Appendix — Hutto v. Finney

FOR ARGUMENT

FILED

FEB 10 1978 |

MICHAEL RODAK, JR., CLEAR

IN THE

Supreme Court of the United States

OcTOBER TERM, 1977.

No. 76-1560

UNITED STATES OF AMERICA,

Petitioner,

vs.

UNITED STATES GYPSUM COMPANY, E&T AL.,

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT.

APPENDIX TO

RESPONDENTS’ JOINT BRIEF

(SEE INSIDE FRONT COVER FOR LIST OF COUNSEL FOR

RESPONDENTS JOINING HEREIN)

LIST OF COUNSEL

Rosert C. Keck

James G. HIERING

VALENTINE A. Weer, Jr.

Keck, CUSHMAN, MaHIN & CaTE

8300 Sears Tower

Chicago, IL 60606

Counsel for United States Gypsum

Company

CLorp R. MeLtorr

Watiam B. Matin

J) Garay Kosovsxs

D. Richargp Funk

Eckert, SEAMANS, CHERIN

& MeLLott

600 Grant Screet

Pittsburgh, PA 15219

Counsel for Georgia-Pacific

Corporation

Ciark M. CLirrorp

Carson M. GLass

THOMAS RICHARD SPRADLIN

Barry J. Israei

C.irroap, GLASS,

Mcliiwaltn & Finney

815 Connecticut Avenue, N.W.

Washington, D.C. 20006

Counsel for Messrs. Colon Brown

and J. P. Nicely

H. Francis DeLone

STeruen A. Stack, Ja.

Joun F. Wirson, III

Mari M. Gursxy

Decnert Paice & Ruoaps

3400 Centre Square West

Philadelphia, PA 19102

Counsel for National Gypsum

Company

W. DonaLp McSweeney

Wittiam A. MONTGOMERY

Joser® R. Lunpy

Scwarr Hagpin & Warte

7200 Sears Tower

Chicago, IL 60606

Counsel for The Celotex

Corporation

Frep H. Baaruir, Ja.

Tuomas A. GOTTSCHALK

Jerrney S. Davipson

KimKLanp & E.tis

200 E. Randolph Drive

Chicago, IL 60601

Counsel for Andrew J. Watt

APPENDIX TO

RESPONDENTS’ JOINT BRIEF

This Appendix contains Appellants’ briefs in the Court of

Appeals as follows:

These briefs are submitted as an appendix for the Court's

convenience because (1) they are referred to in Respondents’

Joint Brief in this Court with respect to the Government's

misstatements of facts in its bref and (2) they make available

Respondents’ arguments of the issues not decided by the Court

of Appeals, should this Court be inclined to consider those

issues.

United States ‘Court of Appeals

For Tae Taro Crmcvrr.

Nos. 75-1836 through 75-1842.

UNITED STATES OF AMERICA,

Appellee,

t.

UNITED STATES GYPSUM COMPANY,

Appellant in 75-1836,

NATIONAL GYPSUM COMPANY,

Appellant in 75-1837,

GEORGIA-PACIFIC CORPORATION,

Appellant in 75-1838,

THE CELOTEX CORPORATION,

Appellant in 75-1839,

COLON BROWN,

Appellant in 75-1840,

Appellant in 75-1841,

(See Inside Front Cover for Listing of Counsel)

Internationa! Printing Co. 71! So. SO St. Prita. Pa 19743 — Tol. (215) T27-eTT1

INDEX TO BRIEF.

STATEMENT OF SuByECT MATTER JURISDICTION ............ ve

STATEMENT oF Issves PreseNTeD ror Review ..............

EO GG, —n ccccccccceecesececcesete ctbeees

i io on ol os i ue cadeenaeeds

B. History of Proceedings ...........6.00000cceceueee

C. Facts Relevant to the Issues on Appeal ............

1. The Gypsum Board Industry ..................

2. Economic Evidence of Competition in the Gyp-

GD BED ciccccocccccccccccccsccesccces

I. The Lawful Purposes of Defendants’ Verification

Should Have Precluded Submission of That Issue to

the Jury; Instead the Verification Issue Was Im-

properly Submitted Under Erroneous Instructions

Which Made Compliance With One Antitrust Law

ED vcccccccccsccccecessccsccess

A. The Sherman Act Permits Competitors to Verify

Reported Lower Prices or More Favorable

Terms of Sale in Order to Comply With the

Robinson-Patman Act or to Prevent Customer

PED cncccdcdcepoccecesvccsevceccscsseoces

2. Verification of Prices With Competitors in

Good Faith Compliance With the Robinson-

Patman Act Is Not a Sherman Act Violation

~~

A

®

Nncoaas ~

17

INDEX TO BRIEF (Continued).

B. The Verification Issue Should Never Have Been

Submitted to the Jury .....6..6 6666 ccc eee nuns

C. The Trial Court's Instructions to the Jury or the

Verification Issue Were Erroneous and Preju-

GD ceccvcccccesccccccsecescecccccecccess

1. The Trial Court Prejudicially Mishandled the

Verification Issue During Trial ...........

2. The Final Charge Erroneously Equated the

Purpose of Defendants’ Verification With

Its Effect and Improperly Instructed the

Jury to Presume That the Verification Was

for an Unlawful Purpose ................

3. The Trial Court Did Not Adequately Instruct

the Jury Concerning Defendants’ Right to

Protect Themselves Against Customer

PUD ecccccccccconsecacececsoscceecess

4. The Tria! Court Improperly Refused to Allow

the Jury to Consider the Relevance of Legal

Advice to Defendants That Verification

WUD GOED ccccccccdcccccecccccccoecss

D. The Policy of the Nation's Antitrust Laws Is Not

Served by a Statutory Construction That Holds

Compliance With One Law to be a Violation of

RETTEED cocccccccccccvecccccsoscecceccccess

Defendants Are Entitled to delgnents ( of Acquittal

Because the Prosecution’s Evidence Consists of a

Hodgepodge of Unconnected Episodes That Are

Insufficient, Singly or Collectively, to Prove a Nation-

wide Price-Fixing Conspiracy Within the Statutory

POUND cccccovesevecconescccessececoccoccscccces

A. No Antitrust Conspiracy Existed Within the

Statutory Period

seer eeceoeeeeeeeeee eee eeee

Page

51

INDEX TO BRIEF (Continued).

1. The May 1, 1969 List Price Changes .......

2. The December, 1970 “Prompt Payment” Dis-

count Withdrawal on the West Coast

3. The May-June, 1971 Wooden Pallet Decisions

4. Lower Prices in the Southwest in 1970 .....

B. Events in the Pre-Statutory Period Are Insuffi-

cient to Establish the Antitrust Conspiracy

Charged 0... cc ccccccccceeeeeereeeeeennnnns

1. The Claude Huckleberry/Texas Gypsum

Complaints, 1960-65 0... 6c cece eens

2 Price and Credit Term Announcements in

BOGS and 1088 2. nc cccccccccscvcccccees

3. The Wooden Pallets Discussion in December,

ss PPPPYTTTITITTIT Tir iri

Oe BERD ncccccccccccccccccsccccecececscs

C. There Was No Substantial Evidence of the Single

Nationwide Price-Fixing Conspiracy Charged

in the Indictment and Allegedly Extending From

1960 Through 1973 6... ccc ccc eee ewe ene

Ill. Defendants Were Severely Prejudiced by the Trial

Court's Repeated Errors and Its Partiality Toward

the Prosecution ©6666 ccc ce eee ene enw nnn

A. The Trial Court Prejudicially Refused to Give a

Proper Final Charge on Key Conspiracy Law

Primciples onc ccsscccccsccccevcsesecevevess

1. A “Kotteakos” Instruction on Single Rather

Than Multiple Conspiracies Was Required

But Not Given . 0... ccc cece eer eeeneeees

2 The Court Refused to Instruct the Jury to

Determine “Scope and Purpose” and to

103

103

104

Consider It Separately as to Each Defendant 106

BO ——————— eee]

INDEX TO BRIEF (Continued),

3. The Jury Was Not Permitted to Consider

Evidence of Vigorous Price Competition as

Bearing on the Issue of Withdrawal and

Abandonment From an Alleged Price- Fixing

CORMINIE ccccccccccccccccccccccccccce

B. Dismissal of the Indictment Is Required Because

Defendants Were Seriously Prejudiced by the

Prosecution'’s Excessive Pre-Indictment Delay ..

1. The Prosecution Unduly Delayed Commene-

ing This Prosecution ....... 666s ceeecuues

2 Defendants Suffered Actual Prejudice as a

Consequence of the P vsecution’s Pre-

PE GEE cdcccsccccececcoceses:

3 An A Fortiori Case for Dismissal Is Presented

Under the Marion Rationale Because the

Prosecution’s Delay Pre-Dated the Appli-

cable Limitations Period ................

C. The Jury Verdict Was Contaminated by Con-

sideration of Incompetent, Inflammatory Hear-

say Evidence

1 The Requirements of the Co-Conspirator

Declaration Exception Were Ignored by the

Se ED cncconccasuncsnecscescncsece

2. The Tria! Court Paid No Heed to the Re-

quirements of the Business Record Rule ..

3. The Prosecution Was Improperly Permitted

to Adduce Inflammatory, Prejudicial Evi-

dence of Past Antitrust Complaints and

RED co cccccecccececcccececcecccee

D The Tria Courts Partiality for the Prosecution

Necessarily Prejudiced Defendants

108

113

115

119

121

122

129

INDEX TO BRIEF (Continued).

1. The Final Instructions Clearly Favored the

Prosecution in Their One-Sidedness ......

2 The Trial Court Was Not Evenhanded ia Its

Control of Witness Examinations and Com-

mented Prejudicially on Defendants’ Evi-

Append Bw. n cscs cccsccessccsecesveeees

IV. Grave Prosecutorial Misconduct Deprived Defend-

V.

gate OF Oo Be Te o.ncc0nceegesecseseocceencess

A. The Prosecution Asserted and Insinuated to the

Jury Alleged “Facts” Outside the Record and

Misstated and Misconstrued Evidence Which

Was in the Record ... 0.6.66 cee enue

B. The Prosecution Engaged in Improper and Un-

fair Examinations of Witnesses ..............

C. The Prosecutor Attempted to Secure a Verdict by

Blatant Appeals to Jury Passion and Prejudice .

D Defendants’ Convictions Must Be Reversed Be-

cause the Severity and Frequency of the Prose-

cution’s Misconduct Poisoned the Trial .......

The Trial Court's Coercion of the Deadlocked, Ill

and Exhausted Jury Requires Reversal of the Ver-

GD ccccccccccccccccccccoccccccecccescccececss

A. The Trial Court Erred by Refusing to Declare a

Mistrial When the Ill and Exhausted Jurors

Were Unable to Reach a Verdict .............

B. The Trial Court Erred by Directly Pressuring the

Jury Into Its Verdicts Through the Use of Re-

petitive and Erroneous “Dynamite” Instructions,

Including One Improperly Given in a Private

Meeting With the Jury Foreman .............

. . a ncnecausenenndnesesenesebeeebenneesesenns

132

14

138

140

14

145

150

155

159

163

163

TABLE OF CITATIONS.

Cases: Page

Ah Fook Chang v. United States, 91 F. 2d 805 (9th Cir.

Dl ds cégndhabsecansubbeesenscontiadeéecuusedeees 179

American Column & Lumber Co. v. United States, 257 U. S.

Bee GEEED ccccocccccccccecesccceccesocccocescosces 32

American Tobacco Co. v. United States, 147 F. 2d 93 (6th

Cir, 1944), affirmed 328 U. S. 781 (1946) ..........45. 67, 86

Banana Distributors, Inc. v. United Fruit Co., 1962 Trade

Cases § 70,368 (S. D. N. Y. 1962)... .. ccc cccceeeues 131

Barnes v. United States, 412 U. §. 837 (1973) ............4. 54

Belliston v. Texaco, Inc., 455 F. 24 175 (10th Cir, 1972), cert

denied 408 U. S, 928 (1972) ........ 28, 32, 33, 36, 37, 38, 39, 41

Belmont Industries, Inc. v. Bethlehem Steel Corp., 512 F. 2d

Ge Geer Gs ED ccdcccececonccencccessececensbesn 131

Berger v. United States, 295 U. 8. 78 (1935) ..... 64, 144, 145, 148,

151, 153, 154, 160, 162

Bouie v, City of Columbia, 378 U. S, 347 (1964) .......... 58

Brasfield v, United States, 272 U. §. 448 (1926) ............ 180

Buhler v. United States, 33 F. 2d 382 (9th Cir, 1929) ....110, 111

Cement Mfrs. Protective Ass'n v. United States, 268 U. §. 588

ERED cdcnceccacccoccscess 29, 31, 32, 36, 37, 48, 55, 58, 50, 64

Chapman v, California, 386 U. §. 18 (1967) ............0.. 103

Continental Baking Co, v. United States, 281 F. 2d 137 (6th

GD HED Guncecnccdcccevdesenccssesesceccccosccece 135

Commercial Standard Ins, Co, v. Gordon's Transports, Inc.,

154 F. 2d 300 (Oth Cir. 1046) ..... cc cess sceccccecesss 71

Commonwealth v. Clark, 404 Pa, 143 (1961) ............., 164

Commonwealth v, DiFrancesco, 329 A. 2d 204 (Pa. 1974) .. 54

Commonwealth v. Turner, 317 A, 2d 298 (Pa. 1974)

Corn Products Refining Co, v. FTC, 324 U. S$. 726 (1945) .. 34

Delaware Valley Marine Supply Co. v. American Tobacco

Co,, 297 F. 2d 199 (3rd Cir, 1961), cert. denied, 369 U. S.

839 (1962)

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

Di Marco, et al. v. USG et al., E. D. Pa, CA #31766 ....... 63

Di-Wal, Inc. v. Fibreboard Corp. CCH 1970 Trade Cases

$73,155 (N. D. Cal, 1970) occ cccccc cece ee eeeeennes 28

Dugan Drug Stores, Inc. v, United States, 326 F. 2d 835 (5th

Cle. 19BE) cn ccccccccccccccccccvccccevevevecevccenes 151

Dunn v. United States, 307 F. 2d 883 (Sth Cir, 1962) ... .158, 160

Dutton v. Evans, 400 U. S. 74 (1970) occ cece eee en eees 123

Forster Manufacturing Co. v. FTC, 335 F. 2d 47 (Ist Cir.

1964), cert. denied, 380 U. S. 906 (1965), after remand,

361 F. 2d 340 (Ast Cir, 1966) occ eee ee nees u

FTC v. A. E. Staley Company, 324 U. S. 746 (1945) . .33, 35, 36, 41

Glasser v. United States, 315 U. S, 60 (1942) ...... ccc eee 124

Goldfarb v. Virginia State Bar, 421 U, §. 773 (1975), reh

Bonded, —@ U. Bie ci cccssccsssccccccccccccvceecccens 31, 32

Goldlawr, Inc. v. Shubert, 290 F. Supp. 482 (E. D. Pa, 1968) 67

Gray v. Shell Oil Co, 469 F. 2d 742 (9th Cir, 1972), cert.

denied, 412 U. §. 943 (1973) ......05. 28, 33, 37, 38, 52, 53, 54

Grunewald v. United States, 353 U. S. 391 (1957) ...... 67, 86, 99,

103, 121, 130

Hall v. United States, 419 F. 2d 582 (Sth Cir. 1969) .. .64, 150, 157

Holland v. United States, 348 U.S. 121 (1954) 2... ... cues 71

Hurst v. United States, 337 F. 2d 678 (Sth Cir, 1964) ...... 129

Hyde v. United States, 225 U.S. B47 (1912) oor cceceeeees 109

ladependent Iron Works, Inc. v. United States Steel Corp.,

177 F. Supp. 743 (N. D. Cal, 1959), aff'd, 322 F. 2d 656

(9th Cir, 1963), cert. denied, 375 U. S, 922 (1963) ....... 70

In re Winship, 397 1. S, 358 (1970) occ cc cence eee enes 54, 66

International Shoe Machinery Corp. v. United Shoe Machine

Corp., 315 F. 2d 449 (1st Cir, 1963), cert. denied 375

U. S. OBO (10BB) nn rrrccccrrceeereeeevveeevevens 130, 131

Interstate Circuit, Inc. v, United States, 306 U. §. 208 (1939) 67

Jenkins v. United States, 330 F, 2d 220 (D. C, Cir, 1964) ... 182

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

Jenkins v, United States, 380 U. §, 445 (1965) .. .163, 164, 174, 181

Jones v. Shell Oil Co,, Civ, No, 47261 (N, D. Cal.), affirmed sub

nom. Gray v. Shell Oil Co,, 469 F, 2d 742 (9th Cir, 1972) 54

Klein v. American Luggage Works, Inc., 323 F. 2d 787 (3rd

GE, BEER) cccccccceccccccsvecseuaneeennenne 46, 62, 66, 106

Kotteakos v, United States, 328 U. S. 750 (1946) . . .68, 81, 99, 100,

101, 103, 104, 105, 107

Krulewitch v, United States, 336 U. §, 440 (1949) ..... 22, 78, 103,

124, 160

Maple Flooring Mfrs, Ass'n v. United States, 268 U. §, 563

(OEE) ccccccccccccccccccccsesececeseseseeeeeeeneel 29, 31

Marino v. United States, 91 F. 2d 691 (9th Cir, 1937) ...... lll

Milgram v. Loew's, Inc., 192 F. 2d 579 (3rd Cir. 1951) ..... 70

Minker v. United States, 85 F. 2d 425 (3rd Cir, 1936) ...... 150

Modern Home Institute, Inc, v. Hartford Ace, & Indem. Co.,

GIS F. Od 108 (Gnd Cip. 1075) ...cccccccccccccccccces 70

Moore v. United States, 271 F, 2d 564 (4th Cir, 1959) ...... 71

National Dairy Products Corp. v, FTC, 305 F. 2d 517 (7th

Cir, 1968), cert. denied, 393 U. §. 977 (1968) ........... 344

NBO Industries Treadway Companies, Inc., et al. v. Bruns-

wick Corp, et al., 1975-2 CCH Trade Reg. Rep. $ 60,479

Co em 1

North Carolina v, Chas, Pfizer & Co., 1974-2 Trade Cases

7 75,176 (BE. D. N.C, 1074) cc ccccccccsccevssvcsvees 70

Pauldino v, United States, 379 F, 2d 170 (10th Cir, 1967) ... 66

Pennewell v. United States, 353 F, 2d 870 (D. C. Cir, 1965) . 150

Pointer v, Texas, 380 U, §, 400 ( EDGED occccconséscameen 135

Rivers v. Union Carbide Corp., 426 F. 2d 633 (3rd Cir. 1970) 125

Rocha v. United States, 288 F, 2d 545 (9th Cir, 1961) ....101, 105

Rogers v, United States, 422 U, §. 35, 45 L. Ed. 2d (1975) .. 178

Salley v. United States, 353 F, 2d 897 (D. C. Cir, 1965) .... Bll

Snyder v. Lehigh Valley R. R. Co,, 245 F. 2d 112 (3rd Cir,

1957)

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

State of Arizona v. Cook Paint & Varnish Co., 1975-2 Trade

Cases, CCH Trade Reg. Rep., { 60,450 (D. Ariz. 1975) . .82, 96

Strauss v. United States, 376 F. 2d 416 (5th Cir. 1967) ..... 51

Sugar Institute v. United States, 297 U. S. 553 (1936) ...... 30

Tag Mfrs. Institute v. FTC, 174 F. 2d 452 (Ist Cir. 1949)... 31

Theatre Enterprises, Inc. v. Paramount Film Distributing Co.,

ET TS 66

Treasure Valley Potato Bargaining Ass'n v. Ore-IDA Foods,

Inc., 497 F. 2d 203 (9th Cir. 1974), cert. denied, 419 U. S.

