The Du Pont Case

Quick to spot a moneymaking opportunity, Du Pont Treasurer John Jacob Raskob persuaded his firm, back in 1917-19, to sink about $50 million into a struggling automobile company named General Motors. That fabulously foresighted investment, now worth close to $2.7 billion, makes giant E. I. du Pont de Nemours & Co. the owner of the largest block of stock (23%) of the biggest industrial giant of them all.

In 1949 the Justice Department brought suit to force Du Pont to give up its G.M. shares. After five years of legal wrestling, Chicago's U.S. District Court Judge Walter J. LaBuy dismissed the Government's suit. Ruled Judge LaBuy, after studying more than 2,000 exhibits and 8,283 pages of testimony: "The Government has failed to prove conspiracy, monopolization, a restraint of trade, or any reasonable probability of a restraint." Attorney General Herbert Brownell's Justice Department appealed to the Supreme Court,* but with scant hope of winning a reversal: LaBuy's decision seemed foolproof and final.

The Invisible Seen. Last week, in a decision that stunned lawyers on both sides with its bold and unexpected reaches, a four-man Supreme Court majority (Warren, Brennan, Black and Douglas)/- overruled Judge LaBuy. Completely bypassing the Government's main charges--that Du Pont had violated the 1890 Sherman Act by fencing off the G.M. market from Du Font's competitors--the court based its decision on Section 7 of the 1914 Clayton Act, to which Government lawyers had devoted only six pages of their 100-page brief and only perfunctory oral argument. Section 7 bars a corporation from acquiring stock in another, "where the effect of such acquisition may be [to restrain commerce] or tend to create a monopoly of any line of commerce." Ruled the Supreme Court (in the majority opinion written by Justice Brennan): the facts showed a "reasonable probability" that Du Pont's stock interest in G.M. "is likely to result in the condemned restraints."

Most cases brought before the Supreme Court turn on questions of law, but the basic issue in the Du Pont case was interpretation of the facts. Judge LaBuy had found "no need ... to discuss legal principles or precedents," because in his opinion the facts did not prove the Government's charges. In overruling LaBuy, the Supreme Court took the same set of facts and saw in them a "reasonable probability" that was invisible to LaBuy.

Ruling that the relevant "line of commerce" was "automobile finishes and fabrics," the court noted that, in 1947, G.M. bought 68% of its car enamels and other finishes from Du Pont, and 38.5% of its fabrics. To show that Du Pont had at least tried to influence G.M.'s buying policies, the court cited letters and memos written by Du Pont officers (none later than 1926). Item: Treasurer Raskob's 1917 report, arguing that purchase of G.M. stock "will undoubtedly secure for us" the entire G.M. market for paints, artificial leather and other Du Pont products. Concluded the highest court: "The inference is overwhelming that Du Font's commanding position was promoted by its stock interest and was not gained solely on competitive merit."

Tortured Facts. To this line of reasoning Justice Harold Burton, joined by Justice Felix Frankfurter, entered a sharp and detailed dissent. In one of the hardest-hitting Supreme Court minority opinions in many a year. Burton and Frankfurter challenged the majority's selection and interpretation of the facts. Items:

P:The fact that Du Pont sells a lot of finishes and fabrics to G.M. is not proof of illegal influence. Du Pont also sells finishes and fabrics to other automakers, apparently on competitive merit. It is not surprising that Du Pont sells more to G.M. than to any other automaker --G.M. is the biggest.

P:The majority ignored G.M.'s actual buying practices: "The record discloses that each [G.M.] division buys independently . . . and that within each division purchases from Du Pont have fluctuated greatly." Of G.M.'s automobile division, only Oldsmobile buys antifreeze from Du Pont and only Cadillac uses Du Pont copper electroplating exclusively, while neither Oldsmobile nor Cadillac finishes its cars with Duco. Concluded Burton sarcastically: "The alleged nefarious influence . . . apparently affects the Oldsmobile antifreeze buyer, but not the Oldsmobile paint buyer; the paint buyers at Chevrolet, Buick and Pontiac, but not the antifreeze or electroplating buyers; and the electroplating buyer at Cadillac, but not the Cadillac paint buyer."

P:In making its own definition of the "relevant market," argued the dissenters, the majority tortured the facts; e.g., the court included "Duco" and "Dulux," which together accounted for more than half of G.M.'s total purchases from Du Pont in 1947 as automobile finishes. But Du Pont sells industrial "Duco" to many firms outside the automobile field, and "Dulux," used by most U.S. refrigerator makers (but not, Burton noted, by G.M.'s own Frigidaire), is not an automobile finish at all. Furthermore. Burton contended, the court's narrow definition ignored those products, including plastics, adhesives and solvents, that G.M. could buy from Du Pont but chooses to buy mostly from Du Pont's competitors.

Sleeping Giant. Besides attacking the majority's reading of the facts, the dissenters challenged the decision, on points of law. The court erred, Burton wrote, in applying Section 7, for the first time, to a "vertical" linkup between supplier and customer rather than to a "horizontal" linkup between two competitors. Congress intended the section to apply only to horizontal cases, he contended. But the language of Section 7 was, as he conceded, "ambiguous," and many U.S. lawyers felt that it took no undue straining to apply it to vertical cases.*

More convincing was Burton's second point of law: the court erred in holding that Section 7 applied "at the time of suit," after Du Pont had held the stock for 30 years, although what the law specifically forbids is "acquisition." In previous cases Section 7 had been applied soon after the acquisition, and many a lawyer agreed with Burton that by applying it 30 years after the fact, the court had opened up a new field of antitrust prosecutions (see BUSINESS). "Over 40 years after the enactment of the Clayton Act," wrote Burton, "it now becomes apparent for the first time that Section 7 has been a sleeping giant all along. Every corporation which has acquired a stock interest [in a customer or supplier since 1914] is exposed, retroactively, to the bite of the newly discovered teeth."

*Under the 1903 Expediting Act, District Court judgments in civil antitrust suits can be appealed only to the Supreme Court, not to a Circuit Court of Appeals. /-Clark disqualified himself because he was Attorney General when the Justice Department brought the suit in 1949. Harlan had represented Du Pont as a lawyer. Whittaker had not yet been appointed when the case was argued before the court. *In 1950, after the Government brought suit against Du Pont, Congress amended Section 7 to make it clearly applicable to vertical cases.

This file is automatically generated by a robot program, so reader's discretion is required.