Petition — United States Gypsum Co. v. United States

Supreme Court, U. q-

EILED

JUN 27 jo79

IN THE MICHAEL RODAK, JR. , CLERK

Supreme Court of the United States ~~

October Term, 1978

No. 78-

UNITED STATES GYPSUM COMPANY,

NATIONAL GYPSUM COMPANY,

GEORGIA-PACIFIC CORPORATION,

THE CELOTEX CORPORATION,

Petitioners,

v.

UNITED STATES OF AMERICA.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT.

H. Francis DELONE,

STEPHEN A. STACK, JR.,

Mark A. KLUGHEIT,

JONATHAN C. Levin,

Decuert Price & RHOADS,

Ropert C. Keck,

James G. HIierinc,

MicuHaet R. FLAHERTY,

Weston W. HANscom,

Keck, MAHIN & CATE,

$300 Sears Tower,

Chicago, IL 60606

Counsel for United States

Gypsum Company.

Cioyp R. MELLOTT,

WrturaM B. MALLIN,

J. Gary Kosrnsk1,

D. RicuHarp Funk,

ECKERT, SEAMANS, CHERIN

& MELLOTT,

600 Grant Street,

Pittsburgh, PA 15219

Counsel for Georgia-Pacific

Corporation.

3400 Centre Square West,

1500 Market Street,

Philadelphia, PA 19102

Counsel for National Gypsum

Company.

W. DonaLp McSwEENEey,

WrtuiAM A. MontTGOMERY,

RicHarp J. Hoskins,

A. Eric ARNOLD,

ScuirF Harpin & WAITE,

7200 Sears Tower,

Chicago, IL 60606

Counsel for The Celotex

Corporation.

International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711

2

2

ee ee CL e bbe SNES. dsdncasincsnesaes 2

3

4

7

Reasons FoR GRANTING THE WRIT ...........ccccccccccccs

I. By Not Requiring Proof of Anticompetitive Effect or

Purpose in the Statute of Limitations Period, the

Court of Appeals Emasculated This Court’s Decision

on Prior Review of This Case ................... 8

II. By Shifting to Petitioners the Burden of Persuasion

on Their Withdrawal From the Conspiracy Charged,

the Court of Appeals Violated Petitioners’ Right to

ie kG neha pa wcews bp dis 66 4608's 14

III. The Court of Appeals’ Decision in This Case Violates

the Due Process and Double Jeopardy Protection

Afforded by This Court’s Decision in Burks v. United

ENED CaU EL pana Vo te Wakes 4p 0.0s we'd wee cae ee 17

A. The Failure of Proof of Each of the Specified Ob-

jectives in the Conspiracy Indictment ......... 18

B. The Failure of Proof of a Conspiracy Substan-

tially as Charged in the Indictment .......... 20

SE Bhat. BE eSUG NE bids 4hic4 04 sea wanes es 24

APPENDICES:

Appenpix A—Court of Appeals Opinion Dated May 29,

1979, as Amended June 14, 1979 ................. Al

Appendix B—Written Question Distributed by ihe Court

of Appeals at Oral Argument .................... Al3

AppenpIx C—District Court Memorandum Opinion and

Order Dated September 7, 1978 .................. Al5

Aprenpix D—Supreme Court Opinion Dated June 29,

a Seine haG on AR SW kate bo adds bina W'i nt pee 0% Al9

AppenDIx E—Court of Appeals Opinion Dated January

12, 1977, as Amended January 20, 1977 ........... A76

ED A134

TABLE OF CITATIONS.

Cases: Page

Anderson v. United States, 417 U. S. 211 (1974) .........-- 14

Burks v. United States, 437 U. S. 1 (1978) ...5, 8, 17, 18, 20, 23, 24

Ex Parte Bain, 121 U.S. 1 (1887) ..........ccceeeeeeeees 19

Heisler v. United States, 394 F. 2d 962 (9th Cir.), cert.

denied, 393 U. S. 986 (1968) .......... cece eee e eens 19

In re Winship, 397 U. S. 358 (1970) .......... ee ee ween 14

Kotteakos v. United States, 328 U. S. 750 (1946) ........ 20, 21, 22

Mullaney v. Wilbur, 421 U. S. 684 (1975) ............05: 14, 16

Nishikawa v. Dulles, 356 U. S. 129 (1958) .............05- 16

Russell v. United States, 369 U. S. 749 (1962) ............. 19

Sanabria v. United States, 437 U. S. 54 (1978) ............ 19, 22

Sandstrom v. Montana, Dkt. No. 78-5384, — U. S. —, 47 U. S.

L. W. 4719 (U.S. June 18, 1979) ............eeeeeees 14, 16

United States v. Bowline, 593 F. 2d 944 (10th Cir. 1979) ... 21

United States v. Bertoletti, 529 F. 2d 149 (2d Cir. 1975) .... 23°

United States v. Container Corp., 393 U. S. 333 (1969) ..... 10, 11,

12, 15

United States v. Goldstein, 502 F. 2d 526 (3d Cir. 1974) .... 23

United States v. Morado, 454 F. 2d 167 (5th Cir. 1972) .... 23

United States v. Socony-Vacuum Oil Co., 310 U. S. 150 (1940) 7

United States v. Sperling, 506 F. 2d 1323 (2d Cir. 1974) .... 28

United States v. United States Gypsum Co., 438 U. S. 422

CRED inv cbs VecOn pad SENK OARS pA UNAGtehss exkas bes passim

United States v. United States Gypsum Co., 404 F. Supp. 619

CE GR C. TRTB) sin sce saccsise ssecmensscsseceesiees 8

Miscellaneous:

ALI, Model Penal Code, § 2.07(1) (Prop. Off. Draft 1962) .. )

Sherman Act, Section 1, 26 Stat. 209, as amended, 15 U. S. C.

OS a peyiaves deers (ig cavecereiteevecestacbbedessdes 2,3,4

Perkins on Criminal Law (2d ed. 1969) ............... are 9

Ae ee ee, OD acc kde ha rRr easas HS LqbaN cee yene ke 2

4 CCH Trade Reg. Rep. {| 45,073-45,079 ..............000. 21

883 BNA Antitrust & Trade Reg. Rep. at p. A-17 (10/5/78) 14

894 BNA Antitrust & Trade Reg. Rep. at p. A-5 (12/21/78) 14

IN THE

Supreme Court of the United States

OcToBER TERM, 1978

No. 78-

UNITED STATES GYPSUM COMPANY,

NATIONAL GYPSUM COMPANY,

GEORGIA-PACIFIC CORPORATION,

THE CELOTEX CORPORATION,

Petitioners,

v.

UNITED STATES OF AMERICA.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT.

Petitioners, United States Gypsum Company (“USG”),

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

Corporation (“G-P”) and The Celotex Corporation (“Celo-

tex”), jointly pray that a writ of certiorari issue to review

the judgment and opinion of the United States Court of

Appeals for the Third Circuit entered in these proceedings

on May 29, 1979.

2 Petition for a Writ of Certiorari

OPINIONS BELOW.

The opinion of the Court of Appeals, not yet reported,

is set forth in Appendix A to this Petition.

The unreported opinion of the United States District

Court for the Western District of Pennsylvania is set forth

in Appendix C to this Petition. This Court’s opinion on

prior review of this case is reported at 438 U. S. 422

(1978), and is set forth in Appendix D to this Petition.

The opinion of the Court of Appeals in the prior appeal of

this case is reported at 550 F. 2d 115 (3d Cir. 1977) and

is set forth in Appendix E.

JURISDICTION.

The judgment of the Court of Appeals for the Third

Circuit was entered on May 29, 1979. This Petition is filed

within 30 days of that date. This Court's jurisdiction is

invoked under 28 U. S. C. § 1254 (1).

QUESTIONS PRESENTED.

1. Whether, in a prosecution for violation of § 1 of

the Sherman Act, the government can meet its burden to

prove criminal intent without proof of either anticom-

petitive effects or purpose within the statute of limitations

period.

Petition for a Writ of Certiorari 3

2. Whether, after a criminal defendant has introduced

substantial, unrebutted evidence of withdrawal from a

conspiracy prior to the statute of limitations period, his

Fifth Amendment right to due process of law is violated

by requiring him to carry the burden of persuasion on the

withdrawal issue.

3. Whether a criminal defendant's constitutional pro-

tection against double jeopardy would be violated by a

retrial after the prosecution has failed to prove (a) one or

more of the distinct objectives of the conspiracy charged

in the indictment, or (b) a conspiracy substantially in con-

‘ formity with that charged in the indictment.

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED.

The Fifth Amendment of the United States Constitu-

tion provides in relevant part:

“[No person shall] be subject for the same offense to

be twice put in jeopardy of life or limb . . . nor be

deprived of life, liberty or property, without due

process of law... .”

Section 1 of the Sherman Act, 26 Stat. 209, as

amended, 15 U. S. C. § 1, provides in relevant part:

“Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign na-

tions, is hereby declared to be illegal... .”

4 Petition for a Writ of Certiorari

STATEMENT OF THE CASE.

This case is before this Court for the second time.

Petitioners were indicted on December 27, 1973 for al-

legedly participating in a conspiracy to violate Section 1

of the Sherman Act. The indictment contained only one

count, which charged the defendants with engaging, from

1960 to 1973, in a single nationwide anticompetitive agree-

ment having three distinct objective to fix the prices of

gypsum board, to fix the terms and conditions of its sale,

and to adopt uniform methods of packaging and handling.

The expansive nature of the charge brought about the

wholesale admission of evidence at a lengthy trial, but

produced no direct proof of any agreement among the

defendants, either on prices, terms or conditions of sale,

or methods of packaging and handling, or otherwise. The

prosecution’s case was entirely circumstantial and frag-

mented, consisting, as Judge Hunter stated in the court of

appeals, of “masses of evidence concerning a multitude of

seemingly unrelated events,” most of which “dealt with

actions prior to the start of the applicable limitations

period.” (A99, 550 F. 2d at 127)

Although the jury found petitioners guilty, the court

of appeals reversed their convictions. This Court affirmed

that reversal, holding, in a majority opinion by the Chief

Justice, that the trial judge had erred in instructing the

jury on the issues of criminal intent and withdrawal from

a conspiracy and also by having a private meeting with the

jury foreman in which he imparted additional instructions

on the deadlocked jury’s duty to reach a verdict. United

States v. United States Gypsum Co., 438 U. S. 422 (1978)

(App. D., pp. Al9 et seq.) (“Gypsum”). This Court

ordered the proper instructions must be given “/i/f a new

trial takes place.” (A62, 438 U. S. at 465, emphasis added )

Petition for a Writ of Certiorari 5

On remand, petitioners moved for judgments of ac-

quittal on the grounds that the prosecution had failed to

prove the elements of a § 1 Sherman Act criminal violation

under the standards announced by this Court in its opinion

in this case. Petitioners pointed out that a second trial

for the same offense which the government had once failed

to prove would violate their protection against double

jeopardy under Burks v. United States, 437 U.S. 1 (1978).

The district court denied the motion, and the court of

appeals affirmed.

In finding the evidence sufficient to warrant a retrial,

the court of appeals disclaimed any reliance on the

standard of criminal intent discussed at length in this

Court’s earlier decision. That standard allowed a finding

of criminal intent to be based upon proof that the de-

fendants’ conduct produced anticompetitive effects and

that it was undertaken with knowledge that such effects

would probably occur (A39, 438 U. S. at 444). The court

below noted that the prosecution “presented no expert

testimony at trial to establish anticompetitive effects.”

(A10, fn. 4). This fact, coupled no doubt with the “sub-

stantial” record evidence of vigorous price competition

during the relevant time period (A25, 438 U.S. at 430-31),

led the court of appeals to conclude that “the Government

appears virtually to have abandoned any contention of

[having proven] anticompetitive effects... .” (A10, fn. 4).

Having found inapplicable for lack of evidence the

principal criminal intent standard discussed in this Court's

prior opinion, the court of appeals purported to apply a

footnote in the Chief Justice’s opinion suggesting a second,

1. Although petitioners had argued that the trial evidence was

insufficient, neither the court of appeals nor this Court addressed

that issue on the first appeal. Decision of this issue did not appear

to be required, however, prior to this Court’s decision in Burks,

which was handed down just two weeks before its decision in

Gypsum.

6 Petition for a Writ of Certiorari

stricter standard requiring proof of “conduct undertaken

with the purpose of producing anticompetitive effects. . . .”

(A40, 438 U. S. at 444-45 n. 21) Although the court of

appeals found sufficient evidence of criminal intent based

exn this stricter standard, it ignored the fact that there was

no evidence of the existence of such intent during the

statute of limitations period. The court relegated to a

simplistic footnote the issue of criminal intent. That foot-

note did not refer to any proof of anticompetitive purpose

in the statutury period.

The apparent rationale of the Third Circuit’s opinion

was that any proof of price verification after December 27,

1968, the beginning of the statutory period, was sufficient

to prove the existence at that time of the charged con-

spiracy to fix prices, even though the small number of

verification contacts in that period had no stabilizing effect

on prices. (A7) But uncontradicted evidence showed that

in the statutory period a severe price war was being waged

and verification had dwindled to a few incidents, none

among the three largest producers. The court made no

effort to analyze those verification contacts in the light of

these uncontradicted facts. Moreover, the court of appeals

disregarded the evidence of lawful intent in the form of

direct testimony on that issue.

Petition for a Writ of Certiorari 7

REASONS FOR GRANTING THE WRIT.

In its prior review of this case, this Court sought to

correct a long-standing judicial failure to apply well-

recognized criminal law standards to Sherman Act prose-

cutions. (A33-34, 422 U. S. at 438-39) It required that the

prosecution prove criminal intent as a necessary element

in Sherman Act prosecutions, thus aligning the legal

elements of antitrust offenses with those of other criminal

offenses. But, as demonstrated by the decision below,

this Court’s clarification of the elements of the offense will

have little practical effect unless the Court also directs its

attention to the standards of proof used in criminal anti-

trust cases.

In Gypsum, this Court expressed concern about the

danger of overdeterrence in the antitrust context in those

factual settings where “the conduct proscribed is difficult

to distinguish from conduct permitted and indeed en-

couraged.” (A36-38, 438 U. S. at 441-43 & fns. 16-17)

But overdeterrence is at least as much a function of applied

standards of proof as it is of declared elements of the

crime. A person attempting to comply with the antitrust

laws must be as concerned about whether evidence of his

conduct raises a jury issue as he is about how that jury

will be instructed. This Court’s earlier determination that

intent is an essential element of a Sherman Act crime will

become a dead letter if the court of appeals’ failure to

apply that element properly is allowed to stand.

It has been almost forty years since this Court last

considered standards of proof in a criminal price-fixing

case. See United States v. Socony-Vacuum Oil Co., 310

U. S. 150 (1940). Since that time the penalties have

increased dramatically from a misdemeanor to a felony,

from a maximum fine of $5,000 to $1,000,000, and from

a maximum jail sentence of one year to a term of three

8 Petition for a Writ of Certiorari

years. Thus, the penalty for unjustified convictions is

now far more severe, and, as this Court observed, the

danger of overdeterrence is far greater. (A38, 438 U. S. at

442 fn. 18) Equally important is the fact that, as a

result of this Court’s recent decision in Burks v. United

States, 437 U. S. 1 (1978), a criminal defendant’s con-

stitutional protection against double jeopardy now depends

on application of the proper standards of proof. The im-

portance of this protection is particularly acute in an anti-

trust case like this one, where the initial trial lasted almost

five months at great expense and burden to the parties and

to the court system.”

For these reasons, this petition presents questions at

least as important as those which led the Court to grant

the earlier writ of certiorari in this case.

I. By Not Requiring Proof of Anticompetitive Effect or

Purpose in the Statute of Limitations Period, the

Court of Appeals Emasculated This Court's Decision

on Prior Review of This Case.

The court of appeals held that the prosecution had

failed to satisfy its burden of proving the “less elevated

standard of criminal intent set out in this Court's earlier

opinion in this case. The present appeal thus puts before

this Court the shadowy dimensions of the “elevated stand-

ard” of criminal intent which were suggested, but not dis-

cussed, in the Court’s previous opinion. The latter stand-

ard required the prosecution to prove a distinct purpose

to produce anticompetitive effects. (A40, 438 U. S.

2. In a related case, Judge Parker held that a second trial of

the charges in this case would involve such length, ae ex-

pense and voluminous evidence as to violate due process of law.

He therefore dismissed, on that ground and double jeopardy

grounds, a criminal —, petition filed by the government

which sought such a second trial on the heels of the Pittsburgh

trial. United States v. United States Gypsum Co., 404 F. Supp.

619, 624 & fn. 15 (D. D. C. 1975).

Petition for a Writ of Certiorari 9

at 444-45 fn. 21) In finding sufficient evidence of this

“elevated standard,” the court below gave no consideration

to the necessity for proof of criminal intent existing in the

statute of limitations period. In fact, there was no evi-

dence of any such criminal intent or the part of any de-

fendant within that period. To prevent emasculation of

its earlier decision in this case, this Court should grant

certiorari to consider the standard of proof of criminal

intent which must be met in this and other Sherman Act

cases.

The Court of Appeals treated the statute of limitations

as irrelevant to the intent issue. (A10,fn.4) It relied on

testimony of a former employee of petitioner USG who

had left the company’s employ many years before the

commencement of the statute of limitations period, upon

the testimony of employees of petitioners who did not

engage in the challenged conduct during the period of

the statute of limitations,* and upon the testimony of an

employee of another petitioner who stated, as did the

others, that his purpose was to comply with the Robinson-

Patman Act.

