MP ©oraril IRnimsitg pHrmg THE GIFT OF ..h>..-^-'4:. ^r'.d/.... ..i3>.J.~] Lb.. 6896-2 Digitized by Microsoft® Cornell University Library HD 2780.S787J67 Standard Oil Company of New Jersey et al 3 1924 019 375 561 Digitized by Microsoft® This book was digitized by Microsoft Corporation in cooperation witli Cornell University Libraries, 2007. You may use and print this copy in limited quantity for your personal purposes, but may not distribute or provide access to it (or modified or partial versions of it) for revenue-generating or other commercial purposes. Digitized by Microsoft® Supreme Court of the United States. OCTOBER TERM, 1909. No. 726. STANDARD OIL COMPANY OF NEW JERSEY bt al., Appellants, against UNITED STATES OF AMERICA, Appellee. BRIEF FOR APPELLANTS. VOLUIVIE I.-LAW. JOHN G.JpHNSON, JOHN G. MILBURN, FRANK L. CRAWFORD, Of Counsel. M. F. ELLIOTT, MARTIN CAREY, Solicitors for Appellants, 26 Broadway, Borough of Manhattan, New York City. c G. BuRQPim»/»?W »\^wft»-S««fr^«^ ■'o'-"^- Digitized by Microsoft® Appellants, AGAINST United States of America, Appellee. BRIEF ON THE LAIXT FOR APPEI.LANTS. Statement of Case. This is an appeal from the decree of the Cir- cuit Court of the United States for the Eastern Division of the Eastern Judicial District of Mis- souri rendered in this case on the 20th day of Digitized by Microsoft® November, 1909, by the four Circuit Judges of tbe Eigbtb Circuit wbo beard tbe case under tbe provisions of tbe Expedition Act of February iitb, 1903. Tbe decree was adverse to certain of tbe Defendants and in favor of otbers, tbe petition being dismissed as to tbe latter. Tbis appeal is taken by tbe Standard Oil Company, of New Jersey, tbe individual Defendants, and certain of tbe otber Defendants, and tbis brief is filed on bebalf of all tbe Appellants. Tbe suit or proceeding is brougbt under Section 4 of tbe Act " To protect trade and com- merce against unlawful restraints and monop- olies " of July 2d, 1890, known as tbe Sberman Act. It is based upon a petition wbicb was filed in tbe clerk's office of tbe Circuit Court of tbe United States for tbe Eastern Division of tbe Eastern Judicial District of Missouri in November, 1906. Out of seventy- nine defendants tbe Waters Pierce Oil Com- pany was tbe only resident of tbat district, and tbe only Defendant served witb process tberein. Contemporaneous witb tbe filing of tbe petition tbe Court made an order under Section 5 of tbe Act for service of process upon all tbe otber Defendants wberever tbey could be Digitized by Microsoft® found. (Vol. A., 173-180). Section 5 is as follows : " Whenever it shall appear to the court before which any proceeding under Section 4 of this Act may be pending that the ends of justice require that other parties should be brought before the court the court may cause them to be summoned, whether they reside in the district in which the court is held or not ; and subpoenas to that end may be served in any district by the marshal thereof." It was by service made outside of the Eastern Division of the Eastern District of Missouri under this order that jurisdiction of the person of all the Defendants, excepting the Waters Pierce Oil Company, was acquired. The Defendants, other than the Waters Pierce Oil Company, after such service at once moved the Court, on an afi&davit setting forth the fact that they were not residents of the Eastern Division of the Eastern District of Missouri, and the fact that they had been served with process outside of that District, to vacate the order authorizing such service, and the service of process niade thereunder, because made without warrant of law and without jurisdiction. This Digitized by Microsoft® motion was heard and denied by the Court. (Vol. A., 227-235; Order, 240; Opinion, 563- 569)- Thereupon the same Defendants filed special pleas to the jurisdiction of the Court over them respectively based upon the same facts, which were overruled by the Court. (Vol. A, Pleas, 239-372 ; Order, 374). The Defendants thereafter filed answers to the allegations of the petition setting forth acts and transactions subsequent to the date of the Sher- man Act, and filed exceptions to the allegations setting forth acts and transactions prior to that date as irrelevant and purely evidenciary. These exceptions were overruled and the Defendants, excepting to the order overruling the exceptions, filed additional answers to the portions of the petition to which the exceptions applied. (Vol. A, Original answers, 378-436, 443-459; Ex- ceptions, 437-443 ; Order, 470 ; additional an- swer, 473-494). The testimony, evidence and exhibits in the case fill twenty-two volumes, and are Volumes i to 22 of the Record. Volumes i to 10, in- clusive, contain the Petitioner's testimony, evi- dence aud exhibits constituting its main case; Digitized by Microsoft® volumes ii to 19, inclusive, contain the testi- mony, evidence and exhibits of the Defend- ants ; volumes 20 and 2 1 the rebuttal evidence and exhibits of the Petitioner; and volume 22 contains the records and proceed- ings in the case of the State of Ohio vs. Stand- ard Oil Company of Ohio, 49 Ohio St., 173. Volume A contains the pleadings, decree, opinions, appeal, and the other proceedings in this case. A list of the Defendants' witnesses is given at the end of Volume 17. Pleadings. Petition. The gravamen of the petition is an alleged conspiracy to restrain and monopolize the trade and commerce in petroleum and its products among the States and Territories of the United States, in the District of Columbia, and with for- eign nations, in which the individual Defendants John D. Rockefeller, William Rockefeller and Henry M. Flagler have been continuously en- gaged since the year 1870, and in which they were joined between that year and the year 1882 by the Defendants Henry H. Rogers, John D. Archbold, Oliver H. Payne and Charles M. Pratt. Digitized by Microsoft® It is alleged that they entered into this con- spiracy and have ever since been engaged in it with each other and with " other persons, cor- porations, co-partnerships and limited partner- ships." The operations of the conspiracy are divided into three periods : one extending from 1870 to 1882 ; another from 1882 to 1899 ; and the last from 1899 to the present time. The characteristic ascribed to the first period is the purchase and acquisition of interests in concerns engaged in different branches of the oil business for the purpose of fixing the price of crude and refined oil, limiting their production, and con- trolling their transportation. The characteristic ascribed to the second period is the forma- tion in 1882 of what is popularly known as the Standard Oil trust by which, as it is alleged, various independent firms, cor- porations, limited partnerships and individuals engaged in the oil business turned over the management of their businesses to nine trustees. The characteristic ascribed to the third period is the vesting of this control and management in the Standard Oil Company of New Jersey as a holding company. The petition then proceeds to treat each of these periods in detail, and it Digitized by Microsoft® will be sufi&cient to summarize its allegations respecting them. (Vol. A, 6-8). First Period, 1870 to 1882. (Vol. A, 8-12). This period begins with the organization of the Standard Oil Company of Ohio in the year 1870 with a capital stock of $1,000,000 to take over the businesses of Rockefeller & Andrews, William Rockefeller & Co. and Rockefeller & Co., located at Cleveland, Ohio, and New York City. The Company acquired during the years 1871, 1872 and 1873 all but three or four of the competing refineries in Cleveland, Ohio, the owners of which, so it is alleged, were forced to sell by their inability to compete with it be- cause of the rebates and preferential rates which it obtained from the railroad companies. The names of a large number of companies, partnerships and individuals engaged in the oil business at various times during this period are given, and it is alleged that they and others formed associations and entered into agreements, combinations and conspiracies to fix the price of crude oil and limit its production, to fix the price of the products of crude oil and limit their pro- duction, and to suppress competition and monop- Digitized by Microsoft® olize the trade. The only specific instance men- tioned is an agreement of December igtli, 1872, between two associations, one known as the Petroleum Producers' Association and the other as the Petroleum Refiners' Association. It is alleged that the individuals engaged in the conspiracy acquired during this period, by the sale of stock interests in the Standard Oil Company of Ohio, interests in the stocks and business of many of the concerns previously mentioned, and, through these interests and agreements with other refiners, controlled in the latter part of the period more than ninety per cent, of the oil business, and were enabled to do so and to crush out and limit competition by means of rebates and preferential rates ob- tained from railroads. Then follows a specification of various con- tracts with railroad companies which are alleged to have had this effect. It is further alleged that the parties to the conspiracy acquired during this period in the name of the Standard Oil Company the ownership and control of the principal pipe lines in the oil regions of Pennsylvania con- necting with the various railroads reaching those Digitized by Microsoft® regions over whicH oil was transported to the refineries at Philadelpliia, New York, Cleveland and other points ; and consolidated them first into the American Transfer Company and the United Pipe Lines, and later in the year 1881 into the National Transit Company ; and that they were thereby enabled to fix the price of crude oil and the price for its transportation by pipe lines and railroads, resulting in rate dis- criminations against their competitors. Second Period, 1882 to 1899. (Vol. A, 21-41.) The formation of the so-called Standard Oil Trust is set forth, including the trust agreement of January 2d, 1882, and its supplement of Jan- uary 4th, 1882. Referring to the corporations and limited part- nerships named in the trust agreement it is charged as follows (Vol. A, 31) : " And that each and all of said corpora- tions and hmited partnerships were at the time of the signing of said agreement^ and for a long time prior thereto^ so engaged sep- arately in said business as such corporations and limited partnerships ; and that by the said trust agreement and the placing of said stock interest in the hands of said trustees^ Digitized by Microsoft® 10 as by the said agreement provided^ all com- petition among the said corporations, limited partnerships and individuals was suppressed and destroyed, and the aforesaid trade and com.merce among the several states and terri- tories of the United States, the District of Columbia, and with foreign nations, as before described, was restrained and monopolized.^'' The petition proceeds to allege that the trus- tees organized, pursuant to the trust agreement^ the Standard Oil Company of New Jersey and the Standard Oil Company of New York, It then alleges as follows (Vol. A., 32) : " Your petitioner further alleges that pur- suant to said trust agreement the said trus- tees caused to be transferred to themselves the stocks of all corporations and limited partnerships named in said trust agreement, and caused various of the individuals and co-partnerships who owned independent re- fineries and other properties employed in the business of refining and transporting and selling oil in and among said vari- ous states and territories of the United States as aforesaid, to transfer their property situated in said several states to the respec- tive Standard Oil Companies of said States of New York, New Jersey, Pennsylvania Digitized by Microsoft® 11 and Ohio, and other corporations organized or acquired by said trustees from time to time." The trust certificates were in the following form (Vol. A., 33): No. Shares $100 each Shares STANDARD OIL TRUST. " This is to certify that is entitled to shares in the equity to the property held by the trustees of the Standard Oil trust, transferable only on the books of said trustees on surrender of this certificate. This certificate is issued upon condition that the holder or any trans- feree thereof shall be subject to all the pro- visions of the agreement creating said trust and of the by-laws adopted in pursuance of said trust agreement as fully as if he had signed the said trust agreement." It is alleged that, from time to time during this period, other properties belonging to con- cerns engaged in various branches of the oil business in competition with the trust were ac- quired, and their property or stocks transferred to corporations owned or controlled by the trus- tees or to the trustees ; and that between the Digitized by Microsoft® 12 years 1888 and 1892 all the various interests represented by the stocks held by the trustees were by transfers of property and stocks vested in twenty companies. The dissolution of the trust on March ist, 1892, following upon the decision of the case in the Supreme Court of the State of Ohio entitled State of Ohio ex rel. Attorney General vs. Standard Oil Company of Ohio (49 Ohio St., 137), is set forth. It is alleged that the plan of dissolution pro- vided for issuing to each certificate holder on the surrender of his certificates an assignment of an interest in the stocks held by the trustees in the proportion of the number of his certificates to the total outstanding certificates, and that at this time the outstanding certificates amounted to $97,250,000. It is alleged that holders of more than a majority of the outstanding certificates sur- rendered them, obtained their assignments, and converted them into shares of the twenty com- panies ; that the individual defendants so sur- rendered their certificates ; that the mass of certificate holders retained theirs down to the acquisition of the shares of the twenty companies Digitized by Microsoft® 13 by the Standard Oil Company of New Jersey in 1899 ; and that thereby the " individual defend- ants in this action, who were liquidating trustees, did continue to manage the affairs of all said separate corporations so engaged in said busi- ness in the same manner as they had theretofore under and by virtue of the terms of said trust agreement." Third Period, 1899 to the Present Time. (A. 41-49). In January, 1899, the charter of the Standard Oil Company of New Jersey was amended and its capital stock increased from $10,000,000 to $110,000,000, of which the outstanding $10,000,- 000 were declared to be preferred stock and the remaining $100,000,000 common stock. Of the shares of common stock $97,250,000 were then issued in exchange for the shares of the com- panies and limited partnerships which had been held by the trustees of the trust (including the preferred stock of the Standard Oil Company of New Jersey) and represented by the $97,250,000 of trust certificates outstanding at the time of Digitized by Microsoft® 14 the dissolution in 1892. This, it is charged, was done by the individual Defendants for the purpose of further carrying out the conspiracy and effecting a monopoly of the oil business. The names of sixty-nine companies are given as the companies now controlled by the Defend- ants ; some of which are described as engaged in refining ; others in transporting crude oil through pipe lines ; others as owners of tank cars and steamships for the transportation of oil ; and ■others in the marketing of oil throughout the United States. Then follows a general allegation that from 1882 to 1899 the Standard Oil trust, and, since 1899 the Standard Oil Company and its subsidiary corporations, have refined and sold more than ninety per cent, of the petroleum pro- ducts manufactured and consumed in the United States and shipped to foreign countries, and have monopolized the commerce, traffic, transporta- tion, refining and sale of oil in the United States and foreign countries, thereby restraining such commerce, regulating the production and supply of the products, and fixing the price thereof. The remainder of the petition is devoted to a Digitized by Microsoft® 15 statement of the various means, in addition to the various combinations before alleged, by which this monopolization has been effected. The headings of the various subdivisions sufficiently indicate for our present purpose what those means as so set forth are, and we give them in their order : (i) agreements with Tidewater Companies (A, 50, 51) ; (2) contract with Penn- sylvania Railroad Company of August 22, 1884 (A, 51, 52) ; (3) control of pipe lines (A, 53-55) ; (4) unfair practices against competing pipe lines (A, 55-57) ; (5) certain contracts in restraint of trade (A, 57-60) ; (6) railroad discriminations (A, 60-100) ; (7) coercion of railroads to pur- chase lubricating oil (A, 100-103) ; (8) unfair methods of competition, consisting of (a) local price cutting ; {5) reports of competitors' ship- ments ; (c) operation of bogus independent com- panies ; and (d) payment of rebates on oil prices. (A, 103-107.) The petition closes with the allegation that by reason of the control of the oil business by the Standard Oil trust and the Standard Oil Company of New Jersey the profits since Janu- ary I, 1882, have been exorbitant. (A, 107-110.) Digitized by Microsoft® 16 Answers. We do not deem it necessary to summarize the answers of the various Defendants. It is sufficient to say that, whilst admitting many of the alleged acquisitions of property, the forma- tion of the so-called trust of 1882, its dissolution tion in 1892, and the acquisition by the Standard Oil Company of New Jersey of the stocks of the various corporations in 1899, they deny all the allegations respecting combinations or conspir- acies to restrain or monopolize the oil trade ; and particularly that the so-called trust of 1882 or the acquisition of the shares of the defendant Companies by the Standard Oil Company of New Jersey in 1899 was a combination of in- dependeiit or competing concerns or corporations. The averments of the petition respecting the means adopted to monopolize the oil trade are traversed either by a denial of the acts alleged or of their purpose, intent or effect. Digitized by Microsoft® 17 The Opinion and Decree of the Cironit Court. To appreciate tlie full meaning and signifi- cance of tlie rulings of the Circuit Court it should be stated that the evidence conclusively established that all the plants, properties and stocks as they vs^ere acquired from the begin- ning were acquired for a body of common owners, originally the stockholders of the Standard Oil Company of Ohio ; and that all the plants and properties created in the expansion and devel- opment of the business were created by this body of common owners. This fact of the com- mon ownership is fatal to the theory of the peti- tion that the so-called Standard Oil trust of 1882 and the acquisition of the shares of the various companies by the Standard Oil Company of New Jersey in 1889, were combinations of independent and separately owned competitive concerns ; and that it was with that fundamental fact of common ownership, which was fully rec- ognized (A., pp. 574, 580), that the Circuit Court had to deal rather than with the theory of the petition the main opinion clearly shows. Digitized by Microsoft® 18 The reasoning and conclusions of tlie main opinion are best shown by a series of quotations. (1) " The exchange of the stock or shares in the o-wnership of competitive corporations en- gaged in interstate or international commerce for stock or shares in the o-wmership of a single corporation, the necessary effect of ■which is a direct and substantial restriction of competi- tion in that commerce, constitutes a combina- tion in restraint of commerce among the states or -with, foreign nations that is declared illegal by this law" (A. 573). (2) " Do the stockholding trust of 1899 and its continuing operation constitute an illegal restraint of interstate or international com- merce in violation of the Anti-Trust Act of 1890 ? " (A. 577, 578). (It is the acquisition of the shares of the various companies by the Stand- ard Oil Company of New Jersey in 1899 that the Court describes as a stockholding trust.) (3) "It is true, with negligible exceptions, that the stockholders of the defendant corpora- tions were the joint equitable owners of them from 1879, or from their subsequent organiza- tions respectively, until July 1, 1899, but the great majority of these stockholders never held the legal title to their stock except during Digitized by Microsoft® 19 a few months between 1896 and 1900. In 1899 the stockholders of the principal company w^ere the stockholders of the subsidiary companies and each stockholder held the same share or interest in each of the corporations (A., 580). (4) " The combination formed by that trans- fer and its power to restrict competition w^ere less liable to be destroyed, more reliable and permanent than those springing from the joint ow^nership by three thousand stockholders of each corporation. There is much more prob- ability that corporations potentially competi- tive will separate and compete w^hen each of their stockholders has a separate certificate of Ms shares of stock in each corporation which he is free to sell than w^hen a majority of the stock of each of the corporations is held by a single corporation which has the pow^er to vote the stock and to operate them " (A., 582, 583). (5) " Because the power to restrict competition in interstate commerce granted to the Standard Oil Company of New Jersey by the transfer to it of the stock of the nineteen companies and of the authority to manage and operate them and the other corporations which they controlled was the absolute power to prevent competition among any of these corporations, because this Digitized by Microsoft® 20 power ■was greater, more easily exercised, more eflfective and more durable than that -nrhich the three thousand stockholders of these corpora- tions previously had, because many of these corporations ■wrere potentially competitive and were engaged in interstate commerce, and the necessary eflfect of the transfer of the stock of the nineteen companies to the holding company ■was, under the decision in the case of the Northern Securities Company, a direct and sub- stantial restriction of that commerce, that trans- fer and the operation of the companies under it constituted a combination or conspiracy in re- straint of interstate and international com- merce in violation of the anti-trust act of July 2, 1890" (A., p. 583). (6) " But in the case under consideration the combination and conspiracy in restraint of trade and its continued execution, which have been found to exist, constitute illegal means by which the conspiring defendants combined, and still combine and conspire, to monopolize a part of interstate and international commerce, and by which they have secured an unlawful monopoly of a substantial part of it, and this conspiracy constitutes as clear and complete a violation of the second as of the first section of the act. Upon the ground that the defendants Digitized by Microsoft® 21 liave thus violated, and are violating, the sec- ond section of the act as fully as upon the ground that they have violated its first section, the decree in favor of the government must be and is based " (A, p. 585). Decree. (i) Tlie acquisition of the shares of the va- rious Companies by the Standard Oil Company ■of New Jersey in 1899 is decreed to be a combi- nation or conspiracy in restraint of trade and commerce which the Sherman Act declares to be illegal. (2) Certain of the Defendants are decreed to have entered into, and become parties to, this combination, and by its means to have combined and conspired to monopolize, have monopo- lized, and are continuing to monopolize, a sub- stantial part of interstate and foreign com- merce in violation of Section 2 of the Sherman Act. (3) The Standard Oil Company of New Jersey is enjoined from voting any of the stocks of the subsidiary Companies or exercising any control over their acts ; and the Companies are enjoined Digitized by Microsoft® 22 from declaring or paying any dividends to it, and from permitting it to vote any of their stocks, or to direct their policies, or to exercise any control over their corporate acts. (4) The Defendants specified are enjoined from continuing the combination adjudged to be illegal, and from entering into any like combi- nation or conspiracy, the effect of which will be to restrain commerce in petroleum or its products and to prolong the unlawful monopoly, by the devices specified in Section 6 of the decree or by any similar device. (5) The same Defendants are enjoined from engaging or continuing in commerce among the states or in the territories of the United States until the discontinuance of the operation of such illegal combination. Specification of Errors. It is respectfully submitted that the Court e.rred in the following among other particulars : (1.) In not vacating the order authorizing and directing the service of process upon the De- fendants, excepting the Waters Pierce Oil Com- Digitized by Microsoft® 23 pany, outside of the Eastern Division of the Eastern District of Missouri, and the service of process on them, made pursuant thereto, and in overruling the pleas of the Appellants to the jurisdiction of the Court "with respect to them. (2) In holding and decreeing that the vesting of the shares of the various Standard Oil com- panies in the Standard Oil Company of New Jersey in the year 1899 was a combination or conspiracy in restraint of trade in violation of Section 1 of the Sherman Act. (3) In holding and decreeing that the Appel- lants, or any of them, have monopolized, or attempted to monopolize, a substantial part of interstate and foreign commerce in petroleum and its products by means of such illegal com- bination in violation of Section 2 of the Sher- man Act. (4) In holding and decreeing that the acquisi- tion in 1899 of the stocks of manufacturing companies located in various States by the Standard Oil Company of New Jersey was a violation of the Sherman Act and illegal ; and in enjoining it from voting such stocks, and such companies from declaring and paying dividends to it. (5) In similarly holding and decreeing with respect to ce^^^ of ^tl^.Ay^^ants whose sole 24 business is that of mining for crude petroleum in various States. (6) In similarly holding and decreeing with respect to certain of the Appellants which the common owners of the Standard Oil properties themselves organized for the expansion and development of the common business. (7) In similarly holding and decreeing with respect to certain of the Appellants organized or acquired by the Standard Oil Company of New Jersey since 1899 for the expansion and development of its business. (8) In similarly holding and decreeing w^ith respect to certain Appellants organized by the common ow^ners of the Standard Oil properties to build or operate pipe lines as adjuncts of the various refineries for their supply of crude oil for manufacturing purposes. (9) In enjoining the Appellants w^ith respect to the future use and disposition of their prop- erties and the conduct of their business either as particularly specified in the decree or as cov- ered by the general phrase "by any similar device." (10) In enjoining the Appellants from en- gaging and continuing in interstate commerce whilst the g^-^^j^ /^^oieflWPany of New 25 Jersey continues to own and hold the stocks of the other Appellants. The analysis of the testimony, evidence and exhibits, and the statement of the facts deemed to be established thereby, are found in Volume II. of this brief. POINTS. (I.) The plants and properties of the Stand- ard Companies have always been in a common owTiership since their acquisition or creation. (II.) The Sherman Act has no application to the acquisition by the Standard Oil Company of New Jersey of the stocks of manufacturing and mining or producing corporations. (III.) The contracts, combinations and con- spiracies of Section 1 of the Act are contracts, combinations and conspiracies which restrict the freedom of the parties or strangers in the conduct of their business. (IV.) The acquisition of the stocks of the subsidiary companies by the Standard Oil Com- pany of New Jersey in 1899 was not such a combination or conspiracy in restraint of trade. Digitized by Microsoft® 26 (V.) Monopolizing within the second section of the act is the exclusion of others from a trade by illegal means. (VI.) The Standard Oil Company of New Jer- sey w^as not m.onopolizing, or attempting to monopolize, or combining w^ith anyone else, to monopolize w^hen this proceeding was insti- tuted. (VII.) The ow^nership of the pipe line systems has not been a means of monopolizing. (VIII.) The decree erroneously includes and operates upon several of the appellant Com- panies. (IX.) The sixth section of the decree is un- warranted and impracticable in various of its provisions. (X.) The Circuit Court had no jurisdiction over the Appellants. Digitized by Microsoft® 27 BRIEF OF ARGUMENT. I. In 1899 when the stocks of the various companies were transferred to the Stand- ard Oil Company of New Jersey, as in July, 1890, when the Sherman Act was enacted, and as had been the case since 1870 when the Standard Oil Company of Ohio was organized, all the properties and plants and interests in properties and plants, or the stocks representing them, w^hich had been acquired were acquired by a body of common o^imers for the purposes of a com- mon business, and had alivays been held by them in the same common ownership, legal or beneficial ; and all the enlargements of existing plants and establishments of new^ plants during the entire period since 1870 w^ere part and parcel of the same common o-wnership and common undertaking. (i) The Standard Oil Company of Ohio, the original company, was organized in 1870 by the members of the firm of Rockefeller, Andrews and Flagler to take over the refine- Digitized by Microsoft® 28 ries and business of the firm. It was owned by young, able, vigorous and enterprising men ; and tbe plants it took over were of tbe best type with, a very considerable output, fully ten per cent, of the total output of tbe entire trade. Notwithstanding the hazard- ous character of the business, and the de- moralization which then existed in every branch of the industry through its speculative and excessive exploitation during the sixties, the men who owned and managed the Company had faith in the business and the courage of their faith. They conducted its business with a keen eye to efi&ciency, economy and the progress of the art ; they were in good credit and could command ample capital ; they were diligent, farsighted and ambitious ; and they felt that under the conditions which existed expansion with its economic advantages was necessary as a measure of self-preservation. In the latter part of 187 1 and during the year 1872 the Company purchased a number of refineries in Cleveland. The purchases were made for cash or with the stock of the Com- pany as the vendors might elect, its capital stock l^aving^be|n^incj^as^ed^|^^^ $1,000,000 29 to $2,500,000. The transactions were entirely- voluntary and free from coercion. Some of the vendors were glad to convert their investments into cash because of the prevailing conditions^ and others who took stock in payment lost their confidence and sold it. During the period between 1872 and 1879 refineries were ac- quired at the different refining points, viz. : Titusville, Franklin, Pittsburgh, and other places in the oil regions of Pennsylvania ; Philadelphia, Baltimore, New York, Boston and Portland on the Atlantic Seaboard ; Parkers- burg, West Virginia, and Louisville, Kentucky. These purchases were separate, distinct and inde- pendent transactions occurring at different times over this period of seven years. Each was the re- sult of a negotiation between the particular vendor and vendee. There was no combination between the several vendors or any relation of any kind between the different transactions. Every fea- ture is lacking of a combined mass of transfers in which the consummation of each was to be de- pendent upon the consummation of all. There was no scheme for the acquisitions as a whole ; there was no coercion ; and there is not a par- ticle of evidence that any of the vendors were in Digitized by Microsoft® 30 any way restricted from engaging, or employing their capital, in the same business in the future. There were also during this period acquisi- tions of various small gathering systems of pipe lines in the State of Pennsylvania, or of interests in such systems ; and of interests in a few mar- keting concerns in different parts of the country. The Cleveland refineries were conveyed to the Standard Oil Company of Ohio. All the other properties, or the stocks representing them, were acquired for the stockholders of that Company. The earnings of the Company over and above a moderate annual dividend, representing the mar- gin between a legitimate manufacturing profit in a business of that character and such a dividend, instead of being paid to the stockholders were used to acquire these properties for their benefit. When physical properties were acquired they were conveyed to individuals in their behalf. When stocks of corporations were acquired, or stocks of new companies organized to take over properties were subscribed and paid for, they were taken in the names of individuals for the same purpose. The title to the properties and stocks in this common ownership was held in this manner down to April, 1870. Had the cor- Digitized by Microsoft® 31 porate powers of the Company authorized it to acquire the stocks of other companies it could itself have taken title to these stocks. (2) On April 8th, 1879, by an instrument executed at that time these properties and stocks were transferred to M. K. Keith, G. F. Chester and G. H. Vilas as trustees for the parties named in the instrument, who were the stock- holders of the Standard Oil Company of Ohio, to hold, control and manage them for the exclu- sive use and benefit of the beneficiaries, and to divide and distribute them between the bene- ficiaries as soon as it could conveniently be done, in the proportion in which each owned the stock of the Company (Bx. 257, Vol. 19, p. 618). (3) The next step was the constitution of the so-called Standard Oil trust of January, 1882. The parties to the agreement executed at that time are embraced in three classes. The second class is made up of certain named indi- viduals, who were the stockholders of the Stand- ard Oil Company of Ohio and the owners of the stocks of the corporations named in the first class in their entirety, and of a part of the stocks of the corporations named in the third class, and, Digitized by Microsoft® 32 with a few exceptions, of the major part. It was not an agreement bringing together independent competing concerns separately owned, but one between common owners of various stocks and properties vesting the legal title thereof in trustees for the purposes expressed in the agreement. It did not affect the rela- tions of the properties to each other or change the actual beneficial ownership. After the agree- ment the same ownership interests in all the properties were represented by trustees' certifi- cates as they had previously been represented by the shares of the Standard Oil Company of Ohio and the Vilas, Keith and Chester trust. It was a trust in the technical sense of the term created by common owners, and not a combination of separately and independently owned properties and plants. (4) The years between 1879 and 1882 mark the end of the period of substantial acquisitions. The acquisitions after that time were of minor importance and have no material bearing on the questions involved in this case. The structure of the organization was not affected by them one way or the other, and its history would have been the samg„■^)||^5)g^;^;^g35^,5,^J^ith them. The 33 main process after that time was one of in- tegration to secure efficiency and economy. In- stances of this process were the organization in 1882 of the Standard Oil Companies of New Jersey and New York in which the plants on the Atlantic Seaboard were vested, largely by actual conveyance. Other refining plants were con- centrated in the Atlantic Refining Company which had been acquired in 1874.- The Standard Oil Company of Kentucky was organized as an extensive marketing company. The National Transit Company had been organized as the repository of the pipe line interests. (5) From this time on the expansion was internal as new oil fields were discovered, new products perfected, and the use of the products increased with the increase of population and the gradual establishment of markets all over this country and the world. Existing refineries were enlarged and new refineries were built in favorable locations with reference to the new oil fields and the distribution of the products. For instance, after the discovery of the Lima field in Ohio and Indiana the Standard Oil Com- pany of Indiana and the Solar Refining Company were organized by the trustees to refine the oil Digitized by Microsoft® 34 from that field at Whiting, Indiana, and Lima Ohio. As each new field was discovered pipe lines were built to gather the oil as it flowed from the wells and convey it first to storage tanks and then by trunk lines to the refineries. The development along these lines after 1882, necessitating the formation and capitalization of many different corporations, was the result of internal growth and expansion and not of combination or acquisition. (6) In 1892 the so-called Standard Oil trust was dissolved as a result of the decision of the Ohio Supreme Court in the case of the State of Ohio vs. The Standard Oil Company (49 Ohio St., 137) compelling the withdrawal of the Standard Oil Company of Ohio. No change of actual ownership followed from this step. The real owners of the property before the dissolu- tion were the certificate holders. The method of dissolution was the assignment by the trustees to the certificate holders of their proportionate shares of the stocks held by the trustees. A part of the certificate holders at once surrendered their certificates, received assignments of their respective pro- portions of £%(f;2da/ab3eM«3fcs«jS5®h of the com- 35 parties, and converted them into those shares. The shares of those who did not surrender their certificates or convert their assignments con- tinued to be held for them by the trustees. There was no separation of the ownership of the shares in the different companies either by those who surrendered their cer- tificates and converted their assignments, or those who continued to hold them. As shares of separate companies they were un- marketable because each company was simply a part or member of an organism, though a dis- tinct legal entity with its own ofl&cers to manage its affairs. Those who had exchanged their as- signments from the trustees for shares continued to hold their shares in a mass just as the shares of those who did not surrender their certificates or assignments continued to be held by the trustees for them in a mass. There was no change in the conduct of the business as a unit. The function in the business as a whole, say of the Standard Oil Company of New York, continued just the same after the dissolution as before; and the same is true of all the other companies. Every owner, whether in possession of shares of the respective companies or in possession of Digitized by Microsoft® 36 trustees' certificates, was after, as before, the dissolution the owner of the same proportionate part of each of the companies and properties. (7) This was the situation in 1899 when the Standard Oil Company of New Jersey increased its capital shares and acquired the stocks of the other companies. All the owners then owned precisely the same proportion of the shares of the Standard Oil Company of New Jersey that they did of the shares of each of the other companies, many of which they had themselves created. They transferred all their shares in the various companies to the Standard Oil Company of New Jersey, and received for the proportion of the shares which had been represented by a trust certificate a share of its common stock. In other words the owners of the shares of these various companies, all of which were owned by the same owners in the same proportions, transferred their shares to one of the companies in the common ownership, and received for them its shares in precisely the same proportion. The legal title to the shares acquired passed to the Standard Oil Company of New Jersey ; but it acquired and held them Digitized by Microsoft® 37 for its stockliolders. There was no change in the ultimate beneficial ownership. After the transfer the stockholders of the Standard Oil Company of New Jersey were the beneficial owners of all these properties of which they had before been the beneficial owners as holders of trustees' certificates. The business of the com- panies and their relations to each other were absolutely unchanged. There was, therefore, in this step no combination of separately and in- dependently owned concerns. This common ownership is the fundamentally distinguishing feature of this case with respect to the Sherman Act in so far as it has any application. Digitized by Microsoft® 38 II. The Sherman Act has no application to the transfer to, or acqnisition by, the Standard Oil Company of New Jersey of the stocks of the various manufac- turing and producing; corporations, for the reason that snch transfer and ac- qnisition ^xreTe not acts of interstate or foreign commerce, nor direct and im- mediate in their effect on interstate and foreign commerce, nor ivithin the povirer of Congress to regulate interstate and foreign commerce. (i) The corporations whose stocks were ac- quired by the Standard Oil Company of New Jersey may be classified as follows : (a) Manufacturing companies : Standard Oil Company of Ohio, Standard Oil Company of New York, Standard Oil Company of Indiana, Standard Oil Company of California, Standard Oil Company of Kansas, Atlantic Refining Company, Vacuum Oil Company, Galena Signal Oil Company, Solar Refining Com- pany, Bome-Scrymser Company, Chesebrough Manufacturing Company, and Swan & Finch Company. Digitized by Microsoft® 39 {b) Producing companies: Sonth Penn Oil Company and Washington Oil Company. (c) Mixed companies : Prairie Oil & Gas Com- pany which produces and buys oils in the Mid- continent field, and transports its own oil, so produced and bought, by its own private pipe lines to various points ; and the Ohio Oil Com- pany which produces oil in the Lima field and produces and buys oil in the Illinois field, and transports its own oil, so produced and bought, by its own private pipe lines to various points. {d) Marketing companies : Standard Oil Com- pany of Kentucky, Continental Oil Company, Standard Oil Company of Iowa (now wound up). Waters Pierce Oil Company, Anglo-American Oil Company (in Great Britain), and Colonial Oil Company (in foreign countries). {e) Pipe line companies : National Transit Company, New York Transit Company, Northern Pipe Line Company, Southern Pipe Line Company, Southwest Pennsylvania Pipe Lines, Buckeye Pipe Line Company, Cumberland Pipe Line Company, Crescent Pipe Line Company, Eureka Pipe Line Company and Indiana Pipe Line Company. (/) Tank car company: Union Tank Line ° ^ ^' Digitized by Microsoft® 40 The business of the Standard Oil organiza- tion is the business of manufacturing out of crude petroleum by various processes a great variety of products. The manufacturing com- panies are those above enumerated as such, and their plants are located geographically with reference to existing oil fields and the econom- ical distribution of the product. The prop- erties and plants of the other corporations are purely accessorial to the business of manufact- uring. The production of the producing com- panies is only between ten or eleven per cent, of the total production of the United States ; but it is a guarantee of a certain supply of the raw material for the refineries in all contingencies. The oil-buying companies buy a part of the sup- ply of the refineries. The pipe lines are the arterial system which collects the oil at the wells and supplies it to the refineries. They are a neces- sary adjunct to refining on a large scale. The marketing companies supplement the selling facilities of the various refining companies in the distribution of their products in this and foreign countries. The car company pro- vides the special kind of tank car used in the transportation of oil. Thus the main cor- Digitized by Microsoft® 41 porations are mantifacturing corporations, and the question is wlietlier their acquisition was a trans- •action in interstate commerce or subject to tlie Sherman Act or the regulative power of Congress. If they are not they, and the producing companies which are in the same category, should at any rate be eliminated from the operation of the decree in this case ; and that would leave only the question whether the acquisition of the other accessorial corporations, was, as to them, a combination in restraint of interstate trade within the first sec- tion of the Act. (2) The case of U. S. vs. Knight (156 U. S., i), is a conclusive authority that the acquisition of the stocks of the manufacturing and produc- ing corporations is not a transaction subject to na- tional control or regulation or within the Sher- man Act. We deem it unnecessary to review that case in detail or examine the later decisions to show that its rulings have not been limited or modi- fied. That work has been so exhaustively done in recent briefs and arguments before this Court that it would be inexcusable to again travel over the same ground. The case rests on the funda- mental distinction between