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William H. S. (William Harrison Spring) Stevens.

Unfair competition [electronic resource] : a study of certain practices, with some reference to the trust problem in the United States of America online

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acted as brokers in the sale of corn products.






Bogus "Independent" Concerns 31

glucose factory, and that they were prepared to
offer various corn products at low prices. It is
also asserted that they held themselves out as
independent manufacturers seeking a market
for their goods, although the glucose was in
fact that sold by the American Maize Products
Company to the Corn Products Company.
The same firm, it is claimed, was directed to
confine its sales to the customers of independent
manufacturers, being strictly forbidden to sell
the customers of the Corn Products Company.
In order that customers and manufacturers
might not learn the source of supply, all ship-
ments from the American Maize Products Com-
pany were made under fictitious names. 1

The American Can Company is another
example of a concern using bogus independents.
In 1915 this organization acquired the American
Stopper Company, which had been organized
in 1901, and which manufactured decorated tin
boxes. After the acquisition, as shown by a
letter introduced in the Can record, the sta-
tionery of the American Stopper Company
carried beneath the name of the company the

1 Petition in equity, United States v. Corn Products Refining
Company, U.S.D.C. for the Southern District of New York,
pp. 22-24. Cf. also allegations of bogus concerns in original
petition, United States v. Sugar Refining Company, cit. supra,
p. 148.



32 Unfair Competition

following statement: "The Largest Maker of
Tin Boxes Outside of the Trust. " x

Conrad Diesel testified that in 1906 the Union
Stock Yards Can Company was taken over
by the American Can Company. Diesel was
at that time the assistant general manager of the
former organization and was made its vice-
president and general manager by the American
Company following the acquisition. He further
testified that the Stock Yards Can Company
was operated as an independent company and
that he was instructed to keep secret the fact
that it was owned by the American Can
Company. 2

Similarly, it was charged in the suit against
the Central West Publishing Company, Ameri-
can Press Association, and others that the
American Press Association maintained for
many years hi various cities of the country,
houses known under different names which were
understood by newspapers generally to be inde-
pendent organizations. When the American
Press Association did not desire to sell to a
particular customer at a certain price, or if it
lost such a customer on account of the prices

1 Record, United States v. American Can Company, U.S.D.C.
for the District of Maryland, Vol. XII, p. 5647.

a Conrad Diesel, ibid., Vol. VIII, pp. 3805-3806.



Bogus "Independent" Concerns 33

which it made, one of these houses would be
instructed to get the business at such a price as
might be necessary to obtain it. 1

In the fertilizer industry a very large number
of supposedly independent concerns have been
operated. It is worth noting that in the great
majority of cases these concerns have been
employed by the larger manufacturers. Some
thirteen of the latter have controlled forty-odd
manufacturing subsidiaries, fifty-odd selling
subsidiaries, and seventy-odd affiliated manu-
facturing companies, all of which were operated
without disclosing their identity. Two of the
larger organizations, Swift & Company and
Baugh & Sons, have not controlled any uniden-
tified company. 2

The operation of bogus concerns has also
been alleged in the case of at least one common

1 Petition in equity, United States v. Central West Publishing
Company, U.S.D.C. for the Northern District of Illinois, pp. 16-17.

2 Federal Trade Commission, Report on Fertilizer Industry,
chap. viii. In this industry it has been asserted that "the
main purpose" of the use of secretly controlled companies "has
been to secure the services of a larger number of local dealers
for the sale of goods in a given locality. Where there are several
dealers in a town each one desires to handle a line of goods not
handled by the others. If all of the business of a fertilizer
company were done in its own name, it would have, generally
speaking, only one representative in a town, while by means of
subsidiaries it may have all the dealers as representatives. It is
claimed that several representatives, each pushing particular



34 Unfair Competition

carrier. The Enterprise Transportation Com-
pany was incorporated in Massachusetts about
1905, and from that time until 1908 it operated
steamers between New York and Providence,
Newport, Fall River, and Narragansett Pier.
It had connections with the trolley lines which
radiated from these points, thus possessing
through routes to and from New York City.
It was asserted that, for the purpose of suppress-
ing this competition, the New York, New
Haven & Hartford Railroad Company caused
the incorporation in the state of Connecticut of
the United States Transportation Company.
This organization purchased two steamers, the
"Rhode Island" and the "Connecticut," which
boats were placed in operation between New
York City and Fall River as an independent
line known as the Neptune Line.

brands, secure more business than one representative handling
all the brands of a company" (ibid., pp. 179-80).

