THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW 332.14 St47 Cop. 2 DATE SLIP RETURN THIS BOOK ON OR BEFORE THE LAST DATE STAMPED BELOW Library Bureau OAT. NO. 1140 INDUSTRIAL COMBINATIONS AND TRUSTS THE MACMILLAN COMPANY NEW YORK • BOSTON • CHICACO • DALLAS ATLANTA • SAN FRANCISCO MACMILLAN & CO., Limited LONDON • BOMBAY • CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA, Ltd. TORONTO INDUSTRIAL COMBINATIONS AND TRUSTS EDITED BY WILLIAM S. STEVENS, Ph. D. Columbia University University of Redlands Library THE MACMILLAN COMPANY 1914 All rights reserved 111* Copyright, 1913, Bv THE MACMILLAN COMPANY Set up and electrotyped. Published January, 1913. Reprinted October, 1913; July, 10 r.1. 000 5 % Rebates are payable only at the expiration of the period ending December 31st, 19 10, and after claims have been approved by E. L. Wayman, Licensor, Arrott Building, Pittsburgh, Pa. Written application for rebate must be made at the close of the rebate period to E. L. Wayman, Licensor, upon standard forms, which may be obtained from him for that purpose. Unless claim for rebate is presented within 30 days after the expiration of this agreement, the right to refuse to allow such rebate is reserved by the Licensor named above. If at the expiration of this contract, a similar contract is made between the parties hereto and the purchases under each contract Factors' Agreements 143 are sufficiently large so that the aggregate of the purchases under both contracts are double the amounts named above, then the Compaany 1 will pay the percentage rebate named above on the entire amount of such purchases under both contracts, but it shall not be permissible to aggregate purchases made under more than two successive contracts to obtain any greater rebate than may be payable under the last of such two successive contracts. 9. The Purchaser understands that the re-sale prices of all ware manufactured under the Letters Patent enumerated herein, as established from time to time by the Company, must be maintained by all Licensed Sanitary Enameled Iron Ware Manufacturers and by all Jobbers and Dealers and that sales by one Jobber to another cannot be made at any better prices than established in the sheets. The Purchaser therefore agrees that he will observe and strictly maintain on all types and classes of ware the selling prices as they are set forth in the schedules, and will observe and strictly adhere to the rules and regulations as embodied in the Price Sheets and furnished as a part of this agreement, or as they may be embodied in the Price Sheets issued hereafter and substituted by or under the authority of the Licensor (E. L. Wayman) in place of those fur- nished herewith. Articles may be added to or removed from the schedules at any time; but in the event of such removal, the pur- chases to date of such removal will be considered as part of the amount on which rebate is estimated. 10 The Purchaser also agrees during the life of this company not to purchase, sell, advertise, solicit orders for, or in any way handle or deal in Sanitary Enameled Iron Ware of any manufac- turer not licensed under the Letters Patent enumerated herein, except with the express written permission of the Licensor. Breach of any of the provisions of this agreement, or any failure to maintain and observe prices, rules or regulations shall give the Company, or E. L. Wayman, owner of the Patents hereinbefore enumerated, an option immediately to cancel this contract, all unfilled orders and to withhold all rebates; and the Purchaser is hereby expressly put on notice that in case of any such failure, he can not there- after obtain Sanitary Enameled Iron Ware manufactured under the Letters Patent above enumerated from any of the Licensed Manufacturers. 11. As an added consideration for this agreement whereby the Purchaser is to be sold goods manufactured under the patents 1 Thus in original. — Ed. 144 Industrial Combinations and Trusts hereinbefore named, the Purchaser hereby agrees that as to all goods, wares and merchandise, which are manufactured under and in accordance with the patents hereinbefore named, the Purchaser will only resell such goods now on hand, or already purchased by him, irrespective of by whom such goods have been manufac- tured, in accordance with the rules, terms, conditions, prices and regulations of sale which are herein established, or which may hereafter be established in accordance with the terms of this agree- ment, as specially set forth in paragraph 9 hereof. 12. This agreement does not become binding on the Company until accepted in writing at the foot hereof by the Sales Manager or his duly authorized representative located in the main sales office of the Company. Accepted this day of 19 (Purchaser) (Company) By This statement must be signed by both Manufacturer and Jobber, detached and filed promptly with E. L. Wayman, Arrott Building, Pittsburg, Pa. Dated 191. . E. L. Wayman, Licensor, Arrott Building, Pittsburg, Pa. This is to certify that a "Jobber's License Agreement" Purchase Contract has been executed between (Manufacturer) and (Jobber) (City and State) at the following Discounts (subject to the established rebates) from the Resale Prices established by you or that may be established by you during the period ending December 31st, 1910. (Here follows schedule of articles) Factors' Agreements 145 Exhibit 7 excerpts showing the operation of the factors' agreement of the american tobacco company 1 LIST OF CONSIGNEES WHOSE AGREEMENTS WERE REVOKED FOR HANDLING OPPOSITION GOODS, AS SHOWN BY THEIR OWN TESTIMONY AND THAT OF MR. BROWN. Revoked before March 1, 1893. Sussman Brothers, New York city, December 21, 1893, cause, pushing Admiral cigarettes, — "A general inimical feeling to the company and abuse of me." — Browne, p. 1370. John R. Miller & Son, Newark, N. J. February 4, 1893. Under- stood to have been given the sole agency for the National Cigarette and Tobacco Company's goods in Newark and vicinity. Browne, p. 135 1 ; Dunstatter, pp. 11 25-1 126; total 2. FOR HANDLING ADMIRAL CIGARETTES AFTER MARCH 1, 1895. Monroe Cigar Co., Rochester, N. Y., May 3, 1893. They were pushing the Admirals and seemed to be closely in touch with the National Company. Their account was also in a very unsatisfac- tory condition. Browne, p. 1352. They had the sole agency for the Admiral Cigarettes in Rochester and thirty miles around. Tuke, 274. John McLaughlin, Lancaster, Pa., May 23, 1893. Was cut off for "active pushing of the Admiral Cigarette and the accompany- ing advertisement discriminating against our goods." "Was giving them the preference over ours." Browne, p. 1354. Alexander Wilson & Co., Pittsburg, Pa., May 26, 1893. They "were the most active distributors of Admirals that they (Na- tional) had in Pittsburg." The agreement would have been re- voked even if they had not accepted the agency for the Admirals. Browne, p. 1377-8. See also report of Charles E. Brown, p. 1647. Love, Sunshine Co., Johnstown, Pa., May 26, 1893. They were the agents of the National Company and put their whole force into selling the National Company's goods. Browne, p. 1343. Martin & Co., Pittsburg, Pa., May 26, 1893. They were "ex- traordinarily active" in pushing Admirals. They were trying to 'Op. cit. N. Y. Trust Investigation, 1897, pp. 913-922. 146 Industrial Combinations and Trusts displace the A. T. Co.'s goods and boasted what they would do with them. Browne, p. 1349. See also report of Charles E. Brown, P- 1643- M. F. H. Woerner, Manayunk, Pa., May 26th, 1893. Was "trying to push and urge the sale of Admirals." Brown, pp. 1334, 1381. John Schwartz, Hazleton, Pa., May 26, 1893. Took in Admiral Cigarettes. "All orders for or taken by the National Cigarette and Tobacco Company men and by his own men, with his own wagon, were filled by him." Brown, p. L ' 638. John Rauch, Indianapolis, Ind., June 14, 1893. Was cut off "for the interest he took in the Admiral Cigarette, the activity in their distribution and so on." He was also very friendly with the officers of the National Company, who were then making a "great big display" with their "No Trust" advertisements in Indian- apolis. Brown, p. 1363. August Rickebush Tobacco Company, Milwaukee, Wis., July 6, 1893. They were agents for the National Cigarette and Tobacco Co., and are regarded as part of that company themselves. They also cut prices on tobacco and advertised their own goods as "not made by a Trust." Brown, p. 1351. FOR HANDLING "ROYAL SWEETS", A BRAND OF CIGARETTES CLAIMED TO BE AN IMITATION OF "SWEET CAPORALS". C. A. Whelan & Co., Syracuse, N. Y., May 2, 1892. George Whelan, the company of that concern, became an employee of the National Cigarette and Tobacco Company at a salary of four thousand dollars a year, and they immediately began pushing the "Royal Sweet Cigarettes," which we considered an imitation of ours. Brown, p. 1542. Boston Cigar and Tobacco Co., Boston, Mass., May 4, 1895. "A. R. Mitchell & Co. had the agency for the Royal Sweet Ciga- rettes, and the Boston Cigar and Tobacco Co. were actively, as the sub-agents of these, pushing them." Brown, p. 13 13. See also report of R. R. Lawrence, p. 1540. Brewster, Crittenden & Co., Rochester, N. Y., May 9, 1895. Were cut off for handling "Royal Sweets Imitation Cigarettes." S. S. Sleeper & Co., Boston, Mass., July 12, 1895. A member of 1 Thus in original. — Ed. Factors' Agreements 147 this firm became president of the Executive Association of the Wholesale Grocers of New England, who were fighting the A. T. Co., and pushing the Royal Sweet cigarettes. The agency had entered into an agreement with the National Cigarette and To- bacco Company to give its goods the preference, for which it was to receive the sum of about $35,000. S. S. Sleeper & Co. had carried out the agreement of the association and had their windows full of the imitation cigarettes. Brown, pp. 1544, 1546. FOR HANDLING OTHER CIGARETTES THAN THOSE MADE BY THE NATIONAL CIGARETTE AND TOBACCO COMPANY. Boston Cigar and Tobacco Co., Boston, Mass., June 15, 1893. West, Stone & Co., Springfield, Mass., July 15, 1893. The Boston Cigar and Tobacco Co. was an offshoot of A. R. Mitchell & Co., who had taken the agency for New England for the sale of the "Beauty Bright" cigarettes, and A. R. Mitchell & Co., and the Boston Cigar and Tobacco Co. were actively pushing and urging the sale of "Beauty Brights" in preference to the A. T. Co.'s goods. Brown, pp. 1321, 1322 and 1376. West, Stone & Co., A. R. Mitchell & Co. and the Boston Cigar and Tobacco Co. were just the same as one concern with branches. All of them were distributing "Beauty Brights" to the detriment of the A. T. Co.'s brands. Brown, p. 1376. Charles McArthur, buying agent for West, Stone & Co., 1893, says that "West, Stone & Co. made an agreement with Mr. Rich- ards of A. R. Mitchell & Co., under which they, West, Stone & Co., were to have the sole and exclusive agency of the goods (Beauty Brights) for the city of Springfield, and in consideration they were to push the goods to the exclusion of all others and receive an extra bonus of 5 per cent." He further says that he was one of the sales- men and knows that they did push Beauty Bright goods to the ex- clusion of all other paper cigarettes for a time. That he did it him- self (pp. 1777-1779). Total, 2. Total revocations for handling other goods, 36. LIST OF CONSIGNEES OR DEALERS WHO TESTIFIED THAT THEY WERE NOT ALLOWED TO SELL OPPOSITION GOODS UNDER THE CONSIGNMENT AGREEMENT, BUT WERE NOT CUT OFF. Hobart J. Park, of Park and Tilford, says that this firm at one time received upon consignment 25,000 cigarettes from the National 148 Industrial Combinations and Trusts Cigarette and Tobacco Company. That after they began to sell the same, Mr. Butler, secretary of the A. T. Co. called his attention to the sixth clause of the consignment agreement, and said that "if we continue to sell the National cigarettes it would allow them to give us the discount or not as they saw fit on the American To- bacco Company cigarettes; it was a violation of the contract, and we looked at the contract and we sent the goods back" (p. 45). He further said that Mr. Butler did not say anything about refus- ing to sell or consign any other goods if Park & Tilford kept the Na- tional Company's goods (p. 46). Joseph Park says that Mr. Butler gave him to understand that he was violating the contract and that the A. T. Co. could not con- tinue their discount if he handled other than the A. T. Co.'s ciga- rettes or any in competition with them. That he violated their agreement (p. 196). LIST OF THOSE CONSIGNEES WHOSE AGREEMENTS WERE RE- VOKED FOR CUTTING PRICES, AS SHOWN BY THEIR TESTI- MONY AND THAT OF MR. BROWN. Revoked before March 1, 1893. Gilderhouse, Wilfing & Co., St. Louis, Mo., June 6, 1892. Brown, P- 1336- Sussman Brothers, New York city, June n, 1892. Brown, p. 1369. A. F. Cunningham & Co., Philadelphia, Pa., November 21, 1892, Brown, p. 1329; p. 882. Americus Grocery Co., Americus, Ga., December 3, 1892. Brown, p. 297. Total 4. Revoked after March 1, 1893. Henry Berbert, Brooklyn, N. Y., May 26, 1893 and June 19, 1893. Brown, p. 1315; Burbert, 1 pp. 358-359. S. Benjamin, Brooklyn, N. Y., June 16, 1893. Brown, p. 1316. A. & W. Diamond, New York city, June 19, 1893 and June 18, 1894. Brown, p. 1334; Arnold Diamond, pp. 435, 436, 438, 439. M. H. Rieders, New York city, June 19, 1893 and June 18, 1894. Brown, p. 1364; Rieders, pp. 383-385, 387, 388. 1 Thus in original. — Ed. Factors' Agreements 149 B. Berschatsky, Brooklyn, N. Y., June 19, 1893 and June 18, 1894. Brown, p. 1312; Berschatsky, pp. 444, 445, 448. I. Jackson, New York city, June 20, 1893 and July 20, 1893. Brown, p. 1339. Exhibit 8 dr. miles medical company v. john d. park & sons COMPANY ! The complainant Dr. Miles Medical Company, an Indiana corporation, is engaged in the manufacture and sale of proprietary medicines, prepared by means of secret methods and formulas and identified by distinctive packages, labels and trade-marks. It has established an extensive trade throughout the United States and in certain foreign countries. It has been its practice to sell its medi- cines to jobbers and wholesale druggists who in turn sell to retail druggists for sale to the consumer. In the case of each remedy, it has fixed not only the price of its own sales to jobbers and wholesale dealers, but also the wholesale and retail prices. The bill alleged that most of its sales were made through retail druggists and that the demand for its remedies largely depended upon their good will and commendation, and their ability to realize a fair profit; that certain retail establishments, particularly those known as depart- ment stores, had inaugurated a "cut-rate" or "cut-price" system which had caused "much confusion, trouble and damage" to the complainant's business and "injuriously affected the reputation" and "depleted the sales" of its remedies; that this injury resulted " from the fact that the majority of retail druggists as a rule cannot, or believe that they cannot realize sufficient profits" by the sale of the medicines "at the cut-prices announced by the cut-rate and department stores", and therefore are "unwilling to, and do not keep" the medicines "in stock" or "if kept in stock", do not urge or favor sales thereof, but endeavor to foist off some similar remedy or substitute, and from the fact that in the public mind an article advertised or announced at 'cut' or 'reduced' price from the es- tablished price suffers loss of reputation and becomes of inferior value and demand." It was further alleged that for the purpose of protecting "its trade sales and business" and of conserving "its good will and repu- 1 220 U. S. 373. 150 Industrial Combinations and Trusts tation" the complainant had established a method "of governing, regulating and controlling the sale and marketing "of its remedies, which is thus described in the bill: "Contracts in writing were required to be executed by all jobbers and wholesale druggists to whom your orator sold its aforesaid remedies, medicines and cures, of the following tenor and effect: " Consignment Contract — Wholesale. "The Dr. Miles Medical Company. "This agreement made by and between the Dr. Miles Medical Company, a corporation, of Elkhart, Indiana, hereafter referred to as the Proprietor, and hereinafter referred to as the Consignee, Witnesseth: "That the said Proprietor hereby appoints said Consignee one of its Wholesale Distributing Agents, and agrees to consign to such Consignee for sale for the account of said Proprietor such goods of its manufacture as the Proprietor may deem necessary, the title thereto and property therein to be and remain in the Proprietor absolutely until sold under and in accordance with the provisions hereof, and all unsold goods to be immediately returned to said Proprietor on demand and the cancellation of this agreement. Said goods to be invoiced to consignee at the following prices: "Medicines, of which the retail price is $1.00; $8.00 per dozen. " Medicines (if any) of which the retail price is 50 cents; $4.00 per dozen. "Medicines, of which the retail price is 25 cents: $2.00 per dozen. "Freight on all orders, the invoice price of which amounts to $100.00 or more, to be prepaid by the Proprietor; otherwise, freight to be paid by Consignee. "Said Consignee agrees to confine the sale of all goods and prod- ucts of the said Proprietor strictly to and to sell only to the desig- nated Retail Agents of said Proprietor as specified in lists of such Retail Agents furnished by said Proprietor and alterable at the will of said Proprietor, and to faithfully and promptly account and pay to the Proprietor the proceeds of all sales, after deducting as full compensation for all services, charges and disbursements a com- mission of ten per cent of the invoice value, and a further com- mission of five per cent on the net amount of each consignment, after deducting the said ten per cent commission, on all advances on account remitted within ten days from date of any consignment, it being agreed between the parties hereto that such advances shall Factors' Agreements 151 in no manner affect the title to such goods, which title shall remain in the Proprietor as if no such advances has been made; provided that such advances shall be repaid to said Consignee should the said Proprietor terminate this agreement and the return of any un- sold goods on which advances have been made. Said Consignee guarantees the payment for all goods sold under this agreement and agrees to render a full account and remit the net proceeds on the first day of each month of and for the sales of the month preceding. Failure to make such accounting and remittance within ten days from the first of each month shall render the whole account payable and subject to draft, but the proceeds of such draft shall not affect the title of any unsold goods, which shall remain in the Proprietor until actually sold, as herein provided. "It is further agreed that the Consignee shall furnish the Pro- prietor from time to time upon demand full statements of the stock of goods of the Proprietor on hand on any date specified and that a failure to furnish such statements within ten days from date of such demand shall be a sufficient cause for the cancellation of this agree- ment, and a demand for the return of the consigned goods. "It is further agreed that the Proprietor will cause each retail package of its goods to be identified by a number and said Consignee hereby agrees to furnish the said Proprietor full reports upon proper cards or blanks furnished by said Proprietor of the disposition of each dozen or fraction of such goods by means of the identifying numbers, specifying the names and addresses of the Retail Agents to whom such goods have been delivered and the dates of such delivery, and to send such reports to said Proprietor at least semi- monthly, and at any other time on the request of said Proprietor. "It is understood and agreed between the parties hereto that the commissions herein specified shall not be considered as earned by said Consignee upon any goods of said Proprietor which shall have been delivered to dealers not authorized agents of said Pro- prietor, as per list of such agents, or upon any goods whose disposi- tion by said Consignee shall not have been properly reported as herein provided, or sold at prices less than the prices authorized, and that said Consignee shall not credit any such commissions when making remittances on consignment account provided notice has been given by said Proprietor that such commissions are unearned; and that if such unearned commissions have been deducted by said Consignee in making advance payments or monthly remittances on account they shall be charged back to said Consignee and credited 152 Industrial Combinations and Trusts and paid to said Proprietor. It is understood that violation or nonobservance of any provision hereof by the Consignee shall make this agreement terminable and all unsold goods returnable at the option of the Proprietor. "It is agreed that the goods of said Proprietor shall be sold by said Consignee only to the said Retail or Wholesale Agents of said Proprietor, as per list furnished, at not less than the following prices, to-wit: "Medicines, of which the retail price is $1.00; $8.00 per dozen "Medicines (if any) of which the retail price is 50 cents; $4.00 per dozen. "Medicines, of which the retail price is 25 cents; $2.00 per dozen. "Provided, that said Consignee may allow a cash discount not exceeding one per cent, if paid within ten days from date of invoice, and that when sales at one time and at one invoice, amount to $15.00 or more, the said Consignee may allow three per cent trade discount, and if said purchase amounts to $50.00 or more, five per cent trade discount, all without cost to the Proprietor, and if such $50.00 quantity shall be shipped direct to the retail purchaser from the laboratory of said Proprietor, on the order from said Wholesale Distributing Agent, freight will be prepaid by the Proprietor, but not otherwise. "This contract will take effect when the original, duly signed by the Consignee, has been received and accepted by The Dr. Miles Medical Company, at Elkhart, Indiana. "Done under our hands , A. D. 1907. "Fill in date on above line. "the dr. miles medical company. " , Wholesale Dealer. "Sign your name on above line. "Original. Return in Enclosed Envelope." "And written contracts were required with all retailers of your orator's said proprietary remedies, medicines and cures, as follows: "Retail Agency Contract. "The Dr. Miles Medical Company. "This agreement between The Dr. Miles Medical Company of Elkhart, Indiana, and , of "Retailer's Name on above line. Town. State, "hereinafter referred to as Retail Agent, witnesseth: Factors' Agreements 153 "Appointed Agent. "The said Dr. Miles Medical Company hereby appoints said Re- tail Dealer as one of the retail distributing agents of its Proprietary Medicines and agrees that said Retail Agent may purchase the Proprietary Medicines manufactured by said Dr. Miles Medical Company (each retail package of which the said Company will cause to be identified by a number) at the following prices, to wit: "Wholesale Prices. "Medicines, of which the retail price is $1.00; $8.00 per dozen. "Medicines, of which the retail price is 50 cents; $4.00 per dozen. "Medicines, of which the retail price is 25 cents; $2.00 per dozen. "Quantity Discount. "Provided that when purchases at one time and on one invoice amount to $15.00 (or more), Wholesale Distributing Agents are authorized to allow 3 per cent trade discount; if such purchase amounts to $50.00 (or more) 5 per cent trade discount will be al- lowed, and if such $50.00 quantity be shipped direct to the pur- chaser from the laboratory of said Dr. Miles Medical Company for the account of such Wholesale Agent, freight will be prepaid, but not otherwise. "Full Price. "In consideration whereof said Retail Agent agrees in no case to sell or furnish the said Proprietary Medicines to any person, firm or corporation whatsoever, at less than the full retail price as printed on the packages, without reduction for quantity; and said Retail Agent further agrees not to sell the said Proprietary Medicines at any price to Wholesale or Retail dealers not accred- ited agents of the Dr. Miles Medical Company. " Violation. "It is further agreed between the parties hereto that the giving of any article of value, or the making of any concession by means of trading stamps, cash register coupons, or otherwise, for the pur- pose of reducing the price above agreed upon shall be considered a violation of this agreement, and further it is agreed between the parties hereto that Dr. Miles Medical Company will sustain dam- 154 Industeial Combinations and Trusts age in the sum of twenty-five dollars ($25.00) for each violation of any provision of this agreement, it being otherwise impossible to fix the measure of damage. " This contract will take effect when a duplicate thereof, duly signed by the Retail Agent, has been received and approved by The Dr. Miles Company, at its office at Elkhart, Indiana. "Done under our hands , A. D. 1907. "Fill in date on above line. "the dr. miles medical company, " , Retail Dealer. "Sign your name on above line in ink. "To Retail Dealer; "Paste printed label, giving name and address, that your name may be correctly listed. "Duplicate. Keep for reference." As an aid to the maintenance of the prices thus fixed the company devised a system for tracing and identifying, through serial numbers and cards, each wholesale and retail package of its products. It was alleged that all wholesale and retail druggists, "and all dealers in proprietary medicines," had been given full opportunity, without discrimination, to sign contracts in the form stated, and that such contracts were in force between the complainant "and over four hundred jobbers and wholesalers and twenty-five thou- sand retail dealers in proprietary medicines in the United States." The defendant is a Kentucky corporation conducting a wholesale drug business. The bill alleged that the defendant had formerly dealt with the complainant and had full knowledge of all the facts relating to the trade in its medicines; that it had been requested, and refused, to enter into the wholesale contract required by the complainant; that in the city of Cincinnati, Ohio, where the defend- ant conducted a wholesale drug store, there were a large number of wholesale and retail druggists who had made contracts, of the sort described, with the complainant, and kept its medicines on sale pursuant to the agreed terms and conditions. It was charged that the defendant, "in combination and conspiracy with a number of wholesale and retail dealers in drugs and proprietary medicines, who have not entered into said wholesale and retail contracts" re- quired by the complainant's system and solely for the purpose of selling the remedies to dealers "to be advertised, sold and marketed at cut-rates," and " to thus attract and secure custom and patronage for other merchandise, and not for the purpose of making or re- Factors' Agreements 155 ceiving a direct money profit" from the sales of the remedies, had unlawfully and fraudulently procured them from the complainant's "wholesale and retail agents" by means "of false and fraudulent representations and statements, and by surreptitious and dishonest methods, and by persuading and inducing, directly and indirectly," a violation of their contracts. It is further charged that the defendant, having procured the remedies in this manner, had advertised and sold them at less than the jobbing and retail prices established by the complainant; and that for the purpose of concealing the source of supply the identi- fying serial numbers, which had been stamped upon the labels and cartons, had been obliterated by the defendant or by those acting in collusion w T ith the defendant, and the labels and cartons had been mutilated thus rendering the list of ailments and directions for use illegible, and that the remedies in this condition were sold both to the wholesale and retail dealers and ultimately to buyers for use at cut rates. Mr. Justice Hughes, after making the above statement, de- livered the opinion of the court. The complainant, a manufacturer of proprietary medicines which are prepared in accordance with secret formulas, presents by its bill a system, carefully devised, by which it seeks to maintain cer- tain prices fixed by it for all the sales of its products both at whole- sale and retail. Its purpose is to establish minimum prices at which sales shall be made by its vendees and by all subsequent purchasers who traffic in its remedies. Its plan is thus to govern directly the entire trade in the medicines it manufactures, embracing interstate commerce as well as commerce within the States respectively. To accomplish this result it has adopted two forms of restrictive agree- ments limiting trade in the articles to those who become parties to one or the other. The one sort of contract known as "Consignment Contract — Wholesale," has been made with over four hundred job- bers and wholesale dealers, and the other, described as "Retail Agency Contract" with twenty-five thousand retail dealers in the United States. The defendant is a wholesale drug concern which has refused to enter into the required contract, and is charged with procuring medicines for sale at " cut prices" by inducing those who have made the contracts to violate the restrictions. The complainant invokes 156 Industrial Combinations and Trusts the established doctrine that an actionable wrong is committed by one who maliciously interferes with a contract between two parties and induces one of them to break that contract to the injury of the other and that, in the absence of an adequate remedy at law, equi- table relief will be granted. Angle v. Chicago, St. Paul, Minneapolis & Omaha Railway Co., 151 U. S. 1; Bittermanv. Louisville & Nash- ville Railroad, 207 U. S. 205. The principal question is as to the validity of the restrictive agreements. Preliminarily there are opposing contentions as to the construc- tion of the agreements, or at least of that made with jobbers and wholesale dealers. The complainant insists that the "consignment contract" contemplates a true consignment for sale for account of the complainant, and that those who make sales under it are the complainant's agents and not its vendees. . . . There are certain allegations in the bill which do not accord with the complainant's argument. Thus it is alleged that it "has been and is the uniform custom" of the complainant "to sell said medi- cines, remedies and cures to jobbers and wholesale druggists, who in turn sell and dispose of the same to retail druggists for sale and distribution to the ultimate purchaser or consumer." And in set- ting forth the form of the agreement in question it is alleged that it was "required to be executed by all jobbers and wholesale drug- gists to whom your orator sold its aforesaid remedies, medicines and cures." .... The other form of contract, adopted by the complainant, while described as a "retail agency contract," is clearly an agreement looking to sale and not to agency. The so-called "retail agents" are not agents at all, either of the complainant or of its consignees, but are contemplated purchasers who buy to sell again, that is, retail dealers. It is agreed that they may purchase the medicines manufactured by the complainant at stated prices It will be noticed that the "retail agents" are not forbidden to sell either to wholesale or retail dealers if these are "accredited agents" of the complainant, that is if the dealers have signed either of the two contracts the complainant requires. But the restriction is intended to apply whether the retail dealers have bought the Factors' Agreements 157 goods from those who held under consignment or from other dealers, wholesale or retail, who had purchased them. And in which way the "retail agents" who supplied the medicines to the defendant, had bought them is not shown. The bill asserts complainant's "right to maintain and preserve the aforesaid system and method of contracts and sales adopted and established by it." It is, as we have seen, a system of interlock- ing restrictions by which the complainant seeks to control not merely the prices at which its agents may sell its products, but the prices for all sales by all dealers at wholesale or retail, whether pur- chasers or subpurchasers, and thus to fix the amount which the consumer shall pay, eliminating all competition But it is insisted that the restrictions are not invalid either at common law or under the act of Congress of July 2, 1S90, c. 647, 26 Stat. 209, upon the following grounds, which may be taken to embrace the fundamental contentions for the complainant: (1) That the restrictions are valid because they relate to proprietary medicines manufactured under a secret process; and (2) that, apart from this, a manufacturer is entitled to control the prices on all sales of his own products. First: The first inquiry is whether there is any distinction, with respect to such restrictions as are here presented, between the case of an article manufactured by the owner of a secret process and that of one produced under ordinary conditions. The complainant urges an analogy to rights secured by letters patent But whatever rights the patentee may enjoy are derived from statutory grant under the authority conferred by the Constitution. This grant is based upon public considerations. The purpose of the patent law is to stimulate invention by protecting inventors for a fixed time in the advantages that may be derived from exclusive manufacture, use and sale The complainant has no statutory grant. So far as appears, there are no letters patent relating to the remedies in question. The complainant has not seen fit to make the disclosure required by the statute and thus to secure the privileges it confers. Its case lies outside the policy of the patent law, and the extent of the right which that law secures is not here involved or determined. 158 Industrial Combinations and Trusts Second. We come, then, to the second question, whether the complainant, irrespective of the secrecy of its process, is entitled to maintain the restrictions by virtue of the fact that they relate to products of its own manufacture. The basis of the argument appears to be that, as the manufac- turer may make and sell, or not, as he chooses, he may affix condi- tions as to the use of the article or as to the prices at which pur- chasers may dispose of it. The propriety of the restraint is sought to be derived from the liberty of the producer. But because a manufacturer is not bound to make or sell, it does not follow that in case of sales actually made he may impose upon purchasers every sort of restriction Nor can the manufacturer by rule and notice, in the absence of contract or statutory right, even though the restriction be known to purchasers, fix prices for future sales. It has been held by this court that no such privilege exists under the copyright statutes, although the owner of the copyright has the sole right to vend copies of the copyrighted production. Bobbs-Merrill Co. v. Straus, 210 U. S. 339. . . Whatever right the manufacturer may have to project his control beyond his own sales must depend, not upon an inherent power incident to production and original ownership, but upon agreement. The present case is not analogous to that of a sale of good will, or of an interest in a business, or of the grant of a right to use a process of manufacture. The complainant has not parted with any interest in its business or instrumentalities of production. It has conferred no right by virtue of which purchasers of its products may compete with it. It retains complete control over the busi- ness in which it is engaged, manufacturing what it pleases and fixing such prices for its own sales as it may desire. Nor are we dealing with a single transaction, conceivably unrelated to the public interest. The agreements are designed to maintain prices, after the complainant has parted with the title to the articles, and to prevent competition among those who trade in them. But agreements or combinations between dealers, having for their sole purpose the destruction of competition and the fixing of prices, are injurious to the public interest and void. They are not Factors' Agreements 159 saved by the advantages which the participants expect to derive from the enhanced price to the consumer The complainant's plan falls within the principle which condemns contracts of this class. It, in effect, creates a combination for the prohibited purposes. No distinction can properly be made by reason of the particular character of the commodity in question. It is not entitled to special privilege or immunity. It is an article of commerce and the rules concerning the freedom of trade must be held to apply to it. Nor does the fact that the margin of freedom is reduced by the control of production make the protection of what remains, in such a case, a negligible matter. And where commodities have passed into the channels of trade and are owned by dealers, the validity of agreements to prevent competition and to maintain prices is not to be determined by the circumstance whether they were produced by several manufacturers or by one, or whether they were previously owned by one or by many. The complainant having sold its product at prices satisfactory to it- self, the public is entitled to whatever advantage may be derived from competition in the subsequent traffic. CHAPTER VIII INTERNATIONAL AGREEMENTS NOTE Comparatively speaking, international agreements have been rare in the combination and trust movement. On this account, if for no other reason, those that have been made are of peculiar interest. It is a rather remarkable coincidence that the two most famous international agreements should have been brought into being by identical sets of circumstances. In the case of the tobacco combi- nation, the American manufacturers invaded the territory across the water. In the case of the explosives trade, the situation was exactly the reverse, and the foreign companies were the aggressors. In each case, the outcome was the adoption of an international agreement, drafts of which are given below. In the nineties the American Tobacco Company established a depot in London, England. In 1901, this company with a view to purchase, opened negotiations with Ogden's (Limited), one of the largest tobacco concerns in Great Britain. By the end of September of that year substantially all the outstanding stock of Ogden's had been acquired. This purchase alarmed the British Manufacturers, and thirteen of the largest concerns in England united to form the Imperial Tobacco Company. This organization began an active campaign to check the invasion inaugurated by the American Tobacco Company, and threatened, as a part of their program, to invade the territory on our side of the Atlantic. The upshot of the matter was an agreement, embodied in two documents, which was made on September 27, 1902. In 1897, certain foreign manufacturers of black powder, detona- tors and high explosives, began the erection of factories in James- burg, N. J. intending to enter into competition with the explosives combination which at that time existed in the United States. Representatives of the latter visited Europe, toward the close of 1897, and began negotiations with the foreign manufacturers who 160 International Agreements 161 had begun factories in the United States. A draft of an agreement embodying the result of these negotiations was ratified by the American Companies. This agreement has been variously styled the London Agreement, Jamesburg Agreement, International Agreement, and European Agreement. It was dated October 26, 1907, and is probably the most interesting single document among the many which the industrial combination and trust movement has produced. Another international agreement that has only recently come to light is the A. J. A. G. Agreement in the alumi- num trade, excerpts from which form the fourth exhibit of this chapter. — Ed. Exhieit 1 agreement of the american tobacco company interests and the imperial tobacco company, limited, relative to the limitation of the sphere of the operation of each, and the transfer of ogden's limited x An agreement made the twenty-seventh day of September, one thousand nine hundred and two, between Ogden's Limited, being a company duly incorporated under English law (hereinafter re- ferred to as the "Ogden Company"), of the first part; The Ameri- can Tobacco Company, a corporation organized and existing under and by virtue of the laws of the State of New Jersey, one of the States of the United States, of America (hereinafter referred to as the "American Company"), of the second part; Continental Tobacco Company, a corporation organized and existing under and by virtue of the laws of the said State of New Jersey (herein- after referred to as the " Continental Company"), of the third part; American Cigar Company, a corporation organized and existing under and by virtue of the laws of the said state of New Jersey (hereinafter referred to as the "Cigar Company"), of the fourth part; Consolidated Tobacco Company, a corporation organized and existing under and by virtue of the said laws of the said State of New Jersey (hereinafter referred to as the "Consolidated Com- pany"), of the fifth part; British Tobacco Company, Limited, being a company incorporated under English law (hereinafter referred to as the "British Company"), of the sixth part; and the Imperial Tobacco Company (of Great Britain and Ireland), Lim- 1 Report of the Commissioner of Corporations on the Tobacco Industry, Exhibit No. 1, Part I, pp. 431 ff. 1 62 Industrial Combinations and Trusts ited, a corporation incorporated under English law (hereinafter referred to as the "Imperial Company"), of the seventh part. 14. Each of the parties hereto of the first six parts for itself and not the one for any others agrees and shall covenant with the Im- perial Company that the covenanting party will not at any time after the transfer day, except as hereinafter expressly excepted, either solely or jointly with any other person or persons, company or companies, directly or indirectly carry on or be employed, en- gaged, or concerned, or interested in the business in the United Kingdom of a tobacco manufacturer, or in any dealing in tobacco or its products therein, or sanction the use of its name in connec- tion with any such business therein, save so far as the covenanting company, shall, as a member of the Imperial Company or as a mem- ber of any company manufacturing cigars in the United States or of any other companies formed or to be formed with the concur- rence of the Imperial Company, be interested in the business thereof, or through, or in connection with the Imperial Company, as hereinafter provided. The said covenanting parties will procure the following directors or some or one of them, namely, James Buchanan Duke, Benjamin Newton Duke, Thomas Fortune Ryan, John Blackwell Cobb, Williamson Whitehead Fuller, William Rees Harris, Percival Smith Hill, and Caleb Cushing Dula, and will, respectively, use their best endeavors to procure such other direc- tors as shall be required by the Imperial Company to enter into a covenant with the Imperial Company similar to that referred to in the preceding part of this clause. 15. The Imperial Company similarly agrees and shall covenant with the American Company, the Continental Company, the Cigar Company, and the Consolidated Company, that the Imperial Company will not at any time after the transfer day, except as hereinafter expressly excepted, either solely or jointly, with any other person or persons, company or companies, directly or indi- rectly, carry on or be employed, engaged, concerned, or interested in the business in the United States of a tobacco manufacturer or in any dealing in tobacco or its products therein, or sanction the use of its name in connection with any such business therein save as far as the Imperial Company shall, as a member of any other company formed or to be formed with the concurrence of the Ameri- can Company, the Continental Company, the Cigar Company, or International Agreements 163 the Consolidated Company, be interested in the business thereof, and save and except that the Imperial Company shall be at liberty to buy and treat tobacco leaf and other materials in the United States for the purpose of its business, and save and except such business as shall be carried on through or in connection with the American Company, the Continental Company, the Cigar Com- pany, or the Consolidated Company as hereinafter provided, the Imperial Company will procure the following of its directors, viz., Sir William Henry Wills, Henry Overton Wills, Sir Edward Payson Wills, Sir Frederick Wills, George Alfred Wills, Henry Herbert Wills, Walter Melville Wills, Charles Edward Lambert, John Dane Player, Walter Butler, William Goodacre Player, and William Ruddell Clarke, and will use its best endeavors to procure such other of its directors as shall be required by the American Company, the Continental Company, the Cigar Company, and the Consoli- dated Company to enter into a covenant similar to that referred to in the preceding part of this clause. 16. Forthwith, or as soon as may be after the transfer day, the Imperial Company shall duly appoint to its board three (3) direc- tors, nominated by the Ogden Company, subject to their acquiring the necessary qualifications, and the directors so appointed shall be reelected at the next ordinary general meeting and shall be classi- fied so that only a due proportion of them shall retire in each year. 17. The export business of the Ogden Company hereinbefore excluded from the operation of this contract is to be the subject of an agreement entered into contemporaneously with this agree- ment, and providing for the transfer to a separate company of the export business from the United Kingdom (except to the United States) not only of the Ogdens Company, but also of the Imperial Company and of Salmon & Gluckstein, Limited, and the export business from the United States of the American Company, the Continental Company, and the Cigar Company (except to the United Kingdom), which agreement has been already prepared and is executed contemporaneously with this agreement. For the pur- pose of construing this agreement the export business of the said several companies shall be deemed to be herein defined in the same manner as in the said contemporaneous agreement. The " United Kingdom" and the "United States" are also, respectively, to be deemed to be defined as defined in the same agreement. 18. From and after the date of transfer, subject to agreements already existing between the Imperial Company and its present 164 Industrial Combinations and Trusts agents, neither the Imperial Company nor Salmon & Gluckstein, Limited, shall sell or consign any tobacco products to any person, firm, or company within the United States except the American Company, or persons or companies designated by it, and on the other hand the American Company, the Continental Company, and the Cigar Company, and the Consolidated Company, respec- tively, shall not sell or consign any tobacco products to any person, firm, or company in the United Kingdom except the Imperial Com- pany, or any persons or companies designated by it, the intention being that the American Company or its nominees shall be the sole customer of the Imperial Company and of Salmon & Gluckstein, Limited, in the United States, and that the Imperial Company or its nominees shall be the sole customer of the American Company, the Continental Company, and the Cigar Company in the United Kingdom. None of the parties shall sell any tobacco products to any person, firm, or company whom they have reason to believe will export the same to the territory in which the seller has agreed not to sell such goods as herein provided. 19. For American goods sold to the Imperial Company or its nominees for sale in the United Kingdom in pursuance of the pre- ceding clause the Imperial Company shall pay the cost of manu- facture and packing of such goods (but not including any expenses of advertising and selling) plus ten per cent (10 per cent), and shall also pay freights, customs charges and duties, and for goods of the Imperial Company and of Salmon & Gluckstein, Limited, sold by them to the American Company, the Continental Com- pany, or the Cigar Company, for sale within the United States, the American Company, the Continental Company, or the Cigar Com- pany, as the case may be, shall pay the cost of the manufacture and packing thereof (but not including any expenses of advertising or selling) plus ten per cent (10 per cent), and shall also pay freights, customs charges, and duties. In all cases of sales under this clause the invoices of the respective vendors shall be final and binding as to cost. The Imperial Company shall be empowered by the American Company and the Continental Company to manufacture their brands within the United Kingdom for sale therein, and the Ameri- can Company, the Continental Company, and the Cigar Company shall be empowered to manufacture the brands of the Imperial Com- pany in the United States for sale therein, and each party shall manufacture the brands of the other party upon recipes and form- ula? to be supplied by the other. International Agreements 165 20. As early as practicable and subject to existing contracts and obligations of the companies manufacturing and selling the cigars and cigarettes hereinafter referred to, the American Company, the Continental Company, and the Cigar Company will appoint or procure the appointment of the Imperial Company sole agent for the sale within the United Kingdom of Havana and Porto Rico cigars and Havana and Porto Rico cigarettes directly or indirectly controlled by the American Company, the Continental Company, and the Cigar Company, and such agency shall be upon the terms of the Imperial Company receiving a net commission of seven and one-half per cent (7-} 2 P er cent) upon the Havana and Porto Rico prices, respectively, and being allowed three months' credit for pay- ment of the invoice prices less such 7-^2 per cent and the Havana and Porto Rico prices charged the Imperial Company shall, from time to time and at all times, be as low as the prices charged by the American Company, the Continental Company, and the Cigar Company, or parties controlled by them, for similar cigars and cigarettes sold to their most-favored customers, subject only to the exception that if at any time the prices of cigars or cigarettes sold to any country not affecting British trade shall be temporarily reduced for the purposes of competition, such local and temporary reduction is not to be taken into account for the purpose of fixing the price of cigars and cigarettes sold to the Imperial Company. If and so far as the control of any other cigar trade not hereinbefore provided for is now possessed or shall be acquired by the American Company, the Continental Company, and the Cigar Company, or any of them, a similar agency is to be given to the Imperial Com- pany in respect thereof. The Imperial Company shall not (except to complete any other contract already made) handle or sell any other Havana or Porto Rico cigars and cigarettes than those of the American Company, the Continental Company, and the Cigar Company, for which the Imperial Company holds the aforesaid agency, and a similar provision shall apply to any other cigars or cigarettes for which the aforesaid agency may be hereafter granted, and the Imperial Company shall use its best efforts and endeavors to promote and enlarge the sales of all such cigars and cigarettes within the United Kingdom, and provided the Imperial Company maintains a sale of the Havana cigars or cigarettes included in the agency hereinbefore provided for equal to not less than seventy- two per cent (72 per cent) of the total annual importations into the United Kingdom, duty paid, of cigars and cigarettes made in 166 Industrial Combinations and Trusts Cuba, the American Company, and the Cigar Company, and the Continental Company shall not be entitled to call in question the efforts and endeavors of the Imperial Company hereinbefore re- quired: Provided always, That the percentage to be maintained by the Imperial Company shall be ascertained upon the average of three years. The Imperial Company shall sell the cigars and ciga- rettes from time to time falling within the said agency at prices not exceeding their cost to the Imperial Company with the addition of freights, railway charges, packages, customs duties, and custom charges, and the said commission of 7-^2 per cent. The American Company, the Continental Company, and the Cigar Company will not knowingly supply cigars or cigarettes to be transshipped or indirectly imported into the United Kingdom. The aforesaid proportion of 72 per cent has been based upon the belief and as- sumption that the parties hereto of the second, third, fourth, and fifth parts or some or one of them control or will shortly control not less than 80 per cent of the aforesaid annual importation, and if it shall hereafter appear that the proportion thereof actually con- trolled by the said parties is less than 80 per cent, then in such case the said proportion of 72 per cent shall be correspondingly re- duced. 21. The Imperial Company shall cause Salmon & Gluckstein, Limited, and A. I. Jones & Company, Limited, and any other com- panies, firms, or persons from time to time controlled by it (subject to the performance of any prior contracts) , to purchase their cigars of any brands comprised in the said agency through the Imperial Company as agent under the last preceding clause. 22. The American Company, the Continental Company, the Cigar Company, and the Consolidated Company, together with their directors, entering into the covenant aforesaid, are to give to the Imperial Company in the United Kingdom the full benefit of their good will and support, and on the other hand the Imperial Company, together with its directors, entering the covenant afore- said, are to give the American Company, the Continental Company, and the Cigar Company in the United States the full benefit of their good will and support, and with a view to giving further ef- fect to the intention of the parties as in this clause hereinbefore expressed the allottees of the said 1,500,000 ordinary shares of the Imperial Company are not to sell or transfer more than 10 per cent of the said shares within the period of five (5) years from the date of their allotment, if and so long as the present directors of International Agreements 167 the Imperial Company, or some of them, shall hold not less than 3,000,000 ordinary shares of the Imperial Company. 23. This agreement is to be construed and take effect as a con- tract made in England and in accordance with the law of England, but to the intent that any of the parties may sue in its own country. The Imperial Company is always to have an agent for service in the United States, and each of them, the American Company, the Con- tinental Company, the Cigar Company, and the Consolidated Com- pany, is always to have an agent for service in England, and service of any such agent of any notice, summons, order, judgment, or other process or document in respect of this agreement, or any mat- ter arising thereout, shall be deemed to be good service on the party appointing such agent, and as regards each of the said parties whilst and whenever there is no other agent the following shall be considered to be the agents of the respective parties duly appointed under this clause, namely: For the Imperial Company, Samuel Untermeyer, of New York City, American counsel; and for the American Company, the Continental Company, the Cigar Com- pany, and the Consolidated Company, Joseph Hood, 41 Castle street, Liverpool, solicitor. Notice of any appointment under this clause shall be from time to time given by the appointor to the other parties hereto. The mode of service sanctioned by this clause is not in any way to prejudice or preclude any mode of service which would be allowable if this clause were omitted. 24. So far as it is necessary for the purpose of making the issue of ordinary shares hereinbefore mentioned the Imperial Company shall forthwith take the necessary steps for increasing its capital by the creation of an adequate number of ordinary shares (half pre- ferred and half deferred) which shall rank pari passu with and shall be of the same respective classes and confer the same rights and privileges as the 5,000,000 preferred ordinary shares, and the 5,000,000 deferred ordinary shares forming part of the original capital of the Imperial Company. In witness whereof the said parties of the first, second, sixth, and seventh parts have hereunto affixed their common seals, and the said parties of the third, fourth, and fifth parts have executed this agreement under the hand of their respective presidents the day and year first above written. (Signatures). t68 Industrial Combinations and Trusts Exhibit 2 agreement made between the american tobacco company interests and the imperial tobacco company, limited, rel- ative to the control of business by the british-american tobacco company, limited l An agreement made the twenty-seventh day of September, one thousand nine hundred and two, between The Imperial Tobacco Company (of Great Britain and Ireland), Limited, being an Eng- lish company duly incorporated under English law (hereinafter referred to as the "Imperial Company"), of the first part; Ogden's Limited, also being a company incorporated under English law (hereinafter referred to as the "Ogden Company"), of the second part; The American Tobacco Company, a corporation organized and existing under and by virtue of the laws of the State of New Jersey, one of the States of the United States of America (here- inafter referred to as the "American Company"), of the third part; Continental Tobacco Company, a corporation organized and existing under and by virtue of the laws of the said State of New Jersey (hereinafter referred to as the "Continental Company"), of the fourth part; American Cigar Company, a corporation or- ganized and existing under and by virtue of the laws of the said State of New Jersey (hereinafter referred to as the "Cigar Com- pany"), of the fifth part; Consolidated Tobacco Company, a cor- poration organized and existing under and by virtue of the laws of the said State of New Jersey (hereinafter referred to as the "Consolidated Company"), of the sixth part; and Williamson Whitehead Fuller and James Inskip, on behalf of a company in- tended to be formed under the companies' acts, 1862 to 1900, with the name of "British- American Tobacco Company, Limited" (hereinafter referred to as the "British- American Company"), of the seventh part. Whereas the parties hereto of the first five parts now respec- tively carry on business as tobacco manufacturers and other an- cillary businesses, which comprise as to the parties hereto of the first and second parts, businesses carried on within the United Kingdom of Great Britain and Ireland and export businesses as hereinafter defined, and as to the parties hereto of the third, fourth, 1 Report of the Commissioner of Corporations on the Tobacco Industry, Exhibit No. 2, Part 1, pp. 440 ff. International Agreements 169 and fifth parts, businesses carried on within the United States of America, and export businesses as also hereinafter defined, and proposals have been made for amalgamating the said export busi- nesses by transfer thereof to the British- American Company upon the terms and conditions hereinafter expressed. Now therefore it is hereby agreed as follows: 1. In this agreement the words "United Kingdom" mean Great Britain and Ireland and the Isle of Man. The words "United States" mean the United States of America as now constituted — Cuba, Porto Rico, the Hawaiian Islands, and the Philippine Islands. The words "export business" mean the manufacture of and dealing in tobacco and its products in any country or place outside the United Kingdom and the United States and the manufacture of and dealing in tobacco and its products within the United King- dom for export to any other country except the United States, and the manufacture of and dealing in tobacco and its products in the United States (except in Cuba, Porto Rico, the Hawaiian Islands, and the Philippine Islands) for the purpose of export to any other country except the United Kingdom, and the manufacture and selling in the United Kingdom and the United States, respectively, of tobacco to be supplied to ships in port for the purpose of ships' stores. 2. The parties hereto of the first five parts shall sell and the British- American Company shall purchase the export businesses as hereinbefore defined of the parties of the first five parts, and the good will appertaining thereto, which shall include formulae and recipes of preparation, treatment, and manufacture, as well as license to use patent rights, trade-marks, brands, licenses, and other exclusive rights and privileges for the purpose of such ex- port business, and shall also include all stock or shares in com- panies incorporated in countries foreign to the United Kingdom and the United States owned or held by the parties of the first six parts, including all shares of the American Company in Georg A. Jasmatzi Company (of Dresden), and all shares of the Im- perial Company in W. D. & H. O. Wills (Australia), Limited, at the price of two million eight hundred and twenty thousand pounds (£2,820,000), of which two equal third parts, or one million eight hundred and eighty thousand pounds (£1,880,000), shall be pay- able to the Ogden Company, the American Company, the Conti- nental Company, the Cigar Company, and the Consolidated 170 Industrial Combinations and Trusts Company, or some of them, In such proportions as they shall mu- tually agree and as shall be indicated in writing under the hands of their respective presidents or chairmen as the case may be, and one-third, or nine hundred and forty thousand pounds (£940,000), shall be payable to the Imperial Company, and the said prices shall be satisfied by the allotment to the parties entitled thereto of fully paid-up ordinary shares in the British-American Company to be treated as of par value. The said sale and purchase shall take effect as to the Ogden Company on the 30th September, 1902 (hereinafter referred to as "the Ogden transfer day"), and as to the parties hereto of the first, third, fourth, fifth, and sixth parts on the 31st October, 1902 (hereinafter referred to as "the Imperial and American transfer day"). 3. In addition to the ordinary shares by the preceding paragraph agreed to be allotted in payment of the said purchase money, the Imperial Company shall take and pay cash for three hundred thousand (300,000) additional, one-pound ordinary shares, and the American Company, the Continental Company, the Cigar Com- pany, and the Consolidated Company, or some or one of them, shall take and pay cash for six hundred thousand (600,000) ad- ditional one-pound ordinary shares in the British-American Com- pany, Limited, and such shares shall be alloted to such parties at once. 4. The Imperial Company and the Ogden Company will, re- spectively, sell to the British- American Company their several lands, buildings, and hereditaments used as export factories, and the plant and equipment and stock in trade at the date of transfer forming a part of the said export businesses or undertakings, and the American Company, the Continental Company, and the Cigar Company will sell to the British- American Company factories for export business and the plant and equipment and stock in trade at the date of transfer forming a part of the said export businesses or undertakings. The factories of the said respective parties em- ployed for export purposes shall, in the case of the Imperial Com- pany, include the export factory of the Imperial Company formerly belonging to W. D. & H. O. Wills, Limited, at Ashton Gate, Bris- tol, and the land and cottages held therewith; the leasehold export factory formerly belonging to Messrs. Lambert & Butler, Limited, in London; and the tw T o export factories formerly belonging to the Richmond Cavendish Company, Limited, at Liverpool; and the cigarette factory of the Imperial Company formerly belonging International Agreements 171 to W. D. & H. 0. Wills, Limited, at Sydney, in the Commonwealth of Australia. The export factories of the Ogden Company will include the bonded or export factory of the Ogden Company in Cornwallis street, Liverpool, and a factory at Sydney aforesaid. The export factories of the American Company, the Continental Company, and the Cigar Company will include such suitable fac- tories as shall be designated by these companies, or some or one of them, so that the price thereof with their plant and equipment as hereinafter fixed shall not exceed the aggregate price of the fac- tories, land, and cottages with their plant and equipment to be sold by the Imperial Company as before stated. All the said fac- tories and the plant and equipment used in connection with the same are to be taken at the value now standing in the books of the respective vendors thereof, and the stock in trade and materials hereby agreed to be sold are to be taken at cost. The respective values shall be paid by the British- American Company to the respective vendors in cash. As part of the export business and good will to be sold by the Imperial Company to the British- American Company the export business of Salmon & Gluckstein, Limited, shall be included, and the Imperial Company hereby undertakes to procure the transfer of the same to the British-American Com- pany, but this shall not be deemed to include any lands, buildings, or hereditaments. The said export business shall also include all the interest of the Imperial Company in a factory at Shanghai recently purchased by it and or in the American Cigarette Com- pany of Shanghai. 5. The British- American Company shall be entitled to purchase at not exceeding cost thereof to its vendor any export business hereafter acquired by any of the parties hereto of the first six parts, as well as any shares in any companies incorporated in countries foreign to the United Kingdom and the United States acquired by any of said parties, and the export business and the assets em- ployed in such business of any company the control of which shall be hereafter acquired by any of said parties, as well as any shares in companies engaged in export business which may be held by such controlled companies acquired by any of the parties of the first six parts as aforesaid. 6. The British- American Company shall have the right to use in its export business, as hereinbefore defined, any brands and trade-marks now owned or hereafter acquired or adopted by any of the parties hereto of the first six parts. 172 Industrial Combinations and Trusts 7. The sale and purchase of the said export business hereinbe- fore agreed to be made are subject to and with the benefit of all contracts heretofore made by the respective parties hereto of the first six parts, with their agents or other persons interested in the said businesses so far as such contracts are now in force, save and except that if the Imperial Company is under an obligation to buy the shares of G. F. Todman in W. D. & H. O. Wills (Australia), Limited, at any price not approved by the British- American Com- pany, such obligation is not agreed to be undertaken by that com- pany. The Japanese stockholders in Murai Bros. Company, Limited, shall have the right to take from the British-American Company on or before January 1, 1904, by paying par therefor, with interest thereon at the rate of six per cent per annum (less any dividends received) from the date of their purchase by the American Company until payment, all issued stock sold by the American Company to the British- American Company in excess of sixty per cent of the total capital stock of Murai Bros. Company, Limited. 8. The dividends or proportion of dividends upon shares hereby agreed to be sold and the profits of each export business hereby agreed to be sold shall, up to the respective transfer days, belong to the respective vendors of the same. 9. The parties of the first five parts shall, respectively, clear the lands, buildings, and hereditaments hereby agreed to be sold of all mortgages, charges, and other incumbrances, and shall be en- titled to the proceeds of all book debts due to the said parties, respectively, on the respective transfer days, but for a period of three calendar months thereafter the British- American Company shall be authorized on behalf of these respective parties to collect and re- ceive such book debts, and the proceeds shall be from time to time paid over to the parties entitled thereto at the end of every month. 10. The British- American Company shall undertake the ob- servance and performance of all covenants and conditions on the part of the lessee or tenant in any lease of or agreement relating to the lands, buildings, and hereditaments hereby agreed to be sold, and thenceforth on the part of the lessee or tenant to be ob- served and performed, and the British-American Company shall also, as from the same date, undertake the performance of all con- tracts bona fide entered into by the parties of the first five parts in the ordinary course of carrying on their export business and International Agreements i73 particularly applicable thereto, and shall indemnify the parties of the first five parts against all proceedings, claims, and demands in respect thereof. 11. All books of account of the parties of the first and second parts referring solely to the export businesses hereby agreed to be sold, and all books of reference to customers and other books and documents of the said parties relating solely to the said export busi- nesses (except the statutory and minute books, and any other books of a private nature) shall be delivered to the British-American Com- pany upon completion of the purchase, and the British- American Company shall thenceforth be entitled to the custody thereof and to the use thereof for the purpose of carrying on its business, but, nevertheless, the parties of the first and second parts shall have free access at all reasonable times to the said books and documents, or any of them, for any reasonable purpose, and to the temporary use of the same for the purpose of any legal proceedings. The parties of the third, fourth, and fifth parts shall deliver to the British-American Company a list of their respective customers for the export businesses hereby sold and any books used exclusively in connection with such business. 12. The British- American Company shall from the time of any property being at its risk be entitled to the benefit of all current insurances, and the parties of the first five parts shall be entitled to repayment of a proportionate part of the premiums already paid for the unexpired portion of the current year of any policy, and all periodical payments shall be apportioned as from the respective transfer days hereinbefore mentioned. 13. The purchases shall be completed on or before the 1st day of January, 1903, in London, and the consideration for the same shall be paid or satisfied subject to the provisions of this agreement and thereupon and from time to time the parties of the first five parts shall execute and do all such assurances and things for vesting the said premises in the British- American Company and giving to it the full benefit of this agreement as shall be reasonably required. 14. As regards any of the premises subject to mortgages which can not be paid off until after the time of completion, the parties of the first five parts shall, if so desired by the British- American Company, convey the said premises subject to the mortgages affect- ing the same, respectively, and the British-American Company shall retain out of the consideration aforesaid a sum sufficient to pay off and satisfy the claims under such mortgage. 174 Industrial Combinations and Trusts 15. In any and every case where any leaseholds hereby agreed to be sold, are only assignable with the consent of the landlords from whom the same respectively are held, the parties of the first five parts, or such of them as hold such leaseholds, shall use their best endeavors to obtain the requisite consent for the assignment to the British- American Company, and in any case where such consent can not be conveniently obtained the parties of the first five parts or such of them as hold such leaseholds as aforesaid shall execute a declaration of trust in favor of the British-American Company, or otherwise deal with the same as the British-American Company shall direct. 16. The possession of the property hereby agreed to be sold by the Ogden Company shall be delivered to the British- American Company on the Ogden transfer day, and the possession of the properties hereby agreed to be sold by the parties hereto of the first, third, fourth, and fifth parts shall, subject as hereinafter mentioned, be delivered to the British- American Company on the Imperial and American transfer day, but if the said parties of the third, fourth, and fifth parts shall not be able to deliver possession on the last-mentioned transfer day, the said parties shall from such day until delivery of possession carry on and conduct their export business for the benefit of the British- American Company, and shall account to that company for all the profits arising therefrom, but the British- American Company shall pay interest at the rate of five per cent per annum on the purchase money from the transfer day until actual payment. 17. For the purposes of title of the lands, buildings, and heredit- aments hereby agreed to be sold by the parties of the first and second parts, they shall, respectively, be deemed and taken to have entered into this contract with the British- American Company sub- ject to the terms and stipulations of the Liverpool public sale condi- tions so far as the same shall be applicable to a sale byprivate treaty. 18. Each of the parties hereto of the first six parts hereby agrees and shall covenant with the British- American Company that the said covenanting party will not at any time after its transfer day, either solely or jointly with any other person, company, or firm, directly or indirectly, carry on or be employed, engaged, or con- cerned or interested in export business as denned in this agree- ment, except as it may be interested as a member of the British- American Company or of a company formed or to be formed with the concurrence of the British-American Company, and also except International Agreements 175 so far as the parties of the third, fourth, fifth, and sixth parts may be interested as members of companies or firms engaged in export- ing cigars and cigarettes from Cuba, Porto Rico, the Hawaiian Islands, and or the Philippine Islands, and the British American Company hereby agrees and shall covenant with each of the parties hereto of the first six parts that the British-American Company will not at any time hereafter, either solely or jointly with any other person, firm, or company, directly or indirectly, carry on or be employed, engaged, concerned, or interested in the business of a tobacco manufacturer or in any dealing in tobacco or its products except in the manner and within the limits contemplated and authorized by this agreement. 19. The British- American Company will, if and so long as there- unto required by the Imperial Company, manufacture in the United Kingdom such brands as the Imperial Company shall require for sale in the United Kingdom and for export to the United States, to be manufactured in bond, and the Imperial Company shall pay for tobacco manufactured pursuant to this clause the cost of raan- facturing and packing, with an addition of 10 per cent upon such cost, and the Imperial Company shall also pay the duty. 20. This agreement is to be construed and take effect as a con- tract made in England and in accordance with the law of England ; but to the intent that any of the parties may sue in its own country, the Imperial Company is always to have an agent for service in the United States, and each of them, the American Company, the Continental Company, the Cigar Company, and the Consolidated Company, is always to have an agent for service in England, and service on any such agent of any notice, summons, order, judg- ment, or other process or document in respect of this agreement, or any matter arising thereout, shall be deemed to be good service on the party appointing such agent; and as regards each of the said parties whilst and whenever there is no other agent the fol- lowing shall be considered to be the agents of the respective parties duly appointed under this clause, namely: For the Imperial Com- pany, Samuel Untermeyer, of New York City, American counsel, and for the American Company, the Continental Company, the Cigar Company, and the Consolidated Company, Joseph Hood, 41 Castle Street, Liverpool, solicitor. Notice of any appointment under this clause shall be from time to time given by the ap- pointer to the other parties hereto. The mode of service sanc- tioned by this clause is not in any way to prejudice or preclude 176 Industrial Combinations and Trusts any mode of service which would be allowable if this clause were omitted. 21. The validity of this agreement is not to be impeached on the ground that the vendors, as promoters or otherwise, stand in a fiduciary relationship to the British- American Company, and that the directors thereof being interested in the vendors' businesses do not constitute an independent board. Upon the adoption hereof by the British-American Company in such a manner as to render the same binding on that company in favour of the vendors, the said Williamson Whitehead Fuller and James Inskip shall be dis- charged from all liability hereunder. 22. The cost of and incidental to the formation and registration of the British-American Company shall be borne by that company. In witness whereof the said parties of the first, second, and third parts have hereunto affixed their common seals, and the said parties of the fourth, fifth and sixth parts have executed this agreement under the hand of their respective presidents, and the parties of the seventh part have hereunto subscribed their names the day and year first before written. (Signatures.) Exhibit 3 international agreement in the explosives trade ! Agreement made this 26th day of October, 1897, between: Messrs. E. I. Du Pont de Nemours & Co., of Wilmington, Del.; Laflin and Rand Powder Company, of New York City; Eastern Dynamite Company, of Wilmington, Del. ; The Miami Powder Company, of Xenia, Ohio; The American Powder Mills, of Boston, Mass.; The Aetna Powder Company, of Chicago, 111.; The Austin Powder Company, of Cleveland, Ohio; The California Powder Works, of San Francisco, Cal.; The Giant Powder Company, Consolidated, of San Francisco, Cal.; The Judson Dynamite and Powder Company, of San Fran- cisco, Cal.; (hereinafter collectively referred to as "the American Factories") of the one part, and 1 United Stales of America v. E. I. du Pont de Nemours & Co. Government's Exhibit No. 119, Pet. Rec. Exhibits, Vol. 11, pp. 11 23 ff. International Agreements 177 The Vereinigte Koln-Rottweiler Pulverfabriken, of Cologne; The Nobel-Dynamite Trust Company, Limited, of London ; (hereinafter collectively referred to as "the European Factories") of the other part. Whereas the parties hereto own or control a large number of companies and works engaged in the manufacture and trade of explosives, and whereas it has been deemed advisable to make arrangements, so as to avoid anything being done which would affect injuriously the common interest. It Has Therefore been Agreed as Follows: 1. The word "Explosives" in this Agreement is to be under- stood as including detonators, black powder, smokeless sporting powder, smokeless military powder, and high explosives of all kinds. 2. A list of all the companies and factories controlled by the American Factories directly or indirectly is to be prepared and handed by Messrs E. I. Du Pont de Nemours & Co., in duplicate to the European Factories at the time of the execution of this agreement, and the European Factories are to hand to Messrs. E. I. Du Pont de Nemours & Co. a complete list of the Companies controlled by them directly or indirectly when executing this Agree- ment. Should the period of control which any of the parties have over any company or factory be fixed by contract for a shorter time than the duration of this present Agreement, that fact shall be stated on such list, and it is understood that in the event of any renewal of such arrangement in such a manner as to extend the control over the period of the present Agreement, the Com- panies in question shall be bound to adhere to the terms hereof. The American Factories and the European Factories shall be bound to stipulate adherence to the present Agreement on the part of all and any Companies or Factories over which they now have control or may directly or indirectly obtain control during the continuance of this Agreement. 3. Regarding Detonators it is agreed that the European Fac- tories shall abstain from erecting detonator works in the United States of North America. The works which are building at James- burg, New Jersey, are not to be completed, and the whole scheme as worked out by Mr. Miiller is to be abandoned. In consideration of this scheme being abandoned and the erection of the works being 178 Industrial Combinations and Trusts stopped, the American Factories undertake to bear all expenses hitherto incurred in connection therewith, and they will, more- over, discharge the obligations which Mr. Muller has undertaken in connection with the above-mentioned scheme, with regard to which obligations a special subsidiary Agreement is to be made. And it is moreover agreed that the American Factories shall order and take from the European Factories, i. e., from The Rhenish Westphalian Sprengstoff A. G. every year 5,000,000 Detonators at the following prices, viz.: — M. 11 for No. 3, M. 12 for No. 3 rim, M. 13 for No. 4, M. 15.50 for No. 5, M. 16.50 for No. 5 rim, M. 20 for No. 6, and M. 21 for No. 6 rim, all these prices to be understood per 1,000 ex ship New York without duty. 4. As regards Black Powder the American Factories bind them- selves not to erect factories in Europe, and the European Factories bind themselves not to erect factories in the United States of America. Both parties, however, are to be free to import into the other party's territory. 5. As regards Smokeless Sporting Powder the American Fac- tories undertake not to erect factories in Europe, and the European Factories undertake not to erect factories in the United States of America; both parties, however, are to be free to import into the other party's territory. 6. With regard to Smokeless Military Powder it is hereby agreed that the European Factories undertake not to erect any factory in the United States of America, and that the American Factories undertake not to erect any factories in Europe. Whenever the American Factories receive an enquiry for any Government other than their own, either directly or indirectly, they are to communicate with the European Factories through the Chairman appointed, as hereinafter set forth, and by that means to ascertain the price at which the European Factories are quoting or have fixed, and they shall be bound not to quote or sell at any lower figure than the price at which the European Factories are quoting or have fixed. Should the European Factories receive an enquiry from the Government of the United States of North America, or decide to quote for delivery for that Government, either directly or indirectly, they shall first in the like manner ascertain the price quoted or fixed by the American Factories and shall be bound not to quote or sell below that figure. 7. With regard to High Explosives (by which all explosives fired by means of Detonators are to be understood), it is agreed that International Agreements 179 the United States of North America, with their present or future territories, Possessions, Colonics, or Dependencies, the Republics of Mexico, Guatemala, Honduras, Nicaragua, and Costa Rica, as well as the Republics of the United States of Columbia and Venezuela, are to be deemed the exclusive territory of the American Factories, and are hereafter referred to as "American Territory." All the countries in South America not above mentioned, as well as British Honduras and the Islands in the Caribbean Sea, which are not Spanish possessions, are to be deemed common territory, hereinafter referred to as "Syndicated Territory"; the rest of the world is to be exclusive territory of the European Factories, here- inafter referred to as "European Territory." The Dominion of Canada and the Islands appertaining thereto, as well as the Spanish possessions in the Caribbean Sea, are to be a free market unaffected by this Agreement. 8. The American Factories are to abstain from manufacturing, selling, or quoting, directly or indirectly, in or for consumption in any of the countries of the European Territory, and the Euro- pean are to abstain in like manner from manufacturing, selling or quoting, directly or indirectly, in or for consumption in any of the countries of the American Territory. With regard to the Syndi- cated Territory neither party are to erect works there, except by a mutual understanding, and the trade there is to be carried on for joint account in the manner hereinafter defined. 9. The American Factories shall forthwith designate in writing a Chairman and Vice-Chairman, who shall hold office as such until their respective successors shall be appointed by the party of the first part, and such Chairman, or in his absence such Vice- Chairman, shall be the authorized representative of the American Factories, to whom and through whom all communications, acts, and trans- actions in respect of this Agreement, unless otherwise stipulated, shall be had; and the European Factories shall likewise forthwith designate in writing a Chairman and Vice-Chairman, to whom shall be referred all matters which by terms of this contract are made referrable * to the Chairman representing the European Fac- tories. The said Chairman or Vice-Chairman shall jointly establish rules for the carrying out of the Syndicate arrangements hereinafter referred to. 10. The Chairmen shall from time to time mutually agree upon a basis price for each market in the Syndicated Territory, such 1 Thus in original. — Ed. i8o Industrial Combinations and Trusts basis price to include cost of manufacture, freight, insurance, land- ing charges, magazine charges, and all other charges until delivery, including agency commission and the contribution towards the Common Fund hereinafter stipulated. The Chairmen shall likewise fix a selling price for each market, which is to be deemed a convention price, below which no sales are to effected, and the difference between the basis price and the sell- ing price is to be deemed the Syndicate profit, and to be divided in equal shares between the American Factories and the European Factories. Losses due to bad debts are to be borne by the parties effecting the sale. n. A common Syndicate Fund is to be constituted by a pay- ment of $i per case of 75 per cent, dynamite, or per case of gelig- nite, gelatine dynamite, or blasting gelatine, and a payment of such portion of $1 as the percentage of nitro-glycerine on lower grade dynamites bears to 75 per cent, until such Fund reaches the amount of $50,000, when the contribution is to be reduced to one- half the above-mentioned rates. 12. The Syndicate accounts, according to Clause 10, made up to 31st December in each calendar year are to be handed in by both parties so as to reach the Chairman of the other party by the 15 th March next ensuing, and the payments for the balance are to be made by the 30th June following, when the amount to be contrib- uted to the Common Fund shall likewise be paid. [In regard to Clause 1 2 of the Agreement, I have no objections at all to the extension of time whereat the accounts are to reach both parties; namely, to April 15th. of each year, instead of March 15th. as per Clause 12. — Letter April n, 1899.] The Common Fund shall, as the Chairmen may decide, be in- vested in Government Securities, and it is from this Fund that any fine or fines hereinafter stipulated, not recovered from the parties, shall be taken. It shall likewise be admissible for the Chairmen to dispose of two-thirds of the Common Fund for the purpose of pro- tecting the common interest against outside competition. 13. Any breach of this agreement shall be adjudicated upon by the Chairmen, and if they cannot agree they shall appoint an umpire. For the guidance of the Chairmen and umpire it is agreed that, should either of the parties erect factories in a country re- served to the other, the liquidated damages shall not be fixed lower than £10,000. International Agreements 181 Should either party trade in the territory of the other it shall be admissible for the Chairmen to absolve them of any accidental breach, but if an intentional breach shall be proved, the fine shall be the invoice value of the goods supplied. No restriction is placed on the decision of the Chairmen as to the penalty to be imposed for intentional underselling in one of the markets of the Syndicate territory. 14. It is intended that in the Syndicate markets the arrangement should resemble as far as possible the convention arrangements hitherto had by the Europeans, where the Agents meet from time to time, and come to decisions within the limits of powers given to them, or where they meet in order to make recommendations to their principals. 15. The Chairmen both agreeing have full powers to vary the Syndicate arrangements as they may deem expedient from time to time in order to meet outside competition and to regulate business for the best in the interest of the parties concerned, and they shall likewise have the power under exceptional circumstances of author- ising sales in the prohibited territories. 16. With regard to the markets in the European territory in which the American Factories have already done business, and from which, in accordance with the stipulations of this Agreement, they are to retire, as well as the markets of the American territory in which the European Factories have already done business, and from which they are, according to the stipulations of this Agreement, to retire, the following is agreed: Agents are as far as possible to be retained by the party who is henceforward to do the business in the market in question. Magazines are in a like manner to be taken over at their present value to be determined by mutual agreement or arbitration. Stocks, if in good merchantable condition, are to be taken over at full cost, i. e., the amount which the goods at present cost with accumulated charges. 