production and com- Digitized by Microsoft® 42 merce ; between manufacturing and mining and the sale of their products ; between the ac- quisition of manufacturing and mining prop«- erties and commercial transactions ; between the province of the State and the province of the Na- tion. Manufacturing and mining, and the intra- state trade in the products of manufacturing and mining, are within the province of State regula- tion and control. It is only when the products pass into interstate or foreign commerce that they enter the sphere of National regulation and control and become subject to the Sherman Act. The acquisition of a manufacturing plant con- cerns manufacturing directly and interstate com- merce indirectly, and is not a transaction in inter- state commerce ; and it is only transactions in interstate commerce that are the subject matter of national regulation, and particular classes of those transactions that are within the Sherman Act. All this is true although manufacturing and commerce are intimately connected ; because though intimately connected they are intrin- sically different, and the difference is so real and substantial as to place one under State and the other under National control. These fundamental , distinctions were thor- Diqitized by Microsoft® oughly defined and settled in our jurisprudence 43 before the Knight case, and what it did was to apply them to the operation of the Sherman Act as Judge Jackson had done before in his luminous opinion in the case of In Re Greene, 52 Fed., 104, written in the period of the enactment of the Sherman Act when all the conditions surrounding its enactment were vividly in the minds of men. The transaction questioned in the Knight case was the acquisition of four refineries in Philadelphia, producing thirty-three per cent, of the total production of sugar refined in the United States, by the American Sugar Refining Company, which then produced sixty-five per cent., thus giving it a total of ninety-eight per cent. All the refineries obtained their ra\v ma- terial from other states and countries. Their product was sold all over the United States and " the object in purchasing the Philadelphia re- fineries was to obtain a greater infiuenee or more perfect control over the business of refining and selling sugar in this country^'' The acquisi- tion was effected through the purchase of the shares of stock of the Pennsylvania companies, which were paid for with the stock of the Amer- ican Company in agreed proportions. This is the transaction which was held not to be within the Digifizeclbylviicrosoft® 44 commercial power of Congress or, consequently, the Sherman Act. The principle of the decision and the facts to which it was applied are so pre- cise and definite that there is no real diffi- culty in its application. That it has been appar- ently misunderstood is due to the failure to observe the distinction between production and commerce, and between transactions directly affecting manufacture and only indirectly or in- cidentally affecting commerce, and transactions in interstate commerce. The acquisition of any number of competing re- fineries, even if it could be called a combination, is fundamentally distinguishable from a combina- tion which concerns and operates upon the conduct of trade or commerce in the articles produced. The case of Addyston Pipe & Foundry Company vs. United States, 175 U. S., 211, is a perfect illustra- tion of a combination dealing with and operating directly upon the sale of a commercial article, or upon the trade in that article, as distinguished from its production ; just as the Knight case is a perfect illustration of a transaction dealing with and directly operating upon production as dis- tinguished from the trade in the article produced. (3) The Standard Oil Company of New Jersey, a refining com^^r^^^^f^^^Bft^gS the refineries 45 of the various manufacturing Companies above enumerated by acquiring the stocks of the Com- panies and paying for them with its own stock just as the stocks of the sugar refineries were acquired. The refineries obtained their raw materials in part from other States just as the sugar refineries did. Their products after com- pletion entered into domestic and interstate trade, just as did the products of the sugar refineries. That transaction and the transaction involved in the Knight case cannot be differentiated. One cannot be within the commercial power of Con- gress and the other not ; one cannot be subject to the Sherman Act and the other not. If it be said that at the same time the stocks of corpora- tions engaged in transporting oil and of corpora- tions engaged in marketing oil in different States were acquired those transactions furnish no ground for bringing other transactions out- side of the Act and the commercial power within them. If it were conceded that the acquisitions of the transportation and marketing companies was within the Act because they di- rectly affected interstate commerce or instrumen- talities of interstate commerce, the illegality of those transactions may not be extended to other acquisitions no.t .within the Act. It is not permis- ^ Digitized by Microsoft® 46 sible to enlarge the operation of the commercial power or of the Act bj- bringing within them on anv such theory matters and transactions entirel}' outside of them. If the Standard Oil Company of New Jersey had acqtiired only the refining and producing companies the application of the Knieht case would be conclusive. If the ac- quisition of other companies was within the con- demnation of the Act the onh- violation of the Act is their acquisition, and its remedies are only- available as to them. We are not considering the latter companies under this Point. It is not necessary- for us to take a position as to whether their acquisition was within or without the principle of the Knight case. The manufacturing and produc- ing companies are clearly within its principle, and they are severable in their existence, identity and operations from the other com- panies ; and the acquisition of their stocks is severable from the acquisition of the stocks of the other companies. If there was an3-thing illegal in the acqiiisition of those other companies by the Standard Oil Company of New Jersey, which we deny, that illegality would only justify a proper decree as to them. Digitized by Microsoft® 47 III. The contracts, combinations and con- spiracies of Section 1 of the Sherman Act are contracts and combinations ivhioh con- tractually restrict the freedom of one or more of the parties to them in the conduct of his or their trade, and combinations or conspiracies ivhich restrict the freedom of others than the parties to them in the con- duct of their bttsiness, iiphen these restric- tions directly affect interstate or foreign trade. Purchases or acquisitions of prop- erty are not in any sense such contracts, combinations or conspiracies. (i) Section i of tlie Act is as follows : " I, Bvery contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several States or with foreign nations is hereby declared to be illegal. Every per- son who shall make any such contract or engage in any such combination or con- spiracy shall be deemed guilty of a misde- meanor, and on conviction thereof shall be punished by fine not exceeding $5,000 or by imprisonment not exceeding one year or by both said punishments, in the discre- tion of the Court." This section says nothing about competition, monopoly, tendency to monopoly, monopoliz- Digitized by Microsoft® 4:8 ing, intent to monopolize, control of the market or of prices. It deals with a specific kind of acts, transactions and relations and declares them to be illegal. Thej- are acts, transactions and rela- tions in restraint of trade. If a contract, com- bination or conspiracy is in restraint of trade it is denounced as illegal. It is in restraint of trade if it has a certain direct operation, and the vital question ahvays is whether it has that opei"a- tion. What then is the characteristic and controlling element which distinguishes a contract, combination or conspiracy in restraint of trade from other kinds of contracts, com- binations and conspiracies? That is not a qiies- tion diflEcult to determine, because a contract, combination or conspiracy in restraint of trade had been known to the law and the subject of judicial definition long before the enact- ment of the Act. That characteristic and con- trolling element is the total or partial re- striction of the freedom of the trader in the conduct of his business in his own way, by con- tract in the case of pure contracts in restraint of trade and contractual combinations, or by acts in the case of combinations in the nature of conspiracies. By contractual combinations we Digitized by Microsoft® 49 mean combinations wMcli work througli exec- utory agreements. [c2) Contracts in restraint of trade fill a large space in tlie jurisprudence of the last two hun- dred years. They are " contracts with a stranger to the contractor's business (although in some cases carrying on a similar one) which whoU}- or partialh- restrict the freedom of the contractor in carrying on that business as otherwise he would " (Holmes, J., in Northern Securities case, 193 U. S., 404). It is said in Pollock on Contracts. 7th Ed., page 352, that " the original principle is that a man ought not to be allowed to restrain himself b}- contract from exercising any lawful craft or business at his own discre- tion and in his own wa}-." Every case of this kind in the books is one involving a covenant or condition restricting the freedom of the indi- vidual in the pursuit of his trade or in the use of property for trade purposes. The main grounds for the doctrine that such contracts are invalid, in the sense of being unen- forcible bv the courts, are, as stated in Oregon Steam Navigation Co. vs. "Windsor, 20 Wall., page 68, " the injury to the public by being deprived of the restricted party's industry" and Digitized by Microsoft® 50 " the injury to the party himself by being pre- cluded from pursuing his occupation and thus being prevented from supporting himself and his family." These reasons are stated more fully in Alger vs. Thacker, 19 Pick., page 54, where it is said : " 1. Such, contracts injure the parties making them because they diminish their means of procuring livelihoods and com- petency for their families. They tempt im- provident persons for the sake of present gain to deprive themselves of the povrer to make future acquisitions. And they expose such persons to imposition and oppression. 2. They tend to deprive the public of the services of men in the emplo3rments and capacities in Tvhich they may be most useful to the community as ■well as them- selves. 3. They discourage industry and enter- prise and diminish the products of ingenuity and skill. 4. They prevent competition and enhance prices. 5. They expose the public to all the evils of monopoly." Thus it is in the reasons for the rule that we find a reference to competition and monopoly and not in the constituent elements of the con- tract. The relation of restrictions on the free- dom of the trg^z^gjii/i^Tj^yflf^ade in his own 51 way, constituting restraint of trade, to competi- tion, when there is any, is the relation of cause and effect. There may be interference with competition without any restriction of the free- dom of any individual in carrying on his busi- ness ; but in such cases there is no restraint of trade in a legal sense. No contract or contractual relation is in restraint of trade unless this ele- ment of restriction is present as the essential matter. {b) This principle is equally applicable to com- binations in restraint of trade. They present the case of two or more persons engaged in a trade entering into an agreement whereby each party is restricted in his freedom in carrying on his business in his own way, usually with reference to the amount of his production, or prices, or ter- ritory, or the wages of labor. Hilton vs. Eck- ersley (6 El. & Bl., p. 47) is a leading case in England on this subject. It was an action to enforce a bond signed by eighteen Lancashire cotton spinners binding them severally to carry on their businesses with respect to the wages they would pay, hours of labor, and other mat- ters, according to the regulations of the majority. It was held by the Court of Exchequer Chamber Digitized by Microsoft® 52 that it was unenforcible because in restraint of trade, and the grounds of the decision are stated as follows (id.^ p. 74, 75) : " The question is whether this is a bond m restraint of trade ; and "we think it is so. Prima facie it is the privilege of a trader in a free country in all matters not contrary to law to regulate his ow^n mode of carry- ing it on according to his ow^n discretion and choice. If the law has in any manner regulated or restrained his mode of doing this the law must be obeyed. But no pow^er short of the general la^w ought to restrain his free discretion. Now^ here the obligors to this bond have clearly put themselves into a situation of restraint. 1st: Each of them is prevented from pay- ing any amount of w^ages except such as the majority may fix, whatever may be the circujtnstances of the w^ork to be done and his own opinion thereon. Secondly, they can only employ persons for such times and periods as the majority may fix on, how^ever much the minority may deem it for their ow^n interest to do otherwise. The hours of w^ork, the suspending of work partially or altogether, the discipline and management of their establishments is to be regulated by others forming a major- ity and taken from every individual mem- ber. And all this for a fixed period of twelve months. All these are surely regu- lations restraining each man's power of carrying on his trade according to his dis- cretion for his own best advantage and, thereforepi^Wfeffelsil^ftliiitiasaEftetrade not capa- 53 ble of being legaUy enforced. We do not mean to say that th«y are illegal in the sense of being criminal and punishable. The case does not require us and we think we ought not to express any opinion on that point ". The numeroTis common law cases so frequently cited in this connection are all illustrations of this principle. A few of them are Morris Run Coal Co. vs. Barclay Coal Co. (68 Pa. St., 173) ; Salt Co. vs. Guthrie (35 Ohio St., 666) ; Arnot vs. Pittston and Elmira Coal Co. (68 N. Y., 558); Craft vs. ^IcConoughy (79 111., 346); India Bagging Association vs. Kock (14 La. Ann., 168) ; A'ulcan Powder Co. vs. Hercules Powder Co. (96 Cal., 510) ; Oil Co. vs. Adoue (S3 Tex., 650) ; and Chapin vs. Brown (83 la., 156). In all of these cases there was a combination of independent manufacturers or dealers in the form of an executory agreement regulating prices, production or the conduct of the business of each in other particulars. They were combi- nations in restraint of trade because the freedom of each to conduct his own business with respect only to his own interests and judgment was re- strained and restricted. As in the case of pure Digitized by Microsoft® 54 contracts in restraint of trade the same consider- ations were assigned as the reason for the rule condemning them, viz., that the tendency of such restrictions upon the freedom of traders was to prevent competition and favor monopoly. Another illustration of such combinations is the so-called industrial trust which appeared in the eighties. Their original form was a com- bination of separately-owned concerns commit- ting the management of the affairs of their re- spective businesses to a small board of trustees who regulated the volume of production, prices, and territorial operations of each concern. Each of the separate concerns was thereby de- prived of its power to conduct its affairs in its own way, thus presenting the essential element or condition which constitutes restraint of trade. Sometimes the managing and controlling body was a small group of men denominated trustees as in the case of the Sugar trust (People ex rel. North River Sugar Refining Company, 54 Hun, 354; s. c, 121 N. Y., 582), and the so- called Whiskey trust (State vs. Nebraska Dis- tilling Co., 29 Neb., 700) ; sometimes the regulating body was a corporation with ap- propriate Po^fj^^^j^^te^^i^ in Pocahontas 55 Coke Co. vs. Powhattan Coal & Coke Co. (60 W. Va., 508) ; and other devices were employed to secure this centralization of control of sepa- rately owned concerns. In all of these combina- tions there was present the vital, fundamental and controlling fact of restriction upon the freedom of a trader in the conduct of his busi- ness constituting restraint of trade. With- out the presence of that controlling ele- ment there is not a combination in restraint of trade whether it is in the form of a so-called industrial trust or any other form. If that ele- ment be present it is a combination in restraint of trade whether small or large, and whatever its degree of interference with competition, and whether it tends towards monopoly or not. (c) A conspiracy in restraint of trade is a com- bination of two or more to deprive others than its members of their freedom in conducting their business in their own way by acts having that effect. A combination to boycott is a suf&cient illustration. It need only be added that at common law con- tracts and contractual combinations in restraint of trade were only unlawful in the sense of being unenforcible by the courts ; whilst conspiracies were tortious and sometimes criminal. Digitized by Microsoft® 56 (z) This was the state of the law when the Sherman Act was enacted. Every phrase that the first section contains had a distinct legal meaning and significance. A contract in re- straint of trade, a combination in restraint of trade, whether in the form of trust or otherwise, a conspiracy in restraint of trade, was each a definite legal conception or entity with its dis- tinct essential element. That element was the restriction of the freedom of a trader in the conduct of his business in his own way. The purpose of that section was to legislate re- specting such contracts, combinations and con- spiracies in the sphere of interstate and foreign commerce. It provided no new definition of restraint of trade. It did not seek to en- large the category of contracts, combinations and conspiracies in restraint of trade by bringing within it transactions and relations which had never belonged to it and which lacked its funda- mental characteristic and element. It contains no language indicating such an intention or effort. We take the statute as it reads and give it its full meaning. The test, therefore, as to its ap- plication to any particular set of facts is whether they show a contract, combination or conspiracy Digitized by Microsoft® ^ ^ 57 restricting tlie freedom of a trader in the conduct of his trade. Every case that has been de- cided by this Court under Section i of the Act responds to this test. U. S. vs. Trans-Missouri Association (166 U. S., 290), U. S. vs. Joint Traffic Association (171 U. S., 505), Addyston Pipe Sl Steel Co. vs. U. S. (175 U. S., 211), Montague vs. Lowry (193 U. S., 38), Swift vs. U. S. (196 U. S., 375), Loewe vs. Lawlor (208 U. S., 274), and Conti- nental Wall Paper Co. vs. Voight & Sons (212 U. S., 227) all involved combinations, either ex- pressly by the terms of the agreements consti- tuting them restricting the freedom of each of the members in the conduct of his or its busi- ness, or in the nature of conspiracies to restrict the freedom of others than their members in the conduct of their business. In the railroad cases each member of the combination was restricted in its rate making function. The typical case of all is the Addyston Pipe case, the agreement in which very specifically restricted the freedom of each of the parties to it in the conduct of his busi- nesses in various particulars. Loewe vs. Lawlor is a typical case of a combination in the nature of a conspiracy to restrict a trader by means Digitized by Microsoft® 58 among others of a boycott. The Northern Securities case, 193 U. S., 197, regarding it as a combination, which was the basis of the decision of this Court, was in its final analysis a combination which, through the device adopted, restricted the freedom of the ' stockholders of two independent railroad com- panies in the separate and independent control and management of their respective companies. We feel warranted, therefore, in saying that the decisions of this Court under the first section of the Act are predicated on the restriction of the freedom of the trader in the conduct of his trade as the essential condition which determines whether a contract, combination or conspiracy is in re- straint of trade. (3) Purchases and acquisitions of property are not contracts, combinations or conspiracies in restraint of trade. The freedom of a trader is not restricted by a sale of his property and busi- ness. The effect of the transaction is that his property and business pass to another who is free to do with them as he sees fit, and he remains free to employ his energies and capital as he sees fit. The essential element of restraint of trade is entirely ab^^^^^^I^^^jj^^^g^j^ resulting loss 59 of freedom of action. The vice of restraint of trade is that it is a limitation of free action ; and that is not a consequence of a change of ownership. The rule of public policy is free- dom in the acquisition and disposition of prop- erty and the conduct of one's trade ; and the rule which condemns restraints and restrictions of the freedom of the individual in the conduct of his tiade is a corollary from that wider rule of freedom. Acquisitions by purchase or exchange are executed transactions. When completed title has passed and one owner has taken the place of another. If it is a purchase of the property or business of a competitor there is an elimination of competition so far as that property or business is concerned, but only so far. This mode of elim- inating competition could not be prohibited in any way except by limiting the extent to which a man may acquire property of a particular nature or limiting his power to deal with and dispose of his own possessions. It has never been condemned by the law. The conditions of free and unfettered competition, following the natural course of business, are where each pro- prietor acts in obedience to his own views of his Digitized by Microsoft® 60 own interests, witliout any obligation arising out of agreement to consult with or conform to the views of other proprietors. They include no regulation of the amount of property or in- terest of any proprietor or as to the number of proprietors whose interests are united in com- mon ownership. On the other hand, contracts, combinations and conspiracies are executory agreements in their nature and operation. An agreement can- not restrain trade unless it is executory. It must be something which binds one party to another. Agreements of this character are found only among separate and independent owners who remain separate and independent after the agreement is made. If a dozen different persons are engaged in trade and one of them desires to break up com- petition between them, and procures the execu- tion by them of an agreement that they will not in the future sell for less than a fixed price, or less than a price to be fixed by designated per- sons, or that they will stock their profits and divide in certain designated proportions, such agreement is in restraint of trade and does pre- vent competitg^n^^^Jt^h^.^^^J,^ing force from 61 day to day throughout the period of its continu- ance. It is the binding^ restraining thing. Pro- prietorship is not changed, but by force of the agreement each party to it exercises a control over the business of all the others. They are not at liberty to conduct their business in conformity to their own views as prompted by exclusive self-interest, but are bound by a liga- ment created by the agreement to conduct their business in accordance therewith. It is this form of combination of capital and interest which the law generally discountenances. It is in hostility to that natural control of prop- erty and business which exists when each man is controlling his own property and business in accordance with his own will and pleasure, sub- ject only to the maxim "^zt utere tuo ut alienum non laedasy Purchasing and selling may be carried on without restraint. It is one of the necessary incidents of property; and it is no objection that the exercise of the privilege may have the effect of eliminating competition or even that it was resorted to for that purpose. But agreements between competing parties who remain distinct proprietors to destroy or remove competition are open to legal^b|ed:^o^n.^.^^^^^^^ 62 (4) The classification of transactions in the first section of the Act is far from co-extensive with the business transactions of men which affect competition in one way or another. There is a wide area of human conduct in the domain of trade which the Act does not touch at all. In enacting the law Congress was dealing, so far as the first section is concerned, only with certain kinds or classes of transactions and putting the ban of the law upon them. All other acts, transactions and relations are outside of its pale however they may affect competition or trade. It would have been very easy, if it had been the intent of Congress to prohibit acquisitions of property which affect competition in inter- state commerce, to say so explicitly. That it failed to do so is of controlling significance con- sidering how common a transaction it is for acquisitions to affect competition even on a large scale. Had it done so it would have raised interesting constitutional questions as the right to freely buy and sell property is a fundamental civil right guarded and protected by the consti- tutional guarantees, both National and State, and not lightly to be emasculated or impaired ; and that is ig/^rf)i§yiAft#Ss(5¥?®ufficient reason 63 for confining the Act to the well settled legal import of its phraseology. (5) It has recently been contended before this Court that if two competing wholesale grocery concerns engaged in interstate commerce are bought, and their competition is thereby termin- ated, the transaction is within the Act, if the facts show that it was intended to restrain com- merce or that would be its necessary effect. But there is no element of restraint of trade in such a transaction because neither vendor nor vendee is restrained. A contract to buy out a competing business or to buy two competing busi- nesses does not and cannot possibly restrain any- body or anything, and has never been held to be restraint of trade or bad on any ground. If it were held to be illegal on any such ground it would be a startling and revolutionary addition to jurisprudence. If the absorption by pur- chase of the trade of two men by one of them or by another man is restraint of trade this branch of jurisprudence will have to be rewritten. The contention is not helped by the reference to intent or necessary efFect. The intent of every such transaction is obvious ; it is to acquire the property and trade that are bought, or, in the lan- Digitized by Microsoft® 64 guage of Holmes, J., in Cincinnati Packet Co. vs. Bay, (200 U. S., 179), " the competition itself" as well as tlie instruments of competition ; but that is not restraint of trade in the sense of the law. And the necessary effect of the transaction is to eliminate the competition bought. There- fore to import the elements of "intent" and " necessary effect " adds nothing to the statement of the transaction itself because they are both present in every such transaction. The truth is that the contention loses sight of the fact that the termination or elimination of competition is not illegal unless it is the result of a transac- tion in restraint of trade, and such a trans- action is not in restraint of trade because there is no agreement restricting the activities of either party. The contradiction and con- fusion of terms which results from seeking to apply the first section of the Act to acquisi- tions and purchases because they eliminate com- petition is sufficient to show that it is forcing it out of its natural channel. Digitized by Microsoft® 65 IV. The transfer to, and acquisition by, the Standard Oil Company of New Jersey of the stocks of the various corporations in the year 1899 'was not, and the continued oiirn- ership of those shares ivith the control which it confers is not, a combination or conspiracy in restraint of trade declared to be illegal by the first section of the Sherman Act. (i) Treating the trausaction for the purposes of argument as a combination it was not the bring- ing together into a single ownership or control of separately and diversely owned concerns, or a transaction that involved any restraint upon the freedom of diverse owners of separate con- cerns in their control and management. The situation at that time was that, following xipon the dissolution of the so-called trust of 1882, a part of the owners had converted their trust certificates into the corresponding shares of the twenty companies and continued to hold those shares; and the remaining owners con- verted theirs in connection with the transfer to the Standard Oil Company of New Jersey. Each of the corporations, including the Digitized by Microsoft® 66 Standard Oil Company of New Jersey, liad the same stockholders, and each stockholder had the same proportionate stock interest in each corporation. The result of the transfer was that the same body of stockholders, instead of electing the directors of twenty corporations elected only the directors of the Standard Oil Company of New Jersey, who in turn elected the directors of the other corporations. There is not in this transaction even the remotest analogy or resemblance to a combina- tion in restraint of trade. The different prop- erties and interests were not independent and competitive because of the common ownership. They were not operated and managed as if separately and diversely owned, but as con- stituent elements of a single business organism. There was no elimination of competition, be- cause all being in the same common owner- ship they were not and could not con- ceivably be competitive. There was no re- straint of the rights of stockholders of separate corporations, because all the corpora- tions had the same stockholders having the same interest in each. The same body of stock- holders exerciEi^;dit*9tft^CHRPshf^ectly the same 67 control either way. To treat the transaction as in restraint of trade is to ignore the fundamental and essential element of a transaction in restraint of trade. An illustration may make this position clearer. A manufacturing business is established in the State of New York. It is successful, and to increase its output and sell it advantageously auxiliary plants are established, one say in the middle west, one in the northwest, one in the southwest, one in the south, and one in California. In each instance a corporation is organized for that purpose in the State where the plant is located. Two or three marketing companies are organized in different States, each to cover a con- siderable territory. The capital for these auxil- iary establishments is furnished by the original company on behalf of its stockholders or by its stockholders in the proportion of their interests. The stocks of the subsidiary companies are held for those stockholders by trustees, or are issued direct to them in the proportion of their stock interests in the original company. Would the transfer of the stocks by the trustees, or by the individual stockholders, to the parent company for its stock be a combination in restraint of Digitized by Microsoft® 68 trade? If the subsidiary companies had been organized by the parent company out of its capi- tal and their stocks had been issued to it, woxild it be a holding company and as such a combination in restraint of trade ? There would seem to be only one answer to these questions ; and it would be the same answer if, in one or more of the localities, instead of building new plants existing plants had been acquired by purchase for cash or with the stock of the parent company. These would not be combinations in restraint of trade because the common ownership places the trans- action in an entirely different category from that of combinations of separately owned concerns through an agreement or device which restricts the freedom of the owners of each in the control and management of its affairs. (2) The situation is the same in substance as it would have been if the Standard Oil Company of Ohio had possessed the corporate authority to acquire the stocks of the other corporations (which is an authority that has become common because neces- sary in the carrying on of certain kinds of business in several States), and had acquired them itself^ and had taken the stocks of the new corporations organized in Oigitizeiid:^ Mwihsdi^expansion of the 69 business. Had this been the course of the trans- actions the trusts of iS'jg^ 1882 and the transfer of the stocks of the subsidiary companies in i8gg to the Standard Oil Company of New Jersey would have been unnecessary. The difference in the two situations is one of form rather than sub- stance^ because in both cases there would be the same ultimate body of beneficial owners throughout^ the legal ownership or title in the one case being in the Standard Oil Company of Ohio, whilst in the other it was first in the trustees aud then in the Standard Oil Company of New Jersey. Nothing more was effected by the acquisition of the stocks by the Standard Oil Company of New Jersey in i8gg than would have been effected if they had been acquired in the outset by the Standard Oil Company of Ohio. Hence the trusts and the acquisition by the Standard Oil Company of New Jersey are not matters of essence so far as the Sherman Act is concerned. The relation of the transactions with respect to any claim of restraint of trade or monopolizing would be the same in the one case as the other. (3) These considerations differentiate the Northern Securities case, 193 U. S., 197, which the Court below treated as an absolutely Digitized by Microsoft® 70 controlling authority. The Northern Pacific and Great Northern Railroad Companies were competitive trans-continental railroads, each with its own stockholders and board of direc- tors. The property of each was " inter- state in its character and the operation there- of was interstate." (Cochran, J., Bigelow vs. Calumet Mining Co., 167 Fed., 739). Neither Company had the legal power or authority to acquire the other ; in fact, such an acquisition was prohibited. They were also pro- hibited from consolidating or merging. Each was a quasi-public corporation and bound by law to maintain its separate and independent existence. To bring them under what would be practically a common control and management certain leading stockholders of both Companies combined together to organize the Northern Securities Company under the laws of the State of New Jersey as a purely holding company to exchange its shares at fixed ratios for the shares of the two companies. Mr. Morgan and his associates were the leading stockholders of the Northern Pacific Company, and Mr. Hill and his associates were the leading stockholders of the Great Nor5h^^^m^;^^^^ut for the com- 71 bination Mr. Morgan and his associates and the other stockholders of the Northern Pacific Company would have continued to control that Company, whilst Mr. Hill and his asso- ciates and the other stockholders of the Great Northern Company would have continued to have controlled it. The combination ema- nated from an agreement between stock- holders of the Northern Pacific and stock- holders of the Great Northern. An agreement between these two sets of stockholders creating a board of trustees to control and manage both corporations in harmony would have been " equivalent to an agreement between several persons engaged in business to surrender their discretion as to the manner in which they shall conduct their business " ; — in other words an agreement or combination in restraint of trade. Instead they adopted the device of a purely hold- ing company to attain the same results. This is the view that the majority of this Court took and on which it founded its decision. Mr. Justice Harlan said (p. 346) : " The Securities Company is itself a part of the present combination ; its head and front; its trustee." Mr. Justice Brewer said (p. 362) : " The transfer of stock to theSecuri- Digitized by Microsoft® 72 ties Company was a mere incident of the manner in which the combination to destroy competition and thus unlawfully restrain trade was carried out." Thus there was a combination of diverse owners of separate and diverse properties, bound by the law of their being as quasi-public corpora- tions invested with public franchises to continue separate, independent, and competitive, creat ing through the instrumentality of a holding company a common control which would restrict to the point of nullification that obli- gation and duty of separate control and management and the consequential competi- tive relations. The principle of that case is not applicable to a group of commercial corporations, acquired or created for the purposes of a common business, under no obligation to compete with each other, all owned by the same stockholders in the same proportions, the stocks of which have been vested by this common body of stockhold- ers in the main corporation of the group merely to substitute a simple form of control and sym- bol of ownership for an unnecessarily complex form of control and variety of symbols, and with- out any change in the activities of the various corporations in relation to the common business. Digitized by Microsoft® 73 (4) The reasoning of the Court below upon which the ruling that the transfer of the stocks to the Standard Oil Company of New Jersey was a com- bination in restraint of trade within Section i of the Sherman Act was based, to the effect that the various corporations were potentially competitive, and the probability of their becoming actually competitive was lessened by the substitution of the ownership of the stocks of the separate com- panies by that Company for their ownership by three thousand or more stockholders, is an en- tirely new interpretation of the Act. Potential competition is a term borrowed from economics and means that the field is open to new comers. There may be no actual competition in a trade at a certain time or place ; but if the field is open to anyone there is, in the language of economics, potential competition. The theory is that it is potential competition because a man will so con- duct his business as to prices, quality and profits as not to invite it. The term as found in the opinion of the Court below is used to express the fact that two corporations engaged in the same business are naturally competitive regard- less of their origin and ownership. This con- clusion must be based on the assumption Digitized by Microsoft® 74 that there is a duty to compete ; tliat is, that the relation of competition between them is inferable merely from their existence. But if there is no duty to compete it cannot be said that competition is their natural relation simply because they exist. The as- sumption of the Court's reasoning is unwar- ranted because whether the natural relations of two corporations in the same business is a competitive one depends upon their origin and ownership. If the same bod}' of men create several corporations to carry on a large business for the economical advantages of location or for an}' other reason, and the stocks of these corpo- rations are all in a common ownership, it is a pure fiction to say that thev are potentially com- petitive or that their natural relation is one of competition. Hence in view of the common ownership of the Standard Oil corporations to speak of them as naturally or potentially competitive is to dis- regard the facts and to assume that there is a duty of competition which there is not in the case of commercial corporations. (5) Starting with this idea of potential compe- tition the n^^.^^^^,yp^^,,^soning is that 75 if the three thousand or so stockholders had continued to own separately the stocks of the separate corporations the probability of their dispersal and severance would be greater than if vested in one company, so that in time there might be diverse owner- ship and as a result competition between the separate companies. To treat the diminution of such a probability as restraint of trade is the en- tirely new interpretation of the Act. Under that i)iterpretatio}i it becomes an act limiting the powers of common owners of no7i-competitive properties for the purpose of coercing- separate ownership that competition may be brought nito existence. A transaction which makes the joint ownership of the properties of a single business, and therefore non-competi- tive, more convenient, effective, reliable and permanent is condemned because its tendency is to obstruct its disintegration into diverse ownerships of the various corporations, and thereby possibly bring competition between them into play. An Act to prevent combinations in restraint of trade that competition may be preserved between separately owned concerns is thus turned into an Act to create competition by placing such Digitized by Microsoft® 76 restrictions upon joint ownership as will tend to disintegrate it. It is conceivable that legislation might be enacted to accomplish such a result, but it is quite clear that an Act merely denoun- cing contracts, combination and conspiracies in restraint of trade is not such an Act, and there is nothing in the cases that have been decided by this Court under the Act even suggesting such an interpretation as possible. (6j The Court based its decision entirely on the transfer of the shares of the subsidiary Companies to the Standard Oil Company of New Jersey in the year 1899 as an illegal combination within Section i of the Act. The Court refers to the acts and transactions prior to the enactment of the Sherman Act on July 2d, 1890, but merely as evidence of the purpose of the Defendants with respect to the transactions of 1899. What it says is that " the acts of the defendants and the effect of their transactions in the conduct of the oil trade prior to July 2d, 1890, which if done thereafter would have constituted a violation of the law of that date are competent and material evidence of the dominant purpose and the probable effect of their similar trans^?/a^g^i^l/M«fo^^ness since that 77 date and for that purpose they may be consid- ered " (Vol. A, 577). These prior acts are the acquisitions prior to 1879, the vesting of the legal title to them in Vilas, Keith & Chester as trustees in that year and later in the trustees of the trust of 1882, and the method of distribution adopted on the dissolution of that trust in 1892, all of which acts are attributed to the seven in- dividual Defendants. It is said that the acquisi- tions prior to 1879 were a suppression of the competition between the concerns that were pur- chased and acquired ; that the object and effect of the trusts of 1879 ^^^ 1882 and the method of distribiiting the stocks on the dissolution of the trust in 1892 was to preserve the common control and prevent the separate companies from competing with each other ; and that therefore a similar object and effect are to be attributed to the transaction of 1899. {a) It is true that John D. Rockefeller, Wil- liam Rockefeller and Henry M. Flagler were the active men in the Standard Oil Company of Ohio at the time of its organization in 1870 ; and that Oliver H. Payne became interested in the Com- pany as an active man in 1871 or 1872 ; Henry H. Rogers in 1874, and John D. Archbold in Digitized by Microsoft® 78 1 875- The remaining member of the seven, Charles M. Pratt, is evidently mistaken for his father, Charles Pratt, who died many years ago. But the relation of these individuals was only that of being the most active men in a circle of stockholders in the management of the prop- erties and no more. For many years their own- ership has been a minority interest, as it is to-day. In 1899 they were only seven out of more than three thousand stockholders holding little more than a third of the common stock. In the period prior to 1882 they were officers and direc- tors of the Standard Oil Company of Ohio and what they did was for that Company and its stockholders. Afterwards they were trustees of the trust and directors of the Standard Oil Com- pany of New Jersey, and acted only in those capacities. They were associated only in those relations, and were not otherwise a combination of individuals, or at any time acting as a body with purposes and interests exclusively their own. {b) The acquisitions prior to 1882 have been described. In some instances they were competi- tive concerns ; in others not. As each was pur- chased for the same body of common owners they ceased to be 0?peetil&7Mcrasbff®purchases were 79 perfectly lawful, and tlie effect upon competi- tion was merely incidental Had these transac- tions taken place after the passage of the Sher- man Act they would not have been within the first section of the Act because they were not con- tracts, combinations or conspiracies in restraint of trade. Whatever elimination of competition resulted from the acquisitions was not the sup- pression of competition as something sinister or illegal. {c) The purpose of the trust of 1879 was to bring the scattered legal titles to the joint prop- erties then vested in various individuals into a single trusteeship. This was followed by the mature measure of 1882, the purpose of which was to provide a practicable trusteeship to hold the legal title to the joint properties, an effective executive management of the properties and business of the common owners, and a maketable symbol or evidence of the interest of each owner. It was evidently not its purpose to prevent the concerns held in the joint owner- ship from competing with each other. {d) The dissolution of 1892 resulted from the decision in the case of State vs. Stand- ard Oil Company. (49 Ohio St., 137). That was Digitized by Microsoft® 80 a quo warranto proceeding to oust the Standard Oil Company of Ohio from its corporate privi- leges on the ground that it had abused its cor- porate franchises by becoming a party to the trust agreement of 1882, thereby abdicating its function of self-government, it being held that the act of all the stockholders of the Company in signing the trust agreement was the act of the corporation. That was the only issue raised by the pleadings and the case was heard on the pleadings, — on the amended petition, answer and demurrer to the answer. There was no issue of monopoly, or tendency to monopoly, or restraint of trade, or suppression of competition, or of ille- gality on any such ground, in the case. There were no facts alleged on which any such issue could be made, heard or decided. There were no allegations respecting the business or relations of the parties to the trust agreements or their ownership, or their operations. The single question raised was that the Standard Oil Com- pany of Ohio was virtually a party to the trust agreement, and that the act of becoming a party to it was ultra vires and a ground for the forfeiture of its charter. It is true that the original D/|?