possibly more efficient methods of distribution integrating wholesale and retail
functions ; by requiring proportionally equal treatment in certain promotional
practices, it has discouraged experimentation with price-cutting methods which
are equivalent to desirable types of price differentials; by prohibiting sellers
from paying brokerage to customers or their agents, it has erected an artificial
protective barrier around independent brokers and inhibited integration of
We conclude that the Robinson-Patman Act requires a major overhaul to make
it consistent with the purpo.ses of the antitrust laws. A suggested revision of the
price discrimination provisions is set forth, together with explanatory comments,
in Appendix C to this Report. We recommend that the other provisions of the
Robinson-Patman Act be repealed.
In its present form, the Robinson-Patman Act contains thre major prohibi-
tions. Sections 2(a), (b) and (f) impose broad pi-ohibitions on price discrim-
ination in the sale of commodities. Sections 2(c), (d) and (e) establish prohi-
bitions dealing with the payment of brokerage, payment to customers for serv-
ices rendered by them, and the furnishing of services to customers. Section 3
imposes criminal prohibitions which partly overlap the civil prohibitions of
Many of the reasons for price discrimination are related to the improved func-
tioning of the competitive system. Price discrimination has an adverse effect
on competition only in exceptional cases. Therefore, a statute restricting price
discrimination should be narrowly drawn, to avoid losing the important bene-
fits of price discrimination in an excessive effort to curb limited harm.
Our proposed revision of the Act would make numerous changes in substance
and in detail, and would eliminate many features of the present Act which for-
feit the benefits of price discrimination in a competitive system. Two major
changes are as follows :
1. Section 2(a) of the present law makes unlawful a discrimination which
may "injure, destroy, or prevent competition with any person . . ." as well as
a discrimination the effect of which "may be substantially to lessen competi-
tion or tend to create a monopoly. . . ." The reference to injury to competition
with specific persons has focused the attention of courts and enforcement au-
thorities on the plight of individual competitors, and enforcement designed to
preserve competitors is generally at odds with the working of a competitive
system. The proper focus is the effect on comi)etition in the market as a whole.
Our proposed revision specifies in some detail the kinds of competitive effects
which make a discrimination unlawful ; in doing so, it narrows and clarifies the
law and avoids misconceived protection of competitors as distinguished from
competition. Among other changes, the proposed language requires in general
that a discrimination be substantial in amount and persistent in duration. The
language of the proposed Act is carefully tailored to avoid prohibiting those
differentials which are manifestations of more eft'ective comi>etition.
2. Under present law, a price differential is not unlawful if it makes only
due allowance for cost differences. Enforcement authorities and courts have re-
quired these cost differences to be shown with extreme exactitude. The proposed
revision permits price differentials approximating actual cost differences or
based on reasonable estimates of cost dift'erences or based on a reasonable system
The proposed Act contains numerous other changes which are explained in
detail in the comments to the Act.
The prohibitions of section 2 (c). (d) and (e), unlike the basic price discrim-
ination prohibition, do not depend on any showing of injury to comi>etition and
are not subject to the defense of cost-justification. We recommend that these
sections be repealed, and that only such practices continue to be unlawful as are
unlawful under the revised price discrimination provisions of section 2(a).
Section 2(a) has been interpreted to prohibit any i>ayment of brokerage
by a seller to a customer or to any agent of the customer, even though the
customer has performed the services of a broker. Thus, the performance of
brokerage services by customers has been penalized, even though it may be
more efficient than the use of independent brokers. Section 2(c) has also been
held to prohibit an independent broker from reducing the commission to be
paid to him by the seller in order to enable the seller to offer a lower price to
the buyer, thereby directly interfering with price competition at both the seller
and the broker level.
Section 2(d) makes it unlawful for a seller to pay a customer for services
or facilities furnished by the customer in connection with the proce.=!sing or
sale of any product manufactured or sold by the seller unless the payment is
available on proportionally equal terms to all customers competing in the dis-
tribution of such product. Section 2(e) makes it unlawful for any seller to
discriminate in favor of one customer against another customer by furnish-
ing any services or facilities in connection with the processing or sale of eom-
nifKlity on terms not accorded to all customers on proportionally equal terms.
These sections have been interpreted to require that some form of service or
allowance be made available to every customer, even in cases where customers
can be separated into distinct groups which are only marginally in competition
witli each other, and even if factors peculiar to a particular market make it
difficult to furnish equivalent services to all customers.