The soundness of this claim is open to some question. There
is nothing to prevent a manufacturer from allotting his various
brands one to each dealer in a particular locality so that each
dealer will be handling a line different from that of any other
even though it does not bear the name of a different company.
The value of brands and good-will also need not necessarily be
lost if the name of the controlling company is published merely
as a successor company, the brand and name of the original com-
pany being retained on the packages.

It should be noted that as a result of a series of conferences
with the Federal Trade Commission the majority of the fertilizer
companies have voluntarily agreed to identify their subsidiary
and affiliated companies.



Bogus "Independent" Concerns 35

Furthermore, in 1905 the Joy Line, which
was operating from New York to Providence
and Boston, was secretly purchased by the New
Haven through the New England Navigation
Company. During the succeeding two years
this control was continued and the Joy Line
also was operated ostensibly as an independent
company in competition with the Enterprise
Transportation Company. 1

An examination of this method of competition
shows that there are two important points of
difference between the method of bogus con-
cerns and the method of local price-cutting. In
the first place, the former offers facilities for
obtaining information which are not afforded
by the latter. Disclaiming all connection with
a trust, a bogus organization is frequently
placed hi a favorable position to learn the names
of the customers of independent competitors
and to secure valuable information regarding
their manufacturing methods, trade secrets,
and business generally. The information thus
acquired is transmitted to the parent organ-
ization, thus contributing to further its efforts
to destroy independent business.

'Original petition, United States v. New York, New Haven
6* Hartford Railroad Company, U.S.D.C. for the Southern Dis-
trict of New York, pp. 70-74.



36 Unfair Competition

A very good illustration of what may be
expected of a bogus concern in this way can be
cited from the history of the old American
Tobacco Company. The Wells-Whitehead
Tobacco Company, claiming to be an inde-
pendent concern, though in fact owned by the
Trust, manufactured cigarettes at Wilson,
North Carolina. At the same place the Ware-
Kramer Company, a genuine independent, was
endeavoring to build up a business. A letter
to W. M. Carter, an officer of the Wells-
Whitehead Tobacco Company, from the vice-
president of the American Tobacco Company,
and the accompanying testimony, is as follows :

DEAR SIR:

We are advised that a car-load of cigarettes has
been exported to China by the Ware-Kramer Tobacco
Company. If possible I wish you would ascertain to
what port these goods were shipped and the name of
the consignee. If you cannot learn the name, perhaps
you can find out the markings on the cases, as well as
the point in this country from which the goods were
shipped by steamer.

Yours very truly,

In writing with a pen, this :

A car-load means to us about five million cigarettes.
If we get this information I think we can shut off their
market. You wrote and sent this letter ?



Bogus "Independent" Concerns 37

A . Yes. We were interested in the British Ameri-
can and any information we can give them we are going
to do it. We are hired to look after our business and
that is what we are going to do if we can. 1

A second point of difference between the
method of local price-cutting and the method
of bogus concerns lies in the fact that the for-
mer is geographically limited while the latter is
not so restricted. Occasionally a bogus inde-
pendent concern operates for a given period
within such a relatively small area that its
price-cutting is essentially local in character.
For example, several of the bogus organizations
operated by the old Standard Oil Company were
merely peddling concerns. On the other hand,
this is not always or even usually the situation.
The bogus concern may sell over such a wide ter-
ritory that its operations can in no sense be
regarded as local in character, as is clearly illus-
trated by the case of the bogus concern oper-
ated by the Corn Products Refining Company.

From another point of view, however, local
price-cutting and bogus concerns are closely
analogous to one another. Where either
method is used, prices are made practically
without reference to cost and are governed
solely by the competition which must be met.

