Skip to main content

Full text of "Work materials ..."

See other formats 


Y9.A/Al/^'^-^/l 


BOSTON  PUBLIC  LIBRARY 


3  9999  06317  346  0 


/ 


NATIONAL    RECOVERY    ADMINISTRATION 


DIVISION    OF    REVIEW 


ANTI-TRUST  LAWS  AND  UNFAIR  COMPETITION . 


July  20,  1935. 


PRELIMINARY  DRAFT 

(NOT  FOR  RELEASE:    FOR  USE  IN  DIVISION  ONLY) 


J 


COIIFIDEUTIAL 
mivIORAiroul^i  TO   SECTION  HEADS  July  18,    1335 

SUBJECT:  WORK  MATERIALS  NO.    1 

AUTI-TRUST  LAWS  AND  UlIFAIR  COMPETITION 

Tliis  material,   prepared  by  George  J.   Feldman  and  assisted 
"oy  Janes  E.   Held  and  J.   H.    Krag,    is   representative   of  an  initial 
attack  upon  the   su'bject  and  is  not  regarded  "by  I,ir»  Eeldman  as  a 
finished  product.      It  is  not  an  official  docuiient  and  is  not 
released  for  general  use.      It   is  distributed  to   Section  Heads 
for  appropriate  confidential  use  in  connection  with  the  research 
work  in  their  respective  fields. 


L .    C .   Ivlarshall 
Director,    Division  of  Review 


AIITI-THJST  LAWS  AlO)  UNFAIR  COMPETITION 


CONTENTS 


Page 

I,  Introduction 1 

Historical  development  of  the  law 
of  unfair  competition. 
II.   The  Anti-Trust  Laws 

A.  Concept  of  Interstate  Commerce  in  the 

Anti-Trust  Cases  9 

(1)  Amusement  cases 9 

(2)  Labor  Cases  10 

(3)  Advertising  cases  11 

(4)  Distribution  of  Merchandise 13 

B.  Trade  Associations  and  Exchanges 14 

(1)  Maintenance  of  Traditional  Channels 

of  Distribution 14 

(2)  Exclusion  from  the  Market:  Boycotts 15 

(3)  Price  Pixing 17 

(4)  Price  Fixing  b;;-  Buyers  21 

8001      *  -i- 


Page 

(5)  Predatory  and  Destructive  Tactics »  21 

(6)  Price  Discrimination  and  Custoner 

Classification  22 

(7)  Control  of  Stipply  -  Regulation  of 

Lator  Supply 24 

(8)  Price  and  Information  Piling  26 

(9)  Cooperative  Credit  Activities  31 

(10)  Resale  Price  Ilaintenance  34 

(11)  Tying  Clauses  Full  Line  Forcing  and 

Exclusive  Dealing 37 

(12)  Enticing  Enrolo^rces  39 

(13)  Uniform  Cost  Accounting 39 

III.  Appendix 43 

Unfair  Uethods  of  Competition  under  the 

Federal  Trade  Coromission  Act  43 

A.  Unfair  ComiDetitive  i.ietliods  which  affect 

the  individual  purchaser 43 

(a)  Misrepresentation 43 

1.  As  to  weight  or  quantity 43 

2.  As  to  composition,  quality,  condi- 
tion or  character 44 

3.  False  claim  to  endorsement  or  use 47 

4.  As  to  "business  status 47 

5.  As  to  origin  of  iDroduct 48 

6.  As  to  price  reductions 48 

7.  As  to  medicinal  or  cxirative  value  of 

the  product  49 

8.  Misrepresentations  in  the  sale  of 

corporate  securities  49 

9.  As  to  contracts  and  offers  made  50 

10.  Misrepresentations  made  ty  correspond- 
ence schools 50 

(li)  Lotteries  50 

(c)  Harrassing  Tactics 51 

(d)  Basing  Point  Sj'stens 51 

(e)  Predatory  or  Local  Destractive  -  Price 

Cut  t  ing 51 

B,  Unfair  Competitive  Hethods  which  affect  the 

individual  Competitors 51 

(1)  False  Claim  of  affiliation  with  competitor ,,  51 

(2)  Appropriation  of  results  of  competitor's 

efforts  52 

(3)  Interference  with  com]Detitor's  stock 

while  in  the  hands  of  dealers 52 

(4)  Acquiring  Competitor's  trade  secrets  52 

(5)  Secret  control  of  ficticious  cocpetito;' 52 

(5)  Anonymous  attacks  upon  competitors  • 52 

(7)  Disparagement  of  and  misrepresentation 

concerning  competitors  52 

(8)  Commercial  "bribery  and  secret  commissions 

to  dealers 54 

(9)  Unfair  comijetitive  methods  in  the  Motion 

Picture  Industry 55 

(10)  Destruction  of  competitor's  catalogues  55 


8001 


-IX- 


Pa~e 

(11)  Shipping  goods  to  competitor's  customers 

\7ithout  orders 56 

(12)  Threats  of  litigation 55 

(13)  Price  discrimination  to  influence  trade  57 

(14)  Giving  "free  goods"  and  selling  belou  cost 57 

(15)  Interference  with  competitor's  source  of 

sixpply 58 

(16)  Physical  interference  with  competitor's 

property 58 

(17)  Iss-'oance  of  "Palse"  complaints  to  the 

Federal  Trade  Commission  58 

(18)  Appropriation  of  competitor's  shipments 58 

(19)  Inducing  "breach  of  contract  59 

(20)  Espionage  59 

(21)  iiolestation,  harrassing  tactics,  inter- 
ference with  competitors 60 

(22)  Trade-marks  and  trade  names  -  "passing 

off"  61 

(23)  Miscellaneous  price  fixing  activities  62 

( 24)  Bogus  Independent  s • .  63 


8001  -ill- 


I 

INTRODUCT  I  0  H 


This  study  is  an  attenpt  to  assernlile  ujider  one  cover  the  nuiierous 
methods  of  unfair  competition  and  tj'-pes  of  monopolistic  restraints  of  trade 
condemned  by  the  courts  and  the  Federal  Trade  CoiTimission  as  violative  of  the 
anti-trust  laws.  Before  getting   into  a  routine  discussion  of  the  cases  a 
brief  survey  of  the  development  of  the  law  of  unfair  competition  and  the  law 
governing  monopolies  may  suriply  the  background  and  scenery  essential  to  the 
completion  of  the  picture. 

The  law,  as  it  touches  upon  the  problems  of  competition  and  monopoly, 
has  been  progressively  going  through  a  process  of  evolution.  From  earliest 
times  the  law  has  exercised  some  control  over  trade  and  industrjr.  Indeed, 
one  could  not  find  a  better  example  of  such  control  than  the  system  which 
existed  in  England  in  Medieval  times.  Regulations  during  that  period  were 
framed  not  only  for  workshops  under  the  crafts  and  guilds  but  also  for  the 
market  place,  where  detailed  rules  of  the  law  mercliant  were  made  to  insure 
fair  trading. 

It  took  a  few  centuries  a.nd  an  industrial  revolution  to  arrive  at  a 
point  in  our  economic  history  where  it  was  felt  that  free  competition  was 
essential  as  a  regulator  of  industrial  life.  But  history  teaches  that 
economic  freedom  is  a  relative  matter.  T7ith  the  rise  of  the  factory  system, 
many  economic  sins  were  committed  in  the  name  of  the  "free"  or  "natural" 
competition  to  which  the  early  classical  economists,  such  as  Adam  Smith, 
had  given  prominence  in  their  writings.  The  evils  of  the  early  factors'- 
system  are  well  Icnown  and  the  law  began  to  cope  with  them  at  an  earls'-  stage. 
Twenty-six  years  after  the  pii.blication  of  Adam  Smith's  celebrated  "WEALTH 
OF  IIATIOHS",  the  first  modern  factory  act  was  passed  in  England.  The  march 
of  social  legislation  ushered  in  by  this  act  has  been  practically  uninter- 
rupted to  this  day  in  countries  of  modern  industrial  civilization.  The  law 
however,  did  not  stop  with  an  act  to  correct  the  evils  of  laissez  faire 
competition  as  it  affected  industrial  workers,  it  went  further  and  inter- 
vened to  elevate  the  plane  of  competition  in  the  marketing  of  goods. 

Thus,  the  law  beg?Ji  to  distinguish  between  fair  and  unfair  competition. 
Fair  competition  is  constructive.   It  should  be  a  rivalry  for  patronage  in 
a  market  which  permits  survival  onlj   of  the  economically  fit  business  units. 
Large  and  small,  these  business  units  have  a  right  to  engage  in  business  and 
to  survive  solely  by  virtue  of  superior  production  or  selling  efficiency. 
The  law  assures  no  one  an  absoliite  right  to  compete  or  an  absolute  right  to 
survive .  ITor  does  the  law  permit  an  individxml  to  mal'e  comnetltion  the 
death  loiell  of  fair  trading. 

The  seed  from  which  this  philosophjr  grew  may  be  found  in  the  decisions 
of  the  courts  under  what  is  known  as  the  common  law  of  unfair  competition. 
That  body  of  legal  doctrine  evolved  in  the  con..rse  of  the  nineteenth  century 
and,  springing  from  the  old  law  of  fraud,  condemns  doing  business  upon  a 
fraudulent  or  deceptive  basis.   From  this  point  of  view,  the  whole  law  of 
ujifair  competition  may  be  said  to  revolve  around  the  countless  ways  in  which 
one  person  may  seek  to  interfere  with  the  good  will  possessed  by  a  competitor. 
Good  will  has  been  a.ptly  defined  by  one  writer  as  that  which  mslces  tomorrow's 


8001  -1- 


"business  more  than  an  accident. 

One  of  the  valuable  syrabols  of  good  will  which  the  courts  protect  is 
the  trade  mark  or  the  trade  name.  By  association  it  serves  to  distinguish 
A's  goods  from  B's  and  gives  tangible  form  to  the  reputation  of  the  producer 
as  one  standing  for  quality  and  other  desirable  attributes.  B  is  legally 
responsible  when  he  falsely  represents  or  "passes  off"  his  goods  as  those  of 
A.  For  example,  he  may  use  a  trade  mark  or  trade  name  so  similar  to  A's  as 
to  confuse  the  purchasing  public,  thus  depriving  A  of  the  business  he  would 
otherwise  get. 

In  addition  to  this  piracy  of  trade  marks  and  trade  names,  there  are 
many  other  practices  whereby  B  may  invade  A's  right  to  be  protected  against 
being  deprived  of  his  reasonable  expectation  of  business.   In  addition  to 
false  representations  B  may  also  be  gailtj?"  of  intimidating  or  molesting  A's 
customers.  He  may  interfere  with  a  competitor's  contracts,  disparage  his 
goods,  steal  his  trade  secrets,  bribe  or  entice  away  his  employees  and  the 
like.   This  growth  is  reviewed  by  the  United  States  Supreme  Court  in  the 
Schechter  case: 

"Unfair  competition  as  known  to  the  common  law  is  a  limited 
concept.  Primarily,  and  strictly,  it  relates  to  the  palming 
off  of  one's  goods  as  those  of  a  rival  trader.  G-oodyear 
Manufacturing  Co.  v.  qpodyear  Rubber  Co..  128  U.  S.  598,  604; 
Howe  Seale  Co.  v.  Wycoff.  Seamans  &  Benedict  198  U.  S.  118.140; 
Hanover  I-lilling  Co.  v.  Metcalf.  240  U.  S.  403,  413.   In  recent 
years  its  scope  has  been  extended.   It  has  been  held  to  apply 
to  misappropriation  as  well  as  misrepresentation,  to  the  selling 
of  another's  goods  as  one's  own,  -  to  misappropriation  of  what 
equitably  belongs  to  a  competitor.   International  Wews  Service 
V.  Associated  Press.  248  U.  S.  215,  241,  242.  Unfairness  in 
competition  has  been  predicated  of  acts  which  lie  outside  the 
ordinarj'-  course  of  business  and  are  tainted  by  fraud,  or  coercion, 
or  conduct  otherwise  prohibited  by  law."  (Schechter  v.  U.S.. 
55  S.Ct.  837-850.  19351 

It  is  at  least  partially  true  that  the  common  law  and  its  procedure  is 
too  rigid  and,  therefore,  incapable  of  adapting  itself  to  the  rapidly  chang- 
ing conditions  of  modern  economic  life.  Although  a  number  of  extensions  of 
the  doctrine  of  imfair  competition  were  made  by  judicial  decisions  under  the 
common  law,  the  courts  were  unable  to  keep  pace  with  the  ingenuity  of  the 
business  pirate,  and,  as  a  result,  in  1914  we  progressed  to  a  new  system  of 
regulation  of  competition  by  an  administrative  tribunal,  namely,  the  Federal 
Trade  Commission. 

This  Commission  is  empowered  to  prevent  the  use  of  unfair  methods  of 
competition  in  interstate  commerce.   It  may  issue  a  complaint  against  the 
offending  party  whenever  it  has  reason  to  believe  that  such  a  proceeding  by 
it  would  be  in  the  interest  of  the  public.   Thus,  in  some  cases  where  the 
common  law  formerly  afforded  no  relief,  it  was  thought  that  the  Commission 
would  act  as  a  guardian  of  public  rights.  However,  the  meaning  of  the 
expression  "unfair  methods  of  competition"  in  the  Federal  Trade  Commission 
Act  is  still  a  highly  controversial  matter  and  the  resulting  uncertainty 
created  the  necessity  for  affirmative  guide  posts  \)j   which  to  chart  the 
legal  course,  and  to  which  industry  must  be  guided  if  it  is  not  to  run  afoul 

8001  -2- 


of  the  laT7.   The  Conmission  failed  to  provide  adequate  criteria  to  gu.ide 
■business  conduct. 

Although  the  Connission  has  succeeded  in  attaining  sone  of  the  o^bjectives 
aimed  at,  in  a  large  sense  it  has,  through  unfavorahle  court  decisions  and 
other  factors  he^ond  its  control,  failed  to  do  what  its  sponsors  exoected. 
President  Wilson,  hacl:  in  1914  when  the  Commission  vras  established  under  the 
nevr  la-r,  undoubtedly  expected  a  new  constructive  force  to  develop  and  occupy 
as  important  a  place  in  trade  and  ir.dustrj^  as  the  Interstate  Commerce  Com- 
mission T7as  occupj'ing  in  the  field  of  interstate  transportation.  This  did 
not  happen.  Therefore,  the  latest  stage  in  the  effort  to  regulate  competition 
cane  into  heing  quite  naturallj^  and  only  after  it  nas  found  that  the  mechanism 
-orovided  for  in  the  Federal  Trade  Commission  Act  iras  out  of  gear  rdth  modern 
Industrial  development.  From  a  historical  point  of  vierr  this  recent  effort, 
represented  "by  the  Mlk   codes  of  fair  competition,  tras  a  part  of  the  continuing 
process  of  seeking  correctives  for  destructive  trade  practices,  thereby  at- 
tempting to  elevate  competition  to  a  higher  level. 

¥e  are  next  concerned  vrith  the  maintenance  of  competitive  conditions 
against  the  encroacliraent  of  monopoly.  This  policy  had  its  origin  in  the 
comiion  lau  governing  restraint  of  trade  and  conspiracies  to  monopolize. 
Originally,  the  courts  confined  the  phrase  "restraint  of  trade"  to  situations 
Trhere,  for  example,  A  sold  his  "business  to  B  and  agreed  not  to  compete  with 
B  in  a  given  area  and  for  a  given  time.  Fnile  the  courts  at  first  were 
hostile  to  such  contracts  during  the  eighteenth  and  nineteenth  centuries, 
they  were  gradually  permitted  in  England  then  generally  in  the  United  States, 
providing  they  were  reasonable  when  looked  at  from  the  standpoint  of  the 
TDarties  to  the  contract  as  well  as  from  that  of  the  public  interest.  But  in 
our  OT/n  coTontry  the  development  of  a  system  of  national  control  over  these 
restrictive  agreements  did  not  evolve  due  to  the  inability  of  state  courts 
to  malce  their  decisions  effective  beyond  their  own  state  boundaries.  A 
striking  example  of  this  is  the  treatment  accorded  The  Diamond  Hatch  Company, 
which  had  created  a  national  business  by  purchasing  small  comp;anies  which 
agreed  not  to  engage  in  the  business  for  99  years  in  all  of  the  forty-eight 
states  except  two;  in  1887  the  courts  of  Hew  York  held  one  of  these  agreements 
to  be  a  reasonable  trade  restraint,  yet  in  1889  the  I.Iichigan  coxirts  held 
another  of  the  agreements  to  be  illegal. 

However,  by  the  middle  of  the  nineteenth  century  the  term  "restraint  of 
trade"  had  be.gun  to  be  applied  to  combinations  or  agreements  among  competitors 
for  the  purpose  of  secaring  control  of  the  market  and  suppressing  competition. 
These  combinations  or  agreements  assumed  various  forms  such  as  to  fix  prices, 
restrict  output,  and  divide  territory-  and  profits.   In  the  United  States  the 
courts  under  the  common  lair  have  generally  held  such  arrangements  illegal 
regardless  of  the  economic  or  social  justifications  involved. 

But  just  as  in  the  case  of  unfair  competition  so  in  the  field  of  monopoly, 
the  common  law  was  supplemented  bjr  legislation.   In  this  country  the  so-called 
trust  movement  of  the  1870 's  and  1880 's  produced  various  schemes  for  concen- 
tration of  control  and  monopolizing  market.  The  united  protests  against  the 
trusts  end.   their  predatory  practices  led  to  the  enactment  of  the  Sherman  Anti- 
Trust  Act  of  1890.  That  act  declared  illegal  every  contract,  combination  or 
conspiracy  in  restraint  of  interstate  trade  or  commerce.  Under  tliat  law  one 
of  the  most  interesting  developments  has  been  the  shift  from  the  narrow  in- 
terpretations by  the  cov.rts  whereby  every  contract  or  combination  in  restraint 
of  trade  was  considered  unlav^ful,  to  the  famous  "rule  of  reason"  set  forth  in 

8001  -3- 


the  Standard  Oil  case  of  1911,  by  which  only  contracts  or  conTDinations  which 
unreasonably  restrain  trade  are  held  in  violation  of  the  law. 

Just  as  the  highly  controversial  expression  in  the  Federal  Trade  Com- 
mission Act  "-unfair  methods  of  competition"  created  uncertainties  harmful  to 
industrsj-,  so  also  it  is  becoming  increasingly  apparent  that  the  flexibility 
of  such  a  standard  of  judgment  as  "reasonableness"  inevitably  leads  to  un- 
certainty, and  this  is  exactly  what  occurred  under  the  Sherman  Act.  The 
Supreme  Court  has  pointed  out  the  factors  which  operate  to  render  a  restraint 
unreasonable,  but  the  result  has  in  most  instances  failed  to  provide  a  stand- 
ard to  guide  the  conduct  of  business  men  and  trade  associations. 

In  a  general  sense  it  is  true,  then,  that  the  changed  aspects  of  business 
and  industrial  activity  have  been  controlled  and  regulated  by  new  mechanisms 
devised  to  fit  the  new  circumstances.   Slow  as  the  development  of  the  law  has 
been  on  occasion,  there  has  been  a  steady  inevitable  evolution  in  the  processes 
used  to  regulate  the  relationships  of  those  engaged  in  commerce  and  other  busi- 
ness pursuits.  However,  as  to  the  growth  of  application  of  Anti-trust  laws 
to  deal  with  present  d£iy  conditions  there  has  been  a  notable  la^  or  decided 
drift  away  from  the  evolutionary  process. 

This  lag  is  best  demonstrated  by  the  difference  in  the  development  of 
the  law  of  trusts  in  our  own  country  and  under  the  English  system  and  forcibly 
contracted  by  examining  the  decisions  in  two  well  known  cases:   that  of 
United  States  v.  Trenton  Potteries  Co.  et  al  and  of  Attorney  General  of  the 
Commonwealth  of  Australia  v.  The  Adelaide  Steamshin  Com-panv.  Ltd. 

In  the  Trenton  Potteries  Case  the  Supreme  Court  in  1927  upheld  the 
conviction  of  twenty  individuals  and  twenty-three  corporations  under  the 
Sherman  Act  for  combining  to  fix  and  maintain  uniform  prices  and  for  combin- 
ing to  restrain  interstate  commerce  by  limiting  sales  of  pottery  to  a  special 
group  Iniown  to  them  as  "legitimate  Jobbers".   In  refusing  to  follow  as  to 
price  fixing  the  well  Imown  rule  of  reason  as  laid  down  in  prior  decisions 
the  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". 

¥e  see  the  court  then  adhering  to  an  outmoded  and  inconsistent  view  that 
the  power  to  fix  prices  is  an  evil  in  itself  regardless  of  the  manner  of  its 
exercise,  for  in  the  same  opinion  appears  the  following  pronouncement: 

"    The  aim  and  result  of  every  price  fixing  agreement,  if 
effective,  is  the  elimination  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". 

But  with  the  results  obtained  in  the  Trenton  Potteries  Case  contrast  the 
results  reached  in  the  Adelaide  Case,  decided  by  the  Privj'"  Council  in  England 
as  earljr  as  1913.  Refusing  to  treat  the  public  interest  as  a  thing  apart  from 
certain  members  of  the  public  the  court  there  gave  consideration  to  producers 
and  distributors  as  well  as  to  consumers,  and  found  no  detriment  to  the  public 
in  permitting  forty  defendant  mining  companies  and  shipping  companies  to  agree 

8001  -4- 


on  resale  prices  for  the  shippers  of  coal  in  large  productive  areas  in 
Australia.   Criminal  prosecutions  under  an  Australian  Anti-Trust  Act  T7ere 
"being  reviewed.   In  upholding  the  Higli  Court  of  Australia,  which  had  re- 
versed convictions  "by  the  trial  court,  Lord  Parker  said: 

"It  T7as  strongly  urged  hy  counsel  for  the  CroTm  that  all 
contracts  in  restraint  of  trade  or  comnerce  which  are 
unenforceahle  at  coininon  law,  and  all  corahinations  in 
restraint  of  trade  or  conmerce  which  if  entodied  in  a 
contract  would  be  enforceable  at  common  law,  must  be 
detrimental  to  the  public  within  the  meaning  of  the  Act, 
and  that  those  concerned  in  such  contracts  or  combinations 
must  be  taken  to  have  intended  this  detriment.  Their 
Lordships  cannot  accept  this  proposition 

"It  was  also  strongly  urged  that  in  the  term  'detriment 
to  the  public'  the  public  means  the  consuming  public, 
and  that  the  Legislature  was  not  contemplating  the  interests 
of  any  persons  engaged  in  the  production  or  distribution  of 
articles  of  consumption.   Their  Lordships  do  not  take  this 
view,  but  the  matter  is  really  of  little  importance,  for  in 
considering  the  interests  of  the  consuiners  it  is  impossible 
to  disregard  the  interests  of  those  who  are  engaged  in  such 
pro6.ti.ction  and  distribution.   It  can  never  be  in  the  interest 
of  the  consumers  that  any  articles  of  consumption  should 
cease  to  be  prod.uced  and  distributed,  as  it  certainly  would 
be  unless  those  engaged,  in  its  production  or  distribution 
obtained  a  fair  rem'UJieration  for  the  capital  employed  and 
the  laborers  expended." 

As  brought  out  in  other  portions  of  the  opinion  of  Lord  Parker  it  is 
clear  that  the  new  statute  on  monopolies  which  was  being  construed,  had  in 
1906  added  something  to  the  previous  doctrines  regarding  monopolies  obtained 
from  the  Crown.   The  criterion  had  come  to  be  the  interest  of  the  public  in 
a  realistic  manner  that  considered  all  members  of  the  public  to  be  involved 
so  that  only  unreasonable  and  detrimental  combinations  would  from  thenceforth 
be  condemned.  But  in  our  own  country,  in  construing  the  Sherman  Act,  which 
contained  language  almost  identical  with  the  Australian  Industries  Preserva- 
tion Act,  the  law  had  reached  the  deplorable  stage  where  a  combination  of 
individuals  to  stabilize  prices  is  wrong  even  if  there  is  no  harm  ensuing  to 
the  public  from  siich  a  practice.  And  as  a  corollar;'-  to  this  state  of  affairs 
we  have  the  equally  regretable  situation  that  the  courts  have  permitted  mergers 
of  large  business  units  in  the  past  to  accomplish  what  individuals  were  not 
allowed  to  do  by  apparently  bona  fide  efforts  at  cooperation  for  the  common 
good. 

To  be  sure,  the  attitn.de  of  the  court  in  the  ATjTjalachian  Coals  Case  in 
1933  may  well  be  a  step  in  the  right  direction,  without  the  modification  of 
the  anti-trust  laws,  to  meet  new  conditions  in  the  interest  of  producers, 
laborers  and  consumers. 

In  this  case,  the  court  viewed  the  economic  conditions  of  an  industry 
as  an  entity,  and  recognized  that  the  "interests  of  the  producers  are  inter- 
linked".  It  permitted  changes  to  be  made  which  would  mitigate  the  evils 

8001  -5- 


in  an  industry  and  foster  fair  competitive  opportunities.   On  this  point 
the  court  said: 

"The  fact  that  the  correction  of  ahuses  may  tend  to  stabilize 
a  "business  or  to  produce  fairer  price  levels,  does  not  mean 
that  the  abuses  should  go  uncorrected  or  that  cooperative 
endeavor  to  correct  them  constitutes  an  unreasonable  restraint". 
(288  U.  S.  374) 

Thus  the  Court  permitted  members  of  an  industry  to  correct  and  to  attempt 
to  eliminate  by  cooperative  efforts  evils  or  abuses  existing  in  the  industry, 
but  onlj'-  where  the  group  attempting  to  gain  such  a  result  must  still  meet  ef- 
fective competition  in  a  fair  market,  does  not  seek  to  monopolize  the  market, 
and  has  not  the  potential  power  to  do  so.  Advances  in  price  or  other  results 
flowing  from  a  cooperative  agreement  are  not  in  and  of  themselves  harmful  so 
long  as  they  are  caused  by  the  elimination  of  competitive  evils  and  not  from 
artificial  factors  such  as  direct  price  fixing. 

But  the  case  is  only  one  small  step  forward  and  in  the  light  of  the 
following  statements  of  the  Siipreme  Court,  it  is  submitted  that  the  construc- 
tion of  the  anti-trust  laws  to  be  obtained  from  the  courts  in  the  future  will 
not  take  the  place  of  Congressional  action  in  modification  of  the  anti-trust 
laws  under  its  undoubted  power  to  dictate  policies  free  from  interference: 

"Nothing  in  theorir  or  experience  indicates  that  the  selection 
of  a  common  selling  agency  to  represent  a  number  of  producers 
should  be  deemed  to  be  more  abnormal  than  the  formation  of  a 
huge  corporation  bringing  various  independent  units  into  one 
ownership 

"We  recognize,  however,  that  the  case  has  been  tried  in  advance 
of  the  operation  of  defendants'  plan,  and  that  it  has  been 
necessar3''  to  test  that  plan  with  reference  to  purposes  and 
anticipated  consequences  without  the  adva-ntage  of  the  demonstra- 
tions of  experience." 

Even  if  the  AiPDalachian  Coals  Case  is  commendable  because  it  allowed  coal 
operators  to  organize  a  selling  agency  to  protect  themselves  from  cutthroat 
competitive  conditions  such  as  destnictive  price  cutting,  it  is  not  a  holding 
that  goes  to  the  essence  of  price  stabilization  for  the  public  welfare,  since 
the  decision  was  moot  in  the  sense  that  the  operation  of  the  plan  was  not 
approved.  Moreover,  the  industr^r  as  a  whole  was  not  allowed  to  adopt  bene- 
ficial price  stabilization.  On  the  contrary,  one  of  the  elements  of  the  case 
emphasized  by  the  court  was  the  fact  that  although  the  Appalachian  Coals  Sales 
Agency  was  formed  with  the  view  of  having  other  regions  form  similar  agencies, 
its  creation  was  not  made  dependent  thereon  and  there  was  no  showing  of  a 
purpose,  understanding,  or  agreement  that  in  the  event  such  agencies  were 
formed,  there  would  be  any  agreement  or  understanding  between  them  to  divide 
market  territories,  limit  production,  or  to  fix  the  price  of  coal.  Only 
certain  producers  in  the  Appalachian  area  were  allowed  to  compete  effectively 
in  a  free  market  to  which  other  coal  operators  were  eligible. 

