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AMENDING SECTION 10 OF CLAYTON ACT.

WEDNESDAY, JANUARY 5, 1921.

UNITED STATES SENATE,

INTERSTATE COMMERCE COMMITTEE,

Washington, D. C.

The subcommittee met, pursuant to call, at 10.30 o'clock a. m., in room 410, Senate Office Building, Senator Charles E. Townsend presiding.

Present: Senators Townsend (chairman), Poindexter, Kellogg, Smith of South Carolina, and Stanley.

(The committee had under consideration the bill S. 4576, "A bill to amend the interstate commerce act by adding at the end of section 20a a new paragraph, and to repeal section 10 of an act entitled 'An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes,' approved October 15, 1914," which is as follows:

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the interstate commerce act be, and the same hereby is amended, by adding at the end of section 20a a new paragraph which shall read as follows:

"13. After December 31, 1921, no common carrier engaged in commerce shall have any dealings in supplies, or other articles of commerce, or shall make any contracts for construction or maintenance of any kind, to the amount of more than $50,000 in any one transaction with another corporation, firm, partnership. or association, unless such corporation, firm, partnership, or association be a common carrier, railroad company, terminal company, joint facility company, or public service company, when said common carrier shall have upon its board of directors, or as its president, general manager, or as its purchasing or selling officer or agent in the particular transaction, any person who is at the same time a director, general manager, or purchasing or selling officer of, or who has any substantial interest in such other corporation, firm, partnership, or association, unless and except such dealings or contracts shall be with the bidder whose bid is the most favorable to such common carrier to be ascertained by competitive bidding, under regulations to be prescribed by rule or otherwise, by the Interstate Commerce Commission. It shall be lawful for any common carrier or person when in doubt as to what constitutes a substantial interest within the meaning of this paragraph to apply to the Interstate Commerce Commission for a ruling on a complete and verified statement of fact in respect thereto. and in case of such application the Interstate Commerce Commission is required to pass upon the question and is authorized to finally decide the same.

"No common carrier engaged in commerce shall, when it has upon its board of directors, or as its president or general manager, any person who is at the same time a director, president, or general manager of another common carrier corporation, charge such other common carrier corporation for supplies or other articles of commerce a price in excess of that at which similar articles are concurrently charged out by it for its operating purposes with the addition thereto of proper transportation. charges.

"No bill shall be considered unless the names and addresses of the officers, directors, and general managers thereof, if the bidder be a corporation, or the members, if the bidder be a partnership or firm, be given with the bid.

"Any person who shall, directly or indirectly, do or attempt to do anything to prevent anyone from bidding or who shall do any act to prevent free and fair competition

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among the bidders or those desiring to bid shall be punished as prescribed in this paragraph in the case of an officer or director.

"This paragraph shall not apply to dealings between a common carrier and a noncarrier corporation or company, where such noncarrier corporation or company is controlled by it through stock ownership, lease, or otherwise, or in which it alone, or together with another or other common carriers, has a stock interest amounting to as much as one-half of the outstanding stock or between a common carrier and such noncarrier corporation or company controlled by common stock ownership, or between a common carrier holding company and its controlled noncarrier corporations or companies. Such a common carrier is prohibited from purchasing supplies or other articles of commerce from any such noncarrier corporation or company, without the assent and approval of a different price by the Interstate Commerce Commission, at a price exceeding the then market value thereof, at the time and place of delivery. "Every such common carrier having any such dealings or making any such contracts required hereby to be made by competitive bidding, shall, for such time as the Interstate Commerce Commission shall require, preserve in its office, subject to public inspection and to the inspection of the Interstate Commerce Commission, a full and detailed record of the transaction, showing the manner of competitive bidding who were the bidders, and the names and addresses of the directors and officers of the corporations and the members of the firm or partnership bidding; and whenever the said commission shall, after investigation or hearing, have reason to believe that the law has been violated in and about the said dealings or transactions, it is authorized to refer the matter and its own views or findings and recommendations thereon to the Attorney General.

"If any common carrier shall violate this paragraph, it shall be fined not exceeding $25,000; and every such director, agent, general manager, or officer thereof, who shall vote for or direct the act, knowing that it constitutes such violation, or who shall have knowingly aided or abetted in such violation, shall be deemed guilty of a misdemeanor, and shall be fined not exceeding $5,000, or confined in jail not exceeding one year, or both, in the discretion of the court.