1 Brief for the United States, United States v. American Tobacco
Company, cit. supra, pp. 104-5.



38 Unfair Competition

When the competition to be suppressed is
essentially local in character, the method of
bogus concerns would appear to be superior to
local price-cutting. A concern operating a
bogus independent need not, and generally does
not, cut its own prices. Although this is the
case, the trust may be able, through the good-
will which it has developed, to retain at least a
considerable proportion of its established trade.
Perhaps in exceptional cases it may retain
practically all of it. The latter situation is
especially likely to occur when the bogus organ-
ization is instructed, as is sometimes the case,
to make no attempt to sell anyone except the
customers of independents, or when, as in the
Corn Products Refining Company case cited
above, it is forbidden to sell to the trade of
the trust under any circumstances. Under the
method of bogus independent concerns, there-
fore, the trust sustains no loss upon the business
which it retains but only upon that which it
secures through the bogus concern from the
customers of bona fide independents. On the
other hand, when the method of local price-
cutting is used, the trust is compelled to sustain
a loss, not only upon the business obtained from
the customers of independents, but also upon
that of its old customers as well. Practically



Bogus "Independent" Concerns 39

all of the latter it is certain to retain in view of
its lower prices.

The unfairness of competition conducted by
means of bogus concerns is evident. Since
prices are determined with reference to destroy-
ing competition and not with reference to costs,
productive and selling efficiency is a no more
efficacious protection than it is under local
price-cutting. These qualities alone will not
enable an organization to survive. In addition,
a further unfairness is to be found in this method
in that it affords opportunities for acquiring
information hi regard to the business of com-
petitors which do not exist in case of local price-
cutting.



CHAPTER III

FIGHTING INSTRUMENTS

Closely related to local price-cutting on the
one hand and the operation of bogus concerns
on the other are "fighting instruments." Cer-
tain ships, articles, and goods at one time and
another have been utilized for the purpose of
destroying competition through destructive
price-cutting. While fighting ships or brands
of goods are thus pushed by the organizations
using them in competition with independent
ships or goods,' yet as -a general rule such con-
cerns at the same time fully maintain their
prices or charges except in the case of the
ing instrument.

Prominent among these devices are th(
so-called "fighting ships" employed by
various steamship conferences. 1 The "fighting
ship" is usually called into service when corrP
petition is inaugurated in a trade nominally con-:'
trolled by conference lines. As soon as the new
competitor announces a sailing date, the con-
ference issues a circular to shippers advertising



1 For explanation of the steamship conference, see infra, //'.'
chap. vii. , ' ,

40




Fighting Instruments 41

a steamer to sail upon or about the same date.
The conference circular usually offers a rate
which is intended to prevent the new line from
securing a cargo. 1

An interesting development of fighting ships
was found in the Syndikats-Rhederei. This
organization was a vessel-owning corporation
with a capital of $1,428,000, through which were
operated the fighting ships of the six largest
Hamburg steamship companies engaged in the
extra-European trade. Nominally the com-
pany was engaged hi commercial transportation
enterprises, but primarily it was a defensive
corporation, the capital stock of which was
owned in the following proportions by the
various companies: Hamburg- American Line,
$785,400; Hamburg-South American Line,
$166,600; German Steamship Company, $154,-
700; C. Woerman, $119,000; German- Austra-
lian Steamship Company, $130,900; and the
German East Africa Company, $71,400. The
proportion of shares held was determined
according to the tonnage of each line. Four
relatively small and inexpensive ships were pur-
chased by the corporation. These with others

1 Proceedings of the Committee on the Merchant Marine and
Fisheries in the Investigation of Shipping Combinations, pp. 265,
1252-54, 1257. Numerous specific illustrations of this practice
will be found scattered through the same report.