17. Nothing herein contained shall be construed to prevent either of the parties hereto from carrying out any contracts for the sale of their products which have been entered into in good faith prior to the 15th of July, 1897. Contracts made after the said date shall be transferred to the party by whom the business shall be transferred to the party by whom the business shall henceforth be done in the market in question. 18. This Agreement is to be in force for 10 years, beginning from 182 Industrial Combinations and Trusts the 15th of July, 1897, subject to written notice being given six months prior to the 15th July, 1907. In the absence of notice this Agreement is to continue thereafter from year to year until such six months' notice of intended termination is given. 19. Should any difference or dispute arise between the parties hereto, touching this Agreement, or any clause, matter, or thing relating thereto, or as to the rights, duties, or liabilities of any of the parties hereto, the same shall be referred to the Chairmen, who shall arbitrate thereon, and their award shall be final. Should they not agree they shall appoint an Umpire whose award shall be final. In all cases in which the Chairmen disagreeing select an Umpire, the following provisions shall apply: — If the question or matter to be decided is brought forward by one of the parties of the first part, the Umpire shall be a European. If on the contrary, the question or matter to be decided is brought forward by one of the parties of the second part, the Umpire shall be an American. 20. With regard to Patents which the American Factories or the European Factories may possess in each others' territories, it is understood that unless compelled by agreement with inventors to take legal proceedings with regard to alleged infringements, no legal proceedings are to be taken in respect of any alleged infringe- ment until an attempt has been made to settle the matter amicably. In order to bring about such amicable understanding the question is first to be ventilated by correspondence between the Chairmen, who shall have power to constitute themselves an arbitral tribunal, obtaining evidence from experts on both sides ; and should they hold that an infringement has been committed they shall fix the rate of royalty to be paid. Should they not agree, they shall call on par- ties to sign a deed of submission, authorising them to appoint an um- pire, whose award shall be final. Inasmuch as the parties have undertaken not to manufacture in each others' territories they are not to purchase any Patent for each others' territories, except after having given the party inter- ested in the manufacture in the country in question the right of pre-emption on the same terms as the Patent is offered to them. Transitory This Agreement is made subject to ratification by the 31st Au- gust, 1897. Mr. Eugene Du Pont, Mr. Bernard Peyton, Mr. Addi- International Agreements 183 son Fay, and Mr. Hamilton Barksdale have undertaken to recom- mend and advocate such ratification by the American Factories, which is to be notified to Mr. E. Kraftmeier, of 55, Charing Cross, London, S. W. (Telegraphic Address — "Kraftmeier, London,") so as to be in his possession by the 31st August, 1897, and Mr. Thomas Reid, Mr. J. N. Heidemann, Mr. Max A. Philipp, and Mr. E. Kraftmeier will recommend and advocate such ratification by the European Factories, which is to be notified to Mr. Eugene Du Pont so as to be in his possession by the 31st August, 1897. Exhibit 4 aluminum company of america * THE A. J. A. G. AGREEMENT OF SEPTEMBER 25, 1908 About September 25, 1908, the defendant Aluminum Company of America, acting through the Northern Aluminum Company, of Canada, which is entirely owned and controlled by defendant, en- tered into an agreement with the so-called Swiss or Neuhausen Company, of Europe, which is the largest of the European com- panies engaged in the aluminum industry and designated in this agreement as "A. J. A. G.," parts thereof material to this action being as follows: 2. The N. A. Co. agree not to knowingly sell aluminum, directly or indirectly, in the European market. The A. J. A. G. agree not to knowingly sell aluminum, directly or indirectly, in the American market (defined as North and South America, with the exception of the United States, but including West Indies, Hawaiian and Philippine Islands). 4. The total deliveries to be made by the two companies shall be divided as follows: European market, 75% to A. J. A. G., 25% to N. A. Co. American market, 25% to A. J. A. G., 75% to N. A. Co. Common market, 50% to A. J. A. G., 50% to N. A. Co. The Government sales to Switzerland, Germany, and Austria- Hungary are understood to be reserved to the A. J. A. G. 1 United States of America v. Aluminum Company of America. Petition in Equity, In the District Court of the United States for the Western District of Pennsylvania, pp. 15-16. 184 Industrial Combinations and Trusts The Sales in the U. S. A. are understood to be reserved to the Aluminum Company of America. Accordingly the A. J. A. G. will not knowingly sell aluminum, directly or indirectly, to the U. S. A., and the N. A. Co. will not knowingly sell, directly or indirectly, to the Swiss, German, and Austria-Hungarian Governments. 5. The N. A. Co. engages that the Aluminum Company of Amer- ica will respect the prohibitions hereby laid upon the N. A. Co. Said agreement became effective October 1, 1908, and provided that it should "last until terminated by a six months' written no- tice," and petitioner avers that said agreement became effective and has been continuously since said date, and is now, in full force and effect, unless terminated by notice. CHAPTER IX POOLS AND ASSOCIATIONS NOTE As indicated in the note to Chapter I, the Pool has been one of the most persistent types of combination. In spite of its numerous disadvantages and alleged weaknesses, it has served as a means of combination in far more instances than has the Trust and in this respect may be regarded as a close competitor of that other device; the Holding Company. Pools may be organized for a wide variety of purposes; to divide territory, to raise prices, to pool profits, to restrict output, to divide output and others, or, a pool may embody several of these purposes in its programme. Though the general structure of such organizations is about the same the variations of type are great. For that reason there has been brought together a collection of pooling agreements which cover a wide field. They are fairly typical illustrations of this organization and are selected to give as comprehensive an idea of this form of combi- nation as possible. In the majority of cases the object of the pool is sufficiently stated in the terms of the agreements. — Ed. Exhibit i the steel rail pool 1 Memorandum of agreement, entered into August 2, 1887, by and between the North Chicago Rolling Mill Company, the Cambria Iron Company, the Pennsylvania Steel Company, the Union Steel Company, the Lackawanna Iron and Coal Company, the Joliet Steel Company, the Western Steel Company, the Cleveland Rolling Mill Company, Carnegie Brothers & Co., Limited; Carnegie, Phipps & Co., Limited; the Bethlehem Iron Company, the Scranton Steel Company, the Troy Steel & Iron Company, the Worcester Steel Works and the Spring- field Iron Company. 1 Report of the Commissioner of Corporations on the Steel Industry. Part I, pp. 69-71. 185 1 86 Industrial Combinations and Trusts We, the before-named companies and corporations, manufac- turers of steel rails, hereby mutually agree one with the other, that we will restrict our sales and the product of steel rails of 50 pounds to the yard and upward, applying to orders taken by us and to be delivered by us or from our respective works during the year 1888, as hereinafter allotted and limited; and we respectively bind ourselves not to sell in excess of our current allotments, without first obtain- ing the consent of the Board of Control thereto — that is to say: It is agreed, there shall now be made an allotment of 800,000 tons of rails, which shall be divided and apportioned to and among the several parties hereto to be sold by them during the year 1888, upon the following basis of percentages, to wit; North Chicago Rolling Mill Company, 12-}^ per cent; Pennsylvania Steel Company, g- 8 Ao per cent; Bethlehem Iron Company 9 per cent; Carnegie Bros. & Co., Limited, and Carnegie, Phipps & Co., Limited (jointly), 13-^0 per cent; Joliet Steel Company, 8 per cent; Lackawanna Iron and Coal Company, 8 per cent; Cambria Iron Company 8 per cent; Scranton Steel Company, 8 per cent; the Union Steel Company, 8 per cent; Cleveland Rolling Mill Company, 4-§io per cent; Troy Steel & Iron Company, 4-%o per cent; Western Steel Company, 4"%o per cent; Worcester Steel Works, 1-^10 per cent. And in addition to the said allotment of 800,000 tons of rails above allotted, an additional allotment of 250,000 tons is hereby made and allotted to the Board of Control, to be reallotted and reapportioned by it, as and to whom it may deem equitable, in the adjustment of any differences that may arise. It being also further agreed that all subsequent allotments of rails hereafter made, to be sold under this agreement during the year 1888, shall also be di- vided and apportioned to the several parties hereto in the same ratio of percentages as said apportionment of 800,000 tons is herein divided and apportioned. It is further agreed, that the Board of Control shall, from time to time, make such further allotments as shall be necessary to at all times keep the unsold allotments at least 200,000 tons in excess of the total current sales, as shown by the monthly reports of sales. This is to be in addition to the then unappropriated part of the 250,000 tons herein before alloted to the Board of Control to adjust differences. It is further agreed, on the first day of April, July and October, the Board of Control are authorized and directed to cancel such part of the unmade allotments of the respective parties hereto as they the said Board of Control shall determine such party unable Pools and Associations 187 to make in due time, and all allotments so canceled the Board of Control shall have the right to reallot to any of the other parties hereto; it being understood that all such cancellations shall apply only to allotments standing to the credit of the respective parties hereto on the dates above named, but no reallotment as aforesaid shall be made by the Board of Control to any of the parties hereto for the purpose of enabling them, or any of them, to make and sell rails from foreign made blooms. It is further agreed, that all transfers of parts of allotments from one party to another shall be made by the Board of Control. It is further agreed, that there shall be a Board of Control, con- sisting of three members, namely Orrin W. Potter, Luther S. Bent and W. W. Thurston, who shall have power to employ a paid secre- tary and treasurer. It is further agreed, that the Board of Control, upon the written consent of 75 per cent of the percentages as hereinbefore named, shall increase the allotments for the year 1888, and such increase shall be allotted to the parties hereto as hereinbefore provided. It is further agreed, that each party whose name is hereunto annexed, shall and will make monthly returns to the Board of Con- trol of all contracts for delivery of rails of 50 pounds to the yard and upward during the year 1888, and also of all shipments of such rails made by them during said year; a copy of such return shall be fur- nished to each party hereto. It is further agreed, that all the parties hereto shall and will, on or before January 15, 1888, make a written return to the Board of Control of all the rails of 50 pounds to the yard and upward (designating the weight) which they respectively had on hand Jan- uary 1, 1888, stating whether the same are sold, and if sold, on what order they apply. It is further agreed, that the Board of Control shall have the right whenever they deem it expedient to convene a meeting of the parties hereto, and they shall give at least ten days' previous notice of all meetings, and any business transacted at such meetings, and receiving 75 per cent of the votes present thereat, either in person or by proxy, shall be binding on all the parties hereto, excepting as to a change in percentages as aforesaid: The Board of Control shall be required to call a meeting of the parties hereto when requested so to do in writing, signed by any three of the contracting parties, but such request and such notice shall state the object for which such meeting is called. 1 88 Industrial Combinations and Trusts It shall be the duty of the Board of Control to have a proper rec- ord kept of all the returns made to it, with power from time to time to change the form of return as they may deem expedient. The Board of Control shall have authority to levy an assessment, pro rata to the allotted tonnage, to defray the actual expenses made necessary to carry out this agreement. It is further agreed, that we will, respectively, immediately make return to the Board of Control of all rails of 50 pounds to the yard and upward which we are now under contract to deliver during the year 1888, said return to state to whom such rails are sold and when they are to be delivered. (Signatures) Exhibit 2 constitution and by-laws of the michigan retail lumber dealers association ! The title of this association shall be the Michigan Retail Lumber Dealers' Association, and its object is hereby set forth in the fol- lowing declaration of principles. We seek to establish the equitable principle that the retailer shall not be subjected to competition with the parties from whom he buys; that a fair opportunity shall be offered the man who in- vests his time and money in the retail business, and assumes the risk which such business inevitably involves, to earn an adequate remuneration for his labor and the use of his capital. We seek also to promote that spirit of harmony in the trade which shall prompt every detail dealer to maintain friendly relations with his com- petitors at home and his brother retailers everywhere. Article I. — Membership. ELIGIBILITY. Section i. Any person, firm, or corporation within the terri- tory of this association who may be regularly engaged in the lumber trade, carrying at all times an assorted stock of lumber, or lumber, sash, doors, etc., commensurate with the demands of his com- 1 United States of America v. Edward E. Hartwick, et al., Original Petition, In the Circuit Court of the United States for the Eastern District of Michigan, Southern Division, Exhibit A, pp. 42-52. The Michigan Retail Lumber Dealers Association was first organized about 1888 or 1889. — Ed. Pools and Associations 189 munity (the equivalent of 75,000 feet of lumber in small cities and country towns being generally considered a minimum stock for a retail lumberyard), and who is in the business for the purpose of selling lumber at retail, and who keeps an office open during regular business hours, with a competent person in charge to attend to the wants of customers at all times, shall be considered a legiti- mate lumber dealer and may be eligible to membership in the association. DOUBT AS TO ELIGIBILITY. Sec. 2. Any doubt or question arising as to who may be eligible to membership in this association shall be referred to the board of directors to determine, and their decision shall be final. TERMINATION. Sec. 3. Whenever any member shall cease to keep a regular assortment of lumber, as set forth in section 1, he shall cease to be a member of this association. WITHDRAWAL, HOW MADE. Sec. 4. Any member whose duties l are paid in full may with- draw from membership by giving notice to the secretary in writing and surrendering his certificate of membership, but memberships are not transferable except by vote of the board of directors. PENALTY FOR NONPAYMENT OF ANNUAL DUES. Sec. 5. If any member shall neglect or refuse to pay the dues provided for in the rules of this association within 60 days after due notice by the secretary, the secretary may strike his name from the rolls ; and no member shall be entitled to make complaints for shipments in his territory while in arrears for dues, nor until such arrears are paid in full. MEMBER'S LIABILITY TO SUSPENSION. Sec. 6. Any member of this association who shall habitually fail to meet his engagements with the wholesale members or shall so conduct himself as to bring reproach upon the association, and shall be reported by any member to the secretary of this associa- 1 Thus in the original. — Ed. 190 Industrial Combinations and Trusts tion, shall be cited to appear before the board of directors, and should he fail to satisfy the board of directors he shall no longer be considered a member of this association and a participant in its benefits. Article II. — Complaints. WHO SHALL MAKE. Section i. Any member of this association who considers that he has just cause for complaint against any wholesaler or manu- facturer or their agents, may file said complaint with the secretary, of this association. HOW MADE. Sec. 2. All complaints shall be made in writing, giving as full particulars as possible, including dates of shipment and arrival, car number and initials, original point of shipment, names of the consigner and consignee, the purpose for which material was used, and any other particulars which can be learned. TIME LIMIT. Sec. 3. All complaints to be handled by this association must be filed with the secretary within 30 days after receipt of ship- ment at point of destination. No complaint from any member will be considered when made on account of sales or shipments made within 15 days after the date of said member's certificate of membership. independent action. Sec. 4. In case any member elects to take up his own complaint direct with the shipper instead of filing the same with the secre- tary, as provided in foregoing sections he shall not thereafter be privileged to have said complaint taken up by association. secretary's duty in reference to complaints. Sec. 6. It shall be the duty of the secretary at once to notify the party or parties against whom complaint has been made, with- Pools and Associations 19T out giving the name of the party making the complaint. If the transaction complained of was made by a commission merchant, agent, or broker, or other person, the principal for whom they act shall also be notified and shall be considered jointly liable. PRIMARY RULING ON RETAIL DEALERS. Sec. 7. The primary decision as to who are and who are not regular retail lumber dealers, in the territory of this association, shall rest with the board of directors, but in the event of any dif- ference of opinion arising over the ruling of the board in such cases the same shall be submitted to arbitration, according to rules here- inafter provided for the adjustment of complaints, but no sale made to any individual or firm whose status may not have been finally determined shall be subject to any penalty if it shall appear that due diligence has been employed by the party making the sale to satisfy himself that the purchaser was entitled to recognition as a dealer. PLAN OF ARBITRATION. Sec. 8. In the event that any claim is made against a manu- facturer or wholesaler who may be a member of any regularly or- ganized association of manufacturers or wholesalers, it shall be the duty of the secretary to refer the matter to the secretary of such manufacturers' or wholesalers' organization and to request the immediate presentation of the case to the party complained of and the adjustment of said claim. If it be found impossible to adjust the claim through the efforts of the secretary of this association acting on behalf of the retailers, and the secretary of the manufacturers' or wholesalers' organiza- tion, acting on behalf of the manufacturers or wholesalers, then the matter shall be referred to a board of arbitration, consisting of one member of this association and one member of any organization of manufacturers or wholesalers with which the party complained of may be identified, and it shall be the duty of the president of this organization as often as, and when necessary, to appoint any member to act as arbitrator on behalf of this association and its members. The two persons so selected shall have power to select a third person to act with and constitute the board of arbitrators, which shall be authorized to fully adjust the claim, the decision of such board of arbitrators to be final and binding on all parties. 192 Industrial Combinations and Trusts Article III. — Territory, TERRITORY DESCRIBED. Section i. Members shall be entitled to the protection of this association only at such places where they operate yards as they shall desire to have placed on the membership lists and for which there shall pay annual dues for each place so protected. It shall be understood, however, that sidetracks or small towns where there are no regular retail lumber yards, and which may be, under a reasonable construction, considered within the territory of mem- bers, shall be included within such protection without extra charge. OTHER ASSOCIATIONS. Sec. 2. It shall be contrary to the spirit of this association for any of its members to make or cause to be made shipments into the legitimate territory of members of other associations of retail lumber dealers, and members who shall so offend shall be made subject to such discipline as may be provided in the rules of this association. POACHERS. Sec. 3. Any person or persons, whether carrying a stock of lumber or not, making a practice of quoting prices, selling or ship- ping (to other than regular dealers) lumber, sash, doors, etc., into territory under the protection of this association, where said per- son or persons have no yards, shall be designated "poachers." When said poachers are reported in the membership list and noti- fication sheet, they will be considered as consumers at points other than where they may own yards, and any wholesaler or manufac- turer, or their agents making sales or shipments to said parties in the territory of any member of this association, after being thus reported, will be considered as having sold or shipped to a consumer. Article IV. — Standard of grades. In all cases of dispute as to quality of lumber arising between a member of this association and a member of a wholesalers' or manufacturers' association, the established grading rules of the association to which the wholesaler or manufacturer belongs, shall be taken as a basis of grade on which settlement shall be made, Pools and Associations 193 unless a special agreement in writing for a special grade shall have been made when lumber was purchased. Article V.— Reciprocity. Reciprocity is in direct line with the true principles of all retail lumbermen's associations, and this association does hereby pledge its members, as far as it is practical and possible, to buy only of firms whose names appear on our membership lists or those of kindred associations. Article VI. — Additional rules. The work of this association shall be further set forth in detail, as to management and guidance of its members, by the adoption of such other measures, to be known as rules or by-laws, as may in accordance with this constitution be established. Article VII. — Amendments. Amendments to this constitution may be made at any regular meeting, or special meeting called for that purpose, by a vote of at least two-thirds of the members present and voting. BY-LAWS. Sec. 3. Whenever and as often as any wholesaler or manufac- turer, dealer, or his agent shall sell lumber, sash, doors, or blinds for building purposes to any person not a regular dealer, any member doing business at the nearest point to which shipment was made shall notify the secretary of this association, giving him the date of shipment as nearly as possible, value of same, etc., and the secre- tary shall at once make demand of the wholesale dealer or manu- facturer who made such shipment, notify him that his association has a claim not to exceed 10 per cent of the value of said sale at the point of shipment. If the secretary settles the claim, the money so collected shall be turned into the treasury and a draft made on the treasurer for the amount, said draft to be fonvarded to the party making the claim. If the secretary does not succeed in making the settlement and same is contested, he shall refer the matter to the arbitration committee, whose duty it shall be to hear 194 Industrial Combinations and Trusts both sides of the case, determine the claim, and report to the secre- tary. If the manufacturer or wholesale dealer refuses to abide by the decision of the arbitration committee, it shall be the duty of the secretary immediately to notify the members of the associa- tion of the name of such wholesale dealer or manufacturer. If any member continues to deal with such wholesale dealer or manu- facturer, he shall be expelled from this association: Provided, That nothing in this section be so construed as to entitle members to make complaint for any lumber sold to manufacturers as defined in section 5 of Article II of the constitution of this association. Sec. 4. In the event that any claim is made against a manu- facturer who may be a member of any regular organized associa- tion of manufacturers, it shall then be the duty of the secretary to refer the matter to the secretary of such manufacturers' organi- zation and request the immediate presentation of the case to the party complained of and the adjustment of the claim. If it is found impossible to adjust the claim through the secretary of this association, acting on behalf of the retailer, and the secretary of the manufacturers' organization, acting in behalf of the whole- saler or manufacturer, then the matter shall be referred to a board of arbitration, consisting of one member of this association and one member of any organization of manufacturers with which the party complained of may be identified (and it shall be the duty of the president of this association, as often as and whenever necessary, to appoint a person to act as arbitrator on behalf of this associa- tion and its members), and the two persons so chosen shall have power to select a third person to act with and complete the board of arbitrators, who shall be authorized fully to adjust the claim, their decision to be final and binding on all parties. Sec. 5. Whenever and as often as any "commission man" shall sell lumber, sash, doors, or blinds to any person not regular dealers, as defined in section 1 of Article I of the constitution of this association, he shall be treated as a manufacturer or whole- saler, and shall be reported to the members of this association in the same manner as a wholesaler, as described in section 4 of these by-laws. Sec. 6. Any wholesale dealer or manufacturer selling to a " com- mission man" or shipping on his order to any person or persons not regular dealers shall be held liable, the same as if he had made the sale himself, and be subject to the penalty as described in sec- tion 4 of these by-laws. Pools and Associations 195 Sec. 7. No complaint shall be entertained from a member against a wholesale dealer or manufacturer, in accordance with the provi- sions of section 3 of these by-laws, for a bill of lumber ordered from a wholesale dealer or manufacturer within 15 days from the date of his certificate of membership; and no complaint shall be enter- tained from any member who is three months in arrears for dues. Sec. 8. If any person or persons after having been reported to the members of this association in accordance with the provisions of section 3 of these by-laws, violating the rules of this association shall make such settlement as the board of directors shall require, the secretary shall immediately notify the members of such settle- ment. Sec. 9. No claim shall be made on wholesale dealers or manu- facturers for sales made to consumers or contractors within a dis- tance of 15 miles from the public square of any wholesale market, provided said lumber is consumed within said distance; also pro- vided that said territory shall be so confined by this association or its board of directors. Exhibit 3 "fundamental agreement" of the explosive trade 1 This Agreement, made this 19th, day of December, 1889, be- tween E. I. Du Pont de Nemours & Company, a co-partnership doing business near Wilmington, Delaware; The Hazard Powder Company, a corporation organized under the laws of the State of Connecticut; the Laflin & Rand Powder Company, a corporation organized under the laws of the State of New York; the three in- dividual concerns named in the foregoing being in some of the provisions hereof grouped as one collective party, and called the "Three Companies"; and the Oriental Powder Mills, a cor- poration organized under the laws of the State of Maine; The American Powder Mills, a corporation organized under the laws of the State of Massachusetts ; the Austin Powder Company, the Miami Powder Company, The King Powder Company, The Ohio Powder Company, said last named four corporations being organized under the laws of the State of Ohio; The Sycamore Powder Company, a corporation organized under the laws of the State of Tennessee; the Lake Superior Powder Company, a 1 United States of America v. E. I. du Pont de Nemours and Company. Government Exhibit No. 6, Pet. Rec. Exhibits, vol. i, pp. 94 ff. 196 Industrial Combinations and Trusts corporation organized under the laws of the State of Michigan; the Marcellus Powder Company, a corporation organized under the laws of the State of New York. Whereas, the parties hereto make and sell gunpowder for blast- ing or sporting purposes, or both; and Whereas, the said parties now enjoy trade of a certain amount in one or both of the said two kinds of powder; and Whereas, for the purposes of this agreement "Blasting" powder is defined to be, such powder as is made of either nitrate of potassa or nitrate of soda, mixed with charcoal and sulphur, and designed to be used for mining or blasting operations; and "Sporting" powder is defined to be such powder as is made of Nitrate of po- tassa, charcoal and sulphur, and designed for use in small arms, (rifles, or smooth bores), cannon, mortars and shells; or in the manufacture of fireworks, safety-fuse and squibs; being of varying qualities and strength and of many brands and trade names, all of which are distinctly different from those of blasting powder; and Whereas, in certain portions of the United States the cost of selling said powder is excessive; and Whereas, for this and other causes the carrying on of business has been unsatisfactory in the greater part of the United States to the above named parties ; and Whereas, it is important that reasonable and uniform prices should be maintained, that customers and the public generally should be relieved from the inconveniences and uncertainties due to rapid and uncertain fluctuations, that unjust discrimination between persons and localities should be avoided, and that con- tractors and other consumers should be enabled to arrange with reasonable certainty such portions of their business as are dependent upon the acts of the parties hereto; and Whereas, it is therefore desired by all parties hereto to enter into the agreement hereinafter set forth, Now Therefore, in Consideration of the premises, and in consideration of the one dollar and other good and valuable con- siderations to each of the parties by each of the others paid, the receipt of which is hereby acknowledged ; for the purpose of regulat- ing in a convenient and desirable manner the business of the parties hereto, in such of their sales of powder as are treated in this agree- ment; for the purpose of avoiding unnecessary loss in the sale and disposition of such powder by ill regulated or unauthorized com- petition and under-bidding by the agents of the parties hereto, Pools and Associations 197 and for the purpose of protecting consumers and the public from unjust fluctuations in prices and from unjust discriminations. It is Hereby Agreed by the Parties Hereto as Follows: — I: — That during the existence of this agreement the trade in gunpowder in and throughout all of the United States and its Territories, now or hereafter enjoyed by each and all of the parties hereto, shall be subject to the provisions of this agreement, with the following three exceptions, viz: — (1) Such trade as either of said concerns constituting the parties hereto may now or hereafter have in powder actually exported to foreign countries. (2) Such trade as either of said concerns constituting the par- ties hereto may now or hereafter have with the Government of the United States. (3) Such trade in Blasting powder as either of said concerns constituting the parties hereto have in the Anthracite Regions of the State of Pennsylvania. (This trade having been retained at extraordinary sacrifices by the manufactories located within said district, some of which are owned or controlled by certain of the parties to this agreement, is to belong to the parties who now enjoy it, and no part of the same is to be taken by or shared with either of the nine concerns last named in the first paragraph of this agree- ment). The said Anthracite Regions of Pennsylvania are understood and agreed to be bounded and described as follows: All of Northumber- land County; all of Montour County; all of Columbia County; all of Luzerne County; all of Lackawanna County; in Susquehanna County the following named townships, Clifford, Herrick and Ararat; all of Wayne County except the townships touching on the Delaware River; all of Carbon County; all of Schuylkill County; that portion of Lebanon County north of the "First Blue Moun- tain"; and that portion of Dauphin County, north of the Southern boundaries of the townships of Rush and Middle Paxton, — being practically that portion of Dauphin County north of the "First Blue Mountain." II. That that portion of the United States, within which the regulation of trade is contemplated by this agreement, shall for that purpose be divided into districts within each of which uniform prices shall generally prevail, and said "Districts" are defined as follows: First District: The territory as follows: The New England States 198 Industrial Combinations and Trusts excepting the county of Rutland in the State of Vermont, which is included with the State of New York, in the Second District; and excepting that the price for Blasting powder, only, at Ports upon Long Island Sound, West from Westerly, R. I., included, shall be twenty-five cents per keg lower than the minimum price for the same in the First District, generally; provided however, that such lower price shall not be made less than the regular list price for New York City. Second District: The territory as follows: The States of New York (the County of Rutland, Vt., included therewith), New Jersey, Pennsylvania, Delaware, Maryland, West Virginia (excluding Bramwell as provided hereinafter), Ohio, Indiana, Illinois, and those portions of the States of Michigan and Wisconsin south of the 44th. parallel of latitude; and the towns on the banks of the Potomac, the Ohio, and the Mississippi Rivers, adjoining said territory. Third District: The territory as follows: The States of Minnesota, Iowa, Missouri, Kentucky, Tennessee, Virginia, (Bramwell, W. Va., to be included also in this District), North Carolina, and those portions of the States of South Carolina, Georgia, Alabama and Mississippi north of the 33rd. parallel of latitude, and also those portions of the States of Michigan and Wisconsin north of the 44th. parallel of latitude; and also all that part of the State of Kansas east of the 98th. meridian of longitude; and the towns in Arkansas on the bank of the Mississippi River. Fourth District: The Territory as follows: The State of Arkansas, excepting the towns on the bank of the Mississippi River, the States of Louisiana and Florida and those portions of the States of Mississippi, Alabama, Georgia and South Carolina, south of the 33rd. parallel of latitude, and also those portions of Dakota and Nebraska east of the 103rd. meridian of longitude, excepting the towns therein which adjoin the eastern boundaries thereof; and also all the State of Kansas, west of the 98th. meridian of longitude. Fifth District: The territory as follows: The Indian Territory and the State of Texas. Sixth District: The "Neutral Belt," which consists of the States of Colorado and Montana and the Territories of Wyoming, Utah and New Mexico, all of the same; and also those portions of Dakota and Nebraska, west of the 103rd. meridian of longitude. Seventh District: All of the States and Territories of the United States west of the western boundaries of the said "Neutral Belt", Pools and Associations 199 which are named as follows: Oregon, Washington, Idaho, Cali- fornia, Nevada and Arizona. III. That of the whole aggregate trade of all the concerns com- prising the parties hereto, which is made subject to this Agree- ment, division shall be made among said parties in the manner hereinbelow provided: The yearly allotments of trade to the "Three Companies" shall be to them as one collective party, and shall be in such quantities of Sporting and Blasting powder as shall be equal to the average sales made by them of said kinds, respectively, for the years 1882, 1883 and 18S4. [Sptg. 209, 738, Blstg. 662, 420.] The yearly allotments of trade to the other concerns, parties to this Agreement, shall be as follows: Oriental Powder Mills, Sporting powder, Twenty-four thousand two hundred and twenty-three (24,223) kegs. Blasting powder, Sixty-five thousand one hundred and fourteen (65,114) kegs. American Powder Mills, Sporting powder, Thirty-one thousand seven hundred and fifty (31,750) kegs. Blasting powder, Fifty-seven thousand three hundred and sixty- six (57,366) kegs. Austin Powder Company, Sporting powder, Fifteen thousand five hundred and seventy- five (15,575) kegs. Blasting powder, Sixty-five thousand (65,000) kegs. Miami Powder Company. Sporting powder, Eleven thousand four hundred and fifty-two (11,452) kegs. Blasting powder, Sixty-six thousand five hundred and twenty (66,520) kegs. The King Powder Company, Sporting powder, Twenty-five thousand (25,000) kegs; and be- sides these there shall be a Special Allotment to said Company of Five Thousand (5,000) kegs of Sporting powder. 200 Industrial Combinations and Trusts Blasting powder to the same Company, One hundred thousand (100,000) kegs. The Ohio Powder Company, Blasting powder, Sixty thousand (60,000) kegs. The Sycamore Powder Company, Sporting powder, Eight thousand (8,000) kegs. Blasting powder, Thirty thousand (30,000) kegs. The Lake Superior Powder Company, Blasting powder, Twenty thousand (20,000) kegs. The Marcellus Powder Company, Blasting powder, Twenty thousand (20,000) kegs. Making the total of the sums which are thus allotted and taken as the bases for the division of said trade to be: Of Sporting powder, Of Blasting powder, (Excluding the said Special Allotment of 5,000 kegs of Sporting powder to The King Powder Company.) It is Also Understood and Agreed That the sales out of the above allotments of all of the parties hereto in the following States and Territories, viz: California, Nevada, Oregon, Colorado, Wash- ington, Idaho, Arizona, Montana, Utah and New Mexico, are to be regulated by a certain supplementary agreement to be entered into between all of the concerns composing the parties hereto with the California Powder Works. IV. That the aggregate sales made by all the parties hereto in any one year of Sporting and of Blasting powder shall, for each kind separately, be considered as a volume of trade of certain value to be divided among all of said parties in direct proportion to the yearly allotments to each and by the method hereinbelow set forth: The value of said volume of trade shall be reckoned at the rate of thirty-five (35) per cent of the list price per keg for Sporting powder, and twenty-five (25) per cent of the list price for Blasting powder, in the "Second District"; subject to change as said list prices may be changed; said values so reckoned being now for Sport- ing powder $1.75 per keg and for Blasting powder 50 cents per keg. The method for determining the "list price" last mentioned, to Pools and Associations 201 used J as the basis for said adjustment of sales of either of said kinds of powder, shall be by taking the average of the prices for the montns of the period under treatment, (considering as a whole month a fraction greater than one half) as said prices shall have been fixed in accordance with the provisions of this agreement. V. That the periods for settlement in division of trade shall be as follows: The first period shall be, and shall comprise the sales of, the six months ending June 30th, 1890, made by all the parties hereto, and subsequently the periods shall be each comprising their sales for twelve months and ending June 30th. of each year. And ad- justment of differences in sales for said first period shall be upon the basis of one half of said allotments. VI. That at the end of each of said periods, and within sixty days thereafter, each of the parties hereto (the "Three Companies" for this purpose being considered as one party) shall make up separate sworn statements showing their sales of Sporting and Blasting powder, respectively, made within said periods, and forward the same to the Board of Trade, hereinafter provided to be established. The Board of Trade shall consider separately the sales of Sport- ing and Blasting powder as the same shall appear in said sworn statements, and shall make computation of the differences therein exhibited ; (By said differences meaning the sales in excess or in de- ficiency of the proportions to which each party should be entitled in the division of trade as provided by Section IV. hereof) and, considering and valuing said differences, at said rates per keg, for the respective kinds of powder, shall make adjustment or clearance of such differences, in money values, and shall furnish each party a written accounting in full detail, of such clearing process : and the same proving to be a correct computation, the liabilities of the parties shall be as thus determined and stated; and within thirty days from that time each party so made liable shall pay into the Treasury such sum of money as shall have thus been adjudged to be due from it. And all of said money thus paid into the Treasury shall be distributed among the parties hereto, entitled to the same, in sums to each of them as the same shall have been determined by said accounting of the Board of Trade. VII. That in addition to the sworn statements to be made at the end of each of said periods as hereinbefore provided for, each of 1 Thus in original. — Ed. 202 Industrial Combinations and Trusts the parties hereto (the "Three Companies" for this purpose being considered as one party) shall at the end of each quarter of each calendar year, and within thirty days thereafter, make up state- ments which shall be estimates, as nearly correct as practicable, of their sales of each of said kinds of powder during said quarter and shall immediately forward the same to the said Board of Trade which shall immediately furnish each of the parties hereto with a combined statement of all of said sales during said quarter, show- ing the sales of each of said parties, of each of said kinds; which said combined statement is to be for the guidance of each of the parties; to the end that their sales may not, for the whole of the then current period, be in excess of their allotments. VIII. That in all statements of sales provided by this agreement to be made and in all adjustments thereunder, Sporting powder, w T hether sold in packages of twenty-five pounds each or in pack- ages of other sizes, and whether of one quality or another, shall be considered and taken as if the same were all of one quality, to wit: "Rifle" (now so called in the trade) powder; and shall be stated in units of twenty-five pounds each and fractions thereof, if any, in decimals, and Blasting powder whether made of nitrate of potassa or nitrate of soda, shall be considered and taken as if made of last named material. IX. That in none of the statements hereinbefore provided to be made by the parties hereto concerning their sales and for the pur- pose of dividing the whole of their trade which is subject to the provisions of this agreement shall there be counted or included any sales of powder made by any one of them to any other of them. It being intended that if one party shall sell powder to another such powder shall be counted only in the sales of the party who shall mar- ket the same. X. That the statements of sales made by each of the parties hereto for the purpose of dividing the trade of the first period (January i St., -June 30th., 1890) shall include all the powder delivered in said period though the same may have been sold previously. XL That immediately after the adoption of this Agreement, there shall be elected a Board of Trade, so to be called, consisting of five members, and a Secretary and Treasurer of the same. XII. That at all elections of the memfbers 1 of the Board of Trade and of a Secretary and Treasurer of the same, voting shall be by ballot and each of the parties to this Agreement shall have one vote 1 Thus in the original. — Ed. Pools and Associations 203 (thus providing for one vote by each of the "Three Companies") and a majority of the votes so cast shall elect: parties hereto not present at a meeting may be represented by personal proxy. XVII. That the Board of Trade shall have power to fix prices and to vary or change the same at any time and for any place, to meet contingencies and for protection of the common interests. It shall have power to enforce any rules and regulations which may be adopted by the parties to this agreement and to take any measures for that purpose which may in its judgment be necessary. It shall hear and adjudge in all cases of grievances, when the parties in- volved shall not be able to agree among themselves. The members of the Board shall be re-imbursed for all expenses incurred by them in performance of their duties. XVIII. That any action taken at a General Meeting affecting the rights of any individual concern, shall have the unanimous con- sent of all the parties hereto to be valid and of authority; excepting only in balloting for members of the Board of Trade and for the Secretary and Treasurer as hereinbefore, in Section XII, provided. XIX. That any General Meeting duly authorized may review or reverse the acts of the Board of Trade and instruct it upon any matter. And at any General Meeting when a question shall be of approval or reversal of any previous acts or decisions, parties hereto not then present may have a vote upon such question by personal proxy giving power thereunto. XX. That the duties of the Secretary and Treasurer shall be as follows: he shall issue notices for and shall attend all Meetings of the Board of Trade and all General Meetings of the parties hereto and shall keep a faithful record of the proceedings at all such Meet- ings and shall send a copy of the same to each of the parties hereto. And he shall be the medium of the communication between the members of the Board of Trade as well as between all the parties to this agreement upon matters of general concern. He shall receive and disburse all moneys for expenditures in the common interest in accordance with the methods prescribed there- for and shall make semi-annual reports to all the parties, of such ex- penditures and of the disposition of all moneys coming to his hands. He shall receive a salary of $2500 per annum for his sendees. XXI. That all assessments of money for expenditures made or to be made for the common interest shall be upon each party in 204 Industrial Combinations and Trusts direct proportion as its allotment in number of kegs of both kinds of powder is to the total of the allotments to all the parties in num- ber of kegs of both kinds, (excluding said Special Allotment of Sporting powder to The King Powder Co.) with exception only as provided in Section XXII. hereof. And no obligation for the pay- ment of money shall be incurred, other than for such expenditures as are provided for in this agreement, except the same shall be done at a General Meeting held as hereinbefore provided. XXII. That any party hereto who shall suffer excessive loss by an overt act of the Board of Trade, — as for instance the reduction of a price at a place, in treatment of a local disturbance of trade, — shall receive compensation for the damage it shall sustain by payment of money as may be agreed upon at a General Meeting, on the recommendation of the Board of Trade. 1 And requisitions for money to pay such damages shall be made by the Board upon those of the parties who make and sell that specific kind of powder regarding which such award for damages shall have been settled; and contributions shall be required of them in direct proportion to their allotments for that specific kind of powder. XXIII. That all the concerns constituting the parties hereto shall be and are severally bound to each other for the fulfillment of all the obligations of this agreement, but no concern shall be responsible for any default of any other concern. XXIV. That an Agreement or Agreements, supplementary and auxiliary to this, shall be executed by all the parties hereto relating to the prices to be maintained for sales of powder, and the general harmonious arrangement of the powder trade. XXV. That the existing agreements between the twelve ^.con- cerns, parties hereto, and the California Powder Works, and between the "Three Companies" and the other nine concerns, parties hereto, relating to the trade of the "Pacific Coast District" and the "Neutral Belt", shall continue with the consent of all the parties hereto, now expressed; and the consent thereto of the Cali- fornia Powder Works shall be obtained if practicable. New written Agreements to be the same in effect as those now existing shall be made and executed, if possible, at an early date; the same to be co- terminous with this Agreement. XXVI. That the benefits and liabilities arising from this Agree- ment shall extend to the successors and assigns of each of the concerns comprising the parties hereto and to the executors and 1 Italics are the editor's. Pools and Associations 205 administrators of the members of the firm of E. I. Du Pont, de Nemours & Company, but no concern shall be liable for any de- fault not committed by itself except as herein expressly specified. XXVII. That this Agreement shall begin to be in effect on the 1st. day of January, 1890, and shall remain in force until the 30th. day of June, 1895, and shall continue in force thereafter from year to year, indefinitely, so long as none of the concerns shall give written notice to all the others, through the Secretary of the Board of Trade, of its intention to withdraw at least three months previous to June 30th., 1895 ; but such notice having been given, in any year succeeding the year 1894, this Agreement shall terminate June 30th. of said year. XXVIII. That the Schaghticoke Powder Company, a corpora- tion organized under the laws of the State of New York, being owned as to a majority of its stock, and controlled by the Laflin & Rand Powder Company, it is understood and agreed that all of its sales shall be considered as sales of the Laflin & Rand Powder Co., and said Laflin & Rand Powder Co. hereby guarantees that said Schaghticoke Powder Co. will respect and faithfully comply with all the provisions of this Agreement with the same effect as if it had signed this Agreement as a party hereto included under the name of the Laflin & Rand Powder Company. XXIX. This shall be called the "Fundamental Agreement." In Witness Whereof, the concerns forming the parties hereto, have hereunto set their hands and affixed their corporate seals the day and year first above written. (Signatures) Exhibit 4 addyston pipe pools * From the minutes of the association, a copy of which was put in evidence by the petitioner, it appeared that prior to December 28, 1894, the Anniston Company, the Howard-Harrison Company, the Chattanooga Company, and the South Pittsburg Company had been associated as the Southern Associated Pipe Works. Upon that date the Addyston Company and Dennis Long & Co. were admitted to membership, and the following plan was then adopted: 1 United States v. Addyston Pipe 6* Steel Company. 85 Fed. 271. Cf. pp. 273 ff. The first of these pools was to divide territory, the second was an ex- ample of the so called auction pool. The case was carried to the Supreme Court of the United States and a decree entered in favor of the Government. — Ed. 206 Industrial Combinations and Trusts "First. The bonuses on the first 90,000 tons of pipe secured in any territory, 16" and smaller, shall be divided equally among six shops. Second. The bonuses on the next 75,000 tons, 30" and smaller sizes, to be divided among five shops, South Pittsburg not participating. Third. The bonuses on the next 40,000 tons, 36" and smaller sizes, to be divided among four shops, Anniston and South Pittsburg not participating. Fourth. The bonuses on the next 15,000 tons, consisting of all sizes of pipe, shall be divided among three shops, Chattanooga, South Pittsburg, and Anniston not participating. The above division is based on the following tonnage of capacity: South Pittsburg, 15,000 tons; Anniston 30,000 tons; Chattanooga, 40,000 tons; Bessemer, 45,000 tons; Louisville, 45,000 tons; Cincinnati, 45,000 tons. When the 220,000 tons have been made and shipped, and the bonuses divided as hereinafter provided, the auditor shall set aside into a reserve fund all bonuses arising from the excess of shipments over 220,000 tons, and shall divide the same at the end of the year among the respective com- panies according to the percentage of the excess of tonnage they may have shipped (of the sizes made by them) either in pay or free territory. It is also the intention of this proposition that the bonuses on all pipe larger than 36 inches in diameter shall be divided equally between the Addyston Pipe & Steel Company, Dennis Long & Co., and the Howard-Harrison Company." "It was thereupon resolved: First. That this agreement shall last for two years from the date of the signing of same, until De- cember 31, 1896. Second. On any question coming before the association requiring a vote, it shall take five affirmative votes thereon to carry said question, each member of this association being entitled to but one vote. Third. The Addyston Pipe & Steel Company shall handle the business of the gas and water companies of Cincinnati, Ohio, Covington, and Newport, Ky., and pay the bonus hereafter mentioned, and the balance of the parties to this agreement shall bid on such work such reasonable prices as they shall dictate. Fourth. Dennis Long & Company, of Louisville, Ky., shall handle Louisville, Ky., Jeffersonville, Ind., and New Albany, Ind., furnishing all the pipe for gas and water works in above-named cities. Fifth. The Anniston Pipe & Foundry Com- pany shall handle Anniston, Ala., and Atlanta, Ga., furnishing all pipe for gas and water companies in above-named cities. Sixth. The Chattanooga Foundry & Pipe Works shall handle Chattanooga, Tenn., and New Orleans, La., furnishing all gas and water pipe Pools and Associations 207 in the above-named cities. Seventh. The Howard-Harrison Iron Company shall handle Bessemer and Birmingham, Ala., and St. Louis, Mo., furnishing all pipe for gas and water companies in the above-named cities; extra bonus to be put on East St. Louis, and Madison, 111., so as to protect the prices named for St. Louis, Mo. Eighth. South Pittsburg Pipe Works shall handle Omaha, Neb., on all sizes required by that city during the year of 1895, conferring with the other companies and co-operating with them. There- after they shall handle the gas and water companies of Omaha, Neb., on such sizes as they make. "Note: It is understood that all the shops who are members of this association shall handle the business of the gas and water companies of the cities set apart for them including all sizes of pipe made by them. "The following bonuses were adopted for the different states as named below: All railroad or culvert pipe or pipe for any drain- age or sewerage purposes on 12" and larger sizes shipped into bonus territory shall pay a bonus of $1.00 per ton. On all sizes below 12" and shipped into ' bonus territory ' for the purposes above named, there shall be a bonus of $2.00 per ton. Alabama $3 00 B'gham, Ala. ... 2 00 Anniston, Ala. . . 2 00 Mobile, Ala 1 go Arizona Ter. ... 3 00 California 1 00 Colorado 2 00 Ind. Ter 3 00 North C 1 00 Tenn., East of C'land 2 00 Tenn., Middle and West 3 00 Illinois, except Madison and East St. Louis, as previously provided 2 00 List of Bonuses Wyoming .... $4 Oregon 1 Ohio 1 N. D 2 S. D 2 Florida 1 Georgia 2 Atlanta, Ga. . . 2 Ga. Coasts Pts 1 Idaho 2 Nev 3 Oklahoma .... 3 Wis 2 Texas, Interior 3 Texas Coast . . 1 Wash'ton Ter. 1 Michigan . . . . 1 West Va 1 00 Kansas ... .$2 00 00 Ky 2 00 50 La 3 00 00 Miss 4 00 00 Mo 2 00 00 Montana ... 3 00 00 Nebraska . . 3 00 00 N. Mex. ... 3 00 00 S. C 1 00 00 Minn 2 00 00 Utah 4 00 00 Indiana .... 2 00 00 Iowa 2 00 00 00 00 5° 00 2o8 Industrial Combinations and Trusts "All other territory free. "On motion of Mr. Llewellyn, the bonuses on all city work as specially reserved shall be $2.00 per ton." The states, for sales in which, bonuses had to be paid into the association were called "pay" territory, as distinguished from "free" territory, in which defendants were at liberty to make sales without restriction and without paying any bonus. The by-laws provided for an auditor of the association, whose duty it was to keep account of the business done by each shop both in pay and free territory. On the 1st and 16th of each month, he was required to send to each shop "a statement of all shipments reported in the previous half month, with a balance sheet showing the total amount of the premiums on shipments, the division of the same, and debit, credit, balance of each company." The system of bonuses, as a means of restricting competition and maintaining prices, was not successful. A change was therefore made by which prices were to be fixed for each contract by the association, and, except in reserved cities, the bidder was determined by competitive bidding of the members, the one agreeing to give the highest bonus for division among the others getting the contract. The plan was embodied in a resolution passed May 27, 1895, in the words following: "Whereas, the system now in operation in this association of hav- ing a fixed bonus on the several states has not, in its operation, re- sulted in the advancement in the prices of pipe, as was anticipated, except in reserved cities, and some further action is imperatively necessary in order to accomplish the ends for which this association was formed: Therefore, be it resolved, that from and after the first day of June, that all competition on the pipe lettings shall take place among the various pipe shops prior to the said letting. To accomplish this purpose it is proposed that the six competitive shops have a representative board located at some central city, to whom all inquiries for pipe shall be referred, and said board shall fix the price at which said pipe shall be sold, and bids taken from the respective shops for the privilege of handling the order, and the party securing the order shall have the protection of all the other shops." In pursuance of the new plan, it was further agreed "that all parties to this association, having quotations out, shall notify their customers that the same will be withdrawn by June 1, 1895, if not previously accepted, and upon all business accepted on and after June 1st bonuses shall be fixed by the com- mittee." At the meeting of December 19, 1895, it was moved and Pools and Associations 209 carried that, upon all inquiries for prices from "reserved cities" for pipe required during the year of 1896, prices and bonuses should be fixed at a regular or called meeting of the principals. At the meeting of December 20, 1895, the plan for division of bonuses originally adopted was modified by making the basis the total amounts shipped into "pay" territory rather than the totals shipped into "pay" and "free" territory. Exhibit 5 extracts from the constitution and by-laws of the coal dealers' association of california 1 "Article 1. Title and Object, (a) The title of this organization shall be the 'Coal Dealers' Association of California,' with prin- cipal place of business in San Francisco, (b) It shall have for its object the furnishing of information to its members as to sales of coal made by wholesale dealers to the retail dealers, and by retail dealers to consumers, and also the names of any dealers who have been guilty of violating any of the rates or rules made from time to time by this organization, and the furnishing of as complete a list as possible of delinquent consumers, and such other matters as may be decided upon. "Art. 2. What Constitutes a Dealer, (a) Any person who en- gages in the sale of coal as regular business, buying to sell again, who shall own and operate a yard, keeping an office, and displaying a sign, shall be regarded as a retail dealer, (b) All miners and shippers shall be eligible to membership in this association, pro- vided such miner and shipper shall not make a practice of selling coal, at retail, at less price than the retail dealers." "Art. 4. Fees — Dues — Assessments, (a) The admittance fee for membership shall be two hundred (200) dollars, and must invari- ably accompany the application, (b) The amount of dues shall be fifty cents per month, payable quarterly in advance, and to date from the first day of the month following the month in which the member was admitted, (c) Assessments may be levied by a two- thirds vote of the members present at a regular meeting, but only 1 United States v. Coal Dealers' Association of California. 85 Fed. 252. Cf. pp. 254 ff. This combination was organized September nth, 1896, by the retail coal dealers of San Francisco. Another agreement was entered into be- tween this Association and Wholesale dealers of the same City. A temporary injunction against this combination was granted by the court. — Ed. 210 Industrial Combinations and Trusts in such cases when the interests of the association as a business society require it. (d) No assessment shall be levied unless it is expressed in the notice of meeting that ' a resolution to levy an assessment will be introduced.'" "Art. 6. Failure to Pay Dues, Assessments, or Fines — Charges — Right of Appeal, (a) If any member shall neglect or refuse to pay the monthly dues and assessments as provided in the consti- tution and the by-laws of this association within three days after the same have become due, he or they shall no longer be considered members of this association, or participant in its benefits, and shall surrender certificate of membership; but a written or printed notice must be sent, at the expiration of said time, to all those members who are delinquent, and may be reinstated within ten days thereafter by paying in full all dues." by-laws "Sec. 4. Standing Committees, (a) A grievance committee con- sisting of three persons shall be appointed by the president, from the board of directors, on the first Monday of every month, to serve without compensation until the first Monday of the follow- ing month, or until their successors are appointed. They shall assemble whenever requested to do so by the secretary, and re- ceive and investigate all charges of violation of card rules or rates preferred against any coal dealer or agent in the city and county of San Francisco, and report their findings to the secretary. They shall have the power to fix the time limit for the payment of any fines imposed by them " "Sec. 9. Advertising, Circulars, etc. (a) Dealers in advertising coal are not permitted to state prices without adding the names of coal to be had for the prices named; both names and prices to correspond exactly with those on rate card, (b) Any circulars, posters, dodgers, cards, or signs conflicting with the card rates or rules displayed, found on the streets or circulated in any manner whatsoever, shall subject the dealer or agent, who caused their distribution, to the penalties, as are provided in section 13 of these by-laws for selling coal in violation of card rates or rules. "Sec. 11. New Yards. Any member opening a new yard or yards after June 14th, 1895, in addition to the one that secured his Pools and Associations 211 admission in the association, shall be liable for an additional two hundred (200) dollars admittance fee and monthly dues for each yard so opened, in order for such yard or yards to participate in the benefits of the association. "Sec. 12. Standard Rules and Weights, (a) No dealer shall give more or less than 100 pounds to 1 sack; 500 pounds to 5 sacks, or 34 ton (short); 1,000 pounds to 10 sacks, or 3 / 2 ton (short); 2,000 pounds to 20 sacks, or 1 ton (short); 2,240 pounds to 1 ton (long), (b) All long tons must be delivered in bulk. Names of coal must appear on bill exactly as they read on rate card. A load of coal delivered in bulk shall be per ton of 2,240 pounds. If handled after arrival at customer's place, an additional charge of fifty cents per ton must be made. A ton of coal delivered in twenty sacks, and put in bin, shall be 2,000 pounds. No premiums or presents are permitted to be offered as inducements for purchasers to buy coal, (c) Dealers shall be permitted to sell and deliver fifty pounds of coal at one half card rates for one hundred pounds, but in no case shall they be allowed to sell coal in quantities ranging between fifty pounds and one hundred pounds. "Sec. 13. Violations — Penalties, (a) If a dealer or agent, mem- ber or non-member, be found guilty of selling coal in violation of the card rates or rules, he shall be subject to a fine of not less than ten (10) dollars nor more than one hundred (100) dollars for the first offense, not less than twenty-five (25) dollars nor more than two hundred (200) dollars for the second offense; if a member of the association, be suspended and compelled to pay retail prices for third offense until restored to membership in good standing by the board of directors. ... Exhibit 6 structural steel association of the united states ! This agreement, made and entered into this 1st day of January, 1897, by and between the Passaic Rolling Mill Co., Pottsville Iron & Steel Co., A. & P. Roberts Co., Cambria Iron Co., Phoenix Iron Co., New Jersey Steel & Iron Co., Universal Construction Co., the Carnegie Steel Co. (Ltd.), Cleveland Rolling Mill Co., Jones & Laughlin Steel Co. (Ltd.), 1 United States of America v. United States Steel Corporation. Petition, In the Circuit Court of the United States for the District of New Jersey, Exhibit B, pp. 76-82. 212 Industrial Combinations and Trusts Witnesseth that the above said parties have mutually agreed to and with each other to form an association to be known as the Structural Steel Association of the United States. First. Each of the above parties named, being manufacturers and sellers of steel I beams and channels of sizes not less than 3 inches in depth, shall, by reason of such manufacture and sale, be entitled to membership in this association, and each of the parties hereto shall be entitled to such portion of all sales by parties hereto of I beams and channels of sizes not less than 3 inches in depth (except I beams and channels for use in car construction and deck or bulb beams) as is allotted to it under the following table: Per cent. The Carnegie Steel Co. (Ltd.) 49 f Jones & Laughlin (Ltd.) 12 f A. & P. Roberts Co 11 \ Passaic Rolling Mill Co 6 Phoenix Iron Co 5 Cambria Iron Co 5 Universal Construction Co 4 j Pottsville Iron & Steel Co 3 Cleveland Rolling Mill Co 3 100 It being understood that members of this association having bridge works wherein beams and channels, as covered by this agree- ment, are consumed shall report to this association all shipments to such departments and pay the agreed pool tax as hereinafter pro- vided on shipments so made (except such as are used in the con- struction of buildings for their own respective works which tonnage shall be reported and credit given therefor). Second. The officers of this association shall be as follows: A president, a treasurer, a commissioner and an executive committee, consisting of three members (the president being a member of the executive committee, ex officio). Third. Each member of this association (the New Jersey Steel & Iron Co. excepted), shall, on or before the 10th day of February, 1897, and on and before the 10th day of each and every month thereafter, during the terms of this agreement, or any extension thereof, render to the commissioner of this association, a statement, which statement shall be sworn to or affirmed to by one of the prin- Pools and Associations 213 cipal executive officers of the member so making the report, or in case the member so making the report is a copartnership, then, in that case, the report shall be sworn to or affirmed to by one of the firm holding membership in this association which oath or affirma- tion shall be to the effect that the report so made, is a true and correct report of all the material described in the first clause of this agreement which was shipped by the member making the report during the month for which the report is made; the form of the re- port and oath or affirmation as to its correctness, shall be furnished by the commissioner. And upon the commissioner's receiving from the respective members their reports, as aforesaid, he, the commis- sioner, shall render to each member monthly, as soon as possible after the receipt of all the statements of all the members, copies of statements last rendered by each member, and shall forthwith "state an account," charging each member, who has shipped during the month more than its or their percentage of the total amount shipped by all the members of the association, the sum of five-tenths cents per pound on each and every pound of such excess and credit- ing each member who has not shipped its or their percentage of the total amount shipped by all the members of the association with the sum of five-tenths cents per pound on each and every pound which it or they fail to ship during the month for which the reports are made, as aforesaid, and as a basis of calculation in making such "statement of account," the commissioner shall use the table of percentages as set forth in the first clause of this agreement. And upon the statement of such account by the commissioner, he shall immediately mail a copy thereof to each member of this association and within five days after the receipt of any account by the member of this association, which account shall show that the member receiving the same is indebted to the association, the mem- ber so receiving its or their account showing its or their indebted- ness, shall forward to the treasurer a check or sight draft drawn to the order of T. Mellon & Sons, in payment of such indebtedness, which check or sight draft the treasurer shall deposit in the said T. Mellon & Sons' bank to the credit of this association, and im- mediately upon the treasurer receiving from the members all their respective remittances, in payment of their indebtedness to the association, for any month, he, the treasurer, shall notify the re- spective members whom the aforesaid "account stated" shall show to be creditors of the association for any month, to draw on him (the treasurer) for the amount due to them as shown by said "ac- 214 Industrial Combinations and Trusts count stated," and upon receipt of their several drafts so made the treasurer shall accept the same payment at T. Mellon & Sons', and charge the amounts thereof to the fund created by the payments made by the members who shipped in excess of their proportion during the month for which the "account stated" was made, thus closing that account each month. Fourth. To insure the rendering of the statements and the settle- ment of the balances due between the members of this association, at the time required by the provisions of this agreement, each mem- ber (the New Jersey Steel & Iron Co. excepted) shall, immediately after the signing of this agreement, remit to the treasurer its or their check or sight draft for the sum of $2,500, and shall, on or before the 10th day of each month thereafter, remit its or their check or sight draft for $500, the said checks or sight drafts shall be made in favor of T. Mellon & Sons, who shall become the depos- itory of all the proceeds of such checks or sight drafts, which shall form a guaranty fund and be held by said T. Mellon & Sons during the continuance of this agreement, or any extension thereof, and disposed of finally as hereinafter provided. It being understood that when the said guaranty fund reaches the sum total of $45,000, that the payments toward said fund shall thereupon cease. Fifth. Whereas it has been agreed by and between the several other members and the New Jersey Steel & Iron Co. that the works of the said New Jersey Steel & Iron Co. shall remain inoperative in the manufacture of I beams and channels, of sizes coming under the provision of and during the life of this agreement, in consideration of which the New Jersey Iron and Steel Co. shall receive from this association the sum of $5,000 per month. Said sum of $5,000 to be paid by the several other members in proportion to their allotments as shown by the table in the first clause of this agreement. On the tenth day of each month the treasurer shall draw at sight on the respective parties to this agreement for the proportionate amount of the indebtedness, and when all such drafts shall have been paid, he shall immediately notify the New Jersey Steel & Iron Co. to draw upon him at sight for the sum of $5,000, thus closing this account each month. In case any draft which the treasurer shall make, as in this clause provided, shall not be promptly paid, the amount of such draft shall be taken from the deposition the guar- antee fund of the party failing to pay such draft, and payment made to the New Jersey Steel & Iron Co., the same as if all such Pools and Associations 215 drafts of the treasurer has been paid, and such party shall imme- diately remit to the treasurer an amount sufficient to make good the sum so taken from the guarantee fund. 1 Sixth. Whereas it has been agreed by and between all the mem- bers of this association (the New Jersey Steel & Iron Co. excepted) to exempt all members except the Phoenix Iron Co., to the extent of 5 per cent of 300,000 tons, in the proportions expressed in the table of allotments contained in clause 1 of this agreement; the aforesaid Phoenix Iron Co. to be exempted to the amount of 11,000 tons; the pool assessment shall not be charged on any member's shipments until it or they shall have completed its or their quoto 2 of exempted tonnage. Seventh. It is required that all I beams and channels shipped into the States bordering on the Pacific coast and to be actually used in the territory into which it is shipped and also all I beams and channels actually exported for use outside the limits of the United States be reported to the commissioner together with bills of lading or other evidence of exportation satisfactory to him (said evidence to be confidential and not to be circulated among the members). Such tonnage will be deducted from the member's report and the agreed pool tax charged on the balance. Eighth. Upon receiving the written request of any one member of the association the commissioner shall call a meeting of the parties to this agreement, to be held within five days from the date of his receiving such written request. Ninth. If at any time any of the parties hereto shall have reason to suppose that any other party or parties to the agreement have violated any of the provisions of this agreement, the said party so supposing the agreement has been violated shall file with the com- missioner of the association a bill of complaint against the party or parties so suspected of such violation, which bill of complaint shall fully set forth the act or acts complained of, together with all the matters or things connected therewith. The said bill of com- plaint shall be in writing and shall furnish all the evidence that can be submitted in connection with the alleged violation, and upon receipt by the commissioner of any and all bills of complaint as aforesaid, he shall forthwith use Ins best offices to have the accuser and accused arrive at an amicable settlement, failing in which, he shall submit all the information he may have to the executive com- 1 This sentence is thus in the original. — -Ed. 2 Thus in the original. — Ed. 216 Industrial Combinations and Trusts mittee for action. If the said executive committee shall determine that the charges have been sustained, they, the executive com- mittee, shall impose a penalty not less than $1,000, nor more than the amount standing to the credit of the member so punished in the guaranty fund at the time the fine is imposed upon the party so adjudged as having violated the agreement, but if the executive committee shall determine that the charges have not been sustained they shall dismiss the complaint from further consideration by them. It being further understood and agreed that no member of the executive committee shall act upon any bill of complaint made by or made against the member of the association which he repre- sents, nor shall any representative of a member of the association vote upon any bill of complaint brought by or brought against the member of the association which he represents. Any penalty im- posed by the executive committee will be collected by the treasurer, deducting the amount thereof from the deposit made by the mem- ber against whom the penalty is imposed to the guaranty fund, as provided for in clause fourth of this agreement, within two weeks after such penalty is thus imposed, the sum thereof shall be trans- ferred pro rata as per allotments to the accounts of the members of the association, excluding the member against whom the penalty is imposed, by the treasurer of the association, in which case the member so punished shall immediately remit an amount sufficient to make good the sum taken from the guaranty fund. In case the offending member should appeal to the association and the action of the executive committee should not be sustained by a majority vote of said association, then the fine imposed shall be remitted and any sum that the member may have paid into the association by reason of this shall be returned. Tenth. No member of this association (the New Jersey Steel & Iron Co. excepted) shall make any lump-sum bid, nor shall they or it erect any building, directly or indirectly. This applies only to members as "Rolling Mills." Any question arising as to the inter- pretation of this clause shall be referred to the commissioner for his immediate decision. Eleventh. No consideration in the nature of brokerage or com- mission is to be allowed, except to the accredited agents of the parties to this agreement, whose names shall be on file with the commissioner; and in no case will it be permissible for such com- mission to be divided. Pools and Associations 217 No sales or contracts shall be made to or with middlemen except on specific work for immediate specifications. All sales between parties to this agreement shall be at pool prices, as provided in agreement "B," and all shipments shall be reported by the manufacturer, on which the pool tax will be charged the same as to outside parties, the purchaser also to report shipments of all such material so bought, for which they shall claim and receive credit. Twelfth. At any meeting of the members of this association, called by the commissioner as herein provided, any party or parties may give notice of withdrawal herefrom, but no such notice shall take effect until January 1, 1898. If the aggregate pool percent- ages of the parties giving such notice of withdrawal shall amount to less than 4 per cent, this agreement shall continue in force as between the remaining parties, but if such aggregate shall amount to 4 per cent or more this agreement shall terminate at the time so fixed. But statements shall continue to be rendered of all I beams and channels shipped up to date of its termination, the pool assessment. 1 Thirteenth. The percentages of the parties hereto or of their successors (including as such any concern mainly owned or con- trolled by any of the said parties or any of their stockholders), shall be maintained in the same relative proportion until other- wise agreed, and if any party shall at any time have more than one successor or allied concern, the aggregate percentages allotted to itself and all its successors and allied concerns shall not exceed the percentage that the original concern would have been entitled to if it had continued alone its relations to the other parties under this agreement, and the parties thereto shall include in their state- ment the shipments for such successors and allied concerns. Fourteenth. In case other firms or corporations are admitted as partners to this agreement, the percentage of the pool allotted to each shall be deducted pro rata from the percentages of the members immediately prior to the time of its admission; and in case any of the parties hereto or any of the parties hereafter admitted shall withdraw, the percentage of the pool allotted to such withdrawing party or parties shall be added pro rata to the percentages of the parties remaining. In such case the commissioner shall compute and report the new percentages to the nearest one-hundredth of one per cent, which degree of accuracy shall be deemed sufficient. 1 This sentence is thus in the original. — Ed. 218 Industrial Combinations and Trusts Fifteenth. The allotment herein made of percentages, the amount of the guaranty fund, and the payment made to the New Jersey Steel & Iron Co., as herein provided, shall not be altered, amended, or changed in any respect, except by the unanimous consent of all the parties to this agreement, but any other matters or things whatsoever which concern this agreement or the association formed thereby or any regulations hereafter adopted, may, at any time, be abrogated or amended or altered at any meeting of the members of this association, provided that two-thirds of the members of the association are present thereat, that they represent at least two- thirds of the percentage allotted to all, and vote in favor thereof. Sixteenth. To provide for the prompt payment of all salaries, rents, and other expenses (except the payment which is to be made monthly to the New Jersey Steel & Iron Co.), a general expense fund shall be called in as needed by the treasurer in proportion to the percentage allotted each member in the association. Seventeenth. No matter of account or understanding outside of this agreement shall affect the settlements herein provided for, either as an offset or otherwise, nor shall any written or unwritten agreement of the parties hereto, or any of them, to establish and maintain uniformity in prices, or any controversy arising out of such agreement, or any failure to carry out any of its provisions, or to maintain prices, affect in any way the rendering of the state- ments and the making of the settlements therein required. Eighteenth. Whenever this agreement shall have been termi- nated the balance of the deposit, with accumulated interest, remain- ing in the hands of the treasurer to the credit of each party, after provision shall have been made for the payment of all expenses, shall be returned to it, provided it shall have rendered all the state- ments required from it under this agreement and have paid all its debtor balances. In case any party hereto shall not have fulfilled its money obligations under this agreement, the amount it has on deposit in the guarantee fund shall be applied toward the fulfill- ment of those obligations, and the excess, if any, returned to it. But in case any party shall not have fulfilled its agreement to render the monthly statements under this agreement, the amount it has on deposit in the guarantee fund, or the excess thereof, as above stated, shall be divided among the parties who shall have fulfilled their obligations under this agreement, in the proportion of their respective percentages. Nineteenth. At the expiration of this agreement, or at any time Pools and Associations 219 the president of the association, together with the majority of the executive committee, determine that it is advisable that all or any part of any funds belonging to the association shall be withdrawn from the depository then holding the same, upon notification by the present and a majority of the executive committee of such deter- mination being given the treasurer, he, the treasurer, shall make and sign a sight draft or check upon the depository so holding such funds for the sum named in such notification, which check or sight draft shall then be countersigned by the president or one member of the ex- ecutive committee, and when such checks or sight drafts are so made and signed by the treasurer and countersigned by the president or one member of the executive committee and duly presented for pay- ment at the office of the depository holding the funds of the associa- tion, all such checks and sight drafts shall be paid by such depository. Twentieth. For all purposes of this agreement a ton shall be taken and held of 2,000 pounds. In witness whereof the parties hereto have signed this agreement the day and year first above written. Exhibit 7 the steel plate association l This Agreement, made and entered into this ninth day of No- vember, 1900, by and between: Carnegie Steel Company. Jones & Laughlins, Limited. Illinois Steel Company. Crucible Steel Company. Otis Steel Company. Tidewater Steel Company. Lukens Iron & Steel Company. Worth Bros. Company. Central Iron & Steel Company. The American Steel & Wire Company. The Glasgow Iron Company. Witnesseth : That the above said parties have mutually agreed to and with each other to form an Association for mutual interests, and to enable them to pay liberal wages to their workmen, to be known as The Steel Plate Association of the United States. 1 United States of America v. United States Steel Corporation. Petition, Ex- ibit A, pp. 70-75. 220 Industrial Combinations and Trusts First: Each of the parties above named being manufacturers and sellers of steel plates, shall by reason of such manufacture and sale, be entitled to membership in this Association, and each of the par- ties hereto shall be entitled to portion of all shipments in the follow- ing proportions: Carnegie Steel Company 46.25 Jones & Laughlins, Limited 4.75 Illinois Steel Company 11.00 Crucible Steel Company of America 4.50 Otis Steel Company 2.50 Tidewater Steel Company 3.00 Lukens Iron & Steel Company 7.50 Worth Bros. Company 7.00 Central Iron & Steel Company 8.00 American Steel & Wire Company 5.50 Glasgow Iron Company to the extent of sales and out- put up to 40,000 tons, should they be able to accom- plish them, prior to December 31st, 1901. Second: The officers of this Association shall be as follows: a President, a Treasurer, a Commissioner and an Executive Com- mittee consisting of six members, including the President. The conclusions of all the Executive Committee meetings shall be at once communicated to all members of this Association. Third: Each member of this Association shall, on or before the tenth day of December, 1900, and on or before the tenth day of every month thereafter during the term of this Agreement, or any extension thereof, render to the Commissioner of this Association, a statement, which statement shall be sworn to, or affirmed to, by one of the principal Executive officers of the member so making the report, or in case the member so making the report is a co-partner- ship, then, in that case, the report shall be sworn to, or affirmed to, by one of the firm holding membership in this Association, which oath or affirmation shall be to the effect that the report so made, is a true and correct report of all the material described in the First Clause of this Agreement, which was shipped by the member mak- ing the report during the month for which the report is made; the form of the report, and oath of affirmation as to its correctness, shall be furnished by the Commissioner, and shall include a statement of the rolling production for each month; and upon the Commissioner's receiving from the respective members their reports, as afore- Pools and Associations 221 said, he the Commissioner, shall render to each member monthly, as soon as possible after the receipt of all the statements of all the members, copies of statements last rendered by each member, and shall forthwith "State an Account," charging each member, who has shipped during the month more than its or their percentage of the total amount shipped by all the members of the Association, the sum of Thirty-five hundredths of a cent (.35c) per pound on each and every pound of such excess, and crediting each member who has not shipped its or their percentage of the total amount shipped by all members of the Association, with the sum of thirty- five hundredths of a cent (.35c) per pound on each and every pound with which it or they fail to ship during the month for which the reports are made, as aforesaid, and as a basis of calculation making such "Statement of Account," the Commissioner shall use the ta- ble of percentages as set forth in the First Clause of this Agreement; and upon the Statement of any such account by the Commissioner, he shall immediately mail a copy thereof to each member of this Association, and within five days after the receipt of any account by the member of this Association, which account shall show that the member receiving the same is indebted to the Association, the mem- ber so receiving its or their account, showing its or their indebted- ness, shall forward to the Treasurer a check or sight draft drawn to the order of T. Mellon & Sons, in payment of such indebtedness which check or sight draft the Treasurer shall deposit in the said Mellon & Sons' Bank, Pittsburg, Pa., to the credit of this Associa- tion, and to remain to the credit of the member paying on excess of shipments and being increased or diminished as each month's business shows. It shall be the right and privilege of each member, who shall not have shipped his full percentage, to call, through the Commissioner on members who have made an excess, to transfer to the short member a sufficient amount of tonnage, or otherwise enable him to fill up his order book. It being the intent of this Agreement that each member shall ship his entire percentage, and at the end of each year it shall be the duty of the Commissioner to so arrange between the members as to have the pool balanced ; but any member unable, at the end of each year, to produce his allot- ment, after first deducting his exempted tonnage; which shall be divided among other members of the pool, in proportion to their respective tonnage allotments. Fourth: To insure the rendering of the statements and the faith- ful adherence of each party to the terms of this Agreement, a guar- 222 Industrial Combinations and Trusts antec fund of $100,000 shall be formed by the payment on or before December 3rd, 1900, of $1,000 for each per cent, of allotment, as provided for in the First Clause of this Agreement to the Treasurer, which fund shall be deposited or invested as directed by the Execu- tive Committee in trust for the members, in the same proportion as received. Subject however, to such forfeiture or penalty as may be declared by a vote of the remainder of the members against any member violating the terms of this Agreement, as hereinafter pro- vided. Fifth: Whereas, it has been agreed by and between all the mem- bers of this Association to exempt certain tonnage to cover orders already taken, it is agreed that such exemption shall be as follows: Carnegie Steel Company 140,000 tons. Jones & Laughlins, Limited 9,400 " Illinois Steel Company J 5,394 " Crucible Steel Company of America 2,687 " Otis Steel Company 1,740 " Tidewater Steel Company 2,520 " Lukens Iron & Steel Company 5,778 " Worth Bros. Company 3,863 " The American Steel & Wire Company ....... 