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industry to eliminate in one proceeding all of the restraints that affect the distribution of petroleum products from the time that they are produced and until they reach the consumer. The Department's general program involving the oil industry was contained in the case United States v. American Petroleum Institute, et al., civil action No. 8524, District of Columbia, September 30, 1940. This case named as defendants 22 major oil companies, their subsidiaries, and their trade association, a total of 367 defendants, and encompassed every phase of operations in the industry. It was popularly called the Mother Hubbard case.
In the Mother Hubbard case the Government alleged that the Elkins Act and Interstate Commerce Act violations were elements of an unlawful conspiracy among the major oil companies to secure and maintain control over the domestic petroleum industry. Control by the major oil companies over common carrier pipelines was allegedly an essential part of the majors' monopolization of the oil industry.
The Elkins Act was enacted in 1903 to supplement the provisions of the Interstate Commerce Act. It declares that: ** it shall be unlawful * * to offer, grant, or give or to solicit, accept, or receive any rebate, concession, or discrimination in respect to the transportation of any property in interstate or foreign commerce by any common carrier subjeet to said chapter whereby any such property shall by any device whaterer be transported at a less rate than that named in the tariffs published and filed by such carrier, * * * or whereby any other advantage is given or discrimination is practiced.
The act provides that every person who knowingly violates its provisions shall be deemed guilty of a misdemeanor and subject to a fine of not less than $1,000 and no more than $30,000.
In addition, the act declares that any shipper who by any means or device whatsoever receives or accepts from a common carrier any sum of money or other valuable consideration as a rebate or offset against the regular charges for transportation shall
* forfeit to the United States a sum of money 3 times the amount of money so received or accepted and 3 times the value of any other consideration so received or accepted * * *.
The act directs the Attorney General to institute civil actions to collect the moneys so forfeited to the United States.
In its complaints in the pipeline cases, the Government alleged that the payment of dividends by the common carrier pipelines that were derived in part from tariffs paid to the pipeline by the parent company, to the oil companies that owned the pipelines, constituted an illegal rebate. Section 7 of the Government's complaint in the Atlantic Refining case states:
These refunds, rebates, and offsets were passed on or credited, directly or indirectly, by the defendant common carriers to their defendant shipper-owners under the guise of dividends and earnings, the ownership of stock, and the ownership and operation of the common carrier pipeline systems as a department by the defendant shipper-owners, being the means and devices which resulted in the defendant common carriers granting, paying, or crediting to, and the receiving by the defendant shipper-owners, of refunds, rebates, and offsets.
It is clear that the Government framed its complaints on the theory that all of the dividends paid by the pipelines to their shipper-owners constituted a rebate in violation of the provisions of the Elkins Act.
In the case that was filed against the Great Lakes Pipe Line Co. on September 30, 1940, the Government alleged that the pipeline had paid rebates in the form of dividends in the period from 1932 to 1939 in the total amount of $34,877,138.50. These dividend payments, the Government stated, exceeded a 34-percent average annual rate of return on the paid-in price of the capital stock held by the shipper-owners, even during the depression years.
Similarly, in the case against Phillips Petroleum Co, and Phillips Pipeline Co., the Government stated that during the period of 1934 to 1939 the pipeline company had credited as rebates from the regular tariff charges of transportation an amount equal to $18,920,000. The Government's complaint stated :
During the period 1934 to 1937, both inclusive, the defendant shipper-owner received from the defendant common carrier approximately $10,850,000 as dividends on $25,000 par value of capital stock, equal to an average annual return of 6,200 percent on such capital stock for which defendant shipper-owner paid $25,000 cash; and during 1938 and 1939, the defendant shipper-owner received $8,070,000 as dividends on $4,525,000 stated value of no par capital stock, equal to an average annual return of 89 percent on such capital stock.
Again, in the case against Standard Oil Company of Indiana, the Government's complaint stated :
Over a period of the last 9 years, the defendant has received from the common carrier approximately $91,653,439 as dividends on $25,084,400 par value of capital stock. This dividend-income has been in excess of 36 percent return per year on such capital stock, even during the depression years.
The consent decree that was ultimately entered in the pipeline case permits the shipper-owner of common carrier pipelines to receive dividends or payments from the pipeline which do not exceed 7 percent of the valuation of the common carrier's property. In other words, under the consent decree, payment by the pipeline of a sum of money to the shipper-owner which does not exceed 7 percent of the valuation of its property is deemed not to constitute a rebate or device in violation of the Elkins Act.
