Front Page Titles (by Subject) § 112.: Modern statutory legislation against trade combinations, virtual monopolies, and contracts in restraint of trade.— - A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 1
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§ 112.: Modern statutory legislation against trade combinations, virtual monopolies, and contracts in restraint of trade.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 1 
A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 1.
Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.
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Modern statutory legislation against trade combinations, virtual monopolies, and contracts in restraint of trade.—
Finding that the common law was insufficient to suppress or even restrain the growth of large trade combinations, public opinion in this country has demanded and secured the enactment in almost every State of statutes, which not only declare all contracts and combinations in restraint of trade to be non-enforceable, as the common law treated unreasonable restraints of trade; but went further, and made two modifications of the common law, which are found in all of these statutes, however variant in detail they may be in other respects, viz.: first, that the act of entering into such a combination or contract is itself an actionable conspiracy, which is punishable criminally or actionable civilly, according to the provisions of the particular statute; and, secondly, that all contracts, agreements, or combinations, which have the purpose or effect of restraining trade and suppressing competition, are illegal, whether the restraint was reasonable or unreasonable. Even Congress was prevailed upon to pass such an act. In the note below, the United States and New York anti-trust statutes are given in full, so far as they bear upon the subject under inquiry, and the synopses of the statutes in some of the other States are added, so that the reader may appreciate the sweeping changes, which these statutes have made in the common law, relating to the same matters.1
It is believed that the constitutionality of none of these numerous anti-trust statutes has been successfully questioned on the ground that they infringed the personal liberty of contract, in punishing civilly or criminally the entrance into a contract or combination in unreasonable restraint of trade. That such contracts and agreements are void, independently of statute and at the common law,—so far, at least, as to justify the courts in refusing to enforce them or in any other way to give the parties to them the aid of judicial process in protecting and enforcing the rights of parties, which grow out of such contracts and agreements—have been too long the settled rule of law, to admit of any serious question now. And the power of the State to declare such contracts unlawful being conceded it is completely within the discretion of the legislature to determine whether such unlawful contracts and combinations shall be simply ignored by the courts, or the parties to them be subjected to criminal or civil liabilities for violating the law in undertaking to restrain trade and stifle competition. The Texas Anti-trust law was held by an United States judge to be unconstitutional as being class legislation, in that it excepts from the force of its provisions the combinations of producers or raisers of agricultural products and live stock.1 And it would seem as if the exception would justify the conclusion. The same judge pronounced the law unconstitutional on the further ground that it violated the Fourteenth Amendment of the Constitution of the United States, in that it denies to citizens of the United States, the right to make valid contracts with respect to their business and property.2 But the constitutionality of the statute has been sustained by the Supreme Court of Texas;3 and I know of no decision of a court of last resort, either Federal or State, in which an anti-trust law was held to be unconstitutional, because it invaded the liberty of contract in prohibiting the individual from entering into combinations to restrict trade or create virtual monopolies.
But these statutes have, as already stated, made another equally important change in the common law. As it has been very fully explained in preceding sections,1 at common law, as it came to us from England at the time of the Revolution, only those contracts were declared to be void as against public policy which produced an unreasonable restraint upon trade and competition. The mere fact, that the contract was one in restraint of trade, did not make it void at common law. The scope and purpose of the contract or combination in restraint of trade had to be unreasonable and injurious to the public welfare, before the courts would pronounce it void as against public policy. But many of these modern statutes, if not most of them, including those of the United States and of New York, go further and declare all such contracts and combinations unlawful and all persons amenable to the punitory provisions of the respective statutes, who enter into such contracts and combinations, which have either the effect or purpose of restraining trade, restricting competition and creating monopolies in trade. Some of them, like the Michigan statute, expressly exclude contracts for the sale of the good-will of a business. In a recent case, it has been held in New York that a contract in connection with the sale of the good-will of the business, that the seller will not compete with the buyer within a specified area, did not violate the anti-trust law.2 On the other hand, in most of these statutes, there is no such exception.3 The statutes have been assailed on the ground of unconstitutionality, because they worked an unlawful infringement of the liberty of contract in prohibiting contracts and combinations in restraint of trade, which were reasonable, and hence could not be pronounced injurious to the public welfare. Several of the cases, in which this point was raised, deserve more than a passing consideration.
