(d) Abandonment of "firm-at-opening price" and "guarantee against decline" devices in marketing.

(3) Or, as the alternative under the Sherman law, dissolution.

It is to be noted that the recommended abandonment of "firm-at-opening price" and "guarantee against decline" devices is directed to the use of these practices in combination, in connection with other acts tending toward the creation of monopoly, and is not to be construed as a declaration by this commission for or against the use of either or both of these devices under other circumstances.

In view of the decision of the Supreme Court of the United States on March 1, 1920 (October term, 1919), in the case of The United States of America, Appellant, v. United States Steel Corporation et al., the commission in the reorganization of the Raisin Co., contemplated under the Sherman Act, passes over the question of the right of the members of the company to fix the selling price of raisins.

ALLEGED UNFAIR METHODS OF COMPETITION.

Certain practices, many of which are not peculiar to the operations of the Raisin Co., and some of which, being in general use, have been the subject of applications for complaint heretofore addressed to the Federal Trade Commission, are the subject of considerable discussion in the briefs filed in the instant matter.

The legality of some of these may depend not at all or partially upon the antitrsut laws. With respect to these, it would seem that a separate examination should be made to determine whether or not any of them constitute unfair methods of competition in commerce. Among those may be mentioned:

(a) Differential between packed and unpacked goods.

(b) Refusal to pack private brands.

(c) Length of life of exclusive contracts for purchase.

(d) Contracts running with the land.

In enumerating the above, the commission does not express any judgment as to whether or not the practices which may be generally described as above are fair or unfair methods of competition.

In its recommendations for the readjustment of organization, management, and conduct of business of the California Associated Raisin Co., the commission has sought to lay out two alternative courses of conduct, either of which being followed would bring the Raisin Co. in accord with law. These two courses of conduct, one within the exemption of section 6 of the Clayton law and the other not within this exemption, are entirely distinct one from the other.

The readjustments have been suggested with respect to the fundamental questions in the belief that any readjustments that may be made with respect to larger matters will carry with them the correction of minor infractions.

Respectfully submitted.

The ATTORNEY GENERAL,

Department of Justice, Washington.

Senator WALSH of Montana. On the other point, what was the finding of the commission?

Mr. PRESTON. The commission went on to say that it had been guilty of curtailing production and cornering and carrying over, and carryingopen-price contracts, and a number of other things that were illegal and illegitimate, some of which it had quit and some of which it had not quit, and it wound up by saying that, so far as the antitrust laws were concerned, it was open to challenge as a monopoly in violation of law.

Then the Department of Justice took the matter up with this corporation and undertook to have it adjust itself within the views the department held about the matter-principally, to cut down the degree of control, and also to fix a smaller price in 1920 than it had fixed in 1919. The corporation refused to do this, and a bill in equity was filed on September 17, 1920, at Los Angeles.

Senator DILLINGHAM. That bill charges them with what?

Mr. PRESTON. It charges them with being a monopoly, and asks that it be restrained.

Senator WALSH of Montana. It is the ordinary trust suit?
Mr. PRESTON. The ordinary suit in equity-a civil suit.
Senator WALSH of Montana. That suit is still pending?
Mr. PRESTON. Yes, sir; still pending.

Senator WALSH of Montana. How far has that progressed?

Mr. PRESTON. It has not progressed very far. The court took under consideration the motion to dismiss, but instead of deciding the motion wrote a letter to the counsel on either side saying that he thought the bill ought to be amended in certain respects, as by adding the words "interstate commerce," etc.

But immediately after the filing of this bill the corporation abandoned its contracts with growers or rather an option it had for further contracts with growers-and started out and has just concluded a campaign taking 93 per cent of the crop acreage of the United States for 15 years. They figured it that by abandoning the contracts they then held with the growers, that would abate the suit. It has not abated the suit, but it has made it necessary to amend the bill if the litigation is to proceed, and the bill has not been amended.

Senator WALSH of Montana. Next tell us, please, about the organization of this California Associated Raisin Co. What is the plan of their organization?

Mr. PRESTON. The plan of their organization on its face is a commercial corporation, with the same powers that any other ordinary commercial corporation would have. It does not claim to be a cooperative concern within the meaning of the California statute or within the meaning of the term as ordinarily understood. They do claim that they are cooperative in spirit, and by that they mean that they take over the crop from the grower by a long-term contract, and pool and grade it, seed and pack it or process it, and sell it, and then return to the growers all the net proceeds save and except 8 per cent on the capital and one-fourth of a cent a pound for surplus and betterments.

