 U. S. 224.
(8) Price-fixing agreements may have effective influence over the market, and utility to members of the conspiracy group, though the power possessed or exerted by the combination falls far short of domination and control. The Sherman Act is not concerned solely with monopoly power. P. 310 U. S. 224.
(9) Proof that a combination was formed for the purpose of fixing prices, and that it caused them to be fixed or contributed to that result, is proof of the completion of a price-fixing conspiracy under § 1 of the Act. P. 310 U. S. 224.
(10) A conspiracy to fix prices violates § 1 of the Act though no overt act is shown, though it is not established that the conspirators had the means available for accomplishment of their objective, and though the conspiracy embraced but a part of the interstate or foreign commerce in the commodity. P. 310 U. S. 225n.
(11) Under the National Industrial Recovery Act, 48 Stat. 195, a price-fixing agreement could be exempted from the provisions of the Sherman Act only through the code machinery with the approval of the President as provided in §§ 3(a) and 5; mere knowledge, acquiescence or tacit approval by government employees would not suffice. Pp. 310 U. S. 225-227.
(12) A practice contrary to the Sherman Act, even if approved under the National Industrial Recovery Act, became unlawful when continued after the expiration of the Recovery Act. P. 310 U. S. 227.
(13) The fact that the buying program in this case may have been consistent with the general objectives of the National Industrial Recovery Act is irrelevant to its legality under the Sherman Act where the method provided by Congress for alleviating the penalties of the Sherman Act was not followed. P. 310 U. S. 227.
(14) Offers of proof by defendants to show that, by their buying program, they had not raised spot market prices of gasoline to an artificial, noncompetitive level held properly denied as immaterial. P. 310 U. S. 229.
(15) Offers of proof by defendants to establish and evaluate other contributing causes for price rise and market stability during the indictment period held properly denied as cumulative and collateral. A trial court has a wide range of discretion in the exclusion of such evidence. P. 310 U. S. 229.
3. In a trial under the Sherman Act, where much evidence had been given of general economic conditions before and during the indictment period, the defense offered further evidence of market conditions antedating that period, introduction of which would have complicated the case, confused the jury possibly, and protracted an already lengthy trial, held that refusal of the offers was not ground for a new trial, matters of substance not being affected. P. 310 U. S. 229.
4. Use of grand jury testimony for the purpose of refreshing the recollection of a witness rests in the sound discretion of the trial judge, and no iron-clad rule requires that opposing counsel be shown the grand jury transcript where it is not shown the witness and where some appropriate procedure is adopted to prevent its improper use. Pp. 310 U. S. 231, 310 U. S. 233.
5. Grand jury testimony is ordinarily confidential. But, after the grand jury's functions are ended, disclosure is wholly proper where the ends of justice require it. Pp. 310 U. S. 233-234.
6. Permission to use grand jury testimony to refresh the memories of witnesses in a criminal case is not ground for a new trial, even if erroneous, where it was clearly not prejudicial, and did not affect substantial rights of the defendant. Jud.Code, § 269. P. 310 U. S. 235.
7. In the absence of exceptional circumstances, improper remarks made by a prosecuting attorney in his argument to the jury in a criminal trial are not ground for a new trial if they were not objected to at the time. Pp. 310 U. S. 237, 310 U. S. 238-239.
8. It is not improper in a Sherman Act case to discuss corporate power, its use and abuse, relevantly to the issues, for the subject is material to the philosophy of that Act and its purposes and objectives are clearly legitimate subjects for discussion before the jury. P. 310 U. S. 239.
9. Appeals to class prejudice in argument to a jury are highly improper and cannot be condoned, and trial courts should ever be alert to prevent them. P. 310 U. S. 239.
10. Although some of the remarks made to the jury by government counsel in argument of this case appealed to class prejudice, were undignified and intemperate, and did not comport with the standards of propriety expected of a prosecutor, they are, in the particular circumstances, not regarded as prejudicial, but as minor aberrations in a prolonged trial of a strong case which could not have influenced the minds of jurors. P. 310 U. S. 239.
11. Statements made in argument to the jury by government counsel in a prosecution under the Sherman Act to the effect that it was the wish and desire of the highest officials in the Government to have the defendants convicted held not ground for a new trial, because the defendants had sought to justify their activities as done with government approval and because the statements were but casual episodes in a long summation, and not at all reflective of the quality of the argument as a whole. Pp. 310 U. S. 241-242.
12. Assertions of personal knowledge, made in argument to the jury by government counsel, held not prejudicial where they related to a matter irrelevant to the case and, upon objection, were withdrawn, and the jury instructed to disregard them. P. 310 U. S. 242.
13. The granting of a new trial to some of the defendants convicted of a conspiracy does not require that a new trial be granted to the others, where participation by the former was not necessary to the existence of the crime charged and the jury was instructed that it could convict any of the defendants found to have been members of the combination, and that it need not convict all or none. Pp. 310 U. S. 243, 310 U. S. 246.
14. In a Sherman Act case, as in other conspiracy cases, the grant of a new trial to some defendants and its denial to others is not per se reversible error. After the jury's verdict has been set aside as respects some of the alleged coconspirators, those remaining cannot seize on that action as ground for the granting of a new trial to them unless they can establish that such action was so clearly prejudicial to them that the denial of their motions constituted a plain abuse of discretion. P. 310 U. S. 247.
15. As a general rule, neither this Court nor the Circuit Court of Appeals will review the action of a federal trial court in granting or denying a motion for a new trial for error of fact, since such action is a matter within the discretion of the trial court. P. 310 U. S. 247.
16. A denial of a motion for new trial on the ground that the verdict was against the weight of the evidence is not subject to review. P. 310 U. S. 248.
17. Where an indictment charges various means by which a conspiracy is to be effectuated, not all of them need be proved. P. 310 U. S. 249.
18. Where a price-fixing conspiracy, violating the Sherman Act, embraced, at least by clear implication, the making of sales at advanced prices to jobbers and consumers in a wide area, held that prosecution would lie in a judicial district within that area and within which such sales were made by any of the conspirators, though the conspiracy was formed elsewhere. P. 310 U. S. 250.
19. Conspiracies under the Act are not dependent on the doing of any act other than the act of conspiring, as a condition of liability. P. 310 U. S. 252.
105 F.2d 809 reversed.
Certiorari, 308 U.S. 540, on cross-petitions, to review the rulings of the court below in a case involving the indictment and conviction of corporations and individuals for a conspiracy in violation of § 1 of the Sherman Anti-Trust Act. The opinion of the District Court is reported in 23 F.Supp. 937.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
Respondents [Footnote 1] were convicted by a jury, [Footnote 2] 23 F.Supp. 937, under an indictment charging violations of § 1 of the Sherman Anti-Trust Act, [Footnote 3] 26 Stat. 209, 50 Stat. 693.
The Circuit Court of Appeals reversed and remanded for a new trial. 105 F.2d 809. The case is here on a petition and cross-petition for certiorari, both of which we granted because of the public importance of the issues raised. 308 U.S. 540.
I
. The Indictment.The indictment was returned in December, 1936, in the United States District Court for the Western District of Wisconsin. It charges that certain major oil companies, [Footnote 4] selling gasoline in the Mid-Western area [Footnote 5] (which includes the Western District of Wisconsin), (1) "combined and conspired together for the purpose of artificially raising and fixing the tank car prices of gasoline" in the "spot markets" in the East Texas [Footnote 6] and Mid-Continent [Footnote 7] fields; (2) "have artificially raised and fixed said spot market tank car prices of gasoline and have maintained said prices at artificially high and noncompetitive levels, and at levels agreed upon among them and have thereby intentionally increased and fixed the tank car prices of gasoline contracted to be sold and sold in interstate commerce as aforesaid in the Mid-Western area;" (3) "have arbitrarily," by reason of the provisions of the prevailing form of jobber contracts which made the price to the jobber dependent on the average spot market price, "exacted large sums of money from thousands of jobbers with
whom they have had such contracts in said Mid-Western area;" and (4) "in turn have intentionally raised the general level of retail prices prevailing in said Mid-Western area."
The manner and means of effectuating such conspiracy are alleged in substance as follows: defendants, from February, 1935, to December, 1936, "have knowingly and unlawfully engaged and participated in two concerted gasoline buying programs" for the purchase
"from independent refiners in spot transactions of large quantities of gasoline in the East Texas and Mid-Continent fields at uniform, high, and at times progressively increased prices."
The East Texas buying program is alleged to have embraced purchases of gasoline in spot transactions from most of the independent refiners in the East Texas field, who were members of the East Texas Refiners' Marketing Association, formed in February, 1935, with the knowledge and approval of some of the defendants "for the purpose of selling and facilitating the sale of gasoline to defendant major oil companies." It is alleged that arrangements were made and carried out for allotting orders for gasoline received from defendants among the members of that association, and that such purchases amounted to more than 50% of all gasoline produced by those independent refiners. The Mid-Continent buying program is alleged to have included "large and increased purchases of gasoline" by defendants from independent refiners located in the Mid-Continent fields pursuant to allotments among themselves. Those purchases, it is charged, were made from independent refiners who were assigned to certain of the defendants at monthly meetings of a group representing defendants. It is alleged that the purchases in this buying program amounted to nearly 50% of all gasoline sold by those independents. As respects both the East Texas and the Mid-Continent buying programs, it is alleged that the purchases of gasoline were in excess of the amounts which defendants would have
purchased but for those programs; that, at the instance of certain defendants, these independent refiners curtailed their production of gasoline.
The independent refiners selling in these programs were named as coconspirators, but not as defendants.
Certain market journals -- Chicago Journal of Commerce, Platt's Oilgram, National Petroleum News -- were made defendants. [Footnote 8] Their participation in the conspiracy is alleged as follows: that they have been "the chief agencies and instrumentalities" through which the wrongfully raised prices "have affected the prices paid by jobbers, retail dealers, and consumers for gasoline in the Mid-Western area," that they "knowingly published and circulated as such price quotations the wrongfully and artificially raised and fixed prices for gasoline paid by" defendants in these buying programs, while "representing the price quotations published by them" to be gasoline prices "prevailing in spot sales to jobbers in tank car lots" and while "knowing and intending them to be relied on as such by jobbers and to be made the basis of prices to jobbers."