In its press release announcing the entry of the pipeline decree, the Department of Justice described the complaint as contending that the refunds and rebates involved in the suit* * * have often amounted to exorbitant rates upon the capital stock of the common carrier pipelines
From this context it would seem that the purpose of the consent decree was to insure that oil companies that were owners of common carrier pipelines and at the same time shippers on those pipelines, not receive dividends derived from transportation or other common carrier services that would amount to more than a 7-percent return per year on their investments in the pipeline companies.
The decree, however, provides that the basis for the 7 percent return to the pipelines shall be the valuation of the common carriers' property as made by the Interstate Commerce Commission.
At the time the decree was entered in 1941, investments in pipelines generally was evidenced by the capital stock that was held by the shipper-owners. According to the reports of the Interstate Commerce Commission, in 1941, the pipelines industry has issued capital stock in the total value of $254,614,453. On the other hand, the funded debt of the pipeline companies that reported to the ICC in 1941 amounted to only $37,906,941.
Since the entry of the decree in 1941, there have been substantial changes in the relationship between the investments by oil companies as represented by their stock holdings in pipelines, to the investments in pipelines as represented by the funded debt owned by pipelines. In 1955, for example, the total capital stock outstanding in the industry amounted to $331,144,492. The funded debt owned by pipelines, however, was $950,854,359. During the period 1941 to 1955 the proportion of oil-company investments in pipelines as reflected by their capital stockholdings have steadily decreased in comparison to the investment funds available to pipelines from outside sources.
Our investigation indicates that, for the purposes of computing the valuation on which is based the 7 percent permissible payment by the pipelines to the shipper-owners, the pipelines have included debts owed by the pipelines to outside parties. Our investigation has also disclosed that the Department of Justice in the past has advised the defendants that this practice does not accord with its interpretation of the decree.
Examination of the reports submitted by the defendants, pursuant to the provisions of the consent decree, indicates that some of the shipper-owners are receiving dividends or payments from their pipelines which are substantially in excess of 7 percent of the value of their capital-stock investment. This condition exists despite the fact that the purpose of the decree in the first instance seems to have been to limit the shipper-owner's return to 7 percent of his investment. Our investigation thus far shows that under the terms of the decree, the Service Pipe Line Co. in 1956 paid to the Standard Oil Company of Indiana, its parent, dividends in the amount of $13,441,065 on a capital stock investment by Standard of Indiana of $32,584,400. This dividend payment amounts to 41.3 percent return on the value of the capital stock held by Standard of Indiana.
The Texas Pipe Line Co. in 1956 paid $18 million dividends to the Texas Co. its parent, on a capital-stock investment of $26 million. This amounts to 69.2 percent return on the value of the capital stock held by the Texas Co.
Similarly, Great Lakes Pipeline Co. paid dividends in 1956 in the amount of $7,410,042 to the companies that own its capital stock which has a value of $2,470,014. This dividend payment represents a 300 percent return on the capital-stock investment that has been made by the shipper owners.
It is the purpose of the committee in these hearings to ascertain whether these results and other practices of the oil companies are contemplated by the terms of the consent decree.
In this regard, the committee will look carefully at all of the activities of the Department of Justice with respect to enforcement of this decree and compliance with its provision. To this end, the subcommittee will receive testimony from all interested parties.
Mr. KEATING. Mr. Chairman, we heard some testimony on this subject during the committee's hearings in May 1955 on what we call current antitrust problems. This testimony indicated that since 1935 approximately 3 out of every 4 civil antitrust cases had been disposed of by consent judgment.
This figure convinces me of the importance of the study we are undertaking. This is not to say that any ready conclusions can be drawn
from bare statistics. Antitrust judgments must be tailor made and statistics provide no answer to the basic question of whether any particular judgment was well conceived.
In the course of the committee's hearings on current antitrust problems some witnesses warned against the Government's use of consent judgments to coerce settlements which could not reasonably be expected after litigation. Other witnesses were more concerned about concessions the Government might make in exchange for agreement. Judge Barnes, who was head of the Department of Justice was aware of the possibilities of abuse which existed in such proceedings.
The testimony of Judge Barnes and other witnesses, however, left little doubt that if properly administered, consent proceedings were essential to any effective antitrust program.
In my opinion, the curbing of monopolies and the guaranty of effective competition are the touchstones of our free enterprise system.