15,116 " Glasgow Iron Company 7,965 " It is understood that those who hold exemptions under this agree- ment areto proportionthe shipments applying to them in monthlyal- lotments, between the date of this Agreement and January 1st, 1902, and such shipments shall not be subject to the pool assessment. Sixth: It is required that all plates shipped into the states bordering on the Pacific Coast, and to be actually used in the ter- ritory into which it is shipped, and also all plates actually exported for use outside the limits of the United States, be reported to the Commissioner, together with Bills of Lading, or other evidence of exportation, for actual use abroad, satisfactory to him (said evi- dence to be confidential and not to be circulated among the mem- bers.) Such tonnage will be deducted from the member's report, and the agreed pool tax charged on the balance. Seventh : Upon receiving the written request of two members of the Association, stating the object, the Commissioner shall, upon the approval of the Executive Committee, call a meeting of the parties to this agreement, to be held from five days from date of his receiving such written request. Pools and Associations 223 Eighth: If at any time any of the parties hereto shall have reason to suppose that any other party or parties to the Agreement have violated any of the provisions of this Agreement, the said party so supposing the Agreement has been violated, shall file with the Com- missioner of the Association, a Bill of Complaint against the party or parties so suspected of such violation, which Bill of Complaint shall fully set forth the act or acts complained of, together with all the matters or things connected therewith; the said Bill of Com- plaint shall be in writing, and shall furnish all the evidence that can be submitted in connection with the alleged violation, and upon receipt by the commissioner of any and all Bills of Complaint, as aforesaid, he shall forthwith use his best offices to have the accuser and accused arrive at an amicable settlement, failing in which, he shall then submit all the information he may have to the Executive Committee for action ; if the said Executive Committee shall deter- mine that the charges have been sustained they, the Executive Committee, shall impose a penalty of not less than One Thousand Dollars, nor more than the amount standing to the credit of the member, so punished, in the Guarantee Fund at the time the fine is imposed upon the party so adjudged as having violated the Agree- ment, but, if the Executive Committee shall determine that the charges have not been sustained, they shall dismiss the complaint from further consideration by them. It is further understood and agreed that no member of the Executive Committee shall act upon any Bill of Complaint made by, or made against the member of the Association which he represents nor shall any representative of a member of the Association vote upon any Bill of Complaint brought by or brought against the member of the Association he represents. Any penalty imposed by the Executive Committee will be collected by the Treasurer, deducting the amount therefrom the deposit made by the member, against whom the penalty is imposed, to the Guarantee Fund, as provided for in Clause Fourth of this Agree- ment, within two weeks after such penalty is thus imposed, the sum thereof shall be transferred pro rata as per allotments to the accounts of the members of the Association excluding the member against whom the penalty is imposed, by the Treasurer of the Association, in which case the member so punished shall immedi- ately remit an amount sufficient to make good the sum taken from the Guarantee Fund. In case the offending member shall appeal to the Association and the action of the Executive Committee shall not be sustained by a 224 Industrial Combinations and Trusts majority vote of the members of the said Association, then the fine imposed shall be remitted, and any sum that the member may have paid into the Association, by reason of this shall be returned. Ninth: No consideration, in the nature of brokerage or com- mission, shall be paid to any one on sales of plates, on or after January ist, 1901. All sales between parties to this Agreement shall be at pool prices, as provided in Agreement "B," and all shipments shall be reported by the manufacturer, on which the pool tax will be charged the same as to outside parties, the purchaser also to report shipments of all such materials so bought, for which they shall claim and re- ceive credit. Tenth: At any meeting of the members of this Association, called by the Commissioner, as herein provided, any party, or parties may give three months notice of withdrawal herefrom but no such no- tice shall take effect prior to January ist, 1902. Statements shall continue to be rendered of all plates snipped up to date of such with- drawal, the pool assessment to be charged thereon. Eleventh: In case other firms or corporations are admitted as partners to this Agreement, the percentage of the pool alloted to each shall be deducted pro rata from the percentages of the mem- bers immediately prior to the time of its admission ; and in case any of the parties hereto, or any of the parties hereafter admitted shall withdraw, the percentage of the pool alloted to such withdrawing party or parties shall be added pro rata to the percentages of the parties remaining. In such case, the Commissioner shall compute and report the new postages to the nearest one hundredth of one per cent., which degree of accuracy shall be deemed sufficient. Twelfth: The Agreement herein made of percentages, the amount of the Guarantee Fund as herein provided, and the Agree- ment to maintain minimum fixed rates as covered in Agreement "B", shall not be altered, amended or changed in any respect, ex- cept by the unanimous consent of all parties to this agreement. Thirteenth: To provide for the prompt payment of all salaries, rents and other expenses, a general expense fund shall be called in as needed, by the Treasurer, in proportion to the percentage alloted l each member of the Association. Fourteenth: No matter of account, or understanding outside of this Agreement, shall affect the settlements herein provided for; either as an offset or otherwise, nor shall any written or unwritten 1 Thus in original. — Ed. Pools and Associations 225 agreement of the parties hereto, or any of them establish and main- tain uniformity prices, or controversy arising out of any such agree- ment or any failure to carry out any of its provisions or to maintain prices, affect in any way the rendering of the statements and the making of the settlements herein required. Fifteenth: Whenever this Agreement shall have been termi- nated the balance of the deposit, with accumulated interest, remain- ing in the hands of the Treasurer to the credit of each party, after provision shall have been made for the payment of all expenses, shall be returned to it, provided it shall have rendered all the statements required from it under this Agreement, and have paid all its debtor balances. In case any party hereto shall not have fulfilled its money obligations under this agreement, the amount it has on deposit in the Guarantee Fund shall be applied towards the fulfillment of those obligations, and the excess, if any, returned to it. But in case any party shall not have fulfilled its agreement, the amount it has on deposit on x the Guarantee Fund, or the excess thereof, as above stated, shall be divided among the parties who shall have fulfilled their obligations under this agreement in the proportion of their respective percentages. Sixteenth: For all purpose 1 of this contract, a ton shall be taken and held as Two Thousand Pounds, (2,000). In witness whereof the above parties have signed this Agree- ment the day and year first above written. Exhibit 8 by-laws of the eastern states retail lumber dealers association * Article I. Name and territory. The name of this organization shall be the Eastern States Retail Lumber Dealers' Association, and the territory embraced by it shall be that covered by the association admitted to membership. 1 Thus in original. — Ed. 2 United States of America v. The Eastern States Retail Lumber Dealers As- sociation. Original Petition, In the Circuit Court of the United States for the Southern District of New York, Exhibit A, pp. 70-73. This Association was organized at New Haven, Conn., in September, 1902. — Ed. 226 Industrial Combinations and Trusts Article II. Objects. The objects of this association shall be to promote and foster a unity of action in all matters pertaining to the legitimate conduct of the retail lumber trade, to encourage friendly relations between the several associations whose members are members of this associa- tion, to correct abuses and irregularities from which the trade suf- fers, to secure and disseminate any and all proper information for the mutual convenience, benefit,' or protection of Us membership. 1 Article III. Restrictions. No rules, regulations, or by-laws shall be adopted which will in any manner stifle competition, limit production, regulate prices, restrain trade, or provide for the pooling of profits; no coercive measures shall be practiced or adopted toward any retailer or whole- saler; nor shall any discriminatory practices on the part of this association be used or allowed against any retailer or wholesaler for the reason that he may or may not be a member of any associa- tion, and no promises or agreements of any kind shall be requisite to membership in this association other than those contained in this constitution, nor shall any penalties be imposed for any cause what- soever. Article IV. Officers. Section i. The officers of this association shall consist of a presi- dent, vice president, secretary, who shall also act as treasurer, who shall be elected by ballot at each annual meeting, and with two other members, who shall also be elected at each annual meeting, shall constitute the board of directors, and a majority of the votes cast shall be necessary to a choice. All officers shall hold office until their successors are duly elected and qualified. No officer shall have power to make or enter into any contract, obligation, or agreement on behalf of the association until such contract, obliga- tion, or agreement shall have been submitted to, and received the indorsement, approval, or sanction of a majority of the member- 1 Italics are the editor's. Pools and Associations 227 ship. No officer shall obligate the association for any expenditure of money above the sum of $25 without the approval of a majority vote. Sec. 2. Until the first annual meeting the vice president, secre- tary, and treasurer need not be members of the board of directors. Article V. Duties of officers. Each officer of the association shall perform the duties usually devolving upon the occupant of such office. It shall be the duty of the secretary to perform such labors on behalf of the association as he may be called upon in the interim between meetings and to carry out all matters upon which action has been taken in meeting, un- less otherwise ordered. Article VI. Meetings. The association shall hold two regular meetings each twelve months, the annual meeting on the first Wednesday in October, in the city of New York, and the second meeting at such time and place as may be determined upon. Special meetings may be called by the president when considered necessary, or whenever the repre- sentatives of the three associations shall unite in asking that such a meeting be called. Notices of all meetings shall be given to the members of this association at least five days before the date set for such meeting. Article VII. Membership. Section i. The members of this association shall be composed of three members, one of whom shall be the secretary of each of the following associations: The New York Lumber Trade Association, the New Jersey Lumbermen's Protective Association, the Lumber Dealers' Association of Connecticut, the Lumber Dealers' Associa- tion of Rhode Island, the Massachusetts Retail Lumber Dealers' Association, the Retail Lumbermen's Association of Philadelphia, and of three members, one of whom shall be secretary of such other regularly organized bodies representing the retail lumber dealers' interests as shall be elected by a majority vote at any regular meet- ing of this association. 228 Industrial Combinations and Trusts Sec. 2. All members shall enjoy equal privileges except that upon the final vote on all questions and at elections, and on amendments, shall be decided under the unit rule, the three members of each association being entitled to only one vote for such three members. Article VIII. Committees and delegates. Whenever action may require the appointment of committees to perform special work, or necessity calls for the appointment of a delegate, or delegates, the president shall be authorized to notify the members of this association, stating in writing the object for such appointment, and upon receiving a majority vote favorable thereto he shall have power to act in the making of such appoint- ment as he may deem proper. Article IX. Settlements of disputes. Any and all claims referred to this association for settlement shall be submitted in writing unless otherwise decided, with such accompanying documentary evidences as the parties thereto may consider necessary, and all parties interested must agree to accept the decision of this association as final. Article X. Expenses. To meet the expenses incurred by this association, an annual fee of $10 shall be paid by the members of each association jointly at the annual meeting, and all other expenses shall be pro rata, based on the amount received from annual dues for the previous year by the association of which they are members. Article XI. Amendments. Amendments to these articles may be made at any meeting by a two-thirds vote of the members present, provided notice of such amendment shall have been included in the call for the meeting. Pools and Associations 229 Article XII. Quorum. A quorum of this organization for the transaction of business shall consist of not less than one of the members of three of said associations. Exhibit 9 naval stores agreement ! Memorandum of agreement made and executed on this day of March, A. D. 1905, between the Patterson-Downing Company, a corporation of West Virginia, of the first part, herein- after called "Patterson"; the S. P. Shotter Company, also a corpo- ration of West Virginia, of the second part, hereinafter called "Shotter"; the Societe Anonyme des Produits Resineux, a corporation of the Kingdom of Belgium, of the third part, herein- after called "Anonyme"; Nickoll & Knight, a mercantile firm composed of Alexander Knight, of the city of London, England, of the fourth part, hereinafter called "Nickolls"; and the Globe Na- val Stores Company, also a corporation of West Virginia, of the fifth part, hereinafter called "GLOBE." Whereas Globe is chartered and organized for the purpose of buy- ing and selling and generally dealing in spirits of turpentine, includ- ing turpentine chemically extracted by artificial process from pine wood, and which is commonly called wood turpentine; and Whereas, Patterson, Shotter, Anonyme, and Nickolls as a part of their respective business severally deal in such turpentine product; and Whereas, further the said Patterson, Shotter, Anonyme, and Nickolls have each severally subscribed to the capital stock of said Globe in the following proportions, viz: Patterson to 34% thereof, or 340 shares; Shotter to 21-^% thereof, or 215 shares; Anonyme to 26-^% thereof, or 265 shares; Nickolls to 18% thereof, or 180 shares; 1 The United States of America v. American Naval Stores Company et al. Pe- tition in Equity, In the District Court of the United States for the Eastern Divi- sion of the Southern District of Georgia, Exhibit A, pp. 25-36. In this case the Globe Naval Stores Company appears from the agreement, and so the Government alleges, to be merely a clearing house for the pooling of profits and losses. — Ed. 230 Industrial Combinations and Trusts all of said shares being of the par value of fifty dollars ($50) per share; and Whereas, Globe desires to acquire from the first, second, third, and fourth parties, respectively, their several turpentine businesses, and said first, second, third, and fourth parties are willing to dispose of the same on the terms and conditions hereinafter set forth; and Whereas, the said Patterson and Shotter are extensive dealers in American rosin, and one of the considerations moving them to enter into this contract is the regulation of the rosin business as between themselves and the said Anonyme and Nickolls: Now, then, this agreement witnesseth, That in consideration of the premises and of one dollar by each of said parties to each of the other in hand paid, the receipt whereof is hereby acknowledged, the parties hereto mutually covenant and agree each with the others as follows: 1. The said Patterson, Shotter, Anonyme, and Nickolls severally sell, assign, and set over to Globe their respective turpentine busi- nesses upon the terms and subject to the limitations hereinafter mentioned. 2. The said Globe, in consideration of such sales and assign- ments, agrees to pay to Patterson, Shotter, Anonyme, and Nickolls, respectively, seventeen thousand dollars ($17,000), ten thousand seven hundred and fifty dollars ($10,750), thirteen thousand two hundred and fifty dollars ($13,250), and nine thousand dollars ($9,000), in full-paid stock at par of the Globe Company. 3. It is understood and agreed that said Patterson, Shotter, Anonyme, and Nickolls shall severally act as the agents and repre- sentatives of said Globe in the buying and selling of turpentine products, their several turpentine businesses, however, being con- ducted as heretofore in their own names, but for account of Globe. 4. It is understood and agreed that James Farie, jr., of Savannah, Georgia, is under contract to Nickolls whereby his entire naval stores business shall be carried on as heretofore, that is to say, the turpentine business of the said Farie shall be conducted by him for account of Globe, and the rosin business for the joint account of Patterson and Shotter, it being expressly understood that the said James Farie, jr., and Andrew Farie, also of Savannah, Georgia, shall have no interest of any kind, either directly or indirectly, and shall not in any manner or form, deal or operate in spirits of turpen- tine or rosin or other products of pine trees, except as provided in said contract, a copy of which is attached hereto, and in considera- Pools and Associations 231 tion of the premises Nickolls hereby assigns all their rights in and under said contract to Globe, and on the other hand, Globe hereby takes the place of Nickolls in said contract and assumes all the burdens and obligations thereunder and shall be entitled to all benefits thereof, provided, however, that Globe shall not be re- quired by reason of said contract to pay to the said James Farie, jr., a sum greater than twenty-one thousand five hundred dollars ($21,500) per annum, it being further understood that said Nickolls shall contribute the sum of seven thousand five hundred dollars ($7,500) for the office expenses of said James Farie, jr., in Savannah, Georgia. 5. It is understood and agreed that said Patterson, Shotter, Anon- yme, and Nickolls, in conducting their several businesses as the agents and for account of Globe as aforesaid, shall confine their operations to regular business transactions, so as to assure as far as possible reasonable and legitimate profits, it being expressly under- stood that neither of said parties shall be at liberty to do a specu- lative business without the consent of Globe. 6. It is understood and agreed that neither Patterson, Shotter, Anonyme, or Nickolls shall hold any interest or directly or indirectly deal in American turpentine, except as the agents and for account and benefit of Globe, it being understood that by American turpen- tine is meant the spirits of turpentine and wood turpentine which is concentrated at all and every of the Atlantic seaports of the United States of America, and which either of said first four par- ties may handle and sell as being from said Atlantic seaports. 7. It is understood and agreed that this agreement comprehends and includes as part of the turpentine business herein purchased the sale of French and Spanish turpentine exported from France and Spain, but it does not include any French turpentine handled or sold in France itself. 8. It is understood and agreed that this contract does not cover any turpentine business which Patterson and Shotter may control in the Gulf ports of the United States, it being expected that the domestic consumption will absorb all the receipts coming to said Gulf ports. In the event, however, the domestic consumption does not absorb all of such Gulf port receipts, then Patterson and Shot- ter, respectively, agree to turn over to Globe the surplus receipts, provided, however, that the quantity of such surplus must be specified and declared on the fifteenth (15th) and last days of each month and must be charged to said Globe at the average Savannah 232 Industrial Combinations and Trusts quotations of the previous fifteen days, with the exception, however, of a surplus at New Orleans, not exceeding twenty thousand (20,000) barrels per annum, for which Globe hereby agrees to pay one and a half (i-j/Q cents per gallon above the average quotations. Should the Savannah quotations during the periods affected be fictitious, the average price to be paid must be on the same basis that has been applied to the receipts at the Atlantic closed ports. Patterson and Shotter severally agree that they will make no charge for interest, storage, and fire insurance on such surplus receipts of the Gulf ports up to the day on which they declare the same. After said date the charges will be assumed and borne by said Globe, provided that the same shall not exceed the charges now in force in Savannah, Georgia. 9. It is understood and agreed that Patterson and Shotter and Nickolls (the latter operating through James Farie, jr., at Savannah, Georgia) shall continue to conduct their respective business l in turpentine as hereinbefore defined, but for the account and benefit of Globe. As compensation for their services in the premises said Patterson and Shotter shall be allowed a commission of one per cent (1%) on all sales made by them, respectively, provided, however, that said Patterson and Shotter shall only receive one- half GH9 of one per cent (1%) on sales made to the Pratt works in New York, Prince in Boston, and on all sales to Philadelphia. It is further understood that on sales, transfers, and divisions of re- ceipts to and with the Standard Oil Company no commission will be charged except upon such quantities as will reduce the commit- ments of Patterson and Shotter under their contracts with the Standard Oil Company in the Gulf States, upon which quantities they will be allowed a commission of one per cent (1%). 10. It is understood that Nickolls shall not sell more than fif- teen thousand (15,000) barrels per annum. 11. It is understood and agreed that Anonyme will conduct for the company and for its benefit any business offered for export in Spanish and French turpentine, and that said Anonyme shall be allowed a commission of one per cent (1%) on all Spanish turpen- tine, and a commission of one-half Q/Q of one per cent (1%) on maximum fifteen thousand (15,000) barrels of French turpentine. 12. It is understood and agreed that the operations of Patterson, Shotter, Anonyme, and Nickolls for account of Globe shall be conducted and entered under a turpentine account, and shall in- 1 Thus in original. — Ed. Pools and Associations 233 elude all transactions, whether actual deliveries or contracts, where settlement is made in lieu of actual delivery. It is understood that Patterson, Shotter, Anonyme, and Nickolls, respectively, shall each operate in their own names, and with their own organiza- tions, the said Globe being responsible for any losses that may be sustained through the nonfulfillment of contracts or bad debts. The turpentine account shall be charged at cost with all of the turpentine bought for account of Globe, and such account shall be credited with the result of all sales made for Globe. The said account shall not be charged with any of the ordinary expenses of maintenance of the respective business 1 of said Patterson, Shotter, Anonyme, and Nickolls, but only with the actual expenses of storage, handling, marine and fire insurance, cabling and telegraph- ing, legitimate commissions to agents and brokers for effecting sales, and interest on advances; or, in other words, only actual out- lays of money other than office expenses shall be charged to turpen- tine account. It is understood that the first four parties, respectively, shall insure and keep insured against fire and marine risk all turpentine purchased and held by them, respectively, for account of Globe, and in the event of any loss being incurred by reason of either of said first four parties failing to insure and keep insured any turpen- tine so purchased or held for account of Globe, such loss shall be borne by the party so in default; provided, however, that said first four parties shall not be held responsible for the solvency of the company in which the insurance may be effected, and it is further understood and agreed that inasmuch as said Patterson and Shot- ter own and to a more or less extent operate in the name of the Standard Naval Stores Company as purchasing and forwarding agent of turpentine purchased for account of Globe, the terms and provisions of this agreement as to insurance shall be applicable to said Standard Naval Stores Company, and the said Patterson and Shotter hereby make themselves responsible to Globe for any loss which it may sustain by the failure of the said Standard Naval Stores Company to insure and keep insured all turpentine held by it, either directly or indirectly, for account of said Globe. It is understood that interest on moneys which may be advanced by either of the first four parties is to be charged at the rate of six per cent (6%) per annum, and in the event differences occur in regard to interest by reason of the different modes of bookkeeping of the 1 Thus in original. — Ed. 234 Industrial Combinations and Trusts said first four parties, it is understood that the same shall be ad- justed by the auditor of Globe at the half-yearly settlement. It is understood that Patterson, Shotter, Anonyme, and Nickolls, respectively, shall keep special books for turpentine, which books shall at all times be open to inspection of the auditor of Globe. It is understood that all transactions made by either the said Patterson, Shotter, Anonyme, or Nickolls for account of the com- pany shall be reported daily to the principal office of the com- pany. It is further understood and agreed that settlements of profit and loss account between Globe and each of said first four parties shall take place every six months, in January and July, in each year, as soon as the accounts for the preceding six months can be audited. 13. As part of the consideration of this contract Anonyme hereby agrees that it will transport by its steamers Iris and Clematis for account of Globe a minimum of one hundred thousand (100,000) barrels of turpentine and a maximum of one hundred and fifty thou- sand (150,000) barrels of turpentine per annum (quantity within said limits to be at the option of Globe) to Antwerp, Rotterdam, London, Liverpool, Hull, Avonmouth, and Hamburg. The steam- ers are to be loaded at the discretion of Globe either at Savannah, Brunswick, Fernandina, or Jacksonville (always providing there is sufficient water at these ports), but are to load at one port only. It is agreed that the rate of freight shall be three shillings nine pence (3/9) direct for forty (40) gallons gross gauge in barrels, and if shipped in bulk the rate shall be the same, but forty (40) gallons net. This rate is without primage. If said steamers shall be called upon to load or discharge in any two of the above named ports, Globe agrees to pay six hundred dollars ($600) additional for such loading, and six hundred dollars ($600) additional for such dis- charging. It is understood that Anonyme will complete the car- goes of said steamers with rosin or other goods at their convenience and for their own account and at their risk. It is understood that Anonyme shall not transport to Europe more than one hundred thousand (100,000) barrels of rosin per annum on the Iris or Clematis. In the event the said Iris or the said Clematis do not carry this stipulated amount it is understood that the said Anonyme may use outside steamers or sailing vessels, but it is distinctlv understood that in such event the quantity of Pools and Associations 235 rosin to be shipped for account of said Anonyme shall not exceed seventy thousand (70,000) barrels, and said Anonyme further agrees that all rosin shipped by them for their own account shall be for the port of Antwerp exclusively. It is further understood and agreed that all rosin which Anonyme may sell in London or Hamburg shall be for the joint account of Patterson and Shotter, and in consideration thereof said Patterson and Shotter hereby agree to pay said Anonyme a net commission of five cents (5c.) per barrel of two hundred and eighty (280) pounds and freight at the rate of two shillings and three pence ( 2 /3) f° r three hundred and ten (310) pounds direct Hamburg or London with no primage. It is understood that the quantity which may be sold by said Anonyme in London and Hamburg for account of said Patterson and Shotter shall not be less than fifteen thousand (15,000) nor more than twenty thousand (20,000) barrels, the quan- tity within said limits to be at the option of said Patterson and Shotter; and the said Patterson and Shotter reserve the right to designate either Hamburg or London. And it is further under- stood that said Anonyme shall not be entitled to any commission on any rosin which has been furnished by said Patterson and Shotter to complete cargoes for London, Hamburg, or any other port which may be agreed upon. Said Patterson and Shotter hereby severally agree that they will not sell any rosin for shipment to a Belgian port, and they further agree that at the request of said Anonyme, and as required by them, they will furnish and provide rosin for the purposes and within the limitations therein specified in fair proportions from B to K, inclu- sive, free of charge for storage and fire insurance, and as compensa- tion to the said Patterson and Shotter for providing such rosin said Anonyme agrees to pay said Patterson and Shotter a commis- sion of seven and one half (7-^) cents for every barrel of two hun- dred and eighty (280) pounds so provided by them. And said Anonyme further agrees to give to said Patterson and Shotter thirty (30) days' notice in writing (notice to either being considered as notice to both) of their requirements of rosin under the provisions hereinbefore set forth, and it is further understood and agreed that the price of rosin so to be ordered and furnished shall be based upon the average price of the respective grades dur- ing the thirty (30) days after the orders for the same have been received; provided, however, that if circumstances arise of such character which will prevent said Anonyme (acting with reasona- 236 Industrial Combinations and Trusts ble discretion) from giving the notice hereinbefore mentioned, then, and in such case, the price of the rosin so ordered, and furnished shall be based upon the average price of the respective grade l at Savannah during the thirty (30) days immediately follow- ing the date of the receipt of the notice. It is further understood and agreed that for the purpose of com- pleting the cargoes of vessels carrying turpentine in the manner hereinbefore referred to, said Patterson and Shotter shall, when and as required by said Anonyme and Nickolls, respectively, fur- nish for said vessels part cargoes of rosin for their own account at current market freight rates, provided that said Patterson and Shotter shall in no case be required to furnish more than thirty per cent (30%) of the carrying capacity of said vessels. As the princi- pal consideration moving said Patterson and Shotter for making the freight arrangements herein set forth, said Anonyme and Nick- olls hereby severally agree that they will not buy or sell, either directly or indirectly, American rosin, except in the manner and under the limitations in this agreement set forth. 14. It is further understood and agreed that if for any cause any or all of the first four parties shall discontinue business during the term of this agreement, then and in such event Globe shall have the right to purchase the shares of stock of the party or parties so dis- continuing business at par. 15. It is understood and agreed that this agreement shall begin on the first day of April, 1905, and shall continue for the full term of five (5) years. 16. It is further agreed that in the event any difference of opinion shall arise between two or more of said parties as regards the mean- ing of any part of this agreement, all such differences shall be settled by arbitration in New York, each side selecting an arbitra- tor, and the arbitrators so selected, before taking knowledge of the dispute, shall select an umpire, and the award of the arbitrators shall be final. In witness whereof the corporations above named by their proper officers, and the said Nickoll & Knight in proper person, have here- unto set their hands and affixed their seals, the seals of said cor- porations being duly attested by their respective secretaries, the day and year first above written. (Signatures) 1 Thus in original. — Ed. Pools and Associations 237 Exhibit 10 bath tub combination 1 Memorandum of Agreement EDWIN L. WAYMAN 1509 Arrott Bldg. Pittsburgh We hereby agree to execute with E. L. Wayman of the City of Pittsburg, as Licensor, on or before April 15th, 1910, a License Agreement for the Manufacture of Sanitary Enameled Ware under the following United States Letters Patent. "Various Patents covering Pneumatic Dredgers." (to be enumerated in detail). and such additional Patents as may come into his possession, upon the Terms, Conditions, etc., as hereinafter stated or provided for: — 1. The License Agreement to cover the following Schedules of Enameled Ware Schedule 1. 5 year Guaranteed Baths. a tc a tc 2 2 3 All other Grades of Baths. 4 Small Ware, Lavatories, etc. and R. R. sinks. 5 Flat Rim Sinks 6 Competitive Lavatories 552 to 562 Inclusive 565 and 535. 1 United Stales of America v. The Standard Sanitary Manufacturing Com- pany and others. In the Circuit Court of the United States for the District of Maryland, Gov't Exhibit No. 3, Record, Vol. II, pp. 4-6. It is necessary that some explanation should be given in regard to the bath tub combination. Both of the exhibits should first be read to make the situation clear as also the ex- cerpts from the opinion of Judge Rose against the combination (cf. Chap. XIII). On the face of the matter the combination appears to be a patent monopoly. The contention of the Government however was that the licensing scheme was purely a subterfuge, a device used for the purpose of creating the combination. This view is of course supported by the fact that none of the patents which were assigned to Wayman by three members of the subsequent combination were or are absolutely necessary in the manufacture of sanitary enameled iron ware. For this reason the combination has been assigned a place among the pools rather than among the patent monopolies. — Ed. 238 Industrial Combinations and Trusts 2. The amount of Royalty to be as follows: $5.00 per day per furnace in operation with a rebate of 90 per cent, beginning with the 1st month of the 2nd Period and monthly thereafter, if the terms of the License have been complied with. 3. For each violation of the Price Regulations of the License Agreement we agree to forfeit a sum equal to the amount of the shipment in question, and such other penalties as may be agreed on. 4. The Selling Prices to the Jobbers to be established through the Licensor by a Price Committee ap- pointed by the various manufacturers. 5. The Resale Prices to the Jobber, taking into con- sideration the rebate for observance of Buying and Selling Regulations, shall be figured as fol- lows: High Grade Goods 25% above Jobbers cost. Competition Goods 16/^% above Jobbers cost. 6. The Rebates to Jobbers shall be as follows: 10%, payable at end of Period for strict observance of agreements, the details of the manner in which the rebate shall be made, to be determined. 7. The length of the Rebate Periods shall be 3 months beginning April 15th, 1910, with the exception of the first period, which shall end July 1st. 8. The License Agreement and Resale Prices shall be- come effective April 15b, 1 and the agreement to be executed between the Manufacturers and Jobbers shall contain a clause to the effect that all material purchased or on hand previous to the above date shall be sold at the Resale Prices that may be established. 9. The details of Contract Forms between the Manu- facturers and the Licensor shall be drawn up by the Licensor and submitted for approval at the next Special Meeting to be held in New York City. 10. The Licensor will also submit the same covering Agreement between Manufacturers and Jobbers. 1 Thus in original. — Ed. Pools and Associations 2 39 II. The following "Preferential Discounts" from the selling Prices established by the Licensor will be allowed the various Manufacturers on Sales to Jobbers only. Schedule i — 5 year Guaranteed Baths 2—2 " " " " 3— All other Grades of Baths 4 — Small Ware — Lavatories, etc. & R. R. Sinks. 5 — Sinks, flat rim. 6 — Competitive lavatories 552-562 In- clusive 565 and 535 SCHEDULES. Manufacturers 1 2 3 4 S 6 Standard None None None None None None Wolff << M < a U.S. n it t a Kohler tt a t tt Barnes tt a t a Cahill tt a t tt Mott tt it t a Union s% 2h% it 2\% t a Colwell 5% aj% a 2\% t a Clymer 5% 2 2% n 2h% l a Blairsville 5% 2\% tt 2\% t a McVay & Walker 5% 2\% tt 2\% t tt Weiskittel 5% 2 ~2VC ic 2\% t a National 5% 2h% a 2 2"% e it Iron City 5% 2\% tt 2\% 1 a Humphry es 5% 2 2% tt 2\% ; 1 a Day- Ward 2\% 2 2% tt 2 2% t it McCrum-Howell 5% 2 2% a 2\% t a Wheeling 5% 2\% a 2\% 1 a 12. The length of time for which the License Agreement will be entered into and such other details as may be necessary for the perfection of the ar- rangement to be determined at the next meeting of the various Manufacturers. Signed (Here follow eleven signatures.) 240 Industrial Combinations and Trusts Ehxibit II bath tub combination license agreement This Agreement, Made in duplicate this day of 191 . . . , between Edwin L. Wayman, a resident of the City of Pitts- burgh, State of Pennsylvania (hereinafter called the "Licensor"), party of the first part, and a corporation duly organized and existing under and by virtue of the laws of the State of (hereinafter called the "Licensee"), party of the second part. WITNESSETH : That Whereas, the said Wayman owns or controls or has the right to grant licenses under certain Letters Patent pertaining to the manufacture of Sanitary Enameled Iron Ware, enumerated in "Schedule of Patents," hereto annexed, and Whereas, The Licensee is desirous of acquiring a License under said Letters Patent of the character and upon the terms and condi- tions herein set forth; Now, Therefore, for and in consideration of the covenants of this agreement, the parties hereto agree as follows: — 1. The Licensor hereby grants to the Licensee, subject to the pro- visions hereinafter contained, a non-exclusive License to practice in the manufacture of Sanitary Enameled Iron Ware, the processes patented in said several Patents, to make and use in such manufac- ture the machines and devices patented in said Patents and to use and sell goods so made; the said License being non-assignable and non-transferable except to successors to substantially the entire good-will and business of the Licensee, and this License shall be available for the Licensee and its successors only so long as it or they have not, prior to the date hereof, been engaged in the manu- facture of Sanitary Enameled Iron Ware. CLAIMS. 2. The Licensor hereby agrees to suspend his claims against the Licensee and its cus- tomers or patrons for damages or profits which he may be entitled to receive for any claims for any past infringement of said Letters Pat- 1 Op. cit. U. S. v. S. S. M'fg Co. Record, Vol. II, pp. 20-26. Pools and Associations 241 ent by said Licensee, as long as said Licensee continues to perform all of its obligations under this contract. 3. So long as the Licensee operates under this License or any renewal thereof and keeps and performs all of the obligations of said Li- cense herein contained, the Licensor agrees not to bring action against said Licensee because of its use of any machines, method or processes now or heretofore used by said Licensee in the manufacture of enameled ware, and to waive any and all claims under any letters patent on any machines, devices, or processes now in use by said Licensee, and to grant to said Licensee full use and enjoyment thereof. ROYALTIES. 4. For the use of the various patents enumer- ated in "Schedule of Patents," hereto annexed, the Licensee shall pay on the fifth day of each month a royalty amounting to Five ($5.00) Dollars per day for each furnace in operation during the preceding month. This payment shall be made to the Licensor at his place of business in Pittsburgh, Pa., by cash or other acceptable remittance, and in determining the amount of this royalty each and every one of the furnaces owned by the Li- censee shall be considered as in operation each day, unless the said furnace or furnaces shall be shut down for more than a period of six (6) con- secutive working days. In case any of the fur- naces are thus shut down for more than six (6) consecutive working days, the Licensee shall be entitled to a diminution of his License payment at the rate of Five ($5.00) Dollars per working day for the number of days shut down. In order to determine the amount of actual license payment, together with the remittance hereinbefore provided for payment of royalty, the Licensee shall send to the Licensor a sworn statement, which will be duly verified under oath by some representative of the Licensee, 242 Industrial Combinations and Trusts designated by the Licensor showing the number of furnaces owned by the Licensee at the begin- ning of the month which the report is intended to cover and the number of days which such furnaces have been operating consistent with the provisions of the foregoing Section of this License. PREFERENTIAL 5. This agreement is entered into with the DISCOUNTS, understanding that the Licensee has the priv- ilege of quoting to jobbers only the following additional discounts from the regular selling prices to the Jobbers as established by the Li- censor. These additional discounts when given shall appear on the invoices rendered to the Jobber. PRICES. 6. The Licensor agrees that he will employ a commission of six (6) persons, of which he is to be one and to act as Chairman thereof, five of whom shall be designated by a majority of the parties holding Licenses similar to this License, which Commission shall have supervision of all the relations and transactions between the par- ties hereto under this agreement, but it is under- stood that where a member of said Commission, or his Company, shall be directly interested in any question of a violation of the License to be decided by the said Commission, said member shall be disqualified and a temporary member shall be appointed in his place by the remaining members of the Commission. All terms and conditions relative to prices and discounts now established by the Licensor and set forth in the annexed schedules and made a part hereof, shall remain in force and effect until other terms, conditions and pref- erential discounts are substituted therefor by the Licensor, which substitution can only be made by him with the approval of a majority of Pools and Associations 243 ROYALTY REBATES. the members of the Commission, hereinbefore prescribed. Notice of such changes and substi- tutions shall be given from time to time in writing by the Licensor to the Licensees. The Licensee covenants to adhere to and maintain such terms, conditions, regulations and pref- erential discounts as may be established by the Licensor from time to time, and the Licensee further agrees to sell no "Seconds" or "Bs" covered by Schedules 4, 4-1^, 5 and 6. 7. If at the end of the fourth month of the first year (said year beginning June 1st, 1910) it shall appear that the Licensee has during the first month complied with all the terms of this agreement, the Licensor shall return the Li- censee the following rebate from the royalties paid for said License for said first month's royalties, to wit: 80% of the amount originally paid by the Licensee. 8. At the termination of each succeeding month of the said License if it shall appear that the Licensee has fully complied with the terms of this agreement during the second preceding month, the Licensor shall make a similar rebate in respect to the royalties paid by the Licensee during the second preceding month. 9. In case of failure on the part of the Li- censee to comply in any particular with the terms of this agreement during any month, the Licensor may withhold any and all unpaid rebates and declare the same forfeited as penalty for such violation and shall at once notify the Licensee to that effect. LABELS. 13. No goods manufactured under this Li- cense shall be sold unless they bear a registered label (except where otherwise specified) owned by the Licensee and in addition thereto a Li- cense tag or label approved by the Licensor, 244 Industrial Combinations and Trusts which License tag or label shall be placed in a visible position on all goods made hereunder and sold by the Licensee. 14. This agreement is binding upon the par- ties hereto, and the successor and assigns of each of them, and shall continue in force for a period of two years from the date hereof, unless pre- viously terminated as herein provided. 15. This agreement, however, may be can- celled by the Licensor by written notice upon repeated breaches by the Licensee of any of the covenants herein contained. In Witness Whereof, the parties hereto have executed these presents the day and year above written. SCHEDULE OF PATENTS. Pat. No Date Inventor Title 033)941 Sept. 26, 1899 James Arrott Dredger for pul- verulent mate- rial 949> 62 5 Feb. 15, 1910 E. Ditheridge Pneumatic Sieve 939>9i8 Nov. 9, 1909 William Lindsay Enameling Pow- der Distributor. Exhibit 12 memorandum of agreement (called the eastward agreement) regarding the trade between the atlantic ports of the u. s. a. and eastern asiatic ports l eastward agreement United States of America to the Straits, Manila, China, and Japan. For the better regulation of the trade between the Atlantic Ports of the United States of America and Eastern Asiatic Ports, it is hereby agreed as follows: — 1. That on the basis of forty-one sailings per annum the total shall be divided as follows: 1 United States of America v. American-Asiatic Steamship Company. Peti- tion, In equity in the District Court of the United States for the Southern Dis- trict of New York, Exhibit i, pp. 27-30. Pools and Associations 245 United States and China- Japan Line. 13 sailings Messrs. Barber & Co.'s Line. 13 sailings The American and Oriental Line. 8 sailings The American-Asiatic S. S. Co. 7 sailings. 41 sailings No other sailings can be admitted without the consent of two- thirds of the signatories based on their respective number of sailings. The sailings allotted to each of the signatories shall be distrib- uted as nearly as possible at regular intervals throughout the twelve months, and the order of taking the berth shall be mutually ar- ranged by the agents in New York. 2. That the fundamental condition of this agreement is to be close co-operation, and in order to secure this result the rates of freight from America to the East shall be controlled and mutually determined by the agents in New York, who before naming or altering a rate on any commodity shall first confer and agree amongst themselves as to the rate to be named and/or * the reduc- tion to be made. All engagements shall be reported to one another by the Agents in Conference the first business day of each week, and copies of freight lists are to be exchanged not less than three weeks after the departure of the steamer. 3. That all contracts shall be taken for joint account, and where such contracts cannot be divided such shortages shall be made good to the parties in arrear out of the other contracts previously or sub- sequently secured, it being the purpose to equitably divide all book- ings. Each line shall, however, be entitled to book cargo specifically for their next steamer to be despatched, provided ready to load within 30 days. No line to book cargo specifically for a steamer until allowed to do so by a two- thirds majority vote of the New York agents, based on their principals' respective number of allotted sailings. 4. That engagements of Petroleum in cases, Phosphate Rock and Coal are not necessarily joint operations, but competition for such articles is to be avoided and the closest possible co-operation is to be aimed at. Bookings of Petroleum in cases, Phosphate Rock and Coal are to be reported as soon as fixed. 5. That shipments of the Quartermaster's Department, the Navy (excluding Coal), and the Insular Department, and/or any other Government Department, shall be taken for joint account and 1 Thus in original. — Ed. 246 Industrial Combinations and Trusts pooled on a basis to be agreed between the respective Agents In such a way that all may obtain their proper proportion of the ben- efits arising from such contracts. Shipments of Specie and Explo- sives shall be dealt with in like manner. 6. That no return of any description be given to Shippers, Con- tractors, etc., and where Freight Brokerages are paid the amount shall not exceed one and one-quarter per cent., unless where mu- tually agreed by all Agents to the contrary. 7. That in order to avoid unnecessary expense and possible delay, the respective parties shall nominate one of the firms of Agents in New York to act for the time being as the mouthpiece of the Asso- ciated Agents; and also shall appoint one of their own number to act in a similar capacity on this side. All cabled enquiries regard- ing matters of policy, important contracts, etc., shall be communi- cated to the respective parties through this channel, and their replies forwarded in the same way; but it is understood that this arrange- ment in no way interferes with the right of each signatory to commu- nicate with his own Agents whenever and however he thinks fit. 8. That in all matters of detail not herein decided the settlement shall be left in the hands of the Agents in New York, who shall as far as possible be given a free hand in the conduct of their business. 9. That where it is considered advisable to book cargo for ac- count of the Associated Lines, which through lack of accommoda- tion on the regular steamers might otherwise fall into the hands of competitors, such cargo shall be taken care of by chartering addi- tional tonnage, the result to be divided in proper proportion between the various interests, and the loading commission credited to the Agents pro rata to the share in the trade which each of the signa- tories hold, based on their respective number of sailings. All questions connected with the bookings of such additional cargo and the chartering of tonnage shall be governed by a two- thirds majority vote of the New York Agents, based on their prin- cipals' respective number of allotted sailings. Each service to charter and load such extra tonnage in turn. 10. That the whole purpose of this Agreement is an equitable and fair division of the traffic between the services, to work openly and fairly with one another, and to avoid any and all steps by which even the appearance of undue advantage is given. Should therefore conditions and questions arise which are not herein provided for, the purport and not the strict wording of this Agreement is to be considered. Pools and Associations 247 11. That no steamer of a greater carrying capacity than 8,000 tons all told is to be loaded under this Agreement, except by the unanimous consent of the Agents. 12. That should any disputes arise under this Agreement they are to be left to the decision of the signatories to this Agreement, whose voting power shall be pro rata to their share in the business. Should any decision so arrived at be objected to by any party or parties hereto, the matter shall be referred to the decision of two Arbitrators, who shall be commercial men in London, New York, or Hong Kong, whichever place in the opinion of the majority of the signatories, as above, is best suited for the purpose, one to be appointed by the party or parties claiming or objecting as the case may be, and the other by the party or parties against whom the claim or objection is made; or in the case of a question as to the validity of a settlement by those parties who are content with the settlement as presented; with power to such nominated Arbitrators to appoint an Umpire whose decision shall be final and conclusive between all the parties to this Agreement, and for the purposes of any such reference this Agreement shall be deemed to be a submis- sion to Arbitration within the meaning of the Arbitration Act, 1899, or any statutory modification or re-enactment thereof for the time being in force, the provisions whereof shall apply as far as applicable. 13. That this Agreement is to commence with steamers sailing from their first loading port in the U. S. A., on or after April 1st, 1905, and to remain in force until cancelled by any of the parties thereto giving six months' written notice of their desire to with- draw, such notice not to be given previous to 1st day of July, 1906. By authority of Barber & Co. Incd., Walter Chambers. William Adamson & Co., on behalf of Shewan Tomes & Co Per Pro. T. B. Royden, and by written authority of the Ham- burg America Line and the Union S. S. Co. of Hamburg P. L. Rooper. For The American & Oriental Line, Howard Holder & Partners, Ltd., Alex. Freeland, Director, General Managers Witness to the Signatures of Wm. Adamson & Co., P. L. Rooper, and Alex. Freeland, Archd. Maclean - Anglo American Oil Co. Ltd., 22, Billiter Street, London, E. C. CHAPTER X THE PATENT MONOPOLY NOTE For several years past the United Shoe Machinery Company has been regarded, and with reason, as the foremost example of a Patent Monopoly. This concern is, moreover, a combination, since prior to 1897 much of the machinery now controlled by the single com- pany was divided among four concerns and was therefore, subject to at least limited competition. In February 1897 the United Shoe Machinery Company was organized under the laws of the State of New Jersey. By means of an issue and exchange of its capital stock it took over the business of four concerns — the Con- solidated and McKay Lasting Machine Company, Goodyear Shoe Machinery Company, McKay Shoe Machinery Company and Eppler Welt Machine Company. Since that time the United Shoe Machinery Company has substantially controlled the shoe ma- chinery business of the United States w r hich has been handled strictly upon a lease basis. Powerful as the company has been it has been constantly threatened by the invention of new types of shoe machinery. Frequently it has been compelled to buy out such potential competitors, often at high valuations. The license or lease system of the United Shoe Machinery Company is shown below in the exhibits by a typical lease contract. There has also been included another typical lease or license agreement, that of the Motion Picture Patents Company and one of the Crown Cork and Seal Company. The last exhibit in this chapter consists of excerpts from the decision handed down in March 191 2 in the so-called Dick case. Influential as was the decision in the Dr. Miles Medical Company case, in restricting the tendency toward monopolistic control so far as the conditions and terms of sale have reference to unpatented articles, the Dick case goes the full length in the opposite direction and upholds in the most sweeping language the power of concerns and individuals holding patents to impose whatsoever conditions 248 The Patent Monopoly 249 they may deem fit upon the use of articles covered by such patents or applications. The dissenting opinion rendered by Mr. Chief Justice White and concurred in by Mr. Justice Hughes and Mr. Justice Lamar condemns in no uncertain terms the doctrine thus laid down, chiefly on grounds of general public policy. This deci- sion was not rendered by a full bench, Mr. Justice Day taking no part in the decision, while the vacancy caused by the death of Mr. Justice Harlan remained still unfilled. Hence as being a four to three decision it was really a minority decision. Petitions for a rehearing have been filed and there is a chance that these may be granted. Unfortunate as the decision appears it may nevertheless have in it the germs of much good. This arises through the fact that one of the most needed things at the present time to check the tendency toward monopoly is a radical reform of the Patent Laws. The first step in this direction was taken by President Taft on May 10, 19 1 2 in sending to Congress a message asking for legisla- tion to authorize him to appoint a commission to investigate the Patent laws and report changes necessary — Ed. Exhibit i lease and license agreement of the united shoe machinery company for certain machines x Goodyear Department. [Form M. G. J., 6-806.] Lease and License Agreement Number . SEWING AND STITCHING MACHINES. This greement made at Boston, in the State of Massachusetts, this day of , 19 — , between the United Shoe Machinery Company, a corporation organized under the laws of the State of Maine, having an office in said Boston, hereinafter referred to as the lessor of the one part, and — , of , in the State of , here- inafter referred to as the lessee, of the other part: Witnesseth that the lessor, in consideration of the covenants and agreements on the part of the lessee herein contained, does 1 United States of America v. United Shoe Machinery Company and others. Petition, In the Circuit Court of the United States for the District of Massa- chusetts, Exhibit 5, pp. 1 13-120. 250 Indus [rial Combinations and Trusts hereby lease to and license the lessee under any letters patent be- longing to the lessor or under which the lessor has the right to grant such license affecting any inventions which are now or here- after shall be embodied therein or employed in the operation thereof, to use the machine or machines of the "Goodyear Department" of the lessor designated by number or numbers in the following schedule, viz: SCHEDULE OF MACHINES. Goodyear Welt and Turn Shoe Machine, No. Goodyear Universal Inseam Sewing Machine, No. Goodyear Outsole Rapid Lockstitch Machine, No. Extension Edge Attachment (A), No. Extension Edge Attachment (B), No. Welt Bevelling Attachment, No. and any duplicate parts, extras, mechanisms, and devices relating thereto, or used in connection therewith, now attached to or deliv- ered with the said designated machine or machines, or which may at any time hereafter be obtained from the lessor or be added thereto, by or with the consent of the lessor (the whole of which machine or machines, duplicate parts, extras, mechanisms, and devices held by the lessee under these presents, whether now or hereafter delivered to or in the possession of the lessee, is herein- after referred to as the "leased machinery"), subject to the condi- tions hereinafter contained; and the lessor hereby grants to the lessee a license to use, in connection w y ith welted boots, shoes, or other footwear made by the lessee, the welts of which have been sewed to their uppers wholly by Goodyear Welt and Turn Shoe Machines or by Goodyear Universal, Inseam Sewing Machines, hereby leased or now held by the lessee under lease from the lessor heretofore executed, and the outsoles of which have been stitched to their welts wholly by Goodyear Outsole Rapid Lock-Stitch Ma- chines, hereby leased or now held by the lessee under lease from the lessor heretofore executed, the trade name or trade-mark "Good- year Welt," and to use, in connection with turned boots, shoes, or other footwear made by the lessee the soles of which have been attached to their uppers wholly by the use of Goodyear Welt and Turn Shoe Machines or Goodyear Universal Inseam Sewing Ma- chines, hereby leased or now held by the lessee under lease from the lessor heretofore executed, the trade name or trade-mark "Good- year Turn." The Patent Monopoly 251 And that the following are agreed to as conditions of this agree- ment, all of which the lessee convenants and agrees to keep and perform : 1. The leased machinery shall at all times remain and be the sole and exclusive property of the lessor and the lessee shall have no right of property therein, but only the right to use the same upon the conditions herein contained. The leased machinery shall be used only by the lessee himself or by operatives in his direct employ, and only in the factory now occupied by him at , in the State of , unless the lessor shall, by an instrument in writing signed by its president, vice president, or treasurer, authorize the lessee to remove the leased machinery and to use the same elsewhere. The leased machinery shall not be transferred or delivered or sublet to any other person or corporation, and neither this agreement nor the lease nor the license hereby granted can be assigned by the lessee by his own act or by operation of law. If the lessee becomes insol- vent or bankrupt, or has a receiving order made against him, or makes or executes any bill of sale, deed of trust, or assignment for the benefit of his creditors, or if a sale, mortgage, lease, or unauthor- ized removal of the leased machinery or any part thereof be made or attempted, or if any distress or execution or attachment be levied thereon, then and in each such case any or all leases of or licenses to use machinery then existing between the lessor and the lessee, whether as the result of assignment to the lessor or otherwise, shall, at the option of the lessor, cease and determine, and the pos- session of and full right to and control of all machinery the leases or licenses of which are so terminated shall thereupon revest in the lessor free from all claims and demands whatsoever. The lessor and its agents and employees shall at all times be given access to the leased machinery for the purpose of inspecting it or watching its use and operation, or of altering, repairing, improving, or adding to it, or determining the nature or extent of its use, and the lessee shall afford all reasonable facilities therefor. 2. The lessee shall at all times and at his own expense keep the leased machinery in good and efficient working order and condition and shall not permit anyone to injure or deface or remove any plate or dates, numbers, or other inscriptions now or hereafter impressed on or affixed to the leased machinery by the lessor. The lessee shall obtain from the lessor exclusively, and shall pay there- for at the regular prices from time to time established by the lessor, all the duplicate parts, extras, mechanisms, and devices of every 252 Industrial Combinations and Trusts kind needed or used in operating, repairing, or renewing the leased machinery, and the same shall form part of the leased machinery, and the lessee shall not otherwise make or allow to be made any addition, subtraction, or alteration to, from, or in the leased machinery nor interfere with the proper operation of the same. 3. The leased machinery shall at all times, until the expiration or termination of the lease thereof and license to use the same hereby granted and the redelivery of the leased machinery into the posses- sion of the lessor as hereinafter provided, be held at the sole risk of the lessee from injury, loss, or destruction, and in case any welting or stitching or sewing machine or machines hereby leased shall be lost or destroyed by fire or otherwise before such expiration or ter- mination and redelivery, the lessee shall pay to the lessor in respect to each such machine so lost or destroyed the sum of two hundred and twenty-five (225) dollars as partial reimbursement to the lessor for such loss or destruction, and the lessee shall forthwith return whatever remains of all the machinery so lost or destroyed to the lessor at Beverly, Massachusetts. 4. The lessee shall pay all taxes and assessments which shall be assessed in respect to the leased machinery or other machinery of the lessor held by the lessee under lease or license upon whomsoever assessed. All taxes or assessments in respect to leases, licenses, or agreements covering machinery, or the rights to payments there- under, shall be construed, for the purposes of this article, to be assessed in respect to the machinery itself. In case at any time any unapportioned tax or assessment shall be assessed to the lessor in respect in part but not wholly to machinery of the lessor in the possession of the lessee the lessee shall pay to the lessor such pro- portionate part of the total amount of said unapportioned tax or assessment as the fair valuation, to be determined by the lessor, of said machinery of the lessor in the possession of the lessee bears to the fair valuation, to be determined by the lessor, of all machinery (excepting machinery, if any, in the lessor's own possession) in respect to which the unapportioned tax or assessment has been assessed: Provided, however, That if such unapportioned tax or assessment includes any tax or assessment in respect to tangible property in the lessor's own possession the amount thereof, based at the established rate upon the fair valuation, to be determined by the lessor of such property, shall first be deducted and the lessee shall pay his proportionate part as aforesaid of the balance only oi The Patent Monopoly 253 said unapportioned tax or assessment after such deduction has been made. 5. The leased machinery shall be used only in the manufacture of boots, shoes, and other footwear made by the lessee known in the trade as "Goodyear Welts," which have been or are to be welted wholly by Goodyear Welt and Turn Shoe Machines or Goodyear Universal Inseam Sewing Machines held by the lessee under lease from the lessor, and the soles of which have been or are to be at- tached to their welts wholly by Goodyear Outsole Rapid Lock-Stitch Machines held by the lessee under lease from the lessor, or in the manufacture of boots, shoes, or other footwear made by the lessee known in the trade as "Goodyear Turns," the soles of which have been or are to be attached to their uppers wholly by Goodyear Welt and Turn Shoe Machines or Goodyear Universal Inseam Sewing Machines held by the lessee under lease from the lessor. The lessee shall not represent or sell as "Goodyear Welts" any boots, shoes, or other footwear which are not welted wholly by the use of Good- year Welt and Turn Shoe Machines or Goodyear Universal Inseam Sewing Machines held under lease from the lessor, or the soles of which are not attached to their welts wholly by the use of Goodyear outsole rapid lock-stitch machines held under lease from the lessor or as "Goodyear Turns" any boots, shoes, or other footwear the soles of which are not attached to their uppers wholly by the use of Goodyear Welt and Turn Shoe Machines or Goodyear Universal Inseam Sewing Machines held under lease from the lessor. The lessee shall use the leased machinery to its full capacity in the manu- facture of "Goodyear Welts" and "Goodyear Turns," limited only by the number of welted and turned boots, shoes, and other foorwear made by or for him. 6. The lessee shall pay to the lessor throughout the full term of this agreement the respective amounts set forth in the following schedule in respect to each pair of welted boots, shoes, or other footwear, or portions thereof, manufactured or prepared by or for the lessee, which shall have been welted in whole or in part or the soles of which shall have been in whole or in part attached to welts by the use of any welting or stitching or sewing machinery, and in respect to each pair of "turned" boots, shoes, or other footwear, or portions thereof, manufactured or prepared by or for the lessee, the soles of which shall have been sewed or attached to their uppers in whole or in part by the use of any sewing or stitching machinery, viz: ^54 Industrial Combinations and Trusts Schedule of payments per pair. Sizes. Welts. Turns. Form No. — To No.— i ii 9 10^, inclusive 2, and over 3 cents . . 4 cents. . 6 cents. . 4 cents. . 6 cents. . 8 cents. . i cent. \]/2 cents. \]A cents. Youths' I 3/^> inclusive 5, " and over i}4 cents. Boys' \]4 cents. Men's . i}4 cents. Such payments shall be made on the last day of each calendar month in respect to all such boots, shoes, and other footwear manu- factured or prepared by or for the lessee during the next preceding calendar month: Provided, however, That in all cases when the lessee shall pay to the lessor on or before the fifteenth day of the calendar month the amount due pursuant to the schedule in this article hereof contained for the next preceding calendar month, the lessor will, in consideration of such prompt payment, grant a discount of fifty per cent from the amount so due for such preceding calendar month. The lessee, however, guarantees that the payments made in accordance with the foregoing schedule of payments under this agreement in respect to boots, shoes, or other footwear operated upon by the welting, stitching, or sewing machines hereby leased (after deducting all abatements) shall amount in each calendar year to at least fifteen dollars ($15) for each calendar month for each welting or stitching or sewing machine hereby leased, and at the end of each calendar year the lessee shall pay to the lessor the amount, if any, by which the total of such payments for said year is less than such guaranteed amount. All payments and the guar- antee in this agreement provided for are independent of and in addition to all payments and guarantees provided for in any other leases or licenses or agreements between the lessor and the lessee: Provided, however, That (excepting in so far as is required by the guarantees herein contained or contained in other lease and license agreements between the lessor and the lessee), in case under any The Patent Monopoly 255 other " Goodyear Department" lease and license agreement between the lessor and the lessee covering one or more Goodyear Welt and Turn Shoe Machines, Goodyear Universal Inseam Sewing-Ma- chines, or Goodyear Outsole Rapid Lock-Stitch Machines, the lessee shall have paid to the lessor the amount set forth in the schedule of payments in such lease and license agreement contained in respect to any pair of boots, shoes, or other footwear, then the lessee shall be relieved from said payment hereunder in respect to that pair of boots, shoes, or other footwear. 7. The lessor may attach to the leased machinery, or any thereof, an indicator or indicators to register the number of revolutions or movements of any part or parts thereof, and the lessee shall not allow any person (other than the lessor or its agents) to disturb or interfere with such indicator or indicators. In case any indicator thus attached shall from any cause cease to correctly indicate or register, or shall be disturbed or out of repair, or if the glass cover- ing any such indicator shall be removed or broken or injured, then, and as often as the same shall happen, the lessee shall immediately, by writing, notify the lessor and at the same time explain the cir- cumstances under which the same has happened. In case any such indicator ceases to indicate or becomes or remains inaccurate, or the glass covering becomes or remains removed, broken, or injured, because of any fault of the lessee or anyone in his employ, or because of the failure of the lessee to give promptly the notice hereinbefore provided for, then, without prejudice to any other rights or reme- dies of the lessor, the lessee shall pay the lessor, without the right to any discount, eight cents per pair for each pair of boots, shoes, or other footwear or portions thereof in the manufacture of which the leased machinery or any part thereof shall have been used. The lessee shall keep full and accurate accounts, independently of any indicators that may be placed upon the leased machinery, showing the number and kind of boots, shoes, and other footwear or portions thereof manufactured or prepared by or for the lessee which have been welted in whole or in part or the soles of which have been in whole or in part attached to welts by the use of welting or stitching or sewing machinery, and of turned boots, shoes, or other footwear or portions thereof manufactured or prepared by or for the lessee the soles of which have been sewed or attached to their uppers in whole or in part by the use of sewing or stitching machinery, and shall allow the lessor at all times, by its agents or attorneys, to examine and to take copies of such accounts and entries of the lessee 256 Industrial Combinations and Trusts as may serve to determine the total number of such boots, shoes, or other footwear or portions thereof; and the lessee shall produce all such accounts and entries upon request. The lessee shall require each of his operators upon the leased machinery or any part thereof to keep, upon blanks or blank books to be furnished by the lessor, accurate daily records of the number and kind of boots, shoes, and other footwear or portions thereof in the manufacture or prepara- tion of which he has used the leased machinery or any part thereof, and shall require his operators to sign such records, and, if requested so to do by the lessor, shall verify the same under oath. The lessee shall send to the office of the lessor in Boston, on or before the fifth day of each calendar month, the original records for the next pre- ceding calendar month kept by his operators as above provided for, and in case, in any calendar month, any one or more of the machines hereby leased has been entirely idle, the lessee, on or before the fifth day of the next succeeding calendar month, shall send to the office of the lessor in Boston the blank for said month for each such idle machine marked "not in use" and signed by the lessee. The lessee shall also furnish any further information which may be called for in relation to the leased machinery or the use thereof. And that the following stipulations and provisions are agreed to : 8. If at any time the lessee shall fail or cease to use exclusively welt-sewing and outsole stitching machinery held by him under lease from the lessor in the manufacture of all welted boots, shoes, or other footwear made by or for him, the welts or soles of which are sewed, stitched, or attached by the aid of machinery, or shall fail or cease to use exclusively turn-sewing machinery held by him under lease from the lessor in the manufacture of all turned boots, shoes, or other footwear made by or for him, the soles of which are sewed or attached by the aid of machinery, the lessor, although it may have waived or ignored prior instances of such failure or cessa- tion, may at its option terminate forthwith by notice in writing any or all leases of or licenses to use machinery then existing between the lessor and the lessee, whether as the result of assign- ment to the lessor or otherwise, and the possession of and full right to and control of all machinery the lease or license of which is so terminated, shall thereupon revest in the lessor free from all claims and demands whatsoever. 9. The term of this agreement shall be seventeen years from the date hereof. The lease of the leased machinery and license to use the same hereby granted shall continue, unless sooner terminated The Patent Monopoly 257 by the lessor, as in this agreement provided, for the full terra of this agreement, but, if any breach or default shall be made in the observ- ance of any one or more of the conditions in this agreement con- tained or contained in any other lease or license agreement sub- sisting between the lessor and the lessee, whether as the result of assignment to the lessor or otherwise and expressed to be obligatory upon the lessee, the lessor shall have the right, by notice in writing to the lessee, to terminate forthwith any or all leases of or licenses to use machinery then in force between the lessor and the lessee, whether as the result of assignment to the lessor or otherwise, and this notwithstanding that previous breaches or defaults may have been unnoticed, waived, or condoned by or on behalf of the lessor. If, upon the expiration of the full term of this agreement, the lessor does not request the return of the leased machinery, then the leased machinery shall continue to be held and used under and in accord- ance with the conditions, stipulations, and provisions in this agree- ment contained, and this agreement and the lease and license herein contained shall thereupon be extended indefinitely as to term; but thereafter either the lessee or the lessor, upon sixty days' notice in writing to the other, may terminate this agreement and the lease and license herein contained, whereupon the leased machinery shall be delivered forthwith to the lessor, as hereinafter provided. Upon the expiration of this agreement or any extension thereof or the termination of the lease and license herein contained, the lessee shall forthwith deliver the leased machinery to the lessor at Beverly, Massachusetts, in good order, reasonable wear and tear alone excepted, and shall thereupon pay to the lessor without prejudice to any other rights or remedies of the lessor such sum as may be necessary to put the leased machinery in suitable order and condi- tion to lease to another lessee. The lessee for himself, his heirs, executors, and administrators, successors, and assigns, hereby grants to the lessor, its successors and assigns, full right, power, and authority upon such expiration or termination and without prejudice to any other rights or remedies of the lessor to enter upon the premises and into any factory, room, or any place where the leased machinery, or any part thereof, may be, and take possession thereof, and take away the same; and in no case shall the lessee have any claim for the repayment or offset of any sum or sums, or any part thereof, which shall have been paid under this agreement or in respect to the lease or license herein contained, or in anywise in respect to the leased machinery. 258 Industrial Combinations and Trusts 10. Upon the expiration of this agreement, or any extension thereof, or the termination of the lease and license hereby granted, the lessee, in addition to all other payments in this agreement pro- vided for and without prejudice to any other rights or remedies of the lessor, shall pay to the lessor in respect to each welting or stitching or sewing machine hereby leased the sum of one hundred and fifty (150) dollars as partial reimbursement to the lessor for deterioration of the leased machinery, expenses in connection with the installation thereof, and instruction of operators. 11. A notice in writing, signed by the president, a vice president, the treasurer or the assistant treasurer of the lessor or by any assignee of the lessor's rights hereunder, and posted by prepaid let- ter, addressed to the lessee or delivered at his usual or last-known place of abode or business, that the lease and license hereby granted is terminated, or shall be terminated at the expiration of a certain period, shall be a sufficient termination of the lease and license from the time of posting or delivering such notice, or from the expiration of the period therein mentioned, as the case may be. Any termina- tion of the lease and license hereby granted shall be without prej- udice to any rights or remedies which the lessor may have for violation of contract, use of machines without right, use of patented inventions without license or otherwise. 12. The lessee admits the validity for the full term expressed in the grant thereof (and every extension and renewal thereof) of each and every of the Letters Patent of the United States of America owned by the lessor or under which it is licensed, any of the inven- tions of which are or hereafter may be embodied in the leased machinery, and the validity of and title of the lessor to the exclu- sive ownership of the trade names or trade-marks " Goodyear Welt" and "Goodyear Turn" used in connection with boots, shoes, and other footwear. The lessee also agrees that he will not directly or indirectly infringe or contest the validity for the full term expressed in the grant thereof, or of any extension or renewal thereof, of any of the Letters Patent referred to in the "Schedule of Patents" hereto annexed or the title of the lessor thereto, and that he will not directly or indirectly infringe or contest the validity of or the title of the lessor to the said trade names or trade-marks " Goodyear Welt" or "Goodyear Turn." The expiration of this agreement or any extension thereof or the termination or cesser of the lease and license hereby granted shall not in any way affect the provisions of The Patent Monopoly 259 this clause or release or discharge the lessee from the admissions and estoppels herein set forth. 13. None of the conditions, stipulations, or provisions of this agreement shall be held to have been waived by any act or knowl- edge of the lessor, its agents or employees, but only by an instru- ment in writing, signed by the president, a vice president, or the treasurer of the lessor. 14. The term "lessor" shall include the said United Shoe Ma- chinery Company and its successors and assigns. All the condi- tions, stipulations, and provisions binding on the lessee shall be binding on and enforceable against his legal representatives. In the construction of this instrument words relating to the number and gender of the parties shall be read according to their real number and gender. In witness whereof the parties hereto have duly executed this instrument in duplicate the day and year first above written. (If lessee is a corporation, add corporate seal.) [here follows schedule of patents.] Exhibit 2 exchange license agreement of the motion picture patents COMPANY ! Whereas the Motion Picture Patents Co. of New York City (hereinafter referred to as the "Licensor") is the owner of all the right, title, and interest in and to reissued Letters Patent No. 1 2 19 2, dated January 12, 1902, granted to Thomas A. Edison, for kinetoscopic film, and also Letters Patent Nos. 578185, 580749, 586953, 588916, 673329, 673992, 707934, 722382, 744251, 770937, 771280, 785205, and 785237, for inventions relating to motion- picture projecting machines; and Whereas the Licensor has licensed the American Mutoscope & Biograph Co. of New York City, the Edison Manufacturing Co. of Orange, N. J.; the Essanay Co. of Chicago; the Kalem Co. of New York City; George Kleine of Chicago; Lubin Manufacturing Co. of Philadelphia; Pathe Freres of New York City; the Selig 1 Hearings before the Committee on Interstate Commerce, United States Senate, 62nd Cong., 2nd Sess. 1911-1912, Exhibit A. pp. 1338-41. 260 Industrial Combinations and Trusts Polyscope Co. of Chicago; and the Vitagraph Co. of America, of New York City (hereinafter referred to as " Licensed Manufacturers or Importers"), to manufacture or import motion pictures under the said reissued letters patent and to lease licensed motion pictures (hereinafter referred to as "licensed motion pictures") for use on projecting machines licensed by the Licensor; and Whereas the undersigned (hereinafter referred to as the "Li- censee") desires to obtain a license under said reissued Letters Patent No. 12192, to lease from the Licensed Manufacturers and Importers licensed motion pictures and to sublet the said licensed motion pictures for use on projecting machines licensed by the Licensor; Now, therefore, the parties hereto, in consideration of the cove- nants herein, have agreed as follows: (1) The Licensor hereby grants to the Licensee, for the term and subject to the conditions expressed in the "Conditions of license" hereinafter set forth, the license, under the said reissued Letters Patent No. 12 192, to lease licensed motion pictures from the Licensed Manufacturers and Importers and to sublease said licensed motion pictures for use only on projecting machines licensed by the Licensor under letters patent owned by it. (2) The Licensee covenants and agrees to conform with and strictly adhere to and be bound by all of the " Conditions of license" hereinafter set forth, and to and by any and all future changes in or additions thereto, and further agrees not to do or suffer any of the acts or things thereby prohibited, and that the Licensor may place and publish the Licensee's name in its removal or suspended list in the event of the termination of this agreement by the Li- censor, or in case of any violation thereof, and may direct the Licensed Manufacturers and Importers not to lease licensed motion pictures to the Licensee, the Licensee hereby expressly agreeing that such Licensed Manufacturers and Importers shall have the right to cease such leasing when so directed by the Licensor; and the Licensee further agrees that the signing of this agreement con- stitutes a cancellation of any or all agreements for the sale of licensed motion pictures made prior to this agreement by and be- tween the Licensee and any or all licensed manufacturers or im- porters, except as to any clause in said agreements relating to the return of motion-picture film to the several licensed manufacturers or importers. It is further understood and agreed by the Licensee that the license hereby granted is a personal one and not trans- The Patent Monopoly 261 ferrable or assignable, and the Licensee hereby recognizes and ac- knowledges the validity of the said reissued Letters Patent No. 12192. CONDITIONS OF LICENSE. i. From the date of this agreement the Licensee shall not buy, lease, rent, or otherwise obtain any motion pictures other than licensed motion pictures and shall dispose of any motion pictures only by the subleasing thereof under the conditions hereinafter set forth. 2. The ownership of each licensed motion picture leased under this agreement shall remain in the Licensed Manufacturer or Im- porter from whom it may have been leased, the Licensee, by the payment of the leasing price acquiring only the license to sublet such motion picture subject to the conditions of this agreement. Such license for any motion picture shall terminate upon the breach of this agreement in regard thereto, and the Licensed Manu- facturer or Importer from whom it may have been leased shall have the right to immediate possession of such motion picture, without liability for any leasing price or other sum, which the Licensee, or the person in whose possession said motion picture is found, may have paid therefor. 3. The Licensee shall not sell nor exhibit licensed motion pictures obtained from any Licensed Manufacturer or Importer, either in the United States or elsewhere, but shall only sublet such licensed motion pictures [and only for use in the United States and its territories] 1 and only to exhibitors who shall exclusively exhibit licensed motion pictures, but in no case shall the exhibitor be per- mitted to sell or sublet or otherwise dispose of said licensed motion pictures. 4. The leasing price to be paid by the Licensee to the Licensed Manufacturers or Importers, or the terms of payment for or ship- ment of licensed motion pictures, shall in no case be less or more favorable to the Licensee than that defined in the leasing schedule embodied in this agreement or any other substitute leasing schedule which may be regularly adopted by the Licensor and of which notice shall be given to the Licensee hereafter. 5. To permit the Licensee to take advantage of any standing order leasing price mentioned in such schedule, such standing order 1 Words in brackets eliminated by Patents Co. by notice dated Sept 13, 191 1, effective Oct. 1, 1911. 262 Industrial Com in nations and Trusts with any Licensed Manufacturer or Importer shall be for one or more prints of each and every subject regularly produced and offered for lease by such manufacturer or importer as a standing order subject and not advertised as special by such Licensed Manufacturer or Importer, and shall remain in force for not less than 14 consecutive days. Any standing order may be canceled or reduced by the Licensee on 14 days' notice. Extra prints in addition to a standing order shall be furnished to the Licensee at the standing order leasing price. 