author: MR. Justice Harlan

text:
    MASSACHUSETTS TRUSTEES OF EASTERN GAS & FUEL ASSOCIATES v. UNITED STATES.
    No. 137.
    Argued February 24, 1964.
    Decided May 25, 1964.

      J. Franklin Fort argued the cause for petitioners. With him on the briefs were Jose de Varón and T. S. L. Perlman.

      Wayne G. Barnett argued the cause for the United States. On the brief were Solicitor General Cox, Assistant Attorney General Douglas, Bruce J. Terris, Alan S. Rosenthal and Lawrence F. Ledebur.

   MR. Justice Harlan

delivered the opinion of the Court.

This case presents the claim that the Maritime Commission exceeded its statutory authority under § 5 of the Merchant Ship Sales Act of 1946, 60 Stat. 43, as amended, 50 U. S. C. App. § 1738, by

(1) including in its contract with petitioners for the bareboat charter of ships a sliding scale that required payment to the Government of more than 50% of certain excess profits and
(2) using the threat of termination of the charter arrangement to compel agreement to divide the calendar year 1947 into separate periods for the purpose of computing such profits.

Because a considerable number of suits are pending in the lower courts which will turn on resolution of these issues, and because of a conflict among the circuits as to the first issue, we brought the case here. 375 U. S. 809. For reasons to follow, we affirm the judgment below upholding the power of the Commission to act as it did.

I.

The Merchant Marine Act, 1936, 49 Stat. 1985, as amended, 46 U. S. C. §§ 1101-1294, provided for the charter of government vessels by the Maritime Commission to private enterprise. Section 709 (a) of that Act, 49 Stat. 2010, incorporated by reference in the 1946 Act, § 5 (c), 60 Stat. 43, provided:

“Every charter made by the Commission pursuant to the provisions of this title shall provide that whenever, at the end of any calendar year subsequent to the execution of such charter, the cumulative net voyage profits (after payment of the charter hire reserved in the charter and payment of the charterer’s fair and reasonable overhead expenses applicable to operation of the chartered vessels) shall exceed 10 per centum per annum on the charterer’s capital necessarily employed in the business of such chartered vessels, the charterer shall pay over to the Commission, as additional charter hire, one-half of such cumulative net voyage profit in excess of 10 per centum per annum: Provided, That the cumulative net profit so accounted for shall not be included in any calculation of cumulative net profit in subsequent years.”

During World War II, operations of the private merchant marine were disrupted and its fleets reduced by losses and requisition. Meanwhile many vessels were constructed for government operations. Congress by means of the Merchant Ship Sales Act of 1946, supra, sought to ensure postwar rehabilitation of the private merchant marine by having the Maritime Commission sell or charter surplus war-built government vessels. The Commission was instructed “so far as practicable and consistent with the policies of this Act, [to] give preference to . . . applicants to purchase” over applicants to charter. Section 5 (b), 60 Stat. 43, of the Act set out standards for the Commission to follow in chartering vessels:

“The charter hire for any vessel chartered under the provisions of this section shall be fixed by the Commission at such rate as the Commission determines to be consistent with the policies of this Act, but, except upon the affirmative vote of not less than four members of the Commission, such rate shall not be less than 15 per centum per annum of the statutory sales price (computed as of the date of charter). . . . [R]ates of charter hire fixed by the Commission on any war-built vessel which differ from the rate specified in this subsection shall not be less than the prevailing world market charter rates for similar vessels for similar use as determined by the Commission.”

As already indicated, § 5 (c) made the provisions of § 709 (a) of the Merchant Marine Act applicable to charters under the 1946 Act.

Prior to the Commission’s exercising of its authority-under the 1946 Act, the War Shipping Administration chartered ships to private interests on an interim basis; it followed the lines of the 1946 Act, specifying a “basic charter hire” which equaled 15% per annum of the statutory sales price and an “additional charter hire” of one-half of any net profits in excess of a 10% annual return on the charterer’s capital employed in the operation of the chartered vessels. During this period a Special Charter Committee considered the best way to implement the provisions of the 1946 Act. Existing rentals were believed to be too low and higher rentals were thought necessary to promote the statutory policy of encouraging sales rather than charters. A majority of the Committee preferred a higher profit-sharing rate than that provided in § 709 (a) to any additional firm rental, since the former would permit both the Commission and charterers to adapt to a fluctuating world market, without imposing a greater risk of loss on the charterers. The Maritime Commission adopted this basic suggestion and decided to charge, in addition to the firm rental of 15% of the sales price, 50% of the average net voyage profits in excess of 10% of the charterer’s capital necessarily employed up to the first $100 of profits per day, 75% of the next $200 per day, and 90% of such profits above $300 per day.

The Commission adopted a standard Ship Sales Act charter (“SHIPSALESDEMISE 303”) incorporating these provisions, and Eastern chartered 10 vessels under such a contract dated October 1,1946. Market conditions allowed high profits to be earned in the first eight months of 1947. The Commission decided to terminate existing charters, as it was privileged to do under the contract on 15 days’ notice, but agreed not to terminate if a charterer accepted an Addendum to its contract providing, among other things, for a separate calculation of profit-sharing rentals for the period commencing September 1, 1947. Eastern signed such an Addendum and was not able, as a result, to offset losses incurred in the latter part of 1947 against the excess profits earned before September 1.

Eastern did not attempt to litigate its rights under the 1946 Act until it had completed all the payments required by the charter agreement. In 1955 it filed this in personam libel for recovery of money paid pursuant to the profit-sharing provisions and the 1947 “Foreign Trade Addendum.” It asserted that § 709 (a) sets a maximum as well as a minimum rate of profit sharing and precluded the Commission from altering that rate under § 5 (b). It claimed further that, even if such power existed, the Commission’s apparent reliance on § 709 (a) rather than § 5 (b) renders these charter provisions nugatory. Finally, it argued that the 1947 Addendum conflicted with the statutory mandate of § 709 (a) for calendar year accounting of statutory profits, and that the Commission abused its termination privilege by threatening to terminate the charter agreements of those refusing to accept the split-year profit-sharing arrangement. All of these contentions were rejected by the lower court, the Court of Appeals affirming the District Court, 202 F. Supp. 297; 210 F. Supp. 822, in a thorough opinion, 312 F. 2d 214.

Preliminarily we observe that in the view we take of that case we find it unnecessary to consider the Government’s alternative ground for affirmance: that the doctrine of waiver precludes Eastern from challenging the terms of its charter agreement because once having signed the agreement and benefited from the charter, Eastern cannot seek to overturn provisions of the contract that it regards as unfavorable.

II.

The basic statutory question is whether the Commission, in light of § 709 (a), had authority under § 5 (b) to impose the sliding scale of additional hire, and, if so, whether its failure to articulate the particular statutory basis for its action vitiates the validity of the profit-sharing terms of the rate set. We approach this problem with three general interpretative guides, all of which point in the Government’s favor. Some weight is due to the consistent interpretation of the Maritime Commission, the agency entrusted with administration of the statute. See, e. g., United States v. Zucca, 351 U. S. 91, 96; Kern River Co. v. United States, 257 U. S. 147, 153-154. The successive extensions by Congress of the Commission’s authority to charter vessels, in the face of the Commission’s sliding-scale practice, are certainly not controlling, particularly since it does not appear that Congress ever advertently addressed itself to the claim of invalidity of the sliding scale; they do, however, strengthen to some extent the Commission’s conclusions regarding its chartering powers. In 1947, following subcommittee hearings, the House Committee on Merchant Marine and Fisheries, H. R. Rep. No. 725, 80th Cong., 1st Sess. (1947), recommended an extension, subsequently enacted, 61 Stat. 190, 191, of the Commission’s chartering authority “with the understanding that the basic rates for the charter of dry-cargo vessels and recapture rates will be immediately increased, thus encouraging the purchase rather than charter of these ships.” P. 2. Congressional reports prior to another extension, H. R. Rep. No. 60, 81st Cong., 1st Sess., 2 (1949); S. Rep. No. 55, 81st Cong., 1st Sess., 2 (1949), stated: “It is contemplated that the Maritime Commission will continue to sell, charter, and operate ships in accordance with existing procedures and without [according to the House Report] any change in its present policy.” (The Senate Report reads “any changes in policies now effective.”)

