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Do not deface books by marks and wfitine- Cornell University Library HD2780.T6 A51 Brief and argument 'of {fiSinSfiJifiSSSMMl '" olin 3 1924 030 067 155 HOD T6A5! U^A.. IN THE Supreme Court of the United States. 3 16. THE UNITED STATES OF AMERICA, Petitioner- Appellant, against THE AMERICAN TOBACCO COMPANY and others, Defendants-Appellees. 3ir . THE AMERICAN TOBACCO COMPANY and others. Appellants, against THE UNITED STATES OF AMERICA, Appellee. Cross Appeals from the Circuit Court of the United States FOR the Southern District of New York. BRIEF AND ARGUMENT FOR THE DEFENDANT THE AMERICAN TOBACCO COMPANY AND CERTAIN OTHER DEFENDANTS-APPELLEES IN THE FIRST OF SAID APPEALS AND APPELLANTS IN THE SECOND. JOHN G. JOHNSON, WM. J. WALLACE, W. W. FULLER, DeLANCEY NICOLL, JUNIUS PARKER, Of Counsel. THE GTGNJNO POST JOB PBINl'Qia OrFJCB, 156 mLTON ST., N. T. c.V. Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030067155 SHORT IXDEX. PAGE Statement of case on appeal. . . . 2-5 Pleading-s 5-7 Discussion of facts 7-145 General nature of tobacco business .... 8 The American Tobacco Company trans- actions 12 American Snuff Company transactions 22 American Cigar Company transactions 27 American Stogie Company transactions 32 Companies furnisjiing supplies 33 English contracts and companies .... 47 Purchase of leaf 56 Stock, as distinguished from property ownership \ 80 Methods of competition 89 Covenants of vendors 140 Discussion of law 146-263 Common Law. Wilson Bill 146 Interstate trade — Knight case 152 Consolidation not restraint of trade at all 176 No monopolizing 196 No attempt to monopolize 213 Competition not monopolizing 221 Monopolizing is an activity — not status 227 Proper construction of law in view of possible remedy 235 Covenants by vendors 247 English contracts and companies 251 Doctrine of Stare Decisis 266 IN THE The United Statis of Ameeica, Petitioner-Appellant, AGAINST 1 316 The Ameeioan Tobacco Com- pany and others, Defendants-Appellees. The American Tobacco Com-/ PANY and others. Appellants, AGAINST 1 317 The United States op Ameeica, Appellee. CROSS APPEALS FROM THE CIR- CUIT COURT OF THE UXITED STATES FOR THE SOUTHERN DISTRICT OF XEIV YORK. Brief and Arg'ument fox* tbe Defend- ant Tlie American Tobacco Com- pany and Certain Otber Defend- ants-Appellees in tbe First of Said Appeals and Appellants in tbe Second. statement of Case on Appeal. These are appeals from a decree rendered by the United States Circuit Court for the Southern District of New York. The case was heard by the four Circuit Judges of the Second Circuit in ac- cordance with the Act of Congress approved Feb- ruary 11, 1903 to expedite the hearing and de- termination of suits in equity arising under the Sherman Anti-Trust Law. A final decree was entered on December 15, 1908 (a), granting in part the relief asked by the Government, the plain- tiff, and awarding an injunction against The American Tobacco Company and certain other de- fendants. The Petition was dismissed as to cer- tain of the defendants. All of the defendants against whom relief was granted have joined in this appeal (except K. P. Richardson, Jr. & Co., Inc. ) ; the Government has appealed from so much of the decree as dismissed the Petition as to certain of the defendants, and also because, as contended by the Government, the relief granted against the other defendants as to whom the Petition was not dismissed, was not suf- ficient. By virtue of these cross appeals all of the original parties to the suit are in this appeal, either as appellants or appellees, or in both capaci- ties. This brief and argument is filed in behalf of all the defendants except the defendants The Imperial Tobacco Company (of Great Britain & Ireland), Ltd., United Cigar Stores Company, R. P. Richard- son, Jr. & Co., Inc., and Welford C. Reed, which four defendants are represented by other solicitors and counsel. All four of the circuit court judges who partici- pated in the hearing of the case delivered opin- ions (b) . The effect of these opinions is that Judges (a) Eecord, Vol. 1, p. 329. (b) Record, Vol. 1, pp. 291-328. Lacombe, Ooxe and Noyes agree that the corpora- tion defendants (except The Imperial Tobaccd Company, Ltd., British-American Tobacco Com- pany, Limited, W. S. Mathews & Sons, T. C. Will- iams Company, David Dunlop, Inc., and United Cigar Stores Company) are themselves combina- tions, or have entered into combinations, in re- straint of trade and commerce among the several States and with foreign nations, in leaf tobacco, the products manufactured therefrom and articles necessary and useful in connection therewith. Cir- cuit Judge Ward dissented upon the opinion that the Petition should be dismissed as to all the de- fendants. The Eecord is very voluminous, and upon a con- sideration of it there is no dissent from the con- clusion stated separately by Circuit Judges Lacombe, Noyes and Ward, in substance that the conduct of defendants has not involved injury to the public or any part thereof. This conclusion is stated by Circuit Judge Lacombe in detail as fol- lows: "The record in this case does not indicate that there has been any increase in the price of tobacco products to the consumer. There is an absence of persuasive evidence that by unfair competition or improper prac- tices independent dealers have been dra- gooned into giving up their individual enter- prises and selling out to the principal de- fendant . . . During the existence of The American Tobacco Company, new enter- prises have been started — some with small capital in competition with it and have thriven. The price of leaf tobacco — the raw material— except for one brief period of ab- normal conditions, has steadily increased until it has nearly doubled, while at the same time 150,000 additional acres have been devoted to tobacco crops and the con- sumption of the leaf has greatly increased. Through the enterprise of defendant, and at large expense, new markets for American tobacco liave been opened or developed in India, China and elsewhere." The decree of the Court, so far as it was against the defendants, was based upon transactions with respect to which there was no contest made in the pleadings — indeed, transactions which have been for years publicly known — and is expressed by Cir- cuit Judge Lacombe in this language, immediately following his statement of exoneration of the de- fendants from any charges that they had pursued methods oppressive to purchasers of their products, producers of their raw material, or competitors in trade : "But all this is immaterial; each one of these purchases of existing concerns com- plained of in the Petition was a contract and combination in restraint of the competi- tion existing when it was entered into and that is sufficient to bring it within the ban of this drastic statute." The decree declares that each of the five defend- ants, The American Tobacco Company, American Snuff Company, American Cigar Company, Ameri- can Stogie Company and MacAndrews & Forbes Company "constitutes and is itself a combination" in violation of the Act of Congress, and enjoins each of them from engaging in interstate commerce in tobacco or its products, with leave to them to ap- ply for a modification, suspension or dissolution of the injunction upon affirmatively showing the restoration of "reasonably competitive conditions" ; it enjoined The American Tobacco Company, American Snuff Company, American Cigar Com- pany, P. Lorillard Company, K. J. Eeynolds Tobacco Company, Blackwell's Durham Tobacco Company and Conley Foil Company from voting stock in companies in which they respectively own stock, or in any way attempting to exercise con- trol or influence in such companies. Among these companies in which the various stockholding com- panies are forbidden to vote their stock, or other- wise exercise influence, are included companies manufacturing tobacco, snufe and cigars; com- panies engaged in marketing these products; and companies which supply materials used in the manufacture of tobacco and its products. The Government filed assignments of error (a) and the defendants-appellants filed assignments of error (b) which, taken together, unquestionably bring for review by this Court the whole case. It is therefore thought unnecessary and undesirable to frame this brief and argument on any theory which involves the calling attention to particular errors by the Circuit Court. Pleading's. The pleadings consist of the petition (c), and an- swers filed for all the defendants (d). These plead- ings are very voluminous. Voluminous testimony has been taken on the part of the Government and the defendants. In view of the discussion of facts that will be necessary, in any event, there would be involved an unnecessary repetition, and an un- necessary prolongation of this brief and argument, to epitomize the pleadings. There are sixty-five corporation defendants, and twenty nine individual defendants. The petition alleges that they are all in a combination in restraint of trade and commerce among the United States and with foreign nations, and that they are monopo- lizing and attempting to monopolize such trade and (a) Record, Vol. 1, p. 338. (b) Record, Vol. 1, p. 348. (c) Keoord, Vol. I., p. 1. (d) Eecord, Vol. I., p. 174 (Imp. Tob. Co.); Vol. I., p. 184 (W. C. Keed); Vol. I., p. 190 (TJ. S. Cigar Stores Co.); Vol. I., p. 198 (Brit. Am. Tob. Co.); Vol. I., p. 204 (Am. Tob. Co. and others); Vol. I., p. 265 (Eicbardson Co.). commerce, and in its prayers for relief, after pray- ing that certain specified written contracts be an- nulled, and that certain corporations existing under the laws of foreign countries be enjoined from en- gaging in interstate or foreign trade and commerce within the jurisdiction of the United States, the pe- tition prays further: "That the Court adjudge The American Tobacco Company, the American Snuff Com- pany, The American Cigar Company, the American Stogie Company, the MacAndrews & Forbes Company, and The Conley Foil Company is each a combination in restraint of interstate and foreign trade and commerce; and that each has attempted and is attempting to monopoHze, is in combination and con- spiracy with other persons and corporations to monopolize, and has monopolized part of the trade and commerce among the several States and with foreign nations; and order and decree that each one of them be restrained from engaging in interstate or foreign com- merce, or, if the Court should be of opinion that the public interests will be better sub- served thereby, that receivers be appointed to take possession of all the property, assets, business, and affairs of said defendants and wind up the same, and otherwise take such course in regai'd thereto as will bring about conditions in trade and commerce among the States and with foreign nations in harmony with law. "That the holding of stock by one of the defendant corporations in another under the circumstances shown be declared illegal and that each of them be enjoined from continu- ing to hold or own such shares in another and from exercising any right in connection there- with. " That defendants, each and all, be enjoined from continuing to carry out the purposes of the above described contracts, combinations, conspiracies, and attempts to monopolize by the means herein described, or by any other, and be required to desist and withdraw from all connection with the same. " That each of the defendants be enjoined frona purchasing leaf tobacco or from selling and distributing its manufactured output as a part of interstate and foreign trade and commerce in conjunction or combination with any other defendant, and from taking part or being interested in any agreement or com- bination intended to destroy competition among them in reference to such purchases or sales." The answers of the defendants are in detail, and fully deny all restraints of trade, monopolization or attempts to monopolize. Many of the allegations of the petition, such as allegations of acquisitions of property, of ownership of stock, dates of transac- tions and amounts of purchase prices, are admitted, but the innuendo of the petition, and allegations as to purposes and effects of tho various transactions are specifically denied; and the answers make affirmative allegations with respect to such transac- tions as are alleged and admitted, with a view of showing that the purpose and effect of such ad- mitted transactions were not to restrain or monopo- lize interstate or foreign trade and commerce. Facts. An attempt will be made here to fairly epitomize the facts shown by the testimony and exhibits, and in order to make such epitome as clear as practi- cable, such facts will be stated under the following heads: I.— The general nature of the business of growing, manufacturing and selling tobacco and the products of tobacco. II. — The various transactions testified to, sub- stantially in their chronological order, as follows: (a.) Concerning business of the American To- bacco Company, as well as the merging companies that formed it, to wit, the 8 American Tobacco Company, Continental Tobacco Company and Consolidated To- bacco Company. (6.) Concerning business of American Snuff Company and its predecessors. (c.) Concerning business of American Cigar Company and its predecessors. {d.) Concerning business of American Stogie Company. (e.) Companies which furnish supplies to, or buy supplies for, other defendants. (/.) English business and affairs of British- American Tobacco Company, Limited, including English contracts. III. — Special features emphasized by the Grovern- ment, or by the defendants, to wit: (a.) Concerted or independent action in pur- chase of leaf. (&.) Ownership of stock in other companies by certain of the defendants, as distinguished from direct ownership of property. (c.) Methods of competition practiced by de- fendants. {d.) Covenants not to re-engage in business. I. — The general nature of the business op GROWING, MANUFACTURING AND SELLING TOBACCO AND THE PRODUCTS OF TOBACCO. Tobacco grows in various sections of the United States. It is not the same product throughout its growth, but its various types and kinds are related products. The crop varies from 700,000,000 pounds to 1,000,000,000 pounds (a). The manufactured product is classified by the in- ternal revenue department as follows: Cigars, Little Cigars, Cigarettes, Smoking Tobacco, Plug and (a) Record, Vol. V, Gov't Ex. No. 76. Twist Tobacco, Fine Cut Tobacco, Snuflf. Cigars, as distinguished from Little Cigars, include all rolls of tobacco weighing more than three pounds to the thousand; Cigarettes are divided into two classes, those weighing more than three pounds to the thou- sand and those weighing less, and they are distin- guished from Cigars and Little Cigars in that they are covered with a wrapper, usually paper, but al- ways of some substance other than tobacco; Smoking Tobacco is all tobacco that is put up in individual consumer's packages and includes a great deal of tobacco that is chewed; Plug and Twist Tobacco includes all tobacco put into those shapes — uncut tobacco — generally packed into large wooden boxes from which the tobacco itself is delivered to con- sumers; and Snuff includes not only the snuff that is capable of being " snuffed," but includes also the snuff that is taken into the mouth and is hardly distiuguishable from chewing tobacco (a). Tobacco and the products of tobacco being lux- uries are subject to a tax levied by the General Gov- ernment and contribute largely to its revenue. By internal revenue statute and custom tobacco goes to the consumer in small parcels; he buys an ounce package, or a package of an ounce and two-thirds, or two ounces, two and one-half ounces, or three and one-third ounces, or four ounces. All of these are prescribed statutory packages, so far as smok- ing tobacco and fine cut are concerned. These statutory regulations do not apply to plug and twist tobacco, but they by custom go to the consumer in small pieces — one sixth, one fifth, one fourth, or some other fraction of a pound. Eegulations with respect to snuff are the same as with respect to smoking tobacco. In cigarettes there are statutory packages of ten, twenty, fifty or one hundred. In cigars the packages are twelve, twenty-five, fifty, one hundred, and two hundred and fifty, but cigars are also sold singly to consumers. (a) Eecord, Vol. IV, pp. 516, 517. 10 To be considered in the marketing of tobacco, be- sides these small statutory packages, is the coinage system of the country. The five-cent piece and the ten-cent piece are common coins, but there is no four-cent piece nor seven nor eight-cent piece. So the manufacturer of tobacco has to adjust his packages to conform to the statutes and cus- tom, and adjust his prices to conform to the cus- tomary currency. He has still another element to consider, to wit, that his product is a luxury and has its success by appealing to the taste of many consumers. Men may be argued with as to the steel they will put into their buildings, or the coal they will put into their furnaces, or the oil they will put into their lamps, or even the clothes they will wear, but argument cuts no figure with respect to the to- bacco they will chew or smoke. If it pleases it is well, and if it does not please it is not well, and that is the end of the matter. The raw material and the essential material for all the products of tobacco is leaf tobacco. It grows substantially all over the world. Perhaps the high- est priced product is grown in Cuba or Turkey (a). Its growing has never been attempted by manu- facturers of tobacco, in this country at least, but has been left in the hands of farmers, owners or renters of the land. These farmers grow the tobaccos to which their soil is suitable, and they grow likewise other crops, and one of the questions that is to be considered in this case is the effect of the growth and success of the defendant companies on this industry. The leaf tobacco thus grown in various sec- tions is bought by manufacturers and taken into their factories. There are differences in the leaf, and the leaf is subjected to different processes of manufacture; some of the leaf is rolled, without flavoring or addition of any sub- stance, into cigars or cigarettes; some of it (a) Beoord, Vol. n., p. 79. 11 is flavored with various substances for chewing to- bacco; some for smoking tobacco; and some for snuff. These processes of manufacture are kept secret. The blending of the tobaccos, the use of crops grown on some lands in combination with crops grown on others, the proportion of flavoring material, the method of manipulation, are all processes of manufacture that each manufacturer for himself adopts or devises. Having manufactured his product, the manufac- turer must market it, and to that end he must in some way get his product to the consumers of to- bacco; they are scattered all over the world; they buy from the ordinary retail merchant; they are not required by any necessity to have a given amount of tobacco, but their requirements are measured by their wishes from day to day. Retail merchants are ordinarily supplied by wholesale mer- chants who have in the nature of things individual knowledge of the credits and resources of their cus- tomers. The problem then for a tobacco manufacturer is, in the first place, to secure an adequate and proper supply of his raw material; in the second place to subject it to processes of manufacture that will meet the tastes of a large number of consumers; and, in the third place, to get it to those consumers in a way in which they are ordinarily served. In all of this the manufacturer must have regard to the essentials heretofore noted; in the first place, he must conform to the statutes and regulations provided by the Q-ov- ernment in its collection of internal revenue; in the second place, he must realize that consumers will buy his product only casually, and in the ordinary course of trade and that they will use the coins that are in ordinary use; and, in the third place, he must realize that he is simply trying to please men's tastes, and that men, when they are pleased, will ask again for the product that pleases them, but that 12 men when they are not pleased will listen to no argument as to the superiority of goods which fail to please them. II. — The vaeious transactions testified to, SUBSTANTIALLY IN THEIE CHRONOLOGICAL ORDER, AS FOLLOWS: (a.) Directly concerning the business of The American Tobacco Company, etc. Before 1890 all of the foregoing was true, and, throughout the States — principally where tobacco was grown — there existed manipulators and manu- facturers of tobacco. Among the tobacco manufac- turers there were five leading manufacturers of smoking tobacco and cigarettes. They had been in active competition involving enormous advertising expenses — ^one of these concerns, W. Duke Sons & Company, of Durham, N. C, spending in 1889 $800,000 in advertising, or twenty per cent, of its receipts (a). In 1890 a comparny was formed called " The American Tobacco Company," and it acquired the factories of these five concerns, issuing to the owners of these factories — whether stockholders or members of partnerships— stock. The American Tobacco Company was organized with a capital stock of $25,000,000. Its stock was issued for property— the manufacturing plants of the said five concerns— from which it immediately received an adequate return. During its first year of operation it paid a dividend of eight per cent, on its preferred stock and a dividend of ten per cent, on its common stock (b). Its business was largely a cigarette business, but it had a substantial smoking tobacco business as well. The absence of motives usually deemed injurious to the public, or contrary to law, in the organiza- tion of The American Tobacco Company is shown (a) Becord, VoL IV, p. 340. ' (b) Becord, Vol. IV, p. 341.- 13 in the testimony of James B. Duke, one of its organizers and its president up to 1904, when it ceased to exist, having been merged into the present The American Tobacco Company. His testimony is notm this, nor really in any particular, in any way contradicted. Q. Was it your purpose and motive in en- tering into the organization of the American Tobacco Co. and selling out to it, to reduce the price of leaf tobacco by eliminating the com petitfon of those concerns? A. It was not. Q. Was it your idea in entering into the or- ganization of the American Tobacco Co. and selling your business out to it to advance the prices at which the manufactured product would sell by the elimination of competition? A. No, sir; we were getting all the price we wanted to get for the goods because they had to be sold to the consumer and our prices had ranged all the way from $3.60 to $3.80 a thousand, the different manufactures. Q. That was before the formation of the American Tobacco Company? A. Yes, we reduced the price. Q. What happened to the price of leaf; did you reduce the price of that, too? A. The price of leaf to the manufacturer that was bought from speculators was re- duced because we went and bought our tobacco direct on the warehouse floor at auc- tion from the farmers. Q. How about the price for leaf that the farmer get? A. The price that the farmer got I think averaged more because it largely eliminated the speculator who had been theretofore buying and selling to the manufacturers, with the exception of Duke Sons & Co. We had been buying a good part of our to- bacco in the loose warehouses direct from the farmer; he was having his tobacco sold at auction (a). The American Tobacco Company was not formed, either, as the first step in a design to monopolize the (a) Eeoord, Yol. TV, pp. 339, 340. 14 tobacco business. It was not in the contemplation of the parties that formed The American Tobacco Company that it should purchase other businesses at all (a). Popular prejudice was already to some extent showing itself against cigarettes and it behooved the managers of the business to reasonably protect their investment against destruction by the spread of this prejudice. During the first two years after its organization The American Tobacco Company acquired the manufacturing plants of the National Tobacco Works, of Louisville, Kentucky, a plug manufacturer; Marburg Brothers, of Baltimore, Md., a manufacturer of smoking tobacco; G. W. Gail & Ax, of Baltimore, Md., manufacturers of smoking tobacco and snuflf, and P. Whitlock, of Richmond, Ya., manufacturers of cheroots. These purchases were all simply purchases of manufac- turing businesses; they operated to make broaffer the basis upon which The American Tobacco Company was built and its securities issued (b). In 1892 there appeared on the market a cigarette made without paste, but by crimping of the paper — it was made on a machine called " The Decoufle" and the rights to this machine were owned by a firm in New Orleans named " Hernsheim Brothers." This concern owned a cigar factory and a tobacco and cigarette factory. The American Tobacco Com- pany entered into negotiations and bought its cigarette factory with the machine rights (c). The American Tobacco Company concluded to still further broaden its lines and to go into the manu- facture of the all-tobacco cigarettes, or little cigars, which were not under the condemna- tion of State anti-cigarette statutes, and which were exempt, to at least an extent from the pre- vailing sentiment against cigarettes. It made three acquisitions of fac tories and plants in (a) Eeoord, Vol. IV, p. 341. (b) Eecord, Vol. IV, pp. 341, 342. (c) Record, Vol. IV, p. 345. 15 order to go into this business— the Consolidated C]garette Company, T. H. Hall & Company and Herman Ellis & Company (a). By this time The American Tobacco Company had become one of the large manufacturers of the products of tobacco— but not cigars— and its securi- ties were held and dealt in by the general public. It was the vendee to which many prospective ven- dors of tobacco businesses naturally turned, and so, between 1893 and 1899, it acquired for investment several tobacco factories— the factories of Myer To- bacco Company, a company which manufactured long cut tobacco, sold principally in New York, the Butler Tobacco Company, The American Eagle To- bacco Company, and possibly others thus passed into its possession. The American Tobacco Company by its purchases during these years, and by the progress of its busi- ness, had become not only a large manufacturer of cigarettes and smoking tobacco, but a large manu- facturer of plug tobacco as well. The American Tobacco Company in 1895 was manufacturing a brand of plug tobacco which had a large sale in the City of Philadelphia; the Drummond Tobacco Company was a large manufacturer of plug tobacco with a sale in St. Louis and throughout the middle west; the Drummond Tobacco Company reduced the price on one of its brands on sale in Philadelphia, and in keen competition with a brand of The American Tobacco Company; thus was inaugurated a war in plug tobacco prices, because The American Tobacco Company immediately retaliated with a cut in price on its tobacco sold in the middle west. This was the " Battle Ax " or "Plug " war, to which reference is frequently made in this litiga- tion. ' ' Battle Ax " tobacco so sold by The Amer- ican Tobacco Company at a cut price became popular and it was sold throughout the country from 1896 to 1899 (b). (a) Becord, Vol. IV, p. 347. (b) Record, Vol. IV, p. 350. 16 In 1898 a proposition was made to The American Tobacco Company that it should buy a number of plug factories, which proposition was declined (a). Afterwards, one Eay, and one Hughes, who had first proposed to sell to The American Tobacco Company, promoted a prospective company to buy out several large plug manufacturers and they proposed to or- ganize a corporation with a capital stock of $75,000,- 000. They proposed that such company purchase the plug manufactories of The American Tobacco Company at between $20,000,000 and $30,000,000. The American Tobacco Company agreed to sell at that price. It is to be noted that The American Tobacco Company under this proposition would jiot have held a majority, nor substantially a majority, of the stock of the plug company and could not have controlled that company; it was willing to sell its plug business, taking a minority interest in the com- pany that bought it (b). This proposed organization failed, and The Amer- ican Tobacco Company thereafter acquired the plug factories of the Brown Tobacco Company and the Drummond Tobacco Company (c). Renewed nego- tiations were begun for the formation of a plug man- ufacturing company, and they ultimately resulted in the formation of Continental Tobacco Company, not by the procu ranee of The American Tobacco Company, but through the efforts of promoters. The American Tobacco Company sold to that company so formed its plug tobacco factories, with their brands and good-will, and took its pay in securi- ties of the company. It was not the purpose of The American Tobacco Company to control this newly- formed plug company; it was not the purpose of its president to become the president of such plug com- pany. Mr. Duke, the president of the American Tobacco Company, did become the president of the Continental Tobacco Company, but it was not in (a) Becord, Vol. IV, p. 352. (b) Eecord, Vol. IV, p. 353. (o) Eecord, Vol. IV. p. 352. 17 the contemplation of any of the parties that he should do so (a). Neither at the organization of Continental Tobacco Company nor at any time thereafter did The American Tobacco Company own a majority of its stock (b). Continental Tobacco Company was originally a plug tobacco manufacturer and The American Tobacco Company was a smoking tobacco and cigarette manufacturer; after 1898, from time to time each concern bought factories, some of which manufactured various lines; and so each con- cern found itself manufacturing other hnes than those originally manufactured by it. In 1904, how- ever, Continental Tobacco Company sold to The American Tobacco Company at a fair price, all of its " cut tobacco " manufacturing plants with their brands and good-will, and from that time until the Merger (hereinafter to be mentioned) Continental Tobacco Company was engaged in the manufacture of plug and twist tobacco only, and The American Tobacco Company naanufactured only "cut" to- bacco—called by the Internal Eevenue Department " smoking tobacco," cigarettes and little cigars (c). The American Tobacco Company never owned a majority of the stock of Continental Tobacco Company. Its stocks and the stocks of Conti- nental Tobacco Company were dealt in on the exchanges and had many holders. Naturally the two stocks drifted largely into the same hands. The investor who had held the American Tobacco Company stocks became a holder of the stock of Continental Tobacco Company; he had come to know something of tobacco se- curities and to have confidence in them. In 1901 there was very evident a need for larger work- ing capital on the part of these companies, unless they were to stand still or suffer a retrogression. (a) Record, Vol. IV, p. 357. (b) Eecord, Vol. IV, p. 357. (c) Record, VoL IV, p. 429. 18 Changes in tariff and trade conditions had made it necessary to embark in the manufacture of tobacco in England, or give up the English market (a); and the two companies had co-operated in the organ- ization of American Cigar Company in January, 1901, and through that company were investing in the cigar business. Methods of raising additional capital were considered and discussed, to wit: the issuance of new stock, bonds, and such other taeans, and there resulted the formation of Consolidated Tobacco Company (b). This company was organ- ized by those holding large interests in the other two companies, to wit: The American Tobacco Company and Continental Tobacco Company. The American Tobacco Company had over $50,000,000 of common stock which was paying dividends at the rate of six per cent, per annum and preferred stock of $14,000,000 which was paying a dividend of eight per cent, per annum. Continental Tobacco Com pany had a capitalization of substantially $50,000, 000 of common stock, which had not paid a dividend but which was earning from two to four per cent, and a preferred capitalization of about $50,000,000 which was paying a fixed dividend of seven per cent per annum. In order to furnish to these companies for their English business and their cigar business an adequate working capital. Consolidated Tobacco Company was formed with paid up cash capital of $30,000,000. The organizers of Consolidated To- bacco Company offered its bonds at the rate of $100 in par value bonds for each $100 share of Conti- nental Tobacco Company common stock, and $:J00 in par value of its bonds for each $100 share of The American Tobacco Company common stock, and so acquired most of the common stocks of these two companies. This was simply an offer. No threats were made and no inducements were offered (c). There was a speculation on the part of the organiz- (a) Record, Vol. II, p. 25. (b) Eecord, Vol. IV, pp. 377, 721. (c) Beoord, Vol. IV, p. 378. 19 ers of Consolidated Tobacco Oompany; their $30,- 000,000 was embarked; the holder of the common stock of The American Tobacco Company who saw fit to accept the offer received the equivalent of a dividend of eight per cent, per annum— whereas he had ordinarily received only six per cent, per an- num on his stock— and the holder of Continental Tobacco Company common stock who accepted the offer received the equivalent of four per cent, per annum, whereas he had received nothing. The sub- scriber to stock of Consolidated Tobacco Company pledged his stock subscription to make good the fixed charges, and took the risk that the business would make a profit sufficient to pay these fixed charges and an income from his investment. This offer was generally accepted, but, after all, it- was largely the acceptance of an offer by the same peo- ple who made the offer, for the holders of the com- mon stocks of these two companies were to a large extent the very ones who formed Consolidated To- bacco Company (a). From 1901 to 1904 the securities of these three to- bacco companies were complicated. The American Tobacco Company had preferred stock outstanding and a remnant of its common stock; Continental Tobacco Company had a large issue of preferred stock and a remnant of its common stock; and Con- solidated Tobacco Company had its stock and a large issue of bonds— these bonds had as their pledged security the common stocks for which they were issued. In the meantime, while the two companies were in fact not competitors, they were, nevertheless, in businesses related to each other; they had a common ownership in main; a common president; but a minority ownership in each, having no interest in the other. The pos- sibilities of inter-stockholding misunderstanding and contention were unlimited. It was determined, in order to simplify the securities and to work gen- (a) Record, Vol. V, pp. 389, 423. 20 erally toward economy and simplicity in the admin- istration of the business, to merge these companies (a). The merger was accomplished under the laws of New Jersey, the State of the incorporation of each of said companies. There was attempted and effected an equitable distribution of the securities of the new company to take the place of the securi- ties of the various old companies, having regard to priorities and income^ — so the preferred stock- holders of The American Tobacco and Continental Tobacco Company received, as a first charge on the whole business, bonds carrying an equivalent income to their old preferred stock; secondly, the bondholders of Consolidated Tobacco Company re- ceived bonds, or at their option to the extent of half their holdings, preferred stock with a greater income and the junior security; and thirdly, the common stockholders received common stock. The consum- mation of the plan involved an increase of fixed charges, before dividends to common stock, of more than $1,600,000 per year, and it was the common stockholders only who paid this price of the merger (b). In view of the great number of security holders, and the temptation that was involved in the large- ness of the transaction, it is not surprising that suits were brought by Consolidated Tobacco Com- pany bondholders to enjoin the merger, and that suits were subsequently brought by American pre- ferred stockholders to dissolve the merger. In these suits the courts of New Jersey fully sustained and approved the merger (c). Since 1904: the merged The American Tobacco Company has continued its operations as a manu- facturer of tobacco, and it operates factories for the manufacture of smoking tobacco, plug tobacco, cigarettes and little cigars in New York City, Balti- (a) Becord, Vol. IV, pp. 379, 722. (b) Kecord, Vol. IV, p. 379. (c) Becord, Vol. IV, p. 380. 21 more, Md., Richmond, Va., Danville, Va., Durham, N. C, Louisville, Ky., St. Louis, Mo., Middletown'. Ohio. Chicago, 111., New Orleans, La., and Clarks- ville, Tenn. Its business is primarily a manufacturing business, and its ownership of stock in other com- panies is merely incidental to such manufacture. Out of a total production in 1907 of 3,925,506,700 cigarettes, in which The American Tobacco Com- pany had any sort of interest, 3,200,929,010 were manufactured in its own factories, leaving only one- fifth manufactured by companies in which The American Tobacco Company holds stock (a); in little cigars the proportion manufactured in factories be- longing to The American Tobacco Company, as dis- tinguished from those made by companies in which The American Tobacco Company holds stock, is even greater — in the factories belonging to The American Tobacco Company there were manufactured in 1907 over 942,000,000 little cigars, and by companies a part, or all, of whose stock belongs to The American Tobacco Company, less than 12,000,000 (b); during the same year The American Tobacco Company was interested in companies which produced 38,429,261 pounds of plug and twist tobacco, but it made in its own factories 98,778,622 pounds (c). Smoking to- bacco is the only product which The American To- bacco Company produces, and also owns stock in companies which produce, where the major part is produced by such other companies and not in the factories of The American Tobacco Company itself; in 1907 companies in which The American Tobacco Company owned all or a part of the issued capital, manufactured69,618,455poundsof smoking tobacco, whereas in factories directly owned by The Ameri- can Tobacco Company there was manufactured 58,- 020,076 pounds (d). In the meantime The American Tobacco Com- pany has become a representative industrial cor- (a) Record, Vol. V, Gov. Ex. No. 77. (b) Eecord, Vol. V, Gov. Ex. No. 81. (c) Eecord, Vol. V, Gov. Ex. No. 79. (d) Eecord, Vol. V, Gov. Ex. No. 78. 22 poration with a constantly increasing number of security holders. In the fall of 1905 there were 108 holders of its preferred stock, each holding one thou- sand shares or more, and 2,281 holders of preferred stock, each holding less than one thousand shares; 44 holders of its common stock each holding at least one thousand shares, and 276 holders of common stock each holding less than one thousand shares (a). In the spring of 1906 there were 114 holders of its preferred stock, each holding one thousand shares or more, and 2,751 holders of preferred stock, each holding less than one thousand shares; 54 holders of its common stock each holding at least one thou- sand shares, and 376 holders of common stock each holding less than one thousand shares (b). In the spring of 1907 there were 114 holders of its pre- ferred stock, each holding one thousand shares or more, and 3,602 holders of preferred stock, each holding less than one thousand shares; 53 holders of its common stock each holding at least one thou- sand shares, and 425 holders of common stock each holding less than one thousand shares (c). At the end of the year 1907 there were 109 holders of its preferred stock, each holding one thousand shares or more, and 4,745 holders of preferred stock, each holding less than one thousand shares; 48 holders of its common stock each holding at least one thousand shares or more, and 584 holders of common stock each holding less than one thousand shares (d). There is no way of ascertaining the number of sep- arate bondholders, but in view of the wide distribu- tion of the stock and the large bond issue, it is safe to say that there are several thousand. (&.) Directly concerning the business of Ameri- can Snuff Company and its predecessors. The American Tobacco Company when it pur- chased the business of Gail & Ax, in Baltimore, in (a) Record, Vol. V, p. 393. ' (b) Record, Vol. V, p. 397. (o) Record, Vol. V, p. 402. (d) Record, Vol. V, p. 406. 23 1890, acquired thereby a small snuflf business. The snuff business of the country had been princi- pally in the hands of very old manufacturers. As heretofore pointed out, "snuff" includes not only the product which, perhaps, gave it its name, that is, a product capable of being snuffed— a dry im- palpable powder— but it includes also damp, heavily seasoned ground tobacco, that is more certainly in competition with ordinary chewing tobacco than it is with other snuffs (a). In the dry snuff the manu- facturers were Garrett, Stewart-Ralph, Bruton & Condon and Lorillard, and in the damp, heavily fla- vored snuff, there were Helme, Weyman, as well as others. In 1898 Atlantic Snuff Company was organized and acquired the manufacturing plants of some of these old and well established manufacturers, but did not acquire the business of The American To- bacco Company or Lorillard, Helme or Weyman, or various other large manufacturers (b). This organi- zation was not in the interest of The American To- bacco Company, and it was not participated in by any of The American Tobacco Company interests. The American Tobacco Company had never made a conspicuous success of its snuff business. It had an old snuff manufacturing plant acquired from Gail & Ax; Continental Tobacco Company had ac quired a small business at Changewater, N. J. in 1899. But the total snuff product directly made by either the American or Continental Tobacco Com- pany was small (c). At the time of the organization of Continental Tobacco Company it became the sole common stockholder of P. Lorillard Company, which had a substantial snuff business — one large enough, at any rate, to engage the serious thought of those having the responsibility of the conduct of the business of Continental Tobacco Company, and of P. Lorillard Co. (a) Eecord, Vol. IV, p. 517. (b) Eecord, Vol. IV, p. 483. (c) Eecord, Vol. IV, pp. 381-2. 24 So Continental Tobacco Company and The Amer- ican Tobacco Company, after this acquisition of the Lorillard business, made more serious efforts to es- tablish and promote their snuff business. They had no well equipped snuff organization; neither The American Tobacco Company nor Continental To- bacco Company had made money out of their snuff business, but they were seeking to establish new brands, and to re-establish some of the older brands (a). The various snuff manufacturers who after- wards sold their businesses to Atlantic Snuff Com- pany had met the officers of the American To- bacco Company, and had made efforts to purchase the snuff business of The American Tobacco Com- pany; such efforts had not been successful. Ne- gotiations were resumed in the spring of 1900, and resulted in the formation of American Snuff Com- pany, which, immediately upon its organization, acquired the snuff business of The American To- bacco Company, Continental Tobacco Company and P. Lorillard Company, issuing therefor $Y, 500, 000 of its common stock and $2,500,000 of its preferred stock, which stocks were distributed among those three companies according to the value of the prop- erties turned over; the Atlantic Snuff Company con- veyed all its property to this new American Snuff Co., receiving as consideration therefor $Y,500,000 of preferred stock of American Snuff Company, and $2,500,000 of its common stock; American Snuff Company also acquired at the time of its organiza- tion the business of George W. Helme Company (though this was not contemplated when its organi- zation was agreed upon) (b), issuing as a considera- tion therefor $2,000,000 of preferred stock and $1,000,000 of common stock (c). The common and preferred stocks of American Snuff Company were given equal voting rights, so (a) Eecord, Vol. IV, p. 381. (b) Eecord, Vol. V, p. 148. (o) Record, Vol. IV, p. 381. 25 The American Tobacco Company has never, from the date of the organization of American Snuff Company, had the power of control. It has not only lacked this power of legally controlling Ameri- can Snuff Company, but it has not sought to exer- cise a practical dominance in A.merican Snuff Com- pany. The first president of American Snuff Company was George A. Helme, and he was, in fact as well as in name, the active and actual presi- dent. His connection had been with the George W. Helme Company and he had never had any connec- tion with the American Tobacco Company (a). He was succeeded by Martin J. Condon, who was one of the vendors of Bruton & Condon's snuff business and had been active in the affairs of Atlantic Snuff Company (b), but never in any way connected with the American Tobacco Company. The American Tobacco Company is accused of an effort to monopolize the tobacco Ijusiness in all its branches, and it is notable that it has never from the outset had the power of control of either of the two largest domestic companies that it has had business relations with, to wit. Continental Tobacco Company and American Snuff Company. In the case of Continental Tobacco Company it was will- ing to sell its plug tobacco business to a company to be formed, taking $20,000,000 out of a total of $75,000,000, which would have constituted it a less considerable minority holder than it actually did become (c). In the case of American Snuff Company, even those directors who represent The Ameri- can Tobacco Company's large stockholding interest do not direct — American Snuff Company is run by its own organization absolutely and entirely (d); when the views of The American Tobacco Com- pany have disagreed with the views of other large (a) Record, Vol. U, p. 444; Vol. IV, p. 382. (b) Record, Vol. IV, p. 382. (c) Record, Vol. IV, p. 353. (d) Record, Vol. IV, p. 383. 26 stockholders, the views of the other large stock- holders have prevailed (a). American Snuff Company has been operating since 1900. It has a very large proportion of the snuff business of the United States, but it has acquired its volume through effective business enterprise, and by the peculiarities of the snuff business, and not by con- tracts in restraint of trade, nor attempts to monopo- lize. To illustrate: W. E. Garrett & Sons manu- factured one brand of snuff called "Garretts." Its business in ]900, when American Snuff Company was formed, was 1,801,378 pounds, and in 1906 the business on that identical brand was 5,965,840 pounds (b). Now, Garrett's snuff has not acquired this tremendous increase by being sold at cheap prices. Garrett's snuff goes to the trade at the highest price of any of the dry snuffs. It has gotten its growth because of the momentum of the brand and the activity of the company in sampling and advertising. " When women get together in the " country where they use snuff and one of them " leaves a box at home, and she asks one to give " her some snuff, it is most likely she will get " ' Garrett's,' or the brand that is most popularly " used, so that by degrees that brand eats right " in and eats up the small ones, and that is " the way that the growth occurs " (c). Amer- ican Snuff Company began its business with a sale during 1900 of 9,315,303 pounds out of a total snuff business of 13,805,311 pounds. Its president estimates that the businesses of the facto- ries it has purchased would represent annually sales of more than 2,000,000 pounds (d). But American Snuff Company is to-day doing in its own factories, and the factories of companies all of whose stock is owned by it, a business of 22,067,234 pounds. So, charging against American Snuff Company thebusi- (a) Eecord, Vol IV, p. 491. (b) Eecord, Vol. V, Gov. Ex. No. 82. (c) Eecord, Vol. IV, p. 515. (d) Eecord, Vol. IV, p. 515. 2T nesses that were originally bought by it and the businesses subsequently acquired by purchase, there yet remains a substantial doubling of its volume by the fact of a fortunate investment in brands that met the public taste, and an intelligent enterprise in advertising and marketing these brands. The " Garrett's " brand and the favor it enjoys, to the extent of being in some sections the snuff that is universally called for, is one illustration of this growth, and the Weyman brand, increasing as it did after its purchase in July, 1905, by American Snuff Company from an annual business of less than 1,000,000 pounds to a business in 1907 of 2,C00,000 pounds, is an illustration of the effectiveness of the enterprise of the Company (a). As just hereinbefore indicated, the purchases by American Snuff Company of other businesses have not been considerable. The Weyman purchase, made in 1905, was a large one; the purchase of the Standard Snuff Company's stock, made in 1904, and the purchase of the stock of the Devoe Snuff Com- pany, made in March, 1901, were comparatively large. But most of the purchases by American Snuff Company have been of businesses that were de- sired to be sold, because of death, or other such private matters connected with the vendors. In- deed, one is struck with the number of such pur- chases and the small aggregate of businesses con- veyed (b). (c.) Directly concerning business of American Cigar Company and its predecessors. The American Tobacco Company had been in the business of manufacturing cheroots since 1891, when it purchased the factory and business of P. Whitlock of Richmond. It had also been in the little cigar business since 1895, when it purchased (a) Beoord, Vol. IV, p. 510. (b) Record, Vol. IV, p. 512-514. 28 the properties of Consolidated Cigarette Company, Thomas H. Hall and Herman Ellis. It had not pur- chased other cheroot manufactories, but it had ex- tended its little cigar business by its purchase, in 1898, of the manufacturing plant of Herman Man- delbaum (a), and in 1899 of the manufacturing plant of M. S. Pacholder Company (b). There is no distinction made by Internal Eevenue statutes between cheroots and cigars. They are all simply cigars, and pay a like tax, and are subject to other like regulations. Cigars are divided for the purposes of Internal Revenue collection and regu- lation, into cigars weighing more than three pounds to the thousand, and cigars weighing less than three pounds to the thousand. The first class is called simply " cigars," and pay a tax of three dollars per thousand. Little cigars are packed like paper cigarettes in statutory packages of ten, twenty, fifty and one hundred, and they pay a tax of fifty-eight cents per thousand. In January, 1901, a contract was made for the organization of American Cigar Company (c). The parties to this contract were The American Tobacco Company, Continental Tobacco Com- pany, and Powell, Smith & Company, the lat- ter a cigar manufacturing concern which had sold, in the year 1900, about 70,000,000 cigars, receiving therefor $2,189,919.44:. The contract contemplated the creation of a corporation with a capital, when issued, of ten million dollars, of which forty -six and one-half per cent, was to be taken and paid for in cash at par by The American Tobacco Company or its nominees, forty-six and one-half per cent, by Continental Tobacco Company or its nominees, and seven per cent, by the partners constituting the firm of Powell, Smith & Company. This contract does not contain any express provisions that this company should thereafter acquire the che- (a) Beoord, Vol. IV, p. 359. (b) Eeoord, Vol. IV, p. 365. (c) Becord, Vol. V, p. 165. 29 root business and the factories for the manufacture of cheroots theretofore carried on by The American Tobacco Company, but it was in the contemplation of the parties, and not long after the formation of the coQipany it did make such purchase (a). While the contract of January 3, 1901 (b), to which refer- ence has already been made, provided that forty-six and one-half per cent, of its capital stock should go to the American Tobacco Company or its nominees, and forty-six and one-half per cent, to Continental Tobacco Company or its nominees, the actual plan of organization contemplated that The American Tobacco Company and Continental Tobacco Com- pany respectively should take thirty-five per cent, of the total capital, instead of forty-six and one- half per cent., so that the Cigar Company would have an issued capital of ten million dollars of which The American Tobacco Company and Con- tinental Tobacco Company in the aggregate would own seven million dollars, and individuals useful in the conduct of the business, including mem- bers of the firm of Powell, Smith & Co., would own the other three million dollars (c). The action of the American Tobacco Company and Continental Tobacco Company in causing the organ- ization of a new company to go into the cigar busi- ness, was principally indaced by a desire to secare the co-operation of cigar manufacturers that un- derstood the business, and thus get an organiza- tion to handle the cigar business (d). Along this line, American Cigar Company, soon after its organization, acquired the cigar manufacturing business of Harburger, Homan & Company, mak- ing payment partly in stock and partly in cash, and the factories of Havana American Company which made cigars of a different grade from those manufactured by Harburger, Homan & Company (a) Kecord, Vol. IV, p. 383. (b) Becord, Vol. V, p. 165. (c) Record, Vol. IV, p. 383. (d) Becord, Vol. IV, p. 383. 30 or Powell, Smith & Company. These were large manufacturers, but they were not the largest manu- facturers, and their acquisition by American Cigar Company by no means gave it even a commanding place in the cigar business (a). In the meantime the changes of tariff conditions incident to the Spanish War induced American Cigar Company to become interested in Porto Rican and Cuban cigars. In 1899, The American Tobacco Company had co-operated in the formation of Porto Rican- American Tobacco Company to take over a cigar and cigarette manufacturing plant in Porto Rico owned by a co-partnership; The American Tobacco Company, upon the organization of the corporation, acquired a majority of its stock for cash. At its beginning this Porto Rican-American Tobacco Company was principally engaged in the manufacture of cigarettes for sale on the Island of Porto Rico. After there was established free trade between Porto Rico and the United States, it became evident that a very considerable market for Porto Rican cigars could be established and maintained in the United States. The American Tobacco Company sold to American Cigar Company at an agreed price, half of its holdings of Porto Rican-American To- bacco Company, and American Cigar Company marketed these Porto Rican cigars until after the institution of this suit and after a large part of the testimony was concluded. The change of policy on the part of Porto Rican-American Tobacco Com- pany and its determination to market its own goods, had no connection, however, with the insti- tution of this suit— it was a change of business methods such as is frequently and from time to time being made by men in business, " because the " president of the Porto Rican-American Tobacco " Company believes that through an organization of " its own, or the company's own creation here in the United States, that he could sell more cigars (a) Eecord, Vol. Ill, pp. 20-22. (( 31 '^ and make more money than he could by having " American Cigar Company act as selling agent " (a). So far as the cigarettes of Porto Rican-American Tobacco Company are concerned, they still cut little figure in this country; their substantial sale is Um- ited to Porto Rico (b). Early in 1902 American Cigar Company, with a desire to broaden the basis of its business, entered into negotiations with, and bought the manufactur- ing plant and business of, H. de Cabanas y Carba- jal, and caused the organization of a corporation to take over that business (c). The cigar manufactur- ers in Cuba, counting those only of substantial busi- nesses, are very numerous, some making cigars popular in one part of the world, and some in an- other—Cuban grown tobacco has a real monopoly in the manufacture of the highest priced cigars the world over. In May, 1902, American Cigar Com- pany co-operated with owners of Havana Commer- cial Company, Cuban cigar manufacturers, and owners of Henry Clay and Bock & Company, Lim- ited, Cuban cigar manufacturers, in the formation of Havana Tobacco Company, and Havana Tobacco Company took over such of the stocks as could be obtained of these two companies, and all the stock of H. de Cabanas y Carbajal. It made an offer to all the securityholders, but certain of the holders of the English company, and certain of the holders of the Havana Commercial Company, saw fit not to accept the offer of exchange. Henry Clay and Bock & Company, Limited, had, among its assets, a ma- jority of the stock of Havana Cigar and Tobacco Factories, Limited, an English Corporation (d), also a Cuban cigar manufacturer. After August, 1902, Havana Tobacco Company purchased the factory and business of another (a) Record, Vol. m, p. 65. (b) Record, Vol. Ill, p. 19. (c) Record, Vol. IH, p. 26. (d) Record, Vol. Ill, p. 79. 32 Cuban manufacturer, not in the contemplation of any of the parties at the time of the formation of Havana Tobacco Company, J. S. Murias y Ca., and in order to have a better chance of maintaining and preserving the business, caused the formation of a corporation of that name, to take over such factory and business (a). Havana Tobacco Com- pany has an issued capitahzation of thirty-five milHon dollare, of which five million doUai-s is preferred stock, and thirty million dollars common stock. For a while it acted as the selling agent of the companies whose stock is owned, but latterly one of these companies, Henry Clay and Bock & Company, Limited, has become the selhng agent of the other companies (b). These companies manu- facture in the aggregate less than half the cigars manufactured in the Island of Cuba, and less than half of the cigarettes manufactured and sold there. The cigarettes made by these companies and the other Cuban manufacturers are principally con- sumed in Cuba, and of the cigars, not more than twenty-five per cent, made by these companies come to the United States (c). (d.) Directly concerning the business of American Stogie Company. In May. Iy03. American Cigar Company co- operated with the stockholders of the United States Cigar Company in the formation of the American Stogie Company to which there was conveyed the business of United- States Cigar Company and the stogie business of American Cigar Company. Capi- tal stock was issued in consideration of these con- veyances, a majority of the stock to American Cigar Company (d). Stogies are cigars of the crudest manufacture (e\ American Stogie Company has (a) Record, Vol. ICT, p.~7a (b) Eecord, Yol. m, p. 80. (c) Eecord, Vol. in, p. 27. (d) Record, Tol. V, p. 28. (e) Record, Yol. HI. p. 683. 33 not acquired any factories, and it is engaged in the manufacture of stogies, cheroots and cigars, the cheaper kind, including cigars ordinarily sold at re- tail at five cents a piece (a). American Stogie Com- pany manufactures, so far as can be estimated, about fifteen per cent, of the stogies manufactured and sold in this country and one or two per cent, of the cheap cigars (b). It conducts its own leaf buying depart- ment and its own selling department (c). (e) The defendant companies which furnish sup- plies to, or buy supplies for, other defendants. Golden Belt Manufacturing Company. Certain forms of maufactured tobacco are sold in cloth packages. Granulated smoking tobacco uses a great many of these cloth packages, going to the trade as it does in separate packages of an ounce and an ounce and two thirds. In 188Y, the president of Black well's Durham Tobacco Company (which had no connection with The American Tobacco Company until 1899) caused the organization of Golden Belt Manufacturing Company to make such bags and utilize a patented machine (d). In 1899 after the acquisition of Black well's Durham Tobacco Com- pany by The American Tobacco Company, The American Tobacco Company acquired an interest in, and caused a reorganization of, this company and an enlargement of its business. This was done at the instance of the previous own- ers of the business, and in co-operation between these previous owners and The American Tobacco Company (e) From time to time The American Tobacco Company has acquired the stock of other stockholders until it now owns about ninety-three per cent, of the stock of Golden Belt Manufacturing (a) Record, Vol. Ill, p. 683. (b) Eecord, Vol. m, p. 687. (c) Beoord, Vol. in, pp. 684, 686. (d) Eecord, Vol. HI, p. 581. (e) Eecord, Vol. Ill, p. 582. 34 Company (a). Among these other stockholders whose stock was acquired soon after 1899, were certain individuals, directors of The American To- bacco Company, and they turned in their stock at its value as estimated by the directors of The Am- erican Tobacco Company who were not such stock- holders of Golden Belt Manufacturing Company, and so avoided the possibility of charge that they profited by a connection with a company furnishing their other companies supplies (b). Since The Am- erican Tobacco Company has had control of this Golden Belt Manufacturing Company, which was originally simply a bag manufacturing company, that company has improved its plant, and built a cotton mill so that it makes the cloth that it needs in the making of the bags it sells. It sells The American Tobacco Company under a contract fixing the price subject to fluctuations as the price of cotton fluctuates, so as to give to the bag company a profit of from eight to nine per cent. (c). This company is almost altogether a supply com- pany of The American Tobacco Company, about ninety-seven per cent, of its output going to The American Tobacco Company, or companies con- trolled by it, and only about three per cent, to in- dependent tobacco manufacturers (d). It solicits the business of independent tobacco manufacturers and sells some of them their bags, but it sells no bags at less than cost, and it has no mono- poly of the bag business. Independent tobacco manufacturers may either buy from it or from at least two competing concerns mentioned in the testi- mony (e). The patents that existed in 1887 have expired, and it does not use any patented machinery at all (f). (a) Keoord, Vol. lU, p. 581. (b) Becord, Vol. IV, p. 408. (c) Eecord, Vol. HI, p. 582. (d) Record, Vol. m, p. 583. (e) Eecord, Vol. m, p. 585. (f) Eecord, Vol. in, p. 584. 