Sections 2 (d) and (e) of the Robinson-Patman Act condemn promotional allowances or services not granted on "proportionally equal terms" to every other competing customer. While commending the Commission's criteria in the recent Soap cases" for interpreting these provisions, the Committee recommends administrative reinterpretations to place allowances and services on an equal footing with outright price discriminations which are illegal only when they cause adverse market effects and are not justifiable under one of the defensive provisos. This recommendation also applies to the brokerage section. The Committee thus favors "reconciliation of section 2 (c), (d), and (e) with the remainder of the act."

45

7. Buyer liability.”—Regarding the liability under section 2 (f) of a buyer who knowingly induces or receives a discrimination in price, the Committee approves the Supreme Court's interpretations in the Automatic Canteen case. "To transgress section 2 (f) a buyer must not only obtain an unlawful concession, but also must be reasonably aware of its illegality." Conversely, a buyer is exonerated by showing that "the "challenged price quotation was not in fact illegal, or that the buyer had no reason to believe otherwise." Other aspects of Automatic Canteen are approved by the Committee for reconciling the RobinsonPatman Act "with the broader antitrust policies that have been laid down by Congress."

8. Criminal prohibitions."—The Committee recommends repeal of the criminal provisions of the statute. These, the Committee asserts, largely duplicate the civil sanctions of the act and constitute "dangerous surplusage" that threatens competitive pricing practices with harsh criminal penalties.

9. Functional discounts."—The Robinson-Patman Act does not expressly deal with functional discounts. The report recognizes that a reasonable discount granted to single-function middlemen, such as traditional wholesalers, “could not be deemed inimical to competition with retailers who received no equivalent price reduction, since they did not in reality compete in dealings with any customer class." In the absence of adverse competitive efforts, such discounts to single-function distributors are deemed to be legally safe in the typical case. In the Committee's view, functional discounts should not be denied to "split function" or other "integrated" distributors. If a businessman actually fulfills the wholesale function, the Committee believes this should make him eligible for a functional discount regardless of whether he also performs the retailing or any number of other functions. Furthermore, the Committee recommends that "suppliers granting functional discounts either to single-function or integrated buyers should not be held responsible for any consequences of their customers' pricing tactics," such as price cutting at the resale level. Finally, to avoid subterfuge, the report recommends that "Only to the extent that a buyer 'actually' performs certain functions, assuming all the risk, investment, and costs involved, should he legally qualify for a functional discount."

10. Delivered pricing."-Treating delivered pricing, the Committee recommends that "the law carefully differentiate competitive and collusive delivered pricing." The report approves Sherman Act adjudications which "condemn 'delivered' pricing only when part of a conspiracy." In the Committee's view, these decisions "by focusing the legal inquiry on the element of conspiracy and concert of action, tacit or express, accord with the overall antitrust policy and face up to the essential economic problem." The essential test is whether competition or collusion animate a given "delivered" price. In general, the Committee believes that "overall antitrust policy is served when sellers are free to meet competition in distant markets by quoting 'delivered' prices to equalize the freight advantages of more favorably situated competitors."

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The Committee approves the recent Federal Trade Commission decisions rejecting the "mill net return" criterion of "price" and adopting the "actual" price or laid-down cost to the buyer as the definition of price for RobinsonPatman Act purposes.

43 FTC Docket 5585 (December 16, 1953).

44 Report, pp. 193-197.

45 Automatic Canteen Co. of America v. Federal Trade Commission (346 U. S. 61, 70–71 (1953)).

46 Report, pp. 198-201.

47 Report, pp. 202-209.

48 Report, pp. 209–220.

49 FTC Docket 5253 (January 12, 1953); FTC Docket 4878 (February 16, 1953).

The Committee affirms its belief that there is no inherent conflict between the inventor's private patent rewards and antitrust policy. Stressing the public benefits of "the early disclosure of patentable inventions," "their ultimate availability to the public upon expiration of the patent," and encouragement of "investment of risk capital," the report concludes that, by protecting the patent owner's investment in new products and processes, "the patent seeks to increase competition by what is superficially an inconsistent grant of monopoly, but is in fact a mechanism intended to assure competition in invention."

