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 Front Page arrow Titles (by Subject) arrow § 113.: Different phases of the application of anti-trust statutes—Factor's system—Control of patents—Combinations against dishonest debtors—Agreements to sell only to regular dealers—Combinations of employers to resist combinations of employees—Departmen - 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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Subject Area: Law
Topic: The American Revolution and Constitution

§ 113.: Different phases of the application of anti-trust statutes—Factor’s system—Control of patents—Combinations against dishonest debtors—Agreements to sell only to regular dealers—Combinations of employers to resist combinations of employees—Departmen - 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 [1900]

Edition used:

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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§ 113.

Different phases of the application of anti-trust statutes—Factor’s system—Control of patents—Combinations against dishonest debtors—Agreements to sell only to regular dealers—Combinations of employers to resist combinations of employees—Department stores.—

One of the most interesting attempts to regulate and control the price of products is what is known in trade as the factor’s system. The manufacturer, who controls a large part of the country’s output of the commodity, enters into an agreement with the jobbers throughout the country, under which each jobber becomes a factor or agent of the manufacturer for the sale of the goods in question, the goods remaining after shipment the property of the manufacturer, and subject to recall by him, while the jobber assumes all risks in regard to the safe custody of the goods. The jobber agrees to sell the goods at the prices fixed by the manufacturer from time to time, and not to sell similar goods manufactured by any other competing concern. If he fulfills his agreement in every particular, he receives a rebate on the price of the goods, which assures him a fair profit for handling the goods, and protects him against the under-cutting of prices by competing jobbers. The sugar and tobacco trusts inaugurated the system at the urgent request of the jobbers, throughout the country. This brief statement of the factor’s contract, apart from the motive of its general execution between the manufacturer and the jobbers, discloses the ordinary legal relation of principal and factor, having no element which was unknown to such contracts at common law and prior to the enactment of the anti-trust laws. The motive was undoubtedly the maintenance of uniform prices throughout the country, and the protection of the jobber from ruinous competition. No proof has ever been made that the trusts intended to, or did charge extortionate prices; but they did certainly intend by that system to control the trade throughout the country, and drive the small manufacturer out of business.

In principle, this combination differs in nothing from the railway freight associations, and the associations of coal and milk dealers, which have been declared to come within the prohibitive provisions of the anti-trust laws.1 And this was the conclusion of the New York courts in regard to the tobacco trust’s factor’s contract.2 But a contrary conclusion has been reached by the Texas Supreme Court in a case, in which a manufacturer of windmills had granted one firm the exclusive right within a certain territory to sell his windmills, on a factor’s contract, in which it was stipulated that the mills were to remain until sold the property of the manufacturer, and the factor was not to sell mills manufactured by any one else. The contract was held to be lawful, and not to fall within the provisions of the anti-trust law of Texas; for the reason, inter alia, that the statute did not apply to contracts between principal and agent.3 In a still more recent case, the Texas courts have sustained the contract of a carriage manufacturer, which granted to a Texas dealer the exclusive right to sell these carriages upon condition that he sold no others.4

Somewhat similar to these factor’s contracts, in restricting competition, is the agreement of railroads and express companies, forming connecting lines of more extensive systems, to pro-rate with each other, to the exclusion of other competing companies. The Federal Circuit Court has held, that a contract between two connecting railroads—providing for an interchange of passengers and freight between them, to the exclusion of other competing railroads, by the issue of through tickets and bills of lading only over each other’s roads—was not in violation of the Federal anti-trust law.1

A combination of manufacturers of drugs and of wholesale druggists, formed for the purpose of maintaining the prices of proprietary drugs, violates the anti-trust law by refusing to sell goods to a retailer who cuts prices.2

