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STATEMENT OF THURMAN ARNOLD, ATTORNEY-Continued

Policies of New Deal attacked both by Republicans and conservative
Democrats, but only between elections. Feeling of uneasiness
about Government in economic life led to TNEC, message of
President in 1938, and granting of large appropriations to Antitrust
Department. War intervened.
After war, everyone making money. Cold war with Russia makes
many business concerns dependent upon Government orders.
Nevertheless little confidence exists in economy based on Govern-
ment spending. That is why in an era of great profits, industrial
stocks have been selling at such low level. We need a plan for more
private enterprise.

Pattern of competition in twentieth century not going to be that of
nineteenth. Centralization has caused some people to say that
Government control inevitable. He doesn't believe in that. He
believes can create pattern for large business organizations which
can prevent absentee ownership, increase independent capital and
income of outlying areas, and can make American business competitive.
Coca-Cola is example of large concern with great potential power
which has economic policy promoting decentralization and encour-
aging local industry.

Compares soft drink industry of 50 years ago where thousands of manufacturers, profits small. Today the opportunity for little fellow is gone.

Arnold, responding to Mr. Keating, admits there are a few small softdrink companies which are successful. But difficult to compete with Coca and Pepsi Cola because of advertising.

Coca-Cola is sugar and water plus flavoring. In soft drink industry great organizations have advantage.

Dominance due to national advertising, creates demand, permits mass production, which allows low price.

Now difficult for little man to get in. Size does not necessarily make for efficiency. But Coca-Cola is example of organization which can make mass demand contribute to local communities instead of taking money out.

Millions must be spent to create a demand. Yet soft drink industry
is creating enormous profits for small distributors and suppliers.
Coca-Cola has over 11⁄2 million retail outlets in United States alone.
Coca-Cola, in spite of size, has eliminated absentee ownership, by
confining itself to single service for which a large organization is
adapted.

Local Coca-Cola distributor has a monopoly on Coca-Cola, in his own
community-though that is not monopoly in economic sense.
All Cola companies do not operate like Coca-Cola. This type of dis-
tribution is inevitable in the twentieth century. Nowhere has it
been suggested that we break up machinery creating mass demand.
Principal evil of monopoly is absentee ownership.

Lowest bidder makes vending machines and bottling machinery for
Coca-Cola; Coca-Cola has no interest in any machinery supplier,
equipment.

Coca-Cola has the patents on the bottle.

Coca-Cola confines itself to single service for which there is a necessity
for centralized power. Policy of Coca-Cola is to create a demand and
to supply the syrup to independent concerns who fill that demand.
Have not they taken advantage of Miller-Tydings Act? It can even
be given away to bring customers into store.
Bottlers are independent local businessmen. Profits of plants stay at
home; also, independent bottlers may sell any other soft drink
except those which may be confused with or substituted for Coca-
Cola. American industry must learn that it can make more dealing
with independents than through any system of integrated control.
Policy designed to help local man; service in newspapers; local displays;
billboards; servicemen go to every fountain in United States several
times a year.
This service given free which would bankrupt local
merchants. Opposite of trend, in that money poured back into
community.

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STATEMENT OF THURMAN ARNOLD, Attorney-Continued

Coca-Cola never manufactured or sold bottles, supplies, or equipment; no interest in making money out of sidelines. Company is greatest consumer of sugar in the world; has not a dollar invested in any sugar business.

Chairman asks regarding power of Coca-Cola if it is already the largest purchaser of sugar. He points out the technique of creating mass demand is a fact in economic society.

Problem is to curb power-and to decide organization we want; then
to attain it.

To harness that service and to prevent absentee ownership, confine it
to a single thing for which the great power is necessary.
Suppose motion picture industry had no interest in any local theater,
you would have pattern like Coca-Cola and many more pictures.
General argument against this is that it will demoralize industry, etc.
He cites example of Henry Ford. For same reasons, handicaps are put
on nonscheduled air carriers.

He agrees that it would be good for distiller not to go into cooperage
business, etc.

Coca-Cola started to grow like an integrated cancer; had control over bottlers. Then there was a lawsuit and bottlers were divorced. Later, "cola" held to be a generic term. Now all sorts of colas. Management changed. Now has philosophy of not owning demand; only entitled to have protection against substitution. Bottles are made competitively.

Opportunities for control have been passed up. An industrial empire could have been built on this demand, including system of absentee ownership.

Competitors free to invade market; other concerns are making great
profits in Coca-Cola's wake.

A pattern something like this must be followed in other industries
if tremendous centralization is to promote local industry.
Repeatedly Coca-Cola has been asked to give discounts to large buyers,
and has refused. It is dependent upon getting as many little men
as possible to aid it. Independent will in long run distribute more
Coca-Cola than any integrated system.

Patent policy-it doesn't collect royalties nor restrict the use of its
patents by manufacturers who supply it with equipment. On
bottles they do charge little royalty which they use for research and
schools for bottlers.

Ford adopted same policy on patents.
Coca-Cola allows use of its patents by manufacturers who sell equip-
ment to anyone in entire industry without royalty charge.
Applied to other fields, monopoly with long-distance telephone service
is essential; but there does not have to be absentee ownership of
local telephone companies. Is in accord with Government suit in
Western Electric Co. case.