SEC. 2. That section 10 of an act entitled "An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," approved October 15, 1914, is hereby repealed.

SEC. 3. That this act shall be enforced from its passage.

The CHAIRMAN. I will state that on yesterday the Interstate Commerce Committee of the Senate had a meeting and appointed a subcommittee consisting of the Senators now present, to consider various matters in connection with section 10 of the act of October 15, 1914, known as the Clayton Act. A bill had passed the Congress and was vetoed a day or two since by the President. That veto is now on the table in the Senate, and this committee is authorized to hold such hearings as it feels ought to be held for the purpose of determining the question as to whether section 10 of the present act should be amended, and if so, what amendments should be proposed by this subcommittee to the whole committee, and by it to the Senate.

This morning I have invited members of the Interstate Commerce Commission to be present in order that we could hear their views, if they have any to present, on this subject. Commissioner Meyer, do you appear for the commission this morning?

STATEMENT OF HON. BALTHASAR H. MEYER, COMMISSIONER, INTERSTATE COMMERCE COMMISSION.

Commissioner MEYER. Mr. Chairman, Chairman Clark expects to be here. He expected to be here before this time. He is before a committee of the House. I know he expects to be present. If necessary I am prepared to appear before the committee.

The CHAIRMAN. Perhaps you had better go on if you are ready to proceed; or, if you prefer to wait, the committee will wait for Chairman Clark. We would, however, rather have you go on now.

Commissioner Meyer, you have heard the statement just made by me with reference to the object of this meeting of the subcommittee of Interstate Commerce this morning?

Commissioner MEYER. I did, Mr. Chairman.

The CHAIRMAN. This is a matter that has been under consideration more or less by your commission for some time, I take it?

Commissioner MEYER. We have had some discussion regarding it, Mr. Chairman, but we have not hitherto had occasion to give special consideration to section 10 of the Clayton law except in so far as the commission was required to publish rules and regulations.

The CHAIRMAN. Are you prepared this morning to give us your views-reflecting as far as you are able to reflect them the views of the commission with reference to section 10 of the Clayton Act?

Commissioner MEYER. I am prepared, Mr. Chairman, to make a rather general and tenative statement with respect to the bill S. 4576, which neither Chairman Clark nor I had seen until last evening, but both of us have read it and we have discussed it between ourselves, and while Chairman Clark had intended to make a statement for both of us, possibly I can, to some extent, make a statement for the chairman and myself.

The CHAIRMAN. Very well. The bill S. 4576 is known as the Frelinghuysen bill, proposing certain amendments to section 10 of the Clayton Act. You may proceed in your own way with your

statement.

Commissioner MEYER. Mr. Chairman, Commissioner Clark and I assumed that this bill would be the subject matter for discussion this morning, and with that in mind we gave it such consideration as was possible during the brief time at our disposal.

He would want to say for himself, and for me, and I am sure for other members of the commission, that we are not prepared to go into the details, or into many details, with respect to this bill, but we are prepared to express certain views with regard to the principles embodied in this bill, as we understand it. I may say that our commission is unanimous in its approval of what it under tands to be the principle underlying section 10 of the Clayton law.

Senator KELLOGG. Without any changes, you mean?

Commissioner MEYER. Certain members of the commission, possibly a majority of the commission, at the present time think that perhaps some changes should be made, and other members of the commission think that possibly the law might go into effect as it is, and then make such changes as on a proper presentation of facts it may seem wise to make. But as for myself, I have no specific recommendation to make at this moment with respect to amendments to section 10 as it now stands.

Coming to Senate bill 4576, the first point which attracted the attention of Chairman Clark and myself was that this proposes to make section 10, or a modification of section 10, effective December 31, 1921. It seemed to both of us that if this is good legislation in principle, as we believe it to be, we could see no reason why the effectiveness of the law should be postponed to December 31, 1921. It seems to us it should go into effect within a reasonable time after the Congress may have acted.

On page 2, lines 12 to 16, there is this language, taken verbatim from section 10 of the Clayton law as it now stands:

Shall be with the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bidding, under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commission.

It seemed to me, and I am quite certain Chairman Clark shares that view, that the expression "whose bid is the most favorable,' would vest in the carrier that business discretion which is referred to in line 23 of page 3 of this proposed bill. You will observe that in line 22 and following it is stated:

nor shall it deprive a carrier of the right to exercise an honest business discretion in determining which bid, under all the circumstances of the case, is, by reason of the responsibility of the bidder or otherwise, most favorable to its interest.