Whue relying on this non-probative evidence, the

court at the same time ignored the relevant evidence ap-

plicable to defendants’ conduct within the period of the

statute of limitations, which evidence overwhelmingly

demonstrated the absence of criminal intent. Petitioner

USG ceased verifying with its gypsum competitors prior

3. Since a corporation may not be guilty of criminal intent ex-

cept oo the actual intent of one of its high corporate officials,

ALI, Model Penal Code, § 2.07(1) (Prop. Off. Draft 1962); Perkins

on Criminal Law, 639-43 (2d ed. 1969), it necessarily follows that

the mental state of corporate agents at an earlier point in time can-

not be imputed to the corporate petitioners where those agents are

no longer engaged in the activity in question.

10 Petition for a Writ of Certiorari

to the commencement of the statutory period.‘ National

Gypsum directed its employees to cease such verification

upon the announcement of this Court’s decision in

United States v. Container Corp., 393 U. S. 333 (1969).

The evidence shows that, with minor unauthorized excep-

4. The court referred to the prosecution’s contention that cer-

tain testimony by Rhine Simpson of Republic Gypsum “indicates”

verification by USG in the statutory period. (A7, fn. 3) The testi-

mony, viewed in context, does not support that interpretation:

“Q. Now, when you were in session at a Gypsum Asso-

ciation meeting with the secretary present and the lawyer

present, was there ever an open discussion of an exchange of

prices?

“A. OK. The only thing I remember is the Association

counsel talking about some court cases on exchange of price

information and his report to the membership.

“Q. Was this at or about the time that Mr. Watt said he

wasn't going to exchange with you any more?

“A. It was in the latter time that I was in the Association.

I got out in the fall of "70. It would have been in the ’69-'70

period.” (Tr. 2464-65).

The reference to the “’69 to "70 period”-clearly referred to the

date of the Association meeting, not the date when Watt advised

Simpson that he had ceased verification. Even if Simpson's answer

is tortuously interpreted to refer to a date when Watt advised him

that he had ceased verification, any statement that USG was no

longer verifying does not establish when the practice stopped. It

woul as easily have been several years earlier. . Moreover, this

testimony is not inconsistent with Simpson’s earlier express testi-

mony that USG, including Watt, stopped verification before Simp-

son's subordinate, Montgomery, began verifying for Republic in

1967. (Tr. 2423, 1966, 2416) Montgomery, also a prosecution

witness, supported Simpson’s recollection by stating that although

he took over verifying “possibly as early as ’67” (Tr. 6288-90), [

never verified with anyone from USG. (Tr. 6314) Furthermore, a

wealth of other uncontradicted, unimpeached testimony shows that

USG stopped all verification on gypsum products in the late sprin

of 1968, months before the commencement of the statutory period.

( Tr. 8170-71; 8162-63; 8479-80; 12,686-88) The only possible basis

for the court of appeals’ conclusion is that the jury could have

ignored all evidence favorable to USG and that USG had the

burden of proving its innocence.

Petition for a Writ of Certiorari 11

tions,’ these directions were adhered to by the companies’

employees. Such conduct is vital evidence of the absence

of wrongful intent.

Celotex, based upon the considered professional ad-

vice of its lawyer as to the scope of the Container decision

and the requirements of the Robinson-Patman Act, con-

tinued to verify, on a limited and infrequent basis, in the

statute of limitations period. The Celotex witnesses who

did so uniformly testified that their purpose was to avoid

the discrimination forbidden by the Robinson-Patman Act.

(Tr. 7473, 7486, 11,528-42, 11,703-13) Similarly, in the

statutory period the limited verification * in which Georgia-

Pacific participated was carefully designed, with the as-

sistance of legal counsel, to comply with both the Sherman

and Robinson-Patman Acts. (Tr. 5258, 5273) Thus, the

evidence explaining the actions of these two defendents

likewise shows a law-abiding purpose rather than anti-

competitive motive.

In this Court’s prior review of this case, it observed

that petitioners’ acts of price verification were “difficult to

5. The evidence shows that Webster, a National employee,

made only “four, five or six” (Tr. 6394) unauthorized verification

contacts with Flintkote in late 1969. Webster testified that he made

these contacts on his own after having been instructed not to verify

and that he ceased upon being told “verbally and in writing” to

stop as soon as his superior found out about it. The court errone-

ously asserted that Atwell of National also verified in the statutory

eriod. The evidence shows only that Atwell stopped verifying no

fbr than this Court’s decision, 18 days after the opening of the

statutory period, in United States ». Container Corp., 393 U. S. 333

(Jan. 14, 1969), and there was no evidence that Atwell verified

during that 18-day interval. A single document from Celotex’ files

arguably suggests one unauthorized response by an unidentified

USG credit employee to an inquiry on the creditworthiness and

existence of special terms to a single account.

6. GP’s Burch testified to “10, maybe, or 12” verification con-

tacts over a 32-month period, none of which were with USG or

National, the two largest competitors in the industry, and in very

few of which Burch provided any information (Tr. 5336, 6320).

12 Petition for a Writ of Certiorari

distinguish from the gray zone of socially acceptable and

economically justifiable business conduct,” the legality of

which can only be determined by considering the sur-

rounding circumstances. (A36, 438 U. S. at 441 & fn. 16)

ad the court of appeals followed this direction, it could

only have concluded that the evidence of verification in

the statutory period would not support any finding of anti-

competitive purpose.

The unrebutted evidence with respect to the statu-

tory period showed vigorous price competition, coupled

with the shrinkage of price verification activity to a few

insignificant contacts proving, if anything, the complete

absence of the requisite criminal intent throughout that

period. With respect to the insignificance of verification

in the statutory period, the record which the court of

appeals ignored showed unequivocally:

(1) entirely disparate conduct among each of the four

defendants with regard to verification;

(2) no verification at all by USG, the largest pro-

ducer;

(3) virtually non-existent and completely unauthor-

ized verification by National, the second largest

producer;

(4) extremely rare verification attempts involving

one G-P employee acting on advice of counsel;

(5) no verification contacts among USG, National

and G-P, the three largest producers; and

(6) infrequent verification by Celotex with certain

producers based on the advice of its counsel as to

the scope of Container and the requirements of

the Robinson-Patman Act.

By the commencement of the statutory period an

intervening price war had completely changed the market

context of these sporadic contacts. As noted by this Court,

Petition for a Writ of Certiorari 13

petitioners introduced “substantial evidence” of “vigorous

price competition” beginning prior to and continuing

throughout the entire statute of limitations period. (A25,

438 U. S. at 430-31) This evidence consisted of con-

temporaneous marketing reports describing increased com-

petitive discounting and declining prices beginning in

1967, continuing into 1968, the year prior to the beginning

of the statutory period, and intensifying to “chaotic” pro-

portions throughout the entire statutory period. The con-

temporaneous evidence was reinforced by detailed eco-

nomic studies showing, through the entire statutory period,

extreme disparity among defendants in actual prices and

discounts, constant changes in market share, frequent

moves by customers to change suppliers, frequent changes

in published list prices and widely varying marketing and

distribution techniques among the defendants. Based

upon a review of this economic evidence, a distinguished

economic expert called by the petitioners concluded that

the gypsum board market was, during the relevant period,

characterized by “rampant price competition” completely

inconsistent with any criminal conspiracy.

This intervening price war severed any factual or pre-

sumptive connection between pre-statutory events and

those in the statutory period, and it particularly precluded

any inference of a criminal intent in the statutory period.

If the purpose of verification within the statutory period

had been to fix prices, verification would have intensified

after 1968 when prices declined and unstable pricing pre-

vailed. But the reverse happened. Where, as here, verifi-

cation dwindles to a few insignificant contacts during a

price war and the few witnesses who have any verification

contacts during the limitations period testify that their

conduct was guided by the advice of counsel and their

purpose was to comply with the Robinson-Patman Act, the

factual circumstances, even when viewed most favorably

14 Petition for a Writ of Certiorari

to the prosecution, simply do not permit the conclusion of

an anticompetitive purpose underlying the verification

activity. The court of appeals’ decision in this case thus

violated the mandate of this Court’s prior opinion in

Gypsum and the Court's general admonition to “scrutinize

the record for evidence of . . . intent with special care in

a conspiracy case” to avoid “ ‘piling inference upon infer-

ence... ..” Anderson v. United States, 417 U. S. 211,

224 (1974). .

The government has repeatedly indicated its belief

that this Court’s prior decision in this case will have no

practical effect.’ The court of appeals’ failure properly to

apply that decision to the facts in this case unfortunately

bears out that prediction. This Court should act promptly,

by granting certiorari in this case, to instruct the lower

courts that it meant what it said in Gypsum.

II. By Shifting to Petitioners the Burden of Persuasion on

Their Withdrawal From the Conspiracy Charged, the

Court of Appeals Violated Petitioners’ Right to Due

Process of Law.

Due process requires the prosecution in a criminal

case to prove beyond a reasonable doubt every fact nec-

essary to constitute the crime with which the accused is

charged. In re Winship, 397 U. S. 358, 364 (1970).

This means, as explained in Mullaney v. Wilbur, 421 U. S.

684, 701-702 (1975) and reiterated just this term in

Sandstrom v. Montana, Dkt. No. 78-5384, — U. S. —, 47

U. S. L. W. 4719, 4723 (U. S. June 18, 1979), that the

prosecution bears the burden of persuasion beyond a

reasonable doubt on every critical element of the offense,

even where the matter relates to an “affirmative” defense

as to which the defendant may bear an initial burden to

7. See, e.g., 894 BNA Antitrust & Trade Reg. Rep. at p. A-5

(12/21/78); 883 BNA Antitrust & Trade Reg. Rep. at p. A-17

(10/5/78).

Petition for a Writ of Certiorari 15

produce some evidence. The teaching of these cases was

ignored by the court of appeals in this case. In so doing,

the court further undercut the holding in Gypsum that

the prosecution has the burden to prove criminal intent

in a case such as this.

The court below paid lip service to the principle that

the prosecution has the initial burden to prove the con-

tinuation of the charged conspiracy into the statute of

limitations period. But the court of appeals failed to

recognize that, because of defendants’ “substantial” evi-

dence of “vigorous price competition” prior to and through-

out the statutory period (A25, 438 U. S. at 430), the gov-

ernment became obligated to prove, beyond a reasonable

doubt, that petitioners had not withdrawn from the charged

conspiracy prior to the beginning of that period.

In its discussion of withdrawal the court below placed

the burden squarely on the defendants to prove that they |

abandoned any anticompetitive conspiracy prior to the

statute of limitations period. (A8) Shifting the burden

of persuasion in this fashion enabled the court to overlook

the prosecution’s failure to introduce any evidence negat-

ing withdrawal and to allow the government to rely solely

on purported “short-comings” in this evidence which

might have permitted the jury to reject it.* Obviously,

neither the attempt to discredit petitioners’ evidence nor

a “contention” unsupported by evidence suffices to meet

8. The court of appeals also shrugged off defendants’ evidence

of withdrawal by citing United States v. Container Corp., 393 U. S.

333 (1969) for the ree Aaa proposition that “[t]he continuation of

some price competition is not fatal to the Government's case.”

(A8) But Container was a civil case as to which a different stand-

ard of proof applies. See United States v. United States Gypsum

Co., supra, 438 U. S. at 446-47 fn. 22. (A42-43 fn. 22) And

petitioners do not urge that they proved abandonment “as a matter

of law,” but rather that the prosecution had the burden of proof

on that issue once the petitioners’ substantial evidence relating to

the point had been introduced.

16 Petition for a Writ of Certiorari

an affirmative burden of proof. Cf. Nishikawa v. Dulles,

356 U. S. 129, 136-38 (1958).

The court of appeals’ error had enormous practical

consequences, as exemplified by its treatment of petitioner

USG, the largest competitor in the industry. Finding no

evidence of any conduct in furtherance of the alleged

criminal conspiracy by USG in the statute of limitations

period,’ it nevertheless ordered a retrial of USG on the

basis that the jury was entitled to disbelieve the testimony

of USG witnesses that they had ceased verifying prior to

the start of the statutory period. (A7,fn.3) This errone-

ous shifting of the burden of persuasion had a serious

impact on all defendants, in light of the government's

own concession in this Court that “the success of any

price-fixing venture depended on the participation of all

respondents; if any major producer had withdrawn, price

maintenance would have been impossible.” Brief for the

United States, Docket No. 76-1560, p. 99. In other words,

no USG, no conspiracy.

All defendants introduced overwhelming and uncon-

troverted evidence negating their participation in any

criminal conspiracy in the statutory period, in the form of

substantial evidence of intense price competition and proof

that-the purpose of any interseller price verification was to

comply with, not to violate, the law. This evidence should

be viewed in the context of the virtual disappearance of

such verification among defendants—the very practice

which the government relied upon to prove the existence

of a criminal conspiracy in the pre-statutory period.

In this factual setting, maintenance of the integrity

of this Court’s decisions in Gypsum, Mullaney and Sand-

strom requires certiorari review. Moreover, the question

9. The Court’s plain misreading of Simpson's testimony re-

garding USG’s cessation of verification is discussed at p. 10, above.

Petition for a Writ of Certiorari 17

of which party bears the burden of persuasion on the issue

of withdrawal from a criminal conspiracy raises a funda-

mental and persistent constitutional issue. This Court

should therefore review and redress the court of appeals’

-violation of petitioners’ due process rights in imposing

that burden on the defendants.

III. The Court of Appeals’ Decision in This Case Violates

the Due Process and Double Jeopardy Protection

Afforded by This Court’s Decision in Burks v. United

States.

The indictment returned by the grand jury in this case

charged the defendants with engaging in a single, unitary,

nationwide conspiracy, beginning in approximately 1960

and continuing until 1973, with three specifically desig-

nated objectives—to:

“(a) raise, fix, maintain and stabilize the prices of

gypsum board; (b) fix, maintain and stabilize the

terms and conditions of sale thereof; and (c) adopt

and maintain uniform methods of packaging and

handling such gypsum board.” (Indictment, § 11,

A138).

The indictment further listed 13 specific types of activity

allegedly used by the defendants to further the conspiracy,

and four effects allegedly ensuing from it.

Notwithstanding its decision adverse to petitioners,

the court of appeals was obviously troubled about whether

the prosecution's trial evidence was insufficient and about

the consequence of a prosecutorial failure to show the

existence of the broad conspiracy charged.'” Yet the court

10. At oral argument, the court submitted a written question

asking counsel for both sides about the pe gr consequences of the

prosecution’s failure to prove the entirety of the conspiracy charged

in the indictment. (A13) Specifically, the question suggested the

18 Petition for a Writ of Certiorari

of appeals failed to address the fundamental constitutional

question: how does Burks affect the disposition of con-

spiracy cases where the proofs adduced at trial fall sub-

stantially short of the offense charged in the indictment?

A. The Failure of Proof of Each of the Specified Ob-

jectives in the Conspiracy Indictment.

The court of appeals apparently recognized the fact

that the prosecution failed to prove two of the three dis-

tinct objectives of the conspiracy charged in the indict-

ment.” However, the court circumvented the duty im-

posed upon it by Burks to ascertain the sufficiency of the

evidence to prove the crime charged by simply rewriting

the indictment. In a retrospective effort to conform the

indictment to what the court described as “the govern-

ment’s theory” of the case, the court arbitrarily determined

“that the second and third objectives—to fix, maintain and

stabilize the terms and conditions of sale and to adopt and

maintain uniform methods of packaging and handling of

gypsum products—are integral parts of the first.” (AQ)

10. (Cont’d.)

court’s concern with the possibilities (1) that the evidence had

failed to show a conspiracy for all purposes charged in the indict-

ment and (2) that the evidence did. not demonstrate “a conspiracy

of the full magnitude and scope charged in the indictment.”

11. (A8-9). The only evidence discussed in the court of ap-

peals’ opinion relates to the first objective (price fixing), and even

that evidence relates only to the verification and _ stabilization

aspects of that charge.

12. By “the government’s theory” of the indictment, the court of

—< presumably meant the government's most recent assertions

of what this case was about, as found in its statements at oral argu-

ment and in its brief in the court below. It might be noted, how-

ever, that “the government’s theory” of this case has changed re-

peatedly.

At trial the prosecution argued that this was a straight price

fixing case (Tr. 8027-29) and that “[t]here are no charges in the

indictment that defendant corporations . . . agreed upon market

Petition for a Writ of Certiorari 19

This expedient is supported by neither logic nor legal

authority, and is tantamount to a court’s amendment of an

indictment, which this Court has condemned in similar

circumstances. Ex parte Bain, 121 U. S. 1 (1887).”*

Here the three distinct objectives are the essence of

the conspiracy as alleged in the indictment. Without them

the conspiracy is totally undefined. The independent

nature of these objectives is attested to by the fact that the

indictment specifically designated them as separate ob-

jectives. It is not proper, given this distinct enumeration

of the conspiracy’s objectives, for a court to “make a subse-

quent guess as to what was in the minds of the grand jury

at the time that they returned the indictment.” Russell v.

United States, 369 U. S. 749, 770 (1962).”*

12. (Cont'd. )

shares”. (Tr. 12,125) In the court of appeals the prosecution

argued, in contradiction to its position at trial that petitioners con-

ired “so that each manufacturer could retain his own percentage

of the market”. (Arg. Tr. 1114-15) In this Court, the prosecution

argued that there was a single verification conspiracy with numer-

ous subconspiracies (Brief for the United States, Dkt. no. 76-1560,

pp. 10-35). The prosecution abandoned that position on remand

and now argues that this was solely a price fixing case with no

independent objectives of fixing credit terms or packaging and

handling mathelle, (AQ) But in any event, it is an astonishing legal

proposition that a defendant may be tried (or convicted) based on

the government’s theory” of the charges rather than on the stated

terms of an indictment or information.

