United States. Congress. Senate. Committee on the.

The Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) online

. (page 3 of 140)
Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 3 of 140)
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of the law is to promote competition. That is, you cite two conflicting
things. One is that the pur]iose of the law is to ])romote competition
not protecting competitors. Is that a valid proposition ?

Is that what tlie antitrust law of this nature is: To protect com-
petitors?

Mr. Katzexbach. I do not believe that that is what it is, or that is

Avhat it should be. I believe that there are decisions where it is very

difficult to explain the result in any other terms, or I do not think

that any purpose other than that of protecting competitors is served.

I think the purpose of the antitrust laws should be to insure an

40-927 — 75 2



4846

economic system, and I think this does in almost all circumstances
require competition, and vigorous competition, but a system in which
the consumer gets better products at lower prices than he would other-
wise get. That seems to me the whole purpose.

I think what that requires in particular industries may be different.

Senator Hruska. The bill that we are considering says that if in the
judgment of the Industrial Eeorganization Court, ancl after a prose-
cution by the Industrial Eeorganization Commission, it is found that
the company is too big, the Court can split it up into pieces of lesser
size than the present size is.

What impact will that have on the consumer insofar as prices are
concerned? Is there any idea if that result does happen? Instead of
having one big compaiiy and several smaller, give them each one-
tenth^and say, ''Go at it "now. Now you are on equal terms."

Mr. Katzexbacii. I think the results would probably vary from
industry to industry. What is important is that a size that will achieve
genuine economies of scale, which will provide for sufficient research
and development in order to produce and to innovate new products,
should not be prohibited.

Now, in some industries that may be larger than it would be m
otliers. I don't see how you can have a rule of thumb that says when
vou get to be this size in any absolute sense, or even in proportion to
other companies and other 'industries, that you therefore should be

broken up. i i 1 1

We certainly don't want to go back to a cottage nidustry and hold
that out as an efficient economic system.

Senator Hruska. What would such a procedure have by way of
impact upon competition worldwide? It is thought by some economists
that the tendency in Europe and perhaps in Japan is to try to com-
bine some of the companies that they now have in larger units to
compete against U.S. firms. In fact, they resort in some places to
cartels to achieve that purpose.

Obviously, this Congress has no jurisdiction over them, and they
would go oil their merry way if they found a competitive advantage
to that tvDe of organization.

Now, if there is competitive advantage to that kind of organization,
and if in the United States the large companies would be broken up.
would it be a reasonable and logical outcome that America would
be at a disadvantage in the worldwide market ?

Mr. IvATZEXBACH. I think it might well be in many instances. I
think in the past we have competed very successfully in foreign mar-
kets, far more successfullv than we do today, in part because of the
large market provided by 'the United States. This permitted organiza-
tions to increase in size and to achieve various economies of scale in
ways which were extremely difficult — at least prior to the Common
INIarket — for European companies to accomplish. I think, appreciating
that fact and in response to American competition, Japan and Europe
are doing precisely what you suggest.

Indeed, there is subsidy in both Europe and Japan in some indus-
tries, certainly in the industry in which I am presently engaged, which
is done for tlie purpose of trying to achieve those economies in order
that those companies can enter the United States market.



4847

Senator Hruska. One of this country's aches and pains is its bahmce
of payments and, of course, exports. We will be handicappins; our
economic structure here to satisfy the whim and the current mode, or
the populous demand for smaller sized companies, resulting in an
undue regard for size, without reference to economic and industrial
efficiency.

There is going to be a price to pay, isn't there ?

Mr. Katzexbach. I would think there would be. Senator. And I
would think that in many of the larger industries one of the circum-
stances which should be looked at by those enforcing the antitrust
laws, or by this committee if it engages in industry studies, is what
is the effect of this with respect to balance of payments ? What is the
effect of this with respect to national defense considerations? What
is the effect of this with respect to foreign com}>etition and emplo}"-
ment in the United States ? I think those are valid economic considera-
tions to consider in trying to structure what your economic philosophy
with respect to competition should l)e.

