Among the items of relief requested, the Attorney General sought the dissolution of the American Petroleum Institute, cancellation of all exclusive dealing and discriminatory pricing provisions in service station contracts, permanent injunctions against all activities which resulted in the operation of oil pipelines as private carriers rather than common carriers, and permanent injunctions to prevent the major companies from continuing their numerous programs to fix prices in the petroleum industry." ELKINS ACT CASES To supplement the allegations in the API case, the Attorney General concurrently filed three cases involving pipeline operations in violation of the antirebate sections of the Interstate Commerce Act and the Elkins Act. These cases were representative proceedings, selected from among 59 complaints that were prepared and ready to file at that time."2 Each of these complaints involved the allegation that the payment of dividends by the pipeline to its shipper-owners from transportation revenues which were paid in part by the shipperowners, constituted unlawful rebates against the regular tariff charges for transportation, as established by the schedules of rates provided for in the tariffs filed with the Interstate Commerce Commission. These dividend payments, it was claimed, resulted in discriminations against other shippers and hindered competition with the shipperowners. In the complaint in the Phillips case, for example, the Government alleged: The arrangement, whereby the shipper-owner directly, and through its wholly owned subsidiaries, paid the regular tariff rates to the defendant common carrier for the interstate transportation of gasoline and petroleum products and the shipper-owner later received refunds and rebates from the defendant common carrier, enabled the defendant shipperowner to obtain and enjoy a discriminatory advantage over other shippers of gasoline and petroleum products. These rebates have been substantial and have seriously impaired the ability of others to compete with the defendant shipper-owner in the markets served by the pipeline. For example, on shipments of gasoline from Borger, Tex., to principal terminal points at Kansas City, Kans., and East St. Louis, Ill., the rebates are the differences between costs of pipeline operation enjoyed by the stockholding shipper-owner and the corresponding tariff rates, and amount to 1.4 cents, and 1.3 cents, respectively, per gallon. These rebates or differential advantages are competitive handicaps against other than the stockholding shipper-owner and represent approximately 25 percent of the refinery value of such gasoline.73 Hearings, p. 154. 72 Hearings, p. 27. The Phillips case, Hearings, p. 156, involved a pipeline operated as a department of the shipper-owner: the Great Lakes case, Hearings, p. 161, involved a pipeline separately incorporated and jointly owned by nine corporate shipper-owners; the Standard Oil Company (Indiana) case, Hearings, p. 166, involved a pipeline which was a 100 percent subsidiary corporation of its shipper-owner. Hearings, p. 158, par. 10. Similar provisions are to be found in the complaints involving Great Lakes Pipe Line," and Standard Oil Company of Indiana. It is clear that the Government in the pipeline complaints proceeded on the theory that all of the dividends paid by the pipelines to their shipper-owners constituted a rebate in violation of the Elkins Act. Stated differently, in these complaints the Attorney General claimed that the Elkins Act does not permit a shipper-owner to receive any dividends whatsoever from the carrier which are derived from transportation revenues paid by the shipper-owner or its affili ates. Assistant Attorney General Arnold's remarks to the industry, after the complaints were filed, indicate that he so construed the complaints. He stated at the start of the consent-decree negotiations that he *** had to approach the pipeline Elkins Act suits from the standpoint that the Elkins Act does not permit the shipper to receive any dividends from the carrier." In each of the pipeline cases, the dividends that were paid by the pipeline to its shipper-owner were substantial portions of the transportation revenues that had been collected by the pipeline, for the most part from the shipper-owner." Phillips Pipe Line, in 6 years, paid annually an average of 38.14 percent of its transportation revenues to its shipper-owner; Great Lakes Pipe Line, in an 8-year period, paid annually an average of 49.47 percent; and the Stanolind Pipe Line, in a 9-year period, paid annually an average of 48 percent of its transportation revenues to the Standard Oil Company of Indiana. The Attorney General contended that these dividend payments amounted to exorbitant returns on the capital stock investments of the shipper-owners in their pipelines. Phillips Petroleum Co., for example, during 1938 and 1939 received dividends which amounted to an 89 percent average annual return on its capital stock investment." Great Lakes Pipe Line, during the period 1932 through 1939, inclusive, paid dividends which exceeded a 34 percent average annual return on the capital stock_investment of its shipper-owners," and Standard Oil Company of Indiana received from its pipeline dividends which amounted to more than a 36 percent annual return on its capital stock investment.80 In the Phillips Petroleum Co. and Standard Oil Company of Indiana cases the Attorney General asked for an accounting and a forfeiture of 3 times the total amount of money involved in the alleged rebates since January 1, 1939. In the Great Lakes Pipe Line case, the Attorney General asked for an injunction only. The Antitrust Division staff estimated that if the Government had successfully litigated all of the Elkins Act cases against the pipelines which it had prepared to file, the treble damage liability of the 59 pipelines involved would have aggregated $1.6 billion. Estimates in the petroleum industry, if the Government were to be successful in all of its 74 Hearings, p. 165, par. 11. Hearings, p. 168, pars. 8 and 9. 