6. The Licensee shall not sell, rent, or otherwise dispose of, either directly or indirectly, any licensed motion pictures, however the same shall have been obtained, to any persons, firms, or corpora- tions or agents thereof who may be engaged either directly or in- directly in selling or renting motion-picture films. 7. The Licensee shall not make or cause to be made or permit others to make reproductions or so-called "dupes" of any licensed motion pictures, nor sell, rent, loan, or otherwise dispose of or deal in any reproductions or "dupes" of any motion pictures. 8. The Licensee shall not deliberately remove the trade-mark or trade name or title from any licensed motion picture, nor permit others to do so, but in case any title is made by the Licensee, the Manufacturer's name is to be placed thereon, provided that in making any title by the Licensee the Manufacturer's trade-mark shall not be reproduced. 9. The Licensee shall return to each Licensed Manufacturer or Importer (without receiving any payment therefor, except that the said Licensed Manufacturer or Importer shall pay the transporta- tion charges incident to the return of the same) on the 1st day of every month commencing seven months from the 1st day of the month on which this agreement is executed an equivalent amount of positive motion-picture film in running feet (not purchased or leased over 1 2 months before) and of the make of the said Licensed Manu- facturer or Importer equal to the amount of licensed motion pic- tures that was so leased during the seventh month preceding the day of each such return, with the exception, however, that where any such motion pictures are destroyed or lost in transportation or otherwise and satisfactory proof is furnished, within 14 days after such destruction or loss, to the Licensed Manufacturer or Im- porter from whom such motion picture was leased the Licensed Manufacturer or Importer shall deduct the amount so destroyed or lost from the amount to be returned. The Patent Monopoly 263 10. The Licensee shall not sell, rent, sublet, loan, or otherwise dispose of any licensed motion pictures, however the same may have been obtained, to any person, firm, or corporation in the exhibition business who may have violated any of the terms or conditions imposed by the Licensor through any of its licensees and of which violation the present Licensee may have had notice. 11. The Licensee shall not sublease licensed motion pictures to any exhibitor unless a contract with said exhibitor (satisfactory in form to the Licensor) is first exacted, under which the exhibitor agrees to conform to all the conditions and stipulations of the pres- ent agreement applicable to the exhibitor ; and in the case of an ex- hibitor who may operate more than a single place of exhibition, a similar contract shall be exacted in connection with each place so operated, and supplied with licensed motion pictures by the Li- censee. 12. After February 1, 1909, the Licensee shall not sublease any licensed motion pictures to any exhibitor unless each motion- picture projecting machine on which the licensed motion pictures are to be used by such exhibitor is regularly licensed by the Motion Picture Patents Co., and the license fees therefor have been paid; and the Licensee shall, before supplying such exhibitor with licensed motion pictures, mail to the Motion Picture Patents Co., at its office in New York City, a notice, giving the name of the exhibitor, the name and location of the place of exhibition (and, if requested to do so by the Licensor, its seating capacity, hours of exhibition and price of admission, and the number and make of the licensed projecting machine or machines), together with the date of the commencement of the subleasing, all in a form approved by the Licensor. The Licensee, when properly notified by the Licensor that the license fees of any exhibitor for any projecting machine have not been paid, and that the license for such projecting machine is terminated, shall immediately cease to supply such exhibitor with licensed motion pictures. 13. The Licensee agrees to order during each month while this agreement is in force, for shipment directly to the place of business of the Licensee in the city for which this agreement is signed, licensed motion pictures, the net leasing prices for which shall amount to at least $2,500. 14. The Licensee shall, on each Monday during the continuance of this agreement, make or mail payment to each Licensed Manu- facturer and Importer for all invoices for licensed motion pictures 264 Industrial Combinations and Trusts which have been received by the Licensee during the preceding week. 15. This agreement shall extend only to the place of business for the subleasing of motion pictures maintained by the Licensee in the city for which this agreement is signed, and the Licensee agrees not to establish or maintain a place of business for the subleasing of motion pictures, or from which motion pictures are delivered to exhibitors, in any other city, unless an agreement for such other city, similar to the present agreement, is first entered into by and between the Licensee and the Licensor. 16. This Licensor agrees that before licensing any person, firm, or corporation in the United States (not including its insular terri- torial possessions and Alaska) to lease licensed motion pictures from Licensed Manufacturers and importers and to sublease such motion pictures, it will exact from each such licensee an agreement similar in terms to the present agreement, in order that all licensees who may do business with the Licensed Manufacturers and Im- porters will be placed in a position of exact equality. 19. 1 It is understood and specifically covenanted by the Licensee that the Licensor may terminate this agreement on 14 days' written notice to the Licensee of its intention so to do, and that if the Licensee shall fail to faithfully keep and perform the foregoing terms and conditions of lease, or any of them, or shall fail to pay the leasing price for any motion pictures supplied by any Licensed Manufacturer or Importer when due and payable according to the terms of this agreement, the Licensor shall have the right to place the Licensee's name on an appropriate suspended list, which the Licensor may publish and distribute to its other licensees and to exhibitors and to the Licensed Manufacturers and Importers and to direct the Licensed Manufacturers and Importers not to lease license motion pictures to the Licensee, and the exercise of either or both of these rights by the Licensor shall not be construed as a termination of this license, and the Licensor shall also have the right in such case, upon appropriate notice to the Licensee, to immediately terminate the present license, if the Licensor shall so elect, without prejudice to the Licensor's right to sue for and recover any damages which may have been suffered by such breach or noncompliance with the terms and conditions hereof by the Licensee, such breach or noncompliance constituting an infringe- ment of said reissued letters patent It is further agreed by the 1 Thus in original. — Ed. The Patent Monopoly 265 Licensee that if this agreement is terminated by the Licensor for any breach of any condition hereof, the right to possession of all licensed motion pictures shall revert, 20 days after notice of such termination, to the respective Licensed Manufacturers and Im- porters from whom they were obtained and shall be returned to such Licensed Manufacturers or Importers at once after the expira- tion of that period. 20. It is understood that the terms and conditions of this license may be changed at the option of the Licensor upon 14 days' written notice to the Licensee; but no such change shall be effective and binding unless duly ratified by an officer of the Licensor. Leasing prices (per running foot) of licensed positive motion pictures. Cents. List 11 Standing order 13 Films leased between 2 and 4 months after release date 9 Films leased between 4 and 6 months after release date 7 Films leased over 6 months after release date 5 A rebate of 10 per cent will be allowed on all leases of licensed motion pictures, except at the 7-cent and 5-cent prices, which are net; said rebates to be due and payable between the 1st and 15th days of each of the months of March, May, July, September, November, and January on all films leased during the two months preceding each said period, provided all the terms and conditions of this license agreement have been faithfully observed. TERMS. All shipments are made f. o. b. lessor's office at lessee's risk. All motion-picture films are to be shipped to lessee's office only. The lengths at which motion-picture films are listed and leased are only approximate. Motion Picture Patents Co., By D. MacDonald, General Manager. (Licensee's signature.) , Greater New York Film Rental Co., -, Secretary. Place of business for which this license is granted, No. 24 Union Square, New York, N. Y. January 20, 1909. 266 Industrial Combinations and Trusts Exhibit 3 crown cork and seal company ! Form of license and lease of automatic power Crown soda machine from the Crown Cork & Seal Co., of Baltimore city, lessor, to . The Crown Cork & Seal Co., of Baltimore city, hereby licenses and leases to , lessee, one automatic power Crown soda machine under United States Letters Patent Nos. 473776, April 26, 1892; 608158, July 26, 1895; 609209, August 16, 1898; 658354, December 5, 1899; and also patent applications filed in the United States Patent Office, to be used only by said lessee at . The lessee agrees to pay therefor $1,200, f. o. b. Baltimore, 30 days after date of shipment of invoice, $6 per month for the whole term of the lease, the first payment to be made on the last day of the month succeeding shipment, and on the last day of each succeeding month thereafter. The lease and license are granted for the full term for which said patent was originally granted, to w r it, for 17 years from date, and shall continue during that term, without reference to any de- cision as to the validity of any said patents. The license and lease are granted upon the following conditions: The said machine shall be used only in connection with crown corks purchased by the lessee directly from lessor; crowns not fit for service may be returned at the Crown Cork &.Seal Co.'s ex- pense before use and within 30 days from date of invoice. The lessor shall be sole judge of the origin or manufacture of crowns returned; the lessor shall not be liable for any consequential dam- ages or for any abatement in the rent or any loss other than such return of crowns on account of alleged defects in crowns. The ma- chine shall be kept in repair by the lessee at its own expense, but the repair parts shall be purchased from the lessor at its regular catalogue prices. The Crown Cork & Seal Co. shall at all times have access to the 1 Hearings before the Committee on the Judiciary on Trust and Patent Legislation, House Reports — Nos. 11380-11381, 15926, 19959. 62nd Congress, 2nd Session, 1911-1912. Trust Legislation Serial No. 2, Patent Legislation Serial No. 1, p. 164. The Patent Monopoly 267 machine and under such conditions, however, as shall not interfere with its operation. This lease and license shall not be subject to either voluntary or involuntary assignment, but upon surrender of the license and the payment of all arrears thereunder, the Crown Cork & Seal Co. of Baltimore City will issue to such person as the lessee may des- ignate a new license, reserving only the rentals thereafter maturing and otherwise identical with this license. If said lessee shall violate or fail to perform any of the terms or conditions of this instrument, then this lease or license shall, at the option of the lessor, be null and void, and said Crown Cork & Seal Co. of Baltimore City shall have the right at any time to take possession of the machine. This license shall not be valid unless confirmed by countersigna- ture of the Crown Cork & Seal Co. at its home office in Baltimore. Witness the signatures of said parties this day of , 190 — . LICENSE TO OPERATE. Crown cork system and automatic crown machine. March 14, 19 10. To the Crown Seal & Cork Co., Baltimore: We hereby make application for license to operate your crown cork system and automatic crown machine, as covered by patents, No. 638354, dated December 5, 1899, and No. 643973, dated Feb- ruary 20, 1900, to be used in Boston, Mass., and request you to forward to our address one automatic crown machine, at $1,800, f. o. b., Baltimore. Upon the granting of the license we agree and obligate ourselves that the system and machine shall only be used and operated by us in connection with crown corks, purchased from the Crown Cork & Seal Co., and bottles made, by properly authorized manufac- turers, with the company's standard finishing tools. It is agreed that the price of crown corks (plain) shall not ex- ceed 25 cents per gross, f. o. b., Baltimore. It is agreed that the shall have the benefit of any general reduction in the price of crown corks. It is further agreed that no claims for consequential damages shall be allowed by the Crown Cork & Seal Co. 268 Industrial Combinations and Trusts AGREEMENT OF LICENSE AND LEASE OF ONE CROWN MACHINE. The Crown Cork & Seal Co., of Baltimore City, called the Crown Co., hereby licenses and leases to , doing business at Boston, Mass., called the lessee, one Crown machine of the stand- ard type below mentioned, and does hereby license said lessee to use for the term and within the terms and limitations herein set forth, the Crown Co.'s cork system, i. e., the said machine, and processes. This license is granted under the following United States patents, to wit: No. 473776, April 26, 1892; No. 608158, July 26, 1898; No. 638354, December 5, 1899; No. 643973, Feb- ruary 20, 1900; No. 779991, January 10, 1905; No. 908688, Jan- uary 5, 1909, and other letters patent heretofore or hereafter granted to the Crown Co. Type of machine. — The type of machine so leased, and annual rental payable therefor, is the following (i. e., the one not canceled): Machine type, automatic power Crown beer machine (rent), $180. Term of lease. — The term of this agreement commences on the date hereof and continues until terminated as herein provided. Either the Crown Co. or lessee may at their option, respectively, terminate this agreement. Rent. — The lessee shall pay to the Crown Co. the annual rent above stated for the type of machine leased ; the rent shall be paya- ble in equal quarterly instalments on the 1st days of January, April, July, and October; the first instalment shall commence on the first day of the month succeeding the shipment of the machine, and shall be a due proportion for the time from such date to the first quarterly-payment date. Termination. — This lease and license may be terminated by either party at their options, respectively, and shall terminate on the date fixed therefor as herein provided. The Crown Co. may terminate the same by written notice addressed to the lessee at his address herein given, mailed at Baltimore, and shall take effect 60 days after the mailing date. The lessee may terminate by sim- ilar written notice addressed to the Crown Co. at Baltimore, to- gether with the delivery of the machine, f. o. b. Baltimore, to the Crown Co., and termination by the lessee shall take effect on such delivery, and shall not take effect unless or until such delivery is made. No abatement of rent shall be made while the machine is in the lessee's possession or until such delivery at Baltimore. On The Patent Monopoly 269 any termination, all liabilities of the lessee to the Crown Co., includ- ing arrears of rent, and a due proportion of the accruing quarter's rent to the date it takes effect, shall be at once due and payable. And the said parties hereby agree as follows: The lessee shall not be obliged to insure the machine or be liable for its value destroyed by fire or lost in transportation. All deliveries of the machine by or to the Crown Co. shall be f. o. b. Baltimore, and the lessee shall pay all transportation charges and all taxes on the machine. The said machine shall be used only by said lessee at his place of busi- ness in the city above stated. The lessee shall keep the machine in good working order and condition at his own expense and pay the cost of repair of any machine not in such condition when re- turned to the Crown Co., whether the lease be terminated by either party. Repair parts must be obtained from the Crown Co. only. The Crown Co. shall in no event be liable for any consequential damages or injury to business claimed to arise from alleged defects in leased machines or for defects in quality of or failure to deliver crowns; nor shall the payment of the rent be affected thereby. This license and lease shall not be subject to voluntary or involun- tary alienation, but upon surrender hereof and the payment of all arrears hereunder and all of the lessee's liability to the Crown Co., the Crown Co. will issue to the lessee's nominee a new lease and license, reserving only the rentals thereafter maturing and other- wise identical with this instrument. This instrument is not valid unless signed or confirmed by the Crown Co. at its home office, Baltimore, Md. Dated 1st day of June, 191 1. The Crown Cork & Seal Co. Secretary. Exhibit 4 sidney henry v. a. b. dick company l Mr. Justice Lurton delivered the opinion of the court: This cause comes to this court upon a certificate under the sixth section of the court of appeals act of March 31, 1891. 1 Will appear in 223 or 224 U. S. The fact that the excerpts in this exhibit are taken from an advance copy of the decree will account for such slight differences in punctuation and the use of italics as may be observed. — Ed. 270 Industrial Combinations and Trusts The facts and the questions certified, omitting the terms of the injunction awarded by the circuit court, are these: This action was brought by the complainant, an Illinois corporation, for the infringement of two letters patent, owned by the complainant, covering a stencil- duplicating machine known as the rotary mimeograph. The defendants are doing business as copartners in the city of New York. The complainants sold to one Christina B. Skou, of New York, a rotary mimeograph embodying the invention described and claimed in said patents under license which was attached to said machine, as follows: "license restriction. "This machine is sold by the A. B. Dick Co. with the license restriction that it may be used only with the stencil paper, ink, and other supplies made by A. B. Dick Co., Chicago, United States of America. "The defendant, Sidney Henry, sold to Miss Skou a can of ink suitable for use upon said mimeograph with knowledge of the said license agreement and with the expectation that it would be used in connection with said mimeograph. The ink sold to Miss Skou was not covered by the claims of said patent. " QUESTION CERTIFIED. Upon the facts above set forth, the question concerning which this court de- sires the instruction of the Supreme Court is: Did the acts of the defendants constitute contributory infringement of the complainant's patents? There could have been no contributory infringement by the de- fendants, unless the use of Miss Skou's machine with ink not made by the complainants would have been a direct infringement. It is not denied that she accepted the machine with notice of the con- ditions under which the patentee consented to its use. Nor is it denied that thereby she agreed not to use the machine otherwise. What defendants say is that this agreement was collateral, and that its validity depended upon principles of general law, and that if valid the only remedy is such as is afforded by general principles of law. Therefore they say that the suit is not one arising under the patent law, and one not cognizable in a Federal court unless diversity of citizenship exists. We are unable to assent to these suggestions. We do not pre- scribe the jurisdiction of courts, Federal or State, but only give effect to it as fixed by law. If a bill asserts a right under the patent law to sell a patented machine subject to restrictions as to its use, and alleges a use in violation of the restrictions as an infringement The Patent Monopoly 271 of the patent, it presents a question of the extent of the patentee's privilege, which, if determined one way, brings the prohibited use within the provisions of the patent law, or, if determined the other way, brings into operation only principles of general law. Ob- viously a suit for infringement, which must turn upon the scope of the monopoly or privilege secured to a patentee, presents a case arising under the patent law. The jurisdiction of the circuit court over such cases has, for more than a century, been exclusive by the express terms of the statute, although for the most part its jurisdic- tion over other kinds of suits arising under the Constitution and laws of the United States is only concurrent with that of the State courts. That the license agreement constitutes a contract not to use the machine in a prohibited manner is plain. That defendants might be sued upon the broken contract, or for its enforcement or for the forfeiture of the license, is likewise plain. But if by the use of the machine in a prohibited way Miss Skou infringed the patent, then she is also liable to an action under the patent law for infringe- ment. Now, that is primarily what the bill alleged, and this suit is one brought to restrain the defendants as aiders and abettors to her proposed infringing use. The books abound in cases upholding the right of a patentee owner of a machine to license another to use it subject to any qualification in respect of time, place, manner, or purpose of use which the licensee agrees to accept. Any use in excess of the license would obviously be an infringing use and the license would be no defense. (Robinson on Patents, sees. 915, 916, and notes.) This is so elementary we shall not stop to cite cases. The contention is not that a patentee may not permit the use of a patented thing with such qualifications as he sees fit to impose, and that a prohibited use will be an infringing one, but that he can only keep the article within the control of the patent by retaining the title. To put the contention in another form — it is that any transfer of the patentee's property right in a patented machine carries with it the right to use the entire invention so long as the identity of the machine is preserved, irrespective of any restrictions placed by the patentee upon the use of the article and accepted by the buyer. 272 Industrial Combinations and Trusts It is said that by such a sale the patentee "disposes of all his rights under his patent, and thereby removes the article from the opera- tion of the patent law." If he attempts to sell the machine for specified uses only and prohibit all others, the' restriction is disposed of as constituting a collateral agreement, such as any vendor of personal property might impose, and enforceable, if valid at all, only as a collateral contract. The issue is a plain one. If it be sound, it concludes the case, and our response should be a negative one, since the violation of a mere collateral contract, which is not also an infringement of the patent, would not be a case arising under the patent law. But is it true that where a patentee sells his patented machine for a specific and limited use, he does not thereby reserve to himself, as a patentee, the exclusive right to all unpermitted uses which may be made of his invention as embodied in the machine sold? Obviously, this is a question arising under the patent law. By a sale of a patented article subject to no conditions the purchaser undeniably acquires the right to use the article for all the purposes of the patent so long as it endures. He may use it where, when, and how he pleases, and may dispose of the same unlimited right to another. This has long been the settled doctrine of this and all patent courts An absolute and unconditional sale operates to pass the patented thing outside the boundaries of the patent, because such a sale implies that the patentee consents that the purchaser may use the machine so long as its identity is preserved. This implication arises, first, because a sale, without reservation, of a machine whose value consists in its use, for a consideration, carries with it the presumption that the right to use the particular machine is to pass with it. The rule and its reason is thus stated in Robinson on Patents (sec. 824): The sale must, furthermore, be unconditional. Not only may the patentee impose conditions limiting the use of the patented article upon his grantees and express licensees, but any person having the right to sell may at the time of sale restrict the use of his vendee within specific boundaries of time or place or method, and these will then become the measure of the implied license aris- ing from the sale. The argument for the defendants ignores the distinction between the property right in the materials composing a patented machine and the right to use for the purpose and in the manner pointed out The Patent Monopoly 273 by the patent. The latter may be and often is the greater element of value, and the buyer may desire it only to apply to some or all of the uses included in the invention. But the two things are separable rights. If sold unreservedly, the right to the entire use of the inven- tion passes, because that is the implied intent; but this right to use is nothing more nor less than an unrestricted license presumed from an unconditional sale. A license is not an assignment of any interest in the patent. It is a mere permission granted by the patentee. It may be a license to make, sell, and use, or it may be limited to any one of these separable rights. If it be a license to use, it operates only as a right to use without being liable as a in- fringer. If a licensee be sued, he can escape liability to the patentee for the use of his invention by showing that the use is within his license. But if his use be one prohibited by the license, the latter is of no avail as a defense. As a license passes no interest in the monopoly, it has been described as a mere waiver of the right to sue by the patentee. (Robinson on Patents, sees. 806, 808.) It is plain from the power of the patentee to subdivide his exclu- sive right of use that when he makes and sells a patented device that the extent of the license to use which is carried by the sale must depend upon whether any restriction was placed upon the use and brought home to the person acquiring the article. That here the patentee did not intend to sell the machine made by it subject to an unrestricted use is of course undeniable from the words upon the machine, viz: LICENSE RESTRICTION. This machine is sold by the A. B. Dick Co., with the license restriction that it may be used only with the stencil, paper, ink, and other supplies made by A. B. Dick Co. If, then, we assume that the violation of restrictions upon the use of a machine made and sold by the patentee may be treated as infringement, we come to the question of the kind of limitation which may be lawfully imposed upon a purchaser. To begin with, the purchaser must have notice that he buys with only a qualified right of use. He has a right to assume, in the ab- sence of knowledge, that the seller passes an unconditional title to the machine, with no limitations upon the use. Where, then, is 274 Industrial Combinations and Trusts the line between a lawful and an unlawful qualification upon the use? This is a question of statutory construction. But with what eye shall we read a meaning into it? It is a statute creating and protecting a monopoly. It is a true monopoly, one having its origin in the ultimate authority, the Constitution. Shall we deal with the statute creating and guaranteeing the exclusive right which is granted to the inventor with the narrow scrutiny proper when a statutory right is asserted to uphold a claim which is lacking in those moral elements which appeal to the normal man? Or shall we approach it as a monopoly granted to subserve a broad public policy, by which large ends are to be attained, and therefore to be construed so as to give effect to a wise and beneficial purpose? That we must neither transcend the statute nor cut down its clear mean- ing is plain If the stipulation in an agreement between patentees and dealers in patented articles, which, among other things, fixed a price below which the patented articles should not be sold, w T ould be a reason- able and valid condition, it must follow that any other reasonable stipulation not inherently violative of some substantive law, im- posed by a patentee as part of a sale of a patented machine, would be equally valid and enforceable. It must also follow that if the stipulation be one which qualifies the right of use in a machine sold subject thereto, so that a breach would give rise to a right of action upon the contract, it would be at the same time an act of in- fringement, giving to the patentee his choice of remedies. But it has been very earnestly said that a condition restricting the buyer to use it only in connection with ink made by the patentee is one of a character which gives to a patentee the power to extend his monopoly so as to cause it to embrace any subject not within the patent which he chooses to require that the invention shall be used in connection with. Of course the argument does not mean that the effect of such a condition is to cause things to become patented which were not so without the requirement. The stencil, the paper, and the ink made by the patentee will continue to be unpatented. Anyone will be as free to make, sell, and use like articles as they would be without this restriction, save in one par- ticular, namely, they may not be sold to a user of one of the pat- entee's machines with intent that they shall be used in violation of the license. To that extent competition in the sale of such The Patent Monopoly 275 articles, for use with the machine, will be affected, for sale to such users for infringing purposes will constitute contributory infringe- ment. But the same consequence results from the sale of any article to one who proposes to associate it with other articles to infringe a patent when such purpose is known to the seller. But could it be said that the doctrine of contributory infringement operates to extend the monopoly of the patent over subjects not within it because one subjects himself to the penalties of the law when he sells unpatented things for an infringing use? If a patentee says, "I may suppress my patent if I will; I may make and have made devices under my patent, but I will neither sell nor permit anyone to use the patented things," he is within his right, and none can complain. But if he says, "I will sell with the right to use only with other things proper for using with the machines, and I will sell at the actual cost of the machines to me, provided you will agree to use only such articles as are made by me in connection therewith," if he chooses to take his profit in this way, instead of taking it by a higher price for the machines, has he exceeded his exclusive right to make, sell, and use his patented machines? The market for the sale of such articles to the users of his machine, which, by such a condition, he takes to himself, was a market which he alone created by the making and selling of a new invention. Had he kept his invention to himself no ink could have been sold by others for use upon machines embodying that invention. By selling it subject to the restriction he took nothing from others and in no wise restricted their legitimate market. Neither can we see that the liability of the defendants for aiding and abetting an infringing use by Miss Skou would be different whether she had made her machine in open defiance of the rights of the patentee or had bought it under conditions limiting her right of use. If she had made it, she would have been liable to an action for infringement for making, and if she used it she would become liable for such infringing use. But if the defendants knew of the patent and that she had unlawfully made the patented article, and then sold her ink or other supplies, without which she could not operate the machine, with the intent and purpose that she should use the infringing article by means of the ink supplied by them, they would assist in her infringing use. 276 Industrial Combinations and Trusts "Contributory infringement," says Judge Townsend in Thomas 1 - Houston Co. v. Kelsey Co. (72 Fed. Rep., 1016), "has been well defined as the intentional aiding of one person by another in the unlawful making, or selling, or using of the patented invention." To the same effect are Wallace v. Holmes (29 Fed. Cases, 79); Risdon v. Trent (92 Fed. Rep., 375); Thomson-Houston Co. v. Ohio Brass Works (80 Fed. Rep., 721); American Graphophone Co. v. Hawthorne (92 Fed. Rep., 516). In the Risdon case a member of the firm which made the plans for the construction of certain mining machinery to be made in the owner's shop, and then superintended its erection at the mine, was held to be guilty of infringement, though he neither personally made nor used the machines which were found to be an infringe- ment of valid patents. In American Graphophone Co. v. Haw- thorne one who sold a machine with knowledge that it was to be used to produce an infringing article was held to be liable as an infringer. For the purpose of testing the consequence of a ruling which will support the lawfulness of a sale of a patented machine for use only in connection with supplies necessary for its operation bought from the patentee, many fanciful suggestions of conditions which might be imposed by a patentee have been pressed upon us. Thus it is said that a patentee of a coffee pot might sell on condition that it be used only with coffee bought from him, or, if the article be a circular saw, that it might be sold on condition that it be used only in sawing logs procured from him. These and other illustra- tions are used to indicate that this method of marketing a patented article may be carried to such an extent as to inconvenience the public and involve innocent people in unwitting infringements. But these illustrations all fail of their purpose, because the public is always free to take or refuse the patented article on the terms im- posed. If they be too onerous or not in keeping with the benefits, the patented article will not find a market. The public, by per- mitting the invention to go unused, loses nothing which it had before, and when the patent expires will be free to use the invention without compensation or restriction. This was pointed out in the paper-bag case, where the inventor would neither use himself nor allow others to use, and yet was held entitled to restrain infringe- ment, because he had the exclusive right to keep all others from using during the life of the patent. This larger right embraces the 1 In error; should be " Thomson." — Ed. The Patent Monopoly 277 lesser of permitting others to use upon such terms as the patentee chooses to prescribe. It must not be forgotten that we are dealing with a constitutional and statutory monopoly. An attack upon the rights under a patent because it secures a monopoly to make, to sell, and to use is an attack upon the whole patent system. We are not at liberty to say that the Constitution has unwisely provided for granting a monopolistic right to inventors or that Congress has unwisely failed to impose limitations upon the inventor's exclusive right of use. And if it be that the ingenuity of patentees in devising ways in which to reap the benefit of their discoveries requires to be restrained, Congress alone has the power to determine what restraints shall be imposed. As the law now stands it contains none, and the duty which rests upon this and upon every other court is to expound the law as it is written. Arguments based upon suggestions of public policy not recognized in the patent laws are not relevant. The field to which we are invited by such arguments is legislative, not judicial. 1 The decisions of this court as we have construed them do not so limit the privilege of the patentee, and we could not so restrict a patent grant without overruling the long line of judicial decisions from circuit courts and circuit courts of appeal heretofore cited, thus inflicting disastrous results upon individuals who have made large investments in reliance upon them. The conclusion we reach is that there is no difference in principle between a sale subject to specific restrictions as to the time, place, or purpose of use and restrictions requiring a use only with other things necessary to the use of the patented article purchased from the patentee. If the violation of the one kind is an infringement, the other is also We come then to the question as to whether "the acts of the de- fendants constitute contributory infringement of the complainants' patent." The facts upon which our answer must be made are somewhat meager. It has been urged that we should make a negative reply to the interrogatory as certified, because the intent to have the ink sold to the licensee used in an infringing way is not sufficiently made out. Undoubtedly a bare supposition that by a sale of an article which, though adapted to an infringing use, is also adapted to other and lawful uses, is not enough to make the seller a contributory 1 Italics are the editor's. — Ed. 278 Industrial Combinations and Trusts infringer. Such a rule would block the wheels of commerce. There must be an intent and purpose that the article sold will be so used. Such a presumption arises when the article so sold is only adapted to an infringing use. Rupp v. Elliott (131 Fed., 730). It may also be inferred where its most conspicuous use is one which will cooper- ate in an infringement when sale to such user is invoked by adver- tisement. Kalem Co. v. Harper Brothers, decided at this term and not yet reported. These defendants are, in the facts certified, stated to have made a direct sale to the user of the patented article, with knowledge that under the license from the patentee she could not use the ink, sold by them directly to her, in connection with the licensed ma- chine, without infringement of the monopoly of the patent. It is not open to them to say that it might be used in a noninfringing way, for the certified fact is that they made the sale "with the expecta- tion that it would be used in connection with said mimeograph." The fair interpretation of the facts stated is that the sale was with the purpose and intent that it would be so used. So understanding the import of the question in connection with the facts certified, we must answer the question certified affirma- tively. Mr. Justice Day did not hear the argument and took no part in the decision of this case. Mr. Chief Justice White, with whom concurred Mr. Justice Hughes and Mr. Justice Lamar, dissenting: My reluctance to dissent is overcome in this case: First, because the ruling now made has a much wider scope than the mere interest of the parties to this record, since, in my opinion, the effect of that ruling is to destroy, in a very large measure, the judicial authority of the States by unwarrantedly extending the Federal judicial power. Second, because the result just stated, by the inevitable development of the principle announced, may not be confined to sporadic or isolated cases, but will be as broad as society itself, affecting a multitude of people and capable of operation upon every conceivable subject of human contract, interest, or activity, however intensely local and exclusively within State authority they otherwise might be. Third, because the gravity of the con- sequences which would ordinarily arise from such a result is greatly aggravated by the ruling now made, since that ruling not only vastly extends the Federal judicial power, as above stated, but as to all the innumerable subjects to which the ruling may be made to The Patent Monopoly 279 apply, makes it the duty of the courts of the United States to test the rights and obligations of the parties, not by the general law of the land, in accord with the conformity act, but by the provisions of the patent law, even although the subjects considered may not be within the embrace of that law, thus disregarding the State law, overthrowing, it may be, a settled public policy of the State, and injuriously affecting a multitude of persons. Lastly, I am led to express the reasons which constrain me to dissent, because of the hope that if my forebodings as to the evil consequences to result from the application of the construction now given to the patent statute be well founded, the statement of my reasons may serve a twofold purpose: First, to suggest that the application in future cases of the construction now given be confined within the narrow- est limits, and, second, to serve to make it clear that if evils arise their continuance will not be caused by the interpretation now given to the statute, but will result from the inaction of the legislative department in failing to amend the statute so as to avoid such evils. 1 I can not bring my mind to assent to the conclusion referred to, and shall state in the light of reason and authority why I can not do so. As I have said, the ink was not covered by the patent; indeed, it is stated in argument and not denied that a prior patent which covered the ink had expired before the sale in question. It there- fore results that a claim for the ink could not have been lawfully embraced in the patent, and if it had been by inadvertence allowed such claim would not have been enforceable. This curious anomaly then results, that that which was not embraced by the patent, which could not have been embraced therein and which if mistak- enly allowed and included in an express claim would have been inefficacious, is now, by the effect of a contract held to be embraced by the patent and covered by the patent law. This inevitably causes the contentions now upheld to come to this, that a patentee in selling the machine covered by his patent has power by contract to extend the patent so as to cause it to embrace things which it does not include; in other words, to exercise legislative power of a far-reaching and dangerous character. Looking at it from another point of view and testing the contention by a consideration of the rights protected by the patent law and the rights which an inventor who obtains a patent takes under that law, the proposition reduces 1 Italics are the editor's. 280 Industrial Combinations and Trusts itself to the same conclusion. The natural right of anyone to make, vend, and use his invention, which but for the patent law might be invaded by others, is by that law made exclusive, and hence the power is conferred to exclude others from making, using, or vend- ing the patented invention. (Paper Bag case, 210 U. S., 424-425, and cases cited.) The exclusive right of use of the invention embodied in the ma- chine which the patent protected was a right to use it anywhere and everywhere for all and every purpose of which the machine as em- braced by the patent was susceptible. The patent was solely upon the mechanism, which, when operated, was capable of producing certain results. A patent for this mechanism was not concerned in any way with the materials to be used in operating the machine, and certainly the right protected by the patent was not a right to use the mechanism with any particular ink or other operative materials. Of course, as the owner of the machine possessed the ordinary right of an owner of property to use such materials as he pleased in operating his patented machine and had the power in selling his machine to impose such conditions, in the nature of covenants not contrary to public policy as he saw fit, I shall assume that he had the power to exact that the purchaser should use only a particular character of materials. But as the right to employ any desired operative materials in using the patented machine was not a right derived from or protected by the patent law, but was a mere right arising from the ownership of property, it can not be said that the restriction concerning the use of the materials was a restriction upon the use of the machine protected by the patent law. When I say it can not be said I mean that it can not be so done in reason, since the inevitable result of so doing would be to declare that the patent protected a use which it did not embrace. And this, after all, serves to demonstrate that it is a misconception to qualify the restriction as one on the use of the machine, when in truth both in form and substance it was but a restriction upon the use of materials capable of being employed in operating the machine. In other words, every use which the patent protected was trans- ferred to Miss Skou, and the very existence of the particular re- striction under consideration presupposes such right of complete enjoyment, and because of its possession there was engrafted a con- tract restriction, not upon the use of the machine, but upon the materials. And these considerations are equally applicable to the exercise of the exclusive right to vend protected by the patent un- The Patent Monopoly 281 less it can be said that by the act of selling a patented machine and disposing of all the use of which it is capable a patentee is endowed with the power to amplify his patent by causing it to cover in the future things which at the time of the sale it did not embrace. But the result of this analysis serves at once again to establish, from another point of view, that the ruling now made in effect is that the patentee has the power, by contract, to extend his patent rights so as to bring within the claims of his patent things which are not embraced therein, thus virtually legislating by causing the patent laws to cover subjects to which, without the exercise of the right of contract, they could not reach, the result being not only to multiply monopolies at the will of an interested party, but also to destroy the jurisdiction of the State courts over subjects which from the beginning have been within their authority. The vast extent to which the results just stated may be carried will be at once apparent by considering the facts of this case and bearing in mind that this is not the suit of a patentee against one with whom he has contracted to enforce as against such person an act done in violation of a contract as an infringement, but it is against a third person who happened to deal in an ordinary com- modity of general use with a person with whom the patentee had contracted. And this statement shows that the effect of the ruling is to make the virtual legislative authority of the owner of a pat- ented machine extend to every human being in society, without reference to their privity to any contract existing between the pat- entee and the one to whom he has sold the patented machine. It is worthy of observation that the vast power which the ruling confers upon the holders of patented inventions does not alone cause con- troversies which otherwise would be subject to the State jurisdic- tion to become matters of exclusive Federal cognizance, but subjects the rights of the parties when in the Federal forum to the patent law, to the exclusion of the State law which otherwise would ap- ply, and it may be to the overthrow of the settled public policy of the State wherein the dealings involved take place. All these results are in a measure comprehensively portrayed by the decree of the circuit court. They are, moreover, vividly shown by a ref- erence made by the court to and the putting aside as inapplicable of a previous decision of this court (Miles Medical Co. v. Park & Sons Co., 220 U. S., 373) which if here applied would cause the alleged license to be held void as against public policy. As the theory upon which the Miles Medical Co. case is treated as inappli- 282 Industrial Combinations and Trusts cable is that this case is one governed by the patent laws, and there- fore not within the rule of public policy which the Miles case ap- plied, it is made indubitably clear that the ruling now announced endows the patentee with a right by contract not only to produce the fundamental change as to jurisdiction of the State and Federal courts to which I have referred, but also to bring about the over- throw of the public policy both of the State and Nation, which I at the outset indicated was a consequence of the ruling now made. I do not think it necessary to stop to point out the innumerable subjects which will be susceptible of being removed from the opera- tion of State judicial power and the fundamental and radical char- acter of the change which must come as a result of the principle decided. But, nevertheless, let me give a few illustrations: Take a patentee selling a patented engine. He will now have the right by contract to bring under the patent laws all contracts for coal or electrical energy used to afford power to work the machine or even the lubricants employed in its operation. Take a patented carpenter's plane. The power now exists in the patentee by contract to validly confine a carpenter purchasing one of the planes to the use of lumber sawed from trees grown on the land of a particular person or sawed by a particular mill. Take a patented cooking utensil. The power is now recognized in the patentee to bind by contract one who buys the utensil to use in connection with it no other food supply but that sold or made by the patentee. Take the invention of a patented window frame. It is now the law that the seller of the frame may stipulate that no other material shall be used in a house in which the window frames are placed except such as may be bought from the patentee and seller of the frame. Take an illustration which goes home to everyone — a patented sewing machine. It is now established that by putting on the machine, in addition to the notice of patent required by law, a notice called a license restriction, the right is acquired, as against the whole world, to control the purchase by users of the machine of thread, needles, and oil lubricants or other materials convenient or necessary for opera- tion of the machine. 1 The illustrations might be multiplied in- definitely. That they are not imaginary is now a matter of com- mon knowledge, for, as the result of a case decided some years ago by one of the circuit courts of appeal, which has been followed by cases in other circuit courts of appeal, to which reference will hereafter be made, what prior to the first of those decisions on a sale of a patented article was designated a condition of sale, gov- 1 Italics are the editor's. The Patent Monopoly 283 erned by the general principles of law, has come in practice to be denominated a license restriction, thus, by the change of form, under the doctrine announced in the cases referred to, bringing the matters covered by the restriction within the exclusive sway of the patent law. As the transformation has come about in prac- tice since the decisions in question, the conclusion is that it is attributable as an effect caused by the doctrine of those cases. And, as I have previously stated, it is a matter of common knowl- edge that the change has been frequently resorted to for the pur- pose of bringing numerous articles of common use within the monop- oly of a patent when otherwise they would not have been embraced therein, thereby tending to subject the whole of society to a wide- spread and irksome monopolistic control. I pass by the English decisions relied upon with the remark that it is not perceived how they can have any persuasive influence on the subject in hand in view of the distinction between State and national power which here prevails and the consequent necessity, if our institutions are to be preserved, of forbidding a use of the patent laws which serves to destroy the lawful authority of the States and their public policy. I fail also to see the application of English cases in view of the possible difference between the public policy of Great Britain concerning the right, irrespective of the patent law, to make contracts with the monopolistic restriction which the one here recognized embodies and the public policy of the United States on that subject as established, after great con- sideration, by this court in Miles Medical Co. v. Park & Sons Co. (220 U. S., 373). See especially on this subject the grounds for dissent in that case expressed by Mr. Justice Holmes, referring to the English law, on page 413. But even if I were to put aside everything I have said and were to concede for the sake of argument that the power existed in a patentee, by contract, to accomplish the results which it is now held may be effected, I nevertheless would be unable to give my assent to the ruling now made. If it be that so extraordinary a power of contract is vested in a patentee, I can not escape the con- clusion that its exercise, like every other power, should be subject 284 Industrial Combinations and Trusts to the law of the land. To conclude otherwise would be but to say that there was a vast zone of contract lying between rights under a patent and the law of the land, where lawlessness prevailed and wherein contracts could be made whose effect and operation would not be confined to the area described, but would be operative and effective beyond that area, so as to dominate and limit rights of every one in society, the law of the land to the contrary notwith- standing. What could more cogently serve to point to the reality and con- clusiveness of these suggestions than do the facts of this case? It is admitted that the use of the ink to work the patented machine was not embraced in the patent, and yet it is now held that by contract the use of materials not acquired from a designated source has be- come an infringement of the patent, and exactly the same law is applied as though the patent in express terms covered the use of ink and other operative materials. It is not, as I understand it, denied; and if it were, in the face of the decision in the Miles Medi- cal Co. case, supra, in reason it can not be denied that the particular contract which operates this result if tested by the general law w T ould be void as against public policy. The contract, therefore, can only be maintained upon the assumption that the patent law and the issue of a patent is the generating source of an authority to con- tract to procure rights under the patent law not otherwise within that law, and which could not be enjoyed under the general law of the land. l But here, as upon the main features of the case, it seems to me this court has spoken so authoritatively as to leave no room for such a view. 1 Italics are the editor's. CHAPTER XI THE ABSORPTION OF THE TENNESSEE COAL, IRON AND RAILROAD COMPANY It is a matter of much regret that space does not permit the introduction of several exhibits on the absorption of the Tennessee Coal, Iron and Railroad Company by the United States Steel Corporation. A large mass of testimony upon that subject is available in the Stanley Investigation. Excerpts from the testimony of Messrs. Schley and Ledyard, Colonel Roosevelt and others would have added much to the book. It is hoped however that the narrative which follows will be sufficient to enable the reader to understand the transaction in its general outlines. It should be added that the other testimony does not corroborate Judge Gary in all points. — Ed. Exhibit i narrative of judge elbert h. gary * Mr. Littleton. I wall call your attention to a statement made by Mr. John Moody, and ask you if you dissent from it or agree with it: The acquisition of this organization — That is, the Tennessee Coal & Iron Co. — has added great potential value to the steel organization and has increased the tangible equity of its common-stock issue to a far greater extent than is commonly realized. The Tennessee Coal & Iron properties embrace, besides important manufacturing plants, nearly 450,000 acres of mineral lands in the Birmingham section of Alabama. As shown in the report of the Tennessee Co. in 1904, when an appraisal was made by outside parties, these lands con- tain approximately 400,000,000 tons of first-class low-grade ore and more than 1,200,000,000 tons of coal, of which about one-half is coking coal. This esti- mate indicates that the deposits embraced are even in excess of those of the great Lake Superior properties controlled by the corporation, including the Great Northern ore bodies. This entire property was acquired, as is well known, on very favorable terms. That I do not ask you to assent to, but I wish to ask you about that. The description given there in that article is substantially correct? 1 Hearings before the Committee on Investigation of United States Steel Corporation, 62nd Cong., 2nd Sess., 1911-1912, pp. 124-143. 28s 286 Industrial Combinations and Trusts Mr. Gary. I do not agree with that at all; no. Mr. Littleton. How much ore did it add to the possessions of the United States Steel Corporation? Mr. Gary. There was an estimate, at the time we purchased, of 700,000,000 tons of ore, about 400,000 tons, as I remember, of which was usable, on top of the other — usable by their method. However, as you know, probably, it was an inferior grade of ore and not of very great value, in my opinion, for reasons which I will give if you desire. You could hardly consider that in connection with the Lake Superior ores, so called, or as adding to the Lake Superior ores. Mr. Littleton. I asked you the question so as to make it clear. Mr. Gary. Yes. Mr. Littleton. What do you consider was the amount of ore you obtained by reason of procuring control of the Tennessee Coal & Iron Co.? Mr. Gary. I believe we obtained five or six hundred million tons of ore, a portion of which, at least, was at present usable in that locality, provided there was a market for it — that is, a market for the iron or the steel which could be manufactured at that point. Mr. Littleton. How much coal did you acquire by the acquisi- tion of the Tennessee Coal & Iron Co.? Mr. Gary. We suppose a large body; perhaps more than 1,000,000,000 tons, and perhaps 1,000,200,000, as stated there. Mr. Littleton. Did you consider that a valuable acquisition? Mr. Gary. Why, it had value, of course; but there was plenty of coal like it which could be bought at a very low price, and there is a good deal yet. And there is plenty of ore property like that which could be bought, and can be at the present time, I think, by the acre, at, say $50 to $100 an acre. Some of you will know what that means. Mr. Littleton. Was the Tennessee Coal & Iron ore a good grade for the making of ordinary pig iron? Mr. Gary. That could be utilized in the manufacture of fairly good pig iron, at a certain cost. Mr. Littleton. What did the property consist of in the way of improvements for the purpose of mining and making steel ; or, to be more specific, what was the output of the furnaces, per ton, per annum? Mr. Gary. A full statement of the properties of that company, at that time, is found on pages 26 and 27 of the annual report of 1907. Absorption of the Tennessee Railroad Company 287 Mr. Littleton. I am not going to follow the details of that so closely as to require consultation. All that I am going to do is to ask you the topical questions and then go to another point. It has been stated that the capacity of the blast furnaces of the company in 1907 was about 160,000 tons per annum — that is, I speak of the Tennessee Coal & Iron Co.? Mr. Gary. That is probably right. Mr. Littleton. And that of the developed coal and ore mines about 20,000 tons per day? Mr. Gary. That may be right. I do not know. That is probably right. In the year 1907 there was produced about 1,500,000 tons of ore — that amount was mined; there were produced about 244,000 tons of limestone and dolomite; and coal, exclusive of coking coal, about 1,700,000 tons; and of coke, about 1,100,000 tons. There were 602,000 tons of pig iron, about; open-hearth steel, ingots, and castings, about 243,000 tons; rails, about 149,000 tons; billets, plates, and bars, about 38,000 tons. Mr. Littleton. This article which I called your attention to, which I have consulted, continues with this statement: If we compare this capacity with that of the actual production of all the other properties owned by the Steel Corporation, outside of the Tennessee Coal & Iron Co., for the year 1907, we will get the following results: Blast- furnace products, 10,819,968 tons; ore and coal mined and limestone quarried, 39,576,161 tons. In other words, the capacity of the new properties acquired, according to the figures above, is about 15 per cent of the total production of mining products of the entire corporation for last year and about 8 per cent of the blast-furnace products. Mr. Gary. I have given you the production, and I am prepared to give you the results in figures of operations before we secured the property, and since, after an expenditure of $15,000,000 or more by us, including the payment of $6,500,000 which the company owed when we took it over. These values hinted at are fictitious. Mr. Littleton. What was the capitalization of the Tennessee Coal & Iron Co. at the time you took it over? Mr. Gary. I gave that. Mr. Littleton. $32,000,000, was it not? Mr. Gary. There was $29,950,000 of common stock and $124,000 and over of preferred stock. The bonded indebtedness was $14,419,- 000, and purchase-money notes, $826,000. It owed current liabili- ties, floating debt, $4,168,102, considerable of which was past due. 288 Industrial Combinations and Trusts Mr. Littleton. Did you or your company solicit the purchase of the Tennessee Coal & Iron Co., or was it offered to you by those who had the authority to sell it? Mr. Gary. It was offered, one way or another; offered many times, at about the time we acquired it. It was offered by Lewis Cass Ledyard, who was the attorney for Col. Oliver Payne, and who had been interviewed by Mr. Schley, of Moore & Schley; and I would like to suggest, if I may, that I think Mr. Lewis Cass Ledyard ought to be subpoenaed to state the exact facts which led up to his coming to J. P. Morgan to beg him to suggest to the United States Steel Corporation the propriety and the necessity for the purchase of those properties. Mr. Littleton. You understand it to be a fact that he will be subpoenaed, Judge Gary, if he can shed any light on this question. Mr. Gary. I am very sure his testimony will settle the question whether we desired to purchase the property, or whether the owners desired to sell the property. Mr. Littleton. Your understanding is that Mr. Ledyard came to Mr. Morgan as the initial step in the transaction? Mr. Gary. No doubt about it; and I would be very glad to give you the history of it, so far as I know it, if you desire. Mr. Littleton. I wish you would. Mr. Gary. Very well. In one way or another the stock of the Tennessee Coal & Iron Co. had been offered to the United States Steel Corporation, I will not say authoritatively or by the owners exactly, but by people who assumed to be acting between, or acting for the Tennessee people. Our people had been opposed to the pur- chase of the property at any price or on any basis, and had dis- tinctly said so. Finally, I think sometime in the early part of 1907 — not intending to be accurate as to dates — Mr. Morgan sent for me and said that Mr. George Kessler who, as you know, was a wine merchant, but who had purchased some of this stock outside of the Schley syndicate, as I will call it, had approached him, Mr. Morgan, with the statement that the stock of the Tennessee Coal & Iron Co. could be purchased at about 130, and asked me my opinion. I told Mr. Morgan I did not think that it was worth half of that; I did not think we could afford to take it at any such price; that I would like to bring Mr. Frick over to the bank and get his opinion. He came over to the bank, and Mr. Frick expressed about the same opinion. The matter was then dropped. I believe Mr. Morgan told me that afterwards he found out that Mr. Kessler represented Absorption of the Tennessee Railroad Company 289 only himself, and did not represent the other people, as Mr. Morgan had supposed. Along about the 23d day of October, 1907, Mr. Morgan requested me to come over to the bank, and said Mr. Schley was very much in need of money, or securities which he could use at the bank. I think I saw Mr. Schley at the bank at that time; if not, I did later; but the business finally resulted in my accommodating Mr. Schley by loaning him $1,200,000 par value of our second bonds, and taking from him an agreement to return those bonds; and I re- ceived from him, as security for the fulfillment of his agreement, $2,000,000, par value, of the stock of the Tennessee Coal & Iron Co. The agreement provided, as I remember, that if the $1,200,000 par value of bonds were not returned by April 23, 1908, the owner- ship of the $2,000,000 par value of the stock of the Tennessee Coal & Iron Co. should be and remain in the United States Steel Corporation. That was done as an accommodation to Mr. Schley at his very urgent request and because he stated it was absolutely necessary to protect him from financial trouble. That, you see, would be taking the Tennessee Coal & Iron Co. stock as security on the basis of 60. Mr. Littleton. Pardon me, do you know how much Mr. Schley had of the Tennessee Coal & Iron Co. stock at that time? Mr. Gary. No; I do not. I did not know anything about it at that time, except so far as appeared by this transaction. I have here the written agreement between the United States Steel Corporation, signed by myself as chairman, and Moore & Schley and the members of the firm of Moore & Schley, and under the circumstances and in view of the fact that he has heretofore appeared before a com- mittee and exposed the facts in regard to this I feel justified in giving all the facts, and I will furnish the committee a copy of this agreement. Mr. Littleton. Yes. Mr. Gary. I will exhibit it now to the committee, and I would like to retain this, of course, but will be glad to furnish you with a copy. Mr. Littleton. We will be very glad to have a copy. Mr. Gary. The next thing that occurred in relation to this pur- chase was about the 2d day of November, 1907. We were then in the midst of what I have termed a financial cyclone. There were runs on many banks throughout the city of New York, including 290 Industrial Combinations and Trusts the Trust Co. of America, the Lincoln Trust Co., and very many other banks. The panic had extended all over the country, more or less. Banks in Chicago had drawn their money from the New York banks so far as they could, and banks in other cities had col- lected their moneys. It was impossible for depositors to get out of the banks throughout the country the money they had in the banks. It was impossible for business men to borrow money. Loans were being called in New York, Chicago, St. Louis, and va- rious other cities. As an illustration, a president, or vice president, of one of the trust companies in New York called me on the phone to say that unless the bank could secure $1,000,000 in credits that day it would have to close its doors, and asked me to help if I could. I applied to J. P. Morgan & Co., who had received pledges from various bankers there to furnish certain amounts of moneys or credits, for assistance, and they stated that they had so many applications and had so much business of this kind on hand that they could not devote any time or attention to it, and asked me to find out if this Trust Co. was entitled to any relief, and I asked my own people, comptroller and assistant treasurer, to go to that bank and make an examination of it. I think they spent the whole night doing so. The next morning I received their report and in turn reported to J. P. Morgan & Co. that the bank had securities enough to entitle it to relief, and $1,000,000 was furnished, and afterwards, I think, a good deal more. The bankers of our city were in session almost night and day. I was at Mr. Morgan's library several nights nearly all night. Many of the leading bankers of our city were there nearly all night. There is no doubt that there was every indication that we were in the throes of a panic which might lead to the most disastrous results, including the suspension of a large number of banks, and the failure of a great many different people. To one who could see this, who could talk with the people and talk not only with the bankers themselves but the depositors and people generally, there could be no possible doubt that the country was in very grave danger of one of the worst financial panics that has ever been witnessed in this country. I have not undertaken to describe it, or do any more than refer to it. But at this time, I say, Mr. Morgan telephoned a request to me to come to his library, and I went. I found Mr. Lewis Cass Ledyard, and, I think, Mr. Schley was with him; he was on several occasions, although I did not talk with Mr. Schley at the first interview. Mr. Ledyard was the counsel of Mr. Payne. Absorption of the Tennessee Railroad Company 291 Mr. Lindabury. Oliver? Mr. Gary. Oliver Payne. He was one of the gentlemen named in what has been called the "syndicate, " which had purchased a con- trolling interest in the Tennessee Coal & Iron Co. That syndicate was made up of a number of very rich people. Mr. Littleton. Right on that head, and before proceeding further, is it or is it not a fact that Moore & Schley held the stock of the Tennessee Coal & Iron Co. for and on behalf of a syndicate of gentlemen? Mr. Gary. A majority of the stock. Mr. Littleton. A majority of it; on behalf of a syndicate of gentlemen comprising O. H. Payne, who had 10,300 shares; L. C. Hanna, who had 10,300 shares; J. P. Duke, who had 10,300 shares; E. J. Berwind, who had 10,300 shares; J. W. Gates, who had 10,300 shares; A. N. Brady, who had the same amount; G. A. Kessler, who had the same amount; Oakleigh Thome, who had the same amount; E. W. Oglebay, who had 5,150 shares; H. S. Black, who had 5,150 shares; F. D. Stout, who had 5,150 shares; J. W. Simpson, who had 5,150 shares; G. W. French, who had 2,500 shares; S. G. Cooper, who had 1,500 shares; and J. A. Topping, who had 1,000 shares? Mr. Gary. I think that is correct, except I do not think Kessler was in the original syndicate. I think he bought outside, and Schley finally took his stock with the rest and made some advances on it. Mr. Littleton. With that qualification, then, the situation at that juncture was that Moore & Schley held, for and on behalf of these gentlemen who comprised the syndicate, 118,300 shares of the Tennessee Coal & Iron Co; that is your understanding? Mr. Gary. Yes. Mr. Littleton. Now you may go ahead. Mr. Gary. Mr. Ledyard stated that Moore & Schley were in very great financial distress. I think he stated it perhaps more strongly than Mr. Schley stated it when he was before the Judiciary Committee of the Senate, although I read that statement to-day, and I noticed that Mr. Schley testified that he was in great finan- cial distress at that time, and did not know what would become of him unless he secured help by the sale of this stock. I think Mr. Ledyard stated that Moore & Schley were largely indebted to Mr. Payne, and had a great many of his securities; that Moore & Schley had deposited with their securities on an indebtedness aggre- gating more than $30,000,000 a large amount of the Tennessee Coal 292 Endustrial Combinations and Trusts & Iron stock as collateral security in a very great many banks in New York; that these banks had called these loans, or insisted upon Moore & Schley taking up the Tennessee Coal & Iron stock, for the reason that it was not salable. It had been a stock that over a period of years had been put up from a very low figure to a very high figure, being in the control of a syndicate which, I will not say manipulated it — I had nothing to do with it — but it influenced the greatest fluctuations in it. That is very easily ascertainable. Mr. Bartlett. They had this stock up in various banks, you say, but it was rather a fact, was it not, that it was up in the trust company of which Mr. Oakleigh Thorne was president? Mr. Gary. He had about four hundred-odd thousand of them up at that bank, as I understand. I understood from Mr. Ledyard that Moore & Schley had loaned to their customers who had bought this stock and put it in, sums of money, and then they, Moore & Schley, in turn had pledged this stock with these banks as collateral security, in a great many different banks, aggregating, in all, about $6,000,000. That was the statement as I understood it, as I re- member it. Mr. Ledyard said that, in his opinion, there was no possible way of preventing the failure of Moore & Schley unless we pur- chased this stock, and he believed if Moore & Schley failed it meant the failure of a great many banks. Mr. Morgan said to me, "I do not know whether the United States Steel Corporation can afford to buy this stock or not; I will express no opinion on that subject. But I will say that, in my opinion, if it does not buy the stock, or unless it or some one else furnishes relief at this partic- ular time, there is not any man on earth can say what the result will be in the financial circles of this country. In my opinion, the circumstances make the conditions very critical, and if you can see your way clear to buy this stock, there is no doubt it will help the situation. Now, I turn Mr. Ledyard over to you and you can take up and consider this question and see what, if anything, you can do." I said to Mr Morgan, "In the first place, I would not think of considering the purchase of this stock without going to Washington first and taking the matter up with the President or the Department of Justice, or both." He said, "Why? Have they any right to say whether you buy or not?" I said, "No; they have not. But here is a financial crisis, and from your standpoint the object of buying this stock would be to allay this storm, to assist in overcoming this panic, and if the Department of Justice Absorption of the Tennessee Railroad Company 293 or the President should find out we had purchased, or were about to purchase it, and should enjoin us from purchasing on the ground that it would add to our holdings and thereby raise the question of creating or adding to a monopoly, you can see at once that what we had done would be to make the financial conditions very much worse than they are now; and therefore, it seems to me, we ought to know how the President and the Department of Justice would feel about the question." He said, "Well, I think that is very forcible, and I see no objection to your going over there if you feel like it." I said, "I certainly would not be in favor of considering this without going over there." I then telephoned Mr. Frick, a member of our finance committee. I think Mr. Ream and some others were out of the city that day, although I am very sure Mr. Ream and most, if not all, of the members of the committee attended subsequent days when we held various meetings to consider these questions. I telephoned Mr. Frick and asked him to come to the library, which he did imme- diately. It seems to me it was early in the morning, and, as I re- member, the report from his house was that he was out riding. But I left word for him to come to the library as soon as he returned, and he did so within a comparatively short time. He came to the library, and I stated to him briefly the situation and asked him if we should consider this question, if he would go with me to Wash- ington, and he said the first question to consider was whether we would consider the purchase of this property. He had spoken against this a good many times, and he was opposed to it. He did not think he wanted to purchase it. He made the statement that he did not think it was worth more than what I said I thought it was worth. I had said to Mr. Ledyard that, in my opinion, the stock was not worth over 65 ; and I believe Mr. Ledyard will corrob- orate that. Mr. Frick expressed about the same opinion. He was very much opposed to it, and not until after I had gone over the subject with him carefully, and he had approached Mr. Morgan and Mr. Morgan had told him — he and I had gone to Mr. Morgan's room — how he felt about the panic, did he give any encouragement whatever in regard to his opinion and his influence. Finally, how- ever, he said he would like to think it over. In the meantime, I think, I had telephoned the secretary of the company to come to the library, and I asked him to telephone the members of the finance committee and secure a meeting at the library of the finance com- mittee as soon as possible, and they came there very soon. This 294 Industrial Combinations and Trusts whole subject matter was gone over very carefully by me, and I think Mr. Frick offered the resolution — I would like to tell you what resolution was passed at that first meeting. Remember, it had been represented that Mr. Schley had on deposit as collateral security toward the payment of his loans only about six millions of the stock of the Tennessee Coal & Iron Co. I think he said then five or six millions. I thought the resolution on its face stated what we decided upon, but it does not; it provides that on Novem- ber 3 the whole subject matter be reported to the chairman, with power. But it was understood that we would offer to loan Mr. Schley either five or six million dollars in cash, taking the Tennessee Coal & Iron Co. stock as collateral security for the repayment of that loan; and if that failed to satisfy his wants, that, then, we would buy the stock on the basis of paying 90 for it in bonds of the United States Steel Corporation. I went back to Mr. Ledyard and made a proposition to make this loan to Schley. He talked with Schley, and made answer that that would not do at all ; they could not get along with that; that Mr. Payne himself had offered to loan Mr. Schley, I think, a million dollars; someone else had offered to loan a million dollars; and someone else, or others, a million dollars. So that, as I remember, there were about $3,000,000 additional, which would provide in cash to Moore & Schley about eight or nine million dollars. But that Schley said that would not do at all, and he could not possibly get through. Mr. Frick himself, then, as I remember, had a conversation with Schley and tried to urge him to accept this loan, saying we did not want the stock and did not be- lieve in its represented value; did not believe it was worth over 60 or 65 at the outside. Mr. Schley told Mr. Frick, as I remember, that he could not get along with that loan; that he must sell this stock; that there were various reasons why that w r as the only way he could possibly keep the firm from bankruptcy. Mr. Schley was represented by an attorney, Mr. Thatcher, of Simpson, Barnum & Thatcher, who was his counsel, Mr. Ledyard representing Mr. Payne, but trying to help Mr. Schley because Mr. Schley was in- indebted to Mr. Payne; and, if I am not mistaken — I would not like to do anybody an injustice — if Mr. Thatcher should be sub- poenaed and would have the right, from a professional standpoint, to state it — I am not sure about that — I believe he would say that an assignment had been prepared for either Moore & Schley or Mr. Schley. Absorption of the Tennessee Railroad Company 295 Mr. Lindabury. An assignment for the benefit of creditors? Mr. Gary. For the benefit of creditors. Mr. Littleton. That is, Mr. John Thatcher? Mr. Gary. Mr. Tom Thatcher. Mr. Littleton. Do you think Mr. Schley would permit Mr. Thatcher to tell that? Mr. Gary. That I do not know. Mr. Littleton. Of course the privilege lies with Mr. Schley. Mr. Gary. I understand Mr. Schley has said since — I do not know, but he testified — that he could have got through this panic all right. Anybody who say * him at that time and heard him talk would not think he believed he could get through at that time. Mr. Lindabury. I want to say that Mr. Schley is a neighbor of mine in the country, and he is a pretty sick man just now. I do not believe he ought to be approached from what I hear. Mr. Littleton. We have his testimony on the subject in another hearing. Mr. Gary. Thereupon I began to talk to Mr. Ledyard about the purchase of this stock on the basis of 90, and, as I remember, he and I finally agreed, subject to the objection which might possibly be made in Washington, in the way and for the reasons I have hereto- fore suggested. As I remember, Mr. Ledyard or Mr. Schley, rep- resented by Mr. Thatcher, but communicating through Mr. Led- yard, agreed to take 90 for the stock and take his pay in bonds. Mr. Littleton. At that point did you or Mr. Ledyard or Mr. Thatcher or any of you believe that the President or Attorney General had any right to indorse this transaction? Mr. Gary. / was clearly of the opinion that he did not, 2 and later I will be very glad to tell you how that question came up and what took place, because I feel certain now that every one connected in any way will agree that the exact facts and all the facts should be made known, and I do not know that there has ever been any other opinion held by anyone. I have stated that we offered, under the conditions and subject to the conditions mentioned, to pay for this stock in the bonds of the United States Steel Corporation. They were then quoted at about 84, which, by comparison with other stocks in the market, was pretty high, notwithstanding it was a very low price for those bonds, which had sold, and should have sold, and did soon after sell, for better than par. But they were considered the best kind of security, 1 Thus in original — Ed. 2 Italics are the editor's. 296 Industrial Combinations and Trusts and they were more salable, in my opinion, in large amounts than anything else on the market, any other kind of bonds or stocks, strange as it may seem. There was a great market for those bonds, and after this trade was made millions and millions of them sold, commencing at about 84 and not going down below about 78 or 79, as I remember. The United States Steel Corporation interests had, in different banks scattered throughout the country, about $75,000,- 000, and we would have been pleased to pay for this stock in cash rather than pay for it in our bonds at 84, except for the fact that we could not do that without disturbing the financial conditions of the country, disturbing the financial conditions of these banks, respectively, where our money was deposited. I was receiving requests from Pittsburg banks to withdraw our money in other localities and put more money in the banks of Pittsburg; also the same request from Chicago, the same request from other cities, and requests from New York banks to bring more money in from other cities to New York, as that was the seat of the greatest trouble, the seat of the whole trouble, I was afraid to disturb these banking conditions and relations by the withdrawal of money. Mr. Littleton. How much would it have withdrawn, about? Mr. Gary. It would have withdrawn twenty-five or more million dollars. We could not have withdrawn from any bank anywhere at that time $5,000,000 without creating a very great disturbance, the final result of which no man at that time could measure or possibly form any adequate notion of. If I had been disposed to take advantage of the financial conditions to make money, with this large deposit in the different banks, with these great resources, I could have bought securities — that is, bonds of all sorts and de- scriptions in the market, which had gone down to a comparatively low price. There was every opportunity for anyone who had cash resources to make money. But certainly there was no such disposition on the part of the United States Steel Corporation, or anyone connected with it, and therefore we proposed to pay for the Tennessee Coal & Iron stock in the bonds of the United States Steel Corporation, w r hich were in our treasury, and which were as good as cash — which could be sold in the market and which would be received by any of the banks as collateral security in the place of the Tennessee Coal & Iron stock or any other stock. I say that Mr. Ledyard and I agreed upon the price of 90. He came back to me, it seems to me, the next day — some time subse- quently — and said he was told by Mr. Schley and his counsel that Absorption of the Tennessee Railroad Company 297 the price of 90 would not possibly let Messrs. Moore & Schley, or Mr. Schley out; they could not get along with that. I notice, in reading the testimony of Mr. Gates, that he says he got home and he made them raise the purchase price of securities. But the whole transaction was closed before Mr. Gates's return from Europe — before he arrived in New York, and if he made that statement he must have made it by Marconi, and certainly it was not communi- cated to us. The reason given to us, and the only reason, for pro- posing to increase the purchase price was that the stock at 90 was not sufficient to allow the firm of Moore & Schley to pull through. I went back to our finance committee and represented those facts, and we had another meeting on November 4 and another resolution was passed, again referring the whole subject matter to the chairman with power; and I returned to Mr. Ledyard and agreed to raise the price from 90 to 100 in order to allow Moore & Schley to pull through. My bargaining was all with Mr. Ledyard ; the negotiations were entirely between Mr. Ledyard and me, as I remember. Mr. Morgan certainly did not participate in any respect nor attempt to influence anybody to buy or sell. I do not hold any brief for Mr. Morgan, but I mention that in connection with some of the published and sensational statements which have undoubtedly been based on misinformation. Mr. Gardner. I would just like to understand. Your first agreement was to buy the stock at 90 per cent of its face value — the securities? Mr. Gary. Yes; and pay for it in bonds at 84. Mr. Gardner. And pay for it in bonds at 84 ; that is to say, you paid $72 on the hundred? Mr. Gary. I have not made the figures; but afterwards I agreed to pay par for the Tennessee stock in bonds at 84. That, in other words, would be paying about 119 for the Tennessee stock, on the assumption that the bonds were worth par. Mr. Gardner. In other words, you paid out $840 for $900 worth of their securities, or did you pay $100? Mr. Gary, $840 for a thousand, par value, of their securities was the final trade. Mr. Gardner. That is what I want to get at. Mr. Gary. No; it is the other way. I was mistaken. Mr. Gardner. What I want to get at is this: Were you going to pay them $100 for $100 worth of their securities, only you happened 298 Industrial Combinations and Trusts to settle, for convenience, in bonds at 84, or were you going to pay $84 for $100 worth of securities? Mr. Gary. Your first statement is right. Mr. Gardner. Then let me ask you, just to clear my own mind on the subject — because I have only gone on the committee to-day — you said that Col. Payne offered to lend a million dollars originally? Mr. Gary. I was so informed. You get all those facts from Com- modore Ledyard. Mr. Gardner. I want to follow you; that did not show, ap- parently, as a drop in the bucket; that that was followed by a proposition from you to lend $6,000,000, or thereabouts? Mr. Gary. They all came in together. Commodore Ledyard said Mr. Payne would provide a million dollars, and other parties, I remember, about two millions more, and then we offered to add to that a loan of five or six million dollars. Mr. Gardner. In addition to the three? Mr. Gary. Yes, sir. Mr. Gardner. That brings it up to nine millions? Mr. Gary. Eight or nine millions. Mr. Gardner. But that would not let Messrs. Moore & Schley out of their difficulty. Then, the next proposition, as I under- stand, was 90 per cent of the face value of their securities; that was $25,000,000, or thereabouts? Mr. Gary. I think so. Mr. Gardner. And that would not let Moore & Schley out of their difficulties? Mr. Gary. That is right. Mr. Gardner. Finally you paid over $30,000,000, and that did not let them out. Now, what I want to get at is, What were Moore & Schley's obligations that required such an enormous difference as between the original proposition of Col. Payne and what finally was furnished? Mr. Gary. These obligations which were paid for by the United States Steel Corporation were not all the obligations of Moore & Schley. They did have obligations in the bank, as I understood, of between thirty and forty million dollars. Mr. Gardner. Thirty or forty millions of dollars was about the selling price of the securities? Mr. Gary. They had borrowed thirty or forty. Mr. Gardner. But they had against that the Tennessee Coal & Iron stock, which was worth something? Absorption of the Tennessee Railroad Company 299 Mr. Gary. And various other stocks. I do not know the details of those loans. But here is a thing I would like to have you get in your mind; it is important: Most of the gentlemen who were participants in this syndicate, so-called, who were wealthy men — many of them, at least — were not obligated at all on the Moore & Schley loans; but, as I understood it, and as I believed from their acts at the time, they were very glad to turn in their stock, which they owned at these prices which were agreed upon. But just how much of the bonds which we turned over were needed by Moore & Schley to take care of themselves we were never informed. Mr. Gardner. Here is what I want to get at. You said you and Mr. Frick decided that the stock was worth from 60 to 65, in your opinion. Mr. Gary. Not more than that. Mr. Gardner. That is all you cared to pay for it, ordinarily? Mr. Gary. Yes. Mr. Gardner. But on account of Mr. Morgan's representation to you that if Moore & Schley failed it would be followed by a financial panic whose size could not be measured, you finally gave them 100 for that which you thought, only as a business venture taken by itself, to be worth only $65; in other words, that you came to the rescue of Moore & Schley to the extent of over $30,000,000? Mr. Gary. Not over 30,000,000. Mr. Gardner. Why not? Mr. Gary. You mean the total? Mr. Gardner. You gave them in bonds, which were convertible into cash, somewhere from 79 to 84 of its face value; you gave them $30,000,000. That is, what they could use as cash. That is what I want to get into my mind, whether that great amount of money was necessary to avert this calamity which was impending, in view of the fact that a large number of holders in the pool of Moore & Schley were men whose interest it was obviously to share with you that cost of averting a panic? Mr. Gary. I do not know the figures with respect to the indebted- ness of Moore & Schley, which was secured by this stock ; nor do I know how many other members of the syndicate owed and had put up that stock. Mr. Schley, in his testimony, refers to the fact that a good deal of it was up. I do not know how much, and we never had those figures. What we did know, or what we were informed, was that eight or nine million dollars was not sufficient, and we 300 Industrial Combinations and Trusts were also told that there was no way of preventing this failure except by the purchase of the whole of the stock. Mr. Gardner. At ioo per cent? Mr. Gary. At ioo per cent. Now, I suspect that members of that syndicate who were not in debt said to Schley: "We have put this stock in your hands' with an agreement that it shall not be sold by you unless sold at a profit, and it has cost us about no" — I think Schley said it stood him in at that — "and we will not allow you to sell your interest in that syndicate unless at the same time you put ours in at the same price and give us a chance." That is what I suspect; I do not know that. But I do know those were rich men, some of them. Mr. Gardner. You found a situation in which Mr. Morgan said: "I do not know whether you can buy this or whether you can buy that, but here is the fact, unless Moore & Schley have the money they say they must have " — which ultimately turns out to be $30,000,000, or its equivalent — "they are going to the wall, which means general ruin." Ordinarily a man would say to himself: "Of course, it will ruin the United States Steel Corporation as well as it will other people if there is a panic, and are there not some people around who can share this loss we are going to stand in, because we are paying 100 for that which we think is worth only 65?" You would naturally have looked around to see if there was not somebody who had to pay his share to pull Moore & Schley out of the hole. Was there somebody else, or did the whole burden come on the United States Steel Corporation? Mr. Gary. It did finally, and would under any circumstances, except to the extent of about $3,000,000, as I understand. Mr. Gardner. Some of those names there that were read off as holding 10,300 shares seem to me like persons with whom Mr. Mor- gan should have influence. Mr. Gary. Which one, for instance? Mr. Gardner. Oakleigh Thorne. Mr. Gary. I do not think he would have very much influence. What other one? There may be some one on there, but I do not think there was anyone there that Mr. Morgan would have a par- ticular influence over. The Chairman. Mr. John W. Gates? [Laughter.] In that con- nection, Judge, while they are waiting, are you willing to-day to dispose of that property for what you paid for it? Mr. Gary. That is a very pertinent question, and I would like to Unive Absorption of the Tennessee Railroad Company 301 answer that in just a minute. I just want to add, in answer to Mr. Gardner's question, this suggestion. He has spoken of Mr. Morgan making these representations. There were several other leading bankers, whose names I do not now remember, all of whom were very much excited, and who made the same representations; that is, the representations which Mr. Morgan made, as I understood, were that if Moore & Schley failed, and these loans, therefore, in these various banks were put in a position where the clearing house could not approve them, then he could not answer for the results. That was the statement, and Mr. Morgan said, "Now, Mr. Ledyard tells me that unless this stock is purchased Moore & Schley must fail. That is his opinion, and he has no doubt about it. Those are the facts. " Mr. Gardner. What I was trying to get at was, why you did not have any partners in misery. Mr. Gary. I presume you have been in trouble before, when you have seen a large portion of the people surrounding the trouble run in all directions. Mr. Morgan is the one man who, on such occasions, will rise to the occasion and put his own money into the other banks or on the stock exchange or anywhere to prevent the panic or pre- vent trouble, and give the use of his name and his credit to help people who are in financial distress. He has done it over and over again, and on this occasion no doubt he risked many, many million dollars of his own money in order to try to avert the panic. But that is not true of all others. It is true, though, that on this occasion many of the leading bankers of New York gathered around Mr. Mor- gan, and with him became responsible for large sums of money. They were all obligated in many directions and in large sums, and these bankers believed from the representations which had been made to them that the United States Steel Corporation — or, at least, they hoped — could afford to buy this stock and help out the situation and finally recoup itself against loss. So that it may not be true, and I have not said that as a final result the United States Steel Corporation made a heavy loss. I would be glad to give you my opinion. Mr. Gardner. We do not expect you to make a loss, because the panic was terminated. But naturally you took your risk of a loss. What I want to get through my mind is, why you had alone to make a present to Moore & Schley — and that is what you did in paying 100 for that of which the market value was only 70 per cent — why you alone had to stand in the way of that thunderstorm. 