13. See also, Heisler v. United States, 394 F. 2d 692, 695 (9th

Cir.), cert. denied, 393 U. S. 986 (1968):

“Ever since the decision [of this Court] in ex parte Bain, 1887,

121 U. S. 1. . . , it has been the rule that any substantial

amendment to the body of an indictment renders the convic-

tion void. The reason is that the defendant is not tried on the

indictment of the grand jury, as is his constitutional right

under the Fifth Amendment, but on a different charge, and

there is no way of knowing whether the grand jury would

have returned the amended indictment if given the opportunity.

Therefore an indictment cannot be amended in any substantial

way, even with the defendant's consent.”

14. Cf. this Court’s decision in Sanabria v. United States, 437

U. S. 54, 65-66 (1978):

20 Petition for a Writ of Certiorari

B. The Failure of Proof of a Conspiracy Substantially

as Charged in the Indictment.

The substantial difference between the prosecution’s

proof and the broad conspiracy charged in the indictment

is clear from the court of appeals’ own recitation of the

evidence. Although the government charged a nation-

wide, 14-year conspiracy to accomplish three distinct anti-

competitive objectives, the opinion below rests solely on

evidence of insignificant episodes of price verification’

within the statute of limitations period.

This Court has long recognized that where a criminal

defendant is charged with participation in a broad con-

spiracy, he can only be convicted if the proof shows his

participation in a conspiracy of the scope charged, rather

than his participation in one or more smaller sub-conspira-

cies. Kotteakos v. United States, 328 U. S. 750 (1946).

In the past, when confronted with broad conspiracy in-

dictments and evidence showing only narrower conspira-

torial involvement, courts have remanded such cases for

trial on the smaller subconspiracies. But that procedure

is no longer appropriate in light of this Court’s decision in

Burks.

In Burks, this Court held that where the evidence at a

defendant’s earlier trial was insufficient to sustain the

verdict, retrial is prohibited notwithstanding the fact that

14. (Cont'd. )

“In the Government’s view, the numbers theory was ‘dismissed’

from the case as effectively as if the Government had actually

charged the crime in two counts and the District Court had

dismissed the numbers count. The first ergy | this argument

encounters is that the Government did not in fact charge this

offense in two counts. Legal consequences ordinarily flow

from what has actually happened, not from what a party might

have done from the vantage of hindsight. . . [citation

omitted]. The precise manner in which an indictment is drawn

cannot be ignored... .’”

Petition for a Writ of Certiorari 21

a defendant may also have sought a new trial on the basis

of other errors. The rule is absolute. “The Double

Jeopardy clause forbids a second trial for the purpose of

affording the prosecution another opportunity to supply

evidence which it failed to muster in the first proceeding.”

437 U. S. at 11. Applied to the Kotteakos situation of a

conspiracy indictment substantially broader than the evi-

dence actually proves, this prohibition on its face bars a

retrial. See United States v. Bowline, 593 F. 2d 944, 950-

951 (10th Cir. 1979) (Holloway, J., dissenting ).

Substantial policy considerations also support such a

rule. The prosecution has enormous freedom in drafting

indictments. The court of appeals’ holding encourages

prosecutors to abuse this freedom by presenting indict-

ments far broader than any set of facts which they can

prove,” and to rely on their opportunity for repeated re-

trials if their evidence cannot sustain such broad charges.

Significant tactical advantages flow to the prosecution

in obtaining extremely broad single-count indictments.

Such indictments virtually preclude the defendants from

excluding evidence on the basis that it is irrelevant to the

charges brought. Should a defendant be convicted, the

government then has the right to seek sentencing on the

basis of the broad conspiracy to which the jury’s verdict

of guilty has attached.’* Such overbroad indictments also

allow the prosecution to shift its theories to fit the circum-

stances—a tactic which the prosecution has embraced

15. Public sources show that the government frequently obtains

indictments charging nationwide antitrust conspiracies covering

time periods many years longer than the statute of limitations

oor See 4 CCH Trade Reg. Rep. {{ 45,073-45,079.

16. Indeed, even a defendant who may not wish to contest the

charges has the opportunity only to enter a plea of guilty or nolo

contendere to the entirety of the conspiracy alleged by the govern-

ment.

22 Petition for a Writ of Certiorari

wholeheartedly in this case (see pp. 18-19, fn. 12, supra)

and which this Court has condemned in the past.'’ Had

the prosecution here elected to proceed by separate-count

allegations of discrete conspiracies, its position at trial and

on appeal would have been materially weaker. Many of

its discrete conspiracy charges would have merited dis-

missal by the trial court for lack of evidence, and the dis-

missal of those charges would have precluded the jury’s

consideration of evidence relevant only to the unproven

conspiracy charges.

This Court in Kotteakos warned emphatically against

the danger of “transference of guilt from one to another

across the line separating conspiracies,’ 328 U. S. at 774.

In this case the danger of a spill-over of guilt from one

disconnected episode to another is markedly greater than

in Kotteakos. The conspiracy allegation here involved a

myriad of unrelated episodes, over 160 claimed co-con-

spirators, the events of 14 years, and a severe statute of

17. Cf. Sanabria v. United States, supra, 437 U. S. 5 at 73 &

n. 32:

“The Government having charged only a single gambling busi-

ness, the discrete violations of state law which that business

may have committed are not severable in order to avoid the

Double Jeopardy Clause’s bar on retrials for the ‘same offense.’

Indeed, the Government’s argument that these are discrete

bases of liability warranting co gy cranes following a final

judgment of acquittal on one such ‘discrete basis’ is quite simi-

lar to an unsuccessful argument that it presented in Braverman

v. United States, 317 U. S. 49 (1942).

A single gambling business theoretically may violate as many

laws as a State has prohibitin gambling. and § 1955 specifies

six means by which a defendant may illegally participate in

such a business, i.e., by conducting, financing, managing, super-

vising, directing, or owning it. If we were to accept the

Government’s theory, each of these could be varied, one at a

time, to charge a separate count on which a defendant could

be prosecuted following acquittals on any of the others.”

Petition for a Writ of Certiorari 23

limitations problem. That sprawling conspiracy charge

allowed the prosecution to direct the jury’s attention al-

most exclusively toward events predating the statute of

limitations period which were essentially unrelated to any

offense which the government might claim to have proven

within the limitations period.

The government should not be free to create with

impunity such advantages for itself and such adverse con-

sequences for defendants. Just as Burks forbids the

prosecution two chances to adduce evidence sufficient to

prove the charge, it must also forbid the prosecution's

successive refinement of a broad charge to meet the evi-

dence. Having chosen, in this case, to charge the de-

fendants with a single sweeping conspiracy, the prosecu-

tion must bear the consequences of that tactical decision."

The consequence of its failure to prove substantially the

offense charged must be the dismissal of that charge.”

Unless this Court enforces Burks in such a situation, the

courts (and defendants) will continue to be burdened

with trials of needlessly broad indictments drafted by

prosecutors who have nothing to lose if their proofs are

inadequate.

18. See United States v. Bertolotti, 529 F. 2d 149, 151 (2d Cir.

1975), where the Second Circuit reversed a criminal conviction be-

cause the government ignored its admonition in United States v.

Sperling, 506 F. 2d 1323 (2d Cir. 1974) to “cease combining in an

alleged single conspiracy, criminal acts loosely, if at all, connected.”

The same admonition mandates dismissal of the Government's drag-

net indictment in the present case. As the Court stated in United

States v. Morado, 454 F. 2d 167, 170 (5th Cir. 1972), “[h}aving

chosen to proceed to trial on the single conspiracy count alone, the

Government may not negate its duty to prove the charge laid be-

yond a reasonable doubt . . . .”

19. In United States v. Goldstein, 502 F. 2d 526, 531 (3d Cir.

1974), the court admonished: “[H]aving chosen to utilize the in-

dictment process, fair dealing would require that the government

assume the burden as well as the benefits.”

24 Petition for a Writ of Certiorari

IV. Conclusion.

The court of appeals’ failure to apply this Court's

decision on prior review of this case has effectively nulli-

fied that decision. That result will also subject petitioners

to an entire replay of their five-month trial in violation of

the constitutional protection against double jeopardy an-

nounced in Burks. Accordingly, a writ of certiorari should

issue for review of the judgment and opinion of the United

States Court of Appeals for the Third Circuit.

Respectfully submitted,

Rosert C. Keck,

James G. HIER1Nc,

MicHaet R. FLAHERTY,

Weston W. HANscoM,

Keck, MAHIN & CATE,

8300 Sears Tower,

Chicago, IL 60606

Counsel for United States

Gypsum Company.

C.Loyp R. MELLOoTT,

WittuaM B. MALLIN,

J. Gary Kosrnsk1,

D. RicHarp Funk,

Eckert, SEAMANS, CHERIN

& MELLOTT,

600 Grant Street,

Pittsburgh, PA 15219

Counsel for Georgia-Pacific

Corporation.

H. Francis DELOoNE,

STEPHEN A. STACK, JR.,

Mark A. KLUGHEIT,

JONATHAN C. LEviN,

DecuertT Price & RHoaps,

3400 Centre Square West,

1500 Market Street,

Philadelphia, PA 19102

Counsel for National Gypsum

Company.

W. Donatp McSwEENEeYy,

WiLutiaM A. MONTGOMERY,

Ricuarp J. Hoskins,

A. Eric ARNOLD,

ScuirF HarpIn & WaAITE,

7200 Sears Tower,

Chicago, IL 60606

Counsel for The Celotex

Corporation.

APPENDIX A.

UNITED STATES COURT OF APPEALS

For THE THIRD CIRCUIT

Nos. 78-2263/ 64/65/66

UNITED STATES OF AMERICA

Appellee,

v.

UNITED STATES GYPSUM COMPANY; NATIONAL

GYPSUM COMPANY; GEORGIA PACIFIC COR-

PORATION; KAISER GYPSUM COMPANY, INC.;

THE CELOTEX CORPORATION; THE FLINT-

KOTE COMPANY; GRAHAM J. MORGAN; AN-

DREW J. WATT; COLON BROWN; J. P. NICELY;

WILLIAM H. HUNT; CLAUDE E. HARPER;

ROBERT A. COSTA; WILLIAM D. HERBERT;

GEORGE J. PECARO; JAMES D. MORAN

UNITED STATES GYPSUM COMPANY,

(D. C. Criminal No. 73-00347-01 )

Appellant in No. 78-2263

NATIONAL GYPSUM COMPANY,

(D. C. Criminal No. 73-00347-02 )

Appellant in No. 78-2264

GEORGIA-PACIFIC CORPORATION,

(D. C. Criminal No. 73-00347-03 )

Appellant in No. 78-2265

THE CELOTEX CORPORATION,

(D. C. Criminal No. 73-00347-05 )

Appellant in No. 78-2266

(Al)

A2 Appendix A Appendix A A3

APPEAL FROM THE UNITED STATES DistRicT COURT Opinion of the Court

FOR THE WESTERN DistTRICT OF PENNSYLVANIA Hunter, Circuit Judge:

1, The appellants, United States Gypsum Co. (USG),

National Gypsum Co. (National), Georgia-Pacific Corp.

(G-P), and The Celotex Corp. (Celotex), appeal from the

denial of their consolidated motion for judgments of ac-

Argued March 15, 1979

Before Apams, Hunter, WEIts, Circuit Judges

(Opinion filed May 29, 1979)

(As amended June 14, 1979)

Rodney O. Thorson (Argued )

L. John Schmoll

Peter A. Mullin

Attorneys for Appellee

H. Francis De Lone (Argued )

Stephen A. Stack, Jr.

Mari M. Gursky

Dechert Price & Rhoads

Cloyd R. Mellott (Argued )

William B. Mallin

J. Gary Kosinski

D. Richard Funk

Eckert, Seamans, Cherin &

Mellott

Robert C. Keck

James G. Hiering

Michael R. Flaherty

Weston W. Hanscom

Keck, Cushman, Mahin & Cate

W. Donald McSweeney

William A. Montgomery

Richard J. Koskins

Schiff, Hardin & Waite

Attorneys for Appellants

quittal on the ground of insufficiency of the evidence to

support the convictions. They contend that the district

court should have granted their motion and, on the author-

ity of Burks v. United States, 437 U. S. 1 (1978), should

have held that retrial was barred by the double jeopardy

clause. Finding sufficient evidence, we affirm.

2. On December 27, 1973 appellants were indicted,

along with two other companies and ten individuals not

before us, for violating section 1 of the Sherman Act, 15

U. S. C. §1 (1976). They are alleged to have engaged

in a nationwide conspiracy to fix the prices, the terms and

conditions of sale, and the methods of handling gypsum

board products. The Government charged that the con-

spiracy began sometime prior to 1960 and continued until

the indictment was returned. The indictment listed thir-

teen means by which the conspiracy was allegedly ef-

fected, the most pervasive of which was price verification.

Appellants were convicted after a nineteen week trial, and

appealed to this court. We reversed the appellants’ con-

victions, though without ruling on the sufficiency of the

evidence. 550 F. 2d 115 (3d Cir. 1977). The Government

appealed to the United States Supreme Court, which af-

firmed this court’s judgment. 46 U. S. L. W. 4937 (June

29, 1978). The case was remanded to the district court

for a new trial.

3. On remand appellants moved for judgments of

acquittal, contending that the evidence introduced at the

A4 Appendix A

first trial was insufficient to support the convictions. 7

motion was denied on September 7, 1978. Because appel-

lants’ original conviction on the charges involved here a

reversed on appeal, if the defendants are correct that the

evidence tendered at the first trial is insufficient to support

a conviction, retrial would subject them to double jeop-

ardy. Burks v. United States, 437 U. S.1 (1978). ape

sequently, they may appeal the denial of their motion :

this juncture, under the “collateral order exception to t :

final judgment rule. See Abney v. United States, 43

U. S. 651 (1977).

4. In reviewing the denial of a motion for judgment

of acquittal on the ground of insufficiency of the se mg

to support a conviction, we must sustain the verdict i

there is substantial evidence, viewed in the light most fav-

orable to the Government, to uphold the jury's decision.

_ Both sides agree that we must test the sufficiency of the

eibeuant using the = to established by the via ag ara in

this case. The Supreme Court held that the jury had been =

instructed in two major areas. First, on the element of intent | ;

Court held that the instruction which allowed the jury in a cong a

action under the Sherman Act to presume intent to fix prices =

a stabilizing effect was improper. If the Government ies —

competitive effects, then it must show at the least that the de “se “a

ant’s actions were taken with knowledge that pre gp." powtk e =

would occur. However, in the absence of proof of — _

competitive effects, the Government must prove that the efend-

ant’s conduct was es hig hye oy of proteee re

itive effects. 46 U. S. L. W. a n. 21. ;

States ra Gillen, No. 78-2082 (3d. Cir., filed May 8, 1978) (Adams,

gy Court held that the instruction on withdrawal bene

the conspiracy was erroneous. The district court had charged the

jury that to establish withdrawal, the defendant must either ——

tively notify every other member of the conspiracy or —_ a =

closure of the illegal scheme to law enforcement officials. “wi

appellants argued that the resumption of intense competitive

havior may be sufficient to establish withdrawal from the ov

spiracy, but that the district court’s instruction precluded that de-

fense. The Court agreed, holding that the taking of affirmative acts

Appendix A A5

Burk v. United States, 437 U.S. 1, 17 (1978); Glasser v.

United States, 315 U. S. 60, 80 (1942). Moreover, we are

aware that “the character and effect of a conspiracy is not

to be judged by dismembering it and viewing its separate

parts, but only by looking at it as a whole.” United States

v. Patten, 226 U. S. 525, 544 (1913).

I.

5. The appellants primarily contend that there was

presented insufficient evidence of conspiracy in the statu-

tory period to support the conviction, particularly given

what they describe as intense price competition beginning

immediately prior to the statutory period.2 We focus our

attention on that argument.

6. The gist of the crime of conspiracy to violate the

Sherman Act is the agreement itself. United States v.

Socony-Vacuum Oil Co., 310 U. S. 150, 252 (1940). No

overt acts need be alleged or proved: “[I]t does not make

the doing of any act other than the act of conspiring a

condition of liability.” Nash v. United States, 229 U. S.

373, 378 (1913). To determine whether the conspiracy is

a continuing one, we must look to the scope of the agree-

ment allegedly entered into by the parties. Fiswick v.

United States, 329 U. S. 211, 216 (1946). See Grunewald

v. United States, 353 U. S. 391, 397 (1957). The Supreme

Court in United States v. Kissel, 218 U. S. 601, 607 (1910),

1. (Cont’d.)

inconsistent with the object of the conspiracy and communicated in

a manner reasonably net whe Ton to reach the co-conspirators is suf-

ficient to show withdrawal. 46 U. S. L. W. at 4948-49. In review-

ing the sufficiency of the evidence, we will apply the standards as

enunciated by the Supreme Court.

2. The statute of limitations in a criminal antitrust action is

five years. 18 U. S. C. § 3282 (1976). Since the indictment was

returned on December 27, 1973, the statutory period began on

December 27, 1968.

AG Appendix A

. “ S

defined a continuous conspiracy - - ~~ push

i i t that wi

bringing to pass a continuous resu :

iliac the continuous cooperation of the agragcires .

keep it up.” The conspiracy charged here, to ma

high and stable prices, certainly fits that test.