GED CIID cc ccccccccccevccccccccccccccceveseccccces 32

United States ex rel. Clark v. Anderson, 502 F. 2d 1080 (3rd

Cir. 1974) onc ccc cece cer eeceerererecsnecneesseeses 58

United States v. Alper, 449 F. 2d 1223 (3rd Cir. 1971) ...... 179

United States v. American Linseed Oil Co., 262 U. S. 371 -

BIB) cccccccccccccccccccccccccceccceccoscsccccocs

en States v. American Radiator & Standard Sanitary

Corp., 433 F. 2d 174 (3rd Cir. 1970) ........ 67, 126, 144, 156

United States v. Angiulo, 485 F. 2d 37 (Ist Cir. 1973) ........ 181

United States v. Arendale, 444 F. 2d 1260 (5th Cir. 1971) .. 162

United States v. Bass, 490 F. 2d 846 (Sth Cir. 1974) ........ 176

United States v. Benson, 487 F. 2d 978 (3rd Cir. 1973) ..... 114

United States v. Bertolotti (2nd Cir. November 10, 1975) . 102, 105

United States v. Bohle, 445 F. 2d 54 (7th Cir. 1971) ....... 149

United States v. Borelli, 336 F. 2d 376 (2nd Cir. 1964), cert.

denied, 379 U. S. 960 (1965) ........ 6.6045. 68, 86, 98, 99, 100,

105, 107, 109, 110

United States v. Bowen, 414 F. 2d 1268 (3rd Cir. 1969) .... &

United States v. Bradley, 421 F. 2d 924 (6th Cir. 1970) ..... 71

United States v. Burley, 460 F. 2d 998 (3rd Cir. 1972) ..... 167

United States v. Butler, 494 F. 2d 1246 (10th Cir. 1974) .... 71

United States v. Central Supply Ass'n, 6 F. R. D. 526 (N. D.

Ghho BBGT) cccccccccccccccccccccccccccccess 68, 82, 101, 104

United States v. Chester, 407 F. 2d 53 (3rd Cir. 1969), cert.

denied, 304 U. S. 1020 (1969) . 2... 6. ccc ccc ec eeees 109

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

United States v. Clark, 398 F. Supp. 341 (E. D. Pa. 1975) .. 114

United States v. Container Corp. of America, 393 U. S. 333

a ae 19, 31, 32, 36, 37, 38, 39, 41, 42,

43, 44, 46, 47, 48, 55, 58, 116, 117

United States v. Container Corp. of America, 273 F. Supp. 18

Gee Gee Gib Gb BEE deccecccesccoonenveecodcoeseenss 32

United States v. Dabney, 393 F. Supp. 529 (E. D. Pa. 1975) 114

United States ex rel. Leguillou v. Davis, 115 F. Supp. 392 (D.

V. L 1953), rev'd on other grounds, 212 F. 2d 681 (3rd

th Mt dint tankabntudddddemsieiinmnndimtearos 163, 164

United States v. DeCavaleante, 440 F. 2d 1264 (3rd Cir.

caaned 23, 68, 78, 88, 89, 98, 99, 100, 101, 103, 107, 123, 124

United States v. Delay, 440 F. 2d 566 (7th Cir. 1971) ...... 71

United States v. DeSisto, 289 F. 2d 833 (2nd Cir. 1961) .... 137

United States v. Dukow, 453 F. 2d 1328 (3rd Cir. 1972), cert

denied, sub nom. Crow v. United States, 406 U. S. 945

rene ee Sau Fat per eee 113, 114

United States v. Erickson, 472 F. 2d 505 (9th Cir. 1973) .... 114

United States v. Falcone, 109 F. 2d 579 (2nd Cir.), affd 311

Se ED cccnoussdctadiediinadedetnddiaatial 66, 99

United States v. Fioravanti, 412 F. 2d 407 (3rd Cir. 1969),

cert. denied sub nom. Panaccione v. United States, 396

Se & Gar GED cccccccccscs 165, 166, 173, 174, 175, 178, 181

United States v. Flannery, 451 F. 2d 880 (Ist Cir. 1971) .... 175

United States v. Fry, 304 F. 2d 296 (7th Cir. 1962) ........ 131

United States v. fullmer, 457 F. 2d 447 (7th Cir. 1972) .... 155

United States v. Gambert, 410 F. 2d 383 (4th Cir. 1969) .... 161

United States v. General Motors Corp., 1974-2 Trade Cases

{75,233 (BE. D. Mich. 1974) ....... 0... ccc cece cuccee 70

United States v. Georga, 210 F. 2d 45 (3rd Cir. 1954) ... .155, 160

United States v. Giacalone, 477 F. 2d 1273 (6th Cir. 1973) .. 114

United States v. Goldberg, 401 F. 2d 644 (2nd Cir. 1968 ),

cert. denied, 393 U. S. 1099 (1969) .................. 110

United States v. Graham, 325 F. 2d 922 (6th Cir. 1963) .... 15]

Luited States v. Gray, 468 F. 2d 257 (3rd Cir. 1972)

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

United States v. Grimes, 413 F. 2d 1376 (7th Cir. 1969) .... 5l

United States v. Grosso, 358 F. 2d 154 (3rd Cir. 1966), rev'd

on other grounds, 390 U. S. 62 (1968) .......--.----+> 164

United States v. Gullia, 450 F. 2d 777 (3rd Cir. 1971) ...... 179

United States v. Gullo, 502 F. 2d 759 (3rd Cir. 1974) ........ 151

United States v. Harmon, 379 F. Supp. 1349 (D. N. J. 1974) li4

United States v. Hayward, 420 F. 2d 142 (D. C. Cir. 1969) 155

United States v. Heinze, 361 F. Supp. 46 (D. Del. 1973) .... @

United States v. Hudson, 432 F. 2d 413 (9th Cir. 1970) .... 154

United States v. Johns-Manville Corp., Cr. 21-118 (E. D. Pa

482 at SIZ (1065) ... 2... eee een nce ewneeeeees “e*. 107, 108

United States v. Johnson, 65 F. Supp. 46 (M. D. Pa. l° . 68, 86

United States v. Kissel, 218 U. S. 601 (1910) ............-. 67, 86

United States v. Klein, 515 F. 2d 751 (3rd Cir. 1975) ..... ~ _

United States v. Kompinski, 373 F. 2d 429 (2nd Cir. 1967) .69, 128

United States v. Lansdown, 460 F. 2d 164 (4th Cir. 1972) .. 164

United States v. Leach, 427 F. 2d 1107 (Ist Cir. 1970), cert.

denied, 400 U. S. 829 (1970)... 2.6.6 occ cnn nnn 51

United States v. Lester, 282 F. 2d 750 (3rd Cir. 1960), cert.

denied, 364 U. S. G37 (1961) ..... ©. ence nnn wn nnes 101

United States v. Marion, 404 U. S. 307 (1971) ...113, 114, 119, 121

United States v. Morgan, 1953 Trade Cases { 67,586 (S. D.

aE SET ai

United States v. Morris, 485 F. 2d 1385 (Sth Cir. 1973) .... 135

United States v. Nazzaro, 472 F. 2d 302 (2nd Cir. 1973) .... 10

United States v. Neal, 320 F. 2d 533 (3rd Cir. 1963) ....... 178

United States v. Nettl, 121 F. 2d 927 (3rd Cir. 1941) ..... 153, 14

United States v. Newman, 490 F. 2d 139 (3rd Cir. 1974) . .145, 160

United States v. Noble, 155 F. 2d 315 (3rd Cir. 1946) ...... 178

United States v. Oregon State Medical Society, 95 F. Supp.

103 (D. Ore. 1950), affirmed 343 U. S. 326 (1952) ....... 131

United States v. Ott, 489 F. 2d 872 (7th Cir. 1973) ........ 162

s

-

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

United States v. Partin, 1972 Trade Cases { 73,999 (N. D. Ga.

EEE cdhccccoécecdsesccssscnsoeseoncesossonseesere 71

Palted States v. Perez, 489 F. 2d 51 (5th Cir. 1973) ........ 105

United States v. Perlstein, 120 F. 2d 276 (3rd Cir. 1941)

153, 154

United States v. Rodrigues, 491 F. 2d 663 (3rd Cir. 1974) .. 123

United States v. Rogers, 289 F. 2d 433 (4th Cir. 1961) ..... 174

United States v. Russano, 257 F. 2d 712 (2nd Cir. 1958) . .101, 105

United States v. Saunders, 325 F. 2d 840 ( 6th Cir. 1964), cert.

denied, 370 U. $. G78 (1085) ..... 2... ence eccnccecees 71

United States v. Sawyer, 210 F. 2d 169 (3rd Cir. 1954) ..... 51

United States v. Schartner, 426 F. 2d 470 (3rd Cir. 1970) .... 149

United States v. Schneiderman, 106 F. Supp. 892 (S. D. Cal.,

ED ‘acckoncocecdacnnedéasesesocesodesoonesseteces 67

United States v. See, 505 F. 2d 845 (9th Cir. 1974), cert.

en Gaya Gh Ge ED ccacccccedecececececesos 164

United States v. Silvern, 484 F. 2d 879 (7th Cir. 1973) ...... 175

United States v. Small, 443 F. 2d 497 (3rd Cir. 1971) ....... 145

United States v. Sprengel, 103 F. 2d 876 (3rd Cir. 1939) .... 150

United States v. Standard Oil Co. 316 F. 2d 884 (7th Cir.

HED accoceouseeocsosoucsasessusseccoodead 62, 66, 106, 131

United States v. Stein, 249 F. Supp. 873 (E. D. Pa. 1966) .... 67

United States v. Stein, 456 F. 2d 844 (2nd Cir. 1972), cert.

denied, 408 U. S. 922 (1972), reh. denied, 409 U. S. 898

DEED eqnuncsesseneeseeoesbotontesancdsebencsedees ll4

United States v. Tucker, 267 F. 2d 212 (3rd Cir. 1959) ..... 145

United States v. United States Gypsum Co., Civil No. 71-2467

Cie ee GR GENE cocecccdécecccccecececces 117

United States v. United States Gypsum, Crim. No. 1042-73

(D. D. C., filed December 27, 1973) ................. 118

United States v. United States Gypsum Co., 383 F. Supp. 462

Sh tn ih PT ketcGubnededdindsedentansennaiad 6, 27,113

United States v. Van de Carr, 343 F. Supp. 993 (C. D. Cal.

GREED caccdececocceccssonvonsoceesosocecococcoceces 69

TABLE OF CITATIONS (Continued).

Cases (Continued): Page

United States v. Varelli, 407 F. 2d 735 (7th Cir. 1969) ...... 105

United States v. Watson, 489 F. 2d 504 (3rd Cir. 1973) ..... 51

United States v. Williams, 523 F. 2d 1203 (Sth Cir. 1975) .... 150

United States v. Wilson, 357 F. Supp. 619 (E. D. Pa. 1973),

appeal dismissed and pet. for panel reb. denied, 492

F. 2d 1345 (3rd Cir. 1974), rev'd on other grounds, 420

U. §. 332 (1975), affd on remand 517 F. 2d 1400 (3rd

Gin, BED ccccccccccccccccccccccccvcccccccccsescose 1l4

United States v. Wohl Shoe Company, 369 F. Supp. 386 (D.

BE, Blam, BIDE) .cccccccccccccccccsccsccccceccssesees 32

United States v. Young, 464 F. 2d 160 (5th Cir. 1972) ...... 51

Venzie Corp. v. U. S. Mineral Products Co., 1975-2 Trade

Cases, { 60,481 (3rd Cir. 1975) ...... 69, 70, 75, 79, 81, 96, 128

Viereck v. United States, 318 U. S. 236 (1943) ............ 144, 155

Virgin Islands v. Gereau, 523 F. 2d 140 (3rd Cir. 1975) ..... 164

Viviano Macaroni Co. v. FTC, 411 F. 2d 255 (3rd Cir.

BED aceccacuccecccecccsnceesoncnavecsess 34, 35, 41, 50, 64

Wagner v. United States, 263 F. 2d S77 (Sth Cir. 1959) .. .148, 149

Wall Products Co. v. National Gypsum Co., 326 F. Supp. 295

(N. D. Cal. 1971) ..... 23, 25, 27, 28, 33, 37, 38, 48, 63, 90, 110,

111, 115, 116, 128, 119, 128, 129, 130

Webster v. Sinclair Refining Co., 338 F. Supp. 248 (S. D. Ala

EET 28, 33, 37, 38

Webster Rosewood Corp. v. Schine Chain Theatres, Inc., 263

F. 2d 533 (2nd Cir. 1959), cert. denied, 360 U. S. 912

ET Jadddsuddebededsadaseecedsdaemidanewenestaces 67

TABLE OF CITATIONS (Continued).

Statutes: Page

Robinson-Patman Act, 15 U. §. C. §13(b) ..........545. 2 et seq.

Sherman Act, 15 U. §. C. §1 2.0... ccc cece ence eeeeenees 2 et seq.

BD GB. BG Bie vcccsccvecesccceccccoscescccececeseses 1

BD U. BS BEE ceccccccccsccccccccccesccccccesccsces: 14

United States Constitution:

SD SEE ncccascceneedoeesseeeseseunseest 163

i) JD: ..sunneceqnseasenesenseeted 135, 163, 164

Rules: Page

Federal Rules of Criminal] Procedure:

TD <cegudaded esueuetdsounsasesebaseuiessebeede 132

TABLE OF CITATIONS (Continued).

Miscellaneous: Page

27

BNA, Antitrust Trade Reg. Repts., No. 742 (12/9/75, p. A-21)

Developments in the Law—Criminal Conspiracy, 72 Harv. L.

Rev. 920, 958 (1959) 22... . ccc cece ce eeee ee eeeeeeeees 110

Eaton, The Robinson-Patman Act: Reconciling The Meeting

Competition Defense With The Sherman Act, 18 Anti-

trust Bulletin 411, 419 (1973) ..........ccseseeeeeeees 34

Jonathan C. Rose, CCH Trade Reg. Rep., #202, Nov. 11,

0 ATRESIA TIE a I NEY 48, 63

Note, 25 Baylor L. Rev. 357, 364 (1973) .........cceseeeee 32

Wechsler, et al., “The Treatment of Inchoate Crimes in the

Model Penal Code of the A. L. L.: Attempt, Solicitation

and Conspiracy, Part II,” 61 Colum. L. Rev. 957, 983-84,

GED CIBER) ccccccccccccccccccccccccccccccsccccesoes 108

III Wigmore on Evidence § 980(a) (3rd Ed.) ............. 129

2 Wright, Federal Practice and Procedure § 482, p. 279

CERRO) cccccccccccccvccccecccccececcccceccscccecces 51

STATEMENT OF SUBJECT MATTER

JURISDICTION,

Counsel for appellants ' certify that these appeals are

from the verdicts, sentences and final judgments of the

United States District Court for the Western District of

Pennsylvania which apply to all parties. Jurisdiction is

conferred on this Court by 18 U. S. C. § 1291.

covering specific, limited issues are oges See separately on behalf

of ape ts United States Gypsum, Ce — in by Georgia-

Pacific), Watt, Brown and Nicely. J. P. Nicely concurs in the posi-

tion of all other appellants that numerous reversible errors occurred

Saving trial, but not seek the alternative relief of a new trial.

Mr. ‘ape’ who recently retired, seeks only acquittal on the

grounds of insufficient ev

2 Issues Presented

STATEMENT OF ISSUES PRESENTED

FOR REVIEW.

1. Does verification directly with a competitor regard-

ing a customer's claim of a more favorable price quotation

constitute a violation of the Sherman Act § 1, when the

purposes of such verification were to satisfy the require-

ments of the Robinson-Patman Act and to protect against

customer fraud?

(a) Should the evidence concerning defendants’

verification have been submitted to the jury as a basis

for inferring a violation of the Sherman Act?

(b) Did the trial court err in its several instruc-

tions on the verification issue, including its instruction

that if verification had a stabilizing effect on prices,

the jury should presume as a matter of law that de-

fendants’ purpose in verifying was to stabilize prices

regardless of defendants’ actual purposes?

2. Was the prosecution's evidence of fragmented and

unconnected episodes occurring predominantly prior to

' the limitations bar sufficient to sustain an inference of a

unitary, nationwide price-fixing conspiracy existing within

the statutory period?

3. Did the trial court commit prejudicial error (a) by

its numerous faulty and confusing final instructions con-

cerning conspiracy law and other issues, (b) by admitting

prejudicial hearsay testimony and documents without

proper qualification and by receiving inflammatory evi-

dence of prior litigation and complaints to the government,

and (c) by disparaging and discriminatorily limiting the

defense case?

4. Were defendants denied due process by the prose-

cution’s pre-indictment delay in light of the resulting

Issues Presented 3

prejudice to defendants from the concentration of the

prosecution's evidence in the pre-statutory period and the

loss to defendants of important testimony due to the death

and unavailability of key witnesses?

5. Did the prosecution's egregious, repetitive miscon-

duct throughout the trial deprive defendants of a fair trial?

6. Does the trial court's coercion of an exhausted, ill.

and hopelessly deadlocked jury, coupled with repeated,

erroneous “dynamite” charges, require reversal?

4 Standard of Review

STANDARD OF REVIEW.

In seeking acquittals as to all defendants, these appeals

challenge the sufficiency of the evidence to support the

verdicts. Acquittals are also sought because the trial court

erred in applying the legal standard relevant to dismissals

of indictments for undue pre-indictment delay. A new

trial is requested in the alternative, because the trial court

committed numerous prejudicial errors of law in its evi-

dentiary rulings, instructions and other aspects of its

management of the trial; because the trial court abused

its discretion by not discharging the jury and declaring

a mistrial in light of the repeated misconduct of the prose-

cution; and because the trial judge coerced the hopelessly

deadlocked jury to return its verdicts.

Statement of the Case 5

STATEMENT OF THE CASE.

A. Nature of the Case.

These appeals are taken from judgments entered on

verdicts of guilty against four corpovate and three individ-

ual defendants for alleged violation of Section 1 of the

Sherman Act, 15 U. $8. C. § 1. The Indictment charged six

corporations and ten individuals with participation in a

nationwide conspiracy to fix the prices, terms and condi-

tions of sale and methods of handling of gypsum board

products from sometime prior to 1960 through December

27, 1973 (40a-47a).’ Appellants (hereafter “defendants” )

are United States Gypsum Company (“USG”), National

Gypsum Company (“National”), Georgia-Pacific Corpora-

tion (“G-P”), The Celotex Corporation (“Celotex”), Andrew

J. Watt, Colon Brown, and J. P. Nicely. Each corporate

defendant manufactures, sells and distributes gypsum

board products which are widely used in building con-

struction. Andrew Watt is Executive Vice President of

USG. Colon Brown is Chairman of the Board of National.

J. P. Nicely recently retired as Vice President, Sales, of

National's Building Products Division.

B. History of Proceedings.

The Indictment was returned on December 27, 1973

(40a-47a). After an evidentiary hearing in September,

2. Appendix citations are + where available. Citations

to the trial transcript are given

the transcript references may cover more material than is contained

in the Appendix so that parallel Appendix citations may contain

used is as follows: Appe lants’ Brief, Il. Brief; References to

other sections of brief, I A, ete; A pages—“a” and exhibits—

“ex”; Bill of Particulars, B. P. ipage , Defendants’

rel. Inst. [#]; Defendants’ Re-

efendants’ Supplemental Requests, Def. Supp.

ants’ Final Requests, Def. Final Req. [#);

6 Statement of the Case

1974, motions by all original defendants to dismiss for

excessive preindictment delay were denied. United States

v, United States Gypsum Co., 383 F. Supp. 462 (W. D. Pa.