3 " Q. Do you know of the employment of a yellow dog company? A. I have been told that the Climax Co., and the New York Powder Co. — Q. What do you know about the yellow dog companies, if any- thing? A. May I ask a question? Q. Yes. A. If the president of the company told me, am I permitted to answer? Q. Yes. That is my judgment, unless the gentlemen differ with me. A. During the conversation with Mr. T. C. du Pont, the presi- dent, in which he was endeavoring to explain to me the objects of the trust, he told me that no one man could sell all the powder, or any other article, in any particular territory, and it was necessary for him, therefore, just like a little boy, to have a dog, to which he could whistle and call. Q. What kind of a dog? A. He termed it "a yellow dog," and he explained to me that after I had exhausted all my resources, and those of the traveling men under my office, that if I was not able to regain the trade, that I was to whistle by writing a letter, and they would then send on a little yellow dog, which, at that time, in the high explosives busi- ness, was known as the Climax Powder Manufacturing Co., of Em- 1 Testimony of F. J. Waddell. United Slates of America v. E. I. du Pont da Nemours and Company, In Circuit Court of the United Staled fur the District of Delaware. Pet. Rec. Testimony, Vol. II, pp. 685-687. Trust Methods 527 porium, and the New York Powder Co., of New York. But the trouble was to keep the little yellow dog away from the trade that was not molested : Q. Had you occasion to whistle for the little yellow dog? A. Yes, sir. Q. Did you do so? A. Yes, sir. Q. What occurred. 1 State what you did? A. If we met the prices, that meant the lowering of our prices on our brands; but the little yellow dog would come in, and we would say that we didn't recognize them at all, that their goods were of no account, and were of low grade, and all that kind of thing; so we didn't have to lower our prices to the adjoining trade; but the yellow dog got the business. Q. Would you sell for the yellow dog? A. No, sir. Q. To whom did they belong to, if you know, that is, the Climax Powder Co., and the New York Co.? A. To the trust. Q. To the trust? A. Yes, sir. Q. Was that the E. I. du Pont de Nemours Powder Co.? A. Yes, sir. " Exhibit 4 american tobacco company 2 The most important motive, however, for the continuance of separate corporate existence in the case of many concerns has been the desire of the Combination to keep its control secret. There is a strong feeling among many dealers and consumers against " trusts" in general and the "Tobacco Trust" in particular. Independent manufacturers have extensively taken advantage of this feeling and have advertised their goods as "Independent," "Not made by a trust," and so forth. The attitude of the American Tobacco Company and its openly affiliated concerns in refusing to deal with labor organizations has also caused hostility among union laboring men, many of whom insist on buying "union-label" 1 Thus in the original. — Ed. 2 Report of the Commissioner of Corporations on the Tobacco Industry, Part I, pp. 20-21. 328 Industrial Combinations and Trusts goods. Many independent manufacturers have availed themselves of the union-label sentiment to build up a trade. In order to overcome the effects of the antitrust sentiment and the union-label sentiment, and even to take advantage of them, the Tobacco Combination, particularly during 1903 and 1904, secretly acquired a controlling interest in numerous concerns which had been catering to customers who held those sentiments. Such concerns continued to operate under their former management and kept up a pretense of independence and of hostility to the Combination. Those which employed union labor continued to do so and advertised the union label. These secretly controlled con- cerns were, until the facts were disclosed by the Government, a powerful engine of warfare against the genuine independents and were looked upon by the latter as their worst enemy. Among the concerns of which control was thus secretly acquired and for a greater or less period secretly maintained by the American and Continental tobacco companies are the following: R. A. Patterson Tobacco Company, Richmond, Va. H. N. Martin & Co., Louisville, Ky. Queen City Tobacco Company, Cincinnati, Ohio. Pinkerton Tobacco Company, Zanesville, Ohio. F. F. Adams Tobacco Company, Milwaukee, Wis. Nail & Williams Tobacco Company, Louisville, Ky. Nashville Tobacco Works, Nashville, Tenn. F. R. Penn Tobacco Company, Reidsville, N. C. Wells-Whitehead Tobacco Company, Wilson, N. C. H. Bolander (Incorporated), Chicago, 111. D. H. Spencer & Sons (Incorporated), Martinsville, Va. Manufacturers Tobacco Company, Louisville, Ky. Michigan Tobacco Company, Detroit, Mich. B. Leidersdorf & Co., Milwaukee, Wis. R. P. Richardson, jr., & Co., (Incorporated), Reidsville, N. C. Standard Snuff Company, Nashville, Tenn. Liipfert-Scales Company, Winston-Salem, N. C. Craft Tobacco Company, New Orleans, La. Mellor & Rittenhouse Philadelphia, Pa. (licorice). Johnston Tin Foil and Metal Company, St. Louis, Mo. (tin-foil) J. S. Young Company, Baltimore, Md. (licorice). Trust Methods 329 Exhibit 5 international harvester company ' The Government alleges that: In January, 1903, in pursuance of the general purpose of de- fendants, defendant, International Harvester Company, acquired, through purchase of all the capital stock, of and subsequent convey- ance from D. M. Osborne & Co., a New York corporation, with a plant at Auburn, N. Y., engaged in interstate trade and commerce in harvesting machinery, twine, and tillage implements, and in manufacturing, selling, and distributing harvesting machinery, twine, and tillage implements throughout the; United States in competition with it, all grantor's business of manufacturing and selling, dealing in and distributing harvesting machinery and twine as a going concern, all assets, property, and good will and the exclu- sive right to use the corporate name, paying therefor cash and five- year notes. The principal owners of the grantor company, long successfully engaged in manufacturing and selling harvesting ma- chinery, agreed with grantee to enter its service for a certain period in managing the business and property acquired and not otherwise or thereafter to engage in or carry on or become interested in the business of manufacturing or dealing in harvesting machinery. After the five concerns had gone into the International Harvester Company, the Osborne Company remained by far the largest single manufacturer outside the combination. For two years defendant, International Harvester Company, concealed and denied its association with D. M. Osborne & Co., and operated the latter as an independent company. GROUP 3 Exhibit i company 2 The Government alleges that: From the year 1890, up to the present time, the said defendant, — — , and the other directors, managers, officers, and 1 United States of America v. International Harvester Company and Others. Petition in Equity, In the District Court of the United States for the District of Minnesota, pp. 25-27. This charge is admitted in Defendant's Answer to Petition, pp. 30-31. 2 Op. cit. U. S. v. Company. Petition, pp. 14-16. 33° Industrial Combinations and Trusts agents of the said several successive corporations, conspiring and confederating together, have maintained a department of each and every of said successive corporations for the purpose of stifling and suppressing competition with them respectively. This department was sometimes called the "Competition department," at other times the "Ways and means department," and at other times by various other names. It was composed of an active head, with other officers and departmental managers of the said several cor- porations. It employed a force of special men who were particu- larly instructed and directed to suppress and destroy the business of competitors engaged in interstate and foreign trade and com- merce, and to harass and discourage and force out of business such competitors who were either manufacturers, dealers, or agents. These special men were generally known as "knockout" men, and were employed for the special purpose of interfering with the negoti- ations of the contracts of sales of such competitors. The said de- partment also employed secret agents who were instructed and di- rected to spy upon the business of such competitors, to fraudulently obtain information as to their sales and shipments, and to report such information to said department, where it was used for the pur- pose of discouraging prospective purchasers of other s. Other secret spies and agents were from time to time employed by said department, with instructions to report the names of cus- tomers of such competitors, and to report other information, which was thereupon used by said department in blocking, and in secur- ing the rescinding, of contracts of sales by such competitors, and wrongfully interfering with their business. The said department, from time to time, wrongfully and secretly engaged the services of the employees of such competitors and in- structed and directed them to furnish to said department confiden- tial information concerning the business of such competitors; and such information, when so reported, was used by said department in unlawfully and fraudulently obstructing and suppressing such trade and commerce of such competitors. Such department, from time to time, sent out instructions to the agents of the said several successive corporations, advising and directing them how to manipulate competing , for the purpose of showing defects and for the purpose of discouraging users of such , and for the further purpose of having such users rescind their contracts of purchase. Trust Methods 331 The said department also, from time to time, instructed and directed its agents to purchase information from agents and em- ployees of competing manufacturers and dealers relative to the business, plans, and customers of such competitors, and to pro- cure information from the employees of railroads, express com- panies, hotel companies, and others as to the plans and purposes of competitors and the shipments of their , and to report such information to said department, where it was used in obstruct- ing and suppressing such trade and commerce. All of such instructions and directions as above set forth were acted upon by such agents so receiving them, and the policy and plan of the defendants operating said successive corporations through said department was by such agents carried out. Exhibit 2 company * The Government alleges that: It appears from the evidence that the T Company has a general statistical department with headquarters at , one of the chief functions of which is to keep accurate records of the volume of business done by competitors, and that the information regarding shipments and business of competitors, secured from railway sources, is all reported ultimately to this central office. The Government had much difficulty in securing from the officers of the T Company an admission even of the existence of this statistical department and of the fact that such records of the business of competitors were kept. Two or three witnesses who had charge at New York of the sales of the various marketing companies in different parts of the country admitted after much questioning that, from the central offices of those companies in other places, reports of competitive shipments were sent to them at New York; but they at first denied knowledge as to what became of such reports after they had once examined them. ( , vol. — , pp. 670 et seq. ; , vol. — , p. 681.) Thus , who had charge of the sales in the territory until 1900, and later had charge of the sales in the territory of the Com- pany and the T of Iowa, admitted receiving such reports from all these territories, but claimed that they were destroyed from time to time, and that he had none except for a very recent period. He 1 Op. cit. U. S. v. Company. for U. S. Vol. — , pp. 589-91. 332 Industrial Combinations and Trusts said nothing about their being turned over to the statistical depart- ment, as subsequently appeared to be the case. ( , vol. — , pp. 679-87.) Finally it was learned from the testimony of , the selling agent at New York for the Company of Kentucky, that the reports of this character which he received from the of Kentucky were turned over to , who had charge of the statistical department at (vol. — , pp. 709-10.) The Government finally found that , under , was then in charge of this statistical department. He was called as a witness, and admitted that such reports of competitive shipments were turned over to his office, and that from them he compiled general statistics showing the volume of competitive sales in each general marketing territory of the T Company, and also in its smaller subdivisions, and in the principal towns throughout the United States. ( , vol. — , pp. 829-32.) The Government secured from 's office, and introduced in evidence, copies and extracts from these records showing the vol- ume of competitive business. (Petitioner's Exhibits 387-90, vol. — .) It also procured from the various sales agents having their head- quarters at namely, , representing the of Iowa and the Company; , representing the of Ken- tucky; , representing the of Indiana; , representing the Company; and , representing the of New Jersey — the current reports received by them from their several companies showing individual shipments of competitors, and also summaries thereof showing the total competitive business for cer- tain recent periods of time. Copies and extracts of some of these records were put into evidence, and constitute Petitioner's Exhibits 313, 319, 329, 341, 342, 343, 344, 353, 354, and 355 (vol. — ). To illustrate the form of these reports of competitive shipments, we call attention to Petitioner's Exhibit 313 (vol. — , p. 700), which is a list of shipments of — by competitors in the territory of the Company (Rocky Mountain States) during certain months of 1907. The first column (see , vol. — , pp. 687, 739) shows the date of the shipment; the second, the consignor; the third, the point of origin; the fourth, the consignee; the fifth, the point of destination; and the other columns the character and amount of in the shipment. Petitioner's Exhibits 387-390, which are the summarized records produced by , show how complete is the system of keeping Trust Methods 333 track of competitive business. They cover every marketing terri- tory of the T Company in the United States, showing the volume of business done in such territory by the T Com- pany the volume done by independent concerns, and the corre- sponding percentages. They also give similar figures for the smaller marketing districts in which the larger territories are divided, and likewise in many cases give separately figures for the main stations and for the substations under such main stations. We have already, in discussing the relation of the extent of competition to the prices charged by the T Company, presented these percentages of competitive business. and other sales agents who produced these papers testified that they did not know how this information regarding competitive shipments, which came to them from the head offices of the several companies, was originally procured by those offices. , vol. — , p. 671; , vol. — , p. 687; , vol. — , p. 709; , vol. — , pp. 758, 759; , vol. — , pp. 818-825.) None of them directly testified that they knew that the reports did not come originally from railroad employees, though said he had been assured they did not. (Vol. — , p. 687.) In the Missouri case in 1906, how- ever, C. P. , general manager of the Company, practically admitted that that company got such information from railroad employees, and paid for it (vol. — , pp. 1109-11.) GROUP 4 Exhibit i EXPLOSIVES TRADE l Q. I will ask you whether or not, if you know, there was any contest inaugurated against the King's Great Western Powder Co. by the associated companies, in which you took part and assisted? A. I was sent to Cincinnati by The Hazard Powder Co. by di- rection of R. L. Wheeler, the president, when a branch office was established, and he told me the chief part of my work would be the conducting of a fight against the King's Great Western Powder Co. Mr. Wheeler was then vice president, and not president, as I have just stated. 1 Op. cit. U. S. v. E. I. du Pont de Nemours and Company. Testimony of R. S. Waddell. Pet. Rec. Testimony, Vol. I, pp. 99 ff. The instance given here is taken from the period when the explosives trade was operating under a pooling agreement and before the consolidation into the present combination. — Ed. 334 Industrial COMBINATIONS and Trusts Q. What did you do? A. I opened an office at Cincinnati. The price of rifle powder was then held at $6.25 per keg, less a rebate, or discount, to city trade, of 5 per cent, say $5.94 net. I opened the fight by reducing the price, on Mr. Wheeler's instructions, to $5.80. I made as much 1 rade as I could at that figure. Q. State whether, if you know, The Hazard Powder Co. had any trade in that locality at that time at all? A. It had a very small trade throughout that section of the country. Q. Who made the first cut in price, if you know? A. The Hazard Powder Co. That was on rifle powder. There had been a fight in progress on blasting powder before that time; but the King Co. had only recently commenced the manufacture of rifle powder. Q. Who took the trade, if you know, on that price? A. The Hazard Co. took the most of the trade of the city; the merchants. Q. How was that cut met, if you know, by the King people, if at all? A. It was met, within a day or two, by Mr. John King himself, who came to the city and made a lower price. The price was see- sawed between us at about 10 cents per keg, every few days, until the price had gotten down to about $3.75 or $4, when I was called to New York. Q. By whom? A. By the Hazard Powder Co., or the officers of The Hazard Powder Co. for a conference. Q. With what person there did you have a conference? A. R. L. Wheeler, who was the acting head of the company, directing the business. Q. State what that conference was? A. We discussed the situation at Cincinnati. He expressed a desire to hold the trade, even though the price might go very much lower than we were then making, and asked my opinion as to the best means of doing this; and I recommended a plan that I thought would be effective. Q. What, if anything, were you instructed to do? A. I had general instructions to make a price lower than any that had been quoted in the city, to the city trade in Cin- cinnati. Trust Methods 335 Mr. Graham: Will you state what the instructions were, instead of saying "I had general instructions?" Q. State the specific instructions received. By whom were they given? A. R. L. Wheeler. By Mr Graham: Q. What did he say? A. He instructed me to cut the price still, either 10 or 15 cents a keg, with a guarantee to each customer to whom I gave the cut price that this should be 10 cents per keg lower than any price the King Powder Co. would make to them; and when the King Co. quoted a price to a customer — By Mr. Scarlet: Q. What, if anything, was done under that instruction? A. I carried them out exactly as they were given to me. Q. How low did the price go? A. The price, to the greater part of the trade, went as low as $2.25 per keg on rifle, although I made some sales at $2.15 and $2.10. Q. What was the price of powder outside of the territory in which this contest was going on, if you know? A. In the New England States, the Eastern Seaboard, the extreme Western States, the full list, $6.25, was maintained on rifle powder. -» Exhibit 2 standard oil company * Price of water-white illuminating oil and margins, on October 15, IQ04, by specified towns throughout the United States. 2 (cents per gallon.) North Atlantic States. Price. Margin. Per cent of competition. Maine: Portland 11.50 11.00 2-34 2.14 New Hampshire: Nashua 4-7 1 Op. cit. Standard Oil Company v. U. S. Brief for U. S. vol. 2, pp. 432-436. 2 Prices that indicate loss are merely printed in red ink in original. In fol- lowing tables minus signs are used. — Ed. 3o6 Industrial Combinations and Trusts (cents pi:r gallon.) North Atlantic States.— Continued. Vermont: Burlington . . Massachusetts: Boston Fall River. . . Springfield . . Worcester. . . Connecticut: Hartford. . . . New London . Rhode Island: Providence . . New York: Binghamton. Buffalo New York. . . Pennsylvania: Harrisburg . . Philadelphia. Pittsburg. . . . Delaware: Wilmington . New Jersey: Newark Trenton Jersey City. . Price. Margin. Per com 934,2i7 1903 3^9i,7 8 3 1904 3>75°,i76 1 Report on Discriminations and Monopolies in Coal and Oil. Interstate Commerce Commission, Report of January 25, 1907, pp. 8-1 1. 374 Industrial Combinations and Trusts The property was transferred to the Fairmont Coal Company free of debt, except $475,000, secure by mortgage on the property. (Minutes of the Fairmont Coal Company.) In the year 1903 the Fairmont Coal Company also purchased the control of the Clarksburg Fuel Company (p. 878), which latter company was incorporated under the laws of the State of West Virginia on the 16th day of September, 1901, to engage in mining and selling coal and manufacturing coke. It owns a number of coal properties which produce about 800,000 tons of coal per year. (Cramp, Mitchell & Serrill's Manual of Statistics, 1905, pp. 444- 445-) The Fairmont Coal Company owns about 33,000 acres of bitu- minous coal lands and controls by lease about 24,986 acres, and also has interests leased to it by the Monongahela Railroad Com- pany and by the Monongah Company. (See Cramp, Mitchell & Serrill's Manual of Statistics, 1905, p. 501.) the northwestern fuel company. The Fairmont Coal Company also owns (pp. 365, 879) the Northwestern Fuel Company, which is a corporation formed under the laws of the State of Wisconsin, on the 28th day of October, 1 901, and which is the successor of a Minnesota corporation of the same name. The business of the company is the forwarding, stor- age, selling, and retail distribution of coal and the manufacture and sale of coke for Chicago and the Lakes (pp. 882, 885). This com- pany has docks on Lake Michigan and Lake Superior, at Duluth, West Superior, Milwaukee, possibly Ashland, and other points, and has a hard-coal breaker at Chicago (pp. 882-884, etc.) and handles not only the coal of the Fairmont Coal Company, but that of other companies, and during 1905, handled about 2,500,000 tons, of which, the Fairmont Coal Company and its associate companies furnished about 800,000 tons. About 100,000 tons were purchased from independent operators along the lines of the Baltimore and Ohio Railroad (p. 885.) The wharves and docks of the Northwestern Fuel Company are used by the Fairmont Coal Company and its associate companies for storing large amounts of coal, which are shipped in the summer time for distribution when the w r inter approaches. (See Cramp, Mitchell & Serrill's Manual of Statistics, 1905, p. 632.) Trust Methods 375 THE PITTSBURG AND FAIRMONT FUEL COMPANY. In June or July, 1904, the Pittsburg and Fairmont Fuel Company- was shipping coal at the rate of something over 300,000 tons per year. Previous to that time it had been selling its coal through the Fairmont Coal Company and had been getting the use of certain individual cars owned by the Fairmont Coal Company, which latter company determined to put an end to this relationship, and immediately thereafter a majority of the capital stock of the Pitts- burg and Fairmont Fuel Company was sold to the Fairmont Coal Company for $1 (pp. 904, 911). Mr. C. W. Watson the president of the Fairmont Coal Company, states that there were other con- siderations, in that they aided the Pittsburg and Fairmont Fuel Company in its finances. It would seem that after the notice of the Fairmont Coal Com- pany to the Pittsburg and Fairmont Fuel Company, that the first- named company would cease acting as its sales agent and would not allow it the use of the equipment controlled by the Fairmont Coal Company, the stockholders of the Pittsburg and Fairmont Fuel Company practically gave to the Fairmont Coal Company a majority of the stock of the Fuel Company, and the natural in- ference is that the stockholders were afraid that their tonnage might be decreased unless the alliance with the Fairmont Coal Company was strengthened and continued. SOUTHERN COAL AND TRANSPORTATION COMPANY. The Consolidation Coal Company owns 2,501 shares out of 5,000 shares of the capital stock of the Southern Coal and Transportation Company (pp. 1002, 1006), which latter company owns about 4,800 acres of coal lands in Barbour County, W. Va., with its mines near Berryburg. The coal is of the Pittsburg vein (p. 2806), and in the latter part of 1905 the managers of the Southern Coal and Transportation Company, finding that they were not getting along prosperously on account of the fact that they could not get sufficient car service on the Baltimore and Ohio Railroad (p. 280), determined to sell out their properties, and thereafter a contract was made by Mr. B. F. Berry, the president of the company, to sell the entire capital stock, together with all of the bonds of the company, to Messrs. J. H. Wheelwright and C. W. Watson (p. 281 1) for the sum of $375,000 (pp. 2810, 1009-1010). 376 Industrial Combinations and Trusts Mr. C. W. Watson was the president of the Consolidation Coal Company and Mr. J. H. Wheelwright was the vice-president thereof, and immediately after the purchase of the stock and bonds of the Southern Coal & Transportation Company, Messrs. Watson and Wheelwright sold 2,501 shares of the stock out of the 5,000 shares and all the bonds of the company to the Consolidation Coal Com- pany for the sum of $400,000. It would appear from the evidence of Mr. C. W. Watson (p. 1007, etc.) that it was agreed that the $25,000 cash payment, apparently realized by him and Mr. Wheelwright, was to be put in the treasury of the Southern Coal and Transportation Company, and it is not clear whether the mortgage indebtedness of the Southern Coal and Transportation Company, amounting to $500,000, was canceled or not (p. 1010), but there was an understanding that there might be a new issue of bonds, in lieu of the $500,000 of mortgage bonds, for the purpose of paying back to the Consolidation Coal Company the money that it had invested (p. 1013), and out of the transaction it would appear that Messrs. Watson and Wheelwright made a profit of 2,499 shares of the capital stock of the company. It also appears that the original owners of the Southern Coal and Transportation Company had about $500,000 invested (p. 2806), and that they had been engaged in mining at that point for three or four years (p. 2807), and that their whole difficulty was an insuffi- cient car service from the Baltimore and Ohio Railroad (pp. 2807- 2809), and in selling out the property the original stockholders sacrificed their interest and lost money on the transaction (pp. 2810, 281 1), and that the property would have been worth much more on any railroad that furnished equipment to take care of the output (pp. 2811-2812.) From the foregoing it will appear that the Fairmont Coal Com- pany owns or controls the Clarksburg Fuel Company, the North- western Fuel Company, and the Pittsburg and Fairmont Fuel Company, and that the Consolidation Coal Company owns, or con- trols, the Somerset Coal Company, the Metropolitan Coal Com- pany, the Cumberland and Pennsylvania Railroad Company, and the Southern Coal and Transportation Company, and, in addition, mines of its own in the Cumberland district. About the 1st of January, 1903, the Consolidation Coal Com- pany bought a majority of the stock of the Fairmont Coal Company at $47.50 per share (p. 975). The capital stock of the Fairmont Coal Company was $12,000,000, and the Consolidation Coal Com- Trust Methods 377 pany acquired $6,000,100. In the year 1902 the output of the Fair- mont Coal Company from the 37 mines controlled by it amounted to 3,800,000 tons, and it was estimated that the annual capacity was 5,000,000 tons. The purchase was made by the Consolidation Coal Company from Messrs. A. B. Fleming, S. L. Watson, J. E. Watson, C. W. Watson, and J. H. Wheelwright (Minutes of the Consolidation Coal Company), and by this latter purchase the Consolidation Coal Company acquired control of all the properties of the Fairmont Coal Company. By its ownership of 52 per cent of the capital stock of the Con- solidation Coal Company (p. 973) the Baltimore and Ohio Rail- road Company controls all of the property and mines of that com- pany, including the railroad of the Cumberland and Pennsylvania Railroad Company, and in addition it controls all of the proper- ties and mines of the Fairmont Coal Company and its subsidiary companies, and also the Metropolitan Coal Company, a retailer of coal at Boston, and the Northwestern Fuel Company, a dis- tributor of coal on the Great Lakes. Exhibit 4 american sugar refining company 1 Mr. Garrett. Will you give us the story of that in your own way — the transaction through Mr. Kissel in regard thereto and the entire story. Mr. Segal. The Pennsylvania Sugar Refinery consisted of $3,000,000 of bonds and $5,000,000 of stock. Five hundred thousand dollars of those bonds should remain in the treasury, $2,500,000 of the bonds should be sold. But those bonds were not expected to sell at par, and those bonds had been sold at a figure and the stock as a bonus. Mr. Segal. No; as a bonus with the bonds. None of the stock has been sold. We started to build that refinery, and I had a hard time to sell the bonds, because whenever I went or my people went to sell some of the bonds something happened that we were stopped. Mr. Garrett. What would happen? Mr. Segal. Everything was satisfactory, and within the next 24 hours they did not want them. 1 Hearings held before the Special Committee on the Investigation of the American Sugar Refining Company and others. 62nd Cong., 1st Sess. igio- 1911, Vol. 2, pp. 1276-1285. Industrial Combinations and Trusts Mr. Garrett. What reasons did they give? Were any reasons given to you at any time? Mr. Segal. No. Mr. Garrett. How many attempts did you make to negotiate these bonds when you were checked in that way? Mr. Segal. Oh, many times, many times. Mr. Garrett. Have you any opinion or information as to why everything would be all right now and in 24 hours they would say they did not want the bonds? Mr. Segal. Naturally I thought somebody did it. Mr. Garrett. Did you have any opinion? Give us your opinion as to who you thought it was and as to why you so thought. Mr. Segal. I thought it came from Mr. Havemeyer. Mr. Garrett. And because you thought he wanted to check that competition? Mr. Segal. Oh, naturally. Mr. Garrett. Did you have any other reason than a mere sur- mise? Did you see any evidence of his handiwork or the handi- work of his agents anywhere in blocking your sales of these bonds that you can now recall? Mr. Segal. I thought so. Mr. Garrett. Could you give the committee any incident that occurred? Mr. Segal. No; I could not. Mr. Garrett. Where did you endeavor to market these bonds? Mr. Segal. Oh, in different places. Mr. Garrett. In New York? Mr. Segal. I had people who did the banking business for me in different places. Mr. Garrett. New York, I presume? Mr. Segal. Yes. Mr. Garrett. And Philadelphia? Mr. Segal. Yes. Mr. Garrett. Boston? Mr. Segal. I do not remember. Mr. Garrett. Do you know whether any offer was made at Boston? Mr. Segal. I do not think so. Mr. Garrett. Now, go ahead; you had reached the point where you said you were blocked in the selling of bonds. Mr. Segal. In the meantime, I went on with my work, and I Trust Methods 370. nearly finished that refinery; but I needed money, and I had a transaction with a Mr. Kissel, in New York, that had nothing to do with the sugar business. Mr. Garrett. What character of transaction was that? Mr. Segal. He loaned me $250,000 for 60 days. That had nothing to do with the sugar business. Mr. Garrett. When was that transaction with Mr. Kissel, if you please, Mr. Segal? Mr. Edmunds. I suppose you want to know with reference to the Pennsylvania Sugar Refining Co.? Mr. Garrett. No; I want to know with reference to this $250,000 transaction. About when was that Mr. Segal? Mr. Edmunds. I think, if you will pardon a suggestion, if you will ask Mr. Segal how long before the $250,000 transaction oc- curred he went into the sugar refining company, he may be able to answer your question. Mr. Garrett. Can you tell me how long before the Pennsylvania Sugar Refining Co. deal it was that this $250,000 loan was made to you by Mr. Kissel? Mr. Segal. Sixty days. Mr. Garrett. Sixty days before? Mr. Segal. Sixty days before. I borrowed that $250,000 for 60 days. In the meantime, I went over to New York and spoke to Mr. Kissel about buying some of these sugar bonds, and he said he was not interested. But five or six days before the $250,000 was due, his private secretary called me on the phone and he said, "Mr. Segal, there is $250,000 of yours due in a few days." I said, "I know it; I will pay it." He said, "When will you be coming over to New York?" I said, "I have nothing to do at present in New York." He said, "You come over; Mr. Kissel wants to see you." I came over there in a few days, and went over to his house, and he told me, "That $250,000 is due." I said, "I know it." I said, "Your secretary spoke to me about it, and I will pay it." He said, "What are you doing now?" I said, "I am busy." He wanted to know how much work I had at that time, and I told him I had $6,000,000 or $7,000,000. He wanted to know how many men I employed, and I said, "I don't know; probably 2,000." That is not all sugar business, you understand. He said, "How much money do you need?" I said, "I could use $500,000 or $600,000." He said, " Couldn't you use more? " I said, " Probably 380 Industrial Combinations and Trusts $750,000." "No," he said, "for the whole work you are doing, you need more money; $750,000 is not enough." I said, "I probably could use $1,000,000." He said, "I " I 1 don't see how you can get on with your work with $1,000,000." I said — well, anyhow, we put it down at $1,250,000. He said, "What have you got to put up?" He said, "Who has got the control?" I says, "Right here." Strange, I just had the control in my pocket. Mr. Garrett. The control of what? Mr. Segal. Of the sugar refinery. I had it in an envelope. Mr. Garrett. You had the bonds? Mr. Segal. No; I had the stock. The stock belonged to me. Mr. Garrett. The entire stock? Mr. Segal. The control. He said, "Who has got control in that refinery?" I says, "I have." He said, "Will you be willing to put up the control?" I said, "Yes." He said, "What else have you got? Have you got some of the bonds?" I said, "I have got $500,000 of the bonds." He says, "What have you got in the line of the hotel?" I was building a big hotel then. I said, "I have got the bonds." He said, " Will you be willing to put up those?" I said, "Yes." He says, "For how long do you want that loan?" I said, "About six months." He says, "Oh, I wouldn't loan it to you for six months. I would loan it to you for two years." He said, "I am going away to Europe, and you will be ready to pay it and there will be nobody to receive it, and I want to re- invest that money. I want to make it for two years." I said I would not take it. He said, "Let us make it for one year." I said, "We will agree for one year." He said, "Send for your lawyer." I said, "I don't want to send for my lawyer." I said, "I can fix that thing myself." He said, "I would not do it." So I telegraphed for my attorney, and he came over the fol- lowing day to New York, and I told Mr. Kissel I would stay over the night in New York. The following morning Mr. Kissel came over, and he said, "I thought of one thing here. That refinery is a new refinery. It is in excellent condition. As long as that refinery stands in that condition the security is good, but if you should start that refinery and run it, and the Sugar Trust should fight you, you will lose money on those bonds and the stock will not be the same value as it is to-day. I want you to sign that during the period of that loan you should not run that refinery." I said, "I will do it." Mr. Kissel had his office in the Mutual Life 1 Thus in original. — Ed. Trust Methods . 381 Building in New York, and he had his safe down there. He said to my lawyer, "No; let us go over to my lawyer" — to Mr. Kissel's lawyer — and they will fix it up. Mr. Garrett. Who was your lawyer? Mr. Segal. I want to say to you I will be very glad to give the name, but please do not send for the man. The man is dying now. Mr. Garrett. Who was Mr. Kissel's lawyer? Mr. Segal. My lawyer was Mr. Thomas B. Harned. Mr. Garrett. He was your lawyer? Mr. Segal. Yes. Mr. Garrett. Who was Mr. Kissel's lawyer? Mr. Segal. Kissell's lawyer? Mr. Kissel had no lawyer. He went to Mr. Garrett (interposing). Was it Mr. John E. Parsons? Mr. Segal. That is the gentleman he went to. Mr. Kissel says, "No; let us go to my lawyer," and I took my coat and started to go with him, and Mr. Kissel said to me, "You stay right here and we will go over." They went away and they came back in about 15 minutes, and Mr. Harned said, "Mr. Segal, Mr. Kissel took me to Mr. Parsons, and Mr. Parsons is doing a great deal of work for the Sugar Trust, and I want you to know it." I said, "What does that mean?" He says, "Mr. Parsons represents dozens of corporations. I want to say to you the securities I will get from you will be in my safe and in my building until you take them out." I said, "All right." Mr. Garrett. That was Kissel talking? Mr. Segal. That was Mr. Kissel. We made a contract. Mr. Garrett. Will you state what that contract was? Mr. Edmunds. Have you the contract, Mr. Garrett. You might submit that to him and ask whether or not that is the contract. Mr. Garrett. Will you examine this contract, Mr. Segal, Ex- hibit L to the bill filed by the Government in the southern district of New York against the American Sugar Refining Co. and others, and state whether that is the contract which you entered into with Mr. Kissel? Mr. Segal (after examining the document). That is the contract. Mr. Garrett. Mr. Chairman, I wish to have the stenographer incorporate this contract, Exhibit L, in the record at this point. The Chairman. Mr. Stenographer, you will copy that contract in the record at this point. The Committee will take a recess at this time until half past 382 Industrial Combinations and Trusts 2 o'clock this afternoon, at which time, Mr. Segal, we will resume your examination. testimony of adolph segal — Continued Mr. Garrett. Mr. Segal, just previous to the adjournment for luncheon you had identified Exhibit L to a petition filed by the United States of America against the American Sugar Refining Co. and others in the Circuit Court of the United States for the Southern District of New York as an agreement or contract be- tween Mr. Kissel and yourself, touching the matter of a loan about which you had previously testified. I want to ask you when you first learned that the money loaned you under that agreement came from the American Sugar Refining Company. Mr. Segal. Probably six weeks or two months afterwards. I dined with Mr. Kissel, and he joked, and he mentioned many times Mr. Havemeyer. I says, "Mr. Kissel, I think that money comes from the Sugar Trust." He says, " What is the difference? Suppose it does come from them?" It was probably six weeks or two months after the loan was made. Mr. Garrett. Six weeks or two months after the transaction? Mr. Segal. Yes. Mr. Garrett. Well, I understood you to say that when you learned, while these negotiations were pending there in New York Mr. Edmunds. No; excuse me; negotiations were not pending. They had been consummated. They were in New York for the purpose of signing the papers. Mr. Garrett. Just about the time you signed the papers you learned that Mr. John E. Parsons was connected with the matter? Mr. Segal. Oh, no. Mr. Garrett. When did you first learn that? Mr. Segal. I understood that Mr. Parsons was Mr. Kissel's lawyer. Mr. Garrett. When did you first learn that? Mr. Segal. When we talked of the deal. Mr. Garrett. About the time you began the negotiations? Mr. Segal. Yes; and it suddenly came over me. Mr. Garrett. And you made some inquiry? Mr. Segal. No; I said to Mr. Kissel, "Is not Mr. Parsons the Sugar Trust's lawyer?" Mr. Kissel said, "Why, he represents Trust Methods 383 dozens of other parties ; and the best proof of it is that the securities will be with me." Mr. Garrett. I assume that when Mr. Parson's ' name was mentioned, and you learned that he was Mr. Kissel's lawyer, it immediately aroused your suspicion that it might be this money came from the Sugar Trust? Mr. Segal. Yes. Mr. Garrett. And did the statement of Mr. Kissel, which you have mentioned, disarm your suspicions in that regard? Mr. Segal. Yes. Mr. Garrett. And you made no further inquiry in that respect? Mr. Segal. Yes; I had a transaction with Mr. Kissel before of $250,000. Mr. Garrett. Did you suppose that he was loaning his own money, or that he was agent for some one else? Mr. Segal. I thought he was able. His wife is a Vanderbilt, and I thought they were able to do it. Mr. Garrett. You got the money, then? Mr. Segal. Yes; I got the money in installments. Mr. Edmunds. You will notice from the agreement that $200,000 of the $1,250,000 was to be retained for the purpose of completing the Majestic Apartment House, which Mr. Segal was then in the course of building and which was nearing completion. Mr. Garrett. It was to be paid out of that. I understand Mr. Segal says so. You got the money in accordance with this agree- ment? Mr. Segal. Yes. Mr. Garrett. What commission did you pay Mr. Kissel? Mr. Segal. $100,000. Mr. Garrett. $100,000 commission? Mr. Segal. Yes. Mr. Garrett. Do you know whether he got any other commis- sions than that? Mr. Segal. I do not know. Mr. Garrett. You do not know how that was? Mr. Segal. No, sir. Mr. Garrett. That was all you paid him? Mr. Segal. Yes. Mr. Garrett. Now, take up the thread of the story from that point on, will you, and in your own way relate it to the committee? 1 Thus in original. — Ld. 384 Industrial Combinations and Trusts Mr. Segal. After that I had some other transactions with Mr. Kissel. Mr. Garrett. Touching the same matter? Mr. Segal. No. Mr. Edmunds. I suppose you want the witness to confine his statement to matters that relate to the sugar refinery, do you not? Mr. Garrett. Yes; directly or indirectly. Perhaps those trans- actions with Mr. Kissel may become important. We will see. Mr. Segal. Then I paid the interest, after 90 days. I paid the interest quarterly, every three months. Mr. Garrett. You paid the interest quarterly? Mr. Segal. Yes. Mr. Garrett. Let me get that. Did you, at the time you closed the contract, pay interest for three months? Mr. Segal. When I wanted to sell some bonds, I could not; I could not sell any more, for the reason that the matter came up and then they asked when I was going to start the refinery, and then I had to tell them about that contract, and nobody would want to buy bonds when the plant was in such condition that it could not be started up. Mr. Garrett. When was it that you undertook to sell the bonds? Mr. Segal. Right away after that. I had some other bonds — $1,500,000 of bonds of that institution. Mr. Garrett. Was it shortly after you borrowed this money that you undertook to sell the bonds? Mr. Segal. The balance of the bonds? Mr. Garrett. The balance of the bonds. Mr. Segal. Yes. Mr. Garrett. How long after? Do you remember about how long it was? Mr. Segal. Probably a few months. Mr. Garrett. A few months. Now, going back for a moment; at the time you borrowed the money you paid interest in advance for three months, did you? Mr. Segal. I do not think so; no. Mr. Edmunds. The agreement did not call for it. Mr. Garrett. At the end of the first quarter you did pay interest? Mr. Segal. Yes. Mr. Garrett. Was that for the past quarter? Mr. Segal. Yes; for the past quarter. Trust Methods 385 Mr. Garrett. You paid the interest quarterly? Mr. Segal. Yes, sir. Mr. Garrett. When did you pay the commission? Mr. Segal. The commission was taken out. Mr. Gvrrett. Was taken out of the loan? Mr. Segal. It was taken right out at once from the money. Mr. Garrett. All right. Now, go ahead. Mr. Segal. Then I tried to repay that loan, and I went to Mr. Kissel, and I wanted to know if Mr. Kissel would not divide that loan. Mr. Garrett. Was that at the time you wanted to sell the bonds? Mr. Segal. Yes. Mr. Garrett. Well, go on. Mr. Segal. I wanted that he should divide the sugar securities from the other securities, and he could not do it. He said that it could not be done. I made him different propositions, and it was too much for me to plank over $1,250,000 at one clip, and I thought if he would divide that in half it would be easier for me to pay it; but the reply was that that could not be done. Mr. Garrett. That that would not be done? Mr. Segal. Could not be done. Mr. Garrett. Could not be done? Mr. Segal. Yes. Mr. Garrett. Why could it not be done? Did he say? Mr. Segal. No. Mr. Garrett. Was this subsequent to the time that you had learned that this money came from the American Sugar Refining Co.? Mr. Segal. That was afterwards; yes. Mr. Garrett. It was after you had learned that the money came from the American Sugar Refining Co.? Mr. Segal. Yes. Mr. Garrett. What did you do next? Mr. Segal. Well, I tried different ways to get those securities out and I could not. Mr. Garrett. After he told you that he could not divide the securities, were there any further negotiations with him — any other offers made to him? Mr. Segal. Oh, I made him different propositions. Mr. Garrett. Well, what were those propositions? 386 Industrial Combinations and Trusts Mr. Segal. I offered to pay him $100,000 as a premium if he would let me run the refinery. Mr. Garrett. If he would let you run it? Mr. Segal. Yes. Mr. Garrett. About what time was that with reference to the loan — about how many months after you had borrowed the money? Mr. Segal. Oh, probably four or five months. Mr. Garrett. And he refused that offer? Mr. Segal. He refused that offer. Mr. Garrett. Well, go ahead. Mr. Segal. Well, that is the way it went on until the end of the year. I paid, three times, interest; three times I made the payment of interest; and the fourth one, I offered the money providing he would give me the coupons back from the bonds, and he did not want to do that. Mr. Garrett. Did he refuse to do it? Mr. Segal. He refused to give me the coupons, to detach the coupons from those bonds. Mr. Garrett. Why? Did he say? Mr. Segal. He said, " Because, when we settle, you will have the coupons with them; but at present I will not give them up." Mr. Garrett. Go ahead. Mr. Edmunds. I suppose you understand that he refers to the coupons attached to the Pennsylvania Sugar Refining Co.'s bonds, and not to the others? Mr. Garrett. Yes; I so understand. Go ahead, Mr. Segal. Mr. Segal. Well, I think that is the end of the story. Mr. Garrett. What occurred then with your business matters, after he had refused to do that? What sort of situation did you find yourself in, as a result? Mr. Segal. I found myself in difficulties. I had different works going on, and I could not raise money; and then Mr. Hippie com- mitted suicide, and that was the end of the whole thing. Exhibit 5 gary dinners 1 Mr. Gary. Mr. Chairman, the question, as it seems to me, opens up a consideration of what has been referred to as proceedings at 1 Testimony of Judge Elbert H. Gary. Hearings before the Committee on Investigation of United States Steel Corporation, 62nd Cong., 2nd sess. 191 1- 1912, pp. 75-77, 262-274, 279-281. Trust Methods 387 some of the dinners, as well as a proposed international iron and steel institute; and with the permission of the committee I will en- deavor to state, as briefly as I can, exactly what is involved in the whole subject matter, intending to show what we have done and what our intentions have been and are. Now, I need not suggest to lawyers, at least on the committee, and perhaps you are all lawyers, I do not know about that, that the interpretation of the Sherman Act has been more or less involved in doubt. Evidently the act was intended to prevent the existence and exercise of monopolies and also the restraint of trade. A com- pany like the United States Steel Corporation, with 50 per cent of the domestic steel business of this country, was confronted with two propositions. It had no right to endeavor to prevent reductions in prices, or, in other words, to maintain the equilibrium of business and maintain prices substantially level or at least free from sudden and violent fluctuations by means of any sort of an agreement ex- press or implied. We had no lawful right, as I understand, to make any agreement, express or implied, directly or indirectly, with our competitors in business to maintain prices, notwithstanding we were receiving letters daily from the jobbers all over the country begging us, if possible, to prevent demoralization and to prevent decrease in prices which should mark down their inventories and in many cases subject them to the risk of bankruptcy. On the other hand, considering this same question of sustaining, so far as practi- cable, the equilibrium of trade, we believed we had no moral or legal right to become involved in a bitter and destructive competi- tion, such as used to follow any kind of depression in business among the iron and steel manufacturers, for the reason that if we should go into a competition of that kind it meant a war of the survival of the fittest; it meant that a large percentage, as in old times, of the peo- ple engaged in the manufacture of steel would be forced into bank- ruptcy for many reasons — their facilities for manufacture were not so good, their cost of production was high, their equipment, their organization, their decreased ownership of some of the raw products and other things of that kind which enter into the cost of production, would place them at a disadvantage, and therefore it was believed, by me at least, that it was not for the best interests of the manufac- turers generally or for their customers who desired stability as op- posed to demoralization and wide fluctuations or for the employees 388 Industrial Combinations and Trusts of the various corporations throughout the country who desired, so far as possible, steady work — continuous work at the best prices, and a wide, svidden, extreme lowering of prices necessarily meant reduction in the wages. Reductions were advocated almost at the start of the panic of 1907, and many of you know that our company took a leading part in opposing that and we went through that panic without making any reduction in wages, although many, if not all, of our competitors before the year was terminated did ma- terially reduce their wages. Now, the question was how to get between the two extremes of securing a monopoly by driving out competition, however good- naturedly, in a bitter, destructive competition or without making any agreement, express or implied, tacit or otherwise, which should result in the maintenance of prices, and so, gentlemen, I invited a large percentage of the steel interests of the country to meet me at dinner and then presented these views to them and, so far as I could, the results of our becoming demoralized and extreme decreases in prices like those which obtained under the old regime. Then, I said that it seemed to me the only way we could lawfully prevent such demoralization and maintain a reasonable steadiness in business, whether we lowered the prices from time to time or not, whether depending upon circumstances we were willing to make concessions or reductions after the jobbers had relieved themselves of the large lots, so as to prevent demoralization, was for the steel people to come together occasionally and to tell one to the others exactly what his business was. In other words, a disclosure by each one to all others of all the circumstances surrounding his particular busi- ness. In other words, to state it simply, if three men, gentlemen on this committee, were practicing law in a certain town and each one knew that the customary fee for services in court was $50 a day and a gentleman from another part of the country should locate in that town and make a totally different price, very much lower, he would immediately get up some sort of competition amongst these pro- fessional men. If those three men, however, on this committee, were in daily conference and each one knew that the others did not propose to change the fees, probably this outsider would not make very much headway in creating a demoralization. Mr. Beall. Judge, I am interested in the statement that you made about these dinners. Were they called "the Gary dinners?" Trust Methods 389 Mr. Gary. I have seen some of the papers designate them in that way. Mr. Beall. About what date did you begin to have these dinners? Mr. Gary. During the panic of 1907, or just following. I think during it — before the panic was over. May I inquire whether you were present when I described that the other day — the first dinner given — when the steel people Mr. Beall. Since 1907 have these dinners been held at any stated ntervals, 1 or have they been at such times as suited your conven- ience? Mr. Gary. They have been given at such times as suited my con- venience and disposition, and public announcement has been made in each instance and what took place at the dinners. If there was any question of business referred to, it has been given to the public press. Latterly, for some time — in fact, the major part — there have not been so very many dinners as you might think; but at most of the dinners what I said was taken down and written up and printed, and I have promised the committee, at their request, to furnish these printed speeches. At two of the dinners everything that was said was taken down. It happened so ; and, as it was taken down, I had it written up and printed and distributed to those who were present — so that every thing that was said there was taken down. At one of those dinners the question of prices, or the question of markets, or what ought to be done was stated fully and freely by all of them, and all of us must abide by the record which we made. There is no concealment about it. There never has been. We will furnish those to the committee. Mr. Gary. There is just one question involved in those dinners, it seems to me: That is whether or not it is lawful, and is good law and good morals, to endeavor by intercourse such as you see de- scribed in those proceedings to maintain to a reasonable extent the equilibrium of business, to prevent utter demoralization of business and destructive competition. Mr. Beall. That was the purpose of each one of those dinners? Mr. Gary. That and nothing else. 1 Thus in the original. — Ed. 39° Industrial Combinations and Trusts The Chairman. I know; but I mean to advise the gentlemen that this committee will not look into anything more than his official acts. Mr. Gary. Prices were not attempted to be fixed, were not fixed, could not be fixed, and there was no possible way of fixing them or maintaining them, unless you have some way of having them fixed under Government control, or you are allowed to do it by positive agreements. It never has been possible. It never could be possi- ble. We have never succeeded in doing so. But we have, by this friendly intercourse, prevented demoralization — sudden, wild, ex- treme fluctuations — destructive competition that would drive large numbers of them entirely out of business, and that would be ruinous to the customers of the steel people who had large stocks of goods on hand from time to time, and which would spread to other lines of industry. We have made no secret about it, and the public has known exactly what we have done; and if the Department of Justice, for instance, or the President, or Congress, should say, "This is not the wise thing to do or the right thing to do," you may be certain it would not be continued for one moment. Mr. Beall. As I understand it, you wanted to avoid destructive competition on the one side, and you wanted to avoid the perils and the dangers of the Sherman antitrust law on the other side? Mr. Gary. Of monoply on the other side? Mr. Beall. Of monopoly, unlawful restraint of trade; and you have resorted to this means of bringing together those interested in the business for an exchange and interchange of views at these dinners? Mr. Gary. Not so much an interchange of views as a statement of the conditions surrounding each one. Mr. Beall. I will ask you about this particular dinner of Jan- uary ii, 1911. Mr. Gary. Of course the proceedings speak for themselves. Mr. Beall. Yes. Was not the purpose of that dinner to arrive, directly or indirectly — probably the latter — at an understanding that prices would not be reduced or lowered? Mr. Gary. Emphatically, no; it was not. Mr. Beall. Let me call your attention to some of the things that were said. Mr. Gary. By me? Mr. Beall. By you and by others who participated in the dinner. Mr. Gary. Very well. Trust Methods 391 Mr. Beall. And I would like to have your interpretation of what it means. Mr. Gary. What is the date? Mr. Beall. January n, 191 1. Mr. Gary. Very well. Mr. Beall. Look first at page 6, about the middle of the page. I read as follows: At this particular time there is not in this country a demand for more than 50 per cent of the total producing capacity in our lines. It is obvious from this statement of fact that there is not enough business to go around and that there is no possible way of protecting one another and thereby protecting oneself except to submit ourselves to the conditions as they exist and to take and be satisfied with our fair proportion of the business which is offered. [Applause.] What did that mean, Judge Gary? Mr. Gary. It meant to say that any fair-minded man, knowing there was only 50 per cent business as compared with the capacity, would believe it to be for his own interest to be satisfied with his mills running at one-half their total capacity, as otherwise he would be necessarily involved in a competition that meant the survival of the fittest, every one struggling to get more than 50 per cent of capacity, and bringing about demoralization and ruin. Mr. Beall. At that time were the mills that these different gen- tlemen represented who were at the banquet, running only 50 per cent of their capacity? Mr. Gary. No; on the contrary some were running, as usual, about 40 per cent, and some were running about 60 per cent ; and it has been that way all the time, more or less. There is no possible way of controlling. Of course, that is my advice. I wish everyone would recognize the fact that that is what he ought to do, but he is not willing to do that. He is under no obligation to do that. And you will see, as I go on, that I state clearly under no circumstances would I bind myself to do or not to do anything; that everyone must be left free to do as he pleases. That I understand to have been the position of the Attorney General in his argument before the Supreme Court of the United States, that the law does not com- pel people to compete. If everyone leaves himself free to compete, then he is living up to the requirements of the law. At the same time, I would not hesitate to advise my associates to be satisfied with their fair share of business. That advice has been followed to some extent. But, as no one was bound in any way, never had to do it, they did not live up to the principle. That is the trouble. 39^ Industrial Combinations and Trusts Mr. Beall. All through the proceedings of that dinner, Judge, does not the thought run that all those who are present are in honor bound to accept and to abide by that price? Mr. Gary. I do not think you can connect the two statements. Mr. Beall. On May 4, 191 1, at the Waldorf, in New York, you had a banquet? Mr. Lindabury. Is that in this same book? Mr. Beall. No; it is in a different book. I refer to page 27. Mr. Lindabury. That is the last meeting? Mr. Beall. It is May 4. Mr. Lindabury. Of what year? Mr. Beall. 191 1. Mr. Gary. And what page do you read from? Mr. Beall. Page 27. I read as follows: You know I do not say that for the purpose of deceiving you at all nor for any purpose except to let you know exactly what I am doing. And, therefore, as I have said before, gentlemen, we come together upon a platform that involves the honor of a man, which is far better and far higher and far more binding upon us than any contract which we could make. Mr. Gary. Yes. Now, I would think, if I should meet you, a competitor of mine, on the street, and ask you what prices you are charging and to what extent you are running your mills, and I should tell you what I was doing, both of us being perfectly frank and neighborly, and then I should leave you and go to one of your customers and offer to sell him goods at a less price than you told me you were selling at, that would be most dishonorable conduct on my part, and that I would have a reason to expect, as honorable men, you and I having told one another what we were doing, that we would not go and do something to the contrary of that to the prejudice of either one, without telling him so frankly. That is what I meant and that is what I have explained from time to time. Mr. Beall. Then I quote further from this speech of January n, 191 1, on page 7: I say in this presence to men who know by long experience — men who know to a demonstration that what I speak is true and logical — that we have something better to guide and control us in our business methods than a contract which depends upon written or verbal promises with a penalty attached. Now, if you made that sort of a contract, you would violate the Sherman antitrust law, would you not? Mr. Gary. Yes, we would; but we have something better. Trust Methods 393 Mr. Beall. You have something that is better even than a prom- ise in writing, with a penalty attached? Mr. Gary. I do not say that it is more binding than a contract. That is quite a different thing. Mr. Beall. Something better to guide you. You say — We have something better to guide and control us in our business methods than a contract — Mr. Lindabury. Now, will you let Judge Gary tell what that is? Mr. Beall (continuing): Than a contract which depends upon written or verbal promises with a penalty attached. We as men, as gentlemen, as friends, as neighbors, having been in close communication and contact during the last few years, have reached a point where we entertain for one another respect and affectionate regard. We have reached a position so high in our lines of activity that we are bound to protect one another. Judge, in all these dinners, in all these speeches made at this ban- quet on January n, 191 1, does not the thought run through there that without entering into any written obligation or contract, or making any agreement that would put the hand of the Sherman law on you, you were in honor bound to observe Mr. Gary. To do what? Mr. Beall. To cooperate? Mr. Gary. Well. Mr. Beall. In such a way as to protect each other against any reduction in prices? Mr. Gary. Not at all. It does not mean that at all; not at all; because we had no fixed prices. We have never said that our prices would be a certain thing, and they have not. Our prices have fluctuated all the time. There has never been the time that our prices remained the same, or have been all alike; never, not for a single day, so far as I know. We have attempted in this way — I have attempted, I will say, and others have attempted by this in- fluence^ — to prevent this utter demoralization which results from a disposition on the part of everyone to go and get all the business he can, and at any price he can, regardless of whether it is fair and reasonable, whether it is below cost or not, whether it would destroy his neighbor and drive him out of business; a disposition to let one another know what we are doing with a view of trying to persuade everyone to keep the price up to what he thought ought to be rea- sonable and fair. Is it against any law for me to go to you, a com- 394 Industrial Combinations and Trusts petitor in business, and say to you, "Your prices, I think, ought to be higher than they arc," or "ought to be lower than they are"? If you leave yourself free to make them as you please, or if I do, we do not violate the law. I have a right to tell you. We have never said, never intimated, that the prices should be so and so, and each one of us should keep these prices; never directly or indirectly. Mr. Beall. Have you not impressed on them time after time that it would be the grossest breach of honor for them to cut their prices below a competitor? Mr. Gary. No, I have not; never a word. You will never find such a suggestion as that. Mr. Beall. I read from page 7, again: We have reached a position so high in our lines of activity that we are bound to protect one another; and when a man reaches a position where his honor is at stake, where even more than life itself is concerned, where he can not act or fail to act except with a distinct and clear understanding that his honor is involved, then he has reached a position that is more binding on him than any written or verbal contract. [Applause.] Why were you seeking so strenuously to impress upon them that their honor was involved in some kind of way? Mr. Gary. So that we, coming together, disclosing our business, telling one another about to what extent we are running our mills, about how our business was going generally, what our customers were, what our difficulties were, having made those full disclosures, so that everyone would reach the decision, if possible, that he ought not to do a mean thing in the trade, in competition; in other words, so that competition should be honorable, decent, and reasonable, as opposed to bitter, hostile, destructive competition such as used to exist. Mr. Beall. Did you not think that the meanest thing that any of them could do would be to reduce prices? Mr. Gary. I should think, Mr. Beall, if you had a client and I had a client, consulting you and me both professionally, going to you and asking you what you would charge him, and you told him $100, and then you should come to me and say, "That gentleman, my old client, has been in my office and asked me how much I would charge him, and I told him $100" — I having gotten that in- formation from you, I should think if I should say to him when he came to my office, he believing I was as competent as you, that I would do it for $90, that would be dishonorable; that is what I think about it, most certainly, unless I went to you and said: "Now, Trust Methods 395 you told me you said you would do this for $100, and I want to do it for less than that, and I will charge him only $90." Mr. Lindabury. I want to call attention to the fact that this was simply a strenuous endeavor to establish the golden rule, and that it ought to be encouraged. Mr. Beall. The steel rule. Mr. Lindabury. No, the golden rule. Mr. Beall. A resort to moral suasion. I quote again from page 9: Why do I mention these things? From the abundance of the heart the mouth speaketh. These thoughts in my mind, in my heart, force expression. I deal in frankness. Why is it? Why are these thoughts in my mind? Why do they crowd into words? Because at this particular time I am anxious that no man around this table, no one connected with this business shall, for a single moment, forget the high moral obligation he is under toward his neighbor. Mr. Lindabury. That is right. Mr. Beall (continuing reading): Because if it was the last word I would have the privilege of saying to you, I would say, with all my might and with all the emphasis that I could find words to express, I consider it of the highest importance at this particular time that every one of us should have a keen and abiding sense of the personal obligation which he has toward all others and to make no mistake of running the risk of trespassing within the domain of the rights of his neighbor, who has given his confidence and trust, and who is willing at all times to put within the knowledge and therefore more or less under the charge and control of others the very direction of his affairs. Mr. Beall. Mr. Farrell is, I believe, president of the United States Steel Corporation now? Mr. Gary. Yes, he is. Mr. Beall. He made a speech that night? Mr. Gary. I believe he did. Mr. Beall. Let me quote from that. I read from page 14: I understand the policy of the corporation to be to cooperate with its com- petitors in the effort to maintain fair prices Mr. Gary. Well, that means Mr. Beall (continuing): and the stability of business conditions, by every means permissible under the laws of the country and not antagonistic to the public conscience. That gives you the full quotation. Mr. Gary. Yes. That means in the way I have stated, and no 396 Industrial Combinations and Trusts other way. The answer to your inquiry is found in the fact that prices have not been maintained. You will find in some of those speeches a statement by me, perhaps repeatedly, that I have never stood for unchanged or unchangeable prices; that that is not my position. And there have not been unchanged prices. They have been more or less changed all the time. That is not the point. The point is to try and prevent the kind of bitter, destructive, unfair, and unreasonable competition that demoralizes business, and drives to destruction many of the operators, of the manufacturers and their customers. Mr. Beall. Mr. Willis L. King spoke also at this last banquet? Mr. Gary. Yes. Mr. Beall. Let me quote something from him. Who is Mr. King? Mr. Gary. Mr. King is the vice president and general manager of the Jones & Laughlin Co. of Pittsburg. Mr. Beall. A steel manufacturer? Mr. Gary. Yes. Mr. Beall. Quoting from page 21, he said: I think, therefore, to talk of reducing the prices ought not to be considered for a moment. As Judge Gary has very properly said, it would not result in good to anyone. It would not result in more business to us, it would not do the public any good; therefore I hope it will be the consensus of opinion here to-night that we will maintain the present prices, which are fair and reasonable, and await with patience the inevitable result, which will of course be better business, and I think in the very near future. Mr. Gary. No doubt that was his hope and his wish and his advice, but it was not binding, and therefore was not fully accepted nor adopted. Mr. Beall. Was it not the consensus of opinion there that night, Judge, among all those who spoke? Mr. Gary. You have there everything that was said by all who spoke, and speeches speak for themselves. Mr. Beall. Probably the entire speeches will not be in the record, but you were there. Mr. Gary. They are, Mr. Beall; every word that was said. Mr. Bartlett. You mean in that book? Mr. Gary. Yes, I mean in this pamphlet of January 11. Every- thing that was said at the dinner, without exception, by every Trust Methods 397 speaker is there; not a word is left out, and these gentlemen had no opportunity to revise their speeches ; not a particle changed ; nothing added; nothing left out. Mr. Beall. Was not the dominant thought running through all these speeches of these gentlemen who were there that it should be the consensus of opinion among them that there should be no low- ering of prices? Mr. Gary. The speeches speak for themselves. Mr. Beall. You have read them. What is your opinion? Mr. Gary. I do not think that is a fair, just opinion of the speeches. Mr. Beall. That is the very reason I wanted you to express your opinion, because I did not want to express mine, because it might not be fair. Mr. Gary. I do not think so, although I feel certain that it was the wish and the hope of everyone that prices would not be reduced. Now, it would be very strange if in the speeches made by these gen- tlemen, with no opportunity to prepare, and with that hope and wish in their minds, they would use expressions which you would think meant that it was intended to maintain prices. But you will not find in any of the meetings any agreement of the kind. I have not attempted here to disguise the fact, Mr. Beall, that the object of these meetings was to get between the extremes of the restraint-of- trade clause and the monopoly clause and in this way to prevent, so far as we could legitimately, a demoralization of business and de- structive competition; but there is nothing in any of these speeches to indicate that there was any agreement, express or implied, to do or not to do a thing, any suggestion that each one was bound to maintain certain prices, or to fix certain prices, or anything of the sort. The contrary of that was the intention. As to whether or not this is a good thing to do, as to whether or not this is good morals, as to whether or not you gentlemen believe that it is better to enter into a destructive competition of the old kind than to try and maintain the equilibrium of business by this kind of cooperation, is for you to say. I am very sure if you want to take the responsibility as legislators and as lawyers and judges, if you want to take the responsibility or if the Government or any- body else in authority wishes to take the responsibility of saying it is better to enter into a destructive competition, and for the steel 398 Industrial Combinations and Trusts people to have nothing whatever to do with one another, not even give one another information of any sort or description, letting the business take care of itself and allowing the strongest to survive and the weakest to go down and the general demoralization which would naturally result in business, generally, to follow, then we have nothing to say; we would not oppose it for one moment; not a moment. We have done what we have considered best to be done for the interests of all concerned, and within the lines of the law as we understand it. Mr. Beall. As I understand it, Judge, you are frank enough to say that through the medium of these dinners you have sought to accomplish the same result that would be accomplished by mak- ing agreements among yourselves that would be unlwaful, 1 to a greater or less degree? Mr. Gary. I have not said that, but I have said that we have, so far as we could, attempted to prevent demoralization and destruc- tive competition. We have not been successful, but we have been successful to a large extent. Mr. Beall. Quoting now from Mr. Felton, on page 22, he says: Now, I think we have all had our eyes opened since the first meetings that were held here, and I hope we are going to keep our eyes open, and are not going to shut them up to the situation. If there is anybody who thinks the present business situation will be improved, stimulated, by cutting prices, he ought to consider just one branch of our business; he should look at the facts and argue from those facts. Then he takes up the pig iron situation. Mr. Gary. Yes. Mr. Beall. Who is Mr. Topping, whose speech appears on page 23? Mr. Gary. He is chairman of the Republic Iron & Steel Co. Mr. Beall. I read from what Mr. Topping said, on page 23: I am more convinced than ever that any efforts at this time to reduce prices with a view to stimulating consumption will be met in about the manner that Mr. Felton has illustrated. Mr. Gary. Who says that? Mr. Beall. Mr. Topping. He continues: The price line will go down much faster than the production line will go up. 1 Thus in original. — Ed. Trust Methods 399 Mr. Gary. He has evidently changed his mind recently. Mr. Beall. He has made a reduction in the prices of the products of the Republic Iron & Steel Co.? Mr. Gary. Yes; and for the announced reason that some of the people manufacturing some of his products began to cut their prices, and, of course, he assumed he had nothing left to do but cut his. Three 1 is quite a difference in one man going to another and saying to him, "My prices are so and so;" and then going out and selling at a lower price, and on another occasion going to his neigh- bor and saying, "My prices are so and so, and I think they are too high, and I can not maintain them on account of the competition I have and I am going to cut them to suit myself." Then it is not dishonorable for him to do what he pleases. But I do not think it is fair or honorable for business competitors to represent to one another that they are doing certain things which are entirely con- trary to the facts ; and there is nothing like publicity among decent men — that is, the disclosure from one to another of exactly what they are doing — to secure a reasonable maintenance of prices. Of course, circumstances arising day by day may change circumstances; but in the main the prices are pretty well maintained. Mr. Beall. After that luncheon you held a few days ago, you gave out a statement? Mr. Gary. I made a public announcement of what we were going to do. Mr. Beall. Substantially, that it was the opinion of the gentle- men who were at that luncheon that the prices of their various products should be reduced to meet this cut made by the Republic Steel & Iron Co.? Mr. Gary. I think not. If you have got it, read it, and I think it will speak for itself. Mr. Bartlett. I do not say that it bears that out, but I have what purports to be a press dispatch, published in a paper in Macon, Ga., and I will read you what is said. Mr. Young. Will you not speak a little louder, Judge? Mr. Bartlett. I say that I have what Judge Gary is purported to have said at that luncheon, in the form of a press dispatch dated June 4; is that right? Mr. Gary. I presume that is right. Mr. Bartlett. I cut this from a paper published in Macon, Ga., and it purports to be, and is, a press dispatch. 1 Thus in original. — Ed. 400 Industrial Combinations and Trusts Mr. Gary. I think I can tell you, if you will read it. Mr. Bartlett. I will read this part of it: Referring to the bombshell which the Republic Co. threw into the steel market by reducing prices, Judge Gary said: "We are confronted with a very serious and disagreeable problem. It is not for me to criticize men nor to pass judgment on the motives of men. Whether people who have changed their minds suddenly are actuated by motives of cupidity or motives of necessity is not for me to say. One thing we know, that one of the leading iron and steel companies hitherto joining in our councils, learning from us our intentions, our business, our methods, our clients, our customers, everything of benefit and interest for one to know concerning his neighbor, has suddenly, for reasons considered good by those in charge, given notice that for the present at least it is not desirable to cooperate with us." Mr. Gary. I have no doubt I said that, in substance. Mr. Bartlett. It is fair to quote from something else which you are purported to have said. It refers to price cutting: I have urged you to remember, and I again call attention to the fact, that when you make substantial reductions in your prices, if you reduce to a price that is unfair and unreasonable and you make so small a profit that it does not yield you a fair return on your investment and your risk, you at least place for consideration before everyone the possible necessity of reducing the cost of production, including prominently, if not principally, the wages which you are paying, or may be allowed to pay, to the man or the men in your employ. Do not forget that the laboring men — the employees of the corporations — have more at risk, when these questions are considered of reducing prices below what is reasonable and fair, than the employer. You have no right to run the risk of being compelled to put their wages below what they ought to be unless you are driven to it, and I hope, under the present circumstances, gentlemen, that what- ever may be done, or whatever may happen as a result of present conditions, you will not reduce the wages of your employees until you feel it is an absolute necessity to do so. Mr. Gary. I said that. I believe it. I think you will find at one of these dinners which has been referred to the principal topic for discussion — the substance of most of the speeches, at least — related to the welfare of employees. I am very sure it did. I do not think the question of prices was hardly referred to. Mr. Beall. In this statement, Judge, you said: It was the unanimous opinion that cooperation, as heretofore fully explained, should be continued. I quote that from the New York World. Mr. Gary. I think that is true. Mr. Beall. This article in the World says, further: Opinions were expressed that recent developments seem to require some change in prices. Subsidiary companies of the United States Steel Corporation hrary Trust Methods 401 have decided to make adjustments to become effective June i, and it is be- lieved these will be generally followed. Do you know whether the action of the United States Steel Corpo- ration has been generally followed or not by competing concerns? Mr. Gary. I think it has, and perhaps a little more than followed by some. I do not see how any of the others could keep their prices up after we reduced ours. As I said before, it is pretty easy to reduce prices. That is, if even a small manufacturer, if he is a substantial competitor, reduces his prices, of course the others reduce theirs. Mr. Beall. On page 24 there is a little statement from you. Mr. Gary. Of what meeting? Mr. Beall. This is all of the meeting of January n, 191 1. I read as follows: I only want to call attention to the exact facts here so as to make it certain that none of us will unintentionally misrepresent the facts. ' In respect to some commodities, I am sure at the present time they are too low. One other thought. I agree with all that has been said by Mr. Topping and Mr. Felton and others concerning Mr. Farrell. You know about how proud I am of the fact that he is not only loyal, but that he is enthusiastic with reference to this policy of maintenance of higher prices, particularly such cooperation as advances the interests of all concerned. Mr. Lindabury. That is in the middle of the sentence, where you have stopped. Mr. Beall. I will read on: And yet we may unintentionally, by inference, some of us, in referring to him do an injustice to Mr. Corey, and as he is not present, I think I am justified in saying that none of you I am sure will say nor do you think that in a single instance did Mr. Corey ever give you his word concerning what he intended to do without keeping that word to the letter. Mr. Gary. I believe there is one word there that was not in the speech, but I do not know that it is at all important. Mr. Beall. What word is that? Mr. Gary. That is the word "higher." It reads: "The mainte- nance of higher prices." Mr. Beall. It says: "With reference to this policy of mainte- nance of higher prices. " Mr. Gary. Yes. I do not know what that would mean or could mean, and I do not believe I ever said it. I believe it is either a typographical error or a stenographic error, because you will find the contrary of that expression in many of my statements. 