7. The appellants would have us hold the >a

ernment is limited in the proof of its case sole : ~

events which occurred during the statutory perio ; ve

context of a continuing conspiracy, we do not be ieve .

the Government is so limited. When the serie

alleged to have been formed prior to the statutory pe .

the issue becomes one of continuation. We agree asa

the Second Circuit that “the Government must pee a ‘

evidence justifying the jury in finding beyond Puag en :

doubt that the particular agreement into which a ; —

ant entered continued into the period not barred by ere

tion.” United States v. Borelli, 336 F. 2d 376, (

Cir. 1964), cert. denied, 379 U. S. 960 (1965). There is

no requirement that the Government prove a new ate

ment in the statutory period. United States v. Kissel,

U. S. 601 (1910). Moreover, the “overt act of one part-

ner may be the act of all without any new secon

specifically directed to that act.” Id. at 607. See Uni :

States v. Nowak, 448 F. 2d 134, 139 (7th Cir. 1971). This

court discussed the utility of pre-statutory period evidence

to prove a conspiracy in United States v. Johnson, 165 F.

2d 42 (3d Cir. 1947), cert. denied, 332 U. S. 852 (1948).

There, the defendants were charged under 18 U.S. C. § 371

(1976) with conspiracy to obstruct the administration of

justice. In finding sufficient evidence to support the con-

viction we held: “Some of the acts necessarily occurred

[prior to the statutory period], but these acts could be

proved to show the existence and continuance of the con-

spiracy even though there could have been no prosecution

—_

Appendix A A7

for any substantive offense charged as an overt act.” Id.

at 45.

8. Here, we find sufficient acts in furtherance of the

conspiracy committed in the statutory period to justify a

jury in concluding that the agreement continued therein.

The Government’s proof of conspiracy rested heavily on

the practice of price verification. The defendants’ own

recitation of the facts reveals various incidents of price

verification in the statutory period. See Appellants Brief

at 34-41. The testimony discloses that Kenneth H. Atwell

and Charles D. Webster, Vice President and Administra-

tive Assistant respectively of National’s Sales Administra-

tion, engaged in numerous verification contacts after

December 27, 1968. These apparently involved both price

and credit term verifications. Also, the management of

G-P did not instruct its branch managers to discontinue

verification until February, 1969. Certainly, the jury could

infer that the conspiracy continued until that time. More-

over, O. E. Burch, General Sales Manager of G-P, had

humerous contacts with competitors between June 1969

and 1972. The testimony also discloses that Celotex con-

tinued verifying until 1973.

9. Finally, the appellants attempt to show abandon-

ment of the conspiracy by demonstrating that the gypsum

board industry was experiencing intensive price competi-

tion beginning in 1967. They argue that the resumed price

3. Because we have used the appellants’ version of the facts,

our discussion of the incidents of cantiadiees in the statutory period

has omitted any mention of USG. To support its contention that it

had ceased verification in 1968, USG relies on testimony of Andrew

J. Watt, Executive Vice-President of USG and Joseph L. Baldwin,

Jr., Director of Marketin Policy of USG. The Government, on the

other hand, points to evidence which could lead a jury to disbelieve

the Watts-Baldwin testimony. It also cites us to testimony by

Rhyne Simpson, Jr., President of Republic Gypsum, which indicates

that verification by USG continued into the statutory period.

A8 Appendix A

competition proves as a matter of law that they had

abandoned any anticompetitive conspiracy at least two

years prior to the statutory period. The Supreme Court

in United States v. Container Corp., 393 U.S. 333 (1969),

pointed out, however, that “[t]he continuation of some

price competition is not fatal to the Governments case.

The limitation or reduction of price competition brings

the case within the ban. . . .” Id. at 337, citing United

States v. Socony-Vacuum Oil Co., 310 U. S. 150, 224 &

n. 59 (1940). Moreover, the Government contends that

the stepped-up price competition did not commence until

at least 1970. While not presenting expert testimony of its

own, the Government pointed to shortcomings in the testi-

mony of the defendants’ expert which would justify the

jury in rejecting it.

10. Therefore, we find sufficient evidence from which

the jury could have concluded that the conspiracy con-

tinued into the statutory period.

II.

11. The appellants argue that unless there is sufficient

evidence within the statutory period on each of the three

separately stated objectives and each of the thirteen

specific means charged in the indictment, they are entitled

to a judgment of acquittal. The indictment charges the

defendants with conspiracy to a) raise, fix, maintain and

stabilize the prices of gypsum board; b) fix, maintain,

and stabilize the terms and conditions of sale thereof; and

c) adopt and maintain uniform methods of packaging and

handling such gypsum board.

12. First, the failure of the government to prove that

the defendants engaged in each of the thirteen specific

means is not fatal. In United States v, Adamo, 534 F, 2d

31, 38 (3d Cir.), cert. denied, 429 U. S, 841 (1976), we

Appendix A AQ

held that “the Government is under no obligation to prove

every overt act alleged.” See Nash v. United States, 229

U. S. 373, 380 (1913) (in criminal antitrust actions, “not

all the means alleged need be proved”). Nor is the Gov-

ernment limited in its proof to these overt acts alleged in

the indictment. United States v. Adamo, 534 F. 2d at 38.

13. Second, the three allegedly distinct objectives of

the conspiracy are not separate. Rather, it is and has been

the Government's theory that the second and third ob-

jectives—to fix, maintain, and stabilize the terms and con-

ditions of sale and to adopt and maintain uniform methods

of packaging and handling of gypsum products—are

integral parts of the first. Moreover, the district court

charged the jury without objection by the defendants that

any agreement to fix the methods of handling gypsum

board would not be illegal unless it had the purpose or

effect of stabilizing prices. App. at 3885a-86a. Further,

the court charged that the terms and conditions of sale are

really components of price. App. at 3900a. The con-

sistent theory of the Government's case is that the defend-

ants had engaged in a conspiracy “with a single conimon

design and objective—that of maintaining high and stable

prices.” Brief for Government at 10. See Addendum to

Brief for Government at 15. Given, then, that a single

unitary conspiracy was alleged, the holdings of this court

in United States v. Tarnopol, 561 F. 2d 466 (3d Cir, 1977),

and United States v, Dansker, 537 F. 2d 40 (3d Cir, 1976),

cert, denied, 429 U. S, 1038 (1977), are not applicable.

ITI.

14. The focus of this opinion has been on whether the

jury could find that the conspiracy continued into the

statutory period. We have, as well, reviewed the record

and find sufficient evidence on each element of the offense

Al0 Appendix A

to support the jury's guilty verdict.*. Therefore, the order

of the district court denying the defendants’ motion for

judgment of acquittal on the ground of insufficiency of

the evidence to support the conviction will be affirmed and

the case remanded for a new trial.

4, One note about the element of intent is necessary. The

Supreme Court held that the instruction requiring the jury to pre-

sume intent from effect on prices was erroneous. 46 U.S. L. W. at

4944, See note 1 supra. On this appeal, the Government appears

virtually to have abandoned any contention of anticompetitive ef-

fects other than making the conclusory statement that “tphese price

exchanges had the tendency to moderate the number and degree of

competitive deviations and arrest the downward trend of price

level.” Brief for Appellee at 16. See 46 U. S. L. W. at 4947 (“Re-

gardless of its putative purpose, the most likely consequence of any

such agreement to exchange price information would be the stabili-

zation of industry prices.’). See also United States v. Container

Corp., 393 U, S. Ssh (1969) (anticompetitive effect of exchange of

price information inferred from market structure). The Govern-

ment presented no expert testimony at trial to establish anti-

— effects,

nstead, the Government has relied in this appeal on evidence

of anticompetitive purpose under the Supreme Court's elevated

standard, 46 U.S. p W. at 4943 n. 21. The Government points to

testimony by several company executives to the effect that verifica-

tion was engaged in with the purpose of insuring market stability

and avoiding destruction of the market. See, ie., Testimony of

A. L. Meyer, Director of Marketing Services of G-P, App. at 1 56a;

Testimony of Kenneth H. Atwell, Vice-President of Sales Admin-

istration at National, App. at 1695a-97a; Testimony of Henry C,

Bear and R, C, Gimlin, Vice-Presidents of Merchandizing at USG,

App. at 548a-49a and 1121a; and Testimony of Homer D. pose,

General Credit Manager of Celotex, App. at 2034a-35a, We believe

that the record would support a jury finding of anticompetitive

purpose,

Appendix A All

UNITED STATES COURT OF APPEALS

For THE Turrp Crrcult

Nos. 78-2263, 78-2264, 78-2265 and 78-2266

UNITED STATES OF AMERICA

v.

UNITED STATES GYPSUM COMPANY; NATIONAL

GYPSUM COMPANY; GEORGIA PACIFIC COR-

PORATION; KAISER GYPSUM COMPANY, INC.;

THE CELOTEX CORPORATION; THE FLINT-

KOTE COMPANY; GRAHAM J. MORGAN; AN-

DREW J. WATT; COLON BROWN; J. P. NICELY;

WILLIAM H. HUNT; CLAUDE E. HARPER,

ROBERT A. COSTA; WILLIAM D. HERBERT;

GEORGE J. PECARO; JAMES D. MORAN

United States Gypsum Company,

Appellant in No. 78-2263

National Gypsum Company,

Appellant in No. 78-2264

Georgia-Pacific Corporation,

Appellant in No. 78-2265

The Celotex Corporation,

Appellant in No. 78-2266

(D. C. Criminal Nos. 73-00347-01/02/03/05)

On AppeAL From Tue Unitep States Districr Court

FOR THE WesTERN District OF PENNSYLVANIA

Present: ApaMs, Hunter and Weis, Circuit Judges.

Al2 Appendix A

Judgment.

This cause came on to he heard on the record from the

United States District Court for the Western District of

Pennsylvania and was argued by counsel on March 15,

1979.

On consideration whereof, it is now here ordered and

adjudged by this Court that the order of the said District

Court, filed September 7, 1978, which order denied de-

fendants’ motion for judgment of acquittal on the ground

of insufficiency of the evidence to support the conviction

be, and the same is hereby affirmed, and the cause re-

manded for a new trial, in accordance with the opinion of

this Court.

ATTEST:

Thomas F. Quinn

CLERK

May 29, 1979

Appendix B Al3

APPENDIX B.

Written Question Distributed by the Court of Appeals

at Oral Argument.

The government’s thesis, as framed in the single count

indictment, is that from sometime around 1960 and until

1973, the defendants engaged in a single, unitary, continu-

ing, nationwide conspiracy in violation of § 1 of the Sher-

man Act. The indictment lists three principal objectives

of this conspiracy: ,

(1) to raise, fix, maintain and stabilize the prices of

gypsum board;

(2) to fix, maintain and stabilize the terms and con-

ditions of sale thereof; and

(3) to adopt and maintain uniform methods of pack-

aging and handling gypsum board.

In addition, the indictment lists 13 specific types of activi-

ties and 4 effects of the conspiracy.

A lot of evidence has been introduced at trial, and

the question now before this Court is whether the govern-

ment’s evidence, when viewed in the light most favorable

to the government, is sufficient to enable a reasonable jury

to arrive at a finding of guilt beyond a reasonable doubt.

Both the defendants’ briefs and the government's

brief ably dealt with the massive record as it relates to this

question, but to my understanding, neither brief has given

this Court guidance as to what it should do if it concludes

that there is sufficient evidence to support a conviction for

violation of § 1 of the Sherman Act, but that there is in-

sufficient evidence to establish a conspiracy of the full

magnitude and scope charged in the indictment. For

Al4 Appendix B

example, what if we conclude that there is sufficient evi-

dence to support a conviction for stabilizing prices, but

not for raising prices or for fixing the terms and conditions

of sale? Or, to give another example, what if we conclude

that there is sufficient evidence as to all the objectives

cuarged in the indictment, but that the evidence is insuf-

ficient on six of the thirteen specific acts charged, or that

there is no evidence as to any of the 4 effects changed?

Must we in any or all of these possible situations conclude

that the evidence is insufficient to support a conviction,

and held that a retrial is barred under the double jeopardy

clause?

Is it appropriate for us instead to consider the indict-

ment as chargiig multiple conspiracies and permit a retrial

on che thecry or theories that we believe may be supported

by sufficient evidence? Or. perhaps, may we hold that if

there is sufficient evidence as to any part of the charged

conspiracy, which part by itself would constitute a viola-

tion of the Sherman Act, the government may retry the

entire case on the broad theory on which it first tried the

matter?

Appendix C Al5

APPENDIX C. ©

IN THE

UNITED STATES DISTRICT COURT

For THE WESTERN DisTRICT OF PENNSYLVANIA

CrIMINAL No. 73-347

UNITED STATES OF AMERICA,

v.

UNITED STATES GYPSUM COMPANY; NATIONAL

GYPSUM COMPANY; GEORGIA-PACIFIC COR-

PORATION; THE CELOTEX CORPORATION,

Defendants.

Memorandum Opinion and Order.

Defendants were convicted under Section 1 of the

Sherman Act. The United States Court of Appeals for the

Third Circuit vacated the convictions and returned the

case to this Court for a new trial. The government peti-

tioned the Supreme Court for certiorari and review was

granted. The Supreme Court affirmed the Court of Ap-

peals’ decision with certain modifications in the ratio

decidendi. Before this Court once again for the new trial,

defendants have now moved for judgment of acquittal on

the grounds of insufficient evidence. The Court of Appeals

denied defendants’ motion for judgment of acquittal with-

out prejudice to the submission to the trial court of a

motion for judgment of acquittal.

Al6 Appendix C

Defendants’ position simply stated is that no court to

this time has reviewed the trial record in light of the law

of the case to determine whether or not the government

presented sufficient evidence to submit the matter to the

jury. Defendants’ contention is that the government evi-

dence is insufficient when scrutinized in the context of the

recent Supreme Court review of the instant case. The evi-

dence being insufficient, it is contended that retrial is pro-

hibited by the Double Jeopardy Clause. Burks v. United

States, 46 U.S. L. W. 4632 (U. S. June 14, 1978); Greene

v. Massey, 46 U. S. L. W. 4636 (U.S. June 14, 1978).

The Court has considered the Third Circuit Court of

Appeals’ Opinion, the Opinion of the United States Su-

preme Court, the motion for judgment of acquittal and

briefs related thereto, views expressed at oral argument

on the instant motion and evidence introduced at trial.

After evaluating all of the above to the best of the Court’s

ability and viewing the evidence in the light most favor-

able to the government, as must be done, this Court be-

lieves that there was sufficient evidence introduced at the

first trial to sustain the convictions under the redefined

legal standards promulgated by the United States Supreme

Court. Specifically, there was sufficient evidence of crim-

inal intent and conspiratorial involvement to support guilty

verdicts.

The decision to deny defendants’ motion for judgment

of acquittal is solely predicated upon the continued ex-

istence of sufficient evidence for conviction under the Su-

preme Court's redefinition of the law.’ Nonetheless, a

few brief comments are in order as to whether or not the

Double Jeopardy Clause would be violated even if there

1. The government stated at oral ar

vert gument that it preferred

the case su a to be decided solely with pes oa to the

— : absence of by ren evidence as judged under the

upreme Court's post-trial Opinion. Defendants simi

to such a basis for disposition. ah aie

Appendix C Al7

were not sufficient evidence under the reformulated stand-

ards.

It has long been recognized that retrial does not run

afoul of the Constitution where reversal is based upon trial

error. United States v. Tateo, 377 U. S. 463 (1964);

United States v. Ball, 163 U. S. 662 (1896). Only recently,

however, the Supreme Court has indicated that the Double

Jeopardy Clause will not permit retrial where the govern-

ment’s case suffers from insufficiency of evidence. Burks,

supra and Greene, supra. The case sub judice possesses a

blend of both characteristics. The Supreme Court, with-

cut forewarning to the prosecution, the defendants, this

Court or the United States Court of Appeals for the Third

Circuit, redefined the applicable law in certain particulars

of the instant case which would normally necessitate a

new trial. Defendants, however, contend that the lack of

sufficient evidence at the first trial, as measured by the sub-

sequently reformulated standards, precludes such a new

trial. Assuming arguendo lack of sufficient evidence for

conviction, the government's failure to supply such proof

may have been caused by its inability to predict the Su-

preme Court's post-trial requirements at the time of the

first trial Under such a circumstance it is difficult to say

that the government is getting a second bite at the same

apple. While stare decisis provides no discernible as-

sistance, this Court doubts very seriously whether retrial

would be proscribed by the Double Jeopardy Clause under

these circumstances even if there were insufficient evidence

of record from the first trial.

An appropriate Order will issue.

/s/ Hupert I. TEITELBAUM

Hubert I. Teitelbaum

United States District Judge

9. This situation was not present in either Burks or Greene.

A18 Appendix C

Order. .

AND Now, this 7th day of September, 1978, in accord-

ance with the foregoing Opinion, It Is Orperep that de-

fendants’ motion for j ; .

‘ee motion for judgment of acquittal is hereby

/s/ Husert I. Terretpaum

Hubert I. Teitelbaum

United States District Judge

ped.

Appendix D Al9

APPENDIX D.

SUPREME COURT OF THE UNITED STATES.

UNITED STATES v. UNITED STATES GYPSUM

CO. ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

No. 76-1560. Argued March 1, 1978—Decided June 29,

1978.

Deputy Solicitor General Friedman argued the cause

for the United States. With him on the briefs were Solici-

tor General McCree, Assistant Attorney General Shene-

field, Frank H. Easterbrook, Robert B. Nicholson, Rodney

O. Thorson, and Robert J. Wiggers.

H. Francis DeLone, W. Donald McSweeney, and

Fred H. Bartlit, Jr., argued the cause for respondents.