That provision of the bill before us, it seems to me, is in direct conflict with everything that precedes it and nullifies it. Under this provision bids may be called for on a certain basis, on the basis of specifications, perhaps, outlined in greater detail than after such bids have been received. The interested parties may make a bargain departing from such bids in any manner they see fit.

Now, I am advised that that is a common practice to-day in fields other than the railroad business, and I am also advised that it exists to a certain extent in the railroad business. I am also satisfied that it is not universal. In other words, in the private or secret bargaining which may occur on the basis of this proposed bill terms and conditions that competitive bidders may have regarded as very serious will be disregarded by the parties most directly interested, possibly by an understanding previously had and with repsect to which certain bids were submitted, by inserting certain stipulations.

I understand in proposals for bids it is possible to eliminate certain bidders that for certain reasons it is thought should be eliminated, leasing the field for secret bargaining with others, who may accomplish those things that they believe to be most in their interest. have no personal knowledge with respect to those things and can not speak in such detail as I know other men can.

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In general, then, Mr. Chairman, this proposed insert appears to Chairman Clark and myself to contradict the purpose of section 10 and, as I have said before, to nullify it.

Senator KELLOGG. Mr. Meyer, would you prefer to finish your statement before answering questions, or would you object to being interrupted for a question as to that particular point right there?

Senator POINDEXTER. Will you permit me to make the suggestion that, generally speaking, it is much more satisfactory to allow the witness to finish his statement and then to question him when he gets through?

The CHAIRMAN. I think that is true; that is my own impression, unless something should happen where there would be a liability to forget what the witness has said.

Commissioner MEYFR. Mr. Chairman, Chairman Clark would have told you that neither he nor I have had opportunity to study this bill as it deserves to be studied. Neither of us has had an opportunity to make any preparation for the hearing and present such views as we might otherwise be able to present in the hope of being

of some use to the committee. But these are our tentative impressions.

Another point to which attention might be directed is suggested in line 20 of page 2 of the proposed bill, beginning on line 19. The language is:

to apply to the Interstate Commerce Commission for a ruling in respect thereto.

It seems that an insert might be considered at that point after the word "ruling" in line 20 something like this: "on a complete and verified statement of fact," the thought being that the applicant should assume the burden of advising the commission with respect to the facts on which it is requested to make a ruling. I think the import of that is obvious and I need not enlarge upon it.

On page 3, line 6, occurs the phrase, "for operating purposes.' As you gentlemen know, there are certain charges which go to operating-expense account, and others go to capital account. order to avoid any possible misunderstanding as to what is intended here, it seems that the word "operating" might be eliminated and "its" substituted-"charged by it for its purpose," irrespective of the account to which the item might be charged. On page 4, line

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The CHAIRMAN. Would you please develop that a little bit as to why you want that change made?

Commissioner MEYER. As it now stands, Mr. Chairman, a question might arise whether or not a particular iteni is chargeable to operating expense or to capital account. For the purpose of this bill, with respect to the intention of this act, that is perhaps immaterial. What is desired here apparently is to charge the subsidiary no more than the company that supplies material charges itself, independently of whether the material goes into the operating account or into the capital account. Chairman Clark, who has just arrived, suggests that we might say "for its own uses" instead of "its own purposes.' That is better.

Refrring now to the bottom of page 4, there is a reference made in line 23 to a price exceeding the then market value thereof." Apparently that can refer to securities as well as to materials. Men who are informed in regard to these things have told me it is possible with a few hundred thousand dollars to "play the market," as they call it, and establish a price, which price although artificially established, would become the maximum price uncer this provision of law, and it might be the governing price. It seemed to us, or at least to me, that that language required very careful examination.

Then the question is also suggested, with respect to line 23, of why a subsidiary of a railroad corporation should ever pay more than the market price. I do not know what those who framed this language may have had in mind, but the question is fairly presented, why should a subsidiary ever pay more?

Senator KELLOGG. This is a purchase from a subsidiary, is it not? Commissioner CLARK. It is a purchase from a noncarrier corpora

tion.

Senator KELLOGG. But that noncarrier corporation is a subsidiary of the carrier, is it not?

Commissioner CLARK. It does not say so.

Senator KELLOGG. Yes; it does.

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