The first case, to which attention is called, is one arising under the New York statute.1 The defendant was a member of an association of retail coal dealers in the town of Lockport, N. Y. The association was formed for the purpose of regulating the retail price of coal, at a figure which assured the dealers a reasonable profit, and of preventing under-bidding of each others by rival dealers. The by-laws of the association prohibited any member from selling at any other price than that which was fixed by the vote of five-sixths of the members, and provided that at no time should the price be more than $1.00 per ton in advance of the wholesale price, unless a higher advance be ordered by the unanimous vote of the members. In holding the law to be constitutional, and the association an illegal conspiracy, the court said: “The defendants gave evidence tending to show (and of this there was no contradiction) that before and at the time of the organization of the exchange the excessive competition between the dealers in coal in Lockport had reduced the price below the actual cost of the coal and the expense of handling, and that the business was carried on at a loss. It was not shown that the prices of coal, fixed from time to time by the exchange, were excessive or oppressive, or were more than sufficient to afford a fair remuneration to the dealers. The trial judge submitted the case to the jury upon the proposition that, if the defendants entered into the organization agreement for the purpose of controlling the price of coal and of managing the business of the sale of coal, so as to prevent competition in price between the members of the exchange, the agreement was illegal; and that if the jury found that this was their intention, and that the price of coal was raised in pursuance of the agreement to effect its object, the crime of conspiracy was established. The correctness of this proposition is the main question in the case. If a combination between independent dealers, to prevent competition between themselves in the sale of an article of prime necessity is, in the contemplation of the law, an act inimical to trade or commerce, whatever may be done under and in pursuance of it, and although the object of the combination is merely the due protection of the parties to it against ruinous rivalry, and no attempt is made to charge undue or excessive prices, then the indictment was sustained by proof. On the other hand, if the validity of an agreement, having for its object the prevention of competition between dealers in the same commodity, depends upon what may be done under the agreement, and it is to be adjudged valid or invalid according to the fact whether it is made the means for raising the price of a commodity beyond its normal and reasonable value, then it would be difficult to sustain this conviction; for it affirmatively appears that the price fixed for coal by the exchange did not exceed what would afford a reasonable profit to the dealers. The obtaining by dealers of a fair and reasonable price for what they sell does not seem to contravene public policy, or to work an injury to individuals. On the contrary, the general interests are promoted by activity in trade, which cannot permanently exist without reasonable encouragement to those engaged in it. Producers, consumers and laborers are alike benefited by healthful conditions of business.”
This was held not to be the question.
“The question is, was the agreement, in view of what might have been done under it and the fact that it was an agreement, the effect of which was to prevent competition among the coal dealers, one upon which the law affixes the brand of condemnation? It has hitherto been an accepted maxim in political economy that competition is the life of trade. The courts have acted upon and adopted this maxim in passing upon the validity of agreements, the design of which was to prevent competition in trade, and have held such agreements to be invalid. * * *
“The gravamen of the offense of conspiracy is the combination. Agreements to prevent competition in trade are in contemplation of law injurious to trade, because they are liable to be injuriously used. The present case may be used as an illustration. The price of coal now fixed by the exchange may be reasonable in view of the interests both of dealers and consumers, but the organization may not always be guided by the principle of absolute justice. There are some limitations in the constitution of the exchange, but these may be changed, and the price of coal may be unreasonably advanced. It is manifest that the exchange is acting in sympathy with the producers and shippers of coal. Some of the shippers were present when the plan of organization was considered, and it was indicated on the trial that the producers had a similar organization between themselves. If agreements and combinations to prevent competition in prices are or may be hurtful to trade, the only sure remedy is to prohibit all agreements of that character.”
The charge to the jury was sustained and the verdict affirmed. The next case is from the Supreme Court of the United States,1 arising under the United States Anti-trust law. An association had been formed between certain competing railroads “for the purpose of mutual protection by establishing and maintaining reasonable rates, rules, and regulations on all freight traffic.” The United States Supreme Court held this to be an unlawful combination in restraint of trade, under the national anti-trust law of 1890. In delivering the opinion of the court, Mr. Justice Peckham said in part:—
“It is now with much amplification of argument urged that the statute in declaring illegal every combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, does not mean what the language used therein plainly imports, but that it only means to declare illegal any such contract which is in unreasonable restraint of trade, while leaving all others unaffected by the provisions of the act; that the common law meaning of the term ‘contract in restraint of trade,’ includes only such contracts as are in unreasonable restraint of trade, and when that term is used in the Federal statute, it is not intended to include all contracts in restraint of trade, but only those which are in unreasonable restraint thereof.
