the conspiracy in full as soon as the difficulties created by the war
disappear.
The conspiracy in the world match industry against which the complaint
was directed was reinforced by an agreement entered into in 1920 by
Ivar Kreuger, the late so-called “match king,” and William Fairburn on
behalf of their respective companies, the Swedish Match Company and the
Diamond Match Company.
These two companies are the major factors in the match industry of the
world. The Swedish Match Company is the world’s largest match producer
and exporter. The Diamond Match Company is the largest American match
producer. Diamond, through its President, William A. Fairburn, and his
personal holding company, the William Gordon Corporation, dominates and
controls the policies of Diamond’s partly-owned and affiliated company,
Berst-Forster-Dixfield Company, and the Universal Match Corporation,
Ohio Match Company, and Lion Match Company, Inc.; these companies
together with Diamond, produce approximately 83 per cent of American
matches. The annual sales of matches in the United States are in excess
of $40,000,000.
Prior to the first World War, Diamond was the exclusive agent for
Swedish Match for the sale in the United States, Canada, Cuba, and
Puerto Rico of safety matches, the type most widely used by the armed
forces. When Swedish imports to the United States were cut off during
the first World War, Diamond, in 1917, erected a large safety match
factory at Savannah, Georgia, to supply the urgent needs of the armed
forces of the United States and its allies and civilian requirements
for this kind of match.
After the first World War, Kreuger threatened vigorous competition
with Diamond in the United States. Faced with this threat, Diamond
and Swedish Match entered into an arrangement in 1920 described by
Diamond’s President, William A. Fairburn, as the “peace treaty with
the Swedes.” Under the “peace treaty” Swedish Match appointed Diamond
its exclusive agent in the United States for the sale of Swedish
safety matches and agreed to discontinue all other selling agencies
and establishments in the United States. In order to assure Swedish
Match of its share of the American match market, it is charged, Kreuger
and Fairburn entered into a secret agreement which required Diamond
to destroy virtually its entire safety match business, including the
scrapping of its largest plant at Savannah, Georgia. Swedish Match
agreed that it would not otherwise make or sell matches on the North
American Continent; Diamond, in turn, agreed not to make or sell
matches in countries supplied by Swedish Match.
The understandings reached in 1920 between Diamond and Swedish Match
are still in effect, although the limitation of production feature
has been temporarily suspended. Upon the outbreak of the present war
a match shortage, particularly of the safety match type, resulted
in the United States and in certain South and most Central American
countries. In accordance with the agreement between the parties the
South and Central American markets were Swedish territory. But war
conditions have made it impossible for Swedish Match to supply this
market. Instead of selling directly in these markets, however, Diamond,
through its controlled affiliate, Berst-Forster-Dixfield, supplied
Swedish Match with matches for South and Central American countries.
The condition for Diamond’s policy in thus helping out was expressed to
Swedish Match as follows:
“We help you now. You stay out of the United States market after the
war.”
By 1927 Kreuger became dissatisfied with the share of Swedish Match
and its affiliated company, International Match, in the American match
market. In violation of the “peace treaty,” he planned to erect new
match factories and acquire existing concerns in the United States.
William A. Fairburn, on behalf of Diamond, successfully appeased
Kreuger for the time being by acquiring Ohio Match, then the second
largest domestic match producer, and selling Kreuger a half interest
in the company. By 1931 Kreuger, through an arrangement with Fairburn,
acquired a one-third interest in Diamond itself. At the same time,
Fairburn induced Kreuger to scrap a partly-constructed match factory at
Natchez, Mississippi.
In 1901, the complaint charges, Diamond and Bryant & May, virtually
the sole match producer in Great Britain, came to an understanding
for the elimination of competition between them. Thereafter Bryant
& May refrained from producing and selling matches in the United
States and Diamond in the British Empire. It is also charged that
the Berst-Forster-Dixfield, Universal, Ohio, and Lion companies have
followed Diamond’s policies with regard to non-competitive relations
with Swedish Match, Bryant & May, and the other corporate defendants.
About 1927 Bryant & May and Swedish Match eliminated competition in the
British home market (the United Kingdom and Ireland) and the remainder
of the British Empire. Fifty-five per cent of the match consumption of
the United Kingdom and Ireland was allotted by Bryant & May’s domestic
production; the remaining 45 per cent was allotted to Swedish Match’s
imports. India was allocated to Swedish Match and the remainder of the
British Empire to Bryant & May. To effectuate the division of markets,
British Match Corporation was formed in 1927 as a holding company, and
acquired all of the stock of Bryant & May. Swedish Match obtained 30
per cent of the stock of British Match.