Further, in light of the congressional policy to encourage the sale of ships, contained in § 7 (a) of the 1946 Act, supra, there is an initial presumption that Congress intended that the Commission should have power to establish chartering terms commensurate with making more attractive purchase, instead of charter, of government vessels by private shipowners. Needless to say, these “interpretative aids,” neither singly nor in conjunction, could lead to an affirmance here if it were clear that the Commission’s action contradicted the requirements of the Merchant Ship Sales Act of 1946. However, they are consistent with, and lend support to, what we believe to be the most sensible view of the statutory framework.

According to § 709 (a) of the 1936 Act, as adopted by the 1946 statute:

“The charterer shall pay over to the Commission, as additional charter hire, one-half of such cumulative net voyage profit in excess of 10 per centum per annum . . . .” (Emphasis added.)

Section 5 (b) of the 1946 Act provides:

“The charter hire . . . shall be fixed by the Commission at such rate as the Commission determines to be consistent with the policies of this Act, but,... such rate shall not be less than 15 per centum per annum of the statutory sales price . . . .”

Eastern makes the contention that the language of § 5 (b) itself limits the Commission’s power under that section to a fixed annual charter rate. It argues that a profit-sharing arrangement is not a “rate” of charter hire in the normal sense nor is it “fixed.” The short answer is that it is perfectly reasonable to speak of a “rate” which is based on percentage of profits, and there is no problem in “fixing” a contingent rate. Certainly the reference to the minimum rate of 15% (subject to an exception not relevant here) of the statutory sales price in no way reflects an intent to preclude the Commission from developing other types of rate patterns. We find nothing in § 5 (b) itself to justify strait-jacketing, by proscribing any approach not based on a percentage of the sales price, the Commission’s development of rate patterns best serving the policies of the Act.

The position that § 709 (a) is the exclusive profit-sharing provision, that it prohibits what might otherwise be sustained as a proper exercise of power under § 5 (b), is somewhat more arguable. Eastern asserts that § 709 (a) was written as a maximum as well as minimum standard for the Commission’s share of excess profits and that its import was not altered by its adoption in the 1946 Act. Significance is placed on Congress’ use of the word “shall,” rather than a phrase such as “not less than,” in fixing the charterer’s obligation to pay 50% of its excess profits.

However, when § 709 (a) was passed, rates of charter hire were determined in most situations, under § 707 (a), 49 Stat. 2009, by competitive bidding in individual cases. Since the firm rental offered could afford the only basis for assessing “the highest monthly charter hire,” individual bidders did not propose profit-sharing arrangements. Under such a system, the primary reliance against rates unreasonably favorable to charterers was the bidding system. In that context, it could plausibly be urged that the Commission had no authority to raise its share of excess profits. Indeed, the Government does not argue that at that time, or after the 1946 Act, § 709 (a) ex proprio vigore conferred power on the Commission to raise the rates beyond the prescribed 50%. The relevant question, therefore, is whether as carried into the 1946 Act the section set a maximum as well as minimum rate of profit sharing for the statute as a whole.

First, it may be noted that “shall” plainly denotes a minimum; one cannot pay 50% and at the same time pay less than 50%. On the other hand, the word does not of linguistic necessity denote a maximum; one can pay 50% and also pay 25% more. While, in recognizing this, we do not mean to suggest that standing alone the 50% standard of § 709 (a) would not be read as establishing a maximum as well as a minimum, it is significant that the section’s language is not inconsistent with a conclusion that higher percentages are permissible. Congress cannot be expected always to be absolutely precise in its statutory formulations. When it brings forward into a new enactment provisions drafted in a different statutory context and in response to other circumstances and policies, the likelihood of imprecision is increased. In light of the great breadth of discretion apparently given to the Commission under § 5 (b) and the expressed concern of Congress that charter rates not be too low to discourage sales, we should be very slow to fetter the flexibility of the Commission to implement, in the most effective way, the policies of the Act. Viewing the 1946 Act as an integrated whole, we refuse to inhibit the Commission under § 5 (b) by resort to an interpretation of § 709 (a) which could be characterized only as arid literalism.

We conclude, therefore, that the Commission had the power under § 5 (b) to impose the sliding scale and that § 709 (a) does not negate that authority. In passing, it may be noted that in addition to the courts below, four other lower courts have reached or assumed the same conclusion. See Dichman, Wright & Pugh, Inc., v. United States, 144 F. Supp. 922, 926; United States v. East Harbor Trading Corp., 190 F. Supp. 245, 249; American Mail Line, Ltd., v. United States, 213 F. Supp. 152, 163; United States v. Eastport Steamship Corp., 216 F. Supp. 649, 653-654. But see American President Lines, Ltd., v. United States, 224 F. Supp. 187, 190-191. See also American Export Lines, Inc., v. United States, 153 Ct. Cl. 201, 208-209, 290 F. 2d 925, 930.

We next turn to the question whether § 5 (b) suffices to support the sliding scale for profit-sharing rentals adopted by the Commission, in the face of the assertion that the Commission did not purport to act under that section but apparently relied on § 709 alone. Eastern notes that the added obligation respecting excess profits was imposed as a part of “additional charter hire” under clause 13 of the charter agreement (“Form 303”), which included the 50% charge on excess profits less than $100 per day. Under “Form 203,” the standard charter employed pending implementation of the 1946 Act, the unembellished 50% rate of § 709 (a) had also been characterized as “additional charter hire” and appeared in clause 13 of that form. In both “Form 203” and “Form 303” provision for the “basic charter hire” — the relevant percent of the sales price — was provided for in clauses E, C (1), and 12. Eastern accordingly concludes that the Commission equated “basic charter hire” with hire under § 5 (b) and “additional charter hire” with that imposed under § 709 (a). Citing a number of cases holding that grounds not relied on by a government agency cannot be invoked to validate an exercise of administrative discretion which has in fact been based on insufficient grounds or reached without requisite procedural safeguards, see, e. g., Securities & Exchange Comm’n v. Chenery Corp., 332 U. S. 194, 196; Bell v. United States, 366 U. S. 393, 412-413; Burlington Truck Lines, Inc., v. United States, 371 U. S. 156, 167-168, Eastern asserts that the failure of the Commission to indicate the statutory basis of its sliding scale for profit sharing renders that aspect of its charter agreements void. It is not entirely 'dear what the Commission believed the source of its power to be and it is at least arguable that inclusion of the sliding rates within the additional hire clause was not necessarily inconsistent with a supposition of authority under § 5 (b). We find it unnecessary, however, to deal with this question since we agree with the courts below that the intent of the Commission in this regard is irrelevant.

The District Court determined that there is not “the slightest ground for assuming that if the Commission had been apprized of the correct source of its authority, the Commission or the other party would have made a contract different in substance, as distinguished from wording.” 202 F. Supp. 297, 305. Eastern does not seriously challenge this determination. Although it alleges that the Commission hesitated to act under § 5 (b) to raise the fixed 15% rate because such an increase would have been passed on to other government agencies as a result of contractual provisions for subcharter, Eastern does not assert that a contingent profit-sharing rate of more than 50% would likewise have been passed on even if the Commission had explicitly referred to § 5 (b) as its source of authority. The subcharter clause appearing in the record indicates that only an increase in the 15% fixed rate would have been passed on.

No doubt is cast on the conclusion of the District Court by anything in § 5 (b) or § 709 (a). Section 5 (b) does not require a hearing or any particular kind of procedure (except when the rate is set below 15% of the sales price). Since § 709 (a) does not itself authorize deviations from the 50% rate on excess profits, that section provides, of course, no criteria for assessing the propriety of any such deviation. Section 5 (b) rates are supposed to be fixed “consistent with the policies of this Act” and (at least if lower than 15% of the statutory sales price) are not to be set at less than the prevailing world market charter rates. Since it is plain that the Commission instituted rates it believed to be consistent with the policies of the 1946 Act, it seems patently clear that its determination would have in no way varied had it paid particular attention to § 5 (b) in establishing the sliding scale.

In light of these factors we find inapposite here cases refusing to validate an exercise of administrative discretion because it could have been supported by principles or facts not considered, or procedures not undertaken, by the responsible body. These cases are aimed at assuring that initial administrative determinations are made with relevant criteria in mind and in a proper procedural manner; when a mistake of the administrative body is one that clearly had no bearing on the procedure used or the substance of decision reached, as in this instance (assuming there was such a mistake), the sought extension of the cases cited would not advance the purpose they were intended to serve. The imposition of the sliding scale of additional charter hire was authorized by § 5 (b) and the Commission’s failure to indicate explicitly or implicitly that that section was the source of its power is without legal significance.

