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The ACTING CHAIRMAN. In order to put it in the record, will you describe briefly how the cases arose at the common law-whether between the Government and those who were supposed to defend the public policy, or between individuals who were thought to have been affected by the particular restraint of trade or monopoly?

Mr. KRAUTHOFF. Nearly all the cases in the English courts have been controversies between individuals, certainly so far as contracts in alleged restraint of trade were concerned. Nearly all the English cases to which the Crown was a party involved a charge of monopoly, and were in the nature of quo warranto proceedings or in the nature of criminal proceedings. There is no English case that I recall in which it was undertaken, by means of an equitable action instituted. by the attorney general, to invalidate a contract as being in restraint of trade. At least, I have no recollection now of any such

case.

The ACTING CHAIRMAN. You do not remember of any such case under the common law?

Mr. KRAUTHOFF. I do not.

The ACTING CHAIRMAN. And these offenses against public policy were not criminal acts under the common law?

Mr. KRAUTHOFF. No, except the conspiracy.

The ACTING CHAIRMAN. Of course. Conspiracies, as you have said, are always criminal, no matter what subject they may involve. Mr. KRAUTHOFF. Yes, sir; if the elements of unlawfulness and overt acts be present.

The ACTING CHAIRMAN. What do you understand to be the common-law definition or interpretation of monopoly?

Mr. KRAUTHOFF. It is probable that a common-law monopoly could have been brought into being by an individual; but I believe, if I am not mistaken in my recollection, that the Supreme Court of the United States said, in the recent Standard Oil case that a monopoly within the meaning of the antitrust act involves-involved necessarily a combination or conspiracy; that as the first and second sections were to be read together, an individual could not violate the second section of the statute.

My definition of monopoly, speaking with very great diffidence and much misgiving-and with no hope of being able to succeed in orally expressing the matter accurately-involves this element: It must be a combination the purpose of which is to gain control of a given branch of commerce with the purpose and intent, or with the necessary or actual result, that thereby the public is injured. That, of course, is not the strict definition of a technical common-law monopoly.

The ACTING CHAIRMAN. Do you remember any case at the common law in which what might be called the mere monopolistic powerthat is, the power to control prices, output, or anything of that sort which affects prices-was declared to be illegal and opposed to public policy, without anything further than the existence of the power itself?"

Mr. KRAUTHOFF. I do not recall a decided case to that effect. There is, of course, a general remark which has been so construed in the Trans-Missouri case.

The ACTING CHAIRMAN. I am speaking now of English cases.
Mr. KRAUTHOFF. I do not recall any.

The ACTING CHAIRMAN. You recognize, do you not, that under the decisions or opinions of the Supreme Court of the United States the power to exercise authority, or the influence of a monopoly, is held to be contrary to the second section of the Sherman antitrust law?

Mr. KRAUTHOFF. I am not sure. The question has not, in my judgment, been foreclosed by anything that has been said. While I was waiting here this morning, I read over, for the purpose of refreshing my mind, what Mr. Chief Justice White said on that subject in the Tobacco case. Speaking of the words "restraint of trade" he said:

Applying the rule of reason to the construction of the statute, it was held in the Standard Oil case that as the words "restraint of trade" at common law and in the law of this country at the time of the adoption of the antitrust act only embraced acts or contracts or agreements or combinations which operated to the prejudice of the public interests by unduly restricting competition or unduly obstructing the due course of trade or which, either because of their inherent nature or effect or because of the evident purpose of the acts, etc., injuriously restrained trade, that the words as used in the statute were designed to have and did have but a like significance.

This quotation refers to restraints of trade. In discussing the subject of the law of monopoly in the Standard Oil case, which I have not before me, the Chief Justice treated a restraint of trade prohibited by the first section, and monopoly, prohibited by the second section, as correlative matters. I do not think that the second section was ever intended to declare a thing to be illegal which had no relation to the things forbidden by the first section.

The ACTING CHAIRMAN. Then it is your opinion that a corporation which simply, by reason of its general relations to tradeand size and location and any other characteristics that it may have that its power to fix prices is not necessarily a monopoly? Mr. KRAUTHOFF. To fix its own prices?

The ACTING CHAIRMAN. Fix prices for the whole trade.