In 1927, it is asserted, Diamond, Bryant & May, and Swedish Match
eliminated competition in Canada by the formation of Eddy Match, which
acquired virtually all of the match factories in that country.
In 1935, after consultation with and approval by Diamond, Swedish
Match, by agreement with the Japanese producers and the Soviet Match
Monopoly, fixed the price of and limited match imports into the United
States from Japan and Soviet Russia. In about 1937 Diamond became the
exclusive agent for all Russian and Japanese matches sold in the United
States.
The complaint alleges that about 1922 Diamond’s wholly-owned
subsidiary, Uniform Chemical Products, became exclusive agent in the
United States for the sale of I. G. Farbenindustrie’s German-made
chlorate of potash. Chlorate of potash is a chemical not only essential
in match manufacture, but also in the production of ammunition,
flares, and railway emergency warning signals. In return for Uniform’s
exclusive agency, I. G. Farbenindustrie required Diamond virtually
to cease the manufacture of chlorate of potash in the United States.
As a result of the scrapping of American plants, this country had
practically no plant capacity for the production of chlorate of potash
at the outbreak of the war. Emergency plant construction has not yet
overcome the shortage of this essential chemical.
The complaint recites the heretofore undisclosed history of the
so-called “everlasting” match, which has long been a matter of
considerable rumor and speculation. About 1932, it is charged, Kreuger
obtained control of the patents on this match, and subsequently
Bryant & May obtained an interest in them. Diamond later was offered
a participation in Swedish Match’s patents and also negotiated with
the inventor of certain improvements. Although it was commercially
successful in Holland and Switzerland, the everlasting match has
never been manufactured commercially by Diamond or any other
American manufacturer. Diamond’s decision not to acquire the patents
and manufacture the everlasting match was expressed as follows in a
document found in their files: “The patents have not so long to run
and if it becomes a marketable commodity by our pushing it, once the
patents are out--as in the case of book-matches--it would be a fertile
field for the rottenest kind of competition. It is to be hoped that if
the item is not put out and pushed by a strong manufacturer, no one
else will take it up even if the patents expire.”
The Government sought, among other things, the abrogation of the
illegal contracts and agreements and a perpetual injunction against the
defendants, prohibiting them from violating the Sherman Antitrust Act.
The Government also asked that Diamond, Berst-Forster-Dixfield, and the
William Gordon Corporation be required to divest themselves of holdings
in any other match producer, including the foreign corporate defendants.
12
_The Webb Act_
An expanding foreign trade is one of our chief economic objectives.
Both Government and business should desire and promote policies that
will open up new markets to American enterprise, encourage sound
foreign investment and facilitate the flow of goods between this
and other countries. There can be no issue, surely, over this basic
purpose. Nor is there room for disagreement on the proposition that a
crucial, if not indeed the ultimate, test of our economic policy should
be its efficacy in promoting free enterprise as opposed to a controlled
economy. Differences, if any, relate only to methods.
However, anyone who has been under the impression that the Webb Act
provides an easy backdoor entrance for American firms to join forces
with cartels seeking domination and control of world markets is in for
sad disillusionment. The Webb Act was intended to strengthen American
competition against foreign cartels. It was enacted by Congress in the
belief that it would provide a means of assistance to American business
in combatting the power of foreign cartels dominating world markets.
The Act was not passed to permit American firms to take part in cartel
restrictions on American trade--such restrictions are directly contrary
to Congressional purpose.
It should be emphasized that associations organized under the Webb
Act cannot legally enter into international agreements which restrict
production and distribution, divide territories and fields of
operation, fix prices or other wise regiment industry throughout the
world. Neither can they legally enter into agreements which restrain
trade within the United States, restrain the export trade of any
domestic competitor or association, or which enhance or depress prices
or substantially lessen competition within the United States.
We have instituted a suit against the United States Alkali Export
Association, the California Alkali Export Association and others,
charging them with maintaining international cartel agreements to
restrain trade in the manufacture and distribution of alkalis in
violation of the Sherman Act. In this case we have charged that
activities by the defendants were not authorized by the Webb Act. I
shall refer later to this case in more detail. It is sufficient to
say at this point that other associations are under investigation for
similar activity, and that new antitrust suits will be instituted
whenever evidence discloses illegal activity by export associations or
others.