A  quarter  of  a  century  of  experiment  under  the  Sherman  Act  demonstrated 
the  inadequacy  of  that  law  to  cope  with  nep:  monopolistic  devices.  Consequently 
in  1914  supplementary  legislation,  namely,  the  Federal  Trade  Commission  Act, 

8001  -6- 


to  T7hich  we  have  previously  referred,  and  the  Clayton  Act  were  passed.   The 
Clayton  Act  gave  the  Federal  Trade  Comnission  authority  to  prevent  interlock- 
ing directorates  of  corporations  and  to  prohibit  practices  such  as  unlawful 
price  discriminations,  so-called  "tying  contracts"  and  stoch  acquisitions 
where  the  effect  T'ould  he  to  suhstajitially  lessen  competition  or  to  create  a 
monopoly. 

Despite  all  this  legislation,  business  mergers  -  which  the  anti-trust 
laws  were  popularly  supposed  to  have  prevented,  -  flourished  and,  in  fact, 
were  encouraged  hy  United  States  Supreme  Court  decisions.  The  nunher  and 
size  of  the  holding  companies  sind  consolidations  springing  up  in  the  years 
immediately  preceding  the  stock  market  crash  in  the  fall  of  1929  is  still  too 
fresh  in  the  minds  of  everyone.  But  "brief  reversion  to  the  earlier  growth 
of  consolidated  "business  units  demonstrates  that  the  Anti-Trust  laws  have 
never  consistently  accomplished  their  purpose  of  preventing  large  business 
units  from  doing  injur;'-  to  the  public  interest.   In  1898,  only  eight  years 
after  the  enactment  of  the  Sherman  Act,  there  were  eight  large  consolidations 
of  corporations,  including  the  formation  of  the  American  Linseed  Company.   In 
1899  there  were  twentjr-six  such  corporate  consolidations  includin;^  the  Stand- 
ard Oil  Company  of  Hew  Jersey.   In  1900  there  were  five  such  consolidations, 
and  in  1901  there  were  six,  including  the  organization  of  the  United  States 
Steel  Corporation. 

The  existing  devices  under  inadequate  state  laws  incapable  of  exerting 
a  national  control  had  led  to  the  pr.ssage  of  the  Sherman  Act  of  1890.   State 
constitutional  provisions  against  monopolies  or  combinations  in  restraint  of 
trade  had  proved  ineffective  -  as  in  constitutions  of  Arkansas,  Georgia, 
KentuclQT,  Tennessee  and  Texas.   State  statutes  were  equally  impotent  -  as 
under  the  statutes  in  Maine,  Michigan  and  Texas  in  1899  and  in  Iowa  and 
Kentuclcy  in  1890. 

But  the  Anti-Trust  laws  have  not  adequatel;'-  filled  the  gap  caused  b;;-  the 
inability  of  state  laws  to  regulate  national  business.  The  effectiveness  of 
the  Interstate  Commerce  Act  of  1C07  in  esta.blishing  reasonable  railroad  rates 
and  in  prohibiting  discrimination  are  not  dujDlicated  by  like  successes  under 
the  Anti-Trust  laws.  ¥ith  the  possible  exception  of  some  outstanding  achieve- 
ments in  enforcement  prior  to  1911  the  prosecutions,  injunctions,  damage  suits 
and  confiscation  of  property  under  those  laws  have  not  been  of  great  importance. 
Up  to  about  1930,  less  than  50  individuals  were  sent  to  prison,  and  apparently 
none  have  gone  to  prison  in  recent  years;  less  than  $2,000,000  in  fines  were 
collected  in  the  first  fort3'-  yea,rs  of  the  anti-trast  program  of  the  government 
and  during  that  time  40  cartons  of  cigarettes  were  confiscated  and  released  on 
bond. 

In  1895  in  the  E.  C.  Knif^ht  Case,  control  of  the  major  sugar  refineries 
of  the  countrjr  was  allovi^ed  to  be  concentrated  in  the  hands  of  a  single  corpora-  ' 
tion  because  manufacturing  was  not  commerce  in  the  eyes  of  the  Supreme  Court, 
regardless  of  the  nation  wide  effect  upon  commerce  in  one  of  the  prime  neces- 
sities of  life.   The  unsatisfactory  helplessness  of  both  state  and  federal 
governments  to  deal  with  business  activities  transcending  state  lines  has  never 
been  properly  corrected  depsite  the  virtual  overri-iling  of  the  ICnight  case  in 
subsequent  decisions.  The  Trans-Missouri  Frei.ght  Case  of  1897  and  the 
Addvston  Pi-pe  and  Steel  Co.  Case  in  1899  denouncin:":  combinations  to  maintain 
railroad  rates  and  combinations  of  pipe  manufacturers  to  advance  prices,  did 
not  serve  to  prevent  merger  and  holding  companies  prior  to  the  market  crash  of 

8001  -7- 


.-  ^>iv^  uncontrolled  activities  are  still  pernitted  to  partially  paralyze 
the  national  efforts  at  regulation  of  trade  and  industry. 

If  ne   keep  well  in  mind  the  fact  that  an  enforced  "free"  conrpetition 
was  the  nechanisn  -onderlying  the  Anti-Trust  laus  and  that  this  mechanisn  was 
ostensibl"  designed  to  keep  the  channels  of  coranerce  open  while  protecting 
the  public  interest  at  one  and  the  same  time,  it  will  "be  perceived  that  a 
change  in  that  mechanism  is  now  required.   "Free  competition"  as  an  economic 
policy  came  to  "be  inadequate  to  protect  the  public  interest;  the  cutthroat 
competition  engendered  under  such  a  policy  called  for  a  new  mechanism  to 
pilot  the  industrial  ship  safely  between  the  Scylla  of  anarchistic  unrestrained 
coiroetition  on  the  one  side  and  the  Charj'-bdis  of  tyrannical  unfettered  co- 
operation on  the  other. 

The  days  of  groping  "by  industries  in  the  darloiess  of  uncertain  legal 
heacon  lights  to  guide  them  should  "become  a  thing  of  the  past,  Tlae  new  in- 
dustrial development  is  well  worth  continuint  if  progress  is  to  "be  maintained. 
If  we  are  to  go  forward  instead  of  "backward,  the  public  must  be  tolerant  of 
reasonable  experimentation  in  a  field  where  there  are  so  manj''  disputed 
questions  of  fact  a:id  rapidly  changing  forms  of  industrial  organization.   In 
the  words  of  lir.  Justice  Brandeis  "If  we  would  guide  by  the  light  of  reason, 
we  must  let  our  minds  be  bold," 


8001  -S- 


ocpr 


II 

The  Anti-Trust  Laws 


I,   Interstate  Cocmerce 

The  application  of  the  Anti-Trust  LaT7s,  "by   dei-inition,  and  of  necessity, 
is  confined  to  restraints  of  interstate  con-ierce.  The  cases  drawing  the 
line  iDetween  commerce  which  is  interstate,  and  hence  subject  to  regulation, 
and  commerce  which  is  intrastate,  or  transactions  which  do  not  constitute 
commerce,  and  hence  not  subject  to  regulation,  may  "be  placed  within  several 
categories. 

(1)  Amusement  Cases 

In  Federal  Baseball  Cluh  v.  tfational  League  of  Professional  Baseball 
Clubs.  259  U.S.  200  (1922)  the  plaintiff  brought  an  action  for  damages  under 
the  Sherman  Act  alleging  that  defendants  conspired  to  destroy  the  Federal 
League  and  to  monopolize  the  baseball  business.  The  court  held,  however, 
that  interstate  comijierce  wa,s  not  present.   It  pointed  out  that  although  the 
operations  of  the  defendant  League  necessitated  transportation  of  players 
and  equipment  among  the  several  states,  "The  business  is  giving  exhibitions 
of  baseball,  which  are  purely  state  affairs  ,,  the  transport  is  a  mere  inci- 
dent, not  the  essential  thing.  That  to  which  it  is  incident,  the  e:diibition, 
although  made  for  money  would  not  be  called  trade  or  commerce  in  the  commonly 
accepted  use  of  those  words  ...  That  which  in  its  consummation  is  not  com- 
merce d-oes  not  become  commerce  among  the  states  because  the  transportation 
that  we  have  mentioned  talces  place". 

Hart  V.  Keith  Vaudeville  Exchange.  262  U.S.  271  (1923),  involved  some- 
what similar  facts.  Plaintiff  sought  an  injunction  and.  damages  alleging  a 
combination  ''oj   the  defendants  to  exclude  actors,  managers  and  personal 
representatives  of  actors  from  practically  all  the  vaudeville  theatres  in 
the  United  States  and  Canada,  which  were  controlled  by  defendants,  unless 
they  paid  defendants'  fees.  The  bill  further  alleged  that  defendants'  busi- 
ness involved  the  making  of  contracts  that  required  performers  to  travel 
among  the  states  and  necessitated-  the  transportation  of  scenery  and  animals. 
The  case  in  the  Supreme  Cotirt  turned  upon  the  issue  of  jurisdiction  in  the 
lower  court,  and  was  remanded  to  be  decid.ed  upon  the  merits.   Subsequently, 
it  was  held  upon  the  merits  that  no  direct  and  substantial  restraint  of 
interstate  commerce  was  involved.   12  F.  (2d)  341  (C.C.A.  2nd,  1926), 
certiorari  denied,  272  U,  S.  703,  (1926). 

Binderup  v.  Pathe  Exchange.  Inc..  253  U.S,  291  (1923)  was  an  action  for 
damages  under  Section  7  of  the  Sherman  Act.  The  defendant  distributors  of 
motion  picture  films  demurred  to  a  complaint  which  alleged  that  the  plaintiff, 
an  exliibitor,  had.  been  procuring  films  from  some  of  the  distributors  but  had 
refused  to  buy  from  others,  who  thereupon  ind-uced  the  former  distributor  to 
cease  dealing  with  him;  that  all  the  distribixtors  conspired  to  prevent  him 
from  carrying  on  his  business;  and  that  they  had  since  refused  to  furnish  him 
with  film  service,  and  had  cancelled  contracts  which  he  held.  Upon  the  ques- 
tion whether  the  restraint  related  to  interstate  commerce,  Mr,  Justice 
Sutherland  stated  at  page  309: 


8001  -9- 


"The  film  contracts  irere  'betrTeer  residents  of  different 
states  and  contemplated  tlae  leasing  "b-f   one  to  the  other 
of  a  commodity  raanufactured  in  one  state  ****** 
and  to  "be  transported  to  and  used  in  another.  The 
■business  of  the  distributors  of  which  the  arrangement 
with  the  exhibitors  was  an  instance,  was  clearly  inter- 
state.  It  consisted  of  maiaufacturing  the  commodity  in 
one  state,  finding  customers  for  it  in  other  states, 
making  contracts  of  lease  with  them,  and  transporting 
the  commodity'  leased  from  the  state  of  manufacture  into 
the  states  of  the  leasees  ...  Does  the  circumstance  that 
in  the  course  of  the  process  the  commodity  is  consigned 
to  a  local  agency  of  the  distributor,  to  be  bj'-  that 
agency  held  until  delivered  to  the  leasee  in  the  same 
state  put  an  end  to  the  interstate  character  of  the 
transaction  and  transform  it  into  one  purely  intrastate? 
¥e  think  not.  The  intermediate  delivery  to  'the  agency 
did  not  and  was  not  intended  to  end  the  movement  of  the 
coLimodity.   It  was  merely  haJted  as  a  convenient  step  in 
the  process  of  getting  it  to  its  final  destination  .  .  • 

"Interstate  commerce  includes  the  interstate  purchase, 
sale,  lease,  and  exchange  of  commodities,  and  any  con- 
bina.tion  or  conspiracy  which  unreasonably  restrains  such 
purchase,  sale,  lease  or  exchange  is  within  the  terns  of 
the  Anti-Trust  Act  ..." 

(2)  Labor  Cases 

In  Industrial  Association  of  San  Francisco  v.  United  States.  268  U.  S. 
64  (1925),  the  United  States  brought  a  bill  for  an  injunction  to  restrain  an 
alleged  conspiracy  and  to  dissolve  certain  of  the  defendant  associations. 
The  litigation  arose  out  of  tlie  following  facts;  Prior  to  1921  the  San 
Francisco  building  industry  was  dominated  by  the  building  trades  unions,  which 
enforced  the  closed  shop  and  other  restrictions  offensive  to  contractors  and 
real  estate  men.  After  a  series  of  strikes,  during  which  building  operations 
in  San  Francisco  practically  ceased,  the  defendant  associations  were  organized. 
One  of  the  defendants,  the  Builders  Exchange  of  San  Francisco,  with  a  m.ember- 
ship  of  a  great  majority  of  building  contractors  and  dealers  in  building 
materials,  put  into  effect  the  socalled  "American  plan".  The   plan  required 
an  open  shop  policy,  and  was  enforced  by  a  permit  system.   The  object  was  to 
confine  sales  of  certain  materials,  such  as  cem.ent,  lime,  brick,  sand,  etc., 
to  builders  who  sixpported  the  plan.   These  m.aterials  were  made  available  to 
builders  only  if  they  obtained  a  permit  from  the  Builders  Exchange.  All  the 
materials  were  produced  in  California  with  the  exception  of  plaster,  which 
was  imported  from  other  states  but  "brought  to  rest"  and  commingled  with 
other  goods  before  being  subjected  to  the  permit  sj'-sten.  The  Court  held  that 
with  respect  to  the  plaster  there  wa,s  no  interference  with  interstate  commerce, 
since  the  interstate  movement  in  plaster  had  closed  before  the  operation  of 
the  plan  became  effective.  ¥ith  respect  to  materials  produced  in  California, 
the  Court  held  that  the  interference  with  interstate  commerce  was  indirect 
and  remote,  and  referred  to  prior  decisions  of  the  Court  refusing  to  enjoin 
strikes  on  the  ground  that  the  direct  restraint  applied  only  to  manufacture 
and  not  to  comi^erce.  At  t^age  82  Mr.  Justice  Sutherland  said; 


8001  -10- 


".  .  .  If  an  executed  agreeneut  to  strike,  uith  the  object  and 
effect  of  closini^  dotm  a  nine  or  a  factorjr,  by  preventing  the 
employinent  of  necessary  norloaen,  the  indirect  result  of  nhich 
is  that  the  sale  anid  shipment  of  goods  and  products  in  inter- 
state comiaerce  is  prevented  or  diminished,  is  not  an  unlaTTf'al. 
restraint  of  such  commerce,  it  carjiot  consistently  te  held 
othernise  in  respect  of  an  agreement  and  comhination  of  employers 
or  others  to  frustrate  a  strike  and  defeat  the  strikers  "by 
keeping  essential  domestic  "building  materials  out  of  their 
hands  and  the  hands  of  their  sympathizers,  "because  the  means 
employed,  whether  laviful  or  unlarful,  produce  a  like  indirect 
result.  The  alleged  conspiracy  and  the  acts  here  complained 
of,  spent  their  intended  and  direct  force  upon  a  local  situation, 
for  "building  is  as  essentially  local  as  mining,  manufacturing 
or  growing  crops,  and  if,  "by  a  diminution  of  the  commercial 
demand,  interstate  trade  was  curtailed  either  generally  or  in 
specific  instajices,  tha.t  was  a  fortuitous  consequence  so  re- 
mote and  indirect  as  plainly  to  cause  it  to  fall  outside  the 
reach  of  the  Sherman  Act," 

In  Coronado  Coal  Co.  v.  United  liine  Workers  of  America  268  U.S.  295 
(1925)  plaintiff  "brought  an  action  for  damages  caused  "by  an  alleged  conspiracy 
of  the  defendants  to  prevent  plaintiff's  interstate  trade  in  coal  in  violation 
of  the  Sherman  Act.  The  evidence  was  clear  tha.t  union  miners  had  destroyed 
valua"ble  mining  properties  of  the  plaintiff's  in  the  midst  of  la"bor  diffi- 
culties occasioned  "by  the  "breach  of  a  union  contract  and  the  determination  to 
operate  with  nonunion  la"bor.  Hhen  the  action  first  came  to  the  S-apreme  Court 
the  court  fo\md  evidence  showing  that  certain  unions  and  their  officers  had 
engaged  in  the  conspiracy  and  destruction  of  the  property,  ""but  not  enough  to 
show  an  intentional  restraint  of  interstate  trade  and  a  violation  of  the  Anti- 
Trust  Act."  Upon  the  second  trial  additional  evidence  was  introduced  hj   the 
plaintiffs,  which  the  court  in  the  present  case  fovind  sufficient  to  supply  the 
element  of  intention.  The  court  concluded  that  the  o"bject  of  the  defendant 
was  to  prevent  the  shipping  of  plaintiff's  coal  to  other  states,  where  it 
would  compete  with  coal  originating  from  union  mines,  a.nd  tend  to  destroy 
maintenance  of  wages  for  union  la"bor  in  competing  mines.  At  page  510  Chief 
Justice  Taft  declared: 

"The  mere  reduction  in  the  supply  of  an  article  to  "be  shipped 
in  interstate  commerce  "by  the  illegal  or  tortious  prevention 
of  its  manufacture  or  production  is  ordinarily  an  indirect 
and  remote  o"bstruction  to  that  commerce.  But  when  the  intent 
of  those  unlawfully  preventing  the  manufacture  or  production 
is  shown  to  "be  to  restrain  or  control  the  su-oply  entering  and 
moving  in  interstate  commerce,  or  the  price  of  it  in  inter- 
state markets,  their  action  is  a  direct  violation  of  the 
Anti-Trast  Act." 

(3)  Advertising  Cases, 

In  Blumenstock  Bros.  Advertising  Agency  v.  Curtis  Pu"blishing  Co..  252  U.S. 
436  (1920)  the  action  was  to  recover  tre"ble  damages  under  section  7  of  the 
Sherman  Act.   Plaintiff  alleged  that  the  defendant  refused  to  accept  advertising 
matter  offered  "by  the  plaintiff  unless  the  plaintiff,  and  other  advertising 
agencies,  would  agree  to  limit  the  amount  of  advertising  given  "by  the  plaintiff 
and  other  agencies  to  the  pu"blishers  of  other  pu"blications,  with  the  intent  of 

8001  -11- 


acquiring  a  nonopoly  of  the  pii'blication  of  advertising;  natter  in  a  restricted 
field.  The  court  drew  a  distinction  between  the  execution  of  contracts  l)e- 
tueen  plaintiff  and  defendant,  and  the  actual  distribution  of  defendant's 
publications  throui^hout  the  country.  At  page  442  Justice  Da,y  said: 

"...  In  the  present  case,  treating  the  allegations  of  the 
conplaint  as  true,  the  subject-matter  dealt  uith  iras  the  mak- 
ing of  contracts  for  the  insertion  of  advertising  natter  in 
certain  periodicals  belonging  to  the  defendant.   It  ms.y  be 
conceded  that  the  circulation  and  distribution  of  such  publi- 
cations throughout  the  coimtry  ^?ould  amount  to  interstate 
connerce,  but  the  circulation  of  these  periodicals  did  not 
depend  upon  or  have  any  direct  relation  to  the  advertising 
contracts  T7hich  the  plaintiff  offered  and  the  defendant  refused 
to  receive  except  upon  the  terms  stated  in  the  declaration. 
The  advertising  contracts  d.id  not  involve  aay  movement  of  goods 
or  merchand-ise  in  interstate  commerce,  or  any  transmission  of 
intelligence  in  such  comraerce, 

"This  case  is  wholly  unliire  International  Textbook  Co.  v.  Pigg, 
217  U.S.  91,  30  S.  Ct.  481,  wherein  there  was  a  continuous 
interstate  traffic  in  textbooks  and  apparatus  for  a  course  of 
study  pursued  by  means  of  correspondence,  and  the  movements  in 
interstate  commerce  were  held  to  bring  the  subject-matter  with- 
in the  domain  of  federal  control,  and  to  exempt  it  from  the 
burden  imposed  by  state  legislation," 

In  Hsmsey  Co.  v.  Associated  Bill  Posters.  260  U.  S.  501  (1923),  competing 
billposters  in  the  United.  States  and  Canada  entered  into  a  combination  to 
monopolize  the  business  in  their  respective  localities.  Membership  was  re- 
stricted in  a  single  billposter  in  each  cit;^  and  members  were  forbidden  to 
compete  with  each  other.  Funds  were  furnished  to  members  for  the  pujrpose  of 
burring  oiit  competitors;  members  were  prohibited  from  accepting  vrork  from  an 
advertiser  who  gave  business  to  a  non-member;  a  schedule  of  prices  was  fixed; 
members  were  forbidden  to  accept  T.'ork  from  anyone  except  tv;elve  licensed 
solicitors  (agents  for  advertisers),  who  were  prohibited  from  patronizing 
non-members  in  the  localities  represented  by  miembers;  and  nantT-facturers  were 
prevented,  by  threats  of  withdrawal  of  patronage,  from  furnishing  posters, 
except  at  prohibitive  terms,  to  independent  billposters  or  to  advertisers 
doing  business  with  independents.  By  these  tactics  the  combination  grew  in 
power  until  it  attained  a  virtual  monopoly.   This  was  a  suit  for  treble 
damages  under  the  Sherman  Act  hy   plaintiffs,  solicitors  whose  licenses  had 
been  cancelled  by  the  combination,  with  a  resulting  hea.v^r   loss  of  business. 
But  the  lower  court  held  that  the  posting  by  the  billposter  was  a  purely 
local  service  merely  incidental  to  interstate  commerce.  The  Supreme  Court, 
however,  disagreed,  saying  at  page  511: 

"We  cannot  accept  this  view.  The  alleged  combination  is 
nation-wide;  members  of  the  Association  are  boiind  by  agree- 
ment to  pursue  a  certain  course  of  biisiness,  designed  and 
probably  adequate  materially  to  interfere  with  the  free 
flow  of  commerce  among  the  States  and  with  Canada.  As  a 
direct  result  of  the  defendants'  joint  acts  plaintiffs' 
interstate  aind  foreign  business  has  been  greatly  limited 
or  destroyed.  Ilopl'ins  v.  United  States  is  not  applicable. 

8001  -12- 


There   .    .    .    the   .    .    .  practices  of  the  Association  directly 
affected  local  "business  only." 

« 

(4)  DistriMtion  of  Merchandise. 

In  Federal  Trade  Connission  v.  Pacific  States  Pa-per  Trade  Association, 
273  U.  S.  52  (1927)  local  paper  trade  associations  fixed  and  enforced  -unifonn 
prices  to  he  charged  oy  memhers  in  intrastate  sales.   In  making  sales  in 
other  states,  the  salesmen  of  each  menher  hahitually  quoted  prices  from  the 
same  lists  which  aioplied  to  local'  sales.   The  court  held  that  it  was  unneces- 
sary to  show  a  definite  agreement  to  fix  prices  in  interstate  trade  in  order 
to  find  a  violation  of  the  Sherman  Act.  A  paragraph  of  the  Commission's 
order  prohihited  the  execution  or  performance  of  agreements  fixing  prices  on 
mill  shi-oraents  when  the  paper  sold  was  shipped  from  outside  of  the  state 
where  the  wholesaler  was  located.  The  court  pointed  out  that  such  a  trans- 
action involved  two  contracts,  the  first  for  sale  and  delivery  hy  the  whole- 
saler and  retailer  in  the  same  state,  in  which  the  price  was  fixed  "by  the 
local  association,  and  the  second  hetween  the  wholesaler  and  manufacturer  in 
different  states.  The  Commission's  order  implied  that  the  sale  hy  the  whole- 
saler to  the  retailer  in  the  same  state  was  a  part  of  interstate  commerce 
where  the  seller  performed  his  contract  oy  procuring  shipment  from  a  mill  in 
another  state  to  the  retailer.  This  finding  the  court  approved,  saying  at 
page  61: 

"...  The  election  of  the  seller  to  have  the  shipment  made  from 
a  mill  outside  the  State  malces  the  transaction  one  in  commerce 
among  the  States.  And  on  these  facts  the  sale  by  johher  to  re- 
-  tailer  is  a  part  of  that  commerce." 

In  Local  167  etc.  v.  United  States,  291  U.  S.  293  (1934),  the  United 
States  "brought  a  suit  to  enjoin  a  conspiracj'-  to  restrain  and  monopolize  in- 
terstate commerce  in  poultry  in  the  New  York  City  area.  Practically  all  the 
poultry  came  from  other  States  than  New  York  to  teminals  in  iianhattaii  and 
Jersey  City.  Poiiltry  was  shipped  to  receivers  who  were  paid  a  commission  "by 
the  shippers.   The  receivers  sold  to  market  men  who  acted  as  wholesalers  and 
sold  to  the  retailers,  who  supplied  the  ultimate  consumers.   The  marketmen 
organized  a  so-called  chamber  of  commerce,  allocated  retailers  among  them- 
selves and  raised  prices  hy  concerted  efforts.   The  chamber  of  commerce  and 
individual  conspirators  hired  men  to  obstruct  the  business  of  non- conforming 
dealers;  in  order  to  force  compliance  they  employed  violence  and  attempted  to 
prevent  recalcitrant  dealers,  wholesalers  and  retailers  from  obtaining  poultry. 
Members  of  the  trucking  union  which  transported  the  poultry  refused  to  handle 
the  business  of  recalcitrant  market  men  and  members  of  the  slaughters'  union, 
who  were  also  in  the  conspiracy,  refused  to  slaughter.   Several  of  the  con- 
spirators appealed  from  a  lower  court's  decision  granting  the  injunction,  on 
the  ground  that  they  did  not  intend  to  restrain,  nor  did  they  interfere  with 
interstate  commerce.   The  Circuit  Court  of  Appeals  refused  to  accept  this  con- 
tention, pointing  out  tliat  interstate  commerce  did  not  end  with  delivery  of 
the  poultry/  to  the  receivers.  Judge  Swan  remarked  that  tlie  receivers  "were 
merely  a  conduit  through  which  flowed  the  daily  stream  of  commerce  from  ship- 
pers to  market  men".  Upon  appeal  to  the  Supreme  Court  the  decision  was 
affirmed.  Justice  Bixtler,  spealcing  for  the  Court,  refused  to  draw  a  line  at 
which  interstate  commerce,  and  the  jurisdiction  of  the  Court  to  prevent  a 
restraint  upon  that  commerce,  came  to  an  end.  At  page  297  of  291  U.  S.  he  de- 
clared: 

8001  -^2- 


"The  evidence  shows  that  they  and  other  defendants  conspired  to 
"burden  the  free  movement  of  live  po-oltry  into  the  metropolitan 
area.   It  may  he  ass-omed  that  some  time  after  delivery  of  carload 
lots  hy  interstate  carriers  to  the  receivers  the  movement  of  the 
poultry  ceases  to  be  interstate  commerce.  Public  Utilities 
Comm'n  v,  Landon,  249  U.  S.  236,  245.  Missouri  v.  Kansas  Gas  Co, 
265  U.  S.  298,  309,  East  Ohio  Gas  Co.  v.  Tax  Comm'n,  283  U.  S. 
465,  470-471.  But  we  need  not  decide  when  interstate  commerce 
ends  and  that  which  is  intrastate  "begins.   The  control  of  the 
handling,  the  sales  and  the  prices  at  the  place  of  origin  "be- 
fore the  interstate  jo\irney  "begins  or  in  the  State  of  destina- 
tion where  the  interstate  movement  ends  may  operate  directly  to 
restrain  and  monopolize  interstate  commerce, 

"And,  maintaining  that  interstate  commerce  ended  with  the  sales 
"by  receivers  to  marlcetmen,  appellants  insist  that  the  injimction 
should  only  prevent  acts  that  restrain  commerce  up  to  that  point. 
But  intrastate  acts  will  "be  enjoined  whenever  necessary  or  appro- 
priate for  the  protection  of  interstate  commerce  against  any 
restraint  denounced  "by  the  Act.  Bedford  Co.  v.  Stone  Cutters 
Ass'n  u"bi  supra.   Gompers  v.  Bucks  Stove  &  Range  Co.  ,  221  "J.  S. 
418,  438.   In  this  case  the  evidence  fully  sustains  the  decree," 

This  decision  was  explained  in  Schechter  Foultr}/  Corporation  v.  "United 
States.  55  S.  Ct.  837,  850  (1935)  by  I.lr.  Justice  Hughes,  in  these  words; 

"The  intrastate  acts  of  the  conspirators  were  included  in  the  in- 
junction because  that  wa.s  found  to  be  necessary  for  the  protec- 
tion of  interstate  commerce  against  the  attempted  and  illegal 
restraint.  '• 

In  the  interstate  commerce  cases  under  the  Anti-Trust  Acts,  the  courts 
will  refuse  to  act  unless  they  find  the  existence  of  (l)  commerce,  (2)  which 
is  interstate,  and  (3)  which  is  subjected  to  a  direct  restraint.   The  Courts 
are  more  likely  to  find  that  a  transaction  involving  the  movement  of  tangi- 
ble goods  is  interstate  commerce  than  one  which  involves  primarily  intangi- 
ble elements.  Ordinarily,  the  courts  will  decline  to  accept  jurisdiction 
where  the  restraint  takes  place  before  interstate  commerce  has  begun,  or 
after  it  has  come  to  an  end.  But  in  the  labor  cases,  where  ordinarily  the 
strike  or  other  disturbances  takes  place  before  the  goods  have  commenced  to 
move  in  interstate  commerce,  the  Supreme  Court  has  applied  the  criterion  of 
intent.   If  it  finds  an  intent  to  restrain  commerce,  the  conspiracy  or  com- 
bination will  be  held  -unlawful.  But,  as  Chief  Justice  Hughes  stated  in  the 
Schechter  case,  supra,  at  page  850,  "Where  that  intent  is  absent,  and  the 
objectives  are  limited  to  intrastate  activities,  the  fact  that  there  may  be 
an  indirect  effect  upon  interstate  commerce  does  not  subject  the  parties  to 
the  federal  statute,  notwithstanding  its  broad  provisions. "  However,  the 
court  has  declared  in  the  Lpcal  167  decision  that  it  will  enjoin  intrastate 
activities  if  that  becomes  necessary  to  malce  the  prohibition  of  a  restraint 
upon  interstate  commerce  effective, 

II.   Trade  Associations  and  Excha.nges. 

(1)  Maintenance  of  Traditional  Channels  of  Distribution. 

