METHODS OF COMPETITION PROHIBITED BY DECREES UNDER THE

SHERMAN LAW.

Section 13. General statement.

A number of specific competitive methods have been prohibited in decrees entered under the Sherman law, and in some instances the courts have in terms denounced them as unfair. These decrees have been entered in two classes of cases (1) where the suits have been contested, and (2) where, before final hearing, the parties have agreed on the terms of the decree.

Where the courts have held that the defendants have violated the law and the terms of the injunction have been contested by counsel, the practices prohibited are presumably within the condemnation of the statute, at least when considered in connection with the surrounding facts and circumstances. This is particularly true where cases have been appealed and the terms of the decrees have been approved by the higher courts.

By far the greater number of prohibitions of unfair competitive methods, however, are found in "consent decrees." The usual procedure in such cases has been for the Government to file a bill setting forth the organization of the offending combination, association, or other defendant, the violation of law complained of, and the competitive methods employed by the defendants. The latter coming into court have admitted a technical violation of the act and have agreed to the terms of a decree satisfactory to the Department of Justice. Under these circumstances it is possible that the courts have not scrutinized the injunctions with the same degree of care exercised in cases where the terms of the decree have been objected to by the defendants, and while such decrees are binding on the parties, it is open to question whether all the competitive methods prohibited are in themselves violations of the Sherman law. Moreover, in practically every decree a number of competitive practices have been forbidden and it can not therefore be determined whether, taken separately, any one of them would have been prohibited. Furthermore, the use of the competitive methods in a given case should be considered in the light of surrounding circumstances, such as the character of the defendant, whether a corporate or other form of combination, the percentage of the industry controlled by it, and other related facts. But while the legality of particular competitive methods probably can not be determined from these decrees, they show at least that the methods prohibited are unfair in the opinion of the officials charged with the administration of the antitrust act, and, inferentially, also in the opinion of the courts signing the decrees. Moreover, where, as sometimes occurs, a particular practice has been prohibited in a number of decrees and under vary

ing circumstances additional weight is given to the conclusion that the practice is of itself unlawful.

The important competitive methods that have been prohibited are set out below.

Section 14. Price Cutting.

IN GENERAL.-The defendants in United States v. Central-West Publishing Co. et al. were enjoined1 from underselling any competing service and from selling any part of their service at less than a fair and reasonable price, or at less than a fair and reasonable profit, or at cost, or less than cost, with the purpose or intent of injuring or destroying the business of any competitor.

In February, 1915, the Great Lakes Towing Co. and others were enjoined from, among other things, "engaging in so-called 'rate wars,' or making competitive cuts from its regular schedule of tariff rates, relating to any kind of services furnished by the towing company, except that to meet (but only to meet, and not to go below,) actual rates made by the competitor or competitors for the same kind and quality of service, the towing company may cut not exceeding 25 per cent from its regular tariff rates"; and it was provided further, "that such cut shall not reduce the rate below the actual cost of such service, nor shall it be made in any case under circumstances constituting in fact unfair or fraudulent competition."

BONUSES.-The American Thread Co. and the other defendants in that case were enjoined 1" from offering in the United States a bonus or gift in the form of free goods of any kind as an inducement to any class of customers to purchase defendants' threads, except that the defendants or any of them may in good faith give or offer to give or distribute samples in reasonable quantities in order to introduce their threads and establish new trade, and except that they may offer and give free samples to actual purchasers for bona fide distribution among consumers: provided, however, that such samples to purchasers shall not exceed 5 per cent of their purchases at any one time."

Section 15. Price discriminations.

IN GENERAL.—The General Electric Co., and the other defendants in that case, were enjoined 1" from maintaining, by agreement, differentials between lamps which do not in fact differ in quality or efficiency."

BETWEEN LOCALITIES (LOCAL PRICE CUTTING).-In a suit against the American Thread Co. and others engaged in the manufacture and sale of thread, the defendants were restrained1 from selling or offer

1 Consent decree.

ing thread below the cost of production, or at prices which, after allowing for differences in cost of transportation, grade, quality, or quantity sold, were lower than the prices charged in other parts of the United States, with the intent of thereby obtaining a monopoly or destroying or injuring the trade or business of another or preventing another from engaging in the thread business.

BETWEEN A COMPETITOR'S CUSTOMERS AND ITS OWN CUSTOMERS.—The defendants in United States v. Central-West Publishing Co. et al. were enjoined from sending out traveling men to influence the customers of competitors so as to secure their trade without regard to price.

The American Coal Products Co., the Barrett Manufacturing Co., and others were prohibited1 from selling coal tar, oil tar, and roofing material at a less price to customers of competitors than they sold them to their own customers when such reduced prices were made with the intention of driving the competitor out of business in any particular section of the United States.

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The General Electric Co. and others were enjoined 1 from "offering or making more favorable prices or terms of sale for incandescent electric lamps to the customers of any rival manufacturer or manufacturers than it at the same time offers or makes to its established trade, where the purpose is to drive out of business such rival manufacturer or manufacturers, or otherwise unlawfully to restrain the trade and commerce of the United States in incandescent electric lamps;" but no defendant was enjoined from "making any prices for incandescent electric lamps to meet, or to compete with, prices previously made by any other defendant, or by any rival manufacturer; and nothing in the decree was to be taken in any respect to enjoin or restrain" fair, free and open competition."