Similar problem with growth of labor unions. Labor union must be
permitted to monopolize labor supply in its own field.

Time when big labor can be broken into little labor unions is gone.
When such power, however, is used to restrict production, raise
prices, etc., it should be curbed by law. Cf. coal miners attempt to
make coal scarce.

Can have collusion between labor and management.
Certain areas where size and concentration cannot be avoided; solution
is not to place any artificial limitation on size. Can only be solved
by restricting the large concerns to legitimate purpose of giving inde-
pendent business cheaper service than it can obtain for itself.
Courts have not recognized these principles in applying trust laws.
Laws written in nineteenth century and have not been adjusted to
twentieth century.

Laws would be constitutional if reasonable justification. In antitrust
law Congress can only lay down a policy and let courts apply it to
facts.

Government has not followed consistent antitrust policy. If Du Pont had voluntarily sought to divest itself of stock, would have huge tax liability.

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STATEMENT OF THURMAN ARNOLD, Attorney-Continued

Cites examples of no settled monopoly policy. Also tax liability.
He has cases coming to his office where parties willing to divest, and
Tax Division won't cooperate. Coca-Cola offers a useful pattern
in the field where mass demand must be created by advertising
and supplied by mass production. Steel presents a different problem.
What we need is an agency with power of constant investigation of the
problem of each industry and the duty to present facts to whatever
branch of the Government has the power to afford a remedy.
Believes in separation of investigatory power and power to decide.
Not possible to lay down much more than the general rule we have
already in antitrust law.

Cites Standard Oil case before the Truman committee. Cites Western
Union which must either merge or be taken over by Government
because of excise tax. Problem needs a monopolies committee and
assistance of Antitrust Division.

Would not give the agency power to make any changes or administrative rulings, but would give them duty to go to courts, executive agencies, and Congress. Would suggest a joint legislative committee. Constant supervision of a congressional committee is needed because dealing with national policy. Would not have committee give advice to those who come before it, but act only through legislation or resolutions of Congress.

Discussion of problem of whether joint committee could handle anything but general legislation.

All congressional committee could do would be to get facts so that they can change the law.

Need body which is investigating the facts about entire concentration of wealth, industry by industry. After investigation either would or would not recommend legislation.

TNEC was not a continuous body. Arnold offers to draw up recommendations on legislation as result of his experience with TNEC. Most important one is creation of continuous joint committee and duty imposed upon Department of Justice to investigate all pertinent facts. Stopped investigating labor abuses after Court declared that such restrictions were exempt.

STATEMENT OF H. A. TOULMIN, JR., ATTORNEY

"Our antitrust laws are the most dangerous to our democracy that any nation has ever enacted in all history.' It is possible thereunder for five men appointed for life to the Supreme Court to change entire aspect of society. Trust laws so general that change can be done legally. Can regiment business, industry, etc., into any economic pattern that five men wish.

One man can decide a case; this is dangerous to business. In last 12 years, Court in 30 cases has overruled earlier cases, most of which had been decided within the previous 20 years. In last 3 years, 86 5-to-4 decisions. In business regulation cases in 1948-49, only 4 out of 11 were unanimous, 3 were 5 to 4.

Basic problem of business is certainty. Congress alone has power to
resolve this conflict between the Justices. Also leading to uncer-
tainty is that Department of Justice may start an investigation today
and it will be 2 to 4 years later before filing of complaint. In interim,
no guideposts. Only Congress can remedy by a series of specific
statutes settling questions.

Courts have been defeating patents on ground that owner of the patent
has violated anti-trust laws. This is a question for Congress.
Cites General Electric case holding patentee could fix price at which
licensee could sell licensed invention. Gypsum and Line Material
cases almost overruled this decision. Also, licensee can challenge
the validity of a patent. Price-control rule is defeated where cross
license.

Owner can sell patent and then challenge validity in an antitrust case.
Also Court has restricted power to control price at various stages of
manufacture.

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STATEMENT OF H. A. TOULMIN, JR., ATTORNEY-Continued

Field of patents is in chaos. Only remedy is statutory definition of relation between patents and monopoly. Court has also reversed position and held that gasoline dealer contract is illegal because dealer required to use oil of seller.

Congress should determine if this is in the public interest. The executive branch has program which will completely change American business and foundation of property rights.

Quotes from Justice Douglas that change should be controlled by legislature rather than courts.

Quotes Justice Douglas dissenting in Standard Oil Co. case, that
economic theories of the Court have fostered monopoly.

A few men in the Department of Justice have had their will impressed
upon the people of the United States in a series of drastic decisions.
In 1948-49, Government was successful in 9 out of 11 cases decided by
opinion; 12 out of 13 in 1947-48; 11 out of 14 in 1946-47. Rules
should be made more specific.
He reads from Jackson's dissent in Standard Oil case. Also reads from
Wilson's book, The President of United States.

Case in point is Congress putting moratorium on applying trust laws to
insurance.

Again quotes from Wilson. Representatives and Senators and Presi-
dents are responsible to the people. But Federal judges are appointed
for life.

