Document 8pwxgGREVoEk4zjagBNLJD3k

FILE NAME: National Safety Council (NSC) DATE: 1942 Jan 19 DOC#: NSC289 DOCUMENT DESCRIPTION: Answer of Respondent Philip Carey Company to Amended Complaint M - UNITED ST T 1 3 OF AT.IEE BEFORE FEDERAL TRADE CO ' In the Matter of ACME ASBESTOS COVERING AND FLOORING COMPAiTY, et al Docket No. 4-613 ANSuTLR OF TFT PHILIP CARRY MANUFACTURING __ COMPANY TO THE ATA.DED COMPLAINT____ The Philip C z rev Esnufaeturin Comp"ny, appearin'' i herein by Its attorney? Cc.c"-- cleeer, R'ickersham & Taft, answers the amended complaint and states: 1. Answering PARAGRAPH OLE, Respondent admits the intention of the Commission to attach to the words "licensed materials'5 and "non-licensed materials11 the meaning set forte in PARAGRAPH ONE, but denies the correctness of the meanings attributed to said words. REPRODUCED AT THE NATIONAL ARCHIVES Denies that respondents classifies the materials forming part of the United States patent No. 1,972,500 in l |I, thw sub-license a-re-'-i-nts which the respondent Donald | Tulloch, Jr. had with other respondents, and states that said materials were classified by the Licensor. Denies that all materials described by the wording of paragraphs (l) to (1 1 ) were licensed materials and states that the terras of said license agreements clearly disclose that the agreements apply only to materials embodying the i . 2 Jb6 invention of the said patent. Denies that all flexible range boiler jackets were non-licensed materials and states that the materials of many- flexible range boiler jackets embody the invention of said patent. Denies that The Philip Carey Manufacturing Company is legally responsible or liable for any acts or practices which are alleged to have been performed by The Philip Carey Company and denies that The Philip Carey Company engaged in any of the unlawful acts or practices set forth in the com plaint or that it violated in a n y respect the provisions of Section 5 of the Federal Trade Commission Act. 2. PARAGRAPH TWO, admits the allegations therein except that it denies that any sub-license agreement ever existed between The Philip Carey Company and Donald Tulloch Jr., denies that it assumed any such sub-licensing agreement X upon the dissolution of The Philip Carey Company, and denies ? o that it operated at any time under a merchandising plan c m as described in the comolaint. > , 3. PARAGRAPH THREE, admits that both licensed and non-licensed materials were embodied, involved and employed zr -H \ in the manufacture, use and sale of low pressure asbestos j pine covering, and respondent is without knowledge of the percentage of said covering manufactured or sold by the if respondents and is without kno'.vledge of the percentage of TM 257 said covering manufactured or sold by the ''respondents Johns-I-Ianvilie Corporation ana The Philip Carey I.'anufacturin, Company and its wholly ovmed subsidiary, The Philip Carey Company up to the tine of the dissolution of the said The Philip Carey Company, about June, 194-1" Admits that some of respondent corporations manufac ture some or all of their licensed and non-licensed materials and convert srne of the sane into lov; pressure asbestos pipe coverim-', but. denies tv at said respondents, or any of then, convert all of said licensed anc non-licensed materials into such covering. Admits that other respondent corporations l-mown in the trace as "winders" purchase some or all of said- licensed1. and non-licensed materials from those respondent cor porations which manufacture sane and then convert some of said materials into low pressure asbestos pipe covering, but denies that said ''winders", or any of them, convert all rXn of said materials into lor pressure asbestos pipe covering. *0 i ?! Denies that the respondent corporations act collu- o sively or collectively in the pricing or sale of said mate rials or covering and denies that they are in a position mi t to dominate and control the prices at w'-ich the same must be purchased by the purchasers and users thereof throughout St >,f > the United States. ox73 : , \ 4. Plia.GRAPH FOUR, admits that the respondent .corrorations engaged r interstate commerce and denies the other facts alleged in said pan l rrgh. # 258 t> . Jf'AitauttArn n v a , denies each ana every feet alleged in said paragraph. 6 . rnrnjjiiitrjri d i a , admits that respondent corpora tions have been and some still are in competition with one or more of the other respondent corporations in making and seeking to make sales in interstate commerce of low pressure asbestos pipe covering and of licensed and ncn-Ueensed mate rials and, except as herein specifically admitted, denies each and every fact alleged in F.