CELLOPHANE IS SACRED TO DU PONT
Berman, Daniel M.
Cellophane Is Sacred to Du Pont By DANIEL M. BERMAN Washington WHEN THE federal government's anti-trust case against du Pont was being argued in the Supreme Court, a sizable representation of the...
...He wrote a separate concurrence rebuking Reed, Burton, and Minton for their admission that, if cellophane were the relevant market, du Pont possessed an illegal monopoly...
...On the closing day of the Court's term recently, the Justices announced a four to three decision upholding the company...
...And the Chief Justice warned: "Such beneficence is of uncertain tenure...
...The facts of du Pont's corner on cellophane were so clear that even the writer of the majority opinion, Justice Reed, recognized them: "It seems apparent that du Pont's power to set the price of cellophane has only been limited by the competition afforded by other flexible materials...
...Aluminum foil—another "substitute" for cellophane—is opaque and has a low bursting strength...
...After admitting that du Pont monopolized cellophane, a bare majority of the Justices nevertheless sustained the lower court, which had ruled for du Pont...
...Its efforts were generously rewarded...
...But Reed, Burton, and Minton were joined by Felix Frankfurter, and du Pont won a total victory...
...Warren pointed out that, by this type of reasoning, one who enjoys an absolute monopoly in the motion-picture business could escape anti-trust action by claiming competition from television, radio, sporting events, and the stage...
...The majority opinion conceded that du Pont possessed a monopoly in cellophane, since it produces three-fourths of the nation's supply...
...But it did not take du Pont long to compromise Sylvania...
...the vote of only one more member could have stamped du Pont an illegal cellophane trust...
...All technical information was to be shared by the two companies and withheld from all others...
...This, said the government, was a violation of the Sherman Act, which outlaws "every contract . . . trust . . . or conspiracy, in restraint of trade or commerce among the several states...
...Du Pont was frank about its motive: Olin was provided with an opening so that du Pont could "reduce the hazard of being judged a monopoly of the U.S...
...Such indifference to du Pont's price cuts shows that the other manufacturers do not consider their products in competition with cellophane...
...Two of La Cellophane's top officers had absconded with complete information on how to make cellophane...
...So it is, Warren noted, that du Pont is strong enough to exclude or invite competition as it wishes...
...A comparison of the du Pont product with glassine, for example, shows that cellophane is more transparent, more resistant to grease and oils, and less liable to burst...
...Moreover, the conspiracy claim had been dropped...
...preference for it over the "substitutes...
...Moreover, it may be practically impossible for anyone to commence manufacturing cellophane without full access to du Pont's technique...
...When, however, the two producers realized that the courts might invalidate the patents and thus open cellophane manufacture to additional competition, they hastily made common cause and entered into a cross-licensing agreement that Warren called another violation of the Sherman Act...
...Du Pont's stranglehold on the American market was threatened in 1930, when another company—Syl-vania—moved into the field...
...It also can raise or lower prices at will...
...From 1929 to 1938, cellophane yielded a rate of profit almost five times as great as that produced by rayon, in which du Pont had competition...
...No longer was it charging a monopoly in cellucosic caps and bands...
...But a sharp dissent by Chief Justice Earl Warren must have set the du Pont heads to shaking again...
...Rather, the company had- "sought and maintained dominance through illegal agreements dividing the world market, concealing and suppressing technological information, and restricting its licensee's production by prohibitive royalties and jthrough numerous maneuvers which might have been 'honestly industrial' but whose necessary effect was nevertheless exclusionary...
...He explained that, once du Pont acquired the basic cellophane process as a result of its illegal agreements with La Cellophane, development of moisture-proofing was relatively easy...
...The older company had instituted a patent-infringement suit against its competitor...
...He proceeded to arraign du Pont for the unlawful methods it has used to achieve its dominance in cellophane, and he enumerated the consequences of this monopolization...
...Speaking also for Justices Black and Douglas, Warren denied that there are any products which can compete with cellophane...
...A Belgian concern was organized and it later set up Sylvania as an American affiliate...
...The last word, however, belonged to Warren...
...Now it found that the obstacles had been removed...
...No one can gainsay its sovereign determination as to whether it can make more money by increasing per-unit profit through raising prices or by increasing sales through lowering prices...
...The Court's majority, he said, "virtually emasculate" a section of the Sherman Act...
...Warren branded this agreement illegal, since the prevention of competition is as unlawful as the destruction of competition...
...None of the other packaging materials, he pointed out, combines the desirable elements of transparency, strength, and cheapness that cellophane does...
...The public should not be left to rely upon the dispensations of management in order to obtain the benefits which normally accompany competition...
...Justice Reed reasoned as follows: There are products other than cellophane which can be used for wrapping...
...Du Pont had defended itself by claiming to act under comparatively recent patents on a new type of moisture-proof cellophane...