Considerable litigation has arisen out of the combinations of manufacturers of articles, the exclusive manufacture of which is secured by letters-patent. The decisions, however, seem to have settled the points of contention as follows: The owner of a patent is, of course, entitled to a monopoly during the life of the patent,3 and the anti-trust laws do not in any way control or limit that right, either by declaring the monopoly void, in general, or by denying to the patentee or his assignee the right to sue for infringements of his patent rights, because he has entered into a combination to acquire and control all valuable patents, covering machines which relate to the same art or industry, even though that combination may be unlawful.4 But the mere fact, that the subject-matter of the monopolistic combination may be patent rights, covering machines employed in the same art or industry, will not protect the combination from the penal provisions of the anti-trust laws. If a corporation or association is formed among manufacturers and patentees of certain articles of kindred character, in order to control the trade and prices of such articles, the combination is nevertheless illegal, although the exclusive manufacture of the goods is guaranteed by letters-patent from the United States government.1 In the Harrow Company cases, cited in the note below, the manufacturers of spring-tooth harrows formed a combination, for the purpose of providing for the transfer to a central corporation of all the patents under which they were severally operating, each manufacturer receiving in the place of his patents an exclusive license to manufacture the particular kind of harrow which was covered by his patent. All agreed that the harrow should be sold at an uniform price, to be fixed by the combination. The Federal courts united with the New York courts in declaring this combination to be violative of the anti-trust laws.

Combinations of wholesale dealers,—for the purpose of compelling retail dealers to pay their bills, by the agreement that the members of the combination will refuse to sell to a retailer who has failed to pay his bills due to one of the combination,—are held to be lawful and not to come within the provisions of the anti-trust laws.2

So, also, has it been held to be lawful for retail dealers to enter into an agreement, not to deal with manufacturers who sell to consumers or other than regular dealers, at points where there is a regular retail dealer.3

The most curious judicial attempt to balance conflicting interests, and to do equity, under modern legislation regulating combinations in restraint of trade, is to be found in two recent cases in Pennsylvania. A statute of that State authorizes combinations of employees for the purpose of enforcing an increase of wages. Certain employers formed an association to resist these combinations of employees, one of whose by-laws prohibited members of the association from buying supplies from dealers, who sold to employers who had yielded to the demands of the association of employees. Inasmuch as the employees had resorted to artificial means to raise the price of labor, the association of employers was held to have been formed only to resist this artificial rise in wages, and not to lower them, as regulated by the law of supply and demand. The combination and agreement of the employers was held under those circumstances not to constitute an actionable conspiracy.1

Under the clauses of the anti-trust laws, which declare that where the mere purpose or motive of an otherwise lawful association, a corporation or partnership for example, is to monopolize a trade, the courts have held that no offense has been proved to have been committed, unless it be shown that the purpose of the association has been to monopolize the business throughout the country; and the mere fact, that the corporation or association has actually driven several competitors out of the business, does not prove the existence of an agreement or a purpose to monopolize the entire traffic.2 On the other hand, if the agreement to monopolize the entire traffic is proven, its successful accomplishment need not be established.3 Nor is it necessary that the business, which the combination is formed to control, should be actually established. As it was stated in one case, the statute does not distinguish between strangling a commerce which has been born, and preventing the birth of a commerce which does not exist.1

The anti-trust law of a State, of course, has a jurisdiction limited by the boundaries of that State. Hence, offenses, committed against the law outside of the State, are not punishable under the State law, in either the Federal or the State courts.2

Some of the anti-trust statutes expressly provide that the illegality of an association, partnership, corporation, or other combination, because it is in restraint of trade under the provisions of the statute, shall be a good defense to any suit by such combination against a third person, which may arise in the prosecution of the prohibited objects of such combination. And that provision of the anti-trust law has been held to be constitutional.3 But, in the absence of such an express provision, the illegality of the combination or association does not affect the legality of causes of action of the members of such a combination or association against third parties.4 Nor can a stockholder in an illegal trust defend himself against his liability on his contracts to such trust, by proving the illegality of the trust, even in a State where the statute authorizes such a defense in actions by an illegal trust against others; on the general ground that such a stockholder is a particeps criminis.5

One of the most fruitful sources of economic discontent is occasioned by the rapid development in the larger cities of the so-called department stores, wherein everything of a movable nature is offered for sale under one roof; dry goods, hardware, shoes, hats, clothing, groceries and other provisions, wines and liquors, drugs, jewelry, etc. By combining these many departments under one management, not only is the convenience of the customer promoted by being enabled to satisfy his or her needs in every direction in the one establishment, but he is able also in many cases to purchase at a less price than what would be charged for the same goods at the small retail specialist. The immense volume of the business of a department store enables goods to be sold at a smaller profit than what would be required to support the small retailer. The small retailer does not, however, view with unconcern this growth of department stores to his own ultimate extinction.