The alkali suit may very well have prompted the resolution of the Board
of Directors of the Commerce and Industry Association of New York
to declare that Congress should restudy the Webb Act and by proper
amendments bring it up to date so that there can be achieved under it
all of the objectives that President Wilson sought to attain when he
procured the enactment of this Act in 1918. The resolution recited that
the Department of Justice program for enforcement of the Sherman Act
seemed to be seeking to impose the competitive system and the antitrust
philosophy, as interpreted by the United States Supreme Court, on other
countries, and implied that antitrust enforcement was frustrating the
purposes of the Webb Act. And in other quarters it has been suggested
that perhaps the Webb Act provides a vehicle for attaining cartel
objectives without incurring the penalties of the Sherman Act.
These suggestions that the enforcement of the Sherman Act in the field
of foreign trade somehow constitutes a betrayal of the Congressional
policy embodied in the Webb Act, and that the Webb Act legalizes
restrictive cartel practices, are based upon a misconception of the
meaning and purpose of the Act. The Webb Act was enacted to help
American business compete with foreign cartels. It was not passed to
provide a conduit for joining them. It was designed to stimulate the
position of American concerns as competitors for world trade and to
stimulate the growth of our export trade. The Act created only a very
limited exemption from the Sherman Act which I shall presently discuss.
But, before taking up the Act itself, let us look at the conditions
which brought about its enactment. The background of the Act is set
forth extensively in a report by the Federal Trade Commission, dated
June 30, 1916, on cooperation in American export trade. This report
set forth that other nations had certain advantages in foreign trade
because of superior facilities and more effective organizations; it
pointed out that doubt and fear as to legal restrictions prevented
Americans from developing effective organizations for engaging in
international trade, and that as a result the smaller concerns suffered
because of their lack of organization and facilities. It emphasized
that in seeking business abroad, American manufacturers and producers
had to meet aggressive competition from powerful foreign combinations
often international in character. It recited that in some industries
the smaller manufacturers had to compete abroad with great American
companies having much more efficient worldwide selling organizations.
In order to assist these smaller businesses to acquire proper
facilities for doing an international business, and to enable them to
meet the competition in prices and services of major American concerns
and all foreign competitors, the report recommended that small American
producers and manufacturers should be permitted to unite their efforts
for purposes of conducting foreign trade. By combining their efforts it
was thought that these small firms would be better able to advertise,
maintain an adequate selling force, and create markets abroad.
But, while recognizing the desirability of a certain degree of
cooperation in seeking international markets, the Federal Trade
Commission in its 1916 report was fully cognizant of the possibility
of misuse of export associations and of the necessity to prevent their
misuse by legislative safeguards and antitrust enforcement. Thus the
Commission said:
“Two chief dangers from cooperation export organizations of American
manufacturers and producers are apparent. They may be used to exploit
the home market and they may be used unfairly against individual
American exporters in foreign trade. The dangers in cooperative action
must be faced frankly and provided against fully.
“The Commission is confident that this can be done without sacrificing
the essential advantages of joint action and without altering the
policy of the antitrust laws or interfering with their enforcement.”
And the Commission further declared that “This recommendation is made
subject to the condition that the legislation shall be carefully
safeguarded and shall make absolutely clear that the combinations for
export business are subject to all of the rigors of the Sherman law if
they are used to restrain trade in the United States.”
Bills were then introduced in Congress by Senator Pomerene and
Congressman Webb, and were considered by Congressional committees
and debated from 1916 to 1918, when the law was enacted. The Webb
Act as finally passed provides that nothing in the Sherman Act shall
be construed as declaring to be illegal an export association or any
agreement made or act done in the course of export trade by such
association, provided that such association, agreement or act does
not: (a) restrain trade within the United States; or (b) restrain the
export trade of any domestic competitor or association; or (c) enhance
or depress prices within the United States, substantially lessen
competition within the United States, or otherwise restrain trade
therein.
Since the Webb Act is a statute creating an exception to the Sherman
Act’s general application, the principle of interpretation governing
all statutes which create such exceptions must be applied here; that
is, the Webb Act must be strictly construed. It must not be taken
to cover any more ground than appears to have been intended by the
language of the Act itself read in the light of the legislative history.
The legislative history leaves no doubt whatever as to what Congress
intended. In its report of May 11, 1917, the House Judiciary Committee
stated:
“The bill is drawn so as to leave in full force our antitrust laws
as applied to our own markets and as affecting different American
exporters in their dealings with each other.... The bill does not
authorize any violation of the present antitrust laws.... The bill
prohibits the slightest violation of our antitrust laws within the
United States.”