1974) (49a-64a).* Trial commenced on March 3, 1975

and extended over four months. The trial court denied

motions for acquittal made by each defendant at the close

of the prosecution's case and renewed at the close of the

entire case (Tr. 8141; 3747a, Tr. 13,756).

The jury was sequestered and began its deliberations

on Tuesday, July 8, 1975 (3952a, Tr. 14,953). By Friday

the foreman reported that the physical and mental condi-

tion of the jurors had begun to deteriorate (4000a, Tr.

15,128; 400la-4002a, Tr. 15,130-31; 4004a-4005a, Tr.

15,134). By Sunday, the sixth day of deliberations, the

jury reported itself deadlocked: “We cannot reach a unani-

mous verdict. If any juror changes his mind now, he

would only change due to compassion for his fellow jurors”

(4061a, Docket Entry #322). The trial judge directed

the jurors, for the third time, to continue their deliberations

“with a view toward reaching an agreement” (4017a-

4018a, Tr. 15,154-55).

On the seventh day of deliberations, the foreman asked

to meet with the judge “to discuss the condition of the

—

H, page): Federal Rules of Criminal ayy heq. ¢ Abd

r "R. Gri Government's es Cat ame ue

[4]; Pretrial Conferences, Pre. (date); derone

ence with jury foreman Russell, R Tr. [page]; ranscript

Tr. [pa ge} rial Exhibits, Defendants,

Nicely— Nicely { # [#)) A, ha a ¥en {usc-tRG nant om rgwn (1

SRG Ih: CPCS Le], Cretan Cat. |): Delene

pix Lei vernment GK (#h

3. On January 16, 1975, two defendants, The Flint-

kote Company ond Kaiser Gypsum , and seven individ-

ual defendants elected to plead nolo a on

Change of Pleas 1/16/75 Dacket Entry #133) after r~ P-

assurances ~y. | trial “ae e 738 no prison sentence would be

Statement of the Case 7

Jury and further guidance” (4061la, Docket Entry #322).

The trial judge met with the foreman alone at mid-day.‘

The foreman was deeply concerned about the mental de-

pression and physical condition of the jurors, at least eight of

whom were taking pills. He reported that the jurors were

“very distraught” (4065a, R. Tr. 2) and he thought that one

of them was “going to jump out the window” (4065a, R.

Tr. 3). The foreman confirmed the trial judge's descrip-

tion of the jury as “hopelessly deadlocked” (4068a, R. Tr.

6) and stated that the division among the jurors could not

be settled by the evidence: “We have taken enough ballots

now, and we have had enough discussions, and the way it

is divided is not going to be settled by any document, any

remembrance of testimony” (4067a, R. Tr. 4). After con-

firming the foreman’s understanding that the court was

atsens wares ee other? (4069a, R. Tr. 7), the

trial court instructed him to tell the jurors to continue

deliberating to see if they could come to a verdict (4070a,

R. Tr. 8). At 10:45 a.m. the next morning, July 15th, ver-

dicts of guilty were returned as to each defendant (Tr.

15,183).

C. Facts Relevant to the Issues on Appeal.

1. The Gypsum Board Industry.

Gypsum board products include wallboard, lath and

sheathing (40a). Each is a “gypsum sandwich” made of

paper, vinyl or other specially-treated exterior coverings

over calcined gypsum. Gypsum board is made and sold

in a variety of sizes and thicknesses (Tr. 8785). Over the

© Tip tried pales world ont penn ened w and

a - private meeting with foreman

22a-4023a, Tr. 15,1 This Court, on ber 16, 1975,

wy ay By y- — B ( -4063a )

S Statement of the Case

years, the largest selling product has been %” wallboard

with a plain vanilla paper cover (2134a, Tr. 8785-87).

Half-inch wallboard represents over 50% of all gypsum

board sales (2134a, Tr. 8787; Tr. 8833; 2369a, Tr. 9726)

and was referred to by a chief prosecution witness as the

“bellwether” product of the industry (612a, Tr. 1861).

facture, distribution and sale of gypsum board products

throughout the period from 1960 through 1973 and earlier.

in 1973. National is the next largest producer of gypsum

board with a share ranging from 30% in 1960 to 24% in

1973. G-P’s national share, as the third largest producer,

varied annually from about 10% to 13% during the period

diversified product lines of other materials (2520a-2521a,

Tr. 10,314-16; 3058a, Tr. 11,785; USG 60). For example,

gypsum product sales account for only 4% to 8% of G-P’s

annual sales revenues (2760a, Tr. 10,902). Over the years,

sum . Ine., The .

Company (Dierks). All except two (Fibreboard and ) were

stil! viable in 1973 and had increased sales revenue over

earler years (30ex, GX 7, “C").

Statement of the Case 4

substantial “buy-sell” arrangements and patent licensing

have existed in the gypsum industry, some of which have

benefited smaller gypsum producers (Tr. 2321; 838a-840a,

Tr. 2359-61 ).* Because product innovation and improve-

ment were important competitively, National and USG

were locked continuously in major patent litigation against

each other during the 1960's (2518ex-2582ex, Brown 1-57).

Throughout the period 1960-73 and earlier, nearly

all gypsum producers supported the Gypsum Association,

which performed numerous necessary and worthwhile

functions such as safety-rating procedures (310a-313a,

Tr. 486-89), cooperation with building code bodies (31 4a,

Tr. 491), promotion of gypsum products (313a, Tr. 489-

90), and consultation with other industry groups, such as

railroads, to promote safer transportation and materials

handling practices (315-317a, Tr. 496-500).

2. Economic Evidence of Competition in the Gypsum

Industry.

The economic evidence in the record is not con-

tested. On the principal gypsum board product, %” wall-

board, average prices nationwide declined significantly

10 Statement of the Case Statement of the Case ll

2097ex, USG 1200)—a decline of $6.76 or more than 15%" board prices have fallen as the following exhibit 2150ex,

(3186a, Tr. 12,481). National's average mill net price also NG 342) shows.

dropped from $41.13 in 1960 to $35.31 in 1973 (2149ex,

NG 30; NG 341), or 14% (2150ex, NG 342; NG 33). “a Gay Sea Gn Gee

G-P experienced a similar decline in its realized prices for COMPARED TO WHOLESALE PRICES

wallboard (2219ex, G-P 3). OF ALL CONSTRUCTION MATERIALS.

The decline in gypsum board prices occurred during INDEX 1960 = 100%

a period of highly inflationary cost increases which market .

forces prevented gypsum producers from recapturing, and

the following exhibit (207lex, USG 654) is representative 40 |-

of the trends affecting each producer. re aie —

USG %" WALLBOARD .

PRICE-COST-MARKET SHARE

1963 = 100% om” = as

PRICE CONTROLS or ——

—— - —~— —— a itiin~:~,:._t

€ cen emUSemUCUPC SUC S:C‘( ’ 2:

> int tl The sharpest deterioration in actual prices of gyp-

Jeoneeeee™™ — sum wallboard occurred during the late 1960's and 1970

when three significant competitive factors came together

s-Ss" =s" =" C." = =" = Tr a simultaneously. First, demand fell off sharply due to a

PRICE CONTROLS recession in the general economy and particularly the

Price behavior in the gypsum board industry contrasted housing market (2280a-228la, Tr. 9307; 3180a, Tr.

dramatically with that of other industries during the 12,465). Second, the supply of gypsum board had sig-

thirteen-year period covered by the prosecution's case.* nificantly increased with the entry during the early 1960's

While prices of other construction materials generally have of many additional producers, particularly in the South-

increased without interruption since 1965, gypsum wall- west (50ex, GX 7, Schedule “C”; USG 71, pp. 1-2 of part

: aah ep ert ast oun en 1 by dividing board two). Third, G-P introduced a completely new market-

volume sold into sales revenue reduced by 4 costs ( 2367a- ing concept in the distribution of gypsum board products

2369a, Tr. 9724-25). which gave its wholly-owned local distribution centers

a ee a 9 Demand in the gy m industry is largely a function of

sharply by verage for h” gypsum — demand in the housing and construction market (2528a-2530a, Tr

fell bre 168 (31940-31960, Tr “08, USG 656) 10,334-36 )

we OQ,

12 Statement of the Case

authority to sell to anyone in the chain of distribution at

prices determined by the local manager (Tr. 4794; 4797;

2769a-2770a, Tr. 10,915-16; 2775a-2776a, Tr. 10,923-24;

2875a-2876a, Tr. 11,180-81; 2902a-2904a, Tr. 11,282-84).

When G-P entered the gypsum business in 1965, by

acquiring Bestwall, management's immediate objective was

to increase Bestwall’s production and sales by one-third.

G-P executives recognized that this aggressiveness would

necessitate a number of competitors “moving over as a

result of the pressure” (2214ex-2218ex, G-P 1, p.3). This

“pressure” was exerted principally by a doubling of Best-

wall’s sales force through its merger with the existing G-P

network of 86 distribution centers located throughout the

United States (278la-2782a, Tr. 10,959-60; 2800a-2802a,

Tr. 10,984-86 ).*°

Utilization of this branch distribution network enabled

G-P to provide quick delivery and special service, to sell

direct to the end user by bypassing the traditional “mid-

dleman” wallboard dealer, and to “wheel and deal” on

price to gain additional gypsum business (2768a-2769a,

Tr. 10,913-14; 2775a, Tr. 10,923; 2777a-2778a, Tr. 10,925-

26; 2785a-2787a, Tr. 10,965-66; 2867a-2868a, Tr. 11,169-

70; 2872a-2873a, Tr. 11,176). The prosecution stipulated

that each G-P distribution center manager possessed inde-

pendent pricing authority over all products, including

gypsum (1365a-1366a, Tr. 4805-06), thus precluding the

setting of prices by any central corporate authority.

Therefore, G-P was strategically positioned to market its

gypsum products more aggressively and, by 1968, as the

prosecution also stipulated, had embarked on a “very

strong campaign to increase their share of the market”

10. Each distribution center was operated as an independent

roft center primarily distributing wood products (2759a-2760a,

r: 10.901-02, 2769a-2770a, Tr. 10.915-16). By the end of 1973,

G-P had 128 distribution centers (2763a, Tr. 10,906).

Statement of the Case 13

(1348a-1349a, Tr. 4742)."' Its competitors recognized

that G-P was in the “most aggressive posture” (2277a-

2278a, Tr. 9299) and that G-P made it “very, very rough”

on even its larger competitors (2278a-2279a, Tr. 9304).”

The simultaneous impact of new competitors, declin-

ing demand, and G-P’s competitive inroads into its com-

petitors’ market shares soon resulted in dramatically de-

teriorating prices. In May, 1967, in response to widespread

discounting, National announced a nationwide published

price decrease on most gypsum board products (2125ex-

212@ex, NG 28-29). By 1968, USG had begun to plan

its own distribution network, L&W Supply, to compete

with G-P distribution centers directly (2099a, Tr. 8482-84;

Tr. 8524-26; 2298a-2299a, Tr. 9339; 2817a-2818a, Tr.

11,007-08; 3180a-318la, Tr. 12,465-66). Later, USG also

designed an interim “war zone” program, by which USG

lowered its published prices to all customers around

each G-P distribution center (2283a-2286a, Tr. 9310-17;

2055ex, USG 50I). ~

Den

ll. G-P’s sive marketing a te suc-

cessful. In , 1967, USC lost 9 peresnta ts total

market share (2057a-2058a, Tr. 8173; Tr. percentage pom Use 153 54),

while G-P showed an increase in market thare ‘of 8.6 percentags

points (2228ex, G-P 67).

aS. Weltnan 6 UGS ees Gg OF aes far the most

cqueuiee Sala te oboT) chile . 9283; a-2279a, Tr.

- a. Tr ), while =. : as nh Dake

asa r. 8254; 953ex, Duffy

tho ana thik of» “more ve’ or “more trouble-

of

some” competitor (31974, Tr. 12,513). of National testified

that throug the 1960's G-P, on a nationwide basis, gave National

the most trouble (1718a-1719a, Tr. 6277-79). Hayes of ~

testified that G-P’s competition came from all directions and w

full-scale warfare ( -2569a, Tr. 10,409-10). Johns-Manvile

a G-P as its “worst competitor” (G- P Ay Seannehy's Simp-

blic G Ty os G-P =

ow he o (eke Te of G-P’s

7 the ~ is ~ at Tr. 14,287-317, 14,323-31, 14,

l4 Statement of the Case

Contemporaneous reports within the companies re-

flect increasingly chaotic and downward pricing behavior

in the gypsum industry during 1968—the year prior to the

beginning of the statutory period on December 27, 1968

(1963ex-1965ex, USG 156; 1978ex, USG 164; 1983ex, USG

166; NG 31-34; 2277ex, G-P 265; 2280ex, G-P 284; 2284ex,

G-P 316; 2287ex, G-P 318)."" On the eve of the statutory

period, in October, 1968, so much discounting was occur-

ring in the market that contemporaneous USG documents

showed that if all the business then being quoted at dis-

counted prices were secured, the volume of board sold by

USG at off-list prices would equal 134% of its entire 1967

sales volume (2064a, Tr. 8233; 1983ex, USG 166),

In 1969, the first year of the statutory period, the aver-

age realized price on 'x” gypsum wallboard fell more than

10%, or about $4.00/ MSF, from the 1968 average. The

historical industry lows were hit in 1970, the second year

of the statutory period, when average realized prices were

13% below the depressed 1969 levels, more than 20% below

the pre-statutory period 1968 level and almost 30% below

average prices in 1961, at the beginning of the al-

leged conspiracy.'' Average wallboard prices improved

moderately in 1971 through 1973 when the economy im-

proved, inflationary forces were strong, and federal price

controls requiring prior approval of price increases were in

effect. Even then, the average 4” wallboard realized price

13. The statutory period covers the five years prior to the re-

nine : the Indictment on December 27, 1973. 18 U. §. C. § 3282

14. USG'’s 1970 average realized price for ¥" wallboard was

$31.29/MSF as compared to $42.55 in 1961, $40.03 in 1968 and

$36.02 in 1969 (199lex, USG 306, 2097ex, USG 1200). National's

1970 average price was $29.55/MSF in 1970 vs. $42.15 in 1961,

$39.21 in 1968 and $34.99 in 1969 (2149ex, NG 340; NG 341). USG

authorized its salesmen to cut prices after receiving 18,874

in 1969 and 13,150 reports in 1970 that its competitors were doing

likewise (1986ex, USG 301), while National did so after ee

19.635 reports in 1969 and 17,670 reports in 1970 (2152ex, NG 349,

NG 350).

Statement of the Case 15

in 1973 was ten percent or approximately $4.00/ MSF be-

low the 1968 pre-statutory period level."*

In addition to the uncontradicted contemporaneous

record of declining prices and increased discounting, ex-

pert economic testimony was offered by both the prosecu-

tion and the defendants. The prosecution's expert, Dr.

Richard A. Miller, during two appearances as a witness,

did not give any opinion as to the existence or non-exist-

ence of the alleged conspiracy (1942a-195Sa, Tr. 7144-

7221; Tr. 7243-50; Tr. 13,460-70; 3659a-3719a, Tr. 13,472-

569; 3719a-3738a, Tr. 13,576-709; 3739a-3746a, Tr. 13,713-

31). Nor did he find market behavior indicative of col-

lusion and provide any analysis or study of any economic

data from which he felt even an inference of conspiracy

might be drawn.

In contrast, Dr. Richard Cyert, a distinguished econ-

omist and President of Carnegie-Mellon University (Tr.

12,025; 2600ex-2605ex, DJX 1), testified that defendants

had been engaged in “rampant price competition” during

the entire statutory period, which was completely incon-

sistent with the claimed conspiracy (3085a-3086a, Tr.

12,059). That period was characterized by Dr. Cyert as

one reflecting in the markets he studied “a high degree of

competition” that “verges on being disorderly” (3093a-

3004a, Tr. 12,090) where the picture was one of “firms

really scrambling, almost on a sale-by-sale basis to try to

quote a price that is going to get that particular sale”

(3105a, Tr. 12,116),

Dr. Cvert based his conclusion on: (a) a detailed study

of his own design, encompassing transaction prices and

discounts from published prices for the principal gypsum

15. USG’s average realized prices for ¥" wallboard were

$32.20 MSF in 1971, $33.72 in 1972, and $35.79 in 1973 (199lex,

USG 306, See USG 656). National's average 4° wallboard prices

were $32.23/MSF in 1971, $34.12 im 1972 and $35.31 in 1973

( 2)49ex, NG MO, NG 341),

Ott ee

16 Statement of the Case

board product in eight Standard Metropolitan Statistical

Areas (“SMSA”) (Tr. 12,036-43; 2606ex-2622ex, DJN

~42); (b) a review of sales of all gypsum board products

made by USG, National and Celotex in each of fifty

marketing areas throughout the country (3105a-3107a, Tr.

12,117-22; 3110a-3ll4a, Tr. 12,129-35; 2623ex-2639ex,

DJX 43-61); and (c) a study of all gypsum product sales to

nine large common customers of the defendant corpora-

tions (Sll4a-31l6a, Tr. 12,137-40, 2639ex-2648ex, DJX

62-79).

Dr. Cvert found extremely wide disparity among the

defendants in the actual prices they charged for 4” wall-

board during the same time periods and in the same areas

(30S4a-3086a, Tr. 12,058-59, 3093a-3094a, Tr. 12,090;

3105a-3107a, Tr. 12,117-18)."" In addition to wide-ranging

differences in actual prices, he found widely varving dis-

counts from list prices (3101a-3103a, Tr. 12,110-13). Price

and discount disparities existed not only between different

defendants, but also in the varying prices charged by the

same company during the same time period in the same

SMSA (3097a-3099a, Tr. 12,096-97). Very substantial

quantities of wallboard were sold at the lower price ranges,

i.e., at larger discounts, in each marketing area (26]4ex-

2622ex, DJX 27-42). Frequently, nearly all 4” wallboard

sold in an area during three month periods studied was sold

16. Dr. Cyert's pricing and discount study concentrated on the

“bellwether” product, 4 wallboard A standard selection technique

was utilized so that the eight SMSA would be representa-

we bP A petition in al] major ( Tr. 12,039-44). The

“ snalted were Anehekn, Cincinnati, Minneapolis, New

- — Boston, Denver and Pittsburgh (Tr. 12,043).

transaction of each defendant was included in

the study Yor 138s so tous vous of Go cotuaer puded (assem Oe

certain National sales in Pitts in the first quarter for which

records were unavailable) ( Tr. 12.044-45). All transactions in cer-

tain quarters of each of the su four years, 1970 through

1973, were included for certain of eight SMSA's in accordance

with standard statistical sampling techniques (2606ex, DJX 2).

Statement of the Case 17

at discount from published list prices.’’ Dr. Cyert’s view

that the price data established the highly competitive

nature of the gypsum industry was reinforced by his con-

sideration of other economic indicators such as: (a) con-

stant shifting of position in the fifty market areas (3107a-

3115a, Tr. 12,119-37; 2623ex-2639ex, DJX 43-61), (b)

switching of customers among defendants (3114a-3119a,

Tr. 12,137-46; 2640ex-2648ex, DJX 62-79), (c) the large

number of changes in published list prices (3118a-3124a,

Tr. 12,146-55), and (d) the widely varied marketing and

distribution techniques employed by defendants (3124a-

3126a, Ty. 12,155-57).

