This is why the Senator from Colorado has voted as he did in the subcommittee, and this is why the junior Senator from Colorado is going to vote to say that I want this determined, I hope, finally, by judicial bodies so that we will get over this point, and we will keep away from it, and maybe we will not harass you or anybody else from now on, if it is harassment; we will get away from this cost-data issue.

Senator SCOTT. Will the Senator from Colorado yield on that point? Senator CARROLL. I will be glad to yield.

Senator SCOTT. As I understand the case the Senator from Colorado is referring to, the Alcoa case, at that time the action was brought under the Sherman Act because it was alleged that Alcoa had 90 percent of the aluminum ingots at the time.

I do not recall that there appears in the decision any statement in the decision itself that full authority to subpena cost data was recognized.

The Senator has read from an opinion by Judge Learned Hand, but is he referring to an opinion in this case? I think the decision is empty in this case of any such statement.

Senator CARROLL.The Alcoa case, as I recall, the cost data was an important consideration in the court's determination as to whether or not it was a monopoly.

Senator SCOTT. But did the words that the Senator read from Judge Learned Hand appear in the decision?

Senator CARROLL. I did not read Judge Learned Hand's decision. I was reading from a report of the American Bar Association.

I said, if my memory serves me correctly, Learned Hand had something to do with that decision. I will be glad to correct the record.

Senator SCOTT. I was just raising the point so that the Senator may be able to refresh himself on the decision, as I know he would like to do.

However, I did want to make the point that the decision to which he refers is not the case here. What we are dealing with here is a Senate subcommittee hearing.

What we are dealing with here is the charter of that Senate subcommittee.

There is no doubt that there is a resolution which empowers the Senate subcommittee to proceed.

My point was that if this matter were a matter of determination by the High Court rather than by the full Judiciary Committee, it is my judgment that they would be guided by the Watkins case.

Senator KEFAUVER. Mr. Chairman?

Senator CARROLL. May I finish here for the record, Mr. Chairman ? It will only take a minute, because we want to clarify this point. I am again reading from this report of the American Bar Association on page 532, entitled "Relevance of Cost Data to Proof of Power To Raise Prices or To Exclude Competition." The committee says: In both United States v. Aluminum Company of America, supra, and the United States v. du Pont

This is a 1952 decision—

the relevance of cost data to proof of the existence of monopoly power was demonstrated. In both cases determination of a relevant market in which monopoly power was alleged to exist was at issue. Stated in another way, the evidence of

monopoly power was in both cases analyzed in terms of whether the availability of products which could be substituted for that allegedly monopolized privilege of the exercise of monopoly power.

Now, I am informed that the Supreme Court itself assigned Learned Hand to write this decision. But, going again to the question not of policy-I agree with Mr. Patton that this committee certainly could determine policy whether it wants to go into this field or not-but on the question of cost data and its relevance to the lawmaking body, I think there can be no doubt, if the Court can demand, as the Court has done, why cannot the Senate of the United States demand it?

Senator KEFAUVER. Mr. Chairman, I would ask unanimous consent that this material from the American Bar Association's Section of Antitrust Law be inserted in the record.

(The document referred to is as follows:)

92394 063-10

REPORT OF SHERMAN ACT SUBCOMMITTEE ON COST DATA PROBLEMS IN SHERMAN ACT CASES

The following report was prepared by a Subcommittee of the Committee on the Sherman Act for presentation to that Committee and is reproduced for the information and consideration of interested members of the Section. Miles W. Kirkpatrick served as Subcommittee Chairman and other members included Sigurd Anderson, John T. Chadwell, Steven E. Keane, Marshall P. Madison, George D. Reycraft, Jr., and Taggart Whipple. The Subcommittee was appointed by Cyrus V. Anderson, Chairman of the Sherman Act Committee, who also participated in the preparation of the report.

The views expressed in this report are not necessarily those of the Committee for which the report was prepared and because the report has not been submitted for approval by the Council, or the Section, or the governing bodies of the A. B. A., it cannot under Article X, Section 3 of the Section By-Laws be deemed to reflect the views of the Section or the Association.*

I. INTRODUCTION

The recent decision in United States v. Eli Lilly & Co., 24 F. R. D. 285 (D. N. J. 1959), focused the attention of bench and bar on the question which up to then had not been a matter of sharp controversy in antitrust litigation:

To what extent are costs and profits relevant in Sherman
Act cases?

The question is an important one. With antitrust litigation imposing greater and greater demands upon the judicial system,1 it is critical that no issue be permitted to remain in a case—particularly if its presence means that court and counsel will be concerned with voluminous documentary material of a detailed nature-unless the issue is clearly relevant to the subject matter of the particular action.2

*For the origin of this paragraph see the minutes of the Council meeting held in Washington, D. C., on August 31, 1960, supra.

1 Data showing the number of days, including time devoted to procedural and discovery matters, involved in antitrust litigation in the United States District Courts and before the Federal Trade Commission, are not available in exact detail as such.