Eastern claims that if the sliding-scale charge is proper under § 5 (b), the Commission has not followed the statutory scheme for accounting. Section 709 (a) provides for equal division of profits after payment of the “charter hire reserved in the charter . . . .” Eastern equates this language with the “charter hire . . . fixed by the Commission” under § 5 (b). Without attempting the impossible task of reading into the charter contract the following method of accounting, Eastern argues that this procedure is required by the statute: In addition to the required percent of the statutory sales price, the “charter hire reserved in the charter” includes any charge above 50% of profits; after these charges are computed, the Commission is entitled to 50% of remaining excess profits. How this method would work is most easily seen if we hypothesize an attempt by the Commission to acquire 100% of all excess profits. Instead of achieving this goal, the Commission would have to compute the fixed hire plus 50% of the profits (the amount of charge above the 50% set by § 709 (a)). The Commission would then receive 50% of the remaining profits; as a consequence the charterer would retain 25% of the total excess profits. The effect of this method of accounting, therefore, would be to turn § 709 (a) into a provision limiting, under profit-sharing arrangements effected pursuant to § 5 (b), the Government’s share of profits over 10% of capital necessarily employed; the maximum government share would be 75% (instead of the 50% that would result if § 709 (a) were read to prohibit completely any profit-sharing arrangement under § 5 (b)).

We are not compelled to accept this anomalous result. It is not necessary to read the reference in § 709 (a) to “charter hire reserved in the charter” as synonymous with “charter hire . . . fixed by the Commission” in § 5 (b). It is highly doubtful that the draftsmen intended such a result, particularly since § 709 (a) was brought forward without any attempt to spell out carefully its relationship to § 5 (b). A reading which does greater justice to the whole statutory framework is to limit “charter hire reserved in the charter” to any firm rather than contingent hire, regardless of whether § 5 (b) is'the source for imposing the hire. Even if Eastern’s interpretation of the language were acceptable, however, we see no reason why the Commission cannot reach under § 5 (b) what it would otherwise be paid under § 709 (a). If the sliding scale requires 90% of certain profits to be turned over to the Commission, it makes better sense to say that the Commission can take the full 90% under § 5 (b), thus rendering § 709 (a) superfluous, than to conclude that the Commission’s authority under § 5 (b) extends only to the incremental amount. According to Eastern’s argument § 709 (a) performs a dual function; it allocates that percent of profits which may be reached as “charter hire . . . fixed by the Commission” and it distributes the remaining profits. We think it clear that it was not intended in the context of the 1946 Act to perform the former role; therefore, even were any rate set under § 5 (b) taken to be “charter hire reserved in the charter,” no statutory impediment would preclude the Commission from taking the full 75% and 90% of excess profits. A contrary conclusion would require a strained reading of the language of the Act and would conflict with the policies enunciated therein.

III.

Because of the discouragement of sales resulting from the high profits earned by charterers in the first part of 1947, the Commission sent telegrams to Eastern and other charterers on August 15 informing them of the Commission’s intention to terminate the charter contracts, a privilege given to both parties under clause 14. The telegrams stated that the charterers would be able to continue use of the vessels if they agreed to new terms and conditions. On August 20, the Commission set out the new terms, including a provision that payment of additional charter hire under clause 13 be computed separately for voyages commencing'after September 1. Eastern agreed to the terms ysinte it suffered losses for its post-August voyages, it was required to pay to the Commission a greater amount than would have been the case had 1947 been treated as a unit for accounting purposes. Eastern claims that the “Foreign Trade Addendum” to its charter was invalid insofar as it purported to divide 1947 into two accounting periods. It argues that § 709 (a) required calendar year accounting, that agreement to the Addendum was insufficient to create a new charter contract, and that the Commission could not use its termination power to accomplish an improper result.

We find this position untenable. There was no explicit limitation on the Commission’s power to terminate existing charters, nor do we read § 709 (a), which provides for computation of"additional charter hire “at the end of any calendar year,” as indirectly imposing such a restriction. The Commission could, therefore, have terminated all existing charters and rechartered the vessels to accomplish the end it sought. That the notification of termination was not a disingenuous threat to achieve an otherwise improper purpose is evidenced by the number of contracts which were, in fact, terminated subsequent to August 15. The Addendum states that it is to be “treated for accounting purposes as if it constituted a separate charter . . . We will not refuse to accord it significance simply because the Commission did not require the charterer to go through the formalities of the execution of a new contract.

Affirmed.

       Hereafter “Eastern:

       Compare the opinion below, 312 F. 2d 214, and United States v. Eastport Steamship Corp., 216 F. Supp. 649, with American Export Lines, Inc., v. United States, 153 Ct. Cl. 201, 290 F. 2d 925; Dichman, Wright & Pugh, Inc., v. United States, 144 F. Supp. 922; American Mail Line, Ltd., v. United States, 213 F. Supp. 152; American President Lines, Ltd., v. United States, 224 F. Supp. 187.

       § 7 (a), 60 Stat. 44, 50 U. S. C. App. § 1740.

       The Government does not press the claims here that Eastern cannot recover because of the running of the statute of limitations or because of voluntary payments made to the Commission. It asserts that these defenses were pleaded below but were not considered during the hearing; it reserves the right to raise them on remand in the event of a reversal.

       See 61 Stat. 190, 191; 62 Stat. 38; 63 Stat. 9; 63 Stat. 349. In 1950, Congress abolished the Maritime Commission and the function of chartering ships was transferred to the Secretary of Commerce, 64 Stat. 308; 64 Stat. 1276, 1277.

       Hearings before the Subcommittee on Ship Sales, Charters, and Lay-ups, House Committee on Merchant Marine and Fisheries, 80th Cong., 1st Sess. (1947).

       Section 714 of the 1936 Act, 49 Stat. 2011, as amended, 46 U. S. C. § 1204, does provide for negotiated rates of charter hire if essential trade routes cannot otherwise be successfully developed. It contains a firm minimum rate. Had this been the primary method of chartering envisioned in 1936, the section's similarity to § 5 (b) of the 1946 Act would have considerable bearing on any interpretation of the relevance of § 709 (a) in the later Act. The exception this provision makes to competitive bidding, however, does not alter the fact that the basic method of rate setting was entirely different under the 1936 Act from that contemplated in 1946. We intimate no view as to the relationship between § 714 and § 709 (a) under the 1936 Act.

       Eastern’s contention that the legislative history of the 1946 Act confirms its position is not well taken. That Congress did not disapprove of charters and that it provided separate safeguards to encourage sales does not undermine the plainly expressed preference of sales to charters and the concern that charter rates not be so low as to make purchase less profitable than hire. That some legislators believed the 15% rate of § 5 (b) to be high is irrelevant, since the Commission’s power to raise rates under § 5 (b) is undisputed and the issue here concerns only the kind of rate structure permissible. Finally, the circumscription of Commission discretion, which Eastern believes was intended by Congress, had to do with the desirability of having set rates instead of individually negotiated charters, rather than with the kinds of rates that might be set.


source: Caselaw Access Project

author: Mr. Justice Stewart Mb. Justice Goldberg,

license: Public Domain

text:
    LOCAL 20, TEAMSTERS, CHAUFFEURS & HELPERS UNION v. MORTON, doing business as LESTER MORTON TRUCKING CO.
    No. 485.
    Argued April 29, 1964.
    Decided May 25, 1964.

      David Previant argued the cause for petitioner. With him on the briefs were David Leo Uelmen and Hugh Hafer.

      M. J. Stauffer argued the cause and filed a brief for respondent.
   Mr. Justice Stewart

delivered the opinion of the Court.

The petitioner is a labor organization. The respondent is a company engaged in the business of providing dump trucks and drivers, as a subcontractor on highway construction, with its principal place of business at Tiffin, Ohio. The petitioner represented the respondent’s employees from 1950 until 1956 under an oral agreement. In 1956 the parties engaged in negotiations for a written agreement. An impasse in bargaining precipitated a strike which lasted from August to October of that year. During the strike the petitioner engaged in secondary activities involving some of the respondent’s customers and suppliers, for the purpose of inducing them to cease doing business with the respondent. Claiming that these activities were unlawful both under § 303 of the Labor Management Relations Act of 1947, 29 U. S. C. § 187, and under the common law of Ohio, the respondent sued the petitioner in the United States District Court for the Northern District of Ohio, claiming damages for business losses caused by the petitioner’s allegedly unlawful conduct during the strike.