With them on the briefs were Stephen A. Stack, Jr., Mari

M. Gursky, William A. Montgomery, Joseph R. Lundy,

Thomas A. Gottschalk, Robert C. Keck, James G. Hiering,

Cloyd R. Mellott, William B. Mall'n, J. Gary Kosinski, D.

Richard Funk, Clark M. Clifford, Carson M. Glass, and

Thomas Richard Spradlin®

° A brief of amici curiae urging reversal was filed for their re-

spective States by Evelle J. Younger, Attorney General of California,

Sanford N. Gruskin, Chief Assistant Attorney General, Warren J.

Abbott, Assistant Attorney General, Michael I. Spiegel and Charles

M. Kagay, Deputy Attorneys General; William J. Baxley, Attorney

General of Alabama, Thomas Troy Zieman, Jr., Jerry L. Weidler,

and Susan Beth Farmer, Assistant Attorneys General; Bruce E.

Babbitt, Attorney General of Arizona, and Alison B. Swan, Assistant

Attorney General; J. D. McFarlane, Attorney General of Colorado,

and Robert F. Hill, First Assistant Attorney General; Carl R. Ajello,

Attorney General of Connecticut; Theodore L. Sendak, Attorney

General of Indiana; Curt Schneider, Attorney General of Kansas,

and Thomas W. Regan, Assistant Attorney General; William J.

A20 Appendix D

Opinion of the Court.

ew age Justice Burcer delivered the opinion of

This case presents the following questions: (a)

whether intent is an element of a criminal antitrust offense:

(b) whether an exchange of price information for pur-

poses of compliance with the Robinson-Patman Act is ex-

empt from Sherman Act scrutiny; (c) the adequacy of jury

instructions on membership in and withdrawal from

the alleged conspiracy; and (d) the propriety of an ex

parte meeting between the trial judge and the foreman

of the jury.

I

Gypsum board, a laminated type of wallboard com-

posed of paper, vinyl, or other specially treated coverings

over a gypsum core, has in the last 30 years substantially

replaced wet plaster as the primary component of interior

walls and ceilings in residential and commercial construc-

tion. The product is essentially fungible; differences in

price, credit terms, and delivery services largely dictate the

°* (Cont'd. )

Guste, Jr., Attorney General of Louisiana: Francis B Bu

ana; . Bur -

od General of Maryland; John Ashcroft, Attorney Sr a

eg William F. Hyland, Attorney General of New Jersey:

oney Anaya, Attorney General of New Mexico; Louis J. Lef. salle,

Attorney General of New York, and John M. Desiderio, Assistant

ae General; Rufus L. Edmisten, Attorney General of North

, arolina, and David S. Crump, Special Deputy Attorney General;

or A. Redden, Attorney General of Oregon, and Stephen ey

unne; John L. Hill, Attorney General of Texas; Robert B Hansen,

mr posed General of Utah; M. Jerome Diamond, Attorney General

of Vermont; Anthony F. Troy, Attorney General of Virginia; Slade

Gorton, Attorney General of Washington, and Thomas L Boede

—— 7 rp A General; Bronson C. LaFoilette, Attorney Gen.

pacha isconsin, and Michael L. Zaleski, Assistant Attorney

Stanley T. Kaleczyc, Lawrence B. Krau

Pa ee ; s, and Stephen A. Bokat

petal —— the Chenier of Commerce of the United States as

Appendix D A21

purchasers’ choice between competing suppliers. Overall

demand, however, is governed by the level of construc-

tion activity and is only marginally affected by price

fluctuations.

The gypsum board industry is highly concentrated,

with the number of producers ranging from 9 to 15 in the

period 1960-1973. The eight largest companies accounted

for some 94% of the national sales with the seven “single-

plant producers” * accounting for the remaining 6%. Most

of the major producers and a large number of the single-

plant producers are members of the Gypsum Association

which since 1930 has served as a trade association of gyp-

sum board manufacturers.

A

Beginning in 1966, the Justice Department, as well as

the Federal Trade Commission, became involved in inves-

tigations into possible antitrust violations in the gypsum

board industry. In 1971, a grand jury was empaneled and

the investigation continued for an additional 28 months.

In late 1973, an indictment was filed in the United States

District Court for the Western District of Pennsylvania

charging six major manufacturers and various of their cor-

porate officials with violations of § 1 of the Sherman Act,

26 Stat. 209, as amended, 15 U. S.C. § 1"

1. The major producers operate numerous plants to serve a

wide range of geographical markets. The single-plant producers

are limited in terms of the markets they can serve because of the

difficulties and expense involved in long-distance transportation of

gypsum board.

2. The corporate defendants named in the indictment were:

United States Gypsum Co,, National Gypsum Co., Georgia Pacific

Corp., Kaiser-Gypsum Co., Inc., the Celotex Corp., and the Flint-

kote Co. The individual defendants included: the Chairman of the

Board and the Executive Vice-President of the United States

Gypsum, the Chairman of the Board and Vice-President for Sales of

National Gypsum, the President of Georgia Pacific, the President

A22 Appendix D

The indictment charged that the defendants had en-

gaged in a combination and conspiracy “[b]Jeginning

sometime prior to 1960 and continuing thereafter at least

until sometime in 1973,” App. 34, in restraint of interstate

trade and commerce in the manufacture and sale of gyp-

sum board. The alleged combination and conspiracy con-

sisted of:

“[A] continuing agreement understanding and concert

of action among the defendants and co-conspirators to

(a) raise, fix, maintain and stabilize the prices of gyp-

sum board; (b) fix, maintain and stabilize the terms

and conditions of sale thereof; and (c) adopt and

maintain uniform methods of packaging and handling

such gypsum board.” Ibid.

The indictment proceeded to specify some 13 types of ac-

tions taken by conspirators “[i]n formulating and effec-

tuating” the combination and conspiracy, the most relevant

of which, for our purposes, is specification (h) which al-

leged that the conspirators

“telephoned or otherwise contacted one another to ex-

change and discuss current and future published or

market prices and published or standard terms and

conditions of sale and to ascertain alleged deviations

therefrom.”

The bill of particulars provided additional details about

the continuing nature of the alleged exchanges of competi-

tive information and the role played by such exchanges in

2. (Cont'd. )

and the Vice-President and General Manager of Kaiser-Gypsum, the

President of Celotex, and the Chairman of the Board and the Presi-

dent of Flintkote. The Gypsum Association was named as an un-

indicted co-conspirator as were two other gypsum board producers

—Johns-Manville Corp. and Fibreboard Corp.

ame

Appendix D A23

policing adherence to the various other illegal agreements

charged.

B

The first skirmish in the protracted litigation of this

case was a motion for dismissal filed hy the defendants

alleging that their due process rights had been denied be-

cause of unreasonable preindictment delay. The District

Court, after holding a five-day evidentiary hearing on the

motion, concluded that there was “no evidence of unrea-

sonable delay on the part of the Government,” 383 F. Supp.

462, 470 (WD Pa. 1974), and that the defendants were not

prejudiced to any extraordinary degree whatsoever by the

chain of events leading to this indictment.” Ibid. The

District Court denied a motion to dismiss the indictment.

Thereafter, nine of the defendants entered pleas of nolo

contendere and were sentenced.’ The trial of the remain-

ing seven defendants commenced on March 3, 1975, and

lasted some 19 weeks.

The focus of the Government's price-fixing case at

trial was interseller price verification—that is, the practice

allegedly followed by the gypsum board manufacturers of

telephoning a competing producer to determine the price

currently being offered on gypsum board to a specific cus-

tomer. The Government contended that these price ex-

changes were part of an agreement among the defendants

had the effect of stabilizing prices and policing agreed-

upon price increases, and were undertaken on a frequent

basis until sometime in 1973. Defendants disputed both

the scope and duration of the verification activities, and

further maintained that those exchanges of price informa-

3. The remaining corporate defendants were United States

Gypsum, National Gypsum, Georgia Pacific, and Celotex, and the

remaining individual defendants were the Chairman of the Board

and the Vice-President of Sales of National Gypsum and the

Executive Vice-President of United States Gypsum.

A24 Appendix D

tion which did occur were for the purposes of complying

with the Robinson-Patman Act‘ and preventing customer

fraud. These purposes, in defendants’ view, brought the

disputed communications among competitors within a

“controlling circumstance” exception to Sherman Act liabil-

ity—at the extreme, precluding, as a matter of law, con-

sideration of verification by the jury in determining de-

fendants’ guilt on the price-fixing charge, and at the

minimum, making the defendants’ purposes in engaging in

such communications a threshold factual question.

The instructions on the verification issue given by the

trial judge provided that if the exchanges of price informa-

tion were deemed by the jury to have been undertaken “in

a good faith effort to comply with the Robinson-Patman

Act,” verification standing alone would not be sufficient to

establish an illegal price-fixing agreement. The para-

graphs immediately following, however, provided that the

purpose was essentially irrelevant if the jury found that the

effect of verification was to raise, fix, maintain, or stabilize

prices. The instructions on verification closed with the

observation:

“The law presumes that a person intends the

necessary and natural consequences of his acts.

Therefore, if the effect of the exchanges of 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.”

The aspects of the charge dealing with the Govern-

ment’s burden in linking a particular defendant to the con-

4. Defendants contended that the exchange of price informa-

tion or verification was necessary to enable them to take advantage

of the meeting-competition defense contained in §2(b) of the

Clayton Act, 38 Stat. 730, as amended by the Robinson-Patman Act,

49 Stat. 1526, 15 U. S. C. § 13(b) (1976 ed.); see Part III, infra.

EP Cine

. Appendix D A25

spiracy, and the kinds of evidence the jury could properly

consider in determining if one or more of the alleged con-

spirators had withdrawn from or abandoned the conspiracy

were also a subject of some dispute between the judge and

defense counsel. On the former, the disagreement was

essentially over the proper specificity of the charge. De-

fendants requested a charge directing the jury to determine

“what kind of agreement or understanding, if any, existed

as to each defendant” before any could be found to be a

member of the conspiracy. The trial judge was unwilling

to give this precise instruction and instead emphasized at

several points in the charge the jury’s obligation to consider

the evidence regarding the involvement of each defendant

individually, and to find, as a precondition to liability, that

each defendant was a knowing participant in the alleged

conspiracy.*

On the matter of withdrawal from the conspiracy, de-

fendants sought an instruction stating explicitly that evi-

dence of vigorous price competition during the period

covered by the indictment could be considered by the jury

as indicating abandonment of the charged conspiracy by

one or more of the defendants. Substantial evidence on

this subject had been presented by the defendants in the

course of the trial. The judge again was unwilling to

accept defendants’ construction of the applicable law and

substituted an instruction specifying that withdrawal had

to be established by either affirmative notice to each other

member of the conspiracy or by disclosure of the illegal

enterprise to law enforcement officials. The trial judge

allowed the defendants to argue their theory of withdrawal

to the jury despite his unwillingness to refer to it explicitly

in his charge.

5. Relevant portions of the charge dealing with this issue are

excerpted in the opinion of the Court of —— 550 F. 2d 115,

127 n. 12 (1977); id., at 137-138 (Weis, J., dissenting ).

A26 Appendix D

C

The jury retired to deliberate early on the evening of

Tuesday, July 8, 1975. Supplemental instructions were

given in response to questions from the jury on Wednesday

and Thursday, and the hours of deliberation were short-

ened on Friday after the court was informed that some of

the jurors were exhausted and not feeling well. On Satur-

day, after responding to further requests from the jury,

the judge, sua sponte, in open court, used the supplemen-

tal instruction approved by the Court of Appeals“ to re-

mind the jurors of their obligation to continue the de-

liberations. Essentially the same instruction was given to

the jury again on Sunday, after the judge had received a

note detailing the jury's inability to reach a unanimous

verdict. }

On Monday, the court received yet another note from

the jury, this time stating that the foreman wished to “dis-

cuss the condition of the Jury” and to “[seek] further guid-

ance” from the judge. The judge suggested to counsel

that he confer privately with the foreman and that a tran-

script of the meeting be kept but impounded. The judge

indicated that if his suggestion was rejected he would sim-

ply deny the foreman’s request for the meeting. In re-

sponse to questions from counsel, the judge stated that

the purpose of the meeting would be to determine if the

jury was in serious physical condition, and he further in-

dicated that no instructions on the law would be given to

the foreman without calling in the jury and instructing

them in open court with counsel present.’ After further

6. See United States v. Fioravanti, 412 F. 2d 407 (CA 3), cert.

denied sub num. Panaccione v. United States, 396 U. S. 837 (1969).

7. The judge observed that the only instruction he might give

the foreman was “to go back and continue his deliberations.” App.

1823.

A! WE RRs See LE > -

Appendix D A27

discussion, al! counsel agreed, albeit somewhat reluctantly,

to the proposed meeting.

Most of the discussion between the jury foreman and

the judge concerned the deteriorating state of health of the

jurors after almost five months on the case followed by five

days of intensive deliberations and the existence of per-

sonality conflicts among the members of the panel. The

foreman also stressed at least twice during the conversation

with the judge his belief that the jury was unable to reach

a verdict and that further discussion would not eliminate

the disagreements which existed. The judge indicated

that while he would take into consideration what the fore-

man had said, he wanted the jury to continue its delibera-

tion. Near the close of the meeting, the following colloquy

took place:

“THE Court. I would like to ask the jurors to

continue their deliberations and I will take into con-

sideration what you have told me. That is all I can

say.

“Mr. RussEtu. I appreciate it. It is a situation

I don't know how to help you get what you are after.

“Tue Court. Oh, I am not after anything.

“Mr. RussEtu. You are after a verdict one way or

the other.

“THE Court. Which way it goes doesn’t make

any difference to me.” *

Shortly thereafter, the foreman returned to the jury

room and deliberations continued. The judge then in-

formed counsel, in abbreviated fashion, what had tran-

spired at the meeting with the foreman, and of his direc-

__ 8. The complete a between the foreman and the judge

is reproduced as an appendix to this opinion.

A28 Appendix D

tion that the deliberations continue.’ Defense counsel

asked to see the transcript of the in camera meeting and

moved for a mistrial because of the jury’s apparent dead-

lock. These requests were denied,’ although the judge

indicated that if no verdict were rendered by the following

Friday, he would then reconsider the mistrial motions.

The following morning, the jury returned guilty verdicts

against each of the defendants.

D

The Court of Appeals for the Third Circuit reversed

the convictions. 550 F. 2d 115 (1977). The panel was

unanimous in its rejection of the claim of preindictment

delay, but divided over the proper disposition of the re-

maining issues.

Two judges agreed that the trial judge erred in in-

structing the jury that an effect on prices resulting from an

agreement to exchange price information made out a

Sherman Act violation regardless of whether respondents

sole purpose in engaging in such exchanges was to estab-

lish a defense to price-discrimination charges. Instead,

they regarded such a purpose, if certain conditions were

met," as constituting a “controlling circumstance” which,

9. “Significantly, the judge did not tell counsel about the fore-

man’s 0 808 that the jury was hopelessly deadlocked; did not in-

dicate that the foreman was under the impression that the court

wanted a definite verdict either for the prosecution or the defend-

ants; and did not mention the directive to the jury that it should

‘see if [it] can come to a verdict.” 550 F. 2d, at 132 (Adams, J.,

concurring ).

10. After the conclusion of the trial, the Court of —_

ordered the transcript of the meeting between the judge and the

foreman released to counsel to aid them in preparation of the

appeal.

11. “Therefore, appellants were entitled to an instruction that

their verification practice would not violate the Sherman Act if the

jury found: (1) the appellants engaged in the practice solely to

comply with the strictures of Robinson-Patman; 2) they had first

= ete Done

Appendix D A29

under United States v. Container Corp., 393 U. S. 333

(1969), would excuse what might otherwise constitute an

antitrust violation. One judge considered the instructions

regarding the purpose and scope of the conspiracy and the

kinds of conduct necessary to demonstrate a withdrawal

therefrom to be infirm, while another concluded that the

convictions should be reversed because the trial judge

“improperly induced” the jury into reaching a verdict

during the in camera conversation with the foreman.

One judge, in dissent, would have sustained the con-

victions. He regarded the charge on verification to be

consistent with Container Corp., and rejected the notion

that the Robinson-Patman Act required the exchange of

price information even in the limited circumstances identi-

fied by the majority. Neither of the alleged infirmities in

the general conspiracy instructions, in his view, afforded

any basis for reversal, and he disagreed with the charac-

terization of the trial judge’s conduct as coercing a verdict.

We granted certiorari, 434 U. S. 815 (1977), and we

affirm.

II

We turn first to consider the jury instructions regard-

ing the elements of the price-fixing offense charged in the

indictment. Although the trial judge’s instructions on the

price-fixing issue are not without ambiguity, it seems rea-

sonably clear that he regarded an effect on prices as the

crucial element of the charged offense. The jury was in-

structed that if it found interseller verification had the

11. (Cont’d.)

resorted to all other reasonable means of corroboration, without

success; (3) they had good, independent reason to doubt the

buyers’ truthfulness; and (4) their communication with competitors

pl aed limited to the one pricé and one buyer at issue.” Id.,

at ;

A430 Appendix D

effect of raising, fixing, maintaining, or stabilizing the price

of gypsum board, then such verification could be con-

sidered as evidence of an agreement to so affect prices.

They were further charged, and it is this point which gives

rise to our present concern, that “if the effect of the ex-

changes of pricing information 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.” App.