The Chicago City Council enacted an ordinance, which prohibited the sale of provisions and intoxicating liquors in stores in which dry goods, clothing or drugs are sold. The Supreme Court of the State has recently declared the ordinance to be an unconstitutional interference with the personal liberty of the citizen which is not justified by any considerations of the public health or morals.1

But it may yet be an open question still, whether a similar prohibition, enacted by the legislature in the plenitude of its police powers as revealed by the anti-trust laws, may not be sustained by the courts.

[1]See ante, § 112.

[2]People v. Duke, 44 N. Y. S. 336; 11 N. Y. Cr. R. 472; 19 Misc. Rep. 292. In a recent case, it has been held in New York, that the contract of a manufacturer to give his customers a rebate, if they do not sell his goods below the price which the manufacturer has fixed from time to time, did not violate any provision of the New York anti-trust law. Walsh v. Dwight, 40 App. Div. N. Y. 513; 58 N. Y. S. 91.

[3]Welch v. Phelps & Bigelow Windmill Co., 89 Tex. 653. And see, to same effect, In re Green, 52 Fed. 104; In re Corning, 51 F. 205; United States v. Greenhut, 51 F. 205; Dueber Watch Case Mfg. Co. v. E. Howard Watch and Clock Co., 14 C. C. A. 14; 66 F. 637.

[4]Columbia Carriage Co. v. Hatch (Tex. Civ. App.), 47 S. W. 288.

[1]Prescott & A. C. Ry. Co. v. Atchison, T. & S. F. Ry. Co., 73 Fed. 438.

[2]John D. Park & Sons Co. v. Nat. Wholesale Druggists Association, 50 N. Y. S. 1064.

[3]See post, § 129.

[4]Edison Electric Light Co. v. Sawyer Man. Electric Co., 53 F. 592; 3 C. C. A. 605; Strait v. National Harrow Co., 51 F. 819; Soda Fountain Co. v. Green, 69 F. 333; Columbia Wire Co. v. Freeman Wire Co., 71 F. 302; disapproving of National Harrow Co. v. Quick, 67 F. 130, contra.

[1]National Harrow Co. v. Hench, 66 Fed. 667; 83 Fed. 36; 27 C. C. A. 349; United States v. Patterson, 59 Fed. 280; National Harrow Co. v. E. Bement & Sons, 47 N. Y. S. 462; 21 App. Div. (N. Y.) 290. But see Columbia Wire Co. v. Freeman Wire Co., 71 F. 302.

[2]Schulten v. Bavarian Brewing Co. (Ky.), 28 S. W. 504; Delz v. Winfree, 6 Tex. Civ. App. 11.

[3]Jackson v. Stanfield, 137 Ind. 592; Bohn Mfg. Co. v. Hollis, 54 Minn. 223.

[1]Cote v. Murphy, 159 Pa. St. 420; Buchanan v. Kerr, 159 Pa. St. 433.

[2]United States v. Greenhut, 50 F. 469; s. c. 51 F. 205; In re Corning, 51 F. 205; In re Greene, 52 F. 104; United States v. Nelson, 52 F. 646; United States v. Patterson, 55 F. 605.

[3]See cases in preceding note.

[1]United States v. Patterson, 59 F. 280.

[2]Greer Mills & Co. v. Stoller, 77 F. 1; In re Grice, 79 F. 627.

[3]Ford v. Chicago Milk Shippers’ Assn., 155 Ill. 166; Bishop v. Am. Preservers Co., 157 Ill. 284.

[4]The Charles E. Wisewall, 74 Fed. 802; 86 Fed. 671; 30 C. C. A. 339; Brewster v. Miller (Ky.), 41 S. W. 301.

[5]Levin v. Chicago Gaslight & Coke Co., 64 Ill. App. 393.

[1]City of Chicago v. Netcher (1899), 55 N. E. 707.