After a trial without a jury, the District Court found that the petitioner had encouraged the employees of France Stone Co., a supplier of the respondent, and the employees of C. A. Schoen, Inc., and O’Connel Coal Co., customers of respondent, to force their employers to cease doing business with the respondent, in violation of § 303 of the federal Act. The court awarded the respondent some $1,600 damages for business losses caused by this violation of federal law. The court also determined that during the strike the petitioner had persuaded the management of Launder & Son, Inc., another of the respondent’s customers, to refrain from doing business with the respondent. Since there had been no approach to Launder’s employees, the court held that the request to Launder management was permissible activity under federal law, but ruled that this conduct violated the common law of Ohio, which, the court said, prohibits “making direct appeals to a struck employer’s customers or suppliers to stop doing business with the struck employer . . . .” The respondent was accordingly awarded almost $9,000 as compensatory damages for this violation of Ohio law. In addition, the court awarded the respondent more than $9,000 for the loss of a contract to haul sand for the Wilson Sand & Gravel Co., which loss had resulted from an insufficient number of drivers available during the strike to perform the contract. This award was based upon the court’s reasoning that the respondent was entitled to recover damages measured by all of the profits lost as a result of the petitioner’s total strike activity, so long as some of that activity was unlawful. Finally, the court awarded punitive damages of $15,000, although expressly finding that the petitioner’s conduct during the strike had at all times been free of any violence.

The Court of Appeals affirmed the award in all respects. Relying on the doctrine of pendent jurisdiction, Hurn v. Oursler, 289 U. S. 238, and cases involving union violence, e. g., Flame Coal Co. v. United Mine Workers, 303 F. 2d 39, the appellate court concluded that "[a] nonfederal cause of action is not extinguished because a state court is pre-empted by federal law from providing relief,” and that “punitive damages are recoverable for unlawful secondary boycott activities . Certiorari was granted to consider the issues of federal labor law which this case presents. 375 U. S. 939.

At the outset we affirm the award of compensatory damages for the violation of § 303 of the federal Act. The District Court found that “the defendant encouraged the employees of the O’Connel Company to stop using plaintiff’s trucks for the purpose of forcing or requiring the O’Connel Company to cease doing business with the plaintiff . . . .” This finding of a clear violation of § 303 was supported by the evidence, as was the amount of damages awarded therefor.

With respect to the remaining components of the money judgment recovered by the respondent, the central question to be decided is whether a court, state or federal, is free to apply state law in awarding damages resulting from a union’s peaceful strike conduct vis-á-vis a secondary employer, or is confined in the field of damage actions brought for union secondary activities to the specifically limited provisions of § 303 of the federal Act. We disagree with the Court of Appeals that this question can be resolved either by reference to the doctrine of pendent jurisdiction or by reference to the line of precedents which have permitted state law to be applied in situations where union activities involving violence were present.

If the provisions of § 303 mark the limits beyond which a court, state or federal, may not go in awarding damages for a union's secondary activities, then the doctrine of pendent jurisdiction can be of no service. Pendent jurisdiction permits a federal court under some circumstances to determine a state cause of action which otherwise would have to be heard in the state court. Hum v. Oursler, supra. But if the state court would be without authority to award damages under state law, then the doctrine of pendent jurisdiction can give “the District Court ... no greater power to do so.” Lauf v. Skinner & Co., 303 U. S. 323, 328.

And in cases involving union violence, state law has been permitted to prevail by reason of controlling considerations which are entirely absent in the present case. “ [W] e have allowed the States to grant compensation for the consequences, as defined by the traditional law of torts, of conduct marked by violence and imminent threats to the public order. United Automobile Workers v. Russell, 356 U. S. 634; United Construction Workers v. Laburnum Corp., 347 U. S. 656. . . . State jurisdiction has prevailed in these situations because the compelling state interest, in the scheme of our federalism, in the maintenance of domestic peace is not overridden in the absence of clearly expressed congressional direction. ... In the present case there is no such compelling state interest.” San Diego Bldg. Trades v. Garmon, 359 U. S. 236, 247-248.

It is the respondent's contention, however, that since the petitioner union's peaceful conduct was neither arguably-protected under § 7 nor arguably prohibited under § 8 of the National Labor Relations Act, as amended, the trial court was free to award damages on the basis of state law for injuries caused by this conduct. But even though it may be assumed that at least some of the secondary activity here involved was neither protected nor prohibited, it is still necessary to determine whether by enacting § 303, “Congress occupied this field and closed it to state regulation.” Automobile Workers v. O’Brien, 339 U. S. 454, 457. The basic question, in other words, is whether “in a case such as this, incompatible doctrines of local law must give way to principles of federal labor law.” Teamsters Local 174 v. Lucas Flour Co., 369 U. S. 95, 102. The answer to that question ultimately depends upon whether the application of state law in this kind of case would operate to frustrate the purpose of the federal legislation. Colorado Anti-Discrimination Comm’n v. Continental Air Lines, 372 U. S. 714, 722.

Section 303 (b) of the Labor Management Relations Act expressly authorizes state and federal courts to award damages to any person injured by certain secondary boycott activities described in § 303 (a). The type of conduct to be made the subject of a private damage action was considered by Congress, and § 303 (a) comprehensively and with great particularity “describes and condemns specific union conduct directed to specific objectives.” Carpenters Local 1976 v. Labor Board, 357 U. S. 93, 98. In selecting which forms of economic pressure should be prohibited by § 303, Congress struck the “balance . . . between the uncontrolled power of management and labor to further their respective interests,” id,., at 100, by “preserving the right of labor organizations to bring pressure to bear, on offending employers in primary labor disputes and [by] shielding unoffending employers and others from pressures in controversies not their own.” Labor Board v. Denver Bldg. & Construction Trades Council, 341 U. S. 675, 692.

In this case, the petitioner’s request to Launder’s management to cease doing business with the respondent was not proscribed by the Act. “[A] union is free to approach an employer to persuade him to engage in a boycott, so long as it refrains from the specifically prohibited means of coercion through inducement of employees.” Carpenters Local 1976 v. Labor Board, supra. at 99. This weapon of self-help, permitted by federal law, formed an integral part of the petitioner’s effort to achieve its bargaining goals during negotiations with the respondent. Allowing its use is a part of the balance struck by Congress between the conflicting interests of the union, the employees, the employer and the community. Electrical Workers Local 761 v. Labor Board, 366 U. S. 667, 672. If the Ohio law of secondary boycott can be applied to proscribe the same type of conduct which Congress focused upon but did not proscribe when it enacted § 303, the inevitable result would be to frustrate the congressional determination to leave this weapon of self-help available, and to upset the balance of power between labor and management expressed in our national labor policy. “For a state to impinge on the area of labor combat designed to be free is quite as much an obstruction of federal policy as if the state were to declare picketing free for purposes or by methods which the federal Act prohibits.” Garner v. Teamsters Union, 346 U. S. 485, 500. We hold, therefore, that the damages awarded against the petitioner based upon its peaceful persuasion of Launder’s management not to do business with the respondent during the strike cannot stand.

The same considerations require reversal of the award of punitive damages. Punitive damages for violations of § 303 conflict with the congressional judgment, reflected both in the language of the federal statute and in its legislative history, that recovery for an employer’s business losses caused by a union’s peaceful secondary activities proscribed by § 303 should be limited to actual, compensatory damages. And insofar as punitive damages in this case were based on secondary activities which violated only state law, they cannot stand, because, as we have held, substantive state law in this area must yield to federal limitations. In short, this is an area “of judicial decision within which the policy of the law is so dominated by the sweep of federal statutes that legal relations which they affect must be deemed governed by federal law having its source in those statutes, rather than by local law.” Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173, 176. Accordingly, we hold that since state law has been displaced by § 303 in private damage actions based on peaceful union secondary activities, the District Court in this case was without authority to award punitive damages.

There remains for consideration only the question of the damage award for the respondent’s loss of the Wilson account. The respondent conceded at trial that there was “no evidence of unlawful activity in connection with this [the Wilson] job,” and the record makes clear that the respondent lost the Wilson account because his drivers were discouraged from working during the strike by the petitioner’s primary strike activity. Since § 303 (b) authorizes an award of damages only in the event of injury “by reason of any violation of subsection (a)” and peaceful primary strike activity does not violate § 303 (a), Electrical Workers Local 761 v. Labor Board, 366 U. S. 667, 672, the District Court was without power to award damages proximately caused by lawful, primary activities, even though the petitioner may have contemporaneously engaged in unlawful acts elsewhere. See Chauffeurs Local 175 v. Labor Board, 294 F. 2d 261.

