TRUST LAWS AND UNFAIR COMPETITION.

CHAPTER I.

BRIEF HISTORICAL VIEW OF ANTITRUST LEGISLATION.

Section 1. Introductory.

Efforts to obtain monopolistic control of the market have existed to a greater or less extent in almost all periods of civilization. The general existence of legislation against such efforts is itself evidence of this fact. The degree to which monopolistic conditions have arisen from time to time has depended on a great variety of complex economic conditions and also on the general character of the laws regulating property and business. The opposing tendencies of competition and of monopoly, however, have almost always been present. The recent development of large combinations and monopolies in the United States, as well as in various foreign countries, has been especially striking, because it followed an era in which competition had been strongly developed. This pronounced competitive era was apparently the result of several historical circumstances, among which may be mentioned the development of the factory system of production, the improvement of means of transportation and communication, the development of more liberal laws of commercial intercourse between nations, and the influence of the economic doctrine of free trade and free industry.

In the United States in the early part of the nineteenth century, competition was more limited locally than to-day, and in particular places was apparently often modified to a considerable extent by local understandings among competitors as well as by the natural limitation of competition through the protection afforded by costs of transportation, difficulty of communication, etc. With the improvement in means of transportation and communication, and the development of nation-wide and world-wide competition, the protection. afforded to particular concerns by local position or local understandings disappeared to a large extent and gave rise to efforts at combination and control of the market on a larger scale.

The problem of monopoly in the present day, therefore, is not a new one, although the material interests involved in a particular

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case may be of much greater magnitude. Legislation for the purpose of destroying monopoly to-day, as in former historical periods, is only one of the factors to be relied on, because as long as the fundamental laws of property and of trade contemplate and favor a system of individual activity and free contract the power of competition will assert itself to a wide extent, even though monopolistic agreements are not prohibited. Furthermore, if the law, while allowing free contract in general, prohibits such kinds of contracts and associations as have the express purpose or tendency to create in a monopolistic control of the market, competition will be stimulated and monopoly generally prevented.

Section 2. English law regarding monopolies and restraint of trade. MONOPOLIES BY CROWN PATENT.-Under the Tudors the Crown developed the practice of granting patents of monopoly for the general trade of the country for the enrichment of courtiers and capitalists. These grants became particularly numerous and obnoxious in the time of Elizabeth, and in 1601, after Parliamentary protest, many of them were abolished. In 1602 was decided the so-called Case of Monopolies (Darcy v. Allen, 11 Coke, 84). The court declared illegal a Crown patent of monopoly for making playing cards as contrary to the common law and to divers acts of Parliament (c. g., 9 Edward III, cap. 1, 2; 25 Edward III, cap. 2). It enumerated the evils of monopoly as tending (1) to increase prices, (2) to deteriorate the quality of commodities, and (3) to reduce artificers to idleness and beggary. Nevertheless, the grants of monopolies by Crown patent continued on an even larger scale in the reign of James I, and this led to the passage of the Antimonopoly Act of 1624 (21 James I, cap. 3). This act abolished many monopolies, but specially sanctioned some of them. Moreover, this law was frequently disregarded thereafter. The Long Parliament in 1640 declared most of the monopolies void, but some continued in existence and others were created during the period of the Restoration. Monopoly by patent of the Crown was finally abolished in 1689. Monopoly by act of Parliament remained lawful, but this power has not been exercised with respect to trade in Great Britain.

ENGROSSING, REGRATING, FORESTALLING, PRICE AGREEMENTS, ETC.— There were various ancient criminal statutes against engrossing, regrating, and forestalling, as for example, 5 and 6 Edward VI, cap. 14 (1552). These laws were repealed by 12 George III, cap. 71 (1772). Briefly, the elements of these offenses at the common law, as defined by Coke and Hawkins, were as follows: Engrossing consisted in the buying up of large quantities of an article for the purpose of selling it at an unreasonable price; regrating included every practice or device by act, conspiracy, or spreading reports for the purpose of enhancing the prices of victuals; forestalling consisted in

buying victuals on the way to market with the purpose of selling them at higher prices. Under the common law such acts remained criminal until the law was amended by 7 and 8 Victoria, cap. 24 (1844). The only relic of these criminal laws, apparently, is the prohibition against attempts to affect prices by spreading false reports or by preventing goods from being brought to market by force or by threats. There were also ancient criminal statutes against conspiracies and agreements to fix prices and the wages and hours of labor, for example, 2 and 3 Edward VI, cap. 15 (1549). These were repealed by 5 George IV, cap. 95 (1824).

AGREEMENTS IN RESTRAINT OF TRADE TENDING TO FIX PRICES OR TO CONTROL THE MARKET.-The ancient common-law rule that agreements tending to fix prices or control the market may be null and void as in restraint of trade appears, however, to be still in force in England, though considerably modified by recent decisions.

Most of the cases on restraint of trade relate to covenants for the sale of a business and the subsequent abstention of the seller from competition with such business, or between an employer and an employee, whereby the latter agrees not to compete in certain ways after the expiration of his time of service, and do not relate to the question of control of the market, price fixing, etc. The early rule for such contracts appears to have been that any contract by which a trader or artisan sold his business and agreed not to engage in his occupation in any part of the kingdom was void, because it tended to make him a public charge and deprived the public of his services. Such consequences made it an unreasonable agreement from the point of view of such person, and also made it contrary to public policy. The buyer was held not to be entitled to any more protection from future competition than was necessary to make the contract an equitable one to him. While the particular rules as to what terms were to be regarded as unreasonable and what terms as against public policy were changed considerably in the course of time with changing economic conditions and opinions, these two judicial principles of the reasonableness of the restrictions imposed with respect to the interests of the parties and of the public policy of such restrictions have continued to be regarded by the courts down to the present time. In the development of the doctrine the question of reasonableness was one that related primarily to the contracting parties, and not to the public. However, any decision as to public policy necessarily involved the reasonableness of the terms of the agreement from the public point of view. Restraint of trade in this form is, however, of only incidental importance with relation to the question of monopolistic agreements.