Jurisdiction and venue in the Western District of Wisconsin are alleged as follows: that most of defendant major oil companies have sold large quantities of gasoline in tank car lots to jobbers in that district at the "artificially raised and fixed and noncompetitive prices;" that they have "solicited and taken contracts and orders" for
gasoline in that district, and that they have required retail dealers and consumers therein "to pay artificially increased prices for gasoline" pursuant to the conspiracy.
The methods of marketing and selling gasoline in the Mid-Western area are set forth in the indictment in some detail. Since we hereafter develop the facts concerning them, it will suffice at this point to summarize them briefly. Each defendant major oil company owns, operates, or leases retail service stations in this area. It supplies those stations, as well as independent retail stations, with gasoline from its bulk storage plants. All but one sell large quantities of gasoline to jobbers in tank car lots under term contracts. In this area, these jobbers exceed 4,000 in number, and distribute about 50% of all gasoline distributed to retail service stations therein, the bulk of the jobbers' purchases being made from the defendant companies. The price to the jobbers under those contracts with defendant companies is made dependent on the spot market price, pursuant to a formula hereinafter discussed. And the spot market tank car prices of gasoline directly and substantially influence the retail prices in the area. In sum, it is alleged that defendants, by raising and fixing the tank car prices of gasoline in these spot markets, could and did increase the tank car prices and the retail prices of gasoline sold in the Mid-Western area. The vulnerability of these spot markets to that type of manipulation or stabilization is emphasized by the allegation that spot market prices published in the journals were the result of spot sales made chiefly by independent refiners of a relatively small amount of the gasoline sold in that area -- virtually all gasoline sold in tank car quantities in spot market transactions in the Mid-Western
area being sold by independent refiners, such sales amounting to less than 5% of all gasoline marketed therein.
So much for the indictment.
II
. Background of the Alleged Conspiracy.Evidence was introduced (or respondents made offers of proof) showing or tending to show the following conditions preceding the commencement of the alleged conspiracy in February, 1935. As we shall develop later, these facts were, in the main, relevant to certain defenses which respondents at the trial unsuccessfully sought to interpose to the indictment.
Beginning about 1926, there commenced a period of production of crude oil in such quantities as seriously to affect crude oil and gasoline markets throughout the United States. Overproduction was wasteful, reduced the productive capacity of the oil fields, and drove the price of oil down to levels below the cost of production from pumping and stripper [Footnote 9] wells. When the price falls below such cost, those wells must be abandoned. Once abandoned, subsurface changes make it difficult or impossible to bring those wells back into production. Since such wells constitute about 40% of the country's known oil reserves, conservation requires that the price of crude oil be maintained at a level which will permit such wells to be operated. As Oklahoma and Kansas were attempting to remedy the situation through their proration laws, the largest oil field in history was discovered in East Texas. That was in 1930. The supply of oil from this
field was so great that, at one time, crude oil sank to 10 or 15 cents a barrel, and gasoline was sold in the East Texas field for 2 1/8¢ a gallon. Enforcement by Texas of its proration law was extremely difficult. Orders restricting production were violated, the oil unlawfully produced being known as "hot oil" and the gasoline manufactured therefrom, "hot gasoline." Hot oil sold for substantially lower prices than those posted for legal oil. Hot gasoline therefore cost less, and at times could be sold for less than it cost to manufacture legal gasoline. The latter, deprived of its normal outlets, had to be sold at distress prices. The condition of many independent refiners using legal crude oil was precarious. In spite of their unprofitable operations, they could not afford to shut down, for, if they did so, they would be apt to lose their oil connections in the field and their regular customers. Having little storage capacity, they had to sell their gasoline as fast as they made it. As a result, their gasoline became "distress" gasoline -- gasoline which the refiner could not store, for which he had no regular sales outlets, and which therefore he had to sell for whatever price it would bring. Such sales drove the market down.
In the spring of 1933, conditions were acute. The wholesale market was below the cost of manufacture. As the market became flooded with cheap gasoline, gasoline was dumped at whatever price it would bring. On June 1, 1933, the price of crude oil was 25¢ a barrel; the tank car price of regular gasoline was 2 5/8¢ a gallon. In June. 1933. Congress passed the National Industrial Recovery Act, 48 Stat. 195. Sec. 9(c) of that Act authorized the President to forbid the interstate and foreign shipment of petroleum and its products produced or withdrawn from storage in violation of state laws. By Executive Order, the President, on July 11, 1933, forbade such shipments. On August 19, 1933, a code of fair competition
for the petroleum industry was approved. [Footnote 10] The Secretary of the Interior was designated as Administrator of that Code. He established a Petroleum Administrative Board to "advise with and make recommendations" to him. A Planning and Coordination Committee was appointed, of which respondent Charles E. Arnott, a vice-president of Socony-Vacuum, was a member, to aid in the administration of the Code. In addressing that Committee in the fall of 1933, the Administrator said: "Our task is to stabilize the oil industry upon a profitable basis." Considerable progress was made. The price of crude oil was a dollar a barrel near the end of September, 1933, as a result of the voluntary action of the industry, [Footnote 11] but, according to respondents, in accordance with the Administrator's policy and desire. In April, 1934, an amendment to the Code was adopted under which an attempt was made to balance the supply of gasoline with the demand by allocating the amount of crude oil which each refiner could process with the view of creating a firmer condition in the market, and thus increasing the
price of gasoline. [Footnote 12] This amendment also authorized the Planning and Coordination Committee, with the approval of the President, to make suitable arrangements for the purchase of gasoline from nonintegrated or semi-integrated refiners and the resale of the same through orderly channels. Thereafter, four buying programs were approved by the Administrator. [Footnote 13] These permitted the major companies to purchase distress gasoline from the independent refiners. Standard forms of contract were provided. The evil aimed at was, in part at least, the production of hot oil and hot gasoline. The contracts (to at least one of which the Administrator was a party) were made pursuant to the provisions of the National Industrial Recovery Act and the Code, and bound the purchasing company to buy fixed amounts of gasoline at designated prices [Footnote 14] on condition that the seller
should abide by the provisions of the Code. According to the 1935 Annual Report of the Secretary of the Interior, these buying programs were not successful, as
"the production of gasoline from 'hot oil' continued, stocks of gasoline mounted, wholesale prices for gasoline remained below parity with crude oil prices, and, in the early fall of 1934, the industry approached a serious collapse of the wholesale market. [Footnote 15]"
Restoration of the price of gasoline to parity with crude oil at one dollar per barrel was not realized.
The flow of hot oil out of East Texas continued. Refiners in the field could procure such oil for 35¢ or less a barrel and manufacture gasoline from it for 2 or 2 1/2¢ a gallon. This competition of the cheap hot gasoline drove the price of legal gasoline down below the cost of production. The problem of distress gasoline also persisted. The disparity between the price of gasoline and the cost of crude oil, which had been at $1 per barrel since September, 1933, caused losses to many independent refiners, no matter how efficient they were. In October, 1934, the Administrator set up a Federal Tender Board and issued an order making it illegal to ship crude oil or gasoline out of East Texas in interstate or foreign commerce unless it were accompanied by a tender issued by that Board certifying that it had been legally produced or manufactured. Prices rose sharply. But the improvement was only temporary, as the enforcement of § 9(c) of the Act was enjoined in a number of suits. On January 7, 1935, this Court held § 9(c) to be unconstitutional. Panama Refining Co. v. Ryan, 293 U. S. 388. Following that decision, there was a renewed influx of hot gasoline into the Mid-Western area and the tank car market fell.
Meanwhile, the retail markets had been swept by a series of price wars. These price wars affected all markets -- service station, tank wagon, and tank car. Early in 1934 the Petroleum Administrative Board tried to deal with them -- by negotiating agreements between marketing companies and persuading individual companies to raise the price level for a period. On July 9, 1934, that Board asked respondent Arnott, chairman of the Planning and Coordination Committee's Marketing Committee, [Footnote 16] if he would head up a voluntary cooperative movement to deal with price wars. According to Arnott, he pointed out that, in order to stabilize the retail market, it was necessary to stabilize the tank car market through elimination of hot oil and distress gasoline. [Footnote 17] On July 20, 1934, the Administrator wrote Arnott, described the disturbance caused by price wars, and said:
"Under Article VII, Section 3 of the Code, it is the duty of the Planning and Coordination Committee to cooperate with the Administration as a planning and fair practice agency for the industry. I am therefore requesting you, as Chairman of the Marketing Committee of the Planning and Coordination Committee, to take action which we deem necessary to restore markets to their normal conditions in areas where wasteful competition has caused them to become depressed. The number and extent of these situations would make it impractical for the Petroleum Administrative Board, acting alone, to deal with each specific situation. Therefore, I am requesting
and authorizing you, as Chairman of the Marketing Committee, to designate committees for each locality when and as price wars develop, with authority to confer and to negotiate and to hold due public hearings with a view to ascertaining the elements of conflict that are present, and, in a cooperative manner, to stabilize the price level to conform to that normally prevailing in contiguous areas where marketing conditions are similar. Any activities of your Committee must, of course, be consistent with the requirements of Clause 2 of Sub-section (a) of Section III of the Act. . . . [Footnote 18] "
After receiving that letter, Arnott appointed a General Stabilization Committee with headquarters in Washington and a regional chairman in each region. Over fifty state and local committees were set up. The Petroleum Administrative Board worked closely with Arnott and the committees until the end of the Code near the middle of 1935 . The effort (first local, then statewide, and finally regional) was to eliminate price wars by negotiation and by persuading suppliers to see to it that those who bought from them sold at a fair price. In the first week of December, 1934, Arnott held a meeting of the General Stabilization Committee in Chicago and a series of meetings on the next four or five days attended by hundreds of members of the industry from the middle west. These meetings were said to have been highly successful in elimination of many price wars. Arnott reported the results to members of the Petroleum Administrative Board on December 18, 1934, and stated that he was going to have a follow-up meeting in the near future. It was at that next meeting that the groundwork for the alleged conspiracy was laid.