The judgment is vacated and the case remanded to the District Court for further proceedings consistent with this opinion.

It is so ordered.

Mb. Justice Goldberg,

concurring.

My concurrence in the Court’s opinion and judgment does not indicate approval of the Court’s holdings in United Automobile Workers v. Russell, 366 U. S. 634, and United Construction Workers v. Laburnum Corp., 347 U. S. 656.

       Section 303 of the Labor Management Relations Act of 1947 provided:
      “(a) It shall be unlawful, for the purposes of this section only, in an industry or activity affecting commerce, for any labor organization to engage in, or to induce or encourage the employees of any employer to engage in, a strike or a concerted refusal in the course of their employment to use, manufacture, process, transport, or otherwise handle or work on any goods, articles, materials, or commodities or to perform any services, where an object thereof is—
      “(1) forcing or requiring any employer or self-employed person to join any labor or employer organization or any employer or other person to cease using, selling, handling, transporting, or otherwise dealing in the products of any other producer, processor, or manufacturer, or to cease doing business with any other person;
      “(2) forcing or requiring any other employer to recognize or bargain with a labor organization as the representative of his employees unless such labor organization has been certified as the representative of such employees under the provisions of section 159 of this title;
      “(3) forcing or requiring any employer to recognize or bargain with a particular labor organization as the representative of his employees if another labor organization has been certified as the representative of such employees under the provisions of section 159 of this title;
      “(4) forcing or requiring any employer to assign particular work to employees in a particular labor organization or in a particular trade, craft, or class rather than to employees in another labor organization or in another trade, craft, or class unless such employer is failing to conform to an order or certification of the National Labor Relations Board determining the bargaining representative for employees performing such work. Nothing contained in this subsection shall be construed to make unlawful a refusal by any person to enter upon the premises of any employer (other than his own employer), if the employees of such employer are engaged in a strike ratified or approved by a representative of such employees whom such employer is required to recognize under áubchapter II of this chapter.
      “(b) Whoever shall be injured in his business or property by reason of any violation of subsection (a) of this section may sue therefor in any district court of the United States subject to the limitations and provisions of section 185 of this title without respect to the amount in controversy, or in any other court having jurisdiction of the parties, and shall recover the damages by him sustained and the cost of the suit.” 61 Stat. 158, 29 U. S. C. § 187.
      Certain amendments to § 303 were made by the Labor-Management Reporting and Disclosure Act of 1959, 73 Stat. 545, 29 U. S. C. (Supp. IV) § 187, but these amendments are not germane to the questions presented in this case.

       200 F. Supp. 653, 658-659.

        Id., at 661.

      /A, at 656, 661.

        Id., at 656, 658, 661.

        Id., at 661.

       320 F. 2d 505.

        Id., at 507.

        Id., at 508.

       200 F. Supp., at 659.

       No damages were awarded with respect to the petitioner’s dealings with the employees of France Stone Co. or C. A. Schoen, Inc.

       See note 1, supra.

       Section 8 (b) (4), 29 U. S. C. § 158 (b) (4), and § 303, 29 U. S. C. § 187, “have an identity of language” but specify two “different remedies.” Longshoremen v. Juneau Corp., 342 U. S. 237, 244. Section 8 (b) (4) provides that certain conduct constitutes an unfair labor practice for which an administrative remedy is afforded. The same conduct under § 303 also gives rise to a claim for damages cognizable in either state or federal courts. As a consequence of the 1959 amendments to the Act, § 303 now incorporates by reference the prohibitions embodied in § 8 (b)(4).

       No claim has been made that Launder’s voluntary compliance with the petitioner’s request, unsupported by any consideration, amounted to an “agreement, express or implied” under § 8 (e) of the Act, added by the Labor-Management Reporting and Disclosure Act of 1959, 73 Stat. 519, 29 U. S. C. (Supp. IV) § 158 (e).

       Section 303 (b) provides in pertinent part that “[wjhoever shall be injured in his business or property . . . shall recover the damages by him sustained , . . .” (Emphasis supplied.)

       In the Senate debate on the bill, Senator Taft said, "... I see no reason why suits of this sort should not be permitted to be filed. After all, it is only to restore to people who lose something because of boycotts and jurisdictional strikes the money which they have lost.” 93 Cong. Rec. 4858. Later, in response to Senator Morse’s claim that § 303 would impose virtually unlimited liability, Senator Taft said, “Under the Sherman Act the same question of boycott damage is subject to a suit for damages and attorneys’ fees. In this case we simply provide for the amount of the actual damages.” 93 Cong. Rec. 4872-4873.

       See United Mine Workers v. Patton, 211 F. 2d 742, 747-750; Overnite Transportation Co. v. Teamsters, 257 N. C. 18, 125 S. E. 2d 277, cert. denied, 371 U. S. 862.

       It is argued that the petitioner’s unlawful secondary activities made more effective the petitioner’s attempts to discourage employees of the respondent from working during the strike. But there is nothing in the record to indicate, and no finding by the trial court, that the petitioner’s secondary activities which were unlawful under § 303 had any effect whatsoever on the respondent’s employees’ decisions not to work during the strike.


author: Per Curiam.

text:
    CALHOUN et al. v. LATIMER et al.
    No. 623.
    Argued March 31, 1964.
    Decided May 25, 1964.

      Constance Baker Motley argued the cause for petitioners. With her on the brief were Jack Greenberg, E. E. Moore, Donald L. Hollowell and A. T. Walden.

      A. C. Latimer argued the cause for respondents. With him on the brief was Neiuell Edenfield.

      Assistant Attorney General Marshall, by special leave of Court, argued the cause for the United States, as amicus curiae, urging reversal. With him on the brief were Solicitor General Cox, Louis F. Claiborne, Harold H. Greene and Howard A. Glickstein.

      Eugene Cook, Attorney General of Georgia, Alfred L. Evans, Jr., Assistant Attorney General, and E. Freeman Leverett, Deputy Assistant Attorney General, filed a brief for the State of Georgia, as amicus curiae, urging affirmance.
   Per Curiam.

During the argument of this case, counsel for respondents stated that after the decree below was entered the Atlanta Board of Education adopted additional provisions authorizing free transfers with certain limitations in the city’s high schools. At our invitation both parties filed supplemental memoranda dealing with this aspect of the case. It appears therefrom that since the argument the Atlanta Board of Education on April 8, 1964, adopted and promulgated a new formal resolution stating the present policy of the Board and the factors it will consider in making initial assignments of pupils and in permitting transfers for the school year 1964-1965. Petitioners deny that this resolution meets the constitutional standards and assert that with respect to students in the elementary schools the plan will not achieve desegregation until sometime in the 1970’s.

In light of the developments at and since the argument, we deem it appropriate that the nature and effect of the Board’s resolution of April 8, 1964, be appraised by the District Court in a proper evidentiary hearing. To this end we vacate the judgment and remand the cause to the District Court for further proceedings.

Although Atlanta’s commendable effort to effect desegregation is recognized, the District Court on remand must, of course, test the entire Atlanta plan by the considerations discussed in Watson v. City of Memphis, 373 U. S. 526, 529; Goss v. Board of Education, 373 U. S. 683; and Griffin v. County School Board of Prince Edward County, ante, at 218, decided subsequent to the District Court’s approval of the plan. In Goss, supra, at 689, we said:

“[W]e are not unmindful of the deep-rooted problems involved. Indeed, it was consideration for the multifarious local difficulties and ‘variety of obstacles’ which might arise in this transition that led this Court eight years ago to frame its mandate in Brown in such language as ‘good faith compliance at the earliest practicable date’ and ‘all deliberate speed.’ Brown v. Board of Education, 349 U. S., at 300, 301. Now, however, eight years after this decree was rendered and over nine years after the first Brown decision, the context in which we must interpret and apply this language to plans for desegregation has been significantly altered. Compare Watson v. City of Memphis, supra.

Vacated and remanded.


text:
    NAGELBERG v. UNITED STATES.
    No. 785.
    Decided May 25, 1964.

      Irwin Klein for petitioner.

