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UNITED STATES v. JOHNS-MANVILLE CORP.

September 29, 1966

United States of America
v.
Johns-Manville Corporation


Van Dusen, J.


The opinion of the court was delivered by: VAN DUSEN

VAN DUSEN, J..

 This case is before the court on the motion of Johns-Manville Corporation (hereinafter J-M or defendant) for summary judgment under F.R. Civ. P. 56 (Document 87).

 On July 25, 1962, the United States Government filed a Complaint under § 4 of the Sherman Anti-Trust Act (15 U.S.C. § 4) against J-M, Keasbey & Mattison Company (hereinafter K & M) and Certain-teed Products Corporation (hereinafter Certain-teed), seeking injunctive relief against alleged violations of §§ 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2). The Complaint alleges that the above-named companies combined and conspired in unreasonable restraint of, and to monopolize, interstate and foreign trade and commerce, and that defendants have attempted to monopolize the aforesaid interstate and foreign trade and commerce in asbestos-cement pipe and couplings (Document 1).

 K & M sold its asbestos-cement pipe and coupling business to Certain-teed on or about April 16, 1962 (Document 37, par. 5). On December 22, 1964, this court granted K & M's motion for summary judgment, principally because that company had abandoned its business activity in the asbestos-cement pipe and coupling field and there was a lack of evidence of any probability that it would ever resume it. United States v. Johns-Manville Corporation, 237 F. Supp. 885 (E.D. Pa. 1964). Certain-teed's Motion for Summary Judgment was granted on August 10, 1965, principally because there was no evidence showing that that company (which had been in the asbestos-cement pipe and coupling business for only two months before the complaint in this case was filed) had joined in any illegal activities in which J-M and K & M might have been involved. United States v. Johns-Manville Corporation, 245 F. Supp. 74 (E.D. Pa. 1965).

 The documents which constitute the record in this case are enumerated in the margin. *fn1" Rulings on the motions of both parties to strike certain portions of the Gerin and Hogan depositions, plaintiff's motions to strike certain portions of the defendant's affidavits filed in support of the instant Motion, and plaintiff's supplemental motions to strike certain portions of affidavits filed in support of Certain-teed's Motion for Summary Judgment are set forth in Appendix A to this opinion. *fn2"

 As noted above, the Government has charged J-M with violation of both §§ 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2). Under § 1, the Government alleges a two-pronged conspiracy: first, a conspiracy with other domestic producers (chiefly K & M and later Certain-teed) to maintain domestic asbestos-cement (hereinafter a-c) pipe prices at a uniform level, and second, a conspiracy among the same companies to keep foreign-made a-c pipe out of the United States market. The latter aspect of the conspiracy is subdivided into two parts: first, a campaign to promote the adoption by the American Society for Testing Materials (ASTM), the American Water Works Association (AWWA), and municipal authorities of certain restrictive specifications for a-c pipe for the sole purpose of excluding foreign-made pipe, which does not meet such specifications, and, second, miscellaneous concerted activities designed and intended to exclude foreign pipe.

 Under § 2 the Government alleges that J-M and co-conspirators have attempted to monopolize interstate and foreign commerce in a-c pipe.

 I. Alleged Conspiracy to Fix Prices

 In ruling on the defendants' motion for acquittal in the companion criminal case ( United States v. Johns-Manville Corporation, et al., 231 F. Supp. 690), this court found that there was evidence in the record which would support a jury finding that J-M and K & M agreed on prices during the period 1954-1959. *fn3" United States v. Johns-Manville Corporation, 231 F. Supp. 690, 696 (E.D. Pa. 1964). The record in this case contains no direct evidence of any price-fixing activity since that period. *fn4" In order to show, as it must in this suit for an injunction, that the defendant is engaged in a presently existing conspiracy to maintain prices on a-c pipe and couplings, the Government relies upon evidence of alleged identical list prices maintained by J-M and K & M up until 1962 and thereafter by J-M and Certain-teed (brief for plaintiff, p. 9). In short, the Government contends that evidence of conspiratorial behavior occurring about four years before the filing of the Complaint and eight or nine years before the filing of the instant Motion for Summary Judgment, plus a continued identity of book prices, establish a continuing conspiracy to fix prices.

