February 25, 1922 



HARDWOOD RECORD 



21 



As stated in the beginning, I do not ask you to express your views In a 

 formal opinion, but it is my hope that you may see your way clear to gire 

 me the advice that will enable me to adopt the proper administrative action 

 in undertaking the duties imposed upon the Secretary of Commerce by the 

 organic act creating the department. It is unnecessary for me to say that 

 the general, unsettled condition regarding the proper provinces of trade 

 associations justifies as early a reply to these inquiries as your other 

 numerous official duties will permit. 



Yours faithfully. 



IIERBEItT HOOVER, Secretary of Commerce. 

 The Attorney-General's Reply 



Washington. D. C, February S, 1922. 

 My Dear Mr. Secretary : 



Your communication of the 3rd instant relating to the practices in which 

 trade associations may lawfully engage was received. I recognize the 

 force of your able discussion of the subject, and after careful consideration 

 of the several activities which you suggest can be exercised lawfully, I 

 beg to say : 



With reference to the first paragraph, there is no apparent objection to 

 a standard system of cost accounting, but I think associations should be 

 warned to guard against uniform cost as to any item of expense. For 

 Illustration, a strong effort has been made by some lumber associations to 

 take as a basis for estimating costs of production a uniform charge for 

 stumpage. Of course the cost of the timber in the tree to the different 

 manufacturers who own their timber in the woods greatly varies ; and as 

 to each it should be charged at its actual cost. It is as clearly a violation 

 of the law to agree upon the cost of an item that constitutes a substantial 

 part of the total cost price when its cost actually varies, as to agree upon 

 the sales price, because the sales price is substantially affected by such 

 agreement. It has been ascertained that the members of one association 

 go so far as to fix a uniform cost price, leaving to each member to deter- 

 mine what per cent profit he will add, thus eliminating entirely competi- 

 tion in so far as affected by the cost of production. 



Furthermore. I have serious doul>ts about the advisability of the latter 

 part of the sixth paragraph. I can see no olijection to cooperative adver- 

 tising designed to extend the markets of the particular article produced 

 or handled by the members of an association, but when the several pro- 

 ducers or dealers use uniform trade labels, designs and trade-marks it 

 seems to me the inevitable result would be a uniformity of price. Where 

 two competing articles are advertised in precisely the same way and bear 

 exactly the same label or trade-mark, it certainly would be difficult tor one 

 to be sold at a higher price than the other, although its quality may be 

 superior. In a way this is illustrated in the cement industry. There a 

 standard of quality has been adopted. That is, it is necessary for all 

 ?ement to comply with a certain standard, but in practice no manufacturer 

 undertakes to make, or at least no one advertises that he does make, a 

 grade of cement superior to that standard. The result is that there is no 

 competition in the sale of cement so tar as quality is concerned. It seems 

 to me therefore that it w-ould be well to eliminate the latter clause in 

 paragraph six. to wit, "and may the association engage in such form of 

 promotion by furnishing trade labels, designs and trade-marks for the use 

 of its individual members?" 



I can now see nothing illegal in the exercise of the other activities men- 

 tioned, provided always that whatever is done Is not used as a scheme or 

 device to curtail production or enhance prices, and does not have the 

 effect of suppressing competition. It is impossible to determine in advance 

 just what the effect of a plan when put into actual operation may be. This 

 is especially true with reference to trade associations, whose members are 

 vitally interested in advancing or, as they term it, stabilizing prices, and 

 who through the medium of the associations are brought into personal 

 contact with each other. Therefore the expression of the view that the 

 things enumerated by you, with the exceptions stated, may be done law- 

 fully is only tentative : and if in the actual practice of any of them it shall 

 develop that competition is suppressed or prices are materially enhanced, 

 this department must treat such a practice as it treats any other one which 

 is violative of the .\nti-Trust Act. 



Yours sincerely. 



II. M. 1iAT-i;heRTY. Attorney-General. 

 Hoover Elucidates Question Six 

 My Dear Mr. Attorney-General : 



I have your letter of the eighth instant, in reply to my letter to you of 

 February 3. 1922, in which I made informal inquiry as to the legality of 

 certain activities of trade associations enumerated in eleven questions. It 

 is very pleasing to me to note that our views regarding these matters are in 

 such close harmony. 



