the successor companies. This unfavorable showing of prof-
its among the smaller companies has been attributed by the
Bureau largely to the higher factory costs due to smaller
scale operation and less efficient organization.
That the plan of dissolution for the tobacco trust was
defective in some of its most important principles is shown by
the trend of later dissolutions and antitrust legislation. It
was more effective than the Oil dissolution which was almost
a complete farce. The mere prohibition of interstock
ownership was not deemed sufficient in this case. The busi-
ness was reorganized and more restrictions placed upon the
defendants, but the control was not divided so as to restore
competitive conditions. The most serious defect was in the
distribution of the stocks and securities. While the defend-
ants lacked a direct majority vote after the dissolution, their
108 Report of Bureau, Part III, pp. 23-4.
104 Ibid., pp. 25-9,
The Dissolution of the American Tobacco Company 145
common interest in all the companies remained, and by a
slight enlargement of the "community of interest" a small
group could maintain a controlling interest in the industry.
This was made the more probable and easy of accomplish-
ment by granting to the defendants the privilege of exchang-
ing their shares among themselves and thereby to perpetu-
ate their control. The prohibition of common directors for
a period of only five years was another defect, which, how-
ever, may be partly overcome by provisions of the Clayton
Act. The control of the American Tobacco Company over
the United Cigar Stores Company should have been released
and the Government urgently plead for such a provision in
the decree. The latter company whose stocks have a market
value of about $34,000,000 is a powerful factor in the in-
dustry. The decree of dissolution was not framed by the
court entrusted with the disintegration, and it is standing
evidence, as is the Oil dissolution, of the lack of adaptation
on the part of the courts for handling the complex ad-
ministrative problems involved in concentrated industry.
For this task men well trained in business affairs are a
necessity and this was one of the objects in creating the
Federal Trade Commission. No appeal was ever taken to
determine whether the final dissolution decree of the tobacco
combination had the approval of the Supreme Court.
DECISIONS SINCE 1911
THE Standard Oil and American Tobacco decrees in
1911 marked a new epoch in the prosecution of trusts.
The broader interpretation and wider application of the
Sherman law, as given in those decisions, were soon applied to
other trusts. The vigorous prosecution which followed re-
sulted in more numerous applications of the trust laws. The
more important applications will be considered in this chap-
ter and .the one following.
THE ELECTRIC LAMP COMBINATION *
In 1894 the patents on carbon filament lamps expired.
This was the only incandescent lamp manufactured and sold
on a commercial scale during the next decade. In 1896
the General Electric and six other companies formed the
Incandescent Lamp Manufacturers Association for the pur-
pose of fixing prices, allotting business, and prescribing regu-
lations for the manufacture and sale of carbon lamps. Guar-
antee deposits were required of the members to insure ob-
servance of the rules, and penalties were provided for vio-
lations. During the following five years, ten other com-
panies joined the combination, which also secured the co-
operation of the Westinghouse Company.
In 1901 the National Electric Lamp Company was or-
ganized to combine the lamp interests. This company ap-
peared to be separate from the General Electric Lamp Com-
pany, but a majority of its stock was held by the latter
through a third party. The National Electric, with funds
provided by the General Electric, acquired many competing
1 Stevens, W. S., The Electric Lamp Combination, Quart. Jour, of
Econ., V. 26, pp. 594 et seq.
Decisions Since 1911 147
companies which had failed to join in 1901 or had arisen
afterward. Agreements were secured also with the West-
inghouse Electric Company and with seven other companies
to observe the fixed prices on carbon lamps.