The prohibitions in section 2(c), (d) and (e) were designed to prevent
conduct which, in its more blatant forms, might be viewed as equivalent to
price discrimination. Under our proposal, such conduct could still be challenged
as price discrimination, subject to the same defenses as any other price dis-
crimination. Because violations of these subsections are relatively eas.v to e.s-
tablish, they have attracted a disproportionate amount of enforcement activity
and have had .siibstantial anticompetitive effects, suppressing many legitimate
St'Ction 8 of the Robinson-Patman Act establishes criminal penalties, but
no private riglit of action, for three distinct offenses :
1. Knowingly entering into a sale transaction which discriminate against com-
petitors of the purchaser ;
2. Selling or contracting to sell goods in any part of the United States at
prices lower than those exacted elsewhere in the Ignited States, for the pur-
pose of destroying competition or eliminating a competitor.
3. Selling or contracting to sell goods at unreasonably low prices for the pur-
poses of destroying competition or eliminating a competitor.
The first prohibition very largely overlaps the basic price discrimination
prohibition in sections 2(a) and (f) of the Robinson-Pa tman Act, but it dif-
fers in several important respects. Section 3 applies only to like quantities,
has no requirement of comi>etitive injury and is not subject to a cost justifi-
cation defense. Even if a criminal i>enalty is justified for violation of the
price discrimination prohibition, there is no justification for a criminal pro-
hibition broader than the civil prohibition. We recommend that the criminal
prohiibition be dropped altogether.
The other tTvo prohibitions of section 3 are designed to reach particular
instances of predatory price cutting with adverse effects on competition in
the seller's market. We have taken account of the purposes of these prohibi-
tions, to the extent they are justified, and have reflected them in the ibasic price
discrimination prohibiton in the body of section 2 of the Robison-Patman Act.
We recommend that they be dropped from section 3, since there is no justification
for a criminal prohibition inconsistent with or broader or less specific than the
civil prohibition of section 2}
V. THE PATENT LAWS
We recommend new legislation to curtail certain practices which, under color
of the patent laws, undermine the purposes of the antitrust laws. Such legisla-
tion would not prevent the owner of a valid patent from fully exploiting the
monopoly conferred by his patent, and it would not involve any changes in the
structure of the patent law. A draft of such legislation and of comments is at-
tached to this Report as Appendix D.
We recommend that, in general, a patent owner who has granted a license
with respect to his patent must license all qualified applicants on equivalent
terms. This proposal does not involve compulsory patent licensing. A patentee
may decline to issue any licenses at all, or he may issue licenses in some fields
of use and reserve to himself the practice of the patent in other fi'eldsii
Ordinarily, it is unnecessary for a patent owner to grant an exclusive license
to obtain the full reward for his patent.
A rational patent owner can exact the full monopoly reward of the invention
by setting appropriate royalties, and that reward will be greatest if the patented
invention isi exploited under competitive conditions. The grant of an exclusive
license to a single licensee or a small group of licensees generally puts the licensee
or licensees in a position to exact a monopoly profit. In effect, the patent owner
is sharing his monopoly profit with the licensees. This will generally be to the
patent owner's advantage only if the patent is vulnerable or if the arrangement
creates a monopoly broader than the patent." That is, a patent licensing arrange-
ment with limited membership may be nothing more than a device by which prices
are fixed or markets shared.
These effects can be avoided by a requirement that, if a license has been granted,
a license on the same terms must be made available to all qualified applicants.
Then, a licensee will be unable to obtain more than a reasonable profit for his role
in exploiting the patent. Our proposed remedy will not require that courts or
administrative agencies determine what are reasonable royalties ; royalties would
continue to be bargained between patent owners and initial licensees. To the
extent this proposal increases the number of licensees during the life of a patent,
it may also result in more effective competition in the practice of the patent after
We also recommend that copies of license agreements be filed with the Com-
missioner of Patents and be freely available to all, including antitrust enforce-
ment officials. This provision is es.sential to effective operation of the nondis-
criminatory licensing requirement, and it is similar to the requirement of exist-
ing law that interference settlements be filed. Even if the nondiscriminatory
licensing requirement is not enacted, we recommend enactment of the filing re-
quirement. Such a requirement would materially aid the enforcement of the anti-
1 Dennis G. Lyons and George D. Reycraft believe that the latter two prohibitions of
section .3 should not be repealed.
- In some few cases, the prant of an exclusive lioenisie may be a nece.ssary indiucement to
the licensee to undertake the commercial risk of exploiting an innovation to an extent
beyond the patent owner's financial capabilities. This possibility is reflected in the statute.
See page D-13. Many members doubt that such cases will arise.
31&-138 Oâ€” 69â€” pt. 1 ai
trust laws to the extent they now apply to license agreements or might be inter-
preted to apply to license agreements in the future. No legitimate interest would
be sacrificed by exposing such, agreements to the light of day.