35 Conley Foil Company. The American Tobacco Company is a large user of tin foil. In 1900 representations were made to The American Tobacco Company that an effort was being made, or in contemplation, by foil manufacturers, to enter into a combination to force up the price of tin foil; this might have in- convenienced the American Tobacco Company at least temporarily, because it takes some time to build machinery to roll out the foil (a). In tliis con- dition and at the instance of John Conley & Sons, foil manufacturers, The American Tobacco Com- pany co-operated with John Conley & Sons in the organization of the Conley Foil Company, which was thereupon organized, the plant of John Conley & Sons being their contribution to the capital of the new company at an agreed valuation, and The American Tobacco Company contributing cash so as to make its holdings of stock sixty per cent, of the new company. Conley Foil Company having been thus formed entered into an agreement with The American Tobacco Company to furnish it its re- quirements of tin foil at an agreed price per pound over cost of raw material, and it has been fur- nishing the American Tobacco Company on that basis ever since. From time to time this contract price has been extended to companies in which The American Tobacco Company is interested as stock- holder, including the R. J. Reynolds Tobacco Com- pany, S. Anargyros, F. F. Adams Tobacco Com- pany. Certain other companies in which The American Tobacco Company is interested have been furnished as if they were outside com- panies on the open market basis (b). In August, 1903, The Conley Foil Company acquired a majority of the stock, and thereafter all the stock, of The John- ston Tin Foil and Metal Company, of St. Louis, Mis- souri (c). This acquisition was made as an insurance (a) Eeoord, Vol. IV, p. 409. (b) Eecord, Vol. KI, p. 155. (o) Record, Vol. Ill, p. 158. 36 against fire, or such other casualty as might tempo- rarily make the Oonley Foil Company at its single plant in New York unable to supply Ihe require- ments of The American Tobacco Company (a) The Conley Foil Company had had some labor trouble at its New York factory, and its officers felt that on that account, and in order to prevent asympathetic strike in the Johnston plant, it was desirable that its relations to the Johnston Company should be kept secret, and to that end these relations were kept secret (b). Of the output of the Conley Foil Company from TO per cent, to T5 per cent, goes to The American Tobacco Company and companies of which it owns stock.and the balance goes to out- side trade (c). It sells to any one that needs tin foil and it is in competition, occasionally more or less warm, with two large tin foil manufacturers; one of them having an output of about five and a half million pounds annually (d). The three, Lehmaier, Schwartz & Company, Conley Foil Company and J. J. Crook Company, are substantially the only tin foil producers in the country, Conley Foil Company having acquired the Johnston Tin Foil & Metal Company of St. Louis, and Lehmaier, Schwartz & Co. having in the last few years acquired the business formerly carried on by the Patent Metal Company of Philadelphia, and the Palen Tin Foil Co. of Kingston, New York. In the competition for the foil business, Conley Foil Com- pany has occasionally, in order to hold a customer, sold its goods below cost, but it has been no general practice, having been done not more than twenty times in five years (e). So far as this has been done at all it has been done not only without the pro- curement of The American Tobacco Company, but against its wishes; the attitude of The American (a) Record, Vol. ni, p. 168. (b) Eeoord, Vol. ni, p. 161. (c) Eecord, Vol. Ill, p. 157. (d) Record, Vol. m, pp. 161, 305. (e) Record, Vol, in, pp. 297, 298. 3Y Tobacco Company being that it does not care whether The Oonley Foil Company sells any foil to others than The American Tobacco Company or not (a). Mengel Box Company. In 1899 Continental Tobacco Company acquired a majority interest in the Mengel Box Company, a corporation in whose organization it had co-oper- ated, to which was conveyed the plant of C. C. Mengel, Jr., & Bro. Company, a Kentucky corpora- tion, engaged in the manufacture of boxes, inclu- ding boxes for tobacco. Continental Tobacco Com- pany conveyed a small box factory of its own to Mengel Box Company. Mengel Box Company has, since its organization, acquired the capital stock of Columbia Box Company and Tyler Box Company, both of St. Louis, Missouri. A majority of its stock continued to be held by Continental Tobacco Com- pany until the merger of 1904, when it passed to the present The American Tobacco Company (b). This company was formed at the instance of C. C. Men- gel, and its organization resulted in a decrease in price for tobacco boxes being paid by Continental Tobacco Company. The American Tobacco Com- pany is furnished under five-year contracts and when the price of lumber increases the manage- ment of Mengel Box Company advances proportion- ately the price of boxes (c). Mengel Box Conjpany furnishes boxes to other manufacturers, but there is absolutely no evidence that it has ever furnished boxes at below cost or at any unduly small profit. Mengel Box Company on several occasions gave to The American Tobacco Company statements as to purchases of boxes by certain independent manu- facturers, and this fact was by Government counsel called to the attention of one of the independent manufacturers, Mr. Peper, who shows that he and other independent manufacturers bought their boxes (a) Record, Vol. in, p. 301. (b) Record, Vol. IV, p. 407. (c) Record, Vol. V, p. 9. 38 with the knowledge of the connection between The American Tobacco Company and Mengel Box Co., and that it made no difference to them that Mengel Box Co. furnished this information, because The American Tobacco Company could find out their output by a calculation made from Government figures, as well as by other means (a). MacAndrews & Forbes Company. Licorice paste is an ingredient in the manufacture of plug tobacco; its extraction had been for many years in the hands of a few large concerns who ob- tained their root supplies from Russia and Turkey, and extracted the licorice paste in plants situated in the United States. Soon after Continental Tobacco Company was formed, it was invited to purchase the plant of the Stamford Manufacturing Company, and an investigation showed that the Stamford Manu- facturing Company was making very little profit. Liggett & Myers Tobacco Company manufactured some of its own licorice and when Continental Tobacco Company acquired that concern it found that the cost to Liggett & Myers Tobacco Company of manufacturing hcorice was more than Continental Tobacco Company was paying for it (b). This was an obviously dangerous situation — it w^as evident that things would not continue in that condition — - either there would be a combination of licorice manu- facturers, or the strongest would destroy the weaker ones, thus, in either event, requiring Continental Tobacco Company to purchase its licorice from one manufacturer. Continental Tobacco Company be- ing apprehensive of this condition, secretly acquired a majority interest in the Mellor & Eittenhouse Company and jealously maintained the secrecy until it could build works sufficient to produce the licorice it required and acquired an adequate stock of root. It did this for fear of a combination among the other manufacturers which would, in the mean- (a) Record, Vol. IV, p. 658. (b) Eeoord, Vol. IV, pp. 409, 410. 39 while, have Continental Tobacco Company at its mercy (a). Having secured such facilities for man- ufacturing and root supply, Continental Tobacco Company entered into negotiations with MacAn- drews & Forbes, which, in J 902, resulted in the formation of MacAndrews & Forbes Company, which acquired the manufacturing plants of Mellor & Rittenhouse Company and of MacAndrews & Forbes. Preferred stock was issued representing the value of the tangible assets, and Continental Tobacco Company acquired seventy per cent, of the common stock, which at the merger in 1904 passed to The American Tobacco Company (b). At the time of the formation of MacAndrews & Forbes Company a contract was entered into between it and Continental Tobacco Company fixing the price of licorice at 7 1/2 cents per pound, which was, at the time, thought to be a fair price, but this was afterwards raised to eight cents a pound, because seven and a half cents, as Continental Tobacco Com- pany concluded, was not a fair price, sufficient to enable the preferred stockholders and minority com- mon stockholders to earn a fair return (c). In 1903, officers of Continental Tobacco Company and officers of MacAndrews & Forbes Company be- came very apprehensive of the supply of licorice root. Licorice root is grown in Southern Russia, the Caucasus of Russia, Asia Minor, Syria and Turkish Arabia (d); at that time the Japanese-Russian War was imminent, there had been great dis- turbance in Turkey, and the hazards ordinarily in- cident to the gathering of root seemed to be greatly increased; so that the president of The American Tobacco Company urged that there should be a three years' stock of root carried in lieu of a two years' stock; the president of MacAndrews & Forbes Company stated that there was great difficulty in (a) Record, Vol. IV, p. 410. (b) Kecord, Vol. IV, p. 410. (c) Record, Vol. IV, p. 412. (d) Record, Vol. Ill, p. 325. 40 increasing; the root supply, largely because of the competition in the root field of Young's organiza- tion, and that if this did not stop the price of root might be doubled without getting any more root. In the same conversation he mentioned also the constant shipment of root to the United States on consignment, as a disturbing factor in the Oriental root market, and that the business of J. D. Lewis stimulated that (a). On account of this de- sire to get rid of this sort of competition in the root field, the contracts were made between MacAndrews & Forbes Company and J. S. Young Company and J. S. Young Company and J. D. Lewis, shown on the record (b). So far as the contract with Young is concerned, it was a mere purchase of a majority of the stock of the Young Company by MacAn- drews & Forbes Company and the estabhshmeut of contractual relations for the security and benefit of minority holders. These contracts were made for the purpose of ehminating competition in the pur- chase of root, but not at all to eliminate competition in the sale of licorice paste (c). The American To- bacco Company was not interested in the price of licorice paste to other manufacturers, and in fact did not care whether MacAndrews & Forbes Com- pany, or any of its interests, sold them paste at all or not (d). The contracts as made were not dic- tated by The American Tobacco Company — the di- rection or advice of The American Tobacco Com- pany to MacAndrews & Forbes Company was to buy out Young and Lewis — not to enter into con- tracts with them (e). These arrangements between MacAndrews & Forbes Company, Young and Lewis continued until June, 1905, at which time the Lewis arrangement terminated, and from 1905 until the present (a) Record, Vol. IV, p. 411; Vol. Ill, p. 373. (b) Eecord, Vol. V, pp. 89, 99. (c) Record, Vol. IH, p. 373. (d) Eecord, Vol. TV, p. 412. (e) Eecord, Vol. Ill, p. 374. 41 time there has been no arrangement or understand- iog between any of the defendants and John D. Lewis (a). In June, 1906, the arrangement with Young was terminated and MacAndrews & r'orbes Company bought its business (b). In 1905 and 1906 MacAndrews & Forbes Company began offer- ing, and since then has constantly offered, to all tobacco manufacturers to sell them licorice paste without contract at the price of nine cents per pound, or, at their option, to enter into a ten year contract whereby the manufacturer is to secure from MacAndrews & Forbes Company his licorice paste as low as any other customer (including The American Tobacco Company) pays— the present price, and the price that has obtained since the offer- ing of this contract to such contract customers is eight cents a pound (c). These contracts were offered to all tobacco manufactui-ers whether particularly hostile to The American Tobacco Company or not, and they have been accompanied by explanations of the impracticability of any manufacturer of licorice venturing to make a fixed price for more than one or two years ahead, because of the very great changes to which the root supply is subject (d). By virtue of these contracts any independent tobacco manufacturer can now obtain his licorice supply from MacAndrews & Forbes Company, by entering into this contract, at the same price that the Ameri- can Tobacco Company pays for its much larger re- quirements, and The American Tobacco Company is under no temptation to advance its own price in order to advance the price that its competitors pay, for the reason that The American Tobacco Company takes a larger proportion of the licorice output than it owns stock in MacAndrews & Forbes Company and its temptation is, therefore, to reduce the price of licoiice paste to the injury of stockholders of (a) Eecord, Vol. Ill, pp. 345, 371. (b) Eecord, Vol. HI, pp. 345, 346. (c) Record, Vol. Ill, pp. 380, 381. (d) Record, Vol. IV, p. 413. 42 MacAndrews & Forbes Company rather than to raise it to the injury of itself and other tobacco manufacturers (a). But if the independent tobacco manufacturer, fearful of longtime contracts, so de- sires, he may purchase on open account, without contract, at nine cents a pound, and certainly this is not an unreasonable differential considering the risks of the business, and it is not an unreasonable price for the paste, for the average cost to McAn- drews & Forbes Company for the past five years has been Y.2 cents per pound (b). The long time con- tracts v^ere not conceived with a view of establish- ing or prohibiting a monopoly; the initiative for them was taken by independent tobacco manufac- turers themselves (c). And if they had been meant to force a monopoly, there would have been a larger differential as an inducement to the tobacco manu- facturers to enter into them, than one cent per pound. It is true that MacAndrews & Forbes Company has a large proportion of the licorice business of this country; it is a very old concern, and its goods are popular as shown by the fact that after The American Tobacco Company acquired the owner- ship of Mellor & Rittenhouse Company, its factory managers desired to continue the use of MacAn- drews & Forbes licorice (d). But a manufacturer of tobacco who desires, can still obtain paste either from J. D. Lewis, with whom MacAndrews & Forbes Company has absolutely no arrangement, Weaver & Sterry, or the Greaves Pharmaceutical Company (e). That these concerns have not a larger proportion of the business is only because of the preference for the paste manufactured by MacAn- drews & Forbes Company. Tobacco manufacturers not only have these options, but it is entirely feasible (a) Beoord, Vol. HI, p. 365. (b) Record, Vol. HI. p. 365. (o) Eeoord, Vol. IH. p. 365. (d) Eecord, Vol. IV, p. 410. (e) Eeoord, Vol. Ill, p. 372, 43 for them to buy from MacAndrews & Forbes Com- pany, or the other licorice manufacturers, their im- mediate requirements, and in the meanwhile import root and manufacture their own licorice, as three in- dependent tobacco manufacturers are now doing (a). No discussion has been had here of the indictment of MacAndrews & Forbes Company and others which resulted in the conviction of some of those indicted and the acquittal of others; it seems to these defendants that all reference to such indict- ment is immaterial and incompetent. If it is not, these indictments were based upon conditions whose existence terminated before the indictments were found, and more than a year before the fihng of the petition in this suit. The condition of MacAndrews & Forbes Company to-day is that of a mere manu- facturing company engaged in the manufacture of a product used in the manufacture of tobacco, and having a large proportion of the business of the United States in this product; it is not only wilhng to make long-time fair contracts, but it is will- ing to sell its products at a fair price, without any contract; and if the user of its products is unwilling to either enter into a contract or make open purchases, he has not only the theoretical privilege, but the practical opportun- ity, to buy from others disconnected with Mac- Andrews & Forbes Company, or manufacture for himself. The Kentucky Tobacco Product Company. This company is not a supply company, but it is mentioned here because there exists no other class for it. In 1899, Continental Tobacco Company, in an effort to utilize the stems that were a by-product in its manufacture, co-operated with the owners of the Louisville Spirit Cured Tobacco Company in the (a) Record, Vol. IH, p. 371. 44 organization of the Kentucky Tobacco Product Company, with which company Continental Tobacco Company entered into contracts to furnish it stems. As a part of the consideration for these contracts, and undoubtedly to secure the interest of the Con- tinental Tobacco Company in the venture, it was given two-thirds of the common stock of Kentucky Tobacco Product Co., its preferred stock having issued at par for tangible assets (a). These stems, or as they may be called, offal, from tobacco, are manu- factured by The Kentucky Tobacco Product Com- pany into a nicotine insecticide, fertilizers, &c. The Kentucky Tobacco Product Company has developed this business, with the result that The American To- bacco Company receives more for its stems, or oflfal, than ever before, and other tobacco manufacturers do like wise. What was thrown away substantially, by tobacco manufacturers heretofore, has become by the enterprise and intelligence of The Kentucky Tobacco Product Company, an article of value (b). Amsterdam Supply Company. It might be assumed that The American Tobacco Company, with the Golden Belt Manufacturing Company, The Conley Foil Company, Mengel Box Company and MacAndrews & Forbes Company had adopted a definite policy of furnishing its own sup- plies, exclusive of leaf tobacco. This is by no means so, however; it manufactures for itself the supplies of which the tobacco business is a very large user, or which it is necessary for it to manufacture for itself as a matter of assurance of getting a suit- able supply for its requirements. But there are countless things used by tobacco manufacturers with which it supplies itself in the open market. Printed matter for packing and advertising, sugar, glycerine and other flavoring materials are but a few that immediately occur to one, of which the aggre- gate requirements of The A merican Tobacco Com- (a) Kecord, Vol. IV, p. 405-6. (b) Kecord, Vol. IV, p. 405-6. 45 pany and companies in which it holds stock must be very considerable. The intelligent purchase of these supplies, negotiations for prices, checking up of bills, &c., is a very large undertaking. And with respect to many of them there is a real advantage in pur- chasing by wholesale, as opposed to retail purchases, and if a volume of purchases may be gotten suf- ficient to deal with manufacturers rather than job- bers, there is a still greater economy. In 1903, vari- ous comptinies in which there was an interstockhold- ing interest, united in the formation of Amsterdam Supply Company, a purchasing agent. It has a capital stock of $250,000, and various companies took stock in it in proportion to their purchases of such supplies, with the understanding that, having the benefit of this ownership, they should either do their purchasing through this company, or, at their option, buy otherwise, but pay on their purchases the one per cent, charged other stockholders. This supply company naturally watches the market of these various products, and has an office force capable of managing the detail of such purchases, so it not only buys for its stock- holders, but for others as well, charging such others not the one per cent, that it charges its stockholders, but two, three or five per cent., as it is able to do (a). Defendants apprehend that the only interesting question to the Court with respect to this Amster- dam Supply Company is whether it has the primary purpose of effecting an economy to those operating through it by the withdrawal of competition. If it does not it is not amenable to any anti-trust law, or any other law, for neither men nor corporations are forbidden simply to co-operate — they are only for- bidden to co-operate with the efifect or intent of thereby eliminating competition and the pubMc ben- efits which ordinarily flow therefrom. Amsterdam Supply Company does not thus effect its economy, and indeed it does not withdraw com- (a) Becord, Vol. Ill, pp. 280-1. 46 petition at all; every company is free so far as con- tract is concerned to buy as it pleases. While the stockholding companies (many of the defendant companies are not stockholders at all) pay a com- mission of 1 per cent, on goods bought, whether through the Amsterdam Supply Company or not, there is left perfect freedom of competition, and best prices and best service are the only factors that give business to Amsterdam Supply Company (a). The president of Amsterdam Supply Company is a vpituess for the Government, and he emphatically denies that it was the purpose of the organization of Amsterdam Supply Company to eliminate com- petition, or that there has resulted any economy by the lessening of such competition. " The reason I thought it would be cheaper was because it would gather up the needs of the different factories and get them into a larger volume; of course it would entitle us to a better price from the manufacturers or jobbers, as the case might be, than it would in a smaller quantity. Q. Is the competition vrhich would exist if these companies were buying separately in their purchase of sugar, for instance, sufficient to enhance tbe price of sugar, I mean their aggregate purchases of a sufficient proportion of the entire output of sugar, affect the price? A. No, sir. ***** Q. In truth, Mr. Reed, in the absence of special circumstances there may be how many different prices of supplies generally; how many different grades or gradations in prices? A. Oh, I should say that there are three market values practically for everything; there is the manufacturer's price, the jobber's price and the retail price. Q. And your idea in the formation of the Amsterdam Supply Company was to buy at first price? A. To buy from the manufacturers, of course. Q. With respect to any of the supplies pur- (a) Kecord, Vol. HI, pp. 282^^ 47 chased by you, whether sugars, printed mat- ter, lumber or other supplies, has there been in your judgment a diminution of price merely by intelligent marketing and buying wholesale quantities? A. I think it is in the intelligent marketing, in buying in wholesale quantities; I don't think the competition has anything to do with the various prices " (a). In the face of this direct, reasonable and uncon- tradicted testimony it is hard for these defendants to conceive how it will be contended that the organi- zation and operation of the Amsterdam Supply Company had either the purpose or has the effect of a hurtful elimination of competition. If it pur- chased leaf tobacco the case would be different — but it buys none. If it fixed the prices which tobacco manufacturers paid for licorice, tin foil or other art- icles of which tobacco manufacturers in the aggre- gate use so large a proportion of the total output as to be factors in fixing the price, it might be differ- ent. But while it attends to the billing and quanti- ties of these latter articles it has nothing to do with actually buying any such articles. Its activities are only in purchasing sugar, printed matter and such commodities of which the combined requirements of the defendants are not sufficient (noting the en- tire output of the commodities), to affect the market price by being combined or segregated. To con- demn the co-operation that is involved in the for- mation and operation of Amsterdam Supply Com- pany would be to condemn all the various mutual insurance companies, and the less important shop- ping agencies, that abound, and, indeed, any possible co-operative action. (/.) English business and affairs of British- American Tobacco Company, Limited,— including English contracts. The American Tobacco Company, from its in- corporation in 1890, had a b usiness in Englan d. (a) Kecord, Vol. Ill, p. 292. 48 This business was the selling there of cigarettes, manufactured in the United States, and during some of the years between 1890 and 1901 this busi- ness averaged a net profit to The American Tobacco Company of $150,000 (a). The English tariff dur- ing all of these years was intended to encourage the manufacture of tobacco products in England, so there was a tariff differential in favor of the home manufacturer as against the foreign manu- facturer that was substantial. This differential represented the difference between the duty im- posed upon imported leaf tobacco and upon the im- ported manufactured product which a given quan- tity of tobacco would manufacture (b). While the cigarette business of England was in its pioneer state, The American Tobacco Company could afford to stand this disadvantage of a tariff differential, but as its business grew, and English manufac- turers engaged in it, the cheaper cigarettes were popularized, so that the leading commercial cigar- ette of England was one that retailed at five for a penny equal to ten for four cents. Neither The American Tobacco Company, nor any one else, could put out a cigarette manufactured in America to be sold at that price, and so the business of The American Tobacco Company was diminished substantially one- half (c). The operations of this differential and the utter impossibility of profitably conducting a cigarette business in England with goods manufactured in America are clearly shown by Government's witness W. R. Harris, the present chairman of the British-American Tobacco Com- pany (d). In 1901 it was evident to The American Tobacco Company that it must do its manufacturing for the English market in England, and to that end the president and other officers of The American To- (a) Record, Vol. U, p. 25. (b) Record, Vol. H, p. 25. (c) Record, Vol. H, p. 53. (d) Record, Vol. n, p. 54. 49 bacco Company went to England in the fall of 1901, having had already some investigation made of the trade conditions there. The result was that The American Tobacco Company acquired the manu- facturing plant of Ogden's Limited, an English cigarette manufacturer, with a factory in Liver- pool, already prominent in the English trade (a). This was done by the acquisition of substantially all of the stock or share capital of this English corporation, and no concealment was made of such acquisition (b). Ogden's Limited had been actively competing for the Enghsh business before 1901, and with the addition of the new capital and vigor of The American Tobacco Company, became more active in such competition (c). In the fall of 1901 several of the large English manufacturers, especially of cigarettes, caused the organization of The Imperial Tobacco Company (of Great Britain and Ireland), Limited, and sold their manufacturing plants to it (d). The competition between it and Ogden's Limited became quite strenuous, there resulting offers of bonuses and other like characteristics of keen competition (e). The Imperial Tobacco Company also succeeded to the foreign business of the manufacturers who had sold their plants to it. This business in the United States was, of course, not large, because tariff con- ditions in the United States were even more dis- advantageous to a foreign manufacturer in compe- tition with a domestic manufacturer than English conditions to a foreign manufacturer. In the first place, the English manufacturer secured his raw material from America, and had to take it over to England and manufactured it; when his goods arrived in this country they were subject to the same internal revenue tax as domestic manufacturers, (a) Becord, Vol. II, p. 26. (b) Becord, Vol. II, p. 27. (c) Becord, Vol. II, p. 27. (d) Becord, Vol. H, pp. 23, 24. (e) Becord, Vol. n, p. 28. 50 together with an import tax of fifty-five cents a pound on manufactured tobacco, and a still heavier tax on cigarettes (a). This brought about the re- sult that the importation of Enghsh made goods into the United States was very small as compared with the total volume of business, but, includmg tobaccos and cigarettes (reduced to the basis of pound weight), it is estimated to have been about one hundred thousand (100,000) pounds (b). The brands manufactured by The Imperial Tobacco Company had a good reputation in the United States and might form the nucleus for a valuable trade ex- cept for this prohibitive protective tariff. In the fall of 1903 negotiations were entered into in England which resulted in the sale to The Impe- rial Tobacco Company of the whole business of Ogden's Limited (except its export business) as well as the Enghsh business of the American com- panies that had been operated through Ogden's Limited; the sale to the American companies of the whole American business of The Imperial Tobacco Company, Limited; and the formation of a new company called British-American Tobacco Com- pany, Limited, to which the Imperial Company, the American companies and Ogden's Limited sold their business foreign to the United States and England. In the sale of the American companies to the Imperial Company was included the right to use in England the formulae for manufacturing and the brands of the American companies; like sale was made of the formulae and brands of the Impe- rial Company to the American companies so far as the United States was concerned; and the Imperial Company and the American companies made like sale of their formulae and brands, so far as the world outside of England and the United States was concerned, to British- A merican Company. The American companies received an inconsiderable amount of stock in the Imperial Comp any, com- (a) Eecord, Vol. U, pp. 59, 63. (b) Eecord, Vol. II, p. 58. 61 pared with the total issued stock of that company, as being the value of their English property and business in excess of the American property and business of the Imperial Company. The Imperial Company received one-third of the common stock of the British-American Tobacco Company, and the American companies received two-thirds of such common stock; the American companies and the Imperial Company, in addition to the stock thus se- cured, subscribed and paid for in cash at par addi- tional stock in the ratio of two shares by the Ameri- can companies and one share by the Imperial Company, and so furnished the British-American Company cash with which it acquired factories and other tangible property useful in the export busi- ness and its working capital. The contract pro- vided that the securities coming to the American companies should be distributed among them as they saw fit. As a part of the transaction, each of the vendor companies covenanted with the vendee companies respectively not to engage or be inter- ested in the tobacco business in competition with that sold, and the vendee companies covenanted re- spectively with the vendor companies not to engage or be interested in the tobacco business in competi- tion with that retained by the vendors respectively. It was provided that twelve of the Imperial Com- pany's principal stockholders and directors should execute individual covenants similar to those exe- cuted by the Imperial Company, and that eight of the principal directors of the American companies should enter into covenants similar to those entered into by the American companies. This whole transaction is shown by the contracts executed and the conveyances hereinbefore men- tioned (a), and the circumstances are fully testified to either at the instance of the Government or at the instance of the defendants by every person who participated in the transaction, to wit: J. B. Duke (b), (a) Eecord, VoL I, pp. HI, 124, 134, 136. (b) Kecord, Vol. IV, pp. 450, 459. 52 W. R. Harris (a), Thomas F. Eyan (b), W. W. Fuller (c) and J. B. Cobb (d). Immediately upon the execution of these con- tracts in September, 1902, they were filed for public record in the place of public registry in England, and the substance of the contracts was immediately made public, and commented on by newspapers both in England and America (e). In the negotiations both sides were represented by counsel. The American Tobacco Company by American counsel, and The Imperial Tobacco Company, Limited, by an Eng- lish solicitor (f). The whole contract is set out in the agreements filed as Exhibits to the Govern- ment's petition, and there were no side agreements, understandings or arrangements outside of the written and public documents (g). As soon after the signing of the contracts as possible, certainly by March, 1903, everything contemplated by them was done, the covenants provided to be given by indi- viduals were immediately given, the transfers and conveyances were made after full taking of inven- tories, and there was paid to The Imperial Tobacco Company by Biitish-American Tobacco Company, Limited, for tangible assets about $3,000,000, and paid to The American Tobacco Company for tan- gible assets nearly $2,500,000 (h). The British- American Tobacco Company, Limited, thus having tangible assets as well as the foreign right to all the brands of The Imperial Tobacco Company and the American companies, proceeded to do with its foreign business as it saw fit, forming companies with mi- nority stockholders for the exploitation of brands in South Africa and other foreign countries (i). (a) Record, Vol. IV, pp. 735, 743. (b) Eeoord, Vol. IV, pp. 720, 728. (c) Eecord, Vol. IV, pp. 714, 720. (d) Eeoord, Vol. HI, p. 34. (e) Eecord, Vol. IV, pp. 718, 719. (f) Iteoord, Vol. IV, pp. 718, 719. (g) Eecord, Vol. IV, pp. 718, 719. (h) Eecord, Vol. IV, pp. 738, 740. (i) Eecord, Vol. IV, p. 740. 63 The British-American Tobacco Company is en- gaged in business substantially all over the world, except in those countries in which the tobacco busi- ness is controlled by a Government monopoly. In pushing its trade it has adopted all sorts of trade getting methods. It employs Americans and Englishmen to a great extent, but seeks to induce its employees to learn the language of the country to which they are sent; it runs steamboats, and where necessary automobiles, and intelligently pushes the business. The great bulk of its busi- ness is in American grown leaf, and its efforts have been such that whereas there was a total exporta- tion by it of American grown leaf (either in the shape of raw leaf or goods manufactured in Amer- ica out of American grown leaf) of about 20,000,- 000 pounds in 1903, this amount had been increased to about 30,000,000 pounds in 1906 (a). It is true that experiments have from time to time been made by British-American Tobacco Company, Ltd., in the domestic leaf of various foreign countries (b), but the fact remains that the efforts of British - American Tobacco Company have been towards the popularization in foreign countries of manufactured tobacco and cigarettes which have for their raw material American grown leaf, and that its principal competition is against concerns using locally grown leaf (c). The story of the activities of British American To- bacco Company in India, China and elsewhere; its meeting the problems of advertising and distribu- tion, of currency fluctuations and other trade con- ditions, among peoples uncivilized or whose civili- zation differs substantially from American civiliza- tion, is graphically told by Mr. W. E. Harris, chair- man of British American Tobacco Company, who was introduced as a Governniieut witness (d). The (a) Beoord, Vol. U, p. 72. (b) Eeoord, Vol. in, p. 442. (o) Eecord, Vol. H, p. 74. (d) Record, Vol. n, pp. 69 et seq. 54 story shows the almost insuperable difficulties of establishing a foreign trade, but difficulties that must be met if American industry is ever to estab- lish a foreign trade. It shows as well, though, that these difficulties will never be overcome by the small individual manufacturer— they involve too much expense without any immediate leturn, and the necessity of too large an organization. The effect of the activities of British American Tobacco Company has not been to make more diffi- cult the doing of a foreign business by other tobacco manufacturers of the United States, but rather to make it easier for them to do a foreign business — the British American Tobacco Company has de- veloped trade in India and China and other parts of the globe so that the American manufacturer who desires to go there will meet its competition un- doubtedly, but will not be under the much harder necessity of breaking virgin soil (a). In this whole record there is no suggestion of any act of unfair or unjust competition on the part of the British American Tobacco Company, and the British American Tobacco Company enjoys the unique position of having created a trade of great value to American leaf producers and American to- bacco workers — a trade which, but for its activities and the activities of its predecessors in business, would not have existed at all. There was brought out by the Government the fact that an officer of The American Tobacco Company tried to ascertain if a competing concern had made a shipment of cigarettes to China, having in mind to notify British-American Tobacco Company of such, in order that British-American Tobacco Company should supply this demand which it had undoubtedly created (b). It nowhere appears that British-American Tobacco Company in any way re- ceived such information, or acted upon it if it did re- fa) Eeoord, Vol. H, p. 73. (b) Eecord, Vol. H, p. 298. 55 ceive it, or that such action, if it had been taken, would have been the proper subject of criticism. No attempt has been made in this summary to re- count purchases of specific properties made by the various companies, but only to recount the various consolidations that have resulted in all the principal companies defendants. Thetestimony of theraen who have had to do with these purchases is undisputed, that no purchase has been made except on the basis of an investment, and with the expectation that the particular factory bought would, without reference to general competitive conditions, be a profitable one (a). No control, direct or indirect, of any tobacco business has been acquired except by direct purchase of the manufacturing plant of such tobacco business, or the whole or a part of the capital stock of such business. No selling agencies are hinted at — no agreements as to maintenance of prices, or distribu- tion of territory, but simply acquisitions involving changes in the ownership of property. MamLlac- tory buildings purchased have been closedTbut ah^ ways with a view orsecTTfmg greater efficiency and economy^Fmanufacfiire By consolidating its busi- ness into some factory then in operation or there- after acquired; no business was bought with the view of discontinuing or letting it die (b). In the testimony of the president of The American To- bacco Company, James B. Duke, will be found a de- tailed statement of each purchase by The American Tobacco Company or other companies in whose management he was interested, with its circum- stances and the motives which induced it, and in the testimony of Martin J. Condon, president of Ameri- can Snuff Company, like testimony as to each pur- chase made by American Snuff Company. (a) Eecord, Vol. IV, p. 362. (b) Beoord, Vol. IV, p. 376. 56 III.— Special features emphasized by the Gov- ernment OE BY THE Defendants, to wit. (a.) Concerted or independent action in the pur- chase of leaf. As said heretofore, one of the questions to be con- sidered by the Court in this litigation is the eflfect of the organization and success of the defendant companies on leaf tobacco produced in this country. The testimony most helpful to the Court with re- spect to this is contained in the Government's Ex- hibit No. 76 (a), which consists of the estimate fur- nished by T. B. Yuille, of the leaf department of The American Tobacco Company, of the crops grown throughout the United States during the years 1903, 1904 and 1905, and statement of the actual purchases from such crops by The American Tobacco Company and companies in which it di- rectly, or indirectly owns a majority or all of the capital stock. This testimony divides the tobacco raised in this country into ten classes grown in different sections of the country and varying in amounts of production from between 200,000,000 lbs. and 300,000,000 lbs. of the type known as the flue cured Virginia type to only 4,000,000 lbs. of the East Ohio air cured and fired. The sizes of the various crops vary from year to year, the total pro- duction of all the crops having varied in this period of three years from a maximum of 998,365,907 lbs. in 1903 to a minimum production of 842, 145, 183 lbs. in 1904. The flue cured Virginia type is grown principally in Virginia, North Carolina and South Carolina; it has very many grades or classes varying from each other in price more than the grades and classes of any other of these general types; it is used principally for smoking tobacco and cigarettes and to some extent in plug tobacco as well, and is exported as well as used in this country. The dark Virginia tobacco grows in Vir- ginia around Petersburg, Farmville and Lynchburg; (a) Eeoord, Vol. V, p. 514. 57 about eighty per cent, of it is exported and what is used in this country is principally for snuflf and smoking tobacco. The Virginia sun-cured type is a smiill general class that grows around Richmond; it is used substantially entirely for chewinfjj tobacco, most of it in this country. The burley tobacco grows principally in Kentucky in the identical section famous as the "Blue Grass District," and its growth extends into Indiana, Ohio, West Virginia and Tennessee; it is used principally for plug tobacco and a form of tobacco that is both chewed and smoked, known as "plug cuts"; but littlo of it is exported. The Southern Kentucky and Upper Oumberland type is a comparatively small class, principally exported. The Green River to- bacco grows in a section around Owensboro, Ken- tucky, and a good deal of it is exported, but such as is used in this country is used for smoking and chewing. The Dark Western is a dark, heavy to- bacco that grows around Henderson, Kentucky, and Olarksville, Tennessee; most of it is exported, and so far as used in this country it is used for snuff. Seed Leaf Tobacco is a tobacco used in the manu- facture of cigars and cheroots; it grows in various States of the Union, not otherwise engaged in the growing of tobacco; Georgia and Florida grow some grades or classes of it, and still different grades or classes are grown in Pennsylvania, Ohio, Connecti- cut, New York and Wisconsin. There is a small crop grown in Maryland, and a still smaller one that is called East Ohio air-cured and fired, but they are so small as to be negligible (a). The four principal crops grown are: The Virginia Flue-Cured; Burley; Dark Western, including the Henderson District; and Seed Leaf. Tobacco is, and has for a long time been, sold in well-established but different methods; it is not a commodity which will ever lend itself to speculation on exchanges, as cotton and wheat do, because there are such differences between lots of even the (a) Beoord, Vol. II, pp. 95-98. 58 same type, and these differences are so impossible to actually define, that with the same market condi- tions, buyers of equal skill and intelligence will differ substantially as to the value of a given lot. It must be actually seen, or actually sampled from comparatively small packages, to be bought. The Virginia Flue-Cured is sold at warehouses. These warehouses are located in the various towns throughout the section that grows tobacco. The farmers bring their tobacco to a local market in wagons, or by train, and it is exposed for sale in loose piles, each pile graded by the farmer with a view to having uniformity of quality throughout the pile. These piles being exposed on the floor and subject to inspection by the buyers, are sold to the highest bidder. The auctioneer and owner of the warehouse are interested in securing as high a price for each pile of tobacco as possible, because the compensation of warehouses is fixed on a per- centage basis, and warehouses themselves are in competition for the business of selling the farmers' tobacco (a). These loose leaf warehouses, to which the farmers haul their tobacco, and where it is exposed to public sale, are confined principally to this flue-cured Vir- ginia type. Burley tobacco, dark Kentucky fired to- bacco, the Green River tobacco and the dark Vir- ginia fired are sold differently. There are markets for these various types, in Lynchburg and Parm- ville for the dark Virginia, in Louisville and Cin- cinnati for the burley, in Owensboro for the Green River, in Henderson, Clarksville and other places for the Dark Kentucky fired. Many farmers have apparatus for pressing their tobacco into hogsheads, called " prizing," and the tobacco, when thus prized into hogsheads, holding approximately 1,000 lbs., is sent to one of these various markets and samples are drawn, and the various buyers in competition bid for the tobaccos represented by these samples. These markets are called "breaks," evidently be- (a) Eeoord, Vol. II, p. 131. 59 cause of the fact that there is a breaking of the package in order to draw the samples. The ware- housemen on these breaks have the same kind of an interest in securing the highest possible prices for the tobacco sold in their houses, respectively, as the warehousemen, through whom are sold the Virginia flue-cured type — their pay for their services depends upon the amount received, and their con- tinued success in business depends upon the farmers continuing to bring their tobacco to them for sale (a). Under the custom obtaining in loose-leaf ware- houses and on the breaks, farmers dissatisfied with the price obtained for a given hogshead, or a given pile of tobacco, may in a reasonable time decline to sell and so have his tobacco resold or withdraw it altogether (b). While substantially all the tobacco sold by farmers is sold at auction in the Virginia and Southeastern sections, this is not true in the Kentucky and Tennessee sections or in the sections that raise seed- leaf. There has grown up in these sections a method of buying tobacco that involves a visit to various farms by representatives of the manufacturers, or of speculators, and the purchase by such represent- atives for future delivery of the round drop of the farmer. This practice was not inaugurated by The American Tobacco Company or any other of the de- fendants, but has grown up in the development of the business, being participated in by represent- atives of speculators, as well as representatives of large manufacturers (c). This method, even in the sections where it is followed, is not an ex- clusive method— even the large manufacturers buy at least half of their supplies on the large break markets, heretofore mentioned, and gener- ally tobacco thus bought direct from farmers is not bought at lower prices th an the same grades (a) Eecord, Vol. U, pp. 182, 183. (b) Record, Vol. IV, p. 263. (c) Eecord, Vol. 11, p. 181. 60 are bought on the breaks (a). The advantage to the manufacturer of buying from farmers is that the manufacturer does the packing himself and so escapes the possibility of being deceived in the qual- ity of the samples drawn from the hogshead; and it gives to the farmer a convenient home market, sav- ing him the cost of packing in hogsheads, shipping and such incidental expenses. That there exists a real competition in buying tobacco is shown conclusively by an inspection of the Government Exhibits heretofore referred to (b), as well as by all the other testimony. It has been proved that The American Tobacco Company in its leaf buying organization does not act in co-operation with, but in independence of, the E. J. Eeynolds Tobacco Company, Liipfert-Scales Company, D. H. Spencer & Sons, F. R. Penn Tobacco Company, Wells- Whitehead Tobacco Company, R. A. Patterson To- bacco Company, Nail & Williams Tobacco Company, W. S. Matthews & Sons, American Snuff Company, Standard Snuff Company and American Cigar Com- pany (c); in addition, the total purchases by The American Tobacco Company and all of these com- panies, in 1903, amounted to only 391,000,000 out of 998,000,000 lbs.; in 1904, 329,000,000 lbs. out of 842,000,000 lbs., and in 1905, 418,000,000 lbs. out of 921,000,000 lbs. (d). All of the defendant compa- nies, even if assumed to act in co-operation in their purchases of leaf tobacco, are not the sole purchasers of a single type; not a pound of their purchases is obtained otherwise than at the end of competition in which some of their competitors are participat- ors, and some speculators, in whom they have no interest and with whom they have no relation (e). The fact is that it would be a short-sighted policy (a) Record, Vol. n, p. 183. (b) Eecord, Vol. V, p. 514. (c) Eecord, VoL II, p. 135; VoL n, pp. 188, 189; VoL IV, p. 417. (d) Eecord, Vol. V, p. 514. (e) Eecord, Vol. 11, pp. 131, 132. 61 on the part of The American Tobacco Company to attempt to control and lower the price that the farmer receives for his leaf tobacco. Leaf tobacco is only one of the products that farmers in leaf tobacco sections can grow. In North Carolina, South Carolina and Virginia it is grown on lands that may be profitably planted in cotton, and it is the policy of large farmers to raise at the same time cotton and tobacco, increasing or diminishing the acreage in the one or the other as price conditions make it to the interest of the farmer. In the Ken- tucky section. Blue G-rass fields are broken up to raise Burley, and the same farmers raise the Blue Grass and live stock and Burley tobacco, varying their acreage as it is from time to time profitable to do so. Every section that grows tobacco grows also other crops, and it would be suicidal in tobacco manufacturers, even if they had the power, to put down the price of tobacco so that it could not stand in competition with these other crops. Another fact is not to be forgotten, and that is that there can be an over-supply produced on tobacco of any type. If tobacco becomes so high in price as to be out of relation to the other crops that the land will produce, such lands will gradually go into tobacco, and the over-supply will be diminished, and ulti- mately prevented, only by a reduction in price. "If there was only one buyer, that one buyer has got to pay the farmer a profit or he won't be able to buy it, and if you have com- petition enough to get the price too high then you will have a crop following the high prices so large that the price will have to go down because of that over supply. * * * i would rather have the price fixed at 12 cents a pound if we are to have it steady and uni- form and you wouldn't have the ups and downs of the price, than to have it fixed at eight and drop to five and up to fourteen, be- cause we can protect ourselves, the consumers and the dealer and everybody else better by having it stable and uniform. We are not speculating on our customers or on the farmer. 62 We are doing a straight legitimate business and all we want is to get our raw material as cheap as anybody else and we don't care what that price is " (a). No purchaser's "trust " will ever be successful in reducing the price of leaf tobacco until it combines the purchase not only of tobacco but of cotton, flax and other crops that will grow on the land; and no farmers' combination will ever be permanently suc- cessful until it includes thousands of acres that never, as yet, have been used for the growth of tobacco, but which are capable of such use. The purchaser who, with lack of competition, attempted to fix the price of his purchases too low would be only pre- paring the way for future abnormally high prices that he would have to pay for his leaf in order to stimulate its production; and the combination of farmers that attempted to advance the price of leaf tobacco beyond its fair proportion considered in re- lation to other crops that will grow on the land, would be certainly preparing the way for an abnor- mally low price that would ultimately be necessary in order to reduce to normal conditions the supply of the crop as compared with its demand. A recognition of this condition has induced The American Tobacco Company, even with respect to companies in which it owns all the stock, to have such organizations to maintain their own leaf buy- ing organizations, buying their leaf in real com- petition with The American Tobacco Company as well as other purchasers of leaf. The following is from the testimony of James B. Duke, the presi- dent of The American Tobacco Company: "Q. The American Tobacco Co. owns all the stock of the R. A. Patterson Tobacco Co. does it not? A. Yes. Q. And has for some while? A. Yes. Q. It also owns all the stock of the Nail & Williams Tobacco Co.? (a) Becord, Vol. IV, pp. 418, 420. 63 A. Yes. Q. And has for some while? A. Yes, sir. Q. Do these two concerns buy their own leaf tobacco? A. Yes. Q. Is the competition that exists or is sup- posed to exist between them and the Ameri- can Tobacco Co. real or feigned competition? A. It is a real competition. Q. Why doesn't the American Tobacco Co., owning as it does all the stock of these com- panies, buy the leaf tobacco for these con- cerns, and thereby eliminate the competition? A. We don't want to; we don't object to competition. The farmer has got to have a good price for his tobacco or he won't grow it. If he grows too much the price goes down. Supply and demand regulates the price " (a). The two companies mentioned, to wit: the R. A. Patterson Tobacco Company and the Nail & Wil- liams Company had at the time they were acquired by The American Tobacco Company their own leaf buying organizations. There existed no legal rea- son for The American Tobacco Company not to take over such leaf buying organizations, but there ex- isted no real business reason for The American Tobacco Company to close up these leaf buying organizations in view of the fact that they wei-e equipped for the purchase of their requirements. " Q. So unless there is some other reason than the mere elimination of competition the American Tobacco Co. permits leaf buying organizations in a company which it owns to go right along and buy? A. Yes, sir "(b). " Q. So far as the American Tobacco Co. itself buys for companies in which it owns stock it is for economy and efficiency in the buying and not to withdraw competition and get it lower? " A. No " (c). (a) Eecord, Vol. IV, p. 417. (b) Eecord, Vol. IV, p. 420. (c) Kecord, Vol. IV, p. 421. 64 In the great volume of testimony which has been introduced by the Government there has been nothing at all inconsistent with the testimony of the president of The American Tobacco Company already quoted or referred to. The American Tobacco Company is a large user of leaf tobacco and a large purchaser. It has representatives in the places where leaf tobacco is ordinarily sold and it has occasionally bought leaf for other companies in which it has been interested as a stockholder. On the other hand it has never engaged in pretended competition with any purchaser of tobacco, but its competition has been real and not feigned. Coun- sel for the Oovernment has had in his possession and has examined all the correspondence between The American Tobacco Company and each of the following companies, to wit: The Imperial Tobacco Company, Ltd. ; B. J. Reynolds Tobacco Company, R. A. Patterson Tobacco Company, Nail & Williams Tobacco Company, American Snuff Company and the numerous companies in which these companies have an interest, and all the correspondence of the managers of the leaf departments with their local buyers and agents. It is safe to say that the cor- respondence between ordinary competitors, against whom no charge of combination or common interest has ever been brought, large buyers of the same product, would ordinarily contain quite as much discussion of that product, and prognostications as to its future prices, as is found in this record be- tween these various companies. When one company has bought for another it has been openly and not secretly done, and has been plainly for economy and efficiency of buying and not to reduce prices by an elimination of competition. One example of this was the purchase of certain types of tobacco by American Snuff Company's organization for W. S. Mathews & Sons; American Snuff Company makes snuff of dark tobacco grown and marketed around Clarks- ville; in that section large quantities of tobacco are 65 bought direct from farmers as hereinbefore de- scribed. Since American Snuff Company used its tobaccos only to be ground into snuff, it was in- different as to the length and general size of the leaf. But certain users of tobacco were anxious for long and well shaped leaves, and so tobacco of the same general type and grade was of an appre- ciably higher price when in leaves of the re- quired length and general shape. Now, in its country buying, with the habit of purchasing round crops, American Snuff Company found itself more or less embarrassed as a competitor, because it had no use for the more expensive proportion of certain round crops purchased by it, whereas, if it could be assured that these grades not needed by it would be taken off its hands it would become a more willing bidder. W. S. Mathews & Sons used this same general type, produced in the same crops, that the American Snuff Company used, but preferred the longer and better shaped leaves, and American Snuff Company did its purchasing. This arrange- ment did not exist very long, not because of any apprehended illegality in it, and not because of any harm that it was doing producers of tobacco, but because the Mathews Company felt that its tobacco was costing it more than if it bought for its own account on the breaks. The following is quoted from the testimony of Martin J. Condon, president of American Snuff Company: "In buying a farmer's crop we could afford to go in and buy the crop and supply Mathews with what they wanted. We went into the country buying reluctantly because of the heavy expense, and that was really the final cause of the Mathews Company taking the purchases away from us, because they said the tobacco was costing them too much — that they could buy what they wanted cheaper on the breaks. Q. And so you quit buying for Mathews? A. Yes. y. And thereafter you sold your stock in the Mathews Co. ? 66 A. Yes. Q. Did you begin buying for Mathews with a view of lessening the competition in the buying and the price that the farmer got? A. No, and while We didn't do it for the benefit of the farmer exactly it was really a benefit to the farmer because it furnished additional competition which as a single bidder we could not furnish " (a). Another quotation may be made from the testi- mony of the president of American Snuff Company, because it clearly states the attitude of American Snuff Company with reference to the purchase of leaf tobacco, an attitude not contradicted by or in- consistent with a syllable of testimony and that coincides exactly with the attitude of The American Tobacco Company as testified to by its President: "Q. Is the American Snuff Co. in combina- tion with or under the direction of the Ameri- can Tobacco Co. in the purchasing of this tobacco? A. No, sir. Q. Has it ever been? A. Never. Q. Is it now or has it ever been in combina- tion or in arrangement with, express or im- plied, or any sort, with the Imperial Tobacco Co.? A. No, sir. Q. Is it now or has it ever been under any arrangement, express or implied, of any kind, with any Regie buyer or any other buyer? (Regie buyers are the purchasers of tobacco and leaf supplies for the Government monop- olies that in some countries control the manu- facture of tobacco: as France, Spain, Italy and Austria.) A. No buyer, no combination, company, or no individual; there has never been any kind of arrangement; in fact, I never heard of such a thing until I heard the accu- sation made in the dark fired district that such a thing existed; never heard of the possibility of it even. Q. Was there ever any understanding be- tween the American Snuff Co. and any other buyer of tobacco that had the effect of lessen- ing competition for the price paid, or a divi- sion of the territory? (a) Eeoord, Vol. IV, p. 521. 67 A. We never have entered into any kind of an agreement with anybody on earth the effect of which was the lessening of competi- tion on the tobacco or in the tobacco that we used. Q. Or the division of territory? A. By the division of territory, or by any other means or by any other agreement. We have been absolutely independent of every- body in the purchase of our tobacco; we have bought it from the farmers in every way they have offered it." (a) Another case of the purchase of tobacco by one company for another is the purchase by The American Tobacco Company of the leaf tobacco grown in America used by British-American Tobacco Company. By the contract of September 27, 1902, heretofore considered, the Imperial Tobacco Company reserved, and the British- American Tobacco Company was given, the right to purchase respectively its raw material in the United States. This right was given or reserved expressly because of the covenants heretofore re- ferred to, given by the respective vendor and vendee companies, not to engage in business in competition with the business respectively bought or sold. In this purchase of raw material in the United States there has existed just as keen competition be- tween The American Tobacco Company and The Im- perial Tobacco Company as if no kind of a conti-act had ever been made between them. This is as fully and definitely proven as any fact can be, and, not- withstanding the thorough investigation of letters, papers and documents by the Government, no doubt is thrown upon it (b). The strength of this proof is only increased, and by no means diminished by a consideration of the feebleness of the only circum- stance suggested by the Government as militating against it. It appears that an officer or employee of The Imperial Tobacco Company, on a casual visit (a) Yol. IV, p. 520. (b) Eecord, Vol. H, pp. 119, 178; Vol. IV, pp. 261, 271, 290, 68 to New York, wrote a note to the president of The American Tobacco Company, complaining that some leaf buyer of The American Tobacco Company had been unfriendly and unfair to the Imperial Tobacco Company by purposely raising the price which the Imperial Tobacco Company was required to pay for a lot of leaf tobacco. The charge made by The Imperial Tobacco Company against The American Tobacco Company was a charge not of real competition, but of mahciously and by pre- tended bidding for tobacco that was not desired, raising its price; and an officer of The American Tobacco Company wrote to the Imperial Tobacco Company disclaiming such motive or such conduct. The circumstance was one that might well have oc- curred between any two competing manufacturers, and the conduct of The American Tobacco Company with respect to it would have been only decent con- duct if the same matter had been brought to its at- tention by any other competitor (a). After the ex- planation given by the Government's witness, the Government's counsel appeared to make efforts to obtain the note that the officer of the Imperial had written to the president of The American Tobacco Company. From what is testified, it is likely that the note was a mere personal, pen-written note, and that it was sent by the President of The American Tobacco Company to the officer of The American Tobacco Company to whom the matter was referred, and it has been lost; at any rate, all efforts to find it were unsuccessful, and when the President of The American Tobacco Company himself vpent on the stand, he offered all of his correspondence to the inspection of the Government. The English contract was made on September 27, 1902. The marketing of the tobacco crop is largely in the fall, and from September 2Y, 1902, until that crop was completely purchased, there was a neces- sity of frequent communication between The Ameri- can Tobacco Company and The Imperial Tobacco (a) Eecord, Vol. IH, pp. 458, 459, 518, 519, 520. 