Mr. KRAUTHOFF. The main point is whether such fixing of prices is by agreement with or consented to by its competitors. Do you exclude voluntary action by competitors in your question?

The ACTING CHAIRMAN. I exclude that in my question.

Mr. KRAUTHOFF (continuing). Simply because a corporation is large it can not fix prices binding on competitors. There is, of course, the element of abnormal and oppressive reductions in a particular territory.

The ACTING CHAIRMAN. I am not speaking of practices at all. Assuming that the particular corporation bears such relation to the trade in which it is engaged and it has the power to fix prices, not, of course, the legal power to coerce its competitors, but the trade power to coerce its competitors and fix prices-is that a monopoly under the second section of the act, in your opinion?

Mr. KRAUTHOFF. I do not think so. If the prices fixed are oppressive, competition will be greatly strengthened as a result.

The ACTING CHAIRMAN. And from your examination and study. of the opinions of the Supreme Court you believe that it has not reached that length in its interpretation either of the common law or the language of that statute?

Mr. KRAUTHOFF. Yes; I firmly think so. I hoped I had here an extract from an address by Mr. Morawetz, who is a very great au

thority on this branch of the law, delivered very recently, in which I think he takes exactly that position.

The ACTING CHAIRMAN. Then, I take it, that it is also your opinion that, barring vicious practices, such a corporation would not be in restraint of trade.

Mr. KRAUTHOFF. Treating it baldly, as you do, I do not think it would be, and I do not believe it has been so held in respect to a private business.

The ACTING CHAIRMAN. You, then, are plainly of the opinion that the mere power in a corporation or in a system of corporations to fix prices, which means that it has the power to extinguish competition, is not a violation of either section of the antitrust law?

Mr. KRAUTHOFF. I do not concede that the existence of a power to fix the prices on its own products means the elimination of competition. If the concern is able, by reason of its capital, and the brains, ability, and facilities at its command, to manufacture and sell articles at a price which its trade rivals can not meet without bankruptcy, I believe that it is to the public interest that it should have the lower prices.

The ACTING CHAIRMAN. Suppose the corporation was willing to maintain prices, such prices as enabled its competitors to live, and did so, knowing that the competitors would follow the prices adopted by the larger corporation, would that make any difference in your view of the case?

Mr. KRAUTHOFF. Well, if the theory of the statute is that competition should be conserved for the general good of the public and that competitors should be permitted to live, I think in that kind of a case the suggested kind of a monopoly would deserve public gratitude.

The ACTING CHAIRMAN. Do you not recognize that the principal object, if not the only object, of both the common law and the antitrust law has been and is to preserve competition?

Mr. KRAUTHOFF. I do not find the word "competition" in the antitrust act, except in so for as it may be construed to mean that competition shall not be stifled by a resort to methods or means that are in themselves illegal.

The ACTING CHAIRMAN. Do you remember any case, either under the English law or our own law, in which these arrangements, of any form, I care not what their character may be, have been declared unlawful, unless they had the effect of restraining or annihilating competition? I am not now speaking, of course, of monopolies granted by the Crown or granted in our own country by the Government, but I am speaking of arrangements made between individuals, whether corporate or otherwise.

Mr. KRAUTHOFF. The element you mention has usually been urged as one of the facts relied on by complaining competitors.

The ACTING CHAIRMAN. I am not speaking of competitors. I am speaking of competition.

Mr. KRAUTHOFF. I agree with you that the element of stifling competition has been always present, in the sense in which you ask if I know of any case to the contrary.

The ACTING CHAIRMAN. What public welfare, of which you have spoken, in so far as we know, from any decisions that have been rendered, is indissolubly connected with the existence of competition?

Mr. KRAUTHOFF. It is assumed, as a proposition of political economy, that the existence of competition will equalize prices or practices in such a way that injurious consequences will not flow from the possession of power in the larger body.

The ACTING CHAIRMAN. Is there any possible harm that can come to the public from these combinations, save the harm that comes from the annihilation of competition? I am not now speaking of the sociological effect of monopolies or combinations, but I am speaking of the commercial effect.

Mr. KRAUTHOFF. May I answer your question by another question? The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. The rates, for instance, of public-utility corporations are subject to regulation by law, subject to the constitutional inhibition that the rates fixed must not be confiscatory. Assume the case that you mention, of a complete annihilation of competition in respect of any lawful organization, and that the organization alone survives. It has overcome all its competitors, and the facts are indisputable that it is earning upon its property a return so low that if that same return were imposed by legislative enactment upon a public-utility corporation it would be declared to be confiscatory; would you think that was an illegal monopoly?

