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Northeastern University 


School of Law 







Printed for the use of the 
Temporary National Economic Committee 

y^l,^?'/', ivn^/!\)o, 







JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMMERS, Representative from Texas, Vice Chairman 

JAMES M. MEAD, Senator from New York 

WALLACE H. WHITE, Je., Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General, 

HUGH COX, Special Assistant to the Attorney General. 

Representing the Department of Justice 

SUMNER T. PIKE, Commissioner, 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner, 

*EWIN L. DAVIS, Chairman, 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics, 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics, 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

♦CHARLES L. KADES, Special Assistant to the General Counsel, 

Representing the Department of the Treasury 

WAYNE C. TAYLOR, Under Secretary of Commerce, 

•M. JOSEPH MEEHAN, Chief Statistician, Bureau of Foreign and Domestic Commerce, 

Representing the Department of Commerce 

LEON HENDERSON, Economic Coordinator 

DEWEY ANDERSON, Executive Secretary 

,^jj THEODORE J. KREPS, Economic Adviser 

Monograph No. 38 







This monograph was written by 


Associate Professor of Law, Columbia University School of Law, and 
Special Assistant to the General Counsel, Treasury Department 

The Temporary National Economic Committee is greatly indebted 
to tliis author for his contribution to the literature of the subject under 

The status of the materials in the volume is precisely the same as that 
of other carefully prepared testimony when given by individual witnesses; 
it is information submitted for Committee deliberation. No matter what 
the official capacity of the witness or author may be, the publication of his 
testimony, report, or monograph by the Committee in no way signifies nor 
implies assent to, or approval of, any of the facts, opinion, or recommen- 
dations, nor acceptance thereof in whole or in ptart by the members of the 
Temporary National Economic Committee, individually or collectively. 
Sole and undivided responsibility for every statement in such testimony, 
reports, or monographs rests entirely upon the respective authors. 

(Signed) Joseph C, O'Mahoney, 
Chairman, Temporary National Economic Committee. 




I. Letter of transmittal vii 

II. Introduction 1 

III. Substantive law 2 

A. Introductory . 3 

B. The rule of reason 3 

1. Necessity 3 

2. Meaning 3 

3. Application to ancillary restraints of trade 3 

4. Applicability to nonancillary restraints of trade 4 

5. Divergent rules at common law 4 

6. Initial rejection of the rule of reason by the Supreme 

Court 5 

a. Peckham, J., in United States v. Trans-Missouri 

Freight Association 5 

b. Taft, J., in Addyston Pipe case 6 

c. White, C. J., in Standard Oil of New Jersey v. 

United States 7 

7. Adoption of the rule of reason 7 

8. Effects of such adoption 8 

C. Activities of loose-knit confederations 9 

1. Direct price-6xing 9 

a. Analysis of practice 9 

b. Effects of practice 10 

c. Summary of authorities 10 

2. Control of output 14 

a. Analysis of practice 14 

b. State of the authorities 14 

c. Suggestions. 16 

3. Sharing markets 16 

a. Analysis of practice 16 

b. Summary of authorities 17 

4. Collection and dissemination of trade statistics and 

of open-price systems 18 

a. Description of practice -- 18 

b. Summary of authorities 19 

c. Enumeration of important features of statis- 

tical programs 19 

d. Appraisal of the legality of the principal fea- 

tures of statistical programs 20 

(1) Nonavailability to purchasers and 

the public of the information col- 
lected and disseminated 20 

(2) Closed and past transactions 21 

(3) Filing of current and future prices-- 22 

(4) Agreement to adhere to filed price for 

a fixed period of time or not to 
deviate therefrom without prior 

notice 23 

(5) Waiting period 23 

(6) Disclosure of individual price and 

production data 24 

(7) Interpretative data 25 

(8) Meetings and discussions 25 

(9) Recommendations, persuasion, or 

pressure concerning price or pro- 
duction policies 25 

(10) Penalties 26 

(11) Miscellaneous factors that may 

affect the legality of statistical 

programs 26 

(a) Competitive texture of the 

industry 26 

(b) Demoralized state of the 

industry 26 

(c) Effect on price 27 

(d) Regulatory agency 27 



III. Substantive law— Continued. . ^ ^. ■, t, 

C. Activities of loose-knit confederations — Continued. -t^age 

e. Suggestions 27 

f. Conclusions 28 

5. Degree of market control 29 

a. De6nitions of terms 29 

b. Summary of authorities 30 

c. Suggestions 34 

6. Price uniformity and identical bids 35 

a. Description of practices 35 

b. Analysis of price uniformity 36 

c. State of the authorities 37 

d. Suggestions 38 

7. Price leadership 40 

a. Analysis of practice 40 

b. State of the authorities 42 

c. Suggestions 43 

d. Conclusions 45 

8. Miscellaneous practices 45 

D. Mergers and consolidations 46 

1. SugarTrust 46 

2. Northern Securities case 47 

3. Oil and Tobacco Trusts 49 

4. Terminal case 53 

5. Railroad cases 57 

6. Shoe Machinery Trust 59 

7. Steel Corporation 63 

8. Anthracite coal cases 66 

9. Anaconda merger 71 

10. International Harvester consolidation 72 

11. Recapitulation 74 

a. Size of the capital combination. and its posi- 

tion in the industry 74 

b. Intent to monopolize 77 

c. Indulgence in predatory practices 79 

d. Monopoly power to exclude competitors or to 

fix prices 80 

e. Existence of actvial competition in the indus- 

try after the completion of the merger 80 

f . Potential competition 81 

g. Form of combination 82 

h. Other justifications 82 

12. Rule of reason in monopoly cases 83 

13. Dissolution 84 

14. Relation of monopoly to restraint of trade 84 

1 5. Stock acquisitions and holding companies 86 

IV. Antitrust enforcement 90 

A. The inadequacy of appropriations and personnel 90 

B. Complexity of antitrust litigation and the inadequacies of 

procedure 90 

C. Recommendations 92 

1. Registration of trade groups 92 

2. Declaratory rulings and legality of capital combina- 

tions 1 95 

3. Open, comprehensive, and complete files on major 

industries 96 

4. Specification of offenses 96 

5. Implementation of the statute 97 

6. Distressed industries 99 

7. Existing concentration of industry 99 

V. Conclusion . 100 

VI. Appendix 1 101 


Hon. Joseph C. O'Mahoney, 

Chairman, Temporary National Economic Committee, 
Washington, D. C. 

My Dear Senator: I have the honor to submit for the record a 
study of the construction and enforcement of the Federal antitrust 
hiws, prepared in the Treasury Department for the Temporary 
National Economic Committee. 

You will recall that when the Committee first began its work 
Herman Oliphant, then the General Counsel for the Treasury Depart- 
ment, was the Treasury representative on the Committee. Because 
he was a recognized authority in the field of trade regulation, to this 
Department was assigned the preparation of a siu-vey of the statutes 
and decisions imder the antitrust laws. The work was begun under 
Mr. Oliphant's direction and with Milton Handler, associate professor 
of law, Columbia University school of law, and Special Assistant to 
the General Counsel of this Department, in immediate charge of the 
work. Since the unfortunate and untimely death of Mr. Oliphant on 
January 11, 1939, the work has been continued and brought to a con- 
clusion by Mr. Handler, under the general supervision of the writer as 
the Treasury representative on the Committee. 

In the collection of the material which forms the basis for the study 
Mr. Handler had the benefit of workers both within and without the 
Department. However, the legal conclusions reached in the report, 
as well as the views expressed therein as to the desirability of certain 
changes in the laws relating to monopoly, restraint of trade, and 
unfair competition, are those of Mr. Handler and not of the Depart- 
ment, which does not express any view as regards any of the subjects 
under discussion in the report. However, the writer has no hestitancy 
in saying that he is personally in accord with the views expressed and 
believes that they merit the carefid consideration of the Committee. 
Sincerely yom's, 

Joseph J. O'Connell, Jr., 
Special Assistant to the General Counsel, Department of the Treasury. 

February 1, 1941. 



A half century has elapsed since Congress gave expression in legisla- 
tion to the American faith in free competition as a system of economic 
organization and control. By this legislation, it sought to preserve 
competition from the extinction which threatened it. These 50 
years have witnessed many changes in the American way of life and in 
the structure and operation of our business system. The dreaded 
trusts of the past century are but pygmies in comparison with our 
present day industrial giants. Activities subversive of competition 
are today conducted on a scale and imder forms beyond the conception 
of the framers of the legislation of 1890. Competition still exists, but 
it has been compromised by organizations, arrangements, and practices 
which are alien to its spuit and which impede its proper functioning. 

Those who have lost faith in competitive institutions attribute this 
failure to the allegedly mistaken purpose of the Sherman Law. To 
them, competition has been tried and foimd wanting; they indict it as 
inefficient, wasteful, and obsolete; it is an archaic system, contrived 
for the needs of petty trade but utterly unsuited for the highly 
organized and war-strained economy of the twentieth century. 
Others profess agreement with the objectives of the legislation which 
they characterize as laudable but unattainable; the Sherman Act, to 
their way of thinking, like national prohibition, is incapable of 

Under these viewpoints the Sherman law is beyond redemption and 
must give way to new legislation based upon different conceptions 
and pointed toward different objectives. 

The failure of a statute, however, may result not from a misconceived 
policy but from faulty draftsmanship or from frustrating judicial con- 
struction; the objectives of a law may remain unachieved not because 
they are unattainable but because they have not been earnestly pur- 
sued by vigorous, impartial, and effective enforcement. Laws to a 
large extent are only as effective as the men who enforce them. The 
procedural and substantive limitations of a statute may be overcome 
by the resourcefulness and energy of enforcement agencies, but laws, 
no matter how perfect, are never self-executing, and without sufficient 
manpower, remain a pious aspu-ation untranslated from the realm of 
words to that of action. A law which has never been truly enforced 
cannot be said to be unenforceable. 

The wisdom of the economic philosophy underlying the Sherman 
Act has been considered from various angles by the Temporary Na- 
tional Economic Committee in its extensive hearings and has been the 
subject of study, direct and indirect, on the part of many of the other 
agencies associated in this investigation. The Treasury's part in the 
general diagnosis has been the examination of (1) the substantive and 

' Grateful acknowledgment is made to Lawrence Eno, Esq., of the New York Bar, for his valuable assist- 
ance in the preparation of that part of this report dealing with the application of the antitrust laws to loose- 
knit confederations and to Sidney Barrows for assisting with the proofs. 



procedural provisions of the antitrust laws, (2) the court decisions con- 
struing such laws, and (3) the agencies and methods of enforcement, to 
ascertain whether shortcomings of statute, judicial decision, or ma- 
chinery of enforcement may fairly be held accountable, in whole or 
in part, for this failure of our antitrust legislation. This report 
embodies the results of the various studies conducted by the Treasury, 
stated as succinctly and summarily as is possible. 


The conduct condemned by the Sherman Act falls into two general 
categories, (1) restraint of trade, and (2) monopoly. What is a 
restraint of trade and what constitutes a monopoly are left undefined 
by the statute. The legal repression of restraint of trade and monop- 
oly long antedated this legislation, both terms having a common law 
significance. The case-law development of the concept of restraint 
of trade had been extensive, the courts over a long period of years 
having passed upon the legality of a wide variety of agreements and 
concerted arrangements. The statute, read in the light of this body 
of authority, possessed a concreteness of meaning not otherwise appar- 
ent on its face. Less helpful, however, were the common law prece- 
dents dealing with monopoly since they treated of situations factually 
and conceptually different from those arising after 1890. 

Enforcement officials were called upon to apply the statute to two 
types of combines, (1) loose-laait confederations and (2) close-knit 
integrations. The loose-knit combinations involved the elimination 
of competition among independent business enterprises either by vol- 
untary accord thi'ough the fixation of prices, allotment of customers, 
division of territories, and curtailment of production or to the involun- 
tary exclusion of competitors through boycotts and similar restrictive 
practices. The close-knit integrations related to the combination of 
companies by trust, holding company, merger, or consolidation. 

What criterion was to be applied by the courts in determining the 
legality of such concerted action on the part of business men? Was 
every arrangement between competitors by wliich prices were directly 
fixed or indirectly affected milawful, whether or not the parties to the 
combine were in substantial control of the trade or industry and in a 
position to dictate the market price? Did the statute condemn agree- 
ments setting reasonable prices? Could business men resort to price 
arrangements as a corrective to a competition which no matter how 
benevolent in theory was ruinous in practice? Was every acquisition 
of the corporate stock or physical assets of a competitor — even the 
formation of a partnership — interdicted by the law? If some integra- 
tion was permissible, at what point did the combination of companies 
become unlawful? 

What guidance did the legislation itself provide to the solution of 
these perplexing problems? The statute in section 1 condemned every 
contract, combination, or conspiracy, in the form of a trust or other- 
wise, in restraint of trade or commerce among the several States. Did 
this mean that every agreement between two or more competitors 
constituting a technical restraint was prohibited? Was every pur- 
chase of a competing business, no matter how extenuating the cir- 
cumstances, forbidden? 


Tho broad inclusiveness and iincomproniisin<^ severity of the statu- 
tory language seemed to permit of but one answer. A literal reading 
of the law would have condemned every arrangement deemed a re- 
straint of trade at common law, including the familiar covenants not 
to compete ancillary to the sale and purchase of a going business or 
appurtenant to a contract of employment. It was to avoid the 
absurdities of such a construction that the rule of reason was adopted. 

In view of the widespread misconception of the rule of reason, a few 
words concerning its genesis and scope may not be inappropriate. 


The concept of reasonableness is not unfamiliar to our law. A 
standard of reason is employed in many branches of law to measure 
the legality of human conduct. In some fields the standard rises 
barely above the unanalyzed subjective reaction of those entrusted 
with its application. In other fields, the rule of reason is a term of 
art with a history and a logic of its own. As the term "reasonable- 
ness" itself invites a looseness of analysis, and in view of the numerous 
clusters of meaning that envelope its use in the law, it is particularly 
important that its precise meaning in the field of restraint of trade 
be clearly outlined. 

Reason as the test of legality of a restraint of trade was first applied 
in the classic case of Mitchel v. Reynolds} Its use was initially con- 
fined to the field of ancillary restraints ^ such as covenants by sellers 
not to compete with their purchasers or agreements not to compete 
on the part of employees, purchasers, lessors, lessees, and partxiers. 
The reasonableness of an ancillary restraint was determined in general 
by the needs of the convenantee (i. e., the person in whose favor the 
covenant was given) , the consequences of the restraint upon the cove- 
nantor, and the effect of the restriction on the public. Primary em- 
phasis was given to the spatial and temporal scope of the restriction, 
and agreements were generally upheld if no broader in area and no 
longer in time than the needs of the covenantee required. A vast 
body of learning has developed in respect of the reasonableness of 
ancillary agreements not to compete and numerous and minute dis- 
tinctions have been drawn, none of which is material to the present 
inquiry. A convenient summary of the present law on the subject 
is to be found in the Restatement of the Law of Contracts, prepared 
and published under the auspices of the American Law Institute, the 

1 1 p. Wms. 181, 24 Eng. Rep. 347 (1711). 

2 By an ancillary restraint is meant an agreement which, though restrictive of competition, is an integral 
part of a larger, lawful transaction. The historic examples of such ancillary restrictions are the agreement 
of a seller of a business as part of the contract of sale not to compete with his purchaser, the agreement of 
an employee not to compete with his employer after the conclusion of his employment, an agreement by- 
partners not to compete with the partnership, an agreement by a purchaser not to use the article purchased 
in competition with the seller and restrictions in leases in respect of the use of the leased premises or of other 
premises owned by the landlord. See Handler, Restraint of Trade (1924), ISEncyc. Soc. Sciences 339. For 
the leading cases and selected bibliography, see Handler, Cases on Trade Regulation (1937) c. 3. 


pertinent declaration of which is set forth in a footnote.^ For present 
purposes it is sufficient to note that the genesis and principal field 
of application of the rule of reason has been in relation to the familiar 
ancillary restraints of trade. 

Scholars and courts have been greatly exercised as to whether the 
common law applied the rule of reason to restraints of competition 
which were not ancillary to some major transaction.^ The evidence 
is conflicting and has given rise to divergent interpretations. The 
failure to recognize that the "common law" is but a metaphorical 
expression and that there are as many common laws as there are 
independent judicial systems has been the principal cause of con- 
fusion. The fact is that the English and some American courts 
regarded the rule of reason as applicable to horizontal arrangements 
between competitors, which curbed, controlled, or eliminated compe- 
tition, and which were not ancillary to any major transaction. Many 
American courts, on the contrary, either explicitly regarded the rule 
of reason as inapplicable to such arrangements, or, without mention 
of the rule, branded the activities under consideration as unlawful. 
Thus, there were at least three discernible trends in the authorities 
prior to 1890. Under what was probably the prevailing view, all 
agreements among persons engaged in the same trade, industry, or 
line of commerce, whereby competition was eliminated or reduced 
either through the fixation of prices, the control of output, the pooling 
of profits, the division of markets or other devices inconsistent with 
competitive institutions, were unlawful, whether or not the prices 
or other market conditions noncompetitively established were reason- 
able, whether or not the arrangement was designed to halt a ruinous 
competition and whether or not the formation of the combination 
was inspired by good motives. Under another view, agreements by 
minority groups without control of the market were upheld if com- 
petition in the market itself remained unaffected, despite the fact that 
competition among the parties themselves was either eliminated or 
controlled. The rule of reason under this view meant in essence the 
absence of monopoly power. Under a third view, legality was not 

3 5513. Definition of a Bargain in Restraint of Trade. A bargain is in restraint of trade when its perform- 
ance would limit competition in any business or restrict a promisor in the e.xercise of a gainful occupation. 

§514. When a Bargain in liestraint of Trade is Illegal. A bargain in restraint of trade is illegal if the 
restraint is unreasonable. 

§51.5. When a Restraint of Trade is Unreasonable. A restraint of trade is unreasonable, in the absence of 
statutory authorization or dominant social or economic justification, if it- 
Co) is greater than is required for the protection of the person for whose benefit the restraint is imposed; 

(^) imposes undue hardship upon the person restricted, or 

(c) tends to create, or has for its purpose to create, a monopoly, or to control prices or to limit produc- 

tion artificially, or 

(d) unreasonably restricts the alienation or use of anything that is a subject of property, or 

(e) is based on a promise to refrain from competition and is not ancillary either to a contract for the 

transfer of good-will or other subject of property or to an existing employment or contract of 
§516. Instances of Reasonable Restraints. The following bargains do not impose unreasonable restraints 
of trade unless effecting, or forming part of a plan to effect, a monopoly: 

(a) A bargain by the transferor of property or of a business not to compete with the buyer in such a way 

as to injure the value of the property or business sold: 
(6) A bargain by the buyer or lessee of property or of a business not to use it in competition with or to 
the injury of the seller or lessor: 

(c) Abargain to enter into partnership with an actual or possible competitor; 

(d) Abargain by a partner not to interfere by competition or otherwise with the business of the part- 

nership while it continues, or subject to reasonable limitations after his retirement; 
(«) A bargain to deal exclusively with another; 

(/) A bargain by an a.ssistant, servant, or agent not to compete with his employer, or principal, during 
the term of the employment or agency, or thereafter, within such territory and during such time 
as may be rea.sonably necessary for the protection of the employer or principal, without imposing 
undue hardshi[) on the employee or agent. 
* All restrictions on competition which are not part of some larger lawful transaction are deemed non- 
ancillary. Examples arc naked agreements not to compete, agreements sharing markets, dividing terri- 
tories, controlling output, and fixing prices. 


limited to the activities of minority groups but extended to arrange- 
ments by those with monopoly power provided their monopoly posi- 
tion was not abused. Even price-fixing agreements might be upheld 
under this view if the prices established were reasonable and the ob- 
jects of the combine were not the exploitation of the public but the 
rectification of intolerable industrial conditions.* 

To speak of a common law in light of such divergences of ruling is 
to court confusion. 

The Supreme Court, as is commonly known, originally rejected the 
rule of reason, holding it inapplicable to proceedings under the Sher- 
man Act.^ Primacy was given to the word "every" in section 1 of 
the statute. It was felt that there was no room under the wording 
of the statute for the adoption of common law views of legality, as- 
suming the common law countenanced horizontal, non-ancillary re- 
strictions of competition. The pith of this ruling appears in the fol- 
lowing excerpts from the opinion of Mr, Justice Peckham in United 
States V. Trans-Missouri Freight Assn.: ' 

* * * 'pjj^p next question to be discussed is as to wnat is the true construction 
of the statute, assuming that it applies to common carriers by railroad * * *. 
Is it confined to a contract or combination which is only in unreasonable restraint 
of trade or commerce, or does it include what the language of the act plainljy and 
and in terms covers, all contracts of that nature? * * * 

It is now with much amplification of argument urged that the statute, in 
declaring illegal every combination in the form of trust or otherwise, or conspiracy 
in restraint of trade or commerce, does not mean what the language used therein 
plainly imports, but that it only means to declare illegal any such contract which 
is in unreasonable restraint of trade, while leaving all others unaffected by the 
provisions of the act; that the common law meaning of the term "contract in 
restraint of trade" includes only such contracts as are in unreasonable restraint 
of trade, and when that term is used in the Federal statute it is net intended to 
include all contracts in restraint of trade, but only those which are in unreasonable 
restraint thereof. 

The term is not of such limited signification. Contracts in restraint of trade 
have been known and spoken of for hundreds of years both in England and in 
this country, and the term includes all kinds of those contracts which in fact 
restrain or may restrain trade. Some of such contracts have been held void and 
unenforceable in the courts by reason of their restraint being unreasonable, while 
others have been held valid because they were not of that nature. A contract 
may be in restraint of trade and still be valid at common law. Although valid, 
it is nevertheless a contract in restraint of trade, and would be so described either 
at common law or elsewhere. By the simple use of the term "contract in restraint 
of trade," all contracts of that nature, whether valid or otherwise, would be in- 
cluded, and not alone that kind of contract which was invalid and unenforceable 
as being in unreasonable restraint of trade. When, therefore, the body of an 
act pronounces as illegal every contract or combination in restraint of trade or 
coinmerce among the several States, etc., the plain and ordinary meaning of such 
language is not limited to that kind of contract alone which is in unreasonable 
restraint of trade, but all contracts are included in such language, and no exception 
or limitation can be added without placing in the act that which has been omitted 
by Congress * * *_ 

The plaintiffs are, however, under no obligation in order to maintain this action 
to show that by the common law all agreements among competing railroad 
companies to keep up rates to such as are reasonable were void as in restraint of 
trade or commerce. There are many cases which look in that direction if they 
do not precisely decide that point * * *. But assuming that agreements of 
this nature are not void at common law and that the various cases cited by the 
learned courts below show it, the answer to the statement of their validity now is 
to be found in the terms of the statute under consideration * * *. 

' (1932) 32 Col. L. Rev. 291, 297; Peppin, Price-Fixing Agreements Under the Sherman Anti-Trust Law, 
(1940) 28 Calif. L. Rev. 297. 

6 United States v. Trans-Missouri Freight Assn. (1897) 166 U. S. 290; United States v. Joint Traffic Assn. 
(1898), 171 U. S. 505; Addiiston Pipe and Steel Co. v. United States (1899), 175 U. S. 211. 

' (1897) 166 U. S. 290, 327, 334. 


The approach of Judge Taft in his celebrated and oft-quoted opinion 
in the Addyston Pipe case ^ was quite different. The basis of his rejec- 
tion of the rule of reason was not the presence of the word "every" in 
section 1 but the fact that the common law restricted the application 
of the rule of reason to the ancillary restraints and condemned all 
nonancillary restrictions on competition. Hence, even were it 
assumed that the statute codified the common law, there would be no 
room for the application of the rule of reason to combinations in 
restraint of trade. His conclusions from a thorough examination of 
the common-law precedents were as follows: 

For the reasons given, then, covenants in partial restraint of trade are generally 
upheld as valid when they are agreements (1) by the seller of property or business 
not to compete with the buyer in such a way as to derogate from the value of the 
property or business sold; (2) by a retiring partner not to compete with the firm; 
(3) by a partner pending the partnership not to do anything to interfere, by com- 
petition or otherwise, with the business of the firm; (4) by the buyer of property 
not to use the same in competition with the business retained by the seller; and (5) 
by an assistant, servant, or agent not to compete with his master or employer 
after the expiration of his time of service. Before such agreements are upheld, 
however, the court must find that the restraints attempted thereby are reasonably 
necessary (1, 2, and 3) to the enjoyment by the buyer of the property, goodwill, 
or interest in the partnership bought; or (4) to the legitimate ends of the exist- 
ing partnership; or (5) to the prevention of possible injury to the business of the 
seller from use by the buyer of the thing sold; or (6) to protection from the 
danger of loss to the employer's business caused by the unjust use on the part of 
the employee of the confidential knowledge acquired in such business * * *_ 

It would be stating it too strongly to say that these five classes of covenants in 
restraint of trade include all of those upheld as valid at the common law; but it 
would certainly seem to follow from the tests laid down for determining the validity 
of such an agreement that no conventional restraint of trade can be enforced unless 
the covenant embodying it is merely ancillary to the main purpose of a lawful 
contract, and necessary to protect the covenantee in the enjoyment of the legiti- 
mate fruits of the contract, or to protect him from the dangers of an unjust use of 
those fruits by the other party * * * 

This very statement of the rule implies that the contract must be one in which 
there is a main purpose, to which the covenant in restraint of trade is merely 
ancillary. The covenant is inserted only to protect one of the parties from the 
injury which, in the execution of the contract or enjoyment of its fruits, he may 
suffer from the unrestrained competition of the other. The main purpose of the 
contract suggests the measure of protection needed, and furnishes a sufficiently 
uniform standard by which the validity of such restraints may be judicially deter- 
mined. In such a case, if the restraint exceeds the necessity presented by the 
main purpose of the contract, it is void for two reasons: First, because it oppresses 
the covenantor, without any corresponding benefit to the covenantee; and, second, 
because it tends to a monopoly. But where the sole object of both parties in 
making the contract as expressed therein is merely to restrain competition, and 
enhance or maintain prices, it would seem that there was nothing to justify or excuse 
the restraint, that it would necessarily have a tendency to monopoly, and there- 
fore would be void. In such a case there is no measure of what is necessary to the 
protection of either party, except the vague and varying opinion of judges as to 
how much, on principles of political economy, men ought to be allowed to restrain 
competition. There is in such contracts no main lawful purpose, to subserve 
which partial restraint is permitted, and by which its reasonableness is measured, 
but the sole object is to restrain trade in order to avoid the competition which 
it has always been the policy of the common law to foster * * * 

* * * It is true that there are some cases in which the courts, mistaking, 
as we conceive, the proper limits of the relaxation of the rules for determining the 
unreasonableness of restraints of trade, have set sail on a sea of doubt, and have 
assumed the power to say, in respect to contracts which have no other purpose and 
no other consideration on either side than the mutual restraint of the parties, 
how much restraint of competition is in the public interest, and how much is not. 

• (1898) 86 Fed. 271. 281. 


The manifest danger in the administration of justice according to so shifting, 
vague, and indeterminate a standard would seem to be a strong reason against 
adopting it * * *.• 

Like Judge Taft, Chief Justice White assumed that the statute 
codified the coiiiinon law, but he derived a totally different set of 
conclusions from this initial premise. His examination of the common 
law satisfied him that the standard of reason was applied to all re- 
straints, ancillary and nonancillary, and that the term restraint of 
trade was used at common law to signify an unreasonable restriction 
of competition. A reasonable restraint of trade was to him a contra- 
diction in terms — if the restriction was reasonable it was not a restraint 
of trade; if a restraint of trade, it was by definition unreasonable. 
By ascribing this artificial meaning to "restraint of trade," he avoided 
the embarrassment of the word ''every" and imported the rule of 
reason into the statute. His thesis is expounded at considerable 
length in Standard Oil Co. oj New Jersey v. United States, ^° but is more 
succinctly expressed in United States v. American Tobacco Co.^^ as 

Applying the rule of reason to the construction of the statute, it was held in the 
Standard Oil case that as the words "restraint of trade" at common law and in the 
law of this country at the time of the adoption of the Antitrust Act only embraced 
acts or contracts or agreements or combinations which operated to the prejudice 
of the public interests by unduly restricting competition or unduly obstructing 
the due course of trade or which, either because of their inherent nature or effect 
or because of the evident purpose of the acts, etc., injuriously restrained trade, 
that the words as used in the statute were desigxied to have and did have but a 
like significance * * *. In other words, it was held, not that acts which the 
statute prohibited could be removed from the control of its prohibitions by a 
finding that they were reasonable, but that the duty to interpret which inevitably 
arose from the general character of the term restraint of trade required that the 
words restraint of trade should be given a meaning which would not destroy the 
individual right to contract and render difficult if not impossible any movement 
of trade in the channels of interstate commerce^ — -the free movement of which it 
was the purpose of the statute to protect. 

The rule of reason thus became part of our antitrust jurisprudence 
more than 20 years after the enactment of the Sherman law. 

The explanation for the divergent conclusions of these jurists is 
not difficult to discover. The weight of available evidence supports 
the view that the words of the statute were used by the Congress in 
their common-law sense. '^ But Judge Taft and Chief Justice White 
had different conceptions of the common law. This is not surprising 
in light of the lack of uniformity in the juristic doctrines of restraint of 
trade prior to 1890. While there was no real support for Chief Justice 
White's unorthodox definition of restraint of trade, the English 
precedents were in accord with his general conclusion that the validity 
of all restraints, ancillary and nonancillary, was measured by the 
standard of reason. If the English precedents and the few American 
authorities following them constituted the "common law," then Chief 
Justice White's conclusion was correct despite the essential unsound- 
ness of his analysis. If the prevailing view of the American courts 
which Judge Taft followed constituted the "common law," then Judge 
Taft's conclusions were correct. The truth of the matter, as we have 
seen, was that there was more than one common law view and it was 

» For a different elaboration of the rule of reason, see the Special Message of President Taft to Congress on 
the Anti-Trust Statute, December 5, 1911. 
i» (1911) 221 U. S. 1. 
11 (1911) 221 U. S. 106, 179. 
u Apex Hosiery Co. v. Leader (1940), 310 U. S. 469, 494. 


not sufficient to assert that the Congress intended to codify the com- 
mon law without attempting to ascertain which of the common law 
views the legislators had in mind. To the extent that the congres- 
sional purpose was obscure, the responsibility of selection devolved 
upon the courts. Whichever view was adopted, violence necessarily 
was done to the word "every" in the statute, since under both con- 
structions some restraints were permissible. 

Under the view which prevaUed before 1911, all non-ancillary re- 
strictions of competition such as combinations to fix prices, pool profits, 
share markets, and control output were unlawful restraints prohibited 
by the statute. As the reasonableness of the restriction was legally 
immaterial, the restraint could not be justified by proof of good 
motives, by the fact that the combine lacked control of the market, 
by the reasonableness of the prices fixed, or by other extenuating cir- 
cumstances. After 1911, agreements fixing prices, dividing territories, 
and controlling production continued to be unlawful, but now they were 
denominated "unreasonable restraints of trade." No greater toler- 
ance of the attempted justification of such restraints after the adoption 
of the rule of reason was exhibited by the courts than during the period 
of its rejection. In the main and subject to minor exceptions, conduct 
which prior to 1911 was condemned as an illegal restramt was held un- 
reasonable 'per se thereafter and hence unlawful. ^^ The adoption of 
the rule of reason effected more of a change in theory than in actual 
doctrine, insofar as loose-knit combinations were concerned. Greater 
effect is to be discerned in the field of close-knit combinations, and even 
in the case of the loose-knits, there have been occasional rulings that 
would be inexplicable save for the rule of reason. Reference to these 
rulings shall be made hereinafter.^* 

There has been a tendency to regard the rule of reason as opening 
the door to the validation of any scheme or device for the curtailment 
of competition which may be justified on grounds of business expe- 
diency. Reasonable in this context means rational, and if an arrange- 
ment is not irrational, having regard for the circumstances of its for- 
mation and operation, it should be free from censure. Though oc- 
casional official utterances and isolated passages in judicial opinions 
may point in this direction, the decisions of the Supreme Court in the 
past 30 years, viewed in their entirety, clearly reject this construction 
of the rule of reason. 

Candor compels the admission that the rulings of the Supreme Court 
have not always followed a consistent course. The rule of reason has 
meant different things to the different Justices. Despite the oscilla- 
tions of the Court, the gi*eat majority of its rulings do appear, however, 
to follow a fairly constant pattern. 

The Court has recognized that the Sherman Law was intended to 
preserve for the public the protection and advantages of free competi- 
tion. Any device which diminishes this protection and reduces these 
advantages is at war with the manifest statutory purpose. Whether 
or not such devices may further the public good to a greater extent 
than free competition is an inquiry which is not open since the statute 
accepts competition as the smnmum honum of our society. Conse- 
quently the reasonableness of a horizontal agreement among competi- 
tors must be determined in the light of its compatibility with the ends 

" (1932) 32 Col. L. Rev. 291, 303. 

'< See discussion of those cases in sections on collection and dissemination of trade statistics (p. 18) and 
degree of market control (p. 29). 


to which our antitrust laws are directed. The statute sets the frame- 
work for the inquiry into the reasonableness of particular practices. 
To differentiate between reasonable and unreasonable price agreements 
or between the suppression of competition by those with good motives 
and those with bad would be to sustain arrangements which are essen- 
tially antagonistic to the competitive institutions which the statute 
seeks to preserve. The rule of reason if so extended would be depend- 
ent upon considerations of policy and business expediency unrelated 
to the purposes of the statute. The standard of reason though related 
to the statutory objectives is still vague and indefinite. This is, how- 
ever, inherent in the very nature of the standard. What is and what 
is not consistent with the maintenance of competition is not easy of 
determination. Integrating the rule of reason into the purposes of 
the legislation does not eliminate the element of discretion. It does, 
however, establish the metes and bounds of such discretion and pre- 
cludes the voyage upon the chartless sea of doubt which was so greatly 
feared by Judge Taft. 

In short, then, the rule of reason has introduced flexibility into our 
laws regulating business competition without effecting substantial 
changes in the principle of such regulation.^** 

It is our conclusion from a study of the decisions construing and 
applying the statute that the failures of enforcement cannot be fairly 
attributed to the adoption by the Supreme Court of the rule of reason. 
By this we do not imply that there have not been rulings which have 
frustrated the statutory purpose. In our judgment, such a rule, 
properly understood and correctly applied, can be a source of strength 
rather than of weakness. Some rule of reason was inevitable. A law 
which strait-jacketed business enterprise would fall of its own weight. 

We turn now to a consideration of the application of the statute to 
specific acts and practices of trade grou^ps, from which a fuller under- 
standing of the meaning of the rule of reason can be derived. 



The elimination of price competition in any industry, trade, or line 
of commerce by the fixation of the market price may be accomplished 
directly by agreement or understanding among competitors or in- 
directly by various devices, methods, and practices. We shall deal 
at this point with direct price-fixing by agreement or understanding. 

A distinction must be drawn between the fixation of the market 
price by agreement among competitors and the elimination of price 
competition among the members of a minority group not having the 
power to determine the market price. The market price can be 
established by agreement only where sellers or buyers controlling a 
substantial part of the industry, trade, or line of commerce, participate 
in the combination. Price-fixing arrangements eliminating the com- 
petition among the parties thereto, however, are frequently made h} 
minority groups which are not in control of the market. Such agree- 
ments may well affect the market price even though they do not 
control it. 

»« See United States v. Socony-Vacuum Oil Co. (1940), 310 U. S. 150, 213, 218. 
291144 — 41 — No. 38 2 


- Price-fixing agreements may relate to the establishment of uniform 
selling prices, bids, or offers, to the maintenance of existing price 
levels, to the uniform movement, either up or down, of the prices of 
competitors, or to the establishment of various mechanisms by which 
the prices of the parties to the agreement are determined. An agree- 
ment relating to the movement of prices is nonetheless a price agree- 
ment though it may contemplate the uniform reduction rather than 
the increase of prices. 


The price-fixing agreement is the least costly and most effective of 
the devices by which competition may be suppressed. It involves 
none of the difficulties of the merger and consolidation and yet may be 
virtually as efficacious in the elimination of competition. An agree- 
ment fixing market prices introduces rigidity into that portion of the 
price structure which the commodities in question comprise and pre- 
vents the flexible adjustment of such prices to fluctuations in supply 
and demand. 

Whether the prices fixed are reasonable or unreasonable, the 
valuable and essential quality of flexibility and the advantages of 
competition are destroyed by such agreements. With the accelerated 
tempo of modern economic change, prices, though originally reason- 
able, must be constantly revised if they are to continue to be entirely 
fair. Wlio is to determine the fairness of the prices of the multitudinous 
commodities that swell the currents of interstate commerce? The 
public obviously cannot rely on the self-restraint of the participants 
in the price-fixing agreement. Judicial supervision of the reasonable- 
ness of prices can be but sporadic, dependent as it is upon the un- 
certain and fortuitous course of litigation. A court ruling approving 
of prices today is no warrant that the prices a month hence will be 
satisfactory, and only by new litigation that may endure for years 
can a supplemental determination be obtained. Apart from the 
inherent difficulties of determining the elusive issue of reasonableness, 
the very laxity of judicial supervision would impel more pervasive 
regulation. Private price-fixing, therefore, would inevitably lead to 
governmental price-fixing. 


Both in its early and its recent pronouncements, the Supreme Court 
has consistently condemned direct price-fixing as an unlawful and 
unreasonable restraint of trade. '^ Notwithstanding its categorical 
condemnation of the practice during the first decade of the statute's 
existence,'^ further rulings on the legality of direct price fixing have 

's United Slates v. Socnny-Vaamm Oil Co. (1940), 310 U. S. 150; United States v. Trenton Potteries Co. 
(1927), 273 U. S. 392; United States v. Trans-Missovri Freight Assn. (1897), 166 U. S. 290; United States v. 
Joint Trafflc A.tsn. (1898), 171 U. S. Wr,; Addyston Pipe and Steel Co. v. United States (1899), 175 U. S. 211; 
Swift & Co. V. United States (1905), 19f> U. S. 375: Standard Sanitary Mfg. Co. v. United States (1912), 226 U. S. 
20; F. r C. V Pacific States Paper Trade Assn. (1927), 273 U. S. 52. 

Bibliography: JalTe & Tohriner, The LcsaHty of Price-Fixins Agreements (1932) 45 Harv. L. Rev. 1164; 
Peppin, Price Fixing Agreements Under the Anti-Trust Law (1940) 28 Calif. L. Rev. 297; The Rule of Reason 
in Loose-Knit Combinations (1932), 32 Col. L. Rev. 291; Ooodnovv, Trade Combinations at Common Law 
(1912) 12 Pol. Sci. Quar. 212; Allen, Criminal Con.spirapics in Re.straint of Trade at Common Law (1910) 
23 Harv. L. Rev. 531; Pope, The Legal Asi)ect of Monopoly (1907) 20 Harv. L. Rev 167; Watkins, The 
Chance in Trust Policy fl922) 35 Harv. L. Rev. 815, 926; Naujoks, Monopolv and Restraintof Trade Under 
the Sherman Act (1928) 4 Wis. L. Rev. 387 (1928), 5 id. at 1; Handler, Trade Association Activities For- 
bidden by the Federal Trade Commission, C. C. H. Trade Regulation Comments No. 2, July 1938; Esch. 
Summaries of Federal Trade Commission Cases in Restraint of Trade (1938). 

'• United States v. Trans-Missouri Freight Assn. (1897), 166 U. S. 290. 


been sought in almost every subsequent decade. The subject received 
elaborate consideration in 1927 in United States v. Trenton Potteries 
Co." where a price-fixing agreement made by persons manufacturing 
and distributing 82 percent of the vitreous pottery bathroom fixtures 
produced in this country was declared unlawful. In submitting the 
case to the jury, the trial court charged that if it found that the agree- 
ment alleged in the indictment had been made by the defendants, 
it might return a verdict of guilty without regard to the reasonableness 
of the prices fixed and irrespective of whether prices were actually 
lowered or raised, since a price-fixing agreement in and of itself was 
an unreasonable restraint of trade. It refused to charge the jury, as 
requested by the defendants, that a price-fixing agreement was 
invalid only if the prices fixed were unreasonable. The pertinent 
passage from the charge is as follows: 

* * * the law is clear that an agreement on the part of the members of a 
combination controlling a substantial part of an industry, upon the prices which 
the members are to charge for their commodity, is in itself an undue and unreason- 
able restraint of trade and commerce; * * *.'^ 

In sustaining this charge, the Supreme Court said: 

* * * But it does not follow that agreements to fix or maintain prices are 
reasonable restraints and therefore permitted by the statute, merely because the 
prices themselves are reasonable. Reasonableness is not a concept of definite 
and unchanging content. Its meaning necessarily varies in the different fields 
of the law, because it is used as a convenient summary of the dominant considera- 
tions which control in the application of legal doctrines. Our view of what is a 
reasonable restraint of commerce is controlled by the recognized purpose of the 
Sherman Law itself. Whether this type of restraint is reasonable or not must be 
judged in part at least in the light of its effect on competition, for whatever 
difference of opinion there may be among economists as to the social and economic 
desirability of an unrestrained competitive system, it cannot be doubted that the 
Sherman Law and the judicial decisions interpreting it are based upon the assump- 
tion that the public interest is best protected from the evils of monopoly and price 
control by the maintenance of competition. * * *.'^ 

After a full review of its prior rulings holding direct price fixing to 
be invalid per se, it stated its conclusions as follows: 

The aim and result of every price-fixing agreement, if effective, is the elimina- 
tion of one form of competition. The power to fix prices, whether reasonably 
exercised or not, involves power to control the market and to fix arbitrary and 
unreasonable prices. The reasonable price fixed today may through economic 
and business changes become the unreasonable price of tomorrow. Once estab- 
lished, it may be maintained unchanged because of the absence of competition 
secured by the agreement for a price reasonable when fixed. Agreements which 
create such potential power may well be held to be in themselves unreasonable or 
unlawful restraints, without the necessity of minute inquiry whether a particular 
price is reasonable or unreasonable as fixed and without placing on the Govern- 
ment in enforcing the Sherman Law the burden of ascertaining from day to day 
whether it has become unreasonable through the mere variation of economic 
conditions. Moreover, in the absence of express legislation requiring it, we 
should hesitate to adopt a construction making the difference between legal and 
illegal conduct in the field of business relations depend upon so uncertain a test 
as whether prices are reasonable — a determination which can be satisfactorily 
made only after a complete survey of our economic organization and a choice 
between rival philosophies.^" 

The Court in the recent case of United States v. Socony-Vacuum 
Oil Co.,^^ has had occasion recently to reexamine the basis of its 

'7 (1927) 273 U. S. 392. Discussediin (1927) 7 B. U. L. Rev. 322; (1927) 11 Marq. L. Rev. 163. 

«» ri927) 273 U. S. 392, 396. 

i« Id. at 396. 