In 1906 the General Electric and National Electric com-
panies secured from German interests the exclusive right to
manufacture and sell in the United States and its posses-
sions tantulum and tungsten filament lamps which had
rapidly come into the foreground. Patents covering the lat-
ter were acquired in 1909. In this way, competition was
forestalled in this country. The companies at once pro-
ceeded to monopolize the trade in carbon filament lamps
upon which patents had expired. This was done largely
through the jofcbing trade. All jobbers and dealers were
required to purchase all their carbon lamps from these com-
panies in order to be permitted to purchase tantulum and
tungsten lamps. The demand for these lamps forced the
jobbers and dealers to carry them, and as a result the inde-
pendent manufacturers of carbon lamps found they could
not compete. Other contracts with makers of lamp machin-
ery, tubes, bulbs, and bases, either to sell their products to
the combination exclusively or to sell at fixed prices greatly
strengthened the power of the combination. As a result the
General Electric Company through its controlled companies,
including those held by agreement, came to control 97 percent
of the electric lamp business of the entire country. 2
In 1911 a petition was filed against the General Electric
Company charging a combination to restrain and monopolize
the manufacture of incandescent electric lamps. Later in
the year a consent decree was entered. The decree 3 or-
dered that the General Electric Company dissolve its sub-
sidiary companies and thereafter conduct its busines under
its own name. The decree also enjoined all license or con-
tract agreements fixing prices and terms of sale; contracts
with manufacturers of lamp machinery, bulbs, and tubing
requiring sales exclusively tc the defendants or demanding
sale at prices lower than to competitors; making price dif-
2 Stevens, Quart. Jour, of Econ., V. 26, p. 601.
Trust Laws and Unfair Competition, 1916, pp. 480 ff.
148 Trust Dissolution
ferentials on lamps of the same quality and efficiency ; com-
pelling purchasers to buy carbon lamps as a condition of
being able to purchase tungsten, tantulum and other lamps,
or discriminating against any who refused to do so ; offer-
ing lower rates to customers of competitors than were made
in the established trade; using any patent to control the
manufacture and sale of unpatented lamps.
THE DISSOLUTION OF THE POWDER TRUST
The powder trust was, with the exception of the Standard
Oil, the oldest of the trusts dissolved. Its interesting his-
tory began in 1872 when seven of the largest manufacturers
of powder and other explosives in the United States formed
the Gunpowder Trade Association with the avowed pur-
pose of regulating the price and terms for sale of explosives
throughout the country. 4 The three most influential com-
panies were the E. I. du Pont de Nemours and Company,
the Hazard Powder Company, and the Laflin and Rand
Powder Company. At the regular quarterly meetings of the
association, or through a chosen committee of five members,
the prices and terms of sale and the apportionment of trade
and territory were determined upon for the members of the
association who were bound to observe them under penalty
of fines. Though the main agreement was changed from
time to time this pooling combination retained a remarkable
degree of effective control for the next thirty years before
a more permanent organization was secured.
In 1875, the combination began a ruinous price cutting
campaign in the western states for the purpose of securing
control of the California Powder Works Company, and as
a result the California company was soon forced to sell
almost half of its stock and agree to limit its sales to a stipu-
lated territory. 5 Local price cutting was authorized by the
association in order to drive competitors out of the markets
4 Pleadings, Briefs, and Exhibits in the suit of U. S. vs. E. I. du
Pont de Nemours and Company in the U. S. C. C. for the District of
Delaware, No. 280. In equity; Stevens, W. S., The Powder Trust,
Quart. Jour, of Econ., V. 26, pp. 444-481; 188 Fed. Rp. 127-153.
"Amended Petition Pleadings, pp. 16-20.
Decisions Since 1911 149
or to force them to come into the association. It was one
of the chief, if not the chief, means used by the powder
combination to eliminate competition for nearly forty years. 6
Sometimes the losses resulting from price cutting were ap-
portioned among the members. Several less important com-
panies were induced to join the association in 1876.
Between 1878 and 1881, three new independent companies
entered the gunpowder trade. In the demoralizing compe-
tition that followed (1880-5) the association sold its explo-
sives far below cost in the territories of the three companies.
Rifle powder was sold as low as $2.25 per keg although in
other places it was sold at $6.25. 7 The price of blasting
powder fell from $2.75 to $.80 per keg in the contested re-
gions. 8 As a result all three companies were forced to join
the new Association Agreement of 1886; twelve companies in
all accepted the agreement. Within the next six months
prices of explosives practically reached the level existing
prior to the formation of the new companies. In addition to
the fundamental agreement of 1886 between the twelve com-
panies, five supplementary agreements were soon entered
into with other companies for the purpose of enforcing the
regulations and prices of the association.
