In addition to revealing the existence and use of monopoly power, cost data are essential in determining the form of relief. It is one thing to find an unlawful monopoly, either under the Sherman Act or under proposed bills which would apply the Clayton Act test with respect to mergers to existing concentration; it is something else to conceive and carry out an effective remedy. Any implementation of dissolution necessarily raises the question of whether the breaking up of a giant corporation into smaller enterprises impairs efficiency; this issue can be approached intelligently only through the use of cost data. Behind the refusal of the Supreme Court to order dissolution of the United States Steel Corp. in 1920 and of the International Harvester Co. in 1924" was its assumption that efficiency would be impaired.

It is on this issue of size and efficiency that a fundamental divergence takes place in the consideration of public policy. If efficiency is assumed to be closely and directly related to size, the appropriate public policies would include such measures as requiring notification and defense before a public body of price increases, imposing some form of public utility rate control, or simply placing reliance upon the "social conscience" of management, or giving management financial inducements to improve the social performance of their corporation. But if size is assumed not to be related to efficiency, dissolution and companion measures designed to promote competition becomes a logical course of public policy. Only by obtaining cost data can an intelligent judgment be made on the merits of this difficult issue.

As the Federal Trade Commission has put the matter:

"It is frequently assumed and sometimes explicitly stated that large plants are typically responsible for the existence of company concentration, and that, consequently, attempts to reduce the level of company concentration would only result in 'considerable reduction in efficiency'. ***It follows from this line of argument that reductions in the level of company concentration in such industries would necessarily impair productive efficiency, resulting in higher production costs, and thus, inferentially, in high prices.

"This assumed close relationship between plant and company concentration has been vigorously attacked by other authorities who place their major emphasis as to the causes of concentration on consolidations, mergers, and acquisitions. *** It follows from this line of argument that any excess of company concentration over plant concentration is due to factors other than the requirement of large plants for mass-production operations. Such an excess results from a combining of different independent plants under common ownership and control, which may result in certain advantages to the owners and managers but which does not, in and of itself, result in any increase in production efficiency." 10

OBJECTIONS

Aside from the question of relevance to the subcommittee's jurisdiction (which has been discussed above), the principal objections which have been raised to supplying the cost data involve the issues of confidentiality, burdensomeness, and value to foreign competitors, each of which will be discussed below.

Confidentiality. In the chairman's memorandum to members of the Subcommittee on Antitrust and Monopoly of April 11, 1962, outlining the inquiry he stated:

"On the basis of our experience with the steel companies in the 1957 hearings I know that they regard this type of information [cost data] as confidential. Therefore, to avoid controversy on this issue and to expedite use of the information, it is my intention in making public the reported data to present the figures in groups of three companies so that the figures applicable to any one company cannot be ascertained.

"It is also my plan to have the individual companies' schedules submitted by the subcommittee to the General Accounting Office. The tabulations of the figures into the groups of three companies will be done by accountants of that organization under the direction and supervision of the Comptroller General of the United States."

8 United States v. United States Steel Corp., 251 U.S. 416.

274 U.S. 708.

10 Report of the FTC on "The Divergence Between Plant and Company Concentration, 1950," pp. 2-3.

As a result of negotiations with Mr. John S. Tennant, general consel of the United States Steel Corp., further concessions have been made to the industry. Thus, there are to be no size breakdowns for barbed wire, nails and staples, rails and heavy structural shapes. Similarly, the size breakdowns for plates and hotrolled bars are to be in terms of the four largest rather than the three largest companies. This has been done to prevent one company from deriving a competitor's costs by subtracting its own costs from the group aggregate. United States Steel, which has more grounds for apprehension on this point than any other company, appears to be satisfied with the groupings as finally developed. Also, as a result of a request by Mr. Tennant, it was agreed to have the schedules submitted directly to the General Accounting Office, to make available to the industry a copy of the table plans to be used in preparing the tabulations, and to return to the companies their schedules upon completion of the tabulation.

Burdensomeness.— -While prepared during World War II by accountants for the steel companies, themselves, the original questionnaires accompanying the subpenas (Forms A, B, C, and D) could, it now appears, be filled out only by the expenditure of considerable time and resources. In part, this is due to the fact that some (and perhaps all) of the steel companies do not keep records in the same manner as they were maintained during World War II. In a meeting on May 31. Mr. Tennant stated that the burden of complying with the original questionnaire would be so great as to force United States Steel to take their case to the members of the subcommittee, the full committee and the courts before complying. And even if forced to comply, it could not do so for 14 of their approximately 30 mills since the necessary underlying records for 1954 had been destroyed. Substantial deletions and modifications in the original questionnaires were therefore made, resulting in the present schedules I, II, and III.