III
. The Alleged Conspiracy.The alleged conspiracy is not to be found in any formal contract or agreement. It is to be pieced together from the testimony of many witnesses and the contents of over 1,000 exhibits, extending through the 3,900 printed pages of the record. What follows is based almost entirely on unequivocal testimony or undisputed contents of exhibits, only occasionally on the irresistible inferences from those facts.
A. FORMATION OF THE MID-CONTINENT BUYING PROGRAM
The next meeting of the General Stabilization Committee was held in Chicago on January 4, 1935, and was attended by all of the individual respondents, by representatives of the corporate respondents, and by others. Representatives of independent refiners present at the meeting complained of the failure of the price of refined gasoline to reach a parity with the crude oil price of $1 a barrel. And complaints by the independents of the depressing effect on the market of hot and distress gasoline were reported. Views were expressed to the effect that, "if we were going to have general stabilization in retail markets, we must have some sort of a firm market in the tank car market." As a result of the discussion, Arnott appointed a Tank Car Stabilization Committee [Footnote 19] to study the situation and make a report, or, to use the language of one of those present, "to consider ways and means of establishing and maintaining an active and strong tank car market on gasoline." Three days after this committee was appointed, this Court decided Panama Refining Co. v. Ryan, supra. As we have said, there was evidence that, following that decision, there was a renewed influx of hot gasoline into the Mid-Western area, with a consequent falling off of the tank car market prices.
The first meeting of the Tank Car Committee was held February 5, 1935, and the second on February 11, 1935. At these meetings, the alleged conspiracy was formed, the substance of which, so far as it pertained to the Mid-Continent phase, was as follows:
It was estimated that there would be between 600 and 700 tank cars of distress gasoline produced in the Mid-Continent
oil field every month by about 17 independent refiners. These refiners, not having regular outlets for the gasoline, would be unable to dispose of it except at distress prices. Accordingly, it was proposed and decided that certain major companies (including the corporate respondents) would purchase gasoline from these refiners. The Committee would assemble each month information as to the quantity and location of this distress gasoline. Each of the major companies was to select one (or more) of the independent refiners having distress gasoline as its "dancing partner," [Footnote 20] and would assume responsibility for purchasing its distress supply. In this manner, buying power would be coordinated, purchases would be effectively placed, and the results would be much superior to the previous haphazard purchasing. There were to be no formal contractual commitments to purchase this gasoline, either between the major companies or between the majors and the independents. Rather, it was an informal gentlemen's agreement or understanding whereby each undertook to perform his share of the joint undertaking.
Purchases were to be made at the "fair going market price."
A Mechanical Sub-Committee [Footnote 21] was appointed to find purchasers for any new distress gasoline which might appear between the monthly meetings of the Tank Car Stabilization Committee, and to handle detailed problems arising during these periods. It was agreed that any such attempt to stabilize the tank car market was hopeless until the flow of hot gasoline was stopped. But it was expected that a bill pending before Congress to prohibit interstate shipment of hot gasoline would soon be enacted, which would deal effectively with that problem. Accordingly, it was decided not to put any program into operation until this bill had been enacted and became operative. It was left to respondent Arnott to give the signal for putting the program into operation after this had occurred.
The Connally Act, 49 Stat. 30, became law on February 22, 1935. The enforcement agency under this act was the Federal Tender Board which was appointed about March 1st. It issued its first tenders March 4th. On March 1st, respondents Arnott and Ashton explained the buying program to a group of Mid-Continent independent refiners in Kansas City, who expressed a desire to cooperate and who appointed a committee to attend a meeting of the Tank Car Stabilization Committee in St. Louis on March 5th to learn more about the details. This meeting was held with the committee of the independents present as one of the sessions. At a later session that day, the final details of the Mid-Continent buying program were worked out, including an assignment
of the "dancing partners" among the major companies. [Footnote 22] On March 6th, Ashton telephoned Arnott and told him what had been accomplished at the St. Louis meeting. Later the same day, Arnott told Ashton by telephone that the program should be put into operation as soon as possible, since the Federal Tender Board seemed to be cleaning up the hot oil situation in East Texas. Ashton advised McDowell, chairman of the Mechanical Sub-Committee, of Arnott's instructions. And, on March 7th, that committee went into action. They divided up the major companies; each communicated with those on his list, advised them that the program was launched, and suggested that they get in touch with their respective "dancing partners." Before the month was out, all companies alleged to have participated in the program (except one or two) made purchases; 757 tank cars were bought from all but three of the independent refiners who were named in the indictment as sellers.
B. THE MID-CONTINENT BUYING PROGRAM IN OPERATION
No specific term for the buying program was decided upon, beyond the first month. But it was started with the hope of its continuance from month to month. And, in fact, it did go on for over a year, as we shall see.
The concerted action under this program took the following form:
The Tank Car Stabilization Committee had A. V. Bourque, Secretary of the Western Petroleum Refiners'
Association, [Footnote 23] make a monthly survey, showing the amount of distress gasoline which each independent refiner would have during the month. From March, 1935, through February, 1936, that Committee met once a month. At these meetings, the surveys showing the amount and location of distress gasoline were presented and discussed. They usually revealed that from 600 to 800 tank cars of distress gasoline would become available during the month. Each member of the Committee present would indicate how much his company would buy, and from whom. Those companies which were not represented at the meetings were approached by the Mechanical Sub-Committee; "word was gotten to them as to the amount of gasoline that it was felt they could take in that month." Also, as we have stated, the Mechanical Sub-Committee would endeavor to find purchasers for any new distress gasoline which appeared between the meetings of the Tank Car Stabilization Committee. It would report such new surpluses to Bourque. The functions of the Mechanical Sub-Committee were apparently not restricted merely to dissemination of information to the buyers. One of its members testified that he urged the majors to buy more distress gasoline. Throughout, persuasion was apparently used to the end that all distress gasoline would be taken by the majors, and so kept from the tank car markets. As the program progressed, most of the major companies continued to buy from the same "dancing partners" with whom they had started.
One of the tasks of the Mechanical Sub-Committee was to keep itself informed as to the current prices of
gasoline and to use its persuasion and influence to see to it that the majors paid a fair going market price, and did not "chisel" on the small refiners. It did so. At its meetings during the spring of 1935, the question of the fair going market price was discussed. For example, Jacobi, a member of the Sub-Committee, testified that, at the meeting of March 14, 1935, "the sub-committee . . . arrived at what we thought was a fair market price for the week following," viz., 3 2/4¢ and 4 2/4¢. [Footnote 24] Jacobi termed these prices arrived at by the Sub-Committee as the "recommended prices." He made it a practice of recommending these prices to the major companies with which he communicated. According to his testimony, those "recommendations" were represented by him to be not the Sub-Committee's, but his own, idea. McDowell testified that he never made any such price recommendations, but, if asked, would tell the purchasing companies what his own company was paying for gasoline. [Footnote 25] Up to June 7, 1935, price "recommendations" were made five or seven times, each time the "recommended" prices constituting a price advance of 1/8¢ or 1/4¢ over the previous "recommendation." No more price "recommendations" were made in 1935. In January, 1936, there was an advance in the price of crude oil. The members of the Sub-Committee discussed the price situation and concluded that an advance of 1/2¢ a gallon of gasoline purchased under the program should be made. Jacobi made that "recommendation" to the companies on his list.
We shall discuss later the effect of this buying program on the market.
The major companies regularly reported to Bourque, the trade association representative of the Mid-Continent independent refiners, the volume of their purchases under the program and the prices paid. Representatives of one of the corporate respondents repeatedly characterized its purchases under the program as "quotas," "obligations," or "allocations." They spoke of one of its "dancing partners" under the buying program as "one of the babies placed in our lap last spring when this thing was inaugurated." And they stated that
"we don't have much choice as to whose material we are to take, when we purchase outside third grade gasoline in connection with the Buying Program Committee's operations. On such purchases, we have refineries 'assigned' to us."
This was doubtless laymen's, not lawyers,' language. As we have said, there does not appear to have been any binding commitment to purchase; the plan was wholly voluntary; there is nothing in the record to indicate that a participant would be penalized for failure to cooperate. But, though the arrangement was informal, it was nonetheless effective, as we shall see. And, as stated by the Circuit Court of Appeals, there did appear to be at least a moral obligation to purchase the amounts specified at the fair market prices "recommended." That alone would seem to explain why some of the major companies cancelled or declined to enter into profitable deals for the exchange of gasoline with other companies in order to participate in this buying program. Respondent Skelly Oil Co. apparently lost at least some of its pipeline transportation profit of 2/16¢ a gallon "on every car of gasoline" purchased by it in the buying program. And both that company and respondent Wadhams Oil Co. continued to make purchases of gasoline under the program although they were unable then to dispose of it.
Up to June, 1935, the expenses incurred by the members of the Mechanical Sub-Committee were charged to and paid by the Planning and Coordination Committee of the Code of Fair Competition for the Petroleum Industry. On May 27, 1935, this Court held, in A.L.A. Schechter Poultry Corp. v. United States, 295 U. S. 495, that the codemaking authority conferred by the National Industrial Recovery Act was an unconstitutional delegation of legislative power. Shortly thereafter, the Tank Car Stabilization Committee held a meeting to discuss their future course of action. It was decided that the buying program should continue. Accordingly, that Committee continued to meet each month through February, 1936. The procedure at these meetings was essentially the same as at the earlier ones. Gradually the buying program worked almost automatically, as contacts between buyer and seller became well established. The Mechanical Sub-Committee met at irregular intervals until December, 1935. Thereafter, it conducted its work on the telephone.