“The term is not of such limited signification. Contracts in restraint of trade have been known and spoken of for hundreds of years both in England and in this country, and the term includes all kinds of those contracts which in fact restrain or may restrain trade. Some of such contracts have been held void and unenforceable in the courts by reason of their restraint being unreasonable, while others have been held valid because they were not of that nature. A contract may be in restraint of trade and still be valid at common law. Although valid, it is nevertheless a contract in restraint of trade, and would be so described either at common law or elsewhere. By the simple use of the term ‘contract in restraint of trade,’ all contracts of that nature, whether valid or otherwise, would be included, and not alone that kind of contract which was invalid and unenforceable as being in unreasonable restraint of trade. When, therefore, the body of an act pronounces as illegal every contract or combination in restraint of trade or commerce among the several States, etc., the plain and ordinary meaning of such language is not limited to that kind of contract alone, which is in unreasonable restraint of trade, but all contracts are included in such language, and no exception or limitation can be added without placing in the act that which has been omitted by Congress. * * *
“The arguments which have been addressed to us against the inclusion of all contracts in restraint of trade, as provided for by the language of the act, have been based upon the alleged presumption that Congress, notwithstanding the language of the act, could not have intended to embrace all contracts, but only such contracts as were in unreasonable restraint of trade. Under these circumstances we are, therefore, asked to hold that the act of Congress excepts contracts which are not in unreasonable restraint of trade, and which only keep rates up to a reasonable price, notwithstanding the language of the act makes no such exception. In other words, we are asked to read into the act by way of judicial legislation an exception that is not placed there by the law-making branch of the government, and this is to be done upon the theory that the impolicy of such legislation is so clear that it cannot be supposed that Congress intended the natural import of the language it used. This we cannot and ought not to do. That impolicy is not so clear, nor are the reasons for the exception so potent, as to permit us to interpolate an exception into the language of the act, and to thus materially alter its meaning and effect. It may be that the policy evidenced by the passage of the act itself will, if carried out, result in disaster to the roads, and in a failure to secure the advantages sought from such legislation. Whether that will be the result or not, we do not know and cannot predict.
“These considerations are, however, not for us. If the act ought to read as contended for by defendants, Congress is the body to amend it and not this court, by a process of judicial legislation, wholly unjustifiable. Large numbers do not agree that the view taken by defendants is sound or true in substance, and Congress may and very probably did share in that belief in passing the act. The public policy of the government is to be found in its statutes, and when they have not directly spoken, then in the decisions of the courts and the constant practice of the government officials; but when the lawmaking power speaks upon a particular subject, over which it has constitutional power to legislate, public policy in such a case is what the statute enacts. If the law prohibit any contract or combination in restraint of trade or commerce, a contract or combination made in violation of such law is void whatever may have been theretofore decided by the courts to have been the public policy of the country on that subject.”
In the courts below, in this Freight-Association case, the association was held not to have violated the Anti-Trust law in that the purpose of the organization was shown by the terms of agreement as well as by the reasonableness of the rates of freight agreed upon, to be the prevention of freight-rate wars among themselves, and not the exaction of extortionate rates. These courts held that the act of Congress was designed to prevent and punish the making of those contracts and combinations in restraint of trade, which were held by the courts, independently of and prior to the enactment of the statute, to be against public policy, because of their unreasonableness.
“The test of the validity of such contracts or combinations is not the existence of restriction upon competition imposed thereby, but the reasonableness of that restriction under the facts and circumstances of each particular case. Public welfare is first considered, and, if the contract or combination appears to have been made for a just and honest purpose, and the restraint upon trade is not specially injurious to the public, and is not greater than the protection of the legitimate interest of the party in whose favor the restraint is imposed reasonably requires, the contract or combination is not illegal.”1
The same question was raised before the Supreme Court of the United States in the Joint Traffic Association, the purpose of which association was stated in the preamble of the articles of agreement to be “to aid in fulfilling the purpose of the interstate commerce act, to co-operate with each other and adjacent transportation associations, to establish and maintain reasonable and just rates, fares, rules and regulations on State and interstate traffic, to prevent unjust discrimination and to secure the reduction and concentration of agencies and the introduction of economies in the conduct of the freight and passenger service.”
