be eliminated until such time as it reduced the present joint water-truck rate applicable from Philadelphia to Selma.

"The record warrants the conclusion that the proposed rate is lower than necessary to meet the competition over the rail-water-truck route; that it would result in a needless sacrifice of carrier revenue, and would fail to bear its just proportion of the total transportation burden in maintaining a transportation system in conformity with the national transportation policy."

In Scrap Iron From New Orleans and Mobile to St. Louis and Chicago, 272 I.C.C. 781 (1948), the Commission, division 2, found proposed reduced rail rates on iron or steel scrap not shown to be just and reasonable, stating (pp. 792-793):

"While the suspended rates have been shown to be reasonably compensatory there is still a question as to whether they may be regarded as unreasonably low, in violation of section 1, construed in the light of the national transportation policy declared by the Congress. (Quoting from All Freight from Eastern Ports to the South, 245 I.C.C. 207, 251 I.C.C. 361.)

"In our opinion the evidence does not show that any reduction in the rail rates is necessary to meet barge competition except from New Orleans and Mobile to the Chicago area. Moreover the proposed reduction in the rates to Chicago is, we believe, greater than warranted by the barge competition. The proposed rate of $7 from New Orleans to Chicago would reflect a differential of only 60 cents over total charges when the movement is by barge, and from Mobile it is less than the barge line-haul rate.

"We conclude that the rail rate from New Orleans to the Chicago area should not be lower than $8, which would reflect a differential of $1.60 over total barge charges or 20 percent of the suggested rail rate. An $8 rate from Mobile to Chicago would continue that point on an equality with New Orleans. It would be 68 cents higher than the barge line-haul rate of $7.32, but slightly lower than the barge rate plus delivery costs."

In Scrap Rails From Southern Ports to Chicago, 283 I.C.C. 357 (1951), the Commission, division 2, held that proposed reduced rail rates on old iron or steel rails were not shown to be just and reasonable, where they would have exceeded the lowest cost by barge by only 30 cents per ton. The division referred to its decision in the All Freight case, 245 I.C.C. 207, 251 I.C.C. 361, wherein it said: "In the absence of convincing evidence that special rates are justified by the facts and circumstances in particular situations, every rate should bear its fair share of the transportation burden."

In Export Rates, Associated Shippers Carloading Corp., 273 I.C.C. 600 (1949), the Commission, division 3, found that freight forwarder export commodity rates on various articles had not been shown to be unreasonable or otherwise unlawful. At pages 603–604 of its opinion, the division said:

"Transportation companies subject to the act have the right to initiate rates to meet competitive forms of transportation, provided they do not reach the point where they result in the unfair or destructive competition referred to in the declared national transportation policy. Before we can regard any rates as falling below a minimum reasonable level, it must appear, with reasonable clarity, that they attract to themselves more than a fair volume of traffic or are so low as to cast an undue proportion of the transportation burden upon other traffic. Petroleum Between Washington, Oregon, Idaho, Montana, 234 I.C.C. 609, Shoe Dressing In Official Territory, 246 I.C.C. 579. No such a showing has here been made."

In National Water Carriers Ass'n. v. Long Island R.R. Co., 287 I.C.C. 726 (1953), the Commission, division 2, held that a rail rate on crushed stone in carloads was unreasonably low and unduly preferential, stating (p. 730):

"Rail rates reduced from a normal level to meet water competition may be no lower than necessary to meet the competition, and may not be so low as to cast a burden upon other traffic. The record indicates that the rate of $1.65 is lower than necessary to meet the barge-truck competition. Destructive competition is forbidden, as is also undue prejudice and preference. The defendants cannot be permitted to select the Westfield shipper as the favored one for shipment by rail and deny any equal opportunity to the complainant shipper from Branford at a reasonable related rate." [Citation omitted.]

