WHEELER-STENZEL Co. v. NATIONAL WINDOW GLASS JOBBERS' ASSOCIATION (152 FED., 864), CIRCUIT COURT OF APPEALS, 1907.— The facts in this case are stated above (pp. 110, 111). Division of territory was one of the features of the illegal contract, though it is not one that the court called special attention to in its opinion.

UNITED STATES TOBACCO Co. v. AMERICAN TOBACCO Co. (163 FED., 701), CIRCUIT COURT, 1908.-The facts in this case are stated above (pp. 111-112). Apportionment of customers, not territorially but individually, was one of the factors of the agreement which in its entirety was found to be illegal.

Section 20. Agreements to divide earnings or profits.

ADDYSTON PIPE & STEEL Co. v. UNITED STATES (175 U. S., 211), SUPREME COURT, 1899.-As is explained in the preceding section (p. 112), this case dealt with a combination of cast-iron pipe manufacturers. Certain cities were reserved for certain members of the combine; the combine, however, fixed the price on every contract, and also fixed a bonus to be paid into a pool by the member to whom the contract was assigned, which bonus was afterwards divided. In territory covered by the combination, but outside of the reserved cities, when the price on a contract had been fixed by the combination, the contract was assigned to the member who would pay the highest bonus for the privilege of filling it at the price. This bonus also went into the pool for subsequent division. The Supreme Court quoted with approval the following passage from the opinion of the Circuit Court of Appeals (p. 237):

The defendants were by their combination therefore able to deprive the public in a large territory of the advantages otherwise accruing to them from the proximity of defendants' pipe factories and, by keeping prices just low enough to prevent competition by Eastern manufacturers, to compel the public to pay an increase over what the price would have been if fixed by competition between defendants, nearly equal to the advantage in freight rates enjoyed by defendants over Eastern competitors. The defendants acquired this power by voluntarily agreeing to sell only at prices fixed by their committee and by allowing the highest bidder at the secret "auction pool" to become the lowest bidder of them at the public letting. Now, the restraint thus imposed on themselves was only partial. It did not cover the United States. There was not a complete monopoly. It was tempered by the fear of competition and it affected only a part of the price. But this certainly does not take the contract of association out of the annulling effect of the rule against monopolies.1

CONTINENTAL WALL PAPER Co. v. LOUIS VOIGHT & SONS Co. (212) U. S., 227), SUPREME COURT, 1909.-In this case (see p. 91) there was a division of profits through the device of a central company whose shares were distributed among the members of the combine in proportion to their production during the preceding year. The whole output of the members was sold actually or nominally to the central com

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185 Fed., 292–293.

pany in such a way that practically the whole profit accrued to it. The result was that profits were finally divided, not with any relation to the current business of the several members of the combine, but in proportion to their output during the year before the combine was formed. The Supreme Court said (p. 255):

That the combination represented by the plaintiff company is within the prohibitions of the above act of Congress is clear from the facts admitted by the demurrer. We assume, therefore, without discussion-for discussion is unnecessary-that there is a combination, of which the Continental Wall Paper Company is the representative, and that, in violation of that act, such combination was formed with the intent, and will have the effect, directly, to restrain as well as monopolize trade and commerce among the several States and with foreign nations as involved in the manufacture, sale and transportation of wall paper among the several States and with foreign nations.

UNITED STATES v. MACANDREWS & FORBES Co. (149 FED., 823), CIRCUIT COURT, 1906.-An agreement that a subsidiary of the American Tobacco Co., manufacturing licorice paste, should receive part of the profits of an outside manufacturer thereof, was one of the elements of illegality considered in this case. (See p. 111.)

Section 21. Corners.

Attempts to "corner the market," for the purpose of raising the price of the commodity so cornered, have been held by the Supreme Court to be illegal under the Sherman Act.

UNITED STATES v. PATTEN (226 U. S., 525), SUPREME COURT, 1913.— James A. Patten and others were indicted for alleged violation of the Sherman Law. The indictment charged in substance that Patten and others had entered into a combination agreement to severally purchase enough cotton to enable them to control the price of cotton, and were engaged in a conspiracy in restraint of interstate commerce by doing what is commonly called running a corner in that commodity. The important question raised by the defendant's demurrer to the indictment was whether a conspiracy to run a corner in the available supply of a staple commodity, such as cotton, normally a subject of trade and commerce among the States, and thereby to enhance artificially its price throughout the country and to compel all who have occasion to obtain it to pay the enhanced price or else to leave their needs unsatisfied is within the terms of section 1 of the Sherman Act.

