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that the company, through its subsidiaries, controlled from
50 to 70 percent of the manufacture of the finished prod-
ucts. 71 A consent decree was entered within a few weeks
which enjoined the company as follows: 72

1. Delaying shipments of raw material to any manu-
facturer competing with its own subsidiaries in the manu-
facture and sale of finished products, without reasonable
notice and cause.

2. Refusing to ship or to continue shipments of such
material to a competing manufacturer upon contracts or
orders, and particularly on partially-filled orders.

3. Delaying bills of lading on such shipments.

4. Furnishing known defective material to such competi-

5. Charging higher prices for crude or semi-finished prod-
ucts to manufacturers competing with its subsidiaries than
it charged under like conditions to such subsidiaries.

6. Refusing to sell crude or semi-finished products to
prospective competitors on like terms and conditions of sale
as it sold to its subsidiaries.

7. From demanding, as a condition precedent to selling
such material to a competitor, that it should divulge the
terms which the competitor would make to secure the work
in connection with which the material would be used and
from giving this information to its subsidiaries or others.

8. Requiring competitors not to compete in certain lines
with the company or its subsidiaries as a condition of se-
curing material.

9. Representing that unless companies dealt with it or
its subsidiaries they would be unable to secure a sufficient
supply of the material, or at a price that would enable them

"Trust Laws and Unfair Competition, p. 493.
"Ibid., p. 4&3.

204 Trust Dissolution

to compete with it; or that their supply would be cut off

10. Preventing the expansion of the business of other
manufacturers by threatening to cut off their supply of raw
material if they attempted to enlarge their business.

11. Raising the price of crude or semi-finished products
to its subsidiaries in order to raise it to competing manu-
facturers. 73

In spite of this injunction the strength of the com-
pany has greatly increased. The increased demand for
aluminum on account of the European) war more than
trebled the prices of aluminum. Indirectly the war also
brought about the acquisition of the Southern Aluminum
Company which had outstanding $2,400,000 of common and
$6,000,000 of 7 percent preferred stock. This company,
which was controlled by French capitalists, had begun in
1913 the construction of an- immense hydro-electric and
aluminum manufacturing plant at Whitney, North Caro-
lina. In 1914, when the plants were three-fourths completed,
building operations ceased because of the lack of capital,
and in the following year the Aluminum Company of Amer-
ica acquired the property and completed the plants.


In 1907 a combination was formed among the manufac-
turers of bicycle and motor-cycle brakes and accessories,
which in several respects resembled the "Bath Tub Pool."
The formal organization was the "Association of Coaster
Brake Licenses," consisting of the New Departure Manufac-
turing Company, five other corporations, and eighteen indi-
viduals. 74 The members of the association produced 85
percent of the output of bicycle and motor-cycle coaster
brakes and accessories, and were able to control the price
of such products. 75

Various means were used by the association to make its
price control effective. Among these may be mentioned : 76

"Trust Laws and Unfair Competition, p. 493.

"204 Fed. Rep. 107 et seq.

75 Ibid., p. 109.

78 Ibid., pp. 109-10.

Decisions Since 1911 205

(1) the maintenance of fixed prices for the products; (2)
establishing uniform and non-competitive discounts to manu-
facturers, dealers and jobbers; (3) selling all products only
upon terms and conditions jointly agreed upon and using
a uniform contract with all prospective buyers; (4) restrict-
ing ihe sale of products to manufacturers who dealt exclu-
sively with the association members in the lines of products
made by them; (5) instituting infringement suits and other
legal processes against competitors; (6) fixing resale prices
and discounts to jobbers; (7) devising a basic license agree-
ment to bind the association members. Under the terms of
the agreement the New Departure Manufacturing Company
obtained control of all the patents held by the com-
bination. The company acting as licensor made uniform
agreements covering the use of these patents with the re-
maining companies. The royalties were largely discounted
to all who faithfully observed the combination agreements.
The license agreements were made to cover the manufacture
and sale of parts not covered by the patents and each licensee
was required to observe the sale prices and restrictions on
sales to jobbers, retail dealers and customers, and also to
deposit a guaranty fund to insure a faithful observance of
the agreement.