The Senate Committee report contained a similar declaration.
The House and Senate debates abound with declarations by the sponsors
of the bill that it did not in any way interfere with the application
of the Sherman Act to the domestic commerce of the United States and
to agreements to restrain the export trade of competitors of the
associations. In referring to antitrust jurisdiction over proposed
export associations, Representative Webb stated: “If the combination
for export trade affects unduly or artificially the prices in the
United States then they come within the Sherman Antitrust Law.”
Senator Pomerene made the following significant arguments during debate
on the bill:
“The position was taken in substance that this bill was a repeal of
the Sherman Antitrust Law, and if it became the law of the land and
these associations were authorized they would at once seek to control
the foreign market and probably enter into a combination with foreign
companies and cartels engaged in the same line of business and thus
reenforced and worldwide in their control of products they would reduce
the prices of food animals, of grain, and of other products and raise
the prices to the consumer when it suited their purposes.”
“If the Senator when making this argument had recited facts instead
of fancies, there might have been some force in his utterances but
he was giving free reign to his imagination. The Senator overlooked
the fact that this bill does not repeal the Sherman Law. He had in
mind one paragraph only and lost sight of all the restrictions and
qualifications it contains. I submit that when this bill is construed
judicially it will be analyzed as a whole and not one part separate
from the other.
“The Senator forgets that neither the associations, nor their
agreements, nor their actions can be in restraint of trade within the
United States, nor in restraint of the foreign trade of any domestic
competitor and they cannot by any agreement, conspiracy, or act
artificially or intentionally and unduly either enhance prices or
reduce prices domestically, and if they do they violate the law of the
land.”
During the debates some members of Congress, foreseeing the
possibility that export associations might join in a combination with
foreign companies, questioned the sponsors of the bill as to the effect
of the bill upon such practices. In the House debates, Mr. Moore of
Pennsylvania asked: “Suppose a combination in which Americans join with
foreigners had been formed?” To this query Congressman Webb replied:
“Then you violate the antitrust law and it has been so held by the
court.” Later, in the Senate debates, Senator Pomerene stated: “There
is nothing in this bill authorizing the division of territory abroad.”
Attempts to amend the Act between 1921 and 1928 failed. Amendments
proposed in 1928 would have extended the Act to include combinations
for importation of crude rubber, potash, sisal and other raw materials
not made, produced, or grown in substantial quantities within the
United States. The bill proposed that year was stated by the House
Judiciary Committee to be designed “to meet an acute situation
affecting the import trade of the country” by reason of the fact that
certain foreign governments controlled and operated monopolies dealing
in rubber, potash and sisal for which this country depended materially
upon importations. Because of the operation of these foreign monopolies
the price to American importers had been greatly increased. The
Committee thought that the best way of meeting “these alien government
combinations” was to allow American buyers of the monopolized products
to combine for the purpose of importing them. During debates on the
bill it was attacked, among other things, on the ground that if it were
passed, import associations would be permitted to join with foreign
producers in worldwide agreements arranging world markets and fixing
world prices. The bill failed to pass, Congress thus indicating its
unwillingness to extend further the application of the Webb Act.
Thus it is clear that from the very beginning of the agitation for
the Act it was understood that the activities of export associations
would have to be strictly limited to the promotion of foreign export
trade, and that any agreements or activities which restrain domestic
competitors either in domestic or foreign commerce would still be
illegal under the Sherman Act. This, it seems to me, is what has been
overlooked by those who now question the application of the Sherman
Act to activities of export associations which restrain domestic
competition and the export trade of competitors.
The Department of Justice is not seeking any novel interpretation of
the Sherman Act or of the Webb Act. We have thus far instituted one
suit involving associations formed under the Webb Act and it requires
no novel interpretation of the Act to sustain the allegations involved.
In that suit, filed on March 16, 1944, we charged two American export
associations, 13 American manufacturers, and a British corporation and
its American agent, with maintaining international cartel agreements
to restrain trade in the manufacture and marketing of _alkalis_, in
violation of the Sherman Antitrust Act. Our complaint asserted that
the 17 defendants and four co-conspirators--two American corporations,
one German, and one Belgian--had conspired to allocate and maintain
exclusive marketing areas and export quotas throughout the world,
eliminating competition and restraining exports in alkalis by means of
illegal contracts, agreements and understandings still in effect!