The court, speaking through Mr. Justice Peckham, affirmed the judgment of the court in the case of the Trans-Missouri Freight Association, and declared the Joint Traffic Association to be, under the act of Congress of 1890, an unlawful combination in restraint of trade, although it was conceded that the purpose of the association was not to practice extortion upon the public, but to protect the railroads composing the association from ruinous competition among themselves.1
The position, taken by the United States Supreme Court and the New York Court of Appeals, has been indorsed and taken by the other courts of the country, in construing the operation and scope of the anti-trust laws, in a number of cases. The Kansas City Live-stock Association, formed to restrain but not to stifle competition, was held to be unlawful.1
In New York, it was held that in order that the combination may come within the prohibition of the anti-trust laws, the commodity dealt in by the combination need not be an article of necessity.1 It has been held in Nebraska that a laundry is not a manufacturing establishment so as to bring a combination of proprietors of laundries within the condemnation of the anti-trust law of that State, which prohibits combinations of manufacturers and dealers.2 It has been held in Indiana on the other hand, that a combination of gas companies, to fix and maintain the price of gas, violates the anti-trust law.3 It has been held in a number of States, that all contracts and agreements between fire insurance companies for the establishment of uniform rates of premium, are in violation of these anti-trust statutes.4
The courts have gone still further in the application of these statutes, and have held them to apply to the formation of a corporation with the avowed purpose of controlling the trade and the price of a commodity of general use. The mere purpose to create a corporation, large enough and powerful enough to drive all other competitors out of the business, brings the parties to the combination within the comdemnation of the law.5
But where there is no such purpose to create a monopoly, but only the lawful purpose of putting an end to litigation of rival corporations over their conflicting interests, the consolidation of the corporations is not illegal, as tending to create a monopoly, particularly, when the corporations hold no public franchise, like a railroad, and their output comprises but a small portion of the same product in the country.1 It has been also held in Illinois, that a linseed oil company does not violate the anti-trust law, merely by buying up a great many oil mills and plants, and developing their business into large proportions.2
The same conclusion was reached in a Rhode Island case, wherein three of four companies, who were engaged in the manufacture of oleomargarine, were consolidated as a corporation, with the object of limiting or stopping ruinous competition; and the agreement inhibited the parties thereto from engaging separately in the business for five years.3
A careful study of these statutes against combinations in restraint of trade, and of the decisions of the courts in construing and enforcing them, reveals an unmistakable, and general and popular condemnation of the strong and apparently irresistible tendency to the concentration of capital, and of the gigantic economic power which such concentration creates. Whether a way may be discovered later to make effective this popular opposition to the creation of enormous virtual monopolies, or the anti-trust statutes, will, like the old English statutes against forestalling and regrating, ultimately fall into innocuous desuetude, cannot be foretold. If they prove to be effective in restraining the growth and enlargement of combinations of capital, they must be so reconstructed as to remove their present antagonism to economic and industrial necessities; or these necessities themselves must be changed by new inventions and the discovery of new methods of manufacture of business, whereby it becomes possible for the small dealer and manufacturer to sell his goods and products to the consumer as cheaply as can the large dealer and manufacturer. In no other way can the popular desire for the preservation of the independence of the small tradesman and artisan be realized. This popular desire seems to me to explain the real force which is back of the anti-trust legislation, and without whose support the socialistic propaganda could not get a hearing. Mr. Justice Peckham, in the case of the United States v. Trans-Missouri Freight Association,1 expressed this idea very forcibly when he says:—
“It is true the results of trusts, or combinations of that nature, may be different in different kinds of corporations, and yet they all have an essential similarity, and have been induced by motives of individual or corporate aggrandizement as against the public interest. In business or trading combinations they may even temporarily, or perhaps permanently, reduce the price of the article traded in or manufactured, by reducing the expense inseparable from the running of many different companies for the same purpose. Trade or commerce under those circumstances may nevertheless be badly and unfortunately restrained by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their altered surroundings. Mere reduction in the price of the commodity dealt in might be dearly paid for by the ruin of such a class and the absorption of control over one commodity by an all-powerful combination of capital. In any great and extended change in the manner or method of doing business it seems to be an inevitable necessity that distress, and, perhaps, ruin shall be its accompaniment in regard to some of those who were engaged in the old methods. A change from stage-coaches and canal-boats to railroads threw at once a large number of men out of employment; changes from hand labor to that of machinery, and from operating machinery by hand to the application of steam for such purpose, leave behind them for the time, a number of men who must seek other avenues of livelihood. These are misfortunes which seem to be the necessary accompaniment of all great industrial changes. It takes time to effect a readjustment of industrial life, so that those who are thrown out of their old employment by reason of such changes as we have spoken of may find opportunities for labor in other departments than those to which they have been accustomed. It is a misfortune, but yet in such cases it seems to be the inevitable accompaniment of change and improvement.