2 The report of the Judicial Conference on Procedure in Antitrust and Other Protracted Cases, 13 F. R. D. 62 (1951), emphasized that in the protracted case "such evidence as is merely 'possibly helpful', or which merely supplies 'atmosphere' or 'background'... should be strictly excluded from the record." Id. at 76. In further admonition the Report states:

"

If irrelevant material is included, the trouble is aggravated. Confusion is compounded in keeping track of the subject-content of such masses. The expenses of reporting and printing are enormous. But those are not

This report will consider first the question of relevance of cost data to proof of Sherman Act violations. There will then be discussed other legal considerations concerning cost data, assuming relevance. Thereafter, consideration will be given to the procedural aspects of obtaining cost data information. Finally, the use of appropriate protective orders in cases where cost data are found to be relevant will be considered.

II. RELEVANCE OF COST DATA TO PROOF OF SHERMAN ACT VIOLATIONS

Whether cost data are relevant to proof of particular offenses under the Sherman Act is a question of acute significance in light of the practical problems attendant upon production, analysis and presentation to a court of such data. This is apparent from the Eli Lilly decision, supra, requiring defendants, in spite of burdensomeness and other difficulties, to produce sales and cost documents which were held to be of "liminal relevancy". 24 F.R.D. at 291 Such a holding permits the speculation that the court would not order production of documents of some lesser degree of relevance. There may be many cases where the revelance of cost data is so slight that factors of convenience indicate that such data should be excluded. Without attempting definitively to accommodate relevance and burden, we nevertheless are able, on consideration of several litigated cases, to conclude that under certain circumstances, cost data have been determined to be relevant to proof of Sherman Act violations.

It is basic that a defendant's costs, in and of themselves and without other facts, are not in any way conclusive as to violation of the Sherman Act. There must be other evidence; for instance, below-cost selling, without more, is not violative of the Sherman Act, but below-cost selling, in connection with such other factors as the length of time it is continued, the areas involved, and the actual exclusion of competitors, together with the requisite intent, can support a charge of attempted monopolization. Other examples will be considered below. We shall first take up the use of cost data in actions, brought under Section 1 of the Sherman Act and then consider the monopolization cases under Section 2.

Before turning to judicial consideration of the relevance of cost information to proof of Sherman Act violations, it is appropriate to define our terms. For present purposes, cost data are those facts

the most objectionable difficulties. Every fact or alleged fact admitted to a record on behalf of one party requires that the opposite party put in one or more contradictory or explanatory facts, if any there be And so the material in the record grows in concentric circles." Id. at 74.

which describe the costs of a given operation and which permit a determination of profits or losses. We include not only the various individual costs incurred in manufacture and sale of a given product (production costs, transportation costs, etc.) and a total of such costs, but also the existence and extent of profitability of a specific manufacturing operation or total operations. The term "cost data” thus refers to information relating to one product or total operations in terms of a single item of cost or profit or of total costs or profits.

A. RELEVANce of Cost Data to Proof of Section 1 VIOLATIONS

Factually, we concern ourselves here with the situation where competing sellers have sold one or more "standardized" or "homogeneous" products at uniform prices. The immediate question is whether the product costs of the sellers during the period of time involved will, under any circumstances, give rise to an inference that the prices were the result of conspiracy. Because ordinarily that question has most often arisen in the context of "standardized” or "homogeneous" products which are sold at uniform prices, we concern ourselves here with that particular problem.3 The ultimate issue to be resolved is whether such uniform prices are the result of conspiracy among the sellers.

1. The Economic Bases for Uniform Prices

We start with the proposition that “a characteristic of a competitive market is that the prices of identical products tend to be identical.” That is so because by definition the products of each seller are equally acceptable to buyers; therefore no seller can charge informed buyers higher prices than his competitors, and his competitors will be forced to meet any lower price which he might offer. In the words of Simon N. Whitney, Chief Economist and Director of the Bureau of Economics of the Federal Trade Commission:

“... Sheer self-interest of each seller acting independently can create price uniformity, since each knows that if he charges more than the others his sales will drop toward zero, and if he charges less than his rivals they

8 The history of antitrust litigation discloses that the issue of price conspiracy involving non-homogeneous products has seldom been before the courts and that there has been no discussion of the relevancy of cost data in such a case. Accordingly, this paper does not attempt to discuss that question.

4 Stocking, The Rule of Reason, Workable Competition, and Monopoly, 64 Yale L. J. 1107, 1141 (1955). See also Sugar Institute, Inc. v. United States, 297. U. S. 553, 600 (1936); Cement Mfgr's. Ass'n. v. United States, 268 U. S. 588, 605 (1925); Maple Flooring Mfgr's. Ass'n. v. United States, 268 U. S. 563, 582 (1925); Pevely Dairy Co. v. United States, 178 F. 2d 363 (8th Cir. 1949), cert. denied, 399 U. S. 942 (1950); United States v. Nat! Malleable & Steel Castings Co., 1957 Trade Cases, para. 68,890 (N. D. Ohio 1957), aff'd. per curiam, 358 U. S. 38 (1958); United States v. Standard Oil Co. of New Jersey, 47 F. 2d 288, 316 (E. D. Mo. 1931).