Section 15. Holding companies.

The holding company as a device for combining competitive interests succeeded to the "trust" form of organization, as already described in Chapter I. (See pp. 8-9.) 'The holding company in its pure form is one which simply owns the stocks of the companies whose property and business are under its control. Most holding companies, however, own and operate directly a part of the property and business under their control. A few years after the enactment of the Sherman Law it became one of the principal methods of combining competitors. No authoritative decision by the Supreme Court was made with regard to its legality until the Northern Securities case was decided in 1904.

NORTHERN SECURITIES Co. v. UNITED STATES (193 U. S., 197), SUPREME COURT, 1904.-The facts in this case are more fully stated on page 73. More briefly they were as follows: Stockholders in two parallel and competing interstate railroads organized the Northern Securities Co. to acquire and hold the shares of the said railroads, and in consequence most of the shares of the said two railroad companies were so acquired. Most of the shareholders of the railroad companies exchanged their shares for shares of the Northern Securities Co. on an agreed basis. The Government brought suit to prevent the Northern Securities Co. from voting such shares, and to compel it to reexchange them for its own shares, etc.; also to enjoin the carrying out of the scheme of combination. The court held that this combination in the form of a holding company was in restraint of interstate commerce and contrary to the Sherman Act.

Justice Harlan, speaking for himself and three other justices, said in part (p. 338):

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 destroying competition between them, in violation of the act of Congress, restrain commerce among the States and with foreign nations.

Justice Brewer in his concurring opinion said in part (p. 362):

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There was a combination by several individuals separately owning stock in two competing railroad companies to place the control of both in a single corporation. The purpose to combine and by combination destroy competition existed before the organization of the corporation, the Securities Company * *. A corporation, while by fiction of law recognized for some purposes as a person and for purposes of jurisdiction as a citizen, is not endowed with the inalienable rights of a natural person. It is an artificial person, created and existing only for the convenient transaction of business. In this case it was a mere instrumentality by which separate railroad properties were combined under one control. That combination is as direct a restraint of trade by destroying competition as the appointment of a committee to regulate rates.

STANDARD OIL Co. v. UNITED STATES (221 U. S., 1), SUPREME COURT, 1911.-The facts in this case have been already stated in connection with other topics. (See pp. 86, 90.) Briefly stated for the present purpose, the essential points in question were as follows: The Standard Oil Co. was a combination embracing most of the pipeline, oil-refining, and oil-marketing business in the country, built up at first principally by the amalgamation of competing interests. These were organized under a common control through a deed of trust in 1882, and subsequently through a holding company, the Standard Oil Co. of New Jersey, which owned the stock of a large number of subsidiary companies controlled by the combination. When this form of organization was adopted the New Jersey company increased its authorized capital stock from $10,000,000 to $110,000,000. Its shares were issued to the former owners, or beneficial owners, of the shares of the subsidiary companies, which were in turn acquired by the holding company.

The court held that the series of acts by which the combination was formed, and in particular the holding company established in 1899, constituted a violation of both sections 1 and 2 of the Sherman Law. With more particular reference to the form of organizing the combination, the court said in part (pp. 72-75):

Giving to the facts just stated the weight which it was deemed they were entitled to, in the light afforded by the proof of other cognate facts and circumstances, the court below held that the acts and dealings established by the proof operated to destroy the "potentiality of competition" which otherwise would have existed to such an extent as to cause the transfers of stock which were made to the New Jersey corporation and the control which resulted over the many and various subsidiary corporations to be a combination or conspiracy in restraint of trade in violation of the first section of the act, but also to be an attempt to monopolize and a monopolization bringing about a perennial violation of the second section.