The circuit court answered this question in the negative. The Supreme Court of the United States reversed the decision of the court below by answering this question in the affirmative. The Supreme Court said in part (p. 541):

Section 1 of the act, upon which the counts are founded, is not confined to voluntary restraints, as where persons engaged in interstate trade or commerce agree to suppress competition among themselves, but includes as well involuntary restraints, as where

persons not so engaged conspire to compel action by others, or to create artificial conditions, which necessarily impede or burden the due course of such trade or commerce or restrict the common liberty to engage therein.

* * *

It may well be that running a corner tends for a time to stimulate competition; but this does not prevent it from being a forbidden restraint, for it also operates to thwart the usual operation of the laws of supply and demand, to withdraw the commodity from the normal current of trade, to enhance the price artificially, to hamper users and consumers in satisfying their needs, and to produce practically the same evils as does the suppression of competition.

It was a conspiracy to run a corner in the market. The commodity to be cornered was cotton, a product of the Southern States, largely used and consumed in the Northern States. It was a subject of interstate trade and commerce, and through that channel it was obtained from time to time by the many manufacturers of cotton fabrics in the Northern States. The corner was to be conducted on the Cotton Exchange in New York City, but by means which would enable the conspirators to obtain control of the available supply and to enhance the price to all buyers in every market of the country. This control and the enhancement of the price were features of the conspiracy upon the attainment of which it is conceded its success depended. Upon the corner becoming effective, there could be no trading in the commodity save at the will of the conspirators and at such price as their interests might prompt them to exact. And so, the conspiracy was to reach and to bring within its dominating influence the entire cotton trade of the country.

Bearing in mind that such was the nature, object and scope of the conspiracy, we regard it as altogether plain that by its necessary operation it would directly and materially impede and burden the due course of trade and commerce among the States and therefore inflict upon the public the injuries which the Anti-trust Act is designed to prevent.1

Section 22. Patents-Use in violation of Sherman Law.

NATIONAL HARROW Co. v. HENCH (83 FED., 36), CIRCUIT COURT OF APPEALS, 1897. Several manufacturers of harrows under various United States patents assigned to the National Harrow Co. the patents severally owned by them, together with good will, agreeing among other things not to be interested in the manufacture or sale of such harrows except as agents or licensees of said corporation. The National Harrow Co. issued licenses to the several manufacturers, subject to uniform terms and conditions; its licensees manufactured and sold at least 90 per cent of such harrows made in the United States. The licenses so issued prohibited, among other things, the cutting of prices, and provided that the licensees should not sell other harrows than those authorized by the licenses. Hench and Dromgold, parties to the arrangement, sold harrows in violation of the terms of the licenses issued to them. This was a suit in equity by the Harrow company against Hench and Dromgold for an injunction, for specific performance of said license contracts and for an accounting. As a defense to the suit Hench and Dromgold pleaded that the license contracts were in unreasonable restraint of trade and were a part of an

1226 U. S., 541-543.

unlawful combination to destroy competition and maintain high prices. The relief prayed for was denied (76 Fed., 667) and an appeal was taken to the Circuit Court of Appeals. The judgment of the circuit court was affirmed. The court held that the arrangement was an unlawful combination in restraint of trade.

It will be perceived that the corporation through whose instrumentality the purposes of the combination are effected is simply clothed with the legal title to the assigned patents, while the several assignors are invested with the exclusive right to manufacture and sell their old style of harrows under their own patents; but all of. them must sell at uniform prices and upon the same terms, without respect to cost or the merits of their respective styles of harrows, and all the members of the combination are strictly forbidden to manufacture or sell any other style or kind of float spring-tooth harrow than they are thus licensed to make and sell.