8001  -14- 


In  Eastern  States  Retail  LiJinber  Sealers  Association  v.  United  States, 
234  U.  S.  600  (1914)  the  defendant  association  issued  to  its  members,  re- 
tail lumber  dealers,  blacklists  containing  the  names  of  v/holesalers  who 
sold  directly  to  consumers.   These  activities  were  enjoined  as  a  conspir- 
acy in  violation  of  the  Sherman  Act,  the  Court  saying  at  page  608-609, 
611-612,  614: 

"True  it  is  that  there  is  no  agreement  among  the  retailers  to 
refrain  from  dealing  with  listed  wholesalers,  nor  is  there  any 
penalty  annexed  for  the  failure  so  to  do;  but  he  is  blind  in- 
deed who  does  not  see  the  purpose  in  the  predetermined  and  per- 
iodical circulation  of  this  report  to  put  the  ban  upon  whole- 
sale dealers  whose  names  appear  in  the  list  of  unfair  dealers 
trying  by  methods  obnoxious  to  the  retail  dealers  to  supply  the 
trade  which  they  regard  as  their  own, 
•  ••«•••••••■•••••••••••■•••••••• 

"But  it  is  said  that  in  order  to  show  a  combination  or  conspir- 
acy within  the  Sherman  Act  some  agreement  must  be  shown  under 
which  the  concerted  action  is  taken.   It  is  elementary,  however, 
that  conspiracies  are  seldom  capable  of  proof  by  direct  testi- 
mony, and  may  be  inferred  from  the  things  actually  done;  and 
when,  as  in  this  case,  by  concerted  action  the  names  of  whole- 
salers who  were  reported  as  having  made  sales  to  consumers  were 
periodically  reported  to  the  other  members  of  the  association, 
the  conspiracy  to  accomplish  that  which  was  the  natural  conse- 
quence of  such  action  may  be  readily  inferred, 

"The  circulation  of  these  reports  not  only  tends  to  directly 
restrain  the  freedon  of  coniaerce  b^''  preventing  the  listed  deal- 
ers from  entering  into  competition  with  retailers,  as  was  held 
by  the  district  court,  but  it  directly  tends  to  prevent  other 
retailers  who  have  no  personal  grievances  against  him,  and  with 
whom  he  might  trade,  from  so  doing,  they  being  deterred  solely 
because  of  the  influence  of  the  report  circulated  among  the 
members  of  the  associations. 

"A  retail  dealer  has  the  unquestioned  right  to  stop  dealing  with 
a  wholesaler  for  reasons  sufficient  to  himself,  and  may  do  so 
because  he  thinlis  such  dealer  is  acting  unfairly  in  trying  to 
undermine  his  trade.   'But' ,  as  was  said  by  Mr,  Justice  Lurton, 
speaking  for  the  court  in  Granada  Lumber  Co,  v.  Mississippi, 
217  U.  S,  4-33,  54  L,  ed,  826,  30  Sup.  Ct.  Rep.  535,  'when  the 
plaintiffs  in  error  combine  and  agree  that  no  one  of  them  will 
trade  with  any  producer  or  wholesaler  who  shall  sell  to  a  con- 
sumer within  the  trade  range  of  anj   of  them,  quite  another  case 
is  presented.  An  act  harmless  when  done  by  one  may  become  a 
public  wrong  when  done  by  many  acting  in  concert,  for  it  then 
ta!ies  the  form  of  a  conspiracy,  and  may  be  prohibited  or  pun- 
ished, if  the  result  be  hurtful  to  the  public  or  to  the  indivi- 
dual against  whom  the  concerted  action  is  directed,'" 

(2)  Exclusion  from  the  market:  Boycotts, 

In  Monta;3ue  fe  Co,  v.  Lowry,  193  U.  S.  38  (1904)  an  association  of  man- 
ufacturers and  wholesale  dealers  in  tile  operated  under  rules  whereby  deal- 
ers agreed  not  to  purchase  from  manufacturers  who  were  not  members  of  the 

8001  -15- 


association,  and  not  to  sell  tile  to  non-members  for  less  than  "list" 
prices  which  were  50'fo   higher  than  prices  to  members;  while  the  manufac- 
turers a.greed  not  to  sell  to  non-members  at  any  price.   The  Court  held 
that  the  association  was  a  combination  in  restraint  of  trade  under  the 
Sherman  Act,  and  said  at  page  45; 

"    The  agreement,  therefore,  restrained  trade,  for  it  nar- 
rovred  the  market  for  the  sale  of  tile  in  California  from  the 
manufacturers  and  dealers  therein  in  other  states,  so  that 
they  could  only  be  sold  to  the  members  of  the  associations, 
and  it  enhanced  prices  to  the  non-member  as  already  stated," 

In  Standard  Sanitary  Manufact\xring  Co.  v.  United  States,  226  U.  S, 
20  (1912)  a  license  to  manufacture  enameled  iron  ware  under  certain 
patents  was  granted  to  85^  of  the  manufacturers  in  the  industry,  under 
agreements  whereby  prices  were  to  be  fixed  by  a  committee,  rebates  of 
royalties  were  to  be  given  to  those  who  observed  the  agreement,  sales 
were  to  be  made  only  to  jobbers  within  the  combination,  and  the  jobbers, 
90Jo  of  which  entered  into  the  agreement,  bound  themselves  to  observe  re- 
sale prices  fixed  by  the  manufacturers.   The  Court  held  that  this  arrange- 
ment exceeded  privileges  granted  by  the  patent  lav;s  and  was  a  combination 
in  restraint  of  trade  under  the  Sherman  Act, 

Ramsay  Co.  v.  Associated  Bill  Posters,  260  U.  S.  501  (1923)  was  a  suit 
for  treble  damages  -under  the  Sherman  Act.  A  great  many  bill  posters  in  the 
United  States  and  Canada  entered  into  an  arrangement  to  control  the  business. 
Only  a  single  bill  poster  in  each  city  was  permitted  to  enter  the  combina- 
tion, and  members  of  the  association  agreed  to  suppress  competition  among 
themselves.   The  association  assisted  members  in  buying  out  competitors;  it 
fixed  the  schedule  of  prices  to  which  members  were  to  adhere;  the  members  of 
the  association  boycotted  advertisers  who  dealt  with  non-members.  Further- 
more, the  members  agreed  to  accept  business  only  from  twelve  licensed  soli- 
citors (agents  for  advertisers),  who  were  forbidden  to  deal  with  non-members 
in  the  localities  in  which  members  did  business;  and  manufacturers  were  pur- 
suied,  by  threats  of  boycott,  not  to  furnish  posters  to  independent  bill 
posters  or  to  advertisers  dealing  with  independents.   The  association  in  time 
became  almost  a  monopoly.   Plaintiffs  were  solicitors  who  had  lost  business 
when  their  licenses  had  for  some  reason  been  cancelled  by  the  association. 
The  Court  declared  at  page  511: 

"The  purpose  of  the  combination  here  challenged  is  to  destroy  com- 
petition and  secure  a  monopoly  by  limiting  and  restricting  commerce 
in  posters  to  channels  dictated  by  the  confederates,  to  exclude  from 
such  trade  the  undesired,  including  the  plaintiffs,  and  to  enrich  the 
members  by  demanding  non-competitive  prices.   The  allegations  clear- 
ly show  the  result  has  been  as  designed,  the  the  statiite  has  "oeen   vio- 
lated and  plaintiffs'  business  has  suffered." 

In  Binderup  v.  Fathe  Exchange,  Inc.,  supra,  plaintiff  alleged  that  defen- 
dant distributors  sought  to  drive  him  out  of  business  by  refusing  to  sujpply 
him  with  films.  At  pages  311-312  the  Court  said: 

"***** It  is  difficult  to  imagine  ho?/  interstate  trade  could  be  more 
effectively  restrained  than  by  suppressing  it  and  that,  in  effect, 
as  far  as  the  exhibitor  is  concerned,  is  what  the  distributors  in 

8001  -16- 


comlDination  are  charged  with  doing  and  intending  to  do.   It  is  douht- 
less  true  that  each  of  the  distributors,  acting  separately,  co-old 
have  refused  to  furnish  films  to  the  exhibitor  without  becoming 
amenable  to  the  provisions  of  the  act,  but  here  it  is  alleged  ths-t 
they  combined  and  conspired  together  to  prevent  him  from  leasing 
from  any  of  them.   The  illegality  consists,  not  in  the  separate  ac- 
tion of  each,  but  in  the  conspiracy  and  combination  of  all  to  pre- 
vent any  of  them  from  dealing  with  the  exhibitor.  ***The  alleged 
purjDOse  and  direct  effect  of  the  combination  and  conspiracy  was  to 
put  an  end  to  these  contracts  and  future  business  of  the  same  char- 
acter and  'restrict,  in  that  regard,  the  liberty  of  a  trader  to 
engage  in  business*.   Loewe  v,  Lawlor,  208  U.  S.  274,  293,  and  as 
a  necessary  corollary,  to  restrain  interstate  trade  and  commerce,  in 
violation  of  the  Anti-Trust  Act," 

At  common  law,  a  trade  boycott  was  lawful  if  conducted  for  a  "legitimate" 
purpose.  The  purpose  of  maintaining  the  traditional  channels  of  trade  distri- 
bution, as  in  the  Retail  Lumber  case,  or  of  destroying  the  business  of  others 
in  order  to  secui'e  it  for  the  boycotters,  as  in  the  Binderup  case,  wou.ld  prob- 
abljr  be  considered  "legitimate"  by  most  state  courts  at  common  law,  or  even 
under  state  anti-trust  laws.  But  the  Supreme  Court  has  forcefully  condemned 
the  boycott,  except  perhaps  in  certain  labor  cases,  as  a  violation  of  the 
Sherman  Law, 

(3)  Price-Fixing, 

Abundant  precedent  exists  in  the  Suprerae  Court  decisions  concerning 
agreements  to  fix  prices.   The  first  such  agreement  which  came  before  the  court 
was  construed  in  United  States  v.  Trans-Iviissouri  Freight  Association,  166 
U.  S.  290  (1897).   In  that  case  a  committee,  selected  from  the  members  of  the 
defendant  association,  fixed  rates  to  be  cliarged  by  the  member  railroad  com- 
panies.  The  court  held  that  the  Sherman  Act  made  illegal  all  agreements 
which  eliminated  price  competition  by  the  competitors,  and  not  merely  unrea^ 
sonable  restraints.   It  declared  at  p.  341; 

"   The  agreement  on  its  face  recites  that  it  is  entered  into 
'for  the  pujrpose  of  mutual  protection  by  establishing  and  maintain- 
ing reasonable  rates,  rules,  and  regulations  on  all  freight  traffic, 
both  through  and  local,'   To  that  end  the  association  is  formed  and 
a  body  created  which  is  to  adopt  rates,  which,  when  agreed  to,  are 
to  be  the  governing  rates  for  all  the  companies,  and  a  violation  of 
which  subjects  the  defaulting  company  to  the  payment  of  a  penalty, 
and  although  the  parties  liave  a  right  to  withdraw  from  the  agreement 
on  giving  thirty  days'  notice  of  a  desire  so  to  do,  yet  while  in 
force  and  assuming  it  to  be  lived  up  to,  there  can  be  no  doubt  that 
its  direct,  immediate,  and  necessary  effect  is  to  put  a  restraint 
upon  trade  or  commerce  as  described  in  the  act." 

A  later  case  with  virtually  identical  facts  and  decision  is  United 
States  V,  Joint  Traffic  Association,  171  U.  S.  505  (1898). 

In  Addyston  Pipe  &  Steel  Co.  v.  United  States,  175  U.  S.  211  (1899),  an 
association  of  manufacturers  of  iron  pipe  and  other  products  formed  a  market- 
ing arrangement  whereby  most  of  the  United  States  east  of  the  Mississippi  was 
divided  up  among  the  defendant  members.   Requests  for  bids  for  consumers  to 
any  member  were  sent  to  a  committee  of  the  association  which  fixed  a  price, 

8001  -17- 


/•"        i 


and  the  contract  was  then  awarded  to  that  rr.era'ber  who  offered  to  pay  the 
largest  bonus  into  the  pool.   Certain  cities  were  reserved  to  partic-ular 
memhers,  and  when  a  request  for  a  hid  came  from  any  of  these  cities  the 
association  determined  the  price  and  the  honus  to  he  paid  hy  the  hidder  to 
whom  the  city  was  reserved.  At  public  auctions  menhers  of  the  association 
entered  hids  Higher  than  that  of  the  prearranged  hidder.   The  Court  held  that 
the  comhination  was  a  conspiracy  which  violated  the  Sherman  Act.   There  vras, 
of  course,  not  the  slightest  douht  that  the  association  was  able  to  fix 
prices. 

In  Swift  &  Co.  V.  United  States,  196  U.  S.  375  (1905)  a  dominant  pro- 
portion of  independent  dealers  in  fresh  meat  throughout  the  United  States 
combined  not  to  bid  against  each  other  in  the  live  stock  markets  of  the  dif- 
ferent states,  to  bid  up  prices  for  a  few  days  in  order  to  induce  the  cattle 
men  to  send  their  stock  to  the  stockyards,  to  fix  prices  at  which  they  would 
sell,  and  to  maintain  them  by  restricting  shipments  of  meat.   The  Court 
found  a  conspiracy  in  restraint  of  trade  under  the  Sherman  Act, 

In  Thomsen  v.  Cayser ,  243  U.  S.  66  (1917)  foreign  owners  of  steamship 
lines  operating  between  New  York  and  South  Africa  formed  a  combination  to  end 
rate  competition  between  themselves.   They  adopted  uniform  rates  from  which 
they  allowed  a  lOfo  rebate  to  those  who  shipped  exclusively  on  the  vessels  of 
the  combination.   They  also  employed  "fighting  ships"  in  order  to  drive  compe- 
titors out  of  the  trade.   In  a  suit  for  damages  by  a  shipper  who  complained  of 
the  unreasonable  rates,  the  Supreme  Court  held  the  combination  an  unlawfriJ. 
restraint  of  trade,  and  said  at  page  87: 

"   That  the  combination  was  intended  to  prevent  the  competition 
of  the  lines  which  formed  it  is  testified*  and  it  ten  not  be  justi- 
fied by  the  conjectures  offered  by  counsel;  nor  can  we  say  that  the 
success  of  the  trade  required  a  constraint  upon  shippers  or  the  em- 
ployment of  'fighting  ships'  to  kill  off  competing  vessels  which, 
tempted  by  the  profits  of  the  trade,  used  the  free  and  unfixed 
courses  of  the  seas,  to  paraphrase  the  language  of  counsel,  to 
break  in  upon  defendants'  monopoly.  And  monopoly  it  was;  shippers 
constrained  by  their  necessities,  competitors  kept  off  by  the 
'fighting  ships'". 

In  Board  of  Trade  v.  United  States,  246  U.  S.  231  (1918),  the  Supreme 
Court  held  that  the  Sherman  Act  was  not  violated  by  a  rule  of  the  Chicago 
Board  of  Trade  which  prohibited  its  members  from  purchasing  during  the  period 
between  the  close  of  its  "Call"  session  and  the  opening  of  the  session  on 
the  next  business  day,  any  grain  "to  arrive"  at  a  price  other  than  the  clos- 
ing bid  at  the  Call.   Justice  Brandeis  pointed  out  that  the  rule  helped  to 
improve  market  conditions  in  several  respects,  and  said  at  p.  240; 

"As  it  applies  to  only  a  small  part  of  the  grain  shipped  to  Chicago, 
and  to  that  only  during  a  part  of  the  business  day,  and  does  not 
apply  at  all  to  grain  shipped  to  other  markets,  the  rule  had  no  appre- 
ciable effect  on  general  market  prices;  nor  did  it  materially  affect 
the  total  volume  of  grain  coming  to  Chicago." 

In  Federal  Trade  Commission  v.  Pacific  States  Paper  Trade  Association, 
273  U.  S.  52  (1927)  local  paper  trade  associations  fixed  and  enforced  uni- 
form prices  to  be  charged  by  members  in  intrastate  sales.   In  malcing  sales 
in  other  states,  the  salesmen  of  each  member  habitually  quoted  prices  from 

8001  -18- 


the  same  lists  which  applied  to  local  sales.  The  Court  held  that  It  was  \u>. 
necessary  to  show  a  definite  agreement  to  fix  prices  in  order  to  find  a  vio- 
lation of  the  Sherman  Act,  and  said  at  p,  62; 

"   The  fast  that  there  is  no  established  rule  that  the  lists 
shall  be  followed  in  talcing  orders  for  interstate  shipments  or  that 
the  quoting  of  lower  prices  is  an  infraction  for  which  complaint  may 
he  made  is  not  controlling  in  favor  of  respondents.  An  understanding, 
express  or  tacit,  that  the  agreed  prices  will  "be  followed  is^  enough 
to  constitute  a  transgression  of  the  law.   No  provision  to  compel  ad*» 
herence  is  necessary". 

The  issue  of  price  fixing  as  a  violation  of  the  Sherman  Act  is  most 
strikingly  presented  "by  two  recent  Supreme  Court  cases,  Trenton  Potteries  Co, 
V.  United  States,  273  U.  S.  392  (1927),  and  Appalachian  Coals,  Inc,  v.  United 
States.  288  U.  S.  344  (1933).   In  the  Trenton  Potteries  Case  an  agreement 
between  companies  manufacturing  82^  of  the  pottery  produced  in  the  United 
States  to  fix  and  maintain  uniform  prices  was  held  to  violate  the  Sherman  Act 
whether  the  prices  in  themselves  were  reasonable  or  unreasonable.  The  lan- 
guage of  Mr,  Justice  Stone  at  pp.  396-398  is  the  most  clear-cut  and  positive 
expression  of  the  judicial  attitude  toward  price  fixing  agreements; 

"That  only  those  restraints  upon  interstate  commerce  which  are 
unreasonable  are  prohibited  by  the  Sherman  Law  was  the  rule  laid 
down  by  the  opinions  of  this  Court  in  the  Standard  Oil  and  Tobacco 
cases.   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  exchanging  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  Lav?  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  can  not  be 
doubted  that  the  Sherman  Law  and  the  judicial  decisions  interpreting 
it  are  based  upon  the  assumption  that  the  public  interest  is  best 
protected  from  the  evils  of  monopoly  and  price  control  by  the  maia- 
tenance  of  competition. 

"The  aim  and  result  of  every  price-fixing  agreement,  if  effective, 
is  the  elimination  of  one  form  of  competition.   The  power  to  fix 
prices,  whether  reasonably  exercised  or  not,  involves  power  to  con^ 
trol  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  established,  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  -un- 
reasonable or  unlawful  restraints,  without  the  necessity  of  minute 
inquiry  whether  a  particular  price  is  reasonable  or  unreasonable  as 
fixed  and  witliout  pXacin^  on  tHe  sovomment  in  enforcing  ihe  Sh£>nnaja 

8001  -19- 


Laxi   the  ■burden  of  ascertaining  from  day  to  day  whether  it  has  "be- 
corae  -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  be- 
tween 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  com- 
plete survey  of  our  economic  organization  and  a  choice  between 
rival  philosophies," 

In  the  Appalachian  Case  competing  'producers  of  bituminous  coal  in  the 
so-called  Appalachian  territory  formed  a  corporation  to  act  as  their  exclu- 
sive selling  agent,  with  authority  to  determine  the  prices  at  which  the  coal 
mined  by  the  individual  member  corporations  was  to  be  sold.   The  producers 
controlled  73fo   of  the  commercial  production  in  the  immediate  region  where  they 
mined,  but  only  12^  of  the  total  production  east  of  the  Mississippi  River, 
The  Court  refused  to  enjoin  the  combination  as  a  violation  of  the  Sherman 
Act,  on  the  ground  that  the  restraint  upon  competition  was,  in  the  circiijn- 
stances  of  the  industry,  reasonable.   The  Court  emphasized  that  the  question 
of  the  application  of  the  statute  must  be  determined  by  "a  close  and  ob- 
jective scrutiny  of  particular  conditions."  It  then  described  the  grave 
economic  conditions  with  which  the  industry  was  beset,  because  of  over-ex- 
pansion and  overcapitalization,  diminishing  consumption  resulting  from  the 
use  of  substitute  fuels,  organized  bu^-ing  and  detrimental  marketing  prac- 
tices. The  Court  emphasized  the  fact  that  the  coal  produced  by  members  of 
the  combination  was  sold  in  competitive  markets,  and  that  a  vast  volu:ie  of 
other  coal  was  actually  and  potentially  available.   In  view  of  these  condi- 
tions it  found  that  the  elimination  of  price  competition  between  members  of 
the  corporation  did  not  constitute  a  violation  of  the  anti-trust  laws,  serf" 
ing,  significantly,  at  p.  373; 

".  .  .  ,  But  the  facts  found  do  not  establish,  and  the  evidence 
fails  to  show,  that  any  effect  will  be  produced  which  in  the  cir- 
cumstances of  this  industry  will  be  detrimental  to  fair  competi- 
tion^~,    ',    "  (Underscoring  supplied) . 

The  pronouncement  of  the  Supreme  Court  in  the  Appalachian  Case  is  not 
necessarily,  or  even  reasonabljr,  in  conflict  with  its  language  in  the  Trenton- 
Potteries  Case.   The  Court  realized  that  in  upholding  the  validity  of  an 
arrangement  whereby  price  competition  was  eliminated  throu-h  the  instrumen- 
tality of  an  exclusive  sales  agent  it  was  departing  from  a  uniform  precedent 
of  the  past.   See  Continental  Wall  Paper  Co.  v.  Voight  &  Sons  Co.,  212  U.  S. 
227  (1909),   The  decision  was  principally  motivated,  of  course,  by  the  dis- 
organized condition  of  the  industry.   Upon  a  close  examination  of  the  facts 
the  Court  decided  that  the  partial  elimination  of  competition  exerted  only  a 
slight,  and  in  the  circumstances,  a  reasonable  effect  upon  consumers.   In 
even  going  thus  far  the  Court  cautiously  instructed  the  District  Court  to  re- 
tain jurisdiction  of  the  cause,  and  gave  it  authority  to  "set  aside  the  de- 
cree and  take  f-urther  proceedings  if  futiire  developments  justify  that  course 
in  the  appropriate  enforcement  of  the  Anti-Trust  Act."  It  is  ijndoubtedl-'  pos- 
sible to  contend  that  the  Ap-palachian  Case  involved  an  "agreement  to  fix 
prices"  and  that  consequently  the  decision  is  in  conflict  with  the  positive 
language  of  the  Trenton  Potteries  Case.  But  the  agreement  is  one  to  fix 
prices  only  in  the  sense  that  the  members  of  the  combination  eliminated 
price  competition  between  themselves.   The  existence  of  other  competition 
and  sources  of  supply  precluded  any  possibility  of  imposing  upon  consumers 
prices  at  a  level  which  may  be  termed  "artificial".   The  effect  of  the  two 

8001  -20  - 


decisions,    therefore,    is  a  holding  that  an  agreement   to  fix  pricfes,   T7here 
power  exists  to  fix  -unreasonaTjle  prices,   whether  or  not   such  power  is  exer- 
cised,   is  in  violation  of  the   Sherman  Act, 

(4)  Price  Fixing  hy  Buyers. 

T'he  Sherman  Act  was  originally  aimed  at,  and  has  ordinarily  heen 
applied  to  prevent,  restraints  of  trade  accomplished  through  control  of  su'oply, 
so  that  those  purchasing  from  the  restraining  group  are  injured.  But  the 
policy  of  the  Anti-Trust  laws  requires  that  sellers  have  the  benefit  of  com- 
petition among  buyers,  as  well  as  that  buyers  have  the  benefit  of  competition 
among  sellers.  At  an  early  period  the  Supreme  Court  recognized  that  certain 
combined  activities  of  buyers  resulted  in  restraint  of  trade.  Thus  in  Swift 
&  Co,  V.  United  States,  supra,  in  addition  to  the  conspiracy  among  the  meat 
packing  companies,  as  sellers  to  raise  prices,  there  was  an  agreement  among 
the  defendants  not  to  bid  against  each  other  in  the  livestock  markets  of  the 
different  states,  to  bid  up  prices  for  a  few  days  in  order  to  induce  cattle- 
men to  send  their  stock  to  the  stock  yards,  and  thus  to  acquire  the  cattle 
upon  arrival  at  a  lower  price.   The  decree  of  the  court  enjoined  the  acti- 
vities directed  against  sellers  as  well  as  those  directed  against  buyers. 

Of  Wash  V.  United  States.  229  U.  S.  373  (1913). 

In  Live  Poultry  Dealers  Protective  Association  v.  United  States,  4  F, 
(2d)  840  (1924)  more  than  half  the  wholesale  dealers  in  live  poultry  in  the 
City  of  New  York  organized  the  corporate  defendant.   The  members  of  the  asso- 
ciation appointed  a  committee  of  seven  who  daily  negotiated  with  the  receivers 
or  commission  men,  and,  in  view  of  the  prospective  supply  and  demand,  estab- 
lished a  price  for  the  day,  which  governed  all  purchases  made  by  any  member 
of  the  association.   The  defendant  objected  to  the  petition  for  an  injunction 
on  the  ground  that  the  agreement  was  not  an  unreasonable  restraint  of  trade. 
To  this  Judge  Hand  said  at  p.  842: 

"As  to  the  second  point,  it  is  somewhat  surprising  at  this  day  to 
hear  it  suggested  that  a  frank  agreement  to  fix  prices  and  prevent 
competition  as  regards  them  among  one-half  the  buyers  in  a  given 
market  may  be  defended  on  the  motion  that  the  results  are  econ- 
omically desirable.  We  should  have  supposed  that,  if  one  thing  were 
definitely  settled,  it  was  that  the  Sherman  Act  forbade  all  agree- 
ments preventing  competition  in  price  among  a  group  of  buyers,  other- 
wise competitive,  if  they  are  numerous  enough  to  affect  the  market.  ,  " 

In  order  that  a  collective  buying  agreement  constitute  a  violation  of  the 
Sherman  Act,  the  effect  upon  the  sellers'  market  must  be  both  injurious  and 
substantial.   Thus  in  United  States  v.  Piowaty  &  Sons,  251  P.  375  (1917) 
where  members  of  the  National  Onion  Association  were  charged  with  a  conspir- 
acj'-  directed  against  sellers  the  court  dismissed  the  charges  chiefly  on  the 
gromd  that  no  shov/ing  had  been  made  as  to  the  degree  to  which  the  buying 
market  was  dominated  by  the  defendants, 

(5)  Predatory  and  Destructive  Tactics. 

In  Story  Parcliment  Company  v.  Paterson  Parcliment  Paper  Co.  ,  282  U.  S, 
555  (1931) ,  the  Supreme  Court  sustained  an  award  of  damages  against  three 
manufacturers  of  parchment  paper  which,  in  order  to  preserve  their  existing 

8001  -21- 


( 


( 


monopoly,  cut  prices  and  thus  drove  out  a  competitor  who  had  just  entered 
the  field.   This  case  merely  recognizes  the  illegality  of  predatory  price 
cutting  which  serves  to  maintain  an  existing  unlawful  monopoly.   Cf .  Thorn- 
sen  V.  Gayser,  supra, 

(6)  Price  Discrimination  and  Customer  Classification. 