In 1912, the Government secured an indictment against
the members of the association charging unlawful combina-
tion and conspiracy with intent to monopolize and maintain
prices in the coaster brake business. The defendants en-
tered pleas of guilty and fines aggregating $81,500 were
imposed in 1913. 77

In 1912 the Government also filed a dissolution suit
against the defendants in the preceding suit on the charge
of entering into a conspiracy, combination and license agree-
ment for the purpose of restraining and monopolizing the
sale and manufacture of bicycle and motor-cycle parts and
coaster brakes. Rather than meet the expense and almost
inevitable result of a suit the defendants soon agreed to a r fp
consent decree by the terms of which the combination was
held to be illegal and the defendants were enjoined from
continuing the conspiracy or participating in any manner in

"The Federal Antitrust Laws, Washington, 1916, p. 72.

206 Trust Dissolution

any similar organization; and from soliciting, arranging or
confirming by mutual agreement or understanding any lists
of manufacturers, or jobbers, or dealers with whom trade
should or should not be carried on. 78


The legality under the Sherman law of establishing a
"corner" was decided by the Supreme Court in 1913. 79 The
decision was given in a suit brought by the Government
against James A. Patten and other cotton speculators who
were charged with entering into an agreement to enhance
abnormally the price of cotton by obtaining a corner on
this commodity. The price of cotton is practically deter-
mined by transactions on the New York Cotton Exchange.
The defendants in the suit secured a corner on cotton by
purchasing on the exchange large quantities for future de-
livery, quantities far in excess of the amount available, and
by withholding sales for a time they compelled the cotton
manufacturers of the entire country to pay excessive prices
for their raw material.

The Supreme Court held that the acts of the defendants
impeded interstate commerce and came within the prohibi-
tions of the antitrust laws. 80 While maintaining a corner
might temporarily stimulate competition, the court decided
that it thwarted the customary operation of the law of
supply and demand and produced the same evils as the sup-
pression of competition.

Mr. Patten plead guilty to the charge and was fined
$1,000. The indictment was dismissed as to the other de-
fendants, but a new indictment was soon returned against
them, and later in the same year fines aggregating $18,000
were imposed. 81 The amount of the fines is insignificant in
comparison with the profits usually obtained from a success-
ful corner on a staple commodity and the penalty imposed
will not act as a strong deterrent to securing other corners.

78 Trust Laws and Unfair Competition, 1915, pp. 491, 716, 729.

79 226 U. S. 525.

80 226 U. S. 541-3.

81 The Federal Antitrust Laws, Washington, 1916, pp. 82-3.



WHILE some of the cases discussed in previous pages
are still pending before the courts as to certain fea-
tures, there are other important cases pending whose main
issues are now before the Supreme Court and whose final de-
cisions will go far toward interpreting the prohibitions of
the trust laws. The best known of these are the Interna-
tional Harvester Company and the United States Steel Cor-
poration cases. Each of these companies is the leader in
its respective industry, but in each case the degree of con-
trol is noteworthy in only a few of the many branches of the
industry. Both have been characterized as "good trusts."
Other important cases pending before the Supreme Court
which will be considered are the Great Lakes Towing Com-
pany, Eastman Kodak Company, Motion Picture Patents
Company, Keystone Watch Case Company, Corn Products
Refining Company, Quaker Oats Company, and American
Can Company. Early in January 1918, the Government
secured permission from the Supreme Court to defer the
argument on these large anti-trust suits pending until the
following term of court. This action was taken on the
ground that the Government might secure greater co-opera-
tion of the business and financial interests of the country in
meeting the war needs of the hour.


The United States has long led the world in the produc-
tion of agricultural implements, and since 1902 the most im-
portant concern in the industry has been the International

1 Report of the Bureau of Corporations on the International Har-
vester Company, 1913. This report forms the chief source for the fol-