The ACTING CHAIRMAN. I am not going to answer that question. Mr. KRAUTHOFF. I did not intend, Senator, to ask you to answer it. The ACTING CHAIRMAN (continuing). For this reason: I think we all recognize that the public-utility companies, if not actual monopolies, are in the nature of monopolies, and we have adopted the sociological theory with regard to that very largely, and we have eliminated competition in many other respects from the public-utility companies and have substituted for the power of competition the governmental voice in fixing their rate or their charges for the service which they render. And I have not in my mind, therefore, in assuming the kind of rules that would be applicable and pertinent to public-utility corporations, for in all this hearing we have assumed that they constitute a class by themselves, and that, as a matter of fact, we have substituted governmental regulation or the fixing of prices for the natural force of competition.

Mr. KRAUTHOFF. I only put it as an illustration, not expecting, of course, that you would answer it. I only put it as in the way of implying an answer to your question.

The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. Whether or not the absence or presence of the element of competition was the decisive element to determine the question that was involved. I put to you the question whether if rates imposed upon a public-utility corporation which was subject to regulation were declared to be confiscatory, a private corporation which had succeeded in driving all its rivals from the trade, earning no more and realizing no more, exercising its power, if you please, to no greater extent than to realize a return equal to this confiscatory rate in the case of the public-utilities corporation, could nevertheless justly be declared to be an injurious monopoly within the meaning of the antitrust act.

The ACTING CHAIRMAN. That brings me to a very interesting partof this inquiry. Do you think that a law which declared that any

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thority on this branch of the law, delivered very recently, in which I think he takes exactly that position.

The ACTING CHAIRMAN. Then, I take it, that it is also your opinion that, barring vicious practices, such a corporation would not be in restraint of trade.

Mr. KRAUTHOFF. Treating it baldly, as you do, I do not think it would be, and I do not believe it has been so held in respect to a private business.

The ACTING CHAIRMAN. You, then, are plainly of the opinion that the mere power in a corporation or in a system of corporations to fix prices, which means that it has the power to extinguish competition, is not a violation of either section of the antitrust law?

Mr. KRAUTHOFF. I do not concede that the existence of a power to fix the prices on its own products means the elimination of competition. If the concern is able, by reason of its capital, and the brains, ability, and facilities at its command, to manufacture and sell articles at a price which its trade rivals can not meet without bankruptcy, I believe that it is to the public interest that it should have the lower prices.

The ACTING CHAIRMAN. Suppose the corporation was willing to maintain prices, such prices as enabled its competitors to live, and did so, knowing that the competitors would follow the prices adopted by the larger corporation, would that make any difference in your view of the case?

Mr. KRAUTHOFF. Well, if the theory of the statute is that competition should be conserved for the general good of the public and that competitors should be permitted to live, I think in that kind of a case the suggested kind of a monopoly would deserve public gratitude.

The ACTING CHAIRMAN. Do you not recognize that the principal object, if not the only object, of both the common law and the antitrust law has been and is to preserve competition?

Mr. KRAUTHOFF. I do not find the word "competition" in the antitrust act, except in so for as it may be construed to mean that competition shall not be stifled by a resort to methods or means that are in themselves illegal.

The ACTING CHAIRMAN. Do you remember any case, either under the English law or our own law, in which these arrangements, of any form, I care not what their character may be, have been declared unlawful, unless they had the effect of restraining or annihilating competition? I am not now speaking, of course, of monopolies granted by the Crown or granted in our own country by the Government, but I am speaking of arrangements made between individuals, whether corporate or otherwise.

Mr. KRAUTHOFF. The element you mention has usually been urged as one of the facts relied on by complaining competitors.

The ACTING CHAIRMAN. I am not speaking of competitors. I am speaking of competition.

Mr. KRAUTHOFF. I agree with you that the element of stifling competition has been always present, in the sense in which you ask if I know of any case to the contrary.

The ACTING CHAIRMAN. What public welfare, of which you have spoken, in so far as we know, from any decisions that have been rendered, is indissolubly connected with the existence of competition?

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