The cases in English law which relate to monopolistic agreements are not numerous, and, although a price agreement has been declared

void, it is not clear how far such agreements are valid or invalid. A brief statement of the recent cases on this subject is given in Chapter V (pp. 233-238).

The connection between the ideas of monopoly, engrossing, and restraint of trade, as they developed in the English law, was set forth in the opinion of Chief Justice White in the Standard Oil case,' as follows:

(a) It is certain that at a very remote period the words "contract in restraint of trade" in England came to refer to some voluntary restraint put by contract by an individual on his right to carry on his trade or calling. Originally all such contracts were considered to be illegal, because it was deemed they were injurious to the public as well as to the individuals who made them. In the interest of the freedom of individuals to contract this doctrine was modified so that it was only when a restraint by contract was so general as to be coterminus with the kingdom that it was treated as void. That is to say, if the restraint was partial in its operation and was otherwise reasonable the contract was held to be valid:

(b) Monopolies were defined by Lord Coke as follows:

"A monopoly is an institution, or allowance by the King by his grant, commission, or otherwise to any person or persons, bodies politic or corporate, of or for the sole buying, selling, making, working, or using of anything, whereby any person or persons, bodies politic or corporate, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade."

The frequent granting of monopolies and the struggle which led to a denial of the power to create them, that is to say, to the establishment that they were incompatible with the English constitution is known to all and need not be reviewed. The evils which led to the public outcry against monopolies and to the final denial of the power to make them may be thus summarily stated: (1) The power which the monopoly gave to the one who enjoyed it to fix the price and thereby injure the public; (2) the power which it engendered of enabling a limitation on production; and, (3) the danger of deterioration in quality of the monopolized article which it was deemed was the inevitable resultant of the monopolistic control over its production and sale. As monopoly as thus conceived embraced only a consequence arising from an exertion of sovereign power, no express restrictions or prohibitions obtained against the creation by an individual of a monopoly as such. But as it was considered, at least so far as the necessaries of life were concerned, that individuals by the abuse of their right to contract might be able to usurp the power arbitrarily to enhance prices, one of the wrongs arising from monopoly, it came to be that laws were passed relating to offenses such as forestalling, regrating and engrossing by which prohibitions were placed upon the power of individuals to deal under such circumstances and conditions as, according to the conception of the times, created a presumption that the dealings were not simply the honest exertion of one's right to contract for his own benefit unaccompanied by a wrongful motive to injure others, but were the consequence of a contract or course of dealing of such a character as to give rise to the presumption of an intent to injure others through the means, for instance, of a monopolistic increase of prices.

As by the statutes providing against engrossing the quantity engrossed was not required to be the whole or a proximate part of the whole of an article, it is clear that there was a wide difference between monopoly and engrossing, etc. But as the principal wrong which it was deemed would result from monopoly, that is, an enhancement of the price, was the same wrong to which it was thought the prohibited engross

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ment would give rise, it came to pass that monopoly and engrossing were regarded as virtually one and the same thing. In other words, the prohibited act of engrossing because of its inevitable accomplishment of one of the evils deemed to be engendered by monopoly, came to be referred to as being a monopoly or constituting an attempt to monopolize.

And by operation of the mental process which led to considering as a monopoly acts which although they did not constitute a monopoly were thought to produce some of its baneful effects, so also because of the impediment or burden to the due course of trade which they produced, such acts came to be referred to as in restraint of trade.

Generalizing these considerations, the situation is this: (1) That by the common law monopolies were unlawful because of their restrictions upon individual freedom of contract and their injury to the public. (2) That as to necessaries of life the freedom of the individual to deal was restricted where the nature and character of the dealing was such as to engender the presumption of intent to bring about at least one of the injuries which it was deemed would result from monopoly, that is an undue enhancement of price. (3) That to protect the freedom of contract of the individual not only in his own interest, but principally in the interest of the common weal, a contract of an individual by which he put an unreasonable restraint upon himself as to carrying on his trade or business was void. And that at common law the evils consequent upon engrossing, etc., caused those things to be treated as coming within monopoly and sometimes to be called monopoly and the same considerations caused monopoly because of its operation and effect, to be brought within and spoken of generally as impeding the due course of or being in restraint of trade.

Section 3. Law regarding monopolies and restraint of trade in the United States prior to the Antitrust Act.

COMMON LAW REGARDING RESTRAINT OF TRADE AND MONOPOLY.The common law in the United States has been interpreted to restrict the right of contract more extensively than in England, particularly in regard to the limitations imposed by public policy.

Prior to 1890 the usual kind of contract in restraint of trade with the purpose of limiting competition and obtaining control of the market, or monopoly, was an agreement regarding production or prices, or a pool. The legal "trust," which was first applied to this purpose about 1880, as well as the method of holding companies, which came into use a few years after, will be considered below. Such agreements or pools took various forms, but generally provided for some system of restricting output, cornering the supply, dividing markets, fixing prices, dividing profits, or establishing a common selling agency. Buying out competitors in a wholesale way was apparently of rare occurrence. Such agreements have almost always been held in restraint of trade and void as against public policy. A large number of the decisions made in the United States under the common law, covering various forms of combination, are briefly discussed in Chapter II of this report. (See p.24.)

The development in the United States of the doctrine of restraint of trade and of monopoly at the common law, particularly with relation to such acts as were contrary to public policy and therefore