208 Trust Dissolution

Harvester Company. In that year the company was organ-
ized under the laws of New Jersey as a consolidation of the
five principal manufacturers of harvesting machines in the
United States, namely, the McCormick Harvesting Machine,
Deering Harvester, Piano Manufacturing, Warder Bush-
nell and Glessner (makers of Champion brands and here-
after called the Champion company) and the Milwaukee
Harvester companies. The combining companies manufac-
tured about 85 percent of the total output of harvesting
machines. 2 The other chief producers of harvesting ma-
chines were located in New York, far removed from the chief
grain producing states, and their market was chiefly con-
fined to the export trade and to the North Atlantic States.
Prior to 1902, the harvesting machine industry was gen-
erally subject to competitive conditions, and this was par-
ticularly true of the decade immediately preceding the con-
solidation. 3 However, the claim that the combination was
justified because the combining companies were suffering
from destructive competition is not supported by facts. The
volume of their business had greatly increased and the rate
of profit earned upon the capital invested was compara-
tively high. For the two largest, the McCormick and Deer-
ing companies, the profits were especially high just prior to
the merger. 4 The primary motive for consolidation was to
eliminate competition and thus to secure a dominant posi-
tion in the trade. 5 Such a position was assured from the
first since the combining companies produced or sold 90
percent of the binders, 81 percent of the mowers, 67 percent
of the rakes, and probably 90 percent of the reapers and
cornbinders. 6 A secondary motive for consolidating was to
lower the costs of production. The issue of inflated securi-
ties was not attempted in any marked degree. The absence
of this motive which is usually present in such cases is partly

lowing pages and will be referred to as Report of Bureau. Other
sources are the Brief for the United States in the Supreme Court;
214 Fed. Rep. 987-1012.

2 Report of Bureau, p. 69.

8 Ibid., pp. 56-66.

4 Ibid., p. 63.

8 Ibid., pp. 69-70. "Ibid., pp. 92-3.


ant Cases Awaiting Supreme Court Decisions 209

explained by the close ownership of the companies merged
and partly by the condition of the stock-market which was
already depressed by the issue of inflated stocks.

The International Harvester Company was organized
with a capitalization of $120,000,000, all common stock. 7
Of this amount $60,000,000 was issued as the purchase price
of the assets of the five companies, including the promoter's
fee. The valuation of the assets, exclusive of good will, by
the Bureau and the amount of stock issued as the purchase
price of each company were as follows : 8


Valuation as
Estimated by
the Bureau

Stock Issued
for Property
and Services










Champion ...






Total $49,117,356 $56,292,857

J. P. Morgan & Co. (promoter's fee) 2,957,142

Expense fund 749,999

Total $49,117,356 $60,000,000

The remaining $60,000,000 of stock was sold for cash
among the consolidating interests and the proceeds were
used for working capital. Of the total capital stock, the
McCormick interests received 42.6 percent and the Deer-
ing 34.4, giving a 77 percent stock control to these two
companies. 9 A voting trust, formed as part of the consoli-
dation agreement, gave the McCormick, Deering and Mor-
gan interests equal voice in the management of the company,
but the predominating influence appears to have been ex-
erted by the Deering interests. The voting trust was main-
tained for ten years. 10 The leaders of the combining com-

7 Report of Bureau, pp. 84-7.

8 Ibid., p. 126.
Ibid., pp. 86-7.
"214 Fed. Rep. 991.

210 Trust Dissolution

panies became the officers and directors of the International.
From the time of organization up to 1913, the year of
the Bureau's report, the business of the International was
greatly extended in various ways : by the acquisition of both
competing companies and those making non-competing prod-
ucts ; by manufacturing new lines at old plants ; by the con-
struction of new factories at home and abroad for making
both old and new lines of machinery; and by developing the
production and manufacture of its raw materials. The ex-
tension of manufacture into numerous new lines, such as till-
ing implements, manure spreaders, farm wagons, gasoline
engines, tractors, threshers, and cream separators, was
directly furthered by the monopolistic control of the harv-
esting machine business. 11 In 1902 the International secret-
ly purchased its largest competitor, the D. M. Osborne Com-
pany, for ^3,365,000. Control of the Minnie Harvester
Company was secured in the following year. In 1904 two
other competitors in the manufacture of harvesting ma-
chines were acquired, the Aultman-Miller and Keystone com-
panies. All of the above acquisitions were secretly made and
for various periods they were operated nominally as inde-
pendent companies. There was commercial advantage in ap-
pearing not to be associated with the International for many
people were opposed to buying from the trust. The pur-
chase of the Weber Wagon Company in 1904 and the Bet-
tendorf Axle Company in 1905, followed by a large increase
in their output, made the International one of the impor-
tant manufacturers of farm wagons. The manufacture of
manure spreaders was entered into in 1906 through the
purchase of the J. S. Kemp Manufacturing Company. Later
several contracts were secured for the marketing of plows
and seeding machines made by other manufacturers.