76 Hearings, p. 1327. See par. of the Phillips case, Hearings, p. 158; par. 8 of the Great Lakes case. Hearings, P. 164, and par. 7 of the Standard Oil Co. of Indiana case, Hearings, p. 168. 78 Hearings, p. 158. 79 Hearings, p. 164. 80 Hearings, p. 168. pipeline cases, placed the aggregate monetary liability at $212 billion. According to ICC reports, investments in carrier property in 1940 amounted to $841,976,902. The potential monetary liability of the oil industry in these cases, therefore, was nearly double the value of the major companies' investments in pipeline properties. Ever since the cases were filed, the economic objectives sought by the Department of Justice in the pipeline cases have been disputed and criticized. The principal criticism has been that the Department of Justice made an unauthorized incursion into the administrative field of rate regulation. An example of this type of criticism occurred during the hearings in the testimony of J. L. Burke, president of Service Pipe Line. Mr. Burke contended that the pipeline cases were instituted by the Department of Justice for the purpose of undertaking rate regulation. He criticized the Department for invading an area that Congress had intended the Interstate Commerce Commission to cover.8 82 Dean Rostow also relates the pipeline cases to rate regulation. In his oil study, he states: The hope of those who drafted the decree evidently was that it would force a rate reduction, although why such hopes were entertained is not at all clear, 83 It is clear that the Attorney General has authority independent and different from that granted to the Interstate Commerce Commission to initiate proceedings with respect to rebate devices that violate the Elkins Act. As amended, the Elkins Act directs the Attorney General to institute civil actions to collect the moneys forfeited to the United States for violations of its provisions. In another provision, moreover, the Elkins Act declares: 84 It shall be the duty of the several United States attorneys, whenever the Attorney General shall direct, either of his own motion or upon the request of the Interstate Commerce Commission, to institute and prosecute such proceedings. * * ** Hearings, p. 1324. 82 Hearings, p. 176. Rostow, A National Policy for the Oil Industry, p. 64. 84 49 U. S. C., sec 42 (3). This provision reads as follows: "(3) Receiving rebates; additional penalty and recovery thereof. "Any person, corporation, or company who shall deliver property for interstate transportation to any common carrier, subject to the provisions of sections 41, 42, or 43 of this title, or for whom as consignor or consignee, any such carrier shall transport property from one State, Territory, or the District of Columbia to any other State, Territory, or the District of Columbia, or foreign country, who shall knowingly by employee, agent, officer, or otherwise, directly or indirectly, by or through any means or device whatsoever, receive or accept from such common carrier any sum of money or any other valuable consideration as a rebate or offset against the regular charges for transportation of such property, as fixed by the schedules of rates provided for in said sections, shall in addition to any penalty provided by said sections forfeit to the United States a sum of money three times the amount of money so received or accepted and three times the value of any other consideration so received or accepted, to be ascertained by the trial court; and the Attorney General of the United States is authorized and directed, whenever he has reasonable grounds to believe that any such person, corporation, or company has knowingly received or accepted from any such common carrier any sum of money or other valuable consideration as a rebate or offset as aforesaid, to institute in any court of the United States of competent jurisdiction, a civil action to collect the said sum or sums so forfeited as aforesaid; and in the trial of said action all such rebates or other considerations so received or accepted for a period of six years prior to the commencement of the action, may be included therein, and the amount recovered shall be three times the total amount of money, or three times the total value of such consideration, so received or accepted, or both, as the case may be. (February 19, 1903, ch. 708, sec. 1, 32 Stat. 847; June 29, 1906, ch. 3591, sec. 2, 34 Stat.. 587.)" 85 49 U. S. C., sec. 43. The antitrust nature of the pipeline cases was indicated in the Attorney General's September 30, 1940, press release. There he noted that the pipeline cases "supplemented" the API case. He pointed out, in addition, that the dividend payments attacked in the pipeline gave the major oil company shippers a tremendous advantage over their independent competitors." 86 cases 66*** The antitrust aspects of the pipeline cases, as contrasted with the rate regulation aspects, were clarified in statements made by the staff of the Antitrust Division in discussions with representatives of the oil industry after the cases were filed. In this connection, the chief negotiator for the Government explained to the industry committee the relationship of the pipeline cases to proceedings then pending in Interstate Commerce Commission. He stated: *** the ICC had no authority to settle the rebate question, and that the Attorney General had equal authority with the ICC to enforce (but not to fix) reasonable rates. 87 Later in the same conference the chief Government negotiator pointed out "that compliance with an ICC rate order would not preclude the Department from later suing on the theory that there had been rebates." 88 The Antitrust staff then stated the economic aims of the Department in the pipeline cases to be as follows: (1) To require pipelines to be operated as common carriers in fact, and (2) by means of lower rates to give the independent producers an opportunity to ship to the market if he so desired.88 These aims are directed principally to the solution of restraints on pipeline operations of an antitrust nature, rather than upon pipeline rate regulation. In another conference with industry representatives, the staff of the Antitrust Division clearly indicated that they were not concerned with pipeline tariffs and rates. The industry's notes of this conference state that the Antitrust staff "*** seem now willing to admit that the Antitrust Division is concerned only with rebates under the Elkins Act and not with tariffs and rates." 