1722. (Emphasis added. )

The Government characterizes this charge as entirely

consistent with “this Court’s long-standing rule that an

agreement among sellers to exchange information on cur-

rent offering prices violates Section 1 of the Sherman Act

if it has either the purpose or the effect of stabilizing

prices,” Reply Brief for United States 1, and relies pri-

marily on our decision in United States v. Container Corp.,

supra, a civil case, to support its position. See also Ameri-

can Column & Lumber Co. v. United States, 257 U. S. 377

(1921); United States v. American Linseed Oil Co., 262

U. S. 371 (1923); Maple Flooring Mfg. Assn. v. United

States, 268 U. S. 563 41925); Cement Mfrs. Protective

Assn. v. United States, 268 U. S. 588 (1925). In this view,

the trial court’s instructions would not be erroneous, even

if interpreted, as they were by the Court of Appeals, to

direct the jury to convict if it found that verification had an

effect on prices, regardless of the purpose of the respond-

ents. The Court of Appeals rejected the Government's

“effects alone” test, holding instead that in certain limited

circumstances, a purpose of complying with the Robinson-

Patman Act would constitute a controlling circumstance

excusing Sherman Act liability, and hence an instruction

allowing the jury to ignore purpose could not be sustained.

We agree with the Court of Appeals that an effect on

prices, without more, will not support a criminal convic-

Deere

DT At a OE

SEN eet, Late ome

Appendix D A31

tion under the Sherman Act, but we do not base that con-

clusion on the existence of any conflict between the re-

quirements of the Robinson-Patman and the Sherman

Acts."* Rather, we hold that a defendant’s state of mind

or intent is an element of a criminal antitrust offense

which must be established by evidence and inferences

drawn therefrom and cannot be taken from the trier of

fact through reliance on a legal presumption of wrongful

intent from proof of an effect on prices. Cf. Morissette v.

United States, 342 U. S. 246, 274-275 (1952). Since the

challenged instruction, as we read it, had this prohibited

effect, it is disapproved. We are unwilling to construe

the Sherman Act as mandating a regime of strict-liability

criminal offenses.'*

A

| We start with the familiar proposition that “(t]he ex-

istence of a mens rea is the rule of, rather than the excep-

tion to, the principles of Anglo-American criminal juris-

prudence.” Dennis v. United States, 341 U. §. 494. 500

(1951). See also United States v. Freed, 401 U. S. 601

613 (1971) (BreNNan, J., concurring in judgment):

United States v. Balint, 258 U. S. 250, 251-253 (1922).

In a much-cited passage in Morissette v. United States,

supra, at 250-251, Mr. Justice Jackson ki

Court observed: J speaking for the

12. See Part III, infra.

13. Our analysis focuses solely on the elem imi

eng under the antitrust laws, aa leaves patie aa Beer

— bens: a civil violation can be established by proof of either an

awful purpcse or an anticompetitive effect. See United States v

ontainer Corp., 393 U. S. 333, 337 (1969); id., at 341 (MARSHALL.

J., dissenting ). Of course, consideration of intent may play an im-

a ae oe actual nature and effect of the alleged

ve conduct. i j

States, 46 US. 231 258 (4 oa “deneieds Board of Trade v. United

A32 Appendix D

“The contention that an injury can amount to a

crime only when inflicted by intention is no provincial

or transient notion. It is as universal and persistent

in mature systems of law as belief in freedom of the

human will and a consequent ability and duty of the

normal individual to choose between good and evil.

A relation between some mental element and punish-

ment for a harmful act is almost as instinctive as the

child’s familiar exculpatory “But I didn’t mean to,’

and has afforded the rational basis for a tardy and un-

finished substitution of deterrence and reformation

in place of retaliation and vengeance as the motiva-

tion for public prosecution. Unqualified acceptance

of this doctrine by English common law in the Eight-

eenth Century was indicated by Blackstone's sweep-

ing statement that to constitute any crime there must

first be a ‘vicious will.” (Footnotes omitted. )

Although Blackstone’s requisite “vicious will” has been re-

placed by more sophisticated and less colorful characteri-

zations of the mental state required to support criminality,

see ALI, Model Penal Code § 2.02 (Prop. Off. Draft 1962),

intent generally remains an indispensable element of a

criminal offense. This is as true in a sophisticated criminal

antitrust case as in one involving any other criminal

offense.

This Court, in keeping with the common-law tradition

and with the general injunction that “ambiguity concern-

ing the ambit of criminal statutes should be resolved in

favor of lenity,” Rewis v. United States, 401 U. S. 808, 812

(1971), has on a number of occasions read a state-of-mind

component into an offense even when the statutory defini-

tion did not in terms so provide. See, e.g., Morissette v.

United States, supra. Cf. Lambert v. California, 355 U. S.

Appendix D A33

225 (1957). Indeed, the holding in Morissette can be

fairly read as establishing, at least with regard to crimes

having their origin in the common law, an interpretative

presumption that mens rea is required. “[M]ere omission

. of intent [in the statute] will not be construed as

eliminating that element from the crimes denounced”;

instead Congress will be presumed to have legislated

against the background of our traditional legal concepts

which render intent a critical factor, and “absence of con-

trary direction [will] be taken as satisfaction with widely

accepted definitions, not as a departure from them.” 342

U. S., at 263.

While strict-liability offenses are not unknown to the

criminal law and do not invariably offend constitutional

requirements, see Shevlin-Carpenter Co. v. Minnesota, 218

U. S. 57 (1910), the limited circumstances in which Con-

gress has created and this Court has -recognized such

offenses, see e¢.g., United States v. Balint, supra; United

States v. Behrman, 258 U. S. 280 (1922); United States v.

Dotterweich, 320 U.S. 277 (1943); United States v. Freed,

supra, attest to their generally disfavored status. See gen-

erally ALI, Model Penal Code, Comment on § 2.05, p. 140

(Tent. Draft No. 4, 1955); W. LaFave & A. Scott, Criminal

Law 222-223 (1972). Certainly far more than the simple

omission of the appropriate phrase from the statutory

definition is necessary to justify dispensing with an intent

requiccment. In the context of the Sherman Act, this gen-

erally inhospitable attitude to non-mens rea offenses is re-

inforced by an array of considerations arguing against

treating antitrust violations as strict-liability crimes.

B

The Sherman Act, unlike most traditional criminal

statutes, does not, in clear and categorical terms, precisely

A34 Appendix D

identify the conduct which it proscribes.* Both civil rem-

edies and criminal sanctions are authorized with regard to

the same generalized definitions of the conduct pro-

scribed—restraints of trade or commerce and_ illegal

monopolization—without reference to or mention of intent

or state of mind. Nor has judicial elaboration of the Act

always yielded the clear and definitive rules of conduct

which the statute omits; instead open-ended and fact-

specific standards like the “rule of reason” have been ap-

plied to broad classes of conduct falling within the purview

of the Act’s general provisions. See, e.g., Standard Oil v.

United States, 221 U. S. 1, 60 (1911); United States v.

Topco Associates, 405 U. S. 596, 607 (1972); Continental

T. V., Inc. v. GTE Sylvania, Inc., 433 U. S. 36, 49 (1977).

Simply put, the Act has not been interpreted as if it were

primarily a criminal statute; it has been construed to have a

“generality and adaptability comparable to that found to

be desirable in constitutional provisions.” Appalachian

Coals, Inc. v. United States, 288 U. S. 344, 359-360 (1933).

See generally 2 P. Areeda & D. Turner, Antitrust Law

§ 310 (1978).

Although in Nash v. United States, 229 U. S. 373, 376-

378 (1913), the Court held that the indeterminacy of the

Sherman Act’s standards did not constitute a fatal consti-

tutional objection to their criminal enforcement, never-

theless, this factor has been deemed particularly relevant

by those charged with enforcing the Act in accommodating

its criminal and remedial sanctions. The 1955 Report of

14. Senator Sherman adverted 2 i open texture of the statu-

tory language in 1890 and accurately forecast its consequence—a

pa | ~~ ty the courts in giving pho and content to the Act's

oscriptions.

. “I peers that it is difficult to define in legal language the pre-

_cise line between lawful and unlawful combinations. This must

left for the courts to determine in each particular case. All that we,

as lawmakers, can do is to declare age on principles, and we can

be assured that the courts will apply them so as to carry out the

meaning of the law . . . .” 21 Cong. Rec. 2460 (1890).

ee ee

eee

Appendix D A35

the Attorney General’s National Committee to Study the

Antitrust Laws concluded that the criminal provisions of

the Act should be reserved for those circumstances where

the law was relatively clear and the conduct egregious:

“The Sherman Act, inevitably perhaps, is couched in

language broad and general.. Modern business pat-

terns moreover are so complex that market effects of

proposed conduct are only imprecisely predictable.

Thus, it may be difficult for today’s businessman to

tell in advance whether projected actions will run

afoul of the Sherman Act's criminal strictures. With

this hazard in mind, we believe that criminal process

should be used only where the law is clear and the

facts reveal a flagrant offense and plain intent un-

reasonably to restrain trade.” Report of the Attorney

General's National Committee to Study the Antitrust

Laws 349 (1955).

The Antitrust Division of the Justice Department took a

similar, though slightly more moderate, position in its en-

forcement guidelines issued contemporaneously with the

1955 Report of the Attorney General’s Committee:

“In general, the following types of offenses are

prosecuted criminally: (1) price fixing; (2) other vio-

lations of the Sherman Act where there is proof of a

specific intent to restrain trade or to monopolize; (3)

a less easily defined category of cases which might

generally be described as involving proof of use of

predatory practices (boycotts for example) to accom-

plish the objective of the combination or conspiracy;

(4) the fact that a defendant has previously been

convicted of or adjudged to have been, : violating

the antitrust laws may warrant indictment for a sec-

ond offense. The Division feels free to seek

A36 Appendix D

an indictment in any case where a prospective de-

fendant has knowledge that practices similar to those

in which he is engaging have been held to be in vio-

lation of the Sherman Act in a prior civil suit against

other persons.” *° Id., at 350.

While not dispositive of the question now before us,

the recommendations of the Attorney General s Committee

and the guidelines promulgated by the Justice bp ea

highlight the same basic concerns which are manifeste in

our general requirement of mens rea in criminal ra

and suggest that these concerns are at least equally salient

i ntitrust context.

ss jefe attention to the type of conduct regulated by the

Sherman Act buttresses this conclusion. With certain 4?

ceptions for conduct regarded as per se illegal because ¥

its unquestionably anticompetitive effects, see, e.g., Unite

States v. Socony-Vacuum Oil Co., 310 U. S. 150 (1940),

the behavior proscribed by the Act is often difficult to ese

tinguish from the gray zone of socially acceptable -

economically justifiable business conduct. Indeed, the

type of conduct charged in the indictment in this case—

the exchange of price information among sig anne

illustrative in this regard.’* The imposition of crimina

i ivisi i idelines to

. In 1967, the Antitrust Division refined its gui

aieatee that criminal prosecutions should only be ce

against willful violations of the law. See The President : —

sion on Law Enforcement and Administration of eg tg

Report: Crime and Its Impact—An Assessment 110 ( ).

16. The exchange of price data and other ee) elgg

competitors does not invariably have anticompetitive ettec deed

deed such practices can in certain circumstances ggg etnies

efficiency and render markets more, rather than ag — : - -

For this reason, we have held that such exchanges of i _ :

do not constitute a per se violation of the a : ~ 3

United States v. Citizens & Southern Nat. Bank, 7 ae (Peatac

(1975); United States v. Container Corp., “as A bs os a eens '

J., concurring). A number of factors including most p y

Appendix D A37

liability on a corporate official, or for that matter on a

corporation directly, for engaging in such conduct which

only after the fact is determined to violate the statute

because of anticompetitive effects, without inquiring into

the intent with which it was undertaken, holds out the dis-

tinct possibility of overdeterrence; salutary and procom-

petitive conduct lying close to the borderline of impermis-

sible conduct might be shunned by businessmen who

chose to be excessively cautious in the face of uncertainty

regarding possible exposure to criminal punishment for

even a good-faith error of judgment.’” See 2 P. Areeda &

D. Turner, Antitrust Law 29 (1978); R. Bork, The Anti-

trust Paradox 78 (1978); Kadish, Some Observations On

the Use of Criminal Sanctions in Enforcing Economic

Regulations, 30 U. Chi. L. Rev. 423, 441-442 (1963).

16. (Cont'd.)

the structure of the industry involved and the nature of the infor-

mation exchanged are generally considered in divining the pro-

competitive or anticompetitive effects of this type of interseller

communication. See United States v. Container Corp., supra. See

generally L. Sullivan, Law of Antitrust 265-274 (1977). Exchanges

of current price information, of course, have the greatest potential

for generating anticompetitive effects and although not per se un-

lawful have consistently been held to violate the Sherman Act.

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

377 (1921); United States v. American Linseed Oil Co., 262 U. S.

371 (1923); United States v. Container Corp., supra.

17. The possibility that those subjected to strict liability will

take extraordinary care in their dealings is frequently regarded as

one advantage of a rule of strict liability. See J. Hall, General

Principles of Criminal Law 344 (2d ed. 1960); W. LaFave & A.

Scott, Criminal Law 222-223 (1972). . However, where the conduct

proscribed is difficult to distinguish from conduct permitted and

indeed encouraged, as in the antitrust context, the excessive caution

spawned by a regime of strict race will not necessarily redound

to the public's benefit. The antitrust laws differ in this regard from,

for example, laws designed to insure that adulterated food will not

be sold to consumers. In the latter situation, excessive caution on

the part of producers is entirely consistent with the legislative pur-

pose. See United States v. Park, 421 U. S. 658, 671-672 ( 1975).

A38 Appendix D

Further, the use of criminal sanctions in such circum-

stances would be difficult to square with the generally ac-

cepted functions of the criminal law. See Hart, The Aims

of the Criminal Law, 23 Law & Contemp. Prob., 401, 422-

425 (1958); ALI, Model Penal Code, Comment on § 2.05,

p. 140 (Tent. Draft No. 4, 1955). The criminal sanctions

would be used, not to punish conscious and calculated

wrongdoing at odds with statutory proscriptions, but in-

stead simply to regulate business practices regardless of

the intent with which they were undertaken. While in

certain cases we have imputed a regulatory purpose to

Congress in choosing to employ criminal sanctions, see,

e.g., United States v. Balint, 258 U. S$ 250 (1922), the

availability of a range of nonpenal alternatives to the

criminal sanctions of the Sherman Act negates the im-

putation of any such purpose to Congress in the instant

context.'* See generally Baker, To Indict or Not To

Indict: Prosecutorial Discretion in Sherman Act Enforce-

ment, 63 Cornell L. Rev. 405 (1978).

For these reasons, we conclude that the criminal of-

fenses defined by the Sherman Act should be construed as

including intent as an element."

18. Congress has recently increased the criminal penalties for

violation of no Sherman Act. Individual violations are now treated

as felonies punishable by a fine not to exceed $100,000, or by im-

prisonment for up to three years, or both. Corporate violators are

subject to a $1 million fine. 15 U. S. C. § 1 (1976 ed.). The sever-

ity of these sanctions provides further support for our conclusion

that the Sherman Act should not be construed as creating strict-

liability crimes. Cf. Morissette v. United States, 342 U. S. 246, 256

(1952); Sayre, Public Welfare Offenses, 33 Colum. L. Rev. 55, 72

(19335 (strict liability generally inappropriate when offense punish-

able by imprisonment). Respondents here were not prosecuted

under the new penalty provisions since they were indicted prior to

the December 21, 1974, effective date for the increased sanctions.

19. An accommodation of the civil and criminal provisions of

the Act similar to that which we approve here was suggested by

Senator Sherman in response to Senator George’s argument during

ee eS

i aa tia nl

Appendix D A39

C

Having concluded that intent is a necessary element

of a criminal antitrust violation, the task remaining is to

treat the practical aspects of this requirement.” As we

have noted, the language of the Act provides minimal as-

sistance in determining what standard of intent is appro-

priate and the sparse legislative history of the criminal

provisions is similarly unhelpful. We must therefore turn

to more general sources and traditional understandings of

the nature of the element of intent in the criminal law.

In so doing, we must try to avoid “the variety, disparity

and confusion” of judicial definitions of the “requisite but

elusive mental element” of criminal offenses. Morissette v

United States, 342 U. S., at 252. |

The ALI Model Penal Code is one source of guidance

upon which the Court has relied to illuminate questions of

19. (Cont'd. )

floor debate that the A imari

ct was primarily a penal statute t -

strued narrowly in accord with traditional Saline: re

“The first section, bein i

> : g a remedial statute, would b

liberally with a view to promote its object. It a ——

— and = courts will construe it liberally . . . .

PEI A yes ing a remedy the intention of the combination is im-

“The third section is a criminal statu i

tion te, which would be -

a pamepy 4 ay is an af eae In the esa eon

t is impossible to describe, in precise lan h

nature and limits of the off i seal ty le

a Cong. Rec. 2456 (1890). ee ee

though the bill being debated by Senators Geor

_ ——— in form from the Act as ultimately hae.

roa 3 tween them in-licates that Congress was full aware of the

aditional distinctions between the elements of civil and criminal

offe i i

= pr and apparently did not intend to do away with them in

20. In a conspiracy, two different types of i

, piracy, of intent are

9 gaeRione basic intent to agree, which is necessary to or

- existence of the conspiracy, and the more traditional intent to

: reosen'y — = ia vt “Nagrneg See W. LaFave & A. Scott

aw ¥ . . ¥

poe ees Page he ). Our discussion here focuses only

A40 Appendix D

this type. Cf. Leary v. United States, 395 U. S. 6, 46 n. 93

(1969); Turner v. United States, 396 U. S. 398, 416 n. 29

(1970). Recognizing that “mens rea is not a unitary con-

cept,” United States v. Freed, 401 U. S., at 613 ( BRENNAN,

J., concurring in judgment), the Code enumerates four

possible levels of intent—purpose, knowledge, reckless-

ness, and negligence. In dealing with the kinds of busi-

ness decisions upon which the antitrust laws focus, the

concepts of recklessness and negligence have no place.

