18 



HARDWOOD RECORD 



December 2j. 1921 



The bill alleged, in substance, that the Plan constituted a combination 

 and conspiracy to restrain interstate commerce in hardwood lumber, of 

 restricting competition and maintaining and increasing prices, in violation 

 ot the anti-trust act of 1890 (26 Stat. No. 209). 



The answer denied that the Plan had an.v such purpose and effect as 

 charged, and averred that it promoted competition, especially among Its 

 own members. 



A temporary injunction, granted by the district court, restricting the 

 activities of the Plan in specific respects, by consent ot the parties, was 

 made permanent and a direct appeal brings the case here for review. 



The activities which we shall see were comprehended within the "open 

 competition plan" (which is sometimes called "the new competition"), 

 have come to be widely adopted in our country, and, as this is the first 

 time their legality has been before this court, for decision, some detail of 

 statement with respect of them is necessary. 



Review of the Facts 



There is very little dispute as to the facts. The testimony of the Govern- 

 ment consists of various documents and excerpts from others, obtained 

 from the files of the I'lan, and the testimony of the defendants consists of 

 like documents and excerpts from other documents. Also from the same 

 files, supplemented by affidavits of a nvimber of persons, members and non- 

 members, chiefly to the point that the confessedly great increases of prices 

 during 1919 were due to natural trade and weather conditions and not 

 to the influence of the Plan. 



The record shows that the Plan was evolved by a committee, which, in 

 recommending its adoption, said : 



"The purpose of the plan is to disseminate among members accurate 

 knowledge of production and market conditions so that each member may 

 gauge the market intelligently Instead of guessing at it ; to make competi- 

 tion ((jien and above board instead of secret and concealed ; to substitute. 

 In estimating market conditions, frank and full statements of our competi- 

 tors for the frequently misleading and colored statements of the buyer." 



After stating that the purpose was not to restrict competition or to con- 

 trol prices but to "furnish Information to enable such member to intelli- 

 gently make prices and to intelligently govern his production," the com- 

 mittee continues : 



"The chief concern of the buyer, as we all know, is to sec that the price 

 lie pays is no higher than that of his competitors, against whom lie must 

 sell his product in the market. The chief concern of the seller is to got as 

 much as anybody else for his lumber; in other words, to get -what is 

 termed the top ot the market for the quality he offers. l!y making prices 

 known to each other they will gradually tend toward a standard in 

 harmony with market conditions, a situation advantageous to both buyer 

 and seller." 



Knowledge Regarding Prices Made 



Not long after the consolidation, a further e.xplanatli f the objects 



and purposes of the plan was made in an appeal to members to join it, in 

 which it is said : 



"The theoretical proposition at the basis of the open competition plan is 

 that. 'Knowledge regarding prices actually made Is all that Is necessary to 

 keep prices at reasonably stable and normal levels.' 



" 'The open competition plan is a central clearing house for Information 

 on price, trade statistics and practices. By keeping all members fully and 

 quickly informed of what the others have done, the work of the plan results 

 in a certain uniformity of trade practice. There is no agreement to follow 

 the practice ot others, although members do follow their most intelligent 

 oompetiton if they know know what these competitors have been actually 

 doing. The monthly meetings held in various sections of the country each 

 month have improved the human relations existing between the members 

 before the organization ot this plan.' " 



And in another later, and some what similar appeal, sent to all the 

 members, this is found : 



"Competition, blind, vicious, unreasoning, may stimulate trade to ab- 

 normal activity but such condition is no more sound than that medieval 

 spirit some still cling to of taking a club and going out and knocking 

 the other fellow and taking away his bone. 



"The keynote to modern business success is mutual confidence and co- 

 operation, cooperative competition, not cut-throat competition. Co-op- 

 eration is a matter of business, because it pays, because it enables you to 

 get the best price for your product. Because you come Into closer per- 

 sonal contact with the market. 



"Co-operation will only replace undesirable competition as you develop 

 a co-operative spirit. For the first time in the history of the industry, 

 the hardwood manufacturers are organized into one compact, compre- 

 hensive body, equipped to serve the whole trade In a thorough and ef- 

 ficient manner. More members mean more power to do more good for 

 the Industry. With co-operation of this kind we will very soon have 

 enlisted In our efforts practically every producing Interest, and you 

 know what that means. 



Thus, the plan proposed a system of co-operation among the members. 

 consisting of the interchange of reports of sales, prices, production and 

 practices, and In meetings of the members for discussion for the avowed 

 purpose of substituting "co-operative competition" for "cut-throat com- 

 petition," of keeping "prices at reasonably stable and normal levels," and 

 of Improving the "human relations'* among Its members. But the purpose 

 to asToe upon pric©? of production was always disclaimed. 



