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or set aside such order. In case it is desired to introduce
new evidence before the court, the court may allow it and
may order that it shall be taken before the Commission.
The findings of the Commission as to the facts, if supported
by testimony, are final, and the decisions of the Circuit Court
of Appeals are final, subject to review by the Supreme
Court. Any party required to cease using unfair methods
of competition may obtain a court review in a similar man-
ner. The initiative in bringing proceedings by the Commis-
sion to prevent unfair methods was left entirely with the
Commission, which could do so whenever it believed such pro-
ceedings would be to the public interest. This section of the
act, which was intended in part to prevent the development
of monopolistic conditions, was of great importance in view
of the part played by unfair methods of competition in se-
curing and maintaining monopolistic control.

Section 6 conferred on the Commission the following
powers, among others : ( 1 ) to investigate the organization,
business, management, etc., of any corporations engaged in
commerce, except banks and common carriers; (2) to re-
quire such corporations to make annual and special detailed
reports; (3) to investigate and report to the Attorney Gen-
eral on the manner in which antitrust decrees are being or
have been carried out; (4) to investigate and report on
alleged violations of the antitrust laws upon the request of
the President or either House of Congress; (5) to investi-
gate and make recommendations concerning the readjust-
ments of the business of any corporation alleged to be vio-
lating the antitrust acts, upon the application of the At-
torney General; (6) to make public information obtained,
except trade secrets and names of customers, to make special
and annual reports to Congress with recommendations for
additional legislation, and to publish its reports and de-
cisions in ways best adapted to public information and use;
(7) to classify corporations and make rules and regulations
for carrying out the provisions of the laws; (8) to investi-
gate trade conditions in and with foreign countries where



30 Trust Dissolution

combinations, or practices of manufacturers, or other con-
ditions, may affect the foreign trade of the United States,
and to report and make recommendations to Congress.

Section 7 provides that where suits in equity are brought
under the trust laws and the court believes that relief should
\ be granted, the court may refer the suit to the Commission,
! acting as a master in chancery, to report an appropriate
form of decree; but the court may reject the Commission's
report and enter a decree according to its own judgment.
The need for such an experienced body to assist in framing
decrees which call for the reorganization of vast and com-
plex business organizations had become plainly imperative
as a result of failure of early dissolution plans employed.
How frequently the courts will call upon the Commission
for such services, and to what extent they will be guided by
its reports, are important questions whose answers will be
closely watched. A failure of the courts to co-operate with
the Commission may mean additional legislation on this
point.

In 1916 considerable effort was made in Congress to
pass a bill exempting combinations and corporations formed
for the purpose of conducting and promoting foreign trade
from the operations of the antitrust laws. This movement
had the support of the President and the Federal Trade
Commission. The Webb bill authorizing such changes was
/ passed by the House but did not come up for a vote in the
Senate. In the same year the Stevens bill, designed to per-
mit manufacturers to fix and maintain uniform resale prices
for their products, received much discussion in and out of
Congress, but it was not passed.

It is the purpose in the following chapters to trace the
progress made in dissolving monopolistic combinations by
a concrete study of the more important dissolutions. In
general the cases will be treated in their chronological order.
A brief history or description of each case will be given in
order to point out the means by which the monopolistic con-
trol was created and maintained, the extent and nature of
the control, the desirability of dissolution, and the elements



The Demand for Trust Control 81

which must be overcome in order to restore competitive con-
ditions. It is believed that such a description is not only
essential to an understanding of the nature and probable
effectiveness of the dissolution, but that it will also shorten
the space required to set forth the facts of dissolution. In
some cases, after a brief history is given, only a few lines
will be necessary to make clear what was done in the way of
dissolution. The description will usually be followed by a
consideration of the dissolution and its probable or proved
effectiveness. The concrete study of the more important
cases will be followed by a chapter giving brief statements
of other cases brought to issue under the trust laws.