^^f ai a ! ck purchased Nat. Trans. 1 N. J., Dec. a •a s . ■3S? o .. So. ■go M ^■i "Sg It o2 5' cdgA About 71 percent, of sto rcash. Later held by rred to S. 0. Co., of 9 : 639 ; 7 : 5). CO Sw/ tocS DOS ^2 1- K CO • C/ LL" ^1 <»1 61 OS r O 3 osSt- .a 0^ •3 53 S>-i »M «t-5 ^.^ i^aa ^- o a> (U ^- T3 ft-" fl (2,rB O.«o 6 d d d s 0) Ids erive nde ourc( Iz; iz; !zi ;zi tH (H O 'O.rt m w _L KT! a •*-( <4-i «M «*.* by Stand ests ? e d am 03 n s H d 6 . d . d . CQ . CO § nized 1 I inter quir en? -S ^ 02" ^2 J3 . 1^ 00 .2 • S .I-S .*■? .Hn is'2 oja T3SS ■d 6 -d l!^ "O . -a . 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" S o <» 'O 03 3 A O V os.a o nil 10 . o. t-- SO "Org's °C O rt " '-'_■ C3 2? -i-" OS *^ V l-t CO o "o cn rO m a 3 o3 O O O .^ CO o O OCD §44 Ho o o o a a "3 a 02 o >1 *o» 'O 6 E«o o OQ 3 M.S ■ TS d E«o o •d d too S^ ,Q 03 2 3 'O £ »'»&' Id a 03 S 3 1=1 ca a M o O bS o o fl " • S <» «oo ■2'" cJ 3 "C «1 ■3 O..S a IS 3 OS k'5 " t (L, aCL, •g -g Oh .a ft, a ft. 1^ e , ? s fi; f ^ ft, s 3/.C e ^ S.9 e'S, I*: • ^igime.d by l^ci:osoft(i 1 1 S *^ O f--) +j *^ ^ 03PT3 nop* « 3 S • (»> J3 •• ■qts St- 5 fa a o o'^ ^ 03 !552 —, O .1-1 .SP^< ^ 00 QO «oo o •■ -S2 2-2 !z5a C3 a 03 sal d o M o o o o a OS ID ^^ kl CO cn> ^ to ■w ,. 'dos c 1-1 c« M ■>*OJ t-QO X r-1 r-t O .9 d T! ^ V o ij-d B s (D ^ o o 01 --1 o rl OS bo ^ T) L^ -*J -a a W a> s o OS •o O . 1-1 O •a 3 « n tin . S oi 03 s OJ "« "-S g.S •^ K 3 S.S' fO ss S P. ■S g «: g fl ^ 03 U P<9, 60 o 1.3 • 00 JS 33 C8 O o ■s a JO* gtta -1« Digitized by iwcrosomB 10 SECOND : Brief statement as to origin of Standard Oil properties. I. Refineries. The money value of all the Standard's re- fineries in 1882 was about $17,000,000, which up to 1906 had by new construction increased to $57,689,560 ; of this in- crease, over $38,000,000 was spent by Standard companies out of their own means, not only in greatly enlarging existing refineries but in building a number of entirely new refineries. II. Pipe Lines. Of 9,388 miles of trunk pipe lines owned by Standard companies in 1908, all but about 320 miles, and (omitting the Orescent Pipe Line acquired in 1895,) all but about 48 miles, had been constructed at various times since 1877 by different Standard companies with their own means ; of 45,227 miles of gathering pipe lines so owned in 1908, all but about 1,050 miles, and (excluding the Mellen Lines pur- chased in 1895,) all but about 750 miles, had been built by Standard Oil companies with their own means at various times since 1877. III. Marketing Stations. In 1906, 8,573 marketing stations distributed throughout the United States were operated by Standard companies, of which number at least 3,400 stations, costing from $1,000 up to $200,000 each, had been built en- tirely by different Standard companies with their own means. IV. Crude Oil Production. The Standard's production of crnde oil in 1906 was only 14,052,113 barrels or about eleven per cent, of the total production of the United States. V. All the stocks and properties of the appellant compa- nies, with negligible exceptions, have been held in undivided common ownership since 1879, or since the respective later dates when the companies were organized or the properties constructed. VI. The principal sources of crude oil in the United States, and approximate dates of their development are : Pennsyl- vania or Appalachian Field, (1860-1870) in Pennsylvania, New York, Eastern Ohio, Kentucky and West Virginia ; Lima- Indiana Field, (1886-1888) in Western Ohio and Eastern Indiana ; California Fields, (1895-1900) in that State ; Texas Field, (1898-1900) in that State : Mid-Continent Field, (1903- 1905) in Oklahoma V'^^Ml^kWminois Field, (1906) in Southern Illinois. 11 CHAPTER II. Ontline of the Standard Oil Organization. I. The Standard Oil Co. of New Jersey is, as its name in- dicates, a New Jersey corporation organized in 1882. Its au- thorized capital stock is $110,000,000. divided into 1,100,000 shares ; the amount of its stock actually issued and outstand- ing is $98,338,300, or 983,383 shares (a), held by nearly 5,000 stockholders (6). Apart from its ownership of other companies, it does and has always done an extensive business solely its own, having great refineries, private pipe lines in New Jersey and Maryland, hundreds of marketing stations and a large sales business in those and several other states, and an im- mense export trade. Its refineries, including the great Bayonne Works, had in 1906 an annual capacity of nearly 20,000,000 barrels of crude oil or nearly one-third of the total aggregate refining capacity of all the then existing Standard refineries (c). On December 31st, 1906, the total net assets of the Stand- ard Oil Co. of New Jersey, irrespective of the stocks or bonds of or other interest in any other companies, amounted to $77,890,834.28 {d). This amount represented about 21.7% of the entire assets of the whole Standard Oil organization. Apart from qualifying shares for directors, the Standard Oil Co. of New Jersey also owns all the stock of the thirty-three exist- ing appellant companies, with the exception of the following, in each of which it holds only a majority of the stock, to wit : Chesebrough Manufacturing Co., Galena-Signal Oil Co. and Washington Oil Co. II. Broadly speaking the business of the Standard organi- zation consists in transporting crude oil from the wells to the refineries, there refining it into illuminating oil and numerous incidental by-products, and then selling the products in the domestic and foreign markets. Oil is transported (a) Pet. Ex. 9, "Vol. 7, p. 30. (6) Def. Ex. 1, Vol. 18, p. 1-92. IS Def. Ex. 269, Vol. 19, p. 627. Cd) Pet. Ex. 9, Vol. 7, p. 28. Digitized by Microsoft® 12 through pipe lines which are owned by companies sepa- rately organized in different states. In some instances such companies were so organized under laws making the pipe line companies common carriers within the states of their organization. Except, however, the gathering lines, as the feeders from the oil wells are called, none of the pipe line companies have ever been called upon to transport nor have they transported any crude oil for others than Standard Oil companies (a). Four of the companies own pipe lines con- structed entirely on private rights of way and are in no sense common carriers, to wit : Prairie Oil and Gas Co., Ohio Oil Co., Standard Oil Co. of California and Standard Oil Co. of New Jersey. The testimony is unequivocal that all the Stan- dard pipe lines and substantially all oil pipe lines whatsoever were originally constructed either to take away the owners' oil from their own wells or to carry oil to refineries in which owners of the pipe lines were interested (b). In short, pipe lines are adjuncts of refineries and have never been operated to any appreciable extent, either by Standard interests or others, as independent business enterprises (c). Eight of the Standard companies, in addition to the New Jersey company, own refineries situated at various advan- tageous points on the seaboard or in the interior. All these refining companies but one market their products to the domestic trade in whole or in part. Four of the companies are solely marketing companies for the domestic trade. The oil is marketed abroad through companies organized in the various foreign countries ; and in the Orient, by Standard agencies directly. (a) Payne, Vol. 1, p. 350 ; Towl, Vol. 17, p. 6613. lb) Payne, Vol. 1, p. 360. (0) Archbold, Vol. 17, p. 3432. Digitized by Microsoft® 13 CHAPTER III. Origin, development and ownership of the Standard Oil business and properties down to 1882. FiBST : Early conditions in the oil industry. 1. The uncertainty as to the supply of crude oil and the con- ditions under which the oil business was carried on necessarily rendered the business for many years highly speculative. 1. In the early days of the oil industry, the supply of crude oil was obtained entirely from the oil region of New York and Pennsylvania. Production in the various local fields within the oil region was invariably characterized by a great output at the start followed by a rapid decline, until in many in- stances the production became insignificant. In the so-called Bradford Field, in 1882-3, the production reached 81,000 barrels per day (a) ; it has now fallen to 5,000 or 6,000 barrels a day (J). The Cherry Grove field, in Warren County, Penn., which was developed about 1882, for a few months produced many thousand barrels a day and then failed entirely (b). The production of the wells in the entire Pennsylvania field to-day averages for each well less than one-half barrel of crude oil a day (c). While the total production of the New York and Pennsylvania Oil Region increased rapidly and, on the whole, steadily until the year 1882, yet the wide variations in the out- put of the local fields and the resulting fluctuations in the prices of crude oil made the business both of producers and of refiners most uncertain and speculative [d). 2. Throughout the early period of the business, and down even to the early eighties, there was general apprehension that the total available supply of crude oil would be soon exhausted. (ffl) Emery, Vol. 6, p. 2741. (J) Emery, Vol. 6, p. 2743. (c) Emery, Vol. 6, p. 3744. (d) Archbold, Vol. 17, p. 3331. Digitized by Microsoft® 14 and that the value of all investments dependent upon such supply would be destroyed. Mr. Axchbold testifies as follows (a) : " I should say that through the earlier years of the business, up to a period in the eighties at any rate, there was constant anxiety as to the exhaustion of the fields ; and up to a period I should say in the early eighties at any rate that anxiety was at times appar- ently well-founded. * * * I know that the anxiety in that respect affected the disposition of investors very markedly indeed with reference to engaging in the busi- ness. They said, ' Well, what assurance have we that the supply of this article will continue, and that these investments which you are contemplating in a class of construction that is good for no other purpose will con- tinue in value ? ' We heard that all through the earlier history of the business." To the same effect, see Mr. Eockefeller {&) and Mr. Arch- bold again (c). Unwillingness further to encounter the hazards which would ensue from failure of the oil fields, on which the value of their investments was dependent, led many to retire from the oil business. 3. In the earlier days of the oil industry, the prices of crude oil were subject to tremendous fluctuations. The prices of oil iu the field prior to 1865 went down as low as ten cents a bar- rel, and oil from the same well was sold at $16.00 a barrel (d). Between 1865 and 1870 oil sold as high as $7.25 per barrel and as low as $1.90 per barrel ; the price of the barrels themselves being upwards of $2.50 each (e). The first oil exchanges were established in 1870-71. A large amount of speculation in oil took place on these exchanges, where daily prices fluctu- ated widely. For instance, on February 7, 1874, the price ranged from $1.60 to $2.10 a barrel ; in October of the same year, oil sold as low as $.70 a barrel. Many wild-cat com- (a) Record, Vol. 17, p. 3250-1. (J) Record, Vol. 16, p. 3072. (c) Record, Vol. 17, p. 3470. id) Emery, Vol. 6, p. 2679-80. (e) Emery, Vol. 6, ©;p?ietlS J5Jofl»j^/!i}go/?®l. 16, p. 3060. 15 parties were established, ostensibly to engage in the production of oil, and the stocks of these companies were disposed of to the public, with the result of utterly demoralizing the busi- ness of production (a). 4. At first the crude oil was barrelled at the wells and drawn by wagons to shipping points (5). The price of transpor- tation by wagon was very high, varying from $1.50 to $3. or $4. per barrel (c). In 1865 wooden tank cars (d), and in 1870 iron tank cars (e), for crude oil were first used. So also the oil was loaded on barges along Oil Creek and these were floated to the Allegheny River and thence to Pittsburg by artificial floods produced by damming the creek and afterwards releasing the accumulated water (/). Branches of the various railroads even- tually penetrated into the oil regions, and by 1874, some 30 small gathering pipe lines had been constructed by different persons, connecting oil wells with railroad shipping points (g). The first pipe line extending beyond the oil regions and de- signed to do away with railroad shipments of crude oil was that of the Columbia Conduit Co., organized in 1874, whose line extended down the Allegheny Eiver to Pittsburg, being from 42 to 48 miles long (A). II. Over-production of refineries, inferior husiness methods of refiners, and the results. 1. Prior to 1870, numerous small refineries had been established at many different places (i). A great part of these refineries, at least in the oil regions, were very primitive concerns, " often with single little goose-neck stills, hastily constructed and ineligibly located as a rule, put up just in the hurry of the mining excitement of the early days without much knowledge of what the business could or would develop into — mere make-shifts of concerns " (/"). The total capacity of the refineries was from 2 to 5 times the amount of the crude oil (a) Emery, Vol. 6, p. 2734^6 ; Archbold, Vol. 17, p. 3230. (6) Emery, Vol. 6, p. 2673-8. (c) Emery, Vol. 6, p. 2682. (d) Emery, Vol. 6, p. 3673. («) Irwin, Vol. 6, p. 3024. (f) Archbold, Vol. 17, p. 3329. {g) Emery, Vol. 6, p. 2724 ; Archbold, Vol. 17, p. 3331. hi) Emery, Vol. 6, p. 3648 ; Map, Def. Ex. 359, not printed. (0 Emery, Vol. 6, p. 2611. Digitized by Microsoft® 16 io le refined (a). Many of those who went into the refiniBg bnsiness were without general business experience or special knowledge of the oil business {h). By 1870 or 1871 the profits of refining had become so reditced that it was necessary for any refining concern to increase its volume of business in order to live (c). 2. The business methods of the earlier refiners were as primitive as their equipment. The by-products of petroleum were not utilized. In 1870 benzine derived from the crude petroleum was burned under the stills. The tars produced by the refining processes were run into the river {d). The refined oil was disposed of by advertising and often by send- ing samples to remote points with a view to inducing customers. The product of the refineries was of very un- certain quality as to color, test and burning qualities, and its introduction for domestic use made slow progress (e). The refiners as a rule had no warehouses or shipping facilities at sea-board points, so that oil destined for export had to bear warehousing and lighterage charges there (_/). 3. Before 1870, when the Standard Oil Company of Ohio was organized, many of the weaker refineries had gone out of business. Along Oil Creek there had been many consolida- tions (g). Most of the small refiners in and around New York stopped business when the revenue tax on petroleum was re- moved, their margin of profit, apparently, having depended upon their ability to evade the tax (Aj. All of the export trade from Pittsburg had come to be handled by three compani^ — Waring, King k Co., Warden, Frew & Co. and Logan Bros. & Co. {{}. The principal refineries in the Oil Region had consoli- dated their business to the extent of having a common sales agent at New York. Consolidation of the bnsiness was hastened by the improvidence of the early refiners in putting (a) Emery, VoL 6, p. 2712. (6) RockefeUer, Vol. 16, p. 30.57. (e) Rockefeller. Vol. 16, p. 3063. ((f) Emery, YoL 6, p. 2784: Archbold, Vol. 17, p. 32.57. ft) Archbold. To!. 17. p. 3230. {f. Rockefeller. VoL 16. p. 306-3. G7) Emery, Vol. 6, p. 2674. (A) Lombard. Vol. 1, p. 245-6. (i) Irwin. ToL 6, Vf^^ed by Microsoft® 17 too much of their capital into refining plants and by the atti- tude of capitalists, among -whom had grown np a great distrust of the oil business and who were unwilling to risk their money in it because of the wildcat oil schemes which had been so largely exploited (a). All these changes had taken place without the agency of the Standard Oil Company or of its projectors and they show persuasiyely how necessary to the continued existence of any concern at that time in the oil business was the policy of strengthening itself and increasing its volume of business which the Standard Oil Company pursued through its earlier years. Second : The bise of the Standabd Oil Coitpaxt and the detelopmekt of its business down to the tbust agbeement OF 1882. I. TJve Standard Oil husiness from its inception showed the qualities of permanence and stability and had the elements for successful development. 1. John D. Rockefeller started in the oil business in 1862, forty-eight years ago, with a capital of $4000 (b). In 1865, he became the owner of a refinery in Cleve- land, with which he had been connected for three or four years, and organized the firm of Kockefeller & Andrews to continue its business. Bockefeller & Andrews asso- ciated themselves with William Rockefeller in the firm of William Rockefeller & Co., which built another refinery on property adjacent to the refinery of Rockefeller & Andrews. In the same year, the same individuals organized the firm of Rockefeller & Co. with headquarters at New York City, " to develop the sale of oil from that point and to save for our business the expenses of commission men, and by doing our own warehousing bnsiness to reduce if possible to a minimum of cost the handling of the oil which we exported " (c). The properties of these three firms were in 1867 taken over by the new firm of Rockefeller, Andrews & Flagler— Mr. H. M. Flagler becoming a member of the new firm and a large amount of new capital being put into the business. The new firm had (o) BockefeUer, Vol. 16, p. 3067-8. (S) BockefeUer, Vd, 16. p. 3059. ^^. ^^ (c) BockefeUer, Yajgiil^.C^MlCrOSOft® 18 two refineries at Cleveland, with a growing domestic trade from Cleveland, and an export trade from New Tork. This firm continued until the orgivnization of the Standai'd Oil Co. of Ohio on January 2ud, 1S70. The business meanwhile had shown a steady increase. Each of the partnei-s gave his entire time to the business and each of them devoted himself to the study of everything that would promote its growth in every department, manufacturing, merchandising and financial (a). Their refineries were constructed in the most sub- stantial manner. Samuel Andi-ews, one of the membei-s of the firm, was a practical refiner of oil, trained in the business, aud was one of the few men at that time capable of making good illuminatius oil (J). The mem- bers of the firm were constantly adopting new ideas and put- ting them into practice. Prior to IStiT, they had purchased their barrels, which were often of inferior quality, causing loss by leakage, and the supply of which was insufficient. The cost was as high as $2.50 per barrel. In 1867, the firm estab- lished its own plant to make barrels by machinery, with the result that they secured an adequate and regular supply of barrels of good quality, so that the loss by leakage was saved and the cost per barrel was reduced to less than one-half of the former cost. Other innovations in the business of the firm were the establishment of its own wai-ehouses in New York and the purchase there of its own lighters for transport- ing its own oil from the cars to the warehouses (c). In short, the method pursued by the firm from the beginning was to provide its own facilities rather than to hire the facilities of others, and this was done as fast as capital could be obtained [d). 2. The firm enjoyed considerable advantages in the loca- tion of its refineries at Cleveland, which was the best point for the development of the domestic trade by reason of its ready access, by the Great Lakes and the various railroads, to the North, West and South, and to the Seaboai-d by several routes : over the Lake Shore & N. Y. Central railroad, over the Atlan- (a) Rockefeller, Vol. 16, p. 3055-6. (J) Kockcfeller, Vol. 16, p. 8057-8. 19 tic tt Great Western and the Erie ; or by water through the Erie Canal (a). 3. Perhaps the most important element in the saccess of the business in its early days and subsequently was the ability of its owners to obtain the necessary capital. From the be- ginning, they enjoyed high credit and were large borrowers, and the establishment of their branch house in New York en- abled them to obtain larger sums of money at lower rates than was possible in the West This borrowed capital enabled them to avoid tying up all their aTailable resources in the con- stmction of refineries (5). i. In 1870, the Standard Oil Co. of Ohio was organized with a capital of $1,000,000., and took oyer the business and properties of the firm of Kockefeller, Andrews ) Arohbold, "Vol. 17, p. 3368-9. {c) Steinbrenner, "Vol. 11, p. 447, 528, 533. (d) Archbold, Vol. 17, p. 3866-7. (e) Archbold, Vol. 17. p. 8370-1. if) Record, Vol. ^ni&iimdl)f-^^'^^S»® (g) Archbold, Vol. if, p. 3361, 3367-8, 3395. 29 business of Hamilton & Miller. The acquisition of interests in these concerns was a normal development. Lubricating oil is sold to an entirely different class of customers than is illuminating oil. Moreover, lubricating oil made from petro- leum bad in the first place to compete with numerous long established lubricants made from other raw materials. It was good business judgment for the Standard interests to follow the line of least resistance and buy into concerns which had already worked up an extensive trade for)petroleum lubricants, rather than to undertake the costly and unnecessary task of building up such a trade for themselves. In no single instance were any of the acquisitions thus far or hereafter referred to accompanied hy restrictive agreements preventing the vendors, or any individuals connected with the business of the vendors, from re-engaging in the same husines where and when ihey would. VI. Pipe lines. 1. To insure an adequate and constant supply of crude oil fcr their refineries, it early became indispensable for the Standard Oil interests to own pipe lines. They proceeded to acquire these, partly by construction and party by purchase, beginning about 1873 (a). Nearly all the early pipe lines were mere gathering lines (6), which were poorly constructed, having different owners and under very lax management (c). Most of them were very small and many of them insignificant in size, — though they were man- aged by companies with high-sounding names. The first purchase made by Standard interests was that of the so- called American Transfer Co., in 1874, which at that time owned only a line eight miles long {d). Maps showing pipe lines as they existed in the years 1874 and 1877, respectively, are in evidence as Def. Exs. 259 and 260 (not printed). The Government has prepared a list of portentous length purport- ed) Lee, Vol. 6, p. 3153; Rockefeller, Vol. 16, p. 3093. (V) Emery, Vol. 6, p. 2649. (c) Archbold, Vol. 17, p. 3330-1. ((f) RockefeUer, Vol. 16, p. 3175, 3301 ; Def. Ex. 359 (not printed). Digitized by Microsoft® 30 ing to give the pipe line concerns pnreliased by Standard Oil interests in 1S74— 1S77. From the maps (a) just mentioned it appears that sis of these eoncems, to -wit, Ant-werp, Oil City, Kams, Grant and Belief pipe line companies and the Penn. Transit Co. (lower division) Lad pipe Unes, -which were re- spectively only from 7 to 17 miles in length, — their aggregate length not exceeding 7S miles. Five of the concerns men- tioned in the Government's list, to wit, the Sandy, Milton, Keystone. Hnnter ^t Cmnmings and Clarion pipe Hne companies are so small as not to appear on the maps at all. Only three of the concerns mentioned had lines of really appreciable size, to wit, — The Union, abont 60 miles long (b), the Columbia Con- duit Co., lii to 4S miles long (c), and the Cnited Pipe Co., about 120 miles. The entire mileage of all the concerns named as pipe line acxjuisitions in the Government's table for the years 187:1 and 1877 cannot have exceeded 700 miles. Of this, only the iS miles bought fi-om the Columbia Conduit Co. was in the nature of a trunk line (c). The Union lines were a part of the purchase of Empire Transportation Co. properties, made very unwillingly by Standard interests in 1877 (d). With few excep- tions, these lines did not compete with each other. They were simply conduits from specific wells to the nearest railroad points or to specific refineries {e). Only two of them appear to have competed with the United Pipe Lines owned by Standard interests, namely : the Columbia Conduit Co. and the Union i r ). If they did not compete with each other, still less did they compete with Standard refineries. Moreover, every one of these pipe Unes icas included entirely loithin the State of Pennsylvania. There would seem to have been no reason in law or propriety why the Standard interests should not pur- (a) Note : No scale of miles appears on these maps. They are, in fact, drawn to the scale of two miles to the inch, as will readily appear by measur- ing, on Def. Ex. i59. the distance covered by the line of the Columbia Con- duit Co. stated by ilr. Emery and 3dj. Archbold to have been about 43 to 48 miles. i;;-'^ Def. Ex. it30. Map. not printed}, (e) Aichbold. Vol. 17, p. 3630. ((f Cassatt. Vol. -20. p. 35. (0 Emerr, ToL 6, p. 2649 : Irwin, YoL 6, p. 3015. ,./) Campbell, Vol. ^.^.^iS2^ ^^ Microsoft® 31 chase these lines, in order to insure their own supply of crude oil, which was liable to fail at any time on account of the diverse interests involved in such a multifarious ownership or because of incompetent management. 2. Another cause rendered it imperative that these scattered, disjointed, little pipe lines should be united in a single control. Most of their owners lacked capital as the oil fields developed. Oil wells were constantly declining and new ones being opened. New local fields were constantly being discovered. Unless the pipe lines were extended promptly to take care of the production of the newly opened wells and of the new fields, much oil would go to waste, to the great loss of the producers, while the supply of the refineries would be jeopardized (a). '6. Commeuciug, in 1874, with the purchase of the American Transfer Co., having about eight miles of pipe, and of a one- third interest in some of the lines of the United Pipe Co. owned by Vandergrift & Forman, the Standard made these the nucleus for the system afterwards known as the United Pipe Lines. The necessary work of new construction was then car- ried forward rapidly by the American Transfer Co. and the United Pipe Lines, the other small pipe lines purchased being incorporated into the system (b). The most important purchase made was that already mentioned of the Columbia Conduit Co., having a pipe line running from the oil fields to Pittsburg, about 48 miles (c). This purchase was made in IB"^? to ensure a supply of crude oil for refineries at Pittsburg owned by the Standard interests (d). By the end of 1877, au eflicient pipe line system had been created. By the year 1882, the 48 miles of trunk line bought from the Columbia Conduit Co. had grown, solely by construction with funds furnished by Standard Oil interests, to some 1062 miles, and the gathering system, also chiefly by like construction, to nearly 2500 miles (e). 4. Meanwhile, a new element had been introduced into the pipe line situation by the vast over-production of crude («) Rockefeller, Vol. 16, p. 8094. (J) Rockefellor, Vol. 16, p. 8092-5, 8333. (o) Arcbbold, Vol. 17, p. 8630. (d) Rockefeller, Y^1t)i^i^SW). In 1877, the entire capital stock of the theretofore existing corporation named Sone di Interning Mfg. Co. was bought with cash taken from the treasury of the Standard Oil Company of Ohio and belonging therefore in equity to the stockholders of (a) Archbold, Vol. 17, p. 3259 ; Rockefeller, Vol. 16, p. 3096-7 ; Ap- ^^"*(J) h&i. Ex! 313, Vol. 19, p. 743; Rockefeller, Vol. 16, p. 3081, 3097, 3153. Digitized by Microsoft® 36 that Company (a). The entire stock so bought was immediately transferred on the Company's books, and reissued directly to H. M. Flagler, Trustee, except qualifying shares issued to other individuals in trust, all the stock being thereafter thus held in trust for the stockholders of the Standard Oil Com- pany of Ohio down to April, 1879 (b). The Camden Consolidated Oil Co. was organized by Stand- ard Oil interests May 21st, 1875, with a capital stock of 4,000 shares, to which Company were immediately transferred the two refineries just purchased from J. M. Camden & Co. at Par- kersburg. West Virginia. The entire capital stock of the new Company was all subscribed for by and was issued to J. N. Camden and others for account of the stockholders of the Standard Oil Company of Ohio, and they continued to hold the same in trust for such stockholders down to 1879 (c). These examples fairly represent what was done in all in- stances prior to April 8th, 1879, except as to the Cleveland refineries. Whether the purchase was of the stock of an existing company or of stock of a newly organized company formed to take over a purchased property, the stocks so acquired were issued immediately, as in the examples given, to individuals in trust to hold the same for the com- mon benefit of the stockholders of the Standard Oil Com- pany of Ohio and none of such stocks were ever vested in the last named company as a corporation {d). It thus appears that the individuals who were the stockholders of the Standard Oil Co. of Ohio were the beneficial owners of these properties and stocks from the times of the several acquisitions, in an undivided common ownership. Obviously the concerns and businesses acquired were not and could not be, after their acquisition, independent or competitive concerns in the sense of being competitive concerns separately owned. JI. The Vilas, Keith & Chester agreement. 1. On April 8th, 1879, the Standard Oil Company of Ohio, which seems to have had the physical possession of the cer- tificates of stock held in trust for its stockholders by indi- (a) Rockefeller, Vol. 16, p. 3088-9 ; Def. Ex. 312, Vol. 19, p. 675. (c) Rfck?fdlei^Vo^'9l/z|'f^lM^2^W^9f ^rchbold, Vol. 17, p. 3634 ; Def. Ex. 309, Vol. 19, p. 727. (d) RockefeUer, Vol. 16, p. 3096-7. 37 viduals, as already stated, together with each of its stock- holders and with each of the individual trustees in whose names the said stocks stood, joined in the execution of an in- strument of trust, the original of which, with all the original signatures thereto, was duly proved and offered in evidence on behalf of the defendants (a). This instrument, printed in full in the Record as Defendant's Exhibit 257 (5), recites the various stocks and other interests theretofore standing in the name of various individuals as trustees for the said stock- holders, and transfers all right, title and interest in said stocks and interests to Myron R. Keith, George F. Chester and George H. Yilas, as Trustees, " to hold, control and manage the said stocks and interests for the exclusive use and benefit of the following named persons and in the foUlowing propor- tions named, (giving a list), and to divide and distribute the same as soon as they can conveniently do so between the said persons for whose benefit they hold the same as aforesaid, and in the respective proportions aforesaid * * *." The persons named in the said list as those among whom the various stocks and interests described were to be distributed were stockholders and were all the stockholders of the Standard Oil Go. of Ohio and the proportions named in the list were the pro- portions in which such persons respectively held the stock of that Company (c). 2. The purpose of executing this instrument was un- doubtedly to gather into the same hands the various stocks and other interests which, while they belonged in equity to a definite group of persons, to wit, the stockholders of the Standard Oil Co. of Ohio, were standing in the names of various different individuals and were subject to the em- barrassments that such an arrangement might at any time create. Mr. Archbold says (d) : " It seemed it was a simple method of holding the interests that had been acquired for this common ownership." (a) Rockefeller, Vol. 16, p. 3096-8. 'Qi^^i^^l-^imMmwmm, vol. 19. p. (d) Record, Vol. 17, p. 3258. 38 Mr. Eockfeller says (a) : " It -was made for the purpose of holding for the benefit of these individuals for whom these interests had been acquired the properties in the form that seemed the most feasible." The stocks descriled in the Vilas Keith c& Chester agreement were upon the executio7i of that agreement transferred on the hooks of the several companies to Vilas, Keith <& Chester, Trus- tees, to whom new certificates of stock were issued. (See tran- scripts from stock books of the various companies printed as Defendant's Exhibits in volume 19 and indexed under names of the separate companies.) The stocks transferred to Vilas, Keith & Chester, Trustees, ■were not divided but were held by them, subject to the terms of the instrument just described, until the execution of the trust agreement of 1882 (6). At all times, each stockholder of the Standard Oil Co. of Ohio had the same proportionate interest in each of these stocks so held' that he had in the stock of the Standard Oil Co. of Ohio itself (c). III. The period of the Vilas, Keith & Chester agreement. 1. A few of the acquisitions made by Standard Oil in- terests prior to 1882 were made subsequent to the execution of the Vilas, Keith & Chester agreement. In all such instances, the purchase was made for cash, the money coming either from the treasury of the Standard Oil Co. of Ohio or from the treasury of one of the companies whose stock was held by Vilas, Keith & Chester (d). Where corporate stocks were acquired, either of existing corporations or of new corporations organized to take over pur- chased properties, such stocks were transferred and issued either to Vilas, Keith & Chester directly or in some instances to other individuals acting as trustees for the stockholders of the Standard Oil Co. of Ohio. Where the latter course was adopted, it would seem that the stock certificates were en- dorsed in blank by such individuals and delivered to Vilas, (a) Record, Vol. 16, p. 3175. (J) Rockefeller, Vol. 16, p. 3178. (c) Rockefeller, \o\Pi9J^^h Microsoft® (d) Archbold, Vol. 17, p. 3467; Appendix I., p. 352. 39 Keith & Chester, who had the custody of the certificates of all the stocks held for common account at the time of the trust agreement of 1882, when they delivered all the said stock cer- tificates to the trustees named in that trust agreement (a). 2. Some important changes in the methods of holding prop- erties already owned took place during the same period. The National Transit Co. was organized in 1881 to take over the pipe lines belonging to Standard Oil interests into one organi- zation (5). At the time of such organization, the physical prop- erties of the American Transfer Co. were conveyed to the Na- tional Transit Co. and 94 per cent, of the stock of the United Pipe Lines was transferred to it by Vilas, Keith & Chester (c). The Chess- Garley Co. and Thompson c& Bedford Co. Ltd., were organized to take over the business of the firms of the same names, in which large interests were already held for the Stan- ard Oil stockholders. The stocks of these new companies, as far as they represented Standard holdings, were issued directly or indirectly to Vilas, Keith & Chester, Trustees (d). Certain of the smaller companies owning refineries were liquidated and their properties conveyed to other com- panies and various other minor changes took place with a view to the unification and systematization of the busi- ness. With the exception, however, of the few new acquisi- tions, the properties transferred to Vilas, Keith & Chester on April 8th, 1879, were substantially the same as those delivered by them to the Trustees under the later trust agreement of January 1, 1882. 3. During this period, though each company was sepa- rately managed by its own oflScers and directors yet there was co-operation between aU the companies in the economical and eflScient conduct of the business as a whole for the common benefit of its common owners, who were, as aforesaid, the stockholders of the said Standard Oil Co. of Ohio. FouETH : Trust agreement of 1882. I. On January 2nd, 1882, there was executed a more formal Trust Agreement, which, together with a supplemental agree- ment of January 4th, 1882, are printed in the Petition (e). (a) Def. Ex. 370, Vol. 19, p. 638. (e) Record, Vol. A, p. 21-31. S i'hS' ^i^^nMmm%^-a, 383,;Vol. 19, p. 830, 678. {d) Def. Exs. 334, 331, Vol. 19, p. 759, 783 ; Archbold, Vol. 17, p. 3641-2. 40 This A^eement created -what was thereafter known as the Stiindaid Oil Trust. In the body of the instrmnent, the parties are described as consisting (1> " of the stockholders and members " of certain corporations and limited partner- ships : (2) of certain indiridaals named and ^31 " of a portion of the stockholders and members "" of certain other corpara- tioas and limited partnerships (a). The corporations and limited partnerships mentioned in the lirst and third groups of parties, excepting the Standard Oil Co. of Ohio, were in fact those and only those whose capital stock was at the time held by Tilas, Keith .t Chester as tmstees and of whose shares (wholly as to the corporations in the first gronp and partly as to those in the third gronp> the stockholders of the Standard' Oil Co. of Ohio were then the equitable own- ers. Many of these concerns had never competed with each other nor with any Standard Oil interest and none of them had so competed subsequent to their acquisition. The indi- viduals named in the second group of parties, (a, are the same as those who executed the principal and supple- mental agreements {i\ and both are identical with the then stockholders of the Standard Oil Co. of Ohio, to- gether with the three former tinstees, Yilas, Keith A: Chester. The real parties to this Agreement, therefore, and all of them, however variously described in the body of the instrument, were merely the entire body of stockholders of the Standard Oil Co. of Ohio, together with the three former trustees (c). Following the execution of this agreement, the stockholders of the Standard Oil Co. of Ohio each transferred the stock in that Company held by him to the tmstees named in the new trust agreement {d) ; and Tilas, Keith it Chester turned over to the new trustees all the stocks that had been held by them for the common account, that is to say, — the stocks of all the com- panies named in the Trust Agreement other than the Stand- ard Oil Co. of Ohio {e). To each former stockholder of the Standard Oil Co. of Ohio, the new trustees then issued 20 shares of trust certificates for each one share of stock of that company previously held by snch stockholder, which (a) Petition. Vol. PJ^iMeil. by:m6C:^ft®)l. A, p. 29. SO-1. (e) RockefeUer. Vol. 16, p. 3.?9>. 31S1 ; Archbold, Vol. 17, p. SSSS ; Def. Exs. oS6 and 270. Tol. 19, p. S-S7-9. 62S. ld^ risf Tt S8fi Vo! 19. Ti. •i'ip Uit «^^lnmn. 41 trust certificates represented his interest both in the Stand- ard Oil Co. of Ohio and in the stocks previously held by Vilas, Keith & Chester, so that he retained the same propor- tionate interest in the entire business as theretofore (a). The total capital stock of the Standard Oil Co. of Ohio, all of which was outstanding, was $3,500,000. Therefore, the total amount of trust certificates issued in 1882 by the Trus- tees was 700,000 shares or $70,000,000 par value (i. e. 20 times $3,500,000) (5), which was the total appraised value of all the stocks and properties transferred to the trustees, all of which certificates were issued to the former stockholders of the Standard Oil Co. of Ohio in exact proportion to their former holdings in the stock of that Company (c). The new Trust Agreement, therefore, made no change in the situation, except in the personnel of the holders of the legal title to the properties already owned in common. It still continued true that all the common properties were held in trust for the same group of owners in the same proportion as before. No additional companies or properties were brought in by the execution of this Trust Agreement nor was it an agreement bringing together independent com- peting concerns separately owned. It simply provided for a transfer of non-competing common properties from one set of trustees to another set of trustees with ampler powers, in ad- dition to which the beneficiaries under the trust transferred to the new trustees the stock of the Standard Oil Co. of Ohio itself, to be held in like manner as were the stocks of the other companies owned in common. II. The Trust Agreement of 1882 was devised as a simple and effective means of holding and administering the common properties and of furnishing the common owners with market- able tokens of their respective interests in such properties. Mr. Archbold referring to this Trust Agreement says (d) : " It was made as a simple and effective form of hold- ing the interests which had been theretofore acquired. We were advised by counsel that neither the Standard (a) Rockefeller, Vol. 16, p. 3182 ; Petition, Vol. A. p. 33, 34. (6) Pet. Ex. 350, Vol. 7, p. 433. (c; Archbold, Vol. S)>g9izm^9biyMtlS>&Cg^ Vol. 19, p. 887 ; Petition, Vol. A. p. 33, 34. (d) Record, Vol. 17. p. 3259-60. 42 Oil Co. of Ohio nor indeed any other single corporation could successfully or safely, perhaps, hold them. They were varied in nature ; the property was widespread, located in many different States, the laws of which were in many cases restrictive as to the rights of corpora- tions, and the trusteeship was suggested as a simple method of bringing together those properties so as to provide for an evidence of ownership, a token of owner- ship that would be marketable, that would give the in- terests a market value, a basis for trading, and that would enable an administrative oversight in the simplest possible way. * * * There was no general token or evidence of owner- ship prior to 1882, and that was a very controlling feature of the necessity that led to the making of the trust agreement. Individuals in interest, through joint ownership in the Standard Oil Company of Ohio and in the Vilas, Keith & Chester holdings, wanted some- thing, as I say, that would evidence their ownership in the property as a whole, and that could be marketed." CHAPTER IV. Early Contracts with Railroads. I. Printed in the Petition, as Exhibits 2 to 8 inclusive (a), are several contracts or arrangements made between 1872 and 1878 with or between various railroad companies, and the Gov- ernment charges that, through advantages derived from such contracts, the Standard Oil Co. was enabled to coerce many rival refineries into selling out to it and " to crush out " other competitors. Except Mr. Emery, an independent refiner called by the Government, who showed himself intensely biased, not one witness has testified that refineries were acquired through coercion. It is inconceivable that some of the other former owners of refineries should not have so testified, if the charges of coercion were true. On the contrary, Irwin, Eeighard, Lombard and others, who at different times sold refining properties to the Standard and who were called by the Government, either were silent on the point or testified favorably to the Standard (5). The real reasons for the purchase of the various properties and for the readiness of the former owners of these to sell are suflSciently (a) Eecord, Vol. A.PMWMy '^'^rOSOft® " (J) Irwin, Vol. 6, p. 3014 ; Reighard, Vol. 6, p. 8135 ; Lombard, Vol. 1, p. 250, 367. 43 shown in the preceding discussion ; and the following analysis of these railroad contracts shows that they had nothing to do with the matter. II. The contracts in question are the following : Exhibit 2 — South Improvement Co. contract (a). Exhibits 3, 4 & 5— Terminal Contracts between the Standard Oil Co. and certain railroads (5). Exhibit 6, Pooling Contract between certain railroads (c). Exhibit 7, Contract between Pennsylvania Railroad and Standard Oil Co., constituting the latter com- pany a so-called " Evener " or regulator of freight shipments (d). Exhibit 8, Arrangement between American Transfer Co. and the Pennsylvania Eailroad, relating to the pro-rating of freight charges between the pipe line companies and such railroad. 