The  difficulty  with  discrimination  between  customers  "by  means  of  dis- 
counts arises  from  Section  2  of  the  Clayton  Act,  which  forbids  price  discrim~ 
ination  which  substantially  injures  competitors.  Until  recently  it  seemed 
clear  that  this  section  interposed  no  objection  to  customer  classification  by 
manufacturers.   In  Mennen  Company  v.  Federal  Trade  Commission,  288  Fed.  744 
(C.  C,  A.  2d,  1923),  cert.  den.  262  U.  S.  759  (1923)  an  order  by  the  Federal 
Trade  Commission  compelling  a  manufacturer  to  allow  the  same  discount  to  co- 
operative buying  agpncjes  established  by  retailers  as  was  allowed  to  whole- 
salers, was  reversed.  The  decision  of  the  Circuit  Cotirt  of  Appeals  relies 
heavily  upon  the  right  of  a  manufacturer  to  select  his  own  customers,  and  rea- 
sons therefrom  that  he  may  allow  a,ny   discount  to  anj^  customer  which  he  finds 
desirable.  Upon  an  examination  of  the  committee  report  and  debates  in  Con- 
gress at  the  time  of  the  passage  of  the  Clayton  Act,  the  court  concluded  that 
Section  2  of  the  Clayton  Act  forbade  only  such  price  discrimination  as  tended 
to  suppress  competition  between  the  seller  and  those  who  competed  with  hin, 
and  was  not  intended  to  make  unlawful  price  discrimination  which  might  hinder 
competition  between  one  who  purchased  at  the  discriminatory  price  and  those 
who  were  in  competition  with  him.   In  National  Biscuit  Company  v.  Federal 
Trade  Commission.  299  Fed,  733  (C.  C.  A.  2d,  1924),  cert.  den.  266  U.  S,  613 
(1924)  an  order  of  the  Federal  Trade  Commission  compelling  the  Biscuit  Com- 
pany to  cease  its  practice  of  discriminating  between  chain  stores  and  cooper- 
ative buying  agencies  of  retail  stores  was  likewise  reversed.   The  National 
Biscuit  Company  employed  a  strr.ight  quantity  discount;  however,  in  calculat- 
ing the  discount  it  considered  the  chain  store  organization  as  a  unit,  but 
refused  the  combine  the  total  purchases  of  the  cooperative  retail  buying 
agency.   The  Circuit  Court  of  Appeals  declared  that  there  was  no  discrimina^ 
tion,  since  the  company  granted  a  straight  quantity  discount,  and  the  cooper- 
ative activities  of  the  retailers  were  insufficient  to  alter  the  fact  that 
the  purchases  were  really  made  by  individual  retailers.  The  court  also 
added,  however,  that  if  there  was  a  discrimination,  the  Clayton  Act  was  not 
applicable  for  the  same  reason  that  was  found  convincing  in  the  Mennen  Case, 

The  ground  upon  which  these  two  cases  rely  has  been  very  substantially 
shaken  by  a  recent  decision  of  the  Supreme  Court,   In  Van  Camp  &  Sons  Co.  v. 
American  Can  Company.  278  U.  S.  245  (1929)  petitioner  brought  a  suit  to  en- 
join violations  of  Section  2  of  the  Clayton  Act,  Defendant  company  manufac- 
tured and  sold  tin  cans  on  a  straight  quantity  basis.   It  gave,  however,  a 
secret  discount,  of  20$5  below  the  announced  standard  prices,  to  a  competitor 
of  complainant.   The  charge  was  that  this  practice  resT^Lted  in  substantially 
lessening  competition  in  the  line  of  interstate  commerce  in  which  complain- 
ant and  his  competitor  were  engaged.   The  Court  ruled  that  the  words  of  Sec- 
tion 2  of  the  Clayton  Act  "in  any  line  of  commerce"  make  unlawful  any  dis- 
crimination which  substantially  lessens  competition  not  only  between  the 
seller  and  his  competitors  but  also  between  the  buyer  and  his  competitors. 

The  Van  Camp. Case  thus  enunciates  a  rule  which  seems  diametrically  op- 
posed to  the  principle  upon  which  the  decisions  in  the  Mennen  and  the  Rational 
Biscuit  Cases  rest.   The  Supreme  Court  "diGting-uisVK^d"  the  Mennen  case  on  the 
strange  ground  that  the  daoisioa.  shoiild  not   have  relied  upon  the  add  of 

8001  -23- 


conmittee  reports  in  determining  the  meaning  of  the  Clayton  Act  because  the 
statiite  was  unambiguous.   Thus,  by  denying  certiorari  the  Supreme  Court  ap- 
proved  at  least  the  result  of  the  Mennan  and  national  Biscuit  Cases;  and  yet 
it  is  clear  from  the  Van  Camp  Case  that  the  Court  refuses  to  adhere  to  rea^ 
soning  upon  which  these  cases  are  made  to  rest. 

It  does  not  necessarily  follow  that  the  Van  Camp  decision  is  inconsis- 
tent with  the  Court's  denial  of  certiorari  in  the  two  Federal  Trade  Commis- 
sion cases.  But  many  commentators  have  seen  such  a  conflict,  and  have  con- 
cluded that  the  effect  of  the  Van  Camp  decision  is  to  call  in  question  the 
legality  of  a  sales  policy  based  upon  a  functional  classification.  For  in- 
stance, it  has  been  said: 

"However,  since  the  decision  in  the  Van  Camp  case  any  given  sales 
policy,  except  the  quantity  discount,  which  is  expressly  permitted 
irrespective  of  its  effect  on  competition,  is  subject  to  judicial 
inquirj?-  to  determine  whether  or  not  it  substantially  lessens  compe- 
tition in  the  competitive  field  of  the  wholesalers,  retailers, 
chain  stores,  department  stores,  mail  order  houses  and  the  like, 
Neither  the  business  man  nor  the  lawyer  can  guess  on  which  side 
of  the  scale  any  court  will  cast  the  weight  of  its  decision.   If 
producers  are  driven  to  the  sanctuary''  of  the  quantity  discovint  in 
order  to  escape  this  judicial  control,  then  Section  2  of  the  Clay- 
ton Act  is  indeed  a  meddlesome  bit  of  legislation  operating  in 
a  manner  never  intended  by  Congress  and  to  an  end  unsought  by  that 
hody, 

"A  realistic  point  of  view  would  recognize  that  some  discrimination 
is  inevitable  in  any  sales  policy,  and,  submitting  the  discriminar- 
tion,  would  emphasize  the  inquiry  as  to  the  effect  on  competition." 

McAlister.  Sales  Policies  and  Price  Discrimination  Under  the  Clayton  Act 
(1932)  41  Yale  L.  J.  518,  534. 

A  sales  policy  based  upon  a  quantity  discount  is  clearly  beyond  the  sus- 
picion of  illegality,  since  Section  2  of  the  Clayton  Act  expressly  exempts 
discriminations  based  upon  differences  in  quantity.  But  a  different  legal 
effect  may  attach  to  an  agreement  to  employ  a  uniform  discount.  However, 
in  United  States  v.  Far  Dressers'  and  Fur  Dyers'  Ass'n.,  Inc.,  5  F.  (2d)  869 
(S.  D.  K.  Y.  1925)  where  the  rules  of  the  association  prohibited  the  allow- 
ance of  discounts,  the  court  declared  that  the  provision  was  not  an  unrea^- 
sonable  restraint  of  trade,  in  the  following  words; 

"The  regulation  that  no  member  shall  allow  any   customer  any  dis- 
counts refers  only  to  unwarranted  deductions  from  prices  expressly 
agreed  upon  when  the  skins  are  received  for  dressing  and  dyeing, 
and,  as  is  conceded  by  the  government,  arrived  at  in  competition. 
This  also  is  a  reasonable  requirement,  to  enable  members  to  de- 
termine whether  a  customer  pays  his  obligations  without  any  unjust 
demands  for  deductions. 

"This  provision  does  not  prevent  a  member  from  making  proper  allowances, 
as,  for  instance,  for  damages  to  furs,  or  shortages  in  delivery,  or 
other  proper  claims.   The  rules  themselves  provide  that  a  copy  of  all 
credits  and  allowances  made  by  members  must  be  filed  with  the  asso- 
ciation.  They  also  provide  for  the  arbitration  of  disputed  claims  for 
credits  and  allowances,  and  that  all  claims  must  be  made  within  five 
8001  -23- 


aays  alter  delivery.  As  a  matter  of  fact,  claims  amounting  to 
$4,672,555.63  have  teen  allowed  by  members  between  the  years 
1915  and  1923." 
51'.  (2d)  at  page  871. 

The  holding,  however,  is  of  doubtfu.1  value  as  a  precedent,  since  the 
court  went  on  to  declare  that  the  absence  of  interstate  commerce  made  the 
Sherman  Act  inapplicable.  Ems  the  validity  of  the  uniform  quantity  dis- 
count is  far  from  clear. 

However,  it  is  doubtful  whether  sjiy  court  Tv-ovild  conclude  that  Section 
2  of  the  Clayton  Act  makes  loilawful  all  discounts  not  based  on  a  straight 
quantity  classification.   The  courts  will  undoubtedly  recognize  tliat  a  cer~ 
tain  degree  of  discrimination  is  involved  in  every  discount  plan.   The  fujac- 
tional  classification  discriminates  against  department  stores,  chs,in  stores, 
mail  order  houses,  cooperative  b-uying  pools,  and  other  large  btiying  agencies, 
and  allows  the  independent  retailer  to  compete  effectively  with  his  organ- 
ized or  more  efficient  brethren.   The  straight  quantity  discount,  on  the 
other  hand,  favors  the  large  buying  agencies,  and  discriminates  against 
wholesalers  and  independent  retailers  to  whom  they  sell.   Clearly,  therefore, 
the  courts  will  be  forced  to  admit  that  a  discount  plan  based  upon  a  ftuic- 
tional  classification  is  not  an  arbitrary  or  undesirable  business  practice. 
And  various  legal  arguments  present  themselves  by  which  the  serious  question 
raised  b;^  the  Van  Camp  Case  may  be  disposed  of.   Where  a  chain  store  or  a 
mail  order  house  protests  at  the  discriminatory  discount  allowed  in  favor  of 
a  wholesaler,  it  is  possible  to  argue  that  the  chain  store,  being  a  retailer, 
is  not  in  the  same  line  of  commerce  as  the  wholesaler,  and  hence  the  Clayton 
Act  is  not  applicable.   In  Baron  v.  Goodyear  Tire  &  Rubber  Co.,  256  Fed.  571 
(S.  D.  ¥..   Y.  1919)  an  action  for  damages  was  based  upon  an  alleged  violation 
of  Section  2  of  the  Clayton  Act.   Plaintiff,  a  dealer  in  automobile  accessor- 
ies, charged  that  defendant  tire  companies  discriminated  in  their  prices  by 
selling  tires  at  lower  prices  to  manufacturers  of  automobiles  than  to  the 
accessory  dealers.   The  Court  held  that  this  practice  did  not  substantially 
lessen  competition  "in  the  same  line  of  commerce"  and  said  at  page  574; 

II  *  *  *  There  is  apparently  no  competition  between  the  manufacturers 
of  tires  and  the  dealers,  nor  is  it  alleged  that  any  exists.   The 
differentiation  in  price  would  not,  therefore,  substantially  lessen 
competition." 

Purthermore,  the  words  of  the  Clayton  Act  require  that  the  lessening  of  corn- 
petition  be  substantial.  In  the  Van  Camp  Case  it  appeared  that  the  cost  of 
the  tin  cans  represented  33-1/3^0  of  the  cost  of  the  product  which  the  packing 
companies  manufactured.   In  the  ordinary  retail  business  a  manufacturer's 
price  discrimination  lessens  competition  between  wholesalers  and  other  buyers 
only  with  respect  to  the  particular  article  to  which  the  discrimination  in 
price  applies;  and  such  discrimination  wotild  not  be  unlawful  under  the  Clayton 
Act  unless  it  appeared  that  the  chain  store  or  other  large  b-uyer  dealt  so 
extensively  in  the  article  under  consideration,  and  the  discrimination  was  so 
large,  that  competition  was  in  fact  substantially  lessened.  Finally,  the 
Van  Camp  Case  differs  from  the  Federal  Trade  Commission  cases  in  that  the  dis- 
count allowed  by  the  American  Can  Company  was  secret  and  its  course  of  con- 
duct was  deceptive, 

(7)   Control  of  Supply  —  Regulation  of  Labor  Supply. 
8001  -24- 


I 


Comparatively  few  cases  involving  agreements  to  control  production 
appear  in  the  reports  of  decisions  "by  the  United  States  Supreme  Court,  pro'b« 
ahly  hecause  such  conspiracies  were  so  ohviously  illegal  that,  if  they  were 
formed,  the  agreement  and  execution  of  the  conspiracy  v;ere  usually  effected 
in  secret.   The  first  Supreme  Court  case  involving  production  control  was 
Addyston  Pipe  &  Steel  Cc..  v.  United  States,  stipra,  where,  as  has  already 
"been  descrihed,  markets  were  divided  up  among  the  defendant  memhers  and  cer~ 
tain  cities  were  reserved  to  particular  members;  and  the  Court  found  little 
difficulty  in  concluding  that  these  factors,  in  conjunction  with  the  rest  of 
the  arrangement,  constituted  an  illegal  conspiracy  in  restraint  of  trade. 

Closely  associated  with  agreements  to  curtail  or  allocate  production  are 
the  cases  dealing  with  monopolies  in  the  sense  of  conspiracies  to  ohtain 
substantially  complete  control  of  the  supply  of  a  particular  product.   In 
United  States  v.  Patten,  226  U.  S.  525  (1913)  it  was  held  that  a  conspiracy 
to  r\m  a  corner  in  cotton  with  the  purpose  of  securing  sole  control  of  the 
available  supply,  in  such  fashion  that  the  defendants  would.be  enabled  to 
enhance  prices,  was  in  violation  of  the  Sherman  Act,   The  Court  said  at 
p.  543: 

"This  control  and  the  enhancement  of  the  price  were  features  of 
the  conspiracy  upon  the  attainment  of  which  it  is  conceded  its 
success  depended.   Upon  the  corner  becoming  effective,  there 
could  be  no  trading  in  the  commodity  save  at  the  will  of  the 
conspirators  and  at  such  price  as  their  interests  might  prompt 
them  to  exact.  And  so,  the  conspiracy  was  to  reach  and  to  bring 
within  its  dominating  influence  the  entire  cotton  trade  of  the 
coTontry, 

"Bearing  in  mind  tliat  such  was  the  nature,  object,  and  scope  of 
the  conspiracy,  we  regard  it  as  altogether  plain  that,  by  its 
necessary  operation,  it  would  directly  and  materially  impede, 
and  burden  the  due  course  of  trade  and  commerce  among  the  states, 
and  therefore  inflict  upon  the  public  the  injuries  which  the 
anti-trust  act  is  designed  to  prevent." 

The  Supreme  Court  has  condemned  activities  resulting  in  restriction  of 
production  although  no  express  agreement  for  that  purpose  was  involved. 
In  American  Column  &  Lumber  Co.  v.  United  States,  infra,  and  in  United  States 
V.  American  Linseed  Oil  Co. ,  infra,  which  will  be  discussed  in  greater  detail 
below,  the  Court  held  that  "recommendations",  advice  and  exhortations  by  the 
trade  associations  to  its  members  directed  toward  restriction  of  output, 
which  had,  or  probably  had,  the  effect  of  inducing  such  restriction,  amounted 
to  an  illegal  conspiracy  under  the  Sherman  Act.   The  actions  of  members  of  the 
trade  associations  in  those  cases  were  said  by  the  Court  to  be  "concerted 
efforts"  and  hence  -unlawful, 

A  case  in  which  the  Court  made  an  exception  to  its  uniform  rule  con- 
demning production  control  is  National  Association  of  Window  Class  I.ianufac- 
turers  v.  United  States,  253  U.  S.  403  (1923).   The  manirfacturers  of  hand 
blown  window  glass  entered  into  an  arrangement  whereby  the  available  supply 
of  highly  trained  labor,  which  was  inadequate  to  meet  the  needs  of  all  the 
manufa.cturers,  was  allocated  to  the  members  of  the  industry  for  a  limited 
period  of  about  four  months  in  any  one  year.   The  Court  pointed  out  that  the 
hand  blown  industry  had  been  almost  forced  out  of  existence  by  the  newly 
develOT.ed  machine  industry,  which  produced  window  glass  at  half  the  cost  of 

8001  -25- 


the  handmade,  and  set  the  prices  at  wiilch  all  window  glass  was  sold.   The 
long  hours  in  the  handhlown  industry  and  other  adverse  conditions  had  driven 
away  many  laborers,  \intil  the  remainder,  which  consisted  of  only  2500  men, 
was  insufficient  to  enahle  the  factories  to  run  continuously  during  the  working 
season.   The  arrangement  to  divide  the  lator  force  equally  among  the  factories 
was  an  answer  to  these  conditions.  Mr.  Justice  Holmes,  spealcing  for  the 
court,  said,  at  pp.  412,  413; 

"The  defendants  contend  with  a  good  deal  of  force  that  it  is  ahsurd 
to  speak  of  their  arrangements  as  possihly  having  any  effect  upon  com- 
merce among  the  States,  when  manufacturers  of  this  kind  ohviously  are 
not  able  to  do  more  than  struggle  to  survive  a  little  longer  "before 
they  disappear  *  *  *  It  is  enough  that  we  see  no  corahination  in  un- 
reasonable restraint  of  trade  in  the  arrangements  made  to  meet  the 
short  supply  of  men." 

A  case  which  j  t  is  difficult  to  classify  as  control  of  production,  biit 
which  supplies  an  interesting  contrast  to  the  Window  Glass  Case,  is  Anderson 
V.  Shipowners  Association,  272  U.  S.  S59  (1925).   The  owners  of  substantially 
all  the  vessels  under  American  registrj;-  engaged  in  interstate  and  foreign 
commerce  on  the  Pacific  Coast  entered  into  a  combination  to  control  the  em- 
plojnnent  of  all  seamen  on  their  ships.   The  association  which  they  formed 
conducted  an  employment  office;  every  seaman  desiring  employment  was  compelled 
to  register  and  await  his  turn,  and  could  not  secure  work  unless  he  presented 
a  certificate  issued  by  the  association.  When  his  turn  came,  he  was  assigned 
to  a  particular  vessel,  whether  or  not  he  wished  to  work  on  that  vessel  or 
for  that  voyage;  and  the  officers  of  the  vessel  likewise  had  no  choice  in 
the  matter.   The  association  moreover  fixed  the  wages  which  the  seamen  were 
to  be  paid.   In  an  action  brought  by  a  seaman  who  was  not  registered  with  the 
association,  the  Supreme  Court  held  that  the  combination  was  in  violation  of 
the  Sherman  Act,  saying  at  Pages  354,365: 

"Talcing  the  allegations  of  the  bill  at  their  face  value,  as  we  must 
do  in  the  absence  of  countervailing  facts  or  explanations,  it  ap- 
pears tliat  ea.ch  shipowner  and  operator  in  this  widespread  combina- 
tion has  surrendered  his  freedom  of  action  in  the  matter  of  employ- 
ing seamen  and  agreed  to  abide  by  the  will  of  the  association.  *  *  * 
These  shipowners  and  operators  having  thus  put  themselves  into  a 
situation  of  restraint  upon  their  freedom  to  carry  on  interstate 
and  foreign  commerce  according  to  their  own  choice  and  discretion, 
it  follows,  as  the  case  now  stands,  that  the  combination  is  in  vio- 
lation of  the  Anti-Trust  Act," 

The  Window  Glass  case  may  safely  be  disregarded  in  view  of  its  extremely 
unique  facts.   It  did  not  appear  in  the  Anderson  ca.se  that  the  scheme  for 
regulation  of  employment  was  an  answer  to,  or  excused  by,  economic  conditions. 
The  inference  ~may  be  drawn  from  these  two  cases,  therefore,  that  economic 
adversity  is  a  feature  which  may  determine  the  reasonableness  and  hence  the 
legality  of  a  restriction  on  production.  But  the  Supreme  Court  will  scrutin- 
ize carefully  any  such  restraint,  and  will  declare  it  unlawful  if  it  injuri- 
ously affects  other  parties  in  the  economic  process. 

(8)  Price  and  Infonnation  Piling. 

The  views  of  the  Supreme  Court  upon  the  legality  of  open  price  plans  em- 
ployed by  trade  associations  have  been  crystallized  in  four  well  Icnown 

8001  -26- 


decisions.   In  American  Colurm  &  L\im'ber  Co«  v«  United  States,  257  U.  S.  377 
(1921),  the  Court  was  asked  to  pass  upon  the  legality  of  the  activities  pur- 
sued 'by   an  association  of  hardwood  manufacturers.  The  members  thereof,  rep- 
resenting one-third  of  the  hardwood  output  of  the  country,  forrrarded  to  the 
central  office  of  the  association  elaborate  statistical  reports  of  stock  on 
hand,  prod\iction,  shipments,  prices  and  names  ox  purchasers.  The  Secretary 
of  the  association  mailed  to  each  concern  reports  and  sijmmaries  of  the  sta«t- 
istical  matter  containing  the  views  of  each  member  as  to  market  conditions 
and  productio-n  for  the  following  few  months,  and  expert  analysis  of  the  re- 
ports, together  with  suggestions  as  to  future  prices  and  production.  Fre- 
quent meetings  were  attended  by  the  members  of  the  association  at  which  mar*- 
ket  conditions  and  production  were  discussed.   The  majority  of  the  co\irt, 
speaking  through  Justice  Clarke,  said  at  page  411: 

"convinced,  as  we  are,  that  the  purpose  and  effect  of  the  activi- 
ties of  the  'Open  Competition  Plan' ,  here  under  discussion,  were 
to  restrict  competition  and  thereby  restrain  interstate  commerce 
in  the  manufacture  and  sale  of  hardwood  lumber  by  concerted  action 
in  curtailing  production  and  in  increasing  prices,  we  agree  with 
the  District  Court  that  it  constituted  a  combination  and  conspir- 
acy in  restraint  of  interstate  commerce  within  the  meaning  of  the 
anti-trust  act  of  1890  (26  Stat.  209)  and  the  decree  of  that  court 
must  be  affirmed." 

The  decision  in  this  case  was  not  unanimous,  dissenting  opinions  being  de- 
livered by  Justices  Holmes  and  Brandeis.   The  former  contended  that  a  combin- 
ation to  distribute  loiowledge,  notwithstanding  its  tendency  to  equalize  prices, 
was  far  from  a  combination  in  unreasonable  restraint  of  trade.  Justice 
Brandeis,  with  whom  Justice  UcKenna  concurred,  emphasized  that  there  was  no 
coercion,  monopoly,  division  of  territory  or  uniform  prices;  tha.t  all  infor- 
mation distributed  under  tlie  plan  was  made  public,  and  all  reports  and  mar- 
ket letters  were  filed  with  the  Department  of  Justice  and  with  the  Federal 
Trade  Commission;  that  the  large  lumber  dealers  before  the  initiation  of 
the  plan  were  enabled  to  take  advantage  of  the  ignorance  of  the  isolated  pro- 
ducers; that  editorial  comment  and  free  discussion  were  essential  to  rational 
competition  and  intelligent  conduct  of  business;  that  the  majority  had  mis- 
construed the  evidence  in  concluding  that  there  T;as  any  p-jrpose  to  curtail 
production,  or  that  such  restriction  was  in  fact  realized;  that  "there  is 
nothing  in  the  Sherman  Law  to  indicate  that  Congress  intended  to  condemn 
cooperative  action  in  the  exchange  of  information,  merely  because  prophesy 
resulting  from  comment  on  the  data  collected  may  lead,  for  a  period,  to  high 
market  prices  ***.   The  illegality  of  a  combination  under  the  Sherman  Law 
lies  not  in  its  effect  upon  the  price  level,  but  in  the  coercion  thereby 
effected,  *  *  *  The  evidence  in  this  case,  far  from  establishing  an  illegal 
restraint  of  trade,  presents,  in  my   opinion,  an  instance  of  commendable  ef- 
fort by  concerns  engaged  in  a  chaotic  industry  to  make  possible  its  intelli- 
gent conduct  under  competitive  conditions";  and  that  the  court's  condemna- 
tion of  these  activities  was  difficult  to  reconcile  with  its  toleration 
under  the  Sherman  Law  of  powerful  industrial  mergers  and  consolidations. 

In  United  States  v.  American  Linseed  Oil  Co..  262  U.  S.  371  (1923) _ 
twelve  manufacturers  of  linseed  oil  entered  into  an  agreement,  with  provi- 
sions for  a  financial  forfeiture  in  case  of  violation,  for  the  maintenance 
of  a  bureau  which  gathered  and  distributed  information  among  the  members  as 
to  price  lists.  Members  agreed  to  adhere  to  schedules  of  prices  and  terms 
which  they  furnished  to  the  bureau  and  to  give  notices  of  departiire  therefrom. 

8001  -27- 


They  nere  required  to  report  all  variations  of  price;  name  the  prospective 
bu^rer;  jDOint  of  shipment;  exact  price,  terns  and  discounts;  rrhether  sales 
were  made  to  johher,  dealer  or  consumer;  and  to  report  all  orders  received; 
all  such  information  heing  treated  as  conf identia.1  and  concealed  from  the 
buyers.   The  information  thus  collected  was  reported  to  the  members  through 
statistical  surveys  made  by  the  bureau.  Each  member  was  required  to  fur- 
nish the  bioreau,  upon  request,  information  \;ithrege,rd  to  any  bu;^'-er  and 
might  require  the  bureau  to  secixre  similar  data  from  all  members  under 
specific  conditions.  The  Biireau  made  industrious  efforts  to  prevent  sales 
at  prices  belovi?  the  scheduled  lists.  Honthly  meetings  were  held,  at  which 
"matters  pertaining  to  the  industry"  were  discussed,  A  unanimous  Court  de~ 
cided  tlici.t  the  scheme  was  an  illegal  combination  under  the  Sherman  Act, 
but  the  language  of  Justice  HcReynolds,  who  spoJce  for  the  Court,  reveals 
that  the  consideration  was  the  power  which  the  combination  was  enabled  to 
exercise  over  a  competitive  market; 

"With  intimate  knowledge  of  the  affairs  of  other  producers  and  ob- 
ligated as  stated,  but  proclaiming  themselves  competitors,  the 
subscribers  went  forth  to  deal  with  widely  separated  8,nd  unorgan- 
ized customers  necessarily  ignorant  of  the  true  conditions.  Ob- 
viously they  were  not  bona  fide  competitors;  their  claim  in  that 
regard  is  at  war  with  common  experience  and  hardls'  compatible  with 
fair  dealing. 

"We  are  not  called  upon  to  say  just  when  or  how  far  competitors  may 
reveal  to  each  other  the  details  of  their  affairs.   In  the  absence 
of  a  purpose  to  monopolize  or  the  compulsion  tliat  results  from  con- 
tract or  agreement,  the  individual  certainly  may  exercise  great 
freedom;  but  concerted  action  through  combination  presents  a  wholly 
different  problem  and  is  forbidden  when  the  necessary  tendency  is 
to  destroy  the  kind  of  competition  to  which  the  public  has  long 
looked  for  protection.  *  *  *  Their  manifest  purpose  was  to  defeat 
the  Sherman  Act  without  subjecting  themselves  to  its  penalties." 