Senator WALSH of Montana. Then they make these contracts, apparently, not only with the stockholders of the corporation, but with people outside of the stockholders?

Mr. PRESTON. Yes, sir.

Senator WALSH of Montana. Now, let me inquire: You said that the stock was held by growers and by business men?

Mr. PRESTON. Yes. I will deal with that, if you will allow me, in this way. When this proceeding was begun in September, 1919, by the Attorney General before the Federal Trade Commission, the concern had contracts with 9,000 growers. Only 2,454 of them were stockholders. Eight hundred and fifty-three stockholders were ordinary business men who were nongrowers of raisin grapes. In the grape contract, however, there is a clause that a small portion of the returns each year may be paid in stock of the company at par. other words, they may pay a grower a portion of his returns in stock. That is in every contract.

In

Senator WALSH of Montana. That is, they can oblige the grower to take the stock?

Mr. PRESTON. Yes, sir; they can compel him to take that stock.

54275-21-2

When we started this proceeding, immediately this concern, under the terms of this contract, issued to every grower some stock. I do not know how much it was, but $100 worth, or so, of stock.

Senator WALSH of Montana. So that each one of those 9,000 growers owns some stock.

Mr. PRESTON. Owns some stock. But, under the present new contract, I have no doubt that there are a great many growers who own no stock. I am not sure of that, of course, because I do not know; but, at any rate, all former contractees became stockholders, perforce, after these proceedings were started.

Now, the amount of the capital stock held by business men outside, if I remember rightly, is something over $300,000. The paid in capital to-day is approximately $2,000,000. The authorized capital is $5,000,000, divided into shares of $1 each.

Senator DILLINGHAM. $300,000 owned by whom, the business men? Mr. PRESTON. $300,000, yes.

Senator WALSH of Montana. And the balance of the $2,000,000 paid in is owned by the growers?

Mr. PRESTON. Yes; that is owned by the growers. Of course it is fair to note, however, that these growers are responsible business men as well, presidents of banks and men of very large affairs. Some of them are business men first and growers second.

Senator WALSH of Montana. Nine thousand seems to me an enormous number of growers.

Mr. PRESTON. There are now 13,000 growers.

Senator WALSH of Montana. And they have contracts

Mr. PRESTON. They have contracts to-day with between 12,000 and 13,000 growers.

Senator WALSH of Montana. Nine thousand of whom are members or stockholders?

Mr. PRESTON. At least, that are stockholders, and probably more. Senator WALSH of Montana. What area does this cover?

Mr. PRESTON. The State is divided into five districts by this corporation; but the real product, of raisins, is within 40 miles, say, of Fresno, I am told. Of course, I do not know a whole lot about that feature of it.

Senator WALSH of Montana. Now just tell us how it is claimed that this contitutes a monopoly.

Mr. PRESTON. Of course, I was just trying to start in on that a while ago.

Senator WALSH of Montana. Very well.

Mr. PRESTON. After this concern became incorporated, and after it had secured its crop contracts, dependent upon a subscription to capital stock and dependent upon the degree of control, as to the price it would yield, it then made written contracts with about 20 out of the 24 competitors in existence, subjecting them to the station of sales agents only, and forbidding them to deal with the products of any other person or corporation, and supplying them with only such products as they could actually sell.

Senator WALSH of Montana. That does not convey very much of an idea to me. I do not quite understand your use of the word "forbidding;" and I do not understand the expression "reducing them to the condition of agents."

Mr. PRESTON. All right. They simply made a contract with each of these men that should become a sales agent of the corporation only.

Senator WALSH of Montana. Of course that contract was voluntary? Mr. PRESTON. It was voluntary in this respect, that they entered into it; but it was involuntary in this respect, that it was the only way they could continue in the raisin business. Eighty-eight per cent of the crop being tied up, there was very little they could work with on the outside, and it was either deal with this corporation or go out of business. It was involuntary in that sense.

Senator WALSH of Montana. They could not get a supply? Mr. PRESTON. They could not get a supply of raisins. So they entered into these contracts, and they lasted for a period of five

years.

Senator WALSH of Montana. They being sales agents?