Judge should take into office no personal ideas, politics, and ideas of
reform. He should honestly endeavor to apply the law as it is.
How can all people be so evil, that all of business leaders and lawyers
have at one time or another violated the trust laws? He cites Justice
Reed: "It is not for the courts to determine the course of the Nation's
economic development * *
Exceptions to antitrust law-Reed-Bulwinkle bill and insurance mora-
torium. Antitrust laws as interpreted have emasculated the patent
laws. Specific legislation by Congress is the only remedy. Real
concern should be to regulate the structure of business rather than
the procedure of business.

Department of Justice has been negligent in pressing cases against
mergers. Trust laws should strike at root of evil. Some of greatest
prosperity of United States has come from dissolution of large organi-
zations. With control of raw-material sources, control of non-
analogous companies, you find most of antitrust violations which are
justifiably complained of.
Antitrust laws are broad charter of business control leaving open door
"for the enforcement by the judicial rulers of this Nation of their own
particular brand of social philosophy." Laws are equally useful to
the most rigid reactionary and the most extreme socialistic and com-
munistic minds.

Trust laws have left United States business in a state of complete un-
certainty. He wrote a book 11 years ago and the changes since then
will require voluminous material.

Supreme Court regards itself as superlegislative agency.

Decisions

characterized by effort to maintain decisions in harmony with one
another; and assumption that judges may write into law their views
on social and political philosophies.

He quotes Justice Jackson, commenting on tendency to disregard con-
gressional intent and normal meaning of the statutes.
Present depression in business due to two factors: First, wholesale
attack on business has caused great uncertainties. Second. Anti-
trust prosecution has been on few specific details instead of going
after broad fundamental cases which would open up competition.
No reason why General Electric and General Motors should be in
refrigerator business.

"When business is compelled to stick to its knitting and stay in its own
category, we will have free competition." Congress should allow
businessmen freedom of action under certain rules.
He quotes
Abraham Lincoln.

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STATEMENT OF H. A. TOULMIN, JR., ATTORNEY-Continued

He makes following recommendations. Congress should enact specific
statutes as to conducting transactions in field of patents, insurance,
labor, etc. Congress give certainty to business by taking out of the
courts the settlement of economic policy questions.

Congress reserve right to settle conflict between laws such as patent
laws and trust laws. Industry should be able to bring declaratory
judgment action to determine legality of plan of doing business.
"Congress limit the judicial decisions of the Supreme Court so that we
will not have continual change of the rules of the game." Submits
for information, his works on antitrust laws.
Most important question is certainty in business.

General Electric

case rule in patents has been whittled down. Tremendous mass of laws and various interpretations.

General Electric case modified by Gypsum and Line Material cases;
Department of Justice pressing for reversal; then business will be
thrown into chaos. And subject is very complex.

Patent laws of equal constitutional basis as trust laws.
intangible property.

Patents are

Antitrust laws not concerned with creating prorerty rights, but with controlling rights already acquired. Not difficult problem if you stay within trust laws as originally enacted. No essential conflict between two types of law.

The difficulty between the patent laws and the antitrust laws arises not from statutes, but from judicial legislation without any authority of the statutes.

Out of one case arose series of decisions defeating large number of
patents by setting up misuse of patent in violation of trust laws as
a defense in patent suit. Patents are defeated without sanction of
statute. Government can also challenge patent.

If that is the law, Congress should enact a statute to that effect.
"We would have a good deal of peace and certainty in Supreme Court
decisions if we did not publish dissenting opinions.'

Does present a problem for lawyers to have dissents, and judicial
legislation.

"From time to time we have to see whether Congress should act to clear
up those questions which are said to be judicial legislation."
Suggests taking look at whether we need legislation to harmonize col-
laterial statutes. He is opposed to Miller-Tydings Act. Favors
principle of Robinson-Patman Act. But should not use it as an
amendment to Sherman Act. He urges a codification of the anti-
trust laws-a complete new approach.

TNEC hearings resulted in no legislation from Congress; but Court has
used them as if they had been statutes. Footnotes in decisions cite
TNEC as authority.

Problem with patent laws and trust laws is that Congress has apparently
not endeavored to draft any statutes to meet the issue.

"We will never have a real industrial peace and great prosperity in the
United States until we take three steps to control the size of corpora-
tions."
First-divorce distribution from manufacturing. Second, divorce from
sources of raw and semifabricated materials; third, divorce non-
analogous companies.

When Government dissolved Standard Oil, brought greatest prosperity
in the oil industry. Quotes executives of Frigidaire of General
Motors saying next time would wait before entering market until it
has developed. With large assets, can dominate field and make it
tough for those who have pioneered.

Cites indirect freight rebate case; where railroad had to buy paint of
large shipper, but used higher quality paint of small corporation.
Bad for corporation to buy nonanalogous unit in an industry already
established. Large company can establish price in new field.
Cites chemical industry where one particular chemical is selling above
normal market because group has understanding. One or two leaders
establish a price and everybody follows. Last suggestion is to amend
Declaratory Judgment Act of 1938 and permit business to bring a suit
against the Government for a determination of the legality of any
plan.