In  the  Maple  Flooring  Manufacturers  Association  v.  United  States  268  U.S. 
563  (1925),  the  defendant  s-ssociation  distributed  among  its  members  informa- 
tion as  to  the  average  cost  of  production,  which  was  based  upon  reports  of 
individual  costs  of  raw  material  and  of  operation.   It  also  compiled  and  dis- 
tributed information  concerning  freight  rates  from  basing  points  to  various 
markets  enabling  members  to  quote  delivered  prices.  Members  reported  informal 
tion  as  to  the  quantity  and  tjTpe  of  flooring  sold,  dates  of  sales  and  price 
received,  average  freight  rates,  commissions,  stock  on  hand  and  unfilled 
orders,  monthly  production  and  new  orders;  tliis  information,  which  concerned 
only  past  transactions  and  did  not  include  names  of  purchasers  or  current 
prices,  was  summarized  by  the  association  and  reported  back  to  the  members, 
without  revealing  the  identity  of  members  in  connection  with  specific  infor- 
mation. The  reports  prepared  by  the  association  were  given  wide  publication 
through  trade  journals,  and  were  communicated  to  the  Department  of  Commerce, 
Monthly  meetings  were  held  by  the  members  of  the  association  at  which  "prob- 
lems of  the  industry"  were  discussed,  with  no  evidence  of  discussion  or 
agreement  upon  prices.   The  majority  of  the  Court  decided  that  in  these  ac- 
tivities no  violation  of  the  Sherman  Act  was  involved.   The  Hardwood  and 
Linseed  Oil  cases  were  distinguished  on  the  ground  that  the  facts  in  those 
cases  revealed  "concerted  efforts"  of  the  defendants  to  curtail  production 
and  raise  prices.  But  this  distinction  is  by  no  means  convincing,  particular- 
ly because  the  language  of  the  Court  approving  t]ie  activities  in  the 

8001  -28- 


( 


present  case  is  virt-ually  identical  in  reasoning;  and  point  of  view  with 
the  dissenting  opinions  in  the  Hardxrood  case: 

"E::cliange  of  price  quotations  of  market  commodities  tends  to  pro- 
duce imifornity  of  prices  in  the  markets  of  the  world.  Knowledge 
of  the  supplies  of  availahle  merchandise  tends  to  prevent  overpro- 
duction and  to  avoid  the  economic  disturhances  produced  "by  busi- 
ness crises  resiilting  from  overproduction.  But  the  natural  ef- 
fect of  the  aco^uisition  of  wider  and  more  scientific  knowledge  of 
"business  conditions,  on  the  minds  of  the  individuals  engaged  in 
comiTierce,  and  its  consequent  effect  in  stabilizing  production  and 
prices,  can  hardly  he  deemed  a  restraint  of  commerce  or  if  so  it 
cannot,  we  think,  he  said  to  "be  an  unreasonable  restraint,  or  in 
any  respect  unlawful.  *  *  *  General  laiowledge  that  there  is  an  ac- 
cumulation of  surplus  of  any  market  commodit3^  would  undoubtedly 
tend  to  diminish  production,  but  the  dissemination  of  that  informa- 
tion can  not  in  itself  be  said  to  be  restraint  upon  commerce  in  any 
legal  sense.  The  manufacturer  is  free  to  produce,  but  prudence  and 
business  foresight  based  on  that  l-mowledge  influence  free  choice  in 
favor  of  more  limited  production.  Restraint  upon  free  competition 
begins  when  improper  use  is  made  of  tlriat  information  through  any 
concerted  action  which  operates  to  restrain  the  freedom  of  action 
of  those  who  bu;;''  and  sell.  *  *  *  Persons  who  unite  in  gathering  and 
disserainating  information  in  trade  journals  and  statistical  reports 
on  industry;  who  gather  and  publish  statistics  as  to  the  amount  of 
production  of  coranodities  in  interstate  cororaerce,  and  who  rej^ort 
market  prices,  t.ire  not  engaged  in  unlawful  conspiracies  in  restraint 
of  trade  merely  because  the  ultimate  result  of  their  efforts  may  be 
to  stabilize  prices  or  limit  production  through  a  better  understanding 
of  economic  lav7S  and  a  more  general  ability  to  conform  to  them,  for 
the  simple  reason  that  the  Sherman  Law  neither  repeals  economic  laws 
nor  prohibits  the  gathering  and  dissemination  of  information.  "^ 

The  fourth  in  a  series  of  cases  involving  open  prices  filing  which  came 
before  the  Supreme  Court  was  Cement  Manufact'orers  Protective  Association  v. 
United  States,  268  U.  S.  583  (1925).   In  this  case  the  Court  approved  the 
cooperation  of  cement  manufacturers  in  gathering  and  exchanging  information 
concerning  production  and  jjrices  in  so  called  "specific  job"  contracts,  gen- 
eral statistical  information,  and  information  as  to  transportation  costs  from 
various  points  of  production.  A  specific  job  contract  was  a  contract  which 
obligated  the  manufacturer  to  deliver  in  the  future  to  a  contractor  at  a  max- 
imum price  the  cement  required  to  complete  a  specified  construction  project, 
but  allowing  the  purchaser  the  advantage  of  any  declining  market  price,  and 
not  obligating  him  to  take  the  cement  if  he  failed  to  secure  the  bid  or  if 
for  any  other  reason  he  did  not  desire  deliver"/  under  the  contract.   The  de- 
tails of  such  contracts,  including  names  of  contractors  and  specified  construc- 
tion projects  involved,  were  reported  by  the  members  of  the-  association, 
which  employed  agents  to  visit  jobs,  and  reported  back  to  the  members  full 
information  regarding  the  contracts  and  the  use  of  the  cement  shipped  under 
them.   These  activities  were  pursued  in  order  to  prevent  contractors  in  a  peri- 
od of  rising  prices  from  obtaining  more  cement  than  they  were  entitled  to 
by  entering  into  contracts  with  several  manufacturers  for  the  same  specific 
job,  and  this  puri^ose  was  considered  sufficient  by  the  Court  to  excuse  the 
reporting  of  detailed  information,  including  names  of  buyers  and  sellers, 
and  what  amounted  to  espionage  by  the  association.   In  addition  to  the 

8001  -29- 


infoiTiation  supplied  on  specific  job  contracts,  the  members  rendered  monthly 
detailed  reports  concerning  delinquent  accounts  of  their  customers,  and  re- 
ports of  production,  shipments  and  stock  on  hamd,  which  the  association  con- 
piled  and  distributed,  thus  inforrainj^'  each  member  of  the  available  siTOpl;-  of 
cement  and  liy   whom  it  was  held.  Meetings  were  held  at  which  minor  sub'jects 
were  discussed  but  such  dangerous  issues  as  current  prices,  production,  or 
market  conditions  were  carefully  avoided.   The  association  also  distributed 
to  its  members  freight  books  listing  rates  from  basing  points  to  all  markets, 
Tlie  Court  found  that  the  freight  rate  book  enabled  the  manufacturer  to  calcu- 
late a  delivered  price  on  the  basis  of  his  own  mill  price  to  points  in 
neighboring  territor;-,  and  to  determine  the  freight  differentiation  which  he 
must  offset  in  his  mill  price  in  order  to  compete  with  other  manufactiu-ers 
in  other  territory.   The  Court  refused  to  condemn  the  distribution  of  credit 
information  on  the  ground  that  no  evidence  a;ppeared  of  aiiy  unified  conduct 
with  res'Tect  to  the  persons  to  whom  or  conditions  on  which  credit  shotild  be 
extended,  and  that  the  infomation  merely  informed  the  individual  judgment  of 
the  manufacturers.   The  compilation  and  distribution  of  the  general  statisti- 
cal information  was  approved  on  reasoning  similar  to  that  in  the  Maple  Floor- 
ing case;  the  Court  declared  that  the  tendency  to  bring  about  uniforr.iit;-  in 
price,  apart  from  any  agreement  or  unders tending  for  maintaining  price,  was 
insufficient  to  constitute  a  violation  of  the  anti-trust  law.   The  traditional 
theory  that  uniformity  of  price  is  evidence  of  price  manipulation,  was  rebut- 
ted by  the  opinions  of  economists  to  the  effect  that  uniformity  of  price  was 
a  sign  of  free  and  active  competition,  "in  the  case  of  a  standardized  prodxict 
sold  v/holesale  to  fully  informed  professional  buyers," 

In  attempting  to  arrive  at  sjn  estimate  of  the  Supreme  Court's  attitude 
toward  open  price  filing,  one  must  emphasize  that  the  Maple  Floorii\g  and 
Cement  Cases  are  far  more  significant  than  the  two  earlier  decisions.  Certain 
commentators  have,  in  fact,  concluded  that  the  latter  two  cases  effectually 
overr-aled  the  former.  Without  accepting  this  contention,  it  is  nevertheless 
true  that  the  distinctions  advanced  by  the  Supreme  Court  itself,  and  further 
discussed  b;'  commentators,  are  rather  tenuous  in  nature.   The  Court  pointed 
out  in  the  Maple  Flooring  Case  that  the  reports  of  sales  and  prices  were  sole- 
ly concerned  with  "past  and  closed  transactions",  as  contrasted  with  the  facts 
in  the  Hardwood  and  Linseed  Cases.  Again,  the  statistics  reported  by  the 
Maple  Flooring  Association  did  not  identify  bu^/ers  and  sellers,  as  was  true 
in  the  Hardwood  Case.   It  is  true  that  such  identification  was  present  in  the 
Cement  Case  with'  regard  to  specific  job  contracts,  but  was  excused  in  view  of 
the  Association's  cor.imendable  pm-oose  in  preventing  fraud  by  contractors. 
Furthermore,  the  data  collected  by  the  trade  associations  in  the  latter  two 
cases  was  not  treated  as  confidential,  in  contrast  to  the  policy  pursued  by 
the  Linseed  combination.   The  distinction,  however,  is  of  questionable  sotuid- 
ness,  for  the  publicity  afforded  by  the  Hardwood  Association  was  much  wider 
than  that  which  the  Court  found,  by  inference,  in  the  Cement  Case.   There  was, 
moreover,  no  evidence  in  either  the  Ilaple  Plooring  or  the  Cement  Case  of  any 
obligation  or  understanding  on  the  part  of  the  members  of  the  Association  to 
be  guided  in  their  business  policies  by  the  information  supplied  throv-gh  the 
Association,   This  distinction,  however,  is  likewise  not  especially  convincing, 
'for  the  Court  found  such  an  vjiderstandi:ig  in  the  Hardwood  Case  althoti^h  there 
was  no  tuiiformity  of  prices,  and  refused  to  draw  the  sane  inference  in  the 
Cement  Case,  where  such  xinifomity  existed.  In  the  Linseed  Case  the  Court  was 
perhaps  more  justified  in  finding  "concerted  efforts"  ia  the  fact  that  the 
combination  was  composed  of  a  small  number  of  powerful  concerns,  and  that  their 
obedience  was  compelled  by  means  of  forfeitures  and  penalties.  And  it  is 

8001  -scU 


possilsle  to  isolate  the  Hardt^ood  Case,  when  it  is  considered  that  the  Coxirt 
stressed  the  "comments"  and  "recommendations"  nith  regard  to  production  and 
prices  tY   an  official  of  the  Association,   In  the  Llaple  Flooring  and  Genent 
Cases  the  Cotirt  emphasized  that  at  the  periodical  meetings  "by  memhers  of  the 
Association  there  rras  no  evidence  that  prices  xiere   discussed.  And  the 
Supreme  Court  has  distinguished  "between  reports  of  "past"  sales  and  "current" 
or  "future"  transactions.  Finally,  the  Court  erqjressed  disapproval  of  the 
industrious  efforts  of  the  Bureau  in  the  Linseed  Case  to  secure  compliance 
with  pul)lished  prices. 

It  nay  he  admitted  that  the  attitude  of  the  Supreme  Court  towards  the 
reporting  of  trade  statistics  underwent  a  substantial  change  "betrreen  the  form- 
er tuo  and  the  latter  two  decisions  which  we  have  discussed,  and  that  the 
distinctions  sought  to  be  established  between  the  cases  are  in  large  part 
tenuous  and  without  substantial  basis.   But  it  is  impossible  not  to  conclude 
that  a  price  filing  scheme  which  is  sought  to  be  used  as  a  device  for  the 
raising  of  prices  will  be  considered  by  the  Supreme  Court  as  a  viola,tion  of 
the  Sherman  Act. 

( 9 )   Cooperative  Credit  Activities. 

The  growth  of  modern  business  has  created  a  need  for  the  distribution  of 
accurate  credit  information,  Mercantile  credit  organizations,  such  as  Dun 
and  Bradstreet,  afforded  the  first  answer  to  this  need.   In  the  activities  of 
these  companies  no  problem  of  the  anti-trast  laws  arises.   That  problem,  how- 
ever, appears  when  the  credit  information  is  distributed  by  trade  associations. 
It  seems  well  established  that  the  mere  distribution  of  credit  information 
by  a  trade  association,  without  evidence  of  concerted  action  or  agreements  to 
act  on  such  information,  does  not  offend  the  anti-trust  laws.   In  Cement 
Manirfacturers'  Protective  Association  v.  United  States,  258  U.  S,  588  (1925), 
the  members  of  the  association  rendered  monthly  reports  of  all  accounts  of 
customers  two  months  or  more  overdue,  giving  the  name  and  address  of  the  de- 
linquent deaJer,  the  amount  of  the  overdue  account  in  ledger  balance,  accounts 
in  hands  of  attorneys  for  collection,  etc,   Ttiere  were  also  reports  showing 
the  general  total  of  delinquent  accounts  in  comparison  with  those  for  the  last 
twelve  months,  reports  of  payments  of  accounts  placed  in  the  hands  of  at- 
torneys, and  a  form,  seldom  used,  for  answering  inquiries  as  to  whether  a 
particular  name  had  appeared  in  the  monthly  report.  The  court  refused  to  hold 
that  the  activities  of  the  association  in  this  respect  constituted  a  violation 
of  the  anti-trust  laws.  Justice  Stone  said  at  p.  599: 

"Hiere  were  never  any  comments  concerning  names  appearing  on 
the  list  of  delinquent  debtors.   The  Government  neither  charged 
nor  proved  that  there  was  any  agreement  with  respect  to  the  use 
of  this  information,  or  with  respect  to  the  persons  to  whom  or 
conditions  under  which  credit  should  be  extended.   Tiie  evidence 
falls  short  of  establishing  an.y  understanding  on  the  basis  of 
which  credit  was  to  be  extended  to  customers  or  that  any  cooper- 
ation resulted  from  the  distribution  of  this  information,  or 
that  there  were  any  consequences  from  it  other  than  such  as 
•■'ould  naturally  ensue  from  the  exercise  of  the  individual  judg- 
ment of  manufacturers  in  determining,  on  the  basis  of  available 
information,  whether  to  extend  credit  or  to  require  cash  or 
secr.rity  from  any  given  customer."   (italics  supplied) 


8001  -31- 


Tlie  holding  of  the  court  in  this  resi^ect  is  thus  inconclusive,   Tlie 
majority  of  the  court  merely  said  that  the  distrihution  of  credit  infomation 
was  a  legal  activity,  and  also  that  no  agreement  existed,  TJliether  the 
presence  of  such  an  agreement  vovid  have  rendered  the  activities  of  the  asso- 
ciation illegal  the  court  did  not  say. 

The  holding  of  the  court  in  the  Cement  decision  v;as  not  without  iirecedent 
for  in  that  case  Justice  Stone  pointed  out  that  "in  Swift  &  Co.  v.  United 
States,  196  U.S.  375,  395,  this  court  approved  a  decree  which  provided  that 
defendants  should  not  be  restrained  'from  establishing  and  maintaining  rules 
for  the  giving  of  credit  to  dealers  where  such  rules  in  good  f.aith  are  calcu- 
lated solely  to  protect  the  defendants  against  dishonest  or  irresponsible 
dealers, »" 

TOiile  it  seens  definitely  established,  therefore,  that  the  mere  dissemi- 
nation of  credit  information  involves  no  conflict  with  the  Sherman  lav?,  it  is 
not  possible  to  say  with  the  same  degree  of  assurance  that  an  agreement  not 
to  extend  further  credit  to  delinquent  debtors  is  also  lawful.   The  available 
precedent  is  slight.   In  United  States  v.  Southern  California  TTnolesale 
Grocers  Association,  7  7  (2d)  944,  (S.  D.  Cal,  1925)  the  defendant  association 
distributed  among  its  members  lists  of  names  of  retailers  who  had  been  report- 
ed as  financially  irresponsible  or  who  had  failed  to  pay  their  bills,   Tlie 
court  upheld  the  validity  of  an  agreement  to  refuse  further  credit  to  such 
debtors,  saying  at  p,  948: 

"There  was  the  understanding  among  the  members  in  the  association 
that  su.ch  persons  should  be  accepted  as  c3-sh  customers  only.   It 
is  not  shown  that  such  classification  so  indicated,  as  the  result 
of  the  name  appearing  upon  such  a  list,  was  necessarily  obligatory 
upon  the  wholesalers,  Irit   the  prime  purpose  of  the  list  was  to 
furnish  information  to  the  members  regarding  the  responsibility  of 
patrons,  so  that  loss  might  be  saved  on  bad  accoun.ts,   I  do  not 
believe  that  the  issuance  of  these  lists,  nor  the  understanding 
connected  therewith,  established  a  violation  of  the  Anti-Trust  Law, 
anj'-  more  than  did  the  lists  referred  to  in  the  decision  in  the 
case  of  the  Cement  I.ianufacturers'  Protective  Association  v,  U.  S, 
hereinbefore  referred  to," 

In  United  States  v.  Fur  Dressers'  and  Far  Dyers'  Association,  5  F.  (2d) 
869  (S.  D,  II,  Y,  1925)  the  by-laws  ]provided  that  no  discounts  should  be  allowe' 
no  deliveries  were  to  be  made  to  buyers  named  upon  a  list  of  overdtie  accounts, 
except  for  cash.   Members  were  required  to  give  a  $500  bond  for  the  faithful 
performance  of  the  by-laws,  Tlie  court  emphasized  the  desirability  of  these 
rules  in  viev/  of  the  former  chaotic  credit  conditions  in  the  industry,  and 
sustained  the  validity  of  the  associa.tion  a,ctivities.  However,  the  holding 
is  of  doubtful  value  as  a  precedent,  since  the  court  went  on  to  saj'"  that  the 
?ibsence  of  interstate  commerce  made  the  Sherman  Act  inaiipli cable. 

Although  the  invalidity  of  an  agreement  to  witiiliold  credit  has  yet  to  be 
established  by  a  strong  line  of  precedent,  there  is  no  doubt  that  an  agreement 
to  boycott  or  to  refuse  entirel;r  to  deal  with  a  debtor  is  unlawful.   In 
Dorchy  v,  Kansas,  272  U.  S,  306  (1925)  a  labor  union  called  a  strike  to  comioel 
a  company  to  pay  a  disputed  cle,im  which  was  long  overdue,  Mr,  Justice 
Brandeis  said,  at  p,  311; 

8001  -32- 


"The  right  to  carr;^  on  "Dusiness — "be  it  called  liberty  or 
property — has  value.   To  interfere  with  this  right  "jithout 
just  cause  is  ■cuilavrf'ul.   The  fact  that  the  injury  was  in- 
flicted "by  a  strike  is  sometimes  a  justification.   Btit  a 
strike  may  "be  illegal  because  of  its  purpose,  however  order- 
ly the  manner  in  which  it  is  conducted.   To  collect  a  stale 
claim  due  to  a  fellow  menber  of  the  union  who  was  formerly 
employed  in  the  "business  is  not  a  permissihle  purjDose.   In 
the  absence  of  a  valid  agreement  to  the  contrary,  each  party 
to  a  disputed  cla.im  maj'  insist  that  it  be  determined  only 
"by   a  court o   Compare  C-uarant"  Trust  Go.  v.  G-reen  Cove  R.  H. . 
139  U.  S.  137,  143;  Red  Cross  Line  v.  Atlantic  Pruit  Co.. 
264-  U,  S.  109,   To  enforce  pajnnent  by  a  strike  is  clearly 
coercion,  ..." 

In  Brescia  Construction  Co,  v.  Stone  ilasons  Contractors'  Associg.tioii, 
195  App.  Biv.  647,  137  ToY.S.  77  (1921)  a  labor  boycott  was  held  illegal  uiJ.er 
similar  circumstances,  and  the  court  declared  at  p.  554  of  195  App,  Div,: 

"It  seems  to  us  clear  that  the  provisions  of  the  agreement 
between  the  defendants  which  obligated^ , . the  members  of  the 
defendant  unions  not  to  do  any  work  'for  or  imder  anj   con- 
tractor, builder,  coriporation  or  persons  owing  money  to  any 
member  of  the  Stone  Ilasons  Contractors'  Association,  for 
work  performed  or  materials  furnished, '  are  illegal  and 
against  public  policy.  ...  Aiid  in  case  any  debt  is  claimed 
to  be  due  to  any  member  of  the  Contractors'  Association  the 
agreement  contem^Dlates  that  the  labor  unions  will  assist  in 
collecting  by  arbitrary  and  oppressive  measures  claims  thus 
asserted,  ,  ,  ,In  other  words,  instead  of  according  alleged 
debtors  the  right  to  have  their  disputes  determined  by  the 
legal  tribunals  established  for  that  purpose,  the  defendant 
associations  have  constituted  themselves  the  judges  of  the 
facts  and  the  law  and  the  agencies  for  enforcing  their 
unauthorized  decrees," 

Two  recent  Supreme  Court  cases  have  done  much  to  clarify  the  law  relating 
to  cooperative  credit  activities.   In  Parai.iount  Famous  Lasky  Cori.-) oration  v. 
United  States,  282  U.  S.  30  (1930)  ten  corporations  which  manufactured  motion 
picture  films  and  distributed  them  to  exJiibitors  throughout  the  countrj'-,  con- 
trolling 60^  of  the  business,  agreed  to  contract  with  distributors  for  future 
exiiibition  of  films  only  by  a  standard  form  of  contract  which  provided  that 
disputes  and  claims  under  the  contract  be  submitted  to  a  board  of  ai'bitration 
whose  award  was  to  be  accepted  as  conclusive.  Upon  failure  of  the  e:\hibitor 
to  submit  to  arbitration  or  to  pay  the  award,  the  distributor  with  whom  he 
had  contracted,  and  all  others  having  contracts  with  that  ejdiibitor,  were 
required  to  demand  security''  from  him  on  each  of  their  contracts.   Those  to 
whom  he  failed  to  pay  security  were  to  suspend  service  under  their  contracts 
until  he  paid  it  or  complied  with  the  award,  and  after  a  contract  had  been 
suspended  for  ten  days  the  distributor  might  cancel  it,  Mr,  Justice 
Kc  Re'-nolds,  spealring  for  the  court,  concluded  that  the  agreement  constitxited 
an  unreasonable  restraint  of  trade  within  the  Slaerman  Act,  asstiming,  apparent- 
ly, that  the  case  was  so  clear  as  to  maize  e:-:tended  analysis  or  explanation 
unnecessary. 


8001  -33- 


In  United  States  v.  First  National  Pictures,  Inc.,  282  U.  S.  44  (1930) 
distributors  of  98fj  of  the  motion  picture  films  produced  in  the  countr;'-  com- 
bined in  a  uniform  credit  arrangement.   Fnenever  a  theatre  changed  hands, 
the  distributors,  through  local  Film  Boards,  inquired  into  the  credit  and 
business  arrangements  of  the  new  proprietor,  who  was  asked  to  assume  film 
contracts  existing  between  the  former  owner  and  any  of  the  distributors.  ITo 
contract  for  the  deliver^'-  of  pictures  could  be  made  by  any  of  the  distributors 
with  a  new  proprietor  who  had  not  ass"iimed  such  outstanding  contracts  unless 
he  furnished  security.   Ihe  arrangement  was  adopted  to  prevent  the  evasion  of 
film  contracts  by  exhibitors  who  transferred  their  theatres.  Holding  that 
the  uniform  credit  system  was  in  violation  of  the  Sherman  Act,  the  covu-t  said 
at  p.  54: 

"The  obvious  purpose  of  the  arrangement  is  to  restrict  the  liberts^ 
of  those  who  have  representatives  on  the  Film  Boards  and  secxire 
their  concerted  action  for  the  purpose  of  coercing  purchasers  of 
theatres  bj--  excluding  them  from  the  opportunity  to  deal  in  a  free 
and  untrammelled  market." 

The  effect  of  these  two  decisions  is  to  condemn  uniform  credit  or  security 
arrangements  which  operate  as  boycotts.   The  conclusion  suggested  by  the 
available  precedent  is  somewhat  as  follows:   The  more  distribution  of  credit 
information,  with  complete  freedom  of  initiative  on  the  part  of  cooperating 
members,  is  lawful.  An  agreement  not  to  extend  further  credit  to  delinquent 
debtors  is  probably  lawful,  unless  under  the  circumstances  of  the  industry 
the  refusal  prevents  the  debtor  from  obtaining  goods  and  involves  an  improper 
coercion,  Axi   agreement  to  refuse  to  deal  with  delinquent  debtors  or  debtors 
who  fail  to  provide  security  clearly  involves  a  violation  of  the  Slierman  Law. 

(lO)  Resale  Price  Maintenance 

In  a  series  of  cases  decided  by  the  Supreme  Court,  the  law  with  respect 
to  resale  price  maintenance  has  become  fairly  well  established.   Hie  leading 
early  case  on  the  subject  was  Dr.  Miles  Medical  Co.  v.  Park  &  Sons  Co.  220 
U.  S.  373  (1911).   Petitioner,  a  manufacturer  of  medicines  prepared  by  secret 
formulas,  required  every  wholesaler  and  retailer  through  whom  its  prodiicts 
were  distributed  to  sign  agreements  to  sell  at  prices  specified  by  the  manu- 
facturer. Defendant,  a  wholesaler  dealing  in  drugs,  secured  a  supply  of   . 
petitioner's  medicines  through  wholesalers  at  prices  which  violated  the  agree- 
ment exacted  by  petitioner,  and  sold  the  medicines  at  similar  "cut  prices". 
Petitioner  sought  to  enjoin  the  defendant  from  inducing  its  distributors  to 
violate  their  contracts  and  from  selling  its  medicines  at  less  than  the  estab- 
lished resale  prices.   The  Supreme  Court  refused  the  injunction,  on  the  grcxmd 
that  the  policy  pursued  by  the  petitioner  was  in  violation  of  the  Sherman  Act. 
Mr,  Justice  Hughes,  spealcing  for  the  Court,  said  at  pp.  408-409: 

"If  there  be  an  advantage  to  the  manufacturer  in  the  maintenance 
of  fixed  retail  prices,  the  question  remains  whether  it  is  one 
which  he  is  entitled  to  secure  by  agreements  restricting  the 
freedom  of  trade  on  the  part  of  dealers  who  own  what  they  sell. 
As  to  this,  the  complainant  can  fare  no  better  with  its  plan  of 
identical  contracts  than  could  the  dealers  themselves  if  they 
formed  a  combination  and  endeavored  to  establish  the  same  re- 
strictions, and  thus  to  achieve  the  same  result,  by  agreement 
with  each  other.  *  *  * 

8001  -34- 


"But  agreements  or  comlDinations  'between  dealers,  having  for 
their  sole  purpose  the  destruction  of  competition  and  the 
fixing  of  prices,  are  injurious  to  the  public  interest  and 
void,  *  *  * 

II  *  *  rj^iiQ   coinpls.inant  having  sold  its  product  at  prices 
satisfactor:»-  to  itself,  the  public  is  entitled  to  whatever 
advajitage  nojy  he  derived  from  competition  in  the  subsequent 
traffic." 

The  nest  case  which  cane  before  the  Court  involving  a  resale  price  main- 
tenance scheme  was  Bauer  v.  Q'Domiell,  229  U.S.I  (1913).   In  this  cace  the 
article  the  price  of  which  the  petitioner  so"ught  to  fix,  by  means  of  a  notice 
on  the  pa,cl:ac'?;e  wa,s  patented;  but  the  Court  declared  that  once  the  maaiufacturer 
had  parted  with  title  to  a  product  manufactured  under  patents,  the  privilege 
conferred  by  the  patent  laws  did  not  embrace  the  right  to  fix  the  price  at 
which  the  product  could  be  sold.   In  Boston  Store  v,  ALiericoJi  Granatjhone  Co., 
246  U»S«8,  (1913)  the  Granaj^hone  Conpmiy  manufactured  a  patented  article,  and 
reqtiired  from  distributors  contracts  to  maintain  resale  prices.   It  broxight 
a  suit  to  enjoin  violations  of  the  contract  by  defendant,  a  distribiitor. 
Chief  Justice  White,  spcalring  for  the  Court  said  at  page  25: 

"Appl3''ing  the  cases  thus  reviewed  there  can  be  no  doubt  that 
the  alleged  price-fixing  contract  disclosed  in  the  certificate 
was  contrar;^  to  the  general  law  and  void.   There  can  be  equally 
no  doubt  that  the  power  to  malce  it  in  derogation  of  the  general 
law  was  not  within  the  monopoly  conferred  by  the  patent  law,  end 
that  the  attempt  to  enforce  its  apparent  obligations  under  the 
gu.ise  of  a  patent  infringement  was  not  embraced  within  the  reme- 
dies given  for  the  protection  of  the  rights  which  the  patent  law 
conferred." 