Senator Hruska. Would another field, for consideration of this
committee and of the Congress, be that our antitrust laws have ex-
traterritorial effect, at least in theory? There is an effort made to
enforce extra territorially our antitrust laws.

Isn't it a fact that there is very often in foreign countries a require-
ment that any industry coming to a certain country will have to get
into a cartel, usually with the government itself, and to respect and to
totally comply with the territorial restrictions in their activity in
connection with that joint effort between the government and the
American corporation. So we have a built-in prohibition of an Ameri-
can corporation getting into a situation like that because of our anti-
trust laws, and their extraterritorial application, or, in the alterna-
tive, have them go abroad and engage in it and become guilty of vio-
lating the law?

Mv. Katzenbacti. Yes, Senator. I think circimistances of that kind
can occur. I think in addition to that American businesses in this
country face feelings of economic nationalism abroad, so that foreign
governments often prefer, sometimes by law are required to prefer,
products made by their own local manufacturers, and this amounts in
a way to a subsidy of those firms and makes competition more diffi-
cult for American firms.

I think there are circumstances where you can be required by for-
eign law. as you point out, to engage in activities that would other-
wise be illegal.

I think in the enforcement of our antitrust laws, normally if those
are the facts that there is an attempt to take that into consideration
and not to put a company in a, "damned if you do, damned if you
don't" situation.

But there is no guarantee that that could be true.

Senator. Hruska. You have commented on the inadequacy of pro-
fessional assistance to our trial courts. We do make an effort in one
field, certainly, to provide that assistance. That is in the U.S. Court
of Customs and Patent Appeal. They do have a technical staff, deal-
ing as they do with highly intricate and technical subjects, but cer-
tainly no more highlj^ technical or intricate than the subject matter,



4848

for example, of the lawsuit you are goiug to get started in on Octo-
l)er 7 ; is that correct.

"Sir. Katzenbach. Yes ; that is certainly true. Senator.
Senator Hruska. Any remarks you might haA^e made about tlie
district court are not in derrogation of the capacity of ^the judges,
hut they certainly would have some bearing on the lack of equipment
that they have with which to discharge their duties. Am I correct?
Mr. Katzenbach. That is absolutely correct.
Senator Kruska. Do the antitrust suits get into patent law?
Mr. KxVTZENBACH. Many of them do, and that is a complicated
area. But even absent patients you can have a complicated economic
consideration, complicated technological considerations, and Federal
district judges normally have only the assistance of one or two young-
law graduates as clerks. There are really no facilities and very little
in the way of funds available for them to engage independent ex-
perts, as I think many of these cases, if not required, w^ould certainly
make it very desirable.

It is a huge job for one man, and I think he could use the help of
objective experts to assist him. But there is no provision in the law
for that, and you have to kind of gerrymander at the moment. That
is, if the parties to a lawsuit would be willing to put up on each
side the money required for the judge to engage some expert, and
the judge wanted to, that device would be available to him.

But I believe that judges ought to have the funds and the where-
withal to engage expert assistance on their own behalf.

Senator Hruska. In past years, in the courts of equity, the court<
were able to appoint masters.
Mr. Katzenbach. Yes.

Senator Hruska. Tliey delegated to them the task of determining
facts, and they made available to them very often technical people,
people who were drawn from the field involved in the litigation, and
they proceeded in that way.

One principal or historical example is when Charles Evan Hughes
was appointed master of the Great Lakes Water Level case.

I don't know how long it took, probably 2 or 3 years, to work out
a master's report on that for the benefit of the court.

Is there any possibility of going in that direction in cases of this
kind?

Mr. Katzenbach. Yes ; there is a capacity to appoint masters in that
way, and that is useful. It is not what my remarks were primarily
aimed at, because when you appoint a master to assist it goes through
the normal judicial process w^ith the evidence, hearings, argument,
and so forth', Ijefore the master. The master then files a report and the
judge either accepts or rejects the findings of the master.

I think in addition to that a judge simply needs help in the und-M -
standing of technical issues in a far less formal way than a hearing
before a master.