89 The committee does not question in any way the propriety of the Attorney General's action to proceed under the Elkins Act to supplement the pipeline phases of his antitrust program. On the contrary, the committee believes such action was an appropriate exercise of the independent authority delegated to the Attorney General in that act. It was also appropriate for the Attorney General to assign these cases to the Antitrust Division. It is clear that the pipeline cases were adjuncts to a general program to eliminate restraints on trade in the petroleum industry which violated the antitrust laws. Indeed, the very offenses which constituted independent violations of the 80 Hearings, p. 125. 67 Hearings, p. 1381. 88 Hearings, p. 1381. Hearings, p. 1412. Elkins Act were alleged by the Attorney General to be part of an overriding conspiracy in violation of the Sherman Act. RESULTS The numerous issues involved in the 1940 antitrust program of the Department of Justice to eliminate restraints in the petroleum industry never were litigated in the courts. Court action in the Mother Hubbard case was postponed during World War II in order that the litigation should not interfere with the defense programs undertaken by the petroleum industry. After the war, the Government was confronted with changes in corporate relationships and the necessity to secure new evidence about the activities of the defendants during the war period. Because of the great number of defendants, discovery procedures provided by the Federal Rules of Civil Procedure probably would have consumed years in negotiation and litigation. In view of these difficulties, the Department of Justice on June 6, 1951, dismissed the case. Concurrently, the Attorney General launched a new program involving further investigation of the practices of the petroleum industry and the institution of segment suits.91 90 Hearings, p. 202. 91 Hearings, p. 202. Although a number of segment suits have been filed, except for exclusive dealing arrangements, the vast majority of the issues involved in the 1940 oil industry program still have not been passed upon by the courts. A recapitulation of these actions is contained in the following letter dated June 13, 1955, from Assistant Attorney General Stanley N. Barnes to Chairman Celler. Hon. EMANUEL CELLER, House of Representatives, Washington, D. C. JUNE 13, 1955. MY DEAR CONGRESSMAN CELLER: This acknowledges receipt of your June 1, 1955, letter directing my attention to the testimony given before the Antitrust Subcommittee on May 23, 1955, by William B. Snow, Esq., counsel for the National Congress of Petroleum Retailers. In your letter you inquire about the status of the Antitrust Division's program to institute proceedings against segments of the petroleum industry as outlined in the Department of Justice press release dated June 6, 1951, relating to the voluntary dismissal of the API case. You also ask for a statement of my views concerning price leadership in the petroleum industry. United States v. American Petroleum Institute, et al. was a civil action filed in September 1940, involving 367 defendants, and charging an overall conspiracy to monopolize the entire petroleum industry from the production and sale of crude oil to the retail sale of finished products. The case was held in abeyance during World War II. When it was reactivated after the war, the practical difficulties involved in the preparation and trial of a case of this scope and magnitude were made dramatically apparent. In 1946, 216 of the defendants filed motions raising numerous pretrial issues requiring extensive court argument and months of effort. Apparently, about this time it was determined that the Government could obtain relief more quickly, more certainly, and more economically through segment cases involving narrower and more sharply defined issues, and by confining the litigation to only the most significant defendants. As related in the June 6, 1951, press release, the Department embarked on a program involving further investigations of the petroleum industry, and the institution of segment suits. The first segment suit brought under this program was United States v. Standard Oil Company of California and Standard Stations, Inc. This action was filed January 2, 1947, and attacked the exclusive dealing contracts and agreements whereby major oil companies controlled and dominated the operators of service stations and deprived competitors of access thereto. As you know, this case was successfully concluded, final judgment being entered on June 30, 1948. The Supreme Court affirmed this judgment on appeal (337 U. S. 293). The second segment suit was United States v. Richfield Oil Corporation, a civil action essentially similar to United States v. Standard Oil Company of California and Standard Stations, Inc. It was filed on April 30, 1947. Again in this case the Government was successful, final judgment being entered on August 2, 1951, enjoining the defendant from entering into or enforcing contracts requiring dealers to purchase all products from the defendant. This judgment was also affirmed by the Supreme Court (343 U. S. 922). United States v. Sun Oil Company, a civil suit filed January 12, 1950, was the third segment suit brought under the Department's program of serializing the API case. the Richfield and Standard stations cases, it, too, involves exclusive dealing arrangements between a major oil company and its retail dealers. However, our proofs in the Sun case do not center upon current written exclusive dealing contracts, but rather upon oral understandings and arrangements, more difficult to establish in court. A very able and Like 33261-59--11 |