-m^dkAFE FIE, and specif ically denies that competition between the respondent corpor ations has been hindered, lessened, restricted or forestalled by any understanding, agreement, combination, conspiracy', method, policy or practice as set forth in the complaint or otherwise.. 7. PAnAGIalPi SEYEF, admits that during the year 1931 application was made for respondent Johns-Eanville REPRODUCED AT THE NATIONAL ARCHIVES Corporation for the Toohey patent which contained claims embodying tire licensed materials and for an asbestos air cell insulation which by the insertion of a wax sirer woulcl :e the asbestos covering both water repellent an: moiscure- proof, and that such acLsSbestos covering is used primarily for lo- pressr-je asbesto 5 L b covering and that the patent was Lranted on September A , i J . h j but denies that the foregoing fullv states the claims embodied in said patent or correctly describes the scope of same, and demie; jL o Li... ps tent r 259 tranter as a r t of o~ incident to tne ; reament, uno erst-r _ /_ in:*, combination conspiracy ret forth in the complaint. Respondent admits thr;t Johns-Aanville Corporation did on September 11, 1935, grant to respondent Tulloch an exclusive license to make, use and sell, and exclusive right to issue non-exclusive licenses to others to use and sell materials and products covered by the Toohey patent. f. PARAGRAPH EldAT, denies each and every fact alleged in said paragraph 9. PARAGRAPH A3A-A', admits that a mer cr-anisirn' rl-n *" s adopted during thr period the Ration- 1 Indust:-? r-.l Recovery Act uas in effect by some of the respondent corpora tions and that said merchandising plan mas not personally approved by the Administrator of the hation"1 Recovery Ad ministration, but denies that such personal approval mas necessary to make adherence to the merchandising plan obliga tory upon the members of the Industry and states that the failure of the Administrator to disapprove the merchandising plan constituted in legal effect an approval of the same. Denies, e*:cent as he?'-ein specifically ecnitted, each and every fact alleged in Parreraph Hine. 10. Denies each and every fact alleged in the Dcragreph? of the compl" int numbered TEA, ELEV^n anc- T . ._LVL. reproduced at the n atio nal archives ;p. fi v-i*->?? rr.psrjnpE try COAPLA^A r-SR E ;fcyp Im-ZPLAI.ATIOI. 01 ALLLAAD FACTS In DAD COAPLAIAT, RlhPOIAAAA: EUATnA?; STATES: _ C 260 11, Some of tee respondent corporations and other's engaged in the low pressure asbestos pipe covering industry during a period commencing many years prior to the year 1934, and in the development of the industry, trade practices became established through competitive and other economic forces. These trade practices included the general use of a so-called ''list1' price from which discounts were allowed for the pur pose of determining the actual price charged a customer, the us? of deliverer prices in zones, the granting of freirht allowances calculated from tine neatest cor pet ire factory point, and the use of common definitions of various classes of punchasers. 12. On Iioven.ber 1, 1933, the President of the United States approved a Code of Fair Competition for the asbestos Industry pursuant to the authority vested in him by Title I of the National Industrial Recovery Act approved June 16, 1933. Pursuant to the provisions of the Code, a Code u i lI uthority was set up to cooperate with the Administrator in the administration of the Code, an'"' for purposes of acir-inis- fcering the Code the Asbestos Industry was divided into five x f m, livisions, of which the first was the Asbestos Paper and z ! > I .Hied Products Division, which included all asbestos papers, z>[I r~ i{ -.sbestos and v'ool felt pipe covering, air cell pine covering, >Xi oX shestos laminated pine covering, and pipe coverinr acces- orics i that is to say, said) Division inc-i-uded the rrooucts 261 of the Low Pressure Asbestos Pipe Covering Industry. Article VI of the .Asbestos Code provided, among other things, that the Code Authority should adopt its own rules of procedure and appoint such officers or agencies as it might deem necessary properly to administer the Code, subject to review by the Administrator, ana directed the Code Authority to delegate to a suo-coc'e authority of each member division the administration of all matters other than labor provisions. Each Division was directed to adopt its own rules of procedure v;ith respect to administering the Code, and the members of each Division were authorized to prepare a merchandising plan for the Division, incorporating the mcrchandising policies best calculated to promote fair competition in such Division. Article III of the Asbestos Code provided that