 As to the alleged continued identity of book prices, there is no evidence in this record that J-M and Certain-teed or any other domestic producer are currently using identical price lists. *fn5" However, assuming that J-M and Certain-teed are using the same list prices, there is testimony in the record that it was K & M's policy to follow the J-M book prices (Reichel Deposition, p. 93; N.T. 10,551), and that Certain-teed continued the pricing policy which had been employed by K & M (Reichel Deposition, pp. 66-67). There is also in the record expert testimony that the only practicable course for a small producer like K & M or Certain-teed in an oligopolistic market is to follow the prices of the larger producer (N.T. 11,069-73). It is well settled that evidence of consciously parallel pricing will not alone support a finding of conspiracy under the Sherman Act. United States v. Johns-Manville Corporation, 245 F. Supp. 74, 80 (E.D. Pa. 1965), and cases there cited.

 The crucial flaw in the Government's price-fixing case, however, is that the record fails to deny or explain the defendant's evidence on transaction prices, i.e., the prices at which sales were actually made as opposed to the official list prices. There is massive and convincing evidence in the record that since 1958, the last year for which there is any direct evidence of meetings between J-M and K & M representatives, *fn6" J-M has made a considerable portion of its sales at "off-book" prices, i.e., prices which are below those listed in the official J-M price sheets. This evidence demonstrates two things: (1) that there is vigorous price competition among domestic a-c pipe producers, and (2) that it is extremely unlikely that such producers are currently involved in a price-fixing conspiracy.

 Whenever a J-M district manager permits his salesmen to sell "off-book," he must submit a form called a price request to the Product Manager. The price request must contain a statement of the reason why the district manager has had to go off book. Several hundred of these price requests were received in evidence at the criminal trial (Exhibits DJM-1001 to 1680). The frequency with which the reason "to meet K & M competition" appears in these price requests leaves little room for doubt that there is effective price competition among domestic a-c pipe producers. The record also contains extensive evidence of price concessions made by K & M to compete with J-M (e.g., Exhibits DKM-61, 63, 76, 77, 77A, 85, 93).

 The Government contends that all these sales at off-book prices were the result of prior agreement between J-M and K & M to meet price competition from "others" (Document 84, pars. 14, 16, 18). The only evidence of this in the record is the testimony of Vernon F. Stompler, the former manager of K & M's a-c pipe department, that on several occasions up until 1958 he was a party to telephone conversations in which K & M and J-M officials agreed to quote the same off-book price on particular jobs (N.T. 3029-30, 3084-7, 3155-6, 3159, 3166-9). There is no evidence of collusion on off-book prices since that time. On the other hand, there is substantial evidence of widely varying transaction prices, which could not possibly be the result of a price-fixing conspiracy.

 Exhibits introduced at the criminal trial show for the years 1958-1961 the large proportion of total J-M sales made at off-book prices. In 1958, 44.6% of J-M's pressure, sewer and irrigation pipe business was done on the basis of price requests; in 1959 the amount of such business done on the basis of price requests increased to 59.8%. For the years 1960 and 1961, the comparable figures are 50.8% and 55.8%, respectively (Exhibits DJM-401, 400A). Some districts sold off-book more frequently than others, and pressure and sewer pipe were sold at off-book prices more frequently than was irrigation pipe. For example, in the New York Sales District in 1960, off-book orders represented 99.2% of total sewer pipe business; in the Denver Sales District in 1959 and 1960, 108.5% and 117.4%, respectively, of total business in pressure pipe was done at off-book prices. *fn7" (Exhibits DJM-306E, 302, 302E, 410, 412).