20 Id. at 397. 

SI (1940) 310 U. S. 150. 


decision in the Trenton Potteries and kindred cases. Not only has it 
reaffirmed the Trenton Potteries ruling, but it has earnestly endeavored 
to plug every hole that may have existed or that might be driven 
through the doctrine of that case. The Court restates the rule, 
after a careful analysis of the precedents, as follows: 

Thus for over 40 years this Court has consistently and without deviation 
adhered to the principle that price-fixing agreements are unlawful per se under 
the Sherman Act and that no showing of so-called competitive abuses or evils 
which those agreements were designed to eliminate or alleviate may be interposed 
as a defense. ^2 

It disposes of the attempted justifications of the defendants' acts 
in the following unambiguous terms: 

Ruinous competition, financial disaster, evils of price cutting and the like 
appear throughout our history as ostensible justifications for price-fixing. If the 
so-called competitive abuses were to be appraised here, the reasonableness of 
prices would necessarily become an issue in every price-fixing case. In that 
event the Sherman Act would soon be emasculated; its philosophy would be sup- 
planted by one which is wholly alien to a system of free competition; it would 
not be the charter of freedom which its framers intended. * * * 

Congress has not left with us the determination of whether or not particular 
price-fixing schemes are wise or unwise, healthy, or destructive. It has not per- 
mitted the age-old cry of ruinous competition and competitive evils to be a 
defense to price-fixing conspiracies. It has no more allowed genuine or fancied 
competitive abuses as a legal justification for such schemes than it has the good 
intentions of the members of the combination. If such a shift is to be made, it 
must be done by the Congress. Certainly Congress has not left us with any such 
choice. Nor has the act created or authorized the creation of any special excep- 
tion in favor of the oil industry. Whatever may be its peculiar problems and 
characteristics, the Sherman Act, so far as price-fixing agreements are concerned, 
establishes one uniform rule applicable to all industries alike. ^^^ 

The ambit of the Trenton Potteries ^* rule is thus d.efined: 

Nor is it important that the prices paid by the combination were not fixed in 
the sense that they were uniform and inflexible. Price-fixing as used in the 
Trenton Potteries case has no such limited meaning. An agreement to pay or 
charge rigid, uniform prices would be an illegal agreement under the Sherman 
Act. But so would agreements to raise or lower prices whatever machinery for 
price-fixing was used. * * * Hence, prices are fixed within the meanmg of 
the Trenton Potteries case if the range within which purchases or sales will be 
made is agreed upon, if the prices paid or charged are to be at a certain level or 
on ascending or descending scales, if they are to be uniform, or if by various 
formulae they are related to the market prices. They are fixed because they are 
agreed upon.^^ 

In order to avoid any misconception of its holding, the Court re- 
peats its conclusions as follows: 

Under the Sherman Act a combination formed for the purpose and with the 
effect of raising, depressing, fixing, pegging, or stabilizing the price of a com- 
modity in interstate or foreign commerce is illegal per se.^^ 

Not only is direct price-fixing a violation of the Sherman law; it is 
an unfair method of competition prohibited by the Federal Trade 
Commission Act.^^ The Federal Trade Commission has issued nu- 
merous orders forbidding price-fixing by competitors.^^ 

The reiterated assertion by the Court in decisions rendered after 
the Trenton Potteries and before the Socony-Vacuum cases that there 

22 /(/. at 218. 

23 Id. at 221. 

2< (1927) 27.3 U. S. 392. 

» Uiiited States v. Soconp Vacuum Oil Co. (1940), 310 U. S. 150, 222. 

26 /d. at 223. 

2' F. T. C. V. Pacific States Paper Trade Assn. (1927), 273 U. S. 52. 

2' See supra n. 15. 


must ill cveiy case be "a definite factual showing of illegality" ^^ 
created some doubt as to whether such factual proof might be neces- 
sary in litigation concerning price-fixing. All such doubts were dis- 
pelled by the Socoriy-Vacuum decision which repeatedly states that 
the practice is unlawful per ae and that facts purporting to justify 
it are of no avail. 

It is thus possible, in light of these unequivocal pronouncements, 
to state without qualification the present doctrine in respect of price- 
fixing. Any agreement, arrangement, or understanding among com- 
petitors, in or affecting interstate commerce, fixing the market price 
of the goods which they sell or purchase, is unlawful under the anti- 
trust laws. It matters not whether the prices are set by combinations 
of sellers or buyers, whether prices are raised, lowered, or maintained 
at existmg levels, whether the prices are reasonable or unreasonable, 
whether the agreement fixes minimum or maximum prices, or whether 
price structures are tampered with by direct agreement or by any 
other means. Nor are the motives or intentions of the members of 
the combination material. It is of no moment that they may in good 
faith have regarded such an agreement as essential to their economic 
salvation. Nor would evidence be admissible, if such could ever be 
produced, that in practice the agreement resulted in demonstrable 
social and economic benefits to all those in or dependent upon the 
industry in which the combination operates. The fact that the 
agreement fixes or maintains prices is conclusive of its illegality. ^^ 

Wliile the court in the Trenton Potteries case stressed the fact that 
the defendants controlled 82 percent of their industry and stated the 
rule in terms of price-fixing "by those controlling in any substantial 
manner a trade or business," it had no occasion to and it did not 
draw any distinction between price-fLxing by majority and minority 
groups. Though it is clear that a minority combination whose aim 
is to control the market price is unlawful, doubt has arisen when its 
purpose is not to fix the market price but merely to eliminate price 
competition among the members of the combination. In earlier de- 
cisions, the degree of market control was not deemed a material 
factor in determining the legality of any arrangement restrictive of 
competition.^^ In Appalachian Coals, Inc., v. United States, ^^ however, 
the Court upheld an exclusive sales agency which had been formed 
to market 54.21 percent of the coal mined in the Appalachian area, 
notwithstanding the fact that the arrangement eliminated competi- 
tion among the parties thereto. The Court emphasized the fact that 
the combination was subject to effective competition in all the mar- 
kets in which its products were disposed and that the defendants, 
consequently, were unable to control the market price of their coal. 

»9 Standard Oil Co. (Indiana) v. U. S. (1931), 283 U. S. 163, 179, discussed in 40 Yale L. J. 1297, 31 Col. 
L. Rev. 1049; Appalachian Coals, Inc., v. United States (1933), 288 U. S. 344, 377, discussed in Eldridge, The 
Appalachian Coals Case and the Rule of Reason (1933), 1 Geo. Wash. L. Rev. 507 (1933), 31 Mich. L. Rev. 
837 (1933), 28 III. L. Rev. 265 (193.3), 19 Va. L. Rev. 851 (1933), 81 U. of Pa. L. Rev. lOOfi. 

30 For recent consent decrees prohibiting price-fl.\ine, see: United States v. National Assn. of Commission 
Lumber Salesmen, C. 0. H. Trade Reg. Serv. (8th ed/) par. 25,414 (E. D. La. 1940); United Slates v. Engi- 
neering Survey and Audit Co., Inc., id. par. 25,415 (E. D. La. 1940); United States v. Pittstjurgh Tile and Mantel 
Contractors' Assn., id. par. 25,417 (W. D. Pa. 1940); United States v. Employing Plasterers' Assn. of Allegheny 
County, id. par. 25,429 (W. D. Pa. 1940); United States v. Underwood PUIiott Fisher Company, id. par. 25, ASS 
(S. D. N. Y. 1940); United States v. National Container Assn., id. par. 25,4.34 (S. D. N. Y. 1940); United States 
v. American Potash and Chemical Corp., id. par. 25,461 (S. D. N. Y. 1940); United States v. The Tile Con- 
tractors' A.?sn. of America, id. par. 25,469 (N. D. 111. 1940); United States v. Long Island Sand and Gravel 
Producers' Assn., id. par. 25,475 (S. D. N. Y. 1940); United States v. liausch & tomb Optical Co., id. par. 
25,487 (S. D. N. Y. 1940); United Slates v. The Borden Co., id. par. 25,520 (N. D. 111. 1940); United States v. 
Southern California Marble Assn., id. par. 25,607 (S. D. Calif. 1940); United States v. Electrical Solderleas 
Service Connector Institute, id. par. 25,585 (S. D. N. Y. 1941). 

31 Addvston Pipe & Steel Co. v. United States (1899), 175 U. S. 211; American Column & Lumber Co. v. 
United States (1921), 257 U. S. 377. 

3» (1933) 288 U. S. 344. 


Further support for the view that the Court might permit price- 
fixing by minority, nonmonopoly groups, was afforded in Standard 
Oil Co. {Indiana) v. United States.^^ Tliere the fixation of royalty 
rates as part of a cross-hcensing arrangement of competing patents 
was sustained on the ground that the gasohne produced by the 
patented cracking process competed with the gasohne made by un- 
patented methods and that the proportion of cracked gas sold was 
too slight to have any effect on the ultimate price of gasohne to 

However, in the recent Socony-Vacuum. ^* case, the Court in a strong 
dictum declared price-fixing by groups without the power to control 
the market to be unlawful as constituting a "threat to the central 
nervous system of the economy".^^ It would thus appear that the 
contrary intimations of the Appalachian ^^ and the Cracking ^'' cases 
have been definitely rejected and that under the present construction 
of the statute no price agreements between two or more competitors 
will be tolerated. 

The degree of market control possessed by a combination is an 
element of such importance in antitrust litigation that we shall re- 
turn, in a later section of this study, to a more detailed consideration 
of this factor. 


(a) analysis of practice 

The regulation of output is almost as effective an instrument for 
the suppression of competition as direct price-fixing and may in fact 
be one of the methods by which prices are regulated. Such control 
may be exerted by formal agreement or by mere informal understand- 
ing. In equating supply with probable demand, hours of plant oper- 
ation may be limited, complete shut-downs may be ordered or business 
allocated among producers on the basis of some predetermined quota. 

Output control sometimes has for its object not the regulation of 
prices but the solution of problems created by excess capacity. Wliat- 
ever its object, the private control of production definitely tends to 
eliminate and restrict competition. 

The regulation of output does not necessarily imply its ciu"tailment. 
Production may be maintained at an agreed level or actually increased. 
The true test is not whether output is in fact reduced, but whether 
it is determined by the concerted and cooperative action of competitors 
rather than by the normal operation of competitive forces. 

(b) state of the authorities 

There are not as many reported cases involving the control of 
production as there are involving direct price-fixing.^^ It is indeed 

M (1931) 283 U. S. 163. 

3< (1940) 310 U. S. 150. 

35 Id. at 224, n. 59. 

30 (1933) 288 U. S. 344. 

" (1931) 283 U. S. 163. 

39 See American Column & TAimber Co. v. United States (1921), 257 U. S. 377; Oibbit v. McNedey (C. C. A. 
9th, 1902), 118 Fed. 120; United States v. National Assn. of Window Glass Mfrs. (1923), 263 U. S.'403; Conti- 
nental Wall Paper Co. v. Lewis Voigtit & Sons Co. (C. C. A. 6th, 1906), 148 Fed. 939, 947, affirmed (1909), 
212 U. S. 227; Cravens v. Carter-Crnme Co. (C. C. A. 6th, 1899), 92 Fed. 479, 481, 485. For a recent consent 
decree prohibitinp the hmitation of output see United States v. National Container Assn., C. C. H. Trade- 
Eeg. Serv. (8th ed.) par. 25,434 (S. D. N. Y. 1940). 

Bibliography: qnie Rule of Reason in Loose-Knit Combinations (1932), 32 Col. L. Rev. 291, 305; Handler, 
The Susar Institute Case and the Present Status of the Anti-Trust Laws (1936), 36 Col. L. Rev. 1, 21; 
Handler, Trade Association Activities Forbidden by the Federal Trade Commission, C. C. H. Trade 
Regulation Comments No. 2, July 1938; Burns, The Decline of Competition (1936), 64, 154. 


curious that on a problem of such paramount importance there should 
be such a paucity of authoritative rulings. Such decisions as there 
are indicate quite clearly that any concerted effort to regulate pro- 
duction contravenes the antitrust laws. In American Column & Lum- 
ber- Co. V. United States,^^ an association of hardwood manufacturers, 
whose members were responsible for about one-third of the national 
output, sought by an elaborate program of trade statistics and the 
suggestions and exhortations of its statistical manager to limit pro- 
duction. The Supreme Court declared the activities of the associa- 
tion to be unlawful, emphasizing the illegal nature of the manager's 
efforts to discourage a threatened "overproduction" in the industry. 
This ruling was preceded by the decision of the circuit court of appeals 
in Gibbs v. McNeeley *" in wliich a combination of manufacturers and 
wholesalers of red-cedar sliingles agreed to fix prices and to shut down 
their mills or take other necessary steps to curtail output whenever 
supply exceeded demand. The Court stated: 

The combination in the case before the court is more than a combination to 
regulate prices; it is a combination to control the production of a manufactured 
article more than four-fifths of which is made for interstate trade, and to diminish 
competition in its production, as well as to advance its price. These features, 
we think, determine its object, and bring it under the condemnation of the 

In National Assn. of Window Glass Mfrs. v. United States *^ the 
Supreme Court upheld an arrangement whereby the available labor 
supply in the handblown window-glass industry was divided among 
all manufacturers in such manner as to permit each producer to oper- 
ate liis plant at full capacity during a part of the year and to shut 
down his mill the remainder of the year. Workers were shifted from 
one group of plants to the other at the end of each period. The effect 
of the agreement was to reduce overhead costs and to provide con- 
tinuity of employment for workers in the industry. The handblown 
product was marketed in competition wdth machine-made glass and 
comprised but a minor part of the output of the wdndow-glass industry. 

The import of this decision is not that limitation of production may 
be justified under special conditions or that minority groups in an 
industry are privileged to regulate their output. The Court ap- 
parently agreed with the defendant's assertion that the arrangement 
did not lessen output. Thus, it states: 

From the view that we take we think it unnecessary to * * * do more 
than advert to the defendants' contention that with the means available the 
production is increased.^* 

The basis of decision was that the limited labor supply did not permit 
all plants to be fully manned during the entire year. A factory oper- 
ating at full capacity for part of the year, the Court felt, would 
produce approximately the same as one operating at partial capacity 
for the entire year. The case dealt with a dying industry and an 
abnormal industrial situation. The decision has been strictly lim- 
ited to its facts and has not been regarded as an authoritative prec- 
edent on the question of production limitation. As the combination 
condemned in the Column & Lumber *^ case was a minority non- 
39 (1921) 257 U. S. 377. 
" (C. C. A. 9th, 1902) 118 Fed. 120. 
" Id. at 127. 
<2 (1923) 263 U. S. 403. 
« Id. at 413. 
" (1921) 257 U. S. 377. 


monopolistic group, the Window Glass *^ case can hardly be con- 
strued as upholding output curbs by minority groups. ^^ 

The Federal Trade Commission has dealt with agreements to con- 
trol output involving the use of a quota system and compulsory 
shutdowns. In accord with the rulings of the Supreme Court, the 
Commission has held such arrangements unlawful.*^ Consent decrees 
have been entered forbidding arrangements designed to control the 
output of various industries.^* 

There does not appear to be any clear authority involving con- 
certed increases or other regulations of production. The decided 
cases have all involved curtailments. There is, however, nothing in 
the decisions which would support the view that only arrangements 
which limit output are forbidden by the antitrust laws. Under the 
ratio decidendi of the price-fixing cases, it would appear that any inter- 
ference with the equation of supply and demand by the normal opera- 
tion of competitive forces would be condemned. 


Private output control is inconsistent with the maintenance of 
competition and, like price-fixing, cannot be tolerated in any economy 
dedicated to free competition. The economic efi^ects of private regu- 
lation of output are the same as price-fixing. The same objections, 
economic and administrative, apply to both, and as they have been 
fully expressed in the section on direct price-fixing, they need not be 
here repeated. 

That excess capacity and the tendency of many mdustries to over- 
produce raise serious economic problems cannot be denied. But a 
solution of such problems is not to be found in any industrial policy 
which destroys competition and vests dictatorial control of vital 
industrial processes in the hands of a lunited number of business 
managers. A statistical program, which will educate and enlighten 
the industrial producer and the coordination and analysis of statistics 
by a proper agency of government, will aid business m avoiding the 
accumulation of unassimilable surpluses and uneconomic fluctuations 
in the volume of production. Adjustment of supply to demand 
through competitive forces, guided by wise governmental suggestion 
and advice and informed by accurate trade data, is to be preferred to 
private and unsupervised control of tlie vital policies of mdustrial 

In view of the above considerations, all agreements among competi- 
tors relating to the control of production should be held unlawful, 
regardless of the purpose of such agreements and regardless of the 
degree of market control possessed by the members of the combination. 


(a) analysis of practice 

Competitors, fearful of the consequences of unrestricted price 
competition and eager to establish competitive stability, may seek to 
accomplish their purpose by sharing markets rather than by resorting 

<« (1923) 263 U. S. 403. 

" See also Chesapeake & Ohio Fuel Co. v. United States (C. C. A. 6th, 1902), 115 Fed. 610. 

" See California Rice Industry, 106 0. C. H. 1938 Trade Reg. Serv., par. 9431; Tarpon Springs Sponge 
Exchange, Inc., 106 C. C. H. 1938 Trade Ree. Serv., par. 9309. 

" United States v. Maine Cooperative Sardine Co. (D. Me., Mav 16, 1927); see Donovan & McAllister, 
Consent Decrees in the Enforcement of Federal Anti-Trust Laws (1933) 46 Harv. L. Rev. 885, 926. 


to direct price-fixing. Slmring the market may consist in allocating 
fixed percentages of the available business to each producer, dividing 
sales territory on a geographical basis or allotting customers to each 
seller. By restrictions upon the hours of plant operation, markets 
may be shared on the basis of productive capacity. Business may 
also be distributed through a common sales agency which ordinarily 
has the power either to impose production quotas on its members or 
apportion orders among them. 

Wlien products are not homogeneous or when each producer manu- 
factures a variety of products, price control may not be a feasible 
method of regulation and market division may be the only practicable 
means of controlling competition. Each competitor will then receive 
his share of the business and no more. The policy is essentially one 
of "live and let live." The effect of any agreement for sharing the 
markets is manifestly to eliminate competition. 

Prices, under such circumstances, tend to be uniform except as 
products differ or are marketed under conditions permitting differences 
in price without disturbing the desired allocation of business. If there 
is not complete uniformity of price, the prices of different producers 
must nevertheless maintain the same relative position to each other 
that they had when the markets were first divided. Flexibility and 
freedom in the response of prices to economic changes are lost. Mar- 
kets may be shared at any level of prices and the tendency is for prices 
to be higher than when competition is left unrestrained. 

Any distribution of business necessarily limits output, increases 
costs, and constricts firms capable of expansion. The least efficient 
producers are protected and the advantages of a less costly method of 
distribution and production are lost to the public. 

(b) summary of authorities 

Recognizing the dangers implicit in these arrangements, the Supreme 
Court has held that agreements and arrangements for sharing mar- 
kets are illegal under the Sherman Act.^^ The rule of the Addyston 
Pipe ^° case has been consistently followed by the lower Federal 
courts. ^^ The Federal Trade Commission has adhered to these court 
rulings and has condemned sharing the market either by division of 
territories or the allocation of customers.^^ 

In view of the hostility manifested toward the cognate devices of 
price-fixing and production control, there is no prospect of the courts' 
countenancing the sharing of markets by agreement or understanding. 
There is thus no need for any legislative change in this regard. 

" Addyston Pipe & Steel Co. v. United States (1899), 175 U. S. 211. 

'0 It)id. 

M United States v. MacAndrews & Forbes Co. (C. C. S. D. N. Y. 1906), 149 Fed. 823; Lee Line Steamers, 
Inc., V. Memphis, H. & R. Packet Co. (C. C. A. 6th, 1922), 277 Fed. 5; Butchart v. United States (C. C. A. 
9th, 1924), 295 Fed. 577. For recent consent decrees prohibiting the sharing of markets see: United States v. 
National Container Assn., C. C. H. Trade Reg. Serv. (8th ed.) par. 25,434 (S. D.N. Y. 1940); United States v . 
Long Island Sand & Gravel Producers' Asfn., id. par. 25,475 (S. D. N. Y. 1940); United States v. Bausch & 
Lomb Optical Co., id. par. 25,487 (S. D. N. Y. 1940); United States v. Southern California Marble Assn., id. 
par. 25,607 (S. D. Calif. 1940). 

Bibliography: (1932) 32 Col. L. Rev. 291, 305; Matthews and Adler, Covenants in Restraint of Trade 
(2d ed. 1907), 126-131; Sanderson, Rastraint of Trade in English Law (1926), 64-67; Peppin, Price-Fixing 
Agreements Under the Sherman Anti-Trust Law (1940). 28 Calif. L. Rev. 297, 300. 

'" Washington Cereal Assn., 11 F. T. C. D. 396 (1937); West Coast Theatres, Inc., 12 F. T. C. D. 383 (1929); 
Lindsay Light Co., 18 F. T. C. D. 240 (1934); Albany Billiard Ball Co , 13 F. T. C. D. 291 (1930); Fyr-Fyter 
Co., 21 F. T. C. D. 257 (1935); Linen Supply Assn., 21 F. T, 0. D. 666 (1935). 




The collection and dissemination of trade statistics is one of the 
important activities of many modern trade associations. The infor- 
mation which is gathered varies in accordance with the pm-poses 
and needs of the association. The principal topics on which infor- 
mation is systematically collected are prices, plant capacity, volume 
of production, cost of production, inventories, transportation costs, 
shipments, deliveries, sales, unfilled orders, goods in transit, terms 
and conditions of sale, and other data of a similar nature. 

The price information which is collected by an association may 
relate to past, current, or future prices. In some instances, the 
price lists of each member of the group may be filed with the associa- 
tion, immediate notice being given of all changes. Some associations 
merely require members to make weekly or monthly reports of their 
past prices. Under other plans members are obliged to communicate 
by telephone the full details of each sale as soon as it is concluded. 
The filing of current or future prices may involve certain collateral 
requirements on the part of the members of the combination. These 
supplementary matters may include any or all of the following: 
(1) Agreements by members to adhere to the filed prices for a certain 
period of time; (2) agreements by members not to deviate from the 
filed prices until the combination is apprised of a change; (3) a waiting 
period before the announced price change becomes effective. 

There are similar diversities with regard to the nature and extent 
of the information assembled on production, sales, inventories, deliv- 
eries, and the like. The data may vary from detailed reports of each 
transaction to general weeldy or monthly summaries. 

There is no uniformity of practice with regard to the information 
disseminated by an association. Some associations circulate the 
reports filed by members without change or comment; others distribute 
general summaries, which, however, are suflEiciently detailed to reveal 
the price, production, and business policies of each reporting member; 
still others content themselves with the distribution of abstract sta- 
tistical summaries which give no clue to the individual activities, 
practices, and policies of members. 

The information which is disseminated may be restricted to members 
of the combination or it may be made available to the purchasing trade 
or to the public generally. It may be accompanied by interpretative 
comments or suggestions with regard to the use of the material or by 
exhortations to follow a recommended course of action. 

The program may be supplemented by periodic meetings of members 
at which discussions may vary from minute consideration of the price 
and production policies of individual members to general observations 
concerning the status and problems of the industry. The plan may be 
implemented by penalties for nonobservance of its requirements. 

There are manifold permutations of trade association statistical 
programs. As some features are added or modified and others sub- 
tracted, the legal status of the combination's program may change. 
The competitive texture of the industry and prior industrial practice, 
the effects of the program on competition, the economic results 
achieved through the exchange of information, are all matters of im- 


portance in determining the validity of a particular plan. Here we can 
merely enumerate the general outlines of a statistical program ; legality, 
however, depends upon the specific contents of an individual plan and 
its potential and actual effects upon competition. 

(b) summary of authorities 

Apart from the cases dealing with direct price-fixing, there are 
only five decisions ^^ of the Supreme Court passing upon the legality 
of the statistical activities of trade associations. The programs in- 
volved in these cases were very elaborate, as appears. Three of the 
plans were held to constitute unlawful restramts of trade and two were 
upheld. The Court has not purported in these cases to pass upon the 
validity of the component elements of these programs by themselves 
■and apart from the plan as a whole. Its decisions have been limited 
to the legality of the arrangements in their entirety although there 
are occasional references to the illegality of the several features of a 
complex plan. 

The component parts of the plan have been treated as evidentiary 
of ultimate purposes and effects. The entu^e plan has been scrutinized 
to determine whether it has resulted or is likely to result in the elimi- 
nation of competition. The ultimate question in every case has been 
whether it can fairly be said that implicit in the plan is an agreement 
or understanding with regard to the price or production policy to be 
pursued by the members of the combination, or whether there is an 
agreement or understanding otherwise restrictive of competition. The 
fact that uniformity of prices has resulted from the operation of the 
plan has not been deemed conclusive of illegality. Nor has the Court 
given much weight to proof that the motives of the members of the 
combination have been beneficent, that there has been no sinister 
purpose or abuse of economic power, or that the objectives of the plan 
may have been economically justifiable. 

The generality of these decisions, the primacy given to the facts, and 
the studied refusal of the Com"t to formulate any generalizations 
applicable to other states of facts, have limited their practical value to 
those interested in discovering the permissive limits of the statistical 
activities of trade associations. Uncertainty is not removed by a 
doctrine which makes each case a law unto itself. 

The Federal Trade Commission in numerous proceedings has scruti- 
nized the statistical activities of trade associations. The many orders 
are patterned after the rulings of the Supreme Court and hence need 
not be reviewed here.^^* 


Notwithstanding the difficulty and danger involved in the formula- 
tion of any generalization with regard to the legality of the component 
elements of any statistical program, it is essential that this be done, 
if any sound basis for prediction is to be established. 

'''American Column & Lumber Co. v. United States, (1921) 257 U. S. 377, discussed in (1922) 22 Col. L 
Rev. 377, (1922) 31 Yale L. J. 643, (1922) 10 Calif. L. Rev. 350, (1922) 20 Mich. L. Rev. 901; United States v. 
American Linseed Oil Co., (1923) 262 U. S. 371, discassed in (1924) 9 St. Louis L. Rev. 67; Maple Flooring 
Mfrs. Assn. v. United States, (1925) 268 U. S. 563, discussed in (1920) 20 111. L. Rev. 505, (1925) 10 Minn. 
L. Rev. 71, (1925) 11 Corn. L. Q. 123, (192.5) 11 A. B. A. J. 422: Cement Mfrs. Protective Assn. v. United 
States, (1925) 268 U. S. 588, discussed in (1925) 11 A. B. A. J. 422, (1926) 24 Mich. L. Rev. 316, (1926) 20 111. 
L. Rev. 505; Suaar Institute, Inc., v. United States, (1936) 297 U. S. 553, discussed in (1934) 43 Yale L. J., 
1295, (1936") 31 111. L. Rev. 118, (1936) 34 Mich. L. Rev. 1016. 

"a Handler, Trade Association Activities forbidden by the Federal Trade Commission, C. C. H. Trade 
Hegulation Comments No. 2, July 1938. 


The principal features of a statistical program which may affect its 
legality are — 

(a) Availability to purchasers and the public generally, as well 
as to members of the association, of the information col- 
lected and disseminated; 

(6) The collection and dissemination of information relating to 
closed and past transactions; 

(c) The collection and dissemination of information relating to 

current and future prices; 

(d) Agreement by members to adhere to filed prices for a period 

of time or not to deviate therefrom without prior notice; 

(e) A waiting period before the announced price change becomes 

effective ; 

(J) Full disclosure of the price, production, and other trade 
policies of each member; 

(g) Circulation of interpretative comments by the association; 

(h) Discussion of the price and production policies of the members 
of the combination; 

(i) Recommendations to, persuasion of, or pressure upon a mem- 
ber of the combination concerning his price or production 

(j) Penalties for the nonobservance of the requirements of the 

We shall consider the effect of each of these factors on competition 
and seek to appraise the weight to be accorded their presence or 
absence in determining the legality of a statistical program. A con- 
sideration of the possible economic desirability of those features that 
are incompatible with a competitive regime falls outside the scope of 
this inquiry. 


(1) Nonavailability to purchasers and the public of the information 
collected and disseminated. — The fact that an association confines the 
circulation of the information collected by it to its members, without 
making it available to purchasers or giving it any general publicity, 
may render its entire statistical program unlawful. In both American 
Column & Lumber Co. v. United States^^ and United States v. American 
Linseed Oil Co.,^^ the Court stressed the absence of such publicity, 
althougli the decisions were not placed on this ground. In Maple 
Flooring Mfrs. Assn. v. United States,^'' the Court emphasized the 
fact that the statistical data had been given wide pubhcity, but it 

" BiblioKraphy: Oliphant, Trade Associations and the Law (1926) 26 Col. L. Rev. 381; Handler. The 
Sugar Institute Case and the Present Status of the Anti-Trust Laws (1936) 36 Col. L. Rev. 1; Handler, 
Trade Association Activities Forbidden by Federal Trade Commission, C. C. H. Trade Regulation Com- 
ments No. 2, July 1938; Fly, Observations on the Anti-Trust Laws, Economic Theory and the Sugar Insti- 
tute Decisions (1930) 4.'^ Yale L. J . 1.339, 46 id. 228, Donovan, The Effect of the Decision in the Sugar Institute 
Case upon Trade Association Activities (1936) 84 U. of Pa. L. Rev. 929; Uolbrook, Price Reporting as a 
Trade Association Activity, 1925 to 1935 (1935) 35 Col. L. Rev. 1053; Sharfman, The Trade Association 
Movement (1926) 16 Am. Econ. Rev. Supp. 203; Henderson, Statistical Activities of Trade Associations 
(1926) id. 219; Chaphn, The Collection and Distribution of Statistical Information by Trade Associations 
(1922) 7 St. Louis L. Rev. 16; Federal Trade Commission, Open-Price Trade Associations (1929), containing 
suggestions and recommendations; Esch, Summaries of Federal Trade Commission Cases in Restraint of 
Trade (1938); N. R. A. Office Memo. No. 228 (June 8, 1934); N. R. A. Release No. 11056 (April 24, 1935); 
Kirsh, Trade Associations in Law and Business (1938); Lyon & Abramson, The Economics of Open Price 
Systems (1936). 

"(1921) 257 U.S. 377, 411. 

"(1923) 262 U. S. 371,380. 

" (1925) 268 U. S. 563, 573. 


did not predicate its ruling on this fact alone. The opinion in Cement 
Mfrs. Protective Assn. v. United States '^^ does not disclose the extent 
of the publicity, if any, accorded the association's statistics. 

United States v. Sugar Institute, Itic.,^^ is the hrst case in which an 
attempt was made to indicate the precise legal effect of the absence 
of publicity. The lower court, ^^ in forbidding the dissemination of 
any information unless it was made available to the purchasing and 
distributing trade, indicated that the restriction of the information 
to the members of the combine was in itself an unreasonable restraint 
of trade. The Supreme Court modified the decree so far as it required 
the disclosure of confidential material, stating: "Information may be 
received in relation to the affairs of refiners which may rightly be 
treated as having a confidential character and in which distributors 
and purchasers have no proper interest." ^^ The Court did not 
specifically indicate whether it approved the assertion of the lower 
court that the failure to make the information public is, in and of itself, 
a restraint of trade, although it affirmed that part of the decree for- 
bidding the dissemination of any information unless it was made public 
to the purchasing and distributing trade. 

The exception formulated by the Supreme Court in favor of confi- 
dential communications opens the door to evasion and subterfuge. 
There is no reason why the same statistics of price, production, 
shipments, inventories, etc., which are distributed to sellers should 
not be made available to buyers. There may be some information 
which cannot be widely disseminated, such as credit information, the 
circulation of which under the laws of libel is privileged only if limited. 
However, while such information may properly be withheld from gen- 
eral circulation, it should always be available to inspection by a proper 
regulatory agency as a safeguard against its improper use, as, for 
example, in blacklisting customers. 

Except for such unusual situations, there is no reason why all infor- 
mation circulated should not be made available to purchasers and the 
public. Disparity of knowledge may produce a disparity of bargain- 
ing power. The effect of publicity is to promote fair competition and 
safeguard the program against abuse. The validity of statistical 
programs should be expressly conditioned, in any statutory revision, on 
the full disclosure to purchasers and the public of all information 
distributed to members, with narrow exceptions covering certain 
kinds of information which may properly be withheld from general 
circulation. This would have the effect of making unlawful any 
program, no matter what its form or scope, in which information is 
not made available to purchasers and the public. Despite such 
publicity, however, statistical programs may be illegal or presump- 
tively unlawful for other reasons set forth below. 

(2) Closed and past transactions. — In Maple Flooring Mfrs. Assn. 
V. United States ^^ the Court upheld a plan involving the reporting of 
detailed information in past and closed transactions and the circula- 
tion of abstract statistical summaries that did not disclose the details 
of individual transactions or identify the policies of members. The 
reporting and distribution of information concerning past prices, 

'8 (1925) 268 U. S. 588. 

" (193fi) 297 U. S. 553, 597, 604. 

60 (S. D. N. Y. 1934) 15 F. Supp. 817, 899. 

6" (1936) 297 U. S. 553, 604. 

" (1925) 268 U. S. 563. 


and other data dealing with closed transactions, contribute materially 
to a knowledge of market conditions, to better business judgments 
and to a better adjustment of supply to market demand. There 
can be no objection to a program of reporting and disseminating 
information dealing with past activities that is given wide publicity 
unless the system is perverted and used as a cloak for a price-fixing 
agreement. The danger of such abuse is so slight in comparison with 
the economic advantages of widespread and accurate knowledge of 
market conditions that the rule of the Maple Flooring ^^ case regarding 
past reporting should not be touched in any legislative revision of 
the antitrust laws. 

(3) Filing of current and future prices. — Prior to the decision in 
Sugar Institute, Inc., v. United States, ^^ it was generally believed that 
any program involving the filing and dissemination of current and 
future prices violated the Sherman law.^^ In the Sugar Institute^^ 
case, the Supreme Court modified the decree of the lower court, which 
forbade the dissemination of current and future price statistics. 
The collection and distribution of such statistics were sanctioned by 
the Court because it had been the historic practice in the sugar 
industry for the announcement of any advance in price to be widely 
circulated, but the Court was careful to make explicit its prohibition 
against any requirement that there be adherence to these prices by 
members of the industry. The Court was careful to limit its decision in 
this regard to the facts of the case before it. Nevertheless, some 
commentators have interpreted the decision as laying down a rule of 
general application, which would permit the interchange of current 
and future price information in all industries regardless of the prior 
trade practice.^^ Although it is reasonably clear that the Court did 
not intend to lay down any rule of general application, it must be 
admitted that its decision is somewhat ambiguous. In view of this 
uncertainty, the question of the extent to which current and future 
price-reporting should be permitted must be faced in any program of 
statutory revision. If the prices of each seller are disclosed in 
identifiable form, future price-reporting can easily become a device 
by which price leadership is facilitated. Concealed price arrange- 
ments, which are incapable of detection, are thus fostered. 

Even if the disclosures of individual prices were forbidden, the 
propriety of permitting the collection and dissemination of current 
and future prices under any circumstances would still have to be 
determined. It cannot be said that such reporting, in and of itself, 
will eliminate price competition under all circumstances. It is con- 
ceivable that a properly formulated and carefully administered plan 
in highly competitive industries might make competition more intelli- 
gent and effective and less wasteful. On the other hand, it is unde- 
niable that the practice may induce the making of concealed price 
arrangements and thus be used for improper purposes. 

«3 Ihid. For recent consent decrees permitting the disclosure of closed and past transactions see United 
States V. Natimal Containers Assn., C. C. H. Trade Reg. Serv. (8th ed.), par. 25,434 (S. D. N. Y. 1940); 
United States v. Long Island Sand & Gravel Producers' Assn., id. par. 25,475 (S. D. N. Y. J940). 

«< (1930) 297 U. S. 553. 

" See United States v. American Linseed Oil Co. (1923) 262 U. S. 371. 

M (193r.) 297 U. S. 553. 

" Donovan, The ElTect of the Decision in the Sugar Institute Case upon Trade Association Activities 
(1936) 84 U. of Pa. L. Rev. 929; see Kirsh, Trade Associations in Law and Business (1938) 63 et seq. For a 
recent consent decree forbidding the dissemination of current and future price statistics see United States v. 
Southern California Marble Assn., C. C. H. Trade Reg. Serv. (8th ed.) par. 25,607 (S. D. Calif. 1940). 


It would bo unwise, therefore, to sanction current and future price 
reporting as a legitimate trade association activity under all condi- 
tions. Absolute prohibition could only be justified by reason of the 
close proximity of the practice to direct price-fixing and the likelihood 
of abuse. An intermediate position is possible. The practice may be 
made presumptively unlawful, the burden being shifted to those 
engaged in the practice to establish that it has not been employed to 
accomplish ends forbidden by the statute and that its operation has 
not resulted in the elimination or impairment of competition. The 
practice is to be presumptively unlawful notwithstanding the full 
publicity accorded the information. In the absence of such publicity, 
the dissemination of current and future price data should be absolutely 

(4) Agreement to adhere to filed prices Jor a fixed period of time or not 
to deviate therefrom without prior notice. — In the Sugar Institute ^^ case, 
the Court went further in condemning the agreement to adhere to and 
not to deviate from filed prices, and in indicating that this phase of 
the program was in itself unlawful, than it has with regard to any 
other feature. It can therefore be stated categorically that current 
or future price reporting coupled with such an agreement is unlawful.^* 

The agreement to adhere to the filed price or other conditions of 
sale for a fixed period of time or not to deviate therefrom without 
prior notice apprises competitors, assuming a complete disclosure to 
them, of the exact terms on which the sales by their rivals will be made. 
It facilitates price leadership and concealed price understandings. 
Even without such disclosure, it introduces rigidities into the price 
structure which is thereby made less sensitive and responsive to 
economic change. The higgling between buyer and seller, which 
tends in part to determine prices in a competitive regime, is obviously 
circumscribed so long as the seller is required to adhere to his prices 
or to notify the combine of which he is a member, of any proposed 
change before it can become effective. Such requirements inevitably 
impair the freedom of action of the individual tradesman and enable 
him to resist the efforts of buyers to obtain better terms. Such 
agreements are manifestly inconsistent with the maintenance of com- 
petition, and the rule of the Sugar Institute case ""^ in this should not 
be disturbed in any statutory revision. 

(5) Waiting period. — An agreement to wait for a period of time after 
the announcement of a proposed change in any price, term, or condi- 
tion of sale before the change from a previously announced price, 
term, or condition can become effective is subject to the same legal 
and practical objections as the agreement to adhere. It prevents 
businessmen from giving immediate effect to their judgment of current 
market conditions and retards the adjustment of price and production 
to demand. It also encourages sub rosa efforts by the combination 
and by business rivals to induce the withdrawal of a proposed reduc- 
tion of price. Wliere there is a waiting period, tendencies toward 
coercive price maintenance are more likely to be effective than where 
a producer can give immediate effect to a price change. The seller 
or producer should retain the right to set his own prices and to change 

68 (1936) 297 U. S. 553. 

«» Id. at 601; United States v. American Linseed Oil Co. 0923). 262 U. S. 371. 

'" (1936) 297 U. S. 553. For recent consent decrees prohibiting agreements to adhere see United States v. 
Southern Calif. Marble Assn., C. C. H. Trade Reg. Serv. (8th ed.) par. 25,607 (S. D. Calif. 1940); United 
States V. Underwood Elliott Fisher Co., id. par. 25,433 (S. D. N. Y. 1940). 


prices, terms, or conditions of sale at any time whatsoever and at his 
own discretion. The waiting period should be specifically outlawed. 

(6) Disclosure oj individual price and production data. — The socially 
desirable function of supplying helpful information of the funda- 
mental conditions affecting an industry can often be performed with- 
out a disclosure of the policies of individual businessmen concerning 
prices, production, shipments, inventories, terms and conditions of 
sale, and other similar matters. Disclosure of the specific facts of 
each sale does not necessarily add to the value of the statistics, and 
the use of proper cost-accounting methods and the proper breakdown 
of statistical data falling short of complete identification is usually 
sufficient to make a statistical service useful in the eflacient conduct 
of a business. This fact has received judicial recognition.^^ 

There are occasions, however, when some disclosure of individual 
policies is necessary to make statistical data useful. One such in- 
stance would be to prevent over-reaching by buyers whose purpose it 
is to force prices down by misrepresenting the quotations of other 
sellers, or who deal unfairly with sellers in other ways. Disclosure 
of individual policies on such occasions has been held to be lawful.'^ 
Over-reaching by buyers may result in one buyer receiving a lower 
price as contrasted with other buyers, or a disproportionate share of 
available supplies of merchandise. Both results are socially harmful. 
There are other times when price information to be meaningful must 
be capable of identification, as where the products of an industry are 
unstandardized. The dangers in permitting such disclosures must be 
recognized. Such revelations invite coercion and reprisal, are con- 
ducive to price leadership, price uniformity and other price arrange- 
ments, and may in the case of production data lead to a restriction 
of output. 

There are some intimations in the cases that the identification of 
information concerning prices, terms, and conditions of sale is generally 
improper, but there are no such intimations with respect to the iden- 
tification of information concerning production, inventories, etc. 
While the revelation of individual policies concerning such matters 
as plant capacity may not be fraught with danger, the same cannot 
always be said for full disclosures concerning the volume or cost of 
production, shipments, inventories, and similar matters. 

It is our conclusion that decisions do not adequately protect against 
the evasion of the statutory purposes by the improper use of identifi- 
able data. With regard to information concerning prices and current 
production, it would appear that legislative correction through the 
creation of a statutory presumption of illegality would be preferable 
to an unqualified prohibition since, as stated, some disclosures may be 
socially desirable. Whether a similar presumption should be invoked 
on the occasion of the disclosure of other data in identifiable form, is 
a question that should be left open until our knowledge of the effects 
of such disclosures is enlarged. 

Here again, whatever information is permitted to be disclosed to 
the members of the association must be accessible to purchasers and 
the public, with appropriate exceptions to cover information which 
is incapable of wide circulation. Any information that is not pub- 

" See United States v. American Linseed Oil Co. (1923), 262 U. S. 371, 389, 390; Maple Flooring Mfrs. Assn. 
y. United States (.192^), 2G8V.S. 563, 57^, 5S2. 
» Cement Mfrs. Protective Assn. v. United States (1925), 2fi8 U. S. 588. 


lished should be open to the inspection of an appropriate governmental 


(7) Interpretative comments. — Although the Court has frowned upon 
the circulation of interpretative comments, advice, or suggestions by 
trade associations concerning the data disseminated by them, it has 
not held that such comments are per se illegal." The skilled interpre- 
tation of the published reports may clearly indicate to the members 
that "harmony of action" is "likely to prove profitable in proportion 
as it is unitedly pursued." '^ Interpretative comments thus may 
induce uniformity of price and the arbitrary curtailment of production. 
Price rigidity is undesirable whether the result of agreement or the 
"voluntary" response to a "pregnant" suggestion. Devices which 
engender a pernicious result, whether they consist of an agreement or 
something that falls short of an agreement, should bo prevented so far 
as is practicable. As regards interpretative comments, a choice 
must be made between an outright legislative prohibition and the 
creation of a statutory presumption. Although interpretative com- 
ments have been employed in the past as a means of evading the 
statute, a complete prohibition would outlaw the circulation of com- 
ments which conceivably might be socially desirable. The wiser 
choice, therefore, would appear to be to formulate a statutory pre- 
sumption, imposing a heavy burden on those employing the device to 
show that its use is consistent with the precepts of a competitive 
order, and requiring all such comments to be accessible to the public. 

(8) Meetings and discussions. — While the cases do not condemn 
meetings of competitors to discuss general trade conditions or topics 
of mutual interest, they do indicate that meetings at which prices, 
prospects of the market, production, or terms and conditions of sale 
are discussed may be outside the pale of legality. ^^ To permit dis- 
cussion of prices, for example, clears the path for implied under- 
standings, gentlemen's agreements, or unlawful concerted action of 
some form, even in the absence of a definite contract. The full dis- 
closure of prices and other terms of sale leads to the imposition of 
pressure upon price laggards. It both facilitates the maldng of 
hidden understandings and aids in their enforcement once made. It 
is well known that many associations have paper plans of undoubted 
validity, but seek to evade the prohibitions of the law by discussions 
at meetings or otherwise. One of the ways to strengthen the statute 
is to require full stenographic records of all meetings, which should 
always be available for examination by an appropriate regulatory 
agency, and to make taboo the discussion of certain topics which are 
apt to result in some form of collusive restraint. 