C. FORMATION AND NATURE OF THE EAST TEXAS BUYING PROGRAM
In the meetings when the Mid-Continent buying program was being formulated, it was recognized that it would be necessary or desirable to take the East Texas surplus gasoline off the market so that it would not be a "disturbing influence in the Standard of Indiana territory." The reason was that weakness in East Texas spot market prices might make East Texas gasoline competitive with Mid-Continent gasoline in the Mid-Western area, and thus affect Mid-Continent spot market prices. The tank car rate on gasoline shipments from the East Texas field to points in the Mid-Western area was about 1/8¢ a gallon higher than from the Mid-Continent field. With East Texas spot market prices more then 1/8¢ a
gallon below Mid-Continent spot market prices, there might well be a resulting depressing effect on the Mid-Continent spot market prices. [Footnote 26]
Early in 1935, the East Texas Refiners' Marketing Association was formed to dispose of the surplus gasoline manufactured by the East Texas refiners. The occasion for the formation of this Association was the stoppage of the shipment of hot oil and gasoline as a consequence of a Texas law enacted in December, 1934. As long as these refiners had operated on cheap hot oil, they had been able to compete for business throughout the Middle West. If they used legal crude at a dollar a barrel, their costs would increase. Their shift from a hot oil to a legal oil basis necessitated a change in their marketing methods. They were already supplying jobbers and dealers of Texas with all the gasoline they could use. Hence, their problem was to find additional markets for the surplus gasoline which they manufactured from legal crude. The Association was to act as the sales agency for those surpluses. Shipments north would be against the freight differential. Therefore, without regular outlets for this surplus gasoline, they would have been forced to dump it on the market at distress prices. Their plan was to persuade the major companies, if possible, to buy more East Texas gasoline and to purchase it through the Association, which would allocate it among its members who had surpluses. Neil Buckley, a buyer for Cities Service
Export Corporation in Tulsa, was recommended by one of the independents as the contact man. Buckley undertook the job. [Footnote 27]
Thus, it was not established that the major companies caused the Association to be formed. But it is clear that the services of the Association were utilized in connection with a buying program by defendant companies. The record is quite voluminous on the activities of Buckley in getting the support of the majors to the Association's program. Suffice it to say that he encountered many difficulties, most of them due to the suspicion and mistrust of the majors as a result of the earlier hot oil record of the East Texas independents. His initial task was to convince the majors of the good faith of the East Texas independents. Many conferences were had. Arnott gave help to Buckley. Thus, on March 1, 1935, Arnott wired a small group of representatives of major companies, who were buyers and users of East Texas gasoline, inviting them to attend a meeting in New York City on March 6th
"to hear outcome my meeting with East Texas refiners and to consider future action surplus gasoline this and other groups that is awaiting our decision . . . matter of extreme importance."
The problem was discussed at that meeting, [Footnote 28] but reliable information was lacking as to the probable amount of distress gasoline, the size of the independents' federal allocations, and whether or not such gasoline was going to be manufactured within
those allocations. Accordingly, Arnott appointed a committee to attend the meeting of the District Allocators [Footnote 29] on March 13th and to obtain the information. That information was obtained, and a schedule was prepared showing the probable amount of surplus gasoline in East Texas and the Gulf, the names of the regular buyers in those areas, and the amounts they might take. Arnott, on March 14th, by telegraph called another meeting in New York City for the next day, saying "The question of surplus gasoline which has been under consideration must be finalized tomorrow." At that meeting, someone (apparently a representative of respondent Sinclair) "arose with a slip of paper in his hand and stated that it had been suggested" that each of 12 to 15 major companies "take so much gasoline" from East Texas, "the amounts being read off as to what each company would take." Nothing definite was decided at the meeting. Buckley continued his efforts, talking with Arnott and representatives of other majors. It is impossible to find from the record the exact point of crystalization of a buying program. But it is clear that, as a result of Buckley's and Arnott's efforts and of the discussions at the various meetings, various major companies did come into line, and that a concerted buying program was launched. The correspondence of employees of some of the majors throughout the period in question is replete with references such as the following: "buying program in East Texas;" "our allocation of five cars per day;" "a general buying movement;" "regular weekly purchases from the East Texas group;" "allocations and purchases" in the East Texas field, and the like.
In 1935, the East Texas refiners named in the indictment sold 285,592,188 gallons of gasoline. Of this, certain defendant companies [Footnote 30] bought 40,195,754 gallons, or 14.07%. In the same year, all independent refiners in East Texas sold 378,920,346 gallons -- practically all of it on the spot market. Of this amount, those defendant companies purchased 12.03% or 45,598,453 gallons. Of the 8,797 tank cars purchased by all defendants (except Sinclair) from March, 1935, through April, 1936, from independent refiners in the East Texas field, 2,412 tank cars were purchased by the present corporate respondents.
Every Monday morning, the secretary of the East Texas association ascertained from each member the amount of his forthcoming weekly surplus gasoline and the price he wanted. He used the consensus of opinion as the asking price. He would call the major companies; they would call him. He exchanged market information with them. Orders received for less than the asking price would not be handled by the Association; rather, the secretary would refer the buyer to one of the independents, who might sell at the lower price. Very few cars were purchased through the Association by others than the major oil companies. [Footnote 31] The majors bought about 7,000 tank cars through the Association in 1935, and about 2,700 tank cars in the first four months of 1936. And, in 1935, the secretary of the Association placed an additional 1,000 tank cars by bringing the purchasers and the independent refiners together. The purchases in 1935 in East Texas were, with minor exceptions, either
at the low or slightly below the low quotation in Platt's Oilgram, following it closely as the market rose in March, April, and May, 1935; they conformed to the market as it flattened out into more or less of a plateau through the balance of 1935, with a low for third grade gasoline of 4 5/8¢. This was consistent with the policy of the buying program. For the majors were requested to purchase at the "fair going market price." [Footnote 32] And it is clear that this East Texas buying program was, as we have said, supplementary or auxiliary to the Mid-Continent program. As stated in March, 1935, in an inter-company memorandum of one of the majors:
". . . with east coast refiners having a program to purchase surplus East Texas gasoline over the next four months, we feel that still further advances can be made in the tank car market, and a resultant increase in the service station price."
D. SCOPE AND PURPOSE OF THE ALLEGED CONSPIRACY
As a result of these buying programs, it was hoped and intended that both the tank car and the retail markets would improve. The conclusion is irresistible that defendants' purpose was not merely to raise the spot market prices, but, as the real and ultimate end, to raise the price of gasoline in their sales to jobbers and consumers in the Mid-Western area. Their agreement or plan embraced not only buying on the spot markets, but also, at least by clear implication, an understanding to maintain such improvements in Mid-Western prices as would result from those purchases of distress gasoline. The latter obviously would be achieved by selling at the increased prices, not
by price-cutting. Any other understanding would have been wholly inconsistent with and contrary to the philosophy of the broad stabilization efforts which were under way. In essence, the raising and maintenance of the spot market prices were but the means adopted for raising and maintaining prices to jobbers and consumers. The broad sweep of the agreement was indicated by Arnott before a group of the industry on March 13, 1935. He described the plan as one
"whereby this whole stabilization effort of markets, the holding up of normal sales market structures, the question of the realization of refineries, the working together of those two great groups in order that we may balance this whole picture and in order that we may interest a great many buyers in this so-called surplus or homeless gasoline, can be done along organized lines. . . ."
Certainly there was enough evidence to support a finding by the jury that such were the scope and purpose of the plan.
But there was no substantial competent evidence that defendants, as charged in the indictment, induced the independent refiners to curtail their production.
E. MARKETING AND DISTRIBUTION METHODS
Before discussing the effect of these buying programs, some description of the methods of marketing and distributing gasoline in the Mid-Western area during the indictment period is necessary.
The defendant companies sold about 83% of all gasoline sold in the Mid-Western area during 1935. As we have noted, major companies, such as most of the defendants, are those whose operations are fully integrated -- producing crude oil, having pipelines for shipment of the crude to its refineries, refining crude oil, and marketing gasoline at retail and at wholesale. During the greater part of the indictment period, the defendant companies
owned and operated many retail service stations [Footnote 33] through which they sold about 20% of their Mid-Western gasoline in 1935 and about 12% during the first seven months of 1936. Standard Oil Company (Indiana) [Footnote 34] was known during this period as the price leader or market leader throughout the Mid-Western area. It was customary for retail distributors, whether independent or owned or controlled by major companies, to follow Standard's posted retail prices. Its posted retail price in any given place in the Mid-Western area was determined by computing the Mid-Continent spot market price and adding thereto the tank car freight rate from the Mid-Continent field, taxes, and 5 1/2¢. The 5 1/2¢ was the equivalent of the customary 2¢ jobber margin and 3 1/2¢ service station margin. In this manner, the retail price structure throughout the Mid-Western area during the indictment period was based, in the main, on Mid-Continent spot market quotations, [Footnote 35] or, as stated by one of the witnesses for the defendants, the spot market was a "peg to hang the price structure on."
About 24% of defendant companies' sales in the Mid-Western area in 1935 were to jobbers, who perform the function of middlemen or wholesalers. Since 1925, jobbers were purchasing less of their gasoline on the spot tank car markets and more under long-term supply contracts from major companies and independent refiners. These contracts usually ran for a year or more, and covered all of the jobber's gasoline requirements during the period. The price which the jobber was to pay over the life of the contract was not fixed, but a formula for its computation
was included. About 80% or more of defendant companies' jobber contracts provided that the price of gasoline sold thereunder should be the Mid-Continent spot market price on the date of shipment. This spot market price was to be determined by averaging the high and low spot market quotations reported in the Chicago Journal of Commerce and Platt's Oilgram or by averaging the high and low quotations reported in the Journal alone. The contracts also gave the jobber a wholly or partially guaranteed margin between the price he had to pay for the gasoline and the normal price to service stations -- customarily a 2¢ margin. [Footnote 36]
There is no central exchange or market place for spot market transactions. Each sale is the result of individual bargaining between a refiner and his customers, sales under long-term contracts not being included. It is a "spot" market because shipment is to be made in the immediate future -- usually within ten or fifteen days. Sales on the spot tank car markets are either sales to jobbers or consumers, sales by one refiner to another not being included. [Footnote 37] The prices paid by jobbers and consumers in the various spot markets are published daily
in the trade journals, Platt's Oilgram and Chicago Journal of Commerce. In the case of the Oilgram, these prices are obtained by a market checker who daily calls refiners in the various refinery areas (major companies as well as independents) and ascertains the quantity and price of gasoline which they have sold to jobbers in spot sales. [Footnote 38] After checking the prices so obtained against other sources of information (such as brokers' sales), and after considering the volume of sales reported at each price, he determines the lowest and highest prices at which gasoline is being sold to jobbers in substantial quantities on the spot market. [Footnote 39] Thus, if he finds that substantial sales are reported at 5 1/8¢, 5 1/4¢ and 5 2/8¢, the Oilgram reports a price range of 5 1/8-5 2/8¢. The result is published in the Oilgram that same day. [Footnote 40] The Chicago Journal of Commerce Publishes similar quotations the day after the sales are reported. And its quotations cover sales to industrial consumers, as well as to jobbers. But it was not shown that either journal had published prices paid by a major company as a price paid by jobbers on the tank car market.