 The Government has not shown affirmatively that these deviations from list price conform to a consistent pattern. On the contrary, the evidence indicates that the discounts from list price varied erratically from district to district and from transaction to transaction within each district. Pressure pipe figures for the year 1960 show that the average discount on off-book orders in the Philadelphia Sales District was 8.1%, whereas the average discount in such orders in the St. Louis District was 10.8% and in the Seattle District 13.1% (Exhibit DJM-302E). Pressure pipe figures for 1961 show average discounts of 8.6%, 17.1% and 21.3% in those same sales districts, respectively (Exhibit DJM-303F). Exhibit DJM-434, which shows reductions allowed as a percentage of book price in the St. Louis District in 1960, indicates discounts ranging from 1.6 to 14% in the first quarter, from 2.4 to 12.6% in the second quarter, from 4.3% to 22% in the third quarter, and from 4.8% to 15.8% in the fourth quarter. The proportion of J-M pipe sales made at off-book prices has not declined in the years following the criminal trial. Exhibits attached to J-M's Motion for Summary Judgment (Document 87) show that in 1962 71.6% of total water pipe securements was due to price requests, in 1963 70.9% was due to price requests, in 1964 74.7%, and in 1965 67.9%. In 1962 the percentage of total sewer pipe securements due to price requests was 66.8%, in 1963 it was 61.9%, in 1964 64.9%, and in 1965 77.3%.

 Mr. Clarence Marion, who testified as an expert at the criminal trial, concluded from this erratic price behavior that J-M could not possibly have pre-planned such a pricing policy, let alone conspire with another company on it (N.T. 12,553-5, 12,654-5). He further testified that it was unreasonable to believe that businessmen would agree upon a price level at which they knew they could not sell (N.T. 12,664). It is indeed incredible that J-M and other companies diligently worked out mutually acceptable list prices for a-c pipe and then went out into the field and charged anything but those list prices in order to compete with one another on price.

 Evidence of conspiratorial behavior occurring eight years ago, plus a continuing identity of book prices, does not create a genuine issue of fact as to the existence of a current price-fixing conspiracy where, as here, the identity of list prices is satisfactorily explained and the actual market situation is shown to be one of vigorous price competition. *fn8"

 The remedy of injunction looks to the future. Douglas v. Jeannette, 319 U.S. 157, 165, 87 L. Ed. 1324, 63 S. Ct. 877 (1943); Unistrut Corporation v. Power, 280 F.2d 18, 23 (1st Cir. 1960). Its "sole function" in antitrust cases is to forestall future violations. United States v. Oregon State Med. Soc., 343 U.S. 326, 333, 72 S. Ct. 690, 96 L. Ed. 978 (1952). The introduction of evidence of vigorous price competition among domestic a-c pipe producers satisfies the defendant's burden of proving abandonment of the price-fixing conspiracy. See United States v. W. T. Grant Co., 345 U.S. 629, 97 L. Ed. 1303, 73 S. Ct. 894 (1953). As noted above, the only company with which J-M could possibly be shown to have conspired is no longer in the business of selling a-c pipe. It cannot be assumed that Certain-teed or any other domestic producer will enter into a price-fixing conspiracy with J-M at some time in the future when there is no evidence in the record that any of these companies has been a party to such a conspiracy in the past. It is, therefore, concluded that an injunction against price-fixing is unnecessary in this case. See United States v. Johns-Manville Corporation, 237 F. Supp. 885, 890 (D.C. 1964), and cases there cited.

 II. Activities to Limit Foreign Competition Other Than Contentions as to Restrictive Specifications

 The Government's next contention is that J-M and K & M conspired to restrict competition from foreign-made a-c pipe in ways other than the promotion of restrictive specifications (Document 84, pars. 39-42). In support of this contention, the plaintiff has introduced evidence of several activities engaged in by J-M which, it is asserted, indicate the existence of this phase of the conspiracy. *fn9" These are: (1) a series of meetings which took place in various European cities in 1959 and 1960 between representatives of J-M and certain European producers of a-c pipe; (2) the institution of a patent suit against Eternit of Genoa and its American importer, Italit, Inc.; ...


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