(9) Recommendations, persuasion, or pressure concerning price or 
production policies. — The recommendation to or persuasion of a mem- 
ber of an association to pursue a suggested program concerning prices 
or production is closely allied to the circulation of interpretative 
comments and the discussion by members of prices, production, or 

" See American Column & Lumber Co. v. United States (1921), 257 U. S. 377, 407, 411. 

M/d. at411. 

" See American Column & Lumber Co. v. United States (1921), 2,57 U. S. 377, 399, 405, 407; United States v. 
American Linseed Oil Co. (1923), 2(52 U. S. 371, 389; Maple Flooring Mfrs. Assn. v. United States (1925), 268 
U. S. 563, 574, 586; Cement Mfrs. Protective Assn. v. United States (1925), 208 U. S. 588, 601. For recent con- 
sent decrees prohibiting the discu.ssion of data at association meetings relating to production or conditions 
of sale see United States v. National Containers Assn., C. C. H. Trade Reg. Serv. (8th ed.) par. 25,434 (S. D. 
N. Y. 1940); United States v. Southern Calif. Marble Assn., id. par. 25,607 (S. D. Cahf. 1940). 

291144— 41— No. 88 3 


terms and conditions of sale. Unlike the interpretative comment, 
which merely purports to explain the meaning of the accompanying 
data, recommendations, persuasion, and pressure urge or compel the 
adoption of a stated course of action. The pressure to observe or 
maintain the suggested program is usually applied through an active 
official of the association who polices the industry, investigates the 
manner in which members conduct their business, makes recommenda- 
tions to price laggards and in other ways exhorts them to conform their 
policies with those of the other members of the association. Although 
no decision specifically holds that the practice in and of itself is either 
lawful or unlawful, it may be a significant fact from which an agreement 
to fix prices or limit production may be inferred.'^ The practice, 
which is inconsistent with the maintenance of competition, should be 
expressly prohibited in any statutory codification. 

(10) Penalties. — Penalties for violation of the provisions of an 
association argument were imposed in one of the plans condemned by 
the Supreme Court ^^ and were absent in all of the plans that have 
received judicial approval.'* It is nevertheless highly questionable 
whether the mere implementation of a plan, otherwise valid, with 
penalties, will vitiate its legality. When used to compel adherence to 
filed prices or for other improper purposes, their use accentuates the 
illegality of the arrangement. Placing the power to impose penalties 
in private hands is an extremely dangerous practice. It may, however, 
be desirable to assist an association in its eft'orts to stamp out dishonest 
or fraudulent activities and raise the level of trade practice by per- 
mitting it to impose penalties under narrowly restricted circumstances 
provided suitable safeguards to prevent abuse are provided. 

(11) Miscellaneous factors that may affect the legality of statistical 
programs — (a) Competitive texture of the industry. — There is a distinc- 
tion between the role of business information in industries where there 
are few sellers and its function under conditions of more active com- 
petition. Where an industry is monopolistic, the dissemination of 
information may tend to reduce the little competition that might 
otherwise prevail and may facilitate tacit arrangements of a restrictive 

(b) Demoralized state of the industry. — One of the factors considered 
by the Court in the Sugar Institute case ''^ in determining the validity of 
the program there in issue was the depressed condition of the sugar 
industry when the program took effect. The earlier case of Appala- 
chian Coals, Inc., v. United States, ^'^ also indicated that industrial 
programs designed to rehabilitate a demoralized mdustry and to 
eliminate unfair trade practices might be accorded greater latitude 
than similar programs operating in a healthy industry. Although the 
state of the industry should be a factor to be considered with all the 
other circumstances in determining the legality of a plan, there should 
be no blanket exemption on this basis without strict administrative 
supervision by a governmental agency. 

" Sc6 American Column & Lumber Co. v. United States (1921), 257 U. S. 377, 402. For a recent consent de- 
croo proliibitinc the use of pressure or persuasion concerning price or production policies see United States 
V. Southern Calif. Marble Assn., C. C. 11. Trade Reg. Scrv. (8th ed.) par. 25,607 (S. D. Calif. 19-10). 

" United Stales v. American Linseed Oil Co. (1923), 262 IT. S. 371. For a recent consent decree prohibiting 
the imposition of a penalty on a member of a trade association see United States v. Tile Contractors' Assn. 
of America, C. O. 11. Trade Ueg. Serv. (Sth e<l.') par. 25,469 (N. D. 111. 1940). 

'8 Maple Flooring Mfrs. Assv. v. United States (1925), 268 U. S. 563; Cement Mfrs. Protective Assn. v. United 
State.'' (1925), 268 U. S. 588; see Sugar Institute, Inc., v. United States (1936), 297 U. S. 553. 

'« (1936) 297 U. S. 653. 

8« (1933) 288 U. S. 344. 


(c) Ejject on prices. — Although the actual effect of a statistical 
program upon prices is evidentiary of its compatibility with com- 
petition, it is not conclusive as to whether it may in the future result 
in the elimination of competition. If the program gri^atly facilitates 
the making of unlawful price arrangements, it siiould not be given 
approval merely because it has not yet all'ected prices adversely. 

{d) Regulatory agency. — In all the decided cases, information was 
collected and disseminated by unsupervised trade associations or 
agencies subject to the control of the association in question. The 
lack of supervision opens the door to the improper use of the infor- 
mation by the association and to favoritism. These dangers may' be 
avoided in various wa3''s. First, trade associations might be subjected 
to governmental registration and supervision with suitable standards, 
imposed to govern the conduct of their statistical activities. Second,, 
a governmental agency might collect and disseminate all statistical; 
data. The collection and dissemination by a governmental agency 
of the vast amount of statistical information now distributed by 
individual trade associations would in all probability impose a burden 
which no governmental body should be expected to carry. Third, 
the collection and dissemination might be done by private, impartial 
agencies independent of the associations and licensed by tlie Federal 
Government. This was suggested by the N. R. A.^' This would be 
desirable in the absence of any regulation of the associations; if 
associations are required to be registered, it might be unnecessary to 
set up any separate instrumentalities for this purpose. The first 
alternative is considered to be the most feasible. 

It is vital that the mformation which is collected and disseminated 
should be available to the Government to satisfy its urgent need for 
comprehensive and adequate statistics. All information should be 
filed with an appropriate governmental department or agency, and 
should be available for public examination. To coordinate industrial 
statistics obtained from numerous trades and industries it may be 
necessary to obtain special reports from trade associations. It is 
essential therefore that the department or agency charged with such 
coordination be empowered to request such additional reports as 
may be necessary and advisable. 


Because the different features that may be included in any program 
to disseminate trade statistics vary in their effect upon the price 
structure and in the extent to which they may be used to cloak unlaw- 
ful arrangements concernmg prices, it is unwise to treat th(^m all in 
the same manner, or even to divide them categorically into the lawful 
and the unlawful. Some features, in and of themselves, so closely 
approximate price-fixing or agreements concerning production or 
may be so easily perverted to accomplish these purposes, that they 
should be unqualifiedly prohibited in any statutory revision. 

Other features, while potentially harmful, since they may, under 
some circumstances, result in imderstandings concerning prices, 
production, or terms and conditions of sale, may perform socially 
desirable functions if they are not abused. They should neither be 

81 N. R. A. Office Memo. 228, June 8, 1934; see Lyon & Abramson, The Economics of Open Price System s 
(1936), Uhetseq. 


unqualifiedly prohibited nor unqualifiedly permitted. The restric- 
tions on these features shoidd be cast in terms of a rebuttable presump- 
tion of illegality. The eftect of such a presumption will be to discour- 
age the adoption of programs which include these features, to restrict 
them to socially useful channels when adopted, and to facilitate the 
enforcement of the statute by the Government, since the burden of 
justification will rest upon those engaging in the activities. 

As regards still other features of programs for disseminating statis- 
tical mformation, their susceptibility to abuse is so slight when com- 
pared with the social advantages to be derived from then use, that 
they should be unqualifiedly permitted. By so doing, much uncer- 
tainty will be lifted from this branch of the law. 

It is not enough to divide the features of statistical programs into 
these three categories. Full consideration must be given to the 
potency of publicity in the correction of the evils arising out of the 
collection and dissemination of statistics. There should be a definite 
requirement of publicity as a condition to the legality of any statistical 
program. Despite publicity, some features should still be presump- 
tively unlawful and some unqualifiedly unlawful. 

Trade associations have a distinct service to perform in modern 
industrial society. Many, indeed most, of the activities in which they 
engage are perfectly consistent with the maintenance of price compe- 
tition and go a long way in raising the standards of competitive rela- 
tions. Regulation of unfair and deceptive competitive practices, the 
arbitration of commercial disputes, the standardization of identity and 
quality of products, the improvement of conditions of labor, the regis- 
tration of trade-marks and original styles and designs, the conserva tion 
of natural resources, the elimination of wasteful practices, and the pro- 
motion of efficiencies in production and distribution are only a few 
of the fields in which trade associations perform a distinct social 

The criticisms of the trade associations' activities considered in this 
section are not to be taken as condemnations of the trade association 
movement as such, nor are the suggestions that have been made for 
legislative correction intended to limit the capacity of trade associa- 
tions to render a real public service to industry and the community. 


A, Whether or not full publicity is accorded any statistical program 
and whether or not the information is filed with a governmental 
department or agency, the following features of such programs should 
be unqualifiedly prohibited: 

(1) Any agreement to adhere for any period of time to any price, 

term, or condition of sale previously fixed, announced, or 

(2) Any agreement not to make any change in any price, term, 

or condition of sale without giving prior notice of such 
change ; 

(3) Any agreement to observe a waiting period before an an- 

nounced change from a previously fixed, announced, or 
filed price can become effective; 
(11 All discussions by competitors which result or are likely to 
result in uniformity ot action concerning price or production 
policies ; 


(5) All recommendations to, persuasion of, or pressure upon, any 
member to follow, observe, or maintain any suggested 
program concerning prices or production. 

B. Whether or not full publicity is accorded any statistical program 
and whether or not the information is filed with a governmental 
department or agency, the following features of such programs should 
be presumptively unlawful: 

(1) The filing and communication, collection, or dissemination of 

any information concerning current or future prices, terms, 
or conditions of sale; 

(2) The disclosure to competitors of any information concerning 

the prices or volume of production of individual members 
of the association; 

(3) The communication or circulation of interpretative comments 

which result or are likely to result in uniformity of action in 
respect of prices or production. 

C. The following type of statistical program should be permitted: 
The communication, collection, and dissemination of information 

concerning prices, terms, and conditions of sale and production policies 
that relate to closed and past transactions, subject, however, to the 
following conditions: 

(a) There must be no disclosure of individual price and produc- 

tion policies, except when necessary to prevent over- 
reaching by buyers ; 

(b) The information concerning prices, production, inventories, 

etc., must be disclosed to anyone on request and filed with 
a governmental department or agencj^; 

(c) The information must be complete, accurate, and truthful; 

(d) The information must be collected and disseminated by a 

registered association in accordance with the rules and 
regulations prescribed by an appropriate regulatory 



As most associations embrace a majority of the persons in their 
mdustries, it is not generally appreciated that arrangements elim- 
inating competition are frequently made by minority groups lack- 
ing control of the market in which they operate. Although unable 
completely to suppress competition in their markets, the activities of 
such groups do affect general competitive conditions and may place 
their members in position of advantage in their relations with 
competitors or purchasers. 

Any distinction between minority and majority groups involves 
numerous definitional difficulties. To determine the degree of market 
control of any group, it is necessary to define the industry of which the 
group is a part and the market m which it docs business. In the 
window-glass industry, for example, handblown competes with 
machine-made glass. A combination of "manufacturers of handblown 
glass may be deemed a monopolistic group if handblown glass is 


regarded as a separate industry, while in relation to the entire 
window-glass industry, it may be but a minor factor. On a nationwide 
basis, a group may be almost infinitesimal, while in the areas in which 
its products are sold, it may enjoy a position of dominance. 

Nor is it easy, once the preliminary difficulties in defining the indus- 
try and market are overcome, to determine the point at which the 
degree of control can be said to be monopolistic. It seems reasonably 
clear that monopoly is something less than complete domination, but 
how much less the decisions do not reveal with any clarity. For 
present purposes, the distinction lies in the ability to set the market 
price. A group sufficiently powerful to dictate the market price is 
monopolistic; a combination lacking such power is denominated a 
minority group. 


In the early decisions, the degree of market control was not deemed 
a material factor in determining the legality of an arrangement 
restrictive of competition.^- The classic enunciation of this view is to 
be found in the monumental opinion of Judge Taft in Addyston Pi/pe & 
Steel Co. Y. United States. ^^ Although the defendants in the Addyston 
case claimed that their output did not exceed 30 percent of the na- 
tional production of cast-iron pipe, their power in the markets in 
which they disposed of their products was extensive. Nevertheless, 
Judge Taft, for the purposes of decision, treated the combine as a 
nonmonopolistic group and specifically held that price-fixing is unlaw- 
ful whether practiced by majority or minority groups. 

Upon this review of the law and the authorities, we can have no doubt that 
the association of the defendants, however reasonable the prices they fixed, how- 
ever great the competition they had to encounter, and however great the necessity 
for curbing themselves by joint agreement from committing financial suicide by 
ill-advised competition, was void at common law, because in restraint of trade, 
and tending to a monopoly. * * * Now, the restraint [the defendants] thus 
imposed on themselves was only partial. It did not cover the United States. 
There was not a complete monopoly. It was tempered by the fear of competition, 
and it affected only a part of the price. But this certainly does not take the 
contract of association out of the annulling effect of the rule against monopolies.®* 

In Chesapeake cfc Ohio Fuel Co. v. United States ^^ the court held 
illegal an exclusive sales agency which had been formed to market 
about 30 percent of the coal and about 45 percent of the coke which 
was produced in the Kanawha district of West Virginia. The coal 
of the combine was less than 1 percent of that sold in the same 
markets in which it competed and the coke sold met "severe" com- 
petition in all markets. The sales agency was given the power to fix 
the prices and to control the production of the members of the groups. 
Although the combination was subject to effective competition in all 
markets, it was held illegal since it deprived the public of the benefits 
of competition within the group. "The law reaches combinations 
which may fall short of complete control of a trade or business, and 
does not await the consolidation of many small combinations into the 
huge 'trust' which shall control the production and sale of a 
commodity." ^^ 

«2 Addyston Pipe and Steel Co. v. United States (C. C. A. 6th, 1898) 85 Fed. 271, aff'd (1899), 175 U. S. 211; 
Chesapeolct and Ohio Fuel Co. v. Unit((l Stairs (C. C. A. 6th, 1902), 115 Fed. 610. 
M (C. C. A. 6th, 1898) 85 Fed. 271, a/fd (isy.)) 175 U. S. 211. 
e< (C. C. A. 6th, 1898) 85 Fed. 271, alT'd (1899) 175 U. S. 211. 
8» (C. C. A. 6th, 1902) 115 Fed. 610. 
*6 Id. at 624. 


Thus the law stood until the decision in Standard Oil Co. oj New 
Jersey v. United States,^'' in which Chief Justice White, in the formula- 
tion of the rule of reason, fused the dual concepts of restraint of trade 
and monopoly: 

The ambiguity [in the act], if any, is involved in determining what is intended 
by monopolize. But this amljiguity is readily dispelled in tlie liglit of the pre- 
vious history of the law of restraint of trade to which we have referred and the 
indication which it gives of the practical evolution by which monopoly and the 
acts which produce the same results as monopoly, that is, an undue restraint of 
the course of trade, all came to be spoken of as, and to be indeed synonymous 
with, restraint of trade. ^^ 

The Com't's discussion is rather obscure and it is difficult to deter- 
mine whether it intended to differentiate between minority and major- 
ity groups, holding only the activities of the latter unlawful, or whether 
its purpose was to promulgate a rule of reason applicable to all the 
activities of both minority and majority combinations. 

Most of the combinations invalidated both before and after 1911 
possessed monopoly power. Thus, in United States v. Joint Traffic 
Assn.^^ the combination embraced "most (but not all)" of the carriers 
operatmg between Chicago and the iitlantic coast; "a very large part" 
of the hnseed products business was done by the defendants in United 
States V. American Linseed Oil Co.;'^'^ the buyers of hvestock who agreed 
not to bid against each other and to fix prices in Swift & Co. v. United 
States ^^ controlled about 60 percent of the national commerce in fresh 
meats. But in American Column cfc Lumber Co. v. United States ^^ a 
combination wliich produced only one-third of the total national out- 
put of hardwood was condemned. Although its control in particular 
markets is not disclosed, the minority opinion assumes that the com- 
bine was subjected to effective outside competition. Despite this 
fact, the adverse effect upon the general price level engendered l^y the 
defendants' activities indicates that the combination possessed con- 
siderable power. The tenor of the Com't's opinion, however, espe- 
cially when read in the light of the dissent, is that production and 
price control by any group of competitors, no matter what its size, is 
interdicted by the Sherman law. 

There are four decisions wiiich, while not purporting to overturn the 
clear-cut rule of the Addyston case,^^ give considerable weigJit to the 
combine's lack of monopoly power. In Board of Trade of the City of 
Chicago v. United States ^* a restriction of an organized exchange against 
grain purchases after closing hours at prices in excess of the final bid 
in the open market was sustained. The exchange's regulation did not 
eliminate but merely regularized competition for onlj'^ a small part of 
the'working day in a situation far different from that obtaining in the 
ordinary industrial market. The case dealt witli a special situation 
and the tendency of the Court has been to limit it to its facts.*^ The 
language of the opinion, however, leans toward the view that arrange- 
ments which have but a partial and not a controlling effect on the 
market price may be permissible. 

8' (1911) 221 U. S. 1. 

88 Id. at 61. 

89 (1898) 171 U. S. 505. 
»o (1923) 262 U. S. 371. 
»i (1906) 196 U. S. 375. 
" (1921) 257 U. S. 377. 

M (C. C. A. 6th, 1898) 85 Fed. 271, aff'd (1899), 175 U. S. 211. 
«< (1918) 246 U. S. 231. 

»« United States v. Trenton Potteries Company (1927), 273 U. S. 392, 401; United States v. Socony-Vacuum 
Oil Co. (1940), 310 U. S. 150, 217. 


In National Assn. of Window Glass Manufacturers v. United States,^ 
the Supreme Court validated an agreement between an association 
of all the manufacturers of handblown window glass and a labor 
union controlling the labor supply of this branch of the window- 
glass industry. The number of skilled laborers was insufficient to 
keep all plants operating at full capacity during the entire year. The 
agreement provided that the manufacturers were to be divided into 
two groups, each to have a full labor complement for a part of the year. 
This was deemed preferable to each working at partial capacity during 
the entire year. Handblown glass competes with the machine-made 
product and comprises but a minor part of the total national output of 
window glass. It is apparent from the opinion of the Court, which is 
quite anibiguous, that some weight was attached to the small propor- 
tion of window glass produced by members of the combination. The 
Court was struck by the fact that the arrangement was an effort by a 
rapidly dying industry to prevent or at least retard its extmction. The 
case dealt with a unique situation, has rarely been cited, and has had 
little generative effect as a precedent. 

That the Court might permit a minority group under some circum- 
stances to eliminate competition among its members is more strongly 
indicated by Standard 0% Co. {Indiana) v. United States ^ (Cracking 
case). There the fixation of royalty rates as part of a cross-licensing 
arrangement of competing patents was sustained on the ground that 
the gasoline produced by the patented cracking process competed with 
gasoline sold by unpatented methods and that the proportion of 
cracked gas sold was too slight to have any effect on the ultimate price 
of gasoline to consumers. The defendants controlled 55 percent of the 
productive capacity of cracked gas, and the Government estimated 
that they were responsible for 81 percent of the actual production. 
Cracked gas, however, constituted about 26 percent of the total output 
of gasoline. The Court indicated that the fixation of royalty rates 
would be unlawful if the position and capacity of defendants efl^ectively 
enabled them to dominate the industry, but that they could agree on 
the price or royalty to be charged licensees so long as they did not 
control the market. Thougli the implications of the opinion on the 
question under consideration are quite clear, the case is one of doubtful 
value as a precedent since it was primarily concerned with the intri- 
cacies of patent pools and cross-licensing agreements. 

In Appalachian Coals, Inc., v. United States ^ the Court upheld an 
exclusive sales agency formed to market and fix the price of 54.21 
percent of the coal mined in the Appalachian area; it emphasized the 
fact that the defendants were subject to effective outside competition 
in all the markets in which their product was sold and were conse- 
quently unable to control the market price of coal. The language of 
the Court, when contrasted with that used in Chesapeake c& Ohio Fuel 
Co. V. United States,'^ illustrates how great has been the change in 
attitude toward minority combinations: 

The mere fact that the parties to an agreement eliminate competition between 
themselves is not enough to condemn it. * * * The more serious question 
relates to the effect of the plan upon competition between defendants and other 
producers. * * * While conditions are more favorable to the position of 

1 (1923) 263 U. S. 403. 

2 (1931) 2S3 U. S. 163. 

3 (1933) 288 U. S. 344. 

* (C. C. A. 6th, 1902) 115 Fed. 610. 


defendants' group in some markets than in others, we think that the proof clearly 
shows that, wherever their selling agency operates, it will find itself confronted 
by effective competition backed by virtually inexhaustible sources of supply, 
and will also be compelled to cope witli the organized buying power of large 
consumers. The plan cannot be said either to contemplate or involve the fixing 
of market prices.^ 

While the case gives strong support to the legality of agreements 
eliminating competition among the members of a minority group, it 
loses some value as a precedent by the fact that the program concerned 
itself with efforts to mitigate the hardships of producers in a hope- 
lessly disorganized and depressed mdustry durmg a period of general 
depression and by the fact that it was submitted to the court before 
it was put into operation. ' The case, moreover, dealt with a defensive 
combine seeking to equalize the bargaining power between weak 
sellers pitted against mammoth industrial buyers. Nevertheless, the 
language in the opinion midoubtedly favors the legality of minority 
combinations whose restraints do not eliminate competition from the 
market itself. 

Two further factors should be noted. The Court in the Appalachian 
Coals '^ case indicated that the test of legality is the same in both 
merger and loose-laiit combmation cases. The element of market 
control is of undoubted importance m determining the legality of 
mergers and consolidations under the anti-trust laws.^ But the de- 
cisions in the merger field cannot be reconciled in terms of percent- 
ages, and the merger experience teaches how unstable a criterion is 
the element of size or market control.^ Secondly, the Court ordered 
the lower court to retain jurisdiction of the cause, so as to enable 
the Government to mstitute further proceedmgs if the plan in opera- 
tion led to any abuse. The retention of jurisdiction in itself indicates 
that no rule of universal application in respect of the activities of 
minority groups was bemg adopted. 

While these decisions appear to support the view that agreements 
elimmating competition among the members of a minority group 
which is subject to effective outside competition may conceivably be 
valid, each of the cases is limited by the special facts and circumstances 
already noted. 

The degree of market control as a factor in antitrust litigation has 
recently been reexamined by the Supreme Court. Although unnec- 
essary to the decision, the Cornet in the Socony-Vacuum case ^ 
unequivocally condemned price-fixing by minority groups as follows: 

The group making those agreements may or may not have power to control 
the market. But the fact that the group cannot control the market prices does 
not necessarily mean that the agreement as to prices has no utility to the mem- 
bers of the combination. The effectiveness of price-fixing agreements is de- 
pendent on many factors, such as competitive tactics, position in the industry, 
the formula underlying price policies. Whatever economic justification partic- 
ular price-fixing agreements may be thought to have, the law does not permit 
an inquiry into their leasonableness. They are all banned because of their 
actual or potential threat to the central nervous system of the economy. 

» Appalachian Coals. Inc., v. United States, supra, at 360, 361, 373. 

6 (1933) 288 U. S. 344. 

' Handler, Industrial Mergers and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179. 

8 Capital combinations controlling 50 percent (United States v. U. S. Steel Corp. (1920), 251 U. S. 417), 
64 percent ( United States v. International Harvester Co. (1927), 274 U. S. 093), and even 90-95 percent ( United 
States V. United Shoe Machinery Co. (1918), 247 U. S. 32) of an industry have been sustained. On the other 
hand, integrations covering but 20 percent (United States v. Lehigh Valley Railroad Co. (1920), 254 U. S. 
255), and 33 percent (United States v. Reading Co. (1920), 253 U. S. 26) of an industry have been declared 

» (1940) 310 U. S. 150. 


Only a confusion between the nature of the offenses under those two sections 
* * * would lead to the conclusion that power to fix prices was necessary for 
proof of a price-fixing conspiracy under § 1.'° 

The Court does not assert that the absence of monopoly power 
may not be a factor in determining the legality of other activities of 
trade groups. Its discussion relates to price-fixing only. However, 
its analysis appears to be hostile to any practices which suppress 
competition, whether indulged by minority or monopoly groups. 

In its decision in the Apex Hosiery case, ^^21 days later, the Court 
in dealmg with a totally different problem creates the impression by, 
its repeated references to the Appalachian Coals case ^^ that the 
absence of monopoly power may save a combination which otherwise 
would be unlawful. Mr. Justice Stone states: 

* * * In the cases considered by this Court since the Standard Oil case in 
1911 some form of restraint of commercial competition has been the sine qua non 
to the condemnation of contracts, combinations, or conspiracies under the Sherman 
Act, and, in general, restraints upon competition have been condemned only when 
their purpose or effect was to raise or fix the market price. It is in this sense that 
it is said that the restraints, actual or intended, prohibited by the Sherman 
Act are only those which are so substantial as to affect market prices. Restraints 
on competition or on the course of trade in the merchandising of articles moving 
in interstate commerce is not enough, unless the restraint is shown to have or is 
intended to have an effect upon prices in the market or otherwise to deprive pur- 
chasers or consumers of the advantages which they derive from free compe- 
tition. * * * 1$ 

* * * So far as appears the delay of these shipments was not intended to 
have and had no effect on prices of hosiery in the market, and so was in that respect 
no more a restraint forbidden by the Sherman Act than the restriction upon 
competition and the course of trade held lawful in Appalachian Coals, Inc., v. 
United States, supra, because notwithstanding its effect upon the marketing of the 
coal it nevertheless was not intended to and did not affect market prices. ^^ 

These oscillations of opinion thus leave unclear the precise effect accorded the 
factor of market control in loose-knit confederation cases. 


The statute will be immeasurably weakened if minority groups are 
permitted to eliminate competition among themselves. Such ar- 
rangements inevitably lessen to some extent the competition to which 
the public looks for its protection. They are often the first step in 
a program of monopoly control. Each group when separately con- 
sidered may not aft'ect the competitive texture of the industry, but 
with the formation of each additional group, competition becomes 
rnore and more attenuated until it disappears. Moreover, these com- 
binations are normally not established unless competition in the in- 
dustry as a whole can be aft'ected. The only justification for minority 
combinations is economic self-defense, when unorganized businessmen 
are subjected to over-reaching and other improper practices by those 
with whom they trade. This, however, is not the typical situation 
in industry. 

Courts are ill-equipped to apply a rule which is more economic 
than legal in nature and which necessitates the minute examination 
of many subtle factors. An erroneous determination by the Court, 

'0 Id. at 225, 226, n. 59. 

'1 (1940) 310 U. S. 409. 

n (1938) 288 U. S. 344. 

'3 310 U . S. 469, 500. The Court cites with apparent approval the decisions in the Windou' Glass and Chicago 
Board of Trade, cases and also the various merger cases in which combinations not controlling the market 
were sustained. 

i< Id. at 501. For similar passages in the opinion see id. at 492, 493, n. 15; 495, n. 16, 512. 


exculpating mcipient monopolies, will have dangerous social conse- 
quences. The inadequate and sporadic nature of judicial control 
might eventually make more thoroughgoing governmental super- 
vision necessary. No suppression of competition, however minute, 
could long continue without such regulation. To supervise and 
regulate the multitudinous arrangements that would be made were 
the dictum of the Appalachian case ^^ to become the established rule 
would impose an administrative burden upon government which could 
only be justified by indubitably clear social and economic gams. 

If the antitrust laws are to retain their potency, vigilance is neces- 
sary to prevent their attrition by nibbling exceptions. 

In our opinion, every contract or combination in or affecting inter- 
state commerce, between two or more persons, to eliminate, prevent, 
impair, or lessen in any degree the competition between the parties 
thereto or among any persons affected thereby should not be permitted, 
save possibly under very special circumstances and then only under 
effective governmental supervision. 

In most of the cases before the Federal Trade Commission, the 
combinations dominated their industries ; in the few cases in which 
predominant control was lacking, the groups nevertheless possessed 
considerable strength. There is no indication in the orders that any 
distinction is being drawn by the Commission on the basis of degree 
of market control. 

The uncertainty concerning the element of market control thus 
still persists and can only be finally removed by legislative action. 


(a) description of practice 

Price uniformity is not uncommon in many industries. Over con- 
siderable periods of time, virtually the same price may be quoted by 
sellers for the same or substantially similar products. Such prices 
may be constant for a long time, or they may fluctuate, but the 
fluctuations, either up or down, tend to be uniform. Changes will be 
announced or placed in effect at substantially the same time. The 
movements of such prices do not harmonize with changes in the gen- 
eral price level. The unifoiTn price tends to be rigid or "sticky" when 
other prices are rapidly mounting or declining. Its rise may be more 
rapid or its decline more gradual and less precipitate than prices of 
related goods. This uniformity of price is not sporadic or inter- 
mittent; it is the regular and noiTnal procedure in many industries. 

Sporadic uniformity may occur in fields characterized by the widest 
diversity of price and price movements. Such momentary uniformity, 
if not typical of the behavior of prices in the industry, raises no serious 
problem under the antitrust laws. It must, however, be distinguished 
from price uniformity which is prolonged and continuous. 

Uniformity also characterizes the prices in the open markets main- 
tained on organized exchanges. Everyone buys and sells at the 
market price, which is liiglily sensitive to market conditions and 
which represents a temporary truce in the clash of the opposing forces 
of buyers and sellers. But such prices are extremely fluid and change 
with great frequency, sometimes with almost every sale. Such uni- 

is (1933) 288 U. S. 344. 


formity as may obtain at any moment in such markets manifests the 
perfection rather than any imperfection of competition. 

Uniformity or identity of price frequently occurs in the case of 
competitive bids. In recent years there have been many instances of 
bids submitted to pubhc and private purchasers which were identical 
to the last penny. 

Although it is essential to draw a sharp distinction between sporadic 
and constant uniformity in fields in which price is determined by 
direct negotiation between buyer and seller in each transaction, there 
is no need for a similar distinction in the case of competitive bids. 
Bids are submitted in response to a specific invitation; they are con- 
cerned with a definite transaction. Identity of bids is seldom a mere 
fortuitous occurrence or the product of natural economic causes, as 
may be the case of sporadic uniformity in a fluctuating market. Such 
identity bespeaks collusion; it is an abnormal condition which is not to 
be anticipated in an industry truly competitive. 

Uniformity or identity does not connote in this context that the 
prices of competitors are invariably the same. It is sufficient if, con- 
sidering all the circumstances, the prices or bids are substantially alike 
or virtually identical. In other words, slight variations or studied 
differences do not negate uniformity or identity, but the degree of 
variation must necessarily be limited. 


It is a curious paradox that uniformity of price may, under diverse 
circumstances, be a token both of perfect competition and of collusive 
restraint. Under conditions of perfect competition, with products 
standardized and undift'erentiated, sellers numerous and of approxi- 
mately equal economic strength, and buyers fully informed concerning 
the conditions of the market, uniformity from moment to moment is 
to be anticipated. That is not to say, however, that under con- 
ditions of perfect competition, prices are maintained without modifica- 
tion over considerable periods of time or that there is a complete 
uniformity in the fluctuations of the prices of all sellers. 

The conditions of perfect competition characterize the ideal market 
so frequently encountered in the books and so rarely found in actual 
business life. Except for organized exchanges, most markets do not 
conform to the ideal pattern of perfect competition. Products may 
be intricate and unstandardized ; they are dift'erentiated by trade- 
marks, trade names, and similar symbols, and by variations in quality 
and other characteristics. Information percolates slowly through 
most markets ; there are disparities of knowledge of market conditions 
between selhu- and buyer; few buyers are adequately informed con- 
cerning available supplies and quotations; sellers are limited in number 
and some producers may be sufficiently powerful to affect the market 
price by their independent action; there is no uniformity on the part 
of businessmen as to then- margins of profit or volume of business; 
disorganized buyers may be confronted with highly organized sellers. 
Uniformity of price in the face of such rich diversities of product and 
other market factors, especially when prolonged or when the move- 
ment of prices is contrary to general economic trends, is neither natural 
nor accidental; it is an artificial condition induced by coflusive restraint. 
To mistake such uniformity for the perfection of competition is to 


confuse the perfect competition of the books with the imperfect com- 
petition of the market place. 


The Supreme Court has indicated that uniformity of price may be 
evidence from which an unlawful price agreement may be inferred.^* 
Such uniformity, however, has not been deemed conclusive proof of 
collusion; it is but one of the facts tending to prove the existence of an 
unlawful arrangement concerning prices. The Court has iieeded the 
teachings of classical economists that uniformity is a symptom of 
perfect competition, without always taking into account the actual 
competitive texture of the market in which the uniformity occurs. 

In Cement Mfrs. Protective Assn. v. United States,^'^ evidence was 
introduced that the prices charged for cement were substantially 
uniform. In considering the effect of this proof on the legality of the 
collection and dissemination of trade statistics by an association, the 
Court stated: 

It is urged by the defendants that such uniformity of price as existed in the 
trade was due to competition. They offered much evidence tending to show 
complete independence of judgment and of action of defendants, by large expendi- 
tures in competitive sales efforts and by variations in the volume of their produc- 
tion and shipment, earnings and profits. A great volume of testimony was also 
given by distinguished economists in support of the thesis that, in the case of a 
standardized product sold wholesale to fully informed professional buyers, as 
were the dealers in cement, uniformity of price will inevitably result from active, 
free, and unrestrained competition; and the Government in its brief concedes that 
"undoubtedly the price of cement would approach uniformity in a normal market 
in the absence of all combinations between the manufacturers." 

We realize also that uniformity of price may be the result of agreement or 
understanding, and that an artificial price level not related to the supply and 
demand of a given commodity may be evidence from which such agreement or 
understanding, or some concerted action of sellers operating to restrain commerce, 
may be inferred. But here the Government does not rely upon agreement or 
understanding, and this record wholly fails to establish, either directly or by 
inference, any concerted action other than that involved in the gathering and 
dissemination of pertinent information with respect to the sale and distribution 
of cement to which we have referred; and it fails to show any effect on price and 
production except such as would naturally flow from the dissemination of that 
information in the trade and its natural influence on individual action. i^ 

In determining whether competitive conditions existed in the agri- 
cultural implement industry, the Supreme Court in United States v. 
International Harvester Co.,^^ found that many of the competitors of the 
International Harvester Co., which controlled about G4 percent of the 
business in this industry, were — • 

accustomed, independently and as a matter of business expediency, to follow 
approximately the prices at which it has sold its harvesting machines; * * * 
and the fact that competitors may see proper, in the exercise of their own judgment, 
to follow the prices of another manufacturer, does not establish any suppression of 
competition or show any sinister domination.^*^ 

16 See Cement Mfrs. Protective Assn. v. United States, (1925) 268 U. S. 588, 606; cf. United States v. United 
States Sled Corp., (1920) 251 U. S. 417, 448, 449; United States v. International Harvester Co., (1927) 274 U. S. 
693, 708. 

Bibliography: Bums, tlie Decline of Competition (1936), ch. V; Dennison and Qalbraith, Modem Com- 
petition and Business Policy (1936), generally; Lyon and Abramson, the Economics of Open Price Systems 
(1936), ch. IV; Federal Trade Commission, Open-Price Trade Associations (1929), especially pp. 355 ct seq.; 
Fly, Observations on the Antitrust Laws (1936), 45 Yale L. J. 1339. 

n (1925) 268 U. S. 588. 

18 Id. at 606. 

i» (1927) 274 U. S. 693. 

28 Id. at 708. 


This statement conformed to the Court's earlier pronouncement in 
United States v. United States Steel Corp}^ The issue in this 
case was not whether a price agreement had been made by the members 
of the steel industiy but whether the Steel Corporation constituted an 
unlawful monopoly. In considering the competitive position of the 
Steel Corporation, the Court refused to regard the fact that prices in 
the industry had been uniform or that competitors had followed the 
corporation's price leadership as proof of monopoly power. It rejected 
the contention that — 

when prices are constant through a definite period an artificial influence is indi- 
cated; if they vary during such a period it is a consequence of competitive con- 
ditions. It iias become an aphorism that there is danger of deception in generali- 
ties, and in a case of this importance we should have something surer for judgment 
than speculation, * * *P 

It is evident that the Court misapprehended the Government's 
contention that price uniformity manifested monopoly domination. 
In holding that the monopoly provision of the statute had not been 
violated, the Court did not rule upon, and indeed had no occasion 
to pass upon, the probative force of uniformity in establishing a 
collusive agreement. 

As the Sherman law merely forbids contracts, combinations, or 
conspiracies in restraint of trade, it has not been enough for the 
Government to show in any litigation that conditions exist in an 
industry which are inconsistent with the maintenance of competition. 
It has had further to show that these conditions have been induced 
by some agreement or understanding. Tliis it may do by proof of an 
actual agreement or of facts from which such agreement may be in- 
ferred. Under the decisions, uniformity is clearly one of the facts 
from which the inference of agreement may be drawn, but it is not 
conclusive evidence of a collusive agreement. Although there is no 
decision holding such evidence to be prima facie proof of collusion, 
it must be noted that no decision has expressly refused to accord the 
evidence such weight. And one recent decision has intimated that 
uniformity may be exceedingly weighty under certain circumstances. 
Thus the Court in Interstate Circuit Co., Inc., v. United States ^^ said: 

It taxes credulity to believe that the several distributors would, in the circum- 
stances, have accepted and put into operation with substantial unanimity such 
far-reaching changes in their business methods without some understanding that 
all were to join, and we reject as beyond the range of probability that it was the 
result of mere chance.^^ 

The weight of such evidence should be further clarified in the decisions 
of several pending cases. Such decisions may obviate the need of any 

(d) suggestions 

The limited effect accorded proof of price uniformity under the rule 
laid down by the Supreme Court adds to the difficulty of enforcing 
the Sherman law. As conspirators typically take care to leave no 
record of their activities and avoid reducing to writing their unlawful 
arrangements, the conspiracy can only be proved by circumstantial 
evidence. In many cases, the Government can merely establish uni- 
formity of price or identity of bids. While there is always a strong 

SI (1920) 251 U. S. 417. 

" Id. at 448. 

« (1939) 30G U. S. 208, discussed in 23 Minn. L. Rev. 689; 52 Harv. L. Rev. 846. 

••(1939) 300 U. S. 208, 223. 


probability that iiniforinily is the result of collusion, it may bo impossi- 
ble to adduce additional legal proof of direct price-fixini?. Unaided by 
any presumption, the Government's suit must fail, and the public is 
thus deprived of the benefits of competition in the many instances in 
which collusion is in fact secretly practiced. 

It would obviously be unwise to adopt legislation making proof of 
price uniformity conclusive evidence of an illegal agreement to fix- 
prices or eliminate competition, in view of the diverse circumstances 
and innocent occasions in which uniformit}^ niay occur. A statutory 
presumption, however, which could be rebutted by appropriate evi- 
dence showing the causes of uniformity to be other than that of a 
collusive agreement, would greatly facilitate the enforcement of the 
statute without imposing any unfair burden on persons charged with 
a violation of the law. Such a presumption would merely effect a 
more equitable division of the evidential burdens of antitrust litigation. 
Its principal effect would be to compel those in a position to know the 
facts to come forward and explain the reasons for the continuous uni- 
formity of prices. 

To invoke a presumption of collusive agreement in every instance of 
uniformity would not be wise. As we have seen, uniformity may 
occur in highly competitive industries. There are numerous forces 
at work in retailing, for example, which induce uniformity entirely 
apart from any collusive restraint. Some limitations must therefore 
be placed on the occasions when the presumption may be invoked. 
In drafting the presumption, the objective should be to exclude that 
uniformity which is more likely the product of natural causes and to 
include those instances of uniformity in which it is probable that there 
was or is collusion. Considerations of fairness and convenience 
should determine the point at which the line is to be drawn. This 
being the distinction, it is impossible to draw perfectly the line 
separatmg these two types of uniformity. This undoubtedly means 
that some instances of collusion will be excluded from the operation 
of the presumption, but such exclusion does not clothe the conduct with 
any immunity. The Government, unaided by any presumption, may 
still challenge and prove the concert of action by which uniform prices 
were set. On the other hand, the presumption may embrace conduct 
which is essentially innocent. It is for this reason that the presump- 
tion is a rebuttable and not a conclusive one. By appropriate evi- 
dence, the normal inferences from uniformity can be negated and the 
true explanation presented. 

The existence of an illegal restraint is highly probable where 
uniformity is prolonged, constant, and continuous, where miiformity 
has persisted during periods when material changes in demand have 
occurred or when there have been substantial changes in the prices in 
related industries, trades, or lines of commerce or in the general price 
level, or where prices are uniformly maintained at a set level despite 
a marked decline in related prices or in the general price level, or 
where the prices of unstandardized and undifferentiated products are 
identical. To hedge the presumption with numerous qualifications 
would greatly impair its utility and defeat its purpose by requiring a 
prelmiinary factual determination by the court as difficult as the 
proof of the disputed price-fixing agreement. The characteristic 
features of the uniformity of price and price movements, wdiich are 
highly probative of collusion, are its regularity, constancy, and pro- 


longed character. Consequently, a presumption arising only when 
the uniformity is prolonged and constant will include the principal 
situations in which artificial restraints occur, and exclude the main 
instances in which uniformity is the product of natural causes. The 
relationship of price to changes in demand and to the level and move- 
ment of prices in related industries, as well as other explanatory 
factors, may be inquired into on rebuttal. 

The distinction between continuous and momentary uniformity has 
no application to bids submitted by sellers or buyers in response to a 
specific invitation. Substantial identity in such a case, regardless of 
any disparity in the prices of the bidders in other transactions, is 
highly suggestive of collusion and should be the occasion for a rebutt- 
able presumption of illegality. 

Neither presumption should be deemed rebutted by slight and 
studied differences of price quotations, or by any arrangement whereby 
one or two bids are placed out of line. 

It is our conclusion that the rules laid down by the Supreme Court 
concerning the probative force of evidence of uniformity of price 
should be changed. Proof of a price uniformity which is constant 
and prolonged should give rise to a rebuttable presumption that such 
uniformity is the result of an unlawful contract, combination, or con- 
spiracy in restraint of trade. The presumption should not apply to 
sales on open exchanges which are subject to State or Federal regula- 

A rebuttable statutory presumption should also be formulated 
makhig proof of identity of bids on both public and private contracts 
presumptive evidence of an unlawful contract, combination, or con- 
spiracy in restraint of trade. 

Additional safeguards against collusion in bids for governmental 
contracts can be erected in special legislation dealing with such con- 



Price leadership has supplanted the price-fixing agreement in many 
industries as the principal device by which prices are stabilized. Like 
direct price-fixing, the object and effect of the practice is the establish- 
ment of a noncompetitive market price. This end, however, is 
achieved without any agreement or understanding. The price an- 
nouncement of one of the companies in the field, typically the dommant 
concern, or principal producer, is loyally followed by most of its 
competitors. The price leader sets the market price. It assumes the 
lead both in advancing and reducing prices. Administrative action 
of one seller, and not the competition among sellers and the higgling 
between buyer and seller, determines the market price. 