F. THE SPOT MARKET PRICES DURING THE BUYING PROGRAM
In 1935, the 14 independent Mid-Continent refiners named in the indictment sold 377,988,736 gallons of gasoline. Of that output, the corporate respondents purchased
about 56,200,000 gallons, or approximately 15%, [Footnote 41] and the defendant companies who went to trial about 17%. The monthly purchases of all defendant companies from Mid-Continent independents from March, 1935, to April, 1936, usually ranged between 600 and 900 tank cars, and in a few months somewhat exceeded those amounts.
Major company buying began under the Mid-Continent program on March 7, 1935. During the week before that buying commenced, the Mid-Continent spot market for third grade gasoline rose 2/8¢. The low quotation on third grade gasoline was 3 1/2¢ on March 6, 1935. It rose to 4 2/4¢ early in June. That advance was evidenced by ten successive steps. The market on third grade gasoline then leveled out on a plateau which extended into January, 1936, except for a temporary decline in the low quotation late in 1935. By the middle of January, the low again had risen, this time to 5 1/4¢. It held substantially at that point until the middle of February, 1936. By the end of February, it had dropped to 5¢. It then leveled off at that low and remained there into May, 1936, when the low dropped first to 4 7/8¢ and then to 4 2/4¢. It stayed there until the first week in July, 1936. The low then rose to 4 7/8¢, maintained that level until mid-August, then started to drop until, by successive steps, it had declined to 4 1/2¢ before the middle of September. It stayed there
until early October, when it rose to 4 5/8¢, continuing at that level until middle November, when it rose to 4 2/4¢. The low remained at substantially that point throughout the balance of 1936.
During 1935, as the Mid-Continent spot market for third grade gasoline was rising, so was the East Texas spot market. And when, in June, 1935, the former leveled off for the balance of the year at a low of 4 2/4¢, the latter [Footnote 42] leveled off, as we have seen, at a low of 4 5/8¢.
During this period, there were comparable movements on the Mid-Continent spot market for regular gasoline. From a low of 4 2/8¢ on March 7, 1935, it rose to a low of 5 5/8¢ early in June, that advance being evidenced by nine successive steps. As in the case of third-grade gasoline, the market for regular gasoline then leveled out on a plateau which extended into January, 1936. By the middle of January, the low had risen to 6 1/8¢. It held at that point until the middle of February 1936. By the end of February, it had dropped to 5 7/8¢. It rose to 6¢ in the first week of March, leveled off at that low and remained there into August, 1936. By mid-August, it started to drop -- reaching 5 1/2¢ in September, going to 5 5/8¢ in October and to 5 2/4¢ in November, where it stayed through the balance of 1936.
These plateaus are clearly shown by a chart of the market journals' quotations. But that does not, of course, mean that all sales on the spot market were made between the high and the low during the period in question. As we have said, the quotations of the market journals merely indicated the range of prices (usually an eighth) within which the bulk of the gasoline was being sold. Hence, actual sales took place above the high and below
the low. Thus, between June and December, 1935, while the low for third grade gasoline remained substantially at 4 2/4¢ and the high at 4 7/8¢, jobbers' and consumers' purchases [Footnote 43] ranged from 4 2/8¢ to 5 1/8¢. A similar condition existed as respects regular gasoline.
Purchases by the major companies likewise did not always fall within the range of these quotations. In fact, between 85 and 90% of their purchases from the independent refiners were made at prices which were at or below the low quotations in the market journals. [Footnote 44]
There were few such purchases above the high and not a substantial percentage at the high. [Footnote 45]
G. JOBBER AND RETAIL PRICES DURING THE BUYING PROGRAMS
That the spot market prices controlled prices of gasoline sold by the majors to the jobbers in the Mid-Western area during the indictment period is beyond question. For, as we have seen, the vest majority of jobbers' supply contracts during that period contained price formulae which were directly dependent on the Mid-Continent spot market prices. [Footnote 46] Hence, as the latter rose, the prices to the jobbers under those contracts increased.
There was also ample evidence that the spot market prices substantially affected the retail prices in the Mid-Western area during the indictment period. As we have seen, Standard of Indiana was known during this period as the price or market leader throughout this area. It was customary for the retailers to follow Standard's posted retail prices, which had as their original base the Mid-Continent spot market price. Standard's policy was
to make changes in its posted retail price only when the spot market base went up or down at least 2/10¢ a gallon and maintained that change for a period of 7 days or more. [Footnote 47] Standard's net reduction in posted prices for the 6 months preceding March, 1935, was 1.9¢ per gallon. From March, 1935, to June, 1935, its posted retail prices were advanced 2/10¢ four times.
Retail prices in the Mid-Western area kept close step with Mid-Continent spot market prices during 1935 and 1936, though there was a short lag between advances in the spot market prices and the consequent rises in retail prices. [Footnote 48] This was true in general both of the subnormal [Footnote 49]
and normal retail prices. To be sure, when the tank car spot market leveled out on a plateau from June to the end of 1935, there was not quite the same evenness in the higher plateau of the average retail prices. For there were, during the period in question, large numbers of retail price cuts in various parts of the Mid-Western area, though they diminished substantially during the spring and summer of 1935. Yet the average service station price [Footnote 50] (less tax), having reached 13.26¢ by the middle of April (from 12.56¢ near the first of March), never once fell below that amount; advanced regularly to 13.83¢ by the middle of June; declined to 13.44¢ in August, and, after an increase to 13.60¢ during the last of the summer, remained at 13.41¢ during the balance of 1935 except for a minor intermediate drop. In sum, the contours of the retail prices conformed in general to those of the tank car spot markets. The movements of the two were not just somewhat comparable; they were strikingly similar. Irrespective of whether the tank car spot market prices controlled the retail prices in this area, there was substantial competent evidence that they influenced them -- substantially and effectively. And, in this connection, it will be recalled that, when the buying program was formulated, it was in part predicated on the proposition that a firm tank car market was necessary for a stabilization of the retail markets. As reported by one who attended the meeting on February 5, 1935, where the buying program was being discussed: "It was generally assumed that all companies would come into the picture, since a stable retail market requires a higher tank car market."
IV
. Other Circumstances Allegedly Relevant to theOffense Charged in the Indictment
The following facts or circumstances were developed at the trial by testimony or other evidence or were embraced in offers or proof made by respondents.
A. ALLEGED KNOWLEDGE AND ACQUIESCENCE
OF THE FEDERAL GOVERNMENT
Such of the following facts as were included in respondents' offers of proof were not sought to be proved in order to establish immunity from prosecution under the antitrust laws. For admittedly the authorization under the National Industrial Recovery Act necessary for such immunity [Footnote 51] had not been obtained. Rather, respondents' offers of proof were made in order to show the circumstances which, respondents argue, should be taken into consideration in order to judge the purpose, effect, and reasonableness of their activities in connection with the buying program.
Arnott testified that, on January 8 or 9, 1935, he reported the appointment of the Tank Car Stabilization Committee to officials of the Petroleum Administrative Board who, he said, expressed great interest in it. A member of that Committee, late in January, 1935, advised the chairman of that Board of the "necessity for action in getting tank car prices up before it is too late." The chairman replied that
"the tank car situation in relation to the price of crude is one about which we have no disagreement. How to bring about a correction is the stumbling block."
There was evidence that at least general information concerning the meetings of the Tank Car Stabilization Committee was given a representative of the Board in February, 1935. In March, 1935, the Code
authorities, with the approval of the Administrator, asked the major companies to curtail their manufacture of gasoline during that month by 1,400,000 barrels. The purpose was said to be to aid the small refiners by forcing the majors to buy part of their requirements from them. A voluntary curtailment of some 960,000 barrels was made.
On March 12, 1935, Arnott saw the Chairman and at least one other representative of the Board. Among other things, the buying programs were discussed. Arnott did not ask for the Board's approval of these programs, nor its "blessing." A representative of the Board testified that Arnott told them that he was conducting those buying programs "on his own responsibility." Arnott denied this. The Chairman of the Board asked Arnott if the programs violated the antitrust laws. Arnott said he did not believe they did, and described what his group was doing. Arnott testified that he felt that the Board thought the program was sound, and hoped it would work, and that, if he had thought they disapproved, he would have discontinued his activities. There was no evidence that the Board told Arnott to discontinue the program. But, on March 13, 1935, Arnott, in addressing the District Allocators' meeting said, respecting these buying programs:
"I am perfectly conscious that we have made other efforts at times to have this question dealt with. It has always been done in group form. That has involved agreements, group agreements. Those of us who have had anything to do whatsoever with the whole national picture, who have come to Washington and have had any experience with the PAB and eventually the Department of Justice, know just how long that road is, and for some good reason, or for some unknown reason, or for no reason
at all, those agreements seem to have disappeared; those outstanding attempts -- and they were really sincere and worthy attempts -- have disappeared in a sort of cloud of mystery, and I don't think I, for one, or anybody else can tell you just where they have gone -- they are out of our minds, they are completed, they are finished, and we are not interested."