United  States  v.  Colgate  &   Co.,  250  U.S.  300  (1919)  arose  on  an  indict- 
ment for  violation  of  the  Sherman  Act,  The  indictment,  as  construed  Vj   the 
District  Court,  did  not  allege  that  defendant  had  made  contracts  with  its 
distributors,  but  that  it  had  merely  indicated  the  prices  at  which  it  wished 
its  products  to  be  sold,  and  refused  to  sell  to  those  distributors  who  did 
not  charge  such  prices  until  they  gave  assurpjices  of  compliance  with  defend- 
ant's policy.  The  Supreme  Court  distinguished  the  Dr,  Miles  case  on  the 
ground  that  here  the  manufacturer  had  made  no  contracts  for  price  maintenance, 
and  said  at  p,  307: 

"In  the  absence  of  any  jjurjjose  to  create  or  maintain  a 
monopoly,  the  act  does  not  restrict  the  long- recognized  right 
of  trader  or  manufacturer  engaged  in  an  entirely  private  busi- 
ness, freely  to  exercise  his  own  independent  discretion  as  to 
parties  with  whom  he  will  deal.  And,  of  course,  he  may  announce 
in  advance  the  circumstances  under  which  he  will  refuse  to 
sell,  **  " 

United  States  v.  A.  Schrader's  Son,  Inc.,  252  U.S.  85  (1920)  also  involv- 
ed an  indictment  under  the  Shermaii  Act,  which  alleged,  however,  the  execution 
of  actual  contracts  for  price  maintenance.   The  Court,  through  Justice 
I.IcReynolds,  explained  that  the  Colgate  Case  was  not  intended  to  overrule  the 
Dr,  I.Iiles  Medicine  Case,  and  said,  at  p,  99: 

8001  -35- 


"It  seens  ^mnecessai-y  to  dxvell  upon  the  o'ovious  difference 
"betueen  the  sitimtion  presented  when  a  manufacturer  nerely  indi- 
cates his  TTishea  concerning  prices  and  declines  further  dealings 
uith  all  T7ho  fai  1  to  ohserve  them  and  one  vjhere  he  enters  into 
agreements  -  whether  e^qiress  or  inplicd  from  a  course  of  dealing 
or  other  circuiiistaiices  -  with  all  cxistoners  throughoiit  the 
different  states,  which  undertake  to  tind  then  to  ohserve  fixed 
resale  prices.   In  the  first,  the  manufacturer  "but  exercises 
his  independent  discretion  concerning  his  customers,  and  there 
is  no  contract  or  conoination  which  imposes  aia;*  limitation  on 
the  purchaser.   In  the  second,  the  parties  are  conhined  throiigh 
agreements  designed  to  tsJce  away  dealers'  control  of  their  own 
affairs,  and  there^by  destroy''  competition  and  restrain  the  free 
and  ne.ttiral  flow  of  trade  a:jongst  the  states." 

Federal  Trade  Commission  v.  Beechnut  Packing  Co.,  257  U.S.  441  (1922)  was 
the  first  case  to  cone  "before  the  Court  in  which  resale  price  maintenance  was 
alleged  to  he  an  uiifair  method  of  competition  within  the  Federal  Trade  Comiiis- 
sion  Act,  The  Beechnut  Company  did  not  uake   formal  contracts  with  its  dis- 
tributors. It  announced,  hov/ever,  that  it  would  refuse  to  sell  to  any  dealer 
who  failed  to  maintain  ^^rices  indicated  hy  the  company.  It  urged  dealers  to 
report  cases  of  violation,  and  instructed  its  salesmen  to  the  same  effect. 
The  company  maintained  lists  of  "undesirahle"  dealers,  who  had  "been  reported 
as  selling  "below  the  indicated  prices,  and  removed  the  names  from  the  list 
onljr  when  the  dealer  gave  "satisfactory  asstirances"  that  it  wDuld  comply  with 
the  company's  wishes.   In  order  to  enforce  its  policy  the  company  employed  a 
system  of  sym"bols  or  key  nun"bers  "by  which  any  loackage  sold  at  cut  prices  could 
be  traced  back  to  the  offender.  The  Court  found  that  the  activities  pursued 
'by   the  Beeclinut  Company  amounted  to  a  violation  of  the  Slierman  Act,  since  the 
elaborate  methods  were  equivalent  to  "agreements  express  or  implied",  Mr, 
Justice  Daj'-,  spealcing  for  the  Court,  said  at  pp.  454^-455: 

"*  *  *  *  The  facts  found  show  that  the  Beech-nut  system  goes 
far  beyond  the  simple  refusal  to  sell  goods  to  persons  who 
will  not  sell  at  stated  prices,  which  in  the  Colgate  Case 
was  held  to  be  within  the  legal  right  of  the  producer, 

"The  system  here  disclosed  necessarily  constitutes  a  scheme 
which  restrains  the  natura^l  flow  of  commerce  and  the  free- 
dom of  competition  in  the  channels  of  interstate  trade  which 
it  ha,s  been  the  purpose  of  all  the  anti-trust  acts  to  maintain. 
In  its  -oractical  operation  it  necessarily  constrains  the  trade, 
if  they  would  have  the  products  of  the  Beech- IJut  Company,  to 
maintain  the  prices  '  s'oggested'  by  it.  ******" 
"*  *  *  *  Hor  is  the  inference  overcome  by  the  conclusion 
stated  in  the  Commission's  findings  that  the  merchajidising 
conduct  of  the  company  does  not  constitute  a  contract  or 
contracts  whereby  resale  prices  are  fixed,  maintained,  or 
enforced.   The  specific  facts  found  show  suppression  of  the 
freedom  of  competition  by  methods  in  whicli  the  comiDany  se- 
cures the  cooperation  of  its  distributors  and  customers, 
which  are  quite  as  effectual  as  agreements  expressed  or 
implied  intended  to  accomplish  the  sane  pur^oose.  *  *  *  *  " 

Tiie  Court  declared,  however,  that  the  order  of  the  Commission  forbidding 
any  form  of  price  maintenance  was  too  broad.   It  directed  that  the  conpanj-  be 

8001  -36- 


enjoined  from  its  policy  of  price  maintenance  (l)  ty  the  practice  of  report- 
ing the  nsnes  of  recalcitrant  dealers;   (2)  by  enrolling  dealers  on  "rjide- 
sirable"  lists  until  assuraaices  \7ere  given  to  maintain  the  designated  price; 
(S)  by  employing  salesmen  to  report  such  undesirable  dealers;   (4)  by 
utilizing  nimbers  and  sjTnbols  in  order  to  detect  offenders  (5)  "by  xitilizing 
any  other  ecuivalent  cooperative  means  of  accomplishing  the  mainteno^nce  of 
prices  fixed  by  the  company",   in  United  States  v.  General  Electric  Co.,  272 
U.S.  476  (1926)  the  Supreme  Court  refused  to  find  a  violation  of  the  anti- 
trust act  in  the  price  maintenance  scheme  of  the  General  Electric  Compsjiy, 
which  distributed  its  patented  articles  through  21,000  agents.   The  holding 
of  the  Court  appears  at  page  488: 

"We  are  of  opinion,  therefore,  that  there  is  nothing  as  a 
matter  of  principle,  or  in  the  authorities,  which  requires 
us  to  hold  that  genuine  contracts  of  agency  like  those  be- 
fore us,  however  comprehensive  as  a  me.ss  or  whole  in  their 
effect,  are  violations  of  the  Aiiti-Trust  Act,   The  owner  of 
an  article,  patented  or  otherwise,  is  not  violating  the 
common  law,  or  the  Anti-Trust  law,  by  seeking  to  dispose  of 
his  article  directly  to  the  consumer  and  fixing  the  price  by  ■ 
which  his  agents  transfer  the  title  from  him  directly  to 
such  consimer.  ****!! 

The  doctrines  enunciated  by  the  Supreme  Court  with  respect  to  resale 
price  maintenance  have  suffered  severe  criticism.  The  distinction  which  the 
Court  has  drawn  between  illegal  contracts  and  a  course  of  dealing,  which,  it 
is  asserted,  in  reality  is  equivalent  to  the  execution  of  a  contract,  has 
been  attached  as  arbitrary  and  without  factiial  foundation.  And,  it  is  charged, 
the  result  of  the  Beechnut  Case  is  to  permit  a  system  of  price  maintenance 
but  to  forbid  the  use  of  modern  business  methods  to  mal:e  it  effective, 
Henderson,  Tlie  Federal  Trade  Commission  (1924)  299.  liore  important,  it  seems 
clear  that  the  rules  and  distinctions  established  by  the  Court  have  no  basis 
in  economic  realities  and  ignore  the  business  purposes  for  which  resale  price 
maintenance  is  employed,  A  discussion  of  the  economic  reasons  and  justifica- 
tions for  price  maintenance  is,  it  is  thought,  unnecessarj'-  at  this  point,  for 
the  Supreme  Court  will  in  all  probability  adhere  to  its  rules  and  continue  to 
ignore  business  and  economic  considerations.  Some  of  these  considerations 
have  been  pointed  out  in  dissenting  opinions  (see  opinion  of  Justice  Holmes 
in  the  Dr.  Uiles  I.Iedical  Case,  supra),  but  these  objections  have  remained 
ineffect-ual.   Subsequent  to  the  Beechnut  Case,  the  Court  has  refused  to  review 
the  decisions  of  lower  courts  in  several  instances. 

(See  Butterick  Co.  v.  Federal  Trade  Commission,  267  U.S.  602  (1925) j 
Hills  Bros,  v.  Federal  Trade  Commission.  270  U.S.  662  (1926); 
Harriett  Hubbard  Ayer,  Inc.  v.  Federal  Trade  Commission,  273  U.S.  759,  (1927). 

The  unlaiTful  restraint  upon  trade,  according  to  the  view  of  the  Court, 
consists  in  the  agreements  made  between  the  manufacturer  aind  distributors. 
TOien  a  number  of  manufacturers  agree  to  employ  a  resale  price  maintensaxce 
scheme,  a  further  and  distinct  agreement  may  be  found  between  the  maai-afactu.rers, 
which  likewise  appears  to  be  an  unlawful  agreement  within  the  Anti-Trust  Laws. 

(11)  Tying  Clauses.  Full  Line  Forcing  and  Exclusive  Dealing. 

Prior  to  the  passage  of  the  Clayton  Act,  it  was  not  clear  that  tying 
clauses  were  illegal  under  the  Shermaii  Act.  In  Henry  v.  A.  B.  Dick  Co.,  224 
U.S.  1  (1912),  the  Supreme  Court  held  that  the  manufacturer  of  a  patented 

8001  -37- 


article  could  "license"  the  p-urchaser  to  use  it  on  condition  that  he  use 
with  it  only  unpatented  supplies  made  by  the  same  manufacturer.   In  United 
States  V.  Winslow,  227  U.  S.  202  (1913),  the  Court  upheld  as  not  in  viola- 
tion of  the  Sherman  Act  the  tying  contracts  of  the  United  Shoe  Machinery 
Co,  which  hound  lessees  of  patented  machines  to  use  with  them  certain  un- 
patented machinery  made  hy  a  lessor. 

Section  3  of  the  Clayton  Act  made  illegal  all  tying  clauses  which  "sub- 
stantially lessen  competition".   In  Motion  Picture  Patents  Co.  v.  Universal 
Film  Co.,  243  U.  S.  502  (1917),  the  Court  relied  partly  upon  Section  3  of 
the  Clayton  Act,  but  in  addition  erpressly  overruled  the  Dick  case,  and  de- 
clared that  the  tying  clause  there  in  question  was  illegal  under  the  Sher- 
man Act.   In  United  Shoe  Machinery  Co.  v.  United  States,  258  U.  S.  451 
(1922),  the  Supreme  Court  ruled  that  the  same  tying  clauses  considered  in 
the  Winslow  case  were  in  violation  of  the  Clayton  Act.   The  Court  pointed 
out  that  the  tying  agreements,  coupled  with  the  "dominating  position"  of 
the  company  in  the  industry,  effectually  prevented  the  lessees  from  acquir- 
ing machinery  manufactured  by  a  competitor. 

Accord; 

Radio  Corp.  of  America  v.  Lord,  23  F.    (2d)  257  (C.C.A.3rd  1928)  certio=- 
rar i denied  278  U.  S.  648  (1928). 

Stanley  Co.  of  America,  Inc.  v.  American  Telephone  &  Telegraph  Co.,  Inc. 
4  F,  Supp.  80  (D.  C.  Del.  1933).   (Tying  contract  in  lease  of  motion  picture 
producing  apparatus.) 

The  Federal  Trade  Commission  lias  also  attempted  to  suppress  the  use  of 
tying  clauses.   In  Federal  Trade  Comnission  v.  Sinclair  Refining  Co.,  261 
U.  S.  463  (1925),  the  Commission  order  the  Sinclair  Company  and  other  large 
distributors  of  gasoline  to  desist  from  the  practice  of  leasing  gasoline 
tanks  and  pumps  to  retail  dealers  at  nominal  rental,  on  condition  that  the 
equipment  be  used  only  with  gasoline  supplied  ty   the  lessor.   The  order  was 
reversed,  on  the  ground  that  there  was  no  violation  of  the  Clayton  Act,  be- 
cause the  lessee  was  free  to  use  gasoline  of  competitors  in  other  equipment, 
and  that  the  practice  was  not  an  unfair  method  of  competition  within  Sec- 
tion 5  of  the  Federal  Trade  Commission  Act.   The  Court  declared  that  there 
appeared  no  purpose  or  power  to  acquire  an  tmlawful  monopoly,  and  no  evi- 
dence that  the  effect  of  the  practice  would  unduly  lessen  competition. 

The  best  known  case  upon  the  legality  of  full  line  forcing  is  Federal 
Trade  Com.Tai-^sion  v.  Oratz.  253  U.  S.  421  (1920).  Respondent  sold  steel  ties 
for  use  in  binding  cotton  bales  onljr  on  condition  that  the  purchaser  would 
also  buy  the  necessary  Jute  bagging  to  be  used  with  the  ties.   The  Supreme 
Court  reversed  the  Commission's  order  to  desist  on  the  grovind  tliat  there  was 
no  element  of  deception  or  fraud,  and  that  the  complaint  failed  to  show 
sufficient  control  by  the  respondent  of  the  two  lines  of  business  to  con- 
stitute a  monopoly.   In  Federal  Trade  Commission  v.  Paramount  Famous-Laslcv 
Corp.,  Inc.   57  F.  (2d)  152  (CCA.  2d,  1932),  respondent  was  ordered  to 
cease  the  practice  of  "block  booking"  by  which  an  exhibitor  of  motion  pic- 
tures was  forced  to  take  all  the  films  in  a  "block"  or  none.   The  Circuit 
Court  reversed  on  the  ground  that  the  respondent  controlled  only  a  small 
percentage  of  the  total  production,  that  his  competitors  were  not  injured, 
that  the  exliibitors  were  not  coerced  but  merely  presented  v?ith  an  alternative 
and  that  the  practice  did  not  constitute  a  t^^dng  agreement. 

8001  -38- 


An  exclusive  dealing  contract  was  held  illegal  in  Standard  Fashion  Co. 
V.  Magrane  ~R)uston  Co.,  258  U.  S.  546  (1922).   There  a  manufacturer  of 
dress  patterns  brought  an  action  to  restrain  the  violation  by  a  retail 
dealer  of  a  contract  to  deal  exclusively  in  patterns  produced  by  the  plain- 
tiff. The  Supreme  Court  ruleu  that  the  contract  was  in  violation  of  the 
Clayton  Act.   It  emphasized  that  plaintiff  controlled  t':70-fifths  of  the  pro- 
duction of  patterns"  throughout  the  co\mtry,  and  hence  that  the  effect  of  the 
contract  not  to  handle  a  competitor's  patterns  was  to  "substantially  lessen 
competition"  within  Section  5  of  the  Clayton  Act.   Cases  prior  to  the  pass- 
age of  the  Clayton  Act  are  Whitwell  v.  Continental  Tobacco  Co. ,  125  P.  454 
(C.  C.  A.Sth.  I'jCij)   at'.d  'iontinental  Wallnaper  Co.  v.  Voight  &  Sons  Co.  212 
U.  S.  227  (1909).  • 

The  Federal  Trade  Commission  entered  an  order  in  another  dress  pattern 
case.   The  order,  which  was  based  upon  Section  3  of  the  Clayton  Act  and  Sec- 
tion 5  of  the  Federal  Trade  Commission  Act  was  affirmed.  Butterick  Co.  v. 
Federal  Trade  Conmission,  4  F.  (2d)  910,  (C.C.A.2d  1925).   Certiorari  denied, 
267  U.  S.  6'02  (1925).   In  B.  F.  Fearsall  Butter  Co.  v.  Federal  Trade  Commis- 
sion, 292  F.  720  (CCA.  7th,  1923),  an  order  based  upon  the  Clayton  Act  was 
vacated,  on  the  ground  that  respondent  controlled  only  one  per  cent  of  the 
trade,  that  many  of  his  competitors  employed  similar  exclusive  dealing  con- 
tracts and  that  in  return  for  the  exclusive  dealing  agreement  respondent 
granted  an  exclusive  territory  to  the  retailer.   In  Federal-  Trade  Coi:imission 
V.  Curtis  Publishing  Co..  260  U.  S.  568  (1922),  the  Court  found  tloat  the  ex- 
clusive dealing  agreements  there  involved  were  contracts  of  agency,  and  not 
of  sale,  and  hence  it  ruled  that  Section  3  of  the  Clayton  Act  did  not  apply; 
the  Court  also  declared  ttiat  the  making  of  such  contract  was  not  unfair 
within  Section  5  of  the  Federal  Trade  Commission  Act, 

(12)  Enticing  Employees. 

In  Albert  Pick-Barth  Co.  Inc.  v.  Mitchell  Woodbury  Corp.,  57  F.  (2d) 
296  (C.CAclst,  1932)  an  action  was  brought  for  damages  under  Section  7  of 
the  Sherman  Act  as  amended  by  Section  4  of  the  Clayton  Act,  The  defendants 
had  enticed  the  employees  of  the  plaintiff  to  leave  its  employment  and  to 
join  their  own  organization,  bringing  with  them  valuable  information  and  cus- 
tomer lists,  to  the  injury  of  the  plaintiff.   The  court  rules  that  these 
facts  constituted  a  violation  of  the  anti-trust  laws  and  awarded  damages. 

Accord; 

Cleaves  v.  Peterboro  Basket  Co.  54  F.  (2d)  101, 
(N.D.H.  1931). 

-"r.3rican  Steel  Co.  v.  American  Steel  and  Wire  Co. , 
et_al.,  244  F.  300  (D.Mass.  1916) 

{13]     'J-'iiorm  Cost  Accounting 

At  til?  oatset  a  distinction  must  be  drawn  between  uniformity  of  methods 
of  cost  accooiiting  and  uniformity  of  elements  of  cost.   With  regard  to  coop- 
erative ac;:;on  in  the  former  category  no  problem  of  the  Anti-Trust  laws 
arises,  .kz   ("Ssfined  in  one  of  the  leading  text  writers  upon  the  subject 
"\iniform  cobt  accounting  comprises  a  set  of  principles  and  in  some  cases  of 
accounting  methods  which  when  incorporated  in  the  accounting  systems  of  the 
individual  members  in  an  industry  will  result  in  the  obtaining  of  cost  fig- 
ures by  the  individual  members  of  the  industry  which  will  be  on  a  comparable 

8001  -39- 


"basis," 

Uniformity  as  to  methods  of  accoimting  is  primarily  educational,  while 
uniformity  as  to  elements  of  costs  is  generally"  looked  upon  as  a  guise  for 
price  fixing.   To  londerstand  the  legal  aspects  of  this  practice,  it  must  he 
emphasized  that  a  plan  which  is  educational,  must  not  be  used  as  an  instru-. 
ment  to  promote  or  affect  an  illegal  agreement.   If  the  plan  comprises  ar- 
hitrar;'-  and  artificial  cost  elements,  it  will  he  illegal  because  of  its  price 
fixing  character.  Thus  the  individual  must  follow  his  own  actual  cost. 

There  are  but  a  few  cases  bearing  upon  the  legal  limits  of  uniform  cost 
accounting.   In  the  Maple  Flooring  Case,  supra,  the  Supreme  Court  refused 
to  condemn  the  computation  and  distribution,  among  the  members  of  the  asso- 
ciation, of  information  as  to  the  average  cost  of  their  products.  The  Court 
carefully  described  the  methods  of  calculating  costs,  and  concluded  that  all 
practicable  accuracy  was  attained.   The  association  had  more  or  less  arbi- 
trarily distributed  the  total  cost  of  all  the  different  grades  of  flooring 
produced  from  a  certain  amount  of  rough  lumber  among  the  several  types  thus 
produced.  Of  this  Justice  Stone  said,  at  268  U.  S.  570; 

"There  is  no  substantial  claim  made  on  the  part  of  the  Government 
that  the  preparation  of  these  estimates  of  cost  was  not  made  with 
all  practicable  accuracy  or  that  they  ?rere  in  any  respect  not  what 
they  purported  to  be,  an  estimate  of  the  actual  cost  of  commercial 
grades  of  finished  flooring  fairly  ascertained  from  the  actual 
experience  of  members  of  the  Association,  except  that  the  point  is 
made  by  the  Government  that  the  distribution  of  cost  among  the 
several  types  and  grades  of  finished  flooring  produced  from  a 
given  amount  of  rough  lumber  vias   necessarilj"-  arbitrary  and  that 
it  might  be  or  become  a  cover  for  price  fixing.   Suffice  it  to 
say  that  neither  the  Government  nor  the  defendants  seem  to  have 
found  it  necessary  to  prove  upon  what  principle  of  cost  accounting 
this  distribution  of  cost  was  made  and  there  are  no  data  from  which 
any   inference  can  be  drawn  as  to  whether  or  not  it  conformed  to  ac- 
cepted practices  of  cost  accounting  applied  to  the  manufacture  of 
a  diversified  product  from  a  single  type  of  raw  material," 

The  Court  in  approving  the  dissemination  of  average  costs,  carefully 
pointed  out  that  the  plan  should  not  be  made  an  arbitrary  basis  for  deter- 
mining cost  or  price.   In  this  respect  it  must  be  emphasized  that  in  order 
to  be  legal  the  individual  must  exercise  his  own  discretion  as  contrasted 
with  an  agreement  or  concerted  action  upon  an  arbitrary  basis.   The  language 
of  the  Court  at  page  585  is  significant;  it  said  that  the  individual  concerns 
must  be  "left  free  to  base  individual  initiative  on  full  information  of  the 
essential  elements  of  their  business". 

The  court  recognized  that  the  use  of  average  costs  may  become  illegal 
when  coupled  with  an  agreed  margin  of  profit.   In  reference  to  this,  the 
co-urt  said  at  page  572: 

"It  cannot,  we  think,  be  questioned  that  data  as  to  the  average 
cost  of  flooring  circulated  among  the  members  of  the  association, 
when  combined  with  a  circulated  freight  rate  which  is  either  ex- 
actly or  approximately  the  freight  rate  from  the  point  of  ship- 
ment, plus  an  arbitrary  percentage  of  profit,  could  be  made  the 

8001  -40- 


basis  of  fixing  prices  or  for  an  agreement  for  price  maintenance 
which,  if  found  to  exist,  would,  under  the  decisions  of  this 
court,  constitute  a  violation  of  the  Sherman  Act.  But,  as  we 
have  already  said,  the  record  is  "barren  of  evidence  that  the  puhr^- 
lished  list  of  costs  and  the  freight  rate  hook  have  heen  so  used 
by  the  present  association." 

The  Federal  Trade  Commission  has  entered  one  cease  and  desist  order 
which  dealt  with  standard  cost  accounting  as  in  violation  of  the  Anti-Trust 
laws.   In  Federal  Trade  Commission  v.  United  T^.Toothetae  of  America,  6  P.  T, 
C.  D.  345  (1923)  the  cost  accounting  system  operated  as  a  price  fixing  de- 
vice, for  the  cost  elements  were  arbitrary  and  were  coupled  with  a  recommen- 
dation of  a  fixed  rate  of  profit  of  25^.  Because  of  the  absence  of  judicial 
review  this  case  is  not  a  valuable  precedent,  though  it  does  indicate  the 
policy  of  the  Federal  Trade  Commission  as  regards  cost  accounting  plans  which 
are  used  to  accomplish  illegal  ends. 

In  conclusion  it  may  be  well  to  mention  some  of  the  significant  features 
which  will  serve  as  a  guide  to  a  better  understanding  of  the  legal  bounds  of 
uniform  cost  accounting.   The  work  of  Benjamin  S.  Kirsh  in  his  book  on 
"Trade  Associations"  has  been  of  valuable  assistance  and  his  conclusions  as 
to  the  limitations  and  the  significant  features  are  as  follows: 

"1,  The  cost  data  must  be  as  accurate  as  practicable.   The  fig- 
ures must  be  based  on  actual  and  not  on  fictitious  or  arbitrary 
information.  They  must  be  fairly  ascertained  from  the  actus-l  ex- 
perience of  the  members  reporting  to  the  secretary,  and  must  be  ac- 
curately reproduced  in  the  reports  of  the  secretary  to  the  member- 
ship.  The  data  should  not,  therefore,  be  inflated  or  colored  by 
the  inclusion  of  items  not  actually  present  in  the  elements  of  cost 
of  the  reporting  members, 

"2,   There  must  be  no  recommendation,  advice,  comment  or  criticism 
with  respect  to  the  amount  of  any  item  of  cost,  rate  of  profit  or 
selling  price  to  be  set  by  the  individual  member.   The  decision  of 
the  Supreme  Court  in  the  Maple  Flooring  case  apparentl}?-  permits 
the  discussion  of  cost  data  as  well  as  comparative  analysis  by  the 
individual  member^  But  no  agreement  or  attempt  to  agree  on  cost, 
or  any  specific  item  thereof,  margin,  sales  price,  or  production 
policy,  is  permitted, 

"3,  The  cost  information  must  be  essentially  educational  and  infor- 
mative in  character.  While  the  group  in  the  industry  may  be  educated 
in  proper  methods  of  cost  accounting,  it  is  of  the  utmost  importance 
to  bear  in  mind  that  the  use  of  the  cost-accounting  data  is  a  matter 
of  individual  choice.   The  member  must  exercise  his  own  initiative, 
discretion  and  judgrjent  in  determing  and  fixing  his  own  cost,  margin 
and  selling  price.  He  must  at  all  times  be  free  to  follow  his  own 
will  in  contrast  to  pressure  from  without  by  the  association  or  any 
of  its  officers, 

"4,  The  cost  information  should  be  published  or  made  available  to 
those  who  are  not  within  the  ranks  of  the  association  or  to  neutral 
publications,  so  that  the  appearance  of  secrecy  and  the  possibility 
of  distortion  of  the  information  for  unlawful  purposes  by  the  members 
of  the  association  may  be,  in  a  large  measure,  lessened, 

8001  -41- 


"5.   The  cost  data  must  "be  di'sseniilated  in  such  a  manner  that  the 
information  contributed  by  individual  concerns  is  not  identified 
by  hame  and  thus  made  known  to  compctitore^   Anonjnnous  numbero<i 
reports  by  individual  concerns  which  are  not  loiown  to  the  member- 
ship of  the  association,  can  serve  substantially  the  same  purpose 
as  identiriea  rcrpo-rta.   They  perform  substantially  as  well  the 
service  of  disclosing  the  efficiency  of  business  imits  in  the 
industry.   The  general  policy  of  the  law,  similar  to  the  policy 
expressed  in  consideration  of  the  general  statistical  activity 
of  the  trade  association,  is  to  forbid  the  identification  of  each 
report  to  detect  those  who  did  not  conform  to  a  preconceived,  con- 
certed arrangement  to  violate  the  anti-trust  laws.   It  may  be  that 
identification  of  cost  data  is  not  so  intimately  related  to  the 
ultimate  selling  price.  But  to  refrain  from  such  identification 
is  a  safeguard  which  it  would  be  wise  to  follow,  as  the  law  stands  today. 

"6.  There  should  be  no  penal  provision  compelling  group  action  as 
distinguished  from  free  and  uncontrolled  individual  discretion  with 
respect  to  cost,  margin  or  selling  price,  A  member  should  not  be 
subjected  to  the  duress  of  fines  or  expulsion  for  exercising  his 
individual  judgment  in  these  matters, 

"7,  Drastic  supervision,  which  is  employed  to  spy  upon  the  acti- 
vities of  a  member  to  discover  whether  or  not  he  is  conforming  with 
the  group  plan,  should  be  avoided, 

"Uniform  cost  accounting  methods  will  thus  be  judged  with  emphasis  upon 
their  demonstrated  value  rather  than  by  the  possibility  that  they  have  trans- 
gressed the  technical  rules  of  a  forbidding  law.   Cooperative  efforts  on  the 
part  of  trade  associations  seeking  a  more  efficient,  improved,  and  more  ser- 
viceable technique  will  be  judged  by  the  law,  when  pursued  within  proper 
limits,  with  a  view  to  enlarging  the  permissible  area  of  operation.   This 
seems  a  fair  prophecy,  now  that  the  principle  of  uniform  cost  accounting  has 
been  accepted  by  the  courts,  as  a  oo\md  legal,  as  well  as  economic,  function." 


8001  -^-Sw 


Ill 

AFPENDIX 
JffiMIUISTRATIira  DEVELOPIJENT  OF  UNFAIR  CQliPETITION 


From  the  foregoing  discussion  it  is  quite  oTDvious  that  the  legitims,te 
and  proper  area  of  competition  cannot  he  reduced  to  sji  abstract  form.   In 
the  field  of  competitive  practices  the  courts  have  had  occasion  to  review 
only  a  small  portion  of  'onfair  industrial  behavior.  Vie?;ed  in  the  histori- 
cal perspective,  the  development  of  the  law  of  unfair  competition  has  "been 
very  unsatisfactory.  Bearing  in  mind  the  legal  principles  deduced  from  the 
cases  here  discussed,  it  Liust  be  remenbered  that  there  is  an  abundaiice  of 
precedent  in  the  Federal  Trade  Commission  in  the  form  of  cease  and  desist 
orders  not  reviewed  by  the  courts,  stipulations,  and  trade  practice  confer- 
ences, which  serve  as  guides  to  our  industrial  conduct  in  the  future. 