We see no cause to doubt the correctness of these conclusions, considering the subject from every aspect, that is, both in view of the facts established by the record and the necessary operation and effect of the law as we have construed it upon the inferences deducible from the facts, for the following reasons:

(a) Because the unification of power and control over petroleum and its products which was the inevitable result of the combining in the New Jersey corporation by the increase of its stock and the transfer to it of the stocks of so many other corporations, aggregating so vast a capital, gives rise, in and of itself, in the absence of countervailing circumstances, to say the least, to the prima facie presumption of intent and purpose to maintain the dominancy over the oil industry, not as a result of normal methods of industrial development, but by new means of combination which were resorted to in order that greater power might be added than would otherwise have arisen had normal methods been followed, the whole with the purpose of excluding others from the trade and thus centralizing in the combination a perpetual control of the movements of petroleum and its products in the channels of interstate commerce. (b) Because the prima facie presumption of intent to restrain trade, to monopolize and to bring about monopolization resulting from the act of expanding the stock of the New Jersey corporation and vesting it with such vast control of the oil industry, is made conclusive by considering (1) the conduct of the persons or corporations who

were mainly instrumental in bringing about the extension of power in the New Jersey corporation before the consummation of that result and prior to the formation of the trust agreements of 1879 and 1882; (2) by considering the proof as to what was done under those agreements and the acts which immediately preceded the vesting of power in the New Jersey corporation as well as by weighing the modes in which the power vested in that corporation has been exerted and the results which have arisen from it. With reference to the decree of the court below, the opinion contained the following statement (pp. 79-80):

So far as the decree held that the ownership of the stock of the New Jersey corporation constituted a combination in violation of the first section and an attempt to create a monopoly or to monopolize under the second section and commanded the dissolution of the combination, the decree was clearly appropriate. And this also is true of section 5 of the decree which restrained both the New Jersey corporation and the subsidiary corporations from doing anything which would recognize or give effect to further ownership in the New Jersey corporation of the stocks which were ordered to be retransferred.

Section 16. Agreements to fix prices.

The most direct attempt at price enhancement has been by means of agreements to fix prices. Such agreements have been held to be illegal, as being in restraint of trade, and as attempts to monopolize, in so far as they relate to interstate commerce. These have existed among railroads as well as among manufacturing and trading concerns. They may be either sellers' or buyers' agreements-usually the former, though occasionally, as in the case of the beef packers (see p. 106), buyers have combined to depress purchase prices. The earliest instance of an agreement to fix prices held illegal by the Supreme Court under the Sherman Law was an agreement to fix the prices of railroad transportation.

UNITED STATES v. TRANS-MISSOURI FREIGHT ASSOCIATION (166 U. S., 290), SUPREME COURT, 1897.-The facts in the case have. already been stated. (See p. 84.) For the present purpose it is sufficient to recall that an association of railway companies had made an agreement to fix the rates of transportation in an area comprising several States, under which members failing to maintain such rates. were subject to fine. In the suit in equity brought by the Government it was sought to dissolve the association and enjoin the parties thereto from further action under the combination. The defendants claimed that the rates so fixed were reasonable. The court held, as already noted in the previous statement of the case, that the question of reasonableness did not enter. The court said (pp. 339, 341):

The claim that the company has the right to charge reasonable rates, and that, therefore, it has the right to enter into a combination with competing roads to maintain such rates, can not be admitted. The conclusion does not follow from an admission of the premise. What one company may do in the way of charging reasonable rates is radically different from entering into an agreement with other and competing

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roads to keep up the rates to that point. If there be any competition the extent of the charge for the service will be seriously affected by that fact. petition is allowed no play; it is shut out, and the rate is practically fixed by the companies themselves by virtue of the agreement, so long as they abide by it. The question is one of law in regard to the meaning and effect of the agreement itself, namely: Does the agreement restrain trade or commerce in any way so as to be a violation of the act? We have no doubt that it does. The agreement on its face recites that it is entered into "for the purpose of mutual protection by establishing and maintaining reasonable rates, rules and regulations on all freight traffic, both through and local." To that end the association is formed and a body created which is to adopt rates which, when agreed to, are to be the governing rates for all the companies, and a violation of which subjects the defaulting company to the payment of a penalty, and although the parties have a right to withdraw from the agreement on giving thirty days' notice of a desire so to do, yet while in force and assuming it to be lived up to, there can be no doubt that its direct, immediate and necessary effect is to put a restraint upon trade or commerce as described in the act.