69 Company because during that year The American Tobacco Company was buying (the arrangement having already been made) the leaf tobacco for Ogden's Limited, and The Imperial Tobacco Com- pany buying the leaf tobacco for certain plants of British-American Tobacco Company. But from that time there has existed absolutely no understanding of any sort, and no communication was had. "Q. From the expiration of that year (the year 1903) has there ever been any joint in- terest between the Imperial and The American Tobacco Company at all? A. None what- ever " (a). The fact of the purchase by The American Tobacco Company of the requirements of The Imperial To- bacco Company of Perique tobacco, will not be noted as an exception to this statement. The Perique crop is the crop raised in one County of Louisiana; The American Tobacco Company, along with its purchases of Perique, purchased at the instance of The Imperial Tobacco Company, its requirements of Perique tobacco amounting to from $6,000 to $8,000 per year, whereas the total purchases of The Imperial Tobacco Company of American grown leaf amounted to between $4,000,000 and $5,000,000 a year (b). Another condition exists with reference to the British American Tobacco Company and its pur- chases of leaf tobacco which should be discussed here. As heretofore stated, it was contemplated by the contract of September 27, 1902, that it, as the Imperial, should buy its own requirements of Amer- ican grown tobacco. This was not only the pro- vision of the contract, but it was in the actual con- templation of the parties (c). British American Tobacco Company, at its organ- ization, took over the large factories devoted by The American Tobacco Company to manufacturing goods (a) Record, Vol. IV, p. 290. (b) Record, Vol. IV, p. 294. (o) Record, Vol. 11, p. 63. 70 for export trade, and at the same time took over the factories of the Imperial Tobacco Company, located in England, which were engaged in supplying its export trade with manufactured goods. This trans- action occurred in the fall of 1902 and arrangements for purchasing the leaf for their export factories by The American Tobacco Company and the Imperial Tobacco Company, respectively, during the crop year then pending were substantially consummated, so that during that crop year each of these respect- ive companies, to wit, The American Tobacco Com- pany and the Imperial Tobacco Company, made the purchases that would have been required for their export factories (a). In the meantime ways and means had to be considered for British American Tobacco Company to supply itself with its future needs of leaf tobacco. The American Tobacco Com- pany had an organization of competent men, famil- iar with the types of tobacco needed for the export trade; they had warehouses suitable for the collec- tion and storage of these tobaccos; so in the spring of 1903, British American Tobacco Com- pany, made an agreement terminable at will whereby The American Tobacco Company was to purchase and store the tobaccos needed by British American Tobacco Company, at a price that would reimburse the American Tobacco Com- pany for its cost, besides giving a small brokerage charge. The following are quotations from the testimony of W. E. Harris, Chairman of the British American Tobacco Company: " Q. Since the making of the contract in 1902 the American Co. has been purchasing the American grown tobacco used by the British American Co.? A. Yes, sir. Q. Is that provided for in the contract? A. No, sir; it is not. Q. Was it provided for in the negotiations preliminary to the contract? A. No, sir. (a) Becord, Vol. IV, pp. 289, 290. 71 Q. When was it provided for and how, if you know? A. Well, when this gentleman that I spoke of a while ago, Mr. Owen, came over, around the latter part of December, 1902, to take the inventory of all the material that was to be transferred to the British American Co. the thing was discussed with him, and it was then that the arrangement was made by which the American Co. was to continue to buy the leaf that was needed for the export business, as it always had, on the basis of 1 1/4 per cent, commission. Q. So the American Co. buys the leaf needed by the British American, the American grown leaf, charging it to the British American at cost, plus a commission of 1 1/4 per cent.? A. Yes. Q. And that is its compensation and com- mission? A. Its profit. Q. Had the American Co. been buying those same types of leaf up to the time of the for- mation of the British American Co. ? A. Yes, sir, the American has always bought the leaf that is needed for its export business, while it was in the export business, and when the British American came, it had to buy a little more, that is, it had to buy enough for the factory that the British American had in Bristol, England, and later for the different factories scattered all over the globe. Q. Is the leaf buying organization an or- ganization of expert men ? A. Yes, sir. Q. Is training necessary, and time neces- sary, and familiarity necessary to make a to- bacco buyer? A. Oh, dear me, yes. It is a life study. Q. And as I understand the American To- bacco Co. already had an organization buying this tobacco? A. Yes, sir. Q. The types necessary for making goods for export? A. The organization was started around 1892, a couple of years or so after the forma- tion of the American Tobacco Co. Q. Before the formation of the British 72 American; that is, before September, 1902, it had gone on and bought these types of to- bacco? A. Yes. Q. The Imperial had bought the types of tobacco it had used in its export business? A. Yes, sir. Q. These two concerns were in competition? A. Yes, sir. Q. After the formation of the British American, the American Tobacco Co. con- tinued to buy the types that had been used in its export business? A. Yes. Q. And it took over from the Imperial its buying for its export business? A. Yes, sir. Q. So after the contract there were two competitors? A. Yes "(a). The largest purchases for British- American To- baccco Company are purchases of the flue- cured Virginia type and the purchases by The American Tobacco Company of that type, including all purchases for British-American Tobacco Com- pany, amounted to only 85,000,000 pounds in 1905 out of a total production during that year of that type of 204,000,000 pounds (b). It must be evident when one looks at the entire transaction that this arrangement was not entered into with a view to a reduction in price to the far- mers by the elimination of competition between these two large users of tobacco. The constant and consistent policy of The American Tobacco Com- pany in permitting the existence of independent and competing leaf buying organizations, even in com- panies of which it is the entire owner; the advancing cost of leaf tobacco brought about by increased consumption, which advancing cost of tobacco has taken more than one hundred and fifty thousand acres from cotton into tobacco, notwithstanding the general tendency of the cotton market to advance (c), (a) Beoord, Vol. II, pp. 63-65. 133. (b) Gov. Ex. Nos. 20 and 76, Record, Vol. II, p. 125. (c) Eeoord, Vol. II, p. 124. n the giving of other sufificient reasons by officers of The American Tobacco Company and the Brit- ish-American Tobacco Company— all of these con- siderations induce the belief that the arrangement by which The American Tobacco Company buys leaf for British-American Tobacco Company was induced by no purpose and has no effect to dimin- ish the prices paid for the tobacco used by either, but was intended to accomplish the good which it has been testified it did accomplish, to wit, the giving to the British -American Tobacco Company the skill and experience of The American Tobacco Company's organization of buyers, and by reason- ably compensating The American Tobacco Company for these services, enabling it to more economically operate its machinery of purchasing — including em- ployees' salaries, expenses of storage and other such items. These are the only cases of the purchase of to- bacco by one company for another. It is not meant that The American Tobacco Company, American Snuff Company and American Cigar Company do not purchase leaf tobacco for separate companies that are merely departments of their business, re- spectively organized as separate corporations for business convenience, such as Blackwell's Durham Tobacco Company and Spaulding & Merrick in the case of The American Tobacco Company and The Havana American Company in the case of Ameri- can Cigar Company; but there is no other company in which there is diversity of ownership or which is in any way conducted other than as a mere branch of the business of the stockholding company, for which any of the defendants purchase leaf tobacco; there are some companies, as has been heretofore noted, in which there is no diversity of ownership at all, which, nevertheless, main:ain separate leaf buying organizations in an actual and bona fide competition with the leaf buying organization of the owning corporation. u The prices that farmers have received for their leaf tobacco and the actual practical conditions in the leaf markets of this country, and the increased acreage now under cultivation, fully justify the claims made by The American Tobacco Company and the other defendants that there has been noth- ing in their organization or success that has oper- ated to the detriment of leaf tobacco producers. These defendants do not pretend to be philanthropic institutions, and they could not, if they desired, be of real benefit to farmers by paying them an unreasonably high price for their leaf. If they at- tempted it there would only result so large an over- supply without any increase in demand that entirely too much would be raised and the over-supply would be cut down to the basis of a normal demand only by a reduction in price. That would be so under all circumstances. As expressed by the President of The American Tobacco Company: "Q. How can any manufacturer aid the farmer towards getting a better price for his tobacco; is there any way except to increase the consumption of tobacco? A. That is the only way 1 know of. Q. And how can any manufacturer, large or small, hurt the farmer permanently so far as the price of his tobacco is concerned? Any other way excepting reducing the consump- tion? A. That is the only way I know. He might reduce the price temporarily this year, but he will lose that next year all he will gain. If the Government will guarantee U3 a price on tobacco it will be worth something; we will pay for that " (a). The American Tobacco Company and the other defendants have aided the producers of tobacco in the only practical way. They have increased the consumption of tobacco so that notwithstanding an increased production in the types of leaf of which it uses most largely prices have increased. Much (a) Record, Vol. IV, p. 4ia Y5 testimony is in the record confirming the forego- ing statement as to the increase in price of leaf tobacco and the increase of consump- tion of types used largely by The American Tobacco Company, but, perhaps, no more succinct state- ment of these conditions and of the general advan- tages of an organization of the size and capital of The American Tobacco Company engaged perma- nently in the tobacco business, and with millions of securities depending upon that permanence, than the following quotation from the testimony of James B. Duke: " Q. You spoke of the tobacco business of this country having grown because of the ad- vertising and pushing of the various brands. Has the growth of this granulated tobacco business had the effect of increasing or de- creasing the price paid for leaf that goes into it? A. Increased it much. Q. What is the cost of your leaf going into Duke's Mixture as compared with 15 years ago? A. It is about double. Q. Is that true of the other grades that go in the granulated tobaccos? A. I think that Bull Durham grades are 33% higher. That has not advanced as much for the reason that the drop in paper cigar- ettes in this country made of that kind of tobacco has kept the demand for that kind of tobacco down so far as the cigarette busi- ness is concerned, and of course the large in- creased use of Bull Durham has taken up some of that. Q. Has there been an increase in the growth in North Carolina, South Carolina and Vir- ginia in tobacco since the formation of The American Tobacco Co.? A. Very large. Q. To what crops were those lands devoted before the owners began to raise tobacco them? A. Largely cotton. Q. What has induced the change from cot- ton to tobacco? 16 A. The price or profit, although the price of cotton is up, too; yet it is more profitable to grow tobacco, or they wouldn't grow it. Q. Has that been because of the growth in granulated tobacco due to the efforts of man- ufacturers to push their brands or is part due to the growth of foreign business? A. Both ; I think the statistics gave the crop of North Carolina about 60,000,000 lbs. a year. There is about 200,000,000 lbs. a year now. Q. 60,000.000 when? A. In 1890. Q. In the year The American Tobacco Co. was formed? A. Yes, and for us now there is 200,000,000 lbs. grown. Farmers if they hadn't been paid wouldn't have increased the crop; they would have decreased it. Q. How are the prices paid for North Caro- lina and Virginia and hurley and other types of Kentucky tobacco compared with the prices 10 or 15 years ago? A. I don't know enough about the prices of hurley tobacco back that far, because the American Tobacco Co. were not very much in that kind that far back, but I know that the price of the tobacco that the Continental Tobacco Co., now the American Tobacco Co., use in their plug tobacco business costs more than it did before the Continental Co. was formed. It has increased right along. Q. How do you know the American To- bacco Co. pays higher prices for its tobacco usedin its plug business than before the Con- tinental Tobacco Co. was formed? A. I know in 1895 we bought tobacco for Battle Ax, 3 and 3 1/2 cents per pound that we have to pay now 7 and 8 cents a pound. Q. And has there been a corresponding in- crease in the other types of Kentucky tobacco as far as you know, and Virginia and North Carolina leaf too? A. Some types have not increased so much probably, but that depends upon their use. Q. Do you know of any exceptions to the rule as expressed in your opinion that could advance the use of the type of tobacco and advance the price paid for it? 77 A. Yes. Q. You do know of exceptions or vou do not? ■' A. No, I don't know of any exceptions to that. Q. Of what advantage to the producer of tobacco has the American Tobacco Co. been other than increasing the price by aggressively pushing the sale of its brands? A. They always stand there ready to buy it when they have it for sale, and they sell it now six months earlier than they used to and in all times we stand there with the money and give them the money for the tobacco. Q. You mean to say that the American Tobacco Co. has the size, the capital and the organization to be a reliable steady bidder on the market? A. Yes, whether they require the tobacco or not " (a). These same views are well expressed by Martin J. Condon, President of the American Snuflf Company: "Has the effect of the aggressive work that the American Snuflf Co. has put in the snuflf business, increasing the consumption from about 14,000,000 pounds in 1900 to 23,000,000 pounds in 1907, had the eflfect of raising that price? A. Oh, yes; because it just Q. Adds that much? A. It is that much more to the consumption and demand. Q. Could the American Snuff Co. or any manufacturer or any combination of manu- facturers do any permanent good to the farmers, in your judgment, except by increas- ing the demand or the consumption? A. No; I could not see any way that any- thing could be done to benefit them except that. Q. Could any manufacturer or combination of manufacturers do anything to permanently injure the tobacco producers except to curtail that consumption? A. No; because if their own demand kept up and they forced prices down on the farmer, (a) Becord, Vol. IV, pp. 421, 422. IS he would simply turn his land into something else and he would not raise it and the next year they would find themselves short of sup- ply. The farmer has got to receive a fair price for his tobacco or he simply don't raise it. Now, the manufacturer absolutely de- pends on him for his raw material, and he is certainly killing the goose that lays the golden egg when he puts the farmer in such a position that he won't raise what the manu- facturer has to have. Q. On the other hand, suppose by competi- tion among the manufacturers or otherwise, there is a very high price paid for tobacco in comparison with what the other crops that grow on the land would bring? A. Naturally the farmer then will put his land in tobacco when he is going to get a high price which is due solely and alone to the de- mand and supply, and when he increases the supply beyond the demand, why, then of course the price drops naturally. Q. Until the equilibrium is established? A. Yes, sir. Q. And that is so whether there are many buyers or few buyers? A. It doesn't make any difference" (a). At the organization of American Snuff Company it took over from its respective vendors their stock of leaf tobacco bought for the manufacture of snuff, at cost. This represented, substantially, the prices for the year ending May, 1900, which was 4.58 cents per pound; the subsequent purchases are shown by the testimony of the head of the leaf de- partment of American Snuff Company: " Q. What were the averages for the entire purchases of American Snuff Co. for each year since? A. For the year ending July 31, 1901, the average was 5.Y6; 1902, 5.50; 1903, 5.15; 1904, 4.26; 1905, 5.26; 1906, 6.94; 190T, 7.03. Q. Do those figures represent the entire purchases of the American Snuff Co. or the (a) Record, VoL IV, pp. 522, 523. 79 purchases of the American Snuff Co. for the uses of the American Snuff Co.? A. For the use of the American Snuff Co. only. Q. Have those types of tobacco and quali- ties been of the same types and qualities that the vendor companies had that was taiien over to the American Snuff Co. at its or- ganization? A. Yes, sir. Q. I notice in one of them, to wit, the year ending 1904, July 31, 1904, and in that year only, the price was lower than the price for which you took over tobacco from your ven- dors; what was the reason for that? A. It was a very common crop of tobacco, very ordinary tobacco, not useful for our pur- pose, and it was also a very large crop of tobacco, one of the largest crop's ever grown in the United States. Q. Was that the 1903 crop? A. Yes. Q. And this very large crop of very poor quality, to wit, the crop of 1903, had been the only crop that sold at a lower price than the tobacco in the hands of the vendors that was sold to the American Snuff Co.? A. Yes. Q. Mr. Christian, you have been familiar with the leaf business for some years previ- ous to the formation of the American Snuff Co.? A. Yes, sir. Q. What is your judgment, as a tobacco man, as to how the prices of recent years compare with the years before the formation of the American Snuff Co.? A. It is very much higher of recent years, from 50 to 100 per cent, higher at present than it was before the formation of the Amer- ican Snuff Co.'' (a). The effectiveness of this testimony and the strength- of the position of the defendants consist in the reasonableness of it all. It so happens that this suit is pending while the prices of leaf to- bacco are high, but there is no denying the fact (a) Record, Vol. Ill, p. 229. 80 that they are sometimes low, and that some grades of a given type have sometimes an upward tendency, while other grades have a downward tendency. The truth must remain, though, that energetic efforts to sell the finished product not only in this country, but throughout the world, con- stitute the best service that can be rendered to producers of the raw material; and that such pro- ducers are benefited and not injured by the exist- ence of a large, strong user of the raw material, depending for its very life on securing adequate supplies of such raw material, with capital in times of panic and other exigencies to bid a fair price for the raw material, and with the purpose, because essential to its very existence, of securing the pro- duction of an adequate supply of such suitable raw material. (6.) Ownership of stock in other companies by cer- tain of the defendants, as distinguished from direct ownership of property. As already noted, The American Tobacco Com- pany and the other defendants are in no sense hold- ing companies. They are manufacturing com- panies, The American Tobacco Company making directly most of the cigarettes, manufactured to- bacco and little cigars in which it is directly or indi- rectly interested (a), American Snuff Company mak- ing most of the snuff in which it is directly or indi- rectly interested (b), and American Cigar Company making most of the cigars in which it is directly or indirectly interested (c). Since 1899, however, these defendant companies, or some of them, have, for one reason or another, become holders of stocks of other companies. The first instance was when The American To- bacco Company sold its large plug tobacco business (a) Eeoord, Vol. V, Govt.'s Eis. 77, 78, 79, 80, 81. (b) Eeoord, Vol. V, Govt.'s Ex. 82. (c) Record, Vol. V, Govt.'s Ex. 83. 81 to Continental Tobacco Company, and took pay therefor in preferred and common stock of Conti- nental Tobacco Company. It did not become the controlling stockholder, and its business was prin- cipally smoking tobacco and cigarettes, whereas the business of Continental Tobacco Company was principally plug tobacco (a). The next transaction of this kind was when Con- tinental Tobacco Company co-operated with R. J. Reynolds and his associates in the formation of the R. J. Reynolds Tobacco Company, with a capital stock at first of five million dollars, and now of seven and one-half million dollars, owned as to one- third thereof by R. J. Reynolds and his associates, and as to two-thirds by Continental Tobacco Com- pany—now The American Tobacco Company. This is a typical instance of a class of cases in which some one of the defendant corporations owns stock in some other, and it would be well, therefore, to consider it carefully. It illustrates two theories that have run through the course of The American Tobacco Company, neither of which would ordinarily be condemned, but rather commended. These theories have been, first, that the men who conduct a business should be interested as part owners in the business actually conducted by them (b); and, second, that because of the peculiarities of the tobacco business, competitive conditions can never be eliminated, and that various effective organ- izations, though a majority of their stock is bought for investment by the same company, should be left to get business as they can; that these conflicting efforts stimulate the sale and consump- tion of tobacco, and are of benefit to all interested in increasing such sale or consumption (c). The fol- lowing is a quotation from the testimony of the President of the American Tobacco Company with respect to this R. J. Reynolds Tobacco Company, and (a) Keoord, Vol. IV, p. 430. (b) Eeeord, Vol. IV, p. 395. (c) Record, Vol. IV, p. 394. 82 the reason that induced the acquisition by Conti- nental Tobacco Company of part of its stock, and the way its business is conducted: "Q. About the same time or a httle there- after the Continental Tobacco Co. acquired two-thirds of the stock of R. J. Reynolds To- bacco Co. and that company still exists as a separate corporation. State what the mo- tives were of the Continental Tobacco Co. in making this acquisition and what its motives were in acquiring a part only and not all of the stock? A. Mr. R. J. Reynolds is a very able to- bacco mei'chant. After the Continental To- bacco Co. was formed he came up with the idea of selling his business to them. I per- sonally told Reynolds that the Continental Tobacco Co. had no organization to manufac- ture, or that knew how to manufacture his style of goods and that I would not favor buying it unless he should stay and run it, and that I did not think he was the kind of a man to run a business that he had no interest in — a rich man. I told him we would take two-thirds of it at the price he named because I thought it was a good investment and manufactured an entirely different class of goods from what the Continental Tobacco Co. manufactured. They are sold in the Southern States and I did not consider they were in competition with the Continental To- bacco Co.'s plug because it is a different class of goods. Q. Has that business been conducted in that way ever since? A. Yes; very profitably and a vBry large business. Q. Has its business increased or diminished since that transaction? A. It is producing about five times as much as it did before we went into it. Q. The Reynolds goods are a flat goods made principally of Virginia tobacco, are they not? A. North Carolina and Virginia tobacco. Q. And they are sold almost altogether in the Southern States? A. Yes. 83 Q. Has the Continental Tobacco Co. and since the merger the American Tobacco Co. attempted to sell its goods in that same sec- tion? A. Continually, and their predecessors ever since I can remember. Q. Has the sale by the Continental Tobacco Co. and the American Tobacco Co. of its plug goods in that section increased or diminished since the purchase of Eeynolds' stock in 1899? A. All increased. Q. Has it increased largely? A. Well, in some of the Southwestern States where the northern and western immi- gration has gone in there where they have been in the habit of using sweet goods they have increased largely, but in some of the old parts of the South, Hke Virginia and North and South Carolina and Georgia, I don't think they have increased much. Q. Has the presence of the Reynolds goods in those sections retarded the Continental To- bacco Co. in trying to get in there and intro- duce theirs? A. No, sir. Q. In going in and attempting to introduce the brands of the Continental Tobacco Co. and American Tobacco Co. have you attempted to withhold competition from Reynolds as against other people? A. Not at all. Q. Would it be possible to do so if you tried? A. No. Q. Who directs the affairs of the R. J. Rey- nolds Tobacco Co.? A. R. J. Reynolds. Q. Do you or does any other officer or em- ployee of the American Tobacco Co. direct the affairs of that company at all? A. No, sir. Q. Have you ever done so? A. No. Q. How does he buy his leaf tobacco? A. Independently on his own account. Q. How does he sell his goods? A. Independent and on his own account. Q. His own selling organization? A. Yes. 84 Q. Where does Eeynolds live? A. In Winston, North Carolina. Q. Is that where the general offices of his company are? A. Yes, sir. Q. And is it from there that his selling is done? A. Yes. Q. Are vou a director in the R. J. Reynolds Tobacco Co? A. I don't know. Q. Do you know whether you ever were a director? A. I believe I was originally. Q. Did you ever attend a meeting? A. I think probably I have in New York here sometime when they needed a quorum; I don't know, though. Q. Did you ever have anything to do with the direction of that company, whether a di- rector or not? A. No; I have talked to Reynolds about his business and always told him, 'you run it any way you like.' Q. He has done so? A. Yes" (a). Of this same class, besides the supply and mer- chandising companies heretofore discussed, are American Cigar Company as related to The Ameri- can Tobacco Company, American Snuff Company as related to The American Tobacco Company, (though it is hard to see the competition that would exist between these companies under any possible con- ditions) Liipfert Scales Company as related to the R. J. Eeynolds Tobacco Company, W. S. Matthews & Sons as related to British-American Tobacco Com- pany, Limited; Porto Rican- American Tobacco Com- pany as related to The American Tobacco Com- pany and American Cigar Company; and tobacco manufacturers in the United States, as follows: Pinkerton Tobacco Company, F. R. Penn Tobacco Company, R. P. Richardson, Jr., & Company, and John W. Carroll Tobacco Company, in each of which The American Tobacco Company holds stock. (a) Record, Vol. IV, pp. 384-386. 85 There are two other companies in which The American Tobacco Company is also a part owner, the reasons for which relation of partial ownership is not the same as has heretofore been stated with respect to the R. J. Reynolds Tobacco Company. The first is P. Lorillard Company. It was one of the old tobacco manufacturing concerns, with a capitalization, authorized and issued before 1899, of five million dollars, of which three million dollars is common stock and two million dollars is eight per cent, preferred stock. The common stock was held closely by the Lorillard family, but the preferred stock was more or less widely distributed. Con- tinental Tobacco Company, at its organization, ac- quired all the common stock, and soon after its organization offered to procure the outstanding pre- ferred stock by the issuance of its five-year notes. This offer was accepted by the holders of more than two-thirds of this preferred stock, and there exists no legal reason under the laws of New Jersey why the P. Lorillard Company should not be voluntarily liquidated. But, in the meantime, P. Lorillard Company having its large factories completely equipped, and having its goods marketed, first by Continental Tobacco Company and then by The American Tobacco Company, has become more and more prosperous — its own earnings are so much more than sufficient to pay the dividend on its preferred stock that the preferred stock is nor- mally worth much more than par. It has been conducted as a separate corporation solely for the benefit of these preferred stockholders, and in order to avoid a liquidation in which they would receive only par for a security reasonably worth more than par (a). Surely such regard for the real, instead of the technical, rights of security holders is not to be condemned. The other company in which there is still a partial ownership of stock by The American Tobacco Company is the John Bollman Company of San Francisco. This co mpany for many years has (a) Eecord, Vol. II, p. 418. 86 manufactured cigarettes whose principal sale is on the Pacific Coast, and not in competition with cigarettes manufactured by The American Tobacco Company, unless, indeed, there may be said to exist compe- tition between all forms of tobacco. The motives which induced the purchase of an interest in this business, but not the whole business, were identi- cal with the motives that induced the purchase of an interest in the R. J. Reynolds Tobacco Com- pany. The John BoUman Tobacco Company was in the hands of a Mr. Gutschow, a capable man, the owner of the business, who had built it up to be a profitable business. He was left to operate it just as independently as R. J. Reynolds has operated his business. But an offer was made to Mr. Gut- schow of employment in Germany, and he desired to accept the employment, but desired to retain his stock in The John Bollman Company. He did so, and The John Bollman Company has since been operated really as a branch of The American Tobacco Company, but so profitably that Mr. Gutschow has never desired to sell his stock (a). There have been other companies in which The American Tobacco Company attempted to carry out its policy of having the men active in the business have an interest in the pi-operty and profits, of which The American Tobacco Company has, for one reason or another, become the sole owner, although the corporations continue in their independent con- duct and operation. One of these is F. F. Adams Tobacco Company at Milwaukee, Wisconsin, which manufactures and sells tobacco, having its principal sale locally near Milwaukee. Continental Tobacco Company acquired seventy-five per cent, of the stock, leaving the other twenty-five per cent, in the hands of those engaged actively in conducting the affairs of the corporation, but taking an option to purchase this twenty-five per cent, at any time during two years. The original owner of the busi- ness had become an old man, and the option was ex- (a) Eecord, Vol. IV, p. 391. 87 ercised, and the balance of the stock purchased, although the same organization has conducted the business (a). Luhrman & Wilbern Tobacco Com- pany was organized in 1899 to acquire a scrap to- bacco factory theretofore operated by a firm called Luhrman & Wilbern. This was the entry of The American Tobacco Company into the business of manufacturing scrap tobacco. It was not pleased with the parties in actual conduct of the business, and so bought their stock (b). R. A. Patterson Tobacco Company and Nail & Williams Tobacco Company are other companies in which The Ameri- can Tobacco Company at first bought an interest with a bona fide intention of leaving to the working organization a stock interest and afterwards became the actual owner of all the stock, although leaving in the hands of the original managers of the busi- ness the active management, with only the general direction to make money and increase business (c). There is still another class of corporations in which the American Tobacco Company and other defendants own stock and never had any associate stockholders. The American Tobacco Company owns all the stock of S. Anargyros, Blackwell's Durham Tobacco Company, Butler- Butler, Incor- porated, Day and Night Tobacco Company, London Cigarette Company, Limited, Manhattan Briar Pipe Company, Nashville Tobacco Works, Spaulding & Merrick and the Wells- Whitehead Tobacco Com- pany, and always has owned the stocks of these respective companies since their organization or re- organization. American Cigar Company, in a like way, owns all the stock of Havana- American Com- pany, and American Snuff Company all the stock of H. Bolander, Devoe Snuff Company and Stand- ard Snuff Company. All of these companies are simply organized departments of th e respective (a) Record, Vol. IV, p. 389. (b) Eeeord, Vol. IV, pp. 386, 387. (c) Eeeord, Vol. IV, p. 396. 88 owning corporations for the conduct of its business. It is conceivable that such organizations are un- necessary, and that the business might be effect- ively accomplished by simple departments, but surely the policy of the law is not interested in men adopting in their business enterprises such methods if they think them best fitted to achieve such business enterprises. Take Blackwell's Durham Tobacco Company as a typical case: The old Blackwell's Durham Tobacco Company had been a company with large trade con- nections and trade reputation. It had a factory at Durham, North Carolina, and trade all over the United States. The American Tobacco Company desired to become the purchaser of this manufac- turing establishment. It regarded the name "Blackwell's Durham Tobacco Company" as hav- ing great value. It did not desire to make any change on the label of the goods, as would be necessary if The American Tobacco Company became the legal owner of its brands. Black- well's Durham Tobacco Company besides had a dif- ferent selling plan from that used by The American Tobacco Company, and there appeared to be no reason to take any of the danger incident to changing. So The American Tobacco Com- pany caused the formation of a corporation called Blackwell's Durham Tobacco Company and it made the purchase. The American Tobacco Company furnishing to it the necessary funds and taking the issue or transfer of all its stock. There is nothing criminal in this— no consumer was deceived by the adoption of this method — the to- bacco continued to be manufactured under the same formulae and processes as it had always been, with a great many of the old employees still at work (a). The laws of the State of incorporation of Black- well's Durham Tobacco Company and of The Ameri- can Tobacco Company permit the holding of stock (a) Eeoord, Vol. IV, p. 388. 89 by one corporation in another (a). There was no possibility of combination because The American Tobacco Company was the only person affected. It was simply an effective way to enjoy the full fruits of the purchase. This case of Blackwell's Durham Tobacco Com- pany is but typical of the other companies in which The American Tobacco Company owns all the stock. It prefers to have these properties in the hands of separate corporations, believing that in this way it can best maintain the value of the good- will pur- chased, and also best develop the tobacco business as a whole by having particular men interested as presidents, vice-presidents and secretaries rather than department managers or assistant managers. (c.) Methods of competition practiced hy defend- ants. As hereinbefore stated, the manufacture and dis- tribution of tobacco is a business that stands alone among mercantile businesses. Every manufacturer of tobacco uses one type or another of leaf tobacco as his raw material; these types, with their several grades each, are so variable and so slight in their variations, that the selection of leaf tobacco is an im- portant element in the tobacco manufacturing busi- ness. The treatment of this tobacco, the various processes of manufacture, the application of flavor- ing, are all intricate (b). When the goods are manufactured, they must be named, packed and labeled so as to attract purchas- ers. Many a brand of tobacco has achieved its suc- cess by virtue of a happy name or an attractive package, and many have failed to succeed because there was nothing sufficiently attractive in the ex- terior to induce consumers to even try the qualities of the goods. Still another thing not to be disregarded by the (a) Corporation Act of New Jersey. (b) Eecord, Vol. IV, p. 355. 90 manufacturer is the necessity of maintaining an identity in his product. The man who has become accustomed to the chewing of tobacco largely made up of burley leaf does not desire to find it changed to Green River leaf, although Green River leaf may be the more expensive. If a brand acquires popu- larity every effort of its manufacturer is to preserve its qualities, whether they be good or bad (a). After the manufacture of tobacco there is involved its distribution. This is not a matter, either, that can be overlooked by any tobacco business. Though the manufacturer makes goods that when prop- erly brought to the attention of a number of con- sumers would be popular, and though he puts them into packages and gives the tobacco a name that is calculated to favorably dispose a consumer to the product, and though he takes means to preserve the identity of his product, there exists the ne- cessity of securing a proper distribution in order to popularize the brand. There are more than 600,000 stores in the United States from which consumers buy tobacco (b). The tobacco must be gotten into these stores. Consumers will not go or send to the factories for it. Some manu- facturing establishments do business directly with these retail dealers, but in general the retail stores are supplied by jobbers, of whom there are in the United States more than five thousand that sell to- bacco and the products of tobacco (c). The tobacco manufacturer disposes of his product to the jobber, the jobber in his turn to the retailer, and the retailer in his turn to the consumer. There are difficulties, of course, in establishing a brand of tobacco; they are by no means insuperable, as evidenced by the fact that old manufacturers are constantly projecting new brands and new manu- facturers are constantly coming into the field. Such difficulties as exist are compensated by the (a) Eecord, Vol. IV, p. 441. (b) Eecord, Vol. 11, p. 363. (c) Eecord, Vol. II, p. 364. 91 value of the brand after it has become once es- tablished. A consumer who has become fond of "Bull Durham" tobacco, for example, naturally asks for " Bull Durham " tobacco; he does not have to pay but five cents for it, and when it comes to the matter of satisfying his taste, he is not attracted to an article called "just as good" for four cents; the package suits his pocket and so he is not in- duced to buy another kind of tobacco simply because it is in a larger package for the same price. His habit is a "Bull Durham" habit and not a mere tobacco habit (a). Of course, intelligent manufacturers realize that there is a percentage of consumers influenced by the retail dealer. If the retail dealer suggests that some new tobacco is better than the brand that the con- sumer asked for he may take it; and some retail dealers are iufiuenced by jobbers and their salesmen to put into their stores and attempt to sell to their customers an unknown brand. After all, though, the easy and natural course of business is for the consumer to ask for the particu- lar tobacco he desires, and for the retail dealer to furnish him, without hesitation, just what he asks for; this becomes the easy course for the retail dealer, and it gives him the valuable reputation of furnishing what his customers desire. The consumer must be gotten to ask for a partic- ular brand, and the methods of manufacturers in building a brand have not been better told than in the testimony of Fred C. Peper, an independent tobacco manufacturer, having no relation what- ever with any of the defendants: " Q. Who is the boss of the tobacco busi- ness, the jobber, retailer or the consumer? A. The consumer all the time: he makes the demand and the retailer and the whole- saler have to comply with it. Q. If you desired to extend any one of your brands in a given section or to popu- larize your brand, how do you go about it. (a) Eeoord. Vol. IV, p. 647. 92 A. We advertise the brand and we go to the consumer and get him interested in it, and give him a sample; when he gets that sample we will tell him to take the tag from the sample, keep it and put it in your pocket so that you won't forget the brand,_ and then after he once gets a taste of it he will probably fall into the brand. Some of our advertisers will go to work and say to them if you will bring me all the tobacco you have in your pocket of any other brand— I don't care what manufacturer makes it— I will give you twice as much for it of our tobocco. 'The reason of it is to get the tobacco of the others out of the pockets of the consumer in order to replace it with ours and have our tobacco chewed. Q. And those methods are adopted to popu- larize the brands? A. With us, yes, sir. Q. And then do you send what are known as missionary workers to the trade? A. To the retailers. Q. And you work from the consumer to the jobber? A. Through the retailer. Q. Would it be practical to build the tobacco business up by working from the jobber down to the consumer? A. No; the jobber would not buy it unless he had a demand for the goods from the re- tailer, and the retailer would not buy it unless he had a demand from the consumer" (a). The methods of competition followed by The American Tobacco Company have been followed in recognition of these characteristics of the tobacco business — characteristics which it did not create, but which it is compelled to recognize if it is to suc- ceed at all. The effects of these methods of compe- tition are to stimulate and increase the consumption of tobacco, and they ought to be and are followed by even those manufacturers which secure in given sections monopolies of the tobacco business of their particular type. As Mr. Peper expresses it, " It in- (a) Beoord, Vol. IV, p. 647. 93 ^^ creases consumption. We make new chewers all "^ the time; we give men our advertising; we give "^ men tobacco that don't chow tobacco, and they 'I put it in their pocket and nibble at it and gradu- " ally they get to chewing it, and we have got them " for a time anyway " (a). When one considers these methods followed by The American Tobacco Company and other tobacco manufacturers, it becomes evident that so far as the public interest is concerned in its buying of tobacco products there would be no catastrophe if the tobacco business fell into the hands of one single intelligent organization. Unless there is effort con- stantly expended by the manufacturer in advertis- ing, sampling and pushing his goods the business will diminish, and if constant effort is made it is made on individual brands without reference to the manufacturer of those brands. The competition between The American Tobacco Company and the R. J. Reynolds Tobacco Company, for instance, or between different departments of the Ameri- can Tobacco Company itself, is just as severe as between manufacturers which are differ- ently owned in their entirety (b). This must in the nature of things be so. The manufac- turer who puts out no new brands of tobacco, and gives no push and stimulus to any brand that is out, will find his business drying up or leaving him for more aggressive and enterprising manufacturers; and yet, if he does get out a new brand and tries to stimulate its consumption, he will inevitably tind that some of the consumers, induced to consume that brand by this extra effort, are thereby taken from some one of his other brands (c). It is impossible for any tobacco manufacturer in an aggresi^ive campaign on a given brand in a given section to single out the consumers of brands of other manu- facturers from consumers of his own brand; his (a) Record, Vol. IV, p. 648. (b) Eeoord, Vol. IV, pp. 396-397; Vol. H, pp. 393, 693. (c) Beoord, Vol. IV, pp. 396-397; Vol. H, pp. 393, 693. 94 efforts will be directed toward the whole male popu- lation, including indiscriminately those who have been accustomed to consume the products of other manufacturers, those who have been accustomed to consume his own products, and those who have not consumed that class of tobacco at all. In this way there is constantly going on a stirring up of the field of tobacco consumption, involving frequent interruptions of the tendency of men to consume the identical brands of tobacco to which thej have become accus- tomed. Men that have smoked granulated to- bacco have been brought to change and smoke plug cuts, and vice versa; men that chew fine cuts have been brought to chew plug and vice versa; men that consume tobacco made of Virginia and North Carolina leaf have been brought to consume a tobacco made of hurley, and vice versa. Every brand of tobacco is worked for its own account and that manufacturer would be foolish, and soon a failure, who adopted any other plan of merchandis- ing his goods than is involved in the recognition of that fact. The American Tobacco Company has succeeded because it has recognized the value of tobacco man- ufacturing plants, processes and brands that were for sale, and that had about them the elements of great popularity and success, and so has invested in these brands, and thereafter has given them such advertisement and distribution as to bring them the popularity and success to which they were entitled. These methods of advertising and stimulating the consumption of various brands of tobacco, not only operate to increase the consumption of the brands so directly involved, but such methods tend to in- crease the consumption of other brands of a like general kind that sell in the community where the work is done. Mr. Peper, in testimony already quoted, illustrates this, and there are otlier illustra- tions all thi-ough the testimony that nothing injures 95 the general tobacco business so much as cessation of these very methods that are ordinarily deemed com- petitive. The following; is a quotation from Mr. Duke's testimony, foUowinfj; his statement that " Bull Durham " is, and has always sold to the con- sumer at one ounce for five cents, whereas " Duke's Mixture " goes to the consumer in a package of one and two-thirds ounces for five cents. They are both granulated tobaccos, and both sell substantially all over the United States: " Q. Is the Bull Durham business injured by the aggressiveness with which the American Tobacco Co. or other manufacturers push one and two-third ounce goods or two ounce or two and a half ounce? A. Bull Durham has been increasing since they have been pushing that. The sale on Bull Durham is twelve million a year and when we got it two and a half to three mil- lion a year, and in that time we have quad- drupled the sale of Duke's Mixture (a). Q. How about going to the consumer with a larger package for five cents; does that dis- lodge a brand? A. We are doing that all the time our- selves. It don't hurt the sale of Star tobacco for us to put out a brand and sell 20 cenDs a pound less to the consumer. If I wanted to fight Star tobacco I would rather put out a brand and charge 60 cents rather than 50 and the consumer would think he was getting something better and might be getting it out of one pile. Q. Why is that? A. That is the human nature of the thing which I can't explain any better than you can. Q. The man who buys tobacco wants his taste satisfied? A. Yes (b). Q. Mr. Duke, you spoke of the growth of the businesses by reason of competition, and you mentioned Duke's Mixture and Bull Dur- ham as an example. Was an d has it been (a) Record, Vol. IV, p. 439. (b) Eecord, Vol. IV, p. 441. 96 your observation and experience of the tobacco business that businesses do grow in the heat of competition more than when there is a lack of competition? A. Yes; make more money on it. Q. Mention if you can some instances in your experience where this has been shown conspicuously? A. Well, take the Blackwell's Durham and Duke's Mixture. "When we started Duke's Mixture in 1886, Duke Sons & Co. did, it was sold two ounces for five cents. Bull Durham was selling two ounces for ten cents. They had a market about 3,000,000 pounds a year for Bull Durham. We pushed Duke's Mix- ture right straight ahead and for ten years we lost money on it. In 1896 it commenced to pay a profit; we carried the business on up and I think it ran up to 17 or 18 million pounds a year. Blackwell's Durham we iarought up last year to over 12,000,000 a year. Q. Now, during this time that Duke's Mix- ture was being sold at a loss was it hurting Blackwell's Durham at all? A. No, it was making consumers, getting consumers to buy. It helped Blackwell's Durham. I don't believe there was 4,000,000 pounds of granulated tobacco sold in the United States when we started Duke's Mixture in 1886. The American Tobacco Co. sells 35,000,000 pounds of it now. Q. Do you attribute a great part of that in- crease to the activity and advertising of the various competing brands? A. Yes, sir. Q. What, in your judgment, would have been the condition of granulated business in this country if there had not been active competitive work done on it? A. I don't think there would have been 2,000,000 pounds a year sold. Q. Does the cigarette business furnish an illustration of this dechne of business when there is lack of aggressive competitive methods in selling? A. Yes; we carried the cigarette business of the American Tobacco Co. up to about four thousand million a year and they kept 97 trying to pass so many of these laws all over the country that we sort of let up on our activity to push the cigarette business and pushed other lines of tobacco, and that busi- ness went down to somewhere around two thousand millions a year. Q. About cut in two? A. Yes. After that ^e got into the Turk- ish cigarette business and it is growing again. Last year we increased six or seven hundred million and the cigarette business last year is the largest in the history of the business. That is all by work, pushing, advertising and attracting people's attention to it. Q. So in. your judgment does the aggressive methods adopted by the American Tobacco Co. and other manufacturers of tobacco really injure competing brands of tobacco? A. No; I think it builds them. Take Seal of North Californa plug, going back fifteen years ago, Marburg Bros, had gone and estab- lished a large sale on that, and after we bought that business we continued it and there came out a brand Mastiff, made by Pace Co. of Richmond, and they advertised and pushed their brand, and while they did it we pushed and advertised Seal and the trade went away up, and they withdrew and they didn't make money on their brand, and when they stopped why Seal went down too. It would have paid us to have actually subsi- dized them to have gone on and fought us; we would have made more money by it. Q. Has the experience which you have just given which was favorable to the American Tobacco Co. been duplicated in cases where you fought and used aggressive methods to get a business and seen the brand you were competing with grow? A. Yes. Q. Can you give an illustration of that? A. Well, you take for instance, before Duke Sons & Co. went into the cigarette business, we were making Duke's Durham; Blackwell was making Blackwell's Durham, and as long as Blackwell had us competing with him their trade kept growing. We got off in the cigarette business and stopped pushing Duke's 98 Durham so much and the trade on Blackwell's Durham commenced to drag. Q. Then you waked up again on Duke's Mixture and then Blackwell's Durham waked up and grew* A. Yes, sir. Q. In short, in your judgment as a tobacco man, is it true that you can crush competitors by selling goods below cost or free sampling and all those methods set out in the bill? A. No, it is ridiculous. There is old Chris- tian Peper's business in St. Louis, one of the oldest sweet plug concerns in the country; since the American Tobacco Company and Continental Tobacco Company has had this business there it has grown right along. We can't stop their trade and they can't stop ours. Q. How about Schinasi's cigarette business? A. We have made his business by pushing Turkish cigarettes. If it hadn't been for The American Tobacco Company and Anargyros pushing their cigarettes the way they have Schinasi wouldn't sell half what he does. He knows it. I saw him awhile ago and said, Why don't you advertise and push this along? He says there is no use; the Ameri- can Tobacco Co. does that, and I get as much benefit out of it as they do; and he does, too" (a). This quahty of the tobacco business, that it grows with fierceness of competition among manufactur- ers, and that efforts expended in extending the sale and consumption of a given brand have a decided influence in extending the sale and consumption of brands of a like general kind, constitutes one of the interesting phases of the tobacco business, and itself affords a defense to the defendants against many of the allegations of the bill. Considering the long life and extensive business activities of the defendants, the characteristics of the tobacco business which lend themselves to sharp competition, and the exhaustive investigation made by the Government for every smallest bit of evi- (a) Record, Vol. IV, pp. 397, 398, 399. ~ 99 dence of unfair or oppressive methods, the instances o^alleged^attemptsJby deXendaiLtBJ^cruih3to ii,?ss J?l-Pompetitors by^seiling goods below cost, or fn some such other way, are notably few: (1) Previous to the organization of the American Snuff Company, Weyman & Company had a large part of the business on a kind of snuff sold prin- cipally in the Northwest, and that is consumed like chewing tobacco. American Snuff Company got out a brand of like general kind and pro- ceeded to attempt to make it popular in that same section. It resorted to sampling by mail, getting from county officers names of all voters in a given section and then mailing samples to those thought by their names to be Swedes. These and other methods were followed by American Snuff Company from the latter part of 1901 or the first part if 1902 until 1905. Undoubtedly these methods had involved greater expenditure than the business had earned, and so there was involveji the saleof^22l§_below cost. In 19"05it purchased the Weymanbusiness7ahd the Weyman business had in the meantime grown from five hundred thousand pounds to over nine hundred thousand pounds (a). American Snuff Company has proceeded with the same methods in the same section, with the result that this business, purchased in 1905 from Weyman, is now a business of about two million pounds per annum (b). (2) There is alleged an effort by American Snuff Company to crush the business of the Byfield Snuff Company by~the introduction and sale in that terri- tory of a brand called " Checkerberry," which, as testified to in some detailTTs sold at a loss by American Snuff Company (c). "The president of American Snuff "Company testified with respect to this: "Q. Was Checkerberry gotten out with a view of crushing the Byfield Snuff Com- pany? (a) Record, Vol. IV, pp. 508, 509. (b) Eecord, Vol. IV, p. 510. (o) Record, Vol. UI, pp. 212, 213. 100 A. No, no. We being in the snuff busi- ness undertake to make every kind of snuff that the consumer wants, and we had been making this before Checkerberry was put out. We had been making that winter- green snuff just because we had endeavored to make every kind of snuff that we know of for which there is a demand, and we simply did it to increase our snuff business and not to run anybody out, and we find we can increase our business very well, not only not running the other fellow out, but increase his business as we did in this man's case. Q. Did you have an idea in putting on your scheme by selling and securing the consump- tion of Checkerberry of so hurting the By- field that you would coerce them into selling out? A. No; our system was very largely on sampling order or free goods order, so that it was a matter of educating their taste up to our kind of sn,uff, and that sampling had the same effect there that our work did in Wey- man's territory from 1901 to 1905, the time we bought him out. Q. That is, it had increased the output_of„ Weyman? A. It increased the consumption of that character of goods and the brand that had the largest percentage of the trade took the biggest part of increase " (a). The unadorned figures show in this case also the effect of this kind of competition on a given prod- uct. "Checkerberry" snuff was gotten out by American Snuff Company in 1904, and the output of the Byfield Snuff ^mpany, beginning in 1903, was as follows: 1903 110, Y58 pounds, 1904 125,859 pounds, 1905 130,826 pounds, 1906 140,500 pounds, 1907 152,500 pounds, (b), (a) Record, Vol. IV, p. 511. (b) Record, Vol. IV, p. 512. 101 and a travelling representative of the Byfield Snuflf Company testified that it had not sold any goods at or below cost (a). (3) It is said that the American Tobacco Com- pany, taking advantage of a company whose connection with it was not known, and with a purpose of freezing out and coercing into a willing- ness to sell, other manufacturers of scra^ tobacco, early in 1906, advanced the price of the raw material, and at the same time reduced the price of manufactured scrap goods, so that no scrap manufacturer could exist. The business of manufacturing scrap tobacco is comparatively a new business. It was begun undoubtedly by cigar manufacturers who were attempting thereby to utilize the clippings that came from the man- ufacture of cigars. The business has grown very rapidly in the last few years. It is very evident that a proper raw material for it is not only the clippings that come from the manufacture of cigars, but leaf suitable for the manufacture of cigars easily reducible to the size of such clippings. That much of this leaf is used as the raw material for scrap tobacco is shown by the evidence of the Government that the output of scrap tobacco is about 40,000,000 pounds per year, while the out- put of clippings is only about 18,000,000 pounds (b). Early in 1906 The American Tobacco Company did from time to time advance its bid for cigar clippings to various cigar manufacturers until the bid reached a high figure. Not by any efforts of any of the de- fendants, but by conditions such as ordinarily af- fect the leaf market, the price of cigar leaf such as would be used for raw material for scrap tobacco, had already advanced so that there was no surprise on the part of anybody that the price of clippings should advance as well (c). Walter J. Friedlander, who was at the time a leading independent scrap (a) Eeeord, Vol. IV, p. 313. (b) Eeoord, Vol. in, p. 248. (c) Beeord, Vol. IV, pp. 80-81. 