APPENDIX B

Additional Cases Showing That Ordinary Businesses Subject to The Antitrust Laws do Not Have Absolute Freedom to Price Their Goods

In Muller & Co. v. Federal Trade Commission, 142 F. 2d 511 (1944), the Court of Appeals for the Sixth Circuit affirmed a cease and desist order entered against certain manufacturers and sellers of granulated chicory by the Federal Trade Commission. The FTC had charged the petitioners with engaging in unfair methods of competition and with unlawful price discrimination in violation of the antitrust laws. In its opinion (pp. 517-518), the circuit court said: "Much evidence both oral and written, supports the Commission's findings and shows a deliberate intention on the part of Muller and Franck to stifle Schanzer's competition by cutting costs. * * *

"The fact that the sales were not greatly below cost does not aid the petitioners. It was not necessary that the evidence show that Schanzer suffered loss. The purpose of the Federal Trade Commission Act is to prevent potential injury by stopping unfair methods of competition in their incipiency. But loss was shown. Prior to the latter part of January 1937, Schanzer had cut its prices to meet the petitioners' competition; but at that time it was compelled to increase prices, and its sales dropped from 2,319,507 pounds in 1936 to 1,459,195 in 1937. During the same year petitioners' sales increased 872,351 pounds. Schanzer lost substantial amounts of the business of three of its largest custom* *. The importance of these losses is emphasized by the fact that Schanzer is a relatively small concern having a net worth of about $70,000 as compared with $743,000 for Muller and $1,256,000 for Franck. Meanwhile the petitioners discriminated in price between customers of different areas, selling chicory so much lower in the territory to which Schanzer had access than in the rest of the country, that they were able to recoup their losses in the New Orleans territory.

ers

In Gordon, Wolf, Cower Co. v. Independent Halvah & Candies, 9 F.R.D. 700 (1949), the U.S. District Court for the Southern District of New York denied defendant's motion to dismiss the complaint and for summary judgment. The plaintiff, a manufacturer of a confection known as halvah, had alleged, among other things, that from September 1948 through April 1949 the defendant sold the halvah it produced at 25 cents per pound, a price that was "unreasonably low" and established "for the purpose of destroying competition" and "eliminating a competitor." The opinion of Judge Bondy states (p. 701) :

"The complaint states a violation of section 3 of the Robinson-Patman Act * *. See A. J. Goodman & Son, Inc. v. United Lacquer Mfg. Corp., D.C. Mass. 1949, 81 F. Supp. 890. In that case, also a treble damage suit under section 3, the court, after declaring that the complaint adequately set forth a violation of that section, granted defendant's motion to dismiss only because it did not appear that plaintiff had suffered any injury as a result of the violation. Here, however, plaintiff has alleged facts concerning the necessity of meeting defendant's lower price in order to remain in business and its consequent loss. The motion to dismiss for failure to state a claim accordingly is denied.”

In Hershel California Fruit Products Co. v. Hunt Foods, 119 F. Supp. 603, the U.S. District Court for the Northern District of California, Southern Division, was asked by the defendant to dismiss the complaint alleging violations of the antitrust laws. The court said (pp. 604–605):

"The allegations of the complaint state two separate theories of defendant's liability. One theory is that defendant is monopolizing and attempting to monopolize interstate trade and commerce in tomato paste, in violation of section 2 of the Sherman Act, 15 U.S.C.A. § 2. The other theory is that defendant is selling tomato paste in interstate commerce at unreasonably low prices for the purpose of destroying competition and of eliminating competitors, including plaintiffs, all in violation of section 3 of the Robinson-Patman Act, 15 U.S.C.A. § 13a."

The court held that the complaint stated a cause of action for relief to plaintiffs and denied the defendant's motion to dismiss.

In National Nut Co. v. Kelling Nut Co., 61 F. Supp. 76 (1945), D.C., N.D Ill., E.D., Judge Labuy stated (p. 81):

"If the price fixed by the defendants for the purchase of machines sold by them is uniform, it may be lower than the price charged by plaintiff for its machines, without subjecting defendants to the charge of lessening competition, creating a monopoly, or injuring or eliminating competition. But a practice of underselling plaintiff in certain territory where plaintiff has an established business and maintaining a higher level of prices in other localities where competition with plaintiff or other companies is not so keen is a practice condemned by the antitrust laws, and is a practice which may permit a remedy to plaintiff if such practices are established upon the trial of this cause, and a resulting damage to plaintiff is proved."