Although Dr. Miller, the prosecution's expert, testi-

fied in the rebuttal case after Dr. Cyert had given his de-

tailed findings of vigorous price competition, Dr. Miller

did not dispute Dr. Cyert's data nor his conclusion that

the gypsum industry was highly competitive throughout

the statutory period.

3. The Evidence Relied Upon by the Prosecution.

The prosecution's entire case was circumstantial. Its

dominant focus was on events occurring prior to 1967—

He ea ee ee

om phy Soggy ses

submitted demonstrating extensive discounting

both before and throu NG S00. CEL ihe

Use nik ob ii, 21 Mister 2170ex, NG NG 500, CEL 1142

151 amy tg ee Y For example, the period

from Sept September, 1968 , through the summer wy KA yh spy

—b,-~-4,, wallboard were Bove.

lished list prices ( 2235ex-2239ex, G-P 99, 101, 102, pve

18 Statement of the Case

cember 27, 1968."" According to the trial court's final in-

structions to the jury, adopting the prosecution's Request

to Charge No, 15 (4152a-4170a), there were five categories

of evidence from which the prosecution claimed an infer-

ence could be drawn of defendants’ participation in the

nationwide price-fixing conspiracy charged in the Indict-

ment (3874a-3888, Tr. 14,846-63). The circumstantial

evidence relied upon by the prosecution as to each cate-

gory is summarized below, with more detailed treatment

and supporting record references reserved for those

sections of the brief concerned with the insufficiency of

the evidence.

(a) Price Verification (see infra at 26-65). Until mid-

1968, each corporate defendant and other gypsum pro-

ducers on occasion sought to verify with each other the

truthfulness of a customer's claim of a competitive offer of

a more favorable price, term, or other condition of sale.

In the absence of sufficient data confirming the customer's

claim, direct verification with competitors was regarded

as legally important before extending a discriminatorily

low price to the customer. Such verification avoided vio-

lations of the Robinson-Patman Act by satisfying its strin-

gent requirements for establishing a good faith meeting

competition defense. Also, verification protected the seller

against customer fraud or misrepresentation.

18. The concentration of the tion's evidence in the pre-

statutory period was fores by the admission of an Antitrust

Division official just to approving the Indictment that, with

identifying fic, affirmative acts in furtherance of the conspiracy

within the veree statutory period” (B. Rashid to T. Kauper

12/11/73; Ev. H. DXQ-39). Very late in the trial, even the trial

court noted that def ts might be deprived of a fair trial by the

prosecutor's “absolutely massive and gross detai 4

about the pre-statutory period, and admonished t

desist in“. . . massive questioning as to ‘61, 62, ‘63, ‘64, and

pothing within the statutory period . . .” (3375a-3376a, Tr. 12,988-

rE

H

:

g

Statement of the Case 19

After mid-1968, defendants’ conduct regarding price

verification was non-parallel. At USG, price verification

on gypsum products had stopped by mid-1968 as unneces-

sary in light of more rampant price discounting in the

market and USG’s delegation of discounting authority to

its regional managers. As for National, the uncontradicted

evidence shows that with three limited and unauthorized

exceptions, National stopped verifying on the advice of

counsel immediately upon learning of the decision in

United States v. Container Corp. of America, 393 VU. §S.

333 (January 14, 1969). G-P verified approximately fifteen

times between 1969 and early 1972, and not at all there-

after. Celotex continued to verify infrequently throughout

the statutory period upon the advice of counsel that verifi-

cation continued to be a lawful method of assuring compli-

ance with the Robinson-Patman Act.

(b) Published Prices and Terms (see infra at 71-80;

90-97). Although the Bill of Particulars challenged every

list price increase in the statutory period as conspiratorial

(B. P. 30), only a list price announcement effective on May

1, 1969 was attacked at trial. The prosecution's evidence

relating to that list price announcement consisted of

parallel conduct and opportunity contacts. There was no

evidence that the announcements resulted from an agree-

ment. Similarly, the prosecution challenged the elimina-

tion of a single credit term effective on the West Coast

until December, 1970, but again there was no evidence of

prior agreement to do so.

Instead of focusing on the statutory period, the prose-

cution dwelled at length on evidence of published list price

and credit terms effective in 1965 and 1966, the effects of

which were dissipated by the vigorous price competition

described above, well before the statutory period began.

Evjdence was offered of sporadic communications between

certain defendants in 1965 related to specific special-

20 Statement of the Case

ized products or to particular competitive situations

which arose in particular geographic areas, such as ap-

plicator allowances in Portland, Oregon, in October, 1965

and price protection against a price increase on fire-rated

gypsum wallboard in September, 1965. These early, un-

related communications, combined with “

contacts” and conscious parallelism were urged by the

prosecution as the basis for an inference of an alleged

conspiratorial agreement concerning a change in prices

and pricing policies on gypsum products, effective Decem-

ber 15, 1965, and a subsequent change in credit and

collection policies on March 1, 1966.

(c) Job Price Protection. “Job price protection”

was a guarantee by a gypsum producer of a particular

price to a contractor for a specific volume and job so

that the contractor would be “protected” against sub-

sequent price increases prior to delivery (1085a, Tr.

3229; 3245a-3247a, Tr. 12,696-98), On advice of counsel,

in December, 1965 USG made available through its

auditors a list of such “protected” jobs without disclosing

any pricing information (Tr. 6487-88; 3193a-3194a, Tr.

12,499; 3212a-3213a, Tr. 12,569; 3247a-3249a, Tr. 12,699-

700; 3368a-3369a, Tr. 12,976). No other competitor did

likewise. By 1967, USG no longer maintained such a list

(2056a, Tr. 8170). The record is barren for the statutory

period of even the maintenance, much less the exchange,

of such lists or any information on them.

(d) Materials Handling. Pre-statutory period evi-

dence was introduced indicating limited communications in

1965 and 1966 among subordinate employees of defendants

and other competitors relating to preferred materials han-

dling and transportation practices." There was no evi-

19. The tion principally relied upon discussions at a

December, 1966 meeting me a sor of the G Associa-

tions Materials Handling Committee at which the of

eliminating the use of wooden pallets in Michigan was generally

Statcment of the Case 21

dence to show that any materials handling or transportation

practice was ever modified or eliminated following such

communications (see infra at 95-96). Five vears later, in

May 1971, USG’s Central Division Manager independently

decided to discontinue the use of wooden pellets to ship

gypsum board from USG’s Detroit plant. His decision was

based on quadrupled costs due to theft and vandalism of

the pallets which at all times remained USC property.

USG’s announcement was followed by Michigan area com-

petitors after it was made public. There is no evidence

showing that this decision on pallets had any impact on

price (see infra at 80-82).

(e) Single Plant Producers. Claude Huckleberry,

president of Texas Gypsum Company until January, 1965,

was permitted to testify to unconnected, hearsay state-

ments allegedly made in 1961 by a deceased employee of a

non-defendant that the “big boys” would try to drive

Huckleberry out of business unless Texas Gypsum stopped

competitive trucking practices (see infra at 86-90). The

prosecution also sought to prove that Republic Gyp

sum Company was a target of conspiratorial predatory

practices in 1970. At most, the evidence disclosed that

gypsum prices were depressed nationally during that year,

but particularly so in the Southwest due to overcapacity

and low demand. Not only was there a failure of proof as

to any “predatory agreement” among defendants, but un-

controverted evidence disclosed that during those years,

Celotex had a large investment in Republic, the alleged

victim, while National assisted Republic by supplying

critically needed wallboard paper on a $350,000 line of

to

19. (Cont'd.)

recognized On advice of counsel, no

at 95-96).

:

:

i

A

Z

22 Summary of Argument

SUMMARY OF ARGUMENT.

The massive record below falls far short of the sub-

stantial evidence required to convict defendants of par-

ticipation in a single, nationwide price-fixing conspiracy

covering all aspects of gypsum board competition from

1960 through 1973. Focusing on the relevant period

covered by the statute of limitations (1969-73), there is

simply no evidence of any antitrust agreement or con-

spiracy of any kind. In a sprawling conspiracy case such

as this, “the looseness and pliability of the [conspiracy]

doctrine present{[s] inherent dangers,” Krulewitch ct.

United States, 336 U. S. 440, 449 (1949), Jackson J., con-

curring, which the trial judge must guard against and

control. Here, however, the trial court abdicated its essen-

tial function of admitting only competent and relevant evi-

dence, failed to curb prosecutorial excesses, and submitted

the case to the jury under improper instructions. Yet. even

with all these errors, any one of which was sufficient to

tip the scales against defendants, the jury's deliberations

were beclouded with division and difficulty. At least some

of the jurors must have perceived the absence of substan-

tial evidence of conspiracy. Twice the jury reported itself

deadlocked. Ultimately, judicial coercion—not the testi-

of lower prices offered by competitors, (2) the effect of

such verification had been to stabilize prices, and (3) de-

fendants’ verification was not for the purpose either of

avoiding price discrimination. illegal under the Robinson-

Act, regardless of its lawful purposes, if the effect of veri-

fication was to stabilize prices (see infra at 48-62).

F. 2d 1264, 1275 (3rd Cir. 1971) (see infra at 66-102).

Indeed. fundamental constitutional guarantees, as well

as the protection of the statute of limitations were

vitiated by the prosecution’s predominant reliance on stale

and unconnected evidence and by its inexcusable and

24 Summary of Argument

prejudicial delay in initiating this prosecution (see infra

at 113-22). Therefore, judgments of acquittal should be

entered as to each defendant.

Ill.

In the alternative, new trials are required, not only

because of the trial court’s faulty instructions concerning

verification, but also because, misapplying basic conspiracy

law principles, the court permitted the prosecution to rely

on inflammatory hearsay evidence concerning remote in-

cidents without any proof of their connection to the de-

fendants or to later events, and compounded the error

by its refusal to give the jury proper instructions needed to

guide it in its deliberations. Clear errors of law on major

substantive issues were committed in the trial court's evi-

dentiary rulings and final charge (see infra at 103-12;

122-33).

IV.

The lack of taut trial management encouraged the

prosecutorial misconduct which pervaded the trial. Mis-

statement of facts in evidence, insinuation of facts not in

evidence. unfair examination of witnesses, inflammatory

appeals to jury prejudice—all of these tactics in the

prosecutor's “bag of tricks” were tolerated and. on occasion,

even excused by the court because the prosecutor is “tem-

peramental and irrepressible” (Tr. 3452-53) or because he

“is an emotional person” (Tr. 8494-98) (see infra at 144-

62). On the principal issue of verification the prosecutor

was even permitted to argue that defendants’ purpose of

Robinson-Patman Act compliance was “a sham conjured

up for this case” | Tr. 14.698), despite his knowledge that

over ten vears ago two of the defendants here had asserted

the same purpose in litigation then pending in the Eastern

Summary of Argument 25

District of Pennsylvania, and despite his and the trial

court's) intimate familiarity with Judge Zirpoli’s 1971 find-

ing, in Wall Products, that this was one of two “controlling

circumstance” purposes “present in abundance” in a “rec-

ord. . . replete with evidence” about them ( 326 F. Supp.

at 314-15).

V.

Defendants were gravely prejudiced by the prosecu-

tion's tactics and by the slipshod and improper way in

which the trial judge conducted the trial and instructed

the jury. No doubt these factors created the hopeless jury

deadlock despite the prosecution's failure of proof. Cap-

ping a record of egregious error, the trial court demanded

that the jury reach a verdict “one way or the other” to avoid

the expense of a possible retria!. In pursuit of that crass

economy, the constitutional rights of defendants to a fair

trial were wholly submerged and a coerced verdict was

returned (see infra at 163-S2). The acquittals to which

defendants were entitled should now be entered by this

Court.

26 Argument

ARGUMENT.

I. The Lawful Purposes of Defendants’ Verification Should

Have Precluded Submission of That Issue to the Jury;

Instead the Verification Issue Was Improperly Sub-

mitted Under Erroneous Instructions Which Made

Compliance With One Antitrust Law Violative of

Another

The centra! issue in this case is whether defendants’

verification with competitors of the accuracy of customers’

claims of lower prices purportedly offered by competitors

violated Section 1 of the Sherman Act, 15 U. S. C. § 1.

Relying on established Supreme Court law and recent

federal decisions, defendants urge that price verification

does not violate the Sherman Act when done for either of

two legitimate purposes: (a) to comply with the Robinson-

Patman Act by establishing a bona fide basis for extending

a lower price to meet a reported lower price offered by a

competitor, 15 U. S. C. § 13(b),” or (b) to prevent cus-

tomer fraud. Otherwise, when a supplier is faced with a

customer's claim of a lower competitive offer, as to which

the supplier has insufficient data to form a good faith

belief concerning its accuracy, the supplier would have to

choose either to act on the customer's representation and

risk violation of the Robinson-Patman Act or risk being

- -. Section 2(b) of Ay mame Act, 15 U. S. C.

(Db), permits a prima showin price discrimination to

rebutted or justified by the seller,

“by showing that his lower price or the furnishing of services

or facilities to any purchaser or purchasers was made in good

faith to meet an equally low price of a competitor, or the serv-

ices or facilities furnished by a competitor.

The Act emphasizes however, that:

“the burden of rebutting the prima-facie case thus made by

showing justification shall be — charged with a

s

violation of this section, and un shall be affirma-

tively shown, the Commission is authorized to issue an order

terminating the discrimination... .” (emphasis added).

Argument 27

non-competitive by refraining from offering a lower price.

Neither choice is consistent with the policy and purpose

of the nation’s antitrust laws. The prosecution adduced

no evidence, as was its burden, to show that defendants

had no lawful purposes for verification. On the contrary,

the evidence overwhelmingly establishes the legality of

defendants’ purposes.

In 1971, a federal court explicitly found that price

verification by gypsum wallboard manufacturers for pur-

poses of Robinson-Patman Act compliance and prevention

of customer fraud was lawful and, even in that civil case,

was not a Sherman Act violation. Wall Products Co. v.

National Gypsum Co., 326 F. Supp. 295, 312-15 (N. D.

Cal. 1971). Two years later, however, after it was appar-

ent that the Wall Products holding would not be appealed,

the prosecution instituted this criminal proceeding charg-

ing that defendants’ verification constituted a criminal

Sherman Act violation. Despite the 1971 holding that

verification, in the gypsum industry, was lawful, a prin-

cipal basis expressed by the government for the 1973

Indictment of the individual defendants was their “au-

thorization of price verification” (Ev. H. DX Q-39).

Before trial commenced, the court below expressed

the view that the “complex, portentious” verification issue

“raises profound policy questions which go to the heart of

trade regulation in this country.” United States v. United

States Gypsum, 383 F. Supp. 462, 467 n. 5 (W. D. Pa.

1974). During trial, the prosecutor referred to verification

as the policing mechanism or the connecting thread of the

claimed conspiracy (See, e.g., Tr. 210-11; 221-22; 244-45;

248). Since trial, the chief prosecutor has urged publicly

that the Robinson-Patman Act and the Sherman Act con-

flict and are “antithetical.” BNA, Antitrust Trade Reg.

Repts., No. 742 (12/9/75, p. A-21). Notwithstanding the

28 Argument

pivotal importance of the verification issue, the trial court

approached the subject with a mind set hostile to defend-

ants’ position. During trial, he informed defense counsel

that, in his view, even good faith compliance with the

Robinson-Patman Act could well constitute a violation of

the Sherman Act ( Tr. 6041-43; Tr. 7763; 3930a-3932a, Tr.

14,923-25). And, he instructed the jury to presume that

defendants intended to fix prices, regardless of their actual.

legitimate purposes, if the effect of verification was to

stabilize prices (3884a-3885a, Tr. 14,858-59). In these

and other instances, which we will point out, the trial

court communicated its firmly held view that compliance

with one antitrust law is a criminal violation of another

antitrust law.

Recognition of the lawful character of defendants’

verification vitiates the core of the prosecution's case and

makes plain defendants’ entitlement to acquittals. Con-

sequently, the verification issue is treated first.

A. The Sherman Act Permits Competitors to Verify

Reported Lower Prices or More Favorable Terms

of Sale in Order to Comply With the Robinson-

Patman Act or to Prevent Customer Fraud.

Verification by competitors of customers’ claims of

more favorable competitive offers does not violate the

Sherman Act when done for the purpose of comnlving with

the Robinson-Patman Act or to protect against customer

fraud. Belliston cv. Texaco, Inc., 455 F. 2d 175 (10th Cir.

1972 ). cert. denied 408 U.S. 928 (1972); Gray v. Shell Oil

Co., 469 F. 2d 742 (9th Cir. 1972), cert. denied 412 U. S.

943 1973); Webster v. Sinclair Refining Co., 338 F. Supp.

245 S$. D. Ala. 1971); Wall Products Co. v. National Gyp-

sum Co. supra, 326 F. Supp. 295; Di-Wal, Inc. v. Fibre-

boar! Corp.. CCH 1970 Trade Cases € 73,155 (N. D. Cal.

1970. These cases apply established antitrust principles

Argument 29

first adopted by the Supreme Court in Maple Flooring

Mfrs. Ass'n v. United States, 268 U. S. 563 (1925); and

Cement Mfrs. Protective Assn v. United States, 268 U. S.

588 (1925). and specifically approved thereafter.

The Maple Flooring case involved an express agree-

ment between competitors to exchange information regu-

larly, including actual prices (268 U. S. at 566-67). The

Supreme Court upheld the propriety of such exchanges of

competitive information, notwithstanding their stabilizing

effect on prices (268 U.S. at 582):

“Persons who . . . report market prices, are not en-

gaged in unlawful conspiracies in restraint of trade

merely because the ultimate result of their efforts may

be to stabilize prices or limit production through a

better understanding of economic laws and a more

general ability to conform to them, for the simple

reason that the Sherman Law neither repeals eco-

nomic laws nor prohibits the gathering and dissemina-

tion of information” (268 U. S. at 584).

The Court held that the “prices at which the commodity

has actually been sold in the usual course of business” are

“legitimate subjects of enquiry and knowledge in any in-

dustrv” (268 U. S. at 585).

In Cement Mfrs. Protective Ass'n v. United States,

268 U. S. 588 (1925), the Court extended Maple Flooring

by holding that reciprocal communications between com-

petitors of the prices at which cement was sold under

“specific job contracts” were permissible under the

Sherman Act even where they related to specifically

identified jobs and customers.” Such exchanges were ap-

21. A universal practice in the cement industry was use of the

“snecitic job contract.” a requirements contract which gave the

bu: er an option to obtain at the quoted price as much cement as

necessarv to complete the specific job. Because it was common for

mL |

30 Argument

proved, despite the trial court’s express finding that they

“tended to produce uniformity in price” (268 U. S. at 593),

because their purpose was to protect against buyer fraud:

“. . . [I}n our view the gathering and dissemination

of information which will enable sellers to prevent

the perpetration of fraud upon them, which informa-

tion they are free to act upon or not as they choose,

cannot be held to be an unlawful restraint upon com-

merce, even though in the ordinary course of business

most sellers would act on the information. .

“ . | [W]e cannot regard the procuring and dissem-

ination of information which tends to prevent the

procuring of fraudulent contracts or to prevent the

fraudulent securing of deliveries of merchandise . .

as an unlawful restraint of trade even though such

information be gathered and disseminated by those

who are engaged in the trade or business principally

concerned.” (268 U. S. 603-04, emphasis added).

Later, in Sugar Institute v. United States, 297 U. S. 553,

602-04 (1936), where a price-fixing conspiracy had actually

been proved, the Court similarly approved the relay of

“current or future prices” among competitors by striking

a prohibition on such exchanges from a lower court's

decree. “Such reporting . . . .” the Court said, “subject

to the restrictions imposed by the decree does not appear

to involve any unreasonable restraint of competition.”