102 manufacturer, and who, it is suggested by the Gov- ernment, was the manufacturer that this method of competition was intended to destroy, testified: " Q. And were you surprised at that ad- vance in clippings or cuttings? A. I was surprised that it went to 22 cents. We ex- pected that it would go to 17 or 18 cents in 1905 " (a). The president of The American Tobacco Company, in his examination, explained the advance in the price of cuttings, and also explained what is al- leged to have been an additional measure to coerce the independent manufacturers to sell out, to wit: an increase in the size of the package of scrap tobacco sold to consumers and a consequent reduc- tion of price. "Q. Did you know anything about the so- called scrap fight conducted in Cincinnati about a year ago or more, involving the rais- ing of the price of clippings or cuttings, the raw material for scrap? A. There was no scrap fight. For the past five years I have heard of the enormous in- crease in the consumption of scrap tobacco. Once in a while I would see our people and notice our scrap hadn't increased very much and I would get after them and say. Why, we were not getting our share of the increase. They said they couldn't get cuttings enough. I would say that they should raise the price and get them. They would go along for six months or a year and come back again and, Why don't you increase the scrap business? and they would say we can't get cuttings enough. It went along I know for four or five years and finally I told them to put the price up until they did get them, and if they couldn't get it by putting it up once to keep on until they did get them. Q. Do you know how high the price went under those instructions? A. Twenty-two cents per pound, and we commenced to get more than we wanted and we reduced the price, because in ail these (a) Keeord, Vol. IV, p. 80. 103 things, su£iJlx.and demand have got to regu- lafrthe price. What the price will go to I can't tell nor anybody else. If we get too many we willxeduce our price, andif we get too few we will put itup. Q. Was this advance in the price of cut- tings done with a view of forcing Friedlander to sell hib business or otherwise put the scrap manufacturers out of business? A. No, because I think really it benefited everybody in the scrap business to have a proper supply of the raw material so they will know what they are doing Q. What is the condition of the scrap busi- ness, what was it then and what is it now so far as being definitely fixed as other branches of the tobacco business are? A. Well it isn't fixed yet, because I haven't found out what the proper price will be on scrap, and the size of the package to go ahead and use up this by product. It is impossible for me to tell and I don't know whether anybody else can; I haven't made up ray mind " (a). Besides these statements by practical tobacco men and more readily understood by those with no technical acquaintance with the business, is the direct and simple testimony of independent scrap manufacturersthatthey^^vere not injured. This same Walter J. Ffiediander in his testimony as to the injury done his business by a fierce labor boycott, incidentally brought this out: " Q. And in that way (by the Labor Union boycott directed by business competitors) your business was injured? A . Very much so. Q. And more than it has ever been by any competition in size of packages or price of cuttings? A. Well, during the days of competition our business always grew. Since the boycott it has fallen off T5 per cent. (b). Q. What was your most profitable year, Mr. Friedlander? (a) Keoord, Vol. IV, pp. 400, 401. (b) Record, Vol. IV, p. 86. A. 1904. Did you say year or years? Years? A. The best were 1904 and '06. Q. Was your business profitable during the whole of 1906? (The year of 1906 was the year of the so-called scrap war.) A. Yes, sir. Q. How much did you make out of your business during the 10 months of 1906 before you sold? A. It was $62,300" (a). Another important piece of testimony bearing upon this alleged attempt to crush competing scrap manufacturers is that of_S^_S^_Bloch, a manufac- turer of scrap tobacco, absolutely independent of The American Tobacco Company and in direct com- petition with it. He testifies that his scrap tobacco brings the highest price of any scrap tobacco on the market, and that The American Tobacco Company and other manufacturers make packages of scrap of various sizes, seUing at various prices (b). He testifies that The American Tobacco Company went into the scrap business in 1899, and that his business has grown both in volume and profit since that time, and that during the last three years, which in- clude the so-called scrap war, his business has in- creased (c). (4) Another alleged attempt to crush a competing tobacco manufacturer by selling goods at cost or less than cost, is testified to with some detail by Henry N. Stone, traveling salesman of R. P. Rich- ardson, Jr., & Company, Incorporated, who was, at the time of the transaction, in the employ of The American Tobacco Company (d). He testifies that in 1903, in the State of Mississippi, he sold a cigar for the American Tobacco Company called " Lisco," together with Bull Durham tobacco, (a) Record; Vol. IV, p. 79. (b) Record, Vol. IV, p. 555. (o) Record, Vol. IV, p. 551. (d) Record, Vol. IV, p. 656. 105 at a very low price, and with each pound of Bull Durham tobacco gave free another pound. The in- ference is that this was intended to crush "Old North State" tobacco, a brand that sells in Mississippi and belongs to Mr. Stone's present employer, R. P. Richardson, Jr., & Company, Incorporated. Even he does not testify that such a course did any especial injury to Old North State tobacco, and when Percival S. Hill, Vice-President of The Ameri- can Tobacco Company, was recalled to the stand he showed clearly the advantage of responsible busi- ness heads over traveling salesmen as intelligent witnesses: " Q. You have heard the testimony with reference to the so-called Lisco cigar deal in Mississippi, with Bull Durham tobacco; was that a trade plan of advertising to crush com- petition of Richardson, a competitor of the American Tobacco Co., or any other com- petitor of the American Tobacco Co., and if not, just tell what all the circumstances were? A. It has nothing at all to do with the tobacco business. The facts are that this Lisco was a new brand of cigars, and for the purpose of getting it quickly yi on the shelves of the retail dealers we ' proposed giving something free with the/ cigar, and a number of things were consid-l ered, and we decided inasmuch as Bull Dur- \ ham represented a quick cash value to the retailer that we would give so much Bull 1 Durham with each thousand of Lisco cigars. \ * * * Q. Was the expense involved in this Bull Durham gratis on Lisco cigars charged to the Lisco cigar or was the expense of the Lisco cigars charged to the Bull Durham brand? A. The expense connected with the giving j away of this Bull Durham with Lisco cigars I was charged to the Lisco cigars. Q. Is it your habit to charge the expense of the gratis against the brand which is supposed to be benefited by the gratis? A. Always. * * * Q. Is it and has it been customary with 106 the tobacco business ever since you have known of it M^ith the American Tobacco Co. and other manufacturers of tobacco when they desire to introduce a new brand to hook it up with a strong brand in a given section? A. It is quite frequently done that way; sometimes a strong brand is given with the new brand for the purpose of inducing the retailer to put it on the shelves; sometimes the new brand is given with the strong brand for nothing and used as a gratis on the old brand, which insured it going on the retail shelves. Q. But still for the benefit of the new brand? A. Yes "(a). It is to be noted that this witness represents R. P. Richardson, Jr., & Company, a corporation, of which The American Tobacco Company holds a majority of its stock. Of all the individuals with whom The American Tobacco^Cotnpany has been associated in the relation of common ownership of stock, these minority holders of The"RicharlJsoh Company are the only ones with whom it appears to have had~~ litigation. Before this suit was instituted, the minority holders of the stock of R. P. Richardson, Jr., & Company, Incorporated, had brought suit to set aside the contract under which The American Tobacco Company owns its stock; that company was, nevertheless, made a defendant in the present litigation, and, since the minority stockholders are in actual charge of its affairs, it was thus given an opportunity to exploit for the benefit of such minority holders, and the benefit of the Government, all the cliarges it desired^to makeagainst the Ameri- can Tobacco Company. It was represented by coun- sel throughout, and it is perfectly evident and natu- ral that its counsel and counsel for the Government acted in co-operation; indeed, it is expressed to be the desire of R. P. Richardson, Jr., & Company, In- corporated — actually the desire of its minority stock- (a) Beeord, Vol. IV, pp. 671, 672, 673. 107 holders— that the Government should succeed. The Richardson Company filed an answer (a), which answer is not supported by a syllable of testimony. The active president of that company, who is the principal minority stockholder, knew all of the facts; he was, of course, a ready and willing witness for the Government. With all this readiness and all this willingness, and, indeed, all of this anxiety to contribute to the Government's case, the only con- tribution that the minority stockholders of the Richardson Company could make was the fore- going with respect to the ' ' Lisco " cigars. The foregoing has been stated here for two rea- sons: In the first place, to emphasize the inability of the Government to obtain, even from anxious wit- nesses, any but the most Jrivml testimony a.ffecting the integrity of the methods of these defendants; and, in the second place, to let the Court know that while the answer of R. P. Richardson, Jr., & Com- pany, Incorporated, appears in the Record, it is by no means" proof, it is not sus tained or attempted to be sustained by a particle of evidence, and it, itself, is nof Verified. (5.) It is said that The American Tobacco Company by oppressive methods of competition coerced the Nashville Tobacco Works to sell to it its business. G. A. Puryear testified that he was one of the of- ficers a'nTmanagers of the Nashville Tobacco Works, a corporation which manufactured tobacco from 1892 in Nashville, Tennessee; that he participated with two other owners of the business in selling it to The American Tobacco Company in April, 1906; and that he had been, at least in part, induced to make the sale by the fact that his firm was losing business on its popular brand, " Old Statesman," to a similar brand called " Bull's Head," marketed in his section by The American Tobacco Company. He testified that he did not know at what price " Bull's Head " sold, b ut that " the way he got his informa- (a) Eecord, Vol. I, p. 265 et seq. 108 tion " was some of the merchants he had talked to had figured it down to about sixteen cents a pound, which in his judgment was less than the tobacco could be made and sold for (a). There are some things about Mr. Puryear's testimony, though, that throw some doubts upon it. In the first place, he admits that he got his understanding from grocery salesmen (b), and that his information from grocery salesmen had involved certain details of trade schemes which he himself had figured out, and fin- ally that it had been his observation that the plug business in his section was losing some anyway to the twist business, a branch of the business of which The American Tobacco Company had or controlled a very small portion (c). The testimony of John H. Moore, who was not actively engaged in the man- agement of the Nashville Tobacco Works, but who was a part owner in it, casts further^oubt on the accuracy of Mr. Puryear's judgment in that he plainly attributes the loss of business by Nashville Tobacco Works to bad management of the' company itself to a greater extent and the growth of the twist business to a lesser extent (d). After this testimony, though, the defendant The American Tobacco Company called E. S. Edwards, who is its sales manager in charge of this very territory, and he throws further light upon the failure of the Nashville Tobacco Works to make money; he testi- fies to the formation, in 1903, of a tobacco concern in Nashville, Tenn., of which the nephew of Mr. Puryear was at the head, and that this concern got out a brand called "Country Lad," of the same general kind at least as Old Statesman, and claimed to be its exact duplicate, which claim was supposed to be confirmed by the well known fact that at the head of the business of this manufacturer was a former employee of the Nashville Tobacco Works and (a) Eeoord, Vol. IV, pp. 165, 166, 171. (b) Record, Vol. IV, p. 176. (c) Record, Vol. IV, p. 181. (d) Record, Vol. IV, pp. 186, 187. 109 the nephew of the man who for years had been the manager of the Nashville Tobacco Works, the manu- facturer of Old Statesman (a). Mr. Edwards gives, further, this direct and explicit testimony as to the marketing of Bull's Head tobacco made by The American Tobacco Company: It was not sold at a price of sixteen cents per pound, but after taking into account all of the trade discounts and rebates, it netted to the manufacturer 30.40 cents per pound, and at that very time "Country 'Ha J," claimed to be the exact duplicate of "Old Statesman," was going to the trade at a price which, after deducting trade discounts, &c., netted the manufacturer exactly the same price — 30.40 cents per pound; and Strater Brothers, an independent tobacco manu- facturing concern with a factory at Louisville, was competing in the same market with a brand called "Hand Spike," identical in general nature at least to these other three brands, at a price that netted the manufacturer exactly the same price, to wit, 30.40^ents per pound (b). The value of such dis- tmct testimony over the indefinite, hearsay, testi- mony of Mr. Puryear is self-evident, without the necessity of recurring to the possible unreliability of Mr. Puryear and his nephew. It would seem un- justifiable to charge The American Tobacco Com- pany with having crushed " Old Statesman," when it was only one of three competitors, all selling their goods at the same price, and with the ad- vantage to " Country Lad " of having the represen- tation, at least, of being the exact duplicate of the " Old Statesman " brand. In connection with this Nashville Tobacco Works, it is interesting to note, as throwing light on the conduct by defendants of secretly controlled com- panies, and the letters that passed between officers of defendants and managers of some of these secretly controlled companies, a subject to be here- (a) Record, Vol. IV, p. 572. (b) Eecord, Vol. IV, pp. 570-572. 110 after discussed, that an officer of The American Tobacco Company suggested to the manager of one of these secretly controlled companies, ITall &_Wil- liaiiis Tobacco Company, getting out a brand to ^' go after " a brand of the Nashville Tobacco Works (aj. The Government would have the inference drawn that the purpose of such direction was to coerce the Nashville Tobacco Works into selling out its business, and that it was quite impossible for an ordinary independent manufacturer to stand the cross fire of competition from The American Tobacco Company itself and the secret competition of companies controlled by it. The General Man- ager of the Nashville Tobacco Works, the sup- posed victim of this kind of competition, was on the stand (b), a willing, if not unscrupulous wit- ness; he was attempting to give reasons for the decline of the prosperity of his business that would reflect upon The American Tobacco Company; these reasons, as have been shown, were not such as to stand close examination. He did not mention a brand of tobacco, or any conduct of the Nail & Williams Tobacco Company or any other secretly controlled company, although under the examina- tion of counsel for the Government who was already aware of the letter of directions to Nail & Williams Tobacco Company, already referred to. The ex- planation of this is easy. Nail & Williams Tobacco Company did not get out any brand, or, if they did, it was a complete failure. Undoubtedly, The American Tobacco Company tried to get business in the territory in which the Nashville Tobacco Works sold its goods, and it natuially and sen- sibly tried to get business on the same types of tobacco that had their popularity there; they profited by the experience of other manufacturers just as other manufacturers, if wise, profited by the experience of The American Tobacco Company. This is competition, and the Government has sig- (a) Record, Vol. II, p. 545. (b) Record, Vol. IV, p. 165. Ill Dally failed to show that on account of it the Nash- ville Tobacco Works, or any other manufacturer has been required to sell, or go out of business. (6) There has been introduced into this record a copy of certain parts of a record of a suit brought in the Circuit Court of Davidson County at Nash- ville, Tennessee, entitled Standard Snuff Com- pany against American Snuff Company (a). This record consists of an unverified declaration and what purports to be three depositions. There are statements made along with the copy of the declaration and three depositions that the case was removed to the United States Circuit Court because of diversity of citizenship, that the de- fendant interposed a demurrer which was over- ruled, and thereupon defendant entered a plea of not guilty, and that on July 16th, 1904, the suit was dismissed without prejudice. The introduction of this was objected to (b), and the court below never passed upon, nor was asked to pass upon, the objec- tion. Undoubtedly the whole thing is incompetent and will not be considered by this court, as it was evidently not considered by the court below. The evident intent of the introduction of such incompe- tent testimony (whatever may be said of the pro- priety of such) is to induce a reading by the court of the unverified declaration filed by the Standard Snuff Company and so conclude that the American Snuff Company was guilty of oppressive competi- tion directed against Standard Snuff Company; this is to be taken in connection with the fact, and it is a fact, that American Snuff Company acquired the property and business of Standard Snuff Company by a purchsse of all its stock, while the suit was still pending. There is not a line of competent tes- timony showing any oppressive methods used by the American Snuff Company against the Standard Snuff Company, and the only testimony on the sub- (a) Becord, Vol. V, p. 307. (b) Eecord, Vol. IV, p. 195. 112 ject refutes any conclusion that American Snuff Company purchased the Standard Snuff Company on account of the pendency of, or any fear of such suit; "Q. Did the pendency of that suit influ- ence the American Snuff Co. in purchasing the stock of the Standard Snuff Co.? "A. Not the least bit; had nothing what- ever to do with it. We never felt that there was anything in the suit at all, until we heard that there was a former employee of ours that was going to make oath to certain things which probably might have made it difficult to disprove, at least we thought it might, because he stated that he would make oath to instructions having been given to him by one of our division managers, with refer- ence to doing certain kinds of work, and we thought there might be some difficulty about refuting that; but when he was put on the stand, he failed to make oath to any of these statements that we had heard he was going to make oath to; in fact, his testimony, so I was informed, did not amount to anything at all, and that was the only thing we had ever heard in connection with the suit, because the matter of taking up goods was a matter that was started by the Standard Snuff Co; that is, taking our goods and putting theirs in their place. " Q. You mean it was started in the snuff business by the Standard Snuff Co. ? A. Yes. "Q. This witness whose deposition you refer to was a man named Stratton, was it not? A. Yes. " Q. His deposition was taken at Shreve- port. La.? "A. Yes. "Q. You don't know whether that depo- sition was ever filed or not, do you? "A. I don't know anything about it; I have heard that it was not. "Q. But counsel for the American Snuff Co. was present, and has told you about the result of it? A. Yes. " Q. What did induce you to purchase that stock, was it to get rid of the competition of the Standard Snuff Co.? 113 " A. No; we felt that they had a business there of pretty close to 500,000 lbs., and they had built their business up on somewhat different lines from us. We sold exclusively to the jobbers, where a very large percentage of their business was with retail dealers, and we knowing that there were a great many retail dealers who like to buy direct from the manufacturer — " Q. I am asking you now about your purchase; not why you were running it as a separate company? " A. It was these considerations that I am mentioning, that induced us to make the purchase — and knowing that we could not sell direct to the retail dealers because of the objections that would be raised by the jobbers to whom we sold exclusively, we felt that we could have this business conducted along the same lines that it was being conducted, and supply that retail trade direct, and make money out of the business. "Q. That it would be, conducted in that way, a good investment ? A. Yes. "Q. Has it turned out to be, considered on its own bottom, a good investment? "A. Yes. It has not been quite as good as we thought it would be, but it has paid a very nice interest on the investment, and has been altogether a satisfactory purchase (a)." These are the only instances, or certainly sub- stantially all, in which the Government, with all its facilities for examination, say that the defendants have attempted to crush competition by advancing "the cost of raw material, reducing the price of the finished product or other such methods. It is be- yond belief that' the Government has found many such instances, and has prodiiced these six only as samples. The inability to establish any of jthese instances by definite and satisfactory proof, and the triviality of some of them, indicate the absence of others. To think otherwise would involve an un- nrerited reflection on the power of discrimination of Counsel for the Government. The effort of the (a) Becord, Vol. IV, p. 482, 114 Government was not to produce samples of miscon- duct, but all misconduct. The small number of in- stances produced and the inability of such instances to stand critical examination, reflect credit on de- fendants, but such condition also bears out the tes- timony of Mr. Duke and Mr. Condon, heretofore referred to, and appearing elsewhere iu their respect- ive testimony, that the business of a brand of tobacco cannot be destroyed or even substantially diminished, by mere cheapness of a competing product. It is unquestionably true, as shown by this whole record, that eternal vigilance is the price of a profit- able tobacco business. If a manufacturer has a brand that seems really to have no competition in a given section — and even small manufacturers have scattered all over the country that sort of monop- olies—and he is satisfied and does nothing in that particular section, he will wake up too late, to find his business there gone. In the first place, some active competitor may have taken it — not by selling a product cheaper, but by constant advertising, by giving away samples, by interesting retail dealers, inducing them to attempt to induce consumers to take it, and other such methods. Even if this re- sult does not follow, and if competitors keep out of the field, his business will dry up unless he is actively using aggressive methods in pushing it. As bearing upon the methods of competition pur- sued by the defendants, there should be discussed the maintenance by defendants of secrecy with resgect to their relations with certain manufacturers in whose property they owned anjnterest. "If it is~ lawful for an individual or a corporation to own stock in another corporation, it is lawful too for that relation to be kept secret, at least so far as any anti- trust law is concerned. If such methods are 115 to be condemned at all, they are to be condemned as constituting immoral or unfair competition. The situation that confronted the American To- bacco Company in 1903 had certain aspects that are worthy of serious consideration. In the first place, there was the belief, shared in bj all its officers, that lines of its business could be more effectively prosecuted if left in the hands of a separate orjrani- zation. Indeed, before 1903 that idea had impressed the company and led to the organization of the R. J. Eeynolds Tobacco Company, Luhrman & Wilbern Tobacco Company, The John BoUman Company and others. Another thing that rightly or wrongly impressed some of the officers of The American Tobacco Com- pany in 1903 was an assumed prejudice against The American Tobacco Company and any concern known to be affiliated with it. Consumers of to- bacco, having only their tastes to gratify, making purchases of inconsiderable separate amounts, hav- ing no measure of intrinsic value, but only the duty of satisfying their tastes, might be prejudiced against a product which they knew came from the so-called " Tobacco Trust." Whether officers con- nected with The American Tobacco Company took it very seriously or not, competing manufacturers did consider this prejudice as a legitimate asset in their business, and a propaganda was constantly issued by them appealing wholly to the actual or assumed prejudices of consumers against products of the so-called " Trust " (a). Still another condition that was used by its com- petitors to the prejudice of the American Tobacco Company arose out of its relations to the Tobacco Workers Branch of the Labor Union. Now, the American Tobacco Company is not antagonistic to labor unions. Its attitude with respect to organiza- tions of labor is exactly its attitude to organizations of farmers, as expressed in a letter from the presi- (a) Becord, Vol. II, pp. 678, 679, 697, 698. 116 dent of The American Tobacco Company to the president of the Burley Tobacco Growers' Associa- 1 tion at Lexington, Kentucky (a). It employs labor, intending always to pay adequate wages, and with- out requiring the laborers to belong to any labor I union, but without forbidding their joining any they : please, and without any desire to use on its own / products the blue label that indicates that the goods ; bearing such label have been manufactured in a I factory organized and operated upon Union lines. The attitude of The American Tobacco Company is well expressed by its president: " Q. Mr. Duke, do you know that these va- rious concerns I have mentioned, or some of them, Wells-Whitehead Co., Pinkerton To- bacco Co., Bland Tobacco Co., Nail & Wil- liams Co. were using the Union Label on their goods? A. I heard so. Q. Did you understand that it was an ap- prehension that they might lose the Union Label that induced the minority holders in these businesses to keep secret the connection of the American Tobacco Co. with them? A. I have heard it both ways. As far as I have been concerned, when they talked with me about that I said I would not use any- body's mark except my own on my goods. Q. Was your objection to the Union Label because of hostility to Labor Unions? A. ]S^ot at all. Q. Is the American Tobacco Co. hostile to Labor Unions? A. iSot at all. Q. What is the basis of your objection to the use of the Union Label? A. Well, I think you put your goods in a class with everybody else when you put on a Union Label, and I think there is a great many, manufacturers that manufacture to- bacco and put the Union Label on it with the idea that will sell it without making the quality of it as it should be. They don't de- pend on the quality; they depend on the Union Label to sell it. (a) Eeeord, YoL IV, p. 432. 117 Q- ^od you believe in depending on the in- dividual quality and not put your goods in the class with other manufacturers' goods? A. Yes. We spend millions of money to establish trade-marks. Why do we want to go and put our goods under the label of a fellow that trusts to sell them on sentiment? It is nonsense " (a). With this basis of hostility on the part of Labor Unions, some independent manufacturers, com- petitors of The American Tobacco Company, were industrious and zealous in their appeals to public sentiment and prejudice. The Globe Tobacco Com- pany, a manufacturer at Detroit, Michigan, caused to be issued a circular advertising most of its brands, beginning in display type: "To Organized Labor, Greeting. Beware of Trusts. Why patronize the Tobacco Trust? Eternal vigilance is the price of liberty " (b). The president of the Wetmore Tobacco Company of St. Louis, Missouri, made a speech which was afterwards published on a card, contain- ing extravagant appeals against the "' Trust," with such highflown sentiments as follows: "The people are not going to stand idly by and see their rights, privileges and livings swept away," and then the card had in bolder type: "Chew ' Wetmore's Best.' Union Made " (c). Perhaps the most explicit testimony as to the efforts of manufacturers to use the Labor Union anti-trust sentiment against the product of The American Tobacco Company is found in the testi- mony of the Vice-President of the International Tobacco Workers' Union, introduced as a witness by the Government (d). Certain brands of tobacco were manufactured by concerns which had come to belong, in part at least, to The American Tobacco Company, and the City of Cincinnati was flooded (a) Eecord, Vol. IV, pp. 399, 400. (b) Becord, Vol. U, p. 697. (c) Becord, Vol. U, p. 698. (d) Becord, Vol. IV, p. 128. 118 with circulars, printed in red, with skull and cross- bones, prominently marked "Death to the Users," signed "Tobacco Workers' International Union," warning all union men and friends of organized labor to leave alone the brands manufactured by these concerns. This was not an act of The Tobacco Workers' Union, it was a method of competition, ini- tiated, engineered and financed by independent tobacco manufacturers. The testimony is distinct in this respect, and would be more definite and de- tailed but for the attitude of the Government in protecting with its aegis this witness on cross-ex- amination: " Q. Did you distribute them? "A. Not myself personally. " Q. Did you have any of them printed? " A. Yes. " Q. Did you furnish them to competing " scrap tobacco manufacturers in Cincinnati? " A. Yes, we gave them to their travelling " men. " Q. Didn't they pay for them? " A. Yes, in one instance I know of. " Q. Did not the Independent Tobacco " Company of Cincinnati (independent to- " bacco companies of Cincinnati) pay for the " printing of a great number of these hand " bills? " A. Yes, sir (a). ***** " Q. What was the expense involved to the " Labor Union in printing and distributing " these circulars? "Mr. McReynolds: Now, Mr. Witness, I will have to say to you that while the Gov- ernment has no objection, so far as its bear- ing on the case is concerned, if you do not care to go into these things that are utterly irrelevant, you may decline to answer them. That is your own personal privilege and you can act upon it or not, just as you please (b)." (a) Record, Vol. IV, p. 128. (b) Eecord, Vol. IV, p. 130. 119 It was not suggested that these various brands of tobacco had become unhealthy or that the condi- tions under which they were manufactured had be- come unsanitary, or that the wages paid to the men that made them had been diminished, but the only excuse for the existence of this violent boycott, which carried with it a threat of personal violence to those that disregarded it, was that The American Tobacco Company was part owner in the manufac- turing concern that made these brands. The most impressive story of the effect of such boycott is in the testimony of Walter J. Friedlander, who was the president of one of the concerns whose goods were thus boycotted, and who testified as follows with respect to the circulation of these cir- culars and the general boycott of his business: " Q. How general was the circulation of these circulars through Cincinnati? A. General enough to create consternation; they were thrown out by the thousands. Q. Were your competitors active in the distribution of these? A. Very. Q. You say an employee of one of your competitors was handing them out? A. He gave me one. Q. And was he handing them out on the street? A. Very generally. Q. Did your competitors have them in large numbers in their factories? A. Yes, sir; had two great bundles of them in their office. Q. Were the products of the Day & Night Tobacco Company boycotted? A. Yes, sir. Q. To what extent and in what way; what do you know about it? A. In general by bills such as this and also cards were gotten out tacked up in bridges and saloons, wherever they could get them. Then these various new tobacco companies, and some Union officers, although there were not as many Union officers as salesmen of the tobacco companies, started in with the saloons 120 ■ of Cincinnati, which are the largest handlers of scrap tobacco there, and told them if they handled any of the Day & Night Company's goods they would have their places boycotted, and many of them came to me and said that while they had calls for the tobacco and would like it, but if we do these men won't come to our place. They also went to women who had candy stores and notion stores who also sell large amounts of tobacco, and told them the same thing, to put up these circulars there, and ignorant women would see this thing and would be afraid to handle our goods. We would go and speak to these people and tell them this is an American country and these things were unfair, and they would say it is unfair, but I have only got $40 in the world and that is all invested here and I can't take a chance. We can't get our tobacco back in a great many stores in Cincinnati to this day? Q. And in that way the business was in- jured? A. Very much so. Q. And more than it has ever been by any competition in size of packages or price of cuttings? A. Well, during the days of competition our business always grew. Since the boycott it has fallen off 75 per cent." (a). Such conditions as these, constantly recurring in a more or less virulent way, were evident to tobacco manufacturers in and out of the organization of The American Tobacco Company. They had not affected the president of The American Tobacco Company. He testifies: " Q. Was it your desire that the relations of the American Tobacco Co. to these various concerns should be kept secret? A. No, sir; I was always opposed to it from -my standpoint, because I thought it was foolishness, but to the man that is going to run the business I say here go ahead and run it any way you like so you make profits; that is all I care. (a) Record, Vol. IV, pp. 85, 86. 121 Q. So far as you know it was the case in each of these instances where the relation of the American Tobacco Co. to the other com- pany was kept secret, that it was done at the instance of the other partv to the trans- action? A. Yes; I didn't agree with it at all, I thought they were making a mistake, but they thought different. Q. Did you disagree with it on moral grounds? A. No; I thought it was foolishness to try to run a business secretly. I would rather not do business than to have to do it in that way " (a). Under this provocation, though, and because of the feeling of manufacturers in whose business The American Tobacco Company was about to acquire an interest, as well as the feeling of some of its own officers and sales managers, there were at- tempts made by these men, and co-operated in by officers of The American Tobacco Company) to keep secret from the general public the fact of the interest of The American Tobacco Company. This course was pursued at one time or another be- tween 1903 and 1906 (with some companies only a very little while) with the following concerns, to wit: Nail & Williams Tobacco Company, R. A. Patterson Tobacco Company, Pinkerton Tobacco Company, Craft Tobacco Company, F. R. Penn Tobacco Company, R. P. Richardson, Jr., & Com- pany, Inc., Wells Whitehead Tobacco Company, B. Leidersdorf Company, Bland Tobacco Com- pany, Michigan Tobacco Works, H. N. Martin & Company, Nashville Tobacco Works, Queen City Tobacco Company and Day and Night Tobacco Company. All of these concerns had a minority in- terest, except Queen City Tobacco Company and Day and Night Tobacco Company, in which those in charge of the concern had an option to acquire a minority interest (b). It is testified, and in no way (a) Record, Vol. IV, p. 395. (b) Beoord, Vol. II, p. 677. 122 contradicted, that the maintenance of secrecy of the relations of The American Tobacco Company was at the request of this actual or prospective minority interest, which had charge of the management of the respective concerns (a). It is true, however, that the officers and employees of The American Tobacco Company co-operated in keeping this rela- tionship secret and they do not shirk the reponsi- bility. They believed that in law and morals the maintenance of such secrecy was justified, especially when considered in connection with the methods of competition it was intended to combat — in order to avoid an unreasonable prejudice any man or corpor- ation is justified in concealing his ownership of a particular business enterprise — in order to escape an assassin any man is justified in travelling incognito. One or two of these cases of secretly controlled companies particularly illustrate the justification for their organization and secret operation : In New Orleans there is a strong labor union sentiment; The American Tobacco Company through its New Orleans plant had a large part of the cigarette busi- ness of and immediately adjacent to New Orleans. Some years ago People's Tobacco Company was or- ganized. It became a union labor factory; its owner and managers became conspicuous in union labor meetings and promoted denunciations of trusts and combines to the end that their own brands of cigarettes, bearing the union label, might thrive among members of labor unions. And so its business did thrive, not upon the peculiar merits of the goods, or by the slow processes by which a brand usually becomes a large seller, but by leaps and bounds, and because of the union labor sentiment, and the prejudice created against the goods of The American Tobacco Company by the denunciation indulged in and propagated by the owners of the People's Tobacco Company (b). An opportunity came to The American Tobacco Company to invest (a) Eecord, Vol. II, p. 677; Vol. IV, pp. 6, 395. (b) Eecord, Vol. H, pp. 083, 644-647. 123 in a business to be organized and conducted by one Augustus Craft. Unquestionably the purpose of The American Tobacco Company in making this investment was to get for a company in which it was interested part of the profits of the business that had been taken from it by denunciation and prejudice (a). Another illustration of these secretly conducted companies — and this illustrates all the cases except those falling under the foregoing illustration where secrecy has been maintained or sought as to owner- ship of an interest in a manufacturing concern — is had in the cases of the E. A. Patterson Tobacco Company and the Standard Snuff Company, both of which had well established businesses with their own avenues for distribution well fixed, their own salesmen working with zeal and an esprit du corps under their own managers. As well expressed in a letter of Mr. M. C. Patterson, the head of the Pat- terson business (b) and in the testimony of Mr. Condon, President of American Snuff Company (c), it was desirable, in order to maintain these fixed channels and the esprit de corps of the employees that the ownership by the larger company should not be publicly known or discussed. After all is said, though, this maintenance of secrecy was negative rather than affirmative. It involved carefully planned methods of preventing the relationships becoming known, such as having mail directed to some address other than the well known address of The American Tobacco Company, and in names other than the well known names of the vice-presidents of the company; it involved the use of paper and envelopes that had no printed heading, and sometimes of letters upon which did not appear the name of either the person ad- dressed or the person writing the letter. If it be once conceded that the maintenance of (a) Record, Vol. II, pp. 683, 647. (b) Record, Vol. H, pp. 585-586. (c) Record, Vol. IV, p. 505. 124 Becrecy— the failure to publicly announce an ac- quired ownership — is not to be condemned, it is hard to see the ground for condemning these methods of maintaining the secrecy. But one looks in vain through all the mass of testimony turned over to counsel for the Government by defendants for a suggestion that falsification should be indulged in. Mr. Duke testifies that he never thought of telling a falsehood about any of it to anybody (a), and on a visit of the President of the Tobacco Workers' Union, long before the institution of this suit, he told him frankly the companies in which The American Tobacco Company held stock, and the union label was not taken from them (b). Mr. Moore, one of the parties that sold the Nashville Tobacco Works to The American Tobacco Company, testifies that Mr. Dula told him that he was not asked to tell any untruth (c). Mr. Hill writes to the manager of the Wells- Whitehead Tobacco Co. to make no statement that is untrue (d). Mr. Hill writes to Mr. Pinkerton, manager of the Pinkerton Tobacco Company, to make no untruthful statement to the officers of the Tobacco Workers' Union who are to confer with him (e). Mr. Carter, of the Wells- Whitehead Tobacco Company, makes a truth- ful statement to the president of the International Tobacco Workers' Union, and is told by him that the ownership of stock by The American Tobacco Company in his concern does not effect his right to use the union label (f). These secretly owned corporations were an ex- periment on the part of The American Tobacco Company and their effect and operations were prop- erly closely watched by its officers. Vice-President Hill had particular charge of the selling of smoking (a) Eecord, Vol. IV, p. 400. (b) Eecord, Vol. IV, p. 138. (c) Eecord, Vol. IV, p. 183. (d) Eecord, Vol. II, pp. 290, 296. (e) Eecord, Vol. IV, pp. 48, 680. (f) Eecord, Vol. H, p. 382; Vol. IV, pp. 593-594. 125 products and Vice-President Dula had particular charge of the selling of plug products. They had voluminous correspondence with the managers of these corporations. The Government in the prepara- tion and presentation of its case has had access to the whole volume of this correspondence— all letters received by these gentlemen and letter books con- taining copies of letters written by them. No sug- gestion is made that there has been destroyed or lost a single letter, even those that never entered the company's files but were kept among the private correspondence of these gentlemen respectively (a). Out of several thousand of these personal and intimate letters between men engaged in marketing tobacco, the Government has introduced as many letters as it saw fit, that, under the most unfavorable circum- stances, could in its judgment contribute to the Government's contention that there has been an effort through these secretly owned companies to harass or impede the progress of competing tobacco manufacturers or take from them a part of their business. It would be denying human nature to pretend that the Vice-Presidents of the American Tobacco Company would not prefer that the growth of one of the brands manufactured by one of these subordinate companies should operate to diminish the business of some competitor rather than that it should operate to diminish the business of one of The American Tobacco Company's own brands, and these letters fur- nish abundant evidence that they from time to time had attempted to urge the competitive and agres- sive measures of these companies into sections where competitors of The American Tobacco Com- pany had the bulk of the business or an evidently growing business. Besides this though, sections in which the public has shown a fondness for goods bearing the union label constituted evidently better places for those companies which used a union label to go than places where no such fondness had been (a) Becord, Vol. H, pp. 360-2, 684-5. 126 shown, and so advice to these secretly owned com- panies to go into such fields was actuated by a desire to benefit these companies, and only incidentally if at all injure competitors (a). All of these letters are to be read in the light of a fair knowledge of human nature and with the realization that the men who wrote them were, whatever their official posi- tion, tobacco salesmen, intimate with the methods of selling tobacco, speaking the language of that business, and knowing personally and intimately the persons to whom they were written. Light is thrown on these letters and the spirit in which they were written and the meaning which is to be given them by consideration of the fact, and it is a fact, that more than half of the suggestions made by officers of The American Tobacco Company to their managers were not adopted (b). Rightly read there is no letter that contradicts the allegation of the Answer that with respect to all these companies, The American Tobacco Company, " while always ' ' willing to give such organization the benefit of its " knowledge of the trade, has left such organization " to work out its own salvation aided by informa- " tion and advice from The American Tobacco " Company's organization, but never controlled or " compelled by such organization" (c). A case of the maintenance of the secrecy of rela- tions which perhaps does not have its logical place here, ought, nevertheless, somewhere to be men- tioned: The American Tobacco Company became interested, by the indirect ownership of a part of their stock, in the United Cigar Stores Company, a concern selling tobacco and cigars at retail, and in M. Blaskower & Company of San Francisco, a small con- cern selling tobacco and cigars at retail. Some of the officers of The American Tobacco Company were (a) Record, Vol. n, pp. 388-389, 691. (b) Eecord, Vol. H, pp. 686-689. (c) Eecord, Vol. 11, p. 690 ; Answer, The American Tobacco Co., Eecord, Vol. I, p. 260. 127 desirous of keeping secret such interests because of the easily understood apprehension that the knowl- edge by other dealers that it, a manufacturer, was interested in the business, certain dealers would arouse hostility on the part of such other dealers. It appears that The American Tobacco Company, in order to enable the fact of such interest to be denied with technical correctness, had the stock of these companies put into the ownership of some subord- inatecompany. No attempt is here made to conceal or mollify the fact that in a letter that Vice-President Hill wrote to Mr. Estabrook, a tobacco dealer in Bos- ton, it was intended by him to deceive Mr. Estabrook as to the actual conditions (a). There was no techni- cal falsehood because the legal ownership of an inter- est in the United Cigar Stores Company was not in The American Tobacco Company. Any attempt to evade or refuse to answer Mr. Estabrook's question would have been a virtual statement that The Amer- ican Tobacco Company did have such ownership. Without intending to set a low standard of business morality, it is intended to say that when applied to lawyers who have confidential business for clients, brokers who have confidential accounts for their customers, manufacturing concerns who have rela- tions with dealers, which relations, if they were disclosed, would operate to the injury of such dealers or to the injury of the manufacturers themselves, the rule that morality requires them to answer impertinent questions by the actual or virtual disregard of these duties and interests, is ridiculous and does not obtain. Another of the allegations of the petition affecting methods of competition Ts tha t the defendan ts have closed t he av enues o f distribu tion] Evidence was t3^keE~loy the Government as to the ownership by certain of the defendants of certain other of the defendants engaged in merchandising tobacco; of certain action taken by The American Tobacco Com- (a) Record, Vol. II, p. 232. 12s pany in New England and in Philadelphia which operated to induce some jobbers to decline to handle the goods _of competing concerns; that the Ameri- can Tobacco Company has given special com- missions to certain merchants that Jjought from it. TEe~theory~^his kind of testimony must have been intended to sustain is that the dominance of the defendants in the general tobacco business, united as these defendants are by inter- ownership of stock, prevents the manufacturer of tobacco, or of the products of tobacco, not in some way connected with the defendants, from securing a distribution of his goods. Let us first consider the so-called NewEngland and Philadelphia deal. It was an 'offerby The AmericanTobacco Company made to the jobbers of New England and Philadelphia that if they would confine their sales to the products of The American Tobacco Company (it had no application to cigars or snuff, and it did have application against companies such as R. A. Patterson Tobacco Company and others owned by The American Tobacco Company, but conducted by separate management) they would receive a special commission of si x per cent, on their sales. This proposition was only a part of a general proposition made to these jobbers, the whole being that they should buy the goods at a list price with a two per cent, commission if they maintained such list price, and this six per cent, additional for such exclusive handling, giving to those who accepted the whole proposition an eight per cent, profit (a). The jobber who did not desire to accept the propo- sition so far as it referred to exclusive handling could still buy the goods and make a two per cent, profit, because his more favored competitor who re- ceived a six per cent, profit was prevented from cutting the price. In the first place this method was definitely and permanently abandoned in No- vember, 1904 (b), nearly three years before the in- (a) Eecord, Vol. II, p. 716. (b) Eecord, Vol. H, p. 716; Vol. IV, pp. 327, 425-427. 129 stitution of this litigation, and it is hard to see how- it can be made the basis of any injunction, even if it were deemed illegal. In the second place, it is abundantly proven by officers of The American Tobacco Company and jobbers, that this plan was not originated by The American Tobacco Company at all, but was sought by certain of the jobbers in order to enable them to make a profit upon the products of The American Tobacco Company that that they sold (a). These jobbers had large busi- nesses on brands of tobacco manufactured by The American Tobacco Company, which were popu- lar with their customers, and, in efforts to get business, prices on these popular brands were re- duced first by one and then by the other until they were generally sold at practically cost. The Ameri- can Tobacco Company was unwilling to put on a plan that would prevent the "cutting of prices" on its brands and leave jobbers free to " cut prices" on like brands of its competitors, because such plan might make the goods of com- petitors too popular with retailers, who would thus get them cheaper. In this condition certain jobbers asked that a fixed selling price be estab- lished by The American Tobacco Company, and stated that they would refrain from selling its competitor's goods. Upon these requests The Amer- ican Tobacco Company tried'the plan, not expect- ing to monopolize the trade, but expecting that a"proportion of the jobbers would accept their proposition and make a profit on their goods and refrain from selling the goods of their com- petitors, whereas another proportion of the jobbers would not accept the proposition, but would devote their energies to selling the goods of its competitors (b). They knew that without re- spect to the effect of this proposition on exist- ing jobbers, such plan would not give monop- oly because tobacco jobbers are not a privileged (a) Eecord, Vol, IV, pp. 425, 597, 705. (b) Eecord, Vol. IV, pp. 598, 706. 130 class, created by patent — the jobber handling tobacco to-day may refrain from handling it to- morrow, and the jobber not handling it to-day may begin handling it to-morrow; the retailer of to- bacco to-day is the jobber and retailer of to- morrow; the only thing necessary to constitute one a tobacco jobber is a desire to enter into the business and a small capital, or some means of inducing manufacturers to give him a reasonable credit. It was simply a plan of distributing goods, asked for b y ceitain jobbers, and therefore adopted by The American Tobacco Company, tried for a Jew months and in November, 190i, definitely and per- manently abandoned as not being to the interest of The American Tobacco Company in securing a distribution of its goods. Further, it is said that the avenues of distribu- tion are closed because jobbers receive special com- missions from some of the defendants, and therefore are unwilling to handle competing goods. It ap- pears that the smoking tobacco department of The American Tobacco Company sells to about five thousand jobbei's, and of these five thousand jobbers it pays a special commission to two hun- dred and fifty-three (a); that the purpose of this pay- ment is to stimulate the efforts of these jobbers in the distribution of these products of The American Tobacco Company; that the jobber can be of aid to a manufacturer, especially in giving a quick dis- tribution to new brands put out by such manufac- turer; that the jobber cannot really retard the busi- ness of a brand which the manufacturer adopts proper means to popularize, because if the consu- mer calls for a given brand of tobacco from the retailer the retailer will desire to put it in stock, and if he desires to put it in stock, the jobber with whom he usually deals must fill his orders or some other jobber will; that there exists no I'eason why competing manufacturers should not pay the same kind of special commission to such jobbers as they (a) Eeoord, Vol. 11, p. 364. 131 see fit, even those to whom The American Tobacco Company pays a special commission, because these jobbers owe no duty to The American Tobacco Com- pany not to receive the same sort of special com- missions for the same sort of service from inde- pendent competing manufacturers; and it abun- dantly appears that they do so pay these commis- sions to some of these identical jobbers (a). Besides the testimony of officers of The American Tobacco Company themselves there is a striking array of testimony that the avenues of distribution for tobacco and its products are not closed. Adolph D. Bendheim, president of the Metropolitan To- bacco Company of New York City, introduced by the (Jovernment, says: That his company is the sole customer of The American Tobacco Company in New York City, and receives a five per cent, special commission from the American Tobacco Company; that it handles the tobacco and cigar- ettes of a large number of independent concerns and makes no reports to The American Tobacco Com- pany as to such sale by his company of the goods of independent manufacturers, and does not ask The American Tobacco Company when or whether he shall begin the sale of a given independent brand; that it receives special commissions from independ- ent manufacturers (b). Henry N. Stone, a witness for the Government, salesman for R. P. Richardson, Jr., & Co,, Inc., says that in the southwest where the tobacco of his present employer sells he has no difficulty in getting it handled by all the jobbers that he desires (c). Addison Fowler, a witness for the Government and salesman for the United States Tobacco Company, says that since the fall of 1904, when the New England and Philadelphia deal here- tofore mentioned was discontinued, there has been no diiliculty in securing the distribution of the products of his company through all the jobbers (a) Kecord, Vol. II, p, 365. (b) Beoord, Vol. in, p. 269 et seq. (0) Eecord, Vol. HI, p. 676. 132 through whom they desire to distribute such pro- ducts from the Atlantic to the Pacific Coast (a). Frank C. Letts, a witness for the defendants, at the head of a chain of wholesale grocery stores in the north and middle west, with an aggregate annual business of sixteen million dollars, says he has gotten a commission of three per cent, from the smoking department of The American Tobacco Company, but that it was not on condition that he should not handle competing tobaccos, that all of his stores, in fact, handle competing tobaccos in substantial quan- tities and that never, directly or indirectly, has he been asked or requested by any officer or employee of The American Tobacco Company to refrain from handhng such competing brands, or to retard the distribution of competing brands, or to report on the brands so distributed either as to name or amounts. He makes a significant statement that has a bearing upon the assumed fear of The American Tobacco Company under which jobbers who receive its special commission are alleged to operate — he knows that The American Tobacco Company is largely interested in American Cigar Company, and yet he handles a small number of the cigars of American Cigar Company compared with the cigars he handles of independent manufacturers (b). W. H. McCord is at the head of a chain of wholesale grocery stores operating through the middle and southwest, which have an annual business of some $12,000,000, and he, too, receives a special commission from the smoking department of The American Tobacco Company, but not upon condition that he shall not handle competing goods, and he does, in fact, handle them, and makes no report to The American To- bacco Company with respect to them — his concern buys no cigars at all from American Cigar Com- pany, but devotes its entire energy in the cigar line to the goods manufactured by the independent con- cerns (c). Nathan Eckstein, at the head of the (a) Eecord, Vol. IV, p. 327. (b) Eecord, Vol. IV, p. 461. (c) Eecord, Vol. IV, p. 470 tt seq. 133 largest house on the Pacific Coast, testifies to sub- stantially the same state of facts (a); as do also Harold P. Brewster, the owner of a large tobacco and cigar house in Rochester, New York (b); A. M. Wil- son, one of the large New England jobbers at Hart- ford, Conn, (c); T. E. Savage, Bangor, Maine(d), both of which two last mentioned jobbers testify in detail, and in complete corroboration of officers of The American Tobacco Company, that the New England and Philadelphia deal was put on at the instance of jobbers, and that it was never thought it would have, and never had, the effect of giving to The American Tobacco Company any monopoly of the local business. Joseph Purst, one of the lead- ing jobbers of Charleston, S. C. (e); T. C. Jen- kins, one of the leading jobbers of Pittsburg, Pa. (f); Herbert Deiches, a leading tobacco and cigar jobber of Baltimore, Md. (g); H. I. Johnson, of Johnson & Murray, a leading jobber of Utica, New York (h); Marshall Sheppey, head of the leading house of Berdan & Company, of Toledo, Ohio (i); Gilbert W. Lee, of the leading house of Lee, Cady & Smart, of Detroit, Michigan (j) all testi- fied, and their testimony is to the same general effect — that the jobber can be of aid to the manu- facturer in furthering the distribution of his goods, that that aid consists of having the drummers call specially to the attention of the retail trade which he visits particular brands of goods— particularly new and unknown brands — and to attempt to in- duce such retail trade to put them in; that after all, though, the success of particular brands of tobacco (a) Eeoord, Vol. IV, p. 526 et seq. (b) Record, Vol. IV, p. 5i2 et seq. (o) Eecord, Vol. IV, p. 596 et seq. (d) Record, Vol. IV, p. 705 et seq. (e) Record, Vol. IV, p. 634 et seq. (f) Record, Vol. IV, p. 605 et seq. (g) Record, Vol. IV, p. 559 et seq. (h) Record, Vol. IV, p. 699e< seq. (i) Record, Vol. .IV, p. 626 et seq. (j) Eecord, Vol. IV, p. 614 et seq. 134 must be achieved by the manufacturer by the crea- tion of a consumers' demand; that when this con- sumers' demand is created the retailer is certain to want the goods, and if the retailer wants the goods he can certainly obtain them; that the giving of special commissions by manufacturers to distribu- tors to stimulate their efforts is usual, both by tobacco manufacturers other than The American Tobacco Company, and manufacturers of articles other than tobacco, or its products, and has always been; that none of the defendants have directly or indirectly required, or asked them not to handle competing goods or sought to regulate them in their handling of such goods; that they each and all do handle competing goods to the extent that their customers desire. The testimony of these jobbers is not very long, but it is vastly important, showing as it does the method of distributing tobacco and the fact that the avenues for the distribution have not been closed and cannot be closed. Finally, S. S. Bjoch (a), the leading independent^ scrap manufacturer of the United States, and Fred C. Peper, the leading independent plug" manufac- turer of the United States (b), and both rnembers ot_ the firm of Schinasi Brothers, the leading independ- ent Turkish cigarette manufacturers in the United States (c), none of whose plants any of these defend- ants has ever attempted to buy (d), testify that in the marketing of their products they have found . , no channels of trade closed; that they have no ;' difficulty in securing jobbers or retailers to handle their goods; that their business has grown and prospered; and that they have been built up, first, by their own efforts as manufacturers to make popular their brands with consumers, after which they had found the avenues to the con- (a) Becord, Vol. IV, p. 550 et seq. (b) Eecord, Vol. IV, p. 644 et seq. (c) Record, Vol. IV, pp. 659, 664 et seq. (d) Record, Vol. IV, pp. 555, 645, 660. 