The agreement of 1886 expired in 1889 and was imme-
diately followed by another almost identical. 9 The United
States as before was divided into seven districts. A "Board
of Trade" made up of five members was given power to fix
and alter prices and to settle grievances. The total sales
were divided among the companies in direct proportion to
the yearly allotments of each. Losses due to authorized
local price cutting were to be compensated by the payment
of money. The agreement included companies controlling
95 percent of the output of rifle powder and 90 percent of
blasting powder. 10 Thus, the first jperiod of the powder trust
witnessed an effective combination of the gunpowder trade.
The chief means of attaining this control were ruinous local
price cutting and restrictive agreements.
During the second period of the powder trust ending in
'Amended Petition Pleadings, p. 90.
T Ibid., p. 29.
Stevens, Quart. Jour, of Econ., V. 23, p. 453.
150 Trust Dissolution
1902, the dynamite trade was fully consolidated and closer
relations established between members of the association. 11
Following the agreement of 1889, the prices of powder were
raised and this brought three new concerns into the gun-
powder trade. The association started a vicious under-
selling campaign against them. At Ooltewah, Tennessee,
where one of the new companies was located, the railroad
agent was paid monthly for furnishing a weekly statement of
the powder shipments made by this company, giving the name
of the consignee, number of kegs and the destination. 12 By
1896 all three companies had passed under the control of
the association and in the same year the association slightly
revised and renewed its agreement to which seventeen com-
panies, exclusive of the California Powder Works, sub-
Following the agreement of 1896 prices of powder were
again advanced and again new competitors arose. 14 Four
new independents were organized prior to 1902. 15 Each of
these found itself at once in destructive competition with the
combination which sold powder in the contested fields as
low as $.70 per keg. 16 Two of the companies soon yielded
to the combination, while the other two sold out in 1902, the
leaders of the companies agreeing to keep out of the busi-
ness for a period of twenty years. A number of other agree-
ments were entered into between 1896 and 1902. Several of
these were to keep certain individuals out of the powder busi-
ness. In one the King Powder Company agreed to sell most
of its output to the combination for a period of twenty-five
years. With the aid of the above agreements and acquisi-
tions the combination practically eliminated competition in
the blasting and the sporting powder trade.
The association secured control of the dynamite trade
during the second period. 17 It became evident that dyna-
11 Stevens, Quart. Jour, of Econ., V. 23, pp. 453-469.
"Ibid., p. 455.
"Ibid., p. 457.
" Ibid., p. 458.
"Ibid., pp. 462-9.
Decisions Since 1911 151
mite would be a strong competitor of blasting powder. The
du Pont and Laflin and Rand interests had entered the dyna-
mate business about 1879. They organized two new com-
panies and acquired stock interests in a third. In 1895 the
three companies were taken over through the exchange of
stock by the Eastern Dynamite Company, a New Jersey
holding company, organized for this purpose with a capital
stock of $2,000,000, of which the du Pont and Laflin and
Rand interests held a majority control. In the same year
the Eastern Dynamite Company entered into an agreement
with the Aetna Powder Company providing for a division of
the dynamite trade between the two companies and their
subsidiaries based upon the amount of business done by each
during the previous year. Each company agreed not to cut
prices under pain of heavy penalties and to pay two cents
per pound to the other on all sales exceeding its allotment.
A board of five was to adjust the business proportionally.
During the first three years following this agreement the
Eastern company acquired seven or more companies and in-
creased its proportion of sales accordingly.
In 1897, foreign manufacturers of powder and explo-
sives began to construct factories in New Jersey. The
powder combination quickly sent representatives to Europe
who negotiated the "European Agreement." 18 By the terms
of the agreement no explosive factories were to be built by
Americans in Europe or by the Europeans in America.
Those under construction in New Jersey were to be taken
over by American companies. As for black powder and
smokeless sporting powder each party could ship these into
the territory of the other. The agreement also provided
that European factories were ' bound not to sell or quote
prices of explosives to the Government of the United States
lower than those fixed by the American factories. Likewise,
the American factories were bound not to sell or quote prices
of explosives to foreign governments lower than those fixed
by the European factories. The world was divided into four
districts for the sale of high explosives. The United States,
18 Petitioner's Record Exhibits, V. 2, pp. 1123-1132; Stevens, Quart.
Jour, of Econ., V. 23, pp. 465-7.