21. (Cont'd. )

buvers to order more cement under such a contract than could be

used on the job involved, thus Gating Se benefit of the lower

contract price, cement manufacturers exchanged information to pre-

vent such deliveries from being used on other jobs not cov by

the contract (268 U. . at + ). fee a 5 and its underlying

purpose are precisely analogous to * rice protection

rezister established by USG in 1965 and USG’s alhond to oa

).

itself against customer fraud. (See supra at 20; see infra at

Argument 31

These Supreme Court decisions were followed in Tag

Mfrs. Institute v. FTC, 174 F. 2d 452 (1st Cir. 1949).

There, the court held lawful regular transaction price

exchanges by which the Institute,

“sends out to all Subscribers daily bulletins . . . re-

cording thousands of these off-list transactions each

month, showing the name of seller, descriptions of the

tag products, quantity, list price, actual price of the

particular off-list transaction, and the state where the

customer is located .. .” (174 F. 2d at 457).

The Tag Mfrs. Institute decision specifically determined

that (1) compiling and disseminating published list prices

and off-list actual transaction prices was permissible, even

though examination of that information by competitors

“will give a quite accurate picture of the current price

structure in the industry” (174 F. 2d at 458), and (2) such

exchanges were lawful even where there was “considerable

uniformity” of list prices and actual selling prices in the

industry (174 F. 2d at 460).

The trial court here seemed to believe that these au-

thorities had been implicitly overruled by the Supreme

Court’s decision in United States v. Container Corp. of

America, 393 U. S. 333 (1969). The short answer is that

the Container decision itself cites Maple Flooring and

Cement as authoritative and that, quite recently, the Court

has again contu::.ed the continuing vitality of Maple Floor-

ing and Cement by favorably citing each case in Goldfarb

v. Virginia State Bar, 421 U. S. 773, 782 (1975), reh.

denied, — U.S. -.

As Container itself makes clear, exchanges of price

information for legitimate purposes are not proscribed,

even if the exchanges result in a stabilizing effect on prices

393 U. S. at 335). As the concurring opinion of Justice

32 Argument

Fortas makes explicit, Container did not create a per se

rule equating agreements to exchange specific price in-

formation with price-fixing agreements (393 U. S. at 338-

339 ).** Container found the decision in Cement inap-

plicable because, in Container, “there was absent the

controlling circumstance, viz., that cement manufacturers

exchanged price information as a means of protecting their

legal rights from fraudulent inducements to deliver more

cement than needed for a particular job” (393 U. S. at

335). Thus Container reaffirmed the legality of exchang-

ing specific price information for the purpose of protecting

one’s “Iggal rights” and preventing customer fraud.”

The additional issue of the legality of Robinson-

Patman verification was not presented in Container, since

the defendants there did not claim that their exchanges

were for the purpose of complying with the Robinson-

Patman Act, nor could they have.** Post-Container deci-

22. In Goldfarb, the Supreme Court cited favorably Justice

Fortas’ dpinion in Container (421 U. S. at 782). Lower courts

have subsequently recognized that Container did not create a per

se rule. See Treasure Valley Potato Bargaining Ass'n v. Ore-IDA

Foods, Inc., 497 F. 2d 203, 208 (9th Cir. 1974), cert. denied, 419

U. S. 999 (1974); Belliston v. Texaco, Inc., 455 F. 2d 175 (10th Cir.

1972), cert. denied, 408 U. S. 928 (1972): and United States v.

Wohl Shoe Company, 369 F. Supp. 386, 389 (D. N. Mex., 1974).

The absence of a per se rule involving price exchanges calls into

— question the prosecution's decision to attack Robinson-Patman

verification by proceeding criminally.

23. Confirming the absence of a legitimate purpose for the ex-

changes in Container, the majority placed principal reliance on two

price-fixing decisions where express agreements existed: both the

purpose and effect of the agreements was to suppress competition;

and the agreements extended far beyond the cakes of price in-

formation. American Column & Lumber Co. v. United States, 257

U. S. 377, 411-412 (1921); United States v. American Linseed Oil

Co., 262 U. §. 371, 390 (1923).

24. In Container, the products were not of “like grade and

quality.” thus making the Robinson-Patman Act inapplicable.

There. defendants were frequently beating competition — not just

re oting it. See United States v. Container Corp. of America, 273

F. Sunp. 18, 22 (M. D. N. C. 1967); Note, 25 Baylor L. Rev. 357,

364 (1973); 15 USC § 13(b). On appeal, the Container defendants

Argument 33

sions, however, expressly hold that exchanges of price in-

formation to verify customers’ doubtful claims of more

favorable competitive offers are lawful. Gray v. Shell Oil

Co., supra, 469 F. 2d 742; Belliston v. Texaco, Inc., supra,

455 F. 2d 175; Webster vc. Sinclair Refining Co., supra,

338 F. Supp. 248; Wall Products Co. v. National Gyp-

sum Co., supra, 326 F. Supp. 295. These decisions embody

two principles: (1) for a seller to establish a good faith

meeting of an equally low price of a competitor under

Section 2(b) of the Robinson-Patman Act, independent

investigation or verification of customer reports of lower

competitive prices is required and (2) when such verifica-

tion is the purpose of such exchanges, they do not violate

the Sherman Act.

1. The “Meeting Competition” Defense Requires

Independent Investigation or Verification

of Customers’ Claims.

A seller bears a heavy burden in establishing a “meet-

ing competition” defense under the Robinson-Patman Act.

In FTC v. A. E. Staley Company, 324 U. S. 746 (1945), the

Court found a seller's failure to investigate or verify prices

precluded the seller’s reliance on the “good faith” meeting

competition defense:

“The facts as stipulated were only that the discrimina-

tions were made in response to verbal information re-

ceived from salesmen, brokers or intending purchasers,

without supporting evidence, to the effect that in each

case one or more competitors had granted or offered

to grant like discriminations.... The record . . . dis-

24. (Cont’d.)

mentioned Robinson-Patman once to illustrate why a per se rule

rohibiting exchanges of price information would be unwise ( Brief

or Appellees, pp. 42-43). However, sum board is basically

homogeneous and generic in nature (610a-61lla, Tr. 1859-60; 3104a-

5a. Tr. 12,115) and, therefore, is a commodity of “like grade and

Sealy” within he meaning of the Robinson-Patman Act.

34 Argument

closes no efforts by respondents to investigate or ver-

ify them, and no evidence of respondents’ knowledge

of their informants’ character and reliability . . .” (324

U. S. at 758, emphasis added).

Thus, reports of lower prices from salesmen or buyers,

without further verification, are insufficient to carry the

burden of proof imposed by Section 2(b). See also Corn

Products Refining Co. v. FTC, 324 U. S. 726, 741 (1945).”

This Court’s opinion in Viviano Macaroni Co. v. FTC,

411 F. 2d 255 (3rd Cir. 1969), summed up the stringent

requirements of investigation and verification of the “meet-

ing competition” defense which the Federal Trade Com-

mission had been enforcing vigorously and consistently

throughout the 1960’s.* In Viviano, the unreliability of

customer reports as a basis for establishing the “meeting

competition” defense was emphasized. There, although

an established and reliable customer had personally told

the supplier of offers of advertising allowances from a

competitor, the Commission disallowed the defense. Al-

though sympathizing “with the difficulty facing petitioner

in finding precise information as to the identity of the

competitors and the amount of the offers” (411 F. 2d at

25. One commentator has observed that the courts require a

defendant a “meeting competition” defense to establish

“an elaborate plan aimed at determining the of

the offeror of a given lower price and, if possible, the exact offer.”

Eaton, The Robinson-Patman Act: Reconciling The Meeting Com-

— ano (i013) With The Sherman Act, 18 AntiTRUsT BULLETIN

26. See, e.g., National Dairy Products Corp. v. FTC, 395 F. 2d

517, 524, 528-29 (7th Cir. 1968), cert. denied, 393 U. S. 977 (1968);

Forster Manufacturing Co. v. FTC, 335 F. 2d 47, 54-56 (Ist Cir.

1964). cert. denied, 380 U. S. 906 (1965), after remand, 361 F. 2d

340 ( Ist Cir. 1966). In Forster, the court emphasized that a seller

cannot establish the “meeting competition” defense by relying only

on customer reports of lower price offers since the buyer wants to

huy as cheaply as he can and, therefore, is induced to misrepresent

competitive oon (335 F. 2d at 56).

Argument 35

259), this Court, stressing the seller's need for facts beyond

those orally reported from buyers, affirmed the Commis-

sion’s order.

“We think that it is clear from the Supreme Court

opinion in Staley that petitioner was under a duty to

investigate or verify the oral communications of [the

customer] as well as the reliability of [the customer]

himself in view of the ‘tendency of buyers to secure

the most advantageous terms of sales possible’ (411

F. 2d at 259, emphasis supplied ).

Similarly, this Court held that petitioner had failed to sat-

isfy the requirements of the “meeting competition” defense

as to other discriminatory concessions, even though those

concessions had been based upon intimate familiarity with

the particular market gained by a salesman with 18 years

experience (411 F. 2d at 259).

Thus, under Staley, Viviano, and other decisions

applying the Robinson-Patman law, a seller desiring to rely

on the good faith meeting competition defense in lowering

its prices must affirmatively verify the accuracy of any re-

ported lower price and caunot rely merely on statements

of customers or salesmen as being adequate. Absent actual

competitive invoices or written quotes, the only source

for such verification may well be the competitor who re-

portedly offered the lower price.

2. Verification of Prices With Competitors in

Good Faith Compliance With the Robinson-

Patman Act Is Not a Sherman Act Violation.

Because of the heavy burden on sellers in satisfying

the Robinson-Patman “meeting competition” defense, veri-

fication of prices or terms among competitors in a good

faith effort to comply with that defense cannot be held to

36 Argument

be a Sherman Act violation. Attempted good faith com-

pliance with the Robinson-Patman Act thus is considered

a “controlling circumstance” permitting exchanges of price

information under the Container and Cement decisions.

In Belliston v. Texaco, Inc., 455 F. 2d 175 (10th Cir.

1972), cert. denied, 408 U. S. 928, the court considered a

claim by service station operators that Container con-

demned direct exchanges of price information among

major oil companies relating to gasoline prices in the Salt

Lake City area. The trial court had directed a verdict for

plaintiff operators on the ground that attempted Robinson-

Patman compliance was not a defense to a Sherman Act

charge.*” The Court of Appeals reversed and directed the

entry of judgment for defendant, holding that the asserted

Robinson-Patman justification was sufficient as a matter of

law to preclude any finding of a Sherman Act violation.

The court reasoned that defendant could not be penalized

under the Sherman Act for attempted compliance with the

Robinson-Patman Act, since verification with competitors

was necessary to satisfy the latter Act:

“By seeking verification Texaco was simply complying

with the requirements laid down in . . . Staley... .

That is, Texaco was attempting to confirm the reports

of its retail outlets that their competitors had lowered

their prices. This much would be necessary before

Texaco could lower its prices and still be within the

‘meeting competition’ defense. . . . We hold that

the judgment awarded under this count must be set

aside” (455 F. 2d at 182).

27. The same faulty reasoning was utilized by the trial court

here. which made clear its erroneous belief that “. . . if it

verification] is done for the purpose of a defense to Robinson-

Patman but it violates the other section [the Sherman Act] that's a

veolvtion of the law” (3930a-393la, Tr. 14,923-24). (See infra at

-* =

S

Argument 37

The same result reached in Belliston, a civil case, should

obtain here in a criminal prosecution.

The Belliston decision explicitly relied on the Ninth

Circuit's similar holding in Gray v. Shell Oil Co., 469 F. 2d

742 (9th Cir. 1972), cert. denied, 412 U. S. 943 (1973),

that exchanges of price information are not per se unlawful

under Container. In Gray, the court went on to hold that

judgment must be entered for defendant when the defend-

ante punpese to vertiytng & to comply wi Go Retinne

Patman Act (469 F. 2d at 747).

In Wall Products, which, of course, dealt with the very

industry and issue under consideration here, Judge Zirpoli

found the exchange of price and other information be-

tween defendants lawful because such exchanges served

two legitimate purposes: protection against customer

fraud, and compliance with the Robinson-Patman Act. As

to buyer fraud, Judge Zirpoli relied on the Cement decision .

and the Supreme Court's confirmation of the Cement

rationale in Container. As to Robinson-Patman com-

pliance, Judge Zirpoli reasoned that it too was a “lawful

purpose” for exchanges of price information and that at-

tempted compliance in good faith with one federal anti-

trust law cannot lead to the violation of another (326

F. Supp. at 312-315). Judge Zirpoli held that the presence

of these purposes for gypsum industry verification pro-

duced “controlling circumstances” which had been “absent

from Container.”

In Webster wv. Sinclair Refining Company, 338 F.

Supp. 248 (S. D. Ala. 1971), the district court found direct

verification between competitors to be lawful, citing Wall

Products, and Container:

_. . Such verification is not in violation of 15

U.S.C. A. § 1 if there is present a ‘controlling circum-

stance’ as required by United States v. Container

38 Argument

Corporation, . The lawful purpose

02 4 —— of

oat in good faith as required by the Robinsons

Patman Act is clearly present here and constitutes a

controllin g circumstance’ as required by Container

supra (338 F. Supp. at 251-52).

Like Belliston, the Gray, W cases

elliston, y, Wall Products, and

were civil Sherman Act cases. Their pi pee a

fortiori in a criminal prosecution under the same statute.

B. The Verification Issue Should N Been

Submitted to the Jury. aa

Under the holdings of the foregoing cases

. . the 4

—_— regarding defendants’ verification aa sane ty,

— to be used as a predicate for finding a Sherman

ne 1 ation. The prosecution was required to prove

beyond a reasonable doubt that defendants had engaged

in verification (a) for unlawful purposes, that . r

reasons excluding either Robinson-Patman Act com lie cS

or avoidance of customer fraud, (b) pursuant to ae “ne

-_ Lape , into the statutory period after ew wl

s — and (c) which had a stabilizing effect on prices.

= Pp po s burden was not met, and the verification

ue should not have been submitted to the jury.”*

. Lawful Purposes of Verification. The prosecution it

se recognized that, under Container, it had the burde to

— beyond a reasonable doubt “that the se f

. [verification] exchanges was for reasons other "on

Feng compliance with the Robinson-Patman Act”

vt. Req. 15c¢ (4158a-4167a ); see also Bill of Particulars

p. 197). But the prosecution's evidence overwhelmingly

28. Def. Reg. Final Inst. 26 (4095a), which the trial j |

refused to give (3748a-374 would - "

verification issue from the aA. 3. =

Argument 3g

demonstrated that verification occurred to assure compli-

ance with the Robinson-Patman Act and to protect against

customer misrepresentation. These legitimate purposes—

“controlling circumstances” which were “absent” in Con-

tainer—require acquittal on the verification issue as a

matter of law. Belliston v. Texaco, Inc., 455 F. 2d 175

(10th Cir. 1972), cert. denied 408 U. S. 928 (1972).

Virtually every prosecution witness who testified

about the purposes of verification established overwhelm-

ingly that those purposes were fraud protection, Robinson-

Patman Act compliance, or both. From USG, Bear cited

both fraud protection and Robinson-Patman compliance

(590a-591la, Tr. 1648-50), while Gimlin mentioned the

Robinson-Patman Act (1179a-1182a, Tr. 3587-92). Drafts

of USG's 1962 statement of company policy permitting

verification expressly referred to the Robinson-Patman Act

and the need to comply with it as lawful reasons to contact

competitors (2079ex-2086ex, USG 759). From National,

Atwell testified that he verified in those situations where

he had serious doubt about the veracity of the customer

and to protect National against illegal price discrimination

(1651a-1653a, Tr. 5988-90 2 Atwell’s testimony was sub-

stantiated by contemporaneous documents corroborating

his consultations with outside counsel about Robinson-

99. The infrequency with which Atwell verified, when com-

pared to the substantial number of pricing transactions he had to

act on, is graphically demonstrat by a survey which he con-

ducted for the year 1965. In that year, when more requests to

meet competition were verified with competitors than at any other

time—between 0-6 requests per week—his department processed

40.000 requests to meet competitive offers of lower prices and “P-

he

penne y 80% of those requests were @ proved (1650a-165la, Ir.

ys6-S7). Even at six requests 4 week that vear, or 300 times,

would have verified less than 1 of the 32,000 requests which were

approved To the same efect. see the testimony of: Webster of

Sc comal (1747a-1748a, Tr. 6374); Burch of G-P ( Tr. 5336-38); Hill

ot Celotex (1793a, Tr. 662>); Galvin of USG (2146a-2147a, Tr.

&& 4-03). and Fisch of Celotex 3037, Tr. 11,710).

EL S........eeeaE .

40 Argument

Patman Act compliance (1664a-]

From G-P, Burch verified because ees

the Robinson-Patman Act and to ensure G-P was not mis-

led by customers (141la-1412a, Tr. 5273); Sikes verified

because of G-P’s policy to avoid price discrimination

am. Tr. 5645-47); A. L. Meyer pointed to the

. to ascertain customer truthfulness (1480a-1481a,

r. 5532-33 ); and McCaskill cited both Robinson-Patman

mee and fraud protection (1289a-1290a, Tr. 4380:

1528-13314, Tr. 4647-49). Jarrett of Celotex stated that

company verified to protect against a price discrimi-

nation charge ( 2033a-2034a, Tr. 7473; 2038a, Tr 7486 ) .*°

Even the officials of small gypsum producers acknowl-

edged that Robinson-Patman Act compliance and protec

tion from lying customers were the reasons for —atiiete,

Van Cleve of Texas Gypsum and Simpson of Re ublic

Gypsum identified both prevention of price edi

| 1847a, Tr. 686C; 1849a, Tr. 6863; 185la-1855a, Tr 6880.

7 639a-640a, Tr. 1897) and customer fraud (1850a-

§52a, Tr. 6878-80; Tr. 2284-85). Montgomery of Repub-

lic Gypsum relied on the need to determine the truth f

customer reports of competitive situations (1732a-1734a,

Tr. 6314-15). Simpson and Montgomery of Republic,

30. Similarly, Webster, a fo :

useqpenty when he did not = op Ae “porte >

a — — ( 1746a-1748a, Tr. 6372-74). Frederi who hed

AK, sponsi — for gypsum products at G-P after April. 1967 :

SS Sue Sh ene re ere

counsel Tr. 5200-01) to be curtain Ast SY : ‘nae

~ pricing were a matter of fact (1400a, Tr 5204). Goddard of

elotex. who did not verify after August 1967 testifi ~

mony oceasions he received legal advice concerni “I yt —

. copention of the Robinson Patman Act and the r ~

pan Act with respect to not discriminatin between Gilieeens

pastennens AS823a-1$24a, Tr. 6800-01). Hill of Celotex was dvised

by comipaay counsel that verification was legal, pennies

(1793a-1795a, Tr. 6622-24 tial _—

Argument 41

who were complaining witnesses for the prosecution, were

neither defendants nor alleged co-conspirators despite

their own verification. Simply put, all of these prosecution

witnesses proved the lawful character of defendants’

verification.

Similarly, the defense witnesses, including each of the

individual defendants, confirmed the legitimate purposes

for defendants’ verification, citing the reasons of Robinson-

Patman compliance or fraud protection, or both.”

The evidence tendered by the prosecution and con-

firmed by the defense did not, as in Container, show ab-

sence of a “controlling circumstance.” ** Quite the contrary,

it showed the unreliability of customers’ claims of lower

competitive offers and, further, that when defendants veri-

fied they were, in compliance with Staley and Viviano,

attempting to confirm customers’ claims for which ade-

quate substantiation was not otherwise available. This

glaring deficiency in the government's case pertains to de-

fendants’ verification in both the pre-statutory and the

statutory periods, alike. As to either period, under

Belliston and the other post-Container decisions, the veri-

fication issue should not have been submitted to the jury.