Our question instead is whether a criminal violation of the

antitrust laws requires, in addition to proof of anticompeti-

tive effects, a demonstration that the disputed conduct

was undertaken with the “conscious object” of producing

such effects or whether it is sufficient that the conduct is

shown to have been undertaken with knowledge that the

proscribed effects would most likely follow. While the

difference between these formulations is a narrow one, see

ALI, Model Penal Code, Comment on § 2.02, p. 125 (Tent.

Draft No. 4, 1955), we conclude that action undertaken

with knowledge of its probable consequences and having

the requisite anticompetitive effects can be a sufficient

predicate for a finding of criminal liability under the anti-

trust laws.”"

Several considerations fortify this conclusion. The

element of intent in the criminal law has traditionally been

viewed as a bifurcated concept embracing either the spe-

cific requirement of purpose or the more general one of

knowledge or awareness.

21. In so holding, we do not mean to suggest that conduct

undertaken with the purpose of producing anticompetitive effects

would not also support criminal Viability, even if such effects did

not come to pass. Cf. United States v. Griffith, 334 U. S. 100, 105

(1948). We hold only that this elevated standard of intent need

not be established in cases where anticompetitive effects have been

demonstrated; instead, proof that the defendant’s conduct was

undertaken with knowledge of its probable consequences will

satisfy the Government’s burden.

Appendix D A4l1

“[I]t is now generally accepted that a person who acts

(or omits to act) intends a result of his act (or omis-

sion) under two quite different circumstances: (1)

when he consciously desires that result, whatever the

likelihood of that result happening from his conduct;

and (2) when he knows that the result is practically

certain to follow from his conduct, whatever his de-

sire may be as to that result.”. W. LaFave & A. Scott,

Criminal Law 196 (1972).

See also G. Williams, Criminal Law: The General Part

§§ 16, 18 (2d ed. 1961); Cook, Act, Intention, and Motive

in the Criminal Law, 26 Yale L. J. 645, 653-658 (1917);

Perkins, A Rationale of Mens Rea, 52 Harv. L. Rev. 905,

910-911 (1939). Generally this limited distinction be-

tween knowledge and purpose has not been considered

important since “there is good reason for imposing liability

whether the defendant desired or merely knew of the prac-

tical certainty of the results.” LaFave & Scott, supra, at

197. See also ALI, Model Penal Code, Comment on

§ 2.02, p. 125 (Tent. Draft No. 4, 1955). In either cir-

cumstance, the defendants are consciously behaving in a

way the law prohibits, and such conduct is a fitting object

of criminal punishment. See 1 Working Papers of the

National Commission on Reform of Federal Criminal

Laws 124 (1970).

Nothing in our analysis of the Sherman Act persuades

us that this general understanding of intent should not be

applied to criminal antitrust violations such as charged

here. The business behavior which is likely to give rise to

criminal antitrust charges is conscious behavior normally

undertaken only after a full consideration of the desired

results and a weighing of the costs, benefits, and risks. A

requirement of proof not only of this knowledge of likely

A42 Appendix D

effects, but also of a conscious desire to bring them to frui-

tion or to violate the law would seem, particularly in such

a context, both unneggssarily cumulative and unduly bur-

densome. Where carefully planned and calculated con-

duct is being scrutinized in the context of a criminal

prosecution, the perpetrator’s knowledge of the anticipated

consequences is a sufficient predicate for a finding of

criminal intent.

D

When viewed in terms of this standard, the jury in-

structions on the price-fixing charge cannot be sustained.

“A conclusive presumption [of intent] which testimony

could not overthrow would effectively eliminate intent as

an ingredient of the offense.” Morissette, supra, at 275.

The challenged jury instruction, 2s we vcad it, had pre-

cisely this effect; the jury was told that the requisite intent

followed, as a matter of law, from a finding that the ex-

change of price information had an impact on prices. Al-

though an effect on prices may well support an inference

that the defendant had knowledge of the probability of

such a consequence at the time he acted, the jury must

remain free to consider additional evidence before accept-

ing or rejecting the inference. Therefore, although it

would be correct to instruct the jury that it may infer intent

from an effect on prices, ultimately the decision on the

issue of intent must be left to the trier of fact alone. The

instruction given invaded this factfinding function.”

22. Respondents contend that “prior to the trial of this case, no

court had ever held that a mere exchange of information which had

a stabilizing effect on prices violated the Sherman Act, regardless

of the purpose for the exchange.” Joint Brief for Respondents 50.

Retroactive application of “this judicially expanded definition of the

crime” would, the argument continues, contravene the “principles

of fair notice embodied in the Due Process Clause.” Ibid. While

we have rejected on other grounds the “effects only” test in the con-

text of criminal proceedings, we do not agree with respondents that

Appendix D A43

Il

Our construction of the Sherman Act to require proof

of intent as an element of a criminal antitrust violation

leaves unresolved the question upon which the Court of

Appeals focused, whether verification of price concessions

with competitors for the sole purpose of taking advantage

22. (Cont'd. ) Mri 5:

the prior case law dealing with the exchange of price information

pa op proof of a purpose to restrain competition in order to

make out a Sherman Act violation.

Certainly our decision in United States v. Container Corp., 393

U. S. 333 (1969), is fairly read as indicating that proof of an anti-

competitive effect is a sufficient predicate for liability. In that case,

liability followed from proof that “the exchange of price informa-

tion has had an anticompetitive effect in the industry,” id., at 337,

and no suggéstion was made that proof of a purpose to restrain

trade or competition was also required. Thus, at least in the post-

Container period, which comprises almost the entire time period at

issue here, respondents’ claimed lack of notice cannot be credited.

Nor are the prior cases treating exchanges of information

among competitors more favorable to respondents’ position. See

American Column & Lumber Co. v. United States, 257 U. S., at 400

(“[A]ny concerted acon . . . to cause, or which in fact does cause

. . . restraint of competition . . . is unlawful”); United States v.

American Linseed Oil Co., 262 U. S. 371, 389 (1923) (“[A] neces-

sary tendency . . . to suppress competition . . . [is] unlawful”);

Maple Flooring Mfrs. Assn. v. United States, 268 U. S. 563, 585

(1925) tf to restrain trade or conduct which “had resulted,

or would necessarily result, in tending arbitrarily to lessen produc-

tion or increase prices” sufficient for liability). While in Cement

Mfrs. Protective Assn. v. United States, 268 U. S. 588 (1925), an

exception from Sherman Act liability was recognized for conduct

intended to prevent fraud, we do not read that case as repudiating

the rule set out in prior cases; instead Cement highlighted a narrow

limitation on the application of the general rule that either purpose

or effect will support liability.

We do not understand respondents to be making the related

claim that they relied on the several lower court cases exempting

interseller verification for purposes of complying with the Robinson-

Patman Act from scrutiny under the Sherman Act, see infra, at A48-

A49, and thus should not be penalized if those decisions turn out to

have been incorrect. Whatever the merits of such an argument,

respondents would appear unable to invoke it since the initiation of

their verification practices antedated those lower court decisions.

A44 Appendix D

of the §2(b) mecting-competition defense should be

treated as a “controlling circumstance” precluding liability

under §1 of the Sherman Act. We now turn to that

question.”

A

In Cement Mfrs. Protective Assn. v. United States, 268

U. S. 588 (1925), the Court held exempt from Sherman

Act § 1 liability an exchange of price information among

competitors because the exchange of information was

necessary to protect the cement manufacturers from fraud-

ulent behavior by contractors.** Over 40 years later, in

United States v. Container Corp., 393 U. S., at 335, Mr.

Justice Douglas characterized the Cement holding in the

.following terms:

“While there was present here, as in Cement Mfrs.

Protective Assn. v. United States, 268 U. S. 588, an

exchange of prices to specific customers, there was

absent the controlling circumstance, viz., that cement

manufacturers, to protect themselves from delivering

to contractors more cement than was needed for a

23. This question was not resolved by the prior discussion be-

cause a purpose of complying with the Robinson-Patman Act by

exchanging price information is not inconsistent with knowledge

that such exchanges of information will have the probable effect of

fixing or stabilizing prices. Since we hold knowledge of the prob-

able consequences of conduct to be the requisite mental state in a

criminal prosecution like the instant one where an effect on prices

is also alleged, a defendant's purpose in engaging in the proscribed

conduct will not insulate him from liability unless it is deemed of

sufficient merit to justify a general exception to the Sherman Act's

proscriptions. Cf. Cement Mfrs. Protective Assn. v. United States,

268 U. S. 588 (1925).

24. Respondents maintain that their verification practices not

only were for the purpose of complying with the Robinson-Patman

Act, but also served to protect them from fraud on the part of their

customers, and thus fall squarely within the Cement exception.

The Court of Appeals rejected this claim, 550 F. 2d, at 123 n. 9,

and we find no reason to upset this determination.

ee

Appendix D A45

specific job and thus receiving a lower price, ex-

changed price information as a means of protecting

their legal rights from fraudulent inducements to de-

liver more cement than needed for a specific job.”

The use of the phrase “controlling circumstance” in Con-

tainer Corp. implied that the exception from Sherman Act

liability recognized in Cement Mfrs. was not necessarily

limited to special circumstances of that case, although the

exact scope of the exception remained largely undefined.

Since Container Corp., several courts have read the

controlling-circumstance exception. as encompassing ex-

changes of price information when: undertaken for the

purpose of compliance with §2(b) of the Clayton Act,

as amended by the Robinson-Patman Act. See, e.g., Bel-

liston v. Texaco, Inc., 455 F. 2d 175, 181-182 (CA10

1972); Wall Products Co. v. National Gypsum Co., 326

F. Supp. 295, 312-315 (ND Cal. 1971). The Court of

Appeals in the instant case essentially adopted the same

tack—albeit with some additional limitations *°—finding

such a step necessary to eliminate a perceived conflict be-

tween the Sherman Act’s proscriptions regarding the ex-

change of price information among competitors and the

claimed necessity of such exchanges to perfect the § 2(b)

defense. The Government challenges that resolution on

two grounds: first, that there is no general controlling-

circumstance exception to the Sherman Act, and second,

that in any event, there is no conflict between the two

antitrust statutes which would require the prohibitions of

the Sherman Act to be tempered even to the degree man-

25. Although the Belliston court did not specifically refer to

Cement’s “controlling circumstance” exception, it adopted the

rationale of the Wall Products case where that exception was ex-

plicitly relied upon to immunize verification from the proscriptions

of the Sherman Act.

26. See n. 11, supra.

A46 Appendix D

dated by the Court of Appeals’ carefully circumscribed

holding in this case. We agree generally with the Gov-

ernment as to the proper accommodation of the Sherman

and Robinson-Patman Acts, and therefore find it unneces-

sary to address the more general question going to the

existence and proper seope of the so-called controlling-

circumstance exception.

Section 2(a) of the Clayton Act, as amended by the

Robinson-Patman Act, 15 U, 8S, C, §13(a) (1976 ed.),

embodies a general prohibition of price discrimination be-

tween buyers when an injury to competition is the conse-

quence. The primary exception to the §2(a) bar is the

meeting-competition defense which is incorporated as a

proviso to the burden-of-proof requirements set out in

§ 2(b):

“Provided, however, That nothing herein contained

shall prevent a seller rebutting the prima facie case

thus made 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 services or

facilities furnished by a competitor,”

The role of the §2(b) proviso in tempering the § 2(a)

prohibition of price discrimination was highlighted in

Standard Oil Co. v. FTC, 340 U, §, 231 (1951), There we

recognized the potential tension between the rationales

underlying the Sherman and Robinson-Patman Acts and

sought to effect a partial accommodation by construing

§ 2(b) to provide an absolute defense to liability for price

discrimination.

Appendix D AAT

“We need not now reconcile, in its entirety, the eco-

nomic theory which underlies the Robinson-Patman

Act with that of the Sherman and Clayton Acts, It is

enough to say that Congress did not seek by the

Robinson-Patman Act either to abolish competition

or so radically to curtail it that a seller would have

no substantial right of self-defense against a price raid

by a competitor, For example, if a large customer

requests his seller to meet a temptingly lower price

offered to him by one of his seller's competitors, the

seller may well find it essential, as a matter of business

survival, to meet that price rather than to lose the

customer, . . . There is. . . plain language and

established practice which permits a seller, through

§2(b), to retain a customer by realistically meeting

in good faith the price offered to that customer, with-

out necessarily changing the seller's price to its other

customers,” 340 U, S,, at 249.979,

In FTC wv, A. E. Staley Mfg, Co,, 324 VU, 8, 746

(1945), the Court provided the first and still the most com-

plete explanation of the kind of showing which a seller

must make in order to satisfy the good-faith requirement

of the §2(b) defense;

"Section 2(b) does not require the seller to jus-

tify price discriminations by showing that in fact they

met a competitor's price, But it does place on the

seller the burden of showing that the price was made

in good faith to meet a competitor's, . . . We

agree with the Commission that the statute at least

requires the seller, who has knowingly discriminated

in price, to show the existence of facts which would

lead a reasonable and prudent person to believe that

the granting of a lower price would in fact meet the

equally low price of a competitor.” Id., at 759-760,

A48 Appendix D

Application of these standards to the facts in Staley led to

the conclusion that the § 2(b) defense had not been made

out, The record revealed that the lower price had been

based simply on reports of salesmen, brokers, or purchasers

with no efforts having been made by the seller “to inves-

tigate or verify” the reports or the character and reliability

of the informants, 324 U, S,, at 758, Similarly, in Corn

Products Co, v, FTC, 324 U, 8, 726 (1945), decided the

same day, the §2(b) defense was not allowed because

“[t]he only evidence said to rebut the prima facie

case. . . of the price discriminations was given by wit-

nesses who had no personal knowledge of the transactions,

and was limited to statements of each witness's assumption

or conclusion that the price discriminations were justified

by competition,” 324 U, S,, at 741,

Staley’s “investigate or verily” language coupled with

Corn Products’ focus on “personal knowledge of the trans-

actions” have apparently suggested to a number of courts

that, at least in certain circumstances, direct verification of

discounts between competitors may be necessary to meet

the burden-of-proof requirements of the §2(b) defense,

See Gray v, Shell Oil Co,, 469 F, 2d 742, 746-747 (CAO

1972); Belliston v, Texaco, Ine,, 455 F, 2d, at 181-182;

Webster v, Sinelair Refining Co,, 338 F, Supp, 248, 251-

252 (SD Ala, 1971); Wall Products Co, v, National Gyp-

sum Co,, 326 F, Supp,, at 312-315; Di-Wall, Ine, v, Fibre-

board Corp,, 1970 Trade Cases {73,155 (ND Cal, 1970),

In none of these cases were the courts called upon to ad-

dress directly the question of whether interseller verifica-

tion was actually required to satisfy §2(b)'s good-faith

standard; instead, the issue was presented only obliquely

in the form of a defense to the alleged Sherman Act viola-

tion, The Belliston and Webster cases accepted the de-

fense despite the absence of evidence that alternative

Appendix D Ado

means of corroborating the claimed price reduction had

been exhausted, while the Gray and Wall Products courts

found the communication between sellers permissible only

after other alternatives had been exhausted.’ The Court

of Appeals critically and perceptively analyzed these cases

and concluded that only a very narrow exception to Sher-

man Act liability should be recognized; that exception

would cover the relatively few situations where the ve-

racity of the buyer seeking the matching discount was

legitimately in doubt, other reasonable means of corrobora-

tion were unavailable to the seller, and the interseller

communication was for the sole purpose of complying with

the Robinson-Patman Act, Despite the court's efforts to

circumscribe the scope of the exception it was constrained

to recognize, we find its analysis unacceptable,

C

A good-taith belief, rather than absolute certainty,

that a price concession is being offered to meet an equally

low price offered by a competitor is sufficient to satisfy

the §2(b) defense, While casual reliance on uncorrobo-

rated reports of buyers or sales representatives without

further investigation may not, as we noted earlier, be suf-

ficient to make the requisite showing of good faith, nothing

in the language of §2(b) or the gloss on that language in

Staley and Corn Products indicates that direct discussions

of price between competitors are required, Nor has any

court, so far as we are aware, ever imposed such a require-

ment,”” See Rowe, Pricing and the Robinson-Patman Act,

Se oe

a ee ee ee ae ee ee ee - ee >

27, The decision in Di-Wall is ambiguous on the question of

whether alternatives short of verification were exhausted prior to

the exchange of price information, 1970 Trade Cases, § 73,155,

p, 88,557,

28, In Viviano Macaroni Co, v, FTC, 411 F, 2d 255 (CA 3

1969), the §2(b) defense was not recognized because the seller

had relied solely on the report of its customer regarding other com-

A50 Appendix D

41 A. B. A. Antitrust L. J. 98, 100-102 (1971); ABA Section

of Antitrust Law, Antitrust Law Developments, 145 n. 241

(1975). On the contrary, the §2(b) defense has been

successfully invoked in the absence of interseller verifica-

tion on numerous occasions, see, é.g., -International Air

Industries, Inc. v. American Excelsior Co., 517 F. 2d 714,

725-726 (CA5 1975); Cadigan v. Texaco, Inc., 492 F. 2d

383 (CA9 1974); Jones v. Borden Co., 430 F. 2d 568, -

572-574 (CA5 1970); National Dairy Products Corp. v.