One example that you may be familiar with. Senator, is the United
Shoe Machinery case wliich was tried before Judge Charles
Wayzansky in I3oston. He was able to employ a distinguished
economist, Karl Kaysen, who assisted him in the case as a clerk,
although Dr. Kaysen was not at that time a lawyer but acted as a
clerk and assisted the judge in the preparation of his opinion and
his economic analysis.



4849

That is the sort of thing that I liad in mind.

Senator Hart. Mr. O'Leary.

Mr. O'Leary. Mr. Katzenbacli, we have heard and read about the
resources which have been brought to bear in the litigation between
the Government and IB]M.

I Avould lilve to inquire if you would have any objection to supplying
for the record the resources which 1B]M has brought to bear in that
case.

By that, I mean the approximate number of documents which IBM
has produced, the approximate number of documents which other wit-
nesses in the case have been called upon to produce, the approximate
number of attorneys and other personnel working on behalf of IB^I,
and the estimated cost to IB]M of defending itself in that case.

[Material not supplied.]

Mr. Katzexbach. I think some of that material can certainly be
supplied. Frankly, I would have no way, Mr. O'Leary, of estimating
the cost to IBM of defending that case.

I really wouldn't know how to do it. I ha\e no estimate of the num-
ber of hours of management time that have been spent on various
aspects of this. I wouldn't know how to do that. I know it is a real
cost.

I would have no way of breaking out the number of hours spent
by people on this case and other similar litigations that we are in-
volved in. I don't think I could provide accurate figures in that regard.

Mr. O'Leary. Could you help us with respect to the cost of outside
counsel ?

Mr. Katzexbach. What?

Mr. O'Leary. The cost of counsel.

Mr. Katzexbach. I would have to allocate that from one matter
to another in various ways. I don't know what that would involve,
and it seems to me that it'would be far more appropriate to put in at'
the end of a case than it would be when a case is ongoing.

Mr. O'Leary. iSIr. Katzenbach, do you beliexe that the Government
has the necessary resources to prosecute a case of this dimension?

Mr. Katzexbach. I do; yes. Mr. Barr points out to me that the
judge has asked that question repeatedly, and they have repeatedly
affirmed that they have all the resources that they need.

It does seem strange to me, Mi-. O'Leary, to think that a private
corporation might have more resources than the Government of the
United States.

Senator Hart. If I could go back to the days when you were respon-
silde for budgeting, while you knew that you were representing a power
greater than any pri\ate power, weren't there days when you found
you needed an extra clerk and couldn't hire one because we hadn't
given the money?

" Mv. Katzexbach. I didn't find the pr-oblem then very different from
the way I find it now. Senator. I could use three hands today, and I
could have used them then.

Senator Hart. But to suggest that because the Government is enorm-
ously powerful that therefore the resources are available to base an
antitrust action on doesn't hitch up. It depends on how much Con-
gress gives the Department to do its job.

Mr. Ivatzexbacii. Of course it depends on how much Congress gives
it, Mr. Chairman. But I find it difficult to believe that the Antitrust



4850

Division of the Department of Justice — with 200 or 300 lawyers, has
the assistance of the Federal Bureau of Investigation, has the assist-
ance of other departments and agencies — is not equipped to try a case,
any case.

Oh, everybody complains in the Government about their own budget.
Of course they do. They always want more resources in any department.
Senator Hart. Is there any truth — it is almost a folk story now —
that there was once upon a time some person in the Justice Depart-
ment who decided it was time to take on the automobile industry. One
of their explanations for not doing it was, "My God, we will be lost
for 10 years. We won't be able to do anj' thing else."
Can you confirm that folk story ?

Mr. "Katzenbach. Not only can I not confirm it, but there were
seven cases brought against members of the automobile industry at the
time that I was in the Department of Justice.

Senator Hart. A basic case to restructure or dismantle ?
]Mr. Katzenbach. That issue came up from time to time, and basi-
cally, the reasons no case was brought were twofold. One was a very
serious question as to whether a case could properly be brought — a
restructuring case — against that industry, and, more importantly, you
didn't know what you would do if you won it.

Senator Hart, "that is another reason we think this industrial court
concept would help us. The issue would be largely with "what we can
do." Can we do anything better?