What Was Required of Members 



Coming now to the fully worked out paper plan as adopted. It required 

 each member to make six reports to the secretary, viz. ; 



1. A daily report of all sales actually made, with the name and ad- 

 dress of the purchaser, the kind, grade and quality of lumber sold and 

 all special agreements of every kind, verbal or written, with respect 

 thereto. "The reports to be exact copies of orders taken." 



2. A daily shipping report, with exact copies of the invoices, all 

 special agreements as to terms, grade, etc. The classification shall be 

 the same as with sales. 



3. A monthly production report, showing the production of the mem- 

 bers reporting during the previous month, with the grades and thickness 

 classified as prescribed in the Plan. 



4. A monthly stock report by each member, showing the stock on hand 

 on the last day of the month, sold and unsold, green and dry. with the 

 total of each kind, grade and thickness. 



5. Pric^»-Iists. Members must file at the beginning of each month price- 

 lists showing prices f. o. b. shipping point, which shall be started. New 

 prices must be filed with tlic association as soon as made. 



6. Inspection reports. These reports are to be made to the association 

 by a service of its own, established for the purpose of checking up grades 

 of the various members and the Plan provides for a chief inspector and 

 sufficient assistants to Inspect the stock of all members from time to time. 



The declared purpose of the inspection service is not to change any 

 member's grading except with his consent, but to furnish each member a 

 basis on which he can compare his prices and those of other members, 

 thereby making all members' reports more intelligible and accurate. 



All of these reports by members are subject to complete audit by rep- 

 resentatives of the association. .\ny member who fails to report shall 

 not receive the reports of the secretary, and failure to report for twelve 

 days in six months shall cause the member failing to be dropped from 

 membership. 



Plainly it would be very difficult to devise a more minute disclosure of 

 everything connected with one's business than is here provided for by this 

 Plan and very certainly only the most attractive prospect could induce 

 any man to make It to his rivals and competitors. But, since such volu- 

 minous disclosures to the secretary would be valueless unless communi- 

 cated to the members in a condensed and interpreted form, provision 

 is made for this, as follows : 



What the Secretary Furnished 



The secretary Is rotpilrcd to send to each mcmlier : 



1. .\ monthly sumniar.v showing the production of each member for 

 the previous month, "subdivided as to grade, kind, thickness." etc. 



2. A weekly report, not later than Saturday, of ail sales, to and In- 

 cluding the preceding Tuesday, giving each sale and the price and the 

 name of the purchaser. 



3. On Tuesday of each week the secretary must send to each member 

 a report of eacli shipment by each member, complete up to the evening 

 of the preceding Thursda.v. 



4. He must send a monthly report, showing the Individual stock on 

 hand of each member and a summary of all stocks, green, dry, sold and un- 

 sold. This report is very aptly refarred to by the nmnaglng statistician 

 as a monthly inventory of the stock of each member. 



D. Not later than the tenth of each month the secretary shall send 

 a summary of the price-lists furnished by members, showing the prices 

 aske<l by each, and any changes made therein must be Immediately trans- 

 mitted to all the members. 



6. A market report letter shall be sent to each member of the asso- 

 ciation (whether participating in the Plan or not) pointing "out changes 

 In conditions both In the producing and consuming sections, giving a com- 

 parison of production and sales and in general an analysis ot the market 

 conditions." 



7. Meetings shall be held once a month at Cincinnati "or at points to 

 he agreed upon by the members." "It is intended that the regular meet- 

 ings shall afford opportunity for the discussion of all subjects of Interest 

 to the members." 



"The Plan also requires the selection of a man to take charge of the 

 gathering and dissemination of data, with necessary assistants," and the 

 defendant, F. R. Gadd, was selected and given the title of "Manager of 

 Statistics." 



This extensive Interchange of reports, supiilemented as It was by monthly 

 meetings at which an opportunity was affordetl for discussion "of all sub- 

 jects of Interest to the members," very certainly constitutes an organ- 

 ization through which agreements, actual or implied, could readily be 

 arrived at and maintained, if the members desired to make them. 



Such, In outline, was the paper plan adopted by the association, but 

 elaborate though It was. In practice three Important additions were made. 

 The Practice of the Plan 



First ot all, the Southwestern territory for meeting purposes was di- 

 vided Into four districts, and Instead of the monthly meeting provided 

 for In the Plan, "In order that members could more conveniently at- 

 tend," the record shows that forty-nine of these meetings were held be- 

 tween Jan. 31, 1919, and Feb. 19, 1920, approximately one for each 

 week. In some part of the territory. 



Second, before each of these meetings a questionnaire was sent out to 