for the purpose of insuring complete publicity of prices, REPRODUCED AT THE NATIONAL ARCHIVES terms and conditions of sale to manufacturers and to the trawe concerned, and thus to promote fair corpevition, every member ob the Division should file a. schedule of his prices, terms and5 conditions of sale in the office designated for such division, and there were regulations with respect to rublishing any changes in prices, terms and conditions of SCT-1 . In accordance writh the foregoing provision the 2B2 Asbestos Code, a merchandising plan incorporei, in? r a : v ~ : _7_ practices lout established in the Industry, was approved for the Low Pressure Asbestos Pipe Covering; Division of the Industry, and compliance therewith became obligatory upon all members of said Division, according to the laws of the United States then in effect. Compliance with the price-filing provisions of the Code was obligatory upon all members of the Division, and a violation of any provision of the Asbestos Code was an unfair trade practice. Section 3 (b) of the Eat ion "-l Industrial Recovery Act provided: "(b) After the President shall have approved any such code, the provisions of such code shall be the standards of fair competition for such trade or industry or subdivision thereof. Any violation of such standards in any transaction in or affecting interstate or foreign commerce shall be deemed an unfair method of competition in commerce within the meaning of the Federal Trade Commission Act, as amended; but nothing in this title shall be con strued to impair the powers of the Federal Trade Commission under such Act, as amended." and subsection (f) of the .Act provided: (f) 'When a code of fair competition has been approved or prescribed by the President under this title, any violation of any provi sion thereof in any transaction in or affecting interstate or foreign commerce shall be e m i s demeanor and upon conviction thereof an offender shall be fined not more than $ '500 for each offense, and each day such violation continues shall be deemed a separate offense." Overwhelming sentiment in the country required business executives to conform to the provisions of codes 263 REPRODUCED AT THE NATIONAL ARCHIVES of fair competition. Having; in mine, the terms of the nation:! Industrial Recovery Act, the public policy de clared by the executive and administrative branches of the Government and the decisions of inferior tribunals, Respondent asserts that compliance frith the provisions of the Asbestos Code prior to the decision in the Schechter case by the Supreme Court of the United States in Hay 1935 was not an unfair method of competition in commerce, within the meaning of Section 5 of the Federal Trade Commission Act. 13. Following the decision in the Schechter in May 1935 and for approximately the remainder of the year 1935, members of the Lou Pressure Asbestos Pipe Covering Industry continued bp individual decision to carry on bus iness operations in much the same v;ay as under the Code, but at no time did they agree upon prices or terms of sale of their products or otherwise engage in unfair methods of com REPRODUCED AT THE NATIONAL ARCHIVES petition in commerce within the meaning of the Federal Trade Commission Act. 11. A stud; of open price filing was made by the National Industrial Recovery Board appointed for the purpose by the President and a report was made by the Board under mate of April 29, 1935, stating: "E. Price Filing not Price Fixing.- It is h a r d l y necessary to say that open-price filing is not urice fixing. Nor should evidence of collusion in their making be inferred from a uni formity in the prices which are filed. Competition -9 - 264  is supposed to effect uniformity of prices through an open market; and an approximation to uniformity is almost certain to result from the proper mainten ance of open-price filing. It is when the prices quoted by the members of an industry move in concert faster than competitors can easily accommodate them selves to each -other Ts activities or when prices move uniformly and sharply upward in contrast to trends in related industries that evidence of collu sion is present. Open price filing is a device; price fixing is a business policy in operation.n Open price filing was continued by a number of members of the Low Pressure Asbestos Pipe Covering Industry until about the end of the yeai' 1935, but price uniformity did not exist in the Industry and no price fixing agreement or understanding was entered into by members of the Industry. 