135 sumer through the jobber and retail merchant open and unobstructed. This presents a remarkable aspect of this litigation with reference to the charge that the avenues of distribution have been closed, and that the conduct of the defendants, otherwise, has prevented or embarrassed the business of com- petitors. The charge of the petition is that the de- fendants have driven out opponents, deferred others from entering, and now unreasonably hinder, restrain and baonopolize interstate and foreign trade and commerce in leaf tobacco and articles fabricated therefrom or necessary therein; that they have al- ready driven out most opponents and have obtained such power in combination that the few established competitors must conduct their business in the well- grounded fear of swift destruction whenever de- j fendants may decide to eliminate them; and that / the mere withholding or withdrawal of their numer- ous brands from any tobacco dealer, jobber or retailer would probably render his success impossible. In " proof of all of this the Government introduces not a smgle independent tobacco manufacturer, but only four traveling salesmen, each of whom, as has been already noted, testifies that the business of his em- ployer is growing, that the avenues of trade are not closed, a,nd that no diflSculty is had in the distribu^ tion of his goods. The only independent manufac- turers, responsible owners of factories, are intro- duced by defendants, and they testify to a growing and not a declining business, to an absolutely open condition and not closed avenues of trade, and to methods of competition only such as are as old as^ the tobacco business itself. This is in addition to the testimony of ofiScers of The American Tobacco Company culminating in the impressive testimony of Mr. Duke, the president of the American Tobacco Company, that there exists no condition to-day that makes the entry into, and success in, the tobacco business more difficult than when he entered into it and started his successful career; that in opposi- 136 tion to The American Tobacco Company he could_ succeed to-day as well as ever (a). Not only have the established tobacco manufac- turers that have been well conducted been successful, but new tobacco manufacturers, like Scotten -Dillon Tobacco Company (b) and United States Tobacco Company (c), in plug and smoking tobacco; Ware- Kramer Co. (d), in domestic cigarettes; Butler-Butler, Inc. (e) and hosts of others in Turkish cigarettes (f), have started in the very height of the success of The Americau Tobacco Company, and have estab- lished businesses of large, and sometimes immense, volume and profit (g). It is a fact, too, as shown by the reports of the Commissioner of Internal Revenue, which under the stipulation may be con- sidered by the Court just as if introduced into evi- dence (h), that there were in 1890, the year ofthe formation of The American Tobacco Compa ny, 1,021 tobacco factories in the United States, and in the year 1906, 3,065 tobacco fa,ctories in the United States, and that the cigar and cigarette factories, have increased in the same period from 23,119^ ijQ_ 1890 to 26,348 in 1906. " Not only are competing tobacco,, cigar, cigarette and snaff manufacturers in no danger of being crushed by the success of the defendants, but the public, consumers of these articles, are in no danger of not securing goods of other manufacturers, if they desire such goods, or of having their pricesjor tobacco made unreasonable or burdensome. In^ practically every one of the six hundred thousand retail stores in which tobacco and its products are (a) Record, Vol. IV, p. 445. (b) Becord, Vol. H, p. 366; Vol. TV, pp. 448, 449, 616- (c) Becord, Vol. JV, p. 327; Vol. H, pp. 370, 371- (d) Eecord, Vol. HI, pp. 456, 457. (e) Eecord, Vol. in, pp. 409, 575. (f) Eecord, Vol. ni, pp. 578-580; Vol. IV, pp, 669, 670- (g) Becord, Vol. H, pp. 366, 719; Vol. IV, p. 449. (h) Becord, Vol. II, p. 5. 137 dealt in, there are competing brands of! all brands made by- any -^ the defendants (a); "The Govern- menrpun)n the stand a prominent New York jobber who does not handle the goods of defend- ants, one Hillman (the only jobber except the President of Metropolitan Tobacco Company whom the Government introduced), he testifies that he is a large jobber, that he has facilities for reaching the retailers and does reach them, and that he can get from manufacturers having no connec- tion with the defendants goods of a similar kind and quality to each class of goods manufactured by de- fendants and at a price not exorbitant (b). So far as price of tobacco and itsproducts is concerned, the ability'orthe' public to take care of itself is equally assured. Many extracts from the testimony might be made to show tTiis: "Lorillard, one time away back fifteen or twenty years ago, had a piece of tobacco that he called Five Cent Ante; it had an immense sale and was growing right along. The price of leaf tobacco got up and they couldn't make any money on it, and they changed it to Six Cent Ante, and the trade dropped right down on them. Q. That is because there was no six-cent coin? A. No; and the people feel they are being imposed on. You have got to satisfy the public. We don't want anybody to regulate us except the public; they are doing it all the time " (c). " Q. Can the consumer get, manufactured by the American Tobacco Company and manufactured by its competitors as well, dif- ferent amounts of tobacco cigarettes for the same price? If so, just illustrate how it is. " A. Well, they can buy a one-ounce pack- age of tobacco for five cents; they can buy a one and two-thirds ounce package for five cents, and two ounces for five cents, and a two and a half ounce package of tobacco for (a) Eecord, Vol. IV, p. 438; Vol. II, p. 718. (b) Eecord, Vol. HI, p. 497. (c) Eecord, Vol. IV, pp. 440-441. 138 five cents. And an eight-ounce package of to- bacco for 10 cents and a pound package of tobacco for twenty cents. "Q. How about cigarettes? "A. Cigarettes, they go by 20 for five cents, ten for five cents, ten for ten cents, ten for fifteen cents. 10 for 25 cents, and some prices are a httle higher. " Q. And these different brands are all to- bacco and usable? "A. Yes, sir. " Q. And kept in the same store? "A. Yes, sir "(a). Reference will be made here very briefly to the connection between The American Tobacco Com- pany and the Unite4„Cigar ^tp.res Company. The United Cigar Stores Company is a defendant herein and has its own counsel and will file its own brief and argument. It may be said, however, upon the testimony of officers of the American Tobacco Com- pany and United Cigar Stores Company, and uncon- tradicted, that the formation of United Cigar Stores Company was not a plan or scheme of The Ameri- can Tobacco Company, and that, so far from aiding therein, it, so far as it properly could, discouraged such organization (b); that the United Cigar Stores Company operates and was formed to op- erate retail stores, and if it engages in interstate commerce at all, such interstate commerce is the most insignificant part of its business — every sale conducted by it is over one of its own counters and is an intra-state sale; that it handles the goods that are called for by its trade, whether they be the goods manufactured by The American Tobacco Company or some one or other of the defendants or one of their competitors; that it is run in the inter- est of the stockholders of United Cigar Stores Com- pany, and its policy is not controlled by the Ameri- can Tobacco Company or any other of the defend- ants (c). (a) Eecord, Vol. 11, p. 413. (b) Eecord, Vol. IV, pp. 414, 415. (c) Becord, Vol. ni, p. 116 et seq. 139 These defendants contend that the business of manufacturing and selling tobacco and its products is not a business to be considered under the ordi- nary rules of monopolization or restraint of trade, beca;use it is a business of brand against brand, and that the public is not affected and there will be no l^sehing of competition nor restraint of trade, however so many of these particular brands fall into the hands of a common owner. The Gov- ernment seems to take the opposite position, for a part of the charge it makes is the ownership of The American Tobacco Company for instance of stock in companies manufacturing and selling snuff and cigars; this charge is conceivable as a charge only on the assumption that the business of manufacturing and selling snuff and cigars is a part of the same business as manufacturing and selling tobacco and cigarettes, for surely there is no prohi- bition-under the Sherman Law, or otherwise, of a common ownership or control of non competing businesses. Take the position of the Government that the business of manufacturing and selling the products of tobacco is one business, and the defendants have not, in the aggregate, anything approaching a ma- jority, much less a monopoly of it. Measured in the prices consumers pay for the articles, tobacco and snuff sold in this country is worth, on the aver- age, not exceeding forty-five cents a pound (a), the average cost to the consumer of cigarettes and little cigars is six-tenths of a cent each (b); the average cost of cigars is five cents a piece (c). Applying these figures of value to the Government's exhibits showing the production in 1906 of all the products of tobacco manufactured in the United States, and showing separately all those manufactured by any and all of the defendants, or any individual or per- (a) Eecord, Vol. II, p. 412; Vol. n, p. 726. (b) Eecord, Vol. II, p. 413. (c) Eecord, Vol. ni, p. 685. 140 son directly or indirectly connected with any of the defendants, we have the following result (a): 1906. Total Output in the United States. Cigars 7, 147,548,312 ayerage 5c. apiece . . . $357,377,415 Cigarettes 4,511,997,137 Smoking 175,664,091 Plug and Twist 176,749,800 Little Cigars .. 989,751,253 Srniflf 23,566,731 Fine Cut 12,742,345 60o. 300 27,071,982 45c. lb 79,048,840 « 79,537,410 60c. 100 5,938,507 45c. lb 10,605,028 « 5,734,055 Total ^ •■ ■ .$565,313.237 Output of Defendants in the aggregate, etc. Cigars 1,051,558,221 average 5c. apiece... $52,577,911 Cigarettes 3,354,797,800 " 60c. 100 20,128,786 Smoking 123,026,237 " 45c. lb 55,361,806 " 64,758,090 Plug and Twist 143,906,868 little Cigars.. 804,425,670 Snuff. 22,575,826 Fine Cut 10,321,285 " " 4,644,578 Total $212,466,846 little Cigars. . 804,425,670 " 60c. 100 4,826,553 Snuff. 22,575,826 " 45o. lb 10,159,121 On the above basis all the defendants in the ag- gregate have 37-3/5 per cent, of the total output. Now, if mere bigness is to be condemned, as seems to be the theory of the Government, these defendants, even considered as operating under a single man or with a joint organization, are not to be condemned, for they have substantially less than fifty (50) per cent, of the business, whereas fifty (50) per cent., has been the line between the "good trusts" and the "bad trusts" suggested by even some extreme publicists. (d.) Covenants not to re-engage in business. When the American Tobacco Company was formed none of the five vendor corporations nor their owners entered into any covenants not to re- (a) Record, Vol. V, Ex. Nos. 77-86. 141 engage in the business of manufacturing or dealing in tobacco (a). Thereafter The American Tobacco Company and the other defendants have usually, but not always, taken covenants from the respective vendors to them (vs^hether partners in a partnership vendor, or principal stockholders in a corporation vendor) not thereafter for a specified number of years to engage in the business of manufacturing or dealing in tobacco in any form in any of the States or Territories of the United States (with the exception of one or two States or Territories). These covenants have run for various terms from one year to fifteen years (b). The question involved with respect to these cove- nants is "whether they were taken in good faith to protect the good-will bought, or whether they were intended as contracts in restraint of trade and to have the effect of securing to the vendee corporation a monopoly. The defendants would call attention to the following facts: First: Without citing particular pages, the Record is full of testi- mony that the good-will of a tobacco business is co- extensive with the country — in every section every type of tobacco is sold to some extent. The Ameri- can Tobacco Company and other manufacturers are constantly trying to push new types in new sec- tions. Tobacco made in Virginia is popular even in New England; brands made in North Carolina are the largest sellers even on the Pacific Coast; brands made in St. Louis and Louisville have their popu- larity all over the country. So these covenants are reasonable and not unreasonable in their extent of territory. Second, in various lines of the tobacco business the name of the original maker becomes part of the trade-mark, and conspicuous on the labels and in the mind of the trade, and it would be evidently to the disadvantage and a depreciation of such brand and label, if a concern or its members that had sold (a) Record, Vol. IV, p. 339. (b) See admissions made by defendant, Record, Vol. V, p. 1 et seq. 142 their good-will were permitted to go immediately into business again ; Spaulding & Merrick's tobacco, Blackwell's Durham tobacco, Duke's cigarettes (a), Garrett's snuff, Stewart Ralph's snuff (b) are only a few of the illustrations that appear iu the Record of this fact. Third: The defendants, the vendee cor- porations, have'taken covenants only from owners ~ of the business and not from the people famihar with manufacturing the goods, their employees, nor even from its own employees, as it would have done if it had sought a monopoly of the tobacco busi- ness, by disabling every competent and experienced man from engaging in the business. The following from the testimony of James B. Duke, President of The American Tobacco Company, enforces this fact: "Q. Has it been the policy of The Ameri- can Tobacco Co. to require from its super- intendents or foremen covenants not to en- gage in business for competing manufac- turers? A. No, sir. Q. Has the American Tobacco Co. or any other of these companies done that at all? A. I don't recall ever hearing of a case. We only require them when we buy a man's trade mark and his good-will and pay him for it. Any of them that we have bought that want to be released, if they will come and pay us back the part we have applied to the good-will part, we will release them and let them go ahead again. Q. When you have bought factories has it been the policy of the American Tobacco Co., or any of the companies in which it holds stock, to require covenants not to re-engage in business from the practical manufacturers, or from the man identified in the public mind with the business? A. Not unless they were stockholders. Q. Has it been the stockholders or owners of the business and those identified in the public mind with the business? (a) Eecord, Vol. IV, p. 393. (b) Eecord, Vol. II, p. 444. 143 A. Yes, sir. Q. And to whom the purchase price was paid? ^ A. Yes. Q. There are scattered all over the country are there not, former employees of manufac- turers that you have bought out; former em- ployees of the American Tobacco Co. itself who are familiar with the methods of manu- facturing tobacco? A. Some of the former employees who were not bound up when we bought the concern out, knew more about manufacturing tobacco than the man that owned the business and sold it. Q. And you knew that when you bought, didn't you? A. Yes. Q. And you did not require the covenant from the practical manufacturer but from the man who owned the business and was identi- fied with it in the public mind? A. Yes; he sold his good-will and we re- quired him to sign a contract not to re-enter the business more as a matter of form than anything else. Q. But there are also men scattered through- out the country, former employees of the American Tobacco Co. or former employees of manufacturers that you have bought out, who are thoroughly familiar with the methods of manufacturing tobacco, are they not? A. Yes, sir; plenty of them. Q. And in some cases you have found that the men from whom you did not take the covenants are quite as familiar with the marketing of the tobacco as the men from whom you did? A. Yes; there are plenty of people in the United States that are familiar with the marketing of tobacco, in our employ and out of it, that anybody can get if they want them now. Q. And so with the manufacturers? A. Yes "(a). Fourth: The American Tobacco Company and its predecessors have had frequent illustrations of the (a) Record, Vol. IV, pp. 4A5, 4ia 144 attempt by vendors to make capital out of the good- will theretofore conveyed, and so has been warned of the practical advantage of such covenants. One case was that of the United States Tobacco Com- pany, a company organized by the same men who had formerly been with the J. Wright Company, which in 1899 sold its business to Continental Tobacco Company; these men within less than a year organized the United States Tobacco Company, and put out in the trade circulars announcing that its president was formerly with the J. Wright Com- pany, and that its secretary was formerly with the J. Wright Company; that "Central Union Cut Plug," manufactured by the United States Tobacco Company, was "exactly the same as the trust ' Winner ' used to be " (" Winner " was a brand sold by J. Wright Co. to Continental Tobacco Company); that " Pride of the East," manufactured by the United States Tobacco Company, "is exactly the same as the ' Pride of Virginia' used to be" (" Pride of Virginia " was formerly manufactured by the J. Wright Company, and sold to Continental Tobacco Company); that " U. S. Plug," manufactured by the United States Tobacco Company, is exactly the same as "Master Workman," used to be ("Master Workman " was originally made by J. Wright Company, and sold to Continental Tobacco Com- pany) (a). Another illustration was afforded by the Wetmore Tobacco Company. The manu- facturing business of Liggett & Myers Tobacco Com- pany had been sold to Continental Tobacco Com- pany. In less than a year there was organized the M. C. Wetmore Tobacco Company, whose president was M. C. Wetmore, who had been president and in active charge of the sales of Liggett & Myers To- bacco Company. The Wetmore Tobacco Company advertised that it was operated by the president of the former Liggett & Myers Tobacco Company; that it had many of the former operatives of the Liggett & Myers Tobacco Company, and had the (a) Record, Vol. II, p. 705-6. 145 formula under which "Star" tobacco (the principal brand of Liggett & Myers Tobacco Company) had been manufactured, and that its goods were exact duplicates of that popular brand (a). Still an- other illustration is furnished by Scotten- Dillon Tobacco Company, one of the present largest manu- facturers of tobacco in the country. In 1899 the Daniel Scotten Company, of Detroit, Michigan, was sold to Continental Tobacco Company by one Oren Scotten, who for a while became a vice-president of Continental Tobacco Company. He entered into a covenant not to re-engage in business for a short time. When his covenant expired Continental To- bacco Company had seen fit, for purposes of econ- omy, to shut down the factory in Detroit; he applied to purchase it, and, as was known by Continental Tobacco Company, intended to use it as a tobacco factory. Continental Tobacco Company, neverthe- less, sold it to him (b). In September, 1900, he had organized a corporation named Scotten-Dillon Tobacco Company, and announced to the trade that this concern would shortly " resume business at the old stand, prepared to manufacture a full line of tobaccos; dealers and consumers throughout the United States are acquainted with the quality of the goods manufactured for upwards of twenty years by Daniel Scotten Company, and, as nearly the entire force of employees of former years will be with us, our constant aim will be to place upon the market a superior line of goods " (c). (a) Record, Vol. IV. pp. 446, 447. (b) Eeoord, Vol. IV, p. 448. (c) Becord, Vol. U, p. 708. 146 POINT I. It is immaterial in this litig-ation ■whetlier the common la"vr as it pre- vailed in the United States before the passag'e of the Sherman Anti-Trust law^ -would or -would not condemn the acts of these defendants, as it is also immaterial what the "Wilson Tariff Bill (Chap. 349 of Statutes of 1894) provides; In the court below it was argued by the Govern- ment that the several companies aimed at in the Petition are combinations in restraint of trade at common law, and that all of them which are en- gaged in importing articles which are intended for use in this country are amenable to the pro- visions of Chapter 349, Statutes of 1894, known as the Wilson Tariff Bill. It is not apparent how these contentions can have any other than academic interest. The pas- sage of the Sherman Anti-Trust Law seemed to indicate that in the opinion of Congress the com- mon law relating to contracts and combinations in restraint of interstate and foreign trade could not with certainty and convenience be invoked. If the Government cannot sustain itself on the def- inite and firm ground of the Congressional enact- ment, it cannot hope to have a better footing on the indefinite and uncertain common law. What- ever differences of opinion may have been ex- pressed by courts as to whether the statute is broader than the common law or not (for in- stance, whether it forbids only unreasonaMe con- tracts in restraint of trade, or reasonable con- tracts in restraint of trade as well) no suggestion has been made by any court that after the pas- 147 sage of the statute there remained any common law to be enforced by a suit in equity brought by, or at the instance of, the G-overnment, applicable to restraints of trade or attempts to monopolize. It is equally difficult to see that the contentions of the Government receive additional force from the statute known as the Wilson Tariff Act. The purpose of the provisions of the Wilson Tariff Act relied on was evidently to extend the Sherman Anti-Trust Law to the conduct of importers from foreign countries. The language used could mean no more than the more comprehensive language of the Sherman Law. Indeed, if it means more, it is beyond the power of Congress. Tbis is a case broug*!!! under tbe Sherman Anti-Trust La-w (Act of June 2nd, 1890)— Brief statement of its terms. In an appendix to this brief the Sherman Anti-Trust Law is printed in full, in order that its very words may be easily referred to by one reading this brief. It may be necessary to refer to every one of its provisions and look attentively at every one of itsi phrases, and even words ; but after all the things it declares illegal and forbids, and the effect to be given it in this litigation, require only a line or two to state : It declares illegal every contract, combination or conspiracy, in restraint of trade or commerce among the several states or with foreign nations; it makes guilty of a misde- meanor every person who monopolizes or attempts to monopolize or combines or conspires with an- other person to monopolize any part of the trade or commerce among the several States or with foreign nations ; and it vests the United States Cir- cuit Courts with jurisdiction in equity to prevent and restrain violations of the Act. The other pro- 148 visions of the Act bear no part in this litigation, except as a consideration of such other provisions, with their phraseology, may throw light on the meaning of the words that are material. POINT II. None of tbese defendants are, or have been, or have entered into, any contract, combination or conspiracy in restraint of interstate or foreigrn trade. The facts that bear upon this phase of the case — the question as to the violation of the first sec- tion of the Sherman Anti-Trust Law are easy of statement: The defendants are manufacturers of tobacco or some of the products of to- bacco. The American Tobacco Company, the prin- cipal defendant, is the result of the Merger in 1904 of two tobacco manufacturing concerns (The American Tobacco Company and Continental To- bacco Company) with a third corporation (Con- solidated Tobacco Company), which, while it had the power to engage in the business of manufactur- ing tobacco, had never manufactured or sold it. The American Tobacco Company before the Mer- ger of 1904, was engaged in the manufacture of cigarettes and smoking tobaccos, while Continental Tobacco Company was engaged in the manufac- ture of chewing tobacco. They were not competi- tors — the products manufactured and sold by them respectively were not in the nature of the things competitive. This is equally true with respect to the sale of the finished product, and the purchase of raw material. While the products are of tobacco, they are manufactured principally, of different 149 types of leaf, and in their sale they are only related, not in competition. This is incontestably a fact and the statement of the merger of the three tobacco companies as an act eliminating any real competition at all is en- tirely unfounded. This Record does present though instances of the following transaction, to-wit: Consolidation of competitive manufactur- ing interests through the formation of a corpora- tion and the transfer to it of the respective properties of such competitors in exchange for stock of the vendee corporation, or for cash. In addition to this, the Record presents another | transaction, to-wit: The purchase by a corpora- tion of the property of a competitor directly, or the ! purchase by such corporation of the whole or a . part of the capital stock of such competitor, gen- I erally for cash, hut sometimes in exchange for shares of the capital stock of such purchasing cor- poration. These are the two principal transactions shown by this Record, and attacked by the Government^ but there are presented also in a few cases this transaction, to-wit: The purchase by a tobacco , manufacturing corporation, for cash, of all, or a part of, the capital stock of a corporation en- gaged in the manufacture of materials used by such vendee tobacco manufacturing corporation (such as wooden boxes, cloth bags, licorice paste and tin foil.) There are a very few, rare and exceptional in- stances, of this transaction, to wit: The purchase by a tobacco manufacturing corporation, for cash, of all, or a part of, the capital stock of a mercan- tile corporation engaged in selling at wholesale or retail manufactured tobacco, or the products of tobacco. The proof shows no transaction illegal, or even of doubtful legality, unless it be one of these. , 150 The allegations of the Petition of the Government are not proof and to the extent that they go beyond these four typical transactions they are entirely un- supported by proof. As already pointed out in the discussion of facts, one of the notable things in this litigation is the utter failure of proof on the part of the Government as to many of its most emphatic, not to say sensational, allegations. The opinions of the four Circuit Court Judges do not condemn as illegal the two minor, last men- tioned, of these typical transactions, but the decree does so condemn them, and forbids the beneficial holding by the principal defendants of stock in the corporations that manufacture supplies, and in mercantile corporations. It may as well be stated here as elsewhere that there is no contention that any of the transac- tions of defendants violated the State laws of their incorporation in that they were purchases of stock of other corporations instead of purchases of the property of such corporations. Each of the defendant corporations that has acquired stock in other corporations incorporated under the laws of any State of the United States, is incorporated under the laws of New York or New Jersey. The statutes of each of these States give express au- thority to corporations formed under them, to ac- quire all or a part of the stock of other corpora- tions, (a) and in this these two States only follow what is now the policy of most of the States. On behalf of the Government it is contended that since the passage of the Federal Anti-Trust Law any competition that ever did exist between those engaged in interstate or foreign commerce cannot legally be eliminated in any way whatsoever; that the rule is inexorable and without exception, and (a) Dill on New Jersey Corporations, Sec. 51 ; Harrison on New York Corporations, Sec. 65. 151 that therefore each of the two first principal trans- actions above mentioned are violative of law. This contention was adopted by the court below and it is thus tersely and baldly stated by Judge Lacombe : "But every aggregation of individuals or corporations, formerly independent, imme- diately upon its formation terminates an ex- isting competition, whether or not some other competition may subsequently arise. The act as above construed, prohibits every contract or combination in restraint of competition. Size is not made the test. Two individuals who had been driving rival express wagons between villages in two contiguous States, who enter into a combination to join forces and operate a single line, restrain an exist- ing competition, and it would seem to make little difference whether they make such com- bination more effective by forming a partner- ship or not. Accepting this construction of the Statute, as it would seem this court must accept it, there can be little doubt that it has been violated in this case ♦ ♦ * each one of these purchases of existing concerns, com- plained of in the petition was a contract and combination in restraint of a competition ex- isting when it was entered into, and that is sufficient to bring it under the ban of this drastic statute." (a) On behalf of these defendants it is contended that such transactions do not constitute contracts, com- binations or conspiracies in restraint of trade at all ; and that : (a) Eecord, Vol. 1, pp. 292, 293. 152 POINT II (Cont'd).— Sub-Point I. If the transactions shoTrn by this Record -were in restraint of trade, they -would not be in violation of the Sherman Anti-Trust Iia-w, because such transactions are not acts of in- terstate or foreign commerce, nor direct and immediate in their effect on interstate or foreig'n commerce, and are therefore not ivithin the provisions of the Shermaxi Anti- Trust La-w, nor, indeed, -within the constitutional authority of Congress. When the Constitution gave to Congress the power to "regulate commerce with foreign nations and among the several States and with the Indian tribes," it manifestly did not intend to give it con- trol over the whole business of the United States, including agriculture, manufacture and mining. The term commerce "describes the commercial in- tercourse between nations, and parts of nations, in all its branches, and is regulated by prescribing rules for carrying on that intercourse." (a) Broad as the scope of this term is, and broad as the dis- cretion of Congress within this scope, this court early and emphatically recognized that if the States were to have any functions- at all, Congress should not, and constitutionally could not, under the guise of prescribing rules for carrying on "that (inter- state and foreign) intercourse," take charge of the whole business of the inhabitants of the country, who are, after all, citizens and residents of the States. Some distinction had to be adopted in the delimitation of the scope of Federal control from (a) Gibbons v. Ogden, 9 Wheat., 1, 189. 153 the scope of State control, and that distinction for the purpose of this suit may be stated to be that when the transaction in question is an act of inter- state or foreign commerce, or directly affects such commerce, it is a transaction subject to Federal reg- ulation ; but if the transaction is not an act of such commerce (however so much otherwise the person active in the transaction may be engaged in such commerce), and does not directly affect such com- merce, such transaction is subject only to the regu- lation of the State where the transaction occurred, and is beyond the scope of Federal power. "Nor can it be properly concluded that, be- cause the products of domestic enterprise in agriculture or manufacture, or in the arts, may ultimately become the subjects of for- eign commerce, that the control of the means or the encouragements by which enterprise is fostered and protected, is legitimately within the import of the phrase "foreign commerce" or fairly implied in any investiture of the power to regulate such commerce? A pre- tension as far reaching as this, would extend to contracts between citizens and citizens of the same state, would control the pursuits of the planter, the grazier, the manufacturer, the mechanic, the immense operations of the collieries and mines and furnaces of the country, for there is not one of these voca- tions the results of which may not become the subjects of foreign commerce, and be borne either by turnpikes, canals or railroads, from point to point within the several States, to- wards an ultimate destination, like the one above mentioned." (a) "Commerce with foreign nations and among the States strictly considered, con- sists in intercourse and traffic, including in these terms navigation and the transporta- tion and transit of persons and property, as well as the purchase, sale and exchange of commodities." (b) (a) Veazie v. Moor, 14 How., 568. (b) County of Mobile v. Kimball, 102 U. S., 691. 154 "It seems to us untenable to hold that a crop or a herd is exempt from taxation merely because it is, by its owner, intended for exportation. If such were the rule, in many States there would be nothing but the lands and real estate to bear the taxes. Some of the western States produce very little, ex- cept wheat and corn, most of which is in- tended for export; and so of cotton in the southern States. Certainly as long as these products are on the lands which produce them, they are part of the general property of the State. And so we think they continue to be until they have entered upon their final journey for leaving the State and going into another State." (a) "An excise laid on tobacco, before its re- moval from the factory, is not a duty on "ex- ports" or "on articles exported" within the prohibition of the Constitution, even though the tobacco be intended for exportation. The case of Coe v. Errol, ante, cited and ap- plied." (b) "If it be held that the term (interstate commerce) includes the regulation of all such manufactures as are intended to be the subject of commercial transactions in the future, it is impossible to deny that it would also include all productive industries that contemplate the same thing. The re- sult would be that Congress would be in- vested, to the exclusion of the States, with the power to regulate not only manufacture, but also agriculture, horticulture, stock raising, domestic fisheries, mining — in short, every branch of human industry." (c) "Commerce succeeds to manufacture, and is not a part of it. . . . Contracts to buy, sell, or exchange goods to be trans- ported among several States, the transpor- (a) Coe V. Errol, 116 U. S., 51Y. (b) Syllabus to Turpin v. Burgess, 117 U. S., 504. (c) Kidd V. Pearson, 128 U. S., 1. /I 155 tation and its instrumentalities, and arti- cles bought, sold, or exchanged for the pur- pose of such transit among the States, or put in the way of transit, may be regulated but this is because they form part of inter- state trade or commerce." (a) On the other hand, when commodities are in transit from one State to another, or when men are carrying on negotiations which have for their ob- ject the transit of goods from one State to an- other, or which have for their object the sale of goods which necessarily and directly involves such transit in order to complete the transaction, or when the instrumentalities of carrying commo- dities or persons from one State to another are put in operation — in any of these cases there is inter- state commerce, and conduct with respect to them is subject to Federal regulation and control. "If, therefore, an agreement or combina- tion directly restrains not alone the manu- facture, but the purchase, sale or exchange of the manufactured commodity among the several States, it is brought within the pro- visions of the statute." (b) The rules laid down by the Knight case, supra, and the Ad&yston Pipe & Foundry case, supra, for determining whether a case does or does not come within the Sherman Anti-Trust Law, were not new rules; they were foreshadowed, on the one hand, as long ago as Gibbons v. Ogden, supra, and on the other, certainly, as long ago as Coe v. Errol, supra, and Kidd v. Pearson, supra. These respec- tive rules, the first emphasized in the Knight case and the second in the Addyston Pipe <& Foundry case, may be stated as follows: (1) Contracts or other transactions operating by their primary and direct effect upon property at a time antecedent (a) IJnited States v. Knight, 156 F. S., 1. (b) Addyston Pipe & Foundry Co. v. TJ. S., 1Y5 TJ. S., 211. / 156 I to the' beginning of its "final movement" from one f State to another, are not within the authority of Congress, and so are not covered by the Sherman Anti-Trust Law, whatever their ultimate and in- direct effect on trade and commerce; (2) Contracts or other transactions operating by their primary and direct effect upon the "purchase, sale or ex- change" of the manufactured commodity among the several States, are within the authority of Congress, and, if in restraint of such trade, are within the condemnation of the Sherman Anti- Trust Law. There is in the minds of some lawyers (and the opinions of the court below indicate that some judges share the impression) a feeling that the Knight case was what might be termed a sporadic decision; that it was, perhaps, not the logical^out- com6 of previous decisions of the court, and that it has been subject to modification by subsequent decisions of the court. Judge Lacombe definitely shows this thought, at least, as to subsequent modification (a) ; Judge Coxe shows the same view (b) ; and while Judge Noyes does not so clearly indicate the feeling in any one sentence, a reading of his whole opinion induces the belief that he feels that there has been an impairment of the authority of this first case decided by this court under the Sherman Anti-Trust Law. It is believed that it has been already shown that the decision in the Knight ca^e was not spo- radic in the sense that it did not logically follow the previous decisions of this court. On the other hand, its decision was the logical outcome of the previous decisions of this court defining and delimiting the scope of Federal and State authority. That this is so is not only shown by the citations already made, but it is clearly indicated by the decisions (a) Record, Vol. 1, p. 294. (b) Eecord, Vol. 1, p. 300. 157 of the lower Federal courts immediately preceding it. The decision of this court in the Knight case was but an affirmation of the decision of the Cir- cuit Court for the Eastern District of Pennsyl- vania, where the suit was originally brought, and of the Circuit Court of Appeals for the Third Cir- cuit, composed of Judges Acheson, Dallas and Green, to which the case was carried on appeal from the Circuit Court and from which it was brought to this court. These two subordinate Fed- eral Courts, composed in the aggregate of four emi- nent Judges, anticipated, because of the previous adjudications of this court, the very grounds upon which this court decided the Knight case. In re Greene (a) was decided before the Knight case; the opinion in that case delivered by Circuit Judge Jackson (soon afterwards Justice Jackson, of this court) remains one of the most luminous and com- plete discussions of the Sherman Anti-Trust law that has yet been made by any court — ^it has been so recognized in opinions delivered by this court; it, in advance of the Knight case, announced the same doctrine that was afterwards announced in the Knight case, and decided, among others, the same questions decided in the Knight case in ex- actly the same way this court in that case decided them: "It is settled by the decisions of the Su- preme Court . . . that neither the pro- duction nor manufacture of articles or com- modities which constitute subjects of com- merce, and which are intended for trade and traffic with citizens of other States, nor the preparation of their transportation from the State where produced or manufactured prior to the commencement of the actual transfer or transmission thereof to another State constitutes that interstate commerce which comes within the regulating power of Congress." (a) 52 Federal, 104. 158 It is confidently asserted that the authority of the Knight case has not been challenged directly nor by implication until by the decision of the lower court in the case at bar. Where cases have been held to come within the statute, it has been because the con- tract, combination or conspiracy under investiga- tion was deemed to bear directly, not upon the article itself or its production, but upon the trade in that article among the several States. The leading case undoubtedly is Addyston Pipe & Foundry Company v. United States (a). The combination there had nothing whatever to do with manufacture; it was made between six com- peting manufacturers of iron pipe located in four different States, and selling pipe in thirty-six States and Territories; the contract provided that certain of the territory in which the defendants dealt should be deemed reserved, that is, that each of the defendants should have the exclusive privi- lege of filling orders for pipe from the reserved territory allotted to it; the defendants appointed a board to which all inquiries were referred, which fixed the price at which contracts were to be let; in the reserved territory the defendant entitled to fill the order proceeded to fill it at the price fixed by the Board, paying over for distribution among the other defendants a bonus prescribed by the board; in territory not reserved, the privilege of filling the contract was allotted to that defendant which offered the largest bonus; in either case, whether the sale was to be in reserved territory or unreserved territory, the defendants other than the one agreed upon refrained from bidding, or, what was worse, put in fictitious bids larger than the price fixed by the Board. This case affords a clear illustration of a direct restraint of inter- state commerce. The thing to be affected by the contract and combination was an interstate sale, (a) 175 U. S., 211. 159 and an interstate sale is a part of interstate com- merce. The authority of the Knight case is express- ly recognized. Montague v. Lowry (a) related to a voluntary association composed of manufacturers of tiles, mantels and grates, and of wholesale dealers there- in. The dealers agreed to buy only from members of the association, and the manufacturers to sell to others than members of the association only at a price fifty per cent, higher than that fixed for members. The court held that the purchase and sale of tiles between manufacturers in one State and dealers in another was interstate commerce and that the agreement clearly had direct bearing upon interstate sales rather than manufacture. The authority of the Knight case is expressly recog- nized. In Swift & Go. V. United States (b) the combina- tion was among persons engaged in buying live stock and slaughtering and selling the meat. The live stock was shipped from without the State for the purpose of being sold and was sold with only the interruption necessary to find a purchaser; the charge was that the defendants refused to bid against each other by agreement, and by agreement obtained excessive shipments by creating a fictitious price for a short time; all the defendants shipped meat to other States, and the further charge was that they fixed by agreement among themselves the price that they would charge for the meat. This case was evidently, in its legal aspect, on all fours with the Addyston Pipe & Foundry case, because the only things affected by the agreement, combi- nation or contract were interstate sales and inter- state purchases. The authority of the Knight case is expressly recognized. Shawnee Compress Company v. Anderson (c) (a) 193 U. S., 38. (b) 196 U. S., 375. (c) 209 U. S., 423. 160 was a case in wMcli this court affirmed the decision of the Supreme Court of the Territory of Oklahoma condemning and ordering the cancellation of the lease made by the Shawnee Compress Company to the Gulf Compress Company on the ground that the Compress Company was in restraint of trade in vio- lation of the Federal anti-trust law and the anti- trust law of the Territory. There necessarily arose no question of interstate trade for the transaction was one that occurred in a Territory. The Knight case is not mentioned. Loewe v. Lawlor (a) presented a case in which, as summarized by the court, it appeared that de- fendants combined not merely to prevent the plain- tiffs from manufacturing articles intended for trans- portation beyond the State, but to prevent the ven- dees from reselling the commodities that they re- spectively imported from beyond the State, and to prevent the purchase and transportation of such commodities to various places of destination in other States ; that they had attempted to induce purchas- ers in other States to break contracts for the pur- chase of such hats; that they had formed a combi- nation to directly restrain plaintiff's trade, that cer- tain means to obtain such restraint were contrived to be used and were used to the injury of plaintiff's property and business. Unquestionably this was a case differing from the others, but it is no more under the principles of the Knight case than they. The transaction complained of was direct in its ef- fect and restraint upon interstate commerce. Un- der the thoroughly logical analysis of the first sec- tion of the anti-trust law given by Mr. Justice Holmes in his dissenting opinion in the 'Northern Securities case — this analysis is not the subject of dissent, though — this was a typical case of a con- spiracy in restraint of trade — a combination to "keep strangers to the business out of the busi- (a) 208 tr. S., 274. 161 ness" (a). Such conspiracies are, undoubtedly, usually made by rivals in business against tbe per- sons intended to be injured, but they are not neces- sarily so. This case expressly recognizes the au- thority of the Knight case. Continental Wall Paper Company v. Voight (b) was a case in which numerous wall paper manufac- turers, without disposing of their manufacturing plants at all, and with no other object than to in- fluence interstate sales and their prices, caused the organization of a selling company, which selling company had for its one purpose and effect the elimination of competition between the otherwise independent concerns, and refused to permit any of its associated manufacturing concerns from selling to merchants who did not buy exclusively from or through it. This was the Addyston Pipe and Foun- dry case repeated, with some aggravating circum- stances. The whole purpose of the agreement and transaction was to affect interstate sales and its only effect, direct or otherwise, was upon such. This case does not mention the Knight case. These are the only cases involving ordinary com- modities or industrial corporations that it can be suggested have in any way impaired the control- ling authority of the Knight case. It is earnestly and confidently insisted that they have no such ef- fect. Besides these cases involving articles of merchan- dise theTthtl- trust Act has been before the Supreme Court in three notable cases involving transporta- tion companies. In the first two of these cases, T^ans-Missouri Tr eight Association case (c) and United States v. Joint Traffic Association (d), the court sustained the contention that transportation (a) 193 U. S., 406. (b) 212 r. S., 227. (c) 166 U. S., 290. (d) 111 U. S., 505. 162 I companies are amenable to the provisions of the Sherman Anti-Trust Law and that an agreement between two competing transportation companies fixing their charges for service in transporting mer- chandise from one State to another is violative of the statute. The third of these transportation cases is the 'Northern Securities case (a), which held that where two transportation companies were forbid- den by earlier decisions to agree upon rates, and each forbidden by law to purchase the other, the stockholders could not lawfully consolidate them, and eliminate competition between them by the creation of a holding company which was in effect a mere trustee to accomplish the unlawful purpose of consolidation and whose stock certificates were, in practical effect, merely trust, or pooling, certifi- cates. These three transportation cases are interesting, but they cannot be said to have the influential con- nection with this litigation that cases involving mer- chandise have. In the first place transportation companies are engaged simply and solely in com- merce, whereas a manufacturer may, or may not, en- gage in commerce, and if he engages in commerce at all he may make it interstate commerce, or confine it to the State where his factory is located. In the second place — and all courts are influenced by the consideration — transportation companies exercise a public franchise and owe the duty of continued competitive existence, whereas manufacturers of commodities owe no duty of continued existence at all. The Knight case has not only not been over- ruled or modified by subsequent decisions of this Court, but it has been strengthened (if an un- modified opinion of this Court is capable of being strengthened) in its authority. (a) 193 IT. S., 197. 1C3 Hopkins v. United States (a) was an effort to have the Kansas City Livestock Exchange declared to exist in violation of the Sherman Law and to en- join from entering into or continuing in combina- tions alleged to deprive people engaged in shipping livestock to Kansas City from other States of free access to the market at Kansas City. The Court held that the transaction, although it might affect interstate commerce and result in increasing the cost of conducting such commerce, was not under the jurisdiction of Congress because the transac- tions complained of were directly and immediately local to the State of Missouri, whereas, in order to bring the transaction under the domain of Con- gressional power it must be direct and immediate in its affect on interstate commerce. The Knight case was expressly cited and relied upon. Anderson v. United States (b) was a case under facts somewhat similar to the Hopkins case (supra) involving a livestock exchange at Kansas City, in which it was held that the agreement and transaction complained of would not have been violative of the Sherman Law under any circum- stances; but it was held also that although it had to do with the purchase of cattle in Kansas City, brought from other States, it did not fall within the Sherman Anti-Ttust Law nor within the power of Congress because it did not directly relate to and act upon and embrace interstate commerce. In Field v. Barber Asphalt Company (c) this Court, through Mr. Justice Day, said: "In this day of multiplied means of inter- course between States there is scarcely any contract which cannot in a limited or re- mote degree be said to affect interstate com- merce, but it is only direct interference with the freedom of such commerce that brings (a) lYl TJ. S., 578. (b) lYl F. S., 604, 616. (c) 194 U. S., 618, 623. 164 a case "within tlie exclusive domain of Federal jurisdiction. The attempt to invoke the provisions of the Sherman Act in this case is equally unavailable. That act has been recently considered in the Northern Seciu'ities case, decided at this term, and its construction and the nature of the remedies under it, determined. It is not intended to affect contracts which have a remote and in- direct bearing upon commerce between the States." In Ware v. Mobile County (a) Mr. Justice Day, again speaking for a unanimous court, not with reference to the Sherman Law, follows exactly the logic of the KiiigM ca^e in discussing the applica- tion of Federal or State control. "T^Tien the delivery was upon a contract of sale made by the broker, the seller was at liberty to acquire the cotton in the market where the delivery was required or else- where. He did not contract to ship it from one state to the place of delivery in another state. And though it is stipulated that ship- ments were made from Alabama to the for- eign state in some instances, that was not because of any contractual obligation so to do. In neither class of contracts, for sale or purchase, was there necessarily any move- ment of commodities in interstate traffic, because of the contract* made by the brokers. "These contracts are not, therefore, the subjects of interstate commerce any more than in the insurance cases where the policies are ordered and delivered in another state than that of the residence and office of the company." The authority of the Knight case in the lower federal courts has been, of course, generally rec- ognized. It is not necessary and, perhaps, would not be proper, to multiply citations of these cases, but it is not deemed improper to specially refer (a) 209 U. S., 405. 165 the Court to the very recent case of Bigelow v. Calumet Co. (a), in which Judges Lurton and Cochran, Judge Severens concurring, show in a clear and forceful way the continued authority of the Knight case and its application and effect in a transaction very similar to many of the trans- actions shown by this record. Though well known in all its details to all judges and most lawyers, in order to preserve the com- pleteness of this brief and argument, it is well to state in detail what the facts and decision in the Kwight case were: The facts were not in dispute, they were determined and declared by the lower court on the pleadings and testimony, and were, in short substance, as follows: The American Sugar Refining Company was a New Jersey cor- poration with authority to purchase, refine and sell sugar. It had, prior to March, 1892, obtained control of all the refineries in the United States (presumably located in numerous different States) excepting four located in Phila- delphia and one in Boston, the latter producing about two per cent, of the sugar refined in this country; the products of all these refineries were sold and distributed among the several States, so the American Sugar Eefining Company and the owners of the other refineries were engaged in interstate commerce in sugar. In March, 1892, American Sugar Refining Company entered into contracts with stockholders of the four Pennsylvania companies whereby it purchased their stock, paying for it in its own stock in agreed pro- portions ; after this purchase, for reasons of econo- my in conducting the business, these separate Phila- delphia refineries were consolidated, or operated in conjunction with plants already owned by the American Sugar Refining Company; the price of refined sugar had been slightly advanced after the (a) 167 Fed., 721. 166 purchase but it was still, at the time of trial, lower than it had been some months before the purchase ; the object of the American Sugar Eeflning Com- pany in purchasing the Philadelphia Eefinery was to obtain a greater influence or more perfect con- trol over the business of refining and selling sugar, throughout the United States. The charge of the Government's petition, upon these facts, was that these contracts of purchase constituted a combi- nation and conspiracy in restraint of inter- state trade, entered into by the individual vendors and corporation vendee, and that the purchases constituted a monopolizing and an attempt to monopolize the manufacture and sale of refined sugar among the several States. The relief sought was a breaking up of the combination thus formed, and the means of such breaking up suggested by the Petition was that the American Sugar Eefining Company be required to restore to the individual vendors their stock in the Philadelphia refineries, and that the individual vendors be required to restore to the American Sugar Eefining Company the stock of such American Sugar Eefining Company which they had respectively received in payment for their stock in the Philadelphia refineries. The Petition also prayed for general relief. The case was originally tried before District Judge Butler, who dismissed the Bill on the ground that the facts did not show a contract, combination or conspiracy to restrain trade or commerce, or a monopolizing or attempt to monopolize trade or commerce "among the sev- eral States or with foreign nations," and dis- tinctly placed his decision (a) upon the holding that even if admitted that there did exist a com- bination in restraint of trade or an attempt to es- tablish a monopoly, the transaction was a State and not a Federal matter, because, whatever the motive of the vendee, the thing shown was the pur- (a) 60 Fed., 306. 167 chase of one, or a number of manufacturing plants, which manufacturing plants were, of course, lo- cated in a State, and not in transit from State to State. This decision was affirmed on the same ground by the Circuit Court of Appeals composed of Judges Acheson, Dallas and Green (a), and was further affirmed on the same ground by the Su- preme Court of the United States in an opinion de- livered by Chief Justice Fuller, concurred in by all the Justices, except Justice Harlan, who dissented. No attempt need be made to broaden the logical scope and intendment of the decision in the Knight case. The trapsactions disclosed by this record fall as completely within it as transactions in a case at bar will ever fall within the doctrine of a case de- cided. These defendants are essentially and pri- marily engaged in the business of manufacturing tobacco, as the American Sugar Refining Company was in the manufacture of sugar. No charge is made that The American Tobacco Company or any defendant has restrained or monopolized interstate trade by becoming a selling agent for other and naturally competing manufacturers. The gist of the offense charged by the Government and found by the court below, is : The acquisition of factories of competitors engaged in the manufacture and sale of tobacco. The gist of the offense charged by the Government in the Knight case was of exactly the same import, to wit : The acquisition of refin- eries of competitors engaged in the refining and sale of sugar. Attempts to differentiate the case at bar from the Knight case seem to us strained and artificial. First: — It has been suggested that the Knight case would have been decided differently if the Gov- ernment had asked for a different relief— as for in- (a) 60 Fed., 934. 168 stance, a holding that the American Sugar Eefining Company was an unlawful combination not author- ized to engage in interstate commerce. The answer to this is that the Government did ask for general relief, and under that prayer was entitled to such relief, not inconsistent with the relief specially prayed, as it was entitled to upon the facts; that the relief asked, to wit: the disruption of a single series of agreements made recently before the bring- ing of the suit, was the most logical and reasonable relief that the Government could have asked — in- finitely more reasonable than to stay, in the name of freedom of competition, the activities of a large manufacturing and producing corporation; finally, every court that considered the case expressly re- fused to consider the matter of remedy at all, but planted its decision squarely on the holding that the Sherman Anti-Trust Law did not, and that Con- gress could not, prevent or condemn the purchase by a manufacturer of an additional factory, even though such purchase had been induced by a desire to obtain a greater influence or more perfect control over the business of refining and selling sugar in this country, and had that effect. Second: — It has been said that there is nothing in the facts of the Knight case emphasizing the bus- iness of making interstate sales of sugar carried on by the American Sugar Eefining Company, and nothing to indicate that it made interstate pur- chases of raw materials, whereas the record of the case at bar discloses the great volume of the inter- state sales and purchases by these defendants. But the opinion of the Court is express in its recogni- tion and declaration that there did exist interstate business. As shown by the Eecord in this Court the petition filed by the Government in the Knight case was full of allegations showing the vol- 1B9 Time of interstate business done by tbe de- fendants in sugar and these allegations were admitted by the answers as of course they had to be. Interstate business in selling an article of merchandise does not exist without commercial agents and the other machinery of merchandising, and it is not respectful to this Court to intimate that it was inadvertent to the fact that American Sugar Refining Co. had such commercial agents and all other commercial ma- chinery from one end of the land to the other. American Sugar Eefining Company had its home in New Jersey; it bought four factories in Penn- sylvania; it had one competitor in Boston — in none of these sections does the raw material for making sugar grow — under such conditions the Court could not fail to realize the enormous volume of interstate and foreign purchases by the American Sugar Re- fining Company of its raw material raised in va- rious States of the United States and in foreign countries. Third: — It has been said that the Knight case did not present an instance of a corporation organ- ized to take over the competing refineries, such instances as are presented by some of the transac- tions in the case at bar, but that in that case there was only the purchase by a large going concern of additional plants. The answer to this attempt to distinguish the two cases is that the Supreme Court distinctly and in Words declines to even discuss that distinction: "In the view which we take of the case we need not discuss whether because the tenta- cles which drew the outlying refineries into the dominant corporation were separately put out, therefore there was no combination to monopolize." (a) (a) 156 U. S., 10. 