Much attention is given to the dissolution decrees and de-
cisions of the Supreme Court which have largely determined
the status of trust combinations. Congress, Presidents, and
Attorney Generals come and go with, at most, only a brief
time in which to attempt to solve the trust problem, but
the Supreme Court, with a fairly constant personnel, has
been constantly confronted with the trust problem in all its
phases. This Court, in addition to other tasks that pile
up faster than they can be analyzed, has been burdened
with the rapidly growing problem of controlling concen-
trated wealth and industry, one of the most vital and in-
tricate of our national problems, and one which demands
experts for its solution.



CHAPTER II

DECISIONS AND DISSOLUTION DECREES UNDER THE SHERMAN

LAW 1890-1910

THE first suit filed under the Sherman law was against
the Nashville Coal Exchange which was composed of var-
ious coal mining companies in Kentucky and Tennessee and
of coal dealers in Nashville. The exchange was formed for
the purpose of fixing prices and regulating the output of
coal. In 1891, the Circuit Court declared the combination
to be illegal and enjoined its continuance. 1 No appeal was
taken from this decree.

The first important suit filed under the law was against
the Whisky Trust (the Distilling and Cattle Feeding Com-
pany), which was organized in 1887, and which was a very
large and well known trust in the early days of industrial
concentration. 2 By means of the "trustee device" the prop-
erties and management of seventy-two distilling companies
were turned over to a group of trustees in exchange for cer-
tificates representing equities in the combined properties.
The certificates formed the basis upon which the dividends
were distributed. Under this central control, sixty of the
companies were discontinued and the business of the trust
was confined to the remaining twelve. In 1892 the Govern-
ment filed suit against the combination, but the charges were
quashed in the Circuit Court on the ground that they failed
to set forth an indictable offense. 3 What seems more sig-
nificant than this initial defeat was the abandonment of
all further attempt to prosecute the Whisky trust. After
becoming involved in financial difficulties the trust was dis-
solved in 1896.

*46 Fed. Rep. 432.
50 Fed. Rep. 469.
50 Fed. Rep. 471.

32



Decisions and Dissolution Decrees 33

The second important industrial suit was against the
National Cash Register Company. This company, with per-
haps the exception of the Standard Oil, surpassed all the
trusts whose history is known in the use of unfair methods
of suppressing competition. 4 It was chiefly due to such
methods that the company early obtained a monopoly con-
trol of 82 percent of the cash register business, and later
increased it to 95 percent. 5 In 1893, suit was brought
against the officers of the company. The Court found true
the charges of "intent to engross, monopolize and grasp,
and of means clearly unlawful and adapted to accomplish
this intent" 8 of monopolizing the cash register trade, but
the suit was allowed to lapse because the complaining witness
entered into the combination of the defendants. 7 The fail-
ure to prosecute had a bad moral effect and showed the
lack of zeal on the part of the prosecutors. The injury to
the public was apparently not considered of much importance
at that time. Nearly two decades passed before another
suit was heard against the company or its officers. In the
meanwhile, the company continued its unfair practice and
controlled as high as 95 percent of the business from which
it derived large earnings.

THE SUGAR TRUST DECISION

The suit against the E. C. Knight Company, the "Sugar
Trust," was the first trust case decided by the Supreme
Court, and the decision was of great future importance.
This trust had been more conspicuous than any other. Its
political influences had long been known and the excessive
prices for such a commodity as sugar were particularly
objectionable.

Sugar refining naturally lends itself to monopoly, but in
this case it was easier to bring about and more profitable
because of protective tariff duties. 8 During a period of

4 See pp. 194-199.
.'201 Fed. Rep. 699.
"55 Fed. Rep. 641; Fed. Rep. 641.
'The Federal Antitrust Laws, 1916, p. 46.
"Taussig, Tariff History of the United States, p. 310.