Mr. Katzenbach. Well, as Mr. Kuaper said recently, the restruc-
turing of an industry is an extremely complicated affair and one in
which there is great risk and hazard involved if it is not done with the
greatest care and the greatest skill.

And even if it is the restructui-ing may not work out in the way in
which honest and intelligent men anticipated that it would.

Mr. O'Leart. Mr. Katzenbach, what about this situation ?_ Let's
assume that a firm starts out in a competitive industry and simply
outmarkets every other firm in the industry and it does so to the point
where it achieves monopoly power.

Let's assume further that it just outcompeted everybody else; no
predator}^ pricing, no abuse of monopoly power. Now, in your opinion,
is it wise public policy to seek to dissipate that monopoly power and
make the industry competitive once again? Or should we just tolerate
the existence of that monopoly power ?

Mr. Katzenbach. That is an interesting question and one which
has never come up at any time in any industry in the history of this
country.

I could answer that question only if you could tell me why it was
that this hypothetical company that you have described can continue
to ])e successful.

Is it because it is more efficient? Why is there nobody else in that
business ?

As you describe it they, simply by superior skill and marketing,
have achieved the position where nobody else can compete, where,
presumably, nobody else can get into that mai'ket.

That is a very peculiar situation and one tliat has never occurred.
Mr. Barr points out, if that is the situation, then there must be com-



4851

petition, because nobod}' else is coming in. and it must be that it is
eas}' for people to come into that industry.

And for that reason this hypothetical company has to charge prices
and market in such a way that nobody else is attracted into that
industry.

Now,'^that means, from any decent economic analysis, that there
must be competition ready, able, and willing to come in to force that
kind of result.

And the competitive system has produced this and contiiuies to pro-
duce this. As, again. Mr. Barr pointed out to me, if that means that
the consumer is getting the best product at the lowest price, and
I suppose that is what it does mean in your hypothetical, then that
is not such a bad objective.

What do you want to do — create a situation where vou have less
good products at higher prices in order to have competitors?

That's the objective ?

Senator Hruska. Would counsel yield ?

What about the monopoly of a iiewspaper in a large city ? Many
large cities, in fact all but a handful of cities, in America have only
one daily newspaper. Is that a monopoly?

Mr. Katzenbach. It is not really a very useful concept in those
circumstances. There normally is some competition even on the news
side. Normally in a city you are getting competition for your adver-
tising dollar from radio and television.

You are getting some competition from newspapers in other cities
if it is a nationally advertised product.

That is a problem that came up. It came up in the Department
of Justice when I was there. Because of increasing costs in the news-
paper business it simply wasn't possible in many places to have two
newspapers.

I thought it was desirable from a news point of view, the editorial
point of view, to have two newspapers, but the economics in the news-
paper business in many cities simply did not permit that.

Now, I don't know what you do in that kind of a situation to cre-
ate another newspaper. There is nothing, it seems to me, unlawful in
that kind of a monopoly, and, indeed, I don't know a good answer
to it.

Does the Government want to subsidize another newspaper? I think
that would be a horrible result.

Senator Hruska. Well, of course, it depends on what the market
is as far as news is concerned. I suppose you will have other forms
of media.

I don't loiow of many cities v/liere there are more than or.e daily
newspaper. And that is the situation in most of the cities of America.

Mr. Katzenbach. I think with the costs in the newspaper business
that that is the situation, and it is probably simply not curable.

Senator Hruska. Thank you. Mr. O'Learv.

Mr. O'Leary. I understand, IMr. Katzenbach. that you don.'t believe
that a situation like that has occurred. You find it difficult that it
could occur.

But let's assume that it does. Should the law reach that situation
or not ?



4852

Mr. Katzenbach. I don't see why it should. On the facts that you
give in your hypothetical I see no purpose that would be served to
cure a result that was achieved by competition and is maintained
by competition.

Mr. O'Leary. For example, if Alcoa had achieved its 95 percent
share of the market without any abuse of monopoly power or intent
to use it, in your view it would be wise public policy to leave that
state of affairs undisturbed ?