170 In the second place, those who attempt to draw this distinction have lost sight of what was the basis of the court's decision. It may be (and that it is so will be earnestly argued later in this brief and argument) that the purchase by one of the business of a competitor is not a combination in restraint of any trade, whether such trade be interstate or other- wise; but the decision by this court of the Knight case does not operate either for or against that con- tention. The decision in that case was that manu- facture is not commerce and that changes of owner- ship of manufacturing plants are not within the power of regulation of Congress, and this, although the products of such manufacturing plants are des- tined in all human probability to become subjects of interstate commerce. This being the holding, how does it affect the matter of Congressional authority and the limitations of the scope of the Sherman Anti-Trust Law, or other Congressional enactment, whether changes in ownership of manufacturing plants occur in one way or another — whether such change results from the partnership of previous owners, as is frequent among merchants and manu- facturers ; or the marriage of previous owners, as is frequent between the owners of farming lands as well as other property ; or the formation of corpora- tions by previous owners into which they put their respective farms, factories, mines or stores; or the purchase by one farmer, manufacturer, miner or merchant of the farm, factory, mine or store of his competitor? There exists confusion in some minds in failing to distinguish between the person complained of, and the transaction which is the basis of the com- plaint. It has been assumed that the Knight case was decided as it was because the court held that the American Sugar Eefining Company was not en- gaged in interstate commerce, and that Loewe v. Lcmlor {supra) having enforced the Sherman Law 171 against persons not engaged in interstate commerce has reversed, or in some way modified, the decision in the Knight case. This view has at one time or an- other induced the Government in the case at bar, and induced some of the judges in the court below, to enter into arguments to show that the defend- ants in the case at bar are engaged in interstate commerce. No argument need be made that the de- fendants represented in this brief and argument are engaged in interstate commerce. There may be a technical question as to whether a manufacturer who delivers goods in the town where his factory is located to a common carrier with the understand- ing that the purchaser is in some foreign state and that the title passes upon the delivery to the com- mon carrier, is by such act doing an act of inter- state commerce; but there is no question that when The American Tobacco Company and other tobacco, cigar and snuff manufacturing companies send drummers into foreign States to solicit orders to be filled by shipments from without that State, and when they ship tobacco purchased on the market in one State to a factory in another, and when they do various other acts that they do daily, are engaged in interstate commerce. American Sugar Refining Company, the principal defendant in the Knight case, selling as it did ninety-eight per cent, of the refined sugar sold in this country, with relations with wholesale grocers in every city and almost every hamlet in the land, and buying from foreign countries and the extreme Southern States the raw material for its refined sugar, was undoubtedly, also engaged daily in interstate commerce. It is true, of course, too, that the defendants in Loewe v. Lawlor (supra), employees, or ex-em- ployees, who worked, or had worked, in a hat factory in Danbury, Connecticut, or other hat factories, were not engaged in interstate commerce. And yet the American Sugar Eefining Company was acquit- ted, and the employees of the hat factories were 172 convicted of restraining interstate trade. The solu- tion of the matter is not difficult: The question is not whether the defendant is engaged or not in interstate commerce, but whether the transaction complained of is an act of, or direct im, its effect on, interstate commerce. The act complained of in Loewe v. Lawlor was that those hatters, not engaged in interstate commerce at all, conspired to restrain and destroy the interstate commerce of people who were so engaged — the transaction was direct in its effect on interstate commerce, and so the actors in that transaction were convicted, though they never, perhaps, engaged in interstate commerce in their lives. The American Sugar Eeflning Com- pany was acquitted because, while it was undoubt- edly engaged in interstate commerce daily, the transaction complained of was a mere purchase of a manufacturing plant, a transaction controllable only by the State where the transaction occurred, or the State of residence, or citizenship, of the ven- dor or vendee. This court has, in the very recent case of Howxwd V. Railroad Company (a) (the Employers Liability case) considered the very matter that is the basis of this misconception. The Government contended in favor of the validity of the statute imposing a liability on employing railroad companies for in- jury to employes, even wlien the servant was in- jured in commerce not interstate, that (b) "by engaging in interstate commerce the car- rier chooses to subject itself and its business to the control of Congress and cannot be heard to complain of such regulation." To this contention this court through Mr. Justice White made forcible reply, (c) "It remains only to consider the conten- tion which we have previously quoted, that (a) 207 TJ. S., 463. (b) 207 U. S., 499. (c) 207 U. S., 502. 173 the act is constitutional, although it embraces subjects not within the power of Congress to regulate, because one who engages in in- terstate commerce thereby submits all its business concerns to the regulating power of Congress. To state the proposition is to refute it. It assumes that because one en- gages in interstate commerce he thereby en- dows Congress with power not delegated to it by the Constitution ; in other words, with the right to legislate concerning matters of purely State concern. It rests upon the con- ception that the Constitution destroyed that freedom of commerce which it was its pur- pose to preserve since it treats the right to engage in interstate commerce as a privilege which cannot be availed of except upon such conditions as Congress may prescribe, even although the conditions would be otherwise beyond the power of Congress. It is ap- parent that if the contention were well founded it would extend the power of Con- gress to every conceivable subject, however inherently local, would obliterate all the lim- itations of power imposed by the Constitu- tion, and would destroy the authority of the states as to all conceivable matters, which, from the beginning have been, and must con- tinue to be under their control so long as the Constitution endures." It is said, however, that the business of defend- ants and other manufacturers of tobacco does not consist alone of the manufacture of tobacco, but that the manufacture of tobacco is a comparatively small part of such business; that the business may be di- vided into three features or factors, to wit : the pur- chase, as a part of interstate commerce, of raw ma- terials and supplies, the manufacture of the product, and the disposition in interstate commerce of the manufactured article; that the second function or feature is the only one that does not affect inter- state commerce (a). Undoubtedly this is true with (a) Opinion, Judge Noyes, Eec, Vol. 1, p. SOY. 174 respect to tobacco, and undoubtedly it is just as true, and appeared in the Knight case to be just as true, with reference to the refining of sugar. The refiner of sugar bought, in interstate commerce, his raw material; he refined it in his local factory or refinery ; and he distributed and sold it in interstate commerce — the second function being the only one that did not affect interstate commerce. This, how- ever, did not alter the fact that the subject matter of the purchase was a plant for refining sugar, with the good will of such plant, and the stock on hand ; that neither the plant, the good will thereof, nor the stock on hand was the subject of interstate com- merce which could be regulated under the Federal Act until embarked upon interstate transit^ and that the evident intent so to embark any part of the property purchased was insuflicient to turn any of such articles into articles of commerce, or the act of acquiring them into an act of, or directly affect- ing, interstate commerce. A vice of the argument lies in the assumption that in the purchase by one man- ufacturer of the factory of another, or in the con- solidation by various manufacturers of their respec- tive factories, there is a purchase or consolidation of the property, the privilege, of purchasing in inter- state commerce raw material and of selling in inter- state commerce the manufactured product. It is true that the business of a tobacco manufacturing con- cern, or a sugar refining concern, in a broad sense, includes the purchase of the raw material, the manu- facture of the finished product and the sale in in- trastate, interstate and foreign commerce of the manufactured product. When a purchase is made, however, a distinction must be drawn. The pur- chaser does not buy the right to sell the product of the factory in another State ; that is his as an inci- dent of ownership. Although it may be said loosely that one buys a "business," all that he really gets by his purchase is the tangible property and its 175 good will. Certainly he does not get by his pur- chase any portion of interstate commerce in the ar- ticle dealt in, so that it may be said that such com- merce is directly affected. All of this is equally true whether the purchase is made as ordinarily understood, or whether it is made as the result of consolidation among the previous owners of the manufacturing plants. All of the foregoing argument and the principles enunciated by the Knight case are equally applica- ble to the first of the minor typical transactions shown by this Record as to the two major typical transactions. This minor transaction is the pur- chase by a tobacco manufacturing corporation, for cash, of all, or a part of, the capital stock of a cor- poration engaged in the manufacture of materials used by vendee tobacco manufacturing corporation, such as wooden boxes, cloth bags, licorice paste and tin foil. These material manufacturing corpora- tions are, after all, mere manufacturers. The pur- chase is the purchase of the whole of, or an interest in, a manufacturing concern — a factory. The arti- cles manufactured may, or may not, become the sub- ject of interstate commerce, dependent upon the will of the vendee of the factory. The transaction affects the property antecedent to its entering into transit from State to State, and therefore, so far as it affects interstate commerce at all, such affect is indirect and not such as to bring it within the stat- ute. The argument already made, and the principles of the Knight case, are also equally applicable to the second of the minor transactions shown by this rec- ord, to wit : the purchase by a tobacco manufactur- ing corporation for cash of all or part of the capital stock of a mercantile corporation engaged in sell- ing, at wholesale or retail, manufactured tobacco, or the products of tobacco. There are very few of 176 these transactions shown in this record, but each of them involves the purchase of an interest in real estate or a leasehold, in which the mercantile estab- lishment is conducted, the stock of merchandise on hand and the good will of the business. So far as retail mercantile establishments are concerned, there is no element of present or future interstate commerce — they sell goods over the counter. So far as wholesale mercantile establishments are con- cerned, there may or may not be interstate com- merce, depending upon the locality and the extent of business of such wholesale mercantile establish- ment ; but whether there is or not it is a future bus- iness, to be engaged in or not as the vendee, or then owner of the business, determines, and transactions which have to do with the ownership of the articles of merchandise preceding their entering the chan- nel^ of interstate shipment or transportation, do not directly affect interstate commerce, and are, therefore, not subject to the provisions of the stat- ute oi* any other congressional enactment. POINT II (Cont'd).— Sub-Point II. Tbe transactions sbo-wn by tbis record do not constitute contracts, combinations or conspiracies in re- straint of trade, -witbout respect to -whetber tbe trade is interstate, for- eig-n or otber-wise. It is unquestionably true that the formation of a partnership by individual competitors, the con- solidation of competing corporations, the purchase, whether for cash or for stock of a farm, mine, mercantile establishment or factory of a com- petitor, terminates an existing competition, and if, as held by the court below, this Sherman Anti- 177 Trust Law has established the rule "Once a com- petitor, forever a competitor," then each of these transactions is (but for the limitations on the au- thority of Congress already discussed, and enforced in the Knight case,) an infraction of the act. It will •not do to say that in order to violate the law the less- ening of competition by the particular transaction must be considerable — the law, as pointed out by Mr. Justice Holmes, "hits every contract or com- bination of the prohibited sort, great or small" (a). This proposition is so startling, so revolutionary, and leads to such destructive results as to at once suggest that Congress could not have intended so radical a measure. Can it be true that as stated by Judge Lacombe, "it would seem to make little difference whether they make such combination more effective by forming a partnership or not." A contract in restraint of trade was well known at common law, and a conspiracy to injure the trade of another, or exclude another from trade, was well understood at common law. The pur- pose of Congress in passing the Sherman Law was principally to apply to interstate transactions the rules of the common law, and to affect them with the policy of general State legislation. As Mr. Justice Harlan said in the opinion of the Court in the famous Northern Securities case (b) : "Indeed, when Congress declared con- tracts, combinations and conspiracies in re- straint of trade or commerce to be illegal, it did nothing more than to apply to interstate commerce a rule that had been long applied by the States when dealing with combina- tions that were in restraint of their domestic commerce." And yet at common law, and under the law as administered in certainly most of the States, the terms used in the Sherman Law have always signi- fied concert of action between those whose owner- (a) 193 F. S., 402. (b) 193 U. S., 197. 178 ship was independent of each other, and not that elimination of competition which comes from mere change of ownership of property. In Fairbanks v. Leary (a) the Supreme Court of Wisconsin said: ] "Of course it does not require argument j or citation of authority to show that five or ; any other number of men may lawfully form a copartnership to buy the produce of the country . . . The law does not and did not require that these parties should com- pete in the purchase of produce." In People v. North River Sugar Refining Com- pany (b) the Court of Appeals of New York, in discussing an unincorporated partnership between corporations and the contention that this was valid because there might under the statute of New York have been a consolidation of those corporations, and that the scheme attacked was the same in its effect, said: "Under the statute the resultant combina- tion would itself be a corporation deriving its existence from the State, owing duties and obligations to the State, and subject to the control and supervision of the State, and not, as here, an unincorporated board, a colossal and gigantic partnership, having no corporate functions and owning no cor- porate allegiance. Under the statute the consolidated company taking the place of the separate corporations could have as capital stock only an amount equal to the fair aggregate value of the rights and franchises of the companies absorbed; and not as here a capital stock double that value at the outset and capable of an elastic and irresponsible increase. The difference is very great and serves further to indicate the inherent illegality of the trust combination. . . . It is not a sufficient answer to say (a) 40 Wis., 637. (b) 121 N. Y., 583. 179 that similar results may be lawfully ac- complished." In Trenton Potteries Company v. OUphant (a) the Court of Errors and Appeals of New Jersey, in answer to the contention that corporations had no right to destroy competition by the purchase of a competitor, said: "Such corporations are empowered to pur- chase, hold and use property appropriate to their business. They may also purchase and hold the stock of other corporations. Under such powers it is obvious that a cor- poration may purchase the plant and busi- ness of competing individuals and concerns. . . . It follows that a corporation em- powered to carry on a particular business may lawfully purchase the plant and busi- ness of competitors, although such purchases may diminish or, for a time at least, destroy competition. Contracts for such purchases cannot be refused enforcement." A few of the other cases that sustain the conten- tion here made as to the public policy of the States as shown by the common law obtaining in them, and their respective statutes, are given below (b). There is a circumstance that shows conclusively that it is no part of the public policy of the States of this country to preserve competition by prevent- ing the consolidation of every competitive interest. Unless some additional States have passed such statutes— printed below in a note is a list of the States of the United States that by express statu- tory provision provide for and facilitate the merger (a) 68 N. J. Eq., 507. (b) Cameron v. Water Co., 62 Hun, 269. Vinegar Co. v. Foehrenback, 148 N. T., 58. Dittman v. Distilling Co., 64 N. J. Eq., 544. Com. V. Hunt, 4 Mete, 111. Oakdale Co. v. Garst, 18 E. I., 484. Macauley v. Tierney, 19 E. I., 225. Bohn Co. ■;;. Northwestern Aasn., 54 Minn., 223. 180 and consolidation of corporations engaged in the same line of business — competing corporations! (a) This list does not include States that in their pro- visions for amendment of corporation charters and reorganization of corporations, recognize as legal and desirable the consolidation of existing corpora- tions. An examination of the list discloses not only that these States are numerous, but that the num- ber embraces many of the leading commercial States, and that the statutes are not old and obso- lete statutes indicative of a past public policy — every statute is, so far as known, still in force, and many of them are recent steps in the development of the corporation law of the various States, intended to meet modern business conditions and needs. The New Jersey Merger Statute, identical with the Mer- (a) Alabama : Code of Alabama, 1907, Sees. 3502-08. California (applicable to mining corporations only) : Civil Code of Cal., 1906. Sees. 290, 587a. Colorado: Gen. St. 1883, Sees. 349, 350. Connecticut : P. A., 1903, C. 194, Sees. 75-79. Delaware: Gen. Corp. Law of 1899, as amended. Sees. 59-64. Indiana: Acts 1903, pp. 405-409. Kentucky: Ky Stat., 1903, Sees. 555, 56, as amended in 1902, and Sec. 558. Maryland: Eev. Corp. Act, 1908, Sees. 29-31. Missouri: Eev. St., Sec. 1334; Eev. St., 1899, Sec. 2786e. Montana (applicable to mining corporations only, but there is reference to consolidation of other corpora- tions) : Civil Code, 1895, Sees. 524, 527, 1015. Nevada: Gen. Corp. Law, 1903, Sees. 43-45. New Jersey : An Act concerning corporations, revision 1896, Sees. 104-109, and P. L., 1902, p. 700. New Mexico Territory: An Act to regulate the forma- tion and government of corporations for mining, manufacturing, industrial and other pursuits (1905) as amended. Sees. 109-115. New York: Consolidated Laws 1909, pp. 247-250 and p. 4223. Pennsylvania: Laws 1901, p. 349, and Laws 1905, p. 95. Utah : Compiled Laws 1907, Sees. 340, 341. Virginia: Corporation Act of 1903, C. 6, Sees. 40-46. 181 ger Statute of New York, and identical with the statutes of many of the other States, may be treated as typical. It provides, in short substance, that two corporations engaged in similar businesses may consolidate ; that the consolidation is to be by pre- arrangement of the directors, confirmed by the stockholders of the theretofore competitive and now merging corporations; that this agreement of merger shall provide how, and on what basis of exchange, the securities of the old competing cor- porations shall be taken up by the securities of the consolidated corporation to be formed; that a stockholder who does not care to enter into the consolidated corporation may have the value of the securities held by him in the old company ap- praised and paid for in cash; the contract of con- solidation, thus made by the hitherto competing corporations, becomes the charter of the new com- pany, which new company by virtue of the agree- ment is vested with all the property and rights, and becomes subject to all the liabilities of the old cor- porations, and the old corporations themselves pass out of existence. No one can conceive of a corporation that under the contention of the Government would be a more typical combination in restraint of trade than the consolidated or merged corporation whose forni- ation is thus expressly authorized, and facilitated by the laws of the most of our leading commercial States. In the first place, the two merging corpora- tions are, in their charter powers and purposes at least, competitors and under a recent deci- sion of the New Jersey Court of Errors and Appeals (a) they must be under their charters at all points competitors in order to take advantage of the statute at all. In the second place, there is ' not contemplated the purchase for cash of the property of one by the other, but the stock- (a) Colgate vs. U. S. Leather Co., 72 Atl. Eep., 126. 182 holders in each receive for their larger inter- est in the smaller company a smaller interest in the larger company — they simply change their investment — and this, in the opinion of Judge Noyes, of the court below, is the distinction that makes a criminal of one corporation vendee, as against the innocence of another. In the third place, the consolidation is not effected in ordinary course of business by the purchase by one concern of another, even for stock, but it is a consolidation prearranged by the separate owners of the compet- ing businesses — and this fact, according to the con- tention of the Government and in the opinion of some text writers and magazine writers, makes for infraction of the law. It is difficult to argue that such a transaction is against the public policy of the States when it is not only not forbidden but directly encouraged and facilitated by the statutes of so many States, con- templated by the statutes of others, and not for- bidden by the statute law of a single State ; and is there not an element of incongruity, approaching absurdity, in the contention that seventeen States encourage their corporations to take steps which, when taken, will result in the formation of a cor- poration that is immediately and by the very essence of its being an outlaw of commerce? It is to be noted that some of^the States that have these merger statutes have anti-trust laws which in general forbid the things that are forbid- den by the Sherman Anti-Trust Law (a)."" This (a) Alabama Const., Sec. 103 and C. 69, Code 1907, Sees. 248Y, 2488, Y579-Y582. California: "Cartwright Anti-trust Bill" appd. Mch. 23, 1907. Indiana: Burns Eev. St. 1901, Sees. 3312g, 3312h, 3312m, 3312n, and Laws of 1907, c. 243. Kentucky: St. 1903, Sees. 3915-3921. Maryland: See Sec. 41 Const. 183 shows that the policy of these States is to. forhid in intrastate trade the things that in interstate trade are forbidden by this Act of Congress. To adopt the construction of the Sherman Anti-Trust Law contended for by the Government, and then to carry this construction into similar State statutes emphasizes the confusion and incongruity of the condition that would arise — States encourag- ing and facilitating by one set of statutes the for- mation of corporations which, by another set of statutes, are forbidden to exist. The point here being made is that, whatever the reason may be, it is not a part of the common law, nor a part of the public policy of the States, to condemn that elimination of competition which comes from the consolidation by purchase or other- wise of property that had formerly been used in competition, but only to forbid th at e limination of competition that~conresTfom agreed concert of ac- tion between those whose ownership continues in- dependent of each other. The reasons for this dis- tinction are not necessary to be given at length, but they axe not hard to find : When there is a consoli- dation of ownership there is created either a cor- poration deriving its power from the State, and subject to its control or supervision, or there re- mains an individual subject to this control, whereas agreed concert of action is in its nature irresponsi- ble. Again, there are positive benefits of economy aid efficiency, increased enterprise and increased capital, that come from consolidation — ("The com- "bination of capital in large plants to manufacture Missouri: Eev. St. of 1899, as amended 1907, Sees. 8965-8968. Montana: See Const. Art. XV, Sec. 20. New York: Stock Corp. Law as amended by c. 384, Laws 1897, Sec. 7, and Laws 1899, c. 690, Sees. 1-7. Utah: Const. Art. 12, Sec. 20, and Rev. St. 1898, Sees. 1752-1762. 184 "goods with the greatest economy is just as neces- "sary as the assembling of the parts of a machine "to the economical and more rapid manufacture of "what in old times was made by hand.") — whereas agreed concert of action in the marketing of goods, without other consolidation of interests, has no pos- sible trade or public advantage, but has for its only natural result the ultimate increase of prices. Not only do the common law and public policy, as shown by the statutes and decisions of the vari- ous States, not require that competition once estab- lished must forever continue — not only do they not forbid consolidation into one ownership of property theretofore owned by several, although such con- solidation eliminates competition previously exist- ing among the previous owners — but the Sherman Anti-Trust Law itself has no such purpose or result, and has never been deemed by this court or the inferior Federal courts to have it until the decision of the lower court in the case at bar. In the TroMs-Missouri Freight Association case (supra) this court held that the Sherman" Anti- Trust law embraces and forbids every contract and combination in restraint of trade, whether reasj>n- able or unreasonable. In the Joint Trafflc Associa- tion case (supra) a strong argument was made to induce the court to change this holding, the conten- tion being that under such holding partnerships and corporations could not be formed for business hav- ing direct relation to interstate commerce and com- merce would be paralyzed. This court did not modify its holding, but it said that the forebodings and predictions of the disastrous effect of the en- forcement of the Sherman Law were not justified. ". . . we might say that the forma- tion of corporations for business or manufac- turing purposes has never, to our knowledge, been regarded in the nature of a contract in restraint of trade or commerce. The same 185 may be said of the contract of partnership. It might also be difficult to show that the appointment by two or more producers of the same person to sell their goods on commis- sion was a matter in any degree in restraint of trade. "We are not aware that it has ever been claimed that a lease or purchase by a farmer, manufacturer or merchant of an additional farm, manufactory or shop, or the with- drawal from business of any farmer, mer- chant or manufacturer, restrained commerce or trade within any legaTaeffnition'of tlat term", and the'sale'of'a good will of a busi- ness with an accompanying agreement not to engage in a similar business was instanced in the Trans-Missouri case as a contract not within the meaning of the act; and it was said that such a contract was collateral to the main contract of sale and was entered into for the purpose of enhancing the price at which the vendor sells his business." (a) This language of Mr. Justice Peckham, speaMng for the court, is significant. It is that the various things mentioned have never "been regarded in the . \ nature of a contract in restraint of trade or com- merce." The court is not spSEoig simply of inter- state and foreign commerce; its words reach back and were intended to reach back to a period before the passage of the Sherman Anti-Trust Law, to the beginning of the law on the subject. In the Northern Securities case, Mr. Justice B rewer, in, an opinion concurring witlTthe court, and written to prevent anything that might tend to "unsettle legitimate business enterprises, stifle or retard wholesome business activities, encourage improper disregard of reasonable contracts and invite unnecessary litiga- tion," (b) (a) 171 F. S., 505, 567-8. (b) 193 U. S., p. 364. 186 held that "Congress did not intend to reach and de- stroy those minor contracts in partial re- straint of trade which the long course of de- cisions at common law had affirmed were reasonable and ought to be upheld. The pur- pose rather was to place a statutory prohibi- tion with prescribed penalties and remedies upon those contracts which were in direct re- straint of trade, unreasonable and against public policy." (a) This court has incidentally from time to time taken it for granted that there is nothing in the Sherman Anti-Trust Law, or any other Federal leg- islation, that prevents the consolidation of property rights, or the transfer of property rights, although such consolidation or transfer is effective to dimin- ish or eliminate competition. For instance in Smi- ley V. Kansas (b), in which an agreement between competing grain diealeirs is condemnedi under a State statute, Mr. Justice Brewer, speaking for the court, said : "Undoubtedly there is a certain freedom of contract which cannot be destroyed by legis- lative enactment. In pursuance of that free- dom parties may seek to further their busi- ness interests, and it may not be always easy to draw the line between those contracts which are beyond the reach of the police power and those which are subject to prohi- bition or restraint. But a secret arrange- ment, by which, under penalties, an appar- ently existing competition among all the dealers in a community in one of the neces- saries of life is substantially destroyed loith- out any merging of interests, Jthrqugh pwrtZ nership or incorporation, is one to which the police power extends." (a) P. 361. (b) 196 F. S., 447. 187 In National Cotton Oil Co. v. Texas, (a) Mr. Jus* tice McKenna, speaking for the court, dealt with some of the contentions of defendant as follows : "To support the argument the usages and necessity of business are adduced, and part- nerships and their effect are brought forward as illustrations. There are some things which counsel easily demonstrate. They easily demonstrate that some combination of . 'Capital, skill or acts' is necessary to any 'i business development, and that the result ] must inevitably be a cessation of competi- ' tion." In Cincinnati Packet Co. v. Bay (b) there was involved the sale by one competitor to another of a steamboat property — one of the very instrumentali- ties of commerce — accompanied by a covenant by the vendor not to engage in competition. The court assumed that the sale was valid, although there was thereby an actual competition eliminated, and sus- tained the vendor's covenant. Mr. Justice Holmes, speaking for a unanimous court, said: "Presumably all that there was to sell, be- side certain instruments of competition, was the competition itself, and the purchasers did not want the vendors' name. This being our view of the covenant in question, whatever differences of opinion there may have been with regard to the scope of the act of July 2, 1890, there has been no intimation from any one, we believe, that such a contract, made as part of the sale of a business and fibt as mere device to control commerce, would fall within the act. On the contrary, if has been suggested repeatedly that such a contract is not within the letter or spirit of the statute." In the lower Federal courts there have been the same incidental as well as express holdings too (a) 19Y U. S., 115. (b) 200 U. S., 179. 188 numerous to be here quoted in full. To illustrate: The Circuit Court of Appeals for the Sixth Circuit, composed of Judges Lurton, Day (now Mr. Justice Day of this court) , and Severens, in Chesapeake d Ohio Co. V. U. S., (a) speaking through Judge Day, said: "Looking then to the contract in question, we find 14 of the coal producers of this dis- trict . . . entering into an agreement which, without making a partnership, under- takes to control the entire output of the sev- eral mines for shipment west by a leading route." In Davis v. Booth (b), the same court, speaking through Judge Severens, said: "There is a clear distinction, which seems to be lost sight of in the argument here, be- tween the aggregation of properties by pur- chase when the seller no longer retains an interest in the property, and a combination of owners and properties under one manage- ment, where each owner's interest is contin- ued in the combination." In addition to these two cases indicating the views of the lower Federal judges, reference is re- spectfully made to the case of Bigelow v. Calumet Mining Co., heretofore referred to and the cases cited in the note (c). Againstall of these cases, certainly indirectly in- dicating and directly declaring the legality of the elimination of competition that comes from the consolidation into a coimmon ownership of the (a) 115 Fed., 610, 620. (b) 131 Fed., 31, 37. (c) Eobinson v. Brick Co., 127 Fed., 804. Connor-McConnell Co. v. McConnell, 140 Fed., 412; afF., idem, 987. Fisheries Co. v. Lennen, 116 Fed., 217. Harrison v. Glucose Co., 116 Fed., 304. National Co. v. Haberman, 120 Fed., 415. 189 property of those previously competitors, as well as the elimination of competition which comes from a bona fide purchase by one competitor of another, it is contended that the Northern Securities cme is to prevail; that under the decision of this court in that case a contract and combination in restraint of trade is effected by the mere acquisition of prop- erty, and is to be prevented by enjoining the vendee of the property thus illegally conveyed from enjoy- ing its use. , The first thing that suggests itself is that this court has not so treated its decision in the Northern Securities case. Smiley v. Kansas, National Cotton Oil Company v. Texas, and Cincinnati Packet Co. v. Bay, cited above, were all decided by this court sub- sequent to its decision in the Northern Securities case. There is no intimation in any of these that the words cited herein are in conflict with the de- cision of the Northern Securities case. It is not to be denied, however, that if for no other reason than the claim made by the Govern- ment as to its effect, the Northern Securities case and its circumstances and eft'ect should be carefully considered: The Great Northern Eailway Co. and the Northern Pacific Kailroad Company were great railroad systems, each itself an instrumentality of interstate commerce, competing each with the other, and between them con broiling the traffic, and the only means of transportation, in a vast extent of territory. A previous attempt to consoli- date these companies had been defeated, as being in contravention of the statutes of the States of their incorporation (a). Under these circumstances the leading stockholders of each of these two railway companies, without any corporate action by the railway companies themselves, caused the forma- tion of a company called the Northern Securities (a) Pearsall v. Great Northern Railway Co., 161 TJ. S., 646. 190 Company, without any other than a nominal cash capital, without any tangible property in posses- sion, or intended to be possessed, but as a simple holding company. This company, immediately after its organization by the principal stock- holders of the two competing railway companies, offered, in accordance with a prearranged scheme, to acquire from the stockholders of the two competing railway companies their stock in consid- eration of its stock to be issued upon an agreed basis of exchange of its capital stock for the capital stock of the other companies. Suit was instituted by the Government promptly, but even before its institu- tion the Northern Securities Company had become the holder of a majority of the capital stock of each of these competing railway companies, and thus able to elect the whole Board of Directors thereof and control the policy and operations of these two great instrumentalities of commerce. The North- ern Securities Company had not in contemplation any further activity than the holding of these stocks, the collection of the dividends from them, the payment of dividends on its own stock, and the direct or indirect control of the affairs of the two railroad corporations. The controlling circum- stances in this transaction are readily seen: The companies dealt with — public service companies — owed the public duty of continued existence and con- tinued competition — private manufacturing com- panies owe no duty of continued existence, and their duty to compete can continue only so long as they continue an actual and independent existence. The formation of the Northern Securities Company could have no purpose or effect of increasing economy or efficiency or other such public advan- tages; its only practical utility was the elimina- tion of the competition that had theretofore existed between the two roads, which elimination had been already determined to be against public policy. 191 There was a vigorous dissent in this court, even with all these facts, and the great question which divided the court was whether the Northern Securi- ties Company was a fact, to be taken at its face value, or a fiction to be brushed aside in order to discover the real .situation. A majority of this court held the latter view, and they looked and found, behind the fiction, a scheme between large stockholders of the competing roads to end compe- tition between them through the instrumentality of this Northern Securities Company, and a majority of this court decided that this court could reach and nullify such scheme by treating the Northern Secu- rities Company as the trustee of those stockholders. This analysis of the facts of, and the decision in, the Northern Securities case is made with complete advertence to the case of Harriman v. Northern Securities Co. (a), in which Mr. Harriman, who had deposited stock of the Northern Pacific Kail way Co. with the Northern Securities Co., sought, after the decision of this court, to recover the identical stock deposited by him on the contention that the original deposit, having been made contrary to law, was void. This court denied him relief, but not at the expense nor by the least abatement of its earlier opinion, rendered in the principal Northern Securities case. In the Harriman case the de- cision of this court was based squarely on the doc- trine that the complainant was in pari delicto in the scheme for the restraint of trade effected by the organization of the Northern Securities Company and the deposit of stock with it, and, whatever the facts, was estopped by his conduct to deny — for his own affirmative relief — the title of that company to the stock deposited by him; that he must, there- fore, submit to the equitable distribution in kind of its assets by the Northern Securities Company, according to the plan adopted by it after its in- (a) 197 U. S., 244. 192 ability to enjoy such assets was established by the decree of this court. The facts of this Northern Securities transaction are in contrast with the facts of the transactions found in the record of the case at bar. There is no holding company in the case at bar, but each de- fendant is engaged actively in the business for which it was incorporated, holding stock in other companies only as incidental to its main business, as permitted by the charter of the State of its in- corporation, and as justified in each case by the exigencies of the business (a). None of the cor- porations whose activities in competition have been eliminated by mergers and purchases, as shown in the record of the case at bar, owed the public duty of continued existence, and hence they could not have owed the duty of continued activity, in com- petition or otherwise. No suggestion is made in the case at bar that these defendants have violated any state statute — their every act was expressly authorized by state statutes. This is in striking contrast with the fact in the Northern Securities case that a result was there accomplished viola- tive of the statutes of the states where the railroads affected operated. If the elimination of com- petition had been the main purpose of the various consolidations and acquisitions that have occurred in the case at bar those acquisitions and consolida- tions would not on that account have been illegal, for men have the right to purchase in order to get rid of competition {Cincinnati Packet Co. v. Bay, supra) ; the elimination of competition, though, was not the purpose of the men who effected these con- solidations and purchases, nor has it been the effect of such purchases and consolidations — brands of tobacco and products of tobacco compete with each other, though in the same hands — the purposes of the men active in the transactions shown in this case, and the effect of such transactions, have been (a) Ante, pp. 21, 26, 53, 80. 193 to bring increased economy, efficiency and success to the business. - Continental Wall Paper Go. v. Voight {supra) is anotber case in which a corporation was used as an instrumentality for an unlawful combination among competitors, and it has the advantage over the Northern Securities case, so far as this litigation is concerned, of being a case involving commodities and not means of transportation. In the Wall Paper case it appeared that the producers of ninety- eight per cent, of the wall paper produced in the United States, together with certain Canadian man- ufacturers and manufacturers of wall paper ma- chinery and many jobbers and wholesalers, entered into a combination to affect their sales and not their manufacture, and as a part of it formed a cor- poration the stock of which was owned by the manu- facturers, nominally the manufacturers made all their sales to it and it resold to wholesalers and job- bers at a uniform price. Agreements were entered into between it and the manufacturers limiting the sales of the manufacturers, and the difference be- tween the price at which the manufacturers turned over their goods to it and the price which it received constituted nominal dividends distributable among the manufacturers. The corporation was, under such circumstances, naturally held to be a mere fic- tion, the head of the illegal combination, and the whole arrangement was condemned. This sales agency arrangement, thus attempted to be used as an instrument to evade the law, is quite another thing from the consolidated or merged corporation, hona fide engaged in business as an industrial con- cern, such as the defendants in this case. The great divergence of view among those who hold that the law forbids that elimination of com- petition which follows asi an incident of legitimate 194 purcliase or consolidation suggests that the view is erroneous. At least five different theories exist: A. That notwithstanding the statute makes no distinction between large and small, important and unimportant, contracts and combinations in re- straint of trade, purchases by, or consolidation among, competitors whose aggregate trade is small in volume (and this without respect to the second section of the Sherman Law which has to do with monopolizing, and which will be later considered), are innocuous and valid, while those affecting con- duct of individuals or corporations whose trade is considerable in volume are void (a). This sugges- tion is made with respect to the construction of this criminal statute, which by its terms makes no such distinction, and when there is no suggestion of the measure to be applied by an individual in determin- ing whether his contemplated conduct is lawful or unlawful. B. That a "corporate combination" results from a plan to combine competing interests by forming a corporation and transferring to it various com- peting properties, but only where there is such an initial plan out of which the corporation is evolved (b). Under this, every corporation formed under the merger statutes of any of the States is at once illegal, because, of course, the consolidated cor- poration is formed as a part of the initial plan out of which it itself is evolved. C That such an illegal combination results from any corporate purchase where the purchase price is paid in the stock of the purchasing company instead of cash, or its equivalent (c) . This is a more rigor- ous theory than the one just referred to and would (a) This was suggested by the Government in the court below and will presumably be repeated in this court. (b) Noyes (Circuit Judge), Intercorporate Eolations, Sec. 319. (c) Cir. J. Noyes' Opinion, Eeeord, Vol. 1, p. 314. 195 not only nullify the merger statutes of most States, but would also open the door to flagrant evasions of the law, or would nullify the provisions of State statutes permitting the issuance of stock by a cor- poration in payment of property conveyed to it. D. That such an illegal combination results from a corporate purchase of all or a part of the oapital stock of another corporation, but not from a pur- chase of the property of such other corporation (a) . This is substituting form for substance, and since it was only expressed by the lower court in the Bigelow case, and the lower court was reversed, it need not be further considered. E. That such an illegal combination results from any purchase by a corporation of the business of a competitor, whether it be of stock or property, and whether the price is paid in cash, stock of the vendee corporation, or otherwise (b). Of all these divergent views the logical though drastic one is the last — the one expressed by Cir- cuit JudgeJjacoznJieJn the case at bar. If it be true that competition, once established, must be forever continued, then the competitor must not dispose of his business to a competitor — it is more a matter of form and legal casuistry than of substance whether the elimination of competition be by con- solidation agreed upon in advance, or by sale for stock in the vendee company, or by a transfer of stock of the vendor corporation, which vendor cor- poration is kept separate at the option of the vendee for trade purposes, or by simply an ordinary sale for cash. Such a construction makes the law not only revo- | lutionary and drastic, but inconsistent with all the \ institutions of English-speaking people. It is not (a) Bigelow v. Calumet Co., 155 Fed. E., 869, overruled in 167 Fed. E., 722. (b) Oir. J. Laeombe's Opinion, Eecord, Vol. 1, p. 293. 196 to be forgotten that in denouncing as criminal the conduct of the vendee in purchasing a competing business, this law, as thus construed, so encroaches on as to virtually nullify the right to sell. If the most likely purchaser for a given factory cannot buy, the owner who desires to sell will get very lit- tle for his property, and when such owner desires to retire, or change his business or investment, he will find profitable retirement, or change of invest- ment, impossible (a). POINT III. Tliese defendants liave not monopo- lized, nor attempted to monopolize, nor combined or conspired "witli any other person to monopolize, any part of tlie trade or commerce among* the several states or -witli foreign na- tions. The Petition of the Government in this case ■ 6 charges~EEaOh^"3efendants have monopoliz ed and attempted to monopolize a part of the trade and commerce among the several States of the United States and with foreign countries and so seeks to bring them under the condemnation of the s econd section of the Sherman Anti-Trust Law. The_opin-_ ions of "the court below in not cond emning, in e f-^ fectTTTnoFexpressTy, acquit the defendants of this cTiarge, and the matter of monopolizing is discussed only by Circuit Judge Noyes (b) . In view, though, of the contentions of the Governnient, this brie^ should discuss the question. The very first thing that suggests itself is that — (a) For discussion of unconstitutionality of statute witli such construction see post, p. 228. (b) Eecord, Vol. 1, pp. 315-320. 197 POINT III— (Cont'd) Sub-Point I. Tbe typical transactions hereinbe- fore referred to, to -vvit: tbe consolida- tion of conipeting* properties, or tbe purcbase by tbe owner of one prop- erty of property tberetofore used in conipetition "witb it (and no otber transaction is sbown by tbis Rec- ord), bcwever often repeated, and even if tbey bad been intended to brin^ -witbin one cwnersbip all of tbe plants at tbe time producing* or distributing* tbe particular com- modity, -were not transactions of, nor direct in tbeir effect on, inter- stater~or foreig'n commerce, and so do not constitute monopolizing* nor attempting* to monopolize interstate or foreign commerce witbin tbe sec- ond section of tbe Sberman Anti- Trust LaMT. It has been said earlier in this brief that the transactions disclosed by this record fall as com- pletely within the doctrine of the Knight case as the transactions of a case at bar will ever fall within the doctrine of a case decided. This is true not only as to the 1st section of the Sherman Anti- Trust Law but as to the 2nd as well. The Knight case was brought under the 2nd section as well as the 1st, and, as shown by the opinion of the Court, as well as by the Record of the case, the Govern- ment stressed the 2nd section — the monopoly al- leged to have been formed — more than any other part of the Law. And why should it not have done so? The American Sugar Eefining Com- pany having sixty-five per cent, of the sugar 198 business, acquired the Philadelphia refineries, which, in the aggregate, produced about thirty- three per cent, of all the sugar of the United States. They were in active competition with each other and the American Sugar Eefining Company sell- ing their produce wherever demand was found for it throughout the United States. The object of the American Sugar Refining Company in purchasing these Philadelphia refineries was to "obtain a greater influence and more perfect control over the business of refining and selling sugar in this country," and by such purchase it became the owner of plants producing ninety-eight per cent., instead of sixty-five per cent., of all the sugar pro- duced here. Here existed all the elements of a monopoly as well as an intent to monopolize, so far as popularly understood, and in a necessity of life. It icas taken "by the Court as a conceded fact that a monopoly, for the time being, was not only intended and at- tempted, hut accomplished. But it was direct in its effect only on property that had not begun to move; it affected the ownership of such property and not its transit, nor its sale in interstate com- merce; it was indirect and incidental in its ef- fect on interstate trade. The Knight case is as unshaken in this as in all other respects. The argument of this brief hereto- fore made in Point II, Sub-Point I, ought not to be repeated, out of consideration for the time and patience of the Court. It is all applicable here, and establishes definitely the proposition that the only things condemned by any opinion of the Court below, the bringing into a common ownership of many theretofore competing plants, is not within the condemnation of the Sherman Law — whether the 1st or 2d section — or, indeed, the jurisdiction of Congress— not within the scope of Federal au- thority. 199 POINT III— (Cont'd) Sub-Point II. Tbe transactions disclosed hy this Record do not constitute monopoliz- ing trade, -whether such trade be in- terstate or other-wise, and -without reference to the limitations of the scope of Federal authority declared and enforced in the Knig-ht case. No case has been decided in which a person or corporation has been condemned for violating the second section of the Sherman Law, which forbids monopolizing, in which there Avas not also involved an^adjudged violation of the first section, which forbids contracts, combinations and conspiracies in restraint of trade. Courts have said, indeed, that the second section of the Sherman Law was passed in aid of the first, and have intimated that without violation of the first it was hard to conceive a violation of the second ( a) . The term "monopoly" has been in popular phraseology the husband, or wife, of the term "trust," so that the words "trusts" and "monopolies" have usually gone hand in hand through newspapers and magazines; they have even walked thus together through some opinions of courts, without any clear distinction as to where in the given case the "trust," supposed to exist in violation of the first section of the Sher- man Anti-Trust Law began, and the "monopoly" supposed to exist in violation of the second section of the Sherman Anti-Trust Law ended. Congress did not mean by the second sec- tion of the' Sherman Anti-Trust Law to limit the acquisition of property by citizens of States and corporations forhied under State authority. The (a) Northern Securities Case, 193 U. S., 19Y. Whitwell V. Continental Tobacco Co., 125 Fed., 462. 200 language used is that there must be no monopo- lizing of "trade," not that there must be no monapp- lizing of commodities or plants. "Congress did not attempt thereby to as- sert the power to deal with monopoly directly as such ; or to limit and restrict the rights of corporations created by the States or the citizens of the States in the acquisi- tion, control, or disposition of property; or to regulate or prescribe the price or prices at which such property or the products thereof should be sold; or to make criminal the acts of persons in the acquisition and control of property which the States of their residence or creation sanctioned or per- mitted (a). "It is perfectly legitimate, as it seems to me, to combine capital for all the mere pur- poses of trade for which capital may, apart from combination, be legitimately used in trade. To limit combinations of capital, when used for purposes of competition, in the manner proposed by the argument of the plaintiff, would in the present day, be impossible — would be only another method of attempting to set boundaries to the tides." (b) "Here there is no monopoly. Three of the four companies in New England in this line of manufacture agreed to unite, one induce- ment being to stop the sharp competition then existing between them. But even so, not only is the field open to the other com- pany, equal in strength to either of these, but it is also open to competition from com- panies in other parts of the country, and to formation of new companies. This is neither monopoly nor such an approach to it as amounts to the same thing. It is the common occurrence of a consolidation of firms. It is not illegal on the ground of re- ducing competition." (c) (a) United States v. E. 0. Knight Co., 156 TJ. S., 1, 16. (b) Mognl Co. V. McGregor, L. E., 23 Q. B., 598, 618. (o) Oakdale v. Garst, 18 E. I., 484; 49 Am. St. Eep., 784. 201 "It is not very clear what Congress meant by the second section of the act of July 2, 1890, in declaring it a misdemeanor to 'monopolize' or 'attempt to monopolize' any part of the trade or commerce among the states or with foreign nations. It is very certain that congress could not, and did not, by this enactment attempt to prescriTje limits to the acquisition either by the private citi- zen or state corporation, of property which might become the subject of interstate com- merce, or declare that when the accumula- tion or control of property by legitimate means and lawful methods reached such magnitude or proportions as enabled the owner or owners to control the traffic there- in, or any part thereof, among the states, a criminal offense was committed by such owner or owners. All persons individually or in corporate organizations, carrying on business avocations and enterprises involv- ing the purchase, sale, or exchange of arti- cles, or the production and manufacture of commodities, which form the subjects of commerce, will, in a popular sense, monopo- lize both state and interstate traffic in such articles or commodities, just in proportion as the owners business is increased, enlarged and developed. But the magnitude of a party's business, production, or manufac- ture^ wrtE~13ie incidental and indirect powers thereby acquired, and with the pur- pose of regulating prices and controlling interstate traffic in the articles or commodi- ties forming the subject of such business, production, or manufacture, is not the monopoly, or attempt to monopolize, which the" statute" condemns." ( a ) A recent statement of what does and what does not constitute an attempt to monopolize was given by Ex-Judge Taft, now President of the United States, in a speech delivered at Columbus, Ohio, August 19, 1907. This is quoted, not on account of (a) In re Greene, 52 Fed., 115. 202 the present prominence of President Taft in public affairs, but because he is a great lawyer, was a great judge, and has given earnest consideration to this statute, as evidenced by his opinion in the Addyston Pipe and Foundry case. "I conceive that it ('monopoly' under the Sherman Law) is not sufficiently defined by saying that it is the combination of a large part of the plants in the country engaged in the manufacture of a particulax product in one corporation. There must be something more than the mere union of capiM and plants before the law is viola;ted. There must be some use by the company of the compafaT tively great size of its capital and plant and extent of its output, either to coerce j)ersons to buy of it, rather than of a competitor, or to coerce those who would compete withjt^to^ give up their business. There must iu-^other words be an element of duress in the conduct of its business towards the customers in the trade and its competitors before a mere ag- gregation of plants becomes an unlawful monopoly." It is undoubtedly true that the word "monopolize" as used in the Sherman Anti-Trust Law has a dif- ferent meaning from that word, or its counterpart word "monopoly," as used at common law or in English statutes. But one may well look to the common law for a definition that throws light on the meaning that the word "monopolize" was in- tended by Congress to have. At common law a "monopoly" was "a license or privilege, allowed by the King for the sole buying and selling, making, work- ing or using of anything whatsoever "Whereby the subject in general is restrained from that liberty of manufacturing or trading which he had before" (a). "Monopoly" and "Monopolize" are words which still carry with them the idea of exclusion or re- (a) 4tli Blackstone, p. 159. 203 stramt' Whatever the magnitude of the single con- cern may be and whatever the volume of business there may be to-day in its hands, it is not guilty of the crime of monopolizing, or attempting to mono- polize unless it is doing something by which there is either attained or attempted this result, to wit : that the "subject in general (the person not connected with the single concern) is restrained from that liberty of manufoGtwring or trading which he had before." This idea carried into the construction of the second section of the Sherman Anti-Trust Law ren- ders it understandable and a fitting supplement to the first section. The first section forbids conspira- cies in restraint of trade — conspiracies as defined by Mr. Justice Holmes in the Northern Securities case (supra) which have for their purpose the ex- clusion of strangers to the conspiracy from inter- state trade. Conspiracy, _by^the very force of the word, involves the concurrent action of two or more. The second_section supplements this first section, and p rovid es in effect that the individual or corpora- tion may not singly or in combination and con- spiracy with others, attempt to monopolize inter- state trade or commerce ; that is, may not attempt tcTexclude or restrain others from that liberly of in- terstate trading which those others had before. This construction which makes the exclusion of others from the trade the gist of monopolizing or attempting to monopolize has the additional ad- vantage over any other construction that it makes the whole of the second section of the Act effec- tive. The second section condemns as criminal not only every person who monopolizes or attempts to monopolize trade or commerce among the several States or with foreign nations, but every person who monopolizes or attempts to monopolize "any part" of such trade and commerce. If monopoliza- tion occurs, or if an attempt to monopolize is to be 204 inferred, from a mere unification of ownership of plants engaged in the production of a commodity, to what extent must such unification proceed be- fore the offending party may be said to have monopolized "any part" of trade and commerce? No satisfactory meaning can be given to the words "any part" under such construction. If securing for oneself a considerable volume of trade in a given commodity is to be condemned as monopoliz- ing or attempting to monopolize the trade in such commodity, how much must one's volume of trade be before he is guilty of the crime? What is to be the minimum below which there is no guilt, and the maximum beyond which there is no assurance of innocence? Considering that the statute uses the words "any part," no one can with any degree of satisfaction answer the question with such a con- struction. But when the word "monopolize" is given its meaning inherited from the common law, to-wit: the restraint of others from liberty of trading, the use of the phrase "awy part" becomes natural and reasonable ; it is an offense to restrain or exclude others from "any part" of trade^or com^ merce. That it is the duty of a court to give that construction to a statute, and to each section of a statute that gives meaning and effect to every word in it, if possible, is elementary learning. It is re- spectfully submitted that the construction now con- tended for gives to all the phrases of the second section of the Sherman Anti-Trust Law reasonable meaning and effect, and that no other construction does. "I repeat, that in my opinion there is no attempt to monopolize and what ass I have said in my judgment amounts to the same thing that there is no combination in re- straint of trade untiLsomething is_don.e with the intent to exclude strangers to the com- 205 bination from competing with it in some par- ticular business wliicli it carries on" (a). "It will be noticed that in all the forego- ing definitions of 'monopoly' there is em- braced two leading elements, viz. : an exclu- sive right or privilege, on the one sideTaSd a restriction or restraint on the other, which will operate to prevent the exercise of a right or liberty open to the public before the monopoly was secured. This being, as we think, the general meaning of the term, as employed in the second section of the statute, an attempt to monopolize any part of the trade or commerce among the states must be an attempt to secure or acquire an exclu- sive right in such trade or commerce by means which prevent or restrain others from engaging therein" (b) "Monopoly implies an exclusive right from which all others are debarred and to which they are subservient" (c) It would s^m to these defendants that there can- not be a monopolizing of the trade in a given com- modity, except in one of the four following ways, to wit: 1st. By preventing others from getting their fair requirement of the raw material for the manu- facture of commodities; 2nd. By preventing others from obtaining their fair requirements of machinery or other facilities needed to produce the given commodity; 3rd. By preventing others from the use of trans- portation facilities for the distribution of their manufactured product; 4th. By preventing others from using the ma- chinery of distribution — in the tobacco business, jobbers and retailers. (a) Jiistice Holmes in ITortliern Securities case, 193 U. S., 409. (b) In re Greene, 52 Fed., 116. (c) Chemical Co. v. Providence Co., 64 Fed., 946, 949. 