Price leadership occiu's primarily in industries in which there are 
but a limited number of sellers. It is not feasible in the atomistic 
industries in which there are numerous producers. 

An agreement among competitors to sell at the price set by a member 
of the industry would be in clear contravention of the statute. Price 
leadership, however, is rarely encompassed by any agreement or 
understanding, but exists typicall}'^ as the result of convention. Each 
producer waits for the announcement of the leader's price before 
publishing his own price. There need be no meetings, no discussions, 


no direct interchange of price information, no exchange of assurances, 
no commitments to adhere to any announced price for the practice 
to take root in an iiuhistry. In other words, all the ingredients of 
an agi-eement may be absent, or, if present, they may be so shrewdly 
concealed that discovery is virtually impossible. 

If the leadership is to be followed, the price must be placed at a 
level which is attractive to the other companies in the field, or the 
leader must possess sufficient power to compel the observance of its 
prices by competitors fearful of reprisals. 

Complete uniformity does not always exist; in many fields in which 
price leadership occurs there are occasional variations in the prices of 
competitors as well as secret "shading" and discrimination of price. 

Price uniformity is the necessary consequence of price leadership, 
except where the leadership is partial or incomplete. If the leader's 
prices are stationary, the price structure of the industry tends to 
become rigid. Fluctuations in the leader's price provide only that 
degree of flexibility which the leader is prepared to vouclisafe the 
industry. It is not the flexibihty wdiich results from the individual 
responses of buyers and sellers in an unrestrained market and through 
wliich supply may be equated with demand. It is a controlled flexi- 
bility, which may or may not hamionize with changes in the general 
price level. Dictation, and not competition, determines price, despite 
the fact that the followers may be free from the compulsions of an 
agreement or economic pressure. 

Price dictatorships, like other forms of despotism, may be benevolent 
as well as tyrannical. It is not inconceivable that the controlled 
price of an enlightened leader may be economically more satisfactory 
than the haphazard price produced by the blind forces of compe- 
tition. Such theoretical possibilities, however, did not deter the 
Supreme Court from forbidding price-fixing agreements, whether 
reasonable or not. They are entitled to no gi*eater weight in apprais- 
ing the desirability of price leadership. Private, noncompetitive 
price-making which is not subject to any effective checks and balances, 
can in the long run only be detrimental to the public. Price-making 
is too important a function to be entrusted to the uncontrolled dis- 
cretion of a single concern or a group acting in concert. 

Price leadership and price-fixing are both subject to the same 
economic and administrative objections. The price set by the leader 
tends to be sufficiently high to permit the continuance in business of 
the high-cost, inefficient producers. It exacts a toll from the unor- 
ganized purchaser. It lacks the flexibility and resiliency necessary 
to mitigate cyclical economic disturbances. It destroys the capacity 
of the business system to adjust itself quickly and effectively to changes 
in business conditions. It increases the economic pressure on un- 
controlled prices and thus unbalances the entire price structure. 
It unstabilizes production and reduces the oi:)portunities for gainful 
employment. The sole advantage of leadership is that it may avoid 
wasteful price wars. 

The only dift'erence between direct price-fixing and price leadership 
is that group control of prices is achieved b}^ agreement in the one 
case and by convention in the other. If the consequences of a non- 
competitive price are evil when established by agreement, they are 
equally harmful when effected through tiio tacit acceptance of a 
leader's price. Unfortunately, the prohibitions of the Sherman law 

291144—41 — No. 38 4 


arc limited to the restraints of trade accomplished by contract or 
combination and do not extend to practices equally reprehensible 
which do not involve the element of agreement. 

Leadership is not limited to price but may relate to production, 
distribution, and other commercial policies. Wliat is said in the 
present section about price leadership applies equally to other forms 
of business leadership. 

(b) state of the authorities 

The legality of price leadership in and of itself has never been 
directly tested in any litigation under the antitrust laws. Price 
leadership, apart from any agreement, could not by itself constitute 
an offense, since it is neither a contract, combination, or conspiracy in 
restraint of trade nor a monopoly. Its significance is limited to its 
probative force in proving monopoly or a conspiracy in restraint of 

In the only two reported cases in which evidence of price leadershi]3 
was adduced,^^ the Government sought to use the evidence to establish 
the existence of a monopoly. In both cases, the Supreme Court 
refused to draw this inference from the proof. 

In United States v. United States Steel Corp}^ in considering whether 
the United States Steel Corporation was exercising monopoly power 
and suppressing its competitors, the Court referred to the evidence 
of price leadership as follows: 

Competitors, it is said, followed the corporation's prices. because they made 
money by the imitation. Indeed the imitation is urged as an evidence of the 
corporation's power. * * * The Government does not hesitate to present 
contradictions, though only one can be true, such being we were told in our school 
books the "principle of contradiction." In one competitors (the independents) 
are represented as oppressed b}^ the superior power of the corporation; in the 
other they are represented as ascending to opulence by imitating that power's 
prices which they could not do if at disadvantage from the other conditions of 
competition; and yet confederated action is not asserted. If it were this suit 
would take on another cast. The competitors would cease to be the victims of the 
corporation and would become its accomplices. And there is no other alternative. 
The suggestion that lurks in the Government's contention that the acceptance of 
the corporation's prices is the submission of impotence to irresistible power is, in 
view of the testimony of the competitors, untenable. The}', as we have seen, 
deny restraint in any measure or illegal influence of any kind.-^ 

The position taken in the Steel case was reiterated in United States 
V, International Harvester Co}^ The Court there found that many of 
the competitors of the International Harvester Co. were — 

accustomed, independently and as a matter of business expediency, to follow 
approximately the prices at which it has sold its harvesting machines; * * *_ 
and the fact that competitors may see proper, in the exercise of their own judg- 
ment, to follow the prices of another manufacturer, does not establish Siwy suppres- 
sion of competition or show any sinister domination.^" 

25 United States v. United States Steel Corp., (1920) 251 U. S. 417; United States v. International Harvester Co., 
(1927) 274 U. S. 093. 

BiblioRraphv: Whitncv, Trade Associations and Industrial Control (1934), 131; Marquand, The Dynam- 
ics of Industrial Combination (1931), 175; .Tones, The Trust Problem in the United States (1929), 225 #.; 
N. R. A., The Operation of the Basing Point System in the Iron and Steel Industry (1935), 139; Senate Com- 
mittee, Keport on the High Cost of Gasoline (1923), 41; F. T. C, Prices, Profits, and Competition in the 
Petroleum Industry (1928), F. T. C, The High Prices of Farm Implements (1920); Jones, The Anthracite 
Coal Combination in tlie United States (1914), 172; F. T. C, Newsprint Paper Industry (1930); F. T. C. 
Commercial Feeds (1924), 1921; Whitney, Trade Associations and Industrial Control (1934), 129 #.; Fetter, 
Masquerade of Monopoly (1931), 202; Sakolski, Price Making and Price Stability (1925) SHarv. Bus. Rev. 

2« (1920) 251 U. S. 417. 

2' Id. at 447, 449. 

s« (1927) 274 U. S. 693. 

2» Id. at 708. 


In neither case did the Court oxpUcitly reject the relevance of evi- 
dence of price leadersliip to the proof of monopoly; nor did it intimate 
that such evidence was entitled to no weight. The tenor of the 
opinions, however, is that the fact of leadership is legally unimportant 
in determining whether the leader has violated the monopoly pro- 
visions of the statute. 

There has been no case in which evidence of price leadership was 
offered as proof of direct price-fixing. There is, however, authority 
to the effect that price uniformity is to be treated as some evidence of 
a price agreement to be considered with all the other facts in the case.^° 
By its language in the Steel ^^ and Harvester cases,^^ the Court did not 
necessarily mean that in a proper case evidence of price leadership 
would not have some probative effect in determining whether an un- 
lawful agreement had been made. Price leadership is some evidence 
of an agreement, to be considered with all the other facts of the case. 
There can be no doubt that where uniformity results from leadership, 
the evidence is entitled to considerable w^eight on the issue of collusive 

(c) sug'gestions 

The prevalence of price leadership reveals the fundamental wealaiess 
in the Sherman Act. A law which prohibits merelv the means by 
which evil consequences are engendered rather than the consequences 
themselves provides an easy avenue of escape. The prohibitions of the 
Sherman law are directed against the elhnination of competition by 
agreement or understanding. The act is powerless to prevent the 
elimination of competition by other means. Uniform price and pro- 
duction policies can be pursued without resort to any prohibited 
agreement. Understandings, if there be any, can be concealed and 
remain virtually incapable of detection. 

Leadership, of course, is not possible in. all industries. It is most 
effective in those industries in which there is concentrated economic 
power, in which competition is already attenuated. It is thus chiefly 
used in areas of business life in which the need for competition is 
most urgent. No believer in a free competitive order will deny the 
desirability of preventing price leadership from being utilized as a 
device to eliminate price competition in our concentrated industries. 
The difficulty is in devising ways and means of doing so. 

An outright prohibition of price leadership as such is not feasible. 
Where leadership is not accomplished by agreement, what would be 
the precise conduct to be forbidden? Businessmen must be left free 
to meet the competition of their rivals and this may involve the dupli- 
cation of another's prices. Where an industry is ordered to abandon 
price leadership, what in practice must it do to comply with the order? 
The leader must be permitted to announce its price at some time even 
though it is no longer the first to publish a price change. Its action 
may still be followed. The dictates of business judgment may require 
some adherence by the smaller companies to the price schedule of the 
dominant concern in the industry. An order directed against an 
agreement is objective and is capable of enforcement and compliance. 
Any prohibition of price leadership can only be effective if it is directed 
against conduct which is similarly objective. 

30 See Cement Mfrs. Protective Assn. v. United States, (1925) 268 U. S. 588, 605. 

31 (1920) 251 U. S. 417. 

32 (1927) 274 U. S. 693. 


One approach might be to eradicate the conditions under which 
leadership flourishes. Leadership chiefly occurs in the ohgopohstic 
or concentrated industries. To remove the conditions favorable to 
leadersliip would entail a degree of pulverization which is not only 
impractical but would cause immeasurable social loss and impede the 
program of national defense. Breaking an industry of 5 units into 
10 or even 20 fragments would not preclude price leadersliip. 

A more practical approach is possible. When leadership is the 
result of agreement, the creation of a statutory presumpticm of ille- 
gality arising from proof of price uniformity would compel the de- 
fendants to come forward with proof peculiarly within their control 
regarding the existence or nonexistence of a collusive agreement. Such 
a presumption has been suggested in the section on price uniformity. 
To make leadership 'prima jacie evidence that the leader is a monopoly 
would also aid in discouraging the practice. Leadership by a smaller 
concern is unlikely to occur except as part of an agreement with the 
dominant company in the field, and would be covered by the pre- 
sumption in respect of price uniformity. Any rule which drives an 
industry into the field of agreements brings it within the scope of the 

None of these suggestions, however, will materially retard the price 
leadership which is the product of convention rather than agreement. 
The problem can only be dealt with by administrative action designed 
to ferret out the causes of leadership, eliminate them where elimina- 
tion is called for, and generally to encourage a restoration of competi- 
tive conditions. It would, of course, be preferable to prohibit directly 
those acts and practices which produce, encourage, or facilitate leader- 
ship. There is, however, no unitary cause and a fixed set of prohibi- 
tions could easily be circumvented by a new set of practices. Only 
by a flexible administrative procedure can the present causes of leader- 
ship be outlawed and the creation of new devices prevented. 

The nature and extent of the administrative action called for would 
necessarily vary from industry to industry. It might be necessary 
in some fields to impose restrictions on the collection and dissemination 
of price data. vSecrecy, which may be undesirable in highly competi- 
tive industries, may actually promote competition in industries charac- 
terized by monopoly conditions. The restrictions imposed by the 
administrative agency must not prevent sellers from meeting the 
prices of rivals in fair competition. In general, the agency if estab- 
lished must bo granted broad discretionary power to regulate and 
control the circumstances making for price leadership and formulate 
the solutions necessitated by the occasion. 

It would be the function of the administrative agency to restore, 
invigorate, and protect competition. In removing the causes of 
price leadership it will encourage the smaller companies to compete 
with the loader, and the agency must stand ready to ofl'er protection 
against reprisal. The abandonment of price leadership without 
administrative supervision and protection might result in disastrous 
price wars. This can be avoided by administrative regulations so 
conceived as to eliminate one sot of evils without creating others. 

Such discretionary administrative supervision involves a degree of 
control greater than has been traditionally accorded governmental 
agencies. It does not, however, as in the case of the utility regulation, 
mean control over the prices to be charged. It is regulation directed 


to a specific evil. The price of concentrated power, like monopoly, is 
governmental reg-ulation. What is here said of price leadership 
applies with equal force to other practices and business methods, 
indigenous to the concentrated industries, which though inconsistent 
with the proper functioning of a competitive orchn- are outside the 
reach of the Shernuin Act because they are not brought about by any 
agreement, combination, or conspiracy. A sophisticated and well- 
advised industry avoids the crudities of the familiar restraints, 
achieving its ends by usages of the trade, which, whatever their 
genesis, are widel}^ accepted and observed without the compulsion 
of any agreement. Our anti-trust policy must fail if the condemna- 
tion of our law continues to bo limited to the elimination of com])etition 
by agreement or understanding. The elimination of competition by 
other means must be interdicted and a positive policy formulated for 
the restoration of competition in those industries now clniracterized 
by industrial folkways antagonistic to free competition. 


In order to prevent price leadership to the fullest extent practicable, 
proof of price leadership should give rise to a rebuttable presumption 
that such leadership is the result of collusion or monopoly, and indus- 
tries in which the practice is prevalent should be subjected to flexible 
administrative regulation designed to eliminate the causes of and 
conditions favorable to the practice, and to restore, invigorate, and 
protect competition in such industries. 


The courts have passed upon the legality of numerous other activi- 
ties of trade groups besides those considered in the previous parts of 
this report. Industry has become well versed in the arts of restraint, 
and the amorphous practices in which it currently engages are still 
little understood. The more novel restraint is probably of greater 
importance today than the traditional restrictions, but the paucity 
of authority precludes any extended discussion in this report. The 
courts, operating under the broad general standard of the Sherman 
Act, have shown their capacity m particular litigations to outlaw 
those activities which are essentially inconsistent with our competitive 
institutions while sanctioning practices which generally operate to the 
advantage of the public as well as the industry.^^ 

The current program of vigorous and widespread antitrust enforce- 
ment should lift the haze which enshrouds many comers of the law. 
It would be best, pending such litigation and the concomitant widen- 
ing of our knowledge, to defer any legislative treatment of these 
miscellaneous and novel restraints. 

We shall consider in our recommendations the approach we believe 
should be taken in respect of the restraints on competition resulting 
from convention and the usages of trade rather than by concerted 
action and agreement. 

Mention should be made m passing to the established rule that the 
mvoluntary exclusion of competitors bj^ boycott and other coercive 
measures is actionable.^* The Court has adhered to this rule without 

33 For miscellaneous activities which the Court has sanctioned, see Maple Flooring Manufacturers' Assn. 
V. Vnifed States (1925), 268 U. S. 563; Cement Manufacturers' Protective Assn. v. United States (1925), 268 
U. S. 588; Fly, Observations on the Anti-Trust Laws (1936), 45 Yale L. J. 1339, 1351 et seq. 

2< This line of cases covers both the exclusion from as well as the entry into the industry. 


deviation during the entire life of the statute and has outlawed the 
boycott no matter what its justification may have been and regard- 
less of the beneficent intentions of those practicing it.^^ 

The restraints practiced by the labor unions now being challenged 
in the current drive by the Department of Justice fall outside the scope 
of this study which is concerned primarily with restraints by mdustry. 
It is sufficient for our purpose to observe that the cooperation by labor 
with industry in the elimination of competition is not clothed with 
any exemption and is on a parity with restramts practiced by industry 
alone. ^^ 


The combination of companies is probably as old as the corporation 
itself, but the merger of giant organizations in building large in- 
dustrial empires is a distinctly modern phenomenon. The earliest 
cases in this country involving the lawfulness of a corporate integra- 
tion date from the late eighties. The cases are relatively sparse. 
There is no reported decision on the problem in England; the number 
of capital combinations passed upon by the Federal and the State 
courts is relatively small. Only the Supreme Court decisions will be 
reviewed in this section; reference, however, will be made to the 
important decisions of other courts. 


The first suit under the antitrust laws to reach the Supreme Court 
was a merger case.^^ Five years after the passage of the Sherman Act, 
the Court was called to pass upon the validity of a series of mergers 
in the sugar refining industry. Strictly speaking, these were not 
mergers but stock acquisitions. The American Sugar Refining Co., 
the successor of the Sugar Refining Trust, purchased with its own 
stock all the stock of four mdependent refineries located in Phila- 
delphia, which together produced 33}^ percent of the sugar refined in 
the United States. This left The Revere Co. of Boston, with 
an output of about 2 percent of the total domestic production, as the 
sole independent refinery in the country. Thus, as a result of these 
stock acquisitions, control of 98 percent of the industry was obtained. 
Prices were immediately advanced. The suit by the Government was 
to declare void the contracts for the exchange of stock, to compel 
the return of the stock which had been exchanged, and to enjoin 
further performance of the agreements. Relief was denied on the 
ground that the challenged transfers related merely to the control of 
manufacturing as distinguished from interstate commerce and hence 
were beyond the purview of the Sherman Act. Under the Constitu- 
tion, it was pointed out, the Congress could merely forbid restraints 

35 Paramount Famous Lasky Corp. v. United States (1930), 282 U. S. 30; United States v. First National 
Pictures, Inc. (1930), 282 U. S. 44; Binderup v. Pathe Exchange, Inc. (1923), 263 U. S. 291; Eastern States Retail 
Lumber Dealers' Assn. v. United States (1914), 234 U. S. 600; Fashion Originators' Guild of America, Inc. v. 
lederal Trade Commission (1941), 9 U. S. L. Week 4229. Handler, The Sugar Institute Case and the Present 
Status of the Anti-Trust Laws (1936), 36 Col. L. Rev., 1, 14. 

39 United States v. Hrims (1026), 272 U. S. 549; Local 167 v. United States (1934), 291 U. S. 293. The present 
rulings of the Supreme Court defining the extent to whieh the anti-trust laws apply to the acts of labor units 
should be noted at this point. See Apex Hoisery Co. v. Leader, 310 U. S. 469 (1940): United States v. Hutche- 
son, 61 S. Ct. 436 (1941). 

3' The author has in this section drawn upon his previous writings. See Handler, Industrial Mergers 
and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179; Handler, Cases and Materials on Trade Regulation 
(1937), .387. T he compendious footnotes of the original are omitted. 

38 United States v. E. C. Knight Co. (1895), 156 U. S. 1. 


upon interstate commerce; monopolies and restraints of manufactur- 
ing or of production wore matters of State and not Federal regulation.'® 
It is thus evident that this was no decision on the merits, the case 
going off on constitutional grounds. 

Hero was a monopoly of an important necessity, brought about by 
the formation of a trust, which was succeeded by a single consolidated 
corporation, and followed by a series of stock acquisitions b}" which 
control of the remaining competitors in the field was achieved. Of the 
monopolistic purpose and intent of the combining companies there 
could be no question. Competition in the industry had been com- 
pletely suppressed. The power to fix a monopoly price had been 
acquired. Whether the initial trust had been guilty of predatory 
practices does not appear in the Court's opinion, but the subsequent 
history of the company reveals that it did not refrain from predatory 
methods to attain its ends. Sources extrinsic to the Court's opinion 
indicate that the "trust" was heavily overcapitalized, that generous 
profits throughout its history were made by the promoters, and that 
large dividends for a long period of years were paid upon its watered 
stock. Its inability to retain its control, which dwindled from 98 
percent in 1892 to 30 percent in 1927, casts considerable doubt on its 
economic efficiency. 

Had not the Supreme Court receded from its extreme position w^ith 
respect to the scope of the Federal power, the Sherman Act would have 
been without effective application to industrial mergers. 


The recession began within less than a decade with the decision in 
the Northern Securities case.^ The Northern Securities Co. was a 
New Jersey corporation organized by the Hill-Morgan interests to hold 
stock in the Northern Pacific Railway, a Morgan road, and the Great 
Northern Railway, a Hill road, two parallel and competing lines ex- 
tendmg across the northwestern tier of States from the cities of Dulutli 
and St. Paul to Seattle and Portland. 

This was not the first attempt to bring these roads under common 
control. A majority of the bondholders of the Northern Pacific 
Co. during the receivership of 1893 had arranged witli the Great 
Northern for a virtual consolidation of the two systems, control passing 
to the latter company. The Supreme Court, however, in Pearsall 
V. Great Northern Railway, '^^ held that the arrangement violated the 
Minnesota statutes forbidding the consolidation of competing and 
parallel railroads. 

Undeterred by this decision, the two companies in 1901 acquired 
joint control of the Chicago, Burlington & Quincy Railway, a road 
extending westward from Chicago and serving as a feeder for both of 
these northern railways as well as for the Union Pacific System, w^th 
which it competed in part. Harriman, who then controlled Union 
Pacific, became alarmed at the acquisition of the Burlington stock by 
Morgan and Hill, and in self-defense began to buy into the Northern 
Pacific Co. So skillfully were his purchases conducted that Harriman 

3» The opinion was delivered by Mr. Chief Justice Fuller for a Court composed of Field, Gray, Brewer, 
Brown, Shiras, and White. JJ. Mr. Justice Harlan dissented on the ground that under the prior decisions 
of the Court, commerce included not only transportation but also acts incidental to the movement of goods 
across State lines, such as the production of articles intended for interstate commerce. 

« Northern Securities Company v. United Slates (1904), 193 U. S. 197. The majority of the court consisted 
of Harlan, Brown, Day, and McKenna, JJ. Brewer, J., concurred in a separate opinion. White and 
Holmes, JJ., wrote dissenting opinions, each concurred in by the other and by Fuller, C. J., and Peekhara, J. 

41 (1896) 161 U. S. 646. 


was able to obtain 41,000,000 of preferred and 37,000,000 of common, 
constituting a majority of the capital stock, before Morgan became 
conscious of what was transpiring. By the time Alorgan stepped into 
the market, it was already too late. 

As both classes of stock possessed voting power, it appeared as 
though Harriman had succeeded in wresting control of the Northern 
Pacific from Morgan. But under the articles of the company the 
preferred issue was callable at par, and Morgan controlled the com- 
pany. The validity of this provision not being entirely clear, a 
compromise was inevitable. The compromise took the form of the 
Northern Securities Co., to which the chief actors in this financial 
drama transferred their holdings in exchange for the Northern Securi- 
ties stock. Stockholders of both companies were invited to exchange 
their stock and the holding company subsequently obtained about 
nine-tenths of the outstanding Northern Pacific stock and more than 
three-quarters of the Great Northern. There was thus practically 
no pyramiding. 

The suit by the Government was to rescind the stock transfers and 
to compel the holding company to divest itself of the stock of these 
competing roads. Despite the protestations of the defendants, the 
Court found that the purpose and effect of the formation of the 
holding company was to suppress competition between the two 
systems, and ordered the dissolution of the combination.^^ 

As in the Knight ^^ case, the combination resulted in the elimination 
of competition between the combining companies. But here, unlike 
the Knight case, there existed an active competition between the 
combining units and other transcontinental railroads. This fact is 
generally overlooked in discussions of the case. It is customary to 
regard the Northern Securities Co. as controlling two natural monopo- 
lies which together had a complete monoply of the northwestern 
railroad business and the decision is thus easily disposed of. But as 
a matter of fact, the overwhelming proi^ortion of the competitive 
business of the two roads — and it must not be forgotten that only 
26 percent of their total earnings was derived from such competitive 
traffic — was itself subject to the competition of other railroads. The 
combination brought together two roads possessing in part a natural 
monopoly in the territories tributary to their separate lines, but 
competing with other carriers for the tlu-ough traffic. Only a minor 

<2 Four opinions were written in the Supreme Court. Justice Harlan's opinion may be summarized as 
follows: (a) The Sherman Act declares illegal every contract or combination which directly restrains inter- 
state trade, whether or not reasonable; (b) railroads are not excluded from the operation of the act; (c) the 
holding company, like the trust, restrains and monopolizes trade by smothering competition for the mutual 
benefit of the combining units; (d) the power of a corporation to hold stock is primarily a matter of State 
regulation, but where the ownership of stock is used to restrain interstate commerce, the Federal authority 
prevails. Justice Brewer, concurring, pointed out the dangers of holding company control with its attend- 
ant pryamiding, and stated that while an individual could legally procure control of both railroads, a cor- 
poration was under a special disability. He took issue with the view of the majority regarding the appli- 
cation of the rule of reason, but he apparently was of opinion that this restraint was unreasonable. Justice 
White, in his dissenting opinion, contended that the ownership of stock is not interstate commerce, and 
hence is beyond the power of Federal regulation. He regarded as untenable the majority's distinction 
between stock ownershi)) by an individual and by a corporation. Justice Holmes argued that a holding 
company does not fall within the deOnition of contract, combination, or conspiracy, and hence is not covered 
by the statute. The contracts forbidden at common law are those that unreasonably restrain the cove- 
nantor from engaging in business; the forbidden combination or conspiracy relates to the exclusion of 
persons from the trade. The present case involved a fusion, not a contract; there was no evidence of any 
purpose to exclude other railroads, hence there was no conspiracy. See Canfield, The Northern Securities 
Decision and the Sherman Anti-Trust Act (1904), 4 Col. L. Rev. 315; Bikl6, The Northern Securities 
Decision (1904) 52 Am. L. Reg. 358; (1903) 3 Col. L. Rev. 404; (1904) 4 Col. L. Rev. 287; Morawetz, The 
Anti-Trust Act and the Merger Case (1904), 17 Harv. L. Rev. 533; Langdell, The Northern Securities Case 
and the Sherman Anti-Trust Act (1903), 16 Harv. L. Rev. 539; Canfield, Is a Large Corporation an Illegal 
Combination or Monopoly Under the Sherman Anti-Trust Act? (1909) 9 Col. L. Rev. 95 

" (1895) 156 U. S. 1. 


part of the business for which the two roads competed was free from 
the competition of other carriers and only with respect to this traffic 
was competition completely eliminated. 

In the Sugar case,'^^ the combination took the form of a property 
owning corporation followed by stock acquisitions; here a holding com- 
pany device was employed to unite the two roads. In both cases there 
were explicit findings that the purpose of the combination was the 
suppression of competition. There w^ere no predatory practices either 
before or after the combine was formed. It must be remembered in 
this connection that the regulatory power of the Interstate Commerce 
Commission was very limited at this time.^^ In view of the expense 
and difficulty of constructing a new railroad, potential competition 
w^as less likely than in the sugar refinery field. But the combination 
placed no obstacle in the way of new competition and in 1909 an 
independent railroad system, the Chicago, Milwaukee & St. Paul, was 
constructed across the same tier of States. Wliether any economies 
w^ould have been effected as a result of the union is difficult to say; 
it is interesting to note that the Interstate Commerce Commission in 
1930 gave its approval to a proposed consolidation of the two lines. ^^ 
There is no evidence of excessive promoters' profits or of any wildcat 
financing. While the holding company was capitalized at some 122 
millions over the par value of the stock of the two roads, the value 
put upon the securities seems to have been no higher than the prevailing 
market price. 


The dramatic incidents of the commercial biographies of the 
Standard Oil and American Tobacco companies are almost household 
legends and, except for a few of the operative facts iin the two dissolu- 
tion suits, need not be repeated here. There were three stages in the 
creation of the Standard Oil hegemony. In 1870, the Standard Oil 
Co, of Ohio was formed with a capitalisation of $1,000,000 to take over 
the partnerships controlled by Rockefeller, Andrews, Harkness, and 
Flagler. The union of these partnerships made the company the 
largest oil refining concern in the industry although it refined only 
10 percent of the country's output and bad some 250 competitors. 
By 1879 the Ohio corporation, through predatory practices, control 
over pipe fines, and railroad rebates, had increased its control from 
10 percent to about 90 or 95 percent, having either driven its com- 
petitors out of business or having forced them to sell out. The 
concerns so acquired w^ere either absorbed by the Ohio Company or 
operated as ostensibly separate entities under the names of their 

" Ibid. 

45 See 1 Sharfman, The Interstate Commerce Commission (1931), 19-40. 

<« The dissolution decree permitted distribution of the stock of both Great Northern and Northern 
Pacific to the shareholders of the Securities Co., each recipient receiving a part of the stoclc of the two roads. 
Harriman objected to the form of the decree inasmuch as it split up his block of Northern Pacific and made 
him a minority stockholder in both roads. His objections were futile, the Supreme Court approving the 
decree drafted bv the lower court. Harriman v. Northern Securities Company (19(15), 197 V. S. 244. On 
August 3, 1921, the Interstate Commerce Commission filed its tentative plan for the consolidation of rail- 
roads under the Transportation Act of 1920. Under that plan the Northern Pacific and Burlington were 
placed in system No. 14, while the Chicago, Milwaukee and the Great Northern were grouped in system 
No. 15. 63 I. C. C. 455, 461-462 (1921). 

This arrangement was not satisfactory to the roads concerned, and on July 8, 1927, the Great Northern 
Pacific Railway Company, a holding company, petitioned the Interstate Commerce Commission to per- 
mit it to acquire control of the properties of Great Northern and Northern Pacific by lease and stock owner- 
ship. On December 9, 1929, the Commission issued another plan, placing these roads in system No. 12. 
159 I. C. C. 522, 538 (1929). The petition of the Great Northern Pacific Railway Co. was decided favorably 
to the petitioner on February 11, 1930, with two Commissioners dissenting. 162 I. C. C. 37 (1930). How- 
ever, the application was dismissed on February 19, 1931, upon icquest of the applicants. 


former owners. The consideration for these purchases was chieflj^ 
stock of the Ohio Company, sometimes cash. The period from 1882 to 
1899 was the period of the Standard Oil Trust. Under the management 
of the trustees, the holdings were reorganized and separate Standard 
Oil companies were formed, to which the business in pai'ticular locali- 
ties was allocated. In 1892, the trust was adjudged illegal and its 
dissolution ordered by the Supreme Court of Oliio in a quo warranto 
proceeding against the Standard of Ohio.*^ At the time of the quo 
warranto proceedings, the trustees controlled 84 companies. Pretend- 
ing to comply with the decree of the Ohio court, they transferred the 
stock of 64 of the companies to the remainmg 20, which the trustees 
still controlled, and then dissolved the trust. The attorney- 
general of Ohio having initiated contempt proceedings in 1897, it 
became necessary to devise a new method of controlling the industry. 
The Standaid Oil of New Jersey, an operating company, had been 
formed in 1892 with a capitalization of $10,000,000. In 1899 the 
charter of this company was amended so as to empower it lo hold 
stock in other companies, and its capitalization was increased to 
$110,000,000. Thereupon an exchange was effected of the shares 
of the New Jersey company for those of the companies previously 
controlled by the trustees. The New Jersey company thus became 
essentially a holding company, although it continued to operate the 
refineries it had owned prior to the reorganization. The formation 
of the New Jersey holding company marks the third period in the 
history of Standard Oil, and it was against this holding company that 
the Government in 1906 brought its suit for dissolution.^* 

The percentage of the industry controlled at the time of suit is not 
stated in the court's opinion. In 1904, however, between 85 to 90 
percent of the country's output was refined either by the Standard 
Oil's constituent companies or by companies which it dominated. The 
degree of control had not decreased in the following years. The im- 
portant pipe lines in the country — the strategic center of the 
monopoly — were under its control. Although the production of crude 
oil was in other hands, the disorganized and highly competitive con- 
dition of that branch of the industry operated to the advantage of 
Standard, which was practically the sole purchaser. This monopol}^ 
of the oil refining business had been acquired as a result of the prefer- 
ential rebates exacted from the railroads, and through the ruthless 
suppression of competition. The list of predatory acts practiced 
by the company filled some 57 pages of the record. Its violation 
of the antitrust laws was deliberate; its desire to obtain a monopoly 
and to exclude competition from the industry is evident in almost 
every page of its history. The spoils were enormous, and stock- 
holders were given a goodly share. Though the holding company 
was adopted as the device for effectuating the combination, there 
seems to have been no pyramiding, and the company's financial 
record is clear of undue promoters' profits, extravagant underwriting 
charges, and stock frauds. The verdict of impartial students of the 
subject is that its dominance did not result from efficient management 
and economies in production, but rather from the abuse of its control 

<' Slate V. Slundard Oil Company (Ohio 1892), 30 N. E. 279. 

<8 Stniuhird Oil ( \)iiipiiini ofAU'ir Jersey v. United States (1911), 221 U. S. 1. Mr. Chief Justice White wrote 
the opinion, holdiiiir tiuit tlie dcfcnflants had violated the Sherman Act and enunciating the famous rule of 
reason, for a court composed of McKcuiia, Hohnes, Day, Lurton, Hughes, Van Devan'ter, and Lamar, JJ. 
Mr. Justice Harlan concurred in the dissdlution of Standard Oil but disagreed with the Chief Justice's 
construction of the statute. For the final decree see (C. C. Mo. 1909) 173 Fed. 177, 192. 


of the pipe lines, from railroad discriminations and unfair methods of 
competition. Integiation, the location of refineries near the source 
of supplies, and large-scale operation were productive of great econo- 
mies; but all these were possible without monopolistic control, as 
has been amply proved by the growth of giant competitive petroleum 
companies smce the dissolution of the ''trust." 

The Government's case was so strong that it is dilTicult to appraise 
the legal significance of the numerous facts that have been reviewed. 
Whether the case turned upon the fact that the company had acquired 
monopolistic power, or upon the existence of a wrongful intent to 
monopolize the industry, or upon the indulgence in predatory prac- 
tices and the exclusion of competitors, or upon the use of the holding 
company to control the industry, or upon the combination of all these 
features, it is not easy to say. The lengthy opinion of Mr. Chief 
Justice White is more concerned with the profundities of the rule of 
reason than with an explicit statement of the grounds of decision. The 
element which is most stressed in the opinion is the defendants' intent 
to monopolize the industry and to maintain their monopoly tlu'ough 
the exclusion of competitors.*^ 

The American Tobacco suit,^° in which dissolution of the combina- 
tion was decreed, ran along much the same lines. Here again is the 
story of a so-called bad trust dominating all branches of the tobacco 
industry, manufacturing at the time of suit 86.1 percent of the coun- 
try's output of cigarettes, 91.4 percent of little cigars, 96.5 percent of 
snuff, 84.9 percent of plug, 76.2 percent of smoking tobacco, 79.7 per- 
cent of fine cut tobacco, and 14.4 percent of cigars. Purchases of 
competing companies, dismantling of plants, predatory practices, ex- 
clusion of competitors, restriction of potential competition by the uni- 
form practice of tying up the sellers of the acquired companies by 
agreements not to compete for long periods of time, an unmistakable 
intent to monopolize the industry, which in the main was successfully 
achieved, concentration of control of the companies in a handful of 
men, tremendous over-capitalization, over-valuation, enormous profits, 
and large dividends — all of these were present. That the combination 
so dominated the industry as to control prices and that the competi- 
tion of the independents was generally incft'ective seem reasonbly clear. 
A complete monopoly was not, however, obtained. 

The financial history of the various combinations eventually result- 
ing in the formation of the American Tobacco Co. is too complicated 
to be reviewed in any detail here, but a few of the important purchases 
can be enumerated. The original American Tobacco Co. organized 
under the laws of New Jersey was a consolidation of five cigarette 
companies, the property and assets of wliich were conveyed in 1890 to 
the new corporation in exchange for its capital stock. The original 
capitahzation was $25,000,000 wdiich apparently was much in excess 
of the value of the constituent companies. The consolidated company 

« Upon the recent merger of the Standard Oil Co. of New York with the Vacuum Oil Co., the Govern- 
ment filed a supplemental bill on the ground that the original decree forbade the union of any of the de- 
fendants. The court, however, dismissed the bill, ruling that the combination violated neither the decree 
nor the Sherman Act. United States v. Standard Oil Company of New Jersey, Standard Oil Co. of New York, 
and the Vacuum Oil Company (E. D. Mo. 1931), 47 F. (2d) 288. The court in the decision specifically 
stated that it was not deciding that all former Standard Oil Coniiianics could lawfully conihme; it hmited 
its holding to the union of these companies and rested its decision on the particular facts there involved. It 
gave much consideration to the nature and extent of competition between the merging companies as well as 
as to the competitive situation in the industry at large. 

511 United States v. American Tobacco Company (1911), 221 U. S. 106. The alignment of the justices was the 
same as in the Standard 00 decision. The Chief Justice wrote the opinion for the Court, ordering the dis- 
solution of the combination, and Mr. Justice Harlan dissented from the adoption of the rule of reason. 


at the outset manufactured 96 or 97 percent of the domestic output of 
cigarettes. It soon increased its capital stock and branched out into 
the allied business of manufacturing cigars, smoking tobacco, and snuff, 
constantly buying up large numbers of companies, sometimes for cash, 
sometimes for stock, or a combination of both. In 1893, an attempt 
to combine the leading plug tobacco manufacturers proved unsuccess- 
ful. Then followed a ruinous price war wliich cost American Tobacco 
about $4,000,000, but which, by 1898, brought its competitors to 
terms. In that year the Continental Tobacco Co. was formed with 
a capital of $75,000,000, later increased to $100,000,000, to take over 
the assets of five large plug manufacturers and the plug business con- 
trolled by American Tobacco. The properties were exchanged for 
Continental's stock and for cash, and were greatly overvalued. Con- 
trol of the new company was assured by Mr. Duke, president of Amer- 
ican Tobacco, becoming president of Continental, and by American 
Tobacco, receiving $30,000,000 of stock for its plug business. This 
combination made American Tobacco an important factor in each of 
the various fields of tobacco products. 

American Tobacco in preparation for fresh conquests doubled its 
capital stock to $70,000,000 and declared a 100 percent stock dividend. 
In the next few years, American and Continental acquired 30 compet- 
ing companies at an aggregate cost of $50,000,000. In all these 
acquisitions covenants not to compete were systematically required 
of the sellers. Most of the plants so purchased were shut down and 
never operated despite the disbursement of what the Court terms 
enormous sums. Next came consolidations in the snuff, tm foil, cigar, 
licorice, and stogy fields. Following the American Tobacco tradi- 
tional method of combination, a corporation was formed in each case, 
to which the properties of the important independents and of Con- 
tinental and American were transferred m exchange for stock in the 
new company. In some instances, the consolidated company merely 
acquired stock in the sellmg company. Occasionally a purchase of 
assets carried with it stock in nominally independent companies. As a 
result of these acquisitions, American Tobacco became to a large extent 
a holding company of the stocks of its affiliated and subsidiary cor- 

In 1901, the Consolidated Tobacco Co. was incorporated in New 
Jersey. A majority of its shares was taken by Duke and his associ- 
ates. Largely in exchange for its bonds, the new company acquired 
substantially all the common stock of the American and Continental. 
Consolidated was thus a pure holding company. In 1904, possibly 
because of the decision of the Supreme Court in the Northern Se- 
curities case,^^ it was decided to reorganize the three companies. 
American Tobacco was recapitalized at $180,000,000 and Continental 
and Consolidated were dissolved, the assets and properties of the com- 
panies being transferred to the merged company, the new American 
Tobacco Co., the chief defendant in the Government suit. The stock 
in the new company was so distributed as not to disturb the control 
of the six men who had dominated the other corporations, American 
Tobacco after the reorganization was both an operating and holding 

We find here instances of almost every type of corporate combina- 
tion that has ever been attempted — consolidation, {. e., acquisition of 

" (1904) 193 U. S. 197. 


assets of combining companies by a new company created for this 
purpose, holding company, acquisition of stock, and merger, i. e., 
the absorption of one competitor by another through the transfer of 
assets for either a cash or stock consideration or for both. The 
Northern Securities ^- and the Standard Oil '^^ cases had declared a 
combination effected through the holding company' 'device to be un- 
lawful; here even an out and out fusion was held to violate the Sherman 
Act. The Court in its opinion set forth at length the details of these 
intricate corporate relationships, but it seemingly gave little weight 
to the forms of combination employed. In no uncertain terms, it 
pointed out that the wording of the statute was broad enough to 
brmg withm its condemnation every conceivable act, regardless of the 
"garb in which such acts were clothed," which contravened the under- 
lying policy of the statute. It rested its decision essentially upon the 
ground that the intent and purpose of this long series of combinations 
was to monopolize the tobacco industry and to stamp out competition. 
This inference the Court drew not from the size of the consolidation, 
nor from the number of acquisitions, nor from the dommation of the 
industry which thus resulted, but from the following facts: (1) that 
the first combination was impelled by the fierce trade war which 
immediately preceded its formation, (2) that the consolidations in the 
various fields were always preceded by trade conflicts designed either 
to drive competitors out of business or to force them to enter the 
combination, (3) that the manifest purpose of the small coterie who 
put through these consolidations was to obtain control of the industry 
and to retain such control in their own hands, (4) that by obtaining 
control of the various stages in the manufacture of tobacco products 
perpetual barriers to the entry of others into the trade were thereby 
created, (5) that millions were expended in buying plants which were 
immediately dismantled, and finally (6) that covenants not to com- 
pete were systematically obtamed in all these transactions. 

As in the oil suit,^* the case is complicated by the presence of so 
many factors that it is impossible to determine with any assurance 
which was controlling. The Court seems to give paramount impor- 
tance to the wrongful intent which here, as we have seen, is inferred 
not from the fact of monopoly as much as from the manner in which 
such monopoly was obtained. In the Standard Oil case,^^ the infer- 
ence was drawn from the degree of control which the combination 
was able to exercise as well as from the other factors mentioned. 
We shall note a similar oscillation in the later cases. Before leaving 
the case, the Court's emphasis upon the restrictions on new or poten- 
tial competition should be noted. 


The *S'^. Louis Terminal case ^^ dealt with a "neck-of-the-bottle" 
monopoly. The topographical position of St. Louis makes its ter- 
minal transportation facilities peculiarly susceptible to monopoly 
control. The city lies upon a series of hills which hug the western 

»2 Ibid. 

" (19U) 221 U. S. 1. 

»i Ibid. 

«« Ibid. 

56 United States v. Terminal Railroad Association of St. Louis (1912), 224 U. S. 383. The opinion, written 
by Justice Lurton, represented a court composed of White, C. J., McKenna, Hughes, Van Devantcr, and 
Lamar, JJ. Holmes and Day, JJ., took no part in the decision of the Mr. Justice Pitney was ap- 
pointed after the argument but before the publication of the opinion. 


bank of the Mississippi River, receding rapidly toward the west. 
These hills are penetrated on the west by the narrow valley of Mill 
Creek which crosses the city at about its center. This valley forms 
the sole ingiess for railways commg from the West, and its limited 
area is fully utilized by the western roads. The approach to the 
city from the north on the western side of the river is through the 
valley formed by the Missouri and Mississippi Rivers, the hills drop- 
ping back from the water at this pomt. The broad Mississippi 
Valley is on the Illinois or eastern side of the river and it is in this 
valley that the roads from the East, Northeast, and Southeast have 
their termini. Thus, although 24 railroads converge at St. Louis, 
not one passes through the city or connects directly with the others 
approaching from opposite directions. To connect these roads, 
extensive facilities had to be constructed, the river spanned, and the 
western hills tunneled. Cooperation among the carriers was im- 
perative as no one road could afford to construct a separate terminal 
system, and the topographical condition of the section did not permit 
of many separate systems. 