15. The decision of the Supreme Court in the Schechter case did not invalidate the National Industrial Recovery Act. The National Recovery Administration func tioned actively through the remainder of the year 1935. By a joint resolution of Congress of June 14-, 1935 the National m5D Industrial Recovery Act in modified form v;as expended to 3; oi[ April 1, 1936, and by the terms of the extended Act the oj 5; President was authorised to approve voluntary agreements >! entered into between members of an industry. Proposed volun-if tary agreements for more than twenty industries were submitt> to the National Recovery Administration for approval by the I r\ President subseouent to liay 1935, and on or about June 17, > of 1935, a proposed voluntary agreement for the Asbestos Indus- im"nI try including many of the principles of the Asbestos Code * -1 0 - 266 was filed for such approval with the National Recovery Administration. Before the said agreement was approved an executive order was promulgated December 21, 1935, terminating the National Recovery Administration as of January 1, 1936. 16. During the period between May and December 1935 Congress, the President and the National Recovery Administration encouraged industry members to cooperate in maintaining the standards of fair competition which had. been written into codes and efforts were made by government agen cies to develop a procedure by which the cooperative efforts existing under the codes could be continued. Public hear ings were held by the National Recovery Administration and by the Federal Trade Commission upon proposed voluntary agreements which had been submitted by certain industries for the approval of the President. During this period mem bers of the Lot; Pressure Asbestos Pipe Covering Industry met from time to time to discuss ways and means of adopting poli cies approved by the Government, through the terns of a volur tary agreement or otherwise. These meetings ceased with the promulgation of the Executive Order terminating the existence of the National Recovery Administration and were not resumed after January 1, 1936. 17. Long prior to the enactment of the National Industrial Recovery Act the members of the Low Pressure Asbestos Pipe Covering Industry recognised the existence of REPRODUCED AT THE NATIONAL ARCHIVES a serious defect in industry material, in that a substantial shrinkage frequently occurred in the asbestos covering after its application to low pressure piping. This defect caused complaints from customers, expense to members of the Industry for repairs, and discredited to some extent the products of the Industry. Numerous efforts were made to find a remedy for this defect, and after prolonged investigation respondent Johns-Manville Corporation filed an application for the so-called Toohey patent on September 26, 1931. Ten claims were allowed and Letters Patent issued September 4> 1934 Materials for low pressure pipe covering embodying the invention of the patent were subject to only slight shrinkage and through the means of this patent it became possible to do away with substantially all of the said shrinkage in pipe covering. Materials embodying the inven tion of the patent were also superior in other respects to m "D the unuatented materials. 3D o o c IS. In order to increase the popularity of ashes- O tos pipe covering with the public by removing the element of i shrinkage and thereby extending the market for such product, Z ! the respondent Johns-Kanville Corporation decided it would be o ! in said respondent's interest for the members of the Low >j Pressure Asbestos Pipe Covering Industry to be licensed gen- O! X \ orally to use the invention of the Toohey patent for a small royalty, so that the better product would be generally used -1 2 - 267 in the country and the defective material eliminated. Serious resistance to the acceptance of a patent license frequently develops in an industry when the licensor is a strongly competing member of the Industry, because mem bers of an industry assume that a competitor when acting as licensor will establish prices and terms of sale for the patented material which benefit the licensor at the expense of competitors, and because members of an industry are gen erally unwilling to have their sales records open to inspec tion by a competitor for the purpose of checking royalties. Said respondent therefore decided to grant an exclusive license to an impartial individual, with the right to grant non-exclusive licenses to members of the Industry. For this purpose the respondent Donald Tulloch, Jr. was selected for the reason that he had been Secretary and Manager of the Sub-Code Authority of the Asbestos Paper and Allied Products X m Division of the Asbestos Code and had acquired the confidence o X o o and respect of substantially all members of the Low Pressure c o m o Asbestos Pipe Covering Industry. > I