1. South Improvement Company contract (e). The promoters of the South Improvement Co., none of whom were connected with the Standard Oil Co., were aiming at a settlement of the difficulties in which the railroads were then involved in rela- tion to apportioning the traffic and maintaining rates (/). Mr. Rockefeller and his associates subscribed for only a minority of the stock (^). All of the other subscribers were competitors of the Standard (A). None of them became stockholders of the Standard Oil Co. until 1875 or three years later (i). The Logans, who subscribed for South Improvement stock, never became stockholders of the Standard Oil Co. and were after- wards associated in business with Mr. Emery (_;'), then and since one of the Standard's chief rivals. Two of the chief op- ponents of the South Improvement Co. were the individual defendants J. D. Archbold and H. H. Rogers (k). (a) Petition, Vol. A, p. 116. {b) Petition, Vol. A, p. 124, 127, 129. (c) Petition, Vol. A, p. 181. (d) Petition, Vol. A, p. 186. (e' Exhibit 2, Petition, Vol. A, p. 116. (f) Rockefeller, Vol. 16, p. 8068-9. (g) Petition, Vol. A, p. 12-18. (h) Rockefeller, Vol. 16, p. 3071. (i) Rockefeller, Vol. 16, p. 8140. SjiSlIVl. m^t^%^g'^fon p. 8296-7. u The benefits of the South Improvement scheme were open to all refiners and this fact was early made known (a). Mr. Rocke- feller and his friends did not believe in the plan, but were un- willing to antagonize its promoters, especially Mr. Scott of the Pennsylvania, who was then potent in railroad circles (J). The new plan, which aroused great opposition, was short lived. The date of the South Improvement Contract was January 18th, 1872, and the Charter of the Company was repealed March 1, 1872 (c). No oil was ever hauled under the contract. No money was ever paid on the subscriptions to its capital stock nor was such stock ever issued (d). The actual advance in rail- road rates at the time of the South Improvement contract was, as far as appears, uniform as to all shippers, including the Standard Oil Co. ; any advantage accruing to the signers of the South Improvement contract having ceased upon its abandonment (e). The advance rates were not long in force, and some, at least, of the independent shippers never paid them (f). There is no competent evidence that the refineries in the Oil Regions or elsewhere were injuriously afi'ected by the abor- tive South improvement scheme (g), which had nothing to do with the acquisition by the Standard Oil Co. of Cleveland refineries (A). The purchase of some of these, and negotiations for the purchase of others, took place in the last part of 1871 (i). It was not until January 18, 1872, that the South Improve- ment Contract was signed. There is no real evidence connecting the contract, or the railroad rates provided for in it, with any subsequent transactions. 2. Terminal contracts with Erie and New York Central Bailroads—ELshihiis 3, 4 and 5 attached to Petition. (A) There are two terminal contracts with the Erie Rail- road ij) ; the first dated April 17th, 1874 ; the second dated March 1, 1875, being substantially an extension of the first. There is one terminal contract with the New York Central dated (a) Rockefeller, Vol. 16, p. 3145-6 ; Arclabold, Vol. 17, p. 3448. (J) Rockefeller, Vol. 16, p. 3069-70. (c) Emery, Vol. 6, p. 2614. {d) RockefeUer, Vol. 16, p. 3070-1, 3141, 3143 ; Emery, Vol. 6, p. 2722-3 («) Emery, Vol. 6, p. 2639. (/) Lombard, Vol. 1, p. 248. (,g) Emery, Vol. 6, £)^t^d %)/HttMCfcSafi^ Vol. 16, p. 3065. (i) Rockefeller, Vol. 16, p. 3138. (j) Petition, V»l. A, p. 124, 127. 45 January 1, 1876 (a). There is no evidence that there was ever any contract of this nature between the Standard Oil Co. and the Pennsylvania road. The three terminal contracts referred to contained several provisions substantially similar; thus, all provided that the Standard Oil Co. in charge of the terminals, should assume certain risks which the railroad company would have had to assume, such as the carrier's risk from fire and other causes of loss, — and also the ordinary warehouseman's risk (b) ; also the following provision, sub- stantially the same in all three contracts, that the warehouse- man shall (italics ours) (c) " make the charges uniform to all parties who use the yards or for whom services are performed therein and always as loiv as any other oil yard affording proper facilities for the transfer, storage, preparation, and ship- ment of the oil at the terminus of any railway or other line competing with the Erie Railway, at or adjacent to the Port of New York, and generally so to manage the premises as to give all patrons of the road fair and equal facilities for their oil business at uniform cost, etc." The charges which the Standard Oil Co., as manager of the terminals, could make for handling the oil of independent shippers, were limited by the railroads themselves to 18 cents per barrel {d). While the charge, in the case of the N. T. Central, was to be " not less than 18 cents " {d), its terminal contract with the Standard required the latter's terminal charges to be as low as those at any other terminal {e). This limited the Stand- ard absolutely at its New York Central terminal to 18c. per barrel, the charge fixed by the Erie. (B) Contracts such as these were not made first with the • Standard Oil Co. (/). The Erie leased the Weehawken docks to Mr. Bostwick from 1869 to 1872, when he was independent, and he acted as warehouseman for all oil received there, pay- ing the railroad $75,000 per year and making regular terminal charges to all shippers (/"). The New York Central had had (a) Petition, Vol. A, p. 129. (6) Petition, Vol. A. p. 134-5, 136, 130. (c) Petition, Vol. A, p. 135, 137-8, 140. {d) Petition, Vol. A, p. 135. fff^^^il^oi'^^Bm^mimf^'^f^® 46 similar arrangements with Lombard, Ayres & Co., prior to 1872, and witli Bostwick for several years after that date (a). (C) In the conduct of such terminal facilities as are here under consideration, there are necessarily two elements of in- come — one the owner's compensation for bis investment in real estate and equipment and the other the charge for hand- ling and storing the oil. The owner's compensation for his in- vestment is substantially merged in the freight charge and is normally so collected by the railroad, as in this instance by the Erie, which owned its terminal. It is true that the Stand- ard was bound also to pay the Erie Eailroad 5c. on every barrel of oil passing through the yards (b), but this, no doubt, in the minds of the parties, went to enlarge somewhat the rail- road's compensation for its investment at a time when its re- turn from freight was somewhat precarious on account of fierce competition. On the other hand, the New York Central Railroad owned no terminals for receiving oils, and these were furnished by the Standard (c), which had to be reimbursed, not merely for its services as warehouseman, but for the use of its premises. To this end, in addition to the 18c. per barrel, it was to receive from the railroad, as additional compensation for its " services " (including necessarily the return on its in- vestment in real estate and equipment), a sum which should be equal to 10 per cent, of the freight due the railroad from the Standard Oil Co. upon oil transported for it over said railroad (d). There is nothing here open to criticism. (D) There is no evidence that any unreasonable charges were ever made by the Standard as warehouseman, nor that it was ever paid any charges whatever except those, as aforesaid, fixed by the railroads, nor that it in any particular took ad- vantage of its position to the detriment of any competitor. All statements to that effect are pure assumptions or mis- readings of the evidence (e). (E) Mr. Eockefeller's testimony as to the reason for these (a; Bostwick, Vol. 6, p. 3316. (*) Petition, Vol. A, p. 135. (c) Petition, Vol. A, p. 129. (d) Petition, Vol. A, p. 130-1. (e) Bockefeller, Yo^j^fj^^^^ MrOSOm 47 terminal contracts is very convincing. He says (a) (italics ours) : " We were handling these large quantities of oil. We were warehousemen. We were natural parties to take these warehouses and handle them. It was in our regular business of the receiving and shipping of the oil, * * * They wanted experienced warehousemen, who could handle the warehouses in the best manner ; * * * In those days especially, when the oil was so largely transported in the wooden packages such as I referred to, often of green wood, with exposures to sun and weather, it required the emptying of the barrel, the recoopering of the barrel, shortening up the hoops, and reglueing the package if necessary, and whatever ren- dered it acceptable to the purchaser of the oil, before he would consent to its being loaded into the ship. The regular services of warehousemen were performed by us in these cases. That was a special sort of a service, for which we were eminently fitted." 3. Railroad Pooling Agreement of 187 1/,. This agreement (5) was solely between the Erie, Pennsylvania, Lake Shore and other railroad companies. There are only two provisions of the agreement which are of importance here. The first fixes uniform freight rates from refineries in Cleveland, Pittsburg or the Oil Regions to like seaboard points, as follows (c) : Upon refined oil from all initial points : To New York fl.90perbbl. To Philadelphia and Baltimore 1.75 per bbl. To Boston 2.00 per bbl. Upon crude oil from all initial points : To New York $1.65 per bbl. To Philadelphia and Baltimore 1.50 per bbl. To Boston 1.75 per bbl. {a) Record, Vol. 16, p. 3099, 3100. (J) Petition, Vol. A, p. 131-6. (c) Petition, Vol. A, p. 133. Digitized by Microsoft® 48 The second important provision is as follows (a) (italics ours) : " The roads transporting the refined oil shall refund to the refiners, as a draivback, the charges paid hy them upon the crude oil reaching their refineries by rail ; and the road transporting through crude oil to the eastern sea- board shall refund to the shippers twenty-two cents per barrel ; both of said drawbacks to be paid only on oil reaching the initial points of rail shipment through pipes, the owners of which maintain agreed rates of pipe- age, it being understood that the said rates of pipeage shall be equitably adjusted as between the several rail- roads, and that they shall be set forth in a contract to be entered into between each pipe line and the trunk^ lines parties hereto ; such agreed rates of pipeage being of importance to the parties hereto and constituting a valuable consideration to them. Oil reaching refineries by pipes direct shall not be en- titled to the drawbacks on refined oil." These provisions were intended to place refining points, both in the Oil Eegions and at Cleveland, Pittsburg and the seaboard, upon an equality as to cost of transportation, so that the factor of geographical position might be eliminated ; whereas, theretofore, all refineries not situated near the wells had been handicapped by having to pay the cost of rail trans- portation of the crude to the refinery {b). Counsel for the Government have entirely misapprehended the effect of these provisions. The language as to the freight drawback on refined oil is as follows (c) : " The roads transporting the refined oil shall refund to the refiners, as a drawback, the charges paid by them upon the crude oil reaching their refineries by rail." As to this, two things should be noted : (1) that it enured to the benefit of refineries not merely at Cleveland and Pitts- burg, but also in the Oil Eegions, as far as they employed rail transportation ; (2) that the drawback to such refineries was (a) Petition, Vol. A, p. 133. (J) Eockefeller, V(jl,,m,x,^lgO, /i^^t>g8^®> ^°1- ^' P' ^^SS- (c) Petition, Vol. A, f. 133. ' 49 simply of the rail freight and not of the pipe line charge (a). Mr. Cassatt, speaking of the situation in 1878, when the ratio of crude to refined was fixed at lj\ barrels of crude to 1 barrel of refined, says (5) (italics ours) : " This rate of $1.90 on refined oil is made from the mouth of the pipe. We agreed for $1.90 to transport a sufficient quantity of crude oil to the re-finery in Pittsburg to make a barrel of refined and to transport that barrel of refined thence to New York. Now it takes 1^^ bar- rels of crude * * * to make a barrel of refined oil and the refinery having paid 35c. to the A. V. E. E. Co. for each barrel of crude carried {i. e., for the' rail ship- ment) * * * we multiply 35c. by 1^^ and we pay that back to the shipper who pays us $1.90 from the refinery to New York * * *. It amounts to 45ic." The provision that the freight drawback on refined oil and the pipe line refund of 22c. on crude oil should be " paid only on oil reaching the initial points of rail shipment through pipes, the owners of which maintain agreed rates (apparently 30 cents) of pipeage " was essential to the scheme of equality, as appears clearly in the table below. Finally, refineries receiving oil by pipes direct, without employing railroad transportation, were not entitled to either drawback ; (1) not to the railroad freight drawback, for they had not paid it ; (2) not to the 22c. on the pipeage charge, since, if the refinery owned the pipe line, as in Emery's case (c) it only paid cost, which was certainly less than 30c. (d) ; and, if it did not own the pipe line, it paid not exceeding 30c. In either case, to pay any refund would be to destroy equality. In this agreement 1^ barrels of crude oil are assumed to be the equal of one barrel of refined oil ; or, what is the same thing, 4 barrels of crude equal 3 barrels of refined (e). The following table makes the whole clear. (as) Emery, Vol. 6, p. 2733 ; Cassatt, Vol. 20, p. 9, 10. (6) Record, Vol. 20, p. 9-10. (c) Emery, Vol. 6, p. 2730. (d) Emery, Vol. 6, p. 2729. (e) Petition, Vol. A, p. 133. Digitized by Microsoft® 50 Net Teansportation Cost to New York. From Cleveland, Pittsburg and all interior refineries em- ploying rail transportation for their crude supply : Pipe Line charge on 4 bbls. of crude at $.30 1.20 Railroad freight on 4 bbls. of crude being repaid may be dis- regarded Railroad freight on 3 bbls. refined to New York at $1.90 5.70 Total $6.90 From Oil Eegion refineries not employing rail transporta- tion for their crude supply : Pipe Line charge on 4 bbls. of crude at not exceeding $.30 per bbl 1-30 Railroad freight to New York on 3 bbls. of refined at $1.90 5.70 Total $6.90 New York Refineries : Pipe lines charge on 4 bbls. of crude at $.30 1.20 Railroad freight on 4 bbls. of crude at $1.65 6.60 Total $7.80 Drawback on 4 bbls. of crude at $.32 88 $6.92 Thus, the transportation costs to the three classes of refin- eries were made substantially identical ; though refineries like Emery's, reached by pipe lines direct (a), had the advantage of all they saved on pipe line charges below 30 c. Where the refinery and the pipe line belonged to the same people, this saving must have been large ; so that Emery's reiinery had an important advantage over Pittsburg and Cleveland, instead of being at a disadvantage, as he claims and as is asserted by the Government. If he subsequently was unable to continue in business, it was evidently because he could not compete against Pittsburg and Cleveland, even on better than equal terms. Digitiz e d by Microsoft® ■ (a) Emery, Vol. 6, p. 2736. 51 There is no certain evidence as to which were the pipe lines, whose owners maintained " agreed rates of pipeage." The alleged Pooling Agreement, Petitioner's Exhibit 770 (a), dated September 4, 1874, names as parties only the following : United Pipe Lines (Partnership). Sandy & Milton Lines. Relief Pipe Line Co. American Transfer Co. Union Pipe Line Co Grant Pipe Line Co. Karns Pipe Line Co. Antwerp Pipe Co. Oil City Pipe Co. Pennsylvania Transportation Co, In only two of these had the Standard Oil Co. at that time any interest whatever, to wit, a one-third interest in the United Pipe Lines (b), which was to have 29J per cent, of the oil in the pool (c), and the whole of the American Transfer Co., which had 7 per cent, in the pool. In other words, the Standard's interest in the alleged pool was at most 17 per cent, in aU (b). Nor were any of the remaining concerns acquired by the Standard until after April, 1877 (d), nearly three years later than the date of the alleged pipe pooling agreement. Furthermore, an examination of the map of existing pipe lines in 1874 (e) shows that every line on the map was included in the list of signers of the alleged pipe line pooling agreement, except the Columbia Conduit Co., which supplied oil only to Pittsburg refineries direct (,/), and therefore would not in any event be entitled to the benefit of the drawbacks, and except also the following : Eochester & Coraopolis Pipe Co. Hickoiy Line. Octave Pipe Co. Titusville Pipe Co. New Tork Pipe Co. Church Eun. (a) Record, Vol. 10, p. 1817-21. (*) Rockefeller, Vol. 16, p. 3323. (c) Pet. Ex. 770, Vol. 10, p. 1820. (d) Campbell, Vol. 6, p. 3321. (e) Def. Ex. 258 (noii^ijfiig#)^ by Microsoft® (fj Irwin, Vol. 6, p. 3015. 52 The Octave was Emery's line and delivered oil only to Emery's refinery (a). There remain only five others not accounted for. But Emery says (6) that twenty- two pipe lines got the benefit of the 22c. rebate. There are but eleven signers to the alleged pipe pooling agreement (c), and the record is silent as to who the others were ; they presumably included the said five lines. Hence, no possible claim of discrimination can be made. Emery's assertion that the arrangement was secret is absurd in the face of his admission [d) that the so-called " Eutter circular " was issued broadcast by the railroads to all refiners and shippers on October 1st, 1874, when the railroad pooling agreement went into effect, and that it set forth the pro- visions of that agreement, particularly as to the drawback of 22c. 4. Contract between I'ennsylvania Railroad and Standard Oil Go. {e). This agreement, dated October 17th, 1877, recites an arrangement between the Trunk railroads for a division of eastbound oil traffic, whereby the Pennsylvania Railroad should carry to New York 21 per cent, of the whole, and to Philadelphia and Baltimore 26 per cent., or 47 per cent, in all. With the fixing of these proportions, as far as appears, the Standard had nothing to do. Similar traffic arrange- ments between railroads continued to be made and were re- garded as legal down to the passage of the Interstate Commerce Act of 1887. By the terms of this agreement, the Standard Oil Company undertook to regulate its shipments of oil over the Pennsylvania's lines, so that the entire oil busi- ness of the Pennsylvania to New York, Philadelphia and Baltimore collectively should amount to the 47 per cent, of the total oil traffic above referred to. The Standard was thus constituted what was known at that time as an " Evener," which was the name applied to a large (a) Emery, Vol. 6, p. 2726. (J) Kecord, Vol. 6, p. 2725. (c) Pet. Ex. 770, Vol. 10, p. 1817. (d) Record, Vol. 6, p. 2728-9. (e) Exhibit 7, ^^titQi^iMd^^mrOSOft® 53 shipper in any particular line who assumed the task of en- suring a certain distribution of traffic among dififerent rail- roads. This plan was at that time common in relation to all kinds of large traffic (a). Mr. Rockefeller testified (6) : " We made the shipments to conform to their agree- ments as to divisions, and that was done from time to time in quantities to enable them to carry out the divisions of the traffic and secure for themselves fair transportation rates." This, he says very positively, the Standard interests often did to their own disadvantage, shipping oil to Philadelphia wheu^ under normal conditions, they would have shipped it to New York (c). In return for its services, the Pennsylvania agreed to pay the Standard a commission of not less than (and which in practice actually was) 10 per cent, of the freight upon the Standard's own shipments of oil over the Pennsylvania lines. The railroad agreed not to pay a like commission to any other shipper, unless the latter guaranteed an equal amount of traffic. Such provisions were common at that period {d)^ This contract imposed obligations upon the Standard Oil Co. that fully offset any advantages to be derived from it. It is doubtful whether there was any real profit to the Standard under the contract. Ten per cent, com- mission was not then considered an unreasonable compensation for the services rendered in the " evening " process involved in such a contract {e). Cassatt's statement to Lombard that " the Standard was the only company that could makef peace between the railroads " (/), of course, referred to the " evening " function assumed by the Standard and was testimony to the value of the latter's services. 5. Arrangement hetween American Transfer Co. and Penn- sylvania Railroad Co {g). The correspondence in this Exhibit related to an arrange- rs) Archbold, Vol. 17, p. 3450. (V) Record, Vol. 16, p. 3090. (c) Record, Vol. 16. p. 3090,[3118. \a) Petition, Vol. A, p. 145. C«) Archbold, Vol. 17, p. 3450-1. (/) Lombard, VoLBUgjtmd by Microsoft® (^) Exhibit 8, Petition, Vol. A, p. 138-40. 54 ment between the two companies above named, whereby the Pennsylvania was to pay the American Transfer Co., a pipe line concern, 20c. per barrel on certain oil transported by the Eailroad company. It is not disputed by the Appellants that for a short period only (a), following February 1, 1878, this payment was made on all the oil delivered to the Penn- sylvania Railroad, to the N. Y. Central and to the Erie by the American Transfer Co. and by the United Pipe Lines. There is no competent evidence in the case that such payments were made upon any oil not so delivered. It is not necessary, however, to rest the defense of this transaction upon any technical point of evidence. In 1878 the American Transfer Co. and the United Pipe Lines were both owned by Standard interests (b). As pipe line companies, they were in law quite distinct from the shippers whose oil passed through the pipes. The American Transfer Co. itself, even in 1878, was a small affair, having only from two to three hundred miles of gathering lines (c). The United Pipe Lines was much larger. The two concerns together, in 1878, by the testimony of Lee, a most hostile witness, did 90 per cent " of the busi- ness of collecting crude oil from the wells " (d), or in other words, transported 90 per cent, of the crude oil production in that year. There is no evidence that any of the remaining ten per cent, was delivered to any of the three trunk lines. The total production of crude in 1878 was about 15,000,000 barrels (e), ten per cent, of which would be 1,500,000 barrels. But much of this ten per cent, must have been used by independent refineries supplied by pipe lines direct, of which there were a number : among them. Union Re- fining Co. at Oil City (/), Waverly Oil Works, Miller's Oil Works, Empire Oil Works and others at Pittsburg (g) ; Emery gives the capacity of Miller's Oil Works in 1879 as 5238 barrels per week (/i), equivalent to 272,376 barrels per (a) Record, Vol. 3, p. 1497. (6) Record, Vol. 6, p. 3331, 3393. j Standard Oil Interest. (Yes or No) American Lubricating Oil Co. West Michigan Oil Co. Yes, by Trustees, (entire stock.) Yes, by Standard OilCo. of Ohio physical prop- erty. Yes, by Trustees (entire stock). Yes, by Thomp- son & Bedford — J interest in property. No. Yes, by Trustees 75% of stock. Yes, by Trustees (71 per cent of stock) No Yes— 1880 No. Yes— 1870 Yes— 1878 No. Yes— 1891. Yes— 1891. No. No If acquired, date of acquisition of stock or property. Entire stock pur- chased by trustees 1878 to 1886. Took over interest in partnership of Tliompson, B e d- ford&Co. Majority of stock ac- quired in 1883. Balance in 1900. No. Took over property of American Lub Oil Co. and Mica Steam Packing & Axle Grease Co Purchased in 1877 for cash. Entire stock pur- chased 1888. Took over firm of Swan & Finch in 1891. Remarks. Some tank cars. Seventy- five per cent, of stock ac- quired 1879 ; bal- ance 1900 — all for cash (19:681). 71 per cent, of Stock —1890 Small refinery and oil yard at Port- land, Maine. 19:679. Marketing and export business in lu- bricating oils. 19 : 679 Small refinery on Newtovfn Creek. The original Standard Oil Company. 19 : 636, 674 Lubricating Oil plants at Cleveland. Non-competing. Minority stock ac- quired 1883. Company liquidated 1888. 19 : 676 Small marketing business in Michigan (19:647). West Seventy-five per cent, of stock ac- quired in 1891 ; balance in 1894 ; compounding and marketing lubri- cating oils. "l9:63G. Trustees took and paid for entire stock upon organization. 19:687. Manufactures and sells lubricating specialties. 19:687, 681. Producing properties in Pennsylvania 19:689 PIPE LINE COMPANIES. National Transit Co. Yes, by Trustees 97% of stock. Yes— 1881 Digitized by Micr^, Acquired in 1881 94 per cent, of stock of United Pipe other previ- ously owned by Standard Oil Inter. ests. 19:641, 678. VI ■ TABLE SHOWING STATUS ON JULY 3, 1890, OF ALL NOW EXISTING APPELLANT COMPANIES ; ALSO STATUS ON SAME DATE OP PROPEKTIES HELD BY ANY OP SAID APPELLANT COMPANIES ON NOVEMBER 15TH, 1906, AND WHICH PROPERTIES WERE DERIVED PRIMARILY FROM INDEPENDENT CONCERNS. PIPE LINE COUFANIES— (Continued). Name ot Appellant Company. Holds properties deriTed primarily from following Concerns, since liquidated. United Pipe Lines Organized to take over the following : Antwerp Pipe Co. Penn sylvania Transportation Co. Union Pipe Co. Grant Pipe Line Relief Pipe Line Karns Pipe Line }■ Hunter & Cum- mings Sandy Pipe Co. Milton Pipe Line Keystone Pipe Co. Oil City Pipe Co. Clarion Pipe Line J Columbia Conduit Co. Owned July 8, and Low i Yes, by National Transit Co. (entire stock) Yes, by National Transit Co. Organized by Standard Oil Interests. (Yes or No) Yes— 1877 II acquired, date of acquisition of stock or property. Entire stock acquired 1877 to 1883 American Transfer Co. Western & Atlantic Pipe Line Co. Smith's Ferry Oil Transportation Co. Crescent Line Co. Pipe Yes, by National Transit Co. (en tire stock or property) Yes, by National Transit Co. (entire property) Yes, by Trustees or National Transit Co., 45% of stock. Yes, by National Transit Co. (entire stock) No No No No Property or stock acquired 1877 Eemarks. Properties consisted chiefly of the lines of the 13 small companies next enumerated. 19:648. Entire stock chased 1877 pur- No No No Entire stock pur- Digitized by Mfp^bffW '"' Property— 1874 45 per cent, of stock acquired early 1890. Acquired— 1878 These twelve concerns form a group of very small gathering pipe lines aggregating not over 230 miles in total length, all situated entirely within the State of Pennsylvania. (post. Appendix I, p. 15) Small pipe line about 48 miles long entirely within State of Pennsyl- vania. 6:3015, 3333-6-7 Original Pipe Line about 8 miles long within State of Pennsylvania pur- chased 1874 16:3175 Balance of stock never acquired. Company liquidated 1894. Gather- ing line entirely in State of Penn- sylvania, owned by Globe Refining Co. of Pittsburg, with whose re- finery it was bought m 1890. 19:648 Small gathering Pipe Line running to refinery of Paine Ablett & Co. by whom it was owned and with whose refinery it was bought ; entirely within the State of Pennsylvania. (13:8363) Trunk Pipe Line entirely within State of Pennsylvania. 19:640 VII TABLE SHOWING STATUS ON JULY 2, 1890, OF ALL NOW EXISTING APPELLANT COMPANIES ; ALSO STATUS ON SAME DATE OP PKOPERTIES HELD BY ANY OF SAID APPELLANT COMPANIES ON NOVEMBER 15TH, 1906, AND WHICH PROPERTIES WERE DERIVED PROM INDEPENDENT CONCERNS. PIPE LINE COMPANIES— (Con«»»?/e(?). Name ol Appellant Company. Buckeye Pipe Line Co. Cumberland Pipe Line Co. Tlie Eureka Pipe Line Co. Indiana Pipe Line Co. New Yorl^ Tran- sit Co. Northern Pipe Line Co. Southern Pipe Line Co. Southwest Penn- sylvania Pipe Lines. Prairie Oil & Gas Co. Holds properties derived primarily from loUowing Concerns, since liquidated. Owned July S, 1890 and how 1 Yes, by National Transit Co. (entire stock) No Yes, by Trustees (entire stock) No. No. Yes, by National Transit Co. (entire stock) Yes, by National Transit Co. (entire stock) Yes, by National Transit Co. (entire stock) No Organized by Standard Oil Interests. (Yes or No) Yes— 1886 Yes— 1901 Yes — early in 1890. Yes— 1891 by National Transit Co. Yes— 1893 by Na t io n a 1 Transit Co. Yes— 1889 by National Transit Co. Yes— 1890 Yes— 1885 by N a t i o na Transit Co. Yes, after 1899 Digitized by IVIiorosoft® It acquired, date of acquisition ot stock or property. No No No. No. No. No. No No No Eemarks. Owns Pipe Lines in State of Ohio, constructed and paid for entirely by Standard Oil interests. 19:640 Owns Pipe Lines in Kentucky con- structed and paid for entirely by Standard Oil Interests. 19:640 Pipe lines in West Virginia con- structed and paid for entirely by Standard Oil interests. 19 : 640. Entire stock taken by National Tran- sit Co. in 1891, and paid for with money and property. 19 : 640. Entire stock taken by National Tran- sit Co. in 1898 and paid for with property and money. 19 : 641. Entire stock Transit Co. with erty. 19 : 641, for b}' National money and prop- Owns pipe lines in Southern Penn- sylvania constructed by itself, and no others. 19:641 Owns Pipe Lines constructed by itself in Southern Pennsylvania. 19:641 Produces and purchases crude oil in Mid-Continent Field and transports its own crude oil through private Pipe Line to Griffith, Indiana. 19:639 Digitized by Microsoft® July 2nd, 1890, by the trustees or by some of the companies whose stocks were held by them, in the same manner as on that date and until about March 21st, 1892. Prior to the last date, a proceeding in the nature of Quo Warranto had been brought in the Ohio Supreme Court by the State of Ohio against the Standard Oil Co. of Ohio as a sole defendant (a). The decision made and the judgment entered in the course of this proceeding are fully discussed in Defendants' Brief on the Law. It is sufficient to say here that the judgment required the withdrawal of the stock of the Standard Oil Co. of Ohio from the Trustees. II. The certificate holders thereupon, at a meeting held March 21, 1892, as provided by the terms of the Trust agree- ment (6), adopted the resolutions set forth in the Petition, {c) providing for the determination of the trust agreement and the winding up of the affairs of the Trust by distributing the stocks of the corporations held by the Trustees among the owners of the trust certificates in such a way that each certifi- cate holder should receive the same proportionate interest in the stock of each company as he held of the total amount of trust certificates. This exchange was to be carried out by issu- ing to each certificate holder (upon the surrender of his certifi- cates) an assignment of legal interest in the stocks of the var- ious companies. These assignments of interest, upon presenta- tion to the proper corporate officers, were to be exchanged for stock. Following the adoption of these resolutions, some of the companies named in the trust agreement and also of those organized or acquired after the formation of the trust, and for whose continued corporate existence there was no neces- sity, were dissolved. At the same time, the stocks of a num- ber of companies which had theretofore been held by the trustees were transferred directly to the Standard Oil Co. of New Jersey and have ever since been held by that company. (a) Eecord, Vol. 22, p. 1-13. (5) Petition, Vol. A, p. 28. (c) Record, Vol. A, p. 38-9. Digitized by Microsoft® 64 Among these were included (a) the following companies, de- fendants in this suit : Chesebrough Mfg. Co. Continental Oil Co. Galena Oil Works Ltd.) ^ consolidated as Galena Signal Oil Co. Signal Oil Works, Ltd. ) Swan & Finch Co. Vacuum Oil Co. Similar transfers were made to certain other companies. These changes left in the hands of the trustees stocks of the following twenty companies, (6) all of which are defendants here, though the bill was dismissed as to the Forest Oil Co. and the Northwestern Ohio Natural Gas Co. : Where Name of Company. Organized. Anglo-American Oil Co. (Limited) England Atlantic Refining Co Pennsylvania Buckeye Pipe Line Co Ohio Eureka Pipe Line Co West Va. Forest Oil Co Pennsylvania Indiana Pipe Line Co Indiana National Transit Co Pennsylvania New York Transit Co New York Northern Pipe Line Co Pennsylvania Northwestern Ohio Natural Gas Co Ohio Ohio Oil Co do Solar Refining Co do Southern Pipe Line Co Pennsylvania South Penn Oil Co do Standard Oil Co. of Indiana Indiana Standard Oil Co. of Kentucky Kentucky Standard Oil Co. of New Jersey New Jersey Standard OU Co. of New York New York Standard Oil Co. of Ohio Ohio Union Tank Line Co New Jersey (a) Pet. Ex. 253, Vol. 7, p. 448, 446. (J) Record, Vol. A, p. 37. Digitized by Microsoft® 65 By resolutions of March 31, 1892, certain persons were appointed trustees to liquidate the trusts. These liquidating trustees notified all the certificate holders of the proposed distribution of stock and requested them to surrender their trust certificates to be exchanged for stock of the twenty com- panies (a). Several of the larger holders of certificates at once made the exchange, receiving shares and fractional shares in each of the several companies, bearing in each case the same proportion to the amount of stocks in those companies that the trust certificates previously held bj' them had borne to the total amount of the trust certificates outstanding. A majority in number of the certificates, which of course represented a majority of the shares of stock in each company, were thus ex- changed. Smaller certificate holders showed great reluctance about making the exchange (h). This was natural. The unity of the business was universally recognized. Stocks in the sep- arate companies had no market value and were not bought or sold except together as representing an interest in the busi- ness as a whole. Trust certificates had a value for sale or as collateral security that the holder felt would not attach to the stocks of the separate companies (a). A certain number of stock- holders surrendered their certificates and received assignments of legal interest, which they continued to carry instead of con- verting the same into the stocks of the 20 companies (c). Many other trust certificates were retained throughout the entire period by their holders. Only the shares of the twenty com- panies which were actually exchanged were voted between 1892 and 1899. The outstanding remaining shares held by the liquidating trustees were not voted (d). In this connection the opinion of the learned Court below states (e) : " * * * the receipt by the assignee of his share of the stock of any one of these companies was conditioned by the terms of the assignment upon his accepting his share of the stock of all of them. This method of dis- (a) Archbold, Vol. 17, p. 3384. (J) Archbold, Vol. 17, p. 3384-5. (c) Archbold, Vol. 17, p. 8293. (d) Archbold, Vol. Di^tiSm^y iRH»to&M®Vol. 16, p. 3187-8. («) Record, Vol. A, p. 575. 66 tribution appears to have deterred many of the holders of trust certificates from surrendering them and accept- ing their shares of the stocks." We respectfully submit that there is no suflBcient warrant for this statement. The only evidence whatever is in the lan- guage of the assignment itself (a), and that language we submit does not bear the interpretation put upon it by the learned Court. There is nothing in the Eecord to show that the method of distribution adopted deterred holders of trust certificates from surrendering them and certainly nothing to show that any such result was in the minds of the trustees or of any of the Defendants in formulating the plan of distribu- tion which was adopted, or that by such plan the individual Defendants intended to secure " to themselves the control and management of all the companies (6)." Second. There was no actual competition in the legal SENSE BETWEEN ANY OP THE StANDAED OiL COMPANIES FROM 1892 TO 1899. I. The learned Court below so held (c), and it is therefore not necessary to argue the point here. At all times between the date of the resolutions for the winding up of the trust, and the date of the transfer of the stocks in the other companies to the Standard Oil Co. of New Jersey in 1899, each person who was a certificate holder on March 21, 1892, either directly or through the liquidating trus- tees continued to own the same proportionate interest in each of the t-rt^euty companies (except the Northwestern Ohio Natural Gas Co.) that he had theretofore owned in the total amount of trust certificates and that he held in the Standard Oil Co. of New Jersey after 1899. As to the Northwestern Ohio Natural Gas Co. in which the Trustee held only a majority of the stock, the same statement holds true as to that majority. Mr. Eockefeller testified (d) : " Before any dissolution of the trust, the people who were the shareholders in the trust owned all these difi'erent properties. * * * Those who transferred (a) Petition, Vol. A, p. 40. S &1; ^t W^d by Microsoft® (d) Record, Vol. 16, p. 3190. their interests from the trust into these constituent companies preserved the same relation that tbey had sustained before in the ownership of these properties. Those who had not yet transferred, those who were from time to time transferring, yet preserved their same proportionate relation in all these properties. * * * The same people, in the same relations, con- tinued." There was also no possibility of competion because of the continued common ownership of all the companies. II. In 1897, a bill of information was filed by the Attor- ney General of Ohio, in the quo warranto case, to punish the defendant in that case for alleged contempt in that, as claimed, the Standard Oil Co. of Ohio had not withdrawn from the Trust, (a). The testimony given by Mr. Rockefeller in said contempt proceeding and cited by counsel for the Government in this case, is in no way inconsistent with the position that there was no actual competition in the legal sense between the companies from 1892 to 1899. What Mr. Rockefeller meant by that testimony and what the actual facts were is fully explained by him as fol- lows (h) : " These corporations were being stimulated, each of them, in every way that would produce the minimum of cost in their manufacture, and in every way to do their business the best that could be done. .'< * * * As a practical question what would be done, I suppose, would be that the Standard Oil Com- pany of Ohio would supply the trade which it could supply to the best advantage * * * and it would be just the thing that was the natural thing to do in that regard. * * * j suppose that as a matter of fact these companies, all being owned by the same people, would not be managing their separate businesses except in the way that would be the most productive for all the separate businesses." III. But it is asserted that if there was no actual competi- tion between the Standard Companies during the period in question, then they were doing business in violation of the judgment of the Ohio Court. Digitized by Microsoft® (a) KeeJord, Vol. 22, p. 32, 513. (J) Record, Vol. 16, p. 3189, 3192-3. 68 1. The judgment of the Ohio Court was literally observed (a). The Standard Oil Co. of Ohio withdrew from the trust. All of its shares were surrendered by the Trustees (6). No dividends were paid by it except on the shares which had been regularly issued upon the surrender of trust certificates. The Trustees did not vote the stock of any company held by them nor exercise any control over the Ohio company nor over any other company (c). 2. It is contended that all the holders of trust certificates might have been compelled to turn the same in, in exchange for the stock of the various companies by withholding divi- dends. This very point was raised in the contempt proceed- ings. Mr. Archbold, in reply to the suggestion, testified (d) : " I say that any such proceeding on the part of the Trustees would have resulted in a panic in the value of the shares of the Trust Stock and in an immense in- justice and loss to the great body of shareholders ; a few of the large owners might possibly have protected themselves and might have made victims of the small owners, but there could be no other effect than an im- mense loss. There ivas no market value for the shares of the constituent companies, and a small shareholder would have found himself utterly without a market for his holdings. Many people were borrowers of money with the stock pledged as collateral and would have been utterly at the mercy of any person or persons who might have been in possession, to take advantage of their necessities. Such a thing was a commercial im- possibility." 3. But the decisive answer to the whole contention is that the entire subject was threshed out before the Supreme Court of Ohio in the contempt proceeding, very full proofs being taken and every point now raised by the Government having been considered, whereupon on December 11th, 1900, the Court rendered the following decision in favor of the de- fendant (e) (italics ours) : " This day this cause came on to be heard upon the information against said defendant for contempt here- (a) Record, Vol. 23, p. 31-2. (,J) Record, Vol. 22, p. 130. (c) Rockefeller, \m^ZB($Wp-micrOSOft® (d) Record, Vol. 23, p. 463. ^ («) Record, Vol. 22, p. 525. 69 tofore filed herein, and the evidence produced hy the parties ; on consideration whereof, t/ie Oourt, being fully advised in the premises, does find that said defendant is not guilty ; it is, therefore, considered and adjudged that said information be and it is dismissed and that said defendant recover its costs herein expended." CHAPTER VIII. Transfer of stocks to Standard Oil Company of Neiv Jersey. I. In 1899 the capital stock of the Standard Oil Co. of New Jersey was increased to $110,000,000, the $10,000,000 there- tofore outstanding being made preferred stock and being re- tired shortly afterwards by exchanging it for common stock (a). This left an authorized issue of 1100,000,000 common stock. By resolution of the Board of Directors, the officers of the New Jersey company were authorized to issue certificates of common stock of that company in purchase of the stock of the remaining nineteen companies at the rate of one share of com- mon stock of the New Jersey company for various fractional shares of the other companies. At the time of the dissolution of the trust, there were outstanding 972,500 shares of trust certificates. Therefore 972,500 shares of the common stock of the New Jersey company were issued in exchange for all the stocks of the other companies and for the $10,000,000 or 100,000 shares preferred stock of the New Jersey Company. For example, as there were 35,000 shares of the capital stock of the Standard Oil Co. of Ohio, one share of the New Jersey common stock was issued for 35,000 /972,500ths of a single share of stock of the Standard Oil Co. of Ohio. In like manner for all the companies. The actual transfers of stock are set out in detail in Def. Ex. 388 (5). In the case of the small cer- tificate holders who could not readily make the exchange, be- cause to do so would have involved the handling of fractions S RiTm'i'**.-^ ^y ^iorosoft 70 of shares of stock, a method was employed (a) whereby through intermediaries the process was carried out. The result of the transaction was that each stockholder of the New Jersey com- pany owned the same proportion of its stock which since 1892 he had held (either directly or indirectly) in the stock of each of the twenty companies and to which proportion of all the stocks at an earlier date he had held an equitable title through the Trustees. II. At the time of the transfer of the stocks of the nineteen companies to the Standard Oil Go. of New Jersey, such stocks had substantially all been distributed to and were held by their actual beneficial owners. All the shares of each com- pany were then held by the same persons in the same propor- tions. In each of the companies, a majority of the stock was held and owned by the same small group of individuals and estates. Absolute unity of ownership and control therefore existed as to all the twenty companies and their various subsidiaries. As already shown and as found by the Circuit Court, there was no actual competition among any of the defendant corpo- rations at the time of the transfer, nor had there been for up- wards of twenty years. Since 1879, or since the dates of or- ganization of the respective companies created by Standard interests, the stock of each company had been held in the same uniform way, so that the equitable title thereof was always vested in the same group of persons in the same pro- portions (5). This equitable title, as just stated, had been changed to a legal title prior to the transfer. Thus the transfer of the stocks of the nineteen companies to the Standard Oil Co. of New Jersey made no change iu the property rights of the owners nor in the location of the ulti- mate control of these companies, nor any change in respect to competition among them. They were all owned and con- trolled by the same people before as they were afterward and in exactly the same way, except as to the holding of the legal title. There was no competition before the transfer and none after it. (a) Record, Vol. i^ofgmd by Microsoft® (b) Becord, Vol. A, p.%0. 71 CHAPTER IX. Analysis of Acquisitions. This is a convenient point to stop and analyse the entire group of properties acquired by Standard interests from the beginning. First : Objections to table op acquisitions pbesented by counsel foe government. The Government has made up a list of formidable length, purporting to enumerate the concerns acquired by Standard Oil interests since 1870. To this list there are the following serious objections. 1. It utterly ignores the jurisdictional element of inter- state commerce. 2. It fails to specify the concerns (nearly three quarters of the whole number) which were purchased entirely for cash. 3. Non-competing concerns. The most glaring instance is the " Gilbert <£i Barker Mfg. Co." solely engaged in making apparatus for gas manufacture (a). 