Mr. Katzenbach. I hadn't thought that your hypothetical would
have included the Alcoa case. It wasn't so stated, Mr. O'Leary.
Mr. O'Leary. I am obviously adding a couple of things to this.
Mr. Katzenbach. That is an interesting situation that you put
with the aluminmii company because what would you do to cure it?
Would you say it is better to have competition even if the result of
that is liigher prices to the consumer ?

You would have to guarantee to me, before I would accept it, a sit-
uation that says you are going to get out of this better products at
lower prices.

In the aluminum situation my recollection is — ^you can correct if
I am wrong — that, in fact, nothing resulted out of the decision of the
case, that you've got competition in the aluminum business largely
as a result of the demands for aluminum in World War II, out of the
creation of additional facilities at Government expense and that Gov-
ernment, in effect, subsidizes in order to create additional aluminum.
Out of that wartime situation you did have additional competitors
in the ahmiinum industry. That was the cost of it.
Mr. O'Leary. Aren't we better off from that experience, for that
affirmative action on the part of the Government?

Mr. Katzenbach. I don't know what would have happened in the
absence of that.
Mr. O'Leary. I have no further questions, Mr. Chairman.
Senator Hart. Let me put this ultimate idea out. Some company
in this comitry manages to attract the finest minds and over a period
of time, using only legitimate means, manages to become the sole
producer of everything.

Xow. how do you react to that ?
Mr. Katzenbach. Fantastic management.

Senator Hart. Wouldn't you agree that that suggests the kind of
reasons to persuade some of us that raw economic balance sheet book-
keeping alone should not determine at what point private power be-
comes a threat.

Mr. Katzenbach. I am not, Senator, very sympathetic with that
view.

Senator Hart. Would you be comfortable with that one source of
employment, or product, or reo;ional influence?

Mr. Katzenbach. It is even more difficult for me to conceive of
your hypotlietical than it was INIr. O'Leary 's.

And if, indeed, that came to pass, as you put it, I would suppose
the time for chano-e had long since gone by, because that one company
producing everything would probably be producing the Government

too, and wouldn't

Senator Hart. That's right, where should Ave bloAv the whistle, at
what level of concentration? That is exactly what I am trying to find
out.



4853

Mr. Katzexbacii. For political reasons?

Senator Hart. Social, political, that is exactly what I am trying to
find out. It is too late when it gets too big.

Mr. Katzexbacii. If that really is the concern of the committee I
think we are many, many years from that, and I don't see how that
really could come to pass.

Your hypothetical, as you give it, has to assume in this society that
somehow or other the competitive system is not working and nobody
is enforcing any of the existing laws.

Senator Hart. Nobody is violating any laws. That develops as part
of mj^ hypothetical.

Mr. Ivatzexbach. I don't see how that is going to be possible in
your hypothetical. That is going to be done without acquisition.

It really, Senator, is so far out. that I have difficulty conceiving it. I
do think you run into a difficult problem -when you say you wish
to regulate the economy in a way that will not produce better products
at lower prices for peoJDle because you are simply concerned al>out size.

Now, that really is going back to an old mercantilist theory, saying
it seems to me, somehow or other people have got a right to be in
business to be successful and to make a profit and the consumer has to
pay for that.

i don't accept that.

Senator Hart. Any further questions ?

Senator Hruska. Well, just this observation.

Isn't the Hart industrial reorganization bill a massive attempt to
create a governmental organization that will be responsible for busi-
ness judgments at the expense of two big factors in America : No. 1,
industry, as su.ch ; and No. 2, the consumers who use the products of
that industrv?

Mr. Katzexbacit. I do, in fact. Senator, think that that would be
the result of the bill as it is presently drafted.

Senator Hruska. It has to be. AVe liave here an Antitrust Depart-
ment, whether it is the Antitrust Division or whether it is the Federal
Trade Commission or whether it is the Consumers' Protection Agency,
God forbid, or whether it is an industrial organization commission
and industrial organization court.

It is political in orijiin and nature. It cannot help but be that.

Mr. Katzexbach. I think that is correct, Senator.

Anytime the Government acts, almost by definition, it becomes
political.

Senator Hruska. I would go along with that part pi the paper m



Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 3 of 140)