In addition to new lines of manufacture acquired by pur-
chase, others were developed at old and new plants. The
harvesting machine business of the Milwaukee plant was
transferred to the McCormick factory and the former took
up the manufacture of gasoline engines in 1904, cream sepa-
rators in 1905 and tractors in 1906. In a similar manner
"Report of Bureau, p. 19.

Important Cases Awaiting Supreme Court Decisions

the Piano factory transferred its harvesting machine busi-
ness to the Deering plant and replaced this by the manufac-
ture of manure spreaders in 1905 and of wagons in 1906.
The Champion plant continued to make harvesters, and add-
ed hay machines in 1903, seeders in 1906, and spreaders
in 1908. The St. Paul plant made only binder twine. The
Osborne plant made harvesters, tilling implements and twine.
The Akron plant made auto-wagons. The Keystone plant
was used to make hay machines, binders, corn shellers, and
binder twine. The most important new establishment was a
large tractor plant erected near the McCormick works in
Chicago, which commenced operations in 1910. Other fac-
tories were either built or purchased in the following coun-
tries : Canada, France, Russia, Germany and Sweden. Can-
ada is the only foreign country in which binders are made by
the International company.

The International Harvester Company acquired proper-
ties and plants to supply its raw materials. Among these
were coal and iron properties, iron and steel plants, timber-
lands and saw mills, and facilities for securing both manila
and sisal fiber used in the manufacture of binder twine.
This policy of integration enabled the company to secure
its chief supplies of raw materials at production cost in-
stead of depending upon the open market. In addition, a
number of short and relatively unimportant industrial rail-
roads were acquired soon after the consolidation was ef-
fected. The Milwaukee Harvester Company, whose name
was changed (1902) to the International Harvester Com-
pany of America, was made the sales company. It was fa-
vorably located in the agricultural belt and had numerous
warehouses. . It also possessed licenses to carry on its busi-
ness in states of importance to the trust and its organiza-
tion therefore furnished a good basis for the sales activities
of the combination.

No increase in the capital stock attended the expansion
of the business until 1910. In 1907 the company had divided
its stock into equal parts of 7 percent preferred and com-
mon. In 1910 a $20,000,000 stock dividend was declared
upon the common, raising the total capital stock to $140,-

Trmt Dissolution

000,000. This was, however, not overcapitalization for the
net assets in this year, exclusive of good will, were valued
by the Bureau at $144,589,739. 12

The monopolistic position of the combination in the
manufacture and sale of harvesting 1 machines is clearly
shown in the following table compiled from the Bureau's re-
port: 13


Name of Implement 1902 1903 1904 1905 1906 1907 1908 1909 14 1910 1911

Binders 90.9 94.2 89.1 90.0 87.0 88.5 89.7 87.1 87.0 87.0

Mowers 82.5 87.7 82.1 84.1 79.0 81.6 82.1 80.7 77.7 76.7

Rakes 67.8 80.0 72.0

Tedders 52.6 73.2

Corn Harvesters 70.1 75.5

Disk Harrows 25.9 .... 43. 1

Spring-tooth Harrows 49 . 1

Wheeled Cultivators 11.5

Farm Wagons 13.013.315.0

Hay Stackers 24 . 2

Hay Loaders 20. 8

Corn Shredders 55.7

Manure Spreaders 55 . 1

Binder Twine 55.1 .... 62.7


Name of Implement 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911

Binders 96.3 94.7 93.2 90.7 92.2 91.2 90.5 88.4 87.2

Mowers 91.0 89.0 86.5 82.8 84.7 82.6 79.3 76.6 74.6

Rakes 68.0

Manure Spreaders 50 .

Corn Harvesters 91 .7

In addition to the various harvesting machines, the po-
sition of the International is very secure in the manufac-
ture of disk harows, spring tooth harrows, corn shredders,
and manure spreaders. A much smaller control was ob-
tained in haying tools. It is not possible to show conclu-

12 Report of Bureau, p. 238.
" Ibid., pp. 178-88.

14 The percentages of the newer lines for the year 1909 were deter-
mined by the Bureau from the census data of 1910.

Important Cases Awaiting Supreme Court Decisions 213

sively the position attained in the new lines since the census
does not contain data for spreaders, cream separators, gas
engines, tractors, and other less important lines of machin-
ery. In the production of binder twine the company con-
stantly maintained an important place; its proportion in-
creased from 55 percent in 1909 to 62.7 in 1911, when the
total output reached 128,700 tons.