402 Industrial Combinations and Trusts Mr. Beall. Who is Mr. I. A. Kelly? Mr. Gary. He is the president of some company, I have for- gotten the name, the Ashland Steel Co., of Ashland, Ky. Mr. Beall. At the top of page 46 he says: I heartily cooperate in everything that has been said here to-night, and so far as our company is concerned we are ready and willing to still cooperate to do what we can to maintain prices. [Applause.] Do you not think that running through all these speeches that were made at the banquet the idea was to bring about such a condi- tion, without going into any iron-clad agreement, to bring about a condition where no man who attended would feel in honor that he could take any action tending to the lowering of prices in steel products? Do you not think that is just as effective as an agree- ment signed and sealed by all those who attended the dinner? Mr. Gary. It is not, or anything like that. It is not effective; it is influential. These meetings were calculated to influence people to maintain their prices. There is no doubt of that, but as I under- stand the vice of the law is in obligating people to maintain prices, in preventing absolute freedom on the part of each one to do as he pleases. I think the vice in conduct which is unlawful is found in the release of one's freedom to do exactly as he pleases. It was intended to influence people so far as we legitimately could to maintain fair prices, each one for himself using his best judgment, after full knowledge of the business of all. You will see where I have said at different times exactly what I had in mind what we would do and what we would not do. That was the cardinal doctrine. Mr. Littleton. Did I understand you to say that you considered that the Sherman antitrust law did not mean a contract or agree- ment unless it was one that was enforcible by either party? Mr. Gary. No; I would not say that. No; I think an agreement to maintain prices even though you could not enforce it would be contrary to the Sherman antitrust law; but I think that if two or three of us should come together and say: "We will tell you what we are doing all the time, we will not agree, but we will not change it, and if we change we will notify you. We will not put ourselves in a position where our freedom to do as we please is in any respect abridged, but we would like to have fair prices maintained. We think it is for the best interests of all concerned, ourselves and our employees and customers, to maintain fair prices and to prevent Trust Methods 403 resort to tricks in the trade calculated to unfairly and indecently get business away, which always results in destructive competition." I think that is all perfectly legitimate in view of the Sherman anti- trust law. That has been my idea. I will be very glad to have the opinion of Mr. Littleton or Judge Bartlett or anyone else on that subject. Certainly, if I thought it was wrong or that we were doing anything wrong, I would not continue it for one moment. Mr. Littleton. Suppose, Judge Gary, that we agree that the Sherman antitrust law would forbid an agreement to maintain prices, if you had entered into one at one of these dinners. I think that could not be disputed? Mr. Gary. No, sir. Mr. Littleton. Now, suppose, Judge Gary, you came together and by foreclosure of the situation each to the other by this mutual and well-intentioned cooperation of which you speak the same result is accomplished, to wit, the maintenance of prices, the object which the Sherman antitrust law sought to prohibit has been accomplished, has it not? Mr. Gary. No, sir; I do not think it has. Mr. Littleton. You think that the Sherman antitrust law was directed at the agreement rather than the result of the agreement? Mr. Gary. I think so; I do, really. Take the case of two blacksmiths, for instance, and they come down the sidewalk together in a village town every day ; one lives on one side of the street and the other on the other side, and one says to the other: "What are you charging for shoeing horses? I am charging a certain price." The other says: "Well, I am charging that same price," and that is all that takes place, and the result it * that they maintain those prices. I do not believe that that would be a violation of the Sherman antitrust law. It does not seem to me that it is intended to prevent that. The result is just the same as though they had agreed. Mr. Littleton. But would not that be because there was no agreement either express or implied between them? Mr. Gary. Perhaps it would. Mr. Littleton. If, by foreclosure of the situation of each to the other, and if by this mutual and, I will say, well-intentioned cooper- ation and meeting together, and if, by the experience of conference, each understanding the other, it might not come to a common point with a common purpose, each — obliged by his natural sense of 1 Thus in original. — Ed. 404 Industrial Combinations and Trusts honor — should feel obliged to maintain prices, does not that bring about the same result as if there were an agreement? Mr. Gary. No; it does not bring about the same result. Mr. Littleton. So far as the effect on the trade is concerned? Mr. Gary. No; it docs not by a good deal. Mr. Littleton. Perhaps I did not add one condition; suppose they did, then it does accomplish the same purpose? Mr. Gary. Of course if you and I, knowing exactly what the other is doing from time to time, continue to do that same thing, then the result is the same as if you and I agree to do that. Mr. Littleton. You will recall — I do not recall it exactly — one of Mr. Lincoln's favorite illustrations that if four men in four counties each whittled on a piece of wood for four or five days and met at the county seat and put their pieces of wood on a table and they all fitted with each other that he would ask nobody to furnish him with any evidence of the fact that they had had an agreement in advance that they would all whittle in a certain direction and that they would meet there, and he thought that was the highest authority. Mr. Gary. I am not familiar with that. I am certain in our case the sticks do not fit. They never have fitted; they have never been like anything else. The Chairman. I will call your attention to a statement pur- porting to come Mr. Gary (interposing). The intention has been and the effect has been to maintain reasonable pricse 1 more or less all the time on the part of those connected with it. I have hoped that it would be very extensive and at some times I have thought it was, but the results have not been like they would have been if there had been an agreement with a penalty such as used to be made before I came into the business at all. Exhibit 6 of america 2 The Government alleges that: . . Among other methods of harassing such independents defend- ant used the following: It would delay forwarding bills of lading, and 1 Thus in original. — Ed. 2 United States of America v. of America. Petition in Equity, In the Court of the United States for the District of , pp. 23-26. Trust Methods 405 would refuse to supply independents further with metal, sometimes abruptly ceasing entirely to ship metal without warning or state- ment of excuse of any kind, or causing its controlled companies to do so, so that the concern affected was unable to fill its orders. It discriminated against independents as to price for the crude needed, so that they were unable successfully to bid against or compete with the favored industries and obtain a living margin of profit. It frequently refused to sell metal to those desiring to enter the business of manufacturing goods, thereby preventing an expansion of the industry and restraining trade therein. It refused to sell to others desiring to enter said field any metal unless they would agree not to engage in any line in any manner competing with the lines of the defendant and its allied companies. It refused to guarantee quality, and at times delivered to com- peting plants metal which was known to be worthless and which had been rejected by plants allied to defendant. It demanded to know the prices at which independent compet- itors had bid on or taken contracts for work to be done before it would furnish them the metal required to fill the contract or even quote prices of same, and it would impart the knowledge thus obtained to an allied company competing with such purchaser. It represented and intimated to independent concerns and cus- tomers that, unless they dealt with defendant or its allied companies as to crude , their supply thereof would be cut off, or they would be unable to get their entire supply at reasonable prices. It represented and intimated to dealers in and consumers of wares that, unless they dealt with defendant or its allied companies, their supply of the manufactured product would be cut off. It represented and intimated to consumers that, if they did not buy of the defendant or of its allied companies, they would be buying of manufacturers who would be without the metal to com- plete their contracts, and intimated to consumers that a new agreement, such as had been in effect, would be put into effect again, thereby leaving defendant the only source of supply within the United States at any price; and it was especially by this con- duct that big consumers were driven away from competing manu- facturers. One competitor who was preparing to enlarge his plant was 406 Industrial Combinations and Trusts threatened by defendant that if he did so he would be put out of business (the defendant being at said time the sole available source of supply for the raw material needed). It, either directly or through its controlled companies, bid on supplies for the best customers of the independent competing com- panies at such prices that it was impossible for such companies, who were compelled to purchase their raw material from defendant, to successfully compete therewith. Defendant claimed to have gone into the utensils business for the purpose of increasing the market for its sheets faster than it was being developed. Yet, when it entered upon this branch of the industry it purposely was subjecting the then makers of such utensils to delays on shipments; and petitioner alleges that having seen that such manufacture was growing into a profitable business, it entered therein for the purpose of monopolizing it, along with the other branches of the industry. Certain large customers of defendant for a time made only novel- ties of , in which business neither defendant nor an allied company was engaged. During said period they had no trouble about getting from defendant a sufficient supply of of any desired kind and specifications. Later some of these firms en- tered into the business of making utensils of . There- upon delays and harassments in obtaining metal from defendants were begun and continued. At or about the time some of such manufacturers entered into said competitive business, defendant threatened that if they engaged therein they might expect loss. Such threats were consummated by the refusal to furnish metal in such a manner and in such quantities and of such quality as to enable such firms to take or properly complete orders, and thus some were compelled to abandon said business. It required some customers to make contracts not to engage in competitive lines of manufacture, and also at times required an agreement to maintain certain fixed prices, or prices above a desig- nated minimum, on manufactured articles in sale and resale, as a condition precedent to receiving metal. CHAPTER XIII RECENT TRUST DECISIONS NOTE The prominence given to the Standard Oil and Tobacco decisions tended to render insignificant some of the decisions handed down against other combinations, and to obscure, the fact that many of these decisions are really of considerable importance. It is even possible, that, whatever may be the effect of the two former notable decisions, the decrees in some of the minor cases may have the effect of restoring in the case of such combinations, conditions substantially the same as the status quo before their formation. Therefore, in the scope of this chapter there have been included excerpts from other decrees besides those against the Standard Oil and the American Tobacco Companies. — Ed. Exhibit i decree against the standard oil company 1 Mr. Chdzf Justice White delivered the opinion of the Court. The debates show that doubt as to whether there was a common law of the United States which governed the subject in the absence of legislation was among the influences leading to the passage of the act. They conclusively show, however, that the main cause which led to the legislation was the thought that it was required by the economic condition of the times, that is, the vast accumulation of wealth in the hands of corporations and individuals, the enormous development of corporate organization, the facility for combina- tion which such organizations afforded, the fact that the facility was being used, and that combinations known as trusts were being multiplied, and the wide-spread impression that their power had been and would be exerted to oppress individuals and injure the public generally. Although debates may not be used as a means for interpreting a statute (United States v. Trans-Missouri Freight 1 221 U.S. I. 407 408 Industrial Combinations and Trusts Association, 166 U. S. 318, and cases cited) that rule in the nature of things is not violated by resorting to debates as a means of as- certaining the environment at the time of the enactment of a par- ticular law, that is, the history of the period when it was adopted. In view of the common law and the law in this country as to restraint of trade, which we have reviewed, and the illuminating effect which that history must have under the rule to which we have referred, we think it results: a. That the context manifests that the statute was drawn in the light of the existing practical conception of the law of restraint of trade, because it groups as within that class, not only contracts which were in restraint of trade in the subjective sense, but all con- tracts or acts which theoretically were attempts to monopolize, yet which in practise had come to be considered as in restraint of trade in a broad sense. b. That in view of the many new forms of contracts and combina- tions which were being evolved from existing enocomic conditions, it was deemed essential by an all-embracing enumeration to make sure that no form of contract or combination by which an undue restraint of interstate or foreign commerce was brought about could save such restraint from condemnation. The statute under this view evidenced the intent not to restrain the right to make and enforce contracts, whether resulting from combination or otherwise, which did not unduly restrain interstate or foreign commerce, but to pro- tect that commerce from being restrained by methods, whether old or new, which would constitute an interference that is an undue restraint. c. And as the contracts or acts embraced in the provision were not expressly defined, since the enumeration addressed itself simply to classes of acts, those classes being broad enough to embrace every conceivable contract or combination which could be made concerning trade or commerce or the subjects of such commerce, and thus caused any act done by any of the enumerated methods anywhere in the whole field of human activity to be illegal if in restraint of trade, it inevitably follows that the provision necessarily called for the exercise of judgment which required that some stand- ard should be resorted to for the purpose of determining whether the prohibitions contained in the statute had or had not in any given case been violated. Thus not specifying but indubitably contem- Recent Trust Decisions 409 plating and requiring a standard, it follows that it was intended that the standard of reason which had been applied at the common law and in this country in dealing with subjects of the character embraced by the statute, was intended to be the measure used for the purpose of determining whether in a given case a particular act had or had not brought about the wrong against which the statute provided. Second. The contentions of the parties as to the meaning of the stat- ute and the decisions of this court relied upon concerning those con- tentions. In substance, the propositions urged by the Government are reducible to this: That the language of the statute embraces every contract, combination, etc., in restraint of trade, and hence its text leaves no room for the exercise of judgment, but simply im- poses the plain duty of applying its prohibitions to every case within its literal language. The error involved lies in assuming the matter to be decided. This is true because as the acts which may come under the classes stated in the first section and the restraint of trade to which that section applies are not specifically enumer- ated or defined, it is obvious that judgment must in every case be called into play in order to determine whether a particular act is embraced within the statutory classes, and whether if the act is within such classes its nature or effect causes it to be a restraint of trade within the intendment of the act. To hold to the contrary would require the conclusion either that every contract, act or com- bination of any kind or nature, whether it operated a restraint on trade or not, was within the statute, and thus the statute would be destructive of all right to contract or agree or combine in any respect whatever as to subjects embraced in interstate trade or commerce, or if this conclusion were not reached, then the contention would require it to be held that as the statute did not define the things to which it related and excluded resort to the only means by which the acts to which it relates could be ascertained — the light of reason — the enforcement of the statute was impossible because of its uncer- tainty. The merely generic enumeration which the statute makes of the acts to which it refers and the absence of any definition of restraint of trade as used in the statute leaves room for but one con- clusion, which is, that it was expressly designed not to unduly limit the application of the act by precise definition, but while 410 Industrial Combinations and Trusts clearly fixing a standard, that is, by defining the ulterior bound- aries which could not be transgressed with impunity, to leave it to be determined by the light of reason, guided by the principles of law and the duty to apply and enforce the public policy embodied in the statute, in every given case whether any particular act or contract was within the contemplation of the statute. But, it is said, persuasive as these views may be, they may not be here applied, because the previous decisions of this court have given to the statute a meaning which expressly excludes the construction which must result from the reasoning stated. The cases are United States v. Freight Association, 166 U. S. 290, and United States v. Joint Traffic Association, 171 U. S. 505. Both the cases involved the legality of combinations or associations of railroads engaged in interstate commerce for the purpose of controlling the conduct of the parties to the association or combination in many particulars. The association or combination was assailed in each case as being in violation of the statute. It was held that they were. It is un- doubted that in the opinion in each case general language was made use of, which, when separated from its context, would justify the conclusion that it was decided that reason could not be resorted to for the purpose of determining whether the acts complained of were within the statute. It is, however, also true that the nature and character of the contract or agreement in each case was fully referred to and suggestions as to their unreasonableness pointed out in order to indicate that they were within the prohibitions of the statute. As the cases cannot by any possible conception be treated as authoritative without the certitude that reason was resorted to for the purpose of deciding them, it follows as a matter of course that it must have been held by the light of reason, since the conclusion could not have been otherwise reached, that the assailed contracts or agreements were within the general enumera- tion of the statute, and that their operation and effect brought about the restraint of trade wliich the statute prohibited. This being inevitable, the deduction can in reason only be this: That in the cases relied upon it having been found that the acts complained of were within the statute and operated to produce the injuries which the statute forbade, that resort to reason was not permissible in order to allow that to be done which the statute prohibited. This being true, the rulings in the cases relied upon when rightly ap- preciated were therefore this and nothing more: That as consider- ing the contracts or agreements, their necessary effect and the char- Recent Trust Decisions 411 acter of the parties by whom they were made, they were clearly restraints of trade within the purview of the statute, they could not be taken out of that category by indulging in general reasoning as to the expediency or non-expediency of having made the con- tracts or the wisdom or want of wisdom of the statute which pro- hibited their being made. That is to say, the cases but decided that the nature and character of the contracts, creating as they did a conclusive presumption which brought them within the statute, such result was not to be disregarded by the substitution of a judicial appreciation of what the law ought to be for the plain ju- dicial duty of enforcing the law as it was made. But aside from reasoning it is true to say that the cases relied upon do not when rightly construed sustain the doctrine contended for is established by all of the numerous decisions of this court which have applied and enforced the Anti-trust Act, since they all in the very nature of things rest upon the premise that reason was the guide by which the provisions of the act were in every case inter- preted. Indeed intermediate the decision of the two cases, that is, after the decision in the Freight Association Case and before the decision in the Joint Traffic Case, the case of Hopkins v. United States, 171 U. S. 578, was decided, the opinion being delivered by Mr. Justice Peckham, who wrote both the opinions in the Freight Association and the Joint Traffic cases. And, referring in the Hopkins Case to the broad claim made as to the rule of interpreta- tion announced in the Freight Association Case, it was said (p. 592) : "To treat as condemned by the act all agreements under which, as a result, the cost of conducting an interstate commercial business may be increased would enlarge the application of the act far be- yond the fair meaning of the language used. There must be some direct and immediate effect upon interstate commerce in order to come within the act." And in the Joint Traffic Case this statement was expressly reiterated and approved and illustrated by example; like limitation on the general language used in Freight Association and Joint Traffic Cases is also the clear result of Bement v. National Harrow Co., 186 U. S. 70, 92, and especially of Cincinnati Packet Co. v. Bay, 200 U. S. 179. If the criterion by which it is to be determined in all cases whether every contract, combination, etc., is a restraint of trade within the intendment of the law, is the direct or indirect effect of the acts involved, then of course the rule of reason becomes the guide, and the construction which we have given the statute, instead of being 412 Industrial Combinations and Trusts refuted by the cases relied upon, is by those cases demonstrated to be correct. This is true, because as the construction which we have deduced from the history of the act and the analysis of its text is simply that in every case where it is claimed that an act or acts are in violation of the statute the rule of reason, in the light of the prin- ciples of law and the public policy which the act embodies, must be applied. From this it follows, since that rule and the result of the test as to direct or indirect, in their ultimate aspect, come to one and the same thing, that the difference between the two is therefore only that which obtains between things which do not differ at all. If it be true that there is this identity of result between the rule intended to be applied in the Freight Association Case, that is, the rule of direct and indirect, and the rule of reason which under the statute as we construe it should be here applied, it may be asked how was it that in the opinion in the Freight Association Case much consideration was given to the subject of whether the agreement or combination which was involved in that case could be taken out of the prohibitions of the statute upon the theory of its reasonableness. The question is pertinent and must be fully and frankly met, for if it be now deemed that the Freight Association Case was mistak- enly decided or too broadly stated, the doctrine which it announced should be either expressly overruled or limited. The confusion which gives rise to the question results from failing to distinguish between the want of power to take a case which by its terms or the circumstances which surrounded it, considering among such circumstances the character of the parties, is plainly within the statute, out of the operation of the statute by resort to reason in effect to establish that the contract ought not to be treated as within the statute, and the duty in every case where it becomes necessary from the nature and character of the parties to decide whether it was within the statute to pass upon that question by the light of reason. This distinction, we think, serves to point out what in its ultimate conception was the thought underlying the reference to the rule of reason made in the Freight Association Case, especially when such reference is interpreted by the context of the opinion and in the light of the subsequent opinion in the Hopkins Case and in Cincinnati Packet Company v. Bay, 200 U. S. 179. And in order, not in the slightest degree to be wanting in frank- ness, we say that in so far, however, as by separating the general language used in the opinions in the Freight Association and Joint Traffic cases from the context and the subject and parties with Recent Trust Decisions 413 which the cases were concerned, it may be conceived that the lan- guage referred to conflicts with the construction which we give the statute, they are necessarily now limited and qualified. We see no possible escape from this conclusion if we are to adhere to the many cases decided in this court in which the Anti-trust Law has been applied and enforced and if the duty to apply and enforce that law in the future is to continue to exist. The first is true, because the construction which we now give the statute does not in the slightest degree conflict with a single previous case decided concerning the Anti-trust Law aside from the contention as to the Freight Associa- tion and Joint Traffic cases, and because every one of those cases applied the rule of reason for the purpose of determining whether the subject before the court was within the statute. The second is also true, since, as we have already pointed out, unaided by the light of reason it is impossible to understand how the statute may in the future be enforced and the public policy which it establishes be made efficacious. Giving to the facts just stated, the weight which it was deemed they were entitled to, in the light afforded by the proof of other cognate facts and circumstances the court below held that the acts and dealings established by the proof operated to destroy the " potentiality of competition" which otherwise would have ex- isted to such an extent as to cause the transfers of stock which were made to the New Jersey corporation and the control which resulted over the many and various subsidiary corporations to be a com- bination or conspiracy in restraint of trade in violation of the first section of the act, but also to be an attempt to monopolize and a monopolization bringing about a perennial violation of the second section. We see no cause to doubt the correctness of these conclusions, considering the subject from every aspect, that is, both in view of the facts established by the record and the necessary operation and effect of the law as we have construed it upon the inferences deducible from the facts, for the following reasons: a. Because the unification of power and control over petroleum and its products which was the inevitable result of the combining in the New Jersey corporation by the increase of its stock and the transfer to it of the stocks of so many other corporations, aggregat- ing so vast a capital, gives rise, in and of itself, in the absence of 414 Industrial Combinations and Trusts countervailing circumstances, to say the least, to the prima facie presumption of intent and purpose to maintain the dominancy over the oil industry, not as a result of normal methods of industrial development, but by new means of combination which were re- sorted to in order that greater power might be added than would otherwise have arisen had normal methods been followed, the whole with the purpose of excluding others from the trade and thus centralizing in the combination a perpetual control of the move- ments of petroleum and its products in the channels of interstate commerce. b. Because the prima facie presumption of intent to restrain trade, to.monopolize and to bring about monopolization resulting from the act of expanding the stock of the New Jersey corporation and vesting it with such vast control of the oil industry, is made conclusive by considering, 1, the conduct of the persons or corpora- tions who were mainly instrumental in bringing about the extension of power in the New Jersey corporation before the consummation of that result and prior to the formation of the trust agreements of 1879 and 1882 ; 2, by considering the proof as to what was done under those agreements and the acts which immediately preceded the vesting of power in the New Jersey corporation as well as by weigh- ing the modes in which the power vested in that corporation has been exerted and the results which have arisen from it. Recurring to the acts done by the individuals or corporations who were mainly instrumental in bringing about the expansion of the New Jersey corporation during the period prior to the formation of the trust agreements of 1879 and 1882, including those agree- ments, not for the purpose of weighing the substantial merit of the numerous charges of wrongdoing made during such period, but solely as an aid for discovering intent and purpose, we think no disinterested mind can survey the period in question without being irresistibly driven to the conclusion that the very genius for commercial development and organization which it would seem was manifested from the beginning soon begot an intent and pur- pose to exclude others which was frequently manifested by acts and dealings wholly inconsistent with the theory that they were made with the single conception of advancing the development of business power by usual methods, but which on the contrary neces- sarily involved the intent to drive others from the field and to ex- clude them from their right to trade and thus accomplish the mastery which was the end in view. And, considering the period Recent Trust Decisions 415 from the date of the trust agreements of 1879 and 1882, up to the time of the expansion of the New Jersey corporation, the gradual extension of the power over the commerce in oil which ensued, the decision of the Supreme Court of Ohio, the tardiness or reluc- tance in conforming to the commands of that decision, the method first adopted and that which finally culminated in the plan of the New Jersey corporation, all additionally serve to make manifest the continued existence of the intent which we have previously indi- cated and which among other things impelled the expansion of the New Jersey corporation. The exercise of the power which resulted from that organization fortifies the foregoing conclusions, since the development which came, the acquisition here and there which ensued of every efficient means by which competition could have been asserted, the slow but resistless methods which followed by which means of transportation were absorbed and brought under control, the system of marketing which was adopted by which the country was divided into districts and the trade in each district in oil was turned over to a designated corporation within the combination and all others were excluded, all lead the mind up to a conviction of a purpose and intent which we think is so certain as practically to cause the subject not to be within the domain of reasonable contention. The inference that no attempt to monopolize could have been intended, and that no monopolization resulted from the acts com- plained of, since it is established that a very small percentage of the crude oil produced was controlled by the combination, is unwarranted. As substantial power over the crude product was the inevitable result of the absolute control which existed over the refined product, the monopolization of the one carried with it the power to control the other, and if the inferences which this situation suggests were developed, which we deem it unnecessary to do, they might well serve to add additional cogency to the presumption of intent to monopolize which we have found arises from the un- questioned proof on other subjects. We are thus brought to the last subject which we are called upon to consider, viz: Fourth. The remedy to be administered. It may be conceded that ordinarily where it was found that acts had been done in violation of the statute, adequate measure of relief would result from restraining the doing of such acts in the future. Swift v. United States, 196 U. S. 375. But in a case 4i 6 Industrial Combinations and Trusts like this, where the condition which has been brought about in violation of the statute, in and of itself, is not only a continued attempt to monopolize, but also a monopolization, the duty to enforce the statute requires the application of broader and more controlling remedies. As penalties which are not authorized by law may not be inflicted by judicial authority, it follows that to meet the situation with which we are confronted the application of remedies two-fold in character becomes essential: ist. To forbid the doing in the future of acts like those which we have found to have been done in the past which would be violative of the statute. 2d. The exertion of such measure of relief as will effectually dissolve the combination found to exist in violation of the statute, and thus neutralize the extension and continually operating force which the possession of the power unlawfully obtained has brought and will continue to bring about. In applying remedies for this purpose, however, the fact must not be overlooked that injury to the public by the prevention of an undue restraint on, or the monopolization of trade or commerce is the foundation upon which the prohibitions of the statute rest, and moreover that one of the fundamental purposes of the statute is to protect, not to destroy, rights of property. Exhibit 2. decree against the american tobacco company. 1 Mr. Chief Justice White delivered the opinion of the Court. . . While it is argued on the one hand that the forms by which various properties were acquired in view of the letter of the act exclude many of the assailed transactions from condemnation, it is yet urged that giving to the act the broad construction which it should rightfully receive, whatever may be the form, no condem- nation should follow, because looking at the case as a whole, every act assailed is shown to have been but a legitimate and lawful result of the exertion of honest business methods brought into play for the purpose of advancing trade instead of with the object of obstructing and restraining the same. But the difficulties which arise, from the complexity of the particular dealings which are here involved and the situation which they produce, we think grows out of a 1 221 U. S. 106. Recent Trust Decisions 417 plain misconception of both the letter and spirit of the Anti-trust Act. We say of the letter, because while seeking by a narrow rule of the letter to include things which it is deemed would otherwise be excluded, the contention really destroys the great purpose of the act, since it renders it impossible to apply the law to a multitude of wrongful acts, which would come within the scope of its remedial purposes by resort to a reasonable construction, although they would not be within its reach by a too narrow and unreasonable adherence to the strict letter. This must be the case unless it be possible in reason to say that for the purpose of including one class of acts which would not otherwise be embraced a literal construction although in conflict with reason must be applied and for the pur- pose of including other acts which would not otherwise be embraced a reasonable construction must be resorted to. That is to say two conflicting rules of construction must at one and the same time be applied and adhered to. The obscurity and resulting uncertainty however, is now but an abstraction because it has been removed by the consideration which we have given quite recently to the construction of the Anti-trust Act in the Standard Oil Case. In that case it was held, without departing from any previous decision of the court that as the statute had not defined the words restraint of trade, it became necessary to construe those words, a duty which could only be discharged by a resort to reason. We say the doctrine thus stated was in accord with all the previous decisions of this court, despite the fact that the contrary view was sometimes erroneously attrib- uted to some of the expressions used in two prior decisions (the Trans-Missouri Freight Association and Joint Traffic cases, 166 U. S. 290 and 171 U. S. 505.) That such view was a mistaken one was fully pointed out in the Standard Oil Case and is additionally shown by a passage in the opinion in the Joint Traffic Case as follows (171 U. S. 568): "The act of Congress must have a reasonable construc- tion, or else there would scarcely be an agreement or contract among business men that could not be said to have, indirectly or remotely, some bearing on interstate commerce, and possibly to restrain it." Applying the rule of reason to the construction of the statute, it was held in the Standard Oil Case that as the words " restraint of trade " at common law and in the law of this country at the time of the adoption of the Anti-trust Act only embraced acts or contracts or agreements or combinations which operated to the prejudice of the public interests by unduly restricting compe- 4i 8 Industrial Combinations and Trusts tition or unduly obstructing the due course of trade or which, either because of their inherent nature or effect or because of the evident purpose of the acts, etc., injuriously restrained trade, that the words as used in the statute were designed to have and did have but a like significance. It was therefore pointed out that the statute did not forbid or restrain the power to make normal and usual contracts to further trade by resorting to all normal methods, whether by agreement or otherwise, to accomplish such purpose. In other words, it was held, not that acts which the statute pro- hibited could be removed from the control of its prohibitions by a finding that they were reasonable, but that the duty to interpret which inevitably arose from the general character of the term restraint of trade required that the words restraint of trade should be given a meaning which would not destroy the individual right to contract and render difficult if not impossible any movement of trade in the channels of interstate commerce — the free move- ment of which it was the purpose of the statute to protect. The soundness of the rule that the statute should receive a reasonable construction, after further mature deliberation, we see no reason to doubt. Indeed, the necessity for not departing in this case from the standard of the rule of reason which is universal in its application is so plainly required in order to give effect to the remedial purposes which the act under consideration contemplates, and to prevent that act from destroying all liberty of contract and all substantial right to trade, and thus causing the act to be at war with itself by annihilating the fundamental right of freedom to trade which, on the very face of the act, it was enacted to preserve, is illustrated by the record before us. In truth, the plain demon- stration which this record gives of the injury which would arise from and the promotion of the wrongs which the statute was in- tended to guard against which would result from giving to the statute a narrow, unreasoning and unheard of construction, as illustrated by the record before us, if possible serves to strengthen our conviction as to the correctness of the rule of construction, the rule of reason, which was applied in the Standard Oil Case, the application of which rule to the statute we now, in the most un- equivocal terms, reexpress and re-affirm. Coming then to apply to the case before us the act as interpreted in the Standard Oil and previous cases, all the difficulties suggested by the mere form in which the assailed transactions are clothed become of no moment. This follows because although it was held Recent Trust Decisions 419 in the Standard Oil Case that, giving to the statute a reasonable construction, the words " restraint of trade " did not embrace all those normal and usual contracts essential to individual freedom and the right to make which were necessary in order that the course of trade might be free, yet, as a result of the reasonable con- struction which was affixed to the statute, it was pointed out that the generic designation of the first and second sections of the law, when taken together, embraced every conceivable act which could possibly come within the spirit or purpose of the prohibitions of the law, without regard to the garb in which such acts were clothed. That is to say, it was held that in view of the general language of the statute and the public policy which it manifested, there was no possibility of frustrating that policy by resorting to any disguise or subterfuge of form, since resort to reason rendered it impossible to escape by any indirection the prohibitions of the statute. Considering then the undisputed facts which we have previously stated, it remains only to determine whether they establish that the acts, contracts, agreements, combinations, etc., which were assailed were of such an unusual and wrongful character as to bring them within the prohibitions of the law. That they were, in our opinion, so overwhelmingly results from the undisputed facts that it seems only necessary to refer to the facts as we have stated them to demonstrate the correctness of this conclusion. Indeed, the history of the combination is so replete with the doing of acts which it was the obvious purpose of the statute to forbid, so demon- strative of the existence from the beginning of a purpose to acquire dominion and control of the tobacco trade, not by the mere exertion of the ordinary right to contract and to trade, but by methods devised in order to monopolize the trade by driving competitors out of business, which were ruthlessly carried out upon the assump- tion that to work upon the fears or play upon the cupidity of competitors would make success possible. We say these conclu- sions are inevitable, not because of the vast amount of property aggregated by the combination, not because alone of the many cor- porations which the proof shows were united by resort to one device or another. Again, not alone because of the dominion and control over the tobacco trade which actually exists, but because we think the conclusion of wrongful purpose and illegal combina- tion is overwhelmingly established by the following considerations: a. By the fact that the very first organization or combination was impelled by a previously existing fierce trade war, evidently in- 420 Industrial Combinations and Trusts spired by one or more of the minds which brought about and became parties to that combination, b. Because, immediately after that combination and the increase of capital which followed, the acts which ensued justify the inference that the intention existed to use the power of the combination as a vantage ground to further monopolize the trade in tobacco by means of trade conflicts designed to injure others, either by driving competitors out of the business or compelling them to become parties to a combination — a purpose whose execution was illustrated by the plug war which ensued and its results, by the snuff war which followed and its results, and by the conflict which immediately followed the entry of the combination in England and the division of the world's business by the two foreign contracts which ensued, c By the ever-present manifestation which is exhibited of a conscious wrong- doing by the form in which the various transactions were em- bodied from the beginning, ever changing but ever in substance the same. Now the organization of a new company, now the control exerted by the taking of stock in one or another or in several, so as to obscure the result actually attained, nevertheless uniform, in their manifestations of the purpose to restrain others and to monopolize and retain power in the hands of the few who, it would seem, from the beginning contemplated the mastery of the trade which practically followed, d. By the gradual absorption of control over all the elements essential to the successful manufacture of tobacco products, and placing such control in the hands of seem- ingly independent corporations serving as perpetual barriers to the entry of others into the tobacco trade, e. By persistent ex- penditure of millions upon millions of dollars in buying out plants, not for the purpose of utilizing them, but in order to close them up and render them useless for the purposes of trade. /. By the constantly recurring stipulations, whose legality, isolatedly viewed, we are not considering, by which numbers of persons, whether manufacturers, stockholders or employees, were required to bind themselves, generally for long periods, not to compete in the future. Indeed, when the results of the undisputed proof which we have stated are fully apprehended, and the wrongful acts which they exhibit are considered, there comes inevitably to the mind the conviction that it was the danger which it was deemed would arise to individual liberty and the public well-being from acts like those which this record exhibits, which led the legislative mind to conceive and to enact the Anti-trust Act, considerations which also Recent Trust Decisions 421 serve to clearly demonstrate that the combination here assailed is within the law as to leave no doubt that it is our plain duty to apply its prohibitions. In stating summarily, as we have done, the conclusions which, in our opinion, are plainly deducible from the undisputed facts, we have not paused to give the reasons why we consider, after great consideration, that the elaborate arguments advanced to give a different complexion to the case are wholly devoid of merit. We do not, for the sake of brevity, moreover, stop to examine and discuss the various propositions urged in the argument at bar for the purpose of demonstrating that the subject-matter of the combination which we find to exist and the combination itself are not within the scope of the Anti-trust Act because when rightly considered they are merely matters of intrastate commerce and therefore subject alone to state control. We have done this because the want of merit in all the arguments advanced on such subjects is so completely established by the prior decisions of this court, as pointed out in the Standard Oil Case, as not to require restatement. Leading as this does to the conclusion that the assailed combina- tion in all its aspects — that is to say, whether it be looked at from the point of view of stock ownership or from the standpoint of the principal corporation and the accessory or subsidiary corporations viewed independently, including the foreign corporations in so far as by the contracts made by them they became cooperators in the combination — comes within the prohibitions of the first and second sections of the Anti-trust Act, it remains only finally to consider the remedy which it is our duty to apply to the situation thus found to exist. The remedy. Our conclusion being that the combination as a whole, involving all its cooperating or associated parts, in whatever form clothed, constitutes a restraint of trade within the first section, and an at- tempt to monopolize or a monopolization within the second section of the Anti-trust Act, it follows that the relief which we are to afford must be wider than that awarded by the lower court, since that court merely decided that certain of the corporate defendants con- stituted combinations in violation of the first section of the act, because of the fact that they were formed by the union of previously competing concerns and that the other defendants not dismissed from the action were parties to such combinations or promoted their purposes. We hence, in determining the relief proper to be 422 Industrial Combinations and Trusts given, may not model our action upon that granted by the court below, but in order to enable us to award relief coterminous with the ultimate redress of the wrongs which we find to exist, we must approach the subject of relief from an original point of view. Such subject necessarily takes a two-fold aspect — the character of the permanent relief required and the nature of the temporary relief essential to be appl : ed pending the working out of permanent relief in the event lhat it be found that it is impossible under the situation as it now exists to at once rectify such existing wrongful condition. In considering the subject from both these aspects three dominant influences must guide our action: i. The duty of giving complete and efficacious effect to the prohibitions of the statute; 2, the accomplishing of this result with as little injury as possible to the interest of the general public; and, 3, a proper regard for the vast interests of private property which may have become vested in many persons as a result of the acquisition either by way of stock ownership or otherwise of interests in the stock or securities of the combination without any guilty knowledge or intent in any way to become actors or participants in the wrongs which we find to have inspired and dominated the combination from the beginning. Mindful of these considerations and to clear the way for their application we say at the outset without stopping to amplify the reasons which lead us to that conclusion, we think that the court below clearly erred in dismissing the individual defendants, the United Cigar Stores Company, and the foreign corporations and their subsidiary corporations. Looking at the situation as we have hitherto pointed it out, it involves difficulties in the application of remedies greater than have been presented by any case involving the Anti-trust Act which has been hitherto considered by this court: First. Because in this case it is obvious that a mere decree forbidding stock ownership by one part of the combination in another part or entity thereof, would afford no adequate measure of relief, since different ingre- dients of the combination would remain unaffected, and by the very nature and character of their organization would be able to continue the wrongful situation which it is our duty to destroy. Second. Because the methods of apparent ownership by which the wrongful intent was, in part, carried out and the subtle devices which, as we have seen, were resorted to for the purpose of accomplishing the wrong contemplated, by way of ownership or otherwise, are of such a character that it is difficult if not impossible to formulate Recent Trust Decisions 423 a remedy which could restore in their entirety the prior lawful conditions. Third. Because the methods devised by which the various essential elements to the successful operation of the tobacco business from any particular aspect have been so separated under various subordinate combinations, yet so unified by way of the control worked out by the scheme here condemned, are so involved that any specific form of relief which we might now order in sub- stance and effect might operate really to injure the public and, it may be, to perpetuate the wrong. Doubtless it was the presence of these difficulties which caused the United States, in its prayer for relief to tentatively suggest rather than to specifically demand definite and precise remedies. We might at once resort to one or the other of two general remedies — a, the allowance of a permanent injunction restraining the combination as a universality and all the individuals and corporations which form a part of or cooperate in it in any manner or form from continuing to engage in interstate commerce until the illegal situation be cured, a measure of relief which would accord in substantial effect with that awarded below to the extent that the court found illegal combinations to exist; or, b, to direct the appointment of a receiver to take charge of the assets and property in this country of the combination in all its ramifications for the purpose of preventing a continued violation of the law, and thus working out by a sale of the property of the combination or otherwise, a condition of things which would not be repugnant to the prohibitions of the act. But, having regard to the principles which we have said must control our action, we do not think we can now direct the immediate application of either of these remedies. We so consider as to the first because in view of the extent of the combination, the vast field which it covers, the all-embracing character of its activities concerning tobacco and its products, to at once stay the movement in interstate commerce of the products which the combination or its cooperating forces produce or control might inflict infinite injury upon the public by leading to a stoppage of supply and a great enhancement of prices. The second because the extensive power which would result from at once resorting to a receivership might not only do grievous injury to the public, but also cause widespread and perhaps irreparable loss to many innocent people. Under these circumstances, taking into mind the complexity of the situation in all of its aspects and giv- ing weight to the many-sided considerations which must control our judgment, we think, so far as the permanent relief to be awarded is 424 Industrial Combinations and Trusts concerned, we should decree as follows: ist. That the combination in and of itself, as well as each and all of the elements composing it, whether corporate or individual, whether considered collectively or separately, be decreed to be in restraint of trade and an attempt to monopolize and a monopolization within the first and second sections of the Anti-trust Act. 2d. That the court below, in order to give effective force to our decree in this regard, be directed to hear the parties, by evidence or otherwise, as it may be deemed proper, for the purpose of ascertaining and determining upon some plan or method of dissolving the combination and of recreating, out of the elements now composing it, a new condition which shall be honestly in harmony with and not repugnant to the law. 3d. That for the accomplishment of these purposes, taking into view the difficulty of the situation, a period of six months is allowed from the receipt of our mandate, with leave, however, in the event, in the judgment of the court below, the necessities of the situation require, to extend such period to a further time not to exceed sixty days. 4th. That in the event, before the expiration of the period thus fixed, a condition of disintegration in harmony with the law is not brought about, either as the consequence of the action of the court in determining an issue on the subject or in accepting a plan agreed upon, it shall be the duty of the court, either by way of an injunc- tion restraining the movement of the products of the combination in the channels of interstate or foreign commerce or by the appoint- ment of a receiver, to give effect to the requirements of the statute. Exhibit 3 decree against the powder combination l Second. — Is the combination which we have found to exist one that is obnoxious to the provisions of the anti-trust act? The recent decisions of the Supreme Court in Standard Oil Co. v. United States, and American Tobacco Co. v. United States, make it quite clear that the language of the anti-trust act is not to receive that literal construction which will impair rather than enhance 1 United States of America v. E. I. du Pont de Nemours 6* Company et al. Opinion of the Court and Interlocutory Decree, In the Circuit Court of the United States for the District of Delaware, pp. 35-45. Handed down June 21, 1911. Recent Trust Decisions 425 freedom of interstate commerce. As we read those decisions, re- straint of interstate trade and restraint of competition in interstate trade are not interchangeable expressions. There may be, under the anti-trust act, restraint of competition that does not amount to restraint of interstate trade, just as before the passage of the act there might have been restraint of competition that did not amount to a common-law restraint of trade. This fact was plainly recog- nized in United States v. Joint Traffic Association, 171 U. S. 505, 567, where Mr. Justice Peckham said: "We might say that the formation of corporations for business or manufacturing purposes has never, to our knowledge, been regarded in the nature of a contract in restraint of trade or commerce. The same may be said of the contract of partnership. It might also be difficult to show that the appointment by two or more producers of the same person to sell their goods on commission was a matter in any degree in restraint of trade. We are not aware that it has ever been claimed that a lease or purchase by a farmer, a manufacturer or merchant of an additional farm, manufactory or shop, or the with- drawal from business of any farmer, merchant or manufacturer, restrained commerce or trade within the legal definition of that term." While all this is true, the recent decisions of the Supreme Court make it equally clear that a combination cannot escape the con- demnation of the anti-trust act merely by the form it assumes or by the dress it wears. It matters not whether the combination be "in the form of a trust or otherwise," whether it be in the form of a trade association or a corporation, if it arbitrarily uses its power to force weaker competitors out of business or to coerce them into a sale to or union with the combination, it puts a restraint upon inter- state commerce and monopolizes or attempts to monopolize a part of that commerce in a sense that violates the anti-trust act. The record of the case now before us shows that from 1872 to 1902, a period of thirty years, the purpose of the trade associations had been to dominate the powder and explosives trade in the United States, by fixing prices, not according to any law of supply and demand, for they arbitrarily limited the output of each member, but according to the will of their managers. It appears, further, that although these associations were not always strong enough to control abso- lutely the prices of explosives, their purpose to do so was never abandoned. Under the last of the trade association agreements — the one dated July 1, 1896, and which was in force until June 30, 426 Industrial Combinations and Trusts 1904 — the control of the combination was firmer than it had before been. Succeeding the death of Eugene du Pont in January, 1902, and the advent of Thomas Coleman du Pont and Pierre S. du Pont, the attempt was made to continue the restraint upon interstate commerce and the monopoly then existing by vesting, in a few cor- porations, the title to the assets of all the corporations affiliated with the trade association, then dissolving the corporations whose assets had been so acquired, and binding the few corporations owning the operating plants in one holding company, which should be able to prescribe policies and control the business of all the subsidiaries without the uncertainties attendant upon a combination in the nature of a trade association. That attempt resulted in complete success. Much the larger part of the trade in black and smokeless powder and dynamite in the United States is now under the control of the combination supported by the 28 defendants above named. That combination is the successor of the combination in existence from 1896 to June 30, 1904. It is a significant fact that the trade association, organized under the agreement of July 1, 1896, was not dissolved until June 30, 1904. It had been utilized until that date by Thomas Coleman du Pont, Pierre S. du Pont and Alfred I. du Pont in suppressing competition and thereby building up a mo- nopoly. Between February, 1902, and June, 1904, the combina- tion had been so completely transmuted into a corporate form that the trade association was no longer necessary. Consequently, the trade association was dissolved and the process of dissolving the corporations whose capital stocks had been acquired, and concen- trating their physical assets in one great corporation, was begun. Before the plan had been fully carried out this suit was commenced. The proofs satisfy us that the present form of the combination is no less obnoxious to the law than was the combination under the trade association agreement, which was dissolved on June 30, 1904. The 28 defendants are associated in a combination which, whether the individual defendants were aware of the fact or not, has violated and still plans to violate both section 1 and section 2 of the anti- trust act. We conclude that it is our plain duty to grant such a decree as will prevent and restrain further violations of the act. Third. — The third and last question therefore is, what shall be the nature of the decree? It must be one of dismissal of the petition as to all of the defend- ants except the 28 who are found to be interested in and supporters of the unlawful combination. Recent Trust Decisions 427 It is contended by counsel for the defendants that there can be no decree against the 28 defendants for the reason that the title to the property held by the defendant corporations cannot be impaired by any decree of this Court. "The most that the Government in any event can claim," say the counsel, "is that prior to the organization of the present defendant companies there did exist contracts and combinations in restraint of trade, and possibly a monopoly of the explosive industry in the United States, and that such combinations and monopoly were participated in by some of the corporations which were later purchased by the present defendants, and possibly that some of the properties that were owned by the corporations that were purchased by the present defendants had been acquired by such corporations as a result of such combinations and mo- nopoly. . . Even so, the corporations had title to such properties, and if such combinations and monopolies no longer exist the title to such property must be good in subsequent purchasers thereof." To support this argument Brooks v. Martin, 2 Wall. 71, and other cases, are referred to. But we have found that the corporations organized after the advent into the explosives business of Thomas Coleman du Pont and Pierre S. du Pont are a part of an existing combination in restraint of interstate trade. The du Pont Com- pany of 1902 co-operated with the advisory and special committees of the trade association from April 2, 1902, to June 30, 1904, in fixing prices, apportioning trade amongst the members of the asso- ciation, allowing rebates, and forcing competitors to submit to their rule. The du Pont Company of 1903 was created to aid the com- bination in concentrating its power and fastening its hold on the monopoly which it had sedulously built up, and which brought to its members in the short period of six years, the enormous profit of $11,000,000 in dividends and $12,000,000 or $13,000,000 in its surplus account. We do not propose by our decree to deal with titles to property. Our power is defined in the fourth section of the anti- trust act. That section invests us "with jurisdiction to prevent and restrain violations" of the act. The same section provides that the petition may contain a prayer that the violation of law therein alleged " shall be enjoined or otherwise prohibited." It is our pur- pose, as it is our duty, to exert the power thus conferred on us to the extent necessary to "prevent and restrain" further violations of the act. In other words, the relief we can give in this proceeding is preventive and injunctive only. If our decree, limited to that pur- pose, shall necessitate a discontinuance of present business methods, 428 Industrial Combinations and Trusts it is only because those methods are illegal. The incidental results of a sweeping injunction may be serious to the parties immediately concerned, but, in carrying out the command of the statute, which is as obligatory upon this court as it is upon the parties to this suit, such results should not stay our hand; they should only challenge our care that our decree be no more drastic than the facts of the case and the law demand. The dissolution of more than sixty corporations since the advent of the new management in 1902, and the consequent impossibility of restoring original conditions in the explosives trade, narrows the field of operation of any decree we may make. It should not make the decree any the less effective, however. In the Standard Oil case Mr. Chief Justice White said: "It may be conceded that ordinarily where it was found that acts had been done in violation of the statute, adequate measure of relief would result from restraining the doing of such acts in the future. Swift v. United States, 196 U. S. 375. But in a case like this, where the condition which has been brought about in violation of the statute, in and of itself, is not only a continued attempt to mo- nopolize but also a monopolization, the duty to enforce the statute requires the application of broader and more controlling remedies. As penalties which are not authorized by law may not be inflicted by judicial authority, it follows that to meet the situation with which we are confronted the application of remedies two-fold in character becomes essential; 1st, to forbid the doing in the future of acts like those which w r e have found to have been done in the past which would be violative of the statute; 2nd, the exertion of such measure of relief as will effectually dissolve the combination found to exist in viola- tion of the statute, and thus neutralize the extension and continu- ally operating force which the possession of the power unlawfully obtained has brought and will continue to bring about." Both of these remedies are as clearly demanded in the present case as they were in the Standard Oil case. The existing combination in the explosives trade is one in restraint of interstate commerce. Its sales board fixes prices and exercises powers which Mr. Haskell, its chairman, admits are even more extended in their scope than were the powers of the advisory and special committees which the sales board superseded on June 30, 1904, after co-operating with them from July, 1903. It has also attempted to monopolize and is at- tempting to monopolize, and has monopolized and is now in the possession of a monopoly of, a large part of the explosives trade in Recent Trust Decisions 429 the United States. Our decree must therefore be one which will forbid future acts violative of the law and compel a dissolution of the combination existing in violation of the law. To stop the busi- ness of the combination immediately, however, might be attended with very disastrous consequences. The defendants, or some of them, for example, furnish military and ordinance powders to the United States Government. We understand, also, that they fur- nish explosives used in the construction of the Panama Canal. Their ability to continue so to do should not be destroyed before the expiration of a reasonable time for adjusting their business to the changed conditions. In the Standard Oil and American Tobacco cases six months were allowed for making the changes necessitated by the decrees entered therein. What time should be allowed in the case now in hand, and what other details should be embodied in the final decree, we cannot now determine. The present decree will therefore be interlocutory. It will adjudge that the 28 defendants are maintaining a combination in restraint of interstate commerce in powder and other explosives in violation of section 1 of the anti- trust act, that they have attempted to monopolize and have mo- nopolized a part of such commerce in violation of section 2 of that act, that they shall be enjoined from continuing said combination, and that the combination shall be dissolved Exhibit 4 decree against the standard sanitary manufacturing COMPANY 1 The ware is absolutely unpatented. Anyone may sell it as freely as he may a loaf of bread. No one can tell by looking at a bathtub whether enameled powder has been sprinkled upon it by a patent dredger any more than anyone who eats a loaf of bread can tell whether it has been baked in an oven with a patented grate, or who lights a kerosene lamp can tell whether, in the process of refining, a patented tool has been used, or by taking a pinch of snuff can be sure that there was or not a patented mill used in grinding the tobacco. 1 United Stales of America v. The Standard Sanitary Manufacturing Com- pany. Opinion of the Court on Final Hearing, In the Circuit Court of the United States for the District of Maryland, pp. 33-47. Handed down, Oct. 13th, 191 1. For a brief history of the Bathtub combination see Stevens, W. S., Quarterly Journal of Economics, August, 1912, Vol. XXVI, pp. 593ff. 430 Industrial Combinations and Trusts If agreements in Ihis case are not violations of the Sherman Act, similar agreements among all the bakers of bread, the refiners of petroleum, the grinders of snuff will be legal, provided that some- where in the process of making the bread, refining the petroleum, or grinding the snuff a patented tool has been used. The issue is important. It cuts deep. The record squarely pre- sents it. It must be passed upon. The defendants say they have broken no law even if all that has thus far been said herein be true. They rely upon what they understand to have been decided by the Circuit Court of Appeals of the Seventh Circuit in the case of the Rubber Tire Wheel Co. v. Milwaukee R. W. Co. (154 Fed. 358). There the court said that no one can use a patented article with- out the consent of the patentee. He may fix his own conditions. It adds, "Whatever the terms the courts will enforce them, provided only that the licensee is not thereby required to violate some law outside of the patent laws, like the doing of murder or arson." . . . At common law and by statute monopolies are unlawful. At common law and by statute a man who invented a new and useful thing might be given a right which would enable him for a limited time effectually to monopolize it. The courts have said that this right to monopolize what he invented can not be taken from a patentee by State laws. They say it has not been taken away by Congress. All men know that Congress never intended, when it passed the Sherman Act, to change the patent law. It did not do so. The patentee may, in spite of that law, monopolize for the term of his patent the thing which he or his assignor invented. Neither at common law nor in this country by statute has he ever had a right to monopolize anything else. As to everything not validly claimed in his patent he is as other men. If by the common law or the stat- utes of the State or by the enactments of Congress men are forbid- den to restrain trade or to monopolize it, a patentee may not re- strain trade or attempt to monopolize it in anything except that which is covered by his patent. A patent is a grant of a right to exclude all others from making!, using, or selling the invention covered by it. It does not give a right to the patentee to sell indulgences to violate the law of the land, be it the Sherman Act or another. The right to exclude others is the property of the patentee. It is Recent Trust Decisions 431 his very own. He may do with it as he will. A very rich man may have $100,000,000 of cash. It is his property. It is his very own. He may do with it as he will. Neither one of them can use his property to bring about a violation of law. A patentee who monop- olizes his invention breaks no law. He who uses his property right to exclude others from the making, selling, or using his inven- tion for the purpose and with the effect of making a combination to restrain trade in something from which his patent gives him no right to exclude others, does break the law. He breaks it precisely as the individual defendants in the Standard Oil and American Tobacco Cos. broke it. They had the same right to use their brains, their capital, and their credit as they thought best, as he had to use his right to exclude all others from making, using, or selling automatic dredgers. He was subject to the same limitations as they were. They could not lawfully use their brains, their money, and their credit to restrain trade in petroleum and tobacco. He can not use his patent rights to restrain trade in unpatented bathtubs. The defendants have pressed upon our attention many cases in the Circuit Courts and in the Circuit Courts of Appeal. Many of them have upheld the right of a patentee to fix the price below which a purchaser from him of patented articles may not sell those articles. In some of these cases it has been held that one who sells at a lower price thereby becomes an infringer and that the Federal Courts have jurisdiction of a suit brought against him on account of such sale, irrespective of the amount in controversy or the citizenship of the parties. The Supreme Court has in several recent cases expressly said that it was not be to understood as expressing any opinion as to whether such restrictions when applied to patented articles were or were not valid Wayman did not sell patented dredgers on condition that the purchasers should not resell them below a fixed price. The question of whether such restrictions upon the sale of patented articles are valid is not before us. We neither decide it nor intimate any opin- ion upon it. 432 Industrial Combinations and Trusts What has been said is sufficient for the determination of this case. The ware is not patented. The agreements or licenses at- tempt to fix the price of unpatented ware and to monopolize the trade in it. The fact that Wayman had a patent on something else, even though it was a tool used in one step of the making of the ware, gives neither him nor his licensees the right to restrain inter- state trade in the ware. The ownership of a patent for a tool by which old, well-known, and unpatented articles of general use can be more cheaply made gives no right to combine the makers and dealers in the unpatented articles in an agreement to make the public pay more for it. In what has been said it has been assumed that Wayman was the real and substantial owner of the patents ; that the scheme was his ; that his purpose was merely to make money for himself by selling to the corporate defendants indulgences to sin against the Sherman Act. The Government contends that this was not the real situation. In its view there is nothing before the court except an ordinary combination to raise and maintain wholesale and retail prices and to force all the makers and dealers in the country into it. Wayman, it says, was nothing more than the ordinary promoter. The pat- ents served the purpose of the certificate of incorporation from New Jersey or Delaware used when the combination became a consoli- dation. We have not discussed this branch of the case. We will not. We refrain from doing so not because it would not be perti- nent. It would. Ordinarily it would receive full consideration. Unusual circumstances shown by the record make it inexpedient and even improper to do so if the case can be disposed of without commenting upon that aspect of it. . . . Against the other defendants, corporate and individual, the Government is entitled to injunctive relief substantially as prayed for. In view of the pendency of the criminal case all characteriza- tion of what the defendants have done not necessary to the effective- ness of the decree should be omitted from it. The Government may submit a draft of a decree to the counsel for the defendants. If an agreement can not be speedily had we will upon application fix an early day for its settlement. Recent Trust Decisions 433 Exhibit 5 decree of injunction against the southern wholesale grocers association * i. That the said defendants, The Southern Wholesale Grocers' Association and all the members of said association, The Southern Wholesale Grocers' Association, a corporation, The McLester- Van Hoose Company, James A. Van Hoose, Robert McLester, The Alabama Grocery Company, S. W. Lee, Joseph H. Mc- Laurin, L. M. Hooper, F. E. Hashagen, C. W. Bartleson, Robert Moore, Thomas C. Davis, B. B. Earnshaw, C. C. Guest, T. H. Sco- vell, W. T. Reeves, R. A. Morrow, J. H. C. Wulburn, J. D. Faucette, W. A. Scott, and James W. Lee, and each and all of them, their directors, officers, agents, servants, and employees, and all persons acting under, through, by, or in behalf of them or either of them, or claiming so to act be, and they are hereby, perpetually enjoined, restrained, and prohibited from combining, conspiring, confederat- ing, or agreeing together or with others expressly or impliedly, directly or indirectly, to prevent manufacturers or producers en- gaged in selling or shipping commodities among the several States and in the District of Columbia from selling such commodities to any person who is not a member of the said The Southern Whole- sale Grocers' Association, or who is not listed on the so-called Green Book, published by said association, its officers, and agents, and entitled "Official List of Wholesale Grocers in the States of Alabama, Arkansas, District of Columbia, Florida, Georgia, Indian Territory, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia," or any book, pamphlet or list of like character; and they and each of them be, and are likewise enjoined, restrained, and prohibited from publishing, causing to be published, aiding, assisting, or encourag- ing the publication, distribution, or circulation of any book, pam- phlet, or list wherein is contained only the names of wholesale grocers located in the territory embraced by said organization who have announced their intention or agreed, directly or indirectly, expressly or impliedly, to work in harmony with said association. They are also enjoined, restrained, and prohibited from publish- 1 United States of America v. The Southern Wholesale Grocers Association et al. Decree of Injunction, In the Circuit Court of the United States for the Northern District of Alabama, pp. 4-9. Handed down October 17th, 1911. 434 Industrial Combinations and Trusts ing or distributing, or causing to be published or distributed, or aiding or assisting or encouraging in (he publication or distribution of any list <>r lists of manufacturers or producers who have, ex- pressly or impliedly, directly or indirectly, agreed to sell only to members of said association, or to persons, firms, or corporations listed in said Green Book, or book, pamphlet, or list of like character. 2. That the said defendants and each and all of them, their directors, officers, agents, servants, and employees, and all persons acting under, through, by, or in behalf of them, or either of them, or claiming to so act, be, and they are hereby, enjoined, restrained, and prohibited from combining, conspiring, confederating, and agreeing together or with others to fix a price at which any com- modity shall be sold, or to coerce manufacturers and producers en- gaged in selling and shipping commodities among the several States, and in the District of Columbia, to fix a limited selling price at which such commodities are to be sold, and to have such price printed on cards and distributed; and they are hereby enjoined, restrained, and prohibited from printing, causing to be printed, or encouraging or aiding in the printing of such cards, or their dis- tribution; and they and each of them are likewise enjoined, re- strained, and prohibited from conspiring, confederating, or agreeing together or with others, expressly or impliedly, directly or indirectly, to prevent such manufacturers and producers from selling and shipping commodities to any wholesale grocer who does not main- tain the price so fixed and listed; and they and each of them are likewise enjoined, restrained, and prohibited from demanding and receiving from any such manufacturer or producer any rebate, bonus, or emolument of any kind to be paid to any wholesale dealer or jobber for and on account of the fact that he has maintained the limited selling price; and are likewise enjoined, restrained, and prohibited from paying or delivering any such rebate, bonus, or emolument of any kind, directly or indirectly, to any such whole- sale grocer or jobber who has maintained such limited selling price, or demanding or receiving any fine or penalty, directly or indirectly, from any wholesale grocer or jobber engaged in commerce among the several States and in the District of Columbia for and on ac- count of such wholesale grocer or jobber not having maintained said limited selling price. 3. That said defendants and each and all of them, their directors, officers, agents, servants, and employees, and all persons acting Recent Trust Decisions 435 under, through, by, or in behalf of them, or either of them, or claim- ing so to act, be, and they are hereby, perpetually enjoined, re- strained, and prohibited from conspiring, confederating, or agreeing together or with others, expressly or impliedly, directly or indi- rectly, to boycott any manufacturer or producer, wholesaler, or jobber engaged in commerce among the several States and in the District of Columbia for and on account of any such manufacturer, producer, wholesaler or jobber having sold or transported in inter- state commerce any commodity to any person, firm, or corporation who is not a member of said association or who does not maintain the said limited selling price or who is not listed in the said Green Book or book, pamphlet, or list of like character; and also from combining, conspiring, confederating, and agreeing together, or with others, expressly or impliedly, directly or indirectly, to prevent any person, firm, or corporation who refuses to join said association or who refuses to maintain said limited selling price or who sells com- modities direct to the consumer from purchasing such commodities from manufacturers, jobbers, producers, or wholesalers engaged in commerce among the several States and in the District of Columbia; and also from conspiring, confederating, and agreeing together or with others, expressly or impliedly, directly or indirectly, to increase jobbers' profits by increasing prices at which wholesalers and jobbers shall sell any commodity in interstate commerce. 4. That said defendants and each and all of them, their directors, officers, agents, servants, and employees, and all persons acting under, through, by, or in behalf of them, or either of them, or claim- ing so to act, be, and they are hereby, perpetually enjoined, re- strained, and prohibited from conspiring or agreeing together or with others, expressly or impliedly, to do or to refrain from doing anything the purpose or effect of which is to fix or maintain the price at which any commodity employed or intended to be employed in commerce among the several States and in the District of Co- lumbia shall or should be sold by any manufacturer, jobber, whole- saler, or retailer, or the purpose or effect of which is to hinder or prevent, by intimidation or coercion, any person, firm, or corpora- tion from buying or selling any such commodity wherever, when- ever, from and to whomsoever and at whatsoever price may be then and there agreed upon by the seller and purchaser. 5. The Southern Wholesale Grocers' Association, its officers and members, and all who shall hereafter become officers and members of said association, are hereby perpetually enjoined and inhibited 436 Industrial Combinations and Trusts from doing, or combining or conspiring to do, cither or any of said acts. The said association and its officers and members are not restrained from maintaining said organization for social or other purposes than those herein prohibited. Exhibit 6. decree against the general electric company. 1 Second: That the General Electric Company is the owner of the entire capital stock of the National Electric Lamp Company, and, at the time of the filing of the petition herein, was the owner of the majority of said stock; that the said National Electric Lamp Com- pany is in turn the owner of the entire capital stock of the subsidiary companies hereinafter named; that such stock ownership has been concealed from the general public and the trade; that notwith- standing such stock ownership the General Electric Company, the National Electric Lamp Company, and the latter 's subsidiary companies hereinafter named, are pretending to be separate, dis- tinct, independent and competing companies, in the business of manufacturing, dealing in and selling incandescent electric lamps, whereas no such independence or competition exists or has existed, and that the General Electric Company has heretofore been largely engaged in carrying on the incandescent lamp business indirectly through said companies. It is, therefore, adjudged, ordered and decreed, that the defend- ants, National Electric Lamp Company and all its subsidiary com- panies , , be each and all of them dissolved, and the General Electric Company is enjoined from hereafter conducting, except in its own name, the business heretofore or hereafter carried on by it in incandescent lamps of any and every description; and It is further adjudged, ordered and decreed that all factories, plants, and manufacturing and selling departments operated or owned by said General Electric Company, for the manufacture and sale of incandescent lamps, shall be made known to the general public and trade as the property and business of the said General Electric Company; 1 United States of America v. General Electric Company et al. Final Decree, In the Circuit Court of the United States for the Northern District of Ohio, Eastern Division, pp. 3-10. Handed down Oct. 12, 191 1. For a brief history of the Electric Lamp combination see Stevens, W. S., Quarterly Journal of Economics, August 191 2, Vol. XXVI, pp. 593^. Recent Trust Decisions 437 Third: That the General Electric Company and each and all of the Lamp Manufacturing Defendants as defined in clause fourth, their officers, agents and servants be and they hereby are restrained, enjoined and forbidden from making or carrying out directly or indirectly, any contracts with any manufacturer or manufacturers of lamp-making machinery, or with any manufacturer or manufac- turers of bulbs and tubing for incandescent lamps, whereby such manufacturers or any of them shall be bound not to sell the goods, manufactured by them, respectively, to others than the said de- fendants or any of them, or hindered from so doing or obligated to sell to the said defendants or any of them at other and different prices and terms of payment than those to which they severally may sell to other purchasers. Fourth: That the General Electric Company and each and all of the said defendants mentioned in clause second hereof, together with the Westinghouse Electric and Manufacturing Company, Westing- house Lamp Company, Aetna Electric Company, The Capital Electric Company, The Franklin Electric Manufacturing Company, Liberty Electrical Manufacturing Company, and Howard Gilmore and William Gilmore, doing business as the Gilmore Electric Com- pany, all said defendants being collectively herein designated "The Lamp Manufacturing Defendants," are enjoined from fixing by combination, agreement, understanding or any other acts between any two, more or all of them, or between them or any of them and others, the price or prices at which any incandescent electric lamp or lamps of any pattern, character, type or description, whether made or sold under letters patent, license or otherwise, shall be sold or dealt in, either at wholesale or retail; provided that any of the defendants lawfully owning patents may grant to another defendant or to others, or may receive appropriate manufacturing licenses under such patents, or under any patents lawfully owned by any of the defendants or others, upon terms and conditions fixed only by the licensors; provided further, that any such licensor is hereby enjoined and prohibited from requiring or imposing upon the li- censee the fixing of a resale price to be observed by the licensee's vendees; and the purchasers of such lamps from either the licensor or from the licensee or from the vendees of either the licensor or licensee, whether at wholesale or retail, shall not be in any manner restricted as to the price at which such lamps shall be sold to the public or to any dealer or consumer. Fifth: That the General Electric Company and the other above- 438 Industrial Combinations and Trusts mentioned Lamp Manufacturing Defendants are enjoined from maintaining, by agreement, differentials between lamps which do not in fact differ in quality or efficiency, and said defendants are enjoined from allowing discounts based on aggregate purchases from different manufacturers. Sixth: That the General Electric Company and the other above- named Lamp Manufacturing Defendants, and each of them, their officers, agents and servants, are perpetually enjoined and restrained from making or enforcing any contracts, arrangements, agreements or requirements with dealers, jobbers and consumers, who buy from the said defendants either tantalum filament, tungsten filament, metalized carbon filament or ordinary carbon filament lamps, or any of them, by which such dealers, jobbers and consumers are com- pelled to purchase all their ordinary carbon filament lamps from said defendants as a condition to obtaining such other types of lamps, or any of them, or by which dealers, jobbers and consumers are com- pelled to purchase any one or more of the above-mentioned types of lamps from the said defendants as a condition to the purchase or supply of any other or all of said types of lamps; and the said General Electric Company and the Lamp Manufacturing Defendants afore- said are perpetually enjoined and restrained from discriminating against any dealer, jobber or consumer desiring to purchase tantalum, tungsten or metalized carbon filament lamps because of the fact that such dealer, jobber or consumer purchases ordinary carbon filament lamps from others, and are perpetually enjoined and restrained from discriminating against any dealer, jobber or consumer desiring to purchase any one or more of the above-mentioned types of lamps because of the fact that such dealer, jobber or consumer purchases any other of said lamps from other manufacturers or dealers. Seventh: That the General Electric Company and the others of the said Lamp Manufacturing Defendants are perpetually enjoined and restrained when making discounts based on the quantity of lamps purchased by any dealer, jobber or consumer from making such discounts on the basis of the total quantity of tungsten, tanta- lum, metalized carbon and ordinary carbon filament lamps sold, or the total quantity of ordinary carbon filament lamps and any one or more of such other types of lamps sold; and the General Electric Company and the others of the said Lamp Manufacturing Defend- ants are further perpetually enjoined and restrained from making any discounts based on the total quantity of any two or more types of lamps sold, when the result is to combine or aggregate the discount Recent Trust Decisions 439 on both an unpatented lamp and a lamp patented or claimed to be patented; and that said defendants and each and all of them are perpetually enjoined from utilizing any patents which they may have or claim to have or which they may hereafter acquire or claim to have acquired, as a means of controlling the manufacture or sale of any type or types of lamps not protected by lawful patents. Eighth: That the General Electric Company and the other de- fendants are each enjoined and restrained from offering or making more favorable prices or terms of sale for incandescent electric lamps to the customers of any rival manufacturer or manufacturers than it at the same time offers or makes to its established trade, where the purpose is to drive out of business such rival manufacturer or manufacturers, or otherwise unlawfully to restrain the trade and commerce of the United States in incandescent electric lamps; pro- vided that no defendant is enjoined or restrained from making any prices for incandescent electric lamps to meet, or to compete with, prices previously made by any other defendant, or by any rival manufacturer; and provided further than nothing in this decree shall be taken in any respect to enjoin or restrain fair, free and open competition. Ninth: That the General Electric Company, as licensor, on the one hand, and Westinghouse Electric and Manufacturing Company, The Capital Electric Company, The Aetna Electric Company, The Franklin Electric Manufacturing Company, The Liberty Electrical Manufacturing Company, and Howard Gilmore and William Gil- more, trading as the Gilmore Electric Company, as licensees, and each and every one of them, and their officers, agents and servants, are hereby perpetually enjoined and restrained from operating under any license contracts or agreements so far as such contracts or agreements provide that prices and terms of sale of incandescent electric lamps shall be fixed otherwise than by the licensor, or con- taining provisions fixing the prices at which any purchaser or any vendee from a manufacturer shall sell incandescent electric lamps. CHAPTER XIV METHODS OF DISSOLUTION NOTE This chapter scarcely requires a headnote. The dissolutions of both the Standard Oil and Tobacco combinations are recent history. It is, therefore, almost needless to state that these dissolutions grew out of the decrees handed down by the Supreme Court in the spring of 191 1. The third exhibit in the chapter is the dissolution plan of the Powder Trust. This decree followed the Interlocutory Decree reprinted as Exhibit 3 in the preceding chapter. — Ed. Exhibit i 1 THE DISSOLUTION OF THE AMERICAN TOBACCO COMPANY. And it is further ordered, adjudged, and decreed, that said plan as modified by the consent of the parties, or through the action of this court as aforesaid, is as follows, to wit: A. DISSOLUTION OF AMSTERDAM SUPPLY CO. Amsterdam Supply Co. is a company engaged in the business of purchasing for a commission or brokerage, supplies, other than leaf tobacco, its principal customers being defendant corporations herein. It has $235,000 at par of stock, all held in varying amounts by certain corporation defendants, one or the other of your petition- ers, and a surplus of $127,058.74. It is proposed that Amsterdam Supply Co. be dissolved, convert- ing its assets into cash and distributing them to its stockholders. B. ABROGATION OF FOREIGN RESTRICTIVE COVENANTS. Under the contracts of September 27, 1902, the Imperial Tobacco Co. (of Great Britain and Ireland, Ltd.) and certain of its directors 1 United States of America v. American Tobacco Company. In the Circuit Court of the United States for the Southern District of New York, Opinions of the Court, and Decree pp. 36-69. The draft here given is from a copy of the decree in Hearings before the Committee on Interstate Commerce, United States Senate, 62nd Cong. 2nd Sess. 1911-1912 pp. 290 ff. This accounts for slight differences in punctuation, the use of italics and abbreviations. — Ed. 440 Methods of Dissolution 441 agreed not to engage in the business of manufacturing or selling tobacco in the United States, the American Tobacco Co. and Ameri- can Cigar Co. and certain of their directors agreed not to engage in the business of manufacturing or selling tobacco in Great Britain and Ireland; and the American Tobacco Co., American Cigar Co., and the Imperial Tobacco Co. agreed not to engage in the business of manufacturing or selling tobacco in countries other than Great Britain and Ireland and the United States. Under the provisions of these contracts British-American Tobacco Co. (Ltd.) was organized and took over the export businesses of the American Tobacco Co., and the Imperial Tobacco Co., with factories, mate- rials, and supplies. It is proposed that the covenants herein just described as well as all covenants restricting the right of any company or individual in the combination to buy, manufacture, or sell tobacco or its prod- ucts, be rescinded by the affirmative action of the respective parties thereto who are parties to this suit, except such of said covenants, whether or not contained in the contracts of Septem- ber 27, 1902, as (a) relate wholly to business in foreign countries and are covenants the benefit whereof has been assigned or transferred to other parties; or (b) are covenants exclusively between foreign corporations and relating wholly to business in or between foreign countries; and that the said contracts of September 27, 1902, be altogether terminated so far as they impose any obligations upon any of the parties thereto to furnish or to refrain from furnishing manufactured tobaccos to any party, each company to treat as its own, but only to the extent provided for in said contracts, all brands and trademarks which by said contracts it was given the right to manufacture and sell, the said rights having been perpetual and constituting in effect a conveyance of the brands and trade- marks used for the countries in which they were so used by each of said companies as aforesaid. C. ABROGATION OF DOMESTIC RESTRICTIVE COVENANTS. It is proposed that covenants given by vendor corporations, partnerships, or individuals, or by stockholders of vendor corpora- tions, to vendee corporations defendants herein, not to engage in the tobacco business or any other business in any way embraced in the combination, be terminated so that all such covenanters 442 Industrial Combinations and Trusts shall be at liberty to engage in the business of buying, manufactur- ing, and dealing in tobacco and its products just as if such covenants had not been made. D. DISINTEGRATION OF ACCESSORY COMPANIES. (i) The Conley Foil Co. — The Conley Foil Co. has a capital stock of $825,000 at par, all of one class, of which the American Tobacco Co. owns $495,000 at par, the balance being held by per- sons not defendants nor connected with defendants. It is engaged in the business of manufacturing tin foil, a product used largely by tobacco manufacturers, but having other uses as well. The Conley Foil Co. has a plant in New York City, and it owns all the stock and bonds of the Johnston Tin Foil & Metal Co., which has a plant in St. Louis. The value of the output for the year 1910 of the Conley Foil Co. was $1,780,526.85, with a net profit of $273,- 299.82, and the Johnston Tin Foil & Metal Co. had an output for the year 1910 of the value of $676,520.05 and net profits of $66,255.