In 1889, several of the roads acquired the properties of a few inde- 
pendent terminal companies for the purpose of combining and operat- 
ing them as a unitary system. These properties included the union 
station, the Eads or St. Louis bridge, the only railroad bridge over 
the river at the time, and extensive trackage on both sides of the 
river. The consolidated company was known as the Terminal Rail- 
road Association of St. Louis and was jointly owned by several rail- 
roads, all of which bound themselves to use these facilities exclusively. 
Under the agreement by which the Terminal Co. was formed, unani- 
mous consent of the members was required for the admission of new 
roads or the use of its properties by non-member roads. The restric- 
tive effect of this ride on non-mehiber roads is evident. In competi- 
tion with the Terminal Co. was the Wiggins Ferry Co., which operated 
car transfer boats across the river and which possessed the necessary 
rail connections, and the Merchant's Bridge with its allied terminals, 
a toll bridge which had been constructed after the formation of the 
Terminal Co., and which was open to all roads coming into St. Louis. 
While the rates of these companies were uniform, there was competi- 
tion in services between them, and new roads seeking an entrance into 
St. Louis were assured of terminal connections from at least one of 
the three companies. There was, of course, some duplication and 
overlapping of facilities. The act of Congress authorizing the con- 
struction of the Merchant's Bridge forbade the ownership of its stock 
by any other bridge company or stockholder therein. 

This provision was later eliminated by Congress and immediately 
thereafter the Terminal Co. acquired stock control of the Merchant's 
Bridge and related terminal companies. In 1892, the Rock Island at- 
tempted to obtain an independent entrance to the city. It accordingly 
sought to acquire control of the stock of the Wiggins Co. The 
Temiinal Co. looked askance at this project and a battle for control 
of the Ferry Co. ensued, its shares bemg pushed up to an abnormal 
price. The final result being m doubt, a compromise was effected by 
which the Rock Island was admitted as a member of the Terminal Co., 
the shares of the Ferry Co. which it had acquired being turned over at 
cost to the Terminal Co. Control of the city's terminal facilities was 
thus concentrated in one company and the separate properties were 


thereafter operated as a single system. The Government thereupon 
brought suit for dissolution and the Court held the combination to be 

At the outset, the Court conceded that the imification of the ter- 
minal facilities and the elimination of competition among them was 
not necessarily an unlawful restraint of trade. Illegality would de- 
pend, according to Mr. Justice Lurton, "upon the intent to be infeiTcd 
from the extent of the control thereby secured over instrumentalities 
which such commerce is under compulsion to use, the method by which 
such control has been brought about and the manner in which that con- 
trol has been exerted." ^'^ That the purpose of the combination was 
to obtain control of all the terminals and to climmate competition was 
made an express finding of fact. The power thus obtained had not 
been abused, the non-member companies having been permitted to use 
the terminal connections at the same rates charged the 14 member 
companies. The free competition of the other roads with respect to 
theu' railroad business proper had therefore not been unpeded. The 
Terminal Co. had, however, discriminated against traffic originating 
Avithin an area of 100 miles of St. Louis and had made certain arbi- 
trary rebilling charges which were unfavorable to the eastern traffic. 
But the Court made it clear in its opinion that its decision did not 
rest upon these practices. Nor was it grounded on the mere fact that 
monopoly control had been attained. The Court apparently believed 
that unification was highly expedient. The decision seems to be based 
upon the fact that because of the peculiar geographical situation, there 
was no possibility of potential competition. Had it been feasible to 
construct new facilities or if membership in the defendant company 
had been open to all roads, the combination would probably have been 
upheld. Thus it is stated: 

It cannot be controverted that, in ordinary circumstances, a number of inde- 
pendent companies might combine for the purpose of controlling or acquiring 
terminals for their common but exclusive use. In such cases other companies 
might be admitted upon terms or excluded altogether. If such terms were too 
onerous, there would ordinarily remain the right and power to construct their 
own terminals. But the situation at St. Louis is most extraordinary, and we base 
our conclusion in this case, in a large measure, upon that fact.^^ 

To recapitulate therefore, we find the Court stressing three factors: 
(1) the intent to obtain a monopoly, (2) the method by which monopoly 
is obtained, and (3) the manner in which monopoly control is exerted. 
However, in emphasizing the fact that non-member roads were com- 
peUed to use the system and could be excluded by the adverse votes 
of the member roads, it seemingly takes the position that the mere 
existence of the power of exclusion, although not exercised is violative 
of the act. On the other hand, it suggests that had potential com- 
petition been physically possible and economically feasible, the 
unification might not have been unlawful.^^ At no place in the 
opinion does it indicate whether it regarded as wrongful the method 
by which control was obtained. It does in passing state that "To 
close the door to competition large sums were expended to acquire 
stock control." ^'^ But tliis statement can hardly be regarded as 
condemnatory of. the "method" of combination employed, which, as 

" Id. at 395. 

s' Id. at 405. It is possible to put a different interpretation on the language quoted in the text, although 
my construction is supported by other passages in the opinion. See, e. g., id. at 409. 
" Id. at 398. 
«» Id. at 398. 


we have seen, was a stock acquisition followed by a merger. It 
stresses the discriminatory practices of which the terminal company 
was guilty, holding that they were not consistent with freedom of 
competition, but it is extremely unlikely that the case would have been 
differently decided had there been no such abusive charges. Unlike 
the Standard Oil ^^ and Tobacco ^^ cases, the record was free of any 
evidence of predatory practices or the exclusion of competitors. 
Here the wrongful purpose was inferred from the extent of control 
and the power of the combination, whereas in the Tobacco ^^ case, 
the Court drew the inference from the wrongful practices rather than 
the size of the combination. The rates charged non-members were 
not excessive; they were no greater than those imposed upon members; 
members received no dividends from the company; and besides the 
terminal systems were subject to regulation by the Interstate Com- 
merce Commission. 

The Court's decree is most illuminating, in ascertaining what was 
the true basis of the decision. The Government's prayer for dissolu- 
tion was not granted. Instead, the parties were given leave to submit 
a plan for the reorganization of the Terminal Co., providing for 
admission to stock membership of any existing or future railroad and 
calling for reasonable rates for such roads as did not desire to become 
joint owners of the terminal properties.^'* The jurisdiction of the 
Interstate Commerce Commission over rates w^as expressly reserved 
and a provision added that if the parties could not agree on such a 
plan, the Court would then enter a decree of dissolution. 

It is apparent from this decree that the Court recognized the 
advantages of unification and desired to preserve the resulting efficien- 
cies without impairing competition among the roads. To put an 
end to the discriminatory charges was possible without dissolving 
the combination. Whether or not the three systems were jointly 
operated, additional facilities were not likely to be added and hence 
the Court had to accept as its datum the improbability of new com- 
petition arising. The problem therefore was to restore competitive 
equality as to the railroad business proper by either destroying the 
combination or by dividing the monopoly control of the Terminal 
service among all the roads, existing or prospective. The disturbance 
of the parity which had previously been enjoyed by all the roads thus 
seems to be the chief impetus to judicial intervention. Where the 
field is open to newcomers, monopoly, the Court seems to imply, is 
not necessarily wrongful; where, however, potential competition is 
obstructed by a ''neck-of-the-bottle" monopoly, the monopoly must 
be regulated or dissolved. "^^ 

81 (19n) 221 U. S. 1. 

"(1911) 221 U. S. 100. 

«3 Ibid. 

" The decree also forbade the discriminatory charges and required the elimination of the offensive clauses 
in the membership contract. 

" The execution of the decree was involved in Ex Parte United States, (1913) 226 U. S. 420. The decree 
was interpreted in United States v. Terminal Railroad Association of St. Louis, (1915) 236 U. S. 194. In a 
petition by the western roads to have the Terminal Association adjudged in contempt of the decree because 
of certain allegedly discriminatory transfer charges, the Supreme Court held in Terminal Railroad Asso- 
ciation V. United States (1924) 266 U. S. 17, tliat tlic decree did not cover such rates and therefore there was no 
contempt. In Chicago, Rock Island & Pacific Railwnti Co. v. Baltimore & Ohio Railroad Co., 113 I. C. C. 681 
(1926), the Interstate Commerce Commission found tlie cliarges to be unreasonable and prescribed a proper 
rate. On appeal, it was held that tlie Commission's ruling was not based on evidence showing the reason- 
ableness or unreasonableness of tlie action taken by the roads. Baltimore cfe Ohio Railroad Co. v. United 
States, (1928) 277 U. S. 291. At the present time the Association is jointly controlled by 15 railroad 
companies. Moody, Railroads (1940) 1391. 



The Union Pacific ^^ and Southern Pacific "' litifjations concerned 
the legaHty of the acquisition by hirge transportation systems of the 
stock in other carriers. The Union Pacific had its eastern termini at 
Omaha, Neb., and Kansas City, Mo., at wliich points it connected 
with other systems heading to Chicago and thence to points east. Its 
main Une extended from Omaha almost due west to Ogden, Utali,^^ 
where it joined the Central Pacific, a road extending from Ogden to 
San Francisco. From Ogden, a branch extended northwest to Port- 
land, Ore. A steamship line was operated by the company between 
Portland and San Francisco. Union Pacific thus had no direct rail 
connection with San Francisco, being obliged at Ogden either to use 
the Central Pacific facilities or to route its shipments to Portland and 
thence to San Francisco by water.^^ Southern Pacific owned the entire 
capital stock of the Central Pacific Ry. Co. and operated its lines 
under a long-term lease. '° Its own tracks extended from New 
Orleans through Texas, New Mexico, Arizona, and California to Los 
Angeles and San Francisco, thence to Portland. It also operated a 
fleet of vessels from New Orleans to New York. 

In 1901, the Union Pacific through its subsidiary, the Oregon 
Short Line R. R, Co., purchased a 46 percent stock interest in 
Southern Pacific. The Government contended that the stock pur- 
chase violated the Sherman Act and brought suit to compel the divest- 
ment of the stock. The Court sustained the contention of the Govern- 
ment and ordered the sale of the stock. 

This clearly was no "neck-of-the-bottle" case. Unlike the Terminal 
case,''^ potential competition, while unlikely because of either the cost 
of constructing new roads or the difficulty of combining new systems, 
was not physically impossible. The combmation of the two roads 
resulted m no monopoly. If Union Pacific competed with Southern 
Pacific, then by the same token, both roads were in competition with 
the other transcontinental systems. Unlike the Northern Securities'^ 
case, the roads were not parallel, they did not ply between the same 
cities and did not even have the same termini. Competition between 
them related to the transcontinental traffic and some local business. 
The combination therefore mainly eliminated competition between one 
branch of the business of these gigantic roads; it neither elimmated 
competition in the field of transcontinental transportation at large, 
nor did it shut the door to new competition. 

89 United States v. Union Pacific Railroad Company, (1912) 226 U. S. 61. The opinion was written by 
Justice Day for a court composed of White, C. J., McKenna, Holmes, Lurton, Hughes, Lamar, and I'itney, 
JJ. Van Devantcr, J., took no part in the determination of the case. 

67 United States v. Southern Pacific Company, (1922) 259 U. S. 214. The opinion was written by Justice 
Day for a majority composed of Taft, C. J., Holmes, Van Devanter, Pitney, and Clarke, JJ. McKenna, J., 
dissented, while McReynolds and Brandeis, JJ., took no part in the decision of the case. 

69 A branch joins Ogden and Salt Lake City. There is also a Union Pacific line which begins at the Kan- 
sas City terminal, continuing west to Denver, where it cuts directly north to Cheyenne on the main road. 

69 By 1912, when the case was finally decided, it also had the option of using the independent Western 
Pacific tracks to San Francisco, or the San Pedro, Los Angeles and Salt Lake line to Los Angeles. The 
Western Pacific R. R., opened in 1911, ran between San Francisco and Salt Lake City broadly parallel to 
Central Pacific, and was the westerly link of the Gould transcontinental system, joining at Salt Lake City 
the Denver & Rio Grande R. R.. which extended eastward to Denver. See Moody, Railroads (1930) 1764. 
The San Pedro, connecting Salt Lake City with Los Angeles was jointly controlled by Senator Clark and 
the Oregon Short Line R. R. Co., a subsidiary of Union Pacific. The road was permanently established 
in 1912. Union Pacific acquired Clark's interest in 1921. Id. at 1246, 1260. 

'" In 1885, Central Pacific leased its properties to Southern Pacific for 99 years. The stock acquisition came 
in 1899. The United States, in the later action against Southern Pacific, contended both transactions were 

" (1912) 224 U. S. 383. 

" (1904) 193 U. S. 197. 

291144 — 41 — No. 38 5 


Moreover, the predatory practices and the exclusion of competitors 
which characterized the Standard Oil ^^ and Tobacco cases ''* were- 
lacking here, as were the arbitrary charges and discriminations of 
the Terminal case. ^^ Nor do we have any increases in rates or any 
monopoly profits; besides, the combined roads were under the super- 
vision of the Interstate Commerce Commission. The only counter- 
part for the wrongful purpose and intent to monopolize stressed in 
the previous cases was Harriman's Napoleonic ambition to control, 
the important carriers in the West — an ambition which had been 
thwarted by Morgan in the Northern Pacific struggle and by the 
decision of the Supreme Court in Harriman v. Northern Securities CoJ^ 
and which was certainly difficult if not impossible of attainment. 

Most of the factors which were emphasized in previous cases are 
thus lacking. To say that the case rests upon an intent to obtain 
a monopoly is to fly in the face of the facts. The most that can be- 
said, and the Court went no further, is that the purpose of the acquisi- 
tion was to eliminate competition between the two systems, but such 
a purpose is present in the combination of any two competing busi- 
nesses. Are we not compelled to conclude that the holding of the 
Court is that the unification of control and management of two giant 
companies doing a substantial proportion of the total business in a 
field, with a consequent elimination of competition between them,, 
is unlawful notwithstanding that a monopoly is not attained, and 
notwithstanding further that no predatory methods are employed,, 
and competitors are left unrestrained? The following excerpt from 
the Court's opinion indicates the scope of its holding: 

The consolidation of two great competing systems of railroad engaged in inter- 
state commerce by a transfer to one of a dominating stock interest in the other 
creates a combination which restrains interstate commerce within the meaning 
of the statute, because, in destroying or greatly abridging the free operation of 
competition theretofore existing, it tends to higher rates. United States v. Joint 
Traffic Association, supra, 557. It directl.y tends to less activity in furnishing 
the public with prompt and efficient service in carrying and handling freight and 
carrying passengers, and in attention to and prompt adjustment of the demands 
of patrons for losses, and in these respects puts interstate commerce under re- 
straint. Nor does it make any difference that rates for the time being may not 
be raised and much money be spent in improvements after the combination is 
effected. It is the scope of such combinations and their power to suppress or 
stifle competition or create monopoly which determines the applicability of the- 

Two further aspects of the decision should be noted. It is the- 
existence of the power to stifle competition and not its exercise which 
is frowned upon. And the view expressed in the American Tobacco 
case "^ that the form of the combination is not a material factor is reiter- 
ated. Thus in rapid succession the pool, the trust, the holding com- 
pany, the consolidation, the merger, and now the stock acquisition,, 
were banned.'^ 

In the Southern Pacific case,^^ the Court held that the stock acquisi- 
tion of Central Pacific by Southern Pacific violated the Sherman 
Act. The Court stated: 

'3 (1911) 221 IT. S. 1. 

'< (101 n 221 U. S. 106. 

'» (1912) 224 U. S. 383. 

'« (lOOS) 197 U. S. 244. 

" (1912) 220 U. S. 61, 88. 

" (1911) 221 U. S. 106. 

'» The dpcree of dissolution was more drastic than that in the Northern Securities case. Union Pacific was: 
not permitted to (iistribiito Southern Pacific stock to its shareholders as was attempted. United States v. 
Union Pacific Railroad Company (1913), 226 U. S. 470. 

•• United States v. Soutfiern Pacific Company (1922), 259 U. S. 214. 


Such combinations, not the result of normal and natural growtii and doveloji- 
mcnt, but sin-inging from the formation of holding coiupanics, or .stock jnirchascs, 
resulting in the unified control of different roads or systems, naturally competi- 
tive, constitute "a menace to, and restraint upon, that freedom of commerce 
which Congress intended to recognize and protect, and which the public is entitled 
to have protected." * * * 

These cases, collectively, establish that one system of railroad transportation 
cannot acquire another, nor a substantial and vital part thereof, when the effect 
of such acquisition is to suppress or materially reduce the free and normal flow of 
competition in the channels of interstate trade.*' 

The only basis for holding tho two Toads oompotitivo is by regarding 
Central Pacific as a natural link in the Union Pacific system. As the 
Central Pacific had been operated since 1885 by Southern Pacific 
under a long-term lease, this assumption seems somewhat gratuitous. 
But the Com't even at the time of the Union Pacific case ^^ hinted at 
the desirability of the imification of the Union and Central Pacific 
lines and seemed determined to regard both roads, regardless of their 
separate ownership, as part of one transcontinental system. Nor 
was there any danger of monopoly here. The combined roads were 
subject to the active and vigorous competition of the other railway 
systems. The presence of such competition in all the raihvay cases 
should be carefully noted in view of w^hat the Court has said and done 
in other cases. Thus, as late as 1922, w^e find the views expressed in 
the Northern Securities case ^^ still being followed — the elimination of 
competition between two competing companies is unlawful notwith- 
standing that competition in the field at large continues unabated.^* 


The first Shoe Machinery case ^^ was a criminal prosecution of the 
moving spirits of the United Shoe Machinery combine, which united 
the following companies: (1) Consolidated and McKay Lasting 
Machine Co. (controlled by WinslowO, which prior to 1899, the year 
of the consolidation, produced 60 percent of the lasting machines 
made in this country, (2) the Goodyear Shoe Machinery Co. (con- 
trolled by How^e), making 80 percent of the welt-sewing machines and 
10 percent of the lasting machines, (3) the McKay Shoe Manufac- 
turing Co., making 70 percent of all the heeling machines and 80 
percent of the metallic fastening machines produced in the United 
States, and (4) the Eppler Welt Machine Co., manufactmers of 
welt-sewing machines, its percentage of the domestic output not being 
indicated by the Court. The indictment charged the defendants 
with violating the Sherman Act by combining these companies and 

M Id. at 230. 

82(1912) 226 U. S.61. 

" (1904) 193 U. S. 197. 

*< The subsequent proceedings relating to the ownership of Central Pacific are interesting. Southern 
Pacific applied to the Interstate Commerce Commission in 1922 for authority under par. 2 of sec. 5 
of the Interstate Commerce Act to control Central Pacific by stock ownership and lease, and contended that 
the Supreme Court decision did not preclude this relief. The Interstate Commerce Commission held for 
the applicant on February 6, 1923, on a finding that the arrangement would be "in tho public interest." 
See 76 [. C. C. .508 (1923). In United States v. Southern Pacific Co. (D. Utah 1923), 290 Fed. 443, the court 
sustained the order of the Commission. No further court proceedings were had. Commissioner McMan- 
amy in his opinion on the final consolidation plan, 159 I. C. C. 522, 573 (1929) said: 

"It has been demonstrated that the extraordinary and comprehensive power which renders inoperative 
certain State and Federal laws is sufficient to enable this Commission in effect to annul a decision of tho 
Supreme Court of the United States. Control of Central Pacific by Southern Pacific, 76 I. C. C. 508." 

In the final consolidation plan, the Commission places the .'Southern Pacific Co. (159 I. C. C. at 541) and 
its subsidiaries, including Central Pacific (id. at 523) in system No. 16. 

85 United States v. Winslow (1913), 227 U. S. 202. Mr. Justice Holmes wrote the opinion, supported by a 
unanimous Court composed of White, C. J., McKenna, Day, Lurton, Hughes, Van Devanter, Lamar, and 
Pitney, JJ. This was the same court that had decided the Terminal and Union Pacific cases. 


by imposing onerous terms in the leases imder which the machines 
which they manufactm^ed were rented to shoe manufacturers. The 
district court construed the indictment as questioning the vahdity of 
a consoHdation of noncompeting companies and as being confined to 
the issue of the consoHdation alone, apart from the tying leases. It 
therefore sustained the defendants' demurrers. The only question 
before the Supreme Court on the appeal was whether the combination, 
standing by itself, violated the Sherman law.^^ The opinion of the 
Court, by Mr. Justice Holmes, was as follows: 

On the face of it the combination was simply an effort after greater efficiency. 
The business of the several groups that combined, as it existed before the combi- 
nation, is assumed to have been legal. The machines are patented, making them 
is a monopoly in any case; the exclusion of competitors from the use of them is 
of the very essence of the right conferred by the patents, Paper Bag Patent case, 
210 U. S. 405, 429, and it may be assumed that the success of the several groups 
was due to their patents having been the best. As, hy the interpretation of the 
indictment below, 195 Fed. Rep. 591, and hy the admission in argument before us, 
they did not compete with one another, it is hard to see why the collective business 
should be any worse than its component parts. It is said that from 70 to 80 
percent of all the shoe machinery business was put into a single hand. This 
is inaccurate, since the machines in question are not alleged to be types of 
all the machines used in making shoes, and since the defendants' share in com- 
merce among the States does not appear. But taking it as true we can see no 
greater objection to one corporation manufacturing 70 percent of three non- 
competing groups of patented machines collectively used for making a single 
product than to three corporations making the same proportion of one group each. 
The disintegration aimed at by the statute does not extend to reducing all manu- 
facture to isolated units of the lowest degree. It is as lawful for one corporation 
to make every part of a steam engine and to put the machine together as it would 
be for one to make the boilers and another to make the wheels. Until the one 
intent is nearer accomplishment than it is by such a juxtaposition alone, no intent 
could raise the conduct to the dignity of an attempt.^' 

The Court accepted, and in fact regarded itself bound by the lower 
court's interpretation of the indictment. The indictment explicitly 
states that the purpose of the combination was to suppress competition 
and the facts as alleged showed that there was some overlapping of the 
business of these companies. Goodyear's lasting machines in view 
of the company's strength and dominance in allied lines could effec- 
tively compete with Consolidated's machines. Adding Goodyear's 
10 percent to Consolidated's 60 percent was not a matter to be thus 
lightly disposed of and cannot be regarded as a case of de minimis. 
The same is true of the combined control of the welt-sewing machines 
put out by Goodyear and Eppler. Because this industry was charac- 
terized by patent monopolies was no reason to permit the further 
concentration of production in the hands of one company; if anything 
the scrutiny should have been more searching. 

But even assuming that the companies were noncompetitive, does it 
follow that the Sherman Act permits a union of complementary com- 
panies where each of the constituent units possesses substantial con- 
trol of its own line? ^^ May not such integration stand on a separate 
footing from that of companies all of which are subject to competition 
in their own field? Where four giant companies control successive 
stages in the production of the final commodity, though they are not 

w This i.s a paraphrase of the statement made by Justice Holmes in the Supreme Court opinion. Id. at 
210. Acluiilly, the lower court regarded the charge with respect to the tying clauses as stating a separate 
ofT'n<^e -Mid sustained the count in the indictment relating thereto. SeeUnited States v. Winslow (D. Mass. 
1912). 195 Ked. .^78, 594. 

«' Unit'd stairs v. Winslow (1913), 227 U. S. 202, 217. [Text italics ours.] 

"See Stone, J., dissenting in Federal Trade Commission v. Eastman Kodak (1927), 274 U. S. 619, 629. 



n actual competition, there is some likelihood of competition arising 
miong them. The maniifactiir(>r of welt-sewing machines m i.y desire 
.o expand into allied fields. Such potential competition is not without 
ninatory value in keeping prices at a reasonable level; provided, of 
lourse, there is no restrictive agreement among such manufacturers. 
3ut with all the companies combined, the newcomer is without Icvcr- 
ige to break into the field and must invent an entire line of shoe 
nachinery ratlier than one or two new machines. The patent situa- 
ion plus the consolidation created a wall against new competition, 
jomparable to that resulting from the physical conditions stressed in 
he St. Louis Terminal case.^^ 

Contemporaneously with the criminal prosecution, the Government 
lad filed a bill in equity for the dissolution of the United Shoe Ma- 
chinery Co., proceedings in which the technicalities of criminal pro- 
lediu-e did not preclude a full consideration of the entire history of 
liis combination, and a careful weighing of all the operative facts, 
rhe facts were most complicated and were largely in dispute — patient 
examination of the testimony was necessary to evaluate the rival con- 
entions and to resolve the conflicting versions of the facts. The 
5upreme Court, however, rested its opinion on the findings of the 
ower court, contained in tlu'ee separate opinions.^° The trial court 
lad held that the companies combined in the original consolidation 
vere not competitive, and that the 56 subsequent acquisitions were 
either of companies operating under noncompetitive patents or were 
nade to compose actual or threatened patent litigation. The Supreme 
I'ourt did not review the conflicting evidence; ^* it merely analyzed a 
'ew of the acquisitions, to show that the lower court's conclusions 
vere supported by the weight of the evidence. 

The production of the United Co. has been estimated at about 90-95 
percent of the shoe machinery used in this country.^^ Giving the 
'ullest weight to the contentions of the defendants, and assuming 
vith the Court that the properties and patents thus put together were 
essentially complementary to each other, the fact remains that there 
lad been some competition among them and that the consolidation 
completely eliminated this competition. The situation is undoubtedly 

88 (1912) 224 U. S.383. 

w United States v. United Shoe Machinery Company (D. Mass. 1915), 222 Fed. 349. 

M United States v. United Shoe Machinery Company (1918), 247 U. S. 32. Mr. Justice McKenna wrote the 
ipinion for the majority, consisting of White, C. J., Holmes and Van Devanter, JJ., deciding that both the 
!ombination and the tying clauses were lawful; Mr. Justice Day dissented, holding the tying clauses to he 
mlawful restraints of trade. Mr. Justice Clarke dissented on the ground that the defendant was a monop- 
)ly. Note his views on the significance of the form of the combination. Id., at 77. Mr. Justice Pitney 
;oncurred in both dissents, and each writer concurred in the other dissent. Brandeis and McReynolds, JJ., 
lid not take part in the consideration of the case. 

M This chart is taken from the dissenting opinion of Mr. Justice Clarke, id. at 89: 

'Machines in use in this country 

Lasting machines 

Standard screw machines-- 

Pegging machines 

Tacking machines 

Welt sewing machines 

Outsole stitching machines 

Loose-nailing machines 

Heeling machines 



tured by 

tured by 


all others 

















In UnUed Shoe Machinery Co. v. La Chapelle, 212 Mass. 467, 99 N. E. 289, the Court assumes that the 
ompany controlled 90-95 percent of the industry at the time of suit. 


complicated by the presence of multifarious patents. ^^ Wliile some of 
these patents mutually infringed each other, some were probably 
valid, and were competitive in the sense that they were capable of 
performing the same functions. That the combination shut the door 
to potential competition cannot be seriously questioned. Reference 
has already been made to the concentration of patents for allied 
machinery; what was equally as important was the congestion or 
"blocking" resulting from the various acquisitions of patents and 
inventions covering the entire field, which made it almost impossible 
to invent a machine which would not conflict in some part with one of 
the combination's patents. The inventive genius of the sellers of the 
patents was generally mortgaged to the company in the form of cove- 
nants not to compete and covenants to smrender their future inven- 
tions to the company.^* In this way the important technological 
knowledge and skill without which new competition could not possibly 
arise were put beyond the reach of new capital. And finally there 
were the famous tying agreements under which the lessees of the 
machinery were forbidden from using machines of any other company 
either for the process for which United's machines had been leased 
or in connection with any of the other processes or stages incident to 
the manufacture of shoes. The potency of this device, regardless of 
its legality ,^^ in keeping out new competition can scarcely be ignored. 
The intent to dominate the industry was fairly to be inferred from the 
long series of acquisitions and the tying agreements.^^ 

To repeat then, there was here monopoly power both to fix prices 
and to exclude new competition. Irrespective of whether there was 
any real competition in the industry at an earlier date, there assuredly 
was none at the time of suit. The combination took the form of 
consolidation and holding company; the acquisitions sometimes were 
of assets, sometimes of stock; the consideration was cash or stock. 

The Court throughout its opinion stresses the efficiency of the 
combination, but it furnishes the reader with little evidence of the 
basis for its conclusion. It states — 

The company, indeed, has magnitude, but it is at once the result and cause of 
efficiency, and the charge that it has been oppressively used is not sustained. 
Patrons are given the benefits of the improvements made by the company and 
new machines are substituted for the old ones without disproportionate charge. ^^ 

'■' As to the patents, the Court said: "No one can tell the strength of the competition that may be in a 
patent. It may be more than competition: it may be destruction, and the Antitrust Act surely docs not 
require the acceptance of that or forbid etTort to prevent it. But even if such extreme does not impend, 
certainly improvement of business and its efficiency can be striven for without offense to the law." 247 
U. S. 32, 53. 

To the effect that the combination of competing patents may violate the Sherman law, see (1924) 24 Col. 
L. Rev. 654. 

«< In United Shoe Machinery Co. v. La Chapelle, 212 Mass. 4G7, 99 N. E. 289, the company asked specific 
performance of a contract by which the defendant-inventor agreed to assign all patents which he might take 
out while in I'jlaintilT's employ, and for 10 years thereafter. The defendant had refused to assign after his 
discharge, and set up the defense tliat plaintiff was a monopoly in violation of the Sherman Act. The 
Court held for the defendant, stressing that a corporation with 90-95 percent of the industry is a monopoly 
even though its control is derived from the ownership of patents. 

«s The Supremo Court held the leases to be lawful under the Sherman Act. After the enactment in 1914 
of the Clayton Act, the restrictions in the leases were held to be illegal under section 3 of that act. United 
Shoe Muchinery Corporation v. United States (1922), 258 U. S. 451. 

'« The Court's coiUrary finding on the issue of intent is difficult to understand. The motives of the pro- 
ponents of the comt)inali(>n need not be iiniiugued; it may be that they were desirous of composing serious 
patent difficulties: it may l>e that their chief aim was to increase the etTiciency of the combining units; but 
it seems equally clear that they intended to dominate the industry and to narrow the field of actual and 
potential competition to the vanishing jioint. See the oi>iiiion. 247 II. S. 32, 54. There was evidence that 
Winslow had threatened competitors with extinction, and while the Court passes over such threats as being 
"isolated instances, separated in time, without relation, not coordinated acts in a scheme of oppression," 
their probative value on the issue of intent was not entirely inconsequential. Id. at 55. 

" Id. at 56. 


The leasing of machinery was highly beneficial to the small shoe 
/manufacturer who lacked the capital for an out and out purchase. 
The only oppression of which the United was guilty was the tying 
leases. But is there any evidence that as a result of the combination, 
costs of manufacturing machinery were lowerccl, rental chaigcs de- 
creased, the position of labor improved, or technological advance 
furthered? On these points the opinion is not very explicit.^* 


The United States Steel Corporation escaped dissolution by a 
margin of one judicial vote. Only seven justices participated in the 
decision, and the Court divided four to three. ^^ The Steel Corporation 
was organized as a holding company in 1901 to acquire the stock ui 
12 operating companies in exchange for its own stock. The events 
leading up to its formation and the intricate financial details of its 
organization are not pertinent to the present discussion. The Steel 
Corporation originally issued securities amounting to $1,402,846,817, 
of which $508,227,394 was in common stock. It has generally been 
believed that the entire common stock was watered. The promoters' 
profits were stupendous, being estimated at $62,500,000. Every 
stage in the production of iron and steel from the mining of ore and the 
manufacture of coke to the production of pig iron, as well as the manu- 
facture of rails, bars, plates, sheets, tubes, rods, and other finished 
products, came under the control of the holding company. The 
lower court estimated the percentage of control of steel products to be 
between 80 and 90 percent; this figure seems much too high, most 
wi'iters placing it at about 60 or 70 percent. At the time of suit, this 
had been reduced to about 50 percent. One of the purposes of the 
combination, as found by the Supreme Court, was the monopolization 
of the steel industry. However, a complete monopoly in the sense of 
the entire elimination of competition was never attained. At the 
outset, and increasingly as the years went by, the corporation was 
subjected to the competition of independents for part of the domestic 
business, and as indicated, the company did not retain its proportion- 
ate share, although its gross business increased tremendously. Price 
competition was avoided by pooling agreements, and in later years, by 
tacit understandings reached at the famous Gary dinners. The policy 
of the company was not to eliminate the independents; it engaged in 
none of the brutal practices that characterized the earlier trusts; it 
followed a "live and let live" policy, keeping the independents in 
check by agreement. 

The fact that the combination was efi^ected through the formation 
of a holding company was given no weight by the Court. The fact 
that the purpose of the combination was the monopolization of the 

8' Before leaving the case, mention should be made of the Court's fear that the drastic remedy of dissolu- 
tion demanded by the Government would disrupt the entire industry and prejudice the interests of invest- 
tors. It apparently felt that the difficulties of effecting a dissolution were insuperable. The scries of ques- 
tions which it poses and the psycological bias which it reveals may explain the iuefTectiveness of many of the 
dissolution decrees which have been handed down by the courts. The Court further felt that the Govern- 
ment's delay of 12 years in bringing suit condoned "the offense if oHense there was." Id. at 45. Compare 
the Southern Pacific cant on the effect of dPlay. 

" United States v. United States Steel Corporation (1920). 251 U. S. 417. The majority opinion was written 
by Mr. Justice McKenna— White, C. J., Holmes, and Van Devanter, JJ., concurring. Mr. Jastice Day 
wrote a dissenting opinion with which Pitney and Clarke, JJ., concurred. McReynolds and Brandeis, 
JJ., took no part in the decision of the case. 


industry was condoned because the purpose had failed of achievement. 
The tremendous overcapitalization and excessive promoters' profits 
passed without the slightest disapproval. The fact that the vast 
power which was concentrated in the holding company had not been 
abused was strongly emphasized and probably saved the company 
from dissolution. This was not the first instance of the integration of 
both competing and noncompeting companies to be presented to the 
Court, for in both the Oil ^ and Tobacco - cases the combination had 
branched out into allied and complementary lines, and in the Northern 
Securities ^ and Union Pacific * cases, the combining companies com- 
peted as to part of their business only. In their respective spheres, 
the Carnegie and Federal Steel Corporations, two of the constituent 
companies, were no less important and no less in competition with each 
other than were the Northern Pacific, Great Northern, Union Pacific, 
and Southern Pacific Railroads with respect to the transcontinental 
traffic. While the Court talks of the efficiencies resulting from the 
steel combination and the benefits which the public had derived 
therefrom,^ there was no evidence that similar economies might not 
have been effected by the railroad combinations. In the railroad cases, 
however, the Court had been most unsympathetic to the attempts of 
counsel to justify the combinations on that ground. 

Ordinarily, the proof of a wrongful intent and of actual violations 
of a criminal statute would tend to strengthen the Government's 
case; here it seemed to have the contrary effect. The Court appeared 
to be much impressed by the fact that the combination, having 
failed to eliminate competition at an early period of its history, saw 
the error of its ways and voluntarily abandoned its original purpose 
of monopoly. To be sure, the corporation, in the course of years, 
had bought up some additional companies but only under circum- 
stances found by the Court to be extenuating, and as to one purchase, 
only after the approval of President Theodore Roosevelt had first 
been obtained. And the fact that the corporation had found it 
necessary to enter price-fixing arrangements with its competitors 
and otherwise violate the Sherman law with their assistance was 
deemed conclusive proof of its impotency and lack of monopolistic 

Mere size by itself, the Court felt, was not conclusive since "the 
law does not make mere size an offense, or the existence of unexerted 
power an offense. It, we repeat, requires overt acts and trusts to its 
prohibition of them and its power to repress or punish them. It does 
not compel competition nor require all that is possible." ^ That is 
to say, it is the exercise of monopoly power and not its possession 
which is determinative. Having thus stated the issue, the next 
question is what constitutes an improper exercise of monopoly power. 

' (1011) 221 XI. S. 1. 

2 (Mtll) 221 U. S. 10f>. 

3 (1904) 193 U. S. 197. 
M1912) 226U. S. 61. 

» "In conclusion we are unable to see that the public interests will be served by yielding to the contention 
of the Government respecting the dissolution of the company or the separation from it of some of its 
subsidiaries; and wc do see in a conl rary cnnchision a risk of injury to the public interest, including a material 
disturbance of, and, it may be si'iious detriment to, the foreign trade. And in submission to the policy of 
the law and its fortifying proliihiiions the public interest is of paramount regard." United States v. United 
States Steel Corporation, supra, at 4.")7. 

6 "The coriHiratiun is uiKioubtcdly of impressive size and it takes an effort of resolution not to be affected 
by it or to exaggcralr its inllutMuv." (1920) 251 U. S. 417, 451. 

The Qovornnical's contention that "a combination may he illegal because of its purpose; it may be illegal 
because it acquires a dominating power, not as a result of normal growth and development, but as a result 
of a combination of competitors" was explicitly rejected. Id. at 447. 


To the Court, this means the unilateral fixing of a monopoly price 
and the exclusion of competitors — and the corporation was found 
guilty of neither. 

The Court approached the case from an additional angle. If 
there was competition in the industry after the merger, the com- 
bination could have no monopoly. The officers of the corporation, 
its competitors, and 200 customers all testified that competition was 
genuine, direct, and vigorous. The Court was impressed by the 
fact that "no competitor came forward and said he had to accept the 
Steel Corporation's prices." ^ There being competition, the (;on- 
clusion was irresistible that there was no monopoly. Therefore, 
whether the test of legality under the statute be monopoly power or 
its exercise, the defendant had not violated its provisions. 

The Steel Corporation controlled a smaller percentage of the indus- 
try than any other ''trust" that had been prosecuted up to the time of 
this decision, with the possible exception of the Union Pacific-Southern 
Pacific combination. There were in the industry several independents 
capable of vigorous competition. The Court did not seem averse to 
forbidding the previous restraints on this competition, but the Gov- 
ernment had not sought such relief, presumably because the restraints 
had been abandoned. 

Eliminating the factors of wrongful motive and the participation 
by the corporation in the violation of the statute by the price-fixing 
arrangements with competitors, as the Court did, there was nothing 
left to the case but the element of size. Does the Sherman law forbid 
the formation of a capital combination controlling 50 percent of an 
industry, which no longer intends to monopolize the field and which 
does not restrain or limit the competition of its rivals? The Court 
felt that this was the sole issue before it and the only issue it sought 
to determine.* Following this decision, the Government dismissed 
its appeals in other cases, then pending before the Court, from 
similar lower court rulings.^ 

' Id. at 447. The Government had relied upon the movement of prices, but this the Court regarded as 
insufficient in view of the explicit testimony of the 200 customers that no "adventitious interference was 
employed to fix or maintain prices and that they were constant or varied according to natural conditions." 
Id. at 449. When the Government pointed out that there were some 40,000 customers of which only 200 
had been called, the Court responded that 200 was a representative number and pointed out that the Govern- 
ment had not seen fit to call the others itself. 

' As in the Shoe Machinery case, the Court was impressed by the difficulties of dissolution and the possible 
injury to investors. Id. at 453. The fact that the Government had stood by for 10 years before instituting 
proceedings was not without influence upon the decision. Id. at 453. The case, it will be remembered, was 
argued in March 1917, just before war was declared, and reargued in the latter part of 1919 before the Nation 
had acclimated itself to the new peace. 

The Court was satisfied that the price-fixing arrangements, which were stopped several months before the 
suit was started, were not abandoned in anticipation of the suit, but from a conviction of their futility. 
Id. at 445. The only cases reviewed by the Court were the Standard Oil and Tobacco decisions, and they were 
distinguished on the ground of wrongful purpose and predatory practices. Id. at 455. 

Mr. Justice Day in his dissent, while agreeing that mere size by itself, if the product of natural growth is 
not condemned by the law, emphatically expressed his view that combination is not a method of natural 
growth, and that the size and power thus obtained are unlawful. lie pointed out that in both the Standard 
Oil and Tobacco cases the corporations dissolved had been long in existence at the time of the (lovernment's 
suit, but that had not deterred the court from decreeing dissolution. A dominating corporation, con- 
trolling one-half of the country's steel business, resulting from a combination of competing companies, in his 
opinion violated the act, and he voted for a dissolution to restore competitive conditions. 

• United States v. Keystone Watch Case Co. (E. D. Pa. 1915), 218 Fed. 502, appeal dismissed on motion of 
the United States (1921), 257 U. S. 664 (42-47 percent of the industrv); United States v. American Can Com- 
pany (D. Md. 1916), 230 Fed. 859. decree denying dissolution entered in (D. Md. 191(1), 2.34 Fed. 1019, appeal 
dismissed on motion of the United States (1921), 256 U. S. 706 (50 percent): United Slates v. Quaker Oats 
Companu (N. D. 111. 1916), 232 Fed. 499, appeal dismissed on motion of the United States (1920), 253 U. S. 
499 (70-75 percent). 



The Beading Anthracite Coal case ^° was decided within 7 weeks of 
the Steel " decision. A full Court sat and the majority opinion was; 
delivered by Mr. Justice Clarke, one of the dissenters in the Steel case. 
Three of the four members of the Steel case majority dissented, but it is 
noteworthy that Mr. Justice McKenna joined the majority. ^^ 

Practically all the anthracite coal in the country is found in three 
fields in northeastern Pennsylvania, the most northerly, the Wyoming 
field, with approximately 176 square miles of coal land, the middle or 
Lehigh field with about 45 square mUes, and the southerly or Schuyl- 
kill field with some 263 square miles. The chief marketing centers 
for anthracite are New York City, about 140 miles by rail from the 
fields, and Philadelphia, about 90 miles distant. The Wyoming field 
has six rail outlets to the New York Harbor, the Lehigh three, and 
the Schuylkill only two.^^ Six of the carriers either directly or through 
subsidiaries produce about 75 percent of the annual output, and own 
or control about 90 percent of the unmined deposits. ^^ 

The Philadelphia & Reading Railroad extends into the Schuylkill 
field. From an early date, it began to acquire coal properties in this 
region to assure itself of the valuable coal traffic. Its holdings were 
increased from 70,000 acres in 1871 to 102,573 acres in 1891, consti- 
tuting at that time about one-third of the total area of coal lands of 
the State, about two-thirds of the acreage of the Schuylkill field, and 
about 50 percent of the State's unmined deposits. In 1892, it leased 
the lines of two important competing roads, the Central of New 
Jersey and the Lehigh Valley, both of which controlled valuable coal 
properties. The Central lease was assailed in the New Jersey courts, 
and as a result of the litigation both leases were abandoned. ^^ After 
a receivership in 1896, the company was reorganized and its various 
properties allocated as follows: The coal lands to the Reading Coal & 
Iron Co., the railroad to the Reading Railway Co., and the equipment 
and rolling stock to the Reading Co. In all other respects, the Reading 
Co. became a holding company, controlling the capital stock of the 
other two Reading companies. The formation of this holding com- 
pany was held in and of itself to be a violation of the Sherman Act, 
the Court declaring: 

i" United States v. Beading Company (1920), 253 U. S. 26. The opinion in the Steel case was handed down 
on March 1, 1920, the Reading case on April 26, 1920. For the decree, see (D. C. Pa. 1921) 273 Fed. 848, 854. 
" (1920) 251 U. S. 417. 

12 'I'he majority consisted of Clarke, McKenna, Day. Pitney, McReynolds, and Brandcis, JJ., the minor- 
ity of White, O. J., Holmes and Van Devanter, JJ. 

" This is stated by the court, id. at p. 42, but the facts are somewhat differently stated by the district 
court. (R. D. Pa. 1915) 226 Fed. 229, 234. 

n The followiofr table of the various percentages of unmined anthracite is contained in United States v. 
Heading Company (1912), 226 U. S. 324, 339. 