Respondents also offered to prove that a committee of the industry (the Blazer Committee) appointed by the Administrator to study the condition of the small units in the industry, made a report to him in March, 1935, which stated, inter alia, as a recommendation:
"We know of nothing, apart from continued improvement in crude production control, which would be so helpful to the tank-car price of gasoline at this time as the substantial buying of distress gasoline by major companies. We understand a program of this sort is being considered by the Industry now in connection with a broad stabilization program. We therefore urge that the Administrator give it his approval and active support. [Footnote 52]"
They also offered a memorandum dated March 22, 1935, from the Chairman of the Petroleum Administrative
Board to the Administrator [Footnote 53] commenting on the above report and making the following suggestion:
"We believe success in Code administration, assuming that it is to continue, requires that some of the recommendations made should be adopted -- e.g., we have encouraged stabilization efforts designed at this time to aid the independent refiner. . . ."
On April 2, 1935, the Administrator wrote Arnott, referred to his letter of July 20, 1934, and stated, inter alia:
"The matter that at present concerns me is the necessity of complying with the requirements of the basic law. In authorizing the formulation of a stabilization program, I necessarily conditioned the authority granted, by providing that the requirements of Clause 2 of Subsection (a) of Section 3 of the National Industrial Recovery Act should be observed. I know you will appreciate that agreements between supplying companies which might be in conflict with the antitrust laws of the United States require specific approval after due consideration if companies are to receive the protection afforded by Sections 4 and 5 of the National Industrial Recovery Act. "
"I understand that the temporary character of a number of situations and the need for immediate action has made formalized agreements impracticable, and, in a number of instances, they may be unnecessary. However, when the understandings arrived at as bases of solution of price wars affecting the industry over a considerable area are intended to operate over a definite period of time or involve substantial changes in the policy of the various supplying companies made only in consideration of similar action on the part of other companies, it is necessary that the procedure required by the Recovery Act be followed in order that the arrangement be legal. If any such agreements have been made, I should like a report as to them. If they require approval to be effective . . . , I should be glad to give consideration to them under the provisions of the Act."
On April 22, 1935, the Petroleum Administrative Board wrote a letter to Arnott imposing three conditions on general stabilization work: (1) there should be no stabilization meeting without a representative of the Board being present; (2) every element in the industry should be heard from before any decisions were made; (3) no general instructions should be given under the July 20, 1934, letter. A meeting of Arnott's committee and members of the Board was held on May 8, 1935. A representative of the Board testified that they called Arnott "on the carpet to request him to explain" to them "what he had been doing." Arnott's group considered the conditions imposed by the Board quite impossible. The Board assigned two of its staff to work the problem out with one of Arnott's men. According to the testimony of one of the representatives of the Board at that meeting, Arnott
did not ask for the Board's approval of the buying programs -- nothing being said "one way or the other, about approval or disapproval." And he testified that Arnott in substance was told at that meeting by the Board's Chairman that the letter of July 20, 1934, from the Administrator to Arnott (quoted supra, p. 310 U. S. 175) did not give authority to conduct any buying program, [Footnote 54] and that Arnott said he was not relying on that letter for approval. Arnott, however, testified that he recalled no such statement made by the Board's Chairman. Apparently, however, Arnott, in answer to questions, gave a general explanation of the buying programs, stating that the majors were continuing informally to buy, that there was no pool, that no one was obliged to make purchases, that they were trying to lift from independent refiners distress gasoline which was burdening the market. [Footnote 55]
Respondents also offered to prove that, on May 14, 1935, the Chairman of the Petroleum Administrative Board asked Arnott to undertake to stabilize the Pennsylvania refinery market in the way that he had stabilized the Mid-Continent refinery market; that, in connection with this request, the Board evinced support and approval
of the Mid-Continent buying program, and that Arnott undertook to do what he could in the matter and called a meeting of the Pennsylvania refiners for May 28, 1935. Apparently the Schechter decision terminated that undertaking.
Respondents also offered portions of a final report [Footnote 56] prepared by the Marketing Division of the Petroleum Administrative Board which discussed the work of the General Stabilization Committee, [Footnote 57] saying, inter alia:
"One of the most important was the tank-car committee, which attempted to get the tank-car market raised more in line with the price of crude recovery cost on the theory that a firm tank-car market was essential to a stabilized retail structure."
And respondents offered testimony of a member of the Board before a Senate Committee in 1937 respecting the "buying pool efforts, that began in December of 1933 and continued from then on during the entire period of the Petroleum Code." That testimony was:
"It was an effort of the Department and the industrial committees to bring about the normal relationship between gasoline prices and crude oil prices, in order to permit the independent, non integrated, refiner to be able to operate without loss."
In sum, respondents by this and similar evidence offered to establish that the Petroleum Administrative Board knew of the buying programs and acquiesced in them. And respondents by those facts, together with those discussed under 310 U. S. supra, undertook to show that their objective under the buying programs were in line
with those of the Federal government under the Code: to keep the price of crude oil at a minimum of $1 a barrel; to restore the wholesale price level of gasoline at the refinery to a parity with crude oil; to stabilize retail prices at a normal spread between the refinery price and the retail price.
B. OTHER FACTORS ALLEGED TO HAVE CAUSED OR CONTRIBUTED
TO THE RISE IN THE SPOT MARKET
Respondents do not contend that the buying programs were not a factor in the price rise and in the stabilization of the spot markets during 1935 and 1936. But they do contend that they were relatively minor ones, because of the presence of other economic forces such as the following:
1. Control of production of crude oil
Under the Code, an attempt was made for the first time to balance the production of crude oil with the consumptive demand for gasoline. Monthly estimates of gasoline consumption would be made by the Bureau of Mines. The quantity of crude oil necessary to satisfy that demand was also estimated, broken down into allowables for each state, and recommended to the states. And there was evidence that the states would approximately conform to those recommendations. After the Code, the oil states continued the same practice under an Interstate Compact which permitted them to agree as to the quantities of crude oil which they would allow to be produced. [Footnote 58]
2. Connally Act
As we have noted, this law was enacted late in February, 1935, and began to be effective the first part of March, 1935. Prior to this act, control of hot oil by the states
had not been effective for any extended period of time. Throughout 1933 and 1934, from 150,000 to 200,000 barrels of crude oil a day were estimated to have been produced in East Texas in excess of the state's allowables, much of it going into interstate commerce. After the Connally Act went into operation, no hot gasoline went into interstate commerce, according to respondents' evidence.
3. $1 Crude oil
As we have noted, crude oil was brought to a dollar a barrel near the end of September, 1933. Before the Connally Act, however, hot oil flooded the market at substantially lower prices. Gasoline produced from hot oil forced the price of gasoline produced from crude oil down below cost. But, with the elimination of the hot oil, fluctuations in the price of crude ceased. This had a stabilizing effect on the price of gasoline.
4. Increase in consumptive demand
Beginning in the spring of 1935, there was an increase in demand for gasoline. During the whole indictment period, every month showed an increase over the corresponding month in the previous year. For the entire year of 1935, consumption for the country as a whole was 7% more than for 1934; that for 1936 was about 10% over 1935 -- substantially the same increases taking place in the Mid-Western area.
5. Control of inventory withdrawal and of manufacture of gasoline
Under the Code, crude oil could be withdrawn from storage only with the approval of the Administrator. Also, under the Code, there were manufacturing quotas for gasoline which, through Code authorities, were allocated among the refiners. In March, 1935, as we have seen, gasoline inventories of the majors were reduced by over
900,000 barrels through a voluntary curtailment program. The demand was so heavy that the industry withdrew from storage and refined over 22,000,000 barrels of crude oil in storage in 1935. Further, imports of crude oil were limited by order of the Administrator.
6. Improved business conditions
The years 1935 and 1936 were marked by improving general business conditions and rising prices everywhere.
Much testimony was taken on these and related points. It was designed to show that, under the conditions which existed during the indictment period, stability in the market was to be expected from the play of these various economic forces. For it was argued that, by reason of those forces, supply and demand were brought into a reasonable continuing balance with the resultant stabilization of the markets. And there was much testimony from respondents' witnesses that the above factors, as well as the buying programs, did contribute to price stability during this period. But no witness assumed to testify as to how much of a factor the buying program had been.
V
. Application of the Sherman ActA. CHARGE TO THE JURY
The court charged the jury that it was a violation of the Sherman Act for a group of individuals or corporations to act together to raise the prices to be charged for the commodity which they manufactured where they controlled a substantial part of the interstate trade and commerce in that commodity. The court stated that, where the members of a combination had the power to raise prices and acted together for that purpose, the combination was illegal, and that it was immaterial how reasonable or unreasonable those prices were or to what extent they had been affected by the combination. It further charged that, if such illegal combination existed,
it did not matter that there may also have been other factors which contributed to the raising of the prices. In that connection, it referred specifically to the economic factors which we have previously discussed and which respondents contended were primarily responsible for the price rise and the spot markets' stability in 1935 and 1936 -- viz., control of production, the Connally Act, the price of crude oil, an increase in consumptive demand, control of inventories and manufacturing quotas, and improved business conditions. The court then charged that, unless the jury found beyond a reasonable doubt that the price rise and its continuance were "caused" by the combination and not caused by those other factors, verdicts of "not guilty" should be returned. It also charged that there was no evidence of governmental approval which would exempt the buying programs from the prohibitions of the Sherman Act, and that knowledge or acquiescence of officers of the government or the good intentions of the members of the combination would not give immunity from prosecution under that Act.