Aside  from  those  practices  outlawed  by  cease  and  desist  orders,  the 
Federal  Trade  Commission  has  at  least  in  theory  made  a  valuable  contribution 
by  supplementing  its  statutory  procedure  through  its  trade  practice  confer- 
ences in  which  voluntary  codes  of  ethics  have  been  adopted  to  guide  members 
of  the  industry  in  their  future  dealings.   In  fact  the  1>rade  practice  con- 
ference is  a  modern  corollary  to  the  early  development  of  the  law  merchant. 
The  progress  made  from  this  approach  will  be  of  valuable  assistance  in  de- 
termining what  the  law  will  be  in  the  future. 

One  of  the  outstanding  improvements  made  in  the  time-worn  procedure  of 
the  Commission  is  the  process  of  disposing  of  bxi  unfair  competitive  practice 
by  stipulation  of  the  parties,  thereby  eliminating  the  cumbersome  adminis- 
trative steps  of  the  cease  and  desist  order.  Those  stipulations  although 
not  tinted  with  judicial  approval  serve  as  a  barometer  of  the  Federal  Trade 
Commission's  attitude  toward  that  particular  practice. 

In  the  succeeding  outline  an  exliaustive  survey  has  been  made  of  those 
unfair  competitive  practices  which  the  Federal  Trade  Commission  has  reviewed. 
Its  attitude  serves  to  temper  the  legal  conception  of  unfair  competition,  and 
is  undoubtedly  valuable,   entirely  apart  from  the  available  judicial  prece- 
dent, 

UITFAIR  METHODS  OF  COMPETITION  AFFSCTIlTr 
THE  IMSIVISUAL  PURCHASER 

I.  Hi  srep  re  sentat  i  on 

1,  As  to  weight  or  quantity 

(a)  Fictitious  weights 

Respondent  engaged  in  the  sale  of  sponges  by  weight  "loaded" 
them  by  adding  foreigTi  substance,  soaking  them  in  solution  of 
salts,  thereby  securing  business  on  a  false  and  fictitious 
basis.   Cease  and  desist  orders  were  issued  in  the  following 
Complaints,  Nos.  374,  375,  377,  379,  387,  389-394,-396-398. 

(b)  False  packaging 

The  packing  of  butter  in  cartons  of  a  definite  size  and  shape, 
but  with  contents  less  than  the  standard  weight,  was  condemned. 
Complaints  Nos.  1041,  1042,  1043  and  1221. 

8001  -43- 


Packing  14  otmces  of  "butter  in  a  standard  one-pound  size 
cartoon: 

Federal  Trade  Commission  v.  Mountain  Grove  Croamery  Co. , 
6  JP.T.C.   D.  425  (1923). 

Federal  Trade  Comnission  v.  Baltimore  Paint  &  .Color  "orks, 
41  p.  (2d)  474  affirmed  order  of  Comnission,  in  re.go.rd  to 
false  packaging  in  the  sale  of  paints. 

2.  Corrposition.  quality,  condition  or  character  of  products 

(a)   Composition 

(1)  The  Commission's  order  condemning  the  sale  of  goods  chiefly 
made  out  of  cotton  as  wool,  was  affirmed  in  Federal  Trade 
Commission  v.  ffinsted  Hosiery  Co.,  258  U.  S.  483  (1922). 

(2)  Sale  of  yellow  pine  as  "California  White  Pine"^,  Federal 
Trade  Commission  v.  Algoma  Lumber  Co.,  291  U.  S.  67 
(1934)   (order  affirmed) 

(S)  Selling  talcing  powder  as  "Crean  Baking  Powder"  where  cream 
of  tartar,  formerly  used  in  its  manufacture,  has  lieen  re- 
placed hy  a  cheaper  substitute: 

■Royal  Balcing  Powder  Co.  v.  Federal  Trade  Commission, 
281  Fed.  744  (C.C.A.  2d,  1932)  (order  affirmed). 

(4)  Advertising  a  product  composed  of  comi-ion  salt  with  its  im- 
purities as  containing  sixteen  different  chemical  and 
vegetable  ingredients: 

Guarantee  Veterinary  Co.  v.  Federal  Trade  Commission, 
285  Fed.  855  (C.C.A.  2d,  1922)  (Order  affirmed). 

(5)  Representing  "Ohio  Improved  Chester"  hogs  are  a  separate 
and  distinct  breed  from  a  nell  known  variety  called  "Chester 
I]hite" ; 

L.  3.  Silver  Co.  v.  Federal  Trade  Commission,  289  Fed. 
985  (C.C.A.  5th,  1923)   (Order  modified  by  vacating  most 
essential  paragraph  of  order). 

(5)  False  advertising  of  product  as  "naptha"  soap: 

Proctor  &   Garable  v.  Federal  Trade  Commission.  11  F.  (2d) 
47  (C.C.A.  6th,  1926)  (Finding  of  unfair  competition 
sustained).  Cert,  den.,  273  U.  S.  717  (1926). 

(7)  iiisbranding  paint  by  terming  it  "Combination  White  Lead". 

Louis  Leavitt  v.  Federal  Trade  Commission,  15  F.  (2d) 
1019  (C.C.A.  2d,  1925)  (Per  curiam)   (Order  affirmed). 

(8)  "Satinsilk"  as  a  brand  or  label  for  cotton  thread. 

Sea  Island  Thread  Co.  v.  Federal  Trade  Commission,  22  F. 
(2d)  1019  (C.C.A.  2d,  1927)  (Affirmed  without  opinion). 

8001  -44- 


{y )      seiilng  wood,  as  "Philippine  Mahogany". 

Indiana  Quartered  Qak  Co.  v.  Federal  Trade  Commission 
26  P.  (2d)  340  (CCA.  2d,  1928)  (Order  affirmed). 
Cert,  den.,  278  U.  S.  623  (1928). 

(10)  Branding  imitation  leather  products  as  "Duraleather" . 

llasland  Daraleather  Co.  v.  Federal  Trade  Commission, 
34  F.  (2d)  733  (CCA.  3d,  1929)   (Order  modified  in  an 
immaterial  particular), 

(11)  Selling  and  advertising  as  "Radium"  a  product  possessing 
no  radioactive  qualities. 

Federal  Trade  Commission'  v,  Kay,  35  F.  (2d)  (C.C.A. 
7th,  1929)  (order  modified  but  substantially  upheld). 
Cert,  den.,  281  U.  S.  764  (1930). 

(12)  Using  "Satinmaid"  to  describe  a  cotton  fabric. 

K.  Fluegelman  &  Co.,  Inc.  v.  Federal  Trade  Commission, 
37  F.  (2d)  59  (C.C.A.  2d,  1930)  (order  modified  to  al- 
low use  of  term  provided  qualifying  terms  indicating 
cotton  nature  of  ma,terial  are  added). 

(13)  Selling  product  not  composed  solely  of  genuine  shellac 
gum  dissolved  in  alcohol  as  "Wiite  Shellac". 

Federal  Trade  Commission  v.  Cassoff ,  38  F.  (2d)  790, 
(C.C.A.  2d,  1930)   (Order  modified  by  permitting 
respondent  to  ercrploy  terms  indicating  the  product  was 
not  wholly  composed  of  shellac  gum,  without  specif3'"ing 
percentages  of  other  ingredients), 

(14)  Selling  as  "walnut"  or  "mahogany"  furniture  made  of  other 
woods  with  a  thin  veneer  of  walnut  or  mahogany, 

Eerkey  &.   C-ay  Furniture  Co.  v.  Federal  Trade  Commission, 
42  F.  (2d)  427  (CCA.  5th,  1930)   (Order  vacated  on 
ground  evidence  showed  better  grade  furniture  was  ma6.e 
of  veneered  rather  than,  solid  walnut  or  mahogany,  and 
consequently  no  deception  of  retailers  or  of  the  public 
was  present). 

(15)  Using  term  "Good  Grape"  in  connection  with  an  artificially 
colored  and  flavored  preparation. 

Federal  Trade  Commission  v.  Good-Grape  Co. ,  45  F.  (2d) 
70  (CCA.  6th,  1930)  (Order  modified  by  permitting  use 
of  term  on  condition  that  artificial  nature  of  prepa- 
ration be  indicated). 

Cf.  Federal  Trade  Commission  v.  Morrissey,  47  F.  (2d) 
101  (C.C.A.  7th,  1931)  (Order  prohibiting  use  of  names 
of  fruit  in  connection  with  drinks  artificially  colored 
and  flavored;  modified  to  permit  use  of  fruit  names 

8001  -45- 


provided  they  be  accompanied  "by  a  statement  that  they 
resemble  the  fruits  in  taste  or  color  but  contain  no 
natural  juice  or  coloring  matter). 

(b)  As  to  quality. 

(1)  Label  bearing  pictorial  representation  showing  mattresses 
with  an  uncovered  and  flaring  to  an  exaggerated  thiclGiess. 

Qstermoor  &  Co.,  Inc.,  v.  Federal  Trade  Commission, 
16  P.  (2d)  962  (CCA.  2d,  1927)   (Order  vacated  on 
ground  representation  was  simply  fanciful,  not  deceptive, 
and  merely  constituted  the  time-honored  practice  of 
"puffing"  one's  wares). 

(2)  Representation  of  "obesity  cure"  as  "scientific";  failure 
to  state  that  the  preparation  could  not  be  taken  safely 
except  under  medical  advice. 

Federal  Trade  Commission  v.  Raladam  Co. ,  283  U.  S.  643 
(1931)  (order  vacated,  since  jurisdiction  of  Comjiission 
is  livaited  to  unfair  trade  methods  Tvhich  affect  conipe- 
tition,  and  there  was  no  evidence  that  respondent's 
advertisements  injured  competitors). 

(3)  Label  of  snuff  manufacturer  containing  words  "dental  snuff" 
and  pictorial  represento.tion  of  a  tooth. 

FederaJL  Trade  Commission  v.  American  Snuff  Co.,  38  F. 
(2d)  547  (CCA.  3d,  1930)  (Order  vacated,  since  pur- 
chasers were  not  misled  by  change  from  a  former  label, 
and  since  label  merely  indicates  snui'f  is  designed  to  be 
chewed  rather  than  taken  nasally). 

( c)  As  to  condition. 

(1)  Selling  rebuilt  tires  as  new. 

Federal  Trade  Commission  v.  H.  P.  Jones,  1.  F.  T.  C.  D. 
360  (1932). 

(2)  Marketing  rebuilt  typewriters  as  new 

Federal  Trade  Commission  v.  Typewriter  Emporium, 
1  F,  T.  C  D.  105  (1915). 

(3)  Advertising  a  wealc  chemical  preparation  as  "ten  times 
stronger  as  a  germicide  than  undiluted  U.S. P.  carbolic 
acid" . 

Federal  Trade  Commission  v.  Ginse  Chemical  Co., 
4  F.  T.  C  D.  155  (1921). 

(4)  Re-issue  of  old  files  as  new  releases. 

Fox  Film  Corp.  v.  Federal  Trade  Commission, 
296  Fed.  353  (CCA.  2d,  1924)  (Order  affirmed) 

8001  -46- 


(d)  As  to  character. 

(l)  Continuing  trade  name  without  indicating  change  in  the 
character  of  the  product  or  ingredient. 

Royal  Baking  Powder  Company  Vo  Federal  Trade  Coramission, 
281  F.  744  (CCA.  2d,  1922). 

3.  False  Claim  to  Endorsement  .  or  use. 

( a)  Official  endorsements  and  recommendations. 

(1)  FsJ.se  statement  that  product  was  adopted  or  purchased  "by 
the  United  States  Government. 

C-uaraxitee  Vetinary  Co.  v.  Federal  Trade  Comiaission, 
285  Fed.  853  (CCA.  2d,  1SI2^). 

( h )  Endorsement  hy  private  individuals. 

(l)  Puhlishing  testimonials  of  nationally  laiown  characters 
without  disclosing  that  suhstantial  payments  are  made, 

Ilortham  Warren  Corp.  v.  Federal  Trade  Coramission,  59  F, 
(2d)  196  (CCA.  2d,  1932)  (Order  vacated  on  groiuid 
payment  for  trutliful  testimonials  deceives  no  one.) 

4,  As  to  Business  status. 

( a)  Misrepresenting  that  respondent  is  a  manufacturer. 

(1)  Trade  or  corporate  name  including  word  "i.iills"  where  re- 
spondent does  not  own  or  operate  a  factory  in  which  its 
products  are  made. 

Federal  Trade  Commission  v.  Pure  Silk  Hosiery  Llills, 
Inc..  3  F.  (2d)  165  (CCA.  7th,  1925). 

(2)  Trade  name  including  words  "Hilling  company";  false  repre- 
sentation that  respondent  was  a  manufacturer  of  flour  sold 
direct  from  the  mill. 

Federal  Trade  Commission  v.  Eoyal  Milling,   288  U.  S. 
212  (1933)  (Order  modified  to  permit  use  of  naiae 
"Milling  Company"  providing  that  there  -/as  an  ercplicit 
statement  that  respondent  did  not  grind  the  grain). 

(3)  By  pictorial  representations. 

Use  of  pictures  of  plonts  and  factories  on  letterheads 

and  advertising,  to  indicate  respondents  ovm  them  -  ordered 

discontinued  in  Complaints  ITos,  193,  491,  1104,  1107,  1720. 

( h )  Liisrepresenting  commercial  rating  (Stipulation  Fo.  654 ) . 

(c)  Advertising  res-oondent  has  generrg  distribution  centers. 
when  in  fact  it  is  untrue  (Stipulation  llo.  0137). 

8001  -47- 


(d)  Re-presentation  that  respondent  employed  experts  and  that  its 
"business  was  world-wide  in  extent,  when  the  facts  were  untinie. 
(Complaint  ITo.  1850). 

(e)  Represent  in,?:  respondent  vjas  not  engaged  in  a  "business  for  profit, 

(1)  Trade  name  "inti-Totacco  League"  implying  non-profit  or.-^an- 
ization,  when  in  fact  it  was;  — discontinued  in  Stipula- 
tion Ho.  0130, 

5,  As  to  Origin  of  product, 

(a)  Labeling  product  made  in  the  United  States  as  "English  Tul) 
Soap" . 

Federal  Trade  Cormission  v.  Bradley,  31  F.  (2d)  569, 
(CCA.  2d,  1929)  (Order  affirmed). 

6.  As  to  price  Reductions. 

(a)  Palse  representation  that  usual  sale  price  for  product  was 
$20,  in  sale  of  two  for  $10. 

Chicago  Portrait  Co.  v.  Federal  Trade  Comraission,  4  P.  (2d) 
259  (CCA.  7th  1925).  Cert,  den.,  269  U.  S.  556  (1925) 
(Order  vacated,  on  gi-ound  there  was  no  evidence  that  cu-stoners 
were  deceived  or  competition  injured). 

Cf.  John  C  Winston  Co.  v.  Federal  Trade  Commission,   3  F. 
(2d)  961  (CCA.  3d,  1925)   (Order  affirmed) 
Cert,  den.  269  U,  S.  555  (1925). 

("b)  False  representation  that  "loose  leaf  extension  service"  for 
enc;/"clopedia  wa,s  given  free  with  purchase  of  "books. 

Consolidated  Book  PuTjlishers.  Inc.  v.  Federal  Trade  Commis- 
sion, 53  F.  (2d)  942  (C.C.A.  7th,  1931)  (Order  affirmed). 

( c)  3y  means  of  com'bination  sales. 

Selling  groceries  at  a  fixed  aggregate  price,  placing  the 
price  of  the  staple  articles  telow  retail  price  and  charging 
excessive  prices  for  the  other  articles.  Ordered  discontinued 
in  Complaints  Hos.  349,  352. 

( d)  Misrepresenting  that  there  was  "no  extra  charge  for  credit" 
whereas  substantial  discounts  were  given  on  goods  sold  for 
cash.   (Comjolaints  I-Ios.  765  and  766). 

(e)  ilisrep resenting  that  repairs  were  free,  when  in  fact  the  charge 
was  made  xvp   by  excessive  postage  and  package  charges. 

(f)  Falsely  advertising  that  the  sale  was  "below  cost  (Complaint 
no.  121). 

(g)  Representing  that  the  price  of  the  product  would  "be  advojiced 
(Stipulations  Nos.  521,  483). 

8001  -40- 


(h)  Representing  that  -products  are  offered  at  "speical"  or  "intro- 
ductory" prices.   (Complaint  No.  2010,  Stipulations  733,  591, 
483,  740,  607). 

(i)  Fictitious  prices. 

Larking  enhanced  prices  on  fountain  pens,  to  mislead  the 
purchaser  as  to  the  value  of  the  product,  (Complaints 
Hos.  561,  663-68,  670-673.) 

Similarly  as  to  razor  hones,  No.  806,  as  to  pocket  knives, 
811,  as  to  soaps,  848,  as  to  sheet  music,  1174,  as  to 
piaJios,  No.  577. 

7,  As  to  Medicinal  or  Curative  Value  of  the  product. 
(a)  By  means  of  advertising. 

(1)  That  an  electrical  device  was  heneficial  for  certain  ail- 
ments and  had  the  endorsement  of  physicians,  when  those 
facts  were  not  true.   (Complaints  1695,  1703,  1679) 

(2)  That  soap  was  medicated  for  skin  treatment  (Complaints 
Kos.  896,  1289), 

(3)  Antiseptic  as  cure  for  disease   (Complaint  No,  1845), 
(h)  By  means  of  false  "brands. 

(l)  Lahellin^  soap  as  containing  olive  oil,  peroxide,  palm 

oil,  Tdtch-hazel,  medicines  or  dnigs  (Coroplaint  No,  872). 

8,  Misrepresentations  in  the  Sale  of  Corporate  Securities. 

(a)  i.Iisleading  and  deceptive  statements  in  advertising,  letters, 
mops,  concerning  the  value  of  oil  leases,  properties,  assets, 
and  productivity.   Ordered  discontinued  in  Complaints  Nos,  795, 
596,  856,  857. 

(h)  Misleading  reports  on  drilling  operations  when  no  work  had 
hegan.  Complaints  Nos,  595  and  785, 

(c)  Withholding  material  information  as  to  tlifee  value  of  secu-rities. 
Ordered  discontinued  in  Complaints  Nos.  861,  865,  371, 

(d)  Misleading  statements  that  corporation  owned  lai-ge  refineries, 
when  in  fact  it  did  not.   (Complaint  dismissed  for  failure  of 
proof). 

(e)  Simulating  the  name  of  the  Royal  Batch  Conipany  to  mislead 
purchasers  to  telieve  that  respondent  T/as  affiliated  with  it. 
(See  Complaint  No.  999). 

(f)  Misleading  announcements  and  reports  in  regard  to  nature  and 
volume  of  "business  done,  (Ordered  discontinued  in  Complaint 
No,  273). 

8001  -49- 


9,  As  to  Contracts  and  Offers  Made. 

(a)  False  representations  that  sale  was  on  "consignment"  basis. 
(Complaint  Ho.  1206). 

(b)  Persuading  prospective  purchaser  to  sign  what  was  represented 
to  be  a  "memorandum"  when  in  fact  it  was  a  contract  to  purchase, 
or  a  promissory  note, 

(c)  Misrepresentations  in  puzzle  contests,  -  Stipulation  No,  031, 
030,  022. 

(d)  Advertising  a  free-trial  offer  when  in  fact  the  prospective 
purchaser  is  "required  to  make  a  deposit  or  payment  prior  to 
trial."  (See  Complaints  No.  1965  and  2010.) 

(e)  Misrepresentation  that  article  will  be  replaced.  (Complaint 
No.  1986). 

10,  Misrepresentations  made  b;'"  Correspondence  Schools. 

(a)  Misleading  pupils  by  representing  that  school  would  place  them; 
--  ordered  discontinued  in  No.  1230  (mechanical  drafting  course). 

(b)  Exaggerated  results  of  the  course  offered.   (Complaints  Nos, 
1504,  1486), 

(c)  Misrepresenting  that  former  pupils  are  successful;  —  Stipula- 
tion No.  485. 

(d)  Misrepresentations  as  to  the  qualifications  of  the  facultjr, 
and  false  letters  relating  to  the  standing  of  the  school, 
(See  Complaint  No.  1539). 

(e)  Use  of  "U.  S.  A."  as  part  of  name  to  deceive  students  to  be- 
lieve that  respondent  was  affiliated  with  a  government  depart- 
ment.  (Complaint  No.  1834). 

II.  Lotteries. 

1.  The  common  law  and  criminal  statutes  have  long  considered  lotteries 
contrary  to  public  policy,  but  no  case  appears  in  which  a  lottery  ■ 
was  enjoined  as  the  suit  of  a  competitor.   It  is  obvious,  of  course, 
that  such  a  practice  would  not  constitute  an  injury  to  any  specific 
competitor. 

The  Supreme  Court  has  sustained  the  power  of  the  Federal  Trade  Comr« 
mission  to  order  the  discontinuance  of  a  lottery  as  an  unfair 
practice. 

(a)  Practice  of  determining  price  of  candy  by  lot. 

Federal  Trade  Commission  v.  R.  F.  Kennel  &  Brother, Inc. , 
291  U.  S.  304  (1934). 

(b)  Lottery  Clubs. 

Misrepresenting  the  method  of  selecting  the  winner,  (Com- 
plaint No.  1059. 
8001  _50- 


(c)  Use  of  a  "punch'board"  as  a  lottery  scheme  for  selling  mer- 
chandise,  (Q-aestioned  in  Complaints  Nos.  1852,  1955, 
1857,  1858). 

III.  Harassing  Tactics. 

1.  Coercing  dealers  to  comply  with  \inenforceable  contracts. 

3y  representing  accounts  had  been  placed  in  hands  of  a  collection 
agency,  though  in  fact  they  had  not  "been.  Order  discontinued  in 
llo,   1206,- 

2.  E::cessive  charges  over  aiid  ahove  the  customary  cost-liilling  of 
such  products,  with  threat  of  refusal  to  deal  on  failure  to  paj", 
(stipulation  696), 

IV.  Basing  Point  Systems. 

There  is  very  little  authority  concerning  the  legality  of  Basing 
Point  systems;  however,  certain  types  have  approved  in  the  following 
cases: 

liaple  Flooring  Manufacturers  Association  v.  United  States, 
2S8  U.  S.  563  (1925), 

Cement  Llanuf acturers  Protective  Association  v.  United  States, 
268  U.  S.  588  (1925), 

United  States  v.  Bolt,  I\fut  &  Rivet  Manufacturers  Assn.,  D,  C, 
il,  Y,  1931.   Consent  decree.   Note  in  Harv.  L.  H.  January  1932, 
page  548, 

V.  Predatory  or  local  destructive  Price  Cutting. 

1,  Formation  of  "fighting"  coi^Tpany  to  bid  up  prices  of  raw  materials 
in  order  to  drive  out  conpetitor. 

Federal  Trade  Commission  v.  United  Rendering  Co.,  3  F.  T.  C.  D. 
284  (1921), 

Cf.  Federal  Trade  Comi'.ission  v,  American  Agricultural  Chemical 
Co..   1  F.T.C.D.  226  (1918). 

2.  Locally  cutting  prices  'belov;-  those  of  competitors. 

Federal  Trade  Commission  v.  Fleischmann  Co. ,  1  F.T.CD.  119 
(1918)   (Consent). 


UMFAIR  METHODS  OF  CQIffETITIQH  TJIIICH 
DIRBCTLY  AFFECT  IITOIVIDUAL  COIvIPETITORS 

.1.  raise  claim  of  affiliation  with  competitor. 

The  respondent  in  the  sale  of  slides  made  representations  which  im- 
plied that  he  was  associated  with  his  coinpetitor.   The  practice  was 

8001  „51- 


discontinued  in  Stipulation  ITo.  462.  Representations  of  a  like 
character  in  connection  with  the  sale  of  silverware  were  ordered  dis- 
contintied  in  Stipulation  Ho.  801, 

2,  Appro'oriating  results  of  competitor's  efforts. 

An  order  to  cease  and  desist  was  issued  in  Complaint  ITo.  898  in  which 
the  co'ipetitor  duplicated  the  composition  of  the  product  for  the 
purpose  of  obtaining  a  patent, 

3.  Furchasing  conpetitor's  stock  from  dealers  or  exchanging  orm  goods, 

Coinplaints  No.  947  (snap  fasteners)  and  IJo.  1025  (tacking  machines 
and  staples), 

4,  Acquiring  competitor's  trade  secrets. 

By  payment  of  money  to  conpetitor's  employees. 

By  means  of  employing  spies,  etc.,  ordered  discontinued  in  Coinplaint 

Ho,  11  (lumber  business)  and  Couplaint  No.  923  (in  the  sale  of  garment 

pressing  machines). 

Appropriation  of  competitor's  customer  list  and  other  confidential 

information,  which  information  was  unlawfully  extracted  by  former 

employees.  Ordered  discontinued  in  Corffolaint  ITo.  223  (sale  of  fire 

extinguishers), 

5.  Secret  control  of  fictitious  competitor. 

Complaint  No.  6  (yeast  business)  and  complaint  No.  307  (lightening 
rod,  etc);  respondents  were  ordered  to  discontinue  the  practice  of 
concealing  the  control  of  a  fictitious  independent  for  the  purpose 
of  misleading  the  public  into  believing  that  the  two  corapanies  were 
co;.ipeting, 

6.  publicity  of  anon^nnous  attacks  upon  competitors. 

In  Complaint  No,  868,  the  respondents  were  ordered  to  discontinue  the 
practice  of  publishing  anonjiaous,  disparaging  and  derogatory  opinions 
as  to  the  wholesomeness  of  competitors'  products  (self-rising  flour). 

(See  also  complaint  No.  1499  as  to  baking  powder). 

7,  Dis'paragement  of  and  misrepresentations  concerning  competitors, 
( a)  Common  Law, 

(1)  Palse  statements  concerning  a  competitor' s  -character  or  his 
professional  ability,  furnished  a  basis  for  a  common  law 
action  for  defsjnation, 

Mattice  v.  TJilcox,  147  N,  Y.  624  (1895). 
Davey  v.  Davey,  50  N.  Y.  &app.  ltd  (1896). 

(2)  A  deliberate  disparagement  of  a  corjpetitor' s  product  which 
implied  fraud  or  dishonesty  was  considered  in  the  same  cat- 
egory as  defamation  of  character. 

8001  _52- 


Stektee  v.    Kemin,   48  liich.    322   (1822). 

Howry;  v.   'decJoe  et  al. ,    89   Cal.    606  (1891). 

Stevens  Ice  Cream  Co.   v,   polar  Products  Co..   194  N,   Y. 

Supp,   44  (1921). 

(3)  An  attack  ■upon  a  'business  concern's  credit  was  held  action- 
able, 

Hyan  v.  Brewing  Co.,  15  W.  Y.  Supp.  661  (1891). 

Brown  v.  Holton,  109  Ga.  431  (1899). 

Cf.   Stannoul  v.  Wilcox,  118  Md.  151  (1912)  which  limits 

this  protection  to  traders. 

( "b )  Federal  Trade  Commission. 

(1)  Court  decisions  affirming  Commission's  orders: 

a)  False  and  misleading  statements  concerning  financial 
standing: 

Chamber  of  ComjTierce  v.  Federal  Trade  Commission, 
13  F.  (2d)  675  (C.C.A.  8th,  1926). 

b)  Representation  that  the  respondent's  competitors  did 
not  deal  fairly  and  squarely  with  their  customers  in 
the  sale  of  sugar. 

Sears  Hoebuck  v.  Federal  Trade  Commission, 
258  Fed.  307,  309  (C.C.A.  7th  1919). 

c)  Statements  which  are  true,  mil  not  be  enjoined  by  the 
Federal  Trade  Commission  as  there  is  a  lack  of  public 
interest  which  goes  to  the  jurisdiction  of  the  CoLimission. 

John  Bene  i-.   Sons,  Inc.  v.  Federal  Trade  Commission, 
299  Fed.  468  (C.C.A.  2d,  1924), 

d)  The  Federal  Trade  Coranission  has  not  added  to  the  common 
law  remedies  available  in  cases  of  defamation. 

Jolin  Bene  ?z   Sons,  Inc,  v.  Federal  Trade  Commission, 
supra, 

(2)  Federal  Trade  Commission  orders  on  which  there  are  no  court 
decisions, 

a)  False  and  disparaging  statements  concerning  the  business 
methods  of  coiiipetitors. 