Reading Co _ 44.00 

LohiRh Valley Co 16.87 

Delaware, I/aelcawanna & Western Co... 6. 55 

Central R. R. of N. J 19.00 

Eric R. R 2.59 

New York, Susquehanna & Western R. R .54 

Total 89.55 

The balance is owned by independents who mine about 20 percent of the annual output. The mines of 
the various coal companies are in the main in the vicinity of the tracks of the parent railroads. Except for 
the Delaware, Lackawanna & Western Co., the coal properties are owned by subsidiary operating com- 

i» Stockton V. Central Railroad Compnuy of iXnr Jersey. 50 N. J. Eq. 52, 24 Atl. 964 (1892). The chancelor 
held that the Central U. It. lc;i,';i' to ilic Keadinfi system was contrary to a New Jersey statute of 1885 for- 
biddinc the lease of a domcstif railroad to a foreign corporation without legislative consent, and held also, 
that the leases tended to monopoly and hence were injurious to the public interest. 


Thus, this scheme of reorganization, adopted and executed G years after the 
enactment of the Antitrust Act, combined and dehvcred into the complete control 
of the board of directors of the Holding Company all of the property of much the 
largest single coal company operating in the Schuylkill anthracite field, and almost 
1,000 miles of railway over which its coal must find its access to interstate markets. 
This board of directors, obviouslj', thus acquired power: to increase or decrease 
the output of coal from very extensive mines, the suj^ply of it in the market, and 
the cost of it to the consumer; to increase or lower the charge for transjjorting such 
coal to market; and to regulate car supply and other shipping conveniences, and 
thereby to help or hinder the operations of independent miners aiid shipjjers of 
coal. This constituted a combination to unduly restrain interstate commerce 
within the meaning of the act." 

As evidence of the purpose of the Reading- combination to dominate 
the Schuylkill field and tlie transportation facilities from that rco;ion 
to the eastern markets, the Court relied upon the series of acquisitions 
already described and the abuse of the power which thus became vested 
in the holding: company. Such abuses were the combination of the 
Reading with five other carriers to prevent the construction by the 
independent coal operators of a new road to the eastern seaports and 
the successful suppression of such contemplated competition, and also 
its participation in a combination of carriers and controlled coal com- 
panies, \\hereby the present and future output of the independents 
was obtained under exclusive contracts at a vmiform rate of 65 percent 
of the seaport price. '^ The participation in these combinations was 
characterized by the Court as a flagrant violation of the antitrust 

The holding company had also acquired a controlling stock interest 
in the Central Railroad of New Jersey, which operated a road from 
the Wyoming and Lehigh regions to the New York harbor, and which 
owned eleven-twelfths of the stock of the Lehigh & Wilkes-Barre Coal 
Co., a coal company with extensive properties in the Wyoming field 
amounting to about 19 percent of the total unmined deposits in the 
State. '^ The Court found that both the railroad and its coal com.pany 
were in direct competition with the system of the acquiring company. 
Reading and Central railroads together carried an anthracite tonnage 
of 18,000,000 tons or about one-third of the total domestic produc- 
tion.^^ "This acquisition", said the Court, "placed the Holding Com- 
pany in a position of dominating control not only over two great com- 
peting interstate railroad carriers but also over two great competing 
coal companies, engaged extensively in mining and selling anthracite 
coal, wdiicli must be transported to interstate markets over the con- 
trolled interstate lines of railway." As "this dominating power was 
not obtained by normal expansion to meet the demands of a business 
growing as a result of superior and enterprising management, but by 
deliberate, calculated purchase for control", the Court held the com- 

>6 United States v. Reading Company (1920'), 253 U. S. 26, 47. 

1' Both acts of the combination were held unlawful in a former suit, United States v. Reading Company 
(1912), 226 U. S. 324. As this case is concerned with a loose-knit combination, it is not analyzed in this 
section. However, one aspect of the case should be noted. The competing roads formed a company to 
acquire the stock of an independent producer, which was the largest supporter of the projected railroad, 
each of the defendant railroads acquiring a stock interest in the new company. The unified control of the 
company bv the 6 competitors was held unlawful. Cf. State ex inf. Barber v. Armovr Packing Company, 
265 Mo. 12l", 176 S. W. 382 (1915), in which the court held a company with 7 percent of the meat packing 
trade of the United States to be illegal where its owners were the leading meat packers of the covmtry. 

IS Of the total coal mined in 1912, Wilkes-Barre produced 7!^2 percent and Reading Coal 16 percent. United 
States V. Reading Co. (E. D. Pa. 1915) 226 Fed. 229, 249. This latter court estimated Central's unmined 
deposits at 10 percent and not 19 percent, the figure given by the Supreme Court in the first Reading case. 

19 United States v. Reading Company (1920), 253 U. S. 26, 53. It is clear that their production of coal did not 
exceed this figure of their coal transportation. In 1912 the combined production of their coal companies 
amounted to only 231.2 percent of the annual output. The percentage of unmined deposits was, as we have 
seen, much higher. 


bination unlawful, stating "that such a power, so obtained, regardless 
of the use made of it, constitutes a menace to and an undue restraint 
upon interstate commerce within the meaning of the Antitrust Act."^° 
As authority for its position the Court cited with approval and 
quoted statements in the Northern Securities ^' and the Union Pacific ^^ 
cases that it is the existence of power and not its exercise which deter- 
mines whether the act has been violated. The Court also quoted 
from a previous case to the effect that the good results of the combina- 
tion or the good intentions of its prime movers constitute no defense 
for a violation of the statute. ^^ It was further held that the joint 
control of carrier and coal company violated the commodities clause 
of the Hepburn Act.^* A decree of dissolution was accordingly 
entered, the constituent companies being freed from the domination 
of the holding company, and their separate independence reestab- 
lished. A more drastic dissolution had not up to that time been 
ordered by the Court. ^^ 

Here, then, we have a combination with about 33 K percent of the 
annual production of anthracite coal declared unlawful under the anti- 
trust laws. Is the result to be placed on the ground that the defend- 
ants joined a combination of other carriers to exclude competition and 
to monopolize the entire output of coal? These violations had oc- 
curred long prior to this suit and had been enjoined in a separate pro- 
ce -ding more than 8 years before the decision of this case by the Su- 
preme Court. The Court emphatically states that the formation it- 
self of the Reading holding company rather than the abusive exercise 
of its power violated the antitrust laws. Apart from the acts enjoined 
in the previous suit, the combination had been guilty of no predatory 
practices. The case cannot be rested on the ground that the com- 
modities clause of the Hepburn Act was violated. The Hepburn Act 
had no application to the Central of New Jersey acquisition; it per- 
tained merely to the joint control of carrier and coal company. The 
Court, moreover, regarded the combination as violating the antitrust 
laws, and did not rest its decision upon the Hepburn Act. Nor can the 

" Id. at 57. 

21 (1904) 193 U. S. 197. 

22(1912) 226 U. S. 61. 

23 International Harvester Co. v. Missouri (1914), 234 U. S. 199, 209. "It is too late in the day to assert 
against statutes which forbid combinations of competing companies that a particular combination was in- 
duced by pood intentions and has had some good eiTect." 

2« 34 Stat. 5S1 (li.'OCO, 49 II. S. C. A., sec. 1, par. 8 (1920). This act declares that it shall be unlawful for 
any railroad company to transport in interstate commerce "any article or commodity, * * * mined, 
or produced by it, or under its authority, or which it may own in whole or in part, or in which it may have 
any interest, direct or indirect, * * *." In United States v. Delaware & Hudson Company (1909), 213 
U. S. 3(j(), it was held that the act is not necessarily violated by the transportation of coal shipped by a com- 
pany in which the railroad has a stock interest. Where, however, the railroad owns all the stock of the coal 
company, dcpriviii!; it of all real iixlependent existence and making it virtually an agency of the carrier, 
the transportation of its coal is unlawful. United States v. Leiiigl} ^'alley Railroad Co. (1911), 220 U. S. 257. 
The is wliether there is a bona fide separate administration of the affairs of the coal company. The 
next device adopted by the coal-carrier combinations to circumvent the statute was outlawed in United 
States V. Dehurare, Lnckairannn & Western Railroad Co. (1915), 238 U. S. 510. The Delaware, Lackawanna 
& Western Uailroad (^i. incorporated the Delaware, Lackawanna & Western (^oal Co., selling the stock 
of the cn\\ co!iii)aiiy to the stocktiolclcrs of the railroad. The coal company agreed to buy all the coal mined 
by the railroad and not to handle tlic output of any other company. The Court held the contract unlawful. 
Stating that the arrangement made the coal company merely an instrumentality of the carrier. The Read- 
ing and LeluL'h set-ups, which were obvious modifications of the arrangements described above, are dis- 
cussed in the text. See (19151 14 Mich. L. Rev. 49: (19201 19 id. 221: (19211 19 id. 5.53: (19.32) 41 Yale L. J. 
439. In United States v. Flgin, J. & E. Ry. Co. (1936), 298 U. S. 492, the Court held that the commodities 
clause of the Interstate Commerce Act had not been violated by the ownership of all the stock of the Elgin, 
J. it K. Ity. Co., by the Cnited States Steel Corporatiim, a holding company, notwithstanding the fact that 
60 percent of the t onnage carri('(l by the railroad consisted of commodities shipped by subsidiaries of the steel 
corporation. The Court stressed the absence of interlocking directorates, "the infrequent partici- 
pation by the hokling comiiany in the allairs of the railroad, the separate accounting systems of each com- 
pany, and the independent ownership by each of their re.spective facilities and stated the mere existence of 
power to exercise an active control, without its exercise, docs not constitute a violation of the law. See the 
sharp di.ssent of Mr. .lustice Stone, id., at 504. 

" For subsequent litigation over the decree, see Continental Insurance Company v. United States, Read- 
ing Covipany (1922), 259 U. S. 156. 


decision be put on the ground that a monopoly was acquired or sought. 
There was no evidence that the Reading Co. planned to buy up all 
or a dominant part of the competing coal companies and carriers; 
such wrongful mtent as there may have been was clearly ineffectual. 
No one will pretend that an active and vigorous competition pre- 
vailed in the anthracite fields, but the absence of competition was 
to be accounted for by the collusive agi-eements among the operating 
companies and carriers and not by the Reading combination. While 
large capital was required to embark upon the industry, the artificial 
restrictions on potential competition had at least been removed by 
the decree in the first Reading case. The conclusion is inescapable- 
that the union of the Reading and the Central interests did not 
stifle competition in the industry at large ; at best it merely eliminated 
competition between two of the largest factors. Does not the case 
liold that a combmation of giant companies doing a substantial part 
of the business in their fields is unlawful? 

United States v. Lehigh Valley Railroad Co}^ dealt with another 
series of acquisitions in this industry. The Lehigh Valley Railroad 
extends to the Wyoming and Lehigh fields, reaching but one colliery 
in the Schuylkill region. Much the larger part of its tonnage is 
derived from the Wyoming field and it transports more coal than 
any other railroad in the country. Like the other coal carriers, it 
has extensive coal holdings in territories tributary to its lines. Most 
of its purchases preceded the enactment of the Sherman law, but from 
1900 to 1905, it made several important stock acquisitions in competing 
coal companies, culminating in the purchase of the entire capital stock 
of Coxe Bros. & Co. in 1905 for $17,440,000 in cash. This company 
was the largest independent coal operator on the Lehigh Valley lines, 
and controlled not only extensive coal deposits but also all the capital 
stock of the Delaware, Susquehanna & Schuylkill Raihoad, a 50-mile 
railway serving many of the large independents and connecting w^th 
the Reading, Pennsylvania, and Central Railroads. After the acquis'- 
tion, the Delaware fell into disuse. The coal properties of the Lehigh 
were held by its controlled company, the Lehigh Valley Coal Co. 
The combined acreage of the Lehigh and the Coxe companies was 
90,719 acres, of which about two-thirds were located along the lines 
of the railroad. The coal companies and railroad had common 
officers, no dividends were paid by the coal companies, the financial 
relations of the various companies being "intimate and interlaced."" 
In 1912, to avoid the possible application of the Sherman and Hep- 
burn Acts, a subsidiary sales company was organized to market the 
coal produced. This device was a patent subterfuge and was so 
regarded by the Court. ^^ The purpose of these purchases of coal 
properties, the Court found, was to suppress competition, and their 

29 (1920) 254 U. S. 255. Cf. United States v. Lake Shore and Michigan Southern Railway Co. (S. D. Ohio 
1912), 203 Fed. 295. 

2' 254 U. S. 255, 263. 

28 Id. at 267. The history of the company is a long record of attempts to frustrate the State and Federal 
statutes regulating carriers or business competition. Its efforts to lease its lines to the Reading, as indi- 
cated in the text, proved abortive. It participated in the illegal conibinntion which was castigated in the 
first Reading case. In 1911, the Interstate Commerce Commission held it guilty of monopolizing the coal 
field served by it and of unjust discrimination. Meeker v. Lehigh Valley Railroad Company, 21 I. C. C. 129, 
154, 163 (1911), supplemental report, 23 I. C. C. 480 (1912); Meeker v. Lehigh Vallty Railroad. (1915) 236 U. S. 
412. In 1915. its rates were branded a.s unreasonable, and it was held guilty of unlawful rebates. In the 
Matter of Rates, etc.. Governing the Transportation of Anthracite Coal, 35 I. C. C. 220 (191.5). .\s stated 
by the court, "This history of almost 25 years casts an illuminating light upon the intent and purpose with 
which the combination here assailed was formed and continued." United States v. Lehigh Valley Rail- 
road Co., supra, at 269. See (1932) 41 Yale L. J. 439. 


ultimate result was the attainment of "a practical monopoly" in 
"the transportation and sale of anthracite coal derived from such 
lands." '^ The Court said: 

The area of the anthracite territory is so restricted that to thus obtain control 
of the supply of such coal on a great system of railway (the amount transported 
exceeded one-fifth of the entire production of the country for the year before this 
suit was commenced) by a combination of corporations, such as we have here, and 
by such methods as we have seen were employed, effected a restraint of trade or 
commerce among the several States and constituted an attempt to monopolize 
and an actual monopolization of a part of such trade or commerce in anthracite 
coal, clearly within the meaning of the first and second sections of the Antitrust 
Act as they have frequently been interpreted by this court.^" 

The combination between carrier and coal companies was ordered 
dissolved, the independence of each affiliated unit to be completely 
restored. ^^ 

Wliile the Court talks of a practical monopoly and of attempts to 
monopolize, it does not reveal Lehigh's share of the annual output of 
coal. It is clear from the other coal cases that the percentage did 
not exceed 20 percent. Lehigh had no monopoly in any real sense 
other than the regional monopoly which every carrier possesses. 
There were many other transportation and coal companies, and with 
Reading and Central separated, at least two with larger unmined 
coal holdings.^^ 

In the discussion of the Anthracite cases, the combination of com- 
peting coal companies rather than the integration of coal company 
and carrier has been stressed. The Court, as indicated, declared 
both types of combination unlawful under the Sherman as well as the 
Hepburn Acts. It is noteworthy that in both cases the stock in the 
coal companies was acquired either by the carrier or a holding com- 
pany and not by a coal company. In the Reading case,'^^ the holding 
company accpiired Central of New Jersey stock and thus obtained 
control of Central's subsidiary coal company. In the Lehigh case,^'^ 
the raih'oad purchased the stock in Coxe Co. The decree of dis- 
solution required the separation of railroad and coal company, the 
Reading Co. being compelled to relinquish its holdings of Reading 
Railroad, Reading Coal Co., and Central of New Jersey, which in 
turn had to divest itself of its coal holdings. Lehigh Railroad was 
ordered to relinquish control of its subsidiary coal company and to 
dispose of its stock in the Coxe colliery. Under the decree, a hori- 
zontal union of the Reading and Central Coal companies, or of the 
two carriers, or of Lehigh Coal and Coxe Coal companies, was not 
directly forbidden. If there is difficulty in reconciling these cases 
with the Steel decision,^^ treating them as involvmg merely combina- 

2« Id. at 270. 

30 Ibid. 

31 The opinion was written by Clarke, J., for a court composed of McKenna, Day, Van Devanter, and 
Pitney, JJ. Cliief Justice White and Mr. Justice Holmes concurred specially, stating that they regarded 
themselves bound by the previous determinations in the Reading and Lackaxcanna case's. McReynolds 
and Brandeis, JJ., did not sit. 

The court ordered the dissolution of the intercorporate relations between the Lehigh Valley Railroad 
Co., the LehiKli N'alley Coal Co., Coxe Bros. & Co., Inc., the Delaware, Susquehanna <*L' Schuylkill Rail- 
road Co., and I lie Lehigh Valley (^oal Sales Co. with such disiiosition of all sec'urities as woulii establish 
their entire indeiiendence. The contract between the coal company and sales company was declared void, 
and the sales company was freed from the domination of the railroad, and was in ellect, as well as in form, 
to be an independent dealer in coal, free to comi>ele with the coal or railroad companies. 

32 The Reading Co. with 44 percent and the Central Railroad of New Jersey with 19 percent while the 
Lehigh Valley Co. had but 16.87 percent. 

33 (1912) 22G U.S. 324. 
31 (1920) 254 U. S. 255. 
3» (1920) 251 U. S. 417. 


ttions of coal companies, how explain the decisions under the Sherman 
Act if they are treated as vertical integrations only? 

The percentage of control in both Anthracite cases was less than 
that in the Steel case.^^ The form of combination, at least in the 
Reading case,^'^ was identical. The combinations cooperated with the 
independents — in one case to fix prices, in the others to drive out com- 
petitors. Cooperation with competitors in all the cases had tlieoret- 
ically ceased at the time of suit, in one voluntarily, and in the others 
under compulsion of law. The intent to monopolize had been aban- 
doned — or at least had proven ineffectual — in all three cases. Monop- 
oly power was not attained by any of the defendants. Apart from 
combining with competitors, no defendant was guilty of predatory 
practices, although to be sure the anthi-acite companies had joined 
with their competitors to drive out new competition, whereas Steel 
had been content with price-fixing. The likelihood of potential com- 
petition was about the same ; perhaps more likely in the steel industry. 
All the corporations were preeminent in their respective fields, but 
there was a fair number of strong independents. The majority opin- 
ion in the Anthracite cases bears an uncommonly strong resemblance 
to the dissenting opinion in the Steel case}^ The Steel decision is 
neither cited nor discussed by Mr. Justice Clarke. 


Somewhat reminiscent of the Steel case ^^ is the decision in Geddes 
V. Anaconda Copper Mining Co}^ This was a bill by minority stock- 
holders of the Alice Gold and Silver Mining Co. to have a deed of the 
corporation's property to the Anaconda Copper Co. declared invalid 
on the ground that the transfer violated the antitrust laws. The 
assets of the Alice Co. were sold to Anaconda in consideration of 30,000 
shares of the latter's stock. Anaconda at this time was an operating 
company and held the fee to the properties of several companies which 
it had previously absorbed. The Amalgamated Copper Co., a holding 
company formed in 1899 to serve, as its name indicated, as an in- 
strumentality for combining the copper companies in the country, 
controlled the Anaconda Co. by stock ownership. The promoters 
back in 1899 had probably intended to unify the entire inclustry but 
their efforts proved ineffectual, and in 1911 when the present bill 
was filed, less than 22 percent of the American output was produced 
by Anaconda and its associated companies. The Alice was a small 
copper company. Its proportionate output is not indicated by the 
Court, but it could not have been very high in view of the considera- 
tion given for it. At the time of the transfer, Alice was in financial 
difficulties and was unable to operate its properties profitably. While 
the case goes off on other grounds, the Court was clear that the pur- 
chase did not violate the Sherman law, the small proportion of the 
industry not giving Anaconda any monopolistic power. 

Much was made of the wrongful purpose of the original combina- 
tion, but as in the Steel case,'^^ the Court felt that the abandonment, 

38 md. 

3' (1912) 226 U. S. 324. 
38 (1920) 251 U. S. 417. 
3« Md. 

«i (1921) 254 U. S. 590. The opinion was written by Mr. Justice Clarke for a court composed of White 
C. J., McKenna, Holmes, Day, Van Devanter, Pitney, and Brandeis, JJ. Mr. Justice McRejmolds 
'Concurred in result. 
«' (1920) 251 U. S. 417. 


long prior to suit, of the intent to monopolize, as well as its ineffective- 
ness, precluded dissolution under the Sherman Act. While the Court 
does not directly pass upon the earlier acquisitions, its approval of the 
present purchase is an oblique ruling, at the very least, upon the legal- 
ity of a merger not exceeding 22 percent of the mdustry, achieved 
without predatory practices or injury to competitors. 


The International Harvester case *^ arose in a peculiar way. In 1902, 
5 of the largest companies manufacturing harvesting machinery and 
agricultural implements were consolidated into the International 
Harvester Co.. Subsequently the stock of the only remaining large 
company was acquired. ^^ The aggregate output of the combined 
companies exceeded 85 percent of the total domestic production. 
Thereafter, the properties of other competitors were acquired, steel 
and coal companies were purchased, and Harvester added other classes 
of agricultural implements to its lines. The company was conserva- 
tively financed, its stock was singularly free of water, the properties 
purchased were not overvalued, and promoters' profits were unusually 
slight. While the company had been variously charged with unfair 
practices, it was guilty of none of the brutal methods of the oil and 
tobacco companies and the trial court explicitly found that its 
competitors had not been unfairly or unjustly treated."** The intent 
to monopolize was inferable from the size and power of the combina- 
tion. At the suit of the Government, the combination was ordered 
dissolved in 1914, the decree providing for the division of the assets 
and business of Harvester into "at least 3 substantially equal, separate, 
distinct, and independent corporations with wholly separate owners 
and stockholders." " Later that year, the decree was modified, 
pursuant to a stipulation between the Attorney-General and the com- 
pany, eliminating the requirement of separation into 3 companies, 
and providing that the business and assets "be divided in such manner 
and into such number of parts of separate and distinct ownershiji as 
may be necessary to restore competitive conditions and bring about a 
now situation in harmony with law." Harvester then appealed to the 
Supreme Court, but by agreement of the parties the appeal was dis- 
missed and a consent decree was entered in 1918 whereunder Harvester 
was ordered to sell 3 of its branded harvester lines, with the manu- 
facturing plants, and was limited to a single sales representative or 
distributor in any one town or city. Jurisdiction to modify the decree 
was retained in the event it failed to achieve its purpose of bringing 
about "a situation in harmony with the law." "^^ Relying upon a study 
of competitive conditions in the industry made by the Federal Trade 
Commission, the Government in 1918 petitioned for the separation of 
International Harvester into 3 companies in accordance with the 
terms of the original decree. The trial court denied the petition on 

"(1927)274 U. S.6G3. 

«Th(> companies consolidated were the McCormick Harvesting Machine Co., Warder, Biishnell & 
Qlessncr Co., i:)oprinp: Harvp-stcr Co., Milwaukee Harvester Co., and the Plana Manufacturing Co. Shortly 
after, 1). M. Osborne & Co. was acquired. 

" United St'ites v. International Ilnrccster Company (D. Minn. 1914), 214 Fed. 987, 993. 

<5 United States v. International Harvester Company (D. Minn. 1014), 214 Fed. 987, appeal dismissed on 
motion of appellants, (1918) 248 U. S. 587, supplemental bill, (1927) 274 U. S. 693. See (1915) 63 U. of Pa. 
L. Rev. 315; (1914) 14 Col. L. Rev. 659; (1914) 28 Uarv. L. Rev. 87; Eldridge, "A New Interpretation of the 
Sherman .\ct," (1914) 13 Mich. L. Rev. 1, 113. 

<6 The company thereafter disposed of two of its lines, but it was unable to find a purchaser for the plants. 
The third line was not sold until after the Government brought the present proceedings for additional 
relief under the decree. 


the ground that the consent decree had restored competitive condi- 
tions, that the defendant's percentage of control had been reduced 
from 85 in 1902 to 64 in 1918, that the independents were powerful 
enough to engage in vigorous competition with Harvester, that de- 
fendant had no control over prices, and that, in fact, prices had been 
lowered. The Supreme Court in affirming held that competitive 
conditions had been restored." The Government's reliance upon the 
contrary conclusions of the Federal Trade Commission was criticized 
as follows: 

* * * the Government relies in large measure upon various statements and 
tabulations contained in the report of the Federal Trade Commission, which was 
introduced in evidence over the objection of the International Co. But it is 
entirely plain that to treat the statements in this report — based upon an ex parte 
investigation and formulated in the manner hereinabove set forth — as constituting 
in themselves substantive evidence upon the questions of fact here involved, 
violates the fundamental rules of evidence entitling the parties to a trial of issues 
of fact, not upon hearsay, but upon the testimony of persons having first hand 
knowledge of the facts, who are produced as witnesses and are subject to the test 
of cross-examination.'"* 

One of the ways in which defendant had restricted competition had 
been by tying up all the responsible dealers in a locality with exclusive 
contracts whereby each was limited to one of defendant's lines. 
Under the decree, the Court pointed out, these channels of trade were 
opened to Harvester's competitors. The Court was impressed by the 
testimony of the purchasers of the three lines sold pursuant to the 
decree, who expressed confidence in their ability to compete energeti- 
cally and successfully once the agricultural depression ended. The 
Com't further found that Harvester had not used its capital and 
resources to restrain or suppress competition, that it had not controlled 
prices, and that it had not sold its machines below cost except in 
disposing of surplus stock. It pointed out that the company's 
percentage of control had decreased to 64 percent. Repeating the 
dictum of the Steel case,'^^ it said: 

The law, however, does not make the mere size of a corporation, however 
impressive, or the existence of unexerted power on its part, an offense, when 
unaccompanied by unlawful conduct in the exercise of its power.^o 

With respect to the company's price leadership, it said: 

And the fact that competitors may see proper, in the exercise of their own judg- 
ment, to follow the prices of another manufacturer, does not establish any sup- 
pression of competition or show any sinister domination." 

Its conclusion from the evidence was that International Harvester 
had not only complied with the decree but that a "situation in har- 
mony with the law" has been brought about. 

All that the Court was called upon to determine in the Harvester " 
case was whether the defendant had complied with the consent decree 
of 1918. The position might be taken that the legality of a combina- 
tion with 64 percent control of an industry was not really before it, 
that while it might well have rendered a more drastic decree were the 

<' United States v. International Harvester Co., (1927) 274 U. S. 693. Mr. Justice Sanford wrote the opinion 
for a Court composed of Taft, C. J., Holmes, Van Devanter, Sutherland, and Butler, JJ. McReynolds, 
Brandeis, and Stone, JJ.. took no part in the case. 

« Id. at 703. 

No mention was made of sec. 6 (c) of the Federal Trade Commission Act empowering the Commission 
to make such investigations, nor account taken of the fact that one of the purposes of Congress in creating the 
Commission was to devise a new technique for the eflective formulation of dissolution decrees. See 38 Stat. 
717, sec. 6 (c) (1911), 15 U. S. C. A., sec. 46 (c) (1926). 

" (1920) 251 U. S. 417. 

»" United States v. International Harvester Co., supra, 708. 

" Ibid. 

«2 (1927) 274 U. S. 693. 

291144 — 41— No. 3S 6 


matter res integra, the Court was limited, by the form of the sub- 
mission and the nature of its review, to the terms of the decree which 
the Government had accepted and by which it was bound. So con- 
strued, the value of the decision as a precedent is much circumscribed. 
Wliile it must be admitted that the issue before the Court was rather 
narrow, yet the right of the Government to apply for further relief 
to bring about a condition "in harmony with law" had been expressly 
reserved and the question before the Court was whether such a con- 
dition had been restored. If the power of a consolidated company 
controlling 64 percent of the industry is excessive and transcends 
the limits imposed by the anti-trust laws, the Court, despite the 
limited scope of its review, had ample jurisdiction to modify the decree. 

Under this decision, it would appear that the abandonment of 
a wrongful purpose purges the combination of its initial unlawfulness. 
The existence of monopoly is evidenced by a control over prices and 
the absence of energetic competition by independent manufacturers. 
The fact that independents follow the price leadership of the dominant 
company is not, standing by itself, conclusive on the question of con- 
trol. It is not essential that the aggregate power of the independents 
equals that of the combination so long as they have the ability and are 
free to compete with the combination. If there be such competition, 
the merger, regardless of its size, is lawful. 

The existence of competition in the industry subsequent to the 
formation of the combination is thus regarded as more significant than 
an}'- of the other factors stressed in the previous decisions.^^ 


It is apparent from this review of the Supreme Court cases that 
the course of decision in the field of mergers and consolidations has 
been erratic and unpredictable and that there is today virtually as 
much doubt and uncertainty regarding the permissive limits of capital 
combinations as there was in 1890. Numerous factors which may 
have an important bearing upon the legality of a merger of two or 
more competing companies have been stressed by the Court and the 
writers on the subject. A recapitulation of the Court rulings in 
terms of these factors may be fruitful in determining whether the 
decisions permit of any reliable generalizations concernmg the lawful 
limits of corporate integrations. 


Although there is a popular belief that the Sherman Act is aimed 
primarily at bigness, the Supreme Court has emphatically stated 
on two occasions that the size of a capital combination is not of 
decisive importance in determining its illegality. Thus in the Har- 
vester case ^'* Mr. Justice Sanford, rephrasing the earlier dictum in the 
Steel case,^^ said: 

* * * The law, however, does not make the mere size of a corporation, 
however impressive, or the existence of unexerted power on its part, an offense, 
when unaccompanied by unlawful conduct in the exercise of its power. * * * 

»3 For similar emphasis upon this factor, see United States v. Standard Oil Company of New Jersey, Standard 
Oil Company of New York, and the \'acuvm Oil Company (E. D. Mo. 1931), 47 F. (2d) 288. 
" United States v. International Harvester Co. (1927), 274 U. S. 693, 708. 
M United States v. United Staies Steel Corporation (1920), 251 U. S. 417, 451. 


A company may have gigantic resom-ces and immense capitaliza- 
tion, but being pitted against other giants may have no control over 
price or industrial policy. Wliethcr there should be any limitations 
on corporate size is dependent upon considerations of policy extrinsic 
to the monopoly problem.^^ Though not of decisive importance, the 
element of size may not be ignored in determining the monopolistic 
power of any combination. The Court has not rejected the relevance 
of size in proving monopoly; it has merely held that size by itself does 
not constitute a violation of the statute. 

It is difficult to believe that the Court regards the economic posi- 
tion of a corporation in an industry or its control of the market as of 
no greater importance than capitalization or net worth, although its 
language in the passage above quoted is capable of such a construc- 
tion. Such a view would strip the statute of its meaning and efficacy, 
and fortunately the Court has not taken this position in its other 
merger decisions. 

A few preliminary observations are essential to a full understanding 
of the significance of the factor of market control. It is customary to 
use percentages in describing the economic strength of a capital com- 
bination. The use of numerical figures may, however, be misleading. 
Many businesses defy classification. They cannot be neatly articu- 
lated in any well-recognized industry. An industry itself is a tangle 
of affairs, sprawling, disorderly, and with ill-defined borders.^^ Given 
one definition of an industry, the combine's strength may be impres- 
sive; with another definition used as the base, its power may slmnk 
to insignificance. Nor can the matter of geography be ignored. While 
exerting monopolistic influences in local markets, the combine may 
face vigorous competition in the national market. Even when these 
factors are taken into account, there is always the difficulty of obtain- 
ing accurate statistical information concerning the relative position 
of the enterprises in any industry. Percentages based upon financial 
resources or productive capacity may differ from those based upon 
output or sales and be entitled to different weight. Degree of market 
control is thus not merely a matter of mathematical computation; it 
is a shorthand expression for the economic strength of a combine in 
the field in which it operates; its correct determination depends upon 
the weighting of all the relevant factors. 

Wliat importance has been attributed to this factor in the decisions 
of the Supreme Court? Eight capital combinations have been pro- 
nounced unlawful by the Court. The percentage of the industry con- 
trolled by the combine has not always been disclosed by the opinion 
of the Court or by the record of the case. The ascertainable degree 
of control shows a variation from 20 percent in the case of Anthracite 
Coal ^^ to 85 to 90 percent in the case of oil.^^ The Reading combina- 
tion ^^ brought within the control of a single holding company 33}^ 
percent of the anthracite coal marketed in the country. The North- 
ern Securities,''^ the Union Pacific,''^ and the Southern Pacific ^ amal- 
gamations combined important transcontinental railroad systems 

58 See Mr. Justice Brandeis, dissenting in Louis K. Liggett Co. v. Lee (1933), 288 U. S. 517, 541, 548 et seg. 

5' See Hamilton and Associates, Price and Price Policies (1938). sec. 1. 

5» United Staten v. Lehigh Valley Railroad Co. (1920\ 254 U. S. 255. 

«» Standard Oil Company of New Jersey v. United States (1911), 221 U. S. 1. 

60 United States v. Reading Co. (1920), 253 U. S. 26. 

" Northern Securities Company v. United States (1904), 193 U. S. 197. 

62 United States v. Union Pacific Railroad Company (1912), 226 U. S. 61. 

«3 United States v. Southern Pacific Company (1922), 259 U. S. 214. 


which, although lacking monopoly power, were responsible for a sub- 
stantial part of the Nation's transcontinental traffic. The Terminal 
Railroad case ^^ dealt with a monopoly of the terminal facilities in the 
city of St. Louis. The American Tobacco combine ^^ involved a cir- 
cular and vertical as well as a horizontal integration, the degree of 
control varying in the different branches of the industry which it 
dominated, the range of its power in the important divisions of its 
business extended from approximately 76 to 96 percent. 

Of the five integrations upheld by the Supreme Court, four con- 
trolled 50 percent or more of their respective industries. The 
American Sugar Refining Co.,^^ at the peak of its power was respon- 
sible for 98 percent of the sugar refined in this country. The per- 
centage of control of the United Shoe Machinery Co.®^ exceeded 90 
percent. The United States Steel Corporation ^^ at the time of suit 
was the dominant producer of steel and controlled about 50 percent 
of the industry. The International Harvester Co.*^^ accounted for 
64 percent of the business done in its field. The copper combine ^° is 
the only merger uphold embracing less than 50 percent of its industry, 
its percentage being 22. 

The same variations are to be noted in the State and lower Federal 
court decisions.''^ 

It is evident, therefore, both from a careful reading of the opinions 
of the Court and from a comparison of these figures, that the degree 
of control is not the decisive factor in determining the legality of 
capital combinations. 

Although the decisions cannot be reconciled in terms of any mathe- 
matical formula, it is doubtful whether the Court would decline to 
accord considerable weight to the element of market control. Un- 
fortunately, tliis factor has not been accorded the prominence in 
judicial ruling which it clearly merits. A construction of the statute 
which permits one company to control 64 percent of an industry has 
placed the wall of the law's protection too far from the center of the 
monopoly evil to have any real salutary economic effect. 

The Court is not alone at fault for the vagueness and inconsistency 
of its rulings. Little guidance was furnished either by the common 
law development of the monopoly concept or by the legislative history 
of the Sherman law. The word "monopoly" was not defined in the 
legislation and the broad use of the term in legislative discussion and 
popular literature afforded no reliable clue to the legislative purpose. 
It was clear that Congress intended to prohibit concentration of 
industrial control this side of total ownership or domination; otherwise 
the statute would have little meaning. How far short? The Supreme 
Court, unaided by history and unschooled by experience, was called 
upon to draw the line somewhere in the scale from to 100. It 
naturally eschewed a mathematical approach to the problem. There 
are other factors to be considered. In practice the facts of the 
pai'ticular case has dominated the decision. Each case is thus a 
law unto itself. The dividing line has been located at one point on 

«< United States v. Terminal Rnilrond Association of St. Louis (19n), 224 U. S. 383. 

«' United States v. American Tobacco Company (IQU), 221 U. S. IOC. 

" United States v. /•;. C. Kiiiijht Co. (1S9S), 15('; U. S. 1. 

«' United States v. Lhiiled Sline Machinery Co. of New Jersey (1918), 247 U. S. 32. 

«' United States V. United States Steel Corporation (1920), 251 U. S. 417. 

«» United States v. International Harvester Co. (1927), 274 U. S. 693. 

" Geddes v. Anaconda Copper Mining Co. (1921), 254 U. S. .590. 

" See Handler, Industrial Mergers and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179, 245. 


the scale in one industry and elsewhere in another. Clarity and 
precision of doctrine cannot be expected in such a l(^o;al recrime. 

"Monoply" under the statute thus means that degree of control 
which the Supreme Court deems unlawful. The illicit degree of con- 
trol is an unknown quantity and obtains its meaning from the tradi- 
tional process of judicial inclusion and exclusion. The role of the 
Court has thus far been experimenta). It has groped its way cauti- 
ously and tentatively in an effort to locate the dividing line at a 
point fair to all the interests concerned. The results thus reached 
have been entirely unsatisfactory. The prevailing confusion and un- 
certainty, deplorable though they may be, leave both the Congress 
and the Court free to ascribe greater weight to the clement of market 
control, by the adoption of a series of rebuttable presumptions or by 
the formulation of a more definite criterion of the permissive degree 
of corporate integration. 


The element most emphasized in the decisions is the intent to 
monopohze. The statute does not directly forbid monopoly, its 
penalties are imposed upon those persons who "shall monopolize or 
attempt to monopolize or combine or conspire with any other person 
or persons, to monopolize any part of the trade or commerce among 
the several States, or with foreign nations." 

A plausible argument predicated upon the wording of the statute 
can be advanced in support of the view that the mental element is an 
essential part of the statutory offense. Such a construction, however, 
is not inescapable. 

Although the intent to monopolize was present in several of the 
combinations held violative of the statute, ^^ such intent was also 
present in at least two decisions in which the Court refused to order 
dissolution, viz, the Knight case,'^^ where the proponents of the com- 
bination intended to monopolize the entire sugar refining industry, 
and in the Shoe Machinery cases, "^^ where the manifest purpose of the 
defendants was to control the shoe machinery industry. And there 
are rulings upholding corporate fusions despite the existence of a 
wrongful purpose on the part of the promoters of the combine. The 
moving spirits of the steel ^^ and copper ^^ combines intended to con- 
trol their respective industries. Their purposes, however, were never 
achieved, and the Court found that the intent to monopolize had been 
abandoned. Several combines have been condemned by the Court, 
notably in the railroad cases," in the absence of any evidence of a 
monopolistic purpose, the intent of the parties being merely to unite 
competitive properties. Thus, as a matter of authority, it can be 
definitely stated that the element of intent has not always been 
decisive. ^^ 

'2 Standard Oil Company of New Jersey v. United States (19U), 221 U. S. 1; United States v. American 
Tobacco Company (1911), 221 U. S. lOG; United States v. Terminal Railroad Association of St. Louis (1912), 
224 U. S.383. 

" United States v. E. C. Knight Co. (1895), 156 U. S. 1. 

" United States v. Winslow (1913), 227 U. S. 202; United States v. United Shoe Machinery Co. of New Jersey 
(1917), 247 U. S.32. 

" United States v. United States Steel Corporation (1920), 251 U. S. 417. 

J9 Geddes v. Anaconda Copper Mining Co. (1921), 254 U. S. 59. 

" United States v. Union Pacific Railway Company (1912), 226 U. S. 61; United States v. Southern Pacific 
Company (1922), 259 U. S. 214; Northern Securities Company v. United States (1904), 193 U. S. 197. 

" But cf. United States v. Socony-Vacuvm Oil Co., Inc., (i940), 310 U. S. 150, 224, n. 59. 


This is not at all surprising. Since a person must be held account- 
able for the necessary consequences of his conduct, one who attains a 
monopoly position can hardly be permitted to deny his monopolistic 
purpose. Where monopoly exists, the intent to monopolize is con- 
clusively presumed,'''^ and thus, as a practical matter, is not a factor 
of any consequence. Where the intent to monopolize, though present^ 
is ineffectual, the tendency is for the courts to find that the intent has 
been abandoned and to give it no weight. In the borderline cases, 
where it is difficult in fact to determine whether monopoly control has 
been attained, the element of intent may become decisive.^" 

In short, whatever may be the theoretical significance of the mental 
element in the monopoly cases, in point of authority, the element is 
inconsequential, both where the combination clearly possesses and 
clearly lacks monopoly control. In such cases, it is the presence or 
absence of monopoly power in fact which is important. It is only in 
the borderline cases that the mental element may be legally signifi- 

Wliatever may be its importance in theory and as a matter of 
authority, the issue of intent is generally tendered by the defendants 
in monopoly litigation and the Government thus feels obliged to 
establish the wrongful purposes of the defendants. Though a close 
analysis of the opinions of the Supreme Coiu't indicates that intent 
is not an essential element in the offense of monopoly, in the absence 
of any clear authority declaring intent an inconsequential factor, it 
would appear to be desirable in any statutory revision to consider 
whether, as a matter of policy, the Government in antitrust litigation 
should be required to prove guilty purpose on the part of the defend- 

To adopt a purely subjective test of legality in the complicated 
field of industrial integration would seem unwise. The proponents 
of any combination always profess the most exalted motives. Since 
their hearts and minds cannot be searched by the Court, the Govern- 
ment, in the absence of admissions, must rely upon the objective fncts 
for contradiction. To infer intent from extrinsic circumstances is to 
add another link to the chain of proof and to open the door to meta- 
physical distinctions, evasion, and further uncertainty. 

The antitrust laws should be concerned not with a state of mind 
but with economic realities. It is the existence of monopoly, and not 
the reasons which prompted those responsible for its creation, which 
calls for corrective action. ^^ 

" This was expressed bv Mr. Justice Lurton in United Stales v. Reading Company (1912), 226 U. S. 324, 

"Whether a particular act, contract or agreement was a reasonable and normal method in fiirtheranee of 
trade and commerce may, in doubtful cases, turn upon the intent to he inferred from the extent of the con- 
trol thereby secured over the commerce affected, as well as by the method which was used. Of course, if 
the necessary result is materially to restrain trade between the States, the intent with which the thing was 
done is of no consequence. But when there is only a probability, the intent to produce the consequences 
may become important. * * *" 

8» See United States v. Reading Company (•1912), 226 U. S. 324. 370. 

'1 In suits under sec. 1 charging a restraint of trade, it is settled by authoritative pronouncement of the 
Supreme Court tliat wrongful intent need not be established by the Government and that good motives 
will not condone action in contravention of the statute. See Standard Sanitary Manufacturing Company v. 
United s/ales fl9I2) 226 U. S. 20, 49; United Slates v. Socony-Vacuum Oil Co. "(1940'>, 310 U. S. 150, 220, 221, 
228; United Slates v. Trenton Potteries (1927). 273 U. S. 392, 395. 

82 Kccent reports of the .\ttoriu\v (icneral have forcefully called attention to the debilitating effects of the 
requirement that wronuful intent or guilty imrpose be establishe<l and have pointed out that one of the 
factors contributing to the failure of tlie Sliennan law has been llie iuijiortation of moral considerations into 
the construction and enforcement of the statute. Report of Attorney General (1938) p. 3; id. (1939) p. '37. 



It has been sug:g:ested by the Supreme Court ^^ that the statute is 
concerned more with the improper exercise than the mere existence of 
monopoly power. The emphasis upon the brutal practices of the 
Oil ^* and Tobacco ^^ Trusts, coupled with the importance ascribed to 
the absence of any overt, repressive acts and abuse of power in the 
Steel case,^^ has led to the popular distinction between "o;ood" and 
"bad" trusts. Implicit in this distinction is the notion that legahty 
depends in a laro;e measure upon whether the combination has indulged 
in predatory practices. 

The term, predatory practices, requires definition. "Predatoiy" 
may mean either brutal, overt acts by which competition is suppressed, 
or any conduct violative of the antitrust laws or other laws regulating 
business competition. 