The profits of the International have been computed by
the Bureau for the years 1903-1911. The net earnings for
the first years could not be precisely determined because the
company kept no general balance sheet and refused to submit
one until 1906. The reasons given were that the merger
was formed without permitting the combining interests to
know the book values under which their rivals came into the
trust and that the publication of a balance sheet would
arouse jealousies. However, the Bureau secured the data
and determined the approximate earnings for those years.
The rate of earnings was based upon the investment, exclu-
sive of good will, at the beginning of each year. Reserves
from earnings, which were allowed, are given below showing
the net amount added to each reserve by the close of
1911 and the number of years in which each was accumu-
lated: 15

Depreciation, 1903-1911 j $8,774,923

Special maintenance, 1906-1911 298,821

Collection expense, 1906-1911 1,000,000

Pension fund, 1908-1911 1,027,719

Fire insurance, 1905-1911 2,061,399

Industrial accidents, 1910-1911 512,500

Bad debts and contingent losses, 1903-1911 3,137,166

Some of the reserves, though allowed, were deemed ex-
cessive. The funds of the pension and accident insurance
reserves were provided entirely by the company. These
funds, together with other organized welfare projects and
a profit sharing arrangement, are usually pointed out by the
company as indicating its liberality toward its employees.
The net earnings on the investment on this basis were: 16

"Report of Bureau, pp. 221-233.

"Ibid., p. 238.

Trust Dissolution

1903 0.73 1906 6.74 1909.. .13.43

1904 5.34 1907 7.31 1910 12.77

1905 7.01 1908 8.73 1911 11.51

The profits for the earlier years were not excessive, but
for the years 1909 to 1911 inclusive, they were distinctly
high, averaging 12.5 percent. However, the average profit
does not show the real condition with respect to prices in a
business which has a monopolistic control of only a portion
of the kinds of commodities it manufactures. A better test
is to determine the profits obtained from each line of prod-
uct. The rate of profit, whether based upon sales or in-
vestment, for the highly monopolized lines, such as grain
and corn harvesting machines, was much higher than the
corresponding rates for the newer lines, such as wagons and
manure spreaders, in which the company encountered a
greater degree of competition. 17

Both prices and margins were increased in the harvesting
machine lines. With few exceptions prices in these lines were
raised but once from 1903 to 1911, the six and seven foot
binders $7.50 each in 1908; the eight foot binder $5.00 in
1907 and $10.00 additional in 1908; the corn binder $7.50
in 1908; the five foot mowers $2.50 in 1908; and the six
foot mower $3.00 in 1908. 18 In 1908 a larger margin was
obtained by making an extra charge for binder transports,
by giving fewer tongue trucks, and by lowered selling ex-
pense. 19 The advances in price were attributed by the com-
pany to higher costs of production, but on the other hand
in several of the lines in which severer competition prevailed
prices were reduced. In 1912, there was a price reduction
amounting to $5.00 for grain binders and to proportional
amounts for other harvesting machines. This reduction was
attributed by the company to lower costs of production, but
it followed preparations of the Government for filing a bill
against the company to dissolve it. 20 The retail prices of
commodities sold abroad by the International were, with few

1T Report of Bureau, pp. 340-4.
"Ibid., p. 254.
"Ibid., p. 250.
80 Ibid., p. 254.

Important Cases Awaiting Supreme Court Decisions 215

exceptions, higher than the domestic retail prices. The
Bureau found no noteworthy instances of lower prices
abroad. In some instances it is true that sales below cost
were found, but these appeared to be accounted for by ab-
normally high selling expense, aggressive competition, or
other peculiar conditions.

The strength of the International Harvester Company
has been attributed to three sources : its productive efficiency,
its financial resources, and its methods of competition. The
Bureau held that the productive efficiency resided chiefly in

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Online LibraryMerle Raymond ThompsonTrust dissolution → online text (page 18 of 26)