- 16. On December 31, 1910, the Conley Foil Co. had tangible assets (excluding its securities of the Johnston Tin Foil & Metal Co.) of $1,215,321, and the Johnston Tin Foil & Metal Co. had assets of the value of $379,802.11. The Conley Foil Co. has a surplus exceeding the value of the securities of the Johnston Tin Foil & Metal Co. It is proposed that the Conley Foil Co. cancel the bonds of the Johnston Tin Foil & Metal Co. held by it, to wit, $100,000 par value, and distribute to its stockholders its holdings of stock of the Johnston Tin Foil & Metal Co., to wit, 3,000 shares, all of one class. The American Tobacco Co., being a stockholder of the Conley Foil Co., will participate in this distribution, and will in turn dis- tribute its dividend, as well as its stock in the Conley Foil Co., to its common-stock holders as hereinafter set forth. (2) Mac Andrews & Forbes Co. — MacAndrews & Forbes Co. is a company having a common capital stock of $3,000,000 at par, of which the American Tobacco Co. owns $2,112,900 at par, the balance being held by persons not defendants nor connected with defendants (except less than 3^- per cent of the common stock held by R. J. Reynolds Tobacco Co.), and $3,758,300 at par of 6 per cent nonvoting preferred stock, of which the American Tobacco Co. holds $750,000 at par, the balance being held by persons not defendants nor connected with defendants. It is Methods of Dissolution 443 engaged in the production of licorice paste, with two plants — one at Camden, N. J., and the other at Baltimore, Md. It had tangible assets, December 31, 1910, of the value of $5,683,824.89 (including $2,118,448.36 licorice root, with plants for its collection in foreign countries), and its sales for the year 1910 were of the value of $4,427,023.44. MacAndrews & Forbes Co. succeeded to the business of MacAndrews & Forbes, a partnership, who were pioneers in this country in the production of licorice paste, and who had, for many years before any acquisitions of other business and before they had any connection with the other defendants herein, more than 50 per cent of all the licorice-paste business of the United States. It is proposed that a new corporation be organized, called the J. S. Young Co., and that it shall acquire the Baltimore plant of MacAndrews & Forbes Co., with the assets used therein and in connection therewith, of a total value of $1,000,000, and the brands of licorice paste manufactured in said Baltimore plant; that it issue in payment therefor, with the good will connected therewith, $1,000,000 at par of 7 per cent preferred nonvoting stock and $1,000,000 at par of common stock; that MacAndrews & Forbes Co. distribute the common stock of the J. S. Young Co. as a divi- dend to its common-stock holders, charging the amount thereof to its surplus account; that MacAndrews & Forbes Co. offer to its preferred-stock holders proportionately to exchange the 7 per cent preferred stock of the J. S. Young Co. at par for their preferred stock of MacAndrews & Forbes Co.; that so far as the preferred stock of MacAndrews & Forbes Co. is thus exchanged, it be re- tired; that so far as this preferred stock of the J. S. Young Co. is not forthwith thus exchanged, MacAndrews & Forbes Co. be en- joined from using it to exercise, or otherwise exercising or attempt- ing to exercise, influence or control over the J. S. Young Co.; and with the further provision that on or before January 1, 1915, the whole of this preferred stock of the J. S. Young Co., not theretofore taken out of the treasury of MacAndrews & Forbes Co. by exchange as aforesaid, be disposed of by MacAndrews & Forbes Co. This would give to MacAndrews & Forbes Co. a licorice business, including Spanish licorice and powdered goods, of the net selling value, based upon the year 1910, of $2,514,184.64, of which $2,214,- 127.51 arise from sales of one brand, to wit, the old "Ship" brand. The J. S. Young Co., upon the basis of the business for the year 1910, would have an output of the net selling value of $1,201,109.86. 444 Industrial Combinations and Trusts The American Tobacco Co., being a holder of the common stock of MacAndrews & Forbes Co., will participate in the distribution above provided and will in turn distribute its dividend, as well as its stock in MacAndrews & Forbes Co., to its common-stock holders as hereinafter set forth. (3) American Snnjf Co. — American Snuff Co. is a manufacturer of snuff. It holds all of the stock of De Voe Snuff Co., to wit, $50,000 at par; and one-half, to wit, $26,000 at par, of the stock of National Snuff Co. It owns no other interest in any company manufacturing or selling snuff. It is proposed that there be organized two new snuff companies, one to be called the George W. Helme Co. and the other Weyman- Bruton Co., and that American Snuff Co. convey to these two companies, respectively, factories, with the brands manufactured in them, as follows: To the George W. Helme Co. the factories at Helmetta, N. J., and Yorklyn, Del., except factory No. 5; to Weyman-Burton Co. the factories at Chicago and Nashville, also all the stock of De Voe Snuff Co., and the one-half of the stock of Na- tional Snuff Co. held by American Snuff Co. Based upon the busi- ness for the year 1910 and the assets at the end of the year, with proper provision for leaf, materials, cash and book accounts for the two vendee companies, this would leave the three companies equipped as follows: Manufacturing tangible assets. American Snuff Co. 1 $5,075,969.72 George W. Helme Co. 4,909,000.40 Weyman-Bruton Co. 3,691,588.20 Sales value during igio. American Snuff Co. $5,520,422.15 George W. Helme Co. 4,494,556.66 Weyman-Bruton Co. 4,297,486.71 Net income. American Snuff Co. 1 $1,591,280.49 George W. Helme Co. 1,259,280.98 Weyman-Bruton Co. 1,293,759.39 1 American Snuff Co. holds securities not connected with the snuff business, to wit: Stock and bonds of the American Tobacco Co., preferred stock of Amer- ican Cigar Co., aggregating in book value $2,530,216.69, upon which American Snuff Co. received in interest and dividends during the year 1910, $176,680. Methods of Dissolution 445 Each of these vendee corporations will pay for the property and business conveyed to it by the issue of $4,000,000 at par of 7 per cent voting preferred stock and $4,000,000 at par of common stock. American Snuff Co. will thus receive the $16,000,000 at par of these stocks into its treasury, and will distribute to its common-stock holders, as a dividend, the common stock aggregating $8,000,000, to be charged to its surplus account. American Snuff Co. will offer to its preferred-stock holders proportionately to exchange these 7 per cent preferred stocks of the George W. Helme Co. and the Weyman-Bruton Co. for their preferred stock of American Snuff Co. at par. So much of the preferred stock of American Snuff Co. as is thus exchanged will be retired. As to so much of the preferred stocks of the George W. Helme Co. and the Weyman-Bruton Co. as is not forthwith thus exchanged, American Snuff Co. to be en- joined from voting it, or using it to exercise, or otherwise exercising or attempting to exercise, influence, or control over the George W. Helme Co. or the Weyman-Bruton Co. ; and on or before Jan- uary 1, 19 1 5, all of these preferred stocks of the George W. Helme Co. and the Weyman-Bruton Co. not theretofore taken out of the treasury of American Snuff Co. by exchange as aforesaid to be dis- posed of by American Snuff Co. The American Tobacco Co., being a holder of the common stock of American Snuff Co., will participate in the distribution above provided, and will, in turn, distribute its dividends as well as its stock in American Snuff Co., including that to be acquired from P. Lorillard Co., to its common-stock holders as hereinafter set forth. (4) American Stogie Co. — American Stogie Co. is a corporation whose only asset is all of the issued stock of Union-American Cigar Co., which latter company has cigar factories located at Pittsburgh, Allegheny, Lancaster, and Newark. Its total production, based upon business for the year 1910, is only 1.58 per cent of the entire production of cigars in the United States in volume, and, as these petitioners believe, about the same percentage in value. American Stogie Co. has $976,000 at par of 7 per cent cumulative preferred stock, of which American Cigar Co. owns $40,000 at par, and none It is proposed that American Snuff Co. sell or otherwise dispose of these secur- ities within three years, and that in the meantime they be held under an injunc- tion as is provided in this paragraph with respect to securities of the George W. Helme Co. and Weyman-Bruton Co. to be temporarily held by it. It also owns all, to wit, $100,000 at par of the stock of Garrett Real Estate Co., which will be dissolved and liquidated. 446 Industrial Combinations and Trusts of the other defendants own any; it has $10,879,000 at par of com- mon stock, of which American Cigar Co. owns $7,303,775 at par, and none of the other defendants own any. There are accumulated and unpaid dividends on the preferred stock to the amount of $399,000 as of December 31, 1910. It is proposed that American Stogie Co. dissolve, with leave granted to the trustees in dissolution to either convert the assets into cash, and distribute them among the stockholders according to their rights, or to effect such reorganization as they may be able to effect, provided that in either event there shall be a separation into at least two different ownerships of the factories and businesses now owned and operated by Union-American Cigar Co. If the dissolution is followed by a conversion of the assets of American Stogie Co. into cash, American Cigar Co. will take such cash as it may receive into its treasury; if it receives upon such dissolution securities of cigar-manufacturing concerns, it will distribute such as a dividend to its common-stock holders, to be charged to its sur- plus as hereinafter set forth. (5) American Cigar Co. — American Cigar Co. is a manufacturer of cigars. It has various factories of its own, and it owns all or a part of the stock of several companies engaged in the manufacture of cigars, all of which companies have been organized by it and which have received from it conveyances of part of its business, operating in this way as separate corporations for trade purposes. Among these companies is Federal Cigar Co. American Cigar Co. also owns a part of the stock of Havana Tobacco Co., which controls factories manufacturing cigars in Havana; and a part of the stock of Porto Rican- American Tobacco Co., engaged in the manufacture of cigars and cigarettes in Porto Rico; and half of the stock of Porto Rican Leaf Tobacco Co., en- gaged in growing tobacco in Porto Rico. American Cigar Co. it- self uses large quantities of Porto-Rican grown leaf. Neither American Cigar Co. nor any of the companies in which it is inter- ested, except Havana Tobacco Co. and Porto Rican-American Tobacco Co., is engaged in the manufacture of cigars outside of the United States. American Cigar Co., including with its production the production of companies of which it owns in whole or in part the stock, has, in volume, based on the business for the year 1910, 13.36 per cent of the cigar business of the United States, and in value, as your peti- tioners believe, substantially the same percentage. Havana To- Methods of Dissolution 447 bacco Co. has, directly or indirectly, control of 24.06 per cent of the total production of cigars in Cuba, 46 per cent of the total exporta- tion of cigars from Cuba to all countries of the world, including the United States, and 3S.15 per cent of the total exportation of cigars from Cuba to the United States. It is proposed that American Cigar Co. dispose of properties belonging to it, and thus disintegrate its business, as follows: (a) That it sell to the American Tobacco Co. for cash its stock, being all thereof, of Federal Cigar Co., at a fair price, to wit., $3,065,616.05. (b) That it sell to the American Tobacco Co. for cash the stock it owns of Porto Rican-American Tobacco Co., to wit., $657,600 at par, at a fair price, to wit., $350 per share, or $2,301,600. (c) That American Cigar Co. dispose of any interest in American Stogie Co. by receiving cash proceeds of its stock in dissolution thereof, if American Stogie Co. upon dissolution converts its assets into cash; or by distributing as a dividend to its common-stock holders out of its surplus the securities which it receives upon the dissolution of American Stogie Co., if it receives such. All stocks thus to be acquired by the American Tobacco Co. from American Cigar Co. are to be disposed of by the American Tobacco Co. as hereinafter set out. E. DISTRIBUTION BY THE AMERICAN TOBACCO CO. OF STOCKS OWNED OR TO BE ACQUIRED BY IT. (1) Immediate distribution of stocks. — The American Tobacco Co. will buy from P. Lorillard Co., for cash at par, the 11,247 shares of the preferred stock of American Snuff Co. held by P. Lorillard Co., and will receive, as the sole common-stock holder of P. Loril- lard Co. and by way of dividends, 34,594 shares of the common stock of American Snuff Co. held by P. Lorillard Co. The American Tobacco Co. will distribute among its common- stock holders by way of dividends, and to be charged to its surplus, all of its securities of the following-described classes, whether now owned by it or bought by it from American Cigar Co., as hereinbe- fore set forth, or bought by it from P. Lorillard Co., as just hereinbe- fore set forth, or received by it by way of dividends from any of the accessory companies defendant, as hereinbefore set forth, to wit: American Snuff Co. common stock; American Snuff Co. preferred stock; George W. Helme Co. common stock; Weyman-Bruton Co. 448 Industrial Combinations and Trusts common stock; Mac Andrews & Forbes Co. common stock; J. S. Young Co. common stock; the Conley Foil Co. stock; the Johnston Tin Foil & Metal Co. stock; R. J. Reynolds Tobacco Co. stock; Corporation of United Cigar Stores stock; British-American To- bacco Co. (Ltd.), ordinary shares; Porto Rican-American Tobacco Co. stock; American Stogie Co. stock (or what is received by way of dividends from American Cigar Co. upon dissolution of American Stogie Co.). Including the amount to be paid to American Cigar Co. and P. Lorillard Co. for such of these securities as are to be acquired by the American Tobacco Co. from them, respectively, and excluding those to be acquired by way of dividends, and which therefore do not affect the surplus of the American Tobacco Co., never having been set up on its books, these securities had a book value as of December 31, 1910, of $35,011,865.03. The earning capacity of all the above securities thus to be distributed, based upon the results of the year 1910, is $9,860,410.76, though not all thereof was dis- tributed as dividends. (2) Deferred disposition of stocks. — The American Tobacco Co. will sell or otherwise dispose of, or distribute by way of dividends to its common-stock holders out of its surplus at the time existing, before January 1, 1915, all of its holdings of the following securities: British- American Tobacco Co. (Ltd.) nonvoting preference shares; the Imperial Tobacco Co. (of Great Britain and Ireland (Ltd.) ordinary shares; Corporation of United Cigar Stores bonds; Mac- Andrews & Forbes Co. nonvoting preferred stock. During the time these securities are left in the treasury of the American Tobacco Co. the American Tobacco Co. to be enjoined from voting any thereof that under the terms thereof might be voted, or using any thereof to exercise, or otherwise exercising or attempting to exercise, influence or control over the said companies which issued the said securities, respectively, and from gaining possession of any of the said companies by buying in at a foreclo- sure had under any of the securities for any default with respect thereto or otherwise. SALE BY THE AMERICAN TOBACCO CO. OF MANUFACTURING ASSETS AND BUSINESS TO COMPANIES TO BE FORMED. (1) There will be organized a new corporation called Liggett & Myers Tobacco Co. and a new corporation called P. Lorillard Co., Methods of Dissolution 449 and the American Tobacco Co. will sell, assign, and convey to these two companies factories, plants, brands, and businesses and capital stocks of tobacco-manufacturing corporations, as follows: TO LIGGETT & MYERS TOBACCO CO. Liggett & Myers branch of the American Tobacco Co., engaged in the manufacture of plug tobacco at St. Louis, with the brands con- nected therewith. Spaulding & Merrick, a company of which the American Tobacco Co. owns and has always owned all the stock, engaged in Chicago in the manufacture of fine-cut tobacco and smoking tobacco. Allen & Ginter branch of the American Tobacco Co., engaged in the manufacture of cigarettes, at Richmond, Va., and the brands connected therewith (this does not include the brand "Sweet Cap- oral," made partly there and partly at New York). Chicago branch of the American Tobacco Co., a factory at Chicago engaged in the manufacture of smoking tobacco, with the brands con- nected therewith. Catlin branch of the American Tobacco Co., a factory at St. Louis engaged in the manufacture of smoking tobacco, with the brands con- nected therewith. Nail & Williams Tobacco Co., a company of which the American Tobacco Co. owns all the stock, engaged in the manufacture of plug and smoking tobacco at Louisville, Ky. The John Bollman Co., a company engaged in the manufacture of cigarettes at San Francisco; of this corporation the American Tobacco Co. owns 90 per cent of the stock, which it is proposed to turn over to the Liggett & Myers Tobacco Co. Pinkerton Tobacco Co., a corporation engaged in the manufacture of scrap tobacco (a kind of smoking tobacco) at Toledo, Ohio; of this corporation the American Tobacco Co. owns 77 J per cent of the stock, which it is proposed to turn over to the Liggett & Myers Tobacco Co. W. R. Irby branch of the American Tobacco Co., at New Orleans, engaged in the manufacture of cigarettes and smoking tobacco, the principal brands being "Home Run" and "King Bee." The Duke-Durham branch of the American Tobacco Co., engaged in the manufacture of cigarettes and smoking tobacco at Durham, N. C; principal cigarette brands, "Piedmont" and "American Beauty"; principal smoking tobacco brand, "Duke's Mixture." 450 Industrial Combinations and Trusts Two little cigar factories located, the one at Philadelphia and the other at Baltimore, branches of the American Tobacco Co. ; principal brand, "Recruits." to p. lorillard CO. All the rights of the American Tobacco Co. in the present P. Lorillard Co., to wit: All the common stock and $1,596,100 at par out of a total issue of $2,000,000 of 8 per cent preferred stock; it is contemplated that as a part of these reorganizations the Lorillard Co., as at present constituted, be wound up and the new company- be organized, taking over assets of the P. Lorillard Co. S. Anargyros, a company enagged l in the manufacture of ciga- rettes, in which the American Tobacco Co. owns all the stock, and of which it has always owned all the stock. Luhrman & Wilbern Tobacco Co., a company engaged in the manufacture of scrap tobacco (a kind of smoking tobacco), of which the American Tobacco Co. owns and has for many years owned, all the stock. Philadelphia branch B, at Philadelphia, Wilmington branch B, at Wilmington, Penn Street branch at Brooklyn, Danville branch B, at Danville, and Ellis branch B, at Baltimore, branches of the American Tobacco Co., manufacturing little cigars, the principal brand being "Between the Acts." Federal Cigar Co., a company all of whose stock is, and has always been, owned by American Cigar Co., but which, as hereinbefore pro- vided, is to be purchased for cash by the American Tobacco Co. Each of these conveyances to include proper and adequate storage houses, leaf tobacco, and other materials and supplies, provision for book accounts, including in each case a ratable proportion of the cash held by the American Tobacco Co. on December 31, 1910, so that each of the new corporations will be fully equipped for the conduct of the business of manufacturing and dealing in tobacco. (2) Resources and capitalization of companies and provisions for exchanging and retiring securities of American Tobacco Co. — The American Tobacco Co. has securities issued and outstanding as follows: 6 per cent bonds --- - - $52,882,650 4 per cent bonds (including outstanding 4 per cent bonds of Consolodated x Tobacco Co.) - - - - 51,354,100 1 Thus in original. — Ed. Methods of Dissolution 451 6 per cent preferred stock --------- 78,689,100 Common stock ------------- 40,242,400 The American Tobacco Co. in October, 1904, immediately after the merger, had an outstanding issue of its own 4 per cent bonds and the Consolidated Tobacco Co. 4 per cent bonds which it assumed, amounting to $78,689,100, but it has purchased on the market and retired $27,335,000 at par of these 4 per cent bonds, charging the amount thus expended to surplus. The 6 per cent bonds and 4 per cent bonds aforesaid are what are ordinarily known as debenture bonds, and are issued under a trust indenture which imposes a gen- eral charge on the property, income, and earnings of the company in favor, first, of the 6 per cent bonds, and, second, of the 4 per cent bonds. The American Tobacco Co. , after the reduction of the surplus through the acquisition by it of 4 per cent bonds as aforesaid, had on December 31, 1910, a surplus of $61,119,991.63, which will be increased by the surplus earnings of the current year. The distribu- tion of securities herein provided for to be forthwith made, would diminish the said surplus by $35,011,865.03, the book value of securities to be so distributed. This book value is less than actual value, but in view of the fact that none of the assets of the American Tobacco Co. are overvalued, the advance of the book value of the securities to be distributed as hereinbefore set forth to their actual value, would operate at the same time to increase the surplus of the company, and so its surplus, after such distribution, would remain just the same as though the advance to actual value had not been made on the books of the company. The properties to be conveyed to the Liggett & Myers Tobacco Co. and P. Lorillard Co., based upon conditions as of December 31, 1910, the last completed year, including in such conveyances the proper and proportionate storage houses, leaf tobacco, supplies and mate- rials, and cash, but without anything for value of brands, trademarks, formulae, recipes, and good will, but including stocks of com- panies, are of the value of $30,607,261.96 to Liggett & Myers To- bacco Co. and $28,091,748.86 to P. Lorillard Co. So far as these conditions shall be changed before the day of the conveyance, any deficiency is to be made good in cash, so that these two companies will have said amounts in tangible assets as aforesaid, useful, and such as have been used, in the manufacture of the brands to be con- veyed to them, respectively, and cash. The American Tobacco Co. will be left with tangible assets, including stocks of companies em- 452 Industrial Combinations and Trusts ployed in manufacturing tobacco and its products, cash and bills and accounts receivable of the value of $53,408,498.94 as of December 31, 1910. The profits earned during the year 1910 on the brands and businesses to be conveyed by the American Tobacco Co. to Liggett & Myers Tobacco Co. amounted to $7,468,172.02, and the profits on the brands and businesses to be conveyed by the American Tobacco Co. to P. Lorillard Co. amounted to $5,264,729.38. It is proposed that the value of the brands, trade-marks, recipes, formula;, and good will to be sold to each of these companies be de- termined by their earning capacity, based upon the results for the year 19 10, so that each shall have an earning capacity of 11.02 per cent per annum upon its total property, including both tangible property and brand value and good will. Upon this basis the con- sideration to be paid by the Liggett & Myers Tobacco Co. will be $30,607,261.96, value of tangible assets as above stated, and $36,840,- 237.04, value of brands, trade-marks, recipes, formulas, and good will, making a total of $67,447,499; and the consideration to be paid by the P. Lorillard Co. will be $28,091,748.86, value of tangible assets as above stated, and $19,460,752.14, value of brands, trade-marks, re- cipes, formulae, and good will, making a total of $47,552,501. The brands, trade-marks, recipes, formulas, and good will of the American Tobacco Co. on December 31, 1910, were of the book value of $101,324,964.07. The payments for brand value, etc., to the Amer- ican Tobacco Co. to be made by Liggett & Myers Tobacco Co. and P. Lorillard Co., as aforesaid, makes an aggregate of $56,300,989.18, and would thus leave the book value of brands, trade-marks, recipes, formulae, and good will retained by the American Tobacco Co. at $45,023,974.89, which added to the $53,408,498.94 of tangible man- ufacturing assets to be retained by the American Tobacco Co., will make the total book value of manufacturing property to be retained by that company $98,432,473.83, upon which its earnings, based upon the results for the year 1910, would be $11,369,809.82, or 11.55 per cent. The Liggett & Myers Tobacco Co. and the P. Lorillard Co. would pay for these conveyances, therefore, the aggregate as aforesaid, to wit: Liggett & Myers Tobacco Co. $67,447,499 P. Lorillard Co. 47,552,501 Aggregating 115,000,000 Methods of Dissolution 453 or each with its earnings on the business for the year 1910 so capital- ized that said earnings represent 11.02 per cent upon the capital. Liggett & Myers Tobacco Co. and P. Lorillard Co. will issue se- curities to cover such capitalization in the aggregate as follows: To an amount equal to one-half of the outstanding 6 per cent bonds of the American Tobacco Co., that is, $26,441,325 at par in 7 per cent bonds; to an amount equal to one-half of the outstanding 4 per cent bonds of the American Tobacco Co., that is, $25,677,050 at par in 5 per cent bonds; to an amount equal to one-third of the outstanding pre- ferred stock of the American Tobacco Co., that is, $26,229,700 at par in 7 per cent cumulative voting preferred stock, which, upon liquidation of the company, shall be paid at par with accrued unpaid dividends before any amount shall be paid to common stock, with balance of assets distributable ratably to the common stock, and the balance of said $115,000,000, that is, $36,651,925 in common stock. The 7 per cent bonds and the 5 per cent bonds to mature at the time fixed, respectively, for the maturity of the 6 per cent bonds and the 4 per cent bonds of the American Tobacco Co. now outstanding and to be issued under an indenture of substantially like tenor and terms with the present indenture of the American Tobacco Co. under which its 6 per cent bonds and 4 per cent bonds were issued. The 7 per cent bonds to have priority in charge over the 5 per cent bonds in the same way that the 6 per cent bonds of the American Tobacco Co. have priority of charge over the 4 per cent bonds Thus the capitalization of the Ligget & Myers Tobacco Co. and P. Lorillard Co. will be as follows 7 per cent bonds 5 per cent bonds 7 per cent preferred stock Common stock Total Liggett & Myers. 515,507,837 15,059,589 15,383,719 21,496,354 67,447,499 Lorillard. 510,933,488 10,617,461 10,845,981 i5,i55,57i 47,552,5oi Total. $26,441,325 25,677,050 26,229,700 36,651,925 115,000,000 All of these securities of the Liggett & Myers Tobacco Co. and the P. Lorillard Co. to be turned over to the American Tobacco Co. in payment of the purchase price for the factories, plants, brands, and businesses and capital stocks of tobacco manufacturing corporations so to be conveyed to Liggett & Myers Tobacco Co. and P. Lorillard Co., respectively, as hereinbefore set out. 454 Industrial Combinations and Trusts These securities will be disposed of by the American Tobacco Co. as follows: The common stock will be offered for cash at par to the holders of the common stock of the American Tobacco Co. in proportion to their holdings, and any not purchased by the person thus entitled thereto shall be sold to persons other than the individual defendants, to the end that such offer of common stock of the two new companies to the common-stock holders of the American Tobacco Co. shall not be used by the individual defendants to increase their ownership therein beyond the proportion of their holdings of the common stock of the American Tobacco Co. To each holder of the 6 per cent bonds of the American Tobacco Co. an offer shall be made to acquire his bonds for cancellation and to give in exchange therefor, as to one-half thereof, new 7 per cent bonds of Liggett & Myers Tobacco Co. and P. Lorillard Co. at par, and in payment for the other half thereof cash at the rate of $120 and ac- crued interest for each $100 face value of the bonds. To each holder of the 4 per cent bonds of the American Tobacco Co. an offer shall be made to acquire his bonds for cancellation, and to give in exchange therefor, as to one-half thereof, new 5 per cent bonds of Liggett & Myers Tobacco Co. and P. Lorillard Co. at par, and in payment for the other half thereof cash at the rate of $96 and accrued interest for each $100 face value of the bonds. To each holder of the preferred stock of the American Tobacco Co. an offer shall be made to acquire one-third of his stock for cancella- tion in exchange for an equal amount at par of Liggett & Myers Tobacco Co. and P. Lorillard Co. On account of the larger capitalization of the Liggett & Myers To- bacco Co., as compared with the P. Lorillard Co., each class of the new securities will issue in the proportion of 58.65 per cent thereof of Liggett & Myers Tobacco Co. securities and 41.35 per cent thereof of P. Lorillard Co. securities. The stocks will be issued in shares of $100, and coupon bonds in denominations of $1,000, and registered bonds in larger denominations, and in denominations of $100 and $50, and in actual issue fractions will be eliminated. The common stocks of the two companies aforesaid are to be sold as above set out prior to March 1, 191 2, w r ith three years to be al- lowed for the retirement of the bonds and preferred stock of the American Tobacco Co., as above set out. Pending such, the said 7 per cent bonds, 5 per cent bonds, and 7 per cent preferred stocks of the Liggett & Myers Tobacco Co. and the P. Lorillard Co., together Methods of Dissolution 455 with an amount in cash, or in securities owned by the American To- bacco Co., at their book value, or partly in cash and partly in such securities, equal to the amounts required if all such sales and ex- changes are made, will be deposited with the Guaranty Trust Co. of New York, the trustee in the indenture under which the 6 per cent bonds and the 4 per cent bonds of the American Tobacco Co. are issued, as the agency to effect the purchase and exchange. Such deposit will be made, not to secure nor create a trust fund for the bonds, but for the purpose of sequestrating and taking from the con- trol of the American Tobacco Co. the securities and cash so deposited. During the time of such deposit the securities shall be in the name of, as well as in the custody of, said trust company, with any voting rights attaching thereto, but the American Tobacco Co. shall receive from the trust company all dividends and interest collected by it on account of such securities; and the American Tobacco Co. shall have the right at any time and from time to time to sell, at such price as it may determine, and direct the delivery of any of such securities (except the securities of Liggett & Myers Tobacco Co. and P. Loril- lard Co.), the consideration therefor to go into the hands of said trust company; or to withdraw any of such securities (except the securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.) for the purpose of distribution among its common-stock holders, if its surplus at the time permits; or to substitute other securities of like book value for the securities so deposited (except as to the securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.) ; or to alter the relative proportion of cash and securities, it being the intent of this provision that there shall be sequestrated from the control of the American Tobacco Co. all the securities of the Liggett & Myers To- bacco Co. and P. Lorillard Co., and an additional amount of cash or other securities equal, upon the purchase basis aforesaid, to the value of the 4 per cent bonds and the 6 per cent bonds of the American To- bacco Co. at the time outstanding. At the end of the three years, if there are any of such securities of the Liggett & Myers Tobacco Co. or P. Lorillard Co. in the hands of such trust company undisposed of by such exchange as aforesaid, then the American Tobacco Co. shall apply to this court for an order as to the disposition thereof. Noth- ing contained in this provision, and nothing done under this provision, shall be construed as providing for the creation of, or as creating, any lien or security on anything deposited with the trust company in favor of the 6 per cent bonds or the 4 per cent bonds of the Amer- ican Tobacco Co., outstanding or otherwise. 456 Industrial Combinations and Trusts G. voting rights to preferred stock. By proper amendment of the certificate of incorporation of the American Tobacco Co. the preferred stock will be given full voting rights. H. certain incidental provisions. (1) P. Lorillard Co. is a New Jersey company with $3,000,000 of common stock, all of which is owned by the American Tobacco Co., and $2,000,000 of 8 per cent preferred stock. Of this preferred stock the American Tobacco Co. holds $1,596,100 at par and there is held by others $403,900 at par. Under the laws of New Jersey the present P. Lorillard Co. may be dissolved by the holders of two-thirds of the outstanding stock, and upon such dissolution the preferred stock is entitled to be paid at par, the balance of the assets going to the com- mon stock. In view of the fact, however, that the preferred stock of the present P. Lorillard Co. is an 8 per cent preferred stock with abundant assets and earnings to make the principal and income secure, it is deemed fair to the holders of this outstanding $403,900 of preferred stock that they be given an opportunity to take, at their option, either cash at par, which they are legally entitled to, or the 7 per cent preferred stock of the proposed new P. Lorillard Co. As the preferred stock of the new P. Lorillard Co. is to be a 7 per cent preferred stock, the holders of said $403,900 of said present preferred stock will be offered stock of the new company at the rate of $114.25 for each share. It is therefore proposed that the new P. Lorillard Co. provide for an additional amount of preferred stock sufficient to take care of $403,900 preferred stock on that basis, to wit, $114.25 in new 7 per cent preferred stock for each $100 of said stock, amounting to $461,600 at par of preferred stock in addition to that set out here- inbefore. In view of the fact that in the statements hereinbefore made as to earnings of the P. Lorillard Co. there is included only such part of the earnings of the present P. Lorillard Co. as accrued to the proportion of its stock held by the American Tobacco Co., this in- crease of preferred stock would increase proportionately the profits of the P. Lorillard Co., and does not derange any of the figures herein- before given or given in any of the exhibits hereto and hereinafter referred to. Methods of Dissolution 457 (2) American Snuff Co. manufactures and sells a brand of snuff called "Garrett," which has a large sale in the southern and south- western sections of the country. Originally this brand was manu- factured at Yorklyn, Del., and in part packed in Philadelphia. Several years ago American Snuff Co. determined, on account of freight-rate conditions, to manufacture this brand at Clarksville, Tenn., and to pack it at Memphis, Tenn., and that the factories at Yorklyn, Del., should be given up to the manufacture of other brands. It has yet, though, been unable to produce in Clarksville, Tenn., goods similar to the goods heretofore and now made by it at Yorklyn, Del., although the experiment is still in progress, and with hope of success. Under the plan hereinbefore outlined the brand " Garrett" snuff is allotted to American Snuff Co., and the factories other than one factory at Yorklyn, Del., are allotted to George W. Helme Co. ; your petitioners pray that in the approval and adoption by this court of this plan, American Snuff Co. and George W. Helme Co. be permitted to manufacture brands the one for the other for a period not exceeding one year from March 1, 191 2, each company paying to the other as consideration for such manu- facture the cost thereof plus 5 per cent; the necessity of paying 5 per cent above cost is sufficient inducement to each company to manufacture its own goods as soon as American Snuff Co. is able to manufacture "Garrett" snuff of the requisite character and kind in its Clarksville factory, thus leaving the Yorklyn factories, other than No. 5, for the manufacture by the George W. Helme Co. of its own brands. This court having heard the parties as directed by the Supreme Court of the United States, it is further ascertained and determined, and ordered, adjudged, and decreed that said plan hereinbefore set forth is a plan or method which, taken with the injunctive pro- visions hereinafter set forth, will dissolve the combination heretofore adjudged to be illegal in this cause, and will re-create out of the elements now composing it a new condition which will be honestly in harmony with, and not repugnant to, the law, and without un- necessary injury to the public or the rights of private property. It is further ordered, adjudged, and decreed that the said plan as hereinabove set forth be, and it is hereby, approved by this court, and the defendants herein are, respectively, directed to proceed forthwith to carry the same into effect. The necessities of the situation, in the judgment of this court, requiring the extension of the period for carrying into execution 458 Industrial Combinations and Trusts said plan to a further time not to exceed 60 days from Decem- ber 30, IQII. It is further ordered, adjudged, and decreed that the defendants be allowed until February 28, 1912, to carry said plan into execu- tion. It is further ordered, adjudged, and decreed that the defendants, their officers, directors, servants, agents, and employees be, and they are hereby, severally enjoined and restrained as follows: From continuing or carrying into further effect the combination adjudged illegal in this cause, and from entering into or forming any like combination or conspiracy, the effect of which is or will be to restrain commerce in tobacco or its products or in articles used in connection with the manufacture and trade in tobacco and its products among the States or in the Territories or with foreign na- tions, or to prolong the unlawful monopoly of such commerce ob- tained and possessed by the defendants as adjudged herein in viola- tion of the act of Congress approved July 2, 1890, either: 1. By causing the conveyance of the factories, plants, brands, or business of any of the 14 corporations among which the properties and businesses now in the combination are to be distributed, to wit, The American Tobacco Co., Liggett & Myers Tobacco Co., P. Lorillard Co., American Snuff Co., George W. Helme Co., Weyman- Bruton Co., R. J. Reynolds Tobacco Co., British- American To- bacco Co. (Ltd.), Porto Rican- American Tobacco Co., MacAn- drews & Forbes Co., J. S. Young Co., The Conley Foil Co., The Johnston Tin Foil & Metal Co., and United Cigar Stores Co., to any other of said corporations, by placing the stocks of any one or more of said corporations in the hands of voting trustees or control- ling the voting power of such stocks by any similar device; or 2. By making any express or implied agreement or arrangement together or one with another like those adjudged illegal in this cause relative to the control or management of any of said 14 cor- porations, or the price or terms of purchase or of sale of tobacco or any of its products or the supplies or other products dealt with in connection with the tobacco business, or relative to the purchase, sale, transportation, or manufacture of tobacco or its products or supplies or other products dealt with as aforesaid by any of the par- ties hereto which will have a like effect in restraint of commerce among the States, in the Territories, and with foreign nations to that of the combination, the operation of which is enjoined in this cause, or by making any agreement or arrangement of any kind Methods of Dissolution 459 with any other of such corporations under which trade or business is apportioned between such corporations in respect either to cus- tomers or localities. 3. By any of said 14 corporations retaining or employing the same clerical organization, or keeping the same office or offices, as any other of said corporations. 4. By any of said 14 corporations retaining or holding capital stock in any other corporation any part of whose stock is also retained and held by any other of said corporations: Provided, how- ever, That this prohibition shall not apply to the holding by the Porto Rican-American Tobacco Co. and American Cigar Co. of stock in Porto Rican Leaf Tobacco Co., nor shall it apply to the holding of stock of the National Snuff Co. (Ltd.), by Weyman- Bruton Co. and British- American Tobacco Co. (Ltd.). 5. By any of said 14 corporations doing business directly or in- directly under any other than its own corporate name or the name of a subsidiary corporation controlled by it: Provided, however, That in case of a subsidiary corporation the controlling corporation shall cause the products of such subsidiary corporation which are sold in the United States and bear the name of the manufacturer, to bear also a statement indicating the fact of such control. 6. By any of said 14 corporations refusing to sell to any jobber any brand of any tobacco product manufactured by it except upon condition that such jobber shall purchase from the vendor some other brand or product also manufactured and sold by it : Provided, however, That this prohibition shall not be construed to apply to what are known as "combination orders" under which some brand or product may be offered to a jobber or dealer at a reduced price on condition that he purchase a given quantity of some other brand or product. It is further ordered, adjudged, and decreed that during a period of five years from the date hereof, each of said 14 corporations hereinbefore named, its officers, directors, agents, servants, and employees, are hereby enjoined and restrained, as follows: 1. None of the said 14 corporations shall have any officer or director who is also an officer or director in any other of said corpora- tions. 2. None of said 14 corporations shall retain or employ the same agent or agents for the purchase in the United States of tobacco leaf or other raw material, or for the sale in the United States of tobacco or other products, as that of any other of said corporations. 460 Industrial Combinations and Trusts 3. None of said 14 corporations shall directly or indirectly ac- quire any stock in any other of said corporations, or purchase or acquire any of the factories, plants, brands, or business of any other of said corporations, or make loans or otherwise extend financial aid to any other of said corporations. The provisions of this decree shall apply only to trade and com- merce in or between the several States and Territories and the District of Columbia, and trade and commerce between the United States and foreign nations. It is further ordered, adjudged, and decreed that British- American Tobacco Co. (Ltd.) and the Imperial Tobacco Co. (of Great Britain and Ireland, Ltd.) shall not act as agent for each other, nor employ a common agent, for the purchase of leaf tobacco in the United States, and neither of said two companies shall unite with any of the said 14 corporations among which the properties and businesses now in the combination are to be distributed, in the employment of a common agent for the purchase of tobacco leaf in the United States. It is further ordered, adjudged, and decreed that each of the 29 individual defendants in this suit be enjoined and restrained from at any time within three years from the date of this decree, acquir- ing, owning, or holding, directly or indirectly, any stock, or any legal or equitable interest in any stock in any one of said 14 corpora- tions, except British- American Tobacco Co. (Ltd.), in excess of the amount to which he will be entitled under the provisions of the plan when the same shall have been carried out as proposed as the present owner of the amount of stocks in said several companies shown by the affidavits of said several defendants filed herein on the 16th day of November, 1911: Provided, however, That any of said defendants may, notwithstanding this prohibition, acquire from any other or others of said defendants, or in case of death from their estates, any of the stock held by such other defendant or defendants in any of said corporations. It is further ordered, adjudged, and decreed that the new com- panies whose organization is provided for in the plan hereinabove set forth, to wit: Liggett & Myers Tobacco Co., P. Lorillard Co., George W. Helme Co., Weyman-Bruton Co., and J. S. Young Co., shall, after their formation and by appropriate proceeding, be made parties defendant to this cause and subject to the provisions of this decree and bound by the injunctions herein granted. It is further ordered, adjudged, and decreed that any party hereto Methods of Dissolution 461 may make application to the court for such orders and directions as may be necessary or proper in relation to the carrying out of said plan, and the provisions of this decree. It is further ordered, adjudged, and decreed that the costs of this action shall be paid by the defendants other than R. P. Richardson, jr., & Co. (Inc.), as to whom the suit has heretofore been dismissed, and the payment by the defendant, the American Tobacco Co., of the reasonable costs and counsel fees of the committees organized for the protection of the 6 per cent bonds, 4 per cent bonds and pre- ferred stock of the American Tobacco Co. is hereby approved. It is further ordered, adjudged, and decreed that the defendants, the American Tobacco Co., MacAndrews & Forbes Co., American Snuff Co., and each of them and their and each of their officers, directors, servants, agents, and employees, be severally enjoined and restrained, as in said plan set forth, from voting stocks, exer- cising influence or control over other companies or gaining posses- sion of other companies through the use of securities temporarily held by them, respectively, under said plan in each and every case in which it is provided in and by the said plan that any of said three last-named defendants shall be so enjoined. It is further ordered, adjudged, and decreed that such books and papers of the defendants, the American Tobacco Co. and S. Anargy- ros, or either of them, as relate to the suit of the Ludington Ciga- rette Machine Co. v. S. Anargyros and the American Tobacco Co., or the subject matter thereof or any part thereof, be preserved by the said defendants, respectively, until after the accounting, if any shall take place in said suit, and said suit be finally determined and ended. It is further ordered, adjudged, and decreed that jurisdiction of this cause is retained by this court for the purpose of making such other and further orders and decrees, if any, as may become neces- sary for carrying out the mandate of the Supreme Court. November 16, 191 1. E. Henry Lacombe, Circuit Judge. Alfred C. Coxe, Circuit Judge. H. G. Ward, Circuit Judge. Walter C. Noyes, Circuit Judge. 462 Industrial Combinations and Trusts Exhibit 2 the dissolution of the standard oil company l standard oil company (of new jersey). 26 broadway, New York, July 28, 191 1. To the Stockholders of the Standard Oil Company (of New Jersey) : Obedience to the final Decree in the case of the United States against the Standard Oil Company (of New Jersey), and others, requires this Company to distribute, or cause to be distributed, ratably, to its stockholders the shares of stock of the following corporations, which it owns directly or through its ownership of stock of the National Transit Company,* to wit: Anglo-American Oil Company, Limited; The Atlantic Refining Company; Borne-Scrymser Company; The Buckeye Pipe Line Company; Chesebrough Manufacturing Company, Consolidated; Colonial Oil Company; Continental Oil Company; The Crescent Pipe Line Company; Cumberland Pipe Line Company, Incorporated; The Eureka Pipe Line Company; Galena-Signal Oil Company; Indiana Pipe Line Company; National Transit Company; New York Transit Company; Northern Pipe Line Company; The Ohio Oil Company; The Prairie Oil and Gas Company; The Solar Refining Company; Southern Pipe Line Com- pany; South Penn Oil Company; South West Pennsylvania Pipe Lines; Standard Oil Company (California); Standard Oil Company (Indiana); The Standard Oil Company (Kansas); Standard Oil Company (Kentucky) ; Standard Oil Company (Nebraska) ; Stan- dard Oil Company of New York; The Standard Oil Company (Ohio); Swan & Finch Company; Union Tank Line Company; Vacuum Oil Company; Washington Oil Company; Waters-Pierce Oil Company. Such distribution will be made to the stockholders of the Standard Oil Company (of New Jersey) of record on the 1st day of September, 191 1 ; and, for that purpose, the transfer books of the Company will be closed on the 31st day of August, 191 1, at 3 o'clock P. M., and 1 Letter of the Standard Oil Company to its stockholders. The Standard Oil Company had no dissolution plan such as was prepared by the Tobacco Com- pany. It merely followed the decree of the Supreme Court. — Ed. 2 Italics are the editor's. Methods of Dissolution 463 kept closed until the date when said stocks are ready for distri- bution, which it is expected will be about December 1, 191 1. Notice of the date when said stocks are to be distributed and of the re-opening of the books will be duly given. Yours very truly, H. C. Folger, Jr., Secretary. Exhibit 3 the dissolution of the powder trust 1 It is thereupon, on this 13th day of June, A. D. 1912, ordered, adjudged and decreed as follows, to wit: 2. That the remaining twenty-seven defendants, namely: Hazard Powder Company, Laflin & Rand Powder Company, Eastern Dynamite Company, Fairmont Powder Company, Judson Dynamite & Powder Company, Delaware Securities Company, Delaware Investment Company, California Investment Company, E. I. duPont de Nemours & Company of Pennsylvania, duPont International Powder Company, E. I. duPont de Nemours Powder Company, E. I. duPont de Nemours & Company, Thomas Coleman duPont, Pierre S. duPont, Alexis I. duPont, Alfred I. duPont, Eugene duPont, Eugene E. duPont, Henry F. duPont, Irenee duPont, Francis I. duPont, Victor duPont, Jr., Jonathan A. Haskell, Arthur J. Moxham, Hamilton M. Barksdale, Edmund G. Buckner and Frank L. Connable, are maintaining a combination in restraint of interstate commerce in powder and other explosives in violation of section 1, of an Act entitled "An Act to Protect Trade and Commerce against Unlawful Restraints and Monopolies," approved July 2, 1890, and have attempted to monopolize and have monopo- lized a part of such commerce in violation of section 2 of said Act. Wherefore, It is further ordered, adjudged and decreed that the twenty-seven (27) defendants above mentioned, and each of them be enjoined from continuing said combination and monopoly, and that said combination and monopoly be dissolved. 3. That the petitioner having availed itself of the permission granted in said interlocutory decree and having presented a certain plan for the dissolution of said combination and the dissolution of 1 The United States of America v. E. I. duPont de Nemours &° Company and Others. In the District Court of the United States, for the District of Dela- ware in Equity No. 280, Opinion of Court and Final Decree, pp. 2-13. 464 Industrial Combinations and Trusts said monopoly, so far as the present situation of the parties and the properties involved will permit, to which plan the said twenty- seven (27) defendants do not object, which said plan is as follows: First: Dissolve the defendant corporation E. I. duPont de Nemours & Company (1902, Delaware corporation) and distribute its property among its stockholders. Second: Dissolve the defendant corporation Hazard Powder Company and distribute its property among its stockholders. Third: Dissolve the defendant corporation Delaware Securities Company and distribute its property among its stockholders. Fourth: Dissolve the defendant corporation Delaware Invest- ment Company and distribute its property among its stockholders. Fifth: Dissolve the defendant corporation Eastern Dynamite Company and distribute its property among its stockholders. Sixth: Dissolve the defendant corporations California Invest- ment Company and Judson Dynamite and Powder Company and distribute their property among their stockholders. Seventh: Organize two corporations in addition to E. I. duPont de Nemours Powder Company (1903, New Jersey Corporation) which shall be capitalized as hereinafter provided, or reorganize the Laflin and Rand Powder Company and the Eastern Dynamite Company, or either of them, to be used instead of one or both of said two corporations, and in case the said Eastern Dynamite Company is so selected, then it need not be dissolved as herein- before provided. In case the Laflin and Rand Powder Company is not used under this paragraph dissolve said company and dis- tribute its property among its stockholders. To the first of said corporations transfer the following plants: For the Manufacture of Dynamite: Plant at Kenville, New Jersey, Plant at Marquette, Michigan, Plant at Pinole, California. For the Manufacture of Black Blasting Powder: Plant at Rosendale, New York, Two (2) plants at Ringtown, Pennsylvania, Plant at Youngstown, Ohio, Plant at Pleasant Prairie, Wisconsin, Plant at Turck, Kansas, Plant at Santa Cruz, California. Methods of Dissolution 465 For the Manufacture of Black Sporting Powder: Plant at Hazardville, Connecticut, Plant at Schaghticoke, New York. To the second of said corporations transfer the following plants: For the Manufacture of Dynamite: Plant at Hopatcong, New Jersey, Plant at Senter, Michigan, Plant at Atlas, Missouri, Plant at Vigorit, California. For the Manufacture of Black Blasting Powder: Plant at Riker, Pennsylvania, Plant at Shenandoah, Pennsylvania, Plant at Ooltewah, Tennessee, Plant at Belleville, Illinois, Plant at Pittsburg, Kansas. And permit the said defendant E. I. duPont de Nemours Powder. Company to retain the following plants: For the Manufacture of Dynamite: Plant at Ashburn, Missouri, Plant at Barksdale, Wisconsin, Plant at duPont, Washington, Plant at Emporium, Pennsylvania, Plant at Hartford City, Indiana, Plant at Louviers, Colorado, Plant at Gibbstown, New Jersey, Plant at Lewisburg, Alabama. For the Manufacture of Black Blasting Powder: Plant at Augusta, Colorado, Plant at Connable, Alabama, Plant at Oliphant Furnace, Pennsylvania, Plant at Mooar, Iowa, Plant at Nemours, West Virginia, Plant at Patterson, Oklahoma, Plant at Wilpen, Minnesota. 466 Industrial Combinations and Trusts For the Manufacture of Black Sporting Powder: Plant at Brandywine, Delaware, Plant at Wayne, New Jersey. For the Manufacture of Smokeless Sporting Powder: Plant at Carney's Point, New Jersey, Plant at Haskell, New Jersey. For the Manufacture of Government Smokeless Powder: Plant at Carney's Point, New Jersey, Plant at Haskell, New Jersey. Eighth: Transfer to or furnish the first of said two corporations with a plant for the manufacture of smokeless sporting powder and the brands now or heretofore owned by the Laflin and Rand Powder Company. Such plant to be located at Kenville, New Jersey, or some other suitable Eastern point, and to be of a capacity sufficient to manufacture 950,000 pounds per annum of smokeless sporting pow- der of the brands to be assigned to the first of said corporations. Ninth: Furnish said two corporations respectively with sufficient 'working capital and the necessary cash and facilities to enable them to efficiently carry on the business which will attend the properties so to be transferred to them. Tenth: Transfer said properties to said two corporations re- spectively upon a valuation thereof based on the last inventory of said properties, to include a fair valuation for brands and good will, and issue to said E. I. duPont de Nemours Powder Company in payment therefore l securities of said two corporations respectively at par value as follows: Fifty per cent. (50%) of said purchase price in bonds not secured by mortgage w T hich shall bear interest at the rate of six per cent. (6%) per annum, payable if earned by the com- pany during said year, or to the extent thereof earned but not other- wise; nor cumulative; payable not less than ten years from date; the form of said bonds to be approved by the Attorney-General or the Court, which bonds shall be subject to call at one hundred and two (102) ; and the other fifty per cent. (50%) of said purchase price in the stock of said two corporations respectively, which for the time being shall be their entire stock issues. Upon the receipt of said stock and bonds by E. I. duPont de Nemours Powder Company, distribute the said stock and one-half of said bonds or the proceeds 1 Thus in original. — Ed. Methods of Dissolution 467 of the sale of said bonds among the stockholders of E. I. duPont de Nemours Powder Company. In the organization or reorganization of said two corporations to which said properties are to be trans- ferred, provide two issues of stock in said two corporations re- spectively, one of which shall have voting power and the other of which shall have no voting power. So distribute said stocks among the stockholders of E. I. duPont de Nemours Powder Company that any amounts thereof which upon said distribution shall go to any one of the twenty-seven defendants hereinbefore mentioned shall consist of one-half of said stock with voting power and one-half of said stock without voting power, and provide that upon the transfer through death or by will from any one of said twenty-seven de- fendants of any stock which has no voting power, to some person or persons other than one of said twenty-seven defendants herein, or upon the sale by any one of said twenty-seven defendants of any stock which has no voting power, to some person or persons other than one of said twenty-seven defendants herein, or their respective wives or children, said stock so sold or transferred may be exchanged for stock with voting power. Eleventh: Transfer to said two corporations, respectively, so far as practicable, a fair proportion of the business in explosives now con- trolled by E. I. duPont de Nemours Powder Company under time contract. Twelfth: During a period of at least five years furnish each of said two corporations respectively, under such arrangements as may be reasonable, such information from the records of the Trade Bureau maintained by E. I. duPont de Nemours Powder Company as may be desired. Thirteenth: During a period of at least five years furnish to each of said two corporations such facilities, information and use of organiza- tion, as E. I. duPont de Nemours Powder Company may operate or possess in reference to purchase of materials, experimentation, de- velopment of the art and scientific research, as said two corporations may desire from time to time, in the interests of their business, and upon some reasonable terms as to the cost thereof to said two cor- porations. And said plan having been duly considered by the Court, it is ordered, adjudged and decreed that the said defendants are respec- tively directed to proceed forthwith to carry said plan into effect, and it is further Ordered, adjudged and decreed, that if said defendants shall not 468 Industrial Combinations and Trusts have carried said plan into operation and effected the same on or be- fore the fifteenth day of December, 191 2, then and in that event an injunction shall issue out of this Court restraining the said defendants in paragraph two of this decree mentioned and each of them, and their agents and servants from thereafter in any manner whatsoever placing the products of any of the factories owned by said defend- ants or said combination into the channels of interstate commerce, or such other relief shall be granted by the appointment of a receiver or otherwise as this Court may determine. 4. That should the defendants find it impossible to perfect the details of said plan on or before the said fifteenth day of December, 191 2, they may have leave to apply to the Court for further time to carry out said plan. 5. That until said plan is carried into operation and effect, the said twenty-seven defendants hereinbefore named in paragraph two of this decree, are, and each of them is, and the agents and servants of them are jointly and severally hereby enjoined from doing any acts or act which shall in any wise further extend or enlarge the field of operations, or the power of the aforesaid combination. It is further ordered, adjudged and decreed that the said twenty- seven (27) defendants, their stockholders, officers, directors, servants, agents and employees be and they are hereby severally enjoined and restrained as follows: From continuing or carrying into further effect after said fifteenth day of December, 191 2, the combination adjudged illegal in this suit, and from entering into or forming among themselves or with others any like combination or conspiracy, by any method or device what- soever, the effect of which is or will be to restrain interstate com- merce in explosives or to renew the unlawful monopoly of such com- merce obtained and possessed by the defendants as adjudged herein, in violation of "Act to Protect Trade and Commerce Against Unlaw- ful Restraints and Monopolies," approved July 2, 1890, and espe- cially: 1. By causing the conveyance of the factories, plants, brands or business of either of said two new corporations to the other corpo- ration to E. I. duPont de Nemours Powder Company or vice versa after the segregation of the properties among said corporations shall have taken place as herein provided; by placing the stocks of either of said corporations in the hands of voting trustees or controlling the voting power of such stocks by any device; 2. By making any express or implied agreement or arrangement Methods of Dissolution 469 with one another or with others relative to the control or management of either of said corporations, or the price or terms of purchase, or of sale of explosives or relative to the purchase, sale, manufacture, or transportation of explosives which will have the effect of restrain- ing interstate commerce; or by making any agreement or arrange- ment of any kind between said corporations under which trade or business is apportioned between said coqDorations in respect either to customers or localities. 3. By offering or causing to be offered or making or causing to be made more favorable prices or terms of sale for the products manu- factured by them or either of them to the customers of any rival manufacturer or manufacturers than they at the same time offer to make their established trade, where the purpose is to unfairly cripple or drive out of business such rival manufacturer or manufacturers or otherwise unlawfully to restrain the trade and commerce of the United States in any of said products; provided that no defendant is enjoined or restrained from making any price or prices in the sale of said products, or any thereof, to meet or to compete with prices made by any other defendant, or by any rival manufacturer; and provided, further, that nothing in this decree shall be taken in any respect to enjoin or restrain fair, free and open competition. 4. By either of said corporations retaining or employing the same clerical force or organization, or keeping the same office or offices as any other of said corporations. 5. By either of said corporations doing business directly or in- directly under any other than its own corporate name or the name of a subsidiary corporation controlled by it; provided, however, that, in case of a subsidiary corporation, the controlling corporation shall cause the products of such subsidiary corporation which are sold in the United States and bear the name of the manufacturer to bear also a statement indicating the fact of such control. It is further ordered, adjudged and decreed that said defendants cancel and annul: a. Agreement of October 2, 1902, between William Barclay Par- sons, of the City of New York, and the Delaware Securities Company. Petitioner's Record, Exhibits, Volume 4, page 1984. b. Agreement of October 6, 1902, between H. deB. Parsons of the City of New York, and the Delaware Securities Company. Peti- tioner's Record, Exhibits Volume 4, page 1986. c. Agreement of the second day of October, 1902, between Schuyler L. Parsons, of the City of New York, and the Delaware 470 Industrial Combinations and Trusts Securities Company. retilioner's Record, Exhibits, Volume 4, page 1988. d. A like and identical agreement made about the same date between J. A. Haskell and the Delaware Securities Company, de- scribed in Petitioner's Testimony, Volume 2, page 1012. It is further ordered, adjudged and decreed that during a period of five years from the date hereof each of said corporations, the E. I. duPont de Nemours Powder Company and said other two corpora- tions, their stockholders, officers, directors, agents, servants and em- ployees, be hereby enjoined and restrained as follows: 1. None of said corporations shall have any officer or director who is also an officer or director in any other of said corporations. 2. None of said corporations shall employ the same agent or agents for the sale in interstate commerce of explosives which might be sold in competition with each other; provided that any one of said cor- porations may sell its products on commission through a merchant or dealer who is similarly employed by either or both of said corpora- tions. 3. None of said corporations shall directly or indirectly acquire any stock in another of said corporations or purchase or acquire any of the factories, plants, brands or business of such other corporation. It is further ordered, adjudged and decreed that each and all of the individual defendants by this decree adjudged to be engaged in said combination, while holding stock in said two corporations and E. I. duPont de Nemours Powder Company or any two thereof be enjoined and restrained from at any time within three years from the date hereof acquiring, owning or holding, directly or indirectly, any stock or an legal or equitable interest in any stock in either of said two corporations to which said properties shall be transferred, in excess of the amount to w r hich he may be entitled under the provisions of the plan herein mentioned when the same shall have been carried out as proposed; provided, however, that any of said individual defendants may notwithstanding this prohibition acquire from any other or others of said defendants, or in case of death, from their estates, any of the stock held by such other defendant or de- fendants in said corporations and may acquire their proportions of any increase of stock. It is further ordered, adjudged and decreed that any new company or companies organized for the purpose of taking property under the provisions of this decree or otherwise, necessary to the carrying out of this plan, shall, after their formation and by appropriate proceed- Methods of Dissolution 471 ings, be made parties to this cause, and subject to the provisions of this decree and bound by the injunctions herein granted. It is further ordered, adjudged and decreed that any party hereto may make application to this Court for such orders and directions as may be necessary or proper in relation to the carrying out of such plan and the provisions of this decree. It is further ordered, adjudged and decreed that the twenty-seven (27) defendants hereinabove mentioned, do pay to the United States Government its cost in this cause. It is further ordered, adjudged and decreed that jurisdiction of this cause is retained by this Court, for the purpose of making such other and further orders and decrees as may become necessary for carrying out the plan herein set forth. It is further ordered, adjudged and decreed that after the plan here- inabove mentioned shall have been carried into effect a report shall be made to this Court for its approval, setting out the manner in which said plan shall have been carried out. CHAPTER XV EFFICACY OF DISSOLUTION NOTE The pronounced opposition that developed upon the part of the independents to the method of dissolution proposed by the American Tobacco Company led to an interesting controversy as to the efficacy of the method employed. Effort has been made to set forth both sides of the controversy and also to have the exhibits show how the independents would have worked out the dissolution process. At the moment this book goes to the publishers, a controversy has developed over the efficacy of the dissolution of the Standard Oil Company. As the last exhibit in the chapter shows, it is alleged that this dissolution has been merely a farce. — Ed. Exhibit i results of the tobacco dissolution plan as claimed by the PETITIONERS x Your Petitioners show unto the Court that upon the adoption and execution of this plan the combination heretofore adjudged to exist will have been effectually dissolved, and out of the elements hereto- fore composing the same, a new condition which will be honestly in harmony with and not repugnant to the law, will have been brought about as follows: The tin foil business now done and controlled by The Conley Foil Company will be divided into two companies having no interest whatsoever the one in the other, and neither in a dominant position with respect to the tin foil business. The licorice business now done and controlled by MacAndrews & Forbes Company will be divided into two companies with no interest in nor connection with each other, and neither in a dominant position in the licorice business. 1 United States of America v. The American Tobacco Company and others. Petition of the American Tobacco Co., In the Circuit Court of the United States for the Southern District of New York, pp. 29-31. 472 Efficacy of Dissolution 473 American Stogie Company will be dissolved, and its business dis- integrated. The business of American Cigar Company will be disintegrated and it will have no dominant position in any branch of the cigar business. The snuff business now done and controlled by American Snuff Company will be divided into three companies, American Snuff Company itself and two other companies to be organized, and none of the three will have any interest in nor connection with either of the others. The American Tobacco Company, through distribution out of its surplus, will have denuded itself of any interest in, or control over, the tin foil business, the licorice business and the snuff business. It will have stripped itself of any interest in or control over R. J. Reynolds Tobacco Company, a company manufacturing and selling tobacco in the Southern States. It will have completely severed all relations with the Porto Rican-American Tobacco Company, manufacturing and selling cigarettes and cigars in Porto Rico, and selling in the United States cigars manufactured in Porto Rico. It will have divested itself of all interest in or association with British- American Tobacco Company, Limited, The Imperial Tobacco Company (of Great Britain and Ireland), Limited. It will have parted with all its interest in United Cigar Stores Company, a company engaged in the retail distribution of cigars and tobacco. The American Tobacco Company itself, as an operating company, will be broken into three companies, each completely equipped for the conduct of a large tobacco business, neither of which will own any interest in any other, and neither of which will be dominant in the tobacco trade, whether reference be had to proportion of sales in any branch of the business, or regard be had to dominating own- ership of popular and valuable brands, or regard be had to pur- chase of any type of leaf tobacco, or regard be had to any other measure of importance in the tobacco trade. All covenants that prevent The American Tobacco Company from extending its business abroad, or British-American Tobacco Company, Limited, or The Imperial Tobacco Company (of Great Britain and Ireland), Limited, from extending their business in the United States, will be terminated, and each will be free to en- gage in business throughout the world. All covenants not to engage in the tobacco business made by 474 Industrial Combinations and Trusts vendors or others will be terminated, leaving all free to engage in any branch of the tobacco business. Thus the business in tobacco and related products heretofore con- trolled by The Amercian Tobacco Company, or by companies in which it owns a controlling or large interest, will not only be com- pletely divorced from such control, but will be distributed among fourteen separate and independent companies, none of which will have any control over or interest in any other, and none of which will have any preponderating influence in any branch of the busi- ness, either as a manufacturing company, a selling company, or as a purchaser of any type of leaf tobacco. Finally, no small group of men, nor even the twenty-nine indi- vidual defendants in the aggregate, will own the control of any of the principal, accessory or subsidiary companies defendant, and the control of The American Tobacco Company itself and of the new companies to be formed will be vested in a body of more than six thousand stockholders. Exhibit 2 claim of the american tobacco company with respect to the division of the tobacco business of the united states by volume and value * Percentage in Percentage Volume (Lbs. in or Thousands) Value Cigarettes American Tob. Co 37.11 33-15 Liggett & Meyers 27.82 21.03 Lorillard Co 15.27 26.02 Others never in any way connected with the combination 19.80 19.80 Smoking Tobacco American Tob. Co 33-°% 4°-53 Liggett & Myers 20.05 16.47 Lorillard Co 22.82 18.88 Reynolds Tob. Co 2.66 2.73 1 Op. Cit. Petition of the American Tobacco Company. Exhibit "B", PP- 38-39- Efficacy of Dissolution 475 Percentage in Percentage Volume (Lbs. in or lliousands Value Smoking Tobacco— Continued. Others never in any way connected with the combination 2I -39 2I -39 Plug Tobacco American Tob. Co 2 5-3 2 22.98 Liggett & Myers 33.83 37.84 Lorillard Co 3.73 4.64 Reynolds Tob. Co 18.07 I 5-49 Others never in any way connected with the combination !9-05 I 9-°5 Fine Cut Tobacco American Tob. Co 9.94 I3-5 2 Liggett & Myers 41.61 36.26 Lorillard Co 27.80 29.57 Others never in any way connected with the combination 2 o.65 2 °-65 Cigars American Cigar Co 6.06 8.90 Lorillard Co 5.72 2.88 American Stogie Co 1.58 1.58 Others never in any way connected with the combination 86.64 86.64 Snuff American Snuff Co 32.05 35-55 Helme Company 30.88 28.95 Weyman & Bruton 1 29.25 27.68 Others never in any way connected with the combination 7.82 7.82 Little Cigars American Tob. Co 15.43 i34i Liggett & Myers 43-7 8 3 8 - 6 9 Lorillard Co 33.84 40.95 Others never in any way connected with the combination 6.95 6.95 1 Thus in original. Elsewhere Weyman-Bruton. — Ed. 47 6 Industrial Combinations and Trusts Exhibit 3 distribution of factories and principal brands as claimed by the amercian tobacco company * The American Tobacco Durham, N. C. New York, Milwaukee, Wis. Danville, Va., Baltimore, New York, Baltimore, Louisville, New York, Baltimore, Richmond, Nashville, Richmond, Brooklyn, Reidsville, N. C. Middletown, Ohio, Louisville, Company: (Blackwell's Durham Tobacco Co.) (Butler-Butler, Inc.) (F. F. Adams Tobacco Co.) Danville Branch — little cigars. Ellis-A — little cigars. Duke Branch. Feigner Branch. Finzer Branch. Kinney Branch. Marburg Branch. Mayo Branch. (Nashville Tobacco Works) (R. A. Patterson Tobacco Co.) Penn Street Branch — cigarettes. (F. R. Penn Tobacco Co.) Sorg Branch. National Branch. Liggett & Myers Tobacco Company: Liggett & Myers. (Spaulding & Merrick.) Allen & Ginter Branch. (John Bollman Co.) Chicago Branch. Catlin Branch. (Pinkerton Tobacco Co.) Nail & Williams Tobacco Co.) 2 W. R. Irby Branch. W. Duke Sons & Co. Branch. Wilmington- A — little cigars. Philadelphia-A — little cigars. Lorillard factory. (S. Anargyros.) 45- St. Louis, Chicago, Richmond, San Francisco, Chicago, St. Louis, Toledo, Louisville, New Orleans, Durham, Wilmington, Del. Philadelphia, . Lorillard Company: Jersey City, New York, 1 Op. cit. Petition of the American Tobacco Company. Exhibit "D," pp. 42- 2 Thus in the original. — Ed. Efficacy of Dissolution 477 P. Lorillard Co: — Continued. Middletown, Ohio, Philadelphia, Wilmington, Del., Danville, Va. Brooklyn, Baltimore, Jersey City, ) Richmond, ) (Luhrman & Wilbern Tobacco Co.) Philadelphia-B — little cigars. Wilmington-B — little cigars. Danville-B — little cigars. Penn St. — little cigars. Ellis Branch-B — little cigars (Federal Cigar Co.) The American Tobacco Company will have: Smoking Tobacco Brands: Lucky Strike, Tuxedo, Peerless, American Navy, Square Deal, Spear Head, Piper Heidsieck, Standard Navy. Sweet Caporal, Pall Mall, Sweet Caporal. Virgin Leaf. Plug Tobacco Brands: Cigarette Brands: Little Cigar Brand: Fine Cut Brand: Bull Durham, Five Brothers, Old English. Ivy, Corker, Town Talk, Newsboy, Hassan, Mecca. Liggett & Myers Tobacco Company will have: Smoking Tobacco Brands: U. S. Marine, King Bee, Sweet Tip Top, Red Man, Duke's Mixture, Velvet. Home Run, Plug Tobacco Brands: Star, Horse Shoe. Drummond's Natural Leaf, 47 8 Industrial Combinations and Trusts Liggett & Myers Tobacco Company will have: — Continued. Cigarette Brands: American Beauty, Imperiales, Fatima, Home Run, Piedmont, King Bee. Little Cigar Brand: Recruit. Fine Cut Brands: Sweet Cuba,n Sterling. P. Lorillard Company will have: Smoking Tobacco Brands: Union Leader, Sensation, Just Suits, Climax, Helmar, Murad, Mogul, Between the Acts. Tiger, Plug Tobacco Brands: Cigarette Brands: Little Cigar Brand: Fine Cut Brands: Exhibit 4 Honest, Polar Bear. Planet. Turkish Trophies, Egyptian Deities. Century. DISTRIBUTION OF PURCHASES OF DIFFERENT TYPES OF TOBACCO WITH ESTIMATE OF AVERAGE AGGREGATE AS CLAIMED BY THE AMERICAN TOBACCO COMPANY 1 Pounds The American Tobacco Company: Burley 41,969,957 Virginia and North Carolina 51,295,870 Seed Leaf 6,112,099 Turkish 2,988,898 Dark Western 1 9A33,3^>5 1 Op. Cit. Petition of the American Tobacco Company, Exhibit "E," pp. 46-47- Efficacy of Dissolution 479 Liggett & Myers Tobacco Company: Burley 69,163,946 Virginia and North Carolina 27,755,411 Seed Leaf 5,676,180 Turkish 558,611 Dark Western 3,196,866 P. Lorillard Company: Burley 24,074,643 Virginia and North Carolina 2,556,007 Seed Leaf 19,993,726 Turkish 3,974,386 Dark Western 1,446,213 R. J. Reynolds Tobacco Company: Burley 5,000,000 Virginia and North Carolina 25,000,000 Seed Leaf Turkish Dark Western British- American Tobacco Company, Limited: Virginia and North Carolina 40,000,000 Other types 10,000,000 Estimate of Total Average Crop: Burley 200,000,000 Virginia and North Carolina 240,000,000 Dark Western 200,000,000 Seed 180,000,000 Turkish 90,000,000 Exhibit 5 claim of the attorney general * Coming now to the general features of the plan as proposed; as was said here yesterday, it is a purely practical commercial problem. 1 Oral Argument of George W. Wickersham on Hearing of Application for Approval of Plan of Disintegration in the case of the United States v. The Amer- ican Tobacco Company. In the Circuit Court of the United States for the Southern District of New York, pp. 9-15. 480 Industrial Combinations and TRUSTS I thought, when the plan was before the conference, the last time that we had a conference between counsel and the court, that if certain modifications were made and certain features were changed it was getting along pretty nearly to a point where your honors would view it with favor, and I thought particularly that the dis- tribution of brands, upon which so much stress and insistence was laid during the trial, and the distribution of the volume of pur- chases of raw material by these various companies, was very fairly worked out. After that conference, there came to me representa- tives of various interests that have appeared before your Honors to-day and yesterday, and they brought to my attention the same considerations that they have brought here, and I confess I was very much troubled by them. So I turned to the only authoritative source at my disposal for the facts of the subject, namely, the Bureau of Corporations of the Department of Commerce and La- bor, and the Commissioner placed at my disposal one of their ex- perts — indeed the principal expert in this tobacco business, who had himself prepared very largely, if not entirely, the report on the tobacco industry which was recently published by that bureau; and I had a verbal report from him a few days ago, and to-day only have I got his written report. It is not formal enough yet to be the report of the Bureau, but it is the report of a gentleman of very large knowledge and experience in this field, a gentleman very familiar with the business, representing entirely the Government's side in the matter, and who, on behalf of the Government, con- ducted the investigation which resulted in his report. I am going to file that report with the Court, because it strongly confirms the impression that I had as to the fairness of distribution of industries in the plan, and it effectually answers the suggestions made by the so-called independents and dealers. I would like to read part of that report now, because we have had so much on the subject. Take the distribution of brands. For the purpose of showing ex- actly the nature of the distribution of the brands this gentleman has prepared, and is to submit separately and supplemental to this report, a statement showing the output of each brand assigned for the different companies, the class of the product to which it belongs, and the territorial distribution; but he does annex to his present report a summary of the territorial distribution of the products: "The general result," he says, "of my examination of the brands and their territorial distribution was that there seems to be no ab- Efficacy of Dissolution 481 solute separation of types and classes of brands for the different com- panies. The method of distribution by plant which has been fol- lowed has resulted in the grouping of similar classes of brands, so that the high-grade cigarette, ordinary domestic cigarette, granu- lated tobaccos, long-cut and plug-cut tobacco, fine cut, plug and twist brands assigned to each company will not be exactly evenly divided. The predominance of one company over another, however, is not such as to entirely exclude one company from encroaching on the territory of another. To some extent the predominance of one company over another, in a particular line of product, is necessary on account of the very large output of such individual brands. The company, for instance, to which Bull Durham tobacco is assigned on account of the very large preponderance of this brand in its class will obtain a preponderant position in the higher-priced granulated business. The advantages are, however, offset by new brands dis- tributed to each of the other concerns, such as 'Velvet,' 'Prince Albert,' and 'Our Advertiser.' Each of these newer brands has in it the elements of strong competition, and each seems fair to de- velop strength enough in its own particular line to make a formida- ble competitor. In the low-grade granulated tobaccos the Liggett & Myers concern have a predominating position on account of the great importance of the Duke's Mixture brand, which makes up nearly 80 per cent of the low-grade granulated tobaccos produced by the combination. Such a distribution, therefore, which should give each of the companies approximately the same proportion of a particular class of goods, is practically impossible as long as par- ticular brands make up a large proportion of a single line of product. "In plug-cut tobaccos, principally distributed by P. Lorillard and the American Tobacco Company, the latter will hold a predom- inating position, but not to the extent that I had supposed. A number of the plug-cut brands of the Lorillard Company are di- rectly competitive with those of the American Tobacco Company, which, as well as those of the former concern, have a large sale in New England, Pennsylvania, and the Central States. "Long-cut brands have been assigned to all three concerns. It can not be said that any one company has local control over this class of product. Although the Liggett & Myers output concerns itself principally with Chicago and its immediate environment, it has brands which are strong competitors of the American, and which will compete in almost all the States directly w r ith the American and Lorillard Companies for this class of product." 