4. Duplications and names improperly added. Examples : (A) The " Union -Refining Co." of Titusville was a combination of three others named ih). The table lists all four as separate acquisitions. But, in fact, the combin- ation had been effected by others before the Standard bought the Union (c). So that only a single acquisition should be charged. (B) The two Glohe Refining companies were owned by the same interests, the stock of the Philadelphia Company being held by the Pittsburg Company. They, together with the Western & Atlantic Pipe Line, which was adjunct to the Pittsburg refinery, formed a single business, having the same owner, and were sold in one transaction for a single price id). They should be counted (d) Record, Vol. 19, p. 634. (J) Record, Vol. 17, p. 3353, 3339. (c) Record, Vol. 6, p. 3842-3. (d) Record, VoL 6, jj, 3136. . . „^. „^ ^ ' Digitized by Microsoft® 72 as only one acquisition. In contrast, see references in the record to the National Refining Co., a competing concern, whose six refineries are reckoned by our op- ponents as one property (a). (0) " Smith's Ferry Oil Transportation Co." was a small gathering line belonging to Paine, Ablett & Co., whose refinery it supplied and with which it was bought. The transaction was single and should have been so stated (h). (D) Also the list contains several concerns like " A. M. Burk," as to which there is no evidence that they were ever acquired by Standard interests. The Tidewater companies were not acquisitions. They were instances of minority ownership without control. 5. The list totally ignores perspective, giving the same space and importance to small pipe lines a few miles long, to insignificant refineries like the Mutual Oil "Works at Reno worth less than $1200 (c), and to small local marketing outfits with a wagon or two and a single tank, as to Chas. Pratt & Co. and the "Warden, Frew & Lockhart properties, valued col- lectively by Mr. Rockefeller at $3,000,000 {d). Second : Explanation of defendant's table of acquisi- tions. I. In Appendix I, p. 247-263, is printed a table of the Standard's acquisitions from 1870 to 1906. This table is based upon the Government's list above referred to, certain concerns being omitted for reasons above indicated. 1. Refineries. The table contains the names of some 125 refineries, mainly of small or ordinary size, owned or controlled by about 116 concerns. Of these some 86 were acquired (primarily or ultimately) entirely for cash ; 14 others were acquired largely for cash. Nineteen refin- eries owned or controlled by 14 concerns were probably acquired wholly or partly for stock of the Standard Oil Co. of Ohio. Several were non-competing when acquired. In the case of 4 refineries, a majority of the stock of an existing com- (o) Record, Vol. 17, p. 3436. id) Record, Vol. 16, p. 3083. 73 pany or of a new company organized to take over a purchased business was acquired for cash and the minority is still out- standing. Finally in substanially every case, what was ac- quired was a refinery, sometimes having other physical prop- erty adjunct to it. 2. Marheting Concerns. The table lists 58 marketing con- cerns, large and small. Of these over 50 were bought for cash ; at least 42 of them were local concerns, doing business in a single city and its vicinity or at most in a few places within a single state. As to not over 10 can it with certainty be said that they did a business extending beyond a single state, and of these at least 6 were originally or ultimately bought for cash ? Omitting those whose business was confined within a single state and those which were bought for cash, there remain only four marketing concerns, to wit : 1878 Waters-Pierce & Co. ' Alex. McDonald & Co. Thompson, Bedford & Co. 1888 West Michigan Oil Co. All of these properties or the stocks representing them were, from the times of their acquisition, also held in trust, for the group of common owners. Concerning the local marketing concerns, Mr. Archbold testified (a) : " Prior to that time (1890) the business had been done largely in barrels, which was an expensive and wasteful method. The inauguration of bulk stations, the transportation in bulk cars, and the distribution that came about in bulk wagons, tank wagons, of course worked a radical change in all respects in the doing of the business, and it tended irresistibly toward the elim- ination of the jobber or small dealer in oil in the various sections of the country. They realized that the change was occurring and that their facilities were rapidly becoming valueless because of the introduction of these better methods, and for that reason they, in numberless cases, desired to treat for such properties as they had. (a) Record, Vol. 17, pPiSt^z§.d by Microsoft® 74 whether teams, platform, wagons, or whatever, and through that period that was the reason of the many trades that were made with different small dealers throughout the country. It was largely— I should say in the great majority of instances — their own wish that they be dealt with in that way ; for the march of pro- gress in the business showed perfectly clearly that their facilities were becoming old fashioned and obsolete." 3. Pipe Line Concerns. The insignificant extent of the pipe lines acquired prior to 1880 has already been commented on (ante, p. 29, 30). The only lines of any importance afterwards acquired were the Crescent Pipe Line (1895) about 271 miles in length (a) and the Mellen Pipe Lines (1895). Both were bought outright for cash {b). The Mellen lines were gathering lines, aggregating about 302 miles of pipe, (c) extending from West Virginia into Pennsylvania. Except the Mellen lines, every pipe line in the Defendants' table (b) or in the GovernmenVs list of acquisitions was included entirely within the state of Pennsylvania. Some of them ran only from wells to refineries. Even the Crescent line ran to a refinery at Marcus Hook (d) belonging to the owners of the Crescent and carried no crude for any other concern (e). CHAPTER X. Failure to Show Acts Involving Monopolistic Exclusion. FiBST : As TO THE ACQUISITION OF COMPETING PROPERTIES. I. The record is bare of evidence that the Standard Oil companies have ever driven a competitive refiner or owner of a pipe line or other property out of business or purchased his property through any sort of coercion. Of all those who within the last forty years have sold refineries or other prop- erties to the Standard Oil companies, only two individuals, (a) Kecord, Vol. 17, p. 3335. S Re?oS vo^i'. li^^i^cl by Microsoft® (d) Record, Vol. 17, p. 3325. (e) Record, Vol. 17, p. 3828 ; Vol. 1, p. 379. 75 Emery and Castle, could be procured by the Government to testify that their sales to the Standard Oil companies were otherwise than fair transactions, and neither of them named as causes of his sale any facts for which the Standard was re- sponsible (a). II. The record does not show a single instance where the Standard companies took from the vendors of refineries or other properties contracts restraining them from re-entering the business. Only two attempts were made to furnish such proof and in neither of these does the testimony show a con- tract (6). III. No refineries were purchased with a view to limiting the output. The " purpose in buying the little refineries was to succeed to their volume of business" (c). 1. The chief refineries purchased have been operated ever since and have grown into some of the great plants of to-day ; some were continued in operation for many years as separate refineries and were finally abandoned owing to changed condi- tions of trade ; some were destroyed by fire {d) ; others were moved bodily and consolidated with existing plants (e). In the instances where small refineries were disused, their equipment was utilized as far as practicable in other construction (f). This is what the Government calls " dismantling." No instance was shown where such dismantling was followed by any diminution of business. 2. On the contrary, the whole history of the Standard Oil interests, from the beginning, shows a steady and extra- ordinarily rapid increase in the volume of the business done, which rose from about 421,000 barrels (g) oi crude in 1870 to about 16,592,953 barrels in 1882 and to 64,958,301 barrels in 1906. Second : Eelations with Tide-Watee Companies. I. As to these companies, the Court below expressly adjudges that they "have not been proved to be engaged (a) Emery. Vol. 6. p. 3639, 2642-4 ; Castle, Vol. 6, p. 3028-9. (5) Irwin, Vol. 6, p. 3014 ; Cram, Vol. 5, p. 2434-5. (c) Archbold, Vol. 17, p. 3324. (d\ Archbold, Vol. 17, p. 3260. («) Archbold, Vol. 17, p. 3337. (f) Archbold, Vol. 17,^. 3824^ 3336. (^) Kecord. Vol. 6^0^9?f tJJilMSf/iQSasS® 76 in the operation or carrying out of the combination," and the bill is dismissed as to them. This adjudication finally disposes of the charge so persistently made by the Govetnment that the Tidewater Companies have been "controlled" by the Standard, and nullifies all the Government statistics which purport to combine in one set of tables the production, the amount of crude transported or the output of refined oil, of the Tidewater with the same items of the Standard's business. Defendants might rest upon this judgment ; but, so much has been said regarding these companies, that a short explanation may assist the Court. The Tidewater Pipe Co. (Ltd.) constructed one of the earliest trunk pipe lines towards the seaboard, in the building of which the company met with various obstacles, with none of which have any of the Standard companies or the individuals associated with them been connected. And this is not disputed by the Government. In any event, in 1886 the line was carried through to the sea- board at Constable Hook, substantially as planned (a). The record is encumbered with testimony relating to a controversy between the stockholders of the Tidewater Company, in January, 1883, over the control of the company (6). There is no evidence connecting Standard Oil interests with this controversy. The Government's assertion in that regard rests upon the fact that nearly a year later some of the unsuccessful parties to the con- troversy sold their stock to the Standard (c). This stock was bought by the Standard Oil Co. in December, 1883, in connec- tion with the purchase of producing properties (d). The Stand- ard has never owned over 81 per cent, of the total stock of the company. II. About October, 1883, and some time before the Stand- ard Oil trustees acquired any stock in the Tidewater Pipe Co., contracts substantially like those annexed to the petition as Exhibit 13 (e), were entered into between certain Standard Oil companies and the Tidewater Companies (/). The contracts were (a) Record, Vol. 1, p. 190-4. (J) Record, Vol. 1, p. 195-207 ; Vol. 7, p. 78-9, 105. (e) Petition, Vol. A, p. 153, 154. r /'I Record. Vol. 1 d. 211-12. 215. 77 duly terminated in 1890 as of January Ist of that year (a). In the same year, 1890, a contract was made between the National Transit Co. and the Tidewater Pipe Co (b). providing for the de- livery by the former to the latter of a certain quantity of crude oil, which contract by renewals is still in force, but as to which no possible exception can be taken (c). The contracts cancelled in 1890 provided in part that the Tidewater Pipe Co. (Ltd.) should be entitled to do 11^ per cent, and the Standard 88^ per cent, of the aggregate business done by all the parties to the contract. If either did more than its stipulated propor- tion, the other should receive certain payments out of the profits on the excess business (d). On this account, it has been claimed that the contracts of 1883 tended to restrict the development of the Tidewater Companies and that this was the purpose of the contracts. If so, the restrictions ceased and the purpose was abandoned in 1890. In fact, the con- tracts did not restrict those companies. The pro- portion of business allotted to them was all they could take care of. Benson testified that, since 1883, the Tidewater Companies had recei\'ed from the Stand- ard Oil companies and from their own gathering lines an amount equal to the capacity of their pipe lines and of their refinery ; that in recent years they have not had capacity to do anywhere near llj per cent, of the total business and that their works are run to their full capacity now (e). No witness testified to any unfair treatment of the Tidewater Companies by the Standard interests. The contracts contained no limitation as to prices, markets or localities. III. The Tidewater Oil Co. sells 95 per cent, of its refined oil for export, of which 77 per cent, is sold on consignment through the Standard Oil Co. and 23 per cent, direct " to any- body that would buy it ". Of the 5 per cent, of the total re- fined sold by the Tidewater in the domestic market, nearly all is sold on commission through the Standard as consignee (/"). Benson's explanation of this method of marketing is perfectly reasonable. He says that about 50 per cent, of the refined oil (a) Pet. Ex. 39, Vol. 7, p. 108. (b) Pet. Ex. 38, Vol. 7, p. 107. (c) Record, Vol. 1, p. 316. (d) Petition, Vol. A, i£)/@l/zecf by Microsoft® (e) Record, Vol. 1, p. 317. (/) Record, Vol. 1, p. 318-330. 78 produced by the Tidewater refineries is too low in fire test to meet the laws of the States and must be exported. The bal- ance of the refined, they sell abroad because the -price obtainable there is better. Benson's explanation of why his company em- ploys the Standard to market its export oil, instead of person- ally handling the business, throws great light on the whole export proposition. He says {a) : " The reason {i. e. why they sell their export oil through the Standard Oil Company) is that all of the bulk oil that is exported (and this low grade oil goes in bulk shipments) is carried in oil ships and handled on the other side in tank cars and tank wagons in bulk, which means an enormous outlay of capital, and we did not feel we could afford to go into that outlay of capital, provided we could make an arrangement which was fairly satisfactory to us with somebody else to handle it for us." Third : Chaeges eelating to Pure Oil Company interests I. United States Pipe Line. Much testimony is given in the record in regard to opposition said to have been offered to the building of the United States Pipe Line, which is largely owned by the Pure Oil Co., but there is no competent evidence that the Standard interests were in any way responsible for this opposition {b). It is true that Mr. Emery stated (c) that the first opposition came from Standard Oil Co. agents, whom he says " took rights away on top of our rights-of-way " ; but, on cross-examination, he was entirely unable to name a single individual who did what he charged or offered any opposition other than two (one a field man and one a lawyer) as to whom he testified {d) : " Q. Did either of those two men buy any strips of land ? A. I don't know that they did ; they were sim- ply on the ground." He also named Mr. Daniel O'Day, but says (e) that the latter was in his room at 26 Broadway all the time. He also declares (a) Record, Vol. 1, p. 229. (d) Emery, Vol. 6, p. 2777. (>) Record, Vol. 1, jj, 46.7-8^, . ... felEmery, Vol. 6, p. 2778. (c) Emery, Vol. 6, PWf.ecf by Microsbm ^' '^ 79 that briefs in some of the suits brought by railroads to pre- vent the construction of the pipe lines were drawn by Mr. Elliott, then and now of counsel for the Standard Oil Co. (a). This statement upon its face is pure hearsay and would in any event be insufficient to show any connection of the Standard with the matter. There is ample reason why the railroads should be in- clined to prevent the construction of a pipe line to seaboard by the United States Pipe Line Co. That company has always transported refined oil in its pipe line, whereas all other refiners, including the Standard, have always shipped their re- fined oil by cars. Thus the United States project directly threatened valuable business of the railroads. The United States Pipe Line reached tidewater at Marcus Hook, near Philadelphia, in 1902 (6), since which time the line has been in active operation supplying principally the re- fineries of the Pure Oil Co. and its associated refiners (c) Meanwhile the Pure Oil Co. has grown to be a great concern with a capital of $10,000,000, owning the stocks and property of subsidiary companies (d). II. Alleged price manipulation in 1892-5. Several witnesses charge in substantially the same way, that, in the period from 1892 to 1895, the Standard Oil Co. arbitrarily first depressed and then raised the price of Pennsylvania crude, and the price of refined oil for export — to destroy the business of the independent refiners and dealers then or later associated with the Pure Oil Co. None of the witnesses pretended to have actual knowledge of any act on the part of the Standard or its agents tending to produce this result. The whole charge rests upon fluctuations in prices, from which the witnesses infer the Standard's agency. In fact, these price changes were due to purely natural and economic causes, as appears from official statistics contained in the Government's exhibits. (a) Emery, Vol. 6, p. 2655. (J) Tarbell, Vol. 3, p. 1435. (c) Tarbell, Vol. 3, p. 1449. (d) TarbeU, Vol. 3, p. 1430-9. Digitized by Microsoft® 80 1. The following table tells the story, so far as crude prices are concerned : Tear. Average price Penna. crude inbbls. of 42 gals. Average price Penna. crude in cents per gal. Total Produc- tion Penna. crude inbbls. Stocks Penna. crude in S. 0. Co. pipe lines. 1890 1891 1892 1893 1894 1895 1896 t .87 .67 .56 .64 .84 1.36 1.19 2.07 cts. 1.59 1.33 1.52 3. 3.34 2.88 30,073,307 85,848,777 33,433,377 31,365,890 30,783,424 30,960,639 83,971,903 7,998,516 13,754,876 15,474,650 10.283,513 5;216,645 4,838,248 8,692,983 (Pet. Ex. 977, 21 : 136 ; Pet. Ex. 988, 31 : 132.) The Pure Oil refiners used Pennsylvania crude. The price of this crude in 1890 was 87 cents per bbl. or 2.07 cents per gallon. In that year, the total production was about 30,000,000 bbls. and the stocks on hand were about 8,000,000 bbls. In the two years following, the production rose to 35,000,000 bbls. and the stocks on hand to 15,000,000 bbls., while the prices declined to 67 cents and 56 cents per bbl., respectively. Tarboll, a chief oflScer of the Pure Oil Co., admits (a) that these low prices were largely due to over- production. In 1894 and 1895, the production fell ofif to about 30,000,- 000 bbls. per year and stocks declined to 5,000,000, and 4,000,000 bbls. respectively. As a natural consequence of this decrease of supply and of drawing on the accumulated stocks, the price of crude rose to an average price of 84 cents in 1894 and to an average of $1.36 in 1895. Tarbell admits (6) that a large decrease in the stocks of crude oil would cause the price to rise, and says (c), referring to the stocks (italics ours) : "There is no question but what they were decreas- ing, as loould be indicated by the abnormal prices in 1895, when, of course, everyone connected with the oil Eg lecTd.' ^t\: I'Mt^ by Microsoft® (c) Record, "Vol. 8, p. 1457. 81 business knows that they were short of stock." When Lee says that the price went to $2.70 per bbl. in the month of April, 1895 (a), he is describing a period of wild specu- lation, such as would be apt to attend a sudden shortage. Indeed, he says (a) : " The Oil Exchange got away with all fixed prices from January of that year up to April. The market ran wild. * * * Outsiders bought it too; every- body was buying oil during that excitement." 2. If the Standard arbitrarily raised crude prices, it did so to its own great cost. According to Lee, the Standard, in 1895, handled 90 per cent, of the business, or say, 27,000,000 barrels of Pennsylvania crude (5), from which should be deducted, as the Standard's own production of that crude, say 7,000,000 bar- rels (c). The increase in the cost of 20,000,000 barrels over 1893 at an advance of 72 cents per barrel (ante, p. 80) would amount to $14,400,000. for the year 1895 alone. The total busi- ness of the Pure Oil refiners in 1895 was less than 750,000 barrels (d), amounting at $1.36 per barrel to about $1,000,000. gross receipts. Is it reasonable to suppose that any merchant would will- ingly incur such a loss to injure so small a rival ? It is interesting to note that the price of Lima crude, during the same period, rose from 37 cents per barrel in 1892 to 70 cents per barrel in 1895, showing a general upward trend in crude prices. The price of Pennsylvania crude never again returned to the low figures of 1891-1893 and, with the excep- tion of two years, it has never fallen below $1.19 a barrel. In 1907, the price was $1.75 per barrel (e), 3. The changes in export prices in 1892-1895 are readily explainable on economic grounds. Export prices of refined oil are necessarily regulated in large part by the amount thereof ofi'ered for export and by the amount of crude pro- duced by other countries than the United States. It appears that, from 1892 to 1894, the total foreign production of crude (a) Record, Vol. 6, p. 3192. (d) Record, Vol. 3, p. 1464. m Record, Vol. 6, p'mit'&ed by /VfiijABaofi® 977, Vol. 21, p. 136. (c) Def. Ex. 266, Vol. 19, p. 626 ; Def. Ex. 1043, Vol. 21, p. 224. 82 was only slightly less than the total production in the United States. Here, then, was a constant factor to be reckoned with (a). On the other hand, the increase in refined oil exports from the United States from 1892 to 1894 amounted to 140,- 950,441 gallons. The reason is not far to seek. The Court will take judicial notice that the great panic occurred in 1893 and was followed, both in this country and in Europe, by two years of great business depression, when reduced incomes made neces- sary the strictest economy, thus bringing about, in this country at least, decreased consumption of every commodity, including oil. With the conditions as just summarized, a decline in ex- port prices in 1893 and 1894 was inevitable. In 1895, with improved business conditions (and presumably increased demand) both in this country and in Europe, the amount offered for export fell off and the export price rose, being no doubt accentuated by the great advance in the price of crude oil in that year. The following table shows the situation : Year. Total exports refined oil ia gallons. Net export refined prices in cents per gallon. 1892 589,418,185 643,239,816 730,368,626 714,859,144 3.57 cts. 1893 2.74 cts. 1894 2.69 cts. 1895 4.86 cts. (Archbold, 17:3414; Def. Ex. 276, 19:660; Johnson, 17:3582.) Extreme prices quoted by witnesses for export oil in 1894-5 do not agree with the exhibits (6). The argument of improba- bility based upon the loss to the Standard again applies to the changes in export prices. III. In connection with the charges of manipulation of prices just considered, the same witnesses charge the Standard OU Co. with buying out Philip Poth, of Manheim, Ger- many, who had been for a short time the agent of the Pure Oil r^t;£:^df0mMmf^"°' 31, p. 225. 83 refiners for export. The facts about this transaction were fully stated by Mr. Archbold. It appears that Mr. Poth had been the chief customer of the Deutsche-Amerikanische Petroleum Gesellschaft, representing the Standard Oil Co. in Germany and being its marketing agent there ; that the Pure Oil Co., in 1894, induced Poth to leave this German company and to take over the business of the Pure Oil Co., and that, in 1895, Poth made overtures to the German company for a re-establishment of his relations with them, which re- sulted in an arrangement making him again the customer of the Standard's representative. The utmost that can be said as to this is that, after the Pure Oil Co. took Poth away from the Standard, the Standard got him back again {a). Fourth : Agreement with refining companies in 1903. This agreement is printed as Exhibit 15, attached to Petition, (b). The refineries concerned, which are listed in the Petition (c), had been buying Pennsylvania crude from the Standard Oil Co. for a period of years. Prior to 1903, the total production of that crude had been rapidly decreasing, having declined from 36,295,433 barrels in 1900 to 31,558,248 barrels in 1903, or about one-seventh (d). The re- finers in this group bought in 1896 only 302,000 barrels, but their demands increased up to 1,750,000 barrels in 1903 (e). In that year, they were notified that all of their increasing orders could not be filled and the meeting followed in which the agreement in question was made (_/). By its terms, the Stand- ard agreed to sell a quantity of crude, apparently 150,000 barrels per month, which these refiners were to divide among themselves as they saw fit {g). In fact, for the three years ending December 31st, 1906, the Standard sold to this group of refiners some 4,500 barrels per day or say 1,642,500 barrels per year (A). In the first six months of 1907, the Standard delivered to the same group of refiners 1,074,000 barrels. In the meantime the total production of Pennsylvania crude fell from 31,558,248 barrels in 1903 to 25,342,137 barrels in 1907 (i). Yet, in spite of (a) Archbold, Vol. 17, p. 3639-30. (/) Record, Vol. 1, p. 175. (*) Record, Vol. A, p. 165. (_g) Record, Vol. 1, p. 140-41. ^^Tik'^^^i S^A'^mpy |^mw^^f,■S^^^ll: p. 136. («) Record, Vol. 1, p. 174. 84 this decrease in the supply, the Standard kept up its full de- liveries to these refiners and even increased them {a). The refiners on their part agreed to sell the Standard Oil Co. all the refined oil which they wished to export, at the reg- ular market price, less one quarter cent commission to the Standard. In view of the heavy obligations as to crude un- dertaken by the Standard under this contract, this provision as to export oil was a very slight return. As a matter of fact, its results have been insignificant. The refiners sold the Standard, in the same three years 1903-1906, an average of only 427 barrels of refined oil per day ; and, in the first six months of 1907, only 13,000 barrels in all or about 72 barrels per day (5). It is diflScult to see any cause for criticism in this transaction. Fifth : Agreements of 1884 between National Tbansit Company and Pennsylvania Raileoad Company (c). These contracts were suspended as of January 1, 1893 (d) and have never since been in operation (e). They were formally cancelled in 1905 (id.). They were made at or about the time of the completion to seaboard of the National Transit trunk line through Pennsylvania ; ever since which, crude oil for seaboard refineries has largely been transported in pipe lines ; whereas refined oil, to this day, is still transported in tank cars, except by the United States Pipe Line. The Penu- sylvania Railroad had a valuable traffic both in crude oil, delivered directly to it by the gathering lines, and in refined oil from interior refineries, both of which it transported in tank cars. It had great reason to fear that the com- pletion of the trunk line to seaboard would not only take away its crude oil traffic, but by transferring the refin- ing industry to seaboard, would cut heavily into its re- fined oil traffic. On the other hand, the railroad had the power, by lowering its crude rate relatively to the rate on its refined, to put the interior refineries including (a) Record, Vol. 6, p. 3324. (d) Record, Vol. 3, p. 1499-1500. (S) Record, Vol. h^JOXkAOBby Ml^-aseH^i, Vol. 17, p. 3442. (c) Exhibit 14, Petition, Vol. a; > f ' p. 160. 85 those of the Standard at a disadvantage as to the export trade in comparison with seaboard refineries. The situation was one that naturally led to an understanding between the parties. The Pennsylvania was ready to agree not to disturb existing conditions, if the operation of the pipe line left it a substantial part of the oil traflSc. The National Transit Co., with the co-operation of the Standard Oil refineries, was in a position to give the Pennsylvania the assurances it required, without incurring any onerous obligation {a). In the contracts of 1884, the National Transit Co. agreed that all shippers desiring oil delivered directly to the Pennsyl- vania through the local pipe lines should enjoy the use of those lines without favor or discrimination ; and it guaranteed that the Pennsylvania's total volume of business in oil, refine(J, and crude, should be at least 26 per cent, of the total. In other words, it undertook that neither by the diversion of crude oil from the local shipping points nor by the transfer of the Standard's refining busi- ness to the seaboard would the Pennsylvania's total traffic be cut below 26 per cent. The Pennsylvania Road on its part agreed to observe the established relation between freight on crude oil and freight on refined. By the supple- mental contract, it was agreed that the Transit Company, in lieu of actually delivering the oil, if any, necessary to make up the Pennsylvania's quota, should carry that oil through to seaboard, at a certain rate, accounting to the railroad for the excess part of the regular rate. It does }iot appear that atiy crude oil ever had to be or was delivered or that any payments were made to the Penn- sylvania Railroad under this contract. Such contracts be- tween carriers were common prior to the passage of the Sher- man Act and in many instances remained in force for two or three years after the passage of that Act and until the public appreciated the real meaning of the Act. These contracts would seem to be entirely irrelevant as evidence against the defendants in this case (a). (a) Archbold, Vol. 17, p. 3445. Digitized by Microsoft® 86 Sixth : Florence Oil & Eefining Company and United Oil Company. It is charged in the Petition that these companies are in combination and conspiracy with the Standard Oil defendants. All the Government proved in this behalf, however, is that the Continental Oil Co. has for a number of years marketed all the refined oil of the United and Florence Companies, but that there is no contract with these companies for the pur- chase of their oil (a). The decree of the Court below (b) enumerates these companies among those which " have not been proved to he engaged in the operation or carrying out of the combination". The Defendants rest upon this judgment. Seventh : Alleged Contracts in Eestraint op Trade. I. In 1887 the Standard Oil Co. of New York joined for a short time in the attempt which was made by Pennsjilvania producers to limit the production of crude oil in that field. The plan proved futile and was soon abandoned. The only purpose of the Standard was to assist the producers, who were getting very low prices for their crude on account of over-pro- duction. The Standard's attitude throughout the whole trans- action, instead of being subject to criticism, was extremely gen- erous and helpful to all the producers (c). II. The contracts made by the Standard Oil Co. of Iowa and by the Pacific Coast Oil Co. with various California oil companies had no possible relation to interstate trade or com- merce. The Union, Puente, Pinal and all the other companies mentioned in the petition or in the testimony as those with which contracts were made were all California companies and there is not a word of evidence to show that any of them did business outside of that state. Moreover, no intention to sup- press competition can be inferred from any of the contracts. 1. The contract with the Puente Oil Go. dated March 31, 1898, bound the Standard Oil Co. of Iowa to take all the water white refined oil made by the Puente up to an amount not exceeding 600,000 gallons per year and all its 67° naphtha up to an amount not exceeding 360,000 gallons per year ; also a S Sd: Vol; |^#:^^y Microsoft® (c) Record, Vol. A, p. 167; Archbold, Vol. 17, p. 3247. 87 certain amount of 58° naphtha. The Puente on its part simply agreed not to deal in any of the products mentioned except " those of its own manufacture at the refinery aforesaid (a)." This provision was inserted to protect the Standard's trade. It simply amounted to saying that the Puente Oil Co. should not enter into competition with the Standard while it was selling all of its products to the latter. There would seem to be no possible objection to such a contract. In any event there is no proof that the contract continued after 1900 or that it was ever renewed (i). 2. Alleged contract with Union Oil Co. As to the alleged copy of a contract with this company ofi'ered in evidence by the Government over objection, there is nothing to show that a single provision of it corresponds to the original and it seems idle therefore to discuss it (c). 3. Contracts with Pinal Oil Co. and other producing companies. The contract with the Pinal Oil Co. provided for the purchase of 1,000,000 barrels of crude oil from a specified piece of ground at a rate not exceeding 35,000 barrels in any month. Any excess of production up to the total amount of "the contract, if not taken by the Pacific Coast Oil Co., was to be stored during the life of the agreement. There were similar provisions in contracts with other companies. These provisions were very reasonably explained by Mr. H. M. Tilford. They were intended to secure fulfillment of the contract. There is no way to tell in advance how much oil there is in a particular piece of ground. If the oil company were permitted to bring oil to the surface without limitation as to quantity and to sell the excess to others, it would probably happen that its supply would be exhausted before the contract was fulfilled. There was nothing to pre- vent the oil companies from selling to others after they had ■either delivered or stored the full amount called for by the con- tract with the Pacific Coast Oil Co. Nothing could be more reasonable than this arrangement {d). The present production of crude oil in California is from 135,000 to 140,000 barrels per day, of which one-half is refin- able. Of the refinable crude, the Standard Oil Co. of Califor- nia (formerly Pacific Coast Oil Co.) takes about 25,000 barrels '£ Sm ' vet 2^^#^ ^y MimBW' ^°i- ^^' p- ^525-6. \c) Pet. Ex. 944, Vol. 31, p. 101 ; Tilford, Vol. 17, p. 3510, 3516-7. 88 per day. It is obvious that the restrictions complained of could have no efifect in preventing other refineries from obtain- ing crude oil {a). CHAPTER XI. Reasons for the remarkable success of the Standard Oil business. The success of the Standard Oil business, broadly con- sidered, is due to extraordinary foresight, energy and boldness and to a policy of investment on an immense scale, displayed and carried out in every branch of the petroleum industry. This industry may be analyzed under four great heads : (1) ensuring a constant and adequate supply of crude oil ; (2) getting the crude oil to the refineries ; (3) maintaining extensive, up-to-date, well situated refineries and employing the latest and most economical refining methods ; and (4) developing and extending markets domestic and foreign by improved marketing methods. FiEST : Means for ensueing a constant and adequate SUPPLY OF CEUDE OIL. I. From the beginning, the Standard interests have been liberal buyers, offering high prices for practically unlimited quantities of crude and paying cash unless the seller pre- ferred otherwise. The method by which these purchases are and have been made is fully described in the Chapter on Pipe Lines (jpoat, pp. Ill) (6). II. The amount of the Standard's purchases has not been limited by its immediate needs, but only by the utmost capacity of its pipe lines and storage facilities. 1. Over-production of cr^ide. In the early days of every oil field, there has been great over-production due to the peculiar conditions of oil mining. Crude oil deposits may be compared to subterranean lakes. The wells are like a vast number of pipes reaching the same lake. As a (a) Tilford, Vol. nC^^Hg.C by Microsoft® (b) Archbold, Vol. 17, p. 3235 ; Payne, Vol. 1, p. 379-80. 89 rule, a single owner holds only a small tract of land surrounded by the lands of other producers. For every well drilled by any one of his neighbors, he must drill another, so that he may get his fair share of the common supply. If he delays, others exhaust the lake. Hence ensues a pell-mell eagerness to sink wells and get the crude to the surface, with- out regard to present demands and with the certain result of excessive production («). This is strikingly illustrated by the conditions existing to-day in the Kansas-Oklahoma field, where the production has reached 170,000 barrels per day, (6) an amount far in excess of present refining demands ; so that great quantities of it are being sold at any price (c). The same was true of the Lima fields in its early days, where the oil was sold for 15 cents a barrel and used for fuel (d). 2. Exhaustion of oil fields. Extravagant production has naturally led to early exhaustion of oil fields. The States of Pennsylvania and New York, which in 1882 produced about 30,000,000 barrels, fell off by 1888 to about 16,000,000 bar- rels ; rising again, by the discovery of new deposits, to 33,000,000 barrels in 1891, and again falling to 11,000,000 barrels in 1905 (e). The 136,000 oil wells in the Pennsylvania field produce to-day less than half a barrel per day each on the average {/). The Lima-Indiana production declined from a maximum of 23,000,000 barrels in 1896 to 16,000,000 barrels in 1905, and has since gone still lower (e) 3. Storage of crude surplus. Overproduction followed by exhaustion could only result in enormous waste at one period (g), and in extreme shortage in another. To save the oil for pro- ducers and at the same time to secure a uniform supplv for their own refineries, the Standard inter- ests early began to store crude oil during the fat years, to an extent measured only Ijy the utmost limit of their available capital. {ante, p. 32) (g). These stores were heavily drawn on during the lean years. The following figures showing the fluctuation in the Standard's stores of Pennsyl- (a) Archbold, Vol. 17, p. 3349; Litchfield, Vol. 16, p. 2663, 2665. (6) Archbold, Vol. 17, p. 3251. (<) Def. Ex. 265 ; Vol. 19, p. 824. fc) Litchfield, Vol. 16, p. 3661. (/) Emery, Vol. 6, p. 3744. W Barnes, Vol. ^^^§^Q^^^ ^^^Jo^eller, Vol. 16, p. 3095. 90 vania or Appalachian crude are typical (a). Barrels. Barrels. 1875 *4,000,000 1895 4,333,248 1886 31,975,883 1899 12,669,741 1890 7,998,516 1903 4,887,695 1892 15,474,050 1907 3,155,905 * Emery says total storage capacity not over 4,000,000 bbls. (i). In 1896, the Standard's stock of Lima-Indiana oil in stor- age was 23,302,770 barrels ; in 1907, it was 3,401,274 barrels. How necessary this policy of storage has been is shown by the fact that the total present annual production in the States of New York and Pennsylvania, about 11,000,000 bar- rels (c), even if all available, would be inadequate for one year's consumption of the Bayonne refinery alone {d). In fact, inde- pendent refineries take a large part of this greatly reduced production from a waning field (e). 4. Cost of Storage. The cost incurred by this policy of storage has been enormous. Tanks cost 25c per barrel of capacity and are rarely filled more than once, because the tank is not usually emptied until the field declines, and then there is no further need for storage capacity in that place (/). The oil in storage loses its most valuable ingredients by evaporation and the total loss in that way may reach 10 per cent, of the volume of oil. The oil may be stored for many (in the case of Lima oil it was stored for 10 to 15) years before being used. The tanks have to be kept in repair and the danger of loss by fire is great {g). Obviously, to the original cost of the oil, of the tank, and of the land on which the tank stands, must be added interest during the whole period of storage. These elements together make the ultimate cost of stored oil easily average over $1.00 per barrel, and, in the case of the Pennsylvania oil, where the price has been much of the time over a dollar, the average ultimate cost per barrel would be much more. Nevertheless, the Prairie Oil and Gas Company has at the present time in (a) Pet. Ex. 958 ; Vol. 21, p. 132. (/) Record, Vol. 16, p. 3654. (Jj Record, Vol. 6^, mo. (?) Record, Vol. 16, p. 3643-3, (c)Def. Ex. 365, Va^jS?fK:fe!2J|r.M;crOSO/?@i46, 2654; Archbold, Vol. (d) Def. Ex. 269, Vol. 19, p. 627. 17, p. 3239-40. (e) Record, Vol. 1, p. 217-18 ; Pet. Ex. 371 ; Vol. 8, p. 899. 91 storage over 40,000,000 barrels of crude (a) ; the Standard Oil Co. of California in 1907 had nearly 13,000,000 barrels (6) ; and Mr. Arcbbold estimated the total amount held in storage by all the Standard companies, in 1908, to be 85,000,000 barrels (c). It is not an unreasonable estimate to assume that this vast quantity of oil, by the time it is used, will have cost in all upwards of $100,000,000. III. The Standard has been at great pains and expense from time to time to develop processes for successfully refin- ing refractory crude oils, which by reason of their chemical composition could not be refined by ordinary methods. Of this, there have been two striking examples : 1. Lima crude oil, when first discovered in 1886, except as to a small part along the Northern border of the field near Toledo, was not refinable by any processes then known, on account of th.e excessive proportion of sulphur contained in it (<^). It was used only for fuel and sold as low as 15c. per barrel (e). In June, 1889, one of the Standard refineries at Cleveland was set aside as an experimental plant, for the pur- pose of developing a process for removing the sulphur from the Lima oil ( f). After an expenditure of several hundred thousand dollars {g), a successful and economical process was discovered and perfected by Mr. Frasch (/i). The Frasch process is the only one by which a good illuminating oil has ever been produced from Lima or Indiana crude, except as to the small portion of the crude mined in the neighborhood of Toledo (i). The process was fully patented and has never been used by other than Standard refineries. Its discovery made accessible for use in Standard refineries immense stores of crude oil which for many years were useless to the ordinary refiner. 2. The ordinary California crude is still more difficult to refine. Prior to about 1902, there was practically no good illuminating oil producad in California, except by mixing with it a large percentage of Eastern oil. Eric A. Stark was a chemist employed by the Pacific Coast Oil Co. After the (a) Record, Vol. 16, p. 3659. (/) Record, Vol. 16, p. 2633. (b) Record, Vol. 17, p. 3496. (jff) Record, Vol. 16, p. 3636. (c) Record, Vol. 17, p. 3339. (A) Record, Vol. 16, p. 3633-5. U Kecc,rd,^Vol. 15,.^,|6|^^ M^ProM^m' ^°'- ''' '^ ''''' ''''''■ («) Record, Vol. 16, p. 2643. 92 stock of that company was bought by the Standard, Mr. Starke experimented extensively with the California crude and suc- ceeded in producing from it a good illuminating oil (a). The process invented by Mr. Starke is fully covered by patents owned by the Standard Oil Co. of California. By use of the Starke process, that Company has increased the quantity run through its refinery from about 260 barrels per day to from 28,000 to 30,000 barrels per day, sells a large product on the Pacific Coast, and furnishes for shipment t © the Orient over 1,000,000 barrels of refined oil per year (5). Both the Frasch process and the Stark process have justly been sources of great profit to the Standard companies using them. IV. Extension of pipe lines to new fields. 1. The Standard Oil Co. alone early adopted and has always pursued the policy of extending its pipe lines without delay and regardless of cost to new oil fields upon their dis- covery. The story of the entry of the Standard Oil interests into the pipe line business has previously been told {ante, p. 29-31). In the early eighties, they had two pipe lines nearly completed to the seaboard, one through Pennsylvania and one through the State of New York ; also a trunk line to Cleve- land, one to Buffalo and one to Pittsburg. All of these pipe lines were used for transporting oil from the Pennsylvania or Appalachian field, the only then known source of supply. In 1886, however, the so-called Lima field, in Ohio, was dis- covered. As already stated, crude oil from this field was so highly charged with sulphur as to be useless except as fuel, until the Frasch process was developed. The problem of re- fining this Lima oil having been thus solved, pipe lines were extended so as to connect the existing lines to Cleveland and the East with the gathering system in the Lima field and with a line to Chicago which had shortly before been constructed (c). At about the same time, a great new refinery which had been started at Whiting, near Chicago ; a new refinery at Lima, Ohio ; and the Standard's old refinery at Cleveland, were all equipped for the use of the Frasch process, and refined only Lima crude by this exclusive patented process from about 1890 to the early part of 1906 (d). Thus the Standard Oil Digitized by Microsoft® (a) Record, Vol. 17, p. 3494. (c) Archbold, Vol. 17, p. 3423. (6) Record, Vol. 17, p. 3494^5. {d) Burton, Vol. 16, p. 2635,2641-2. 93 Co., by its farsighted policy in reaching out to the new Lima fields and by making available, through inventions, what was to others a comparatively use- less product, supplemented its already inadequate supply from the declining Pennsylvania field and secured an ample store of raw material for the next fifteen years. An- other important result was to maintain the value of the invest- ments in the Eastern pipe line system ; for, when at a later day, seaboard refineries were equipped for the use of the Frasch process, Lima crude was pumped from Ohio and Indiana to Bayonne and Philadelphia through the Eastern system of pipe lines, which thus became parts of a system of through trans- portation after their value for local transportation from the districts which they immediately reached had largely disap- peared. 