“It is wholly different, however, when such changes are effected by combinations of capital, whose purpose in combining is to control the production or manufacture of any particular article in the market, and by such control dictate the price at which the article shall be sold, the effect being to drive out of business all the small dealers in the commodity and to render the public subject to the decision of the combination as to what price shall be paid for the article. In this light it is not material that the price of an article may be lowered. It is in the power of the combination to raise it, and the result in any event is unfortunate for the country by depriving it of the services of a large number of small but independent dealers who were familiar with the business and who had spent their lives in it, and who supported themselves and their families from the small profits realized therein. Whether they be able to find other avenues to earn their livelihood is not so material, because it is not for the real prosperity of any country that such changes should occur which result in transferring an independent business man, the head of his establishment, small though it may be, into a mere servant or agent of a corporation for selling the commodities which he once manufactured or dealt in, having no voice in shaping the business policy of the company and bound to obey orders issued by others.”
The United States Statute—26 Stat. at Large, 209, Ch. 647.
In re Grice, 79 Fed. 627.
In re Grice, 79 Fed. 627.
Queen Ins. Co. v. State, 86 Tex. 250.
§§ 109, 110.
Brett v. Ebel, 51 N. Y. S. 573; 29 App. Div. 256. But see contra, Harding v. Am. Glucose Co. (Ill. 1899), 55 N. E. 577.
There have been expressions of opinion by legislators that they want to prohibit just such transactions, in order to prevent the growth, by the purchases of the good-will of rivals, of huge virtual monopolies.
People v. Sheldon, 139 N. Y. 251.
United States v. Trans-Missouri Freight Association, 166 U. S. 290.
United States v. Trans-Missouri Freight Assn., 58 F. 58; 7 C. C. A. 15. A similar agreement between railroads was sustained by the Supreme Court of New Hampshire, in which the court said in part:—
United States v. Joint Traffic Association, 171 U. S. 505. In this case, Mr. Justice Peckham said, inter alia:—
Greer v. Payne, 4 Kans. App. 153.
Cummings v. Union Bluestone Co., 15 App. Div. 602; 44 N. Y. S. 787; People v. Duke, 44 N. Y. S. 336; 11 N. Y. Cr. R. 472; 19 Misc. Rep. 292.
Downing v. Lewis (Neb.), 76 N. W. 900.
State v. Portland Nat. Gas & Oil Co. (Ind. ’99), 53 N. E. 1089.
Beechley v. Mulville, 102 Iowa, 602; State ex rel. Crow v. Fireman’s Fund Assn. (Mo. ’99), 52 S. W. 595; State v. Phipps, 50 Kans. 609; Am. Fire Ins. Co. v. State, 75 Miss. 24. But see contra, Ætna Ins. Co. v. Commonwealth (Ky. ’99), 51 S. W. 624; Queen Ins. Co. v. State, 86 Tex. 250.
People v. Milk Exchange, 145 N. Y. 267; Ford v. Chicago Milk Shippers Assn., 155 Ill. 166; Harding v. American Glucose Co. (Ill. ’99), 55 N. E. 577; Merz Capsule Co. v. U. S. Capsule Co. (C. C.), 67 Fed. 414 (same as to the executory agreement to combine); State v. Buckeye Pipe Line Co. (Ohio, 1900), 56 N. E. 464; State v. Solar Refining Co. (Ohio), 56 N. E. 464; State v. Standard Oil Co. (Ohio), 56 N. E. 464.
Meredith v. New Jersey Zinc & Iron Co., 55 N. J. Eq. 211.
Coquart v. National Linseed Oil Co., 171 Ill. 480.
Oakdale Mfg. Co. v. Garst, 18 R. I. 484.
166 U. S. 290.