      Solicitor General Cox, Assistant Attorney General Miller, Beatrice Rosenberg and Robert G. Maysack for the United States.
   Per Curiam.

On April 11, 1962, petitioner pleaded not guilty to federal narcotics charges; thereafter, on July 18, 1962, he was permitted to withdraw this plea and plead guilty; in November 1962, when the case came on for sentencing, he moved to withdraw his guilty plea because of facts and circumstances which had changed since the time of the plea, including petitioner’s extensive cooperation with the Government. The Government acquiesced in this motion, but the district judge denied it, holding that he had no power to permit withdrawal of the plea on such grounds. The court sentenced petitioner to the minimum statutory term of imprisonment and the Court of Appeals affirmed the conviction, 323 F. 2d 936.

The Government now says that it consented to petitioner’s motion to withdraw his plea because it “planned to dismiss the pending indictment against petitioner and substitute lesser charges.” The Government admits that this purpose was not expressly stated and that “it may be that the court was misled.”

In these circumstances, we believe that the court has discretion to permit withdrawal of the plea. See Kercheval v. United States, 274 U. S. 220, 224 (1927). Accordingly, we grant the petition for certiorari, vacate the judgment of the Court of Appeals and remand the case to the District Court for further proceedings in conformity with this opinion.


text:
    ROGERS et al. v. CITY OF PINE BLUFF, ARKANSAS.
    No. 889.
    Decided May 25, 1964.

      Griffin Smith for appellants.

      John Harris Jones for appellee.
   Per Curiam.

The motion to dismiss is granted and the appeal is dismissed for want of a substantial federal question.


text:
    HORNER v. FLORIDA.
    No. 1156,
    Misc.
    Decided May 25, 1964.
   Per Curiam.

The appeal is dismissed for want of jurisdiction. Treating the papers whereon the appeal was taken as a petition for a writ of certiorari, certiorari is denied.


text:
    RAYMOND, doing business as CRESTMARK DAIRY, v. WICKHAM, COMMISSIONER OF AGRICULTURE AND MARKETS, et al.
    No. 1096,
    Misc.
    Decided May 25, 1964.
   Per Curiam.

The appeal is dismissed for want of jurisdiction. Treating the papers whereon the appeal was taken as a petition for a writ of certiorari, certiorari is denied.


text:
    AHLSTRAND v. UNITED STATES et al.
    No. 1108,
    Misc.
    Decided May 25, 1964.
    Appellant pro se.

      Solicitor General Cox for the United States, and John J. Wilson for the National Rifle Association of America, appellees.
   Per Curiam.

The motions to dismiss are granted and the appeal is dismissed for want of jurisdiction.


text:
    LYNCHBURG TRAFFIC BUREAU v. UNITED STATES et al.
    No. 931.
    Decided May 25, 1964.

      W. G. Burnette for appellant.

      Solicitor General Cox, Assistant Attorney General Orrick, Robert B. Hummel, Arthur J. Murphy, Jr., Robert W. Ginnane and Thomas H. Ploss for the United States and the Interstate Commerce Commission.

      Martin A. Meyer, Jr., Robert B. Claytor and John W. Hanifin for rail appellees.
   Per Curiam.

The motions to affirm are granted and the judgment is affirmed.


author: Mr. Justice Douglas Mr. Justice Stewart,

text:
    UNITED STATES v. ALUMINUM CO. OF AMERICA et al.
    No. 204.
    Argued April 23, 1964.
    Decided June 1, 1964.

      Solicitor General Cox argued the cause for the United States. With him on the brief were Assistant Attorney General Orrick, Frank Goodman, Robert B. Hummel, Donald F. Melchior, Charles D. Mahaffie, Jr. and Richard J. Wertheimer.

      Herbert A. Bergson argued the cause for appellees. With him on the brief were Howard Adler, Jr., Hugh Latimer and William K. Unverzagt.

   Mr. Justice Douglas

delivered the opinion of the Court.

The question is whether the 1959 acquisition by the Aluminum Company of America (Alcoa) of the stock and assets of the Rome Cable Corporation (Rome) “may be substantially to lessen competition, or to tend to create a monopoly” in the production and sale of various wire and cable products and accessories within the meaning of § 7 of the Clayton Act. The United States, claiming that § 7 had been violated, instituted this civil suit and prayed for divestiture. The District Court, after a trial, held that there was no violation and dismissed the complaint. 214 F. Supp. 501. The case is here on appeal, 15 U. S. C. § 29; and we noted probable jurisdiction. 375 U. S. 808.

I.

The initial question concerns the identification of the “line of commerce,” as the term is used in § 7.

Aluminum wire and cable (aluminum conductor) is a composite of bare aluminum wire and cable (bare aluminum conductor) and insulated or covered wire and cable (insulated aluminum conductor). These products are designed almost exclusively for use by electric utilities in carrying electric power from generating plants to consumers throughout the country. Copper conductor wire and cable (copper conductor) is the only other product utilized commercially for the same general purpose. Rome produced both copper conductor and aluminum conductor. In 1958 — the year prior to the merger — it produced 0.3% of total industry production of bare aluminum conductor, 4.7% of insulated aluminum conductor, and 1.3% of the broader aluminum conductor line.

Alcoa produced no copper conductor. In 1958 it produced 32.5% of the bare aluminum conductor, 11.6% of insulated aluminum conductor, and 27.8% of aluminum conductor.

These products, as noted, are most often ' used by operating electrical utilities. Transmission and distribution lines are usually strung above ground, except in heavily congested areas, such as city centers, where they are run underground. Overhead,' where the lines are bare or not heavily insulated, aluminum has virtually displaced copper, except in seacoast areas, as shown by the following table:

Percent of Aluminum Conductor in Gross Additions to Overhead Utility Lines.

1950 1955 1959

Transmission Lines (All Bare Conductor)... 74.4% 91.0% 94.4%

Distribution Lines:

Bare Conductor. 35.5 64.4 79.0

Insulated Conductor. 6.5 51.6 77.2

Total, Transmission and Distribution Lines.. 25.0 60.9 80.1

Underground, where the conductor must be heavily insulated, copper is virtually the only conductor used. In sum, while aluminum conductor dominates the overhead field, copper remains virtually unrivaled in all other conductor applications.

The parties agree, and the District Court found, that bare aluminum conductor is a separate line of commerce. The District Court, however, denied that status to the broader aluminum conductor line because it found that insulated aluminum conductor is not an appropriate line of commerce separate and distinct from its copper counterpart. The court said the broad product group cannot result in a line of commerce, since a line of commerce cannot be composed of two parts, one of which independently qualifies as a line of commerce and one of which does not.

Admittedly, there is competition between insulated aluminum conductor and its copper counterpart, as the District Court found. Thus in 1959 insulated- copper conductor comprised 22.8% of the gross additions to insulated overhead distribution lines. This is enough to justify grouping aluminum and copper conductors together in a single product market. Yet we conclude, contrary to the District Court, that that degree of competitiveness does not preclude their division for purposes of § 7 into separate submarkets, just as the existence of broad product markets in Brown Shoe Co. v. United States, 370 U. S. 294, did not preclude lesser submarkets.

Insulated aluminum conductor is so intrinsically inferior to insulated copper conductor that in most applications it has little consumer acceptance. But in the field of overhead distribution it enjoys decisive advantages — its share of total annual installations increasing from 6.5% in 1950 to 77.2% in 1959. In the field of overhead distribution the competition of copper is rapidly decreasing. As the record shows, utilizing a high-cost metal, fabricators of insulated copper conductor are powerless to eliminate the price disadvantage under which they labor and thus can do little to make their product competitive, unless they enter the aluminum field. The price of most insulated aluminum conductors is indeed only 50% to 65% of the price of their copper counterparts; and the comparative installed costs are also generally less. As the District Court found, aluminum and copper conductor prices do not respond to one another.

Separation of insulated aluminum conductor from insulated copper conductor and placing it in another sub-market is, therefore, proper. It is not inseparable from its copper equivalent though the class of customers is the. same. The choice between copper and aluminum for overhead distribution does not usually turn on the quality of the respective products, for each does the job equally well. The vital factors are economic considerations. It is said, however, that we should put price aside and Brown Shoe, swpra, is cited as authority. There the contention of the industry was that the District Court had delineated too broadly the relevant submarkets — men’s shoes, women’s shoes, and children’s shoes — and should have subdivided them further. It was argued, for example, that men’s shoes selling below $8.99 were in a different product market from those selling above $9. We declined to make price, particularly such small price differentials, the determinative factor in that market. A purchaser of shoes buys with an eye to his budget, to style, and to quality as well as to price. But here, where insulated aluminum conductor pricewise stands so distinctly apart, to ignore price in determining the relevant line of commerce is to ignore the single, most important, practical factor in the business.