482 Industrial Combinations and Trusts I will not go through that, but he has reviewed the great distribu- tion of brand- and finds that in each instance, while there is pre- dominance given to one company which has a particularly profitable brand of very large sale, there is in every instance a certain competi- tive interest assigned to one of the other companies, preventing what is called a monopoly in one held being given to any one of these companies, even the one which secures the very large selling brand. Take the purchasers of leaf tobacco. He has prepared a table which is annexed to this report — -that is, the companies have pre- pared it under his direction— showing the full distribution after disintegration. "It is apparent from this tabulation that no one of the compa- nies will have an exclusive or monopolistic field in the purchases of any one type or any one grade of a type of leaf. In fact, the American Tobacco Company, the Liggett & Myers concern, the Lorillard Company, and the R. J. Reynolds' Tobacco Company will each of them be large and important purchasers of Burley tobacco. A consideration of the amount of purchases of different grades of Burley tobacco showed, moreover, that these companies would each purchase a very considerable amount of the different grades, so that no one company can be said to have the field in the purchase of any leaf grade exclusively to itself. There will be not only an increase in the number of leaf buyers in the Burley market, but also active competition for the same, or similar grades. The Southern Leaf situation is very much the same as the Burley situation. The American Tobacco Company, the Liggett & Myers concern, and the British-American Tobacco Company will be each large and important purchasers of Southern Leaf of practically the same types and grades, and no one company will purchase a pre- ponderating proportion of any particular group of grades of this type. "The same type and grade of Southern Leaf may be used in the manufacture of such types of cigarettes, in the manufacture of granulated smoking, and in the manufacture of plug tobaccos. It is a fact, therefore, that though some of the concerns may not pur- chase leaf for the same products in supplying their needs for the entire field of their operations, they must come into active competi- tion against each other. "The American Tobacco Company will purchase by far the larger proportion of the dark western tobaccos. Neither the Efficacy of Dissolution 483 Liggett & Myers nor the Lorillard Company, or the R. J. Reynolds Company will purchase an appreciable amount of this type of leaf. The total purchases of the American Tobacco Company in this field will amount to about 19,000,000 pounds, while that of the other companies will be only a few million pounds annually. The combination, however, is only a small factor in the western dark leaf market. By far the greater proportion of this class of product is purchased for foreign governments. The fact that the American Tobacco Company will have no material competition in this field from Liggett & Myers or P. Lorillard, therefore, does not deprive the market of a fair amount of competition. "While the American Tobacco Company is the only concern in the above group that will purchase dark western types, it should be borne in mind that there will be competition to a certain extent with the American Snuff Company and Bruton & Wayman ! Company and George W. Helme Company, which require this same type of leaf for their products." I lay great stress on that report because it is the report of an expert who is unusually familiar with the subject, and who possesses great knowledge on the subject, and it comes as the result of an investigation undertaken for the purpose of determining and ad- vising me of the attitude which I should take with respect to the practical commercial features of this plan ; and I know of no better way of securing within a short time for the consideration of the Court the commercial and economic facts by which you must be guided. Now, there is one feature of this combination which, in my personal experience, has been the subject of more complaints than all of the rest put together. That is the United Cigar Stores Company. The connection of that organization with this combina- tion had given the combination the greatest opportunity to — I do not know that I can say to injure, but certainly to harass, the domestic trade and to incense a larger number of people than any- thing else they have done, because they have gone in and reached the poor corner dealer, bought the house over his head, and when his lease came to an end, instead of his being able to renew it as formerly, he finds that he can not get a renewal of the lease, that it has been taken by the United Cigar Stores Company. It was the 1 Thus in original. Should be Weyman-Bruton. — Ed. 484 Industrial Combinations and Trusts hand of the bi<; trust; it reached out and touched the little man who has nobody to protect him. I have on my files in Washington letters — my files are full of letters and complaints running down to within the last few days, and I do think if that concern can be cut loose, if as a condition of this plan your honors require them to get rid, require these defendants to get rid of their stock in that concern, it would do more to make the rest of the plan acceptable to the people of this country than anything else that could be done. Of course Mr. Stroock naturally, speaking for the United Cigar Stores Company, objects to that, because it cuts him away from that convenient, intimate, and friendly relationship with the sources of supply which in the past has been the means of enabling the company to so prosper. But they have gone along; they are a great big organization to-day. They have something like a thousand stores, or seven hundred or eight hundred, at least, scattered throughout the country, and they have ample capital, and, with the impetus that they have got, they are the most potent compet- itor of the small dealer in the United States. I know they have not been adjudged to be, in specific language, an illegal combina- tion, but each and every part of this combination has been adjudged by this decree to be illegal. The decree is comprehensive enough to include them, if your honors shall be so advised — comprehensive enough to empower your honors to include them, just as much as any one of the corporations or combinations before you. Therefore, I say, it is entirely within your honors' power, whether you choose to exercise it or not, to say, as a condition of this plan: You have got to get rid of them and turn them loose so that that concern will no more have any connection with the American Tobacco Company or with any of the distributive companies or with any of these individuals who have built up this combination through so many years. Efficacy of Dissolution 485 Exhibit 6 Objections of National Cigar Leaf Tobacco Association, the Cigar Manufacturers' Association, and the Independent Tobacco Salemen's Association to the Plan of Disinte- gration, Filed by the American Tobacco Co. and Others October 16, 191 1 ] Louis D. Brandeis, Felix H. Levy, counsel for remonstrants. United States of America against American Tobacco Co. and others. To the honorable circuit judges sitting in the southern district of New York: The above-named associations, in pursuance of leave granted October 18, 191 1, respectfully submit herewith certain objections to said plan. We submit that the plan is not in accordance with the opinion of the Supreme Court of the United States in this cause. The plan if approved, would result in legalizing monopoly instead of restoring competition. Its effect upon the tobacco planters, independent tobacco manufacturers, the jobbers, the retailers, and upon labor engaged in the manufacture of tobacco products would be more injurious than the continuance of the present illegal monopoly. I. Fundamental Defects. There are five fundamental defects in the plan, each so serious that it forms alone a sufficient ground for the rejection of the plan. common ownership. First. The plan proposes to divide the main properties of the trust among several corporations legally distinct, but to distribute the stock in these several corporations pro rata among common- stock holders of the American Tobacco Co. No plan can be effective to restore competition which does not include as an essential condition a provision that the separate corporations or segments which are to carry forward the business of the trust shall at the outset and for a 1 Hearings before the Committee on Interstate Commerce on the Control of Corporations, Persons, and Firms engaged in Interstate Commerce. United States Senate, 62nd Cong., 2nd Sess. 1911-1912, pp. 315-322. 486 I\in rsiAi Combinations and Trusts limited period thereafter, be owned by absolutely distinet groups of in- dividuals.* (a) Under the i)roposed distribution of the securities of the several corporations formed to carry forward the business of the trust as alleged competitors, competition between these concerns would of course be legally possible, but common ownership of the slock would make it certain that in fact there would be (at least in the immediate future) no real competition. This would be so, no matter how great the number of corporations into which the business of the trust were divided. It is contended that the 29 individual defendants control to-day only 56 per cent of the voting power of the American Tobacco Co., and that under the plan they will control a smaller per cent of the stock and voting power of the several segments into which the trust is to be divided. But it is obvious that a legal majority of the stock of a corporation is not essential to actual control. A small minority may control; and as the same individuals would at the outset select the directors and the officers of each of these colorable competitors, it is certain that the officers and the directors of the several companies would be friendly, if not in fact identical. (b) In view of the past affiliations of these stockholders, no reasonable assurance of competition between the several segments of the trust can be had, unless each segment is owned by an en- tirely distinct group of individuals. Such ownership of separate corporations by distinct groups of individuals was the condition which existed prior to the illegal combination which restrained competition. Real competition is not a commercial possibility unless that essential condition of competition be restored. (c) The framing of a plan for dividing among distinct groups of individuals the stock of the several companies which take over the properties of the trust would present no serious difficulties. The division would be effected by valuation and allotment in a manner similar to that pursued when partition is made among heirs or other tenants in common of several parcels of land, whereby each person is allotted in severalty a particular parcel of real estate formerly held in common. (d) It is essential that the ownership of the stock in the different corporations which are to carry forward the business of the trust as competitors of one another should not merely be held at the outset by distinct groups of individuals, but that it should be so 1 Italics are the editor's. Efficacy of Dissolution 487 held for a limited period thereafter, say, for five years. Provision should therefore be made prohibiting by injunction those who at the time of distribution acquire stock in any one of the segment corporations from acquiring stock during such period in any other of the segments. This injunction should not be confined in its operation to the 29 individual stockholders who are now named as defendants. It should extend to every stockholder who participates in the distribution under the plan. No legal or practical difficulty would present itself in the adoption of such a course. The stock- holders would be made parties to the proceeding and bound by the decree in the same manner that a decree becomes operative upon a purchaser at a foreclosure sale. DOMINATING CONCERNS. Second. The plan provides for a division (generally) among only three huge corporations of nearly all of the properties now held by the trust. No plan can be effective to restore competition which does not include as an essential condition that no department of the tobacco business now conducted by the trust shall be divided into segments so large as to prevent the independents engaged in that branch of the business from competing with them under fair conditions. Under the plan each one of the three or four corporations designed to carry forward the main businesses of the trust would hold alone so large a percentage of the whole business of the country in the re- spective departments of the tobacco trade as to dominate the in- dependents engaged in that department of the tobacco business, whether as planters, manufacturers, or dealers, and thus unreason- ably restrain trade. The three or four concerns formed to carry for- ward the main business of the Tobacco Trust w r ould together be in a position to crush the independents even more effectually than has been done in the past. In determining how large the several segments into which the trust's business is to be divided, may properly be, existing trade conditions must be considered. The question is one that should be decided not by generalizations, but by reference to the specific com- mercial facts prevailing in the several departments of the tobacco trade. That each of the three or four corporations would under the proposed plan in fact dominate and could crush the existing independents becomes clear when their relative positions in the trade is considered. 488 Industrial Combinations and Trusts CIGARETTES. A. The cigarette business of the trust is divided by the plan among three concerns. It should be divided among at least seven separate concerns. The American Tobacco Co. would have 33.15 per cent in value of the whole cigarette business of the country; the Lorillard Co., 26.02 per cent; and the Liggett & Myers Co., 21.03 P cr ccnt - All of the independents together control only 19.S0 per cent. Each of the three companies among which the trust's cigarette business is to be divided would thus start with a cigarette business greater than the aggregate business of all the independents. (a) While it is undesirable to place a limit upon the size to which a business may grow, or to determine the proportion of the whole business of the country in any article which may properly be ac- quired by one concern through such growth, it is absolutely neces- sary to take relative size into consideration when it is sought to restore competition which has been suppressed through illegal com- bination. (b) Furthermore, under the plan the distribution of the brands of cigarettes is such that each of the three colorable competitors who are to carry forward the business of the trust will, as against the other two, dominate a particular branch or market of the cigarette trade. (c) In considering the propriety of dividing the present cigarette business of the trust into more than 3 units, it should be noted that this business represents the absorption into the trust of 18 separate business concerns, that the cigarettes now manufactured by the trust are of several distinct classes, and that, according to latest information available, the trust even now manufactures its cigarettes in 7 separate factories. SMOKING TOBACCO. B. The smoking- tobacco business of the trust is divided by the plan among 4 concerns. It should be divided among at least 12 separate concerns. (a) The American Tobacco Co. would, under the plan, have 40.53 per cent in value of the whole smoking-tobacco business of the coun- try; the Lorillard Co., 18.88 per cent; and the Liggett & Myers Co., 16.47 P er cent; while all the independents together would have only 21.39 per cent. In other words, the American Tobacco Co. would alone have a smoking-tobacco business nearly twice that of all the Efficacy of Dissolution 489 independents together. The Liggett & Myers Co. and the Lorillard Co. would each start with a smoking-tobacco business nearly as large as the aggregate business of all the independents. (b) Furthermore, under the plan, the distribution of the brands is such that three of the four colorable competitors would, as against the others, dominate a particular branch or market of the smoking- tobacco trade. (c) In considering the propriety of insisting upon dividing the smoking-tobacco business of the trust among a larger number of corporations, it should be remembered that the smoking-tobacco business now controlled by the trust is the result of combining over 57 separate businesses; that the smoking tobacco manufactured is of several distinct classes; and that at the present time, and accord- ing to the latest information available, the trust manufactures its smoking tobacco in 12 different factories. PLUG TOBACCO. C. The plug-tobacco business of the trust is to be divided, by the plan, among 4 companies. It should be divided among at least 12 separate concerns. (a) Liggett & Myers Co. would have, under the plan, 37.84 per cent in value of the plug-tobacco business of the country, the Amer- ican Tobacco Co. 22.98 per cent, and the Reynolds Tobacco Co. 15.49 per cent, as against only 19.05 per cent now held by all the independents together. Liggett & Myers Co. would have a plug- tobacco business nearly twice as large as the aggregate business of all the independents. The American Tobacco Co.'s plug-tobacco business would be larger than the aggregate of all the independents, and the Reynolds Tobacco Co.'s plug- tobacco business would be more than three-quarters the aggregate business of all the inde- pendents. (b) Furthermore, under the plan, the distribution of the brands is such that at least two of the four companies would, as against the others, dominate particular branches or markets of the plug-tobacco trade. (c) In considering the propriety of dividing the plug-tobacco business of the trust among a larger number of corporations, it should be noted that the present plug-tobacco business of the trust is the result of combining at least 43 separate concerns; that plug tobacco manufactured by the trust is of several distinct classes; and that, 49° Industrial Combinations and Trusts according to the latest information available, the trust manufactures its plug tobacco in 12 different factories. LITTLE CIGARS. D. The little-cigar business of the trust is divided, by the plan, among three concerns. It should be divided among at least seven separate concerns. (c) The Lorillard Co. would, under the plan, have 40.95 per cent in value of the little-cigar business of the whole country, the Liggett & Myers Co. would have 38.69 per cent, and the American Tobacco Co. 13.41 per cent, as against only 6.95 per cent held by the aggre- gate of all the independents. That is, the Lorillard Co. would con- trol nearly seven times as much little-cigar business as the aggregate of all the independents, the Liggett & Myers Co. over six times as much, and the American Tobacco Co. nearly twice as much. (b) In considering the propriety of dividing the little-cigar business of the trust among a greater number of corporations, it should be remembered that this business, though largely developed by the trust, rests upon a combination of distinct business concerns; that the little cigars are of several distinct qualities, and that, according to the latest information available, the trust now does its little-cigar manufacturing in seven separate factories. SNUFF. E. The snuff-tobacco business of the trust is divided by the plan into three parts. It should be divided among six separate concerns. (a) The American Snuff Co. would, under the plan, have 35.55 per cent in value of the whole snuff business of the country, the George W. Helme Co. 28.95 P er cent, and the Weyman & Bruton Co. 27.68 per cent, as against 7.82 per cent now controlled by all the independents together. That is, the American Snuff Co. would have a snuff business more than four times as large as the aggregate snuff business of all the independents, and the George W. Helm 1 Co. and the Weyman & Bruton 2 Co. a snuff business each more than three times as large as the aggregate business of all the independents. (b) In considering the propriety of the division of the snuff busi- ness of the trust among a larger number of concerns, it should be borne in mind that the present snuff business of the trust is the result of combining 29 separate concerns, and that, according to the latest information available, it now manufactures snuff in more than three factories. 1 Thus in original. Should be Helme. — Ed. 2 Thus in original. Should be Weyman-Bruton. — Ed. Efficacy of Dissolution 491 LICORICE PASTE. F. The licorice-paste business of the trust is divided, under the plan, into two parts. It should be divided among at least four separate concerns. The trust, through the MacAndrews & Forbes Co., now controls go per cent of the licorice-paste business of the country. There is but one independent manufacturer, and until the commencement of this suit that manufacturer conducted the business under an agreement in combination with the trust. (a) Under the plan the trust's licorice-paste business is to be di- vided among two concerns, so that the MacAndrews & Forbes Co. will retain about 60 per cent of the whole licorice paste business of the country, and the J. S. Young Co. have about 30 per cent. Thus the MacAndrews & Forbes Co. will have a licorice-paste business six times as large as that of the independent manufacturer, and the J. S. Young Co. a business nearly three times as large. (b) In considering the propriety of dividing the licorice-paste business among a larger number of concerns, it should be borne in mind that the present licorice-paste business of the trust is the result of combining six separate concerns. (c) The control by the trust of the licorice-paste business gave it control of the chewing-tobacco business, as chewing plug can not be made without licorice; and its control of the licorice-paste business of the whole country is fortified by its control of the raw material, licorice root. The plan makes no provision for breaking the trust's monopoly of licorice root. (d) The plan also omits to provide for a cancellation of those covenants by which those whose licorice-paste business was ab- sorbed by the trust are precluded from reentering the business. TIN FOIL G. The tin-foil business of the trust is divided by the plan into two parts. It should be divided among at least five separate con- cerns. (a) The exact percentage of the tin-foil business of the country controlled by the trust is not stated in the petition. It is, however, so large a percentage of the whole tin-foil business of the country that the division of the trust's tin-foil business between the Conley Tin Foil Co. and the Johnson Tin Foil & Metal Co., as proposed, would still leave the Conley Tin Foil Co. in a dominant position. 492 Industrial Combinations and Trusts (b) The plan also omits to provide for a cancellation of those covenants by which those whose tin-foil business was absorbed by the trust are precluded from reentering the business. "completely equipped" concerns Third. The plan provides that the three companies among which all the manufacturing properties of the trust are divided shall be "each completely equipped for the conduct of a large tobacco busi- ness." No independent concern is now "completely equipped for the conduct of a large tobacco business," or indeed completely equipped to do any tobacco business covering all the main branches of the tobacco trade. No plan to restore competition can be effective which does not include as an essential condition that the several concerns which are to carry forward the business of the trust shall be, at the outset, of a character similar to that of the remaining in- dependent concerns. It follows that any corporation taking over a part of the plug-tobacco business or smoking-tobacco business of the trust shall not take over any of the cigarette or cigar business; that a corporation taking over a part of its cigarette business shall not take over any of its smoking-tobacco business, plug-tobacco business, or cigar business; and that a corporation taking over any part of the cigar business shall not take over any of its smoking- tobacco business, plug-tobacco business, or cigarette business. (a) Under the proposed plan the American Tobacco Co. would have a cigarette department with 33.15 per cent in value of the whole cigarette business of the country, a smoking-tobacco depart- ment with 40.53 per cent of the whole smoking-tobacco business of the country, a plug-tobacco department with 22.98 per cent of the whole plug-tobacco business of the country, a fine-cut-tobacco department with 13.52 per cent of the whole fine-cut- tobacco busi- ness of the country, a cigar department with 8.90 per cent of the whole cigar business of the country, and a little-cigar department with 13.41 per cent of the whole little-cigar business of the country. In the Liggett & Meyers Co. the percentages would be 21.02 per cent in the cigarette department, 16.47 P er cen t * n the smoking- tobacco department, 37.84 per cent in the plug-tobacco department, 36.26 per cent in the fine-cut-tobacco department, and 38.69 per cent in the little-cigar department. The Lorillard Co. would have a cigarette department with 26.02 per cent, a smoking-tobacco department with 18.88 per cent, a plug-tobacco department with 4.64 per cent, a fine-cut-tobacco department with 29.57 per cent, Efficacy of Dissolution 493 a cigar department with 2.88 per cent, and a little-cigar department with 40.95 per cent. (b) The impossibility of fair competition between the independ- ents and these four companies, into which it is proposed to divide the manufacturing business of the trust, is due to the cumulative effect of three distinct advantages which the trust has secured through its illegal combination: 1. The large percentage of the whole business in any department which each would have as compared with the independents. 2. The fact that its business extends over all departments of the tobacco trade. 3. The fact that the trust holds and is proposing to distribute among the three companies certain brands which are practically indispensable to the successful conduct of business by any jobber or retailer of tobacco. Each company would therefore be enabled, by means of these "indispensable brands," to largely compel dealers to give prefer- ence to its other products over those of the existing independents. It would also, by use of the huge profits derived from those indis- pensable brands, be enabled to crush these independents as com- petitors of other departments of its business. (c) In considering the propriety of limiting the number of de- partments of the tobacco business of the trust which should be allotted under the plan to any single company, it should be noted that prior to the trust's illegal operations no one concern was so "completely equipped" and that the present business of the trust is the result of combining and absorbing illegally at least 250 sep- arate concerns; that furthermore, even to-day, the trust manu- factures its products in at least 100 different factories; that in none of these does it now manufacture all of the several tobacco products which it is proposed to handle through each of these " com- pletely equipped companies"; and that also in the selling of its product it employs separate salesmen for different classes of tobacco products. RESTRAINTS ON UNFAIR COMPETITION. Fourth. The plan contains no provision under which the several corporations which are to carry forward the manufacturing busi- ness of the trust will be enjoined from practicing those methods of unfair competition by means of which the trust has in the past 494 Industrial Combinations and Trusts overcome its competitors. It is clear that for a limited period the independents should have more protection than would ordinarily be necessary in trade where one concern has not succeeded in ille- gally dominating the trade. For this reason it is not sufficient that the.corporations carrying forward the business of the trust be merely enjoined from a continuation of the illegal practices pursued by the trust; they should also be prohibited for a limited period — say, five years, and such further time, if any, as the court may here- after order — against other practices not necessarily illegal, but which if resorted to at the outset would tend to stifle competition. The plan should therefore include, among other acts to be pro- hibited for such limited period, the following: (A) Each corporation which is to carry forward any part of the manufacturing business of the trust should be restrained — (i) From acquiring or holding stock or other interest in, or under- taking to exercise any control over, or making loans or otherwise extending credit to, any other corporation carrying forward any part of the business of the trust, except as hereinafter provided. (2) From having any person act as one of its officers or directors who is also an officer or director in any of the other corporations carrying forward any other part of the business of the trust, except as hereinafter provided. (3) From combining in any way with any other corporation carrying forward any part of the business of the trust, either in purchasing raw material or supplies or in selling manufactured products or otherwise, or having any joint or common agents or enterprises in connection with the purchase of raw materials or supplies or the sale of manufactured products, or otherwise. (4) From making any agreement or arrangement of any kind with any corporation carrying forward any part of the business of the trust under which trade is apportioned in respect either to customers or localities. (5) From doing business directly or indirectly under any name other than its own corporate name. (6) From holding stock in or being otherwise interested in any other corporation, except as hereinafter provided. (7) From espionage on the business of any competitor either through bribery of any agent or employee of such competitor, or obtaining information from any United States revenue official. (8) From giving away, selling at or below the cost of manufac- ture and distribution, any of its products, or adopting any other Efficacy of Dissolution 495 method of cutthroat competition for the purpose of destroying or of acquiring the business or trade of a competitor. (9) From refusing to sell to any jobber any brand of snuff or cigarettes or smoking or chewing tobacco manufactured by it which is indispensable in the particular market. It should also be restrained from giving any rebates, allowances, or other special inducements to those who use its goods exclusively or give prefer- ence to them over the goods of competitors. (10) No corporation carrying forward any part of the manufac- turing business of the trust should be allowed to hold any part of the stock of or any other interest in any concern engaged in job- bing tobacco products; but it should be permitted, except as above stated, to own the stock of another corporation organized to carry on any part of its permissible business, provided such other cor- poration shall have a corporate name, and the business is done under a name, substantially identical with its own. (B) Each of the 29 individual defendants, and also the other stockholders among whom distribution of the property of the trust is made, should be restrained from doing, or aiding in the doing, of any acts which the corporations are to be prohibited from doing as above set forth. (C) Every independent or other person interested should in the event of any alleged violation of the injunction have liberty to apply to the court for protection and such action as may appear to be appropriate. UNITED CIGAR STORES. Fifth. The plan provides for leaving intact the United Cigar Stores Co. and merely distributing among the common-stock holders of the American Tobacco Co. its stock holdings in the United Cigar Stores Co. No plan can be effective to restore competition which does not provide for dividing the businesses and property of the United Cigar Stores Co. among many separate concerns owned by absolutely distinct groups of individuals. These busi- nesses should be divided, preferably among at least 10 separate cor- porations, and no one corporation should be given a predominant power in any locality. (a) The power acquired by the United Cigars x Stores Co. through the illegal operations of the trust is so great that its continued existence would render effective competition improbable, even if, 1 Thus in original. — Ed. 496 Industrial Combinations and Trusts as contended above, the manufacturing properties were divided into separate segments owned each by distinct groups of individ- uals. The distribution of the United Cigar Stores Co.'s stock among the stockholders of the American Tobacco Co. would in itself create a bond of union among the several segments sought to be kept separate and distinct, each from the other. In considering the disposition to be made of the United Cigar Stores Co., the court should be guided by the actual commercial situation, to be ascer- tained by an inquiry into the actual facts. The United Cigar Stores Co., developed through the illegal practices of the trust, possesses to-day a capital and a peculiar position which makes it so potent in the tobacco business as to be a menace alike to inde- pendent manufacturers and to independent retailers. Its division is a commercial necessity. (b) When divided each segment of the United Cigar Stores Co. should be owned by a different group of individuals; and like pro- vision should be made as in the case of the segments of the manu- facturing properties of the trust — that for a limited period, say, five years, none of the original stockholders should be allowed to acquire an interest in any of the other segments into which the United Cigar Stores Co. is divided. (c) Specific provision should also be made to prevent, as in the case of the manufacturing companies, any combination between the different corporations formed to carry forward the United Cigar Stores Co. business. They should among other things be expressly prevented from combining in any way in purchasing or in selling tobacco products or in purchasing or leasing real estate, and specifically from issuing interchangeable coupons. II. Other Important Defects. In addition to the five fundamental objections to the plan set forth above, there exist other important objections, among which are the following: THE BRITISH AMERICAN CO. First. Under the plan the covenant restricting the British Amer- ican Tobacco Co. from competing within the United States is to be abrogated; but no provision is made for terminating the practical monopoly acquired by the British American Co. in the purchase Efficacy of Dissolution 497 and manufacture within the United States for export of certain kinds of tobacco leaf and the manufacture of cigarettes within the United States for export. The leaf-tobacco business of the British American Co. should be divided among four concerns, taking over, respectively, the busi- nesses heretofore done by the David Dunlop Co., T. C. Williams Co., Cameron & Cameron, and William Cameron & Bros. The export cigarette business should be taken by two companies, assuming, respectively, the business done at the Richmond and the Durham plants. The separate concerns so created should be sub- ject to prohibitions similar to those suggested above for the other segments of the trust, and the provisions should be made specific- ally to encourage competition between the cigarette plants now controlled by the British American Co. and those controlled by the American Tobacco Co. COMPETITION IN BUYING TOBACCO. Second. The plan fails to provide adequately for preventing a restraint of competition in the purchase of leaf tobacco through some combination between the Imperial Co., the British American Co., and the segments into which the American Tobacco Co. may be divided. There should be a specific prohibition against the British companies joining with each other or with any of the seg- ments of the American Tobacco Co. in the purchase of leaf tobacco or in employing any common agent for that purpose. THE CIGAR BUSINESS. Third. Under the plan the American Tobacco Co. is to retain in its treasury the stock of the American Cigar Co. now held by it. The American Cigar Co. should be separated absolutely from every other corporation which carries forward any part of the manufac- turing business of the trust in other tobacco products. All the Amer- ican Cigar Co. stock held by the trust should be transferred to some group of individuals entirely distinct from those who hold the stock in the corporations which take over the smoking-tobacco, plug-tobacco, snuff, and cigarette business of the trust. Furthermore the manufacturing business of the American Cigar Co. should be divided among at least four separate corporations, each owned by a distinct group of stockholders; and each of these corporations should be subject to prohibitions substantially sim- 498 Industrial Combinations and Trusts ilar to those above set forth in respect to the other corporations carrying forward parts of the business of the trust. Leave is respectfully reserved to submit additional objections to the plan, as well as argument in support of all objections in ac- cordance with said order entered October 18, 191 1. Louis D. Brandeis, Felix H. Levy, Counsel for Remonstrants. New York, October 25, ign. Exhibit 7 argument of felix h. levy in support of the objections filed herein by the national cigar leaf tobacco association, the cigar manufacturers' association of america, and the in- dependent tobacco salesmen's association to the plan of disintegration filed herein by the american tobacco co. and others, defendants l I. The plan submitted by the tobacco combination does not, in any substantial sense, comply with the requirements of the opinion of the United States Supreme Court or of the decree rendered herein. (a) At the outset it will be useful for a clear understanding of the requirements of the opinion of the Supreme Court to point out a few of the salient features of that opinion as indicating the character of dissolution contemplated by that court. It is a significant fact that the court deemed it unnecessary to take into consideration any of the numerous facts in the record which were disputed by the defendants. The court said (p. 155): "* * * in our opinion the case can be disposed of by consid- ering only those facts which are indisputable and by applying to the inferences properly deducible from such facts the meaning and effect of the law as expounded in accordance with the previous decisions of this court," and again (p. 157), it* * * we propose only to deal with facts which are not in con- troversy." Despite the fact that the court limited itself to the consideration of 1 Hearing before the Committee on Interstate Commerce, United States Senate, 62nd Congress, 2nd Sess., 1011-1912, pp. 340-50. Efficacy of Dissolution 499 the undisputed facts only the court gave judgment of dissolution and disintegration of a most drastic character. (b) The court recognized the fact that a substantial control of the combination was exercised by a very small number of its stockholders. At page 174 the court said: "Through the method of distribution of the stock of the new com- pany, in exchange for shares in the old American and in the Con- tinental Co., it resulted that the same six men in control of the combination through the Consolidated Tobacco Co. continued that control by ownership of stock in the merged or new American To- bacco Co. * * * The record indisputably discloses that after this merger the same methods which were used from the beginning con- tinued to be employed." And it also recognized the necessity of a complete divesting of stock ownership by one part of the combination in other parts of the com- bination, as is thus shown (p. 176): "Thus, even if the ownership of stock by the American Tobacco Co. in the accessory and subsidiary companies and the ownership of stock in any of those companies among themselves were held, as was decided in United States against Standard Oil Co., to be a viola- tion of the act, and all relations resulting from such stock ownership were therefore set aside, the question would yet remain whether the principal defendant, the American Tobacco Co., and the five acces- sory defendants, even when divested of their stock ownership in other corporations, by virtue of the power which they would continue to possess, even although thus stripped, would amount to a violation of both the first and second sections of the act. * * * Still further, the question would yet remain whether particular corporations which, when bereft of the power which they possessed, as resulting from stock ownership, although they were not inherently possessed of a sufficient residuum of power to cause them to be in and of themselves either a restraint of trade or a monopolization or an attempt to monopolize, should nevertheless be restrained because of their in- timate connection and association with other corporations found to be within the prohibitions of the act." (e) The court clearly recognized the necessity of a separation of stock control, as is thus shown (p. 185): "Looking at the situation as we have hitherto pointed it out, it in- 500 Industrial Combinations and Trusts volves difficulties in the application of remedies greater than have been presented by any case involving the antitrust act which has been hitherto considered by this court: First, because in this case it is obvious that a mere decree forbidding stock ownership by one part of the combination in another part or entity thereof would afford no adequate measure of relief, since different ingredients of the combina- tion would remain unaffected, and by the very nature and character of their organization would be able to continue the wrongful situation, which it is our duty to destroy. * * * Third, because the methods devised by which the various essential elements to the suc- cessful operation of the tobacco business from any particular aspect have been so separated under various subordinate combinations, yet so unified by way of the control worked out by the scheme here condemned, are so involved that any specific form or relief which we might now order in substance and effect might operate really to injure the public and, it may be, to perpetuate the wrong." It is thus made obvious that one of the principal features com- prised in the objections filed by the remonstrants — that which ob- jects to stock ownership by the stockholders of any one of the seg- ments into which the combination shall be divided in any of the other segments — was contemplated by the court, and, apparently, the only objection thereto was that such prohibition would not go far enough. To emphasize this, we repeat the language of the court: " * * * In this case it is obvious that a mere decree forbidding stock ownership by one part of the combination in another part, or entity thereof, would afford no adequate measure of relief." There is here no suggestion of the illegality of such a prohibition. The court says only that it will not go far enough. The danger of a renewal of an unified control through such stock ownership is clearly apprehended by the court as shown by the words used above, which we here again quote (p. 186): "* * * Because the methods devised by which the various es- sential elements to the successful operation of the tobacco business from any particular aspect have been so separated under various subordinate combinations, yet so unified by way of the control worked out by the scheme here condemned," etc. (/) It seems obvious that the court had in mind the probability that a receivership or an injunction against the movement in inter- state commerce of the products of the combination would be neces- sary on account of the complexity of the situation created by the UntoersHy of Redlands Libi Efficacy of Dissolution 501 conspirators who controlled the combination. The court makes clear the possible necessity of such a procedure, and its unwillingness to resort thereto forthwith, without first giving the controllers of the combination an opportunity to formulate and present to this court a plan of dissolution and disintegration which would honestly conform with the requirements of the statute. The court said (p. 187): "But, having regard to the principles which we have said must control our action, we do not think we can now direct the immediate application of either of these remedies. We so consider as to the first because, in view of the extent of the combination, the vast field which it covers, the all-embracing character of its activities concerning to- bacco and its products, to at once stay the movement in interstate commerce of the products which the combination or its co-operating forces produce or control might inflict infinite injury upon the pub- lic," etc. * * * " The second because the extensive power which would result from at once resorting to a receivership might not only do grievous injury to the public," etc. It thus appears that instead of resorting forthwith to either of these drastic remedies, the court gave to the defendants the opportunity of working out some plan of dissolution and disintegration which would conform to the requirements of the decree and adequately meet the situation; and failing so to do, resort to one or the other or both of these remedies would become necessary. The insistence upon a diversity of stock ownership is based not upon any claim of the right of this court to enforce such condition upon the stockholders against their will, but is based upon the contention that unless the stockholders of their own free will and accord present to the court, as a part of their plan of dissolution and disintegration, a provision preventing mutuality of stock ownership, the defendants will not have met the requirements of the opportunity thus given to them by the Supreme Court. In other words, the Supreme Court has, if we may be permitted to paraphrase its language, said in effect to these defendants : "We hesitate to appoint forthwith a receiver and to issue an in- junction against interstate traffic in your products because of the injury that will thereby be occasioned to the public. We therefore give you an opportunity of working out and presenting to the circuit court a plan of dissolution and disintegration which will honestly re-create conditions of free and unrestricted competition. If you are unable or unwilling to do this, there will be no alternative open except the appointment of a receiver or the issuance of such an injunction. 5 hereby authorized in like manner, upon its own motion, to institute and prosecute any investigation of the acts of such cor- poration. And said commission shall have the same powers and authority to proceed with any inquiry on its own motion as though it had been appealed to on complaint or petition under any provi- sions of this act. Whenever any investigation shall be made by this commission under the terms of this act, it shall be its duty to make and tile an order embodying the conclusions of the commis- sion, together with its decision or requirement in the prem- ises. The said commission shall have authority by its order to require any corporation licensed hereunder to desist from any violation of this act or of the act of July second, eighteen hundred and ninety, entitled "An act to protect trade and commerce against unlawful restraints and monopolies," and may institute proceedings in any district court of the United States or in the Court of Commerce for the forfeiture of the license of said corporation, or to enjoin the corporation from such violation, and said courts are hereby given jurisdiction upon the institution of any such proceedings, either to grant an injunction, to decree to * forfeiture of a license, or to make such other decree as justice and equity may require. Sec. 14. Under the provisions of this act there shall be paid to the Corporation Commission for the use of the United States the following fees: First, upon the filing and approval of any applica- tion for license hereunder an amount equal to one-tenth of one per cent of the total authorized capital of said corporation up to ten million dollars; one-twentieth of one per cent of all capital in excess of ten million dollars; and up to twenty million dollars; two hun- dred and fifty dollars on every million dollars or fraction thereof of capital in excess of twenty million dollars; and the like fees upon the filing of any certificate of increase of the capital stock upon the to- tal amount of such increase. Second, in case any corporation is licensed hereunder with the whole or a part of its capital stock having no par value, then there shall be paid upon the filing and approval of the application for license or of any certificate of in- crease of capital a fee equal to two and one-half cents for each aliquot part of the capital of the corporation represented by each 1 Thus in original. — Ed. Methods of Dealing with the Trust Problem 557 of the shares not having a par value, but in no instance shall such fee be less than two hundred and fifty dollars. Sec. 15. Any corporation licensed hereunder may apply to the commission at any time for a determination as to whether or not any proposed action of such licensee would unduly restrain trade or commerce or create a monopoly, and the commission shall there- upon investigate and make an order allowing or prohibiting such proposed action, and any action taken by any corporation pur- suant to such order shall be lawful ; but such order, as to its future operation, shall be subject to revocation upon notice. In connec- tion with any order allowing such proposed action and as a condi- tion of granting the same, the commission may fix the maximum prices of any products with reference to which the order is made if in the judgment of the commission the fixing of such price shall be necessary to prevent a monopoly or an undue restraint of trade or commerce, and the prices so fixed shall govern the said licensee so long as the order is in force. Exhibit 6 ANDREW CARNEGIE x In other words, there should promptly be created an industrial court, molded after the Interstate Commerce Commission and Court of Commerce, charged with all questions connected with manufac- ture and natural products, since the Interstate Commerce Commis- sion is already fully occupied with its own field, but as the Com- merce Court is not kept busy with appeals it might be the court of appeal for the industrial court as well as for the Interstate Com- merce Commission. To prove the pressing necessity for the two judicial organizations already formed, in contrast to the Supreme Court, which waited several years before an important issue came before it, the Interstate Commerce Commission has already sat in judgment upon the greatest of all organizations, the Pennsylvania Railroad Co. It asked to be permitted to advance its rate in one department. After investigation the reply in the negative was promptly accepted by the suitor, no appeal taken, who thus set all companies an excellent example. To-day the Commerce Court is hearing counsel on the transcon- tinental railroads who asked an injunction restraining an order of 1 Hearings before the Committee on Investigation of United States Steel Corporation. 62nd Cong. 2nd Sess. 1911-1912, pp. 2347-2348. 558 Industrial Combinations and Trusts lb- [nterstate Commerce Commission construing the long and short haul clause. Thus the work goes bravely on. The reign of law is Steadily being evolved us precedents are established. The industrial court Deed not fix all prices. Its province should be to examine all details, ascertain cost of production, adding to such amount as in its judgment will yield a fair or even liberal return upon capital when skillfully invested and properly managed; the maximum sell- ing price to consumers to be fixed by the court, based upon the aver- age cost price of product in up-to-date, well-managed works. There may be found poorly constructed or conducted works in all branches, which the court should not consider in fixing proper maximum price. Such should be compelled to reach standard performance or suffer the consequences of mismanagement. The court should not become an eleemosynary institution to avert failure of those who fail through inattention or mismanagement. It may be urged that this would prevent equal returns to owners, which is true. Any works which can not equal average cost and still have part left of the profit al- lowed by the court no nursing is likely to improve; the sooner it passes into competent hands, the danger of monopoly being avoided, the better for the country and, as a rule, the better for its owners. Failures now and then in business there always have been and always will be as long as men's powers and habits radically differ. While of opinion that little or no action is needed at present be- yond the organization and development of an industrial court, I am far from believing that from time to time, as we gain experience, new rules and some changes will not be found advisable and even necessary from time to time to keep in harmony with inevitable and probably surprising developments of the future. Our country has not ceased developing. We should unhesitatingly pursue the course here indicated for the present, and await further develop- ments and be guided accordingly. It is certain that our legislators, sustained by the people, who only need to be kept fully informed of all steps taken, can and will in due time bring harmony out of present discord, reconstructing through the reign of law the old and present industrial systems by continual improvements therein, all tending to draw labor and capital, producer and consumer, into closer and more satisfactory relations than have ever before existed between them. Meanwhile, let us prove to the country, and especially to the masses of the people, that w r e are on the path of careful but steady progress to the advantage of all the members of the indispensable iMethods of Dealing with the Trust Problem 559 quartet — labor, capital, consumer, producer — the interests of which are more closely allied and more interdependent than either one of the four realizes. It is far from being of the first importance to punish men in this age who in the past formed pools and divided orders according to the capacity of their works or capital invested, or violated recent laws without knowing it. Men of the highest standing in the past thought they did no wrong and sought no concealment. The pro- ducer then did not imagine he was a wrongdoer. He followed recog- nized custom, and even railway officials, fighting in their day for their respective companies, urged that they only met the prices of competitors, were somewhat in the same position. Since the Sherman law has been so far interpreted by the Supreme Court, all this is changed. No honest man can now do some things which he did innocently before, but just what he can and can not do is yet to be clearly defined. It is, however, not punishment for the past, but obedience in the future to clearly defined law, which alone can bring to the realms of commerce and industry the peace which our railway system now enjoys. To this consummation so devoutly to be wished we earnestly hope your commission is to prove one of the chief contributors. Exhibit 7 james a. farrell, president of the u. s. steel corporation * Mr. Beall. But is your idea that competition is destructive, that it will result in bankruptcy; that it is a bad thing, anyway? Mr. Farrell. There is no question about it. If you apply it Mr. Beall (interposing). And this old idea that has been pre- vailing in business for so many centuries, that competition is the life of trade, has been all a delusion? Are you also one of the apostles of this new cult that is being de- veloped in the country, that the Government ought to step in and regulate and fix the maximum price for the products of these cor- porations? Do you agree with Mr. Gary, Mr. Carnegie, and the other apostles of that idea, and Mr. Perkins? Mr. Farrell. Is that a personal question? Mr. Reed. He wants your personal opinion. 1 Testimony of James A. Farrell. Hearings before the Committee on In- vestigation of United States Steel Corporation, 62nd Cong. 2nd Sess. 191 1- 191 2, pp. 2696-2699. 560 Industrial Combinations and Trusts Mr. BEALL. I would like to have your personal opinion about it. Mr. Farrell. I have written it out. I thought possibly I might be asked the question. [do not suppose that my opinion on the subject is of any particu- lar value. If your prefer to confine this inquiry to the industry, I shall endeavor to answer all the questions you wish to put to me, but if you want my ideas on this subject, I shall be glad to give them, although I do not consider them of value. Mr. Beall. It is an interesting question, Mr. Farrell, and rather a new one. Mr. Farrell. I am not a publicist. The Chairman. We are more anxious for your opinion on that account. [Laughter.] supervision of corporations. Mr. Farrell. I believe that it is important for the Government to assume the power of such supervision of corporations engaged in interstate traffic as will result in full and clear publicity of their general operations, their receipts and expenditures and profits and losses, in order to protect investors and the people generally. Such supervisory board could not only be authorized to compel such necessary publicity, but empowered in the case of any corporation not presenting information as to the details required by the law which may be enacted, to investigate into the conduct of its business, with a view to full exposition of its methods. Such publicity as I have in mind is along the lines of the information that has been freely and fully given out by the United States Steel Corporation in its annual reports and frequent statements. The fixing of prices by Government authority: Speaking entirely as an individual and giving my personal views without any knowl- edge of what might be the views of other officials and directors of the United States Steel Corporation, it would appear to be abso- lutely impracticable for the Government to attempt to fix prices of all commodities, even those manufactured only by the steel industry, in view of the hundreds of thousands of variations of shapes, sizes, sections, gauges, kinds, qualities, etc. When it is considered that it requires a large corps of experts in each of the manufacturing com- panies of the United States Steel Corporation alone to determine the costs of hundreds of thousands of articles or variations of such prod- ucts as those companies make, it can be readily understood that it would require hundreds of experts merely to determine suitable Methods of Dealing with the Trust Problem 561 prices for the steel industry alone, without considering the thousands of other industries in the United States, each of which would be equally entitled to have prices fixed on their multitude of products. If the questions be considered from the standpoint of fixing maxi- mum prices, it would seem to be equally impracticable, for the reasons just cited, as well as the difficulty of satisfying the many manufac- turers engaged in the same lines of trade, each of whom have dif- ferent costs of manufacture to produce the same or similar articles. It would seem unnecessary to point out the many other objections, including the necessity of frequently altering the fixed prices to accord with the laws of supply and demand, the changeable costs of manufacture contingent on the volume of production and other exigencies of manufacture. As a natural corollary to the fixing of either changeable or maximum prices would be the inevitable ne- cessity of fixing maximum and minimum wages to labor, as it is necessary, according to theorists and economists, that the wages of labor must be commensurate with the article which it manufactures or which it directly or indirectly consumes. Suggested method of insuring fair prices: If it should be asked, however, granting the necessity of Government supervision of corpo- rations under Federal incorporation, whether mandatory or volun- tary, as in the wisdom of Congress might be determined, and conced- ing the impracticability of fixing prices, how a fair price to consumers and manufacturers alike may be insured with the object of avoiding (a) the exacting of excessive prices from consumers; (b) any possible oppression of their competitors by manufacturers with larger capital or better facilities for economic production; (c) avoiding destructive competition whereby weaker producers would be driven out of busi- ness ; (d) the impoverishment of people dependent on such industries, loss of employment, or reduction of wages — it is suggested as being w r orthy of consideration, a law similar to that which obtains in Canada — you are no doubt familiar with that law in Canada — and which in effect is the practice in Germany. When it might appear to the Government board of supervision, either on their own initiative, or from the complaint of any consid- erable body of consumers, that prices in any line of industry are unreasonably high, they should be empowered to make inquiry into the facts, to call upon manufacturers to disclose their profits, and to determine and indicate to manufacturers their opinion as to the rea- sonableness of their price, subject, if necessary, to review by the courts as to any contention that prices were confiscatory. 562 Industrial Comb] cions and Trusts Likewise, when, in the opinion of any body of manufacturers, il should appear necessary, in order to prevent destructive competi- tion, the lowering of wages, the impairment of plants, throwing work- men out of employment, and other similar evils through reduction of prices to levels which would not permit efficient plants to operate at a fair profit, it should be permissible for manufacturers or the owners of plants to enter into agreement as to such reasonable prices as might be necessary to prevent such results. To avoid the pos- sibility of such manufacturers agreeing on excessive prices there would be the remedy of the opportunity of appeal by consumers to the Government board of supervision, and the consequent publicity, which would act as a restraint upon manufacturers from fixing ex- cessive prices; penalties, such as forfeiture of Federal incorporation or other suitable means of redress could be enforced, if necessary, to dissuade manufacturers from maintaining prices adjudged to be either excessive or ruinously low. The foregoing suggestion is not by any means a novel or original one. It is in effect that which is permitted in Canada, Germany, and other foreign countries, the object of whose Governments is ap- parently to foster industries rather than to tear them down. Such Governments not only allow reasonable prices to be fixed by agree- ment, but require them to be fixed for the protection cf manufac- turers, consumers, and labor alike. Mr. Beall. As I understand, your position is that it is not pos- sible for the Government to step in and go to the extent of fixing even a maximum price, for the reason that you have so clearly stated? Mr. Farrell. Would you accept that brief as an answer to your question, Mr. Beall? Mr. Beall. Yes. Then the alternative would be the breaking down of the laws as they exist to-day that forbid the kind of agreements such as you have mentioned. You would have to repeal all the laws forbidding monopoly and restraint of trade — the Sherman Act and everything like that? Mr. Farrell. Not necessarily. I do not believe in the repeal of the Sherman Act, but I believe the Sherman Act should be amended so as to enable manufacturers to know what they can do. We do not know now what we can do. Mr. Beall. If this theory that was suggested here first by Judge Gary should be put in operation, and some governmental agency should be required to fix a maximum price as a basis for its action, Methods of Dealing with the Trust Problem 563 it would be necessary for that agency to be fully advised as to the cost of any article, would it not? Mr. Farrell. Are you asking my opinion with respect to the testimony that has been given? Mr. Be all. No, sir; I am asking your opinion if a certain policy should be pursued by the Government that has been suggested here, whether or not it would be necessary for that commission, or what- ever you might term it, to have accurate, full, and complete informa- tion as to the cost of any and every article the price of which they would attempt to regulate; and that condition would bring about the very condition against which you protest to-day; it would advise all the world of the cost of any article made by American manufacturers? Mr. Farrell. As I understand the Sherman law, it is designed to prohibit monopoly? Mr. Beall. Yes. Mr. Farrell. As the Sherman law is designed to prohibit mo- nopoly, which would inevitably result from destructive competition, driving the weaker competitors out of business, it should be equally clear that it should permit such agreements among manufacturers as to prices as would enable them to avoid the destructive competi- tion which is impliedly prohibited. Exhibit 8 george w. perkins 1 It seems to me that the developments of this last year have made this pretty plain to our people, and my observation is that the time is ripe to make a careful beginning at least of some sort of regulation of interstate and international business, and having watched this phase of the development as carefully as I have been able to, and all that has been said by a great many people who are qualified to speak on it, I have reduced to a short memorandum what occurs to me might possibly be a step that could be taken very promptly for relief. I will read it. I have divided this into two parts, as follows: 1 Testimony of George W. Perkins. Hearings before the Committee on Interstate Commerce on the Control of Corporations, Persons and Firms en- gaged in Interstate Commerce. 62nd Cong. 2nd Sess. 1911-1912, pp. 1 091-1093, 1122-1129. 564 Industrial Combinations and Trusts IMMEDIATE RELIEF. First. Create at once in the Department of Commerce and Labor a business court or controlling commission, composed largely of expe- rienced business men. Second. Give this body power to license corporations doing an interstate or international business. Third. Make such license depend on the ability of a corporation to comply with conditions laid down by Congress when creating such commission and with such regulations as may be prescribed by the commission itself. Fourth. Make publicity, both before and after license is issued, the essential feature of these rules and regulations. Require each company to secure the approval of said commission of all its affairs, from its capitalization to its business practices. In the beginning lay down only broad principles, with a view to elaborating and per- fecting them as conditions require. Fifth. Make the violation of such rules and regulations punish- able by the imprisonment of individuals rather than by the revoca- tion of the license of the company, adopting in this respect the method of procedure against national banks in case of wrongdoing. PROSPECTIVE RELIEF. First. The House and Senate to join at once in appointing a com- mission to make a careful study of the Sherman law and the various suggestions that have been made regarding its repeal, amendment, and amplification. Second. Said commission to study and report on the wisdom and practicability of a national incorporation act. SUMMARY. Anyone familiar with present business conditions in this country, both as to domestic and foreign trade, realizes that the brakes are on. We are not expanding our domestic trade to the extent we should be. New enterprises are not being undertaken as freely as they should be. Capital in this country is contracting rather than expanding its op- erations, while Germany, Canada, and other countries are forging ahead with their industrial plans. The reason for this attitude on our part arises largely from the fear engendered by the prosecutions under the Sherman Act. At the present time the business man's complaint is that he does not know when he is right or when he is Methods of Dealing with the Trust Problem 565 wrong ; that this apparently can not be known until he is prosecuted and his case reaches the court, and that as matters now stand he docs not and can not know, as he proceeds with his business, whether he is a good citizen or a criminal. Serious as this phase of the situation is, it is all important that we do not commit ourselves to a permanent national policy until such commitment can be made in a calm, dispassionate frame of mind, the people having had ample opportunity to weigh the pros and cons of the case. While this is true, immediate relief is clearly desirable, if such relief can be provided along conservative lines. We are now collecting taxes from corporations, which in itself is the first step in establishing the principle of publicity between cor- porations and government. It ought not to be unwise or difficult, therefore, to immediately expand the powers of the Department of Commerce and Labor, with regard to publicity and control, suffi- ciently to create a board of control with power to license such in- terstate companies as, in the judgment of such board, are clearly working for and not against public interest. In other words, in such cases substitute a board of this sort for long-drawn-out lawsuits. This would have the immediate effect of placing any company able to secure such a license in position where it would know that it was proceeding along lines not in violation of national laws or Federal authority. Such concerns as could not or did not wish to meet this test would then have no right to complain if they were proceeded against under the Sherman law. In the above-described manner immediate relief could be pro- vided. At the same time the questions surrounding the Sherman law and national incorporation for interstate industrial companies would be under an investigation that would be proceeding in a calm and orderly manner, with a view to reaching ultimately a permanent solution of the whole question. Meanwhile, uncer- tainty would be dispelled; yet we would only be building up our present Department of Commerce and Labor and Bureau of Cor- porations into a live, vital bureau — much in the same way that we gradually built up the Interstate Commerce Commission by extending and enlarging its powers from time to time. Senator Watson. You spoke of the best efficiency being the test of success. Do you think that under the present laws the best efficiency can be reached? 566 Industrial Combinations and Trusts Mr. Perkins. No, Senatoi Watson. Then, as I understand your commission idea, you would have this commission allow the corporations to do practically anything that did not interfere with the public interests that the corporations ".'.anted to do? Mr. Perkins. Broadly speaking, that is about it. I believe that for a time complete publicity of the corporation's affairs, through immission, would be a sufficient guarantee of such protection, and that from that, as conditions in our country and in the world developed, we could add further specific regulations to meet chang- ing conditions. Senator Watson. Some of the witnesses have advocated uni- form prices practically. What is your opinion of that? Mr. Perkins. I believe that is one of the things that could be taken up by such a commission and probably arrived at rather speedily, and I believe it would be a very proper thing to work out as fast as it could be done without seriously disturbing our domestic or foreign trade in any given corporation. Senator Watson. Would you have that worked out by the com- mission or by statute? Mr. Perkins. You might be able, in that particular case, to word a statute that would substantially cover it, but I do not think that we can for a moment lose sight of the fact that business is very different from transportation, and that each business has to be conducted somewhat differently from its brother business, and of course, as a whole, it is a very delicate network. Senator Watson. The theory worked out by the Interstate Com- merce Commission on freight rates is an average rate confined to zones, as you understand? Mr. Perkins. Yes, sir. Senator Watson. They do not charge the same rate for the same service always? Mr. Perkins. No. Senator Watson. They charge what we would call an average rate, for instance. They may have the same commodity for a certain city — three rates? Mr. Perkins. Yes. Senator Watson. As to some commodities I can understand why a uniform price would work very satisfactorily, but as to others I think it would mean a complete change in freight rate. Mr. Perkins. That is exactly my point. Methods of Dealing with the Trust Problem 567 Senator Watson. So you might work that out on certain com- modities, and as to others you would not want the same rule? Mr. Perkins. That is exactly it, and that is one reason why I believe it is going to be extremely important to have a commission like that, composed largely of business men of experience. If I may take your time for a moment— I have thought about this for a good many years — I believe that a commission composed of such men would accomplish a good many things. We have in this country no goal for the business man in the way of preferment, or honorable mention, so to speak, unless he eventually goes out of business into public life. Now, Europe does very differently. In Germany, for instance, a captain of industry is knighted and here he is indicted. I believe that if we establish a business court of that sort that it would gradually come to be the goal of the young man who is going into business. They would say, "Some day or another I may be called to serve on this commission or court." I think it would be a steadying influence on that man's whole business career, and he would look forward to it like the lawyer does to the Supreme Court as possible preferment, and that man would give up almost any business calling finally to be a member of such a commission. There is not a lawyer, I suppose, in the country who would not give up any lucrative practice for an ap- pointment on the Supreme Bench, because that has come to be the goal — the highest degree of honor — and if it is said that it would be turning business over, or turning the Government over to business, I do not think that holds, because we have not found it in any respect, certainly not in regulation of our railroads. Take another instance. Our Presidents select officials from corporation life, like Mr. Knox and Mr. Wickersham, and they gave up lucrative businesses and went into these offices, and have stood an immense amount of abuse from their old friends and colleagues and associates. Yet they have discharged their oath of office as they saw it in the interest of the people. I believe the business men would adopt the same course. Mr. John Claflin, of New York, for instance, a man who had reached the point of life where he had had broad experience, called on such a commission as that would go on it and give to the public the same sort of service that he had been giving to his own business. You could have a commission of that sort of seven or nine men who had had that kind of experience and knew the trade conditions of the world, and would work that way for the public interest. I 568 Industrial Combinations and Trusts think you can easily imagine of what enormous value that would be to our people in their own affairs, and more especially to us in developing our foreign trade. Senator Brandegee. I have only a question or two. The com- mission that you would like to see established, 1 believe you called it a business court? Mr. Perkins. "A rose by any other name" would suit me just as well. Senator Brandegee. To use your own phraseology. You spoke of having a business court established in the Department of Com- merce and Labor before whom you could make application for Government license, if I recall your proposition? Mr. Perkins. Yes, sir. Senator Brandegee. Would you allow an appeal from the ruling of the commission if it declined to issue a license? Mr. Perkins. I think so. I think the appeal should go either to the Interstate Commerce Commission or some court Senator Brandegee. You mean the Court of Commerce? Mr. Perkins. The Court of Commerce, I mean. Senator Brandegee. Now, I do not know that I thoroughly comprehended what you meant to give this business court in the way of power. You would give it the power to license applicants engaged in commerce among the States if they found what? Mr. Perkins. At the beginning I would give them power to license such a company as in the judgment of this court was properly capitalized — conservatively capitalized — and conducting its busi- ness along such lines as to commend its practices to the judgment of this court, and cause the court to feel that it was working in the public interest rather than against the public interest, not re- straining trade unduly or acquiring monopolistic control, and with the understanding that this company would submit its affairs in the most complete manner possible to this court, not to be filed in the archives of this court and regarded as purely personal to the President or the Attorney General, but to be in turn made public to not only the stockholders of this company but to the public, so that competitors could know the general methods of the company and the public could know the methods of the company ; and that is about as far as I would go at the start. Methods of Dealing with the Trust Problem 569 As different question x came up in connection with that regulation and control, much as we have developed the regulations and control of railroads, we could expand from year to year; but I believe so thoroughly that publicity of the right sort would be a very strong deterrent on the management of any company from doing anything that was not right, and would be so convincing to the public that what was done was being done right, that we would find ourselves relieved from the necessity of resorting to a long schedule of fixed rules, which were to the effect, "Thou shalt not," " thou shalt not," and "thou shalt not." Senator Brandegee. You would put in those things that you have indicated in the statute creating the business court as a rule to guide the business court in determining the question of whom it should license and whom it should not? Mr. Perkins. Yes, sir. Senator Brandegee. Of course, that would have to be carefully drawn to see that it would not be in unreasonable restraint of trade. Mr. Perkins. Yes, sir. Senator Brandegee. And on those questions you would allow the right of appeal to some court from the judgment of the com- mission? Mr. Perkins. Yes, sir. As it is now, however, whatever may be said about the interpretation of the Sherman Act by the court, the plain cold-blooded fact remains that as we stand to-day, unless through the steel suit, in two or three years, or some other suit we find some other interpretation, we have got to apparently pass through a long series of lawsuits, and each man has got to come up and have his corporation passed on by a lawsuit. Now, if we could save those two or three years by immediately creating a court that could say after a corporation has come before it, " Now, we will take the responsibility of saying you can go ahead so long as you keep us informed about what your practices are," it would help very, very much. Senator Brandegee. Would you have this business court issue these licenses for a limited period of time? Mr. Perkins. No, sir; I do not think that is feasible. If the busi- ness was legitimate and properly started, and an interstate and in- ternational business, with stockholders in large numbers every- where, I think it should be given all the elements of permanency possible. 1 Thus in original. — Ed. Industrial Combinations and Trusts Senator BRANDEGEE. I inferred from your last statement that the license you contemplated would be a revocable license whenever in the judgement of the business court the corporation was not act- ing to suit it? Mr. Perkins. I certainly would give the court the right to re- voke the license with the right of appeal, but I would make that al- most the last resort; that is, I would in that respect control the cor- porations as we do our banks. I would punish the individual and exhaust all those channels before I actually injured the existence of the company itself, because we must remember that the company can not do anything wrong. It is not a live thing; it is a creation of man, and there is no use injuring an innocent third party and dis- turbing our business because some man does something that is not right. Senator Brandegee. You would not have the license revocable then, but you would rely upon punishing the individuals who in- dulge in any unfair practices? Mr. Perkins. Yes, sir; I think the Government should always keep the right, as a last resort, to revoke the license, but I think that should be the last thing it should do, and should be done per- haps in practice not at all, but I think you might easily have cases where people would be imprisoned for having violated the laws under which they were operating or the laws as laid down by this commission. That is just what we do with our banks. Senator Brandegee. Do I understand you to say that on the question of whether the license should be revoked or not you would allow an appeal to some court on that question? Mr. Perkins. I would. These companies, you see, have come not only to be merchants, but they have come to be trustees for investments. I think it is extremely important that the country understood that and realized that. Senator Brandegee. If an applicant for a license secured the license, you then say until it was revoked you would have the appli- cants immune from prosecution under the Sherman antitrust law? Mr. Perkins. Yes, sir. Now, you see, Senator, if he said, " Well, I do not want this license," or "I can not get a license," then it seems to me that is equivalent to the Government having notice that there is something about that concern that ought to be looked into under the Sherman law, and he would not have a right to complain if the Government did proceed against him because he would have Methods of Dealing with the Trust Problem 571 had a way to demonstrate to the court that he was entitled to the license. Senator Brandegee. Any corporation indulging in commerce among the States which had applied for a license and been denied the license by this business court, would be subject to prosecution or a bill being brought against them under the Sherman law? Mr. Perkins. Exactly. Senator Brandegee. And all those who had been licensed would be immune? Mr. Perkins. Yes, sir. Senator Brandegee. So that, if the business court thought that a man was a proper subject for its license and should grant it, even if the Attorney General thought it was directly operating in viola- tion of the Sherman law, he and the department of the Govern- ment would be powerless to have the question tested in the circuit or the Supreme Court of the United States because they held a license from this business court, which operated as an immunity? Mr. Perkins. I think that if they wanted to interpose any objec- tion they ought to do it before the company had its license. I think a company, once having had a license, should be immune so long as it lived up to the condition under which it obtained its license — that is, while the license was being issued — if the Attorney General wanted to interpose an objection he ought to have the right to be heard. Senator Brandegee. I was just going to ask you, would you not provide that it should be the duty of some Government official — the Attorney General or somebody else — to appear in behalf of the Government at the time the corporation was applying for its li- cense? Mr. Perkins. I look upon this court as in behalf of the Govern- ment. Senator Brandegee. So do I; but you would leave it a matter to be determined by the court and the applicant without any other department of the Government. Mr. Perkins. I see no objection. For instance, if your course was adopted of having an independent court, of allowing the Bureau of Corporations to interfere or interpose by the Attorney General. Senator Brandegee. As I understand it, it would not be your view at present to make it mandatory on the Attorney General or the Department of Justice to appear, but you would give them the right to appear if they so desired? 572 Industrial Combinations and Trusts Mr. Pl:rkins. I think I would. I had not thought of that. It is a new suggestion, but I think that might not be an improper thing. Senator Brandegee. You spoke in answering some questions that were asked you about whether a concern controlling 75 per cent of the business would be, in your opinion, in restraint of trade or not — if I recall the question, or whether it would be contrary to any provision of the Sherman law or the antitrust act. Would it not, do you not think, lie in the minds of the people who are contemplat- ing the acquisition of 75 per cent of the business that the Govern- ment might set up the claim that the mere fact of the control of such a proportion of the business was that it tended to show an intent to monopolize some part of the commerce among the States, and therefore be in violation of the second section of the law? Mr. Perkins. Yes; I think that is one of the disturbing condi- tions to-day, and I think in that connection that sufficient weight has not been given to this phase of it at all. Those of us who have had practical business experience in more than one line of business especially, know that a certain group of men of the right type and ability could come nearer restraining trade and monopolizing trade with 40 per cent, we will say, of a given business than another group of men might with 75 per cent of the business. So that it is not the percentage that does it, but it is the men. Senator Brandegee. You have your own idea of what you mean by the words "restraint of trade?" Mr. Perkins. Yes, sir. Senator Brandegee. As I understand you, it is not necessarily what the courts have decided or said about restraint of trade? Mr. Perkins. I do not know what they have decided. Senator Brandegee. I understand you to say that you think there may be cases, and probably are, where a great deal of a certain kind of competition may have been eliminated without trade having been restrained at all, but on the contrary, trade having been pro- moted? Mr. Perkins. Exactly. Senator Brandegee. That is all. Senator Newlands. I think the ground has been covered already by some of the questions that have been asked recently, but I simply wish to ask you, Mr. Perkins, regarding agreements limiting produc- tion and agreements between competitors as to price. What do you think of those? Methods of Dealing with the Trust Problem 573 Mr. Perkins. I think they are very largely a question of indi- vidual settlement. Different lines of business vary so largely ac- cording to locality and environment, and all that sort of thing, that I think that has got to be worked out with the greatest possible care. Senator Newlands. Would you give such a business court the power to approve the agreements between competitors as to limi- tations of production with a view to preventing overproduc- tion? Mr. Perkins. Do you mean a broad principle covering every- thing? Senator Newlands. Yes. Mr. Perkins. No, sir; not at the beginning, I would not. Senator Newlands. How about prices; would you give them the power to approve agreements as to uniform prices? Mr. Perkins. No, sir; not at the beginning. I would let that work itself out after wc had licensed 50 or 500 companies who would agree absolutely to make their affairs public; if a man is not willing to do that then he ought not to have a license, in my judgment, and l if he does, and will play that way, I believe it will allay a great deal of the difficulty. You see these questions to a great extent are re- volving around what might be known as the wholesale business. Now we gentlemen all remember that in our boyhood days there were very few retail stores where you could not go in and horse trade for what you wanted. The prices were not marked on the goods, and there were all sorts of prices. Now we have moved along in the retail business to a point where we can go down any street to a dozen stores, and the prices are all open. There is not very much trading. You know what it is, and a man down the street, next door, knows what the other man's price is. If that had been suggested to our fathers they would have thrown up their hands and said: "Everybody knows all about our prices; we can not make anything.'' But we have worked that out in the retail business. It is an open book as to what prices are, yet there is competition and they live. But in these larger affairs which, for want of a better name, you call wholesale business, there is still all that secretive way of doing, and if there is anything that tends to break the command- ment of "Thou shalt not bear false witness against thy neighbor," it is the method by which large contracting and bidding for con- tracts is done in this country, because the whole system is one of deception from beginning to end. It is all built up around the idea 1 In the original this line and the line above were transposed. — Ed. 5 74 [NDUSTHIAL COMBINATIONS AND Tin i that you must had another man on to make a lower bid, and th< n lead somebod) else on, and thai is supposed to be competition. Now, we have got in some way or another, with the enormous de- velopment of