Your obsen-ations regarding the last clause in question (6) in my letter 

 are wholly sound, based on the language of that clause. It was not, how- 

 ever, my idea that each constituent member of a trade association would 

 use a community trade-mark on his product, i. e.. the same trade-mark that 

 was used by every other member of the association, and, therefore, the 

 last clause in that question was unhappily wordetl. The question really 

 relates to trade promotion through cooperative advertising, in which cer- 

 tain trade slogans are used, such as, "Made in Grand Rapids," which was 

 adopted by the furniture manufacturers at that furniture center. Gener- 

 ally, activities covered in question (6) are conducted by a trade association 

 in a given local community. An organization at Chicago advertises for its 

 entire membership, which includes every line of commercial endeavor in 

 Chicago, that the city is the great central market. It is cooperative adver- 



tising of this class that tends to promote trade extension in given lines or 

 collected lines of industry. Certain of the trade associations, however, do 

 devise trade-marks, not tor use by all members, but for individual mem- 

 bers. It is a well-known fact that when some manufacturer or producer 

 is fortunate enough to select a trademark that appeals to the public, it 

 becomes a great aid in selling his commodity and, as a result, it Is well 

 advertised until it becomes a household word. Other producers or manu- 

 facturers ot the same kind of an article, in order to take advantage of 

 this situation, will devise a trade-name or trade-mark as near to that of the 

 successful competitor as he thinks he can go and still escape suit under 

 the trade-mark or unfair competition laws. The activities of a trade asso- 

 ciation regarding trade-marks to which I referred in my letter ot the third 

 relate to the straightening out of Instances of unfair competition or In- 

 fringement as between the members by undertaking to design trade-marks 

 for the individual members of the association making the same product 

 that would absolutely prevent confusion on the part of the public as to the 

 producer or manufacturer of the given article and, at the same time, 

 remove all claim of infringement or unfair competition. In other words, 

 the trade-mark activity referred to was that of making the trademarks 

 of each individual member distinctive instead of common. Y'ou may, 

 therefore, consider the part ot my question (6) referred to in your letter 

 as eliminated from the question, and that the question was really Intended 

 to cover the matters stated herein. With this explanation, I feel sure you 

 will agree with me that our views on the matters presented are In com- 

 plete accord. Yours faithfully, 



HERBERT HOOVER, Secretary of Commerce. 



Dimension Stock Movement Gaining Momentum 



"The moveniont on foot to j.ronioto tlie more general use of 

 ready-cut small climension stock is gaining momentum," says a 

 statement issued by the Forest Products' Laboratory at Madison, 

 Wis. "Increased interest in this problem of such vital importance 

 to all manufacturers and consumers of the raw forest materials is 

 being exemplified by numerous progressive firms among all the 

 various woodusing industries. As a fundamental step the U. S. 

 Forest Service, through its Forest Products Laboratory, has boon 

 gathering first hand and detailed information during the past eight 

 mouths on the waste occurring in the production of dimension stock 

 at woodworking plants, together with actual costs of such pro- 

 duction." 



The statement continues: 



It is, of course, quite generally known that in present practice a 

 majority of the wood-using industries are required to purchase their raw 

 material in the form of previously manufactured lumber. After bearing 

 the excessive cost for freight on the material from the lumber manufactur- 

 ing centers, the consumers must rccut this lumber, not necessarily manu- 

 factured in sizes or shapes at all suital)le for their particular purposes, 

 into the small stock required in the fabrication of their wood products. 

 Thus, the manufacturers must not only pay for the additional cost in cut- 

 ting the required clear stock from this lumber and pay a lumber rate on 

 the defective material not suitable for the small stock, but also must pay 

 excessive freight charges on the defective material which is disposed of 

 as waste. It is obvious then, that in best practice this .small stock required 

 by the chair and other secondary woo<l-using industries should be manu- 

 factured at the lumber or dimension mill, thus saving to the consumer 

 at least the cost of the freight paid on the material wasted when lumber 

 is purchased and manufactured. Moreover, if this stock is so manufac- 

 tured, its size is such as to permit it to be produced from material now- 

 disposed of as waste by the lumberman, that is. from edgings, long trim- 

 mings, slabs, etc. As a rule, the clearest lumber produced in the tree lies 

 in the outer layers of wood, such as would be included in the material 

 just described. 



The Forest Troducts crews have so far completed detailed factory 

 studies, extending over periods of about 30 days each, at typical chair 

 plants representative of manufacturing conditions existing In the Lake 

 States, central hardwood region and the New England States. The crew 

 is now completing the initial study in the southern chair field at Thomas- 

 ville. North Carolina. Before leaving that point at least two additional 

 studies will be taken. 



The results of these studies are going to bring out information which 

 will be of real benefit and profit to lumber manufacturers, and to lumber 

 consumers in those industries where the requirements of raw materials 

 lie in the smaller sizes. 



The Association of Wood-Using Industries, the National Association of 

 Chair Manufacturers and all wood-using plants are greatly interested In 

 these studies because the results are bound to furnish a basis by which 

 operating expenses can be decreased, proiluction costs lowered and our 

 rapidly diminishing supplies of furniture and other woods be conserved. 

 The lumbermen are interested because this movement for the more exten- 

 sive use ot ready-cut small dimension stock will furnish them excellent 

 opportunitis to rework their by-products, heretofore disposed of as waste, 

 into profitable, saleable commodities. 