42 Unfair Competition

chartered when the need arose were "hired
out" to the six owners to meet competition
and to make it unprofitable. When not en-
gaged in a "fight," these steamers found
employment upon regular time charters. 1

The operation of fighting ships, however,
seems not to have been confined to foreign
trade. In 1914, the Manhattan Navigation
Company filed a bill of complaint against the
Hudson River Navigation Company. In that
document the claim is set up that for four
years the latter company operated two steam-
boats between New York and Albany charging
rates of transportation for both freight and
passengers which were much less than cost.
These steamers, it is asserted, were advertised to
sail and did sail at or about the same hours as
the steamers of the Manhattan Company, the
intention being to bring about the financial
destruction of that organization. 2

Easily the most notorious instance of the use
of fighting brands was in the case of the plug-

1 Report of Robert P. Skinner, consul-general at Hamburg,
Germany, Special Diplomatic and Consular Reports for the Use
of the Committee on the Merchant Marine and Fisheries, Dealing
with Methods and Practices of Steamship Lines Engaged in the
Foreign Carrying Trade of the United States, pp. 53~54.

a Complaint, Manhattan Navigation Company v. Hudson River
Navigation Company, U.S.D.C. for the Southern District of New
York, p. 8.



Fighting Instruments 43

tobacco war which continued roughly from
1894 to 1898. In the years immediately follow-
ing its organization the old American Tobacco
Company controlled a relatively small propor-
tion of the plug-tobacco output of the United
States. In 1894 its total production was only
8,974,118 pounds, and at least three companies
were annually producing a much greater amount
than this. As early as 1890 Liggett & Myers
claimed to be manufacturing over twenty-
seven million pounds annually. Next to Lig-
gett & Myers ranked the Lorillard Company;
and in 1893 the claimed output of the Drum-
mond Tobacco Company of fourteen million
pounds was far in excess of the American's.

The principal brand which was selected by
the American Tobacco Company for the attack
upon its competitors was known as "Battle
Axe." In 1891 this tobacco sold at retail for
fifty cents a pound. In 1894 consumers pur-
chased it for thirty cents and hi the succeeding
year for a tune the price to jobbers was as low
as thirteen cents. As the internal revenue tax
at that tune was six cents a pound, this price
left only seven cents a pound to pay for the leaf
and the cost of manufacturing and distributing.

As noted above, the American sold less than
nine million pounds of plug in 1894. Under the



44 Unfair Competition

price-cutting attack of 1895 it enlarged its sales
to twenty-one million pounds, an increase of,
roughly, 130 per cent. Two years later, in
1897, its sales amounted to thirty-eight million
pounds, an increase of 80 per cent over its out-
put in 1895, and of more than 320 per cent over
that of 1894. In the four years from 1894 to
1897 inclusive the proportion of the plug-
tobacco output of the United States controlled
by the American increased from 5.6 to 20.9
per cent. In the same period the profits of
that organization declined heavily. In 1894
its net earnings were approximately five million.
In the next year, with an increase of twelve
million pounds hi sales of plug tobacco, the
earnings were approximately one million dollars
less. The accounts of the company show that
the loss on the manufacture and sale of plug
tobacco in 1896 amounted to over one million
dollars in the face of a sales increase over 1894
of about twenty-two million pounds. Although
in 1897 the American Tobacco Company sold
nearly thirty million pounds more of plug
than in 1894, its earnings were approximately
$800,000 less; while in 1898 the loss on the
plug-tobacco business alone was over $800,000. r

1 Report of the Commissioner of Corporations on the Tobacco
Industry, Part I, pp. 95-98.



Fighting Instruments 45

The "knocker machines" of the National
Cash Register are a most interesting example of
fighting instruments. A "knocker" "was a
machine that was devised and built and con-
structed for the purpose of meeting competition
and placed on the price list under the head of
miscellaneous and was only used in cases of
extreme competition; it was also understood
that we were not allowed to sell this register
only in case of extreme competition; that is,
the National agents." 1

Hugh Chalmers, formerly vice-president and
general manager of the National Cash Register
Company, gave further details -regarding
"knocker" machines:

We had a great many different kinds of machines,
and when a competing machine was placed upon the
market, we would discuss which one of those machines,
if we had one, would be best suited to meet that com-
petition. If we did not have any machine to meet
it, we would build one in the inventions department.
The way we would meet competition in the field was
that if a man was offering an Ideal register or a Hall-
wood register, or a register of any other make, our
salesman would have one that would have all the
functions that that machine would have, that he would
offer to sell for less price than the other machine was
offered. In the parlance of the National Cash Register

1 Henry F. James, record, State v. National Cash Register
Company, cit. supra, Vol. I, p. 56.



46 Unfair Competition

Company such a machine was called by a number. It
did not have any other name or designation when I was
there. I have heard the term "knocker" used. As I
understand it that term was a name given to machines
by our competitors that were used against them in
competition. These machines that I say were given
numbers were machines of that character. The price
of that machine that we would send out in compe-
tition was fixed at what we wanted to sell it for.
Our price was always based on the price of the
competition machine and never upon the cost of
manufacture.