152 Trust Dissolution
Mexico, parts of Central America and a small part of South
America constituted exclusive American territory. All the
rest of South America and the islands of the Caribbean Sea,
not Spanish possessions, was designated as syndicate terri-
tory in which the minimum selling prices were to be jointly
regulated. The difference between the fixed price and the
price obtained was to constitute syndicate profit and be di-
vided equally. Canada and the Spanish possessions in the
Caribbean constituted open territory. The rest of the world
was exclusively reserved for the European factories. Pro-
visions for supervision, settling differences, and penalties for
violations were included in the agreement, which was to con-
tinue for a period of ten years.
In 1898 a "Mexican Agreement" was arranged pro-
viding for fixed schedules of prices in Mexico which were to
be jointly observed. To avoid the competition of the Han-
cock Chemical Company in Mexico, the privilege of acting
as the exclusive sales agent of this company was purchased.
Thus by the end of the second period (1902) competition
was practically eliminated in the dynamite trade as well as
in the gunpowder. The control of the combination became
further strengthened by numerous agreements both foreign
The third period of this history, extending from 1902
to 1912, was characterized by an increasing concentration
of control under a corporate form of organization. 19 Eu-
gene du Pont, who was the active manager of the E. I. da
Pont de Nemours and Company, the most influential com-
pany of the combination, died in 1902. None of the other
stockholders being willing to assume the management, Al-
fred du Pont asked the cooperation of Pierre S. and Thomas
C. du Pont who had not previously held any interests in the
business. The three Du Ponts organized the E. I. du Pont
de Nemours Company of Delaware in 1902. The company,
having an authorized capital stock of $20,000,000, issued
$11,997,000. Of this amount the three du Ponts received
$8,940,000 as promoters' profit. 20 The balance of the
"Stevens, Quart. Jour, of Econ., V. 23, pp. 469-80.
M Ibid., p. 470.
Decisions Since 1911 153
$11,997,000, together with $12,000,000 in notes, was given in
exchange for the assets of the old combination. The Dela-
ware company of 1902, in order to remain purely a holding
company, transferred its plant assets to two operating com-
panies, which were organized for this purpose, in return for
their securities. The most important of these operating
companies was the E. I. du Pont de Nemours and Company
of Pennsylvania. At this time the company of 1902 con-
trolled no dynamite plants. It had minority holdings in
fifteen concerns, a majority holding in a sixteenth, a fifty
percent in a seventeenth, and owned all of the Hazard
Powder Company which in turn had minority holdings in six
companies. 21 The Laflin and Rand interests had minority
holdings in thirteen, fifty percent in two, and a majority in
The Delaware Company of 1902 soon after its organiza-
tion secured an option on a majority of the Laflin and Rand
stock and organized the Delaware Securities Company to
take over the property. 22 The purchase price was about
$4,000,000 in bonds and a stock bonus of 20 percent. In
like manner the Delaware Investment Company was organ-
ized to acquire about 32 percent of the stock of the Moosic
Powder Company which was held by stockholders of the
Laflin and Rand Company. The exchange price of this stock
was about $2,350,000 in bonds and a stock bonus of 25
percent. These transactions gave the Delaware company
complete control of all the companies in the combination
except ten. 23 Of these ten it held minority control in three,
and five were more or less completely controlled by one or
more agreements. The transactions were immediately fol-
lowed by an advance in prices.
The Delaware company of 1902 continued to acquire
other stocks. Within ten months it acquired from 25 to 75
percent of the stock in five companies in which it had no
previous holdings, besides additional purchases in the stocks
of its own subsidiaries. 24 Full control succeeded partial
n Stevens, Quart. Jour, of Econ., V. 23, p. 471.
"Ibid., pp. 472-3.
"Ibid., p. 475.
154 Trust Dissolution
control in three companies operating in Pennsylvania, in-
cluding the Moosic Powder Company.
In order to aid the combination in concentrating its
power and fastening its hold upon the monopoly it had so
steadily built up, another parent holding company was or-
ganized in 1903. This was the E. I. du Pont de Nemours
Powder Company of New Jersey with a capital stock of
$50,000,000 divided equally between common and preferred.