In the first place, the basis for reporting the data for the individual finished steel products was changed from the mill to the company, thereby reducing the reporting requirements by about two-thirds. Second, a number of products were completely eliminated from the list. Third, with one exception, the items for which costs are to be supplied reflect the current detail in which cost records are currently maintained by the United States Steel Corp. (an probably other companies as well); the exception is labor costs, which is to be furnished by a simple arithmetical computation from available records. Finally, a large number of items for which information was to be supplied have been eliminated; the modified schedules call for only the most important cost elements. It is because of those substantial concessions that United States Steel Corp. withdrew its original objection to compliance on the grounds of burdensomeness.

Value to foreign competitors.-The argument that the disclosure of cost data, even in group totals, would be harmful to the American industry in its competition with foreign producers has certain elements of plausibility, which, however, can be discounted on several grounds. Behind this argument is the widely held assumption that costs per ton are significantly higher in the United States than in Europe. Given this assumption, the argument can plausibly be made that knowledge of the actual level of U.S. costs would enable foreign producers to price their product below U.S. costs (but above their costs) thereby eliminating U.S. competition. But the assumption that steelmaking costs are higher in the United States than in Europe is questionable. Labor costs, it is true, are materially higher in the United States, even despite the higher productivity of the American industry. But the reverse appears to be true of both iron ore and coking coal, both of which are more important elements in the cost structure than labor. If European costs are not significantly lower than American costs, knowledge of the latter would be of little value to foreign producers.

In the second place, without supplying cost data to the subcommittee (or to anyone else), the American steel industry has been rapidly losing its share of world markets. This in turn has been an inevitable result of the fact that the export market prices of U.S. steel producers have been approximately 30 percent above the export prices of European steel companies. If, through the presentation of cost data, it became evident that U.S. export prices were excessive in relation to costs, any resultant reductions in prices would tend to increase the U.S. share of world markets.

Finally, the argument presumes that total unit costs are constant regardless of the rate of output. While the U.S. steel industry has continually insisted that demand for its products is inelastic, it can hardly contend that lower export prices would not have given it a greater share of the rapidly expanding world market for steel. Had it secured an additional volume of orders from

abroad, its unit overhead costs-and thus its total unit costs-would have declined. Just as costs help to determine prices, so also do prices have an influence on costs an economic reality which is completely overlooked in this "foreign competition" argument.

SEPTEMBER 6, 1962.

MEMORANDUM FROM ESTES KEFAUVER RE SUBPENAING OF "COST DATA" IF PERTINENT TO A VALID LEGISLATIVE INQUIRY

QUESTION

Are the steel companies entitled to refuse to comply with the Antitrust Subcommittee subpena on the ground that the information called for is "confidential," and that "production and public disclosure *** [thereof] would be very detrimental to *** [their] competitive position at home and abroad?" (Republic Steel Co. letter of August 10, 1962).

ANSWER

Although in court cases trade or business secrets are entitled to some special protection to avoid unnecessary harm to the producing party's competitive position, such information must nevertheless be produced if material is pertinent.

(1) There are no cases dealing expressly with the problem insofar as congressional committees are concerned, but a congressional committee has at least as much right as a private party or a Government agency in a court case;

(2) Merely "confidential" information is not privileged, unless it falls into the category of a trade secret; there is some doubt as to whether cost data are entitled to the protection of a trade secret like a secret process;

(3) Even if cost data are entitled to protection as a business secret, if adequate measures are taken to prevent disclosure of the damaging information, the material must be produced.

DISCUSSION

A. The rules applicable to congressional hearings

Research has disclosed no decisions specifically involving refusals to produce alleged trade or business secrets before a congressional committee. The decisions in civil court cases, however, would seem to be authoritative. As will appear below, these court cases grant no absolute immunity to trade secrets; at most, they permit a qualified immunity where the necessity for such records does not appear; and (2) no safeguards for secrecy are possible. Neither of these two necessary conditions applies to the present situation for (1) the public interest in the committee's obtaining this information would seem at least as great as a private party's; and (2) we have indicated a willingness and method for maintaining secrecy.

Moreover, it is well established that legislative committees may adopt even less restrictive rules of evidence than obtains in courts of law. See I Wigmore on Evidence, sec. 4K (3d ed. 1940). ("Experience seems to indicate that if these [congressional] investigative proceedings were hampered by intricate rules and legal formalities, their effectiveness would be materially lessened.") At the very least, the rules applicable to congressional hearings should be no more restrictive than those in judicial proceedings.