When I say that we built machines as nearly like
the competitive machine as possible, I mean in appear-
ance and in the function that the machine performed.
.... Our idea was to build a machine to meet that
competition. I do not necessarily mean that we copied

the mechanism of that machine I mean that

we would build a machine that had the same function,
the same features on it that this other machine had,
that would do the same thing, whether in the same way
or not. 1

The United States government has alleged
that the Thread Combination has made use of
"fighting brands" of thread. It was charged
that when an independent thread manufacturer
had succeeded in developing an appreciable
business, the agents of the combination revived

1 Hugh Chalmers, record, Patterson v. United States, cit. supra,
Vol. I, pp. 457-59.



Fighting Instruments 47

one or more of those brands whose use had been
discontinued.^ These revived brands were
known as "fighting brands" and they were sold
at prices below the cost of production solely to
the customers of independent organizations.
Regular salesmen seldom handled them.
Instead they were marketed by special sales
forces known as "flying squadrons" which were
sent on the road by the combination. Inde-
pendent jobbers who refused to deal with the
combination were asserted to have been at-
tacked in a similar fashion. 1

The Eastman Kodak Company and allied
concerns appear likewise to have made exten-
sive use of fighting brands at one time
and another. As early as 1898 or 1899 the
Rives and Steinbach papers which were
produced by the General Paper Company
were probably the most suitable raw papers
in existence for the gelatine printing-out
process. 2

In the original exclusive contract for han-
dling these papers in the United States which
was obtained by the Eastman Kodak Company

1 Petition in equity, United States v. American Thread Com-
pany et al., U.S.D.C. for the District of New Jersey, p. 14. These
practices were enjoined by the decree of the court entered June 2,
1914.

2 For an explanation of this fact cf . infra, chap. viii.



48 Unfair Competition

there appeared the following clause, known as
the fighting-brand clause:

In case any printing-out paper sensitized on other
raw paper than that furnished by the General Paper
Co. should make it [sic.] appearance in said territory,
and in order to drive it out of the market it becomes
necessary for the Kodak Co. to reduce the prices
of its paper, then the General Paper Co. shall,
during not more than six months, allow to the Kodak
Co. a proportionate rebate on the price of its
plain and baryta-coated papers used in the manu-
facture of the printing-out paper sold at such reduced
price. 1

The year after the above contract was made
Eastman wrote to Paul Puttman, at one time
representing Steinbach & Company and later
the General Paper Company, suggesting that
the General Aristo Company 2 maintain three
fighting brands of photographic paper: one
for gelatine paper, one for collodion paper, and
one for gelatine developing paper. Eastman

1 General Paper Company, Steinbach & Company, Blanchet
Freres & Kleber, and Eastman Kodak Company, terms of sale,
October 20, 1898, re Raw-Paper Government Exhibit 14, record,
United States v. Eastman Kodak Company, U.S.D.C. for the
Western District of New York, Vol. V, p. 2048. For further
details in regard to this contract cf. infra, chap. viii.

3 The General Aristo Company was the branch of the Photo-
graphic-Supplies Combination which at that time marketed
paper.



Fighting Instruments 49

testified that he was not sure "whether we
adopted them in each of the three lines, but we
did adopt them in some of the lines at any
rate." 1

Kresko paper marketed by the Eastman
Kodak Company appears to have been used
a6 a fighting brand about 1900. In a letter to
the Morrison Photographic Supply Company we
find the folio whig paragraph:

Would state that Kresko paper in [sic] not to be sold
over the counter indiscriminately, but is to be sold by
you only to professional photographers located in


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Online LibraryWilliam H. S. (William Harrison Spring) StevensUnfair competition [electronic resource] : a study of certain practices, with some reference to the trust problem in the United States of America → online text (page 3 of 16)