The Circuit Court of Appeals held this charge to be reversible error, since it was based upon the theory that such a combination was illegal per se. In its view, respondents' activities were not unlawful unless they constituted an unreasonable restraint of trade. Hence, since that issue had not been submitted to the jury, and since evidence bearing on it had been excluded, that court reversed and remanded for a new trial so that the character of those activities and their effect on competition could be determined. In answer to the government's petition, respondents here contend that the judgment of the Circuit Court of Appeals was correct, since there was evidence that they had affected prices only in the sense that the removal of the competitive evil of distress gasoline by the buying programs had permitted prices to rise to a normal competitive level; that their activities promoted, rather
than impaired, fair competitive opportunities, and therefore that their activities had not unduly or unreasonably restrained trade. And they also contend that certain evidence which was offered should have been admitted as bearing on the purpose and end sought to be attained, the evil believed to exist, and the nature of the restraint and its effect. By their cross-petition, respondents contend that the record contains no substantial competent evidence that the combination, either in purpose or effect, unreasonably restrained trade within the meaning of the Sherman Act, and therefore that the Circuit Court of Appeals erred in holding that they were not entitled to directed verdicts of acquittal.
In United States v. Trenton Potteries Co., 273 U. S. 392, this Court sustained a conviction under the Sherman Act where the jury was charged that an agreement on the part of the members of a combination, controlling a substantial part of an industry, upon the prices which the members are to charge for their commodity is, in itself, an unreasonable restraint of trade without regard to the reasonableness of the prices or the good intentions of the combining units. There, the combination was composed of those who controlled some 82 percent of the business of manufacturing and distributing in the United States vitreous pottery. Their object was to fix the prices for the sale of that commodity. In that case, the trial court refused various requests to charge that the agreement to fix prices did not itself constitute a violation of law unless the jury also found that it unreasonably restrained interstate commerce. This Court reviewed the various price-fixing cases under the Sherman Act, beginning with United States v. Trans-Missouri Freight Assn., 166 U. S. 290, and United States v. Joint Traffic Assn., 171 U. S. 505, and said
". . . it has since often been decided and always assumed that uniform
price-fixing by those controlling in any substantial manner a trade or business in interstate commerce is prohibited by the Sherman Law, despite the reasonableness of the particular prices agreed upon."
(P. 273 U. S. 398) This Court pointed out that the so-called "rule of reason" announced in Standard Oil Co. v. United States, 221 U. S. 1, and in United States v. American Tobacco Co., 221 U. S. 106, had not affected this view of the illegality of price-fixing agreements. And, in holding that agreements "to fix or maintain prices" are not reasonable restraints of trade under the statute merely because the prices themselves are reasonable, it said (pp. 273 U. S. 397):
"The aim and result of every price-fixing agreement, if effective, is the elimination of one form of competition. The power to fix prices, whether reasonably exercised or not, involves power to control the market and to fix arbitrary and unreasonable prices. The reasonable price fixed today may. through economic and business changes. become the unreasonable price of tomorrow. Once established, it may be maintained unchanged because of the absence of competition secured by the agreement for a price reasonable when fixed. Agreements which create such potential power may well be held to be in themselves unreasonable or unlawful restraints, without the necessity of minute inquiry whether a particular price is reasonable or unreasonable as fixed and without placing on the government in enforcing the Sherman Law the burden of ascertaining from day to day whether it has become unreasonable through the mere variation of economic conditions. Moreover, in the absence of express legislation requiring it, we should hesitate to adopt a construction making the difference between legal and illegal conduct in the field of business relations depend upon so uncertain a test as whether prices are reasonable -- a determination which can be satisfactorily made
only after a complete survey of our economic organization and a choice between rival philosophies."
In conclusion, this Court emphasized that the Sherman Act is not only a prohibition against the infliction of a particular type of public injury, but also, as stated in Standard Sanitary Mfg. Co. v. United States, 226 U. S. 20, 226 U. S. 49, a "limitation of rights" which may be "pushed to evil consequences, and therefore restrained."
But respondents claim that other decisions of this Court afford them adequate defenses to the indictment. Among those on which they place reliance are Appalachian Coals, Inc. v. United States, 288 U. S. 344; Sugar Institute, Inc. v. United States, 297 U. S. 553; Maple Flooring Mfrs.' Assn. v. United States, 268 U. S. 563; Cement Mfrs.' Protective Assn. v. United States, 268 U. S. 588; Chicago Board of Trade v. United States, 246 U. S. 231, and the American Tobacco and Standard Oil cases, supra.
But we do not think that line of cases is apposite. As clearly indicated in the Trenton Potteries case, the American Tobacco and Standard Oil cases have no application to combinations operating directly on prices or price structures.
And we are of the opinion that Appalachian Coals, Inc. v. United States, supra, is not in point.
In that case, certain producers of bituminous coal created an exclusive selling agency for their coal. The agency was to establish standard classifications and sell the coal of its principals at the best prices obtainable. The occasion for the formation of the agency was the existence of certain so-called injurious practices and conditions in the industry. One of these was the problem of "distress coal" -- coal shipped to the market which was unsold at the time of delivery and therefore dumped on the market irrespective of demand. The agency was to promote the systematic study of the marketing and distribution
of coal, its demand and consumption; to maintain an inspection and an engineering department to demonstrate to customers the advantages of this type of coal and to promote an extensive advertising campaign; to provide a research department to demonstrate proper and efficient methods of burning coal, and thus to aid producers in their competition with substitute fuels; to operate a credit department dealing with the reliability of purchasers, and to make the sale of coal more economical. That agency was also to sell all the coal of its principals at the best prices obtainable and, if all could not be sold, to apportion orders upon a stated basis. And, save for certain stated exceptions, it was to determine the prices at which sales would be made without consultation with its principals. This Court concluded that, so far as actual purpose was concerned, the defendant producers were engaged in a "fair and open endeavor to aid the industry in a measurable recovery from its plight." And it observed that the plan did not either contemplate or involve "the fixing of market prices;" that defendants would not be able to fix the price of coal in the consuming markets; that their coal would continue to be subject to "active competition." To the contention that the plan would have a tendency to stabilize market prices and to raise them to a higher level, this Court replied (p. 288 U. S. 374):
"The fact that the correction of abuses may tend to stabilize a business, or to produce fairer price levels, does not mean that the abuses should go uncorrected, or that cooperative endeavor to correct them necessarily constitutes an unreasonable restraint of trade. The intelligent conduct of commerce through the acquisition of full information of all relevant facts may properly be sought by the cooperation of those engaged in trade, although stabilization of trade and more reasonable prices may be the result. "
In distinguishing the Trenton Potteries case, this Court said (p. 288 U. S. 375):
"In the instant case there is, as we have seen, no intent or power to fix prices, abundant competitive opportunities will exist in all markets where defendants' coal is sold, and nothing has been shown to warrant the conclusion that defendants' plan will have an injurious effect upon competition in these markets."
Thus, in reality, the only essential thing in common between the instant case and the Appalachian Coals case is the presence in each of so-called demoralizing or injurious practices. The methods of dealing with them were quite divergent. In the instant case, there were buying programs of distress gasoline which had as their direct purpose and aim the raising and maintenance of spot market prices and of prices to jobbers and consumers in the Mid-Western area by the elimination of distress gasoline as a market factor. The increase in the spot market prices was to be accomplished by a well organized buying program on that market: regular ascertainment of the amounts of surplus gasoline; assignment of sellers among the buyers; regular purchases at prices which would place and keep a floor under the market. Unlike the plan in the instant case, the plan in the Appalachian Coals case was not designed to operate vis a vis the general consuming market and to fix the prices on that market. Furthermore, the effect, if any, of that plan on prices was not only wholly incidental, but also highly conjectural. For the plan had not then been put into operation. Hence, this Court expressly reserved jurisdiction in the District Court to take further proceedings if, inter alia, in "actual operation" the plan proved to be "an undue restraint upon interstate commerce." And as we have seen it would per se constitute such a restraint if price-fixing were involved.
Nor are Maple Flooring Mfrs.' Assn. v. United States and Cement Mfrs.' Protective Assn. v. United States, supra, at all relevant to the problem at hand. For the systems there under attack were methods of gathering and distributing information respecting business operations. It was noted in those cases that there was not present any agreement for price-fixing. And they were decided, as indicated in the Trenton Potteries case, on the express assumption that any agreement for price-fixing would have been illegal per se. And since that element was lacking, the only issues were whether or not on the precise facts there presented such activities of the combinations constituted unlawful restraints of commerce. A majority of the Court held that they did not.
Nor can respondents find sanction in Chicago Board of Trade v. United States, supra, for the buying programs here under attack. That case involved a prohibition on the members of the Chicago Board of Trade from purchasing or offering to purchase between the closing of the session and its opening the next day grains (under a special class of contracts) at a price other than the closing bid. The rule was somewhat akin to rules of an exchange limiting the period of trading, for, as stated by this Court, the "restriction was upon the period of price-making." No attempt was made to show that the purpose or effect of the rule was to raise or depress prices. The rule affected only a small proportion of the commerce in question. And among its effects was the creation of a public market for grains under that special contract class where prices were determined competitively and openly. Since it was not aimed at price manipulation or the control of the market prices, and since it had "no appreciable effect on general market prices," the rule survived as a reasonable restraint of trade.
There was no deviation from the principle of the Trenton Potteries case in Sugar Institute, Inc. v. United States,
supra. For, in that case, so-called competitive abuses were not permitted as defenses to violations of the Sherman Act bottomed on a trade association's efforts to create and maintain a uniform price structure.
Thus, for over forty years, this Court has consistently and without deviation adhered to the principle that price-fixing agreements are unlawful per se under the Sherman Act, and that no showing of so-called competitive abuses or evils which those agreements were designed to eliminate or alleviate may be interposed as a defense. And we reaffirmed that well established rule in clear and unequivocal terms in Ethyl Gasoline Corp. v. United States, 309 U. S. 436, where we said:
"Agreements for price maintenance of articles moving in interstate commerce are, without more, unreasonable restraints within the meaning of the Sherman Act because they eliminate competition, United States v. Trenton Potteries Co., 273 U. S. 392, and agreements which create potential power for such price maintenance exhibited by its actual exertion for that purpose are in themselves unlawful restraints within the meaning of the Sherman Act. . . ."
Therefore, the sole remaining question on this phase of the case is the applicability of the rule of the Trenton Potteries case to these facts.
