A federal grand jury in Philadephia has begun a criminal antitrust investigation of major timber and paper companies following complaints that they fixed prices of paper distributed to offices, business and retail stores for years.
The Justice Department inquiry comes at the same time as a suit by the state of Connecticut to collect triple damages from 13 major paper manufacturers it accuses of conspiring to fix prices.
The state filed the suit on July 28 in U.S. District Court in Hartford, citing a wide variety of anti-competitive practices that allegedly inflated the cost of paper procured for state government agencies.
The companies have until Oct. 17 to reply to the state attorney general's office. Companies reached yesterday did not comment, but the Washington attorney for one of them, Hammermill Paper Co., of Erie, Pa., denied the allegations.
Among other things, the suit accuses the giant companies of using "threats and other concerted action" to make local distributors of their paper adhere to pricing and marketing arrangements worked out at meetings in "hotels, motels and clubs."
The locations of the secret meetings were listed as Vancouver, British Columbia, Victoria, British Columbia; Ponte Verde, Fla.; Jay, Maine; San Francisco, Chicago and New York City.
Named in the Connecticut civil action were Boise Cascade Corp.; Champion International; Great Northern Nekoosa; Hammermill Paper; International Paper; the Mead Corp.; Potlatch Co.; Union Camp Corp.; Wausau Paper Mills Co.; Westvaco Corp., and Weyerhaeuser Co.
The defendants include some of the largest international paper companies. They own vast tracts of timberland in the United States and Canada, operate pulp and paper plants and sawmills, and own, as well, some of the wholesale outlets that sell finished paper products to stores, businesses and government agencies under competitive bidding procedures.
Connecticut buys annually nearly $2 million of paper for copying, duplicating, typing, and printing. Since the suit was also filed on behalf of Connecticut citizens, any damages could also cover tens of millions of dollars worth of paper sold each year to private business and stores. The complaint said the conspiracy dated to at least 1965.
Howard Adler Jr., attorney in Washington for Hammermill, said there was "no basis in fact" for any of the Connecticut allegations. Adler said that the grand jury in Philadelphia had begun subpoenaing company records but had called no witnesses. "There's no reason to believe there'll be an indictment," he said.
John Hughes, director of the antitrust division of the U.S. attorney's office in Philadephia, confirmed yesterday that the grand jury investigation was under way but declined to give details.
The paper industry has a significant effect on the U.S. economy since the requirements of other industries for packaging and shipping materials have become immense. Eleven international companies each have U.S. sales of more than $1 million annually.
However, the pricing and marketing of paper is a complex and mysterious process. In an interview in Bucksport, Maine, last week, a spokesman for St. Regis Paper Co. declined t give any details of the price of finished paper leaving the plant.
According to private sources in Maine, major paper companies in that state have recently been paying around $16 a ton for incoming spruce wood, and charging wholesalers $300 or more for a ton of finished paper, depending on the variety.
The state of Connecticut has been purchasing paper for duplicating machines in bulk for more than $1,200 a ton from wholesalers, according to Theodore Faraci, a purchasing officer for the state government.
Faraci said that the complaints involving the alleged defrauding of the state by the major companies had not originated with him.He said that he had received no indication of price fixing in the bidding. But state authorities said that they had excellent evidence of a price setting scheme from other sources.
A New York City printer who purchases substantial quantities of quality paper for printing texts, and who asked not to be identified, charged yesterday that wholesale companies sell within one quarter cent a pound of each other. "There are no discounts - the price is pretty well fixed; it's been a joke in the industry for years," he said.
Writing, copying and other quality paper is sold in Connecticut by wholesalers, some independent and others subsidiaries of the major paper companies.
The Connecticut suit charges that the price-fixing scheme was carried out through these wholesale houses. It says the companies agreed to "fix, raise, maintain and stabilize the price" of paper at "artificial" levels.
The suit also charges that the big companies allocated and divided up markets so as to decrease competition among themselves.
Independent wholesalers who refused to go along with the pricing scheme "were systematically eliminated as competitors," the complaint says. It does not say how this was done, but Connecticut authorities noted that the paper companies are the only source of supply for these independent operators.