34* Trust Dissolution

keen competition in the late '80's many refineries went out
of business. Following this seventeen of the twenty remain-
ing companies entered into an arrangement whereby the
properties and management of the companies were turned
over to a group of trustees in exchange for trust certifi-
cates which represented equities in the combined proper-
ties. The trustees discontinued twelve of the corporations
and consolidated the remaining eight into four. The capital
stock of the combination, which was $50,000,000, repre-
sented property worth only about $6,590,000. 9

This trustee device was declared illegal by the New York
State Court of Appeals in 1890, and the charter of the com-
pany was revoked. The American Sugar Refining Company
of New Jersey then became the organization of the combining
sugar interests. The advance in sugar prices made by the
trust had brought many new competitors into the field. The
combination acquired most of these, often paying enormous
sums. By 1892 only five independent refineries remained.
Four of these were in Philadelphia, the largest being the
E. C. Knight Company. The four companies controlled 33
percent of the total output and their acquisition in that
year gave the combination control of 98 percent of the
output. 10 To accomplish this purchase the capital stock
was increased to $75,000,000.

In 1894, the Government brought suit against the E. C.
Knight Company and others, charging that the purchase of
the four Philadelphia refineries was made for the purpose
of controlling the price of sugar, and it asked that the
purchase be declared void. The Supreme Court declared
that the defendants had created a monopoly in the manu-
facture of sugar, but held that the Sherman law did not give
the courts power to "deal with monopoly directly as such, or
to limit and restrict the rights of corporations created by
the States or citizens of the States in the acquisition, control
or disposition of property." Such power could only be
used to repress monopoly that comes within the rules by
which commerce is governed or whenever the transaction

Century Magazine, V. 65, p. 471.

"60 Fed. Rep. 307.

n 156 U. S. 16.



Decisions and Dissolution Decrees 35

itself is a monopoly of commerce. It was held that the
purchase of the refineries was for the object of manufactur-
ing sugar and bore no direct relation to interstate com-
merce. An attempt or even a successful monopoly of manu-
facture was held not to be an attempt to monopolize com-
merce even though the instrumentality of commerce was
necessarily employed to dispose of the product. 12

Justice Harlan gave a dissenting opinion in which he
held that interstate commerce did not consist in transpor-
tation simply, but included the purchase and sale of articles
intended to be sold among the states, as well as every species
of commercial intercourse. He declared that the present
case came fully within the Sherman law, which he believed
was primarily intended to free commerce from a combina-
tion controlling at its own discretion the price of an im-
portant commodity. If the sugar company did not come
within the scope of the act, then there was no legal prohibi-
tion against any combination from obtaining complete con-
trol of important commodities, such as oil, cotton, flour,
meat, or other necessities. This dissenting opinion was the
one later adopted by the courts.

The Knight decision destroyed the effectiveness of the
Sherman law for many years. The sugar trust, which had
been driven from New York, was allowed to continue its
monopoly under the laws of New Jersey unmolested. Many
other monopolistic combinations sought shelter under the
laws of this state. Had the prosecution been prompt and
successful the trust problem might never have grown to
such large proportions. The failure of the suit against one
of the chief trusts of the day weakened faith in the effective-
ness of the law and discouraged further efforts to enforce
it. The world's greatest trust movement soon took place
in this country before the effect of this decision was over-
come.

The American Sugar Refining Company has continued

its large and profitable business to the present day. Its

percentage of the enlarged business, however, is not so large

as in 1894. A suit to dissolve the company is now pending

"156 U. S. IT.



36 Trust Dissolution

in the Circuit Court, twenty-three years after the above
decision was given. 13

THE ADDYSTON PIPE AND STEEL COMBINATION

Following the defeat in the sugar trust case no important
suits against industrial trusts were attempted for a number
of years. This lull was due to several influences among
which may be mentioned the Knight decision, the serious
business depression from 1893-6, and the lack of sympathy,
and even hostility, on the part of several Attorney-Generals
toward enforcing the trust laws. The opportunity for
bringing suits against well known offenders was not lacking.
It is significant that the first important application of the
Sherman law was upon the labor unions, organizations per-
haps the least of all intended to come within its scope. It
was rather a law against capitalists. One of the earliest
labor union suits under the law was against Mr. Debs and
others who were directing the Pullman Car strike in 1894. 14
The defendants were enj oined from interfering in inter-
state commerce and obstructing the mails and they were
promptly punished later when they disobeyed the injunc-
tion.