...Olin had lost a cool million dollars trying to break into the market...
...At the very outset the Justice Department had chosen to be easy on the company by invoking the Sherman Act's provisions for civil instead of criminal action...
...Six years ago the company predicted: "Competition for du Pont cellophane will come from competitive cellophane and from non-cellophane films made by us or by others...
...The arguments of counsel for du Pont were greeted with approving nods, but the nods changed to injured head-shaking when the government presented its case...
...Thus du Pont has not broken the law, declared Justices Reed, Burton, Minton, and Frankfurter...
...Du Pont was accused of "monopolizing, attempting to monopolize, and conspiracy to monopolize" interstate commerce in cellophane and cellucosic caps and bands...
...cellophane business...
...Du Pont, the Chief Justice continued, entered into pacts with other foreign licensees, and finally succeeded in cutting off all competition when it persuaded the U.S...
...Chief Justice Warren expressed fear that the basis of the Court's decision was "fully compatible with a fully monopolized economy...
...And sulphite paper is inferior to cellophane on almost every important count...
...Sales of the du Pont commodity have skyrocketed, although at various times glassine sold for from one-half or to one-seventh the price of cellophane...
...Those who must use cellophane are at du Pont's mercy, since there are no competitors...
...Under this compact, North and Central America became the exclusive cellophane preserve for du Pont...
...During the nine years of litigation in the du Pont case, the government had steadily softened its attitude...
...Frankfurter, in fact, went further than the other majority Justices...
...The Chief Justice held, however, that the company could not rely upon these patents as a defense against the charge of monopolization...
...The company's partiality to splendid isolation is understandable...
...According to its Development Department, glassine "is so far inferior that it belongs in an entirely different class and has hardly to be considered as a competitor to cellophane...
...In 1923, du Pont and this company—La Cellophane—made an agreement to divide the world market and thus avoid competition...
...Customs Court to apply a prohibitive sixty per cent tariff to foreign cellophane...
...It was not necessary to reach this question, the fussy Frankfurter declared, and the majority's concession was a "needless disquisition on the difficult subject of single-firm monopoly...
...Warren mentioned an additional fact showing that other packaging materials are not in the same market as cellophane: Producers of glassine and waxed paper make no effort to keep up with du Pont's price changes...
...Du Pont had worked hard to maintain its hegemony over the cellophane empire...
...An industry which does not have a competitive structure will not have competitive behavior...
...BERMAN, a free lance writer in Washington, D.C., is engaged in preparing a biographical study of Justice Hugo L. Black...
...Warren denied that du Pont could honestly claim that monopoly had been "thrust upon it...
...The conduct of du Pont and Sylvania, said the Chief Justice, shows that the two sellers tend to act as one...
...Cellophane's relatively high price has not diminished their DANIEL AA...
...If we include these "substitutes"—waxed paper, aluminum foil, sulphite paper, and glassine— in our calculations, we find that cellophane represents only 17.9 per cent of the total production of flexible packaging materials...
...Only when the United States instituted its anti-trust action did du Pont condescend to admit another company—Olin Industries—to the cellophane field...
...The Court's liberal triumvirate— Warren, Black, and Douglas—wanted to condemn du Pont...
...From 1924 to 1932, du Pont lowered the price of cellophane 84 per cent, but glassine did not even attempt to follow the leader...
...Chief Justice Warren told the story of free enterprise as practiced by the du Ponts: A French corporation had been the first to produce commercial cellophane...
...By the time the case reached the Supreme Court, however, the United States watered down its demands still further...
...But the Supreme Court failed to administer even this mild chastisement...
...The Chief Justice, in his dissent, rejected this argument without qualification...
...Originally the government sought an injunction as well as a divestiture order or other steps to dissipate the effects of the monopolization...
...It is a matter of record that du Pont, itself, agrees with this view...
...Businessmen who buy packaging materials apparently agree with the Chief Justice...
...How did du Pont achieve its dominance in the American cellophane field...
...The government would now be content to slap du Pont on the wrist with a ruling that the company had monopolized the cellophane trade...
...But Reed was more impressed by another statistic: Cellophane constitutes less than one-fifth of all flexible packaging materials...
...The Justice Department had charged du Pont with maintaining a monopoly of the cellophane trade...
...Cellophane Is Sacred to Du Pont By DANIEL M. BERMAN Washington WHEN THE federal government's anti-trust case against du Pont was being argued in the Supreme Court, a sizable representation of the celebrated Wilmington family was present...
...Justices Clark and Harlan did not participate in the case...
...Furthermore, the moisture-proof patents were tainted, since they were subject to the "illicit" pact with Sylvania and were thus "part and parcel of du Pont's illegal monopoly...
Vol. 20 • August 1956 • No. 8