UNITED STATES v. JELLICO MOUNTAIN COAL & COKE CO. ET AL. (46 FED., 432), CIRCUIT COURT, 1891.—This case was a suit in equity against the members of the "Nashville Coal Exchange," which was composed of coal-mining companies in Kentucky and Tennessee and coal dealers in Nashville, a combination formed "to establish prices on coal at Nashville, Tenn., and to change same from time to time, as occasion may require." The combination agreement provided a penalty for selling below the prices so fixed. The court held that this combination was in restraint of interstate commerce, and constituted also an attempt to monopolize the coal business between the State of Kentucky and Nashville, Tenn., basing its decision on the agreements to fix prices and not to deal with nonmembers, as the elements constituting restraint.

The court said (p. 436):

These provisions, so far as this combination could do so, fixed the lowest price of coal to consumers in and near Nashville at 13 cents per bushel, and prevented coal being sold there at a cheaper rate, no matter how much less it might cost in an open and unobstructed market. Nor is this all. The exchange ordains that "owners or operators of mines shall not sell or ship coal to any firm, person, or corporation in Nashville or West Nashville or East Nashville who are not members of this exchange, and dealers shall not buy coal from any one who is not a member of the exchange." The coal trade is confined, so far as the market supply is concerned, to transactions between the miner and dealer, the prices are fixed by them, and the miner and dealer only are eligible to membership. The miners of the concern can not sell to any dealer in or near Nashville who is not a party to the agreement, nor can such dealer purchase coal of any miner anywhere who is not a member of the body. The operations of both are confined within the membership. So far as Nashville is concerned, they can not go to cheaper or more favorable markets, or deal with those who would give more favorable terms. The restraint is positive and undeniable.

UNITED STATES v. SWIFT & Co. (196 U. S., 375), SUPREME COURT, 1905.-This was a suit in equity by the Government for an injunction against Swift & Co. and other packing companies controlling about 60 per cent of the trade in fresh meat in the United States. The

Government charged a combination of a dominant portion of the dealers in fresh meat throughout the United States not to bid against each other in the live-stock markets of the different States; to bid up prices for a few days in order to induce the cattlemen to send their stock to the stockyards; to fix prices at which they sell, and to that end to restrict shipments of meat when necessary; to establish a uniform rule of credit to dealers, and to keep a blacklist; to make uniform and improper charges for cartage; to get less than lawful rates from railroads to the exclusion of competitors; and to conspire with one another and with the railroads, and with others, to monopolize the supply and distribution of fresh meat throughout the United States. A demurrer to the declaration was overruled, the court holding that such a combination is within the prohibitions of the Sherman Act. In granting the preliminary injunction sought by the Government, the circuit court said (122 Fed., 534):

Whatever combination has the direct and necessary effect of restricting competition, is, within the meaning of the Sherman act as now interpreted, restraint of trade.

Thus defined, there can be no doubt that the agreement of the defendants to refrain from bidding against each other in the purchase of cattle, is combination in restraint of trade; so also their agreement to bid up prices to stimulate shipments, intending to cease from bidding when the shipments have arrived. The same result follows when we turn to the combination of defendants to fix prices upon, and restrict the quantities of meat shipped to their agents or their customers. Such agreements can be nothing less than restriction upon competition, and, therefore, combination in restraint of trade; and thus viewed, the petition, as an entirety, makes out a case under the Sherman act.

The Supreme Court affirmed the opinion of the lower court, basing its opinion on all the facts taken together, of which price fixing was an important element, and said in part (pp. 396 and 400):

The scheme as a whole seems to us to be within reach of the law. The constituent elements, as we have stated them, are enough to give to the scheme a body and, for all that we can say, to accomplish it. Moreover, whatever we may think of them separately when we take them up as distinct charges, they are alleged sufficiently as elements of the scheme. It is suggested that the several acts charged are lawful and that intent can make no difference. But they are bound together as the parts of a single plan. The plan may make the parts unlawful.

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Under the act it is the duty of the court, when applied to, to stop the conduct. The thing done and intended to be done is perfectly definite: with the purpose mentioned, directing the defendants' agents and inducing each other to refrain from competition in bids. The defendants can not be ordered to compete, but they properly can be forbidden to give directions or to make agreements not to compete. See Addyston Pipe & Steel Co. v. United States, 175 U. S., 211. The injunction follows the charge.

Section 17. Agreements to limit output.

Agreements to limit output have sought to accomplish as effectively the same end-higher prices-as the more direct methods of price fixing. To curtail production has been one of the objects of many association agreements.