B. The scope of the protection for trade or business secrets

Although the steel companies attempt to justify their refusal to produce the cost data in question on the ground that it is “confidential" what they probably mean is that the data is privileged as a business secret. Merely "confidential" data is entitled to no protection. Thus, in Communist Party v. Subversive Activities Control Board, 254 F. 2d 314 (D.C. Cir. 1958), the court said, with reference to FBI files:

"There is a vast difference between confidential and privileged. Almost any communication, even an ordinary letter, may be confidential. Such a document may not relate to any matter of high public concern. But privileged means that the contents are of such character that the law as a matter of public policy protects them against disclosure. A communication from a person to his banker may be confidential, but it is not privileged; certain of his communications to

his doctor or his lawyer are not only confidential but also privileged; the law does not permit their disclosure even under subpena by a court."

As to business secrets the general rule in court cases is stated in Wigmore as follows:

"It is clear that no absolute privilege for trade secrets is recognized. On the other hand, courts are apt not to require disclosure except in such cases and to such extent as may appear to be indispensable for the ascertainment of truth."

8 WIGMORE ON EVIDENCE, SEC. 2212

(McN. ed. 1961)

And in Moore's Federal Practice, it stated quite explicitly that "if the information is relevant and necessary to the presentation of the case, it will be required. The court may impose special conditions to protect the party" (4 Moore's Fed. Prac., sec. 26.22 [3] (1950)).

The cases fully support these statements; indeed, some go further and indicate that business secrets relating to costs, expenses, and the like, are entitled to almost no protection, and certainly to less protection than formulas and processes.

Thus, in Caldwell-Clements, Inc. v. McGraw-Hill Pub. Co., 12 F.R.D. 531, 545 (S.D.N.Y. 1952), an antitrust suit between two competitors involving a request for cost data, among other things, the court first laid down the following general rule: “* * * Where information is relevant and necessary to the presentation of a case the consequence of disclosure of trade secret is not a bar to discovery. [Citations omitted] * * * On the other hand the circumstances might warrant the issuance of a protective order * * *.”

It then went on to say: "*** The secrets involved, [cost and revenue data] while something the defendant would want to keep to itself, do not amount to a secret process or an item or service sold in trade. They would seem to be matters that could be brought out on the trial and therefore should be amenable to the discovery process" (545).

And more recently in Sandee Mfg. Co. v. Rohm & Hass Co., 24 F.R.D. 53 (N.D. Ill., 1959), another antitrust suit between two competitors, the court forced the defendant to disclose its cost data and internal bookkeeping, stating that (1) the information was relevant to charges of unlawful pricing; and (2) the information was not secret or confidential. Insofar as secret technical processes were concerned, the court went on, the defendant had no absolute privilege therefor, but limiting safeguards would be provided, if full disclosure of these processes were not essential to the case.

See also Paramount Film Dist. Corp. v. Ram, 91 F. Supp. 778 (E.D.S.C. 1950) (all data as to transactions with defendant's competitors); Singer Mfg. Corp. v. Brother Int'l Corp., 191 F. Supp. 322 (S.D.N.Y. 1960) (defendant, a competitor of plaintiff, was granted information in antitrust suit as to sales and prices; such data held not really a trade secret); Crocker-Wheeler Co. v. Bullock, 134 Fed. 24 (W.D. Ohio 1904) (books showing expenses, customers, and methods not shown to competitor only because not shown to be relevant); C. F. Simonin's Sons v. American Can Co., 30 F. Supp. 901 (E.D. Pa. 1939) (antitrust suit plantiff granted information about defendant's dealings with plaintiff's competitors).

The most that has been done to protect the secret is to set up safeguards. For example, in United Parcel Delivery Co. v. Federated Dept. Stores, 14 F.R.D. 451 (D. Del. 1953), secrecy of plaintiff's records was essential because plaintiff had guaranteed such secrecy to its customers, many of whom were defendant's competitors. The court, therefore, made special arrangements so that defendant could get all the information it needed without infringing on the confidentiality of the affairs of others.

But this is as far as the courts will go. If the information is pertinent and essential, the claim of business secrets will be unavailing.