FTC, 395 F. 2d 517, 523 (CA7 1968). And in Kroger

Co. v. FTC, 438 F. 2d 1372, 1376-1377 (CA6 1971), affg

Beatrice Foods Co., 76 F. T. C. 719 (1969), the defense

was recognized despite the fact that the price concession

was ultimately found to have undercut that of the com-

petition and thus technically to have fallen outside the

“meet not beat” strictures of the defense. As these cases

indicate, and as the Federal Trade Commission observed,

it is the concept of good faith which lies at the core of the

meeting-competition defense and good faith

“is a flexible and pragmatic, not technical or doctri-

naire, concept. ... Rigid rules and inflexible ab-

solutes are especially inappropriate in dealing with the

§2(b) defense; the facts and circumstances of the

particular case, not abstract theories or remote con-

jectures, should govern its interpretation and applica-

28. (Cont'd. )

petitive offers without undertaking any investigation to corroborate

the offer or the reliability of the customer. The Court of Appeals

in the instant case read Viviano as at least suggesting, if not re-

quiring, interseller verification when the veracity of the buyer was

in doubt. As we read that case, however, it simply reaffirms the

teaching of Staley. and does not compel the further conclusion that

only interseller verification will satisty the good-faith requirement,

even in the particular circumstances identified by the Court of

Appeals. See 550 F. 2d, at 135 ( Weis, J., dissenting).

EET wo.

Appendix D A51

tion.” Continental Baking Co., 63 F. T. C. 2071, 2163

(1963).

The so-called problem of the untruthful buyer which

concerned the Court of Appeals does not in our view call

for a different approach to the §2(b) defense. The

good-taith standard remains the benchmark against which

the seller’s conduct is to be evaluated, and we agree with

the Government and the FTC that this standard can be

satisfied by efforts falling short of interseller verification in

most circumstances where the seller has only vague, gen-

eralized doubts about the reliability of its commercial ad-

versary—the buyer.” Given the fact-specific nature ef the

inquiry, it is difficult to predict all the factors the FTC or a

court would consider in appraising a seller’s good faith in

matching a competing offer in these circumstances. Cer-

tainly, evidence that a seller had received reports of simi-

lar discounts from other customers, cf. Jones v. Borden

Co., supra, at 572-573; or was threatened with a termina-

tion of purchases if the discount were not met, cf. Interna-

tional Air Industries, Inc. v. American Excelsior Co., supra,

at 726; Cadigan v. Texaco, Inc., supra, at 386, would be

relevant in this regard. Efforts to corroborate the re-

ported discount by seeking documentary evidence or by

appraising its reasonableness in terms of available market

29. “Although a seller may take advantage of the meeting com-

petition defense only if it has a commercially reasonable belief that

its price concession is necessary to meet an equally low price of a

competitor, a seller may acquire this belief, and hence perfect its

defense, by doing everything reasonably feasible—short of violat-

ing some other statute, such as the Sherman Act—to determine the

veracity of a customer's statement that he has been offered a lower

price. If, after making reasonable, lawful, inquiries, the seller can-

not ascertain that the buyer is lying, the seller is entitled to make

the sale. . . . There is no need for a seller to discuss price with

his competitors to take advantage of the meeting competition de-

fense.” (Citations omitted.) Brief for United States 86-87, and

n. 78. See also App. to Pet. for Cert. 97a-99a.

A52 Appendix D

data would also be probative as would the seller's past

experience with the particular buyer in question.”

There remains the possibility that in a limited number

of situations a seller may have substantial reasons to doubt

the accuracy of reports of a competing offer and may be

unable to corroborate such reports in any of the generally

accepted ways. Thus the defense may be rendered un- -

available since unanswered questions about the reliability

of a buyer’s representations may well be inconsistent with

a good-faith belief that a competing offer had in fact been

made." As an abstract proposition, resort to interseller

verification as a means of checking the buyer’s reliability

seems a possible solution to the seller's plight, but careful

examination reveals serious problems with the practice.

Both economic theory and common human experience

suggest that interseller verification—if undertaken on an

isolated and infrequent basis with no provision for

30. It may also turn out that sustained enforcement of § 2(f)

of the Clayton Act, as amended by the Robinson-Patman Act,

which imposes liability on buyers for inducing illegal price dis-

counts, will serve to bolster the credibility of buyers’ representa-

tions and render reliance thereon by sellers a more reasonable and

secure predicate for a finding of good faith under §2(b). See

reset Note, Meeting Competition Under the Robinson-Patman

Act, 90 Harv. L. Rev. 1476, 1495-1496 (1977). In both Great

Atlantic & Pacific Tea Co. v. FTC, 557 F. 2d 971 (CA 2 1977), and

Kroger v. FTC, 438 F. 2d 1372 (CA 6 1971), buyers have been

held liable under § 2(f£) despite the fact that the sellers were either

found not to have violated the Robinson-Patman Act (Kreger) or

were not charged with such a violation (A&P). Certiorari has

been granted in Great Atlantic & Pacific Tea Co. to consider the

permissibility of enforcing the Robinson-Patman Act in this manner.

435 U. S. 922 (1978).

31. We need not and do not decide that in aJ! such circum-

stances the defense would be unavailable. The case-by-case inter-

pretation and elaboration of the §2(b) defense is properly left to

the other federal courts and the FTC in the context of concrete fact

situations. We note also that our conclusions —— the proper

interpretation of § 2(f), see n. 30, supra, may well affect subsequent

application cf the § 2(b) defense.

ie WEE Yee es

eee.

WL et RRO aS.

WAR dak ANE: Leen a et Oe

Appendix D A53

reciprocity or cooperation—will not serve its putative

function of corroborating the representations of unreliable

buyers regarding the existence of competing offers. Price

concessions by oligopolists generally yield competitive ad-

vantages only if secrecy can be maintained; when the

terms of the concession are made publicly known, other

competitors are likely to follow and any advantage to the

initiator is lost in the process. See generally F. Scherer,

Industrial Market Structure and Economic Performance

208-209, 449 (1970); P. Areeda, Antitrust Analysis 230-231

(2d ed. 1974); Note, Meeting Competition Under the

Robinson-Patman Act, 90 Harv. L. Rev. 1476, 1480-1481

(1977). See also United States v. Container Corp., 393

U. S., at 337. Thus, if one seller offers a price concession

for the purpose of winning over one of his competitor’s

customers, it is unlikely that the same seller will freely

inform its competitor of the details of the concession so

that it can be promptly matched and diffused. Instead,

such a seller would appear to have at least as great an

incentive to misrepresent the existence or size of the dis-

count as would the buyer who received it. Thus verifica-

tion, if undertaken on a one-shot basis for the sole purpose

of complying with the § 2(b) defense, does uot hold out

much promise as a means of shoring up buyers’ repre-

sentations.

The other variety of interseller verification is, like the

conduct charged in the instant case, undertaken pursuant

to an agreement, either tacit or express, providing for

reciprocity among competitors in the exchange of price

information. Such an agreement would make little eco-

nomic sense, in our view, if its sole purpose were to guar-

antee all participants the opportunity to match the secret

price concessions of other. participants under §2(b). For

in such circumstances, each seller would know that his

A54 Appendix D

price concession could not be kept from his competitors

and no seller participating in the information-exchange

arrangement would, therefore, have any incentive for

deviating from the prevailing price level in the industry.

See United States v. Container Corp., supra, at 336-337.

Regardless of its putative purpose, the most likely conse-

quence of any agreement to exchange price information

would be the stabilization of industry prices. See Scherer,

supra, at 449; Note, Antitrust Liability for an Exchange of

Price Information-—What Happened to Container Corp.,

63 Va. L. Rev. 639, 666 (1977). Instead of facilitating use

of the § 2(b) defense, such an agreement would have the

effect of eliminating the very price concessions which pro-

vide the main element of competition in oligopolistic in-

dustries and the primary occasion for resort to the meeting-

competition defense.

Especially in oligopolistic industries such as_ the

gypsum board industry, the exchange of price information

among competitors carries with it the added potential for

the development of concerted price-fixing arrangements

which lie at the core of the Sherman Act’s prohibitions.

The Department of Justice’s 1977 Report on the Robinson-

Patman Act focused on the growing use of the Act as a

cover for price fixing; former Antitrust Division Assistant

Attorney General Kauper discussed the mechanics of the

process:

“And thus you find in some industries relatively

extensive exchanges of price information for the pur-

pose, at least the stated purpose, of complying with

the Robinson-Patman Act. .

“Now, the mere exchange of price information

itself may tenc to stabilize prices. But I think it is

also relatively common that once that exchange process

begins, certain understandings go along with it—that

Appendix D A55

we will éxchange prices, but it will be understood,

for example, you will not undercut my prices.

“And from there it is a rather easy step into a full-

fledged price-fixing agreement. I think we have seen

that from time to time, and I suspect we will continue

to see it as long as there continues to be a need to

justify particular price discriminations in the terms

of the Robinson-Patman Act.” United State Depart-

ment of Justice, Report on the Robinson-Patman Act

58-61 (1977).

We are left, therefore, on the one hand, with doubts

about both the need for and the efficacy of interseller veri-

fication as a means of facilitating compliance with § 2(b),

and, on the other, with recognition of the tendency for

price discussions between competitors to contribute to the

stability of oligopolistic prices and open the way for the

growth of prohibited anticompetitive activity. To recog-

nize even a limited “controlling circumstance” exception

for interseller verification in such circumstances would be

to remove from scrutiny under the Sherman Act conduct

falling near its core with no assurance, and indeed with

serious doubts, that competing antitrust policies would be

served thereby. In Automatic Canteen v. FTC, 346 U. S.

61, 74 (1953), the Court suggested that as a general rule

the Robinson-Patman Act should be construed so as to

insure its coherence with “the broader antitrust poli-

cies that have been laid down by Congress”; that ob-

servation buttresses our conclusion that exchanges of

price information—even when putatively for purposes of

Robinson-Patman Act compliance—must remain subject to

close scrutiny under the Sherman Act.”

32. That the §2(b) defense may not be available in every

situation where a competing offer has in fact been made is not, in

our view, a meaningful objection to our holding. The good-faith

A56 Appendix D

IV

One judge of the Court of Appeals was of the view

that reversal was required not only because of infirmities

in the antitrust instruction, but also because the trial judge

had “encroach[ed] on [the] jury[’s] authority” and had

foreclosed “a possible ‘no verdict’ outcome.” 550 F. 2d,

at 134 (Adams, J., concurring). Our own review of the

record and the circumstances surrounding the delibera-

tions of the jury, and in particular the ex parte communi-

cations between the judge and jury foreman, leads us to

the same conclusion.

After hearing a mass of testimony for nearly five

months, the jurors were sequestered when deliberations

commenced. On the second and third days of delibera-

tions, supplemental instructions were given in response to

jury questions; on the fourth day, the hours of delibera-

tions were shortened because of reported nervous tension

among the jurors; on the fifth day, the judge sua sponte

delivered what amounted to a modified Allen charge * in

the course of providing further answers to questions from

32. (Cont'd. )

requirement of the § 2(b) defense implicitly suggests a somewhat

imperfect matching between competing offers actually made and

those allowed to be met. Unless this requirement is to be aban-

doned, it seems clear that inadequate information will in a limited

number of cases, deny the defense to some who, if all the facts had

been known, would have been entitled to invoke it. For reasons

already discussed, interseller verification does not provide a satis-

factory solution to this seemingly inevitable problem of inadequate

_information. Moreover, § 2(b) affords only a defense to liability

and not an affirmative right under the Act. While sellers are, of

course, entitled to take advantage of the defense when they can

satisfy its requirements, efforts to increase its availability at the

expense of broader, affirmative antitrust policies must be rejected.

33. Allen v. United States, 164 U. S. 492 (1896). An injunc-

tion to the jury “to deliberate with a view toward reaching an

agreement if you can, without violence, to individual judgment,”

was also included in the judge's original instruction prior to the

commencement of deliberations.

a

Appendix -D A57

the jury; and on the sixth day, the modified Allen charge

was repeated, this time in response to a note from the jury

that it was unable to reach a verdict. Against this back-

ground of internal pressures and apparent disagreements

and confusion among the jurors, the jury foreman, on the

morning of the seventh day of deliberations, requested a

meeting with the judge “to discuss the condition of the

Jury and further guidance.” The District Judge suggested

that he meet alone with the jury foreman and counsel ac-

quiesced. The transcript of the meeting, which was ini-

tially impounded but released for purposes of the appeal,

contained several references by the foreman to the jury's

deadlock, as well as an exchange suggesting the strong

likel*xood that the foreman carried away from the meet-

ing the impression that the judge wanted a verdict “one

way or the other.” The judge’s report to counsel sum-

marizing the discussion made no reference to either of

these matters.”

We find this sequence of events disturbing for a num-

ber of reasons. Any ex parte meeting or communication

between the judge and the foreman of a deliberating jury

is pregnant with possibilities for error. This record amply

demonstrates that even an experienced trial judge cannot

be certain to avoid all the pitfalls inherent in such an en-

terprise. First, it is difficult to contain, much less to an-

ticipate, the direction the conversation will take at such a

meeting. Unexpecied questions or comments can gener-

ate unintended and misleading impressions of the judge’s

subjective personal views which have no place in his in-

struction to the jury—all the more so when counsel are

not present to challenge the statements. Second, any oc-

casion which leads to communication with the whole jury

panel through one juror inevitably risks innocent mis-

34. See n. 9, supra.

A58 Appendix D

statements of the law and misinterpretations despite the

undisputed good faith of the participants. Here, there de-

veloped a set of circumstances in which it can fairly be

assumed that the foreman undertook to restate to his fel-

low jurors what he understood the judge to have implied

regarding the resolution of the case in a definite verdict

“one way or the other.” There is, of course, no way to de-

termine precisely what the foreman said when he returned

to the jury room.

Finally, the absence of counsel from the meeting and

the unavailability of a transcript or full report of the meet-

ing aggravate the problems of having one juror serve as

a conduit for communicating insiructions to the whole

panel. While all counsel acquiesced to the judge’s ex

parte conference with the jury foreman, they did so on the

express understanding that the judge merely intended—

as no doubt at the time he did—to receive from the fore-

man a report on the state of affairs in the jury room and

the prospects for a verdict. Certainly none of the parties

waived the right to a full and accurate report of what

transpired at the meeting nor did they agree that the

judge was to repeat the instructions as to his understand-

able reluctance to accept the jury’s inability to reach a

verdict. Because neither counsel received a full report

from the judge, they were not aware of the scope of the

conversation between the foreman and the judge, of the

judge’s statement that the jury should continue to delib-

erate in order to reach a verdict, or of the real risk that

the foreman’s impression was that a verdict “one way or

the other” was required. Counsel were thus denied any

opportunity to clear up the confusion regarding the judge’s

direction to the foreman, which could readily have been

accomplished by requesting that the whole jury be called

into the courtroom for a clarifying instruction. See Rogers

v. United States, 422 U. S. 35, 38 (1975); Fillippon v.

abe mae ewes 4 ~ ae ee ee

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Appendix D A59

Albion Vein Slate Co., 250 U. S. 76, 81 (1919). Thus, it

is not simply the action of the judge in having the private

meeting with the jury foreman, standing alone—undesir-

able as that procedure is—which constitutes the error;

rather, it is the fact that the ex parte discussion was inad-

vertently allowed to drift into what amounted to a sup-

plemental instruction to the foreman relating to the jury's

obligation to return a verdict, coupled with the fact that

counsel were denied any chance to correct whatever mis-

taken impression the foreman might have taken from this

conversation, that we find most troubling.

While it is, of course, impossible to gauge what part

the disputed meeting played in the jury’s action of return-

ing a verdict the following morning, this swift resolution

of the issues in the face of positive prior indications of

hopeless deadlock, at the very least, gives rise to serious

questions in this regard. Cf. Rogers v. United States,

supra, at 40-41. In Jenkins v. United States, 380 U. S. 445

(1965), we held an instruction directing the jury that it

had to reach a verdict was reversible error; the logic of

Jenkins cannot be said inapposite here given the peculiar

circumstances in which discussions between the judge and

the foreman took place.

We are persuaded that the Court of Appeals would

have been justified in reversing the convictions solely be-

cause of the risk that the foreman believed the court was

insisting on a dispositive verdict; a belief which we must

assume was promptly conveyed to the jurors. The unin-

tended direction of the colloquy between the judge and

the jury foreman illustrates the hazards of ex parte com-

munications with a deliberating jury or any of its members.

V

Respondents also challenged in the Court of Appeals

the jury instructions regarding participation in the con-

A60 Appendix D

spiracy and withdrawal therefrom; one judge on the panel

concluded that these instructions were infirm. We agree

with the Government that the charge concerning partici-

pation in the conspiracy, while perhaps not as clear as it

might have been, was sufficient. The jury was informed

repeatedly that only a single conspiracy was alleged and

that liability could only be predicated on the knowing

involvement of each defendant, considered individually,

in the conspiracy charged. As given," the instruction was

substantially in accord with those generally given in simi-

lar antitrust cases. See ABA Antitrust Section, Jury In-

structions in Criminal Antitrust Cases 1964-1976, chs. 10,

28 (1978); 2 E. Devitt & C, Blackmar, Federal Jury Prac-

tice and Instructions §§ 55.09, 55.17 (3d ed., 1977). And

in any event, the disputed instruction differed in only

minor and immaterial respects from the instruction re-

quested by respondents.”

We have more difficulty with the instruction on with-

drawal from conspiracy. The jury was charged

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