Negotiations between the Johns-Manvilie Corporatior.h m and the said Donald Tulloch, Jr. with respect to granting * said, license were conducted over a Iona perioe of time ano O z > certain Comuanv license members of the Industry including The Philip C a r e y > r3D> were consulted as to whether the terms of proposed z m agreements would be acceptable to the Tne benefit; -n- 2 Eu to be derived by the Johns-Danville Corporation fros the li cense agreement depended upon the number of licensees and the extent to which the licensees popularized the use of the patented product. The negotiations culminated in the signing of a license agreement between the Johns-Manville Corporation and the respondent Donald Tulloch, Jr. on September 11, 1935. By the terms of said license said Tulloch agreed to issue a sub-license to the Johns-Lianville Corporation in a for.:: at tached to the said exclusive license, arm agreed to issue sub-licenses' to other members of the Industry in the same form and upon terms and conditions no more favorable to such sub-licensees than those contained in the sub-license to the Johns-Llanville Corporation. 19. The respondent Donald Tulloch, Jr. procee to issue sub-licenses to twenty-five members of the Low Pressure Asbestos Pipe Covering Industry between September 11, 1935 and November 23, 1936. The sub-licensees did not include all members of the Industry. The sub-licensor minimum prices effective January 1, 1936, at which the products mishit be sold bv licensees and fined numerous fixed gj mD .! patent^! --i j terms j and conditions of sale for the licensee proc.ucts For tViis if uuT'uose the merchsndising pl--n approved for the Industry o! it the Sub-Code Authority of the Asbestos paper and Allied > 0 1 Procbuots Division was used in substance for the narketinc: - -1 Z- 263 of the patented products. After the effective date of ssid minimum prices sub-licenses were granted by respondent Tulloch to ten members of the Industry. Royalties were pay able by sub-licensees to the respondent Tulloch ana the right to inspect the books of the sub-licensees to determine the amount of royalty payments was reserved to the sub-licensor. 20. The sale of the said, patented products wa not promoted sufficiently by the licensees to establish a gen err-1 acceptance of th* tv tented products ty the "while because of the price competition of lower cost unpatented products. As early as March 1936 a licensee ceased market ing the patented product. In 1936 three licensees withdrew fror' op-i rations under the sub-license agreement; tuo licensees withdrew in 1937, sin licensees withdrew in 1938, seven li censees withdrew in 1939, and three in 1940. Two licensees withdrew in March and April 19A1, so that on the date of the reproduced at the natio n al archives filing of the coraol-int in this proceedin'-" the only reme-in- in licensees were Respondent sr.d the Johns-karville Cor "'ora tion. All minimum prices and terms and conditions of sale fixed for the sub-licensees in marketing the patented products were-fixed by t^e inaivi- ual and u n c o r t r o l l e a c tion of the respondent Tulloch as licensor. In the norraal course of licensin operations said licensor consu.lte-' sou* |of the licensees from time to time to determine their vie'-'s -15- 270 and desires ss to market in;" con'.'it i o n s , but there v;ere always conflicting views and interes id the ultimate decision ras always made by said licensor. 21. At all times subsequent to September 11, there has been active price competition in the Low Pressure Asbestos Pipe Covering Industry betv/een products embodying the invention of the Toohey patent and. unpatented products and generally between all members of the Industry. At the time of the filing of the complaint herein thn current prices for patented products were above the mini '"am prices f i"ed by the licensor, and there is and has been competition in patented products between the two remain!v sub-licensees. The Johns-hanville Corporation manufactures and sells only trie patented product for low pressure asbestos pipe covering, and Respondent manufactures and sells both patented and unpatented products for use as such pipe covering. 22. Throughout the period covered by the co- a3 m "0 , . O plaint in the proceeding there has at all times been active o c o prices, duality and other competitive factors in the market- Z in"; of the Industry 9 ^onets y t no tim e has lies sono ent o> >z > ? xO ; Cornimission A ct X V respectfully re. nests that the comp In int. in this proceedin'7 be dismissed in so far as it relates to said Company. THE PHILIP CAREY HALUFACTURING If fall Street, Rev? York City, R. Y. ZiZ REPRODUCED AT THE NATIONAL ARCHIVES