Regarding acquisition of patents, the Committee recognizes that "Obviously a valid patent grant-whether basic or improvement-is a monopoly sanctioned by patent policy and not contrary to antitrust policy." It follows that "monopoly power individually acquired solely through a basic patent, or aggregation of patent grants should not by itself constitute monopolization in violation of section 2" of the Sherman Act. Hence, violation of that act "should, as the cases suggest, require abuse of the patent grant or proof of intent to monopolize beyond the lawful patent grants." With respect to nonuse of patented "inventions," the report declares that, "Viewed either from the standpoint of patent policy or antitrust policy, nonuse should be considered in the context of particular factual situations. Mere nonuse is neutral." In appraising the antitrust significance of nonuse, the courts "have been quick to separate reasonable justification from design to restrain trade." The report follows this distinction by concluding that "an improper purpose unduly to restrain trade, to monopolize, or attempt to monopolize through individual nonuse should give rise to antitrust liability. On the other hand where there is no affirmative showing that the purpose or effect of nonuse is unreasonably to restrain trade, to monopolize or attempt to monopolize, the patentee's conduct does not transgress the antitrust laws. Clearly, however, contracts, combinations, or conspiracy among patentees to refrain from using or to refuse to license others to use the patented inventions should be deemed unreasonable per se."

51

Patent licenses.-The report approves as the test for permissible limitations in individual patent licenses within the scope of the patent grant, the General Electric case yardstick that the patentee may license "for any royalty, or upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure."

Directing attention first to individual patent licenses, the majority of the Committee believes that a "patentee who is engaged in manufacturing and marketing the patented product may fix the prices at which his manufacturing licensee or licensees may sell." This approval is confined, however, to cases where there is no element of horizontal agreement and no plan aimed at or resulting in industrywide price fixing. Some members, on the other hand, believe that "price fixing clauses in patent licenses should be proscribed by the antitrust laws under any circumstances."

The Committee approves court decisions holding that a "patentee may license the manufacture or use of the patented invention only within a certain field, or for a fixed quantity of manufacture or use," or within a fixed territory within the United States.

Where patent licenses include tying clauses, all but a few Committee members, contrary to the apparent trend of Supreme Court opinions, believe such clauses should be tested under the Sherman and Clayton Acts by the same criteria as in the case of unpatented tying products. "Accordingly, where the tying product is patented, the patentee should be permitted to show that in the entire factual setting*** the patent does not create the market power requisite to illegality of the tying clause."

The Committee approves judicial decisions sanctioning a package license of one or all of the licensor's patents when made for reasons of convenience and without coercion to accept a license under one patent on condition of acceptance of a license under other patents. Package licensing should be prohibited, the report states, "only where there is refusal, after a request, to license less than a complete package."

Regarding multiplte patent licenses, the report states that "In general, a patent license, valid standing alone, does not become invalid because other licenses are granted." To the extent that the multiple licenses involve horizontal

50 Report, pp. 223-260.

51 United States v. General Electric Co. (272 U. S. 476 (1926)).

agreement between the licenses, there is antitrust violation. Likewise, a crosslicensing agreement by itself entails no antitrust violation unless there is either an illegal license restriction or an illegal horizontal agreement beyond the license.

Interchange of patent rights.-The Committee defines "patent interchange❞— commonly called a "patent pool"-as "any arrangement for the interchange of patent rights where either one or more of the patent owners, or some separate entity, has the right to license others under the [interchanged] patents." The report notes that "patent interchange may be essential to feasible patent utilization, or, in contrast, facilitate undue competitive restraint. In any given case, a determination of legality requires an examination of the purpose of the interchange, the power possessed by the interchange when formed, and its operating practices." Thus "an interchange is unlawful if formed with the purpose of regimenting an industry, fixing prices and eliminating competition, or threatening litigation with accompanying undue restraint of trade." The report states that "should mere interchange be the sole means for commercial patent use, interchange which brings monopoly over products or processes covered by the interchanged patents *** should not be held to violate section 2" of the Sherman Act. Where such monopoly results, however, "a pool should be required to license all applicants without discrimination and at reasonable royalties."

Other aspects.-The report recognizes that infringement suits may constitute legitimate efforts to enforce patent rights or, in contrast, be part of a scheme to restrain trade unduly or to monopolize.

Over the past few decades the courts have evolved the so-called patent misuse doctrine under which a patentee is denied equitable relief for direct or contributory infringement because the patent has been used to obtain control of commerce outside the scope of the patent. The Committee approves this doctrine but denies that in every case such patent misuse is a per se antitrust violation, “regardless of proof of the elements of violation required under the Sherman, Federal Trade Commission and Clayton Acts.”