The combination of bare and insulated aluminum conductor products into one market or line of commerce seems to us proper. Both types are used for the purpose of conducting electricity and are sold to the same customers, electrical utilities. While the copper conductor does compete with aluminum conductor, each has developed distinctive end uses — aluminum as an overhead' conductor and copper for underground and indoor wiring, applications in which aluminum’s brittleness and larger size render it impractical. And, as we have seen, the price differential further sets them apart.

Thus, contrary to the District Court, we conclude (1) that aluminum conductor and copper conductor are separable for the purpose of analyzing the competitive effect of the merger and (2) that aluminum conductor (bare and insulated) is therefore a submarket and for purposes of § 7 a “line of commerce.”

II.

Taking aluminum conductor as an appropriate “line of commerce” we conclude that the merger violated § 7.

Alcoa is a leader in markets in which economic power is highly concentrated. Prior to the end of World War II it was the sole producer of primary aluminum and the sole fabricator of aluminum conductor. It was held in 1945 to have monopolized the aluminum industry in violation of § 2 of the Sherman Act. See United States v. Aluminum Co., 148 F. 2d 416. Relief was deferred while the United States disposed of its wartime aluminum facilities under a congressional mandate to establish domestic competition in the aluminum industry. As a result of that policy and further federal financing and assistance, five additional companies entered the primary aluminum field so that by 1960 the primary producers showed the following capacity:

Aluminum, Ingot Capacity Existing or Under Construction at the End of 1960.

[short tons]

Company Capacity % of U. S.

Aluminum Company of America. 1,025,250 38.6

Reynolds Metals Company. 701,000 26.4

Kaiser Aluminum & Chemical Corp. 609,500 23.0

Ormet, Inc. 180,000 6.8

Harvey Aluminum. 75,000 2.8

Anaconda Aluminum Company. 65,000 2.4

United States total. 2,655,750 100.0

In 1958 — the year prior to the merger — Alcoa was the leading producer of aluminum conductor, with 27.8% of the market; in bare aluminum conductor, it also led the industry, with 32.5%. Alcoa plus Kaiser controlled 50% of the aluminum conductor market and, with its three leading competitors, more than 76%. Only nine concerns (including Rome with 1.3%) accounted for 95.7% of the output of aluminum conductor. In the narrower market of insulated aluminum conductor, Alcoa was third with 11.6% and Rome was eighth with 4.7%. Five companies controlled 65.4% and four smaller ones, including Rome, added another 22.8%.

In other words, the line of commerce showed highly concentrated markets, dominated by a few companies but served also by a small, though diminishing, group of independents. Such decentralization as has occurred resulted from the establishment of a few new companies through federal intervention, not from normal, competitive decentralizing forces.

The proposition on which the present case turns was stated in United States v. Philadelphia National Bank, 374 U. S. 321, 365, n. 42, as follows:

“It is no answer that, among the three presently largest firms (First Pennsylvania, PNB, and Girard), there will be no increase in concentration. If this argument were valid, then once a market had become unduly concentrated, further concentration would be legally privileged. On the contrary, if concentration is already great, the importance of preventing even slight increases in concentration and so preserving the possibility of eventual deconcentration is correspondingly great.”

The Committee Reports on § 7 show, as respects the Celler-Kefauver amendments in 1950, that the objective was to prevent accretions of power which “are individually so minute as to make it difficult to use the Sherman Act test against them.” S. Rep. No. 1775, 81st Cong., 2d Sess., p. 5. And see H. R. Rep. No. 1191, 81st Cong., 1st Sess., p. 3. As the Court stated in Brown Shoe Co. v. United States, 370 U. S. 294, 323:

“Congress used the words ‘may be substantially to lessen competition’ (emphasis supplied), to indicate that its concern was with probabilities, not certainties. Statutes existed for dealing with clear-cut menaces to competition; no statute was sought for dealing with ephemeral possibilities. Mergers with a probable anticompetitive effect were to be proscribed by this Act.”

See also United States v. Philadelphia National Bank, 374 U. S., at 362, and United States v. El Paso Natural Gas Co., 376 U. S. 651, 658.

The acquisition of Rome added, it is said, only 1.3% to Alcoa’s control of the aluminum conductor market. But in this setting that seems to us reasonably likely to produce a substantial lessening of competition within the meaning of § 7. It is the basic premise of that law that .competition will be most vital “when there are many sellers, none of which has any significant market share.” United States v. Philadelphia National Bank, 374 U. S., at 363. It would seem that the situation in the aluminum industry may be oligopolistic. As that condition develops, the greater is the likelihood that parallel policies of mutual advantage, not competition, will emerge. That tendency may well be thwarted by the presence of small but significant competitors. Though percentagewise Rome may have seemed small in the year prior to the merger., it ranked ninth among all companies and fourth among independents in the aluminum conductor market; and in the insulated aluminum field it ranked eighth and fourth respectively. Furthermore, in the aluminum conductor market, no more than a dozen companies could account for as much as 1 % of industry production in any one of the five years (1955-1959) for which statistics appear in the record. Rome’s competition was therefore substantial. The record shows indeed that Rome was an aggressive competitor. It was a pioneer in aluminum insulation and developed one of the most widely used insulated conductors. Rome had a broad line of high-quality copper wire and cable products in addition to its aluminum conductor business, a special aptitude and skill in insulation, and an active and efficient research and sales organization. The effectiveness of its marketing organization is shown by the fact that after the merger Alcoa made Rome the distributor of its entire conductor line. Preservation of Rome, rather than its absorption by one of the giants, will keep it “as an important competitive factor,” to use the words of S. Rep. No. 1775, supra, p. 3. Rome seems to us the prototype of the small independent that Congress aimed to preserve by § 7.

The judgment is reversed and since there must be divestiture, the case is remanded to the District Court for proceedings in conformity with this opinion.

Reversed and remanded.

Mr. Justice Stewart,

whom Mr. Justice Harlan and Mr. Justice Goldberg join,

dissenting.

In this civil action, brought under § 7 of the Clayton Act, as amended, the District Court found that the Government had failed to sustain its burden of proof as to both the “line of commerce” and competitive effect issues. Because I think the Government clearly failed to prove its “line of commerce” claims, I dissent from today’s reversal of the trial court’s judgment.

A four-week trial was held — after 22 months of extensive pretrial discovery. Five hundred documentary exhibits were received in evidence, and 50 witnesses were heard. The record amounts to more than 3,500 pages. The district judge wrote a long and careful opinion, accompanied by meticulous findings of fact and thoroughly reasoned conclusions of law. In determining the relevant lines of commerce involved here, the trial judge conscientiously applied the standards postulated by this Court in Brown Shoe Co. v. United States, 370 U. S. 294, 325, and made detailed findings of fact fully supporting his determinations. 214 F. Supp. 501. The Government has not claimed that any of these findings of fact are clearly erroneous, nor does the Court today hold them to be. Nevertheless, the Court reverses the judgment. I find it difficult to understand the Court's conclusion, and impossible to agree with it.

A “[djetermination of the relevant market is a necessary predicate to a finding of a violation of the Clayton Act.” United States v. E. I. du Pont de Nemours & Co., 353 U. S. 586, 593. In order to prove that this was a horizontal merger in violation of § 7, the Government was therefore faced with the necessity of showing substantial percentages of market shares in competitive products. Alcoa manufactured no copper cable, and in the conductor field was chiefly a producer of bare aluminum cable. Over 90% of Rome’s production was in insulated copper products, and its production of bare aluminum cable was de minimis (.3% of the market share). ' The District Court found that conductor wire and cable (both bare and insulated, aluminum and copper), and insulated conductor (both aluminum and copper), were lines of commerce, but that Alcoa’s and Rome’s market shares in these broad product markets were insufficient to support a finding of requisite anticompetitive effect, 214 F. Supp., at 518-519 — a conclusion which the Government does not question here. More substantial market share percentages would be forthcoming, however, if aluminum conductors could be set apart from the rest of the conductor manufacturing industry. Accordingly, the Government asked the District Court to find aluminum conductors in general, and insulated aluminum conductors in particular, to be separate lines of commerce.