In Balian Ice Cream Co. v. Arden Farms Co., 104 F. Supp. 796 (1952), affirmed 231 F. 2d 365, cert. den. 76 S. Ct. 545, the U.S. District Court for the Southern District of California, Southern Division, held that the drastic reduction by the defendants of the wholesale price of ice cream in the Los Angeles area, under the circumstances leading up to the reduction, did not constitute a violation of the antitrust laws. In his opinion (p. 807), District Judge Yankwich said: “To repeat, the object of the antitrust law is to encourage competition. Lawful price differentiation is a legitimate means for achieving the result. It becomes illegal only when it is tainted by the purpose of unreasonable restraining trade or commerce or attempting to destroy competition or a competitor, thus substantially lessening competition, or when it is so unreasonable as to be condemned as a means of competition. The price reduction here has none of these stigmata."

Mr. BEARDSLEY. Mr. Chairman, that completes my statement.
The CHAIRMAN. Thank you.

Senator Schoeppel, do you have any questions?

Senator SCHOEPPEL. Not at this time.

The CHAIRMAN. Does anybody else have any questions?
Senator Butler.

Senator BUTLER. Under the rules of the ICC, prior to 1958, it certainly is apparent even to you that the railroads had completely lost a large volume of their business, had they not?

Mr. BEARDSLEY. They had lost some of their business, particularly if you look at it percentagewise, Senator, as against the aggregate tonnages which they moved.

Senator BUTLER. I didn't say some. I said a large part. Isn't that

true?

Mr. BEARDSLEY. Their aggregate tonnage has considerably increased, tremendously, since the enactment of the Motor Carrier Act of 1935. Railroads prefer to talk about percentages because they show a bad picture that way. As far as the freight which they carry as against percentages-their tonnage has increased substantially. Not as substantially percentagewise as truck tonnage has.

Senator BUTLER. Under the original basis of the construction of the act by the Commission, the Commission construed the act in such a way as to recognize and preserve the inherent advantages of each of the modes of transportation, and in so doing produced some decisions that you have referred to which seem to me were very destructive of competition with other forms of transportation. Is there any validity in that statement?

Mr. BEARDSLEY. I don't believe that when the Commission follows a mandate of the national transportation policy to preserve the inherent advantages of all forms of transportation, that it is doing the railroads any harm.

Senator BUTLER. Do you likewise believe that when the Congress in its wisdom and judgment modifies that national transportation policy to some degree that that should be followed even though it may hurt the other forms of transportation competing with the railroads?

Mr. BEARDSLEY. If the Congress wishes to modify the national transportation policy of course we accept that. I don't believe that section 15(a)3 was ever intended as a modification of the national transportation policy. As a matter of fact it specifically referred, in the last clause of the amendment, to carrying out the provisions of the national transportation policy, Senator Butler.

Senator BUTLER. But under the Transportation Act of 1958 the Commission was directed, in determining whether or not a rate was lower than the reasonable minimum rate to consider the facts and circumstances attending the movement of the traffic by carrier or carriers to which the rate is applicable?

Mr. BEARDSLEY. Yes, sir.

Senator BUTLER. And you say now that when the burden was on the railroad it was not good, but when it is on the truck it is good? Or the reverse of that.

Mr. BEARDSLEY. Might I suggest that the 1958 act doesn't tell the Commission to do only that.

Senator BUTLER. No. It does not.

Mr. BEARDSLEY. All the other factors are supposed to be in there as I understand the law, at the same time-the requirements in the national transportation policy against preventing destructive competitive practices.

Senator BUTLER. If it had meant only that, then there would have been no reason whatever for the 1958 act.