Assuming, arguendo, that cost data may be classified as "trade secrets," it is subject to subpena when pertinent to the issue under consideration. Federal Trade Commission v. Tuttle, 244 F. 2d 605 (1957) in which the court said:

"The respondents contend that the information sought by the Commission under the subpena in the case at bar would include the sales records of the individual companies and that those records may be properly classified as "trade secrets." Assuming, arguendo, that sales records of the individual companies are trade secrets under section 6(f), all that that section forbids is the publication of 'trade secrets and names of customers,' in public reports that the Com

mission may make 'from time to time' which it 'shall deem expedient in the public interest.' That does no mean that 'trade secrets and names of customers' may not be subpenaed by the Commission in any proceeding or investigation under the act. They may be subpenaed in litigation in the Federal courts, if the information is relevant and necessary to the presentation of a case" (at p. 616). Certiorari was denied in this case.

In United States v. Brewster, 154 F. Supp. 126 (1957) the court states as follows:

"It has been pointed out that neither an incorporated or an unincorporated association can assert an unqualified right to conduct its affairs in secret. United States v. Morton Salt Co., 1950, 338 U.S. 632, 636, 70 S. Ct. 357, 94 L. Ed. 401. However, a corporation may challenge an order for the production of records if it is unreasonable on grounds other than self-incrimination, i.e., if it is too sweeping, Hale v. Henkel, 1906, 201 U.S. 43, 76, 26 S. Ct. 370, 50 L. Ed. 652; if the information sought is not relevant to any lawful inquiry, Oklahoma Press Pub. Co. v. Walling, 1946, 327 U.S. 186, 208, 66 S. Ct. 494, 90 L. Ed. 614, or if it represents 'a fishing expedition' in quest of evidence of crime, Federal Trade Commission v. American Tobacco Co., 1924, 264 U.S. 298, 305-306, 44 S. Ct. 336, 68 L. Ed. 696" (at p. 134).

In upholding the validity of the subpena by the subcommittee of the Committee on Government Operations directing Brewster to produce "the books and records of (each organization) for the period from January 1, 1951, to December 31, 1955, including cash receipts and disbursements, canceled checks, general ledgers, bills and invoices, bank statements, check stubs, correspondence files, memorandums, and minutes of meetings" the court said:

"*** the court finds no supportable challenge to the constitutional validity of these subpenas. Their terms are only as broad as the scope of the inquiry If subpenas like these are to fail, the unions will be cloaked with absolute im. munity and Congress must wait in the darkness until suspected union officers get around to volunteering confirmatory data" (at p. 135).

The Brewster case was reversed by the circuit court of appeals on grounds other than the validity of the subpena.

In United States v. Orman (207 F. 2d 148 (1953)), the court made the following statement with respect to the right of a committee to intrude upon the "right of privacy" where the material sought was pertinent to the investigation: **** The individual must reply, for the protection of his privacy, upon the requirements of pertinency discussed above. Where a congressional investigation enters a field to which the first amendment is applicable, courts will be particularly careful to check unlawful lines of inquiry. (Rumely v. United States, supra.) But even here it must be remembered that 'the right of free speech is not absolute but must yield to national interests justifiably thought to be of larger importance. The same is true of the right to remain silent. When legislating to avert what it believes to be a threat of substantive evil to national welfare, Congress may abridge either freedom.' (See Lawson v. United States, 1949, 85 U.S. App. D.C. 167, 176 F. 2d 49, 52, certiorari denied, 339 U.S. 934, 70 S. Ct. 663, 94 L Ed. 1352, rehearing denied, 1950, 339 U.S. 972, 70 S. Ct. 994, 94 L. Ed. 1379). Similarly under the fourth amendment: it is only 'unreasonable' searches and seizures which are prohibited. (See Zimmermann v. Wilson, supra.) It appears, therefore, that there is in law no absolute right of privacy apart from these familiar protections. (See Barsky v. United States, supra.)" "As shown above, the committee had reason to investigate Orman as it did. (Cf. Marshall v. United States, supra.) There could be no doubt in Orman's mind as to what information the committee desired, or the general purpose for which the committee had been appointed. Therefore Orman is in error in claiming a violation of his right under the fourth and fifth amendments and of his 'right of privacy' vis-a-vis the committee" (at p. 158).

In the case of Federal Trade Commission v. Electrio Bond and Share Company (1. F. Supp. 247) the court held that the Federal Trade Commission, under a resolution of the Senate directing FTC to investigate certain matters with respect to public utilities, had the power to require Electric Bond & Share Co. to produce under section 6(a) of the Federal Trade Commission Act the cost to a corporation of rendering all purchasing services to its subsidiary operating companies engaged in the interstate transmission of gas or electricity.

In connection with this discussion, attention is called to the following quotation from a decision of the U.S. Supreme Court in McPhaul v. United States (368 U.S. 372, at p. 379) relating to the failure of a witness to appear under a subpena to produce records.