2. With the decline of the Lima field, the Standard's great investments in refining plants and pipe lines would have again depreciated in value and ultimately become useless but for the discovery of the great Mid-Continent field and the construc- tion by the Prairie Oil & Gas Co. after 1900 of a private trunk pipe line all the way from Oklahoma to Griffith, Indiana, where it connects with the pipes of the Indiana Pipe Line Co., — thus completing a direct connection between Oklahoma and the Atlantic seaboard. Since the completion of this pipe line by the Prairie Oil & Gas Co., crude oil from the Mid-Continent field has been pumped in a continuous stream all the way from Oklahoma to the Atlantic seaboard, a distance of some 1600 miles, with connections, however, for delivery to Kansas City, North Alton, 111., and Whiting, Ind., for the supplying of the refineries there situated {a). The last great field to be opened was that in southern Illinois, from which the Ohio Oil Co., about 1906, constructed a private pipe line connecting with the Eastern trunk system. Thus by their enterprise and great outlay, the Standard Oil interests have made available addi- tional great supplies of raw material, thus insuring the further continuance of their business for another long period of years and at the same time maintaining the value of all the Eastern system of pipe lines. IV. This story of the development and use of pipe lines emphasizes the position taken by numerous witnesses of the ■ Digitized by Microsoft® (a) Archbold, Vol. 17, p. 3334 ; Towl, "Vol. 20, pp. 319-20. 94 defendant, that pipe lines are adjuncts to refineries, having been built, substantially without exception, to carry crude oil to the refineries belonging to the real owners of the pipe lines. On this point Mr. Archbold says (a) : " The pipe lines are an absolutely necessary adjunct, a necessary part of the business as a whole. The volume of the business as a whole has entirely outgrown the possibilities of railroad transportation, and the trans- portation by pipe is a more convenient method in every way ; and in the construction of the large refineries necessary for the doing of the business, pipe lines of a necessity had to be created in order to insure them a regular supply, a sure supply, of crude oil. They have become a part of the great scheme of the business with reference to reaching the markets and they are essential in their use. Second : Means for getting crude oil to the refineries. I. This means consists of pipe lines, which have already been discussed in some of their aspects. Something remains, however, to be said as to the pipe lino system as a whole. In size, extent of territory reached, number of men employed and the vast amount of the crude oil exported, the Standard's pipe line system is comparable with a great arterial system and its branches. Disregarding decimals, in 1882 the system included 2,468 miles of gathering lines and 1,062 miles of trunk lines. In 1899 these had grown to 10,740 miles of gathering lines aud to 3,905 miles of trunk lines or about 14,653 miles in all. In 1908 they had grown to 45,227 miles of gathering lines and 9,338 miles of trunk lines, or 54,616 miles in all (h), all of which with the exception of the Crescent and Mellen lines acquired in 1895, and with the further exception of 48 miles of trunk line (c) and not to exceed 750 miles of gathering lines (ante p. 30, 61) were constructed oat of their own means by various pipe line companies owned, or- ganized and operated by the Standard Oil interests. This great system of pipe lines extends from Oklahoma to the Atlantic seaboard, its branches reaching to all oil fields Id Oklahoma, Kansas, Illinois, Indiana, Ohio, Kentucky, New (a) Record, Vol. 1X-P..3397, .... „^ (J) Def. Ex. 261, -^fSQlt^^M.MlCrOSOft® (c) Archbold, Vol. 17, p. 3630. 95 York, Pennsylvania and West Virginia, and to all the Standard refineries. It is operated by a small army of laborers, en- gineers and executive officers. Its pipes throughout the entire system are worked to full capacity night and day, substantially every day in the year (a). Together with the California pipe lines, it transported in 1906 upwards of 65,000,000 barrels of crude oil (6), and in 1908 nearly 70,000,000 barrels (c). This great system, however, has been built up and maintained pri- marily as a means for bringing raw material to the Standard refineries. Third : The maintenance op extensive, up-to-date and WELL situated EEFINERIES EMPLOYING THE LATEST AND MOST ECONOMICAL EEFINING METHODS. 1. The policy of the Standard from the beginning in refinery building has been to construct large central re- fineries and, further, to enlarge these as the growth of the business required. A list of the refineries in use in 1906, their capacity and cost is given in Defendant's Exhibit 269 (d). The collective capacity of all the Standard's refineries has increased from 16,592,593 barrels in 1882 to over 70,000,000 in 1908 (c). The investment in refineries has grown from $17,000,000 in 1882 to over $57,000,000 in 1906 (e). Nor do the various refinery properties purchased from others form any substantial part of this great investment. Some of the greatest refineries were built entirely with Standard Oil capital, — as at Whiting and Sugar Creek. The investment in the Whiting refinery is over $8,000,000 ; at Sugar Creek about $1,170,000. Both were entirely constructed by the Standard Oil Co. of Indiana out of its own means. And even where the nucleus of a refinery consists or ever consisted of a plant purchased from some other concern, that nucleus has been so added to as to form but an insignificant part of the existing plants. The refinery at Richmond, California, repre- senting an investment of nearly $4,000,000, was built on land (a) Towl, Vol. 30, p. 319-20. (ft) Def. Ex. 368, Vol. 19, p. 627. (c) Archbold, Vol. 17, p. 3251-3. Id) Record, Vol. 19, p. 627. (e) Archbold, Vol. ivi@imm by Microsoft® 96 purchased by the Pacific Coast Oil Co. after that company's small properties were acquired by the Standard Oil Co. of New Jersey. On the other hand, the Atlas Works at Buffalo, which were purchased in 1882 for $84,000, represented in 1906 an in- vestment of $1,466,060.63, all of which except the original $84,000 was furnished by Standard Oil interests. These ex- amples fairly represent the whole. II. Nor has money been spared in making every refinery the very best of its class, the equipment frequently being re- newed as improved methods and machinery have succeeded each other, (a) III. While it is not claimed that the Standard Oil Co. in all or most cases was the first to locate refineries at advan- tageous points, yet it has always been the Company's policy to concentrate its manufacturing at the best selected points ; thus : on the Atlantic seaboard, at New York, Philadelphia and Baltimore ; on the Great Lakes, at Buffalo, Cleveland and Whiting, Indiana, a suburb of Chicago. The great refinery at Sugar Creek, Missouri, draws its crude from the nearby Mid- Continent field and its products reach easily the domestic trade in the Southwest. From the refineries on the Atlantic seaboard, fleets of tank steamers carry the refined oil to Europe, South America, Africa and Southern Asia, while at Richmond, California, ships are loaded every day alongside the refinery with cargoes for all the countries of Eastern Asia. (6) Fourth : Development and Extension of Markets, Domes- tic AND Foreign. I. The introduction of the system of marketing stations, to which oil is transported in bulk from the refineries by means of tank cars and from which the oil is distributed to the retail trade by tank wagons, has revolutionized the methods of mar- keting illuminating oil. In 1882, there were but 130 market- ing stations operated by Standard Oil interests, which were located in the larger cities and towns. The trade was supplied largely through jobbers at the more important points and through general merchants at the smaller points. In 1888, the , „ , Digitized by Microsoft® (a) Archbold, Vol. T7,^pp. 3245, 3256, 8265. (*) Archbold, Vol. 17, p. 3253-5. 97 number of stations had increased to 313, and, in 1906, to 3,573, distributed throughout the United States according to the density of population. Almost without exception, these sta- tions are the creation of the Standard Oil interests. Of these stations, 2,552 were established subsequent to July, 1890, of which only 16 were acquired from outside interests — all the rest being the creation of one or the other of the Standard Oil companies (a). From every one of these stations, one or more tank wagons make frequent visits to the retail dealers in the town in which the station is situated and in the smaller towns and villages in its vicinity and fill their oil tanks, without charge for cartage or service, and without leakage or other loss through the use of barrels. There has thus resulted great saving in cost and trouble to the smaller dealers, a great in- crease in the consumption of oil and a great extension of the Standard's own business (5). II. With even greater skill and against stupendous obsta- cles, the Standard Oil Co. has built up a great foreign market- ing business, so that now its products reach all the principal countries of the world. The export business has always faced severe competition from the foreign oil fields (c). In Defendants' Exhibit 275 (d) is given a list of over 400 foreign oil concerns, of which ld:7 have an aggregate capital of 1274,915,185, while the total capital of the whole list, though not stated, must be vastly in excess of that sum. Thus the total estimated capital of the refineries in Austro-Hungary alone is $70,000,000 (e). An effort was made by Counsel for the Government to break down the force of these facts by referring to concerns in the list as being " little grocery companies (/)." The Court will find in the list not less than 65 companies, in various foreign countries, with capital running from $1,000,000 up to $82,000,000, including only those whose money capital is stated. These are facts which cannot be minimized. In extending its foreign trade, the Standard Oil Co, now sends abroad 63 per cent, of its entire product in illuminating oil and a very large percentage of all its other products (g). (a) Archbold, Vol. 17, p. 3343-4 ; Def. Exs. 363, 264, Vol. 19, p. 633-23 ; Def. Ex. 278, Vol. 19, p. 664. (b) Archbold, Vol. I'l.P-.&ZU.,^ (e) Archbold, Vol. 17, p. 3286. (/) Archbold, Vol. i*?^/feesi*>y /©gmseff® Voi. n, p. 3287. \d) Record, Vol. 19, p. 654-9. ig) Archbold, Vol. 17, p. 3388. 98 Mr. Archbold says (a) : " It has been a business which has required the greatest possible effort in the way of its introduction and successful distribution in the faraway countries. * * * In India we have for a very considerable time had competition from their own production, and they are protected in their industry there to an extent that makes it an exceedingly difficult thing for us to compete with them. The same is true of the Dutch Indies, where there is, of course, a very large production. * * * There is * * * a very considerable pro- duction in India and British Burmah and * * * in Japan — which is increasing there. We have gone for- ward against tremendous obstacles of course, in the earlier history especially, townrds the creation of mar- kets and the holding of the markets for American oil. * * * It has been a very difficult task indeed — a task that has called for large investments of money and patient and persistent effort on the part of our agents in every way. * * * In Europe the compe- tition has been even more severe. The enormous pro- duction of Kussia has sought a market more particularly in eastern Europe and to the eastward of that — in Turkey and into the Orient. They have been our active competitors for many years. Of recent years a very large production of oil has been found in the nearer States of Europe, namely, in Galicia and Eoumania more particularly, some in Germany and a little in Alsace ; but Roumania and Galicia are coming to be very important oil-producing States, and they are con- stant and aggressive competitors for the trade of the Continent. * * * our trade is pretty nearly world- wide. There is scarcely a civilized part of the globe that the Standard Oil Company does not reach in one way or another with American oil. * * * It has been a process since the organization began. The efifort began at once for the extension of trade. The effort of the Standard Oil Company, from its very inception, has been the development of the resources of this country and the extension of its commerce throughout the world. * * * We are rapidly as possible putting the same plan of distribution into operation in all those countries that we have here, so as to, with the greatest possible economy, reach the consumer." Digitized by Miuusufl® (a) Record, Vol. 17, p. 3289-90. A\iw. 5-o\d vu KU ^ %-MS^SKoXtiy. SlowbacbO^l * :&*«ftt(Zftfr«t.. r&feS&i^Zgaefci. ^m SCii^^S^t noxve. A$&3 23.fH«).e>33 « ^Wtf m.lSiMii » sm 2S.85».tft5 J5 sm tft.06H*US « mi 2».2ft3i'*ft3 )» s*S8 21.6^025 JJ S5&9 35.^fe3.5^3 .^9,606 >ft9o kt5.j23.5ti 11.019.205 ^?)5^ s^.-zga-fess {tf ,232,931 >S9tt 50.5>H.b5T 12,182.1 W ^^93 v*8.H3V-0fe<> 13.966,176 ^&9if M9.3u«»fe 13,901,296 vft95 5Z.&9WT:fa 15,928,'796 Sft§6 bo.<)<>o.^fe^ 1T,533,2'*f s$^\ bo.k*T:S5»fe Yl,ibH»H5 s$9S 5S.WH.t3} 1»^lf9,06g s$99 szoxaiso 18,080.267 S900 62^610.519 19.89*^.749 ^^o b9.sft9.w)»* 18,828,822 v%w ft6.tfefe9^6 11«39,96£> 190^ VOO.tifeNJST 17,319.907 N90V •iST.OiO.^bcv 16,904.030 S505 S3ti.tM.560 I5,ms,371 ^906 S^6.HC)'J936 1M52J13 DEFENDANTS' EXHIBIT 866. ' Production of Grade Oil. Comparing Standard Oil production with total in the United States. Total production taken from UNITED STATES GEOLOGICAL SURVEY, "Production of Petroleum," 1906, page. 10. i 1 S^omo^ * SO.000.000 ^^^. 99 CHAPTER XII. COMPETITORS: THEIR GROWTH AND THE PROFITABLE EXPANSION OF THEIR BUSINESS IN EVERY BRANCH OF THE OIL INDUSTRY. First : Pboduction. The Standard bep;an the production of crude oil in 1889, and in 1898 its percentage of the total production amounted to 33 per cent. From that date its percentage was continu- ously reduced, and ly 1906 had declined to 11.11 per cent. (a). The total production of crude oil in 1898 was 55,364,233 barrels, and this had increased in 1906 to 126,493,936 barrels, 88.89 per cent, of which was controlled iy others than the Stand- ard (h). (See Chart facing this page.) Among those controlling production are several of the Standard's most important competitors in refining the crude, such as the Gulf Eefining Co. (c), the Texas Company (d), Crew-Levick Oil Co. (e), and the Pure Oil Co. The Pure Oil Co. owns directly producing properties in the Pennsylvania and Illinois fields (f) ; it also owns the whole or a ma- jority of the stock of the following producing companies, namely : Pure Oil Producing Co., operating in the West Virginia field ; Pure Oil Operating Co., in the Illinois field, and the Quaker Oil & Gas Co. in the Mid-Continent field (y Microsoft® 110 ways been owued and operated by Standard Oil com- panies organized under general laws in some one of the said States, or in the case of the National Transit Co., under a special charter. There is no proof that any of the charters of such companies are in any respect exclusive in character and such is not the case. These companies, which are enu- merated below {post, p. 118), have all filed or concurred in tariffs under the Hepburn Act of 1906. Second : Common caekiee pipe lines must be considebed undee two heads, namely : I. Gathering lines ; and II. Trunk lines. The gathering lines are the net-works of local pipes spread- ing over the oil regions and reaching from the wells of the various producers to railroad points or to points on the trunk lines (a). These trunk lines are main lines of pipe, extending frequently for great distances. Kefined oil has never been transported thi-ough any of the Standard pipe lines. Gather- ing lines not owned by the Standard interests are to be found almost everywhere in the oil fields, and there is nothing to prevent these lines from extending a branch to the well of any producer who prefers to deal with them. Each of the great oil fields in the United States, except the Lima-Indiana field, is connected with the seaboard by trunk lines not controlled by Standard Oil interests. I. Gathering lines and their operation in relation to pur- chases of crude oil. 1. Gathering lines common carriers in actual jpractiee. The gathering lines owned by the common carrier companies have at all times acted as common carriers in actual practice. Independent refiners at every point reached by the gathering lines of the Standard Oil companies have the same access to the oil fields through those lines that is enjoyed by the Standard Oil refiners (b). A very large proportion of independent re- (a) Record, Vol. l/^'0^ecf(4)i)/lfl^i(SfQ?V8@l, p. 368-9. Ill finers get their crude oil through the gathering systems of the Standard lines. 2. Crude Oil Purchases. The Standard Oil companies deal with the producer on the same footing as does any one else. The purchases of crude oil for their use in the Lima-Indiana and Appalachian fields are made by the Standard Oil Co. of New Jersey through the Joseph Seep Purchasing Agency. Mr. Seep has his principal office at Oil City, but he has his local agents at every important point throughout the oil producing territory. The oil is purchased after it is run into the gathering lines. The pipe line company gives the producer a certificate, which evidences the quantity of oil re- ceived. The producer may keep his oil in the pipe line for thirty days without cost, if he thinks that, during those thirty days, the market conditions may improve, or he may keep it indefinitely in storage in the tanks of the pipe line company at the stated charge of 25 cents a day per 1,000 barrels. There are other purchasers of crude oil in most of the oil producing sections, who purchase crude in competition with the Standard, and this has always been so. The producer may sell his certificate and the pipe line company will deliver the oil to the purchaser at stated delivery points within the district, which are railroad points (a). 3. Crude Oil Prices. The Standard Oil Co. has no means of fixing the price at which the producer will sell except to make its own ofier attractive. The important elements taken into consideration in fixing the Standard's price are the following (5) : (A) Supply and demand, both domestic and foreign. First, the volume of domestic production must be considered. For example, the Mid-Continent Field is producing a quantity of oil that it is impossible to market, and which must therefore seek a level at which some new use can be made for it, such as fuel, or else be stored by someone willing to invest capital in (a) Archbold, Vol. 17, p. 3235-6 ; Payne, Vol. 1, p. 379-80. (b) Archbold, Vol. 17, p. 3286-8. Digitized by Microsoft® 112 its storage. In like manner, as the Standard Oil Co. exports about 63 per cent, of the illuminating oil which it refines (a), the production of foreign fields must be considered. From 1899 to 1905 inclusive, the World's production of crude oil outside of the United States much exceeded in each year the total production within the United States ; yet each fluctuated from year to year (b). The figures after 1905 are not given out- side the United States. Mr. Archbold says (c) : " We find currently at what price we can sell the finished products in the markets of the world, and that is a feature entering into our consideration of the price we can pay for crude oil here." (B) The yields of the various kinds of crude oils are taken into consideration. This means that, in the process of dis- tillation, the amount and value of the products of certain crudes are greater than those of the products of others. For instance, Pennsylvania crude gives the largest resultant yields and the most valuable products ; Lima-Indiana crude comes next ; Illinois crude is inferior to either. (C) Cost of production. In the older fields, as in Pennsyl- vania, it costs more to get oil to the surface. Consequently, a higher price is demanded by producers there. 4. The actual prices paid for crude in the past are entirely inconsistent with any theory of monopolizing control over price. Beginning with 1892, when the prices for Pennsylvania crude were only 56c per barrel, those prices have risen with substantial regularity until in 1907 they reached $1.75 per barrel. Lima crude in 1889 sold for 15c per barrel and then rose by 1908 to $1.05 per barrel, having, in the meantime, touched $1.30 {d). The prices of Mid-Continent crude have remained relatively low on account of the enormous over-production. In 1903, the pro- duction was only 1,071,125 barrels, in 1905, 12,013,495 barrels, and, in 1907, 45,933,649 barrels (e). The Standard's price in 1908 for this crude was 41c, at the same time that its com- petitors were paying anywhere from 30 to 35 cents ( f). {a) Def. Ex. 276, Vol. 19, p. 660. (i) Pet. Ex. 1044, Vol. 31, p. 235 ; Pet. Ex. 977, Vol. 31, p. 136. (c) Record, Vol. 17, p. 3238. (d) Pet. Ex. 977, Vol. 21, p. 136 ; Record, Vol. 16, p. 3638. {e) Pet. Ex. 977, Vol.0to/^(Zffi0 ^RAfctfpyoJfSB, p. 2779. (/) Record, Vol. 16, p. 2B61. 113 5. Producers satisfied. The producers of oil have no grievance against the Standard. Not one witness has appeared on behalf of the Government to allege that the prices paid for crude by the Standard Oil Co. are unduly low, or are in any sense arbitrary or oppressive. The fairness of the Standard's dealings is testified to by numerous producers from the Mid-Continent field (a). Similar testimony from the Ohio field is given by Watts (6). 6. Nor have any refiners come forward to make charges against the Standard's pipe lines on the score of prices, ex- cept in the Pure Oil Co. matter, already fully explained (ante, p. 79), in which the latest date to which the charges apply is 1895, and also except in the instances where the payment of so-called " premiums " is charged, which in- stances are so few in number as to have no weight and were for the most part explained away on cross-examination (c). II. Trunk Lines. The trunk lines, as a practical matter, have never carried oil for anyone except the Standard Oil companies, and have never been asked to do so (^d). This is due to reasons inherent in the nature of the business, and to the course of its develop- ment. Pipe lines, as already shown, are in their nature adjuncts to refineries, and the Standard's pipe lines have naturally been located with reference to the position of the Standard refineries (e). Nor are these facts peculiar to the Standard pipe lines. Mr. Payne testified (/") : " I never knew a pipe line to be built that was not built to take care of the owner's own production, or to convey oil to the refinery that the investor in the pipe line owned ; * * * * or sometimes both." (a) Record, Vol. 16, p. 2664-5, 2717, 2747, 2774, 2840-1, 2779, 2783-84, 2786. (J) Record, Vol. 16, p. 2708. (c) Record, Vol. 6, p. 3021-23, 3027, 3194. (d) Record, Vol. 1, p. 335; Vol. 17, p. 3432; Vol. 17, p. 3612. (e) Record, Vol. 17, p. 8297; Vol. 1, p. 860. (/) Record, Vol. 1, p. 360. Digitized by Microsoft® 114 Third : The charge that the dependants have exacted EXCESSIVE and UNREASONABLE RATES FOR THE CARRIAGE OF CRUDE OIL OR RATES WHICH WERE DISCRIMINATORY AGAINST COMPETITORS IS WITHOUT SUPPORT. I. Rates not discriminatory. There is no evidence that there has been any discrimination in rates. On the contrary, the record shows that the Defendant companies for whose refineries the common carrier pipe line companies have transported crude oil have paid the full rates. II. Reasonableness of rates. 1. It is entirely immaterial to this controversy whether the rates on Defendants' trunk lines have been reasonable or not and whether they have or have not shown high paper profits. As already stated, these lines have never carried, nor have they ever been asked to carry, crude oil for any but Standard Oil companies {a) ; and whatever apparent profits have been made have been paid by one of the Defendants to another — in other words, by the Standard Oil Co. to itself. Moreover, all pipe line profits are merged in the total profits of the whole Standard organization, which aie sepa- rately considered below (post, p. 146), where it is shown that the total profits have not been unreasonable. 2. The nominal profits of the Standard Oil pipe lines are not so much due to the rates, as to the fact that the pipe lines were built, and have been extended and developed, principally with reference to their relation as factors in a great business, with the result that, in the practical operation of the lines, they are used at all times to their full capacity (6). Hence the ratio of those profits to operating expenses is relatively large. But it cannot be maintained that such profits would accrue to an independent pipe line charging the same rates but seeking its business from others who had no interest in enhancing the pipe line's profits by keeping its lines full ; certainly that has not been shown. If independent (a) Record, Vol. 1, p. 335; Vol. 17, p. 3433; Vol. 17, p. 3612. (*) Record, Vol. 1, p. 360 ; Vol. 30, p. 319-330. Digitized by Microsoft® 115 pipe line enterprises offered such returns as the nominal profits of the Standard's trunk pipe lines (due entirely to payments made by the other Standard Oil companies), un- limited capital would be available to duplicate the Standard's pipe line system. 3. As to the gathering charge of 20c per barrel, all the evidence in the case indicates that that charge is proper and reasonable and is an almost universal charge. It is the charge fixed by law in West Virginia (a). Where a different scale of gathering charges has been adopted by competitors, they are just as high, for example : The Texas Company, the independent pipe line from Glenn Pool, Oklahoma, to points in Texas, charges for " gathering, preliminary to receiving same (crude petroleum) into the main trunk line, 20c per barrel, where the distance is IS miles or more " (6). The average length of the gathering lines connected luith the Standard Oil trunk lines is from 18 to W miles (c). Fourth : The common caeeier pipe lines of the defend- ant COMPANIES (possibly WITH THE EXCEPTION OF THE CeESCENT Pipe Line) should be regarded as related parts of a single organic system. 1. Excluding the pipe line of the Crescent Pipe Line Co., the Mellen gathering lines, and a small mileage of the lines of the National Transit Co., the existing Standard pipe lines have each been constructed by some Standard company with its own means, and no part of them was ever owned by any independent or competing corporation or individual (d). The manner in which the system of lines has gradually been extended as fresh oil fields have been discovered has already been shown (ante, p. 92-3). 2. The various states have granted the power of condemn- ation only to pipe line corporations organized under the laws (a) Laws of West Va., 1891, Ch. 44, Sec. 7. (ft) Def. Ex. 221, Vol. 19, p. 608-9. (c) Record, Vol. 16, p. 2974. (d) Dei. Ex. 271, Vol. 19, p. 640-1. Digitized by Microsoft® 116 of the state in which a proposed pipe line is to be laid (a). Hence it became necessary, as the pipe line system crossed the state lines, either to acquire private rights of way or else to organize a new corporation and condemn a right of way. In some instances, apparently, private rights of way were acquired for a certain distance, and then a new corporation was organized. Thus, in course of time, not less than nine corporations have been necessarily organized to con- struct and operate common carrier pipe lines in diiFerent states ; yet, with the exceptions noted, all of these pipe lines were paid for out of funds belonging mediately or immediately to the same group of people and have always been as much parts of one great structure as are the bones of the human body (b). It is a mere incident of our peculiar National polity that all of these pipe lines were not constructed by one cor- poration chartered by a single state or by the National Gov- ernment. They were not built to compete and never did com- pete. Moreover, to a very large extent, these separate pipe lines are not parallel but are connected with each other end to end, like lengths in a water main, so that they cannot com- pete (c). Collectively they form a single unified means for transportation of the raw material to the Defendants' refin- eries. Of course, having been organized under general laws, they are subject to the obligations of a common carrier ; but this, we submit, does not make them separate competitive entities which with reason or justice can be set apart and com- pelled to do business separately. 3. Down to 1886, all the common carrier lines owned by the Standard were vested in the -National Transit Co. In consequence of the development of the Lima-Indiana field, the Buckeye Pipe Zi?ie Co. (1886) and the Indiana Pipe Line Co. (1891) were organized to hold and extend pipe lines in Ohio and Indiana respectively. Similarly, the Eureka Pipe Line Co. in West Virginia (1890j, the New York Iransit Co. (1892) in New York, and the Cumberland Pipe Line Co. (1901) in Kentucky, were organized to hold and build pipe lines {a) N. T., Laws 1878, Ch. 203; Penn., Laws 1883, Act 54: Ohio. Laws 1868, p. 109; Indiana, Laws 1891, p. 301. (6) Def. Ex. 271, \^i^^mb^MlCrOSOft® (o) Map, Pet. Ex. 990, not printed. 117 in their respective states, in consequence of the discovery of crude oil therein and to secure its transportation to de- sired points. Meanwhile, the National Transit Co. constructed or projected additional pipe lines in several different parts of Pennsylvania, which for convenience were vested in the South- west Penn. Pipe Lines (1885), the Northern Pine Line Co. (1889) and the Southern Pipe Line Co. (1890), all organized under the Laws of Pennsylvania (a). 4. As already stated, all these pipe line companies, except the National Transit Co. itself, which has a special charter, were organized under general laws. None of the charters are in any way exclusive. There is nothing to prevent any group of individuals from organizing a new pipe line company in any one of the states in question, condemning a right of way and laying a pipe line parallel to any one of the Standard pipe lines, or running to any desired point. Throughout this case. Counsel for the Government have inveighed against what they call the Standard's monopolistic " control " of the pipe lines, as if these were navigable rivers or public highways. This charge is unreasonable. The Standard Oil Co. " controls " its common carrier pipe lines, iecause it paid for the rights of way, built the lines with its own money, and has ever since owned them. 5. Crescent Pipe Line Company. All the stock of this com- pany was purchased outright for cash in the year 1895 (h). It then owned and still owns a trunk line running from a point near Pittsburg to Marcus Hook. It was built by the Mellens of Pittsburg to conduct crude oil to their own refinery at Marcus Hook, and at the time of the purchase it was not trans- porting oil for any other person or refinery and never had done so (c). The line is included entirely within the State of Pennsyl- vania (d). The charges made by Counsel for the Government in regard to the purchase of this Company are groundless. An Act of the Legislature of Pennsylvania passed in 1895 repealed a statute of that State which had forbidden the consolidation (ffl) Def. Ex. 271, Vol. 19, p. 640-1 ; Def. Ex. 273, Vol. 19, p. 648. (S) Appendix, I, p. 262. 17, p. 3338. r, Vol. 8, p. 878. Digitized by Microsoft® (c) Archbold, Vol. 17, p. 3338 (d) Pet. Ex. 856 F, Vol. 8, p. 878. 118 of pipe line companies. The Act was passed only after a very full hearing in the Legislature, and after a public hearing and careful consideration by the Governor of Pennsylvania (See his memorandum at the foot of the Act) (a). Upon receiving the Governor's approval, the Act in question became the law of the land, and the purchase of the stock of the Crescent Pipe Line Co. by the National Transit Co. which followed was a transaction sanctioned by the Statutes, and encouraged by the policy, of Pennsylvania. 6. All other existing pipe lines or portions thereof which were originally derived from any independent source are now vested in the National Transit Co. (5). Except the Crescent, and the Mellen system of gathering lines purchased at the same time as the Crescent, all the pipe lines which were ever acquired were inconsiderable in extent, were all acquired prior to the year 1890 and nearly all prior to 1882. With the ex- ception of the Mellen gathering lines, they were also all en- tirely included luithin the State of Pennsylvania {ante p. 30, 61). Fifth : The defendant pipe line companies, which are COMMON CAEBIEBS, HAVE FULLY PEBFOEMED ALL THE DUTIES WHICH THEY ARE OR EVER WERE LIABLE TO PERFORM. I. Such companies are the following : Buckeye Pipe Line Co. Eureka Pipe Line Co. Indiana Pipe Line Co. National Transit Co. Cumberland Pipe Line Co. Southwest Pennsylvania Pipe Lines. Northern Pipe Line Co. Crescent Pipe Line Co. New York Transit Co. Southern Pipe Line Co. As to the last four companies, no interstate ship- ments originate with any of them. As to all interstate shipments passing through their lines, these four com- panies have respectively filed with the Interstate Commerce Commission concurrences in the various schedules of rates ■ Digiiued by Mini osofl® (a) Laws of Pa. 1895, p. 15. (J) Record, Vol. 19, p. 640-1. 119 filed by the companies upon whose lines such interstate ship- ments originate. All the remaining companies above referred to duly filed all tariffs required by the Interstate Com- merce law, in or about the moath of August, 1906, or shortly thereafter, which must be presumed to have been satisfactory to the Interstate Commerce Commission, as there is no proof of any objection being raised to any of them. A condensed table of the tariffs so filed or concurred in by such companies and the full text of several of such tariffs are in evidence {a). II. There is no proof in the record that the rates stated in the tariffs as filed are in themselves excessive or unreasonable. These rates are the same as the rates prevailing for a long period prior to the Act of 1906, and everything that has heretofore been said on the subject of charges by the pipe line is applicable to them. There is no proof that either inde- pendent shippers or the Inter-state Commerce Commission have raised any question as to their reasonableness, and the fact is that no one has done so. Nor have any of the defendants ever been called upon to transport any oil under any of these tariffs (6). III. The Government complains because the defendant pipe line companies have not filed tariffs to a greater number of points where independent refineries exist. 1. The summary of pipe line tariffs in evidence mentions as receiving points all points at which oil is collected for ship- ment by the common carrier companies to points of destina- tion named in the various tariffs from the respective producing fields tributary to the lines of the respective common carrier companies, and such points are all the possible points of origin of interstate shipments by such companies in the respective fields. The tariffs also name as points of destination to which oil will be transported for any shipper, including independ- ents, the terminals of the lines and all intermediate points at which interstate shipments of oil are now or were prior to the filing of such tariffs delivered to any Standard Oil interest, (c) 2. Thus the tariffs filed by the defendant common carrier lines strictly conform (in respect to the points of de- (a) Pet. Exs. 39-49, Vol. 7, p. 124-150. CJ) Record, Vol. 17_,p. 3613^ . ... „^ \c) Pet. Exs. Z9^%^!^<^MMWPS0ft® 120 livery) to the requirements of the Interstate Commerce Act as amended 1906. There has been no decision upon the pipe line clause in the Hepburn Act of 1906, but it is well settled that railroads are not required to establish new stations and of course not to file tariffs to any such, unless there be great public demand for the same or unless the Interstate Commerce Commission shall so direct. Bridge Go. v. L. & N. E. R. Go., 37 Fed., 567, at p. 661 ; Northern Pa. B. B. Go. v. Washington Territory, 142 U. S., 492, 499 ; Jones V. Bailroad Co., 12 I. C. C, 144 (May, 1907). There is not a word of evidence to show a demand for a new point of delivery on the pipe lines from independents, either before or since the filing of the tarifi's, nor that the Interstate Commerce Commission has ever made any order in that be- half, and such is not the case. 3. Among the points of destination designated in the said tariffs are Philadelphia and Marcus Hoot (near Philadelphia), where there are not less than six independent refineries, ex- clusive of that of the Pure Oil Co.; Pittsburg, at which and in the immediate vicinity are not less than nine competing re- fineries ; and Cleveland, at which is the refinery of the Na- tional Refining Co. (a). 4. In addition to tariff points, the Defendants' pipe lines make deliveries to independent refineries at Titus- ville and Bradford, Pennsylvania, and, apparently, at Toledo, Ohio ; and to the refineries, sixteen in number, named in the Petition (Vol. A, p. 54), situated at various points in Pennsylvania and at Marietta, Ohio. All of these, how- ever, involve only intrastate transportation, and, therefore, do not call for the filing of tariffs, though regular rates are maintained (6). 5. The only oil fields of importance reached by the com- mon carrier lines are the Appalachian and Lima-Indiana fields. ISo far as the record shows, none of the independent refiners except those in Northern Ohio use oil derived from the Lima- ia) Pet. Exs. 39^^¥M'.^f;'i)Pi'2PlSSR^S®®Ex. 277, Vol. 19, p. 663. (o) Record, Vol. 1, p. 353-3 ; Record, Vol. 1, p, 176. 121 Indiana field ; and it is not probable that any do so, since Lima crude is a refractory, sulphur-bearing oil, requiring a special process and equipment for its refining {ante, p. 91). There would thus be no possible object in offering to transport oil from the Lima field to Pennsylvania refiners. As to in- dependent refiners in Northern Ohio, there is no proof that any of them have asked for the delivery to them of Lima or any other crude. Deliveries of Appalachian crude could not in general be made to them, because the Standard's trunk pipe lines only work in one general direction, to wit, from West to East, and, in the nature of things, cannot do other- wise (a). Sixth : The pipe line taeiffs piled in ob since August, 1906, do not impose upon independent shippebs unbeasonable conditions as to QUANTITY. I. The pipe line tariffs in evidence (5) in substantially iden- tical language show the various minimum amounts which will be accepted under the various tariffs for transportation. A single example will suffice. In Petitioner's Exhibit 45 (c), being a tariff of the Indiana Pipe Line Co. in connection with others for transportation from Griffiths, Indiana, to Unionville, New York, the provisions are as follows (italics ours) : " Second. It will forward such crude petroleum, when there has been tendered to it by a shipper indi- vidually or by him and others, a quantity of the same kind and quality of crude petroleum, amounting in the aggregate to not less than 300,000 barrels, all of which shall be consigned for delivery to the same delivery point." ******* " FoUBTH. Orders for the shipment of any specified kind of such crude petroleum shall only become effective when orders from the shipper, in connection with orders from other shippers, for the same kind and quality of petroleum shall amount in the aggregate to three hun- dred thousand (300,000) barrels, or more, consigned to the same point of delivery ; and subject to this require- ment, orders for shipment shall become operative in the order in which they shall have been received." 122 II. Evidence as to the amounts of the minimum require- ments under these tariffs is pei'thient only as bearing on the charge of monopolisation through the use of pipe lines. So far as this case is concerned, the charge is fully an- swered by the uncontradicted proof that the minimum require- ments were fixed in good faith by experts and practical men acquainted with all the conditions and in the light of their previous experience, the amounts being the same which for several years had been in force against all comers, in- cluding the Standard Oil shippers themselves ; and trans- portation in the regular course of business of the different grades of oil through Defendants' complicated system of pipe lines having theretofore produced such heavy losses through mixture as to necessitate large minimum requirements. Nor, apart from this suit, has there ever been any complaint from any person or from the Interstate Commerce Commission con- cerning the amounts of the tariff requirements. III. These minimum requirements were fixed in good faith and were the smallest possible under the conditions. 1. Mr. Forrest M. Towl, Civil Engineer, graduate of Cor- nell University, for twenty-two years connected as Engineer with the Standard Oil pipe line interests, testified (a) most con- vincingly to this effect. 2. The tariffs do not require these minimum amounts to be tendered by a single shipper, but only that his orders " in con- nection with orders from other shippers " shall aggregate the minimum requirement (ante, p. 121). The Prairie Oil and Gas Co., the Ohio Oil Co. and P. S. Trainor are the principal and practically the only Standard shippers through the pipe lines (6). The defendant pipe line companies who are common carriers have construed the provision concerning " other ship- pers " in the tariff to include " every one that ships over the line ; Ohio Oil Co., Prairie Oil and Gas Co. and Trainor and any one else that might choose to offer any oil," and to mean that, if any independent shipper should furnish an amount of crude petroleum of the same kind and quality as that which had been tendered by one or some of the Standard Oil shippers (a) Record, Vol. l'D^;S§(^^fey(M;awSC*?®ol. 17, p. 3603. 123 and if his tender and theirs together made up the 300,000 barrels, or other minimum, all consigned to the same point of delivery, the pipe lines were bound to, and would, take his shipment (a). 3. For some years prior to the filing of the tariffs, sub- stantially the same minimum requirements as to size of ship- ments had been imposed upon the Standard Oil shippers and had been rarely departed from, and, since the filing of the tariffs, the minimum requirements have been rigidly observed by the Standard Oil shippers (5). The testimony to this effect is amply corroborated by the exhibits offered by the Government, being statements showing batches of oil pumped from the various points named in the tariffs and from other points (c). Seventh : Contamination arising feom moving batches oe CEUDE oil of DIFFEEENT GEAVITIES IN THE SAME PIPE LINE IS THE PEINCIPAL CAUSE NECESSITATING LAEGE SHIPMENTS. I. Make-up and operation of a pipe line in actual practice. 1. What a pipe line consists of. Mr. Towl testified id) in substance as follows : In practice pipe lines are divided into sections, each of which contains a number of parallel pipes. These very gener- ally vary in diameter, and the number of pipes in different sections varies. This is due to the fact that the pipe line systems grow as the demands upon them increase, — pipes of different calibre being added to meet present needs. Pipe lines run across country, up-hill and down, and less capacity is required on down grades than on levels. At points from 30 to 50 miles apart, pumping stations are provided, which have to be located near water and fuel. In operating a pipe line, it is essential that a regular flow of oil throughout the system be maintained. Oil is forced through the pipes by pushing it ahead with other oil. Mr. Page testified to the same effect (e). (a) Record Vol. 17, p. 3605. 3617-18. (S) Record, Vol. 17, p. 3604-5 ; 3609 ; Vol. 16, p. 8016 ; Vol. 30, p. 332. (c) Pet. Bxs. 993 A, B, C, 993-1001, Vol. 31, p. 148-164; Record, Vol. 20, p. 343-4 ; Vol. 30, p. 337-9. gSd: v°oi. %'W^y Microsoft® 124 2. Mixture causing contamination and consequent loss in market value results chiefly from differences in tlie so-called " gravity " of the two oils (a). The " gravity " of oil means the weight of the oil compared to water, so that the lighter the oil the higher its gravity. Thus— oil of 44° gravity is much lighter in weight than oil of 33° gravity (5). High grav- ity oil has a much higher market value than low gravity oil, on account of its superiority for refining purposes (c). Oil moves at different rates of speed in pipes of different and even of the same calibres, and when the parallel pipes composing a section of the pipe line come together at some junction point, the head of the column in the larger pipe will, other things being equal, be a long distance ahead of the column in the smaller pipe. Many different kinds of crude oil are pumped through the same pipe line. High grade oil, which is the more valuable, will in many — if not most — instances be preceded and fol- lowed by low gravity oils of leas value. At the junctions, the oil of one gravity from the larger pipe will flow out and mix with a considerable amount of oil of another gravity from the smaller pipe ; and the same process is repeated at each junction point ; with the result that, in the course of hundreds of miles of transit, a large amount of mixture will take place at each end of the column of high gravity oil, with a cor- responding loss in commercial value (d). 