Mr. PRESTON. Yes; agreeing not to try to sell the products of anyone else.

Senator WALSH of Montana. Yes. Now let me inquire of you this. How, then, did those who were outside of the raisin growers' association dispose of their products?

Mr. PRESTON. Well, I do not believe I understand what you mean, Senator.

Senator WALSH. At various times this raisin growers' association controlled 75, 85, and up to 90 per cent of the product.

Mr. PRESTON. Yes.

Senator WALSH. And held the dealers back as sales agents, and agreeing not to handle the product of anyone else?

Mr. PRESTON. Yes.

Senator WALSH. So that there was a 25 per cent portion of the crop, or a 15 per cent portion of the crop, or a 10 per cent portion of the crop, that did not get to market through this association or through these sales agents?

Mr. PRESTON. I have told you there are only 20 out of the 24 that signed up. There were four or five left outside, and they call that the "outside pasture," and so four or five of them considered they would be better off by staying in the outside pasture, and so they stayed there.

Senator WALSH of Montana. Very well.

Mr. PRESTON. Well, as fast as these contracts were signed up with these 20, we will say, for a round number, the corporation borrowed a million and a quarter dollars and went out and cornered, as the word is used-bought up-all the supply of the 1912 crop of raisins there was in the United States.

Senator WALSH of Montana. But as I understand you, they had contracts already, so that they did not need to go out and buy anything.

Mr. PRESTON. That is not the idea. They wanted to produce a scarcity and get control of the crop then in the market. They had guaranteed the grower a certain price. There was then in existence an old crop, on shelves or in the trade centers of the United States.

Senator WALSH. In the various warehouses and in the hands of commission men, etc.?

Mr. PRESTON. Yes; so that they went and bought that. $1,250,000 was spent in that behalf, and they borrowed a lot of that money from these competitors.

Senator WALSH of Montana. That is, from the companies that had become their sales agents?

Mr. PRESTON. Yes; their sales agents. So they got hold of the carry-over crop, as it is called, in that way.

Now they had these men reduced, as I said a little while ago, to the position of employees, they had the crop signed up, and they had this old crop bought; so that then they began to market the crop, and did secure for the growers about 3 cents a pound for their crop. But they had a good deal of difficulty doing that, and it was necessary to curtail production; so that they did that by advising the growers not to dry certain portions of their crop.

Senator WALSH of Montana. Not to do what?

Mr. PRESTON. Not to dry it, or cure it.

Senator WALSH of Montana. What became of that?

Mr. PRESTON. They distilled it, or it went to some other purpose, I do not know what. They admit in writing, here, that they did that. Then they took large portions of the crop and distilled it into brandy.

They then operated under these conditions until 1917. When 1917 arrived they had in the meantime absorbed 12 of their competitors by purchase.

They had, in the meantime, established their own sales agents throughout the United States and in some of the foreign countries, and they had become in effect competitors of their own sales agents, and had proselyted, if that is the right word--they had secured, at least a lot of the brokers and agents of these former competitors. Not only that, but they gave rebates to concerns and forbade their sales agents doing the same; so that at the end of 1917 they were in a very strong position. They had absorbed a lot of competitors, and they had built up their own factories and had their own sales organizations.

Then they said to the persons whom they had contracts with and had not bought out, "We do not need you any longer, and we will not only not sell to you at any price or on any terms, but we will make no contract with you of any kind." That was true of all except one man or one concern, that is the California Packing Corporation, a $30,000,000 corporation. With that concern they made a preferential contract to supply it with all the raisins it desired, provided it would not interfere with their effort to gain control of the crop in 1917. So, when 1917 came, the California Packing Corporation did not enter the field as a competitor, at all, and after a two months' strenuous campaign they secured 90 per cent control of the crop. That was under a contract for three years with an option of three years more, so that that contract was the one in existence at the time these Government proceedings were begun.

After the filing of this bill they abandoned the three-year option clause of that contract, and took the present contract they now have, for 15 years.

Senator WALSH of Montana. To what do you attribute the remarkable success which has attended their efforts? How is it that growers seem to sign up these contracts?

Mr. PRESTON. I can only put that the way some wholesale grocer put it, that the signing up of these new contracts was merely a referendum vote of the persons who had been benefited and were satisfied because they had received such an abnormal and unholy profit for their goods.