Respondents seek to distinguish the Trenton Potteries case from the instant one. They assert that, in that case, the parties substituted an agreed-on price for one determined by competition; that the defendants there had the power and purpose to suppress the play of competition in the determination of the market price, and therefore that the controlling factor in that decision was the destruction of market competition, not whether prices were higher or lower, reasonable or unreasonable. Respondents contend that, in the instant case, there was no elimination in the spot tank car market of competition
which prevented the prices in that market from being made by the play of competition in sales between independent refiners and their jobber and consumer customers; that, during the buying programs, those prices were in fact determined by such competition; that the purchases under those programs were closely related to or dependent on the spot market prices; that there was no evidence that the purchases of distress gasoline under those programs had any effect on the competitive market price beyond that flowing from the removal of a competitive evil, and that, if respondents had tried to do more than free competition from the effect of distress gasoline and to set an arbitrary noncompetitive price through their purchases, they would have been without power to do so.
But we do not deem those distinctions material.
In the first place, there was abundant evidence that the combination had the purpose to raise prices. And likewise there was ample evidence that the buying programs at least contributed to the price rise and the stability of the spot markets, and to increases in the price of gasoline sold in the Mid-Western area during the indictment period. That other factors also may have contributed to that rise and stability of the markets is immaterial. For, in any such market movement, forces other than the purchasing power of the buyers normally would contribute to the price rise and the market stability. So far as cause and effect are concerned, it is sufficient in this type of case if the buying programs of the combination resulted in a price rise and market stability which, but for them, would not have happened. For this reason, the charge to the jury that the buying programs must have "caused" the price rise and its continuance was more favorable to respondents than they could have required. Proof that there was a conspiracy, that its purpose was to raise prices, and that it caused or contributed to a price rise
is proof of the actual consummation or execution of a conspiracy under § 1 of the Sherman Act.
Secondly, the fact that sales on the spot markets were still governed by some competition is of no consequence. For it is indisputable that that competition was restricted through the removal by respondents of a part of the supply which, but for the buying programs, would have been a factor in determining the going prices on those markets. But the vice of the conspiracy was not merely the restriction of supply of gasoline by removal of a surplus. As we have said, this was a well organized program. The timing and strategic placement of the buying orders for distress gasoline played an important and significant role. Buying orders were carefully placed so as to remove the distress gasoline from weak hands. Purchases were timed. Sellers were assigned to the buyers so that regular outlets for distress gasoline would be available. The whole scheme was carefully planned and executed to the end that distress gasoline would not overhang the markets and depress them at any time. And, as a result of the payment of fair going market prices, a floor was placed and kept under the spot markets. Prices rose and jobbers and consumers in the Mid-Western area paid more for their gasoline than they would have paid but for the conspiracy. Competition was not eliminated from the markets, but it was clearly curtailed, since restriction of the supply of gasoline, the timing and placement of the purchases under the buying programs, and the placing of a floor under the spot markets obviously reduced the play of the forces of supply and demand.
The elimination of so-called competitive evils is no legal justification for such buying programs. The elimination of such conditions was sought primarily for its effect on the price structures. Fairer competitive prices, it is claimed, resulted when distress gasoline was removed from the market. But such defense is typical of the protestations
usually made in price-fixing cases. Ruinous competition, financial disaster, evils of price-cutting, and the like appear throughout our history as ostensible justifications for price-fixing. If the so-called competitive abuses were to be appraised here, the reasonableness of prices would necessarily become an issue in every price-fixing case. In that event, the Sherman Act would soon be emasculated; its philosophy would be supplanted by one which is wholly alien to a system of free competition; it would not be the charter of freedom which its framers intended.
The reasonableness of prices has no constancy due to the dynamic quality of the business facts underlying price structures. Those who fixed reasonable prices today would perpetuate unreasonable prices tomorrow, since those prices would not be subject to continuous administrative supervision and readjustment in light of changed conditions. Those who controlled the prices would control or effectively dominate the market. And those who were in that strategic position would have it in their power to destroy or drastically impair the competitive system. But the thrust of the rule is deeper, and reaches more than monopoly power. Any combination which tampers with price structures is engaged in an unlawful activity. Even though the members of the price-fixing group were in no position to control the market, to the extent that they raised, lowered, or stabilized prices, they would be directly interfering with the free play of market forces. The Act places all such schemes beyond the pale, and protects that vital part of our economy against any degree of interference. Congress has not left with us the determination of whether or not particular price-fixing schemes are wise or unwise, healthy or destructive. It has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies. It has no more allowed genuine or fancied
competitive abuses as a legal justification for such schemes than it has the good intentions of the members of the combination. If such a shift is to be made, it must be done by the Congress. Certainly Congress has not left us with any such choice. Nor has the Act created or authorized the creation of any special exception in favor of the oil industry. Whatever may be its peculiar problems and characteristics, the Sherman Act, so far as price-fixing agreements are concerned, establishes one uniform rule applicable to all industries alike. There was accordingly no error in the refusal to charge that in order to convict the jury must find that the resultant prices were raised and maintained at "high, arbitrary and noncompetitive levels." The charge in the indictment to that effect was surplusage.
Nor is it important that the prices paid by the combination were not fixed in the sense that they were uniform and inflexible. "Price-fixing," as used in the Trenton Potteries case, has no such limited meaning. An agreement to pay or charge rigid, uniform prices would be an illegal agreement under the Sherman Act. But so would agreements to raise or lower prices whatever machinery for price-fixing was used. That price-fixing includes more than the mere establishment of uniform prices is clearly evident from the Trenton Potteries case itself, where this Court noted with approval Swift & Co. v. United States, 196 U. S. 375, in which a decree was affirmed which restrained a combination from "raising or lowering prices or fixing uniform prices" at which meats will be sold. Hence, prices are fixed within the meaning of the Trenton Potteries case if the range within which purchases or sales will be made is agreed upon, if the prices paid or charged are to be at a certain level or on ascending or descending scales, if they are to be uniform, or if, by various formulae, they are related to the market prices. They are fixed because they are agreed upon. And the
fact that, as here, they are fixed at the fair going market price is immaterial. For purchases at or under the market are one species of price-fixing. In this case, the result was to place a floor under the market -- a floor which served the function of increasing the stability and firmness of market prices. That was repeatedly characterized in this case as stabilization. But, in terms of market operations, stabilization is but one form of manipulation. And market manipulation in its various manifestations is implicitly an artificial stimulus applied to (or at times a brake on) market prices, a force which distorts those prices, a factor which prevents the determination of those prices by free competition alone. Respondents, however, argue that there was no correlation between the amount of gasoline which the major companies were buying and the trend of prices on the spot markets. They point to the fact that such purchasing was lightest during the period of the market rise in the spring of 1935 and heaviest in the summer and early fall of 1936, when the prices declined, and that it decreased later in 1936, when the prices rose. But those facts do not militate against the conclusion that these buying programs were a species of price-fixing or manipulation. Rather, they are wholly consistent with the maintenance of a floor under the market, or a stabilization operation of this type, since the need for purchases under such a program might well decrease as prices rose and increase as prices declined.
As we have indicated, the machinery employed by a combination for price-fixing is immaterial.
Under the Sherman Act, a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se. Where the machinery for price-fixing is an agreement on the prices to be charged or paid for the commodity in the interstate or foreign channels of trade, the power to fix prices exists
if the combination has control of a substantial part of the commerce in that commodity. Where the means for price-fixing are purchases or sales of the commodity in a market operation or, as here, purchases of a part of the supply of the commodity for the purpose of keeping it from having a depressive effect on the markets, such power may be found to exist though the combination does not control a substantial part of the commodity. In such a case, that power may be established if, as a result of market conditions, the resources available to the combinations, the timing and the strategic placement of orders and the like, effective means are at hand to accomplish the desired objective. But there may be effective influence over the market though the group in question does not control it. Price-fixing agreements may have utility to members of the group though the power possessed or exerted falls far short of domination and control. Monopoly power (United States v. Patten, 226 U. S. 525) is not the only power which the Act strikes down, as we have said. Proof that a combination was formed for the purpose of fixing prices, and that it caused them to be fixed or contributed to that result, is proof of the completion of a price-fixing conspiracy under § 1 of the Act. [Footnote 59] The indictment in this case charged that this combination had that purpose and effect. And there was abundant evidence to support it. Hence, the existence of power on the part of members of the combination to fix prices was but a conclusion from the finding that the buying programs caused or contributed to the rise and stability of prices.
As to knowledge or acquiescence of officers of the Federal government, little need be said. The fact that Congress, through utilization of the precise methods here employed, could seek to reach the same objective sought by respondents does not mean that respondents or any other
group may do so without specific Congressional authority. Admittedly no approval of the buying programs was obtained under the National Industrial Recovery Act prior to its termination on June 16, 1935 (§ 2(c)) which would give immunity to respondents from prosecution under the Sherman Act. Though employees of the government may have known of those programs and winked at them or tacitly approved them, no immunity would have thereby been obtained. For Congress had specified the precise
manner and method of securing immunity. None other would suffice. Otherwise, national policy on such grave and important issues as this would be determined not by Congress nor by those to whom Congress had delegated authority, but by virtual volunteers. The method adopted by Congress for alleviating the penalties of the Sherman Act through approval by designated public representatives [Footnote 60] would be supplanted by a foreign system. But even had approval been obtained for the buying programs, that approval would not have survived the expiration in June, 1935, of the Act which was the source of that approval. As we have seen, the buying program continued unabated during the balance of 1935 and far into 1936. As we said in United States v. Borden Co., 308 U. S. 188, 308 U. S. 202, "[a] conspiracy thus continued is in effect renewed during each day of its continuance." Hence, approval or knowledge and acquiescence of federal authorities prior to June, 1935, could have no relevancy to respondents' activities subsequent thereto. The fact that the buying programs may have been consistent with the
general objectives and ends sought to be obtained under the National Industrial Recovery Act is likewise irrelevant to the legality under the Sherman Act of respondents' activities either prior to or after June, 1935. For, as we have seen, price-fixing combinations which lack Congressional sanction are illegal per se; they are not evaluated in terms of their purpose, aim, or effect in the elimination of so-called competitive evils. Only in the event tha