The Government should not hesitate to invoke the full measure of its powers where necessary to strike down oppressive interference with our competitive system from any quarter. At the same time I share the faith of many that most American business concerns, large and small, will willingly comply with the law if they can be shown wherein they have erred.
Voluntary action which ends abuses and fosters fair competition under these circumstances obviously is to be encouraged. There are some exceptional situations. In general, however, I would seriously question any suggestion that would require the parties to a civil antitrust suit to suffer the expense, uncertainly, and disruption of a typical antitrust trial where a basis exists for voluntary settlement on favorable terms.
At the same time, the importance of determining whether consent proceedings have tended to achieve the objectives of the antitrust laws is manifest. The committee will recall that testimony during the current antitrust problems hearings indicated that since 1952 there had been a marked increase in the number of proceedings brought to enforce compliance with antitrust judgments.
I note that this trend continues and that the Department of Justice only this month has instituted four additional suits under the 1941 consent decree in the pipeline cases.
While it may be noted that this is the first attempt to enforce this judgment since its adoption in 1941, in my opinion we should discourage any attempt to litigate the issues in these cases in this hearing room. The courtroom is the proper forum for such action and we should not sanction any statements during these hearings which would encroach upon the function or process of the courts.
It is my hope that these hearings will provide the committee with information necessary to determine whether and what kind of legislation is desirable in this field. I will be particularly interested in any constructive suggestions these hearings may evoke regarding the procedures for reaching consent judgments.
This appears to be to me the most important phase of the problem since no postjudgment enforcement program methods can be better than the underlying decree. If these hearings disclose methods for improving consent judgment techniques, they will unquestionably constitute a substantial contribution to the ever-continuing task of strengthening the antitrust laws.
The CHAIRMAN. Thank you, Mr. Keating. Now, there is present at the witness table_Judge Hansen, Assistant Attorney General of the Department of Justice, head of its Antitrust Division, his very able assistant Mr. Robert A. Bicks, First Assistant, Antitrust Division, and the other very able assistant to Judge Hansen, Mr. W. D. Kilgore, Jr., Chief of the Judgment and Judgment Enforcement Section of the Antitrust Division, and the third able gentleman, Alfred Karsted, also of the Antitrust Division.
Judge Hansen, I understand you have a statement you would like to read.
You may proceed.
TESTIMONY OF HON. VICTOR R. HANSEN, ASSISTANT ATTORNEY
GENERAL, DEPARTMENT OF JUSTICE, ACCOMPANIED BY ROBERT A. BICKS, FIRST ASSISTANT, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE; W. D. KILGORE, JR., CHIEF, JUDGMENT AND JUDGMENT ENFORCEMENT SECTION, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE; AND ALFRED KARSTED, ATTORNEY, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
Mr. HANSEN. I'd appreciate it, Mr. Chairman, if I might read through the statement, because I think probably many questions that might arise may well be answered during the course of it.
The CHAIRMAN. That is perfectly all right. Whatever you wish is agreeable.
Mr. HANSEN. Thank you. I appear this morning at the request of your chairman. His invitation asked for myviews with respect to the importance of the consent-decree program in the administration of the Antitrust Division, the policies and procedures that have been established in this program, and the efficacy of consent decrees in elimination of conditions that caused the Government to institute its antitrust proceeding and to reestablish competitive conditions in the affected industry.
Beyond these broad issues, your committee has requested Idevote particular attention to enforcement problems that have arisen in connection with the consent decree in United States v. Atlantic Refining Company et al.
With this direction in mind, my plan is, first, to set out briefly as background the legal status of consent judgments. Against that legal background, I shall sketch the antitrust enforcement role consent judgments played over a period of many years. With this role in mind, I shall, third, discuss this Division's procedures for negotiating consent settlements, as well as the advantages and disadvantages to the Government and defendants of settlement before trial.
And, finally, as your chairman suggested, I shall talk over steps we have taken in enforcement of consent judgments, particularly the socalled Atlantic Refining judgment.
Settlement of any antitrust cause is, of course, heavily freighted with public interest. True, a consent judgment is, like a private agreement, a product of negotiation and compromise.
But here all likeness ends; unlike any private agreement, a consent decree once entered embodies the essential force of a litigated judgment. As the Supreme Court put it in the second Swift case:
We reject the argument * * * that a decree entered upon consent is to be treated as a contract and not as a judicial act.