Although some of the unlawful trusts were guilty of predatory 
conduct in the first or narrow sense, *^ several combines have been 
held unlawful in the absence of any evidence of improper competitive 
conduct, no matter how broadly the term "predatory" is used. There 
was no evidence of overt acts, abuse of power, exclusion of competitors, 
exaction of monopoly profits, discrimination, price-cutting, or artifi- 
cial restrictions on potential competition in about half the reported 
cases in which combinations were held unlawful. ^^ On the other hand, 
there was evidence of unfair conduct in some cases in which the 
combinations were upheld. ^^ While not brutal, the behavior of the 
combines in these cases was no less "predatory" than the practices 
in some of the instances in which trusts have been condemned. It 
is thus apparent that proof of the improper exercise of monopoly 
power is not a prerequisite of illegality. 

The matter can be further tested hypothetically. No matter how 
unlawful and brutal its practices may be, a combination controlling 
less than 10 percent of an industry would hardly be held to be an 
unlawful monopoly. On the other hand, a combination controlling an 
entire industry could not escape dissolution by virtue of the fact that it 
had eliminated competition by purchase of its competitors rather than 
through resort to methods suppressive of competition. 

As in the case of intent, the element of predatory conduct may be of 
great importance as a practical matter in borderline cases, but the 
conclusion is inescapable, from a careful reading of the authorities, 
that the lawfulness of a merger or consolidation does not depend upon 
the presence or absence of such conduct. Here also, to condition 
legality upon this extrinsic factor would be to introduce moral con- 
siderations into antitrust enforcement. Monopoly is reprehensible in 
a political democracy whether or not accompanied by evil purpose or 
improper conduct. There is no reason why monopoly and predatory 
behavior should not be both outlawed, whether they occur separately 
or in combination. Notwithstanding the contrary dictum of the 

83 United States v. United States Steel Corporation (1920), 251 U. S. 417; United Slates v. International Har 
vester Co. (1927), 274 U. S. 693. 

64 Standard Oil Company of Neiv Jersey v. United States (1911), 221 U. S. 1. 

S5 United States v. American Tobacco Company (1911), 221 U. S. 106. 

8s United States v. United States Steel Corporation (1920), 251 U. S. 417. 

^T Standard Oil Company of New Jersey v. United States (1911), 221 U. S. 1; United States v. American 
Tobacco Company. (1911) 221 U. S. 106. 

88 See Handler, Industrial Mergers and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179, 252. 

8» Handler, Industrial Mergers and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179, 251. 


Court in the Harvester case,^° quoted above, it is inferable from the 
authorities as a whole that both are equally inhibited by the statute. 
The distinction between good and bad trusts belongs to that out- 
moded era when the antitrust laws were regarded as a moral pro- 
nouncement rather than a charter of economic freedom. 


Although combinations have been held unlawful which lacked 
either the power to exclude competitors or to fix the market price,®^ 
the cases frequently advert to the power of the defendants to exclude 
competitors or to fix prices. How the existence of such power is to 
be determined is not disclosed. It will hardly be denied that he who 
can exclude his competitors, and, without the cooperation of rival 
sellers, can determine the market price, enjoys monopoly control; but 
the determination of the existence of such power is no less difficult than 
the proof of monopoly itself. What degree of control is necessary to 
enable one to exclude competitors or establish the market price? 

By posing the issue in terms of the power of exclusion and the 
power to fix the market price, the lines of inquiry are better marked 
and analysis can be more pointed. But apart from its better restate- 
ment, the problem remains unsolved. It is no easier from either a 
legal or an economic standpoint to determine whether the jurisdiction 
of a company over price is monopolistic than it is to determine whether 
the company is a monopoly. 

Evidence revealing the exclusion of competitors or the control of 
prices in fact is strong and convincing proof of the existence of monop- 
oly power. But such power may be present though proof of its 
improper exercise may be lacking or difficult of establishment in a 
court of law. As has been pointed out, the existence of monopoly 
power, regardless of the manner of its exercise, deprives the public of 
the benefits of free competition, and hence should not be tolerated. 



Monopoly is sometimes defined as the absence of competition, and 
the contention is frequently advanced in anti-trust suits that the 
presence of unrestricted competition in the industry negates the 
existence of any monopoly. This appears to have been the criterion 
applied in the Steel, ^^ Harvester, ^^ and the Standard Oil-Vacuum cases. ^'^ 

Here again we are dealing with a factor whose importance is 
ambiguous under the authorities. It is true that there was no outside 
competition in the case of some unlawful combinations,^^ and that 
there was outside competition in some of the combines upheld by the 
courts.^^ On the other hand, there are several instances of combines 

<"> United States v. International Harvester Co. (1027), 274 U. S. 693, 708. 

•• Northern Securities ( 'ompain/ v. i'liilcd Stales (1904), 193 U. S. 197; United States v. Union Pacific Railroad 
Company (1912), 220 U. S. (;i; ( -iiited Sliilcs v. Soulliern Pacific Company (1922), 259 U. S. 214; United States v. 
Readinci Company (1920), 253 IJ. S. 26; United States v. Lehic/li Valley Railroad Co. (1920), 254 U. S. 255. 

•2 UnilKl Slates v. United States Steel Corporation (1920), 251 U. S. 417. 

«3 United Slates v. International Harvester Co. (1927), 274 U. S. 093. 

" United Slates v. Standard Oil Co. of New Jersey (E. D. Mo. 1931), 47 F. (2d) 288. 

^''Standard Oil Company of New Jersey v. United States (1911), 221 U. S. 1; United States v. American 
Tobacco Company, (1911) 221 U. S. 100; United States v. Terminal Railroad Association of St. Louis, (1912) 
224 U. S. 383. 

»« United States v. United States Steel Corporation (1920), 251 IT. S. 417; United Slates v. International Har- 
vester Co., (1927) 274 U. S. 693; United States v. Standard Oil Company of New Jersey, Standard Oil Co. of 
New York, and the Vacuum Oil Company (E. D. Mo. 1931), 47 F. (2d) 288. 


which, although subject to effective outside competition, were con- 
demned by the courts.®^ And there are also instances of combines 
which, though not subject to outside competition, were nevertheless 
upheld by the coui'ts,^^ 

This factor is more attractive than any of the other criteria that 
have been suggested for the determination of the legality of corporate 
integrations. If there is outside competition, actual as well as poten- 
tial, monopoly power cannot be exerted, the evils of monopoly are 
avoided, and the public is adequately protected. The simplicity of 
the test is delusive and there are serious impediments to its practical 
application. What constitutes vigorous and effective competition? 
Under what circumstances can it be said that the independents are 
able to compete on a parity with the combination? When the inde- 
pendents enter into price-fixing agreements with the combination or 
follow its price leadersliip, is their competition free? When the 
independents are conscious of the power of the combination to crush 
them at will, are they competing on an equal basis? These are not 
legal questions. Nor are they questions of fact wliich an untrained 
mind can resolve. The details are multitudinous, the facts of per- 
plexing intricacy. 

The Supreme Court has not been notably successful in the handling 
of such issues. The manner in which it evaluated the evidence of 
competition in the Steel case ^^ is open to criticism from the viewpoint 
of the economist. In the Harvester case,^ it rejected the conclusions 
of the economists of the Federal Trade Commission as being based on 
ex parte statements and hearsay. To use statistical data in court 
without running afoul of the hearsay rule is a rare feat of prestidigi- 

The present machinery of court litigation is not well adapted to 
the thoroughgoing economic study which is essential to a proper 
determination of the existence, strength, and efficacy of outside com- 
petition. Perhaps this criterion could be better applied adminis- 
tratively. In any event, it has not been, under the authorities, the 
decisive element in antitrust litigation. 


Although there are those who feel that the public is adequately 
safeguarded if potential competition remains free and unfettered at 
all times, the Sherman law demands that actual as well as potential 
competition be uncurbed. The complete elimination of competition 
is unlawful even in a field entirely open to new enterprise and capital. 
The contrary dictum in the Terminal case ^ is without support in the 
other authorities. Many of the mergers condemned by the Supreme 
Court imposed no restrictions on potential competition. Not only 
was such competition likely, but the subsequent history of these 
industries reveals the rise of many new enterprises.^ The likelihood 

«' United States v. Reading Company (1920), 253 U. S. 26; United States v. Lehigh Valley Railroad Co. (1920), 
254 U. S. 255; Uiiited Slates v. Union Pacific Company (1912), 226 U. S. 61; United States v. Southern Pacific 
Company (1922), 259 U. S. 214. 

•8 United States v. Winslow (1913), 227 U. S. 202; United States v. United Shoe Machinery Co. of New Jersey, 
(1917) 247 U. S. 32. 

»9 Uriited States v. United States Steel Corporation (1920), 251 U. S. 417. 

1 United States v. International Harvester Co. (1927), 274 U. S. 693. 

s United States v. Terminal Railroad Association of St. Louis (1912), 224 U. S. 383, 405. 

3 See Handler, Industrial Mergers and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179, 258. 


of potential competition thus falls down as a test of legality. A 
combination may be held unlawful even though new competition is 
unrestricted. Thus, again we have a factor which, though of un- 
doubted importance, does not explain the divergent court rulings. 

Suppose on the other hand, that such restraints have been imposed. 
Does this taint the combination with illegality? Only those organi- 
zations already possessing monopoly control can effectively restrict 
potential competition. Moreover, wherever the field is thus closed 
to new enterprise, many of the other factors discussed above are apt 
to be present. A combmation, therefore, that possesses and exercises 
the power to exclude new competition is probably unlawful, for this 
and other reasons. 

The interesting case is where no restraints are imposed by the com- 
bination, but the entry of new capital is extremely unlikely for either 
economic or physical reasons. This was essentially the situation in 
the Terminal case; ■* in fact the Court believed it was impossible for 
new competition to arise. The situation in the Shoe Machinery case ^ 
was not very different, but the point was not strongly urged. If 
existing competition is vigorous, it is doubtful whether the combination 
will be declared unlawful merely because it is difficult for new com- 
panies to enter the field. But where actual competition is ineffective 
and new competition unlikely or unpossible, the combination in all 
probability, despite the Shoe Machinery case,^ will be forbidden. 


The decisions cannot be reconciled m terms of the form taken by 
the combination. Trusts, holding companies, stock acquisitions, and 
outright purchases of property and other assets have been all held 
unlawful.^ It is interesting to observe that the trusts condemned all 
possessed a very high degree of control of their industries. This was 
also true of most of the holding companies which were found to violate 
the statute.^ The most severe application of the Sherman Act has 
been m cases involving stock acquisitions.^ Nevertheless, the dictum 
in the American Tobacco case that "the mere form in which the assailed 
transactions are clothed becomes of no moment" ^^ is essentially true 
of proceedings under the Sherman Act, whatever may be the im- 
portance of corporate forms in Clayton Act litigation. 


Attempts to justify combinations exceeding the permitted degree 
of concentration on the ground that prices have been reduced," the 
quality of the article improved,^- service bettered, ^^ competitors fairly 
treated/^ or that the purpose of the combination was to avoid the 

* United States v. Terminal Railroad Association of St. Louis (1912), 224 U. S. 383. 

» United States v. Winslotv (1913), 227 U. S. 202. 

» Ibid. 

' See Handler, Industrial Mergers and the Anti-Trust Laws (1932), 32 Col. L. Rev. 179, 259 et seg. 

« The exceptions arc: Norttiern Securities v. United States (1904), 193 U. S. 197; United States v. Reading 
Company (1920), 253 U. S. 20; United States v. LeMigli Vallev Railroad Co. (1920), 254 U. S. 255. 

^United States v. Soiitliern Pacific Company (1922), 259 U. S. 214; United States v. Union Pacific Railroad 
Company (1912), 220 U. S. 61. 

'O United States v. American Tobacco Company (1911), 221 U. S. 106, 180. 

» Northern Securities Company v. United States (1904), 193 U. S. 197. 

'2 State V. Standard Oil (Ohio 1892), 30 N. E. 279, 290. 

'3 United Slates v. Great Lakes Towing Company (N. D. Ohio 1913), 208 Fed. 733, decree (N. D. Ohio 1914), 
217 Fed. 656. appeal dismissed on motion of United States (1917), 245 U. S. 675. 

>< United States v. International Harvester Company (D. Minn. 1914), 214 Fed. 987, 993, appeal dismissed on 
motion of appellants (1918), 248 U. S. 587, supplemental bill (1927), 274 U. S. 693. 


excesses of the fierce competition tliat preceded the forniatioii '^ have 
all been unsucccssfuL Despite all the emphasis on intent, th(>, courts 
have been disinclined to inquire into the motives of the proponents 
of the combination. 

Yet, in some of the cases, the economic effects of the combination 
have been considered and the efficiencies of the new company stressed.'^ 
A contrary attitude has also been maiufested.'^ Theoretically, the 
upper limit of a combination should n(^ver exceed the point of highest 
economic efficiency. Such a test is difficult of practical application. 
The facts are not easily ascertained, the evidence is apt to be con- 
flicting and speculative, and the conclusions imcertain. In any event 
the courts have not purported, except in rare instances, to apply 
any such test. 

The most frequent justification has been the insolvency of the 
selling company or the imperative need for financial readjustment.'* 
By permitting combinations under such circumstances, the courts 
may be opening an inviting field for subterfuge. 

The existence of other forms of governmental regulation has been 
considered a justification for monopoly power, notably in the public 
utilit}^ field. '^ Where the combined companies are not in competition 
with each other, the union has generally been upheld.^* 


We have seen that the adoption of the rule of reason had little 
perceptible eft'ect on the doctrine of restraint of trade applicable to 
loose-knit confederations. As the Supreme Court passed upon but 
two capital combinations before the promulgation of the rule of reason, 
upholding the combine in the Knight case,~^ and condemning it in the 
Northern Securities case^ it is not fruitful to contrast the decisions 
before with those after the adoption of the rule. 

The standard of reason has permitted the Court to sit as a censor 
on corporate integrations and undoubtedly has resulted in a more 
tolerant attitude toward such combines than would have been the 
case had the rule of reason been rejected. Once it was decided that 
the statute does not, on the one hand, prohibit every business con- 
solidation, nor permit, on the other, integrations just short of complete 
domination, the Court, with or without a rule of reason, was com- 
pelled to draw the Ime somewhere in the scale from 1 to 100 percent. 
The rule of reason has not altered the nature of the problem with 
which the courts have been confronted and, except for its doubtful 
psychological value, has not assisted the courts in the formulation 
of any clear and predictable tests by which the legaUty of corporate 
integrations might be measured. Little would thus be accomplished 

15 State V. International Harvester Company of America, 237 Mo. 369, 383, 384, 391, affirmed (1914), 234 U. S. 

16 United States v. United States Steel Corporation (1920), 251 U. S. 417, 443; cf. United States v. Terminal 
Railroad Association of St. Louis (1912), 224 U. S. 383, 410. 

1' Northern Securities Company v. United States (1904), 193 U. S. 197, 327 et seq.; United States v. Union 
Pacific Railroad Company (1912), 226 U. S. 61, 87 et seg. 

'8 United States v. United States Steel Corporation (1920), 251 U. S. 417 (with regard to the acquisition of 
the Tennessee company); Lumbermen's Trust Co. v. Title Insurance Company (C. C. A. 9th, 1918), 248 
Fed. 212: United States v. Quaker Oats Company (N. D. 111. 1916), 232 Fed. 499; Northivestern Consolidated 
Milling Co. v. Callam (C. C. E. D. Mich. 1910), 177 Fed. 786. 

19 Continental Securities Company v. Interborough Rapid Transit Company (C. C. A. 2d, 1915), 221 Fed. 
44; Doherty & Company v. Rice (C. C, M. D. Ala. 1910), 186 Fed. 204,amrmed (C. C. A. 5th, 1911), 184 Fed. 

'0 United States v. Winslow (1912), 227 U. S. 202; United States v. United Shoe Machinery Co. of New Jersey 
0917). 247 U. S.32. 

21 United States v. E. C. Knight Co. (1895), 156 U. S. 1. 

22 Northern Securities Company v. United States (1904), 193 U. S. 197. 


by the repeal, judicial or legislative, of the rule of reason in its appli- 
cation to mergers and consolidations. Other than a possible tighten- 
ing of the lines, such a repeal of itself would not make the law less 
confused or more predictable than it now is. 


We have not undertaken a study of the efficacy of the various 
dissolution decrees which have been entered in important antitrust 
litigations. It is common knowledge, however, fortified by the find- 
ings of Government agencies ^^ and private investigators,^^ that the 
decrees have rarely succeeded in restoring competition. Although 
their immediate effects have been negligible, in some instances there 
has been a recrudescence of competition after a lapse of many years. ^^ 

Dissolution decrees could undoubtedly be made more effective. ^^ 
A decree of dissolution, if too drastic, may have catastrophic effects 
upon investors, workers, and consumers and may, in case of our basic 
industries, unsettle our entire economy. Indeed, one cannot read 
the opinion in the Steel case ^^ without obtaining the firm impression 
that the Court's apprehensions of the adverse economic effects of 
dissolution were in part responsible for its doubtful construction and 
application of the law. 

Attempts to strengthen the dissolution procedure were made in the 
legislation of 1914.^^ Little resort has, however, been made to these 
provisions and their effect has been negligible. 

The processes of dissolution can unquestionably be strengthened^ 
but the question arises whether it is not better through new legisla- 
tion to prevent undue concentration of economic power than to stream- 
line the procedure for unscrambling the eggs after the evil has occurred. 


Although Chief Justice White in the Standard Oil case treated re- 
straint of trade as synonymous with monopoly,^^ there are vital distinc- 

'3 Federal Trade Commission, Agricultural Implement and Machinery Industry (1938), 20, 164, 1037. 

2< Hale, Trust Dissolution: "Atomizing" Business Units of Monopolistic Size (1940), 40 Col. L. Rev. 
615, 623; Cox, Compilation in the American Tobacco Industry (1933) 21. 

25 Id. at 618, 622; Handler, Cases and Materials on Trade Regulation (1937) 480. 

'9 The decrees could provide that in the process of dissolution the stock of the member companies may 
not be distributed to the same persons. Some action might also be taken to prevent the situation which 
obtains where each of the member companies after dissolution operates, in the same territory as it did when 
part of the unlawful combine, without the competition from any of the other member companies. See 
Handler, Cases and Materials on Trade Regulation (1937), 479. 

2' Vnited Stales v. United States Sted Corporation (1920). 251 U. S. 417. 

2« Sec. 7 of the Federal Trade Commission Act of 1914, 38 Stat. 722, 15 U. S. C. sec. 47 (1934). By virtue 
of sec. 6 (c) of the same act, 38 Stat. 721, 15 U. S. C. sec. 46 (c) (1934), the Federal Trade Commission is 
required, on application of the Attorney General, to make an investigation of the manner in which a dis- 
solution decree is being carried out. Sec. 6 (e), 38 Stat. 721, 15 U. S. C. sec. 46 (e) (1934), requires the Federal 
Trade Commission on ajjplication of the Attorney General to make recommendations for altering a business 
whicli is thought to be violating the anti-trust laws. 

Bibliography: For a thorough treatment of the post-litigation history of the oil industry and the effective- 
ness of the decree in Standard Oil Co. of h'eu' Jersey v. United States (1911), 221 U. S. 1, see Stocking, The Oil 
Industry and the Competitive System (1925), chs. V and VI: Burns, The Decline of Competition (1936) 
103 et seq. For an analysis of the proceedincs in the anthracite coal cases see (1932). 41 Yale L. J. 439: As to 
the ell'cctiveness of the decrees in United States v. E. I. du Pont de Nemours & Co. (C. C. Del. 1911), 188 Fed. 
127, see Stevens, The Powder Trust, 1872-1912 (1912), 26 Quar. J. Econ. 444; id.. Dissolution of the Powder 
Trust (1912), 27 Quar. J. Econ. 202; Laidler, Concentration in American Industry (1936), 306-309; Jones, 
Trust Problem in the United States (1920) 474-475; Seager and Gulick, Trust and Corporation Problems 
(1929) 406-408: Hancv. Business Organization and Combination (3d ed. 1934) 244-245; in United States v. 
En.'<linnn Kodak Co. (W. D. N. Y. 1913), 226 Fed. 62, decree (W. D. N. Y. 1915), 230 Fed. 522. appeal dis- 
missed on motion of the appellant (1921), 255 U. S. .578, 41 Sup. Ct. 321; see Jones, op. cit., 495, hOi, 519; 
and in United States v. Corn Products Refining Co. (S. D. N. Y. 1916), 234 Fed. 964, appeal withdrawn, 
defendant consenting to decree see Dewing, Corporate Promotions and Reorganizations (1914) 49-111; 
Watkins, Industrial Combinations and Public Policy (1927) 201-220; Jones, op. cit., 296, 436-438, 484-485; 
Laidler, op. cit., 242. 

On the topic generally see Handler, Cases and Materials on Trade Regulation (1937) 463 et seg.; Hale, 
Trust Dissolution: "Atomizing" Business Units of Monopolistic Size (1940). 40 Col. L. Rev. 615. 

" Standard Oil Company of New Jersey v. United States (1911), 221 U. S. 1, 53. 


tions between the two concepts. As is pointed out in the recent 
Socony-Vacuum case ^^ every monopoly may constitute a restraint of 
trade but not every restraint of trade is monopoUstic.^^ In practice, 
the doctrines of restraint of trade have developed in and have been 
applied to confederations of competitors ^^ whereas the monopoly 
concept has been of principal importance in the field of mergers and 
consolidations. Where competition is restrained by agreement or 
understanding between ostensibly independent competitors, the courts 
have perceived that the public sustains injury notwithstanding that 
the conspirators may lack monopoly power. Where, however, com- 
peting businesses are fused by merger or consolidation, the courts 
have not regarded the consequent disappearance of competition as 
serious where the new unit lacked at least a semblance of monopoly 
power. Hence, for many years a sharp distinction in fact obtained 
between the doctrines laid down in the loose-knit and merger cases. 
As we have noted in the section on degree of market control, ^^ prior 
to the Appalachian Coals case ^^ it was consistently held that the sup- 
pression of competition by agreement was unlawful regardless of the 
market position of the parties to the agreement. The Appalachian 
case ^-^ not only inaugurated a new rule in respect of loose-knit con- 
federations, now somewhat eclipsed by the recent Socony-Vacuum ^^ 
decision, but denied any difference between the application of the 
statute to mergers and loose-knit combinations. Mr. Chief Justice 
Hughes stated: 

* * * We agree that there is no ground for holding defendants' plan illegal 
merely because they have not integrated their properties and have chosen to 
maintain their independent plants, seeking not to limit but rather to facilitate 
production. We know of no public policy, and none is suggested by the terms 
of the Sherman Act, that, in order to comply with the law, those engaged in indus- 
try should be driven to unify their properties and businesses, in order to correct 
abuses which may be corrected by less drastic measures. Public policy might 
indeed be deemed to point in a different direction. * * * The question in 
either case is whether there is an unreasonable restraint of trade or an attempt 
to monopolize. If there is, the combination cannot escape because it has chosen 
corporate form; and, if there is not, it is not to be condemned because of the 
absence of corporate integration. * * * ^^ 

It is arguable that the elimination of competition by purchase should 
no more be tolerated than its suppression by agreement, and that the 
same rules should govern both branches of the anti-trust laws. The 
problem, however, remains whether the coalescence should be effected 
by the adoption of the more liberal rule applicable to mergers, as 
was suggested by the Court in the Ap>palachian case,^^ or of the more 
stringent rule apphcable to restraint of trade. The recent Socony- 
Vacuum case ^^ appears to reinstate the distmction which the Appa- 

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

31 "The existence or exertion of power to accomplish the desired objective • * * becomes important 
only in cases where the offense charged is the actual monopolizing of any part of trade or commerce in viola- 
tion of sec. 2 of the act. An intent and a power to produce the result which the law condemns are then 
necessary. * * * But the crime under sec. 1 is legally distinct from that under sec. 2 * * * though 
the two sections overlap in the sense that a monopoly under sec. 2 is a species of restraint of trade under sec. 
1. * ' * Only a confusion between the nature of the offenses under those two sections .* ' * would 
lead to the conclusion that power to fix prices was necessary for proof of a price-fixing conspiracy under sec. 
1. * * •" Id. 226 n. 59. 

32 See sections dealing with the loose-knit confederations, supra, p. XXX et seq. 

33 Supra. 

3< Appalachian Coals, Inc., v. United States (1933), 288 V. S. 344. 

35 Ibid. 

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

3' Appalachian Coals, Inc., v. United States (1933), 288 U. S. 344. 376. 

38 Id. at 377. 

3« United Stales v. Socony-Vacuum Oil Co. (1940), 310 U. S. 150. 


lachian decision ^^ sought to obliterate, but a single standard is still 
possible, should the courts decide to narrow the area of permissible 
corporate integration. 


Congress in the Clayton Act of 1914 " sought to discourage the 
merger process by curbing two of the easiest methods by which com- 
panies may be combined. Section 7 of the act forbids stock acquisi- 
tions in *- and holding company control of *^ competing companies 
engaged in interstate commerce where the acquisition has the effect 
of (1) substantially lessening competition between such companies, 
(2) restraining commerce in any section or community, or (3) creating 
or tending to create a monopoly in any line of commerce. 

Although the first of the statutory standards was an innovation in 
the antitrust field, the second and third were essentially the same as 
those prescribed by the Sherman Act. Precisely what was intended 
by the first standard is not easy of determination. Since the acquisi- 
tion of a controlling interest in two competing corporations for non- 
investment purposes *■* cannot fail to eliminate competition between 
them, it is difficult to understand what is meant by the qualifying 
expression "substantially lessen competition between the corporation 
whose stock is so acquired and the corporation making the acquisi- 
tion." The plu'aseology implies that there may be some acquisitions 
which may not lessen competition substantially and which are there- 
fore lawful. Yet it is difficult to envisage a case where such purchases 
would not fail to eliminate competition entirely, notwithstanding 
that the controlled company might be operated as an ostensible 
competitor. If Congress merely desired by this language to permit 
the combination of non-competing companies, its intention could 
evidently have been more directly expressed. Similarly, if it intended 
to prohibit all acquisitions of a controlling interest in competitive 
corporations, a more explicit interdiction would have avoided the 
frustrating construction of the courts. 

The judicial interpretation of section 7 has deprived it of most of its 
intended effect. The courts have held that for the statute to be 
applicable the combining companies must have been in substantial 
competition with each other prior to their union.^^ The cases have 
also indicated that an acquisition is not to be condemned merely 
because it diminishes competition between the two companies involved 
in the transaction; it must also be shown that competition in the in- 
dustry at large has been substantially aft'ected.^^ In other words, 
there is a tendency to erase the first of the statutory standards of 
legality, or stated differently, to amalgamate it with the familiar 
standards of the Sherman law. 

i" Appalachian Coals, Inc., v. United Slates (1933), 288 U. S. 344. 

<i 3« Stat. 730 (1914), 15 U. S. C. sec. 12. 

<2 38 Stat. 731 (19H), 15 U. S. C. sec. 18. 

«38 Stat. 732 (1914), 15 U. S. C. sec. 18. 

" There is a specific exemption from the condemnation of the act where corporations purchase stock for 
investment piir|)oses only, and the stock is not used to bring about thesubstantiallessening of competition. 
38 Stat. 732 (1914), 15 U. S. C. sec. 18. 

" International Shoe Company v. Federal Trade Commission (1930), 280 U. S. 291; Temple Anthracite Coal 
Company v. Federal Trade Commission (C. C. A. 3d, 1931), 51 F. (2d) 656; V. Vivaudou,Inc.,v. Federal Trade 
Commission (C. C. A. 2d, 1931), 54 F. (2d) 273. 

" Temple Anthracite Coal Company v. Federal Trade Commission (C. C. A. 3d, 1931), 51 F. (2d) 656; V. 
Vivaudou, Inc., v. Federal Trade Commission (C. C. A. 2d, 1931), 54 F. {2d) 273. 


The Federal Trade Commission is authorized by section 1 1 to issue 
orders compelling persons subject to the act to cease and desist from 
such violations and to divest themselves of stock acquired in contra- 
vention of the statute.*^ 

Under this section as interpreted by the courts the Commission 
may order the divestiture of stock only if the wrongfully acquired 
stock is held by the respondent at the time its order is promulgated. 
The Commission is ousted of jurisdiction if the respondent exchanges 
the stock for the assets of the acquired company either before *^ or 
after ^^ the issuance of the Commission's complaint but before the 
issuance of the cease and desist order. ■*^* Thus, by using the wrong- 
fully acquired secm'ities to consummate the corporate integration 
which was initiated by a stock acquisition or holding company, the 
respondent can defeat the Commission's jurisdiction and the trans- 
action can only be assailed in a plenary action in the courts. ^^ 

The Federal Trade Commission has repeatedly advocated amend- 
ment of section 7 and has described at length the adverse conditions 
under which it operates in the enforcement of this section.^^ It 
offered considerable testimony to this committee concerning the 
difficulties confronted in the administration of this section and it has 
presented at length its suggestions for legislative change. ^^ 

The need for legislative amendment of section 7 is apparent. It is 
clear that the present limitations on the Commission's power of 
enforcement should be removed. The Commission's jurisdiction 
should not end with the surrender of the wrongfully acquired stock 
for the physical assets and property of the acquired company. It 
should be given the power to proceed against persons who have 
violated the statute even though they no longer retain the illegally 
acquu'ed stock. Moreover, since section 7 subjects the acquisition of 
stock and holding company control to the administrative regulation 
of the Federal Trade Commission, it is diffi,cult to perceive why the 

<' 38 Stat. 734 (1914), 15 U. S. C. sec. 21. Authority to enforce compliance with the act is vested in the 
"Interstate Commerce Commission, where applicable to common carriers * * * in the Federal Com- 
munications Commission, where applicable to common carriers engaged in wire or radio communication 
* * *, in the Board of Governors of the Federal Reserve System, where applicable to banks, banking asso- 
ciations, and trust companies; and in the Federal Trade Comndssion, where applicable to all other character 
of commerce, * * *." 

4s Federal Trade Commission v. Thatcher Manufacturing Company (C. C. A. 3d, 1925), 5 F. (2d) 615, modified 
(1920), 272 U. S. 554: Swift & Company v. Federal Trade Commission, (1926), 272 U. S. 554. 

48a Federal Trade Commission v. Thatcher Manufacturing Company, {C. C. A. 3d, 1925), 5 F. {Sd) 615, Modi- 
fled (1926) 272 U. S. 554. 

49 Arrow-Hart & Hegeman Electric Co. v. Federal Trade Commission, (1934), 291 U. S. 587. 

'" Authority to enforce section 7 is vested in the Department of .Tustice as well as the Federal Trade Com- 
mission. 38 Stat. 736 (1914), 15 U. S. C. sec. 25. Persons aga;rieved by a violation of this as well as other 
sections of the Clayton Act may under section 16 bring a private suit for injunction. 38 Stat. 737 (1914), 
15 U. S. C. sec. 26. There appears to be no reported case in which the power of the Department of Justice 
to assail an acquisition of assets brought about by the use of illegally acquired stock has been considered. 
It is impossible to state with any assurance whether a similar limitation is applicable in a court proceeding 
brought by the Department of Justice. 

" Hearings before the Temporary National Economic Committee (1939), vol. Ill, pp. 38 fl.; vol. II, pp. 
262 #. F. T. C. Annual Report (1940) 13. In its Annual Report for 1940 the Federal Trade Commission 
renews its recommendations set forth in its previous reports. F. T. C, Annual Report (1940) 12. The 
Annual Report for 1939reveals that the changes sought by the Commission are (1) that sec. 11 of the Clayton 
Act be amended in order that the Commission will have authority to require a corporation to divest itself 
of assets illegally acquired; (2) that sec. 7 be amended in order to make it unlawful for any corporation, 
directly or indirectly, through a holding company, subsidiary, or otherwise, to acquire any of the capital 
stock or assets of a competing corporation when either of said corporations is engaged in interstate com- 
merce, or for a holding corporation to acquire any of the capital stock or assets of a single corporation, engaged 
in interstate commerce, or for a holding corporation to acquire any of the caiiital stock or assets of a single 
corparation, engaged in interstate commerce in competition with a subsidiary of the holiiing corporation 
when the effect of such acquisition of stock or assets may be substantially to lessen competition between 
the two corporations or, where, from the relative size of the corporation resulting from the merger and the 
surrounding conditions, the effect of such acquisition may be to restrain competition or tend to create a 
monopoly in any line of commerce. F. T. C, Annual Report (1939) 14 et seq. The Commission regards 
as undesirable, however, the enactment of an inflexible limit on the permissible percentage of control 
which a corporation can acquire in any one industry. Id. at 16. 

"Id. vol. IV, p. 643 ff. 


acquisition of assets in competing companies should not similarly be 
placed under the Commission's supervision. 

Such changes, however, do not go to the root of the difficulty. If 
it be desired to outlaw the use of the holding company and the acqui- 
sition of stock as a means of uniting competing companies, an 
unequivocal prohibition is essential. Furthermore, it will serve no 
useful purpose to widen the Commission's authority over property 
acquisitions if the substantive law governing their legality remains 

For 50 years we have sought to curb undue concentration of 
economic power by attacking capital combinations after, rather than 
before, their formation. This has given rise to the vexing problem of 
"unscrambling the eggs," and has created a psychological barrier to 
the vigorous enforcement and the sound interpretation of the law. 

We believe that no combination of competing companies should be 
permitted without the advance approval of an administrative agency, 
such as the Federal Trade Commission, operating under a new legis- 
lative standard. In a field such as this, it is impossible to formulate a 
standard which will be free of all uncertainty, unless some inflexible 
limitation on the size of corporate enterprise or the degree of per- 
mitted concentration in any industry is imposed. Limitations on 
corporate size, however, confuse bigness with monopoly. The 
adoption of any mathematical standard in respect of the permissible 
degree of control of any industry would strait-jacket our economy 
and would achieve certainty only at the expense of that flexibility 
without which the legal control of economic life cannot succeed. 
More general and less precise standards are to be preferred. 

We accordingly recommend the enactment of legislation — 

(1) Prohibiting the acquisition of stock in and holding-com- 
pany control of competing companies, in the case of corporations 
of a net worth of $1,000,000 or more, with suitable exceptions 
for bona flde investments and the control of true subsidiaries by 
parent corporations; 

(2) Subjecting the acquisition of the assets and property of 
competing companies to administrative supervision in the case 
of corporations with a net worth of $5,000,000, or more, no such 
acquisition to be permitted without the advance approval of the 
Commission. The approval of a merger, consolidation, or property 
acquisition should only be granted if the Commission finds after 
investigation and hearing — 

(a) That the acquisition is in the public interest and will be pro- 

motive of greater efficiency and economy of production, 
distribution, and management; 

(b) That it will not substantially lessen competition, restrain 

trade, or tend to create a monopoly in the trade, industry, 
or line of connnercc in which such corporations are 
engaged ; 

(c) That the corporations involved in such acquisition do not 

include one or more of the 10 leading companies in the 
trade, industry, or line of commerce in which they are 
engaged as determined by plant capacity, output, or 
volume of sales of the goods or services as to which such 
corporations compete; 


(d) That the size of the acquiriiiii; company after the ac(iiiisitioii 

will not be incompatible with the existence and mainte- 
nance of vigorous and effective competition in the trade, 
industry, or line of commerce in which it is engaged; 

(e) That the acquisition will not so reduce the number of com- 

peting companies in the trade, industry, or line of com- 
merce as materiall}^ to lessen the effectiveness and vigor 
of competition in such trade, industry, or line of com- 

(J) That the size, strength, and position of the acquiring com- 
pany after the acquisition will not be such as to enable it, 
by reason of its own administrative action, apart from 
the forces of competition, to fix and maintain the prices- 
of the goods or services which it sells; 

(g) That the acquiring company has not, to induce the acqui- 
sition, indulged in any unfair or deceptive methods of 
competition or has not otherwise violated the provisions 
of the Federal Trade Commission Act, as amended. 

No merger should be approved which does not satisfy all of the 
standards. We have been content here to express merely the prin- 
ciples of tliis method of regulation; the standards themselves must be 
carefully drafted so as to be administrable and workable. The Com- 
mission should have the power in exceptional cases, notwithstanding 
noncompliance with the above-enumerated standards, to approve a 
proposed corporate acquisition where the pubHc interest so requires as 
in the case of banlo-uptcy or threatened insolvency or where the com- 
bining companies are engaged in an industry dominated by a larger 
company and the integration is designed to remove or reduce the 
disparity of power between the combining and the dominant corpo- 

To facilitate the administration of the new law, a statutory pre- 
sumption should be adopted making any acquisition or fusion pre- 
sumptively unlawful when the acquiring company after the acquisi- 
tion will control more than 15 percent of either capacity, output or 
volume of sales in the trade, industry, or line of commerce in which 
such company is engaged. This presumption should be subject to 
rebuttal by competent proof showing satisfaction of the statutory 

Full judicial review should be permitted in cases where adminis- 
trative approval of a contemplated acquisition is withheld. 

These tentative proposals would (1) outlaw the stock acquisition 
and holding company as methods of combining competing corpora- 
tions without disturbing the legitimate use of the holding company 
device in the relations between parent and subsidiary companies, 
(2) strengthen the administrative authority of the agencies entrusted 
with the administration of the new law thus avoiding the vexatious 
limitations upon the powers of enforcement of the Federal Trade 
Commission, (3) would clarify to a degree the substantive standards 
governing the legality of the combinations of competitors, (4) would 
employ the administrative rather than the judiciary in the initial 
application of standards which are as much economic as legal, and 
(5) would substitute prevention for punishment by requiring approval 

291144— 41— No. 38 7 


in advance of any integration rather than compulsory dissolution 
after the evils of concentration have been suffered by the public. 


As part of our examination of the antitrust laws and their enforce- 
ment we studied the procedural and administrative aspects of these 
laws as well as their substantive content. These phases of the 
antitrust laws were simultaneously surveyed by Professor Walton 
Hamilton and Miss Irene Till. As their report, entitled "Anti- 
Trust Laws in Action," has been already filed with this Committee, 
so, we shall, to avoid repetition, merely confine our consideration of 
this topic to a statement of our conclusions, without setting forth 
the factual data upon which they are based. 

We find that the basic wealaiesses in antitrust enforcement derive 
from (a) the inadequacy of appropriations and personnel; (b) the 
complexity of antitrust litigation and the inadequacies of procedure; 
and (c) the inadequacy of existing penalties and remedies. 


No matter how perfect the substantive law may be and how effi- 
cient and streamlined the machinery for enforcement, effective enforce- 
ment is impossible without adequate funds and personnel. On the 
other hand, adequate personnel, well supplied with funds, can achieve 
marked success in the enforcement of any statute, notwithstanding 
serious procedural and substantive defects. The point, therefore, 
cannot be reiterated too emphatically that improvement of the enforce- 
ment of our antitrust laws is dependent primarily upon larger appro- 
priations and a larger and better-rounded enforcement staff. There 
has been a considerable expansion of the Antitrust Division during 
recent years. Neither appropriations nor personnel are as yet ade- 
quate for the enormous tasks of antitrust enforcement. The objec- 
tives of our antitrust policy can only be achieved through continuous, 
systematic and efficient enforcement of the laws. To tolerate wrong- 
doing by r(^ason of a paucity of money and manpower is to sanction 
the discriminatory and uneven administration of the law. 



Antitrust suits are of enormous complexity and the procedures suit- 
able for ordinary litigation have frequently proved inadequate. 

1 . To ascertain whether a breach of the law has occurred the Gov- 
ernment has customarily relied for the most part on the complaints of 
those adversely afl'ected by the violation. However satisfactoiy such 
a jjrocedurc may be in other fields, the restriction of investigation to 
sucli ('onii)la.ints as are received may have the effect of granting a tem- 
porary innnunity to industries in which restrictive practices have 
become the established ovdor and are thus not the subject of objection. 
An industry, skilled in the ways of evasion and violation, may thus for 
long periods of time violate the law with impunity. A suitable ma- 
chinery for the detection of violations must be created if the statute is 
to be enforced not merely against the flagrant violation which gives 
rise to complaint, but the secret transgression which may insidiously 


impair our competitive institutions. A valuable start in this dir(>ction 
has been made by the recently adopt(Hl project method of enforce- 
ment, as in the drive against the restrictive practices in the building 
industries. A systematic attack upon the practices of an entire 
industry or concentration upon certain well-defined practices infesting 
all of industry is more fruitful than the hit-and-miss prosecution of the 
sporadic and unrelated complaints of miscellaneous practices in 
various industries. Adequate machinery of detection is essential to 
any well-rounded and coherent program of enforcement. 

2. The processes of investigation are unduly cumbersome. Access 
to the books and records of corporations under investigation can be had 
only with the consent of such companies or by convening a grand jury. 
To summon a grand jury in the initial stages of an investigation may be 
tactically unwise and may involve elements of unfairness to the 
persons under investigation. The grand jury is a ponderous and costly 
institution, which is ill-teuited for the usual preliminary ascertainment 
of possible wrongdoing. More efficient machinery can undoubtedly be 
constructed for preliminary investigation, reserving the grand jury for 
the difficult and important inquiries for which its historic processes 
are better adapted. 

3. Under the decisions of the Supreme Court, each case is virtually 
a law unto itself and the unreasonableness of a restraint or practice 
must be shown in terms of the facts and conditions of the industry in 
which they occur. There must be proof that the conduct under ques- 
tion in tendency or effect is restrictive of competition and that the 
restraint in terms of the facts of the particular industry is unreason- 
able. The items of proof which the Court regards material are indi- 
cated in the followmg passage from the opinion of Mr. Justice Brandeis 
in Board of Trade of the City of Chicago v. United States: ^^ 

* * * But the legality of an agreement or regulation cannot be determined 
by so simple a test, as whether it restrains competition. Every agreement con- 
cerning trade, every regulation of trade, restrains. To bind, to restrain, is of 
their very essence. The true test of legality is whether the restraint imposed is 
such as merely regulates and perhaps thereby promotes competition or whether 
it is such as may suppress or even destroy competition. To determine that ques- 
tion the court must ordinarily consider the facts peculiar to the business to which 
the restraint is applied; its condition before and after the restraint was imposed; 
the nature of the restraint and its effect, actXial or probable. The history of the 
restraint, the evil believed to exist, the reason for adopting the particular remedy, 
the purpose or end sought to be attained, are all relevant facts. This is not be- 
cause a good intention will save an otherw/ise objectionable regulation or the 
reverse; but because knowledge of intent may help the court to interpret facts 
and to predict consequences. * * =)= 

The collection of all this background information is attended with 
much difficulty and is very costly of time, manpower, and money. 
The burden of assembling such material is very considerable and the 
preparation of an antitrust case for trial presents problems which are 
virtually sui generis. 

4. The ordinary processes of litigation are ill-adapted to the trial 
and determination of economic questions. In addition to the fact 
that there exist teclmical rules which complicate and make expensive 
the proof of facts which are indisputable, it is no easy feat to conform 
the difficult economic inquiries involved in antitrust litigation to the 
rules of evidence and procedm-e which the common law developed for 
the trial of simple issues of law and fact. In the International liar- 

"(1918), 246 U. S. 231,238. 


vester case, ^^ for example, the Government offered in evidence and 
relied upon a study of the Federal Trade Commission dealing with the 
competitive conditions in the agricultural machinery industry. The 
Supreme Court reproached the Government for its reliance upon the 
report of the Federal Trade Com.mission in the following terms: 

* * * the Government relies in large measure upon various statements and 
tabulations contained in the report of the Federal Trade Commission, which was 
introduced in evidence over the objection of the International Co. But it is 
entirely plain that to treat the statements in this report — based upon an ex parte 
investigation and formulated in the manner hereinabove set forth — as constitut- 
ing in themselves substantive evidence upon the questions of fact here mvolved, 
violates the fundamental rules of evidence entitling the parties to a trial of issues 
of fact, not upon hearsay, but upon the testimony of persons having first hand 
knowledge of the facts, who are produced as witnesses and are subject to the test 
of cross-examination. * * * 55 

5. The cost of antitrust litigation to the Government and the de- 
fendants is notoriously large. With the cost of cases to the Govern- 
ment ranging from $100,000 to $150,000, the number of suits that 
may be instituted in any one year is necessarily limited and would 
continue to be limited even were Congress to double, treble, or quad- 
ruple current appropriations. 