3. It is obvious that the larger the batches of oil, the less serious becomes the loss by mixture ; for this loss is substan- tially a fixed quantity for a given distance, and it will form a smaller percentage of a large batch than of a small one. The defendant pipe line companies, therefore, long ago adopted the practice of shipping different kinds of crude oil in very large batches. To determine the amount of this mixture and to demonstrate the necessity of large minimum requirements in the tariffs, a series of tests on a large scale were made on the Southern Pipe Line from Morgantown, West Ya., to Millway, Pa., a distance of about 200 miles — in the Autumn of 1907 which were fully explained by Mr. Vandergrift, Superin- tendent in charge, (e) whose testimony is quite uncontradicted. (.) Record, Vol. l|5^/|^Jy Mi^^^^^-' Y.o'- ^^' P- 303- (J) Record, Vol. K^t'^'S^S^^/ '""^fey^^iS^d, Vol. 17, p. 3600-01. (6) Record, Vol. 16, p. 3977-93. 'J > 125 Not less than six different grades of crude oil, differ- ing -widely in their gravity and market value, have to be transported in practice over this line. The results of the tests showed that in transporting Pennsylvania high grade oil in batches of from about 80,000 to 155,000 barrels, preceded and followed by low grade oil, through the line and over the distance mentioned, there was a loss of high grade oil, by mixture with low grade oil, averaging for each of the five tests, about 15,000 barrels (a). The mixture of high and low grade oil has apparently no higher value than the ordinary low grade oil {d). Mr. Tarbell of the Pure Oil Co., a Govern- ment witness, testified that the difference between the value of Pennsylvania grade oil and that of low grade Western oil ■was 83c. per barrel at his refinery (b). Accepting these figures, the loss of 15,000 barrels of high grade oil represented a loss in market value, on the average, in a single shipment of Pennsylvania grade oil through the Southern Pipe Line, from Morgantown to Millway, of about $12,450. The minimum shipment over the Southern Pipe Line required by the tariffs being 75,000 barrels, it thus appears that the average amount of loss was about one-fifth of this minimum. Obviously the minimum was none too large. 4. The results of the practical tests above described are fully corroborated by records produced by Mr. Pilkington, in response to Government subpoena, which records show that on 32 shipments of Pennsylvania grade oil pumped in the regular course of business from Morgantown by way of Mill- way to Centerbridge, there were losses ranging from 6,705 bar- rels to 19,390 barrels on a single shipment, — an average for the entire number of shipments of about 12,000 barrels of high grade oil lost in transit by mixture with low grade oils (c). 5. The larger minimum amounts named in the tariffs are for transportation over correspondingly greater distances. Thus the minimum requirement of 300,000 barrels in the tariff from Griffith, Indiana, to Unionville, New York (ante, p. 121), is for transportation over a distance of from 500 to 600 miles, in which distance the amount of loss by mixture (o) Record, Vol. 16, p. 2979, 3984. (c) Record, Vol. 30, p. 346-9, 353-6. (J) Record, Vol. ^O^g^^^ ^y M,mS5Mf^' ^°^- ^^' P" ^^^°- 126 would be correspondingly greater than the foregoing figures^ Hence, the larger minimum requirement is necessary. It thus appears that the amounts named in the tariffs of the defend- ant pipe line companies, as the minimum quantities of a par- ticular grade of oil which will be accepted for shipment, are the smallest which are practicable in view of the mixture and loss resulting in the manner just described. However, as already shown (ante, p. 122), the amounts of the minimum requirements for shipment are of very little consequence to the independent shipper, since he can bring any small quantity of a particular crude to the pipe line to be transported and have the same forwarded with a larger amount belonging to some Standard shipper, the two together making up the minimum shipment and thus conforming to the tariff requirements. Eighth : Competitoks' pipe lines. As already shown (ante, p. 105), the principal competi- tors of the Standard either own pipe lines extending from one or other of the principal oil fields or else they are affiliated with other refiners who own such pipe lines. In every such case, the independent pipe lines have been located with refer- ence to the refineries of the pipe line owners, as has been the case with the Standard's pipe lines. Thus, the United States Pipe Line, owned by the Pure Oil Co., runs from the Pennsylvania Field to the refinery of its owner at Marcus Hook, near Philadelphia ; the pipe lines of the Gulf Eefining Co. and of the Texas Co. run from the Mid- Continent Field to the refineries of those companies in Texas, and are used chiefly to carry crude oil to those refineries. The same is true of the pipe lines of the independent California refiners. Nor, so far as appears, are the batches shipped by the independent pipe lines proportionately less than those required on the Standard's pipe lines. Mr. Messner, a Government witness, testified that, over the United States Pipe Line, through the single pipe used for transporting refined oil, the ordinary shipment was from 25,000 to 50,000 barrels (a). This is a larger requirement than that of 75,000 barrels over the Standard's Southern Pi e Line, when the different capacity of the two lines is considered. Di gitized hv Microsoft® (a) Record, Vol. 20, p. 262. Digitized by Microsoft® DEFENDANTS' EXHIBIT 294. RELATIVE PRICES OF ALL COMMODITIES, 1890 TO 1907. [Average price Cor 1890 to 1899=100.] pacts la w /a V IS. » 1893 18. 94 IB 95 mse iss? /esa i839 is 1 1 : ; 1 W 19 01 IS 02 /9 03 IS04 /9i OS B 06 1307 no /28 ne 124 122 120 IIS 116 114 112 110 108 106 104- 102 100 98 36 94 S2 90 £8 ■ I — / / ' r / / ■ / / 1 I 1 - 1 ! r 1 1 1 1 i 1 / 1 II 1 / ^^ ~^^ / V ) "^ J ( \ i ! 1 1 T^ : / \ 1 \ u/ ^ \ if \ i / ~~~- / l\ 1 / \ 7 \ 1/ 1 - \ 1 1 \ 1 / ! \ i / 1 1 \l 1 1 1 i f 1 \ 1 i U- ' A ! JtZ ' \ 4 ! 1 l\ 1 ' i 1 ! ^ V, A- /- ^ 1 : ! V n^A - ! \i As \ r 1 1 1 1 i — J — i — \ Digitized by Microsoft® 127 CHAPTER XIV. PRICES. FIRST : The records shows no unreasonable advance in defendants' average prices. I. The only evidence in the record relating to the course of Defendants' average domestic prices for refined oil or other petroleum products is confined to the period from 1895 to 1906, both inclusive (a). This period was one of very great changes in the prices of almost all commodities. These changes are shown graphically upon Defts' Ex. 294, facing this page, which is a copy of a chart prepared and pub- lished, with the tables of statistics upon which it is based, by the Bureau of Labor of the Federal Government in March, 1908. No question is raised by the Government as to the authenticity or correctness of the chart. Joseph French John- son, Professor of Political Economy, and Dean of the School of Commerce, in New ¥ork University, called as an expert wit- ness on behalf of the Defendants, explained the chart substan- tially as follows (b): The chart is entitled " Relative Prices of all Commodities, 1890 to 1907," and is intended to show the changes in the gen- eral level of wholesale prices in the United States between those years. The term " relative prices," sometimes also called " index numbers," means an average of prices re- duced to a decimal basis. " Relative prices " or " index numbers " are obtained in the case of each commodity by taking its actual average price for any certain year and then comparing that price with the average prices of the same commodity for other years. This comparison shows the ratio of advance or decline in that commodity, which ratio is expressed, not in terms of money, but in percentages of an arbitrarily selected base or starting point having the assumed value of 100. These percentages are the so-called (a) Record, Vol. 8, p. 905, 908-10 ; Def. Ex. 293-B, 393-0, Vol. 19, p. 693-4. (&} Record, Vol. nC^^^cfrfJy Microsoft® 128 "relative prices". The Government's statisticians who com- puted the relative prices on which this chart is based, selected as their starting point, to be called 100, the average of all prices from 1890 to 1899. Following the method above stated, the Government obtained " relative prices " in the case of 258 commodities. The relative prices of the 258 commodities for the same year are added together and divided by 258, and the result is taken as the average relative price of all the com- modities collectively. These commodities cover raw materials, farm products and manufactured articles and are fairly repre- sentative of the whole range of commodities. This method of estimating the general trend of prices of all commodities by "relative prices " or "index numbers " and by charts constructed like the Government chart, page 127, is the method approved by economists generally for comparing prices over a period of years (a). The correctness of the foregoing testimony of Prof. John- son, as well as of the theory of advancing prices explained by him, is admitted by the Government (5). II. Compared with many of the more important of the 258 commodities which form the basis of the Government chart, the advance in Defendants' prices, particularly on refined oil, from 1895 to 1906, or indeed in any intervening year, has been very small. 1. Defendant's Exhibit 296 (c), facing this page, represents the prices for the years 1895 and 1906 only of water white oil and of about 30 other commodities, which are obviously among the most important. On this chart, the price in 1895 of each commodity is assumed to be 100, and the price in 1906 is indi- cated on the right-hand margin by adding to 100 the percent- age of the increase for the particular commodity up to 1906. The price of water white oil in 1906 was only 11 per cent, higher than it was in 1895, and it was in 1906 relatively the lowest of all tlie commodities shown on the exhibit. The heavy dotted red line represents the position of the average (a) Record, Vol. 17, p. 3560. (J) Record, Vol. 20, p. 253-4, 467. (c) Record, Vol. 19. p. 697. Digitized by Microsoft® . > DJBI^NBANTS' EXEIBIX 296. ! This chart ^ows the percentage of increase of prices of various commodities in 1906 as compared with 1895. Prices, except as to oil, are taken from the Report of the Bureau of Labor, March, 1908. Prices for oil aw taken from Petitioner's Exhibit 628. Figures for the Wages line are taken from Bulletin of Bureau of Labor, No. 77, July, 1908, page 7. /S9S 7306 /^//?e doors V-r- Tpt J i^ors7ec/yo'/yjs \Cowerw/re iVoo/: 0^/o./y>7ef/eece /90 ' / Women's dress ^oods '-4 Copper sheets Co//o/? Seed Meal 160 Leodpipes Si////hps 150 Mop/e chairs Horse JblanMehs Leadpipes k chairs Horse Jblah/fets Cheese [rdl cream) 140 ^ 1 Sheef-ings Bread cracHers B/anMets Buckwheat flour <••' 'MeahfHamsSmoHed) /30 . Soap Castile J ^ J Butter dairy [ meai- flour ^5u3ar i9<6' Centrifugal] 129 price of all commodities in 1906 (compared witli 1895), taken from the Government's chart {ante, p. 127). The small dotted red line shows the extent of the rise in average wages (a). As this chart shows only prices in 1895 and 1906, a further series of charts were put in evidence by Defendants (6), which show the course of relative prices in the intermediate years of refined oil and of the 30 other commodities on the chart {ante, p. 128), taking the same by groups. From these charts, it appears clearly that the prices of the 30 other commodities fluctuated in the main quite as widely and most of them rose at times as high above the average price of general commodi- ties as did refined oil at its highest point, and some of them higher, thus showing that the selection of the commodities contained on this chart was a fair one. 2. Counsel for the Government, however, insist that the comparison of the changes in prices of commodities should be made by contrasting the average price of 1895-1898 with the average price of 1903-1906. This comparison is not fair, because, in the years 1897-1898, the price on refined oil was much below the general price of commodi- ties in the same four years, so that the starting point for re- fined oil in the Government's comparison by the four year periods is different from that which obtains in the case of other commodities (post, p. 131). Nevertheless, when the four year comparison is made with many other of the 258 commodities upon which the Government chart (ante, p. 127) was based, refined oil does not suffer. Compared thus with fifty other of the most important commodities, the advance in the prices of water white oil was the smallest (c). 3. T~ meet Defendant's proof on this point, the Govern- ment ^n rebuttal called Mr. E. D. Durand, who offered several exhibits consisting of lists of commodities, in many of which the average prices for the four years 1895-1898, as compared with those for the four years 1903-1906, appear to show a less percentage of advance than do the prices of water white oil. (o) Def. Ex. 295, Vol. 19, p. 696. (J; Record, Vol. 19, p. 705-17. (c) Record, Vol. i&;f ;f^cft)y Microsoft® 130 (A) Pet. Ex. 981 (a), comprises the commodities shown on the Defendant's chart (5) (ante, p. 1'28). Of thirty commodities on the list, eight show a higher rate of increase than does water white oil, and six others show about the same increase. In the case of almost every one of the remaining commodities, however, a four year period can be picked, in which the average price shows as great an increase, as compared with the average price for the lowest four year period of the same commodity, as is shown in reference to water white oil by Pet. Ex. 981 (c). Hence this exhibit proves nothing. (B) Pet. Ex. 982 (d) purports to be a list of commodities whose increases in price are all lower than those of refined oil, measured by the four year period method. Defendants impeach the fairness of this list and point to the relative un- importance of many of the commodities on it : For example toood screws, one inch, long, number 10, fiat head ; common glassware pitchers, half-gallon size ; salt mackerel, large size, number 3s ; American quinine. Each of the commodities in the list is of relatively limited sale. It is safe to say that all them together, other than refined oil, do not weigh as much in the commerce of the country as the single item of corn. No. 2, which showed an increase of 57.91 per cent., or cotton, which showed an incrf t,se of 54.87 per cent (e). The increase in water white oil, n isured by the four year periods, was only 37.87 per cent. ^ )■ (C) Pet. Ex. 983 {g), which is stated by Mr. Durand to repre- sent articles which he considers most important, shows thirty- six commodities, of which eight of the most important show greater percentages of increase than refined oil, to wit, corn, cotton, coal, hogs, potatoes, pig-iron, common brick, quartered white oak. Many of the commodities which show less percentages of in- (d) Record, Vol. 21, p. 140. Q>) Def. Ex., 296, Vol. 19, p. 697. (c) Record, Vol. 19, p. 705-717. id) Record, Vol. 21, p. 141. ie) Record, Vol. fj^aMled by Microsoft® if) Record, Vol. 21, jj?14D, 143. ig) Record, Vol. 21, p. 142. DXFSHSANTS' BZHZBIT 908. WATSB WHITX OO, PBICB9. [Price* In oenta per (illini.} Red ink line allows how Water White prices would have moved if they had followed the average changeB in prices of all commoditiei!. B acki nk I ine» howe actual W 1 1 ater WhH « pr icea, lea marketing cost and freight. —J ^ \ ^ \ U_i ^ 1 /(?/ /soa /it^Jf /9JO-K /9VkS- _4(io6 L^ «% n^ ^ '7& - K — S ^ \ V- s %*> - N S- - / 3 CC \ / 7 7^*5 - -4 _, _^ ,^ 7 ^ ^ '****'-« ^ r^' I \ 7 ^ - / / 1 \ 7 «? / / \ -^ c. ^ -. / V ■^ / / ^^. $ ^ ■ N \ 1 1 ,< ;«» \1 I <£ ^ - ^ s .< (a) Record, Vol. 20; p. 119-ltl. 171 The theory of the Petitioner's counsel in the introduction of all the incompetent testimony of these competitors, as an- nounced by them from time to time in response to repeated objections by counsel for the Defendants, was propounded by Mr. Morrison as follows {a) : Mr. Morrison : Q. Go on now, Mr. Hisgen. A. After Mr. Allen told me of his transaction it was published in the papers, given wide circulation. I met Mr. Allen after that and he^ told me that Mr. Tuthill had called on him— Mr. Milium : I object to the testimony. Mr. Morrison : Wait a minute. Let me ask you a question. Q. What you are about to relate now is a conversation with Mr. Allen, is it not ? A. Yes, sir. Mr. Morrison : I thiuk I won't ask you that now for the time being. Mr. Allen is here. Mr. Milburn : Morrison, is that the only reason why you don't ? Mr. Morrison : Yes, sir, that is the only reason that we dorCt do it. We think this evidence competent. We are willing to thresh this question out with you when you get into Court. We think what a man learns in the course of his business as to prices and conditions is competent evidence. II. Ex-Employees : Their Testimony Largely Incompetent. The testimony of those competitors who were also ex- employees of Standard companies, in so far as it relates to the time of their employment, purports to describe, for the most part, operations of co-employees of which they may have heard but had no primary knowledge, or policies and purposes of their employers which were not formulated or executed by the witnesses, or individual methods of their own pursued without the knowledge of their superiors and without author- ity, and on account of which in many cases when discovered they were discharged. The testimony of Charles H. Mahle illustrates this. He was a stenographer and assistant under F. E. Powell in the refined oil department of the Standard at Baltimore, Md., prior to 1903 (b). He never worked outside the Baltimore station while in the Standard's employ {c), and had nothing whatever to do with the Dixie Oil Works, a company owned by the Standard and under the management of C. W. Bender {d). (ct) Record, Vol. 4, p. 1828. (S) Record, Vol. SQjg^md Sj(»lMfems?J!(?© (c) Record, Vol. 5, p. 2381. "^ (d) Record, Vol. 5, p. 3363. 172 Nevertheless the Government relied upon him to describe the operating methods of the agents of the Dixie Oil Works in the field in North and Sonth Carolina and wherever else that com- pany did business {a). III. Interstate Commerce Oommission : Testimony taken Before and Read Into the Record. A considerable part of the testimony for petitioner was read into the record, by stipulation, from the records of pro- ceedings before the Interstate Commerce Commission at Cleveland, Chicago and Kansas City. Under the stipulation this testimony was read into the record subject to all ob- jections as to incompetency. When witnesses were examined before the Commission, no pretense whatever was made of ob- serving the rules of evidence, and the resulting mass of incompetent testimony, made up of conclusions, conjectures, opinions and hearsay, was what would be expected under the circumstances. IV. Petitioner's ^Exhibits : Failure to Prove Them. Petitioner's exhibits relating to the subject of unfair com- petition consist principally of letters, telegrams, and contracts, or what purport to be such. It is not to be assumed that be- cause these exhibits are found in the Petitioner's volume of exhibits or found spread upon the record, therefore they are properly in evidence. Quite the contrary is the case. Two examples will suffice to illustrate the kinds of evidence which Counsel considered sufficient to prove these exhibits : Exhibit 917 \. Witness, Lemuel Wilmer {b}. By Me. Kellogg : Q. I show you now a report of the committee of the re- tail merchants' association, marked " Petitioner's Exhibit 917^." And ask you if you ever saw that ? A. (After read- ing the paper :) I assure you, sir, that I have never seen any- thing that looked like that up to this time, sir. Q. Did you see a publication in the newspaper that looked like that ? A. No, indeed, sir, I didn't. Q. Never saw that ? A. No, sir, I did not. I didn't know that any such meeting had ever taken place, I assure you. (There is no other proof of this exhibit.) (a) Record, Vol. 5, p. 2364. (*) Record, Vol. 13, p. 1378. DigilizeU by Miuusuft® 173 Exhibit 920. Witness, J. Flem Johnson {a). By Mr. Kellogg : Q. Who is Mr. J. F. Bukey ? A. Mr. Bukey used to be one of the managers in the Baltimore office. Q. Did you ever receive any communication from him ? A. No, sir. Q. Tou did not ? A. No sir. Q. I show you what purports to be a telegram or a confirmation of a telegram (reading into the record telegram addressed to W. E. Barksdale, signed J. F. Bukey). Was that transmitted to you? A. Not to my knowledge. Mr. Kellogg : I offer Petitioner's Exhibit 920 in evidence. (There is no other proof of this exhibit.) SECOND : Local price cutting. Pleading. Under the title: "Local Price Cutting", the petitioner alleges (h) : In substance that where an independent has sold oil in a community in competition with any of the defendant com- panies, the Defendants have, as an unfair method of competi- tion, cut the price in that community below cost, with the pur- pose and effect of driving out such independent and destroying his business. Definition : The term " price cutting ", as used in connec- tion with sales of refined oil as well as other commodities, in- cludes two different methods of under-selling a competitor. One method is to make a reduction in price to all the trade in a certain locality below the market or prevailing price in that locality, while maintaining prices elsewhere, — in other words, a local reduction below the local market price. The other method is to make to certain purchasers special prices or con- cessions in price below the market or prevailing price and not open to all the trade in the locality where the concessions are made. These concessions may take the form of rebates, or of present deductions from the open price. (a) Record, Vol. 13, p. 1461-3. (b) Petition, Vol. A, p. 103. Digitized by Microsoft® 174 I. Irrelevant Evidence. It is price cutting by local reductions as distinguished from special prices to individuals that is referred to in the bill under the title, " Local Price Cutting ". Should the Government attempt to array under this head its evidence as to special prices, as well as evidence of local price reductions, it would be misleading. Special prices, when made by any seller in the oil business, are practically never below cost, being rarely more than a fraction of a cent under the prevailing price, and, as stated above, are made, not to all the trade in any locality, but to favored individuals. They may be used to secure or hold individual customers against compe- tition, but not to eliminate competition in a given locality. i^e>epost, this brief, p. 182). Instances thereof could not supply the omission to prove local price cutting in connection with the charge that the defendants have driven competitors out of cer- tain localities by under- selling them there and recouping their losses in other localities where there was no competition (a). II. Nature of the Evidence of Local Price Cutting. The only evidence offered on the part of the Government to support its allegations of local price cutting is the testimony of various witnesses, based merely on their recollection, all of whom were competitors of the Standard in the localities to which their testimony relates. The testimony of these wit- nesses, sixteen in number, is to the general effect that some Standard companies initiated reductions below their prices at various times. Practically all of it is incompetent as hearsay, and is, for the most part, otherwise inadequate because it does not determine -whether such reductions were local or were due to general declines in the Standard's prices. All the specific instances of alleged local price cutting referred to in the testimony for the Petitioner which are recent enough to admit of investigation have been gone into on the defense. In most cases, the actual cutting of prices by the competitor to which the local reduction, where there was one, was due has been proven by competent evidence. Sometimes the testimony is that the reduction in the Standard's local (.) Petition, Vol. SifW ^y Microsoft® 175 price was made to meet a cut in price by the competitor of wMch the Standard's agents were actually convinced upon credible information received in calling on the trade. It is not contended that such testimony is competent on a question whether or not the competitor did cut the price, but it is unquestionably competent to show the reason of the reduction. III. General Conclusion from the Evidence. How utterly the Government has failed to establish its averments of local price cutting as a method of competition on the part of the defendants may at once be inferred from the fact that all the towns specified by the Government's wit- nesses where instances of this are claimed to have occurred num- ber 37, while the Standard's companies as a whole are engaged in the business of .selling refined oil by tank wagon in more than 37,000 towns throughout the United States (a). Eeference to the testimony in connection with a single Standard company will illustrate this comparison. The Standard Oil Co. of Ohio markets refined oil by tank wagon in 3,400 towns in Ohio (b). It has as competitors 40 refineries which are also engaged in marketing oil, 50 oil jobbers and about 240 wholesale houses handling oil or other products of petroleum (c). OfiBcers of a number of these competing companies were subpoenaed by the Government for the hearing in this case at Cleveland. One only of these prospective witnesses was actually placed on the stand. That one was C. J. Castle of the Columbia Oil Co. His testimony has reference to just two instances of alleged local price cutting on the part of the Standard of Ohio, one at Cleveland and one at Lorain, and as to even these in- stances, the charge was conclusively disproved by competent oral and documentary evidence (d). Of the 37 towns specified in the Government's testimony, ten in number were towns in South Carolina where the alleged price cutting was a single reduction not below cost, but of ^c. a gallon, made throughout the State of South Carolina by the Standard of Kentucky in 1904, and this was a reduction to meet in part a cut of one cent a gallon made by the Eed C Oil Co. (e) Six of the towns were towns specified along the Hudson (a)Defts.' Ex. 278, Vol. 19, p. 664; Vol. 13, p. 1535; Vol. 13, p. 932, 688 ; Vol. 18, p. 1078 ; Vol. 15, p. 2423 ; Stipulation, Vol. 17, p. 3531-3582 ; Pet.'s Ex. 829, Vol. 10, p. 1886. (b) Record, Vol. 13, p. 1535. 1502-3, 1505-9, 1538-9, 1574. (ej Record, Vol. 12,' p. 963; Pet. Exs. 679, 680, 694, Vol. 10, pp. 1747. 748, 1763. 176 Eiver in New York State where the Hisgen Bros. Oil Co. of Albany began selling oil in barrels shipped from Albany in 1901-1902. The Standard's records of prices show that in- stead of its prices being lowered in these localities, they steadily advanced during the period in question (a), and six representative grocers from these towns testified that instead of its being the Standard's price that was lowered, it was Hisgen Bros, who secured their trade from the Standard by cutting the Standard's price, and that they returned to the Standard without a reduction from the latter or a concession of any kind (b). The claims of the Government as to certain towns, namely : Washington (c), Eichmond {d), Norfolk {e), Brooklyn, Lorain (/), New Orleans (g), and Terre Haute (k), were not proved or were disproved (c, d, e, f, g, h) and were abandoned in its brief in the Circuit Court. Instances alleged to have occurred at 12 of the remaining 14 towns were sufi&ciently recent to admit of investigation and in every instance it ap- pears either that there was not even a local reduction in price (Cleveland (i), Atlanta {j), Birmingham {h), and Augusta (1) ) ; or else that the reduction was forced by cut prices initiated and continued by the competitor. (Albany (to), Baltimore in), Springfield, Troy, Pittsfield, Windsor, Windsor Locks, Thompsonville, post, p. 177). IV. Specific Instances. The instances of alleged local price cutting at Springfield, Mass., and Troy, N. Y., above referred to, have been most dwelt upon by counsel for the Government, and the proof as to them will serve to illustrate the other instances where local reductions in the Defendants' prices have been made to meet the prices of competitors. 1. The Standard's price at Springfield in January and February, 1904, was lie. a gallon, and its margin of profit (a) Record, Vol. 12, p. 713, 818. {b) Record, Vol. 12, p. 812-3, 826-7, 830-1, 822-4, 818-9, 833-5. (c) Record, Vol. 15, p. 2395-7, 2397-2405, 3406-10 ; Vol. 16, p. 2608-10. {d) Record, Vol. 13, p. 1247-8 ; Vol. 5, p. 2382. (e) Record, Vol. 5, p. 2286-7. (f) Record, Vol. 13, p. 1490-4, 1498, 1502-3, 1505-9, 1528-9, 1574. (g) Record, Vol. 12, p. 904^6. (A) Record, Vol. 12, p. 916-7. (0 Record, Vol. 18, p. 1525-7. U) Record, Vol. 12, p. 911, 897-901. (k) Record, Vol. 12, j), 90S-9,,847..,. ^^ (V) Record, Vol. l^f^gm^^mi^lCrOSOft® (m) Record, Vol. 12, p. 713^, 716, 766-72. (ra) Record, Vol. 16, p. 3612-9 ; Vol. 15, p. 2461-6 ; Vol. 20, p. 110. 177 1.37c. (a) On February 20, 1904, Hisgen Bros, of Albany, N. Y., began a business of wholesaling oil at Springfield, sell- ing at the price of lO^c. (b) a gallon ; the Standard, after losing considerable trade on account of this cut in price, i educed its price to 10|c. a gallon, thereby reducing its margin of profit to .87^0 ; thereafter, the Standard's price at Springfield declined gradually until it reached 7c. in 1905, such decline being partly, namely, to the extent of 2^c., due to a general decline in price throughout a wide territory corresponding with a decline in the cost of oil (c), and partly, namely, to the extent of l|c., due to following down cut prices initiated by Hisgen Bros. In the latter part of 1904, and during part of 1905, this decline in the Standard's prices netted a marginal loss amounting to at one time as much as .88c. a gallon (a). In the latter part of 1905, upon information that Hisgen Bros, had stopped cutting prices (d), the Standard's price was advanced to a profitable basis (c). During 1904, Hisgen Bros, did 21% of the oil business at Springfield, and increased this percentage to 30% in 1905 (e). The Government's only witness was Thomas L. Hisgen, whose testimony, based purely on hearsay and without a particle of competent evidence to corroborate it, was that the Standard and not his Company initiated every decline. The witnesses for the defense were the Standard's department manager and local agent at Springfield, whose testimony, based on convincing information received in calling upon the trade, was that every cut in price was made by Hisgen Bros (/). It is not claimed that their testimony is com- petent any more than that of Thomas L. Hisgen as to the fad of price cutting by the competitor, but it is competent to show that the Standard's prices were lowered for the 'purpose of meeting the prices of the competitor. And as to the fact of price cutting, it is incredible that the Standard lost 21% of its trade at Springfield in 1904; ^*i^ 9% more, making 30%, in 1905, to Hisgen Bros, by cutting Hisgen Br os.^ price. (a) Pet. Ex. 635, Vol. 10, p. 1636. (i) Record, Vol. 12, p. 782. (o) Pec. Ex.635, Vol. 10, p. 1636. (O) Record, Vol. 13, p. 783-4. (e) Pet. Ex 635, VoLaO,,p. 1636; Record, Vol. 12, p. 785. (f) Record, Vol. l%P^m%m, ^MW.OSOft® 178 2. The Government's witness as to prices at Troy was L. T. Messner, manager of the Tiona Oil Co., who after stating the Tiona's prices in 1905, testified that the " Standard Oil Co. made the cuts from the January price downward first and the Tiona Oil Co. followed the price down in every case," and when the price went up in the fall, the Tiona was the first to raise it (a). The following tabulation speaks for itself (5) : Tiona Oil Co. Pkices at Troy. Standard's Prices at Tegy. 1905. 1905. January 9.00 January 9,.. ..9.00 " 8.00 February 6 8.00 Februarv 1... ..8.00 February 13 7.00 " " 7.00 September 18 7.50 June 7.00 October 23 8.50 " 6.00 September.-. 6.00 (Foregoing tabulation shows " 6^ all changes ia prices for 1905 ; October 6^ the prices as given on any " 7|- date remaining the same until November 8^ date of the next change.) December 8^ The Government has attempted to evade these figures on the theory that what Messner meant to say was that the cuts were made by either the Standard Oil Co. or the Troy Oil Works, a company owned by the Standard and operating at Troy. There is not the slighest indication in Messner's ex- amination that he intended so to testify or that such was the fact (c). V. Policy ami General Practice of Standard Companies Regarding local prices in Their Relation to Competition. That the policy and general practice of the Standard com- panies referred to in the Government's testimony is directly opposed to and inconsistent with the cutting of local prices in any community for the purpose of driving out competitors, or (a) Record, "Vol. 30, p. 54. (J) Record, Vol. 30, p. 53, 447. (c) Record, Vol. 'i'^^^f^zmW^OrOSOft® 179 destroying their business, or for any other purpose, and that local reductions in price have not been authorized or made except to meet lower prices in- itiated by competitors, is the evidence of general officers of those companies in immediate charge of the mar- keting departments of the business, and their testimony to that effect is corroborated by that of various managers of divisions of these departments {a). All the Government's tes- timony on this subject against the Standard of New Jersey relates to the' Baltimore Division of that Company. That Company placed upon the stand its local agents and salesmen to the number of 30 from throughout the territory in which the Baltimore Division operates, and proved by them the rule never to cut a price, which rule was given to them and followed by them during the entire term of their service (b). It is simply incredible that if the method of local price cutting charged by the Government existed, it should not have become apparent on the examination and rigid cross-examination of all these witnesses. Moreover, there was selected for special investigation on the defense instances appearing on the Price Exhibits of local reductions in price at one or more representative towns in the territory of each of the Standard's marketing com- panies, and the local conditions accounting for such reductions were proved. In every case it appeared that the decline in the Standard's price was forced by the price cutting of the competitor. See for (a) Record, Vol. 13, p. 687-689, 810, 896, 845 ; Vol. 13, p. 1536-1538, 1100. (J) Record, Vol. 13, p. 1154, 1155, 1180, 1191, 1201, 1203, 1313, 1321, 1346, 1347, 1354, 1365, 1377, 1389, 1391, 1392, 1893, 1401, 1421, 1435, 1428, 1438, 1444, 1447, 1449, 1470, 1473, 1337, 1844, 1388, 1451, 1110, 1153, 1214, 1352, 1289, 1390, 1298, 1333, 1333; Vol. 15, p. 3439, 2442, 3448, 3473-2474, 2479. Digitized by Microsoft® 180 the evidence of this, as to Los Angeles, Gal. (a), Denver, Col. (b), Hartford, Conn, (c) ; Worcester, Mass. (d) ; Albany, N. Y., 1905 (e) ; Philadelphia, Pa. (/) ; "Washington, D. C, 1902 iff) ; Baltimore, Md., 1905 (A) ; Dnluth, Minn., 1904 (i) ; Minneapolis, Minn., 1902 (j). Eeductions in price, when made to meet the prices of com- petitors as distinguished from cutting the competitor's price, can obviously only be made to hold trade or a share of the trade already possessed, and also possibly to regain trade or some of the trade lost on account of the cut in price to meet ■which the reduction is made. If this is monopolizing trade, then competition in any locality under such circumstances must cease, and all the business be handed over to the latest comer who is willing to take it at a cut price. VI. ]V^o Competitor's Business Destroyed. All the competitors concerned in the alleged instances of local price cutting were the Hisgen Bros. Oil Co., The Ked Oil Co., Crew-Levick Oil Co., Kiohmond Oil Co., National Oil Co., Cooper Bros., Pure Oil Co., Columbia Eefining Co., Com- mercial Oil Co., Southeastern Oil Co., G. T. Wofford Oil Co., Terre Haute Oil Co., H. C. Boardman. and the Corn- planter Eefining Co. with its subsidiary the Tiona Oil Co. Of these, all but the Commercial Oil Co. and the Southeastern Oil Co. have not only continued in busi- ness but have steadily grown and prospered (k). Thus Hisgen Bros, since 1900 have extended their business through- out the Standard's Albany and Providence departments in the States of New York, Massachusetts, Connecticut, Ehode Island and Vermont, cutting prices to establish themselves in any new field and doing a profitable business when they (a) Record, Vol. 17, p. 3500-3503, 3619-3628. (5) Record, Vol. 17, p. 3499-3500. (c) Record, Vol. 12, p. 801-802. (d) Record, Vol. 12, p. 802. («) Record, Vol. 13, p. 766-771. (/) Record, Vol. 15, p. 2424^2425, 2410-2416. (ff) Record, Vol. 16, p. 2608-2611 ; Vol. 15, p. 2395-2410. (h) Record, Vol. 16, p. 2612-2619 ; Vol. 15, p. 2461-3466. (0 Record, Vol. 15, p. 2882-3386. U) Record, Vol. 15 p..2387-2388^ (ft) Record, Vol. 5H}gmmmM^?§m^05, 3385-3286, 2163; Vol. 6, p. 3067-3068 ; Vol. 30, p. 106-109. 181 allowed prices to resume a normal level (a). Defendant's Exhibit 89 is a pictorial representation issued by Hisgen Bros, of tbe growth of their plant at Albany, showing that from a single small structure in 1889 it had grown in 1906 to an imposing array of buildings, covering an extensive area and including a factory, refinery, warehouse, offices, storage tanks, railroad sid- ings, etc. H. C. Boardman at Augusta, Ga., is typical of a competitor whose business is confined to one locality. He testified that his business had been profitable from the start and that it has increased to such an extent that he is now doing one-third of the entire business in refined oil in Augusta and seventy-five per cent, of the business in lubricat- ing oils (b). The two companies named as exceptions were not driven out of business, nor was their business destroyed. They were small local concerns that were purchased by the Standard of Kentucky. When the Southeastern Oil Co. at Binghamp- ton, Ala., was purchased, at its own instance (c), there had not even been a local reduction in the Standard's price (d). The Commercial Oil Co., a subsidiary of the Peerless Eefining Co. of Ohio (e), was selling oil in barrels at Atlanta, Ga., at 6^o. a gallon (/■), while the Standard's price there was 8c. a gallon dur- ing the year 1897 immediately prior to the purchase (g). It may be that the parent company came to realize that selling oil in barrels was out of date and rather than expend new capital for tank stations and a tank wagon service, preferred to find a purchaser for the property and good will of its subsidiary. (a) Kecord, Vol. 4, p. 1836-1844. (J) Record, Vol. 5, p. 3171, 3181. (c) Record, Vol. 13, p. 848. (d) Record, Vol. 12, p. 908, 847, 848. («) Record, Vol. 5, p. 3094. (/) Record, Vol. 5, p. 2096. (g) Record, Vol. 13, p. 897. Digitized by Microsoft® 182 THIRD : Reports of Competitors' Shipments. Pleading. Petition, XXIV, Vol. A, p. 104 : lu substance, that defend- ants have conspired and agreed with various railroads, railroad employees and others, to secure and have secured from them, full reports of the shipments of oil by competitors over various railroads, and by means of such reports a countermand of the order was secured, and, failing in that or in inducing the con- signee to become thereafter exclusively a patron of the de- fendants, the price at such point was in many cases reduced to a ruinous figure. Facts. I. Method of Obtaining Information of Competitors' Ship- ments. There is no evidence of any description that the Defend- ants or any of them have conspired or agreed with any railroad to secure, or have secured from any railroad, reports or in- formation of competitive shipments over any railroad, and the allegation of the bill to that effect may be dismissed from consideration. It is fully conceded and asserted and the facts show that the various marketing departments of the Standard Oil com- panies have obtained information of the shipments by com- petitors of refined oil and other products of petroleum over railroads in proper and legitimate ways, and have used such information legitimately in their business. The authorized method by which the Defendants have obtained such informa- tion is through their local agents, salesmen, commission men, tank wagon drivers and draymen, who were instructed to note and report all shipments of petroleum products which came under their observation, or which they learned of from the trade (a). The salesmen of the Standard are continually travel- (d) Record, Vol. 3. p. 846-847, 857-858, 83(2-836, 751-753 : Vol. 13, p. 1515, 1546-1547 ; Vol. S?pqg^]^6^'^dl?.W^ 1015-1017. 183 ing on the railroads ; its local agents, commission men and drivers go many times a day to the stations in the ordinary course of their business, and both the incoming and outgoing shipments of competitors are continually under their observa- tion (a). As the reports of these men came in from points of shipment, of transit, of destination and of delivery, they cor- rected each other and the system furnished a fairly compre- hensive estimate of the business of competitors as a whole In some States where the records of oil inspectors and deputy inspectors are public, the Standard could and did get monthly statements of competitors' shipments from these records, which further completed its information on the subject (6). There appear upon the record several isolated instances where some local agent of a Standard company, ten years or more ago, obtained information of competitive shipments from a minor railroad employee. It is perfectly clear from the evi- dence as a whole that this has never been a general practice with any Standard company, and such instances as do appear all relate to a period prior to 1899, except in the case of M. Maxon, a local agent in the employ of the Standard of Ken- tucky, who appears to have had an arrangement with a railroad station agent for information of this sort as late as July, 1900 (c). When such an arrangement was discovered by an ofiBcer of any Standard company, it was stopped. Thus, in 1896, L. J. Drake, who was then general manager of the Sales Department of the Standard of Indiana, a company which does one-third of the marketing business done by all the Standard Oil com- panies, heard in a roundabout way that George C. Mayer, local agent of that company at Kansas City, was allowing E. M. "Wilhoit, agent at Topeka, Kansas, money for information from railroad employees. He immediately wrote to Mayer that, if this was being done, it was contrary to instructions and must be stopped {d). (a) Record, Vol. 13, p. 1095-1097. (b) Record, Vol. 13, p. 1518,1517. Rfto_sq7 Vnl (c) Record, Vol. 30, p. 4?6 ; Petitioner's Exhibits, 859, 860, 863-897, Vol. 31, pp. 3, 3-16. (d) Record, Vol. 13, p. 1088, 1089. Digitized by Microsoft® 184 II. Use Made of Information of Competitors' Shipments. All of this information has been used by the Standard for statistical purposes. Part of it has been used by the market- ing departments in their business of selling oil. The evidence is that the actual use of it by the marketing departments has consisted in sending a memorandum of competitive shipments to the local agent of the Standard in the territory into which such shipments were made, with a request for information from him why it was not selling that trade. The best proof of this is the written instruction to the agent accompanying such notice of shipments, of which Petitioner's Exhibit 738 is typical : Baltimobe, Md., Nov. 7, 1903. " Mr. I. G. West, Dear Sib :— We advise the following shipments of outside oil in your field. Please return this report promptly advising under head of remarks why we are not selling this trade. Me. J. L. MiNETBEE. F. A. Hancock Field. (Here follows list of shipments.) " The testimony of the heads of the marketing departments confirms this use of the information {a). An agent in the field who knew his business would have no use for this information ; he would know already all the pur- chasers of oil in his field, whether they were buying from him or from others, and if not buying from him, he would know from whom they were buying and why (5). The information was sent, not to aid a competent agent in making sales, but for purposes of supervision, in order that the general manager might know whether the local agents and salesmen were doing their duty by the trade, and if not, might see that they did do it (c). If there is any question of " unfairness " here, it lies be- tween employer and employee, and not between the defendants and their competitors or the public. 6) Record, Y°h%t^M^^^OrOSOft® (a) Record, Vol. 13, p. 1515, 1096. 