20t) It is not intended to concede that if any of these four results come incidentally in the condiict of one's own business there is any infraction of the Sher- man Law. For instance, a manufacturer may, if his needs require, buy all of the raw material avail- able, although there incidentally results that his competitors are unable to procure their require- ments; the discoverer, or inventor of a secret process or improved machinery for manufacture is under no duty to disclose his secret process or re- frain from patenting his machine, although his failure to do so results in his competitors being unable to economically and efficiently manufacture the product; a manufacturer has the right to offer inducements to a given wholesaler or retailer to handle his products exclusively — this is simply competition, and his competitor can do the same with other merchants in existence, or with other merchants induced to come into existence (a). In this Eecord, though, there is not only no evidence to show that any of these means of monopolizing have been used by the defendant, but there is abundant evidence they have not used any of these means to exclude any competitor from the trade. 1. It is plain that they do not exclude their com- petitors from the acquisition of their respective re- quirements of the raw material. The principal raw material of the tobacco business is leaf tobacco, and these defendants own no tobacco lands in the United States; there are unlimited lands now de- voted to other crops upon which tobacco leaf may be grown; they use less than half the annual crop of this country; every pound they buy, they buy in competition with others; they realize that there is always an available supply on the market for a single year's production and that with unlimited lands not in their control for its production, an attempt to corner the market by exorbitantly high (a) Whitwell v. Continental Tobacco Co., supra. 20Y prices would be followed by tremendous crops and lower prices. No suggestion is made in tbe proof of any attempt thus to corner the supply of tobacco, unless the advance in 1904 in the price of cigar "cuttings" is to be so dignified. The facts with respect to this have been heretofore fully discussed (a) and ought not to be repeated; it may not be improper to state here briefly that there is abso- lutely no proof that the advance was not because of crop conditions or that any manufacturer was injured by the transaction in question — on the other hand two manufacturers of the only type of tobacco affected, testified to the absence of any in- jury, and it appears that the rise in price was expected by scrap manufacturers as a natural out- come of crop conditions. 2. These defendants do not control or exclude o'tEers from transportation^Jacilities for bringing the raw material to the place of manufacture or carrying the manufactured product to market. There is not a particle of evidence which even tends to the suspicion that any of these defendants ever possessed an advantage of this character over any of their competitors; or that any of them ever re- ceived directly or indirectly a rebate from a rail- road or other transportation company. Indeed,^ the Government makes no such contention. This is a matter of great importance, for it is generally charged and relied upon in Government prosecu- tions under this law that many of the large indus- trial companies in the United States have flourished by reason of this advantage; "it is obvious that no more powerful instrument of monopoly could be used than an advantage in the cost of transporta- tion" (b). The growth and prosperity of these de- fendants cannot be attributed in any way to the (a) Ante, p. 101. (b) Swift V. U. S., 196 U. S., 401. 208 practice of receiving rebates or other concessions from transportation companies. 3. These defendants have no control over the processes of manufacture, nor does the Govern- ment make such claim. The several concerns which were purchased by The American Tobacco Company in 1890 made cigarettes by machinery, an innovation in manufacture which was intro- duced in the early eighties. It does not appear, however, that they controlled the patents on those inventions or that anyone might not have pro- cured a license to manufacture by this new method if he desired. For many years cigarette machines have been procurable by any one, and have been in general use. American Cigar Company owns a machine for making cigars, but it has never been successful. Success in the manufacture of any kind of tobacco or its products does not de- pend upon the machines which some possess and others do not— the machinery is usually obtaina- ble. The process for the manufacture of a given brand is secret, but there is nothing in the nature of the business which prevents anyone who has the requisite skill and enterprise from doing to- morrow what his competitor has done to-day. 4r These defendants have no control over the facilities of distribution — there are sufficient job- bers and retailers willing and anxious to distribute the goods of competing manufacturers to furnish them all the facilities they require. There are over 600,000 retailers in the United States selling tobacco and its products; The American Tobacco Company, by ownership of a majority of the stock, controls the United Cigar Stores Company, which has 409; it has no control at all over the other 599,591, Out of the 5,000 jobbers distributing tobacco it owns one, and American Cigar Company owns six. 209 Tliat the avenues of distribution are open and free to all, and that any one engaged in the manu- facture of tobacco or its products or desiring to engage in such business can obtain jobbers and re- tailers through whom to market his goods is es- tablished by such overwhelming evidence that no room is left for doubt. The drummers of independ- ent manufacturers called by the Government testi- fied that the channels of distribution are open to all and that their houses have no difficulty in marketing their goods (a). The independent to- bacco and cigarette manufacturers called by the de- fendants said the same thing (b). Tobacco jobbers from Seattle, Omaha, Chicago, Detroit, Toledo, Eochester, Utica, Baltimore, Savannah, Hartford and Bangor, who, taken together, sell through all sections of the United States, and whose united business exceeds |50,000,000 per annum, give the same testimony (c) ; and the officers of defendant companies are but in agreement with all these un- prejudiced witnesses, or witnesses prejudiced against the defendants, when they state and show the facts to be as here indicated (d). To break the force of this the Government would leave the impression that because out of 4993 job- bers engaged in selling tobacco throughout the United States, and not owned, or controlled directly by the defendants, 253 receive special allowances or inside commissions from some of the defendants, such jobbers are therefore under some sort of com- pulsion to discriminate in favor of its product. In the first place it may be said that if these 253 job- bers who receive special allowances were under such compulsion there would be nothing illegal in it (e) ; there would still be 4740 tobacco jobbers (a) Ante, p. 131. (b) Ante, p. 134. (c) Ante, pp. 131-3. (d) Ante, p. 135. (e) Whitwell v. Continental Tobacco Co., supra. 210 ' through whom competing manufacturers might se- cure distribution. The fact is, though, that every tobacco jobber who was examined testified that he had no agreement, express or implied, to handle the goods of defendants to the exclusion of others; that his special allowance or inside commission was for extra work done, especially in distributing new brands ; that he received like commission from other tobacco manufacturers; that the payment of such commissions had been the custom in the to- bacco trade and other branches of the wholesale grocery business for many years and was not intro- duced by any of these defendants. Having thus shown that the defendants have pursued none of the ways that may be imagined to exclude others from the tobacco trade, it would be surprising if there appeared in the Record that there had resulted such exclusion without the use of any of these means. The Record does not show any such surprising result, but shows on' the other hand beyond all question that there has been no ex- clusion; that other manufacturers of tobacco and its products have prospered unembarrassed by the activities of these defendants in securing their raw material, in operating their processes of manufac- ture, in securing transportation for their raw ma- terial and manufactured product, and in having their manufactured product distributed through the ordinary avenues of the tobacco trade. Al- though in repetition of what has been already said in the discussion of facts, it may here be briefly stated that it was the defendants and not the Gov- ernment that called as witnesses the two largest manufacturers of tobacco in their respective lines, Black and Peper, and the largest manufacturer of cigarettes, Schinasi — all three absolutely independ- ent of all of the defendants and with no relation with any of the defendants, except the relation of 211 competitor, and they testified clearly and distinctly as" toTiieir success and the fact that their business activities had not been embarrassed by the compet- ing activities of the defendant tobacco and ciga- rette manufacturers. The drummers for other to- bacco and snuff manufacturers called by the Gov- ernment were unwilling, but all the more impres- sive, witnesses to the fact that their employers were thriving in business, unembarrassed in their activi- ties by the activities of the defendants. It has been urged, however, that the two tobacco manufacturers who testified for the defendants were the owners of old established businesses, and that while the activities of the defendants had not put them out of business, it is quite impossible for a new tobacco manufacturing enterprise to be put into successful operation. That this suggestion is without merit is shown by the fact that one of the Government's witnesses was a drummer for the United States Tobacco Company, a concern started in 1899 with the funds that its promoters had se- cured upon the sale of a former business to Conti- nental Tobacco Company. If the case of Scotten Dillon Tobacco Company of Detroit, Michigan, stood alone it would refute absolutely the conten- tion of the Government that other manufacturers are in any way excluded from trade in tobacco and its products: Scotten Dillon Tobacco Company was started in Detroit in 1902 upon funds that its promoters received three years before upon the sale of a previously owned business to Continental Tobacco Company. It went into active competi- tion with defendants, engaged in the manufacture of tobacco and it has built up a business of from 10,000,000 to 12,000,000 pounds per year, declaring regular and large dividends all the time. The story of the two Armenian brothers — Schinasi Brothers — as told by them on the stand, and the tremendous 212 success of their cigarette business, built up in competition with the defendants, is impressive in the same way. In the court below, Judge Noyes, who is the only judge who discusses the matter of monopoly, while not deciding that the defendants have monopolized trade, argues that a monopoly exists when there exists the power to control the prices of commodi- ties, and that, in view of the fact that the defend- ants purchase more than half of certain types of tobacco they have the power to fix the prices to be paid for such crops, and that because the defend- ants manufacture more than half of certain types of tobacco or its products they may fix the price which the consumer pays for such products. It is unquestionably true that wealth gives power, but it is respectfully submitted that the possession of such power as wealth always gives cannot be used to exclude the wealthy individual or corporation from a given line of business. If so, a moderately wealthy man could not engage in a business the aggregate volume of which was small, and the very wealthy could not engage in any business at all. If the defendants refrained from competing on a par- ticular crop of tobacco of which they are normally large purchasers the price would fall, but the same thing is true to a less extent of the same action on the part of the small purchaser of a given type. If the defendants see fit to advance the price of their manufactured product consumers will for a while pay such advanced price until they are driven to a competing brand. The existence of this power, though, is incident in a greater or less degree to all business, and it is a power which if exercised contrary to the ordinary laws of supply and de- mand will bring upon him who exercises it the greatest punishment. No apology need be made for again calling to the attention of the Court the Knight case, which re- 21 a curs so frequently as an authority on every aspect of this case. The American Sugar Kefining Com- pany became, by its purchase of the Philadelphia refineries, more powerful in the sugar trade than these defendants have become in the tobacco trade. The Knight case was brought under the second sec- ; tion of the Sherman Anti-Trust Law as well as the first, and this Court was not induced by any con- sideration of the power that was thus given it to nullify the purchase by the American Sugar Refin- ing Company of the Philadelphia refineries. "The magnitude of the party's business, production or manufacture, with the inci- dental and indirect powers thereby ac- quired, and with the purpose of regulating prices and controlling interstate traffic in the articles or commodities forming the sub- ject of such business, production, or manu- facture, is not the monopoly, or attempt to monopolize, which the statute con- demns" (a). POINT III continued— Sub-Point III. Tlie defendants liave not only not monopolized, but tbey bave not attempted to monopolize any part of interstate or toveign trade and commerce. In so far as an attempt, or intent, to monopolize interstate and foreign trade might be inferred from the often repeated purchase of manufactur- ing plants, it is sufficient to say that such purchases, even with such intent admitted, do not bring such transactions within the scope of Federal legislation. This is the necessary conse- (a) In re Greene, 52 Fed., 104, 115. 214 quence of the argument already made and, per- haps too often, already repeated. Such purchases, though, have not had such in- tent. The defendants have at their command large capital; their officers know the tobacco business in all its ramifications; they have had a natural and laudable ambition to enlarge constantly their business activities; their investments have natu- rally been in additional tobacco manufacturing establishments. But the record contains nothing to contradict the testimony of the principal officers of The American Tobacco Company that no pur- chase has been made except with the distinct ex- pectation — very rarely disappointed — that the par- ticular proijertj' purchased, without reference to its effect on other property — by diminishing com; petition or otherwise — would be distinctly . profit- able (a). Factory buildings have been closed^ it is true, but only that the goods might be more economically or efficiently manufactured elsewhere, and thus achieve the real economic benefit of real consolidation (b). No factory was bought to be stopped; no interest in a competitor has been ac- quired, stealthily or otherwise, to stop the activ ities of such competitor. No case could be imagined which, better than the case at bar, typifies the evolution of a great business, built up with foresight it is true, buf principally by efficiently doing each day its work. It is impossible to read the testimony of the PreS- dent of The American Tobacco Company andfcon- ceive that in 1890 he and his associates planned and plotted to obtain a monopoly, legally or other- wise, of the tobacco business of the country. Some- times, for long periods there were no purchases; offers were made to sell and dispose of lines or (a) A7ite, pp. 82-3. ~ ' (b) Ante:, PP- 54-5. 215 branches of the business (a), investments have beetrmade, and the management of those invest- ments left entirely in other hands (b). An examination of the business methods and practices of these defendants, as disclosed by the record, shows the existence of no design to create a monopoly. It is not intended to argue that defend- ants have not sought by their course of business to ettlarge their business, and it is not intended to ar- gue that they have been deterred in their efforts to enlarge their business by the knowledge of the fact that an enlargement of their business meant to some extent a diminution of the business of other tobacco manufacturers. It is intended to argue, though, that defendants have not attempted to ex- clude others from the trade; that they have not adopted measures having for their primary pur- pose the diminution of the trade of another with only the secondary or ulterior purpose of increasing their own trade; but have pursued the ordinary course of competition, using methods that had for their direct and primary purpose increasing their own trade and only as a consequence the diminu- tion of the trade of their competitors. (1) They have not sought to prevent their com- petitors securing leaf tobacco — there is not a line of testimony in the recljrd that shows the purchase of a pound of leaf tobacco for any other purpose than to supply the legitimate requirements of defendant. (2) The supply companies owned by defendants, supplying the peculiar requirements of tobacco manufacturers, such as licorice paste, wooden boxes, tinfoil and cloth bags, sell to competing tobacco manufacturers on substantially the same basis as to the defendant tobacco manufacturers themselves (c). (a) Ante, p. 16. (b) Arde, pp. 80-8. (c) Ante, pp. 34, 36, 37, 40. 216 (3) The stores owned by defendant tobacco manufacturer^sell products of competing manu- facturers (a) ; these stores ought, considering who their real owners are, to give preference to the prod- ucts of the defendant manufacturers, but it is by no means clear from this record that they always do so, and they certainly handle to such extent as their customers require goods manufactured by others. (4) The jobbers who receive special allowances, or an inside commission, from the defendant tobacco manufacturers handle the goods of com- peting manufacturers (b). (5) The^j)nly two occasions when the company adopted (locally in New England and Phila- delphia) trade plans by which defendants' cus- tomers were not at liberty to buy competing goods, were occasions when such plans were adopted at the instance of the customers themselves and were abandoned as poor business policy, long before the institution of this suit ( c ) . (6) The defendant The American Tobacco Com- pany, or its predecessor Continental Tobacco Com- pany, sold a tobacco manufacturing plant to Scot- ten Dillon & Company, with the knowledge that it was to be used as a competing factory (d). (7) No effort has ever been made to purchase the large manufacturing establishments of Bloch Brothers, Peper and Schinasi — three of the large, successful and aggressive competitors of defend- ants (e). (a) Ante, p. 138. (b) Ante, pp. 131-3. (o) Ante, p. 128. (d) Ante, p. 145. (e) Ante, p. 134. 217 (8) A large number of the large customers of the defendant The American Tobacco Company, do not deal in the cigars of American Cigar Company, although they know, and have known of the interest of The American Tobacco Company in American Cigar Company. This applies to customers of The American Tobacco Company who receive the special inside commission. This certainly demon- strates either the lack of power, or lack of inteat to monopolize (a). (9) The defendants have never taken from their employees, to whom they have imparted their secrets of manufacture, covenants not to engage in the tobacco business on their own account or not to enter the employ of others. (10) The defendants have never sought ad- vantage_oyer their competitors in transportation facilities or charges, notwithstanding the tre- mendous volume of their transportation business. (11) While the defendants have at present a large proportion of certain lines of the tobacco business, there is no line in which there does not exist competition; no brand of the defendants but has coiEpeting brands owned by those not related to defendants; and any merchant selling tobacco, or consumer using tobacco, can readily supply his requirements without patronizing any of the de- fendants (b). There has been an absolute diminu- tion, notwithstanding repeated purchases, in the aggregate percentage of business of the defendants in some lines (notably the cigarette business of which in 1890 The American Tobacco Co. had 97%, whereas in 1907 it and all the other defendants had in the aggregate less than 74%) (c), and if the tobacco business, including cigars, be taken as a (a) Ante, p. 132. (b) Ante, p. 136. (c) Eec, Vol. V, Ex. 77. 218 whole, the defendants have not an aggregate of so much as forty per cent, thereof (a) . The operation of secretly owned companies was an effort to obtain business for the defendants— if was a method of competition the dignity and ethi- cal propriety of which may be questioned — but in questioning it consideration should be given to the circumstances of the venomous, unscrupulous com- petition that caused it (b) — but without reference to the propriety of this method of competition it was not an effort to exclude others from the trade except in the secondary and incidental way in which all competition is an effort to exclude the competitor. There are those who believe that Congress jn^^ tended in the second section of the Sherman Anti^ Trust Law to prevent overzealous competition, such as the rich and powerful may use to the injury of the weak and struggling. It may be that it would be wise by a definite statute to protect the weak and struggling competitor, and it may even be that Congress had this in mind in adopting the second section of the Sherman Anti-Trust Law. It can be only a guess, though, whether Congress intended this or not, and, if it did so intend, what particular methods of competition it purposed to prevent. Did it, for instance, or did it not intend to pre- vent the sale of goods below cost? No law, and especially no criminal law, should be given an effect not plainly intended by Congress. Laws which punish — whether by regular criminal pro- ceedings or otherwise — should be so definite and explicit as to advise citizens what they may and may not do (c). Admitting for the mo- (a) Ante, p. 40. (b) Ante, pp. 116-121. (c) Eailroad v. Dey, 35 Fed., 866 ; U. S. V. Brewer, 139 TJ. S., 278; Eailroad v. Eailroad Com., 19 Ted., 679. 219 ment that it was the purpose of Congress in en- acting the second section of the Sherman Anti- Trust Law to protect the weak and struggling against the competitive methods of strong and pow- erful competitors, and that it is in accordance with our institutions for Congress to delegate to the courts the duty of ascertaining and declaring what particular methods are to be thus condemned — with all this admitted, the record in this case is singularly free from evidence of the use of such methods by these defendants. Consider the facili- ties which the Government had for a minute and sinister examination into all the affairs and opera- tions of these defendants during an active business life of substantially twenty years; and then con- sider how few the instances, if any, in which goods have been sold below cost in a given community with the purpose to crush a weaker competitor — how few the instances where there has been the slightest abuse of their power by these defendants — if such power exists. The methods of trade open to criticism, on even the ground of lack of dignity or ethical propriety, have not constituted the basis, nor any part thereof, of the success and achieve- ment of the defendants. It is in recognition of all this that Circuit Judge Lacombe finds an absence of evidence that the de- fendants by unfair competition or improper prac- tices have dragooned independent manufacturers to sell out to them (a) ; and that Circuit Judge Noyes says that the elements of "oppression and coer^foii that are perhaps necessary to establish a monopoly are certainly not sufficiently presented on this record (b), and that Circuit Judge Ward in his dissenting opinion says that he is satisfied that these defendants' "purpose and conduct were not illegal, but that they strove, as every business man (a) Eecord, Vol. 1, p. 293. (b) Eecord, Vol. 1, p. 320. 220 strives, to increase their business and that their great success is the natural growth re- sulting from industry, intelligence .and economy, doubtless largely kelped by ^the volume of business done and great capital at command" (a). It is argued seriously though that there has existed a purpose of monopoly on the part of the "conspirators" who formed The American Tobacco Company in 1890, and have since con- ducted its affairs; that their every step has had, that purpose; and that so successful have these steps and this conspiracy been that to-day eight men, to wit: J. B. Duke, O. H. Payne, A. N. Brady, Thomas F. Ryan, P. A. B. Widener, B. N. ■ Duke, Estate of W. L. Elkins, and Estate of W. 0. Whitney, are in control of its affairs ; and that the fact that these eight men are thus in control is not only the fruit, but the proof, of the conspiracy. Un- doubtedly eight men in the aggregate hold a liaa- jority of the voting stock of The American Tobacco Company ; undoubtedly also an examination of the books of any corporation, large or small, would show that a comparatively small number of indi- viduals own in the aggregate a majority of its stock (under the law of most States three men may not only control, but own all the stock of a corpora- tion) ; there is nothing in the Eecord in this^ase to indicate that these eight men are bound together any more closely than any other stockholders. A significant fact does appear though: If the organ- izers of The American Tobacco Company in 1890 were plotting to secure a monopoly of the tobacco business they plotted to ignominous failure, for of the eight men who, if they act together, can now control the affairs of this large and prosperous cor- poration, only two were of its original organizers ; the other six have come into it and its affairs long (a) Eecord, Vol. 1, p. 328. 221 afterwards, and from time to time as tliey have seen fit to invest in its stock. Another significant thing appears: Of these eight men said to be in control of the affairs of this great business, whose individual power and wealth are thus a menace to the public, two are already dead — with executors, and creditors, and next of kin to take their respec- tive places. The significance of this should not be lost on those who seek to correct and prevent all sorts of real and imaginary ills by piling statute upon statute. Just as many theoretical dangers of industrial life are_ eliminated by the inevitable laws of supply^ and demand and the other laws of trade, so tendencies to the too great individual ac- cumulation of power and wealth are effectually prevented — not by statutes of legislatures or de- crees of courts, but by the inexorable laws of na- ture. POINT III continued— Sub-Point IV. Since tlie Sliemnan La'w "was en- acted to foster competition, the at- tained or attempted exclusion of otbers from trade tliat is tlie neces- sary element in monopolizing*, or at- tempting* to monopolize, must be "by methods not allowed in competition at common la'w. We have attempted to show that monopolizing, or attempting to monopolize, does not consist in any degree in mere ownership or acquisition, but consists in a course of conduct, otherwise evi- denced, adopted and pursued with the purpose of excluding others from competing in the particular line of business. Immediately the question arises, what is such a course of business? The defendants 222 confidently argue that one is not guilty of monopo- lizing, or attempting to monopolize, trade and commerce under this Act, unless he ex- cludes another from all or "any part" of interstate trade by an act or con- duct violative of the rights of that other at com- mon law ; his act or conduct must be such as would, if the transaction were not within the jurisdiction of Federal courts, whose authority to enforce the common law is at least questionable, lay him liable to either an indictment or an action for damages. Auy other construction gives the law an indeflnite- ness and uncertainty that is intolerable, besides completely nullifying the great object of this law, to-wit: to promote the free play of competition in interstate trade and commerce (a). "Competition, it is often said, is the life of trade. But the object of all competition is to drive out other competitors." (b) "To say that a man is to trade freely but that he is to stop short at any act which is calculated to harm other tradesmen and which is designed to attract business to his own shop, would be a strange and impossible counsel of perfection." (c) The rights of competitors are and have always been different from the rights of strangers to the trade. The hat makers in Loewe v. Lawlor {supra) sought to break down the business of the plaintiffs in that action, and their conduct would have given plaintiffs a cause of action at common law; if the defendants in that case had sought to sell hats of their own manufacture and so displace the business of plaintiffs, the injury to plaintiffs might have been exactly the same, but it would have been damnum absque injuria, because the con- (a) Whitwell v. Continental Tobacco Co., 125 Fed., 462; Phillips V. lola Cement Co., 125 Fed., 593 ; 192 IJ. S., 606. (b) Bonsack Machine Co. v. Smith, YO Fed., 383, 388. (c) Bowen, L. J., in Mogul Co. v. McGregor, 23 Q. B. D. 598. 223 duct of defendants would have been an act of com- petition such as the law approves. "The only argument that we have heard in support of interference by labor unions in cases of this kind is that it is justifiable as a ktad of competition. It is true that fair competition in business brings persons into rivalry, and often justifies action for one's self which interferes with proper action of another. Such action on both sides is the exercise by competing persons of equal con- flicting rights. The principle appealed to would justify a member of the union, who was _ seeking employment for himself, in making an offer to serve on such terms as would result, and as he knew would result, in the discharge of the plaintiff by his em- ployer, to make a place for the new comer. Such an offer, for such a purpose, would be unobjectionable. It would be merely the exercise of a personal right, equal in im- portance to the plaintiff's right. But an in- terference by a combination of persons to obtain the discharge of a workman because he refuses to comply with their wishes, for their advantage, in some matter in which he has a right to act independently, is not com- petition. In such a case the action taken by the combination is not in the regular course of their business as employees, either in the service in which they are engaged, or in an effort to obtain employment in other service. The result which they seek to obtain cannot come directly from anything that they do within the regular line of their business as workers competing in the labor market. It can come only from action outside of the province of workingmen, intended directly to injure another, for the purpose of com- pelling him to submit to their dictation. It is difficult to see how the object to be gained can come within the field of fair competi- tion." (a) (a) Berry v. Donovan, 188 Mass., 353. See also Barnes v. Typographical Union, 232 111., 424; Ban- V. Essex Trades Council, 53 N. J. Eq., 101, 124. 324 "Competition in trade, business, or occu- pation, though resulting in loss, will not be restricted or discouraged, whether concern- ing property or personal service. Lawful competition that may injure the business of another even though successfully directed to driving that other out of business, is not actionable. Nor would competition of one set of men against another set, carried on for the purpose of gain, even to the extent of intending to drive from business that other set and actually accomplishing the result, be actionable unless there was actual mal- ice." (a) Undoubtedly the great mine of learning on the rights of competitors at common law is the case of Mogul 8. 8. Go. v. MacOregor (b). Whatever may be said as to the inapplicability of this great case in so far as it establishes the right of natural competitors to take action in combination, no court has held its doctrines unsound in so far as they declare the common law rights of com- petitors. Lord Halsbury said: "I entirely adopt and make my own what was said by Lord Justice Bowen in the court below : 'All commercial men with cap- ital are acquainted with the ordinary ex- pedient of sowing one year of apparently un- fruitful prices in order by driving competi- tion away to reap a fuller harvest of profit in the future;' and until the present argu- ment at the Bar it may be doubted whether shopowners or merchants were ever deemed to be bound by law to conform to some imag- inary 'normal' standard of freights or prices, or that Law Courts had a right to say to them in respect of their competitive tar- iffs, 'Thus far shalt thou go and no fur- ther.' " (a) Doremus v. Hennessey, 1Y6 111., 608. (b) 23 Q. B. D., 598; App. Cases (1892), p. 25. 225 Lord Field said: "I think this appeal may be decided upon the principles laid down by Holt, G. J., as far back as the case of Keeble v. Hickerin- gill, cited by the appellants (11 Mod., 73, 131, and note to Garrington v. Taylor, 11 Eastj 574) . In that case the plaintiff com- plained of the disturbance of his 'decoy' by the defendant having discharged guns near to it and so driven away the wild-fowl with the intention and effect of the consequent injury to his trade. Upon the trial a ver- dict passed for the plaintiff, but in arrest of judgment it was alleged that the declaration did not disclose any cause of action. Holt, G. J., however, held that the action, al- though new in substance, was not new in reason or principle, and will lay, for he said that the use of a 'decoy' was a lawful trade, and that he who hinders another in his trade or livelihood is liable to an action if the in- jury is caused by 'a violent or malicious act;' suppose 'for instance,' he said, 'that the defendant had shot in his own ground, if he had occasion to shoot it would have been one thing, but to shoot on purpose to damage the plaintiff is another thing and a wrong.' But, he added, if the defendant, 'using the same employment as the plaintiff, had set up another decoy so near as to spoil the plaintiff's custom, no action would lie because the defendant had 'as much liberty to make and use a decoy' as the plaintiff." Other cases involving a similar declaration of the rights of competitors to undersell competitors (a), to have secret partners (b), to adopt a policy (a) Com. V. Hunt, 4 Mete, 111, 134; National Ass'n v. Ouniiming, 170 N. Y., 315, 330; Lough v. Outer- bridge, 143 N. T., 271, 283 ; Tuttle v. Buck (Minn.) 119 N. "W., 946. (b) 1 Lindley on Part (2nd Am. Ed.) star p. 16; Mecbam's Elements of Part., Sec. 15; Winsbip v. Bank of TJ. S., 5 Pet., 529, 562; Brooks v. Washington, 8 Gratt (Va.), 248. 226 of business that can only result in destruction of weaker competitors, even though as a part of it there is a sale of goods below cost (a), or provi- sion for exclusive handling (b), are cited in the foot notes. It is equally true that purchases of competing businesses were not unlawful at com- mon law, even though such purchases were made to get rid of ruinous competition (c), nor are they under this Act (d). "The plaintiff had a perfect right to buy off the competition of a powerful, danger- ous and aggressive rival. The law of self- defense and protection applies to one's busi- ness as well as to his person." (e) (a) Aikens v. Wisconsin, 195 U. S., 194, 203; Jaster v. Ourrie, 198 U. S., 144, 148; National Co. v. Mason's Ass'n, 169 Fed., 259, 265; Citizen's Co. v. Mont- gomery Co., 171 Fed., 553, 559 ; Vegelahn v. Gunther, 167 Mass., 92; Martel v. White, 185 Mass., 255; Lewis V. Lumber Co., 121 La., 658; Karges Co. v. Amalgamated Union, 165 Ind., 421. (b) Palmer v. Stebbins, 3 Pick. (Mass.), 188, 192; Chicago Co. V. Pullman Co., 139 U. S., 79, 80; Brown v. Rounsavell, 78 111., 589 ; Walsh v. Dwight, 40 N. Y. App. L>iv., 513; Houck v. Wright, 77 Miss., 476; Walter Wood Co. v. Greenwood Co., 75 S. C, 378; Ferris v. American Co., 155 Ind., 539; Be Greene, 52 Fed., 104, 117; Dueber Co. v. Howard Co., 66 Fed., 637, 664; Whitwell v. Continental Tobacco Co., 125 Fed., 454, 460. (c) United Shoe Co. v. Kimball, 193 Mass., 351; Wood v. Whitehead Bros. Co., 165 N. Y., 545, 551; Lanyon V. Garden City Sand Co., 223 111., 616; National Co. V. Cream City Co., 86 Wis., 352. (d) Cincinnati Co. v. Bay, 200 U. S., 179 ; Brett ■;;. Ebel, 29 N. Y. App. Div., 256, 259; Bancroft v. Emboss- ing Co., 72 N. H., 402. (e) U. S. Chemical Co. v. Provident Co., 64 Fed., 946, 950. 227 POINT III continued— Sub-Point V. Tlie second section of the Sherman Anti-Trust I^aw forbidding- monopo- lizing- or attempting- to monopolize, can never justify an injunction ag-ainst a state of being, but only against threatened activities — such activities or conduct as are not threatened in the case at bar. The title of tlie Sherman Anti-Trust Law is "An Act to protect trade and commerce against unlaw- ful restraints and monopolies." The statute itself does not contain the word "monopoly" or "monopo- lies," but only forbids monopolizing, attempting to monopolize, or combining or conspiring with any other person or persons to monopolize. There are five kinds of remedies provided for in the Act : 1. By Section 1, the contract, combination or con- spiracy in restraint of interstate or foreign trade territory is recognized as a status and that status is declared illegal. By Section 3 the contract, com- bination or conspiracy in restraint of trade in any territory is recognized as a status and that status is declared illegal. This is a remedy, but if the Act went no further it would simply result that no one could bring a suit to enforce rights estab- lished by the agreement which in one form or an- other is the basis of all contracts, combinations and conspiracies, and possibly that one might by a suit discharge or disengage himself from such agree- ment. It will be observed that this remedy is not made applicable to the second section which forbids monopolizing or attempting to monopolize. 2. Sections 1 and 3 provide that every person that violates their terms, respectively, by entering into 228 a contract, combination or conspiracy in restraint of interstate trade, or in restraint of territorial trade, shall be guilty of a misdemeanor and subject to a prescribed punishment. Section 2 provides that every person who violates this section by mo- nopolizing or attempting to monopolize or combin- ing or conspiring with any other person to monopo- lize any part of interstate trade and commerce shall be guilty of a misdemeanor and subject to a pre- scribed punishment. It will be observed that these provisions are plain criminal provisions in- tended to punish criminals for past offenses, with- out reference to the future, and they are equally applicable to every offender against the Act which- ever section he violates. 3. Section 7 provides that any person injured in his business or property by any other person or cor- poration by reason of anything forbidden or de- clared to be unlawful by the Act may sue therefor in the courts of the United States and in his suit shall recover treble damages. This it will be ob- served is equally applicable to all violators of the law; it has a double purpose — to fully compensate the party injured and to penalize by exemplary damages the party offending (a). It, too, has to do with past offenses and does not concern itself with the future. 4. By section 4 the Circuit Courts of the United States are invested with jurisdiction "to prevent and restrain violations of this Act," and it is pro- vided that the several District Attorneys of the United States under the direction of the Attorney General shall "institute proceedings in equity to prevent and restrain such violations." This has to do with the future. Under it the Court is au- (a) City of Atlanta v. Pipe Co., 127 Ped., 23; aff. 203 U. S., 390. 229 thorized to prevent the continuance of a status, if a status has been condemned and declared illegal by a previous section of the statute, and to pre- vent future action or conduct if there is reason to apprehend that, but for such injunction, a fu- ture action or conduct will be committed which if committed would be illegal under the earlier pro- vision of the statute. 5. Section 6 provides that any property owned under any contract or by, or under any combina- tion, or pursuant to any conspiracy (and being the subject thereof) mentioned in section 1 of the Act and being in the course of transportation from one state to another, or to a foreign country, shall be forfeited to the United States; it makes provisions for the machinery of seizure and condemnation. It will be observed that this remedy is expressly con- fined to violations of the 1st section of the Act and has no application whatsoever to the 2nd section. Looking through these five remedies one can but be struck with the fact that the first and fifth remedies, as here numbered, have application only to violations of the 1st section, and do not apply at all to the 2nd section which forbids monopoliz- ings or attempts to monopolize. Exactly these two remedies, and only these two, have to do with a status — a state of being. Why, if a monopoly is a status in the sense that one may legally say of a given corporation "That is a monopoly," did not Congress provide in the 2nd section "Every mo- nopoly of the trade or commerce among the sev- eral States or any part thereof is illegal," just as it had provided in the 1st section with reference to contracts, combinations and conspiracies in re- straint of trade. More significant than this, though: Why did Congress in providing the most drastic remedy for the enforcement of the law, to 230 wit : that provided in section 6 relating to the seiz- ure of goods in transit, make such remedy applica- ble only to goods the subject of a contract, com- bination or conspiracy mentioned in section 1, and leave out the words that would bring under this condemnation the goods of a monopoly existing in violation of section 2 of the Act? It was not on account of any tenderness for the person or persons who had monopolized or conspired with others to monopolize trade and commerce — such persons are treated with exactly the same severity of punish- ment when convicted by a jury; they are subject to exactly the same power of restraint by the Cir- cuit Courts, sitting in equity; they have to suffer exactly the same compensatory and exemplary dam- ages when sued by the party whose property or business has been injured. An explanation of this striking difference of rem- edies as applied to the two classes of offences against the law seems to us easy. Congress in its passage of the Sherman Anti-Trust Law did not recognize a monopoly as a status — a state of being — but it recognized monopolizing or attempting to monopolize any part of the trade, — excluding or at- tempting to exclude others from the trade — as an activity which, if committed, could be punished criminally, and gave a cause of action to the party injured with the right to recover exemplary dam- ages ; if threatened — whether directly or by a course of business on the part of the offending person or persons — to be stopped by the injunctive process of the court of equity; but not as a state of being to be declared illegal or otherwise interfered with. This Court has recognized this condition of the statute in the words already quoted from the Knight case: "Congress did not attempt thereby (the Sherman Anti- Trust Law) to assert the power to deal with monopoly directly as 231 such; or to limit and restrict the rights of corporations created by the States or the citizens of the States in the acquisition, con- trol or disposition of property." It may be urged that if the law has only the ef- fect here indicated it falls short of what is required by a wise and just policy; that it is unfair that when a person or corporation has achieved size, power and prosperity by a course of criminal prac- tices — excluding others from the trade — he is to be permitted to enjoy his condition unmolested. The answer to this suggestion is not difficult: In the first place, a statute is to be construed as it is written and not necessarily so as to bring an ideal condition with respect to the subject matter. If it were otherwise, statutes would never require amendment — they would be subject only to a process of judicial amendment dependent upon the will of judges. The statute, authorizes the courts to prevent and restrain violations of the Act, and does not authorize them to prevent and restrain from all activities, whether legal or illegal, a per- son or corporation who has at some time or other violated the Act. The limit of the courts' power is fixed by the statute and the purpose of the courts' injunction must be to prevent future violations and not to punish past. In the second place, though, and considering the matter of policy, if a person or corporation is punished criminally for such il- legal practices and is subject to an action for ex- emplary damages at the suit of any one injured by such illegal practices, and may be prevented by the court sitting in equity from repeating such illegal practices, is not the public well protected against injury from these illegal practices? Whatever the status and condition of any person or corpora- tion — however large a proportion he at present en- joys of the volume of trade in a given commodity —there is an abundance of capital seeking invest- 232 ment in this country, which readily flows from one field of investment to another, to protect the public against injury from such powerful individual or corporation — provided always that such individual or corporation in the future resorts to no practices or methods to exclude from the field of competi- tion such new capital (a). The foregoing considerations relative to the meaning that Congress intended the second section of the Sherman Anti-Trust Law are urged upon this court not under the apprehension that this record will be found to disclose on the part of any defendant the commission of the crime of monopo- lizing or attempting to monopolize any part of interstate or foreign trade. As already argued, at perhaps too great length, these defendants have committed no such crime. They have not excluded or attempted to exclude others from the field. Where skill, enterprise and sufficient capital have been united in a competitor in the tobacco business — as in the case of Scotten Dillon Company, of Detroit, as the most conspicuous of many examples — that competitor has found no difficulty in obtain- ing supplies of raw material, subjecting them to proper processes of manufacture, transporting the manufactured goods to various distributors, and securing their distribution. The court below, though, while rendering opinions that in not con- victing impliedly acquitted these defendants of the charges brought under the second section of the Sherman Anti-Trust Law, handed down a decree that seems based upon that second section. Five defendants. The American Tobacco Company, American Snuff Company, American Cigar Com- pany, American Stogie Company and Mac- Andrews & Forbes Company are restrained from engaging in interstate commerce at all — restrained (a) President Taft's speech accepting nomination for Presidency, July 28, 1908. 238 from legal, as well as illegal activities — unless and until they can show the restoration "of reasonably competitive conditions." The only inference from such a decree is that each of them is a monopoly (although American Cigar Company and Ameri- can Stogie Company have, together, less than 15% of the cigar business of the country) as a status, and that they must not engage in business until they can show that that status has been changed. This certainly justifies, if it does not demand, the argument that monopoly, as a status, was never contemplated nor denounced by the Sherman Anti- Trust Law. It bears on the meaning of Section 1 of the Sher- man Anti-Trust Law, but it follows in logical se- quence here, to inquire the reason that actuated Congress in making the 2d section of the Sherman Anti-Trust Law applicable only to activities, and not to a state of being. The answer to this inquiry seems to us readily arrived at: Monopoly, consid- ered as a state of being, and having in view that the Government will not grant a monopoly, in- volves simply the ownership of property. Con- gress, by declining to condemn monopoly as a state of being, declared its unwillingness or its inability to interfere with ownership of property. Since Congress in the 2d section of the law thus recog- nized its inability, or thus declared its unwilling- ness, to interfere with the ownership of property, there should be adopted a construction of the 1st section consistent with the purpose or limita- tions of Congress thus expressed or recognized by it. Contracts, combinations and conspiracies are states of being, each of them created by entering into, and continued by the continuing operation of a contract or agreement, formal or informal. A monopoly (if any state of being not created by a Government grant can properly be called a monop- oly) is simply the ownership of what is, at a given 23.1 time, all of a given kind of property, or all the plants at a given time engaged in the production of a given product. Congress, in enacting the 2d section of the Sherman Anti-Trust Law, distinct- ly avoided forbidding such a monopoly, because of its recognition that ownership of property is in- direct, necessarily and always, in its effect on inter- state commerce. It is not remarkable, therefore, that this Court declined in the Knight case to rec- ognize the purpose or right of Congress to inter- fere with the ownership of property, in its enact- ment either of the 1st section of the Sherman Anti- Trust Law, or of the 2d section. It is remarkable, though, that the Government contends that what Congress expressly declined to interfere with in the 2d section, to- wit : the ownership of a large vol- ume of the property at the time engaged in a given business by one person or corporation, falls within the 1st section, which, on its face, at least, only condemns and forbids the continued existence of "contracts, combinations and conspiracies" — words that ordinarily import a continuing concerted ac- tion on the part of otherwise independent individ- uals — persons or corporations — and not the rela- tions of vendee or assignee to the property con- veyed or assigned to it. 235 POINT IV. A consideration of the prayers for relief of the hill filed hy the Gov- ernment, and a consideration of the decree of the Court helo-w, constitute a strong" arg-ument in favor of the construction of both the first and sec- ond sections of the Sherman Law con- tended for by these defendants. Let us imagine a case altogether like the ease of some one or the other of these defendants, and al- together like thousands of cases all over the land : A and B are competitors in some manufacturing enterprise and each sells his goods in interstate commerce. (They may be large or they may be small — for purposes of illustration it may be con- ceded that they are very large, and have in the aggregate a busness representing more than fifty per cent, of the entire volume of interstate busi- ness in such commodity; this concession is made, not in recognition that it makes a particle of dif- ference in the legal aspect whether the aggregate business is more than fifty per cent, or less than ten per cent. — the aggregate business of the de- fendants in the cigar business is less than fifteen per cent., while in the snuff business it is more than ninety per cent., but the American Snuff Company and the American Cigar Company are treated alike by the decree of the court below. ) A and B, in the hypothetical case, consolidate their businesses and in order to conveniently effectuate it a corporation is formed which issues stock to A for his factory, with its good-will, and stock to B for his factory with its good-will. A and B dispose each of part of his stock and it passes into the hands of a great number of people. In the meantime they both die 236 and the balance goes into the hands of heirs or next of kin. No attempt was made by the Grovern- ment to stop the consolidation of the properties and business of A and B — but it may be said that the Government was not apprised in advance of their purpose to consolidate. No indictment was had, though, after the act was accomplished and had become notorious, and no goods were forfeited to the Government while in course of transporta- tion from the corporation that resulted from the consolidation of these interests. Years elapse, the consolidating parties are dead, the consolidated property is entirely and thoroughly commingled — all of the original property that was consumable in use has been replaced by new, and most of the buildings and machinery have been replaced by new and improved buildings and machinery. Under these circumstances the Government steps in and says that that consolidation was a combination in restraint of trade because it eliminated the competition that had theretofore existed between A and B, and that on that account the vendee corporation must be stopped from engaging in business, and a receiver appointed to take charge of its property, as though it were an insolvent concern. The court finds that such consolidation did constitute a combination, and, admitting its inability to dissolve the corpora- tion, forbids it to engage in interstate commerce at all unless and until it can show the restoration of reasonably competitive conditions, These defendants contend, not as an argumentum ad hominem, but as a thoroughly legitimate legal argument, to this court having the supreme duty of ascertaining and declaring the purposes and in- tent of Congress in the passage of the statute, and whether such purpose and intent does, or does not, conflict with the higher law — the Constitution of the United States — that Congress never intended 237 and could not constitutionally effect either of such results. The contracts, combinations and conspiracies condemned by the first section of the Sherman Anti-Trust Law are executory contracts, combina- tions and conspiracies. Every contract, combina- tion and conspiracy ever condemned by this court, or finally condemned by any other Federal court under this statute, has been an executory contract, combination or conspiracy. It was certainly so in the Addyston Pipe & Foundry case, and just as certainly so in the Swift case, Montague v. Lowry, Continental Wall Paper Go. v. Voight, and every other case dealing with the disposition of manu- factured commodities. It was just as certainly so in the Trans-Missouri case, the Joint Traffic case and the Northern Securities case — cases having to do with transportation facilities. Everyone will concede the truth of this statement except as it ap- plies to the Northern Securities case. But as viewed by a majority of this court the Northern Securities case presented, in a slightly variant form, an instance of a continuing executory com- bination — the fiction, the Northern Securities Com- pany, was a mere instrumentality of continuing the combination into which their respective stock- holders had thrust the two competing railway sys- tems. No more striking recognition of this dis- tinction between a real purchasing company, and a company that is a fiction for continuing an exec- utory combination, can be had, than the recent Pennsylvania case in which that court throws doubt on the famous Morris Run Coal Co. case cited by this court in the Northern Securities case, and holds that the real consolidation under one ownership of competing concerns, that may cheapen production, is not unlawful, although com- petition is, of course, thereby entirely stopped be- tween them (a). (a) Monongaliela Co. v. Jutte, 210 Pa. St., 288, 300. 238 Congress never contemplated that under this first section of the Sherman Anti-Trust Law prop- erty acquired and used should be divested from its owner, or that a corporation actually and actively engaged in interstate commerce should be excluded from such commerce. Congress has no constitu- tional right to so enact. In the first place, the Act construed so as to divest property from its owner, is in violation of the provision of the Fifth Amendment of the Con- stitution of the United States, that no person shall be "deprived of liberty or property without due process of law," in that such construction prac- tically prevents a person from buying from, sell- ing to, or consolidating or forming a partnership with, a competitor. In Monongahela Company v. United States (a) Mr. Justice Brewer for the Court declared that: "* * ♦ like the other powers granted to Congress by the Constitution, the power to regulate commerce is subject to all the lim- itations imposed by such instrument, and among them is that of the 5th Amendment we have heretofore quoted." In Adair v. United States (b), Mr. Justice Har- lan, speaking for the court, said : "We need scarcely repeat what this court has more than once said, that the power to regulate interstate commerce, great and par- amount as that power is, cannot be exerted in violation of any fundamental right se- cured by other provisions of the Constitu- tion." As the Fifth Amendment protects the individual against action by Federal authority that amounts to a deprivation of liberty or property without due process of law, so the Fourteenth Amendment pro- (a) 148 U. S., 312, 336. (b) 208 U. S., 161, 180. 239 tects him against State action that amounts to a deprivation of liberty or property without due proc- ess of law. There can be no contention that the "liberty" protected by the Fourteenth Amendment against State action is not the very "liberty" pro- tected by the Fifth Amendment against Federal action. This Court, speaking through Mr. Justice Peckham in the Allgeyer case (a), defines the lib- erty mentioned in the Fourteenth Amendment, and the definition is undoubtedly equally applicable to the liberty mentioned in the Fifth Amendment, as was recognized by Mr. Justice Harlan for the court in the Adair case, supra. "The liberty mentioned in that amend- ment means not only the right of the citi- zen to be free from a mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of his faculties, to be free to use them in all law- ful ways; to live and work where he will ; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation, and for that purpose to enter into all contracts which may be proper, necessary and essen- tial to his carrying out to a successful com- pletion the purposes above mentioned." That corporations are persons enjoying the pro- tection of the Fifth Amendment and the Four- teenth Amendment is established by the decisions of this court. After all, though, according to our view it is not important that corporations have been held to be under the protection of the Fifth Amendment of the Constitution. The right at- tacked by the Government in the case at bar is the right of individuals— natural persons— to form themselves into corporations; or to sell to corpora- tions; or to buy from natural persons or corpora- tions. ^_ (a) 165 U. S., 578, 589. 240 The argument that the Sherman Anti-Trust Law is unconstitutional, as an unwarranted interfer- ence with the liberty of contract, has been made, or suggested, twice to this court; once in the Joint Traffic case, supra, and again in the Addyston Pipe & Foundry case, supra. Each time it was made by defendants who sought thereby to justify and pro- tect, under the Constitution, the making of con- tracts invalid at common law. As forcibly pointed out by Circuit Judge Taft in the Addyston Pipe & Foundry case (a), the agreement condemned in that case was utterly invalid at common law, and could not, in the nature of things, have been pro- tected by the Fifth Amendment to the Constitu- tion. The opinion of Circuit Judge Taft delivered in the Addyston Pipe & Foundry case shows con- clusively that the arrangement or agreement that had been condemned by this court in the Joint Traffic case was equally invalid at common law, and Mr. Justice Brewer in his concurring opinion in the Northern Securities case so recognizes it. The contention here made is made on behalf of defendants who have not entered into arrange- ments and agreements, nor had to do wdth trans- actions, invalid at common law; the transactions in this case are the ordinary transactions of con- solidation, purchase and sale, lawful at common law; the right to make them is included in the liberty secured by the Fifth Amendment: "In the privilege of pursuing an ordinary calling or trade, and of acquiring, holding and selling property, must be embraced the right to make all proper contracts in rela- tion thereto" (b). In the second place, a corporation, actually and actively enaged in interstate commerce, cannot constitutionally be excluded from such commerce (a) 85 Federal Eep., 2Y1. (b) AUgeyer v. Louisiana, 165 U. S., 578, 591. 