Finally, we recommend that a patent be unenforceable if the patent owner has
not consistently taken reasonable steps to enforce his patent. This provision is
necessary to avoid tacit or covert agreements not to enforce patents ; such agree-
ments would undermine the purposes of the nondiscriminatory licensing re-
quirement and the filing requirement. The provision also has independent value,
since it would recognize the obsolescence of patentsi which are of little com-
mercial value or questionable validity and are not worth litigation, but which
nevertheless serve to discourage entry into the field covered by the patent.^
vr. PROBLEMS OF INFORMATION
In the course of preparing this Report, we have been struck by the need for
improved collection, organization and availability of financial and economic data.
Such information plays several roles in antitrust law. First, it is essential in the
formulation of antitrust policy. Second, it may be essential in the application of
the antitrust laws, in facilitating observance of the law by businessmen and en-
forcement of the law by the government. Third, it may have an effect on the
operation of comi)etitive markets and thus have direct antitrust implications.
The formulation of economic policy requires a variety of financial and eco-
nomic information. Such information may, for example, cast light on the com-
petitive structure of industries, on the relation between prices and costs, on in-
dustry performance, on merger activity and plant construction, and on numerousi
other facts of obvious relevance in the formulation of economic and antitrust
policy. Much of this information is already in the files of the Census Bureau.
The Census Bureau operates under a statutory mandate not to disclose informa-
tion with respect to individual firms, even if such information is not particularly
sensitive or has alread.v been made public in another form. The only way an indi-
vidual researcher can have access to this information is by being sworn in as a
Census employee and accepting the Census Bureau restrictions on disclosure of
information ; even government agencies attempting to obtain such information,
such as the Federal Trade Commission, are subject to similar restrictions.
Current Census Bureau practice also requires that computer programming be
done by Census Bureau personnel and that Census Bureau computers be used.
Yet in contrast with its practice on population information, the Census Bureau
has not established efficient procedures for furnishing specialized economic infor-
mation to other government agencies. The result is that researchers and govern-
ment agencies very often choose to forgo the benefits of Census Bureau informa-
tion and to gather less detailed information by dissemination of questionnaires
or to use public sources.
We recommend establishment of an interagency group consisting of repre-
sentatives of the Census Bureau, Securiities and Exchange Commi.Â«sion, In-
ternal Revenue Service and other agencies which gather infoirmation ; the
Council of Economic Advisers, Federal Trade Commission, Justice Department
and other agencies which use information ; and the Oflice of Statistical Stand-
ards in the Bureau of ithe Budget. This group could also include experts from
outside the government. The group would consider how, within the framework
of existing restrictions on disclosure, information for policy-making and re-
search may be made more readily accessible to ix>licymak^rs and researchers.
In addition, the group would assist the Census Bureau and other information-
gathering agencies in setting up procedures and facilities, along the lines of
those presently set up for population census information, for responding to
requests for economic information.
The group would also consider the extent to which new interpretations of
existing legislation and, eventually, new legislation are feasible and desirable
to modify the effect of restrictions on disclosure. We recoognize that the Census
Bureau depends in large part on voluntary compliance with its reporting
requirements, and that the assurance of confidentiality is an important in-
gredient in obtaining that compliance. Therefore, any modification of di.sclosuire
restrictions would be limited to those tyi>es of information which are highly
^ We have not fri\^n dirtailed consideraition to the desirahilit.v of permitting license
restrictions on pricing, field of use or territories. Members of the Taslc Force have expressed
varying views on different types of restrictions.
significant for antitni!?t policy and either are not highly sensitive or are similar
to other information which has been publicly disclosed.
The application of our legislative proposals, as vs^ell as existing antitrust
law, requires economic information such as market shares and sales in specific
markets. Information prepared by the Census Bureau is based on industry
and product classifications which do not necessarily coincide with relevant
national and regional markets. We recommend that the interagency group
recommended above establi.shed procedures for developing and publishing in-
formation of antitrust significance, such as studies of important markets, in-
cluding those in which deconcentration proceedings might be appropriate and
those in which merger activity has been high.
In many cases such information could be made available without disclosing
information on industrial firms. The group also could coordinate and evaluate
requests for information to the Census Bureau and other information-gathering
We recommend that the provisions of the Securities Exchange Act of 1934
authorizing the SEC to specify the details of financial reports "for the protec-
tion of investors and to ensure fair dealing" in the securities markets be
expanded to recognize tlie impact of profit and loss information on the opera-
tion of competitive markets, and tx> require that the SEC issue regulatioois
implementing these provisions after consulting with the Justice Department
and the Federal Trade Commission. Pending adoption of this recommeaidation,
the JiLstice Department and the Federal Trade Commission should be requested
to consider submitting recommendations to the SEC, within the existing statu-
tory framework, for regulations providing for disclosure of profit and loss
information desirable from an antitrust viewpoint. Such recommendations
should be submitted as soon as iwssible, since the SEC is currently considering
divisional reporting requirements.
Information as the profitability of operations in particular economic markets
should be widely available to facilitate the operation of a competitive economy.