The second important application of the law affected the
railroads, another class of organizations which it is doubt-
ful whether the framers of the law intended to include. The
Supreme Court decisions in the Trans-Missouri Freight As-
sociation case 15 in 1897 and the Joint Traffic Association
case 16 in 1898 held that agreements among common car-
riers to fix rates, even though the rates were reasonable,
were restraints of trade in violation of the Sherman law.
In the latter year two suits against live stock associations
the Kansas City Stock Exchange and the Traders Live
Stock Association of the same city were decided against
the Government by the Supreme Court. The defendants of

"See p. 275.

14 158 U. S. 564.

10 166 U. S. 290.

18 171 U. S. 505.



Decisions and Dissolution Decrees 37

the former were held not to be engaged in interstate com-
merce, 17 as in the Knight Case, and those of the latter were
declared not to be interfering even though their business
were adjudged to be interstate commerce. 18

It was not until 1899, nearly a decade after the passage
of the Sherman law, that the second industrial trust case was
decided by the Supreme Court. This was a suit against the
Addyston Pipe and Steel Combination which was the first
one dissolved under the law. 19 The combination, formed in
1894, included six companies engaged in the manufacture
and sale of cast iron pipe. The companies entered into an
agreement to raise and control the price of their product
in territory covering more than three-fourths of the coun-
try. Exhibits of the minutes of the organization showed an
extended system of bonuses ; the division of the country into
pay territory, free territory, and reserved cities; allotments
of the business ; and price making agreements. 20 In order
to carry out the price policy, a central board consisting of
representatives of the companies was appointed to receive
all bids and to let all contracts so that the company securing
the order should be protected by the other companies. The
products were largely sold by contract to municipal corpo-
rations, gas or water companies, and other large institutions
which usually invite bids from various competitors. After
the successful bidder had been determined by the auction
pool, or had been fixed by the arrangement as to reserve
cities, the other members of the combination put in bids as
high as the selected bidder requested in order to give the
appearance of active competition.

A suit was brought in 1896 to enjoin the operations of
the combination. The case was dismissed by the lower
court but it was remanded back by the Circuit Court of
Appeals with instructions to enter a decree for the Govern-
ment. In 1899 the Supreme Court unanimously held the
Addyston combination to be illegal and perpetually enjoined

17 171 U. S. 579.

18 171 U. S. 604.

19 175 U. S. 211.

30 175 U. S. 214.



38 Trust Dissolution

the defendants from maintaining it and from doing any busi-
ness under the arrangements. 21 Seven years later, the Su-
preme Court permitted the city of Atlanta to recover under
the Sherman law triple the excess price paid on products
purchased from the combination which resulted from the
semblance of competition set up by it. 22

The importance of the Addyston decision was the broad-
ening of the interpretation of the Sherman act, which had
been limited in the Knight decision, in holding it to apply
to a combination whose business was primarily manufactur-
ing or other activity even though it might be subject to
state rather than federal legislation. It was the first im-
portant dissolution of industrial monopoly under the act,
and may have been a factor in checking the great trust move-
ment which was at its height. It strongly discouraged com-
bination in the form of a pool.

THE NATIONAL HARROW COMPANY

Due to the extremely lax enforcement of the antitrust
laws during the McKinley administration there was an in-
terval of nearly five years following the Addyston decision
before another real trust case was brought before the Su-
preme Court. During this time few suits of any kind were
filed under the law. One of the more important was a suit
brought by the National Harrow Company against Mr.
Bemmet. The decision in this case shows the exclusive char-
acter of our patent rights. The company owned patents
covering the manufacture of spring-tooth harrows and sold
to others a license right to manufacture the harrows.
Under the binding terms of its agreements, the particular
kinds of the harrows which could be made by the licensee, the
price and terms of sale for each, and the territory where
each could sell were stipulated. In 1897 the company
brought suit against several licensees who did not abide by
all the provisions of the agreement, claiming that the con-

21 175 U. S. 211.
* 203 U. S. 390.