185 III. Securing the Countermand of Competitors' Orders hy Means of Information of Their Shipments. It is conceivable, though barely conceivable, that a Stand- ard agent or salesman, having information that a consignment of competitive oil was on the way to a designated merchant, might go to him and induce him to countermand the order and refuse to receive the oil when it arrived. But this would require that the salesman should have the information before the shipment arrived (a), and would involve a breach of contract on the part of tlie merchant and a consequent action for damages against him. It is not surprising, therefore, that there cannot be found on the record a single instance of this being done. Of all the Government's witnesses, just three, Davis and Pratt, discharged employees of the Standard, as to Kansas City, Mo., and Wofiford, now a competitor of the Standard, as to Birmingham, Ala., could be got to say that an attempt had ever been made to use information of competitors' shipments for this purpose. Their testimony was merely the general assertion that they induced the merchant to counter- mand the order if possible, and no one of them could give an instance where it bad been done {b). Davis' testimony relates to a period prior to 1888, and Pratt's to a period prior to 1892. It is significant that W. R. Stewart, general manager of that territory at that time and the man from whom Pratt got his instructions, called by the Governm,ent, testified that he never knew of any attempts to have competitors' shipments counter- manded (c). A. J. Mapes, local agent over Wofford at Birming- ham, who could have contradicted Wofi'ord specifically, is dead ; but E. L. Pauley, who succeeded Mapes at Birmingham in 1903 (c[), found no such practice existing there (e). And it is certain that securing the countermand of competitors' shipments was contrary to the policy of these companies ( /"). (a) Record, Vol. 13, p. 1096. (J) Record, Vol. 2, p. 954, 959 ; Vol. 5, p. 3153. (c) Record, Vol. 3, p. 995. {d) Record, Vol. 13, p. 843. («) Record, Vol. 13, p. 846. (/) Record, Vol. 13, p. 1067-1069, 1096, Digitized by Microsoft® 186 ly. Cutting Local Prices at Destination of Competitive Shipments. There is no evidence whatever in support of tlie allegation of the bill that the Standard's local prices have been reduced to a ruinous figure, or reduced at all, at points of destination of competitors' shipments of which the Standard had infor- mation. V. Cutting Prices to Consignees of Competitors' Shipments. This is not charged in the bill. The hearsay testimony on the subject of Metzel, Mahle, Fehsenfeld and Cooper, witnesses for the Government with reference to the Baltimore Division of the Standard of New Jersey, was overwhelmingly contra- dicted by the evidence of thirty local agents and salesmen of that company covering the entire territory of the Baltimore Division for different periods from 1899 to date, whose uniform testimony was that they were never instructed or permitted to vary from the uniform schedule of prices given to them from headquarters, or to cut a competitor's price, and that they never did so (a). On the other hand, the proof is that it has been these com- petitors in that territory who have practiced the method of securing business by cutting prices, and numerous instances thereof were shown (a). Against the Standard of Indiana the evidence on this subject was that of W. N. Davis, Edward P. Pratt, E. M. Wilhoit, and William A. Morgan {b), all discharged employees of the company, all contradicted by L. J. Drake (c), and all referring to a period prior to 1899, ex- cepting Morgan, who was special agent at a little station at Sedalia, Mo., from 1899 to 1901. Morgan was also contra- dicted by his written instructions, which he put in evidence {d). None of these witnesses could specify a single instance where a price had been cut. As to all other Standard companies, there is no evidence (a) Record. Vol. 13, p. 1154-1159, 1172-1180, 1186-1191, 1201-1303, 1312- 1317, 1321-1326, 1346-1347, 1349-1354, 1364-1365, 1377-1380, 1389-1391, 1392- 1395, 1401-1409, 1421-1423, 1425-1428, 1438-1440, 1444-1447, 1449-1453, 1470- 1475 ; Vol. 5, p. 2209. (J) Record, Vol. 2, p. 954, 959 ; Vol. 3, p. 1315, 1011. (c) Record, Vol. mgitiMW&fmicrOSOft® ((?) Record, Vol. 3, p. 1013-1014, 1017-1018. 187 whatever in behalf of the Government on this subject, with the single exception of the testimony of Wofford, formerly an em- ployee of the Standard of Kentucky at Birmingham, whose statements as to this were of the same character and value as on the subject of countermanding orders, and are not to be reconciled with the testimony of Collings (a), Pauley (b) and Cooke (c), all of the Standard of Kentucky. FOURTH. Operation of Bogus Independent Companies. Pleading. Petition XXV., Vol. A, p. 105 : In substance, that the de- fendants have as an unfair method of competition operated bogus independent concerns to secure from competitors their custom, using these concerns to cut prices while maintaining prices on the larger part of their product sold in the same localities. Facts. I. Wholesale Marketing Concerns Operated by Defendants. 1. Purchased and Operated For the Good Will, etc. A number of small marketing concerns engaged in selling oil to dealers, 19 altogether, purchased by various Standard Oil companies in the past, were operated for a time under the old name and organization, merely in order to get the benefit of the good will and to turn over the business to the pur- chaser to the best advantage {d), and also, in some cases where (a) Record, Vol. 13, p. 896. (S) Record, Vol. 12, p. 845, 857, 858. (c) Record, Vol. 5, p. 2506. id) Standard of New York : — Maverick Oil Co., Funke Bros., Liberty Oil Co., and American Refining Co. (Record, Vol. 3, p. 1506-1512, 1513- 1514) ; Atlantic Refining Go. : Denlinger Bros, and Oakdale Oil Works (Record, Vol. 3, p. 849-853, 856-857); Standm-d of Kentucki/ :— White's Golden Lubricating CHin^'Z&(/^^)'Wfcfe§8/?^'^°*®'''''°° ^^' *^°' ' ^^^^ ^'^ Co., Brooks OU Co., Vincennes Oil Co., Memphis Oil Co., and Dixie Oil Works at New Orleans (Record, Vol. 3, p. 715-728). 188 the purchased concern had an efficient organization for selling oil in barrels, to reach through it the trade preferring to buy oil in barrels, with the idea of finally converting that trade into tank wagon customers (a). As to some of these concerns, it appears that the Standard company which owned them did not advertise its ownership while operating them, and as to four of them, namely, the Peoples Oil Co. (6), Alabama Oil Co. (c), Dixie Oil Works at New Orleans (d), and the Vincennes Oil Co. (e), means were taken to prevent the Standard's ownership from becoming known, such as mailing reports to a post office box instead of openly to the Standard Oil Company. There is no evidence whatever as to any unfair method of operating these 19 concerns, and the only evidence as to the prices at which they sold their oil was that of Wooton and Wofford, witnesses for the Government, who testified that the Peoples Oil Co. (/■), the Dixie Oil Works at New Orleans (g), and the Alabama Oil Co. (A), sold at the same prices as the Standard in the localities where they did business. It appears that the Dixie Oil Works and the Eepublic Oil Co. were operated for four or five years, the former in the Bal- timore Division and the latter in the territory formerly covered by the firm of Schofield, Schurmer & Teagle, whose business it purchased. The ownership of these companies by the Stand- ard was not advertised or disclosed and their agents and sales- men were not informed of any relation between them and the Standard, and sometimes made in good faith representations that would follow from their ignorance (i). The Dixie Oil (a) New American Oil Co. and Toledo OQ Works (Record, Vol. 13, p. 1553-1555), Peoples Oil Co. and Alabama Oil Co. (Record, Vol. 13, p. 901- 903, 843-845), Troy Oil Works (Record, Vol. 13, p. 730-731). (A) Record, Vol. 5, p. 2099-3100. (c) Record, Vol. 5, p. 3151. id) Record, Vol. 5, p. 3109. (e) Record, Vol. 5, p. 2531. (/) Record, Vol. 5, p. 3100. (g) Record, Vol. 5, p. 3108, (/O Record, Vol. 5, p. 3151. (i) Record, Vol. 13, p. 1354, 1377 ; Vol. 3, p. 980. Digitized by Microsoft® 189 "Works did principally a business of selling oil in barrels, and the Eepublic Oil Co. was operated to develop a business in the sale of high grade oils which the Standard did not handle (a). Some witnesses for the Government made general statements based on hearsay that the Dixie Oil "Works had cut prices in the Baltimore Division (6), though no instances of this were given. But there is an abundance of competent evidence to prove that this company maintained the same prices as the Standard (c). In some places where the Dixie Oil Works did business, the Standard had no other competitor (d). There is no evidence of any price cutting or other alleged unfair method of competition on the part of the Eepublic Oil Co. during its existence, except one instance at Kansas City in 1902, when for about two months there was a price " war " between it and the National Oil Co., a subsidiary of the National Eefining Co. A. H. Gardner, manager of the National Oil Co., testified that he offered to sell oil to anybody at ^c. less than any price the Eepublic would make, and several witnesses testified to pay- ments of rebates to customers by both these companies during this period. The evidence was conflicting as to which started the trouble, but the National claimed to have fought the Ee- public to a standstill (e). (2) Organized and Operated for Special Purposes. At different times between 1897 and 1900, the Standard of New Jersey purchased or equipped three small marketing out- fits, namely, the Eureka Oil Co., the Argand Efg. Co., and the Southern Oil Co., and operated them under the management of Louis Blaustein at different places in the Baltimore Division where the Standard's local agents were not showing satisfactory results. In each case, Blaustein was first sent to investigate and report any defects in the agent's conduct of the business, and then sent to operate for the purpose of stimulating the agent to greater efforts and to demonstrate whether more oil could be sold in that locality. (a) Record, Vol. 3, p. 1143-1144, 1147-1150. (S) Record, Vol. 5, p. 3319, 3408. («) Record, Vol. 13, p. 1839, 1347-1350, 1339-1333, 1110-1111, 1158, 1844. {d) Record, Vol. 13, p. 1386-1387. W Record, Vol. 3, ^^M-'bJ^kMsh'fik 190 Id each place where the Eureka Oil Co. or the Argand Efg. Co. did business, the agent in question was suVjsequently either discharged or removed. At no time or place did any of these outfits sell oil at less than the Standard's price, with the single exception of the Southern Oil Co. at Winchester in 1900, where Cooper Bros, were under-selling the Standard and the Southern Oil Co. met their price. It could not compete successfully with Cooper Bros., and at the end of the year withdrew from Winchester [a). By 1901, the three outfits above mentioned having served their temporary purpose had been discontinued, and from then until 1905, Louis Blaustein managed a tank wagon station for the Standard at South Baltimore under the name of the Eagle Oil Co. The name Eagle Oil Co. instead of Standard Oil Co. was used in order that he might give credit to the peculiar class of trade in that section of the City without invalidating the Standard's general rule to sell for cash (b). The competent evidence is that the prices of the Eagle Oil Co. during its ex- istence were the same as were those of the Standard elsewhere in the City, except during a period in 1904 from about March or April to about September when its price was reduced ^c. below that of the Standard in order to hold its trade against cut prices initiated by the Crew-Levick Oil Co. The testimony of Louis Blaustein on this subject included the identification of a contract in writing between the Crew-Levick Oil Co. and one Crook, the proprietor of eighteen stores selling oil in South Baltimore, formerly cus- tomers of the Eagle Oil Co., in which the Crew-Levick Oil Co> engaged to supply these stores with oil for one year from Jan- uary, 1904, at a price from ^ to f o below the Standard's price, whatever it might be during that period (c). 3. General Conclusion from the Evidence. Before the commencement of this suit — in most instances long before — all the above mentioned wholesale marketing concerns had been discontinued as separate organizations, and the various Standard Oil companies have since conducted all branches of their marketing business under their own names. (a) Record, Vol. l-Dfo;-^£^/!»PM/^A7§t?)?#542-2546. (ft) Record, Vol. 15, p. 3453-2455. (c) Record, Vol. 15, p. 2461-2466. 191 There is no evidence that any coercive methods were used in the purchase of any of these concerns in the past, or that their former owners were restrained in any way from re-enter- ing the business. The whole charge of the Government in connection with them comes down to the failure of the Stand- ard company concerned to announce publicly its ownership, or, in a very few cases, to the concealment of its ownership. For this, as we have seen, there were differing business reasons in the different cases, none of which can be interpreted as an effort to exckide others from the trade, except incidentally in the sense in which all competition is an effort to exclude the competitor. II. Retail marketing concerns operated by de- fendants. 1. Can Peddling Departments. More than half of the so-called " bogus independent con- cerns " operated by the Defendants were retail organizations selling to consumers, and, with the exception of three insig- nificant peddling outfits run by the Standard of Kentucky for a special purpose hereinafter considered, and a single peddler named Farrell in the employ of the Standard of New York in the year 1899, all of these retail concerns were what are now known as the Standard's Can Peddling Departments. The Standard companies that, so far as the record shows, engaged in the retail business, all commencing about the same time, namely, 1900-1902, were the Atlantic Refining Company, Standard of Ohio, Standard of Kentucky, Standard of New Jersey and Standard of New "York. In some places existing retail concerns were bought, re-organized, equipped with the Standard's patent " non-fillable, non-spillable " one gallon cans and the business carried on under the old names; in other places, the business was newly organized. In all cases, originally, the business was carried on under various appro- priate names other than that of the Standard, such as the Cleveland Oil Delivery,, Home Oil Delivery, Domestic De- livery, Home Safety Oil and Gasolene Delivery, etc. Of course, the allegations of the bill that the Standard operated " bogus independent concerns " to enable it to cut prices without reducing prices on the larger part of its V^o^^klz^^ lillropt®'^'^^ 1°?!!?*^' 'i"^^'^ not explain these separate retail departments, ihe explana- 192 tion of them by F. B. Squire covers the whole 'subject (a). They were an experiment in selling oil directly to the con- sumer, which, largely on account of the necessity of giving credit, proved a failure. Gradually a number of the equip- ments, as they wore out, were withdrawn (b) and all those that were continued, mostly in large cities, took the added name of " Standard Oil Co.", and became its recognized can peddling departments. For the first few years in the history of this retail busi- ness, the fact that it was owned by the Standard was not ad- vertised. No misrepresentation was authorized (c), but the employees in the business were not advised that it belonged to the Standard (d), and the reports of agents in charge of it were made to the Standard indirectly (e). The reason for this was to avoid antagonizing the Standard's tank wagon cus- tomers, namely, the store keepers and other dealers, who would naturally be jealous of any attempt on the part of the manu- facturer to sell directly to the consumer (f). These retail departments did not cut prices. Their prices were uniform to all the trade (g). They solicited all the trade indiscriminately (g). Their oil was obtained openly from the Standard's storage tanks, and there is no pretense that any misrepresentation was made as to the fact that they were sell- ing Standard oil (k). 2. Various Peddling Concerns. A voluminous portion of the Government's testimony is taken up with describing the methods of operating three little outfits belonging to the Standard of Kentucky called the Hamilton Oil Co., Paragon Oil Co., and the Banner Oil Co. or Kercher Bros., at Terre Haute, Ind., Decatur, 111., and Spring- field, 111., respectively, and also at Vincennes, Ind., from about 1899 to about 1902. These concerns had at the most three (a) Record, Vol. 13, p. 1523-1525. (6) Record, Vol. 13, p. 1525. (c) Record, Vol. 13, p. 1552. (d) Record, Vol. 6, p. 3109-3110. («) Record, Vol. 6, p. 8115, 3124, 3135. (/) Record, Vol. 13, p. 1558 ; Vol. 12, p. 981. (g) Record, Vol. ^^DlbiimMffAWe^Bim^^Z-nSS, 1532. (A) Record, Vol. 13, p. 1104, 1362-1263. 193 peddling wagons and usually ran only one apiece, and their average sales were about 100 gallons a day {a). The witnesses for the Government were Charles Kercher, M. Maxon and John Shea, and there were numerous exhibits, most of which were unproved. The evidence was devoted to showing that these three peddling outfits were operated as independent companies, precaution being taken to conceal the fact that they belonged to the Standard, and that the manager of them was instructed to compete and did compete only with certain competitors of the Standard. C. T. CoUings explained that these concerns were operated to hold the business which various peddling concerns were taking from the merchants buying Standard oil {b). The com- petitor at Decatur and Springfield was the Merchants Tank Line Company, a concern owned by the National Eefining Co. selling to the consumers at Springfield through SoUe Bros., peddlers, and at Decatur through a peddler named Wagner. The peddlers at Terre Haute were O'Connell and Shea, whose wholesale business was operated there under the name of the Terre Haute Oil Co. (c). As it was not the intention of the Standard to compete with the stores selling its oil, its peddlers were instructed to solicit only the trade buying from the Merchants Oil Co. and its peddlers and from O'Connell and Shea (d). The competent testimony was that the prices at which these concerns sold oil averaged about 2c. above the wholesale prices to the stores and that they sold at a uniform price [e). They were operated as separate from the Standard, in order not to antagonize its tank wagon customers (/"). Kercher, on cross-examination, admitted that they drove openly to the publicly located supply stations of the Standard for their oil and that it was common talk that they were owned by the Standard {g). 3. The suspicion of the Government that other peddlers, such as Cordner at Springfield, Mass. (A) ; Haynes Peddling (a) Record, Vol. 12, p. 970. (i) Record, Vol. 12, p. 931-922. (c) Record, Vol. 12, p. 922, 924, 927. (d) Record, Vol. 12, p. 921-922. (e) Record, Vol. 12, p. 923, 1051. (/) Record, Vol. 12, p, 981. , , ^. ^^ ig) Record, Vol. Qi&tis&d by Microsoft® (h) Record, Vol. 12, p. 779-780, 790-791. 194 Wagons at Columbus, O. {a), or Moore at New London, O. (6), had any connection whatever with the Standard proved to be utterly unfounded. But, in the eyes of the Government, the mere fact that any pedler or other retailer was selling oil re- fined by a Standard Oil company has been sufficient to con- nect him with the Standard and make it responsible for his methods of competition. The introduction by the Government of the subject of the Paragon Oil Co., a peddling concern operating in Delaware, proved a boomerang. The charge was that this company, be- cause it bought oil from the Standard, was owned by the Standard (c), and that it was used to drive out of Seaford, Del., the Purse family doing a peddling business there under the name of the Seaford Oil Co. {d). The Purse family, three brothers, testified that the Seaford Oil Co. under their management belonged to the Crew-Levick Oil Co., and was operated by them as independent until they purchased it from the Crew-Levick Oil Co. (e) ; that they were driven out of Seaford, not by the Paragon Oil Co. or by the Standard, but by cut prices of the Eed C Oil Co. (/) ; that they purchased the Paragon Oil Co. from one Mr. Horn, and in 1906 transferred their trade from the Standard to the Pure Oil Co. on account of a cut in price of Ic. a gallon for oil and 3c. for gasolene offered to them by the latter company (g). FIFTH : Payment of Rebates on Oil Prices. Pleading. Petition, XXVI, Vol. A, p. 107 : In substance, that, in order to hold customers or secure customers from competitors, the defendants have, as an unfair method of competition, paid secret rebates or deductions from the price to purchasers of oil, on condition that they purchase their supply exclusively from the defendants. (a) Record, Vol. 13, p. 1533-1534. (*) Record, Vol. 13, p. 1535. (c) Record, Vol. 5, p. 3413 ; Vol. 13, p. 1319-1330. (d) Record, Vol. 5^. 3356. Ce) Record, Vol. iS/^'ftzcs/ by Microsoft® (/) Record, Vol. 13, p. 1379-1383, 1307. (g) Record, Vol. 13, p. 1307. 195 Facts. The payment of rebates on oil prices is one method of making special prices to individuals which are not open to all the trade, and, when the net price after payment of the rebate is lower than the price of the competitor, it is a metliod of cutting prices. A system of underselling the competitor by means of special prices is characteristic of small marketing concerns that, un- noticed, " shop around " for customers, recouping from one purchaser what they may lose on sales to another, or expecting to recoup from a customer later what they may lose at first on sales to him at a special price made for the purpose of gaining his trade. The owner of a large business like that of the Standard, dependent for success upon maintaining a large volume of trade, aside from any question of unfairness, cannot afford to make discriminations in price among its customers ; and it is sufficiently clear from the evidence in this case as a whole that the allowance of rebates, or special prices in any form, as a method of competition, cannot be attributed to the Defendants. Take as an example the Standard of Indiana, which does about one-third of the total merchandising business done by all the Standard Oil companies. The only evidence produced by the Government on the subject of rebates paid by the Standard of Indiana in any locality from the time of its organization to date is that of W. H. Hawkins, who testified that he, as superiu- teudent of tank wagons, instituted at one of these towns prior to 1897 a system of rebates, whereby, if a person were not buying from the Standard, he would offer him a sufficient rebate to secure the trade. Asked where he got instructions for that, he answered, " Well, L. J. Drake was the general manager." (a) He was discharged by the Standard in 1897, for what cause he does not know (5). L. J. Drake denied specifically that he ever instructed or authorized Hawkins to pay rebates or that the paying of rebates was ever prac- ticed by the Standard of Indiana (c). (a) Record, Vol. 3, p. 1244. (6) Record, Vol. a, d.. 990-991. .,. ^^ (c) Record, Vol. isPigitfmelityjiOl^icrosoft® 196 Most of the Government's evidence as to rebates was that of C. J. Castle, all referring to a period prior to 1898. He identified Petitioner's Exhibit 829 as a report of the special arrangements for rebates made by him while in the employ of the Standard of Ohio, and described them in detail. He said that he was left largely to the exercise of his own judgment in making these arrangements (a). F. B. Squire, Vice-President of the Standard of Ohio, and in immediate charge of its marketing business, testified that Castle had no authority to make arrangements for rebates and that he proved incorrigible in that regard and was discharged for it (6). In the exceptional instance-; to be met with in the record where rebates or other special prices have been made by an agent of any Defendant company, the concession was almost invariably Jc below the tank wagon price, and was made to meet a cut price offered by the competitor. The bill does not allege that by this means the defendants have attempted to drive out competitors, but only that they have endeavored thereby to hold or secure customers ; and it is obvious that special prices of this character could not have any other pur- pose or effect. The allegation of the bill that rebates were paid by the Defendants on condition that the dealer should purchase his supplies exclusively from them during the period covered by the sales in connection with which the rebate was given, was inserted, we suppose, in order to attribute to rebates some function in restraint of trade which, considered merely as special prices, they would not have. But there is no evidence in this record of a rebate given or promised upon such a condition. Also, the record will be searched in vain for any appreciable number of instances where executory contracts of sale made by any Standard agent have contained provisions obligating the buyer to deal exclusively with the Standard for any period of time. The Standard has not even made a practice of selling given quantities of oil for future delivery. Not one-hundredth of one per cent, of its entire sales are executory contracts of (a) Record, Vol. Q,i^i^m3d by Microsoft® (J) Record, Vol. 13, p. 1518-1519. 197 sale. Its marketing business is, and always has been, a cash business (a). SIXTH : Miscellaneous subjects not specified in the pleadings. In the record in this case there is to be found, on the sub- ject of so-called unfair methods of competition, not only the testimony of witnesses called in person on behalf of the Gov- ernment, but also testimony read into the record from all the records of equity cases, criminal trials and proceedings before commissions, where Standard Oil or any of its companies has been a party or an object of investigation. We have here, therefore, the result of investigations, not only in preparation for this case, but in preparation for all such trials and pro- ceedings in the past, and we may assume that all that can be said in disfavor of the Standard Oil Company is on the record here. Here, at any rate, is all the " tittle-tattle " of the trade. Every competitor who has lost a customer, every peddler who has had a squabble with a tank wagon driver, has always been welcome to the witness stand, there to air his grievance, whether or not it appears to have been connected in any sense with any Standard Company. Every ex-employee of the Standard has been given the chance to even matters with his former employer by telling, under oath, how he substituted sharp practice for honest salesmanship and then wondered that he, who now considers that his practices were representa- tive of Standard methods, should have been discharged. The result is a series of disconnected incidents, varying as widely as human nature, which cannot have been introduced in evidence with any hope of establishing a method of any kind. Most of the testimony as to these incidents is incom- petent. Much of that which is incompetent has been met and answered in the evidence. If we eliminate those supposed occurrences which are not supported by any competent testi- mony and those which ante-date the year 1890, what remain seem, for the most part, too trivial for serious consideration. («; Record, Vol. mgiUz^ma^^icFMom P- 1079, 1538 ; Vol. 15, p. 2439 ; Vol. 17, p. 3497, 3531. 198 But trivial or important, it is well to observe the significant fact that practically every charge that is definite enough and relative to a time recent enough for full and proper investiga- tion has been entirely disproved or explained. Thus, the Government undertook to prove at length and with much circumstance a charge that had been given wide circulation in the press to the efl^ect that an agent of the Stand- ard of New York had on one occasion in 1902 falsely measured a competitor's barrels of oil by using for that purpose two 5- gallon cans that held more than five gallons {a). The defendant put the two 6-qaUon cans in evidence, and never were two meas- ures more exact (5). Another story that had gone uncontradicted since told by F. L. Hibbs before the Interstate Commerce Commission, was that the salesmen of the Standard at Peoria, 111., 1902-1905, were instructed to make, by various specified means, fraudu- lent tests of oil for customers. The testimony, read into the record here, was not only completely disproved by the evi- dence of witnesses no longer in the Standard's employ (c), but was rendered ridiculous when it appeared that Hibbs' em- ployer was sending out thousands of circulars every year ex- pressly instructing the customers in that district in the very matters as to which Hibbs testified he was directed to deceive them {d). The purchase of the Peoples Oil Co. from the " widow Jones " was a would-be pitiful episode that is typical. C. T. Collings was cross-examined about it as follows (e) : " Q. Didn't he (Kercher) say that she (Mrs. Jones) didn't want to sell out? A. I have never heard of such a thing. Q. Didn't she break down and tell him that she had to have the business ; that her husband had died, that she had a family to support and had to have the business ? A. I never heard of such stufl". Q. You were trying to drive that woman out of Mobile ? A. Oh, that is all rot. Q. We will see whether it is or not. A. Well, you prove any such stuff as that." (a) Record, Vol. 4, p. 1913-1914, 1919-1923. (i) Reeord, Vol. 12, p. 744-747, 773-777. !jCflS®)rd, Vol. 15, p. 2193, 2366. (d) Record, Vol. 18, p. 278-80 ; Vol. 19, p. 583-4. 226 tion of rates on Burlington, that is, the sum of the through rate to Burlington plus the local rate from Bur- lington to destination. There were, however, through class rates in effect but so high that they were manifestly not designed for handling such shipments and were actually prohibitive. On shipments to intermediate stations, instead of hauling the car through from Olean, or New Lon- don, to Burlington and hauling it back again over the same rails, the railroad stopped off the car at the intermediate destination. The shipper, however, paid the full rate into Burlington and back again (a). Counsel condemn this and contend that the prohibitive rate over the direct route from shipping point to destination should have been paid. The uncontradicted testimony is that the use of the sum of the locals was considered legal by the railroad officials and the practice of so stopping off the cars at the intermediate desti- nation was inaugurated by the railroad for its own con- venience, resulted in no saving for the Standard whatever in cost of freight, and was of no value to it, except possibly a small saving in time (b). The various railroad officials above referred to, who were called by the defense to interpret tariffs, all testified that, at the time in question, they would have quoted and used the rates that the Standard paid, believing them to be lawful, except that the shipper was perhaps en- titled to an application of the long and short haul clause and may, therefore, have paid more than the lawful rate to the extent of the local rate out of Burlington to destination (c). FiFPH. The supposed New England non-peobate. 1. The railroads leading from the Ohio and Pennsylvania refining points to New England, have for many years made through rates to Boston on petroleum oil as well as on other commodities. The Government contends, however, that while it was the policy of the railroads to apply the Boston rate to New England points genenally upon commodities other than oil, they did not make such through rates on oil but instead exacted their full locals, which were considerably higher than through rates, made on the usual basis, would have been ; that the Standard supplied the oil trade in this territory from (a) Record, Vol. 5, Wi§?Cf by Micro^f^^^^^^^ ^^^ ^^^ ^ 23gg_ (c) Record, Vol. 14, p. 2003 ; Vol. 15, p. 3187. 227 its seaboard tank stations and thereby secured an advautage over the Ohio and Pennsylvania refiners, and that the failure of the railroads to make such through oil rates was at the instance of the Standard, which benefited therefrom and was thereby enabled to and did monopolize the oil trade in that territory («). It is not shown that the Standard had anything to do with the failure of the roads to make such through rates ; and the Governmetit's conclusion that the Standard was re- sponsible for such failure arises solely froin the fact that coutisel conceives that the Standard profited from it. At least two independents, one at Somerville, near Boston, Mass (b), and another, at Beverly, Mass. (c), also had seaboard shipping sta- tions ; and if there was any advantage, any shipper with suffi- cient foresight likewise to equip itself, might have enjoyed it. 2. The Government, however, is greviously mistaken in its contention that there were through rates to all this territory on all commodities except oil. To a very large number of points in Vermont, New Hampshire, and Maine, the through Boston rate did not apply on any com7nodities, but the railroads exacted either their locals or high arbitraries {d) ; Mr. Schindler who has not only assisted Government counsel in this case but has actively assisted in the prosecution of each of the criminal suits against the Standard for supposed violations of the Elkins law, was also very much in error as to the actual oil rates to the various New England points, which were selected to illustrate such supposed want of through rates, for i?i attempting to quote ^67 rates, he was wrong as to 212 of them (e). Counsel for the Government question the construction of two of the tarififs that the defendants rely upon as showing the actual rates. A large number of witnesses, all high traffic officials and admitted by a Government expert witness to be among the leading freight tariff experts of the country, who were called by the defendants to constrne the tariffs, construed them as making the rates for which we contend (f). While the Government called some witnesses who gave a contrary construction, they were, with a single exception all clerks, not having final responsibility in rate matters, and none of them (a) Petition, Vol. &., p. 83. (e) Record, 18, p. 363-9 ; map, Def. (b) Record, Vol. 15, p.. 3329. , ^Ex, 186, VoL 19, p. 550. (0 Record, 18, p. ^I&igitizea Dy^Castoid, 14, p. 1679, 2051, Vol. 15, id) Record, 18, p. 341-7. p. 3098, 3154, 3170, 3331, 3395. 228 men who have the staDding, influence or importance in the railroad world, possessed by the witnesses for the defense (a). 3. It is admitted that the Boston oil rate did apply to all points on the Boston & Albany and the Fitchburg Division of the Boston & Maine railroads, thus giving the Boston rate to a large number of points in Massachusetts, Southern Vermont and New Hampshire (b). The roads, however, that serve the sparsely settled districts of Maine and northern Vermont and New Hampshire did not in some instances apply the Boston rate to that territory, but exacted their locals or arbitraries upon oil as upon many other commodities, thus securing a considerably larger revenue. The New Haven road, reaching some Massachusetts and many Connecticut and Ehode Island points, did not make through rates. The explanation of an official of that road is that it refused to handle oil shipments with its New York con- nections, because of the danger of fire that might result from handling oil on the wooden floats by which the freight would have been required to be transported across New York Harbor, and that it refused to make through rates with its more northern connections, where such danger of fire did not exist, for the reason that so long as it refused to make through rates with its connections at New York it could not, as a matter of rail- road policy, make through rates with its other connec- tions (c). Although since 1906 the New Haven Road has joined in making such through rates, this is without signifi- cance except as indicating that the modern use of steel floats has probably done away with the danger from fire. 4. The reply to the Government's contention in this regard, is, therefore : First, the Government is in large part mistaken as to the actually existing rates, and, next, in so far as there were no through rates on oil to the territory served by roads other than the New Haven, the reason is merely that the roads had not then agreed upon through rates, as they have not even yet agreed upon through rates to all of this territory {d). The traffic in question into this sparsely settled territory was small and in any event of little consequence (e) ; and there is no reason {a) Record, Vol. 3(1 p.. 384, 398, 362, 277. ^M) Kecord, Vol. 15, p. 2261. (J) Map, Record, ^fi-'i^^ftiPcrOSO/?^) U^^„,^_ y„l ^g^ ^_ 239^^ (c) Record, Vol. 4, p. 1748. 229 whatsoever to suppose and no evidence io show that the Standard was in any way responsible for the want of through rates. 5. We do not consider the question of the rates complained of from Olean to other points in New York, as these were purely state rates, not then required to be filed with any state commission, or the Interstate Commerce Commission, and the only rates in effect that could have been used. 6. The Westgate complaint. One Westgate, who has a refinery at Titusville, Pa., was called as a witness for the Government, and complained of the rates into this territory and produced freight bills showing the rates actually paid and about which he complained. An analysis of these freight bills reveals that he was sadly ignorant of the actual rates, and that he paid in many instances more than the rates actually in effect, in other instances he paid much more than lawful rates available over other routes, and in still other instances he paid less on interstate shipments than the lawful rates {a). Moreover the rates that he paid did not in general differ greatly from the cost to the Standard to reach the same points and were on some shipments less {h). A traffic manager of the New York Central, as a witness in this case, took upon himself and upon his road the responsibility for the delay that Mr. Westgate experienced in getting satisfactory and consistent rates, and exonerated the Standard from having had anything whatsoever to do with the rates com- plained of (c). Sixth : Oil rates in centkal states. 1. The Government contends, that the oil rates from Chicago, or Whiting, to points in Ohio, Michigan, Indiana and Illinois, were less per ton per mile than the rates to the same points from the refineries at Toledo and Cleveland, Ohio, and in Pennsylvania, that this was to the advantage of the Stand- ard, which shipped largely from its refinery at Whiting to these States, and, that therefore, this condition had been brought about by the Standard, which had monopolized the oil trade in this territory by this means (d). (a) Def. Ex. 178, Vol. 19, p. 540-5: (c) Eecord, Vol. 15, p. 3287, 2313. (J) Def. Ex. 177, Vil4 (?; Florence, " 4.30 3,738 Greeley, Colorado 3.96 3,033 Loveland, " ^■'^^ ^'O^^ Sterling, " 3.57 998 Windsor, " 3.70 305 Digitized by Microsoft® 264 2. List of 11 stations on the Pacific Coast with margins AND populations (See Brief, vol. II., p. 142). Town. Margin. Population. Woodland, California 3.65c. 2,886 Chico, California 3.85 3,640 Pajaro, " 3.99 1,743 Merced, " 3.80 1,969 Salem, Oregon 3.81 4,358 Albany, Oregon 4.12 3.149 The Dalles, Oregon 4.33 3,543 Eugene, Oregon 4.39 3,236 Roseburg, Oregon 5.27 1,690 Aberdeen, Washington 4.53 3,747 Pullman, Washington 7.60 1,308 3. 51 stations in the United States in towns having populations less than 3,000. (See Brief, vol. II, p. 143). The following 4 towns, in October, 1904, had margins over 2.60 cents and a population of 500 or less. Town. Margin. Population. Fairfax, S. C 3.42 301 McCraoken, Kansas 3.57 310 Plainville, Kansas 2.68 378 Millen, Ga 3.01 411 The following 10 towns, in October, 1904, had margins over 2.60 cents and a population from 500 to 1,000. Town. Margin. Population. Vidalia, Qa 3.51 503 Collinsville, Ala 3.36 534 Eskridge, Kansas 2.66 613 Wadley, Ga 3.36 630 Grodau, S. D 2.77 700 Leesburg, Fla 4.19 765 Cottonwood Falls, Kansas 2.66 843 Quincy, Fla 4.19 847 Oberlin, Kansas 2.89 937 Stark, Fla 4.46 972 The following 19 towns, in October, 1904, had margins over 2.60 cents and a population from 1,000 to 2,000 : Town. Margin. Population. Redfield, S. D 2.77 1,015 Stafford, Kansas 3.71 j 068 Tazewell, Va ,..,., . 2 74 1096 Kissimee, Fla QMP^^P.PiMIPJ'.P.^^W'.'.. 4^00 1433 Hays City, Kansas 3.87 1,136 265 To"w^u- Margin. Population. Florence, Kansas 2.85 1178 Anthony, Kansas 3.21 1 179 McKenzie, Tenn 2.95 1266 Abingdon, Va 2.85 l^SOe Mt. Kisco, N. T , 2.93 1,346 Brewton, Ala 3.18 i,382 Lamed, Kansas 3.70 1583 Jasper, Ala 3.44 i^gei Miami, Fla ., 8.47 i^eSl Daytona, Fla 3.83 1,090 Marion, Ala 3.23 1,698 South Pittsburg, Tenn 2.89 1,789 Morgantown, N. C 2.79 1,938 Lebanon, Tenn 3.24 1,956 The following 18 towns, in October, 1904, had margins over 2.60 cents and a population from 2,000 to 3,000. Town. Margin. Population. Sterling, Kansas 3.90 2,002 Port Jefferson, N. T 2.87 2,026 Tracy City, Tenn 3.06 2,130 Flemington, N. J 3.02 2,145 Franklin, Tenn 2.80 2,180 Bermidji, Minn 2.90 2,183 Moultrie, Ga 3.14 2,221 Shelbyville, Teun 2.65 2,236 St. Ignace, Mich 3.83 2,371 Greensboro, Ala 3.98 3,416 Summerville, S. C 3,43 3,420 Great Bend, Kansas 2.96 3,470 Orlando, Fla 3.57 3,481 Demopolis, Ala 3.45 3,606 Union Springs, Ala 3.73 2,634 Cresco, Iowa 2.85 3,806 McPherson, Kansas 2.66 2,996 HoUidaysburg, Penna 2.86 3,998 Digitized by Microsoft® 266 APPENDIX III. Defendants' Exhibit 277. (Record, Vol. 19, p. 662.) COMPETITIVE REFINERIES IN 1906. Nbw Yoek Haebob. Columbia Oil Co., Constable Hook, N. J. Valvoline Oil Co., Edgewater, N. J. Philadelphia. Manufacturers' ParafBne Co., Phila. Pa. (formerly Paragon Oil Co. Enterprise Oil Works, Phila. , Pa. Sunlight Oil & Refining Co., Phila., Pa. Pure Oil Co., Marcus Hook, Pa. National Refining Co., Marcus Hook, Pa. Sun Company, Marcus Hook, Pa. Crew-Levick & Co., Marcus Hook, Pa. Pittsburgh, Pa., and Vioinitt. Beaver Refining Co., Washington, Pa. Canfield Oil Co., Coraopolis, Pa. Freedom Oil Works, Freedom, Pa. Island Petroleum Co., Neville Island, Pa. West Pittsburg Oil Refg. Co., Neville Island, Pa. Lake Carriers Oil Co., Coraopolis, Pa. Miller's A. D., Sons Co., Allegheny, Pa. Pittsburgh Oil Refining Co., Coraopolis, Pa. Waverly Oil Works, Pittsburg, Pa. Other Oil Region Points. American Oil Works, Titusville, Pa. Cold Water Oil Co., Raymilton, Pa. Conewango Refining Co., Warren, Pa. Continental Refining Co., Oil City, Pa. Cornplanter Refining Co., Warren, Pa. Crystal Oil Works, Oil City, Pa. Dougherty, W. H., & Sons, Petrolia, Pa. Emery Mfg. Co., Bradford, Pa. Emlenton Refining Co., Emlenton, Pa. Empire Oil Works, Oil City, Pa. Franklin & Raymilton Refining Co., Raymilton, Pa. Germania Refining Co., Oil City, Pa. Glade Oil Works, Warren, Pa. Independent Refining Co., Oil City, Pa. Levi Smith, Clarendon, Pa. Penii Lubricating Co., Bradford, Pa. ' 267 COMPETITIVE REFINERIES— (Ctf?i«mw(?) . Penna. Paraffine Works, Titusville, Pa. Seneca Oil Works, Warren, Pa. Superior Oil Works, Warren, Pa. Tiona Refining Co., Clarendon, Pa. Titusville Oil Works, Titusville, Pa. United Refining Co., Struthers, Pa. Valvollne Oil Co., East Butler, Pa. Warren Refining Co., Warren, Pa. Wellsville Refining Co., Wells ville, N. Y. Wilburine Oil Works, Warren, Pa. Ohio. National Refining Co., Marietta, O. Sterling Oil Works, Marietta, O. National Refining Co., Cleveland, O. Craig Oil Co., Toledo, O. Canfield Oil Co., Pindlay, O. (purchased by Natioual Refining Co.). National Refining Co., Pindlay, O. Paragon Refining Co., Toledo, O. Wyandot Refineries Co., Crawford, O. (formerly Wyandot Producing & Refg. Co.). SunOUCo., Toledo., O. Kansas. Caney Refining Co., Caney, Kas. Chanute Austin Refining Co., Chanute, Kas. Eastern Kansas Oil Refinery, Moran, Kas. Great Western Oil Refining Co., Brie, Kas. Kansas & Texas Oil, Gas & Pipe Line Co., Chanute, Kas. Kansas City Oil Co., Kansas City, Kas. (formerly Kansas City Oil & Gas Co.) Kansas Co-Operative Refining Co., Chanute, Kas. Kansas Crude Oil & Gas Co., Chanute, Kas. Kansas Oil Refining Co., Chanute, Kas. National Refining Co., Coffey ville, Kas. Paola Refining Co., Paola, Kas. Petrolia Refining Co., Petrolia, Kas. RoUin Refining Co., RoUin, Kas. Standard Asphalt & Rubber Co., Independence, Kansas. Sunflower Oil Co., Niotaze, Kas. Superior Refining Co. , Longton, Kas. Uncle Sam Oil Co., Atchison, Kas. Uncle Sam Oil Co., Cherryvale, Kas. Webster Refining Co., Humboldt, Kas. Oklahoma. Chelsea Refining Co., Chelsea, Okla. Muskogee Oil Refining Co., Muskogee, Okla. Oklahoma Refining Co., Oklahoma City, Okla. Tulsa Refining Co., Tulsa, Okla. Uncle Sam Oil Co., Tulsa, Okla. Webster Refining Co., Okmulgee, Okla. IlXINOIS. Leader Oil Co., Casey, 111. (Cornplanter Refg. Co.) Mid-Continent Oil Refg. Co., E. St. Louis, 111. Robinson Oil Refining Gp, , Robinson, IIJ. Union Oil Co., East StMimma.oy Microsoft® 268 COMPETITIVE REFINERIES— ( Continmd^. Kentucky. Indian Oil Refining Co., Georgetown, Ky. Colorado. Boulder Refinery, Boulder, Colo. Colorado Refining & Oil Co., Boulder, Colo. Wyoming. Pittsburg-Salt Lake Oil Co., Spring Valley, Wym. Califobnia : Alameda County. Capitol Refining Co., Stockyards, Cal. Pacific States Refineries, Pruitvale. Paraffine Paint Co. , Oakland. Contra Costa County. Western Oil Refg. & Mfg. Co., Rodeo. Union Oil Co. of California, Oleum. Fresno County. California Fresno Oil Co., Fresno. Kern County. r Field ( Sunset' Oil &Tlefg. Co., Sunset Field. Buckeye Refg. Co. Kern River Field (formerly Clark Oil Refg. Co.). Los Angeles County. Asphaltum & Oil Refg. Co., Los Angeles. Atlas Refining Co., Los Angeles (formerly 3 refineries: New Franklin Oil Co. and Atlas Reduction Co.) British California Oil Co., Los Angeles. Densmore Stabler Refg. Co., Los Angeles. Hercules Oil Co. , Los Angeles. Jordan Refining Co., Los Angeles (formerly Meridian Oil Co.). Los Angeles Refg. Co., Los Angeles. Southern Refining Co., Los Angeles. Sunset Oil & Refg. Co., Obispo. Union Consolidated Oil Co., Los Angeles. San Bernardino County. Puente Oil Co., Chino. Ban Luis Obispi.> County. California Petroleum Refineries, Oilport. Santa Barbara County. Associated Oil Co., Alcatraz (lornierly Alcatraz Asphalt Co.). 269 COMPETITIVE EEPINERIES-(Oorej4?iM6(f). Ventura County. Santa Paula Oil Co., Santa Paula. Tbxas. Central Asphalt Works, Port Neches, Tex. (sometimes known as Evangeline Oil Co., taken over by Texas Co.). United Oil & Refining Co., Beaumont, Tex. (formerly National Refining Co., U. S. Oil & Refining Co., Union Oil & Refining Co.). Higgins Oil & Fuel Co., Beaumont, Tex. Great Southern Oil Co., Beaumont, Tex (W. H. Sturman, of N. Y., re- ceiver). San Jacinto Oil Ref. & Tank Car Co. , Corsicana, Tex. (leased by Richardson- Gay Oil Co.). Southwestern Oil Co., Houston Tex. Gulf Refining Co., Plant No. 2, Port Arthur, Tex. Gulf Refinine Co., Plant No. 3, Port Arthur, Tex. The Texas Co., Port Arthur, Tex. Howard Refining Co., Port Arthur, Tex. (formerly the Colonia Ref. Co.). Louisiana.. Jennings Refining Co., Jennings, La. (formerly Union Oil & Refining Co.). Record Oil Refining Co., Port Chalmette, La. National Oil Works & Mill Supply Co., New Orleans, La. Digitized tiy Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® '^^^^^^'^-Oj^