Above normal profits in an industry should attract investment by new entrants
or additional investment by existing suppliers. Thus, in the long run, output
will be brought up to the level optimum from the point of view of the economy
as a whole. In addition, new entry into a market in response to profit oppor-
tunities may reduce concentration in that market. The availability to stock-
holders of information as to the profitability of particular operations of trans-
actions might encourage closer scrutiny of the advisability of such operations
and transactions. The availability of profit information may lessen any tempta-
tion for large or diversified firms to use their superior financial resources and
staying power to drive smaller rivals out of business.
VII. ADDITIONAL RECOMMENDATIONS
1. Premerger notification and related matters.
The Department of Justice and tlie Federal Trade Commission must presently
rely primarily upon public sources of information in the enforcement of statu-
tory prohibitions on mergers. We endorse proposals for mandatory premerger
notification and have set forth a proposed statute in Appendix E. Under the
proposed statute, the Attorney General would be empowered to make regula-
tions, subject to certain restrictions designed to keep reporting from becoming
too onerous. At the same time, we recommend a reasonable statute of limita-
tions, such as ten years, on government actions against mergers. We oppose a
requirement that actions be brought prior to consummation of mergers, since
this might prove too much of a strain on enforcement resources. Such a require-
ment might also hamper legitimate mergers by encouraging enforcement au-
thorities to bring actions which, upon more complete investigation, might not
have been brought.
Our proposal, coupled with the clear standards of our proposed legislation
to deal with mergers, would make it possible to resolve many merger actions
prior to consummation of mergers. Under those standards, it would be possible
to obtain preliminaxy injunctions in cases where mergers appeared to be unlawful.
2. Duration of decrees
Many decrees under the antitrust laws, including consent^ decrees, are of long
or indefinite duration. The effects of these decrees may change' with the passage of
time. Such decrees may turn out to be ineffective or anticompetitive. We recom-
mend a general provision limiting the duration of antitrust decrees, including
consent decrees, to a relatively short period, such as ten years, but permitting
the court to extend decrees in original or modified form for additional ten-year
periods. Provisions along these lines are built into our proposed legislation
to deal with concentrated markets and our proposed revision of the Robinson-
Patman Act A draft of suggested language is set forth in Appendix E to this
3. Income tax laws
Some features of the income tax lavps may have effects on market concentra-
tion or merger activity. We recommend that the income tax laws be reexamined
to see whether these effects exist and whether they can be neutralized without
significant harm to the purposes of the income tax laws.
The reorganization provisions of the Internal Revenue Code provide that, in
certain kinds of acquisitions, the selling stockholders recognize no gain. The
reorganization provisions, alone or in conjunction with other provisions of the
tax laws, may provide significant incentives to stockholders to make their
companies available for acquisition. On the other hand, there are offsetting dis-
advantages to the acquiring corporation, and the reorganization provisions may
affect primarily the form rather than the number of acquisitions. The justifica-
tion for and effect of these provisions deserve reconsideration in preparing a
tax reform program.
Corporations and their stockholders are generally taxed separately, and stock-
holders, are not taxed on earnings which are retained rather than distributed
as dividends. The effect of this provision may be to channel investment funds
through existing corporations rather than indei^endent or new enterprises. Thus,
corporations may grow larger than they otherwise would, and some of this
expansion may serve to maintain or increase their market shares in industries
in which they already have large market shares. In addition, this aspect of the
law may encourage acquisitions for cash or acquisitions of corporations which
will require the investment of additional capital.
We recommend that the competitive effects of this feature of the tax laws
be examined in preparing the tax reform program.
4. Antitrust laws and regulated industries
In the regulated sector of the economy, the bias of policy and its enforcement
is overwhelmingly against competition. This bias manifests itself in more per-
missible policies toward mergers and exemption of mergers from antitrust
standards; in restrictions on entry; and in regulation of minimum rates for
the protection of competitors and competing industries, in addition to more tra-
ditional regulation of maximum rates for the protection of consumers. We
believe that this bias is contrary to the public interest in many cases. We recom-
mended further study of regulated industries to determine the extent to which
competition and the competitive standards of the antitrust laws can be sub-
stituted for at least some aspects of regulation.
5. Resale price maintenance
The Miller-Ty dings Act and the McGuire amendment to section 5(a) of the
Federal Trade Commission exempt certain resale price maintenance arrange-
ments from the antitrust laws where States have enacted so-called "fair trade"
laws. The case against resale price maintenance has been made so often and
persuasively that we think no further elaboration is necessary. We recommend
repeal of antitrust exemptions for resale price maintenance.
appendix a. concentrated industries act
Section 1. â€” Reduction of Industrial Concentration.
(a) It shall be the duty of the Attorney General and the Federal Trade Com-
mission to investigate the structure of markets which appear to be the oligopoly
(b) When, as a result of such investigation, the Attorney General determines