31. See the testimony of Galvin of USG (2145a-2147a, Tr.

8903-05); Hayes of National (255la-2552a, Tr. 10,374); soommese

(2977a-2987a, Tr. 11,528-42) and Fisch of Celotex (Soda a,

Tr. 11.704-08) and the individual defendants: Watt (3234a-3235a,

Tr. 12,680-81); Nicely (3402a-3403a, Tr. 13,028); and Brown

(3564a-3565a, Tr. 13,267-68 ).

32. The prosecution en a few competitive contacts—

all in the pre-statutory period—regarding fic pricing situations.

These were not shown to be “verifications, except one which was

described as such by a prosecution witness (12 -1246a, Tr. 3905;

376ex-38 lex, GX 37 i ). Even assuming one or more of these few con-

tacts were “verifications,” they were far too limited in time, locale

and scope to permit an inference that verification contacts gen-

erally, and especially the few in the statutory period, were for other

than legitimate purposes.

42 Argument

No Agreement To Verify After 1968. The prosecution

also failed to establish any basis for an inference that de-

fendants had even an implied agreement to verify within

the statutory period. The uncontradicted evidence estab-

lishes that this essential element is lacking since each de-

fendant followed a different course with respect to verifica-

tion in the period after December 27, 1968.

USG stopped all verification on gypsum products in

the late spring of 1968, months before the commencement

of the statutory period. Andrew Watt testified that in the

spring of 1968, Baldwin recommended to Watt that

changed market conditions and competitive strategies

made verification unnecessary and that for business reasons

it be stopped on gypsum products (3238a-3239a, Tr.

12,686-87). After consultation with counsel, that recom-

mendation was adopted (3239a-3240a, Tr. 12,687-88).

Watt's testimony was confirmed by a principal government

witness, Rhyne Simpson, Jr., former president of Republic

Gypsum.** Simpson testified that Watt informed him that

USG was no longer verifying prices with anyone (86la-

862a, Tr. 2423) and placed his conversation with Watt in

the Spring of 1967, when Mr. Montgomery began verify-

ing at Republic (678a, Tr. 1966; 856a-857a, Tr. 2416).**

Following Container and after conferring with counsel,

33 Baldwin's testimony confirmed that Watt approved discon-

tinuing verification (2056a-2057a, Tr. 8170-71) and that Baldwin

stopped verifying himself in the Spring of 1968 (2052a-2053a, Tr.

8162-63). Watt's testimony was further confirmed by the testimony

of R. L. Wallace, who in succeeding Baldwin as USG's Director of

Marketing Policy in November, 1 Woe Tr. 8470-71), had

never made or received a verification call (2099a, Tr. 8479-80).

34. Montgomery testified for the prosecution that although he

verified beginning oe! in 1967, he never verified with anyone

from USG ( 1722a, Tr. 6288; 1723a, Tr. 6290; 1732a-1733a, Tr. 6314,

emphasis added ).

Argument 43

Watt issued a memorandum directing that verification be

stopped on all other USG products (324la-3244a, Tr.

12,691-93; 96ex, GX 23). Thus, the prosecution's own

evidence establishes that by the spring of 1968, USG | the

largest wallboard producer) had entirely ceased verifica-

tion on gypsum products. There is no contrary evidence.**

As for National ( the next largest wallboard producer ),

the uncontradicted evidence shows that National stopped

verifying immediately upon learning of the Container deci-

sion in January, 1969, with three limited and unauthor-

ized exceptions:

(1) Webster, a former National employee called

as a prosecution witness, confirmed that on advice of

counsel National ceased verifying immediately after

Container was decided in January, 1969. He stated

that, on his own and without authorization, he had a

few price verification contacts with Flintkote during

the latter part of 1969. He had assumed verification

calls could be resumed because he received a call from

Flintkote. By the end of 1969 he had ceased entirely,

as directed by his superior (1747a-1750a, Tr. 6374-

76; 175la-1752a, Tr. 6392-96).

(2) Max Montgomery of Republic, a single-plant

producer, testified that he verified prices with Atwell

of National in the statutory period (1722a, Tr. 6288),

but only occasionally and only when he was not sure

35. One document suggests that in February, 1971 Celotex

initiated a single verification call to an unidentified person in USC's

Credit Department pertaining to a credit term to a ific account

(1102ex-1104ex, GX 1009). With the exception of this one lawful

but unauthorized response, there is no evidence that USG's 1968

decision not to verify was ever violated.

36. See the testimony of witnesses Atwell (1522a-1523a. Tr.

5674. 1635Sa-1659a, Tr. 6072); Kroth (1720a, Tr. 6280); Webster

(174Sa-1749a. Tr. 6375): Haves ( 2550a-255la, Tr. 10,371); Kent

(2415a. Tr. 9876); and Nicely (3410a-3413a, Tr. 13,039-42).

44 Argument

he was being told the truth by the customer as to

prices which the customer claimed had already been

quoted by a competitor (1726a, Tr. 6304; 1733a-

1734a, Tr. 6315).°* Atwell denied participation in any

verification contacts after counsel advised him to stop

in January of 1969 ( 1522a-1523a, Tr. 5673-74; 165Sa-

1659a, Tr. 6071-72).

(3) Jarrett of Celotex testified that he made one

verification call to someone at National in February.

1971 concerning credit terms to a specific account

( 2024a-2025a. Tr. 7429-30; 1117ex. GX 1017).

With these limited exceptions, the record discloses

that National did not verify at all after Container was de-

cided. Such evidence can hardly support findings that,

in the statutory period, National was party to an agree-

ment to verify or that the limited, unauthorized verifica-

tions which did occur were for purposes other than com-

pliance with the Robinson-Patman Act and prevention of

customer fraud.

The evidence regarding G-P’s verification contacts in

the statutory period is similarly insufficient to show its al-

leged participation in an agreement to verify. Its verifica-

tion contacts during those 5 years were minimal. When

Eugene Burch became G-P’s general sales manager (1285a-

37. In any event, Montgomery's testimony could not serve to

link National or any other defendant to any conspiracy. Neither

Montgomery nor Republic was named as a co-conspirator; rather,

it was the prosecution's contention that Republic was the target of

alleged conspiratorial activity, not a participant in it.

38. If one were to adopt the trial court’s mistaken view of

Container as bringing about a fundamental change in existing law,

then the evidence of pre-Container verification should neither have

been received nor submitted to the jury. Such a drastic change in

existing law may not be given retroactive application, as shown

infra at 3S. m. 52, and as explained more fully in the separate

briet ot appellant J. P. Nicely.

Argument 45

128S8a, Tr. 4366-69; 1479a-1480a, Tr. 5531-32), he verified

a total of 10 or 12 times from June of 1969 to early 1972

(1426a-1427a, Tr. 5336-39). None of these verification

contacts was with USG or National, the number one and

two companies in the industry ( Tr. 5260-62). Max Mont-

gomery of Republic testified that he made possibly four

calls to Burch, that Burch never called him, and that

he (Montgomery) ceased calling Burch because Burch

was not able to answer his questions (1734a-1735a, Tr.

6319-20). Rhyne Simpson of Republic testified that by

1968 he did not verify with G-P because it was obvious

that they were dropping prices (83la, Tr. 2315). Fisch of

Celotex was advised that it was uscless to attempt to verify

with G-P because the distribution center managers were

autonomous and had control of pricing ( 3037a, Tr. 11,710).

The only evidence of any additional verification contacts

by G-P in the statutory period pertained to two possible

credit verification calls by G-P to Kaiser and, by inference,

one to Johns-Manville in January, 1970 ( 12S5ex-12S7ex,

GX 1385-1387). The few G-P verifications during the

statutory period—none with either of the two leading pro-

ducers—cannot support any allegation that, as part of a

national conspiracy, it participated in any agreement to

verifv—much less a nationwide price-fixing agreement.

With respect to Celotex (the smallest of the defend-

ant manufacturers) Fisch, an assistant product manager,

testified that during the more than four vears from August,

1969 to November, 1973, while he acted on many thou-

sands of requests by Celotex salesmen to meet price com-

petition. he initiated “mavbe” six verification calls and

39. Mr. Sikes. who had participated in verification calls, left

G-P in March, 1967 (1493a-1494a, Tr. 5610-11). Mr. A. L. Meyer,

v bo had done some pre-statutory period verification but was not

a tyve with regard to the gypsum business after February, 1969, left

C.-P in July, 1969 ( 1477a-1478a, Tr. 5529). He testified that he did

: + recall making or receiving any verification calls in 1969, before

he left G-P (1479a-1480a, Tr. 5531-32).

46 Argument

received “maybe” seven or eight calls, all involving Grand

Rapids and Flintkote (3037a-3039a, Tr. 11,710-12). He

also testified that Donald Miller, Fisch’s superior, who

died in 1973, made about one verification call per month

during the 1969-73 period (3038a-3039a, Tr. 11,712).

Jarrett, Celotex’ credit manager, testified that he verified

until sometime in 1971 when he stopped based on a dis-

cussion with counsel (2012a-20l4a, Tr. 7413-14). The

evidence is undisputed that Celotex’ decision to continue

its limited verification in the statutory period resulted

from the advice of its counsel as to the scope of Container

and the verification requirements of the Robinson-Patman

Act (2984a-2987a, Tr. 11,538-42). No evidence was

adduced from which it may be inferred that Celotex veri-

fied because it had an agreement with its competitors to

do so, particularly in light of the evidence that its major

competitors were refusing to verify with Celotex.*

The scarcity of the sporadic verification contacts in

the statutory period, combined with the divergent courses

followed by each defendant based on advice of its

counsel,*’ preclude an inference of agreement to verify

within the statutory period. Unlike Container, there was

no agreement “to furnish price information whenever re-

quested” (393 U. S. at 335). Nor was there a “conscious

commitment to a common scheme” required in proving an

antitrust conspiracy. See Klein v. American Luggage

Works, Inc., 323 F. 2d 787, 791 (3rd Cir. 1963).

40. There was no evidence that the three individual defend-

ants verified in the statutory period. Colon Brown and Jay Nicely

never verified at all (3565a-3566a, Tr. 13,268; 3397a-339Sa, Tr.

13.022); Andrew Watt stopped verifying in the fall of 1967 (3234a-

3236a, Tr. 12,680.83).

41. As noted infra at 60-62, the adherence of the defend-

ants to the differing views of their respective counsel shows that

verification was not pursued because of any supposed agreement

but because defendants were striving to comply with the intricacies

of antitrust law by careful compliance with advice of counsel.

Argument 47

Absence of a Stabilizing Effect. The uncontradicted

economic evidence established a chaotic pricing structure

throughout the statutory period with widespread and di-

versified discounting off published list prices in all markets.

(See supra at 9-17). The few verification contacts

occurring in the statutory period * could not by any

stretch of the imagination be considered as having a

“stabilizing effect” on market prices when compared to

the hundreds of thousands of transactions which occurred

annually, including tens of thousands of authorized price

reductions.** With the largest producer having already

halted all verification by the beginning of the statutory

period and the second largest producer stopping (except

as noted) within less than a month thereafter, it is incon-

ceivable that the infrequent verification contacts of others

could have had anything more than a de minimis effect on

price levels. As to this element also, the prosecution failed

to prove by substantial evidence, as in Container, that the

“exchange of price information has had an anticompetitive

effect. . .” (393 U.S. at 337).*

42. For example, USG verified none of the more than 45,000

authorized price reductions in the statutory period (See 1986ex-

1989ex, USG 301-304).

43. See 1986ex-1989ex, USG 301-304; 2152ex-2154ex, NG 349-

44. For the pre-statutory period, the prosecution engaged in

semantic games by asking witnesses whether in their opinions, un-

_—— y any study, verification produced a stabilizing effect.

e prosecution witness answered negatively (Tr. 1504). An-

other prosecution witness answered affirmatively (1120a-112la,

Tr. 3343) and also testified that where verification disclosed the

falsity of the customer's reported claim, he could not lawfully lower

the price (1179a-118la, Tr. 3587-91). Other prosecution witnesses

testified that where verification disclosed the customer to be truth-

ful, the seller was then permitted to grant a lower price (See 1179a-

11Sla. Tr. 3587-91; 15lla-1512a, Tr. 5647; 185la-1854a, Tr. 6880-

82). It is recognized that the Robinson-Patman Act itself has a

stabilizing effect on prices by prohibiting discriminatorily low

rices and allowing sellers to “meet, not beat” competition. See

Reansted Remarks of Jonathan C. Rose, Acting Deputy Ass't Atty

Gen, Antitrust Division, before the Legal Committee of the

48 Argument

Since the prosecution failed to satisfy its burden of

proof in challenging defendants’ verification, that issue

should have been withdrawn from the jury. Instead, the

trial court submitted it under instructions which, ignoring

the evidence and the controlling authorities, created an

irrebuttable legal presumption and in effect directed a

verdict against the defendants.

C. The Trial Court’s Instructions to the Jury on the

Verification Issue Were Erroneous and Prejudicial.

Prior to trial, the court betrayed its fundamental con-

fusion of the controlling law by referring to a supposed

“dichotomy” between the Container and Wall Products

decisions (383 F. Supp. at 466-67 n. 5). Actually, those

decisions harmonize and —— no ~~ ng a

expressly recognized that exchanges of price informa

aa ioe a stabilizing effect on prices but still be lawful

where there is some “controlling circumstance,” such as

protection of legal rights against customer fraud, as in

Cement, or Robinson-Patman Act compliance, as in Wall

Products. The trial court’s mistaken view that Container

and Wall Products are contradictory led to its hostile rejec-

tion during trial and in its final charge of the defense posi-

tion that verification is lawful under such “controlling

circumstance[s].”

1. The Trial Court Prejudicially Mishandled the

Verification Issue During Trial.

Despite its pretrial recognition of the signal impor-

tance of the verification issue, the trial court rejected

rach eo f 19 (Oct. 29, 1975) (reported

Grocerv Manufacturers of America, p. . 29,

in part CCH Trade Reg. Rep. +202. Nov. 11, 107s, pe. 5-7). Veri-

fication obviously permitted the defendants lawfully to quote

fivures below those which would have been charged absent verifi-

cation.

Argument 49

defense requests for a preliminary charge on the Robinson-

Patman Act requirements necessary to balance its pre-

liminary explanation of the prosecution's contentions

(Tr. 153-54, 157, 18a, Def. Req. Prel. Inst. 18, Docket

Entry #160). Only after each defense counsel had ad-

verted to the Robinson-Patman Act in his opening state-

ment did the trial court give a cursory summation of the

Act, prefaced with the undermining comment, “That Act,

insofar as it now appears to me to have any relevancy to

the matter before you, provides . . .” (294a-295a, Tr.

407-08, emphasis supplied). Thereafter, during the trial,

the court threatened to receive inadmissible prosecution

evidence if just one defense counsel referred to the Robin-

son-Patman Act (Tr. 1040-44). And, the court informed

counsel that, in his view, a good faith effort to comply with

the Robinson-Patman Act would violate the Sherman Act

if verification were shown to have a stabilizing effect on

prices (3930a-3932a, Tr. 14,923-25; See also Tr. 6041-43;

Tr. 7763).

The court's contempt for defendants’ legal position

was even expressed to the jury during trial. One especially

damaging comment by the trial court came during the

testimony of Van Cleve of Texas Gypsum, a prosecution

witness. Before Van Cleve testified, at least seven prosecu-

tion witnesses had testified that they made their telephone

verifications to “meet competition” in compliance with the

Robinson-Patman Act or to prevent buyer fraud, or both.

On direct examination, Van Cleve testified that his supe-

rior, Mr. Armstrong, telephoned competitors,

“in an attempt to verify competitive information that

we had picked up in the field and in order for us to

45. See the testimony of witnesses Bear (590a-59la, Tr. 1648-

50): Simypson (639a-640a, Tr. 1897; 817a-81S8a, Tr. 2284.85). Gimlin

1174a-11$2a, Tr. 3587-92); McCaskill (1289a, Tr. 4380. 1329a-133]a.

Tr. 4647-49); Burch ( 14] la-1412a, Tr. 5273); Sikes (1510-15]2a. Tr.

5645-47, Atwell (165la-1653a, Tr. 5988-90).

50 Argument

fully determine if this was fact or . . . a false report”

( 1839a-1840a, Tr. 6849).

On cross-examination, Van Cleve testified that customers

“quite frequently” gave misleading or unreliable informa-

tion, and that verificativ:. calls were made to verify such

reports in accordance with the requirements of the

Robinson-Patman Act (185la-1854a, Tr. 6880-82). This

testimony was important to the defense since Van Cleve

was not au alleged co-conspirator and as an employee of

Texas Gypsum, was hostile to defendants. However, this

witness’ strong corroboration of defendants’ position was

utterly destroyed by the trial judge in a colloquy imme-

diately following:

“Q. Mr. Van Cleve, wasn't it your understanding

that, under these certain circumstances which you

have described, these calls to verify prices with com-

petitors by Mr. Armstrong would, under the law, allow

you to drop your price to meet that lower competitive

quote?

“Mr. Fricano: Objection. It is also repetition.

“THe Court: Well, you can say whether or not

that’s your impression.

“I read the Robinson-Patman Act to the jury and

it doesn't say anything about any telephone calls, but

go ahead” ( 1854a-1855a, Tr. 6883, emphasis added).

The court's mocking statement that the literal stat-

utorvy language of Section 2(b) of the Robinson-Patman

Act does not mention “telephone calls” was grossly mis-

leading, particularly in light of cases such as this Court's

decision in Viviano interpreting the requirements of the

Argument 51

“meeting competition” defense.“ With one sarcastic re-

mark, the trial judge bolstered the prosecution's case, im-

paired the credibility of testimony favorable to the defense,

and prejudiced the jury's view of all future testimony about

the legitimate reasons for defendants’ price verification

telephone calls.

2. The Final Charge Erroneously Equated the

Purpose of Defendants’ Verification With Its

Effect and Improperly Instructed the Jury

to Presume That the Verification Was for an

Unlawful Purpose.

Once the court had determined, contrary to defen-

dants’ requests, to submit the verification issue to the jury,

defendants were entitled to clear and correct instructions

as to the significance of the evidence.*’ Defendants sub-

mitted sound instructions on this key issue (Def. Req.

Final Instr. 20 (4090a), 26-33 (4095a-4100a) and Def.

Supp. Req. 15-21 (4212a-4214a)) which the court either

refused, summarily, or failed to charge (3748a, Tr. 13,758;

3787a-3792a, Tr. 14,007-14). In fact, defendants’ requests

included the precise verification instruction approved by

A criminal defendant is entitled to specific instructions on

his theory of defense if there is evidence to it and

—-* are made. United States o 413 F. 2d

52 Argument

the Ninth Circuit in Gray v. Shell Oil Co., 469 F. 2d 742

(9th Cir. 1972), cert. denied, 412 U. S. 943 (1973), but

that instruction was not given (see infra at 53-54, n. 49).

Instead, apparently without even preparing written in-

structions (375la-3752a, Tr. 13,763; 3917a-3918a, Tr.

14,906; 3974a-3978a, Tr. 14,982-85), the judge extem-

porized his final charge to the jury on the complex veri-

fication issue.“* In doing so, he committed wholesale

prejudicial error.

In glaring error, the court instructed the jury that,

regardless of their actual purposes, defendants must be

presumed, as a matter of law, to have intended to fix

prices if their verification had a stabilizing effect on prices.