Committee views are divided on compulsory royalty-free licensing or dedication and on antitrust violation remedy. A majority condemns this as "penal rather than remedial in character, and hence beyond the Sherman Act's authority to 'prevent and restrain' violations." A substantial Committee minority feels. that this remedy is within the court's power to decree when necessary to achieve effective competition.

VI. EXEMPTIONS FROM ANTITRUST COVERAGE

52

The Committee recognizes that "To further some economic, political, or social objectives, Congress has shielded various activities from the rigors of competition." The report disclaims, however, any purpose "to judge the importance of these asserted goals or the extent to which anyone of them might be achieved without antitrust exemption."

1. Regulated industries.-This covers an area where "Congress has decided that in some industries competition shall not be entirely free." One type of regulatory statute expressly exempts certain matters from antitrust coveragewhereas another statutory type, where no such exemption is specified, requires accommodation of the regulatory standards with the antitrust laws.

Dealing with mergers, rate agreements and primary jurisdiction, the Report analyzes the problems and judicial precedents relating to the respective roles of the regulatory agency and the courts. Without attempting to set forth the specific conclusions and recommendations of the Committee on each of these subtopics, the tenor of the majority of the Committee's thinking is indicated in certain general propositions. First, although views of the members diverge in other respects, the Committee agrees upon these governing principles:

"This Committee, we repeat, endorses competition as the major rule in our private enterprise economy. We recognize that competition can be impaired either by conduct transgressing the antitrust laws or by Government regulation fixing prices or rates or restricting freedom of entry. The Committee notes. an apparent trend toward such Government control. We call attention to the fact that such regulation tends to beget further regulation. For if one industry is regulated then it may be urged that its competitors should, in fairness, also be regulated. Apart from the need for regulation in any particular industry,.

5 Report, pp. 261-313.

we urge that moves toward regulation be taken only with full recognition of the effects of such exceptions to the policy favoring competition which, as a general rule, we endorse.'

953

Second, the report focuses on orderly means for assuring that regulatory agencies put whatever premium Congress intended on competition. The report concludes that ultimately it is the courts' "responsibility to say whether the Commission has been guided by proper consideration in bringing the deposit of its experience *** to bear *** in [determining] the public interest. Where Congress has been silent, the basic policy of our antitrust laws requires the court's conclusion that competition, at least where all other considerations involved are equal, is in the 'public interest.' In all instances, the courts, in reviewing agency discretion, should recognize that 'administrative authority to grant exemptions from the antitrust laws should be closely confined to those [instances] where the *** [regulatory] need is clear.'"' TM

2. Organized labor."-At the outset, the report states that "appraisal of the Nation's labor-management relations policy goes beyond this antitrust study." Accordingly, the Committee considers only union activities aimed at direct restraints on commercial competition. The Committee "believes that union actions aimed at directly fixing the kind or amount of products which may be used, produced or sold, their market price, the geographical area in which they may be used, produced or sold, or the number of firms which may engage in their production or distribution are contrary to antitrust policy."

After reviewing the case law on this subject under the antitrust laws and the Labor Management Relations Act of 1947, the Committee concludes that "to the extent that such commercial restraints not effectively curbed by either antitrust or Labor-Management Relations Act exist, then we recommend appropriate legislation to prohibit these union efforts at outright market control." Such legislation should give the Government "power to proceed, on its own initiative, without formal complaints from others." Furthermore, "unlike the Sherman Act, such legislation should not contain provisions for private injunction." The Committee cautions, however, that "no one of our conclusions or recommendations implies any change of labor's freedom under the antitrust laws to act in concert in order to promote union organization or bargain collectively over wages, hours, or other employment conditions."

3. Agricultural cooperatives."-The report notes that statutory exemptions of agricultural cooperatives are “rooted, of course, in political and social as well as economic considerations." The Capper-Volstead Act exemption is given particular consideration. It is pointed out that "the precise bounds of no one of these enactments have been fully marked out by administrative or judicial decisions."

The Committee concludes that "these statutory exceptions should not reduce antitrust prohibitions to a ghostly residuum. Congressional encouragement of agricultural cooperatives need not be incompatible with antitrust prohibitions against concerted restriction on agricultural output, coercion of competitors or customers, and monopoly power either achieved by means not within CapperVolstead section 1 or used to ‘unduly enhance' prices under that act's section 2.” The report further states that "where cooperatives attempt to or actually obtain monopoly power by means not sanctioned by section 1 of Capper-Volstead, the Sherman Act should apply even though the monopolized product's price is not unduly enhanced."