Mr. BEARDSLEY. The contention of the railroads was, Senator Butler, that the Commission was holding a rate umbrella over the railroads' competitors and preventing the railroads from establishing perfectly reasonable rates. We never asked for that protection. We aren't asking for it now. Mr. Freund's testimony will develop the level at which some of these railroad rates have been allowed to go. We don't concede that-if this will answer the question-that the financial strength of the railroads, their ability to take a loss over a much longer period of time than any of their other competitors, is an inherent advantage under the law.

Senator BUTLER. Am I wrong in this statement: That in the beginning the railroads had the majority of the traffic now in controversy? Mr. BEARDSLEY. Well, yes, sir; if you go back far enough, the Conestoga wagon had all the traffic before the railroads.

Senator BUTLER. We are not going back that far. We are going back to just immediately prior to the enactment of this act of 1958. Mr. BEARDSLEY. Yes, sir.

Senator BUTLER. And the railroads were certainly not in a position under the Interstate Commerce Commission rulings to compete fairly. That was brought to the attention of the Congress, and I think Congress must be presumed to have given some thought to that contention, and the act was amended to put them in a better competitive position which now proves itself by showing that some of that traffic is coming back to the railroads that originally had it and could just as well handle it as the people who took it away from them under the old rulings of the ICC.

Mr. BEARDSLEY. At the time the law as passed, Senator Butler, several of the Commissioners made speeches, to which I think Mr. Freund refers in his testimony, which indicated that they didn't be

lieve the Congress had changed the law in such a way as to favor the railroads over anybody else, in which they pointed out, and we have always contended and it is our understanding

Senator BUTLER. But the majority of the Commission ruled against the speeches and the speechmaking of the minority, did they not? Mr. BEARDSLEY. I beg your pardon?

Senator BUTLER. I say the majority of the Commission construed the act as giving wider scope to the Commission's ratemaking authority.

Mr. BEARDSLEY. We are perfectly willing to admit, Senator, that the Commission's current construction of the law, which we consider is emphatically wrong, is largely in effect allowing the railroads to make rates on the basis of costs only, and that many times the rates are made even on a below-cost basis, which is completely unjustified. Senator BUTLER. I am solely countering the proposition that you make that some of the Commissioners didn't think the authority had been given. The point I make is that the majority did think so and have acted upon it.

Mr. BEARDSLEY. I will concede, Senator, that the Commission's current construction of the law is such, that apparently they believe that the Congress has told them to keep their hands off any railroad efforts at selective ratecutting.

Senator BUTLER. Under the law prior to 1958 the Commission was bound to construe the law so as to recognize and preserve the inherent advantages of each mode of transportation.

Mr. BEARDSLEY. Yes, sir.

Senator BUTLER. How can you have competition if the Commission is straightjacketed and can't consider what is best for the public, but it must preserve each mode of transportation even though the rate may be higher on a paralleling haul.

Mr. BEARDSLEY. Senator, I can only answer that question this way: There may be something wrong-I don't think so but there may be something wrong with the requirement in the national transportation policy that the Commission preserve the inherent advantages of each mode of transportation. But I definitely do not believe that the act of 1958 amended that provision in the national transportation policy. The Commission is still required to preserve the inherent advantages of each mode of transportation.

Senator BUTLER. Even though to do so may be to, in effect, destroy one of the principal carriers in the country?

Mr. BEARDSLEY. Of course you are asking me to accept that assumption. I don't accept it.

Senator BUTLER. It is certainly on the record that the railroads didn't prosper under it. On the record the railroads continue to compete because they lost the very traffic that you are now quarreling about. So this may go too far. Maybe the act of 1958 went too far, I don't know. But there is competition lacking some place; either prior to the act of 1958 or after the act of 1958, because the traffic has completely shifted from one to the other when it is shown that one can carry it at a compensatory rate.

Mr. BEARDSLEY. It depends on what you mean by compensatory. We claim that a lot of these rates are not compensatory and will so show in Mr. Freund's testimony.