“If vou decide that, if you decide this [verifica-

tion] was merely done in a good faith effort to comply

with the Robinson-Patman Act, then you could not

consider verification. standing alone, as establishing an

agreement to fix, raise, maintain, and stabilize prices,

as charged.

“However, if vou decide that the effect of these

exchanges was to raise, fix, maintain, and stabilize the

price of gypsum wallboard, then you may consider

these changes [sic] as evidence of the mutual agree-

ment or understanding alleged in the indictment to

raise, fix, maintain and stabilize list prices.

notes. but I that precise in i

until the Court Reporter who took the ch has transcri

of it. there is no way for me to read it” (Tr. 14,984; see

397 4a-3978a, Tr. 14,982-85). The verification instruction was there-

fore not repeated unti) the next day (Tr. 15,003-25).

Argument 53

“... If the effect of such exchanges was to raise,

fix, maintain or stabilize prices, then an agreement to

engage in such an exchange is a violation of the Sher-

man Act regardless of the specific purpose that the

parties to the agreement had in their minds. That is

because the Sherman Act does not require proof of a

specific purpose to restrain trade in order to establish

the offense.

“The law presumes that a person intends the

necessary and natural consequences of his acts.

Therefore, if the effect of the exchanges or pricing in-

formation was to raise, fix, maintain, and stabilize

prices, then the parties to them are presumed, as a

matter of law, to have intended that result” (38S84a-

3885a, Tr. 14,858-59, emphasis added).

As already shown (see supra at 26-48), where the

purpose of verification is either to comply with the

Robinson-Patman Act or to protect against customer fraud,

there is no Sherman Act violation, regardless of whether

verification occurred pursuant to an agreement or whether

verification had a stabilizing effect on prices. But the

jury was never instructed that verification was lawful if

done pursuant to a reasonable belief concerning the obli-

gations of the law in meeting competition.” Although,

49. The instructions which defendants had submitted, but

which the court did not charge, included Supplemental Fina! In-

struction sagnemien by Defendant Watt Regarding Verification

And The inson-Patman Act. It was taken directly from and

accurately paraphrased the civil instruction in Gray v. Shell Oil

Co., where the jury was instructed:

“. . . Thus, Shell could reasonably conclude that the antitrust

laws did require it to know or have reason to believe that a

competing, sappaies Dad somseed Ms price to Shell dealers com-

peting with the dealers of the other suppliers.

“If you find that Shell sought the information pur-

suant to its reasonable belief of the tions of the law to

54 Argument

initially, the jury was told that verification standing alone

would not violate the law if done to comply with the

Robinson-Patman Act, the court went on, erroneously

equating “effect” with “purpose,” to instruct that, regard-

less of defendants’ actual purpose, the jury should find a

Sherman Act violation if the effect of their verification was

to stabilize prices. But the errors did not end with the

instruction that evidence of lawful purpose could be dis-

regarded. Rather, they grew to constitutional proportions.

Incredibly, the trial court concluded its verification

charge by telling the jury it is “presumed, as a matter of

law” that defendants’ purpose in verifying was unlawful if

the effect of the verification was to stabilize prices. Both

the due process clause and the guarantee of a trial by jury

flatly preclude a “presumption of guilt” by presuming a

central element of the criminal offense charged. See

Barnes v. United States, 412 U. S. 837, 843 (1973); Com-

monwealth wv. DiFrancesco, 329 A. 2d 204, 207-10 (Pa.

1974); Commonwealth v. Turner, 317 A. 2d 298, 299-300

(Pa. 1974). Cf. In re Winship, 397 U. S. 358 (1970).

Similarly, reliance on an irrebuttable presumption is un-

constitutional when its effect is to preclude consideration

of evidence establishing a defense in a criminal] prosecu-

tion. United States v. Bowen, 414 F. 2d 1268, 1273 (3rd

Cir. 1969). By instructing the jury in this case that de-

fendants are “presumed, as a matter of law” to have in-

tended to stabilize prices, the trial court in essence directed

a verdict against defendants on the central issue in this

criminal prosecution.

49. (Cont'd. ) , _ —

“Ary > took _ h—— which these

plaintiffs can recover damages for Shell's seeking to obtain

aan ae information” (Jones v. Shell Oil Co., Civ. No. 47261,

N. D. Cal.), affirmed sub nom. Gray v. Shell Oil Co., supra,

469 F. 2d at 747).

Argument 55

Quite apart from constitutional infirmities, the trial

court's equation of “effect” with “purpose” collides with

Cement, Container, and all post-Container decisions. In-

deed, it even runs counter to the prosecution’s requested

instructions on this point.” In gist, the court’s charge

instructed the jury to disregard evidence of lawful purpose

as irrelevant if it found verification had a stabilizing effect

on prices. Its consequence was to make all exchanges of

price information which may have a stabilizing effect on

prices, per se price-fixing agreements in violation of long

established Supreme Court precedent to the contrary.

Compounding the erroneous instruction that price ex-

changes which have a stabilizing effect on prices are pre-

sumptively for an unlawful purpose, the trial court gave a

homely and extremely prejudicial “illustration” of what is

meant by a price-fixing agreement. In substance, the

illustration told the jury that price-fixing occurs when price

information is exchanged:

“I guess I could sum it up by saying Macy’s can’t

tell Gimbels; but, if Macy’s wants to follow Gimbels

and charge the same prices Gimbel’s do [sic], there

is nothing wrong with that, unless there is an agree-

ment to do that (3877a-3878a, Tr. 14,850).

Thus, the jury was told, in effect, “USG can’t tell National.”

Even after vigorous objection, the trial court refused to

50. Gov't Req. 15ce (4158a-4167a) read, in pertinent part:

“However, if you find that the purpose of these exchanges was

for reasons other than to ensure compliance with the Robinson-

Patman Act, then you may consider these exchanges as evi-

dence of the mutual agreement or understanding alleged in

the indictment to maintain or stabilize prices.”

The second graph of the portion of the court’s charge quoted

at page 52 hove virtually tracks the government's —~ 4 ) me

for the key words. In place of the prosecution's woth, which we

have italicized, the court completely changed the meaning by sub-

stituting

“that the effect of these exchanges was to raise, fix, main-

tain, and stabilize the price of gypsum wallboard.”

56 Argument

explain the lawful circumistances under which “Macy's

can tell Gimbel’s.” ®

The errors in the court's verification charge were

promptly challenged by defense objection (3915a-3917a,

Tr. 14,902-905; 3924a-3925a, Tr. 14,914-915; 392Sa-3930a,

Tr. 14,920-921; 3930a-3932a, Tr. 14,923-925 ), but these ob-

jections were brusquely turned aside by the trial court,

with an unseemly threat to compound its error and an

invitation to seek the review of this Court:

“Mr. McSweeney [Celotex Counsel]: . . . And

in that connection I also object to the charging in that

it said if the effect of verification was stabilization,

then there can be conspiracy regardless of the purpose

of the verification; whereas the law is that if the pur-

pose is compliance with the Robinson-Patman Act,

even if that should bring about an effect of stabiliza-

tion, it is not illegal.

“Tue Covrt: That is not, so far as I am con-

cerned, the law at all, and I am not going to charge

that way. In other words, I think if it violates both

sections, if it is done for the purpose of a defense to

Robinson-Patman but it violates the other section,

that’s a violation of the law. I didn’t charge that way.

I will if you wish.

“Mr. McSweeney: No. Of course, I would net

want that, because I don’t consider that the law.

“Tue Court: Now when you raise that kind of

thing I tried to avoid saying that. But if you wish, I

will say it.

51. This careless instruction given without prior notice empha-

sizes the error invited by the trial court in refusing to prepare a

written charge and in extemporizing in a case of this length and

complenity.

Argument 57

“Mr. McSweeney: Well, Your Honor, I certainly

do not wish that.

“Tue Covrt: Well, you say I am wrong the way

I said it. Now if you want me to, I will say it exactly

the way I think is right. I tried to avoid making that

kind of harsh statement, but I will say it if you want

me to.

“Mr. McSweeney: I do not want you to say that.

“Tue Court: You are raising it; aren't you?

“Mr. McSweeney: I don’t want you to say it,

Your Honor. I say what I think the law is. I think

the law is quite the contrary. We apparently have

a difference of view of the law.

“Tue Covrt: We sure do.

“Mr. McSweeney: Yes, we do.

“Tue Covrt: That's all right. There is nothing

wrong with that. You can disagree with me.

“Mr. McSweeney: But Your Honor shouldn't

ep

“Tue Covrt: I am merely saying that if you

want me to state my thoughts on the matter quite

clearly, so that a reviewing authority can review it

if they want to, I will do it. My thoughts are that if

it violates the Sherman Act, even though it is done

for some other purpose... .

“Mr. McSweeney: I don’t want to provoke Your

Honor into giving an instruction which I consider

wrong. 1 would consider if you did that it would be

error.

58 Argument

“Tue Covrt: You consider the way I do it error,

too” (3930a-3932a, Tr. 14,923-25).

The trial court's adamance that good faith compliance with

one antitrust law can violate another plainly led to its

faulty charge on the principal issue in the case. Clear

error of extraordinarily prejudicial character was com-

mitted requiring vacation of the judgments below.

3. The Trial Court Did Not Adequately Instruct

the Jury Concerning Defendants’ Right to

Protect Themselves Against Customer Fraud.

The trial court’s final instructions omitted any refer-

ence to verification being lawful if done to protect against

customer fraud. See Cement Mfrs. Protective Ass'n vt.

United States, 268 U. S. 588 (1925). Thus, despite de-

fendants’ requested instructions,” the extemporaneous de-

livery of the charge resulted in a central element of the

defense being simply forgotten by the trial court.

When this significant omission was called to the

court's attention, after the charge had been completed

(3930a-393la, Tr. 14,923), the court did not correct the

52. Even if the trial court felt Container changed the law of

Cement, defendants were entitled to an instruction that pre-

Container evidence of verification could not be considered against

any defendant. Two such instructions were tendered but refused

41S7a, Watt Supp. Req.; 4195a, National Supp. Req.). Sucn a

damental! change of law, had the change quoutenl, Goasty would

have to be limited to re application only. See Bouie ct.

City of Columbia, 378 U. §. 347, 352-54 (1964); United States ex

rel. Clark v. Anderson, 302 F. 2d 1080, 1083 (3rd Cir. 1974). This

PP hic ‘ discussed more fully in the separate brief of appellant

. P. Nicely.

53. See Def. Req. Final Inst. 29 (4097a-409Sa) and Def. Supp.

Req. 16 (4212a) and 19 (4213a), the last of which read:

“Sellers may lawfully contact competitors to confirm or

verify a report of a lower price or price quotation to a cus-

tomer even if the effect of such contacts is to s‘abilize or in-

crease prices provided the purpose of such contacts is to pro-

tect sellers against misrepresentations of the customers as to

the prices they are being quoted or charged.”

Argument 59

omission by charging, as requested, that verification was

lawful if its purpose was to protect against customer mis-

represenation. Instead, it limited its “correction” to an

inadequate description of the “contentions” of defendants:

“I want to say that in connection with verification

either as to job protection arrangements or price, the

Defendants contended there were two purposes, not

just one. One purpose they contended for was that it

was a defense to the Robinson-Patman Act. The other

they contended was to avoid being defrauded. If

they had any other contentions you heard them set

forth by counsel. If counsel told you what their con-

tentions are and they differed in any way from mine,

they know what thei: contentions are better than I

know what their contentions are, so you take their

statements of the contentions” (3946a, Tr. 14,944).

Thus, the trial court passed off a fifty-year old principle

of the Sherman Act, set down in Cement, as a mere

lawyer's argument, to be given such weight as the jury

desired without any guidance whatsoever. The trial

court’s failure to instruct the jury properly on the relevance

of the customer fraud defense was prejudicial error on the

key issue of verification.”

54. The jury had, of course, been toid time and aga::. by both

court and counsel that it could “take the law” only from the judge,

not from counsel (294a-295a, Tr. 408; 3S54a-3855a, Tr. 14.819).

Without guidance from the court on the significance of defendants’

contention, the jury oy | well have fallen prey to ihe prosecutor's

erroneous assertion, in his — argument, that “[t]here cannot

be fraud if there is not a legally binding contract” (3848a, Tr.

14.790). The trial court refused to give a requested instruction

which would have corrected the prosecution’s improper assertion

(4217a, G-P Supp. Req. [Rebuttal] A).

55. Similarly, although the trial court had instructed the jury

that an exchange of job price protection lists was lawful if done to

prevent customer fraud ( 3879a-38Sla, Tr. 14,852-53), that instruc-

tion was also prejudicially erroneous primarily because the court

also instructed the jury that exchanges of job protection lists could

60 Argument

4. The Trial Court Improperly Refused to Allow

the Jury to Consider the Relevance of Legal

Advice to Defendants That Verification Was

Lawful.

Abundant evidence showed that defendants engaged

in verification because different legal counsel advised each

of them separately that verification was legally permis-

sible. This evidence was not offered with the thought

that legal advice could immunize an otherwise unlawful

agreement. Instead, the issue of legal advice had a dual

relevance: it established, first, that defendants’ purpose in

verifying was to comply with the Robinson-Patman Act

and, second, that defendants engaged in verification not

because they had agreed to do so with competitors but

because they desired to comply with the law and to heed

their respective counsels’ advice.*" This position was but-

55. (Cont'd. )

provide a basis for inferring that a price fixing conspiracy existed in

the statutory period when there was no evidence that any defend-

ant even kept such lists, much less exchanged them after 1967

(3877a-3878a, Tr. 14,849-50; 3879-388la, Tr. 14,852-53).

56. For example, Atwell of National testified he had frequently

consulted “with outside counsel about what [he was] doing in

order to try to comply with the Robinson-Patman Act” (1664a, Tr.

6084). There was, as the court explained, “written corroboration

. . . of the consultation between National Gypsum and their coun-

sel concerning the Robinson-Patman Act” ( 1664a-1666a, Tr. 6085-

86). National's antitrust compliance manual, prepared with the

aid of counsel, made express reference to the Robinson-Patman Act

and authorized verification with competitors where further con-

firmation of customers’ claims was needed (1898a-190la, Tr. 7026-

28. 2133ex-2146ex, NG 77 p. 6). There was similar evidence as to

other defendants. As to USG, see USG 63, USC 660; 538a, Tr.

1466; 1179a-1180a, Tr. 3587-88. As to G-P, see 1259a-1290a, Tr.

$3S': Tr. 5201, Tr. 5258-59. As to Celotex, see 1794a-1797a, Tr.

6623-27: 332a-3035a, Tr. 11.703-07; 2977a-2980a, Tr. 11,528-32.

1s to Watt, see 3235a, Tr. 12,680-S1. As to Nicely, see 3402a-

34 3a. Tr. 13,028.

57. In addition to seeking Pas instructions on the relevance

of legal advice to show a lawful reason for verifying (4082a-4083a,

Argument 61

tressed further by the uncontradicted evidence that USG

stopped verifying after consulting its counsel in 1968, while

National did so early in 1969 on advice of its counsel (see

supra at 42-44). Following a different course, Celotex

continued its infrequent verifications after 1969 because

its counsel advised that it was lawful to verify in order to

avoid Robinson-Patman Act liability (see supra at 46).

The trial court refused to instruct the jury as to either

aspect of the relevance of defendants’ evidence of legal

advice (3748a-3749a, Tr. 13,758; 3782a-3783a, Tr. 14,001 ).

Instead, the court merely instructed that:

“I also want to remind you that we are concerned,

here, with the Sherman Act, with an antitrust viola-

tion. The fact any particular company’s antitrust poli-

cies may or may not have been violated or legal

counsel may or may not have advised their company

that a particular action was or was not a violation of

the antitrust laws have relevance only insofar as it

bears on the alleged violation of the Sherman Act,

which is your concern” (3903a, Tr. 14,885, emphasis

added ).

Thus the court completely and prejudicially ignored the

consideration that verification pursued upon independent

57. (Cont'd. )

Def. Req. Final Inst. 9), defendants requested the following charge

on legal advice:

“A person is entitled and encouraged to seek and rely upon the

advice of counsel in guiding his Casteses conduct. While the

fact that counsel may have approved certain conduct as lawful

does not constitute a defense to a Sherman Act violation if the

conspiracy charged is found from the evidence, a defendant

who pursues a course of conduct because he understands it to

be lawful based 1 the advice of counsel, and who does not

understand that he had committed himself to other alleged

co-conspirators to pursue that course of conduct pursuant to a

common scheme, is not a conspirator and has not violated the

“o by engaging in that course of conduct.” (4208a, Def. Supp.

eq. «

62 Argument

legal advice was relevant both to the jury’s assessment of

the legitimate purpose of verification and the absence of

any implied agreement or “conscious commitment” to

one’s competitors to verify. See Klein v. American Lug-

gage Works, Inc., 323 F. 2d 787, 791 (3rd Cir. 1963);

United States v. Standard Oil Co., 316 F. 2d 884, 890 (7th

Cir. 1963).

These multiple errors in the trial court’s charge con-

cerning the verification issue precluded a fair trial. While

they unquestionably require reversal of the judgments be-

low, their significance is not limited to this case. They

reflect an unconscionable interpretation of the nation’s

antitrust laws which place businessmen striving to comply

with all the laws in the intolerable dilemma of having to

choose which antitrust law to violate. That interpretation,

encouraged by the prosecution and expressed repeatedly

by the trial court, was the fundamentally unfair and er-

roneous basis on which the prosecution’s case was submit-

ted to the jury.

D. The Policy of the Nation’s Antitrust Laws Is Not

Served by a Statutory Construction That Holds

Compliance With One Law to be a Violation of

Another.

The prosecution’s attack on defendants’ verification in

this case cannot be separated from the public efforts of the

Antitrust Division to repeal the Robinson-Patman Act as,

in the words of the chief prosecutor, “antithetical” to the

Sherman Act (see supra at 27). Current Administration

spokesmen have called for repeal of the Robinson-Patman

Act as an “expensive piece of antiquity” that “promotes

Argument 63

stabilization of prices charged by sellers.”"* Others have

directly attacked the Robinson-Patman Act as anticompeti-

tive.’ President Ford has called for changes in the Robin-

son-Patman Act, which he termed a “leading example” of

“laws which restrain competition” by discouraging “both

large and small firms from cutting prices.” ®

This prosecution was conceived and tried by the Anti-

trust Division as though the Robinson-Patman Act had

already been repealed. As the Antitrust Division knew, in

civil litigation in this industry (DiMarco, et al. v. USG et

al., E. D. Pa., CA #31766) USG’s and National's answers

to interrogatories, filed in 1965, described their verification

for the purpose of compliance with the Robinson-Patman

Act (Ev. H. DX Q4-6). Additionally, USG justified its

verification as a protection against customer misstatement

(Ev. H. DX Q-5). Judge Zirpoli’s 1971 adjudication in

Wall Products found that the gypsum companies’ purpose

in verifying was both to comply with the Robinson-Patman

Act and to protect against customer misrepresentation.

Only after the Wall Products litigation was settled and an

appeal was thus precluded, did the prosecution file this

belated challenge to defendants’ verification.

Disingenuously ignoring this extensive testimony of

defendants’ concern over the Robinson-Patman Act and

closing its eyes to internal contemporaneous documenta-

tion of that concern, the prosecution embarked on this

58. Jonathan C. Rose, id. at CCH Trade Reg. Rep., #202,

Nov. 11, 1975, pp. 5-7.

59. Testimony of Joe Sims, Special Ass’t to the Asst Atty.

Gen'l, Antitrust Division, before House Comm. on Smal! Business,

Subcommittee on Activities of Regulatory Agencies, p. 14 (July 10,

1975).