In United States v. E. I. duPont de Nemours & Co. et al., certain defendants were enjoined from offering more favorable prices or terms of sale for the products manufactured by them to the customers of any rival than they at the same time offer to their established trade," where the purpose is to unfairly cripple or drive out of business such rival" or otherwise unlawfully to restrain trade, but it was provided that no defendant should be restrained from making any price to meet or to compete with the prices made by any other defendant, or by any rival, and that nothing in the decree should be taken in any respect to enjoin or restrain "fair, free and open competition."

The American Thread Co. and the other defendants in that case were enjoined 1" from offering or giving secret rebates or other secret inducements to any customer of a competitor in the United States."

1 Consent decree.

BETWEEN STOCKHOLDERS AND NONSTOCKHOLDERS.-The Great Lakes Towing Co. and others were enjoined from, among other things, giving to any customer any rate, concession, discount or rebate, except such as are given equally and without discrimination to all customers for the like service, regardless of whether or not such customers are stockholders in the towing company.

BETWEEN COMPETITORS AND NONCOMPETITORS.-The Aluminum Co. of America was enjoined1 from charging higher prices for crude and semifinished products to manufacturers competing with its subsidiaries than it charged under like conditions to such subsidiaries.

BETWEEN CUSTOMERS WHO PURCHASE A SPECIFIED QUANTITY OF GOODS AND THOSE WHO DO NOT.-The American Thread Co. and the other defendants in that case were enjoined from giving or offering to wholesale or retail dealers, jobbers, or consumers of sewing thread, any bonus, rebate or other inducement depending upon the aggregate amount of future purchases to be made by them, or from cooperating with and assisting such dealers to pool their orders to enable them to obtain the benefit of any discount or other concession allowed on a specified quantity of goods; and from offering or giving secret rebates or other inducements to the customers of competitors; and from offering a bonus or free goods as an inducement to any class of customers to purchase their threads.

The Great Lakes Towing Co. and others were enjoined from, among other things, giving to any customer any rate, concession, discount or rebate, except such as are given equally and without discrimination to all customers for the like service, regardless of the amount or proportion of their custom furnished to the towing company.

Section 16. Bogus Independents.

The Central-West Publishing Co. and two corporations controlled by it were enjoined 1" from maintaining any auxiliary plant in any cities of the United States apparently independent, but in fact the property of the Western Newspaper Union, or its officers and stockholders, for the purpose and with the intent of making the newspaper trade generally believe such institutions to be independent." The American Press Association was enjoined from doing similar acts. In United States v. E. I. duPont de Nemours & Co. et al., certain corporate defendants were each enjoined from doing business under any other than its own corporate name or the name of a subsidiary and it was provided that in case of a subsidiary corporation, the controlling corporation should cause the products of such subsidiary 2 Controlled by the Central-West Publishing Co.

1 Consent decree. 30035°-16-31

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which are sold in the United States and bear the name of the manufacturer to bear also a statement indicating the fact of such control. The General Electric Co. was enjoined from conducting, except in its own name, the business carried on by it in incandescent lamps, and it was further decreed that "all factories, plants, and manufacturing and selling departments operated or owned by said General Electric Co., for the manufacture and sale of incandescent lamps, shall be made known to the general public and trade as the property and business of the said General Electric Co.; provided that the General Electric Co. is not prohibited by this decree from preserving and using the trade names of incandescent lamps lawfully manufactured or sold by it, including the trade names now employed" by certain companies mentioned "if it acquires such trade names and the business of manufacturing lamps to which the same are applied; but such names shall be publicly known as the property of the General Electric Co."

In United States v. American Tobacco Co. et al. the defendants were enjoined from "doing business directly or indirectly under any other than its own corporate name or the name of a subsidiary corporation controlled by it; Provided, however, That in case of a subsidiary corporation the controlling corporation shall cause the products of such subsidiary corporation, which are sold in the United States and bear the name of the manufacturer, to bear also a statement indicating the fact of such control.” 2

In United States v. American Coal Products Co. et al. the use of the name of any one-time independent company or any company acquired by the Barrett Manufacturing Co. or the Coal Products Co. was enjoined1 and prohibited on the part of defendant companies or defendant individuals, except as departments of the Barrett Manufacturing Co. and except for the use of any registered trademark which was to be permitted; and such ownership by departments was required to be made public by printing the same on letterheads, billheads, and in advertising.

Section 17. "Fighting ships," "fighting brands," and "flying squadrons."

FIGHTING SHIPS.-It has been a common practice of combinations or conferences of steamship lines to maintain what are termed "fighting ships." These vessels are employed to meet and destroy the competition of other lines, particularly that of lines just enter

1 Consent decree.

2 United States v. American Tobacco Co. et al., 191 Fed., 371, 429 (C. C., 1911). See also Report of the Commissioner of Corporations on the Tobacco Industry, Pt. I, pp. 110-111.

3 Investigation of shipping combinations under H. R. 587, by House Committee on the Merchant Marine and Fisheries, 62d Cong., 2d sess.; Hearings, Vol. II, pp. 1252-1254, 1257; Vol. III, pp. 53-54, 131.