6. To redress a violation of the antitrust laws frequently requires 
considerable changes in the organization and structure of an industry 
or of the businesses involved in the violation. In capital combina- 
tions, the constituent units of a combine have usually been completely 
merged and their identities lost. In trade association cases, the prac- 
tices assailed have become part of the fabric of the industr}^ and any 
modification is fraught with serious economic consequence. Enforce- 
ment involves, therefore, not merely punislnnent for past derelictions 
and restraints upon future violations but a reorganization of a business 
or industry to bring about a condition in harmony with the law. 
Too much emphasis is placed upon punishment and too little upon 


These difficulties can only be overcome by a simplification of the 
processes of antitrust enforcement, by the discouragement of violation 
through effective implementation of the statute, and by the develop- 
ment of new procedures which will achieve the objectives of the anti- 
trust laws through their own automatic operation rather than through 
cumbersome regulation, or widespread prosecution, or litigation. 

We accordingly recommend the following changes in antitrust law 
and procedure: 

I. Registration of trade groups. — A trade association is a public in- 
stitution. It may be a powerful agency for good or for evil. Unlike 
a private business concern which may have a definite interest in keep- 
ing secret its production methods and marketing strategy, a trade 
association when acting in th(» public interest should have nothing to 
hide or keep secret. Its operation should be completely in the open. 
Perhaps Adam Smith exaggerates when he says: 

* * * people of the same trade seldom meet together even for merriment 
and diversion but the conversation ends in a conspiracy against the public or in 
some contrivance to raise prices, ^^ 

««(1927),274U. S. 693. 

»* Id. at 703. 

"Smith. Wealth of Nations (Ed. Caiman) I, 130. 


but there is alwaj'^s a danger when peoi)le of the same trade get to- 
gether that competition may be compromised. This danger can be 
obviated in part at least if associations function openly. We pro])ose 
the enactment of legislation requiring every trade association to 
register with an agency of government and to file a registration 
statement in such form as the agency may by rules and regula- 
tions prescribe as necessary or appropriate in the public interest, con- 
taming information concerning the nature of the association ; the trade, 
industrj', or line of commerce in which its members are engaged ; the 
date and place of its formation; its purposes and objectives; the nature 
and scope of the activities in which it has engaged or proposes to 
engage; and a list of its officers and members. With the registration 
statement there should also be filed a copy of the charter, articles 
of incorporation, by-laws, agreement of association, code of ethics, 
and all other papers and documents concerning the establishment and 
organization of such association. Every association in addition 
should be required to file with the agency, in such form and at 
such times as the agency may by rules ancl regulations require as 
necessary or appropriate in the public interest, but not more often 
than twice a year, a report of all of its activities covered by such 
report. These reports should be accompanied by an affidavit duly 
sworn to and acknowledged by all the officers, and if there be no such 
officers, by all the members of the association, to the effect (a) that 
such reports constitute a complete record of all the activities of the 
association, (b) that there has been no discussion at any meeting of 
the association of price or production policies of its members or of 
persons engaged in the same trade, industry, or line of commerce, and 
(c) that no agreement or understanding concerning prices, production, 
or the elimination of competition has been made by the members of 
such association during the period covered by the report. 

Trade associations should also be required to keep a complete 
stenographic record of their proceedings at all regular and special 
meetings. The stenographic reports should be kept at some accessible 
place together with an affidavit duly sworn to by the stenographer 
and the officers of the association, to the effect that such stenographic 
record and the transcript thereof include all business transacted and 
all matters discussed at the meetings of the association. The files of 
the association should be maintained at the office of a designated 
officer or other convenient place and should contain all correspond- 
ence between the association and its members, transcripts and steno- 
graphic records of all meetings and all pertinent papers, documents, 
and other material relating to the association and its activities. 
These files should be available at all reasonable hours to the agents 
of the Government for the purpose of inspection and the making of 
copies. The contents of the files should be preserved for such periods 
of time as may be prescribed by rules and regulations of the Gov- 
ernment agency and should not be destroyed without the consent of 
such agency in accordance with such rules and regulations as it may 
prescribe. Heavy penalties should be imposed upon associations, 
their members and officers, for the neglect and failure to register; the 
neglect and failure to file a registration statement; the neglect and 
failure to file a report of its activities; for willful misstatements; for 
false or incomplete entries in any report, record, or affidavit; for the 
neglect or failure to make or cause to be made complete, true, and 


correct entries in all reports, records, and affidavits required to be 
filed or preserved; for the willful removal, destruction, mutilation, or 
alteration of any report or record; and finally, for the refusal to per- 
mit the agents of the Government to inspect and make copies of the 
contents of the trade association files. 

This proposal is not designed or expected to be a cure-all. Its 
desirable effects, however, may be biiefiy summarized: 

1. The proof of background facts in antitrust litigation woidd 
be facilitated by the use of the registration statements and the 
filed reports. Access to such statements and reports would to 
some extent reduce the expense and obviate the present difficulty 
of collecting background data. 

2. By requiring the maintenance of complete files by associa- 
tions at some convenient place and making the files accessible 
to the Government, preliminary investigations would be greatly 

3. The requirement for open business covenants openly arrived 
at would undoubtedly drive collusive restraints underground. 
This is not an unmixed evil. The ordinary businessman is a 
law-abiding person and is not disposed to participate in a willful 
infraction of the law. It is not improbable that some business- 
men have been induced to embark on questionable associational 
programs under a misapprehension of their legality or on the as- 
sumption that the Government, engaged in a few major litiga- 
tions, would be too preoccupied to challenge the program. If 
an association engages in unlawful conduct and files a complete 
report of its activities, detection no longer is a problem, and 
proof of violation is a simple task. If the association secretly 
engages in unlawful activities and fails to make a full report, it 
cannot keep this fact from its members. It is our beliel that a 
very high percentage of American businessmen will have nothing 
to do with a hush-hush policy of secret violation. We regard 
as a definite likelihood the withdrawal of responsible and respect- 
able men of business from associations that fail to fulfill the 
requirements of law with regard to the accuracy and completeness 
of their reports. By driving the illicit associations beyond the 
pale 01 respectability, we deprive them of the suppoit of the 
respectable members of the business community. We therefore 
force them either to remain within the bounds of law or to be- 
come outlaw organizations. Juries would be much less loath to 
convict organizations operating underground in violation of law 
than they are today to return a verdict of guilty against an asso- 
ciation which openly has engaged in activities of dubious legality 
under the antitrust laws. 

4. This proposal simplifies the litigable issues of fact and law. 
Under present procedure, when the Government has reason to 
believe tliat persons engai?:od in the same industry or trade have 
engaged in concerted acts affecting competition, it must prove 
both the commission of the alleged acts as well as that such acts 
constitute in law and fact an unreasonable restraint of trade. 
Under the proposal, where the reports and files fully disclose the 
arrangements made, no time need be wasted on proving what the 
associat'on actually has done, the only litigable issue beuig the 
legality of such conduct. If, however, the record is incomplete, 


the Government need merely show the incompleteness, thus 
proving a violation of the proposed amendment, without embark- 
ing on the complicated task of proving that the defendants liave 
engaged in an unlawful restraint of trade. 

5. As the periodic reports will disclose the initiation of any 
concerted activity, the Government can take action promptly 
before the activity has become the established practice of the 
industry, thus avoiding the difficulties of disrupting industry by 
compelling the abandonment of usages that have become firmly 

6. As the issue in trade association cnses becomes simplified, 
the cost of litigation should be materiall}^ reduced. It obviously 
is much less expensive to prove a failure to file a report or the 
filing of an incomplete report than it is to prove an unreasonable 
restraint of trade. 

The proposal, however, is not without its difficulties. The defini- 
tion of the trade association which is adopted will naturally determine 
the scope of the proposal. If limited to formal associations, the new 
legislation might result in the transformation of formally organized 
associations into informal groups. We, therefore, recommend that the 
concept of the trade association be broadened to include any group, 
whether or not incorporated or otherwise formally organized, of 
three or more persons engaged in the same trade, industry, or line of 
commerce, which is concerned with or engages in concerted activities 
affecting the conduct and operation of business in such trade, industry, 
or line of commerce. In other words, we believe tliat any arrange- 
ment among persons engaged in the same business is affected with a 
public interest and should be disclosed to the public. It will also be 
uecessarj'^ to provide for access to all conmiunications between com- 
petitors, in the cases where there is no organization, formal or informal. 

The requirement of periodic reports does not appear to impose an 
undue burden upon trade groups. Engaging in concerted action 
is a privilege which government can extend or withhold from business. 
The preparation of the registration statement would not be unduly 
difficult. The information which tiie Government might demand is 
information which the association must assemble, if it is to function 
properly. Requiring all communications to and from the association 
and its members, as weU as all communications among tiie members, 
to be reduced to writing and preserved for reasonable periods of time 
is frankly a burdensome requirement, but one which can be fulfilled 
without serious effort or cost. Undoubtedly, associations and their 
advisers might be perplexed by the practical problems of inclusion 
and exclusion. Transcripts and records would become very bulky 
if they included everything said and done no matter how inconse- 
quential. The problem could undoubtedly be solved by the promul- 
gation of rules and regulations by the administrative agency, but in 
order that there should be no evasion of the purposes of the legislation 
it would be essential that tlie requirement of completeness be rigor- 
ously applied. 

II. Declaratory rulings and legality oj capital combinations.- — One 
of the principal difficulties in the application of the statute to capital 
combinations derives from the fact that litigation is carried on after 
rather than before the event. This is only essential if the legality 
of a capital combination is made dependent upon the manner in which 


it wields the power it possesses rather than upon the mere existence 
of power. Since it is possible to adopt a clearer criterion of the 
legality of capital combinations, it would seem desu-able for the 
validity of such combinations to be determined in advance rather 
than after their formation. It requii'es no expatiation to make the 
point that such procedm'e for advance approval would solve the 
present difficulties of detection, collection of background data, inade- 
quate machinery for preliminary investigation, "unscrambling the 
eggs," and cost of litigation. We have accordingly recommended in 
a previous section " the adoption of new standards and new procedure 
for the advance approval and determination of the legality of corporate 

III. O'pen comjprehensive and complete Jiles on major industries. — It 
is improbable that any substantial progress will be made in the enforce- 
ment of the anti-trust laws and the regulation of industry until we 
maintain open, comprehensive, and complete files of all oiu- major 
industries. One of the primary tasks of the Bureau of Industrial 
Economics advocated by President Roosevelt should be the mainte- 
nance of such files. An extraordinary amount of information con- 
cerning industry is contained in the records of numerous Government 
agencies. The task at hand is essentially one of coordination. These 
files could be kept up to date by a vigorous enforcement as well as 
slight broadening of section 6 of the Federal Trade Commission Act, 
which requires corporations engaged in commerce to make regular 
and periodic reports to the Commission with regard to various aspects 
of their business activity. 

The device of Federal licensing affords a useful method for collecting 
information regarding modern business, which it should be the duty 
of the Government to assemble, analyze, and coordinate. The exist- 
ence of such files would materially lighten the burden of anti-trust 
litigation, as there would be available to the Government a good deal 
of the background data which today is collected only with much labor. 
Kjiowledge is essential to fair enforcement and wise regulation. 

IV. Specification of ojfenses. — President Wilson in his message in 
1914 recommended an item-by-item definition of the offenses pro- 
hibited by the anti-trust laws. Apart from the specific prohibition 
of a few practices in the Clayton Act, this recommendation was not 
adopted by Congress. Codification is generally opposed on two 
grounds. It is opposed for its alleged straight-jacketing effect. In 
explaining why Congress in 1914 had adopted in the Federal Trade 
Commission Act the general standard of unfair methods of com- 
petition rather than a specific prohibition of enumerated offenses, 
Mr. Justice Brandeis gave eloquent expression to this view: 

Instead of undertaking to define what practices should be deemed unfair, as 
had been done in earher legislation, the act left the determination to the Com- 
mission. Experience with existing laws had taught that definition, being neces- 
sarily rigid, would prove embarrassing and, if rigorously applied, inight involve 
grcot hardship. Methods of competition which would be luifair in one industry, 
under certain circumstances, might, when adopted in another industry, or even 
in the same industry under diflferent circumstances, be entirely unobjectionable. 
Furthermore, an enumeration, however comprehensive, of existing methods of un- 
fair competition must necessarily soon prove incomplete, as with new conditions con- 
stantly arising novel unfair methods would be devised and developed. * * * m 

" See supni, p. 88. 

" Federal Trade Commission v. Oratz (1920), 253 U. S. 421, 436. 


It is froqiiontly assumed that thoro is an irrcconcilabli> conflict 
bctwooii the c:('neral and the specific. If choice had to be made 
between the specific antl the 2:eneral, the general i)rohibition is clearly 
to be preferred because of its flexibility, adaptability, and capacity 
for discriminatino; application as well as o;rowth. But there is no such 
irreconcilable conflict. There is no reason why both th(> general and 
the specific cannot be employed in the same legislation. The existing 
general standards of the Sherman Act can be supplemented by specific 
prohibitions of oft'enses which experience has taught are fraught with 
danger to our competitive institutions. The danger that the courts 
might, under the doctrine of ejusdem generis, construe the general 
in terms of the specific and thus narrow the scope of the statute can 
be obviated by clear, unequivocal statutory language indicating the 
legislative purpose of supplementing rather than curtailing the general 
provisions of the present law. 

The other objection to codification is that clarification can best be 
achieved through litigation of specific cases rather than through any 
generalized formulation of experience m the form of legislative enact- 
ment. If 50 years of litigation under this statute have failed to bring 
clarity of meaning and scope to its provisions, what reason have we 
to believe that additional years of litigation will be more successful 
in this regard? The Government publication, The Federal Anti- 
Trust Laws, lists 428 cases instituted under the statute from 1890 
to January 1938. Since that time, many additional cases have been 
started. The Government Printing Office has published a compila- 
tion of Federal antitrust decisions consisting of 12 volumes. This 
compilation covers only the years from 1890 to 1931. About 2 or 3 
additional volumes would probably be required for the publication 
of the opinions rendered smce 1931, Is it at all likely that further 
litigation will achieve the clarity that has been denied us by 15 thick 
volumes of court opinions? 

The time has come, it is believed, for Congress to take a hand in 
the clarification of the antitrust laws and to pass upon the difficult 
questions of policy involved in the choice of conflicting doctrine. 
Legislative codification and clarification would go a long way in 
reducing the necessity and volume of litigation and would facilitate 
enforcement by the simplification of the issues to be litigated. 

V. Implementation of the statute. — The meffectiveness of the 
existing sanctions of our antitrust laws is notorious. 

The need for increased penalties is widely recognized. It is im- 
portant, however, that the new sanctions be not over-severe since 
excessive penalties tend to be self-defeating. A penalty can be 
sufficiently stringent to serve as a deterrent without being so severe 
as to engender a natural reluctance on the part of juries to convict or 
to arouse that antagonism on the part of the courts which leads to an 
unsympathetic construction of the substantive provisions of the law. 

We believe it desirable to retain the criminal sanction as this serves 
as the principal deterrent to wrongdoing. We favor the retention 
of the equitable remedies of injunction and dissolution. These 
traditional remedies should be supplemented by the imposition of 
moderately severe civil penalties for wrongdoing. 


The consent decree is a useful device for settling litigation and for 
bringing about a condition in harmony with the law.^^ We doubt the 
wisdom, however, of utilizing this device as an instrument for the 
affirmative regulation of industry, for the reason that there are avail- 
able better and more satisfactory and more efficient instruments for 
the administrative control of busmess. Although it frequently may 
be necessary for the Government to initiate simultaneously criminal 
prosecution to punish past derelictions and civU proceedings to 
restrain existing transgressions, we question whether the negotiation 
of a consent decree lookmg toward affirmative restrictions in addition 
to those imposed by the antitrust laws should be undertaken during 
the pendency of a grand jury investigation. A threat of criminal 
punishment is not conducive to free negotiation. However well such 
procedures may have operated in the past, there is always a danger that 
the grand jury proceedings may be used to compel the acceptance of 
terms which otherwise might be resisted. The fact that such powers 
may not have been abused in the past is no guarantee that they may 
not be oppressively wielded m the future. The consent decree is an 
efficient device for the settlement of civil litigation. Criminal prosecu- 
tions can be terminated without tr al by the filing of a plea of guilty 
or a plea of nolo contendere. If the violation is deservmg of the 
institution of a criminal prosecution or the convening of a grand jury — 
steps which will themselves constitute a serious punishment to those 
accused of wrongdoing — no discontinuance of a prosecution should be 
permitted without the entry of either of the aforementioned pleas. 
The time to negotiate a consent decree is before the initiation of crim- 
inal proceedings, or after their successful termination. The civil and 
criminal suits should be handled separately, and negotiations for a 
consent decree must be conducted without any threat of criminal 
prosecution if the negotiations are unsuccessful. The use of the con- 
sent decree should be limited to the type of violation which is typically 
litigated on the civil side of the court; violations which are typically 
enforced by criminal prosecution should be settled by the normal 
method of a plea by the defendant. 

Such restrictions on the use of the consent decree might have proved 
a serious handicap to enforcement officials when the grand jury was 
the only efficient instrument for the preliminary investigation of 
probable violations, especially when those suspected of wrongdoing 
refused the Government access to their books and papers. Were the 
recommended changes of law and procedure adopted, the handicaps 
under which the Government now operates would be removed, and 
the suggestions concerning limitations on the use of the consent decree 
would consequently not unpair the fair and effective enforcement of 
the law. 

It is vital that the profit be taken out of antitrust violations. 
Were this possible, the principal incentive for wrongdoing would be 
removed. We suggest, therefore, that consideration be given to the 
adoption of the ancillary remedy of accounting m all equitable pro- 
ceedings instituted by the Government. In such accountings the 
defendants would be required to turn over all profits traceable to and 
derived from their unlawful acts. The rules governmg such account- 
ings would be similar to those obtainuig m trade-mark and patent 

'• For a discassion of the use of the consent decree see Isenberg and Rubin, Antitrust Enforcement through 
Consent Decrees (1940) 53 Uarv. L. Rev. 386; Katz, Consent Decree in Antitrust Administration, id. at 415. 


litigation. To facilitate the trial, a rebuttable presumption might be 
invoked to the effect that all profits chiring the period of violation in 
excess of the profits earned duruig a base period were the product of 
the violation, the burden being shifted to the accounting party to show 
that such profits might be attributable to other causes. 

VI. Distressed industries. — Excessive competition creates problems 
no less serious than those resulting from an absence of competition. 
Special treatment of the distressed industries may be necessary if 
they are to function satisfactorily. The nature and extent of the 
admmistrative regulation which may be necessary will vary industry 
by industry and depend upon the causes of distress and economic 
dislocation. Any program of legislative revision shoukl make pro- 
vision for the special treatment of our sick mdustries. 

VII. Existing concentration in industry. — The tightening of the law 
relating to capital combinations affects future corporate integrations 
but leaves untouched existing concentrations of economic power. We 
observed in our review of the judicial construction of section 1 of the 
Sherman Act the almost insuperable difficulty of enforcing the law in 
the concentrated industries in which competition is suppressed by 
convention rather than by agreement or by resort to secret devices 
which are virtually incapable of detection. Equally perplexing is the 
application of the monopoly provisions of the statute to those indus- 
tries in which competition has either disappeared or remains weak, 
inert, or attenuated. What is to be done with our concentrated 

A program of vigorous antitrust enforcement may bring to light 
the secret arrangements and practices by which competition is com- 
promised and might release the potential forces of competition which 
have been long confined within the bounds of industrial convention 
and usage. Such a program would entail tremendous difficulties of 
detection and prosecution. It could succeed only to the extent that 
the absence or impairment of competition was the result of some 
arrangement prohibited by the antitrust laws. To the extent that 
the noncompetitive behavior of industry resulted from the fewness 
of competing units or the gargantuan size or power of the market 
leader or the established usages of the industry, the enforcement of 
section 1 of the Sherman law, no matter how vigorous, would not 
restore competition. 

Competition in such industries can be restored only through a far- 
reaching reorganization of their structure. The extent to which the 
pulverization of industry is required for the reestablishment of com- 
petitive conditions is not fully appreciated. The atomization of 
industry would cause serious economic dislocation and would seriously 
impede the current defense program. The segregation of our large 
enterprises into two or tln^ee component parts has little beneficial 
short-term competitive effects. The slight increase of competition 
which might result would hardly compensate for the unsettling effects 
of such dissolutions. This, however, is not to deny the advantageous 
long-term effects of any carefully conceived and well-executed pro- 
gram of corporate reorganization. 

We have considered various proposals for invigorating and resus- 
citating competition in our concentrated industries. We find that 
most of such suggestions are lacking in practical appeal or are politi- 
cally inexpedient. Although one is naturally reluctant to suggest 


further governmental regulation of industry, we see no escape from 
the conclusion that some administrative control of our concentrated 
industries is essential, so long as, and only as long as, such industries 
by their organization and operation deny the public the benefits of 
free competition. It is only in the case of industries in which com- 
petition does not function properly or has disappeared and cannot 
be restored without undue disturbance of its economic organization 
that such administrative regulation is indicated. The aim of such 
control would be the attainment, tlu"Ough regulation, of the benefits 
normally flowing from a competitive regime, notably the constant 
lowering of prices with a corresponding increase of production. Only 
in this way can the standards of living be raised and real income 


Our study of the antitrust laws and their administration have 
satisfied us that the objectives of these laws are socially desirable, are 
economically sound, and are capable of practical attainment. With 
increases of appropriation and personnel, with moderate changes in 
the substantive law, and with some modifications of our administrative 
procedure, these ends could be easily attained. The gains of intelli- 
gent, far-sighted, and vigorous enforcement of our antitrust laws 
greatly outweigh the costs of these recommended changes. 

sherman act ' 

(U. S. C, Title 15, Sec. 1) 

AN ACT To protect trade and commerce against unlawful restraints and monopolies 

Section 1. Every contract, combination in the form of trust or otherwise, or 
conspiracy, in restraint of trade or commerce among the several States, or with 
foreign nations, is hereby declared to be illegal: Provided, That nothing herein 
contained shall render illegal, contracts or agreements prescribing minimum 
prices for the resale of a commodity which bears, or the label or container of 
which bears, the trade-mark, brand, or name of the producer or distributor 
of such commodity and which is in free and open competition with commodities 
of the same general class produced or distributed by others, when contracts or 
agreements of that description are lawful as applied to intrastate transactions, 
under any statute, law, or public policy now or hereafter in effect in any State, 
Territory, or the District of Columbia in which such resale is to be made, or to 
which the commodity is to be transported for such resale, and the making of such 
contracts or agreements shall not be an unfair method of competition under 
section 5, as amended and supplemented, of the act entitled "An act to create a 
Federal Trade Commission, to define its powers and duties, and for other pur- 
poses," approved September 26, 1%14:: Provided further, That the preceding 
proviso shall not make lawful any contract or agreement, providing for the estab- 
lishment or maintenance of minimum resale prices on any commodity herein 
involved, between manufacturers, or between producers, or between wholesalers, 
or between brokers, or between factors, or between retailers, or between persons, 
firms, or corporations in competition with each other. Every person w^ho shall 
make any contract or engage in any combination or conspiracy hereby declared 
to be illegal shall be deemed guilty of a misdemeanor, and, on conviction thereof, 
shall be punished by fine not exceeding $5,000, or by imprisonment not exceeding 
one year, or by both said punishments, in the discretion of the court. 

Sec. 2. Every person who shall monopolize, or attempt to monopolize, or 
combine or conspire with any other person or persons, to monopolize any part 
of the trade or commerce among the several States, or with foreign nations, shall 
be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished 
by fine not exceeding five thousand dollars, or by imprisonment not exceeding 
one year, or by both said punishments, in the discretion of the court. 

Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy 
in restraint of trade or commerce in any Territory of the United States or of the 
District of Columbia, or in restraint of trade or commecre between any such 
Territorv and another, or betw^een any such Territory or Territories and any 
State or" States or the District of Columbia, or with foreign nations, or between 
the District of Columbia and any State or States or foreign nations, is hereby 
declared illegal. Every person who shall make any such contract or engage in 
any such combination or conspiracy, shall be deemed guilty of a misdemeanor, 
and, on conviction thereof, shall be punished by fine not exceeding five thousand 
dollars, or by imprisonment not exceeding one year, or by both said punishments, 
in the discretion of the court. 

Sec. 4. The several circuit courts 2 of the United States are hereby invested 
with jurisdiction to prevent and restrain violations of this act; and it shall be the 
duty of the several district attorneys of the United States, in their respective 
districts, under the direction of the Attorney General, to institute proceedings in 
equity to prevent and restrain such violations. Such proceedings may be by 
way of petition setting forth the case and praying that such violation shall be 

1 Published as amended by Miller-Tydinfjs Act (Public, No. 314, 75th Cong., H. R. 7472, approved August 
17, 1937). Seep. 176. , , .^ ■ 

2 Act of March 3, 1911, ch. 231, 36 Stat. 1167, abolishes the courts referred to, and confers their powers upon 
the district courts. 



enjoined or otherwise prohibited. When the parties complained of shall have 
been duly notified of such petition the court shall proceed, as soon as may be, to 
the hearing and determination of the case, and pending such petition and before 
final decree, the court may at any time make such temporary restraining order or 
prohibition as shall be deemed just in the premises. 

Sec. 5. Whenever it shall appear to the court before which any proceeding un- 
der section four of this act may be pending, that the ends of justice require that 
other parties should be brought before the court, the court may cause them 
to be summoned, whether they reside in the district in which the court is held 
or not; and subpoenas to that end may be served in any district by the marshal 

Sec. 6. Any property owned under any contract or by any combination, or 
pursuant to any conspiracy (and being the subject thereof) mentioned in sec- 
tion one of this act, and being in the course of transportation from one State to 
another, or to a foreign country, shall be forfeited to the United States, and 
may be seized and condemned by like proceedings as those provided by law 
for the forfeiture, seizure, and condemnation of property imported into the 
United States contrary to law. 

Sec. 7. Any person who shall be injured in his business or property by any 
other person or corporation by reason of anything forbidden or declared to be 
unlawful by this act, may sue therefor in any circuit court of the United States 
in the district in which the defendant resides or is found, without respect to the 
amount in controversy, and shall recover threefold the damages by him sustained, 
and the costs of suit, including a reasonable attorney's fee. 

Sec. 8. That the word "person," or "persons," wherever used in this act shall 
be deemed to include corporations and associations existing under or authorized 
by the laws of either the United States, the laws of any of the Territories, the laws 
of any State, or the laws of any foreign country. 

Approved July 2, 1890. 


(U. S. C, Title 15, Sec. 12) 
A.N ACT To supplement existing laws against unlawful restraints and monopolies, and for other purposes 

Be it enacted by the Senate and House of Representatives of the United States 
jf America in Congress assembled, That "antitrust laws," as used herein, in- 
cludes the act entitled "An act to protect trade and commerce against unlawful 
restraints and monopolies," approved July second, eighteen hundred and ninety; 
sections seventy-three to seventy-seven, inclusive, of an act entitled "An act to 
reduce taxation, to provide revenue for the Government, and for other pur- 
poses," of August twenty-seventh, eighteen hundred and ninety-four; an act 
entitled "An act to amend sections seventy-three and seventy-six of the act of 
August twenty-seventh, eighteen hundred and ninety-four, entitled 'An act to 
reduce taxation, to provide revenue for the Government, and for other pur- 
poses,' " approved February twelfth, nineteen hundred and thirteen; and also 
this act. 

"Commerce," as used herein, means trade or commerce among the several 
States and with foreign nations, or between the District of Columbia or any 
Perritory of the United States and any State, Territory, or foreign nation, or 
oetween any insular possessions or other places under the jurisdiction of the 
United States, or between any such possession or i^lace and any State or Terri- 
tory of the United States or the District of Columbia or any foreign nation, or 
kvithin tlio District of Columbia or any Territory or any insular possession or 
)thor place under the jurisdiction of the United States: Provided, That nothing 
n this act contained shall apply to the Plulii)i)ine Islands. 

The word "person" or "i)ersons" wherever used in this act shall be deemed 
jO include corporations and associations existing under or authorized by the 
aws of either the Ignited States, the laws of any of the Territories, the laws 
)f any State, or the laws of any foreign country. 

Sec. 2.1 (a) That it shall be unlawful for any person engaged in commerce, 

' This section of the Chyton .\pt contains the provisions of the Robinson-Patman Anti-Discrimination 
\.et, approved June 19, 19:ifi, uineiuiing section 2 of the original Clayton Act, approved October 15, 1914. 
For certain exemptions from llu- provisions of the later act concerning cooperatives and purchases for their 
)wn use by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions 
lot operated for profit, see the later act as published at p. 108. 


in the course of such commerce, either directly or indirectly, to discriminate in 
price between different purchasers of commodities of like grade and quality, 
where either or any of the purchases involved in such discrimination are in 
commerce, where such commodities are sold for use, consumption, or resale 
within the United States or any Territory thereof or the District of Columbia or 
any insular possession or other place under the jurisdiction of the United States, 
and where the effect of such discrimination may be substantially to lessen com- 
petition or tend to create a monopoly in any line of commerce, or to injure, destroy 
or prevent competition with any person who either grants or knowingly receives 
the benefit of such discrimination, or with customers of either of them: Provided, 
That nothing herein contained shall prevent differentials which make only due 
allowance for differences in the cost of manufacture, sale, or delivery resulting 
from the differing methods or quantities in which such commodities are to such 
purchasers sold or delivered: Provided, however. That the Federal 'J'rade Commis- 
sion may, after due investigation and hearing to all interested parties, fix and 
establish quantity limits, and revise the same as it finds necessary, as to particular 
commodities or classes of commodities, where it finds that available purchasers 
in greater quantities are so few as to render differentials on account thereof un- 
justly discriminatory or promotive of monopoly in any line of commerce; and the 
foregoing shall then not be construed to permit differentials based on differences 
in quantities greater than those so fixed and established: And provided further, That 
nothing herein contained shall prevent persons engaged in selling goods, wares, or 
merchandise in commerce from selecting their own customers in bona fide transac- 
tions and not in restraint of trade: And -provided further, That nothing herein 
contained shall prevent price changes from time to time where in response to 
changing conditions *affecting the market for or the marketability of the goods 
concerned, such as but not limited to actual or imminent deterioration of perishable 
goods, obsolescense of seasonal goods, distress sales under court process, or sales 
in good faith in discontinuance of business in the goods concerned. 

(b) Upon proof being made, at any hearing on a complaint under this section, 
that there has been discrimination in price or services or facilities furnished, 
the burden of rebutting the prima facie case thus made by showing justification 
shall be upon the person charged with a violation of this section, and unless 
justification shall be affirmatively shown, the Commission is authorized to issue 
an order terminating the discrimination: 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. 

(c) That it shall be unlawful for any person engaged in commerce, in the 
course of such commerce, to pay or grant, or to receive or accept, anything 
of value as a commission, brokerage, or other compensation, or any allowance 
or discount in lieu thereof, except for services rendered in connection with 
the sale or purchase of goods, wares, or merchandise, either to the other party 
to such transaction or to an agent, representative, or other intermediary therein 
where such internaediary is acting in fact for or in behalf, or is subject to the 
direct or indirect control, of any party to such transaction other than the person 
by whom such compensation is so granted or paid. 

•(d) That it shall be unlawful for any person engaged in commerce to pay 
or contract for the payment of anything of value to or for the benefit of a 
customer of such person in the course of such commerce as compensation or 
in consideration for any services or facilities furnished by or through such 
customer in connection with the processing, handling, sale, or offering for sale 
to any products or commodities manufactured, sold, or offered for sale by such 
person, unless such payment or consideration is available on proportionally 
equal terms to all other customers competing in the distribution of such prod- 
ucts or commodities. 

(e) That it shall be unlawful for any person to discriminate in favor of one 
purchaser against another purchaser or purchasers of a commodity bought for 
resale, with or without processing, by contracting to furnish or furnishing, or 
by contributing to the furnishing of, any services or facilities connected with 
the processing, handling, sale, or offering for sale of such commodity so pur- 
chased upon terms not accorded to all purchasers on proportionally ccjual terms. 

(f) That it shall be unlawful for any person engaged in commerce, in the 
course of such commerce, knowingly to induce or receive a discrimination in 
price which is prohibited by this section. 

i^ ^ * * * * * 


Sec. 3. That it shall be unlawful for any person engaged in commerce, in the 
course ol such commerce, to lease or make a sale or contract for sale of goods, 
wares, merchandise, machinery, supplies, or other commodities, whether pat- 
ented or unpatented, for use, consumption, or resale within the United States 
or any Territory thereof, or the District of Columbia, or any irfsular possession 
or other place under the jurisdiction of the United States, or fix a price charged 
therefor, or discount from, or rebate upon, such price, on the condition, agree- 
ment, or understanding that the lessee or purchaser thereof shall not use or 
deal in the goods, wares, merchandise, machinery, supplies, or other com- 
modities of a competitor or competitors of the lessor or seller, where the effect 
of such lease, sale, or contract tor sale or such condition, agreement, or under- 
standing may be to substantially lessen competition or tend to create a monopoly 
in any line of commerce. 

Sec. 7. That no corporation engaged in commerce shall acquire, directly or 
indirectly, the whole or any part of the stock or other share capital of another 
corporation engaged also in commerce, where the effect of such acquisition may 
be to substantially lessen competition between the corporation whose stock is 
so acquired and the corporation making the acquisition, or to restrain such 
commerce in any section or coinmunity, or tend to create a monopoly of any 
line of commerce. 

No corporation shall acquire, directly or indirectly, the w^hole or any part 
of the stock or other share capital of two or more corporations engaged in 
commerce where the effect of such acquisition, or the use of such stock by the 
voting or granting of proxies or otherw^ise, may be to substaritially lessen compe- 
tition between such corporations, or any of theiB, whose stock or other share 
capital is so acquired, or restrain such commerce in any section or community, 
or tend to create a monopoly of any line of commerce. 

This section shall not apply to corporations purchasing such stock solely for 
investment and not using the same by voting or otherwise to bring about, or 
in attempting to bring about, the substantial lessening of competition. Nor 
shall anything contained in this section prevent a corporation engaged in com- 
merce from causing the formation of subsidiary corporations for the actual 
carrying on of their immediate lawful business, or the natural and legitimate 
branches or extensions thereof, or from owning and holding all or a part of the 
stock of such subsidiary corporations, when the effect of such formation is not 
to substantially lessen competition. 

Nor shall anything herein contained be construed to prohibit any common 
carrier subject to the laws to regulate commerce from aiding in the construction 
of branches or short lines so located as to become feeders to the main line of the 
company so aiding in such construction or from acquiring or owning all or any 
part of the stock of such branch lines, nor to prevent any such common carrier 
from acquiring and owning all or any part of the stock of a branch or short line 
constructed by an independent company where there is no substantial competi- 
tion between the company owning the branch line so constructed and the com- 
pany owning the main line acquiring the property or an interest therein, nor to 
prevent such common carrier from extending any of its lines through the medium 
of the acquisition of stock or otherwise of any other such common carrier where 
there is no substantial competition between the company extending its lines and 
the company whose stock, property, or an interest therein is so acquired. 

Nothing contained in this section shall be held to affect or impair any right 
heretofore legally acquired: Provided, That nothing in this section shall be held 
or construed to authorize or make lawful anything lieretofore prohibited or made 
illegal by the antitrust laws, nor to exempt any person from the penal provisions 
thereof or the civil remedies therein provided. 

Sec. 8. * * * That from and after two years from the date of the ap- 
proval of this act no person at the same time shall be a director in any two or 
more corporations, any one of which has capital, surplus, and undivided profits 
aggregating more than $1,000,000, engaged in whole or in part in commerce, 
other than l)anks, banking associations, trust companies, and common carriers 
sut)ject to the act to regulate commerce, approved February fourth, eighteen 
Iiundred and eighty-seven, if such corporations are or shall have been thereto- 
fore, by virtue of their business and location of operation, competitors, so that 
the elimination of competition by agreement between them would constitute a 
violation of any of the provisions of any of the antitrust laws. The eligibility 
of a director under the foregoing provision shall be determined by the agree- 
gate amount of the capital, surplus, and undivided profits, exclusive of dividends 



declared but not paid to stockholders, at the end of the fiscal year of said corpo- 
ration next preceding the election of directors, and when a director has been 
elected in accordance with the i:)rovisions of this act it shall Ije lawful for him to 
continue as such for one year thereafter. 

When any person elected or chosen as a director or officer or selected as an 
employee of any bank or other corporation subject to the provisions of this 
act is eligible at the time of his election or selection to act for such bank or 
other corporation in such capacity his eligibility to act in such capacity shall 
not be affected and he shall not become or be deemed amenable to any of the 
provisions hereof by reason of any change in the affairs of such bank or other 
corporation from whatsoever cause, whether specifically excepted by any of the 
provisions hereof or not, until the expiration of one year from the date of his 
election or employment. 

Sec. 11. That authority to enforce compliance with sections two, three, seven, 
and eight of this Act by the persons respectively subject thereto is hereby vested; 
in the Interstate Commerce Commission where applicable to common carriers 
subject to the Interstate Commerce Act, as amended; in the Federal Communica- 
tions Commission where applicable to common carriers engaged in wire or radio 
communication or radio transmission of energy; in the Civil Aeronautics Au- 
thority where applicable to air carriers and foreign air carriers subject to the 
Civil Aeronautics Act of 1938; ^ in the Federal Reserve Board where applicable to 
banks, banking associations, and trust companies; and in the Federal Trade Com- 
mission where applicable to all other character of commerce, to be exercised as 
follows : 

Whenever the commission, authorit}', or board vested with jurisdiction thereof 
shall have reason to believe that any person is violating or has violated any 
of the provisions of sections two, three, seven, and eight of this Act, it shall 
issue and serve upon such person a complaint stating its charges in that respect, 
and containing a notice of a hearing upon a day and at a place therein fixed at 
least thirty days after the service of said complaint. The person so complained 
of shall have the right to appear at the place and time so fixed and show cause 
why an order should not be entered by the commission, authority, or board 
requiring such person to cease and desist from the violation of the law so charged 
in said complaint. Any person may make application, and upon good cause 
shown may be allowed by the commission, authority, or board, to intervene 
and appear in said proceeding by counsel or in person. The testimony in any 
such proceeding shall be reduced to writing and filed in the office of the commis- 
sion, authority, or board. If upon such hearing the commission, authority, or 
board, as the case may be, shall be of the opinion that any of the provisions of 
said sections have been or are being violated, it shall make a report in writing in 
which it shall state its findings as to the facts, and shall issue and cause to be 
served on such persons an order requiring such person to cease and desist from 
such violations, and divest itself of the stock held or rid itself of the directors 
chosen contrary to the provisions of sections seven and eight of this Act, if any 
there be, in the manner and within the time fixed by said order. Until a trans- 
cript of the record in such hearing shall have been filed in a circuit court of appeals 
of the United States, as hereinafter provided, the commission, authority, or board 
may at any time, upon such notice and in such manner as it shall deem proper, 
modify or set aside, in whole or in part, any report of any order made or issued 
by it under this section. 

If such person fails or neglects to obey such order of the commission, author- 
ity, or board while the same is in effect, the commission, authority, or board 
may apply to the circuit court of appeals of the United States, within any circuit 
where the violation complained of was or is being committed or where such 
person resides or carries on business, for the enforcement of its order, and shall 
certify and file with its application a transcript of the entire record in the pro- 
ceeding, including all the testimony taken and the report and order of the com- 
mission, authority or board. Upon such filing of the application and transcript 

2 By subsection (g) of section 1107 of the "Civil Aeronautics Act of 1938," approved Tune 23, 1938, Public, 
No. 706, 75th Cong., Ch. 601,3d sess., S. 3845, 52 Stat. 1028, section 11 of the Act of October 15, 1914, the Clay- 
ton Act, was amended by inserting after the word "energy" (in the sixth line from the beginning of the 
paragraph, reading "wire or radio communication or radio transmission of energy:"), the following: "in 
the Civil Aeronautics Authority where applicable to air carriers and foreign air carriers subject to the Civil 
Aeronautics Act of 1938;" and by inserting after the word "commission" wherever it appears in that section 
a comma and the word "authority." 

291144 — 41 — No. 38 8 


the court shall cause notice thereof to be served upon such person and thereupon 
shall have jurisdiction of the proceeding and of the question determined therein, 
and shall have power to make and enter upon the pleadings, testimony, and 
proceedings set forth in such transcript a decree affirming, modifying, or setting 
aside the order of the commission, authority, or board. The findings of the 
commission, authority, or board as to the facts, if supported by testimony, shall 
be conclusive. If either party shall apply to the court for leave to adduce addi- 
tional evidence, and shall show to the satisfaction of the court that such additional 
evidence is material and that there were reasonable grounds for the failure to 
adduce such evidence in the proceeding before the commission, authority, or 
board, the court may order such additional evidence to be taken before the 
commission, authority, or board and to be adduced upon the hearing in such 
manner and upon such terms and conditions as to the court may seem proper. 
The commission, authority, or board may modify its findings as to the facts, or 
make new findings, by reason of the additional evidence so taken, and it shall 
file such modified or new findings, which, if supported by testimony, shall be 
conclusive, and its recommendations, if any, for the modification or setting aside 
of its original order, with the return of such additional evidence. The judgment 
and decree of the court shall be final, except that the same shall be subject to 
review by the Supreme Court upon certiorari as provided in section 240 of the 
Judicial Code. 

Any party required b}^ such order of the commission, authority, or board to 
cease and desist from a violation charged may obtain a review of such order 
in said circuit court of appeals by filing in the court a written petition praying 
that the order of the commission, authority, or board be set aside. A copy of 
such petition shall be forthwith served upon the commission, authority, or board, 
and thereupon the commission, authority, or board forthwith shall certify and 
file in the court a transcript of the record as hereinbefore provided. Upon the 
filing of the transcript the court shall have the same jurisdiction to affirm, 
set aside, or modify the order of the commission, authority, or board as in the 
case of an application by the commission, authority, or board for the enforce- 
ment of its order, and the findings of the commission, authority, or board as 
to the facts, if supported by testimony, shall in like manner be conclusive. 

The jurisdiction of the circuit court of appeals of the United States to enforce, 
set aside, or modify orders of the commission, authority, or board shall be exclusive. 

Such proceedings in the circuit court of appeals shall be given precedence over 
other cases pending therein, and shall be in every way expedited. No order of 
the commission, authority, or board, or the judgment of the court to enforce 
the same shall in any wise relieve or absolve any person from any liability under 
the antitrust Acts. 

Complaints, orders, and other processes of the commission, authority, or board 
under this section may be served by anyone duly authorized by the commission, 
authority, or board, either (a) by delivering a copy thereof to the person to be 
served, or to a member of the partnership to be served, or to the president, 
secretary, or other executive officer or a director of the corporation to be served; 
or (b) by leaving a copy thereof at the principal office or place of business of 
such person; or (c) by registering and mailing a copy thereof addressed to such 
person at his principal office or place of business. The verified return by the 
person so serving said complaint, order, or other process setting forth the man- 
ner of said service shall be proof of the same, and the return post-office receipt 
for said complaint, order, or other process registered and mailed as aforesaid 
shall be proof of the service of the same. 


Approved October 15, 1914.