60. Remarks of the President, 63rd Annual Meeting of the U. S.

Chamber of Commerce ( April 28, 1975, p. 8).

61. See supra at 60, n. 56.

64 Argument

criminal challenge to Robinson-Patman Act verification.

Disregarding the truth, the prosecution urged in its closing

jury argument that the “Robinson-Patman Act defense”

was “a sham conjured up for this case” and was “one

dreamed up for this lawsuit” (Tr. 14,698; Tr. 13,850).

This prosecutorial deception was given credence by

the mantle of the federal government borne by the pros-

ecutor and the likely assumption by lay jurors that a

federal prosecutor would not knowingly prosecute people

for actions taken in compliance with federal statutes (see

infra at 148-150 and Berger v. United States, 295 U. S. 78,

88 (1935); Hall v. United States, 419 F. 2d 582, 588 (5th

Cir. 1969)). The burden borne by defendants in over-

coming the prosecution’s deception was, therefore, ex-

treme, particularly in view of the inadequacy and one-

sidedness of the trial court's verification instructions.

The view adopted by the trial court that compliance

with one antitrust law may violate another, makes these

defendants sacrificial pavns in a governmental policy

battle brought in the arena of a criminal indictment.

While the antitrust laws may be a trap for the unwary, the

final charge of the trial court makes them a snare for the

vigilant. The policy of the federal courts should be to

encourage businessmen to seek and rely upon the advice of

antitrust counsel. Such good faith reliance was present in

this case, consistent with the teachings of this Court in its

Viviano decision and the Supreme Court in the Cement

case.

In light of this prosecution, the risks faced by business-

men are not only grave but wholly contrary to the policies

of all the antitrust laws. A businessman encountering a

doubtful claim by a customer of a lower competitive price

dare not verify that report with a competitor lest he be

charged with a felony under the Sherman Act. He cannot

meet

and treble damage liability under the Robinson-Patman

Act. least precarious alternative is simply not to lower

his risk the loss of business, and become non-

competitive—the precise result which the Sherman Act and

meeting competition proviso of the Robinson-Patman

would avoid in the interest of fostering competition

and lowering prices.

If there are to be changes in the priorities of antitrust

“mere exchange of price information [pursuant to the

Robinson-Patman Act] may tend to stabilize prices” and

that if that Act “is not enforced, it ought not to be on the

books, for that leads to disrespect for the law.” Nothing

OS contiints meso & Sepa Te Se ey Oe

priuciple that good faith compliance with one law

avy considered evidence of the violation of another

law.

In the interests of fundamental fairness and justice,

the convictions below must be reversed and acquittals

mandated.

62. BNA ATRR No. 743, p. A-21 (12/16/75).

66 Argument

Il. Defendants Are Entitled to Judgments of Acquittal

Because the Prosecution’s Evidence Consists of a

Hodgepodge of Unconnected Episodes That Are

Insufficient, Singly or Collectively, to Prove a Nation-

wide Price-Fixing Conspiracy Within the Statutory

Period.

In addition to fundamentally misconceiving the legal-

ity of price verification, the trial court failed to recognize

the insufficiency of the evidence to establish the charge of

a nationwide price-fixing conspiracy continuing from at

least 1960 until December 27, 1973. Consequently, the

convictions must be reversed and judgments of acquittal

entered for all defendants.”

Due process requires that there exist “substantial”

evidentiary support for each essential element of the of-

fense charged. In re Winship, 397 U. S. 358, 364 (1970);

Pauldino v. United States, 379 F. 2d 170, 172 (10th Cir.

1967 ). The primary element of a criminal conspiracy that

must be proven by substantial evidence is an agreement

by the defendants to act together to achieve some unlawful

objective. United States v. Falcone, 311 VU. S. 205, 210

(1940); United States v. Klein, 515 F. 2d 751, 753 (3rd

Cir. 1975). Proof of such a conspiratorial agreement is

fundamental to an alleged violation of Section 1 of the

Sherman Act. Theatre Enterprises, Inc. ©. Paramount

Film Distributing Corp., 346 U. S. 537, 40-41 (1954).

In a Section 1 case, there must be substantial evidence

of a “consciousness of commitment to a common scheme”

by each defendant. Klein v. American Luggage Works,

Inc., 323 F. 2d 787, 791 (3rd Cir. 1963); United States v.

Standard Oil Co., 316 F. 2d 884, 890 (7th Cir. 1963).

63. Unlike other Sherman Act prosecutions, no witness in this

case testified that he had ever agreed with a on prices,

terms or conditions of sale or that he j in or even over-

Argument 67

And, most importantly for purposes of this appeal, that

evidence must establish, beyond a reasonable doubt, that

the alleged conspiratorial agreement continued into and

existed within the statutory period. In reversing a con-

spiracy conviction on statute of limitation grounds, the

Supreme Court has held that it is “incumbent on the Gov-

ernment to prove that the conspiracy, as contemplated in

the agreement as finally formulated, was still in existence”

during the statutory period. Grunewald v. United States,

353 U.S. 391, 396 (1957).

This principle is an accepted doctrine of substantive

conspiracy law designed to safeguard the protections of

the statute of limitations and to circumscribe the vicarious

criminal liability which conspiracy law imposes for the acts

and statements of others. Grunewald v. United States, 353

U. S. at 402. See United States v. Heinze, 361 F. Supp.

46, 53-54 (D. Del. 1973); United States v. Stein, 249 F.

Supp. 873, 875-76 (E. D. Pa. 1966); United States v.

Schneiderman, 106 F. Supp. 892, 896-97 (S. D. Cal., 1952).

Antitrust law also requires that where an alleged conspir-

acy may have had its origins prior to the statutory period,

it must be shown by evidence beyond a reasonable doubt

that the conspiracy still existed within the statutory period.

United States v. Kissel, 218 U. S. 601 (1910); American

Tobacco Co. v. United States, 147 F. 2d 93, 120 (6th Cir.

1944), affirmed 328 VU. S. 781 (1946).

63. ( Cont'd.)

heard discussions where such agreements between competitors

were made. Contrast United States v. American Radiator & Stand-

ard Sanitary Corp., 433 F. 2d 174, 182 (3rd Cir. 1970). Defendants’

past and current employees uniformly denied ever agreeing on

prices or terms with a competitor. Contrast Interstate Circuit, Inc.

v. United States, 306 U. §. 208, 218-19 (1939).

64. Even in civil antitrust cases, the plaintiff must prove that

the alleged conspiracy continued into the Seneans period. Webster

Rosewood Corp. v. Schine Chain Theatres, Inc.. 263 F. 2d 533, 535

2d Cir. 1939). cert. denied 360 U. §. 912 (1959); Goldlawr, Inc

t. Shubert, 290 F. Supp. 4582, 509-10 (E. D. Pa. 1965

68 Argument

The prosecution must establish, as to any conspiracy

allegedly formed prior to the statutory period, that its pur-

pose and scope contemplated conspiratorial activity con-

tinuing into the statutory period, United States v. Borelli,

336 F. 2d 376, 385 (2nd Cir. 1964), cert. denied, 379 U. S.

960 (1965), and that the defendants in fact consciously

participated in such conspiratorial behavior within the

statutory period. United States v. Johnson, 65 F. Supp.

46, 48 (M. D. Pa. 1946). Moreover, in proving that

a pre-statutory conspiracy actually continued into the

relevant period, the prosecution must demonstrate a con-

nection, or “connecting links,” between the events in the

pre-statutory period and those occurring later. Kotteakos

v. United States, 328 U. S. 750, 773-74 (1946); United

States v. DeCavalcante, supra, 440 F. 2d at 1273-75.

Otherwise, lawful conduct within the statutory period may

be used improperly as a basis for conviction because of a

suspicion that it is somehow related to the pre-statutory

events, when, in fact, the earlier events are not connected

to subsequent events in the statutory period. Or, convic-

tions may be secured for one or more localized conspiracies

rather than the unitary continuing conspiracy charged in

the Indictment, resulting in a fatal variance between the

Indictment and proof. See United States v. Central Sup-

ply Ass'n, 6 F. R. D. 526, 528-33 (N. D. Ohio 1947). Here,

no substantial evidence establishes the conspiracy charged

either within or without the statutory period.

A. No Antitrust Conspiracy Existed Within the Statu-

tory Period.

At trial, the prosecution urged only four incidents

within the statutory period, in addition to limited price

verification, as supportive of an inference of a nationwide

price-fixing conspiracy. One episode involved parallel

announcements of a May, 1969 list price increase. Another

Argument 69

episode concerned initially unsuccessful but eventually

parallel decisions to discontinue in December 1970 a

prompt-payment discount extended to West Coast cus-

tomers. The third episode involved decisions by USG’s

competitors in early 1971, to follow USG’s announcement

discontinuing its practice of shipping gypsum board on

wooden pallets to Michigan-area customers. The fourth

and final episode related to lower prices charged by

gypsum producers in the Southwest in 1970 where over-

supply was acute. The four disparate episodes relied upon

by the prosecution are insufficient to support anv infer-

ence of a conspiracy among defendants in the statutory

period, much less the continuing, nationwide price-fixing

agreement charged in the Indictment.

The scarcity of verification contacts after 1968, previ-

ously discussed, is symptomatic of the sparseness of the

prosecution’s evidence within the statutory period. The

four post-1968 events relied upon by the prosecution con-

sist of isolated examples of parallel business behavior and

occasional business contacts between competitors which,

as all of the witnesses explained, were for legitimate busi-

ness reasons—not for any improper purpose. Such evi-

dence would be insufficient even in a civil antitrust case

to create a jury issue of conspiracy. See Venzie Corp. v.

U. S. Mineral Products Co., 1975—2 Trade Cases, § 60,481

(3rd Cir. 1975).

In considering the insufficiency of the evidence re-

garding the prosecution's proof within the statutory period,

two basic principles of antitrust conspiracy law are con-

trolling. First, in a criminal case, so-called opportunity

contacts between alleged conspirators are presumptively

innocent. See United States v. Kompinski, 373 F. 2d 429,

434 (2nd Cir. 1967); United States v. Van de Carr, 343 F.

Supp. 993, 1001 (C. D. Cal. 1972). Even in a civil case,

opportunities for formation of a conspiracy are “significant

70 Argument

only if other evidence permits an inference that an agree-

ment did in fact exist.” Venzie Corp. v. U. S. Mineral

Products Co., supra, 1975-2 Trade Cases, § 60,481 at

67,135.

The second principle is that parallel pricing decisions,

even when made with an awareness of competitors’ ac-

tions, are insufficient to support an inference of a con-

spiratorial agreement. Businessmen often react similarly

to common economic pressures and marketplace stimuli,

and competition itself is likely to force competitors to adopt

similar, often identical, prices and policies. Thus, con-

sciously parallel conduct is consistent with independent

decision-making and is considered neither surprising nor

illegal. United States v. General Motors Corp., 1974-2

Trade Cases € 75,253 (E. D. Mich. 1974) at 97,670-71;

North Carolina v. Chas. Pfizer & Co., 1974—2 Trade Cases

€ 75,178 (E. D. N. C. 1974) at 97,302. This Court, and

others, have recently reaffirmed that parallel business

actions consistent with each defendant's interests are

“meaningless” and preclude any inference of conspiracy.

Venzie Corp. v. U. $. Mineral Products Co., supra, 1975—2

Trade Cases at 67,136; Modern Home Institute, Inc. v.

Hartford Acc. & Indem. Co., 513 F. 2d 102, 111 (2nd Cir.

1975). See generally Theatre Enterprises, Inc. v. Para-

mount Filn Distrib. Co.. 46 UL. S. 537, S41 (1954);

Delaware Valley Marine Supply Co. v. American Tobacco

Co., 297 F. 2d 199 (3rd Cir. 1961), cert. denied, 369 VU. S.

839 (1962); Independent Iron Works, Inc. v. United

States Steel Corp., 177 F. Supp. 743, 746-47 (N. D. Cal.

1959) (citing Milgram v. Loew's, Inc., 192 F. 2d 579, 583

(3rd Cir. 1951), aff'd, 322 F. 2d 656 (9th Cir. 1963),

cert. denied, 375 U. S. 922 (1963).

The decisions holding that neither opportunity con-

tacts nor conscious parallelism will support an inference

of conspiracy are specific applications of the basic doctrine

Argument 71

that evidence which supports two inconsistent inferences,

one of innocence and one of guilt, has no probative force.

Such evidence is patently insufficient in either a civil or

criminal case to satisfy the accusing party’s burden of

proof. E.g., United States v. Butler, 494 F. 2d 1246, 1252

(10th Cir. 1974); United States v. Delay, 440 F. 2d 566,

568 (7th Cir. 1971); United States v. Saunders, 325 F. 2d

840, 843 (6th Cir. 1964), cert. denied, 379 U. S. 978

(1965); Commercial Standard Ins. Co. v. Gordon's Trans-

ports Inc., 154 F. 2d 390, 394-95 (6th Cir. 1946) (civil

ease). Thus, acquittal in a criminal case is required where

the evidence itself suggests a reasonable hypothesis of in-

nocence. See Holland v. United States, 348 U. S. 121, 135-

36 (1954); United States v. Partin, 1972 Trade Cases

¢ 73,999 (N. D. Ga. 1972) at 92,163. Otherwise, where

the evidence supports competing and inconsistent infer-

ences, the choice of one inference over another would be

based only on suspicion, bias, or at most “sophisticated

surmise”—none of which affords a sufficient basis for im-

posing criminal sanctions. United States v. Bradley, 421

F. 2d 924, 926 (6th Cir. 1970); Moore v. United States,

71 F. 2d 564, 568 (4th Cir. 1959). In this case, an in-

ference of conspiracy within the statutory period could

only be the product of suspicion and bias and could not be

bottomed on the evidence.

1. The May 1, 1969 List Price Changes.

Initially, the prosecution charged that the defendants

agreed on the prices at which they would sell gypsum

wallboard to customers (44a-46a, Indictment £11 & 12;

Tr. 18S). As uncontradicted evidence demonstrated that

actual market prices had dropped sharply in the decade of

the 1960's, resulting in all time industry lows during the

1970 housing recession, the prosecution began to back-

72 Argument

pedal.“ Instead of transaction prices, the prosecution

began to focus its arguments on list prices. Although the

Indictment and Bill of Particulars charged that all major

list price increases within the statutory period were con-

spiratorial (45a, Indictment € 12c; B. P. 30) by the time

of closing arguments, the prosecution argued only that the

May, 1969 increase could be regarded as conspiratorial.

The prosecution’s failure to attack other list price

changes in the statutory period is understandable in view

of the undisputed evidence of declining, nonparallel list

prices announced both prior to and throughout the

statutory period. First, list prices for gypsum products

declined during the thirteen-year period of the claimed

conspiracy. For example, USG’s list price for &” wallboard

in Pittsburgh dropped from a high of $49.08/ MSF in Jan-

uary, 1962 to a low of $38.00 in October, 1970, and then re-

covered to $48.00 by 1973—a net drop of $1.08 during the

period from 1962 to 1973 (Watt 1). Similarly, National's

list price for &” wallboard in Pittsburgh was $49.60/ MSF

in 1960 and $49.00 in 1973 (2547a, Tr. 10,366). This

occurred during an era of unparalleled price inflation on

nearly all consumer goods (3194-3196a, Tr. 12,500-08;

USG 656).

Second, the record establishes that there was constant

list price “jockeying” before and after the statutory period

which could only be explained by the existence of vigorous

price competition. From February, 1967 through Septem-

ber, 1973, USG alone made twenty-six major announce-

ments of list price changes, eight of which were decreases.

65. These facts are set forth in the statement of the case (see

supra at 9-14). In addition, Dr. Cyert’s uncontradicted studies and

expert opinion confirmed the existence of ram competition (see

supra at 15-17). Moreover, USG reported more than 45,000

authorized price cuts during the statutory period to meet lower

competitive prices (Tr. 8929), National a i almost 35,000

on cuts from 1968-73 to meet competition (2154ex, NG 353 and

54. Tr. 10,089-90 ), and Celotex authorized 16,795 requests to meet

competition (2476ex, CEL 62).

Argument 73

Of these announcements, thirteen had to be postponed,

modified in amount, or cancelled altogether due to the

varying responses of competitors ( 1990ex, USG 305).

Third, there was uncontradicted evidence by Na-

tional’s responsible pricing officer that each list price an-

nouncement, with which he was principally involved, was

made independently in a state of competitive uncertainty

over the response of others, thus confirming the absence of

a “conscious commitment to a common scheme” to increase

prices.“ The undisputed absence of any pattern of “suc-

cess” in list price changes strongly corroborated the inde-

pendence of the decison-making process.

Fourth, G-P exhibits (2235ex-2239ex, G-P 99; 101,

102, 103, and 106) which compare published list prices

with actual market prices (“pink sheet prices” are G-P’s

best assessment of actual market prices ) (2880a-2881a, Tr.

11,187) were uncontroverted proof that (1) the market

prices charged for %” gypsum wallboard in the period

September, 1968 to the Summer of 1970 were lower than

the published list prices; (2) the market prices, as well as

the published list prices, decreased during that period; and

(3) the market prices were unrelated to G-P’s published

list prices (288la-2882a, Tr. 11,187-89; 2924a-2925a, Tr.

11,356-57; 3103a-3104a, Tr. 12,113-14).

66. Of the few annovacements which went into effect, a num-

ber proved unsuccessful in that heavy discounting continued from

pre-increase list prices, thus nullifying any potential benefit from

the announcement (see supra at 15-17; 2082a-2083a, Tr. 8349-50).

67. J. P. Hayes, who authored all of National's pricing pro-

posals from January, 1968 through 1973, testified wi contra-

diction to the independent evaluation and decisions he made con-

cerning every major price move by National between January, 1968

and the institution of federai price controls in August, 1971 (2532a-

23340. Tr. 10,340-42; 2576a-2593a, Tr. 10,423-54; 2597a-2624a, Tr.

10.459-501, 2632a-2639a, Tr. 10,513-25; 2172ex-2173ex, NG 404;

2177ex-21S2ex, NG 422; 2183ex-2213ex, NG 429-432).

74 Argument

No more eloquent testimony of defendants’ price com-

petition could have been offered than the complete silence

of the prosecution’s own economic expert on the issue of

conspiracy. Unlike defendants’ expert, the prosecution’s

economist failed to come to any conclusion as to whether

defendants’ conduct was conspiratorial or whether market

behavior was indicative of conspiracy. In a criminal case,

the inability of the prosecution’s own expert to draw even

a tentative conclusion of conspiratorial activity in itself

raises a reasonable doubt, particularly when the defend-

ants’ evidence of rampant competition stands unrebutted.

The arguments of the prosecutor regarding the May,

1969 list price announcements must be evaluated in the

context of the substantial, unrebutted record of price com-

petition just prior to and throughout the statutory period.

Changes to be effective May 1, 1969 were first announced

by USG on January 31, 1969 (1179ex-118lex, GX 1151-

1153). Parallel announcements by competitors followed

two weeks or more later (1197ex-1200ex, GX 1176-1179;

GX 1184; 1210ex, GX 1188; 121lex, GX 1189; and 1212ex,

GX 1190). The prosecution urged that two possible tele-

phone contacts in early November, 1968 and three internal

G-P memoranda were sufficient to support an inference of

conspiratorial agreement.

The two possible telephone contacts purportedly oc-

curred on November 6th and 7th between William Hunt,

a G-P vice-president, and Graham Morgan, USG’s chair-

man (540ex-542ex, GX 456a-b). Even assuming any con-

versation occurred, there is no evidence that these men

discussed USG’s announcement made some three months

later. To the contrary, the evidence affirmatively shows

that at t

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