241 by Act of Congress. Five defendant companies adjudged by the court to be themselves combina- tions in restraint of trade are forbidden to engage in interstate commerce. This capital punishment is inflicted, not as the result of a conviction by a jury, but by a court of equity, authorized simply to restrain and prevent violations of the Act. Since Gibbons v. Ogden (a) it has been recog- nized that the right to engage in interstate com- merce is not a right conferred by the Constitution, but a right that antedates the Constitution: "It has been said that the Constitution does not confer the right of intercourse be- tween state and state. That right derives its source from those laws whose authority is acknowledged by civilized man through- out the world. This is true. The Constitu- tion found it an existing right and gave to Congress the power to regulate it." The five defendants thus cut off from the enjoy- ment of a right which antedates the Constitution and was not surrendered by it, are regularly in- corporated, de facto and de jure, corporations. No argument or suggestion is made to the contrary. That corporations are within the protection of the Fifth Amendment to the Federal Constitution and the Fourteenth Amendment to the Federal Consti- tution, is well settled (b) ; that corporations are also secure in the possession of those rights and privileges which antedate the Constitution must be equally certain. Monongahela Co. v. V. 8., supra, is conclusive authority for this contention; the corporation there was held entitled to the funda- (a) 9 Wteat., 1, 211. (b) Santa Clara Coimty v. E. E., 118 "U. S., 394, 396. Monongahela Nav. Co. v. U. S., 148 U. S., 312, 336. Gulf Eway. Co. v. Ellis, 165 U. S., 150. Hale V. Henkel, 201 U. S., 43, Y6, 85. Justice Field at Circuit in Eailroad Tax Cases, 13 Fed., Y22, 746. 242 mental right of compensation for its property taken for a public use. This Court has had occasion to consider the rights of corporations in interstate commerce, and has declared those rights equal, so far as Federal authority is concerned, and subject equally to regu- lation by Congress as the rights of individuals. In Paul V. Virginia (a) it is said: "At the time of the formation of the Constitution a large part of the commerce of the world was carried on by corporations. The East India Company, The Hudson's Bay Company, the Hamburgh Company, the Levant Company, and the Virginia Company may be named among the many corpora- tions then in existence which acquired from the extent of their operations celebrity throughout the commercial world. This state of facts forbids the supposition that it was intended in the grant of power to Congress to exclude from its control the commerce of corporations. The language of the grant makes no reference to the instru- mentalities by which commerce may be car- ried on ; it is general and includes alike com- merce by individuals, partnerships, associa- tions, and corporations." There being then a liberty in natural persons and corporations to engage in interstate commerce, such liberty is not only a right that would be inalienable and indefeasible, if the Federal Constitution were silent with respect to it, but it became a part of the "liberty" that was protected by the Fifth Amend- ment to the Federal Constitution. With these contentions neither the Lottery Case (b) nor the Commodities Case (c) in any way con- (a) 8 Wall., 168. (b) 188 U. S., 321. (c) 213 U. S., 366. 2-13 flicts. The Lottery Case had for its gist, as stated by Mr. Justice Harlan for the court: "But surely it will not be said to be a part of any one's liberty as recognized by the supreme law of the land that it should be allowed to introduce into commerce among the states an element that will be confessedly injurious to public morals." Even as thus stated the Lottery Case was not decided by a unanimous court; four justices dis- sented (Chief Justice Fuller, Justices Brewer, Shiras and Peckham) on the broad ground that even to accomplish a police purpose, admittedly to be desired, the power of Congress to regulate inter- state commerce could not be construed as a power to prohibit. The differences between the Lottery Case and the case at bar are striking: (a) The de- cision in the Lottery Case is based upon the vicious character of the article dealt in — its amenability everywhere to the exercise of the police power — an element wholly absent from the present case; (6) the prohibition is confined solely to the vicious object, lottery tickets, while here the prohibition is personal and upon the reasoning adopted must necessarily embrace any objects whatsoever in which the five enjoined companies might be em- powered to deal. "In the division of authority with respect to interstate railways Congress reserves to itself the superior right to control their com- merce and forbid interference therewith; while to the states remains the power to create and to regulate the instruments of such commerce, so far as necessary to the conservation of the public interests. If it be assumed that the states have no right to forbid the consolidation of competing lines because. the whole subject is within the con- trol of Congress it would necessarily follow that Congress would have the power to au- 244 thorize such consolidation in defiance of state legislation, — a proposition which only needs to be stated to demonstrate its un- soundness" (a). "The Federal jurisdiction, founded as it is, upon transportation across State lines, is necessarily narrow. It is not a jurisdic- tion over persons engaged in commerce, but over that commerce which falls within con- stitutional definition. The power of Con- gress is founded upon the fact of interstate transportation, or negotiation for interstate transportation; it exists whenever this fact exists, and only then. It is jurisdiction over an act, and no matter how often an indi- vidual may perform the act, it never becomes a personal jurisdiction but at the most amounts to control of frequently repeated acts"(b). In the Commodities case, supra, this court stated with emphasis and repetition that its decision did not mean that the power conferred on Congress by the Commerce Clause of the Constitution embraces the right to absolutely prohibit the movement be- tween the States of lawful commodities. Mr. Justice White for the court stated that the argu- ment made for the defendants in the case involved the contention that such right had not been con- ferred on Congress, and added: "The whole support on which the proposi- tion and the arguments rest hence disap- pears, as a result of the construction which we have given the statute." The circumstances of the Commodities Case, as those of the Lottery Case, differentiate it from the case at bar more thoroughly than any argu- ment: (a) The railway companies were not for- bidden generally to engage in interstate commerce (a) L. & N. E. E. V. Kentucky, 161 U. S., 677, 702. See also, Ashley v. Eyan, 156 U. S., 436. (b) Prentice on Federal Power over Carriers, p. 169. 245 in the properties specified, but merely to perform tlie act of transportation while they themselves were the owners of the property transported; (b) There was a special reason for prohibiting this par- ticular owner from engaging in interstate com- merce in the commodities indicated, in view of the duty of a railway company to give equal treatment to all, and the temptation to disregard this duty when they were engaged in part in hauling their own property. Such reason does not exist here; the defendants enjoined in the case at bar are under no duty justifying an interference with their activ- ities. It need not be argued that with two construc- tions of a statute possible, the court will adopt that construction which is not in conflict with the Con- stitution — indeed when the one construction raises a grave constitutional question and the other does not, the court will adopt the construction which renders the statute clearly and indisputably con- stitutional. Mr. Justice White, speaking for a unanimous court, stated this doctrine with empha- sis and precision in the Commodities Case (a) : "It is elementary when the constitution- ality of a statute is assailed, if the statute be reasonably susceptible of two interpreta- tions, by one of which it would be unconsti- tutional and by the other valid, it is our plain duty to adopt that construction which will save the statute from constitutional in- firmity. And unless this rule be considered as meaning that our duty is to first decide that a statute is unconstitutional and then proceed to hold that such ruling was un- necessary because the statute is susceptible of a meaning which causes it not to be re- pugnant to the Constitution, the rule plainly must mean that where a statute is suscepti- ble of two constructions, by one of which (a) 213 U. S., 366. 246 grave and doubtful constitutional questions arise and by the other of which such ques- tions are avoided, our duty is to adopt the latter." Under the construction of the statute contended for by the Government and adopted by the court below there is condemned that elimination of com- petition which comes from ordinary consolidation, sale and purchase. In order to give vitality and effect to such construction there are involved two grave constitutional questions, which, while they have been just argued, may be again briefly stated: First: Is there a constitutional power in Congress to forbid the ordinary transac- tions that have characterized all commercial peoples, and that were unquestionably valid at com- mon law? Second: Has Congress the constitu- tional power to prevent a State corporation from engaging in interstate commerce? The court be- low having construed the Sherman Anti-Trust Law as forbidding the elimination of competition that results incidentally from sale, purchase and con- solidation, resolved these two grave questions against the defendants, and under the language of the statute which authorizes it only to restrain and enjoin "violations of the Act," restrained and enjoined the assumed violators of the Act from all interstate activity. It is another construction of the statute that has been enforced in every case ever brought under it which has come before this court, to-wit : that the first section forbidding contracts, combinations and conspiracies in restraint of trade forbids concert of action in restraint of trade between persons or corporations- who maintain their respective indi- viduality. It is practicable for a court to "prevent and restrain" a practice which involves monopoliz- ing trade, or attempting to monopolize it; it is practicable for a court to prevent and restrain the 247 making, or the continued operation, of an executory contract, combination or conspiracy. These are the things in fact condemned by the Sherman Anti- Trust Law. It is not practicable nor constitutional to prevent or restrain violations of the Sherman Law by saying to the purchaser of private prop- erty not affected with a public interest, years after its purchase, you must divest yourself of the prop- erty which you have bought and are using, or you must cease to engage in interstate commerce. This very impracticability of constitutional remedy shows, if, indeed, other considerations did not show, that the condemnation of such purchases of property was not intended by Congress, nor accom- plished by the Sherman Anti-Trust Law. POINT V. The covenants g'iven by various vendors to defendants, not to re-en- S'ag-e in a business to the injury of the g'ood-'will sold, are not illeg'al — they are not contracts in restraint of trade such as are condemned by the 1st section of the Sherman Anti- Trust La-w, and the conduct of defend- ants' vendees in taking* them -was not monopolizing' nor attempting to mo- nopolize trade in violation of the 2nd section of the Act. The petition of the Government in -this case has allegations regarding these covenants, but the prayer for relief does not specifically demand that any one of them be set aside as "a contract in re- straint of trade." 248 That such covenants, limited in point of time / and restricted in point of territory so as to be not \ more than reasonably necessary to protect the good- will conveyed, are valid and do not in any way contravene the Sherman Law was assumed by this Court in the Trans-Missouri case (a), the assump- tion was repeated in the Joint Traffic Association case (b) and it was expressly decided by this court ; in Cincinnati Packet Co. v. Bay (c) . In this latter case there was directly attacked a contract by vendors of certain steamers not to engage in the running of freight or passenger packets between certain points in Ohio for a period of five years. It is true that the interstate business of such packets even if they had run would have been insignificant, but this Court declined to put its deci- sion on the ground of such insignificance of inter- state commerce and held expressly that such con- tracts made as a part of the sale of the business and not as a device to control commerce would not fall within the Sherman Anti-Trust Law. That such i contracts are not affected by the Sherman Anti- Trust Law, but are, as indicated in the Trans-Mis- souri case, among those incidental ordinary con- tracts not intended to be forbidden by that stat- ute, has been expressly decided by subordinate fed- eral courts (d). The validity of such contracts at common law is well established (e). - It may be argued, though, that a policy pur- sued by a purchaser of many properties of a given (a) 166 F. S., 32Y-8. ~~ (b) 171 U. S., 568. (c) 200 IJ. S., 179. (d) Robinson v. Brick Co., 127 Fed., 804-7. Booth & Co. V. Davis, 121 Fed., 875-7; aff. 131 Fed., 31. Connor-McOonnell Co. v. McConnell, 140 Fed., 412; aS. idem, 987. (e) Fowls V. Park, 131 U. S., 88. National Enameling Co. v. Haberman, 120 Fed., 415. Harrison v. Glucose Sugar Eef. Co., 116 Fed., 304. Addyston Pipe & Foundry case, 85 Fed., 271, 280-2. 249 kind to take from vendors of such properties con- tracts not to re-engage in the business for a given number of years, indicates a purpose in such pur- chaser to exclude competitors from the field, and constitutes therefore an attempt to monopolize the industry, and the trade in such industry. The circumstances of these contracts have al- ready been discussed in that part of this brief that has to do particularly with the facts (a) and these facts will be only briefly referred to here. These covenants that have been taken from vendors — they have not been taken from all vendors — have been for different periods ranging from one to twenty years and have been confined to certain areas of territory. They have been not to engage directly or indirectly in business in competition with that sold. The area covered by these contracts was large, but the record shows that the good-will of even a small tobacco factory is likely to be co- extensive with the country. Tobacco made in Vir- ginia is popular even in New Egland; brands made in North Carolina are the largest sellers in their particular line even on the Pacific Coast; brands made in St. Louis and Louisville have their popu- larity all over the country. Further it appears that while not always the case it is very frequently i true that the name of the manufacturer who origi- j nated a brand of tobacco or its products becomes identified in the trade with the goods made by him, j as for instance "Duke's Mixture," "Drummond's \ National Leaf," "Garretfs SnufE;" Buchanan & ] LyalVs Planet." Under these circumstances it is ( peculiarly desirable in order to prevent confusion in the trade to the absolute destruction of the good- will bought that those whose names are so identi- i fied should not be at liberty to engage in business again, and so bring destructive confusion. More- over the practical desirability of such covenant to (a) Ante, p. 140. 250 the vendee incidentally appeared abundantly at the trial, as fully pointed out in the brief on the facts. In instances where no such covenants were taken defendants were subjected to unfair competi- tion — vendors to defendants re-entered the business of manufacturing tobacco, advertised their new brands as similar in all respects to brands which they had formerly manufactured under another name, the processes for the manufacture of which they had sold defendants (a). Such a method of competition is undoubtedly dishonest, but it is a method against which these defendants have had re- peatedly to contend. Two facts are obvious about every covenant not to re-engage in business shown by this record, to- wit : (1) that the vendor and covenantor had an ex- isting "business and good will extending throughout the territory described in the covenant and (2) that the business of the defendant vendee was so extensive that detriment would have followed if the covenant had not been given. These two considera- tions show the validity of each of the covenants, considered separately, and bear on the question whether the policy of ordinarily taking them indi- cates an intent to monopolize the business and con- stitutes therefore an attempt to monopolize. To further show that they had no such intent, it is to be said: (3) these covenants were taken from the responsible heads — owners of the property con- veyed — and not from the skilled superintendents and managers of factories; indeed, it has never been the policy of defendants to take covenants not to re-engage in business, or not to engage in busi- ness for concerns other than the defendants, from any superintendents, managers of factories or em- ployes whether its own or of vendors. If it were a part of the policy of defendants to monopolize the tobacco business — the trade in tobacco and its (a) Ante, p. 144. 251 products — by a system of contractually disabling skilled tobacco men from engaging in the business — it is singular that they do not adopt such policy with their own employes. Here are large corpora- tions, with factories at various points, employing thousands of people, a proportion of whom becomes skilled, some of whom become superintendents and managers of factories — of course, and in the nature of things, some of these employes for one reason or another leave its employ and go into business for themselves, or go into the service of other employ- ers. Not one of them has been imposed upon at his time of need and required, as the price of acquir- ing his skill in the business of manufacturing to- bacco, to sign a contract that disenables him to use that skill at any time and in any way he desires. It seems to these defendants that these considera- tions force the conclusion that the covenants re- ferred to have been only incidental to the purchases made, and that they show no intent, and constitute no attempt, on the part of the covenantees to use such covenants to acquire a monopoly in the to- bacco trade. POINT VI. Neither of the several contracts Tehich -were executed at the time of the formation of the British-Ameri- can Tohacco Company, Limited — or- dinarily called the Eng'lish contracts — nor the British American Tobacco Company, Limited, itself, offends any of the provisions of the Shex*man Anti-Trust La-w. With respect to this contention the defendants are in this court wholly appellees. The court below 252 dismissed the bill as to The Imperial Tobacco Com- pany, the British American Tobacco Company, Limited, both English companies, as well as W. S. Mathews & Sons, T. C. Williams Company and David Dunlop, Incorporated, incorporated under the laws of the States of the United States, owned as to all or a majority of their stock by British American Tobacco Company, Limited. This action of the Court, while accompanied by expressions of Judge Lacombe, which dwell on the absurdity of that public policy which would "prohibit an alien corporation from buying its raw material in this country unless it sends its prod- ucts here to compete with the American manufac- ture," is, nevertheless, based on the finding that there was nothing illegal in the contracts that es- tablished and accompanied the establishment of British American Tobacco Company, Ltd., whether on the part of The American Tobacco Company and The Imperial Tobacco Company, the vendor parties, or British American Tobacco Company, Ltd., the vendee party, the corporation formed by a consolidation of part of the interests of the other two. The Government has appealed, though, from that part of the decree which thus dismisses the bill, and it therefore becomes the duty of these defendants to defend in this brief and argument the legality of that transaction. Such defense need not be long; the contentions of these defendants with re- spect to this transaction are fully covered by the legal principles already referred to and contentions already made. From the time of its organization The American Tobacco Company had a business in England and in other foreign countries. This business was principally in cigarettes, and during the last few years previous to 1902 the business had been ad- vanced with considerable enterprise and energy to 263 the benefit, in the extension of their market, of American growers of leaf tobacco, so that in 1902 The American Tobacco Company controlled by stock ownership separate local companies engaged in the manufacture of cigarettes out of the Ameri- can grown leaf, in Germany, Canada, Australia and Japan, and besides that, sold from its own factories in the United States great numbers of cigarettes in China and India. For many years it had sold in England cigarettes manufactured in its American factories, but in 1901 the differential in the English tariff duties in favor of the imported raw material as against the imported manufactured product, and the activity of English manufacturers in populariz- ing in the English markets cheaper cigarettes, had reduced the volume of the English trade of The American Tobacco Company. So in 1901 it ac- quired through transfer of stock to it substantially a complete ownership of the manufacturing plant of Ogden's, Limited, an English cigarette manufac- turer, with a factory at Liverpool. Being thus put on a tariff equality with English manufacturers it rapidly extended its English business during the latter half of 1901 and the first half of 1902, still utilizing for this purpose American grown leaf, but manufacturing it in England through this Ogden's, Limited, organization. Possibly on ac- count of the apprehension of the competition from a strong, well organized company, some of the lead- ing English tobacco manufacturers, during the latter half of 1901, caused the formation of The Imperial Tobacco Company and sold their manu- facturing plants to it. The brands that this Im- perial Tobacco Company manufactured had already had some, though limited, sale in the United States ; the sale here was necessarily limited unless The Imperial Tobacco Company saw fit to establish manufacturing plants here, for it is the policy of this country in its tariff regulations (whether in 254 its anti-trust suits or not), to discourage the im- portation of manufactured tobacco, and a duty of 55 cents, with a still heavier duty on cigarettes, is collected upon the importation of these products, in addition to the internal revenue tax which they, as well as the products of domestic manufacture, have to pay. It does not appear in this record that The Imperial Tobacco Company or its predecessors had in active or serious contemplation the estab- lishment of factories in this country, though it was always apparent that if they or any other manu- facturers with the good will and good reputation which their business had, began the manufacture of tobacco and cigarettes in this country, using the same processes of manufacture and brands as theretofore used in England, there would be easily created an increasing market and demand for those goods. In September, 1902, as the result of negotiations entered into and conducted in England, the de- fendant The American Tobacco Company sold to the defendant The Imperial Tobacco Company its English business, including such tangible assets as it had in England and the whole undertaking of Ogden's, Limited; The American Tobacco Company and Continental Tobacco Company, which entered into the sale for that purpose, conveyed to The Im- perial Tobacco Company the right to use in Eng- land any of their processes of manufacture with the accompanying right to use on the products of such processes of manufacture the brands origi- nated and used by The American Tobacco Company and Continental Tobacco Company respectively. As part of the same transaction The Imperial To- bacco Company sold to The American Tobacco Company what is called "its American business," that is, the right to use in America its processes of manufacture then or thereafter used by The Imperial Tobacco Company in its English business, 265 with the right also to use on the products of such processes of manufacture the brands used by The Imperial Tobacco Company. In view of the value of tangible assets owned directly or indirectly by The American Tobacco Company in England, and the greater volume of English trade that The American Tobacco Company had than of American trade possessed by The Imperial Tobacco Company, The Imperial Tobacco Company paid for what it acquired from The American Tobacco Company not only its American business as aforesaid, but an amount of its share capital — considerable in value, considered absolutely, but relatively small, less than 10%. As a separate but contemporaneous transaction The American Tobacco Company, Continental To- bacco Company, Consolidated Tobacco Company and American Cigar Company on the one hand and Imperial Tobacco Company on the other, agreed to consolidate their properties so far as such prop- erties were used in trade foreign to the United States and foreign to the British Empire. To ef- fectuate this, they caused the formation under the laws of Great Britain of the British American To- bacco Company, Limited, to which each of the con- tracting parties conveyed absolutely the foreign fac- tories directly or indirectly held or owned by it re- spectively as well as the right to use in such for- eign factory or factories thereafter established by British American Tobacco Company, Limited, pro- cesses for manufacture then or thereafter used by either of the vendor companies, with the right also to use in such foreign countries on the products of such processes of manufacture the brands used by the vendors respectively. British American Tobacco Company, Limited, is- sued its stock in corporation of one-third to The Imperial Tobacco Company and two-thirds of The American Tobacco Company and the other Ameri- 256 can companies, and these companies advanced cash, in the same proportions, to British American To- bacco Company, Limited, to an amount of more than $5,000,000. By these conveyances the British American Tobacco Company, Limited, acquired large properties with a valuable good will, and it has since used these properties and increased them and enlarged its business as any other owner. In order to assure to the respective vendees the enjoyment of the good will conveyed, and in order to assure to each respective vendor that the prop- erty conveyed by it would not be used to compete with the business retained by it, the American com- panies agreed with The Imperial Tobacco Company that they would not engage or be interested other- wise than as stockholders of the Imperial Tobacco Company in manufacturing or selling tobacco in England, the Imperial Tobacco Company agreed with the American companies that it would not, ex- cept with their permission, engage or be interested in the manufacture or sale of tobacco in the United States, and both the Imperial Company and the American companies agreed with the British Amer- ican Tobacco Company that they would not, except as a stockholder in it, be interested or engage in the manufacture or sale of tobacco in countries other than the United States of America and the British Empire. The British American Tobacco Company, Limited, represented by trustees, agreed with the other companies that it would not be engaged or interested in the manufacture or sale of tobacco except in countries foreign to the United States of America and the British Empire (a). A few representative directors of the American companies and the Imperial Tobacco Company — eight from the American companies and twelve from the Im- (a) For a further discussion as to the facts, see ante, p. 47. The two contracts are filed as Exhibits to the Bill of tha Government and printed in full. Record, Vol. 1, p. 111. 257 perial Company — entered into these covenants along with their respective companies. The first thing that suggests itself with regard to this transaction is that it at least furnishes no justiflcation of the charge that these American de- fendants are seeking to monopolize trade. They had a large and growing business which they sold for a small interest in an English company, over which they have never exercised the slightest con- trol or influence, and they have by selling part of the Imperial Tobacco Company's securities ac- quired by them, diminished even that interest in the English tobacco business. There has thus been a segregation of part of their tobacco business, and so complete a segregation that it has passed en- tirely beyond their control, and not the greedy ag- gregation which by the theory of the Government has always characterized these defendants. The second thing that suggests itself is that there has resulted no injury to American commerce by this English transaction. There is no evidence that there has been any diminution in the require- ments of American leaf for the English market, but, the evidence is explicit that the use by the British; American Tobacco Company of American grown leaf has increased from 20,000,000 pounds in 1903; to 30,000,000 pounds in 1906 (a)— an increase it is^ easy to believe brought about largely by the greater efficiency and enterprise in opening up foreign mar- kets which have resulted from the consolidation of 1902. There has been not only no diminution in demand for American grown leaf — and after all aggregate demand is what makes for higher prices — but there has been no elimination of a competitor. If any fact is established by this Eecord it is that the competition for the purchase of leaf tobacco be- (a) Ante, p. 53. 258 tween The American Tobacco Company and The Imperial Tobacco Company is real (a). Why should it not be real when The Imperial Tobacco Company owns no stock in The American Tobacco Company, and The American Tobacco Company owns less than 5% of the stock of The Imperial Tobacco Com- pany? So that while, for motives of convenience and as a subsequent arrangement, and not at all as provided for in the contract of September, 1902, The American Tobacco Company buys the require- ments of leaf tobacco of British American Tobacco Company, Ltd., in this country, on all of these types of tobacco exactly the two competitors that existed before the contract of September, 1902, was made, exist now. The only effect of the arrange- ment is that The American Tobacco Company buys now more of those types of leaf and The Imperial Tobacco Company less. The third thought that suggests_itself_is_the thought that was evidently inT the mind of Circuit Judge Lacombe when he asked what public policy would be served by prohibiting a foreign corpora^ tion from buying its raw material in this country. Of course such considerations would not induce this Court to refrain from declaring illegal what is in truth an illegal contract, but it is not to be for- gotten that this is an English contract and the only illegality which may be considered here is the al- leged violation of the Sherman Anti-Trust Law in- volved in the operation of the contract so far as it operates in this country. The Imperial Tobacco Company has, as its only activity in this country, the purchase of American grown leaf tobacco. The British American Tobacco Company, Ltd., has, as its only activity in this country, the purchase through The American Tobacco Company of Amer- ican grown leaf tobacco and the employment of (a) Ante, p. 69. 259 American labor in manufacturing the products to be shipped abroad, which latter activity is carried on to the extent, but only to the extent, that it may be profitably carried on, considering the tendency of foreign countries to establish tariff differentials against the imported manufactured article as com- pared with the imported raw material. Are these activities to be condemned as illegal under the Sherman Anti-Trust Law, and is an enlightened public policy of this country to be served by depriv- ing these foreign companies of the right to pursue such activities here? There would result inconven- ience to them, but real injury to the tobacco grow- ers, the tobacco workers and the commerce of the country. They would confine themselves to their ft5reign factories and would depend for their sup- ply of tobacco ( to the extent that they found it im- possible to substitute tobaccos grown in other countries for tobaccos grown in America) upon those who might bring the tobacco to them ; but the American workmen would be out of employment and the American leaf growers would have their market curtailed or embarrassed. Passing from these considerations, though, these defendants earnestly and confidently contend that there is nothing illegal in these English contracts and would not be even if they had been negotiated and entered into within the local jurisdiction of the Congress of the United States and had their only operation and effect here: FiEST. — The formation of British American To- bacco Company, Ltd., by The Imperial Tobacco Company and the American Tobacco companies and the subsequent conveyance to it of parts of their respective properties is no more nor less in its legal essence than the transaction entered into daily and in every locality of forming a partner- ship between manufacturers and traders, thereto- 260 fore competitors, and of merging, under State stat- utes intended to facilitate such mergers, corpora- tions theretofore engaged as competitors in trade. Second. — The reciprocal covenants entered into by the parties to this English transaction accom- panied a bona fide sale and purchase of substantial property interests and are abundantly sustained bj the authorities already cited. If it be said that the property sold by The Imperial Tobacco Company — its so-called American business — was too insignifi- cant in the value of its good will to reasonably sup- port the covenant of Imperial Tobacco Company not to engage in business here, and that therefore the covenant was the main thing, with the sale only as an incident, it may be answered that, how- ever inconsiderable the business that The Imperial Tobacco Company sold, the business that it bought was a very large one. It bought not only all the tangble property of Ogdens' Limited, which had cost The American Tobacco Company millions of dollars, but it bought the right to know and use all the secret formulae and processes of manufacture that the American companies owned and used. From this standpoint alone, and without consider- ing the Imperial Tobacco Company as the vendor of property at all, its covenant comes clearly with- in the reasons given by Circuit Judge Taft in the Addyston Pipe & Foundry case (a) for holding such covenants given by a vendee valid: "Again when one in business sold proper- ty with which the buyer might set up a rival business it was certainly reasonable that the seller should be able to restrain the buyer from doing him an injury which, but for the sale, the buyer would be unable to inflict. This was not reducing competition, but was only securing the seller against an increase of competition of his own creating. Such an exception was necessary to promote the free purchase and sale of property." (a) 85 Federal, 271, 280-281. 261 This discussion of Circuit Judge Taft was only following the decision of this Court in Navigation Co. V. Winsor (a). It cannot be said that these covenants are void because they are unrestricted in time. At a very early date, the English courts established that a covenant unlimited as to time is valid (b). The court held that the object of such covenants was to give to the vendee the right to sell the business him- self if he so desired and hence "that the only effectual mode of doing this appears to be by making the restriction co- extensive with the servant's (vendor's) life." This doctrine has never since been doubted and it has been applied in many cases (c). The doctrine of the American cases is no less lib- eral than that of the English. A covenant is valid "though it is to last for the life of the promisee, or though no time limit is imposed" (d). The reason for this rule with respect to corporations is two- fold. In the first place, regardless of the vendees' right to sell, it is obvious that the covenantee needs a protective covenant co-extensive with its own life and the covenantees in the case at bar were perpet- ual; in the second place, regarding the vendee's right to re-sell, the covenant should not be limited to the life of the covenantee, but, as was said in Hitchcock V. Coker (supra), it should extend also to the life of the covenantor, and the corporation covenantors in the case at bar are perpetual in their (a) 20 Wall., 64. (b) Hitchcock V. Coker, 6 Ad. & EL, 438 (183Y). (c) Archer v. Marsh, 5 Ad. & EL, 959. Mallan v. May, 11 M. & W., 653. Pemberton v. Vaughan, 10 Q. B., 87. Atkins V. Kinnier, 19 L. J. (Exch.), 132. Elves V. Croft, 10 C. B., 241. Avery v. Langford, 23 L. J. (Ch.) 837. (d) Page on Contracts, Sec. 380 and cases cited. National Enameling Co. v. Haberman, supra. 262 lives. So that, however it is considered, and this not only with respect to technical law but the law of reasonableness as applied to the particular transaction, these covenants are not, because they are unlimited in time, invalid and illegal. It has been suggested that whatever may be said of the reciprocal covenants between The Imperial Tobacco Company and The American Tobacco Com- pany the contracts entered into by the Continental Tobacco Company, Consolidated Tobacco Company and American Cigar Company were void because these three companies neither bought nor sold. This is inaccurate. The Continental Tobacco Company sold to The Imperial Tobacco Company its proc- esses for the manufacture of tobacco and the brands to be used on the products of such manufacturing processes so far as England was concerned, and to the British American Tobacco Company the same things so far as countries foreign to England and the United States are concerned. American Cigar Company made no sale, but it entered into con- tracts with The Imperial Tobacco Company with re- spect to the handling and distribution of its cigars in England. Consolidated Tobacco Company was not a manufacturer at all, but it was the owner of the majority of the common capital stock of both the Continental Tobacco Company and American Tobacco Company — it has never been deemed il- legal for the individuals interested in a vendor corporation or a vendee corporation to join such corporation in such covenants (a). Suppose it be true, though, that the English par- ties to the transaction, knowing that The American Tobacco Company, Continental Tobacco Company and Consoldiated Tobacco Company had a common president and many common stockholders, and that the American Cigar Company was controlled by the same interests, were over zealous and over cautious (a) Electric Co. v. Hawks, 171 Mass., 101. 263 in protecting themselves against an impairment of the good-will which they were purchasing and for which they were paying securities worth millions of dollars, and that there was no sufficient reason for some of these companies entering into the cove- nant, is the validity of the whole transaction to be on that account denied? These defendants have no misgivings as to the validity of their contention that these covenants that were part of the English transaction were reasonable and valid. But even if they should be mistaken about this and the covenants should be de- clared void because unlimited in time, or because not reasonably necessary to protect the good will acquired, nor reasonably necessary to protect the good will retained, by the respective vendees and the respective vendors, the effect of such would not be to invalidate the whole transaction. The main transaction revealed in these English contracts was the formation of British American Tobacco Com- pany, Ltd., and the sale to it of certain property with the good will thereof by the American com- panies and the Imperial Tobacco Company ; the sale to The Imperial Tobacco Company by the American companies of certain properties and the sale by the Imperial Company to the American companies of certain properties. Unless these sales are void ; un- less this Sherman Anti-Trust Law is to be given the revolutionary effect of forbidding a sale by one competitor to another ; this transaction must stand, whatever the fate of the reciprocal covenants not to engage in business in certain territory executed by the respective parties. 264 POINT VII. British American Tobacco Com- pany, Limited, lias not monopolized nor attempted to monopolize any part of interstate or foreign com- merce. British American Tobacco Company, Limited, does no interstate commerce except in its shipments of raw material from the point of purchase in one State to the point of manufacture in another. It will not be contended that there has been any suc- cessful or unsuccessful attempt to monopolize that commerce. No person has been by it excluded or embarrassed in his purchase of leaf tobacco or his shipment of it to his own factory. The real commerce that the British America To- bacco Company, Limited, does or initiates in the United States is the shipment of manufactured tobacco or the products of tobacco from its factories in the United States to foreign countries, and the shipment of leaf tobacco and raw material from the United States to its factories in foreign coun- tries. It is true that British American Tobacco Company, Limited, markets in foreign countries much more of the products of tobacco manufac- tured in the United States than any other manufac- turer of the United States, and indeed more than all other manufacturers in the United States combined. The story of its activities and enterprise in opening up new countries and the consumption of the prod- ucts of American grown leaf tobacco altogether ex- plains that situation (a). The difficulties — not created nor magnified, but rather minimized by British American Tobacco Company, Limited — that would confront the smaller manufacturer in (a) Ante, p. 53. 265 doing a trade in many foreign countries (a) ex- plains the absence of such smaller manufacturers from the foreign markets. As heretofore argued, the large, absolute or rela- tive, volume of one's business, though, does not con- vict one of monopolizing or attempting to monopo- lize unless there has been a successful or unsuccess- ful attempt to destroy or abridge another's oppor- tunity for trade. The record discloses absolutely no such attempt on the part of British American Tobacco Company, Limited. More than that, this record induces the belief that the trade that British American Tobacco Company, Limited, enjoys is a trade that, but for its existence, would not be enjoyed by any American manufac- turer, but would either not exist at all, or would ex- ist for the continued benefit of the producers of leaf tobacco in India, China and the other foreign coun- tries. This record puts British American Tobacco Company, Limited, in a singularly favorable atti- tude so far as American commerce is concerned. It is necessarily the fact with respect to any American manufacturer whose products are sold in America that it is questionable how much he has actually in- creased the volume of trade in the given commodity, and how much of what he has he has simply taken from a competitor. This is not the case with British American Tobacco Company, Limited. What it has it and its predecessors created, and it has prospered, not at the expense of any American manufacturer, but only to the advantage of Ameri- can laborers and American leaf tobacco growers. (a) Ante, p. 53. 266 POINT VIII. Tlie doctrine of stare decisis xmay be invoked -witli propriety and efiEect in favor of all these defendants, and -witli respect to eacli and all tbe transactions involved. One of the early proceedings instituted under tlie Sherman Anti-trust Law was an indictment in Massachusetts against individuals alleged to have been instrumental in the organization and the af- fairs of the Distilling & Cattle Feeding Company. In an effort to remove one of the defendants to the District of Massachusetts for trial, Circuit Judge Jackson in 1892 gave earnest consideration to, and luminous exposition of, the Sherman Anti-trust Law. It will not be denied that in the Green case, Judge Jackson held that it was not in violation of the Sherman Law for competitors engaged in the manufacture and sale of distillery products, to combine by the formation of a corporation which took over from them their plants theretofore used in competition, and purchased or otherwise ob- tained control of distilleries in the United States at the time producing seventy-five per cent, of all the distillery products of the United States; and that it was not in violation of the Sherman Anti- trust Law for this combination to put into effect selling schemes or methods by the terms of which customers who purchased only from such combina- tion and maintained prices, were enabled to pur- chase the goods from the combination at a lower price than other purchasers (a). There were efforts to transfer various of the de- fendants in the Distilling Company case to Massa- chusetts for trial, and in that way District Judge Kicks, Circuit Judge Lacombe and District Judge (a) In re Green, 52 Fed., 104. 267 Nelson had occasion to pass on the indictment. None of them entered into so considerable a discus- sion of the matter as Circuit Judge Jackson, but each of them agreed with Circuit Judge Jackson's conclusion (a). Soon after this indictment, there was a proceed- ing in equity brought against the American Sugar Eefining Company and others. Before this latter case was tried in the lower court. Circuit Judge Jackson had been elevated to the Supreme Court Bench, and the lower court, in the Knight case, in- stead of discussing at considerable length the ques- tions raised, referred to Judge Jackson's opinion in the Green case heretofore cited, as controlling (b) ; the Circuit Court of Appeals of the Third Circuit did exactly the same thing (c), and the case came to this Court and was decided by it in January 1895 (d). In this case there was not considered the matter of trade methods, such as had been con- sidered in the Oreen ease, but there was considered by this Court the same question as had been there- tofore considered in the Oreen case, so far as the acquisition of manufacturing plants was con- cerned, and this Court decided, with one dissenting Justice, that the purchase by a corporation en- gaged in interstate commerce of the entire share capital of four of its competitors similarly engaged in interstate commerce, in exchange for shares of its own stock, even when such purchase was made "for the purpose of securing a more perfect con- trol over the manufacture and sale" of a necessary of life within the United States, and even when by such purchase the vendee corporation acquired con- trol to the extent of ninety-eight per cent, of the (a) 51 Fed., 205 51 Fed., 213 50 Fed., 469 (b) 60 Fed., 306 (c) 60 Fed., 934: (d) 156 TJ. S., 1. 268 article manufactured and sold within the United States, was not that direct interference with inter- state commerce necessary to bring the transaction under Federal control, and, therefore, constituted no violation of the Sherman Anti-Trust Law. The authority and validity of this construction of the statute was, of course, recognized by courts, departments of government, lawyers, and inhabi- tants of the country generally. In his annual re- port for 1895 Attorney General Harmon referred to the decision by this Court in the Knight case, describing it as follows: "It was held that the purchase of certain sugar refineries in the City of Philadelphia on behalf of the so-called 'Sugar Trust,' was not a violation of the provisions of that law, although a virtual monopoly of the business of refining sugar resulted, because inter- state commerce was not thereby directly af- fected." And he declared that combinations, or even mo- nopolies "Cannot be reached under this law sim- j ply because they are combinations and mo- K nopolies, nor because they may engage in in- terstate commerce as one of the incidents of their business." (a) In the following year the same Attorney-General says: "The restricted scope of the provisions of this law as they have been construed by the courts, especially in United 8tates v. E. G. Knight Company, makes amendment neces- sary if any effective action is expected of this Department." (b) In 1899 Attorney-General Griggs discussed the Knight case at some length, and in the course of his discussion, says : "Whatever may be the evils arising from corporate or other aggregations of capital, (a) Annual Eeport of Atty.-Gen. 1895, p. 13 ; (b) Annual Eejwrt of Atty.-Gten. 1896, p. xxvii. 269 or from the comprehension under one man- agement of various industrial or manufac- turing establishments that would otherwise be engaged in competition ; whatever may be the disadvantage of having one carry on sev- eral branches of business which might be carried on by separate persons; all of these things are done by virtue of the appropriate and constitutional authority of the several States under State law, and except where they invade the territory of Congressional jurisdiction by interfering with interstate or international commerce in a direct man- ner, they are subject and subordinate to the restraint and control of the individual States where they are carried on." (a) In 1906, Attorney-General Moody, in his sum- mary of what had been definitely established by the decisions of this Court, under the Sherman Law, said: "In the course of this litigation it has been made clear by the decisions of the Su- preme Court: * * * Second, that a combination of manufacturers to restrain or monopolize manufacture or production which only incidentally and indirectly af- fected interstate commerce, was not within the prohibition of the Act because not a re- straint of interstate commerce {V. S. v. E. C. Knight Co., 156 U. S., 1) (b). In 1907, Attorney-General Bonaparte, in an offi- cial letter, discussed the effect of the Knight case as follows: "The case of United States v. B. C. Knight Company (156 U. S., 1) determined, in sub- stance, that the acquisition by the so-called 'sugar trust' of a controlling interest in four refineries, which at the time of such acquisi- tion constituted, for practical purposes, its only competitors in the United States, did (a) Aiimial Eeport of Atty.-Gen. 1899, p. 21 et seq. (b) Report of Atty.-Gen. for 1906, p. 7. 270 not involve a violation of the Sherman Act which would justify a suit in equity on the part of the Government to cancel the agree- ments, by virtue of which the controlling in- terest in these several corporations had been so acquired by the said so-called 'trust.' The Supreme Court held thus, although, in the language of Judge Butler in the cir- cuit court, 'the object in purchasing the Philadelphia refineries was to obtain a great- er influence or more perfect control over the business of refining and selling sugar in this country' * * * I may perhaps make my meaning a little clearer if I say that I understand the Knight case to have decided, . first, that the mere acquisition of the con- trolling interest in competing refineries did not violate the act ; second, that such acqui- ' sition, plus the purpose in making it to ob- tain a 'more perfect control' over the busi- ness in which the trust is engaged through- out the entire country, did not amount to a breach of the law. This is my view of the decision in the Knight case" (a). Eeferences to contemporary and subsequent law literature might be multiplied to show that the whole body of public opinion of the country alto- gether agreed with the Attorney-Generals in the belief that the Knight case and the Green case settled the effect of the law; (b) State after State have passed legislation permitting cor- porations to acquire stock in other corporations, and permitting mergers of corporations; and all men who knew of the law at all, whether lawyers or laymen, concluded that, whatever else might be forbidden by the law, there was not forbidden the combination of the property of manufacturers, even (a) Senate Doc. No. 687, 2iid Sess. 60tli Congress, p. 27. (b) 7 Oolumbia L. Rev., 93 (Judge ISToyes) ; 29 Am. L. Eev., 293 (Editorial) ; 34 Am. L. Eev., 194 (E. W. HufE- cut); 7 Harvard L. Rev., 167; 1 Va. L. Reg., 709; 2 Va. L. Reg., 160; 2 Eddy on Combinations, sec. 818 et seq.; Spelling on Monopolies, p. 227. 271 of those who sold their products in interstate com- merce, and whether the combination was effected by direct transfer of physical property, or the trans- fer of capital stock — provided that the latter was permitted by the law of the State. In 1896 this Court decided without a dissenting voice that the merger of corporations organized under State laws, is a matter entirely of State con- cern, subject in no way to Federal control ; and this although the corporations so to be merged were rail- roads engaged directly in interstate commerce (a). The opinion in this case, although it did not cite the Knight case, yet proceeded upon substan- tially the same ground, to wit : that the transaction of merging State corporations engaged in inter- state commerce is not direct in its relation to inter- state commerce at all. Having held that the merger of railroad corporations was a matter of State con- cern, it follows, a fortiori from this decision that the amalgamation of manufacturing concerns through a merged corporation or co-partnership is a matter of State concern, not direct in its effect on interstate commerce, and not subject to the regulation of Federal legislation. Now to say nothing of the Green case, it was only after the decision in the Knight case that ninety- five per cent, in number and in volume of the pur- chases attacked in the litigation at bar were made ; up to the decision of the Knight case, not a single corporation defendant in the case at bar had owned shares of stock in any other corporation; the pur- chases of stock that have been made since do not involve all of the features that were urged against the defendants in the Knight case; these defendants have acquired stocks for cash or property, and not (a) Louisville & Nashville R. R. Co. v. Kentucky, 161 U. S., 677. .( 272 in exchange for their own stock, and the stocks now held by them represent simple cash invest- ments. It was after the decision in the Louisville & Nash- ville Railroad case, and after the proposed Merger had been approved by the State Courts of New Jersey, the only courts which, under the Louisville & Nashville Railroad case had jurisdiction of the matter, that the Merger resulting in the present The American Tobacco Company was accomplished. With the exception of the formation of the orig- inal The American Tobacco Company (which, hav- ing been dissolved by the merger of 1904, is, in fact, not really a defendant here; and the forma- tion of the original The American Tobacco Com- pany was consummated before the passage of the Sherman Anti-trust Law ) , the formation of each of the five corporations declared by the decree in the court below to be in itself a combination in re- straint of trade, indeed, the formation of each cor- poration a defendant in the case at bar, occurred after the decision of these two cases; their legality was advised upon the authority of these two cases ; the purchases made and the transactions com- plained of have proceeded upon the authority of these two cases. These are considerations of tremendous impor- tance. As has been heretofore contended in this brief, the transactions at bar fall as completely within the transactions of one or both of these two adjudicated cases as the transactions of a case at bar will ever fall within the transactions of a case decided. If the doctrine of stare decisis is to ever have applicability, it is in the case at bar, for large investments have been made, large properties have been acquired by these defendants — and one cannot close one's eyes to the fact that these de- fendants are only in the position of individuals 273 and corporations all over the land — upon the au- thority of adjudicated cases of this Court ; the con- struction of those doctrines of this Court here contended for has been conceded by the Executive Departments of the Government, as well as lawyers and laymen throughout the country, and upon these cases and their universal construction money has been invested and businesses built up. It is not contended that the provision of the Constitution against the enactment of ex post facto laws, pre- vents this Court overruling its former adjudica- tions ; but it is contended that when such prior ad- judications have become rules of property, the basis of business enterprises of large magnitude, and when to overrule these adjudications would make wrecks of these enterprises, and criminals of their promoters, a case of such close analogy to ex post facto laws is presented that the maxim stare decisis becomes almost as if its salutary principle had been embodied in the Constitution itself. "It is almost as important that the law should be settled permanently as it should be settled correctly. Its rules should be fixed deliberately and adhered to firmly unless clearly erroneous. Vacillation is a serious evil. Misera est servitus ubi lex est vaga aut incerta" ( a ) . "Stare decisis is a wholesome doctrine" (b). If the Northern Securities case, decided almost ten ye^rs, after the Knight case, overruled or modi- fled these two decisions (and it is that case which it is argued did have such effect), it is in spite of the declaration by Mr. Justice Harlan, delivering the opinion of the Court, that no such effect was involved. "There is no pretense that the combina- tion here in question was under the author- (a) Gilman v. Philadelphia, 3 Wall., 713, 734. (b) Vail V. Arizona, 207 U. S., 201, 205. 274 ity of the State under whose laws these rail- road corporations were created. But even if the State allowed consolidation it would not follow that the stockholders of two or more state railroad corporations, having competing lines and engaged in interstate commerce, could lawfully combine and form a distinct corporation to hold the stock of the constituent corporations, and by destroy- ing competition between them, in violation of the Act of Congress, restrain commerce among the States and with foreign nations" (a). "There was no actual investment in any substantial sense, by the Northern Securi- ties Company in the stock of the two con- stituent corporations. If it was in form such a contract it was not in fact one of that kind. If any one had knowledge of what was designed to be accomplished by the combination it was the defendant Morgan. In his testimony he was asked, 'Whj put the stocks of both these (constituent com- panies) into one holding company?' He frankly answered: 'In the first place, this holding company was simply a question of custodian, because it had no other alliances.' That disclosed the actual nature of the transaction, which was only to organize as a holding company, in whose hands, not as real purchaser or absolute owner, but sim- ply as custodian, were to be placed the stocks of these constituent companies" (b). It is to be noted also that it was after and not before the decision of the Northern Securities case that Attorney-Generals Moody and Bonaparte gave their opinions, already quoted, as to what had been — and presumably still was — established by the Knight case. (a) 193 U. S., at 338. (b) 193 U. S., at 353. 275 POINT IX. The petition of tbe Government oug-ht to be dismissed as to all of these defendants. Respectfully submitted, John G. Johnson, Wm. J. Wallace, w. w. fullee, DeLanoey Nicoll, Junius Paekee, Of Counsel. 276 APPENDIX. Tbe Sherman Anti-Trust Act. An Act to protect trade and commerce against unlawful restraints and monopolies. Be it enacted by the Senate and House of Repre- sentatives of the United States of America in Con- gress assembled: Section 1. Every contract, com- bination in the form of trust or otherwise, or con- spiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the sev- eral States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction there- of, shall be punished by fine not exceeding five thou- sand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discre- tion of the court. Section 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District 277 of Columbia, or with foreign nations, or between the District of Columbia and any State or States and foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy shall be deemed guilty of a misdemeanor, and, on con- viction thereof, shall be punished by fine not ex- ceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punish- ments, in the discretion of the court. Section 4. The several circuit courts of the United States are hereby invested with jurisdic- tion to prevent and restrain violations of this act; and it shall be the duty of the several district at- torneys of the United States, in their respective districts, under the direction of the attorney-gen- eral, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties com- plained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition and before final decree the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises. Section 5. Whenever it shall appear to the court before which any proceeding under section four of this act may be pending that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not; and subpoenas to that end may be served in any district by the mar- shal thereof. 278 Section 6. Any property owned under any con- tract or by any combination, or pursuant to any conspiracy (and being the subject thereof) men- tioned in section one of this act, and being in the course of transportation from one State to another, or to a foreign country, shall be forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure and condemnation of prop- erty imported into the United States contrary to law. Section 7. Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or de- clared to be unlawful by this act may sue therefor in any Circuit Court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover threefold the damages by him sus- tained, and the costs of suit, including a reasonable attorney's fee. Section 8. That the word "person," or "per- sons," wherever used in this act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country. Approved, July 2, 1890. [9081D]