This fundamental principle, which not only controls the construction of the act of July 2, 1890, but also the power of congress to enact any legislation concerning commercial combinations, was forcibly illustrated in the case of Addyston Pipe & Steel Co., supra. The combination in that case included both state and interstate commerce. As to such of the defendants as might reside and carry on business in the same state where the pipe provided for in any particular contract was to be delivered, the sale, transportation and delivery of the pipe by them under that contract would be a transaction wholly within the state, and the supreme court said, modifying the judgment of the circuit court of appeals in that respect, that the statute would not be applicable to them in that case. They might make any combination they choose with reference to the contract, although it happened that some non-resident of the state finally obtained it. In the language of the court, in brief, their right to combine in regard to a proposition for pipe, deliverable in their own state, could not be reached by the federal power derived from the commerce clause in the constitution. A combination violative of the act may however include a series of acts, concluded in different states, when they are part of one purpose, as in the purchase and shipment of cattle to control and monopolize commerce between the states.1

§ 85 (76). State holding companies.-The Northern Securities case, supra, was novel in that it decided that the corporation organized under the laws of a state and empowered under its charter to hold the stock of other corporations, was prohibited by this act from holding the stock of competing interstate railroad corporations. The illegal combination was founded upon the fact of control of competing railroads in a single authority and the resulting power of direct suppression of competition through such control. Thayer, J., in the circuit court, said that a state could not invest a corporation organized under its laws to do acts in its name which operate in restraint of trade and commerce, and that the court would not consider whether a combination would be of benefit to the public; but that a corporation organized under the laws of a state to hold the stocks of competing interstate railroad companies was in violation of

1 See Chicago Meat Trust Case, supra.

the Anti-Trust Act, since it destroyed any active form of competition between the two roads, and it was immaterial that each company had its own board of directors.

The holding corporation was condemned in this case, not because it was a "holding corporation" merely, but because it held the stock of subsidiary corporations directly engaged in interstate commerce, and thus controlled competition as between those companies. The act, as such, has nothing to do with holding corporations, where the subsidiary corporations are not engaged as competitors directly in interstate commerce. The right of the holding corporation in other cases depends upon the authorization of its own charter and the laws of the states whereunder the subsidiary companies are organized and do business.

1120 Fed. Rep. 721 (1903).

The organization of a holding corporation made for the purpose of controlling other companies engaged in interstate commerce, though the holding of the stocks of other companies may be duly authorized in its charter, may be the most effective means of eliminating competition and dominating an industry, and thus may be a very material factor in the determination of the fact of restraint of trade and monopolization or attempted monopolization of the market.2 Thus in the Standard Oil obstacles to the effective dealing with the trust problem." He admitted, however, that intercorporate holding was so widely prevalent that justice to the municipal holders of securities issued to the public, based on pledged stocks, acquired and held pursuant to express legal authority, "would require consideration to be given to their case and such exceptions to be made from a prohibition as might be necessary to their protection."

2 It was said by Attorney-General Wickersham, in his Minnesota address, supra,

:

"Probably no one thing has done more to facilitate restraint of trade and the growth of monopoly than a departure from the early rule of law that one corporation cannot own stock in another. That departure was the most baneful result of the 'let us alone' policy in dealing with corporations to which the country abandoned itself during the last thirty years of the nineteenth century. The conditions which have resulted from the exercise of the expressly conferred power in a corporation to take and hold stock in another, present the most serious

It seems that in some cases intercorporate holding has been directly caused by state legislation requiring local incorporation. See also report of National Securities Commission, 1911. See Appendix.

case it was held that the organization of a New Jersey company as a holding company, authorized under its charter to hold the stocks of other companies, was in itself an agency under the facts of that case in effecting unlawful restraint of trade, and its dissolution was decreed. The same principle was applied in the American Tobacco case.

§ 86. Restrictive sales in interstate commerce.-The distinction between contracts directly and substantially restricting free competition and those which only incidentally and indirectly restrain trade has been illustrated in successive decisions of the circuit court of appeals of the eighth circuit, composed of three of the four judges who rendered the opinion in the circuit court in the Northern Securities case and in the Standard Oil case. Thus requirement by a manufacturer that the purchaser of his goods should refrain from dealing with his competitors, such requirement being enforced by a rebate which the purchaser could only secure by dealing solely with the sellers, was held not an unlawful restraint of trade. The court said that the seller had the right to sell his commodities at any price, and to fix the prices and terms upon which he would sell them to the persons with whom he made contracts of sale, and that he was deprived of none of these rights by the Anti-Trust Act. There was no competition between the plaintiff and the defendant, and therefore no restriction of competition by the contract.2

The same court held that a contract of sale by a manufacturer to jobbers of goods to be shipped across state lines to the latter, whereby the parties agreed that the jobber should not sell, ship or allow any of the goods thus purchased to be shipped outside of a certain state, was not in restraint of trade or illegal.