The District Court declined to make such a finding, and for good reason. A line of commerce is an “area of effective competition,” to be determined in accordance with the principles laid down in our prior decisions. In Brown Shoe, this Court held that there are broad product markets within which there may be “well-defined” and “economically significant” submarkets. 370 U. S., at 325. The Court in that case did not attempt to formulate any rigid standard for determining submarket boundaries, but indicated that a broad-ranging pragmatic evaluation of market realities was required. The federal trial courts were admonished to examine “such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.” Ibid. These “practical indicia” to be considered in determining submarket boundaries express in practical terms the basic economic concept that markets are to be defined in terms of the close substitutability of either product (demand) or production facilities (supply), since it is ultimately the degree of substitutability that limits the exercise of market power, and it is only by delimiting the area of effective competition that an acquisition’s competitive effects can be ascertained.

The District Court applied these practical indicia with meticulous care, and found that the conductor industry-does not differentiate between copper and aluminum insulated products; that copper and aluminum products are functionally interchangeable; and that there are no unique production facilities, distinct customers or specialized vendors for insulated aluminum conductor products. 214 F. Supp., at 509. The trial judge did not, as the Court implies, ignore the fact that the prices of copper and aluminum insulated products are generally distinct. It explicitly recognized this fact, but concluded on closer examination of the industry that this price difference did not foreclose “actual competition.” Ibid. Accordingly, making a practical judgment based on the Brown Shoe submarket indicia, the District Court concluded that insulated aluminum conductor had not been established as a line of commerce. And since the other alleged line of commerce — aluminum conductor generally — was no more than the sum of bare and insulated aluminum conductors, the court concluded that it, too, could not constitute an “area of effective competition,” since as to the insulated segment, important competitive copper elements would be improperly and arbitrarily excluded. Id., at 510.

The District Court, in other words, did a careful and thoughtful job. It applied the proper law, and its reasoning was impeccable. Yet this Court overrules its decision with little more than a wave of the hand. On the basis of two assertions, that the record shows “fabricators of insulated copper conductor are powerless to éliminate the price disadvantage under which they labor and thus can do little to make their product competitive,” and that the difference in price between aluminum and copper conductors is “the single, most important, practical factor in the business,” both of which are contrary to the explicit findings of the District Court, the Court summarily con-eludes that aluminum conductor is “for purposes of § 7 a 'line of commerce.' ”

The District Court found that neither insulated aluminum nor insulated copper conductor products are recognized as a separate economic entity. Insulated products are identified and defined by the industry and reported to the Bureau of the Census in accordance with their function or type, “not according to the metal used as conductor,” and manufacturers regard themselves simply as insulators of wire and cable products. Moreover, there is complete manufacturing interchangeability between copper and aluminum, and manufacturers constantly review their product lines and “switch readily from one product or conductor metal to another in accordance with market conditions.” As a result, if a fabricator should feel himself at a competitive disadvantage because of his use of copper, he is not, as the Court asserts, powerless to eliminate a price disadvantage. The supply flexibility which this implies exerts a profound restraint upon an aluminum cable manufacturer’s power to achieve any sort of market advantage.

The Court points to nothing in the record justifying its second assertion that “price . . . is . . . the single, most important, practical factor in the business.” Whether it is or not is a matter of fact, and the trial judge found upon substantial evidence that “[s]ince copper and aluminum products are completely interchangeable from a performance standpoint, utility companies choose between copper and aluminum insulated or covered overhead products solely on the basis of economics. The decision requires evaluation of numerous economic factors in addition to the cost of the wire or cable itself.” (Emphasis supplied.) The record amply supports this finding. There was undisputed testimony that in some situations, the final installed cost of aluminum conductor may be greater than its copper counterpart because of other economic factors such as the higher cost of connectors which must be used with aluminum and the fact that the copper-aluminum cost difference becomes less significant the more complex the conductor required for the job. That the copper-aluminum price difference is not always the determining factor is further borne out by other findings of the trial judge, fully supported by the record, that even in areas where aluminum has gained “increasing use,” there is a “lively competition between aluminum and copper products” ; that the aluminum-copper price difference does not foreclose “actual competition” and that, in fact, “substantial quantities” of the copper version of overhead distribution products are sold.

But even if insulated aluminum conductor is a proper line of commerce, there is no basis in logic, or in the competitive realities of the conductor industry, for lumping together in one line of commerce bare and insulated aluminum conductors. Even the Government does not claim that the two are competitive,- different equipment and engineering skills are required for their manufacture and sale; and, as the District Court found, the combination of bare and insulated aluminum conductors is not generally “recognized in the industry as a separate economic entity” or submarket. The grouping of bare and insulated aluminum conductors into one line of commerce, therefore, is not, as the Court says, “a logical extension of the District Court’s findings,” but a repudiation of those findings. And it adds nothing to note, as the Court does, that both bare and insulated aluminum conductors are used to conduct electricity and are sold to electrical utilities. All electrical conductors are used for this purpose and sold to these customers. Such a non-sequitur cannot justify the separation of aluminum conductors from the rest of the electrical conductor field.

The short of it is, there is here no relevant market upon which to predicate a violation of § 7. The District Court correctly described this acquisition as “the combination of an aluminum and an essentially copper manufacturing company,” undertaken by Alcoa “in the face of its declining market,” for the purpose of obtaining insulating know-how and diversification needed “to overcome a market disadvantage rather than to obtain a captive market ... or to eliminate a competitor.” 214 F. Supp., at 512. I am totally unable to join the Court in its ipse dixit transformation of this essentially “know-how” acquisition into a horizontal merger in violation of § 7.

I would affirm the judgment of the District Court.

       Section 7 of the Clayton Act, 38 Stat. 731, as amended by the Celler-Kefauver Antimerger Act, 64 Stat. 1125, 15 U. S. C. § 18, provides in relevant part:
      “No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”

       Transmission lines are the "wholesale” lines which carry current at high voltages to substations. Distribution lines are the “retail” lines which carry current from the substations to the consumers.

       Cf. United States v. Philadelphia National Bank, 374 U. S. 321, where we held it proper to make commercial banking a line of commerce for purposes of § 7 even though in some services, e. g., the making of small loans, banks compete with other institutions. We said that commercial banks enjoy “such cost advantages as to be insulated within a broad range from substitutes furnished by other institutions.” Id., at 356. And see United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 593; Reynolds Metals Co. v. Federal Trade Comm’n, 309 F. 2d 223, 229; United States v. Corn Products Refining Co., 234 F. 964, 976.

       The dissent criticizes this grouping of bare and insulated aluminum conductor into one line of commerce. This overlooks the fact that the parties agree, and the District Court found, that bare aluminum conductor and conductor generally (aluminum and copper, bare and insulated) constitute separate lines of commerce. Having concluded above that insulated aluminum conductor and insulated copper conductor are separable even though some interproduct competition exists, the conclusion that aluminum conductor (bare and insulated) is a line of commerce is a logical extension of the District Court’s findings.

       See the Surplus Property Act of 1944, 58 Stat. 765; United States v. Aluminum Co., 91 F. Supp. 333; United States v. Aluminum Co., 153 F. Supp. 132. Litigation was terminated on June 28, 1957. Ibid. Twelve days later, Alcoa made its first attempt to acquire Rome.

       The absorption of Rome by Alcoa was one of the five acquisitions by producers of primary aluminum since 1957. In that year Olin Mathieson (a one-half owner of Ormet, Inc.) acquired Southern Electric Corporation, then the largest independent manufacturer of aluminum conductor; and Kaiser acquired the Bristol, Rhode Island, plant of the U. S. Rubber Company, one of the top 10 in the insulated aluminum field. These moves, and the threat they were thought to pose, were specifically identified as factors influencing Alcoa’s 1959 decision to acquire Rome. And it was partly in response to the three prior acquisitions that Reynolds, in 1961, acquired the wire and cable facilities of John A. Roebling’s Sons Division of the Colorado Fuel and Iron Company, a small fabricator. Finally, in February 1963, too late to be noted in the record below, Aluminium, Ltd., of Canada announced the acquisition of Central Cable Corporation, one of the largest of the independents. As a result of this series of mergers, there now remain only four nonintegrated fabricators of aluminum conductor whose individual shares of total industry production (based on 1959 figures, the latest in the record) amounted to more than 1%.

       See United States v. Philadelphia Bank, 374 U. S. 321.

       See note 4 of the Court’s opinion.