Decisions and Dissolution Decrees 59

tracts were illegal. The lower courts held that the con-
tracts were illegal, and no appeal was made. 23

In 1902 the National Harrow Company carried a test
case before the Supreme Court. This was a suit against
Mr. Bemmet, a licensee, who refused to keep his contract
requirements with the company on the ground that it was
illegal under the Sherman law. The Supreme Court held
that the company was, at the time the license was executed,
the absolute owner of the patents relating to the spring-tooth
harrow business, and was "therefore the owner of a monopoly
recognized by the Constitution and the Statutes of Con-
gress * The general rule is absolute freedom in the
use or sale of rights under the patent laws of the United
States. The very object of these laws is monopoly *
(and) the fact that the conditions in the contracts keep up
monopoly or fix prices does not render them illegal." 24 It
found "no purpose to stifle competition in the harrow busi-
ness than the patents provided for." 25 The clause pro-
hibiting the licensee from making other harrows than those
stipulated in the contract was held to be legal.

While the exclusive character of patents was well known,
this decision strengthened the tendency to secure monopo-
listic control on the basis of patent right. It will be pointed
out later how the control of several important industries
was secured and maintained largely by the use of restrictive
and exclusive contracts in connection with the manufacture,
sale, and use of patented machines, processes and products.

THE NORTHERN SECURITIES COMPANY

The first decision, following the Addyston, which helped
to broaden the construction and application of the Sher-
man law respecting industrial monopoly was in the Northern
Securities case. 26 This decision, rendered in 1904, had an

23 83 Fed. Rep. 36.
24 186 U. S. 91-2.
K 186 U. S. 92.
26 193 U. S. 197.



40 Trust Dissolution

important bearing upon the future form of monopolistic
combinations.

The question as to whether the Sherman law applied to
railroads had been decided by two earlier decisions. In the
Trans-Missouri Freight Association decision in 1897, an
agreement made between the Atchison and seventeen other
railroads, whereby the rates were to be determined, was
declared invalid under the law on the ground that the dis-
tricts served by the railroads were deprived of the benefits
of competition. 27 In the following year the Joint Traffic
Association, composed of thirty-two railroads operating
between Chicago and the Atlantic Coast, was declared il-
legal. 28 The latter association was formed for the purpose
of maintaining, jointly, through the medium. of a managing
board the freight and traffic rates already in force. It was
declared illegal upon the same ground as in the preceding
case.

The principal facts concerning the Northern Securities
Company can be briefly stated. 29 In 1901, under the lead-
ership of J. J. Hill and J. P. Morgan, the stockholders of
the Great Northern and Northern Pacific railroad cor-
porations, having competing and substantially parallel lines
from the Great Lakes and the Mississippi River to the Pacific
Ocean at Puget Sound, formed the project of combining
the two companies. The primary need for both companies
was an independent entrance into Chicago; and it was evi-
dent that a single road entrance would amply suffice for the
two. The Burlington system, which had the necessary Chi-
cago connection, and also gridironed a rich and populous
territory of its own, was acquired for this purpose in 1901.
By the terms of purchase the Northern Pacific and Great
Northern were each to receive one-half of the $108,000,000
of Burlington stock; and were to pay for it in joint long-
time collateral trust bonds. About 97 percent of the Bur-
lington stock was secured and deposited in trust as security
for the new bonds.

27 66 U. S. 290.

28 171 U. S. 505.

29 193 U. S. 320 et seq. ; Ripley, Railroad Finance and Reorganization,
pp. 491-9.



Decisions and Dissolution Decrees 41

The foregoing transaction was bitterly opposed by the
Harriman-Union Pacific interests, who also sought the
Burlington system, which would give the Union Pacific,
terminating at the Missouri River, connection with Chicago.
The Harriman forces then attempted to secure control of the
Northern Pacific by bidding for the stock in the open market,
and through the latter secure a half interest in the Burling-
ton. A stock market panic resulted on May 9, 1901, and
Northern Pacific stock sold as high as $1,000 a share. The
Harriman interests succeeded in obtaining a majority of
the total amount of stock, but their majority consisted
largely of preferred shares which could be retired on



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