Federal  Trade  Commission  v.  St.  Louis  LiF^hting  Rod  Co,, 
5.  F.T.C.B.  327  (1921). 

b)  Statement  that  the  competitor  was  a  "pirate"  of  his 
product: 

Federal  Trade  Commission  v,  Keaton  Tire  &  Rubber  Co., 
5  F.T.C.D.  335  (1922). 

-53- 


8,  Comiaercial  Bri"bery  and  Secret  Commissions  to  Dealers. 

(a)  Common  Law  Sanctions. 

Although  commercial  bribery  was  not  an  -unfair  method  of  competi- 
tion at  comi;ion  law,  there  were  nevertheless  certain  well  defined 
rules  and  principles  which  indirectly  attacked  this  type  of 
practice. 

If  the  agent  accepted  a  secret  commission  from,  a  third  person, 
in  order  to  influence  his  principal's  course  of  conduct  or  to 
award  a  contract,  the  principal  could  repudiate  an  executory 
contract. 

Smith  V.  Lorby,  3  Q.B.D.  552  (1878); 

City  of  Findlay  v.  Pentz,  66  Fed.  427  (C.C.A.  6th,  1895), 

If  the  performance  has  been  rendered  aiid  the  price  paid,  the 
principal  could  recover  from  the  donor  the  amount  of  the  commis- 
sion that  had  been  ^iven  to  the  agent  ( Salf ord  v.  Dover, 
1  Q,,3.D.  168  (1891),  and  could  compel  the  agent  to  account  for 
the  gratuity  that  he  had  received.   So,  too  the  breach  of  duty 
would  entitle  the  principal  to  discharge  the  agent  (Tinsley  v. 
Penniman,  34  S.  ¥.  365  (Texas,  1896)). 

(b)  Statutory  Sanctions. 

The  common  law  remedies  were  clearly  inadequate  and  seventeen 
states  have  passed  statutes  outlawing  commercial  bribery  schemes, 
in  some  form  or  another. 

Conn,  Rev.  Stat.  (1918)  sec.  6444; 

Iowa  Comp.  Code  (1919)  c.  618,  sec,  13317; 

LaMarr's  Ann,  Rev.  Stat.  (Sup.  1926)  391; 

lid.  Ann,  Code  (Bagby,  1924)  Art.  27,  p.  260; 

Mich.  Comi3,  Laws  (1929)  sees.  17094-99; 

Mass,  Gen,  Laws  (1921)  c.  271,  sec,  39; 

Miss.  Ann,  Code  (Hemingway  1927)  c.  16,  sees.  821,  822; 

Ueb.  Comp.  Stat,  (1922)  c.  6,  Art.  2,  sec.  9710; 

I<r.  J,  Comp,  Stat,  (1910)  p,  1810; 

Nev.  Rev.  Lawws  Ann.  (1912)  c.  26.  sec,  6796; 

H.  Y,  Cons,  Laws,  c.  40,  Art.  40,  Sec,  439; 

ST.  C.  Cons,  Stat.  (1910)  Art.  41,  sec.  4475; 

R.  I.  Gen,  Laws  (1923)  c,  401,  sees.  21,22; 

S,  C.  Code  (1932)  sec,  1236; 

Va.  Code  Ann,  (1924)  c.  185,  sec.  4712; 

Wash,  Comp.  Stat.  (Remington)  1922,  c,  10  sees.  2678-9; 

Wis.  Stat,  (1923)  c,  346,  see,  4575. 

(c)  Efforts  of  the  Federal  Trade  Commission. 

(l)  Giving  liquor,  cigars,  meals,  theatre  tickets  and  entertain- 
ment to  employees  of  customers  to  induce  them  to  influence 
their  eiiTployers  to  piirchase  from  respondents. 


8001  -54- 


New  Jersey  As"bestos  Coj  v.  Federal  Trade  Commission, 
264  Fed.  509  (C.C.A.  2d,  1920)  (Order  reversed,  on  gro-und 
method  of  entertainment  was  "an  incident  of  "business  from 
time  immemorial"  and  did  not  affect  the  public  interest), 

(2)  Giving  prir.es  to  salesmen  of  distributors,  with  consent  of 
distributors,  for  "pushing"  sales  of  respondent 's  products. 

ginney-Eome  Coc  v.  Federal  Trade  Commission,  275  Fed.  665 
(C.C.A.  "7th,  1921)  (Order  vacated  on  ground  no  unfair  con- 
petition  could  "be  present  when  prises  were  given  with 
knowledge  of  employer  of  salesmen), 

(3)  Secret  commission  paid  by  ship  chandler  to  ship's  captain  on 
all  supplies  purchased. 

Win slow  V.  Federal  Trade  Commission,  277  Fed.  206  (C.C.A. 
4th,  1921)  (oi'der  reversed,  on  groiand  of  absence  of 
interstate  commerce).   Cert,  den. ,  258  U.  S.  518  (1922), 

(4)  Subsequent  to  these  adverse  court  decisions,  the  Commission 
has  entered  a  large  number  of  orders  directed  against  com- 
mercial bribery,  e.g. 

Federal  Trade  Commission  v.  United  Chemical  products  Corp., 
4  F.T.C.D.  220  (1922). 

Feder-^l  Trade  Cornuission  v.  Cook  Paint  &  Varnish  Co., 
Annual  ^epor-c  (1934)  64. 

(5)  In  one  case  a  Circuit  Court  of  Appeals  denied  the  Commission's 
petitj.on  for  enforcement  of  an  order,  without  prejudice  to 
tLs  right  to  enter  a  new  order,  on  the  ground  that  the  order 
should  ha,ve  enjoined  only  the  giving  of  secret  gratuities, 
and  nob  those  given  with  the  consent  of  the  employer. 

Federal  Trade  Comnission  v«  Advance  Faint  Co.,  (C.C.A. 
7ch,  1925,  no  opinion)  See  modified  order,  10  F.T.C.D. 
279  (1926), 

9 .  Hindering  and  embarrassing;  competitors  in  the  Motion  Picture  Industry 
by  showing  films  in  anticipation  of  competitors'  advertised  production. 

A  cease  and  desist  order  was  issued  in  Complaint  Ko.  140  against 
the  respondents  who  secured  films  which  competitors  had  previously 
announced  would  be  shown  and  exhibited  them  in  advance  of  the 
dates  announced  and  for  a  lower  price  of  admission. 

10,  Destruction  of  competitors'  catalogues. 

The  Chamber  of  Commerce,  in  attempting  to  prevent  the  sale  of 
goods  by  a  mail  order  house,  cooperated  with  the  local  theatre  in 
accepting  catalogues  in  lieu  of  admission  price  and  offering  prizes 
for  the  same.  This  practice  was  condemned  in  complaint  llo.  841, 


8001  -55- 


11«   Shipping  goods  to  coijpetitors'  c-gsiomers  without  orders. 

In  Complaint  No,  219  (petroleiim  products) ,  respondents  were 
ordered  to  cease  and  desist  from  the  practice  of  shipping  goods 
to  the  competitors'  customers  without  orders  and  attempting  to 
induce  consignee  to  accept  and  purchase  them  hy  guaranteeing  the 
res8,le  and  giving  long  term  credit, 

12,   Threats  of  Litigation. 

This  practice  may  be  classed  as  a  form  of  disparagement,  or  as  a 
particular  variety  of  harassing  tactics. 

(a)  Comnon  Law. 

In  Emack  v.  Kane,  34  Fed.  46  (C.C.IT.C.  111.,  1888)  an  in- 
junction was  granted  to  restrain  threats  of  suit  for  patent 
infringement,  made  in  bad  faith  against  customers  of  com~ 
plainant. 

Accord; 

Cerosa  v.  Apco  Man.uf acturing  Co.,  299  Fed.  19  (CCA. 
1st,  1924), 

However,  cert?,in  state  courts  have  reached  a  contrarjr 
result, 

Flint  V.  Hutchinson  Smoke  Burner  Co.,  110  Mo.  492,  19  S,  f. 
804  (1892),   See  generally,  Nims,  Unfair  Competition  and 
Trade  Marks  (3d  ed.   1929)  703-713, 

(b)  The  Federal  Trade  Commission,  in  seeking  to  discourage  this 
practice,  has  made  no  contribution  to  the  law  of  unfair  com- 
petition, 

Herman  Heuser  v.  Federal  Trade  Commission,  4  F.  (2d)   632 
(CCA,  7th,  1925)   (Order  vacated,  on  ground  of  absence 
of  bad  faith,  especially  because  respondent  had  instituted 
two  suits  for  patent  infringement,  although  after  the  pro- 
ceedings before  the  Commission  had  begun). 

Accord: 

Flynn  &  Enrich  Co.  v.  Federal  Trade  Commission, 

52  F,  (2d)  836  (CCA.  4th,  1931)  (Absence  of  bad  faith; 

lack  of  public  interest  additional  ground  of  reversal). 

Finding  of  bad  faith  since  no  patent  rights  existed  as 
a  basis  for  infringement  threats. 

Federal  Trade  Commission  v.  C-artside  Iron  Rust  Soap 
Co..  1  F.T.C.D,  310  (1919) 

(l)  Federal  Trade  Commission  orders  with  no  court  decision, 

(a)  Unfair  use  of  patent  rights  by  means  of  consent 

decrees.  The  practice  of  obtaining  consent  decrees 

8001  _56- 


to  prevent  the  use  of  similar  devices  in  crder  to 
ottain  a  patent  monopoly,  and  threatening  suit  for 
alleged  infringement  by  the  use  of  collusive  con- 
sent decrees  was  ordered  discontinued  in  Ccuiplaints 
IIos.  126  and  224. 

( D )  Threats  to  sue  competitors'  customers  for  patent 
infrin£;ement  on  a  patent  o"btained  Tjy  fraudulent 
analysis.,  imitation  of  cor.rpetitors'  product. 
Order  to  cease  and  desist  such  practices  under 
Docket  #898. 

13,  t'rice  Discrimination  to  influence  trade. 

The  giving  of  rebates  and  discounts  to  selective  customers  irith  a 
purpose  of  embarrassing  cor.ipetitors  has  been  questioned  by  the 
Federal  Trade  Commission  in  the  following  complaints:  No.  33 
(radiators),  ITo.  548  (lubricating  oils). 

(iTote:  Discrimine,tion  in  price  to  drive  out  coinpetitors  was 
also  condemned  under  Section  2  of  the  Clayton  Act). 

14.  Giving  of  "free  goods"  and  selling  below  cost. 

(a)  Orders  in  which  there  are  no  court  decisions. 

Federal  Trade  Commission  v.  Fleischman  Co. ,  1  F.T.C.D.  119 
(1918)  (Giving  to  bakers  more  yeast  "than  required  for  proper 
sample  or  demonstration  purposes"). 

Accord: 

Federal  Trg.de  Commission  v.  National  Distilling  Co.,  1 
F.T.'CD.  88  (1918) 

(b)  Orders  in  which  there  are  court  decisions. 

(1)  Giving  free  loaf  of  bread  rath  each  one  purchased. 

Igard  Bailing  Co,  v.  Federal  Trade  Commission,  264 

Fed.  330  (C.C.A.  2d,  1920)  (Order  reversed  for  lack  of 

interstate  commerce.) 

Sears  Roebuck  &  Co.  v.  Federal  Trade  Commission, 
258  Fed.  307  ( C.C.A.  7th,  1919). 

Held:   The  Federal  Trade  Commission  has  no  power  to 
prevent  selling  below  cost  or  giving  away  goods  where 
there  are  no  representations  which  tend  to  injure  or 
to  discredit  competitors  and  deceive  purchasers  as  to 
the  real  character  of  the  transaction, 

(2)  Bidding  up  prices  of  supplies  to  destroy  competition. 

Federal  Trade  Commission  v.  American  Agricultural 
Chemical  Co.  and  the  Brown  Co.,  1  F.T.C.D.  226  (1918), 


8001  -57- 


(c)   Sti,onlations» 

(l)   In  Stipulation  No.  267  the  practice  of  giving  free  dinner 
sets  and  premixuns  with  the  sale  of  respondent's  products 
was  ordered  discontinued, 

(6)  The  giving  of  free  premiujns  with  the  purchase  of  office 
supplies  was  discontinued  in  Stipulation  ITo.  279, 

(3)  The  practice  of  using  the  words,  "free"   or  "give",  in 

the  sale  of  certain  products,  where  the  cost  is  included  in 
the  purchase  price  of  another  article  sold  in  connection 
therewith,  has  "been  ordered  discontinued  "by  the  Commission 
in  the  following  stipulations:  No.  472,  No.  485,  No.  468; 
No.  446,  No.  619. 

15.  Interference  with  Competitors'  Source  of  Supply. 

(a)  By  means  of  excessive  purchase  prices.  This  unfair  method  of 
coupetition  has  iDeen  generally  practiced  "by  large  concerns  in 
order  to  stifle  small  competitors  who  are  unable  to  purchase  at 
an  enhanced  price,   (No,  79,  Fertilizer  Industry,  and  No.  159, 
Refining  animal  fats), 

( "b )   Cooperative  action  by  association  through  hoycotts,  threats  of 
"boycott,  and  threa'cs  of  withdrawol  of  patronage, 
TOaere  en   Association  of  Wholesalers  and  Jobbers  combined  to  pre- 
vent certain  competitors  from  obtaining  supplies  by  these  means, 
the  Federal  Trade  Commission  in  Complaint  #579  ordered  the  dis- 
continuance of  such  practice  (Wholesale  Grocers  Association), 

( c)   Individual  effort  to  obstruct  coi.ipetitors'  purchases. 

Federal  Tr^-'l"^-^   Coinmission  v.  Ra;Tnond  Brothers-Clark  Co.,  280 
Fed.  5l9,  affirmed  263  U,  S.  565  (1924)  (505.4153).   In  this 
case  the  Commission  had  ordered  an  individual  who  attempted  to 
induce  a  manufacturer  to  refuse  to  sell  to  a  competitor  to  dis- 
continue the  practice.  The  court  reversed  the  Commission's  order. 

16,  Physical  interference  with  competitors'  em-oloyees  or  property. 

The  respondent  who  instructed  his  drivers  to  collide  with  the  trucks 
of  his  competitor  in  order  to  hinder  and  embarrass  coinpetitor  in  his 
business  operations  was  ordered  to  desist  in  Stipulation  No.  79 
(fertilizer  business). 

17,  Issuance  of  false  com-plaints  to  the  Federal  Trade  Commission  concern- 
ing coi.rpetitor' s  business  operations. 

In  Conrplaint  No.  898  the  respondent  was  ordered  to  cease  and  desist 
from  fabricating  letters  and  forging  signatures  for  the  purpose  of 
inducing  action  by  the  Federal  Trade  Commission  against  his  com- 
petitor, 

18.  Appropriation  of  com-petitor' s  shipments. 

Respondent  was  ordered  to  cease  and  desist  from  accepting  the  ship- 
ments intended  for  competitors  in  Complaint  No.  276, (Scrap  iron  and 
steel), 
8001  -58- 


19,  In-r.L.cir.f:  "broach  of  contract* 

(a)  Under  the  common  laWn 

After  Lumley  v,  Gye.  2  El.  &  Bl»  216,  118  Engl  Rep.  749 
(1853)  some  dispute  arose  among  the  courts  as  to  whether  in- 
ducement of  breach  of  contract  was  in  all  circumstances  a 
legal  wrong,  A  few  courts  limited  the  doctrine  of  that  case 
to  the  enticement  of  enployees.  See,  e<,g, ,  Glencoe  Sgjid  and 
Gravel  Co.  v.  Hudcon  Brosr  Commission  Co.,  138  Ivio,  439,  40  S»W, 
93  (1897),  One  or  two  other  courts  refused  to  allow  an  action 
for  inducing  a  "breach  of  contract  unless  the  defendant'  s  action 
was  accompanied  by  threats,  violence  or  fraud.  See  Boyson  v. 
Thorn.  98' Cal,  578,  33  Pac,  492  (1893),  However,  the  general 
tendency  is  to  grant  recovery  for  any  intentional  procurement 
of  breach  of  contract,  without  requiring  malevolence,  fraud  or 
coercionc   Savre,.  Inducing  Breach  of  Contract  (1922)  36  Hary 
L,  Rev,  66G  (1925). 

Bitterman  v.  Louisville  &  Ilashville  R.  Co.,  207  U.S.  205 

(l-07)„ 

Tabuler  Rivet  L   Stud  Co.  v.  Exeter  Boot  &  Shoe  Co..  159 

Fed.  824  (C.C.A,  1st,  1908), 

R  and  W  Hat  ShoT:  v.  Scully.  98  Conn,  1,  118  Atl.  55  (1922). 

The  motive  of  trade  competition  on  the  part  of  the  defendant 
is  no  jur-rif ication  for  inducing  the  breach,  Beekmar^  v, 
M9:S-';ers,  195  Ivless,  203,  80  II. E,  817  (1907).   In  this  respect, 
theryforsj  the  Eederal  Trade  Commission  has  merely  contributed 
a  new  remedy  for  a  practice  already  considered  unfair  at  coEuuon 
l?w^, 

(b)  Action  tal::en  by  the  Federal  Trade  Commission, 

(1)  Inducting  breach  of  contract. 

Federal  Trade  Commission  v.  Stanley  Booking  Corpa , 
1  F.^^C.D.  212  (1912), 

Utali-Idaiio  Sugar  Go.  v.  Federal  Trade  Commission,  22  F, 
(2d)  122  (C.C.A.  8th,  1927)   (Order  vacated,  on  ground 
raising  of  sugar  beets  and  manufacture  of  sugar  did  not 
constitute  interstate  commerce), 

(2)  Enticing  emiployees. 

Federal  Trade  Commission  v.  Standard  Car  EquiTPment  Co.. 
1  F,T.C.D,  144  (1918), 

20,  Es-pionage. 

(a)  At  common  Law. 

In  the  rare  instances  in  which  the  question  has  arisen,  the 
courts  at  comr.ion  law  have  refused  to  enjoin  espionage  in  trade 
competition,  where  no  violation  of  trust  was  involved. 

Park  a.   Sons  Co.  v.  Hational  ITholesale  Druggists'  Association. 
175  IT.  Y,  D.  67  IvT.E.  136  (1903) 
8001  -59- 


Rocky  Mountain  Bell  Teleiohone  Co.  v.  Utah  Independent 
Tele-phone  Co..  31  Utah  377,  88  Pac,  26  (1906). 

(Id)  Under  the  Federal  Trade  Commission  Act. 

PhilJTD  Carey  Mfg.  Co.  v.  Federal  Trade  Commission. 
(CCA^eth) 

29  Fc(2d)  49  (l928)  (Order  vacated  "becaase  there  was  no 
evidence  that  information  acquired  by  employees  of  respondent 
who  posed  as  customers  of  a  competitor  was  unlawfully  used  to 
suppress  competition). 

(1)  By  means  of  s-oies. 

Condemned  in  Federal  Trade  Commission  v.  Botsford  Lum- 
ber Co..  1  F.T.C.D.  60  (1919) 

a)  To  get  comDctitor' s  customer  list. 

Trailing  competitor's  agent  and  employees  to 
hinder  them  in  the  conduct  of  their  business,  to 
learn  names  and  addresses  of  competitor' s  cus- 
tomers,  (Complaints  Nos.  6  (yeast),  11  (lumber), 
307  (Lightning  rods),  159  (refining  animal  fats)). 

b)  Securing  information  as  to  operations  and  other 
trade  secrets. 

Paying  spies  to  enter  competitor's  plant  or 
offices  to  secure  such  information.  ITo.  215 
(mineral  separation  processes),  223  (fire  ex- 
tinguishers), 344  (automobile  fans). 

c)  Obtaining  information  concerning  competitor's  shj-p- 
ments  and  sources  of  sup-ply  from  employees.  rTo.  1145. 

( 2)  Posing  as  customers  to  obtain  data  intended  only  for 
custcinei  s. 

Sending  of  requests  to  mail  order  house  to  obtain 
specifications,  estimates,  prices,  etc.,  information 
intended  only  for  bonafide  customers.  Practice  ordered 
discontinued  in  complaints  Nos.  11,  195,  209. 

( 3)  SeCTiring  estimates  and  bids  for  the  purpose  of  under- 
bidding competitor. 

Building  material.  Practice  questioned  in  Complaint 
730,  but  dismissed  without  assignment  of  reasons. 

21.  Holestation,  Harrassing  Tactics.  Interference  with  Competitors. 

"The  rule  may  now  be  considered  as  settled,  that  injury  caused  to 
another's  business,  or  legitimate  interests,  even  though  not  by- 
means  in  themselves  unlawful,  is  actionable,  tmless  justified 


■fay  legitimate  self-interest."  pirns.  Unfair  Competition  and  Trade 
Marks  (3d  ed.  1929)  447;  see,  generally  436-449, 
In  American  Bank  &  Trust  Co.  v.  Federal  Reserve  Bank  of  Atlanta. 
256  U,  S.  350  (1921)  the  Supreme  Court  enjoined  the  Federal  Re- 
serve Bank  from  attempting  to  force  a  state  hanl^:  into  the  Federal 
Reserve  System  "by  accumulating  checks  on  state  tanks  until  they 
reached  a  large  amount  and  then  presenting  them  for  payment  over 
the  coiinter. 

In  lunshee  Vo  Standard  Oil  Coe«  152  Iowa  618,  132  N.R,  371  (l91l) 
the  court  recognized  a  right  of  action  against  the  defendant  who 
had  entered  the  "business  of  supplying  oil  at  retail,  not  for  the 
purpose  of  profiting  from  the  retail  trade,  but  for  the  sole  pur- 
pose of  driving  plaintiff  out  of  husiness  hecause  he  refused  to 
purchase  exclusively  from  defendant.  In  Even  son  v,  STjaulding,  150 
Fed,  517  (1907)  an  injunction  was  granted  to  restrain  hardware  and 
farm  implement  dealers  from  employing  agents  to  follow  the  salesmen 
of  plaintiff,  to  interfere  with  their  efforts  to  make  sales,  and  to 
dissuade  prospective  -uurchasers  from  buying,  with  the  purpose  of 
driving  plaintiff  out  of  the  territory  in  question.  Thus  the 
business  tactics  which  the  Federal  Trade  Commission  has  declared 
unfair  were  already  unfair  at  common  law. 

Various  forms  of  molestation  and  harassing  tactics  to  interfere 
with  and  destroy  contpetitors: 

Utah-Idaho  Sa^'^sJ  Co.  v.  Federal  Trade  Commission.  22  F.  (2d)  122 

(CCA.  8th,  1927)   (Order  vacated  on  ground  raising  of  sugar 

beets  and  manufacture  of  sxigar  do  not  constitute  interstate 

commerce) , 

Cf.   Phili-p   Carey  lifg.    COc    v.   Federal  Trade   Commission.   29  F 

(2d)    49   (CCcA,    6th,    1928), 

Bribing  employees  of  customers  to  adulterate  and  spoil  products 

sold  by  competitors: 

Federal  Trade  Commission  v.  Essex  Varnish  Co..  1  F.T.CD.  138 

(1918). 

Fictitious  requests  for  catalogues  or  estimates: 

Federal  Trade  Commission  v.  Botsford  Lumber  Co..  1  F,T,CD, 

60  (1918), 

Federal  Trade  Commission  v.  Chamber  of  Commerce  of  Missoula. 

5  F.T.CD,  451  (1923). 

22,  Trade  marks  and  trade  names  —  "-Dassine  off". 

(a)   Common  Law, 

At  common  law  it  was  unfair  competition  to  appropriate  the 
good-will  of  a  competitor  by  simulating  its  trade  mark,  label, 
or  trade  name,  or  the  color,  design  or  shape  of  its  products, 
in  such  fashion  as  to  "pass  off"  one's  goods  for  those  of  the 
competitor. 

Herring-Kail-Marvin  Safe  Co.  v.  Hall's  Safe  Co..  208 
U.S.  554,  580  (1908); 

L.  E.  Waterman  Co.  v.  Modern  Pen  Co..  235  U.S.  88  (1914); 
McLean  v.  Fleming.  96  U.S.  245  (l377); 

Hamilton-Brown  Shoe  Co.  v.  TJolf   Brothers  &  Co..  240  U.S. 
251  (1916); 
8001  -61- 


Cf.  Pillsbury-Washlmrn  Flour  Mills  Co.  Ltd.  v.  Engle,  86  Ped, 
608  (CCA.  7th  1890). 

The  common  law  also  afforded  relief  where  the  parties  were  not 
in  competition,  "but  the  name  used  "by  the  defendant,  in  an  allied 
trade,  would  lead  ptirchasers  to  "believe  that  the  plaintiff  had 
entered  the  line  of  "business  in  which  defendant  was  engaged. 

■Akron-Overland  Tire  Co.  v.,  ffillys-Overland  Co..  273  Fed, 

674  (CCA.  3d,  192l); 

Peninsular  Chemical  Co.  v.  Levinson,  247  Fed.  658 

(CCA.  6th,  1917); 

Voif:::ue  Co.  v.  Thompson  Hudson  Co..  300  Fed.  509.  (CCA. 

6th  1924) „ 
See  generally,  Kims.  Unfair  Competition  and  Trade  Marks. 
(3d.  ed.  1929), 

("b)  Federal  Trade  Commission. 

In  the  trade  mark  and  trade  name  cases,  therefore,  the  remedy 
at  common  law  was  adequate;  and  in  this  field  the  Federal  Trade 
Commission  has  developed  no  new  concept  of  unfairness.   Cases 
which  reached  the  coiirts  are: 

Juvenile  Shoe  Co.  v.  Federal  Trade  Commission.  289  Fed.  57 

(CCA.  9th  1923)   (Order  affirmed); 

Federal  Trade  Commission  v.  Balme.  23  F.  (2d)  615  (CCA. 

2d  1928)   (Order  affirmed).  Cert,  den.   277  U.  S.  598 

(1928). 

Lighthouse  Rug  Co.  v.  Federal  Trade  Commission.  35  F.  (2d) 

163  (C.C.A.  7th,  1929). 

23,  Price  Fixing  Activities. 

(a)  Agreements  among  competitors  to  maintain  price  levels. 

( 1 )  Labor  "boycotts  used  to  maintain  -price  structure. 

An  association  of  photographers  agreed  with  a 
photographers'  union  to  maintain  a  standard  scale  of 
uniform  prices  in  exchange  for  the  union's  promise  not 
to  permit  its  memhers  to  work  for  manufacturers  who  did 
not  maintain  the  scale  of  uniform  prices.  A  cease  and 
desist  order  wo.s  issued  in  Complaints  Nos.  82  and  928, 

(2)  Concerted  action  to  enhance  and  maintain  prices  "by  means 
of  meetint-^s  and  correspondence. 

A  cease  and  desist  order  was  issued  against  an  association 
of  paper  manufacturers  in  Complaint  No.  17, 

(3)  By  means  of  "standard  cost  finding  system". 

A  national  organization  of  printers  in  an  effort  to  en- 
hance, fix  and  maintain  prices  esta'blished  a  standard 
cost  finding  system.  A  complaint  issued  against  the 
United  Typothetae  of  America  was  dismissed  on  stipulation 
of  the  parties, 

8001  _62- 


(4)  Censoring  trade  directory  list  in  an  effort  to  maintain 
Tprice  level. 

A  cease  and  desist  order  was  issued  against  the  Salt 
producers  Assn.  in  Complaint  Ko.  781,  The  respondents 
censored  the  trade  directory  list  for  the  purpose  of 
maintaining  prices  and  they  agreed  to  allow  discounts 
only  to  those  dealers  listed, 

( 5 )  Method  of  fired  price  list . 

An  order  to  cease  azid.   desist  in  Complaint  No,  1010  was 
issued  against  memters  of  a  coal  distributive  associa.tion» 

(6)  Reporting  plena 

Members  of  a  cutlery  association  reporting  their  prices, 
sales,  etCoj  vith  the  object  of  enhancing  prices  and 
maintaining  them  discontinued  such  practices  after  Com- 
plaint Wo.  1246  was  issued, 

24,  Bogus  Inde-pendents, 

Federal  Trade  Commission  Vo  Armour  &  Co.  &  Farmers  Coo-perative 
Fertiliser  Coo,  1  F.T.CoD.  430  (1919). 

The  respondents  owned  the  capital  stock  of  a  subsidiary 
corporation  engaged  in  the  same  business  and  represented  it 
to  be  an  independent  farmers'  cooperative  company.  The  con- 
cealed operation  of  the  subsidiary  company  was  held  an  unfair 
method  of  competition. 

Federal  Trade  Commission  v,  Fleischaann  Comxiany.  1  P.T.CD, 
lis  (1918), 

It  was  held  to  be  an  unfair  method  of  competition  to  conceal 
the  control  and  affiliation  with  other  yeast  companies  which 
held  themselves  out  and  advertised  as  independents. 


8001#  -53-