The Delaware company of 1902 transferred to the New
Jersey company all its stock holdings in other companies,
together with its own stock, in exchange for $30,200,000 of
stock, including a majority of each kind, of the New Jersey
company. 25 The policy of acquiring competitors was pur-
sued more vigorously than ever. Local price cutting which
had been the chief weapon of the combination from the first
was continuously practiced. 26 Control of the California
Powder Works was made complete, and the California In-
vestment Company was organized to take over practically
all the stock of the Judson Dynamite and Powder Company.
This left only three companies of the old combination. In
the following year these three also entered into an agreement
for one year, but two did not renew the agreement.
Control of several other important companies was se-
cured before the close of 1903. 27 One of these was the Met-
ropolitan Powder Company ; another was the E. C. Schultze
Gunpowder Company, an English corporation operating in
New Jersey. The International Smokeless! Powder and
Chemical Company, which was a large producer of smoke-
less powder used by the Government, was also acquired
through the International Powder Company of Wilmington,
Delaware, which was organized for this purpose with $10,-
000,000 of stock. A large part of the stock and $1,000,000
of bonds were given for a controlling interest in the former
company. A complete control of the Ohio Powder Com-
pany was secured in 1904. The Monarch Powder Company
was acquired the following year, and by 1906 a 66 percent
188 Fed. Rep. 144.
"Amended Petition, Pleadings, p. 90.
37 Ibid., pp. 71-85.
Decisions Since 1911 155
control of the California Vigorite Powder Company had been
obtained. The latter was an important competitor of the
In addition to the more important acquisitions already
noted there were many of less importance. Up to the middle
of 1907, the du Pont de Nemours company of 1903 and the
Eastern Dynamite Company had acquired the stocks of more
than one hundred companies. 28 The advance of prices in
1902 had been followed by another a few years later, and
since the manufacture of powder did not require a large
amount of capital new competitors were soon attracted to the
trade. Local price cutting was practiced wherever competi-
tors sought a foot-hold. Prices varied widely between dif-
ferent sections of the country showing a policy of charging
what the traffic would bear. 29 Losses in competitive terri-
tory were more than offset by large profits in non-competi-
tive, although potential competition exerted a more powerful
restraining influence than in the case of the Standard Oil
Company. The control of the combination over sales was
made more effective under corporate management. 30 A sales
board superseded the committee plan of fixing prices and
terms of sale. The country was divided into districts and
assistant sales directors under the supervision of the sales
board traveled about in each. During the 18 months pre-
ceding December, 1907, the sales directors were given power
to meet the prices of competitors. During this time the
competitors who were not eliminated were greatly worried.
The campaign appeared to be a preliminary step to an ad-
vance in prices which was authorized by the sales board at
the end of the period. With the advance came the first pub-
lished schedule of prices. Except in case of large contracts
there was little departure from the list prices and price
cutting was largely discontinued. Perhaps the Government's
suit which was filed against the combination in 1907 exerted
In addition to the frequent advances of price and the
power to practice price discrimination, the extent of mo-
" Petitioner's Record, Exhibits, pp. 2744-7.
"Amended Petition, Pleadings, pp. 90-1.
Brief for the United States, V. 2, pp. 294-7.
156 Trust Dissolution
nopoly control may be shown in part by the percentage of
each branch of the trade controlled by the E. I. du Pont
de Nemours Powder Company from 1905-8: 31
1905 1906 1907 1908
Black blasting powder 64 . 6 63 . 4 64 .
Saltpeter blasting powder. . 80.0 69.5 72.0
Dynamite. 72.5 73.0 71 .5 Substantially
Black sporting powder 75 . 4 72 . 6 73 . 6 the same "
Smokeless sporting powder . 70 . 5 61.3 64 .
Government ordnance 100.0 100.0 100.0
The foregoing figures do not include the sales of a num-
ber of companies which were more or less controlled by the
parent company through minority stock holdings. 33 Neither
do the figures include the sales of several large companies,
such as the Aetna Powder Company, which did not compete
with the combination. 34
In 1904, the combination began to dissolve the various
subsidiary operating companies controlled by it. During the