* * *

It is true that a patentee has the exclusive control of his invention during the life of the patent. He may practice the invention or not, as he sees fit, and he may grant to others licenses upon his own terms. But where, as was the case here, a large number of independent manufacturing concerns are engaged in making and selling, under different patents and in various forms, an extensively used article, competition between them is the natural and inevitable result, and thereby the public interest is promoted. Therefore, a combination between such manufacturers, which imposes a widespread restraint upon the trade, and destroys competition, is as injurious to the community, and as obnoxious to sound public policy, as if the confederates were dealing in unpatented articles. * I am constrained to regard the license contracts sued on as part of an illegal combination, and in unwarrantable restraint of trade. I must, therefore, deny the plaintiff the relief sought.1

* *

STANDARD SANITARY MANUFACTURING Co. v. UNITED STATES (226 U. S., 20), SUPREME COURT, 1912.-The Standard Sanitary Manufacturing Co. and 15 other manufacturers of sanitary enameled ironware combined in the form of an association. Certain patents for enameling devices were assigned to one Wayman, secretary of the association, who issued licenses to the various manufacturers, members of the association, to manufacture such ware. Prior to this such manufacturers were independent and competitive. By agreements they subjected themselves to certain rules and regulations, among others not to sell their product to the jobbers except at a price fixed not by competitive trade conditions, but by the decision of a committee of six of their number, of which Wayman was chairman, and sale zones were established and prices fixed in each of them. A jobber could not obtain enameled ware from any manufacturer who was in the combine unless he entered the combination, and the condition of entry was not to resell to plumbers except at prices fixed in the jobber's license agreement. The potency of the scheme. was established by the cooperation of 85 per cent of the manufacturers, and their fidelity to it was secured not only by trade advantages but by a provision for the return of 80 per cent of the royalties if the agreement was faithfully observed. The jobbers also were entitled to certain rebates for the faithful observance of their engagements.

1 76 Fed., 669-670.

It was testified that 90 per cent of the jobbers in number and more than 90 per cent in purchasing power joined the combination. This was a suit in equity by the Government to dissolve the alleged combination upon the grounds that it was a violation of the Sherman Act. A decree was entered in favor of the Government in the circuit court, and on appeal to the Supreme Court of the United States the decree was affirmed. The court held that a trade agreement involving the right of all parties thereto to use a certain patent which transcends what is necessary to protect the use of the patent or the monopoly thereof as conferred by law and which controls the output and the price of goods manufactured by all those using the patent, is illegal under the Sherman Act. The court said in part (pp. 48-49):

The agreements clearly, therefore, transcended what was necessary to protect the use of the patent or the monopoly which the law conferred upon it. They passed to the purpose and accomplished a restraint of trade condemned by the Sherman law.

* * *

The agreements in the case at bar combined the manufacturers and jobbers of enameled ware very much to the same purpose and results as the association of manufacturers and dealers in tiles combined them in Montague & Co. v. Lowry, 193 U. S. 38, which combination was condemned by this Court as offending the Sherman law. The added element of the patent in the case at bar cannot confer immunity from a like condemnation, for the reasons we have stated. * * * Rights conferred by patents are indeed very definite and extensive, but they do not give any more than other rights an universal license against positive prohibitions. The Sherman law is a limitation of rights, rights which may be pushed to evil consequences and therefore restrained.

Section 23. Agreements to fix resale prices.

Agreements to fix resale prices differ from ordinary agreements of competitors to fix prices, in that the manufacturer fixes the price at which the jobbers or retailers shall sell the articles bought from him. Such resale agreements are common in many lines of industry. The courts have passed upon some of them, usually in connection with other illegal features of contracts in question, but frequently pointing out the fixing of resale prices as an important element in the restraint or monopoly passed upon. Many cases concerning resale prices have been adjudicated under the patent law, but these are not considered here, inasmuch as this section is confined solely to the interpretation of the Sherman Act with respect to resale prices.

Agreements to fix resale prices in a number of cases have been held to be illegal under the Sherman Law.1

CONTINENTAL WALL PAPER Co. v. LOUIS VOIGHT & SONS Co. (212 U. S., 227), SUPREME COURT, 1909.-The facts in this case have been already stated. (See p. 91.) It will be recalled that the Continental Wall Paper Co., a combination of manufacturers of wall paper comprising 98 per cent of the production and sales of wall paper in the United

1 Certain recent decisions of inferior Federal courts regarding certain methods of maintaining resale prices are not noted here because made subsequent to Mar. 15, 1915. (See footnote on p. 72.)