VII. ECONOMIC INDICIA OF COMPETITION AND MONOPOLY **

This chapter of the report is "intended as an economic, not a legal, analysis of competition and monopoly." The refinements of this technical and closely reasoned economic theory cannot be summarized without risk of doing injustice to the context as a whole. I therefore merely call attention to the topics in this part of the report. First, there is an analysis of the economic definitions of "competition," "monopoly," and "workable competition." The latter is contrasted with the theoretical models of "pure" and "perfect" competition with the caveat that the Committee does "not regard these models as offering any basis for antitrust policy." The report outlines the factors bearing on the iden

53 Report, p. 269.

54 Report, p. 270.

Report, pp. 293-306. 56 Report, pp. 306–313. 57 Report, pp. 315-342.

tification of workable or effective competition from an economic standpoint but cautions that in any given situation, the relative significance of each factor may vary and that the theory "does not provide a standard of legality under any of the antitrust laws." Another section sketches the similarities and the striking dissimilarities between the legal and economic concepts of competition and 'monopoly. Since antitrust law and economics are both concerned with business facts and their market effects, the Committee expresses the hope that the economic analysis in this chapter may be useful "if means and criteria are developed for presenting evidence and weighing its relevance, materiality, and probative value in a particular market context."

VIII. ANTITRUST ADMINISTRATION AND ENFORCEMENT

58

The report first discusses the investigatory means available to the Department of Justice for securing evidence in civil and criminal proceedings, before and after complaints or indictments. The Committee recognizes that, at least before civil complaints have been filed, "present civil investigative machinery is inadequate for effective antitrust enforcement." Accordingly, the report recommends legislation which would "authorize the Attorney General, in a civil antitrust investigation, to issue and have served upon any corporation, partnership, ́or association a civil investigative demand. This would require the production of (relevant) correspondence and other business records. * * * not privileged in the possession of the party served." The demand "must describe the records and data sought with reasonable specificity, so as fairly to identify the material demanded, as well as specify a reasonable time for its production." The Attorney General "should resort to this demand where requests for voluntary production would probably prove not fully effective." "

The standards for governing the choice of civil or criminal proceedings are treated. The report states that "criminal process should be used only where the law is clear and the facts reveal a flagrant offense and plain intent unreasonably to restrain trade." The Committee was advised that the Antitrust Division is now following the policy of prosecuting criminally the following types of offenses: "(1) price fixing; (2) other violations of the Sherman Act where there is proof of a specific intent to restrain trade or to monopolize; (3) *** [where there is] proof of use of predatory practices (boycotts for example) to accomplish the objective of the combination or conspiracy; (4) the fact that a defendant has previously been convicted of, or adjudged to have been, violating the antitrust laws may warrant indictment for a second offense." The Committee generally indorses these policy standards but with two caveats: one, that "all criminal cases, however, should be confined to instances where proof of violation is clear and the law is settled"; two, "that a second offense need not warrant indictment."

Once the decision to proceed is made, then the question of resort to consent settlement procedures may arise." The report recognizes that "to the Government, caught in the vice of increasing complaints and decreasing enforcement resources," the economy of consent settlement "may make or break enforcement success."

Realizing the importance of the consent settlement process, the Committee rejects "any notion of its curtailment." More specifically, to save "time and money," the report urges "prefiling negotiations whenever the Division deems it feasible for efficient enforcement." To further ease the consent settlement process, the Department should “negotiate consent judgments with fewer than all defendants." In addition, the report suggests that duplication of negotiation with both the Trial and Judgment Section staffs be minimized and that the Division should no longer require "defendants to submit the initial draft of a consent judgment." Instead, this should be done by the Department "in response to a good faith request by defendants."

17 62

The report focuses on means for simplifying present protracted and expensive antitrust "pretrial and trial proceedings.' Only some of the more important recommendations are here summarized. First, the report recognizes that "each antitrust case, public and private, should be assigned, as a regular practice in all districts, promptly after the action has commenced, to one judge for all purposes."

58 Report, pp. 343-393.

59 Report, pp. 344-347. 60 Report, p. 350.

1 Report, pp. 360-361. 62 Report, pp. 362–366.

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