4

It was held by the same court that the organization of a

1 See supra, p. 122. See also opinion of Sanborn, J., and especially the concurring opinion of Hook, J., where especial stress is laid upon the efficiency of the New Jersey holding corporation as a factor in the restraint of trade in this case.

2 Whitewell v. Continental Tobacco Co., 125 Fed. Rep. 454 (1903).

3 Phillips v. Viola Portland Cement Co., 125 Fed Rep. 593 (1903).

+ Arkansas Brokerage Co. V. Dunn, 173 Fed. Rep. 989 (1909).

number of mercantile jobbers in the same state of a brokerage company and the purchase of merchandise required by the manufacturers through such company, instead of through other companies, although there was no agreement binding them to do so, was not an unlawful combination under the act, but a legitimate and lawful business enterprise.1

In each of these cases it was held that it was no restraint of competition by a contract. The reasoning of the opinions in these cases excludes from the act the so-called "Factors Agreement" or any form of agreement whereby the seller seeks to control through rebates or otherwise the trade of his own customers against competitors.2

The contracts involved in these cases however must be distinguished from those wherein the manufacturer through socalled "Agency Contracts" or otherwise seeks to fix the prices for future sales made by purchasers, after he has parted with title to the property sold. This was declared in the so-called Patent Medicine case, where the court held that contracts between a manufacturer and all dealers, whom he permitted to sell his products, comprising most of the dealers in similar articles throughout the country, which fixes the prices for the sales whether wholesale or retail made by the dealers, operated as a restraint of trade, unlawful both at common law and as to interstate commerce under the Anti-Trust Act, even though such articles may be proprietary medicines made under secret formulae.

1 See also Virtue v. Creamery Package Mfg. Co., 179 Fed. Rep. 115 (1910).

2 The same court in Passaic Print Goods Co. v. Ely & Walker Dry Goods Co., 44 C. C. A. 426, and 105 Fed. Rep. 163, 62 L. R. A. 673 (1900), held that a merchant did not subject himself to liability of an action for damages to a manufacturer by sending circulars to the retail trade offering a small quantity of such manufacturer'sproducts, which he owned, at a cut price for the purpose of destroying or injuring such manufac

turer's trade and depressing his goods in the market, and that merchant could not be held liable for a conspiracy by offering goods of a certain manufacturer, which they owned, at a cut price for the purpose of injuring his trade or depressing the market price of his product, Sanborn, J., dissenting. The court in this case discussed and applied the rule of Allen v. Flood, 1 A. C. (1898) 1.

8 Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, 55 L. Ed. (1911), affirming 164 Fed. Rep. 803.

The same ruling has been made under the copyright statutes, although the owner of the copyright has the sole right to vend copies of the copyrighted production.1

§ 87 (74). No distinction as to commodities subject of contract. In the opinion of the circuit court of appeals in the Continental Tobacco Company case, supra, it is said that tobacco, the subject of the contract in question, was not an article of "prime necessity," such as grain or coal. This was doubtless said in view of the recognized principle that the subject of the contract will be considered in the determination of the reasonableness of contracts in restraint of trade. The question in such cases is whether the public welfare is involved, and if not, whether under the particular circumstances of the case the restraint upon one party is not greater than the protection to the other requires. In determining the enforcibility at common law of a contract, it might be material that it related to a subject of "prime necessity" in a restricted territory, and this might be a circumstance affecting the reasonableness of the restraint. This fact has also been held material in determining whether combinations are injurious to trade or commerce in the jurisdictions where the common law of conspiracy prevails.

2

1 Bobbs-Merrill Co. v. Strauss, 210 U. S. 339, 52 L. Ed. 1086 (1910). A different rule has been applied in the cases of lawful monopoly of patent rights. See Bement & Sons v. National Harrow Co., 186 U. S. 206, 46 L. Ed. 1058 (1902). See infra, § 452.

2 Fowle v. Park, 131 U. S. 88, 1. c. 97 (1889), 33 L. Ed. 67; Gibbs v. Consolidated Gas Co., 130 U. S. 396 (1888), 32 L. Ed. 979. See also Oliver v. Gilmore, 52 Fed. Rep. 563 (1892).

8 It was said, however, by Taft, J., in the Addyston Pipe & Steel Co. case, supra, that the cases showed that the common-law rule against restraint of trade extended to all

articles of merchandise, and that the introduction of the distinction (of articles of prime necessity) only furnished another opportunity for courts to give effect to the varying economical views of its members. It might be difficult to say why it was any more important to prevent restraints of trade in beer, mineral water, leather, or cloth, than of trade in certain shades of glue.

4 In People v. Sheldon, 139 N. Y. 251 (1893), a combination of coal dealers was held an unlawful conspiracy under a statute making it a misdemeanor to conspire to commit any act injurious to trade or commerce.